UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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x☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017March 31, 2021
OR
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¨☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 033-90866
WESTINGHOUSE AIR BRAKE TECHNOLOGIES
CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware | 25-1615902 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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1001 Air Brake Avenue
Wilmerding, PA 30 Isabella Street Pittsburgh, Pennsylvania | 1514815212 |
(Address of principal executive offices) | (Zip code) |
412-825-1000
(Registrant’s telephone number, including area code)
N/ANot applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $.01 par value per share | WAB | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | x☒ | Accelerated filer | ¨☐ | Non-accelerated filer | ¨ | (Do not check if smaller reporting company)☐ |
Emerging growth company | ¨
☐ | Smaller reporting company | ¨
☐ | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of April 22, 2021, there were 188,997,682 shares of common stock, par value $.01 per share, of the registrant outstanding. |
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Class | | Outstanding at October 27, 2017 |
Common Stock, $.01 par value per share | | 95,999,248 shares |
WESTINGHOUSE AIR BRAKE
TECHNOLOGIES CORPORATION
September 30, 2017March 31, 2021
FORM 10-Q
TABLE OF CONTENTS
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| PART I—FINANCIAL INFORMATION | |
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| PART I—FINANCIAL INFORMATION | |
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Item 1. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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| PART II—OTHER INFORMATION | |
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Item 1. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 4. | | |
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Item 6. | | |
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PART I—FINANCIAL INFORMATION
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Item 1. | FINANCIAL STATEMENTS |
Item 1. FINANCIAL STATEMENTS WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | | | | | | Unaudited | |
| Unaudited | | | |
In thousands, except shares and par value | September 30, 2017 | | December 31, 2016 | |
In millions, except par value | | In millions, except par value | March 31, 2021 | | December 31, 2020 |
Assets | | | | Assets | | | |
Current Assets | | | | Current Assets | |
Cash and cash equivalents | $ | 228,080 |
| | $ | 398,484 |
| Cash and cash equivalents | $ | 483.5 | | | $ | 598.7 | |
Accounts receivable | 792,726 |
| | 667,596 |
| Accounts receivable | 985.3 | | | 969.3 | |
Unbilled accounts receivable | 351,613 |
| | 274,912 |
| Unbilled accounts receivable | 417.7 | | | 443.2 | |
Inventories | 764,781 |
| | 658,510 |
| Inventories | 1,671.5 | | | 1,642.1 | |
Deposit in escrow | — |
| | 744,748 |
| |
Other current assets | 139,925 |
| | 123,381 |
| Other current assets | 221.0 | | | 226.5 | |
Total current assets | 2,277,125 |
| | 2,867,631 |
| Total current assets | 3,779.0 | | | 3,879.8 | |
Property, plant and equipment | 988,223 |
| | 912,230 |
| |
Accumulated depreciation | (437,856 | ) | | (393,854 | ) | |
Property, plant and equipment, net | 550,367 |
| | 518,376 |
| Property, plant and equipment, net | 1,575.5 | | | 1,601.6 | |
Other Assets | | | | |
Goodwill | 2,384,758 |
| | 2,078,765 |
| Goodwill | 8,625.7 | | | 8,485.2 | |
Other intangibles, net | 1,140,387 |
| | 1,053,860 |
| |
Other intangible assets, net | | Other intangible assets, net | 3,927.2 | | | 3,869.2 | |
Other noncurrent assets | 97,013 |
| | 62,386 |
| Other noncurrent assets | 635.8 | | | 618.7 | |
Total other assets | 3,622,158 |
| | 3,195,011 |
| Total other assets | 13,188.7 | | | 12,973.1 | |
Total Assets | $ | 6,449,650 |
| | $ | 6,581,018 |
| Total Assets | $ | 18,543.2 | | | $ | 18,454.5 | |
| | | | |
Liabilities and Shareholders’ Equity | | | | Liabilities and Shareholders’ Equity | | | |
Current Liabilities | | | | Current Liabilities | |
Accounts payable | $ | 512,905 |
| | $ | 530,211 |
| Accounts payable | $ | 955.0 | | | $ | 909.4 | |
Customer deposits | 373,815 |
| | 256,591 |
| Customer deposits | 640.7 | | | 642.7 | |
Accrued compensation | 151,952 |
| | 145,324 |
| Accrued compensation | 261.5 | | | 242.3 | |
Accrued warranty | 134,964 |
| | 123,190 |
| Accrued warranty | 235.6 | | | 240.1 | |
Current portion of long-term debt | 49,748 |
| | 129,809 |
| Current portion of long-term debt | 353.9 | | | 447.2 | |
Other accrued liabilities | 242,056 |
| | 261,514 |
| Other accrued liabilities | 722.2 | | | 744.6 | |
Total current liabilities | 1,465,440 |
| | 1,446,639 |
| Total current liabilities | 3,168.9 | | | 3,226.3 | |
Long-term debt | 1,824,156 |
| | 1,762,967 |
| Long-term debt | 3,923.3 | | | 3,792.2 | |
Accrued postretirement and pension benefits | 108,182 |
| | 110,597 |
| Accrued postretirement and pension benefits | 110.0 | | | 113.5 | |
Deferred income taxes | 282,557 |
| | 245,680 |
| Deferred income taxes | 186.4 | | | 168.4 | |
Accrued warranty | 13,800 |
| | 15,802 |
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Other long-term liabilities | 19,146 |
| | 22,508 |
| |
Contingent consideration | | Contingent consideration | 218.6 | | | 218.1 | |
Other long term liabilities | | Other long term liabilities | 758.9 | | | 783.3 | |
Total Liabilities | 3,713,281 |
| | 3,604,193 |
| Total Liabilities | 8,366.1 | | | 8,301.8 | |
Commitments and contingent liabilities (Note 14) |
| |
| |
Commitments and contingencies (Note 15) | | Commitments and contingencies (Note 15) | 0 | | 0 |
Equity | | | | Equity | |
Preferred stock, 1,000,000 shares authorized, no shares issued | — |
| | — |
| |
Common stock, $0.01 par value; 200,000,000 shares authorized: | | | | |
132,349,534 shares issued and 95,999,582 and 95,425,432 outstanding | | | | |
at September 30, 2017 and December 31, 2016, respectively | 1,323 |
| | 1,323 |
| |
Common stock, $.01 par value; 500.0 shares authorized: 226.9 shares issued and 188.9 outstanding at March 31, 2021 and December 31, 2020 | | Common stock, $.01 par value; 500.0 shares authorized: 226.9 shares issued and 188.9 outstanding at March 31, 2021 and December 31, 2020 | 2.0 | | | 2.0 | |
Additional paid-in capital | 900,536 |
| | 869,951 |
| Additional paid-in capital | 7,883.9 | | | 7,880.6 | |
Treasury stock, at cost, 36,349,952 and 36,924,102 shares, | | | | |
at September 30, 2017 and December 31, 2016, respectively | (828,103 | ) | | (838,950 | ) | |
Treasury stock, at cost, 38.0 shares, at March 31, 2021 and December 31, 2020 | | Treasury stock, at cost, 38.0 shares, at March 31, 2021 and December 31, 2020 | (1,011.1) | | | (1,010.1) | |
Retained earnings | 2,735,876 |
| | 2,553,258 |
| Retained earnings | 3,678.3 | | | 3,588.9 | |
Accumulated other comprehensive loss | (91,930 | ) | | (379,605 | ) | Accumulated other comprehensive loss | (409.0) | | | (339.1) | |
Total Westinghouse Air Brake Technologies Corporation shareholders' equity | 2,717,702 |
| | 2,205,977 |
| |
Total Westinghouse Air Brake Technologies Corporation shareholders’ equity | | Total Westinghouse Air Brake Technologies Corporation shareholders’ equity | 10,144.1 | | | 10,122.3 | |
Noncontrolling interest | 18,667 |
| | 770,848 |
| Noncontrolling interest | 33.0 | | | 30.4 | |
Total Equity | 2,736,369 |
| | 2,976,825 |
| Total Equity | 10,177.1 | | | 10,152.7 | |
Total Liabilities and Equity | $ | 6,449,650 |
| | $ | 6,581,018 |
| Total Liabilities and Equity | $ | 18,543.2 | | | $ | 18,454.5 | |
The accompanying notes are an integral part of these statements.
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
| | | | | | | | | | | | Unaudited |
| Unaudited | | Unaudited | | | Three Months Ended March 31, |
In millions, except per share data | | In millions, except per share data | 2021 | | 2020 |
| Three Months Ended September 30, | | Nine Months Ended September 30, | | | | | |
In thousands, except per share data | 2017 | | 2016 | | 2017 | | 2016 | | |
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Net sales | $ | 957,931 |
| | $ | 675,574 |
| | $ | 2,806,218 |
| | $ | 2,171,206 |
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Cost of sales | (704,728 | ) | | (463,093 | ) | | (2,009,345 | ) | | (1,466,156 | ) | | |
Net sales: | | Net sales: | |
Sales of goods | | Sales of goods | $ | 1,485.1 | | | $ | 1,590.8 | |
Sales of services | | Sales of services | 345.1 | | | 339.1 | |
Total net sales | | Total net sales | 1,830.2 | | | 1,929.9 | |
Cost of sales: | | Cost of sales: | |
Cost of goods | | Cost of goods | (1,107.7) | | | (1,155.9) | |
Cost of services | | Cost of services | (188.3) | | | (195.3) | |
Total cost of sales | | Total cost of sales | (1,296.0) | | | (1,351.2) | |
Gross profit | 253,203 |
| | 212,481 |
| | 796,873 |
| | 705,050 |
| | Gross profit | 534.2 | | | 578.7 | |
Operating expenses: | | Operating expenses: | |
Selling, general and administrative expenses | (117,838 | ) | | (70,757 | ) | | (367,753 | ) | | (241,118 | ) | | Selling, general and administrative expenses | (235.4) | | | (243.4) | |
Engineering expenses | (24,709 | ) | | (16,289 | ) | | (71,511 | ) | | (52,271 | ) | | Engineering expenses | (37.7) | | | (49.0) | |
Amortization expense | (8,645 | ) | | (5,339 | ) | | (27,039 | ) | | (16,100 | ) | | Amortization expense | (69.5) | | | (69.0) | |
Total operating expenses | (151,192 | ) | | (92,385 | ) | | (466,303 | ) | | (309,489 | ) | | Total operating expenses | (342.6) | | | (361.4) | |
Income from operations | 102,011 |
| | 120,096 |
| | 330,570 |
| | 395,561 |
| | Income from operations | 191.6 | | | 217.3 | |
Other income and expenses | | | | | | | | | |
Other income and expenses: | | Other income and expenses: | |
Interest expense, net | (17,893 | ) | | (6,057 | ) | | (51,025 | ) | | (15,897 | ) | | Interest expense, net | (47.6) | | | (53.3) | |
Other income (expense), net | (2,933 | ) | | 1,188 |
| | (2,166 | ) | | 113 |
| | Other income (expense), net | 14.2 | | | (14.8) | |
Income from operations before income taxes | 81,185 |
| | 115,227 |
| | 277,379 |
| | 379,777 |
| | |
Income before income taxes | | Income before income taxes | 158.2 | | | 149.2 | |
Income tax expense | (12,746 | ) | | (32,799 | ) | | (64,776 | ) | | (112,701 | ) | | Income tax expense | (43.5) | | | (38.0) | |
Net income | 68,439 |
| | 82,428 |
| | 212,603 |
| | 267,076 |
| | Net income | 114.7 | | | 111.2 | |
Less: Net (Gain) Loss attributable to noncontrolling interest | (1,040 | ) | | — |
| | 710 |
| | — |
| | |
Less: Net (income) loss attributable to noncontrolling interest | | Less: Net (income) loss attributable to noncontrolling interest | (2.3) | | | 0.4 | |
Net income attributable to Wabtec shareholders | $ | 67,399 |
| | $ | 82,428 |
| | $ | 213,313 |
| | $ | 267,076 |
| | Net income attributable to Wabtec shareholders | $ | 112.4 | | | $ | 111.6 | |
| | | | | | | | | | | | |
Earnings Per Common Share | | | | | | | | | Earnings Per Common Share | |
Basic | | | | | | | | | Basic | |
Net income attributable to Wabtec shareholders | $ | 0.70 |
| | $ | 0.92 |
| | $ | 2.23 |
| | $ | 2.94 |
| | Net income attributable to Wabtec shareholders | $ | 0.59 | | | $ | 0.58 | |
Diluted | | | | | | | | | Diluted | | | |
Net income attributable to Wabtec shareholders | $ | 0.70 |
| | $ | 0.91 |
| | $ | 2.22 |
| | $ | 2.92 |
| | Net income attributable to Wabtec shareholders | $ | 0.59 | | | $ | 0.58 | |
| | | | | | | | | | | | |
Weighted average shares outstanding | | | | | | | | | Weighted average shares outstanding | |
Basic | 95,709 |
| | 89,589 |
| | 95,163 |
| | 90,546 |
| | Basic | 188.5 | | | 190.8 | |
Diluted | 96,316 |
| | 90,293 |
| | 95,808 |
| | 91,316 |
| | Diluted | 188.9 | | | 191.4 | |
The accompanying notes are an integral part of these statements.
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
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| Unaudited | | Unaudited | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | |
In thousands | 2017 | | 2016 | | 2017 | | 2016 | |
| | | | | | | | |
Net income attributable to Wabtec shareholders | $ | 67,399 |
| | $ | 82,428 |
| | $ | 213,313 |
| | $ | 267,076 |
| |
Foreign currency translation gain (loss) | 82,905 |
| | 2,734 |
| | 277,984 |
| | (7,385 | ) | |
Unrealized gain (loss) on derivative contracts | 15,021 |
| | 1,169 |
| | 18,400 |
| | (1,740 | ) | |
Unrealized gain (loss) on pension benefit plans and post-retirement benefit plans | 27 |
| | 982 |
| | (3,017 | ) | | (652 | ) | |
Other comprehensive income (loss) before tax | 97,953 |
| | 4,885 |
| | 293,367 |
| | (9,777 | ) | |
Income tax (expense) benefit related to components of | | | | | | | | |
other comprehensive income | (5,333 | ) | | (594 | ) | | (5,692 | ) | | 441 |
| |
Other comprehensive income (loss), net of tax | 92,620 |
| | 4,291 |
| | 287,675 |
| | (9,336 | ) | |
Comprehensive income attributable to Wabtec shareholders | $ | 160,019 |
| | $ | 86,719 |
| | $ | 500,988 |
| | $ | 257,740 |
| |
| | | | | | | | | | | |
| Unaudited |
| Three Months Ended March 31, |
In millions | 2021 | | 2020 |
| | | |
Net income attributable to Wabtec shareholders | $ | 112.4 | | | $ | 111.6 | |
Foreign currency translation loss | (61.7) | | | (181.4) | |
Unrealized (loss) gain on derivative contracts | (7.9) | | | 8.1 | |
Unrealized loss on pension benefit plans and post-retirement benefit plans | (3.3) | | | (3.6) | |
Other comprehensive loss before tax | (72.9) | | | (176.9) | |
Income tax benefit (expense) related to components of other comprehensive income | 3.0 | | | (1.1) | |
Other comprehensive loss, net of tax | (69.9) | | | (178.0) | |
Comprehensive income (loss) attributable to Wabtec shareholders | $ | 42.5 | | | $ | (66.4) | |
The accompanying notes are an integral part of these statements.
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | Unaudited |
| Unaudited | | Three Months Ended March 31, |
| Nine Months Ended September 30, | |
In thousands, except per share data | 2017 | | 2016 | |
In millions | | In millions | 2021 | | 2020 |
| | | | | | | |
Operating Activities | | | | Operating Activities | |
Net income | $ | 212,603 |
| | $ | 267,076 |
| Net income | $ | 114.7 | | | $ | 111.2 | |
Adjustments to reconcile net income to cash provided by operations: | | | | |
Adjustments to reconcile net income to cash provided by (used for) operating activities: | | Adjustments to reconcile net income to cash provided by (used for) operating activities: | |
Depreciation and amortization | 76,970 |
| | 49,375 |
| Depreciation and amortization | 120.0 | | | 115.8 | |
Stock-based compensation expense | 14,539 |
| | 14,788 |
| Stock-based compensation expense | 8.2 | | | 7.3 | |
Loss on disposal of property, plant and equipment | 1,633 |
| | 151 |
| |
Excess income tax benefits from exercise of stock options | — |
| | (446 | ) | |
Below market intangible amortization | | Below market intangible amortization | (12.6) | | | (37.6) | |
Changes in operating assets and liabilities, net of acquisitions | | | | Changes in operating assets and liabilities, net of acquisitions | |
Accounts receivable and unbilled accounts receivable | (60,246 | ) | | (38,362 | ) | Accounts receivable and unbilled accounts receivable | 9.3 | | | (22.6) | |
Inventories | (53,365 | ) | | 2,301 |
| Inventories | (11.2) | | | (23.5) | |
Accounts payable | (121,389 | ) | | (43,777 | ) | Accounts payable | 47.0 | | | (60.2) | |
Accrued income taxes | (35,942 | ) | | 5,952 |
| Accrued income taxes | 13.4 | | | (4.4) | |
Accrued liabilities and customer deposits | 81,270 |
| | (8,353 | ) | Accrued liabilities and customer deposits | 25.9 | | | (84.7) | |
Other assets and liabilities | (89,562 | ) | | (1,812 | ) | Other assets and liabilities | (22.5) | | | (83.2) | |
Net cash provided by operating activities | 26,511 |
| | 246,893 |
| |
Net cash provided by (used for) operating activities | | Net cash provided by (used for) operating activities | 292.2 | | | (81.9) | |
Investing Activities | | | | Investing Activities | |
Purchase of property, plant and equipment | (60,263 | ) | | (31,676 | ) | Purchase of property, plant and equipment | (26.5) | | | (33.3) | |
Proceeds from disposal of property, plant and equipment | 1,066 |
| | 140 |
| |
Proceeds from disposal of assets and businesses | | Proceeds from disposal of assets and businesses | 5.9 | | | 6.4 | |
Acquisitions of businesses, net of cash acquired | (114,175 | ) | | (84,355 | ) | Acquisitions of businesses, net of cash acquired | (401.4) | | | (35.7) | |
Release of deposit in escrow | 23,548 |
| | — |
| |
Net cash used for investing activities | (149,824 | ) | | (115,891 | ) | Net cash used for investing activities | (422.0) | | | (62.6) | |
Financing Activities | | | | Financing Activities | |
Proceeds from debt | 883,473 |
| | 346,000 |
| Proceeds from debt | 1,435.0 | | | 981.5 | |
Payments of debt | (918,919 | ) | | (215,850 | ) | Payments of debt | (1,398.0) | | | (663.8) | |
Purchase of treasury stock | — |
| | (212,176 | ) | |
Proceeds from exercise of stock options and other benefit plans | 2,888 |
| | 1,773 |
| |
Payment of income tax withholding on share-based compensation | (6,798 | ) | | (9,006 | ) | |
Excess income tax benefits from exercise of equity options | — |
| | 446 |
| |
Cash dividends ($0.32 and $0.26 per share for the nine months | | | | |
ended September 30, 2017 and 2016, respectively) | (30,693 | ) | | (23,523 | ) | |
Net cash used for financing activities | (70,049 | ) | | (112,336 | ) | |
Repurchase of stock | | Repurchase of stock | (1.2) | | | (105.3) | |
Cash dividends | | Cash dividends | (23.0) | | | (23.0) | |
Other financing activities | | Other financing activities | (5.1) | | | (5.9) | |
Net cash provided by financing activities | | Net cash provided by financing activities | 7.7 | | | 183.5 | |
Effect of changes in currency exchange rates | 22,958 |
| | 5,525 |
| Effect of changes in currency exchange rates | 6.9 | | | (27.3) | |
(Decrease) Increase in cash | (170,404 | ) | | 24,191 |
| |
Cash, beginning of period | 398,484 |
| | 226,191 |
| |
Cash, end of period | $ | 228,080 |
| | $ | 250,382 |
| |
(Decrease) increase in cash | | (Decrease) increase in cash | (115.2) | | | 11.7 | |
Cash and cash equivalents, beginning of period | | Cash and cash equivalents, beginning of period | 598.7 | | | 604.2 | |
Cash and cash equivalents, end of period | | Cash and cash equivalents, end of period | $ | 483.5 | | | $ | 615.9 | |
The accompanying notes are an integral part of these statements.
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In millions, except per share data | | Common Stock Shares | | Common Stock Amount | | Additional Paid-in Capital | | Treasury Stock Shares | | Treasury Stock Amount | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Non-controlling Interest | | Total |
Balance, December 31, 2020 | | 226.9 | | | $ | 2.0 | | | $ | 7,880.6 | | | (38.0) | | | $ | (1,010.1) | | | $ | 3,588.9 | | | $ | (339.1) | | | $ | 30.4 | | | $ | 10,152.7 | |
Cash dividends ($0.12 dividend per share) | | — | | | — | | | — | | | — | | | — | | | (23.0) | | | — | | | — | | | (23.0) | |
Proceeds from treasury stock issued from the exercise of stock options and other benefit plans, net of tax | | — | | | — | | | (5.4) | | | — | | | 0.2 | | | — | | | — | | | — | | | (5.2) | |
Stock based compensation | | — | | | — | | | 8.7 | | | — | | | — | | | — | | | — | | | — | | | 8.7 | |
Net income | | — | | | — | | | — | | | — | | | — | | | 112.4 | | | — | | | 2.3 | | | 114.7 | |
Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | — | | | — | | | (69.9) | | | — | | | (69.9) | |
Stock repurchase | | — | | | — | | | — | | | — | | | (1.2) | | | — | | | — | | | — | | | (1.2) | |
Other | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 0.3 | | | 0.3 | |
Balance, March 31, 2021 | | 226.9 | | | $ | 2.0 | | | $ | 7,883.9 | | | (38.0) | | | $ | (1,011.1) | | | $ | 3,678.3 | | | $ | (409.0) | | | $ | 33.0 | | | $ | 10,177.1 | |
| | | | | | | | | | | | | | | | | | |
Balance, December 31, 2019 | | 226.9 | | | $ | 2.0 | | | $ | 7,877.2 | | | (35.3) | | | $ | (807.1) | | | $ | 3,267.0 | | | $ | (382.6) | | | $ | 37.1 | | | $ | 9,993.6 | |
Cash dividends ($0.12 dividend per share) | | — | | | — | | | — | | | — | | | — | | | (23.0) | | | — | | | — | | | (23.0) | |
Proceeds from treasury stock issued from the exercise of stock options and other benefit plans, net of tax | | — | | | — | | | (7.9) | | | 0.2 | | | 2.2 | | | — | | | — | | | — | | | (5.7) | |
Stock based compensation | | — | | | — | | | 10.0 | | | — | | | — | | | — | | | — | | | — | | | 10.0 | |
Net income (loss) | | — | | | — | | | — | | | — | | | — | | | 111.6 | | | — | | | (0.4) | | | 111.2 | |
Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | — | | | — | | | (178.0) | | | — | | | (178.0) | |
Stock repurchase | | — | | | — | | | — | | | (1.6) | | | (105.3) | | | — | | | — | | | — | | | (105.3) | |
Other | | — | | | — | | | (4.3) | | | — | | | — | | | — | | | — | | | (0.8) | | | (5.1) | |
Balance, March 31, 2020 | | 226.9 | | | $ | 2.0 | | | $ | 7,875.0 | | | $ | (36.7) | | | $ | (910.2) | | | $ | 3,355.6 | | | $ | (560.6) | | | $ | 35.9 | | | $ | 9,797.7 | |
The accompanying notes are an integral part of these statements.
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017MARCH 31, 2021 (UNAUDITED)
1. BUSINESS
Westinghouse Air Brake Technologies Corporation (“Wabtec” or the "Company") is one of the world’s largest providers of locomotives, value-added, technology-based productsequipment, systems and services for the global freight rail industry.and passenger transit industries. Our highly engineered products, which are intended to enhance safety, improve productivity and reduce maintenance costs for customers, can be found on virtually all U.S.most locomotives, freight cars, and passenger transit vehicles, as well as in more than 100 countries throughoutcars and buses around the world. Our products enhance safety, improve productivity and reduce maintenance costs for customers, and many of our core products and services are essential in the safe and efficient operation of freight rail and passenger transit vehicles. Wabtec is a global company with operations in 31 countries.over 50 countries and our products can be found in more than 100 countries throughout the world. In the first ninethree months of 2017,2021, approximately 65%64% of the Company’s revenues came from customers outside the United States.
2. ACCOUNTING POLICIES
Basis of Presentation The unaudited condensed consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") in the United States of America and the rules and regulations of the Securities and Exchange Commission and include the accounts of Wabtec and its subsidiaries in which Wabtec has a controlling interest. These condensed consolidated interim financial statements do not include all of the information and footnotes required for complete financial statements. In management’s opinion, these financial statements reflect all adjustments of a normal, recurring nature necessary for a fair presentation of the results for the interim periods presented. Results for these interim periods are not necessarily indicative of results to be expected for the full year.year particularly in light of the ongoing COVID-19 pandemic that is continuing to impact our sales channels, supply chain, manufacturing operations, workforce, and other key aspects of our operations and the high degree of uncertainty regarding the pandemic's duration and severity, availability and effectiveness of vaccines, impact of variants of the disease, actions to control it, and the potential impact on global economic activity, global supply chain operations and our customers, suppliers, and end-markets.
