UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2017
OR
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)
Delaware
(State or other jurisdiction of
incorporation or organization)
25-1615902
(IRS Employer
Identification No.)
1001 Air Brake Avenue
Wilmerding, Pennsylvania 15148
(Address of principal executive offices, including zip code)
(412) 825-1000
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of Class
Common Stock, par value $.01 per share
Name of Exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes
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
No
.
No
.
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
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 during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files) Yes
No
.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer
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
The registrant estimates that as of June 30, 2017, the aggregate market value of the voting shares held by non-affiliates of the
No
.
registrant was approximately $7.8 billion based on the closing price on the New York Stock Exchange for such stock.
As of February 16, 2018, 96,090,518 shares of Common Stock of the registrant were issued and outstanding.
Portions of the Proxy Statement for the registrant’s Annual Meeting of Stockholders to be held on May 7, 2018 are incorporated by
DOCUMENTS INCORPORATED BY REFERENCE:
reference into Part III of this Form 10-K.
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Business
Risk Factors
Item 1.
Item 1A.
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
Executive Officers of the Registrant
TABLE OF CONTENTS
PART I
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A.
Controls and Procedures
Item 9B. Other Information
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Item 15.
Item 16.
Exhibits and Financial Statement Schedules
Form 10-K Summary
PART IV
2
Item 1.
BUSINESS
General
PART I
Westinghouse Air Brake Technologies Corporation, doing business as Wabtec Corporation, is a Delaware corporation
with headquarters at 1001 Air Brake Avenue in Wilmerding, Pennsylvania. Our telephone number is 412-825-1000, and our
website is located at www.wabtec.com. All references to “we”, “our”, “us”, the “Company” and “Wabtec” refer to Westinghouse
Air Brake Technologies Corporation and its consolidated subsidiaries. George Westinghouse founded the original Westinghouse
Air Brake Co. in 1869 when he invented the air brake. Westinghouse Air Brake Company (“WABCO”) was formed in 1990
when it acquired certain assets and operations from American Standard, Inc., now known as Trane (“Trane”). The company
went public on the New York Stock Exchange in 1995. In 1999, WABCO merged with MotivePower Industries, Inc. and
adopted the name Wabtec.
In 2017, Wabtec completed the acquisition of Faiveley Transport, S.A. (“Faiveley Transport”), a leading provider of
value-added, integrated systems and services, primarily for the global transit rail market, for a purchase price of approximately
$1.5 billion. Based in France, Faiveley Transport has roots to 1919 and became a leader in manufacturing pantographs,
automatic door mechanisms and air conditioning systems. Faiveley Transport was listed on the Paris Stock Exchange in 1994
and during the next 20 years acquired a number of rail industry leaders including Sab Wabco, a specialist in railway braking
systems and couplers. Wabtec believes that the acquisition of Faiveley Transport provides the following strategic benefits:
•
•
•
•
Increased diversity of revenues by product, geography and market. A majority of Faiveley Transport’s revenues
are outside the U.S. and in the transit market, which helps to balance the cyclicality of our North American freight
business.
Broadened product line. Faiveley Transport provides many products that we did not previously offer, including
braking and door systems for high-speed trains and air conditioning systems.
Expanded international presence in the transit market. A majority of Faiveley Transport’s revenues come from
transit markets outside the U.S., where we previously did not have a strong presence.
Increased technical and engineering expertise. Faiveley Transport strengthens Wabtec's technical capabilities and
product development efforts.
Today, we are one of the world’s largest providers of value-added, technology-based equipment, systems and services
for the global passenger transit and freight rail industries. We believe we hold a leading market share for many of our core
product lines globally. Our highly engineered products, which are intended to enhance safety, improve productivity and reduce
maintenance costs for customers, can be found on most locomotives, freight cars, passenger transit cars and buses around the
world. In 2017, the Company had sales of approximately $3.9 billion and net income attributable to our shareholders of about
$262.3 million. In 2017, sales of aftermarket parts and services represented about 56% of total sales, while sales to customers
outside of the U.S. accounted for about 66% of total sales.
Industry Overview
The Company primarily serves the global passenger transit and freight rail industries. As such, our operating results are
largely dependent on the level of activity, financial condition and capital spending plans of passenger transit agencies and
freight railroads around the world, and transportation equipment manufacturers who serve those markets. Many factors
influence these industries, including general economic conditions; traffic volumes, as measured by freight carloadings and
passenger ridership; government spending on public transportation; and investment in new technologies. In general, trends
such as increasing urbanization and growth in developing markets, a focus on sustainability and environmental awareness,
increasing investment in technology solutions, an aging equipment fleet, and growth in global trade are expected to drive
continued investment in passenger transit and freight rail.
According to the 2016 bi-annual edition of a market study by UNIFE, the Association of the European Rail Industry, the
accessible global market for railway products and services was more than $100 billion, and was expected to grow at about
3.2% annually through 2021. The three largest geographic markets, which represented about 80% of the total accessible market,
were Europe, North America and Asia Pacific. UNIFE projected above-average growth in Asia Pacific and Europe due to
overall economic growth and trends such as urbanization and increasing mobility, deregulation, investments in new
technologies, energy and environmental issues, and increasing government support. The largest product segments of the market
were rolling stock, services and infrastructure, which represent almost 90% of the accessible market. UNIFE projected
spending on rolling stock to grow at an above-average rate due to increased investment in passenger transit vehicles. UNIFE
estimated that the global installed base of locomotives was about 114,000 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 2,600 new
3
locomotives were delivered worldwide in 2017, and we expect deliveries of about 2,700 in 2018. UNIFE estimated the global
installed base of freight cars was about 5.5 million units, with about 37% in North America, about 26% in Russia-CIS and
about 20% in Asia Pacific. Wabtec estimates that about 155,000 new freight cars were delivered worldwide in 2017, and it
expects deliveries of about 148,000 in 2018. UNIFE estimated the global installed base of passenger transit vehicles to be
about 569,000 units, with about 43% in Asia Pacific, about 32% in Europe and about 14% in Russia-CIS. Wabtec estimates that
about 34,000 new passenger transit vehicles were delivered worldwide in 2017, and we expect deliveries of about 44,000 in
2018.
In Europe, the majority of the rail system serves the passenger transit market, which is expected to continue growing as
energy and environmental factors encourage continued investment in public mass transit. According to UNIFE, France,
Germany and the United Kingdom were the largest Western European transit markets, representing almost two-thirds of
industry spending in the European Union. UNIFE projected the Western European rail market to grow at about 3.6% annually,
led by investments in new rolling stock in France and Germany. Significant investments were 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%.
The largest freight markets in Europe are Germany, Poland and the United Kingdom. In recent years, the European
Commission has adopted a series of measures designed to increase the efficiency of the European rail network by standardizing
operating rules and certification requirements. UNIFE believes that adoption of these measures should have a positive effect
on ridership and investment in public transportation over time.
In North America, railroads carry about 40% of intercity freight, as measured by ton-miles, which is more than any other
mode of transportation. Through direct ownership and operating partnerships, U.S. railroads are part of an integrated network
that includes railroads in Canada and Mexico, forming what is regarded as the world’s most-efficient and lowest-cost freight
rail service. There are more than 500 railroads operating in North America, with the largest railroads, referred to as “Class I,”
accounting for more than 90% of the industry’s revenues. The railroads carry a wide variety of commodities and goods,
including coal, metals, minerals, chemicals, grain, and petroleum. These commodities represent about 50% of total rail
carloadings, with intermodal carloads accounting for the rest. Railroads operate in a competitive environment, especially with
the trucking industry, and are always seeking ways to improve safety, cost and reliability. New technologies offered by Wabtec
and others in the industry can provide some of these benefits. Demand for our freight related products and services in North
America is driven by a number of factors, including rail traffic, and production of new locomotives and new freight cars. In the
U.S., the passenger transit industry is dependent largely on funding from federal, state and local governments, and from fare
box revenues. Demand for North American passenger transit products is driven by a number of factors, including government
funding, deliveries of new subway cars and buses, and ridership. The U.S. federal government provides money to local transit
authorities, primarily to fund the purchase of new equipment and infrastructure for their transit systems.
Growth in the Asia Pacific market has been driven mainly by the continued urbanization of China and India, and by
investments in freight rail rolling stock and infrastructure in Australia to serve its mining and natural resources markets. India is
making significant investments in rolling stock and infrastructure to modernize its rail system; for example, the country has
awarded a 1,000-unit locomotive order to a U.S. manufacturer. UNIFE expected the increased spending in India to offset
decreased spending on very-high-speed rolling stock in China.
Other key geographic markets include Russia-CIS and Africa-Middle East. With about 1.4 million freight cars and
about 20,000 locomotives, Russia-CIS is among the largest freight rail markets in the world, and it’s expected to invest in both
freight and transit rolling stock. PRASA, the Passenger Rail Agency of South Africa, is expected to continue to invest in new
transit cars and new locomotives. According to UNIFE, emerging markets were expected to grow at above-average rates as
global trade led to increased freight volumes and urbanization led to increased demand for efficient mass-transportation
systems. As this growth occurs, Wabtec expects to have additional opportunities to provide products and services in these
markets.
In its study, UNIFE also said it expected increased investment in digital tools for data and asset management, and in rail
control technologies, both of which would improve efficiency in the global rail industry. UNIFE said data-driven asset
management tools have the potential to reduce equipment maintenance costs and improve asset utilization, while rail control
technologies have been focused on increasing track capacity, improving operational efficiency and ensuring safer railway
traffic. Wabtec offers products and services to help customers make ongoing investments in these initiatives.
Business Segments and Products
We provide our products and services through two principal business segments, the Transit Segment and the Freight
Segment, both of which have different market characteristics and business drivers. The acquisition of Faiveley Transport
significantly strengthened our capabilities and presence in the worldwide transit market.
The Transit Segment, primarily manufactures and services components for new and existing passenger transit vehicles,
typically regional trains, high speed trains, subway cars, light-rail vehicles and buses; supplies rail control and infrastructure
4
products including electronics, positive train control equipment, and signal design and engineering services; builds new
commuter locomotives; and refurbishes passenger transit vehicles. Customers include public transit authorities and
municipalities, leasing companies, and manufacturers of passenger transit vehicles and buses around the world. Demand in the
transit market is primarily driven by general economic conditions, passenger ridership levels, government spending on public
transportation, and investment in new rolling stock. In 2017, the Transit Segment accounted for 64% of our total sales, with
about 21% of its sales in the U.S. About two-thirds of the Transit Segment’s sales are in the aftermarket with the remainder in
the original equipment market. The addition of Faiveley Transport’s key products strengthened Wabtec's presence in the
following areas: high-speed braking and door systems; heating, ventilation and air conditioning systems; pantographs and
power collection; information systems; platform screen doors and gates; couplers; and aftermarket services, maintenance and
spare parts. Geographically, Faiveley Transport significantly strengthened Wabtec’s presence in the European and Asia Pacific
transit markets.
The Freight Segment primarily manufactures and services components for new and existing locomotives and freight
cars; supplies rail control and infrastructure products including electronics, positive train control equipment, and signal design
and engineering services; overhauls locomotives; and provides heat exchangers and cooling systems for rail and other industrial
markets. Customers include large, publicly traded railroads, leasing companies, manufacturers of original equipment such as
locomotives and freight cars, and utilities. Demand is primarily driven by general economic conditions and industrial activity;
traffic volumes, as measured by freight carloadings; investment in new technologies; and deliveries of new locomotives and
freight cars. In 2017, the Freight Segment accounted for 36% of our total sales, with about 58% of its sales in the U.S. In 2017,
slightly more than half of the Freight Segment’s sales were in the aftermarket.
Following is a summary of our leading product lines in both aftermarket and original equipment across both of our
business segments:
Specialty Products & Electronics:
•
Positive Train Control equipment and electronically controlled pneumatic braking products
• Railway electronics, including event recorders, monitoring equipment and end of train devices
•
•
Signal design and engineering services
Freight car trucks and couplers
• Draft gears, couplers and slack adjusters
• Air compressors and dryers
• Heat exchangers and cooling products for locomotives and power generation equipment
• Track and switch products
Brake Products:
• Railway braking equipment and related components for Freight and Transit applications, including high-speed
passenger transit vehicles
•
Friction products, including brake shoes, discs and pads
Remanufacturing, Overhaul and Build:
• New commuter and switcher locomotives
• Transit car and locomotive overhaul and refurbishment
Transit Products:
• Heating, ventilation and air conditioning equipment
• Doors for buses and subway cars
•
•
Platform screen doors
Pantographs
• Window assemblies
• Couplers
• Accessibility lifts and ramps for buses and subway cars
• Traction motors
5
We have become a leader in the passenger transit and freight rail industries by capitalizing on the strength of our
existing products, technological capabilities and new product innovations, and by our ability to harden products to protect them
from severe conditions, including extreme temperatures and high-vibration environments. Supported by our technical staff of
over 2,300 engineers and specialists, we have extensive experience in a broad range of product lines, which enables us to
provide comprehensive, systems-based solutions for our customers.
In recent years, we have introduced a number of significant new products, including Positive Train Control (“PTC”)
equipment that encompasses onboard digital data and global positioning communication protocols. We are making additional
investments in this technology which we believe will provide customers with opportunities to improve safety and efficiency, in
part through data analytics solutions. Other new products include HVAC inverter integrated solutions, brake discs and brake
controls, platform doors and gates, and door controllers.
For additional information on our business segments, see Note 20 of “Notes to Consolidated Financial Statements”
included in Part IV, Item 15 of this report.
Competitive Strengths
Our key strengths include:
•
Leading market positions in core products. Dating back to 1869 and George Westinghouse’s invention of the air brake,
we are an established leader in the development and manufacture of pneumatic braking equipment for freight and
passenger transit vehicles. Faiveley Transport, founded nearly 100 years ago, has a long history and is a market leader
for its core products, including pantographs, automatic door mechanisms and air conditioning systems. We have
leveraged our leading positions by focusing on research and engineering to expand beyond pneumatic braking
components to supplying integrated parts and assemblies for the locomotive through the end of the train. We are a
recognized leader in the development and production of electronic recording, measuring and communications systems,
positive train control equipment, highly engineered compressors and heat exchangers for locomotives, and a leading
manufacturer of freight car components, including electronic braking equipment, draft gears, trucks, brake shoes and
electronic end-of-train devices. We are also a leading provider of braking equipment; heating, ventilation and air
conditioning equipment; door assemblies and platform screen doors; lifts and ramps; couplers and current collection
equipment, such as pantographs, for passenger transit vehicles.
• Breadth of product offering with a stable mix of original equipment market (OEM) and aftermarket business. Our
product portfolio is one of the broadest in the rail industry, as we offer a wide selection of quality parts, components
and assemblies across the entire train and worldwide. We provide our products in both the original equipment market
and the aftermarket. Our substantial installed base of products with end-users such as the railroads and the passenger
transit authorities is a significant competitive advantage for providing products and services to the aftermarket because
these customers often look to purchase safety- and performance-related replacement parts from the original equipment
components supplier. In addition, as OEMs and railroad operators attempt to modernize fleets with new products
designed to improve and maintain safety and efficiency, these products must be designed to be interoperable with
existing equipment. On average, over the last several years, about 60% of our total net sales have come from our
aftermarket products and services business.
•
Leading design and engineering capabilities. We believe a hallmark of our relationship with our customers has been
our leading design and engineering practice, which has, in our opinion, assisted in the improvement and modernization
of global railway equipment. We believe both our customers and the government authorities value our technological
capabilities and commitment to innovation, as we seek not only to enhance the efficiency and profitability of our
customers, but also to improve the overall safety of the railways through continuous improvement of product
performance. The Company has an established record of product improvements and new product development. We
have assembled a wide range of patented products, which we believe provides us with a competitive advantage. Wabtec
currently owns 3,135 active patents worldwide. During the last three years, we have filed for approximately 450
patents worldwide in support of our new and evolving product lines.
• Experience with industry regulatory requirements. The freight rail and passenger transit industries are governed by
various government agencies and regulators in each country and region. These groups mandate rigorous manufacturer
certification, new product testing and approval processes that we believe are difficult for new entrants to meet cost-
effectively and efficiently without the scale and extensive experience we possess. Certification processes are lengthy,
and often require local presence and expertise. In addition, each transit agency places a high degree of importance on
vehicle customization, which requires experience and technical expertise to meet ever-evolving specifications.
• Experienced management team and the Wabtec Excellence Program (WEP) Wabtec’s lean manufacturing and
continuous improvement initiatives have been a part of the Company’s culture for more than 25 years and have enabled
Wabtec to manage successfully through cycles in the rail supply market. With the acquisition of Faiveley Transport
6
(see Note 3 of "Notes to Consolidated Financial Statements" for further details), which introduced its Worldwide
Excellence Program several years ago, we have combined the best practices of both organizations into WEP. We
expect WEP will not only drive a successful integration of Wabtec and Faiveley Transport, but will also result in a
reduced cost structure and ensure standardized excellence in all processes. We believe that using WEP as our
operational foundation will foster state-of-the-art processes and continuous improvement, promote a constant pursuit of
quality, and drive practical innovations and best-in-class, modern manufacturing.
Business strategy
Using WEP, we strive to generate sufficient cash to invest in our growth strategies and to build on what we consider to
be a leading position as a low-cost producer in the industry while maintaining world-class product quality, technology and
customer responsiveness. Through WEP and employee-directed initiatives such as Kaizen, a Japanese-developed team concept,
we continuously strive to improve quality, delivery and productivity, and to reduce costs utilizing global sourcing and supply
chain management. These practices enable us to streamline processes, improve product reliability and customer satisfaction,
reduce product cycle times and respond more rapidly to market developments. We also rely on functional experts within the
company across various disciplines to train, coach and share best practices throughout the corporation, while benchmarking
against best-in-class competitors and peers. Over time, we believe the principles of WEP will enable us to continue to increase
operating margins, improve cash flow and strengthen our ability to invest in the following growth strategies:
• Product innovation and new technologies. We continue to emphasize innovation and development funding to create
new products and capabilities, such as vehicle monitoring and data analytics. WabtecONE is a multi-year initiative to
ensure that we continue to build on our existing expertise and technologies in electronics. In addition, we invest in
developing enhancements and new features to existing products, such as brake discs and heat exchangers. We are
focusing on technological advances, especially in the areas of electronics, braking products and other on-board
equipment, as a means to deliver new product growth. We seek to provide customers with incremental technological
advances that offer immediate benefits with cost-effective investments.
• Global and market expansion. We believe that international markets represent a significant opportunity for future
growth. In 2017, sales to non-U.S. customers were approximately $2.6 billion. We intend to increase international sales
through direct sales of existing products to current and new customers, by developing specific new products for
application in new geographic markets, by making strategic acquisitions and through joint ventures with railway
suppliers which have a strong presence in their local markets. In transit, we are focused on mature markets such as
Europe and emerging markets such as India. In freight, we are targeting markets that operate significant fleets of U.S.-
style locomotives and freight cars, including Australia, Brazil, China, India, Russia, South Africa, and other select areas
within Europe and South America. In addition, we have opportunities to increase the sale of certain products that we
currently manufacture for the rail industry into other industrial markets, such as mining, off-highway and energy. These
products include heat exchangers and friction materials.
• Aftermarket products and services. Historically, aftermarket sales are less cyclical than OEM sales because a certain
level of aftermarket maintenance and service work must be performed, even during an industry slowdown. In 2017,
Wabtec’s aftermarket sales and services represented approximately 56% of the Company’s total sales across both of our
business segments. As a long time supplier of original equipment, we have an extensive installed base of equipment in
the field, which generates recurring aftermarket sales. Wabtec provides aftermarket parts and services for its
components, and we seek to expand this business with customers who currently perform the work in-house. In this
way, we expect to benefit as transit authorities and railroads outsource certain maintenance and overhaul functions.
• Acquisitions, joint ventures and alliances. We invest in acquisitions, joint ventures and alliances using a disciplined,
selective approach and rigorous financial criteria. These transactions are expected to meet our financial criteria and
contribute to growth strategies of product innovation and new technologies, global expansion, and aftermarket products
and services. We believe these expansion strategies will help Wabtec to grow profitably, expand geographically, and
dampen the impact from potential cycles in the North American freight rail industry.
Recent Acquisitions and Joint Ventures
See Note 3 of the Notes to Consolidated Financial Statements
7
Backlog
The Company’s backlog was about $4.6 billion at December 31, 2017. For 2017, about 56% of total sales came from
aftermarket orders, which typically carry lead times of less than 30 days, and are not recorded in backlog for a significant
period of time.
The Company’s contracts are subject to standard industry cancellation provisions, including cancellations on short
notice or upon completion of designated stages. Generally, if a customer were to cancel a contract we would have an
enforceable right to payment for work completed up to the date of cancellation which would include a reasonable profit margin.
Substantial scope-of-work adjustments are common. For these and other reasons, completion of the Company’s backlog may be
delayed or canceled. The railroad industry, in general, has historically been subject to fluctuations due to overall economic
conditions and the level of use of alternative modes of transportation.
The backlog of firm customer orders as of December 31, 2017 and December 31, 2016, and the expected year of
completion are as follows:
Total
Backlog
Expected Delivery
Expected Delivery
Total
Backlog
Other
Years
Other
Years
In thousands
12/31/2017
2018
12/31/2016
2017
Freight Segment ................................................................
Transit Segment ................................................................
Total ..................................................................................
$
$
549,188
4,050,460
4,599,648
$
$
423,805
1,891,079
2,314,884
$
$
125,383
2,159,381
2,284,764
$
$
575,931
3,405,561
3,981,492
$
$
396,160
1,565,519
1,961,679
$
$
179,771
1,840,042
2,019,813
Engineering and Development
To execute our strategy to develop new products, we invest in a variety of engineering and development activities. For
the fiscal years ended December 31, 2017, 2016, and 2015, we invested about $95.2 million, $71.4 million and $71.2 million,
respectively, on product development and improvement activities. The engineering resources of the Company are allocated
between research and development activities and the execution of original equipment customer contracts. Across the
corporation we have established multiple Centers of Competence, which have specialized, technical expertise in various
disciplines and product areas.
Our engineering and development program includes investments in data analytics, train control and other new
technologies, with an emphasis on developing products that enhance safety, productivity and efficiency for our customers. For
example, we have developed advanced cooling systems that enable lower emissions from diesel engines used in rail and other
industrial markets. Sometimes we conduct specific research projects in conjunction with universities, customers and other
industry suppliers.
We use our Product Development System to develop and monitor new product programs. The system requires the
product development team to follow consistent steps throughout the development process, from concept to launch, to ensure the
product will meet customer expectations and internal profitability targets.
Positive Train Control ("PTC")
PTC is a collision-avoidance system that uses GPS to monitor and control the movement of passenger and freight trains.
In 2008, the U.S. mandated the use of PTC on a majority of the locomotives and track in the U.S. The Federal Railroad
Administration ("FRA") eventually approved the use of Wabtec’s Electronic Train Management System® as the on-board
locomotive standard for the deployment of this technology. Our system includes an on-board locomotive computer and related
software. The deadline to implement this technology is December 31, 2018, and we are working with the U.S. Class I
railroads, commuter rail authorities and other industry suppliers to meet this deadline. Under certain conditions, the deadline
could be extended through 2019 and 2020. In 2017, Wabtec recorded about $322 million of revenue from freight and transit
train control and signaling projects, which includes PTC.
Intellectual Property
We have 3,135 active patents worldwide and on average file for approximately 150 new patents each year. We also rely
on a combination of trade secrets and other intellectual property laws, nondisclosure agreements and other protective measures
to establish and protect our proprietary rights in our intellectual property. We also follow the product development practices of
our competitors to monitor any possible patent infringement by them, and to evaluate their strategies and plans.
Certain trademarks, among them the name WABCO®, were acquired or licensed from American Standard Inc., now
known as Trane, in 1990 at the time of our acquisition of the North American operations of the Railway Products Group of
Trane. Other trademarks have been developed through the normal course of business, or acquired as a part of our ongoing
merger and acquisition program.
8
We have entered into a variety of license agreements as licensor and licensee. We do not believe that any single license
agreement is of material importance to our business or either of our business segments as a whole.
We have issued licenses to the two sole suppliers of railway air brakes and related products in Japan, Nabtesco and
Mitsubishi Electric Company. The licensees pay annual license fees to us and also assist us by acting as liaisons with key
Japanese passenger transit vehicle builders for projects in North America. We believe that our relationships with these licensees
are beneficial to our core transit business and customer relationships in North America.
Customers
We provide products and services for more than 500 customers worldwide. Our customers include passenger transit
authorities and railroads throughout North America, Europe, Asia Pacific, South Africa and South America; manufacturers of
transportation equipment, such as locomotives, freight cars, passenger transit vehicles and buses; and companies that lease and
maintain such equipment.
Top customers can change from year to year. For the fiscal year ended December 31, 2017, our top five customers
accounted for approximately 18% of net sales: Bombardier, Inc., Alstom, the Greenbrier Companies, Siemens and Union
Pacific Corporation. No one customer represents 10% or more of consolidated sales. We believe that we have strong
relationships with all of our key customers.
Competition
We believe we hold a leading market share for many of our core product lines globally, although market shares vary by
product lines and geographies. We operate in a highly competitive marketplace. Price competition is strong because we have a
relatively small number of customers and they are very cost-conscious. In addition to price, competition is based on product
performance and technological leadership, quality, reliability of delivery, and customer service and support.
Our principal competitors vary across product lines and geographies. Within North America, New York Air Brake
Company, a subsidiary of the German air brake producer Knorr-Bremse AG (“Knorr”) and Amsted Rail Company, Inc., a
subsidiary of Amsted Industries Corporation, are our principal overall OEM competitors. Our competition for locomotive,
freight and passenger transit service and repair is mostly from the railroads’ and passenger transit authorities’ in-house
operations, Electro-Motive Diesel, a division of Caterpillar, GE Transportation Systems, and New York Air Brake/Knorr. We
believe our key strengths, which include leading market positions in core products, breadth of product offering with a stable
mix of OEM and aftermarket business, leading design and engineering capabilities, significant barriers to entry and an
experienced management team, enable us to compete effectively in this marketplace. Outside of North America, Knorr is our
main competitor, although not in every product line or geography. In addition, our competitors often include smaller, local
suppliers in most international markets. Depending on the product line and geography, we can also compete with our
customers, such as CRRC Corporation Limited, a China-based manufacturer of rolling stock.
Employees
At December 31, 2017, we employed approximately 18,000 full-time employees around the world. This figure includes
employees subject to collective bargaining agreements, most of which are outside of North America. We consider our relations
with employees and union representatives to be good, but cannot assure that future contract negotiations and labor relations will
be favorable to us.
Regulation
In the course of our operations, we are subject to various regulations and standards of governments and other agencies in
the U.S. and around the world. These entities typically govern equipment, safety and interoperability standards for passenger
transit and freight rail rolling stock, oversee a wide variety of rules and regulations governing safety and design of equipment,
and evaluate certification and qualification requirements for suppliers. New products generally must undergo testing and
approval processes that are rigorous and lengthy. As a result of these regulations and requirements, we must usually obtain and
maintain certifications in a variety of jurisdictions and countries. The governing bodies include the FRA and the Association of
American Railroads ("AAR") in the U.S., and the International Union of Railways (“UIC”) and the European Railway
Agencies in Europe. Also in Europe, the European Committees for Standardization continually draft new European standards
which cover, for example, the Reliability, Availability, Maintainability and Safety of railways systems. To guarantee
interoperability in Europe, the European Union for Railway Agencies is responsible for defining and implementing Technical
Standards of Interoperability, which covers areas such as infrastructure, energy, rolling stock, telematic applications, traffic
operation and management subsystems, noise pollution and waste generation, protection against fire and smoke, and system
safety.
9
Most countries and regions in which Wabtec does business have similar rule-making bodies. In Russia, a GOST-R
certificate of conformity is mandatory for all products related to the safety of individuals on Russian territory. In China, any
product or system sold on the Chinese market must have been certified in accordance with national standards. In the local
Indian market, most products are covered by regulations patterned after AAR and UIC standards.
Effects of Seasonality
Our business is not typically seasonal. The third quarter results may be affected by vacation and scheduled plant
shutdowns at several of our major customers and fourth quarter results may be affected by the timing of spare parts and service
orders placed by transit agencies worldwide. Quarterly results can also be affected by the timing of projects in backlog and by
project delays.
Environmental Matters
Additional information on environmental matters is included in Note 19 of “Notes to Consolidated Financial
Statements” included in Part IV, Item 15 of this report.
Available Information
We maintain a website at www.wabtec.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as well as the annual report to stockholders and other information, are available free of charge on this
site. The Internet site and the information contained therein or connected thereto are not incorporated by reference into this
Form 10-K. The following are also available free of charge on this site and are available in print to any shareholder who
requests them: Our Corporate Governance Guidelines, the charters of our Audit, Compensation and Nominating and Corporate
Governance Committees, our Code of Conduct, which is applicable to all employees, our Code of Ethics for Senior Officers,
which is applicable to our executive officers, our Policies on Related Party Transactions and Conflict Minerals, and our
Sustainability Report.
10
Item 1A.
RISK FACTORS
Prolonged unfavorable economic and market conditions could adversely affect our business.
Unfavorable general economic and market conditions in the United States and internationally could have a negative
impact on our sales and operations. To the extent that these factors result in continued instability of capital markets, shortages
of raw materials or component parts, longer sales cycles, deferral or delay of customer orders or an inability to market our
products effectively, our business and results of operations could be materially adversely affected.
We are dependent upon key customers.
We rely on several key customers who represent a significant portion of our business. Our top customers can change
from year to year. For the fiscal year ended December 31, 2017, our top five customers accounted for approximately 18% of
our net sales. While we believe our relationships with our customers are generally good, our top customers could choose to
reduce or terminate their relationships with us. In addition, many of our customers place orders for products on an as-needed
basis and operate in cyclical industries. As a result, their order levels have varied from period to period in the past and may vary
significantly in the future. Such customer orders are dependent upon their markets and customers, and may be subject to delays
and cancellations. As a result of our dependence on our key customers, we could experience a material adverse effect on our
business, results of operations and financial condition if we lost any one or more of our key customers or if there is a reduction
in their demand for our products.
Our business operates in a highly competitive industry.
We operate in a global, competitive marketplace and face substantial competition from a limited number of established
competitors, some of which may have greater financial resources than we do. Price competition is strong and, coupled with the
existence of a number of cost conscious customers, has historically limited our ability to increase prices. In addition to price,
competition is based on product performance and technological leadership, quality, reliability of delivery and customer service
and support. There can be no assurance that competition in one or more of our markets will not adversely affect us and our
results of operations.
We intend to pursue acquisitions, joint ventures and alliances that involve a number of inherent risks, any of which may
cause us not to realize anticipated benefits.
One aspect of our business strategy is to selectively pursue acquisitions, joint ventures and alliances that we believe will
improve our market position, and provide opportunities to realize operating synergies. These transactions involve inherent risks
and uncertainties, any one of which could have a material adverse effect on our business, results of operations and financial
condition including:
•
•
•
•
difficulties in achieving identified financial and operating synergies, including the integration of operations, services
and products;
diversion of management’s attention from other business concerns;
the assumption of unknown liabilities; and
unanticipated changes in the market conditions, business and economic factors affecting such an acquisition.
We cannot assure that we will be able to consummate any future acquisitions, joint ventures or other business
combinations. If we are unable to identify suitable acquisition candidates or to consummate strategic acquisitions, we may be
unable to fully implement our business strategy, and our business and results of operations may be adversely affected as a
result. In addition, our ability to engage in strategic acquisitions will be dependent on our ability to raise substantial capital, and
we may not be able to raise the funds necessary to implement our acquisition strategy on terms satisfactory to us, if at all.
As we introduce new products and services, a failure to predict and react to customer demand could adversely affect our
business.
We have dedicated significant resources to the development, manufacturing and marketing of new products. Decisions
to develop and market new transportation products are typically made without firm indications of customer acceptance.
Moreover, by their nature, new products may require alteration of existing business methods or threaten to displace existing
equipment in which our customers may have a substantial capital investment. There can be no assurance that any new products
that we develop will gain widespread acceptance in the marketplace or that such products will be able to compete successfully
with other new products or services that may be introduced by competitors. In addition, we may incur additional warranty or
other costs as new products are tested and used by customers.
11
A portion of our sales are related to delivering products and services to help our U.S. railroad and transit customers meet
the Positive Train Control (PTC) mandate from the U.S. federal government, which requires the use of on-board locomotive
computers and software by the end of 2018.
For the year ended December 31, 2017, we had sales of about $322 million related to Train Control and Signaling,
which includes PTC. In 2015, the industry's PTC deadline was extended by three years through December 31, 2018, which also
included the ability of railroads to request an additional two years for compliance with the approval of the Department of
Transportation if certain parameters are met. This could change the timing of our revenues and could cause us to reassess the
staffing, resources and assets deployed in delivering Positive Train Control services.
Our revenues are subject to cyclical variations in the railway and passenger transit markets and changes in government
spending.
The railway industry historically has been subject to significant fluctuations due to overall economic conditions, the use
of alternate methods of transportation and the levels of government spending on railway projects. In economic downturns,
railroads have deferred, and may defer, certain expenditures in order to conserve cash in the short term. Reductions in freight
traffic may reduce demand for our replacement products.
The passenger transit railroad industry is also cyclical. New passenger transit car orders vary from year to year and are
influenced greatly by major replacement programs and by the construction or expansion of transit systems by transit
authorities. To the extent that future funding for proposed public projects is curtailed or withdrawn altogether as a result of
changes in political, economic, fiscal or other conditions beyond our control, such projects may be delayed or cancelled,
resulting in a potential loss of business for us, including transit aftermarket and new transit car orders. There can be no
assurance that economic conditions will be favorable or that there will not be significant fluctuations adversely affecting the
industry as a whole and, as a result, us.
Our backlog is not necessarily indicative of the level of our future revenues.
Our backlog represents future production and estimated potential revenue attributable to firm contracts with, or written
orders from, our customers for delivery in various periods. Instability in the global economy, negative conditions in the global
credit markets, volatility in the industries that our products serve, changes in legislative policy, adverse changes in the financial
condition of our customers, adverse changes in the availability of raw materials and supplies, or un-remedied contract breaches
could possibly lead to contract termination or cancellations of orders in our backlog or request for deferred deliveries of our
backlog orders, each of which could adversely affect our cash flows and results of operations.
