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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (date of earliest event reported): September 19, 1996
WESTINGHOUSE AIR BRAKE COMPANY
(Exact name of registrant as specified in its charter)
Commission file number 1-13782
DELAWARE 1-13782 25-1615902
(State or other jurisdiction (Commission (IRS Employer
of Incorporation File Number) Identification No.)
1001 Air Brake Avenue
Wilmerding, Pennsylvania 15148
(Address of principal executive offices)
Registrant's telephone number, including area code: (412) 825-1000
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On September 19, 1996, Westinghouse Air Brake Company,
("WABCO" or the "Company"), through two of its wholly-owned direct
subsidiaries, W & P Holding Corp. ("W & P") and Westinghouse Railway Holdings
(Canada) Inc. ("Westinghouse Canada"), acquired from Mark IV Industries Inc.
certain businesses and operations in the United States, Canada, the United
Kingdom and The Netherlands. The two-part transaction involved two purchase
agreements, each executed and delivered on September 19, 1996, and each
containing an agreement by WABCO to guaranty and act as surety for the
obligations of its purchasing subsidiary thereunder. In one agreement, W & P
purchased from Mark IV Industries, Inc. and Mark IV PLC all of the issued and
outstanding capital stock of Vapor Corp., an Illinois corporation, Mark IV
Transportation Products Corp., a Delaware corporation, Vapor Netherlands B.V.,
a Netherlands corporation, and Vapor U.K. Limited, a United Kingdom corporation
(collectively, the "Vapor Companies"), and in the other agreement Westinghouse
Canada purchased from Mark IV Industries Limited all of the issued and
outstanding capital stock of Vapor Canada Inc., a Canadian corporation ("Vapor
Canada"; Vapor Canada and the Vapor Companies are hereinafter collectively
referred to as the "Vapor Group").
The assets of the Vapor Group consist of real property located
in Niles, Illinois (333,000 square feet), and in Montreal, Quebec, Canada
(106,000 square feet), as well as manufacturing and office equipment,
inventory, contracts and intellectual property. The Vapor Group had
approximately 650 employees in September, 1996. Prior to WABCO's acquisition
thereof, such assets had been used in the manufacture and sale of, among other
things, door control operating systems and accessories for buses and rail cars,
vehicle to wayside communications equipment for use in connection with the
monitoring of mass transit systems and electrical, HVAC and thermal products
for use in mass transit vehicles, locomotives and industrial markets. It is
presently anticipated that the acquired assets will continue in those same
uses.
The aggregate purchase price for the Vapor Group was cash in
the amount of approximately $63,000,000. Pursuant to an earn-out provision,
the purchase price will be increased by $1.00 for every $3.50 of net sales of
the Vapor Group in excess of $145,000,000 during the period from August 1, 1996
to February 28, 1998, such increased amount to be capped at $2,000,000. The
purchase price was arrived at by negotiation among the parties. To obtain the
necessary funds for the acquisition, the Company entered into an amendment and
restatement of its credit agreement with The Chase Manhattan Bank, as successor
to Chemical Bank, The Chase Manhattan Bank Delaware, as successor to Chemical
Bank Delaware, The Bank of New York and the other financial institutions named
therein.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
Item 7(a) Financial Statements
Coopers Coopers & Lybrand L.L.P.
&Lybrand
a professional sevices firm
VAPOR COMPANIES
COMBINED FINANCIAL STATEMENTS
AS OF THE LAST DAY OF FEBRUARY 1996 AND 1995,
AND FOR THE THREE YEAR PERIOD ENDED
FEBRUARY 29, 1996
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COOPERS COOPERS & LYBRAND L.L.P.
