NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
1.
DESCRIPTION OF PLAN
The following description of the Wabtec Savings Plan (the Plan) provides only general information. Participants should
refer to the Plan document and Summary Plan Description for a more complete description of the Plans provisions.
General
The Plan, effective March 9, 1990, amended and restated effective January 1, 2013, is a contributory plan intended to comply with the provisions of
Sections 401(a), 401(k), and 401(m) of the Internal Revenue Code (the Code). Except for certain collectively bargained employees as described below, all regular United States employees of Westinghouse Air Brake Technologies Corporation
and its subsidiaries (Wabtec or the Company) are eligible to participate upon their hire date. Subject to the terms of applicable collective bargaining agreements, collectively bargained employees (1) in Wilmerding,
Pennsylvania and Greensburg, Pennsylvania are eligible to participate in the Plan upon their hire date, but those hired before October 1, 2004 are not eligible for employer contributions, (2) of Triangle Engineered Products are eligible to
participate, but are not eligible for employer contributions, (3) of Barber Spring Pennsylvania are eligible for discretionary matching and discretionary annual profit sharing contributions, and (4) in Boise, Idaho are eligible to
participate in the Plan, but are not eligible for employer contributions.
Effective January 1, 2017, employees of Faiveley Transport who otherwise
met the general eligibility provisions of the Plan are eligible to participate in the Plan. Effective as of April 16, 2017, the assets of the Faiveley Transport 401(k) Plan (the Faiveley Plan) were transferred into the Plan. The
total fair value of the net assets transferred from the Faiveley Plan into the Plan was $20,634,001.
Effective as of August 1, 2017, employees of
Aero Transportation Products, Inc. who otherwise meet the general eligibility requirements of the Plan are eligible to participate in the Plan. Effective as of July 31, 2017, the assets of the Aero Transportation Products, Inc. 401(k) Plan (the
Aero Transport Plan) were transferred into the Plan. The total fair value of the net assets transferred from the Aero Transport Plan into the Plan was $5,111,168.
A committee appointed by Wabtecs Board of Directors or its authorized delegates (the Committee) is responsible for the administration and
operation of the Plan. In this capacity, the Committee selects and monitors the Plans investment options and otherwise takes such steps as may be necessary and appropriate for the effective administration of the Plan.
Contributions
Participants may contribute, through
payroll deductions, employee elective
pre-tax
contributions (and, effective October 1, 2016,
after-tax
Roth contributions) from 1% to 50% of their
eligible compensation, limited to $18,000 in both 2017 and 2016. New eligible employees are automatically enrolled in the Plan with 3% of eligible compensation contributed to the Plan as employee
pre-tax
contributions, unless such employees elect a different contribution percentage (or elect not to contribute). This automatic enrollment provision does not apply to certain employee groups (such as certain collectively bargained employees). In
addition, participants may contribute employee
after-tax
contributions from 1% to 50% of their compensation. Participants who are 50 years of age or older during the plan year are allowed to contribute
additional
pre-tax
catch up contributions, up to $6,000 annually in both 2017 and 2016. Participants total annual contributions may not exceed the contribution limits under Section 415(c) of the
Code. In addition, the combination of an employees elective
pre-tax,
Roth, and
after-tax
contributions may not exceed 50% of their eligible compensation.
For those participants that are eligible, the Company makes an annual basic contribution of 3% of a participants eligible compensation, with the general
requirement that the Company employs the participant on December 31 of the year for which the basic contribution is made. In addition, the Company will match 100% of the participants
pre-tax,
Roth,
and/or
after-tax
contributions to the Plan up to a total of 3% of eligible compensation.
7
The Plan allows participants to direct their contributions, and contributions made on their behalf, to any of the
investment alternatives offered under the Plan. The Plan permits participants to invest in Wabtec common stock. Effective January 1, 2018, the Plan was amended to limit participants investments in Wabtec common stock such that
(1) participants with more than 20% of their account invested in Wabtec common stock may not elect to transfer additional portions of their account into Wabtec common stock, and (2) participants may not elect to invest more than 20% of
their future contributions to the Plan (or future contributions made to the Plan on their behalf by Wabtec) in Wabtec common stock.
Withdrawals
Participants may make the following types of withdrawals:
In-Service
Withdrawals Once every six months, a participant may withdraw all or any portion of
his or her account attributable to employee
after-tax
contributions or rollover contributions. Once every six months, a participant may withdraw the vested portion of his or her account attributable to
employer matching, or employer basic contributions contributed to the Plan before October 1, 2016. Once a participant has reached age 59
1
⁄
2
, he or she
can withdraw any portion of his or her vested account.
Hardship Withdrawals In the case of hardship, as defined in the plan
document, the participant can elect to withdraw up to 100% of his or her account attributable to employee elective or Roth contributions. Hardship withdrawals are limited to once every plan year. Employee contributions cannot be made to the Plan for
a period of six months following the hardship withdrawal.
