NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020 (UNAUDITED)
1. BUSINESS
Westinghouse Air Brake Technologies Corporation (“Wabtec” or the "Company") 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 the first three months of 2020, approximately 59% of the Company’s revenues came from customers outside the United States.
On March 11, 2020, the World Health Organization designated the outbreak of the novel strain of coronavirus, known as COVID-19, as a global pandemic. Governments and businesses around the world have taken unprecedented actions to mitigate the spread of COVID-19, including but not limited to, shelter-in-place orders, quarantines, significant restrictions on travel, as well as restrictions that prohibit many employees from going to work. Our top concern is, and remains, the health and well-being of our employees around the world. To date, COVID-19 has surfaced in nearly all regions around the world and has impacted our sales channels, supply chain, manufacturing operations, workforce, and other key aspects of our operations. The outbreak and preventive measures, including temporary plant closures in China, India, Italy and other countries where outbreaks were most prevalent as well as stay at home orders, taken to help curb the spread had an adverse impact on our operations and business results for the first three months of 2020.
2. ACCOUNTING POLICIES
Basis of Presentation The unaudited condensed consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") in the United States of America and the rules and regulations of the Securities and Exchange Commission and include the accounts of Wabtec and its subsidiaries in which Wabtec has a controlling interest. These condensed consolidated interim financial statements do not include all of the information and footnotes required for complete financial statements. In management’s opinion, these financial statements reflect all adjustments of a normal, recurring nature necessary for a fair presentation of the results for the interim periods presented. Results for these interim periods are not necessarily indicative of results to be expected for the full year particularly in light of the rapidly evolving COVID-19 pandemic that is impacting our sales channels, supply chain, manufacturing operations, workforce, or other key aspects of our operations and the high degree of uncertainty regarding the pandemic's duration and severity, government actions to control it, and the potential impact on global economic activity, global supply chain operations and our customers, suppliers, and end-markets.
The Company operates on a four-four-five week accounting quarter, and the quarters end on or about March 31, June 30, September 30, and December 31.
The notes included herein should be read in conjunction with the audited consolidated financial statements included in Wabtec’s Annual Report on Form 10-K for the year ended December 31, 2019. The December 31, 2019 information has been derived from the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
Revenue Recognition 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. The remaining revenues are earned over time. Generally, for performance obligations satisfied at a point in time control passes at the time of shipment in accordance with agreed upon delivery terms.
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 $106.3 million at March 31, 2020 and $109.4 million at December 31, 2019, respectively. 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 non-recurring engineering costs. The Company has elected to use the practical expedient and does 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 $57.7 million at March 31, 2020 and were $77.0 million at December 31, 2019. 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 or 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 $100.6 million and $118.5 million at March 31, 2020 and December 31, 2019, 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, 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 transaction price of firm customer orders subject to standard industry cancellation provisions and substantial scope-of-work adjustments. As of March 31, 2020, the Company's remaining performance obligations were $20.6 billion. The Company expects to recognize revenue of approximately 25% of remaining performance obligation over the next 12 months, with the remainder recognized thereafter.
Reclassifications Certain prior year amounts have been reclassified, where necessary, to conform to the current year presentation.
Use of Estimates The preparation of financial statements in conformity with GAAP in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from the estimates. On an ongoing basis, management reviews its estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.
Goodwill and Intangibles 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.
As a result of the COVID-19 pandemic and the uncertainty surrounding the global economy, the Company's stock price was highly volatile during the second half of the first quarter 2020. The Company considered the Company's stock price volatility combined with overall macroeconomic conditions and concluded that it was not more likely than not that the fair value of its three reporting units declined below their carrying value and therefore an interim quantitative impairment test was not required at March 31, 2020. The present uncertainty surrounding the global economy due to the COVID-19 pandemic increases the likelihood that adverse changes could occur in key assumptions used to determine the fair value of reporting units like sales estimates, cost factors, discount rates and stock price resulting in interim quantitative goodwill impairment tests and non-cash goodwill impairments in future periods.
Also, as a result of the COVID-19 pandemic the Company reviewed indefinite-lived tradename intangible assets and concluded that it was not more likely than not that the fair value of such tradename assets were below their carrying value. However, uncertainty surrounding the impact of the COVID-19 pandemic increases the likelihood that adverse changes in key assumptions used to determine the fair value of indefinite-lived intangibles like sales estimates or discount rates could result in interim quantitative tradename impairments tests and non-cash tradename impairments in future periods. Additionally, uncertainty around the current macroeconomic environment could result in changes to the Company’s marketing and branding strategy which also could impact the carrying value or estimated useful lives of the Company’s tradenames.
Financial Derivatives and Hedging Activities As part of its risk management strategy, the Company utilizes derivative financial instruments to mitigate the impact of changes in foreign currency exchange rates and interest rates on earnings and cash flow. For further information regarding financial derivatives and hedging activities, refer to Notes 13 and 14.
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 Accounting Standards Codification ("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.
Recently Issued Accounting Pronouncements In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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.
Recently Adopted Accounting Pronouncements 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 became effective for the Company on January 1, 2020. The Company adopted this accounting standard at the beginning of the period. The impact of adopting the new standard was not material to the consolidated statement of income or the consolidated balance sheet.
In January 2017, FASB issued 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. This guidance became effective for the Company on January 1, 2020. The adoption of this guidance had no impact on the Company, however, the amendments in this update could result in a change to 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 unit's carrying value exceeds its fair value.
Other Comprehensive Income (Loss) Comprehensive income comprises both net income and the change in equity from transactions and other events and circumstances from nonowner sources.