The Company operates on a four-four-five week accounting quarter, and the quarters end on or about March 31, June 30, September 30 and December 31.
The notes included herein should be read in conjunction with the audited consolidated financial statements included in Wabtec’s Annual Report on Form 10-K for the year ended December 31, 2016.2020. The December 31, 20162020 information has been derived from the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2020.
Revenue Recognition Revenue is recognized in accordance with Accounting Standards Codification (“ASC”) 605 “Revenue Recognition.” Revenue is recognized when products have been shipped to the respective customers, title has passed and the price for the product has been determined.
In general, the Company recognizes revenue from 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 quarterly at a minimum and adjustments are reflected in the accounting period as such amounts are determined. Provisions are made currently for estimated losses on uncompleted contracts. Unbilled accounts receivables were $351.6 million and $274.9 million, customer deposits were $373.8 million and $256.6 million, and provisions for loss contracts were $93.8 million and $60.5 million at September 30, 2017 and December 31, 2016, respectively.
Pre-Production Costs Certain pre-production costs relating to long-term production and supply contracts have been deferred and will be recognized over the life of the contracts. Deferred pre-production costs were $28.8 million and $29.4 million at September 30, 2017 and December 31, 2016, respectively.
Reclassifications Certain prior year amounts have been reclassified, where necessary, to conform to the current year presentation. Refer to Recently Adopted Accounting Pronouncements below.
Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principlesGAAP in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from the estimates. On an ongoing basis, management reviews its estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.
Financial DerivativesRevenue Recognition A majority of the Company’s revenues are derived from performance obligations that are satisfied at a point in time when control passes to the customer. The remaining revenues are earned over time. Generally, for performance obligations satisfied at a point in time control passes at the time of shipment in accordance with agreed upon delivery terms.
The Company also has long-term customer agreements involving the design and Hedging Activitiesproduction of highly engineered products that require revenue to be recognized over time because these products have no alternative use without significant economic loss and the agreements contain an enforceable right to payment including a reasonable profit margin from the customer in the event of contract termination. Additionally, the Company has customer agreements involving the creation or enhancement of an asset that the customer controls which also require revenue to be recognized over time. Generally, the Company uses an input method for determining the amount of revenue, cost and gross margin to recognize over time for these customer agreements. The input methods used for these agreements include costs of material and labor, both of which give an accurate representation of the progress made toward complete satisfaction of a particular performance obligation. Contract revenues and cost estimates are reviewed and revised periodically through the year and adjustments are reflected in the accounting period as such amounts are determined.
Due to the nature of work required to be performed on the Company’s long-term projects, the estimation of total revenue and cost at completion is subject to many variables and requires significant judgment. Contract estimates related to long-term projects are based on various assumptions to project the outcome of future events that could span several years. These
assumptions include cost of materials; labor availability and productivity; complexity of the work to be performed; and the performance of suppliers, customers and subcontractors that may be associated with the contract. We have a disciplined process where management reviews the progress of long term-projects periodically throughout the year. As part of its riskthis process, management strategy,reviews information including key contract matters, progress towards completion, identified risks and opportunities and any other information that could impact the Company’s estimates of revenue and costs. After completing this analysis, any adjustments to net sales, cost of goods sold, and the related impact to operating income are recognized as necessary in the period they become known.
Generally, the Company’s revenue contains a single performance obligation for each distinct good or service; however, a single contract may have multiple performance obligations comprising multiple promises to customers. When there are multiple performance obligations, revenue is allocated based on the relative stand-alone selling price. Pricing is defined in our contracts on a line item basis and includes an estimate of variable consideration when required by the terms of the individual customer contract. Types of variable consideration the Company utilizes derivative financial instruments to manage its exposure due to changes in foreign currenciestypically has include volume discounts, prompt payment discounts, liquidating damages and interest rates. For further information regarding financial derivativesperformance bonuses. Sales returns and hedging activities, refer to Footnotes 12allowances are also estimated and 13.
Foreign Currency Translation Assets and liabilities of foreign subsidiaries, except for the Company’s Mexican operations whose functional currency is the U.S. Dollar, are translated at the rate of exchange in effect on the balance sheet date while income and expenses are translated at the average rates of exchange prevailing during the period. Foreign currency gains and losses resulting from transactions and the translation of financial statements are recordedrecognized in the Company’s consolidated financial statementssame period the related revenue is recognized, based upon the Company’s experience.
Remaining performance obligations represent the transaction price of firm customer orders subject to standard industry cancellation provisions and substantial scope-of-work adjustments. As of ASC 830 “Foreign Currency Matters.”March 31, 2021, the Company's remaining performance obligations were $21.0 billion. The effectsCompany expects to recognize revenue of currency exchange rate changesapproximately 25% of the remaining performance obligations over the next 12 months, with the remainder recognized thereafter.
SEC regulations require that revenue categories that exceed 10% of total revenue are presented separately on intercompany transactions and balancesthe company's Statement of a long-term investment nature are accumulated and carried as a component of accumulated other comprehensive loss. The effects of currency exchange rate changes on intercompany transactions that are denominated in a currency other than an entity’s functional currency are charged or credited to earnings.
Noncontrolling Interests In accordance with ASC 810 "Consolidation",income. As such, the Company has classified noncontrolling interestsdisplayed sales of goods and sales of services, and the related cost, in line with those regulations. Additionally, those regulations also require that goods are to include all sales of tangible products, and services must include all other sales. In Note 16 we refer to sales of both goods, such as equityspare parts and equipment upgrades, and related services, such as monitoring, maintenance and repairs, as sales in our Services product line.
Revolving Receivables Program In May 2020, the Company entered into a revolving agreement to transfer up to $150 million of certain receivables of certain subsidiaries of the Company (the "Originators") through our bankruptcy-remote subsidiary to a financial institution on a recurring basis in exchange for cash equal to the condensedgross receivables transferred. During the first quarter of 2021, the Company amended its revolving agreement to increase the amount of certain receivables that can be transferred from $150 million to $200 million. As customers pay their balances, we transfer additional receivables into the program, resulting in our gross receivables sold exceeding net cash flow impacts (e.g., collect and reinvest). The sold receivables are fully guaranteed by our bankruptcy-remote subsidiary which held additional receivables of $259.7 million at March 31, 2021 that are pledged as collateral under this agreement. The transfers are recorded at the fair value of the proceeds received and obligations assumed less derecognized receivables.No obligation was recorded at March 31, 2021 as the estimated expected credit losses on receivables sold is insignificant. Our maximum exposure to loss related to these receivables transferred is limited to the amount outstanding. The Company has agreed to guarantee the performance of the Originators respective obligations' under the revolving agreement. None of the Company (except for the bankruptcy-remote consolidated balance sheets assubsidiary referenced above) nor the Originators guarantees the collectability of September 30, 2017the receivables under the revolving agreements.
The following table sets forth a summary of receivables sold:
| | | | | |
In millions | Three Months Ended March 31, 2021 |
Gross receivables sold/cash proceeds received | $ | 257.9 | |
Collections reinvested under revolving agreement | 165.0 | |
Net cash proceeds received | $ | 92.9 | |
Depreciation Expense Depreciation of property, plant and December 31, 2016. Net incomeequipment related to the manufacturing of products or services provided is included in Cost of goods or Cost of services. Depreciation of other property, plant and equipment that is not attributable to noncontrolling intereststhe manufacturing of products or services provided is included in Selling, general and administrative expenses or Engineering expense depending on how the property, plant and equipment is used.
Goodwill and Intangible Assets Goodwill and other intangible assets with indefinite lives are not amortized. Other intangibles (with definite lives) are amortized on a straight-line basis over their estimated economic lives. Amortizable intangible assets are reviewed for impairment when indicators of impairment are present. The Company tests goodwill and indefinite-lived intangible assets for impairment at the threereporting unit level and nine months ended September 30, 2017 was a $1.0 million gainat least annually. The Company performs its annual impairment test during the fourth quarter after the annual forecasting process is completed, and a $0.7 million loss, respectively, and wasalso tests for impairment whenever events or changes in circumstances indicate the carrying value may not material forbe recoverable. Periodically, management of the three and nine months ended September 30, 2016. Other comprehensive income attributable to noncontrolling interests for the three and nine months ended September 30, 2017 and 2016 wasCompany assesses whether or not material.an indicator of impairment is present would necessitate an impairment analysis be performed.
Accounting Standards Recently Issued Accounting PronouncementsAdopted In March 2017,December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-07 "Compensation - Retirement Benefits (Topic 715): Improving2019-12, “Income Taxes: Simplifying the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost".Accounting for Income Taxes.” The amendments in this update requiresimplify the service cost component of net benefit costsaccounting for certain income tax transactions by removing specific exceptions to be reportedthe general principles in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit costs are required to be presented in the income statement separately from the service cost component and outside income from operations.Accounting Standards Codification ("ASC") 740, "Income Taxes." This update also allows the service cost component to be eligible for capitalization when applicable. The ASUguidance is effective for public companies in the fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early2020 with early adoption was permitted as of the beginning of an annual period.permitted. The amendments should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The Company does not expect the adoption of this guidance in 2018 tostandard did not have a material impact on the Company's financial statements.
In January 2017, the FASB issued ASU No. 2017-04 "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment". The amendments in this update eliminate the requirement to perform Step 2 of the goodwill impairment test. Instead, an entity should perform a goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value up to the carrying amount of the goodwill. The ASU is effective for public companies in the fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The impact of adopting this guidance could result in a change in the overall conclusion as to whether or not a reporting units' goodwill is impaired and the amount of an impairment charge recognized in the event a reporting units' carrying value exceeds its fair value. All of the Company's reporting units had fair values that were substantially greater than the carrying value as of the Company's last quantitative goodwill impairment test, which was performed as of October 1, 2016.
In November 2016, the FASB issued ASU No. 2016-18 "Statement of Cash Flows (Topic 230): Restricted Cash". The amendments in this update require a statement of cash flows to explain the change during the period in total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The ASU is effective for public companies in the fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the potential impact of adopting this guidance on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 814)" which requires lessees to recognize a right of use asset and lease liability on the balance sheet for all leases with terms longer than 12 months. For leases with terms less than 12 months, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize a right of use asset and lease liability. The ASU is effective for public companies in the fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating the potential impact of adopting this guidance on its consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contract with Customers.” The ASU will supersede most of the existing revenue recognition requirements in U.S. GAAP and will require entities to recognize revenue at an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer. The new standard also requires significantly expanded disclosures regarding the qualitative and quantitative information of an entity’s nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Board voted to propose that the standard would take effect for reporting periods beginning after December 15, 2017 and that early adoption would be allowed as of the original effective date. The impact of adopting the new standard on net sales and operating income for the three and nine months ended September 30, 2017 and 2016 is not expected to be material. The Company also does not expect a material impact to the consolidated balance sheet. The impact to results is not anticipated to be material because the analysis of the Company's current contracts under the new revenue recognition standard supports how the Company is currently recognizing revenue over time and at a point in time; however, the Company's conclusions may evolve as management completes its contract reviews and evaluation. The Company plans to adopt this accounting standard update using the modified retrospective method, with the cumulative effect of initially applying this update recognized in the first reporting period of 2018. The Company is in the process of drafting an updated accounting policy, evaluating new disclosure requirements and identifying and implementing appropriate changes to its business processes, systems and controls to support recognition and disclosure under the new guidance. The Company believes it is following an appropriate timeline to appropriately adopt this new standard on January 1, 2018.
Recently Adopted Accounting Pronouncements In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”. The ASU simplifies several aspects for the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The ASU became effective for public companies during interim and annual reporting periods beginning after December 15, 2016. In accordance with this update, the Company began recognizing all excess tax deficiencies and tax benefits from share-based payment awards as a benefit or expense to income tax in the income statement. This update has been adopted prospectively in accordance with the ASU and the impact of adoption on the income statement was not material. Additionally in accordance with this update, the Company began classifying excess income tax benefits from exercise of stock options as an operating activity on the consolidated statement of cash flows. The Company elected to adopt this amendment retrospectively and the impact of the adoption on operating and financing cash flows for the three and nine months ended September 30, 2016 was not material.
In November 2015, the FASB issued ASU No. 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes" which simplifies the presentation of deferred income taxes by requiring deferred tax assets and liabilities to be classified as noncurrent on the balance sheet. The Company elected to early adopt this ASU as of December 31, 2016; therefore, all deferred income tax assets and liabilities are classified in the noncurrent deferred income taxes line-items on the consolidated balance sheets.
Other Comprehensive Income (Loss) Comprehensive income comprises both net income and the change in equity from transactions and other events and circumstances from nonownernon-owner sources.
The changes in accumulated other comprehensive income (loss) by component, net of tax, for the three months ended March 31, 2021 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
In millions | Foreign currency translation | | Derivative contracts | | Pension and post retirement benefit plans | | Total |
Balance at December 31, 2020 | $ | (260.2) | | | $ | 2.4 | | | $ | (81.3) | | | $ | (339.1) | |
Other comprehensive loss before reclassifications | (61.7) | | | (5.9) | | | (3.0) | | | (70.6) | |
Amounts reclassified from accumulated other comprehensive loss | 0 | | | 0 | | | 0.7 | | | 0.7 | |
Net current-period other comprehensive loss | (61.7) | | | (5.9) | | | (2.3) | | | (69.9) | |
Balance at March 31, 2021 | $ | (321.9) | | | $ | (3.5) | | | $ | (83.6) | | | $ | (409.0) | |
The changes in accumulated other comprehensive loss by component, net of tax, for the ninethree months ended September 30, 2017March 31, 2020 are as follows:
|
| | | | | | | | | | | | | | | |
In thousands | Foreign currency translation | | Derivative contracts | | Pension and post retirement benefit plans | | Total |
Balance at December 31, 2016 | $ | (321,033 | ) | | $ | (2,957 | ) | | $ | (55,615 | ) | | $ | (379,605 | ) |
Other comprehensive income (loss) before reclassifications | 277,984 |
| | 11,424 |
| | (4,715 | ) | | 284,693 |
|
Amounts reclassified from accumulated other | | | | | | | |
comprehensive income | — |
| | 1,206 |
| | 1,776 |
| | 2,982 |
|
Net current period other comprehensive income (loss) | 277,984 |
| | 12,630 |
| | (2,939 | ) | | 287,675 |
|
Balance at September 30, 2017 | $ | (43,049 | ) | | $ | 9,673 |
| | $ | (58,554 | ) | | $ | (91,930 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
In millions | Foreign currency translation | | Derivative contracts | | Pension and post retirement benefit plans | | Total |
Balance at December 31, 2019 | $ | (308.6) | | | $ | (3.3) | | | $ | (70.7) | | | $ | (382.6) | |
Other comprehensive (loss) income before reclassifications | (181.4) | | | 6.1 | | | (3.4) | | | (178.7) | |
Amounts reclassified from accumulated other comprehensive loss | 0 | | | 0 | | | 0.7 | | | 0.7 | |
Net current-period other comprehensive (loss) income | (181.4) | | | 6.1 | | | (2.7) | | | (178.0) | |
Balance at March 31, 2020 | $ | (490.0) | | | $ | 2.8 | | | $ | (73.4) | | | $ | (560.6) | |
Reclassifications out of accumulated other comprehensive loss forincome (loss) are recognized in "Other income (expense), net" with the three months ended September 30, 2017 are as follows:tax impact recognized in "Income tax expense."
|
| | | | | |
In thousands | Amount reclassified from accumulated other comprehensive income | | Affected line item in the Condensed Consolidated Statements of Income |
Amortization of defined pension and post retirement items | | | |
Amortization of initial net obligation and prior service cost | $ | (422 | ) | | Cost of sales |
Amortization of net loss | 1,240 |
| | Cost of sales |
| 818 |
| | Income from Operations |
| (226 | ) | | Income tax expense |
| $ | 592 |
| | Net income |
| | | |
Derivative contracts | | | |
Realized loss on derivative contracts | $ | 497 |
| | Interest expense, net |
| (131 | ) | | Income tax expense |
| $ | 366 |
| | Net income |
Reclassifications out of accumulated other comprehensive loss for the nine months ended September 30, 2017 are as follows:
|
| | | | | |
In thousands | Amount reclassified from accumulated other comprehensive income | | Affected line item in the Condensed Consolidated Statements of Income |
Amortization of defined pension and post retirement items | | | |
Amortization of initial net obligation and prior service cost | $ | (1,266 | ) | | Cost of sales |
Amortization of net loss | 3,720 |
| | Cost of sales |
| 2,454 |
| | Income from Operations |
| (678 | ) | | Income tax expense |
| $ | 1,776 |
| | Net income |
| | | |
Derivative contracts | | | |
Realized loss on derivative contracts | $ | 1,653 |
| | Interest expense, net |
| (447 | ) | | Income tax expense |
| $ | 1,206 |
| | Net income |
The changes in accumulated other comprehensive loss by component, net of tax, for the nine months ended September 30, 2016 are as follows:
|
| | | | | | | | | | | | | | | |
| Foreign currency translation | | Derivative contracts | | Pension and post retirement benefit plans | | Total |
Balance at December 31, 2015 | $ | (227,349 | ) | | $ | (2,987 | ) | | $ | (46,383 | ) | | $ | (276,719 | ) |
Other comprehensive income (loss) before reclassifications | (7,385 | ) | | (2,192 | ) | | (1,969 | ) | | (11,546 | ) |
Amounts reclassified from accumulated other | | | | | | | |
comprehensive income | — |
| | 883 |
| | 1,327 |
| | 2,210 |
|
Net current period other comprehensive (loss) | (7,385 | ) | | (1,309 | ) | | (642 | ) | | (9,336 | ) |
Balance at September 30, 2016 | $ | (234,734 | ) | | $ | (4,296 | ) | | $ | (47,025 | ) | | $ | (286,055 | ) |
Reclassifications out of accumulated other comprehensive loss for the three months ended September 30, 2016 are as follows:
|
| | | | | |
In thousands | Amount reclassified from accumulated other comprehensive income | | Affected line item in the Condensed Consolidated Statements of Operations |
Amortization of defined pension and post retirement items | | | |
Amortization of initial net obligation and prior service cost | $ | 6 |
| | Cost of sales |
Amortization of net loss | 611 |
| | Cost of sales |
| 617 |
| | Income from Operations |
| (175 | ) | | Income tax expense |
| $ | 442 |
| | Net income |
| | | |
Derivative contracts | | | |
Realized loss on derivative contracts | $ | 338 |
| | Interest expense, net |
| (96 | ) | | Income tax expense |
| $ | 242 |
| | Net income |
Reclassifications out of accumulated other comprehensive loss for the nine months ended September 30, 2016 are as follows:
|
| | | | | |
In thousands | Amount reclassified from accumulated other comprehensive income | | Affected line item in the Condensed Consolidated Statements of Operations |
Amortization of defined pension and post retirement items | | | |
Amortization of initial net obligation and prior service cost | $ | (801 | ) | | Cost of sales |
Amortization of net loss | 2,702 |
| | Cost of sales |
| 1,901 |
| | Income from Operations |
| (574 | ) | | Income tax expense |
| $ | 1,327 |
| | Net income |
| | | |
Derivative contracts | | | |
Realized loss on derivative contracts | $ | 1,265 |
| | Interest expense, net |
| (382 | ) | | Income tax expense |
| $ | 883 |
| | Net income |
3. ACQUISITIONS
Faiveley TransportNordco
On November 30, 2016,March 31, 2021, the Company acquired majority ownership of Faiveley Transport S.A. (“Faiveley Transport”) under the terms of a Share Purchase Agreement (“Share Purchase Agreement”). Faiveley Transport isNordco, a leading global providerNorth American supplier of value-added, integrated systemsnew, rebuilt and used maintenance of way equipment. Nordco's products and services for the railway industry with annual sales of about $1.2 billionportfolio includes mobile railcar movers and more than 5,700 employees in 24 countries. Faiveley Transport supplies railway manufacturers, operators and maintenance providers with a range of value-added, technology-based systems and services in Energy & Comfort (air conditioning, power collectors and converters, and passenger information), Access & Mobility (passenger access systems and platform doors), and Brakes and Safety (braking systems and couplers).ultrasonic rail flaw detection technologies. The transaction was structured as a step acquisition as follows:
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.
As of November 30, 2016, the date the Company acquired 51% of the share capital and 49% of the voting interest in Faiveley Transport, Faiveley Transport was consolidated under the variable interest entity model as the Company concluded that it was the primary beneficiary of Faiveley Transport as it then possessed the power to direct the activities of Faiveley Transport that most significantly impact its economic performance and it then possessed the obligation and right to absorb losses and benefits from Faiveley Transport.
The aggregate value of considerationprice paid for 100% ownership of Faiveley TransportNordco was $1,736.1 million including $944.3 million in cash, $560.2 million in stock or approximately 6.6 million shares, $409.9 million in debt assumed, less $178.3 million in cash acquired. $407 million.
The $744.7 million included as deposits in escrow onfollowing table summarizes the consolidated balance sheet at December 31, 2016 was cash designated for use as consideration forpreliminary fair value of the tender offers.Nordco assets acquired and liabilities assumed:
| | | | | | | | |
In millions | | |
Assets acquired | | |
Cash and cash equivalents | | $ | 5.1 | |
Accounts receivable | | 22.7 | |
Inventory | | 34.3 | |
Other current assets | | 1.7 | |
Property, plant and equipment | | 16.5 | |
Goodwill | | 214.5 | |
Other intangible assets | | 163.5 | |
Other noncurrent assets | | 9.4 | |
Total assets acquired | | 467.7 | |
Liabilities assumed | | |
Current liabilities | | 18.3 | |
Noncurrent liabilities | | 42.9 | |
Total liabilities assumed | | 61.2 | |
Net assets acquired | | $ | 406.5 | |
The fair values of the assets acquired and liabilities assumed are preliminarilywere determined using the income, cost and market approaches. Discounted cash flow models were used to estimate the fair values of acquired intangibles. The fair value measurements were primarily based on significant inputs that are not observable in the market and are considered Level 3. The December 31, 2016 consolidated balance sheet includes the assets and liabilities of Faiveley Transport, which have been measured at fair value. The fair value of the noncontrolling interest was preliminarily determined using the market price of Faiveley Transport’s publicly traded common stock multiplied by the number of publicly traded common shares outstanding at the acquisition date and is considered Level 1. The acquisition of the noncontrolling interest in the three months ended March 31, 2017 resulted in a $8.9 million increase to additional paid-in capital on the consolidated balance sheet which represents the difference in consideration paid to acquire the noncontrolling interest and the carrying value of noncontrolling interest at acquisition.
The following table summarizes the preliminary estimated fair values of the Faiveley Transport assets acquired and liabilities assumed:
|
| | | | |
In thousands | | |
Assets acquired | | |
Cash and cash equivalents | | $ | 178,318 |
|
Accounts receivable | | 444,741 |
|
Inventories | | 205,649 |
|
Other current assets | | 70,930 |
|
Property, plant, and equipment | | 148,746 |
|
Goodwill | | 1,257,360 |
|
Trade names | | 346,328 |
|
Customer relationships | | 233,529 |
|
Patents | | 1,201 |
|
Other noncurrent assets | | 183,252 |
|
Total assets acquired | | 3,070,054 |
|
Liabilities assumed | | |
Current liabilities | | 805,992 |
|
Debt | | 409,899 |
|
Other noncurrent liabilities | | 347,348 |
|
Total liabilities assumed | | 1,563,239 |
|
Net assets acquired | | $ | 1,506,815 |
|
These estimates are preliminary in nature and subject to adjustments, which could be material.material, as the Company has not completed its valuation of assets acquired and liabilities assumed. Any necessary adjustments will be finalized within one year from the date of acquisition. During the nine months ended September 30, 2017, the estimated fair values for customer relationships and current liabilities were adjusted by $21.8 million and $51.8 million, respectively, for changes to initial estimates based on information that existed at the date of acquisition. Additionally, the estimated fair values for accounts receivable and current liabilities were adjusted by $2.8 million and $36.2 million, respectively, to correct errors in the preliminary estimated fair values of the Faiveley Transport assets acquired and liabilities assumed. Other noncurrent assets were adjusted by $29.0 millionto record the deferred tax impact of these adjustments. As a result of these adjustments and other immaterial adjustments related to changes to initial estimates based on information that existed at the date of acquisition, goodwill increased by $69.1 million. Accounts receivable and current liabilities were adjusted by $64.3 million to correct an error in the preliminary estimated fair values of Faiveley Transport assets and liabilities assumed related to a factoring arrangement with recourse.
Substantially all of the accounts receivable acquired are expected to be collectible. Included in current liabilities is $25.9 million of accrued compensation forIntangible assets acquired share-based stock plansinclude customer relationships and intellectual property that are obligatedsubject to be settled in cash.amortization, and trade names that were assigned an indefinite life and are not subject to amortization. Contingent liabilities assumed as part of the transaction were not material. These contingent liabilities are related to contract disputes, environmental, legal and tax matters. Contingent liabilities are recorded at fair value in purchase accounting, aside from those pertaining to uncertainty in income taxes which is an exception to the fair value basis of accounting.
