UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For the quarterly period ended March 31, 2006
OR
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)
1001 Air Brake Avenue
Wilmerding, PA
412-825-1000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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 (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 ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
Outstanding at May 5, 2006
WESTINGHOUSE AIR BRAKE
TECHNOLOGIES CORPORATION
March 31, 2006 FORM 10-Q
TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION
Item 1.
Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2006 and December 31, 2005
Condensed Consolidated Statements of Operations for the three months ended March 31, 2006 and 2005
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and 2005
Notes to Condensed Consolidated Financial Statements
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Item 4.
Controls and Procedures
PART II—OTHER INFORMATION
Legal Proceedings
Item 1A.
Risk Factors
Item 5.
Other Information
Item 6.
Exhibits
Signatures
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CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands, except shares and par value
Current Assets
Cash and cash equivalents
Accounts receivable
Inventories
Deferred income taxes
Other current assets
Total current assets
Property, plant and equipment
Accumulated depreciation
Property, plant and equipment, net
Other Assets
Goodwill
Other intangibles, net
Other noncurrent assets
Total other assets
Total Assets
Current Liabilities
Accounts payable
Accrued income taxes
Customer deposits
Accrued compensation
Accrued warranty
Other accrued liabilities
Total current liabilities
Long-term debt
Reserve for postretirement and pension benefits
Other long term liabilities
Total liabilities
Shareholders’ Equity
Preferred stock, 1,000,000 shares authorized, no shares issued
Common stock, $.01 par value; 100,000,000 shares authorized: 66,174,767 shares issued and 48,303,593 and 48,002,819 outstanding at March 31, 2006 and December 31, 2005, respectively
Additional paid-in capital
Treasury stock, at cost, 17,871,174 and 18,171,948 shares, at March 31, 2006 and December 31, 2005, respectively
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total Liabilities and Shareholders’ Equity
The accompanying notes are an integral part of these statements.
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands, except per share data
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Engineering expenses
Amortization expense
Total operating expenses
Income from operations
Other income and expenses
Interest expense, net
Other income (expense), net
Income from continuing operations before income taxes
Income tax expense
Income from continuing operations
Discontinued operations
Loss from discontinued operations (net of tax)
Net income
Earnings Per Common Share
Basic
Loss from discontinued operations
Diluted
Weighted average shares outstanding
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands
Operating Activities
Stock-based compensation expense
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization
Excess income tax benefits from exercise of stock options
Changes in operating assets and liabilities
Accrued liabilities and customer deposits
Other assets and liabilities
Net cash provided by operating activities
Investing Activities
Purchase of property, plant and equipment
Disposals of property, plant and equipment
Acquisition of business, net of cash received
Sale of discontinued operations
Net cash used for investing activities
Financing Activities
Other repayments
Proceeds from the issuance of treasury stock for stock options and other benefit plans
Cash dividends ($0.01 per share for the three months ended March 31, 2006 and 2005)
Net cash provided by financing activities
Effect of changes in currency exchange rates
Increase (Decrease) in cash
Cash, beginning of year
Cash, end of period
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2006 (UNAUDITED)
1. BUSINESS
Wabtec is one of the world’s largest providers of value-added, technology-based products and services for the global rail industry. Our products are found on virtually all U.S. locomotives, freight cars and passenger transit vehicles, as well as in more than 80 countries throughout the world. Our products enhance safety, improve productivity and reduce maintenance costs for customers, and many of our core products and services are essential in the safe and efficient operation of freight rail and passenger transit vehicles. Wabtec is a global company with operations in 11 countries. In the first three months of 2006, about 30% percent of the Company’s revenues came from outside the U.S.
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, 2005. The December 31, 2005 information has been derived from the Company’s December 31, 2005 Annual Report on Form 10-K.
Revenue Recognition Revenue is recognized in accordance with Staff Accounting Bulletins (SABs) 101, “Revenue Recognition in Financial Statements” and 104 “Revision of Topic 13.” Revenue is recognized when products have been shipped to the respective customers, title has passed 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. The units-of-delivery method or other measures, as appropriate, are used to measure the progress toward completion of individual contracts. Contract revenues and cost estimates are reviewed and revised at a minimum quarterly and adjustments are reflected in the accounting period as such amounts are determined. Provisions are made currently for estimated losses on uncompleted contracts.
Certain pre-production costs relating to long-term production and supply contracts have been deferred and will be recognized over the life of the contracts. Deferred pre-production costs were $5.2 million, and $4.9 million at March 31, 2006 and December 31, 2005, respectively.
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.
Stock-Based Compensation Effective January 1, 2006, Wabtec adopted Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment,” which requires the company to recognize compensation expense for stock-based compensation based on the grant date fair value. This expense must be
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
recognized ratably over the requisite service period following the date of grant. Wabtec has elected the modified prospective transition method for adoption, and prior periods financial statements have not been restated. Prior to January 1, 2006, Wabtec accounted for stock-based compensation in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations.
Pro Forma Effect Prior to the Adoption of SFAS No. 123(R)Wabtec’s net income and earnings per share for 2005 would have been reduced to the pro forma amounts shown below if compensation expense had been determined based on the fair value at the grant dates in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation,” and SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure an amendment of FASB Statement No. 123.”