The changes in accumulated other comprehensive income (loss) by component, net of tax, for the three months ended March 31, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Foreign
currency
translation
|
|
Derivative
contracts
|
|
Pension and
post
retirement
benefit plans
|
|
Total
|
|
Balance at December 31, 2019
|
$
|
(308.6)
|
|
|
$
|
(3.3)
|
|
|
$
|
(70.7)
|
|
|
$
|
(382.6)
|
|
|
Other comprehensive income (loss) before reclassifications
|
(181.4)
|
|
|
6.1
|
|
|
(3.4)
|
|
|
(178.7)
|
|
|
Amounts reclassified from accumulated other
|
|
|
|
|
|
|
|
|
comprehensive income
|
—
|
|
|
—
|
|
|
0.7
|
|
|
0.7
|
|
|
Net current period other comprehensive income (loss)
|
(181.4)
|
|
|
6.1
|
|
|
(2.7)
|
|
|
(178.0)
|
|
|
Balance at March 31, 2020
|
$
|
(490.0)
|
|
|
$
|
2.8
|
|
|
$
|
(73.4)
|
|
|
$
|
(560.6)
|
|
Reclassifications out of accumulated other comprehensive income (loss) for the three months ended March 31, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Amount reclassified from
accumulated other
comprehensive income
|
|
Affected line item in the
Condensed Consolidated
Statements of Income
|
|
Amortization of defined pension and post retirement items
|
|
|
|
|
Amortization of initial net obligation and prior service cost
|
$
|
(0.4)
|
|
|
Other income (expense), net
|
|
Amortization of net loss
|
1.4
|
|
|
Other income (expense), net
|
|
|
1.0
|
|
|
Other income (expense), net
|
|
|
(0.3)
|
|
|
Income tax expense
|
|
|
$
|
0.7
|
|
|
Net income
|
The changes in accumulated other comprehensive loss by component, net of tax, for the three months ended March 31, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Foreign
currency
translation
|
|
Derivative
contracts
|
|
Pension and
post
retirement
benefit plans
|
|
Total
|
|
Balance at December 31, 2018
|
$
|
(202.2)
|
|
|
$
|
(0.1)
|
|
|
$
|
(54.3)
|
|
|
$
|
(256.6)
|
|
|
Other comprehensive income (loss) before reclassifications
|
(46.6)
|
|
|
(3.1)
|
|
|
(3.3)
|
|
|
(53.0)
|
|
|
Amounts reclassified from accumulated other
|
|
|
|
|
|
|
|
|
comprehensive income
|
—
|
|
|
—
|
|
|
0.6
|
|
|
0.6
|
|
|
Net current period other comprehensive income (loss)
|
(46.6)
|
|
|
(3.1)
|
|
|
(2.7)
|
|
|
(52.4)
|
|
|
Balance at March 31, 2019
|
$
|
(248.8)
|
|
|
$
|
(3.2)
|
|
|
$
|
(57.0)
|
|
|
$
|
(309.0)
|
|
Reclassifications out of accumulated other comprehensive loss for the three months ended March 31, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Amount reclassified from
accumulated other
comprehensive income
|
|
Affected line item in the
Condensed Consolidated
Statements of Income
|
|
Amortization of defined pension and post retirement items
|
|
|
|
|
Amortization of initial net obligation and prior service cost
|
$
|
(0.4)
|
|
|
Other income (expense), net
|
|
Amortization of net loss
|
1.1
|
|
|
Other income (expense), net
|
|
|
0.7
|
|
|
Other income (expense), net
|
|
|
(0.2)
|
|
|
Income tax expense
|
|
|
$
|
0.5
|
|
|
Net income
|
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 composed 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 stockholders (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 total value of the consideration paid, and 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 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 final fair value of the GE Transportation assets acquired and liabilities assumed:
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
|
|
|
Assets acquired
|
|
|
|
|
Cash and cash equivalents
|
|
|
$
|
177.2
|
|
|
Accounts receivable
|
|
|
541.3
|
|
|
Inventories
|
|
|
1,189.7
|
|
|
Other current assets
|
|
|
71.5
|
|
|
Property, plant, and equipment
|
|
|
1,088.6
|
|
|
Goodwill
|
|
|
5,978.0
|
|
|
Trade names
|
|
|
55.0
|
|
|
Customer relationships
|
|
|
550.0
|
|
|
Intellectual property
|
|
|
1,180.0
|
|
|
Backlog
|
|
|
1,450.0
|
|
|
Other noncurrent assets
|
|
|
321.2
|
|
|
Total assets acquired
|
|
|
12,602.5
|
|
|
Liabilities assumed
|
|
|
|
|
Current liabilities
|
|
|
1,594.2
|
|
|
Contingent consideration
|
|
|
440.0
|
|
|
Other noncurrent liabilities
|
|
|
661.0
|
|
|
Total liabilities assumed
|
|
|
2,695.2
|
|
|
Net assets acquired
|
|
|
9,907.3
|
|
|
Noncontrolling interest
|
|
|
$
|
88.3
|
|
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 $524.6 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 deductible for tax purposes. The goodwill has been allocated to the Freight segment.
Costs related to the acquisition of GE Transportation were approximately $14.0 million for the three months ended March 31, 2020 and are included in selling, general and administrative expenses on the consolidated statements of income.
The Company also made smaller acquisitions not listed above which are individually and collectively immaterial.
The following unaudited pro forma consolidated financial information presents income statement results as if the GET acquisition listed above had occurred on January 1, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions, except per share data
|
|
Three Months Ended March 31, 2020
|
|
Three Months Ended March 31, 2019
|
|
Net sales
|
|
$
|
1,929.9
|
|
|
$
|
2,069.2
|
|
|
Gross profit
|
|
578.7
|
|
|
454.3
|
|
|
Net income attributable to Wabtec shareholders
|
|
111.6
|
|
|
(53.7)
|
|
|
Diluted earnings per share
|
|
|
|
|
|
As Reported
|
|
$
|
0.58
|
|
|
$
|
(0.04)
|
|
|
Pro forma
|
|
$
|
0.58
|
|
|
$
|
(0.44)
|
|
4. INVENTORIES
The components of inventory, net of reserves, were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
March 31,
2020
|
|
December 31,
2019
|
|
Raw materials
|
$
|
767.2
|
|
|
$
|
786.4
|
|
|
Work-in-progress
|
370.0
|
|
|
374.0
|
|
|
Finished goods
|
648.5
|
|
|
612.7
|
|
|
Total inventories
|
$
|
1,785.7
|
|
|
$
|
1,773.1
|
|
5. INTANGIBLES
The change in the carrying amount of goodwill by segment for the three months ended March 31, 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Freight Segment
|
|
Transit Segment
|
|
Total
|
|
Balance at December 31, 2019
|
$
|
6,876.6
|
|
|
$
|
1,484.0
|
|
|
$
|
8,360.6
|
|
|
Additions
|
(3.7)
|
|
|
—
|
|
|
(3.7)
|
|
|
Foreign currency impact
|
(62.8)
|
|
|
(20.4)
|
|
|
(83.2)
|
|
|
Balance at March 31, 2020
|
$
|
6,810.1
|
|
|
$
|
1,463.6
|
|
|
$
|
8,273.7
|
|
As of March 31, 2020 and December 31, 2019, the Company’s trade names had a net carrying amount of $614.2 million and $623.1 million, respectively. The Company believes these intangibles have indefinite lives, with the exception of the right to use 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
March 31,
2020
|
|
December 31,
2019
|
|
|
|
|
|
|
Intellectual property, patents, and other intangibles, net of accumulated amortization of $147.8 and $123.8
|
$
|
1,083.5
|
|
|
$
|
1,108.9
|
|
|
Backlog, net of accumulated amortization of $119.0 and $92.0
|
1,312.4
|
|
|
1,342.1
|
|
|
Customer relationships, net of accumulated amortization of $222.2 and $212.9
|
999.9
|
|
|
1,029.9
|
|
|
Total
|
$
|
3,395.8
|
|
|
$
|
3,480.9
|
|
The weighted average remaining useful life of backlog, intellectual property, customer relationships and other intangibles were 14 years, 13 years, 17 years and 9 years, respectively. Amortization expense for intangible assets was $69.0 million and $27.4 million for the three months ended March 31, 2020 and 2019, respectively.
