033-90866
|
25-1615902
|
|
(Commission File No.)
|
(I.R.S. Employer Identification No.)
|
|
1001 Air Brake Avenue
Wilmerding, Pennsylvania
|
15148
|
|
(Address of Principal Executive Offices)
|
(Zip Code)
|
☒ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
|
☐ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
|
☐ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
|
☐ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
|
Item 7.01. |
Regulation FD Disclosure.
|
Item 8.01. |
Other Events
|
· |
the approval by Wabtec’s stockholders of the issuance of shares of Wabtec’s common stock in the Transactions;
|
· |
the approval by Wabtec’s stockholders of an amendment to Wabtec’s Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 200 million to 500 million;
|
· |
the termination or expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended;
|
· |
the taking, making or obtaining of all material actions by, consents or approvals of, or in respect of or filings with any governmental authority required to permit the Transactions;
|
· |
the effectiveness under the Securities Act of (i) SpinCo’s registration statement on such Form(s) as shall be required under applicable U.S. Securities and Exchange Commission (“SEC”) rules in connection with the distribution of SpinCo shares by GE and (ii) Wabtec’s registration statement on Form S-4 in connection with the Transactions, and , in each case, the absence of any stop order issued by the SEC or any pending proceeding before the SEC seeking a stop order with respect thereto;
|
· |
the receipt by Wabtec and GE of certain tax opinions;
|
· |
the receipt by GE of the purchase price payable under the Separation Agreement;
|
· |
the completion of the various transaction steps contemplated by the definitive agreements with respect to the Transactions; and
|
· |
other customary conditions.
|
· |
Combined Statement of Earnings for the Years Ended December 31, 2017, 2016 and 2015;
|
· |
Combined Statement of Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015;
|
· |
Combined Statement of Changes in Equity for the Years Ended December 31, 2017, 2016 and 2015;
|
· |
Combined Statement of Financial Position as of December 31, 2017 and 2016; and
|
· |
Combined Statement of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015.
|
· |
Condensed Combined Statement of Earnings (Unaudited) for the Six Months Ended June 30, 2018 and 2017;
|
· |
Condensed Combined Statement of Comprehensive Income (Unaudited) for the Six Months Ended June 30, 2018 and 2017;
|
· |
Condensed Combined Statement of Changes in Equity (Unaudited) for the Six Months Ended June 30, 2018 and 2017;
|
· |
Condensed Combined Statement of Financial Position (Unaudited) as of June 30, 2018 and December 31, 2017; and
|
· |
Condensed Combined Statement of Cash Flows (Unaudited) for the Six Months Ended June 30, 2018 and 2017.
|
· |
Pro Forma Condensed Combined Statement of Income (Unaudited) for the Twelve Months Ended December 31, 2017;
|
· |
Pro Forma Condensed Combined Statement of Income (Unaudited) for the Six Months Ended June 30, 2018;
|
· |
Pro Forma Condensed Combined Balance Sheet (Unaudited) as of June 30, 2018.
|
Item 9.01. |
Financial Statements and Exhibits.
|
(d) |
Exhibits.
|
Exhibit
No.
|
Description
|
|
Statement Regarding Computation of Ratios of Earnings to Fixed Charges
|
||
Awareness Letter of KPMG LLP
|
||
Consent of KPMG LLP
|
||
Consent of Ernst & Young LLP
|
||
Consent of PricewaterhouseCoopers Audit
|
||
Audited combined financial statements of GE Transportation as of December 31, 2017 and 2016, and for the three years ended December 31, 2017, including the report of the independent registered public accounting firm thereon, and the notes thereto
|
||
Unaudited condensed combined financial statements of GE Transportation as of June 30, 2018 and for the six months ended June 30, 2018 and 2017, including the review report of the independent registered public accounting firm thereon, and the notes thereto
|
||
Unaudited pro forma condensed combined financial information
|
||
Audited consolidated financial statements of Wabtec as of December 31, 2017 and 2016, and for the three years ended December 31, 2017, including the reports of the independent registered public accounting firms thereon, and the notes thereto
|
||
Updated Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, from Westinghouse Air Brake Technologies Corporation’s Annual Report on Form 10-K for the year ended December 31, 2017
|
||
Updated Part II, Item 6. Selected Financial Data, from Westinghouse Air Brake Technologies Corporation’s Annual Report on Form 10-K for the year ended December 31, 2017
|
||
Information related to GE Transportation’s business and operations, including Management’s Discussion and Analysis of Financial Condition and Results of Operations for GE Transportation
|
||
Information related to certain risks related to the Transactions and risks related to Wabtec, including GE Transportation, after the Transactions
|
||
99.9 | Investor Presentation | |
101
|
The financial statements of Wabtec, and notes thereto, included in this Current Report on Form 8-K formatted in eXtensible Business Reporting Language (XBRL)
|
WESTINGHOUSE AIR BRAKE
TECHNOLOGIES CORPORATION
|
||
By:
|
/s/ Patrick D. Dugan
|
|
Patrick D. Dugan
|
||
Executive Vice President and Chief Financial Officer
|
|
Year Ended December 31,
|
Six Months
Ended June 30, |
||||||||||||||||||||||
|
2013
|
2014
|
2015
|
2016
|
2017
|
2018
|
||||||||||||||||||
Fixed Charges:
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||
Interest expense
|
$
|
25,247
|
$
|
29,074
|
$
|
27,254
|
$
|
50,298
|
$
|
77,884
|
$
|
52,204
|
||||||||||||
|
||||||||||||||||||||||||
Plus: estimated interest component of rent expense
|
5,372
|
5,891
|
5,921
|
8,272
|
10,335
|
4,778
|
||||||||||||||||||
|
||||||||||||||||||||||||
Capitalized interest
|
4,950
|
4,234
|
3,441
|
8,066
|
6,229
|
6,771
|
||||||||||||||||||
|
||||||||||||||||||||||||
Total Fixed Charges:
|
$
|
35,570
|
$
|
39,199
|
$
|
36,616
|
$
|
66,636
|
$
|
94,448
|
$
|
63,753
|
||||||||||||
|
||||||||||||||||||||||||
Earnings:
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||
Income from continuing operations before income taxes
|
$
|
421,087
|
$
|
507,855
|
$
|
585,368
|
$
|
412,837
|
$
|
352,063
|
$
|
207,355
|
||||||||||||
|
||||||||||||||||||||||||
Plus: Fixed charges
|
35,570
|
39,199
|
36,616
|
66,636
|
94,448
|
63,753
|
||||||||||||||||||
|
||||||||||||||||||||||||
Less: capitalized interest
|
4,950
|
4,234
|
3,441
|
8,066
|
6,229
|
6,771
|
||||||||||||||||||
|
||||||||||||||||||||||||
Total Earnings:
|
$
|
451,706
|
$
|
542,820
|
$
|
618,542
|
$
|
471,407
|
$
|
440,282
|
$
|
264,337
|
||||||||||||
|
||||||||||||||||||||||||
Ratio of earnings to fixed charges
|
12.70
|
13.85
|
16.89
|
7.07
|
4.66
|
4.15
|
|
|
|
KPMG LLP
Aon Center
Suite 5500
200 E. Randolph Street
Chicago, IL 60601-6436
|
Re:
|
Registration Statement (No. 333-219657) on Form S-3 and Registration Statements (Nos. 333-53753, 333-39159, 333-02979, 333-115014, 333-137985, 333-41840, 333-40468, 333-35744, 333-89086, 333-179857, 333-219662, and 333-219663) on Form S-8
|
|
|
|
KPMG LLP
Aon Center
Suite 5500
200 E. Randolph Street
Chicago, IL 60601-6436
|
(1) |
Registration Statement (Form S-8 No. 333-53753) pertaining to the 1998 Employee Stock Purchase Plan of Westinghouse Air Brake Technologies Corporation,
|
(2) |
Registration Statement (Form S-8 No. 333-39159) pertaining to the 1997 Executive Retirement Plan of Westinghouse Air Brake Technologies Corporation,
|
(3) |
Registration Statement (Form S-8 No. 333-02979) pertaining to the 1995 Non-Employee Directors’ Fee and Stock Option Plan of Westinghouse Air Brake Technologies Corporation,
|
(4) |
Registration Statement (Form S-8 No. 333-115014) pertaining to the 2004 Bonus Plan Agreements of Westinghouse Air Brake Technologies Corporation,
|
(5) |
Registration Statement (Form S-8 No. 333-137985) pertaining to the 2000 Stock Incentive Plan of Westinghouse Air Brake Technologies Corporation,
|
(6) |
Registration Statement (Form S-8 No. 333-41840) pertaining to the 2000 Stock Inventive Plan of Westinghouse Air Brake Technologies Corporation,
|
(7) |
Registration Statement (Form S-8 No. 333-40468) pertaining to the 1995 Non-Employee Directors’ Fee and Stock Option Plan of Westinghouse Air Brake Technologies Corporation,
|
(8) |
Registration Statement (Form S-8 No. 333-35744) pertaining to the 2000 Savings Plan of Westinghouse Air Brake Technologies Corporation,
|
(9) |
Registration Statement (Form S-8 No. 333-89086) pertaining to the 2002 Employee Stock Ownership Plan of Westinghouse Air Brake Technologies Corporation,
|
(10) |
Registration Statement (Form S-8 No. 333-179857) pertaining to the 2011 Stock Incentive Plan of Westinghouse Air Brake Technologies Corporation,
|
(11) |
Registration Statement (Form S-3 No. 333-219657) of Westinghouse Air Brake Technologies Corporation,
|
(12) |
Registration Statement (Form S-8 No. 333-219662) pertaining to the 1995 Non-Employee Directors’ Fee and Stock Option Plan of Westinghouse Air Brake Technologies Corporation, and
|
(13) |
Registration Statement (Form S-8 No. 333-219663) pertaining to the 2011 Stock Incentive Plan of Westinghouse Air Brake Technologies Corporation;
|
Contents
|
Pages
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
1
|
COMBINED STATEMENT OF EARNINGS FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
|
2
|
COMBINED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
|
3
|
COMBINED STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
|
4
|
COMBINED STATEMENT OF FINANCIAL POSITION DECEMBER 31, 2017, 2016 AND 2015
|
5
|
COMBINED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015
|
6
|
NOTES TO COMBINED FINANCIAL STATEMENTS
|
7-36
|
For the years ended December 31 (In thousands)
|
2017
|
2016
|
2015
|
|||||||||
Revenues
|
||||||||||||
Sales of goods
|
$
|
2,546,637
|
$
|
3,046,546
|
$
|
3,998,100
|
||||||
Sales of services
|
1,383,671
|
1,560,045
|
1,423,379
|
|||||||||
Total revenues (Note 3)
|
3,930,308
|
4,606,591
|
5,421,479
|
|||||||||
|
||||||||||||
Costs of revenues
|
||||||||||||
Cost of goods sold
|
2,129,684
|
2,525,838
|
3,163,798
|
|||||||||
Cost of services sold
|
877,390
|
909,116
|
931,745
|
|||||||||
Gross profit
|
923,234
|
1,171,637
|
1,325,936
|
|||||||||
|
||||||||||||
Selling, general and administrative expenses
|
449,651
|
432,229
|
414,488
|
|||||||||
Impairment of goodwill
|
—
|
2,027
|
85,421
|
|||||||||
Non-operating benefit costs
|
16,877
|
18,455
|
16,249
|
|||||||||
Other (expense) income
|
(24,307
|
)
|
(11,409
|
)
|
27,121
|
|||||||
Earnings before income taxes
|
432,399
|
707,517
|
836,899
|
|||||||||
|
||||||||||||
Provision for income taxes (Note 13)
|
(44,303
|
)
|
(167,428
|
)
|
(349,275
|
)
|
||||||
Net earnings
|
388,096
|
540,089
|
487,624
|
|||||||||
|
||||||||||||
Less net earnings attributable to noncontrolling interests
|
14,311
|
6,144
|
7,547
|
|||||||||
Net earnings attributable to Parent
|
$
|
373,785
|
$
|
533,945
|
$
|
480,077
|
For the years ended December 31 (In thousands)
|
2017
|
2016
|
2015
|
|||||||||
Net earnings
|
$
|
388,096
|
$
|
540,089
|
$
|
487,624
|
||||||
Less net earnings attributable to noncontrolling interests
|
14,311
|
6,144
|
7,547
|
|||||||||
Net earnings attributable to Parent
|
373,785
|
533,945
|
480,077
|
|||||||||
|
||||||||||||
Other comprehensive income (loss)
|
||||||||||||
Foreign currency translation adjustments
|
15,568
|
22,970
|
(42,755
|
)
|
||||||||
Benefit plans, net of taxes
|
459
|
(1,092
|
)
|
120
|
||||||||
Other comprehensive income (loss), net of taxes
|
16,027
|
21,878
|
(42,635
|
)
|
||||||||
Less other comprehensive income (loss) attributable to noncontrolling interests
|
703
|
(6,101
|
)
|
3,194
|
||||||||
Other comprehensive income (loss) attributable to Parent
|
15,324
|
27,979
|
(45,829
|
)
|
||||||||
|
||||||||||||
Comprehensive income (loss)
|
404,123
|
561,967
|
444,989
|
|||||||||
Less comprehensive income (loss) attributable to noncontrolling interests
|
15,014
|
43
|
10,741
|
|||||||||
Comprehensive income attributable to Parent
|
$
|
389,109
|
$
|
561,924
|
$
|
434,248
|
(In thousands)
|
Net Parent
Investment |
Accumulated
Other Comprehensive Income / (Loss) |
Equity
Attributable to Noncontrolling Interests |
Total
Equity |
||||||||||||
Balances as of January 1, 2015
|
$
|
1,659,426
|
$
|
(53,066
|
)
|
$
|
11,831
|
$
|
1,618,191
|
|||||||
|
||||||||||||||||
Net earnings
|
480,077
|
—
|
7,547
|
487,624
|
||||||||||||
Foreign currency translation adjustments
|
—
|
(45,959
|
)
|
3,204
|
(42,755
|
)
|
||||||||||
Benefit plans, net of taxes
|
—
|
130
|
(10
|
)
|
120
|
|||||||||||
Transfers (to) Parent
|
(635,458
|
)
|
—
|
—
|
(635,458
|
)
|
||||||||||
Changes in equity attributable to noncontrolling interests
|
—
|
—
|
(662
|
)
|
(662
|
)
|
||||||||||
Total equity balance as of December 31, 2015
|
1,504,045
|
(98,895
|
)
|
21,910
|
1,427,060
|
|||||||||||
|
||||||||||||||||
Net earnings
|
533,945
|
—
|
6,144
|
540,089
|
||||||||||||
Foreign currency translation adjustments
|
—
|
28,992
|
(6,022
|
)
|
22,970
|
|||||||||||
Benefit plans, net of taxes
|
—
|
(1,013
|
)
|
(79
|
)
|
(1,092
|
)
|
|||||||||
Transfers (to) Parent
|
(612,311
|
)
|
—
|
—
|
(612,311
|
)
|
||||||||||
Changes in equity attributable to noncontrolling interests
|
—
|
—
|
6,248
|
6,248
|
||||||||||||
Total equity balance as of December 31, 2016
|
1,425,679
|
(70,916
|
)
|
28,201
|
1,382,964
|
|||||||||||
|
||||||||||||||||
Net earnings
|
373,785
|
—
|
14,311
|
388,096
|
||||||||||||
Foreign currency translation adjustments
|
—
|
14,849
|
719
|
15,568
|
||||||||||||
Benefit plans, net of taxes
|
—
|
475
|
(16
|
)
|
459
|
|||||||||||
Transfers (to) Parent
|
(112,313
|
)
|
—
|
—
|
(112,313
|
)
|
||||||||||
Changes in equity attributable to noncontrolling interests
|
—
|
—
|
(1,551
|
)
|
(1,551
|
)
|
||||||||||
Total equity balance as of December 31, 2017
|
$
|
1,687,151
|
$
|
(55,592
|
)
|
$
|
41,664
|
$
|
1,673,223
|
As of December 31 (In thousands)
|
2017
|
2016
|
||||||
Assets
|
||||||||
Cash and equivalents
|
$
|
105,338
|
$
|
151,151
|
||||
Current receivables, net (Note 5)
|
172,386
|
162,536
|
||||||
Inventories (Note 6)
|
560,443
|
740,958
|
||||||
Contract and other deferred assets (Note 3)
|
535,442
|
465,532
|
||||||
Prepaid expenses and other current assets (Note 9)
|
226,280
|
185,415
|
||||||
Total current assets
|
1,599,889
|
1,705,592
|
||||||
|
||||||||
Property, plant and equipment, net (Note 7)
|
943,168
|
934,515
|
||||||
Goodwill and intangible assets (Note 8)
|
537,526
|
547,420
|
||||||
Long-term contract and other deferred assets (Note 3)
|
321,392
|
357,231
|
||||||
Deferred income taxes (Note 13)
|
64,839
|
61,165
|
||||||
Other assets (Note 10)
|
77,759
|
20,995
|
||||||
Total assets
|
$
|
3,544,573
|
$
|
3,626,918
|
||||
|
||||||||
Liabilities and equity
|
||||||||
Short-term borrowings (Note 11)
|
$
|
45
|
$
|
21,740
|
||||
Accounts payable
|
604,328
|
682,540
|
||||||
Progress collections and deferred income (Note 3)
|
592,427
|
689,946
|
||||||
Other current liabilities (Note 14)
|
282,723
|
241,301
|
||||||
Total current liabilities
|
1,479,523
|
1,635,527
|
||||||
|
||||||||
Long-term borrowings (Note 11)
|
44,257
|
92,772
|
||||||
Long-term progress collections and other deferred income (Note 3)
|
23,797
|
9,798
|
||||||
Deferred income taxes (Note 13)
|
231,582
|
363,368
|
||||||
Other liabilities (Note 14)
|
92,191
|
142,489
|
||||||
Total liabilities
|
1,871,350
|
2,243,954
|
||||||
|
||||||||
Net parent investment
|
1,687,151
|
1,425,679
|
||||||
Accumulated other comprehensive loss
|
(55,592
|
)
|
(70,916
|
)
|
||||
Total equity attributable to Parent
|
1,631,559
|
1,354,763
|
||||||
|
||||||||
Equity attributable to noncontrolling interests
|
41,664
|
28,201
|
||||||
Total equity
|
1,673,223
|
1,382,964
|
||||||
Total liabilities and equity
|
$
|
3,544,573
|
$
|
3,626,918
|
For the years ended December 31 (In thousands)
|
2017
|
2016
|
2015
|
|||||||||
Cash flows - operating activities
|
||||||||||||
Net earnings
|
$
|
388,096
|
$
|
540,089
|
$
|
487,624
|
||||||
Less net earnings attributable to noncontrolling interests
|
14,311
|
6,144
|
7,547
|
|||||||||
Net earnings attributable to the Parent
|
373,785
|
533,945
|
480,077
|
|||||||||
|
||||||||||||
Adjustments to reconcile net earnings attributable to the Parent to cash provided by operating activities:
|
||||||||||||
Depreciation and amortization expenses
|
184,012
|
219,628
|
208,899
|
|||||||||
Unrealized (gains) losses from derivative instruments
|
2,535
|
(362
|
)
|
(28,582
|
)
|
|||||||
Impairment of goodwill
|
—
|
2,027
|
85,421
|
|||||||||
Share-based compensation expense
|
7,375
|
10,587
|
13,825
|
|||||||||
Deferred income taxes
|
(135,461
|
)
|
14,691
|
20,384
|
||||||||
Losses (gains) from sale of property, plant and equipment
|
100
|
(14,157
|
)
|
(5,565
|
)
|
|||||||
Changes in operating assets and liabilities:
|
||||||||||||
(Increase) decrease in current receivables
|
(10,148
|
)
|
14,407
|
158,353
|
||||||||
Decrease (increase) in inventories
|
189,659
|
155,356
|
(63,313
|
)
|
||||||||
(Increase) decrease in contract and other deferred assets
|
(56,228
|
)
|
(85,394
|
)
|
26,514
|
|||||||
(Decrease) in prepaid expenses and other assets
|
(46,401
|
)
|
(107,254
|
)
|
(15,361
|
)
|
||||||
(Decrease) increase in accounts payable
|
(82,736
|
)
|
(70,253
|
)
|
39,640
|
|||||||
(Decrease) increase in progress collections and other deferred income
|
(83,519
|
)
|
147,997
|
(25,549
|
)
|
|||||||
(Increase) decrease in other liabilities
|
(19,510
|
)
|
35,345
|
(16,410
|
)
|
|||||||
All other operating activities
|
(1,459
|
)
|
(2,851
|
)
|
(3,099
|
)
|
||||||
Cash provided by operating activities
|
322,004
|
853,712
|
875,234
|
|||||||||
|
||||||||||||
Cash flows - investing activities
|
||||||||||||
Additions to property, plant and equipment
|
(116,811
|
)
|
(116,389
|
)
|
(188,970
|
)
|
||||||
Dispositions of property, plant and equipment
|
25,550
|
63,430
|
15,587
|
|||||||||
Additions to internal-use software
|
(61,581
|
)
|
(66,372
|
)
|
(52,089
|
)
|
||||||
Payments for principal businesses purchased
|
—
|
(63,439
|
)
|
—
|
||||||||
Investment in associated companies
|
(50,116
|
)
|
(444
|
)
|
—
|
|||||||
All other investing activities
|
2,002
|
15,000
|
(403
|
)
|
||||||||
Cash (used for) investing activities
|
(200,956
|
)
|
(168,214
|
)
|
(225,875
|
)
|
||||||
|
||||||||||||
Cash flows - financing activities
|
||||||||||||
Newly issued debt (maturities longer than 90 days)
|
44,256
|
—
|
33,945
|
|||||||||
Repayments and other reductions (maturities longer than 90 days)
|
(114,466
|
)
|
(13,961
|
)
|
(16,651
|
)
|
||||||
Transfers (to) Parent
|
(112,313
|
)
|
(612,311
|
)
|
(635,458
|
)
|
||||||
All other financing activities
|
11,461
|
686
|
(4,606
|
)
|
||||||||
Cash (used for) financing activities
|
(171,062
|
)
|
(625,586
|
)
|
(622,770
|
)
|
||||||
|
||||||||||||
Effect of currency exchange rate changes on cash and equivalents
|
4,201
|
4,133
|
(7,784
|
)
|
||||||||
(Decrease) increase in cash and equivalents
|
(45,813
|
)
|
64,045
|
18,805
|
||||||||
|
||||||||||||
Cash and equivalents at beginning of year
|
151,151
|
87,106
|
68,301
|
|||||||||
Cash and equivalents at end of year
|
$
|
105,338
|
$
|
151,151
|
$
|
87,106
|
||||||
|
||||||||||||
Supplemental disclosure of cash flow information
|
||||||||||||
Cash paid during the year for interest on borrowings
|
$
|
(4,484
|
)
|
$
|
(7,611
|
)
|
$
|
(6,321
|
)
|
|||
Cash paid during the year for income taxes
|
$
|
(200,482
|
)
|
$
|
(313,672
|
)
|
$
|
(296,776
|
)
|
NOTE 1
|
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
|
NOTE 2
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
(A)
|
ESTIMATES AND ASSUMPTIONS
|
(B) |
FOREIGN CURRENCY
|
(C)
|
EQUITY-ACCOUNTED INVESTMENTS
|
(D)
|
ACQUISITIONS
|
(E)
|
CASH AND EQUIVALENTS
|
(F)
|
CURRENT RECEIVABLES, NET
|
(G)
|
CONCENTRATION OF CREDIT RISK
|
(H)
|
CURRENT RECEIVABLES FACTORING PROGRAM
|
(I)
|
INVENTORIES
|
(J)
|
RESTRUCTURING COSTS
|
(K)
|
SEGMENT REPORTING
|
(L)
|
PROPERTY, PLANT AND EQUIPMENT
|
(M)
|
GOODWILL
|
(N)
|
INTANGIBLE ASSETS, NET
|
(O)
|
TRADE PAYABLES ACCELERATED PAYMENT PROGRAM
|
(P)
|
RESEARCH AND DEVELOPMENT COSTS (“R&D”)
|
(Q)
|
PENSION AND POSTRETIREMENT BENEFITS
|
(R)
|
FAIR VALUE MEASUREMENTS
|
Level 1 - |
Quoted prices for identical instruments in active markets.
|
|
Level 2 - |
Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
|
|
Level 3 - |
Significant inputs to the valuation model are unobservable.
|
(S)
|
RECURRING FAIR VALUE MEASUREMENTS
|
(T)
|
NON-RECURRING FAIR VALUE MEASUREMENTS
|
(U)
|
INCOME TAXES
|
(V)
|
COMMITMENTS AND CONTINGENCIES
|
(W)
|
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
|
(X)
|
RECENT ACCOUNTING PRONOUNCEMENTS REFLECTED IN THESE COMBINED FINANCIAL STATEMENTS
|
(Y)
|
OTHER RECENT ACCOUNTING PRONOUNCEMENTS
|
NOTE 3
|
REVENUE RELATED TO CONTRACTS WITH CUSTOMERS
|
(In thousands)
|
|
Equipment
|
Services
|
Digital
|
Total
|
||||||||||||
U.S.
|
2017
|
$
|
775,008
|
$
|
1,205,801
|
$
|
200,556
|
$
|
2,181,365
|
||||||||
2016
|
1,317,493
|
1,296,111
|
224,155
|
2,837,759
|
|||||||||||||
2015
|
2,218,226
|
1,366,143
|
153,640
|
3,738,009
|
|||||||||||||
Europe
|
2017
|
60,341
|
6,028
|
3,087
|
69,456
|
||||||||||||
2016
|
22,462
|
7,154
|
826
|
30,442
|
|||||||||||||
2015
|
45,517
|
6,425
|
31,011
|
82,953
|
|||||||||||||
Asia
|
2017
|
190,484
|
199,383
|
4,093
|
393,960
|
||||||||||||
2016
|
174,085
|
180,959
|
3,996
|
359,040
|
|||||||||||||
2015
|
127,272
|
211,206
|
12,124
|
350,602
|
|||||||||||||
Other
|
2017
|
742,135
|
475,743
|
67,649
|
1,285,527
|
||||||||||||
2016
|
930,200
|
407,316
|
41,834
|
1,379,350
|
|||||||||||||
2015
|
789,927
|
415,966
|
44,022
|
1,249,915
|
|||||||||||||
Total revenue
|
2017
|
$
|
1,767,968
|
$
|
1,886,955
|
$
|
275,385
|
$
|
3,930,308
|
||||||||
2016
|
2,444,240
|
1,891,540
|
270,811
|
4,606,591
|
|||||||||||||
2015
|
3,180,942
|
1,999,740
|
240,797
|
5,421,479
|
|
At December 31,
|
|||||||
(in thousands)
|
2017
|
2016
|
||||||
Contractual service agreements
(a)
|
$
|
416,199
|
$
|
368,321
|
||||
Equipment contract revenue
(b)
|
79,588
|
73,102
|
||||||
Deferred inventory costs
(c)
|
39,655
|
24,199
|
||||||
Total contract and other deferred assets
|
$
|
535,442
|
$
|
465,532
|
||||
Long-term contractual service agreements
(a)
|
$
|
193,389
|
$
|
227,610
|
||||
Long-term equipment contract revenue
(b)
|
33,484
|
14,549
|
||||||
Long-term non-recurring engineering costs
(d)
|
86,868
|
84,539
|
||||||
Other
|
7,651
|
30,533
|
||||||
Total long-term contract and other deferred assets
|
$
|
321,392
|
$
|
357,231
|
||||
Progress collections
(e)
|
$
|
564,971
|
$
|
660,036
|
||||
Deferred income
|
27,456
|
29,910
|
||||||
Total progress collections and deferred income
|
$
|
592,427
|
$
|
689,946
|
||||
Long-term progress collections
(e)
|
$
|
20,740
|
$
|
6,743
|
||||
Long-term deferred income
|
3,057
|
3,055
|
||||||
Total long-term progress collections and other deferred income
|
$
|
23,797
|
$
|
9,798
|
||||
Total contract and other deferred assets, net
|
$
|
240,610
|
$
|
123,019
|
(a)
|
Reflects revenues earned in excess of billings on our CSAs in our Services segment.
|
(b)
|
Reflects revenues earned in excess of billings primarily on our long-term contracts to construct equipment principally in our Equipment and Digital segments.
|
(c)
|
Represents cost deferral for shipped goods and other costs for which the criteria for revenue recognition has not yet been met.
|
(d)
|
Includes fulfillment costs incurred prior to production (e.g., engineering costs specific to an individual customer’s contract) for long-term equipment production contracts, primarily within our Equipment segment, which are allocated proportionately over the life of the contract.
|
(e)
|
Includes billings in excess of revenue on our long-term equipment and CSAs.
|
•
|
Equipment - total remaining performance obligations of $4,688,665 thousand of which 71% is expected to be satisfied within 5 year(s) and the remaining thereafter.
|
|
•
|
Services - total remaining performance obligations of $10,263,026 thousand of which 52% is expected to be satisfied within 5 year(s), 80% within 10 year(s) and the remaining thereafter.
|
|
•
|
Digital - total remaining performance obligations of $567,662 thousand of which 79% is expected to be satisfied within 5 year(s) and the remaining thereafter.
|
NOTE 4
|
RELATED PARTY TRANSACTIONS
|
•
|
Amounts for due to / due from affiliates are recorded in Accounts payable and Current receivables, and are settled in cash. The Business has accounts payable resulting from amounts due to affiliates of $48,057 thousand and $70,008 thousand as of December 31, 2017 and 2016, respectively. The Business has current receivables resulting from amounts due from affiliates of $21,259 thousand and $9,295 thousand as of December 31, 2017 and 2016, respectively.
|
|
•
|
The Business factors U.S. and non-U.S. receivables through WCS on a recourse and nonrecourse basis pursuant to various factoring and servicing agreements. The Business had factored receivables of $146,221 thousand and $216,967 thousand without recourse as of December 31, 2017 and 2016, respectively. The Business had factored receivables of $3,989 thousand and $4,509 thousand with recourse as of December 31, 2017 and 2016, respectively. For agreements with recourse, the Business establishes a bad debt reserve based on the aging policy discussed in Note 2(F) Current Receivables. Historically, the Business has outsourced our servicing responsibilities to Global Operations AR CoE for a market-based fee and therefore no servicing asset or liability has been recorded on the Combined
|
•
|
The Business’s North American operations participate in accounts payable programs with TPS. The Business’s liability associated with the funded participation in the accounts payable programs, which is presented as accounts payable within the Combined Statement of Financial Position, was $332,584 thousand and $364,655 thousand as of December 31, 2017 and 2016, respectively.
|
|
•
|
The Business participates in GE Treasury centralized hedging and offsetting programs. See Note 12 Derivatives and Hedging.
|
|
•
|
Employees of the Business participate in pensions and benefit plans that are sponsored by GE. See Note 17 Pension and Postretirement Benefit Plans.
|
|
•
|
GE grants stock options, restricted stock units and performance share units to its group employees, including those of GE Transportation, under the GE Long-Term Incentive Plan. Compensation expense associated with this plan was $4,794 thousand, $6,881 thousand and $8,986 thousand for the years ended December 31, 2017, 2016 and 2015, respectively.
|
|
•
|
Lease agreements are based on market terms. The Business incurs rent expense resulting from related party leases with GE or GE entities as lessor. See Note 16 Leases.
|
|
•
|
All adjustments relating to certain transactions among the Business, GE and GE entities, which include the transfer of the balance of cash and equivalents to GE, transfer of the balance of cash held in cash pooling arrangements to GE, settlement of intercompany debt between the Business and GE or other GE entities and pushdown of all costs of doing business that were paid on behalf of the Business by GE or GE entities, are classified as Net parent investment.
|
NOTE 5
|
CURRENT RECEIVABLES, NET
|
As of December 31 (In thousands)
|
2017
|
2016
|
||||||
Customer receivables
|
$
|
86,882
|
$
|
77,782
|
||||
Due from GE
|
21,259
|
9,295
|
||||||
Sundry receivables
|
69,127
|
82,881
|
||||||
|
177,268
|
169,958
|
||||||
Less allowance for doubtful accounts
|
(4,882
|
)
|
(7,422
|
)
|
||||
Current receivables, net
|
$
|
172,386
|
$
|
162,536
|
NOTE 6
|
INVENTORIES
|
As of December 31 (In thousands)
|
2017
|
2016
|
||||||
Raw materials and work in process
|
$
|
268,261
|
$
|
405,154
|
||||
Finished goods
|
292,182
|
335,804
|
||||||
Total inventories
|
$
|
560,443
|
$
|
740,958
|
NOTE 7
|
PROPERTY, PLANT AND EQUIPMENT, NET
|
|
Depreciable
Life (in years) |
Original Cost
|
Net Carrying Value
|
||||||||||||||||
As of December 31 (In thousands)
|
2017
|
2016
|
2017
|
2016
|
|||||||||||||||
Land and improvements
|
8
(a)
|
|
$
|
19,857
|
$
|
23,230
|
$
|
16,781
|
$
|
18,467
|
|||||||||
Buildings, structures and related equipment
|
8-40
|
565,076
|
518,375
|
337,978
|
336,369
|
||||||||||||||
Machinery and equipment
(b)
|
4-20
|
1,305,883
|
1,474,625
|
476,407
|
484,414
|
||||||||||||||
Leasehold costs and manufacturing plant under construction
|
3-10
|
100,597
|
97,709
|
112,002
|
95,265
|
||||||||||||||
Total property, plant and equipment, net
|
$
|
1,991,413
|
$
|
2,113,939
|
$
|
943,168
|
$
|
934,515
|
|||||||||||
ELTO (net)
|
$
|
30,075
|
$
|
220,011
|
$
|
12,135
|
$
|
23,586
|
(a) |
Depreciable lives exclude land.
