®
2019 Annual Report
Profile
Wabtec Corporation is a leading global provider of equipment, systems, digital solutions and value-added services for freight and
transit rail. Drawing on nearly four centuries of collective experience across Wabtec, GE Transportation and Faiveley Transport, the
company has unmatched digital expertise, technological innovation, and world-class manufacturing and services, enabling the digital-
rail-and-transit ecosystems. Wabtec is focused on performance that drives progress, creating transportation solutions that move and
improve the world. The freight portfolio features a comprehensive line of locomotives, software applications and a broad selection of
mission-critical controls systems, including Positive Train Control (PTC). The transit portfolio provides highly engineered systems
and services to virtually every major rail transit system around the world, supplying an integrated series of components for buses and
all train-related market segments that deliver safety, efficiency and passenger comfort. Along with its industry-leading portfolio of
products and solutions for the rail and transit industries, Wabtec is a leader in mining, marine, and industrial solutions. Based in
Pittsburgh, PA, Wabtec has approximately 27,000 employees in facilities throughout the world. Visit: www.WabtecCorp.com
This annual report contains forward-looking statements and includes assumptions about future market conditions, operations and
results. These statements are based on current expectations and are subject to risks and uncertainties. They are made pursuant to safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. The Form 10-K and our other filings made with the
Securities and Exchange Commission lists the factors that could cause actual results to differ materially from the forward-looking
statements. In making these forward-looking statements, the company assumes no obligation to update them or advise of changes in
the assumptions on which they were based.
CORPORATE INFORMATION
Transfer Agent and
Registrar
Our transfer agent is responsible for
shareholder records, issuance of
stock certificates, and distribution
of dividends and I.R.S. form 1099.
Your requests, as shareholders,
concerning these matters are most
efficiently answered by
communicating directly with:
EQ Shareowner Services
P.O. Box 64854
St Paul, MN 55164-0854
Street and overnight
delivery address:
EQ Shareowner Services
1110 Centre Point Curve,
Suite 101
Mendota Heights,
MN 55120
Toll-free number:
(800) 468-9716
Stock Exchange Listing
New York Stock Exchange
Ticker Symbol: WAB
Independent Public
Accountants
Ernst & Young LLP
Pittsburgh, PA 15222
Form 10-K
This document
includes the company’s
Form 10-K annual
report.
Annual Meeting
May 15, 2022
11:30 a.m.
Wabtec Global Headquarters
30 Isabella Street
Pittsburgh, PA 15212
☒
☐
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, 2019
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.)
30 Isabella Street
Pittsburgh, Pennsylvania 15212
(Address of principal executive offices, including zip code)
Securities registered pursuant to Section 12(b) of the Act:
(412) 825-1000
(Registrant’s telephone number)
Class
Common Stock, par value $.01 per share
Trading Symbol
WAB
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 ☒ No ¨.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No ý.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes ý No ☐ .
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 ý No ¨.
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,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer
Emerging growth company
x Accelerated filer
☐ Smaller reporting company ☐
¨ Non-accelerated filer ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes ☐ No ý.
The registrant estimates that as of June 30, 2019, the aggregate market value of the voting shares held by non-affiliates of the registrant was
approximately $12.7 billion based on the closing price on the New York Stock Exchange for such stock.
As of February 14, 2020, 191,711,224 shares of Common Stock of the registrant were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the registrant’s Annual Meeting of Stockholders to be held on May 15, 2020 are incorporated by
reference into Part III of this Form 10-K.
TABLE OF CONTENTS
PART I
Page
3
11
18
19
19
19
20
22
24
25
45
45
45
45
46
46
46
46
46
46
47
99
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
Information About Our Executive Officers
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.
General
BUSINESS
PART I
Westinghouse Air Brake Technologies Corporation, doing business as Wabtec Corporation, is a Delaware corporation
with headquarters at 30 Isabella Street in Pittsburgh, Pennsylvania. Our telephone number is 412-825-1000, and our website is
located at www.wabteccorp.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.
Throughout the years, the Company has made a number of strategic acquisitions leading the Company to where it is
today. These have primarily included:
•
•
•
the 1999 merger with MotivePower Industries, Inc. whereby the Company adopted its current name of Westinghouse
Air Brake Technologies Corporation, or Wabtec;
the 2017 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. Based in France, the Faiveley Transport business has
roots to 1919 and made Wabtec a leader in manufacturing pantographs, automatic door mechanisms, air conditioning
systems, railway braking systems and couplers; and
the 2019 merger with GE Transportation, a business unit of General Electric Company. This brought a global
technology leader and supplier of locomotives, equipment, services and digital solutions to the rail, mining, marine,
stationary power and drilling industries into Wabtec.
As a result of the aforementioned acquisitions, as well as other smaller acquisitions, and organic growth, Wabtec is now
one of the world’s largest providers of locomotives, value-added, technology-based equipment, systems and services for the
global freight rail and passenger transit industries with over 27,500 employees and operations in over 50 countries. 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 efficiency, and reduce maintenance costs for customers, can be found on a
large percentage of locomotives, freight cars, passenger transit cars and buses around the world. In 2019, the Company had net
sales of approximately $8.2 billion and net income attributable to our shareholders of about $327 million. In 2019, net sales of
aftermarket parts and services represented about 55% of total net sales, while net sales to customers outside of the U.S.
accounted for about 60% of total net sales.
•
•
•
•
•
•
Through both internal growth as well as acquisitions, Wabtec has positioned itself with the following strategic benefits:
Increased diversity of revenues by product, geography and market. Comprehensive product offerings spanning the
freight rail and passenger transit industries, as well as products in the bus, mining and marine, and discrete industrial
markets help Wabtec to balance the cyclical nature of the global rail business.
Significant Operating Synergies and Improved Financial Profile. The consummation of the GE Transportation
transaction is leading to operating synergies across all of Wabtec. As a result, we expect to generate approximately
$250 million in annual run-rate operating synergies, driven by cost and revenue opportunities, before 2022. This will
enhance Wabtec’s margins and revenue growth opportunities with strong free cash flow generation to enable strategic
deleveraging through debt reduction and earnings growth.
Increased technical and engineering expertise. Particularly with the onboarding of Faiveley Transport and GE
Transportation, Wabtec's technical capabilities and product development efforts are strengthened.
Increased Scale and Diversification of Wabtec’s Freight Product Portfolio. Wabtec is now one of the world’s largest
providers of locomotives, freight car components, technology-enabled equipment, systems and services for the
locomotive and freight rail industries.
Broadened product line and international presence in the transit market. Wabtec now offers a comprehensive, broad
and diversified portfolio of products to the transit rail industries throughout the world.
Complementary Digital and Electronics Technologies. Wabtec now has a comprehensive digital portfolio and leading
engineering and technical intellectual property, which provides electronics and digital technologies to meet growing
demand for train intelligence and network optimization.
3
•
Enhanced Aftermarket and Services Opportunities. Wabtec has an installed base of more than 22,500 locomotives and
content on virtually all North American locomotives and freight cars, as well as a diverse offering of Transit
locomotives and cars both internationally and domestically, which enables significant opportunities in the higher-
margin aftermarket parts and services business and mitigates the exposure to cycles.
Industry Overview
The Company primarily serves the global freight rail and passenger transit industries. As such, our operating results are
largely dependent on the level of activity, financial condition and capital spending plans of freight 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 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 freight rail and passenger transit.
According to the 2018 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 a
compounded annual growth rate of 2.6% through 2023. 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 rates in
North America, Latin America and Africa/Middle East, with Asia Pacific and Europe growing at about the industry average.
UNIFE said trends such as urbanization and increasing mobility, deregulation, investments in new technologies, energy and
environmental issues, and increasing government support continue to drive investment. 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 turnkey management projects and infrastructure to grow at above-average rates. UNIFE estimated that the global
installed base of diesel and electric locomotives was about 114,800 units, with about 33% in Asia Pacific, about 26% in North
America and about 18% in Russia-CIS (Commonwealth of Independent States). Wabtec estimates that about 2,900 new
locomotives were delivered worldwide in 2019. UNIFE estimated the global installed base of freight cars was about 5.1
million, with about 33% in North America, about 26% in Asia Pacific and about 24% in Russia-CIS. Wabtec estimates that
about 174,000 new freight cars were delivered worldwide in 2019. UNIFE estimated the global installed base of passenger
transit vehicles to be about 600,000 units, with about 45% in Asia Pacific, about 33% in Europe and about 12% in Russia-CIS.
Wabtec estimates that about 35,000 new passenger transit vehicles were ordered worldwide in 2019.
In Europe, the majority of the rail system serves the passenger transit market, which is expected to continue growing as
energy and environmental policies encourage continued investment in public mass transit, and modal shift from car to rail.
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 accessible Western European
rail market to grow at about 2.3% annually, led by investments in new rolling stock in France and Germany. 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
4
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 GE Transportation.
Other key geographic markets include Russia-CIS and Africa-Middle East. With about 1.2 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 Freight Segment and the Transit
Segment, both of which have different market characteristics and business drivers. The acquisitions of GE Transportation and
Faiveley Transport significantly strengthened our capabilities and presence in the worldwide freight and transit markets,
respectively, for all of our products and services, including electronic and digital products.