In thousands, except per share
Net income as reported
Stock based compensation expense under FAS123, net of tax of $206
Pro forma
Basic earnings per share
As reported
Diluted earnings per share
Stock-Based Plans Stock options have been granted at not less than market prices on the dates of grant. Generally, the options become exercisable over a three-year vesting period and expire ten years from the date of grant. In January 2006, Wabtec granted 32,000 stock options to certain individuals. The Company has now adopted a non-vested stock plan and issued 200,500 awards to executives in February 2006. The non-vested stock generally vests over four years from the date of grant. The Company established in 2004, a stock-based incentive plan for eligible employees and officers. The plan provides stock awards which vest upon attainment of certain three year performance targets. Wabtec also sponsors an employee stock purchase plan, whereby participants can purchase the Company’s common stock at 85% of the lesser of fair market value on the first or last day of each offering period.
Prior to January 1, 2006, no stock-based compensation expense was recognized for stock options. As a result of the implementation of SFAS No. 123(R), Wabtec recognized additional compensation expense of $574,000 or $0.01 per share. The Company recognized compensation expense of $4.4 million and $151,000 for stock-based plans for the three months ended March 31, 2006 and 2005, respectively. At March 31, 2006, unamortized compensation expense related to those stock options, non-vested shares and stock awards expected to vest totaled $21.8 million and will be recognized over a weighted average period of 2.1 years.
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Wabtec uses a Black-Scholes pricing model to estimate fair value at grant date for future option grants. 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:
Dividend yield
Risk-free interest rate
Stock price volatility
Expected life (years)
A summary of the Company’s stock option activity and related information for the years indicated follows:
Weighted Average
Remaining
Contractual Life
Beginning of year—January 1, 2006
Granted
Exercised
Canceled
End of quarter—March 31, 2006
Exercisable at end of quarter
Weighted average fair value of options granted during the quarter
The following table summarizes the non-vested stock and stock awards at March 31, 2006:
Outstanding at January 1, 2006
Outstanding at March 31, 2006
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As of March 31, 2006, stock awards issued under the incentive plan are awarded but not vested. These stock awards will vest based upon the achievement of certain financial goals for each three year period ending at December 31, 2006, 2007 and 2008, respectively. The stock awards included in the table above represent the maximum number of shares that may ultimately vest. As of March 31, 2006, based on the Company’s performance, we estimate that the majority of these stock awards will vest and have recorded compensation expense accordingly. If our estimate of the number of these stock awards expected to vest changes in a future accounting period, compensation expense could be reduced and will be recognized over the remaining vesting period.
Financial Derivatives and Hedging Activities The Company has entered into foreign currency forward contracts to reduce the impact of changes in currency exchange rates. Forward contracts are agreements with a counterparty to exchange two distinct currencies at a set exchange rate for delivery on a set date at some point in the future. There is no exchange of funds until the delivery date. At the delivery date the Company can either take delivery of the currency or settle on a net basis. All outstanding forward contracts are for the sale of U.S. Dollars (USD) and the purchase of Canadian Dollars (CAD). As of March 31, 2006, the Company had forward contracts with a notional value of $45 million CAD (or $37.7 million U.S.), with an average exchange rate of $0.838 USD per $1 CAD, resulting in the recording of a current asset and an increase in comprehensive income of $609,000, net of tax.
Foreign Currency Translation Assets and liabilities of foreign subsidiaries, except for the Company’s Mexican operations whose functional currency is the U.S. Dollar, are translated at the rate of exchange in effect on the balance sheet date while income and expenses are translated at the average rates of exchange prevailing during the year. Foreign currency gains and losses resulting from transactions, and the translation of financial statements are recorded in the Company’s consolidated financial statements based upon the provisions of SFAS No. 52, “Foreign Currency Translation.” The effects of currency exchange rate changes on intercompany transactions and balances of a long-term investment nature are accumulated and carried as a component of shareholders’ equity. The effects of currency exchange rate changes on intercompany transactions that are non U.S. dollar denominated amounts are charged or credited to earnings. Foreign exchange gain was $386,000 and loss was $976,000 for the three months ended March 31, 2006 and 2005, respectively.
Other Comprehensive Income (Loss) Comprehensive income (loss) is defined as net income and all other non-owner changes in shareholders’ equity. The Company’s accumulated other comprehensive income (loss) consists of foreign currency translation adjustments, foreign currency hedges and pension related adjustments. Total comprehensive income was:
Foreign currency translation adjustment
Unrealized loss on foreign exchange contracts, net of tax
Total comprehensive income
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The components of accumulated other comprehensive income (loss) consisted of the following:
Unrealized gains on foreign exchange contracts, net of tax
Additional minimum pension liability, net of tax
Total accumulated comprehensive loss
Reclassifications Certain prior year amounts have been reclassified where necessary, to conform to the current year presentation. For the quarter ended March 31, 2005, the Company has separately disclosed the cash flows attributable to its discontinued operations.
Recent Accounting Pronouncements In November 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 151, “Inventory Costs—an Amendment of ARB No. 43, Chapter 4.” This standard provides clarification that abnormal amounts of idle facility expense, freight, handling costs and spoilage should be recognized as current period charges. Additionally, this standard requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this standard are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. This statement did not have a material impact on the Company’s financial position or results of operations.
