<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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)
(FORMERLY REGISTERED AS WESTINGHOUSE AIR BRAKE COMPANY)
<TABLE>
<S> <C>
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, including zip code) (Registrant's telephone number)
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for at least the past 90 days. Yes _X_ No ___.
As of October 23, 2000, 42,870,232 shares of Common Stock of the
registrant were issued and outstanding.
To correct an error, the undersigned registrant hereby amends and
restates Item 1. Financial Statements, Notes to Condensed Consolidated Financial
Statements for the Quarterly Period ended September 30, 2000 (Unaudited) in the
previously filed Quarterly Report on Form 10-Q.
================================================================================
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Notes to Condensed Consolidated Financial Statements
for the Quarterly Period Ended September 30, 2000 (Unaudited)
1. BUSINESS
Westinghouse Air Brake Technologies Corporation (the "Company", "Wabtec") is
North America's largest manufacturer of value-added equipment for locomotives,
railway freight cars and passenger transit vehicles. Our major products are
intended to enhance safety, improve productivity and reduce maintenance costs
for our customers and include electronic controls and monitors, air brakes,
traction motors, cooling equipment, turbochargers, low-horsepower locomotives,
couplers, door controls, draft gears and brake shoes. The Company aggressively
pursues technological advances with respect to both new product development and
product enhancements.
The Company has two reporting segments: Freight Group and Transit Group.
Although approximately 60% of the Company's sales are to the aftermarket, a
significant portion of the Freight Group's operations and revenue base is
generally dependent on the capital replacement cycles for locomotives and
freight cars of the large North American-based railroad companies. The Transit
Group's operations are dependent on the budgeting and expenditure appropriation
process of federal, state and local governmental units for mass transit needs
established by public policy.
2. ACCOUNTING POLICIES
BASIS OF PRESENTATION The unaudited condensed consolidated interim financial
statements have been prepared in accordance with generally accepted accounting
principles and the rules and regulations of the Securities and Exchange
Commission and include the accounts of Wabtec and its majority owned
subsidiaries. These condensed interim financial statements do not include all of
the information and footnotes required for complete financial statements. In
management's opinion, these financial statements reflect all adjustments, which
are of a normal, recurring nature, necessary for a fair presentation of the
results for the interim periods presented. Results for these interim periods are
not necessarily indicative of results to be expected for the full year. Certain
prior period amounts have been reclassified, where necessary, to conform to the
current period presentation.
The Company operates on a four-four-five week accounting quarter, and
accordingly, the quarters end on or about March 31, June 30, September 30 and
December 31.
The notes included herein should be read in conjunction with the audited
consolidated financial statements included in Wabtec's Annual Report on Form
10-K for the year ended December 31, 1999.
REVENUE RECOGNITION Revenue is recognized when products have been shipped to the
respective customers and the price for the product has been determined.
The Company recognizes revenues on long-term contracts based on the percentage
of completion method of accounting. Contract revenues and cost estimates are
reviewed and revised at a minimum quarterly and adjustments are reflected in the
accounting period as known. Provisions are made currently for estimated losses
on uncompleted contracts.
Costs and estimated earnings in excess of billings ("underbillings") and
billings in excess of costs and estimated earnings ("overbillings") on the
contract in progress are recorded on the balance sheet and are classified as
non-current.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires the Company to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual amounts could differ from the
estimates.
OTHER COMPREHENSIVE INCOME Comprehensive income is defined as net income and all
nonowner changes in shareholders' equity. The Company's accumulated other
comprehensive income (loss) consists entirely of foreign currency translation
adjustments. Total comprehensive income (loss) for the three months and nine
months ended September 30, 2000 and 1999 was $(3.6) million and $18.4 million,
and $13.3 million and $63 million, respectively.
<PAGE> 3
3. MERGERS AND ACQUISITIONS
On November 19, 1999, Westinghouse Air Brake Company (WABCO) merged with
MotivePower Industries, Inc. (MotivePower) to form Wabtec. The Company issued
approximately 18 million shares of the Company's Common Stock to former
MotivePower shareholders and reserved approximately 2 million shares for the
contingent exercise of stock options. The transaction was accounted for by the
pooling-of-interests accounting method. Accordingly, the condensed consolidated
financial statements have been restated giving effect to this transaction as if
it had occurred as of the beginning of the earliest period presented.