&LYBRAND
a professional sevices firm
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE MANAGEMENT OF THE
VAPOR COMPANIES
We have audited the accompanying combined balance sheets of the Vapor Companies
(or the "Group", as defined in Note 1) as of the last day of February, 1996 and
1995, and the related combined statements of income and net equity, and cash
flows for each of the three years in the period ended February 29, 1996. These
financial statements are the responsibility of the Group's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of the Vapor Companies
as of the last day of February, 1996 and 1995, and the combined results of
their operations and their cash flows for each of the three years in the period
ended February 29, 1996, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Rochester, New York
April 17, 1996
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VAPOR COMPANIES
COMBINED BALANCE SHEETS
LAST DAY OF FEBRUARY 1996 AND 1995
(Dollars in Thousands)
ASSETS 1996 1995
---- ----
Current Assets:
Cash $ 622 $ 828
Accounts receivable, net 17,513 17,150
Inventories 14,324 10,110
Current deferred tax asset 1,399 1,596
Other current assets 2,387 2,773
------- -------
Total current assets 36,245 32,457
Property, plant and equipment, net 20,132 20,939
Cost in excess of net assets acquired 9,768 10,049
Non-current deferred tax asset 1,379 1,556
Other non-current assets 86 -
------- -------
TOTAL ASSETS $67,610 $65,001
======= =======
LIABILITIES & NET EQUITY
Current Liabilities:
Accounts payable $ 5,030 $ 3,356
Compensation related liabilities 2,088 2,031
Accrued warranties and other expenses 3,724 5,660
------- -------
Total current liabilities 10,842 11,047
Post-retirement liabilities 1,200 1,200
Net equity 55,568 52,754
------- -------
TOTAL LIABILITIES
& NET EQUITY $67,610 $65,001
======= =======
The accompanying notes are an integral part of these financial statements.
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VAPOR COMPANIES
COMBINED STATEMENTS OF INCOME AND NET EQUITY
YEARS ENDED THE LAST DAY OF FEBRUARY 1996, 1995 and 1994
(Dollars in Thousands)
1996 1995 1994
---- ---- ----
Net sales $64,977 $68,046 $66,595
------- ------- -------
Operating costs:
Cost of products sold 42,451 47,626 46,363
Selling and administration 10,653 10,146 11,007
Research and development 1,388 1,890 1,803
Depreciation and amortization 2,056 2,044 1,990
------- ------- -------
Total operating costs 56,548 61,706 61,163
------- ------- -------
Operating income 8,429 6,340 5,432
Provision for income taxes (3,347) (2,441) (2,088)
------- ------- -------
NET INCOME 5,082 3,899 3,344
Net equity at the beginning
of the year 52,754 49,894 46,933
Cash transfers to parent, net (2,268) (1,039) (383)
------- ------- -------
Net equity at the end of the year $55,568 $52,754 $49,894
======= ======= =======
The accompanying notes are an integral part of these financial statements.
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VAPOR COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED THE LAST DAY OF FEBRUARY 1996, 1995 AND 1994
(Dollars in Thousands)
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income $ 5,082 $ 3,899 $ 3,344
Items not affecting cash:
Depreciation and amortization 2,056 2,044 1,990
Deferred income tax (benefit) 374 301 (297)
------- ------- -------
Net cash provided by earnings 7,512 6,244 5,037
Changes in assets and liabilities
Accounts receivable (363) (4,239) (490)
Inventories (4,214) 1,650 (2,772)
Other assets 300 (398) (930)
Accounts payable 1,674 (2,330) 2,082
Other liabilities (1,879) 720 (902)
------- ------- -------
Net cash provided
by operating activities 3,030 1,647 2,025
------- ------- -------
Cash flows for investing activities,
to purchase equipment (968) (634) (2,000)
------- ------- -------
Net cash transferred from (to) parent (2,268) (1,039) (383)
------- ------- -------
Net decrease in cash (206) (26) (358)
Cash at the beginning of the year 828 854 1,212
------- ------- -------
Cash at the end of the year $ 622 $ 828 $ 854
======= ======= =======
The accompanying notes are an integral part of these financial statements.
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VAPOR COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
FEBRUARY 29, 1996
1. THE VAPOR COMPANIES AND THEIR SIGNIFICANT ACCOUNTING POLICIES
Mark IV Industries, Inc. ("Mark IV" or the "Parent") is the direct owner of all
the issued and outstanding capital stock of Mark IV Transportation Products
Corp. ("Mark IV Transportation"), Vapor Corp. ("Vapor") and Mark IV Netherlands
B.V. ("Mark IV Netherlands"). Mark IV is also the indirect owner of all the
issued and outstanding capital stock of Vapor Canada Inc. ("Vapor Canada") and
Vapor UK Limited ("Vapor UK"). Mark IV Transportation, through its Vapor
Division and in combination with Vapor Canada, Vapor UK, Vapor and Mark IV
Netherlands, (collectively referred to as the "Vapor Companies" or the "Group")
is engaged in the manufacture and sale of, among other things, door control
operating systems and accessories for buses and rail cars, vehicle to wayside
communications equipment for use in connection with the monitoring of mass
transit systems and electrical, HVAC and thermal products for use in mass
transit vehicles, locomotives and industrial markets.