Notes Receivable from Participants
Notes receivable from participants (loans) are measured at their unpaid principal balance plus any accrued but unpaid interest. Interest income is recorded on
the accrual basis. Related fees are recorded as administrative expenses and are expensed when they are incurred. No allowance for credit losses has been recorded as of December 31, 2017 and 2016. Delinquent participant loans are reclassified as
distributions based upon the terms of the plan document. A participant may borrow from his or her fund accounts a maximum loan amount equal to the lesser of 50% of the value of the participants vested balance of his or her account, reduced by
any outstanding loan balance, or $50,000. The loans bear interest based on the Reuters Prime Rate as adjusted monthly. The interest rates on participant loans for the year ending December 31, 2017, range from 4.25% to 9.5%. Principal and
interest are paid ratably through monthly payroll deductions.
Participant Accounts
Each participants account is credited with the participants contributions and allocations of (a) the Companys contribution and
(b) Plan earnings and may be charged with an allocation of administrative expenses and other applicable Plan expenses (such as for initiating a Plan loan). The benefit to which a participant is entitled is the benefit that can be provided from
the participants vested account.
Plan Termination
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time as well as terminate
the Plan subject to the provisions of The Employee Retirement Income Security Act of 1974 (ERISA). In the event the Plan is terminated, the Company will direct either (a) that the investment manager and trustee continue to hold the
participants accounts in accordance with the Plan, or (b) that the investment manager and trustee immediately distribute to each participant all amounts in the participants account in a single
lump-sum
payment. In the event of Plan termination, participants would become 100% vested in their employer contributions.
Vesting
Employee
pre-tax,
Roth,
after-tax,
and rollover contributions are at all times 100% vested and
non-forfeitable.
Plan participants become
100% vested in employer contributions after three years of service as described in the
8
Plan document. Special vesting rules may apply to amounts held on behalf of certain union employees and on amounts transferred into the Plan from another qualified retirement plan.
Forfeitures
Amounts forfeited by participants are used
to reduce future employer contributions or pay Plan expenses. Forfeitures used to reduce employer contributions and pay plan administrative expenses during the year ended December 31, 2017 amounted to $1,505,685
($966,226 in 2016). As of
December 31, 2017, the amount in the forfeited
non-vested
accounts totaled $701,104
($1,190,631 in 2016).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Accounting
The accounts of the Plan are maintained on an accrual basis of accounting.
Accounting Estimates
The process of preparing financial
statements in conformity with U.S. generally accepted accounting principles requires management to use estimates and assumptions that affect certain types of assets, liabilities and changes therein. Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements. Accordingly, actual results may differ from estimated amounts.
Investment
Valuation and Income Recognition
Investments are reported at fair value. Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date. The Plans Pension Committee determines the Plans valuations policies utilizing information provided by the investment advisers and
custodian. See Note 3 for a discussion of fair value measurements.
Purchases and sales of securities are recorded on a trade-date basis. Interest income
is recorded on an accrual basis. Dividends are recorded on the
ex-dividend
date.
Payment of Benefits
Benefits are recorded when paid.
Expenses
Certain expenses of maintaining the Plan are paid by the Plan, unless otherwise paid by the Company. Expenses that are paid by the Company are excluded from
these financial statements. Fees related to the administration of notes receivable from participants are charged directly to the participants account and are included in administrative expenses.
Income Taxes
The Plan has received a determination
letter from the Internal Revenue Service dated May 22, 2014, stating that the Plan is qualified under Section 401 (a) of the Code and, therefore, the related trust is exempt from taxation. Once qualified, the Plan is required to operate in
conformity with the Code to maintain its qualification. The Plan has since been amended, but the plan administrator believes the Plan is being operated in compliance with the applicable requirements of the Code and, therefore, believes that the Plan
is qualified and the related trust is
tax-exempt.
Accounting principles generally accepted in the United States
of America require plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the tax
authorities. Management has evaluated the Plans tax positions and concluded that as of December 31, 2017 the Plan had maintained its tax-
9
exempt status and had taken no uncertain tax positions that required an adjustment to the financial statements. Therefore, no provision or liability for income taxes has been included in the
Plans financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.
Risks and Uncertainties
The Plan invests in various
investment securities. Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the
value of investment securities will occur in the near term and that such changes could materially affect the participants account balances and the amounts reported in the statements of net assets available for benefits.
3. FAIR VALUE MEASUREMENT
The FASBs Accounting
Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, 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 Companys assumptions used to measure
assets and liabilities at fair value. A financial asset or liabilitys classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. Valuation techniques used need to
maximize the use of observable inputs and minimize the use of unobservable inputs. There have been no changes in the methodologies used at December 31, 2017 and 2016.