A growing portion of our sales may be derived from our international operations, which exposes us to certain risks inherent
in doing business on an international level.
In fiscal year 2017, approximately 66% of our consolidated net sales were to customers outside of the U.S. and we
intend to continue to expand our international operations in the future. Our global headquarters for the Transit group is located
in France, and we currently conduct other international operations through a variety of wholly and majority-owned subsidiaries
and joint ventures in Australia, Austria, Brazil, Canada, China, Czech Republic, France, Germany, India, Italy, Macedonia,
Mexico, the Netherlands, Poland, Russia, Spain, South Africa, Turkey, and the United Kingdom. As a result, we are subject to
various risks, any one of which could have a material adverse effect on those operations and on our business as a whole,
including:
•
•
•
•
•
•
•
lack of complete operating control;
lack of local business experience;
currency exchange fluctuations and devaluations;
foreign trade restrictions and exchange controls;
difficulty enforcing agreements and intellectual property rights;
the potential for nationalization of enterprises; and
economic, political and social instability and possible terrorist attacks against American interests.
In addition, certain jurisdictions have laws that limit the ability of non-U.S. subsidiaries and their affiliates to pay
dividends and repatriate cash flows.
12
We may have liability arising from asbestos litigation.
Claims have been filed against the Company and certain of its affiliates in various jurisdictions across the United States
by persons alleging bodily injury as a result of exposure to asbestos-containing products. Most of these claims have been made
against our wholly owned subsidiary, Railroad Friction Products Corporation (RFPC), and are based on a product sold by
RFPC prior to the time that the Company acquired any interest in RFPC.
Most of these claims, including all of the RFPC claims, are submitted to insurance carriers for defense and indemnity or
to non-affiliated companies that retain the liabilities for the asbestos-containing products at issue. We cannot, however, assure
that all these claims will be fully covered by insurance or that the indemnitors or insurers will remain financially viable. Our
ultimate legal and financial liability with respect to these claims, as is the case with most other pending litigation, cannot be
estimated.
We are subject to a variety of environmental laws and regulations.
We are subject to a variety of environmental laws and regulations governing discharges to air and water, the handling,
storage and disposal of hazardous or solid waste materials and the remediation of contamination associated with releases of
hazardous substances. We believe our operations currently comply in all material respects with all of the various environmental
laws and regulations applicable to our business; however, there can be no assurance that environmental requirements will not
change in the future or that we will not incur significant costs to comply with such requirements.
Future climate change regulation could result in increased operating costs, affect the demand for our products or affect the
ability of our critical suppliers to meet our needs.
The Company has followed the current debate over climate change and the related policy discussion and prospective
legislation. The potential challenges for the Company that climate change policy and legislation may pose have been reviewed
by the Company. Any such challenges are heavily dependent on the nature and degree of climate change legislation and the
extent to which it applies to our industry. At this time, the Company cannot predict the ultimate impact of climate change and
climate change legislation on the Company’s operations. Further, when or if these impacts may occur cannot be assessed until
scientific analysis and legislative policy are more developed and specific legislative proposals begin to take shape. Any laws or
regulations that may be adopted to restrict or reduce emissions of greenhouse gas could require us to incur increased operating
costs, and could have an adverse effect on demand for our products. In addition, the price and availability of certain of the raw
materials that we use could vary in the future as a result of environmental laws and regulations affecting our suppliers. An
increase in the price of our raw materials or a decline in their availability could adversely affect our operating margins or result
in reduced demand for our products.
The occurrence of litigation in which we could be named as a defendant is unpredictable.
From time to time, the Company is subject to litigation or other commercial disputes and other legal and regulatory
proceedings with respect to our business, customers, suppliers, creditors, shareholders, product liability, intellectual property
infringement, warranty claims or environmental-related matters. Due to the inherent uncertainties of any litigation, commercial
disputes or other legal or regulatory proceedings, the Company cannot accurately predict their ultimate outcome, including the
outcome of any related appeals. We may incur significant expense to defend or otherwise address current or future claims. Any
litigation, even a claim without merit, could result in substantial costs and diversion of resources and could have a material
adverse effect on our business and results of operations. Although we maintain insurance policies for certain risks, we cannot
make assurances that this insurance will be adequate to protect us from all material judgments and expenses related to potential
future claims or that these levels of insurance will be available in the future at economical prices or at all.
The Company is subject to national and international laws and regulations, such as the anti-corruption laws of the U.S.
Foreign Corrupt Practices Act, the French Law n° 2016-1691 (Sapin II) and the U.K. Bribery Act, relating to its business and its
employees. Despite the Company's policies, procedures and compliance programs, its internal controls and compliance systems
may not be able to protect the Company from prohibited acts willfully committed by its employees, agents or business partners
that would violate such applicable laws and regulations. Any such improper acts could damage the Company's reputation,
subject it to civil or criminal judgments, fines or penalties, and could otherwise disrupt the Company's business, and as a result,
could materially adversely impact the Company's business, financial condition or results of operations.
If we are not able to protect our intellectual property and other proprietary rights, we may be adversely affected.
Our success can be impacted by our ability to protect our intellectual property and other proprietary rights. We rely
primarily on patents, trademarks, copyrights, trade secrets and unfair competition laws, as well as license agreements and other
contractual provisions, to protect our intellectual property and other proprietary rights. However, a significant portion of our
technology is not patented and we may be unable or may not seek to obtain patent protection for this technology. Moreover,
13
existing U.S. legal standards relating to the validity, enforceability and scope of protection of intellectual property rights offer
only limited protection, may not provide us with any competitive advantages and may be challenged by third parties. The laws
of countries other than the United States may be even less protective of intellectual property rights. Accordingly, despite our
efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property or
otherwise gaining access to our technology. If we fail to protect our intellectual property and other proprietary rights, then our
business, results of operations or financial condition could be negatively impacted.
We face risks relating to cybersecurity attacks that could cause loss of confidential information and other business
disruptions.
We rely extensively on computer systems to process transactions and manage our business, and our business is at risk
from and may be impacted by cybersecurity attacks. These could include attempts to gain unauthorized access to our data and
computer systems. Attacks can be both individual and/or highly organized attempts organized by very sophisticated hacking
organizations. We employ a number of measures to prevent, detect and mitigate these threats, which include employee
education, password encryption, frequent password change events, firewall detection systems, anti-virus software in-place and
frequent backups; however, there is no guarantee such efforts will be successful in preventing a cyber-attack. A cybersecurity
attack could compromise the confidential information of our employees, customers and supplier, and potentially violate certain
domestic and international privacy laws. Furthermore, a cybersecurity attack on our customers and suppliers could compromise
our confidential information in the possession of our customers and suppliers. A successful attack could disrupt and otherwise
adversely affect our business operations, including through lawsuits by third-parties.
Our manufacturer’s warranties or product liability may expose us to potentially significant claims.
We warrant the workmanship and materials of many of our products. Accordingly, we are subject to a risk of product
liability or warranty claims in the event that the failure of any of our products results in personal injury or death, or does not
conform to our customers’ specifications. In addition, in recent years, we have introduced a number of new products for which
we do not have a history of warranty experience. Although we currently maintain liability insurance coverage, we cannot assure
that product liability claims, if made, would not exceed our insurance coverage limits or that insurance will continue to be
available on commercially acceptable terms, if at all. The possibility exists for these types of warranty claims to result in costly
product recalls, significant repair costs and damage to our reputation.
Labor disputes may have a material adverse effect on our operations and profitability.
We collectively bargain with labor unions at some of our operations throughout the world. Failure to reach an
agreement could result in strikes or other labor protests which could disrupt our operations. Furthermore, non-union employees
in certain countries have the right to strike. If we were to experience a strike or work stoppage, it would be difficult for us to
find a sufficient number of employees with the necessary skills to replace these employees. We cannot assure that we will reach
any such agreement or that we will not encounter strikes or other types of conflicts with the labor unions of our personnel. Such
labor disputes could have an adverse effect on our business, financial condition or results of operations, could cause us to lose
revenues and customers and might have permanent effects on our business.
We may incur increased costs due to fluctuations in interest rates and foreign currency exchange rates
In the ordinary course of business, we are exposed to increases in interest rates that may adversely affect funding costs
associated with variable-rate debt and changes in foreign currency exchange rates. We may seek to minimize these risks
through the use of interest rate swap contracts and currency hedging agreements. There can be no assurance that any of these
measures will be effective. Material changes in interest or exchange rates could result in material losses to us.
Our indebtedness could adversely affect our financial health.
Being indebted could have important consequences to us. At December 31, 2017, we had total debt of $1,870.5 million.
If it becomes necessary to access our available borrowing capacity under our 2016 Refinancing Credit Agreement, the $853.1
million currently borrowed under this facility and the $747.7 million 3.450% senior notes, and the $248.6 million 4.375%
senior notes. For example, it could:
•
•
•
•
•
increase our vulnerability to general adverse economic and industry conditions;
require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby
reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general
corporate purposes;
limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate;
place us at a disadvantage compared to competitors that have less debt; and
limit our ability to borrow additional funds.
14
The indenture for our $750 million 3.450% senior notes due in 2026, our $250 million 4.375% senior notes due in 2023,
and our 2016 Refinancing Credit Agreement contain various covenants that limit our management’s discretion in the
operation of our businesses.
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 and sales of assets and acquisitions; additional liens; sale and leasebacks; permissible investments,
loans and advances; certain debt payments; capital expenditures; and imposes a minimum interest expense coverage ratio and a
maximum debt to EBITDA ratio. See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and see Note 8 of "Notes to Consolidated Financial Statements" included in Part IV, Item 15 of this report.
The indentures under which the senior notes were issued contain 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 integration of our recently completed acquisitions may not result in anticipated improvements in market position or the
realization of anticipated operating synergies or may take longer to realize than expected.
In 2016 and 2017, we completed multiple acquisitions with a combined investment of $1,865 million, which included
our acquisition of Faiveley Transport for $1,507 million. Although we believe that the acquisitions will improve our market
position and realize positive operating results, including operating synergies, operating expense reductions and overhead cost
savings, we cannot be assured that these improvements will be obtained or the timing of such improvements. The management
and acquisition of businesses involves substantial risks, any of which may result in a material adverse effect on our business
and results of operations, including:
•
•
•
•
•
•
•
•
the uncertainty that an acquired business will achieve anticipated operating results;
significant expenses to integrate;
diversion of Management’s attention;
departure of key personnel from the acquired business;
effectively managing entrepreneurial spirit and decision-making;
integration of different information systems;
unanticipated costs and exposure to unforeseen liabilities; and
impairment of assets.
Item 1B.
UNRESOLVED STAFF COMMENTS
None.
15
Item 2.
PROPERTIES
Facilities
The following table provides certain summary information about the principal facilities owned or leased by the
Company as of December 31, 2017. The Company believes that its facilities and equipment are generally in good condition and
that, together with scheduled capital improvements, they are adequate for its present and immediately projected needs. Leases
on the facilities are long-term and generally include options to renew. The Company’s corporate headquarters are located at the
Wilmerding, PA site.
Primary Use
Segment
Own/Lease
Approximate
Square Feet
Location
Domestic
Rothbury, MI
Wilmerding, PA
Lexington, TN
Jackson, TN
Berwick, PA
Chicago, IL
Greensburg, PA
Chillicothe, OH
Warren, OH
Delray Beach, FL
Boise, ID
Maxton, NC
Salem, VA
Greenville, SC
Brenham, TX
Spartanburg, SC
Carson City, NV
Buffalo Grove, IL
International
Sao Paulo, Brazil
Wallaceburg (Ontario), Canada
Northampton, UK
Shenyang City, Liaoning
Province, China
Lincolnshire, UK
Manufacturing/Warehouse/Office
Manufacturing/Service
Manufacturing
Manufacturing
Manufacturing/Warehouse
Manufacturing/Service
Manufacturing
Manufacturing/Office
Manufacturing
Warehouse
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing/Office
Manufacturing/Service
Manufacturing
Manufacturing
Manufacturing/Office
Manufacturing
Manufacturing
Manufacturing
Manufacturing/Office
London (Ontario), Canada
Manufacturing
Doncaster, UK
Kilmarnock, UK
Loughborough, UK
Kempton Park, South Africa
Piossasco, Italy
Monte Alto, Brazil
Tamil Nadu, India
Schkeuditz, Germany
Manufacturing/Service
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing/Office
Manufacturing
Manufacturing
16
Freight
Freight
Freight
Freight
Freight
Freight
Freight
Freight
Freight
Freight
Freight/Transit
Freight/Transit
Transit
Transit
Transit
Transit
Transit
Transit
Freight
Freight
Freight
Freight
Freight
Freight
Freight/Transit
Freight/Transit
Freight/Transit
Freight/Transit
Transit
Transit
Transit
Transit
Own
Own
Own
Own
Own
Own
Own
Own
Own
Lease
Own
Own
Own
Own
Own
Lease
Lease
Lease
Own
Own
Lease
Lease
Lease
Lease
Own
Own
Lease
Lease
Own
Own
Own
Own
(1)
500,000
365,000
170,000
150,000
150,000
123,000
113,000
104,000
103,000
126,000
326,000
105,000
320,000
154,000
145,000
184,000
176,000
116,000
177,000
126,000
300,000
291,000
149,000
104,000
330,000
108,000
245,000
156,000
301,000
244,000
220,000
219,000
Primary Use
Segment
Own/Lease
Approximate
Square Feet
Location
Schuttorf, Germany
Amiens, France
Chard, UK
Manufacturing/Office
Manufacturing
Manufacturing/Office
St Pierre Des Corps, France
Manufacturing
Avellino, Italy
Burton on Trent, UK
Blovice, Czech Republic
Witten, Germany
Verviers, Belgium
Camisano, Italy
San Luis Potosi, Mexico
Birkenhead, UK
Shanghai, China
Manufacturing/Office
Manufacturing/Office
Manufacturing
Manufacturing
Manufacturing/Office
Manufacturing/Office
Manufacturing/Office
Overhaul/Manufacturing
Manufacturing
Transit
Transit
Transit
Transit
Transit
Transit
Transit
Transit
Transit
Transit
Transit
Transit
Transit
Own
Own
Own
Own
Own
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
189,000
142,000
142,000
133,000
132,000
253,000
235,000
209,000
137,000
136,000
113,000
109,000
104,000
(1) Approximately 250,000 square feet are currently used in connection with the Company’s corporate and manufacturing
operations. The remainder is leased to third parties.
Item 3.
LEGAL PROCEEDINGS
Additional information with respect to legal proceedings is included in Note 19 of “Notes to Consolidated Financial
Statements” included in Part IV, Item 15 of this report and incorporate by reference herein.
Item 4.
MINE SAFETY DISCLOSURES
Not applicable.
17
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides information on our executive officers as of December 31, 2017. They are elected
periodically by our Board of Directors and serve at its discretion.
Officers
Albert J. Neupaver
Raymond T. Betler
Stephane Rambaud-Measson
Patrick D. Dugan
R. Mark Cox
David L. DeNinno
Scott E. Wahlstrom
John A. Mastalerz
Paul I. Overby
Timothy R. Wesley
Age
Position
67
62
55
51
49
62
54
51
60
56
Chairman of the Board
President and Chief Executive Officer
Executive Vice President, President and Chief Operating Officer
Executive Vice President Finance, and Chief Financial Officer
Executive Vice President, Corporate Development
Executive Vice President, General Counsel and Secretary
Executive Vice President, Human Resources
Senior Vice President of Finance, Corporate Controller and Principal Accounting
Officer
Vice President, Corporate Strategy
Vice President, Investor Relations and Corporate Communications
Albert J. Neupaver was named Chairman of the Board of Directors in May 2017. Prior to that, Mr. Neupaver served as
Executive Chairman of the Company since May 2014. Previously, he served as Chairman and CEO from May 2013 to May
2014 and as the Company’s President and CEO from February 2006 to May 2013. Prior to joining Wabtec, Mr. Neupaver
served in various positions at AMETEK, Inc., a leading global manufacturer of electronic instruments and electric motors. Most
recently he served as President of its Electromechanical Group for nine years.
Raymond T. Betler was named President and Chief Executive Officer in May 2014. Previously, Mr. Betler was President
and Chief Operating Officer since May 2013 and the Company’s Chief Operating Officer since December 2010. Prior to that,
he served as Vice President, Group Executive of the Company since August 2008. Prior to joining Wabtec, Mr. Betler served in
various positions of increasing responsibility at Bombardier Transportation since 1979. Most recently, Mr. Betler served as
President, Total Transit Systems from 2004 until 2008 and before that as President, London Underground Projects from 2002 to
2004.
Stephane Rambaud-Measson was named Executive Vice President and Chief Operating Officer in May 2017. Prior to
that, Mr. Rambaud-Measson served as Executive Vice President, President and CEO, Transit Segment from December 2016.
Previously, Mr. Rambaud-Measson was Chairman of the Management Board and Chief Executive Officer of Faiveley
Transport from April 2014 until November 30, 2016. Prior to that position, he served as Executive Vice President of Faiveley
Transport from March 2014 to April 2014. Prior to joining Faiveley Transport, Mr. Rambaud-Measson was Chief Executive
Officer of Veolia Verkehr. Prior to that, Mr. Rambaud-Measson served in various management roles at Bombardier Transport
including President of the Passengers Division beginning in 2008. Before that, in 2005, he was appointed President of
Mainline & Metro after serving as Group Vice President Project Management and Administration, which he began in 2004.
Patrick D. Dugan was named Executive Vice President and Chief Financial Officer effective December 2016.
Previously Mr. Dugan served as Senior Vice President and Chief Financial Officer since January 2014. Previously, Mr. Dugan
was Senior Vice President, Finance and Corporate Controller from January 2012 until November 2013. He originally joined
Wabtec in 2003 as Vice President, Corporate Controller. Prior to joining Wabtec, Mr. Dugan served as Vice President and Chief
Financial Officer of CWI International, Inc. from December 1996 to November 2003. Prior to 1996, Mr. Dugan was a Manager
with PricewaterhouseCoopers.
R. Mark Cox was named Executive Vice President, Corporate Development effective December 2016. Previously, Mr.
Cox served as Sr. Vice President Corporate Development from January 2012, and has been with Wabtec since September 2006
as Vice President, Corporate Development. Prior to joining Wabtec, Mr. Cox served as Director of Business Development for
the Electrical Group of Eaton Corporation since 2002. Prior to joining Eaton, Mr. Cox was an investment banker with UBS
Warburg, Prudential and Stephens.
David L. DeNinno was named Executive Vice President, General Counsel and Secretary of the Company effective
December 2016. Previously, Mr. DeNinno served as Sr. Vice President, General Counsel and Secretary since February 2012.
Previously, Mr. DeNinno served as a partner at K&L Gates LLP since May 2011 and prior to that with Reed Smith LLP.
Scott E. Wahlstrom was named Executive Vice President, Human Resources effective December 2016. Previously,
Mr. Wahlstrom served as Senior Vice President, Human Resources since January 2012. Prior to that, Mr. Wahlstrom has been
18
Vice President, Human Resources, since November 1999. Previously, Mr. Wahlstrom was Vice President, Human Resources &
Administration of MotivePower Industries, Inc. from August 1996 until November 1999.
John A. Mastalerz was named Senior Vice President of Finance, Corporate Controller and Principal Accounting Officer
in July 2017. Previously, Mr. Mastalerz served as Vice President and Corporate Controller from January 2014 to July 2017.
Prior to joining Wabtec, Mr. Mastalerz served in various executive management roles with the H.J. Heinz Company from
January 2001 to December 2013, most recently as Corporate Controller and Principal Accounting Officer. Prior to 2001, Mr.
Mastalerz was a Senior Manager with PricewaterhouseCoopers.
Paul I. Overby was named Vice President, Corporate Strategy in January of 2016. Prior to joining Wabtec, Mr. Overby
was founder and President of Paul Overby Associates from 2009 and prior to that, Mr. Overby served in various executive
management roles at Bombardier.
Timothy R. Wesley was named Vice President, Investor Relations and Corporate Communications in November 1999.
Previously, Mr. Wesley was Vice President, Investor and Public Relations of MotivePower Industries, Inc. from August 1996
until November 1999.
19
PART II
Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
The Common Stock of the Company is listed on the New York Stock Exchange under the symbol “WAB”. As of
February 16, 2018, there were 96,090,518 shares of Common Stock outstanding held by 473 holders of record. The high and
low sales price of the shares and dividends declared per share were as follows:
2017
First Quarter .......................................................................................................................
Second Quarter ...................................................................................................................
Third Quarter......................................................................................................................
Fourth Quarter ....................................................................................................................
2016
First Quarter .......................................................................................................................
Second Quarter ...................................................................................................................
Third Quarter......................................................................................................................
Fourth Quarter ....................................................................................................................
$
$
$
$
$
$
$
$
High
Low
Dividends
High
88.87
92.00
93.81
82.13
80.61
88.46
82.00
89.18
$
$
$
$
$
$
$
$
Low
74.06
77.09
69.20
71.96
60.28
66.14
65.54
74.32
$
$
$
$
$
$
$
$
0.100
0.100
0.120
0.120
Dividends
0.080
0.080
0.100
0.100
The Company’s 2016 Refinancing Credit Agreement restricts the ability to make dividend payments, with certain
exceptions. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and see Note 8 of
“Notes to Consolidated Financial Statements” included in Part IV, Item 15 of this report.
At the close of business on February 16, 2018, the Company’s Common Stock traded at $77.27 per share.
The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with
the Securities and Exchange Commission, nor shall such information be incorporated by reference to any future filings under
the Securities Act of 1933 and the Securities Exchange Act of 1934, each as amended, except to the extent that Wabtec
specifically incorporates it by reference into such filing. The graph below compares the total stockholder return through
December 31, 2017, of Wabtec’s common stock to (i) the S&P 500 and (ii) our peer group of manufacturing companies which
consists of the following publicly traded companies: AGCO, AMETEK, Colfax, Dana, Dover, Flowserve, The Greenbrier
Companies, Navistar, Oshkosh, Regal Beloit, Rockwell Automation, Rockwell Collins, Terex, Trinity Industries, Snap-On,
WABCO and Xylem.
20
Month
October 2017 ....................................................
November 2017 ................................................
December 2017 ................................................
Total quarter ended December 31, 2017 ..........
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)
— $
— $
— $
— $
137,824,347
137,824,347
137,824,347
137,824,347
(1)
On February 9, 2016, the Board of Directors amended its stock repurchase authorization to $350.0 million of the
Company’s outstanding shares. During the twelve months ended December 31, 2017 and 2016, the Company
repurchased $0.0 million and $212.2 million, respectively, leaving $137.8 million remaining under the authorization.
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.
The Company intends to purchase shares on the open market or in negotiated or block trades. No time limit was set for
the completion of the programs which conform to the requirements under the 2016 Refinancing Credit Agreement, as well as
the senior notes currently outstanding.
21
Item 6.
SELECTED FINANCIAL DATA
The following table shows selected consolidated financial information of the Company and has been derived from
audited financial statements. This financial information should be read in conjunction with, and is qualified by reference to,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial
Statements of the Company and the Notes thereto included elsewhere in this Form 10-K.
In thousands, except per share amounts
2017
2016
2015
2014
2013
Year Ended December 31,
Income Statement Data
Net sales .............................................................................................
$
3,881,756
$
2,931,188
$
3,307,998
$
3,044,454
$
2,566,392
Gross profit ........................................................................................
Operating expenses ............................................................................
1,065,313
(643,580)
924,239
(465,878)
1,047,816
(440,249)
935,982
(408,873)
Income from operations .....................................................................
Interest expense, net...........................................................................
Other (expense) income, net ..............................................................
Net income attributable to Wabtec shareholders................................
Diluted Earnings per Common Share
Net income attributable to Wabtec shareholders (1)..........................
Cash dividends declared per share (1) ...............................................
Fully diluted shares outstanding (1)...................................................
Balance Sheet Data
$
$
$
$
$
421,733
$
458,361
$
607,567
$
527,109
$
(68,704) $
(42,561) $
(16,888) $
(17,574) $
(966)
262,261
2.72
0.44
96,125
$
$
$
(2,963)
304,887
3.34
0.36
91,141
$
$
$
(5,311)
398,628
4.10
0.28
97,006
$
$
$
(1,680)
351,680
3.62
0.20
96,885
$
$
$
764,027
(326,717)
437,310
(15,341)
(882)
292,235
3.01
0.13
96,832
Total assets.........................................................................................
$
6,579,980
$
6,581,018
$
3,229,513
$
3,303,841
$
2,821,997
Cash and cash equivalents .................................................................
Total debt ...........................................................................................
Total equity ........................................................................................
233,401
1,870,528
2,828,532
398,484
1,892,776
2,976,825
226,191
692,238
425,849
521,195
285,760
450,709
1,701,339
1,808,298
1,587,167
(1) Information above for net income attributable to Wabtec shareholders, cash dividends declared per share and fully
diluted shares outstanding for all periods presented reflects the two-for-one split of the Company’s common stock,
which occurred on May 14, 2013.
22
Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Wabtec is one of the world’s largest providers of value-added, technology-based products and services for the global rail
industry. Our products are found on virtually all U.S. locomotives, freight cars and passenger transit vehicles, as well as in
more than 100 countries throughout 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. In 2017, about 66% of the
Company’s revenues came from customers outside the U.S.
Management Review and Future Outlook
Wabtec’s long-term financial goals are to generate cash flow from operations in excess of net income, maintain a strong
credit profile while minimizing our overall cost of capital, increase margins through strict attention to cost controls and
implementation of the Wabtec Excellence Program, 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, Management 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 carloadings 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, an aging equipment fleet, and growth in global trade 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 2016 edition of a market study by UNIFE, the Association of the European Rail Industry, the accessible
global market for railway products and services was more than $100 billion, and was expected to grow at about 3.2% annually
through 2021. The three largest geographic markets, which represented about 80% of the total accessible market, were Europe,
North America and Asia Pacific. UNIFE projected above-average growth in Asia Pacific and Europe due to overall economic
growth and trends such as urbanization and increasing mobility, deregulation, investments in new technologies, energy and
environmental issues, and increasing government support. The largest product segments of the market were rolling stock,
services and infrastructure, which represented almost 90% of the accessible market. UNIFE projected spending on rolling
stock to grow at an above-average rate due to increased investment in passenger transit vehicles. UNIFE estimated that the
global installed base of locomotives was about 114,000 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 2,600 new locomotives were
delivered worldwide in 2017, and it expects deliveries of about 2,700 in 2018. UNIFE estimated the global installed base of
freight cars was about 5.5 million units, with about 37% in North America, about 26% in Russia-CIS and about 20% in Asia
Pacific. Wabtec estimates that about 155,000 new freight cars were delivered worldwide in 2017, and it expects deliveries of
about 148,000 in 2018. UNIFE estimated the global installed base of passenger transit vehicles to be about 569,000 units, with
about 43% in Asia Pacific, about 32% in Europe and about 14% in Russia-CIS. Wabtec estimates that about 34,000 new
passenger transit vehicles were delivered worldwide in 2017, and it expects deliveries of about 44,000 in 2018.
In Europe, the majority of the rail system serves the passenger transit market, which is expected to continue growing as
energy and environmental factors encourage continued investment in public mass transit. According to UNIFE, France,
Germany and the United Kingdom were the largest Western European transit markets, representing almost two-thirds of
industry spending in the European Union. UNIFE projected the Western European rail market to grow at about 3.6% annually,
led by investments in new rolling stock in France and Germany. Significant investments were 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%.
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.
23
In North America, railroads carry about 40% of intercity freight, as measured by ton-miles, which is more than any other
mode of transportation. Through direct ownership and operating partnerships, U.S. railroads are part of an integrated network
that includes railroads in Canada and Mexico, forming what is regarded as the world’s most-efficient and lowest-cost freight
rail service. There are more than 500 railroads operating in North America, with the largest railroads, referred to as “Class I,”
accounting for more than 90% of the industry’s revenues. The railroads carry a wide variety of commodities and goods,
including coal, metals, minerals, chemicals, grain, and petroleum. These commodities represent about 50% of total rail
carloadings, with intermodal carloads accounting for the rest. Railroads operate in a competitive environment, especially with
the trucking industry, and are always seeking ways to improve safety, cost and reliability. New technologies offered by Wabtec
and others in the industry can provide some of these benefits. Demand for our freight related products and services in North
America is driven by a number of factors, including rail traffic, and production of new locomotives and new freight cars. In the
U.S., the passenger transit industry is dependent largely on funding from federal, state and local governments, and from fare
box revenues. Demand for North American passenger transit products is driven by a number of factors, including government
funding, deliveries of new subway cars and buses, and ridership. The U.S. federal government provides money to local transit
authorities, primarily to fund the purchase of new equipment and infrastructure for their transit systems.
Growth in the Asia Pacific market has been driven mainly by the continued urbanization of China and India, and by
investments in freight rail rolling stock and infrastructure in Australia to serve its mining and natural resources markets. India
is making significant investments in rolling stock and infrastructure to modernize its rail system; for example, the country has
awarded a 1,000-unit locomotive order to a U.S. manufacturer. UNIFE expected the increased spending in India to offset
decreased spending on very-high-speed rolling stock in China.
Other key geographic markets include Russia-CIS and Africa-Middle East. With about 1.4 million freight cars and
about 20,000 locomotives, Russia-CIS is among the largest freight rail markets in the world, and it’s expected to invest in both
freight and transit rolling stock. PRASA, the Passenger Rail Agency of South Africa, is expected to continue to invest in new
transit cars and new locomotives. According to UNIFE, emerging markets were expected to grow at above-average rates as
global trade led to increased freight volumes and urbanization led to increased demand for efficient mass-transportation
systems. As this growth occurs, Wabtec expects to have additional opportunities to provide products and services in these
markets.
In its study, UNIFE also said it expected increased investment in digital tools for data and asset management, and in rail
control technologies, both of which would improve efficiency in the global rail industry. UNIFE said data-driven asset
management tools have the potential to reduce equipment maintenance costs and improve asset utilization, while rail control
technologies have been focused on increasing track capacity, improving operational efficiency and ensuring safer railway
traffic. Wabtec offers products and services to help customers make ongoing investments in these initiatives.
In 2018 and beyond, general global economic and market conditions will have an impact on our sales and operations. 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
reflect changes in market conditions and risks.
ACQUISITION OF FAIVELEY TRANSPORT S.A.
On November 30, 2016, 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 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
24
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 purchase price paid for 100% ownership of Faiveley Transport was $1,507 million. 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.
25
RESULTS OF OPERATIONS
The following table shows our Consolidated Statements of Operations for the years indicated.
In thousands
Year Ended December 31,
2017
2016
Net sales ..............................................................................................................................
$
3,881,756
$
2,931,188
$
Cost of sales ........................................................................................................................
Gross profit .........................................................................................................................
Selling, general and administrative expenses .....................................................................
Engineering expenses..........................................................................................................
Amortization expense .........................................................................................................
Total operating expenses.....................................................................................................
Income from operations ......................................................................................................
Interest expense, net............................................................................................................
Other (expense) income, net ...............................................................................................
Income from operations before income taxes.....................................................................
Income tax expense.............................................................................................................
Net income ..........................................................................................................................
Net income attributable to noncontrolling interest .............................................................
(2,816,443)
1,065,313
(511,898)
(95,166)
(36,516)
(643,580)
421,733
(68,704)
(966)
352,063
(89,773)
262,290
(29)
(2,006,949)
924,239
(371,805)
(71,375)
(22,698)
(465,878)
458,361
(42,561)
(2,963)
412,837
(99,433)
313,404
(8,517)
Net income attributable to Wabtec shareholders.................................................................
$
262,261
$
304,887
$
The following table summarizes the results of operations for the period:
2017 COMPARED TO 2016
For the year ended December 31,
In thousands
2017
2016
Freight Segment ..................................................................................................................
$
1,396,588
$
Transit Segment ..................................................................................................................
Net sales ........................................................................................................................
Income from operations ......................................................................................................
2,485,168
3,881,756
421,733
Net income attributable to Wabtec shareholders.................................................................
$
262,261
$
1,543,098
1,388,090
2,931,188
458,361
304,887
The following table shows the major components of the change in sales in 2017 from 2016:
In thousands
Freight
Segment
Transit
Segment
2016 Net Sales ....................................................................................................................
$
1,543,098
$
1,388,090
$
Acquisitions ........................................................................................................................
Change in Sales by Product Line:
Specialty Products & Electronics..................................................................................
Remanufacturing, Overhaul & Build............................................................................
Brake Products ..............................................................................................................
Other .............................................................................................................................
Transit Products
Foreign exchange ................................................................................................................
148,122
1,035,061
(164,532)
(79,129)
(51,595)
(480)
—
1,104
8,502
10,548
2,473
1,397
45,462
(6,365)
2015
3,307,998
(2,260,182)
1,047,816
(347,373)
(71,213)
(21,663)
(440,249)
607,567
(16,888)
(5,311)
585,368
(186,740)
398,628
—
398,628
Percent
Change
(9.5)%
79.0 %
32.4 %
(8.0)%
(14.0)%
Total
2,931,188
1,183,183
(156,030)
(68,581)
(49,122)
917
45,462
(5,261)
2017 Net Sales ....................................................................................................................
$
1,396,588
$
2,485,168
$
3,881,756
Net sales increased by $950.6 million to $3,881.8 million in 2017 from $2,931.2 million in 2016. The increase is due to
sales from acquisitions of $1,183.2 million with the majority related to the Faiveley Transport acquisition. This increase was
partially offset by a $156.0 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, a $68.6 million decrease for Remanufacturing,
Overhaul and Build primarily due to the absence of a large locomotive rebuild contract that completed in 2016, and a $49.1
million decrease for Brake products due to lower demand for original equipment brakes from freight and transit customers.
Unfavorable foreign exchange decreased sales $5.3 million.
26
Freight Segment sales decreased by $146.5 million, or 9.5%, primarily due to a $164.5 million decrease for Specialty
Products and Electronics sales from lower demand for freight original equipment rail products and train control and signaling
products attributable to lower freight car and locomotive builds, a decrease of $79.1 million for Remanufacturing, Overhaul
and Build sales due to a large locomotive rebuild contract that was completed in 2016, and a $51.6 million decrease in Brake
Products sales from lower demand for original equipment brakes and aftermarket services. Acquisitions increased sales by
$148.1 million and favorable foreign exchange increased sales by $1.1 million.