The combined financial statements include the accounts of the Vapor Companies,
as well as the Group's land and manufacturing facility in Montreal, Quebec, as
discussed in Note 4 to these combined financial statements. All significant
inter-Group transactions have been eliminated. These combined financial
statements have been prepared in conformity with generally accepted accounting
principles, which requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the date of such
financial statements, and the reported amounts of revenues and expenses during
the reporting periods. It should be recognized that the actual results could
differ from those estimates. The Group's significant accounting policies are
as follows.
Inventories
Inventories are stated at the lower of cost or market, with cost determined on
the first-in, first-out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment are presented at cost, net of accumulated
depreciation. The cost of property, plant and equipment retired or otherwise
disposed of, and the accumulated depreciation thereon, are eliminated from the
asset and related accumulated depreciation accounts, and any resulting gain or
loss is reflected in income The Group provides for depreciation of plant and
equipment primarily on the straight-line method to amortize the cost of such
plant and equipment over its useful life.
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VAPOR COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
FEBRUARY 29, 1996
Cost in Excess of Net Assets Acquired
Cost in excess of net assets acquired ("goodwill") is presented net of
accumulated amortization. Management continually evaluates the existence of
goodwill impairment on the basis of whether the goodwill is fully recoverable
from projected, undiscounted net cash flows of the related business unit.
Goodwill is amortized on the straight-line method over a 40 year period.
Sales and Income Recognition
Sales are recorded when the product is shipped and title is passed to the
customer. Sales on long-term contracts are recognized under the percentage-
of-completion method of accounting, and are measured on the units of delivery
basis. The percentage-of-completion method gives effect to the most recent
contract value and estimates of costs to completion. When appropriate,
contract prices are adjusted for increased scope and other changes ordered or
caused by the customer.
Income Taxes
Mark IV adopted Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS No. 109), in fiscal 1994. The adoption of
this standard changed Mark IV's method of accounting for income taxes from the
deferred method to the liability method. Mark IV adopted SFAS No. 109
retroactively by restating prior years' financial statements for all years
which included the operations of the Vapor Companies. The Group's provisions
for income taxes have been calculated on the separate return basis.
Postretirement Benefits
The Group adopted Statement of Financial Accounting Standards No. 106,
Employers Accounting for Postretirement Benefits Other Than Pensions (SFAS No.
106), effective as of February 28, 1993. SFAS No. 106 required the estimated
present-value of the Groups's liability for its commitments to provide health
and life insurance benefits to its retirees to be included in the balance
sheet. The related expense is required to be recognized on the accrual method
over the remaining years of the employees' active service, up to the dates of
the individual's eligibility to retire and begin receiving the benefit.
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VAPOR COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
FEBRUARY 29, 1996
Research and Development Costs
Research and development costs are expensed as incurred. Incentives received
from the Canadian government related directly to research and development costs
incurred in Canada are netted against the related costs. The amount of such
incentives amounted to approximately $504,000; $628,000; and $426,000 in fiscal
1996, 1995 and 1994, respectively.
Foreign Currency
The assets and liabilities of the Group's foreign operations are translated at
year-end exchange rates, and resulting gains and losses are included as a part
of net equity. Foreign currency transactions are included in income as
realized and amounted to gains (losses) of approximately $(91,000); $211,000;
and $478,000 in fiscal 1996, 1995 and 1994, respectively.
Mark IV enters into foreign currency forward contracts as a hedge for certain
existing or anticipated business transactions that are denominated in various
foreign currencies. Since such transactions are based upon Mark IV's
consolidated currency exposure, including operations other than those of the
Group, all related gains or losses on such hedge transactions have been
excluded from the Group's financial statements, and any underlying balance
sheet exposure remains the responsibility of Mark IV.
