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PART I
General
Westinghouse Air Brake Technologies Corporation, doing business as Wabtec Corporation, is a Delaware corporation with headquarters at 30 Isabella Street in Pittsburgh, Pennsylvania. Our telephone number is 412-825-1000, and our website is located at www.wabteccorp.com. All references to “we”, “our”, “us”, the “Company” and “Wabtec” refer to Westinghouse Air Brake Technologies Corporation and its consolidated subsidiaries. George Westinghouse founded the original Westinghouse Air Brake Co. in 1869 when he invented the air brake. Westinghouse Air Brake Company (“WABCO”) was formed in 1990 when it acquired certain assets and operations from American Standard, Inc., now known as Trane (“Trane”). The Company went public on the New York Stock Exchange in 1995.
Throughout the years, the Company has made a number of strategic acquisitions leading the Company to where it is today. These have primarily included:
•the 1999 merger with MotivePower Industries, Inc. whereby the Company adopted its current name of Westinghouse Air Brake Technologies Corporation, or Wabtec;
•the 2017 acquisition of Faiveley Transport, S.A. (“Faiveley Transport”), a leading provider of value-added, integrated systems and services, primarily for the global transit rail market. Based in France, the Faiveley Transport business has roots to 1919 and made Wabtec a leader in manufacturing pantographs, automatic door mechanisms, air conditioning systems, railway braking systems and couplers; and
•the 2019 merger with GE Transportation, a business unit of General Electric Company. This brought a global technology leader and supplier of locomotives, equipment, services and digital solutions to the rail, mining, marine, stationary power and drilling industries into Wabtec.
As a result of the aforementioned acquisitions, as well as other smaller acquisitions, and organic growth, Wabtec is now one of the world’s largest providers of locomotives, value-added, technology-based equipment, systems and services for the global freight rail and passenger transit industries with over 27,500 employees and operations in over 50 countries. We believe we hold a leading market share for many of our core product lines globally. Our highly engineered products, which are intended to enhance safety, improve productivity and efficiency, and reduce maintenance costs for customers, can be found on a large percentage of locomotives, freight cars, passenger transit cars and buses around the world. In 2019, the Company had net sales of approximately $8.2 billion and net income attributable to our shareholders of about $327 million. In 2019, net sales of aftermarket parts and services represented about 55% of total net sales, while net sales to customers outside of the U.S. accounted for about 60% of total net sales.
Through both internal growth as well as acquisitions, Wabtec has positioned itself with the following strategic benefits:
•Increased diversity of revenues by product, geography and market. Comprehensive product offerings spanning the freight rail and passenger transit industries, as well as products in the bus, mining and marine, and discrete industrial markets help Wabtec to balance the cyclical nature of the global rail business.
•Significant Operating Synergies and Improved Financial Profile. The consummation of the GE Transportation transaction is leading to operating synergies across all of Wabtec. As a result, we expect to generate approximately $250 million in annual run-rate operating synergies, driven by cost and revenue opportunities, before 2022. This will enhance Wabtec’s margins and revenue growth opportunities with strong free cash flow generation to enable strategic deleveraging through debt reduction and earnings growth.
•Increased technical and engineering expertise. Particularly with the onboarding of Faiveley Transport and GE Transportation, Wabtec's technical capabilities and product development efforts are strengthened.
•Increased Scale and Diversification of Wabtec’s Freight Product Portfolio. Wabtec is now one of the world’s largest providers of locomotives, freight car components, technology-enabled equipment, systems and services for the locomotive and freight rail industries.
•Broadened product line and international presence in the transit market. Wabtec now offers a comprehensive, broad and diversified portfolio of products to the transit rail industries throughout the world.
•Complementary Digital and Electronics Technologies. Wabtec now has a comprehensive digital portfolio and leading engineering and technical intellectual property, which provides electronics and digital technologies to meet growing demand for train intelligence and network optimization.
•Enhanced Aftermarket and Services Opportunities. Wabtec has an installed base of more than 22,500 locomotives and content on virtually all North American locomotives and freight cars, as well as a diverse offering of Transit locomotives and cars both internationally and domestically, which enables significant opportunities in the higher-margin aftermarket parts and services business and mitigates the exposure to cycles.
Industry Overview
The Company primarily serves the global freight rail and passenger transit industries. As such, our operating results are largely dependent on the level of activity, financial condition and capital spending plans of freight railroads and passenger transit agencies around the world, and transportation equipment manufacturers who serve those markets. Many factors influence these industries, including general economic conditions; traffic volumes, as measured by freight carloadings and passenger ridership; government spending on public transportation; and investment in new technologies. In general, trends such as increasing urbanization and growth in developing markets, a focus on sustainability and environmental awareness, increasing investment in technology solutions, an aging equipment fleet, and growth in global trade are expected to drive continued investment in freight rail and passenger transit.
According to the 2018 bi-annual edition of a market study by UNIFE, the Association of the European Rail Industry, the accessible global market for railway products and services was more than $100 billion and was expected to grow at a compounded annual growth rate of 2.6% through 2023. The three largest geographic markets, which represented about 80% of the total accessible market, were Europe, North America and Asia Pacific. UNIFE projected above-average growth rates in North America, Latin America and Africa/Middle East, with Asia Pacific and Europe growing at about the industry average. UNIFE said trends such as urbanization and increasing mobility, deregulation, investments in new technologies, energy and environmental issues, and increasing government support continue to drive investment. The largest product segments of the market were rolling stock, services and infrastructure, which represent almost 90% of the accessible market. UNIFE projected spending on turnkey management projects and infrastructure to grow at above-average rates. UNIFE estimated that the global installed base of diesel and electric locomotives was about 114,800 units, with about 33% in Asia Pacific, about 26% in North America and about 18% in Russia-CIS (Commonwealth of Independent States). Wabtec estimates that about 2,900 new locomotives were delivered worldwide in 2019. UNIFE estimated the global installed base of freight cars was about 5.1 million, with about 33% in North America, about 26% in Asia Pacific and about 24% in Russia-CIS. Wabtec estimates that about 174,000 new freight cars were delivered worldwide in 2019. UNIFE estimated the global installed base of passenger transit vehicles to be about 600,000 units, with about 45% in Asia Pacific, about 33% in Europe and about 12% in Russia-CIS. Wabtec estimates that about 35,000 new passenger transit vehicles were ordered worldwide in 2019.
In Europe, the majority of the rail system serves the passenger transit market, which is expected to continue growing as energy and environmental policies encourage continued investment in public mass transit, and modal shift from car to rail. According to UNIFE, France, Germany and the United Kingdom were the largest Western European transit markets, representing almost two-thirds of industry spending in the European Union. UNIFE projected the accessible Western European rail market to grow at about 2.3% annually, led by investments in new rolling stock in France and Germany. About 75% of freight traffic in Europe is hauled by truck, while rail accounts for about 20%. The largest freight markets in Europe are Germany, Poland and the United Kingdom. In recent years, the European Commission has adopted a series of measures designed to increase the efficiency of the European rail network by standardizing operating rules and certification requirements. UNIFE believes that adoption of these measures should have a positive effect on ridership and investment in public transportation over time.
In North America, railroads carry about 40% of intercity freight, as measured by ton-miles, which is more than any other mode of transportation. Through direct ownership and operating partnerships, U.S. railroads are part of an integrated network that includes railroads in Canada and Mexico, forming what is regarded as the world’s most-efficient and lowest-cost freight rail service. There are more than 500 railroads operating in North America, with the largest railroads, referred to as “Class I,” accounting for more than 90% of the industry’s revenues. The railroads carry a wide variety of commodities and goods, including coal, metals, minerals, chemicals, grain, and petroleum. These commodities represent about 50% of total rail carloadings, with intermodal carloads accounting for the rest. Railroads operate in a competitive environment, especially with the trucking industry, and are always seeking ways to improve safety, cost and reliability. New technologies offered by Wabtec and others in the industry can provide some of these benefits. Demand for our freight related products and services in North America is driven by a number of factors, including rail traffic, and production of new locomotives and new freight cars. In the U.S., the passenger transit industry is dependent largely on funding from federal, state and local governments, and from fare box revenues. Demand for North American passenger transit products is driven by a number of factors, including government funding, deliveries of new subway cars and buses, and ridership. The U.S. federal government provides money to local transit authorities, primarily to fund the purchase of new equipment and infrastructure for their transit systems.
Growth in the Asia Pacific market has been driven mainly by the continued urbanization of China and India, and by investments in freight rail rolling stock and infrastructure in Australia to serve its mining and natural resources markets. India is
making significant investments in rolling stock and infrastructure to modernize its rail system; for example, the country has awarded a 1,000-unit locomotive order to GE Transportation.
Other key geographic markets include Russia-CIS and Africa-Middle East. With about 1.2 million freight cars and about 20,000 locomotives, Russia-CIS is among the largest freight rail markets in the world, and it’s expected to invest in both freight and transit rolling stock. PRASA, the Passenger Rail Agency of South Africa, is expected to continue to invest in new transit cars and new locomotives. According to UNIFE, emerging markets were expected to grow at above-average rates as global trade led to increased freight volumes and urbanization led to increased demand for efficient mass-transportation systems. As this growth occurs, Wabtec expects to have additional opportunities to provide products and services in these markets.
In its study, UNIFE also said it expected increased investment in digital tools for data and asset management, and in rail control technologies, both of which would improve efficiency in the global rail industry. UNIFE said data-driven asset management tools have the potential to reduce equipment maintenance costs and improve asset utilization, while rail control technologies have been focused on increasing track capacity, improving operational efficiency and ensuring safer railway traffic. Wabtec offers products and services to help customers make ongoing investments in these initiatives.
Business Segments and Products
We provide our products and services through two principal business segments, the Freight Segment and the Transit Segment, both of which have different market characteristics and business drivers. The acquisitions of GE Transportation and Faiveley Transport significantly strengthened our capabilities and presence in the worldwide freight and transit markets, respectively, for all of our products and services, including electronic and digital products.
The Freight Segment primarily manufactures and provides aftermarket parts and services for new locomotives; provides components for new and existing locomotives and freight cars; builds new commuter locomotives; supplies rail control and infrastructure products including electronics, positive train control equipment, signal design and engineering services; provides a comprehensive suite of software-enabled solutions designed to improve customer efficiency and productivity in the transportation and mining industries; overhauls locomotives; and provides heat exchangers and cooling systems for rail and other industrial markets. Customers include large, publicly traded railroads, leasing companies, manufacturers of original equipment such as locomotives and freight cars, and utilities. Upon our acquisition of GE Transportation, we are the largest global manufacturer of diesel-electric locomotives for freight railroads producing mission-critical products and solutions that help railroads reduce operating costs, decrease fuel use, minimize downtime and comply with emissions standards. As a result of the large base of approximately 22,500 locomotives currently in use, Wabtec's services product lines of rebuilding, remanufacturing, maintaining, and exchanging locomotives and components in the aftermarkets provides a significant, recurring revenue stream. Demand is primarily driven by general economic conditions and industrial activity; traffic volumes, as measured by freight carloadings; investment in new technologies; and deliveries of new locomotives and freight cars. In 2019, the Freight Segment accounted for approximately 65% of Wabtec’s total net sales, with about 55% of its net sales in the U.S. In 2019, about 60% of the Freight Segment’s net sales were in the aftermarket.
The Transit Segment primarily manufactures and services components for new and existing passenger transit vehicles, typically regional trains, high speed trains, subway cars, light-rail vehicles and buses; supplies rail control and infrastructure products including electronics, signal design and engineering services; and refurbishes passenger transit vehicles. Customers include public transit authorities and municipalities, leasing companies, and manufacturers of passenger transit vehicles and buses around the world. Demand in the transit market is primarily driven by general economic conditions, passenger ridership levels, government spending on public transportation, and investment in new rolling stock. In 2019, the Transit Segment accounted for approximately 35% of our total net sales, with about 15% of its net sales in the U.S. Approximately half of the Transit Segment’s net sales are in the aftermarket with the remainder in the original equipment market. The addition of Faiveley Transport’s key products strengthened Wabtec's presence in the following Transit product areas: high-speed braking and door systems; heating, ventilation and air conditioning systems; pantographs and power collection; information systems; platform screen doors and gates; couplers; and aftermarket services, maintenance and spare parts. Geographically, Faiveley Transport significantly strengthened Wabtec’s presence in the European and Asia Pacific transit markets.
Following is a summary of our leading products in both aftermarket and original equipment across both of our business segments in 2019:
Equipment:
•Diesel-electric locomotives for freight railroads
•Engines, electric motors and premium propulsion systems used in locomotives, mining, marine, stationary power and drilling applications
•Marine and mining products
Digital & Electronic Products:
•Positive Train Control equipment and electronically controlled pneumatic braking products
•Railway electronics, including event recorders, monitoring equipment and end of train devices
•Signal design and engineering services
•Train performance such as distributed locomotive power, train 'cruise control', and train remote control
•Transport intelligence such as Industrial/mobile Internet of Things (IoT) hardware & software, edge-to-cloud, on and off-board analytics & rules, asset performance management
•Transport logistics such as rail transportation management, shipper transportation management, port visibility and optimization
•Network optimization such as rail network scheduling, dispatch, and optimization, intermodal, terminal management and optimization, rail yard management and optimization
Components:
•Freight car trucks and braking equipment and related components for Freight applications
•Draft gears, couplers and slack adjusters
•Air compressors and dryers
•Heat exchangers and cooling products for locomotives and power generation equipment
•Track and switch products
•New commuter and switcher locomotives
Services:
•Freight locomotive overhaul and refurbishment
•Master service agreements for locomotive and car maintenance
•Transit locomotive and car overhaul
•Unit exchange of locomotive components
Transit Products:
•Railway braking equipment and related components for Transit applications, including high-speed passenger transit vehicles
•Friction products, including brake shoes, discs and pads
•Heating, ventilation and air conditioning equipment
•Doors for buses and subway cars
•Platform screen doors
•Pantographs
•Window assemblies
•Couplers
•Accessibility lifts and ramps for buses and subway cars
•Traction motors
We believe we have become a leader in the freight rail and passenger transit industries by capitalizing on the strength of our existing products, technological capabilities and new product innovations, and by our ability to harden products to protect them from severe conditions, including extreme temperatures and high-vibration environments. Supported by our technical staff of more than 4,500 engineers and specialists, we have extensive experience in a broad range of product lines, which enables us to provide comprehensive, systems-based solutions for our customers.
In recent years, we have introduced a number of significant new products, including Positive Train Control (“PTC”) equipment that encompasses onboard digital data and global positioning communication protocols. We are making additional investments in this technology which we believe will provide customers with opportunities to improve safety and efficiency, in
part through data analytics solutions. Other new products include HVAC inverter integrated solutions, brake discs and brake controls, platform doors and gates, and door controllers. In addition, we are continuing to develop Energy Management Solutions for railroads to further reduce fuel consumption and emissions. These developments include the design of a battery electric locomotive that will be integrated with other diesel electric locomotives in a train. This hybrid train consist, under the control of our Trip Optimizer software, will significantly reduce fuel consumption as well as having the ability to operate in a low emission state while in populated areas. We are also considering development of locomotives for transit services to operate in a zero emissions environment (such as a tunnel) for extended periods of time.
For additional information on our business segments, see Note 21 of “Notes to Consolidated Financial Statements” included in Part IV, Item 15 of this report.
Competitive Strengths
Our key strengths include:
•Iconic Legacy and Strong Reputation with a History of over 150 Years of Innovation. The rail industry has been in operation for over 150 years and we have been at the forefront of shaping and transforming the rail landscape through various innovations and technologies. Dating back to 1869 and George Westinghouse’s invention of the air brake, we are an established leader in the rail industry for freight and passenger transit vehicles. For over 110 years, GE Transportation has served the worldwide rail industry, which is a critical component of the global transportation system and the global economy, with an installed base of more than 22,500 locomotives worldwide. Faiveley Transport, founded in 1919, has a long history and is a market leader for its core products, including pantographs, automatic door mechanisms and air conditioning systems. We have leveraged our leading positions by focusing on research and engineering to expand beyond pneumatic braking components to supplying integrated parts and assemblies from a full locomotive through the end of the train. We are a recognized leader in the development and production of electronic recording, measuring and communications systems, positive train control equipment, highly engineered compressors and heat exchangers for locomotives, and a leading manufacturer of freight car components, including electronic braking equipment, draft gears, trucks, brake shoes and electronic end-of-train devices. We are also a leading provider of braking equipment; heating, ventilation and air conditioning equipment; door assemblies and platform screen doors; lifts and ramps; couplers and current collection equipment, such as pantographs, for passenger transit vehicles.
•Breadth of product offering with a stable mix of original equipment market (OEM) and aftermarket business. Our product portfolio is one of the broadest in the rail industry, as we offer a wide selection of quality parts, components and assemblies across the entire train and worldwide. We provide our products in both the original equipment market and the aftermarket. Our substantial installed base of products with end-users such as the railroads and the passenger transit authorities is a significant competitive advantage for providing products and services to the aftermarket because these customers often look to purchase safety- and performance-related replacement parts from the original equipment components supplier. In addition, as OEMs and railroad operators attempt to modernize fleets with new products designed to improve and maintain safety and efficiency, these products must be designed to be interoperable with existing equipment. In 2019, net sales of aftermarket parts and services represented about 55% of total net sales.
•Market Leader with Longstanding Customer Partnerships in a Critical Infrastructure Sector. For more than a century, rail has been a cornerstone of the global transportation system, and thus, the economy. Rail remains one of the most cost-effective, energy-efficient modes of transport, both domestically and internationally. As the largest global producer of diesel-electric locomotives, we have a significant market share both in North America and globally.
•Leading design and engineering capabilities. We believe a hallmark of our relationship with our customers has been our leading design and engineering practice, which has assisted in the improvement and modernization of global railway equipment. We believe both our customers and government authorities value our technological capabilities and commitment to innovation, as we seek not only to enhance the efficiency and profitability of our customers, but also to improve the overall safety of the railways through continuous improvement of product performance. The Company designs, develops and manufactures critical components and systems for the rail, mining and marine industries, which include proprietary propulsion systems, engine platforms and controls technology. These innovative and differentiated solutions serve as the building blocks for the rail, mining and marine industries, and help keep our global customers at the forefront of advancing technologies. When coupled with our advanced digital analytic capabilities, our solutions help drive increased energy management, performance and reliability to our products. To that end, we have assembled a wide range of patented products, which we believe provides us with a competitive advantage.
•Leading the Digital Transformation of Wabtec’s Industries. Our early investment in data analytics and software has allowed us to become a strategic partner for customers looking to derive new value from assets and digitally transform their operations. Through these initiatives, the transportation industry, from mine to port, from shipper to receiver, from port to intermodal terminals to main line locomotives and railcars and across train yards and operation centers, has
evolved to include digital solutions. The breadth of our Digital and Electronic solutions gives customers confidence in our ability to address their current and future needs.
•Experience with industry regulatory requirements. The freight rail and passenger transit industries are governed by various government agencies and regulators in each country and region. These groups mandate rigorous manufacturer certification, new product testing and approval processes that we believe are difficult for new entrants to meet cost-effectively and efficiently without the scale and extensive experience we possess. Certification processes are lengthy, and often require local presence and expertise. In addition, each transit agency places a high degree of importance on vehicle customization, which requires experience and technical expertise to meet ever-evolving specifications.
•Streamlined Cost Structure and Operational Excellence Provide Operating Leverage and Support Wabtec’s Growth. Wabtec’s lean manufacturing and continuous improvement initiatives, known as the Wabtec Excellence Program ("WEP"), have been a part of the Company’s culture for more than 25 years and have enabled Wabtec to manage successfully through cycles in the rail supply market. Building on our legacy WEP program, we are continuing to expand our Operating Excellence focus to also include Industry 4.0 as an additional lever in driving productivity and delighting customers. Our Operating Excellence Program leverages the breath and depth of our One Wabtec expertise across the organization in sharing of best practice, instilling a culture of learning, problem solving, continuous improvement, and driving standard operating practices. This, coupled with our overall manufacturing and supply base footprint initiatives, will drive increased flexibility and improved responsiveness to our customer needs while driving margin improvement through productivity.
Business strategy
We strive to generate sufficient cash to invest in our growth strategies and to build on what we consider to be a leading position as a low-cost producer in the industry while maintaining world-class product quality, technology and customer responsiveness. We continuously strive to improve quality, delivery and productivity, and to reduce costs utilizing global sourcing and supply chain management. These practices enable us to streamline processes, improve product reliability and customer satisfaction, reduce product cycle times and respond more rapidly to market developments. We also rely on functional experts within the Company across various disciplines to train, coach and share best practices throughout the corporation, while benchmarking against best-in-class competitors and peers. Over time, we expect to continue to increase operating margins, improve cash flow and strengthen our ability to invest in the following growth strategies:
•Product innovation and new technologies. We continue to emphasize innovation and development funding to create new products and capabilities, such as vehicle monitoring and data analytics. We have a multi-year initiative to build on our existing expertise and technologies in the digital and electronics areas. In addition, we invest in developing enhancements and new features to existing products, such as brake discs and heat exchangers. We are focusing on technological advances, especially in the areas of electronics, braking products and other on-board equipment, as a means to deliver new product growth. We seek to provide customers with incremental technological advances that offer immediate benefits with cost-effective investments.
•Global and market expansion. We believe that international markets represent a significant opportunity for future growth. In 2019, net sales to non-U.S. customers were approximately $4.8 billion. We intend to increase international sales through direct sales of existing products to current and new customers, by developing specific new products for application in new geographic markets, by making strategic acquisitions, and through joint ventures with railway suppliers which have a strong presence in their local markets. In transit, we are focused on mature markets such as Europe and emerging markets such as India. In freight, we are targeting markets that operate significant fleets of U.S.-style locomotives and freight cars, including Australia, Brazil, China, India, Russia, South Africa, and other select areas within Europe and South America. In addition, we have opportunities to increase the sale of certain products that we currently manufacture for the rail industry into other industrial markets, such as mining, off-highway and energy. These products include heat exchangers and friction materials.
•Aftermarket products and services. Historically, aftermarket sales are less cyclical than OEM sales because a certain level of aftermarket maintenance and service work must be performed, even during an industry slowdown. In 2019, net sales of aftermarket parts and services represented about 55% of total net sales. As a long time supplier of original equipment, we have an extensive installed base of equipment in the field, which generates recurring aftermarket sales. Wabtec provides aftermarket parts and services for its components, and we seek to expand this business with customers who currently perform the work in-house. In this way, we expect to benefit as transit authorities and railroads outsource certain maintenance and overhaul functions.
•Acquisitions, joint ventures and alliances. We continue to invest in acquisitions, joint ventures and alliances using a disciplined, selective approach and rigorous financial criteria. These transactions are expected to meet our financial criteria and contribute to growth strategies of product innovation and new technologies, global expansion, and
aftermarket products and services. We believe these expansion strategies will help Wabtec to grow profitably, expand geographically, and dampen the impact from potential cycles in the North American freight rail industry.
Recent Acquisitions and Joint Ventures
See Note 3 of the Notes to Consolidated Financial Statements included in Part IV, Item 5 of this report for additional information about our recent acquisitions and joint ventures.
Backlog
The Company’s backlog was about $22.4 billion at December 31, 2019. For 2019, about 60% of total net sales came from aftermarket orders, which typically carry lead times of less than 30 days and are not recorded in backlog for a significant period of time.
The Company’s contracts are subject to standard industry cancellation provisions, including cancellations on short notice or upon completion of designated stages. Generally, if a customer were to cancel a contract we would have an enforceable right to payment for work completed up to the date of cancellation which would include a reasonable profit margin. Substantial scope-of-work adjustments are common. For these and other reasons, completion of the Company’s backlog may be delayed or canceled. The railroad industry, in general, has historically been subject to fluctuations due to overall economic conditions and the level of use of alternative modes of transportation.
The backlog of firm customer orders as of December 31, 2019 and December 31, 2018, and the expected year of completion are as follows:
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Total
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Expected Delivery
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Total
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Expected Delivery
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Backlog
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Other
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Backlog
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Other
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In millions
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12/31/2019
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2020
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Years
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12/31/2018
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2019
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Years
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Freight Segment
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$
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18,945.3
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|
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$
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3,911.0
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|
|
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$
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15,034.3
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|
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$
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897.2
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$
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693.1
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|
|
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$
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204.1
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Transit Segment
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3,486.4
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|
|
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1,692.8
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|
|
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1,793.6
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3,584.4
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1,767.1
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1,817.3
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Total
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$
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22,431.7
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$
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5,603.8
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$
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16,827.9
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$
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4,481.6
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$
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2,460.2
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$
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2,021.4
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Engineering and Development
To execute our strategy to develop new products, we invest in a variety of engineering and development activities. For the fiscal years ended December 31, 2019, 2018 and 2017, we invested about $209.9 million, $87.5 million and $95.2 million, respectively, on product development and improvement activities. Significant incremental engineering expense is incurred with the execution of original equipment customer contracts. Across the corporation we have established multiple Centers of Competence, which have specialized, technical expertise in various disciplines and product areas.
Our engineering and development program includes investments in data analytics, train control and other new technologies, with an emphasis on developing products that enhance safety, productivity and efficiency for our customers. For example, we have developed advanced cooling systems that enable lower emissions from diesel engines used in rail and other industrial markets. Sometimes we conduct specific research projects in conjunction with universities, customers and other industry suppliers.
We use our Product Development System to develop and monitor new product programs. The system requires the product development team to follow consistent steps throughout the development process, from concept to launch, to ensure the product will meet customer expectations and internal profitability targets.
Positive Train Control ("PTC")
PTC is a collision-avoidance system that uses GPS to monitor and control the movement of passenger and freight trains. In 2008, the U.S. mandated the use of PTC on a majority of the locomotives and track in the U.S. The Federal Railroad Administration (the "FRA") eventually approved the use of Wabtec’s Electronic Train Management System® as the on-board locomotive standard for the deployment of this technology. Our system includes an on-board locomotive computer and related software. The deadline to implement this technology was December 31, 2018, and we worked with the U.S. Class I railroads, commuter rail authorities and other industry suppliers to meet this deadline. The railroads have until December 31, 2020 to complete testing of the systems.