In December 2004, the FASB issued SFAS No. 123 (revised 2004) “Share-Based Payment.” This Statement replaces FASB Statement No. 123 and supersedes APB Opinion No. 25. No. 123(R) eliminates the ability to account for share-based compensation transactions using the intrinsic method currently used by the Company. FASB No. 123(R) requires such transactions be accounted for using a fair-value-based method that would result in expense being recognized in the Company’s financial statements. See description of the impact of adopting SFAS 123 in Note 2 to the “Notes of Consolidated Financial Statements” included elsewhere in this report.
In June 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS No. 154 requires retrospective application to financial statements of prior periods for changes in accounting principle that are not adopted prospectively. This statement is effective for fiscal years beginning after December 15, 2005. This statement did not have a material impact on the Company’s financial position or results of operations.
3. ACQUISITIONS AND DISCONTINUED OPERATIONS
On February 1, 2005, the Company completed the acquisition of the assets of Rütgers Rail S.p.A, a business with operations in Italy, Germany, France and Spain. The acquisition was accounted for as a purchase and accordingly, the purchase price was allocated to the respective assets and liabilities based upon their estimated fair values as of the acquisition date. Operating results were included in the consolidated statement of operations from the acquisition date forward. The new company formed to hold the newly purchased assets of Rütgers Rail S.p.A. is named CoFren S.r.l. (“CoFren”). CoFren is one of the leading manufacturers of brake shoes, disc pads and interior trim components for rail applications in Europe. The purchase price was $35.9 million, net of cash received, resulting in additional goodwill of $5.7 million.
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The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of the acquisition:
Current assets
Property, plant & equipment
Intangible assets
Assets held for sale
Total Assets Acquired
Current liabilities
Total Liabilities Assumed
Net Assets Acquired
Of the $5.4 million of acquired intangible assets, exclusive of goodwill, $3.5 million was assigned to customer relationships, $1.2 million was assigned to patents, $412,000 was assigned to trademarks and $324,000 was assigned to backlog.
The following unaudited pro forma financial information presents income statement results as if the acquisition had occurred January 1, 2005:
With the acquisition of Rutgers Rail, S.p.A., the Company decided to offer for sale a certain product division. As part of the purchase accounting, the net amount of this division had been revalued to its estimated net realizable value and had been classified as assets held for sale, which is included in other noncurrent assets on the balance sheet.
At March 31, 2006, the sale of this division was completed for approximately $2.5 million in cash and $271,000 receivable from the buyer, subject to a working capital adjustment which is expected to be finalized with the buyer in the 2nd quarter. The assets sold primarily included transit car interior products and services for customers located in Europe. This sale resulted in a gain of approximately $132,000 subject to the working capital adjustment mentioned earlier. Also, in the fourth quarter of 2005, the Company decided to liquidate its bus door joint venture in China.
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In accordance with SFAS 144, “Accounting for Impairment or Disposal of Long-Lived Assets”, the operating results of these businesses have been classified as discontinued operations for all years presented and are summarized as of December 31, as follows:
Income/(loss) before income taxes
Income tax expense/(benefit)
In the fourth quarter of 2005, Wabtec established approximately $800,000 of certain reserves related to the relocation of certain operations. As of March 31, 2006, this reserve has not been used pending the resolution of certain operational issues.
4. INVENTORIES
The components of inventory, net of reserves, were:
Raw materials
Work-in-process
Finished goods
Total inventory
5. RESTRUCTURING AND IMPAIRMENT CHARGES
In the first quarter of 2005, the Company recorded restructuring and asset impairment charges related to consolidating two U.K. facilities into one, relocating a product line from Canada to the U.S., and completion of a data center migration. $1.6 million of costs were expensed, consisting of severance costs of $250,000 for 13 employees, relocation and other costs of $210,000 and asset writeoffs of $1.1 million. These costs were incurred and paid for in the first quarter of 2005.
In the fourth quarter of 2005, the Company recorded restructuring charges relating to consolidating facilities of about $1 million. As of March 31, 2006, these costs have not been paid.
6. INTANGIBLES
Goodwill still remaining on the balance sheet is $118.2 million at both March 31, 2006 and December 31, 2005, respectively.
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As of both March 31, 2006 and December 31, 2005, the Company’s trademarks had a net carrying amount of $19.9 million, respectively, and the Company believes these intangibles have an indefinite life. Intangible assets of the Company, other than goodwill and trademarks, consist of the following:
Patents and other, net of accumulated amortization of $25,484 and $22,459
Customer relationships, net of accumulated amortization of $189 and $145
Covenants not to compete, net of accumulated amortization of $8,315 and $8,304
Intangible pension asset
Total
The weighted average useful life of patents was 13 years, customer relationships were 20 years, and covenants not to compete was five years. Amortization expense for intangible assets was $678,000 and $752,000 for the three months ended March 31, 2006 and 2005, respectively.