Cash
Cash consists of balances in the accounts of the Group's foreign operating
units. All other cash balances are transferred to the Parent as they arise.
2. ACCOUNTS RECEIVABLE ALLOWANCES AND CONTINGENCY
Accounts receivable are reflected net of allowances for doubtful accounts of
$515,000 and $362,000 as of the last day of February, 1996 and 1995,
respectively.
Accounts receivable include an amount of approximately $750,000 which is past
due from a customer and may not be collected in full. The customer is
experiencing cash-flow/financing difficulties and pursuing alternative
financing sources to enable it to continue its operations. The Group is
presently shipping product to this customer only on a cash-on-delivery basis.
Management of the Group anticipates that a substantial portion of the $750,000
will ultimately be received; however, the allowance for doubtful accounts
identified above includes an amount of $250,000 which was added to provide for
the possible loss of some portion of this receivable.
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VAPOR COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
FEBRUARY 29, 1996
3. INVENTORIES
Inventories consist of the following as of the last day of February, 1996 and
1995 (dollars in thousands):
1996 1995
---- ----
Purchased materials and parts $ 11,237 $ 7,694
Contracts in process and sub-assemblies 4,795 4,114
Finished goods 892 1,402
-------- --------
Total inventories 16,924 13,210
Less progress billings 2,600 3,100
-------- --------
Net inventories $ 14,324 $ 10,110
======== ========
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and consist of the following
as of the last day of February, 1996 and 1995 (dollars in thousands):
1996 1995
---- ----
Land and improvements $ 5,563 $ 5,563
Buildings and improvements 9,150 9,147
Machinery and equipment 11,282 10,317
-------- --------
Total property, plant and equipment 25,995 25,027
Less accumulated depreciation 5,863 4,088
-------- --------
Property, plant and equipment, net $ 20,132 $ 20,939
======== ========
The Group's land and manufacturing facility in Montreal, Quebec have been
rented from a separate indirect subsidiary of Mark IV up through February 29,
1996. Subsequent to that date, the land and building were transferred to the
Vapor Companies, with "payment" made through the inter-company account.
Therefore, the transaction has been accounted for as if it had occurred as of
March 1, 1993. The accompanying combined balance sheets include the related
net asset value of the land and building. The income statements for each of
the three fiscal years in the period ended February 29, 1996 exclude the rental
expense paid, and reflect depreciation expense on the building as if it had
been owned during that period.
Depreciation expense was Sl,775,000; $1,763,000; and $1,709,000 in fiscal
1996, 1995 and 1994, respectively.
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VAPOR COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
FEBRUARY 29. 1996
5. COST IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets acquired is presented net of accumulated
amortization of $1,294,000 and $1,013,000 as of the last day of February 1996
and 1995, respectively. Amortization expense was approximately $281,000 in
each of fiscal 1996, 1995 and 1994.
6. INCOME TAXES
Operating income and the related provision for income taxes for fiscal 1996,
1995 and 1994 consists of the following (dollars in thousands):
1996 1995 1994
---- ---- ----
Operating income:
United States $8,296 $2,759 $1,746
Foreign 133 3,581 3,686
------ ------ ------
Total operating income $8,429 $6,340 $5,432
====== ====== ======
Provision for income taxes:
Currently payable
United States $2,838 $1,216 $ 968
Foreign 135 924 1,417
------ ------ ------
Total currently payable 2,973 2,140 2,385
------ ------ ------
Deferred
United States 441 (48) (203)
Foreign (67) 349 (94)
------ ------ ------
Total deferred (benefit) 374 301 (297)
------ ------ ------
Total provision for taxes $3,347 $2,441 $2,088
====== ====== ======
The provision for income taxes for fiscal 1996, 1995, and 1994 differs from the
amount computed using the United States statutory income tax rate as follows
(dollars in thousands):
1996 1995 1994
---- ---- ----
Expected tax at United States
statutory income tax rate $2,938 $2,219 $1,901
Permanent differences 125 126 107
State and local income taxes 289 102 67
Tax credits (25) (25) (20)
Foreign tax rate differences 20 19 33
------ ------ ------
Total provision for taxes $3,347 $2,441 $2,088
====== ====== ======
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VAPOR COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
FEBRUARY 29, 1996
The tax effects of the Group's temporary differences which give rise to
deferred tax assets (liabilities) consist of the following at the last day of
February, 1996 and 1995 (dollars in thousands):
1996 1995
---- ----
Current:
Accounts receivable $ 172 $ 96
Inventories (479) (497)
Compensation related 420 420
Other items 1,286 1,577
------- -------
Net current deferred tax assets $ 1,399 $ 1,596
======= =======
Non-current:
Fixed and intangible assets $ 1,379 $ 1,556
------- -------
Net non-current deferred tax assets $ 1,379 $ 1,556
======= =======
The undistributed earnings of the Group's foreign subsidiaries have been
reinvested in each country, and are not expected to be remitted back to Mark
IV.
