WABCO Posts Q2 Earnings
23 July 1998
Westinghouse Air Brake Company Announces A 22% Increase in 2nd Quarter 1998 EPS
WILMERDING, Pa., July 23 -- Westinghouse Air Brake Company
(WABCO) today reported diluted earnings per share, before an
extraordinary item, of $.45 for the second quarter ended June 30, 1998, a 22%
increase compared to $0.37 per diluted share in the second quarter of 1997.
SECOND QUARTER 1998 RESULTS
Revenues for the second quarter of 1998 increased $34.0 million, or 25%,
to $172.1 million compared with $138.1 million in the prior-year quarter. The
increase includes $16.3 million of additional revenue from the acquisitions of
RFS(E), a UK-based provider of vehicle overhaul, conversion and maintenance
services to the British railway industry and H.P. s.r.l., an Italian transit
door manufacturer. Also, $28.7 million of the increased revenues is due to
higher sales in the freight division, resulting from both higher original
equipment manufacturing (OEM) sales as well as aftermarket sales. Electronics
sales were $13.4 million in the second quarter of 1998, which was a 27.1%
increase from the first quarter of 1998, but lower than the second quarter of
1997, the last quarter for the railroads to comply with the federal mandate to
provide end-of-train devices.
Gross profit for the second quarter of 1998 was $55.0 million, or 32.0% of
sales compared with $46.9 million in the same period in 1997, an increase of
$8.1 million. Margins were slightly lower as sales of acquired companies have
lower than company-wide product margins.
Operating expenses increased $4.8 million in the quarter-to-quarter
comparison, with the majority of that increase relating to costs associated
with new companies acquired in 1998 and 1997, as well as costs associated with
certain strategic initiatives such as expanded international marketing
activities and additional engineering efforts for new products. In addition,
$1.2 million was incurred for consulting in the second quarter of 1998 in
conjunction with the Year 2000 conversion. Year 2000 costs are expected to be
approximately $1.1 million in the third quarter of 1998, and approximately
$.5 million in the fourth quarter of 1998, as the system is expected to go
live early in the fourth quarter of 1998.
Earnings before interest and taxes totaled $26.1 million in the second
quarter of 1998 compared with $22.8 million in the same period of 1997.
Interest expense in the second quarter of 1998 of $7.5 million was similar to
the $7.6 million in the year earlier quarter.
Net income before an extraordinary item was $11.7 million for the second
quarter of 1998 versus $9.3 million in the same period in 1997. An
extraordinary, non-recurring charge resulted from the refinancing of the
company's credit agreement and the write-off of previously capitalized debt
issuance costs related to the old agreement. The result of this one-time,
non-cash charge, net of tax, was $2.7 million, or $.11 per diluted share.
The Company also recently purchased the transit coupler product line of
Hadady Corporation. The total investment in this product line was
approximately $5 million and is expected to be accretive. The product line
has been added to an existing plant in Spartanburg, South Carolina, and has
extended the transit product line both geographically and vertically.
YEAR TO DATE RESULTS
Revenues for the six months ended June 30, 1998 were $330.2 million,
compared to $274.6 million for the same period in 1997, a 20.3% increase. The
increase was primarily due to increased sales in the freight car market, both
original equipment and after-market sales, as well as additional revenues from
acquisitions. Gross profit was $106.8 million for the first six months of
1998, compared to $92.5 million in the first six months of 1997. Gross profit
increased $14.3 million, with slightly lower margins as sales of acquired
companies have lower margins than other WABCO operations. Increased operating
expenses were primarily due to the acquired companies and expanded marketing
and engineering efforts, as well as expenditures for the Year 2000 system
changeover. Interest expense was $14.9 million, compared with $14.5 million
in 1997. Net income increased to $19.8 million, compared with $18.9 million
for 1997, and diluted earnings per share before the extraordinary item
increased 24.0% to $.88, compared to $.71 for the prior year.
OUTLOOK
The market outlook for the Company's products continues to be favorable.
Recently released industry reports indicated that over 19,000 new freight cars
were ordered during the second quarter of 1998 and that current backlog is
greater than 63,000 cars. Given year-to-date order levels, total orders for
1998 are on track to be in excess of 70,000 cars. Industry reports are
predicting healthy levels of demand for rail equipment for 1999 as well.
Other markets, such as the locomotive and transit markets, are stable with
production in accordance with earlier industry estimates.
WABCO chairman and CEO William E. Kassling stated: "Current market
conditions and continued strong fundamentals of the rail industry have
increased demand for our products. Implementation of our long-term growth
strategy continues with the acquisitions of RFS (E) and Hadady. We are also
pleased with the recent announcement of a 100-passenger car order for our
complete, integrated package of highly engineered transit products by MARTA,
the Metropolitan Atlanta Rapid Transit Authority.