|
(b) |
Equipment leased to others (“ELTO”) is presented in the line item Machinery and equipment. This is equipment we own that is available to lease to customers and is stated at cost less accumulated depreciation.
|
NOTE 8
|
GOODWILL AND INTANGIBLE ASSETS
|
(In thousands)
|
Equipment
|
Services
|
Digital
|
Total
|
||||||||||||
Balance at December 31, 2015
(a)
|
$
|
2,027
|
$
|
112,483
|
$
|
135,594
|
$
|
250,104
|
||||||||
Acquisitions and purchase accounting adjustments
|
—
|
—
|
41,433
|
41,433
|
||||||||||||
Impairments, currency translation, and other
|
(2,027
|
)
|
—
|
—
|
(2,027
|
)
|
||||||||||
Balance at December 31, 2016
|
$
|
—
|
$
|
112,483
|
$
|
177,027
|
$
|
289,510
|
||||||||
Acquisitions and purchase accounting adjustments
|
—
|
—
|
(6,886
|
)
|
(6,886
|
)
|
||||||||||
Impairments, currency translation, and other
|
—
|
—
|
—
|
—
|
||||||||||||
Balance at December 31, 2017
|
$
|
—
|
$
|
112,483
|
$
|
170,141
|
$
|
282,624
|
(a)
|
Goodwill is reported net of $286,388 thousand of accumulated impairments at December 31, 2015, all of which occurred in the Equipment segment.
|
|
2017
|
2016
|
||||||||||||||||||||||||||
As of December 31 (In thousands)
|
Useful
Life (in years) |
Gross
Carrying Amount |
Accumulated
Amortization |
Net
|
Gross
Carrying Amount |
Accumulated
Amortization |
Net
|
|||||||||||||||||||||
Customer-related
|
11-20
|
$
|
21,860
|
$
|
(7,636
|
)
|
$
|
14,224
|
$
|
40,876
|
$
|
(12,172
|
)
|
$
|
28,704
|
|||||||||||||
Patents & technology
|
7-11
|
56,866
|
(21,419
|
)
|
35,447
|
87,449
|
(49,747
|
)
|
37,702
|
|||||||||||||||||||
Capitalized software - internal-use
|
5
|
211,209
|
(116,151
|
)
|
95,058
|
208,467
|
(93,348
|
)
|
115,119
|
|||||||||||||||||||
Capitalized software - external
|
5-10
|
130,245
|
(20,358
|
)
|
109,887
|
88,325
|
(16,087
|
)
|
72,238
|
|||||||||||||||||||
Trademarks & other
|
18-30
|
286
|
(0
|
)
|
286
|
6,887
|
(2,740
|
)
|
4,147
|
|||||||||||||||||||
Total
|
$
|
420,466
|
$
|
(165,564
|
)
|
$
|
254,902
|
$
|
432,004
|
$
|
(174,094
|
)
|
$
|
257,910
|
(In thousands)
|
2018
|
2019
|
2020
|
2021
|
2022
|
|||||||||||
Estimated annual amortization expense
|
$ |
54,526
|
$ |
54,745
|
$ |
43,535
|
$ |
37,036
|
$
|
32,689
|
NOTE 9
|
PREPAID EXPENSES AND OTHER CURRENT ASSETS
|
As of December 31 (In thousands)
|
2017
|
2016
|
||||||
Derivative assets
|
$
|
3,303
|
$
|
9,172
|
||||
Miscellaneous deferred charges
|
36,807
|
31,179
|
||||||
Prepaid insurance and other
|
6,080
|
10,494
|
||||||
Income tax receivable
|
179,394
|
115,937
|
||||||
Other
|
696
|
18,633
|
||||||
Prepaid expenses and other current assets
|
$
|
226,280
|
$
|
185,415
|
NOTE 10
|
OTHER ASSETS
|
As of December 31 (In thousands)
|
2017
|
2016
|
||||||
Associated companies
|
$
|
56,428
|
$
|
6,859
|
||||
Other assets
(a)
|
21,331
|
14,136
|
||||||
Total other assets
|
$
|
77,759
|
$
|
20,995
|
(a)
|
Other assets consists of long-term prepaid expenses, advances to suppliers and non-current value added tax receivables.
|
NOTE 11
|
BORROWINGS
|
As of December 31 (In thousands)
|
2017
|
2016
|
||||||
Current portion of long-term borrowings
|
$
|
45
|
$
|
120
|
||||
Bank borrowings and other
|
—
|
21,620
|
||||||
Total short-term borrowings
|
$
|
45
|
$
|
21,740
|
As of December 31 (In thousands)
|
2017
|
2016
|
||||||||||
|
Maturities
|
|||||||||||
Long-term portion of borrowings
|
2019-2020
|
$
|
44,257
|
$
|
92,772
|
|||||||
Total long-term borrowings
|
$
|
44,257
|
$
|
92,772
|
NOTE 12
|
DERIVATIVES AND HEDGING
|
NOTE 13
|
INCOME TAXES
|
(In thousands)
|
2017
|
2016
|
2015
|
|||||||||
U.S.
|
$
|
280,346
|
$
|
619,667
|
$
|
839,500
|
||||||
Non-U.S.
|
152,053
|
87,850
|
(2,601
|
)
|
||||||||
Total earnings
|
$
|
432,399
|
$
|
707,517
|
$
|
836,899
|
(In thousands)
|
2017
|
2016
|
2015
|
|||||||||
Current
|
||||||||||||
U.S. Federal
|
$
|
70,879
|
$
|
61,949
|
$
|
248,238
|
||||||
U.S. State and Local
|
20,202
|
33,362
|
43,290
|
|||||||||
Non-U.S.
|
92,028
|
55,838
|
48,411
|
|||||||||
Deferred
|
||||||||||||
U.S. Federal
|
(118,361
|
)
|
7,305
|
(14,775
|
)
|
|||||||
U.S. State and Local
|
(1,564
|
)
|
5,088
|
(1,151
|
)
|
|||||||
Non-U.S.
|
(18,881
|
)
|
3,886
|
25,262
|
||||||||
Total
|
$
|
44,303
|
$
|
167,428
|
$
|
349,275
|
(In thousands)
|
2017
|
2016
|
2015
|
|||||||||
Income before taxes
|
$
|
432,399
|
$
|
707,517
|
$
|
836,899
|
||||||
Tax expected at 35%
|
151,340
|
247,631
|
292,915
|
|||||||||
Foreign operations and Foreign Tax Credits
|
843
|
(119,780
|
)
|
(675
|
)
|
|||||||
State taxes
|
12,115
|
24,992
|
27,662
|
|||||||||
U.S. Tax Reform
|
(108,714
|
)
|
—
|
—
|
||||||||
Domestic manufacturing deduction benefits
|
(2,610
|
)
|
(16,214
|
)
|
(19,843
|
)
|
||||||
Research & Development benefits
|
(4,147
|
)
|
(1,601
|
)
|
(3,223
|
)
|
||||||
Valuation allowance
|
6,459
|
25,794
|
50,441
|
|||||||||
Other
|
(10,983
|
)
|
6,606
|
1,998
|
||||||||
Total income tax
|
$
|
44,303
|
$
|
167,428
|
$
|
349,275
|
||||||
Actual Income tax rate
|
10
|
%
|
24
|
%
|
42
|
%
|
Liability (In thousands)
|
2017
|
2016
|
||||||
Unrecognized tax benefits
|
$
|
(5,717
|
)
|
$
|
(4,802
|
)
|
||
Accrued interest on unrecognized tax benefits
|
(2,222
|
)
|
(2,565
|
)
|
||||
Accrued penalties on unrecognized tax benefits
|
(1,446
|
)
|
(1,629
|
)
|
||||
Reasonably possible reduction to the balance of unrecognized tax benefits in succeeding 12 months
|
—
|
—
|
||||||
Portion that, if recognized, would reduce tax expense and effective tax rate
|
(5,717
|
)
|
(4,802
|
)
|
(In thousands)
|
2017
|
2016
|
||||||
Balance at January 1
|
$
|
(4,802
|
)
|
$
|
(4,465
|
)
|
||
Additions for tax positions of the current year
|
—
|
—
|
||||||
Additions for tax positions of prior years
|
(1,320
|
)
|
(561
|
)
|
||||
Reductions for tax positions of prior years
|
405
|
224
|
||||||
Settlements with tax authorities
|
—
|
—
|
||||||
Expiration of the statute of limitations
|
—
|
—
|
||||||
Balance at December 31
|
$
|
(5,717
|
)
|
$
|
(4,802
|
)
|
(In thousands)
|
2017
|
2016
|
||||||
Assets
|
$
|
6,770
|
$
|
1,322
|
||||
Liabilities
|
(173,513
|
)
|
(303,526
|
)
|
||||
Net deferred income tax (liability)
|
$
|
(166,743
|
)
|
$
|
(302,204
|
)
|
(In thousands)
|
2017
|
2016
|
||||||
Deferred tax assets
|
||||||||
Goodwill & other intangibles
|
$
|
88,232
|
$
|
72,246
|
||||
Operating loss carryforwards
|
56,783
|
54,098
|
||||||
Employee benefits
|
12,373
|
16,230
|
||||||
Other
|
—
|
319
|
||||||
Total deferred income tax asset
|
157,388
|
142,893
|
||||||
Valuation allowances
|
(150,618
|
)
|
(141,571
|
)
|
||||
Total deferred income tax asset after valuation allowance
|
$
|
6,770
|
$
|
1,322
|
||||
|
||||||||
Deferred tax liabilities
|
||||||||
Goodwill and other intangibles
|
$
|
(21,888
|
)
|
$
|
(32,185
|
)
|
||
Property
|
(80,075
|
)
|
(162,055
|
)
|
||||
Receivables
|
(41,374
|
)
|
(73,755
|
)
|
||||
Inventory
|
(3,433
|
)
|
(25,468
|
)
|
||||
Other accrued expenses
|
(15,059
|
)
|
(10,063
|
)
|
||||
Other
|
(11,684
|
)
|
—
|
|||||
Total deferred income tax liability
|
$
|
(173,513
|
)
|
$
|
(303,526
|
)
|
||
Net deferred income tax liability
|
$
|
(166,743
|
)
|
$
|
(302,204
|
)
|
NOTE 14
|
OTHER CURRENT LIABILITIES AND OTHER LIABILITIES
|
As of December 31 (In thousands)
|
2017
|
2016
|
||||||
Employee related liabilities
(a)
|
$
|
90,801
|
$
|
105,796
|
||||
Derivative liabilities
|
6,372
|
8,056
|
||||||
Discounts and allowances
|
14,132
|
2,593
|
||||||
Accrued taxes
|
47,113
|
41,642
|
||||||
Accrued costs for freight, utility & other
|
28,563
|
30,735
|
||||||
Warranties
|
49,564
|
25,672
|
||||||
Restructuring and sundry losses
(b)
|
24,032
|
17,689
|
||||||
Other current liabilities
(c)
|
22,146
|
9,118
|
||||||
Total other current liabilities
|
$
|
282,723
|
$
|
241,301
|
(a)
|
Employee related liabilities are largely comprised of payroll, employee compensation and benefits, pension and other postretirement benefit obligations.
|
(b)
|
Restructuring accruals and accruals for legal costs arising from claims, assessments, litigation, fines and penalties and other sources and are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. See Note 18 Restructuring and Other Activities.
|
(c)
|
Other current liabilities primarily consists of professional fees and various other accruals.
|
As of December 31 (In thousands)
|
2017
|
2016
|
||||||
Employee related liabilities
(a)
|
$
|
27,135
|
$
|
31,374
|
||||
Sundry losses
(b)
|
8,503
|
11,973
|
||||||
Warranties
|
30,753
|
75,820
|
||||||
Tax related liabilities
(c)
|
7,163
|
6,431
|
||||||
Other liabilities
(d)
|
18,637
|
16,891
|
||||||
Total other liabilities
|
$
|
92,191
|
$
|
142,489
|
(a)
|
Employee related liabilities are largely comprised of long-term employee compensation programs.
|
(b)
|
Consists of accruals for legal costs and various other accruals.
|
(c)
|
Consists of reserves for uncertain tax positions.
|
(d)
|
Other liabilities primarily consist of holdbacks and earn-outs.
|
NOTE 15
|
COMMITMENTS AND CONTINGENCIES
|
(In thousands)
|
2017
|
2016
|
||||||
Balance at January 1
|
$
|
101,492
|
$
|
120,172
|
||||
Current year provisions
|
54,346
|
50,359
|
||||||
Utilizations and other
|
(75,521
|
)
|
(69,039
|
)
|
||||
Balance at December 31
|
$
|
80,317
|
$
|
101,492
|
(In thousands)
|
2018
|
2019
|
2020
|
2021
|
2022
|
|||||||||||
Purchase obligations
|
$ |
19,436
|
$ |
90
|
$ |
—
|
$ |
22,669
|
$ |
1,300
|
NOTE 16
|
LEASES
|
For the years ended December 31 (In thousands)
|
Total
|
|||
Due in
|
||||
2018
|
$
|
23,670
|
||
2019
|
15,081
|
|||
2020
|
9,002
|
|||
2021
|
8,641
|
|||
2022
|
7,274
|
|||
2023 and thereafter
|
36,429
|
|||
Total
|
$
|
100,097
|
NOTE 17
|
PENSION AND POSTRETIREMENT BENEFIT PLANS
|
NOTE 18
|
RESTRUCTURING AND OTHER ACTIVITIES
|
|
For the years ended December 31
|
|||||||||||
(In Thousands)
|
2017
|
2016
|
2015
|
|||||||||
Equipment
|
||||||||||||
Asset impairment
|
$
|
73,576
|
$
|
81,774
|
$
|
3,922
|
||||||
Contract termination costs
|
33
|
19,359
|
—
|
|||||||||
Employee separation expense
|
24,522
|
29,375
|
8,861
|
|||||||||
Total Equipment
|
$
|
98,131
|
$
|
130,508
|
$
|
12,783
|
||||||
Services
|
||||||||||||
Asset impairment
|
12,748
|
21,141
|
68
|
|||||||||
Contract termination costs
|
—
|
—
|
—
|
|||||||||
Employee separation expense
|
14,977
|
24,100
|
2,095
|
|||||||||
Total Services
|
$
|
27,725
|
$
|
45,241
|
$
|
2,163
|
||||||
Digital
|
||||||||||||
Asset impairment
|
17,971
|
1,544
|
—
|
|||||||||
Contract termination costs
|
—
|
—
|
—
|
|||||||||
Employee separation expense
|
1,021
|
600
|
39
|
|||||||||
Total Digital
|
$
|
18,992
|
$
|
2,144
|
$
|
39
|
||||||
Total
|
$
|
144,848
|
$
|
177,893
|
$
|
14,985
|
NOTE 19
|
SEGMENT INFORMATION AND MAJOR CUSTOMERS
|
|
Total revenues
|
||||||||||||
|
For the years ended December 31
|
||||||||||||
(In Thousands)
|
2017
|
2016
|
2015
|
||||||||||
Equipment
|
$ |
1,767,968
|
$ |
2,444,240
|
$ |
3,180,942
|
|||||||
Services
|
1,886,955
|
1,891,540
|
1,999,740
|
||||||||||
Digital
|
320,406
|
344,854
|
339,423
|
||||||||||
Eliminations
|
(45,021
|
)
|
(74,043
|
)
|
(98,626
|
)
|
|||||||
Total revenues
|
$ |
3,930,308
|
$ |
4,606,591
|
$ |
5,421,479
|
|
For the years ended December 31
|
|||||||||||
(In Thousands)
|
2017
|
2016
|
2015
|
|||||||||
Equipment
|
$
|
(28,907
|
)
|
$
|
142,508
|
$
|
130,407
|
|||||
Services
|
603,344
|
683,824
|
710,709
|
|||||||||
Digital
|
27,181
|
93,418
|
119,603
|
|||||||||
Segment profit
|
$
|
601,618
|
$
|
919,750
|
$
|
960,719
|
||||||
Non-operating benefit costs
|
(16,877
|
)
|
(18,455
|
)
|
(16,249
|
)
|
||||||
Impairment of goodwill
|
—
|
(2,027
|
)
|
(85,421
|
)
|
|||||||
Restructuring costs
|
(144,848
|
)
|
(177,893
|
)
|
(14,985
|
)
|
||||||
Interest expense and other finance charges
|
(21,805
|
)
|
(20,002
|
)
|
(14,712
|
)
|
||||||
Provision for income taxes
|
(44,303
|
)
|
(167,428
|
)
|
(349,275
|
)
|
||||||
Net earnings attributable to Parent
|
$
|
373,785
|
$
|
533,945
|
$
|
480,077
|
NOTE 20
|
SUBSEQUENT EVENTS
|
Contents
|
Pages
|
INDEPENDENT AUDITORS’ REVIEW REPORT
|
1
|
CONDENSED COMBINED STATEMENT OF EARNINGS (UNAUDITED) FOR THE THREE MONTHS ENDED JUNE 30, 2018 AND 2017
|
2
|
CONDENSED
COMBINED STATEMENT OF EARNINGS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2018 AND 2017
|
3
|
CONDENSED COMBINED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) FOR THE THREE MONTHS ENDED JUNE 30, 2018 AND 2017
|
4
|
CONDENSED COMBINED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2018 AND 2017
|
5
|
CONDENSED COMBINED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2018 AND 2017
|
6
|
CONDENSED COMBINED STATEMENT OF FINANCIAL POSITION (UNAUDITED) AS OF JUNE 30, 2018 AND DECEMBER 31, 2017
|
7
|
CONDENSED COMBINED STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2018 AND 2017
|
8
|
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
|
9-25
|
|
KPMG LLP
|
|
Aon Center
|
|
Suite 5500
|
200 E. Randolph Street | |
Chicago, IL 60601-6436 |
For the three months ended June 30 (In thousands)
|
2018
|
2017
|
||||||
Revenues
|
||||||||
Sales of goods
|
$
|
570,726
|
$
|
621,046
|
||||
Sales of services
|
346,278
|
344,212
|
||||||
Total revenues (Note 3)
|
917,004
|
965,258
|
||||||
Costs of revenues
|
||||||||
Cost of goods sold
|
447,233
|
496,339
|
||||||
Cost of services sold
|
211,798
|
218,676
|
||||||
Gross profit
|
257,973
|
250,243
|
||||||
Selling, general and administrative expenses
|
142,746
|
116,194
|
||||||
Non-operating benefit costs
|
2,504
|
8,532
|
||||||
Other (expense) income
|
(6,623
|
)
|
(11,492
|
)
|
||||
Earnings before income taxes
|
106,100
|
114,025
|
||||||
Provision for income taxes (Note 14)
|
(19,965
|
)
|
(30,853
|
)
|
||||
Net earnings
|
86,135
|
83,172
|
||||||
Less net earnings attributable to noncontrolling interests
|
580
|
4,002
|
||||||
Net earnings attributable to Parent
|
$
|
85,555
|
$
|
79,170
|
For the six months ended June 30 (In thousands)
|
2018
|
2017
|
||||||
Revenues
|
||||||||
Sales of goods
|
$
|
1,101,781
|
$
|
1,312,160
|
||||
Sales of services
|
672,107
|
668,425
|
||||||
Total revenues (Note 3)
|
1,773,888
|
1,980,585
|
||||||
Costs of revenues
|
||||||||
Cost of goods sold
|
881,336
|
1,116,321
|
||||||
Cost of services sold
|
405,955
|
446,245
|
||||||
Gross profit
|
486,597
|
418,019
|
||||||
Selling, general and administrative expenses
|
264,770
|
228,713
|
||||||
Non-operating benefit costs
|
5,155
|
11,262
|
||||||
Other (expense) income
|
(4,362
|
)
|
(20,961
|
)
|
||||
Earnings before income taxes
|
212,310
|
157,083
|
||||||
Provision for income taxes (Note 14)
|
(44,084
|
)
|
(56,984
|
)
|
||||
Net earnings
|
168,226
|
100,099
|
||||||
Less net earnings attributable to noncontrolling interests
|
4,136
|
6,811
|
||||||
Net earnings attributable to Parent
|
$
|
164,090
|
$
|
93,288
|
For the three months ended June 30 (In thousands)
|
2018
|
2017
|
||||||
Net earnings
|
$
|
86,135
|
$
|
83,172
|
||||
Less net earnings attributable to noncontrolling interests
|
580
|
4,002
|
||||||
Net earnings attributable to Parent
|
85,555
|
79,170
|
||||||
Other comprehensive (loss) income
|
||||||||
Foreign currency translation adjustments
|
(31,893
|
)
|
2,733
|
|||||
Benefit plans, net of taxes
|
48
|
576
|
||||||
Other comprehensive (loss) income, net of taxes
|
(31,844
|
)
|
3,309
|
|||||
Less other comprehensive loss attributable to noncontrolling interests
|
(4,180
|
)
|
(485
|
)
|
||||
Other comprehensive (loss) income attributable to Parent
|
(27,665
|
)
|
3,794
|
Comprehensive income
|
54,290
|
86,481
|
||||||
Less comprehensive (loss) income attributable to noncontrolling interests
|
(3,600
|
)
|
3,517
|
|||||
Comprehensive income attributable to Parent
|
$
|
57,890
|
$
|
82,964
|
For the six months ended June 30 (In thousands)
|
2018
|
2017
|
||||||
Net earnings
|
$
|
168,226
|
$
|
100,099
|
||||
Less net earnings attributable to noncontrolling interests
|
4,136
|
6,811
|
||||||
Net earnings attributable to Parent
|
164,090
|
93,288
|
||||||
Other comprehensive (loss) income
|
||||||||
Foreign currency translation adjustments
|
(20,849
|
)
|
20,078
|
|||||
Benefit plans, net of taxes
|
2,173
|
772
|
||||||
Other comprehensive (loss) income, net of taxes
|
(18,676
|
)
|
20,850
|
|||||
Less other comprehensive (loss) income attributable to noncontrolling interests
|
(2,400
|
)
|
1,331
|
|||||
Other comprehensive (loss) income attributable to Parent
|
(16,276
|
)
|
19,519
|
|||||
Comprehensive income
|
149,550
|
120,949
|
||||||
Less comprehensive income attributable to noncontrolling interests
|
1,736
|
8,142
|
||||||
Comprehensive income attributable to Parent
|
$
|
147,814
|
$
|
112,807
|
(In thousands)
|
Net Parent
Investment |
Accumulated
Other Comprehensive Income / (Loss) |
Equity
Attributable to Noncontrolling Interests |
Total
Equity
|
||||||||||||
Balances as of January 1, 2017
|
$
|
1,425,679
|
$
|
(70,916
|
)
|
$
|
28,201
|
$
|
1,382,964
|
|||||||
Net earnings
|
93,288
|
-
|
6,811
|
100,099
|
||||||||||||
Foreign currency translation adjustments
|
-
|
18,742
|
1,336
|
20,078
|
||||||||||||
Benefit plans, net of taxes
|
-
|
777
|
(5
|
)
|
772
|
|||||||||||
Transfers (to) from Parent
|
221,471
|
-
|
-
|
221,471
|
||||||||||||
Changes in equity attributable to noncontrolling interests
|
-
|
-
|
11,182
|
11,182
|
||||||||||||
Total equity balance as of June 30, 2017
|
$
|
1,740,438
|
$
|
(51,397
|
)
|
$
|
47,525
|
$
|
1,736,566
|
|||||||
Balances as of January 1, 2018
|
$
|
1,687,151
|
$
|
(55,592
|
)
|
$
|
41,664
|
$
|
1,673,223
|
|||||||
Net earnings
|
164,090
|
-
|
4,136
|
168,226
|
||||||||||||
Foreign currency translation adjustments
|
-
|
(18,432
|
)
|
(2,417
|
)
|
(20,849
|
)
|
|||||||||
Benefit plans, net of taxes
|
-
|
2,156
|
17
|
2,173
|
||||||||||||
Transfers (to)
from
Parent
|
6,499
|
-
|
-
|
6,499
|
||||||||||||
Changes in equity attributable to noncontrolling interests
|
-
|
-
|
1,302
|
1,302
|
||||||||||||
Total equity balance as of June 30, 2018
|
$
|
1,857,740
|
$
|
(71,868
|
)
|
$
|
44,702
|
$
|
1,830,574
|
June 30,
|
December 31,
|
|||||||
(In thousands)
|
2018 (Unaudited)
|
2017
|
||||||
Assets
|
||||||||
Cash, cash equivalents and restricted cash
|
$
|
131,516
|
$
|
105,338
|
||||
Current receivables, net (Note 6)
|
207,527
|
172,386
|
||||||
Inventories (Note 7)
|
675,156
|
560,443
|
||||||
Contract and other deferred assets (Note 3)
|
581,100
|
535,442
|
||||||
Prepaid expenses and other current assets (Note 10)
|
230,426
|
226,280
|
||||||
Total current assets
|
1,825,725
|
1,599,889
|
||||||
Property, plant and equipment, net (Note 8)
|
931,717
|
943,168
|
||||||
Goodwill and intangible assets (Note 9)
|
536,192
|
537,526
|
||||||
Long-term contract and other deferred assets (Note 3)
|
400,933
|
321,392
|
||||||
Deferred income taxes (Note 14)
|
64,410
|
64,839
|
||||||
Other assets (Note 11)
|
80,294
|
77,759
|
||||||
Total assets
|
$
|
3,839,271
|
$
|
3,544,573
|
||||
Liabilities and equity
|
||||||||
Short-term borrowings (Note 12)
|
$
|
24
|
$
|
45
|
||||
Accounts payable
|
706,706
|
604,328
|
||||||
Progress collections and deferred income (Note 3)
|
619,410
|
592,427
|
||||||
Other current liabilities (Note 15)
|
284,247
|
282,723
|
||||||
Total current liabilities
|
1,610,387
|
1,479,523
|
||||||
Long-term borrowings (Note 12)
|
67,509
|
44,257
|
||||||
Long-term progress collections and other deferred income (Note 3)
|
17,333
|
23,797
|
||||||
Deferred income taxes (Note 14)
|
224,716
|
231,582
|
||||||
Other liabilities (Note 15)
|
88,752
|
92,191
|
||||||
Total liabilities
|
2,008,697
|
1,871,350
|
||||||
Net parent investment
|
1,857,740
|
1,687,151
|
||||||
Accumulated other comprehensive loss
|
(71,868
|
)
|
(55,592
|
)
|
||||
Total equity attributable to Parent
|
1,785,872
|
1,631,559
|
||||||
Equity attributable to noncontrolling interests
|
44,702
|
41,664
|
||||||
Total equity
|
1,830,574
|
1,673,223
|
||||||
Total liabilities and equity
|
$
|
3,839,271
|
$
|
3,544,573
|
For the six months ended June 30 (In thousands)
|
2018
|
2017
|
||||||
Cash flows - operating activities
|
||||||||
Net earnings
|
$
|
168,226
|
$
|
100,099
|
||||
Less net earnings attributable to noncontrolling interests
|
4,136
|
6,811
|
||||||
Net earnings attributable to the Parent
|
164,090
|
93,288
|
||||||
Adjustments to reconcile net earnings attributable to the Parent to cash provided by (used for) operating activities:
|
||||||||
Depreciation and amortization expenses
|
78,183
|
86,754
|
||||||
Unrealized losses from derivative instruments
|
1,620
|
4,205
|
||||||
Share-based compensation expense
|
5,524
|
3,754
|
||||||
Deferred income taxes
|
(6,436
|
)
|
(30,647
|
)
|
||||
Gains from sale of property, plant and equipment
|
(955
|
)
|
(2,103
|
)
|
||||
Gains from disposal of business
|
(5,614
|
)
|
-
|
|||||
Changes in operating assets and liabilities:
|
||||||||
(Increase) decrease in current receivables
|
(57,126
|
)
|
23,295
|
|||||
(Increase) decrease in inventories
|
(101,767
|
)
|
43,361
|
|||||
(Increase) in contract and other deferred assets
|
(123,045
|
)
|
(11,680
|
)
|
||||
(Increase) in prepaid expenses and other assets
|
(1,311
|
)
|
(62,453
|
)
|
||||
Increase (decrease) in accounts payable
|
134,175
|
(48,450
|
)
|
|||||
Increase (decrease) in progress collections and other deferred income
|
23,806
|
(104,457
|
)
|
|||||
(Increase) decrease in other liabilities
|
(10,130
|
)
|
(23,314
|
)
|
||||
All other operating activities
|
(24,578
|
)
|
(5,673
|
)
|
||||
Cash provided by (used for) operating activities
|
76,436
|
(34,120
|
)
|
|||||
Cash flows - investing activities
|
||||||||
Additions to property, plant and equipment
|
(56,041
|
)
|
(71,022
|
)
|
||||
Dispositions of property, plant and equipment
|
1,315
|
4,099
|
||||||
Additions to software
|
(19,040
|
)
|
(30,885
|
)
|
||||
Proceeds from principal business dispositions
|
5,687
|
-
|
||||||
Investment in associated companies
|
(323
|
)
|
(50,104
|
)
|
||||
All other investing activities
|
9
|
3,939
|
||||||
Cash (used for) investing activities
|
(68,393
|
)
|
(143,973
|
)
|
||||
Cash flows - financing activities
|
||||||||
Newly issued debt (maturities longer than 90 days)
|
24,570
|
-
|
||||||
Repayments and other reductions (maturities longer than 90 days)
|
-
|
(5,167
|
)
|
|||||
Transfers (to) from Parent
|
6,499
|
221,471
|
||||||
All other financing activities
|
(10,521
|
)
|
12,922
|
|||||
Cash provided by financing activities
|
20,548
|
229,226
|
||||||
Effect of currency exchange rate changes on cash, cash equivalents and restricted cash
|
(2,413
|
)
|
10,139
|
|||||
Increase in cash, cash equivalents and restricted cash
|
26,178
|
61,272
|
||||||
Cash, cash equivalents and restricted cash at beginning of year
|
105,338
|
151,151
|
||||||
Cash, cash equivalents and restricted cash at June 30
|
$
|
131,516
|
$
|
212,423
|
||||
Supplemental disclosure of cash flow information
|
||||||||
Cash paid during the six months ended June 30 for interest on borrowings
|
$
|
-
|
$
|
(947
|
)
|
|||
Cash paid during the six months ended June 30 for income taxes
|
$
|
(78,720
|
)
|
$
|
(131,902
|
)
|
(A) |
RECENT ACCOUNTING PRONOUNCEMENTS REFLECTED IN THESE CONDENSED COMBINED FINANCIAL STATEMENTS
|
· |
ASU No. 2014-09,
Revenue from Contracts with Customers.
Refer to Note 3 Revenue Related to Contracts with Customers for more details.
|
· |
ASU No. 2016-15,
Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments
. Refer to the combined annual financial statements for more details.
|
· |
ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting.
Refer to the combined annual financial statements for more details.
|
· |
ASU 2017-07,
Compensation—Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.
Refer to the combined annual financial statements for more details.
|
· |
ASU 2015-11,
Inventory (Topic 330), Simplifying of the Measurement of Inventory.
Refer to the combined annual financial statements for more details.
|
· |
ASU 2015-16,
Simplifying the Accounting for Measurement-Period Adjustments.
Refer to the combined annual financial statements for more details.
|
· |
ASU 2015-17,
Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes.