7. PENSION AND RETIREMENT SAVINGS PLANS
The Group's U.S. employees participate in a defined-benefit pension plan which
is funded and administered by Mark IV. Such plan provides retirement benefits
based upon the employees' age, earnings and years of service. The Group
recognized an expense for the estimated service cost of such plan of
approximately $571,000; $537,000; and $485,000 in fiscal 1996, 1995 and 1994,
respectively. The plan is a part of Mark IV's Master Defined Benefit Plan, and
the funded position and responsibility for benefit payments to retirees remains
with Mark IV.
The Group's employees in Canada participate in a defined benefit pension plan
which is funded and administered by the Vapor Canada operating unit of the
Group. The Group recognized an expense for this defined-benefit plan of
approximately $138,000; $112,000; and $108,000 in fiscal 1996, 1995 and 1994,
respectively. The plan had gross assets of approximately $3,429,000 as of
February 29, 1996 and related liabilities of approximately $3,343,000 as of
that same date. The net asset position of this plan has been included in the
Group's combined balance sheet as of February 29. 1996.
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VAPOR COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
FEBRUARY 29, 1996
8. POST-RETIREMENT BENEFITS
The Group currently provides health and life insurance benefits to a number of
existing retirees from its U.S. operations. Contributions currently required
to be paid by the retirees towards the cost of such plans range from 30% to
60%. The Group also has a number of active employees who might receive such
benefits upon their retirement. The related plan includes provisions which
allow management of the Group to increase the cost to participants, or
otherwise modify or terminate such benefits as determined to be appropriate.
The following table sets forth the liability for the cost of these benefits
included in the combined balance sheets as of the last day of February, 1996
and 1995 (dollars in thousands):
1996 1995
---- ----
Accumulated post-retirement benefit obligation:
Retirees and beneficiaries receiving benefits $ 448 $ 433
Active employees, fully eligible for benefits 477 456
Active employees, not fully eligible for benefits 382 311
------ ------
Total accumulated benefit obligation 1,307 1,200
Unrecognized net loss (107) -
------ ------
Post-retirement benefit liability recognized
in the combined balance sheet $1,200 $1,200
====== ======
The Group's post-retirement benefit expense on the accrual method for fiscal
1996, 1995 and 1994 includes the following components (dollars in thousands):
1996 1995 1994
---- ---- ----
Service cost-benefits earned
during the period $ 20 $ 25 $ 30
Interest cost on the APBO 100 90 80
---- ---- ----
Total expense $120 $115 $110
==== ==== ====
The APBO was calculated using a discount rate of 7.50% at February 29, 1996,
and 8.75% at February 28, 1995. The change in the discount rate did not have a
significant effect on the expense determination for fiscal 1996 and 1995, and
is not expected to have a significant effect for fiscal 1997. The APBO
determinations assume an initial health care cost trend rate of approximately
8.0%, trending down rateably to an ultimate rate of 4.5%. A one-percentage-
point increase in such trend rate would not have a significant effect on the
APBO or the Group's annual expense.
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VAPOR COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
FEBRUARY 29, 1996
9. LEGAL MATTERS
The Group is involved in various legal matters. In the opinion of management,
the ultimate cost to resolve these matters will not have a material adverse
effect on the Group's financial position, results of operations or cash flows.