Transit Segment sales increased by $1,097.1 million, or 79.0%, primarily due to an increase in sales from acquisitions of
$1,035.1 million with the majority related to the Faiveley Transport acquisition. Additionally, Transit Products sales increased
$45.5 million from increased demand in original train doors, air conditioning systems, and other transit electronics, Overhaul &
Build sales increased $10.5 million due to an increase in transit overhaul demand, and Specialty Products & Electronics sales
increased $8.5 million due to increased demand for transit train control and signaling products and services. Unfavorable
foreign exchange decreased sales by $6.4 million.
Cost of Sales and Gross Profit The following table shows the major components of cost of sales for the periods
indicated:
In thousands
Twelve Months Ended December 31, 2017
Freight
Percentage of
Sales
Transit
Percentage of
Sales
Total
Percentage of
Sales
Material .......................................................... $
Labor ..............................................................
Overhead ........................................................
Other/Warranty...............................................
526,727
186,863
233,786
7,148
37.7% $
1,123,571
45.2% $
1,650,298
13.4%
16.7%
0.5%
339,110
341,389
57,849
13.6%
13.7%
2.3%
525,973
575,175
64,997
Total cost of sales.................................... $
954,524
68.3% $
1,861,919
74.8% $
2,816,443
42.5%
13.5%
14.8%
1.7%
72.5%
Twelve Months Ended December 31, 2016
In thousands
Freight
Percentage of
Sales
Transit
Percentage of
Sales
Total
Percentage of
Sales
Material .......................................................... $
Labor ..............................................................
Overhead ........................................................
Other/Warranty...............................................
590,876
176,518
242,956
5,575
38.3% $
587,516
42.3% $
1,178,392
11.4%
15.7%
0.4%
170,481
213,821
19,206
12.3%
15.4%
1.4%
346,999
456,777
24,781
Total cost of sales.................................... $
1,015,925
65.8% $
991,024
71.4% $
2,006,949
40.2%
11.8%
15.6%
0.8%
68.4%
Cost of sales increased by $809.5 million to $2,816.4 million in 2017 compared to $2,006.9 million in the same period
of 2016. For the twelve months ended 2017, cost of sales as a percentage of sales was 72.5% compared to 68.4% in the same
period of 2016. The 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 segment. Also contributing to the increase were
higher project adjustments of $44.5 million recorded on certain existing contracts and $11.8 million of restructuring and
integration costs related to recent acquisitions.
Freight Segment cost of sales increased 2.5% as a percentage of sales to 68.3% in 2017 compared to 65.8% for the same
period of 2016. The increase is primarily related to lower demand for freight original equipment rail products and train control
and signaling products and services which typically offer a higher margin, higher project adjustments of $6.9 million on certain
existing contracts related to labor, material and warranty costs, and $4.5 million of restructuring and integration costs related to
recent acquisitions.
Transit Segment cost of sales increased 3.4% as a percentage of sales to 74.8% in 2017 compared to 71.4% for the same
period in 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 $37.6 million on certain existing contracts primarily related
to material and warranty costs and $7.3 million of restructuring and integration costs related to recent acquisitions.
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 $50.4 million in 2017 compared to $28.9 million in 2016. The increase in
warranty expense is primarily related to the increase in sales and the contract adjustments noted above.
27
Operating expenses The following table shows our operating expenses:
In thousands
Selling, general and administrative expenses................................
$
Engineering expenses ....................................................................
Amortization expense....................................................................
Total operating expenses .........................................................
$
2017
511,898
95,166
36,516
643,580
For the year ended December 31,
Percentage of
Sales
13.2% $
2.5%
0.9%
16.6% $
2016
371,805
71,375
22,698
465,878
Percentage of
Sales
12.7%
2.4%
0.8%
15.9%
Total operating expenses were 16.6% and 15.9% of sales for 2017 and 2016, respectively. Selling, general, and
administrative expenses increased $140.1 million, or 37.7%, primarily due to $174.7 million in incremental expense from
acquisitions partially offset by lower costs due to cost saving initiatives and lower organic sales volumes. Engineering expense
increased $23.8 million or 33.3% primarily due to additional expenses from acquisitions and remained a relatively consistent as
a percentage of sales. Amortization expense increased $13.8 million due to amortization of intangibles associated with new
acquisitions.
The following table shows our segment operating expenses:
In thousands
2017
2016
Freight Segment ..................................................................................................................
$
177,460
$
Transit Segment ..................................................................................................................
Corporate.............................................................................................................................
434,704
31,416
Total operating expenses...............................................................................................
$
643,580
$
182,718
225,620
57,540
465,878
Percent
Change
(2.9)%
92.7 %
(45.4)%
38.1 %
For the year ended December 31,
Freight Segment operating expenses decreased $5.3 million, or 2.9%, in 2017 and increased 150 basis points to 12.7%
of sales. The decrease is primarily attributable to reduced sales volumes and realized benefits associated with the cost saving
initiatives undertaken in 2017 partially offset by $19.7 million of incremental operating expenses from acquisitions and $3.2
million related to integration and restructuring costs.
Transit Segment operating expenses increased $209.1 million, or 92.7%, in 2017 and increased 290 basis points to
17.5% of sales. The increase is primarily related to $191 million of incremental operating expenses related to acquisitions and
$20 million related to integration and restructuring costs related to recent acquisitions.
Corporate non-allocated operating expenses decreased $26.1 million in 2017 primarily due to a decrease in Faiveley
Transport transaction and integration costs as well as benefits from cost savings initiatives undertaken in 2017 and 2016.
Interest expense, net Overall interest expense, net, increased $26.1 million in 2017 due to a higher overall debt balance
in 2017 compared to 2016, primarily related to the Faiveley Transport acquisition and higher interest rates.
Other expense, net Other expense, net, decreased $2.0 million to $1.0 million for 2017, compared to 2016 primarily due
to an increase in equity income earned on unconsolidated subsidiaries.
Income taxes The effective income tax rate was 25.5% and 24.1% in 2017 and 2016, respectively. On December 22,
2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "U.S.
tax reform bill"). On December 23, 2017, the French government enacted the Finance Act for 2018 and it was published in the
Official Bulletin on December 31, 2017. As a result, tax expense increased by $55.0 million related to the U.S. tax reform bill,
see Note 10 of "Notes to Consolidated Financial Statements" included in Part IV, Item 8 of this report for further explanation.
This was offset by decreases of $50.7 million primarily due to the revaluation of the net U.S. and French deferred tax liabilities
as a result of the tax law enactments 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.
28
The following table summarizes the results of operations for the period:
2016 COMPARED TO 2015
For the year ended December 31,
In thousands
2016
2015
Freight Segment ..................................................................................................................
$
1,543,098
$
Transit Segment ..................................................................................................................
Net sales ........................................................................................................................
Income from operations ......................................................................................................
1,388,090
2,931,188
458,361
Net income attributable to Wabtec shareholders.................................................................
$
313,404
$
2,054,715
1,253,283
3,307,998
607,567
398,628
The following table shows the major components of the change in sales in 2016 from 2015:
In thousands
Freight
Segment
Transit
Segment
2015 Net Sales ....................................................................................................................
$
2,054,715
$
1,253,283
$
Acquisition..........................................................................................................................
Change in Sales by Product Line:
Specialty Products & Electronics..................................................................................
Remanufacturing, Overhaul & Build............................................................................
Brake Products ..............................................................................................................
Transit Products ............................................................................................................
Other .............................................................................................................................
Foreign exchange ................................................................................................................
55,097
134,095
(438,285)
(33,700)
(50,665)
—
(26,908)
(17,156)
35,611
22,743
(4,442)
656
57
(53,913)
Percent
Change
(24.9)%
10.8 %
(11.4)%
(24.6)%
(21.4)%
Total
3,307,998
189,192
(402,674)
(10,957)
(55,107)
656
(26,851)
(71,069)
2016 Net Sales ....................................................................................................................
$
1,543,098
$
1,388,090
$
2,931,188
Net sales decreased by $376.8 million to $2,931.2 million in 2016 from $3,308.0 million in 2015. The decrease is
primarily due to lower sales for Specialty Products and Electronics of $402.7 million and lower Brake Products sales of $55.1
million due to decreased demand for freight products attributable to lower freight car and locomotive builds, and train control
and signaling products and services, and lower Other Products sales of $26.9 million from decreased demand for freight spare
part kits. Acquisitions increased sales $189.2 million and unfavorable foreign exchange decreased sales $71.1 million.
Freight Segment sales decreased by $511.6 million, or 24.9%, primarily due to a $438.3 million decrease for Specialty
Products and Electronics sales from lower demand for freight original equipment rail products and train control and signaling
products attributable to lower freight car and locomotive builds, a decrease of $50.7 million for Brake Products sales from
lower demand for original equipment brakes and aftermarket services, a decrease of $33.7 million for Remanufacturing,
Overhaul and Build sales due to a large locomotive rebuild contract that completed in 2016, and a decrease of $26.9 million for
Other Product sales from decreased demand for freight spare part kits. Acquisitions increased sales by $55.1 million and
unfavorable foreign exchange decreased sales by $17.2 million.
Transit Segment sales increased by $134.8 million, or 10.8%, primarily due to a $35.6 million increase for Specialty
Products and Electronics from higher demand for original equipment conduction systems and current collectors, and an
increase of $22.7 million for Remanufacturing, Overhaul and Build sales from higher demand for aftermarket locomotive
builds. Acquisitions increased sales by $134.1 million and unfavorable foreign exchange decreased sales by $53.9 million.
29
Cost of Sales and Gross Profit The following table shows the major components of cost of sales for the periods
indicated:
In thousands
Twelve Months Ended December 31, 2016
Freight
Percentage of
Sales
Transit
Percentage of
Sales
Total
Percentage of
Sales
Material .......................................................... $
Labor ..............................................................
Overhead ........................................................
Other/Warranty...............................................
590,876
176,518
242,956
5,575
38.3% $
587,516
42.3% $
1,178,392
11.4%
15.7%
0.4%
170,481
213,821
19,206
12.3%
15.4%
1.4%
346,999
456,777
24,781
Total cost of sales.................................... $
1,015,925
65.8% $
991,024
71.4% $
2,006,949
40.2%
11.8%
15.6%
0.8%
68.4%
In thousands
Twelve Months Ended December 31, 2015
Freight
Percentage of
Sales
Transit
Percentage of
Sales
Total
Percentage of
Sales
Material .......................................................... $
Labor ..............................................................
Overhead ........................................................
Other/Warranty...............................................
854,728
219,495
282,132
5,926
41.6% $
531,152
42.4% $
1,385,880
10.7%
13.7%
0.3%
156,357
182,501
27,891
12.5%
14.6%
2.2%
375,852
464,633
33,817
Total cost of sales.................................... $
1,362,281
66.3% $
897,901
71.7% $
2,260,182
41.9%
11.4%
14.0%
1.0%
68.3%
Cost of sales decreased by $253.2 million to $2,006.9 million in 2016 compared to $2,260.2 million in the same
period of 2015. For the twelve months ended 2016, cost of sales as a percentage of sales was 68.4% compared to 68.3% in the
same period of 2015.
Freight Segment cost of sales decreased 0.5% as a percentage of sales to 65.8% in 2016 compared to 66.3% for the same
period of 2015. The decrease as a percentage of sales is primarily related to sales with lower material content, lower overall
material costs due to ongoing sourcing efforts, and decreases in various commodity prices partially offset by an increase in
overhead costs as a percentage of sales which is primarily due to certain fixed overhead costs.
Transit Segment cost of sales decreased 0.3% as a percentage of sales to 71.4% in 2016 compared to 71.7% for the same
period in 2015. The decrease is primarily due to better margin performance from prior year acquisitions and ongoing sourcing
savings. These benefits were partially offset by $13.8 million of costs related to adjustments on certain long-term contracts.
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 $28.9 million in 2016 compared to $35.4 million in 2015.
Operating expenses The following table shows our operating expenses:
In thousands
Selling, general and administrative expenses................................
$
Engineering expenses ....................................................................
Amortization expense....................................................................
Total operating expenses .........................................................
$
2016
371,805
71,375
22,698
465,878
For the year ended December 31,
Percentage of
Sales
12.7% $
2.4%
0.8%
15.9% $
2015
347,373
71,213
21,663
440,249
Percentage of
Sales
10.5%
2.2%
0.7%
13.4%
Total operating expenses were 15.9% and 13.4% of sales for 2016 and 2015, respectively. Selling, general, and
administrative expenses increased $24.4 million, or 7.0%, primarily due to $38.9 million of costs related to the Faiveley
acquisition and $5.4 million in costs related to restructuring activity. These costs were partially offset by lower incentive and
non-cash compensation expense and the effects of foreign exchange. Engineering expense was consistent with the prior
year. Amortization expense increased $1.0 million due to amortization of intangibles associated with acquisitions.
30
The following table shows our segment operating expenses:
In thousands
2016
2015
Freight Segment ..................................................................................................................
$
182,718
$
Transit Segment ..................................................................................................................
Corporate.............................................................................................................................
225,620
57,540
Total operating expenses...............................................................................................
$
465,878
$
208,773
205,415
26,061
440,249
Percent
Change
(12.5)%
9.8 %
120.8 %
5.8 %
For the year ended December 31,
Freight Segment operating expenses decreased $26.1 million, or 12.5%, in 2016 and increased 160 basis points to
11.8% of sales. The decrease is primarily attributable to reduced sales volumes and realized benefits associated with the cost
saving initiatives undertaken in 2016 partially offset by $8.8 million of incremental operating expenses from acquisitions.
Transit Segment operating expenses increased $20.2 million, or 9.8%, in 2016 and decreased 10 basis points to 16.3% of
sales. The increase is primarily related to $26.2 million of incremental operating expenses related to acquisitions and $7.1
million related to the Faiveley Transport transaction. This increase is partially offset by lower operating expenses due to
foreign exchange.
Corporate non-allocated operating expenses increased $31.5 million in 2016 primarily due to $31.8 million of costs
related to the Faiveley acquisition partially offset by realized benefits from cost saving initiatives in 2016.
Interest expense, net Overall interest expense, net, increased $25.7 million in 2016 due to a higher overall debt balance
in 2016 compared to 2015, primarily related to the Faiveley Transport acquisition and $14.9 million of debt refinancing costs.
Refer to Note 8 of "Notes to Condensed Consolidated Financial Statements" included in Part IV, Item 15 of this report for
additional information on debt.
Other expense, net Other expense, net, decreased $2.3 million to $3.0 million for 2016, compared to 2015 primarily due
to foreign exchange adjustments.
Income taxes The effective income tax rate was 24.1% and 31.9% in 2016 and 2015, respectively. The decrease in the
effective rate is primarily the result of an enacted tax rate change which reduces the corporate income tax rate in France and a
higher earnings mix in lower tax rate jurisdictions, partially offset by 2016 transaction charges related to the acquisition of
Faiveley Transport that are not deductible.
31
Liquidity and Capital Resources
Liquidity is provided by operating cash flow and borrowings under the Company’s unsecured credit facility with a
consortium of commercial banks. The following is a summary of selected cash flow information and other relevant data:
In thousands
Cash provided by (used for):
For the year ended
December 31,
2017
2016
2015
Operating activities ......................................................................................................
$
Investing activities .......................................................................................................
188,811
$
(275,729)
450,530
$
(775,065)
Financing activities:
Proceeds from debt ................................................................................................
Payments of debt....................................................................................................
Stock repurchases...................................................................................................
Cash dividends .......................................................................................................
Other ......................................................................................................................
1,216,740
(1,269,537)
—
(42,218)
(2,416)
1,875,000
(1,102,748)
(212,176)
(32,430)
(4,675)
450,844
(380,136)
787,400
(612,680)
(387,787)
(26,963)
(11,468)
Operating activities. Cash provided by operations in 2017 was $188.8 million compared with $450.5 million in 2016.
In comparison to 2016, cash provided by operations decreased due to unfavorable working capital performance and lower net
income of $51.1 million. The major components of working capital were as follows: an unfavorable change of $88.4 million in
accounts receivable primarily due to higher sales, an unfavorable change in accounts payable of $72.8 million due to the timing
of payments to suppliers, an unfavorable change of $25.4 million in other assets and liabilities primarily due to an unfavorable
change in accrued liabilities due to payments related to contract liabilities, accrued expenses, and acquisition costs in 2017, and
an unfavorable change in inventory of $54.3 million due to efforts to ramp up production in anticipation of stronger product
demand in 2018.
Cash provided by operations in 2016 was $450.5 million compared with $450.8 million in 2015. In comparison to
2015, cash provided by operations in 2016 changed due to favorable working capital requirements partially offset by lower
operating results. The favorable working capital requirements primarily related to a $57.7 million favorable change in accounts
payable principally due to the timing of payments, $25.2 million favorable change in inventory driven by successful efforts to
control the amount of inventory on hand. These favorable changes in working capital were partially offset by an unfavorable
change in accrued income taxes of $33.5 million driven by lower income taxes owed at the end of 2016 given the decrease in
pretax income.
Investing activities. In 2017, 2016 and 2015, cash used in investing activities was $275.7 million, $775.1 million and
$380.1 million, respectively. The major components of the cash outflow in 2017 were planned additions to property, plant, and
equipment of $89.5 million for continued investments in our facilities and manufacturing processes and $921.5 million in net
cash paid for acquisitions. These outflows were partially offset by $734.0 million in cash released from escrow related to the
Faiveley acquisition. This compares to $50.2 million for property, plant, and equipment and $183.1 million in net cash paid for
acquisitions in 2016. Additionally in 2016, $744.7 million of cash was deposited into escrow to finance the purchase of the
noncontrolling interest of Faiveley Transport, which was partially offset by $202.9 million of cash deposited into escrow to
finance the purchase of a controlling interest in Faiveley Transport in 2015 and subsequently released from escrow in 2016.
Refer to Note 3 of “Notes to Condensed Consolidated Financial Statements” included in Part IV, Item 15 of this report for
additional information on acquisitions.
Financing activities. In 2017, cash used for financing activities was $97.4 million, which included $1,216.7 million in
proceeds from the revolving credit facility, $1,269.5 million in repayments of debt, and $42.2 million of dividend payments. In
2016, cash provided by financing activities was $523.0 million, which included $1,125.0 million in proceeds from the
revolving credit facility debt, $770.0 million of repayments of debt on the revolving credit facility, $332.7 million in
repayments of other debt, which was primarily driven by repayments of debt acquired from the purchase of Faiveley Transport,
$750.0 million of new borrowings on the 2026 Senior Notes, $32.4 million of dividend payments and $212.2 million of Wabtec
stock repurchases.
32
The following table shows outstanding indebtedness at December 31, 2017 and 2016:
In thousands
December 31,
2017
2016
3.45% Senior Notes due 2026, net of unamortized debt
issuance costs of $2,345 and $2,526 ........................................................................................................................
$
747,655
$
747,474
4.375% Senior Notes due 2023, net of unamortized
discount and debt issuance costs of $1,433 and $1,690 ...........................................................................................
Revolving Credit Facility and Term Loan, net of unamortized
debt issuance costs of $2,451 and $3,850 .....................................................................................................................
Schuldschein Loan ........................................................................................................................................................
Other Borrowings ..........................................................................................................................................................
Capital Leases................................................................................................................................................................
Total...................................................................................................................................................................
Less - current portion ........................................................................................................................................
248,567
853,124
11,998
6,860
2,324
1,870,528
47,225
Long-term portion .............................................................................................................................................
$
1,823,303
$
248,310
796,150
98,671
1,153
1,018
1,892,776
129,809
1,762,967
Wabtec's acquisition of the controlling stake of Faiveley Transport triggered the early repayment of a syndicated loan
and the mandatory offer to investors to repay the US and Schuldschein private placements. Both the syndicated loan and US
private placements were repaid in full in December 2016.
3.45% Senior Notes Due 2026
In October 2016, the Company issued $750.0 million of Senior Notes due 2026 (the “2016 Notes”). The 2016 Notes
were issued at 99.965% of face value. Interest on the 2016 Notes accrues at a rate of 3.45% per annum and is payable semi-
annually on May 15 and November 15 of each year. The proceeds were used to finance the cash portion of the Faiveley
Transport acquisition, refinance Faiveley Transport’s indebtedness, and for general corporate purposes. The principal balance
is due in full at maturity. The Company incurred $2.7 million of deferred financing costs related to the issuance of the 2016
Notes.
The 2016 Notes are senior unsecured obligations of the Company and rank pari passu with all existing and future senior
debt and senior to all existing and future subordinated indebtedness of the Company. The indenture under which the 2016 Notes
were issued contains covenants and restrictions which limit among other things, the following: the incurrence of indebtedness,
payment of dividends and certain distributions, sale of assets, change in control, mergers and consolidations and the incurrence
of liens.
The Company is in compliance with the restrictions and covenants in the indenture under which the 2016 Notes were
issued and expects that these restrictions and covenants will not be any type of limiting factor in executing our operating
activities.
4.375% Senior Notes Due 2023
In August 2013, the Company issued $250.0 million of Senior Notes due 2023 (the “2013 Notes”). The 2013 Notes
were issued at 99.879% of face value. Interest on the 2013 Notes accrues at a rate of 4.375% per annum and is payable semi-
annually on February 15 and August 15 of each year. The proceeds were used to repay debt outstanding under the Company’s
existing credit agreement, and for general corporate purposes. The principal balance is due in full at maturity. The Company
incurred $2.6 million of deferred financing costs related to the issuance of the 2013 Notes.
The 2013 Notes are senior unsecured obligations of the Company and rank pari passu with all existing and future senior
debt and senior to all existing and future subordinated indebtedness of the Company. The indenture under which the 2013 Notes
were issued contains covenants and restrictions which limit among other things, the following: the incurrence of indebtedness,
payment of dividends and certain distributions, sale of assets, change in control, mergers and consolidations and the incurrence
of liens.
The Company is in compliance with the restrictions and covenants in the indenture under which the 2013 Notes were
issued and expects that these restrictions and covenants will not be any type of limiting factor in executing our operating
activities.
2016 Refinancing Credit Agreement
On June 22, 2016, the Company amended its existing revolving credit facility with a consortium of commercial banks.
This “2016 Refinancing Credit Agreement” provides the Company with a $1.2 billion, 5 year revolving credit facility and a
33
$400.0 million delayed draw term loan (the “Term Loan”). The Company incurred approximately $3.3 million of deferred
financing cost related to the 2016 Refinancing Credit Agreement. The facility expires on June 22, 2021. The 2016 Refinancing
Credit Agreement borrowings bear variable interest rates indexed as described below. At December 31, 2017, the Company
had available bank borrowing capacity, net of $35.4 million of letters of credit, of approximately $679.0 million, subject to
certain financial covenant restrictions.
The Term Loan was drawn on November 25, 2016. The Company incurred a 10 basis point commitment fee from
June 22, 2016 until the initial draw on November 25, 2016.
Under the 2016 Refinancing Credit Agreement, the Company may elect a Base Rate of interest for U.S. Dollar
denominated loans or, for certain currencies, an interest rate based on the London Interbank Offered Rate (“LIBOR”) of
interest, or other rates appropriate for such currencies (in any case, “the Alternate Rate”). The Base Rate adjusts on a daily basis
and is the greater of the Federal Funds Effective Rate plus 0.50% per annum, the PNC, N.A. prime rate or the Daily LIBOR
Rate plus 100 basis points, plus a margin that ranges from 0 to 75 basis points. The Alternate Rate is based on the quoted rates
specific to the applicable currency, plus a margin that ranges from 75 to 175 basis points. Both the Base Rate and Alternate
Rate margins are dependent on the Company’s consolidated total indebtedness to EBITDA ratios. The initial Base Rate margin
is 0 basis points and the Alternate Rate margin is 175 basis points.
At December 31, 2016, the weighted average interest rate on the Company’s variable rate debt was 2.92%. On
January 12, 2012, the Company entered into a forward starting interest rate swap agreement with a notional value of $150.0
million. The effective date of the interest rate swap agreement is July 31, 2013, and the termination date was November 7,
2016. The impact of the interest rate swap agreement converted a portion of the Company’s outstanding debt from a variable
rate to a fixed-rate borrowing. During the term of the interest rate swap agreement the interest rate on the notional value was
fixed at 1.415% plus the Alternate Rate margin. On June 5, 2014, the Company entered into a forward starting interest rate
swap agreement with a notional value of $150.0 million. The effective date of the interest rate swap agreement is November 7,
2016, and the termination date is December 19, 2018. The impact of the interest rate swap agreement converts a portion of the
Company’s outstanding debt from a variable rate to a fixed-rate borrowing. During the term of the interest rate swap agreement
the interest rate on the notional value will be fixed at 2.56% plus the Alternate Rate margin. As for these agreements, the
Company is exposed to credit risk in the event of nonperformance by the counterparties. However, since only the cash interest
payments are exchanged, exposure is significantly less than the notional amount. The counterparties are large financial
institutions with excellent credit ratings and history of performance. The Company currently believes the risk of
nonperformance is negligible.
The 2016 Refinancing Credit Agreement limits the Company’s ability to declare or pay cash dividends and prohibits the
Company from declaring or making other distributions, subject to certain exceptions. The 2016 Refinancing Credit Agreement
contains various other covenants and restrictions including the following limitations: incurrence of additional indebtedness;
mergers, consolidations, sales of assets and acquisitions; additional liens; sale and leasebacks; permissible investments, loans
and advances; certain debt payments; and imposes a minimum interest expense coverage ratio of 3.0 and a maximum debt to
EBITDA ratio of 3.25. The Company is in compliance with the restrictions and covenants of the 2016 Refinancing Credit
Agreement and does not expect that these measurements will limit the Company in executing our operating activities.
Schuldschein Loan, Due 2016
In conjunction with the acquisition of Faiveley Transport, Wabtec acquired $137.2 million of a Schuldshein private
placement loan which was originally issued by Faiveley Transport on March 5, 2014 in Germany, in which approximately 20
international investors participated. This loan is denominated in euros. Subsequent to the acquisition of Faiveley Transport, the
Company repaid $125.3 million of the outstanding Schuldschein loan. The remaining balance of $12.0 million as of December
31, 2017 matures on March 5, 2024 and bears a fixed rate of 4.00%.
34
Contractual Obligations and Off-Balance Sheet Arrangements
The Company is obligated to make future payments under various contracts such as debt agreements, lease agreements
and has certain contingent commitments such as debt guarantees. The Company has grouped these contractual obligations and
off-balance sheet arrangements into operating activities, financing activities, and investing activities in the same manner as they
are classified in the Statement of Consolidated Cash Flows to provide a better understanding of the nature of the obligations
and arrangements and to provide a basis for comparison to historical information. The table below provides a summary of
contractual obligations and off-balance sheet arrangements as of December 31, 2017:
In thousands
Operating activities:
Total
Less than
1 year
1 - 3
years
3 - 5
years
More than
5 years
Purchase obligations (1)..............................................
$
148,598
$
22,871
$
64,661
$
17,850
$
Operating leases (2) ....................................................
Pension benefit payments (3)......................................
Postretirement benefit payments (4) ...........................
Financing activities:
Interest payments (5)...................................................
Long-term debt (6)......................................................
Dividends to shareholders (7) .....................................
Other:
187,406
174,551
11,371
365,772
1,870,528
46,096
31,647
15,651
1,254
62,573
47,225
46,096
53,024
32,185
2,455
104,500
331,460
—
36,694
34,622
2,354
89,582
483,587
—
43,216
66,041
92,093
5,308
109,117
1,008,256
—
Standby letters of credit (8).........................................
36,803
12,704
4,314
16,690
3,095
Total ..................................................................................
$
2,841,125
$
240,021
$
592,599
$
681,379
$
1,327,126
(1) Purchase obligations represent non-cancelable contractual obligations at December 31, 2017. In addition, the
Company had $368.3 million of open purchase orders for which the related goods or services had not been
received. Although open purchase orders are considered enforceable and legally binding, their terms generally allow
us the option to cancel, reschedule and adjust our requirements based on our business needs prior to the delivery of
goods or performance of services.
(2) Future minimum payments for operating leases are disclosed by year in Note 14 of the “Notes to Consolidated
Financial Statements” included in Part IV, Item 15 of this report.
(3) Annual payments to participants are expected to continue into the foreseeable future at the amounts or ranges noted.
Pension benefit payments are based on actuarial estimates using current assumptions for discount rates, expected return
on long-term assets and rate of compensation increases. The Company expects to contribute about $7.3 million to
pension plan investments in 2018. See further disclosure in Note 9 of the “Notes to Consolidated Financial Statements”
included in Part IV, Item 15 of this report.
(4) Annual payments to participants are expected to continue into the foreseeable future at the amounts or ranges noted.
Postretirement payments are based on actuarial estimates using current assumptions for discount rates and health care
costs. See further disclosure in Note 9 of the “Notes to Consolidated Financial Statements” included in Part IV, Item 15
of this report.
(5) Interest payments are payable May and November of each year at 3.45% of $750 million Senior Notes due in 2026.
Interest payments are payable February and August of each year at 4.375% of $250 million Senior Notes due in 2023.
Interest payments for the Revolving Credit Facility and Capital Leases are based on contractual terms and the
Company’s current interest rates.
(6) Scheduled principal repayments of outstanding loan balances are disclosed in Note 8 of the “Notes to Consolidated
Financial Statements” included in Part IV, Item 15 of this report.
(7) Shareholder dividends are subject to approval by the Company’s Board of Directors, currently at an annual rate of
approximately $46.1 million.
(8) The $36.8 million of standby letters of credit is comprised of $35.3 million in outstanding letters of credit for
performance and bid bond purposes and $1.5 million in interest, which expire in various dates through 2050. Amounts
include interest payments based on contractual terms and the Company’s current interest rate.
The above table does not reflect uncertain tax positions of $6.9 million, the timing of which are uncertain except for
$5.2 million that may become payable during 2017. Refer to Note 10 of the “Notes to Consolidated Financial Statements” for
additional information on uncertain tax positions.
Obligations for operating activities. The Company has entered into $148.6 million of material long-term non-cancelable
materials and supply purchase obligations. Operating leases represent multi-year obligations for rental of facilities and
35
equipment. Estimated pension funding and post-retirement benefit payments are based on actuarial estimates using current
assumptions for discount rates, expected return on long-term assets, rate of compensation increases and health care cost trend
rates. Benefits paid for pension obligations were $16.0 million and $13.3 million in 2017 and 2016, respectively. Benefits paid
for post-retirement plans were $1.2 million and $0.9 million in 2017 and in 2016, respectively.
Obligations for financing activities. Cash requirements for financing activities consist primarily of long-term debt
repayments, interest payments and dividend payments to shareholders. The Company has historically paid quarterly dividends
to shareholders, subject to quarterly approval by our Board of Directors, currently at a rate of approximately $46.1 million
annually.
The Company arranges for performance bonds to be issued by third party insurance companies to support certain long
term customer contracts. At December 31, 2017, the initial value of performance bonds issued on the Company’s behalf is
about $461 million.
Forward Looking Statements
We believe that all statements other than statements of historical facts included in this report, including certain
statements under “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
may constitute forward-looking statements. We have based these forward-looking statements on our current expectations and
projections about future events. Although we believe that our assumptions made in connection with the forward-looking
statements are reasonable, we cannot assure that our assumptions and expectations are correct.
These forward-looking statements are subject to various risks, uncertainties and assumptions about us, including, among
other things:
Economic and industry conditions
•
•
•
•
•
•
•
•
•
•
•
•
prolonged unfavorable economic and industry conditions in the markets served by us, including North America, South
America, Europe, Australia, Asia, and South Africa;
decline in demand for freight cars, locomotives, passenger transit cars, buses and related products and services;
reliance on major original equipment manufacturer customers;
original equipment manufacturers’ program delays;
demand for services in the freight and passenger rail industry;
demand for our products and services;
orders either being delayed, canceled, not returning to historical levels, or reduced or any combination of the foregoing;
consolidations in the rail industry;
continued outsourcing by our customers;
industry demand for faster and more efficient braking equipment;
fluctuations in interest rates and foreign currency exchange rates; or
availability of credit;
Operating factors
•
•
•
•
•
•
•
•
•
•
supply disruptions;
technical difficulties;
changes in operating conditions and costs;
increases in raw material costs;
successful introduction of new products;
performance under material long-term contracts;
labor relations;
the outcome of our existing or any future legal proceedings, including litigation involving our principal customers and
any litigation with respect to environmental matters, asbestos-related matters, pension liabilities, warranties, product
liabilities or intellectual property claims;
completion and integration of acquisitions, including the acquisition of Faiveley Transport; or
the development and use of new technology;
Competitive factors
•
•
the actions of competitors; or
the outcome of negotiations with partners, suppliers, customers or others;
36
Political/governmental factors
•
•
•
•
•
•
political stability in relevant areas of the world;
future regulation/deregulation of our customers and/or the rail industry;
levels of governmental funding on transit projects, including for some of our customers;
political developments and laws and regulations, including those related to Positive Train Control; or
federal and state income tax legislation; and
the outcome of negotiations with governments.
Statements in this 10-K apply only as of the date on which such statements are made, and we undertake no obligation to
update any statement to reflect events or circumstances after the date on which the statement is made or to reflect the
occurrence of unanticipated events.
Critical Accounting Estimates
The preparation of the financial statements in accordance with generally accepted accounting principles requires
Management to make judgments, estimates and assumptions regarding uncertainties that affect the reported amounts of assets
and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Areas of
uncertainty that require judgments, estimates and assumptions include the accounting for allowance for doubtful accounts,
inventories, the testing of goodwill and other intangibles for impairment, warranty reserves, pensions and other postretirement
benefits, stock based compensation and tax matters. Management uses historical experience and all available information to
make these judgments and estimates, and actual results will inevitably differ from those estimates and assumptions that are
used to prepare the Company’s financial statements at any given time. Despite these inherent limitations, Management believes
that Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and the financial
statements and related footnotes provide a meaningful and fair perspective of the Company. A discussion of the judgments and
uncertainties associated with accounting for derivatives and environmental matters can be found in Notes 2 and 17,
respectively, in the “Notes to Consolidated Financial Statements” included in Part IV, Item 15 of this report.
A summary of the Company’s significant accounting policies is included in Note 2 in the “Notes to Consolidated
Financial Statements” included in Part IV, Item 15 of this report and is incorporated by reference herein. Management believes
that the application of these policies on a consistent basis enables the Company to provide the users of the financial statements
with useful and reliable information about the Company’s operating results and financial condition.
Accounts Receivable and Allowance for Doubtful Accounts:
Description The Company provides an allowance for doubtful accounts to cover anticipated losses on uncollectible accounts
receivable.