The Freight Segment primarily manufactures and provides aftermarket parts and services for new locomotives; provides
components for new and existing locomotives and freight cars; builds new commuter locomotives; supplies rail control and
infrastructure products including electronics, positive train control equipment, signal design and engineering services; provides
a comprehensive suite of software-enabled solutions designed to improve customer efficiency and productivity in the
transportation and mining industries; 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. Upon our acquisition of GE Transportation, we are the largest
global manufacturer of diesel-electric locomotives for freight railroads producing mission-critical products and solutions that
help railroads reduce operating costs, decrease fuel use, minimize downtime and comply with emissions standards. As a result
of the large base of approximately 22,500 locomotives currently in use, Wabtec's services product lines of rebuilding,
remanufacturing, maintaining, and exchanging locomotives and components in the aftermarkets provides a significant,
recurring revenue stream. 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
2019, the Freight Segment accounted for approximately 65% of Wabtec’s total net sales, with about 55% of its net sales in the
U.S. In 2019, about 60% of the Freight Segment’s net sales were in the aftermarket.
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
products including electronics, signal design and engineering services; 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 2019, the Transit Segment
accounted for approximately 35% of our total net sales, with about 15% of its net sales in the U.S. Approximately half of the
Transit Segment’s net 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 Transit product 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.
Following is a summary of our leading products in both aftermarket and original equipment across both of our business
segments in 2019:
Equipment:
•
•
Diesel-electric locomotives for freight railroads
Engines, electric motors and premium propulsion systems used in locomotives, mining, marine, stationary power and
drilling applications
• Marine and mining products
5
Digital & Electronic Products:
•
•
•
•
•
•
•
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
Train performance such as distributed locomotive power, train 'cruise control', and train remote control
Transport intelligence such as Industrial/mobile Internet of Things (IoT) hardware & software, edge-to-cloud, on and
off-board analytics & rules, asset performance management
Transport logistics such as rail transportation management, shipper transportation management, port visibility and
optimization
Network optimization such as rail network scheduling, dispatch, and optimization, intermodal, terminal management
and optimization, rail yard management and optimization
Components:
•
•
•
•
•
•
Freight car trucks and braking equipment and related components for Freight applications
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
New commuter and switcher locomotives
Services:
•
Freight locomotive overhaul and refurbishment
• Master service agreements for locomotive and car maintenance
•
•
Transit locomotive and car overhaul
Unit exchange of locomotive components
Transit Products:
•
•
•
•
•
•
Railway braking equipment and related components for Transit applications, including high-speed passenger transit
vehicles
Friction products, including brake shoes, discs and pads
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
We believe we have become a leader in the freight rail and passenger transit 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 more than 4,500 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
6
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. In addition, we are continuing to develop Energy Management
Solutions for railroads to further reduce fuel consumption and emissions. These developments include the design of a battery
electric locomotive that will be integrated with other diesel electric locomotives in a train. This hybrid train consist, under the
control of our Trip Optimizer software, will significantly reduce fuel consumption as well as having the ability to operate in a
low emission state while in populated areas. We are also considering development of locomotives for transit services to operate
in a zero emissions environment (such as a tunnel) for extended periods of time.
For additional information on our business segments, see Note 21 of “Notes to Consolidated Financial Statements”
included in Part IV, Item 15 of this report.
Competitive Strengths
Our key strengths include:
•
•
Iconic Legacy and Strong Reputation with a History of over 150 Years of Innovation. The rail industry has been in
operation for over 150 years and we have been at the forefront of shaping and transforming the rail landscape through
various innovations and technologies. Dating back to 1869 and George Westinghouse’s invention of the air brake, we
are an established leader in the rail industry for freight and passenger transit vehicles. For over 110 years, GE
Transportation has served the worldwide rail industry, which is a critical component of the global transportation system
and the global economy, with an installed base of more than 22,500 locomotives worldwide. Faiveley Transport,
founded in 1919, 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 from a full
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. In 2019, net sales of aftermarket parts and services represented about 55% of total net sales.
• Market Leader with Longstanding Customer Partnerships in a Critical Infrastructure Sector. For more than a
century, rail has been a cornerstone of the global transportation system, and thus, the economy. Rail remains one of the
most cost-effective, energy-efficient modes of transport, both domestically and internationally. As the largest global
producer of diesel-electric locomotives, we have a significant market share both in North America and globally.
•
•
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 assisted in the improvement and modernization of global
railway equipment. We believe both our customers and 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
designs, develops and manufactures critical components and systems for the rail, mining and marine industries, which
include proprietary propulsion systems, engine platforms and controls technology. These innovative and differentiated
solutions serve as the building blocks for the rail, mining and marine industries, and help keep our global customers at
the forefront of advancing technologies. When coupled with our advanced digital analytic capabilities, our solutions
help drive increased energy management, performance and reliability to our products. To that end, we have assembled
a wide range of patented products, which we believe provides us with a competitive advantage.
Leading the Digital Transformation of Wabtec’s Industries. Our early investment in data analytics and software has
allowed us to become a strategic partner for customers looking to derive new value from assets and digitally transform
their operations. Through these initiatives, the transportation industry, from mine to port, from shipper to receiver, from
port to intermodal terminals to main line locomotives and railcars and across train yards and operation centers, has
7
•
•
evolved to include digital solutions. The breadth of our Digital and Electronic solutions gives customers confidence in
our ability to address their current and future needs.
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.
Streamlined Cost Structure and Operational Excellence Provide Operating Leverage and Support Wabtec’s Growth.
Wabtec’s lean manufacturing and continuous improvement initiatives, known as the Wabtec Excellence Program
("WEP"), 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. Building on our legacy WEP program, we are continuing to
expand our Operating Excellence focus to also include Industry 4.0 as an additional lever in driving productivity and
delighting customers. Our Operating Excellence Program leverages the breath and depth of our One Wabtec expertise
across the organization in sharing of best practice, instilling a culture of learning, problem solving, continuous
improvement, and driving standard operating practices. This, coupled with our overall manufacturing and supply base
footprint initiatives, will drive increased flexibility and improved responsiveness to our customer needs while driving
margin improvement through productivity.
Business strategy
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. 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 expect 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. We have a multi-year initiative to build
on our existing expertise and technologies in the digital and electronics areas. 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 2019, net sales to non-U.S. customers were approximately $4.8 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 2019, net
sales of aftermarket parts and services represented about 55% of total net sales. 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 continue to 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
8
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 included in Part IV, Item 5 of this report for additional
information about our recent acquisitions and joint ventures.
Backlog
The Company’s backlog was about $22.4 billion at December 31, 2019. For 2019, about 60% of total net 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, 2019 and December 31, 2018, and the expected year of
completion are as follows:
In millions
Freight Segment
Transit Segment
Total
Engineering and Development
Total
Backlog
Expected Delivery
Expected Delivery
Total
Backlog
Other
Years
Other
Years
12/31/2019
2020
12/31/2018
2019
$
$
18,945.3
3,486.4
22,431.7
$
$
3,911.0
1,692.8
5,603.8
$
$
15,034.3
1,793.6
16,827.9
$
$
897.2
3,584.4
4,481.6
$
$
693.1
1,767.1
2,460.2
$
$
204.1
1,817.3
2,021.4
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, 2019, 2018 and 2017, we invested about $209.9 million, $87.5 million and $95.2 million,
respectively, on product development and improvement activities. Significant incremental engineering expense is incurred with
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 (the "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 was December 31, 2018, and we worked with the U.S. Class I railroads,
commuter rail authorities and other industry suppliers to meet this deadline. The railroads have until December 31, 2020 to
complete testing of the systems.
Intellectual Property
We have 7,133 active patents worldwide and on average file for approximately 350 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.
9
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.
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, 2019, our top five customers
accounted for approximately 27% of net sales: BNSF Railway, Canadian National Railway, Indian Railways, Komatsu Ltd. and
Union Pacific Railroad. No one customer represents 10% or more of consolidated net 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, and 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, 2019, we employed approximately 27,500 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 so.
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 freight rail
rolling stock and passenger transit, 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.
10
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 in 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 the timing of services performed
under our locomotive maintenance contracts and 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 20 of “Notes to Consolidated Financial Statements”
included in Part IV, Item 15 of this report.
Available Information
We maintain a website at www.wabteccorp.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.
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, particularly in our key end
markets, 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. 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,
customer 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. Furthermore, the
average service life of certain products in our end markets has increased in recent years due to innovations in technologies and
manufacturing processes, which has also allowed end users to replace parts less often. 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, may have a more extensive low-cost sourcing
strategy and presence in low-cost regions than we do or may receive significant governmental support. Price competition is
strong and, coupled with the existence of a number of cost conscious customers with significant negotiating power, 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. If our competitors invest heavily in
innovation and develop products that are more efficient or effective than our products, we may not be able to compete
effectively. There can be no assurance that competition in one or more of our markets will not adversely affect us and our
results of operations.
11
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, joint
venture or alliance.
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 or consummate suitable acquisitions, joint ventures or alliances, 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 such strategic transactions will be dependent on our ability to raise substantial capital, and we
may not be able to raise the funds necessary to implement this strategy on terms satisfactory to us, if at all.
A failure to predict and react to customer demand could adversely affect our business.
If we are unable to accurately forecast demand for our existing products or to react appropriately to changes in demand,
we may experience delayed product shipments and customer dissatisfaction. If demand increases significantly from current
levels, both we and our suppliers may have difficulty meeting such demand, particularly if such demand increases occur
rapidly. Alternatively, we may carry excess inventory if demand for our products decreases below projected levels.