The change in the carrying amount of goodwill by segment for the three months ended March 31, 2006, is as follows:
Balance at December 31, 2005
Foreign currency impact
Balance at March 31, 2006
7. LONG-TERM DEBT
Long-term debt consisted of the following:
6.875% Senior Notes
Less–current portion
Long–term portion
Refinancing Credit Agreement
In January 2004, the Company refinanced its existing unsecured revolving credit agreement with a consortium of commercial banks. This “Refinancing Credit Agreement” provided a $175 million five-year revolving credit facility expiring in January 2009. In November 2005, the Company entered into an amendment to the Refinancing Credit Agreement which, among other things, extended the expiration of the agreement until December 2010. At March 31, 2006, the Company had available bank borrowing capacity, net of $18.4 million of letters of credit, of approximately $156.6 million, subject to certain financial covenant restrictions.
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Refinancing Credit Agreement borrowings bear variable interest rates indexed to the indices described below. The Company did not borrow under the Refinancing Credit Agreement during the quarter ended March 31, 2006 or during the year ended December 31, 2005.
Under the Refinancing Credit Agreement, the Company may elect a base interest rate or an interest rate based on the London Interbank Offered Rates of Interest (“LIBOR”). The base interest rate is the greater of LaSalle Bank National Association’s prime rate or the federal funds effective rate plus 0.5% per annum. The LIBOR rate is based on LIBOR plus a margin that ranges from 62.5 to 175 basis points depending on the Company’s consolidated total indebtedness to cash flow ratios. The current margin is 62.5 basis points.
The Refinancing Credit Agreement limits the Company’s ability to declare or pay cash dividends and prohibits the Company from declaring or making other distributions, subject to certain exceptions. The Refinancing Credit Agreement contains various other covenants and restrictions including the following limitations: incurrence of additional indebtedness; mergers, consolidations and sales of assets and acquisitions; additional liens; sale and leasebacks; permissible investments, loans and advances; certain debt payments; capital expenditures; and imposes a minimum interest expense coverage ratio and a maximum debt to cash flow ratio.
The Refinancing Credit Agreement contains customary events of default, including payment defaults, failure of representations or warranties to be true in any material respect, covenant defaults, defaults with respect to other indebtedness of the Company, bankruptcy, certain judgments against the Company, ERISA defaults and “change of control” of the Company. The Refinancing Credit Agreement includes the following covenants: a minimum interest coverage ratio of three, maximum debt to cash flow ratio of 3.25 and a minimum net worth of $180 million plus 50% of consolidated net income since September 30, 2003. The Company is in compliance with these measurements and covenants.
6.875% Senior Notes Due August 2013
In August 2003, the Company issued $150 million of Senior Notes due in 2013 (“Notes”). The Notes were issued at par. Interest on the Notes accrues at a rate of 6.875% per annum and is payable semi-annually on January 31 and July 31 of each year. The proceeds were used to repay debt outstanding under the Company’s existing credit agreement, and for general corporate purposes.
The Notes are senior unsecured obligations of the Company and rank pari passu with all existing and future senior debt and are senior to all our existing and future subordinated indebtedness of the Company. The indenture under which the Notes were issued contains covenants and restrictions which limit among other things, the following: the incurrence of indebtedness, payment of dividends and certain distributions, sale of assets, change in control, mergers and consolidations and the incurrence of liens.
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8. EMPLOYEE BENEFIT PLANS
The Company sponsors defined benefit pension plans that cover certain U.S., Canadian and United Kingdom employees and which provide benefits of stated amounts for each year of service of the employee.
In thousands, except percentages
Net periodic benefit cost
Service cost
Interest cost
Expected return on plan assets
Net amortization/deferrals
Assumptions
Discount rate
Expected long-term rate of return
Rate of compensation increase
The Company’s funding methods are based on governmental requirements and differ from those methods used to recognize pension expense. The Company expects to contribute $8.9 million to the pension plans during 2006 but expects that this level of funding will decrease in future periods. Rebalancing of the asset allocation occurs on a quarterly basis.
In addition to providing pension benefits, the Company has provided certain unfunded postretirement health care and life insurance benefits for a portion of North American employees. The Company is not obligated to pay health care and life insurance benefits to individuals who had retired prior to 1990.
9. INCOME TAXES
The overall effective income tax rate was 36.2% and 36.6% for the three months ended March 31, 2006 and 2005, respectively.
10. EARNINGS PER SHARE
The computation of earnings per share is as follows:
Income from continuing operations applicable to common shareholders
Divided by
Basic earnings from continuing operations per share
Divided by sum of the
Conversion of dilutive stock options and non-vested stock
Diluted shares outstanding
Diluted earnings from continuing operations per share
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11. WARRANTIES
The following table reconciles the changes in the Company’s product warranty reserve:
Warranty provision
Warranty claim payments
12. COMMITMENTS AND CONTINGENCIES
In 2001, the Company sold the operating assets and liabilities of a non-core business unit to that business unit’s management team. As part of the sale, Wabtec has guaranteed approximately $539,000 of bank debt of the buyer, which assists the buyer with certain working capital financing arrangements. The Company has no reason to believe that this debt will not be repaid or refinanced.
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 and its insurers seeking coverage under RFPC’s insurance policies. On April 17, 2005, the claim against the Company contending that the Company assumed ASI’s liability for asbestos claims arising from exposure to RFPC’s products was resolved in the Company’s favor.
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. 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.
The GETS-GS litigation described in the Company’s Annual Report on Form 10-K for the Year Ended December 31, 2005 was settled in April of 2006 for $3.8 million which approximates the liability accrued.