Judgments and Uncertainties The allowance for doubtful accounts receivable reflects our best estimate of probable losses
inherent in our receivable portfolio determined on the basis of historical experience, specific allowances for known troubled
accounts and other currently available evidence.
Effect if Actual Results Differ From Assumptions If our estimates regarding the collectability of troubled accounts, and/or our
actual losses within our receivable portfolio exceed our historical experience, we may be exposed to the expense of increasing
our allowance for doubtful accounts.
Inventories:
Description Inventories are stated at the lower of cost or market and are reviewed to ensure that an adequate provision is
recognized for excess, slow moving and obsolete inventories.
Judgments and Uncertainties Cost is determined under the first-in, first-out (FIFO) method. Inventory costs include material,
labor and overhead. The Company compares inventory components to prior year sales history and current backlog and
anticipated future requirements. To the extent that inventory parts exceed estimated usage and demand, a reserve is recognized
to reduce the carrying value of inventory. Also, specific reserves are established for known inventory obsolescence.
Effect if Actual Results Differ From Assumptions If the market value of our products were to decrease due to changing market
conditions, the Company could be at risk of incurring write-downs to adjust inventory value to a market value lower than stated
cost. If our estimates regarding sales and backlog requirements are inaccurate, we may be exposed to the expense of increasing
our reserves for slow moving and obsolete inventory.
37
Goodwill and Indefinite-Lived Intangibles:
Description Goodwill and indefinite-lived intangibles are required to be tested for impairment at least annually. The Company
performs its annual impairment test during the fourth quarter and more frequently when indicators of impairment are present.
The Company reviews goodwill for impairment at the reporting unit level. The evaluation of impairment involves comparing
the current fair value of the business to the recorded value (including goodwill).
Judgments and Uncertainties A number of significant assumptions and estimates are involved in the application of the
impairment test, including the identification of macroeconomic conditions, industry and market considerations, cost factors,
overall financial performance, Wabtec specific events and share price trends and making the assessment on whether each
relevant factor will impact the impairment test positively or negatively and the magnitude of any such amount.
Effect if Actual Results Differ From Assumptions Management considers historical experience and all available information at
the time the fair values of its reporting units are estimated. However, actual amounts realized may differ from those used to
evaluate the impairment of goodwill. If actual results are not consistent with our assumptions and judgments used in estimating
future cash flows and asset fair values, we may be exposed to impairment losses that could be material to our results of
operations. For example, based on the quantitative analysis performed as of October 1, 2017, a decline in the terminal growth
rate by 50 basis points would decrease fair market value by $334 million, or an increase in the weighted-average cost of capital
by 100 basis points would result in a decrease in fair market value by $984 million. Even with such changes the fair value of
the reporting units would be greater than their net book values, necessitating no Step 2 calculations. See Note 2 in the “Notes to
Consolidated Financial Statements” included in Part IV, Item 15 of this report for additional discussion regarding impairment
testing.
Warranty Reserves:
Description The Company provides warranty reserves to cover expected costs from repairing or replacing products with
durability, quality or workmanship issues occurring during established warranty periods.
Judgments and Uncertainties In general, reserves are provided for as a percentage of sales, based on historical experience. In
addition, specific reserves are established for known warranty issues and their estimable losses.
Effect if Actual Results Differ From Assumptions If actual results are not consistent with the assumptions and judgments used to
calculate our warranty liability, the Company may be at risk of realizing material gains or losses.
Accounting for Pensions and Postretirement Benefits:
Description The Company provides pension and postretirement benefits for its employees. These amounts are determined
using actuarial methodologies and incorporate significant assumptions, including the rate used to discount the future estimated
liability, the long-term rate of return on plan assets and several assumptions relating to the employee workforce (salary
increases, medical costs, retirement age and mortality).
Judgments and Uncertainties Significant judgments and estimates are used in determining the liabilities and expenses for
pensions and other postretirement benefits. The rate used to discount future estimated liabilities is determined considering the
rates available at year-end on debt instruments that could be used to settle the obligations of the plan. The long-term rate of
return is estimated by considering historical returns and expected returns on current and projected asset allocations and is
generally applied to a five-year average market value of assets. The differences between actual and expected asset returns are
recognized in expense using the normal amortization of gains and losses per ASC 715.
Effect if Actual Results Differ From Assumptions If assumptions used in determining the pension and other postretirement
benefits change significantly, these costs can fluctuate materially from period to period. The key assumptions in determining
the pension and other postretirement expense and obligation include the discount rate, expected return on assets and health care
cost trend rate. For example, a 1% decrease or increase in the discount rate used in determining the pension and postretirement
expense would increase expense $1.2 million or decrease expense $1.8 million, respectively. A 1% decrease or increase in the
discount rate used in determining the pension and postretirement obligation would increase the obligation $53.1 million or
decrease the obligation $67.2 million, respectively. A 1% decrease or increase in the expected return on assets used in
determining the pension expense would increase or decrease expense $3.0 million. If the actual asset values at December 31,
2017 had been 1% lower, the amortization of losses in the following year would decrease $0.2 million. A 1% decrease or
increase in the health care cost trend rate used in determining the postretirement expense would increase or decrease the
38
expense less than $0.1 million. A 1% decrease or increase in the health care cost trend rate used in determining the
postretirement obligation would increase or decrease the obligation $0.3 million.
Stock-based Compensation:
Description The Company has issued incentive stock units to eligible employees that vest upon attainment of certain
cumulative three-year performance goals. The program is structured as a rolling three-year plan; each year starts a new three-
year performance cycle with the most recently completed cycle being 2015-2017. No incentive stock units will vest for
performance below the three-year cumulative threshold. The Company utilizes an economic profit measure for this
performance goal. Economic profit is a measure of the extent to which the Company produces financial results in excess of its
cost of capital. Based on the Company’s achievement of the threshold and three-year cumulative performance, the stock units
vested can range from 0% to 200% of the shares granted.
Judgments and Uncertainties Significant judgments and estimates are used in determining the estimated three-year
performance, which is then used to estimate the total shares expected to vest over the three year vesting cycle and
corresponding expense based on the grant date fair value of the award. When determining the estimated three-year
performance, the Company utilizes a combination of historical actual results, budgeted results and forecasts. In the initial grant
year of a performance cycle, the Company estimates the three-year performance at 100%. As actual performance results for a
cycle begin to accumulate and the Company completes its budgeting and forecasting cycles the performance estimates are
updated. These judgments and estimates are reviewed and updated on a quarterly basis.
Effect if Actual Results Differ From Assumptions If assumptions used in determining the estimated three-year performance
change significantly, stock-based compensation expense related to the unvested incentive stock awards can fluctuate materially
from period to period. For example, a 10% decrease or increase in the estimated vesting percentage for incentive stock awards
would decrease or increase stock-based compensation expense by approximately $0.7 million and $0.7 million, respectively.
Income Taxes:
Description Wabtec records an estimated liability or benefit for income and other taxes based on what it determines will likely
be paid in various tax jurisdictions in which it operates in accordance with ASC 740-10 Accounting for Income Taxes and
Accounting for Uncertainty in Income Taxes.
Judgments and Uncertainties The estimate of our tax obligations are uncertain because Management must use judgment to
estimate the exposures associated with our various filing positions, as well as realization of our deferred tax assets. ASC 740-10
establishes a recognition and measurement threshold to determine the amount of tax benefit that should be recognized related to
uncertain tax positions.
Effect if Actual Results Differ From Assumptions Management uses its best judgment in the determination of these amounts.
However, the liabilities ultimately realized and paid are dependent on various matters including the resolution of the tax audits
in the various affected tax jurisdictions and may differ from the amounts recorded. An adjustment to the estimated liability
would be recorded through income in the period in which it becomes probable that the amount of the actual liability differs
from the recorded amount. A deferred tax valuation allowance is provided when it is more likely than not that some portion or
all of the deferred tax assets will not be realized.
Revenue Recognition:
Description Revenue is recognized in accordance with ASC 605 “Revenue Recognition.” The Company recognizes revenues
on long-term contracts based on the percentage of completion method of accounting. The units-of-delivery method or other
input-based or output-based measures, as appropriate, are used to measure the progress toward completion of individual
contracts. Contract revenues and cost estimates are reviewed and revised at a minimum quarterly and adjustments are reflected
in the accounting period as such amounts are determined. Certain pre-production costs relating to long term production and
supply contracts have been deferred and will be recognized over the life of the contracts.
Judgments and Uncertainties Revenue is recognized when products have been shipped to the respective customers, title has
passed and the price for the product has been determined. Contract accounting involves a judgmental process of estimating the
total sales and costs for each contract, which results in the development of estimated profit margin percentages. For each
contract with revenue recognized using the percentage of completion method, the amount reported as revenue is determined by
calculating cost incurred to date as a percentage of the total expected contract costs to determine the percentage of total contract
revenue to be recognized in the current period. Due to the size, duration and nature of many of our contracts, the estimation of
39
total sales and costs through completion is complicated and subject to many variables. Total contract sales estimates are based
on negotiated contract prices and quantities, modified by our assumptions regarding contract options, change orders, and price
adjustment clauses (such as inflation or index-based clauses). Total contract cost estimates are largely based on negotiated or
estimated purchase contract terms, historical performance trends, business base and other economic projections. Factors that
influence these estimates include inflationary trends, technical and schedule risk, internal and subcontractor performance
trends, business volume assumptions, asset utilization, and anticipated labor agreements. For long-term contracts, revenues and
cost estimates are reviewed and revised quarterly at a minimum and adjustments are reflected in the accounting period as such
amounts are determined. Pre-production costs are recognized over the expected life of the contract usually based on the
Company’s progress toward the estimated number of units expected to be delivered under the production or supply contract.
Effect if Actual Results Differ From Assumptions Should market conditions and customer demands dictate changes to our
standard shipping terms, the Company may be impacted by longer than typical revenue recognition cycles. The development of
expected contract costs and contract profit margin percentages involves procedures and personnel in all areas that provide
financial or production information on the status of contracts. Due to the significance of judgment in the estimation process, it
is likely that materially different revenue amounts could be recorded if we used different assumptions or if the underlying
circumstances were to change. Changes in underlying assumptions/estimates, supplier performance, or circumstances may
adversely or positively affect financial performance in future periods. If the combined profit margin for all contracts recognized
on the percentage of completion method during 2017 had been estimated to be higher or lower by 1%, it would have increased
or decreased revenue and gross profit for the year by approximately $29.8 million. A few of our contracts are expected to be
completed in a loss position. Provisions are made currently for estimated losses on uncompleted contracts. A charge to expense
for unrecognized portions of pre-production costs could be realized if the Company’s estimate of the number of units to be
delivered changes or the underlying contract is cancelled.
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
In 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 December 31, 2017 and 2016, respectively. On an annual basis, a 1% change in the interest rate for variable rate
debt at December 31, 2017 would increase or decrease interest expense by about $7.1 million.
To reduce the impact of interest rate changes on a portion of this variable-rate debt, the Company entered into interest
rate swap agreements which effectively converted a portion of the debt from a variable to a fixed-rate borrowing during the
term of the swap contracts. Refer to “Financial Derivatives and Hedging Activities” in Note 2 of “Notes to Consolidated
Financial Statements” included in Part IV, Item 15 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 year ended December 31, 2017, approximately 34%
of Wabtec’s net sales were in the United States, 9% in the United Kingdom, 7% in Canada, 6% in France, 5% in China, 5% in
Germany, 4% in Australia, 4% in Mexico, 4% in India, 4% in Italy, 2% in Brazil, and 16% in other international locations. (See
Note 20 of “Notes in Consolidated Financial Statements” included in Part IV, Item 15 of this report). 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 Consolidated Financial Statements” included in Part IV,
Item 15 of this report for more information regarding foreign currency exchange risk.
Our market risk exposure is not substantially different from our exposure at December 31, 2016.
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data are set forth in Item 15 of Part IV hereof.
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements with our independent registered public accountants.
40
Item 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure 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 December 31, 2017. 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
finance officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
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 December 31, 2017, that has materially affected, or is reasonably likely
to materially affect, Wabtec’s internal control over financial reporting. Management’s annual report on internal control over
financial reporting and the attestation report of the registered public accounting firm are included in Part IV, Item 15 of this
report.
Management’s Report on Internal Control over Financial Reporting
Management’s Report on Internal Control Over Financial Reporting appears on page 47 and is incorporated herein by
reference.
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
Ernst & Young LLP's attestation report on internal control over financial reporting appears on page 50 and is
incorporated herein by reference.
Item 9B.
OTHER INFORMATION
None.
41
Items 10 through 14.
PART III
In accordance with the provisions of General Instruction G(3) to Form 10-K, the information required by Item 10
(Directors, Executive Officers and Corporate Governance), Item 11 (Executive Compensation), Item 12 (Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder Matters), Item 13 (Certain Relationships and Related
Transactions, and Director Independence) and Item 14 (Principal Accounting Fees and Services) is incorporated herein by
reference from the Company’s definitive Proxy Statement for its Annual Meeting of Stockholders to be held on May 7, 2018,
except for the Equity Compensation Plan Information required by Item 12, which is set forth in the table below. The definitive
Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2017.
Information relating to the executive officers of the Company is set forth in Part I.
Wabtec has adopted a Code of Ethics for Senior Officers which is applicable to our executive officers. As described in
Item 1 of this report the Code of Ethics for Senior Officers is posted on our website at www.wabtec.com. In the event that we
make any amendments to or waivers from this code, we will disclose the amendment or waiver and the reasons for such on our
website.
This table provides aggregate information as of December 31, 2017 concerning equity awards under Wabtec’s
compensation plans and arrangements.
(a)
Number of securities to
be issued upon exercise
of outstanding options,
(b)
Weighted-average
exercise price of
outstanding
options warrants
(c)
Number of securities
remaining available for
future issuance
under equity
compensation
plans (excluding securities
Plan Category
warrants and rights
and rights
reflected in column (a))
Equity compensation plans approved by shareholders
Equity compensation plans not approved by shareholders
Total
983,512
—
983,512
$
$
40.62
—
40.62
3,192,453
—
3,192,453
42
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
The financial statements, financial statement schedules and exhibits listed below are filed as part of this annual report:
(1)
Financial Statements and Reports on Internal Control
Management’s Reports to Westinghouse Air Brake Technologies Corporation Shareholders
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Income for the three years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income for the three years ended December 31, 2017, 2016
and 2015
Consolidated Statements of Cash Flows for the three years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Shareholders’ Equity for the three years ended December 31, 2017, 2016 and
2015
Notes to Consolidated Financial Statements
Financial Statement Schedules
Schedule II—Valuation and Qualifying Accounts
Exhibits
Share Purchase Agreement among Financiere Faiveley S.A., Famille Faiveley Participations Francois
Faiveley, Erwan Faiveley, FW Acquisition, LLC and Wabtec Corporation dated as of October 6, 2015
Tender Offer Agreement among Faiveley Transport S.A., FW Acquisition, LLC, and Wabtec Corporation
dated as of October 6, 2015
Shareholder's Agreement among Financiere Faiveley S.A., FW Acquisition, LLC, and Wabtec
Corporation dated as of October 6, 2015
Amendment No. 1 to Share Purchase Agreement among Mr. Erwan Faiveley, Wabtec France, and Wabtec
Corporation dated as of October 24, 2016
Amendment No. 1 to Tender Offer Agreement among Faiveley Transport, S.A., Wabtec France, and
Wabtec Corporation dated as of October 24, 2016
Amendment No. 1 to Shareholder’s Agreement among Financiere Faiveley S.A., Famille Faiveley
Participations, Francois Faiveley, Erwan Faiveley, and Wabtec Corporation dated as of dated as of
October 24, 2016
Restated Certificate of Incorporation of the Company dated January 30, 1995, as amended December 31,
2003
Certificate of Amendment of Restated Certificate of Incorporation dated May 14, 2013
Amended By-Laws of the Company, effective May 14, 2014
Indenture, dated August 8, 2013 by and between the Company and Wells Fargo, National Association, as
Trustee
First Supplemental Indenture, dated August 8, 2013, by and between the Company and Wells Fargo
Bank, National Association, as Trustee
43
(2)
2.1
2.2
2.3
2.4
2.5
2.6
3.1
3.2
3.3
4.1
4.2
Page
47
48
49
50
51
52
53
54
55
56
95
Filing
Method
16
16
16
17
17
17
9
11
8
12
12
4.3
4.4
4.5
4.6
4.7
4.8
4.9
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.12
10.13
10.14
10.15
10.16
Form of 4.375% Senior Note due 2023 (included in Exhibit 4.2)
Second Supplemental Indenture, dated November 3, 2016, by and among Westinghouse Air Brake
Technologies Corporation, the subsidiary guarantors named therein and Wells Fargo Bank, National
Association, as Trustee
Third Supplemental Indenture, dated November 3, 2016, by and among Westinghouse Air Brake
Technologies Corporation, the subsidiary guarantors named therein and Wells Fargo Bank, National
Association, as Trustee
Form of 3.450% Senior Note due 2026 (included in Exhibit 4.5)
Fourth Supplemental Indenture, dated February 9, 2017, by and among Westinghouse Air Brake
Technologies Corporation, the subsidiary guarantors named therein and Wells Fargo Bank, National
Association, as Trustee
Fifth Supplemental Indenture, dated April 28, 2017, by and among Westinghouse Air Brake Technologies
Corporation, the subsidiary guarantors named therein and Wells Fargo Bank, National Association, as
Trustee
Sixth Supplemental Indenture, dated June 21, 2017, by and among Westinghouse Air Brake Technologies
Corporation, the subsidiary guarantors named therein and Wells Fargo Bank, National Association, as
Trustee.
Agreement of Sale and Purchase of the North American Operations of the Railway Products Group, an
operating division of American Standard Inc. (now known as Trane), dated as of 1990 between Rail
Acquisition Corp. and American Standard Inc. (only provisions on indemnification are reproduced)
Letter Agreement (undated) between the Company and American Standard Inc. (now known as Trane) on
environmental costs and sharing
Purchase Agreement dated as of June 17, 1992 among the Company, Schuller International, Inc.,
Manville Corporation and European Overseas Corporation (only provisions on indemnification are
reproduced)
Westinghouse Air Brake Company 1995 Non-Employee Directors’ Fee and Stock Option Plan, as
amended and restated*
Westinghouse Air Brake Technologies Corporation 2000 Stock Incentive Plan, as amended *
Employment Agreement with Albert J. Neupaver, dated February 1, 2006 *
Form of Restricted Stock Agreement *
Westinghouse Air Brake Technologies Corporation 2011 Stock Incentive Plan as amended and restated*
Stock Purchase Agreement, by and among the Company, Standard Car Truck Company and Robclif, Inc.,
dated September 12, 2008
Second Amended and Restated Refinancing Credit Agreement, dated as of June 22, 2016, by and among
the Company, Wabtec Cooperatief UA, as borrowers, certain subsidiaries of the Company as guarantors
and the lenders party thereto and PNC Bank, National Association, as Administrative Agent, PNC
Capital Markets LLC, Merrill Lynch, Pierce, Fenner & Smith Inc., JPMorgan Chase Bank, N.A., HSBC
Bank, USA, National Association and Société Générale, as Joint Lead Arrangers and Joint Bookrunners,
Bank of America, National Association and JPMorgan Chase Bank, N.A., as Co-Syndication Agents, and
HSBC Bank USA, National Association and Société Générale, as Co-Documentation Agents.
First Amendment to Second Amended and Restated Refinancing Credit Agreement, dated as of April 19,
2017, by and among the Company, Wabtec Cooperatief UA, as a borrower, certain subsidiaries of the
Company as guarantors, the lenders party thereto and PNC Bank, National Association, as
Administrative Agent.
Second Amendment to Second Amended and Restated Refinancing Credit Agreement, dated as of
October 11, 2017, by and among the Company, Wabtec Cooperatief UA, as a borrower, certain
subsidiaries of the Company as guarantors, the lenders party thereto and PNC Bank, National
Association, as Administrative Agent.
Form of Employment Continuation Agreement entered into by the Company with Albert J. Neupaver,
Raymond T. Betler, David L. DeNinno, Patrick D. Dugan, Scott E. Wahlstrom, Michael E. Fetsko,
Timothy R. Wesley and John A Mastalerz Jr.*
Amended and Restated Employment Agreement with Stephane Rambaud-Measson dated October 24,
2016*
Amended and Restated Employment Agreement with Guillaume Bouhours dated October 24, 2016*
Wabtec Corporation Deferred Compensation Plan for Executive Officers and Directors as adopted
December 10, 2009 *
Form of Agreement for Nonstatutory Stock Option under the 1995 Non-Employee Directors’ Fee and
Stock Option Plan, as amended and restated*
44
12
19
19
19
20
21
22
2
2
2
4
4
3
10
5
6
14
21
23
7
20
20
10
10
10.17
10.18
21.0
23.1
23.2
31.1
31.2
32.1
Form of Agreement for Nonstatutory Stock Options under 2000 Stock Incentive Plan, as amended *
Form of Agreement for Nonstatutory Stock Options under 2011 Stock Incentive Plan as amended and
restated*
List of subsidiaries of the Company
Consent of Ernst & Young LLP
Consent of Independent Accountants
Rule 13a-14(a)/15d-14(a) Certifications
Rule 13a-14(a)/15d-14(a) Certifications
Section 1350 Certifications
101.INS XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Calculation Linkbase Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
1 Filed herewith.
10
10
1
1
1
1
1
1
1
1
1
1
1
1
2 Filed as an exhibit to the Company’s Registration Statement on Form S-1 (File No. 33-90866).
3 Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q (File No. 033-90866) for the period ended
March 31, 2006.
4 Filed as an Annex to the Company’s Schedule 14A Proxy Statement (File No. 1-13782) filed on April 13, 2006.
5 Filed as an Annex to the Company’s Schedule 14A Proxy Statement (File No. 1-13782) filed on March 31, 2011.
6 Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q (File No. 1-13782) for the period ended
September 30, 2008.
7 Filed as an exhibit to the Company’s Current Report on Form 8-K (File No. 1-13782) dated July 2, 2009.
8 Filed as an exhibit to the Company’s Current Report on Form 8-K (File No. 1-13782), dated May 19, 2014.
9 Filed as an exhibit to the Company’s Annual Report on Form 10-K (File No. 1-13782), dated February 25, 2011.
10 Filed as an exhibit to the Company’s Annual Report on Form 10-K (File No. 1-13782), dated February 22, 2013.
11 Filed as an exhibit to the Company’s Current Report on Form 8-K (File No. 1-13782), dated May 15, 2013.
12 Filed as an exhibit to the Company’s Current Report on Form 8-K (File No. 1-13782), dated August 8, 2013.
45
13 Filed as an exhibit to the Company’s Annual Report on Form 10-K (File No. 1-13782), dated February 21, 2014.
14 Filed as an exhibit to the Company's Current Report on Form 8-K (File No. 1-13782), dated June 24, 2016.
15 Filed as an exhibit to the Company's Current Report on Form 8-K (File No. 1-13782), dated July 30, 2015.
16 Filed as an exhibit to the Company's Current Report on Form 8-K (File No. 1-13782), dated October 6, 2015.
17 Filed as an exhibit to the Company's Current Report on Form 8-K (File No. 1-13782), dated October 26, 2016.
18 Filed as an exhibit to the Company's Current Report on Form 8-K (File No. 1-13782), dated November 1, 2016.
19 Filed as an exhibit to the Company's Current Report on Form 8-K (File No. 1-13782), dated November 3, 2016.
20 Filed as an exhibit to the Company’s Annual Report on Form 10-K (File No. 1-13782), dated February 28, 2017.
21 Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q (File No. 1-13782) for the period ended March
31, 2017.
22 Filed as an exhibit to the Company’s Registration Statement on Form S-4 (File No. 333-219354).
23 Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q (File No. 1-13782) for the period ended
September 30, 2017.
*
Management contract or compensatory plan.
46
MANAGEMENT’S REPORTS TO WABTEC SHAREHOLDERS
Management’s Report on Financial Statements and Practices
The accompanying consolidated financial statements of Westinghouse Air Brake Technologies Corporation and
subsidiaries (the “Company”) were prepared by Management, which is responsible for their integrity and objectivity. The
statements were prepared in accordance with U.S. generally accepted accounting principles and include amounts that are based
on Management’s best judgments and estimates. The other financial information included in the 10-K is consistent with that in
the financial statements.
Management also recognizes its responsibility for conducting the Company’s affairs according to the highest standards
of personal and corporate conduct. This responsibility is characterized and reflected in key policy statements issued from time
to time regarding, among other things, conduct of its business activities within the laws of host countries in which the Company
operates and potentially conflicting outside business interests of its employees. The Company maintains a systematic program
to assess compliance with these policies.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the
Company. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the
Sarbanes-Oxley Act, Management has conducted an assessment, including testing, using the criteria in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework)
(COSO). The Company’s system of internal control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting standards. Because of its inherent limitations, internal control over financial reporting may
not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Management has excluded Aero Transportation Products ("ATP"), Thermal Transfer Corporation ("TTC"), Semvac
Group ("Semvac"), AM General Contractor ("AM General"), and Melett Limited ("Melett") from its assessment of internal
controls over financial reporting as of December 31, 2017 because the Company acquired ATP effective March 13, 2017, TTC
effective April 5, 2017, Semvac effective April 28, 2017, AM General effective October 2, 2017, and Melett effective
December 4, 2017. ATP, TTC, Semvac, AM General, and Melett are subsidiaries whose total assets represents 1.1%, 0.6%,
0.3%, 0.9%, and 1.5%, respectively, and whose customer revenues represents 0.9%, 0.4%, 0.3%, 0.2%, and 0.1%, respectively,
of the related consolidated financial statement amounts as of and for the year ended December 31, 2017.
Based on its assessment, Management has concluded that the Company maintained effective internal control over
financial reporting as of December 31, 2017, based on criteria in Internal Control-Integrated Framework issued by the COSO.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2017, has been audited by
Ernst & Young LLP, independent registered public accounting firm, as stated in their report which is included herein.
47
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Westinghouse Air Brake Technologies Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Westinghouse Air Brake Technologies Corporation (the
Company) as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income,
shareholders' equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes
and schedule as listed in the Index at Item 15.(2) (collectively referred to as the “consolidated financial statements”). In our
opinion, based on our audits and the report of other auditors, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2017 in conformity with U.S. generally accepted accounting
principles.
We did not audit the pre-acquisition historical basis consolidated financial statements of Faiveley Transport S.A., a
consolidated subsidiary, which statements reflect total assets constituting 25.9% in 2016, and total revenues constituting 3.8%
in 2016 of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to
us, and our opinion, insofar as it relates to the amounts included for Faiveley Transport S.A., is based solely on the report of the
other auditors. We audited the adjustments necessary to convert the pre-acquisition historical amounts included for Faiveley
Transport S.A. to the basis reflected in the Company’s 2016 consolidated financial statements.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework), and our report dated February 26, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits and the report of other auditors provide a reasonable basis
for our opinion.
/s/ ERNST & YOUNG LLP
We have served as the Company's auditor since 2002.
Pittsburgh, Pennsylvania
February 26, 2018
48
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Management Board of Faiveley Transport
In our opinion, the consolidated balance sheets and the related consolidated statement of income, comprehensive income,
shareholders’ equity and cash flows present fairly, in all material respects, the financial position of Faiveley Transport and its
subsidiaries as of December 31, 2016 and November 30, 2016, and the results of their operations and their cash flows for the
period from November 30, 2016 to December 31, 2016 (not presented separately herein), in conformity with accounting
principles generally accepted in the United States of America. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion. As discussed in Note 3, the company has not applied push down accounting for its
acquisition by Wabtec.
PricewaterhouseCoopers Audit
/s/ Philippe Vincent
Partner
Neuilly-sur-Seine, France
February 23, 2017
49
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Westinghouse Air Brake Technologies Corporation
Opinion on Internal Control over Financial Reporting
We have audited Westinghouse Air Brake Technologies Corporation’s internal control over financial reporting as of December 31,
2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Westinghouse Air Brake Technologies Corporation
(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based
on the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of
and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Aero
Transportation Products (“ATP”), Thermal Transfer Corporation (“TTC”), Semvac Group ("Semvac"), AM General Contractor (“AM
General”), and Melett Limited ("Melett"), which are included in the 2017 consolidated financial statements of the Company and
constituted 1.1%, 0.6%, 0.3%, 0.9%, and 1.5% of total assets, respectively, as of December 31, 2017 and 0.9%, 0.4%, 0.3%, 0.2%,
and 0.1% of revenues, respectively, for the year then ended. Our audit of internal control over financial reporting of the Company also
did not include an evaluation of the internal control over financial reporting of ATP, TTC, Semvac, AM General, and Melett.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements of
comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2017, and
the related notes and schedule as listed in the Index at Item 15.(2) and our report dated February 26, 2018 expressed an unqualified
opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based
on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
February 26, 2018
50
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
In thousands, except shares and par value
Assets
Current Assets
December 31,
2017
2016
Cash and cash equivalents ........................................................................................................................................
$
233,401
$
Accounts receivable ..................................................................................................................................................
Unbilled accounts receivable ....................................................................................................................................
Inventories.................................................................................................................................................................
Deposits in escrow ....................................................................................................................................................
Other assets ...............................................................................................................................................................
Total current assets..............................................................................................................................................
Property, plant and equipment ..................................................................................................................................
Accumulated depreciation ........................................................................................................................................
Property, plant and equipment, net .....................................................................................................................
Other Assets
Goodwill ...................................................................................................................................................................
Other intangibles, net ................................................................................................................................................
Other noncurrent assets.............................................................................................................................................
Total other assets.................................................................................................................................................
800,619
366,168
742,634
—
122,291
2,265,113
1,026,046
(452,074)
573,972
2,460,103
1,204,432
76,360
3,740,895
Total Assets ...................................................................................................................................................
$
6,579,980
$
Current Liabilities
Liabilities and Shareholders’ Equity
Accounts payable ......................................................................................................................................................
$
552,525
$
Customer deposits.....................................................................................................................................................
Accrued compensation..............................................................................................................................................
Accrued warranty......................................................................................................................................................
Current portion of long-term debt.............................................................................................................................
Other accrued liabilities ............................................................................................................................................
Total current liabilities ........................................................................................................................................
Long-term debt..........................................................................................................................................................
Accrued postretirement and pension benefits ...........................................................................................................
Deferred income taxes ..............................................................................................................................................
Accrued warranty......................................................................................................................................................
Other long-term liabilities.........................................................................................................................................
369,716
164,210
137,542
47,225
302,112
1,573,330
1,823,303
103,734
175,902
15,521
59,658
398,484
667,596
274,912
658,510
744,748
123,381
2,867,631
912,230
(393,854)
518,376
2,078,765
1,053,860
62,386
3,195,011
6,581,018
530,211
256,591
145,324
123,190
129,809
261,514
1,446,639
1,762,967
110,597
245,680
15,802
22,508
Total liabilities ..............................................................................................................................................
3,751,448
3,604,193
Commitment and Contingencies (Note 19)
Equity
Preferred stock, 1,000,000 shares authorized, no shares issued ...............................................................................
—
—
Common stock, $.01 par value; 200,000,000 shares authorized:
132,349,534 shares issued and 96,034,352 and 95,425,432 outstanding
at December 31, 2017 and December 31, 2016, respectively................................................................................
Additional paid-in capital .........................................................................................................................................
Treasury stock, at cost, 36,315,182 and 36,924,102 shares, at
December 31, 2017 and December 31, 2016, respectively....................................................................................
Retained earnings......................................................................................................................................................
Accumulated other comprehensive loss....................................................................................................................
Total Westinghouse Air Brake Technologies Corporation shareholders' equity .................................................
Noncontrolling interest .............................................................................................................................................
Total equity .........................................................................................................................................................
1,323
906,616
(827,379)
2,773,300
(44,992)
2,808,868
19,664
2,828,532
Total Liabilities and Equity...........................................................................................................................
$
6,579,980
$
1,323
869,951
(838,950)
2,553,258
(379,605)
2,205,977
770,848
2,976,825
6,581,018
The accompanying notes are an integral part of these statements.
51
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
2017
2016
2015
In thousands, except per share data
Net sales .............................................................................................................................................
$
3,881,756
$
2,931,188
$
3,307,998
Cost of sales .......................................................................................................................................
Gross profit .........................................................................................................................
Selling, general and administrative expenses ....................................................................................
Engineering expenses.........................................................................................................................
Amortization expense ........................................................................................................................
Total operating expenses.....................................................................................................
Income from operations ......................................................................................................
Other income and expenses
Interest expense, net.....................................................................................................................
Other (expense) income, net ........................................................................................................
Income from operations before income taxes.....................................................................
Income tax expense............................................................................................................................
Net income ..........................................................................................................................
Less: Net income attributable to noncontrolling interest...................................................................
(2,816,443)
1,065,313
(511,898)
(95,166)
(36,516)
(643,580)
421,733
(68,704)
(966)
352,063
(89,773)
262,290
(29)
(2,006,949)
924,239
(371,805)
(71,375)
(22,698)
(465,878)
458,361
(42,561)
(2,963)
412,837
(99,433)
313,404
(8,517)
Net income attributable to Wabtec shareholders.................................................................
$
262,261
$
304,887
$
Earnings Per Common Share
Basic
Net income attributable to Wabtec shareholders.................................................................
Diluted
Net income attributable to Wabtec shareholders.................................................................
Weighted average shares outstanding
$
$
2.74
2.72
$
$
3.37
3.34
$
$
Basic....................................................................................................................................
Diluted.................................................................................................................................
95,453
96,125
90,359
91,141
(2,260,182)
1,047,816
(347,373)
(71,213)
(21,663)
(440,249)
607,567
(16,888)
(5,311)
585,368
(186,740)
398,628
—
398,628
4.14
4.10
96,074
97,006
The accompanying notes are an integral part of these statements.
52
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended December 31,
2017
2016
2015
In thousands, except per share data
Net income attributable to Wabtec shareholders................................................................................
$
262,261
$
304,887
$
Foreign currency translation gain (loss) ............................................................................................
Unrealized gain (loss) on derivative contracts...................................................................................
Unrealized gain (loss) on pension benefit plans and post-retirement benefit plans ..........................
Other comprehensive gain (loss) before tax ................................................................................
Income tax (expense) benefit related to components of
other comprehensive loss................................................................................................................
Other comprehensive income (loss), net of tax ...........................................................................