Additionally, 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. Furthermore, we may incur additional
warranty or other costs as new products are tested and used by customers.
Failure to accurately predict and react to customer demand could have a material adverse effect on our business, results
of operations and financial condition.
We may fail to respond adequately or in a timely manner to innovative changes in new technology.
In recent years, the global transportation landscape has been characterized by rapid changes in technology, leading to
innovative transportation and logistics concepts that could change the way the railway industry does business. There may be
additional innovations impacting the railway industry that we cannot yet foresee. Any failure by us to quickly adapt to and
adopt new innovations in products and processes desired by our customers may result in a significant loss of demand for our
product and service offerings. In addition, advances in technology may require us to increase investments in order to remain
competitive, and our customers may not be willing to accept higher prices to cover the cost of these investments.
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 mandate from the U.S. federal government.
In 2015, the U.S. rail industry's PTC deadline was extended by Congress 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. The Department of Transportation has largely granted the
additional two years for compliance. All freight railroads are required to have testing complete and Positive Train Control fully
implemented across the required network by December 31, 2020. These extensions could change the timing of our revenues and
could cause us to reassess the staffing, resources and assets deployed in delivering PTC services to our customers.
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,
12
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 and is influenced by a variety of factors. New passenger transit car
orders vary from year to year and are influenced by a variety of factors, including major replacement programs, the construction
or expansion of transit systems by transit authorities and the quality and cost of alternative modes of transportation. 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 canceled, 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.
For the fiscal year ended December 31, 2019, approximately 60% of our consolidated net sales were to customers
outside of the United States. We intend to continue to expand our international operations, including in emerging markets, in
the future. Our global headquarters for the Transit group is located in France, and we conduct other international operations
through a variety of wholly and majority-owned subsidiaries and joint ventures, including 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;
restrictions on currency conversion or the transfer of funds or limitations on our ability to repatriate income or capital;
the complexities of operating within multiple tax jurisdictions;
foreign trade restrictions and exchange controls;
adverse impacts of international trade policies, such as import quotas, capital controls or tariffs;
difficulty enforcing agreements and intellectual property rights;
the challenges of complying with complex and changing laws, regulations, and policies of foreign governments;
the difficulties involved in staffing and managing widespread operations;
the potential for nationalization of enterprises;
economic, political and social instability;
possible local catastrophes, such as natural disasters and epidemics; and
possible terrorist attacks, conflicts and wars, including those against American interests.
Our exposure to the risks associated with international operations may intensify if our international operations expand in
the future.
We are subject to a variety of laws and regulations, including anti-corruption laws, in various jurisdictions.
We are subject to various laws, rules and regulations administered by authorities in jurisdictions in which we do
business, 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 our business and our employees. We are also subject to other laws and regulations
governing our international operations, including regulations administered by the U.S. Department of Commerce’s Bureau of
Industry and Security, the U.S. Department of Treasury’s Office of Foreign Assets Control, and various non-U.S. government
entities, including applicable export control regulations, economic sanctions on countries and persons, customs requirements,
13
currency exchange regulations, and transfer pricing regulations. Despite our policies, procedures and compliance programs, our
internal controls and compliance systems may not be able to protect us from prohibited acts willfully committed by our
employees, agents or business partners that would violate such applicable laws and regulations. Any such improper acts could
damage our reputation, subject us to civil or criminal judgments, fines or penalties, and could otherwise disrupt our business,
and as a result, could materially adversely impact our business, results of operations and financial condition.
In addition, our manufacturing operations are subject to safety, operations, maintenance and mechanical standards, rules
and regulations enforced by various federal and state agencies and industry organizations both domestically and internationally.
Our business may be adversely impacted by new rules and regulations or changes to existing rules or regulations, which could
require additional maintenance or substantial modification or refurbishment of certain of our products or could make such
products obsolete or require them to be phased out prior to their useful lives. We are unable to predict what impact these or
other regulatory changes may have, if any, on our business or the industry as a whole. We cannot assure that costs incurred to
comply with any new standards or regulations will not be material to our business, results of operations and financial condition.
We are subject to a variety of environmental laws and regulations.
We are subject to a variety of increasingly stringent environmental laws and regulations governing discharges to air and
water, substances in products, the handling, storage and disposal of hazardous or solid waste materials and the remediation of
contamination associated with releases of hazardous substances. We have incurred, and will continue to incur, both operating
and capital costs to comply with environmental laws and regulations, including costs associated with the clean-up and
investigation of some of our current and former properties and offsite disposal locations. 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. Failure to comply with environmental laws and regulations could have significant
consequences on our business and results of operations, including the imposition of substantial fines and sanctions for
violations, injunctive relief (including requirements that we limit or cease operations at affected facilities), and reputational risk.
In addition, certain of our products are subject to extensive, and increasingly stringent, statutory and regulatory
requirements governing, e.g., emissions and noise, including standards imposed by the U.S. Environmental Protection Agency,
the European Union and other regulatory agencies around the world. We have made, and will continue to make, significant
capital and research expenditures relating to compliance with these standards. The successful development and introduction of
new and enhanced products in order to comply with new regulatory requirements are subject to other risks, such as delays in
product development, cost over-runs and unanticipated technical and manufacturing difficulties. In addition to these risks, the
nature and timing of government implementation and enforcement of these standards-particularly in emerging markets-are
unpredictable and subject to change.
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.
We have followed the current debate over climate change and the related policy discussion and prospective legislation.
We have reviewed the potential challenges for us that climate change policy and legislation may pose. 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, we cannot predict the ultimate impact of climate change and climate change legislation on our 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 are, or could be, named as a defendant is unpredictable.
From time to time, we are subject, directly or through our subsidiaries, to litigation or other commercial disputes and
other legal and regulatory proceedings with respect to our business, customers, suppliers, creditors, stockholders, product
liability (including, asbestos claims), intellectual property infringement, competition and antitrust claims, warranty claims or
environmental-related matters.
Due to the inherent uncertainties of any litigation, commercial disputes or other legal or regulatory proceedings, we
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. 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. In addition,
although in some cases we may be indemnified by non-affiliated entities that retain liabilities in connection with specific
14
matters, there can be no assurance that these indemnitors will remain financially viable and capable of satisfying their
obligations.
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.
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, filing, prosecuting and
defending patents on our products in all countries and jurisdictions throughout the world would be prohibitively expensive.
Moreover, 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. As a
result, 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. Further, although we routinely conduct anti-counterfeiting activities in multiple jurisdictions, we have
encountered counterfeit reproductions of our products or products that otherwise infringe on our intellectual property rights.
Counterfeit components of low quality may negatively impact our brand value. Accordingly, despite our efforts, we may be
unable to prevent third parties from infringing upon, counterfeiting 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 and financial condition could be negatively impacted.
In addition, we operate in industries in which there are many third-party owners of intellectual property rights. Owners of
intellectual property that we need to conduct our business as it evolves may be unwilling to license such intellectual property
rights to us on terms we consider reasonable. Third party intellectual property owners may assert infringement claims against us
based on their intellectual property portfolios. If we are sued for intellectual property infringement, we may incur significant
expenses investigating and defending such claims, even if we prevail.
We face cybersecurity and data protection risks relating to cyber attacks and information technology failures that could
cause loss of confidential information and other business disruptions.
We rely extensively on information technology in our business. We also collect, process, and retain sensitive and
confidential customer information, including proprietary business information, personal data and other information that may be
subject to privacy and security laws, regulations and/or customer-imposed data protection controls. We also provide
technological products integral to train operation. Accordingly, our business may be adversely impacted by disruptions to our
own or third-party information technology infrastructure, which could result from individual or highly-coordinated cyber
attacks, including but not limited to data theft, system breaches, malfeasance or improper use or unauthorized access to IT
systems. Our business may also be adversely impacted by unintentional technology disruptions, including those resulting from
programming errors, employee operational errors and software defects.
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 shortages and labor disputes may have a material adverse effect on our operations and profitability.
We depend on skilled labor in our manufacturing and other businesses. Due to the competitive nature of the labor
markets in which we operate, we may not be able to retain, recruit and train the personnel we require, particularly when the
economy expands, production rates are high or competition for such skilled labor increases.
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.
Any such labor shortages or labor disputes could have an adverse effect on our business, results of operations and
financial condition, could cause us to lose revenues and customers and might have permanent effects on our business.
15
Equipment failures, interruptions, delays in deliveries or extensive damage to our facilities, supply chains, distribution
systems or information technology systems, could adversely affect our business.
All of our facilities, equipment, supply chains, distribution systems and information technology systems are subject to
the risk of catastrophic loss due to unanticipated events, such as disease outbreak, fires, earthquakes, explosions, floods,
tornadoes, hurricanes or weather conditions. An interruption in our manufacturing capabilities, supply chains, distribution
systems or information technology systems, whether as a result of such catastrophic loss or any other reason, could reduce,
prevent or delay our production and shipment of our product offerings, result in defective products or services, damage
customer relationships and our reputation and result in legal exposure and large repair or replacement expenses. This could
result in the delay or termination of orders, the loss of future sales and a negative impact to our reputation with our customers.
Third-party insurance coverage that we maintain with respect to such matters will vary from time to time in both type
and amount depending on cost, availability and our decisions regarding risk retention, and may be unavailable or insufficient to
protect us against losses. Any of these risks coming to fruition could materially adversely affect our business, results of
operations and financial condition.