In April 2005, Amtrak decided to suspend its Acela Express train service due to cracks in the spokes of some of the cars’ brake discs. Wabtec did not design or supply the braking system for the Acela cars. The braking system was supplied by Knorr Brake Corporation and the brake discs were designed by Faiveley Transport. Wabtec did provide, and machined approximately one-third of the brake discs for the cars and assisted Amtrak and others, including Bombardier Corporation, Alstom Transportation Inc., Knorr and Faiveley, in their evaluation and investigation of the brake disc cracks. Amtrak claims approximately $30 million in damages due to the suspension of the Acela service, which was resumed on a limited basis in July, and complete service was resumed in September. Wabtec has received notice of a potential claim for damages from Knorr and, in turn, has provided notice of a potential claim for damages to Faiveley. Wabtec does not believe that it has any material liability with regard to this matter.
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In March 2006, management began an internal investigation related to business transactions conducted by a subsidiary, Pioneer Friction Limited (“Pioneer”), in West Bengal, India. Through an internal compliance review, management discovered that disbursements were made which may be in violation of applicable laws and regulations. Pioneer is a fourth-tier subsidiary of Wabtec; two of the intermediate subsidiaries are Australian companies which are, in turn, owned by a U.S. holding company.
While the transactions are inconsequential and not material to the overall operations of Wabtec, they may result in potential penalties. Management has not concluded its investigation, but has informed Wabtec’s Audit Committee, Board of Directors, and the appropriate authorities. Wabtec has not recorded a reserve related to this matter as of March 31, 2006, because the Company’s potential exposure cannot be estimated based on management’s current assessment of the situation.
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, 2005, filed on March 16, 2006. During the first three months of 2006, there were no material changes other than what is discussed above to the information described in Note 18 therein.
13. 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, on-board electronic components and train coupler equipment. Revenues are derived from OEM sales, 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; and commuter locomotives. 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.
Beginning with the first quarter of 2006, the Company transferred certain operations from the Freight to Transit Group to reflect a shift in the markets and customers served by those operations. For the three-month period ended March 31, 2005, this reclassification increased Transit Group sales by about $16 million, and income from continuing operations before income taxes by $1.8 million. Prior period results have been adjusted for comparability purposes.
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Segment financial information for the three months ended March 31, 2006 is as follows:
Sales to external customers
Intersegment sales/(elimination)
Total sales
Income (loss) from operations
Interest expense and other
Income (loss) from continuing operations before income taxes
Segment financial information for the three months ended March 31, 2005 is as follows:
14. GUARANTOR SUBSIDIARIES FINANCIAL INFORMATION
Effective August 2003, the Company issued $150 million of Senior Notes due in 2013 (“Notes”). The obligations under the Notes are fully and unconditionally guaranteed by all U.S. subsidiaries as guarantors. In accordance with positions established by the Securities and Exchange Commission, the following shows separate financial information with respect to the parent, the guarantor subsidiaries and the non-guarantor subsidiaries. The principal elimination entries eliminate investment in subsidiaries and certain intercompany balances and transactions.
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Balance Sheet as of March 31, 2006:
Cash and Cash Equivalents
Accounts Receivable
Other Current Assets
Total Current Assets
Net Property, Plant and Equipment
Investment in Subsidiaries
Intangibles
Other Long Term Assets
Intercompany
Long-Term Debt
Other Long Term Liabilities
Total Liabilities
Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
Balance Sheet for December 31, 2005:
Cash
Inventory
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Income Statement for the Three Months Ended March 31, 2006:
Net Sales
Cost of Sales
Gross Profit (Loss)
Operating Expenses
Operating Profit (Loss)
Interest (Expense) Income
Other (Expense) Income
Equity Earnings
Income (Loss) From Continuing Operations Before Income Tax
Income Tax Expense
Income (Loss) from Continuing Operations
Discontinued Operations
Net Income (Loss)
Income Statement for the Three Months Ended March 31, 2005:
Income Tax Benefit (Expense)
Income (Loss) From Continuing Operations
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Condensed Statement of Cash Flows for the Three Months Ended March 31, 2006:
Net Cash Provided by (Used in) Operating Activities
Net Cash (Used in) Provided by Investing Activities
Net Cash Provided by (Used in) Financing Activities
Effect of Changes in Currency Exchange Rates
Increase (Decrease) in Cash
Cash at Beginning of Period
Cash at End of Period
Condensed Statement of Cash Flows for the Three Months Ended March 31, 2005:
Net Cash (Used in) Provided by Operating Activities
Net Cash Used in Investing Activities
(Decrease) Increase in Cash
15. OTHER INCOME (EXPENSE)
The components of other income (expense) are as follows:
Foreign currency gain (loss)
Other miscellaneous expense
Total other income (expense)
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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 2005 Annual Report on Form 10-K, filed March 16, 2006.
OVERVIEW
Management Review and Future Outlook
Wabtec’s long-term financial goals are to generate free cash flow in excess of net income, maintain a strong credit profile while minimizing our overall cost of capital, increase margins through strict attention to cost controls, and increase revenues through a focused growth strategy. In addition, management monitors the Company’s short-term operational performance through measures such as quality and on-time delivery.