326,096
9,799
2,845
338,740
(4,127)
334,613
(93,684)
305
(12,021)
(105,400)
2,514
(102,886)
Comprehensive income attributable to Wabtec shareholders ......................................................
$
596,874
$
202,001
$
398,628
(132,899)
(1,202)
26,689
(107,412)
(9,821)
(117,233)
281,395
The accompanying notes are an integral part of these statements.
53
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands, except per share data
Operating Activities
Net income .........................................................................................................................................
$
262,290
$
313,404
$
398,628
December 31,
2017
2016
2015
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization.....................................................................................................
Stock-based compensation expense.............................................................................................
Deferred income taxes .................................................................................................................
Loss on disposal of property, plant and equipment......................................................................
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable and unbilled accounts receivable..........................................................
Inventories..............................................................................................................................
Accounts payable ...................................................................................................................
Accrued income taxes ............................................................................................................
Accrued liabilities and customer deposits..............................................................................
Other assets and liabilities .....................................................................................................
Net cash provided by operating activities........................................................................
Investing Activities
Purchase of property, plant and equipment..................................................................................
Proceeds from disposal of property, plant and equipment...........................................................
Acquisitions of business, net of cash acquired ............................................................................
Deposit in escrow.........................................................................................................................
Net cash used for investing activities...............................................................................
Financing Activities
Proceeds from debt ......................................................................................................................
Payments of debt..........................................................................................................................
Stock re-purchase.........................................................................................................................
Proceeds from exercise of stock options and other benefit plans ................................................
Payment of income tax withholding on share-based compensation ............................................
Cash dividends ($0.44, $0.36 and $0.28 per share for the years
ended December 31, 2017, 2016 and 2015) .............................................................................
Net cash (used for) provided by financing activities .......................................................
Effect of changes in currency exchange rates....................................................................................
(Decrease) increase in cash..........................................................................................................
Cash, beginning of year .........................................................................................................
103,248
21,287
(67,423)
1,907
(68,676)
(8,955)
(91,722)
47,644
(18,891)
8,102
188,811
(89,466)
1,291
(921,537)
733,983
(275,729)
1,216,740
(1,269,537)
—
4,428
(6,844)
(42,218)
(97,431)
19,266
(165,083)
398,484
69,795
20,813
(10,228)
232
19,728
45,340
(18,932)
(11,759)
(11,338)
33,475
450,530
(50,216)
363
(183,113)
(542,099)
(775,065)
1,875,000
(1,102,748)
(212,176)
1,983
(6,658)
(32,430)
522,971
(26,143)
172,293
226,191
Cash, end of year....................................................................................................................
$
233,401
$
398,484
$
The accompanying notes are an integral part of these statements.
64,734
26,019
4,981
587
21,500
20,147
(76,650)
21,740
(14,837)
(16,005)
450,844
(49,428)
1,784
(129,550)
(202,942)
(380,136)
787,400
(612,680)
(387,787)
3,097
(14,565)
(26,963)
(251,498)
(18,868)
(199,658)
425,849
226,191
54
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
In thousands, except share and per
share data
Common
Stock
Shares
Common
Stock
Amount
Additional
Paid-in
Capital
Treasury
Stock
Shares
Treasury
Stock
Retained
Accumulated
Other
Non-
controlling
Amount
Earnings
Comprehensive
Income (Loss)
Interest
Total
Balance, December 31, 2014
132,349,534
$
1,323
$
448,531
(36,075,139)
$ (392,262)
$ 1,909,136
$
(159,486)
$
1,732
$ 1,808,974
Cash dividends ($0.28 dividend per
share) ..................................................
Proceeds from treasury stock issued
from the exercise of stock
options and other benefit plans,
net of tax ......................................
Stock based compensation ..................
Net income ..........................................
Translation adjustment ........................
Unrealized loss on foreign exchange
contracts, net of $14 tax ......................
Unrealized loss on interest rate swap
contracts, net of $444 tax ....................
Change in pension and post-
retirement benefit plans, net of
$10,279 tax
Stock re-purchase ................................
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(26,963)
(2,918)
23,713
—
—
—
—
—
—
450,738
4,925
—
—
—
—
—
—
—
—
—
—
—
—
(4,889,027)
(387,787)
—
—
398,628
—
—
—
—
—
—
—
—
—
(132,899)
(66)
(678)
16,410
—
—
(26,963)
—
—
—
—
—
—
—
—
2,007
23,713
398,628
(132,899)
(66)
(678)
16,410
(387,787)
Balance, December 31, 2015
132,349,534
1,323
469,326
(40,513,428)
(775,124)
2,280,801
(276,719)
1,732
1,701,339
Cash dividends ($0.36 dividend per
share) ..................................................
Proceeds from treasury stock issued
from the exercise of stock
options and other benefit plans,
net of tax ......................................
Stock based compensation ..................
Non-controlling interests associated
with Faiveley Transport Acquisition ...
Net income ..........................................
Translation adjustment ........................
Unrealized loss on foreign exchange
contracts, net of $45 tax ......................
Unrealized gain on interest rate swap
contracts, net of $230 tax ....................
Change in pension and post-
retirement benefit plans, net of $2,790
tax .......................................................
Stock issued for Faiveley Transport
Acquisition
Stock re-purchase ................................
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(32,430)
(8,490)
17,748
—
—
—
—
—
—
328,245
5,038
—
—
—
—
—
—
—
—
—
—
—
—
—
—
391,367
6,307,489
143,312
—
(3,046,408)
(212,176)
—
—
—
304,887
—
—
—
—
—
—
—
—
—
—
—
(93,684)
(324)
354
(9,232)
—
—
—
(32,430)
—
—
760,599
8,517
—
—
—
—
—
—
(3,452)
17,748
760,599
313,404
(93,684)
(324)
354
(9,232)
534,679
(212,176)
Balance, December 31, 2016
132,349,534
1,323
869,951
(36,924,102)
(838,950)
2,553,258
(379,605)
770,848
2,976,825
Cash dividends ($0.44 dividend per
share) ..................................................
Proceeds from treasury stock issued
from the exercise of stock
options and other benefit plans,
net of tax ......................................
Stock based compensation ..................
Acquisition of Faiveley Transport
noncontrolling interest ........................
Net income ..........................................
Translation adjustment ........................
Unrealized gain on foreign exchange
contracts, net of $1,763 tax .................
Unrealized gain on interest rate swap
contracts, net of $1,079 tax .................
Change in pension and post-
retirement benefit plans, net of $1,300
tax .......................................................
Stock issued for Faiveley Transport
Acquisition ..........................................
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(42,218)
(7,361)
16,650
8,931
—
—
—
—
—
18,445
608,920
4,945
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6,626
—
—
—
262,261
—
—
—
—
—
—
—
—
—
—
326,095
2,282
4,689
1,546
—
—
(42,218)
—
—
(2,416)
16,650
(751,213)
(742,282)
29
—
—
—
—
—
262,290
326,095
2,282
4,689
1,546
25,071
Balance, December 31, 2017
132,349,534
$
1,323
$
906,616
(36,315,182)
$ (827,379)
$ 2,773,301
$
(44,993)
$
19,664
$ 2,828,532
The accompanying notes are an integral part of these statements
55
1. BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wabtec is one of the world’s largest providers of value-added, technology-based equipment, systems and services for the
global passenger transit and freight rail industries. Our highly engineered products, which are intended to enhance safety,
improve productivity and reduce maintenance costs for customers, can be found on most locomotives, freight cars, passenger
transit cars and buses around the world. Our products enhance safety, improve productivity and reduce maintenance costs for
customers, and many of our core products and services are essential in the safe and efficient operation of freight rail and
passenger transit vehicles. Wabtec is a global company with operations in 31 countries and our products can be found in more
than 100 countries throughout the world. In 2017, about 66% of the Company’s revenues came from customers outside the U.S.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation The consolidated financial statements include the accounts of the Company and all
subsidiaries that it controls. For consolidated subsidiaries in which the Company's ownership is less than 100%, the outside
shareholders' interests are shown as noncontrolling interests. These statements have been prepared in accordance with U.S.
generally accepted accounting principles. Sales between subsidiaries are billed at prices consistent with sales to third parties
and are eliminated in consolidation.
Cash Equivalents Cash equivalents are highly liquid investments purchased with an original maturity of three months or
less.
Allowance for Doubtful Accounts The allowance for doubtful accounts receivable reflects our best estimate of probable
losses inherent in our receivable portfolio determined on the basis of historical experience, specific allowances for known
troubled accounts and other currently available evidence. The allowance for doubtful accounts was $12.3 million and $7.3
million as of December 31, 2017 and 2016, respectively.
Inventories Inventories are stated at the lower of cost or market. Cost is determined under the first-in, first-out (FIFO)
method. Inventory costs include material, labor and overhead.
Property, Plant and Equipment Property, plant and equipment additions are stated at cost. Expenditures for renewals
and improvements are capitalized. Expenditures for ordinary maintenance and repairs are expensed as incurred. The Company
computes book depreciation principally on the straight-line method. Accelerated depreciation methods are utilized for income
tax purposes.
Leasing Arrangements The Company conducts a portion of its operations from leased facilities and finances certain
equipment purchases through lease agreements. In those cases in which the lease term approximates the useful life of the leased
asset or the lease meets certain other prerequisites, the leasing arrangement is classified as a capital lease. The remaining
arrangements are treated as operating leases.
Goodwill and Intangible Assets Goodwill and other intangible assets with indefinite lives are not amortized. Other
intangibles (with definite lives) are amortized on a straight-line basis over their estimated economic lives. Amortizable
intangible assets are reviewed for impairment when indicators of impairment are present. The Company tests goodwill and
indefinite-lived intangible assets for impairment at the reporting unit level and at least annually. The Company performs its
annual impairment test during the fourth quarter after the annual forecasting process is completed, and also tests for impairment
whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Periodically,
Management of the Company assesses whether or not an indicator of impairment is present that would necessitate an
impairment analysis be performed.
For 2017, the Company opted to proceed directly to the two-step quantitative impairment test for all reporting units with
goodwill. In the first step of the quantitative assessment, our assets and liabilities, including existing goodwill and other
intangible assets, are assigned to the identified reporting units to determine the carrying value of the reporting units. The
income approach and the market approach are weighted at 50% and 50%, respectively, in arriving at fair value. The discounted
cash flow model requires several assumptions including future sales growth, EBIT (earnings before interest and taxes) margins
and capital expenditures for the reporting units. The discounted cash flow model also requires the use of a discount rate and a
terminal revenue growth rate (the revenue growth rate for the period beyond the years forecasted by the reporting units), as well
as projections of future operating margins. The market approach requires several assumptions including EBITDA (earnings
before interest, taxes, depreciation and amortization) multiples for comparable companies that operate in the same markets as
56
the Company’s reporting units. The estimated fair value of all reporting units was substantially in excess of its respective
carrying value, which resulted in a conclusion that no impairment existed.
Additionally, the Company proceeded directly to the quantitative impairment test for some trade names with indefinite
lives. The fair value of all trade names subject to the quantitative impairment test exceeded its respective carrying value,
resulting in a conclusion that no impairment existed. For trade names not subject to the quantitative testing, the Company
opted to perform a qualitative trade name impairment assessment and determined from the qualitative assessment that it was
not more likely than not that the estimated fair values of the trade names were less than their carrying values; therefore, no
further analysis was required. In assessing the qualitative factors to determine whether it is more likely than not that the fair
value of a trade name is less than its carrying amount, we assess relevant events and circumstances that may impact the fair
value and the carrying amount of the trade name. The identification of relevant events and circumstances and how these may
impact a trade name’s fair value or carrying amount involve significant judgments and assumptions. The judgment and
assumptions include the identification of macroeconomic conditions, industry and market considerations, cost factors, overall
financial performance, Wabtec specific events, share price trends and making the assessment on whether each relevant factor
will impact the impairment test positively or negatively and the magnitude of any such impact.
Warranty Costs Warranty costs are accrued based on Management’s estimates of repair or upgrade costs per unit and
historical experience. Warranty expense was $50.4 million, $28.9 million and $35.4 million for 2017, 2016 and 2015,
respectively. Accrued warranty was $153.1 million and $139.0 million at December 31, 2017 and 2016, respectively.
Income Taxes Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are
determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the
enacted tax rates and laws. The provision for income taxes includes federal, state and foreign income taxes.
Stock-Based Compensation The Company recognizes compensation expense for stock-based compensation based on
the grant date fair value amortized ratably over the requisite service period following the date of grant.
Financial Derivatives and Hedging Activities The Company has entered into foreign currency forward contracts to
reduce the impact of changes in currency exchange rates. Foreign currency forward contracts are agreements with a
counterparty to exchange two distinct currencies at a set exchange rate for delivery on a set date at some point in the future.
There is no exchange of funds until the delivery date. At the delivery date, the Company can either take delivery of the
currency or settle on a net basis. For further information regarding the foreign currency forward contracts, see Footnote 17.
To reduce the impact of interest rate changes on a portion of its variable-rate debt, the Company has entered into an
interest rate swap agreement with a notional value of $150 million. As of December 31, 2017, the Company has recorded a
current liability of $1.2 million and a corresponding offset in accumulated other comprehensive loss of $0.7 million, net of tax,
related to these agreements. For further information regarding the interest rate swap agreement, see Footnote 17.
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 recorded in the Company’s consolidated
financial statements based upon the provisions of Accounting Standards Codification (“ASC”) 830, “Foreign Currency
Matters.” The effects of currency exchange rate changes on intercompany transactions and balances of a long-term investment
nature are accumulated and carried as a component of accumulated other comprehensive loss. The effects of currency exchange
rate changes on intercompany transactions that are denominated in a currency other than an entity’s functional currency are
charged or credited to earnings. Foreign exchange transaction losses recognized in other (expense) income, net were $6.6
million, $4.0 million and $4.7 million for 2017, 2016 and 2015, respectively.
Noncontrolling Interests In accordance with ASC 810, the Company has classified noncontrolling interests as equity on
our condensed consolidated balance sheets as of December 31, 2017 and 2016. Net income attributable to noncontrolling
interests was $8.5 million for the year ended December 31, 2016. Net income attributable to noncontrolling interest was not
material for the years ended December 31, 2017 and 2015. Other comprehensive income attributable to noncontrolling
interests for the years ended December 31, 2017, 2016 and 2015 was not material.
Revenue Recognition Revenue is recognized in accordance with ASC 605 “Revenue Recognition,” The Company
recognizes revenue when the following criteria are met: 1) persuasive evidence of an arrangement exists; 2) delivery has
occurred; 3) an established sales price has been set with the customer; 4) collection of the sale revenue from the customer is
reasonably assured; and 5) no contingencies exist. Delivery is considered to have occurred when the customer assumes the risk
57
and rewards of ownership. The Company estimates and records provisions for quantity rebates and sales returns and
allowances as an offset to revenue in the same period the related revenue is recognized, based upon its experience. These items
are included as a reduction in deriving net sales.
In general, the Company recognizes revenues on long-term contracts based on the percentage of completion method of
accounting. The units-of-delivery method or other input-based or output-based measures, as appropriate, are used to measure
the progress toward completion of individual contracts. Contract revenues and cost estimates are reviewed and revised
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 $366.2 million and $274.9
million, customer deposits were $369.7 million and $256.6 million, and provisions for loss contracts were $94.0 million and
$60.5 million at December 31, 2017 and 2016, respectively.
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 $20.2 million and $29.4 million at December 31,
2017 and 2016, respectively.
Significant Customers and Concentrations of Credit Risk The Company’s trade receivables are from rail and transit
industry original equipment manufacturers, Class I railroads, railroad carriers and commercial companies that utilize rail cars in
their operations, such as utility and chemical companies. No one customer accounted for more than 10% of the Company’s
consolidated net sales in 2017, 2016 or 2015.
Shipping and Handling Fees and Costs All fees billed to the customer for shipping and handling are classified as a
component of net revenues. All costs associated with shipping and handling are classified as a component of cost of sales.
Research and Development Research and development costs are charged to expense as incurred. For the years ended
December 31, 2017, 2016 and 2015, the Company incurred costs of approximately $95.2 million, $71.4 million, and $71.2
million, respectively.
Earnings Per Share Basic and diluted earnings per common share is computed in accordance with ASC 260 “Earnings
Per Share.” Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and included in the computation of earnings per share pursuant to the two-
class method included in ASC 260-10-55. (See Note 11 “Earnings Per Share” included herein)
Reclassifications Certain prior year amounts have been reclassified, where necessary, to conform to the current year
presentation. Refer to Recently Adopted Accounting Pronouncements below.
Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in
the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period.
Actual amounts could differ from the estimates. On an ongoing basis, Management reviews its estimates based on currently
available information. Changes in facts and circumstances may result in revised estimates.
Recently Issued Accounting Pronouncements In February 2018, the Financial Accounting Standards Board ("FASB")
issued Accounting Standards Update ("ASU") No. 2018-02 "Income Statement - Reporting Comprehensive Income (Topic
220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income". The amendments in this
update address certain stranded income tax effects in accumulated other comprehensive income ("AOCI") resulting from the
Tax Cuts and Jobs Act ("TCJA"). Current guidance requires the effect of a change in tax laws or rates on deferred tax balances
to be reported in income from continuing operations in the accounting period that includes the period of enactment, even if the
related income tax effects were originally charged or credited directly to AOCI. The amount of the reclassification would
include the effect of the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts and related
valuation allowances, if any, at the date of the enactment of TCJA related to items in AOCI. The updated guidance is effective
for reporting periods beginning after December 15, 2018 and is to be applied retrospectively to each period in which the effect
of the TCJA related to items remaining in AOCI are recognized or at the beginning of the period of adoption. Early adoption is
permitted. The Company is currently evaluating the potential impact of adopting this guidance on its consolidated financial
statements.
In March 2017, the FASB issued ASU No. 2017-07 "Compensation - Retirement Benefits (Topic 715): Improving the
Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost". The amendments in this update
require the service cost component of net benefit costs to be reported in the same line item or items as other compensation costs
58
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. This update also allows the service cost component to be eligible for capitalization when applicable. 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 was permitted as of the beginning of an annual period. 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 to 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 greater than the carrying value as of the Company's last
quantitative goodwill impairment test, which was performed as of October 1, 2017.
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 does not expect the adoption of this guidance in 2018 to have a material impact on the Company's
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. 2014-9, “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 to results is not
anticipated to be material because the analysis of the Company's current long-term contracts under the new revenue recognition
standard supports the recognition of revenue over time under the cost-to-cost method for substantially all of our long-term
contracts, which is consistent with our current revenue recognition model. 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 has evaluated new disclosure requirements and is implementing appropriate
changes to its business processes and controls to support disclosure under the new guidance.
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
59
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 was not material.
60
3. ACQUISITIONS
Faiveley Transport
On November 30, 2016, 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 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 purchase price paid for 100% ownership of Faiveley Transport was $1,507 million. 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.
The fair values of the assets acquired and liabilities assumed were determined using the income, cost and market
approaches. 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
during 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.
61
The following table summarizes the final fair values of the Faiveley Transport assets acquired and liabilities assumed.
In thousands
Assets acquired
Cash and cash equivalents.........................................................................................................................
$
Accounts receivable ..................................................................................................................................
Inventories .................................................................................................................................................
Other current assets ...................................................................................................................................
Property, plant, and equipment..................................................................................................................
178,318
439,631
205,649
70,930
148,746
Goodwill....................................................................................................................................................
1,262,350
Trade names...............................................................................................................................................
Customer Relationships.............................................................................................................................
Patents .......................................................................................................................................................
Other noncurrent assets .............................................................................................................................
346,328
233,529
1,201
184,564
Total assets acquired...............................................................................................................................
3,071,246
Liabilities assumed
Current liabilities.......................................................................................................................................
Debt ...........................................................................................................................................................
Other noncurrent liabilities........................................................................................................................
Total liabilities assumed ............................................................................................................................
Net assets acquired ....................................................................................................................................
$
819,493
409,899
335,039
1,564,431
1,506,815
During the twelve months ended December 31, 2017, the estimated fair values for customer relationships and current
liabilities were adjusted by $21.8 million and $65.3 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 $30.0 million to 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 $74.1 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 for acquired share-based stock plans that are obligated to be settled in cash. Contingent
liabilities assumed as part of the transaction were not material. These contingent liabilities are related to 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 are 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 future economic benefits, including synergies and assembled workforce,
that we expect to achieve as a result of the acquisition. Purchased goodwill is not deductible for tax purposes. The goodwill
allocated to the Freight segment is $72.0 million and the goodwill allocated to the Transit segment is $1,190.4 million.
Other Acquisitions
The Company made the following acquisitions operating as a business unit or component of a business unit in the
Freight Segment:
• On December 4, 2017, the Company acquired Melett Limited ("Melett"), a leader in the design, manufacture, and
supply of high-quality turbochargers and replacement parts to the turbocharger aftermarket, for a purchase price
of approximately $74.0 million, net of cash acquired, resulting in preliminary goodwill of $22.5 million, none of
which will be deductible for tax purposes.
• On April 5, 2017, the Company acquired Thermal Transfer Corporation ("TTC"), a leading provider of heat
transfer solutions for industrial applications, for a purchase price of approximately $32.5 million, net of cash
acquired, resulting in preliminary goodwill of $16.3 million, all of which will be deductible for tax purposes.
62
• On March 13, 2017, the Company acquired Aero Transportation Products ("ATP"), a manufacturer of engineered
covering systems for hopper freight cars, for a purchase price of approximately $65.3 million, net of cash
acquired, resulting in preliminary goodwill of $29.0 million, all of which will be deductible for tax purposes.
• On December 14, 2016, the Company acquired Workhorse Rail LLC ("Workhorse"), a supplier of engineered
freight car components, mainly for the aftermarket for a purchase price of approximately $43.8 million, net of
cash acquired, resulting in goodwill of $22.3 million, 38% of which will be deductible for tax purposes.
• On November 17, 2016, the Company acquired the assets of Precision Turbo & Engine ("Precision Turbo"), a
designer and manufacturer of high-performance, aftermarket turbochargers, wastegates, and heat exchangers for
the automotive performance market for a purchase price of approximately $13.9 million, net of cash acquired,
resulting in goodwill of $4.2 million, all of which will be deductible for tax purposes.
• On May 5, 2016, the Company acquired the assets of Unitrac Railroad Materials ("Unitrac"), a leading designer
and manufacturer of railroad products and track work services for a purchase price of approximately $14.8
million, net of cash acquired, resulting in goodwill of $2.4 million, all of which will be deductible for tax
purposes.
For the Melett, TTC, and ATP acquisitions, the following table summarizes the preliminary estimated fair values of the
assets acquired and liabilities assumed at the date of the acquisitions. For the Workhorse, Precision Turbo, and Unitrac
acquisitions, the following table summarizes the final fair value of assets acquired and liabilities assumed at the date of
acquisition.
Melett
TTC
ATP
Workhorse
Precision
Turbo
Unitrac
In thousands
December 4,
2017
April 5, 2017
March 13, 2017
December 14,
2016
November 17,
2016
May 5, 2016
Current assets ......................................
$
21,068
$
Property, plant & equipment...............
Goodwill .............................................
Other intangible assets ........................
Total assets acquired ..................
5,917
22,501
39,259
88,745
Total liabilities assumed.............
(14,789)
3,746
5,909
16,309
12,300
38,264
(5,753)
$
11,666
$
9,137
$
5,354
29,034
25,000
71,054
(5,800)
—
22,273
21,500
52,910
(9,083)
$
4,145
1,317
4,248
5,200
14,910
(1,057)
Net assets acquired.....................
$
73,956
$
32,511
$
65,254
$
43,827
$
13,853
$
11,476
1,768
2,442
1,230
16,916
(2,145)
14,771
The Company made the following acquisitions operating as a business unit or component of a business unit in the
Transit Segment:
• On October 2, 2017, the Company acquired AM General Contractor ("AM General"), a manufacturer of safety
systems, mainly for transit rail cars for a purchase price of approximately $10.4 million, net of cash acquired, resulting
in preliminary goodwill of $12.9 million, none of which will be deductible for tax purposes.
• On August 1, 2016, the Company acquired Gerken Group S.A. ("Gerken"), a manufacturer of specialty carbon and
graphite products for rail and other industrial applications, for a purchase price of approximately $62.8 million, net of
cash acquired, resulting in goodwill of $17.5 million, none of which will be deductible for tax purposes.
For the AM General acquisition, the following table summarizes the preliminary estimated fair value of the assets
acquired and liabilities assumed at the date of acquisition. For the Gerken acquisition, the following table summarizes the final
fair value of the assets acquired and liabilities assumed at the date of the acquisition.
In thousands
AM General
Gerken
October 2, 2017
August 1, 2016
Current assets ................................................................................................................................................................
$
6,611
$
Property, plant & equipment.........................................................................................................................................
Goodwill .......................................................................................................................................................................
Other intangible assets ..................................................................................................................................................
Other assets ...................................................................................................................................................................
Total assets acquired ............................................................................................................................................
Total liabilities assumed.......................................................................................................................................
4,140
12,943
12,097
—
35,791
(25,375)
Net assets acquired...............................................................................................................................................
$
10,416
$
32,706
7,667
17,470
30,560
1,706
90,109
(27,262)
62,847
63
The acquisitions listed above include escrow deposits of $44.4 million, which may be released to the Company for
indemnity and other claims in accordance with the purchase and escrow agreements.
The total goodwill and other intangible assets for acquisitions listed in the tables above was $2,117.8 million, of which
$1,389.6 million and $728.2 million was related to goodwill and other intangible assets, respectively. Of the allocation of
$728.2 million of acquired intangible assets, $380.9 million was assigned to trade names, $336.9 million was assigned to
customer relationships, and $5.0 million was assigned to intellectual property. The trade names are considered to have an
indefinite useful life while the intellectual property and customer relationships’ useful life is 20 years.
The Company also made smaller acquisitions not listed above which are individually and collectively immaterial.
The following unaudited pro forma financial information presents income statement results as if the acquisitions listed
above had occurred January 1, 2016:
In thousands
For the year ended
December 31,
2017
2016
Net sales ..........................................................................................................................................................................
$
3,946,244
$
Gross profit......................................................................................................................................................................
Net income attributable to Wabtec shareholders .............................................................................................................
1,095,101
271,783
4,212,617
1,275,835
349,852
Diluted earnings per share
As Reported............................................................................................................................................................
Pro forma................................................................................................................................................................
$
$
2.72
2.82
$
$
3.34
3.83
The historical consolidated financial information of the Company and the acquisitions detailed above have been
adjusted in the pro forma information to give effect to pro forma events that are (1) directly attributable to the transactions, (2)
factually supportable and (3) expected to have a continuing impact on the combined results. Pro forma data may not be
indicative of the results that would have been obtained had these acquisitions occurred at the beginning of the periods
presented, nor is it intended to be a projection of future results.
4. SUPPLEMENTAL CASH FLOW DISCLOSURES
Year Ended December 31,
2017
2016
2015
In thousands
Interest paid during the year.......................................................................................................
Income taxes paid during the year, net of amount refunded ......................................................
Business acquisitions:
Fair value of assets acquired ................................................................................................
Liabilities assumed ...............................................................................................................
Non-controlling interest (acquired) assumed .......................................................................
Stock and cash paid ...........................................................................................................
Less: Cash acquired.................................................................................................................
Stock used for acquisition .............................................................................................
$
$
75,317
89,379
$
$
30,211
121,563
$
$
452,209
207,788
(738,024)
982,445
35,408
25,500
3,118,420
1,453,382
760,343
904,695
186,903
534,679
19,372
147,958
156,020
20,789
—
135,231
5,681
—
Net cash paid ..................................................................................................................
$
921,537
$
183,113
$
129,550
5. INVENTORIES
The components of inventory, net of reserves, were:
In thousands
December 31,
2017
2016
Raw materials ................................................................................................................................................................
$
378,481
$
Work-in-progress...........................................................................................................................................................
Finished goods...............................................................................................................................................................
167,390
196,763
Total inventories ................................................................................................................................................
$
742,634
$
331,465
145,462
181,583
658,510
64
6. PROPERTY, PLANT & EQUIPMENT
The major classes of depreciable assets are as follows:
In thousands
December 31,
2017
2016
Machinery and equipment .............................................................................................................................................
$
728,257
$
Buildings and improvements.........................................................................................................................................
Land and improvements ................................................................................................................................................
Property, plant and equipment...........................................................................................................................
Less: accumulated depreciation.....................................................................................................................................
259,561
38,228
1,026,046
(452,074)
Total...................................................................................................................................................................
$
573,972
$
645,354
225,307
41,569
912,230
(393,854)
518,376
The estimated useful lives of property, plant and equipment are as follows:
Land improvements .............................................................................................................................................................................................
Building and improvements.................................................................................................................................................................................
Machinery and equipment....................................................................................................................................................................................
Years
10 to 20
20 to 40
3 to 15
Depreciation expense was $66.7 million, $47.1 million, and $43.1 million for 2017, 2016 and 2015, respectively.
7. INTANGIBLES
Goodwill and other intangible assets with indefinite lives are not amortized. Other intangibles with definite lives are
amortized on a straight-line basis over their estimated economic lives. Goodwill and indefinite lived intangible assets are reviewed
annually during the fourth quarter for impairment (See Note 2 “Summary of Significant Accounting Policies” included herein).
Goodwill and indefinite live intangible assets were not impaired at December 31, 2017 and 2016.
The change in the carrying amount of goodwill by segment for the year ended December 31, 2017 is as follows:
In thousands
Freight
Segment
Transit
Segment
Total
Balance at December 31, 2016...................................................................................................
$
550,902
$
1,527,863
$
2,078,765
Additions ....................................................................................................................................
Foreign currency impact.............................................................................................................
152,096
15,960
34,391
178,891
186,487
194,851
Balance at December 31, 2017...................................................................................................
$
718,958
$
1,741,145
$
2,460,103
As of December 31, 2017 and 2016, the Company’s trade names had a net carrying amount of $603.4 million and
$510.5 million, respectively, and the Company believes these intangibles have indefinite lives. Intangible assets of the
Company, other than goodwill and trade names, consist of the following:
In thousands
Patents, non-compete and other intangibles, net of accumulated
December 31,
2017
2016
amortization of $43,021 and $40,638.....................................................................................................................
$
17,554
$
15,360
Customer relationships, net of accumulated amortization
of $126,824 and $87,334.........................................................................................................................................
583,459
Total......................................................................................................................................................................
$
601,013
$
528,068
543,428
The remaining weighted average useful lives of patents, customer relationships and intellectual property were 10 years,
17 years and 15 years respectively. Amortization expense for intangible assets was $36.5 million, $22.7 million, and $21.7
million for the years ended December 31, 2017, 2016, and 2015, respectively.
65
Estimated amortization expense for the five succeeding years is as follows (in thousands):
2018................................................................................................................................................................................................................. $
2019.................................................................................................................................................................................................................
2020.................................................................................................................................................................................................................
2021.................................................................................................................................................................................................................
2022.................................................................................................................................................................................................................
38,059
36,076
34,050
33,777
33,489
8. LONG-TERM DEBT
Long-term debt consisted of the following:
In thousands
December 31,
2017
2016
3.45% Senior Notes due 2026, net of unamortized debt
issuance costs of $2,345 and $2,526 ........................................................................................................................
$
747,655
$
747,474
4.375% Senior Notes due 2023, net of unamortized
discount and debt issuance costs of $1,433 and $1,690 ...........................................................................................
Revolving Credit Facility and Term Loan, net of unamortized
debt issuance costs of $2,451 and $3,850 .....................................................................................................................
Schuldschein Loan ........................................................................................................................................................
Other Borrowings ..........................................................................................................................................................
Capital Leases................................................................................................................................................................
Total...................................................................................................................................................................
Less - current portion ........................................................................................................................................
248,567
853,124
11,998
6,860
2,324
1,870,528
47,225
Long-term portion .............................................................................................................................................
$
1,823,303
$
248,310
796,150
98,671
1,153
1,018
1,892,776
129,809
1,762,967
Wabtec's acquisition of the controlling stake of Faiveley Transport triggered the early repayment of a syndicated loan
and the mandatory offer to investors to repay the US and Schuldschein private placements. Both the syndicated loan and US
private placements were repaid in full in December 2016.
3.45% Senior Notes Due November 2026
In October 2016, the Company issued $750.0 million of Senior Notes due in 2026 (the “2016 Notes”). The 2016 Notes
were issued at 99.965% of face value. Interest on the 2016 Notes accrues at a rate of 3.45% per annum and is payable semi-
annually on May 15 and November 15 of each year. The proceeds were used to finance the cash portion of the Faiveley
Transport acquisition, refinance Faiveley Transport’s indebtedness, and for general corporate purposes. The principal balance
is due in full at maturity. The Company incurred $2.7 million of deferred financing costs related to the issuance of the 2016
Notes.
The 2016 Notes are senior unsecured obligations of the Company and rank pari passu with all existing and future senior
debt and senior to all existing and future subordinated indebtedness of the Company. The indenture under which the 2016 Notes
were issued contains covenants and restrictions which limit among other things, the following: the incurrence of indebtedness,
payment of dividends and certain distributions, sale of assets, change in control, mergers and consolidations and the incurrence
of liens.
The Company is in compliance with the restrictions and covenants in the indenture under which the 2016 Notes were
issued and expects that these restrictions and covenants will not be any type of limiting factor in executing our operating
activities.
4.375% Senior Notes Due 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.
66
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 its existing revolving credit facility with a consortium of commercial banks.
This “2016 Refinancing Credit Agreement” provides the Company with a $1.2 billion, 5 year revolving credit facility and a
$400.0 million delayed draw term loan (the “Term Loan”). The Company incurred approximately $3.3 million of deferred
financing cost related to the 2016 Refinancing Credit Agreement. The facility expires on June 22, 2021. The 2016 Refinancing
Credit Agreement borrowings bear variable interest rates indexed as described below. At December 31, 2017, the Company
had available bank borrowing capacity, net of $35.4 million of letters of credit, of approximately $679.0 million, subject to
certain financial covenant restrictions.
The Term Loan was drawn on November 25, 2016. The Company incurred a 10 basis point commitment fee from
June 22, 2016 until the initial draw on November 25, 2016.