Amortization expense for the five succeeding years is estimated to be as follows:
|
|
|
|
|
|
|
|
In millions
|
|
|
Remainder of 2020
|
$
|
212.5
|
|
|
2021
|
277.9
|
|
|
2022
|
277.5
|
|
|
2023
|
276.9
|
|
|
2024
|
267.5
|
|
6. 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 three months ended March 31, 2020, and 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Assets
|
|
|
|
In millions
|
2020
|
|
2019
|
|
Balance at beginning of year
|
$
|
623.4
|
|
|
$
|
345.6
|
|
|
Acquisitions
|
4.1
|
|
|
238.7
|
|
|
Recognized in current year
|
293.0
|
|
|
188.3
|
|
|
Reclassified to accounts receivable
|
(282.9)
|
|
|
(197.0)
|
|
|
Foreign currency impact
|
(8.3)
|
|
|
(0.8)
|
|
|
Balance at March 31
|
$
|
629.3
|
|
|
$
|
574.8
|
|
|
|
|
|
|
|
|
Contract Liabilities
|
|
|
|
In millions
|
2020
|
|
2019
|
|
Balance at beginning of year
|
$
|
799.7
|
|
|
$
|
444.8
|
|
|
Acquisitions
|
6.9
|
|
|
274.1
|
|
|
Recognized in current year
|
290.2
|
|
|
205.3
|
|
|
Amounts in beginning balance reclassified to revenue
|
(317.6)
|
|
|
(204.4)
|
|
|
Current year amounts reclassified to revenue
|
(11.8)
|
|
|
(6.4)
|
|
|
Foreign currency impact
|
(6.2)
|
|
|
(0.4)
|
|
|
Balance at March 31
|
$
|
761.2
|
|
|
$
|
713.0
|
|
7. LEASES
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 contracts.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
In millions
|
2020
|
|
2019
|
|
Operating lease expense
|
$
|
14.7
|
|
|
$
|
13.4
|
|
|
Finance lease expense amortization of leased assets
|
0.3
|
|
|
0.3
|
|
|
|
|
|
|
|
Short-term and variable lease expense
|
0.1
|
|
|
0.1
|
|
|
Sublease income
|
(0.1)
|
|
|
(0.1)
|
|
|
Total
|
$
|
15.0
|
|
|
$
|
13.7
|
|
Scheduled payments of lease liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Operating Leases
|
|
Finance
Leases
|
|
Total
|
|
Remaining 2020
|
$
|
41.4
|
|
|
$
|
0.3
|
|
|
$
|
41.7
|
|
|
2021
|
47.6
|
|
|
0.2
|
|
|
47.8
|
|
|
2022
|
40.5
|
|
|
0.2
|
|
|
40.7
|
|
|
2023
|
34.5
|
|
|
0.2
|
|
|
34.7
|
|
|
2024
|
30.3
|
|
|
0.1
|
|
|
30.4
|
|
|
Thereafter
|
103.1
|
|
|
0.2
|
|
|
103.3
|
|
|
Total lease payments
|
297.4
|
|
|
1.2
|
|
|
298.6
|
|
|
Less: Present value discount
|
(27.9)
|
|
|
—
|
|
|
(27.9)
|
|
|
Present value lease liabilities
|
$
|
269.5
|
|
|
$
|
1.2
|
|
|
$
|
270.7
|
|
The following table summarizes the remaining lease term and discount rate assumptions used to develop the present value of lease liabilities:
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
Weighted-average remaining lease term (years)
|
|
|
Operating leases
|
7.7
|
|
Finance leases
|
5.0
|
|
Weighted-average discount rate
|
|
|
Operating leases
|
3.0
|
%
|
|
Finance leases
|
1.3
|
%
|
8. LONG-TERM DEBT
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
|
|
March 31, 2020
|
|
|
|
December 31, 2019
|
|
|
|
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 $1.0 and $1.1
|
3.0
|
%
|
|
666.5
|
|
|
666.5
|
|
|
684.7
|
|
|
684.7
|
|
Multi-Currency Revolving loan facility net of unamortized debt issuance costs of $0.8 and $0.9