Freight rail industry statistics, such as carloadings and orders for new freight cars, are continuing to improve in 2006. Deliveries of new freight cars increased to 68,657 in 2005, and orders increased to 80,703. As a result, at year-end the backlog of freight cars ordered was 69,408. This trend continued in the first quarter of 2006, with orders climbing to 35,991, deliveries of 18,542, and a backlog of 86,857. Sales in our freight segment have benefited from that trend. Following are quarterly freight car statistics for the past three years:
First quarter 2004
Second quarter 2004
Third quarter 2004
Fourth quarter 2004
First quarter 2005
Second quarter 2005
Third quarter 2005
Fourth quarter 2005
First quarter 2006
Deliveries of transit cars were 918 and 819 for the years ended December 31, 2005 and 2004, respectively. Deliveries of locomotives were 1,106 and 1,202 for the years ended December 31, 2005 and 2004, respectively.
Source: Railway Supply Institute and Management Estimates
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Carloadings and Intermodal Units Originated have increased over the past three years reflecting higher rail traffic and ultimately better opportunities for maintenance and aftermarket sales for the Company:
Carloadings Originated (in thousands):
2004
2005
2006
Intermodal Units Originated (in thousands):
Source: Association of American Railroads—Weekly Rail Traffic
In addition to this cyclical rebound in orders and rail traffic, we expect to generate future increases in sales and earnings from executing our four-point growth strategy:
In 2006 and beyond, we will continue to face many challenges, including increased costs for raw materials, especially steel; higher costs for medical and insurance premiums; and foreign currency fluctuations. In addition, we face general economic risks, as well as the risk that our customers could curtail spending on new and existing equipment. Risks associated with our four-point growth strategy include the level of investment that customers are willing to make in new technologies developed by the industry and the Company, and risks inherent in global expansion. When necessary, we will modify our financial and operating strategies to reflect changes in market conditions and risks.
The Company continues to evaluate possible restructuring actions that, if taken, would be expected to result in ongoing benefits, but would require significant one-time charges against income.
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RESULTS OF OPERATIONS
The following table shows our Consolidated Statements of Operations for the periods indicated.
In millions
FIRST QUARTER 2006 COMPARED TO FIRST QUARTER 2005
The following table summarizes the results of operations for the period:
Net sales increased by 8.5% from $241.8 million in the first quarter of 2005 to $262.4 million in the same period in 2006, primarily as a result of increased sales of freight car components, and price increases. Aftermarket parts sales also increased because of carloadings and intermodal units originated. The Company did not realize any significant net sales change from foreign exchange. Net income for the first quarter of 2006 was $20 million or $0.41 per diluted share. Net income for the first quarter of 2005 was $9.2 million or $0.20 per diluted share. This increase in net income was primarily due to increased sales volume, price increases, and improved profitability on the Company’s locomotive modules contract.
Net sales Beginning with the first quarter of 2006, the Company transferred certain operations from the Freight to Transit Group to reflect a shift in the markets and customers served by those operations. Prior period results have been adjusted for comparability purposes. For the three-month period ended March 31, 2005, this reclassification increased Transit Group sales by about $16 million. The following table shows the Company’s net sales by business segment:
Three months ended
March 31,
Freight Group
Transit Group
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Net sales for the first quarter of 2006 increased $20.6 million, or 8.5%, as compared to the same period of 2005. Sales increased in the Freight Group reflecting higher sales of pneumatic air brake components related to increased deliveries of freight cars. Industry deliveries of new freight cars for the first quarter of 2006 increased to 18,542 units as compared to 15,781 in the same period of 2005. Freight Group aftermarket sales remained consistent with the prior year quarter. Transit Group sales declined slightly from $75.6 million in the first quarter of 2005, to $74.1 million for the same quarter in 2006. This is primarily the result of lower transit car OEM activity offset by increased aftermarket sales. Transit car OEM volume is expected to increase during 2007 with the ramp up of certain large contracts.
Gross profit Gross profit increased to $75.1 million in the first quarter of 2006 compared to $57 million in the same period of 2005. Gross profit is dependent on a number of factors including pricing, sales volume and product mix. In the first quarter of 2006, gross profit, as a percentage of sales, was 28.6% compared to 23.6% in 2005. This increase in gross profit percentage is due to a variety of factors including improved performance of a locomotive module contract which was profitable in the first quarter of 2006, compared to a loss of $4.1 million in the first quarter of 2005. Other factors include increased sales volume, a favorable product mix, price increases, and certain continuing cost reductions. The provision for warranty expense was $1 million higher than the prior-year quarter, which negatively impacted gross profit. The Company is continuing to take action to improve margins in future quarters, including price increases and ongoing initiatives to increase productivity and efficiency.
Operating expenses The following table shows our operating expenses:
Percent
Change
Operating expenses increased $4 million in the first quarter of 2006 compared to the same period of 2005. These expenses were 16.2% and 16.0% of sales for the quarters ended March 31, 2006 and 2005, respectively. The overall increase is due to expense recognized in connection with the adoption of SFAS 123(R) and certain other share-based compensation accruals for long-term incentive plans. During 2005, operating expenses included an information technology asset writeoff of $1.1 million.
Income from operations Income from operations totaled $32.5 million (or 12.4% of sales) in the first quarter of 2006 compared with $18.4 million (or 7.6% of sales) in the same period of 2005. The increase was due to higher sales, partially offset by increased operating expenses.