Goodwill was calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of the net assets acquired, and represents the assembled workforce and the future economic benefits, including synergies, and assembled workforce, the Company expectsthat are expected to achievebe achieved as a result of the acquisition. PurchasedThe purchased goodwill is not expected to be deductible for tax purposes. The goodwill has been preliminarily allocated to the Transit segment.
For the three and nine months ended September 30, 2017, the Company’s consolidated statementresults of income included $294.4 million and $851.8 million of revenues, respectively, from Faiveley Transport.
Other Acquisitions
The Company has made the following acquisitions operating as athis business unit or component of a business unit in the Freight Segment:
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 14, 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 $31.9 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 preliminary goodwill of $24.4 million, 37.8% 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 $13.8 million, net of cash acquired, resulting in preliminary goodwill of $4.0 million, all of which will be deductible for tax purposes.
On May 5, 2016, the Company acquired 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.
The Company has made the following acquisitions operating as a business unit or component of a business unit in the Transit Segment:
On October 2, 2017, subsequent to the close of our accounting quarter, the Company acquired AM General Contractor ("AM"), a manufacturer of safety systems, mainly for transit rail cars with annual sales of about $25.0 million.
On August 1, 2016, the Company acquired Gerken Group SA ("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.
The acquisitions listed above include escrow deposits of $38.4 million, which act as security for indemnity and other claims in accordance with the purchase and related escrow agreements.
The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed atsince the date of acquisition will be reported within the Freight segment and the Services product line. The pro-forma impact on Wabtec’s sales and results of operations, including the pro forma effect of events that are directly attributable to the acquisition, for TTC, ATP, Workhorse, and Precision Turbo. For the Unitrac and Gerken acquisitions, the following table summarizes the final fair value of the assets acquired and liabilities assumed at the date of acquisition.was not significant.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| TTC | | ATP | | Workhorse | | Precision Turbo | | Gerken | | Unitrac |
In thousands | April 5, 2017 | | March 14, 2017 | | December 14, 2016 | | November 17, 2016 | | August 1, 2016 | | May 5, 2016 |
Current assets | $ | 3,746 |
| | $ | 11,666 |
| | $ | 9,137 |
| | $ | 4,145 |
| | $ | 32,706 |
| | $ | 11,476 |
|
Property, plant & equipment | 5,909 |
| | 5,354 |
| | — |
| | 1,346 |
| | 7,667 |
| | 1,768 |
|
Goodwill | 16,309 |
| | 31,934 |
| | 24,373 |
| | 4,019 |
| | 17,470 |
| | 2,442 |
|
Other intangible assets | 12,300 |
| | 22,100 |
| | 19,400 |
| | 5,200 |
| | 30,560 |
| | 1,230 |
|
Other assets | — |
| | — |
| | — |
| | — |
| | 1,706 |
| | — |
|
Total assets acquired | 38,264 |
| | 71,054 |
| | 52,910 |
| | 14,710 |
| | 90,109 |
| | 16,916 |
|
Total liabilities assumed | (5,753 | ) | | (5,800 | ) | | (9,083 | ) | | (884 | ) | | (27,262 | ) | | (2,145 | ) |
Net assets acquired | $ | 32,511 |
| | $ | 65,254 |
| | $ | 43,827 |
| | $ | 13,826 |
| | $ | 62,847 |
| | $ | 14,771 |
|
Of the $671.8 million of total acquired other intangible assets, $367.6 million was assigned to trade names, $296.7 million was assigned to customer relationships, and $5.0 million was assigned to intellectual property. The trade names were determined to have indefinite useful lives, while the intellectual property and customer relationships’ average useful lives are 20 years, and the non-compete agreements' useful life is five years.
The Company also made smaller acquisitions not listed above which are individually and collectively immaterial.
The following unaudited pro forma consolidated financial information presents income statement results as if the acquisitions listed above had occurred on January 1, 2016:
|
| | | | | | | | | | | | | | | |
In thousands | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 | | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 |
Net sales | $ | 957,931 |
| | $ | 995,869 |
| | $ | 2,817,550 |
| | $ | 3,168,195 |
|
Gross profit | 253,203 |
| | 301,554 |
| | 799,695 |
| | 977,743 |
|
Net income attributable to Wabtec shareholders | 67,399 |
| | 99,085 |
| | 214,370 |
| | 323,878 |
|
Diluted earnings per share | | | | | | | |
As Reported | $ | 0.70 |
| | $ | 0.91 |
| | $ | 2.22 |
| | $ | 2.92 |
|
Pro forma | $ | 0.70 |
| | $ | 1.02 |
| | $ | 2.23 |
| | $ | 3.30 |
|
4. INVENTORIES
The components of inventory, net of reserves, were:
| | | | | | | | | | | |
In millions | March 31, 2021 | | December 31, 2020 |
Raw materials | $ | 681.5 | | | $ | 669.4 | |
Work-in-progress | 329.8 | | | 339.4 | |
Finished goods | 660.2 | | | 633.3 | |
Total inventories | $ | 1,671.5 | | | $ | 1,642.1 | |
|
| | | | | | | |
In thousands | September 30, 2017 | | December 31, 2016 |
Raw materials | $ | 391,207 |
| | $ | 331,465 |
|
Work-in-progress | 196,319 |
| | 145,462 |
|
Finished goods | 177,255 |
| | 181,583 |
|
Total inventories | $ | 764,781 |
| | $ | 658,510 |
|
5. INTANGIBLESGOODWILL AND INTANGIBLE ASSETS
The change in the carrying amount of goodwill by segment for the ninethree months ended September 30, 2017March 31, 2021 is as follows:
|
| | | | | | | | | | | |
In thousands | Freight Segment | | Transit Segment | | Total |
Balance at December 31, 2016 | $ | 550,902 |
| | $ | 1,527,863 |
| | $ | 2,078,765 |
|
Adjustment to preliminary purchase allocation | (13,395 | ) | | 77,302 |
| | 63,907 |
|
Acquisitions | 62,158 |
| | 4,999 |
| | 67,157 |
|
Foreign currency impact | 9,407 |
| | 165,522 |
| | 174,929 |
|
Balance at September 30, 2017 | $ | 609,072 |
| | $ | 1,775,686 |
| | $ | 2,384,758 |
|
| | | | | | | | | | | | | | | | | |
In millions | Freight Segment | | Transit Segment | | Total |
Balance at December 31, 2020 | $ | 6,872.2 | | | $ | 1,613.0 | | | $ | 8,485.2 | |
Additions / opening balance sheet adjustments | 214.6 | | | 0 | | | 214.6 | |
Foreign currency impact | (9.0) | | | (65.1) | | | (74.1) | |
Balance at March 31, 2021 | $ | 7,077.8 | | | $ | 1,547.9 | | | $ | 8,625.7 | |
As of September 30, 2017March 31, 2021 and December 31, 2016,2020, the Company’s trade names had a net carrying amount of $583.7$659.2 million and $510.5$650.7 million, respectively, and therespectively. The Company believes these intangibles have indefinite lives.lives, with the exception of the right to use the GE Transportation trade name, to which the Company has assigned a useful life of 5 years.
Intangible assets of the Company, other than goodwill and trade names, consist of the following:
|
| | | | | | | |
In thousands | September 30, 2017 | | December 31, 2016 |
Patents, non-compete and other intangibles, net of accumulated | | | |
amortization of $42,237 and $42,538 | $ | 15,001 |
| | $ | 15,360 |
|
Customer relationships, net of accumulated amortization | | | |
of $117,676 and $87,334 | 541,705 |
| | 528,068 |
|
Total | $ | 556,706 |
| | $ | 543,428 |
|
| | | | | | | | | | | |
In millions | March 31, 2021 | | December 31, 2020 |
| | | |
Intellectual property, patents, and other intangibles, net of accumulated amortization of $248.6 and $223.7 | $ | 1,038.1 | | | $ | 1,007.6 | |
Backlog, net of accumulated amortization of $231.8 and $206.9 | 1,192.6 | | | 1,224.7 | |
Customer relationships, net of accumulated amortization of $287.4 and $276.3 | 1,037.3 | | | 986.2 | |
Total | $ | 3,268.0 | | | $ | 3,218.5 | |
The weighted average remaining useful life of patents,backlog, intellectual property, customer relationships and other intangiblesintangible assets were 1013 years, 12 years, 17 years and 158 years, respectively. The backlog intangible asset primarily consists of in-place long-term service agreements acquired by the Company in conjunction with the acquisition of GE Transportation in 2019. Amortization expense for intangible assets was $8.6$69.5 million and $27.0$69.0 million for the three and nine months ended September 30, 2017,March 31, 2021 and $5.3 million and $16.1 million for the three and nine months ended September 30, 2016,2020, respectively.
Amortization expense for the five succeeding years is estimated to be as follows:
| | | | | |
In millions | |
Remainder of 2021 | $ | 217.9 | |
2022 | 289.9 | |
2023 | 289.3 | |
2024 | 279.8 | |
2025 | 277.1 | |
6. CONTRACT ASSETS AND CONTRACT LIABILITIES
Contract assets include unbilled amounts resulting from sales under long-term contracts where revenue is recognized over time and revenue exceeds the amount that can be billed to the customer based on the terms of the contract. The current portion of the contract assets are classified as current assets under the caption “Unbilled accounts receivable” while the noncurrent contract assets are classified as other assets under the caption "Other noncurrent assets" on the consolidated balance sheet. Noncurrent contract assets were $112.4 million at March 31, 2021 and $101.0 million at December 31, 2020, respectively. Included in noncurrent contract assets are certain costs that are specifically related to a contract, however, do not directly contribute to the transfer of control of the tangible product being created, such as non-recurring engineering costs. The Company has elected to use the practical expedient and does not consider unbilled amounts anticipated to be paid within one year as significant financing components.
Contract liabilities include customer deposits that are made prior to the incurrence of costs related to a newly agreed upon contract and advanced customer payments that are in excess of revenue recognized. The current portion of contract liabilities are classified as current liabilities under the caption “Customer deposits” while the noncurrent contract liabilities are classified as noncurrent liabilities under the caption "Other long-term liabilities" on the consolidated balance sheet. Noncurrent contract liabilities were $72.3 million at March 31, 2021 and $79.6 million at December 31, 2020. These contract liabilities are not considered a significant financing component because they are used to meet working capital demands that can be higher in the early stages of a contract or revenue associated with the contract liabilities is expected to be recognized within one year. Contract liabilities also include provisions for estimated losses from uncompleted contracts. Provisions for loss contracts were
|
| | | |
Remainder of 2017 | $ | 8,873 |
|
2018 | 34,794 |
|
2019 | 33,537 |
|
2020 | 32,014 |
|
2021 | 31,827 |
|
$120.2 million and $108.9 million at March 31, 2021 and December 31, 2020, respectively. These provisions for estimated losses are classified as current liabilities and included within the caption “Other accrued liabilities” on the consolidated balance sheet.
The change in the carrying amount of contract assets and contract liabilities for the three months ended March 31, 2021 and 2020 is as follows:
| | | | | | | | | | | |
| Contract Assets |
In millions | 2021 | | 2020 |
Balance at beginning of year | $ | 544.2 | | | $ | 623.4 | |
Acquisitions | 0 | | | 4.1 | |
Recognized in current year | 233.4 | | | 293.0 | |
Reclassified to accounts receivable | (242.0) | | | (282.9) | |
Foreign currency impact | (5.5) | | | (8.3) | |
Balance at March 31 | $ | 530.1 | | | $ | 629.3 | |
| | | |
| Contract Liabilities |
In millions | 2021 | | 2020 |
Balance at beginning of year | $ | 831.2 | | | $ | 799.7 | |
Acquisitions | 1.7 | | | 6.9 | |
Recognized in current year | 233.6 | | | 290.2 | |
Amounts in beginning balance reclassified to revenue | (213.5) | | | (317.6) | |
Current year amounts reclassified to revenue | (11.4) | | | (11.8) | |
Foreign currency impact | (8.4) | | | (6.2) | |
Balance at March 31 | $ | 833.2 | | | $ | 761.2 | |
6.
7. LEASES
The Company leases property and equipment under finance and operating leases. For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of lease payments. Many of the Company's leases include rental escalation clauses, renewal options, and/or termination options that are factored into our determination of lease payments when appropriate. The Company does not separate lease and non-lease components contracts.
As most of the Company's leases do not provide a readily stated discount rate, the Company must estimate our incremental borrowing rate to discount lease payments. The Company has established discount rates by geographic region ranging from 1.0% to 12.3%.
The components of lease expense are as follows:
| | | | | | | | | | | |
| Three Months Ended March 31, |
In millions | 2021 | | 2020 |
Operating lease expense | $ | 14.2 | | | $ | 14.7 | |
Finance lease expense amortization of leased assets | 0 | | | 0.3 | |
| | | |
Short-term and variable lease expense | 0.1 | | | 0.1 | |
Sublease income | (0.1) | | | (0.1) | |
Total | $ | 14.2 | | | $ | 15.0 | |
Scheduled payments of lease liabilities are as follows:
| | | | | | | | | | | | | | | | | |
In millions | Operating Leases | | Finance Leases | | Total |
Remaining 2021 | $ | 42.8 | | | $ | 0.3 | | | $ | 43.1 | |
2022 | 51.7 | | | 0.3 | | | 52.0 | |
2023 | 45.6 | | | 0.2 | | | 45.8 | |
2024 | 40.3 | | | 0.2 | | | 40.5 | |
2025 | 34.8 | | | 0.1 | | | 34.9 | |
Thereafter | 114.2 | | | 0.1 | | | 114.3 | |
Total lease payments | 329.4 | | | 1.2 | | | 330.6 | |
Less: Present value discount | (28.3) | | | 0 | | | (28.3) | |
Present value of lease liabilities | $ | 301.1 | | | $ | 1.2 | | | $ | 302.3 | |
The following table summarizes the remaining lease term and discount rate assumptions used to develop the present value of lease liabilities:
| | | | | |
| March 31, 2021 |
Weighted-average remaining lease term (years) | |
Operating leases | 7.8 |
Finance leases | 4.5 |
Weighted-average discount rate | |
Operating leases | 2.7 | % |
Finance leases | 1.5 | % |
8. LONG-TERM DEBT
Long-term debt consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Effective | | March 31, 2021 | | December 31, 2020 |
In millions | Interest Rate | | Book Value | | Fair Value 1 | | Book Value | | Fair Value 1 |
Senior Credit and 364 Day Facility: | | | | | | | | | |
U.S. dollar-denominated Term Loans, net of unamortized debt issuance costs of $0.5 and $0.9 | 2.3 | % | | 625.5 | | | 625.5 | | | 645.1 | | | 645.1 | |
Multi-Currency Revolving loan facility net of unamortized debt issuance costs of $0.4 and $0.8 | 1.5 | % | | 149.6 | | | 149.6 | | | 0 | | | 0 | |
Senior Notes: | | | | | | | | | |
4.375% Senior Notes, due 2023, net of unamortized discount and debt issuance costs of $0.6 and $0.7 | 4.5 | % | | 249.4 | | | 266.4 | | | 249.3 | | | 267.0 | |
4.15% Senior Notes, due 2024, net of unamortized debt issuance costs of $4.0 and $4.3 | 4.6 | % | | 746.0 | | | 810.8 | | | 745.7 | | | 817.3 | |
3.20% Senior Notes, due 2025, net of unamortized debt discount and debt issuance costs of $4.1 and $4.4 | 3.4 | % | | 495.9 | | | 524.8 | | | 495.6 | | | 533.4 | |
3.45% Senior Notes, due 2026, net of unamortized debt issuance costs of $1.2 and $1.3 | 3.5 | % | | 748.8 | | | 803.1 | | | 748.7 | | | 819.5 | |
4.70% Senior Notes, due 2028, net of unamortized debt issuance costs of $8.0 and $8.2 | 5.0 | % | | 1,242.1 | | | 1,419.1 | | | 1,241.8 | | | 1472.2 |
Other Borrowings | | | 19.9 | | | 19.9 | | | 113.2 | | | 113.1 | |
Total | | | 4,277.2 | | | 4,619.2 | | | 4,239.4 | | | 4,667.6 | |
Less - current portion | | | 353.9 | | | 353.9 | | | 447.2 | | | 447.2 | |
Long-term portion | | | $ | 3,923.3 | | | $ | 4,265.3 | | | $ | 3,792.2 | | | $ | 4,220.4 | |
|
| | | | | | | |
In thousands | September 30, 2017 | | December 31, 2016 |
3.45% Senior Notes, due 2026, net of unamortized debt issuance costs of $2,410 and $2,526 | $ | 747,590 |
| | $ | 747,474 |
|
4.375% Senior Notes, due 2023, net of unamortized discount and debt issuance costs of $1,498 and $1,690 | 248,502 |
| | 248,310 |
|
Revolving Credit Facility, net of unamortized debt issuance costs of $2,801 and $3,850 | 855,321 |
| | 796,150 |
|
Schuldschein Loan | 11,812 |
| | 98,671 |
|
Other Borrowings | 9,150 |
| | 1,153 |
|
Capital Leases | 1,529 |
| | 1,018 |
|
Total | 1,873,904 |
| | 1,892,776 |
|
Less - current portion | 49,748 |
| | 129,809 |
|
Long-term portion | $ | 1,824,156 |
| | $ | 1,762,967 |
|
Wabtec's acquisition1. See Note 14 for information on the fair value measurement of the controlling stakeCompany's long-term debt.
For those debt securities that have a premium or discount at the time of Faiveley Transport triggeredissuance, the early repaymentCompany amortizes the amount through interest expense based on the maturity date or the first date the holders may require the Company to repurchase the debt securities, if applicable. A premium would result in a decrease in interest expense, and a discount would result in an increase in interest expense in future periods. Additionally, the Company has debt issuance costs related to certain financing transactions which are also amortized through interest expense. As of March 31, 2021 and December 31, 2020, the Company had total
unamortized debt issuance costs of $18.8 million and $20.5 million, respectively. At March 31, 2021, the weighted average interest rate on the Company's variable rate debt was 1.5%
Credit Facilities
Senior Credit Facility
On June 8, 2018, the Company entered into a syndicatedcredit agreement ("Senior Credit Facility"), which replaced the Company's then-existing credit agreement. The Senior Credit Facility is with a syndicate of lenders and provides for borrowings consisting of (i) term loans denominated in euros and U.S. dollars ("Term Loans"); and (ii) a multi-currency revolving loan facility, providing for an equivalent in U.S. dollars of up to $1,200.0 million in multi-currency revolving loans (inclusive of swingline loans of up to $75.0 million and letters of credit of up to $450.0 million (the "Revolving Credit Facility")). The Revolving Credit Facility will mature on June 8, 2023.
Under the Senior Credit Facility, we can elect to receive advances bearing interest based on either the Alternate Base Rate ("ABR") or the London Interbank Offered Rate ("LIBOR") (each as defined in the Senior Credit Facility) plus applicable margin that is determined based on our credit ratings or the Company's Leverage (as defined in the Senior Credit Facility). The agreement contains affirmative, negative and financial covenants, and events of default customary for facilities of this type. The obligations under the Senior Credit Facility are guaranteed by Wabtec and certain of Wabtec's U.S. subsidiaries, as guarantors.
The Company has agreed that, so long as any lender has any commitment under the Senior Credit Facility, any letter of credit is outstanding under the Senior Credit Facility, or any loan or other obligation is outstanding under the Senior Credit Facility, it will maintain the following as of the end of each fiscal quarter or the period of four quarters the ended:
| | | | | | | | |
Interest Coverage Ratio 1 | | 3.0x |
Leverage Ratio 2 | | 3.25x |
1. The interest coverage ratio is defined as EBITDA (defined as earnings before interest, taxes, depreciation and amortization), as defined in the Senior Credit Facility, to net interest expense for the four quarters then ended.
2. The leverage ratio is defined as net debt as of the last day of such fiscal quarter to EBITDA, as defined in the Senior Credit Facility, for the four quarters then ended.
The company was in compliance with all covenants in the Senior Credit Facility as of March 31, 2021.
364-Day Facility
On April 10, 2020 the Company entered into a new $600 million 364 day credit facility ("364 Day Facility") initially scheduled to mature in April 2021 with a group of banks which includes a $144.0 million revolving credit facility ("364 Day Revolver") and a $456.0 million term loan ("364 Term Loan"), of which $305.9 million was outstanding at March 31, 2021. The agreement calls for interest at either a LIBOR-based rate, or a rate based on the prime lending rate of the agent bank, at the Company's option. The agreement contains affirmative, negative and financial covenants, and events of default customary for facilities of this type and substantially similar to our existing Senior Credit Facility. The obligations under the 364 Day Facility are guaranteed by certain of the Company's U.S. subsidiaries, as guarantors. On June 12, 2020 the Company amended the 364 Day Facility maturity to July 9, 2021. The Company was in compliance with all covenants in the 364 Senior Credit Facility as of March 31, 2021.
The following table presents availability under the Revolving Credit Facility and the mandatory offer to investors to repay the U.S. and Schuldschein private placements. Both the syndicated loan and U.S. private placements were repaid in full in December 2016.364 Day Revolver (the "Revolving Facilities"):
| | | | | | | | | | | | | | |
(in millions) | | Revolving Credit Facility | | 364 Day Revolver |
Maximum Availability | | $ | 1,200.0 | | | $ | 144.0 | |
Outstanding Borrowings | | (149.6) | | | 0 | |
Letters of Credit Under Credit Agreement | | (5.8) | | | 0 | |
Current Availability | | $ | 1,044.6 | | | $ | 144.0 | |
Senior Notes
The "Senior Notes" comprises our 4.375% Senior Notes due 2023, 4.15% Senior Notes due 2024, 3.20% Senior Notes due 2025, 3.45% Senior Notes Due Novemberdue 2026
On November 3 2016, the Company issued $750.0 million of and 4.70% Senior Notes due in 2026 (the "2016 Notes"). The 2016 Notes were issued at 99.965% of face value.2028. Interest on the 2016Senior Notes accruesis payable semi-annually. The Company may redeem each series of the notes at any time in whole or from time to time in part in accordance with the provisions of the indenture, under which such series of notes was issued. Each of the Senior Notes may be redeemed at a rateredemption price 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 portion100% of the Faiveley Transport acquisition, refinance Faiveley Transport's indebtedness,principal amount plus a specified make-whole premium and for general corporate purposes.accrued interest. 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.Senior
Notes are senior unsecured obligations of the Company and rank pari passu with all existing and future senior debt and senior to all existing and future subordinated indebtedness of the Company.
The indentureindentures under which the 2016Senior Notes were issued containscontain covenants and restrictions which limit, among other things, the following:subject to certain exceptions, certain sale and leaseback transactions with respect to principal properties, the incurrence of indebtedness, payment of dividendssecured debt without equally and ratably securing the Senior Notes, and certain distributions, salemerger and consolidation transactions. The covenants do not require the Company to maintain any financial ratios or specified levels of assets, change in control, mergersnet worth or liquidity. The Senior Notes are fully and consolidationsunconditionally guaranteed, jointly and severally, on an unsecured basis by each of the incurrence of liens.Company's subsidiaries that is a guarantor under the Revolving Facilities.
The Company is in compliance with the restrictions and covenants in the indentureindentures under which the 2016Senior 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 August 2023
In August 2013, the Company issued $250.0 million of Senior Notes due in 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.
2016 Refinancing Credit Agreement
On June 22, 2016, the Company amended and restated its existing revolving credit facility with a consortium of commercial banks. The “2016 Refinancing Credit Agreement” provides the Company with a $1.2 billion, five years 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 costs 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 September 30, 2017, the Company had available bank borrowing capacity, net of $35.4 million of letters of credit, of approximately $686.7 million, subject to certain financial covenant restrictions.
The Term Loan was initially drawn on November 25, 2016. The Company incurred 10 basis point commitment fee from June 22, 2016 until the initial draw.
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 0.5% 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 September 30, 2017, the weighted average interest rate on the Company’s variable rate debt was 2.89%. 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 was 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 was 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 its operating activities.
2013 Refinancing Credit Agreement
On December 19, 2013, the Company amended its then existing revolving credit facility with a consortium of commercial banks. This “2013 Refinancing Credit Agreement” provided the Company with an $800.0 million, five-year revolving credit facility. The Company incurred approximately $1.0 million of deferred financing cost related to the 2013 Refinancing Credit Agreement. The 2013 Refinancing Credit Agreement was replaced by the 2016 Refinancing Credit Agreement.
Under the 2013 Refinancing Credit Agreement, the Company could have elected a Base Rate of interest for U.S. Dollar denominated loans or, for certain currencies, an interest rate based on the LIBOR of interest, or other rates appropriate for such currencies (in any case, “the Alternate Rate”). The Base Rate adjusted on a daily basis and was the greater of the Federal Funds
Effective Rate plus 0.5% per annum, the PNC, N.A. prime rate or the Daily LIBOR Rate plus 100 basis points, plus a margin that ranged from 0 to 75 basis points. The Alternate Rate was based on the quoted rates specific to the applicable currency, plus a margin that ranged from 75 to 175 basis points. Both the Base Rate and Alternate Rate margins were dependent on the Company’s consolidated total indebtedness to EBITDA ratios.
Schuldschein Loan, Due 2024
In conjunction with the acquisition of Faiveley Transport, Wabtec acquired $137.2 million of a Schuldschein 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 $125.8 million of the outstanding Schuldshein loan. The remaining balance of $11.8 million as of September 30, 2017 has a maturity of seven years and bears a fixed rate of 4.00%.