Intellectual Property
We have 7,133 active patents worldwide and on average file for approximately 350 new patents each year. We also rely on a combination of trade secrets and other intellectual property laws, nondisclosure agreements and other protective measures to establish and protect our proprietary rights in our intellectual property. We also follow the product development practices of our competitors to monitor any possible patent infringement by them, and to evaluate their strategies and plans.
Certain trademarks, among them the name WABCO®, were acquired or licensed from American Standard Inc., now known as Trane, in 1990 at the time of our acquisition of the North American operations of the Railway Products Group of Trane. Other trademarks have been developed through the normal course of business or acquired as a part of our ongoing merger and acquisition program.
We have entered into a variety of license agreements as licensor and licensee. We do not believe that any single license agreement is of material importance to our business or either of our business segments as a whole.
We have issued licenses to the two sole suppliers of railway air brakes and related products in Japan, Nabtesco and Mitsubishi Electric Company. The licensees pay annual license fees to us and also assist us by acting as liaisons with key Japanese passenger transit vehicle builders for projects in North America. We believe that our relationships with these licensees are beneficial to our core transit business and customer relationships in North America.
Customers
We provide products and services for more than 500 customers worldwide. Our customers include passenger transit authorities and railroads throughout North America, Europe, Asia Pacific, South Africa and South America; manufacturers of transportation equipment, such as locomotives, freight cars, passenger transit vehicles and buses; and companies that lease and maintain such equipment.
Top customers can change from year to year. For the fiscal year ended December 31, 2019, our top five customers accounted for approximately 27% of net sales: BNSF Railway, Canadian National Railway, Indian Railways, Komatsu Ltd. and Union Pacific Railroad. No one customer represents 10% or more of consolidated net sales. We believe that we have strong relationships with all of our key customers.
Competition
We believe we hold a leading market share for many of our core product lines globally, although market shares vary by product lines and geographies. We operate in a highly competitive marketplace. Price competition is strong because we have a relatively small number of customers and they are very cost-conscious. In addition to price, competition is based on product performance and technological leadership, quality, reliability of delivery, and customer service and support.
Our principal competitors vary across product lines and geographies. Within North America, New York Air Brake Company, a subsidiary of the German air brake producer Knorr-Bremse AG (“Knorr”) and Amsted Rail Company, Inc., a subsidiary of Amsted Industries Corporation, are our principal overall OEM competitors. Our competition for locomotive, freight and passenger transit service and repair is mostly from the railroads’ and passenger transit authorities’ in-house operations, Electro-Motive Diesel, a division of Caterpillar, and Knorr. We believe our key strengths, which include leading market positions in core products, breadth of product offering with a stable mix of OEM and aftermarket business, leading design and engineering capabilities, significant barriers to entry and an experienced management team, enable us to compete effectively in this marketplace. Outside of North America, Knorr is our main competitor, although not in every product line or geography. In addition, our competitors often include smaller, local suppliers in most international markets. Depending on the product line and geography, we can also compete with our customers, such as CRRC Corporation Limited, a China-based manufacturer of rolling stock.
Employees
At December 31, 2019, we employed approximately 27,500 full-time employees around the world. This figure includes employees subject to collective bargaining agreements, most of which are outside of North America. We consider our relations with employees and union representatives to be good but cannot assure that future contract negotiations and labor relations will be so.
Regulation
In the course of our operations, we are subject to various regulations and standards of governments and other agencies in the U.S. and around the world. These entities typically govern equipment, safety and interoperability standards for freight rail rolling stock and passenger transit, oversee a wide variety of rules and regulations governing safety and design of equipment, and evaluate certification and qualification requirements for suppliers. New products generally must undergo testing and approval processes that are rigorous and lengthy. As a result of these regulations and requirements, we must usually obtain and maintain certifications in a variety of jurisdictions and countries. The governing bodies include the FRA and the Association of American Railroads ("AAR") in the U.S., and the International Union of Railways (“UIC”) and the European Railway Agencies in Europe. Also, in Europe, the European Committees for Standardization continually draft new European standards which cover, for example, the Reliability, Availability, Maintainability and Safety of railways systems. To guarantee interoperability in Europe, the European Union for Railway Agencies is responsible for defining and implementing Technical Standards of Interoperability, which covers areas such as infrastructure, energy, rolling stock, telematic applications, traffic operation and management subsystems, noise pollution and waste generation, protection against fire and smoke, and system safety.
Most countries and regions in which Wabtec does business have similar rule-making bodies. In Russia, a GOST-R certificate of conformity is mandatory for all products related to the safety of individuals in Russian territory. In China, any product or system sold on the Chinese market must have been certified in accordance with national standards. In the local Indian market, most products are covered by regulations patterned after AAR and UIC standards.
Effects of Seasonality
Our business is not typically seasonal. The third quarter results may be affected by the timing of services performed under our locomotive maintenance contracts and vacation and scheduled plant shutdowns at several of our major customers and fourth quarter results may be affected by the timing of spare parts and service orders placed by transit agencies worldwide. Quarterly results can also be affected by the timing of projects in backlog and by project delays.
Environmental Matters
Additional information on environmental matters is included in Note 20 of “Notes to Consolidated Financial Statements” included in Part IV, Item 15 of this report.
Available Information
We maintain a website at www.wabteccorp.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as well as the annual report to stockholders and other information, are available free of charge on this site. The Internet site and the information contained therein or connected thereto are not incorporated by reference into this Form 10-K. The following are also available free of charge on this site and are available in print to any shareholder who requests them: Our Corporate Governance Guidelines, the charters of our Audit, Compensation and Nominating and Corporate Governance Committees, our Code of Conduct, which is applicable to all employees, our Code of Ethics for Senior Officers, which is applicable to our executive officers, our Policies on Related Party Transactions and Conflict Minerals, and our Sustainability Report.
Prolonged unfavorable economic and market conditions could adversely affect our business.
Unfavorable general economic and market conditions in the United States and internationally, particularly in our key end markets, could have a negative impact on our sales and operations. To the extent that these factors result in continued instability of capital markets, shortages of raw materials or component parts, longer sales cycles, deferral or delay of customer orders or an inability to market our products effectively, our business and results of operations could be materially adversely affected.
We are dependent upon key customers.
We rely on several key customers who represent a significant portion of our business. While we believe our relationships with our customers are generally good, our top customers could choose to reduce or terminate their relationships with us. In addition, many of our customers place orders for products on an as-needed basis and operate in cyclical industries. As a result, customer order levels have varied from period to period in the past and may vary significantly in the future. Such customer orders are dependent upon their markets and customers and may be subject to delays and cancellations. Furthermore, the average service life of certain products in our end markets has increased in recent years due to innovations in technologies and manufacturing processes, which has also allowed end users to replace parts less often. As a result of our dependence on our key customers, we could experience a material adverse effect on our business, results of operations and financial condition if we lost any one or more of our key customers or if there is a reduction in their demand for our products.
Our business operates in a highly competitive industry.
We operate in a global, competitive marketplace and face substantial competition from a limited number of established competitors, some of which may have greater financial resources than we do, may have a more extensive low-cost sourcing strategy and presence in low-cost regions than we do or may receive significant governmental support. Price competition is strong and, coupled with the existence of a number of cost conscious customers with significant negotiating power, has historically limited our ability to increase prices. In addition to price, competition is based on product performance and technological leadership, quality, reliability of delivery and customer service and support. If our competitors invest heavily in innovation and develop products that are more efficient or effective than our products, we may not be able to compete effectively. There can be no assurance that competition in one or more of our markets will not adversely affect us and our results of operations.
We intend to pursue acquisitions, joint ventures and alliances that involve a number of inherent risks, any of which may cause us not to realize anticipated benefits.
One aspect of our business strategy is to selectively pursue acquisitions, joint ventures and alliances that we believe will improve our market position and provide opportunities to realize operating synergies. These transactions involve inherent risks and uncertainties, any one of which could have a material adverse effect on our business, results of operations and financial condition including:
•difficulties in achieving identified financial and operating synergies, including the integration of operations, services and products;
•diversion of management’s attention from other business concerns;
•the assumption of unknown liabilities; and
•unanticipated changes in the market conditions, business and economic factors affecting such an acquisition, joint venture or alliance.
We cannot assure that we will be able to consummate any future acquisitions, joint ventures or other business combinations. If we are unable to identify or consummate suitable acquisitions, joint ventures or alliances, we may be unable to fully implement our business strategy, and our business and results of operations may be adversely affected as a result. In addition, our ability to engage in such strategic transactions will be dependent on our ability to raise substantial capital, and we may not be able to raise the funds necessary to implement this strategy on terms satisfactory to us, if at all.
A failure to predict and react to customer demand could adversely affect our business.
If we are unable to accurately forecast demand for our existing products or to react appropriately to changes in demand, we may experience delayed product shipments and customer dissatisfaction. If demand increases significantly from current levels, both we and our suppliers may have difficulty meeting such demand, particularly if such demand increases occur rapidly. Alternatively, we may carry excess inventory if demand for our products decreases below projected levels.
Additionally, we have dedicated significant resources to the development, manufacturing and marketing of new products. Decisions to develop and market new transportation products are typically made without firm indications of customer acceptance. Moreover, by their nature, new products may require alteration of existing business methods or threaten to displace existing equipment in which our customers may have a substantial capital investment. There can be no assurance that any new products that we develop will gain widespread acceptance in the marketplace or that such products will be able to compete successfully with other new products or services that may be introduced by competitors. Furthermore, we may incur additional warranty or other costs as new products are tested and used by customers.
Failure to accurately predict and react to customer demand could have a material adverse effect on our business, results of operations and financial condition.
We may fail to respond adequately or in a timely manner to innovative changes in new technology.
In recent years, the global transportation landscape has been characterized by rapid changes in technology, leading to innovative transportation and logistics concepts that could change the way the railway industry does business. There may be additional innovations impacting the railway industry that we cannot yet foresee. Any failure by us to quickly adapt to and adopt new innovations in products and processes desired by our customers may result in a significant loss of demand for our product and service offerings. In addition, advances in technology may require us to increase investments in order to remain competitive, and our customers may not be willing to accept higher prices to cover the cost of these investments.
A portion of our sales are related to delivering products and services to help our U.S. railroad and transit customers meet the Positive Train Control mandate from the U.S. federal government.
In 2015, the U.S. rail industry's PTC deadline was extended by Congress by three years through December 31, 2018, which also included the ability of railroads to request an additional two years for compliance with the approval of the Department of Transportation if certain parameters are met. The Department of Transportation has largely granted the additional two years for compliance. All freight railroads are required to have testing complete and Positive Train Control fully implemented across the required network by December 31, 2020. These extensions could change the timing of our revenues and could cause us to reassess the staffing, resources and assets deployed in delivering PTC services to our customers.
Our revenues are subject to cyclical variations in the railway and passenger transit markets and changes in government spending.
The railway industry historically has been subject to significant fluctuations due to overall economic conditions, the use of alternate methods of transportation and the levels of government spending on railway projects. In economic downturns,
railroads have deferred, and may defer, certain expenditures in order to conserve cash in the short term. Reductions in freight traffic may reduce demand for our replacement products.
The passenger transit railroad industry is also cyclical and is influenced by a variety of factors. New passenger transit car orders vary from year to year and are influenced by a variety of factors, including major replacement programs, the construction or expansion of transit systems by transit authorities and the quality and cost of alternative modes of transportation. To the extent that future funding for proposed public projects is curtailed or withdrawn altogether as a result of changes in political, economic, fiscal or other conditions beyond our control, such projects may be delayed or canceled, resulting in a potential loss of business for us, including transit aftermarket and new transit car orders. There can be no assurance that economic conditions will be favorable or that there will not be significant fluctuations adversely affecting the industry as a whole and, as a result, us.
Our backlog is not necessarily indicative of the level of our future revenues.
Our backlog represents future production and estimated potential revenue attributable to firm contracts with, or written orders from, our customers for delivery in various periods. Instability in the global economy, negative conditions in the global credit markets, volatility in the industries that our products serve, changes in legislative policy, adverse changes in the financial condition of our customers, adverse changes in the availability of raw materials and supplies, or un-remedied contract breaches could possibly lead to contract termination or cancellations of orders in our backlog or request for deferred deliveries of our backlog orders, each of which could adversely affect our cash flows and results of operations.
A growing portion of our sales may be derived from our international operations, which exposes us to certain risks inherent in doing business on an international level.
For the fiscal year ended December 31, 2019, approximately 60% of our consolidated net sales were to customers outside of the United States. We intend to continue to expand our international operations, including in emerging markets, in the future. Our global headquarters for the Transit group is located in France, and we conduct other international operations through a variety of wholly and majority-owned subsidiaries and joint ventures, including in Australia, Austria, Brazil, Canada, China, Czech Republic, France, Germany, India, Italy, Macedonia, Mexico, the Netherlands, Poland, Russia, Spain, South Africa, Turkey, and the United Kingdom. As a result, we are subject to various risks, any one of which could have a material adverse effect on those operations and on our business as a whole, including:
•lack of complete operating control;
•lack of local business experience;
•currency exchange fluctuations and devaluations;
•restrictions on currency conversion or the transfer of funds or limitations on our ability to repatriate income or capital;
•the complexities of operating within multiple tax jurisdictions;
•foreign trade restrictions and exchange controls;
•adverse impacts of international trade policies, such as import quotas, capital controls or tariffs;
•difficulty enforcing agreements and intellectual property rights;
•the challenges of complying with complex and changing laws, regulations, and policies of foreign governments;
•the difficulties involved in staffing and managing widespread operations;
•the potential for nationalization of enterprises;
•economic, political and social instability;
•possible local catastrophes, such as natural disasters and epidemics; and
•possible terrorist attacks, conflicts and wars, including those against American interests.
Our exposure to the risks associated with international operations may intensify if our international operations expand in the future.
We are subject to a variety of laws and regulations, including anti-corruption laws, in various jurisdictions.
We are subject to various laws, rules and regulations administered by authorities in jurisdictions in which we do business, such as the anti-corruption laws of the U.S. Foreign Corrupt Practices Act, the French Law n° 2016-1691 (Sapin II) and the U.K. Bribery Act, relating to our business and our employees. We are also subject to other laws and regulations governing our international operations, including regulations administered by the U.S. Department of Commerce’s Bureau of Industry and Security, the U.S. Department of Treasury’s Office of Foreign Assets Control, and various non-U.S. government entities, including applicable export control regulations, economic sanctions on countries and persons, customs requirements,
currency exchange regulations, and transfer pricing regulations. Despite our policies, procedures and compliance programs, our internal controls and compliance systems may not be able to protect us from prohibited acts willfully committed by our employees, agents or business partners that would violate such applicable laws and regulations. Any such improper acts could damage our reputation, subject us to civil or criminal judgments, fines or penalties, and could otherwise disrupt our business, and as a result, could materially adversely impact our business, results of operations and financial condition.
In addition, our manufacturing operations are subject to safety, operations, maintenance and mechanical standards, rules and regulations enforced by various federal and state agencies and industry organizations both domestically and internationally. Our business may be adversely impacted by new rules and regulations or changes to existing rules or regulations, which could require additional maintenance or substantial modification or refurbishment of certain of our products or could make such products obsolete or require them to be phased out prior to their useful lives. We are unable to predict what impact these or other regulatory changes may have, if any, on our business or the industry as a whole. We cannot assure that costs incurred to comply with any new standards or regulations will not be material to our business, results of operations and financial condition.
We are subject to a variety of environmental laws and regulations.
We are subject to a variety of increasingly stringent environmental laws and regulations governing discharges to air and water, substances in products, the handling, storage and disposal of hazardous or solid waste materials and the remediation of contamination associated with releases of hazardous substances. We have incurred, and will continue to incur, both operating and capital costs to comply with environmental laws and regulations, including costs associated with the clean-up and investigation of some of our current and former properties and offsite disposal locations. We believe our operations currently comply in all material respects with all of the various environmental laws and regulations applicable to our business; however, there can be no assurance that environmental requirements will not change in the future or that we will not incur significant costs to comply with such requirements. Failure to comply with environmental laws and regulations could have significant consequences on our business and results of operations, including the imposition of substantial fines and sanctions for violations, injunctive relief (including requirements that we limit or cease operations at affected facilities), and reputational risk.
In addition, certain of our products are subject to extensive, and increasingly stringent, statutory and regulatory requirements governing, e.g., emissions and noise, including standards imposed by the U.S. Environmental Protection Agency, the European Union and other regulatory agencies around the world. We have made, and will continue to make, significant capital and research expenditures relating to compliance with these standards. The successful development and introduction of new and enhanced products in order to comply with new regulatory requirements are subject to other risks, such as delays in product development, cost over-runs and unanticipated technical and manufacturing difficulties. In addition to these risks, the nature and timing of government implementation and enforcement of these standards-particularly in emerging markets-are unpredictable and subject to change.
Future climate change regulation could result in increased operating costs, affect the demand for our products or affect the ability of our critical suppliers to meet our needs.
We have followed the current debate over climate change and the related policy discussion and prospective legislation. We have reviewed the potential challenges for us that climate change policy and legislation may pose. Any such challenges are heavily dependent on the nature and degree of climate change legislation and the extent to which it applies to our industry. At this time, we cannot predict the ultimate impact of climate change and climate change legislation on our operations. Further, when or if these impacts may occur cannot be assessed until scientific analysis and legislative policy are more developed and specific legislative proposals begin to take shape. Any laws or regulations that may be adopted to restrict or reduce emissions of greenhouse gas could require us to incur increased operating costs and could have an adverse effect on demand for our products. In addition, the price and availability of certain of the raw materials that we use could vary in the future as a result of environmental laws and regulations affecting our suppliers. An increase in the price of our raw materials or a decline in their availability could adversely affect our operating margins or result in reduced demand for our products.
The occurrence of litigation in which we are, or could be, named as a defendant is unpredictable.
From time to time, we are subject, directly or through our subsidiaries, to litigation or other commercial disputes and other legal and regulatory proceedings with respect to our business, customers, suppliers, creditors, stockholders, product liability (including, asbestos claims), intellectual property infringement, competition and antitrust claims, warranty claims or environmental-related matters.
Due to the inherent uncertainties of any litigation, commercial disputes or other legal or regulatory proceedings, we cannot accurately predict their ultimate outcome, including the outcome of any related appeals. We may incur significant expense to defend or otherwise address current or future claims. Although we maintain insurance policies for certain risks, we cannot make assurances that this insurance will be adequate to protect us from all material judgments and expenses related to potential future claims or that these levels of insurance will be available in the future at economical prices or at all. In addition, although in some cases we may be indemnified by non-affiliated entities that retain liabilities in connection with specific
matters, there can be no assurance that these indemnitors will remain financially viable and capable of satisfying their obligations.
Any litigation, even a claim without merit, could result in substantial costs and diversion of resources and could have a material adverse effect on our business and results of operations.
If we are not able to protect our intellectual property and other proprietary rights, we may be adversely affected.
Our success can be impacted by our ability to protect our intellectual property and other proprietary rights. We rely primarily on patents, trademarks, copyrights, trade secrets and unfair competition laws, as well as license agreements and other contractual provisions, to protect our intellectual property and other proprietary rights. However, filing, prosecuting and defending patents on our products in all countries and jurisdictions throughout the world would be prohibitively expensive. Moreover, existing U.S. legal standards relating to the validity, enforceability and scope of protection of intellectual property rights offer only limited protection, may not provide us with any competitive advantages and may be challenged by third parties. The laws of countries other than the United States may be even less protective of intellectual property rights. As a result, a significant portion of our technology is not patented, and we may be unable or may not seek to obtain patent protection for this technology. Further, although we routinely conduct anti-counterfeiting activities in multiple jurisdictions, we have encountered counterfeit reproductions of our products or products that otherwise infringe on our intellectual property rights. Counterfeit components of low quality may negatively impact our brand value. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon, counterfeiting or misappropriating our intellectual property or otherwise gaining access to our technology. If we fail to protect our intellectual property and other proprietary rights, then our business, results of operations and financial condition could be negatively impacted.
In addition, we operate in industries in which there are many third-party owners of intellectual property rights. Owners of intellectual property that we need to conduct our business as it evolves may be unwilling to license such intellectual property rights to us on terms we consider reasonable. Third party intellectual property owners may assert infringement claims against us based on their intellectual property portfolios. If we are sued for intellectual property infringement, we may incur significant expenses investigating and defending such claims, even if we prevail.
We face cybersecurity and data protection risks relating to cyber attacks and information technology failures that could cause loss of confidential information and other business disruptions.
We rely extensively on information technology in our business. We also collect, process, and retain sensitive and confidential customer information, including proprietary business information, personal data and other information that may be subject to privacy and security laws, regulations and/or customer-imposed data protection controls. We also provide technological products integral to train operation. Accordingly, our business may be adversely impacted by disruptions to our own or third-party information technology infrastructure, which could result from individual or highly-coordinated cyber attacks, including but not limited to data theft, system breaches, malfeasance or improper use or unauthorized access to IT systems. Our business may also be adversely impacted by unintentional technology disruptions, including those resulting from programming errors, employee operational errors and software defects.
Our manufacturer’s warranties or product liability may expose us to potentially significant claims.
We warrant the workmanship and materials of many of our products. Accordingly, we are subject to a risk of product liability or warranty claims in the event that the failure of any of our products results in personal injury or death or does not conform to our customers’ specifications. In addition, in recent years, we have introduced a number of new products for which we do not have a history of warranty experience. Although we currently maintain liability insurance coverage, we cannot assure that product liability claims, if made, would not exceed our insurance coverage limits or that insurance will continue to be available on commercially acceptable terms, if at all. The possibility exists for these types of warranty claims to result in costly product recalls, significant repair costs and damage to our reputation.
Labor shortages and labor disputes may have a material adverse effect on our operations and profitability.
We depend on skilled labor in our manufacturing and other businesses. Due to the competitive nature of the labor markets in which we operate, we may not be able to retain, recruit and train the personnel we require, particularly when the economy expands, production rates are high or competition for such skilled labor increases.
We collectively bargain with labor unions at some of our operations throughout the world. Failure to reach an agreement could result in strikes or other labor protests which could disrupt our operations. Furthermore, non-union employees in certain countries have the right to strike. If we were to experience a strike or work stoppage, it would be difficult for us to find a sufficient number of employees with the necessary skills to replace these employees. We cannot assure that we will reach any such agreement or that we will not encounter strikes or other types of conflicts with the labor unions of our personnel.
Any such labor shortages or labor disputes could have an adverse effect on our business, results of operations and financial condition, could cause us to lose revenues and customers and might have permanent effects on our business.
Equipment failures, interruptions, delays in deliveries or extensive damage to our facilities, supply chains, distribution systems or information technology systems, could adversely affect our business.
All of our facilities, equipment, supply chains, distribution systems and information technology systems are subject to the risk of catastrophic loss due to unanticipated events, such as disease outbreak, fires, earthquakes, explosions, floods, tornadoes, hurricanes or weather conditions. An interruption in our manufacturing capabilities, supply chains, distribution systems or information technology systems, whether as a result of such catastrophic loss or any other reason, could reduce, prevent or delay our production and shipment of our product offerings, result in defective products or services, damage customer relationships and our reputation and result in legal exposure and large repair or replacement expenses. This could result in the delay or termination of orders, the loss of future sales and a negative impact to our reputation with our customers.
Third-party insurance coverage that we maintain with respect to such matters will vary from time to time in both type and amount depending on cost, availability and our decisions regarding risk retention, and may be unavailable or insufficient to protect us against losses. Any of these risks coming to fruition could materially adversely affect our business, results of operations and financial condition.
We may be exposed to raw material shortages, supply shortages and fluctuations in raw material, energy and commodity prices.
We purchase energy, steel, aluminum, copper, rubber and rubber-based materials, chemicals, polymers and other key manufacturing inputs from outside sources, and traditionally have not had long-term pricing contracts with our pure raw material suppliers. The costs of these raw materials have been volatile historically and are influenced by factors that are outside our control. If we are unable to pass increases in the costs of our raw materials on to our customers, experience a lag in our ability to pass increases to our customers, or operational efficiencies are not achieved, our operating margins and results of operations may be materially adversely affected.
Our businesses compete globally for key production inputs. In addition, we rely upon third-party suppliers, including certain single-sourced suppliers, for various components for our products. In the event of a shortage or discontinuation of certain raw materials or key inputs, we may experience challenges sourcing certain of our components to meet our production requirements and may not be able to arrange for alternative sources of certain raw materials or key inputs. Any such shortage may materially adversely affect our competitive position versus companies that are able to better or more cheaply source such raw materials or key inputs.
Changes to international trade policies, including tariffs and foreign trade restrictions, could adversely affect our business.
As a global transportation company, we generate export sales from our U.S. operations and also derive international sales through our foreign subsidiaries, licensees and joint ventures. We also do business with industry suppliers located in various international markets. A protectionist trade environment in either the United States or those foreign countries in which we do business, such as a change in the current tariff structures, export compliance or other trade policies, may adversely affect our business. In particular, such policies may impact or delay our customers' investments in our products, reduce the competitiveness of our products in certain markets, and inhibit our ability to cost-effectively purchase necessary inputs from certain suppliers. In addition, to the extent developments in international trade relations result in reduced global trade or slower growth in global trade, it is likely that this would result in reductions in investment in freight and transit rail.
International trade policies are affected by a diverse array of factors, including global and national economic and political conditions, which make it impossible for us to predict future developments regarding tariffs and other trade restrictions. Although we actively monitor developments in international trade and proactively engage in efforts to mitigate the effect of trade policies, there can be no guarantee that these efforts will be successful.