We may be exposed to raw material shortages, supply shortages and fluctuations in raw material, energy and commodity
prices.
We purchase energy, steel, aluminum, copper, rubber and rubber-based materials, chemicals, polymers and other key
manufacturing inputs from outside sources, and traditionally have not had long-term pricing contracts with our pure raw
material suppliers. The costs of these raw materials have been volatile historically and are influenced by factors that are outside
our control. If we are unable to pass increases in the costs of our raw materials on to our customers, experience a lag in our
ability to pass increases to our customers, or operational efficiencies are not achieved, our operating margins and results of
operations may be materially adversely affected.
Our businesses compete globally for key production inputs. In addition, we rely upon third-party suppliers, including
certain single-sourced suppliers, for various components for our products. In the event of a shortage or discontinuation of
certain raw materials or key inputs, we may experience challenges sourcing certain of our components to meet our production
requirements and may not be able to arrange for alternative sources of certain raw materials or key inputs. Any such shortage
may materially adversely affect our competitive position versus companies that are able to better or more cheaply source such
raw materials or key inputs.
Changes to international trade policies, including tariffs and foreign trade restrictions, could adversely affect our business.
As a global transportation company, we generate export sales from our U.S. operations and also derive international sales
through our foreign subsidiaries, licensees and joint ventures. We also do business with industry suppliers located in various
international markets. A protectionist trade environment in either the United States or those foreign countries in which we do
business, such as a change in the current tariff structures, export compliance or other trade policies, may adversely affect our
business. In particular, such policies may impact or delay our customers' investments in our products, reduce the
competitiveness of our products in certain markets, and inhibit our ability to cost-effectively purchase necessary inputs from
certain suppliers. In addition, to the extent developments in international trade relations result in reduced global trade or slower
growth in global trade, it is likely that this would result in reductions in investment in freight and transit rail.
International trade policies are affected by a diverse array of factors, including global and national economic and political
conditions, which make it impossible for us to predict future developments regarding tariffs and other trade restrictions.
Although we actively monitor developments in international trade and proactively engage in efforts to mitigate the effect of
trade policies, there can be no guarantee that these efforts will be successful.
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 are subject to currency exchange rate
risk to the extent that our costs may be denominated in currencies other than those in which we earn and report revenues and
vice versa. In addition, a decrease in the value of any of these currencies relative to the U.S. dollar could reduce our profits from
non-U.S. operations and the translated value of the net assets of our non-U.S. operations when reported in U.S. dollars in our
consolidated financial statements. 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.
If we lose our senior management or key personnel, our business may be materially and adversely affected.
The success of our business is largely dependent on our senior management team, as well as on our ability to attract and
retain other qualified key personnel. It cannot be assured that we will be able to retain all of our current senior management
personnel and attract and retain other key personnel necessary for the development of our business. The loss of the services of
16
senior management and other key personnel or the failure to attract additional personnel as required could have a material
adverse effect on our business, results of operations and financial condition.
We have substantial operations located in emerging markets, and are subject to regulatory, economic, social and political
uncertainties in such markets.
We have substantial operations located in emerging markets, such as Brazil, India, Kazakhstan, the Russian Federation
and Ukraine. Operations in such emerging markets are inherently risky due to a number of regulatory, economic, social and
political uncertainties. These risks include economies that may be dependent on only a few products and are therefore subject to
significant fluctuations, weak legal systems which may affect our ability to enforce contractual rights, possible exchange
controls, unstable governments, nationalization or privatization actions or other government actions affecting the flow of goods
and currency.
Significant changes in economic and regulatory policy in emerging countries as well as social or political uncertainties
could significantly harm business and economic conditions in these markets generally and could disproportionately impact the
rail industry, which could adversely affect our business and prospects in these markets.
In addition, physical and financial infrastructure may be less developed in some emerging countries than that of many
developed nations. Any disruptions with respect to banking and financial infrastructure, communication systems or any public
facility, including transportation infrastructure, could disrupt our normal business activity. Such disruptions could interrupt our
business operations and significantly harm our results of operations, financial condition and cash flows.
Our indebtedness could adversely affect our financial health.
At December 31, 2019, we had total debt of $4.4 billion, including $3.5 billion related to senior notes and $0.9 billion
related to term loans and amounts drawn under our revolving loan facility, in each case, under the Senior Credit Facility. Being
indebted could have important consequences to us. For example, our indebtedness 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.
The indentures for our outstanding senior notes and our Credit Agreement contain various covenants that limit our
management’s discretion in the operation of our businesses.
Our Credit Agreement subjects us to customary (i) affirmative covenants, including requirements with respect to certain
reporting obligations on us and our subsidiaries, and (ii) negative covenants, including limitations on: indebtedness; liens;
restricted payments; fundamental changes (including certain changes in control); business activities; transactions with affiliates;
restrictive agreements; changes in fiscal year; and use of proceeds. In addition, we are required to maintain (i) a ratio of
EBITDA to interest expense of at least 3.00 to 1.00 over each period of four consecutive fiscal quarters ending on the last day
of a fiscal quarter and (ii) a Leverage Ratio, calculated as of the last day of a fiscal quarter for a period of four consecutive
fiscal quarters, of 3.25 to 1.00 or less; provided that, in connection with the acquisition of GE Transportation and in the event of
any further material acquisition in which the cash consideration to be paid exceeds $500.0 million, the maximum Leverage
Ratio permitted adjusts to (x) 3.75 to 1.00 at the end of the fiscal quarter in which such acquisition is consummated and each of
the three fiscal quarters immediately following such fiscal quarter and (y) 3.50 to 1.00 at the end of each of the fourth and fifth
full fiscal quarters after the consummation of such acquisition.
The indentures under which our senior notes were issued contain covenants and restrictions which limit, subject to
certain exceptions, certain sale and leaseback transactions with respect to principal properties, the incurrence of secured debt
without equally and ratably securing the senior notes and certain merger and consolidation transactions. In addition, the
indentures require that we offer to repurchase our outstanding senior notes upon the occurrence of certain change of control
triggering events.
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.
Although we believe that our recent 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
17
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 from business operations to integration matters;
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.
18
Item 2.
Facilities
PROPERTIES
The following table provides certain summary information about the principal facilities owned or leased by the Company
as of December 31, 2019. 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 mainly long-term and generally include options to renew.
Location
Domestic
Erie, PA
Rothbury, MI
Grove City, PA
Wilmerding, PA
Boise, ID
Salem, VA
Justin, Texas
Fort Worth, Texas
Houston, Texas
Hanover Park, Illinois
Pittsburgh, PA
International
Shenyang, China
Doncaster, UK
Changzhou, China
Northampton, UK
Shenyang City, China
Piossasco, Italy
Burton on Trent, UK
Primary Use
Segment
Own/Lease
Manufacturing/Warehouse/Office
Manufacturing/Warehouse/Office
Manufacturing/Warehouse
Manufacturing/Service
Manufacturing
Manufacturing
Manufacturing/Warehouse
Manufacturing/Warehouse
Manufacturing/Service
Manufacturing
Office
Manufacturing/Warehouse/Office
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing/Office
Freight
Freight
Freight
Freight
Freight
Freight
Freight
Freight
Freight
Freight
Global HQ
Transit
Transit
Transit
Freight
Transit
Transit
Transit
Own
Own
Own
Own
Own
Own
Own
Own
Own
Lease
Lease
Own
Own
Own
Lease
Lease
Own
Lease
(1)
Approximate
Square Feet
3,800,000
500,000
486,000
365,000
326,000
320,000
305,000
304,000
280,000
250,000
84,000
336,000
330,000
316,000
300,000
291,000
301,000
260,000
(1) Approximately 250,000 square feet are currently used in connection with the Company’s manufacturing operations. The
remainder is leased to a third party.
Item 3.
LEGAL PROCEEDINGS
Additional information with respect to legal proceedings is included in Note 20 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.
19
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following table provides information on our executive officers as of February 25, 2020.
Officers
Albert J. Neupaver
Rafael Santana
David L. DeNinno
Patrick D. Dugan
Scott E. Wahlstrom
Michael E. Fetsko
Pascal Schweitzer
Nalin Jain
Lillian Leroux
Dominique Malenfant
John A. Mastalerz
Greg Sbrocco
Age
Position
69
48
64
53
56
55
43
50
48
58
53
51
Executive Chairman of the Board
President and Chief Executive Officer
Executive Vice President, General Counsel and Secretary
Executive Vice President Finance, and Chief Financial Officer
Executive Vice President and Chief Human Resources Officer
President, Freight and Industrial Components
President, Global Freight Services
President, Equipment
President, Transit
Senior Vice President and Global Technology Officer
Senior Vice President of Finance and Chief Accounting Officer
Senior Vice President, Global Operations
Albert J. Neupaver was re-named Executive Chairman of the Board of Directors in May 2018, having previously served
as Executive Chairman from May 2014 to May 2017. Prior to that, Mr. Neupaver served as Executive Chairman of the
Company since May 2014. Previously, he served as Chairman from May 2017 to May 2018, and 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.
Rafael Santana was named President and Chief Executive Officer of the Company effective July 1, 2019. Previously, he
served as Executive Vice President from February 2019 to July 2019. Mr. Santana was President and Chief Executive Officer
of GE Transportation since November 2017. Mr. Santana has held several global leadership positions since joining GE in 2000,
including roles in the Transportation, Power and Oil and Gas businesses. Prior to being named President and Chief Executive
Officer of GE Transportation, Mr. Santana was President and Chief Executive Officer of GE in Latin America. He also served
as President and Chief Executive Officer of GE Oil and Gas Turbomachinery Solutions and had roles as Chief Executive
Officer for GE Gas Engines and Chief Executive Officer for GE Energy in Latin America.