The combined results of the Company and separate results of WABCO and
MotivePower for the three months and nine months ended September 30, 1999 were
as follows:
Three months ended September 30, 1999:
<TABLE>
<CAPTION>
EXTRAORDINARY NET
In thousands SALES ITEM INCOME
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
WABCO $172,471 -- $12,519
MotivePower 88,410 -- 5,292
------------------------------------------------------------------------------
Combined $260,881 -- $17,811
----------------------------------------------------------------------------------------------------
</TABLE>
Nine months ended September 30, 1999:
<TABLE>
<CAPTION>
EXTRAORDINARY NET
In thousands SALES ITEM INCOME
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
WABCO $557,656 $(469) $37,652
MotivePower 294,347 -- 22,377
------------------------------------------------------------------------------
Combined $852,003 $(469) $60,029
----------------------------------------------------------------------------------------------------
</TABLE>
During 2000 and 1999, the Company completed the following acquisitions:
i) In January 1999, the Company acquired certain assets of G&G
Locotronics, a privately held designer of high voltage electrical
cabinets and control stands for locomotives, for total consideration of
$17.8 million.
ii) In January 1999, the Company acquired 100% of the Common Stock of
Q-Tron, Ltd., a privately held designer and manufacturer of locomotive
electronics equipment, for total consideration of $14.9 million.
iii) In February 1999, the Company acquired the mass transit electrical
inverter and converter product line of AGC System & Technologies, Inc.
of Canada for approximately $960,000.
iv) In July 2000, the Company purchased certain assets of Iron Fireman, a
manufacturer of transportation boiler equipment for $650,000.
These acquisitions were accounted for under the purchase method. Accordingly,
the results of operations of the applicable acquisition are included in the
Company's financial statements prospectively from the acquisition date.
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. Cores inventory is defined as inventory units designated for unit
exchange programs. The components of inventory, net of reserves, were:
-2-
<PAGE> 4
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
In thousands 2000 1999
---------------------------------------------------------------------------------------------
<S> <C> <C>
Cores $ 29,901 $29,999
Raw materials 101,931 99,948
Work-in-process 53,476 47,319
Finished goods 32,788 34,130
-------------------------------------------------------
Total inventory $218,096 $211,396
---------------------------------------------------------------------------------------------
</TABLE>
5. EARNINGS PER SHARE
The computation of earnings per share is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
In thousands, except per share 2000 1999
---------------------------------------------------------------------------------
<S> <C> <C>
BASIC EARNINGS PER SHARE
(Loss) income before
extraordinary item applicable
to common shareholders $ (3,529) $ 17,811
Divided by
Weighted average shares
outstanding 43,415 43,528
Basic earnings (loss) per share
before extraordinary item $ (0.08) $ 0.41
---------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE
(Loss) income before
extraordinary item applicable
to common shareholders $ (3,529) $ 17,811
Divided by sum of
Weighted average shares
outstanding 43,415 43,528
Conversion of dilutive stock
options 24 1,084
----------------------------------
Diluted shares outstanding 43,439 44,612
Diluted earnings (loss) per
share before extraordinary
item $ (0.08) $ 0.40
---------------------------------------------------------------------------------
</TABLE>
-3-
<PAGE> 5
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
In thousands, except per share 2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
BASIC EARNINGS PER SHARE
Income before extraordinary item
applicable to common
shareholders $20,904 $60,498
Divided by
Weighted average shares
outstanding 43,352 43,307
Basic earnings per share before
extraordinary item $ 0.48 $ 1.40
--------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE
Income before extraordinary item
applicable to common
shareholders $20,904 $60,498
Divided by sum of
Weighted average shares
outstanding 43,352 43,307
Conversion of dilutive stock
options 81 1,163
------- -------
Diluted shares outstanding 43,433 44,470
Diluted earnings per share
before extraordinary item $ 0.48 $ 1.36
--------------------------------------------------------------------------------
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Company is subject to a RCRA Part B Closure Permit ("the Permit") issued by
the Environmental Protection Agency (EPA) and the Idaho Department of Health and
Welfare, Division of Environmental Quality relating to the monitoring and
treatment of groundwater contamination on, and adjacent to, the MotivePower
Company facility. In compliance with the Permit, the Company has drilled wells
onsite to retrieve and treat contaminated groundwater, and onsite and offsite to
monitor the amount of hazardous constituents. The Company has estimated the
expected aggregate discounted liability at September 30, 2000, using a discount
rate of 6% for remediation costs to be approximately $4 million, which has been
accrued. The Company was in compliance with the Permit at September 30, 2000.