The Schuldschein loan is senior unsecured and ranks pari passu with all existing and future senior debt and senior to all existing and future subordinated indebtedness of the Company. The Schuldshein loan agreement contains covenants and undertakings which limit, among other things, the following: factoring of receivables, the incurrence of indebtedness, sale of assets, change of control, mergers and consolidations and incurrence of liens. At September 30, 2017, the Company is in compliance with the undertakings and covenants contained in the loan agreement.
7. EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plans
The Company sponsors defined benefit pension plans that cover certain U.S., Canadian, German and United Kingdom employees and which provide benefits of stated amounts for each year of service of the employee.
The Company uses a December 31 measurement date for the plans.
The following tables provide information regarding the Company’s defined benefit pension plans summarized by U.S. and international components.
|
| | | | | | | | | | | | | | | |
| U.S. | | International |
| Three Months Ended September 30, | | Three Months Ended September 30, |
In thousands, except percentages | 2017 | | 2016 | | 2017 | | 2016 |
Net periodic benefit cost | | | | | | | |
Service cost | $ | 86 |
| | $ | 84 |
| | $ | 614 |
| | $ | 258 |
|
Interest cost | 356 |
| | 369 |
| | 1,677 |
| | 1,257 |
|
Expected return on plan assets | (433 | ) | | (519 | ) | | (2,910 | ) | | (2,437 | ) |
Net amortization/deferrals | 248 |
| | 229 |
| | 685 |
| | 397 |
|
Net periodic benefit cost | $ | 257 |
| | $ | 163 |
| | $ | 66 |
| | $ | (525 | ) |
|
| | | | | | | | | | | | | | | |
| U.S. | | International |
| Nine Months Ended September 30, | | Nine Months Ended September 30, |
In thousands, except percentages | 2017 | | 2016 | | 2017 | | 2016 |
Net periodic benefit cost | | | | | | | |
Service cost | $ | 258 |
| | $ | 252 |
| | $ | 1,842 |
| | $ | 986 |
|
Interest cost | 1,068 |
| | 1,107 |
| | 5,031 |
| | 4,193 |
|
Expected return on plan assets | (1,299 | ) | | (1,557 | ) | | (8,730 | ) | | (7,723 | ) |
Net amortization/deferrals | 744 |
| | 687 |
| | 2,055 |
| | 1,452 |
|
Curtailment loss recognized | — |
| | — |
| | — |
| | 240 |
|
Net periodic benefit (credit) cost | $ | 771 |
| | $ | 489 |
| | $ | 198 |
| | $ | (852 | ) |
|
| | | | | | | | | | | |
Assumptions | | | | | | | |
Discount Rate | 3.95 | % | | 4.21 | % | | 2.51 | % | | 3.56 | % |
Expected long-term rate of return | 4.95 | % | | 5.70 | % | | 4.93 | % | | 5.81 | % |
Rate of compensation increase | 3.00 | % | | 3.00 | % | | 2.54 | % | | 3.10 | % |
The Company’s funding methods are based on governmental requirements and differ from those methods used to recognize pension expense. The Company expects to contribute $7.1 million and $0.5 million to the international and U.S. plans, respectively, during 2017.
Post Retirement Benefit Plans
In addition to providing pension benefits, the Company has provided certain unfunded postretirement health care and life insurance benefits for a portion of North American employees. The Company is not obligated to pay health care and life insurance benefits to individuals who had retired prior to 1990.
The Company uses a December 31 measurement date for all post retirement plans.
The following tables provide information regarding the Company’s postretirement benefit plans summarized by U.S. and international components.
|
| | | | | | | | | | | | | | | |
| U.S. | | International |
| Three Months Ended September 30, | | Three Months Ended September 30, |
In thousands, except percentages | 2017 | | 2016 | | 2017 | | 2016 |
Net periodic benefit cost | | | | | | | |
Service cost | $ | 1 |
| | $ | 1 |
| | $ | 7 |
| | $ | 7 |
|
Interest cost | 88 |
| | 97 |
| | 24 |
| | 25 |
|
Net amortization/deferrals | (73 | ) | | (105 | ) | | (7 | ) | | (9 | ) |
Net periodic benefit (credit) cost | $ | 16 |
| | $ | (7 | ) | | $ | 24 |
| | $ | 23 |
|
|
| | | | | | | | | | | | | | | |
| U.S. | | International |
| Nine Months Ended September 30, | | Nine Months Ended September 30, |
In thousands, except percentages | 2017 | | 2016 | | 2017 | | 2016 |
Net periodic benefit cost | | | | | | | |
Service cost | $ | 3 |
| | $ | 3 |
| | $ | 21 |
| | $ | 21 |
|
Interest cost | 264 |
| | 291 |
| | 72 |
| | 75 |
|
Net amortization/deferrals | (219 | ) | | (315 | ) | | (21 | ) | | (27 | ) |
Net periodic (credit) benefit cost | $ | 48 |
| | $ | (21 | ) | | $ | 72 |
| | $ | 69 |
|
|
| | | | | | | | | | | |
Assumptions | | | | | | | |
Discount Rate | 3.76 | % | | 3.95 | % | | 3.46 | % | | 3.90 | % |
8.9. STOCK-BASED COMPENSATION
As of September 30, 2017,March 31, 2021, the Company maintains employee stock-based compensation plans for stock options, restricted stock, and incentive stock units as governed by the 2011 Stock Incentive Compensation Plan, as amended and restated (the “2011 Plan”) and the 2000 Stock Incentive Plan, as amended (the “2000 Plan”). The 2011 Plan has a term through May 10, 202715, 2030 and provides a maximum of 3,800,0009.1 million shares for grants or awards, plus any shares which remain available under the 2000 Plan. The amendment and restatement of the 2011 Plan was approved by stockholders of Wabtec on May 11, 2011, and an amendment and restatement of the 2011 Plan was approved by the Stockholders of Wabtec on May 10, 2017.15, 2020. The Company also maintains a 1995 Non-Employee Directors’ Fee and Stock Option Plan as amended and restated (“the Directors Plan”).
Stock-based compensation expense was $14.5$8.2 million and $14.8$7.3 million for the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, respectively. Included in stock-based compensation expense for the nine months ended September 30, 2017 is $1.2 million of expense related to stock options, $5.3 million related to restricted stock, $3.2 million related to restricted stock units, $3.7 million related to incentive stock units and $1.1 million related to units issued for Directors’ fees. At September 30, 2017,March 31, 2021, unamortized compensation expense related to stock options, non-vested restricted shares units and incentive stock units expected to vest totaled $29.7 million and will be recognized over a weighted average period of 1.4 years.$60.2 million.
Stock Options Stock options are granted to eligible employees and directors at an exercise price equivalent to the stock's fair market value, which is the average of the high and low Wabtec stock price on the date of grant. Under the 2011 Plan and the 2000 Plan, options granted prior to 2019 become exercisable over a four-year vesting period, while options granted in 2019 and after become exercisable over a three-year vesting period. Both vesting periods expire 10 years from the date of grant.
The following table summarizes the Company’s stock option activity and related information for the 2011 Plan, the 2000 Plan and the Directors Plan for the ninethree months ended September 30, 2017:March 31, 2021:
| | | | | | | | | | | Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life | | Aggregate Intrinsic value (in millions) |
| Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life | | Aggregate Intrinsic value (in thousands) | |
Outstanding at December 31, 2016 | 1,098,823 |
| | $ | 35.39 |
| | 4.3 | | $ | 52,332 |
| |
Outstanding at December 31, 2020 | | Outstanding at December 31, 2020 | 552,669 | | | $ | 69.82 | | | 6.1 | | $ | 4.2 | |
Granted | 65,522 |
| | 87.09 |
| | 0 |
| Granted | 126,794 | | | $ | 81.21 | | |
Exercised | (133,927 | ) | | 21.84 |
| | 7,220 |
| Exercised | (10,128) | | | $ | 40.28 | | |
Canceled | (4,266 | ) | | 72.91 |
| | 13 |
| Canceled | (12,422) | | | $ | 71.87 | | |
Outstanding at September 30, 2017 | 1,026,152 |
| | 40.30 |
| | 4.1 | | 36,377 |
| |
Exercisable at September 30, 2017 | 838,004 |
| | 32.15 |
| | 3.4 | | 36,537 |
| |
Outstanding at March 31, 2021 | | Outstanding at March 31, 2021 | 656,913 | | | $ | 72.15 | | | 6.6 | | $ | 5.6 | |
Exercisable at March 31, 2021 | | Exercisable at March 31, 2021 | 406,953 | | | $ | 57.82 | | | 6.0 | | $ | 5.2 | |
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
|
| | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Dividend yield | 0.23 | % | | 0.26 | % |
Risk-free interest rate | 2.17 | % | | 1.47 | % |
Stock price volatility | 23.4 | % | | 26.9 | % |
Expected life (years) | 5.0 |
| | 5.0 |
|
| | | | | |
| Three Months Ended March 31, 2021 |
Dividend yield | 0.60 | % |
Risk-free interest rate | 0.81 | % |
Stock price volatility | 36.1 | % |
Expected life (years) | 5.0 |
The dividend yield is based on the Company’s dividend rate and the current market price of the underlying common stock at the date of grant. Expected life in years is determined from historical stock option exercise data. Expected volatility is based on the historical volatility of the Company’s stock. The risk-free interest rate is based on the U.S. Treasury bond rates for the expected life of the option.
Restricted Stock, Restricted Units and Incentive Stock Beginning in 2006, the Company adopted a restricted stock program. As provided for under the 2011 Plan and 2000 Plan, eligible employees are granted restricted stock that generally vests over three or four years from the date of grant. Under the Directors Plan, restricted stock unitsawards vest one year from the date of grant.
In addition, the Company has issued incentive stock units to eligible employees that vest upon attainment of certain cumulative three-year performance goals. Based on the Company’s performance for each three-year period then ended, the incentive stock units can vest, with underlying shares of common stock being awarded in an amount ranging from 0% to 200% of the amount of initial incentive stock units granted. The incentive stock units included in the table below represent the number of incentive stock units that are expected to vest based on the Company’s estimate for meeting those established performance targets. As of September 30, 2017,March 31, 2021, the Company estimates that it will achieve 73%0%, 68%100% and 80%100% for the incentive stock awards expected to vest based on performance for the three-year periods ending December 31, 2017, 2018,2021, 2022, and 2019,2023, respectively, and has recorded incentive compensation expense accordingly. If ourthe estimate of the number of these incentive stock units expected to vest changes in a future accounting period, cumulative compensation expense could increase or decrease and will be recognized in the current period for the elapsed portion of the vesting period and would change future expense for the remaining vesting period.
Compensation expense for the non-vested restricted stock and incentive stock units is based on the average of the high and low Wabtec stock price on the date of grant and recognized over the applicable vesting period.
The following table summarizes the restricted stock activity and related information for the 2011 Plan, the 2000 Plan and the Directors Plan, and incentive stock units activity for the 2011 Plan and the 2000 Plan with related information for the ninethree months ended September 30, 2017:March 31, 2021:
| | | | | | | | | | | | | | | | | |
| Restricted Stock and Units | | Incentive Stock Units | | Weighted Average Grant Date Fair Value |
Outstanding at December 31, 2020 | 656,006 | | | 270,645 | | | $ | 73.80 | |
Granted | 184,646 | | | 241,467 | | | 81.21 | |
Vested | (260,675) | | | (37,672) | | | 73.17 | |
Canceled | (15,661) | | | (7,498) | | | 75.56 | |
Outstanding at March 31, 2021 | 564,316 | | | 466,942 | | | 77.00 | |
|
| | | | | | | | | |
| Restricted Stock and Units | | Incentive Stock Units | | Weighted Average Grant Date Fair Value |
Outstanding at December 31, 2016 | 396,295 |
| | 424,750 |
| | $ | 72.18 |
|
Granted | 153,571 |
| | 157,025 |
| | 86.11 |
|
Vested | (131,553 | ) | | (153,271 | ) | | 70.02 |
|
Adjustment for incentive stock awards expected to vest | — |
| | (100,424 | ) | | 75.43 |
|
Canceled | (6,590 | ) | | (5,158 | ) | | 74.99 |
|
Outstanding at September 30, 2017 | 411,723 |
| | 322,922 |
| |
|
9.10. INCOME TAXES
The overall effective income tax rate was 15.7%27.5% and 23.4%25.5% for the three and nine months ended September 30, 2017, respectively,March 31, 2021 and 28.5% and 29.7% for the three and nine months ended September 30, 2016,2020, respectively. For the three and nine months ended September 30, 2017, the decreaseThe increase in the effective rate is primarily due to $9.5 millionthe result of favorable deferredwithholding tax net benefits recorded inexpense on intercompany dividends incurred during the three months ended September 30, 2017 and the result of a lower earnings mix in higher tax rate jurisdictions. The net favorable deferred tax benefits related to the adjustment of deferred tax liabilities which had originally been established in prior periods in several foreign jurisdictions. These adjustments were not material to the current year-to-date financial statements or prior years annual financial statements.March 31, 2021.
As of September 30, 2017 and DecemberMarch 31, 2016,2021, the liability for income taxes associated with uncertain tax positions was $5.7$16.4 million, of which $3.2$14.7 million, if recognized, would favorably affect the Company’s effective tax rate.
The Company includes interest and penalties related to uncertain tax positions in income tax expense. As of September 30, 2017, the total accrued interest and penalties were $0.6 million and $0.3 million, respectively.rate. As of December 31, 2016,2020, the total accrued interest and penalties were $0.8liability for income taxes associated with unrecognized tax benefits was $16.4 million, and $0.3of which $14.8 million, respectively.if recognized, would favorably affect the Company's effective tax rate.
At this time, the Company believes it is reasonably possible that unrecognized tax benefits of approximately $3.6$11.7 million may change within the next 12 months due to the expiration of statutory review periods and current examinations. With limited exceptions, the Company is no longer subject to examination by various U.S. and foreign taxing authorities for years before 2013.
11. EARNINGS PER SHARE
The computation of basic and diluted earnings per share for net income attributable to Wabtec shareholders is as follows:
|
| | | | | | | |
| Three Months Ended September 30, |
In thousands, except per share data | 2017 | | 2016 |
Numerator | | | |
Numerator for basic and diluted earnings per common share - net income attributable | | | |
to Wabtec shareholders | $ | 67,399 |
| | $ | 82,428 |
|
Less: dividends declared - common shares and non-vested restricted stock | (11,518 | ) | | (8,958 | ) |
Undistributed earnings | 55,881 |
| | 73,470 |
|
Percentage allocated to common shareholders (1) | 99.7 | % | | 99.7 | % |
| 55,713 |
| | 73,250 |
|
Add: dividends declared - common shares | 11,485 |
| | 8,933 |
|
Numerator for basic and diluted earnings per common share | $ | 67,198 |
| | $ | 82,183 |
|
Denominator | | | |
Denominator for basic earnings per common share - weighted average shares | 95,709 |
| | 89,589 |
|
Effect of dilutive securities: | | | |
Assumed conversion of dilutive stock-based compensation plans | 607 |
| | 704 |
|
Denominator for diluted earnings per common share - | | | |
adjusted weighted average shares and assumed conversion | 96,316 |
| | 90,293 |
|
Net income attributable to Wabtec shareholders per common share | | | |
Basic | $ | 0.70 |
| | $ | 0.92 |
|
Diluted | $ | 0.70 |
| | $ | 0.91 |
|
|
| | | | | |
(1) Basic weighted-average common shares outstanding | 95,709 |
| | 89,589 |
|
Basic weighted-average common shares outstanding and non-vested restricted stock expected to vest | 95,983 |
| | 89,838 |
|
Percentage allocated to common shareholders | 99.7 | % | | 99.7 | % |
|
| | | | | | | |
| Nine Months Ended September 30, |
In thousands, except per share data | 2017 | | 2016 |
Numerator | | | |
Numerator for basic and diluted earnings per common share - net income attributable | | | |
to Wabtec shareholders | $ | 213,313 |
| | $ | 267,076 |
|
Less: dividends declared - common shares and non-vested restricted stock | (30,693 | ) | | (23,523 | ) |
Undistributed earnings | 182,620 |
| | 243,553 |
|
Percentage allocated to common shareholders (1) | 99.4 | % | | 99.7 | % |
| 181,524 |
| | 242,822 |
|
Add: dividends declared - common shares | 30,508 |
| | 23,452 |
|
Numerator for basic and diluted earnings per common share | $ | 212,032 |
| | $ | 266,274 |
|
Denominator | | | |
Denominator for basic earnings per common share - weighted average shares | 95,163 |
| | 90,546 |
|
Effect of dilutive securities: | | | |
Assumed conversion of dilutive stock-based compensation plans | 645 |
| | 770 |
|
Denominator for diluted earnings per common share - | | | |
adjusted weighted average shares and assumed conversion | 95,808 |
| | 91,316 |
|
Net income attributable to Wabtec shareholders per common share | | | |
Basic | $ | 2.23 |
| | $ | 2.94 |
|
Diluted | $ | 2.22 |
| | $ | 2.92 |
|
| | | | Three Months Ended March 31, |
In millions, except per share data | | In millions, except per share data | 2021 | | 2020 |
Numerator | | Numerator | | | |
Numerator for basic and diluted earnings per common share - net income attributable to Wabtec shareholders | | Numerator for basic and diluted earnings per common share - net income attributable to Wabtec shareholders | $ | 112.4 | | | $ | 111.6 | |
Less: dividends declared - common shares and non-vested restricted stock | | Less: dividends declared - common shares and non-vested restricted stock | (23.0) | | | (23.0) | |
Undistributed earnings | | Undistributed earnings | 89.4 | | | 88.6 | |
Percentage allocated to common shareholders (1) | | Percentage allocated to common shareholders (1) | 99.8 | % | | 99.7 | % |
| | | 89.2 | | | 88.3 | |
Add: dividends declared - common shares | | Add: dividends declared - common shares | 22.9 | | | 22.9 | |
Numerator for basic earnings per common share | | Numerator for basic earnings per common share | 112.1 | | | 111.2 | |
Numerator for diluted earnings per common share | | Numerator for diluted earnings per common share | 112.1 | | | 111.2 | |
Denominator | | Denominator | | | |
Denominator for basic earnings per common share - weighted average shares | | Denominator for basic earnings per common share - weighted average shares | 188.5 | | | 190.8 | |
Effect of dilutive securities: | | Effect of dilutive securities: | |
Assumed conversion of dilutive stock-based compensation plans | | Assumed conversion of dilutive stock-based compensation plans | 0.4 | | | 0.6 | |
Denominator for diluted earnings per common share - adjusted weighted average shares and assumed conversion | | Denominator for diluted earnings per common share - adjusted weighted average shares and assumed conversion | 188.9 | | | 191.4 | |
Net income attributable to Wabtec shareholders per common share | | Net income attributable to Wabtec shareholders per common share | | | |
Basic | | Basic | $ | 0.59 | | | $ | 0.58 | |
Diluted | | Diluted | $ | 0.59 | | | $ | 0.58 | |
| (1) Basic weighted-average common shares outstanding | 95,163 |
| | 90,546 |
| (1) Basic weighted-average common shares outstanding | 188.5 | | | 190.8 | |
Basic weighted-average common shares outstanding and non-vested restricted stock expected to vest | 95,740 |
| | 90,819 |
| Basic weighted-average common shares outstanding and non-vested restricted stock expected to vest | 188.9 | | | 191.4 | |
Percentage allocated to common shareholders | 99.4 | % | | 99.7 | % | Percentage allocated to common shareholders | 99.8 | % | | 99.7 | % |
The Company’s non-vested restricted stock contains rights to receive nonforfeitable dividends, and thus are participating securities requiring the two-class method of computing earnings per share. The calculation of earnings per share for common stock shown above excludes the income attributable to the non-vested restricted stock from the numerator and excludes the dilutive impact of those shares from the denominator. Options to purchase approximately 349,000 shares of Common Stock were outstanding at March 31, 2021, but were not included in the computation of diluted earnings per share because their exercise price exceeded the average market price of the Company's common stock.
11.12. WARRANTIES
The following table reconciles the changes in the Company’s product warranty reserve as follows:
| | | | | | | | | | | |
In millions | 2021 | | 2020 |
Balance at beginning of year | $ | 278.5 | | | $ | 267.7 | |
Acquisitions | 1.7 | | | 4.3 | |
Warranty expense | 29.2 | | | 22.7 | |
Warranty claim payments | (28.8) | | | (34.0) | |
Foreign currency impact/other | (6.8) | | | (3.3) | |
Balance at March 31 | $ | 273.8 | | | $ | 257.4 | |
|
| | | | | | | |
In thousands | 2017 | | 2016 |
Balance at beginning of year | $ | 138,992 |
| | $ | 92,064 |
|
Warranty expense | 33,108 |
| | 22,788 |
|
Acquisitions | 3,412 |
| | 7,571 |
|
Warranty claim payments | (33,492 | ) | | (27,693 | ) |
Foreign currency impact/other | 6,744 |
| | (620 | ) |
Balance at September 30 | $ | 148,764 |
| | $ | 94,110 |
|
12.13. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING
Hedging Activities In the normal course of business, we are exposed to interest rate, commodity price and foreign currency exchange rate fluctuations. At times, we mitigate these risk exposures through the use of derivatives such as cross-
currency swaps, foreign currency forward contracts, interest rate swaps, commodity forwards and futures. In accordance with our policy, derivatives are only used for hedging purposes. We do not use derivatives for trading or speculative purposes.
Foreign Currency HedgingExchange Risk
The Company uses forward contracts to mitigate its foreign currency exchange rate exposure due to forecasted sales of finished goods and future settlement of foreign currency denominated assets and liabilities. Derivatives used to hedge forecasted transactions and specific cash flows associated with foreign currency denominated financial assets and liabilities that meet the criteria for hedge accounting are designated as cash flow hedges. The effective portion of gaingains and losses is deferred as a component of accumulated other comprehensive income (loss) and is recognized in earnings at the time the hedged item affects earnings, in the same line item as the underlying hedged item. The contracts are scheduled to mature within two years. For the three and nine months ended September 30, 2017March 31, 2021 and September 30, 2016,2020, the amounts reclassified into income were not material.
Other ActivitiesThe Company has established revenue hedging, balance sheet risk management and net investment hedging programs to protect against volatility of future foreign currency cash flows and changes in fair value caused by volatility in foreign exchange rates. We conduct our business worldwide in U.S. dollars and the functional currencies of our foreign subsidiaries, including euro, Indian rupee, British pound sterling, Australian dollars and several other foreign currencies. Changes in foreign currency exchange rates could have a material adverse impact on our financial results that are reported in U.S. dollars. We are also exposed to foreign currency exchange rate risk related to our foreign subsidiaries, including intercompany loans denominated in non-functional currencies and net purchases and sales in non-functional currencies. We have certain foreign currency exchange rate risk management programs that use foreign currency forward contracts and cross-currency swaps. These forward contracts and cross-currency swaps are generally used to offset the potential income statement effects from intercompany loans denominated in non-functional currencies. These programs mitigate but do not entirely eliminate foreign currency exchange rate risk.
The Company enters into certain derivative contracts in accordance with its risk management strategy that do not meet the criteria for hedge accounting, but which have the impact of largely mitigating foreign currency exposure. These foreign exchange contracts are accounted for on a full mark to market basis through earnings, with gains and losses recorded as a component of other expense,income (expense), net. The net unrealized gainloss related to these contracts was $0.2$1.6 million for the three months ended September 30, 2017.March 31, 2021. These contracts are scheduled to mature within one year.
The following table summarizes the gross notional amounts and fair values of the designated and non-designated hedges discussed in the above sections as of September 30, 2017.March 31, 2021:
| | | | | | | | | | Fair Value | | Gross Notional Amount |
In millions | | Designated | | Non-Designated | | Total | In millions | | Designated | | Non-Designated | | Designated | | Non-Designated |
Gross notional amount | | $ | 728.7 |
| | $ | 406.4 |
| | $ | 1,135.1 |
| |
| | | | | | | |
Fair Value: | | | | | | | |
Foreign Exchange Contracts | | Foreign Exchange Contracts | | | | | | | | |
Other current assets | | 4.4 |
| | 0.2 |
| | 4.6 |
| Other current assets | | $ | 20.1 | | | $ | 1.1 | | | $ | 1,551.4 | | | $ | 324.9 | |
Cross-currency Swaps | | Cross-currency Swaps | |
Other current liabilities | | — |
| | — |
| | — |
| Other current liabilities | | (3.1) | | | 0 | | | 588.0 | | | 0 | |
Total | | $ | 4.4 |
| | $ | 0.2 |
| | $ | 4.6 |
| Total | | $ | 17.0 | | | $ | 1.1 | | | $ | 2,139.4 | | | $ | 324.9 | |
The following table summarizes the gross notional amounts and fair values of the designated and non-designated hedgeshedged discussed in the above sections as of December 31, 2016.2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value | | Gross Notional Amount |
In millions | | Designated | | Non-Designated | | Designated | | Non-Designated |
Foreign Exchange Contracts | | | | | | | | |
Other current assets | | $ | 9.2 | | | $ | 0.5 | | | $ | 793.6 | | | $ | 1.3 | |
Other current liabilities | | (3.9) | | | (1.5) | | | 928.0 | | | 319.6 | |
Cross-currency Swaps | | | | | | | | |
Other current liabilities | | (26.0) | | | 0 | | | 613.2 | | | 0 | |
Total | | $ | (20.7) | | | $ | (1.0) | | | $ | 2,334.8 | | | $ | 320.9 | |
|
| | | | | | | | | | | | |
In millions | | Designated | | Non-Designated | | Total |
Gross notional amount | | $ | 911.0 |
| | $ | 490.0 |
| | $ | 1,401.0 |
|
| | | | | | |
Fair Value: | | | | | | |
Other current assets | | 1.1 |
| | 0.4 |
| | 1.5 |
|
Other current liabilities | | (0.5 | ) | | (0.2 | ) | | (0.7 | ) |
Total | | $ | 0.6 |
| | $ | 0.2 |
| | $ | 0.8 |
|
Interest Rate HedgingRisk
The Company uses may use interest rate swapsswap contracts on certain investing and borrowing transactions to manage interest rate exposures. The Company is exposedits net exposure to interest rate volatility with regardchanges and to existing floating rate debt. Primaryreduce its overall cost of borrowing. The Company does not use leveraged swaps and, in general, does not leverage any of its investment activities that would put principal capital at risk.For the three months ended March 31, 2021 and 2020 the amounts reclassified into income were not material.