David L. DeNinno was named Executive Vice President, General Counsel and Secretary of the Company effective
December 2016. Previously, Mr. DeNinno served as Senior 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.
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.
Scott E. Wahlstrom was named Executive Vice President and Chief Human Resources Officer effective February 2019.
Previously, Mr. Wahlstrom served as Executive Vice President - Human Resources from December 2016 to February 2019 and
served as Senior Vice President, Human Resources since January 2012. Prior to that, Mr. Wahlstrom had been 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.
Michael E. Fetsko was named President, Freight and Industrial Components effective January 2017. Previously, Mr.
Fetsko served as Vice President and Group Executive from January 2014. He joined Wabtec in July of 2011 as Vice President,
Freight Pneumatics. Prior to joining Wabtec, Mr. Fetsko served in various executive management roles with Bombardier
Transportation. Prior to Bombardier, Mr. Fetsko served in various management roles with two different environmental
engineering firms.
Nalin Jain was named President, Global Equipment business effective May 2019. Previously, Mr. Jain served as
President & CEO, International markets since Aug 2017 for GE Transportation. Prior to that, Mr. Jain had multiple leadership
roles of increasing responsibility with GE Aviation and GE Transportation, since September 2005. Mr. Jain served as Director
Global Partnerships with Bombardier Inc since July 2002 and prior to that he worked for Saint Gobain.
20
Lilian Leroux was named President, Transit effective March 2019. Previously he served as Group President—Brakes &
Safety from January 2017 to October 2019. Prior to that, Mr. Leroux held various executive management roles with Faiveley
Transport, starting in January 2001.
Pascal Schweitzer was named President, Global Freight Services on February 25, 2019. Previously Mr. Schweitzer was
the Vice President—Services of GE Transportation since April 2017. He served as General Manger – Europe – Power Services
for GE Power from November 2015 through April 2017 and prior to that several positions with Alstom Power.
Dominique Malenfant was named Senior Vice President, Global Technology effective February 25, 2019. Previously,
Mr. Malenfant was the Vice President of Global Technology of GE Transportation. Prior to that, Mr. Malenfant served as Vice
President of product and engineering for the Transport and Propulsion and Control business at Bombardier Transport.
John A. Mastalerz was named Senior Vice President of Finance and Chief Accounting Officer in February 2020.
Previously, Mr. Mastalerz served as Senior Vice President, Corporate Controller and Principal Accounting Officer from July
2017 to February 2020 and 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.
Greg Sbrocco was named Senior Vice President, Global Operations, effective February 25, 2019. Prior to this, Mr.
Sbrocco was Global Supply Chain Leader for GE Transportation. Mr. Sbrocco has been with GE for 27 years as he joined in
1992 as an Environmental Engineer for the GE Energy business. During his tenure with GE, Mr. Sbrocco has held several
leadership roles in GE Energy, GE Oil and Gas, and GE Transportation.
21
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 14, 2020, there were 191,711,224 shares of Common Stock outstanding held by 126,748 holders of record.
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, 2019, of Wabtec’s common stock to (i) the S&P 500, (ii) our new peer group of manufacturing companies which
consists of the following publicly traded companies: AGCO, American Axle & Manufacturing Holdings, AMETEK, Arconic,
CSX, Dana, Dover, Flowserve, Fortive, Illinois Tool Works, Navistar International, Norfolk Southern, Oshkosh, Parker-
Hannifin, Rockwell Automation, Tenneco, Terex, Textron, WABCO, and Xylem, and (iii) our old peer group of manufacturing
companies which consist 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.
22
Issuer Purchases of Common Stock
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)
— $
— $
— $
— $
—
—
—
—
— $
— $
— $
— $
137.8
137.8
137.8
137.8
Month
October 2019
November 2019
December 2019
Total quarter ended December 31, 2019
(1)
On February 7, 2020, the Board of Directors amended its stock repurchase authorization to $500 million of the
Company’s outstanding shares. This new stock repurchase authorization supersedes the previous authorization of
$350 million, of which $137.8 million remained. During 2019, the Company did not repurchase any shares. The
Company intends to purchase shares on the open market or in negotiated block trades from time to time depending on
market conditions. No time limit was set for the completion of the programs which conforms to the requirements under
the Senior Credit Facility, as well as the Senior Notes currently outstanding.
23
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 millions, except per share amounts
Income Statement Data
Net sales
Gross profit
Operating expenses
Income from operations
Interest expense, net
Other income, net
Net income attributable to Wabtec shareholders
Diluted Earnings per Common Share
Net income attributable to Wabtec shareholders
Cash dividends declared per share
Fully diluted shares outstanding
Balance Sheet Data
Total assets
Cash, cash equivalents, and restricted cash
Total debt
Total equity
2019
2018
2017
2016
2015
Year Ended December 31,
$
$
$
$
$
$
$
8,200.0
$
4,363.5
$
3,881.7
$
2,931.2
$
2,278.0
(1,614.9)
663.1
$
(219.1) $
2.8
326.7
1.84
0.48
177.3
$
$
$
1,233.9
(760.5)
473.4
$
(112.2) $
6.4
294.9
3.05
0.48
96.5
$
$
$
1,065.3
(644.2)
421.1
$
(77.9) $
8.9
262.3
2.72
0.44
96.1
$
$
$
924.2
(467.6)
456.6
$
(50.3) $
6.5
304.9
3.34
0.36
91.1
$
$
$
3,308.0
1,047.8
(439.0)
608.8
(27.3)
3.8
398.6
4.10
0.28
97.0
18,944.2
$
8,649.2
$
6,580.0
$
6,581.0
$
3,229.5
604.2
4,429.3
9,993.6
2,342.3
3,856.9
2,869.1
233.4
1,870.5
2,828.6
398.5
1,892.8
2,976.8
226.2
692.2
1,701.3
24
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 locomotives, value-added, technology-based equipment, systems, and
services for the global freight rail and passenger transit industries. 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 efficiency and reduce maintenance costs for customers, and many of our core products and
services are essential in the safe and efficient operation of freight rail and passenger transit vehicles. Wabtec is a global
company with operations in over 50 countries. In 2019, net sales of aftermarket parts and services represented about 55% of
total net sales, while 60% of the Company’s net sales 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 2018 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 a
compounded annual growth rate of 2.6% through 2023. 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 rates in
North America, Latin America and Africa/Middle East, with Asia Pacific and Europe growing at about the industry average.
UNIFE said trends such as urbanization and increasing mobility, deregulation, investments in new technologies, energy and
environmental issues, and increasing government support continue to drive investment. 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 turnkey management projects and infrastructure to grow at above-average rates. UNIFE estimated that the global
installed base of diesel and electric locomotives was about 114,800 units, with about 33% in Asia Pacific, about 26% in North
America and about 18% in Russia-CIS (Commonwealth of Independent States). Wabtec estimates that about 2,900 new
locomotives were delivered worldwide in 2019. UNIFE estimated the global installed base of freight cars was about 5.1
million, with about 33% in North America, about 26% in Asia Pacific and about 24% in Russia-CIS. Wabtec estimates that
about 174,000 new freight cars were delivered worldwide in 2019. UNIFE estimated the global installed base of passenger
transit vehicles to be about 600,000 units, with about 45% in Asia Pacific, about 33% in Europe and about 12% in Russia-CIS.
Wabtec estimates that about 35,000 new passenger transit vehicles were ordered worldwide in 2019.
In Europe, the majority of the rail system serves the passenger transit market, which is expected to continue growing as
energy and environmental policies encourage continued investment in public mass transit and modal shift from car to rail.
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 accessible Western European
rail market to grow at about 2.3% annually, led by investments in new rolling stock in France and Germany. 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.
25
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 GE Transportation.
Other key geographic markets include Russia-CIS and Africa-Middle East. With about 1.2 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 2020 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.
MERGER OF WABTEC WITH GE TRANSPORTATION
Wabtec, General Electric Company ("GE"), GE Transportation, a Wabtec company formerly known as Transportation
System Holdings Inc. ("SpinCo"), which was a newly formed wholly owned subsidiary of GE, and Wabtec US Rail Holdings,
Inc. ("Merger Sub"), which was a newly formed wholly owned subsidiary of the Company, entered into the Original Merger
Agreement on May 20, 2018, and GE, SpinCo, Wabtec and Wabtec US Rail, Inc. ("Direct Sale Purchaser") entered into the
Original Separation Agreement on May 20, 2018, which together provided for the combination of Wabtec and GE
Transportation. The Original Merger Agreement and Original Separation Agreement were subsequently amended on January
25, 2019 and the Merger was completed on February 25, 2019.