The Company, through one of its operating subsidiaries, has been named, along
with other parties, as a Potentially Responsible Party (PRP) under the North
Carolina Inactive Sites Response Act because of an alleged release or threat of
release of hazardous substances at the "Old James Landfill" site in North
Carolina. The Company believes unreimbursed costs, if any, associated with the
cleanup activities at this site will not be material and as a result of the
indemnification provisions referred to above and a related insurance policy
which expires January 2002, the Company has not established a reserve for such
costs.
The Company's operations do not use and its products do not contain any
asbestos. Asbestos actions have been filed against the Company, RFPC and Vapor
Corporation. These cases involve products manufactured prior to the time the
Company acquired the RFPC stocks and Vapor assets and while the Company was
under prior ownership. With respect to the actions filed against the Company,
ASI is responsible for administering, defending and paying any liability
associated with the claims. With respect to the actions filed against RFPC, the
claims are covered by insurance. With respect to the actions filed against Vapor
Corporation, the Company has indemnity for liability and defense costs from the
prior owner of the Vapor assets. The Company is not involved with, nor has it
incurred any costs related to, these asbestos claims, other than minimal
processing costs. Management believes that these claims will not be material;
and accordingly, the financial statements do not reflect any costs or reserves
for such claims.
-4-
<PAGE> 6
On February 12, 1999, GE Harris Railway Electronics, LLC and GE Harris Railway
Electronic Services, LLC (collectively, "GE Harris") brought suit against the
Company for alleged patent infringement and unfair competition related to a
communications system installed in Company products. GE Harris is seeking to
prohibit the Company from future infringement and is seeking damages. While this
lawsuit is in the discovery stages, the Company has discussed settlement
alternatives with GE Harris. However, no definitive settlement has been
concluded.
7. EMPLOYEE STOCK OWNERSHIP PLAN TERMINATION
The Westinghouse Air Brake Company Employee Stock Ownership Plan and Trust
(ESOP) terminated August 1, 2000. Cash contributions will be made to the
Company's existing defined contribution 401(k) plan as opposed to Company Common
Stock previously contributed to ESOP participants. In connection with the
termination of the ESOP, the Company anticipates making additional discretionary
cash contributions to former ESOP participants over the next three years, for
which the Company estimates the costs to be $2 million in each of the years.
Additionally, the Company incurred a third quarter 2000 $5.1 million non-cash
charge for the write-off of the related deferred tax asset. This charge is
reported within the caption "Income tax expense" in the statement of operations.
8. 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. Financial information for these segments has
been restated in conjunction with the operational realignment of our
organization pursuant to the merger of WABCO and MotivePower. The business
segments are:
FREIGHT GROUP manufactures products and provides services geared to the
production and operation of freight cars and locomotives, including braking
control equipment, engines, traction motors, on-board electronic components and
train coupler equipment. Revenues are derived from aftermarket and OEM component
sales, locomotive overhauls and from freight car repairs and services.
TRANSIT GROUP consists of products for passenger transit vehicles (typically
subways, rail and buses) that include braking, monitoring, climate control and
door equipment engineered to meet individual customer specifications. Revenues
are derived from OEM component sales and aftermarket sales as well as from
repairs and services.
The Company evaluates its business segments' operating results based on income
from operations before merger and restructuring charges. Corporate activities
include general corporate expenses, elimination of intersegment transactions,
interest income and expense and other unallocated charges. Since certain
administrative and other operating expenses and other items have not been
allocated to business segments, the results in the following tables are not
necessarily a measure computed in accordance with generally accepted accounting
principles and may not be comparable to other companies.