Under the 2016 Refinancing Credit Agreement, the Company may elect a Base Rate of interest for U.S. Dollar
denominated loans or, for certain currencies, an interest rate based on the London Interbank Offered Rate (“LIBOR”) of
interest, or other rates appropriate for such currencies (in any case, “the Alternate Rate”). The Base Rate adjusts on a daily basis
and is the greater of the Federal Funds Effective Rate plus 0.50% per annum, the PNC, N.A. prime rate or the Daily LIBOR
Rate plus 100 basis points, plus a margin that ranges from 0 to 75 basis points. The Alternate Rate is based on the quoted rates
specific to the applicable currency, plus a margin that ranges from 75 to 175 basis points. Both the Base Rate and Alternate
Rate margins are dependent on the Company’s consolidated total indebtedness to EBITDA ratios. The initial Base Rate margin
is 0 basis points and the Alternate Rate margin is 175 basis points.
At December 31, 2017, the weighted average interest rate on the Company’s variable rate debt was 2.92%. On
January 12, 2012, the Company entered into a forward starting interest rate swap agreement with a notional value of $150.0
million. The effective date of the interest rate swap agreement is July 31, 2013, and the termination date was November 7,
2016. The impact of the interest rate swap agreement converted a portion of the Company’s outstanding debt from a variable
rate to a fixed-rate borrowing. During the term of the interest rate swap agreement the interest rate on the notional value was
fixed at 1.415% plus the Alternate Rate margin. On June 5, 2014, the Company entered into a forward starting interest rate
swap agreement with a notional value of $150.0 million. The effective date of the interest rate swap agreement is November 7,
2016, and the termination date is December 19, 2018. The impact of the interest rate swap agreement converts a portion of the
Company’s outstanding debt from a variable rate to a fixed-rate borrowing. During the term of the interest rate swap agreement
the interest rate on the notional value will be fixed at 2.56% plus the Alternate Rate margin. As for these agreements, the
Company is exposed to credit risk in the event of nonperformance by the counterparties. However, since only the cash interest
payments are exchanged, exposure is significantly less than the notional amount. The counterparties are large financial
institutions with excellent credit ratings and history of performance. The Company currently believes the risk of
nonperformance is negligible.
The 2016 Refinancing Credit Agreement limits the Company’s ability to declare or pay cash dividends and prohibits the
Company from declaring or making other distributions, subject to certain exceptions. The 2016 Refinancing Credit Agreement
contains various other covenants and restrictions including the following limitations: incurrence of additional indebtedness;
mergers, consolidations, sales of assets and acquisitions; additional liens; sale and leasebacks; permissible investments, loans
and advances; certain debt payments; and imposes a minimum interest expense coverage ratio of 3.0 and a maximum debt to
EBITDA ratio of 3.25. The Company is in compliance with the restrictions and covenants of the 2016 Refinancing Credit
Agreement and does not expect that these measurements will limit the Company in executing our operating activities.
Schuldschein Loan, Due 2016
In conjunction with the acquisition of Faiveley Transport, Wabtec acquired $137.2 million of a Schuldshein private
placement loan which was originally issued by Faiveley Transport on March 5, 2014 in Germany, in which approximately 20
international investors participated. This loan is denominated in euros. Subsequent to the acquisition of Faiveley Transport, the
Company repaid $125.3 million of the outstanding Schuldschein loan. The remaining balance of $12.0 million as of December
31, 2017 matures on March 5, 2024 and bears a fixed rate of 4.00%.
67
Debt and Capital Leases
Scheduled principal repayments of debt and capital lease balances as of December 31, 2017 are as follows:
2018 ................................................................................................................................................................................................................ $
2019 ................................................................................................................................................................................................................
2020 ................................................................................................................................................................................................................
2021 ................................................................................................................................................................................................................
2022 ................................................................................................................................................................................................................
Future years ....................................................................................................................................................................................................
Total................................................................................................................................................................................................................ $
47,225
330,901
559
483,379
208
1,008,256
1,870,528
68
9. 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.
Obligations and Funded Status
In thousands
Change in projected benefit obligation
U.S.
International
2017
2016
2017
2016
Obligation at beginning of year.............................................................................
$
(45,512) $
(46,120) $
(319,551) $
(195,311)
Benefits paid..........................................................................................................
(3,079)
(3,893)
(12,905)
Opening balance sheet adjustment ........................................................................
Service cost............................................................................................................
Interest cost............................................................................................................
Employee contributions.........................................................................................
Plan curtailments and amendments .......................................................................
Benefits paid..........................................................................................................
Acquisition ............................................................................................................
Actuarial gain (loss) ..............................................................................................
Effect of currency rate changes .............................................................................
Obligation at end of year .................................................................................
Change in plan assets
Fair value of plan assets at beginning of year .......................................................
Opening balance sheet adjustment ........................................................................
Actual return on plan assets...................................................................................
Employer contributions .........................................................................................
Employee contributions.........................................................................................
$
$
Acquisition ............................................................................................................
Settlements ............................................................................................................
Effect of currency rate changes .............................................................................
Fair value of plan assets at end of year ...........................................................
Funded status
Fair value of plan assets ........................................................................................
Benefit obligations ................................................................................................
Funded status...................................................................................................
Amounts recognized in the statement of financial position consist of:
Noncurrent assets ..................................................................................................
Current liabilities...................................................................................................
$
$
$
$
—
(344)
(1,422)
—
—
3,079
—
(14)
—
—
(337)
(1,475)
—
—
3,893
—
(1,473)
—
(5,321)
(2,740)
(7,310)
(880)
4,153
12,906
—
(3,009)
(31,265)
—
(1,379)
(5,774)
(195)
2,061
9,427
(114,242)
(33,330)
19,192
(44,213) $
(45,512) $
(353,017) $
(319,551)
35,802
$
37,640
$
241,283
$
168,069
—
4,223
486
—
—
2,055
—
—
2,058
19,102
13,479
880
—
—
—
—
$
$
37,432
37,432
(44,213)
$
$
35,802
35,802
(45,512)
—
(4,523)
22,228
281,602
281,602
(353,017)
$
$
(6,781) $
(9,710) $
(71,415) $
— $
—
— $
10,577
$
—
(9,710)
(2,158)
(79,834)
—
20,066
6,933
195
(9,427)
70,519
(15,072)
241,283
241,283
(319,551)
(78,268)
7,130
(2,042)
(83,356)
(78,268)
(56)
(56,411)
(56,467)
Noncurrent liabilities.............................................................................................
(6,781)
Net amount recognized....................................................................................
$
(6,781) $
(9,710) $
(71,415) $
Amounts recognized in accumulated other comprehensive income (loss)
consist of:
Prior service cost ...................................................................................................
(6)
(8)
Net actuarial loss ...................................................................................................
(20,418)
(23,884)
(32)
(54,043)
Net amount recognized....................................................................................
$
(20,424) $
(23,892) $
(54,075) $
69
The aggregate accumulated benefit obligation for the U.S. pension plans was $43.3 million and $44.5 million as of
December 31, 2017 and 2016, respectively. The aggregate accumulated benefit obligation for the international pension plans
was $344.3 million and $312.2 million as of December 31, 2017 and 2016, respectively.
In thousands
Information for pension plans with accumulated benefit obligations in
excess of Plan assets:
U.S.
International
2017
2016
2017
2016
Projected benefit obligation................................................................................
$
(44,213) $
(45,512) $
(282,077) $
Accumulated benefit obligation .........................................................................
Fair value of plan assets .....................................................................................
(43,340)
37,432
(44,530)
35,802
(274,557)
200,218
(255,682)
(249,729)
170,367
Information for pension plans with projected benefit obligations in
excess of plan assets:
Projected benefit obligation................................................................................
$
(44,213) $
(45,512) $
(283,106) $
(256,530)
Fair value of plan assets .....................................................................................
37,432
35,802
201,115
171,133
Components of Net Periodic Benefit Costs
In thousands
2017
U.S.
2016
2015
2017
2016
2015
International
Service cost ......................................................................................
$
344
$
337
$
381
$
Interest cost ......................................................................................
Expected return on plan assets.........................................................
Amortization of initial net obligation and prior service cost ...........
Amortization of net loss...................................................................
Settlement and curtailment losses recognized .................................
1,422
(1,731)
3
989
—
1,475
(2,076)
3
914
—
1,914
(2,168)
3
1,062
—
$
2,740
7,310
(12,412)
27
2,846
768
$
1,379
5,774
(9,971)
61
1,818
218
2,015
7,091
(9,591)
212
2,379
—
Net periodic benefit cost ............................................................
$
1,027
$
653
$
1,192
$
1,279
$
(721) $
2,106
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income during 2017 are as
follows:
In thousands
U.S.
International
Net gain (loss) arising during the year.....................................................................................................................
$
2,477
$
Effect of exchange rates...........................................................................................................................................
Amortization, settlement, or curtailment recognition of net transition obligation
Amortization or curtailment recognition of prior service cost.................................................................................
Amortization or settlement recognition of net loss..................................................................................................
Total recognized in other comprehensive gain ..................................................................................................
Total recognized in net periodic benefit cost and other comprehensive gain ....................................................
$
$
—
—
3
989
3,469
2,442
$
$
3,683
(4,945)
768
27
2,846
2,379
1,100
The weighted average assumptions in the following table represent the rates used to develop the actuarial present
value of the projected benefit obligation for the year listed.
Discount rate ....................................................................................
Expected return on plan assets.........................................................
Rate of compensation increase.........................................................
2017
3.56%
4.95%
3.00%
U.S.
2016
3.95%
5.70%
3.00%
International
2015
2017
2016
2015
4.21%
5.70%
3.00%
2.40%
5.02%
2.54%
2.51%
6.07%
2.54%
3.56%
5.81%
3.10%
The discount rate is based on settling the pension obligation with high grade, high yield corporate bonds, and the rate of
compensation increase is based on actual experience. The expected return on plan assets is based on historical performance as
well as expected future rates of return on plan assets considering the current investment portfolio mix and the long-term
investment strategy.
70
As of December 31, 2017, the following table represents the amounts included in other comprehensive loss that are
expected to be recognized as components of periodic benefit costs in 2018.
In thousands
Prior service cost ......................................................................................................................................................
Net actuarial loss ......................................................................................................................................................
U.S.
International
3
970
973
$
22
2,193
2,215
$
Pension Plan Assets
The Company has established formal investment policies for the assets associated with our pension plans. Objectives
include maximizing long-term return at acceptable risk levels and diversifying among asset classes. Asset allocation targets are
based on periodic asset liability study results which help determine the appropriate investment strategies. The investment
policies permit variances from the targets within certain parameters. The plan assets consist primarily of equity security funds,
debt security funds, and temporary cash and cash equivalent investments. The assets held in these funds are generally actively
managed and are valued at the net asset value per share multiplied by the number of shares held as of the measurement date.
(See Note 18 “Fair Value Measurement” included herein). Plan assets by asset category at December 31, 2017 and 2016 are as
follows:
In thousands
Pension Plan Assets
U.S.
International
2017
2016
2017
2016
Equity security funds.............................................................................................
$
18,122
$
17,446
$
100,453
$
Debt security funds and other................................................................................
Cash and cash equivalents.....................................................................................
18,304
1,006
17,038
1,318
178,730
2,419
92,201
145,003
4,079
Fair value of plan assets ..................................................................................
$
37,432
$
35,802
$
281,602
$
241,283
The U.S. plan has a target asset allocation of 55% equity securities and 45% debt securities. The International plan has a
target asset allocation of 30% equity securities, 40% debt securities and 30% in other investments. Investment policies are
determined by the respective Plan’s Pension Committee and set forth in its Investment Policy. Rebalancing of the asset
allocation occurs on a quarterly basis.
The following tables summarize our pension plan assets measured at fair value on a recurring basis by fair value
hierarchy level (See Note 18):
In thousands
US:
NAV
Level 1
Level 2
Level 3
Total
December 31, 2017
Equity ........................................................................................
$
— $
18,122
$
— $
— $
Debt Securities ..........................................................................
Cash and cash equivalents.........................................................
—
—
4,273
1,006
14,031
—
—
—
18,122
18,304
1,006
International:
Equity ........................................................................................
$
4,586
$
38,647
$
95,641
$
— $
138,874
Debt Securities ..........................................................................
Insurance Contracts ...................................................................
Cash and cash equivalents.........................................................
—
—
—
—
—
2,507
111,204
15,893
—
—
111,204
13,123
—
29,016
2,507
Total
$
4,586
$
64,555
$
236,769
$
13,123
$
319,033
71
In thousands
US:
NAV
Level 1
Level 2
Level 3
Total
December 31, 2016
Equity ........................................................................................
$
— $
17,446
$
— $
— $
Debt Securities ..........................................................................
Cash and cash equivalents.........................................................
—
—
4,766
1,318
12,272
—
—
—
17,446
17,038
1,318
International:
Equity ........................................................................................
$
3,589
$
38,053
$
78,694
$
— $
120,336
Debt Securities ..........................................................................
Insurance Contracts ...................................................................
Cash and cash equivalents.........................................................
—
—
—
—
—
4,406
90,508
13,037
—
—
12,996
—
90,508
26,033
4,406
Total
$
3,589
$
65,989
$
194,511
$
12,996
$
277,085
The following table presents a reconciliation of Level 3 assets:
In thousands
Balance at December 31, 2015
Net purchases, issuances, and settlements ................................................................................................................................
Net realized and unrealized gains (losses) included in earnings...............................................................................................
Business acquisition..................................................................................................................................................................
Other .........................................................................................................................................................................................
Balance at December 31, 2016
Net purchases, issuances, and settlements ................................................................................................................................
Net realized and unrealized gains (losses) included in earnings...............................................................................................
Opening balance sheet adjustment............................................................................................................................................
Other .........................................................................................................................................................................................
Balance at December 31, 2017
Cash Flows
Total
—
56
(5)
12,949
(4)
12,996
778
375
(1,308)
282
13,123
$
$
$
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 $7.3 million and $0.0 million to the international and U.S.
plans, respectively, during 2018.
Benefit payments expected to be paid to plan participants are as follows:
In thousands
Year ended December 31,
U.S.
International
2018 ..........................................................................................................................................................................
$
2019 ..........................................................................................................................................................................
2020 ..........................................................................................................................................................................
2021 ..........................................................................................................................................................................
2022 ..........................................................................................................................................................................
2023 through 2027....................................................................................................................................................
$
3,250
3,301
3,325
3,160
3,125
14,276
12,401
12,403
13,156
13,799
14,538
77,817
Postretirement 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.
72
The Company uses a December 31 measurement date for all postretirement plans. The following tables provide
information regarding the Company’s post retirement benefit plans summarized by U.S. and international components.
Obligations and Funded Status
In thousands
Change in projected benefit obligation
U.S.
International
2017
2016
2017
2016
Obligation at beginning of year.............................................................................
$
(11,876) $
(12,959) $
(3,425) $
(3,290)
Service cost............................................................................................................
Interest cost............................................................................................................
Plan amendments...................................................................................................
Benefits paid..........................................................................................................
Acquisition ............................................................................................................
Actuarial gain (loss) ..............................................................................................
Effect of currency rate changes .............................................................................
Obligation at end of year .................................................................................
Change in plan assets
Fair value of plan assets at beginning of year .......................................................
Employer contributions .........................................................................................
Benefits paid..........................................................................................................
Fair value of plan assets at end of year ...........................................................
Funded status
Fair value of plan assets ........................................................................................
Benefit obligations ................................................................................................
Funded status...................................................................................................
In thousands
Amounts recognized in the statement of financial position consist of:
Current liabilities...................................................................................................
Noncurrent liabilities.............................................................................................
Net amount recognized....................................................................................
Amounts recognized in accumulated other comprehensive income (loss)
consist of:
(5)
(350)
—
970
—
(84)
—
(4)
(389)
6
720
(143)
893
—
(28)
(98)
—
199
—
(131)
(237)
(29)
(99)
—
133
—
(42)
(98)
(11,345) $
(11,876) $
(3,720) $
(3,425)
— $
— $
— $
970
(970)
720
(720)
199
(199)
— $
— $
— $
— $
(11,345)
(11,345) $
U.S.
— $
(11,876)
(11,876) $
— $
(3,720)
(3,720) $
International
—
133
(133)
—
—
(3,425)
(3,425)
2017
2016
2017
2016
(1,046) $
(1,084) $
(208) $
(10,299)
(10,792)
(3,512)
(11,345) $
(11,876) $
(3,720) $
(185)
(3,160)
(3,345)
$
$
$
$
$
$
$
Prior service credit.................................................................................................
Net actuarial (loss) gain.........................................................................................
19,616
(18,882)
21,134
(20,023)
Net amount recognized....................................................................................
$
734
$
1,111
$
9
154
163
$
15
292
307
Components of Net Periodic Benefit Cost
In thousands
2017
U.S.
2016
2015
2017
2016
2015
International
Service cost ......................................................................................
$
5
$
4
$
9
$
Interest cost ......................................................................................
Amortization of initial net obligation and prior service cost ...........
Amortization of net loss (gain) ........................................................
350
(1,519)
1,225
389
(1,709)
1,287
1,233
(2,295)
1,356
$
28
98
(7)
(23)
$
29
99
(7)
(29)
Net periodic benefit cost (credit) ...............................................
$
61
$
(29) $
303
$
96
$
92
$
38
128
(7)
(30)
129
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income during 2017 are as
follows:
In thousands
U.S.
International
Net loss arising during the year ...............................................................................................................................
Effect of exchange rates...........................................................................................................................................
Amortization or curtailment recognition of prior service cost.................................................................................
Amortization or settlement recognition of net loss (gain) .......................................................................................
Total recognized in other comprehensive income (loss)....................................................................................
Total recognized in net periodic benefit cost and other comprehensive income (loss) .....................................
$
$
(84)
—
(1,519)
1,225
(378) $
(317) $
(131)
16
(7)
(23)
(145)
(53)
73
The weighted average assumptions in the following table represent the rates used to develop the actuarial present value
of the projected benefit obligation for the year listed and also the net periodic benefit cost for the following year. The discount
rate is based on settling the pension obligation with high grade, high yield corporate bonds.
Discount rate ....................................................................................
3.43%
3.76%
3.95%
3.21%
3.46%
3.80%
2017
U.S.
2016
2015
2017
2016
2015
International
As of December 31, 2017, the following table represents the amounts included in other comprehensive loss that are
expected to be recognized as components of periodic benefit costs in 2018.
In thousands
U.S.
International
Prior service credit ...................................................................................................................................................
Net actuarial loss (gain) ...........................................................................................................................................
(1,519)
1,216
$
(303) $
(7)
(8)
(15)
The assumed health care cost trend rate for the U.S. plans grades from an initial rate of 6.30% to an ultimate rate of
4.50% by 2027 and for international plans from 6.23% to 4.50% by 2027. A 1.0% increase in the assumed health care cost trend
rate will increase the service and interest cost components of the expense recognized for the U.S. and international post-
retirement plans by less than $0.1 million for 2017, and increase the accumulated post-retirement benefit obligation by less than
$0.1 million and $0.3 million, respectively. A 1.0% decrease in the assumed health care cost trend rate will decrease the service
and interest cost components of the expense recognized for the U.S. and international post-retirement plans by less than $0.1
million for 2017, and decrease the accumulated post-retirement benefit obligation by less than $0.1 million and $0.3 million,
respectively.
Cash Flows
Benefit payments expected to be paid to plan participants are as follows:
In thousands
Year ended December 31,
U.S.
International
2018..........................................................................................................................................................................
$
2019..........................................................................................................................................................................
2020..........................................................................................................................................................................
2021..........................................................................................................................................................................
2022..........................................................................................................................................................................
2023 through 2027 ...................................................................................................................................................
$
1,046
1,024
986
950
908
3,956
208
220
225
245
251
1,352
Defined Contribution Plans
The Company also participates in certain defined contribution plans and multiemployer pension plans. Costs recognized
under these plans are summarized as follows:
In thousands
Multi-employer pension and health & welfare plans ........................................................................
401(k) savings and other defined contribution plans ........................................................................
Total.............................................................................................................................................
For the year ended
December 31,
2017
2016
2015
$
$
1,522
23,209
24,731
$
$
2,054
23,062
25,116
$
$
2,584
21,399
23,983
The 401(k) savings plan is a participant directed defined contribution plan that holds shares of the Company’s stock as
one of the investment options. At December 31, 2017 and 2016, the plan held on behalf of its participants about 495,274 shares
with a market value of $40.3 million, and 551,482 shares with a market value of $45.8 million, respectively.
Additionally, the Company has stock option based benefit and other plans further described in Note 12.
The Company contributes to several multi-employer defined benefit pension plans under collective bargaining
agreements that cover certain of its union-represented employees. The risks of participating in such plans are different from the
risks of single-employer plans. Assets contributed to a multi-employer plan by one employer may be used to provide benefits to
employees of other participating employers. If a participating employer ceases to contribute to the plan, the unfunded
obligations of the plan may be borne by the remaining participating employers. If the Company ceases to have an obligation to
74
contribute to the multi-employer plan in which it had been a contributing employer, it may be required to pay to the plan an
amount based on the underfunded status of the plan and on the history of the Company’s participation in the plan prior to the
cessation of its obligation to contribute. The amount that an employer that has ceased to have an obligation to contribute to a
multi-employer plan is required to pay to the plan is referred to as a withdrawal liability.
The Company’s participation in multi-employer plans for the year ended December 31, 2017 is outlined in the table
below. For plans that are not individually significant to the Company, the total amount of contributions is presented in the
aggregate.
Pension Protection
Act Zone Status
(b)
Pension Fund
EIN/PN (a)
2016
2015
FIP/
RP Status
Pending/
Implemented
(c)
Contributions by
the Company
2017
2016
2015
Green
Green
No
$ 1,020
(1)
$ 1,306
(1)
$ 1,820
(1)
Expiration
Dates of
Collective
Bargaining
Agreements
6/30/2018
Surcharge
Imposed
(d)
No
Idaho Operating Engineers-
EIN #
91-607553
8
Employers Pension Trust
Fund
Automobile Mechanics'
Local No 701 Union and
Industry Pension Plan
Plan#
001
EIN #
Plan #
36-604206
1
001
Yellow
Red
Yes (2)
$ 501
(3)
$ 748
$
764
No (4)
6/1/2018
Total
Contributions
$ 1,521
$ 2,054
$ 2,584
(1) The Company’s contribution represents more than 5% of the total contributions to the plan.
(2) The Pension Fund’s board adopted a Funding Improvement Plan on October 21, 2015, continuing the existing plan which increased the weekly
pension fund contribution rates by $75 with corresponding decreases to the weekly welfare fund contribution rates until December 31, 2017.
(3) The number of employees covered by this fund decreased due to the closure of the Bensenville, Illinois facility, which affected the period-to-period
comparability of 2016 and 2017 contributions.
(4) Critical status triggered a 5% surcharge on employer contributions effective June 2012. Effective January 1, 2013, this surcharge increases to 10%.
The surcharge ended on October 21, 2015 when the rehabilitation plan commenced.
(a) The “EIN / PN” column provides the Employer Identification Number and the three-digit plan number assigned to a plan by the Internal Revenue
Service.
(b) The most recent Pension Protection Act Zone Status available for 2017 and 2016 is for plan years that ended in 2016 and 2015, respectively. The zone
status is based on information provided to the Company and other participating employers by each plan and is certified by the plan’s actuary. A plan in
the “red” zone has been determined to be in “critical status”, based on criteria established under the Internal Revenue Code (“Code”), and is generally
less than 65% funded. A plan in the “yellow” zone has been determined to be in “endangered status”, based on criteria established under the Code, and
is generally less than 80% funded. A plan in the “green” zone has been determined to be neither in “critical status” nor in “endangered status”, and is
generally at least 80% funded.
(c) The “FIP/RP Status Pending/Implemented” column indicates whether a Funding Improvement Plan, as required under the Code to be adopted by plans
in the “yellow” zone, or a Rehabilitation Plan, as required under the Code to be adopted by plans in the “red” zone, is pending or has been
implemented as of the end of the plan year that ended in 2017.
(d) The “Surcharge Imposed” column indicates whether the Company’s contribution rate for 2017 included an amount in addition the contribution rate
specified in the applicable collective bargaining agreement, as imposed by a plan in “critical status”, in accordance with the requirements of the Code.
10. INCOME TAXES
The Company is responsible for filing consolidated U.S., foreign and combined, unitary or separate state income tax
returns. The Company is responsible for paying the taxes relating to such returns, including any subsequent adjustments
resulting from the redetermination of such tax liabilities by the applicable taxing authorities.
On December 23, 2017, the French government enacted the Finance Act for 2018 and it was published in the Official
Bulletin on December 31, 2017. The Finance act reduced the French corporate tax rate from 28% in 2020 to 25%, enacting an
additional 1.5% reduction in each year 2021 and 2022.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax
Cuts and Jobs Act (the "Tax Act"). The Tax Act makes broad and complex changes to the U.S. tax code that affect fiscal 2017,
including, but not limited to requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is
payable over eight years (the "Transition Tax"). The Tax Act also establishes new tax laws that will affect 2018 and later years,
including, but not limited to, a reduction of the U.S. federal corporate tax rate from 35% to 21%, repeals the Domestic
Manufacturing Deduction, a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries, new
provisions designed to tax global intangible low-taxed income ("GILTI"), tax certain deductible base erosion payments called
base erosion and anti-abuse tax (“BEAT”), and new interest expense limitation provisions.
75
In relation to the initial analysis of the impact of the all tax law changes, the Company has recorded a net tax expense of
$4.3 million. This includes a provisional expense for the U.S. tax reform bill of $55.0 million, as well as a net benefit for the
revaluation of deferred tax assets and liabilities of $50.7 million.
The Company has not completed its accounting for the income tax effects of the Tax Act. Where the Company has been
able to make reasonable estimates of the effects for which its analysis is not yet complete, the Company has recorded
provisional amounts in accordance with SEC Staff Accounting Bulletin No. 118. Where the Company has not yet been able to
make reasonable estimates of the impact of certain elements, the Company has not recorded any amounts related to those
elements and has continued accounting for them in accordance with ASC 740 on the basis of the tax laws in effect immediately
prior to the enactment of the Tax Act.
The Company's accounting for the following impacted areas of the Tax Act is incomplete. However, the Company was
able to make reasonable estimates of certain effects and, therefore, has recorded provisional amounts as follows:
Revaluation of deferred tax assets and liabilities: The Tax Act reduces the U.S. federal corporate tax rate from 35% to
21% for tax years beginning after December 31, 2017. In addition, the Tax Act makes certain changes to the depreciation rules
and implements new limits on the deductibility of certain executive compensation. The Company has evaluated these changes
and has recorded a provisional benefit to net deferred taxes of $24.6 million. The Company is still completing its calculation of
the impact of these changes on its deferred tax balances.
Transition Tax on unrepatriated foreign earnings: The Transition Tax on unrepatriated foreign earnings is a tax on
previously untaxed accumulated and current earnings and profits ("E&P") of the Company's foreign subsidiaries. To determine
the amount of the Transition Tax, the Company must determine, among other factors, the amount of post-1986 E&P of its
foreign subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. The Company was able to make a
reasonable estimate of the Transition Tax and has recorded a provisional Transition Tax expense of $51.8 million. The
Company is continuing to gather additional information to more precisely compute the amount of the Transition Tax to
complete its calculation of E&P as well as the final determination of non-U.S. income taxes paid.
The Company's accounting for the following elements of the Tax Act is incomplete, and it has not yet been able to make
reasonable estimates of the effects of these items. Therefore, no provisional amounts were recorded.
Global intangible low taxed income ("GILTI"): The Tax Act creates a new requirement that certain income
(i.e., GILTI) earned by foreign subsidiaries must be included currently in the gross income of the U.S. shareholder. Due to the
complexity of the new GILTI tax rules, the Company is continuing to evaluate this provision of the Tax Act and the application
of ASC 740. Under U.S. GAAP, the Company is permitted to make an accounting policy election to either treat taxes due on
future inclusions in U.S. taxable income related to GILTI as a current-period expense when incurred or to factor such amounts
into the Company's measurement of its deferred taxes. The Company has not yet completed its analysis of the GILTI tax rules
and is not yet able to reasonably estimate the effect of this provision of the Tax Act or make an accounting policy election for
the ASC 740 treatment of the GILTI tax. Therefore, the Company has not recorded any amounts related to potential GILTI tax
in its financial statements and has not yet made a policy decision regarding whether to record deferred taxes on GILTI.
Indefinite reinvestment assertion: Beginning in 2018, the Tax Act provides a 100% deduction for dividends received
from 10-percent owned foreign corporations by U.S. corporate shareholders, subject to a one-year holding period. Although
dividend income is now exempt from U.S. federal tax in the hands of the U.S. corporate shareholders, companies must still
apply the guidance of ASC 740 to account for the tax consequences of outside basis differences and other tax impacts of their
investments in non-U.S. subsidiaries. While the Company has accrued the Transition Tax on the deemed repatriated earnings
that were previously indefinitely reinvested, the Company was unable to determine a reasonable estimate of the remaining tax
liability, if any, under the Tax Act for its remaining outside basis differences or evaluate how the Tax Act will affect the
Company's existing accounting position to indefinitely reinvest unremitted foreign earnings. Therefore, the Company has not
included a provisional amount for this item in its financial statements for fiscal 2017. The Company will record amounts as
needed for this item beginning in the first reporting period during the measurement period in which the Company obtains
necessary information and is able to analyze and prepare a reasonable estimate.
The components of the income from operations before provision for income taxes for the Company’s domestic and
foreign operations for the years ended December 31 are provided below:
In thousands
Domestic
Foreign
Income from operations before income taxes
For the year ended
December 31,
2017
2016
2015
$
$
140,325
211,738
352,063
$
$
276,218
136,619
412,837
$
$
461,394
123,974
585,368
76
The consolidated provision for income taxes included in the Statement of Income consisted of the following:
In thousands
Current taxes
Federal
State
Foreign
Deferred taxes
Federal
State
Foreign
For the year ended
December 31,
2017
2016
2015
$
86,157
$
72,317
$
3,644
67,395
157,196
(22,863)
(1,024)
(43,536)
(67,423)
9,953
27,391
109,661
11,013
1,953
(23,194)
(10,228)
141,245
16,072
24,442
181,759
9,606
770
(5,395)
4,981
Total provision
$
89,773
$
99,433
$
186,740
A reconciliation of the United States federal statutory income tax rate to the effective income tax rate on operations for
the years ended December 31 is provided below:
In thousands
U.S. federal statutory rate
State taxes
Tax reserves
Foreign
Research and development credit
Manufacturing deduction
France tax rate change
U.S. tax rate change
U.S. tax reform provision
Transaction costs related to acquisitions
Other, net
Effective rate
For the year ended
December 31,
2017
2016
2015
35.0 %
0.4 %
— %
(8.3)%
(0.8)%
(1.1)%
(6.5)%
(7.9)%
15.6 %
— %
(0.9)%
25.5 %
35.0 %
2.1 %
(0.2)%
(4.3)%
(1.0)%
(1.8)%
(6.5)%
— %
— %
1.5 %
(0.7)%
24.1 %
35.0 %
2.0 %
(0.4)%
(2.1)%
(0.4)%
(2.3)%
— %
— %
— %
— %
0.1 %
31.9 %
The 6.5% decrease in the effective tax rate due to the France tax rate change was the result of adopted tax legislation
that reduces the corporate income tax rate in France from 28.0% to 25.0% over the period 2021 to 2022. The 7.9% decrease in
the effective tax rate due to the U.S. tax rate change was the result of adopted tax legislation that reduces the corporate income
tax rate in the U.S. from 35.0% to 21.0% effective January 1, 2018. The 15.6% increase in the effective tax rate due to the U.S.
tax reform previously discussed. Deferred income taxes result from temporary differences in the recognition of income and
expense for financial and income tax reporting purposes. These deferred income taxes will be recognized as future tax benefits
or costs when the temporary differences reverse.
77
Components of deferred tax assets and liabilities were as follows:
In thousands
Deferred income tax assets:
Accrued expenses and reserves
Warranty reserve
Deferred compensation/employee benefits
Pension and postretirement obligations
Inventory
Net operating loss carry forwards
Tax credit carry forwards
Other
Gross deferred income tax assets
Valuation allowance
Total deferred income tax assets
Deferred income tax liabilities:
Property, plant & equipment
Intangibles
Total deferred income tax liabilities
Net deferred income tax liability
December 31,
2017
2016
$
10,961
$
20,211
18,353
21,637
19,620
65,671
1,921
13,053
171,427
25,683
145,744
37,015
288,141
325,156
26,117
24,131
25,755
25,595
22,579
59,416
621
2,317
186,531
21,418
165,113
47,321
359,312
406,633
$
(179,412) $
(241,520)
A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will
not be realized. As of December 31, 2017, the valuation allowance for certain foreign carryforwards was $25.7 million primarily
in Brazil, China, United Kingdom, and South Africa.
Net operating loss carry-forwards in the amount of $65.7 million expire in various periods from December 31, 2018 to
December 31, 2037.
As of December 31, 2017, the liability for income taxes associated with unrecognized tax benefits was $6.9 million, of
which $4.4 million, if recognized, would favorably affect the Company’s effective income tax rate. As of December 31, 2016, the
liability for income taxes associated with unrecognized tax benefits was $8.4 million, of which $4.2 million, if recognized, would
favorably affect the Company’s effective tax rate. A reconciliation of the beginning and ending amount of the liability for income
taxes associated with unrecognized tax benefits follows:
In thousands
Gross liability for unrecognized tax benefits at beginning of year
Gross increases - unrecognized tax benefits in prior periods
Gross increases - current period unrecognized tax benefits
Gross decreases - unrecognized tax benefits in prior periods
Gross decreases - audit settlement during year
Gross decreases - expiration of audit statute of limitations
Gross liability for unrecognized tax benefits at end of year
2017
2016
2015
$
8,423
2,466
—
—
(3,979)
—
6,910
$
10,557
$
6
—
—
—
(2,140)
8,423
$
12,596
—
1,682
—
(3,027)
(694)
10,557
$
$
The Company includes interest and penalties related to unrecognized tax benefits in income tax expense. As of December 31,
2017, the total interest and penalties accrued was approximately $0.7 million and $0.1 million, respectively. As of December 31,
2016, the total interest and penalties accrued was approximately $0.8 million and $0.3 million, respectively.
With limited exception, the Company is no longer subject to examination by various U.S. and foreign taxing authorities
for years before 2012. At this time, the Company believes that it is reasonably possible that unrecognized tax benefits of
approximately $5.2 million may change within the next 12 months due to the expiration of statutory review periods and current
examinations.