As part of the Merger, certain assets of GE Transportation, including the equity interests of certain pre-Transaction
subsidiaries of GE that compose part of GE Transportation, were sold to Direct Sale Purchaser for a cash payment of $2.875
billion, and Direct Sale Purchaser assumed certain liabilities of GE Transportation in connection with this purchase (the "Direct
Sale"). Thereafter, GE transferred the SpinCo business to SpinCo and its subsidiaries (to the extent not already held by SpinCo
and its subsidiaries), and SpinCo issued to GE shares of SpinCo Class A preferred stock, SpinCo Class B preferred stock,
SpinCo Class C preferred stock and additional shares of SpinCo common stock. Following this issuance of additional SpinCo
common stock to GE, and immediately prior to the Distribution (as defined below), GE owned 8,700,000,000 shares of SpinCo
common stock, 15,000 shares of SpinCo Class A preferred stock, 10,000 shares of SpinCo Class B preferred stock and one
share of SpinCo Class C preferred stock, which constituted all of the outstanding stock of SpinCo.
26
Following the Direct Sale, GE distributed the distribution shares of SpinCo in a spin-off transaction to its stockholder
(the "Distribution"). Immediately after the Distribution, Merger Sub merged with and into SpinCo (the "Merger"), whereby the
separate corporate existence of Merger Sub ceased and SpinCo continued as the surviving company and a wholly owned
subsidiary of Wabtec (except with respect to shares of SpinCo Class A preferred stock held by GE). In the Merger, subject to
adjustment in accordance with the Merger Agreement, each share of SpinCo common stock converted into the right to receive a
number of shares of Wabtec common stock based on the common stock exchange ratio set forth in the Merger Agreement and
the share of SpinCo Class C preferred stock was converted into the right to receive (a) 10,000 shares of Wabtec convertible
preferred stock and (b) a number of shares of Wabtec common stock equal to 9.9% of the fully-diluted pro forma Wabtec
shares. Immediately prior to the Merger, Wabtec paid $10.0 million in cash to GE in exchange for all of the shares of SpinCo
Class B preferred stock.
Upon consummation of the Merger, Wabtec issued 46,763,975 shares of common stock to the holders of GE common
stock, 19,018,207 shares of common stock to GE and 10,000 shares of preferred stock to GE and made a cash payment to GE of
$2.885 billion. As a result and calculated based on Wabtec’s outstanding common stock on a fully-diluted, as-converted and as-
exercised basis, as of February 25, 2019, approximately 49.2% of the outstanding shares of Wabtec common stock was held
collectively by GE and holders of GE common stock (with 9.9% held by GE directly in shares of Wabtec common stock and
15% underlying the shares of Wabtec convertible preferred stock held by GE) and approximately 50.8% of the outstanding
shares of Wabtec common stock held by pre-Merger Wabtec stockholders, in each case calculated on a fully-diluted, as-
converted and as-exercised basis. Following the Merger, GE also retained 15,000 shares of SpinCo Class A non-voting
preferred stock, and Wabtec held 10,000 shares of SpinCo Class B non-voting preferred stock.
After the Merger, SpinCo, which is Wabtec’s wholly owned subsidiary (except with respect to shares of SpinCo Class A
preferred stock held by GE), and Direct Sale Purchaser, which also is Wabtec’s wholly owned subsidiary, together own and
operate the post-transaction GE Transportation. All shares of the Company’s common stock, including those issued in the
Merger, are listed on the NYSE under the Company’s current trading symbol “WAB.” On the date of the Distribution, GE and
SpinCo, directly or through subsidiaries entered into additional agreements relating to, among other things, intellectual
property, employee matters, tax matters, research and development and transition services.
On May 6, 2019, GE completed the sale of approximately 8,780 shares of Wabtec's Series A Preferred stock which
converted upon the sale to 25,300,000 shares of Wabtec's common stock. On August 9, 2019, GE completed a sale of the
remaining shares of Series A Preferred Stock outstanding which converted to approximately 3,515,500 shares of common
stock, as well as 16,969,656 shares of common stock owned directly by GE. Finally, on September 12, 2019, GE completed a
sale of all of its remaining shares of common stock of Wabtec, approximately 2,048,515 shares. In conjunction with these
secondary offerings, the Company waived the requirements under the shareholders agreement for GE to maintain certain
ownership levels of Wabtec's stock following the closing date of the Merger. The Company did not receive any proceeds from
the sale of any of these shares.
Total future consideration to be paid by Wabtec to GE includes a fixed payment of $470.0 million, which is directly
related to the timing of tax benefits expected to be realized by Wabtec as a result of the acquisition of GE Transportation. This
payment is considered contingent consideration because the timing of cash payments to GE is directly related to the future
timing of tax benefits received by the Company as a result of the acquisition of GE Transportation. The estimated total value of
the consideration to be paid by Wabtec in the acquisition transaction is approximately $10.3 billion, including the cash paid for
the Direct Sales Assets, equity transferred for SpinCo, contingent consideration, assumed debt and net of cash acquired. The
estimated consideration is based on the Company’s closing share price of $73.36 on February 22, 2019 and the preliminary fair
value of the contingent consideration. The value of the preliminary purchase price consideration could change when the
Company has completed the detailed valuation of the contingent consideration and other necessary calculations.
27
RESULTS OF OPERATIONS
Consolidated Results
The following table shows our Consolidated Statements of Operations for the years indicated.
2019 COMPARED TO 2018
In millions
Net sales
Sales of goods
Sales of services
Total net sales
Cost of sales
Cost of goods
Cost of services
Total 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 income, net
Income from operations before income taxes
Income tax expense
Net income
Less: Net loss attributable to noncontrolling interest
For the year ended December 31,
2019
2018
Percent
Change
$
6,907.9
$
1,292.1
8,200.0
(5,128.4)
(793.6)
(5,922.0)
2,278.0
(1,166.6)
(209.9)
(238.4)
(1,614.9)
663.1
(219.1)
2.8
446.8
(120.3)
326.5
0.2
4,178.0
185.5
4,363.5
(2,973.5)
(156.1)
(3,129.6)
1,233.9
(633.2)
(87.5)
(39.8)
(760.5)
473.4
(112.2)
6.4
367.6
(75.9)
291.7
3.2
294.9
65.3 %
596.5 %
87.9 %
72.5 %
408.4 %
89.2 %
84.6 %
84.2 %
139.9 %
499.0 %
112.3 %
40.1 %
95.3 %
(56.3)%
21.5 %
58.5 %
11.9 %
(93.8)%
10.8 %
Net income attributable to Wabtec shareholders
$
326.7
$
Segment change
The Company has two reportable segments—the Freight Segment and the Transit Segment. Initiatives to integrate GE
Transportation operations into Wabtec including recent restructuring programs announced in late 2019 resulted in changes to
the Company's organizational structure and the financial reporting utilized by the Company's chief operating decision maker to
assess performance and allocate resources; as a result, certain asset groups were reorganized from the Freight Segment to the
Transit Segment and vice versa. The change in the Company’s reportable segments was effective in the fourth quarter of 2019
and is reflected below in 2019 and through the retrospective revision of 2018 and 2017 segment information. The Company
believes these changes better present management's new view of the business.
The following table shows the major components of the change in net sales in 2019 from 2018:
In millions
2018 Net Sales
Acquisitions
Foreign Exchange
Organic
2019 Net Sales
Net sales
Freight
Segment
Transit
Segment
Total
$
$
1,766.4
$
2,597.1
$
3,840.7
(17.7)
(148.0)
22.8
(136.7)
275.4
5,441.4
$
2,758.6
$
4,363.5
3,863.5
(154.4)
127.4
8,200.0
Net sales increased by $3.8 billion, or 87.9%, to $8.2 billion in 2019 from $4.4 billion in 2018. The increase is
primarily due to net sales from acquisitions of $3.9 billion, mainly the acquisition of GE Transportation. GE Transportation
contributed $3.8 billion of net sales in the year, primarily from locomotive equipment products and services. Additionally,
Transit Segment net sales increased $162 million due to increased original equipment project deliveries for HVAC, door, and
brake and coupler systems and higher aftermarket deliveries for brake and coupler spare parts and door systems. These
increases were partially offset by an organic decrease of $148 million in the Freight Segment, primarily in Components due to a
lower carbuild in 2019 and in Electronics due to lower PTC hardware demand. Unfavorable changes in foreign currency
exchange rates reduced net sales by $154 million.
28
Cost of sales
Cost of sales increased by $2.8 billion to $5.9 billion in 2019 compared to $3.1 billion in 2018. The increase is primarily
due to $2.8 billion of incremental costs from acquisitions, mainly GE Transportation. In 2019 cost of sales as a percentage of
net sales was 72.2% compared to 71.7% in 2018. Cost of sales in 2019 includes $185 million of non-recurring costs related to
purchase price accounting for the step-up of inventory of GE Transportation on the date of acquisition, and $38 million of
restructuring charges related to certain plant consolidations. Cost of sales in 2018 included $18 million of restructuring costs,
primarily in the Transit Segment. Excluding these non-recurring costs, cost of sales as a percentage of net sales was 69.5% in
2019 and 71.3% in 2018, representing a 1.8% improvement. The margin improvement can be attributed to the overall product
mix, shifting away from lower margin Transit sales to higher margin Freight sales.
Operating expenses
Total operating expenses increased 112.3% to 19.7% of net sales in 2019 compared to 17.4% in 2018. Selling, general,
and administrative expenses increased $533 million, or 84.2%, primarily due to $369 million of incremental expense from
acquisitions, mainly GE Transportation, and $230 million of incremental GE Transportation transaction and restructuring costs,
as well as certain litigation costs. In the prior year, selling, general, and administrative expenses included $58 million of costs
related to the GE Transportation transaction, restructuring costs related to the exit of certain operations and headcount
reductions across the company and costs related to a goods and service tax law change in India. Engineering expense increased
$122 million and amortization expense increased $199 million due to incremental expense from the acquisition of GE
Transportation.