|
2.7
|
%
|
|
570.2
|
|
|
570.2
|
|
|
231.5
|
|
|
231.5
|
|
|
Floating Senior Notes, due 2021, net of unamortized debt
issuance costs of $1.7 and $2.0
|
2.3
|
%
|
|
498.3
|
|
|
496.4
|
|
|
498.0
|
|
|
500.0
|
|
4.375% Senior Notes, due 2023, net of unamortized
discount and debt issuance costs of $0.9 and $0.9
|
4.5
|
%
|
|
249.1
|
|
|
|
253.4
|
|
|
249.1
|
|
|
|
263.9
|
|
4.15% Senior Notes, due 2024, net of unamortized debt
issuance costs of $5.3 and $5.7
|
4.6
|
%
|
|
744.7
|
|
|
|
713.7
|
|
|
744.3
|
|
|
|
805.5
|
|
3.45% Senior Notes, due 2026, net of unamortized debt
issuance costs of $1.4 and $1.5
|
3.5
|
%
|
|
748.6
|
|
|
|
673.4
|
|
|
748.5
|
|
|
759.1
|
|
4.70% Senior Notes, due 2028, net of unamortized debt
issuance costs of $9.0 and $9.2
|
5.0
|
%
|
|
1,241.0
|
|
|
1,114.5
|
|
|
1,240.8
|
|
|
1,378.3
|
|
|
Other Borrowings
|
|
|
29.5
|
|
|
29.5
|
|
|
32.4
|
|
|
32.4
|
|
|
Total
|
|
|
4,747.9
|
|
|
4,517.6
|
|
|
4,429.3
|
|
|
4,655.4
|
|
|
Less - current portion
|
|
|
92.8
|
|
|
92.8
|
|
|
95.7
|
|
|
95.7
|
|
|
Long-term portion
|
|
|
$
|
4,655.1
|
|
|
$
|
4,424.8
|
|
|
$
|
4,333.6
|
|
|
$
|
4,559.7
|
|
1. See Note 14 for information on the fair value measurement of the Company's long-term debt.
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 March 31, 2020 and December 31, 2019, the Company had total unamortized debt issuance costs of $20.1 million and $21.3 million, respectively.
At March 31, 2020, the weighted average interest rate on the Company’s variable rate debt was 2.7%.
Senior Credit Facility
On June 8, 2018, the Company entered into a credit agreement ("Senior Credit Facility"), which replaced the Company's then-existing 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 ("Term Loans"); 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 "Revolving Credit Facility")).
The Revolving Facility will mature on June 8, 2023. The following table presents availability under the Revolving Facility:
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Multi-currency revolving loan facility
|
|
Maximum Availability
|
|
$
|
1,200.0
|
|
|
Outstanding Borrowings
|
|
570.2
|
|
|
Letters of Credit Under Revolving Facility
|
|
32.3
|
|
|
Current Availability
|
|
$
|
597.5
|
|
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 Senior Credit Facility) plus an applicable margin that is determined based on our credit ratings or the Company’s Leverage. The agreement contains affirmative, negative and financial covenants, and events of default customary for facilities of this type. The obligations under the Senior Credit Facility are guaranteed by Wabtec and certain of Wabtec’s U.S. subsidiaries, as guarantors.
The company has agreed that, so long as any lender has any commitment under the Senior Credit Facility, any letter of credit is outstanding under the Senior Credit Facility, or any loan or other obligation is outstanding under the Senior Credit Facility, it will maintain the following as of the end of each fiscal quarter or the period of four quarters then ended:
|
|
|
|
|
|
|
|
|
|
|
Interest Coverage Ratio 1
|
|
3.0x
|
|
Leverage Ratio 2
|
|
3.25x
|
1. The interest coverage ratio is defined as EBITDA, as defined in the Senior Credit Facility, 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 Senior Credit Facility, for the four quarters then ended. The Leverage Ratio temporarily increases for four quarters following major acquisitions. Subsequent to the GE Transportation acquisition, the leverage ratio is temporarily increased to 3.5x for the first and second quarters of 2020.
The Company was in compliance with all of our covenants in the Senior Credit Facility as of March 31, 2020.
Senior Notes
The "Senior Notes" comprise our Floating Rate Senior Notes due 2021, 4.375% Senior Notes due 2023, 4.15% Senior Notes due 2024, 3.45% Senior Notes due 2026 and 4.70% Senior Notes due 2028. Interest on the floating rate Senior Notes is payable quarterly. Interest is payable semi-annually on all other Senior Notes. 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. Each of the Senior Notes (other than the floating rate notes) may be redeemed at a redemption price of 100% of the principal amount plus a specified make-whole premium and accrued interest. The Senior 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 indentures under which the 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. The covenants do not require the Company to maintain any financial ratios or specified levels of net worth or liquidity.
The Company is in compliance with the restrictions and covenants in the indentures under which the Senior Notes were issued and expects that these restrictions and covenants will not be any type of limiting factor in executing our operating activities.
Subsequent Events
On April 10, 2020 the Company entered into a new $600 million 364 day credit facility maturing April 2021 with a group of banks which includes a $144.0 million revolving credit facility and a $456.0 million term loan. The agreement calls for interest at either a LIBOR-based rate, or a rate based on the prime lending rate of the agent bank, at the Company’s option. The agreement contains affirmative, negative and financial covenants, and events of default customary for facilities of this type and substantially similar to our existing senior credit facility.
9. STOCK-BASED COMPENSATION
As of March 31, 2020, 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 provides a maximum of 3,800,000 shares for grants or awards, plus any shares which remain available 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”).
Stock-based compensation expense was $7.3 million and $8.5 million for the three months ended March 31, 2020 and 2019, respectively. At March 31, 2020, unamortized compensation expense related to stock options, non-vested restricted shares and incentive stock units expected to vest totaled $62.0 million.
Stock Options Stock options are granted to eligible employees at an exercise price equivalent to the stock's 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 granted prior to 2019 become exercisable over a four-year vesting period, while options granted in 2019 and after become exercisable over a three-year vesting period. Both vesting periods 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 the Directors Plan for the three months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual Life
|
|
Aggregate
Intrinsic value
(in millions)
|
|
Outstanding at December 31, 2019
|
588,024
|
|
|
$
|
63.36
|
|
|
5.7
|
|
$
|
8.5
|
|
|
Granted
|
131,556
|
|
|
78.33
|
|
|
|
|
|
|
|
Exercised
|
(11,440)
|
|
|
37.84
|
|
|
|
|
|
|
|
Canceled
|
(3,531)
|
|
|
72.64
|
|
|
|
|
|
|
|
Outstanding at March 31, 2020
|
704,609
|
|
|
66.52
|
|
|
6.3
|
|
1.8
|
|
|
Exercisable at March 31, 2020
|
448,375
|
|
|
53.22
|
|
|
5.2
|
|
1.8
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2020
|
|
2019
|
|
Dividend yield
|
0.60
|
%
|
|
0.66
|
%
|
|
Risk-free interest rate
|
1.56
|
%
|
|
2.63
|
%
|
|
Stock price volatility
|
27.9
|
%
|
|
25.8
|
%
|
|
Expected life (years)
|
5.0
|
|
5.0
|
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 U.S. Treasury bond rates for the expected life of the option.