Refer to the combined annual financial statements for more details.
|
· |
ASU 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
. This ASU provides a new framework that will assist in the evaluation of whether business combination transactions should be accounted as acquisition of a business or a group of assets, as well as specifying the minimum required inputs and processes necessary to be a business. The provisions of this ASU are effective for years beginning after December 15, 2017. All disposals in the current period were accounted for under the provision of the new guidance.
|
· |
ASU 2016-16,
Accounting for Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory
. This standard amends existing guidance on income taxes to require the accounting for the income tax effects of intercompany sales and transfers of assets other than inventory when the transfer occurs. As a result, the tax expense from the intercompany sale of assets, other than inventory, and associated changes to deferred taxes will be recognized when the sale occurs even though the pre-tax effects of the transaction have not been recognized. The pronouncement is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods, with early adoption permitted at the beginning of an annual period for which no financial statements have already been issued. This amendment has been applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption, which did not have an impact on our historical results
.
|
· |
ASU 2016-18,
Statement of Cash Flows: Restricted Cash
. This standard requires the changes in the total of cash and restricted cash to be presented in the statement of cash flows. In addition, when cash and restricted cash are presented on separate lines on the balance sheet, an entity is required to reconcile the totals in the statement of cash flows to the related line items in the balance sheet. While not a direct effect of the adoption of the standard, to simplify the reconciliation of the statement of cash flows to the cash balances presented in our statement of financial position, we have elected to present cash and restricted cash as a single line on the balance sheet, which did not have an impact on our historical results.
|
For the three months ended June 30,
|
||||||||||||||||
(In thousands)
|
Equipment
|
Services
|
Digital
|
Total
|
||||||||||||
U.S.
|
||||||||||||||||
2018
|
$
|
144,998
|
$
|
321,577
|
$
|
51,831
|
$
|
518,406
|
||||||||
2017
|
180,089
|
332,028
|
48,765
|
560,882
|
||||||||||||
Europe
|
||||||||||||||||
2018
|
7,849
|
1,873
|
(451
|
)
|
9,271
|
|||||||||||
2017
|
19,763
|
1,166
|
1,371
|
22,300
|
||||||||||||
Asia
|
||||||||||||||||
2018
|
57,092
|
63,243
|
840
|
121,175
|
||||||||||||
2017
|
32,941
|
46,880
|
696
|
80,517
|
||||||||||||
Other
|
||||||||||||||||
2018
|
111,529
|
143,881
|
12,742
|
268,152
|
||||||||||||
2017
|
180,960
|
106,123
|
14,476
|
301,559
|
||||||||||||
Total revenue
|
||||||||||||||||
2018
|
$
|
321,468
|
$
|
530,574
|
$
|
64,962
|
$
|
917,004
|
||||||||
2017
|
413,753
|
486,197
|
65,308
|
965,258
|
June 30,
|
December 31,
|
|||||||
(in thousands)
|
2018
|
2017
|
||||||
Contractual service agreements (a)
|
$
|
348,538
|
$
|
416,199
|
||||
Equipment contract revenue (b)
|
201,336
|
79,588
|
||||||
Deferred inventory costs (c)
|
31,226
|
39,655
|
||||||
Total contract and other deferred assets
|
$
|
581,100
|
$
|
535,442
|
||||
Long-term contractual service agreements (a)
|
$
|
268,122
|
$
|
193,389
|
||||
Long-term equipment contract revenue (b)
|
37,680
|
33,484
|
||||||
Long-term non-recurring engineering costs (d)
|
95,131
|
86,868
|
||||||
Other
|
-
|
7,651
|
||||||
Total long-term contract and other deferred assets
|
$
|
400,933
|
$
|
321,392
|
||||
Progress collections (e)
|
$
|
601,655
|
$
|
564,971
|
||||
Deferred income
|
17,755
|
27,456
|
||||||
Total progress collections and deferred income
|
$
|
619,410
|
$
|
592,427
|
||||
Long-term progress collections (e)
|
$
|
17,071
|
$
|
20,740
|
||||
Long-term deferred income
|
262
|
3,057
|
||||||
Total long-term progress collections and other deferred income
|
$
|
17,333
|
$
|
23,797
|
||||
Total contract and other deferred assets, net
|
$
|
345,290
|
$
|
240,610
|
||||
(a) |
Reflects revenues earned in excess of billings on our CSAs in our Services segment.
|
(b) |
Reflects revenues earned in excess of billings primarily on our long-term contracts to construct equipment principally in our Equipment and Digital segments.
|
(c) |
Represents cost deferral for shipped goods and other costs for which the criteria for revenue recognition has not yet been met.
|
(d) |
Includes fulfillment costs incurred prior to production (e.g., engineering costs specific to an individual customer’s contract) for long-term equipment production contracts, primarily within our Equipment segment.
|
(e) |
Includes billings in excess of revenue on our long-term equipment and CSAs.
|
· |
Equipment - total remaining performance obligations of $5,377,356 thousand of which 73% is expected to be satisfied within 5 year(s) and the remaining thereafter.
|
· |
Services - total remaining performance obligations of $9,761,717 thousand of which 49% is expected to be satisfied within 5 year(s), 78% within 10 year(s) and the remaining thereafter.
|
· |
Digital - total remaining performance obligations of $476,057 thousand of which 82% is expected to be satisfied within 5 year(s) and the remaining thereafter.
|
· |
Amounts for due to / due from affiliates are recorded in Accounts payable and Current receivables, and are settled in cash. The Business has accounts payable resulting from amounts due to affiliates of $82,492 thousand and $48,057 thousand as of June 30, 2018 and December 31, 2017, respectively. The Business has current receivables resulting from amounts due from affiliates of $31,952
thousand and $21,259 thousand as of June 30, 2018 and December 31, 2017, respectively.
|
· |
The Business factors U.S. and non-U.S. receivables through its Working Capital Solutions (“WCS”), on a recourse and nonrecourse basis pursuant to various factoring and servicing agreements. The Business had factored receivables of $134,370 thousand and $146,221 thousand without recourse as of June 30, 2018 and December 31, 2017, respectively. The Business had factored receivables of $3,477 thousand
and $3,989 thousand
with recourse as of June 30, 2018 and December 31, 2017, respectively. For agreements with recourse, the Business establishes a bad debt reserve based on the aging policy. Historically, the Business has outsourced our servicing responsibilities to Global Operations AR CoE for a market-based fee, and therefore, no servicing asset or liability has been recorded on the Unaudited Condensed Combined Statement of Financial Position as of June 30, 2018 and December 31, 2017. Under the programs, the Business incurred interest expense and finance charges of $3,787
thousand
and $8,514 thousand for the three months ended June 30, 2018 and 2017, respectively, and $6,694
thousand
and $14,049 thousand for the six months ended June 30, 2018 and 2017, respectively, which are included in Other (expense) income.
|
· |
The Business’s North American operations participate in accounts payable programs with Trade Payables Services (“TPS”). The Business’s liability associated with the funded participation in the accounts payable programs, which is presented as accounts payable within the Condensed Combined Statement of Financial Position, was $411,878 thousand and $332,584 thousand as of June 30, 2018 and December 31, 2017, respectively.
|
· |
The Business participates in GE Treasury centralized hedging and offsetting programs. See Note 13 Derivatives and Hedging.
|
· |
Employees of the Business participate in pensions and benefit plans that are sponsored by GE. See Note 18 Pension and Postretirement Benefit Plans.
|
· |
GE grants stock options, restricted stock units and performance share units to its group employees, including those of GE Transportation, under the GE Long-Term Incentive Plan.
|
· |
Lease agreements are based on market terms. The Business incurs rent expense resulting from related party leases with GE or GE entities as lessor. See Note 17 Leases.
|
· |
All adjustments relating to certain transactions among the Business, GE and GE entities, which include the transfer of the balance of cash and equivalents to GE, transfer of the balance of cash held in cash pooling arrangements to GE, settlement of intercompany debt between the Business and GE or other GE entities and pushdown of all costs of doing business that were paid on behalf of the Business by GE or GE entities, are classified as Net parent investment.
|
June 30,
|
December 31,
|
|||||||
(In thousands)
|
2018
|
2017
|
||||||
Customer receivables
|
$
|
123,950
|
$
|
86,882
|
||||
Due from GE
|
31,952
|
21,259
|
||||||
Sundry receivables
|
60,037
|
69,127
|
||||||
215,939
|
177,268
|
|||||||
Less allowance for doubtful accounts
|
(8,412
|
)
|
(4,882
|
)
|
||||
Current receivables, net
|
$
|
207,527
|
$
|
172,386
|
June 30,
|
December 31,
|
|||||||
(In thousands)
|
2018
|
2017
|
||||||
Raw materials and work in process
|
$
|
391,627
|
$
|
268,261
|
||||
Finished goods
|
283,529
|
292,182
|
||||||
Total inventories
|
$
|
675,156
|
$
|
560,443
|
Depreciable
|
Original Cost
|
Net Carrying Value
|
|||||||||||||||||
Life
|
June 30,
|
December 31,
|
June 30,
|
December 31,
|
|||||||||||||||
(In thousands)
|
(in years)
|
2018
|
2017
|
2018
|
2017
|
||||||||||||||
Land and improvements
|
8(a)
|
|
$
|
18,115
|
$
|
19,857
|
$
|
15,443
|
$
|
16,781
|
|||||||||
Buildings, structures and related equipment
|
8-40
|
571,770
|
565,076
|
343,984
|
337,978
|
||||||||||||||
Machinery and equipment (b)
|
4-20
|
1,252,344
|
1,305,883
|
464,898
|
476,407
|
||||||||||||||
Leasehold costs and manufacturing
|
|||||||||||||||||||
plant under construction
|
3-10
|
118,445
|
100,597
|
107,392
|
112,002
|
||||||||||||||
Total property, plant and equipment, net
|
$
|
1,960,674
|
$
|
1,991,413
|
$
|
931,717
|
$
|
943,168
|
|||||||||||
ELTO (net)
|
$
|
29,101
|
$
|
30,075
|
$
|
14,337
|
$
|
12,135
|
(a) |
Depreciable lives exclude land.
|
(b) |
Equipment leased to others (“ELTO”) is presented in the line item Machinery and equipment. This is equipment we own that is available to lease to customers and is stated at cost less accumulated depreciation.
|
June 30, 2018
|
December 31, 2017
|
||||||||||||||||||||||||||
Useful
|
Gross
|
Gross
|
|||||||||||||||||||||||||
Life
|
Carrying
|
Accumulated
|
Carrying
|
Accumulated
|
|||||||||||||||||||||||
(In thousands)
|
(in years)
|
Amount
|
Amortization
|
Net
|
Amount
|
Amortization
|
Net
|
||||||||||||||||||||
Customer-related
|
11-20
|
$
|
21,818
|
$
|
(8,338
|
)
|
$
|
13,480
|
$
|
21,860
|
$
|
(7,636
|
)
|
$
|
14,224
|
||||||||||||
Patents & technology
|
7-11
|
58,800
|
(26,056
|
)
|
32,744
|
56,866
|
(21,419
|
)
|
35,447
|
||||||||||||||||||
Capitalized software - internal-use
|
5
|
219,134
|
(130,174
|
)
|
88,960
|
211,209
|
(116,151
|
)
|
95,058
|
||||||||||||||||||
Capitalized software - external
|
5-10
|
144,060
|
(25,953
|
)
|
118,107
|
130,245
|
(20,358
|
)
|
109,887
|
||||||||||||||||||
Trademarks & other
|
18-30
|
277
|
-
|
277
|
286
|
-
|
286
|
||||||||||||||||||||
Total
|
$
|
444,089
|
$
|
(190,521
|
)
|
$
|
253,568
|
$
|
420,466
|
$
|
(165,564
|
)
|
$
|
254,902
|
June 30,
|
December 31,
|
|||||||
(In thousands)
|
2018
|
2017
|
||||||
Derivative assets
|
$
|
65
|
$
|
3,303
|
||||
Miscellaneous deferred charges
|
33,944
|
36,807
|
||||||
Prepaid insurance and other
|
5,197
|
6,080
|
||||||
Income tax receivable
|
183,641
|
179,394
|
||||||
Other
|
7,579
|
696
|
||||||
Prepaid expenses and other current assets
|
$
|
230,426
|
$
|
226,280
|
June 30,
|
December 31,
|
|||||||
(In thousands)
|
2018
|
2017
|
||||||
Associated companies (a)
|
$
|
57,334
|
$
|
56,428
|
||||
Other assets (b)
|
22,960
|
21,331
|
||||||
Total other assets
|
$
|
80,294
|
$
|
77,759
|
||||
(a) |
Associated companies are entities in which we do not have a controlling financial interest, but over which we have significant influence, most often because we hold a voting interest of 20% to 50%.
|
(b) |
Other assets mainly consist of long-term prepaid expenses and non-current value added tax receivables.
|
Short-term borrowings
|
||||||||
June 30,
|
December 31,
|
|||||||
(In thousands)
|
2018
|
2017
|
||||||
Current portion of long-term borrowings
|
$
|
24
|
$
|
45
|
||||
Total short-term borrowings
|
$
|
24
|
$
|
45
|
Long-term borrowings
|
||||||||||||
June 30,
|
December 31,
|
|||||||||||
(In thousands)
|
2018
|
2017
|
||||||||||
Long-term portion of borrowings
|
Maturities
2019-2020
|
$
|
67,509
|
$
|
44,257
|
|||||||
Total long-term borrowings
|
$
|
67,509
|
$
|
44,257
|
June 30,
|
December 31,
|
|||||||
(In thousands)
|
2018
|
2017
|
||||||
Employee related liabilities (a)
|
$
|
122,861
|
$
|
90,801
|
||||
Derivative liabilities
|
11,530
|
6,372
|
||||||
Discounts and allowances
|
11,119
|
14,132
|
||||||
Accrued taxes
|
48,258
|
47,113
|
||||||
Accrued costs for freight, utility & other
|
25,975
|
28,563
|
||||||
Warranties
|
23,132
|
49,564
|
||||||
Restructuring and sundry losses (b)
|
16,277
|
24,032
|
||||||
Other current liabilities (c)
|
25,095
|
22,146
|
||||||
Total other current liabilities
|
$
|
284,247
|
$
|
282,723
|
(a) |
Employee related liabilities are largely comprised of payroll, employee compensation and benefits, pension and other postretirement benefit obligations.
|
(b) |
Restructuring accruals and accruals for legal costs arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.
|
(c) |
Other current liabilities primarily consist of accruals related to prior acquisitions and investments, as well as various other miscellaneous accruals.
|
June 30,
|
December 31,
|
|||||||
(In thousands)
|
2018
|
2017
|
||||||
Employee related liabilities (a)
|
$
|
21,237
|
$
|
27,135
|
||||
Sundry losses
|
684
|
8,503
|
||||||
Warranties
|
43,094
|
30,753
|
||||||
Tax related liabilities (b)
|
6,041
|
7,163
|
||||||
Other liabilities (c)
|
17,696
|
18,637
|
||||||
Total other liabilities
|
$
|
88,752
|
$
|
92,191
|
(a) |
Employee related liabilities are largely comprised of long-term employee compensation programs.
|
(b) |
Consists of reserves for uncertain tax positions.
|
(c) |
Other liabilities primarily consist of holdbacks and earn-outs.
|
(In thousands)
|
2018
|
2017
|
||||||
Balance at January 1
|
$
|
80,317
|
101,492
|
|||||
Current year provisions
|
20,803
|
25,128
|
||||||
Utilizations and other
|
(34,894
|
)
|
(33,384
|
)
|
||||
Balance at June 30
|
$
|
66,226
|
93,236
|
Total revenues
|
||||||||
For the three months ended June 30
|
||||||||
(In Thousands)
|
2018
|
2017
|
||||||
Equipment
|
$
|
321,468
|
$
|
413,753
|
||||
Services
|
530,574
|
486,197
|
||||||
Digital
|
74,495
|
72,847
|
||||||
Eliminations
|
(9,533
|
)
|
(7,539
|
)
|
||||
Total revenues
|
$
|
917,004
|
$
|
965,258
|
For the three months ended June 30
|
||||||||
(In thousands)
|
2018
|
2017
|
||||||
Equipment
|
$
|
(49,658
|
)
|
$
|
(9,506
|
)
|
||
Services
|
164,160
|
151,860
|
||||||
Digital
|
1,159
|
4,978
|
||||||
Segment profit
|
$
|
115,661
|
$
|
147,332
|
||||
Non-operating benefit costs
|
(2,504
|
)
|
(8,532
|
)
|
||||
Restructuring costs
|
(2,582
|
)
|
(19,636
|
)
|
||||
Interest expense and other finance charges
|
(5,055
|
)
|
(9,141
|
)
|
||||
Provision for income taxes
|
(19,965
|
)
|
(30,853
|
)
|
||||
Net earnings attributable to Parent
|
$
|
85,555
|
$
|
79,170
|
For the six months ended June 30
|
||||||||
(In thousands)
|
2018
|
2017
|
||||||
Equipment
|
$
|
(96,163
|
)
|
$
|
(12,992
|
)
|
||
Services
|
322,440
|
252,945
|
||||||
Digital
|
849
|
6,611
|
||||||
Segment profit
|
$
|
227,126
|
$
|
246,564
|
||||
Non-operating benefit costs
|
(5,155
|
)
|
(11,262
|
)
|
||||
Restructuring costs
|
(4,416
|
)
|
(69,677
|
)
|
||||
Interest expense and other finance charges
|
(9,381
|
)
|
(15,353
|
)
|
||||
Provision for income taxes
|
(44,084
|
)
|
(56,984
|
)
|
||||
Net earnings attributable to Parent
|
$
|
164,090
|
$
|
93,288
|
In millions, except per share data
(In U.S.
dollars unless otherwise indicated) |
Wabtec Historical
|
GE Transportation
Historical
|
Reclassification
Adjustments (Note 6)
|
Pro Forma
Adjustments
|
Notes
|
Pro Forma Combined
Wabtec/GE
Transportation
|
||||||||||||||||||
Sales of goods
|
$
|
2,167.9
|
$
|
1,101.8
|
$
|
(91.3
|
)
|
$
|
(29.2
|
)
|
$
|
3,149.2
|
||||||||||||
Sales of services
|
-
|
672.1
|
91.3
|
(58.0
|
)
|
7(a)
|
|
705.4
|
||||||||||||||||
Net sales
|
2,167.9
|
1,773.9
|
-
|
(87.2
|
)
|
3,854.6
|
||||||||||||||||||
Cost of goods sold
|
(1,533.0
|
)
|
(881.3
|
)
|
153.1
|
19.6
|
7(d)
|
|
(2,241.6
|
)
|
||||||||||||||
Cost of services sold
|
-
|
(406.0
|
)
|
(73.9
|
)
|
(3.1
|
)
|
7(d)
|
|
(483.0
|
)
|
|||||||||||||
Gross profit
|
634.8
|
486.6
|
79.2
|
(70.7
|
)
|
1,129.9
|
||||||||||||||||||
Selling, general and administrative expenses
|
(318.4
|
)
|
(264.8
|
)
|
-
|
50.5
|
7(n)
|
|
(532.7
|
)
|
||||||||||||||
Engineering expenses
|
(41.4
|
)
|
-
|
(56.1
|
)
|
-
|
(97.5
|
)
|
||||||||||||||||
Amortization expense
|
(20.3
|
)
|
-
|
(23.1
|
)
|
(86.1
|
)
|
7(e)
|
|
(129.5
|
)
|
|||||||||||||
Total operating expenses
|
(380.0
|
)
|
(264.8
|
)
|
(79.2
|
)
|
(35.6
|
)
|
(759.6
|
)
|
||||||||||||||
Income from operations
|
254.8
|
221.8
|
-
|
(106.3
|
)
|
370.3
|
||||||||||||||||||
Interest expense, net
|
(52.2
|
)
|
-
|
(10.0
|
)
|
(55.2
|
)
|
7(k)
|
|
(117.4
|
)
|
|||||||||||||
Non-operating benefit costs
|
-
|
(5.2
|
)
|
5.2
|
-
|
-
|
||||||||||||||||||
Other (expense) income, net
|
4.8
|
(4.4
|
)
|
4.8
|
-
|
5.2
|
||||||||||||||||||
Income from operations before income taxes
|
207.4
|
212.3
|
-
|
(161.5
|
)
|
258.2
|
||||||||||||||||||
Income tax expense
|
(36.6
|
)
|
(44.1
|
)
|
-
|
36.2
|
7(j)
|
|
(44.5
|
)
|
||||||||||||||
Net income
|
170.7
|
168.2
|
-
|
(125.3
|
)
|
213.6
|
||||||||||||||||||
Less: Net income attributable to noncontrolling interest
|
2.1
|
(4.1
|
)
|
-
|
-
|
(2.0
|
)
|
|||||||||||||||||
Net income attributable to Wabtec shareholders
|
$
|
172.8
|
$
|
164.1
|
$
|
-
|
$
|
(125.3
|
)
|
$
|
211.6
|
|||||||||||||
Earnings Per Common Share
|
||||||||||||||||||||||||
Basic
|
||||||||||||||||||||||||
Net income attributable to Wabtec shareholders
|
$
|
1.80
|
-
|
-
|
-
|
$
|
1.09
|
|||||||||||||||||
Diluted
|
||||||||||||||||||||||||
Net income attributable to Wabtec shareholders
|
$
|
1.79
|
-
|
-
|
-
|
$
|
1.08
|
|||||||||||||||||
Weighted average shares outstanding
|
||||||||||||||||||||||||
Basic
|
95.867
|
-
|
-
|
98.480
|
7(m)
|
|
194.347
|
|||||||||||||||||
Diluted
|
96.471
|
-
|
-
|
98.480
|
194.951
|
In millions, except per share data
(In U.S.
dollars unless otherwise indicated) |
Wabtec Historical
|
GE Transportation
Historical
|
Reclassification
Adjustments (Note 6)
|
Pro Forma
Adjustments
|
Notes
|
Pro Forma Combined
Wabtec/GE
Transportation
|
||||||||||||||||||
Sales of goods
|
$
|
3,881.8
|
$
|
2,546.6
|
$
|
(196.1
|
)
|
$
|
(73.8
|
)
|
7(a)
|
|
$
|
6,158.5
|
||||||||||
Sales of services
|
-
|
1,383.7
|
196.1
|
(78.9
|
)
|
7(a)
|
|
1,500.9
|
||||||||||||||||
Net sales
|
3,881.8
|
3,930.3
|
-
|
(152.7
|
)
|
7,659.4
|
||||||||||||||||||
Cost of goods sold
|
(2,816.4
|
)
|
(2,129.7
|
)
|
319.0
|
52.5
|
7(a), 7(d)
|
|
(4,574.6
|
)
|
||||||||||||||
Cost of services sold
|
-
|
(877.4
|
)
|
(149.4
|
)
|
(4.4
|
)
|
7(a), 7(d)
|
|
(1,031.2
|
)
|
|||||||||||||
Gross profit
|
1,065.3
|
923.2
|
169.6
|
(104.6
|
)
|
2,053.5
|
||||||||||||||||||
Selling, general and administrative expenses
|
(512.6
|
)
|
(449.7
|
)
|
15.2
|
-
|
(947.1
|
)
|
||||||||||||||||
Engineering expenses
|
(95.2
|
)
|
-
|
(113.1
|
)
|
-
|
(208.3
|
)
|
||||||||||||||||
Amortization expense
|
(36.5
|
)
|
-
|
(71.7
|
)
|
(146.6
|
)
|
7(e)
|
|
(254.8
|
)
|
|||||||||||||
Total operating expenses
|
(644.2
|
)
|
(449.7
|
)
|
(169.6
|
)
|
(146.6
|
)
|
(1,410.1
|
)
|
||||||||||||||
Income from operations
|
421.1
|
473.5
|
-
|
(251.2
|
)
|
643.4
|
||||||||||||||||||
Interest expense, net
|
(77.9
|
)
|
-
|
(41.2
|
)
|
(133.7
|
)
|
7(k)
|
|
(252.8
|
)
|
|||||||||||||
Non-operating benefit costs
|
-
|
(16.9
|
)
|
16.9
|
-
|
-
|
||||||||||||||||||
Other (expense) income, net
|
8.9
|
(24.3
|
)
|
24.3
|
(1.0
|
)
|
7(a)
|
|
7.9
|
|||||||||||||||
Income from operations before income taxes
|
352.2
|
432.4
|
-
|
(385.9
|
)
|
398.7
|
||||||||||||||||||
Income tax expense
|
(89.8
|
)
|
(44.3
|
)
|
-
|
113.8
|
7(j)
|
|
(20.3
|
)
|
||||||||||||||
Net income
|
262.4
|
388.1
|
-
|
(272.1
|
)
|
378.4
|
||||||||||||||||||
Less: Net income attributable to noncontrolling interest
|
-
|
(14.3
|
)
|
-
|
-
|
(14.3
|
)
|
|||||||||||||||||
Net income attributable to Wabtec shareholders
|
$
|
262.4
|
$
|
373.8
|
$
|
-
|
$
|
(272.1
|
)
|
$
|
364.1
|
|||||||||||||
Earnings Per Common Share
|
||||||||||||||||||||||||
Basic
|
||||||||||||||||||||||||
Net income attributable to Wabtec shareholders
|
$
|
2.74
|
-
|
-
|
-
|
$
|
1.87
|
|||||||||||||||||
Diluted
|
||||||||||||||||||||||||
Net income attributable to Wabtec shareholders
|
$
|
2.72
|
-
|
-
|
-
|
$
|
1.87
|
|||||||||||||||||
Weighted average shares outstanding
|
||||||||||||||||||||||||
Basic
|
95.453
|
-
|
-
|
98.480
|
7(m)
|
|
193.933
|
|||||||||||||||||
Diluted
|
96.125
|
-
|
-
|
98.480
|
194.605
|
In millions
(In U.S. dollars
unless otherwise indicated) |
Wabtec Historical
|
GE Transportation
Historical
|
Reclassification
Adjustment (Note 6)
|
Pro Forma
Adjustments
|
Notes
|
Pro Forma Combined
Wabtec/GE
Transportation
|
||||||||||||||||||
Assets
|
||||||||||||||||||||||||
Current Assets
|
||||||||||||||||||||||||
Cash and cash equivalents
|
$
|
245.6
|
$
|
131.5
|
$
|
-
|
$
|
(127.2
|
)
|
7(b), 7(c), 7(g)
|
|
$
|
249.9
|
|||||||||||
Accounts receivable
|
835.2
|
207.5
|
-
|
(10.4
|
)
|
1,032.3
|
||||||||||||||||||
Unbilled accounts receivables
|
378.1
|
-
|
581.1
|
(283.0
|
)
|
7(a)
|
|
676.2
|
||||||||||||||||
Contract and other deferred assets
|
-
|
581.1
|
(581.1
|
)
|
-
|
-
|
||||||||||||||||||
Inventories
|
863.8
|
675.2
|
-
|
74.0
|
7(l)
|
|
1,613.0
|
|||||||||||||||||
Other current assets
|
124.3
|
230.4
|
-
|
-
|
354.7
|
|||||||||||||||||||
Total current assets
|
2,446.9
|
1,825.7
|
-
|
(346.6
|
)
|
3,926.0
|
||||||||||||||||||
Property, plant and equipment
|
1,009.2
|
1,960.7
|
-
|
(734.3
|
)
|
7(d)
|
|
2,235.6
|
||||||||||||||||
Accumulated depreciation
|
(453.4
|
)
|
(1,029.0
|
)
|
-
|
1,029.0
|
7(d)
|
|
(453.4
|
)
|
||||||||||||||
Property, plant and equipment, net
|
555.8
|
931.7
|
-
|
294.7
|
7(d)
|
|
1,782.2
|
|||||||||||||||||
Other Assets
|
||||||||||||||||||||||||
Goodwill
|
2,428.6
|
282.6
|
-
|
8,972.3
|
7(f)
|
|
11,683.5
|
|||||||||||||||||
Other intangibles, net
|
1,174.4
|
253.6
|
-
|
3,346.4
|
7(e)
|
|
4,774.4
|
|||||||||||||||||
Long-term contract and other deferred assets
|
-
|
400.9
|
(400.9
|
)
|
-
|
-
|
||||||||||||||||||
Deferred income taxes
|
-
|
64.4
|
(64.4
|
)
|
-
|
-
|
||||||||||||||||||
Other noncurrent assets
|
71.9
|
80.3
|
465.3
|
(369.3
|
)
|
7(a), 7(h)
|
|
248.2
|
||||||||||||||||
Total other assets
|
3,674.9
|
1,081.9
|
-
|
11,949.4
|
16,706.2
|
|||||||||||||||||||
Total Assets
|
$
|
6,677.6
|
$
|
3,839.3
|
$
|
-
|
$
|
11,897.5
|
$
|
22,414.4
|
||||||||||||||
Liabilities and Shareholders’ Equity
|
||||||||||||||||||||||||
Current Liabilities
|
||||||||||||||||||||||||
Accounts payable
|
$
|
615.7
|
$
|
706.7
|
$
|
-
|
$
|
(10.4
|
)
|
$
|
1,312.0
|
|||||||||||||
Customer deposits
|
390.1
|
-
|
619.4
|
-
|
1,009.5
|
|||||||||||||||||||
Progress collections and other deferred income
|
-
|
619.4
|
(619.4
|
)
|
-
|
-
|
||||||||||||||||||
Accrued compensation
|
163.6
|
-
|
122.9
|
-
|
286.5
|
|||||||||||||||||||
Accrued warranty
|
137.1
|
-
|
23.1
|
-
|
160.2
|
|||||||||||||||||||
Current portion of long-term debt
|
27.1
|
-
|
-
|
-
|
27.1
|
|||||||||||||||||||
Other accrued liabilities
|
272.9
|
284.2
|
(146.0
|
)
|
(29.8
|
)
|
7(a), 7(i)
|
|
381.3
|
|||||||||||||||
Total current liabilities
|
1,606.5
|
1,610.4
|
-
|
(40.2
|
)
|
3,176.7
|
||||||||||||||||||
Long-term debt
|
1,857.8
|
67.5
|
-
|
2,810.7
|
7(c), 7(g)
|
|
4,736.0
|
|||||||||||||||||
Long-term progress collections and other deferred income
|
-
|
17.3
|
(17.3
|
)
|
-
|
-
|
||||||||||||||||||
Reserve for postretirement and pension benefits
|
98.7
|
-
|
21.2
|
-
|
119.9
|
|||||||||||||||||||
Deferred income taxes
|
155.6
|
224.7
|
-
|
(224.7
|
)
|
7(h)
|
|
155.6
|
||||||||||||||||
Accrued warranty
|
16.8
|
-
|
43.1
|
-
|
59.9
|
|||||||||||||||||||
Other long term liabilities
|
67.6
|
88.8
|
(47.0
|
)
|
345.6
|
7(a), 7(i)
|
|
455.0
|
||||||||||||||||
Total Liabilities
|
3,803.0
|
2,008.7
|
-
|
2,891.4
|
8,703.1
|
|||||||||||||||||||
Equity
|
||||||||||||||||||||||||
Preferred Stock
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
Common Stock
|
1.3
|
-
|
-
|
1.0
|
7(m)
|
|
2.3
|
|||||||||||||||||
Additional paid-in capital
|
910.4
|
-
|
1,857.7
|
8,971.1
|
7(a), 7(m)
|
|
11,739.2
|
|||||||||||||||||
Net parent investment
|
-
|
1,857.7
|
(1,857.7
|
)
|
-
|
-
|
||||||||||||||||||
Treasury stock
|
(821.2
|
)
|
-
|
-
|
-
|
(821.2
|
)
|
|||||||||||||||||
Retained earnings
|
2,923.0
|
-
|
-
|
(37.9
|
)
|
2,885.1
|
||||||||||||||||||
Accumulated other comprehensive loss
|
(156.2
|
)
|
(71.9
|
)
|
-
|
71.9
|
7(m)
|
|
(156.2
|
)
|
In millions
(In U.S. dollars
unless otherwise indicated) |
Wabtec Historical
|
GE Transportation
Historical
|
Reclassification
Adjustment (Note 6)
|
Pro Forma
Adjustments
|
Notes
|
Pro Forma Combined
Wabtec/GE
Transportation
|
||||||||||||||||||
Total Group shareholders’ equity
|
2,857.3
|
1,785.9
|
-
|
9,006.1
|
13,649.3
|
|||||||||||||||||||
Noncontrolling Interest
|
17.3
|
44.7
|
-
|
-
|
62.0
|
|||||||||||||||||||
Total Equity
|
2,874.6
|
1,830.6
|
-
|
9,006.1
|
13,711.3
|
|||||||||||||||||||
Total Liabilities and Equity
|
$
|
6,677.6
|
$
|
3,839.3
|
$
|
-
|
$
|
11,897.5
|
$
|
22,414.4
|
|
Purchase Price
|
Estimated Goodwill
|
||||||
As presented in the Pro Forma Combined results
|
$
|
14,164.6
|
$
|
9,254.9
|
||||
10% Increase in Wabtec Common Stock Price
|
$
|
15,247.6
|
$
|
10,337.9
|
||||
10% Decrease in Wabtec Common Stock Price | $ | 13,081.6 | $ | 8,171.9 |
Cash and cash equivalents
|
$
|
0.0
|
||
Accounts receivable
|
495.2
|
|||
Inventories
|
749.2
|
|||
Other current assets
|
230.4
|
|||
Property, plant and equipment
|
1,226.4
|
|||
Goodwill
|
9,254.9
|
|||
Trade names | 300.0 | |||
Intellectual property | 600.0 | |||
Backlog
|
2,000.0
|
|||
Customer relationships | 700.0 | |||
Other noncurrent assets | 176.2 | |||
Total assets acquired
|
15,732.3
|
|||
Current liabilities | (1,488.0 | ) | ||
Contingent consideration
|
(434.7
|
)
|
||
Other noncurrent liabilities
|
(99.1
|
)
|
||
Total liabilities assumed
|
(2,021.8
|
)
|
||
Net assets acquired
|
$
|
13,710.5
|
||
Noncontrolling interest acquired
|
$
|
(44.7
|
)
|
a. |
Reflects adjustments to GE Transportation’s historical financial statements to conform to Wabtec’s adoption of ASC 606 using the modified retrospective method. GE Transportation adopted Accounting Standards Update (“ASU”) No. 2014-09 “Revenue from Contracts with Customers” using the full retrospective method. Additionally, reflects adjustments to GE Transportation’s historical financial statements to conform to Wabtec’s revenue recognition policy for long term service contracts.
|
b. |
Represents the payment by Wabtec related to the Direct Sale Purchase Price of $2.9 billion of cash, less the GE Transportation cash and cash equivalents balance, after giving effect to the settlement of GE Transportation’s loans payable to GE affiliates outside of GE Transportation of $64.0 million.
|
c. |
Represents additional borrowings of $2.9 billion to finance the Direct Sale Purchase Price.
|
d. |
Reflects the adjustment of $294.7 million to increase the basis in the acquired property, plant and equipment to estimated fair value and eliminates GE Transportation’s historical Accumulated depreciation of $1,029.0 million against property, plant and equipment. The estimated useful lives range from three to forty years. The fair value and useful life calculations are preliminary and subject to change after Wabtec finalizes its review of the specific types, nature, age, condition and location of GE Transportation’s property, plant and equipment. The following table summarizes the changes in the estimated depreciation expense (in millions):
|
Year Ended
December
31, 2017
|
Six Months
Ended
June 30, 2018
|
|||||||
Estimated depreciation expense
|
$
|
132.1
|
$
|
64.9
|
||||
Historical depreciation expense
|
(112.3
|
)
|
(55.1
|
)
|
||||
Pro forma increase in depreciation expense
|
$
|
19.8
|
$
|
9.8
|
e. |
Reflects the adjustment of historical intangible assets acquired by Wabtec to their estimated fair values. As part of the preliminary valuation analysis, Wabtec identified intangible assets, including trade names, intellectual property, backlog and customer relationships. The fair value of identifiable intangible assets is determined primarily using the “income approach,” which requires a forecast of expected future cash flows related to these intangibles.