We may incur increased costs due to fluctuations in interest rates and foreign currency exchange rates
In the ordinary course of business, we are exposed to increases in interest rates that may adversely affect funding costs associated with variable-rate debt and changes in foreign currency exchange rates. We are subject to currency exchange rate risk to the extent that our costs may be denominated in currencies other than those in which we earn and report revenues and vice versa. In addition, a decrease in the value of any of these currencies relative to the U.S. dollar could reduce our profits from non-U.S. operations and the translated value of the net assets of our non-U.S. operations when reported in U.S. dollars in our consolidated financial statements. We may seek to minimize these risks through the use of interest rate swap contracts and currency hedging agreements. There can be no assurance that any of these measures will be effective. Material changes in interest or exchange rates could result in material losses to us.
If we lose our senior management or key personnel, our business may be materially and adversely affected.
The success of our business is largely dependent on our senior management team, as well as on our ability to attract and retain other qualified key personnel. It cannot be assured that we will be able to retain all of our current senior management personnel and attract and retain other key personnel necessary for the development of our business. The loss of the services of
senior management and other key personnel or the failure to attract additional personnel as required could have a material adverse effect on our business, results of operations and financial condition.
We have substantial operations located in emerging markets, and are subject to regulatory, economic, social and political uncertainties in such markets.
We have substantial operations located in emerging markets, such as Brazil, India, Kazakhstan, the Russian Federation and Ukraine. Operations in such emerging markets are inherently risky due to a number of regulatory, economic, social and political uncertainties. These risks include economies that may be dependent on only a few products and are therefore subject to significant fluctuations, weak legal systems which may affect our ability to enforce contractual rights, possible exchange controls, unstable governments, nationalization or privatization actions or other government actions affecting the flow of goods and currency.
Significant changes in economic and regulatory policy in emerging countries as well as social or political uncertainties could significantly harm business and economic conditions in these markets generally and could disproportionately impact the rail industry, which could adversely affect our business and prospects in these markets.
In addition, physical and financial infrastructure may be less developed in some emerging countries than that of many developed nations. Any disruptions with respect to banking and financial infrastructure, communication systems or any public facility, including transportation infrastructure, could disrupt our normal business activity. Such disruptions could interrupt our business operations and significantly harm our results of operations, financial condition and cash flows.
Our indebtedness could adversely affect our financial health.
At December 31, 2019, we had total debt of $4.4 billion, including $3.5 billion related to senior notes and $0.9 billion related to term loans and amounts drawn under our revolving loan facility, in each case, under the Senior Credit Facility. Being indebted could have important consequences to us. For example, our indebtedness could:
•increase our vulnerability to general adverse economic and industry conditions;
•require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes;
•limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate;
•place us at a disadvantage compared to competitors that have less debt; and
•limit our ability to borrow additional funds.
The indentures for our outstanding senior notes and our Credit Agreement contain various covenants that limit our management’s discretion in the operation of our businesses.
Our Credit Agreement subjects us to customary (i) affirmative covenants, including requirements with respect to certain reporting obligations on us and our subsidiaries, and (ii) negative covenants, including limitations on: indebtedness; liens; restricted payments; fundamental changes (including certain changes in control); business activities; transactions with affiliates; restrictive agreements; changes in fiscal year; and use of proceeds. In addition, we are required to maintain (i) a ratio of EBITDA to interest expense of at least 3.00 to 1.00 over each period of four consecutive fiscal quarters ending on the last day of a fiscal quarter and (ii) a Leverage Ratio, calculated as of the last day of a fiscal quarter for a period of four consecutive fiscal quarters, of 3.25 to 1.00 or less; provided that, in connection with the acquisition of GE Transportation and in the event of any further material acquisition in which the cash consideration to be paid exceeds $500.0 million, the maximum Leverage Ratio permitted adjusts to (x) 3.75 to 1.00 at the end of the fiscal quarter in which such acquisition is consummated and each of the three fiscal quarters immediately following such fiscal quarter and (y) 3.50 to 1.00 at the end of each of the fourth and fifth full fiscal quarters after the consummation of such acquisition.
The indentures under which our senior notes were issued contain covenants and restrictions which limit, subject to certain exceptions, certain sale and leaseback transactions with respect to principal properties, the incurrence of secured debt without equally and ratably securing the senior notes and certain merger and consolidation transactions. In addition, the indentures require that we offer to repurchase our outstanding senior notes upon the occurrence of certain change of control triggering events.
The integration of our recently completed acquisitions may not result in anticipated improvements in market position or the realization of anticipated operating synergies or may take longer to realize than expected.
Although we believe that our recent acquisitions will improve our market position and realize positive operating results, including operating synergies, operating expense reductions and overhead cost savings, we cannot be assured that these
improvements will be obtained or the timing of such improvements. The management and acquisition of businesses involves substantial risks, any of which may result in a material adverse effect on our business and results of operations, including:
•the uncertainty that an acquired business will achieve anticipated operating results;
•significant expenses to integrate;
•diversion of management’s attention from business operations to integration matters;
•departure of key personnel from the acquired business;
•effectively managing entrepreneurial spirit and decision-making;
•integration of different information systems;
•unanticipated costs and exposure to unforeseen liabilities; and
•impairment of assets.
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Item 1B.
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UNRESOLVED STAFF COMMENTS
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None.
Facilities
The following table provides certain summary information about the principal facilities owned or leased by the Company as of December 31, 2019. The Company believes that its facilities and equipment are generally in good condition and that, together with scheduled capital improvements, they are adequate for its present and immediately projected needs. Leases on the facilities are mainly long-term and generally include options to renew.
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Location
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Primary Use
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Segment
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Own/Lease
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Approximate
Square Feet
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Domestic
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Erie, PA
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Manufacturing/Warehouse/Office
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Freight
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Own
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3,800,000
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Rothbury, MI
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Manufacturing/Warehouse/Office
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Freight
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Own
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500,000
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Grove City, PA
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Manufacturing/Warehouse
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Freight
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Own
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486,000
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Wilmerding, PA
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Manufacturing/Service
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Freight
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Own
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365,000
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(1)
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Boise, ID
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Manufacturing
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Freight
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Own
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326,000
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Salem, VA
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Manufacturing
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Freight
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Own
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320,000
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Justin, Texas
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Manufacturing/Warehouse
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Freight
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Own
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305,000
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Fort Worth, Texas
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Manufacturing/Warehouse
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Freight
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Own
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304,000
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Houston, Texas
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Manufacturing/Service
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Freight
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Own
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280,000
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Hanover Park, Illinois
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Manufacturing
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Freight
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Lease
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250,000
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Pittsburgh, PA
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Office
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Global HQ
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Lease
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84,000
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International
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Shenyang, China
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Manufacturing/Warehouse/Office
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Transit
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Own
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336,000
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Doncaster, UK
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Manufacturing
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Transit
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Own
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330,000
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Changzhou, China
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Manufacturing
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Transit
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Own
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316,000
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Northampton, UK
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Manufacturing
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Freight
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Lease
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300,000
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Shenyang City, China
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Manufacturing
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Transit
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Lease
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291,000
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Piossasco, Italy
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Manufacturing
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Transit
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Own
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301,000
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Burton on Trent, UK
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Manufacturing/Office
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Transit
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Lease
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260,000
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(1)Approximately 250,000 square feet are currently used in connection with the Company’s manufacturing operations. The remainder is leased to a third party.
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Item 3.
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LEGAL PROCEEDINGS
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Additional information with respect to legal proceedings is included in Note 20 of “Notes to Consolidated Financial Statements” included in Part IV, Item 15 of this report and incorporate by reference herein.
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Item 4.
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MINE SAFETY DISCLOSURES
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Not applicable.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following table provides information on our executive officers as of February 25, 2020.
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Officers
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Age
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Position
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Albert J. Neupaver
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69
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Executive Chairman of the Board
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Rafael Santana
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48
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President and Chief Executive Officer
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David L. DeNinno
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64
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Executive Vice President, General Counsel and Secretary
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Patrick D. Dugan
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53
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Executive Vice President Finance, and Chief Financial Officer
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Scott E. Wahlstrom
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56
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Executive Vice President and Chief Human Resources Officer
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Michael E. Fetsko
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55
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President, Freight and Industrial Components
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Pascal Schweitzer
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43
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President, Global Freight Services
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Nalin Jain
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50
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President, Equipment
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Lillian Leroux
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48
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President, Transit
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Dominique Malenfant
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58
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Senior Vice President and Global Technology Officer
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John A. Mastalerz
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53
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Senior Vice President of Finance and Chief Accounting Officer
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Greg Sbrocco
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51
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Senior Vice President, Global Operations
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Albert J. Neupaver was re-named Executive Chairman of the Board of Directors in May 2018, having previously served as Executive Chairman from May 2014 to May 2017. Prior to that, Mr. Neupaver served as Executive Chairman of the Company since May 2014. Previously, he served as Chairman from May 2017 to May 2018, and Chairman and CEO from May 2013 to May 2014 and as the Company’s President and CEO from February 2006 to May 2013. Prior to joining Wabtec, Mr. Neupaver served in various positions at AMETEK, Inc., a leading global manufacturer of electronic instruments and electric motors. Most recently he served as President of its Electromechanical Group for nine years.
Rafael Santana was named President and Chief Executive Officer of the Company effective July 1, 2019. Previously, he served as Executive Vice President from February 2019 to July 2019. Mr. Santana was President and Chief Executive Officer of GE Transportation since November 2017. Mr. Santana has held several global leadership positions since joining GE in 2000, including roles in the Transportation, Power and Oil and Gas businesses. Prior to being named President and Chief Executive Officer of GE Transportation, Mr. Santana was President and Chief Executive Officer of GE in Latin America. He also served as President and Chief Executive Officer of GE Oil and Gas Turbomachinery Solutions and had roles as Chief Executive Officer for GE Gas Engines and Chief Executive Officer for GE Energy in Latin America.
David L. DeNinno was named Executive Vice President, General Counsel and Secretary of the Company effective December 2016. Previously, Mr. DeNinno served as Senior Vice President, General Counsel and Secretary since February 2012. Previously, Mr. DeNinno served as a partner at K&L Gates LLP since May 2011 and prior to that with Reed Smith LLP.
Patrick D. Dugan was named Executive Vice President and Chief Financial Officer effective December 2016. Previously Mr. Dugan served as Senior Vice President and Chief Financial Officer since January 2014. Previously, Mr. Dugan was Senior Vice President, Finance and Corporate Controller from January 2012 until November 2013. He originally joined Wabtec in 2003 as Vice President, Corporate Controller. Prior to joining Wabtec, Mr. Dugan served as Vice President and Chief Financial Officer of CWI International, Inc. from December 1996 to November 2003. Prior to 1996, Mr. Dugan was a Manager with PricewaterhouseCoopers.
Scott E. Wahlstrom was named Executive Vice President and Chief Human Resources Officer effective February 2019. Previously, Mr. Wahlstrom served as Executive Vice President - Human Resources from December 2016 to February 2019 and served as Senior Vice President, Human Resources since January 2012. Prior to that, Mr. Wahlstrom had been Vice President, Human Resources, since November 1999. Previously, Mr. Wahlstrom was Vice President, Human Resources & Administration of MotivePower Industries, Inc. from August 1996 until November 1999.
Michael E. Fetsko was named President, Freight and Industrial Components effective January 2017. Previously, Mr. Fetsko served as Vice President and Group Executive from January 2014. He joined Wabtec in July of 2011 as Vice President, Freight Pneumatics. Prior to joining Wabtec, Mr. Fetsko served in various executive management roles with Bombardier Transportation. Prior to Bombardier, Mr. Fetsko served in various management roles with two different environmental engineering firms.
Nalin Jain was named President, Global Equipment business effective May 2019. Previously, Mr. Jain served as President & CEO, International markets since Aug 2017 for GE Transportation. Prior to that, Mr. Jain had multiple leadership roles of increasing responsibility with GE Aviation and GE Transportation, since September 2005. Mr. Jain served as Director Global Partnerships with Bombardier Inc since July 2002 and prior to that he worked for Saint Gobain.
Lilian Leroux was named President, Transit effective March 2019. Previously he served as Group President—Brakes & Safety from January 2017 to October 2019. Prior to that, Mr. Leroux held various executive management roles with Faiveley Transport, starting in January 2001.
Pascal Schweitzer was named President, Global Freight Services on February 25, 2019. Previously Mr. Schweitzer was the Vice President—Services of GE Transportation since April 2017. He served as General Manger – Europe – Power Services for GE Power from November 2015 through April 2017 and prior to that several positions with Alstom Power.
Dominique Malenfant was named Senior Vice President, Global Technology effective February 25, 2019. Previously, Mr. Malenfant was the Vice President of Global Technology of GE Transportation. Prior to that, Mr. Malenfant served as Vice President of product and engineering for the Transport and Propulsion and Control business at Bombardier Transport.
John A. Mastalerz was named Senior Vice President of Finance and Chief Accounting Officer in February 2020. Previously, Mr. Mastalerz served as Senior Vice President, Corporate Controller and Principal Accounting Officer from July 2017 to February 2020 and as Vice President and Corporate Controller from January 2014 to July 2017. Prior to joining Wabtec, Mr. Mastalerz served in various executive management roles with the H.J. Heinz Company from January 2001 to December 2013, most recently as Corporate Controller and Principal Accounting Officer. Prior to 2001, Mr. Mastalerz was a Senior Manager with PricewaterhouseCoopers.
Greg Sbrocco was named Senior Vice President, Global Operations, effective February 25, 2019. Prior to this, Mr. Sbrocco was Global Supply Chain Leader for GE Transportation. Mr. Sbrocco has been with GE for 27 years as he joined in 1992 as an Environmental Engineer for the GE Energy business. During his tenure with GE, Mr. Sbrocco has held several leadership roles in GE Energy, GE Oil and Gas, and GE Transportation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
Wabtec is one of the world’s largest providers of locomotives, value-added, technology-based equipment, systems and services for the global freight rail and passenger transit industries. Our highly engineered products, which are intended to enhance safety, improve productivity and reduce maintenance costs for customers, can be found on most locomotives, freight cars, passenger transit cars and buses around 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 over 50 countries and our products can be found in more than 100 countries throughout the world. In 2019, about 60% of the Company’s net sales came from customers outside the U.S.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation The consolidated financial statements include the accounts of the Company and all subsidiaries that it controls. For consolidated subsidiaries in which the Company's ownership is less than 100%, the outside shareholders' interests are shown as noncontrolling interests. These statements have been prepared in accordance with U.S. generally accepted accounting principles. Sales between subsidiaries are billed at prices consistent with sales to third parties and are eliminated in consolidation.
Cash Equivalents Cash equivalents are highly liquid investments purchased with an original maturity of three months or less.
Allowance for Doubtful Accounts The allowance for doubtful accounts receivable reflects our best estimate of probable losses inherent in our receivable portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available evidence. The allowance for doubtful accounts was $19.9 million and $16.9 million as of December 31, 2019 and 2018, respectively.
Inventories Inventories are stated at the lower of cost or market. Cost is determined under the first-in, first-out (FIFO) method. Inventory costs include material, labor and overhead.
Property, Plant and Equipment Property, plant and equipment additions are stated at cost. Expenditures for renewals and improvements are capitalized. Expenditures for ordinary maintenance and repairs are expensed as incurred. The Company computes book depreciation principally on the straight-line method. Accelerated depreciation methods are utilized for income tax purposes.
Leasing Arrangements The Company conducts a portion of its operations from leased facilities and finances certain equipment purchases through lease agreements. In those cases in which the lease term approximates the useful life of the leased asset or the lease meets certain other prerequisites, the leasing arrangement is classified as a financing lease. The remaining arrangements are treated as operating leases. Right-of-use lease assets are classified as long-term assets under the caption "Other noncurrent assets" and lease liabilities are classified under the captions "Other accrued liabilities' and "Other long-term liabilities."
Goodwill and Intangible Assets Goodwill and other intangible assets with indefinite lives are not amortized. Other intangibles (with definite lives) are amortized on a straight-line basis over their estimated economic lives. Amortizable intangible assets are reviewed for impairment when indicators of impairment are present. The Company tests goodwill and indefinite-lived intangible assets for impairment at the reporting unit level and at least annually. The Company performs its annual impairment test during the fourth quarter after the annual forecasting process is completed, and also tests for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Periodically, Management of the Company assesses whether or not an indicator of impairment is present that would necessitate an impairment analysis be performed.
For 2019, the Company opted to proceed directly to the quantitative impairment test for all reporting units with goodwill. The discounted cash flow approach and the market approach were used to estimate the fair value of each reporting unit using a weighting of 75% and 25%, respectively. The discounted cash flow model requires several assumptions including future sales growth, EBIT (earnings before interest and taxes) margins, capital expenditures, a discount rate and a terminal revenue growth rate (the revenue growth rate for the period beyond the years forecasted by the reporting units) for each reporting unit. The market approach requires several assumptions including EBITDA (earnings before interest, taxes, depreciation and amortization) multiples for comparable companies that operate in the same markets as the Company’s reporting units. The estimated fair value of all reporting units was in excess of its respective carrying value, which resulted in a conclusion that no impairment existed.
Additionally, the Company proceeded directly to the quantitative impairment test for some trade names with indefinite lives. The fair value of all material trade names subject to the quantitative impairment test exceeded its respective carrying
value, resulting in a conclusion that no material impairment existed. For trade names not subject to the quantitative testing, the Company opted to perform a qualitative trade name impairment assessment and determined from the qualitative assessment that it was not more likely than not that the estimated fair values of the trade names were less than their carrying values; therefore, no further analysis was required. In assessing the qualitative factors to determine whether it is more likely than not that the fair value of a trade name is less than its carrying amount, we assess relevant events and circumstances that may impact the fair value and the carrying amount of the trade name. The identification of relevant events and circumstances and how these may impact a trade name’s fair value or carrying amount involve significant judgments and assumptions. The judgment and assumptions include the identification of macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, Wabtec specific events, share price trends and making the assessment on whether each relevant factor will impact the impairment test positively or negatively and the magnitude of any such impact.
Equity Method Investments The Company invests in privately-held companies which are accounted for using the equity method. The equity method is applied in situations where the Company has the ability to exercise significant influence, but not control, over the investee. Equity method investments were $95.2 million and $30.8 million at December 31, 2019 and 2018, respectively.
Warranty Costs Warranty costs are accrued based on Management’s estimates of repair or upgrade costs per unit and historical experience. Warranty expense was $105.5 million, $58.0 million and $50.4 million for 2019, 2018 and 2017, respectively. Accrued warranty was $267.7 million and $153.7 million at December 31, 2019 and 2018, respectively.
Income Taxes Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws. The provision for income taxes includes federal, state and foreign income taxes.
Stock-Based Compensation The Company recognizes compensation expense for stock-based compensation based on the grant date fair value amortized ratably over the requisite service period following the date of grant.
Financial Derivatives and Hedging Activities In the normal course of business, the Company is exposed to interest rate, commodity price and foreign currency exchange rate fluctuations. At times, the Company limits these risks through the use of derivatives such as cross-currency swaps, foreign currency forward contracts, interest rate swaps, commodity forwards and futures. In accordance with the Company's policy, derivatives are only used for hedging purposes. The Company does not use derivatives for trading or speculative purposes. Foreign currency 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. For further information regarding the foreign currency forward contracts, see Note 18.
Foreign Currency Translation Certain of our international operations have determined that the local currency is the functional currency whereas others have determined the U.S. dollar is their functional currency. Assets and liabilities of foreign subsidiaries where the functional currency is the local currency 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 period. 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 ASC 830 “Foreign Currency Matters.” 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 accumulated other comprehensive loss. The effects of currency exchange rate changes on intercompany transactions that are denominated in a currency other than an entity’s functional currency are charged or credited to earnings. Foreign exchange transaction losses recognized in other income, net were $13.5 million, $5.7 million and $6.6 million for 2019, 2018 and 2017, respectively.
Noncontrolling Interests In accordance with ASC 810, the Company has classified noncontrolling interests as equity on our condensed consolidated balance sheets as of December 31, 2019 and 2018. Net loss attributable to noncontrolling interests was not material for the years ended December 31, 2019, 2018 and 2017, respectively.
Revenue Recognition On January 1, 2018, the Company adopted ASC 606 “Revenue from Contracts with Customers.” This new guidance provides a five-step analysis of transactions to determine when and how revenue is recognized and requires entities to recognize revenue at an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer.
A majority of the Company’s revenues are derived from performance obligations that are satisfied at a point in time when control passes to the customer which is generally at the time of shipment in accordance with agreed upon delivery terms. The remaining revenues are earned over time.
The Company also has long-term customer agreements involving the design and production of highly engineered products that require revenue to be recognized over time because these products have no alternative use without significant economic loss and the agreements contain an enforceable right to payment including a reasonable profit margin from the
customer in the event of contract termination. Additionally, the Company has customer agreements involving the creation or enhancement of an asset that the customer controls which also require revenue to be recognized over time. Generally, the Company uses an input method for determining the amount of revenue, cost and gross margin to recognize over time for these customer agreements. The input methods used for these agreements include costs of material and labor, both of which give an accurate representation of the progress made toward complete satisfaction of a particular performance obligation. Contract revenues and cost estimates are reviewed and revised periodically through the year and adjustments are reflected in the accounting period as such amounts are determined.
Contract assets include unbilled amounts resulting from sales under long-term contracts where revenue is recognized over time and revenue exceeds the amount that can be billed to the customer based on the terms of the contract. The current portion of the contract assets are classified as current assets under the caption “Unbilled Accounts Receivable” while the noncurrent contract assets are classified as other assets under the caption "Other Noncurrent Assets" on the consolidated balance sheet. Noncurrent contract assets were $109.4 million at December 31, 2019 and were not material at December 31, 2018. Included in noncurrent contract assets are certain costs that are specifically related to a contract, however, do not directly contribute to the transfer of control of the tangible product being created, such as pre-production costs. The Company has elected to use the practical expedient and not consider unbilled amounts anticipated to be paid within one year as significant financing components.
Contract liabilities include customer deposits that are made prior to the incurrence of costs related to a newly agreed upon contract and advanced customer payments that are in excess of revenue recognized. The current portion of contract liabilities are classified as current liabilities under the caption “Customer Deposits” while the noncurrent contract liabilities are classified as noncurrent liabilities under the caption "Other Long-Term Liabilities" on the consolidated balance sheet. Noncurrent contract liabilities were $77.0 million at December 31, 2019 and were not material at December 31, 2018. These contract liabilities are not considered a significant financing component because they are used to meet working capital demands that can be higher in the early stages of a contract and revenue associated with the contract liabilities is expected to be recognized within one year. Contract liabilities also include provisions for estimated losses from uncompleted contracts. Provisions for loss contracts were $118.5 million and $71.2 million at December 31, 2019 and 2018, respectively. These provisions for estimated losses are classified as current liabilities and included within the caption “Other accrued liabilities” on the consolidated balance sheet.
Due to the nature of work required to be performed on the Company’s long-term projects, the estimation of total revenue and cost at completion is subject to many variables and requires significant judgment. Contract estimates related to long-term projects are based on various assumptions to project the outcome of future events that could span several years. These assumptions include cost of materials; labor availability and productivity; complexity of the work to be performed; and the performance of suppliers, customers and subcontractors that may be associated with the contract. We have a disciplined process where management reviews the progress of long term-projects periodically throughout the year. As part of this process, management reviews information including key contract matters, progress towards completion, identified risks and opportunities and any other information that could impact the Company’s estimates of revenue and costs. After completing this analysis, any adjustments to net sales, cost of goods sold, and the related impact to operating income are recognized as necessary in the period they become known.
Generally, the Company’s revenue contains a single performance obligation for each distinct good; however, a single contract may have multiple performance obligations comprising multiple promises to customers. When there are multiple performance obligations, revenue is allocated based on the relative stand-alone selling price. Pricing is defined in our contracts on a line item basis and includes an estimate of variable consideration when required by the terms of the individual customer contract. Types of variable consideration the Company typically has include volume discounts, prompt payment discounts, price escalation clauses, liquidating damages, and performance bonuses. Sales returns and allowances are also estimated and recognized in the same period the related revenue is recognized, based upon the Company’s experience.
Remaining performance obligations represent the allocated transaction price of unsatisifed or partially unsatisfied performance obligations. As of December 31, 2019, the Company's remaining performance obligations were $21.3 billion. The Company expects to recognize revenue of approximately 25% of remaining performance obligations over the next 12 months, with the remainder recognized thereafter.
SEC regulations require that revenue categories that exceed 10% of total revenue are presented separately on the company's statement of income. As such, the Company has displayed sales of goods and sales of services, and the related cost, in line with those regulations. Additionally, those regulations also require that goods are to include all sales of tangible products, and services must include all other sales. In Note 21 we refer to sales of both goods, such as spare parts and equipment upgrades, and related services, such as monitoring, maintenance and repairs, as sales in our Services product line.
Letters of Credit In the ordinary course of its business, the Company issues letters of credit related to commercial products. The outstanding amount, including the letters of credit issues under the credit facility, were $714.0 million and $354.2 million at December 31, 2019 and 2018, respectively.
Pre-Production Costs 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 $88.0 million and $16.4 million at December 31, 2019 and 2018, respectively.
Significant Customers and Concentrations of Credit Risk The Company’s trade receivables are primarily from rail and transit industry original equipment manufacturers, Class I railroads, railroad carriers and commercial companies that utilize rail cars in their operations, such as utility and chemical companies. No one customer accounted for more than 10% of the Company’s consolidated net sales in 2019, 2018 or 2017.
Shipping and Handling Fees and Costs All fees billed to the customer for shipping and handling are classified as a component of net revenues. All costs associated with shipping and handling are classified as a component of cost of sales.
Engineering Expenses Engineering expenses are charged to expense as incurred. For the years ended December 31, 2019, 2018 and 2017, the Company incurred costs of approximately $209.9 million, $87.5 million, and $95.2 million, respectively.
Earnings Per Share Basic and diluted earnings per common share is computed in accordance with ASC 260 “Earnings Per Share.” Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and included in the computation of earnings per share pursuant to the two-class method included in ASC 260-10-55 (See Note 12 “Earnings Per Share” included herein).
Reclassifications Certain prior year amounts have been reclassified, where necessary, to conform to the current year presentation. Refer to Recently Adopted Accounting Pronouncements below.
Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles 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 materially 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.
Recently Issued Accounting Pronouncements In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-12, “Income Taxes: Simplifying the Accounting for Income Taxes.” The amendments in this update simplify the accounting for certain income tax transactions by removing specific exceptions to the general principles in Topic 740, Income Taxes. This guidance is effective for fiscal years beginning after December 15, 2020 with early adoption permitted. The Company is currently evaluating the potential impact of adopting this guidance on its consolidated financial statements.
In January 2017, the FASB issued Accounting Standards Update ("ASU") No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." The amendments in this update eliminate the requirement to perform Step 2 of the goodwill impairment test. Instead, an entity should perform a goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value up to the carrying amount of the goodwill. The ASU is effective for public companies in the fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The impact of adopting this guidance could result in a change in the overall conclusion as to whether or not a reporting unit's goodwill is impaired and the amount of an impairment charge recognized in the event a reporting units' carrying value exceeds its fair value. All of the Company's reporting units had fair values that were greater than the carrying value as of the Company's last quantitative goodwill impairment test, which was performed as of October 1, 2019.
In June 2016, FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." This updated guidance sets forth a current expected credit loss model based on expected losses. Under this model, an entity recognizes an allowance for expected credit losses based on historical experience, current conditions and forecasted information rather than the current methodology of delaying recognition of credit losses until it is probable a loss has been incurred. This guidance is effective for fiscal years beginning after December 15, 2019 with early adoption permitted. The Company has evaluated the potential impact of adopting this guidance on its consolidated financial statements and does not expect the impact of adopting this new standard to be material.
Recently Adopted Accounting Pronouncements In February 2018, FASB issued ASU No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." The amendments in this update address certain stranded income tax effects in accumulated other comprehensive income ("AOCI") resulting from the Tax Cuts and Jobs Act (the "Tax Act"). Current guidance requires the effect of a change in tax laws or rates on deferred tax balances to be reported in income from continuing operations in the
accounting period that includes the period of enactment, even if the related income tax effects were originally charged or credited directly to AOCI. The amendments in this update allow a reclassification from AOCI to retained earnings for stranded effects resulting from the Tax Act. The amount of the reclassification would include the effect of the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts and related valuation allowances, if any, at the date of the enactment of the Tax Act related to items in AOCI. The updated guidance became effective for reporting periods beginning after December 15, 2018. The Company adopted this accounting standard at the beginning of the period and elected to not retrospectively apply the new standard. The impact of adopting the new standard was not material to the consolidated statement of income or the consolidated balance sheet.
In February 2016, FASB issued ASU No. 2016-02, "Leases (Topic 814)" which requires lessees to recognize a right of use asset and lease liability on the balance sheet for all leases with terms longer than 12 months. For leases with terms less than 12 months, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize a right of use asset and lease liability. This guidance became effective for the Company on January 1, 2019. The Company elected the practical expedient which does not require the capitalization of leases with terms of 12 months or less, and the Company did not elect the practical expedient which allows hindsight to be used to determine the term of a lease. The Company adopted the standard using the transition alternative, which allowed for the application of the guidance at beginning of the period in which it is adopted, rather than requiring the adjustment of prior comparative periods. For further information regarding the Company's adoption of the new standard, see Note 15.
3. ACQUISITIONS
General Electric Transportation
Wabtec, General Electric Company ("GE"), GE Transportation, a Wabtec company formerly known as Transportation System Holdings Inc. ("SpinCo"), which was a newly formed wholly owned subsidiary of GE, and Wabtec US Rail Holdings, Inc. ("Merger Sub"), which was a newly formed wholly owned subsidiary of the Company, entered into the Original Merger Agreement on May 20, 2018, and GE, SpinCo, Wabtec and Wabtec US Rail, Inc. ("Direct Sale Purchaser") entered into the Original Separation Agreement on May 20, 2018, which together provided for the combination of Wabtec and GE Transportation. The Original Merger Agreement and Original Separation Agreement were subsequently amended on January 25, 2019 and the Merger was completed on February 25, 2019.
As part of the Merger, certain assets of GE Transportation, including the equity interests of certain pre-Transaction subsidiaries of GE that compose part of GE Transportation, were sold to Direct Sale Purchaser for a cash payment of $2.875 billion, and Direct Sale Purchaser assumed certain liabilities of GE Transportation in connection with this purchase (the "Direct Sale"). Thereafter, GE transferred the SpinCo business to SpinCo and its subsidiaries (to the extent not already held by SpinCo and its subsidiaries), and SpinCo issued to GE shares of SpinCo Class A preferred stock, SpinCo Class B preferred stock, SpinCo Class C preferred stock and additional shares of SpinCo common stock. Following this issuance of additional SpinCo common stock to GE, and immediately prior to the Distribution (as defined below), GE owned 8,700,000,000 shares of SpinCo common stock, 15,000 shares of SpinCo Class A preferred stock, 10,000 shares of SpinCo Class B preferred stock and one share of SpinCo Class C preferred stock, which constituted all of the outstanding stock of SpinCo.
Following the Direct Sale, GE distributed the distribution shares of SpinCo in a spin-off transaction to its stockholder (the "Distribution"). Immediately after the Distribution, Merger Sub merged with and into SpinCo (the "Merger"), whereby the separate corporate existence of Merger Sub ceased and SpinCo continued as the surviving company and a wholly owned subsidiary of Wabtec (except with respect to shares of SpinCo Class A preferred stock held by GE). In the Merger, subject to adjustment in accordance with the Merger Agreement, each share of SpinCo common stock converted into the right to receive a number of shares of Wabtec common stock based on the common stock exchange ratio set forth in the Merger Agreement and the share of SpinCo Class C preferred stock was converted into the right to receive (a) 10,000 shares of Wabtec convertible preferred stock and (b) a number of shares of Wabtec common stock equal to 9.9% of the fully-diluted pro forma Wabtec shares. Immediately prior to the Merger, Wabtec paid $10.0 million in cash to GE in exchange for all of the shares of SpinCo Class B preferred stock.
Upon consummation of the Merger, Wabtec issued 46,763,975 shares of common stock to the holders of GE common stock, 19,018,207 shares of common stock to GE and 10,000 shares of preferred stock to GE and made a cash payment to GE of $2.885 billion. As a result and calculated based on Wabtec’s outstanding common stock on a fully-diluted, as-converted and as-exercised basis, as of February 25, 2019, approximately 49.2% of the outstanding shares of Wabtec common stock was held collectively by GE and holders of GE common stock (with 9.9% held by GE directly in shares of Wabtec common stock and 15% underlying the shares of Wabtec convertible preferred stock held by GE) and approximately 50.8% of the outstanding shares of Wabtec common stock would be held by pre-Merger Wabtec stockholders, in each case calculated on a fully-diluted, as-converted and as-exercised basis. Following the Merger, GE also retained 15,000 shares of SpinCo Class A non-voting preferred stock, and Wabtec held 10,000 shares of SpinCo Class B non-voting preferred stock.
After the Merger, SpinCo, which is Wabtec’s wholly owned subsidiary (except with respect to shares of SpinCo Class A preferred stock held by GE), and Direct Sale Purchaser, which also is Wabtec’s wholly owned subsidiary, together, SpinCo and Direct Sale Purchaser own and operate the post-transaction GE Transportation. All shares of the Company’s common stock, including those issued in the Merger, are listed on the NYSE under the Company’s current trading symbol “WAB.” On the date of the Distribution, GE and SpinCo, directly or through subsidiaries entered into additional agreements relating to, among other things, intellectual property, employee matters, tax matters, research and development and transition services.
On May 6, 2019, GE completed the sale of approximately 8,780 shares of Wabtec's Series A Preferred stock which converted upon the sale to 25,300,000 shares of Wabtec's common stock. On August 9, 2019, GE completed a sale of the remaining shares of Series A Preferred Stock outstanding which converted to approximately 3,515,500 shares of common stock, as well as 16,969,656 shares of common stock owned directly by GE. Finally, on September 12, 2019, GE completed a sale of all of its remaining shares of common stock of Wabtec, approximately 2,048,515 shares. In conjunction with these secondary offerings, the Company waived the requirements under the shareholders agreement for GE to maintain certain ownership levels of Wabtec's stock following the closing date of the Merger. The Company did not receive any proceeds from the sale of any of these shares.
Total future consideration to be paid by Wabtec to GE includes a fixed payment of $470.0 million, which is directly related to the timing of tax benefits expected to be realized by Wabtec as a result of the acquisition of GE Transportation. This payment is considered contingent consideration because the timing of cash payments to GE is directly related to the future timing of tax benefits received by the Company as a result of the acquisition of GE Transportation. The estimated total value of
the consideration to be paid by Wabtec in the acquisition transactions is approximately $10.3 billion, including the cash paid for the Direct Sales Assets, equity transferred for SpinCo, contingent consideration, assumed debt and net of cash acquired. The consideration is based on the Company’s closing share price of $73.36 on February 22, 2019 and the fair value of the contingent consideration.
The fair values of the assets acquired and liabilities assumed were determined using the income, cost and market approaches. Discounted cash flow models were used to estimate the fair values of acquired contract backlog, customer relationships, intellectual property intangibles, and below-market customer contracts liabilities. The fair value measurements were primarily based on significant inputs that are not observable in the market and are considered Level 3. The December 31, 2019 consolidated balance sheet includes the assets and liabilities of GE Transportation, which have been initially measured at fair value. The noncontrolling interest includes equity interests in GE Transportation's Brazil operations held by third parties on the date of acquisition. At the time of acquisition, quotable market prices of the noncontrolling interest existed; therefore, the noncontrolling interest in the GE Transportation Brazil operations were measured using a Level 1 input. In April 2019, the Company acquired the noncontrolling interest in GE Transportation's Brazil operations for $56.2 million which approximated the fair value assigned to the noncontrolling interest on the date of acquisition. The remaining noncontrolling interest value was determined based on inputs that are not observable in the market and are considered Level 3.
The following table summarizes the preliminary fair value of the GE Transportation assets acquired and liabilities assumed:
|
|
|
|
|
|
|
|
|
In millions
|
|
|
Assets acquired
|
|
|
Cash and cash equivalents
|
|
$
|
177.6
|
|
Accounts receivable
|
|
515.5
|
|
Inventories
|
|
1,189.2
|
|
Other current assets
|
|
71.5
|
|
Property, plant, and equipment
|
|
1,089.6
|
|
Goodwill
|
|
5,987.5
|
|
Trade names
|
|
55.0
|
|
Customer relationships
|
|
550.0
|
|
Intellectual property
|
|
1,180.0
|
|
Backlog
|
|
1,440.0
|
|
Other noncurrent assets
|
|
330.3
|
|
Total assets acquired
|
|
12,586.2
|
|
Liabilities assumed
|
|
|
|
Current liabilities
|
|
1,587.5
|
|
Contingent consideration
|
|
440.0
|
|
Other noncurrent liabilities
|
|
652.9
|
|
Total liabilities assumed
|
|
2,680.4
|
|
Net assets acquired
|
|
9,905.8
|
|
Noncontrolling interest
|
|
$
|
86.8
|
|
These estimates are preliminary in nature; however the Company is in the final stages of completing the purchase price allocation and does not expect the final allocation to differ materially from the preliminary allocation included in the table above. Any necessary adjustments will be finalized within one year from the date of acquisition. During the year ended December 31, 2019, the estimated fair value current liabilities and other noncurrent liabilities decreased $92.1 million and increased $129.1 million, respectively, primarily due to estimate revisions for long term contracts and deferred tax liabilities. The revisions to the initial estimates were based on information that existed at the date of acquisition. Substantially all of the accounts receivable acquired are expected to be collectible. Trade names, customer relationships, patents and backlog intangible assets are all subject to amortization. Contingent liabilities assumed as part of the transaction were not material. The contingent liabilities are related to legal and tax matters. Contingent liabilities are recorded at fair value in purchase accounting, aside from those pertaining to uncertainty in income taxes which are an exception to the fair value basis of accounting. Included in other noncurrent liabilities are approximately $504.7 million of customer contracts whose terms are unfavorable compared to market terms at the date of consummation of the GE Transportation acquisition.
Goodwill was calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of the net assets acquired, and represents the future economic benefits, including synergies, and assembled workforce, that are expected to be achieved as a result of the consummation of the acquisition of GE Transportation. A majority of the purchased goodwill is expected to be deductible for tax purposes. The goodwill has been allocated to the Freight segment.
Included in the Company's consolidated statement of income for the year ended December 31, 2019 is $3.8 billion of revenues and $358.0 million of operating income from GE Transportation. Costs related to the acquisition of GE Transportation were approximately $63.0 million for the year ended December 31, 2019 and are included in selling, general and administrative expenses on the consolidated statements of income.
Other Acquisitions
The Company made the following acquisition operating as a business unit or component of a business unit in the Transit Segment:
•On March 22, 2018, the Company acquired Annax GmbH ("Annax"), a leading supplier of public address and passenger information systems for transit vehicles, for a purchase price of approximately $45.2 million, net of cash acquired and including contingent consideration, resulting in final goodwill of $38.5 million, none of which will be deductible for tax purposes. A payment of $10.1 million was made in the three months ended June 30, 2019 related to contingent consideration associated with the purchase of Annax.
The following table summarizes the final estimated fair value of the assets acquired and liabilities assumed at the date of acquisition for Annax:
|
|
|
|
|
|
|
|
|
|
|
Annax
|
|
|
March 22, 2018
|
In millions
|
|
|
Current assets, net of cash acquired
|
|
$
|
32.8
|
|
Property, plant & equipment
|
|
0.7
|
|
Goodwill
|
|
38.5
|
|
Other intangible assets
|
|
11.7
|
|
Total assets acquired
|
|
83.7
|
|
Total liabilities assumed
|
|
(55.1)
|
|
Net assets acquired
|
|
$
|
28.6
|
|
The $11.7 million of total acquired other intangible assets includes $3.8 million assigned to trade names and $7.5 million assigned to customer relationships. The trade names were determined to have indefinite useful lives, while the customer relationships’ average useful lives are 20 years.
The Company also made smaller acquisitions not listed above which are individually and collectively immaterial.
The following unaudited pro forma financial information presents income statement results as if the acquisitions listed above had occurred January 1, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31,
|
|
|
In millions
|
|
2019
|
|
2018
|
Net sales
|
|
$
|
8,675.6
|
|
|
$
|
8,030.5
|
|
Gross profit
|
|
2,528.3
|
|
|
2,102.8
|
|
Net income attributable to Wabtec shareholders
|
|
485.1
|
|
|
234.8
|
|
Diluted earnings per share
|
|
|
|
|
|
|
As Reported
|
|
$
|
1.84
|
|
|
$
|
3.05
|
|
Pro forma
|
|
$
|
2.53
|
|
|
$
|
1.22
|
|
The historical consolidated financial information of the Company and the acquisitions detailed above have been adjusted in the pro forma information to give effect to pro forma events that are (1) directly attributable to the transactions, (2) factually supportable and (3) expected to have a continuing impact on the combined results. Pro forma data may not be indicative of the results that would have been obtained had these acquisitions occurred at the beginning of the periods presented, nor is it intended to be a projection of future results.
4. SUPPLEMENTAL CASH FLOW DISCLOSURES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
In millions
|
|
|
|
|
|
|
Interest paid during the year
|
|
$
|
193.1
|
|
|
$
|
81.8
|
|
|
$
|
75.3
|
|
Income taxes paid during the year, net of amount refunded
|
|
$
|
99.5
|
|
|
$
|
83.9
|
|
|
$
|
89.4
|
|
Business acquisitions:
|
|
|
|
|
|
|
Fair value of assets acquired
|
|
12,612.9
|
|
|
91.8
|
|
|
452.2
|
|
Liabilities assumed
|
|
2,466.3
|
|
|
32.9
|
|
|
207.8
|
|
Non-controlling interest (acquired) assumed
|
|
30.9
|
|
|
—
|
|
|
(761.8)
|
|
Stock and cash paid
|
|
10,115.7
|
|
|
58.9
|
|
|
1,006.2
|
|
Less: Cash acquired
|
|
179.6
|
|
|
7.7
|
|
|
35.4
|
|
Stock used for acquisition
|
|
6,939.7
|
|
|
—
|
|
|
25.5
|
|
Net cash paid
|
|
$
|
2,996.4
|
|
|
$
|
51.2
|
|
|
$
|
945.3
|
|
5. INVENTORIES
The components of inventory, net of reserves, were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
In millions
|
|
2019
|
|
2018
|
Raw materials
|
|
$
|
786.4
|
|
|
$
|
465.9
|
|
Work-in-progress
|
|
374.0
|
|
|
154.5
|
|
Finished goods
|
|
612.7
|
|
|
224.5
|
|
Total inventories
|
|
$
|
1,773.1
|
|
|
$
|
844.9
|
|
6. PROPERTY, PLANT & EQUIPMENT
The major classes of depreciable assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
In millions
|
|
2019
|
|
2018
|
Machinery and equipment
|
|
$
|
1,363.8
|
|
|
$
|
749.8
|
|
Buildings and improvements
|
|
774.2
|
|
|
248.1
|
|
Land and improvements
|
|
78.0
|
|
|
38.7
|
|
Property, plant and equipment
|
|
2,216.0
|
|
|
1,036.6
|
|
Less: accumulated depreciation
|
|
(560.2)
|
|
|
(472.8)
|
|
Total
|
|
$
|
1,655.8
|
|
|
$
|
563.8
|
|
The estimated useful lives of property, plant and equipment are as follows:
|
|
|
|
|
|
|
Years
|
Land improvements
|
10 to 20
|
Building and improvements
|
20 to 40
|
Machinery and equipment
|
3 to 15
|
Depreciation expense was $157.8 million, $66.4 million, and $66.7 million for 2019, 2018 and 2017, respectively.
7. INTANGIBLES
Goodwill and other intangible assets with indefinite lives are not amortized. Other intangibles with definite lives are amortized on a straight-line basis over their estimated economic lives. Goodwill and indefinite lived intangible assets are reviewed annually during the fourth quarter for impairment (See Note 2 “Summary of Significant Accounting Policies” included herein). Goodwill and indefinite lived intangible assets were not impaired at December 31, 2019 and 2018.
The change in the carrying amount of goodwill by segment for the year ended December 31, 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight
|
|
Transit
|
|
|
In millions
|
|
Segment
|
|
Segment
|
|
Total
|
Balance at December 31, 2018
|
|
$
|
899.1
|
|
|
|
$
|
1,497.4
|
|
|
|
$
|
2,396.5
|
|
Additions
|
|
5,989.3
|
|
|
|
12.2
|
|
|
|
6,001.5
|
|
Foreign currency impact
|
|
(11.8)
|
|
|
|
(25.6)
|
|
|
|
(37.4)
|
|
Balance at December 31, 2019
|
|
$
|
6,876.6
|
|
|
|
$
|
1,484.0
|
|
|
|
$
|
8,360.6
|
|
As of December 31, 2019 and 2018, the Company’s trade names had a net carrying amount of $623.1 million and $582.8 million, respectively, and the Company believes these intangibles have indefinite lives, with the exception of the GE Transportation trade name, to which the Company has assigned a useful life of 5 years.
Intangible assets of the Company, other than goodwill and trade names, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
In millions
|
|
2019
|
|
2018
|
Intellectual property, patents, and other intangibles, net of accumulated amortization of $123.8 and $40.1
|
|
$
|
1,108.9
|
|
|
|
$
|
13.3
|
|
Backlog, net of accumulated amortization of $92.0 and $2.0
|
|
1,342.1
|
|
|
|
2.0
|
|
Customer relationships, net of accumulated amortization of $212.9 and $158.5
|
|
1,029.9
|
|
|
|
531.8
|
|
Total
|
|
$
|
3,480.9
|
|
|
|
$
|
547.1
|
|
The remaining weighted average useful lives of backlog, intellectual property, customer relationships, and other intangibles were 14 years, 9 years, 18 years, and 13 years, respectively. Amortization expense for intangible assets was $238.4 million, $39.8 million, and $36.5 million for the years ended December 31, 2019, 2018, and 2017, respectively.
Estimated amortization expense for the five succeeding years is as follows (in millions):
|
|
|
|
|
|
2020
|
$
|
278.7
|
|
2021
|
277.7
|
|
2022
|
277.3
|
|
2023
|
276.8
|
|
2024
|
267.3
|
|
8. CONTRACT ASSETS AND CONTRACT LIABILITIES
Contract assets include unbilled amounts resulting from sales under long-term contracts where revenue is recognized over time and revenue exceeds the amount that can be billed to the customer based on the terms of the contract. Contract liabilities include customer deposits that are made prior to the incurrence of costs related to a newly agreed upon contract, advanced customer payments that are in excess of revenue recognized, and provisions for estimated losses from uncompleted contracts.
The change in the carrying amount of contract assets and contract liabilities for the twelve months ended December 31, 2019, and 2018 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Assets
|
|
|
In millions
|
2019
|
|
2018
|
Balance at beginning of year
|
$
|
345.6
|
|
|
|
$
|
366.2
|
|
Acquisitions
|
237.5
|
|
|
|
0.0
|
|
Recognized in current year
|
619.3
|
|
|
|
426.8
|
|
Reclassified to accounts receivable
|
(578.6)
|
|
|
|
(432.3)
|
|
Foreign currency impact
|
(0.4)
|
|
|
|
(15.1)
|
|
Balance at December 31
|
$
|
623.4
|
|
|
|
$
|
345.6
|
|
|
|
|
|
|
Contract Liabilities
|
|
|
In millions
|
2019
|
|
2018
|
Balance at beginning of year
|
$
|
444.8
|
|
|
|
$
|
463.7
|
|
Acquisitions
|
333.9
|
|
|
|
0.0
|
|
Recognized in current year
|
917.5
|
|
|
|
230.1
|
|
Amounts in beginning balance reclassified to revenue
|
(410.6)
|
|
|
|
(199.7)
|
|
Current year amounts reclassified to revenue
|
(483.5)
|
|
|
|
(30.9)
|
|
Foreign currency impact
|
(2.4)
|
|
|
|
(18.4)
|
|
Balance at December 31
|
$
|
799.7
|
|
|
|
$
|
444.8
|
|
9. LONG-TERM DEBT
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
Effective
|
|
2019
|
|
|
|
2018
|
|
|
In millions
|
Interest Rate
|
|
Book Value
|
|
Fair Value 1
|
|
Book Value
|
|
Fair Value 1
|
Senior Credit Facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. dollar-denominated Term Loans, net of unamortized debt issuance costs of $1.1 and $1.2
|
3.1
|
%
|
|
$
|
684.7
|
|
|
$
|
684.7
|
|
|
$
|
338.1
|
|
|
$
|
338.1
|
|
Multi-Currency Revolving loan facility net of unamortized debt issuance costs of $0.9 and $1.9
|
3.4
|
%
|
|
231.5
|
|
|
231.5
|
|
|
—
|
|
|
—
|
|
Floating Senior Notes, due 2021, net of unamortized debt
issuance costs of $2.0 and $3.2
|
3.9
|
%
|
|
498.0
|
|
|
500.0
|
|
|
496.8
|
|
|
497.4
|
|
4.375% Senior Notes, due 2023, net of unamortized
discount and debt issuance costs of $0.9 and $1.2
|
4.5
|
%
|
|
249.1
|
|
|
|
263.9
|
|
|
248.8
|
|
|
|
254.2
|
|
4.15% Senior Notes, due 2024, net of unamortized debt
issuance costs of $5.7 and $7.0
|
4.6
|
%
|
|
744.3
|
|
|
805.5
|
|
|
743.0
|
|
|
727.4
|
|
4.70% Senior Notes, due 2028, net of unamortized debt
issuance costs of $9.2 and $10.3
|
5.0
|
%
|
|
1,240.8
|
|
|
1,378.3
|
|
|
1,239.7
|
|
|
1,179.6
|
|
3.45% Senior Notes, due 2026, net of unamortized debt
issuance costs of $1.5 and $1.7
|
3.5
|
%
|
|
748.5
|
|
|
759.1
|
|
|
748.3
|
|
|
675.1
|
|
Other Borrowings
|
|
|
32.4
|
|
|
32.4
|
|
|
42.2
|
|
|
42.2
|
|
Total
|
|
|
4,429.3
|
|
|
4,655.4
|
|
|
3,856.9
|
|
|
3,714.0
|
|
Less - current portion
|
|
|
95.7
|
|
|
95.7
|
|
|
64.1
|
|
|
64.1
|
|
Long-term portion
|
|
|
$
|
4,333.6
|
|
|
$
|
4,559.7
|
|
|
$
|
3,792.8
|
|
|
$
|
3,649.9
|
|
1 See Note 19 for information on the fair value measurement of the Company's long-term debt.
|
|
|
|
|
|
As of December 31, 2019, the annual repayment requirements for debt obligations are as follows:
|
|
In millions
|
|
2020
|
$
|
95.7
|
|
2021
|
809.8
|
|
2022
|
300.0
|
|
2023
|
479.0
|
|
2024
|
755.5
|
|
Thereafter
|
1,989.3
|
|
Total
|
$
|
4,429.3
|
|
For those debt securities that have a premium or discount at the time of issuance, the Company amortizes the amount through interest expense based on the maturity date or the first date the holders may require the Company to repurchase the debt securities, if applicable. A premium would result in a decrease in interest expense, and a discount would result in an increase in interest expense in future periods. Additionally, the Company has debt issuance costs related to certain financing transactions which are also amortized through interest expense. As of December 31, 2019 and 2018, the Company had total unamortized debt issuance costs of $21.3 million and $26.5 million, respectively.
Debt Transactions
See Note 3 for further information regarding the Company’s acquisition of GE Transportation.