10. FOREIGN OPERATIONS
The Group's foreign operations are located primarily in Canada, and to a lesser
extent in Europe. Information concerning the Group's operations by geographic
area for fiscal 1996, 1995 and 1994 is as follows (dollars in thousands):
1996 1995 1994
---- ---- ----
NET SALES TO CUSTOMERS
United States $ 52,755 $ 47,930 $ 44,641
Foreign 12,222 20,116 21,954
-------- -------- --------
Total net sales
to customers $ 64,977 $ 68,046 $ 66,595
======== ======== ========
OPERATING INCOME
United States $ 8,296 $ 2,759 $ 1,746
Foreign 133 3,581 3,686
-------- -------- --------
Total operating
income $ 8,429 $ 6,340 $ 5,432
======== ======== ========
IDENTIFIABLE ASSETS
United States $ 52,963 $ 55,292 $ 51,135
Foreign 14,647 9,709 12,617
-------- -------- --------
Total identifiable
assets $ 67,610 $ 65,001 $ 63,752
======== ======== ========
The net sales to customers reflect the sales of the Group's operating units in
each geographic area to unaffiliated customers. Export sales from the United
States to unaffiliated customers were $15,172,000; $8,981,000; and $5,453,000
in fiscal 1996, 1995, and 1994, respectively.
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VAPOR COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
FEBRUARY 29, 1996
11. RELATED PARTY TRANSACTIONS
Mark IV provides or coordinates treasury, tax, audit, legal, medical and risk
insurance, and benefits administration services to the various operating units
of the Group. Insurance, legal, audit and direct employee benefits related
costs are allocated directly to the Group. An allocation of Mark IV's costs
for tax, treasury and other administrative work performed is not made, as they
are not believed to be significant. All inter-company accounts with Mark IV,
and other affiliates outside of the Vapor Companies, have been included as a
part of net equity.
12. CONDITIONAL GRANT
In February 1996, Vapor Canada, together with Sensotech Ltd. ("Sensotech"),
entered into a cooperation and project funding agreement with the Canada -
Israel Industrial Research and Development Foundation for a maximum sum of
$600,000 to be allocated $280,000 to Vapor Canada and $320,000 to Sensotech.
As of February 29, 1996, Vapor Canada had received $80,000 of this amount, and
recorded it as a deferred credit in the accompanying combined balance sheet.
The parties are jointly and severally obligated to repay the funding at a rate
of 2.5% of gross sales derived from the project (as defined), up to a maximum
of 100% of the funding received. However, if no orders are received, there is
no obligation to return the funds to Sensotech.
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Item 7(b) Pro Forma Condensed Consolidated Financial Information
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
The following Pro Forma Condensed Consolidated Financial Statements are based
on the historical financial statements of Westinghouse Air Brake Company
("WABCO" or the "Company"), and the "Vapor Group," adjusted to give effect to
the acquisition of the Vapor Group by the Company. The Pro Forma Condensed
Consolidated Statement of Operations for the year ended December 31, 1995 and
for the six months ended June 30, 1996 assume that the acquisition had occurred
on January 1, 1995. The unaudited Pro Forma Condensed Consolidated Balance
Sheet gives effect to the acquisition of the Vapor Group by the Company as if
it had occurred on June 30, 1996.
The pro forma financial information reflects the purchase method of accounting
for the acquisition of the Vapor Group, and accordingly is based on estimated
purchase accounting adjustments that are subject to further revision depending
upon completion of any appraisals or other studies of the fair value of Vapor's
assets and liabilities.
The pro forma financial information reflects certain assumptions described
above and in Notes to Pro Forma Condensed Consolidated Financial Statements
below. The pro forma financial information does not purport to present what the
Company's results of operations would actually have been if the acquisition of
the Vapor Group had occurred on the assumed date, as specified above, or to
project the Company's financial condition or results of operations for any
future period.