|
Amortization
|
||||||||||||||||
Estimated
Fair Value
|
Estimated
Useful Life
in Years
|
Year Ended
December 31,
2017
|
Six Months
Ended
June 30, 2018
|
|||||||||||||
Trade names
|
$
|
300.0
|
9
|
$
|
33.3
|
$
|
16.7
|
|||||||||
Intellectual property
|
600.0
|
12
|
50.0
|
25.0
|
||||||||||||
Backlog
|
2,000.0
|
20
|
100.0
|
50.0
|
||||||||||||
Customer relationships
|
700.0
|
20
|
35.0
|
17.5
|
||||||||||||
$
|
3,600.0
|
$
|
218.3
|
$
|
109.2
|
|||||||||||
Historical amortization expense
|
(71.7
|
)
|
(23.1
|
)
|
||||||||||||
Pro forma increase in amortization expense
|
$
|
146.6
|
$
|
86.1
|
f. |
Reflects adjustment to remove GE Transportation’s historical goodwill of $282.6 million and record goodwill associated with the Transactions of $9,254.9 million as shown in Note 3.
|
g. |
Reflects the adjustment for the settlement of GE Transportation’s loans payable to GE affiliates outside of GE Transportation in the amount of $67.5 million which will be settled prior to the consummation of the Transactions.
|
h. |
Reflects adjustment to eliminate GE Transportation’s historical deferred tax assets and deferred tax liabilities in the amount of $64.4 million and $224.7 million, respectively.
|
i. |
Represents the estimated fair value of contingent consideration of $434.7 million related to payment of a fixed amount, $470.0 million, to GE which is directly related to the timing of tax benefits expected to be realized subsequent to the Transactions.
|
j. |
Reflects the income tax effect of pro forma adjustments based on an estimated combined tax rate of 29.5% and 22.4% for the year ended December 31, 2017 and the six months ended June 30, 2018, respectively.
|
k. |
Represents the net increase to interest expense resulting from interest on incurrence of an assumed $2.9 billion of new debt to finance the Direct Share Purchase Price and other interest adjustments directly related to the Transactions, as follows (in millions):
|
Year Ended
December 31, 2017
|
Six Months Ended
June 30, 2018
|
|||||||
Interest expense on new debt
|
$
|
125.5
|
$
|
62.8
|
||||
Elimination of interest on retired GET debt
|
(4.8
|
)
|
(2.5
|
)
|
||||
Accretion of contingent consideration
|
8.8
|
4.4
|
||||||
Amortization of new debt issuance costs
|
4.2
|
2.1
|
||||||
Pro forma adjustments to interest expense
|
$
|
133.7
|
$
|
66.8
|
l. |
Represents the estimated adjustment to step up GE Transportation’s inventory to a fair value of approximately $749.2 million, an increase of $74.0 million from the carrying value. The fair value calculation is preliminary and subject to change. The fair value was determined based on the estimated selling price of the inventory less the remaining manufacturing and selling costs and a normal profit margin on those manufacturing and selling efforts. After the consummation of the Transactions, the step-up in inventory fair value of $74.0 million will increase cost of sales over approximately 12 months as the inventory is sold. This increase is not reflected in the unaudited pro forma condensed combined statements of income because it does not have a continuing impact.
|
m. |
Represents the elimination of the historical equity of GE Transportation and the issuance of 98.5 million shares of Wabtec common stock as consideration in the Merger.
|
n. |
Represents the elimination of transaction costs of $50.5 million directly related to the Transactions which will not have a recurring impact on operations.
|
December 31, | ||||||||
In thousands, except shares and par value | 2017 | 2016 | ||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 233,401 | $ | 398,484 | ||||
Accounts receivable | 800,619 | 667,596 | ||||||
Unbilled accounts receivable | 366,168 | 274,912 | ||||||
Inventories | 742,634 | 658,510 | ||||||
Deposits in escrow | — | 744,748 | ||||||
Other assets | 122,291 | 123,381 | ||||||
Total current assets
|
2,265,113 | 2,867,631 | ||||||
Property, plant and equipment | 1,026,046 | 912,230 | ||||||
Accumulated depreciation | (452,074 | ) | (393,854 | ) | ||||
Property, plant and equipment, net
|
573,972 | 518,376 | ||||||
Other Assets | ||||||||
Goodwill | 2,460,103 | 2,078,765 | ||||||
Other intangibles, net | 1,204,432 | 1,053,860 | ||||||
Other noncurrent assets | 76,360 | 62,386 | ||||||
Total other assets
|
3,740,895 | 3,195,011 | ||||||
Total Assets
|
$ | 6,579,980 | $ | 6,581,018 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 552,525 | $ | 530,211 | ||||
Customer deposits | 369,716 | 256,591 | ||||||
Accrued compensation | 164,210 | 145,324 | ||||||
Accrued warranty | 137,542 | 123,190 | ||||||
Current portion of long-term debt | 47,225 | 129,809 | ||||||
Other accrued liabilities | 302,112 | 261,514 | ||||||
Total current liabilities
|
1,573,330 | 1,446,639 | ||||||
Long-term debt | 1,823,303 | 1,762,967 | ||||||
Accrued postretirement and pension benefits | 103,734 | 110,597 | ||||||
Deferred income taxes | 175,902 | 245,680 | ||||||
Accrued warranty | 15,521 | 15,802 | ||||||
Other long-term liabilities | 59,658 | 22,508 | ||||||
Total liabilities
|
3,751,448 | 3,604,193 | ||||||
Commitment and Contingencies (Note 19) | ||||||||
Equity | ||||||||
Preferred stock, 1,000,000 shares authorized, no shares issued | — | — | ||||||
Common stock, $.01 par value; 200,000,000 shares authorized: 132,349,534 shares issued and 96,034,352 and 95,425,432 outstanding at December 31, 2017 and December 31, 2016, respectively
|
1,323 | 1,323 | ||||||
Additional paid-in capital | 906,616 | 869,951 | ||||||
Treasury stock, at cost, 36,315,182 and 36,924,102 shares, at December 31, 2017 and December 31, 2016, respectively
|
(827,379 | ) | (838,950 | ) | ||||
Retained earnings | 2,773,300 | 2,553,258 | ||||||
Accumulated other comprehensive loss | (44,992 | ) | (379,605 | ) | ||||
Total Westinghouse Air Brake Technologies Corporation shareholders’ equity
|
2,808,868 | 2,205,977 | ||||||
Noncontrolling interest | 19,664 | 770,848 | ||||||
Total equity
|
2,828,532 | 2,976,825 | ||||||
Total Liabilities and Equity
|
$ | 6,579,980 | $ | 6,581,018 |
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
In thousands, except per share data | ||||||||||||
Net sales | $ | 3,881,756 | $ | 2,931,188 | $ | 3,307,998 | ||||||
Cost of sales | (2,816,443 | ) | (2,006,949 | ) | (2,260,182 | ) | ||||||
Gross profit
|
1,065,313 | 924,239 | 1,047,816 | |||||||||
Selling, general and administrative expenses | (512,552 | ) | (373,559 | ) | (346,086 | ) | ||||||
Engineering expenses | (95,166 | ) | (71,375 | ) | (71,213 | ) | ||||||
Amortization expense | (36,516 | ) | (22,698 | ) | (21,663 | ) | ||||||
Total operating expenses
|
(644,234 | ) | (467,632 | ) | (438,962 | ) | ||||||
Income from operations
|
421,079 | 456,607 | 608,854 | |||||||||
Other income and expenses | ||||||||||||
Interest expense, net
|
(77,884 | ) | (50,298 | ) | (27,254 | ) | ||||||
Other (expense) income, net
|
8,868 | 6,528 | 3,768 | |||||||||
Income from operations before income taxes
|
352,063 | 412,837 | 585,368 | |||||||||
Income tax expense | (89,773 | ) | (99,433 | ) | (186,740 | ) | ||||||
Net income
|
262,290 | 313,404 | 398,628 | |||||||||
Less: Net income attributable to noncontrolling interest | (29 | ) | (8,517 | ) | — | |||||||
Net income attributable to Wabtec shareholders
|
$ | 262,261 | $ | 304,887 | $ | 398,628 | ||||||
Earnings Per Common Share | ||||||||||||
Basic
|
||||||||||||
Net income attributable to Wabtec shareholders
|
$ | 2.74 | $ | 3.37 | $ | 4.14 | ||||||
Diluted
|
||||||||||||
Net income attributable to Wabtec shareholders
|
$ | 2.72 | $ | 3.34 | $ | 4.10 | ||||||
Weighted average shares outstanding | ||||||||||||
Basic
|
95,453 | 90,359 | 96,074 | |||||||||
Diluted
|
96,125 | 91,141 | 97,006 |
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
In thousands, except per share data | ||||||||||||
Net income attributable to Wabtec shareholders | $ | 262,261 | $ | 304,887 | $ | 398,628 | ||||||
Foreign currency translation gain (loss) | 326,096 | (93,684 | ) | (132,899 | ) | |||||||
Unrealized gain (loss) on derivative contracts | 9,799 | 305 | (1,202 | ) | ||||||||
Unrealized gain (loss) on pension benefit plans and post-retirement benefit plans | 2,845 | (12,021 | ) | 26,689 | ||||||||
Other comprehensive gain (loss) before tax
|
338,740 | (105,400 | ) | (107,412 | ) | |||||||
Income tax (expense) benefit related to components of other comprehensive loss | (4,127 | ) | 2,514 | (9,821 | ) | |||||||
Other comprehensive income (loss), net of tax
|
334,613 | (102,886 | ) | (117,233 | ) | |||||||
Comprehensive income attributable to Wabtec shareholders
|
$ | 596,874 | $ | 202,001 | $ | 281,395 |
December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
In thousands, except per share data | ||||||||||||
Operating Activities | ||||||||||||
Net income | $ | 262,290 | $ | 313,404 | $ | 398,628 | ||||||
Adjustments to reconcile net income to cash provided by operations: | ||||||||||||
Depreciation and amortization
|
103,248 | 69,795 | 64,734 | |||||||||
Stock-based compensation expense
|
21,287 | 20,813 | 26,019 | |||||||||
Deferred income taxes
|
(67,423 | ) | (10,228 | ) | 4,981 | |||||||
Loss on disposal of property, plant and equipment
|
1,907 | 232 | 587 | |||||||||
Changes in operating assets and liabilities, net of acquisitions
|
||||||||||||
Accounts receivable and unbilled accounts receivable
|
(68,676 | ) | 19,728 | 21,500 | ||||||||
Inventories
|
(8,955 | ) | 45,340 | 20,147 | ||||||||
Accounts payable
|
(91,722 | ) | (18,932 | ) | (76,650 | ) | ||||||
Accrued income taxes
|
47,644 | (11,759 | ) | 21,740 | ||||||||
Accrued liabilities and customer deposits
|
(18,891 | ) | (11,338 | ) | (14,837 | ) | ||||||
Other assets and liabilities
|
8,102 | 33,475 | (16,005 | ) | ||||||||
Net cash provided by operating activities
|
188,811 | 450,530 | 450,844 | |||||||||
Investing Activities | ||||||||||||
Purchase of property, plant and equipment
|
(89,466 | ) | (50,216 | ) | (49,428 | ) | ||||||
Proceeds from disposal of property, plant and equipment
|
1,291 | 363 | 1,784 | |||||||||
Acquisitions of business, net of cash acquired
|
(945,299 | ) | (183,113 | ) | (129,550 | ) | ||||||
Net cash used for investing activities
|
(1,033,474 | ) | (232,966 | ) | (177,194 | ) | ||||||
Financing Activities | ||||||||||||
Proceeds from debt
|
1,216,740 | 1,875,000 | 787,400 | |||||||||
Payments of debt
|
(1,269,537 | ) | (1,102,748 | ) | (612,680 | ) | ||||||
Stock re-purchase
|
— | (212,176 | ) | (387,787 | ) | |||||||
Proceeds from exercise of stock options and other benefit plans
|
4,428 | 1,983 | 3,097 | |||||||||
Payment of income tax withholding on share-based compensation
|
(6,844 | ) | (6,658 | ) | (14,565 | ) | ||||||
Cash dividends ($0.44, $0.36 and $0.28 per share for the years ended December 31, 2017, 2016 and 2015)
|
(42,218 | ) | (32,430 | ) | (26,963 | ) | ||||||
Net cash (used for) provided by financing activities
|
(97,431 | ) | 522,971 | (251,498 | ) | |||||||
Effect of changes in currency exchange rates | 32,263 | (26,436 | ) | (18,868 | ) | |||||||
(Decrease) increase in cash
|
(909,831 | ) | 714,099 | 3,284 | ||||||||
Cash, cash equivalents and restricted cash, beginning of year
|
1,143,232 | 429,133 | 425,849 | |||||||||
Cash, cash equivalents and restricted cash, end of year
|
$ | 233,401 | $ | 1,143,232 | $ | 429,133 |
In thousands, except share and per share data
|
Common Stock Shares | Common Stock Amount | Additional Paid-in Capital | Treasury Stock Shares | Treasury Stock Amount | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Non-controlling Interest | Total | |||||||||||||||||||||||||||
Balance, December 31, 2014
|
132,349,534 | $ | 1,323 | $ | 448,531 | (36,075,139 | ) | $ | (392,262 | ) | $ | 1,909,136 | $ | (159,486 | ) | $ | 1,732 | $ | 1,808,974 | |||||||||||||||||
Cash dividends ($0.28 dividend per share)
|
— | — | — | — | — | (26,963 | ) | — | — | (26,963 | ) | |||||||||||||||||||||||||
Proceeds from treasury stock issued from the exercise of stock options and other benefit plans, net of tax
|
— | — | (2,918 | ) | 450,738 | 4,925 | — | — | — | 2,007 | ||||||||||||||||||||||||||
Stock based compensation
|
— | — | 23,713 | — | — | — | — | — | 23,713 | |||||||||||||||||||||||||||
Net income
|
— | — | — | — | — | 398,628 | — | — | 398,628 | |||||||||||||||||||||||||||
Translation adjustment
|
— | — | — | — | — | — | (132,899 | ) | — | (132,899 | ) | |||||||||||||||||||||||||
Unrealized loss on foreign exchange contracts, net of $14 tax
|
— | — | — | — | — | — | (66 | ) | — | (66 | ) | |||||||||||||||||||||||||
Unrealized loss on interest rate swap contracts, net of $444 tax
|
— | — | — | — | — | — | (678 | ) | — | (678 | ) | |||||||||||||||||||||||||
Change in pension and post-retirement benefit plans, net of $10,279 tax
|
— | — | — | — | — | — | 16,410 | — | 16,410 | |||||||||||||||||||||||||||
Stock re-purchase
|
— | — | — | (4,889,027 | ) | (387,787 | ) | — | — | — | (387,787 | ) | ||||||||||||||||||||||||
Balance, December 31, 2015
|
132,349,534 | 1,323 | 469,326 | (40,513,428 | ) | (775,124 | ) | 2,280,801 | (276,719 | ) | 1,732 | 1,701,339 | ||||||||||||||||||||||||
Cash dividends ($0.36 dividend per share)
|
— | — | — | — | — | (32,430 | ) | — | — | (32,430 | ) | |||||||||||||||||||||||||
Proceeds from treasury stock issued from the exercise of stock options and other benefit plans, net of tax
|
— | — | (8,490 | ) | 328,245 | 5,038 | — | — | — | (3,452 | ) | |||||||||||||||||||||||||
Stock based compensation
|
— | — | 17,748 | — | — | — | — | — | 17,748 | |||||||||||||||||||||||||||
Non-controlling interests associated with Faiveley Transport Acquisition
|
— | — | — | — | — | — | — | 760,599 | 760,599 | |||||||||||||||||||||||||||
Net income
|
— | — | — | — | — | 304,887 | — | 8,517 | 313,404 | |||||||||||||||||||||||||||
Translation adjustment
|
— | — | — | — | — | — | (93,684 | ) | — | (93,684 | ) | |||||||||||||||||||||||||
Unrealized loss on foreign exchange contracts, net of $45 tax
|
— | — | — | — | — | — | (324 | ) | — | (324 | ) | |||||||||||||||||||||||||
Unrealized gain on interest rate swap contracts, net of $230 tax
|
— | — | — | — | — | — | 354 | — | 354 | |||||||||||||||||||||||||||
Change in pension and post-retirement benefit plans, net of $2,790 tax
|
— | — | — | — | — | — | (9,232 | ) | — | (9,232 | ) | |||||||||||||||||||||||||
Stock issued for Faiveley Transport Acquisition
|
— | — | 391,367 | 6,307,489 | 143,312 | — | — | — | 534,679 | |||||||||||||||||||||||||||
Stock re-purchase
|
— | — | — | (3,046,408 | ) | (212,176 | ) | — | — | — | (212,176 | ) | ||||||||||||||||||||||||
Balance, December 31, 2016
|
132,349,534 | 1,323 | 869,951 | (36,924,102 | ) | (838,950 | ) | 2,553,258 | (379,605 | ) | 770,848 | 2,976,825 | ||||||||||||||||||||||||
Cash dividends ($0.44 dividend per share)
|
— | — | — | — | — | (42,218 | ) | — | — | (42,218 | ) | |||||||||||||||||||||||||
Proceeds from treasury stock issued from the exercise of stock options and other benefit plans, net of tax
|
— | — | (7,361 | ) | 608,920 | 4,945 | — | — | — | (2,416 | ) | |||||||||||||||||||||||||
Stock based compensation
|
— | — | 16,650 | — | — | — | — | — | 16,650 | |||||||||||||||||||||||||||
Acquisition of Faiveley Transport noncontrolling interest
|
— | — | 8,931 | — | — | — | — | (751,213 | ) | (742,282 | ) | |||||||||||||||||||||||||
Net income
|
— | — | — | — | — | 262,261 | — | 29 | 262,290 | |||||||||||||||||||||||||||
Translation adjustment
|
— | — | — | — | — | — | 326,095 | — | 326,095 | |||||||||||||||||||||||||||
Unrealized gain on foreign exchange contracts, net of $1,763 tax
|
— | — | — | — | — | — | 2,282 | — | 2,282 | |||||||||||||||||||||||||||
Unrealized gain on interest rate swap contracts, net of $1,079 tax
|
— | — | — | — | — | — | 4,689 | — | 4,689 | |||||||||||||||||||||||||||
Change in pension and post-retirement benefit plans, net of $1,300 tax
|
— | — | — | — | — | — | 1,546 | — | 1,546 | |||||||||||||||||||||||||||
Stock issued for Faiveley Transport Acquisition
|
— | — | 18,445 | — | 6,626 | — | — | — | 25,071 | |||||||||||||||||||||||||||
Balance, December 31, 2017
|
132,349,534 | $ | 1,323 | $ | 906,616 | (36,315,182 | ) | $ | (827,379 | ) | $ | 2,773,301 | $ | (44,993 | ) | $ | 19,664 | $ | 2,828,532 |
· |
On November 30, 2016, the Company acquired majority ownership of Faiveley Transport, after completing the purchase of the Faiveley family’s ownership interest under the terms of the Share Purchase Agreement, which directed the Company to pay €100 per share of Faiveley Transport, payable between 25% and 45% in cash at the election of those shareholders and the remainder payable in Wabtec stock. The Faiveley family’s ownership interest acquired by the Company represented approximately 51% of outstanding share capital and approximately 49% of the outstanding voting shares of Faiveley Transport. Upon completion of the share purchase under the Share Purchase Agreement, Wabtec commenced a tender offer for the remaining publicly traded Faiveley Transport shares. The public shareholders had the option to elect to receive €100 per share in cash or 1.1538 shares of Wabtec common stock per share of Faiveley Transport. The common stock portion of the consideration was subject to a cap on issuance of Wabtec common shares that was equivalent to the rates of cash and stock elected by the 51% owners.
|
· |
On February 3, 2017, the initial cash tender offer was closed, which resulted in the Company acquiring approximately 27% of additional outstanding share capital and voting rights of Faiveley Transport for approximately $411.8 million in cash and $25.2 million in Wabtec stock. After the initial cash tender offer, the Company owned approximately 78% of outstanding share capital and 76% of voting rights.
|
· |
On March 6, 2017, the final cash tender offer was closed, which resulted in the Company acquiring approximately 21% of additional outstanding share capital and 22% of additional outstanding voting rights of Faiveley Transport for approximately $303.2 million in cash and $0.3 million in Wabtec stock. After the final cash tender offer, the Company owned approximately 99% of the share capital and 98% of the voting rights of Faiveley Transport.
|
· |
On March 21, 2017, a mandatory squeeze-out procedure was finalized, which resulted in the Company acquiring the Faiveley Transport shares not tendered in the offers for approximately $17.5 million in cash. This resulted in the Company owning 100% of the share capital and voting rights of Faiveley Transport.
|
In thousands | |||||
Assets acquired | |||||
Cash and cash equivalents | $ | 178,318 | |||
Accounts receivable | 439,631 | ||||
Inventories | 205,649 | ||||
Other current assets | 70,930 | ||||
Property, plant, and equipment | 148,746 | ||||
Goodwill | 1,262,350 | ||||
Trade names | 346,328 | ||||
Customer Relationships | 233,529 | ||||
Patents | 1,201 | ||||
Other noncurrent assets | 184,564 | ||||
Total assets acquired
|
3,071,246 | ||||
Liabilities assumed | |||||
Current liabilities | 819,493 | ||||
Debt | 409,899 | ||||
Other noncurrent liabilities | 335,039 | ||||
Total liabilities assumed | 1,564,431 | ||||
Net assets acquired | $ | 1,506,815 |
· |
On December 4, 2017, the Company acquired Melett Limited (“Melett”), a leader in the design, manufacture, and supply of high-quality turbochargers and replacement parts to the turbocharger aftermarket, for a purchase price of approximately $74.0 million, net of cash acquired, resulting in preliminary goodwill of $22.5 million, none of which will be deductible for tax purposes.
|
· |
On April 5, 2017, the Company acquired Thermal Transfer Corporation (“TTC”), a leading provider of heat transfer solutions for industrial applications, for a purchase price of approximately $32.5 million, net of cash acquired, resulting in preliminary goodwill of $16.3 million, all of which will be deductible for tax purposes.
|
· |
On March 13, 2017, the Company acquired Aero Transportation Products (“ATP”), a manufacturer of engineered covering systems for hopper freight cars, for a purchase price of approximately $65.3 million, net of cash acquired, resulting in preliminary goodwill of $29.0 million, all of which will be deductible for tax purposes.
|
· |
On December 14, 2016, the Company acquired Workhorse Rail LLC (“Workhorse”), a supplier of engineered freight car components, mainly for the aftermarket for a purchase price of approximately $43.8 million, net of cash acquired, resulting in goodwill of $22.3 million, 38% of which will be deductible for tax purposes.
|
· |
On November 17, 2016, the Company acquired the assets of Precision Turbo & Engine (“Precision Turbo”), a designer and manufacturer of high-performance, aftermarket turbochargers, wastegates, and heat exchangers for the automotive performance market for a purchase price of approximately $13.9 million, net of cash acquired, resulting in goodwill of $4.2 million, all of which will be deductible for tax purposes.
|
· |
On May 5, 2016, the Company acquired the assets of Unitrac Railroad Materials (“Unitrac”), a leading designer and manufacturer of railroad products and track work services for a purchase price of approximately $14.8 million, net of cash acquired, resulting in goodwill of $2.4 million, all of which will be deductible for tax purposes.
|
Melett | TTC | ATP | Workhorse | Precision Turbo | Unitrac | |||||||||||||||||||
In thousands | December 4, 2017 | April 5, 2017 | March 13, 2017 | December 14, 2016 | November 17, 2016 | May 5, 2016 | ||||||||||||||||||
Current assets | $ | 21,068 | $ | 3,746 | $ | 11,666 | $ | 9,137 | $ | 4,145 | $ | 11,476 | ||||||||||||
Property, plant & equipment | 5,917 | 5,909 | 5,354 | — | 1,317 | 1,768 | ||||||||||||||||||
Goodwill | 22,501 | 16,309 | 29,034 | 22,273 | 4,248 | 2,442 | ||||||||||||||||||
Other intangible assets | 39,259 | 12,300 | 25,000 | 21,500 | 5,200 | 1,230 | ||||||||||||||||||
Total assets acquired | 88,745 | 38,264 | 71,054 | 52,910 | 14,910 | 16,916 | ||||||||||||||||||
Total liabilities assumed | (14,789 | ) | (5,753 | ) | (5,800 | ) | (9,083 | ) | (1,057 | ) | (2,145 | ) | ||||||||||||
Net assets acquired | $ | 73,956 | $ | 32,511 | $ | 65,254 | $ | 43,827 | $ | 13,853 | $ | 14,771 |
· |
On October 2, 2017, the Company acquired AM General Contractor (“AM General”), a manufacturer of safety systems, mainly for transit rail cars for a purchase price of approximately $10.4 million, net of cash acquired, resulting in preliminary goodwill of $12.9 million, none of which will be deductible for tax purposes.
|
· |
On
August 1, 2016
, the Company acquired Gerken Group S.A. (“Gerken”), a manufacturer of specialty carbon and graphite products for rail and other industrial applications, for a purchase price of approximately $62.8 million, net of cash acquired, resulting in goodwill of $17.5 million, none of which will be deductible for tax purposes.
|
AM General | Gerken | |||||||
In thousands | October 2, 2017 | August 1, 2016 | ||||||
Current assets | $ | 6,611 | $ | 32,706 | ||||
Property, plant & equipment | 4,140 | 7,667 | ||||||
Goodwill | 12,943 | 17,470 | ||||||
Other intangible assets | 12,097 | 30,560 | ||||||
Other assets | — | 1,706 | ||||||
Total assets acquired
|
35,791 | 90,109 | ||||||
Total liabilities assumed
|
(25,375 | ) | (27,262 | ) | ||||
Net assets acquired
|
$ | 10,416 | $ | 62,847 |
For the year ended
December 31, |
||||||||
In thousands | 2017 | 2016 | ||||||
Net sales | $ | 3,946,244 | $ | 4,212,617 | ||||
Gross profit | 1,095,101 | 1,275,835 | ||||||
Net income attributable to Wabtec shareholders | 271,783 | 349,852 | ||||||
Diluted earnings per share | ||||||||
As Reported | $ | 2.72 | $ | 3.34 | ||||
Pro forma | $ | 2.82 | $ | 3.83 |
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
In thousands | ||||||||||||
Interest paid during the year | $ | 75,317 | $ | 30,211 | $ | 19,372 | ||||||
Income taxes paid during the year, net of amount refunded | $ | 89,379 | $ | 121,563 | $ | 147,958 | ||||||
Business acquisitions: | ||||||||||||
Fair value of assets acquired | 452,209 | 3,118,420 | 156,020 | |||||||||
Liabilities assumed | 207,788 | 1,453,382 | 20,789 | |||||||||
Non-controlling interest (acquired) assumed | (761,786 | ) | 760,343 | — | ||||||||
Stock and cash paid | 1,006,207 | 904,695 | 135,231 | |||||||||
Less: Cash acquired | 35,408 | 186,903 | 5,681 | |||||||||
Stock used for acquisition | 25,500 | 534,679 | — | |||||||||
Net cash paid | $ | 945,299 | $ | 183,113 | $ | 129,550 |
December 31, | ||||||||
In thousands | 2017 | 2016 | ||||||
Raw materials | $ | 378,481 | $ | 331,465 | ||||
Work-in-progress | 167,390 | 145,462 | ||||||
Finished goods | 196,763 | 181,583 | ||||||
Total inventories
|
$ | 742,634 | $ | 658,510 |
December 31, | ||||||||
In thousands | 2017 | 2016 | ||||||
Machinery and equipment | $ | 728,257 | $ | 645,354 | ||||
Buildings and improvements | 259,561 | 225,307 | ||||||
Land and improvements | 38,228 | 41,569 | ||||||
Property, plant and equipment
|
1,026,046 | 912,230 | ||||||
Less: accumulated depreciation | (452,074 | ) | (393,854 | ) | ||||
Total
|
$ | 573,972 | $ | 518,376 |
Years
|
|
Land improvements
|
10 to 20
|
Building and improvements
|
20 to 40
|
Machinery and equipment
|
3 to 15
|
In thousands |
Freight
Segment |
Transit
Segment |
Total | |||||||||
Balance at December 31, 2016 | $ | 550,902 | $ | 1,527,863 | $ | 2,078,765 | ||||||
Additions | 152,096 | 34,391 | 186,487 | |||||||||
Foreign currency impact | 15,960 | 178,891 | 194,851 | |||||||||
Balance at December 31, 2017 | $ | 718,958 | $ | 1,741,145 | $ | 2,460,103 |
December 31, | ||||||||
In thousands | 2017 | 2016 | ||||||
Patents, non-compete and other intangibles, net of accumulated amortization of $43,021 and $40,638 | $ | 17,554 | $ | 15,360 | ||||
Customer relationships, net of accumulated amortization of $126,824 and $87,334 | 583,459 | 528,068 | ||||||
Total
|
$ | 601,013 | $ | 543,428 |
2018 | $ | 38,059 | |||
2019 | 36,076 | ||||
2020 | 34,050 | ||||
2021 | 33,777 | ||||
2022 | 33,489 |
December 31, | ||||||||
In thousands | 2017 | 2016 | ||||||
3.45% Senior Notes due 2026, net of unamortized debt issuance costs of $2,345 and $2,526 | $ | 747,655 | $ | 747,474 | ||||
4.375% Senior Notes due 2023, net of unamortized discount and debt issuance costs of $1,433 and $1,690 | 248,567 | 248,310 | ||||||
Revolving Credit Facility and Term Loan, net of unamortized debt issuance costs of $2,451 and $3,850 | 853,124 | 796,150 | ||||||
Schuldschein Loan | 11,998 | 98,671 | ||||||
Other Borrowings | 6,860 | 1,153 | ||||||
Capital Leases | 2,324 | 1,018 | ||||||
Total
|
1,870,528 | 1,892,776 | ||||||
Less - current portion
|
47,225 | 129,809 | ||||||
Long-term portion
|
$ | 1,823,303 | $ | 1,762,967 |
Scheduled principal repayments of debt and capital lease balances as of December 31, 2017 are as follows: | |||||
2018 | $ | 47,225 | |||
2019 | 330,901 | ||||
2020 | 559 | ||||
2021 | 483,379 | ||||
2022 | 208 | ||||
Future years
|
1,008,256 | ||||
Total
|
$ | 1,870,528 |
U.S. | International | |||||||||||||||
In thousands | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Change in projected benefit obligation | ||||||||||||||||
Obligation at beginning of year | $ | (45,512 | ) | $ | (46,120 | ) | $ | (319,551 | ) | $ | (195,311 | ) | ||||
Opening balance sheet adjustment | — | — | (5,321 | ) | — | |||||||||||
Service cost | (344 | ) | (337 | ) | (2,740 | ) | (1,379 | ) | ||||||||
Interest cost | (1,422 | ) | (1,475 | ) | (7,310 | ) | (5,774 | ) | ||||||||
Employee contributions | — | — | (880 | ) | (195 | ) | ||||||||||
Plan curtailments and amendments | — | — | 4,153 | 2,061 | ||||||||||||
Benefits paid | 3,079 | 3,893 | 12,906 | 9,427 | ||||||||||||
Acquisition | — | — | — | (114,242 | ) | |||||||||||
Actuarial gain (loss) | (14 | ) | (1,473 | ) | (3,009 | ) | (33,330 | ) | ||||||||
Effect of currency rate changes | — | — | (31,265 | ) | 19,192 | |||||||||||
Obligation at end of year | $ | (44,213 | ) | $ | (45,512 | ) | $ | (353,017 | ) | $ | (319,551 | ) | ||||
Change in plan assets | ||||||||||||||||
Fair value of plan assets at beginning of year | $ | 35,802 | $ | 37,640 | $ | 241,283 | $ | 168,069 | ||||||||
Opening balance sheet adjustment | — | — | 2,058 | — | ||||||||||||
Actual return on plan assets | 4,223 | 2,055 | 19,102 | 20,066 | ||||||||||||
Employer contributions | 486 | — | 13,479 | 6,933 | ||||||||||||
Employee contributions | — | — | 880 | 195 | ||||||||||||
Benefits paid | (3,079 | ) | (3,893 | ) | (12,905 | ) | (9,427 | ) | ||||||||
Acquisition | — | — | — | 70,519 | ||||||||||||
Settlements | (4,523 | ) | ||||||||||||||
Effect of currency rate changes | — | — | 22,228 | (15,072 | ) | |||||||||||
Fair value of plan assets at end of year | $ | 37,432 | $ | 35,802 | $ | 281,602 | $ | 241,283 | ||||||||
Funded status | ||||||||||||||||
Fair value of plan assets | $ | 37,432 | $ | 35,802 | $ | 281,602 | $ | 241,283 | ||||||||
Benefit obligations | (44,213 | ) | (45,512 | ) | (353,017 | ) | (319,551 | ) | ||||||||
Funded status | $ | (6,781 | ) | $ | (9,710 | ) | $ | (71,415 | ) | $ | (78,268 | ) | ||||
Amounts recognized in the statement of financial position consist of: | ||||||||||||||||
Noncurrent assets | $ | — | $ | — | $ | 10,577 | $ | 7,130 | ||||||||
Current liabilities | — | — | (2,158 | ) | (2,042 | ) | ||||||||||
Noncurrent liabilities | (6,781 | ) | (9,710 | ) | (79,834 | ) | (83,356 | ) | ||||||||
Net amount recognized | $ | (6,781 | ) | $ | (9,710 | ) | $ | (71,415 | ) | $ | (78,268 | ) | ||||
Amounts recognized in accumulated other comprehensive income (loss) consist of: | ||||||||||||||||
Prior service cost | (6 | ) | (8 | ) | (32 | ) | (56 | ) | ||||||||
Net actuarial loss | (20,418 | ) | (23,884 | ) | (54,043 | ) | (56,411 | ) | ||||||||
Net amount recognized | $ | (20,424 | ) | $ | (23,892 | ) | $ | (54,075 | ) | $ | (56,467 | ) |
U.S. | International | |||||||||||||||
In thousands | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Information for pension plans with accumulated benefit obligations in excess of Plan assets: | ||||||||||||||||
Projected benefit obligation | $ | (44,213 | ) | $ | (45,512 | ) | $ | (282,077 | ) | $ | (255,682 | ) | ||||
Accumulated benefit obligation | (43,340 | ) | (44,530 | ) | (274,557 | ) | (249,729 | ) | ||||||||
Fair value of plan assets | 37,432 | 35,802 | 200,218 | 170,367 | ||||||||||||
Information for pension plans with projected benefit obligations in excess of plan assets: | ||||||||||||||||
Projected benefit obligation | $ | (44,213 | ) | $ | (45,512 | ) | $ | (283,106 | ) | $ | (256,530 | ) | ||||
Fair value of plan assets | 37,432 | 35,802 | 201,115 | 171,133 |
U.S. | International | |||||||||||||||||||||||
In thousands | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | ||||||||||||||||||
Service cost | $ | 344 | $ | 337 | $ | 381 | $ | 2,740 | $ | 1,379 | $ | 2,015 | ||||||||||||
Interest cost | 1,422 | 1,475 | 1,914 | 7,310 | 5,774 | 7,091 | ||||||||||||||||||
Expected return on plan assets | (1,731 | ) | (2,076 | ) | (2,168 | ) | (12,412 | ) | (9,971 | ) | (9,591 | ) | ||||||||||||
Amortization of initial net obligation and prior service cost | 3 | 3 | 3 | 27 | 61 | 212 | ||||||||||||||||||
Amortization of net loss | 989 | 914 | 1,062 | 2,846 | 1,818 | 2,379 | ||||||||||||||||||
Settlement and curtailment losses recognized | — | — | — | 768 | 218 | — | ||||||||||||||||||
Net periodic benefit cost | $ | 1,027 | $ | 653 | $ | 1,192 | $ | 1,279 | $ | (721 | ) | $ | 2,106 |
In thousands | U.S. | International | ||||||
Net gain (loss) arising during the year | $ | 2,477 | $ | 3,683 | ||||
Effect of exchange rates | — | (4,945 | ) | |||||
Amortization, settlement, or curtailment recognition of net transition obligation | — | 768 | ||||||
Amortization or curtailment recognition of prior service cost | 3 | 27 | ||||||
Amortization or settlement recognition of net loss | 989 | 2,846 | ||||||
Total recognized in other comprehensive gain | $ | 3,469 | $ | 2,379 | ||||
Total recognized in net periodic benefit cost and other comprehensive gain | $ | 2,442 | $ | 1,100 |
U.S. | International | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2017 | 2016 | 2015 | |||||||||||||||||||
Discount rate | 3.56 | % | 3.95 | % | 4.21 | % | 2.40 | % | 2.51 | % | 3.56 | % | ||||||||||||
Expected return on plan assets | 4.95 | % | 5.70 | % | 5.70 | % | 5.02 | % | 6.07 | % | 5.81 | % | ||||||||||||
Rate of compensation increase | 3.00 | % | 3.00 | % | 3.00 | % | 2.54 | % | 2.54 | % | 3.10 | % |
In thousands | U.S. | International | ||||||
Prior service cost | 3 | 22 | ||||||
Net actuarial loss | 970 | 2,193 | ||||||
$ | 973 | $ | 2,215 |
U.S. | International | |||||||||||||||
In thousands | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Pension Plan Assets | ||||||||||||||||
Equity security funds | $ | 18,122 | $ | 17,446 | $ | 100,453 | $ | 92,201 | ||||||||
Debt security funds and other | 18,304 | 17,038 | 178,730 | 145,003 | ||||||||||||
Cash and cash equivalents | 1,006 | 1,318 | 2,419 | 4,079 | ||||||||||||
Fair value of plan assets | $ | 37,432 | $ | 35,802 | $ | 281,602 | $ | 241,283 |
December 31, 2017 | ||||||||||||||||||||
In thousands | NAV | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
US: | ||||||||||||||||||||
Equity | $ | — | $ | 18,122 | $ | — | $ | — | $ | 18,122 | ||||||||||
Debt Securities | — | 4,273 | 14,031 | — | 18,304 | |||||||||||||||
Cash and cash equivalents | — | 1,006 | — | — | 1,006 | |||||||||||||||
International: | ||||||||||||||||||||
Equity | $ | 4,586 | $ | 38,647 | $ | 95,641 | $ | — | $ | 138,874 | ||||||||||
Debt Securities | — | — | 111,204 | — | 111,204 | |||||||||||||||
Insurance Contracts | — | — | 15,893 | 13,123 | 29,016 | |||||||||||||||
Cash and cash equivalents | — | 2,507 | — | — | 2,507 | |||||||||||||||
Total | $ | 4,586 | $ | 64,555 | $ | 236,769 | $ | 13,123 | $ | 319,033 |
December 31, 2016 | ||||||||||||||||||||
In thousands | NAV | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
US: | ||||||||||||||||||||
Equity | $ | — | $ | 17,446 | $ | — | $ | — | $ | 17,446 | ||||||||||
Debt Securities | — | 4,766 | 12,272 | — | 17,038 | |||||||||||||||
Cash and cash equivalents | — | 1,318 | — | — | 1,318 | |||||||||||||||
International: | ||||||||||||||||||||
Equity | $ | 3,589 | $ | 38,053 | $ | 78,694 | $ | — | $ | 120,336 | ||||||||||
Debt Securities | — | — | 90,508 | — | 90,508 | |||||||||||||||
Insurance Contracts | — | — | 13,037 | 12,996 | 26,033 | |||||||||||||||
Cash and cash equivalents | — | 4,406 | — | — | 4,406 | |||||||||||||||
Total | $ | 3,589 | $ | 65,989 | $ | 194,511 | $ | 12,996 | $ | 277,085 |
In thousands | Total | |||
Balance at December 31, 2015 | $ | — | ||
Net purchases, issuances, and settlements | 56 | |||
Net realized and unrealized gains (losses) included in earnings | (5 | ) | ||
Business acquisition | 12,949 | |||
Other | (4 | ) | ||
Balance at December 31, 2016 | $ | 12,996 | ||
Net purchases, issuances, and settlements | 778 | |||
Net realized and unrealized gains (losses) included in earnings | 375 | |||
Opening balance sheet adjustment | (1,308 | ) | ||
Other | 282 | |||
Balance at December 31, 2017 | $ | 13,123 |
In thousands | U.S. | International | ||||||
Year ended December 31, | ||||||||
2018 | $ | 3,250 | $ | 12,401 | ||||
2019 | 3,301 | 12,403 | ||||||
2020 | 3,325 | 13,156 | ||||||
2021 | 3,160 | 13,799 | ||||||
2022 | 3,125 | 14,538 | ||||||
2023 through 2027 | 14,276 | 77,817 |
U.S.