Restricted Stock, Restricted Units and Incentive Stock Beginning in 2006, the Company adopted a restricted stock program. As provided for under the 2011 Plan and 2000 Plan, eligible employees are granted restricted stock that generally vests over three or four years from the date of grant. Under the Directors Plan, restricted stock awards 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, with underlying shares of common stock being awarded in an amount ranging from 0% to 200% of the amount of initial incentive stock units granted. The incentive stock units included in the table below represent the number of incentive stock units that are expected to vest based on the Company’s estimate for meeting those established performance targets. As of March 31, 2020, the Company estimates that it will achieve 111%, 108% and 100% for the incentive stock awards expected to vest based on performance for the three-year periods ending December 31, 2020, 2021, and 2022, respectively, and has recorded incentive compensation expense accordingly. If the estimate of the number of these incentive 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 average of the high and low Wabtec stock price 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 the Directors Plan, and incentive stock units activity for the 2011 Plan and the 2000 Plan with related information for the three months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock
and Units
|
|
Incentive
Stock
Units
|
|
Weighted
Average Grant
Date Fair
Value
|
|
Outstanding at December 31, 2019
|
791,031
|
|
|
572,002
|
|
|
$
|
73.64
|
|
|
Granted
|
189,734
|
|
|
238,277
|
|
|
78.34
|
|
|
Vested
|
(270,288)
|
|
|
(147,069)
|
|
|
76.89
|
|
|
Adjustment for incentive stock awards expected to vest
|
—
|
|
|
(6,744)
|
|
|
85.97
|
|
|
Canceled
|
(14,183)
|
|
|
(5,367)
|
|
|
69.45
|
|
|
Outstanding at March 31, 2020
|
696,294
|
|
|
651,099
|
|
|
74.12
|
|
10. INCOME TAXES
The overall effective tax rate was 25.5% and 127.7% for the three months ended March 31, 2020 and 2019, respectively. The decrease in the effective rate is primarily the result of non-deductible transaction related expenses incurred during the three months ended March 31, 2019 as a result of the GE Transportation acquisition that did not recur in 2020. Additionally, there was a decrease in the estimated liabilities resulting from provisions of the Tax Cuts and Jobs Act.
As of March 31, 2020, the liability for income taxes associated with uncertain tax positions was $17.0 million, of which $17.0 million, if recognized, would favorably affect the Company’s effective income tax rate. 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 tax rate.
The Company includes interest and penalties related to uncertain tax positions in income tax expense. As of March 31, 2020 and December 31, 2019, the total interest and penalties accrued was approximately $4.0 million.
At this time, the Company believes it is reasonably possible that unrecognized tax benefits of approximately $7.4 million may change within the next 12 months due to the expiration of statutory review periods and current examinations.
In response to the COVID-19 pandemic, legislation concerning taxes was passed during the three months ended March 31, 2020. While we are continuing to assess the impact of the legislation on our tax planning strategies, we do not expect there to be a material impact to our consolidated financial statements at this time.
11. EARNINGS PER SHARE
The computation of basic and diluted earnings per share for net income attributable to Wabtec shareholders is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
In millions, except per share data
|
2020
|
|
2019
|
|
Numerator
|
|
|
|
Numerator for basic and diluted earnings per common share - net income
attributable to Wabtec shareholders
|
$
|
111.6
|
|
|
$
|
(4.5)
|
|
Less: dividends declared - common shares
and non-vested restricted stock
|
(23.0)
|
|
|
(11.7)
|
|
|
Undistributed earnings
|
88.6
|
|
|
(16.2)
|
|
|
Percentage allocated to common shareholders (1)
|
99.7
|
%
|
|
99.7
|
%
|
|
|
88.3
|
|
|
(16.2)
|
|
|
Add: dividends declared - common shares
|
22.9
|
|
|
11.6
|
|
Numerator for diluted earnings per
common share
|
111.2
|
|
|
(4.6)
|
|
|
Denominator
|
|
|
|
|
|
|
Denominator for basic earnings per common
share - weighted average shares
|
190.8
|
|
|
121.2
|
|
|
Effect of dilutive securities:
|
|
|
|
Assumed conversion of dilutive stock-based
compensation plans
|
0.6
|
|
|
—
|
|
|
Denominator for diluted earnings per common share adjusted weighted average shares and assumed conversion
|
191.4
|
|
|
121.2
|
|
Net income attributable to Wabtec
shareholders per common share
|
|
|
|
|
|
|
Basic
|
$
|
0.58
|
|
|
$
|
(0.04)
|
|
|
Diluted
|
$
|
0.58
|
|
|
$
|
(0.04)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Basic weighted-average common shares outstanding
|
190.8
|
|
|
121.2
|
|
Basic weighted-average common shares outstanding and
non-vested restricted stock expected to vest
|
191.4
|
|
|
121.6
|
|
|
Percentage allocated to common shareholders
|
99.7
|
%
|
|
99.7
|
%
|
The Company’s non-vested restricted stock contains rights to receive nonforfeitable dividends, and thus are participating securities requiring the two-class method of computing earnings per share. The calculation of earnings per share for common stock shown above excludes the income attributable to the non-vested restricted stock from the numerator and excludes the dilutive impact of those shares from the denominator.
For the three months ended March 31, 2019, basic weighted average shares outstanding and diluted shares outstanding were the same because the effect of assumed conversion of preferred shares and assumed conversion of shares related to stock based compensation plans were anti-dilutive since the Company generated a net loss.