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WESTINGHOUSE AIR BRAKE COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Purchase Vapor Acquisition
Historical Historical Agreement Acquisition Pro Forma Pro Forma
Company Vapor (1) Adjustments Adjusted Adjustments As Adjusted
------- --------- ----------- -------- ----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,196 $ 1,563 $(1,563)(2) $ - $ 1,000 (11) $ 4,196
Accounts receivable 56,684 17,632 (541)(3) 17,091 (25) 73,750
Inventories 49,915 14,058 - 14,058 2,018 (5,6) 65,991
Other current assets 4,912 220 - 220 150 (11) 5,282
-------- ------- ------- ------- -------- --------
Total current assets 114,707 33,473 (2,104) 31,369 3,143 149,219
Property, Plant and Equipment, net 73,671 19,743 - 19,743 - 93,414
OTHER ASSETS:
Cost in Excess of Net Assets Acquired 51,442 9,619 - 9,619 27,292 (11) 78,734
- - - - (9,619)(7)
Other Intangibles 27,069 - - - - 27,069
Deferred taxes - 788 - 788 3,288 (10) 3,288
- - - - (788)(7)
Other noncurrent assets 13,849 2,113 - 2,113 (1,200)(5) 14,762
-------- ------- ------- ------- -------- --------
Total other assets 92,360 12,520 - 12,520 18,973 123,853
TOTAL ASSETS $280,738 $65,736 $(2,104) $63,632 $ 22,116 $366,486
======== ======= ======= ======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 19,668 $ 4,457 $ - $ 4,457 $ - $ 24,125
Other current liabilities 41,809 6,322 (660)(4) 5,662 9,840 (8,9) 57,311
-------- ------- ------- ------- -------- --------
Total current liabilities 61,477 10,779 (660) 10,119 9,840 81,436
Long-term debt 293,590 - - - 65,000 (11) 358,590
Deferred income taxes 3,314 - - - - 3,314
Other long-term liabilities 16,041 789 - 789 - 16,830
-------- ------- ------- ------- -------- --------
Total liabilities 374,422 11,568 (660) 10,908 74,840 460,170
Shareholders' equity (93,684) 54,168 (1,444) 52,724 (52,724) (93,684)
-------- ------- ------- ------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $280,738 $65,736 $(2,104) $63,632 $ 22,116 $366,486
======== ======= ======= ======= ======== ========
The accompanying notes are an integral part of this statement.
19
WESTINGHOUSE AIR BRAKE COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Acquisition
Historical Historical Pro Forma Pro Forma
Company Vapor (12) Adjustments As Adjusted
------- ---------- ----------- -----------
Net sales $424,959 $64,977 $ - $489,936
Cost of sales 278,901 42,451 - 321,352
-------- ------- -------- --------
Gross profit 146,058 22,526 - 168,584
Selling, general and engineering expenses 56,756 14,097 1,500 (13) 72,353
-------- ------- -------- --------
Income from operations 89,302 8,429 (1,500) 96,231
OTHER INCOME AND EXPENSES:
Interest expense 24,857 - 4,550 (14) 29,407
Interest expense to affiliates 6,141 - - 6,141
Other (income) expense, net (205) - - (205)
-------- ------- -------- --------
Income before income taxes and extraordinary item 58,509 8,429 (6,050) 60,888
INCOME TAXES 23,402 3,347 (15) (2,420)(16) 24,329
-------- ------- -------- --------
Income before extraordinary item 35,107 5,082 (3,630) 36,559
EXTRAORDINARY ITEM, net of taxes (1,382) - - (1,382)
-------- ------- -------- --------
NET INCOME $ 33,725 $ 5,082 $(3,630) $ 35,177
======== ======= ======= ========
INCOME PER COMMON SHARE:
Income before extraordinary item $ 1.32 $ 1.37
Extraordinary item $ (0.05) $ (0.05)
-------- --------
Net income $ 1.27 $ 1.32
======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 26,639 26,639
======== ========
The accompanying notes are an integral part of this statement.