Segment financial information for the three months ended September 30, 2000 is
as follows:
<TABLE>
<CAPTION>
FREIGHT TRANSIT CORPORATE
In thousands GROUP GROUP ACTIVITIES RESTRUCTURING TOTAL
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to external customers $ 184,313 $ 70,850 -- -- $ 255,163
Intersegment sales/(elimination) 2,376 149 (2,525) -- --
-------------------------------------------------------------------------------
Total sales 186,689 70,999 (2,525) -- 255,163
===============================================================================
Income from operations 27,596 6,701 (7,012) (11,452) 15,833
Interest expense and other -- -- (13,431) -- (13,431)
-------------------------------------------------------------------------------
Income before income taxes
and extraordinary item $ 27,596 $ 6,701 $ (20,443) $ (11,452) $ 2,402
===============================================================================
</TABLE>
-5-
<PAGE> 7
Segment financial information for the three months ended September 30, 1999 is
as follows
<TABLE>
<CAPTION>
FREIGHT TRANSIT CORPORATE
In thousands GROUP GROUP ACTIVITIES RESTRUCTURING TOTAL
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to external customers $ 203,170 $ 57,711 -- -- $ 260,881
Intersegment sales/(elimination) 2,939 -- (2,939) -- --
-------------------------------------------------------------------------------------
Total sales 206,109 57,711 (2,939) -- 260,881
=====================================================================================
Income from operations 39,167 5,477 (4,924) -- 39,720
Interest expense and other -- -- (11,759) -- (11,759)
-------------------------------------------------------------------------------------
Income before income taxes
and extraordinary item $ 39,167 $ 5,477 $ (16,683) -- $ 27,961
=====================================================================================
</TABLE>
Segment financial information for the nine months ended September 30, 2000 is as
follows:
<TABLE>
<CAPTION>
FREIGHT TRANSIT CORPORATE
In thousands GROUP GROUP ACTIVITIES RESTRUCTURING TOTAL
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to external customers $ 559,039 $ 204,147 -- -- $ 763,186
Intersegment sales/(elimination) 8,410 400 (8,810) -- --
---------------------------------------------------------------------------------
Total sales 567,449 204,547 (8,810) -- 763,186
=================================================================================
Income from operations 86,018 20,162 (15,881) (19,391) 70,908
Interest expense and other -- -- (30,329) -- (30,329)
---------------------------------------------------------------------------------
Income before income taxes
and extraordinary item $ 86,018 $ 20,162 $ (46,210) $ (19,391) $ 40,579
=================================================================================
</TABLE>
Segment financial information for the nine months ended September 30, 1999 is as
follows:
<TABLE>
<CAPTION>
FREIGHT TRANSIT CORPORATE
In thousands GROUP GROUP ACTIVITIES RESTRUCTURING TOTAL
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to external customers $ 677,945 $ 174,058 -- -- $ 852,003
Intersegment sales/(elimination) 8,402 532 (8,934) -- --
--------------------------------------------------------------------------------------
Total sales 686,347 174,590 (8,934) -- 852,003
======================================================================================
Income from operations 130,821 14,736 (15,720) -- 129,837
Interest expense and other -- -- (34,485) -- (34,485)
--------------------------------------------------------------------------------------
Income before income taxes
and extraordinary item $ 130,821 $ 14,736 $ (50,205) -- $ 95,352
======================================================================================
</TABLE>
-6-
<PAGE> 8
9. RESTRUCTURING CHARGES
The Company estimates the charges to complete its merger and restructuring plan
will now total in the range of $76 million to $78 million pre-tax, due to an
acceleration and refinement of the plan, with approximately $70 million of the
charge previously expensed. The Company incurred additional
restructuring-related charges of approximately $20 million in the nine months
ended September 30, 2000 and expects to incur an additional $6 million to $8
million of restructuring-related expenses in the fourth quarter of 2000.
The $20 million charge included the following actions:
o Plant closings and plant relocation costs.
o Employee severance and relocation payments related to closing certain plants
and consolidating others.
In the nine month period ended September 30, 2000, the Company has expended
approximately $23 million for merger and restructuring activities comprising of
the $20 million current year charge and $3 million for payments made on the
remaining 1999 accrual further discussed below.
As of September 30, 2000, $5.4 million of the $50 million merger and
restructuring-related charge incurred in 1999 remained accrued on the balance
sheet. The table below identifies the significant components of the accrual:
<TABLE>
<CAPTION>
TRANSACTION
COSTS, SEVERANCE
AND TERMINATION LEASE
In thousands BENEFITS IMPAIRMENTS OTHER TOTAL
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1999 $ 2,119 $5,738 $ 848 $ 8,705
Amounts paid (2,045) (781) (491) (3,317)
------------------------------------------------------------------------------------
Balance at September 30, 2000 $ 74 $4,957 $ 357 $ 5,388
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The remaining transaction, severance and termination benefits accrual is for
health care benefits for approximately 9 employees, expected to be completed in
2001 as planned. This accrual represents the calculation of the severance
package based on the employee's salary and tenure with the Company. The lease
impairment charges relate to the relocation of the corporate headquarters, and
the Company's evaluation of certain assets. The other category represents other
related costs that have been incurred and not yet paid as of September 30, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WESTINGHOUSE AIR BRAKE TECHNOLOGIES
CORPORATION
By: /s/ ROBERT J. BROOKS
-----------------------------------
Robert J. Brooks
Chief Financial Officer
Date: November 8, 2000
-7-