78
11. EARNINGS PER SHARE
The computation of earnings per share from operations is as follows:
In thousands, except per share data
Numerator
For the Year Ended
December 31,
2017
2016
2015
Numerator for basic and diluted earnings per common share - net income attributable
to Wabtec shareholders................................................................................................
$
262,261
$
304,887
$
Less: dividends declared - common shares and non-vested restricted stock ....................
Undistributed earnings ......................................................................................................
Percentage allocated to common shareholders (1) ............................................................
Add: dividends declared - common shares........................................................................
Numerator for basic and diluted earnings per common share...........................................
Denominator ....................................................................................................................
Denominator for basic earnings per common share - weighted average shares .........
Effect of dilutive securities:
(42,218)
220,043
99.7%
219,383
42,092
(32,430)
272,457
99.7%
271,640
32,333
$
261,475
$
303,973
$
398,628
(26,963)
371,665
99.7%
370,550
26,875
397,425
95,453
90,359
96,074
Assumed conversion of dilutive stock-based compensation plans ...................................
672
782
932
Denominator for diluted earnings per common share - adjusted weighted average
shares and assumed conversion...................................................................................
96,125
91,141
97,006
Net income per common share attributable to Wabtec shareholders
Basic ..................................................................................................................................
Diluted ...............................................................................................................................
$
$
2.74
2.72
$
$
3.37
3.34
$
$
4.14
4.10
(1) Basic weighted-average common shares outstanding .................................................
95,453
90,359
96,074
Basic weighted-average common shares outstanding and non-vested restricted..............
stock expected to vest..................................................................................................
Percentage allocated to common shareholders..................................................................
95,740
99.7%
90,627
99.7%
96,388
99.7%
Options to purchase approximately 24,000, 20,000, and 13,000 shares of Common Stock were outstanding in 2017, 2016
and 2015, respectively, but were not included in the computation of diluted earnings because their impact would have been
antidilutive.
12. STOCK-BASED COMPENSATION PLANS
As of December 31, 2017, the Company maintains employee stock-based compensation plans for stock options,
restricted stock, and incentive stock units as governed by the 2011 Stock Incentive Compensation Plan, as amended and
restated (the “2011 Plan”) and the 2000 Stock Incentive Plan, as amended (the “2000 Plan”). The 2011 Plan has a term through
May 10, 2027 and as of December 31, 2017 the number of shares available for future grants under the 2011 Plan was 3,192,453
shares, which includes remaining shares to grant under the 2000 Plan. The amendment and restatement of the 2011 Plan was
approved by stockholders of Wabtec on May 10, 2017. The Company also maintains a 1995 Non-Employee Directors’ Fee and
Stock Option Plan as amended and restated (“the Directors Plan”). The amendment and restatement of the Directors Plan was
approved by stockholders of Wabtec on May 10, 2017. The Directors Plan, as amended, authorizes a total of 1,000,000 shares
of Common Stock to be issued. Under the Directors Plan options issued become exercisable over a three-year vesting period
and expire ten years from the date of grant and restricted stock issued under the plan vests one year from the date of grant. As
compensation for directors’ fees for the years ended December 31, 2017, 2016 and 2015, the Company issued a total of 16,500,
16,972 and 11,256 shares of restricted stock to non-employee directors. The total number of shares issued under the plan as of
December 31, 2017 was 881,192 shares.
Stock-based compensation expense for all of the plans was $21.3 million, $20.8 million and $26.0 million for the years
ended December 31, 2017, 2016 and 2015, respectively. The Company recognized associated tax benefits related to the stock-
based compensation plans of $8.9 million, $14.9 million and $15.3 million for the respective periods. Included in the stock-
based compensation expense for 2017 above is $1.7 million of expense related to stock options, $7.0 million related to non-
vested restricted stock, $4.6 million related to restricted stock units, $6.5 million related to incentive stock units and $1.5
million related to units issued for Directors’ fees. At December 31, 2017, unamortized compensation expense related to those
stock options, non-vested restricted shares and incentive stock units expected to vest totaled $24.6 million and will be
recognized over a weighted average period of 1.2 years.
79
Stock Options Stock options are granted to eligible employees and directors at the fair market value, which is the
average of the high and low Wabtec stock price on the date of grant. Under the 2011 Plan and the 2000 Plan, options become
exercisable over a four year vesting period and expire 10 years from the date of grant.
The following table summarizes the Company’s stock option activity and related information for the 2011 Plan, the 2000
Plan and Directors Plan for the years ended December 31:
Weighted
Average
Exercise
Price
Options
Weighted Average
Remaining
Contractual Life
Aggregate
Intrinsic value
(in thousands)
Outstanding at December 31, 2014 ...........................................................
1,147,558
$
Granted ................................................................................................
Exercised .............................................................................................
Canceled ..............................................................................................
84,675
(124,156)
(10,754)
Outstanding at December 31, 2015 ...........................................................
1,097,323
$
Granted ................................................................................................
Exercised .............................................................................................
Canceled ..............................................................................................
94,115
(83,790)
(8,825)
Outstanding at December 31, 2016 ...........................................................
1,098,823
$
Granted ................................................................................................
Exercised .............................................................................................
Canceled ..............................................................................................
Outstanding at December 31, 2017 ...........................................................
Exercisable at December 31, 2017 ............................................................
65,522
(166,838)
(13,995)
983,512
802,609
$
$
Options outstanding at December 31, 2017 were as follows:
28.33
87.35
26.70
65.22
32.70
61.39
25.58
71.47
35.39
86.91
21.37
76.89
40.62
32.52
5.5
$
4.8
$
4.3
$
4.0
3.3
$
$
67,205
1,375
(5,516)
(64)
42,154
2,035
(4,813)
(102)
52,332
—
(10,020)
(64)
40,137
36,848
Weighted
Average
Exercise
Price of
Options
Weighted
Average
Remaining
Contractual
Number of
Options
Range of exercise prices
Outstanding
Outstanding
Life
Number of
Options
Currently
Exercisable
Weighted Average
Exercise Price of
Options Currently
Exercisable
Under $15.00 ...............................................................
180,000
$
15.00 - 23.00................................................................
23.00 - 30.00................................................................
30.00 - 38.00................................................................
Over 38.00 ...................................................................
193,701
136,924
94,496
378,391
983,512
$
14.50
18.77
28.75
35.24
69.86
40.62
1.1
1.3
2.8
4.1
7.0
180,000
$
193,701
136,924
94,496
197,488
802,609
$
14.50
18.77
28.75
35.24
63.72
32.52
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions:
For the year ended
December 31,
2017
2016
2015
Dividend yield ....................................................................................................................
Risk-free interest rate .........................................................................................................
Stock price volatility ..........................................................................................................
Expected life (years)...........................................................................................................
0.23%
2.2%
23.4%
5.0
0.26%
1.5%
26.9%
5.0
0.14%
1.8%
27.3%
5.0
Weighted average fair value of options granted during the year........................................
$
20.69
$
14.96
$
24.41
The dividend yield is based on the Company’s dividend rate and the current market price of the underlying common
stock at the date of grant. Expected life in years is determined from historical stock option exercise data. Expected volatility is
based on the historical volatility of the Company’s stock. The risk-free interest rate is based on the 7 years U.S. Treasury bond
rates for the expected life of the option.
Restricted Stock and Incentive Stock Beginning in 2006 the Company adopted a restricted stock program. As
provided for under the 2011 and 2000 Plans, eligible employees are granted restricted stock that generally vests over four years
from the date of grant. Under the Directors Plan, restricted stock units vest one year from the date of grant.
80
In addition, the Company has issued incentive stock units to eligible employees that vest upon attainment of certain
cumulative three-year performance goals. Based on the Company’s performance for each three year period then ended, the
incentive stock units can vest and be awarded ranging from 0% to 200% of the initial incentive stock units granted. The
incentive stock units included in the table below represent the number of shares that are expected to vest based on the
Company’s estimate for meeting those established performance targets. As of December 31, 2017, the Company estimates that
it will achieve 84%, 77% and 91% for the incentive stock units expected to vest based on performance for the three year
periods ending December 31, 2017, 2018, and 2019, respectively, and has recorded incentive compensation expense
accordingly. If our estimate of the number of these stock units expected to vest changes in a future accounting period,
cumulative compensation expense could increase or decrease and will be recognized in the current period for the elapsed
portion of the vesting period and would change future expense for the remaining vesting period.
Compensation expense for the non-vested restricted stock and incentive stock units is based on the closing price of the
Company’s common stock on the date of grant and recognized over the applicable vesting period.
The following table summarizes the restricted stock activity and related information for the 2011 Plan, the 2000 Plan,
and Directors Plan, and incentive stock units activity and related information for the 2011 Plan and the 2000 Plan with related
information for the years ended December 31:
Outstanding at December 31, 2014............................................................................................
Granted.................................................................................................................................
Vested...................................................................................................................................
Adjustment for incentive stock awards expected to vest .....................................................
Canceled...............................................................................................................................
Outstanding at December 31, 2015............................................................................................
Granted.................................................................................................................................
Vested...................................................................................................................................
Adjustment for incentive stock awards expected to vest .....................................................
Canceled...............................................................................................................................
Outstanding at December 31, 2016............................................................................................
Granted.................................................................................................................................
Vested...................................................................................................................................
Adjustment for incentive stock awards expected to vest .....................................................
Canceled...............................................................................................................................
Outstanding at December 31, 2017............................................................................................
13. OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss were:
Restricted
Stock
and Units
Incentive
Stock
Awards
Weighted
Average Grant
Date Fair
Value
438,543
113,945
(182,776)
—
(12,827)
356,885
212,600
(159,975)
—
(13,215)
396,295
153,516
(137,088)
—
(13,723)
399,000
791,608
$
126,050
(433,932)
65,666
(7,754)
541,638
$
167,850
(236,591)
(38,164)
(9,983)
424,750
$
157,025
(153,271)
(87,592)
(13,579)
327,333
$
47.97
87.90
37.76
57.57
67.05
65.89
66.03
51.80
74.42
71.84
72.18
86.66
70.34
73.69
76.61
78.76
In thousands
Foreign currency translation gain (loss)
Unrealized gain (loss) on interest rate swap contracts, net of tax of $1,338 and $1,540
Unrealized loss on pension and post-retirement benefit plans, net of tax of $19,532 and $20,832
Total accumulated other comprehensive loss
December 31,
2017
2016
$
$
$
5,063
4,015
(54,070)
(44,992) $
(321,033)
(2,957)
(55,615)
(379,605)
81
The changes in accumulated other comprehensive loss by component, net of tax, for the year-ended December 31, 2017
are as follows:
In thousands
Balance at December 31, 2016
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other
comprehensive income
Net current period other comprehensive income
Balance at December 31, 2017
Foreign
currency
Derivative
Pension and
post
retirement
translation
contracts
benefits plans
Total
$
(321,033) $
(2,957) $
(55,615) $
(379,605)
326,096
—
326,096
$
5,063
$
6,712
260
6,972
4,015
(1,017)
331,791
2,562
1,545
$
(54,070) $
2,822
334,613
(44,992)
Reclassifications out of accumulated other comprehensive loss for the year-ended December 31, 2017 are as follows:
In thousands
Amortization of defined pension and post retirement items
Amortization of initial net obligation and prior service cost
Amortization of net loss (gain)
Derivative contracts
Realized loss on derivative contracts
Amount reclassified from
accumulated other
Affected line item in the
Condensed Consolidated
comprehensive income
Statements of Income
$
$
$
(1,496) Cost of sales
5,037 Cost of sales
3,541
Income from Operations
(979)
Income tax expense
2,562 Net income
400
Interest expense, net
(140)
Income tax expense
260 Net income
The changes in accumulated other comprehensive loss by component, net of tax, for the year-ended December 31, 2016
are as follows:
In thousands
Balance at December 31, 2015
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other
comprehensive income
Net current period other comprehensive income
Balance at December 31, 2016
Foreign
currency
Derivative
Pension and
post
retirement
translation
contracts
benefits plans
Total
$
(227,349) $
(2,987) $
(46,383) $
(93,684)
(1,286)
(10,874)
—
(93,684)
1,316
30
1,642
(9,232)
$
(321,033) $
(2,957) $
(55,615) $
(276,719)
(105,844)
2,958
(102,886)
(379,605)
Reclassifications out of accumulated other comprehensive loss for the year-ended December 31, 2016 are as follows:
In thousands
Amortization of defined pension and post retirement items
Amortization of initial net obligation and prior service cost
Amortization of net loss (gain)
Derivative contracts
Realized loss on derivative contracts
Amount reclassified from
accumulated other
Affected line item in the
Condensed Consolidated
comprehensive income
Statements of Income
$
$
$
82
(1,652) Cost of sales
3,989 Cost of sales
2,337
Income from Operations
(695)
Income tax expense
1,642 Net income
1,873
Interest expense, net
(557)
Income tax expense
1,316 Net income
14. OPERATING LEASES
The Company leases office and manufacturing facilities under operating leases with terms ranging from one to 15 years,
excluding renewal options.
Total net rental expense charged to operations in 2017, 2016, and 2015 was $34.6 million, $27.2 million and $20.2
million, respectively. The amounts above are shown net of sublease rentals which were immaterial for the years 2017, 2016
and 2015, respectively.
Future minimum rental payments under operating leases with remaining non-cancelable terms in excess of one year are
as follows:
In thousands
Real
Estate
Equipment
Total
2018.............................................................................................................................
$
28,957
$
2019.............................................................................................................................
2020.............................................................................................................................
2021.............................................................................................................................
2022.............................................................................................................................
2023 and after .............................................................................................................
25,857
24,266
19,561
16,350
66,017
$
2,690
1,925
976
512
271
24
15. WARRANTIES
The following table reconciles the changes in the Company’s product warranty reserve as follows:
In thousands
2017
2016
Balance at beginning of year.....................................................................................................................
$
138,992
$
Warranty expense................................................................................................................................
Acquisitions ........................................................................................................................................
Warranty claim payments....................................................................................................................
Foreign currency impact .....................................................................................................................
50,385
806
(48,548)
11,428
Balance at end of year...............................................................................................................................
$
153,063
$
31,647
27,782
25,242
20,073
16,621
66,041
92,064
28,947
59,685
(38,772)
(2,932)
138,992
16. PREFERRED STOCK
The Company’s authorized capital stock includes 1,000,000 shares of preferred stock. The Board of Directors has the
authority to issue the preferred stock and to fix the designations, powers, preferences and rights of the shares of each such class
or series, including dividend rates, conversion rights, voting rights, terms of redemption and liquidation preferences, without
any further vote or action by the Company’s shareholders. The rights and preferences of the preferred stock would be superior
to those of the common stock. At December 31, 2017 and 2016 there was no preferred stock issued or outstanding.
17. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING
Foreign Currency Hedging The Company uses forward contracts to mitigate its foreign currency exchange rate
exposure due to forecasted sales of finished goods and future settlement of foreign currency denominated assets and liabilities.
Derivatives used to hedge forecasted transactions and specific cash flows associated with foreign currency denominated
financial assets and liabilities that meet the criteria for hedge accounting are designated as cash flow hedges. The effective
portion of gains and losses is deferred as a component of accumulated other comprehensive income and is recognized in
earnings at the time the hedged item affects earnings, in the same line item as the underlying hedged item. The contracts are
scheduled to mature within two years. For the twelve months ended December 31, 2017, the amount reclassified into income
was $0.4 million.
Other Activities The Company enters into certain derivative contracts in accordance with its risk management strategy
that do not meet the criteria for hedge accounting but which have the impact of largely mitigating foreign currency exposure.
These foreign exchange contracts are accounted for on a full mark to market basis through earnings, with gains and losses
recorded as a component of other expense, net. The net unrealized gain related to these contracts was $2.1 million for the
twelve months ended December 31, 2017. The notional amount and fair value of foreign exchange contracts that did not meet
the criteria for hedge accounting at December 31, 2017 was not material. These contracts are scheduled to mature within one
year.
83
The following table summarizes the gross notional amounts and fair values of the designated and non-designated hedged
discussed in the above sections:
In millions
Designated
Non-Designated
Total
Gross notional amount ....................................................................................................
$
805.1
$
379.7
$
1,184.8
Fair Value:
Other current assets.........................................................................................................
Other current liabilities ...................................................................................................
3.5
—
2.1
—
Total ................................................................................................................................
$
3.5
$
2.1
$
5.6
—
5.6
Interest Rate Hedging The Company uses interest rate swaps to manage interest rate exposures. The Company is
exposed to interest rate volatility with regard to existing floating rate debt. Primary exposure includes the London Interbank
Offered Rates (LIBOR). Derivatives used to hedge risk associated with changes in the fair value of certain variable-rate debt
are primarily designated 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. See long-term debt footnote fair value
measurement footnote for further information on current interest rate swaps.
As of December 31, 2017, the Company has recorded a current liability of $1.2 million and an accumulated other
comprehensive loss of $0.7 million, net of tax, related to these agreements.
18. FAIR VALUE MEASUREMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC 820 “Fair Value Measurements and Disclosures” defines fair value, establishes a framework for measuring fair
value and explains the related disclosure requirements. ASC 820 indicates, among other things, that a fair value measurement
assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the
absence of a principal market, the most advantageous market for the asset or liability and defines fair value based upon an exit
price model.
Valuation Hierarchy. ASC 820 establishes a valuation hierarchy for disclosure of the inputs to valuation used to
measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices
(unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities
in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market
corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the
Company’s assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within
the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The following table provides the liabilities carried at fair value measured on a recurring basis as of December 31, 2017,
which are included in other current liabilities on the Consolidated Balance sheet:
In thousands
Fair Value Measurements at December 31, 2017 Using
Total Carrying
Value at
December 31,
Quoted Prices in
Active Markets for
Identical Assets
Significant Other
Observable Inputs
2017
(Level 1)
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Interest rate swap agreements..........................................................
Total.................................................................................................
$
1,163
1,163
$
—
— $
1,163
1,163
$
—
—
The following table provides the liabilities carried at fair value measured on a recurring basis as of December 31, 2016,
which are included in other current liabilities on the Consolidated Balance sheet:
In thousands
Fair Value Measurements at December 31, 2016 Using
Total Carrying
Value at
December 31,
Quoted Prices in
Active Markets for
Identical Assets
Significant Other
Observable Inputs
2016
(Level 1)
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Interest rate swap agreements..........................................................
Total.................................................................................................
$
3,888
3,888
$
—
— $
3,888
3,888
$
—
—
84
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.
As a result of our global operating activities the Company is exposed to market risks from changes in foreign currency
exchange rates, which may adversely affect our operating results and financial position. When deemed appropriate, the
Company minimizes these risks through entering into foreign currency forward contracts. The foreign currency forward
contracts are valued using broker quotations, or market transactions in either the listed or over-the counter markets. As such,
these derivative instruments are classified within level 2.
The Company’s cash and cash equivalents are highly liquid investments purchased with an original maturity of three
months or less and are considered Level 1 on the fair value valuation hierarchy. The fair value of cash and cash equivalents
approximated the carrying value at December 31, 2017 and December 31, 2016. The Company’s defined benefit pension plan
assets consist primarily of equity security funds, debt security funds and temporary cash and cash equivalent investments.
These investments are comprised of a number of investment funds that invest in a diverse portfolio of assets including equity
securities, corporate and governmental bonds, and money markets. Trusts are valued at the net asset value (“NAV”) as
determined by their custodian. NAV represents the accumulation of the unadjusted quoted close prices on the reporting date for
the underlying investments divided by the total shares outstanding at the reporting dates. The 2013 and 2016 Notes are
considered Level 2 based on the fair value valuation hierarchy.
The estimated fair values and related carrying values of the Company’s financial instruments are as follows:
In thousands
December 31, 2017
December 31, 2016
Carry
Value
Fair
Value
Carry
Value
Fair
Value
Interest rate swap agreements ..........................................................
$
1,163
$
1,163
$
3,888
$
4.375% Senior Notes .......................................................................
3.45% Senior Notes .........................................................................
248,567
747,655
262,033
741,113
248,310
747,474
3,888
260,265
719,273
The fair value of 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.
19. COMMITMENTS AND CONTINGENCIES
The Company is subject to a variety of environmental laws and regulations governing discharges to air and water, the
handling, storage and disposal of hazardous or solid waste materials and the remediation of contamination associated with
releases of hazardous substances. The Company believes its operations currently comply in all material respects with all of the
various environmental laws and regulations applicable to our business; however, there can be no assurance that environmental
requirements will not change in the future or that we will not incur significant costs to comply with such requirements.
Under terms of the purchase agreement and related documents for the 1990 Acquisition, American Standard, Inc., now
known as Trane (“Trane”), has indemnified the Company for certain items including, among other things, certain
environmental claims the Company asserted prior to 2000. If Trane was unable to honor or meet these indemnifications, the
Company would be responsible for such items. In the opinion of Management, Trane currently has the ability to meet its
indemnification obligations.
Claims have been filed against the Company and certain of its affiliates in various jurisdictions across the United States
by persons alleging bodily injury as a result of exposure to asbestos-containing products. Most of these claims have been made
against our wholly owned subsidiary, Railroad Friction Products Corporation (“RFPC”), and are based on a product sold by
RFPC prior to the time that the Company acquired any interest in RFPC.
Most of these claims, including all of the RFPC claims, are submitted to insurance carriers for defense and indemnity or
to non-affiliated companies that retain the liabilities for the asbestos-containing products at issue. We cannot, however, assure
that all these claims will be fully covered by insurance or that the indemnitors or insurers will remain financially viable. Our
ultimate legal and financial liability with respect to these claims, as is the case with other pending litigation, cannot be
estimated.
85
It is management’s belief that the potential range of loss for asbestos-related bodily injury cases is not reasonably
determinable at present due to a variety of factors, including: (1) the asbestos case settlement history of the Company’s wholly
owned subsidiary, RFPC; (2) the unpredictable nature of personal injury litigation in general; and (3) the uncertainty of
asbestos litigation in particular. Despite this uncertainty, and although the results of the Company’s operations and cash flows
for any given period could be adversely affected by asbestos-related lawsuits, Management believes that the final resolution of
the Company’s asbestos-related cases will not be material to the Company’s overall financial position, results of operations and
cash flows. In general, this belief is based upon: (1) Wabtec’s and RFPC’s history of settlements and dismissals of asbestos-
related cases to date; (2) the inability of many plaintiffs to establish any exposure or causal relationship to RFPC’s product; and
(3) the inability of many plaintiffs to demonstrate any identifiable injury or compensable loss.
More specifically, as to RFPC, management’s belief that any losses due to asbestos-related cases would not be material
is also based on the fact that RFPC owns insurance which provides coverage for asbestos-related bodily injury claims. To date,
RFPC’s insurers have provided RFPC with defense and indemnity in these actions. The overall number of new claims being
filed against RFPC has dropped significantly in recent years; however, these new claims, and all previously filed claims, may
take a significant period of time to resolve. As to Wabtec and its divisions, Management’s belief that asbestos-related cases will
not have a material impact is also based on its position that it has no legal liability for asbestos-related bodily injury claims, and
that the former owners of Wabtec’s assets retained asbestos liabilities for the products at issue. To date, Wabtec has been able to
successfully defend itself on this basis, including two arbitration decisions and a judicial opinion, all of which confirmed
Wabtec’s position that it did not assume any asbestos liabilities from the former owners of certain Wabtec assets. Although
Wabtec has incurred defense and administrative costs in connection with asbestos bodily injury actions, these costs have not
been material, and the Company has no information that would suggest these costs would become material in the foreseeable
future.
On April 21, 2016, Siemens Industry, Inc. filed a lawsuit against the Company in federal district court in Delaware
alleging that the Company has infringed seven patents owned by Siemens, all of which relate to Positive Train Control
technology. On November 2, 2016, Siemens amended its complaint to add six additional patents they also claim are infringed
by the Company’s Positive Train Control Products. The Company has filed Answers, and asserted counterclaims, in response to
Siemens’ complaints. The case is still in the preliminary stages, but the Company has begun filing for Inter-Parties Review
proceedings before the U.S. Patent & Trademark Office seeking to invalidate the Siemens patents. Wabtec believes the claims
are without merit and is vigorously defending itself.
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.
From time to time the Company is involved in litigation relating to claims arising out of its operations in the ordinary
course of business. As of the date hereof, the Company is involved in no litigation that the Company believes will have a
material adverse effect on its financial condition, results of operations or liquidity.
20. SEGMENT INFORMATION
Wabtec has two reportable segments—the Freight Segment and the Transit Segment. The key factors used to identify
these reportable segments are the organization and alignment of the Company’s internal operations, the nature of the products
and services, and customer type. The business segments are:
86
Freight Segment primarily 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.
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 and other items 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.
87
Segment financial information for 2017 is as follows:
In thousands
Freight
Segment
Transit
Segment
Corporate
Activities and
Elimination
Total
Sales to external customers.........................................................................................
Intersegment sales/(elimination).................................................................................
Total sales........................................................................................................
Income (loss) from operations ....................................................................................
Interest expense and other, net....................................................................................
Income (loss) from operations before income taxes .......................................
Depreciation and amortization....................................................................................
Capital expenditures....................................................................................................
$
$
$
$
$
1,396,588
37,630
1,434,218
264,603
—
264,603
43,721
33,921
$
$
$
$
$
2,485,168
21,548
2,506,716
188,546
—
188,546
57,441
50,762
$
$
$
$
$
— $
3,881,756
(59,178)
—
(59,178) $
3,881,756
(31,416) $
(69,670)
(101,086) $
$
2,086
4,783
421,733
(69,670)
352,063
103,248
89,466
Segment assets ............................................................................................................
3,504,289
7,562,122
(4,486,431)
6,579,980
Segment financial information for 2016 is as follows:
In thousands
Freight
Segment
Transit
Segment
Corporate
Activities and
Elimination
Total
Sales to external customers.........................................................................................
Intersegment sales/(elimination).................................................................................
Total sales........................................................................................................
Income (loss) from operations ....................................................................................
Interest expense and other, net....................................................................................
Income (loss) from operations before income taxes .......................................
Depreciation and amortization....................................................................................
Capital expenditures....................................................................................................
$
$
$
$
$
1,543,098
39,519
1,582,617
344,455
—
344,455
36,519
22,726
$
$
$
$
$
1,388,090
9,393
1,397,483
171,446
—
171,446
31,545
20,987
$
$
$
$
$
— $
2,931,188
(48,912) $
—
(48,912) $
2,931,188
(57,540) $
(45,524)
(103,064) $
$
1,731
6,503
458,361
(45,524)
412,837
69,795
50,216
Segment assets ............................................................................................................
2,949,668
6,720,302
(3,088,952)
6,581,018
Segment financial information for 2015 is as follows:
In thousands
Freight
Segment
Transit
Segment
Corporate
Activities and
Elimination
Total
Sales to external customers.........................................................................................
Intersegment sales/(elimination).................................................................................
Total sales........................................................................................................
Income (loss) from operations ....................................................................................
Interest expense and other, net....................................................................................
Income (loss) from operations before income taxes .......................................
Depreciation and amortization....................................................................................
Capital expenditures....................................................................................................
$
$
$
$
$
2,054,715
35,372
2,090,087
482,640
—
482,640
36,834
24,715
$
$
$
$
$
1,235,283
10,895
1,264,178
150,988
—
150,988
26,196
22,996
$
$
$
$
$
— $
3,307,998
(46,267)
—
(46,267) $
3,307,998
(26,061) $
(22,199)
(48,260) $
$
1,704
1,717
607,567
(22,199)
585,368
64,734
49,428
Segment assets ............................................................................................................
2,708,724
2,202,614
(1,681,825)
3,229,513
88
The following geographic area data as of and for the years ended December 31, 2017, 2016 and 2015, respectively,
includes net sales based on product shipment destination and long-lived assets, which consist of plant, property and equipment,
net of depreciation, resident in their respective countries:
In thousands
2017
Net Sales
2016
2015
2017
2016
2015
Long-Lived Assets
United States .....................................................................
$
1,323,781
$
1,362,255
$
1,754,924
$
211,608
$
205,895
$
171,362
United Kingdom................................................................
Canada...............................................................................
France................................................................................
Germany............................................................................
China .................................................................................
Mexico ..............................................................................
Italy ...................................................................................
India ..................................................................................
Australia............................................................................
Brazil.................................................................................
Other international ............................................................
356,493
279,013
237,454
208,817
178,137
160,029
142,037
137,837
136,127
69,378
652,653
322,563
206,258
66,287
98,364
106,357
183,583
45,771
24,161
82,099
51,493
368,505
204,674
45,565
92,422
100,586
190,034
38,164
12,345
86,809
84,595
381,997
329,375
57,668
5,822
57,849
71,709
36,388
9,117
30,329
12,519
10,483
13,184
57,296
54,215
5,156
33,636
57,902
42,672
8,766
27,253
1,271
8,039
13,227
60,344
63,694
4,876
7,194
31,642
12,256
8,839
15,170
1,946
8,424
9,318
18,472
Total ............................................................................
$
3,881,756
$
2,931,188
$
3,307,998
$
573,972
$
518,376
$
353,193
Export sales from the Company’s United States operations were $448.0 million, $470.5 million and $508.4 million for
the years ended December 31, 2017, 2016 and 2015, respectively.
Sales by product are as follows:
In thousands
2017
2016
2015
Specialty Products & Electronics........................................................................................
$
1,350,727
$
1,374,580
$
1,733,881
Brake Products ....................................................................................................................
Remanufacturing, Overhaul & Build..................................................................................
Transit Products ..................................................................................................................
Other ...................................................................................................................................
749,959
522,275
1,112,340
146,455
588,081
559,284
276,124
133,119
627,552
606,624
189,581
150,360
Total sales......................................................................................................................
$
3,881,756
$
2,931,188
$
3,307,998
89
21. 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 December 31, 2017:
In thousands
Cash and cash equivalents
Receivables, net
Inventories
Current assets - other
Total current assets
Property, plant and equipment
Goodwill
Investment in subsidiaries
Other intangibles, net
Other long term assets
Total assets
Current liabilities
Inter-company
Long-term debt
Long-term liabilities - other
Total liabilities
Shareholders' equity
Non-controlling interest
Total shareholders' equity
Total Liabilities and Shareholders' Equity
Parent
Guarantors
Non-
Guarantors
Elimination
Consolidated
$
933
$
4,802
$
227,666
$
— $
233,401
77,046
120,937
1,142
200,058
52,532
25,274
237,360
137,972
4,507
384,641
136,382
546,527
852,381
483,725
116,642
1,680,414
385,058
1,888,302
—
—
—
—
—
—
1,166,787
742,634
122,291
2,265,113
573,972
2,460,103
6,517,205
2,570,391
—
(9,087,596)
—
30,575
17,414
251,347
295
922,510
58,651
—
—
1,204,432
76,360
$
$
6,843,058
$
3,889,583
196,827
217,176
$
$
4,934,935
$ (9,087,596) $
6,579,980
1,159,327
— $
1,573,330
2,121,546
(2,026,634)
(94,912)
1,661,771
14
54,046
67,824
161,518
232,945
4,034,190
(1,741,620)
1,458,878
—
—
—
—
—
1,823,303
354,815
3,751,448
2,808,868
5,632,665
3,454,931
(9,087,596)
2,808,868
—
(1,462)
21,126
—
19,664
$
$
2,808,868
6,843,058
$
$
5,631,203
3,889,583
$
$
3,476,057
$ (9,087,596) $
2,828,532
4,934,935
$ (9,087,596) $
6,579,980
90
Balance Sheet for December 31, 2016:
In thousands
Cash and cash equivalents
Receivables, net
Inventories
Current assets - other
Total current assets
Property, plant and equipment
Goodwill
Investment in subsidiaries
Other intangibles, net
Other long term assets
Total assets
Current liabilities
Inter-company
Long-term debt
Long-term liabilities - other
Total liabilities
Shareholders' equity
Non-controlling interest
Total shareholders' equity
Total Liabilities and Shareholders' Equity
Parent
Guarantors
Non-
Guarantors
Elimination
Consolidated
$
2,522
$
9,496
$
386,466
$
— $
398,484
79,041
120,042
52,576
254,181
49,031
25,275
202,779
128,076
(17,844)
322,507
126,661
477,472
660,688
410,392
833,397
2,290,943
342,684
1,576,018
—
—
—
—
—
—
942,508
658,510
868,129
2,867,631
518,376
2,078,765
5,388,613
1,325,150
—
(6,713,763)
—
31,897
9,592
204,512
(1,914)
817,451
54,708
—
—
1,053,860
62,386
$
$
5,758,589
$
2,454,388
194,983
196,956
$
$
5,081,804
$ (6,713,763) $
6,581,018
1,054,700
— $
1,446,639
1,562,399
(1,848,777)
286,378
1,761,933
58
976
33,298
74,977
286,312
3,552,613
(1,576,786)
1,628,366
—
—
—
—
—
1,762,967
394,587
3,604,193
2,205,976
4,032,250
2,681,514
(6,713,763)
2,205,977
—
(1,076)
771,924
—
770,848
$
$
2,205,976
5,758,589
$
$
4,031,174
2,454,388
$
$
3,453,438
$ (6,713,763) $
2,976,825
5,081,804
$ (6,713,763) $
6,581,018
Income Statement for the Year Ended December 31, 2017:
In thousands
Net Sales
Cost of sales
Gross profit (loss)
Total operating expenses
Income (loss) from operations
Interest (expense) income, net
Other income (expense), net
Equity earnings (loss)
Pretax income (loss)
Income tax expense
Net income (loss)
Less: Net income attributable to noncontrolling interest
Net income (loss) attributable to Wabtec shareholders
Comprehensive income (loss) attributable to Wabtec shareholders
Parent
Guarantors
Non-
Guarantors
Elimination
Consolidated
$
577,397
$
1,067,954
$
2,378,817
$
(142,412) $
3,881,756
(440,911)
(675,546)
(1,808,370)
108,384
(2,816,443)
136,486
392,408
570,447
(34,028)
1,065,313
(113,872)
(123,423)
(406,285)
—
(643,580)
22,614
268,985
164,162
(34,028)
421,733
(72,233)
5,103
416,068
371,552
(109,294)
262,258
—
262,258
263,907
$
$
8,843
289
131,620
409,737
32,393
442,130
386
442,516
442,516
$
$
(5,314)
(6,358)
—
—
—
(547,688)
(68,704)
(966)
—
152,490
(581,716)
352,063
(12,872)
—
(89,773)
139,618
(581,716)
262,290
(415)
139,203
472,167
$
$
$
$
—
(29)
(581,716) $
262,261
(581,716) $
596,874
91
Income Statement for the Year Ended December 31, 2016:
In thousands
Parent
Guarantors
Non-
Guarantors
Elimination
Consolidated
Net Sales...................................................................................................... $
641,809
$
1,112,001
$
1,322,937
$
(145,559) $
2,931,188
Cost of sales.................................................................................................