Interest expense, net
Interest expense, net, increased $107 million in 2019 attributable to higher overall debt balances related to the acquisition
of GE Transportation.
Income taxes
The effective income tax rate was 26.9% and 20.6% in 2019 and 2018, respectively. The increase in the effective tax rate
in 2019 is primarily the result of non-deductible transaction related expenses incurred as a result of the acquisition of GE
Transportation, a higher earnings mix in higher tax jurisdictions, increased estimated liabilities resulting from the provision of
the 2017 Tax Cuts and Jobs Act (the "Tax Act") as well as a benefit from the completion of the accounting for the income tax
effects of the Tax Act recorded in 2018.
29
Freight Segment
The following table shows our Consolidated Statements of Operations for our Freight Segment:
In millions
Net sales:
Sales of goods
Sales of services
Total net sales
Cost of sales:
Cost of goods
Cost of services
Total cost of sales
Gross profit
Operating Expenses
Income from operations ($)
Income from operations (%)
$
For the year ended December 31,
2019
2018
Percent Change
4,186.5
$
1,254.9
5,441.4
(3,096.5)
(763.5)
(3,860.0)
1,581.4
(938.5)
642.9
11.8 %
1,616.3
150.1
1,766.4
(1,072.9)
(126.9)
(1,199.8)
566.6
(232.3)
334.3
18.9 %
159.0 %
736.0 %
208.1 %
188.6 %
501.7 %
221.7 %
179.1 %
304.0 %
92.3 %
The following table shows the major components of the change in net sales for the Freight Segment in 2019 from 2018:
In millions
2018 Net Sales
Acquisitions
Changes in Sales by Product Line:
Components
Electronics/Digital
Services
Foreign Exchange
2019 Net Sales
Net sales
$
$
1,766.4
3,840.7
(87.2)
(70.1)
9.3
(17.7)
5,441.4
Freight Segment net sales increased by $3.7 billion, or 208.1%, to $5.4 billion, due to the acquisition of GE
Transportation which contributed $3.8 billion of net sales in the year, primarily from locomotive equipment products and
services. This increase was partially offset by lower net sales in Components due to a lower freight carbuild in 2019 and certain
restructuring and plant consolidation efforts, and in Digital Electronics due to lower PTC hardware demand. Unfavorable
foreign currency exchange rate changes decreased net sales by $18 million.
Cost of sales
Freight Segment cost of sales increased by $2.7 billion to $3.9 billion in 2019. The increase is primarily due to $2.8
billion of incremental cost of sales and services from the acquisition of GE Transportation. In 2019, total cost of sales as a
percentage of total net sales was 70.9% compared to 67.9% in 2018. Total cost of sales in 2019 includes $185 million of non-
recurring costs related to purchase price accounting for the step-up of the inventory of GE Transportation on the date of
acquisition and $34 million of restructuring costs related to integrating our combined business. Excluding these non-recurring
costs, total cost of sales as a percentage of net sales was 66.9%, 1.0% lower than 2018. This decrease can be attributed to a
higher mix of freight services sales offset by a decrease in the higher margin sales from Digital Electronics.
Operating expenses
Freight Segment operating expenses increased $706 million, or 304.0%, in 2019 and increased to 17.2% of net sales.
Selling, general, and administrative expenses increased $397 million due to $368 million in incremental expense from the
acquisition of GE Transportation and $33 million for transaction and restructuring costs related to the GE Transportation
transaction. Engineering expense increased $116 million and amortization expense increased $200 million, both due to the
acquisition of GE Transportation.
30
Transit Segment
The following table shows our Consolidated Statements of Operations for our Transit Segment:
In millions
Net sales
Cost of sales
Gross profit
Operating Expenses
Income from operations ($)
Income from operations (%)
$
For the year ended December 31,
2019
2018
Percent Change
2,758.6
$
(2,062.0)
696.6
(482.2)
214.4
7.8 %
2,597.1
(1,929.8)
667.3
(474.8)
192.5
7.4 %
6.2 %
6.9 %
4.4 %
1.6 %
11.4 %
The following table shows the major components of the change in net sales for the Transit Segment in 2019 from 2018:
In millions
2018 Net Sales
Acquisitions
Changes in Sales by Product Line:
OEM
Aftermarket
Foreign Exchange
2019 Net Sales
Net sales
$
$
2,597.1
22.8
141.3
134.1
(136.7)
2,758.6
Transit Segment net sales increased by $162 million, or 6.2%, primarily due to increased original equipment project
deliveries for HVAC, door, and brake and coupler systems and higher aftermarket deliveries for brake and coupler spare parts
and door systems. Unfavorable foreign currency exchange rate changes decreased net sales by $137 million.
Cost of sales
Transit Segment cost of sales increased by $132 million to $2.1 billion in 2019. In 2019, cost of sales as a percentage
of net sales was 74.7% compared to 74.3% in 2018. Total cost of sales includes $5 million of restructuring charges primarily
related to severance and plant consolidations while total cost of sales in 2018 included $16 million of restructuring costs.
Excluding these costs, total cost of sales as a percentage of net sales was 74.6% in 2019 and 73.7% in 2018. This increase can
be attributed to an unfavorable product mix consisting of lower margin overhaul contracts and less original equipment and
aftermarket brake and coupler systems.
Operating expenses
Transit Segment operating expenses increased $7 million to $482 million, or 1.6% in 2019 and decreased 80 basis
points to 17.5% of net sales. Operating expenses includes $13 million for restructuring costs in the current year, compared to
$26 million in the prior year. The decrease as a percentage of net sales can be attributed to the effect of prior year restructuring
plans and headcount reductions in the current year.
31
The following table summarizes the results of operations for the period:
2018 COMPARED TO 2017
In millions
Net sales
Sales of goods
Sales of services
Total net sales
Cost of sales
Cost of goods
Cost of services
Total 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 income, net
Income from operations before income taxes
Income tax expense
Net income
Less: Net loss attributable to noncontrolling interest
For the year ended December 31,
2018
2017
Percent
Change
$
4,178.0
$
185.5
4,363.5
(2,973.5)
(156.1)
(3,129.6)
1,233.9
(633.2)
(87.5)
(39.8)
(760.5)
473.4
(112.2)
6.4
367.6
(75.9)
291.7
3.2
3,685.6
196.1
3,881.7
(2,667.8)
(148.6)
(2,816.4)
1,065.3
(512.5)
(95.2)
(36.5)
(644.2)
421.1
(77.9)
8.9
352.1
(89.8)
262.3
—
262.3
13.4 %
(5.4)%
12.4 %
11.5 %
5.0 %
11.1 %
15.8 %
23.6 %
(8.1)%
9.0 %
18.1 %
12.4 %
44.0 %
(28.1)%
4.4 %
(15.5)%
11.2 %
100.0 %
12.4 %
Net income attributable to Wabtec shareholders
$
294.9
$
The following table shows the major components of the change in net sales in 2018 from 2017:
In millions
2017 Net Sales
Acquisitions
Foreign Exchange
Organic
2018 Net Sales
Net sales
Freight
Transit
Total
1,538.6
$
2,343.1
$
3,881.7
50.9
(1.5)
178.4
83.8
63.7
106.5
134.7
62.2
284.9
1,766.4
$
2,597.1
$
4,363.5
$
$
Net sales increased by $482 million to $4.4 billion in 2018 from $3.9 billion in 2017. The increase is primarily due to an
organic increase of $113 million from higher demand for freight rail components, an increase of $76 million for train control
and signaling products, and an increase of $124 million due to transit original equipment and aftermarket brake and coupler
products, partially offset by lower door and HVAC sales. Additionally, sales from acquisitions increased net sales by $135
million, and favorable foreign exchange increased net sales $62 million.
Cost of sales
Cost of sales increased by $313.2 million to $3.1 billion in 2018 compared to $2.8 billion in 2017. In 2018, cost of sales
as a percentage of net sales was 71.7% compared to 72.5% in 2017. Cost of sales in 2018 includes $18 million of restructuring
costs, primarily in the Transit Segment. Cost of sales in 2017 includes $45 million of project adjustments on certain projects
and $12 million of restructuring and integration costs related to recent acquisitions, all of which were primarily in the Transit
Segment. Excluding the restructuring costs and contract adjustments in both years, cost of sales increased 0.2% as a percentage
of net sales.
32
Operating Expenses
Total operating expenses as a percentage of net sales increased 0.8% to 17.4% in 2018 compared to 16.6% in 2017.
Selling, general, and administrative expenses increased $121 million, or 23.5%, primarily due to $21 million of costs related to
the GE Transportation transaction, $20 million of restructuring costs related to the exit of certain operations and headcount
reductions across the company, $7 million of costs related to a goods and service tax law change in India, $15 million of
increased employee benefit costs and $18 million in incremental expense from acquisitions. Changes in foreign currency rates
increased selling, general, and administrative expenses by $14 million and organic sales volume increases contributed to the
remainder of the change. In 2017, selling, general, and administrative expenses included $30 million of Faiveley Transport
transaction and restructuring costs. Engineering expense decreased by $8 million, or 8.1%, primarily due to timing of research
and development expenses. Amortization expense increased $3 million due to amortization of intangibles associated with
acquisitions.