Commodity Price Risk
The Company may use commodity forward contracts and futures to mitigate its exposure includesto commodity price changes and to reduce its overall cost of manufacturing. For the London Interbank Offered Rates (LIBOR). Derivatives used to hedge risk associated with changes inthree months ended March 31, 2021 and 2020 the fair value of certain variable-rate debt are primarily designatedamounts recognized as fair value hedges. Consequently, changes in the fair value of these derivatives, along with changes in the fair value of debt obligations are recognized in current period earnings. Refer to footnote 13 for further information on interest rate swaps.income or expense were not material.
As of September 30, 2017, the Company has recorded a current liability of $2.0 million and an accumulated other comprehensive loss of $1.2 million, net of tax, related to these agreements.
13.14. FAIR VALUE MEASUREMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC 820 “Fair Value Measurements and Disclosures” defines fair value, establishes a framework for measuring fair value and explains the related disclosure requirements. ASC 820 indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability and defines fair value based upon an exit price model.
Valuation HierarchyHierarchy. ASC 820 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2017,March 31, 2021 which are included in other current assets and liabilities on the Condensed Consolidated Balanceconsolidated balance sheet:
|
| | | | | | | | | | | | | | | |
| | | Fair Value Measurements at September 30, 2017 Using |
In thousands | Total Carrying Value at September 30, 2017 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Interest rate swap agreements | $ | 1,952 |
| | $ | — |
| | $ | 1,952 |
| | $ | — |
|
Total | $ | 1,952 |
| | $ | — |
| | $ | 1,952 |
| | $ | — |
|
The following table provides the liabilities carried at fair value measured on a recurring basis as of December 31, 2016, which is included in other current liabilities on the Condensed Consolidated Balance sheet:
|
| | | | | | | | | | | | | | | |
| | | Fair Value Measurements at December 31, 2016 Using |
In thousands | Total Carrying Value at December 31, 2016 | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Interest rate swap agreements | $ | 3,888 |
| | $ | — |
| | $ | 3,888 |
| | $ | — |
|
Total | $ | 3,888 |
| | $ | — |
| | $ | 3,888 |
| | $ | — |
|
To reduce the impact of interest rate changes on a portion of its variable-rate debt, the Company entered into interest rate swaps which effectively converted a portion of the debt from variable to fixed-rate borrowings during the term of the swap contracts. For certain derivative contracts whose fair values are based upon trades in liquid markets, such as interest rate swaps, valuation model inputs can generally be verified and valuation techniques do not involve significant management judgment. The fair values of such financial instruments are generally classified within Level 2 of the fair value hierarchy. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value Measurements at March 31, 2021 Using |
| | Total Carrying Value at March 31, | | Quoted Prices in Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs |
In millions | | 2021 | | (Level 1) | | (Level 2) | | (Level 3) |
Foreign Exchange Contracts | | | | | | | | |
Other current assets | | $ | 21.2 | | | $ | 0 | | | $ | 21.2 | | | $ | 0 | |
Other current liabilities | | 0 | | | 0 | | | 0 | | | 0 | |
Cross-Currency Swap Agreement | | | | | | | | |
Other current liabilities | | (3.1) | | | 0 | | | (3.1) | | | 0 | |
As a result of our global operating activities, the Company is exposed to market risks from changes in foreign currency exchange rates, which may adversely affect our operating results and financial position. When deemed appropriate, the Company minimizesmitigates these risks through entering into foreign currency forward contracts. The foreign currency forward contracts are valued using broker quotations, or market transactions in either the listed or over-the counter markets. As such, these derivative instruments are classified within Levellevel 2.
The Company’s cash and cash equivalents are highly liquid investments purchased with an original maturity of three months or less and are considered Level 1 on the fair value valuation hierarchy. The fair value of cash and cash equivalents approximated the carrying value at September 30, 2017March 31, 2021 and December 31, 2016.2020. The Company’s defined benefit pension plan assets consist primarily of equity security funds, debt security funds and temporary cash and cash equivalent investments. Generally, all plan assets are considered Level 2 based on the fair value valuation hierarchy. These investments are comprised of a number of investment funds that invest in a diverse portfolio of assets including equity securities, corporate and governmental bonds, and money markets. Trusts are valued at the net asset value (“NAV”) as determined by their custodian. NAV representrepresents the accumulation of the unadjusted quoted close prices on the reporting date for the underlying investments divided by the total shares outstanding at the reporting dates. The 2013 and 2016Senior Notes are considered Level 2 based on the fair value valuation hierarchy.
The estimated Contingent consideration related to the GE Transportation acquisition is considered Level 3 based on the fair valuesvalue valuation hierarchy and related carrying values ofincludes $130.0 million classified as "Other accrued liabilities" on the Company’s financial instruments areCompany's consolidated balance sheet and $218.6 million in long-term liabilities classified as follows:
|
| | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
In thousands | Carry Value | | Fair Value | | Carry Value | | Fair Value |
Interest rate swap agreement | $ | 1,952 |
| | $ | 1,952 |
| | $ | 3,888 |
| | $ | 3,888 |
|
4.375% Senior Notes | 248,502 |
| | 264,000 |
| | 248,310 |
| | 260,265 |
|
3.45% Senior Notes | 747,590 |
| | 739,050 |
| | 747,474 |
| | 719,273 |
|
"Contingent consideration" on the Company's consolidated balance sheet. The fair value ofapproximates the Company’s interest rate swap agreements and the 2013 and 2016 Notes were based on dealer quotes and represent the estimated amount the Company would pay to the counterparty to terminate the agreement.
carrying value at March 31, 2021.
14.
15. COMMITMENTS AND CONTINGENCIES
Claims have been filed against the Company and certain of its affiliates in various jurisdictions across the United States by persons alleging bodily injury as a result of exposure to asbestos-containing products. Further information and detail on these claims is described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, in Note 19 therein, filed on February 28, 2017. During the first nine months of 2017, there were no material changes to the information described in the Form 10-K.
FromAdditionally, from time to time, the Company is involved in litigation related to claims arising out of the Company's operations in the ordinary course of business, including claims based on product liability, contracts, intellectual property or other causes of action. Further information and
detail on any potentially material litigation is asthese claims are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, in Note 19 therein, filed on February 28, 2017. Except as described below,2020. During the first three months of 2021, there have beenwere no material changes to the information described in the Form 10-K including with respectrelated to claims arising from asbestos exposure or the litigation with Siemens described therein.Company's ordinary operations.
Xorail, Inc., a wholly owned subsidiary of the Company (“Xorail”), has received notices from Denver Transit Constructors (“Denver Transit”DTC”) alleging breach of contract related to the operating of constant warning wireless crossings, and late delivery of the Train Management & Dispatch System (“TMDS”) for the Denver Eagle P3 Project, which is owned by the Denver Regional Transit District ("RTD"). No damages have been asserted for the alleged late delivery of the TMDS, and no formal claim has been filed; Xorail is in the final stages ofhas successfully implementingcompleted a recoveryremediation plan concerning the TMDS issues. With regard to the wireless crossings,crossing issue, as of September 8, 2017, Denver TransitDTC alleged that total damages were $36.8 million through July 31, 2017 and are continuing to accumulate. The crossings have not been certified for use without flaggers, which Denver Transit alleges is due to Xorail's failure to achieve constant warning times satisfactory tomajority of the damages stems from a delay in approval of the wireless crossing system by the Federal Railway Administration ("FRA") and the Public Utility Commission ("PUC"). No claims have been filed, resulting in the use of flaggers at all of the crossings pending approval of the wireless crossing system and certification of the crossings. DTC has alleged that the delay is due to Xorail's failure to achieve constant warning times for the crossings in accordance with the approval requirements imposed by Denver Transit with regard to either issue.the FRA and PUC. Xorail has denied Denver Transit’sDTC's assertions, regardingstating that its system satisfied the wireless crossings, and Denver Transit has also notified RTD that Denver Transit considers the new certification requirements imposed by FRA and/or PUC as a change in law, for which neither Denver Transit nor its subcontractors are liable.contractual requirements. Xorail has worked with Denver TransitDTC to modify its system to meetand implement the FRA’sFRA's and PUC's previously undefined and evolving, certification requirements. On September 28, 2017,approval requirements; the FRA granted a 5 year approval of theand PUC have both approved modified wireless crossing system, and as currently implemented; however,of August 2018, DTC completed the PUCprocess of certifying the crossings and eliminated the use of flaggers. DTC has not granted approvalupdated its notices against Xorail, nor have they filed any formal claim against Xorail. On September 21, 2018, DTC filed a complaint against RTD in Colorado state court for breach of contract related to non-payments and the costs for the flaggers, asserting a change-in-law arising from the FRA/PUC’s new certification requirements. DTC’s complaint generally supports Xorail’s position and does not name or implicate Xorail. DTC's claim against RTD proceeded to trial on September 21, 2020; the trial has been completed, included post-trial submission. No decision is expected until the second half of 2021.
As of the modified system and thereforedate hereof, the crossings are still not certified for use without flaggers. Denver Transit and RTD are continuing to seek approval from PUC. The Company does not believeis involved in no litigation that it has any liability with respect to the wireless crossing issue.Company believes will have a material adverse effect on its financial condition, results of operations or liquidity.
15.16. SEGMENT INFORMATION
Wabtec has two2 reportable segments—the Freight Segment and the Transit Segment. The key factors used to identify these reportable segments are the organization and alignment of the Company’s internal operations, the nature of the products and services and customer type. The Company’s business segments are:
Freight Segment primarily builds new locomotives, manufactures and services components for new and existing freight cars and locomotives, builds new switcher locomotives, rebuilds freight locomotives, supplies railway electronics, positive train control equipment, signal design and engineering services and provides related heat exchange and cooling systems. Customers include large, publicly traded railroads, leasing companies, manufacturers of original equipment such as locomotives and freight cars and utilities.
Transit Segment primarily manufactures and services components for new and existing passenger transit vehicles, typically regional trains, high speed trains, subway cars, light-rail vehicles and buses, builds new commuter locomotives, refurbishes subway cars, provides heating, ventilation, and air conditioning equipment and doors for buses and subways.subway cars. Customers include public transit authorities and municipalities, leasing companies and manufacturers of subway cars and buses around the world.
The Company evaluates its business segments’ operating results based on income from operations. Intersegment sales are accounted for at prices that are generally established by reference to similar transactions with unaffiliated customers. Corporate activities include general corporate expenses, elimination of intersegment transactions, interest income and expense and other unallocated charges. Since certain administrative and other operating expenses have not been allocated to business segments, the results in the following tables are not necessarily a measure computed in accordance with generally accepted accounting principles and may not be comparable to other companies.
Segment financial information for the three months ended September 30, 2017March 31, 2021 is as follows: | | In thousands | Freight Segment | | Transit Segment | | Corporate Activities and Elimination | | Total | |
In millions | | In millions | Freight Segment | | Transit Segment | | Corporate Activities and Elimination | | Total |
Sales to external customers | $ | 340,185 |
| | $ | 617,746 |
| | $ | — |
| | $ | 957,931 |
| Sales to external customers | $ | 1,183.3 | | | $ | 646.9 | | | $ | — | | | $ | 1,830.2 | |
Intersegment sales/(elimination) | 8,376 |
| | 4,494 |
| | (12,870 | ) | | — |
| Intersegment sales/(elimination) | 12.4 | | | 9.7 | | | (22.1) | | | — | |
Total sales | $ | 348,561 |
| | $ | 622,240 |
| | $ | (12,870 | ) | | $ | 957,931 |
| Total sales | $ | 1,195.7 | | | $ | 656.6 | | | $ | (22.1) | | | $ | 1,830.2 | |
Income (loss) from operations | $ | 61,596 |
| | $ | 47,531 |
| | $ | (7,116 | ) | | $ | 102,011 |
| Income (loss) from operations | $ | 141.8 | | | $ | 70.1 | | | $ | (20.3) | | | $ | 191.6 | |
Interest expense and other, net | — |
| | — |
| | (20,826 | ) | | (20,826 | ) | Interest expense and other, net | 0 | | | 0 | | | (33.4) | | | (33.4) | |
Income (loss) from operations before income taxes | $ | 61,596 |
| | $ | 47,531 |
| | $ | (27,942 | ) | | $ | 81,185 |
| |
Income (loss) before income taxes | | Income (loss) before income taxes | $ | 141.8 | | | $ | 70.1 | | | $ | (53.7) | | | $ | 158.2 | |
Segment financial information for the three months ended September 30, 2016 is as follows: |
| | | | | | | | | | | | | | | |
In thousands | Freight Segment | | Transit Segment | | Corporate Activities and Elimination | | Total |
Sales to external customers | $ | 361,998 |
| | $ | 313,576 |
| | $ | — |
| | $ | 675,574 |
|
Intersegment sales/(elimination) | 10,341 |
| | 1,823 |
| | (12,164 | ) | | — |
|
Total sales | $ | 372,339 |
| | $ | 315,399 |
| | $ | (12,164 | ) | | $ | 675,574 |
|
Income (loss) from operations | $ | 77,999 |
| | $ | 51,164 |
| | $ | (9,067 | ) | | $ | 120,096 |
|
Interest expense and other, net | — |
| | — |
| | (4,869 | ) | | (4,869 | ) |
Income (loss) from operations before income taxes | $ | 77,999 |
| | $ | 51,164 |
| | $ | (13,936 | ) | | $ | 115,227 |
|
Segment financial information for the nine months ended September 30, 2017March 31, 2020 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
In millions | Freight Segment | | Transit Segment | | Corporate Activities and Elimination | | Total |
Sales to external customers | $ | 1,301.0 | | | $ | 628.9 | | | $ | — | | | $ | 1,929.9 | |
Intersegment sales/(elimination) | 12.5 | | | 9.1 | | | (21.6) | | | — | |
Total sales | $ | 1,313.5 | | | $ | 638.0 | | | $ | (21.6) | | | $ | 1,929.9 | |
Income (loss) from operations | $ | 161.7 | | | $ | 68.6 | | | $ | (13.0) | | | $ | 217.3 | |
Interest expense and other, net | 0 | | | 0 | | | (68.1) | | | (68.1) | |
Income (loss) before income taxes | $ | 161.7 | | | $ | 68.6 | | | $ | (81.1) | | | $ | 149.2 | |
|
| | | | | | | | | | | | | | | |
In thousands | Freight Segment | | Transit Segment | | Corporate Activities and Elimination | | Total |
Sales to external customers | $ | 1,032,959 |
| | $ | 1,773,259 |
| | $ | — |
| | $ | 2,806,218 |
|
Intersegment sales/(elimination) | 27,602 |
| | 16,253 |
| | (43,855 | ) | | — |
|
Total sales | $ | 1,060,561 |
| | $ | 1,789,512 |
| | $ | (43,855 | ) | | $ | 2,806,218 |
|
Income (loss) from operations | $ | 196,328 |
| | $ | 155,901 |
| | $ | (21,659 | ) | | $ | 330,570 |
|
Interest expense and other, net | — |
| | — |
| | (53,191 | ) | | (53,191 | ) |
Income (loss) from operations before income taxes | $ | 196,328 |
| | $ | 155,901 |
| | $ | (74,850 | ) | | $ | 277,379 |
|
Segment financial information for the nine months ended September 30, 2016 is as follows:
|
| | | | | | | | | | | | | | | |
In thousands | Freight Segment | | Transit Segment | | Corporate Activities and Elimination | | Total |
Sales to external customers | $ | 1,201,734 |
| | $ | 969,472 |
| | $ | — |
| | $ | 2,171,206 |
|
Intersegment sales/(elimination) | 29,765 |
| | 7,606 |
| | (37,371 | ) | | — |
|
Total sales | $ | 1,231,499 |
| | $ | 977,078 |
| | $ | (37,371 | ) | | $ | 2,171,206 |
|
Income (loss) from operations | $ | 276,990 |
| | $ | 148,321 |
| | $ | (29,750 | ) | | $ | 395,561 |
|
Interest expense and other, net | — |
| | — |
| | (15,784 | ) | | (15,784 | ) |
Income (loss) from operations before income taxes | $ | 276,990 |
| | $ | 148,321 |
| | $ | (45,534 | ) | | $ | 379,777 |
|
Sales to external customers by product line are as follows: |
| | | | | | | |
| Three Months Ended September 30, |
In thousands | 2017 | | 2016 |
Specialty Products & Electronics | $ | 335,143 |
| | $ | 334,349 |
|
Transit Products | 276,913 |
| | 44,996 |
|
Brake Products | 177,165 |
| | 134,900 |
|
Remanufacturing, Overhaul & Build | 132,018 |
| | 129,264 |
|
Other | 36,692 |
| | 32,065 |
|
Total sales | $ | 957,931 |
| | $ | 675,574 |
|
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
In millions | | 2021 | | 2020 |
Freight Segment | | | | |
Equipment | | $ | 261.8 | | | $ | 408.0 | |
Components | | 202.5 | | | 220.4 | |
Digital Electronics | | 156.5 | | | 173.6 | |
Services | | 562.5 | | | 499.0 | |
Total Freight Segment | | $ | 1,183.3 | | | $ | 1,301.0 | |
| | | | |
Transit Segment | | | | |
Original Equipment Manufacturer | | $ | 286.8 | | | $ | 287.0 | |
Aftermarket | | 360.1 | | | 341.9 | |
Total Transit Segment | | $ | 646.9 | | | $ | 628.9 | |
|
| | | | | | | |
| Nine Months Ended September 30, |
In thousands | 2017 | | 2016 |
Specialty Products & Electronics | $ | 975,006 |
| | $ | 1,051,806 |
|
Transit Products | 789,096 |
| | 143,434 |
|
Brake Products | 550,181 |
| | 428,785 |
|
Remanufacturing, Overhaul & Build | 387,634 |
| | 444,278 |
|
Other | 104,301 |
| | 102,903 |
|
Total sales | $ | 2,806,218 |
| | $ | 2,171,206 |
|
16. GUARANTOR SUBSIDIARIES FINANCIAL INFORMATION
The obligations under the Company's 2016 Notes, 2013 Notes, and Revolving Credit Facility and Term Loan are fully and unconditionally guaranteed by all U.S. subsidiaries as guarantors. Each guarantor is 100% owned by the parent company. In accordance with positions established by the Securities and Exchange Commission, the following shows separate financial information with respect to the parent, the guarantor subsidiaries and the non-guarantor subsidiaries. The principal elimination entries eliminate investment in subsidiaries and certain intercompany balances and transactions.