The Plans assets are invested in the common stock of Westinghouse Air Brake Technologies Corporation, a common collective trust, mutual funds through
Fidelity Management Trust Company (Fidelity) and mutual funds held by various other issuers, the Plan custodian and trustee. The following is a description of the valuation methodologies used for assets measured at fair value:
Shares of registered investment companies Valued at the quoted Net Asset Value (NAV) of shares held by the Plan at year end.
Employer securities These investments consist of Wabtec common stock valued at the closing price reported on the active market on
which the individual securities are traded.
Common collective trust This investment is comprised of fully benefit-responsive
investment contracts issued by insurance companies and other financial institutions (Contracts), fixed income securities, and money market funds. Under the terms of the Contracts, the assets of the fund are invested in fixed income
securities (which may include, but are not limited to, U.S. Treasury and agency bonds, corporate bonds, mortgage-backed securities, commercial mortgage-backed securities, asset backed securities, and collective investment vehicles and shares of
investment companies that invest primarily in fixed income securities) and shares of money market funds. The NAV is used as a practical expedient to estimate fair value. This practical expedient would not be used if it is determined to be probable
that the common collective trust will sell the investment for an amount different from the reported NAV. Participant transactions (purchases and sales) may occur daily.
The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.
Furthermore, although the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result
in a different fair value measurement at the reporting date.
10
The following table sets forth by level, within the fair value hierarchy, the Plans assets at fair value as
of December 31, 2017 and 2016. Classification within the fair value hierarchy table is based on the lowest level of any input that is significant to the fair value measurement.
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Fair Value Measurements at December 31, 2017 Using
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Assets
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Total Fair
Value at
December 31,
2017
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Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
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Significant Other
Observable Inputs
(Level 2)
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Significant
Unobservable
Inputs
(Level 3)
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Shares of registered investment companies
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$
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411,536,076
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$
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411,536,076
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$
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$
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Employer securities
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40,333,195
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40,333,195
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Common collective trust (a)
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40,969,028
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Total
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$
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492,838,299
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$
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451,869,271
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$
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$
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Fair Value Measurements at December 31, 2016 Using
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Assets
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Total Fair
Value at
December 31,
2016
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Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
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Significant Other
Observable Inputs
(Level 2)
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Significant
Unobservable
Inputs
(Level 3)
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Shares of registered investment companies
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$
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309,754,111
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$
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309,754,111
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$
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$
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Employer securities
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45,786,751
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45,786,751
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Common collective trust (a)
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40,079,513
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Total
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$
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395,620,375
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$
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355,540,862
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$
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$
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(a)
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In accordance with FASB ASC
820-10,
certain investments that are measured at fair value using net asset value per share (or its equivalent) practical expedient have not been
classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the line items presented in the statement of net assets available for benefits.
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The following tables summarize investments for which fair value is measured using the net asset value per share practical expedient as of
December 31, 2017 and 2016, respectively. There are no participant redemption restrictions for these investments; the redemption notice period is applicable only to the Plan.
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Common Collective Trust
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Fair
Value
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Unfunded
Commitments
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Redemption
Frequency
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Redemption
Notice Period
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December 31, 2017
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$
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40,969,028
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N/A
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Daily
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12 months
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December 31, 2016
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$
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40,079,513
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|
N/A
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|
Daily
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|
12 months
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4.
PARTY-IN-INTEREST
TRANSACTIONS
Plan investments are shares of mutual funds managed by Fidelity. Fidelity is the trustee as defined by the Plan and, therefore, these transactions qualify as
party-in-interest
transactions. Fees incurred by the Plan for investment management services are included in net appreciation in fair value of investments, as they are paid
through revenue sharing, rather than as a direct payment. Fees paid by the Plan for professional, legal, and accounting expenses are paid through revenue sharing, rather than a direct payment, and amounted to $203,014 for the year ended
December 31, 2017 ($204,582 in 2016). All remaining expenses paid by the Plan represent fees paid by the participants for the setup of loans and maintenance. The Plan also invests in Wabtec Stock. Wabtec is the plan sponsor, and therefore,
transactions qualify as
party-in-interest
transactions. Investment income from
parties-in-interest
transactions and interest from participant loans amounted to $67,372,977 for the year ended December 31, 2017 ($28,616,897 in 2016).
11
5. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for benefits per the financial statements to the Form 5500:
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December 31,
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2017
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2016
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Net assets available for benefits per the financial statements
|
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$
|
511,581,058
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$
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412,442,420
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Investments
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10,706,669
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|
|
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9,690,941
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Notes receivable from participants
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(10,706,669
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)
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(9,690,941
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)
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|
|
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Net assets available for benefits per the Form 5500
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|
$
|
511,581,058
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|
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$
|
412,442,420
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12