"We are continuing to implement our growth strategy by expanding
internationally and increasing products for all markets. This is an essential
component of our strategy to diversify and grow despite future individual
market fluctuations."
FORWARD LOOKING STATEMENTS
This news release contains various forward-looking statements and includes
assumptions about future market conditions, operations and results. These
statements are based on current expectations and are subject to risks and
uncertainties. They are made pursuant to safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Among the many factors that
could cause actual results to differ materially from the forward-looking
statements are: changes in the competitive environment for the Company's
product, changes in market conditions and other factors included in the
Company's filings with the Securities and Exchange Commission, incorporated by
reference herein. The Company assumes no obligation to update these
forward-looking statements or advise of changes in the assumptions on which
they were based.
Westinghouse Air Brake Company is North America's largest manufacturer of
value added equipment for locomotives, railway freight cars and passenger
transit vehicles. The Company's products, which are sold to both the original
equipment market and the aftermarket, are intended to enhance safety, improve
productivity and reduce maintenance costs for its customers. The Company's
products include electronic controls and monitors, air brakes, couplers, air
conditioning, door controls, draft gears and brake shoes.
Additional information on the Company is available by contacting our
web-site at (http://www.wabco-rail.com)
WESTINGHOUSE AIR BRAKE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
NET SALES $172,052 138,066 $330,188 $274,574
COST OF SALES 117,005 91,163 223,345 182,111
Gross Profit 55,047 46,903 106,843 92,463
SELLING & MARKETING
EXPENSES 7,154 6,108 14,068 11,734
GENERAL & ADMINISTRATIVE
EXPENSES 12,719 9,719 24,303 18,979
ENGINEERING EXPENSES 7,016 6,318 13,454 12,315
AMORTIZATION EXPENSE 2,074 1,974 4,179 4,109
Income from
Operations 26,084 22,784 50,839 45,326
OTHER INCOME AND EXPENSES:
Interest expense 7,525 7,613 14,898 14,484
Other (Income)expense,
net (312) (108) (443) (156)
Income before income
taxes 18,871 15,279 36,384 30,998
INCOME TAXES 7,171 5,959 13,826 12,089
INCOME BEFORE
EXTRAORDINARY ITEM 11,700 9,320 22,558 18,909
LOSS ON EXTINGUISHMENT
OF DEBT, net of tax (2,730) -- (2,730) --
NET INCOME $ 8,970 $ 9,320 $ 19,828 $ 18,909
======== ======== ======== ========
DILUTED EARNINGS PER COMMON SHARE
Income before
Extraordinary item $ 0.45 $ 0.37 $ 0.88 $ 0.71
Extraordinary item,
net ( .11) -- ( .11) --
Net Income $ 0.34 $ 0.37 $ 0.77 $ 0.71
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 25,837 24,911 25,733 26,681
======== ======= ======= =======
NOTES:
DEPRECIATION AND
AMORTIZATION
EXPENSE $ 6,615 $ 5,947 $ 12,999 $ 12,148
CAPITAL EXPENDITURES $ 9,076 $ 7,363 $ 14,405 $ 11,798
WESTINGHOUSE AIR BRAKE COMPANY
AND SUBSIDIARIES
ADDITIONAL SALES INFORMATION
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
6/30/98 6/30/97 6/30/98 6/30/97
ELECTRONICS $ 13,447 $ 22,206 $ 24,031 $ 45,299
FREIGHT CAR 71,770 43,117 136,437 88,027
TRANSIT 46,861 42,659 96,844 79,994
LOCOMOTIVE 20,662 12,233 32,797 23,831
FRICTION & OTHER 19,312 17,851 40,079 37,423
Total $172,052 $138,066 $330,188 $274,574
======== ======== ======== ========
WESTINGHOUSE AIR BRAKE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(UNAUDITED)
6/30/98 12/31/97
ASSETS:
Current assets $ 215,259 $ 180,499
Property, Plant and Equipment, net 116,141 108,367
Other assets, net 126,039 122,013
Total Assets $ 457,439 $ 410,879
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY:
Current liabilities, excluding
current portion of long-term debt $ 110,433 $ 99,180
Total debt 376,239 364,934
Other liabilities 27,358 26,028
Shareholders' Equity (56,591) (79,263)
Total Liabilities and
Shareholders' Equity $ 457,439 $ 410,879
======== ========
NOTES:
Current portion of long-term debt $ 15,000 $ 32,600