Balance Sheet for September 30, 2017:
|
| | | | | | | | | | | | | | | | | | | |
In thousands | Parent | | Guarantors | | Non-Guarantors | | Elimination | | Consolidated |
Cash and cash equivalents | $ | 3,049 |
| | $ | 6,082 |
| | $ | 218,949 |
| | $ | — |
| | $ | 228,080 |
|
Receivables, net | 75,123 |
| | 232,060 |
| | 837,156 |
| | — |
| | 1,144,339 |
|
Inventories | 132,044 |
| | 140,745 |
| | 491,992 |
| | — |
| | 764,781 |
|
Current assets - other | 39,216 |
| | 4,283 |
| | 96,426 |
| | — |
| | 139,925 |
|
Total current assets | 249,432 |
| | 383,170 |
| | 1,644,523 |
| | — |
| | 2,277,125 |
|
Property, plant and equipment, net | 51,196 |
| | 134,397 |
| | 364,774 |
| | — |
| | 550,367 |
|
Goodwill | 25,276 |
| | 549,198 |
| | 1,810,284 |
| | — |
| | 2,384,758 |
|
Investment in subsidiaries | 6,304,037 |
| | 2,508,725 |
| | — |
| | (8,812,762 | ) | | — |
|
Other intangibles, net | 30,905 |
| | 251,485 |
| | 857,997 |
| | — |
| | 1,140,387 |
|
Other long term assets | 29,724 |
| | 6,273 |
| | 61,016 |
| | — |
| | 97,013 |
|
Total assets | $ | 6,690,570 |
| | $ | 3,833,248 |
| | $ | 4,738,594 |
| | $ | (8,812,762 | ) | | $ | 6,449,650 |
|
Current liabilities | $ | 162,470 |
| | 199,511 |
| | $ | 1,103,459 |
| | — |
| | $ | 1,465,440 |
|
Inter-company | 2,031,256 |
| | (1,942,433 | ) | | (88,823 | ) | | — |
| | — |
|
Long-term debt | 1,740,541 |
| | 25 |
| | 83,590 |
| | — |
| | 1,824,156 |
|
Long-term liabilities - other | 38,601 |
| | 87,935 |
| | 297,149 |
| | — |
| | 423,685 |
|
Total liabilities | 3,972,868 |
| | (1,654,962 | ) | | 1,395,375 |
| | — |
| | 3,713,281 |
|
Shareholders' equity | 2,717,702 |
| | 5,489,597 |
| | 3,323,165 |
| | (8,812,762 | ) | | 2,717,702 |
|
Non-controlling interest | — |
| | (1,387 | ) | | 20,054 |
| | — |
| | 18,667 |
|
Total shareholders' equity | $ | 2,717,702 |
| | $ | 5,488,210 |
| | $ | 3,343,219 |
| | $ | (8,812,762 | ) | | $ | 2,736,369 |
|
Total Liabilities and Shareholders' Equity | $ | 6,690,570 |
| | $ | 3,833,248 |
| | $ | 4,738,594 |
| | $ | (8,812,762 | ) | | $ | 6,449,650 |
|
Balance Sheet for December 31, 2016:
|
| | | | | | | | | | | | | | | | | | | |
In thousands | Parent | | Guarantors | | Non-Guarantors | | Elimination | | Consolidated |
Cash and cash equivalents | $ | 2,522 |
| | $ | 9,496 |
| | $ | 386,466 |
| | $ | — |
| | $ | 398,484 |
|
Receivables, net | 79,041 |
| | 202,779 |
| | 660,688 |
| | — |
| | 942,508 |
|
Inventories | 120,042 |
| | 128,076 |
| | 410,392 |
| | — |
| | 658,510 |
|
Current assets - other | 52,576 |
| | (17,844 | ) | | 833,397 |
| | — |
| | 868,129 |
|
Total current assets | 254,181 |
| | 322,507 |
| | 2,290,943 |
| | — |
| | 2,867,631 |
|
Property, plant and equipment, net | 49,031 |
| | 126,661 |
| | 342,684 |
| | — |
| | 518,376 |
|
Goodwill | 25,275 |
| | 477,472 |
| | 1,576,018 |
| | — |
| | 2,078,765 |
|
Investment in subsidiaries | 5,388,613 |
| | 1,325,150 |
| | — |
| | (6,713,763 | ) | | — |
|
Other intangibles, net | 31,897 |
| | 204,512 |
| | 817,451 |
| | — |
| | 1,053,860 |
|
Other long term assets | 9,592 |
| | (1,914 | ) | | 54,708 |
| | — |
| | 62,386 |
|
Total assets | $ | 5,758,589 |
| | $ | 2,454,388 |
| | $ | 5,081,804 |
| | $ | (6,713,763 | ) | | $ | 6,581,018 |
|
Current liabilities | $ | 194,983 |
| | 196,956 |
| | $ | 1,054,700 |
| | — |
| | $ | 1,446,639 |
|
Inter-company | 1,562,399 |
| | (1,848,777 | ) | | 286,378 |
| | — |
| | — |
|
Long-term debt | 1,761,933 |
| | 58 |
| | 976 |
| | — |
| | 1,762,967 |
|
Long-term liabilities - other | 33,298 |
| | 74,977 |
| | 286,312 |
| | — |
| | 394,587 |
|
Total liabilities | 3,552,613 |
| | (1,576,786 | ) | | 1,628,366 |
| | — |
| | 3,604,193 |
|
Shareholders' equity | 2,205,976 |
| | 4,032,250 |
| | 2,681,514 |
| | (6,713,763 | ) | | 2,205,977 |
|
Non-controlling interest | — |
| | (1,076 | ) | | 771,924 |
| | — |
| | 770,848 |
|
Total shareholders' equity | $ | 2,205,976 |
| | $ | 4,031,174 |
| | $ | 3,453,438 |
| | $ | (6,713,763 | ) | | $ | 2,976,825 |
|
Total Liabilities and Shareholders' Equity | $ | 5,758,589 |
| | $ | 2,454,388 |
| | $ | 5,081,804 |
| | $ | (6,713,763 | ) | | $ | 6,581,018 |
|
Income Statement for the Three Months Ended September 30, 2017:
|
| | | | | | | | | | | | | | | | | | | |
In thousands | Parent | | Guarantors | | Non-Guarantors | | Elimination | | Consolidated |
Net Sales | $ | 134,906 |
| | $ | 270,116 |
| | $ | 587,289 |
| | $ | (34,380 | ) | | $ | 957,931 |
|
Cost of sales | (111,775 | ) | | (176,291 | ) | | (444,704 | ) | | 28,042 |
| | (704,728 | ) |
Gross profit (loss) | 23,131 |
| | 93,825 |
| | 142,585 |
| | (6,338 | ) | | 253,203 |
|
Total operating expenses | (22,714 | ) | | (29,991 | ) | | (98,487 | ) | | — |
| | (151,192 | ) |
Income (loss) from operations | 417 |
| | 63,834 |
| | 44,098 |
| | (6,338 | ) | | 102,011 |
|
Interest (expense) income, net | (19,222 | ) | | 1,143 |
| | 186 |
| | — |
| | (17,893 | ) |
Other income (expense), net | 274 |
| | (356 | ) | | (2,851 | ) | | — |
| | (2,933 | ) |
Equity earnings (loss) | 80,874 |
| | 19,806 |
| | — |
| | (100,680 | ) | | — |
|
Pretax income (loss) | 62,343 |
| | 84,427 |
| | 41,433 |
| | (107,018 | ) | | 81,185 |
|
Income tax expense | 5,056 |
| | (5 | ) | | (17,797 | ) | | — |
| | (12,746 | ) |
Net income (loss) | 67,399 |
| | 84,422 |
| | 23,636 |
| | (107,018 | ) | | 68,439 |
|
Less: Net income attributable to noncontrolling interest | — |
| | 155 |
| | (1,195 | ) | | — |
| | (1,040 | ) |
Net income (loss) attributable to Wabtec shareholders | $ | 67,399 |
| | $ | 84,577 |
| | $ | 22,441 |
| | $ | (107,018 | ) | | $ | 67,399 |
|
| | | | | | | | | |
Comprehensive income (loss) attributable to Wabtec shareholders | $ | 66,813 |
| | $ | 84,577 |
| | $ | 115,647 |
| | $ | (107,018 | ) | | $ | 160,019 |
|
Income Statement for the Three Months Ended September 30, 2016:
|
| | | | | | | | | | | | | | | | | | | |
In thousands | Parent | | Guarantors | | Non-Guarantors | | Elimination | | Consolidated |
Net Sales | $ | 155,731 |
| | $ | 259,174 |
| | $ | 295,336 |
| | $ | (34,667 | ) | | $ | 675,574 |
|
Cost of sales | (109,414 | ) | | (186,546 | ) | | (211,392 | ) | | 44,259 |
| | (463,093 | ) |
Gross profit (loss) | 46,317 |
| | 72,628 |
| | 83,944 |
| | 9,592 |
| | 212,481 |
|
Total operating expenses | (21,979 | ) | | (29,019 | ) | | (41,387 | ) | | — |
| | (92,385 | ) |
(Loss) income from operations | 24,338 |
| | 43,609 |
| | 42,557 |
| | 9,592 |
| | 120,096 |
|
Interest (expense) income, net | (7,854 | ) | | 1,728 |
| | 69 |
| | — |
| | (6,057 | ) |
Other income (expense), net | 6,600 |
| | (86 | ) | | (5,326 | ) | | — |
| | 1,188 |
|
Equity earnings (loss) | 86,731 |
| | 27,099 |
| | — |
| | (113,830 | ) | | — |
|
Pretax income (loss) | 109,815 |
| | 72,350 |
| | 37,300 |
| | (104,238 | ) | | 115,227 |
|
Income tax expense | (27,387 | ) | | 1,567 |
| | (6,979 | ) | | — |
| | (32,799 | ) |
Net income (loss) | 82,428 |
| | 73,917 |
| | 30,321 |
| | (104,238 | ) | | 82,428 |
|
Less: Net income attributable to noncontrolling interest | — |
| | — |
| | — |
| | — |
| | — |
|
Net income attributable to Wabtec shareholders | $ | 82,428 |
| | $ | 73,917 |
| | $ | 30,321 |
| | $ | (104,238 | ) | | $ | 82,428 |
|
| | | | | | | | | |
Comprehensive income (loss) attributable to Wabtec shareholders | $ | 82,987 |
| | $ | 73,916 |
| | $ | 34,054 |
| | $ | (104,238 | ) | | $ | 86,719 |
|
Income Statement for the Nine Months Ended September 30, 2017:
|
| | | | | | | | | | | | | | | | | | | |
In thousands | Parent | | Guarantors | | Non-Guarantors | | Elimination | | Consolidated |
Net Sales | $ | 417,156 |
| | $ | 778,893 |
| | $ | 1,708,646 |
| | $ | (98,477 | ) | | $ | 2,806,218 |
|
Cost of sales | (311,037 | ) | | (503,686 | ) | | (1,270,668 | ) | | 76,046 |
| | (2,009,345 | ) |
Gross profit (loss) | 106,119 |
| | 275,207 |
| | 437,978 |
| | (22,431 | ) | | 796,873 |
|
Total operating expenses | (79,960 | ) | | (89,935 | ) | | (296,408 | ) | | — |
| | (466,303 | ) |
Income (loss) from operations | 26,159 |
| | 185,272 |
| | 141,570 |
| | (22,431 | ) | | 330,570 |
|
Interest (expense) income, net | (52,565 | ) | | 5,554 |
| | (4,014 | ) | | — |
| | (51,025 | ) |
Other income (expense), net | 3,127 |
| | (2,233 | ) | | (3,060 | ) | | — |
| | (2,166 | ) |
Equity earnings (loss) | 246,103 |
| | 69,954 |
| | — |
| | (316,057 | ) | | — |
|
Pretax income (loss) | 222,824 |
| | 258,547 |
| | 134,496 |
| | (338,488 | ) | | 277,379 |
|
Income tax expense | (9,511 | ) | | (22 | ) | | (55,243 | ) | | — |
| | (64,776 | ) |
Net income (loss) | 213,313 |
| | 258,525 |
| | 79,253 |
| | (338,488 | ) | | 212,603 |
|
Less: Net income attributable to noncontrolling interest | — |
| | 311 |
| | 399 |
| | — |
| | 710 |
|
Net income (loss) attributable to Wabtec shareholders | $ | 213,313 |
| | $ | 258,836 |
| | $ | 79,652 |
| | $ | (338,488 | ) | | $ | 213,313 |
|
| | | | | | | | | |
Comprehensive income (loss) attributable to Wabtec shareholders | $ | 214,482 |
| | $ | 258,838 |
| | $ | 366,156 |
| | $ | (338,488 | ) | | $ | 500,988 |
|
Income Statement for the Nine Months Ended September 30, 2016:
|
| | | | | | | | | | | | | | | | | | | |
In thousands | Parent | | Guarantors | | Non-Guarantors | | Elimination | | Consolidated |
Net Sales | $ | 494,350 |
| | $ | 865,850 |
| | $ | 924,559 |
| | $ | (113,553 | ) | | $ | 2,171,206 |
|
Cost of sales | (356,575 | ) | | (561,361 | ) | | (641,550 | ) | | 93,330 |
| | (1,466,156 | ) |
Gross profit (loss) | 137,775 |
| | 304,489 |
| | 283,009 |
| | (20,223 | ) | | 705,050 |
|
Total operating expenses | (88,916 | ) | | (91,967 | ) | | (128,606 | ) | | — |
| | (309,489 | ) |
(Loss) income from operations | 48,859 |
| | 212,522 |
| | 154,403 |
| | (20,223 | ) | | 395,561 |
|
Interest (expense) income, net | (21,608 | ) | | 5,049 |
| | 662 |
| | — |
| | (15,897 | ) |
Other income (expense), net | 17,640 |
| | (3,956 | ) | | (13,571 | ) | | — |
| | 113 |
|
Equity earnings (loss) | 308,681 |
| | 111,917 |
| | — |
| | (420,598 | ) | | — |
|
Pretax income (loss) | 353,572 |
| | 325,532 |
| | 141,494 |
| | (440,821 | ) | | 379,777 |
|
Income tax expense | (86,495 | ) | | (380 | ) | | (25,826 | ) | | — |
| | (112,701 | ) |
Net income (loss) | 267,077 |
| | 325,152 |
| | 115,668 |
| | (440,821 | ) | | 267,076 |
|
Less: Net income attributable to noncontrolling interest | — |
| | — |
| | — |
| | — |
| | — |
|
Net income attributable to Wabtec shareholders | $ | 267,077 |
| | $ | 325,152 |
| | $ | 115,668 |
| | $ | (440,821 | ) | | $ | 267,076 |
|
| | | | | | | | | |
Comprehensive income (loss) attributable to Wabtec shareholders | $ | 266,355 |
| | $ | 325,152 |
| | $ | 107,054 |
| | $ | (440,821 | ) | | $ | 257,740 |
|
Condensed Statement of Cash Flows for the Nine Months Ended September 30, 2017:
|
| | | | | | | | | | | | | | | | | | | |
In thousands | Parent | | Guarantors | | Non-Guarantors | | Elimination | | Consolidated |
Net cash (used for) provided by operating activities | $ | (38,954 | ) | | $ | 115,816 |
| | $ | (27,921 | ) | | $ | (22,430 | ) | | $ | 26,511 |
|
Net cash used for investing activities | (12,591 | ) | | (110,741 | ) | | (26,492 | ) | | — |
| | (149,824 | ) |
Net cash provided by (used for) financing activities | 52,072 |
| | (8,489 | ) | | (136,062 | ) | | 22,430 |
| | (70,049 | ) |
Effect of changes in currency exchange rates | — |
| | — |
| | 22,958 |
| | — |
| | 22,958 |
|
Increase (decrease) in cash | 527 |
| | (3,414 | ) | | (167,517 | ) | | — |
| | (170,404 | ) |
Cash, beginning of period | 2,522 |
| | 9,496 |
| | 386,466 |
| | — |
| | 398,484 |
|
Cash, end of period | $ | 3,049 |
| | $ | 6,082 |
| | $ | 218,949 |
| | $ | — |
| | $ | 228,080 |
|
Condensed Statement of Cash Flows for the Nine Months Ended September 30, 2016:
|
| | | | | | | | | | | | | | | | | | | |
In thousands | Parent | | Guarantors | | Non-Guarantors | | Elimination | | Consolidated |
Net cash (used for) provided by operating activities | $ | (53,967 | ) | | $ | 220,963 |
| | $ | 100,120 |
| | $ | (20,223 | ) | | $ | 246,893 |
|
Net cash used for investing activities | (5,067 | ) | | (26,693 | ) | | (84,131 | ) | | — |
| | (115,891 | ) |
Net cash provided by (used for) financing activities | 70,272 |
| | (193,669 | ) | | (9,162 | ) | | 20,223 |
| | (112,336 | ) |
Effect of changes in currency exchange rates | — |
| | — |
| | 5,525 |
| | — |
| | 5,525 |
|
Increase (decrease) in cash
| 11,238 |
| | 601 |
| | 12,352 |
| | — |
| | 24,191 |
|
Cash, beginning of period | — |
| | 13,157 |
| | 213,034 |
| | — |
| | 226,191 |
|
Cash, end of period | $ | 11,238 |
| | $ | 13,758 |
| | $ | 225,386 |
| | $ | — |
| | $ | 250,382 |
|
17. OTHER INCOME (EXPENSE), NET
The components of otherOther income (expense), net are as follows:
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
In millions | | 2021 | | 2020 |
Foreign currency gain (loss) | | $ | 8.6 | | | $ | (13.8) | |
Equity income | | 2.7 | | | (0.9) | |
Expected return on pension assets/amortization | | 2.7 | | | 2.4 | |
Other miscellaneous income (expense) | | 0.2 | | | (2.5) | |
Total other income (expense), net | | $ | 14.2 | | | $ | (14.8) | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
In thousands | 2017 | | 2016 | | 2017 | | 2016 |
Foreign currency (loss) gain | $ | (4,113 | ) | | $ | 880 |
| | $ | (5,202 | ) | | $ | (488 | ) |
Equity income | 520 |
| | — |
| | 1,587 |
| | — |
|
Other miscellaneous expense | 660 |
| | 308 |
| | 1,449 |
| | 601 |
|
Total other income (expense), net | $ | (2,933 | ) | | $ | 1,188 |
| | $ | (2,166 | ) | | $ | 113 |
|
| |
Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the information in the unaudited condensed consolidated financial statements and notes thereto included herein and Westinghouse Air Brake Technologies Corporation’s Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in its Annual Report on Form 10-K for the year ended December 31, 2016,2020, filed with the Securities and Exchange Commission on February 28, 2017.19, 2021.
OVERVIEW
Wabtec is one of the world’s largest providers of locomotives, value-added, technology-based productsequipment, systems and services for the global rail industry. Our products are found on virtually all U.S. locomotives, freight carsrail and passenger transit vehicles, as well as in more than 100 countries throughout the world.industries. Our highly engineered products, which are intended to enhance safety, improve productivity and reduce maintenance costs for customers, can be found on most locomotives, freight cars, passenger transit cars and buses around the world, and many of our core products and services are essential in the safe and efficient operation of freight rail and passenger transit vehicles. Wabtec is a global company with operations in 31 countries. Forover 50 countries and our products can be found in more than 100 countries throughout the nineworld. In the first three months ended September 30, 2017,of 2021, approximately 65%64% of the Company’s revenues came from customers outside the United States.
COVID-19 Update
The COVID-19 pandemic has continued to impact our sales channels, supply chain, manufacturing operations, workforce and other key aspects of our operations. The Company continues to monitor the situation and guidance from international and domestic authorities, including federal, state, and local public health authorities; however, there are numerous uncertainties, including the duration and severity of the pandemic, availability and effectiveness of vaccines, impact of variants of the disease, actions that may be taken by governmental authorities and private industry, including preventing or curtailing the operations of our plants, the potential impact on global economic activity, global supply chain operations, our employees, our customers, suppliers and end-markets and other consequences that could negatively impact our business. We also face the possibility that government policies may become more restrictive especially if COVID-19 transmission rates increase in certain areas. As a result of these numerous uncertainties, we are unable to specifically predict the extent and length of time the COVID-19 pandemic will negatively impact our business.
The U.S. and other international governments have deemed rail transportation as “critical infrastructure” providing essential services during the COVID-19 pandemic. As a supplier and service provider for the global freight rail and passenger transit industries, Wabtec has an obligation to continue operations to support the safe and efficient operation of these industries; however, the COVID-19 pandemic had a materially adverse impact on our operations and business results for the three months ended March 31, 2021 which is discussed in the Results of Operations section below. We continue to work with our employees, customers, and suppliers to navigate the impacts of COVID-19. We also continue to assess possible implications to our business, customers, supply chain and end-markets and to take actions in an effort to mitigate adverse consequences.
Management Review and Future Outlook
Wabtec’s long-term financial goals are to generatedrive strong cash flow from operations in excess of net income,conversion, maintain a strong credit profile while minimizing our overall cost of capital, increase margins through strict attention to cost controls, and implementation ofdrive improved efficiencies across the Wabtec Excellence Program,business and increase revenues through a focused growth strategy, including product innovation and new technologies, global and market expansion, aftermarket products and services and acquisitions. In addition, managementManagement evaluates the Company’s current operational performance through measures such as quality and on-time delivery.
The Company primarily serves the worldwide freight and transit rail industries. As such, our operating results are largely dependent on the level of activity, financial condition and capital spending plans of railroads and passenger transit agencies around the world and transportation equipment manufacturers who serve those markets. Many factors influence these industries, including general economic conditions; traffic volumes, as measured by freight carloadingscarloads and passenger ridership; government spending on public transportation; and investment in new technologies. In general, trends such as increasing urbanization, a focus on sustainability and environmental awareness,decarbonization, an aging equipment fleet and growth in global trade flows are expected to drive continued investment in freight and transit rail.
The Company monitors a variety of factors and statistics to gauge market activity. Freight rail markets around the world are driven primarily by overall economic conditions and activity, while Transit markets are driven primarily by government funding and passenger ridership. Changes in these market drivers can cause fluctuations in demand for Wabtec's products and services.
According to the 20162020 bi-annual edition of a market study by UNIFE, the Association of the European Rail Industry, the accessible global market for railway products and services is more than $100$120 billion and it is expected to grow at about 3.2% annuallya compounded annual growth rate of 2.3% through 2021.2025. As the long-term effects of COVID-19 are still uncertain, UNIFE included a second, less likely scenario in which the recovery is more moderate. This alternative scenario shows a compounded annual growth rate
of 0.9% through 2025 for the total accessible market. The three largest geographic markets, which representrepresented about 80%85% of the total accessible market, arewere Europe, North America and Asia Pacific. Over the next five years, UNIFE projectsprojected above-average growth rates in Latin America, Eastern Europe, North America and Africa-Middle East, with the more mature markets of Western Europe, North America and Asia Pacific and Europe due to overall economic growth andaccounting for the largest share of absolute growth. UNIFE said trends such as urbanization, digitalization, legislative action and increasing mobility, deregulation, investments in new technologies,government support and an increased focus on energy and environmental issues and increasing government support.continue to drive investment. The largest product segments of the market arewere rolling stock, services and infrastructure, which represent almost 90% of the accessible market. Over the next five years, UNIFE projectsprojected spending ongrowth in all product segments, with turnkey management projects, rolling stock and infrastructure to grow at an above-average rate due to increased investment in passenger transit vehicles.the fastest. UNIFE estimatesestimated that the global installed base of diesel and electric locomotives iswas about 114,000118,200 units, with about 32% in Asia Pacific, about 25% in North America and about 18% in Russia-CIS (Commonwealth of Independent States). Wabtec estimates that about 3,4003,000 new locomotives were delivered worldwide in 2016, and it expects deliveries of about 3,200 in 2017.2020. UNIFE estimatesestimated the global installed base of freight cars iswas about 5.55.2 million, units, with about 37%35% in North America, about 26%24% in Russia-CIS and about 20%24% in Asia Pacific. Wabtec estimates that about 108,000155,000 new freight cars were delivered worldwide in 2016, and it expects deliveries of about 97,000 in 2017.2020. UNIFE estimatesestimated the global installed base of passenger transit vehicles to be about 569,000620,000 units, with about 43%45% in Asia Pacific, about 32%31% in Europe and about 14%10% in Russia-CIS. UNIFEWabtec estimates that about 208,00032,000 new passenger transit vehicles were ordered annually from 2013-2015, and that about 184,000 will be ordered annually from 2016-2018.worldwide in 2020.
In Europe, the majority of the rail system serves the passenger transit market, which is expected to continue growing as energy and environmental factorspolicies encourage continued investment in public mass transit.transit and modal shift from car to rail, albeit this growth may be stunted in the near-term as a result of the COVID-19 pandemic. According to UNIFE, Germany, France Germany and the United
Kingdom arewere the largest Western European transit markets, representing almostabout two-thirds of industry spending in the European Union. UNIFE projectsprojected the accessible Western European rail market to grow at about 3.6%2.0% annually, during the next five years, led by investments in new rolling stock in France and Germany. Significant investments are also expected in Turkey, the largest market in Eastern Europe. About 75% of freight traffic in Europe is hauled by truck, while rail accounts for about 20%19%. The largest freight markets in Europe are Germany, Poland and the United Kingdom. In recent years, the European Commission has adopted a series of measures designed to increase the efficiency of the European rail network by standardizing operating rules and certification requirements. UNIFE believes that adoption of these measures should have a positive effect on ridership and investment in public transportation over time.
In North America, railroads carry about 40% of intercity freight, as measured by ton-miles, which is more than any other mode of transportation. Through direct ownership and operating partnerships, U.S. railroads are part of an integrated network that includes railroads in Canada and Mexico, forming what is regarded as the world’s most-efficient and lowest-cost freight rail service. There are more than 500600 railroads operating in North America, with the largest railroads, referred to as “Class I,”I”, accounting for more than 90% of the industry’s revenues. The railroads carry a wide variety of commodities and goods, including coal, metals, minerals, chemicals, grain and petroleum. These commodities represent about 55%50% of total rail carloadings,carloads, with intermodal carloads accounting for the rest. Railroads operate in a competitive environment, especially with the trucking industry, and are always seeking ways to improve safety, cost and reliability. New technologies offered by Wabtec and others in the industry can provide some of these benefits. Demand for our freight related products and services in North America is driven by a number of factors, including rail traffic and production of new locomotives and new freight cars. In the U.S., the passenger transit industry is dependent largely on funding from federal, state and local governments, and from fare box revenues. Demand for North American passenger transit products is driven by a number of factors, including government funding, deliveries of new subway cars and buses and ridership. The U.S. federal government provides money to local transit authorities, primarily to fund the purchase of new equipment and infrastructure for their transit systems. Demand for both our freight and passenger transit products and services in North America has been negatively impacted by the COVID-19 pandemic.
Growth in the Asia Pacific market has been driven mainly by the continued urbanization of China and India, and by continued investments in freight rail rolling stock and infrastructure in Australia to serve its mining and natural resources markets. During the next five years, UNIFE expects India to makeis making significant investments in rolling stock and infrastructure to modernize its rail system; for example, the country has awardedWabtec is delivering on a 1,000-unit locomotive order to a U.S. manufacturer. UNIFE expects the increased spending in India to offset decreased spending on very-high-speed rolling stock in China during the next five years.1,000-locomotive contract over 10-years with Indian Railways.
Other key geographic markets include Russia-CIS and Africa-Middle East. With about 1.41.3 million freight cars and about 20,00021,000 locomotives, Russia-CIS is among the largest freight rail markets in the world, and it’s expected to invest in both freight and transit rolling stock. PRASA, the Passenger Rail Agency of South Africa, is expected to continue to invest in new transit cars and new locomotives. According to UNIFE, emerging markets arewere expected to grow at above-average rates as global trade creates increases inled to increased freight volumes and urbanization leadsled to increased demand for efficient mass-transportation systems. It is currently uncertain as to how the COVID-19 pandemic will impact the expected growth in these emerging markets especially in the near-term. As this growth occurs, Wabtec expects to have additional opportunities to provide products and services in these markets.
In its study, UNIFE also said it expectsexpected increased investment in digital tools for datadigitalization, automation, and asset management, and in rail control technologies, bothpredictive maintenance through artificial intelligence, all of which would improve efficiency in the global rail industry during the next five years.industry. UNIFE said data-driven asset management tools havethese trends will increase the potentialoverall attractiveness of the rail sector as these trends will lead to reduce equipment maintenance costs and improve asset utilization, whilesignificant cost savings, allowing rail control technologies have been focused on increasing track capacity, improving operational efficiency and ensuring safer railway traffic.to be more
competitive in comparison to other modes of transportation. Wabtec offers products and services to help customers make ongoing investments in these initiatives.
In 20172021 and beyond, general global economic and market conditions in the United States and internationally will have an impact on our sales and operations. The COVID-19 pandemic has increased the uncertainty around global economic and market conditions. To the extent that these factors cause instability of capital markets, shortages of raw materials or component parts, longer sales cycles, deferral or delay of customer orders or an inability to market our products effectively, our business and results of operations could be materially adversely affected. In addition, we face risks associated with our four-point growth strategy including the level of investment that customers are willing to make in new technologies developed by the industry and the Company, and risks inherent in global expansion. When necessary, we will modify our financial and operating strategies to reflectaddress changes in market conditions and risks.
ACQUISITION OF FAIVELEY TRANSPORT S.A.
On November 30, 2016, the Company acquired majority ownership of Faiveley Transport under the terms of the Share Purchase Agreement. Faiveley Transport is a leading global provider of value-added, integrated systems and services for the railway industry with annual sales of about $1.2 billion and more than 5,700 employees in 24 countries. Faiveley Transport supplies railway manufacturers, operators and maintenance providers with a range of value-added, technology-based systems and services in Energy & Comfort (air conditioning, power collectors and converters, and passenger information), Access &
Mobility (passenger access systems and platform doors), and Brakes and Safety (braking systems and couplers). The transaction was structured as a step acquisition as follows:
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.
As of November 30, 2016, the date the Company acquired 51% of the share capital and 49% of the voting interest in Faiveley Transport, Faiveley Transport was consolidated under the variable interest entity model as the Company concluded that it was the primary beneficiary of Faiveley Transport as it then possessed the power to direct the activities of Faiveley Transport that most significantly impact its economic performance and it then possessed the obligation and right to absorb losses and benefits from Faiveley Transport. The aggregate value of consideration paid for 100% ownership of Faiveley Transport was $1,736.1 million, including $944.3 million in cash, $560.2 million in stock or approximately 6.6 million shares, $409.9 million in debt assumed, less $178.3 million in cash acquired. The $744.7 million included as deposits in escrow on the consolidated balance sheet at December 31, 2016 was cash designated for use as consideration for the tender offers.