Interest expense, net Interest expense, net decreased 54.8% in the first quarter of 2006 compared to the same period of 2005 primarily due to the Company’s overall higher cash balances and rising interest rates, resulting in higher interest income.
Other income (expense), net The Company recorded foreign exchange income of $386,000 and expense of $976,000, respectively, in the first quarter of 2006 and 2005, due to the effect of currency exchange rate changes on intercompany transactions that are non U.S. dollar denominated amounts and charged or credited to earnings.
Income taxes The effective income tax rate was 36.2% and 36.6% for the first quarter of 2006 and 2005, respectively.
Net income Net income for the first quarter of 2006 increased $10.8 million, compared with the same period of 2005. The increase was due to higher sales and improved profitability, partially offset by increased operating expenses.
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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. The following is a summary of selected cash flow information and other relevant data.
Cash provided (used) by:
Operating activities
Investing activities
Financing activities
Earnings before interest, taxes, depreciation and amortization (EBITDA)
Management utilizes EBITDA as a measure of liquidity. The following is a reconciliation of EBITDA to net cash provided by operating activities:
Change in operating assets and liabilities
Change from stock-based compensation expense
Change from discontinued operations
Interest expense
EBITDA is defined as earnings before deducting interest expense, income taxes and depreciation and amortization. Although EBITDA is not a measure of performance calculated in accordance with generally accepted accounting principles, management believes that it is useful to an investor in evaluating Wabtec because it is widely used as a measure to evaluate a company’s operating performance and ability to service debt. Financial covenants in our credit facility include ratios based on EBITDA. EBITDA does not purport to represent cash generated by operating activities and should not be considered in isolation or as substitute for measures of performance in accordance with generally accepted accounting principles. In addition, because EBITDA is not calculated identically by all companies, the presentation here may not be comparable to other similarly titled measures of other companies. Management’s discretionary use of funds depicted by EBITDA may be limited by working capital, debt service and capital expenditure requirements, and by restrictions related to legal requirements, commitments and uncertainties.
Operating activities Cash provided by operations in the first three months of 2006 was $45 million as compared to $12.3 million in the same period of 2005. The cash provided in 2006 consisted mainly of net income of $20 million and depreciation and amortization of $6.1 million. Working capital, excluding the impact of currency exchange rates decreased $20.2 million, as inventory increased $17.9 million, accounts payable and accruals decreased $9.5 million, and accounts receivable decreased $38 million. Inventory increased due to timing of purchases for certain contracts. Accounts receivable decreased because of collection of progress billings on certain customer contracts.
Investing activities In the first three months of 2006 and 2005, cash used in investing activities was $1.2 million and $40.6 million, respectively. In 2005, The Company acquired the assets of Rütgers Rail S.p.A. for $35.6 million, net of cash received. Capital expenditures were $3.3 million and $6 million in the first three months of 2006 and 2005, respectively. The majority of capital expenditures for these periods relates to upgrades to and replacement of existing equipment.
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Financing activities In the first three months of 2006 and 2005, cash provided by financing activities was $5.3 million and $4.5 million, respectively. The cash provided in both 2006 and 2005 included $4 million and $5 million, respectively, of proceeds from the issuance of treasury stock for stock options and other benefit plans, offset by about $500,000 of dividend payments.
The following table shows our outstanding indebtedness at March 31, 2006 and December 31, 2005. The other term loan interest rates are variable and dependent on market conditions.
December 31,
6.875% Senior Notes due 2013
Less-current portion
Long-term portion
Cash balance at March 31, 2006 and December 31, 2005 was $191.5 million and $141.4 million, respectively.
Credit Agreement
Refinancing Credit Agreement borrowings bear variable interest rates indexed to the indices described below. The Company did not borrow under the Refinancing Credit Agreement during the quarter ended March 31, 2006 year ended December 31, 2005.
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6 7/8% Senior Notes Due August 2013
In August 2003, the Company issued $150 million of Senior Notes due in 2013 (the “Notes”). The Notes were issued at par. Interest on the notes accrues at a rate of 6.875% per annum and is payable semi-annually on January 31 and July 31 of each year. The proceeds were used to repay debt outstanding under the Company’s existing credit agreement, and for general corporate purposes.
In 2001, we sold the operating assets and liabilities of a non-core business unit to its management team. As part of the sale, we guaranteed approximately $539,000 of bank debt of the buyer, which assists the buyer with certain working capital financing arrangements. We have no reason to believe that this debt will not be repaid or refinanced.
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 to meet its debt service requirements. If the Company’s sources of funds were to fail to satisfy the Company’s cash requirements, the Company may need to refinance its existing debt or obtain additional financing. There is no assurance that such new financing alternatives would be available, and, in any case, such new financing, if available, would be expected to be more costly and burdensome than the debt agreements currently in place.
Forward Looking Statements
We believe that all statements other than statements of historical facts included in this report, including certain statements under “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may constitute forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. Although we believe that our assumptions made in connection with the forward-looking statements are reasonable, we cannot assure you that our assumptions and expectations are correct.
These forward-looking statements are subject to various risks, uncertainties and assumptions about us, including, among other things:
Economic and industry conditions
Operating factors
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Competitive factors
Political/governmental factors
Transaction or commercial factors
Statements in this 10-Q apply only as of the date on which such statements are made, and we undertake no obligation to update any statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.