12. WARRANTIES
The following table reconciles the changes in the Company’s product warranty reserve as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
2020
|
|
2019
|
|
Balance at beginning of year
|
$
|
267.7
|
|
|
$
|
153.7
|
|
|
Acquisitions
|
4.3
|
|
|
89.9
|
|
|
Warranty expense
|
22.7
|
|
|
34.6
|
|
|
Warranty claim payments
|
(34.0)
|
|
|
(27.8)
|
|
|
Foreign currency impact/other
|
(3.3)
|
|
|
(1.1)
|
|
|
Balance at March 31
|
$
|
257.4
|
|
|
$
|
249.3
|
|
13. 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 three months ended March 31, 2020 and 2019, 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 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 loss related to these contracts was $1.6 million for the three months ended March 31, 2020. 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 March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
Gross Notional Amount
|
|
|
|
In millions
|
|
Designated
|
|
Non-Designated
|
|
Designated
|
|
Non-Designated
|
|
Foreign Exchange Contracts
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
$
|
6.4
|
|
|
|
$
|
4.4
|
|
|
|
$
|
2,145.2
|
|
|
$
|
292.4
|
|
|
Other current liabilities
|
|
(9.3)
|
|
|
|
—
|
|
|
|
1,200.9
|
|
|
—
|
|
|
Cross-currency Swaps
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
(4.1)
|
|
|
—
|
|
|
557.1
|
|
|
—
|
|
|
Total
|
|
$
|
(7.0)
|
|
|
$
|
4.4
|
|
|
$
|
3,903.2
|
|
|
$
|
292.4
|
|
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, 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 liabilities
|
|
(9.4)
|
|
|
—
|
|
|
560.8
|
|
|
—
|
|
|
Total
|
|
$
|
(8.0)
|
|
|
$
|
1.4
|
|
|
$
|
4,174.4
|
|
|
$
|
412.9
|
|
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 three months ended March 31, 2020 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 three months ended March 31, 2020 the amounts reclassified into income were not material.
14. 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 March 31, 2020 which are included in other current assets and liabilities on the Consolidated Balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2020 Using
|
|
|
|
|
|
|
|
Total Carrying
Value at
March 31,
|
|
Quoted Prices in
Active Markets for
Identical Assets
|
|
Significant Other
Observable Inputs
|
|
Significant
Unobservable
Inputs
|
|
In millions
|
|
2020
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Foreign Exchange Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
10.8
|
|
|
|
—
|
|
|
|
10.8
|
|
|
|
—
|
|
|
Other current liabilities
|
|
9.3
|
|
|
|
—
|
|
|
|
9.3
|
|
|
|
—
|
|
|
Cross-Currency Swap Agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Current Liabilities
|
|
4.1
|
|
|
|
—
|
|
|
|
4.1
|
|
|
|
—
|
|
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 March 31, 2020 and December 31, 2019. 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 Senior Notes are considered Level 2 based on the fair value valuation hierarchy. Contingent consideration related to the GE Transportation acquisition is considered Level 3 based on the fair value valuation hierarchy and includes $160.0 million classified as "Other accrued liabilities" on the Company's consolidated balance sheet and $294.7 million in long-term liabilities classified as "Contingent consideration" on the Company's consolidated balance sheet. The fair value approximates the carrying value at March 31, 2020.
15. COMMITMENTS AND CONTINGENCIES
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. Further information and detail on these claims are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, in Note 20 therein, filed on February 24, 2020. During the first three months of 2020, there were no material changes to the information described in the Form 10-K related to claims arising from asbestos exposure.
From time to time, the Company is involved in litigation related to claims arising out of the Company's operations in the ordinary course of business, including claims based on product liability, contracts, intellectual property, or other causes of action. Further information and detail on any potentially material litigation is as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, in Note 20 therein, filed on February 24, 2020. Except as described below, there have been no material changes to the information described in the Form 10-K related to claims arising from Company's ordinary operations.
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 is in the final stages of successfully implementing a recovery 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 the 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. 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. On February 24, 2020, the Company entered into a settlement agreement with plaintiffs agreeing to settle all claims in the case.
16. SEGMENT INFORMATION