RESULTS OF OPERATIONS
Consolidated Results
FIRST QUARTER 2021 COMPARED TO FIRST QUARTER 2020
The following table shows our Consolidated Statements of Operations for the periods indicated.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
In millions | 2017 | | 2016 | | 2017 | | 2016 |
Net sales | $ | 957,931 |
| | $ | 675,574 |
| | $ | 2,806,218 |
| | $ | 2,171,206 |
|
Cost of sales | (704,728 | ) | | (463,093 | ) | | (2,009,345 | ) | | (1,466,156 | ) |
Gross profit | 253,203 |
| | 212,481 |
| | 796,873 |
| | 705,050 |
|
Selling, general and administrative expenses | (117,838 | ) | | (70,757 | ) | | (367,753 | ) | | (241,118 | ) |
Engineering expenses | (24,709 | ) | | (16,289 | ) | | (71,511 | ) | | (52,271 | ) |
Amortization expense | (8,645 | ) | | (5,339 | ) | | (27,039 | ) | | (16,100 | ) |
Total operating expenses | (151,192 | ) | | (92,385 | ) | | (466,303 | ) | | (309,489 | ) |
Income from operations | 102,011 |
| | 120,096 |
| | 330,570 |
| | 395,561 |
|
Interest expense, net | (17,893 | ) | | (6,057 | ) | | (51,025 | ) | | (15,897 | ) |
Other (expense) income, net | (2,933 | ) | | 1,188 |
| | (2,166 | ) | | 113 |
|
Income from operations before income taxes | 81,185 |
| | 115,227 |
| | 277,379 |
| | 379,777 |
|
Income tax expense | (12,746 | ) | | (32,799 | ) | | (64,776 | ) | | (112,701 | ) |
Net income | 68,439 |
| | 82,428 |
| | $ | 212,603 |
| | $ | 267,076 |
|
Less: Net (gain) loss attributable to noncontrolling interest | (1,040 | ) | | — |
| | 710 |
| | — |
|
Net income attributable to Wabtec shareholders | $ | 67,399 |
| | $ | 82,428 |
| | $ | 213,313 |
| | $ | 267,076 |
|
THIRD QUARTER 2017 COMPARED TO THIRD QUARTER 2016
The following table summarizes our results of operations for the periods indicated:
|
| | | | | | | | | | |
| Three Months Ended September 30, |
In thousands | 2017 | | 2016 | | Percent Change |
Freight Segment Sales | $ | 340,185 |
| | $ | 361,998 |
| | (6.0 | )% |
Transit Segment Sales | 617,746 |
| | 313,576 |
| | 97.0 | % |
Net sales | 957,931 |
| | 675,574 |
| | 41.8 | % |
Income from operations | 102,011 |
| | 120,096 |
| | (15.1 | )% |
Net income attributable to Wabtec shareholders | 67,399 |
| | 82,428 |
| | (18.2 | )% |
| | | | | | | | | | | |
| Three Months Ended March 31, |
In millions | 2021 | | 2020 |
Net sales: | | | |
Sales of goods | $ | 1,485.1 | | | $ | 1,590.8 | |
Sales of services | 345.1 | | | 339.1 | |
Total net sales | 1,830.2 | | | 1,929.9 | |
Cost of sales: | | | |
Cost of goods | (1,107.7) | | | (1,155.9) | |
Cost of services | (188.3) | | | (195.3) | |
Total cost of sales | (1,296.0) | | | (1,351.2) | |
Gross profit | 534.2 | | | 578.7 | |
Operating expenses: | | | |
Selling, general and administrative expenses | (235.4) | | | (243.4) | |
Engineering expenses | (37.7) | | | (49.0) | |
Amortization expense | (69.5) | | | (69.0) | |
Total operating expenses | (342.6) | | | (361.4) | |
Income from operations | 191.6 | | | 217.3 | |
Other income and expenses: | | | |
Interest expense, net | (47.6) | | | (53.3) | |
Other income (expense), net | 14.2 | | | (14.8) | |
Income before income taxes | 158.2 | | | 149.2 | |
Income tax expense | (43.5) | | | (38.0) | |
Net income | 114.7 | | | 111.2 | |
Less: Net (income) loss attributable to noncontrolling interest | (2.3) | | | 0.4 | |
Net income attributable to Wabtec shareholders | $ | 112.4 | | | $ | 111.6 | |
The following table shows the major components of the change in sales in the third quarter of 2017three months ended March 31, 2021 from the third quarterthree months ended March 31, 2020:
| | | | | | | | | | | | | | | | | |
In millions | Freight Segment | | Transit Segment | | Total |
First Three Months of 2020 Net Sales | $ | 1,301.0 | | | $ | 628.9 | | | $ | 1,929.9 | |
Acquisitions | 0.5 | | | — | | | 0.5 | |
Foreign Exchange | (3.0) | | | 48.6 | | | $ | 45.6 | |
Organic | (115.2) | | | (30.6) | | | $ | (145.8) | |
First Three Months of 2021 Net Sales | $ | 1,183.3 | | | $ | 646.9 | | | $ | 1,830.2 | |
Results of 2016:operations were negatively impacted during the three months ended March 31, 2021 as a result of the COVID-19 pandemic. Management’s discussion below includes analysis as to the impact of the COVID-19 pandemic where it could be explicitly identified; however, in many instances it is difficult to quantify with a high level of certainty the negative impact the COVID-19 pandemic had on our net sales, cost of goods, operating expenses, interest expense and income tax expense.
|
| | | | | | | | | | | |
In thousands | Freight Segment | | Transit Segment | | Total |
Third Quarter 2016 Net Sales | $ | 361,998 |
| | $ | 313,576 |
| | $ | 675,574 |
|
Acquisitions | 40,633 |
| | 289,941 |
| | 330,574 |
|
Change in Sales by Product Line: | | | | | |
Specialty Products & Electronics | (40,429 | ) | | 5,819 |
| | (34,610 | ) |
Brake Products | (12,579 | ) | | (1,353 | ) | | (13,932 | ) |
Remanufacturing, Overhaul & Build | (12,666 | ) | | 3,351 |
| | (9,315 | ) |
Transit Products | — |
| | 2,400 |
| | 2,400 |
|
Other | 996 |
| | (615 | ) | | 381 |
|
Foreign exchange | 2,232 |
| | 4,627 |
| | 6,859 |
|
Third Quarter 2017 Net Sales | $ | 340,185 |
| | $ | 617,746 |
| | $ | 957,931 |
|
Net sales
Net sales for the three months ended September 30, 2017 increasedMarch 31, 2021 decreased by $282.4$100 million, or 41.8%5.2%, to $957.9 million.$1.8 billion compared to the same period in 2020. The increasedecrease is primarily due to an organic decrease of $115 million in the Freight Segment, due to lower
locomotive Equipment sales, from acquisitions of $330.6 million with the majority related to the Faiveley Transport acquisition. This increase wasparticularly in North America, partially offset by a $34.6 million decrease for Specialty Products and Electronics due to lower demand for freight original equipment rail products, and a $13.9 million decrease for Brake Products primarily due to lower demand for original equipment brakes for freight customers. Favorable foreign exchange increasedan increase in Services sales by $6.9 million.
Freight Segment sales decreased by $21.8 million, or 6.0%, primarily due to a decrease in parking of $40.4locomotives. Organic sales in the Transit Segment decreased $31 million, primarily due to COVID-19 related Original Equipment production delays offset by favorable changes in foreign currency exchange rates of $46 million.
Cost of sales
Cost of sales for Specialty Products and Electronics sales from lower demand for freight original equipment rail products, athe three months ended March 31, 2021 decreased by $55 million, or 4.1%, to $1.3 billion compared to the same period in 2020. The decrease of $12.7 million for Remanufacturing, Overhaul & Build salesis primarily due to the absence of a large locomotive rebuild contract that completed in 2016, and a decrease of $12.6 million for Brake Products sales from lower demand for original equipment brakes for freight customers. Acquisitions increased sales by $40.6 million and favorable foreign exchange increased sales by $2.2 million.
Transit Segment sales increased by $304.2 million, or 97.0%, primarily due to sales from acquisitions of $289.9 million with the majority related to the Faiveley Transport acquisition. Favorable foreign exchange increased sales by $4.6 million.
decreases discussed above. Cost of Sales The following table shows the major components of cost of sales for the periods indicated:
|
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2017 |
In thousands | Freight | | Percentage of Sales | | Transit | | Percentage of Sales | | Total | | Percentage of Sales |
Material | $ | 129,912 |
| | 38.2 | % | | $ | 283,376 |
| | 45.9 | % | | $ | 413,288 |
| | 43.1 | % |
Labor | 48,473 |
| | 14.2 | % | | 81,828 |
| | 13.2 | % | | 130,301 |
| | 13.6 | % |
Overhead | 54,712 |
| | 16.1 | % | | 90,508 |
| | 14.7 | % | | 145,220 |
| | 15.2 | % |
Other/Warranty | 2,630 |
| | 0.8 | % | | 13,288 |
| | 2.2 | % | | 15,918 |
| | 1.7 | % |
Total cost of sales | $ | 235,727 |
| | 69.3 | % | | $ | 469,000 |
| | 76.0 | % | | $ | 704,727 |
| | 73.6 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2016 |
In thousands | Freight | | Percentage of Sales | | Transit | | Percentage of Sales | | Total | | Percentage of Sales |
Material | $ | 135,798 |
| | 37.5 | % | | $ | 136,311 |
| | 43.5 | % | | $ | 272,109 |
| | 40.3 | % |
Labor | 44,583 |
| | 12.3 | % | | 38,317 |
| | 12.2 | % | | 82,900 |
| | 12.3 | % |
Overhead | 57,990 |
| | 16.0 | % | | 43,516 |
| | 13.9 | % | | 101,506 |
| | 15.0 | % |
Other/Warranty | 2,125 |
| | 0.6 | % | | 4,453 |
| | 1.4 | % | | 6,578 |
| | 1.0 | % |
Total cost of sales | $ | 240,496 |
| | 66.4 | % | | $ | 222,597 |
| | 71.0 | % | | $ | 463,093 |
| | 68.6 | % |
three months ended March 31, 2021 includes $4 million of restructuring costs, primarily for headcount reductions and footprint rationalization as part of the ongoing integration actions related to the GE Transportation acquisition and in response to the COVID-19 pandemic. Cost of sales increased by $241.6 million to $704.7 million in the third quarterfirst three months of 2017 compared to $463.12020 included $1 million of restructuring costs, primarily for headcount reductions. Excluding these charges in the same period of 2016. In the third quarter of 2017,both years, cost of sales as a percentage of sales was 73.6%70.6% in 2021 and 69.9% in 2020, representing a 0.7 percentage point increase. The increase can be attributed to lower absorption of overhead costs due to the decrease in sales volumes discussed above, partially offset by increased synergy savings related to the GE Transportation acquisition.
Operating expenses
Total operating expenses decreased $19 million in the first three months of 2021 compared to 68.6%the same period in 2020. Operating expenses as a percentage of sales was 18.7% for both 2021 and 2020. Restructuring and transaction costs included in selling, general, and administrative expense ("SG&A") were $11 million and $16 million for the three months ended March 31, 2021 and 2020, respectively. Excluding restructuring and transaction costs, SG&A decreased $3 million and engineering expense decreased $11 million due to cost control measures on research and development projects.
Interest expense, net
Interest expense, net, decreased $6 million in the first three months of 2021 compared to the same period in 2020 attributable to lower overall average debt balances.
Other income (expense), net
Other income (expense), net, was $14 million of income in the first three months of 2021 compared to $15 million of expense in the same period of 2016.2020. The variance is primarily driven by foreign exchange gains in the current year and an increase as a percentage of sales is due to product mix largely attributable to higher transit segment sales due to acquisitions, along with an unfavorable product mix within the freight segmentin income from equity method investments.
Income taxes
The effective income tax rate was 27.5% and higher project adjustments of $20.4 million on certain existing contracts.
Freight Segment cost of sales increased 2.9% as a percentage of sales to 69.3% in 2017 compared to 66.4%25.5% for the same period in 2016. The increase is primarily related to lower demand for freight original equipment rail productsthree months ended March 31, 2021 and higher project contract adjustments of $5.5 million on certain existing contracts primarily related to labor and warranty costs.
Transit Segment cost of sales increased 5.0% as a percentage of sales to approximately 76.0% in the third quarter of 2017 from 71.0% for the same period of 2016. The increase is primarily related to product mix largely attributable to the acquisition of Faiveley Transport, which has lower overall margins and higher project adjustments of $14.9 million on certain existing contracts primarily related to material costs.
Included in cost of sales is warranty expense. The provision for warranty expense is generally established for specific losses, along with historical estimates of customer claims as a percentage of sales, which can cause variability in warranty expense between quarters. Warranty expense was $17.1 million in the third quarter of 2017 compared to $6.8 million in the third quarter of 2016.2020, respectively. The increase in warranty expensethe effective rate is primarily related to the increase in sales andresult of withholding tax expense on intercompany dividends incurred during the higher project costs on certain existing contacts discussed above.three months ended March 31, 2021.
Operating expenses The following table shows our operating expenses for the periods indicated:
|
| | | | | | | | | | | | | |
| Three Months Ended September 30, |
In thousands | 2017 | | Percentage of Sales | | 2016 | | Percentage of Sales |
Selling, general and administrative expenses | $ | 117,838 |
| | 12.3 | % | | $ | 70,757 |
| | 10.5 | % |
Engineering expenses | 24,709 |
| | 2.6 | % | | 16,289 |
| | 2.4 | % |
Amortization expense | 8,645 |
| | 0.9 | % | | 5,339 |
| | 0.8 | % |
Total operating expenses | $ | 151,192 |
| | 15.8 | % | | $ | 92,385 |
| | 13.7 | % |
Total operating expenses were 15.8% and 13.7% of sales for the third quarters of 2017 and 2016, respectively. Selling, general, and administrative expenses increased $47.1 million, or 66.5%, primarily due to $56.7 million in incremental expense from acquisitions and $4.7 million in Faiveley Transport transaction and integration related charges partially offset by lower costs due to cost saving initiatives and lower organic sales volumes. Engineering expense increased by $8.4 million, or 51.7%, due to $5.1 million of incremental costs associated with acquisitions but remained relatively constant as a percentage of sales at 2.6%. Amortization expense increased $3.3 million due to amortization of intangibles associated with acquisitions.Freight Segment
The following table shows our segment operating expenseConsolidated Statements of Operations for our Freight Segment for the periods indicated:
|
| | | | | | | | | | |
| Three Months Ended September 30, |
In thousands | 2017 | | 2016 | | Percent Change |
Freight Segment | $ | 42,862 |
| | $ | 40,270 |
| | 6.4 | % |
Transit Segment | 101,214 |
| | 43,048 |
| | 135.1 | % |
Corporate | 7,116 |
| | 9,067 |
| | (21.5 | )% |
Total operating expenses | 151,192 |
| | 92,385 |
| | 63.7 | % |
Freight Segment operating expenses increased $2.6 million, or 6.4%, in 2017 and increased 150 basis points to 12.6% of sales. The increase is primarily attributable to $5.0 million of incremental operating expenses from acquisitions and $0.6 million of integration and restructuring costs, partially offset by cost saving initiatives across the freight business and lower selling expenses related to reduced volume.
Transit Segment operating expenses increased $58.2 million, or 135.1%, in 2017 and increased 270 basis points to 16.4% of sales. The increase is primarily attributable to acquisitions with $51.7 million of incremental operating expenses and $3.4 million of Faiveley Transport integration costs.
Corporate non-allocated operating expenses decreased $2.0 million in 2017 primarily due to lower Faiveley Transport transaction costs in the current quarter as well as lower costs associated with cost saving initiatives.
Interest expense, net Interest expense, net, increased $11.8 million in 2017 attributable to higher overall debt balances in 2017 than 2016, primarily related to the Faiveley Transport acquisition and higher interest rates.
Other income (expense), net Other income/(expense), net, totaled $2.9 million of expense in 2017 compared to $1.2 million of income in 2016 primarily due to foreign currency losses.
Income taxes The effective income tax rate was 15.7% and 28.5% for the third quarter of 2017 and 2016, respectively. The decrease in the effective rate is primarily due to $9.5 million of favorable deferred tax net benefits recorded in the three months ended September 30, 2017 and the result of a lower earnings mix in higher tax rate jurisdictions. The net favorable deferred tax benefits related to the adjustment of deferred tax liabilities which had originally been established in prior periods in several foreign jurisdictions.
FIRST NINE MONTHS OF 2017 COMPARED TO FIRST NINE MONTHS OF 2016
The following table summarizes our results of operations for the periods indicated:
|
| | | | | | | | | | | |
| Nine Months Ended September 30, |
In thousands | 2017 | | 2016 | | Percent Change |
Freight Segment Sales | $ | 1,032,959 |
| | $ | 1,201,734 |
| | (14.0 | )% |
Transit Segment Sales | 1,773,259 |
| | 969,472 |
| | 82.9 | % |
Net sales | 2,806,218 |
| | 2,171,206 |
| | 29.2 | % |
Income from operations | 330,570 |
| | 395,561 |
| | (16.4 | )% |
Net income attributable to Wabtec shareholders | 213,313 |
| | 267,076 |
| 267,076 |
| (20.1 | )% |
| | | | | | | | | | | |
| Three Months Ended March 31, |
In millions | 2021 | | 2020 |
Net sales: | | | |
Sales of goods | $ | 844.7 | | $ | 970.6 |
Sales of services | 338.6 | | 330.4 |
Total net sales | 1,183.3 | | 1,301.0 |
Cost of sales: | | | |
Cost of goods | (643.8) | | (711.2) |
Cost of services | (183.3) | | (188.2) |
Total cost of sales | (827.1) | | (899.4) |
| | | |
Gross profit | 356.2 | | 401.6 |
| | | |
Operating expenses | (214.4) | | (239.9) |
| | | |
Income from operations ($) | $ | 141.8 | | $ | 161.7 |
Income from operations (%) | 12.0% | | 12.4% |
The following table shows the major components of the change in net sales for the nineFreight Segment in the first three months ended September 30, 2017of 2021 from the ninefirst three months ended September 30, 2016:of 2020:
|
| | | | | | | | | | | |
In thousands | Freight Segment | | Transit Segment | | Total |
First Nine Months of 2016 Net Sales | $ | 1,201,734 |
| | $ | 969,472 |
| | $ | 2,171,206 |
|
Acquisitions | 121,246 |
| | 843,251 |
| | 964,497 |
|
Change in Sales by Product Line: |
| |
| |
|
Specialty Products & Electronics | (162,744 | ) | | (12,403 | ) | | (175,147 | ) |
Remanufacturing, Overhaul, and Build | (74,243 | ) | | (1,930 | ) | | (76,173 | ) |
Brake Products | (43,270 | ) | | (5,887 | ) | | (49,157 | ) |
Transit Products | — |
| | (801 | ) | | (801 | ) |
Other | (6,725 | ) | | 606 |
| | (6,119 | ) |
Foreign exchange | (3,040 | ) | | (19,048 | ) | | (22,088 | ) |
First Nine Months of 2017 Net Sales | $ | 1,032,958 |
| | $ | 1,773,260 |
| | $ | 2,806,218 |
|
| | | | | |
In millions | |
First Three Months of 2020 Net Sales | $ | 1,301.0 | |
Acquisitions | 0.5 | |
Changes in Sales by Product Line: | |
Equipment | (141.8) | |
Components | (23.2) | |
Digital Electronics | (20.3) | |
Services | 70.1 | |
Foreign Exchange | (3.0) | |
First Three Months of 2021 Net Sales | $ | 1,183.3 | |
Net sales for the nine months ended September 30, 2017 increased by $635.0 million, or 29.2%, to $2,806.2 million from $2,171.2 million. The increase is due to sales from acquisitions of $964.5 million with the majority related to the Faiveley Transport acquisition. This increase was partially offset by a $175.1 million decrease for Specialty Products and Electronics due to lower demand for freight original equipment rail products and train control and signaling products and services, and a $76.2 million decrease for Remanufacturing, Overhaul and Build primarily due to the absence of a large locomotive rebuild contract that completed in 2016. Unfavorable foreign exchange decreased sales by $22.1 million.
Freight Segment sales for the three months ended March 31, 2021 decreased by $168.8$118 million, or 14.0%9.0%, primarily due to a decrease of $162.7 million for Specialty Products and Electronics sales from lower demand for freight original equipment rail products as well as train control and signaling products and services, a decrease of $74.2 million for Remanufacturing, Overhaul & Build sales primarily due$1.2 billion, compared to the absence of a large locomotive rebuild contract that completedsame period in 2016, and a decrease of $43.3 million for Brake Products sales from lower demand for original equipment brakes for freight customers. Acquisitions increased sales by $121.2 million and unfavorable foreign exchange decreased sales by $3.0 million.
Transit Segment sales increased by $803.8 million, or 82.9%,2020 primarily due to an increase inorganic decrease of $115 million from lower locomotive Equipment sales from acquisitions of $843.3 million with the majority related to the Faiveley Transport acquisition. This increase wasa reduction in volumes, particularly in North America, partially offset by a decrease of $12.4 million for Specialty Products and Electronicsan increase in Services sales due to higher modernizations, lower demand for original equipment conduction systemslocomotive parkings and current collectors. Unfavorable foreign exchange decreased sales by $19.0 million.higher mining sales.
Cost of Sales The following table shows the major components ofsales
Freight Segment cost of sales for the periods indicated:
|
| | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2017 |
In thousands | Freight | | Percentage of Sales | | Transit | | Percentage of Sales | | Total | | Percentage of Sales |
Material | $ | 395,683 |
| | 38.3 | % | | $ | 778,222 |
| | 43.9 | % | | $ | 1,173,905 |
| | 41.8 | % |
Labor | 140,679 |
| | 13.6 | % | | 241,400 |
| | 13.6 | % | | 382,079 |
| | 13.6 | % |
Overhead | 164,503 |
| | 15.9 | % | | 250,879 |
| | 14.1 | % | | 415,382 |
| | 14.8 | % |
Other/Warranty | 4,236 |
| | 0.4 | % | | 33,743 |
| | 1.9 | % | | 37,979 |
| | 1.4 | % |
Total cost of sales | $ | 705,101 |
| | 68.2 | % | | $ | 1,304,244 |
| | 73.5 | % | | $ | 2,009,345 |
| | 71.6 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2016 |
In thousands | Freight | | Percentage of Sales | | Transit | | Percentage of Sales | | Total | | Percentage of Sales |
Material | $ | 450,990 |
| | 37.5 | % | | $ | 410,244 |
| | 42.3 | % | | $ | 861,234 |
| | 39.7 | % |
Labor | 139,867 |
| | 11.6 | % | | 119,553 |
| | 12.3 | % | | 259,420 |
| | 11.9 | % |
Overhead | 185,964 |
| | 15.5 | % | | 137,749 |
| | 14.2 | % | | 323,713 |
| | 14.9 | % |
Other/Warranty | 6,261 |
| | 0.5 | % | | 15,528 |
| | 1.6 | % | | 21,789 |
| | 1.0 | % |
Total cost of sales | $ | 783,082 |
| | 65.1 | % | | $ | 683,074 |
| | 70.4 | % | | $ | 1,466,156 |
| | 67.5 | % |
Cost of sales increased by $543.2 million to $2,009.3 million in the ninethree months ended September 30, 2017March 31, 2021 decreased by $72 million, or 8.0%, to $827 million, compared to $1,466.2 million in the same period in 2020. The decrease is attributable to the organic sales decrease discussed above. For each of 2016. For the ninethree months ended September 30, 2017,March 31, 2021 and 2020, Freight Segment cost of sales included $1 million each of restructuring costs, primarily for footprint rationalization and headcount actions as part of the ongoing integration actions related to the GE Transportation acquisition and in response to the COVID-19 pandemic. Excluding these charges, cost of sales as a percentage of sales was 71.6% compared to 67.5%69.8% in the same period of 2016.2021 and 69.0% in 2020, representing a 0.8 percentage point increase. The increase as a percentagecan be attributed to the mix of sales, islower absorption of fixed costs due to product mix largely attributablethe decrease in locomotive deliveries, partially offset by increased synergy savings related to higher transit segment sales duethe GE Transportation acquisition and efforts to acquisitions, along with an unfavorable product mix withinreduce costs in response to the freight segment and higher project adjustments of $20.4 million recorded inCOVID-19 pandemic.
Operating expenses
Freight Segment operating expenses for the three months ended September 30, 2017 on certain existing contracts and $6.0March 31, 2021 decreased $26 million, of restructuring and integration costs.
Freight Segment costor 10.6%, in 2021 to 18.1% of sales, increased 3.1% as a percentage of sales to 68.2% for the nine months ended September 30, 2017 compared to 65.1% for the same period in 2016.2020. The increasedecrease is primarily relateddue to a reduction in SG&A expense of $18 million from increased synergy savings and lower demandtransaction and restructuring charges. Restructuring and transaction costs included in SG&A were $6 million and $14 million for freight original equipment rail productsthe three months ended March 31, 2021 and train2020, respectively, and were primarily for headcount actions as part of the ongoing integration of GE Transportation. Additionally, engineering expense decreased $8 million due to cost control measures on research and signaling productsdevelopment projects. Amortization expensed remained consistent year over year.