|
International
|
|||||||||||||||
In thousands
|
2017
|
2016
|
2017
|
2016
|
||||||||||||
Change in projected benefit obligation
|
||||||||||||||||
Obligation at beginning of year
|
$
|
(11,876
|
)
|
$
|
(12,959
|
)
|
$
|
(3,425
|
)
|
$
|
(3,290
|
)
|
||||
Service cost
|
(5
|
)
|
(4
|
)
|
(28
|
)
|
(29
|
)
|
||||||||
Interest cost
|
(350
|
)
|
(389
|
)
|
(98
|
)
|
(99
|
)
|
||||||||
Plan amendments
|
—
|
6
|
—
|
—
|
||||||||||||
Benefits paid
|
970
|
720
|
199
|
133
|
||||||||||||
Acquisition
|
—
|
(143
|
)
|
—
|
—
|
|||||||||||
Actuarial gain (loss)
|
(84
|
)
|
893
|
(131
|
)
|
(42
|
)
|
|||||||||
Effect of currency rate changes
|
—
|
—
|
(237
|
)
|
(98
|
)
|
||||||||||
Obligation at end of year
|
$
|
(11,345
|
)
|
$
|
(11,876
|
)
|
$
|
(3,720
|
)
|
$
|
(3,425
|
)
|
||||
Change in plan assets
|
||||||||||||||||
Fair value of plan assets at beginning of year
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||||
Employer contributions
|
970
|
720
|
199
|
133
|
||||||||||||
Benefits paid
|
(970
|
)
|
(720
|
)
|
(199
|
)
|
(133
|
)
|
||||||||
Fair value of plan assets at end of year
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||||
Funded status
|
||||||||||||||||
Fair value of plan assets
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||||
Benefit obligations
|
(11,345
|
)
|
(11,876
|
)
|
(3,720
|
)
|
(3,425
|
)
|
||||||||
Funded status
|
$
|
(11,345
|
)
|
$
|
(11,876
|
)
|
$
|
(3,720
|
)
|
$
|
(3,425
|
)
|
U.S.
|
International
|
|||||||||||||||
In thousands
|
2017
|
2016
|
2017
|
2016
|
||||||||||||
Amounts recognized in the statement of financial position consist of:
|
||||||||||||||||
Current liabilities
|
$
|
(1,046
|
)
|
$
|
(1,084
|
)
|
$
|
(208
|
)
|
$
|
(185
|
)
|
||||
Noncurrent liabilities
|
(10,299
|
)
|
(10,792
|
)
|
(3,512
|
)
|
(3,160
|
)
|
||||||||
Net amount recognized
|
$
|
(11,345
|
)
|
$
|
(11,876
|
)
|
$
|
(3,720
|
)
|
$
|
(3,345
|
)
|
||||
Amounts recognized in accumulated other comprehensive income (loss) consist of:
|
||||||||||||||||
Prior service credit
|
19,616
|
21,134
|
9
|
15
|
||||||||||||
Net actuarial (loss) gain
|
(18,882
|
)
|
(20,023
|
)
|
154
|
292
|
||||||||||
Net amount recognized
|
$
|
734
|
$
|
1,111
|
$
|
163
|
$
|
307
|
U.S.
|
International | |||||||||||||||||||||||
In thousands
|
2017
|
2016
|
2015
|
2017
|
2016
|
2015
|
||||||||||||||||||
Service cost
|
$
|
5
|
$
|
4
|
$
|
9
|
$
|
28
|
$
|
29
|
$
|
38
|
||||||||||||
Interest cost
|
350
|
389
|
1,233
|
98
|
99
|
128
|
||||||||||||||||||
Amortization of initial net obligation and prior service cost
|
(1,519
|
)
|
(1,709
|
)
|
(2,295
|
)
|
(7
|
)
|
(7
|
)
|
(7
|
)
|
||||||||||||
Amortization of net loss (gain)
|
1,225
|
1,287
|
1,356
|
(23
|
)
|
(29
|
)
|
(30
|
)
|
|||||||||||||||
Net periodic benefit cost (credit)
|
$
|
61
|
$
|
(29
|
)
|
$
|
303
|
$
|
96
|
$
|
92
|
$
|
129
|
In thousands
|
U.S.
|
International
|
||||||
Net loss arising during the year
|
(84
|
)
|
(131
|
)
|
||||
Effect of exchange rates
|
—
|
16
|
||||||
Amortization or curtailment recognition of prior service cost
|
(1,519
|
)
|
(7
|
)
|
||||
Amortization or settlement recognition of net loss (gain)
|
1,225
|
(23
|
)
|
|||||
Total recognized in other comprehensive income (loss)
|
$
|
(378
|
)
|
$
|
(145
|
)
|
||
Total recognized in net periodic benefit cost and other comprehensive income (loss)
|
$
|
(317
|
)
|
$
|
(53
|
)
|
U.S.
|
International | |||||||||||||||||||||||
2017
|
2016
|
2015
|
2017
|
2016
|
2015
|
|||||||||||||||||||
Discount rate
|
3.43
|
%
|
3.76
|
%
|
3.95
|
%
|
3.21
|
%
|
3.46
|
%
|
3.80
|
%
|
In thousands
|
U.S.
|
International
|
||||||
Prior service credit
|
(1,519
|
)
|
(7
|
)
|
||||
Net actuarial loss (gain)
|
1,216
|
(8
|
)
|
|||||
$
|
(303
|
)
|
$
|
(15
|
)
|
In thousands
|
U.S.
|
International
|
||||||
Year ended December 31,
|
||||||||
2018
|
$
|
1,046
|
$
|
208
|
||||
2019
|
1,024
|
220
|
||||||
2020
|
986
|
225
|
||||||
2021
|
950
|
245
|
||||||
2022
|
908
|
251
|
||||||
2023 through 2027
|
3,956
|
1,352
|
For the year ended
December 31, |
||||||||||||
In thousands
|
2017
|
2016
|
2015
|
|||||||||
Multi-employer pension and health & welfare plans
|
$
|
1,522
|
$
|
2,054
|
$
|
2,584
|
||||||
401(k) savings and other defined contribution plans
|
23,209
|
23,062
|
21,399
|
|||||||||
Total
|
$
|
24,731
|
$
|
25,116
|
$
|
23,983
|
|
Pension Protection
Act Zone Status (b) |
FIP/
RP Status Pending/ |
Contributions by
the Company |
Surcharge |
Expiration
Dates of Collective |
|||||||||||||||||||||
Implemented |
Imposed
|
Bargaining
|
||||||||||||||||||||||||
Pension Fund
|
EIN/PN (a)
|
2016
|
2015
|
(c)
|
2017
|
2016
|
2015
|
(d)
|
Agreements
|
|||||||||||||||||
Idaho Operating Engineers-
|
EIN #
|
91-6075538
|
Green
|
Green
|
No
|
$
|
1,020(1
|
)
|
$
|
1,306
(1
|
)
|
$
|
1,820(1
|
)
|
No
|
6/30/2018
|
||||||||||
Employers Pension Trust Fund
|
Plan#
|
001
|
||||||||||||||||||||||||
Automobile Mechanics’ Local No 701 Union and
|
EIN #
|
36-6042061
|
Yellow
|
Red
|
Yes (2)
|
$
|
501(3
|
)
|
$
|
748
|
$
|
764
|
No (4)
|
6/1/2018
|
||||||||||||
Industry Pension Plan
|
Plan #
|
001
|
|
|
|
|
|
|
||||||||||||||||||
Total Contributions
|
$
|
1,521
|
$
|
2,054
|
$
|
2,584
|
(1)
|
The Company’s contribution represents more than 5% of the total contributions to the plan.
|
(2)
|
The Pension Fund’s board adopted a Funding Improvement Plan on October 21, 2015, continuing the existing plan which increased the weekly pension fund contribution rates by $75 with corresponding decreases to the weekly welfare fund contribution rates until December 31, 2017.
|
(3)
|
The number of employees covered by this fund decreased due to the closure of the Bensenville, Illinois facility, which affected the period-to-period comparability of 2016 and 2017 contributions.
|
(4)
|
Critical status triggered a 5% surcharge on employer contributions effective June 2012. Effective January 1, 2013, this surcharge increases to 10%. The surcharge ended on October 21, 2015 when the rehabilitation plan commenced.
|
(a)
|
The “EIN / PN” column provides the Employer Identification Number and the three-digit plan number assigned to a plan by the Internal Revenue Service.
|
(b)
|
The most recent Pension Protection Act Zone Status available for 2017 and 2016 is for plan years that ended in 2016 and 2015, respectively. The zone status is based on information provided to the Company and other participating employers by each plan and is certified by the plan’s actuary. A plan in the “red” zone has been determined to be in “critical status”, based on criteria established under the Internal Revenue Code (“Code”), and is generally less than 65% funded. A plan in the “yellow” zone has been determined to be in “endangered status”, based on criteria established under the Code, and is generally less than 80% funded. A plan in the “green” zone has been determined to be neither in “critical status” nor in “endangered status”, and is generally at least 80% funded.
|
(c)
|
The “FIP/RP Status Pending/Implemented” column indicates whether a Funding Improvement Plan, as required under the Code to be adopted by plans in the “yellow” zone, or a Rehabilitation Plan, as required under the Code to be adopted by plans in the “red” zone, is pending or has been implemented as of the end of the plan year that ended in 2017.
|
(d)
|
The “Surcharge Imposed” column indicates whether the Company’s contribution rate for 2017 included an amount in addition the contribution rate specified in the applicable collective bargaining agreement, as imposed by a plan in “critical status”, in accordance with the requirements of the Code.
|
For the year ended
December 31, |
||||||||||||
In thousands
|
2017
|
2016
|
2015
|
|||||||||
Domestic
|
$
|
140,325
|
$
|
276,218
|
$
|
461,394
|
||||||
Foreign
|
211,738
|
136,619
|
123,974
|
|||||||||
Income from operations before income taxes
|
$
|
352,063
|
$
|
412,837
|
$
|
585,368
|
For the year ended
December 31,
|
|||||||||||||
In thousands
|
2017
|
2016
|
2015
|
||||||||||
Current taxes
|
|||||||||||||
Federal
|
$
|
86,157
|
$
|
72,317
|
$
|
141,245
|
|||||||
State
|
3,644
|
9,953
|
16,072
|
||||||||||
Foreign
|
67,395
|
27,391
|
24,442
|
||||||||||
157,196
|
109,661
|
181,759
|
|||||||||||
Deferred taxes
|
|||||||||||||
Federal
|
(22,863
|
)
|
11,013
|
9,606
|
|||||||||
State
|
(1,024
|
)
|
1,953
|
770
|
|||||||||
Foreign
|
(43,536
|
)
|
(23,194
|
)
|
(5,395
|
)
|
|||||||
(67,423
|
)
|
(10,228
|
)
|
4,981
|
|||||||||
Total provision
|
$
|
89,773
|
$
|
99,433
|
$
|
186,740
|
For the year ended
December 31,
|
||||||||||||
In thousands
|
2017
|
2016
|
2015
|
|||||||||
U.S. federal statutory rate
|
35.0
|
%
|
35.0
|
%
|
35.0
|
%
|
||||||
State taxes
|
0.4
|
%
|
2.1
|
%
|
2.0
|
%
|
||||||
Tax reserves
|
—
|
%
|
(0.2
|
)%
|
(0.4
|
)%
|
||||||
Foreign
|
(8.3
|
)%
|
(4.3
|
)%
|
(2.1
|
)%
|
||||||
Research and development credit
|
(0.8
|
)%
|
(1.0
|
)%
|
(0.4
|
)%
|
||||||
Manufacturing deduction
|
(1.1
|
)%
|
(1.8
|
)%
|
(2.3
|
)%
|
||||||
France tax rate change
|
(6.5
|
)%
|
(6.5
|
)%
|
—
|
%
|
||||||
U.S. tax rate change
|
(7.9
|
)%
|
—
|
%
|
—
|
%
|
||||||
U.S. tax reform provision
|
15.6
|
%
|
—
|
%
|
—
|
%
|
||||||
Transaction costs related to acquisitions
|
—
|
%
|
1.5
|
%
|
—
|
%
|
||||||
Other, net
|
(0.9
|
)%
|
(0.7
|
)%
|
0.1
|
%
|
||||||
Effective rate
|
25.5
|
%
|
24.1
|
%
|
31.9
|
%
|
December 31,
|
||||||||
In thousands
|
2017
|
2016
|
||||||
Deferred income tax assets:
|
||||||||
Accrued expenses and reserves
|
$
|
10,961
|
$
|
26,117
|
||||
Warranty reserve
|
20,211
|
24,131
|
||||||
Deferred compensation/employee benefits
|
18,353
|
25,755
|
||||||
Pension and postretirement obligations
|
21,637
|
25,595
|
||||||
Inventory
|
19,620
|
22,579
|
||||||
Net operating loss carry forwards
|
65,671
|
59,416
|
||||||
Tax credit carry forwards
|
1,921
|
621
|
||||||
Other
|
13,053
|
2,317
|
||||||
Gross deferred income tax assets
|
171,427
|
186,531
|
||||||
Valuation allowance
|
25,683
|
21,418
|
||||||
Total deferred income tax assets
|
145,744
|
165,113
|
||||||
Deferred income tax liabilities:
|
||||||||
Property, plant & equipment
|
37,015
|
47,321
|
||||||
Intangibles
|
288,141
|
359,312
|
||||||
Total deferred income tax liabilities
|
325,156
|
406,633
|
||||||
Net deferred income tax liability
|
$
|
(179,412
|
)
|
$
|
(241,520
|
)
|
In thousands
|
2017
|
2016
|
2015
|
|||||||||
Gross liability for unrecognized tax benefits at beginning of year
|
$
|
8,423
|
$
|
10,557
|
$
|
12,596
|
||||||
Gross increases - unrecognized tax benefits in prior periods
|
2,466
|
6
|
—
|
|||||||||
Gross increases - current period unrecognized tax benefits
|
—
|
—
|
1,682
|
|||||||||
Gross decreases - unrecognized tax benefits in prior periods
|
—
|
—
|
—
|
|||||||||
Gross decreases - audit settlement during year
|
(3,979
|
)
|
—
|
(3,027
|
)
|
|||||||
Gross decreases - expiration of audit statute of limitations
|
—
|
(2,140
|
)
|
(694
|
)
|
|||||||
Gross liability for unrecognized tax benefits at end of year
|
$
|
6,910
|
$
|
8,423
|
$
|
10,557
|
For the Year Ended
December 31,
|
||||||||||||
In thousands, except per share data
|
2017
|
2016
|
2015
|
|||||||||
Numerator
|
||||||||||||
Numerator for basic and diluted earnings per common share - net income attributable to Wabtec shareholders
|
$
|
262,261
|
$
|
304,887
|
$
|
398,628
|
||||||
Less: dividends declared - common shares and non-vested restricted stock
|
(42,218
|
)
|
(32,430
|
)
|
(26,963
|
)
|
||||||
Undistributed earnings
|
220,043
|
272,457
|
371,665
|
|||||||||
Percentage allocated to common shareholders (1)
|
99.7
|
%
|
99.7
|
%
|
99.7
|
%
|
||||||
219,383
|
271,640
|
370,550
|
||||||||||
Add: dividends declared - common shares
|
42,092
|
32,333
|
26,875
|
|||||||||
Numerator for basic and diluted earnings per common share
|
$
|
261,475
|
$
|
303,973
|
$
|
397,425
|
||||||
Denominator
|
||||||||||||
Denominator for basic earnings per common share - weighted average shares
|
95,453
|
90,359
|
96,074
|
|||||||||
Effect of dilutive securities:
|
||||||||||||
Assumed conversion of dilutive stock-based compensation plans
|
672
|
782
|
932
|
|||||||||
Denominator for diluted earnings per common share - adjusted weighted average shares and assumed conversion
|
96,125
|
91,141
|
97,006
|
|||||||||
Net income per common share attributable to Wabtec shareholders
|
||||||||||||
Basic
|
$
|
2.74
|
$
|
3.37
|
$
|
4.14
|
||||||
Diluted
|
$
|
2.72
|
$
|
3.34
|
$
|
4.10
|
||||||
(1) Basic weighted-average common shares outstanding
|
95,453
|
90,359
|
96,074
|
|||||||||
Basic weighted-average common shares outstanding and non-vested restricted stock expected to vest
|
95,740
|
90,627
|
96,388
|
|||||||||
Percentage allocated to common shareholders
|
99.7
|
%
|
99.7
|
%
|
99.7
|
%
|
Options
|
Weighted
Average Exercise Price |
Weighted Average
Remaining Contractual Life |
Aggregate
Intrinsic value (in thousands) |
|||||||||||||
Outstanding at December 31, 2014
|
1,147,558
|
$
|
28.33
|
5.5
|
$
|
67,205
|
||||||||||
Granted
|
84,675
|
87.35
|
1,375
|
|||||||||||||
Exercised
|
(124,156
|
)
|
26.70
|
(5,516
|
)
|
|||||||||||
Canceled
|
(10,754
|
)
|
65.22
|
(64
|
)
|
|||||||||||
Outstanding at December 31, 2015
|
1,097,323
|
$
|
32.70
|
4.8
|
$
|
42,154
|
||||||||||
Granted
|
94,115
|
61.39
|
2,035
|
|||||||||||||
Exercised
|
(83,790
|
)
|
25.58
|
(4,813
|
)
|
|||||||||||
Canceled
|
(8,825
|
)
|
71.47
|
(102
|
)
|
|||||||||||
Outstanding at December 31, 2016
|
1,098,823
|
$
|
35.39
|
4.3
|
$
|
52,332
|
||||||||||
Granted
|
65,522
|
86.91
|
—
|
|||||||||||||
Exercised
|
(166,838
|
)
|
21.37
|
(10,020
|
)
|
|||||||||||
Canceled
|
(13,995
|
)
|
76.89
|
(64
|
)
|
|||||||||||
Outstanding at December 31, 2017
|
983,512
|
$
|
40.62
|
4.0
|
$
|
40,137
|
||||||||||
Exercisable at December 31, 2017
|
802,609
|
$
|
32.52
|
3.3
|
$
|
36,848
|
Number of
Options |
Weighted
Average Exercise Price of Options |
Weighted
Average Remaining Contractual |
Number of
Options Currently |
Weighted Average
Exercise Price of Options Currently |
||||||||||||||||
Range of exercise prices
|
Outstanding
|
Outstanding
|
Life
|
Exercisable
|
Exercisable
|
|||||||||||||||
Under $15.00
|
180,000
|
$
|
14.50
|
1.1
|
180,000
|
$
|
14.50
|
|||||||||||||
15.00 - 23.00
|
193,701
|
18.77
|
1.3
|
193,701
|
18.77
|
|||||||||||||||
23.00 - 30.00
|
136,924
|
28.75
|
2.8
|
136,924
|
28.75
|
|||||||||||||||
30.00 - 38.00
|
94,496
|
35.24
|
4.1
|
94,496
|
35.24
|
|||||||||||||||
Over 38.00
|
378,391
|
69.86
|
7.0
|
197,488
|
63.72
|
|||||||||||||||
983,512
|
$
|
40.62
|
802,609
|
$
|
32.52
|
For the year ended
December 31,
|
||||||||||||
2017
|
2016
|
2015
|
||||||||||
Dividend yield
|
0.23
|
%
|
0.26
|
%
|
0.14
|
%
|
||||||
Risk-free interest rate
|
2.2
|
%
|
1.5
|
%
|
1.8
|
%
|
||||||
Stock price volatility
|
23.4
|
%
|
26.9
|
%
|
27.3
|
%
|
||||||
Expected life (years)
|
5.0
|
5.0
|
5.0
|
|||||||||
Weighted average fair value of options granted during the year
|
$
|
20.69
|
$
|
14.96
|
$
|
24.41
|
Restricted
Stock and Units |
Incentive
Stock Awards |
Weighted
Average Grant Date Fair Value |
||||||||||
Outstanding at December 31, 2014
|
438,543
|
791,608
|
$
|
47.97
|
||||||||
Granted
|
113,945
|
126,050
|
87.90
|
|||||||||
Vested
|
(182,776
|
)
|
(433,932
|
)
|
37.76
|
|||||||
Adjustment for incentive stock awards expected to vest
|
—
|
65,666
|
57.57
|
|||||||||
Canceled
|
(12,827
|
)
|
(7,754
|
)
|
67.05
|
|||||||
Outstanding at December 31, 2015
|
356,885
|
541,638
|
$
|
65.89
|
||||||||
Granted
|
212,600
|
167,850
|
66.03
|
|||||||||
Vested
|
(159,975
|
)
|
(236,591
|
)
|
51.80
|
|||||||
Adjustment for incentive stock awards expected to vest
|
—
|
(38,164
|
)
|
74.42
|
||||||||
Canceled
|
(13,215
|
)
|
(9,983
|
)
|
71.84
|
|||||||
Outstanding at December 31, 2016
|
396,295
|
424,750
|
$
|
72.18
|
||||||||
Granted
|
153,516
|
157,025
|
86.66
|
|||||||||
Vested
|
(137,088
|
)
|
(153,271
|
)
|
70.34
|
|||||||
Adjustment for incentive stock awards expected to vest
|
—
|
(87,592
|
)
|
73.69
|
||||||||
Canceled
|
(13,723
|
)
|
(13,579
|
)
|
76.61
|
|||||||
Outstanding at December 31, 2017
|
399,000
|
327,333
|
$
|
78.76
|
December 31,
|
||||||||
In thousands
|
2017
|
2016
|
||||||
Foreign currency translation gain (loss)
|
$
|
5,063
|
$
|
(321,033
|
)
|
|||
Unrealized gain (loss) on interest rate swap contracts, net of tax of $1,338 and $1,540
|
4,015
|
(2,957
|
)
|
|||||
Unrealized loss on pension and post-retirement benefit plans, net of tax of $19,532 and $20,832
|
(54,070
|
)
|
|
(55,615
|
)
|
|||
Total accumulated other comprehensive loss
|
$
|
(44,992
|
)
|
$
|
(379,605
|
)
|
Foreign
currency |
Derivative
|
Pension and
post retirement |
||||||||||||||
In thousands
|
translation
|
contracts
|
benefits plans
|
Total
|
||||||||||||
Balance at December 31, 2016
|
$
|
(321,033
|
)
|
$
|
(2,957
|
)
|
$
|
(55,615
|
)
|
$
|
(379,605
|
)
|
||||
Other comprehensive income before reclassifications
|
326,096
|
6,712
|
(1,017
|
)
|
331,791
|
|||||||||||
Amounts reclassified from accumulated other comprehensive income
|
—
|
260
|
2,562
|
2,822
|
||||||||||||
Net current period other comprehensive income
|
326,096
|
6,972
|
1,545
|
334,613
|
||||||||||||
Balance at December 31, 2017
|
$
|
5,063
|
$
|
4,015
|
$
|
(54,070
|
)
|
$
|
(44,992
|
)
|
Amount reclassified from
accumulated other |
Affected line item in the
Condensed Consolidated |
|||||
In thousands
|
comprehensive income
|
Statements of Income
|
||||
Amortization of defined pension and post retirement items
|
||||||
Amortization of initial net obligation and prior service cost
|
$
|
(1,496
|
)
|
Other income (expense), net
|
||
Amortization of net loss (gain)
|
5,037
|
Other income (expense), net
|
||||
3,541
|
Other income (expense), net
|
|||||
(979
|
)
|
Income tax expense
|
||||
$
|
2,562
|
Net income
|
||||
Derivative contracts
|
||||||
Realized loss on derivative contracts
|
400
|
Interest expense, net
|
||||
(140
|
)
|
Income tax expense
|
||||
$
|
260
|
Net income
|
Foreign
currency |
Derivative
|
Pension and
post retirement |
||||||||||||||
In thousands
|
translation
|
contracts
|
benefits plans
|
Total
|
||||||||||||
Balance at December 31, 2015
|
$
|
(227,349
|
)
|
$
|
(2,987
|
)
|
$
|
(46,383
|
)
|
$
|
(276,719
|
)
|
||||
Other comprehensive income before reclassifications
|
(93,684
|
)
|
(1,286
|
)
|
(10,874
|
)
|
(105,844
|
)
|
||||||||
Amounts reclassified from accumulated other comprehensive income
|
—
|
1,316
|
1,642
|
2,958
|
||||||||||||
Net current period other comprehensive income
|
(93,684
|
)
|
30
|
(9,232
|
)
|
(102,886
|
)
|
|||||||||
Balance at December 31, 2016
|
$
|
(321,033
|
)
|
$
|
(2,957
|
)
|
$
|
(55,615
|
)
|
$
|
(379,605
|
)
|
Amount reclassified from
accumulated other |
Affected line item in the
Condensed Consolidated |
|||||
In thousands
|
comprehensive income
|
Statements of Income
|
||||
Amortization of defined pension and post retirement items
|
||||||
Amortization of initial net obligation and prior service cost
|
$
|
(1,652
|
)
|
Other income (expense), net
|
||
Amortization of net loss (gain)
|
3,989
|
Other income (expense), net
|
||||
2,337
|
Other income (expense), net
|
|||||
(695
|
)
|
Income tax expense
|
||||
$
|
1,642
|
Net income
|
||||
Derivative contracts
|
||||||
Realized loss on derivative contracts
|
1,873
|
Interest expense, net
|
||||
(557
|
)
|
Income tax expense
|
||||
$
|
1,316
|
Net income
|
Real
|
|||||||||||||
In thousands
|
Estate
|
Equipment
|
Total
|
||||||||||
2018
|
$
|
28,957
|
$
|
2,690
|
$
|
31,647
|
|||||||
2019
|
25,857
|
1,925
|
27,782
|
||||||||||
2020
|
24,266
|
976
|
25,242
|
||||||||||
2021
|
19,561
|
512
|
20,073
|
||||||||||
2022
|
16,350
|
271
|
16,621
|
||||||||||
2023 and after
|
66,017
|
24
|
66,041
|
In thousands
|
2017
|
2016
|
||||||
Balance at beginning of year
|
$
|
138,992
|
$
|
92,064
|
||||
Warranty expense
|
50,385
|
28,947
|
||||||
Acquisitions
|
806
|
59,685
|
||||||
Warranty claim payments
|
(48,548
|
)
|
(38,772
|
)
|
||||
Foreign currency impact
|
11,428
|
(2,932
|
)
|
|||||
Balance at end of year
|
$
|
153,063
|
$
|
138,992
|
In millions
|
Designated
|
Non-Designated
|
Total
|
|||||||||
Gross notional amount
|
$
|
805.1
|
$
|
379.7
|
$
|
1,184.8
|
||||||
Fair Value:
|
||||||||||||
Other current assets
|
3.5
|
2.1
|
5.6
|
|||||||||
Other current liabilities
|
—
|
—
|
—
|
|||||||||
Total
|
$
|
3.5
|
$
|
2.1
|
$
|
5.6
|
Fair Value Measurements at December 31, 2016 Using
|
||||||||||||||||
Total Carrying
Value at December 31, |
Quoted Prices in
Active Markets for Identical Assets |
Significant Other
Observable Inputs |
Significant
Unobservable Inputs |
|||||||||||||
In thousands
|
2016
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
Interest rate swap agreements
|
3,888
|
—
|
3,888
|
—
|
||||||||||||
Total
|
$
|
3,888
|
$
|
—
|
$
|
3,888
|
$
|
—
|
December 31, 2017
|
December 31, 2016
|
||||||||||||||||
Carry
|
Fair
|
Carry
|
Fair
|
||||||||||||||
In thousands
|
Value
|
Value
|
Value
|
Value
|
|||||||||||||
Interest rate swap agreements
|
$
|
1,163
|
$
|
1,163
|
$
|
3,888
|
$
|
3,888
|
|||||||||
4.375% Senior Notes
|
248,567
|
262,033
|
248,310
|
260,265
|