Senior Notes
On September 14, 2018 in order to fund the GE Acquisition and related fees and expenses, we issued a total of $2.5 billion in aggregate principal amount of unsecured senior notes (in two separate series of fixed rate unsecured senior notes “Senior Notes” and one series of floating rate unsecured senior notes “Floating Senior Notes”). We collectively refer to the Floating Senior Notes and the Senior Notes as the “Notes.” Upon issuance, the Senior Notes and Floating Senior Notes were reflected on our Consolidated Balance Sheets net of discount of $2.9 million and net of the capitalized debt issuance costs, including commissions and offering expenses of $18.0 million, both of which will be amortized in interest expense through the respective maturity dates of each series of unsecured senior notes using the effective interest method.
The Floating Senior Notes bear interest at a floating rate equal to the three-month LIBOR rate plus 1.050% per year; the Senior Notes due 2024 bear interest at 4.150% per year; and the Senior Notes due 2028 bear interest at 4.700% per year. The interest rate payable on the Notes will be subject to adjustment based on certain rating events. Interest on the Senior Notes is payable semi-annually in arrears on March 15th and September 15th of each year, commencing on March 15, 2019. Interest on
the Floating Senior Notes is payable quarterly in arrears on December 15, March 15, June 15, and September 15 of each year, which commenced on December 15, 2018.
The issuance was comprised of the following three series of notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes (in millions)
|
|
Par Value
|
|
Discount
at Issuance
|
|
Net Price
at Issuance
|
|
Issuance
Cost
|
|
Net Proceeds
|
Floating Senior Notes due 2021
|
|
$
|
500.0
|
|
|
$
|
—
|
|
|
$
|
500.0
|
|
|
$
|
3.5
|
|
|
$
|
496.5
|
|
4.15% Senior Notes due 2024
|
|
750.0
|
|
|
1.5
|
|
|
748.5
|
|
|
7.4
|
|
|
741.1
|
|
4.70% Senior Notes due 2028
|
|
1,250.0
|
|
|
1.4
|
|
|
1,248.6
|
|
|
10.6
|
|
|
1,238.0
|
|
Total
|
|
$
|
2,500.0
|
|
|
$
|
2.9
|
|
|
$
|
2,497.1
|
|
|
$
|
21.5
|
|
|
$
|
2,475.6
|
|
Consistent with the Company's existing senior notes, the newly issued Notes are senior unsecured obligations of the Company and rank pari passu with all existing and future senior debt and senior to all 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, sales of assets, change in control, mergers and consolidations and the incurrence of liens. But the covenants do not require the Company to maintain any financial ratios or specified levels of net worth or liquidity. The Company may redeem each series of the Notes at any time in whole or from time to time in part in accordance with the provisions of the indenture, under which such series of Notes was issued.
Upon the occurrence of a change of control repurchase event with respect to the Notes, each holder of the Notes has the right to require the Company to purchase that holder’s Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, unless the Company has exercised its option to redeem all the Notes.
On February 12, 2019, the rating assigned by Moody's was decreased to Ba1. Accordingly, pursuant to the respective terms of the Senior Notes issued on September 14, 2018, the interest rate increased by 0.25%. The interest rate increase took effect from the next interest period following February 12, 2019.
The Company is in compliance with the restrictions and covenants in the indenture under which the Notes were issued and expects that these restrictions and covenants will not be any type of limiting factor in executing our operating activities.
Term Loan Agreement
On June 8, 2018, the Company arranged (i) a $350.0 million term loan with proceeds used to refinance existing loans (the “Refinancing Term Loan”), and (ii) a new $400.0 million delayed draw term loan in order to fund the GE Acquisition and related fees and expenses (the “Delayed Draw Term Loan”). The Company collectively refers to the Refinance Term Loans and the Delayed Draw Term Loans as the “Term Loans.”
Consistent with our other debt securities, the Term Loan Agreement includes covenants that, among other things, limit our liens and the liens of certain of our consolidated subsidiaries. In addition, it requires us to maintain the same financial maintenance covenants as discussed below.
Loans under the Term Loan bear interest at a variable rate based on, at the Company’s option, either the ABR rate or the LIBOR rate (each as defined in the Term Loan Agreement) plus an applicable margin that is determined based on our credit ratings or the Company’s ratio of total debt (less unrestricted cash up to $300.0 million) to EBITDA (“Leverage Ratio”). As of December 31, 2019, the applicable margin was 0.375% for base rate loans and 1.375% for Eurodollar rate loans.
Senior Credit Facility
On June 8, 2018, the Company entered into a credit agreement (the “Senior Credit Facility”), which replaced the Company’s then-existing “2016 Refinancing Credit Agreement.” The Senior Credit Facility is with a syndicate of lenders and provides for borrowings consisting of (i) term loans denominated in euros and U.S. dollars; and (ii) a multi-currency revolving loan facility, providing for an equivalent in U.S. dollars of up to $1,200.0 million in multi-currency revolving loans (inclusive of swingline loans of up to $75.0 million and letters of credit of up to $450.0 million).
The multi-currency revolving loan facility will mature on June 8, 2023, and the Term Loans will mature on June 8, 2021. Subject to any mandatory or optional prepayments, the Term Loans are required to be repaid on a quarterly basis in an amount equal to 2.5% of the principal amount drawn, with the final payment due at maturity.
The following table presents availability under our credit facilities:
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Multi-currency revolving loan facility
|
Maximum Availability
|
|
$
|
1,200.0
|
|
Outstanding Borrowings
|
|
232.0
|
|
Letters of Credit Under Credit Agreement
|
|
30.0
|
|
Current Availability
|
|
$
|
938.0
|
|
Under the Senior Credit Facility, we can elect to receive advances bearing interest based on either the ABR rate or the LIBOR rate (each as defined in the Credit Agreement) plus an applicable margin that is determined based on our credit ratings or the Company’s Leverage Ratio. As of December 31, 2019, the applicable margin was 0.375% for base rate advances and 1.375% for LIBOR rate advances.
The Company also pays fees related to the Senior Credit Facility. The largest of these fees is a commitment fee on the unused portion of the multi-currency revolving loan facility of 0.10% to 0.30% per annum (currently 0.15% per annum), depending on our credit ratings or Leverage Ratio. None of the fees were material to interest expense.
The obligations under the Senior Credit Facility are guaranteed by Wabtec and each of Wabtec’s wholly owned subsidiaries (collectively, the “Subsidiary Guarantors”). In addition, the Senior Credit Facility contains a number of customary affirmative and negative covenants. In addition to other and customary covenants, the Senior Credit Facility require that we maintain the financial covenants listed below as of the end of each fiscal quarter for the period of four fiscal quarters then ended. The Company was in compliance with all of our covenants in the Credit Agreement and the Term Loans as of December 31, 2019.
|
|
|
|
|
|
|
|
|
Interest Coverage Ratio 1
|
|
3.0x
|
Leverage Ratio 2
|
|
3.25x
|
1. The interest coverage ratio is defined as EBITDA, as defined in the Credit Agreement and Term Loan Agreement, to net interest expense for the four quarters then ended.
2. The leverage ratio is defined as net debt as of the last day of such fiscal quarter to EBITDA, as defined in the Amendment Credit Agreement and Term Loan Agreement, for the four quarters then ended.
The 2018 Senior Credit Facility contains an uncommitted accordion feature allowing the Company to request the establishment, in an aggregate amount not to exceed $600.0 million, of incremental borrowing commitments under the Revolving Credit Facility or of incremental term loan commitment.
At December 31, 2019, the weighted average interest rate on the Company’s variable rate debt was 3.08%.
Cash Pooling
Wabtec aggregates the Company's domestic cash position on a daily basis. Outside the United States, the Company uses cash pooling arrangements with banks to help manage our liquidity requirements. In these pooling arrangements, Wabtec subsidiary “Participants” agree with a single bank that the cash balances of any of the pool Participants with the bank will be subject to a full right of set-off against amounts other Participants owe the bank, and the bank provides for overdrafts as long as the net balance for all Participants does not exceed an agreed-upon level. Typically, each Participant pays interest on outstanding overdrafts and receives interest on cash balances. The Company's Consolidated Balance Sheets reflect cash, net of bank overdrafts, under all pooling arrangements.
10. EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plans
The Company sponsors defined benefit pension plans that cover certain U.S., Canadian, German, and United Kingdom employees and which provide benefits of stated amounts for each year of service of the employee. The Company uses a December 31 measurement date for the plans.
The following tables provide information regarding the Company’s significant defined benefit pension plans summarized by U.S. and international components.
Obligations and Funded Status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
International
|
|
|
In millions
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Change in projected benefit obligation
|
|
|
|
|
|
|
|
|
Obligation at beginning of year
|
|
$
|
(39.4)
|
|
|
$
|
(44.2)
|
|
|
$
|
(309.2)
|
|
|
$
|
(353.0)
|
|
Service cost
|
|
(0.3)
|
|
|
(0.3)
|
|
|
(2.7)
|
|
|
(2.6)
|
|
Interest cost
|
|
(1.5)
|
|
|
(1.3)
|
|
|
(7.0)
|
|
|
(7.0)
|
|
Employee contributions
|
|
—
|
|
|
—
|
|
|
(0.5)
|
|
|
(0.4)
|
|
Plan settlements and amendments
|
|
—
|
|
|
—
|
|
|
4.4
|
|
|
15.2
|
|
Benefits paid
|
|
3.0
|
|
|
3.5
|
|
|
13.1
|
|
|
13.5
|
|
Acquisition
|
|
—
|
|
|
—
|
|
|
(5.0)
|
|
|
(0.9)
|
|
Actuarial gain (loss)
|
|
(2.9)
|
|
|
2.9
|
|
|
(32.4)
|
|
|
6.7
|
|
Effect of currency rate changes
|
|
—
|
|
|
—
|
|
|
(8.0)
|
|
|
19.3
|
|
Obligation at end of year
|
|
$
|
(41.1)
|
|
|
$
|
(39.4)
|
|
|
$
|
(347.3)
|
|
|
$
|
(309.2)
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
31.9
|
|
|
$
|
37.4
|
|
|
$
|
239.4
|
|
|
$
|
281.6
|
|
Actual return on plan assets
|
|
5.3
|
|
|
(2.0)
|
|
|
23.9
|
|
|
(6.9)
|
|
Employer contributions
|
|
—
|
|
|
—
|
|
|
9.4
|
|
|
10.8
|
|
Employee contributions
|
|
—
|
|
|
—
|
|
|
0.5
|
|
|
0.4
|
|
Benefits paid
|
|
(2.9)
|
|
|
(3.5)
|
|
|
(13.1)
|
|
|
(13.5)
|
|
Settlements
|
|
—
|
|
|
—
|
|
|
(0.4)
|
|
|
(16.6)
|
|
Acquisition
|
|
—
|
|
|
—
|
|
|
1.2
|
|
|
—
|
|
Effect of currency rate changes
|
|
—
|
|
|
—
|
|
|
8.9
|
|
|
(16.4)
|
|
Fair value of plan assets at end of year
|
|
$
|
34.3
|
|
|
$
|
31.9
|
|
|
$
|
269.8
|
|
|
$
|
239.4
|
|
Funded status
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$
|
34.3
|
|
|
$
|
31.9
|
|
|
$
|
269.8
|
|
|
$
|
239.4
|
|
Benefit obligations
|
|
(41.1)
|
|
|
(39.4)
|
|
|
(347.3)
|
|
|
(309.2)
|
|
Funded status
|
|
$
|
(6.8)
|
|
|
$
|
(7.5)
|
|
|
$
|
(77.5)
|
|
|
$
|
(69.8)
|
|
Amounts recognized in the statement of financial position consist of:
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11.8
|
|
|
$
|
8.9
|
|
Current liabilities
|
|
—
|
|
|
—
|
|
|
(2.4)
|
|
|
(2.1)
|
|
Noncurrent liabilities
|
|
(6.9)
|
|
|
(7.5)
|
|
|
(86.9)
|
|
|
(76.6)
|
|
Net amount recognized
|
|
$
|
(6.9)
|
|
|
$
|
(7.5)
|
|
|
$
|
(77.5)
|
|
|
$
|
(69.8)
|
|
Amounts recognized in accumulated other comprehensive income (loss) consist of:
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
—
|
|
|
—
|
|
|
(1.4)
|
|
|
(1.4)
|
|
Net actuarial loss
|
|
(18.8)
|
|
|
(20.3)
|
|
|
(78.3)
|
|
|
(58.7)
|
|
Net amount recognized
|
|
$
|
(18.8)
|
|
|
$
|
(20.3)
|
|
|
$
|
(79.7)
|
|
|
$
|
(60.1)
|
|
The aggregate accumulated benefit obligation for the U.S. pension plans was $40.2 million and $38.8 million as of December 31, 2019 and 2018, respectively. The aggregate accumulated benefit obligation for the international pension plans was $336.0 million and $301.1 million as of December 31, 2019 and 2018, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
International
|
|
|
In millions
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Information for pension plans with accumulated benefit obligations in excess of Plan assets:
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
(41.1)
|
|
|
$
|
(39.4)
|
|
|
$
|
(283.1)
|
|
|
$
|
(251.0)
|
|
Accumulated benefit obligation
|
|
(40.2)
|
|
|
(38.8)
|
|
|
(272.6)
|
|
|
(243.6)
|
|
Fair value of plan assets
|
|
34.3
|
|
|
31.9
|
|
|
193.9
|
|
|
172.3
|
|
Information for pension plans with projected benefit obligations in
|
|
|
|
|
|
|
|
|
excess of plan assets:
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
(41.1)
|
|
|
$
|
(39.5)
|
|
|
$
|
(284.4)
|
|
|
$
|
(251.0)
|
|
Fair value of plan assets
|
|
34.3
|
|
|
32.0
|
|
|
195.1
|
|
|
172.3
|
|
Components of Net Periodic Benefit Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
International
|
|
|
|
|
In millions
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
Service cost
|
|
$
|
0.3
|
|
|
$
|
0.3
|
|
|
$
|
0.3
|
|
|
$
|
2.7
|
|
|
$
|
2.6
|
|
|
$
|
2.7
|
|
Interest cost
|
|
1.5
|
|
|
1.3
|
|
|
1.4
|
|
|
7.0
|
|
|
7.0
|
|
|
7.3
|
|
Expected return on plan assets
|
|
(1.7)
|
|
|
(1.8)
|
|
|
(1.7)
|
|
|
(11.8)
|
|
|
(13.5)
|
|
|
(12.4)
|
|
Amortization of initial net obligation and prior service cost
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
Amortization of net loss
|
|
0.8
|
|
|
1.0
|
|
|
1.0
|
|
|
2.5
|
|
|
2.1
|
|
|
2.8
|
|
Settlement and curtailment losses recognized
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3.1
|
|
|
0.8
|
|
Net periodic benefit cost
|
|
$
|
0.9
|
|
|
$
|
0.8
|
|
|
$
|
1.0
|
|
|
$
|
0.5
|
|
|
$
|
1.3
|
|
|
$
|
1.2
|
|
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income during 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
U.S.
|
|
International
|
Net gain (loss) arising during the year
|
|
$
|
0.7
|
|
|
$
|
(20.3)
|
|
Effect of exchange rates
|
|
—
|
|
|
(2.1)
|
|
Amortization, settlement, or curtailment recognition of net transition obligation
|
|
—
|
|
|
0.4
|
|
Amortization or curtailment recognition of prior service cost
|
|
—
|
|
|
0.1
|
|
Amortization or settlement recognition of net loss
|
|
0.8
|
|
|
2.5
|
|
Total recognized in other comprehensive gain
|
|
$
|
1.5
|
|
|
$
|
(19.4)
|
|
Total recognized in net periodic benefit cost and other comprehensive gain
|
|
$
|
0.6
|
|
|
$
|
(19.9)
|
|
The weighted average assumptions in the following table represent the rates used to develop the actuarial present value of the projected benefit obligation for the year listed.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
International
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
Discount rate
|
|
3.27
|
%
|
|
4.30
|
%
|
|
3.56
|
%
|
|
1.84
|
%
|
|
2.53
|
%
|
|
2.40
|
%
|
Expected return on plan assets
|
|
5.35
|
%
|
|
5.15
|
%
|
|
4.95
|
%
|
|
5.01
|
%
|
|
5.10
|
%
|
|
5.02
|
%
|
Rate of compensation increase
|
|
3.00
|
%
|
|
3.00
|
%
|
|
3.00
|
%
|
|
2.64
|
%
|
|
2.61
|
%
|
|
2.54
|
%
|
The discount rate is based on settling the pension obligation with high grade, high yield corporate bonds, and the rate of compensation increase is based on actual experience. The expected return on plan assets is based on historical performance as well as expected future rates of return on plan assets considering the current investment portfolio mix and the long-term investment strategy.
As of December 31, 2019, the following table represents the amounts included in other comprehensive loss that are expected to be recognized as components of periodic benefit costs in 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
U.S.
|
|
International
|
Prior service cost
|
|
—
|
|
|
0.1
|
|
Net actuarial loss
|
|
1.0
|
|
|
4.3
|
|
|
|
$
|
1.0
|
|
|
$
|
4.4
|
|
Pension Plan Assets
The Company has established formal investment policies for the assets associated with our pension plans. Objectives include maximizing long-term return at acceptable risk levels and diversifying among asset classes. Asset allocation targets are based on periodic asset liability study results which help determine the appropriate investment strategies. The investment policies permit variances from the targets within certain parameters. The plan assets consist primarily of equity security funds, debt security funds, and temporary cash and cash equivalent investments. The assets held in these funds are generally actively managed and are valued at the net asset value per share multiplied by the number of shares held as of the measurement date. (See Note 19 “Fair Value Measurement” included herein). Plan assets by asset category at December 31, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
International
|
|
|
In millions
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Pension Plan Assets
|
|
|
|
|
|
|
|
|
Equity security funds
|
|
$
|
16.4
|
|
|
$
|
13.2
|
|
|
$
|
70.8
|
|
|
$
|
95.1
|
|
Debt security funds and other
|
|
16.3
|
|
|
17.5
|
|
|
191.3
|
|
|
140.9
|
|
Cash and cash equivalents
|
|
1.6
|
|
|
1.2
|
|
|
7.7
|
|
|
3.4
|
|
Fair value of plan assets
|
|
$
|
34.3
|
|
|
$
|
31.9
|
|
|
$
|
269.8
|
|
|
$
|
239.4
|
|
The U.S. plan has a target asset allocation of 55% equity securities and 45% debt securities. The International plan has a target asset allocation of 26% equity securities, 53% debt securities and 21% in other investments. Investment policies are determined by the respective Plan’s Pension Committee and set forth in its Investment Policy. Rebalancing of the asset allocation occurs on a quarterly basis.
The following tables summarize our pension plan assets measured at fair value on a recurring basis by fair value hierarchy level (See Note 19):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
In millions
|
|
NAV
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
US:
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
$
|
—
|
|
|
$
|
16.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16.4
|
|
Debt Securities and other
|
|
—
|
|
|
3.5
|
|
|
12.8
|
|
|
—
|
|
|
16.3
|
|
Cash and cash equivalents
|
|
—
|
|
|
1.5
|
|
|
—
|
|
|
—
|
|
|
1.5
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
$
|
4.9
|
|
|
$
|
19.9
|
|
|
$
|
46.0
|
|
|
$
|
—
|
|
|
$
|
70.8
|
|
Debt Securities and other
|
|
—
|
|
|
3.1
|
|
|
179.2
|
|
|
—
|
|
|
182.4
|
|
Insurance Contracts
|
|
—
|
|
|
—
|
|
|
4.3
|
|
|
4.6
|
|
|
8.9
|
|
Cash and cash equivalents
|
|
—
|
|
|
7.0
|
|
|
0.7
|
|
|
—
|
|
|
7.8
|
|
Total
|
|
$
|
4.9
|
|
|
$
|
51.5
|
|
|
$
|
243.1
|
|
|
$
|
4.6
|
|
|
$
|
304.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
In millions
|
|
NAV
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
US:
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
$
|
—
|
|
|
$
|
13.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13.2
|
|
Debt Securities
|
|
—
|
|
|
4.5
|
|
|
13.0
|
|
|
—
|
|
|
17.5
|
|
Cash and cash equivalents
|
|
—
|
|
|
1.3
|
|
|
—
|
|
|
—
|
|
|
1.3
|
|
International:
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
$
|
3.7
|
|
|
$
|
34.8
|
|
|
$
|
56.5
|
|
|
$
|
—
|
|
|
$
|
95.1
|
|
Debt Securities
|
|
—
|
|
|
—
|
|
|
125.6
|
|
|
—
|
|
|
125.6
|
|
Insurance Contracts
|
|
—
|
|
|
—
|
|
|
5.4
|
|
|
9.9
|
|
|
15.3
|
|
Cash and cash equivalents
|
|
—
|
|
|
3.5
|
|
|
—
|
|
|
—
|
|
|
3.5
|
|
Total
|
|
$
|
3.7
|
|
|
$
|
57.4
|
|
|
$
|
200.5
|
|
|
$
|
9.9
|
|
|
$
|
271.5
|
|
The following table presents a reconciliation of Level 3 assets:
|
|
|
|
|
|
|
|
|
In millions
|
|
Total
|
Balance at December 31, 2017
|
|
$
|
13.1
|
|
Net purchases, issuances, and settlements
|
|
(3.6)
|
|
Actual return of plan assets
|
|
0.3
|
|
Transfers
|
|
0.7
|
|
Effect of currency rate changes
|
|
(0.5)
|
|
Balance at December 31, 2018
|
|
$
|
9.9
|
|
Net purchases, issuances, and settlements
|
|
0.2
|
|
Actual return of plan assets
|
|
0.3
|
|
Transfers
|
|
(5.8)
|
|
Effect of currency rate changes
|
|
—
|
|
Balance at December 31, 2019
|
|
$
|
4.6
|
|
Cash Flows
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 $2.1 million and $8.8 million to the U.S. and international plans respectively during 2020.
Benefit payments expected to be paid to plan participants are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
U.S.
|
|
International
|
Year ended December 31,
|
|
|
|
|
2020
|
|
$
|
3.2
|
|
|
$
|
16.0
|
|
2021
|
|
3.1
|
|
|
16.5
|
|
2022
|
|
3.0
|
|
|
17.0
|
|
2023
|
|
3.0
|
|
|
17.7
|
|
2024
|
|
2.9
|
|
|
17.9
|
|
2025 through 2029
|
|
13.0
|
|
|
93.4
|
|
Defined Contribution Plans
The Company also participates in certain defined contribution plans and multiemployer pension plans. Costs recognized under these plans are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31,
|
|
|
|
|
In millions
|
|
2019
|
|
2018
|
|
2017
|
Multi-employer pension and health & welfare plans
|
|
$
|
0.9
|
|
|
$
|
1.0
|
|
|
$
|
1.5
|
|
401(k) savings and other defined contribution plans
|
|
55.7
|
|
|
27.9
|
|
|
23.2
|
|
Total
|
|
$
|
56.6
|
|
|
$
|
28.8
|
|
|
$
|
24.7
|
|
The 401(k) savings plan is a participant directed defined contribution plan that holds shares of the Company’s stock as one of the investment options. At December 31, 2019 and 2018, the plan held on behalf of its participants about 431,744 shares with a market value of $33.6 million, and 442,239 shares with a market value of $31.1 million, respectively. Additionally, the Company has stock option based benefit and other plans further described in Note 13.
The Company contributes to a multi-employer defined benefit pension plan under a collective bargaining agreement that covers certain of its union-represented employees. The risks of participating in such plans are different from the risks of single-employer plans. Assets contributed to a multi-employer plan by one employer may be used to provide benefits to employees of other participating employers. If a participating employer ceases to contribute to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. If the Company ceases to have an obligation to contribute to the multi-employer plan in which it had been a contributing employer, it may be required to pay to the plan an amount based on the underfunded status of the plan and on the history of the Company’s participation in the plan prior to the cessation of its obligation to contribute. The amount that an employer that has ceased to have an obligation to contribute to a multi-employer plan is required to pay to the plan is referred to as a withdrawal liability.
The Company’s participation in multi-employer plans for the year ended December 31, 2019 is outlined in the table below. For plans that are not individually significant to the Company, the total amount of contributions is presented in the aggregate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Protection
Act Zone Status (b)
|
|
|
|
FIP/
|
|
Contributions by
the Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration
Dates of
|
In thousands
|
|
|
|
|
|
|
|
|
RP Status
Pending/
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Surcharge
Imposed
|
|
Collective
Bargaining
|
Pension Fund
|
|
EIN/PN (a)
|
|
|
2019
|
|
2018
|
|
Implemented (c)
|
|
2019
|
|
|
|
2018
|
|
|
|
2017
|
|
|
|
(d)
|
|
Agreements
|
Idaho Operating Engineers-
|
|
EIN #
|
91-6075538
|
|
Green
|
|
Green
|
|
No
|
|
$
|
881
|
|
|
(1)
|
|
|
$
|
965
|
|
|
(1)
|
|
|
$
|
1,020
|
|
|
(1)
|
|
|
No
|
|
8/6/2021
|
Employers Pension Trust Fund
|
|
Plan#
|
001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contributions
|
|
$
|
881
|
|
|
|
|
$
|
965
|
|
|
|
|
$
|
1,020
|
|
|
|
|
|
|
|
(1)The Company’s contribution represents more than 5% of the total contributions to the plan.
(a) The “EIN / PN” column provides the Employer Identification Number and the three-digit plan number assigned to a plan by the Internal Revenue Service.
(b) The most recent Pension Protection Act Zone Status available for 2019 and 2018 is for plan years that ended in 2019 and 2018, respectively. The zone status is based on information provided to the Company and other participating employers by each plan and is certified by the plan’s actuary. A plan in the “red” zone has been determined to be in “critical status”, based on criteria established under the Internal Revenue Code (“Code”), and is generally less than 65% funded. A plan in the “yellow” zone has been determined to be in “endangered status”, based on criteria established under the Code, and is generally less than 80% funded. A plan in the “green” zone has been determined to be neither in “critical status” nor in “endangered status” and is generally at least 80% funded.
(c)The “FIP/RP Status Pending/Implemented” column indicates whether a Funding Improvement Plan, as required under the Code to be adopted by plans in the “yellow” zone, or a Rehabilitation Plan, as required under the Code to be adopted by plans in the “red” zone, is pending or has been implemented as of the end of the plan year that ended in 2019.