Transit Segment
The following table shows our Consolidated Statements of Operations for our Transit Segment for the periods indicated:
| | | | | | | | | | | |
| Three Months Ended March 31, |
In millions | 2021 | | 2020 |
Net sales | $ | 646.9 | | | $ | 628.9 | |
Cost of sales | (468.9) | | | (451.8) | |
Gross profit | 178.0 | | | 177.1 | |
| | | |
Operating expenses | (107.9) | | | (108.5) | |
| | | |
Income from operations ($) | $ | 70.1 | | | $ | 68.6 | |
Income from operations (%) | 10.8 | % | | 10.9 | % |
The following table shows the major components of the change in net sales for the Transit Segment in the first three months of 2021 from the first three months of 2020:
| | | | | |
In millions | |
First Three Months of 2020 Net Sales | $ | 628.9 | |
Changes in Sales by Product Line: | |
Original Equipment Manufacturing | (21.3) | |
Aftermarket | (9.3) | |
Foreign Exchange | 48.6 | |
First Three Months of 2021 Net Sales | $ | 646.9 | |
Net sales
Transit Segment sales for the three months ended March 31, 2021 increased by $18 million, or 2.9%, to $647 million compared to the same period in 2020; however, Transit organic sales decreased $31 million, primarily due to disruptions to our operations caused by the COVID-19 pandemic. This impact was felt in both the Original Equipment Manufacturing and services which typically offer a higher margin, higher project adjustmentsAftermarket product lines as the COVID-19 pandemic has continued to affect factory output and ridership levels. Favorable foreign currency exchange rate changes increased net sales by $49 million.
Cost of $5.5 million on certain existing contracts primarily related to labor and warranty costs, and $1.7 million of restructuring and integration costs.sales
Transit Segment cost of sales for the three months ended March 31, 2021 increased 3.1%by $17 million, or 3.8%, to $469 million compared to the same period in 2020, with foreign exchange rate changes being the primary driver of the increase partially offset by improved operational performance. The first three months of 2021 includes $3 million of restructuring costs, primarily for footprint rationalization in the UK. Excluding these costs, cost of sales as a percentage of sales was 72.1%, a 0.3 percentage point increase over the comparable period in 2020, attributable to 73.5%COVID-19 pandemic related disruption to our operations.
Operating expenses
Transit Segment operating expenses remained consistent year over year at $108 million and $109 million for the ninethree months ended September 30, 2017 from 70.4% for the same period of 2016. The increase is primarily related to product mix largely attributable to the acquisition of Faiveley Transport, which has lower overall marginsMarch 31, 2021 and higher project adjustments of $14.9 million on certain existing contracts primarily related to material costs and $4.3 million of restructuring and integration costs.
Included in cost of sales is warranty expense. The provision for warranty expense is generally established for specific losses, along with historical estimates of customer claims2020, respectively. Operating expenses as a percentage of sales which can cause variability in warranty expense between quarters. Warranty expense was $33.1 million in the nine months ended September 30, 2017 compared to $22.8 million in the nine months ended September 30, 2016. The increase in warranty expense is primarily related to the increase in sales.
Operating expenses The following table shows our operating expenseswere 16.7% and 17.3% for the periods indicated:
|
| | | | | | | | | | | | | |
| Nine Months Ended September 30, |
In thousands | 2017 | | Percentage of Sales | | 2016 | | Percentage of Sales |
Selling, general and administrative expenses | $ | 367,753 |
| | 13.1 | % | | $ | 241,118 |
| | 11.1 | % |
Engineering expenses | 71,511 |
| | 2.5 | % | | 52,271 |
| | 2.4 | % |
Amortization expense | 27,039 |
| | 1.0 | % | | 16,100 |
| | 0.7 | % |
Total operating expenses | $ | 466,303 |
| | 16.6 | % | | $ | 309,489 |
| | 14.2 | % |
Total operating expenses were 16.6% and 14.2% of sales for the nine months of 2017 and 2016, respectively. Selling, general, and administrative expenses increased $126.6 million, or 52.5%, primarily due to $145.4 million in incremental expense from acquisitions and $18.0 million of Faiveley Transport transaction and integration related charges partially offset by lower costs due to cost saving initiatives and lower organic sales volumes. Engineering expense increased by $19.2 million, or 36.7%, primarily due to $16.6 million in expenses from acquisitions and remained relatively consistent as a percentage of sales. Amortization expense increased $10.9 million due to amortization of intangibles associated with acquisitions.
The following table shows our segment operating expense for the periods indicated:
|
| | | | | | | | | | |
| Nine Months Ended September 30, |
In thousands | 2017 | | 2016 | | Percent Change |
Freight Segment | $ | 131,530 |
| | $ | 135,544 |
| | (3.0 | )% |
Transit Segment | 313,114 |
| | 144,194 |
| | 117.1 | % |
Corporate | 21,659 |
| | 29,751 |
| | (27.2 | )% |
Total operating expenses | $ | 466,303 |
| | $ | 309,489 |
| | 50.7 | % |
Freight Segment operating expenses decreased $4.0 million, or 3.0%, in the nine months ended September 30, 2017 and increased 140 basis points to 12.7% of sales. The decrease is primarily attributable to reduced sales volumes, and realized benefits from the cost saving initiatives undertaken in 2016 and 2017, partially offset by $15.6 million of incremental operating expenses from acquisitions and $2.8 million of restructuring and integration costs.
Transit Segment operating expenses increased $168.9 million, or 117.1%, in the nine months ended September 30, 2017 and increased 280 basis points to 17.7% of sales. The increase is attributed to $156.9 million of incremental operating expenses from acquisitions and $11.0 million of Faiveley Transport and integration costs.
Corporate non-allocated operating expenses decreased $8.1 million in the nine months ended September 30, 2017 primarily due to lower Faiveley Transport transaction and integration costs as well as benefits from cost savings initiatives undertaken in 2017 and 2016.
Interest expense, net Interest expense, net, increased $35.1 million in the nine months ended September 30, 2017 attributable to higher overall debt balances in 2017 than 2016, primarily related to the Faiveley Transport acquisition and higher interest rates.
Other income (expense), net Other income/(expense), net, totaled $2.2 million of expense in the nine months ended September 30, 2017 compared to $0.1 million of income for the comparable period in 2016 primarily due to foreign currency losses.
Income taxes The effective income tax rate was 23.4% and 29.7% for the nine months ended September 30, 2017 and 2016, respectively. The decrease in the effective rate is primarily due to $9.5 million of favorable deferred tax net benefits recorded in the three months ended September 30, 2017March 31, 2021 and 2020, respectively. The decrease of 0.6 percentage points can be attributed to improvement in operational performance, improved risk management and cost actions taken in the prior year as a result of a lower earnings mix in higher tax rate jurisdictions. The net favorable deferred tax benefits related to the adjustment of deferred tax liabilities which had originally been established in prior periods in several foreign jurisdictions.COVID-19 pandemic.
Liquidity and Capital Resources
Liquidity is provided primarily by operating cash flow and borrowings under the Company’s Senior Notes and unsecured credit facility with a consortium of commercial banks. The following is a summary of selected cash flow information and other relevant data:
| | | | | | | | | | | |
| Three Months Ended March 31, |
In millions | 2021 | | 2020 |
Cash provided by (used for): | | | |
Operating activities | $ | 292.2 | | | $ | (81.9) | |
Investing activities | $ | (422.0) | | | $ | (62.6) | |
Financing activities | $ | 7.7 | | | $ | 183.5 | |
|
| | | | | | | |
| Nine Months Ended September 30, |
In thousands | 2017 | | 2016 |
Cash (used for) provided by: | | | |
Operating activities | $ | 26,511 |
| | $ | 246,893 |
|
Investing activities | (149,824 | ) | | (115,891 | ) |
Financing activities | (70,049 | ) | | (112,336 | ) |
(Decrease)/increase in cash | $ | (170,404 | ) | | $ | 24,191 |
|
Operating activities In the first ninethree months of 2017,2021, cash provided by operations was $26.5 million. In$292 million compared to cash used for operations of $82 million in the first ninethree months of 2016, cash provided by operations was $246.9 million. In comparison2020. Significant changes to the first nine monthssources of 2016, cash provided by operations for the comparable period in 2017 decreased due to unfavorable working capital performance and lower net income of $54.5 million. The major components of working capital were as follows: an unfavorable change of $87.8three months periods include the following:
•$107 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 during the first nine months of 2017, an unfavorable change inimprovement from accounts payable of $77.6 million due to the timing of payments to suppliers an unfavorablefor the three months ended March 31, 2021;
•$93 million related to cash received from the securitization of accounts receivable for the three months ended March 31, 2021;
•and $93 million related to cash payments made in the three months ended March 31, 2020 for costs related to the GE Transportation acquisition and settlement of litigation that did not recur;
The remaining change in inventory of $55.7 million duecash from operating activities is primarily attributable to efforts to ramp up production in anticipation of stronger product demandchanges in the fourth quarterrelated statement of 2017, an unfavorable changeincome and other changes in accrued income taxes of $41.9 million, partially offset by a favorable change in accrued liabilities and customer deposits of $89.6 million primarily due to the timing of cash receipts from customers for long term projects.consolidated balance sheet.
Investing activities In the first ninethree months of 20172021 and 2016,2020, cash used for investing activities was $149.8$422 million and $115.9$63 million, respectively. The major components of the cash outflow in 20172021 were $114.2$27 million in net cash paid for acquisitions and $60.3 million in planned additions to property, plant and equipment for investments in our facilities and manufacturing processes. These outflows were partially offset by $23.5 million in cash released from escrow related to the Faiveley acquisition. This compares to $84.4processes, and $401 million in net cash paid for acquisitions and $31.7the acquisition of Nordco. This compares to $33 million in property, plant, and equipment for investmentsadditions in the first ninethree months of 2016. Refer2020 and $36 million in net cash paid for acquisitions. Additional information with respect to acquisitions is included in Note 3 of the “Notes to Condensed Consolidated Financial Statements” for additional information on acquisitions.included in Part I, Item 1 of this report.
Financing activities In the first ninethree months of 2017,2021, cash used forfrom financing activities was $70.0$8 million which included $883.5 million$1.4 billion in proceeds from the revolving credit facility, $918.9 milliondebt, $1.4 billion in repayments of debt, $1 million in stock repurchases and $30.7$23 million of dividend payments. In the first ninethree months of 2016,2020, cash used forprovided by financing activities was $112.3$184 million, which included $346.0 million$1.0 billion in proceeds from the revolving credit facility, $215.9 milliondebt, $0.7 billion in repayments of debt, on the revolving credit facility, $212.2$105 million for purchases of treasuryin stock $23.5repurchases and $23 million of dividend payments,payments.
As of March 31, 2021, the Company held approximately $484 million of cash and $9.0cash equivalents. Of this amount, approximately $39 million relatedwas held within the United States and approximately $445 million was held outside of the United States, primarily in Europe, India and China. While repatriation of some cash held outside the United States may be restricted by local laws, most of the Company’s foreign cash could be repatriated to payment of income tax withholding on share-based compensation.the United States.
Additional information with respect to Senior Notes, Due November 2026credit facilities and long-term debt is included in Note 8 of the "Notes to Condensed Consolidated Financial Statements" included in Part I, Item 1 of this report.
Revolving Receivables Program
On November 3, 2016,In May 2020, the Company issued $750.0entered into a revolving agreement to transfer up to $150 million of Senior Notes due in 2026. The 2016 Notes were issued at 99.965%certain receivables 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 2016 Notes are senior unsecured obligationscertain subsidiaries of the Company (the "Originators") through our bankruptcy-remote subsidiary to a financial institution on a recurring basis in exchange for cash equal to the gross receivables transferred. During the first quarter of 2021, the Company amended its revolving agreement to increase the amount of certain receivables that can be transferred from $150 million to $200 million. As customers pay their balances, we transfer additional receivables into the program, resulting in our gross receivables sold exceeding net cash flow impacts (e.g., collect and rank pari passu with all existing and future senior debt and senior to all existing and future subordinated indebtednessreinvest). The sold receivables are fully guaranteed by our bankruptcy-remote subsidiary which held additional receivables of $259.7 million at March 31, 2021 that are pledged as collateral under this agreement. The transfers are recorded at the fair value of the Company.proceeds received and obligations assumed less derecognized receivables.No obligation was recorded at March 31, 2021 as the estimated expected credit losses on receivables sold is insignificant. Our maximum exposure to loss related to these receivables transferred is limited to the amount outstanding. The indentureCompany has agreed to guarantee the performance of the Originators respective obligations' under whichthe
revolving agreement. None of the 2016 Notes were issued contains covenantsCompany (except for the bankruptcy-remote consolidated subsidiary referenced above) nor the Originators guarantees the collectability of the receivables under the revolving agreements.
Supply Chain Financing Program
The Company has entered into supply chain financing arrangements with third-party financial institutions to provide our vendors with enhanced payment options while providing the Company with added working capital flexibility. The Company does not provide any guarantees under these arrangements, does not have an economic interest in our supplier's voluntary participation and restrictions which limit among other things,does not receive an economic benefit from the following:financial institutions. The arrangements do not change the incurrence of indebtedness, payment of dividendspayable terms negotiated by the Company and certain distributions, sale of assets,our vendors and does not result in a change in control, mergersthe classification of amounts due as accounts payable in the consolidated balance sheet.
Guarantor Summarized Financial Information
The obligations under the Company's Senior Notes, Senior Credit Facility, and consolidations364 Day Facility have been fully and unconditionally guaranteed by certain of the Company's U.S. subsidiaries. Each guarantor is 100% owned by the parent company, with the exception of GE Transportation, a Wabtec Company, which has 15,000 shares outstanding of Class A Non-Voting Preferred Stock held by General Electric Company.
The following tables present summarized financial information of the parent and the incurrence of liens.guarantor subsidiaries on a combined basis. The Companycombined summarized financial information eliminates intercompany balances and transactions among the parent and guarantor subsidiaries and equity in earnings and investments in any guarantor subsidiaries or non-guarantor subsidiaries. The summarized financial information is provided in complianceaccordance with the restrictionsreporting requirements of Rule 13-01 under SEC Regulation S-X for the issuer and covenants in the indenture under which the 2016 Notes were issued and expects that these restrictions and covenants will not be any typeguarantor subsidiaries.
Summarized Statement of limiting factor in executing our operating activities.Income
| | | | | | | | |
| | Unaudited |
| | Westinghouse Air Brake Technologies Corp. and Guarantor Subsidiaries |
In millions | | Three Months Ended March 31, 2021 |
Net sales | | $ | 888.9 | |
Gross profit | | $ | 161.3 | |
Net income attributable to Wabtec shareholders | | $ | 5.3 | |
Faiveley Transport Tender OfferSummarized Balance Sheet
| | | | | | | | | | | | | | |
| | Unaudited |
| | Westinghouse Air Brake Technologies Corp. and Guarantor Subsidiaries |
In millions | | March 31, 2021 | | December 31, 2020 |
Current assets | | $ | 888.6 | | | $ | 1,092.3 | |
Noncurrent assets | | $ | 1,838.5 | | | $ | 1,835.7 | |
Current liabilities | | $ | 1,384.2 | | | $ | 1,408.8 | |
Long-term debt | | $ | 3,911.3 | | | $ | 3,779.6 | |
Other non-current liabilities | | $ | 364.5 | | | $ | 373.9 | |
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%The following is a description of the share capitaltransactions between the combined Westinghouse Air Brake Technologies Corp. and 98% of the voting rights of Faiveley Transport.guarantor subsidiaries with non-guarantor subsidiaries.
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. | | | | | | | | |
| | Unaudited |
| | Westinghouse Air Brake Technologies Corp. and Guarantor Subsidiaries |
In millions | | Three Months Ended March 31, 2021 |
Net sales to non-guarantor subsidiaries | | $ | 176.7 | |
Purchases from non-guarantor subsidiaries | | $ | 457.0 | |
| | |
| | Unaudited |
| | Westinghouse Air Brake Technologies Corp. and Guarantor Subsidiaries |
In millions | | March 31, 2021 |
Amount due (to) from non-guarantor subsidiaries | | $ | (1,009.7) | |
Company Stock Repurchase Plan
On February 8, 2016,11, 2021, the Board of Directors amendedincreased its stock repurchase authorization to $350increase the amount available for stock repurchases to $500 million of the Company’s outstanding shares. This new stock repurchase authorization supersedes the previous authorization of $350$500 million of which about $33.3$292.2 million remained. During the first nine months of 2017, the Company did not repurchase any shares. The Company intends to purchase shares on the open market or in negotiated block trades from time to time depending on market conditions. No time limit was set for the completion of the programsprogram which conforms to the requirements under the 2016 RefinancingSenior Credit Agreement, as well asFacility, the senior notes364 Day Facility and the Senior Notes currently outstanding. The Company may repurchase shares in the future at any time, depending upon market conditions, our capital needs and other factors. Purchases of shares may be made by open market purchases or privately negotiated purchases and may be made pursuant to Rule 10b5-1 plan or otherwise.
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.
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;Transport and the GE Transportation Business; or
•the development and use of new technology.technology;
Competitive factors
•the actions of competitors.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; andor
•the outcome of negotiations with partners, governments, suppliers,governments.
COVID-19 factors
•the severity and duration of the pandemic;
•deterioration of general economic conditions;
•shutdown of one or more of our operating facilities;
•supply chain and sourcing disruptions;
•ability of our customers to pay timely for goods and services delivered;
•health of our employees;
•ability to retain and recruit talented employees; or
•difficulty in obtaining debt or others.equity financing.
Statements in this Quarterly Report on Form 10-Q 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. Reference is also made to the risk factors set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2020.
Critical Accounting Policies
A summary of critical accounting policies is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2020. In particular, judgment is used in areas such as accounts receivable and the allowance for doubtful accounts, inventories, goodwill and indefinite-lived intangibles, business combinations, warranty reserves, pensions and postretirement benefits,stock-based compensation, income taxes and revenue recognition. There have been no significant changes in accounting policies since December 31, 2016.2020.
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Item 3. | Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Interest Rate Risk
InSee "Quantitative and Qualitative Disclosures About Market Risk" in Item 7A of Part II of our Annual Report on Form 10-K for the ordinary course of business, Wabtec is exposed to risks that increases in interest rates may adversely affect funding costs associated with its variable-rate debt. The Company’s variable rate debt represents 38% and 36% of total long-term debt at September 30, 2017 andyear ended December 31, 2016, respectively. To reduce the impact of interest rate changes on a portion of this variable-rate debt, the Company entered into forward interest rate swap agreements which convert a portion of the debt from variable2020. Our exposure to fixed-rate borrowings during the term of the swap contract.market risk has not changed materially since December 31, 2020. Refer to Note 6 – Long Term Debt13 - Derivative Financial Instruments and Hedging of “Notes"Notes to Condensed Consolidated Financial Statements”Statements" included in Part I, Item 1 of this report for additional information regarding interest rate risk.
Foreign Currency Exchange Risk
The Company is subject to certain risks associated with changes in foreign currency exchange rates to the extent our operations are conducted in currencies other than the U.S. dollar. For the first nine months of 2017, approximately 35% of Wabtec’s net sales were to customers in the United States, 9% in the United Kingdom, 7% in Canada, 6% in France, 6% in Germany, 4% in China, 4% in Mexico, 3% in Italy, 3% in Australia, and 23% in other international locations. To reduce the impact of changes in currency exchange rates, the Company has periodically entered into foreign currency forward contracts. Refer to “Financial Derivatives and Hedging Activities” in Note 2 of “Notes to Condensed Consolidated Financial Statements” for more information regarding foreign currency exchange risk.
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Item 4. | CONTROLS AND PROCEDURES |
Item 4. CONTROLS AND PROCEDURES
Wabtec’s principal executive officer and its principal financial officer have evaluated the effectiveness of Wabtec’s “disclosure controls and procedures,” (as defined in Exchange Act Rule 13a-15(e)) as of September 30, 2017.March 31, 2021. Based upon their evaluation, the principal executive officer and principal financial officer concluded that Wabtec’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by Wabtec in the reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to provide reasonable assurance that information required to be disclosed by Wabtec in such reports is accumulated and communicated to Wabtec’s Management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
There was no change in Wabtec’s “internal control over financial reporting” (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2017,March 31, 2021, that has materially affected, or is reasonably likely to materially affect, Wabtec’s internal control over financial reporting.
PART II—OTHER INFORMATION
Except as described below, there have been no material changes regarding the Company’s commitments and contingencies as described in Note 19 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, includingItem 1. LEGAL PROCEEDINGS
Additional information with respect to the litigation with Siemens described therein.legal proceedings is included in Note 15 of “Notes to Condensed Consolidated Financial Statements” included in Part I, Item 1 of this report.
Xorail, Inc., a wholly owned subsidiary of the Company (“Xorail”), has received notices from Denver Transit Constructors (“Denver Transit”) alleging breach of contract related to the operating of constant warning wireless crossings, and late delivery of the Train Management & Dispatch System (“TMDS”) for the Denver Eagle P3 Project, which is owned by the Denver Regional Transit District ("RTD"). No damages have been asserted for the alleged late delivery of the TMDS, and Xorail is in the final stages of successfully implementing a recovery plan concerning the TMDS issues. With regard to the wireless crossings, as of September 8, 2017, Denver Transit alleged that total damages were $36.8 million through July 31, 2017, and are continuing to accumulate. The crossings have not been certified for use without flaggers, which Denver Transit alleges is due to Xorail's failure to achieve constant warning times satisfactory to the Federal Railway Administration ("FRA") and the Public Utility Commission ("PUC"). No claims have been filed by Denver Transit with regard to either issue. Xorail has denied Denver Transit’s assertions regarding the wireless crossings, and Denver Transit has also notified RTD that Denver Transit considers the new certification requirements imposed by FRA and/or PUC as a change in law, for which neither Denver Transit nor its subcontractors are liable. Xorail has worked with Denver Transit to modify its system to meet the FRA’s and PUC's previously undefined, and evolving, certification requirements. On September 28, 2017, the FRA granted a 5 year approval of the modified wireless crossing system as currently implemented; however, the PUC has not granted approval of the modified system and therefore the crossings are still not certified for use without flaggers. Denver Transit and RTD are continuing to seek approval from PUC. The Company does not believe that it has any liability with respect to the wireless crossing issue.
Item 1A. RISK FACTORS
There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.2020.
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Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table summarizes the Company's stock repurchase activity for the three months ended September 30, 2017:March 31, 2021:
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Issuer Purchases of Common Stock |
In millions, except shares and price per share | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Programs (1) | | Maximum Dollar Value of Shares That May Yet Be Purchased Under the Programs (1) |
January 2021 | | 8,178 | | | $ | 73.38 | | | 8,178 | | | $ | 292.2 | |
February 2021 | | 7,686 | | | $ | 73.30 | | | 7,686 | | | $ | 499.4 | |
March 2021 | | — | | | $ | — | | | — | | | $ | 499.4 | |
Total quarter ended March 31, 2021 | | 15,864 | | | $ | 73.34 | | | 15,864 | | | $ | 499.4 | |
(1) On February 11, 2021, the Board of Directors increased its stock repurchase authorization to increase the amount available for stock repurchases to $500 million of the Company’s outstanding shares. This new stock repurchase authorization supersedes the previous authorization of $500 million of which about $292.2 million remained. No time limit was set for the completion of the program which conforms to the requirements under the Senior Credit Facility, the 364 Day Facility and the Senior Notes currently outstanding. The Company may repurchase shares in the future at any time, depending upon market conditions, our capital needs and other factors. Purchases of shares may be made by open market purchases or privately negotiated purchases and may be made pursuant to Rule 10b5-1 plan or otherwise.
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Month | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Programs (1) | | Maximum Dollar Value of Shares That May Yet Be Purchased Under the Programs (1) |
July 2017 | | — |
| | — |
| | — |
| | $ | — |
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August 2017 | | — |
| | $ | — |
| | — |
| | $ | — |
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September 2017 | | — |
| | $ | — |
| | — |
| | $ | — |
|
Total quarter ended September 30, 2017 | | — |
| | $ | — |
| | — |
| | $ | — |
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(1) | On February 9, 2016, the Board of Directors amended its stock repurchase authorization to $350.0 million of the Company’s outstanding shares. No time limit was set for the completion of the programs which conforms to the requirements under the 2016 Refinancing Credit Agreement, as well as the senior notes currently outstanding. |
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Item 4. | MINE SAFETY DISCLOSURES |
Item 4. MINE SAFETY DISCLOSURES
Not Applicable
Item 6. EXHIBITS
The following exhibits are being filed with this report:
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3.1 | |
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10.1 | Second Amendment to Second Amended and Restated Refinancing Credit Agreement, dated as of October 11, 2017,2011 Stock Incentive Plan (incorporated by and amongreference to Exhibit 10.1 to the Company, Wabtec Cooperatief UA, as borrowers, the subsidiary guarantors named therein, and the lenders party thereto and PNC Bank, National Association, as Administrative AgentCurrent Report on Form 8-K filed on January 20, 2021) |
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31.122.1 | |
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31.1 | |
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31.2 | |
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32.1 | |
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101.INS | XBRL Instance Document. |
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101.SCH | XBRL Taxonomy Extension Schema Document. |
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101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB | XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
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104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION |
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WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION |
By: | |
By: | /s/ PATRICK D. DUGAN |
| Patrick D. Dugan, |
| Executive Vice President Finance and Chief Financial Officer
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(Duly Authorized Officer and Principal Financial Officer) |
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DATE: | November 1, 2017April 29, 2021 |