(473,700)
(708,062)
(928,608)
103,421
(2,006,949)
Gross profit (loss)........................................................................................
168,109
403,939
394,329
(42,138)
924,239
Total operating expenses .............................................................................
(141,940)
(122,617)
(201,321)
—
(465,878)
(Loss) income from operations ..............................................................
26,169
281,322
193,008
(42,138)
458,361
Interest (expense) income, net.....................................................................
(34,975)
Other income (expense), net........................................................................
Equity earnings (loss)..................................................................................
Pretax income (loss) .................................................................................
20,509
322,650
334,353
7,012
(2,284)
131,234
417,284
(14,598)
(21,188)
—
—
—
(453,884)
(42,561)
(2,963)
—
157,222
(496,022)
412,837
Income tax expense .....................................................................................
(29,466)
(57,667)
(12,300)
—
(99,433)
Net income (loss)..................................................................................
304,887
359,617
144,922
(496,022)
313,404
Less: Net income attributable to noncontrolling interest ............................
—
Net income attributable to Wabtec shareholders ......................................... $
304,887
Comprehensive income (loss) attributable to Wabtec shareholders............ $
305,180
—
359,617
359,617
$
$
(8,517)
136,405
33,226
$
$
$
$
—
(8,517)
(496,022) $
304,887
(496,022) $
202,001
Income Statement for the Year Ended December 31, 2015:
In thousands
Parent
Guarantors
Non-
Guarantors
Elimination
Consolidated
Net Sales...................................................................................................... $
743,262
$
1,436,935
$
1,300,577
$
(172,776) $
3,307,998
Cost of sales.................................................................................................
(531,269)
(843,104)
(976,798)
90,989
(2,260,182)
Gross (loss) profit........................................................................................
211,993
593,831
323,779
(81,787)
1,047,816
Total operating expenses .............................................................................
(142,953)
(131,251)
(166,045)
—
(440,249)
(Loss) income from operations ..............................................................
69,040
462,580
157,734
(81,787)
607,567
Interest (expense) income, net.....................................................................
(23,129)
Other income (expense), net........................................................................
Equity earnings (loss)..................................................................................
Pretax income (loss) .................................................................................
23,193
506,903
576,007
5,914
(9,140)
112,286
571,640
327
(19,364)
—
—
—
(619,189)
(16,888)
(5,311)
—
138,697
(700,976)
585,368
Income tax expense .....................................................................................
(177,379)
8,989
(18,350)
—
(186,740)
Net income (loss)..................................................................................
398,628
580,629
120,347
(700,976)
398,628
Less: Net income attributable to noncontrolling interest ............................
—
Net income attributable to Wabtec shareholders ......................................... $
398,628
Comprehensive income (loss) attributable to Wabtec shareholders............ $
409,734
—
580,629
580,629
$
$
$
$
—
—
—
120,347
$
(700,976) $
398,628
(7,992) $
(700,976) $
281,395
92
Condensed Statement of Cash Flows for the year ended December 31, 2017:
In thousands
Parent
Guarantors
Non-
Guarantors
Elimination
Consolidated
Net cash (used in) provided by operating activities
$
(49,231) $
249,204
$
22,866
$
(34,028) $
188,811
Net cash used in investing activities
(11,156)
(120,661)
(143,912)
—
(275,729)
Net cash provided by (used in) financing activities
58,798
(133,237)
(57,020)
34,028
Effect of changes in currency exchange rates
Increase (decrease) in cash
Cash, beginning of year
Cash, end of year
—
(1,589)
2,522
—
19,266
(4,694)
(158,800)
9,496
386,466
—
—
—
(97,431)
19,266
(165,083)
398,484
$
933
$
4,802
$
227,666
$
— $
233,401
Condensed Statement of Cash Flows for the year ended December 31, 2016:
In thousands
Parent
Guarantors
Non-
Guarantors
Elimination
Consolidated
Net cash provided by (used in) operating activities .................................... $
(44,611) $
332,822
$
204,457
$
(42,138) $
450,530
Net cash used in investing activities............................................................
(829,783)
(14,725)
Net cash (used in) provided by financing activities ....................................
876,916
(321,758)
Effect of changes in currency exchange rates .............................................
(Decrease) increase in cash .........................................................................
Cash, beginning of year...............................................................................
—
2,522
—
—
(3,661)
13,157
69,443
(74,325)
(26,143)
173,432
213,034
—
(775,065)
42,138
522,971
—
—
—
(26,143)
172,293
226,191
Cash, end of year ......................................................................................... $
2,522
$
9,496
$
386,466
$
— $
398,484
Condensed Statement of Cash Flows for the year ended December 31, 2015:
In thousands
Parent
Guarantors
Non-
Guarantors
Elimination
Consolidated
Net cash provided by (used in) operating activities .................................... $
(90,374) $
487,516
$
135,489
$
(81,787) $
450,844
Net cash used in investing activities............................................................
(7,862)
(109,326)
(262,948)
—
(380,136)
Net cash provided by (used in) financing activities ....................................
(48,570)
(378,330)
Effect of changes in currency exchange rates .............................................
—
Increase in cash ...........................................................................................
(146,806)
—
(140)
93,615
(18,868)
(52,712)
Cash, beginning of year...............................................................................
146,806
13,297
265,746
81,787
(251,498)
—
—
—
(18,868)
(199,658)
425,849
Cash, end of year ......................................................................................... $
— $
13,157
$
213,034
$
— $
226,191
22. OTHER (EXPENSE) INCOME, NET
The components of other (expense) income, net are as follows:
In thousands
2017
2016
2015
Foreign currency loss .................................................................................................
$
(6,618) $
(4,001) $
Equity income.............................................................................................................
Other miscellaneous income (expense) ......................................................................
2,579
3,073
409
629
Total other (expense) income, net ........................................................................
$
(966) $
(2,963) $
(4,659)
—
(652)
(5,311)
For the year ended
December 31,
93
23. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
In thousands, except per share data
2017
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter (1)
Net sales ......................................................................................................................
$
916,034
$
932,253
$
957,931
$
1,075,538
Gross profit .................................................................................................................
Income from operations ..............................................................................................
Net income attributable to Wabtec shareholders.........................................................
Basic earnings from operations per common share ....................................................
Diluted earnings from operations per common share .................................................
2016
Net sales ......................................................................................................................
Gross profit .................................................................................................................
Income from operations ..............................................................................................
Net income attributable to Wabtec shareholders.........................................................
Basic earnings from operations per common share ....................................................
Diluted earnings from operations per common share .................................................
$
$
$
$
$
269,707
114,858
73,889
0.77
0.77
772,031
255,180
142,181
94,163
1.03
1.02
$
$
$
$
$
273,963
113,701
72,025
0.75
0.75
723,601
237,389
133,284
90,485
1.00
1.00
$
$
$
$
$
253,203
102,011
67,399
0.70
0.70
675,574
212,481
120,096
82,428
0.92
0.91
$
$
$
$
$
268,440
91,163
48,948
0.51
0.51
759,982
219,189
62,800
46,328
0.42
0.42
(1) Results from the fourth quarter of 2017 include project adjustments related to prior periods which decreased income from operations by approximately
$14.8 million. The effect of these project adjustments was not material.
The Company operates on a four-four-five week accounting quarter, and the quarters end on or about March 31, June 30
and September 30. The fiscal year ends on December 31.
94
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
For each of the three years ended December 31
SCHEDULE II
In thousands
2017
Warranty and overhaul reserves .....................
Allowance for doubtful accounts ...................
Valuation allowance-taxes..............................
2016
Warranty and overhaul reserves .....................
Allowance for doubtful accounts ...................
Valuation allowance-taxes..............................
2015
Warranty and overhaul reserves .....................
Allowance for doubtful accounts ...................
Valuation allowance-taxes..............................
$
$
$
Balance at
beginning
of period
Charged/
(credited) to
expense
Charged/
(credited) to
other
accounts (1)
Deductions
from
reserves (2)
Balance
at end of
period
$
$
$
138,992
7,340
21,418
92,064
5,614
12,623
87,849
6,270
1,818
$
$
$
50,385
2,632
6,760
28,947
3,635
3,405
35,418
2,026
7,024
$
$
12,234
4,979
—
56,753
—
5,390
(1,762) $
—
3,781
$
$
$
48,548
2,609
10,024
38,772
1,909
—
29,441
2,682
—
153,063
12,342
18,154
138,992
7,340
21,418
92,064
5,614
12,623
(1) Reserves of acquired/(sold) companies; valuation allowances for state and foreign deferred tax assets; impact of
fluctuations in foreign currency exchange rates.
(2) Actual disbursements and/or charges.
95
Item 16.
FORM 10-K SUMMARY
Not applicable.
96
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.
SIGNATURES
WESTINGHOUSE AIR BRAKE
TECHNOLOGIES CORPORATION
Date:
February 26, 2018
By:
/S/ RAYMOND T. BETLER
Raymond T. Betler,
President and Chief Executive Officer, and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Company and in the capacities and on the dates indicated.
By
By
By
By
By
By
By
By
Signature and Title
Date
/S/ ALBERT J. NEUPAVER
Albert J. Neupaver,
Chairman of the Board
/S/ RAYMOND T. BETLER
Raymond T. Betler,
President and Chief Executive Officer and Director (Principal
Executive Officer)
February 26, 2018
February 26, 2018
/S/ PATRICK D. DUGAN
February 26, 2018
Patrick D. Dugan,
Executive Vice President Finance and Chief Financial Officer
(Principal Financial Officer)
/S/ JOHN A. MASTALERZ
February 26, 2018
John A. Mastalerz,
Senior Vice President and Principal Accounting Officer
/S/ WILLIAM E. KASSLING
William E. Kassling,
Lead Director
/S/ PHILIPPE ALFROID
Philippe Alfroid,
Director
/S/ ROBERT J. BROOKS
Robert J. Brooks,
Director
/S/ ERWAN FAIVELEY
Erwan Faiveley,
Director
97
February 26, 2018
February 26, 2018
February 26, 2018
February 26, 2018
By
By
By
By
By
By
By
/S/ EMILIO A. FERNANDEZ
Emilio A. Fernandez,
Director
/S/ LEE B. FOSTER, II
Lee B. Foster, II,
Director
/S/ LINDA S. HARTY
Linda S. Harty,
Director
/S/ BRIAN P. HEHIR
Brian P. Hehir,
Director
/S/ MICHAEL W. D. HOWELL
Michael W. D. Howell,
Director
/S/ STEPHANE RAMBAUD-MEASSON
Stephane Rambaud-Measson,
Director
/S/ NICKOLAS W. VANDE STEEG
Nickolas W. Vande Steeg,
Director
February 26, 2018
February 26, 2018
February 26, 2018
February 26, 2018
February 26, 2018
February 26, 2018
February 26, 2018
98
SUBSIDIARIES AND AFFILIATES
Company
Jurisdiction of Incorporation
A and M Signalling Services Private Limited ..............................................................
India
Advanced Global Environmental LLC ......................................................................... Atlantic Beach, Florida
Aero Transportation Products, Inc................................................................................
Independence, Missouri
Akapp-Stemmann BV................................................................................................... Ede, Netherlands
AM General Contractors SpA....................................................................................... Genova, Italy
A M Rail Group Limited .............................................................................................. Burton-on-Trent, UK
A M Signalling Design Limited.................................................................................... Burton-on-Trent, UK
Ateliers Hubert Gerken S.A.......................................................................................... Belgium
Austbreck Pty, Ltd. ....................................................................................................... Hallam, Victoria, Australia
Barber Steel Foundry Corp........................................................................................... Rothbury, Michigan
Barber Tian Rui Railway Supply LLC ......................................................................... Park Ridge, IL
Bearward Limited ......................................................................................................... Northampton, UK
Bearward Engineering Limited .................................................................................... Northampton, UK
Becorit GmbH............................................................................................................... Recklinghausen,Germany
Beijing Wabtec Huaxia Technology Company Ltd. ..................................................... Beijing, China
Brecknell Willis & Co., Ltd.......................................................................................... Char, Somerset, UK
Brecknell Willis Composites, Ltd................................................................................. Char, Somerset, UK
Brecknell Willis (Tianjin) Electrification Systems, Co., Ltd........................................ TianJin, China
Brecknell Willis Stemmann (Tianjin) Electrification Systems, Co., Ltd. .................... TianJin, China
Cambridge Forming and Cutting Ltd ........................................................................... Ontario, Canada
CoFren S.A.S. ............................................................................................................... Vierzon, France
CoFren S.r.l. .................................................................................................................. Avellino, Italy
Coleman Hydraulics Limited ........................................................................................ Burton-on-Trent, UK
CZ-Carbon Prodcuts s.r.o. ............................................................................................ Czech Republic
Datong Faiveley Railway Vehicle Equipment Co. Ltd. ................................................ Datong City6, China
Dia-Frag Industria e Comercio de Motopecas Ltda. .................................................... Monte Alto, Brazil
Durox Company ........................................................................................................... Strongville, Ohio
E-Carbon Asia Sdn. Bhd............................................................................................... China
E-Carbon China Co., Ltd. ............................................................................................ China
E-Carbon Far East Limited........................................................................................... Hong Kong
E-Carbon Far East Ltd. Shanghai ................................................................................. Shanghai, China
E-Carbon H.K. Limited ................................................................................................ Hong Kong
E-Carbon S.A................................................................................................................ Belgium
Electrical Carbon UK Limited...................................................................................... United Kingdom
Ellcon Drive LLC ......................................................................................................... Greenville, South Carolina
Evand Pty Ltd. .............................................................................................................. Wetherill Park, NSW, Australia
Faiveley Mapna Pars Rail ............................................................................................. Karaj, Iran
Faiveley Rail Engineering Singapore Pte Ltd .............................................................. Singapore
Faiveley Transport Amiens ........................................................................................... Amiens, France
Faiveley Transport Asia Pacific Ltd. ............................................................................ Hong Kong
Faiveley Transport Australia Ltd. ................................................................................. Rosehill, NSW, Australia
Faiveley Transport Birkenhead Ltd. ............................................................................. Birkenhead, UK
Faiveley Transport Canada Inc. .................................................................................... Montreal, Canada
Faiveley Transport Czech a.s. ....................................................................................... Blovice, Czech Republic
Faiveley Transport Chile Ltda. ..................................................................................... Santiago, Chile
Exhibit 21
Ownership
Interest
100%
55%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
50%
70%
100%
60%
70%
100%
100%
100%
100%
51%
50%
100%
100%
100%
100%
100%
100%
100%
Company
Jurisdiction of Incorporation
Ownership
Interest
Faiveley Transport DO Brasil Ltda. ............................................................................. Sao Paulo, Brazil
Faiveley Transport Far East Ltd ................................................................................... Hong Kong
Faiveley Transport Holding Gmbh & co KG ............................................................... Whitten, Germany
Faiveley Transport Iberica SA ...................................................................................... La Selva del Camp, Spain
Faiveley Transport Italia Spa ........................................................................................ Turin, Italy
Faiveley Transport Korea Co. Ltd ................................................................................ Seoul, Korea
Faiveley Transport Leipzig GmbH & Co-KG .............................................................. Scheuditz, Germany
Faiveley Transport Malmo AB ..................................................................................... Landskrona, Sweden
Faiveley Transport Metro Technology Shanghai Co Ltd. ............................................ Shanghai, China
Faiveley Transport Metro Technology Taiwan Ltd. ..................................................... Taipei, Taiwan
Faiveley Transport Metro Technology Thailand Co Ltd. ............................................. Bangkok, Thailand
Faiveley Transport Nordic AB...................................................................................... Landskrona, Sweden
Faiveley Transport North America Inc. ........................................................................ Greenville, South Carolina
Faiveley Transport Nowe GmbH.................................................................................. Elze, Germany
Faiveley Transport NSF ................................................................................................ Neuville en Ferrain, France
Faiveley Transport Plezn s.r.o. ...................................................................................... Nyrany, Chech Republic
Faiveley Transport Polska zoo ...................................................................................... Poznan, Poland
Faiveley Transport Rail Technologies India Ltd. ......................................................... Himachal Pradesh, India
Faiveley Transport Railway Trading Co. Ltd ............................................................... Shanghai, China
Faiveley Transport S.A. ................................................................................................ Gennevilliers, France
Faiveley Transport Schwab AG .................................................................................... Schaffhausen, Switzerland
Faiveley Transport Schweiz AG ................................................................................... Hagendorf, Switzerland
Faiveley Transport Service Maroc ................................................................................ Casablanca, Morocco
Faiveley Transport South Africa Pty (Ltd) ................................................................... Monument Park, South Africa
Faiveley Transport Systems Technology (Beijing) Co. Ltd. ........................................ Beijing, China
Faiveley Transport Tamworth Ltd. ............................................................................... Tamworth, Staffordshire, UK
Faiveley Transport Tours .............................................................................................. Saint Pierre des Corps, France
Faiveley Transport Tremosnice s.r.o. ............................................................................ Treomsnice, Czech Republic
Faiveley Transport USA Inc. ........................................................................................ Greenville, South Carolina
Faiveley Transport Verwaltungs GmbH ....................................................................... Scheuditz, Germany
Faiveley Transport Witten GmbH................................................................................. Witten, Germany
F.I.P. Pty Ltd. ................................................................................................................ Sydney, Australia
Fandstan Electric BV.................................................................................................... Ede, Netherlands
Fandstan Electric Group, Ltd........................................................................................ London, UK
Fandstan Electric Systems Pty, Ltd. ............................................................................. Gujarat, India
Fandstan Electric Systems, Ltd. ................................................................................... London, England
Fandstan Electric, Ltd................................................................................................... London, UK
Fandstan Electric Systems, Ltd. ................................................................................... London, UK
F.T.M.T. Singapore Pte Ltd ........................................................................................... Singapore
FW Acquisition LLC .................................................................................................... Wilmington, Delaware
G&B Specialties, Inc. ................................................................................................... Berwick, Pennsylvania
Gerken Group S.A. ....................................................................................................... Belgium
Gerken Nordiska Karma Aktiebolag ............................................................................ Sweden
Gerken SAS .................................................................................................................. France
Global Acquisition, S.a r.l............................................................................................. Luxembourg
100%
100%
100%
100%
98.7%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
49%
72%
100%
Company
Jurisdiction of Incorporation
Ownership
Interest
Graham White Manufacturing Company ..................................................................... Salem, Virginia
GT Advanced Engineering and Technologies, Ltd....................................................... Shanghai, China
GT Engineering & Associates, Ltd............................................................................... Hong Kong, China
Hubei Dengfeng Unifin Electrical Equipment Cooling System Co., Ltd. ................... Daye City, Hubei, China
Hunan CSR Wabtec Railway Transportation Technology Co. Ltd. ............................. Changsha, Hunan, China
InTrans Engineering Limited........................................................................................ Kolkata, West Bengal, India
IP09 RCL Corporation.................................................................................................. Wilmington, DE
J. & D. Gears Limited................................................................................................... Barton Under Needwood, England
Jiaxiang HK Smart Technology Co. Ltd....................................................................... Hong Kong, China
Keelex 351 Limited ...................................................................................................... Barton Under Needwood, England
LH Access Technology Limited ................................................................................... Barton Under Needwood, England
LH Group Holdings Limited ........................................................................................ Barton Under Needwood, England
LH Group Services Limited ......................................................................................... Barton Under Needwood, England
LH Group Wheelsets Limited....................................................................................... Barton Under Needwood, England
LH Plant (Burton) Limited ........................................................................................... Barton, United Kingdom
Longwood Elastomers, Inc. .......................................................................................... Wytheville, Virginia
Longwood Elastomers, S.A. ......................................................................................... Soria, Spain
Longwood Engineered Products, Inc............................................................................ Greensboro, North Carolina
Longwood Industries, Inc. ............................................................................................ Brenham, Texas
Longwood International, Inc. ....................................................................................... Greensboro, North Carolina
LWI Elastomers International, S.L............................................................................... Madrid, Spain
LWI International B.V. ................................................................................................. Amsterdam, Netherlands
Medagao (Suzhou) Rubber-Metal Components Co., Ltd............................................. Suzhou, Jiangsu, China
Melett (Changzhou) Precision Machinery Co. Limited ...............................................
Jiangsu, China
Melett Limited .............................................................................................................. South Yorkshire, England
Melett North America, Inc............................................................................................ Memphis, Tennessee
Melett Polska Spolka z Ograniczona odpowiedzialnoscia ........................................... Bydgos
Metalocaucho, S.L........................................................................................................ Urnieta, Gipuzkoa, Spain
Mors Smitt BV.............................................................................................................. Utrecht, Netherlands
Mors Smitt France S.A.S.............................................................................................. Sable sur Sarthe, France
Mors Smitt Holding S.A.S............................................................................................ Utrecht, Netherlands
Mors Smitt Netherlands BV ......................................................................................... Utrecht, Netherlands
Mors Smitt Technologies, Inc....................................................................................... Buffalo Grove, IL
Mors Smitt UK Ltd....................................................................................................... West Midlands UK
MorsSmitt Asia, Ltd. .................................................................................................... Kwun Tong, Hong Kong
MotivePower, Inc. ........................................................................................................ Boise, ID
MTC India Rubber Metal Components Private Limited .............................................. Bangalore, India
Napier Turbochargers (Holdings) Limited ................................................................... Lincoln, Lincolnshire, UK
Napier Turbochargers Australia Pty Ltd....................................................................... Sydney, NSW, Australia
Napier Turbochargers Limited...................................................................................... Lincoln, Lincolnshire, UK
o.o.o. Faiveley Transport .............................................................................................. Leningrad Region, Russia
Orion Engineering Ltd.................................................................................................. Hong Kong, China
Pantrac GmbH .............................................................................................................. Germany
Parts Supply Limited .................................................................................................... Leicestershire, England
Poli S.r.l. ....................................................................................................................... Camisano, Italy
100%
100%
100%
69%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Company
Jurisdiction of Incorporation
Ownership
Interest
Pride Bodies Ltd ........................................................................................................... Ontario, Canada
Qingdao Faiveley Sri Rail Brake Co. Ltd. .................................................................... Qingdao, Shadong, China
Railroad Controls, L.P .................................................................................................. Benbrook, TX
Railroad Friction Products Corporation ....................................................................... Maxton, NC
RCL, L.L.C................................................................................................................... Benbrook, TX
RCLP Acquisition LLC ................................................................................................ Benbrook, TX
Relay Monitoring Systems Pty Ltd .............................................................................. Mulgrave, Australia
RFPC Holding Corporation .......................................................................................... Wilmington, Delaware
Ricon Acquisition Corp. ............................................................................................... San Fernando, California
Ricon Corp. ................................................................................................................... San Fernando, California
SAB Wabco Davies & Metcalfe Ltd. ........................................................................... Birkenhead, UK
SAB Wabco D & M Products Ltd. ............................................................................... Birkenhead, UK
SAB Wabco Investments Ltd. ....................................................................................... Birkenhead, UK
SAB Wabco Ltd. ........................................................................................................... Birkenhead, UK
SAB Wabco Products Ltd. ............................................................................................ Birkenhead, UK
SAB Wabco Sharavan ................................................................................................... Sharavan, Iran
SAB Wabco UK Ltd. .................................................................................................... Birkenhead, UK
Schaefer Equipment, Inc. .............................................................................................. Warren, Ohio
SCT Europe Ltd. ........................................................................................................... Kirkcaldy, Fife, UK
SCT Technology LLC................................................................................................... Wilmington, Delaware
Semvac A/S................................................................................................................... Odense, Denmark
Semvac Spare Parts A/S ............................................................................................... Odense, Denmark
Shanghai Faiveley Railway Technology Co. Ltd. ........................................................ Shanghai, China
Shenyang CRRC Wabtec Railway Brake Technology Company, Ltd. ........................ Shenyang, China
Shijiazhuang Jiaxiang Precision Machinery Co. Ltd.................................................... Shijiazhuang, China
Standard Car Truck Company ...................................................................................... Park Ridge, IL
Standard Car Truck-Asia, Inc. ...................................................................................... Chaoyang District, Beijing
Stemmann Technik France SAS ................................................................................... Buchelay, France
Stemmann-Technik GmbH........................................................................................... Schüttorf, Germany
Stemmann Technik Nederland BV ............................................................................... Rijnsburg, Netherlands
Stemmann Polska SP Zoo............................................................................................. Katy Wroclawskie, Poland
Suecobras Consultoria Ferroviaria Ltda ....................................................................... Rio de Janeiro, Brazil
Thermal Transfer Acquisition Corporation................................................................... Duquesne, Pennsylvania
The Vista Corporation of Virginia ................................................................................ Salem, Virginia
TransTech of SC, Inc .................................................................................................... Piedmont, South Carolina
Turbonetics Holdings, Inc. ........................................................................................... Moorpark, CA
Vapor Europe S.r.l. ........................................................................................................ Sassuolo, Modena, Italy
Vapor Rail Kapi Sistemleri Ticaret Ve Hizmetleri Limited Sirketi ..............................
Istanbul, Turkey
Vapor Ricon Europe Ltd. .............................................................................................. Loughborough, Leicestershire, UK
Wabtec Assembly Services S. de R.L. de C.V.............................................................. San Luis Potosi, Mexico
Wabtec Australia Pty. Limited ...................................................................................... Rydalmere, Australia
Wabtec (Beijing) Corporate Management Co. Ltd....................................................... Beijing, Fengtai District, China
Wabtec Brasil Fabricacoa Manutencao de Equipamentos Ferroviarios Ltda...............
Juiz de For a, Brazil
Wabtec Corporation...................................................................................................... Wilmerding, Pennsylvania
Wabtec Canada, Inc. ..................................................................................................... Ontario, Canada
100%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
99%
100%
100%
100%
100%
100%
100%
51%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Company
Jurisdiction of Incorporation
Ownership
Interest
Wabtec China Friction Holding Limited ...................................................................... Hong Kong, China
Wabtec China Rail Products & Services Holding Limited........................................... Hong Kong, China
Wabtec Coöperatief UA................................................................................................ Amsterdam, Netherlands
Wabtec Control Systems Pty Ltd.................................................................................. Osborne Park, WA, Australia
Wabtec de Mexico, S. de R.L. de C.V. ......................................................................... San Luis Potosi, Mexico
Wabtec Equipamentos Ferroviarios Ltda...................................................................... Sao Paulo, Brazil
Wabtec Europe GmbH.................................................................................................. Brunn am Gebirge, Austria
Wabtec France S.A.S.................................................................................................... Paris, France
Wabtec FRG GmbH...................................................................................................... Recklinghausen, Germany
Wabtec FRG Holdings GmbH & Co. KG .................................................................... Recklinghausen, Germany
Wabtec Finance LLC.................................................................................................... Wilmington, Delaware
Wabtec Golden Bridge Transportation Technology (Hangzhou) Company, Ltd. ......... Xinwan Town. China
Wabtec Holding Corp. .................................................................................................. Wilmington, Delaware
Wabtec India Transportation Private Limited............................................................... Kolkata, India
Wabtec International, Inc. ............................................................................................. Wilmington, Delaware
Wabtec Investments Limited LLC................................................................................ Wilmington, Delaware
Wabtec Ireland Limited ................................................................................................ Dublin, Ireland
Wabtec Jinxin (Wuxi) Heat Exchanger Co., Ltd. ......................................................... Wuxi City, China
Wabtec Luxembourg, S.a r.l ......................................................................................... Luxembourg
Wabtec Manufacturing, LLC........................................................................................ Wilmington, Delaware
Wabtec Manufacturing Mexico S. de R.L. de C.V. ...................................................... San Luis Potosí, Mexico
Wabtec MZT AD Skopje .............................................................................................. Skopje, Macedonia
Wabtec MZT Poland Sp. z.o.o...................................................................................... Poznan, Poland
Wabtec Netherlands BV ............................................................................................... Amsterdam, Netherlands
Wabtec Rail Limited..................................................................................................... Doncaster, S.Yorkshire, UK
Wabtec Rail Scotland Limited...................................................................................... Kirkcaldy, Fife, Scotland
Wabtec Railway Electronics Corporation..................................................................... Halifax, Nova Scotia, Canada
Wabtec Railway Electronics Holdings, LLC................................................................ Wilmington, Delaware
Wabtec Railway Electronics Manufacturing, Inc ......................................................... Wilmington, Delaware
Wabtec Railway Electronics, Inc.................................................................................. Wilmington, Delaware
Wabtec Rus LLC .......................................................................................................... Moscow, Russia
Wabtec Servicios Administrativos, S.A. de C.V. .......................................................... San Luis Potosi, Mexico
Wabtec South Africa Proprietary Limited .................................................................... Kempton Park , South Africa
Wabtec Texmaco Rail Private Limited ......................................................................... Kolkata, India
Wabtec UK Holdings Limited ...................................................................................... Staffordshire, England
Wabtec UK Investments Limited.................................................................................. Manchester, England
Wabtec UK Manufacturing Limited............................................................................. Burton-on-Trent, UK
Wabtec-UWC Ltd......................................................................................................... Limassol, Cyprus
Westinghouse Railway Holdings (Canada) Inc. ........................................................... Toronto, Ontario, Canada
Wilmerding International Holdings C.V. ...................................................................... Amsterdam, Netherlands
Workhorse Rail, LLC ................................................................................................... Pittsburgh, Pennsylvania
Xorail, Inc. ....................................................................................................................
Jacksonville, Florida
Young Touchstone Company........................................................................................ Oak Creek, Wisconsin
Zhongshan MorsSmitt Relay Ltd. ................................................................................ Zhongshan, China
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
85%
100%
100%
100%
87%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
70%
60%
100%
100%
100%
51%
100%
100%
100%
100%
100%
100%
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement (Form S-8 No. 333-53753) pertaining to the 1998 Employee Stock Purchase Plan of
Westinghouse Air Brake Technologies Corporation,
(2) Registration Statement (Form S-8 No. 333-39159) pertaining to the 1997 Executive Retirement Plan of Westinghouse
Air Brake Technologies Corporation,
(3) Registration Statement (Form S-8 No. 333-02979) pertaining to the 1995 Non-Employee Directors’ Fee and Stock
Option Plan of Westinghouse Air Brake Technologies Corporation,
(4) Registration Statement (Form S-8 No. 333-115014) pertaining to the 2004 Bonus Plan Agreements of Westinghouse
Air Brake Technologies Corporation,
(5) Registration Statement (Form S-8 No. 333-137985) pertaining to the 2000 Stock Incentive Plan of Westinghouse Air
Brake Technologies Corporation,
(6) Registration Statement (Form S-8 No. 333-41840) pertaining to the 2000 Stock Inventive Plan of Westinghouse Air
Brake Technologies Corporation,
(7) Registration Statement (Form S-8 No. 333-40468) pertaining to the 1995 Non-Employee Directors’ Fee and Stock
Option Plan of Westinghouse Air Brake Technologies Corporation,
(8) Registration Statement (Form S-8 No. 333-35744) pertaining to the 2000 Savings Plan of Westinghouse Air Brake
Technologies Corporation,
(9) Registration Statement (Form S-8 No. 333-89086) pertaining to the 2002 Employee Stock Ownership Plan of
Westinghouse Air Brake Technologies Corporation,
(10) Registration Statement (Form S-8 No. 333-179857) pertaining to the 2011 Stock Incentive Plan of Westinghouse Air
Brake Technologies Corporation,
(11) Registration Statement (Form S-3 No. 333-219657) of Westinghouse Air Brake Technologies Corporation,
(12) Registration Statement (Form S-8 No. 219662) pertaining to the 1995 Non-Employee Directors' Fee and Stock Option
Plan of Westinghouse Air Brake Technologies Corporation, and
(13) Registration Statement (Form S-8 No. 219663) pertaining to the 2011 Stock Incentive Plan of Westinghouse Air Brake
Technologies Corporation;
of our reports dated February 26, 2018, with respect to the consolidated financial statements and schedule of Westinghouse Air
Brake Technologies Corporation and the effectiveness of internal control over financial reporting of Westinghouse Air Brake
Technologies Corporation included in this Annual Report (Form 10-K) of Westinghouse Air Brake Technologies Corporation
for the year ended December 31, 2017.
/s/ ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
February 26, 2018
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S 8 (Nos. 333-53753, 333-39159,
333-02979, 333-115014, 333-137985, 333-41840, 333-40468, 333-35744, 333-89086, 333-179857, 333-219662, and
333-219663) and Form S-3 (No. 333-219657) of WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION of our
report dated February 23, 2017 relating to the financial statements of Faiveley Transport, which appears in this Annual Report
on Form 10-K of Westinghouse Air Brake Technologies Corporation.
/s/ PricewaterhouseCoopers Audit
Neuilly-sur-Seine, France
February 26, 2018
CERTIFICATION
Exhibit 31.1
I, Raymond T. Betler, certify that:
1. I have reviewed this annual report on Form 10-K of Westinghouse Air Brake Technologies Corporation.
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this annual report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this annual report based on such evaluation; and
(d) Disclosed in this annual report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: February 26, 2018
By:
Name:
Title:
/s/ Raymond T. Betler
Raymond T. Betler
President and Chief Executive Officer
CERTIFICATION
Exhibit 31.2
I, Patrick D. Dugan, certify that:
1. I have reviewed this annual report on Form 10-K of Westinghouse Air Brake Technologies Corporation.
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this annual report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is
being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this annual report based on such evaluation; and
(d) Disclosed in this annual report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: February 26, 2018
By:
Name:
Title:
/S/ PATRICK D. DUGAN
Patrick D. Dugan
Executive Vice President Finance and Chief Financial Officer
CERTIFICATION
Exhibit 32.1
Pursuant to 18 U.S.C. § 1350, the undersigned officers of Westinghouse Air Brake Technologies Corporation (the
“Company”), hereby certify, to the best of their knowledge, that the Company’s Annual Report on Form 10-K for the year
ended December 31, 2016 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the
Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
By:
/s/ RAYMOND T. BETLER
Raymond T. Betler
President and Chief Executive Officer
Date: February 26, 2018
By:
/s/ PATRICK D. DUGAN
Patrick D. Dugan
Executive Vice President Finance and Chief Financial Officer
Date: February 26, 2018