|||||||||||||
3.45% Senior Notes
|
747,655
|
741,113
|
747,474
|
719,273
|
In thousands
|
Freight
Segment
|
Transit
Segment
|
Corporate
Activities and
Elimination
|
Total
|
||||||||||||
Sales to external customers
|
$
|
1,396,588
|
$
|
2,485,168
|
$
|
—
|
$
|
3,881,756
|
||||||||
Intersegment sales/(elimination)
|
37,630
|
21,548
|
(59,178
|
)
|
—
|
|||||||||||
Total sales
|
$
|
1,434,218
|
$
|
2,506,716
|
$
|
(59,178
|
)
|
$
|
3,881,756
|
|||||||
Income (loss) from operations
|
$
|
264,276
|
$
|
188,219
|
$
|
(31,416
|
)
|
$
|
421,079
|
|||||||
Interest expense and other, net
|
—
|
—
|
(69,016
|
)
|
(69,016
|
)
|
||||||||||
Income (loss) from operations before income taxes
|
$
|
264,276
|
$
|
188,219
|
$
|
(100,432
|
)
|
$
|
352,063
|
|||||||
Depreciation and amortization
|
$
|
43,721
|
$
|
57,441
|
$
|
2,086
|
$
|
103,248
|
||||||||
Capital expenditures
|
33,921
|
50,762
|
4,783
|
89,466
|
||||||||||||
Segment assets
|
3,504,289
|
7,562,122
|
(4,486,431
|
)
|
6,579,980
|
In thousands
|
Freight
Segment
|
Transit
Segment
|
Corporate
Activities and
Elimination
|
Total
|
||||||||||||
Sales to external customers
|
$
|
1,543,098
|
$
|
1,388,090
|
$
|
—
|
$
|
2,931,188
|
||||||||
Intersegment sales/(elimination)
|
39,519
|
9,393
|
(48,912
|
)
|
$
|
—
|
||||||||||
Total sales
|
$
|
1,582,617
|
$
|
1,397,483
|
$
|
(48,912
|
)
|
$
|
2,931,188
|
|||||||
Income (loss) from operations
|
$
|
343,578
|
$
|
170,569
|
$
|
(57,540
|
)
|
$
|
456,607
|
|||||||
Interest expense and other, net
|
—
|
—
|
(43,770
|
)
|
(43,770
|
)
|
||||||||||
Income (loss) from operations before income taxes
|
$
|
343,578
|
$
|
170,569
|
$
|
(101,310
|
)
|
$
|
412,837
|
|||||||
Depreciation and amortization
|
$
|
36,519
|
$
|
31,545
|
$
|
1,731
|
$
|
69,795
|
||||||||
Capital expenditures
|
22,726
|
20,987
|
6,503
|
50,216
|
||||||||||||
Segment assets
|
2,949,668
|
6,720,302
|
(3,088,952
|
)
|
6,581,018
|
In thousands
|
Freight
Segment
|
Transit
Segment
|
Corporate
Activities and
Elimination
|
Total
|
||||||||||||
Sales to external customers
|
$
|
2,054,715
|
$
|
1,235,283
|
$
|
—
|
$
|
3,307,998
|
||||||||
Intersegment sales/(elimination)
|
35,372
|
10,895
|
(46,267
|
)
|
—
|
|||||||||||
Total sales
|
$
|
2,090,087
|
$
|
1,264,178
|
$
|
(46,267
|
)
|
$
|
3,307,998
|
|||||||
Income (loss) from operations
|
$
|
483,284
|
$
|
151,631
|
$
|
(26,061
|
)
|
$
|
608,854
|
|||||||
Interest expense and other, net
|
—
|
—
|
(23,486
|
)
|
(23,486
|
)
|
||||||||||
Income (loss) from operations before income taxes
|
$
|
483,284
|
$
|
151,631
|
$
|
(49,547
|
)
|
$
|
585,368
|
|||||||
Depreciation and amortization
|
$
|
36,834
|
$
|
26,196
|
$
|
1,704
|
$
|
64,734
|
||||||||
Capital expenditures
|
24,715
|
22,996
|
1,717
|
49,428
|
||||||||||||
Segment assets
|
2,708,724
|
2,202,614
|
(1,681,825
|
)
|
3,229,513
|
Net Sales
|
Long-Lived Assets
|
|||||||||||||||||||||||
In thousands
|
2017
|
2016
|
2015
|
2017
|
2016
|
2015
|
||||||||||||||||||
United States
|
$
|
1,323,781
|
$
|
1,362,255
|
$
|
1,754,924
|
$
|
211,608
|
$
|
205,895
|
$
|
171,362
|
||||||||||||
United Kingdom
|
356,493
|
322,563
|
368,505
|
57,668
|
54,215
|
63,694
|
||||||||||||||||||
Canada
|
279,013
|
206,258
|
204,674
|
5,822
|
5,156
|
4,876
|
||||||||||||||||||
France
|
237,454
|
66,287
|
45,565
|
57,849
|
33,636
|
7,194
|
||||||||||||||||||
Germany
|
208,817
|
98,364
|
92,422
|
71,709
|
57,902
|
31,642
|
||||||||||||||||||
China
|
178,137
|
106,357
|
100,586
|
36,388
|
42,672
|
12,256
|
||||||||||||||||||
Mexico
|
160,029
|
183,583
|
190,034
|
9,117
|
8,766
|
8,839
|
||||||||||||||||||
Italy
|
142,037
|
45,771
|
38,164
|
30,329
|
27,253
|
15,170
|
||||||||||||||||||
India
|
137,837
|
24,161
|
12,345
|
12,519
|
1,271
|
1,946
|
||||||||||||||||||
Australia
|
136,127
|
82,099
|
86,809
|
10,483
|
8,039
|
8,424
|
||||||||||||||||||
Brazil
|
69,378
|
51,493
|
84,595
|
13,184
|
13,227
|
9,318
|
||||||||||||||||||
Other international
|
652,653
|
381,997
|
329,375
|
57,296
|
60,344
|
18,472
|
||||||||||||||||||
Total
|
$
|
3,881,756
|
$
|
2,931,188
|
$
|
3,307,998
|
$
|
573,972
|
$
|
518,376
|
$
|
353,193
|
In thousands
|
2017
|
2016
|
2015
|
||||||||||
Specialty Products & Electronics
|
$
|
1,350,727
|
$
|
1,374,580
|
$
|
1,733,881
|
|||||||
Brake Products
|
749,959
|
588,081
|
627,552
|
||||||||||
Remanufacturing, Overhaul & Build
|
522,275
|
559,284
|
606,624
|
||||||||||
Transit Products
|
1,112,340
|
276,124
|
189,581
|
||||||||||
Other
|
146,455
|
133,119
|
150,360
|
||||||||||
Total sales
|
$
|
3,881,756
|
$
|
2,931,188
|
$
|
3,307,998
|
In thousands
|
Parent
|
Guarantors
|
Non-Guarantors
|
Elimination
|
Consolidated
|
|||||||||||||||
Cash and cash equivalents
|
$
|
933
|
$
|
625
|
$
|
231,843
|
$
|
—
|
$
|
233,401
|
||||||||||
Receivables, net
|
77,046
|
59,166
|
1,030,575
|
—
|
1,166,787
|
|||||||||||||||
Inventories
|
120,937
|
46,626
|
575,071
|
—
|
742,634
|
|||||||||||||||
Current assets - other
|
1,142
|
563
|
120,586
|
—
|
122,291
|
|||||||||||||||
Total current assets
|
200,058
|
106,980
|
1,958,075
|
—
|
2,265,113
|
|||||||||||||||
Property, plant and equipment
|
52,532
|
26,492
|
494,948
|
—
|
573,972
|
|||||||||||||||
Goodwill
|
25,274
|
283,242
|
2,151,587
|
—
|
2,460,103
|
|||||||||||||||
Investment in subsidiaries
|
6,517,205
|
2,440,665
|
—
|
(8,957,870
|
)
|
—
|
||||||||||||||
Other intangibles, net
|
30,575
|
81,037
|
1,092,820
|
—
|
1,204,432
|
|||||||||||||||
Other long term assets
|
17,414
|
(23,892
|
)
|
82,838
|
—
|
76,360
|
||||||||||||||
Total assets
|
$
|
6,843,058
|
$
|
2,914,524
|
$
|
5,780,268
|
$
|
(8,957,870
|
)
|
$
|
6,579,980
|
|||||||||
Current liabilities
|
$
|
196,827
|
77,284
|
$
|
1,299,219
|
—
|
$
|
1,573,330
|
||||||||||||
Inter-company
|
2,121,546
|
(1,307,410
|
)
|
(814,136
|
)
|
—
|
—
|
|||||||||||||
Long-term debt
|
1,661,771
|
14
|
161,518
|
—
|
1,823,303
|
|||||||||||||||
Long-term liabilities - other
|
54,046
|
20,594
|
280,175
|
—
|
354,815
|
|||||||||||||||
Total liabilities
|
4,034,190
|
(1,209,518
|
)
|
926,776
|
—
|
3,751,448
|
||||||||||||||
Shareholders’ equity
|
2,808,868
|
4,124,042
|
4,833,828
|
(8,957,870
|
)
|
2,808,868
|
||||||||||||||
Non-controlling interest
|
—
|
—
|
19,664
|
—
|
19,664
|
|||||||||||||||
Total shareholders’ equity
|
$
|
2,808,868
|
$
|
4,124,042
|
$
|
4,853,492
|
$
|
(8,957,870
|
)
|
$
|
2,828,532
|
|||||||||
Total Liabilities and Shareholders’ Equity
|
$
|
6,843,058
|
$
|
2,914,524
|
$
|
5,780,268
|
$
|
(8,957,870
|
)
|
$
|
6,579,980
|
In thousands
|
Parent
|
Guarantors
|
Non-Guarantors
|
Elimination
|
Consolidated
|
|||||||||||||||
Cash and cash equivalents
|
$
|
2,522
|
$
|
1,226
|
$
|
394,736
|
$
|
—
|
$
|
398,484
|
||||||||||
Receivables, net
|
79,041
|
74,105
|
789,362
|
—
|
942,508
|
|||||||||||||||
Inventories
|
120,042
|
52,372
|
486,096
|
—
|
658,510
|
|||||||||||||||
Current assets - other
|
52,576
|
(19,438
|
)
|
834,991
|
—
|
868,129
|
||||||||||||||
Total current assets
|
254,181
|
108,265
|
2,505,185
|
—
|
2,867,631
|
|||||||||||||||
Property, plant and equipment
|
49,031
|
27,096
|
442,249
|
—
|
518,376
|
|||||||||||||||
Goodwill
|
25,275
|
284,020
|
1,769,470
|
—
|
2,078,765
|
|||||||||||||||
Investment in subsidiaries
|
5,388,613
|
1,961,036
|
—
|
(7,349,649
|
)
|
—
|
||||||||||||||
Other intangibles, net
|
31,897
|
83,103
|
938,860
|
—
|
1,053,860
|
|||||||||||||||
Other long term assets
|
9,592
|
(41,963
|
)
|
94,757
|
—
|
62,386
|
||||||||||||||
Total assets
|
$
|
5,758,589
|
$
|
2,421,557
|
$
|
5,750,521
|
$
|
(7,349,649
|
)
|
$
|
6,581,018
|
|||||||||
Current liabilities
|
$
|
194,983
|
74,706
|
$
|
1,176,950
|
—
|
$
|
1,446,639
|
||||||||||||
Inter-company
|
1,562,399
|
(1,138,540
|
)
|
(423,859
|
)
|
—
|
—
|
|||||||||||||
Long-term debt
|
1,761,933
|
58
|
976
|
—
|
1,762,967
|
|||||||||||||||
Long-term liabilities - other
|
33,298
|
3,768
|
357,521
|
—
|
394,587
|
|||||||||||||||
Total liabilities
|
3,552,613
|
(1,060,008
|
)
|
1,111,588
|
—
|
3,604,193
|
||||||||||||||
Shareholders’ equity
|
2,205,976
|
3,481,565
|
3,868,085
|
(7,349,649
|
)
|
2,205,977
|
||||||||||||||
Non-controlling interest
|
—
|
—
|
770,848
|
—
|
770,848
|
|||||||||||||||
Total shareholders’ equity
|
$
|
2,205,976
|
$
|
3,481,565
|
$
|
4,638,933
|
$
|
(7,349,649
|
)
|
$
|
2,976,825
|
|||||||||
Total Liabilities and Shareholders’ Equity
|
$
|
5,758,589
|
$
|
2,421,557
|
$
|
5,750,521
|
$
|
(7,349,649
|
)
|
$
|
6,581,018
|
In thousands
|
Parent
|
Guarantors
|
Non-Guarantors
|
Elimination
|
Consolidated
|
|||||||||||||||
Net Sales
|
$
|
577,397
|
$
|
398,220
|
$
|
3,035,464
|
$
|
(129,325
|
)
|
$
|
3,881,756
|
|||||||||
Cost of sales
|
(440,911
|
)
|
(255,792
|
)
|
(2,218,460
|
)
|
98,720
|
(2,816,443
|
)
|
|||||||||||
Gross profit (loss)
|
136,486
|
142,428
|
817,004
|
(30,605
|
)
|
1,065,313
|
||||||||||||||
Total operating expenses
|
(114,199
|
)
|
(50,902
|
)
|
(479,133
|
)
|
—
|
(644,234
|
)
|
|||||||||||
Income (loss) from operations
|
22,287
|
91,526
|
337,871
|
(30,605
|
)
|
421,079
|
||||||||||||||
Interest (expense) income, net
|
(76,823
|
)
|
10,916
|
(11,977
|
)
|
—
|
(77,884
|
)
|
||||||||||||
Other income (expense), net
|
10,020
|
274
|
(1,426
|
)
|
—
|
8,868
|
||||||||||||||
Equity earnings (loss)
|
416,068
|
317,614
|
—
|
(733,682
|
)
|
—
|
||||||||||||||
Pretax income (loss)
|
371,552
|
420,330
|
324,468
|
(764,287
|
)
|
352,063
|
||||||||||||||
Income tax expense
|
(109,294
|
)
|
18,762
|
759
|
—
|
(89,773
|
)
|
|||||||||||||
Net income (loss)
|
262,258
|
439,092
|
325,227
|
(764,287
|
)
|
262,290
|
||||||||||||||
Less: Net income attributable to noncontrolling interest
|
—
|
—
|
(29
|
)
|
—
|
(29
|
)
|
|||||||||||||
Net income (loss) attributable to Wabtec shareholders
|
$
|
262,258
|
$
|
439,092
|
$
|
325,198
|
$
|
(764,287
|
)
|
$
|
262,261
|
|||||||||
Comprehensive income (loss) attributable to Wabtec shareholders
|
$
|
263,907
|
$
|
439,092
|
$
|
658,162
|
$
|
(764,287
|
)
|
$
|
596,874
|
In thousands
|
Parent
|
Guarantors
|
Non-Guarantors
|
Elimination
|
Consolidated
|
|||||||||||||||
Net Sales
|
$
|
641,809
|
$
|
435,864
|
$
|
1,995,465
|
$
|
(141,950
|
)
|
$
|
2,931,188
|
|||||||||
Cost of sales
|
(473,700
|
)
|
(280,973
|
)
|
(1,350,401
|
)
|
98,125
|
(2,006,949
|
)
|
|||||||||||
Gross profit (loss)
|
168,109
|
154,891
|
645,064
|
(43,825
|
)
|
924,239
|
||||||||||||||
Total operating expenses
|
(142,817
|
)
|
(50,361
|
)
|
(274,454
|
)
|
—
|
(467,632
|
)
|
|||||||||||
Income (loss) from operations
|
25,292
|
104,530
|
370,610
|
(43,825
|
)
|
456,607
|
||||||||||||||
Interest (expense) income, net
|
(38,843
|
)
|
9,294
|
(20,749
|
)
|
—
|
(50,298
|
)
|
||||||||||||
Other income (expense), net
|
25,254
|
(1,689
|
)
|
(17,037
|
)
|
—
|
(6,528
|
)
|
||||||||||||
Equity earnings (loss)
|
322,650
|
292,184
|
—
|
(614,834
|
)
|
—
|
||||||||||||||
Pretax income (loss)
|
334,353
|
404,319
|
332,824
|
(658,659
|
)
|
412,837
|
||||||||||||||
Income tax expense
|
(29,466
|
)
|
(52,308
|
)
|
(17,659
|
)
|
—
|
(99,433
|
)
|
|||||||||||
Net income (loss)
|
304,887
|
352,011
|
315,165
|
(658,659
|
)
|
313,404
|
||||||||||||||
Less: Net income attributable to noncontrolling interest
|
—
|
—
|
(8,517
|
)
|
—
|
(8,517
|
)
|
|||||||||||||
Net income attributable to Wabtec shareholders
|
$
|
304,887
|
$
|
352,011
|
$
|
306,648
|
$
|
(658,659
|
)
|
$
|
304,887
|
|||||||||
Comprehensive income (loss) attributable to Wabtec shareholders
|
$
|
305,180
|
$
|
352,011
|
$
|
203,469
|
$
|
(658,659
|
)
|
$
|
202,001
|
In thousands
|
Parent
|
Guarantors
|
Non-Guarantors
|
Elimination
|
Consolidated
|
|||||||||||||||
Net Sales
|
$
|
743,262
|
$
|
679,466
|
$
|
2,030,284
|
$
|
(145,014
|
)
|
$
|
3,307,998
|
|||||||||
Cost of sales
|
(531,269
|
)
|
(311,911
|
)
|
(1,499,803
|
)
|
82,801
|
(2,260,182
|
)
|
|||||||||||
Gross (loss) profit
|
211,993
|
367,555
|
530,481
|
(62,213
|
)
|
1,047,816
|
||||||||||||||
Total operating expenses
|
(142,310
|
)
|
(36,358
|
)
|
(260,294
|
)
|
—
|
(438,962
|
)
|
|||||||||||
Income (loss) from operations
|
69,683
|
331,197
|
270,187
|
(62,213
|
)
|
608,854
|
||||||||||||||
Interest (expense) income, net
|
(28,312
|
)
|
8,406
|
(7,348
|
)
|
—
|
(27,254
|
)
|
||||||||||||
Other income (expense), net
|
27,733
|
(3,711
|
)
|
(20,254
|
)
|
—
|
(3,768
|
)
|
||||||||||||
Equity earnings (loss)
|
506,903
|
216,403
|
—
|
(723,306
|
)
|
—
|
||||||||||||||
Pretax income (loss)
|
576,007
|
552,295
|
242,585
|
(785,519
|
)
|
585,368
|
||||||||||||||
Income tax expense
|
(177,379
|
)
|
8,760
|
(18,121
|
)
|
—
|
(186,740
|
)
|
||||||||||||
Net income (loss)
|
398,628
|
561,055
|
224,464
|
(785,519
|
)
|
398,628
|
||||||||||||||
Less: Net income attributable to noncontrolling interest
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||
Net income attributable to Wabtec shareholders
|
$
|
398,628
|
$
|
561,055
|
$
|
224,464
|
$
|
(785,519
|
)
|
$
|
398,628
|
|||||||||
Comprehensive income (loss) attributable to Wabtec shareholders
|
$
|
409,734
|
$
|
561,055
|
$
|
96,125
|
$
|
(785,519
|
)
|
$
|
281,395
|
In thousands
|
Parent
|
Guarantors
|
Non-Guarantors
|
Elimination
|
Consolidated
|
|||||||||||||||
Net cash (used in) provided by operating activities
|
$
|
(49,231
|
)
|
$
|
130,298
|
$
|
138,349
|
$
|
(30,605
|
)
|
$
|
188,811
|
||||||||
Net cash used in investing activities
|
(11,156
|
)
|
(3,357
|
)
|
(1,018,961
|
)
|
—
|
(1,033,474
|
)
|
|||||||||||
Net cash provided by (used in) financing activities
|
58,798
|
(127,542
|
)
|
(59,292
|
)
|
30,605
|
(97,431
|
)
|
||||||||||||
Effect of changes in currency exchange rates
|
—
|
—
|
32,263
|
—
|
32,263
|
|||||||||||||||
(Decrease) increase in cash
|
(1,589
|
)
|
(601
|
)
|
(907,641
|
)
|
—
|
(909,831
|
)
|
|||||||||||
Cash, cash equivalents and restricted cash, beginning of year
|
2,522
|
1,226
|
1,139,484
|
—
|
1,143,232
|
|||||||||||||||
Cash and cash equivalents, end of year
|
$
|
933
|
$
|
625
|
$
|
231,843
|
$
|
—
|
$
|
233,401
|
In thousands
|
Parent
|
Guarantors
|
Non-Guarantors
|
Elimination
|
Consolidated
|
|||||||||||||||
Net cash (used in) provided by operating activities
|
$
|
(44,611
|
)
|
$
|
142,839
|
$
|
396,127
|
$
|
(43,825
|
)
|
$
|
450,530
|
||||||||
Net cash (used in) provided by investing activities
|
(829,783
|
)
|
(2,653
|
)
|
599,470
|
—
|
(232,966
|
)
|
||||||||||||
Net cash provided by (used in) financing activities
|
876,916
|
(147,586
|
)
|
(250,184
|
)
|
43,825
|
522,971
|
|||||||||||||
Effect of changes in currency exchange rates
|
—
|
—
|
(26,436
|
)
|
—
|
(26,436
|
)
|
|||||||||||||
Increase (decrease) in cash
|
2,522
|
(7,400
|
)
|
718,977
|
—
|
714,099
|
||||||||||||||
Cash, cash equivalents and restricted cash, beginning of year
|
—
|
8,626
|
420,507
|
—
|
429,133
|
|||||||||||||||
Cash, cash equivalents and restricted cash, end of year
|
$
|
2,522
|
$
|
1,226
|
$
|
1,139,484
|
$
|
—
|
$
|
1,143,232
|
In thousands
|
Parent
|
Guarantors
|
Non-Guarantors
|
Elimination
|
Consolidated
|
|||||||||||||||
Net cash (used in) provided by operating activities
|
$
|
(90,374
|
)
|
$
|
300,965
|
$
|
302,466
|
$
|
(62,213
|
)
|
$
|
450,844
|
||||||||
Net cash used in investing activities
|
(7,862
|
)
|
(2,653
|
)
|
(166,679
|
)
|
—
|
(177,194
|
)
|
|||||||||||
Net cash (used in) provided by financing activities
|
(48,570
|
)
|
(295,133
|
)
|
29,992
|
62,213
|
(251,498
|
)
|
||||||||||||
Effect of changes in currency exchange rates
|
—
|
—
|
(18,868
|
)
|
—
|
(18,868
|
)
|
|||||||||||||
(Decrease) increase in cash
|
(146,806
|
)
|
3,179
|
(146,911
|
)
|
—
|
(3,284
|
)
|
||||||||||||
Cash, cash equivalents and restricted cash, beginning of year
|
146,806
|
5,447
|
273,596
|
—
|
425,849
|
|||||||||||||||
Cash, cash equivalents and restricted cash, end of year
|
$
|
—
|
$
|
8,626
|
$
|
420,507
|
$
|
—
|
$
|
429,133
|
For the year ended
December 31,
|
|||||||||||||
In thousands
|
2017
|
2016
|
2015
|
||||||||||
Foreign currency loss
|
$
|
(6,618
|
)
|
$
|
(4,001
|
)
|
$
|
(4,659
|
)
|
||||
Equity income
|
2,579
|
409
|
—
|
||||||||||
Expected return on pension assets/amortization
|
9,834
|
9,491
|
9,079
|
||||||||||
Other miscellaneous income (expense)
|
3,073
|
629
|
(652
|
)
|
|||||||||
Total other (expense) income, net
|
$
|
8,868
|
$
|
6,528
|
$
|
3,768
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||||
In thousands, except per share data
|
Quarter
|
Quarter
|
Quarter
|
Quarter (1)
|
||||||||||||
2017
|
||||||||||||||||
Net sales
|
$
|
916,034
|
$
|
932,253
|
$
|
957,931
|
$
|
1,075,538
|
||||||||
Gross profit
|
269,707
|
273,963
|
253,203
|
268,440
|
||||||||||||
Income from operations
|
114,512
|
113,356
|
101,666
|
91,545
|
||||||||||||
Net income attributable to Wabtec shareholders
|
73,889
|
72,025
|
67,399
|
48,948
|
||||||||||||
Basic earnings from operations per common share
|
$
|
0.77
|
$
|
0.75
|
$
|
0.70
|
$
|
0.51
|
||||||||
Diluted earnings from operations per common share
|
$
|
0.77
|
$
|
0.75
|
$
|
0.70
|
$
|
0.51
|
||||||||
2016
|
||||||||||||||||
Net sales
|
$
|
772,031
|
$
|
723,601
|
$
|
675,574
|
$
|
759,982
|
||||||||
Gross profit
|
255,180
|
237,389
|
212,481
|
219,189
|
||||||||||||
Income from operations
|
142,209
|
132,375
|
119,400
|
62,623
|
||||||||||||
Net income attributable to Wabtec shareholders
|
94,163
|
90,485
|
82,428
|
46,328
|
||||||||||||
Basic earnings from operations per common share
|
$
|
1.03
|
$
|
1.00
|
$
|
0.92
|
$
|
0.42
|
||||||||
Diluted earnings from operations per common share
|
$
|
1.02
|
$
|
1.00
|
$
|
0.91
|
$
|
0.42
|
In thousands
|
Balance at
beginning of period |
Charged/
(credited) to expense |
Charged/ (credited) to
other accounts (1) |
Deductions
from reserves (2) |
Balance
at end of period |
|||||||||||||||
2017
|
||||||||||||||||||||
Warranty and overhaul reserves
|
$
|
138,992
|
$
|
50,385
|
$
|
12,234
|
$
|
48,548
|
$
|
153,063
|
||||||||||
Allowance for doubtful accounts
|
7,340
|
2,632
|
4,979
|
2,609
|
12,342
|
|||||||||||||||
Valuation allowance-taxes
|
21,418
|
6,760
|
—
|
10,024
|
18,154
|
|||||||||||||||
2016
|
||||||||||||||||||||
Warranty and overhaul reserves
|
$
|
92,064
|
$
|
28,947
|
$
|
56,753
|
$
|
38,772
|
$
|
138,992
|
||||||||||
Allowance for doubtful accounts
|
5,614
|
3,635
|
—
|
1,909
|
7,340
|
|||||||||||||||
Valuation allowance-taxes
|
12,623
|
3,405
|
5,390
|
—
|
21,418
|
|||||||||||||||
2015
|
||||||||||||||||||||
Warranty and overhaul reserves
|
$
|
87,849
|
$
|
35,418
|
$
|
(1,762
|
)
|
$
|
29,441
|
$
|
92,064
|
|||||||||
Allowance for doubtful accounts
|
6,270
|
2,026
|
—
|
2,682
|
5,614
|
|||||||||||||||
Valuation allowance-taxes
|
1,818
|
7,024
|
3,781
|
—
|
12,623
|
(1) |
Reserves of acquired/(sold) companies; valuation allowances for state and foreign deferred tax assets; impact of fluctuations in foreign currency exchange rates.
|
(2) |
Actual disbursements and/or charges.
|
Item 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
· |
On November 30, 2016, the Company acquired majority ownership of Faiveley Transport, after completing the purchase of the Faiveley family’s ownership interest under the terms of the Share Purchase Agreement, which directed the Company to pay €100 per share of Faiveley Transport, payable between 25% and 45% in cash at the election of those shareholders and the remainder payable in Wabtec stock. The Faiveley family’s ownership interest acquired by the Company represented approximately 51% of outstanding share capital and approximately 49% of the outstanding voting shares of Faiveley Transport. Upon completion of the share purchase under the Share Purchase Agreement, Wabtec commenced a tender offer for the remaining publicly traded Faiveley Transport shares. The public shareholders had the option to elect to receive €100 per share in cash or 1.1538 shares of Wabtec common stock per share of Faiveley Transport. The common stock portion of the consideration was subject to a cap on issuance of Wabtec common shares that was equivalent to the rates of cash and stock elected by the 51% owners.
|
· |
On February 3, 2017, the initial cash tender offer was closed, which resulted in the Company acquiring approximately 27% of additional outstanding share capital and voting rights of Faiveley Transport for approximately $411.8 million in cash and $25.2 million in Wabtec stock. After the initial cash tender offer, the Company owned approximately 78% of outstanding share capital and 76% of voting rights.
|
· |
On March 6, 2017, the final cash tender offer was closed, which resulted in the Company acquiring approximately 21% of additional outstanding share capital and 22% of additional outstanding voting rights of Faiveley Transport for approximately $303.2 million in cash and $0.3 million in Wabtec stock. After the final cash tender offer, the Company owned approximately 99% of the share capital and 98% of the voting rights of Faiveley Transport.
|
· |
On March 21, 2017, a mandatory squeeze-out procedure was finalized, which resulted in the Company acquiring the Faiveley Transport shares not tendered in the offers for approximately $17.5 million in cash. This resulted in the Company owning 100% of the share capital and voting rights of Faiveley Transport.