20
WESTINGHOUSE AIR BRAKE COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Acquisition
Historical Historical Pro Forma Pro Forma
Company Vapor (12) Adjustments As Adjusted
------- ---------- ----------- -----------
Net sales $214,866 $36,500 $ - $251,366
Cost of sales 142,700 25,552 - 168,252
-------- ------- ------- --------
Gross profit 72,166 10,948 - 83,114
Selling, general and engineering expenses 32,958 7,752 580 (13) 41,290
-------- ------- ------- --------
Income from operations 39,208 3,196 (580) 41,824
OTHER INCOME AND EXPENSES:
Interest expense 11,886 - 2,275 (14) 14,161
Interest expense to affiliates 808 - - 808
Other (income) expense, net (73) - - (73)
-------- ------- ------- --------
Income before income taxes 26,587 3,196 (2,855) 26,928
INCOME TAXES 10,635 1,278 (15) (1,142)(16) 10,771
-------- ------- ------- --------
NET INCOME $ 15,952 $ 1,918 $(1,713) $16,157
======== ======= ======= =======
INCOME PER COMMON SHARE $ 0.56 $ 0.57
======== =======
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 28,446 28,446
======== =======
The accompanying notes are an integral part of this statement.
21
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The pro forma adjustments to the condensed consolidated balance sheet are as
follows:
1. The historical accounts of the Vapor Group are as of August 31, 1996.
2. To eliminate cash which was retained by the seller.
3. To eliminate certain trade receivables and related reserves that were
retained by the seller.
4. To eliminate certain compensation related accruals that were retained by
the seller.
5. To adjust inventory carrying values to conform with WABCO's accounting
policies.
6. To increase reserves for excess and slow moving inventory to conform with
WABCO's accounting policies.
7. To eliminate historical Vapor goodwill and taxes.
8. To adjust warranty reserves to conform with WABCO's accounting policies.
9. To record reserves for estimated costs associated with restructuring,
staffing reductions and other costs to integrate the acquired operations.
10. To record deferred taxes on related reserves and other purchase
accounting timing differences.
11. To record the borrowing of $65 million and the simultaneous acquisition
of the Vapor Group. Pending completion of a formal appraisal, the
components of the purchase price have been allocated as follows:
Purchase Price $63,850
Current Assets 33,362
Property, Plant and Equipment 19,743
Other noncurrent assets 4,201
Intangibles, including goodwill 27,292
Current Liabilities 19,959
Noncurrent Liabilities 789
22
The pro forma adjustments to the condensed consolidated statements of
operations are as follows:
12. The historical results of the Vapor Group are for the twelve months ended
February 29, 1996. The historical results of the Vapor Group are for the
six months ended August 31, 1996.
13. To reflect the amortization of acquired intangibles, including goodwill,
over their estimated average lives of thirty years and certain adjustments
to selling, general and engineering expenses:
Year ended Six months ended
December 31, June 30,
1995 1996
---- ----
(In Thousands)
Amortization of goodwill and other intangibles $ 910 $ 455
Accrued cost of employee benefit programs, including ESOP 590 125
------- -----
$ 1,500 $ 580
======= =====
The ESOP expense is based on actual market price for WABCO stock and could
increase or decrease as the market price changes.
14. To reflect incremental interest expense (interest rate of 7%) on debt
incurred to finance the Vapor acquisition.
15. To record income tax expense on Vapor's historical results at the
Company's effective tax rate of 40%.
16. To record income tax effect of the pro forma adjustments at the Company's
effective tax rate of 40%.
Item 7(c) Exhibits
(c) The exhibits identified below are filed herewith as a
part of this Report. The Company agrees to furnish to the Commission upon
request a copy of any omitted schedule (or other similar attachment) to the
agreements identified below.
Exhibit No. Description
- ----------- -----------
2.01 Purchase Agreement dated as of September 19, 1996 by
and among Mark IV Industries Inc., Mark IV PLC and
W & P Holding Corp.
2.02 Purchase Agreement dated as of September 19, 1996 by
and between Mark IV Industries Limited and
Westinghouse Railway Holdings (Canada) Inc.
23
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
WESTINGHOUSE AIR BRAKE COMPANY
Dated: October 3, 1996 By /s/ ROBERT J. BROOKS
---------------------------------
Robert J. Brooks
Vice President and
Chief Financial Officer
24
INDEX TO EXHIBITS
Exhibits:
- ---------
2.01 Purchase Agreement dated as of September 19, 1996 by and among Mark IV Industries Inc.,
Mark IV PLC and W & P Holding Corp.
2.02 Purchase Agreement dated as of September 19, 1996 by and between Mark IV Industries Limited
and Westinghouse Railway Holdings (Canada) Inc.