Wabtec 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 2020 and through the retrospective revision of 2019 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, builds new commuter locomotives, 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. Since certain administrative and other operating expenses have not been allocated to business segments, the results in the following tables are not necessarily a measure computed in accordance with generally accepted accounting principles and may not be comparable to other companies.
Segment financial information for the three months ended March 31, 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Freight
Segment
|
|
Transit
Segment
|
|
Corporate
Activities and
Elimination
|
|
Total
|
|
Sales to external customers
|
$
|
1,301.0
|
|
|
$
|
628.9
|
|
|
$
|
—
|
|
|
$
|
1,929.9
|
|
|
Intersegment sales/(elimination)
|
12.5
|
|
|
9.1
|
|
|
(21.6)
|
|
|
—
|
|
|
Total sales
|
$
|
1,313.5
|
|
|
$
|
638.0
|
|
|
$
|
(21.6)
|
|
|
$
|
1,929.9
|
|
|
Income (loss) from operations
|
$
|
161.7
|
|
|
$
|
68.6
|
|
|
$
|
(13.0)
|
|
|
$
|
217.3
|
|
|
Interest expense and other, net
|
—
|
|
|
—
|
|
|
(68.1)
|
|
|
(68.1)
|
|
|
Income (loss) from operations before income taxes
|
$
|
161.7
|
|
|
$
|
68.6
|
|
|
$
|
(81.1)
|
|
|
$
|
149.2
|
|
Segment financial information for the three months ended March 31, 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Freight
Segment
|
|
Transit
Segment
|
|
Corporate
Activities and
Elimination
|
|
Total
|
|
Sales to external customers
|
$
|
915.5
|
|
|
$
|
678.1
|
|
|
$
|
—
|
|
|
$
|
1,593.6
|
|
|
Intersegment sales/(elimination)
|
15.7
|
|
|
4.1
|
|
|
(19.8)
|
|
|
—
|
|
|
Total sales
|
$
|
931.2
|
|
|
$
|
682.2
|
|
|
$
|
(19.8)
|
|
|
$
|
1,593.6
|
|
|
Income (loss) from operations
|
$
|
80.9
|
|
|
$
|
59.9
|
|
|
$
|
(73.5)
|
|
|
$
|
67.3
|
|
|
Interest expense and other, net
|
—
|
|
|
—
|
|
|
(52.8)
|
|
|
(52.8)
|
|
|
Income (loss) from operations before income taxes
|
$
|
80.9
|
|
|
$
|
59.9
|
|
|
$
|
(126.3)
|
|
|
$
|
14.5
|
|
Sales by product line are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
In millions
|
|
2020
|
|
2019
|
|
Freight Segment:
|
|
|
|
|
|
|
|
Equipment
|
|
$
|
408.0
|
|
|
|
$
|
267.1
|
|
|
Components
|
|
220.4
|
|
|
|
295.2
|
|
|
Digital Electronics
|
|
173.6
|
|
|
|
121.8
|
|
|
Services
|
|
499.0
|
|
|
|
231.4
|
|
|
Total Freight Segment sales
|
|
$
|
1,301.0
|
|
|
|
$
|
915.5
|
|
|
|
|
|
|
|
|
|
|
|
Transit Segment:
|
|
|
|
|
|
|
|
|
Original Equipment Manufacturer
|
|
287.0
|
|
|
|
327.3
|
|
|
Aftermarket
|
|
341.9
|
|
|
|
350.8
|
|
|
Total Transit Segment sales
|
|
$
|
628.9
|
|
|
|
$
|
678.1
|
|
17. GUARANTOR SUBSIDIARIES FINANCIAL INFORMATION
The obligations under the Company's Senior Notes and Senior Credit Facility have been fully and unconditionally guaranteed by certain of the Company's U.S. subsidiaries. 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 March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Elimination
|
|
Consolidated
|
|
Cash and cash equivalents
|
$
|
14.6
|
|
|
$
|
5.8
|
|
|
$
|
595.5
|
|
|
$
|
—
|
|
|
$
|
615.9
|
|
|
Receivables, net
|
130.3
|
|
|
316.5
|
|
|
1,225.2
|
|
|
—
|
|
|
1,672.0
|
|
|
Inventories
|
137.7
|
|
|
759.5
|
|
|
888.5
|
|
|
—
|
|
|
1,785.7
|
|
|
Current assets - other
|
0.3
|
|
|
29.4
|
|
|
137.8
|
|
|
—
|
|
|
167.5
|
|
|
Total current assets
|
282.9
|
|
|
1,111.2
|
|
|
2,847.0
|
|
|
—
|
|
|
4,241.1
|
|
|
Property, plant and equipment, net
|
78.8
|
|
|
68.0
|
|
|
1,476.2
|
|
|
—
|
|
|
1,623.0
|
|
|
Goodwill
|
527.4
|
|
|
284.2
|
|
|
7,462.1
|
|
|
—
|
|
|
8,273.7
|
|
|
Investment in subsidiaries
|
15,638.8
|
|
|
6,698.2
|
|
|
—
|
|
|
(22,337.0)
|
|
|
—
|
|
|
Other intangibles, net
|
36.5
|
|
|
760.2
|
|
|
3,213.3
|
|
|
—
|
|
|
4,010.0
|
|
|
Other long-term assets
|
103.6
|
|
|
115.9
|
|
|
405.8
|
|
|
—
|
|
|
625.3
|
|
|
Total assets
|
$
|
16,668.0
|
|
|
$
|
9,037.7
|
|
|
$
|
15,404.4
|
|
|
$
|
(22,337.0)
|
|
|
$
|
18,773.1
|
|
|
Current liabilities
|
$
|
503.0
|
|
|
$
|
1,042.2
|
|
|
$
|
1,436.4
|
|
|
$
|
—
|
|
|
$
|
2,981.6
|
|
|
Inter-company
|
1,382.0
|
|
|
(2,763.0)
|
|
|
1,381.0
|
|
|
—
|
|
|
—
|
|
|
Long-term debt
|
4,643.4
|
|
|
—
|
|
|
11.7
|
|
|
—
|
|
|
4,655.1
|
|
|
Long-term liabilities - other
|
378.0
|
|
|
128.4
|
|
|
832.3
|
|
|
—
|
|
|
1,338.7
|
|
|
Total liabilities
|
6,906.4
|
|
|
(1,592.4)
|
|
|
3,661.4
|
|
|
—
|
|
|
8,975.4
|
|
|
Shareholders' equity
|
9,746.6
|
|
|
10,630.1
|
|
|
11,722.1
|
|
|
(22,337.0)
|
|
|
9,761.8
|
|
|
Non-controlling interest
|
15.0
|
|
|
—
|
|
|
20.9
|
|
|
—
|
|
|
35.9
|
|
|
Total shareholders' equity
|
$
|
9,761.6
|
|
|
$
|
10,630.1
|
|
|
$
|
11,743.0
|
|
|
$
|
(22,337.0)
|
|
|
$
|
9,797.7
|
|
|
Total Liabilities and Shareholders' Equity
|
$
|
16,668.0
|
|
|
$
|
9,037.7
|
|
|
$
|
15,404.4
|
|
|
$
|
(22,337.0)
|
|
|
$
|
18,773.1
|
|
Balance Sheet for December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Elimination
|
|
Consolidated
|
|
Cash and cash equivalents
|
$
|
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, net
|
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
|
|
Income Statement for the Three Months Ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Elimination
|
|
Consolidated
|
|
Net sales
|
$
|
168.4
|
|
|
$
|
903.0
|
|
|
$
|