|
Year Ended December 31,
|
||||||||||||
In thousands
|
2017
|
2016
|
2015
|
|||||||||
Net sales
|
$
|
3,881,756
|
$
|
2,931,188
|
$
|
3,307,998
|
||||||
Cost of sales
|
(2,816,443
|
)
|
(2,006,949
|
)
|
(2,260,182
|
)
|
||||||
Gross profit
|
1,065,313
|
924,239
|
1,047,816
|
|||||||||
Selling, general and administrative expenses
|
(512,552
|
)
|
(373,559
|
)
|
(346,086
|
)
|
||||||
Engineering expenses
|
(95,166
|
)
|
(71,375
|
)
|
(71,213
|
)
|
||||||
Amortization expense
|
(36,516
|
)
|
(22,698
|
)
|
(21,663
|
)
|
||||||
Total operating expenses
|
(644,234
|
)
|
(467,632
|
)
|
(438,962
|
)
|
||||||
Income from operations
|
421,079
|
456,607
|
608,854
|
|||||||||
Interest expense, net
|
(77,884
|
)
|
(50,298
|
)
|
(27,254
|
)
|
||||||
Other (expense) income, net
|
8,868
|
6,528
|
3,768
|
|||||||||
Income from operations before income taxes
|
352,063
|
412,837
|
585,368
|
|||||||||
Income tax expense
|
(89,773
|
)
|
(99,433
|
)
|
(186,740
|
)
|
||||||
Net income
|
262,290
|
313,404
|
398,628
|
|||||||||
Net income attributable to noncontrolling interest
|
(29
|
)
|
(8,517
|
)
|
—
|
|||||||
Net income attributable to Wabtec shareholders
|
$
|
262,261
|
$
|
304,887
|
$
|
398,628
|
For the year ended December 31,
|
||||||||||||
Percent
|
||||||||||||
In thousands
|
2017
|
2016
|
Change
|
|||||||||
Freight Segment
|
$
|
1,396,588
|
$
|
1,543,098
|
(9.5
|
)%
|
||||||
Transit Segment
|
2,485,168
|
1,388,090
|
79.0
|
%
|
||||||||
Net sales
|
3,881,756
|
2,931,188
|
32.4
|
%
|
||||||||
Income from operations
|
421,079
|
456,607
|
(7.8
|
)%
|
||||||||
Net income attributable to Wabtec shareholders
|
$
|
262,261
|
$
|
304,887
|
(14.0
|
)%
|
Freight
|
Transit
|
|||||||||||
In thousands
|
Segment
|
Segment
|
Total
|
|||||||||
2016 Net Sales
|
$
|
1,543,098
|
$
|
1,388,090
|
$
|
2,931,188
|
||||||
Acquisitions
|
148,122
|
1,035,061
|
1,183,183
|
|||||||||
Change in Sales by Product Line:
|
||||||||||||
Specialty Products & Electronics
|
(164,532
|
)
|
8,502
|
(156,030
|
)
|
|||||||
Remanufacturing, Overhaul & Build
|
(79,129
|
)
|
10,548
|
(68,581
|
)
|
|||||||
Brake Products
|
(51,595
|
)
|
2,473
|
(49,122
|
)
|
|||||||
Other
|
(480
|
)
|
1,397
|
917
|
||||||||
Transit Products
|
—
|
45,462
|
45,462
|
|||||||||
Foreign exchange
|
1,104
|
(6,365
|
)
|
(5,261
|
)
|
|||||||
2017 Net Sales
|
$
|
1,396,588
|
$
|
2,485,168
|
$
|
3,881,756
|
Twelve Months Ended December 31, 2017
|
|||||||||||||||||||||||||
In thousands
|
Freight
|
Percentage of
Sales |
Transit
|
Percentage of
Sales |
Total
|
Percentage of
Sales |
|||||||||||||||||||
Material
|
$
|
526,727
|
37.7
|
%
|
$
|
1,123,571
|
45.2
|
%
|
$
|
1,650,298
|
42.5
|
%
|
|||||||||||||
Labor
|
186,863
|
13.4
|
%
|
339,110
|
13.6
|
%
|
525,973
|
13.5
|
%
|
||||||||||||||||
Overhead
|
233,786
|
16.7
|
%
|
341,389
|
13.7
|
%
|
575,175
|
14.8
|
%
|
||||||||||||||||
Other/Warranty
|
7,148
|
0.5
|
%
|
57,849
|
2.3
|
%
|
64,997
|
1.7
|
%
|
||||||||||||||||
Total cost of sales
|
$
|
954,524
|
68.3
|
%
|
$
|
1,861,919
|
74.8
|
%
|
$
|
2,816,443
|
72.5
|
%
|
Twelve Months Ended December 31, 2016
|
|||||||||||||||||||||||||
In thousands
|
Freight
|
Percentage of
Sales |
Transit
|
Percentage of
Sales |
Total
|
Percentage of
Sales |
|||||||||||||||||||
Material
|
$
|
590,876
|
38.3
|
%
|
$
|
587,516
|
42.3
|
%
|
$
|
1,178,392
|
40.2
|
%
|
|||||||||||||
Labor
|
176,518
|
11.4
|
%
|
170,481
|
12.3
|
%
|
346,999
|
11.8
|
%
|
||||||||||||||||
Overhead
|
242,956
|
15.7
|
%
|
213,821
|
15.4
|
%
|
456,777
|
15.6
|
%
|
||||||||||||||||
Other/Warranty
|
5,575
|
0.4
|
%
|
19,206
|
1.4
|
%
|
24,781
|
0.8
|
%
|
||||||||||||||||
Total cost of sales
|
$
|
1,015,925
|
65.8
|
%
|
$
|
991,024
|
71.4
|
%
|
$
|
2,006,949
|
68.4
|
%
|
For the year ended December 31,
|
||||||||||||||||
Percentage of
|
Percentage of
|
|||||||||||||||
In thousands
|
2017
|
Sales
|
2016
|
Sales
|
||||||||||||
Selling, general and administrative expenses
|
$
|
512,552
|
13.2
|
%
|
$
|
373,559
|
12.7
|
%
|
||||||||
Engineering expenses
|
95,166
|
2.5
|
%
|
71,375
|
2.4
|
%
|
||||||||||
Amortization expense
|
36,516
|
0.9
|
%
|
22,698
|
0.8
|
%
|
||||||||||
Total operating expenses
|
$
|
644,234
|
16.6
|
%
|
$
|
467,632
|
15.9
|
%
|
For the year ended December 31,
|
||||||||||||
Percent
|
||||||||||||
In thousands
|
2017
|
2016
|
Change
|
|||||||||
Freight Segment
|
$
|
177,787
|
$
|
183,595
|
(3.2
|
)%
|
||||||
Transit Segment
|
435,031
|
226,497
|
92.1
|
%
|
||||||||
Corporate
|
31,416
|
57,540
|
(45.4
|
)%
|
||||||||
Total operating expenses
|
$
|
644,234
|
$
|
467,632
|
37.8
|
%
|
For the year ended December 31,
|
||||||||||||
Percent
|
||||||||||||
In thousands
|
2016
|
2015
|
Change
|
|||||||||
Freight Segment
|
$
|
1,543,098
|
$
|
2,054,715
|
(24.9
|
)%
|
||||||
Transit Segment
|
1,388,090
|
1,253,283
|
10.8
|
%
|
||||||||
Net sales
|
2,931,188
|
3,307,998
|
(11.4
|
)%
|
||||||||
Income from operations
|
456,607
|
608,854
|
(25.0
|
)%
|
||||||||
Net income attributable to Wabtec shareholders
|
$
|
304,887
|
$
|
398,628
|
(23.5
|
)%
|
Freight
|
Transit
|
|||||||||||
In thousands
|
Segment
|
Segment
|
Total
|
|||||||||
2015 Net Sales
|
$
|
2,054,715
|
$
|
1,253,283
|
$
|
3,307,998
|
||||||
Acquisition
|
55,097
|
134,095
|
189,192
|
|||||||||
Change in Sales by Product Line:
|
||||||||||||
Specialty Products & Electronics
|
(438,285
|
)
|
35,611
|
(402,674
|
)
|
|||||||
Remanufacturing, Overhaul & Build
|
(33,700
|
)
|
22,743
|
(10,957
|
)
|
|||||||
Brake Products
|
(50,665
|
)
|
(4,442
|
)
|
(55,107
|
)
|
||||||
Transit Products
|
—
|
656
|
656
|
|||||||||
Other
|
(26,908
|
)
|
57
|
(26,851
|
)
|
|||||||
Foreign exchange
|
(17,156
|
)
|
(53,913
|
)
|
(71,069
|
)
|
||||||
2016 Net Sales
|
$
|
1,543,098
|
$
|
1,388,090
|
$
|
2,931,188
|
Twelve Months Ended December 31, 2016
|
|||||||||||||||||||||||||
In thousands
|
Freight
|
Percentage of
Sales |
Transit
|
Percentage of
Sales |
Total
|
Percentage of
Sales |
|||||||||||||||||||
Material
|
$
|
590,876
|
38.3
|
%
|
$
|
587,516
|
42.3
|
%
|
$
|
1,178,392
|
40.2
|
%
|
|||||||||||||
Labor
|
176,518
|
11.4
|
%
|
170,481
|
12.3
|
%
|
346,999
|
11.8
|
%
|
||||||||||||||||
Overhead
|
242,956
|
15.7
|
%
|
213,821
|
15.4
|
%
|
456,777
|
15.6
|
%
|
||||||||||||||||
Other/Warranty
|
5,575
|
0.4
|
%
|
19,206
|
1.4
|
%
|
24,781
|
0.8
|
%
|
||||||||||||||||
Total cost of sales
|
$
|
1,015,925
|
65.8
|
%
|
$
|
991,024
|
71.4
|
%
|
$
|
2,006,949
|
68.4
|
%
|
Twelve Months Ended December 31, 2015
|
|||||||||||||||||||||||||
In thousands
|
Freight
|
Percentage of
Sales |
Transit
|
Percentage of
Sales |
Total
|
Percentage of
Sales |
|||||||||||||||||||
Material
|
$
|
854,728
|
41.6
|
%
|
$
|
531,152
|
42.4
|
%
|
$
|
1,385,880
|
41.9
|
%
|
|||||||||||||
Labor
|
219,495
|
10.7
|
%
|
156,357
|
12.5
|
%
|
375,852
|
11.4
|
%
|
||||||||||||||||
Overhead
|
282,132
|
13.7
|
%
|
182,501
|
14.6
|
%
|
464,633
|
14.0
|
%
|
||||||||||||||||
Other/Warranty
|
5,926
|
0.3
|
%
|
27,891
|
2.2
|
%
|
33,817
|
1.0
|
%
|
||||||||||||||||
Total cost of sales
|
$
|
1,362,281
|
66.3
|
%
|
$
|
897,901
|
71.7
|
%
|
$
|
2,260,182
|
68.3
|
%
|
For the year ended December 31,
|
||||||||||||||||
Percentage of
|
Percentage of
|
|||||||||||||||
In thousands
|
2016
|
Sales
|
2015
|
Sales
|
||||||||||||
Selling, general and administrative expenses
|
$
|
373,559
|
12.7
|
%
|
$
|
346,086
|
10.5
|
%
|
||||||||
Engineering expenses
|
71,375
|
2.4
|
%
|
71,213
|
2.2
|
%
|
||||||||||
Amortization expense
|
22,698
|
0.8
|
%
|
21,663
|
0.7
|
%
|
||||||||||
Total operating expenses
|
$
|
467,632
|
15.9
|
%
|
$
|
438,962
|
13.4
|
%
|
The following table shows our segment operating expenses:
For the year ended December 31, | ||||||||||||
Percent | ||||||||||||
In thousands | 2016 | 2015 | Change | |||||||||
Freight Segment | $ | 183,595 | $ | 208,129 | (11.8 | )% | ||||||
Transit Segment | 226,497 | 204,772 | 10.6 | % | ||||||||
Corporate | 57,540 | 26,061 | 120.8 | % | ||||||||
Total operating expenses | $ | 467,632 | $ | 438,962 | 6.5 | % |
Freight Segment operating expenses decreased $24.5 million, or 11.8%, in 2016 and increased 180 basis points to 11.9% of sales. The decrease is primarily attributable to reduced sales volumes and realized benefits associated with the cost saving initiatives undertaken in 2016 partially offset by $8.8 million of incremental operating expenses from acquisitions.
Transit Segment operating expenses increased $21.7 million, or 10.6%, in 2016 and remained a consistent 16.3% of sales. The increase is primarily related to $26.2 million of incremental operating expenses related to acquisitions and $7.1 million related to the Faiveley Transport transaction. This increase is partially offset by lower operating expenses due to foreign exchange.
Corporate non-allocated operating expenses increased $31.5 million in 2016 primarily due to $31.8 million of costs related to the Faiveley acquisition partially offset by realized benefits from cost saving initiatives in 2016.
Interest expense, net Overall interest expense, net, increased $23.0 million in 2016 due to a higher overall debt balance in 2016 compared to 2015, primarily related to the Faiveley Transport acquisition and $14.9 million of debt refinancing costs. Refer to Note 8 of “Notes to Condensed Consolidated Financial Statements” included in Part IV, Item 15 of this report for additional information on debt.
Other (expense) income, net Other income, net, increased $2.8 million to $6.5 million for 2016, compared to 2015 primarily due to foreign exchange adjustments.
Income taxes The effective income tax rate was 24.1% and 31.9% in 2016 and 2015, respectively. The decrease in the effective rate is primarily the result of an enacted tax rate change which reduces the corporate income tax rate in France and a higher earnings mix in lower tax rate jurisdictions, partially offset by 2016 transaction charges related to the acquisition of Faiveley Transport that are not deductible.
Liquidity and Capital Resources
Liquidity is provided by operating cash flow and borrowings under the Company’s unsecured credit facility with a consortium of commercial banks. The following is a summary of selected cash flow information and other relevant data:
For the year ended December 31, | ||||||||||||
In thousands | 2017 | 2016 | 2015 | |||||||||
Cash provided by (used for): | ||||||||||||
Operating activities | $ | 188,811 | $ | 450,530 | $ | 450,844 | ||||||
Investing activities | (1,033,474 | ) | (232,966 | ) | (177,194 | ) | ||||||
Financing activities: | ||||||||||||
Proceeds from debt | 1,216,740 | 1,875,000 | 787,400 | |||||||||
Payments of debt | (1,269,537 | ) | (1,102,748 | ) | (612,680 | ) | ||||||
Stock repurchases | — | (212,176 | ) | (387,787 | ) | |||||||
Cash dividends | (42,218 | ) | (32,430 | ) | (26,963 | ) | ||||||
Other | (2,416 | ) | (4,675 | ) | (11,468 | ) |
Operating activities . Cash provided by operations in 2017 was $188.8 million compared with $450.5 million in 2016. In comparison to 2016, cash provided by operations decreased due to unfavorable working capital performance and lower net income of $51.1 million. The major components of working capital were as follows: an unfavorable change of $88.4 million in accounts receivable primarily due to higher sales, an unfavorable change in accounts payable of $72.8 million due to the timing of payments to suppliers, an unfavorable change of $25.4 million in other assets and liabilities primarily due to an unfavorable change in accrued liabilities due to payments related to contract liabilities, accrued expenses, and acquisition costs in 2017, and an unfavorable change in inventory of $54.3 million due to efforts to ramp up production in anticipation of stronger product demand in 2018.
Cash provided by operations in 2016 was $450.5 million compared with $450.8 million in 2015. In comparison to 2015, cash provided by operations in 2016 changed due to favorable working capital requirements partially offset by lower operating results. The favorable working capital requirements primarily related to a $57.7 million favorable change in accounts payable principally due to the timing of payments, $25.2 million favorable change in inventory driven by successful efforts to control the amount of inventory on hand. These favorable changes in working capital were partially offset by an unfavorable change in accrued income taxes of $33.5 million driven by lower income taxes owed at the end of 2016 given the decrease in pretax income.
Investing activities. In 2017, 2016 and 2015, cash used in investing activities was $1,033.5 million, $233.0 million and $177.2 million, respectively. The major components of the cash outflow in 2017 were planned additions to property, plant, and equipment of $89.5 million for continued investments in our facilities and manufacturing processes and $945.3 million in net cash paid for acquisitions, primarily related to the acquisition of Faiveley Transport. This compares to $50.2 million for property, plant, and equipment and $183.1 million in net cash paid for acquisitions in 2016. In 2015, $49.4 million of cash was used to purchase property, plant, and equipment and net cash paid for acquisitions was $129.6 million. Refer to Note 3 of “Notes to Condensed Consolidated Financial Statements” included in Part IV, Item 15 of this report for additional information on acquisitions.
Financing activities . In 2017, cash used for financing activities was $97.4 million, which included $1,216.7 million in proceeds from the revolving credit facility, $1,269.5 million in repayments of debt, and $42.2 million of dividend payments. In 2016, cash provided by financing activities was $523.0 million, which included $1,125.0 million in proceeds from the revolving credit facility debt, $770.0 million of repayments of debt on the revolving credit facility, $332.7 million in repayments of other debt, which was primarily driven by repayments of debt acquired from the purchase of Faiveley Transport, $750.0 million of new borrowings on the 2026 Senior Notes, $32.4 million of dividend payments and $212.2 million of Wabtec stock repurchases.
The following table shows outstanding indebtedness at December 31, 2017 and 2016:
December 31, | ||||||||
In thousands | 2017 | 2016 | ||||||
3.45% Senior Notes due 2026, net of unamortized debt issuance costs of $2,345 and $2,526 | $ | 747,655 | $ | 747,474 | ||||
4.375% Senior Notes due 2023, net of unamortized discount and debt issuance costs of $1,433 and $1,690 | 248,567 | 248,310 | ||||||
Revolving Credit Facility and Term Loan, net of unamortized debt issuance costs of $2,451 and $3,850 | 853,124 | 796,150 | ||||||
Schuldschein Loan | 11,998 | 98,671 | ||||||
Other Borrowings | 6,860 | 1,153 | ||||||
Capital Leases | 2,324 | 1,018 | ||||||
Total | 1,870,528 | 1,892,776 | ||||||
Less - current portion | 47,225 | 129,809 | ||||||
Long-term portion | $ | 1,823,303 | $ | 1,762,967 |
Wabtec’s acquisition of the controlling stake of Faiveley Transport triggered the early repayment of a syndicated loan and the mandatory offer to investors to repay the US and Schuldschein private placements. Both the syndicated loan and US private placements were repaid in full in December 2016.
3.45% Senior Notes Due 2026
In October 2016, the Company issued $750.0 million of Senior Notes due 2026 (the “2016 Notes”). The 2016 Notes were issued at 99.965% of face value. Interest on the 2016 Notes accrues at a rate of 3.45% per annum and is payable semi-annually on May 15 and November 15 of each year. The proceeds were used to finance the cash portion of the Faiveley Transport acquisition, refinance Faiveley Transport’s indebtedness, and for general corporate purposes. The principal balance is due in full at maturity. The Company incurred $2.7 million of deferred financing costs related to the issuance of the 2016 Notes.
The 2016 Notes are senior unsecured obligations of the Company and rank pari passu with all existing and future senior debt and senior to all existing and future subordinated indebtedness of the Company. The indenture under which the 2016 Notes were issued contains covenants and restrictions which limit among other things, the following: the incurrence of indebtedness, payment of dividends and certain distributions, sale of assets, change in control, mergers and consolidations and the incurrence of liens.
The Company is in compliance with the restrictions and covenants in the indenture under which the 2016 Notes were issued and expects that these restrictions and covenants will not be any type of limiting factor in executing our operating activities.
4.375% Senior Notes Due 2023
In August 2013, the Company issued $250.0 million of Senior Notes due 2023 (the “2013 Notes”). The 2013 Notes were issued at 99.879% of face value. Interest on the 2013 Notes accrues at a rate of 4.375% per annum and is payable semi-annually on February 15 and August 15 of each year. The proceeds were used to repay debt outstanding under the Company’s existing credit agreement, and for general corporate purposes. The principal balance is due in full at maturity. The Company incurred $2.6 million of deferred financing costs related to the issuance of the 2013 Notes.
The 2013 Notes are senior unsecured obligations of the Company and rank pari passu with all existing and future senior debt and senior to all existing and future subordinated indebtedness of the Company. The indenture under which the 2013 Notes were issued contains covenants and restrictions which limit among other things, the following: the incurrence of indebtedness, payment of dividends and certain distributions, sale of assets, change in control, mergers and consolidations and the incurrence of liens.
The Company is in compliance with the restrictions and covenants in the indenture under which the 2013 Notes were issued and expects that these restrictions and covenants will not be any type of limiting factor in executing our operating activities.
2018 Refinancing Credit Agreement
On June 8, 2018, the Company entered into a credit agreement (the “2018 Refinancing Credit Agreement”), which replaced the Company’s then-existing “2016 Refinancing Credit Agreement.” As part of the 2018 Refinancing Credit Agreement, the Company entered into (i) a $1.2 billion revolving credit facility (the “Revolving Credit Facility”), which replaced the Company’s revolving credit facility under the 2016 Refinancing Credit Agreement, and includes a letter of credit sub-facility of up to $450.0 million and a swing line sub-facility of $75.0 million, (ii) a $350.0 million term loan (the “Refinancing Term Loan”), which refinanced the term loan under the 2016 Refinancing Credit Agreement, and (iii) a new $400.0 million delayed draw term loan (the “Delayed Draw Term Loan”). The 2018 Refinancing Credit Agreement also provides for a bridge loan facility (the “Bridge Loan Facility”) in an amount not to exceed $2.5 billion, such facility to become effective at the Company’s request. Commitments in respect of the Bridge Loan Facility will be reduced by any alternative financing (including any other loans or any long-term notes) that the Company arranges prior to the Direct Sale, subject to customary exceptions. In addition, the 2018 Refinancing Credit Agreement contains an uncommitted accordion feature allowing the Company to request, in an aggregate amount not to exceed $600.0 million, increases to the borrowing commitments under the Revolving Credit Facility or a new incremental term loan commitment.
The Revolving Credit Facility matures on June 8, 2023 and is unsecured. The Refinancing Term Loan matures on June 8, 2021 and is unsecured. The Delayed Draw Term Loan matures on the third anniversary of the date on which it is borrowed and is unsecured. The Bridge Loan Facility, if used, will mature on the date set forth in the definitive documentation for the Bridge Loan Facility and is unsecured. The applicable interest rate for borrowings under the 2018 Refinancing Credit Agreement includes interest rate spreads based on the lower of the pricing corresponding to (i) the Company’s ratio of total debt (less unrestricted cash up to $300.0 million) to EBITDA (“Leverage Ratio”) or (ii) the Company’s public rating, in each case that range between 1.000% and 1.875% for LIBOR/CDOR-based borrowings and 0.000% and 0.875% for Alternate Base Rate based borrowings. The obligations of the Company under the 2018 Refinancing Credit Agreement have been guaranteed by certain of the Company’s subsidiaries.
The 2018 Refinancing Credit Agreement contains customary representations and warranties by the Company and its subsidiaries, including customary use of materiality, material adverse effect, and knowledge qualifiers. The Company and its subsidiaries are also subject to (i) customary affirmative covenants that impose certain reporting obligations on the Company and its subsidiaries and (ii) customary negative covenants, including limitations on: indebtedness; liens; restricted payments; fundamental changes; business activities; transactions with affiliates; restrictive agreements; changes in fiscal year; and use of proceeds. In addition, the Company is required to maintain (i) an Interest Coverage ratio at least 3.00 to 1.00 over each period of four consecutive fiscal quarters ending on the last day of a fiscal quarter and (ii) a Leverage Ratio, calculated as of the last day of a fiscal quarter for a period of four consecutive fiscal quarters, of 3.25 to 1.00 or less; provided that, in the event the Company completes the Direct Sale and the Merger or any other material acquisition in which the cash consideration paid exceeds $500.0 million, the maximum Leverage Ratio permitted will be (x) 3.75 to 1.00 at the end of the fiscal quarter in which such acquisition is consummated and each of the three fiscal quarters immediately following such fiscal quarter and (y) 3.50 to 1.00 at the end of each of the fourth and fifth full fiscal quarters after the consummation of such acquisition. The Company is in compliance with the restrictions and covenants of the 2018 Refinancing Credit Agreement and does not expect that these measurements will limit the Company in executing its operating activities.
2016 Refinancing Credit Agreement
On June 22, 2016, the Company amended its existing revolving credit facility with a consortium of commercial banks. This “2016 Refinancing Credit Agreement” provides the Company with a $1.2 billion, 5 year revolving credit facility and a $400.0 million delayed draw term loan (the “Term Loan”). The Company incurred approximately $3.3 million of deferred financing cost related to the 2016 Refinancing Credit Agreement. The facility expires on June 22, 2021. The 2016 Refinancing Credit Agreement borrowings bear variable interest rates indexed as described below. At December 31, 2017, the Company had available bank borrowing capacity, net of $35.4 million of letters of credit, of approximately $679.0 million, subject to certain financial covenant restrictions.
The Term Loan was drawn on November 25, 2016. The Company incurred a 10 basis point commitment fee from June 22, 2016 until the initial draw on November 25, 2016.
Under the 2016 Refinancing Credit Agreement, the Company may elect a Base Rate of interest for U.S. Dollar denominated loans or, for certain currencies, an interest rate based on the London Interbank Offered Rate (“LIBOR”) of interest, or other rates appropriate for such currencies (in any case, “the Alternate Rate”). The Base Rate adjusts on a daily basis and is the greater of the Federal Funds Effective Rate plus 0.50% per annum, the PNC, N.A. prime rate or the Daily LIBOR Rate plus 100 basis points, plus a margin that ranges from 0 to 75 basis points. The Alternate Rate is based on the quoted rates specific to the applicable currency, plus a margin that ranges from 75 to 175 basis points. Both the Base Rate and Alternate Rate margins are dependent on the Company’s consolidated total indebtedness to EBITDA ratios. The initial Base Rate margin is 0 basis points and the Alternate Rate margin is 175 basis points .
At December 31, 2016, the weighted average interest rate on the Company’s variable rate debt was 2.92%. On January 12, 2012, the Company entered into a forward starting interest rate swap agreement with a notional value of $150.0 million. The effective date of the interest rate swap agreement is July 31, 2013, and the termination date was November 7, 2016. The impact of the interest rate swap agreement converted a portion of the Company’s outstanding debt from a variable rate to a fixed-rate borrowing. During the term of the interest rate swap agreement the interest rate on the notional value was fixed at 1.415% plus the Alternate Rate margin. On June 5, 2014, the Company entered into a forward starting interest rate swap agreement with a notional value of $150.0 million. The effective date of the interest rate swap agreement is November 7, 2016, and the termination date is December 19, 2018. The impact of the interest rate swap agreement converts a portion of the Company’s outstanding debt from a variable rate to a fixed-rate borrowing. During the term of the interest rate swap agreement the interest rate on the notional value will be fixed at 2.56% plus the Alternate Rate margin. As for these agreements, the Company is exposed to credit risk in the event of nonperformance by the counterparties. However, since only the cash interest payments are exchanged, exposure is significantly less than the notional amount. The counterparties are large financial institutions with excellent credit ratings and history of performance. The Company currently believes the risk of nonperformance is negligible.
The 2016 Refinancing Credit Agreement limits the Company’s ability to declare or pay cash dividends and prohibits the Company from declaring or making other distributions, subject to certain exceptions. The 2016 Refinancing Credit Agreement contains various other covenants and restrictions including the following limitations: incurrence of additional indebtedness; mergers, consolidations, sales of assets and acquisitions; additional liens; sale and leasebacks; permissible investments, loans and advances; certain debt payments; and imposes a minimum interest expense coverage ratio of 3.0 and a maximum debt to EBITDA ratio of 3.25. The Company is in compliance with the restrictions and covenants of the 2016 Refinancing Credit Agreement and does not expect that these measurements will limit the Company in executing our operating activities.
Schuldschein Loan, Due 2016
In conjunction with the acquisition of Faiveley Transport, Wabtec acquired $137.2 million of a Schuldshein private placement loan which was originally issued by Faiveley Transport on March 5, 2014 in Germany, in which approximately 20 international investors participated. This loan is denominated in euros. Subsequent to the acquisition of Faiveley Transport, the Company repaid $125.3 million of the outstanding Schuldschein loan. The remaining balance of $12.0 million as of December 31, 2017 matures on March 5, 2024 and bears a fixed rate of 4.00%.
Contractual Obligations and Off-Balance Sheet Arrangements
The Company is obligated to make future payments under various contracts such as debt agreements, lease agreements and has certain contingent commitments such as debt guarantees. The Company has grouped these contractual obligations and off-balance sheet arrangements into operating activities, financing activities, and investing activities in the same manner as they are classified in the Statement of Consolidated Cash Flows to provide a better understanding of the nature of the obligations and arrangements and to provide a basis for comparison to historical information. The table below provides a summary of contractual obligations and off-balance sheet arrangements as of December 31, 2017:
Less than | 1 - 3 | 3 - 5 | More than | |||||||||||||||||
In thousands | Total | 1 year | years | years | 5 years | |||||||||||||||
Operating activities: | ||||||||||||||||||||
Purchase obligations (1) | $ | 148,598 | $ | 22,871 | $ | 64,661 | $ | 17,850 | $ | 43,216 | ||||||||||
Operating leases (2) | 187,406 | 31,647 | 53,024 | 36,694 | 66,041 | |||||||||||||||
Pension benefit payments (3) | 174,551 | 15,651 | 32,185 | 34,622 | 92,093 | |||||||||||||||
Postretirement benefit payments (4) | 11,371 | 1,254 | 2,455 | 2,354 | 5,308 | |||||||||||||||
Financing activities: | ||||||||||||||||||||
Interest payments (5) | 365,772 | 62,573 | 104,500 | 89,582 | 109,117 | |||||||||||||||
Long-term debt (6) | 1,870,528 | 47,225 | 331,460 | 483,587 | 1,008,256 | |||||||||||||||
Dividends to shareholders (7) | 46,096 | 46,096 | — | — | — | |||||||||||||||
Other: | ||||||||||||||||||||
Standby letters of credit (8) | 36,803 | 12,704 | 4,314 | 16,690 | 3,095 | |||||||||||||||
Total | $ | 2,841,125 | $ | 240,021 | $ | 592,599 | $ | 681,379 | $ | 1,327,126 |
(1) |
Purchase obligations represent non-cancelable contractual obligations at December 31, 2017. In addition, the Company had $368.3 million of open purchase orders for which the related goods or services had not been received. Although open purchase orders are considered enforceable and legally binding, their terms generally allow us the option to cancel, reschedule and adjust our requirements based on our business needs prior to the delivery of goods or performance of services. |
(2) |
Future minimum payments for operating leases are disclosed by year in Note 14 of the “Notes to Consolidated Financial Statements” included in Part IV, Item 15 of this report. |
(3) |
Annual payments to participants are expected to continue into the foreseeable future at the amounts or ranges noted. Pension benefit payments are based on actuarial estimates using current assumptions for discount rates, expected return on long-term assets and rate of compensation increases. The Company expects to contribute about $7.3 million to pension plan investments in 2018. See further disclosure in Note 9 of the “Notes to Consolidated Financial Statements” included in Part IV, Item 15 of this report. |
(4) |
Annual payments to participants are expected to continue into the foreseeable future at the amounts or ranges noted. Postretirement payments are based on actuarial estimates using current assumptions for discount rates and health care costs. See further disclosure in Note 9 of the “Notes to Consolidated Financial Statements” included in Part IV, Item 15 of this report. |
(5) |
Interest payments are payable May and November of each year at 3.45% of $750 million Senior Notes due in 2026. Interest payments are payable February and August of each year at 4.375% of $250 million Senior Notes due in 2023. Interest payments for the Revolving Credit Facility and Capital Leases are based on contractual terms and the Company’s current interest rates. |
(6) |
Scheduled principal repayments of outstanding loan balances are disclosed in Note 8 of the “Notes to Consolidated Financial Statements” included in Part IV, Item 15 of this report. |
(7) |
Shareholder dividends are subject to approval by the Company’s Board of Directors, currently at an annual rate of approximately $46.1 million. |
(8) |
The $36.8 million of standby letters of credit is comprised of $35.3 million in outstanding letters of credit for performance and bid bond purposes and $1.5 million in interest, which expire in various dates through 2050. Amounts include interest payments based on contractual terms and the Company’s current interest rate. |
The above table does not reflect uncertain tax positions of $6.9 million, the timing of which are uncertain except for $5.2 million that may become payable during 2017. Refer to Note 10 of the “Notes to Consolidated Financial Statements” for additional information on uncertain tax positions.
Obligations for operating activities. The Company has entered into $148.6 million of material long-term non-cancelable materials and supply purchase obligations. Operating leases represent multi-year obligations for rental of facilities and equipment. Estimated pension funding and post-retirement benefit payments are based on actuarial estimates using current assumptions for discount rates, expected return on long-term assets, rate of compensation increases and health care cost trend rates. Benefits paid for pension obligations were $16.0 million and $13.3 million in 2017 and 2016, respectively. Benefits paid for post-retirement plans were $1.2 million and $0.9 million in 2017 and in 2016, respectively.
Obligations for financing activities. Cash requirements for financing activities consist primarily of long-term debt repayments, interest payments and dividend payments to shareholders. The Company has historically paid quarterly dividends to shareholders, subject to quarterly approval by our Board of Directors, currently at a rate of approximately $46.1 million annually.
The Company arranges for performance bonds to be issued by third party insurance companies to support certain long term customer contracts. At December 31, 2017, the initial value of performance bonds issued on the Company’s behalf is about $461 million.
Forward Looking Statements
We believe that all statements other than statements of historical facts included in this report, including certain statements under “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may constitute forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. Although we believe that our assumptions made in connection with the forward-looking statements are reasonable, we cannot assure that our assumptions and expectations are correct.
These forward-looking statements are subject to various risks, uncertainties and assumptions about us, including, among other things:
Economic and industry conditions
· | prolonged unfavorable economic and industry conditions in the markets served by us, including North America, South America, Europe, Australia, Asia, and South Africa; |
· | decline in demand for freight cars, locomotives, passenger transit cars, buses and related products and services; |
· | reliance on major original equipment manufacturer customers; |
· | original equipment manufacturers’ program delays; |
· | demand for services in the freight and passenger rail industry; |
· | demand for our products and services; |
· | orders either being delayed, canceled, not returning to historical levels, or reduced or any combination of the foregoing; |
· | consolidations in the rail industry; |
· | continued outsourcing by our customers; |
· | industry demand for faster and more efficient braking equipment; |
· | fluctuations in interest rates and foreign currency exchange rates; or |
· | availability of credit; |
Operating factors
· | supply disruptions; |
· | technical difficulties; |
· | changes in operating conditions and costs; |
· | increases in raw material costs; |
· | successful introduction of new products; |
· | performance under material long-term contracts; |
· | labor relations; |
· | the outcome of our existing or any future legal proceedings, including litigation involving our principal customers and any litigation with respect to environmental matters, asbestos-related matters, pension liabilities, warranties, product liabilities or intellectual property claims; |
· | completion and integration of acquisitions, including the acquisition of Faiveley Transport; or |
· | the development and use of new technology; |
Competitive factors
· | the actions of competitors; or |
· | the outcome of negotiations with partners, suppliers, customers or others; |
Political/governmental factors
· | political stability in relevant areas of the world; |
· | future regulation/deregulation of our customers and/or the rail industry; |
· | levels of governmental funding on transit projects, including for some of our customers; |
· | political developments and laws and regulations, including those related to Positive Train Control; or |
· | federal and state income tax legislation; and |
· | the outcome of negotiations with governments. |
Statements in this 10-K apply only as of the date on which such statements are made, and we undertake no obligation to update any statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.
Critical Accounting Estimates
The preparation of the financial statements in accordance with generally accepted accounting principles requires Management to make judgments, estimates and assumptions regarding uncertainties that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Areas of uncertainty that require judgments, estimates and assumptions include the accounting for allowance for doubtful accounts, inventories, the testing of goodwill and other intangibles for impairment, warranty reserves, pensions and other postretirement benefits, stock based compensation and tax matters. Management uses historical experience and all available information to make these judgments and estimates, and actual results will inevitably differ from those estimates and assumptions that are used to prepare the Company’s financial statements at any given time. Despite these inherent limitations, Management believes that Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and the financial statements and related footnotes provide a meaningful and fair perspective of the Company. A discussion of the judgments and uncertainties associated with accounting for derivatives and environmental matters can be found in Notes 2 and 17, respectively, in the “Notes to Consolidated Financial Statements” included in Part IV, Item 15 of this report.
A summary of the Company’s significant accounting policies is included in Note 2 in the “Notes to Consolidated Financial Statements” included in Part IV, Item 15 of this report and is incorporated by reference herein. Management believes that the application of these policies on a consistent basis enables the Company to provide the users of the financial statements with useful and reliable information about the Company’s operating results and financial condition.
Accounts Receivable and Allowance for Doubtful Accounts:
Description The Company provides an allowance for doubtful accounts to cover anticipated losses on uncollectible accounts receivable.
Judgments and Uncertainties The allowance for doubtful accounts receivable reflects our best estimate of probable losses inherent in our receivable portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available evidence.
Effect if Actual Results Differ From Assumptions If our estimates regarding the collectability of troubled accounts, and/or our actual losses within our receivable portfolio exceed our historical experience, we may be exposed to the expense of increasing our allowance for doubtful accounts.
Inventories:
Description Inventories are stated at the lower of cost or market and are reviewed to ensure that an adequate provision is recognized for excess, slow moving and obsolete inventories.