(d) The “Surcharge Imposed” column indicates whether the Company’s contribution rate for 2019 included an amount in addition the contribution rate specified in the applicable collective bargaining agreement, as imposed by a plan in “critical status”, in accordance with the requirements of the Code.
11. INCOME TAXES
The Company is responsible for filing consolidated U.S., foreign and combined, unitary or separate state income tax returns. The Company is responsible for paying the taxes relating to such returns, including any subsequent adjustments resulting from the redetermination of such tax liabilities by the applicable taxing authorities.
On December 23, 2017, the French government enacted the Finance Act for 2018 and it was published in the Official Bulletin on December 31, 2017. The Finance act reduced the French corporate tax rate from 28% in 2020 to 25%, enacting an additional 1.5% reduction in each year 2021 and 2022.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act makes broad and complex changes to the U.S. tax code that affected fiscal 2017, including, but not limited to requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years (the "Transition Tax"). The Tax Act also established new tax laws that affect 2018 and later years, including, but not limited to, a reduction of the U.S. federal corporate tax rate from 35% to 21%, repeals the Domestic Manufacturing Deduction, a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries, new provisions designed to tax global intangible low-taxed income ("GILTI"), tax certain deductible base erosion payments called base erosion and anti-abuse tax (“BEAT”), and new interest expense limitation provisions.
In relation to the analysis of the impact of the all tax law changes, the Company recorded a net tax expense of $4.3 million in fiscal 2017. This included a provisional expense for the U.S. tax reform bill of $55.0 million, as well as a net benefit for the revaluation of deferred tax assets and liabilities of $50.7 million. Of this amount, net tax expense of $27.2 million is related to the Tax Act and a benefit of $22.9 million is related to the French Finance Act for 2018.
In fiscal 2018, the Company completed its accounting for the income tax effects of the Tax Act. The Company adjusted the provisional amounts previously recorded in accordance with SEC Staff Accounting Bulletin No. 118. As such, the Company included the following tax provisions in its financial statements for the year ending December 31, 2018:
Revaluation of deferred tax assets and liabilities: The Tax Act reduced the U.S. federal corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017. In addition, the Tax Act made certain changes to the depreciation rules and implemented new limits on the deductibility of certain executive compensation. The Company evaluated these changes and recorded a provisional benefit to net deferred taxes of $24.6 million at December 31, 2017. As a result of the completion of its 2017 U.S. corporate tax return in fiscal 2018, the Company adjusted its U.S. deferred tax balances which resulted in a benefit of $5.1 million being recorded fiscal 2018. The Company has completed its calculation of the impact of these changes on its
deferred tax balances. As of December 31, 2018, the Company completed its analysis of the impact of the Tax Act on the deductibility of certain executive compensation. As a result, no further adjustments were made during the year ended December 31, 2018.
Transition Tax on unrepatriated foreign earnings: The Transition Tax on unrepatriated foreign earnings is a tax on previously untaxed accumulated and current earnings and profits ("E&P") of the Company's foreign subsidiaries. To determine the amount of the Transition Tax, the Company had to determine, among other factors, the amount of post-1986 E&P of its foreign subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. The Company was able to make a reasonable estimate of the Transition Tax and recorded a provisional Transition Tax expense of $51.8 million at December 31, 2017. As of December 31, 2018, the Company completed its calculation of the Transition Tax which resulted in a benefit of $14.4 million for the twelve months ended December 31, 2018.
Global intangible low taxed income ("GILTI"): The Tax Act created a new requirement that certain income (i.e., GILTI) earned by foreign subsidiaries must be included currently in the gross income of the U.S. shareholder. Under U.S. GAAP, the Company is permitted to make an accounting policy election to either treat taxes due on future inclusions in U.S. taxable income related to GILTI as a current-period expense when incurred or to factor such amounts into the Company's measurement of its deferred taxes. The Company has made the election to treat taxes due on future inclusions related to GILTI as current period expense and has included a current period expense of $11.9 million and $9.3 million in its financial statements for the twelve months ended December 31, 2019 and December 31, 2018, respectively.
Indefinite reinvestment assertion: Beginning in 2018, the Tax Act provides a 100% deduction for dividends received from 10-percent owned foreign corporations by U.S. corporate shareholders, subject to a one-year holding period. Although dividend income is now exempt from U.S. federal tax in the hands of the U.S. corporate shareholders, companies must still apply the guidance of ASC 740 to account for the tax consequences of outside basis differences and other tax impacts of their investments in non-U.S. subsidiaries. While the Company has finalized its calculation of the Transition Tax on the deemed repatriated earnings that were previously indefinitely reinvested, the Company was unable to determine a reasonable estimate of the remaining tax liability, if any, under the Tax Act for its remaining outside basis differences. Therefore, the Company has not recorded deferred taxes for this item in its financial statements for fiscal year ended December 31, 2019.
The components of the income from operations before provision for income taxes for the Company’s domestic and foreign operations for the years ended December 31 are provided below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31,
|
|
|
|
|
In millions
|
|
2019
|
|
2018
|
|
2017
|
Domestic
|
|
$
|
117.9
|
|
|
$
|
145.1
|
|
|
$
|
140.3
|
|
Foreign
|
|
328.9
|
|
|
222.5
|
|
|
211.8
|
|
Income from operations before income taxes
|
|
$
|
446.8
|
|
|
$
|
367.6
|
|
|
$
|
352.1
|
|
The consolidated provision for income taxes included in the Statement of Income consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31,
|
|
|
|
|
In thousands
|
|
2019
|
|
2018
|
|
2017
|
Current taxes
|
|
|
|
|
|
|
Federal
|
|
$
|
5.7
|
|
|
$
|
6.9
|
|
|
$
|
86.2
|
|
State
|
|
0.5
|
|
|
5.8
|
|
|
3.6
|
|
Foreign
|
|
141.4
|
|
|
68.5
|
|
|
67.4
|
|
|
|
147.6
|
|
|
81.2
|
|
|
157.2
|
|
Deferred taxes
|
|
|
|
|
|
|
|
|
|
Federal
|
|
19.8
|
|
|
4.7
|
|
|
(22.9)
|
|
State
|
|
2.9
|
|
|
1.3
|
|
|
(1.0)
|
|
Foreign
|
|
(50.0)
|
|
|
(11.3)
|
|
|
(43.5)
|
|
|
|
(27.3)
|
|
|
(5.3)
|
|
|
(67.4)
|
|
Total provision
|
|
$
|
120.3
|
|
|
$
|
75.9
|
|
|
$
|
89.8
|
|
A reconciliation of the United States federal statutory income tax rate to the effective income tax rate on operations for the years ended December 31 is provided below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31,
|
|
|
|
|
In millions
|
|
2019
|
|
2018
|
|
2017
|
U.S. federal statutory rate
|
|
21.0
|
%
|
|
21.0
|
%
|
|
35.0
|
%
|
State taxes
|
|
0.7
|
|
|
1.6
|
|
|
0.4
|
|
Foreign
|
|
3.2
|
|
|
0.7
|
|
|
(8.3)
|
|
Research and development credit
|
|
(1.7)
|
|
|
(1.1)
|
|
|
(0.8)
|
|
Manufacturing deduction
|
|
—
|
|
|
—
|
|
|
(1.1)
|
|
France tax rate change
|
|
—
|
|
|
—
|
|
|
(6.5)
|
|
U.S. tax rate change
|
|
—
|
|
|
(0.6)
|
|
|
(7.9)
|
|
U.S. tax reform (benefit) provision
|
|
2.0
|
|
|
(1.4)
|
|
|
15.6
|
|
Transaction costs related to acquisitions
|
|
1.0
|
|
|
—
|
|
|
—
|
|
Other, net
|
|
0.7
|
|
|
0.4
|
|
|
(0.9)
|
|
Effective rate
|
|
26.9
|
%
|
|
20.6
|
%
|
|
25.5
|
%
|
The increase in the effective tax rate in 2019 is primarily the result of non-deductible transaction related expenses incurred as a result of the acquisition of GE Transportation, a higher earnings mix in higher tax jurisdictions, increased estimated liabilities resulting from provisions of the 2017 Tax Cuts and Jobs Act as well as a benefit from the completion of the accounting for the income tax effects of the Tax Act that was recorded in the tax year ending December 31, 2018.
Components of deferred tax assets and liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
In millions
|
|
2019
|
|
2018
|
Deferred income tax assets:
|
|
|
|
|
Accrued expenses and reserves
|
|
$
|
35.8
|
|
|
$
|
13.8
|
|
Warranty reserve
|
|
46.6
|
|
|
25.9
|
|
Deferred compensation/employee benefits
|
|
32.3
|
|
|
9.8
|
|
Right-of-use asset
|
|
63.1
|
|
|
|
—
|
|
Pension and postretirement obligations
|
|
28.1
|
|
|
19.5
|
|
Inventory
|
|
25.8
|
|
|
16.8
|
|
Net operating loss carry forwards
|
|
95.6
|
|
|
85.1
|
|
Other
|
|
18.8
|
|
|
19.2
|
|
Gross deferred income tax assets
|
|
346.1
|
|
|
190.1
|
|
Valuation allowance
|
|
58.0
|
|
|
41.7
|
|
Total deferred income tax assets
|
|
288.1
|
|
|
148.4
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
Property, plant & equipment
|
|
42.7
|
|
|
35.5
|
|
Right-of-use liability
|
|
63.1
|
|
|
|
—
|
|
Intangibles
|
|
235.6
|
|
|
287.4
|
|
Total deferred income tax liabilities
|
|
341.4
|
|
|
322.9
|
|
Net deferred income tax liability
|
|
$
|
(53.3)
|
|
|
$
|
(174.5)
|
|
A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of December 31, 2019, the valuation allowance for certain foreign deferred tax asset carryforwards was $58.0 million primarily in China, France, the Netherlands, United Kingdom, and South Africa.
Net operating loss carry-forwards in the amount of $390.5 million expire in various periods from December 31, 2019 to December 31, 2039.
As of December 31, 2019, the liability for income taxes associated with unrecognized tax benefits was $17.2 million, of which $17.2 million, if recognized, would favorably affect the Company’s effective income tax rate. As of December 31, 2018, the liability for income taxes associated with unrecognized tax benefits was $9.5 million, of which $8.4 million, if recognized,
would favorably affect the Company’s effective tax rate. A reconciliation of the beginning and ending amount of the liability for income taxes associated with unrecognized tax benefits follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
2019
|
|
2018
|
|
2017
|
Gross liability for unrecognized tax benefits at beginning of year
|
|
$
|
9.5
|
|
|
$
|
6.9
|
|
|
$
|
8.4
|
|
Gross increases - unrecognized tax benefits in prior periods
|
|
9.7
|
|
|
5.4
|
|
|
2.5
|
|
Gross decreases - audit settlement during year
|
|
—
|
|
|
—
|
|
|
(4.0)
|
|
Gross decreases - expiration of audit statute of limitations
|
|
(2.0)
|
|
|
(2.8)
|
|
|
—
|
|
Gross liability for unrecognized tax benefits at end of year
|
|
$
|
17.2
|
|
|
$
|
9.5
|
|
|
$
|
6.9
|
|
The Company includes interest and penalties related to unrecognized tax benefits in income tax expense. As of December 31, 2019, the total interest and penalties accrued was approximately $4.0 million. As of December 31, 2018, the total interest and penalties accrued was approximately $0.9 million.
With limited exception, the Company is no longer subject to examination by various U.S. and foreign taxing authorities for years before 2014. At this time, the Company believes that it is reasonably possible that unrecognized tax benefits of approximately $7.6 million may change within the next 12 months due to the expiration of statutory review periods and current examinations.
12. EARNINGS PER SHARE
The computation of earnings per share from operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
December 31,
|
|
|
|
|
In millions, except per share data
|
|
2019
|
|
2018
|
|
2017
|
Numerator
|
|
|
|
|
|
|
Numerator for basic and diluted earnings per common share - net income attributable
|
|
|
|
|
|
|
to Wabtec shareholders
|
|
$
|
326.7
|
|
|
|
$
|
294.9
|
|
|
|
$
|
262.3
|
|
Less: dividends declared - common shares and non-vested restricted stock
|
|
(80.3)
|
|
|
|
(46.3)
|
|
|
|
(42.2)
|
|
Undistributed earnings
|
|
246.4
|
|
|
|
248.6
|
|
|
|
220.1
|
|
Percentage allocated to common shareholders (1)
|
|
99.7
|
%
|
|
|
99.7
|
%
|
|
|
99.7
|
%
|
|
|
245.7
|
|
|
|
247.9
|
|
|
|
219.4
|
|
Add: dividends declared - common shares
|
|
80.0
|
|
|
|
46.3
|
|
|
|
42.2
|
|
Less: dividends declared - preferred shares
|
|
(0.4)
|
|
|
|
—
|
|
|
|
—
|
|
Numerator for basic earnings per common share
|
|
$
|
325.3
|
|
|
|
$
|
294.2
|
|
|
|
$
|
261.6
|
|
Add: dividends declared - preferred shares
|
|
0.4
|
|
|
|
—
|
|
|
|
—
|
|
Numerator for diluted earnings per common share
|
|
$
|
325.7
|
|
|
|
$
|
294.2
|
|
|
|
$
|
261.6
|
|
Denominator
|
|
|
|
|
|
|
Denominator for basic earnings per common share - weighted average shares
|
|
170.5
|
|
|
|
96.0
|
|
|
|
95.5
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
Assumed conversion of preferred shares
|
|
6.4
|
|
|
|
—
|
|
|
|
—
|
|
Assumed conversion of dilutive stock-based compensation plans
|
|
0.4
|
|
|
|
0.5
|
|
|
|
0.6
|
|
Denominator for diluted earnings per common share - adjusted weighted average
|
|
|
|
|
|
|
|
|
|
|
|
shares and assumed conversion
|
|
177.3
|
|
|
|
96.5
|
|
|
|
96.1
|
|
Net income per common share attributable to Wabtec shareholders
|
|
|
|
|
|
|
Basic
|
|
$
|
1.91
|
|
|
$
|
3.06
|
|
|
$
|
2.74
|
|
Diluted
|
|
$
|
1.84
|
|
|
$
|
3.05
|
|
|
$
|
2.72
|
|
|
|
|
|
|
|
|
(1) Basic weighted-average common shares outstanding
|
|
170.5
|
|
|
|
96.0
|
|
|
|
95.5
|
|
Basic weighted-average common shares outstanding and non-vested restricted
|
|
|
|
|
|
|
|
|
|
|
|
stock expected to vest
|
|
171.0
|
|
|
|
96.3
|
|
|
|
95.7
|
|
Percentage allocated to common shareholders
|
|
99.7
|
%
|
|
99.7
|
%
|
|
99.7
|
%
|
Options to purchase approximately 312,000, 135,000, and 24,000 shares of Common Stock were outstanding in 2019, 2018 and 2017, respectively, but were not included in the computation of diluted earnings because their impact would have been antidilutive.
13. STOCK-BASED COMPENSATION PLANS
As of December 31, 2019, the Company maintains employee stock-based compensation plans for stock options, restricted stock, and incentive stock units as governed by the 2011 Stock Incentive Compensation Plan, as amended and restated (the “2011 Plan”) and the 2000 Stock Incentive Plan, as amended (the “2000 Plan”). The 2011 Plan has a term through May 10, 2027 and as of December 31, 2019 the number of shares available for future grants under the 2011 Plan was 1,870,396 shares, which includes remaining shares to grant under the 2000 Plan. The amendment and restatement of the 2011 Plan was approved by stockholders of Wabtec on May 10, 2017. The Company also maintains a 1995 Non-Employee Directors’ Fee and Stock Option Plan as amended and restated (“the Directors Plan”). The amendment and restatement of the Directors Plan was approved by stockholders of Wabtec on May 10, 2017. The Directors Plan, as amended, authorizes a total of 1,000,000 shares of Common Stock to be issued. Under the Directors Plan options issued become exercisable over a three-year vesting period and expire ten years from the date of grant and restricted stock issued under the plan vests one year from the date of grant. As compensation for directors’ fees for the years ended December 31, 2019, 2018 and 2017, the Company issued a total of 15,729, 12,960 and 16,500 shares of restricted stock to non-employee directors. The total number of shares issued under the plan as of December 31, 2019 was 909,881 shares.
Stock-based compensation expense for all of the plans was $50.0 million, $25.3 million and $21.3 million for the years ended December 31, 2019, 2018 and 2017, respectively. The Company recognized associated tax benefits related to the stock-based compensation plans of $1.4 million, $6.3 million and $8.9 million for the respective periods. Included in the stock-based compensation expense for 2019 above is $2.3 million of expense related to stock options, $20.8 million related to non-vested restricted stock, $9.4 million related to restricted stock units, $16.5 million related to incentive stock units and $1.0 million related to units issued for Directors’ fees. At December 31, 2019, unamortized compensation expense related to those stock options, non-vested restricted shares and incentive stock units expected to vest totaled $41.9 million and will be recognized over a weighted period of 1.4 years.
Stock Options Stock options are granted to eligible employees and directors at the fair market value, which is the average of the high and low Wabtec stock price on the date of grant. Under the 2011 Plan and the 2000 Plan, options become exercisable over a three year vesting period and expire 10 years from the date of grant.
The following table summarizes the Company’s stock option activity and related information for the 2011 Plan, the 2000 Plan and Directors Plan for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted Average
Remaining
Contractual Life
|
|
Aggregate
Intrinsic value
(in millions)
|
Outstanding at December 31, 2016
|
|
1,098,823
|
|
|
$
|
35.39
|
|
|
4.3
|
|
$
|
52.3
|
|
Granted
|
|
65,522
|
|
|
86.91
|
|
|
|
|
—
|
|
Exercised
|
|
(166,838)
|
|
|
21.37
|
|
|
|
|
(10.0)
|
|
Canceled
|
|
(13,995)
|
|
|
76.89
|
|
|
|
|
(0.1)
|
|
Outstanding at December 31, 2017
|
|
983,512
|
|
|
$
|
32.52
|
|
|
4.0
|
|
$
|
40.1
|
|
Granted
|
|
82,580
|
|
|
77.54
|
|
|
|
|
—
|
|
Exercised
|
|
(582,303)
|
|
|
28.29
|
|
|
|
|
(24.4)
|
|
Canceled
|
|
(17,112)
|
|
|
69.76
|
|
|
|
|
—
|
|
Outstanding at December 31, 2018
|
|
466,677
|
|
|
$
|
61.04
|
|
|
5.7
|
|
$
|
4.3
|
|
Granted
|
|
134,450
|
|
|
70.44
|
|
|
|
|
1.0
|
|
Exercised
|
|
(4,868)
|
|
|
22.45
|
|
|
|
|
(0.3)
|
|
Canceled
|
|
(8,235)
|
|
|
73.00
|
|
|
|
|
—
|
|
Outstanding at December 31, 2019
|
|
588,024
|
|
|
$
|
63.36
|
|
|
5.7
|
|
$
|
8.5
|
|
Exercisable at December 31, 2019
|
|
383,150
|
|
|
$
|
55.25
|
|
|
4.7
|
|
$
|
8.6
|
|
Options outstanding at December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
Weighted
Average
Exercise
Price of
Options
|
|
Weighted
Average
Remaining
Contractual
|
|
Number of
Options
Currently
|
|
Weighted Average
Exercise Price of
Options Currently
|
Range of exercise prices
|
|
Outstanding
|
|
Outstanding
|
|
Life
|
|
Exercisable
|
|
Exercisable
|
Under $35.00
|
|
67,026
|
|
|
$
|
28.41
|
|
|
1.1
|
|
67,026
|
|
|
$
|
28.41
|
|
35.00 - 50.00
|
|
107,033
|
|
|
41.36
|
|
|
2.6
|
|
107,033
|
|
|
41.36
|
|
50.00 - 65.00
|
|
64,167
|
|
|
61.33
|
|
|
6.1
|
|
48,373
|
|
|
61.33
|
|
65.00 - 80.00
|
|
227,639
|
|
|
71.20
|
|
|
8.1
|
|
77,731
|
|
|
59.39
|
|
Over 80.00
|
|
122,159
|
|
|
88.27
|
|
|
6.5
|
|
82,987
|
|
|
87.45
|
|
|
|
588,024
|
|
|
$
|
63.36
|
|
|
|
|
383,150
|
|
|
$
|
55.25
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31,
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Dividend yield
|
|
0.66
|
%
|
|
0.31
|
%
|
|
0.23
|
%
|
Risk-free interest rate
|
|
2.6
|
%
|
|
2.8
|
%
|
|
2.2
|
%
|
Stock price volatility
|
|
25.8
|
%
|
|
23.9
|
%
|
|
23.4
|
%
|
Expected life (years)
|
|
5.0
|
|
5.0
|
|
5.0
|
Weighted average fair value of options granted during the year
|
|
$
|
19.54
|
|
|
$
|
20.59
|
|
|
$
|
20.69
|
|
The dividend yield is based on the Company’s dividend rate and the current market price of the underlying common stock at the date of grant. Expected life in years is determined from historical stock option exercise data. Expected volatility is based on the historical volatility of the Company’s stock. The risk-free interest rate is based on the 7 years U.S. Treasury bond rates for the expected life of the option.
Restricted Stock and Incentive Stock Beginning in 2006 the Company adopted a restricted stock program. As provided for under the 2011 and 2000 Plans, eligible employees are granted restricted stock that generally vests over three years from the date of grant. Under the Directors Plan, restricted stock units vest one year from the date of grant.
In addition, the Company has issued incentive stock units to eligible employees that vest upon attainment of certain cumulative three-year performance goals. Based on the Company’s performance for each three year period then ended, the incentive stock units can vest and be awarded ranging from 0% to 200% of the initial incentive stock units granted. The incentive stock units included in the table below represent the number of shares that are expected to vest based on the Company’s estimate for meeting those established performance targets. As of December 31, 2019, the Company estimates that it will achieve 115%, 111% and 108% for the incentive stock units expected to vest based on performance for the three year periods ending December 31, 2019, 2020, and 2021, respectively, and has recorded incentive compensation expense accordingly. If estimates of the number of these stock units expected to vest changes in a future accounting period, cumulative compensation expense could increase or decrease and will be recognized in the current period for the elapsed portion of the vesting period and would change future expense for the remaining vesting period.
Compensation expense for the non-vested restricted stock and incentive stock units is based on the closing price of the Company’s common stock on the date of grant and recognized over the applicable vesting period.
The following table summarizes the restricted stock activity and related information for the 2011 Plan, the 2000 Plan, and Directors Plan, and incentive stock units activity and related information for the 2011 Plan and the 2000 Plan with related information for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock
and Units
|
|
Incentive
Stock
Awards
|
|
Weighted
Average Grant
Date Fair
Value
|
Outstanding at December 31, 2016
|
|
396,295
|
|
|
424,750
|
|
|
$
|
72.18
|
|
Granted
|
|
153,516
|
|
|
157,025
|
|
|
86.66
|
|
Vested
|
|
(137,088)
|
|
|
(153,271)
|
|
|
70.34
|
|
Adjustment for incentive stock awards expected to vest
|
|
—
|
|
|
(87,592)
|
|
|
73.69
|
|
Canceled
|
|
(13,723)
|
|
|
(13,579)
|
|
|
76.61
|
|
Outstanding at December 31, 2017
|
|
399,000
|
|
|
327,333
|
|
|
$
|
78.76
|
|
Granted
|
|
224,060
|
|
|
175,100
|
|
|
73.76
|
|
Vested
|
|
(148,644)
|
|
|
(93,312)
|
|
|
81.55
|
|
Adjustment for incentive stock awards expected to vest
|
|
—
|
|
|
32,996
|
|
|
74.62
|
|
Canceled
|
|
(29,327)
|
|
|
(26,875)
|
|
|
78.60
|
|
Outstanding at December 31, 2018
|
|
445,089
|
|
|
415,242
|
|
|
$
|
75.51
|
|
Granted
|
|
608,813
|
|
|
259,950
|
|
|
70.61
|
|
Vested
|
|
(235,406)
|
|
|
(119,835)
|
|
|
71.65
|
|
Adjustment for incentive stock awards expected to vest
|
|
—
|
|
|
80,403
|
|
|
78.04
|
|
Canceled
|
|
(27,465)
|
|
|
(63,758)
|
|
|
74.04
|
|
Outstanding at December 31, 2019
|
|
791,031
|
|
|
572,002
|
|
|
$
|
73.64
|
|
14. OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
In millions
|
|
2019
|
|
2018
|
Foreign currency translation gain (loss)
|
|
$
|
(308.6)
|
|
|
$
|
(202.2)
|
|
Unrealized gain (loss) on interest rate swap contracts, net of tax of $0 and $0
|
|
(3.3)
|
|
|
(0.1)
|
|
Unrealized loss on pension and post-retirement benefit plans, net of tax of $24.7 and $23.0
|
|
(70.7)
|
|
|
(54.3)
|
|
Total accumulated other comprehensive loss
|
|
$
|
(382.6)
|
|
|
$
|
(256.6)
|
|
The changes in accumulated other comprehensive loss by component, net of tax, for the year-ended December 31, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency
|
|
Derivative
|
|
Pension and
post
retirement
|
|
|
In millions
|
|
translation
|
|
contracts
|
|
benefits plans
|
|
Total
|
Balance at December 31, 2018
|
|
$
|
(202.2)
|
|
|
$
|
(0.1)
|
|
|
$
|
(54.3)
|
|
|
$
|
(256.6)
|
|
Other comprehensive income before reclassifications
|
|
(106.4)
|
|
|
(3.2)
|
|
|
(18.5)
|
|
|
(128.1)
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
—
|
|
|
—
|
|
|
2.1
|
|
|
2.1
|
|
Net current period other comprehensive income
|
|
(106.4)
|
|
|
(3.2)
|
|
|
(16.4)
|
|
|
(126.0)
|
|
Balance at December 31, 2019
|
|
$
|
(308.6)
|
|
|
$
|
(3.3)
|
|
|
$
|
(70.7)
|
|
|
$
|
(382.6)
|
|
Reclassifications out of accumulated other comprehensive loss for the year-ended December 31, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount reclassified from
accumulated other
|
|
Affected line item in the
Condensed Consolidated
|
In millions
|
|
comprehensive income
|
|
Statements of Income
|
Amortization of defined pension and post retirement items
|
|
|
|
|
Amortization of initial net obligation and prior service cost
|
|
$
|
(1.5)
|
|
|
Other income, net
|
Amortization of net loss (gain)
|
|
4.4
|
|
|
Other income, net
|
|
|
2.9
|
|
|
Other income, net
|
|
|
(0.8)
|
|
|
Income tax expense
|
|
|
$
|
2.1
|
|
|
Net income
|
The changes in accumulated other comprehensive loss by component, net of tax, for the year-ended December 31, 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency
|
|
Derivative
|
|
Pension and
post
retirement
|
|
|
|
|
translation
|
|
contracts
|
|
benefits plans
|
|
Total
|
Balance at December 31, 2017
|
|
$
|
5.1
|
|
|
$
|
4.0
|
|
|
$
|
(54.1)
|
|
|
$
|
(45.0)
|
|
Other comprehensive income before reclassifications
|
|
(207.3)
|
|
|
(7.8)
|
|
|
(2.3)
|
|
|
(217.4)
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
—
|
|
|
3.7
|
|
|
2.1
|
|
|
5.8
|
|
Net current period other comprehensive income
|
|
(207.3)
|
|
|
(4.1)
|
|
|
(0.2)
|
|
|
(211.6)
|
|
Balance at December 31, 2018
|
|
$
|
(202.2)
|
|
|
$
|
(0.1)
|
|
|
$
|
(54.3)
|
|
|
$
|
(256.6)
|
|
Reclassifications out of accumulated other comprehensive loss for the year-ended December 31, 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount reclassified from
accumulated other
|
|
Affected line item in the
Condensed Consolidated
|
|
|
comprehensive income
|
|
Statements of Income
|
Amortization of defined pension and post retirement items
|
|
|
|
|
Amortization of initial net obligation and prior service cost
|
|
$
|
(1.5)
|
|
|
Other income, net
|
Amortization of net loss (gain)
|
|
4.3
|
|
|
Other income, net
|
|
|
2.8
|
|
|
Other income, net
|
|
|
(0.7)
|
|
|
Income tax expense
|
|
|
$
|
2.1
|
|
|
Net income
|
Derivative contracts
|
|
|
|
|
Realized loss on derivative contracts
|
|
4.9
|
|
|
Interest expense, net
|
|
|
(1.2)
|
|
|
Income tax expense
|
|
|
$
|
3.7
|
|
|
Net income
|
15. LEASES
During the first quarter of 2019, the Company adopted ASU No. 2016-02, "Leases (Topic 842)," which requires leases with durations greater than twelve months to be recognized on the balance sheet. The Company adopted the standard using the modified retrospective approach with an effective date as of the beginning of our fiscal year, January 1, 2019. Prior year financial statements were not recast under the new standard and, therefore, those amounts are not presented below.