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, warranty reserves, 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.
On January 1, 2006, Wabtec adopted Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), “Share-Based Payment,” which requires the company to recognize compensation expense for stock-based compensation based on the fair value of the share-based employee grants. SFAS No. 123(R) revises SFAS No. 123 “Accounting for Stock-Based Compensation” and supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Wabtec elected the modified prospective application method for adoption, and prior periods financial statements have not been restated.
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SFAS No. 123(R) requires Wabtec to recognize compensation expense for stock-based compensation ratably over the requisite service period based on the fair value of the grant. Using the Black Scholes pricing model, determining the fair value of stock options at grant date requires judgment including estimates for the average risk-free interest rate, expected volatility, expected exercise behavior, expected dividend yield, and expected forfeitures. If any of these assumptions differ significantly from actual, stock-based compensation expense could be impacted. Compensation expense for the Employee Stock Purchase Plan, and Non-Vested Stock awards are based on fair market values determined at the date of award.
Prior to the adoption of SFAS No. 123(R), the company accounted for stock-based compensation in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations using the intrinsic value method, which resulted in no compensation cost for options granted.
A summary of the Company’s significant accounting policies is included in Note 2 in the “Notes to Consolidated Financial 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.
Description
Judgments and Uncertainties
Effect if Actual Results Differ FromAssumptions
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Management considers historical experience and all available information at the time the fair values of its business are estimated. However, actual amounts realized may differ from those used to evaluate the impairment of goodwill.
If actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair values, we may be exposed to additional impairment losses that could be material to our results of operations.
Significant judgments and estimates are used in determining the liabilities and expenses for pensions and other postretirement benefits.
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.
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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.
Certain pre-production costs relating
to long term production and supply contracts have been deferred and will be recognized over the life of the contracts.
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Recent Accounting Pronouncements
See Notes 2 and 6 of “Notes to Condensed Consolidated Financial Statements” included elsewhere in this report.
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. There was no outstanding variable-rate debt at March 31, 2006.
Foreign Currency Exchange Risk
The Company occasionally enters into several types of financial instruments for the purpose of managing its exposure to foreign currency exchange rate fluctuations in countries in which the Company has significant operations. As of March 31, 2006, we had several such instruments outstanding to hedge currency rate fluctuation in 2006.
The Company entered into foreign currency forward contracts to reduce the impact of changes in currency exchange rates. Forward contracts are agreements with a counterparty to exchange two distinct currencies at a set exchange rate for delivery on a set date at some point in the future. There is no exchange of funds until the delivery date. At the delivery date we can either take delivery of the currency or settle on a net basis. All outstanding forward contracts and option agreements are for the sale of U.S. Dollars (USD) and the purchase of Canadian Dollars (CAD). As of March 31, 2006, the Company has forward contracts with a notional value of $45 million CAD (or $37.7 million U.S.), with an average exchange rate of $0.838 USD per $1 CAD, resulting in the recording of a current asset and an increase in comprehensive income of $609,000, net of tax.
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 three months of 2006, approximately 69% of Wabtec’s net sales are in the United States, 11% in Canada, 2% in Mexico, and 18% in other international locations, primarily Europe.
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 March 31, 2006. 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 March 31, 2006, that has materially affected, or is reasonably likely to materially affect, Wabtec’s internal control over financial reporting.
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PART II – OTHER INFORMATION
Except as disclosed in Note 12 of the Company’s Notes to Condensed Consolidated Financial Statements for the Quarterly Period Ended March 31, 2006, there have been no other material changes to report regarding the Company’s commitments and contingencies as described in Note 18 of the Company’s Annual Report on Form 10-K for the Year Ended December 31, 2005.
There have been no material changes in our risk factors from those disclosed in our 2005 Annual Report on Form 10-K.
On February 16, 2006 the Company’s Board of Directors granted non-vested stock to officers of the Company under the Company’s 2000 Stock Incentive Plan as follows:
Officer
Anthony J. Carpani
Patrick D. Dugan
Alvaro Garcia-Tunon
Timothy J. Logan
Albert J. Neupaver
Barry L. Pennypacker
George A. Socher
Scott E. Wahlstrom
Timothy R. Wesley
The form of non-vested stock agreement is attached hereto as Exhibit 10.4.
The following exhibits are being filed with this report:
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Alvaro Garcia-Tunon,
Senior Vice President,
May 10, 2006
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EXHIBIT INDEX
Description and Method of Filing
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.
Amended and Restated By-Laws of the Company, dated as of January 6, 2006, filed as an exhibit to Form 8-K filed on January 9, 2006.
Employment Agreement with Albert J. Neupaver dated effective February 1, 2006, filed herewith (exhibits omitted and will be provided to SEC upon request).
Amended and Restated Stock Incentive Plan, filed as Annex A to Company’s Schedule 14A filed on April 13, 2006.
Amended and Restated Director Plan, filed as Annex B to the Company’s Schedule 14A filed on April 13, 2006.
Form of Restricted Stock Agreement, filed herewith.
Restricted Stock Agreement with Albert J. Neupaver dated February 1, 2006, filed herewith.
Rule 13a-14(a) Certification of Chief Executive Officer
Rule 13a-14(a) Certification of Chief Financial Officer
Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
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