Judgments and Uncertainties Cost is determined under the first-in, first-out (FIFO) method. Inventory costs include material, labor and overhead. The Company compares inventory components to prior year sales history and current backlog and anticipated future requirements. To the extent that inventory parts exceed estimated usage and demand, a reserve is recognized to reduce the carrying value of inventory. Also, specific reserves are established for known inventory obsolescence.
Effect if Actual Results Differ From Assumptions If the market value of our products were to decrease due to changing market conditions, the Company could be at risk of incurring write-downs to adjust inventory value to a market value lower than stated cost. If our estimates regarding sales and backlog requirements are inaccurate, we may be exposed to the expense of increasing our reserves for slow moving and obsolete inventory.
Goodwill and Indefinite-Lived Intangibles:
Description Goodwill and indefinite-lived intangibles are required to be tested for impairment at least annually. The Company performs its annual impairment test during the fourth quarter and more frequently when indicators of impairment are present. The Company reviews goodwill for impairment at the reporting unit level. The evaluation of impairment involves comparing the current fair value of the business to the recorded value (including goodwill).
Judgments and Uncertainties A number of significant assumptions and estimates are involved in the application of the impairment test, including the identification of macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, Wabtec specific events and share price trends and making the assessment on whether each relevant factor will impact the impairment test positively or negatively and the magnitude of any such amount.
Effect if Actual Results Differ From Assumptions Management considers historical experience and all available information at the time the fair values of its reporting units are estimated. However, actual amounts realized may differ from those used to evaluate the impairment of goodwill. If actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair values, we may be exposed to impairment losses that could be material to our results of operations. For example, based on the quantitative analysis performed as of October 1, 2017, a decline in the terminal growth rate by 50 basis points would decrease fair market value by $334 million, or an increase in the weighted-average cost of capital by 100 basis points would result in a decrease in fair market value by $984 million. Even with such changes the fair value of the reporting units would be greater than their net book values, necessitating no Step 2 calculations. See Note 2 in the “Notes to Consolidated Financial Statements” included in Part IV, Item 15 of this report for additional discussion regarding impairment testing.
Warranty Reserves:
Description The Company provides warranty reserves to cover expected costs from repairing or replacing products with durability, quality or workmanship issues occurring during established warranty periods.
Judgments and Uncertainties In general, reserves are provided for as a percentage of sales, based on historical experience. In addition, specific reserves are established for known warranty issues and their estimable losses.
Effect if Actual Results Differ From Assumptions If actual results are not consistent with the assumptions and judgments used to calculate our warranty liability, the Company may be at risk of realizing material gains or losses.
Accounting for Pensions and Postretirement Benefits:
Description The Company provides pension and postretirement benefits for its employees. These amounts are determined using actuarial methodologies and incorporate significant assumptions, including the rate used to discount the future estimated liability, the long-term rate of return on plan assets and several assumptions relating to the employee workforce (salary increases, medical costs, retirement age and mortality).
Judgments and Uncertainties Significant judgments and estimates are used in determining the liabilities and expenses for pensions and other postretirement benefits. The rate used to discount future estimated liabilities is determined considering the rates available at year-end on debt instruments that could be used to settle the obligations of the plan. The long-term rate of return is estimated by considering historical returns and expected returns on current and projected asset allocations and is generally applied to a five-year average market value of assets. The differences between actual and expected asset returns are recognized in expense using the normal amortization of gains and losses per ASC 715.
Effect if Actual Results Differ From Assumptions If assumptions used in determining the pension and other postretirement benefits change significantly, these costs can fluctuate materially from period to period. The key assumptions in determining the pension and other postretirement expense and obligation include the discount rate, expected return on assets and health care cost trend rate. For example, a 1% decrease or increase in the discount rate used in determining the pension and postretirement expense would increase expense $1.2 million or decrease expense $1.8 million, respectively. A 1% decrease or increase in the discount rate used in determining the pension and postretirement obligation would increase the obligation $53.1 million or decrease the obligation $67.2 million, respectively. A 1% decrease or increase in the expected return on assets used in determining the pension expense would increase or decrease expense $3.0 million. If the actual asset values at December 31, 2017 had been 1% lower, the amortization of losses in the following year would decrease $0.2 million. A 1% decrease or increase in the health care cost trend rate used in determining the postretirement expense would increase or decrease the expense less than $0.1 million. A 1% decrease or increase in the health care cost trend rate used in determining the postretirement obligation would increase or decrease the obligation $0.3 million.
Stock-based Compensation:
Description The Company has issued incentive stock units to eligible employees that vest upon attainment of certain cumulative three-year performance goals. The program is structured as a rolling three-year plan; each year starts a new three-year performance cycle with the most recently completed cycle being 2015-2017. No incentive stock units will vest for performance below the three-year cumulative threshold. The Company utilizes an economic profit measure for this performance goal. Economic profit is a measure of the extent to which the Company produces financial results in excess of its cost of capital. Based on the Company’s achievement of the threshold and three-year cumulative performance, the stock units vested can range from 0% to 200% of the shares granted.
Judgments and Uncertainties Significant judgments and estimates are used in determining the estimated three-year performance, which is then used to estimate the total shares expected to vest over the three year vesting cycle and corresponding expense based on the grant date fair value of the award. When determining the estimated three-year performance, the Company utilizes a combination of historical actual results, budgeted results and forecasts. In the initial grant year of a performance cycle, the Company estimates the three-year performance at 100%. As actual performance results for a cycle begin to accumulate and the Company completes its budgeting and forecasting cycles the performance estimates are updated. These judgments and estimates are reviewed and updated on a quarterly basis.
Effect if Actual Results Differ From Assumptions If assumptions used in determining the estimated three-year performance change significantly, stock-based compensation expense related to the unvested incentive stock awards can fluctuate materially from period to period. For example, a 10% decrease or increase in the estimated vesting percentage for incentive stock awards would decrease or increase stock-based compensation expense by approximately $0.7 million and $0.7 million, respectively.
Income Taxes:
Description Wabtec records an estimated liability or benefit for income and other taxes based on what it determines will likely be paid in various tax jurisdictions in which it operates in accordance with ASC 740-10 Accounting for Income Taxes and Accounting for Uncertainty in Income Taxes.
Judgments and Uncertainties The estimate of our tax obligations are uncertain because Management must use judgment to estimate the exposures associated with our various filing positions, as well as realization of our deferred tax assets. ASC 740-10 establishes a recognition and measurement threshold to determine the amount of tax benefit that should be recognized related to uncertain tax positions.
Effect if Actual Results Differ From Assumptions Management uses its best judgment in the determination of these amounts. However, the liabilities ultimately realized and paid are dependent on various matters including the resolution of the tax audits in the various affected tax jurisdictions and may differ from the amounts recorded. An adjustment to the estimated liability would be recorded through income in the period in which it becomes probable that the amount of the actual liability differs from the recorded amount. A deferred tax valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Revenue Recognition:
Description Revenue is recognized in accordance with ASC 605 “Revenue Recognition.” The Company recognizes revenues on long-term contracts based on the percentage of completion method of accounting. The units-of-delivery method or other input-based or output-based measures, as appropriate, are used to measure the progress toward completion of individual contracts. Contract revenues and cost estimates are reviewed and revised at a minimum quarterly and adjustments are reflected in the accounting period as such amounts are determined. Certain pre-production costs relating to long term production and supply contracts have been deferred and will be recognized over the life of the contracts.
Judgments and Uncertainties Revenue is recognized when products have been shipped to the respective customers, title has passed and the price for the product has been determined. Contract accounting involves a judgmental process of estimating the total sales and costs for each contract, which results in the development of estimated profit margin percentages. For each contract with revenue recognized using the percentage of completion method, the amount reported as revenue is determined by calculating cost incurred to date as a percentage of the total expected contract costs to determine the percentage of total contract revenue to be recognized in the current period. Due to the size, duration and nature of many of our contracts, the estimation of total sales and costs through completion is complicated and subject to many variables. Total contract sales estimates are based on negotiated contract prices and quantities, modified by our assumptions regarding contract options, change orders, and price adjustment clauses (such as inflation or index-based clauses). Total contract cost estimates are largely based on negotiated or estimated purchase contract terms, historical performance trends, business base and other economic projections. Factors that influence these estimates include inflationary trends, technical and schedule risk, internal and subcontractor performance trends, business volume assumptions, asset utilization, and anticipated labor agreements. For long-term contracts, revenues and cost estimates are reviewed and revised quarterly at a minimum and adjustments are reflected in the accounting period as such amounts are determined. Pre-production costs are recognized over the expected life of the contract usually based on the Company’s progress toward the estimated number of units expected to be delivered under the production or supply contract.
Effect if Actual Results Differ From Assumptions Should market conditions and customer demands dictate changes to our standard shipping terms, the Company may be impacted by longer than typical revenue recognition cycles. The development of expected contract costs and contract profit margin percentages involves procedures and personnel in all areas that provide financial or production information on the status of contracts. Due to the significance of judgment in the estimation process, it is likely that materially different revenue amounts could be recorded if we used different assumptions or if the underlying circumstances were to change. Changes in underlying assumptions/estimates, supplier performance, or circumstances may adversely or positively affect financial performance in future periods. If the combined profit margin for all contracts recognized on the percentage of completion method during 2017 had been estimated to be higher or lower by 1%, it would have increased or decreased revenue and gross profit for the year by approximately $29.8 million. A few of our contracts are expected to be completed in a loss position. Provisions are made currently for estimated losses on uncompleted contracts. A charge to expense for unrecognized portions of pre-production costs could be realized if the Company’s estimate of the number of units to be delivered changes or the underlying contract is cancelled.
Item 6. | SELECTED FINANCIAL DATA |
The following table shows selected consolidated financial information of the Company and has been derived from audited financial statements. This financial information should be read in conjunction with, and is qualified by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements of the Company and the Notes thereto included elsewhere in this Form 10-K.
Year Ended December 31, | ||||||||||||||||||||
In thousands, except per share amounts | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Income Statement Data | ||||||||||||||||||||
Net sales | $ | 3,881,756 | $ | 2,931,188 | $ | 3,307,998 | $ | 3,044,454 | $ | 2,566,392 | ||||||||||
Gross profit | 1,065,313 | 924,239 | 1,047,816 | 935,982 | 764,027 | |||||||||||||||
Operating expenses | (644,234 | ) | (467,632 | ) | (438,962 | ) | (406,198 | ) | (319,291 | ) | ||||||||||
Income from operations | $ | 421,079 | $ | 456,607 | $ | 608,854 | $ | 529,784 | $ | 444,736 | ||||||||||
Interest expense, net | $ | (77,884 | ) | $ | (50,298 | ) | $ | (27,254 | ) | $ | (29,074 | ) | $ | (25,247 | ) | |||||
Other (expense) income, net | 8,868 | 6,528 | 3,768 | 7,145 | 1,598 | |||||||||||||||
Net income attributable to Wabtec shareholders | $ | 262,261 | $ | 304,887 | $ | 398,628 | $ | 351,680 | $ | 292,235 | ||||||||||
Diluted Earnings per Common Share | ||||||||||||||||||||
Net income attributable to Wabtec shareholders (1) | $ | 2.72 | $ | 3.34 | $ | 4.10 | $ | 3.62 | $ | 3.01 | ||||||||||
Cash dividends declared per share (1) | $ | 0.44 | $ | 0.36 | $ | 0.28 | $ | 0.20 | $ | 0.13 | ||||||||||
Fully diluted shares outstanding (1) | 96,125 | 91,141 | 97,006 | 96,885 | 96,832 | |||||||||||||||
Balance Sheet Data | ||||||||||||||||||||
Total assets | $ | 6,579,980 | $ | 6,581,018 | $ | 3,229,513 | $ | 3,303,841 | $ | 2,821,997 | ||||||||||
Cash and cash equivalents | 233,401 | 398,484 | 226,191 | 425,849 | 285,760 | |||||||||||||||
Total debt | 1,870,528 | 1,892,776 | 692,238 | 521,195 | 450,709 | |||||||||||||||
Total equity | 2,828,532 | 2,976,825 | 1,701,339 | 1,808,298 | 1,587,167 |
(1) | Information above for net income attributable to Wabtec shareholders, cash dividends declared per share and fully diluted shares outstanding for all periods presented reflects the two-for-one split of the Company’s common stock, which occurred on May 14, 2013. |
· |
Equipment (45% of 2017 total revenue):
GE Transportation is the largest global manufacturer of diesel-electric locomotives used by freight railroads, and produces electric motors and premium propulsion systems for mining, marine, stationary power and drilling applications.
|
· |
Services (48% of 2017 total revenue):
GE Transportation provides
aftermarket parts and services to its global installed base, including predictive maintenance, regular maintenance, and unscheduled maintenance and overhaul services for locomotives.
|
· |
Digital (7% of 2017 total revenue):
GE Transportation provides a comprehensive suite of software-enabled solutions designed to improve customer efficiency and productivity in the transportation and mining industries.
|
Focus Area
|
Train Performance
|
Transport Intelligence
|
Transport Logistics
|
Network Optimization
|
Digital Mine
|
|||||
|
·
|
Distributed locomotive power |
·
|
Industrial/mobile Internet of Things (IoT) hardware & software |
·
|
Rail transportation management |
·
|
Rail network scheduling, dispatch, and optimization |
·
|
Safety systems
|
Key Attributes
|
·
|
Train ‘cruise control’ |
·
|
Edge-to-cloud, on and off-board analytics & rules
|
·
|
Shipper transportation management
|
·
|
Intermodal terminal management and optimization
|
·
|
Operations performance management (OPM)
|
|
·
|
Train remote control
|
·
|
Asset performance management
|
·
|
Port visibility and optimization
|
·
|
Rail yard management and optimization
|
·
|
Asset performance management (APM) |
|
·
|
Longer, heavier trains
|
·
|
Asset reliability / decreased maintenance cost |
·
|
Freight visibility across entities
|
·
|
Faster, more efficient rail networks
|
·
|
Collision avoidance
|
Key Customer Benefits
|
·
|
90+% reduction in ‘break-in-twos’
|
·
|
Decreased operating costs
|
·
|
Meaningful increase in port efficiency
|
·
|
Reduced dwell / higher throughput |
·
|
Higher blast yields |
|
·
|
7-13% fuel savings, lower emissions |
·
|
Lower spend for IoT management & analytics
|
·
|
Improved back-office and day of operation processes
|
|
|
·
|
Higher asset reliability / decreased maintenance cost
|
· |
Decrease manpower for yard shunting, mainline
|
·
|
Reduced revenue leakage |
Location
|
Approximate Square Feet
|
Owned/Leased
|
Office Space
|
||
Chicago, IL
|
53,972
|
Leased
|
Manufacturing Facilities
|
||
Fort Worth, TX – Locomotive
|
923,266
|
Owned
|
Fort Worth, TX – Off-Highway Vehicle
|
249,700
|
Owned
|
Erie, PA – Manufacturing, Engineering, and Testing
|
4,200,000
|
Owned
|
Grove City, PA – Engine Remanufacturing
|
242,000
|
Owned
|
Grove City, PA – Main Engine
|
486,000
|
Owned
|
Contagem, Minas Gerais, Brazil
|
114,452
|
Leased
|
· |
Equipment segment: GE Transportation’s Equipment segment is a leading manufacturer of diesel-electric locomotives serving freight and passenger railroads. GE Transportation produces products and solutions that help railroads reduce operating costs, decrease fuel use, minimize downtime and comply with stringent emissions standards. In addition to locomotives, GE Transportation also produces a range of engines, electric motors and premium propulsion systems used in mining, marine, stationary power and drilling applications.
|
· |
Services segment: GE Transportation’s Services segment is responsible for supporting railroads in the operation of their fleet of GE Transportation locomotives in an efficient manner throughout their entire lifecycle in terms of safety, availability, reliability and economic performance. GE Transportation provides aftermarket parts and services to GE Transportation’s global installed base, including predictive maintenance, regular maintenance, and unscheduled maintenance and overhaul services for locomotives. GE Transportation’s offerings include supply of parts, technical support and locomotive modernizations. Commercially, locomotive maintenance can be contracted on a fully transactional basis or through multi-year contracts (Contractual Service Agreements or “CSAs”), where GE Transportation assumes certain service activities, and the related performance risks, in return for fixed and variable payments based on underlying utilization of the asset(s) covered.
|
· |
Digital segment: GE Transportation’s Digital segment combines a history of industrial leadership with cutting-edge data science and analytics acumen to create an efficient, productive and reliable digital-rail ecosystem, from mine to port, from shipper to receiver, from port to intermodal terminals to main line locomotives and railcars and across train yards and operation centers. GE Transportation’s Digital segment develops and works with GE Transportation’s customers to implement a comprehensive set of software-enabled solutions that deliver significant benefits across the transportation and mining landscape. Characterized by in-house and boutique solution providers, the breadth and market presence of GE Transportation’s Digital solutions have positioned GE Transportation as a key player for digital innovation.
|
· |
Sales (costs) of goods: Goods primarily consists of GE Transportation’s Equipment segment, as well as part sales in GE Transportation’s Services segment and some Digital segment products. Specifically, goods consist of locomotives, locomotive parts, modernizations, marine, stationary and drilling apparatuses and parts, mining equipment and parts, and digital equipment.
|
· |
Sales (costs) of services: Services primarily consists of GE Transportation’s Services segment, as well as some Digital segment products. Sales and costs of services consists of maintenance services, marine, stationary and drilling services, mining services, and digital services.
|
For the Six Months Ended June 30
|
||||||||||||||||
2018
|
2017
|
Variation ($)
|
Variation (%)
|
|||||||||||||
In thousands, except for percentages
|
||||||||||||||||
Income Statement Data:
|
||||||||||||||||
Revenues
|
||||||||||||||||
Sales of goods
|
$
|
1,101,781
|
$
|
1,312,160
|
$
|
(210,379
|
)
|
(16
|
)%
|
|||||||
Sales of services
|
672,107
|
668,425
|
3,682
|
1
|
%
|
|||||||||||
Total revenues
|
1,773,888
|
1,980,585
|
(206,697
|
)
|
(10
|
)%
|
||||||||||
Cost of revenues
|
||||||||||||||||
Cost of goods sold
|
881,336
|
1,116,321
|
(234,985
|
)
|
(21
|
)%
|
||||||||||
Cost of services sold
|
405,955
|
446,245
|
(40,290
|
)
|
(9
|
)%
|
||||||||||
Gross profit
|
486,597
|
418,019
|
68,578
|
16
|
%
|
|||||||||||
Selling, general and administrative expenses
|
264,770
|
228,713
|
36,057
|
16
|
%
|
|||||||||||
Impairment of goodwill
|
-
|
-
|
-
|
|||||||||||||
Non-operating benefit costs
|
5,155
|
11,262
|
(6,107
|
)
|
(54
|
)%
|
||||||||||
Other (expense) income
|
(4,362
|
)
|
(20,961
|
)
|
16,599
|
(79
|
)%
|
|||||||||
Earnings before income taxes
|
212,310
|
157,083
|
55,227
|
35
|
%
|
|||||||||||
Provision for income taxes
|
(44,084
|
)
|
(56,984
|
)
|
12,900
|
(23
|
)%
|
|||||||||
Net earnings
|
168,226
|
100,099
|
68,127
|
68
|
%
|
|||||||||||
Less net earnings attributable to noncontrolling interests
|
4,136
|
6,811
|
(2,675
|
)
|
(39
|
)%
|
||||||||||
Net earnings attributable to GE
|
$
|
164,090
|
$
|
93,288
|
$
|
70,802
|
76
|
%
|
||||||||
Other comprehensive (loss) income
|
||||||||||||||||
Foreign currency translation adjustments
|
(20,849
|
)
|
20,078
|
(40,927
|
)
|
(204
|
)%
|
|||||||||
Benefit plans, net of taxes
|
2,173
|
772
|
1,401
|
181
|
%
|
|||||||||||
Other comprehensive (loss) income, net of taxes
|
(18,676
|
)
|
20,850
|
(39,526
|
)
|
(190
|
)%
|
|||||||||
Less other comprehensive income (loss) attributable to noncontrolling interests
|
(2,400
|
)
|
1,331
|
(3,731
|
)
|
(280
|
)%
|
|||||||||
Other comprehensive (loss) income attributable to GE
|
(16,276
|
)
|
19,519
|
(35,795
|
)
|
(183
|
)%
|
|||||||||
Comprehensive income (loss)
|
149,550
|
120,949
|
28,601
|
24
|
%
|
|||||||||||
Less comprehensive income (loss) attributable to noncontrolling interests
|
1,736
|
8,142
|
(6,406
|
)
|
(79
|
)%
|
||||||||||
Comprehensive income attributable to GE
|
$
|
147,814
|
$
|
112,807
|
$
|
35,007
|
31
|
%
|
For the Year Ended December 31
|
||||||||||||||||
2017
|
2016
|
Variation ($)
|
Variation (%)
|
|||||||||||||
In thousands, except for percentages
|
||||||||||||||||
Income Statement Data:
|
||||||||||||||||
Revenues
|
||||||||||||||||
Sales of goods
|
$
|
2,546,637
|
$
|
3,046,546
|
$
|
(499,909
|
)
|
(16
|
)%
|
|||||||
Sales of services
|
1,383,671
|
1,560,045
|
(176,374
|
)
|
(11
|
)%
|
||||||||||
Total revenues
|
3,930,308
|
4,606,591
|
(676,283
|
)
|
(15
|
)%
|
||||||||||
Cost of revenues
|
||||||||||||||||
Cost of goods sold
|
2,129,684
|
2,525,838
|
(396,154
|
)
|
(16
|
)%
|
||||||||||
Cost of services sold
|
877,390
|
909,116
|
(31,726
|
)
|
(3
|
)%
|
||||||||||
Gross profit
|
923,234
|
1,171,637
|
(248,403
|
)
|
(21
|
)%
|
||||||||||
Selling, general and administrative expenses
|
449,651
|
432,229
|
17,422
|
4
|
%
|
|||||||||||
Impairment of goodwill
|
-
|
2,027
|
(2,027
|
)
|
(100
|
)%
|
||||||||||
Non-operating benefit costs
|
16,877
|
18,455
|
(1,578
|
)
|
(9
|
)%
|
||||||||||
Other (expense) income
|
(24,307
|
)
|
(11,409
|
)
|
(12,898
|
)
|
113
|
%
|
||||||||
Earnings before income taxes
|
432,399
|
707,517
|
(275,118
|
)
|
(39
|
)%
|
||||||||||
Provision for income taxes
|
(44,303
|
)
|
(167,428
|
)
|
123,125
|
(74
|
)%
|
|||||||||
Net earnings
|
388,096
|
540,089
|
(151,993
|
)
|
(28
|
)%
|
||||||||||
Less net earnings attributable to noncontrolling interests
|
14,311
|
6,144
|
8,167
|
133
|
%
|
|||||||||||
Net earnings attributable to GE
|
373,785
|
533,945
|
(160,160
|
)
|
(30
|
)%
|
||||||||||
Other comprehensive income (loss)
|
||||||||||||||||
Foreign currency translation adjustments
|
15,568
|
22,970
|
(7,402
|
)
|
(32
|
)%
|
||||||||||
Benefit plans, net of taxes
|
459
|
(1,092
|
)
|
1,551
|
(142
|
)%
|
||||||||||
Other comprehensive income (loss), net of taxes
|
16,027
|
21,878
|
(5,851
|
)
|
(27
|
)%
|
||||||||||
Less other comprehensive income (loss) attributable to noncontrolling interests
|
703
|
(6,101
|
)
|
6,804
|
(112
|
)%
|
||||||||||
Other comprehensive income (loss) attributable to GE
|
15,324
|
27,979
|
(12,655
|
)
|
(45
|
)%
|
||||||||||
Comprehensive income (loss)
|
404,123
|
561,967
|
(157,844
|
)
|
(28
|
)%
|
||||||||||
Less comprehensive income (loss) attributable to noncontrolling interests
|
15,014
|
43
|
14,971
|
34,816
|
%
|
|||||||||||
Comprehensive income attributable to GE
|
$
|
389,109
|
$
|
561,924
|
(172,815
|
)
|
(31
|
)%
|
For the Year Ended December 31
|
||||||||||||||||
2016
|
2015
|
Variation ($)
|
Variation (%)
|
|||||||||||||
In thousands, except for percentages
|
||||||||||||||||
Income Statement Data:
|
||||||||||||||||
Revenues
|
||||||||||||||||
Sales of goods
|
$
|
3,046,546
|
$
|
3,998,100
|
$
|
(951,554
|
)
|
(24
|
)%
|
|||||||
Sales of services
|
1,560,045
|
1,423,379
|
136,666
|
10
|
%
|
|||||||||||
Total revenues
|
4,606,591
|
5,421,479
|
(814,888
|
)
|
(15
|
)%
|
||||||||||
Cost of revenues
|
||||||||||||||||
Cost of goods sold
|
2,525,838
|
3,163,798
|
(637,960
|
)
|
(20
|
)%
|
||||||||||
Cost of services sold
|
909,116
|
931,745
|
(22,629
|
)
|
(2
|
)%
|
||||||||||
Gross profit
|
1,171,637
|
1,325,936
|
(154,299
|
)
|
(12
|
)%
|
||||||||||
Selling, general and administrative expenses
|
432,229
|
414,488
|
17,741
|
4
|
%
|
|||||||||||
Impairment of goodwill
|
2,027
|
85,421
|
(83,394
|
)
|
(98
|
)%
|
||||||||||
Non-operating benefit costs
|
18,455
|
16,249
|
2,206
|
14
|
%
|
|||||||||||
Other (expense) income
|
(11,409
|
)
|
27,121
|
(38,530
|
)
|
(142
|
)%
|
|||||||||
Earnings before income taxes
|
707,517
|
836,899
|
(129,382
|
)
|
(15
|
)%
|
||||||||||
Provision for income taxes
|
(167,428
|
)
|
(349,275
|
)
|
181,847
|
(52
|
)%
|
|||||||||
Net earnings
|
540,089
|
487,624
|
52,465
|
11
|
%
|
|||||||||||
Less net earnings attributable to noncontrolling interests
|
6,144
|
7,547
|
(1,403
|
)
|
(19
|
)%
|
||||||||||
Net earnings attributable to GE
|
533,945
|
480,077
|
53,868
|
11
|
%
|
|||||||||||
Other comprehensive income (loss)
|
||||||||||||||||
Foreign currency translation adjustments
|
22,970
|
(42,755
|
)
|
65,725
|
(154
|
)%
|
||||||||||
Benefit plans, net of taxes
|
(1,092
|
)
|
120
|
(1,212
|
)
|
(1,010
|
)%
|
|||||||||
Other comprehensive income (loss), net of taxes
|
21,878
|
(42,635
|
)
|
64,513
|
(151
|
)%
|
||||||||||
Less other comprehensive income (loss) attributable to noncontrolling interests
|
(6,101
|
)
|
3,194
|
(9,295
|
)
|
(291
|
)%
|
|||||||||
Other comprehensive income (loss) attributable to GE
|
27,979
|
(45,829
|
)
|
73,808
|
(161
|
)%
|
||||||||||
Comprehensive income (loss)
|
561,967
|
444,989
|
116,978
|
26
|
%
|
|||||||||||
Less comprehensive income (loss) attributable to noncontrolling interests
|
43
|
10,741
|
(10,698
|
)
|
(100
|
)%
|
||||||||||
Comprehensive income attributable to GE
|
$
|
561,924
|
$
|
434,248
|
$
|
127,676
|
29
|
%
|
For the Six Months Ended June 30,
|
For the Years Ended December 31,
|
|||||||||||||||||||
2018
|
2017
|
2017
|
2016
|
2015
|
||||||||||||||||
In thousands
|
(in thousands of U.S. dollars)
|
|||||||||||||||||||
Net earnings
|
$
|
168,226
|
$
|
100,099
|
$
|
388,096
|
$
|
540,089
|
$
|
487,624
|
||||||||||
Less net earnings attributable to noncontrolling interests
|
4,136
|
6,811
|
14,311
|
6,144
|
7,547
|
|||||||||||||||
Net earnings attributable to GE
|
164,090
|
93,288
|
373,785
|
533,945
|
480,077
|
|||||||||||||||
Cash provided by (used for) operating activities
|
76,436
|
(34,120
|
)
|
322,004
|
853,712
|
875,234
|
|
|||||||||||||
Cash provided by (used for) investing activities
|
(68,393
|
)
|
(143,973
|
)
|
(200,956
|
)
|
(168,214
|
)
|
(225,875
|
)
|
||||||||||
Cash provided by (used for) financing activities
|
20,548
|
229,226
|
(171,062
|
)
|
(625,586
|
)
|
(622,770
|
)
|
||||||||||||
Effect of currency exchange rate changes on cash and equivalents
|
(2,413
|
)
|
10,139
|
4,201
|
4,133
|
(7,784
|
)
|
|||||||||||||
Increase in cash and equivalents
|
26,178
|
61,272
|
(45,813
|
)
|
64,045
|
18,805
|
||||||||||||||
Cash and cash equivalents at beginning of period
|
105,338
|
151,151
|
151,151
|
87,106
|
68,301
|
|||||||||||||||
Cash and cash equivalents at end of period
|
$
|
131,516
|
$
|
212,423
|
$
|
105,338
|
$
|
151,151
|
$
|
87,106
|
In thousands
|
Payment Due by Period
|
|||||||||||||||||||
Contractual Obligations
|
Total
|
Less than 1 year
|
1-3 years
|
3-5 years
|
More than 5 years
|
|||||||||||||||
Operating Leases
|
$
|
100,097
|
23,670
|
24,083
|
15,915
|
36,429
|
· |
the approval by the holders (“Wabtec stockholders”) of common stock, par value $0.01 per share, of Wabtec (“Wabtec common stock”) of the issuance of shares of Wabtec common stock in the Merger (the “Share Issuance”);
|
· |
the approval by Wabtec stockholders of the proposed amendment to the Restated Certificate of Incorporation of Wabtec, as amended (the “Wabtec Charter”) to increase the number of authorized shares of common stock from 200 million to 500 million (the “Wabtec Charter Amendment”);
|
· |
the termination or expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended;
|
· |
the taking, making or obtaining of all material actions by, consents or approvals of, or in respect of or filings with any governmental authority required to permit the Transactions;
|
· |
the effectiveness under the Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder (the “Securities Act”) of (i) SpinCo’s registration statement on such Form(s) as shall be required under applicable United States Securities and Exchange Commission (“SEC”) rules in connection with the Distribution and (ii) Wabtec’s registration statement on Form S-4 in connection with the Merger, and, in each case, the absence of any stop order issued by the SEC or any pending proceeding before the SEC seeking a stop order with respect thereto;
|
· |
the receipt by Wabtec and GE of certain tax opinions;
|
· |
the receipt of the Direct Sale Purchase Price by GE;
|
· |
the completion of the various transaction steps contemplated by the Merger Agreement and the Separation Agreement, including the International Reorganization, the Direct Sale, the SpinCo Transfer and the Distribution; and
|
· |
other customary conditions.
|
· |
integrating GE Transportation while carrying on the ongoing operations of Wabtec’s business;
|
· |
managing a significantly larger company than before the consummation of the Transactions;
|
· |
the possibility of faulty assumptions underlying Wabtec’s expectations regarding the integration process;
|
· |
coordinating a greater number of diverse businesses located in a greater number of geographic locations;
|
· |
operating in geographic markets or industry sectors in which Wabtec may have little or no experience;
|
· |
complying with laws of new jurisdictions in which Wabtec has not previously operated;
|
· |
integrating business systems and models;
|
· |
attracting and retaining the necessary personnel associated with GE Transportation following the consummation of the Transactions;
|
· |
creating and implementing uniform standards, controls, procedures, policies and information systems and controlling the costs associated with such matters; and
|
· |
integrating information technology, purchasing, accounting, finance, sales, billing, payroll and regulatory compliance systems, and meeting external reporting requirements following the consummation of the Transactions.
|
· |
difficulties in achieving identified financial and operating synergies, including the integration of operations, services and products;
|
· |
diversion of management’s attention from other business concerns;
|
· |
the assumption of unknown liabilities; and
|
· |
unanticipated changes in the market conditions, business and economic factors affecting such an acquisition, joint venture or alliance.
|
· |
lack of complete operating control;
|
· |
lack of local business experience;
|
· |
currency exchange fluctuations and devaluations;
|
· |
restrictions on currency conversion or the transfer of funds or limitations on Wabtec’s ability to repatriate income or capital;
|
· |
the complexities of operating within multiple tax jurisdictions;
|
· |
foreign trade restrictions and exchange controls;
|
· |
adverse impacts of international trade policies, such as import quotas, capital controls or tariffs;
|
· |
difficulty enforcing agreements and intellectual property rights;
|
· |
the challenges of complying with complex and changing, laws regulations and policies of foreign governments;
|
· |
the difficulties involved in staffing and managing widespread operations;
|
· |
the potential for nationalization of enterprises;
|
· |
economic, political and social instability; and
|
· |
possible terrorist attacks, conflicts and wars, including those against American interests.
|
· |
increase Wabtec’s vulnerability to general adverse economic and industry conditions;
|
· |
require Wabtec to dedicate a substantial portion of its cash flow from operations to payments on its indebtedness, thereby reducing the availability of its cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes;
|
· |
limit Wabtec’s flexibility in planning for, or reacting to, changes in its business and the industries in which it operate;
|
· |
place Wabtec at a disadvantage compared to competitors that have less debt; and
|
· |
limit Wabtec’s ability to borrow additional funds.
|
· |
the uncertainty that an acquired business will achieve anticipated operating results;
|
· |
significant expenses to integrate;
|
· |
diversion of management’s attention;
|
· |
departure of key personnel from the acquired business;
|
· |
effectively managing entrepreneurial spirit and decision-making;
|
· |
integration of different information systems;
|
· |
unanticipated costs and exposure to unforeseen liabilities; and
|
· |
impairment of assets.
|