1,365.0
|
|
|
$
|
(506.5)
|
|
|
$
|
1,929.9
|
|
|
Cost of sales
|
(128.6)
|
|
|
(748.1)
|
|
|
(879.1)
|
|
|
404.6
|
|
|
(1,351.2)
|
|
|
Gross profit
|
39.8
|
|
|
154.9
|
|
|
485.9
|
|
|
(101.9)
|
|
|
578.7
|
|
|
Total operating expenses
|
(53.4)
|
|
|
(63.8)
|
|
|
(244.2)
|
|
|
—
|
|
|
(361.4)
|
|
|
Income from operations
|
(13.6)
|
|
|
91.1
|
|
|
241.7
|
|
|
(101.9)
|
|
|
217.3
|
|
|
Interest (expense) income, net
|
(51.1)
|
|
|
2.4
|
|
|
(4.6)
|
|
|
—
|
|
|
(53.3)
|
|
|
Other income (expense), net
|
(32.8)
|
|
|
49.8
|
|
|
(31.8)
|
|
|
—
|
|
|
(14.8)
|
|
|
Equity earnings (loss)
|
220.7
|
|
|
114.1
|
|
|
—
|
|
|
(334.8)
|
|
|
—
|
|
|
Pretax income (loss)
|
123.2
|
|
|
257.4
|
|
|
205.3
|
|
|
(436.7)
|
|
|
149.2
|
|
|
Income tax (expense) benefit
|
(11.7)
|
|
|
22.1
|
|
|
(48.4)
|
|
|
—
|
|
|
(38.0)
|
|
|
Net income (loss)
|
111.5
|
|
|
279.5
|
|
|
156.9
|
|
|
(436.7)
|
|
|
111.2
|
|
|
Less: Net loss attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
0.4
|
|
|
—
|
|
|
0.4
|
|
|
Net income (loss) attributable to Wabtec shareholders
|
$
|
111.5
|
|
|
$
|
279.5
|
|
|
$
|
157.3
|
|
|
$
|
(436.7)
|
|
|
$
|
111.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Wabtec shareholders
|
$
|
111.5
|
|
|
$
|
279.5
|
|
|
$
|
(20.7)
|
|
|
$
|
(436.7)
|
|
|
$
|
(66.4)
|
|
Income Statement for the Three Months Ended March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Elimination
|
|
Consolidated
|
|
Net sales
|
$
|
193.1
|
|
|
$
|
128.8
|
|
|
$
|
1,327.2
|
|
|
$
|
(55.5)
|
|
|
$
|
1,593.6
|
|
|
Cost of sales
|
(157.7)
|
|
|
(82.0)
|
|
|
(998.0)
|
|
|
33.1
|
|
|
(1,204.6)
|
|
|
Gross profit
|
35.4
|
|
|
46.8
|
|
|
329.2
|
|
|
(22.4)
|
|
|
389.0
|
|
|
Total operating expenses
|
(97.5)
|
|
|
(15.3)
|
|
|
(208.9)
|
|
|
—
|
|
|
(321.7)
|
|
|
Income from operations
|
(62.1)
|
|
|
31.5
|
|
|
120.3
|
|
|
(22.4)
|
|
|
67.3
|
|
|
Interest (expense) income, net
|
(41.6)
|
|
|
3.5
|
|
|
(6.5)
|
|
|
—
|
|
|
(44.6)
|
|
|
Other income (expense), net
|
20.3
|
|
|
(2.5)
|
|
|
(26.0)
|
|
|
—
|
|
|
(8.2)
|
|
|
Equity earnings (loss)
|
91.5
|
|
|
79.8
|
|
|
—
|
|
|
(171.3)
|
|
|
—
|
|
|
Pretax income (loss)
|
8.1
|
|
|
112.3
|
|
|
87.8
|
|
|
(193.7)
|
|
|
14.5
|
|
|
Income tax expense
|
(12.5)
|
|
|
—
|
|
|
(6.0)
|
|
|
—
|
|
|
(18.5)
|
|
|
Net income
|
(4.4)
|
|
|
112.3
|
|
|
81.8
|
|
|
(193.7)
|
|
|
(4.0)
|
|
|
Less: Net gain attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
(0.5)
|
|
|
—
|
|
|
(0.5)
|
|
|
Net (loss) income attributable to Wabtec shareholders
|
$
|
(4.4)
|
|
|
$
|
112.3
|
|
|
$
|
81.3
|
|
|
$
|
(193.7)
|
|
|
$
|
(4.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Wabtec shareholders
|
$
|
(4.4)
|
|
|
$
|
112.3
|
|
|
$
|
28.9
|
|
|
$
|
(193.7)
|
|
|
$
|
(56.9)
|
|
Condensed Statement of Cash Flows for the Three Months Ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Elimination
|
|
Consolidated
|
|
Net cash (used for) provided by operating activities
|
$
|
(176.8)
|
|
|
$
|
23.7
|
|
|
$
|
173.1
|
|
|
$
|
(101.9)
|
|
|
$
|
(81.9)
|
|
|
Net cash (used for) provided by investing activities
|
(8.9)
|
|
|
(6.2)
|
|
|
(47.5)
|
|
|
—
|
|
|
(62.6)
|
|
|
Net cash provided by (used for) financing activities
|
176.3
|
|
|
(26.4)
|
|
|
(68.3)
|
|
|
101.9
|
|
|
183.5
|
|
|
Effect of changes in currency exchange rates
|
—
|
|
|
—
|
|
|
(27.3)
|
|
|
—
|
|
|
(27.3)
|
|
|
(Decrease) increase in cash
|
(9.4)
|
|
|
(8.9)
|
|
|
30.0
|
|
|
—
|
|
|
11.7
|
|
|
Cash, cash equivalents, and restricted cash, beginning of period
|
24.0
|
|
|
14.7
|
|
|
565.5
|
|
|
—
|
|
|
604.2
|
|
|
Cash and cash equivalents, end of period
|
$
|
14.6
|
|
|
$
|
5.8
|
|
|
$
|
595.5
|
|
|
$
|
—
|
|
|
$
|
615.9
|
|
Condensed Statement of Cash Flows for the Three Months Ended March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Elimination
|
|
Consolidated
|
|
Net cash (used for) provided by operating activities
|
$
|
(118.4)
|
|
|
$
|
24.1
|
|
|
$
|
148.0
|
|
|
$
|
(22.4)
|
|
|
$
|
31.3
|
|
|
Net cash provided by (used for) investing activities
|
6,898.0
|
|
|
(1.6)
|
|
|
(9,636.0)
|
|
|
—
|
|
|
(2,739.6)
|
|
|
Net cash (used for) provided by financing activities
|
(8,557.0)
|
|
|
(22.5)
|
|
|
9,440.1
|
|
|
22.4
|
|
|
883.0
|
|
|
Effect of changes in currency exchange rates
|
—
|
|
|
—
|
|
|
(4.2)
|
|
|
—
|
|
|
(4.2)
|
|
|
(Decrease) increase in cash
|
(1,777.4)
|
|
|
—
|
|
|
(52.1)
|
|
|
—
|
|
|
(1,829.5)
|
|
|
Cash, cash equivalents, and restricted cash, beginning of period
|
1,782.7
|
|
|
—
|
|
|
559.7
|
|
|
—
|
|
|
2,342.4
|
|
|
Cash and cash equivalents, end of period
|
$
|
5.3
|
|
|
$
|
—
|
|
|
$
|
507.6
|
|
|
$
|
—
|
|
|
$
|
512.9
|
|
18. OTHER EXPENSE, NET
The components of other expense, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
In millions
|
|
2020
|
|
2019
|
|
Foreign currency loss
|
|
$
|
(13.8)
|
|
|
$
|
(12.6)
|
|
|
Equity (expense) income
|
|
(0.9)
|
|
|
0.9
|
|
|
Expected return on pension assets/amortization
|
|
2.4
|
|
|
3.4
|
|
|
Other miscellaneous (expense) income
|
|
(2.5)
|
|
|
0.1
|
|
|
Total other expense, net
|
|
$
|
(14.8)
|
|
|
$
|
(8.2)
|
|