The Company leases property and equipment under finance and operating leases. For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of lease payments. Many of the Company's leases include rental escalation clauses, renewal options, and/or termination options that are factored into our determination of
lease payments when appropriate. The Company does not separate lease and non-lease components. As most of the Company's leases do not provide a readily stated discount rate, the Company must estimate our incremental borrowing rate to discount lease payments. The Company has established discount rates by geographic region ranging from 1.0% to 12.3%.
The components of lease expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
For the year ended
Ended
December 31,
|
In millions
|
|
2019
|
Operating lease expense
|
|
$
|
54.4
|
|
Finance lease expense amortization of leased assets
|
|
1.1
|
|
Short-term and variable lease expense
|
|
0.6
|
|
Sublease income
|
|
(0.5)
|
|
Total
|
|
$
|
55.6
|
|
Scheduled payments of lease liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Operating Leases
|
|
Finance
Leases
|
|
Total
|
2020
|
$
|
53.9
|
|
|
$
|
0.4
|
|
|
$
|
54.3
|
|
2021
|
45.3
|
|
|
|
0.2
|
|
|
|
45.5
|
|
2022
|
38.1
|
|
|
|
0.2
|
|
|
|
38.3
|
|
2023
|
33.4
|
|
|
|
0.2
|
|
|
|
33.6
|
|
2024
|
29.3
|
|
|
|
0.1
|
|
|
|
29.4
|
|
Thereafter
|
103.2
|
|
|
|
0.2
|
|
|
|
103.4
|
|
Total lease payments
|
303.2
|
|
|
|
1.3
|
|
|
|
304.5
|
|
Less: Present value discount
|
(30.1)
|
|
|
|
—
|
|
|
|
(30.1)
|
|
Present value lease liabilities
|
$
|
273.1
|
|
|
$
|
1.3
|
|
|
$
|
274.4
|
|
The following table summarizes the remaining lease term and discount rate assumptions used to develop the present value of lease liabilities:
|
|
|
|
|
|
|
December 31,
|
|
2019
|
Weighted-average remaining lease term (years)
|
|
Operating leases
|
7.0
|
Finance leases
|
5.2
|
Weighted-average discount rate
|
|
Operating leases
|
4.6
|
%
|
Finance leases
|
1.4
|
%
|
16. WARRANTIES
The following table reconciles the changes in the Company’s product warranty reserve as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
2019
|
|
2018
|
Balance at beginning of year
|
|
$
|
153.7
|
|
|
$
|
153.0
|
|
Acquisitions
|
|
127.8
|
|
|
3.1
|
|
Warranty expense
|
|
105.5
|
|
|
58.0
|
|
Warranty claim payments
|
|
(118.0)
|
|
|
(54.1)
|
|
Foreign currency impact
|
|
(1.3)
|
|
|
(6.3)
|
|
Balance at end of year
|
|
$
|
267.7
|
|
|
$
|
153.7
|
|
17. PREFERRED STOCK
The Company’s authorized capital stock includes 1,000,000 shares of preferred stock. The Board of Directors has the authority to issue the preferred stock and to fix the designations, powers, preferences and rights of the shares of each such class or series, including dividend rates, conversion rights, voting rights, terms of redemption and liquidation preferences, without any further vote or action by the Company’s shareholders. The rights and preferences of the preferred stock would be superior to those of the common stock. At December 31, 2019 and 2018 there was no preferred stock issued or outstanding.
18. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING
Hedging Activities In the normal course of business, we are exposed to interest rate, commodity price and foreign currency exchange rate fluctuations. At times, we limit these risks through the use of derivatives such as cross-currency swaps, foreign currency forward contracts, interest rate swaps, commodity forwards and futures. In accordance with our policy, derivatives are only used for hedging purposes. We do not use derivatives for trading or speculative purposes.
Foreign Currency Exchange Risk
The Company uses forward contracts to mitigate its foreign currency exchange rate exposure due to forecasted sales of finished goods and future settlement of foreign currency denominated assets and liabilities. Derivatives used to hedge forecasted transactions and specific cash flows associated with foreign currency denominated financial assets and liabilities that meet the criteria for hedge accounting are designated as cash flow hedges. The effective portion of gains and losses is deferred as a component of accumulated other comprehensive income and is recognized in earnings at the time the hedged item affects earnings, in the same line item as the underlying hedged item. The contracts are scheduled to mature within two years. For the years ended December 31, 2019, 2018 and 2017, the amounts reclassified into income were not material.
The Company has established revenue hedging, balance sheet risk management and net investment hedging programs to protect against volatility of future foreign currency cash flows and changes in fair value caused by volatility in foreign exchange rates. We conduct our business worldwide in U.S. dollars and the functional currencies of our foreign subsidiaries, including Euro, Indian rupee, British pound sterling, Australian dollars and several other foreign currencies. Changes in foreign currency exchange rates could have a material adverse impact on our financial results that are reported in U.S. dollars. We are also exposed to foreign currency exchange rate risk related to our foreign subsidiaries, including intercompany loans denominated in non-functional currencies and net purchases and sales in non-functional currencies. We have certain foreign currency exchange rate risk programs that use foreign currency forward contracts and cross-currency swaps. These forward contracts and cross-currency swaps are generally used to offset the potential income statement effects from intercompany loans denominated in non-functional currencies. In addition, the Company uses forward contracts to mitigate its foreign currency exchange rate exposure due to forecasted sales of finished goods and future settlement of foreign currency denominated assets and liabilities. These programs reduce but do not entirely eliminate foreign currency exchange rate risk.
Derivatives used to hedge forecasted transactions and specific cash flows associated with foreign currency denominated financial assets and liabilities that meet the criteria for hedge accounting are designated as cash flow hedges. The effective portion of gains and losses is deferred as a component of accumulated other comprehensive income and is recognized in earnings at the time the hedged item affects earnings, in the same line item as the underlying hedged item. The contracts are scheduled to mature within two years. For the twelve months ended December 31, 2019 the amounts reclassified into income were not material.
The Company enters into certain derivative contracts in accordance with its risk management strategy that do not meet the criteria for hedge accounting, but which have the impact of largely mitigating foreign currency exposure. These foreign exchange contracts are accounted for on a full mark to market basis through earnings, with gains and losses recorded as a component of other expense, net. The net gain related to these contracts was $1.6 million for the three months ended December 31, 2019. These contracts are scheduled to mature within one year.
The following table summarizes the gross notional amounts and fair values of the designated and non-designated hedges discussed in the above sections as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
Gross Notional Amount
|
|
|
In millions
|
|
Designated
|
|
Non-Designated
|
|
Designated
|
|
Non-Designated
|
Foreign Exchange Contracts
|
|
|
|
|
|
|
|
|
Other current assets
|
|
$
|
11.2
|
|
|
$
|
1.4
|
|
|
$
|
2,429.0
|
|
|
$
|
412.9
|
|
Other current liabilities
|
|
(9.8)
|
|
|
—
|
|
|
1,184.6
|
|
|
—
|
|
Cross-currency Swaps
|
|
|
|
|
|
|
|
|
Other current assets
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other current liabilities
|
|
(9.4)
|
|
|
—
|
|
|
560.8
|
|
|
—
|
|
Total
|
|
$
|
(8.0)
|
|
|
$
|
1.4
|
|
|
$
|
4,174.4
|
|
|
$
|
412.9
|
|
The following table summarizes the gross notional amounts and fair values of the designated and non-designated hedged discussed in the above sections as of December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
Gross Notional Amount
|
|
|
In millions
|
|
Designated
|
|
Non-Designated
|
|
Designated
|
|
Non-Designated
|
Foreign Exchange Contracts
|
|
|
|
|
|
|
|
|
Other current assets
|
|
$
|
—
|
|
|
$
|
1.3
|
|
|
$
|
—
|
|
|
$
|
834.0
|
|
Other current liabilities
|
|
(2.3)
|
|
|
—
|
|
|
863.0
|
|
|
|
—
|
|
Cross-currency Swaps
|
|
|
|
|
|
|
|
|
Other current assets
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other current liabilities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
(2.3)
|
|
|
$
|
1.3
|
|
|
$
|
863.0
|
|
|
$
|
834.0
|
|
Interest Rate Risk
The Company may use interest rate swap contracts on certain investing and borrowing transactions to manage its net exposure to interest rate changes and to reduce its overall cost of borrowing. The Company does not use leveraged swaps and, in general, does not leverage any of its investment activities that would put principal capital at risk. For the twelve months ended December 31, 2019 the amounts reclassified into income were not material.
Commodity Price Risk
The Company may use commodity forward contracts and futures to manage its exposure to commodity price changes and to reduce its overall cost of manufacturing. For the twelve months ended December 31, 2019 the amounts reclassified into income were not material.
19. FAIR VALUE MEASUREMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC 820 “Fair Value Measurements and Disclosures” defines fair value, establishes a framework for measuring fair value and explains the related disclosure requirements. ASC 820 indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability and defines fair value based upon an exit price model.
Valuation Hierarchy. ASC 820 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2019, which are included in other current assets and liabilities on the Consolidated Balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2019 Using
|
|
|
|
|
|
|
Total Carrying
Value at
December 31,
|
|
Quoted Prices in
Active Markets for
Identical Assets
|
|
Significant Other
Observable Inputs
|
|
Significant
Unobservable
Inputs
|
In millions
|
|
2019
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Foreign Exchange Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Current Assets
|
|
12.6
|
|
|
|
—
|
|
|
|
12.6
|
|
|
|
—
|
|
Other Current Liabilities
|
|
9.8
|
|
|
|
—
|
|
|
|
9.8
|
|
|
|
—
|
|
Cross-Currency Swap Agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Current Liabilities
|
|
9.4
|
|
|
|
—
|
|
|
|
9.4
|
|
|
|
—
|
|
As a result of our global operating activities the Company is exposed to market risks from changes in foreign currency exchange rates, which may adversely affect our operating results and financial position. When deemed appropriate, the Company minimizes these risks through entering into foreign currency forward contracts. The foreign currency forward contracts are valued using broker quotations, or market transactions in either the listed or over-the counter markets. As such, these derivative instruments are classified within level 2.
The Company’s cash and cash equivalents are highly liquid investments purchased with an original maturity of three months or less and are considered Level 1 on the fair value valuation hierarchy. The fair value of cash and cash equivalents
approximated the carrying value at December 31, 2019 and December 31, 2018. The Company’s defined benefit pension plan assets consist primarily of equity security funds, debt security funds and temporary cash and cash equivalent investments. These investments are comprised of a number of investment funds that invest in a diverse portfolio of assets including equity securities, corporate and governmental bonds, and money markets. Trusts are valued at the net asset value (“NAV”) as determined by their custodian. NAV represents the accumulation of the unadjusted quoted close prices on the reporting date for the underlying investments divided by the total shares outstanding at the reporting dates. The 2013 and 2016 Notes are considered Level 2 based on the fair value valuation hierarchy.
20. COMMITMENTS AND CONTINGENCIES
The Company is subject to a variety of environmental laws and regulations governing discharges to air and water, the handling, storage and disposal of hazardous or solid waste materials and the remediation of contamination associated with releases of hazardous substances. The Company believes its operations currently comply in all material respects with all of the various environmental laws and regulations applicable to our business; however, there can be no assurance that environmental requirements will not change in the future or that we will not incur significant costs to comply with such requirements.
Under terms of the purchase agreement and related documents for the 1990 acquisition, Ingersoll Rand, the successor-in-interest to American Standard, Inc. (“Ingersoll”), has indemnified the Company for certain items including, among other things, certain environmental claims the Company asserted prior to 2000. If Ingersoll was unable to honor or meet these indemnifications, the Company would be responsible for such items. In the opinion of Management, Ingersoll currently has the ability to meet its indemnification obligations.
Claims 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. Most of these claims have been made against our wholly owned subsidiary, Railroad Friction Products Corporation (“RFPC”), and the vast majority of the 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 of these claims will be fully covered by insurance, or that the indemnitors or insurers 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. A limited number of claims are not covered by insurance, nor are they subject to indemnity from non-affiliated parties. Wabtec has incurred defense, administrative and indemnity costs in connection with these actions, but these costs have not been material, and the Company has no information that would suggest these costs would become material in the foreseeable future. Based on the Company’s history in resolving all asbestos claims over the last twenty years, Management believes that the costs of the Company’s asbestos-related cases will not be material to the Company’s overall financial position, results of operations and cash flows.
On April 21, 2016, Siemens Industry, Inc. filed a lawsuit against the Company in federal district court in Delaware alleging that the Company infringed seven patents owned by Siemens related to the Company's Positive Train Control (PTC) technology. On November 2, 2016, Siemens amended its complaint to add six additional patents they also claimed were infringed by the Company's PTC Products or End of Train (EOT) Products (Siemens Patent Case). The Company filed Answers, and asserted counterclaims, in response to Siemens’ complaints. Additionally, after filings by the Company, the US Patent & Trademark Office’s Patent Trail and Appeal Board (PTAB) granted Inter-Parties Review (IPR) proceedings on eight (8) of the patents asserted by Siemens to contest their validity. Following pre-trial rulings that greatly reduced Siemens’ alleged damages, a jury trial was held in federal district court in Delaware in January 2019 on eight patents, two of which were still subject to an IPR decision on validity from the PTAB. At the conclusion of the trial, the jury awarded Siemens damages of $5.6 million related to PTC patents and $1.1 million related to EOT patents. On August 15, 2019, the Court entered a final judgement in the amount of $14.1 million in favor of Siemens, which included post-discovery damages on all Wabtec PTC and EOT sales through July 2019. Both parties appealed the Final Judgement. On September 27, 2019, the parties entered into a global settlement agreement, settling all on-going litigation between them, as part of the patent litigation including antitrust claims Siemens had made against Wabtec initially.
Xorail, Inc., a wholly owned subsidiary of the Company (“Xorail”), has received notices from Denver Transit Constructors (“DTC”) alleging breach of contract related to the operating of constant warning wireless crossings, and late delivery of the Train Management & Dispatch System (“TMDS”) for the Denver Eagle P3 Project, which is owned by the Denver Regional Transit District ("RTD"). No damages have been asserted for the alleged late delivery of the TMDS, and no formal claim has been filed; Xorail has successfully completed a remediation plan concerning the TMDS issues. With regard to the wireless crossing issue, as of September 8, 2017, DTC alleged that total damages were $36.8 million through July 31, 2017 and are continuing to accumulate. The majority of the damages stems from a delay in approval of the wireless crossing system by the Federal Railway Administration ("FRA") and the Public Utility Commission ("PUC"), resulting in the use of flaggers at all of the crossings pending approval of the wireless crossing system and certification of the crossings. DTC has alleged that the delay is due to Xorail's failure to achieve constant warning times for the crossings in accordance with the approval requirements imposed by the FRA and PUC. Xorail has denied DTC's assertions, stating that its system satisfied the
contractual requirements. Xorail has worked with DTC to modify its system and implement the FRA's and PUC's previously undefined approval requirements; the FRA and PUC have both approved modified wireless crossing system, and as of August 2018, DTC completed the process of certifying the crossings and eliminated the use of flaggers. On September 21, 2018, DTC filed a complaint against RTD in Colorado state court for breach of contract related to non-payments and the costs for the flaggers, asserting a change-in-law arising from the FRA/PUC’s new certification requirements; a jury trial is scheduled to begin in May 2020. DTC’s complaint generally supports Xorail’s position and does not name or implicate Xorail; DTC has not updated its notices against Xorail, nor have they filed any formal claim against Xorail.
On April 3, 2018, the Company and Knorr-Bremse AG entered into a consent decree with the United States Department of Justice resolving allegations that the Company and Knorr-Bremse AG had maintained unlawful agreements not to compete for each other’s employees. The allegations also related to Faiveley Transport before it was acquired by the Company in November 2016. No monetary fines or penalties were imposed on the Company. The Company elected to settle this matter with the Department of Justice to avoid the cost and distraction of litigation. Putative class action lawsuits thereafter were filed in several different federal district courts naming the Company and Knorr as defendants in connection with the allegations contained in the consent decree. The lawsuits seek unspecified damages on behalf of employees of the Company (including Faiveley Transport) and Knorr allegedly caused by the defendants’ actions. A federal Multi-District Litigation (MDL) Panel consolidated the cases in the Western District of Pennsylvania, and on October 12, 2018, a consolidated class action complaint was filed in the Western District of PA with five named plaintiffs. On August 13, 2019, the Company was notified that co-defendant Knorr-Bremse settled with plaintiffs. On January 21, 2020, following Court-sponsored early mediation, the Company entered into a Memorandum of Understanding with plaintiffs, agreeing to settle all claims in the case. The parties intend to seek Court approval of the agreed settlement terms and amount.
From time to time the Company is involved in litigation relating to claims arising out of its operations in the ordinary course of business. As of the date hereof, the Company is involved in no litigation that the Company believes will have a material adverse effect on its financial condition, results of operations or liquidity.
21. SEGMENT INFORMATION
The Company has two reportable segments—the Freight Segment and the Transit Segment. 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. Initiatives to integrate GE Transportation operations into Wabtec including recent restructuring programs announced in late 2019 resulted in changes to the Company's organizational structure and the financial reporting utilized by the Company's chief operating decision maker to assess performance and allocate resources; as a result, certain asset groups were reorganized from the Freight Segment to the Transit Segment and vice versa. The change in the Company’s reportable segments was effective in the fourth quarter of 2019 and is reflected below in 2019 and through the retrospective revision of 2018 and 2017 segment information. The Company believes these changes better present Management's new view of the business. The Company’s business segments are:
Freight Segment primarily builds new locomotives, manufactures and services components for new and existing freight cars and locomotives, rebuilds freight locomotives, supplies railway electronics, positive train control equipment, signal design and engineering services, and provides related heat exchange and cooling systems. Customers include large, publicly traded railroads, leasing companies, manufacturers of original equipment such as locomotives and freight cars, and utilities.
Transit Segment primarily manufactures and services components for new and existing passenger transit vehicles, typically regional trains, high speed trains, subway cars, light-rail vehicles and buses, refurbishes subway cars, provides heating, ventilation, and air conditioning equipment, and doors for buses and subways. Customers include public transit authorities and municipalities, leasing companies, and manufacturers of subway cars and buses around the world.
The Company evaluates its business segments’ operating results based on income from operations. Intersegment sales are accounted for at prices that are generally established by reference to similar transactions with unaffiliated customers. Corporate activities include general corporate expenses, elimination of intersegment transactions, interest income and expense and other unallocated charges. The changes to the asset groups comprising the Freight and Transit segments have been reflected through retrospective revision of prior period segment information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment financial information for 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
Freight
|
|
Transit
|
|
Activities and
|
|
|
In million
|
|
Segment
|
|
Segment
|
|
Elimination
|
|
Total
|
Sales to external customers
|
|
$
|
5,441.4
|
|
|
$
|
2,758.6
|
|
|
$
|
—
|
|
|
$
|
8,200.0
|
|
Intersegment sales/(elimination)
|
|
59.6
|
|
|
23.4
|
|
|
(83.0)
|
|
|
—
|
|
Total sales
|
|
$
|
5,501.0
|
|
|
$
|
2,782.0
|
|
|
$
|
(83.0)
|
|
|
$
|
8,200.0
|
|
Income (loss) from operations
|
|
$
|
642.9
|
|
|
$
|
214.4
|
|
|
$
|
(194.2)
|
|
|
$
|
663.1
|
|
Interest expense and other, net
|
|
—
|
|
|
—
|
|
|
(216.3)
|
|
|
(216.3)
|
|
Income (loss) from operations before income taxes
|
|
$
|
642.9
|
|
|
$
|
214.4
|
|
|
$
|
(410.5)
|
|
|
$
|
446.8
|
|
Depreciation and amortization
|
|
$
|
330.4
|
|
|
$
|
62.2
|
|
|
$
|
8.8
|
|
|
$
|
401.4
|
|
Capital expenditures
|
|
105.1
|
|
|
63.7
|
|
|
16.5
|
|
|
185.3
|
|
Segment assets
|
|
14,450.9
|
|
|
6,026.0
|
|
|
(1,532.7)
|
|
|
18,944.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment financial information for 2018 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
Freight
|
|
Transit
|
|
Activities and
|
|
|
In millions
|
|
Segment
|
|
Segment
|
|
Elimination
|
|
Total
|
Sales to external customers
|
|
$
|
1,766.4
|
|
|
|
$
|
2,597.1
|
|
|
|
$
|
—
|
|
|
|
$
|
4,363.5
|
|
Intersegment sales/(elimination)
|
|
52.8
|
|
|
|
11.3
|
|
|
|
(64.1)
|
|
|
|
—
|
|
Total sales
|
|
$
|
1,819.2
|
|
|
|
$
|
2,608.4
|
|
|
|
$
|
(64.1)
|
|
|
|
$
|
4,363.5
|
|
Income (loss) from operations
|
|
$
|
334.3
|
|
|
|
$
|
192.5
|
|
|
|
$
|
(53.4)
|
|
|
|
$
|
473.4
|
|
Interest expense and other, net
|
|
—
|
|
|
|
—
|
|
|
|
(105.8)
|
|
|
|
(105.8)
|
|
Income (loss) from operations before income taxes
|
|
$
|
334.3
|
|
|
|
$
|
192.5
|
|
|
|
$
|
(159.2)
|
|
|
|
$
|
367.6
|
|
Depreciation and amortization
|
|
$
|
41.6
|
|
|
|
$
|
62.7
|
|
|
|
$
|
5.0
|
|
|
|
$
|
109.3
|
|
Capital expenditures
|
|
24.6
|
|
|
|
61.6
|
|
|
|
7.1
|
|
|
|
93.3
|
|
Segment assets
|
|
3,329.6
|
|
|
|
9,478.6
|
|
|
|
(4,159.0)
|
|
|
|
8,649.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment financial information for 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
Freight
|
|
Transit
|
|
Activities and
|
|
|
In millions
|
|
Segment
|
|
Segment
|
|
Elimination
|
|
Total
|
Sales to external customers
|
|
$
|
1,538.6
|
|
|
|
$
|
2,343.1
|
|
|
|
$
|
—
|
|
|
|
$
|
3,881.7
|
|
Intersegment sales/(elimination)
|
|
39.0
|
|
|
|
5.5
|
|
|
|
(44.5)
|
|
|
|
—
|
|
Total sales
|
|
$
|
1,577.6
|
|
|
|
$
|
2,348.6
|
|
|
|
$
|
(44.5)
|
|
|
|
$
|
3,881.7
|
|
Income (loss) from operations
|
|
$
|
271.7
|
|
|
|
$
|
177.2
|
|
|
|
$
|
(27.8)
|
|
|
|
$
|
421.1
|
|
Interest expense and other, net
|
|
—
|
|
|
|
—
|
|
|
|
(69.0)
|
|
|
|
(69.0)
|
|
Income (loss) from operations before income taxes
|
|
$
|
271.7
|
|
|
|
$
|
177.2
|
|
|
|
$
|
(96.8)
|
|
|
|
$
|
352.1
|
|
Depreciation and amortization
|
|
$
|
43.1
|
|
|
|
$
|
58.0
|
|
|
|
$
|
2.1
|
|
|
|
$
|
103.2
|
|
Capital expenditures
|
|
32.2
|
|
|
|
52.5
|
|
|
|
4.8
|
|
|
|
89.5
|
|
Segment assets
|
|
3,104.9
|
|
|
|
7,885.3
|
|
|
|
(4,410.2)
|
|
|
|
6,580.0
|
|
The following geographic area data as of and for the years ended December 31, 2019, 2018 and 2017, respectively, includes net sales based on product shipment destination and long-lived assets, which consist of plant, property and equipment, net of depreciation, resident in their respective countries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
|
|
|
Long-Lived Assets
|
|
|
|
|
In millions
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
United States
|
|
$
|
3,381.0
|
|
|
|
$
|
1,460.3
|
|
|
|
$
|
1,323.8
|
|
|
|
$
|
1,089.8
|
|
|
|
$
|
204.3
|
|
|
|
$
|
211.6
|
|
Canada
|
|
733.3
|
|
|
|
279.0
|
|
|
|
279.0
|
|
|
|
13.2
|
|
|
|
5.3
|
|
|
|
5.8
|
|
India
|
|
504.2
|
|
|
|
178.5
|
|
|
|
137.8
|
|
|
|
159.2
|
|
|
|
12.8
|
|
|
|
12.5
|
|
United Kingdom
|
|
376.2
|
|
|
|
395.8
|
|
|
|
356.5
|
|
|
|
55.5
|
|
|
|
54.8
|
|
|
|
57.7
|
|
Mexico
|
|
356.6
|
|
|
|
200.6
|
|
|
|
160.0
|
|
|
|
23.7
|
|
|
|
9.2
|
|
|
|
9.1
|
|
Germany
|
|
340.0
|
|
|
|
314.7
|
|
|
|
208.8
|
|
|
|
77.7
|
|
|
|
75.5
|
|
|
|
71.7
|
|
Australia
|
|
296.4
|
|
|
|
173.5
|
|
|
|
136.1
|
|
|
|
12.1
|
|
|
|
9.6
|
|
|
|
10.5
|
|
France
|
|
294.3
|
|
|
|
247.8
|
|
|
|
237.5
|
|
|
|
58.9
|
|
|
|
56.7
|
|
|
|
57.8
|
|
China
|
|
290.4
|
|
|
|
170.3
|
|
|
|
178.1
|
|
|
|
34.5
|
|
|
|
33.4
|
|
|
|
36.4
|
|
Other international
|
|
1,627.6
|
|
|
943.0
|
|
|
864.1
|
|
|
131.2
|
|
|
102.2
|
|
|
100.9
|
|
Total
|
|
$
|
8,200.0
|
|
|
$
|
4,363.5
|
|
|
$
|
3,881.7
|
|
|
$
|
1,655.8
|
|
|
$
|
563.8
|
|
|
$
|
574.0
|
|
Export sales from the Company’s United States operations were $905.2 million, $512.5 million and $448.0 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Net sales by product line are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
2019
|
|
2018
|
|
2017
|
Freight Segment:
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
$
|
1,699.7
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
Components
|
|
1,073.5
|
|
|
|
1,169.1
|
|
|
|
1,004.6
|
|
Digital Electronics
|
|
677.1
|
|
|
|
474.1
|
|
|
|
400.8
|
|
Services
|
|
1,991.1
|
|
|
|
123.2
|
|
|
|
133.2
|
|
Total Freight Segment sales
|
|
$
|
5,441.4
|
|
|
|
$
|
1,766.4
|
|
|
|
$
|
1,538.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transit Segment:
|
|
|
|
|
|
|
|
|
|
|
|
Original Equipment Manufacturer
|
|
1,286.6
|
|
|
|
1,194.0
|
|
|
|
1,050.0
|
|
Aftermarket
|
|
1,472.0
|
|
|
|
1,403.1
|
|
|
|
1,293.1
|
|
Total Transit Segment sales
|
|
$
|
2,758.6
|
|
|
|
$
|
2,597.1
|
|
|
|
$
|
2,343.1
|
|
22. GUARANTOR SUBSIDIARIES FINANCIAL INFORMATION
The obligations under the Company's Senior Notes and Senior Credit Facility are fully and unconditionally guaranteed by certain of the Company's U.S. subsidiaries as guarantors. Each guarantor is 100% owned by the parent company, with the exception of GE Transportation, a Wabtec company, which has 15,000 shares outstanding of Class A non-voting preferred stock held by General Electric Company. 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.
Balance Sheet for December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Elimination
|
|
Consolidated
|
Cash, cash equivalents, and restricted cash
|
$
|
24.0
|
|
|
$
|
14.7
|
|
|
$
|
565.5
|
|
|
$
|
—
|
|
|
$
|
604.2
|
|
Receivables, net
|
103.5
|
|
|
298.2
|
|
|
1,262.2
|
|
|
—
|
|
|
1,663.9
|
|
Inventories
|
135.3
|
|
|
763.1
|
|
|
874.7
|
|
|
—
|
|
|
1,773.1
|
|
Current assets - other
|
(0.8)
|
|
|
22.0
|
|
|
129.7
|
|
|
—
|
|
|
150.9
|
|
Total current assets
|
262.0
|
|
|
1,098.0
|
|
|
2,832.1
|
|
|
—
|
|
|
4,192.1
|
|
Property, plant and equipment
|
73.2
|
|
|
65.0
|
|
|
1,517.6
|
|
|
—
|
|
|
1,655.8
|
|
Goodwill
|
564.1
|
|
|
283.2
|
|
|
7,513.3
|
|
|
—
|
|
|
8,360.6
|
|
Investment in subsidiaries
|
15,566.2
|
|
|
6,583.9
|
|
|
—
|
|
|
(22,150.1)
|
|
|
—
|
|
Other intangibles, net
|
35.8
|
|
|
731.2
|
|
|
3,337.0
|
|
|
—
|
|
|
4,104.0
|
|
Other long term assets
|
105.6
|
|
|
116.2
|
|
|
409.9
|
|
|
—
|
|
|
631.7
|
|
Total assets
|
$
|
16,606.9
|
|
|
$
|
8,877.5
|
|
|
$
|
15,609.9
|
|
|
$
|
(22,150.1)
|
|
|
$
|
18,944.2
|
|
Current liabilities
|
$
|
586.0
|
|
|
$
|
1,109.6
|
|
|
$
|
1,562.4
|
|
|
$
|
—
|
|
|
$
|
3,258.0
|
|
Inter-company
|
1,357.6
|
|
|
(2,546.3)
|
|
|
1,188.7
|
|
|
—
|
|
|
—
|
|
Long-term debt
|
4,321.8
|
|
|
—
|
|
|
11.8
|
|
|
—
|
|
|
4,333.6
|
|
Long-term liabilities - other
|
385.0
|
|
|
154.1
|
|
|
819.9
|
|
|
—
|
|
|
1,359.0
|
|
Total liabilities
|
6,650.4
|
|
|
(1,282.6)
|
|
|
3,582.8
|
|
|
—
|
|
|
8,950.6
|
|
Shareholders' equity
|
9,941.5
|
|
|
10,160.1
|
|
|
12,005.0
|
|
|
(22,150.1)
|
|
|
9,956.5
|
|
Non-controlling interest
|
15.0
|
|
|
—
|
|
|
22.1
|
|
|
—
|
|
|
37.1
|
|
Total shareholders' equity
|
$
|
9,956.5
|
|
|
$
|
10,160.1
|
|
|
$
|
12,027.1
|
|
|
$
|
(22,150.1)
|
|
|
$
|
9,993.6
|
|
Total Liabilities and Shareholders' Equity
|
$
|
16,606.9
|
|
|
$
|
8,877.5
|
|
|
$
|
15,609.9
|
|
|
$
|
(22,150.1)
|
|
|
$
|
18,944.2
|
|
Balance Sheet for December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Elimination
|
|
Consolidated
|
Cash and cash equivalents
|
$
|
1,782.6
|
|
|
|
$
|
(0.1)
|
|
|
|
$
|
559.8
|
|
|
|
$
|
—
|
|
|
|
$
|
2,342.3
|
|
Receivables, net
|
106.8
|
|
|
|
61.5
|
|
|
|
978.5
|
|
|
|
—
|
|
|
|
1,146.8
|
|
Inventories
|
149.7
|
|
|
|
69.1
|
|
|
|
626.1
|
|
|
|
—
|
|
|
|
844.9
|
|
Current assets - other
|
11.9
|
|
|
|
0.7
|
|
|
|
103.0
|
|
|
|
—
|
|
|
|
115.6
|
|
Total current assets
|
2,051.0
|
|
|
|
131.2
|
|
|
|
2,267.4
|
|
|
|
—
|
|
|
|
4,449.6
|
|
Property, plant and equipment
|
51.6
|
|
|
|
24.8
|
|
|
|
487.4
|
|
|
|
—
|
|
|
|
563.8
|
|
Goodwill
|
25.3
|
|
|
|
283.2
|
|
|
|
2,088.0
|
|
|
|
—
|
|
|
|
2,396.5
|
|
Investment in subsidiaries
|
6,708.0
|
|
|
|
4,022.1
|
|
|
|
—
|
|
|
|
(10,730.1)
|
|
|
|
—
|
|
Other intangibles, net
|
29.3
|
|
|
|
78.5
|
|
|
|
1,022.1
|
|
|
|
—
|
|
|
|
1,129.9
|
|
Other long term assets
|
8.8
|
|
|
|
0.1
|
|
|
|
100.5
|
|
|
|
—
|
|
|
|
109.4
|
|
Total assets
|
$
|
8,874.0
|
|
|
|
$
|
4,539.9
|
|
|
|
$
|
5,965.4
|
|
|
|
$
|
(10,730.1)
|
|
|
|
$
|
8,649.2
|
|
Current liabilities
|
$
|
264.5
|
|
|
|
$
|
91.0
|
|
|
|
$
|
1,291.1
|
|
|
|
$
|
—
|
|
|
|
$
|
1,646.6
|
|
Inter-company
|
1,947.5
|
|
|
|
(1,436.2)
|
|
|
|
(511.3)
|
|
|
|
—
|
|
|
|
—
|
|
Long-term debt
|
3,779.7
|
|
|
|
—
|
|
|
|
13.1
|
|
|
|
—
|
|
|
|
3,792.8
|
|
Long-term liabilities - other
|
17.1
|
|
|
|
48.6
|
|
|
|
275.0
|
|
|
|
—
|
|
|
|
340.7
|
|
Total liabilities
|
6,008.8
|
|
|
|
(1,296.6)
|
|
|
|
1,067.9
|
|
|
|
—
|
|
|
|
5,780.1
|
|
Shareholders' equity
|
2,865.2
|
|
|
|
5,836.5
|
|
|
|
4,893.6
|
|
|
|
(10,730.1)
|
|
|
|
2,865.2
|
|
Non-controlling interest
|
—
|
|
|
|
—
|
|
|
|
3.9
|
|
|
|
—
|
|
|
|
3.9
|
|
Total shareholders' equity
|
$
|
2,865.2
|
|
|
|
$
|
5,836.5
|
|
|
|
$
|
4,897.5
|
|
|
|
$
|
(10,730.1)
|
|
|
|
$
|
2,869.1
|
|
Total Liabilities and Shareholders' Equity
|
$
|
8,874.0
|
|
|
|
$
|
4,539.9
|
|
|
|
$
|
5,965.4
|
|
|
|
$
|
(10,730.1)
|
|
|
|
$
|
8,649.2
|
|
Income Statement for the Year Ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Elimination
|
|
Consolidated
|
Net sales
|
$
|
723.4
|
|
|
$
|
3,245.3
|
|
|
$
|
5,766.3
|
|
|
$
|
(1,535.0)
|
|
|
$
|
8,200.0
|
|
Cost of sales
|
(562.1)
|
|
|
(2,429.2)
|
|
|
(4,129.4)
|
|
|
1,198.7
|
|
|
(5,922.0)
|
|
Gross profit (loss)
|
161.3
|
|
|
816.1
|
|
|
1,636.9
|
|
|
(336.3)
|
|
|
2,278.0
|
|
Total operating expenses
|
(321.6)
|
|
|
(311.5)
|
|
|
(981.8)
|
|
|
—
|
|
|
(1,614.9)
|
|
Income (loss) from operations
|
(160.3)
|
|
|
504.6
|
|
|
655.1
|
|
|
(336.3)
|
|
|
663.1
|
|
Interest (expense) income, net
|
(214.8)
|
|
|
12.5
|
|
|
(16.8)
|
|
|
—
|
|
|
(219.1)
|
|
Other (expense) income, net
|
(131.5)
|
|
|
(11.1)
|
|
|
145.4
|
|
|
—
|
|
|
2.8
|
|
Equity earnings (loss)
|
809.5
|
|
|
613.4
|
|
|
—
|
|
|
(1,422.9)
|
|
|
—
|
|
Pretax income (loss)
|
302.9
|
|
|
1,119.4
|
|
|
783.7
|
|
|
(1,759.2)
|
|
|
446.8
|
|
Income tax expense
|
23.8
|
|
|
(97.0)
|
|
|
(47.1)
|
|
|
—
|
|
|
(120.3)
|
|
Net income (loss)
|
326.7
|
|
|
1,022.4
|
|
|
736.6
|
|
|
(1,759.2)
|
|
|
326.5
|
|
Less: Net loss attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
0.2
|
|
Net income (loss) attributable to Wabtec shareholders
|
$
|
326.7
|
|
|
$
|
1,022.4
|
|
|
$
|
736.8
|
|
|
$
|
(1,759.2)
|
|
|
$
|
326.7
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Wabtec shareholders
|
$
|
326.7
|
|
|
$
|
1,022.4
|
|
|
$
|
610.8
|
|
|
$
|
(1,759.2)
|
|
|
$
|
200.7
|
|
Income Statement for the Year Ended December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Elimination
|
|
Consolidated
|
Net sales
|
$
|
671.0
|
|
|
|
$
|
483.1
|
|
|
|
$
|
3,442.2
|
|
|
|
$
|
(232.8)
|
|
|
|
$
|
4,363.5
|
|
Cost of sales
|
(495.1)
|
|
|
|
(304.3)
|
|
|
|
(2,462.5)
|
|
|
|
132.3
|
|
|
|
(3,129.6)
|
|
Gross profit (loss)
|
175.9
|
|
|
|
178.8
|
|
|
|
979.7
|
|
|
|
(100.5)
|
|
|
|
1,233.9
|
|
Total operating expenses
|
(173.0)
|
|
|
|
(57.3)
|
|
|
|
(530.2)
|
|
|
|
—
|
|
|
|
(760.5)
|
|
Income (loss) from operations
|
2.9
|
|
|
|
121.5
|
|
|
|
449.5
|
|
|
|
(100.5)
|
|
|
|
473.4
|
|
Interest (expense) income, net
|
(110.8)
|
|
|
|
12.8
|
|
|
|
(14.2)
|
|
|
|
—
|
|
|
|
(112.2)
|
|
Other income (expense), net
|
13.5
|
|
|
|
—
|
|
|
|
(7.1)
|
|
|
|
—
|
|
|
|
6.4
|
|
Equity earnings (loss)
|
396.9
|
|
|
|
369.4
|
|
|
|
—
|
|
|
|
(766.3)
|
|
|
|
—
|
|
Pretax income (loss)
|
302.5
|
|
|
|
503.7
|
|
|
|
428.2
|
|
|
|
(866.8)
|
|
|
|
367.6
|
|
Income tax expense
|
(7.6)
|
|
|
|
(3.3)
|
|
|
|
(65.0)
|
|
|
|
—
|
|
|
|
(75.9)
|
|
Net income (loss)
|
294.9
|
|
|
|
500.4
|
|
|
|
363.2
|
|
|
|
(866.8)
|
|
|
|
291.7
|
|
Less: Net loss attributable to noncontrolling interest
|
—
|
|
|
|
—
|
|
|
|
3.2
|
|
|
|
—
|
|
|
|
3.2
|
|
Net income (loss) attributable to Wabtec shareholders
|
$
|
294.9
|
|
|
|
$
|
500.4
|
|
|
|
$
|
366.4
|
|
|
|
$
|
(866.8)
|
|
|
|
$
|
294.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Wabtec shareholders
|
$
|
295.8
|
|
|
|
$
|
500.4
|
|
|
|
$
|
153.9
|
|
|
|
$
|
(866.8)
|
|
|
|
$
|
83.3
|
|
Income Statement for the Year Ended December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Elimination
|
|
Consolidated
|
Net sales
|
$
|
577.4
|
|
|
|
$
|
398.2
|
|
|
|
$
|
3,035.4
|
|
|
|
$
|
(129.3)
|
|
|
|
$
|
3,881.7
|
|
Cost of sales
|
(440.9)
|
|
|
|
(255.8)
|
|
|
|
(2,218.4)
|
|
|
|
98.7
|
|
|
|
(2,816.4)
|
|
Gross profit (loss)
|
136.5
|
|
|
|
142.4
|
|
|
|
817.0
|
|
|
|
(30.6)
|
|
|
|
1,065.3
|
|
Total operating expenses
|
(114.2)
|
|
|
|
(50.9)
|
|
|
|
(479.1)
|
|
|
|
—
|
|
|
|
(644.2)
|
|
Income (loss) from operations
|
22.3
|
|
|
|
91.5
|
|
|
|
337.9
|
|
|
|
(30.6)
|
|
|
|
421.1
|
|
Interest (expense) income, net
|
(76.8)
|
|
|
|
10.9
|
|
|
|
(12.0)
|
|
|
|
—
|
|
|
|
(77.9)
|
|
Other income (expense), net
|
10.0
|
|
|
|
0.3
|
|
|
|
(1.4)
|
|
|
|
—
|
|
|
|
8.9
|
|
Equity earnings (loss)
|
416.1
|
|
|
|
317.6
|
|
|
|
—
|
|
|
|
(733.7)
|
|
|
|
—
|
|
Pretax income (loss)
|
371.6
|
|
|
|
420.3
|
|
|
|
324.5
|
|
|
|
(764.3)
|
|
|
|
352.1
|
|
Income tax (expense) benefit
|
(109.3)
|
|
|
|
18.8
|
|
|
|
0.7
|
|
|
|
—
|
|
|
|
(89.8)
|
|
Net income (loss)
|
262.3
|
|
|
|
439.1
|
|
|
|
325.2
|
|
|
|
(764.3)
|
|
|
|
262.3
|
|
Less: Net income attributable to noncontrolling interest
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net income (loss) attributable to Wabtec shareholders
|
$
|
262.3
|
|
|
|
$
|
439.1
|
|
|
|
$
|
325.2
|
|
|
|
$
|
(764.3)
|
|
|
|
$
|
262.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Wabtec shareholders
|
$
|
263.9
|
|
|
|
$
|
439.1
|
|
|
|
$
|
658.2
|
|
|
|
$
|
(764.3)
|
|
|
|
$
|
596.9
|
|
Condensed Statement of Cash Flows for the year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Elimination
|
|
Consolidated
|
Net cash (used in) provided by operating activities
|
$
|
(321.2)
|
|
|
$
|
419.4
|
|
|
$
|
1,253.6
|
|
|
$
|
(336.3)
|
|
|
$
|
1,015.5
|
|
Net cash provided by (used for) investing activities
|
6,849.3
|
|
|
(1,140.5)
|
|
|
(8,886.6)
|
|
|
—
|
|
|
(3,177.8)
|
|
Net cash (used in) provided by financing activities
|
(8,286.7)
|
|
|
735.9
|
|
|
7,676.0
|
|
|
336.3
|
|
|
461.5
|
|
Effect of changes in currency exchange rates
|
—
|
|
|
—
|
|
|
(37.3)
|
|
|
—
|
|
|
(37.3)
|
|
(Decrease) increase in cash
|
(1,758.6)
|
|
|
14.8
|
|
|
5.7
|
|
|
—
|
|
|
(1,738.1)
|
|
Cash and cash equivalents, beginning of year
|
1,782.6
|
|
|
(0.1)
|
|
|
559.8
|
|
|
—
|
|
|
2,342.3
|
|
Cash, cash equivalents, and restricted cash, end of year
|
$
|
24.0
|
|
|
$
|
14.7
|
|
|
$
|
565.5
|
|
|
$
|
—
|
|
|
$
|
604.2
|
|
Condensed Statement of Cash Flows for the year ended December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Elimination
|
|
Consolidated
|
Net cash (used in) provided by operating activities
|
$
|
(87.2)
|
|
|
|
$
|
130.1
|
|
|
|
$
|
372.3
|
|
|
|
$
|
(100.5)
|
|
|
|
$
|
314.7
|
|
Net cash used in investing activities
|
(16.8)
|
|
|
|
(2.0)
|
|
|
|
(128.5)
|
|
|
|
—
|
|
|
|
(147.3)
|
|
Net cash provided by (used in) financing activities
|
1,885.7
|
|
|
|
(128.8)
|
|
|
|
120.7
|
|
|
|
100.5
|
|
|
|
1,978.1
|
|
Effect of changes in currency exchange rates
|
—
|
|
|
|
—
|
|
|
|
(36.6)
|
|
|
|
—
|
|
|
|
(36.6)
|
|
Increase (decrease) in cash
|
1,781.7
|
|
|
|
(0.7)
|
|
|
|
327.9
|
|
|
|
—
|
|
|
|
2,108.9
|
|
Cash and cash equivalents, beginning of year
|
0.9
|
|
|
|
0.6
|
|
|
|
231.9
|
|
|
|
—
|
|
|
|
233.4
|
|
Cash, cash equivalents, and restricted cash, end of year
|
$
|
1,782.6
|
|
|
|
$
|
(0.1)
|
|
|
|
$
|
559.8
|
|
|
|
$
|
—
|
|
|
|
$
|
2,342.3
|
|
Condensed Statement of Cash Flows for the year ended December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Elimination
|
|
Consolidated
|
Net cash (used in) provided by operating activities
|
$
|
(49.2)
|
|
|
|
$
|
130.3
|
|
|
|
$
|
138.3
|
|
|
|
$
|
(30.6)
|
|
|
|
$
|
188.8
|
|
Net cash used in investing activities
|
(11.2)
|
|
|
|
(3.4)
|
|
|
|
(1,018.9)
|
|
|
|
—
|
|
|
|
(1,033.5)
|
|
Net cash provided by (used in) financing activities
|
58.8
|
|
|
|
(127.5)
|
|
|
|
(59.3)
|
|
|
|
30.6
|
|
|
|
(97.4)
|
|
Effect of changes in currency exchange rates
|
—
|
|
|
|
—
|
|
|
|
32.3
|
|
|
|
—
|
|
|
|
32.3
|
|
(Decrease) increase in cash
|
(1.6)
|
|
|
|
(0.6)
|
|
|
|
(907.6)
|
|
|
|
—
|
|
|
|
(909.8)
|
|
Cash, cash equivalents, and restricted cash, beginning of year
|
2.5
|
|
|
|
1.2
|
|
|
|
1,139.5
|
|
|
|
—
|
|
|
|
1,143.2
|
|
Cash and cash equivalents, end of year
|
$
|
0.9
|
|
|
|
$
|
0.6
|
|
|
|
$
|
231.9
|
|
|
|
$
|
—
|
|
|
|
$
|
233.4
|
|
23. OTHER INCOME, NET
The components of other income, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
|
|
|
In millions
|
|
2019
|
|
2018
|
|
2017
|
Foreign currency loss
|
|
$
|
(13.5)
|
|
|
$
|
(5.7)
|
|
|
$
|
(6.6)
|
|
Equity income
|
|
8.1
|
|
|
1.9
|
|
|
2.6
|
|
Expected return on pension assets/amortization
|
|
9.9
|
|
|
9.0
|
|
|
9.8
|
|
Other miscellaneous (expense) income
|
|
(1.7)
|
|
|
1.2
|
|
|
3.1
|
|
Total other income, net
|
|
$
|
2.8
|
|
|
$
|
6.4
|
|
|
$
|
8.9
|
|
24. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
In millions, except per share data
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
2019
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,593.6
|
|
|
$
|
2,236.3
|
|
|
$
|
2,001.7
|
|
|
$
|
2,368.4
|
|
Gross profit
|
|
389.0
|
|
|
614.7
|
|
|
599.4
|
|
|
674.9
|
|
Income from operations
|
|
67.3
|
|
|
200.6
|
|
|
169.1
|
|
|
226.1
|
|
Net (loss) income attributable to Wabtec shareholders
|
|
(4.2)
|
|
|
104.1
|
|
|
91.1
|
|
|
135.7
|
|
Basic (loss) earnings from operations per common share
|
|
$
|
(0.04)
|
|
|
$
|
0.58
|
|
|
$
|
0.48
|
|
|
$
|
0.71
|
|
Diluted (loss) earnings from operations per common share
|
|
$
|
(0.04)
|
|
|
$
|
0.54
|
|
|
$
|
0.48
|
|
|
$
|
0.71
|
|
2018
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,056.2
|
|
|
$
|
1,111.7
|
|
|
$
|
1,077.8
|
|
|
$
|
1,117.8
|
|
Gross profit
|
|
310.9
|
|
|
324.0
|
|
|
302.0
|
|
|
297.0
|
|
Income from operations
|
|
131.3
|
|
|
123.5
|
|
|
125.2
|
|
|
93.4
|
|
Net income attributable to Wabtec shareholders
|
|
88.4
|
|
|
84.4
|
|
|
87.7
|
|
|
34.4
|
|
Basic earnings from operations per common share
|
|
$
|
0.92
|
|
|
$
|
0.88
|
|
|
$
|
0.91
|
|
|
$
|
0.36
|
|
Diluted earnings from operations per common share
|
|
$
|
0.92
|
|
|
$
|
0.87
|
|
|
$
|
0.91
|
|
|
$
|
0.36
|
|
The Company operates on a four-four-five week accounting quarter, and the quarters end on or about March 31, June 30 and September 30. The fiscal year ends on December 31.