Interest expense, net
Overall interest expense, net, increased $34 million in 2018 because of interest expense associated with the GE
Transportation transaction of $29 million. In addition, net interest expense in the prior year included a $2 million benefit
related to the prepayment of debt assumed in the Faiveley Transport acquisition.
Income taxes
The effective income tax rate was 20.6% and 25.5% in 2018 and 2017, respectively. On December 22, 2017, the U.S.
government enacted comprehensive tax legislation commonly referred to as the Tax Act. The U.S. tax reform bill lowered the
Federal statutory tax rate from 35% to 21% beginning January 1, 2018. The decrease in the effective tax for the twelve months
ended December 31, 2018 is the result of higher earnings mix in lower tax jurisdictions as well as a benefit from the completion
of the accounting for the income tax effects of the Tax Act and the adjustment to the provisional amounts previously recorded
in accordance with SEC Staff Accounting Bulletin No. 118 which was partially offset by the reversal of non-recurring tax
benefits recorded in the twelve months ended December 31, 2018.
33
Freight Segment
The following table shows our Consolidated Statements of Operations for our Freight Segment for the periods indicated.
In millions
Net sales:
Sales of goods
Sales of services
Total net sales
Cost of sales:
Cost of goods
Cost of services
Total cost of sales
Gross profit
Operating Expenses
Income from operations ($)
Income from operations (%)
$
For the year ended December 31,
2018
2017
Percent Change
1,616.3
$
150.1
1,766.4
(1,072.9)
(126.9)
(1,199.8)
566.6
(232.3)
334.3
18.9 %
1,378.2
160.4
1,538.6
(952.2)
(119.1)
(1,071.3)
467.3
(195.6)
271.7
17.7 %
17.3 %
(6.4)%
14.8 %
12.7 %
6.5 %
12.0 %
21.2 %
18.8 %
23.0 %
The following table shows the major components of the change in net sales for the Freight Segment in 2018 from 2017:
In millions
2017 Net Sales
Acquisitions
Changes in Net Sales by Product Line:
Components
Digital Electronics
Services
Foreign Exchange
2018 Net Sales
Net sales
$
$
1,538.6
50.9
112.7
75.7
(10.0)
(1.5)
1,766.4
Freight Segment net sales increased by $228 million, or 14.8%, primarily due to an organic increase of $113 million
from higher demand for freight rail components and an increase of $76 million for train control and signaling products.
Acquisitions increased net sales by $51 million.
Cost of sales
Freight Segment cost of sales decreased 1.7% as a percentage of net sales to 67.9% in 2018 compared to 69.6% in 2017.
The decrease is primarily related to a favorable product mix which saw an increase in net sales for train control and signaling
products and services and freight car products due to an increase in freight cars built which have a higher margin. Additionally,
there were $11 million of project adjustments and restructuring costs in 2017, which did not recur in 2018.
Operating expenses
Freight Segment operating expenses increased $37 million, or 18.8%, in 2018. The increase is primarily attributable to
increased sales and marketing expenses attributable to the increased sales volumes and, increased employee benefit costs, and
$11 million of incremental operating expenses from prior year acquisitions.
34
Transit Segment
The following table shows our Consolidated Statements of Operations for our Transit Segment:
In millions
Net sales
Cost of sales
Gross profit
Operating Expenses
Income from operations ($)
Income from operations (%)
$
For the year ended December 31,
2018
2017
Percent Change
2,597.1
$
(1,929.8)
667.3
(474.8)
192.5
7.4 %
2,343.1
(1,745.1)
598.0
(420.8)
177.2
7.6 %
10.8 %
10.6 %
11.6 %
12.8 %
8.6 %
The following table shows the major components of the change in net sales for the Transit Segment in 2018 from 2017:
In millions
2017 Net Sales
Acquisitions
Changes in Net Sales by Product Line:
OEM
Aftermarket
Foreign Exchange
2018 Net Sales
Net sales
$
2,343.1
83.8
61.4
45.1
63.7
$
2,597.1
Transit Segment net sales increased by $254 million, or 10.8%, primarily due to $84 million from sales related to
acquisitions, a $61 million increase primarily for original equipment brake products, and favorable foreign exchange of $64
million.
Cost of sales
Transit Segment cost of sales decreased 0.2% as a percentage of net sales to 74.3% in 2018 compared to 74.5% in 2017.
Cost of sales in 2018 includes $16 million of restructuring costs primarily related to the downsizing of operations in the U.K.
and consolidation of certain operations in the U.S. and China. Cost of sales in 2017 includes $38 million of project adjustments
on certain contracts primarily related to material and warranty cost and $7 million of restructuring and integration costs related
to recent acquisitions. Excluding the restructuring costs and contract adjustments in both years, Transit Segment cost of sales
increased 1.1% as a percentage of net sales. This increase is a result of additional costs on projects primarily in the U.K.
Operating expenses
Transit Segment operating expenses increased $54 million, or 12.8%, in 2018 and increased 30 basis points to 18.3% of
net sales. Operating expense included $18 million and $20 million of restructuring and integration charges in 2018 and 2017,
respectively. The 2018 restructuring charges related to the exit of certain operations and headcount reductions and the 2017
restructuring charges related to Faiveley Transportation integration costs. Additionally, in 2018, operating expenses includes
$7 million of costs related to a goods and service tax law change in India. Excluding restructuring and integration costs in both
years and the impact of the goods and service tax law change in 2018, Transit operating expenses increased $49 million. This
increase is primarily due to increased sales volumes, increased employee benefit costs of $10 million, and $11 million of
incremental operating expenses from acquisitions. In addition, changes in foreign currency rates increased operating expenses
by $16 million.
35
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 millions
Cash provided by (used for):
Operating activities
Investing activities
Financing activities:
Proceeds from debt
Payments of debt
Cash dividends
For the year ended
December 31,
2019
2018
2017
$
1,015.5
$
314.7
$
(3,177.8)
(147.3)
3,982.4
(3,423.6)
(81.7)
3,480.7
(1,454.0)
(46.3)
188.8
(1,033.5)
1,216.7
(1,269.5)
(42.2)
Operating activities. Cash provided by operations in 2019 was $1,016 million compared with $315 million in 2018. In
comparison to 2018, cash provided by operations increased due to favorable working capital performance and higher net
income of $35 million. The major components of the increase in cash provided by operations were as follows: a favorable
change in inventories of $365 million which is attributable to improved controls over inventory management directed at
reducing inventory levels and the liquidation of acquired inventory related to the acquisition of GE Transportation, improved
performance on the collection of accounts receivable of $48 million, a favorable change in non-cash items of $228 million
related primarily to increased depreciation and amortization as a result of the acquisition of GE Transportation, and a favorable
change in other assets and liabilities of $259 million primarily due to the timing of payments related to accrued expenses.
These favorable changes in working capital were offset by an unfavorable change in accounts payable of $193 million due to
the timing of payments to suppliers.
Cash provided by operations in 2018 was $315 million compared with $189 million in 2017. In comparison to 2017,
cash provided by operations increased due to favorable working capital performance and higher net income of $29 million. The
major components of the increase in cash provided by operations were as follows: a favorable change in accounts payable of
$141 million due to the timing of payments to suppliers, a favorable change in taxes of $22 million due to the revaluation of
deferred taxes caused by the Tax Act and the timing of income tax payments, and a favorable change in accrued liabilities and
customer deposits of $51 million due to an increase in customer advances during 2018. These favorable changes in working
capital were offset by an unfavorable change in inventory of $100 million due to efforts to ramp up production in anticipation
of stronger product demand in 2019.
Investing activities. In 2019, 2018 and 2017, cash used in investing activities was $3,178 million, $147 million and
$1,034 million, respectively. The major components of the cash outflow in 2019 was $2,996 million in net cash paid for
primarily the GE Transportation acquisition and planned additions to property, plant, and equipment of $185 million for
continued investments in our facilities and manufacturing processes. This compares to $93 million for property, plant, and
equipment additions and $51 million in net cash paid for acquisitions in 2018. In 2017, $90 million of cash was used to
purchase property, plant, and equipment and net cash paid for acquisitions was $945 million, primarily related to the acquisition
of Faiveley Transport.
Financing activities. In 2019, cash provided by financing activities was $462 million, which included net proceeds from
debt of $559 million and $82 million of dividend payments. In 2018, cash provided by financing activities was $1,978 million,
which included net proceeds from debt of $2,027 million and dividend payments of $46 million. In 2017, cash used for
financing activities was $97 million, which included net repayments of debt of $53 million and dividend payments of $42
million.
36
The following table shows outstanding indebtedness at December 31, 2019 and 2018:
In millions
Senior Credit Facility:
December 31,
2019
2018
U.S. dollar-denominated Term Loans, net of unamortized debt issuance costs of $1.1 and $1.2
$
684.7
$
338.1
Multi-Currency Revolving loan facility net of unamortized debt issuance costs of $0.9 and $1.9
Floating Senior Notes, due 2021, net of unamortized debt
issuance costs of $2.0 and $3.2
4.375% Senior Notes, due 2023, net of unamortized
discount and debt issuance costs of $0.9 and $1.2
4.15% Senior Notes, due 2024, net of unamortized debt
issuance costs of $5.7 and $7.0
4.70% Senior Notes, due 2028, net of unamortized debt
issuance costs of $9.2 and $10.3
3.45% Senior Notes, due 2026, net of unamortized debt
issuance costs of $1.5 and $1.7
Other Borrowings
Total
Less - current portion
Long-term portion
Senior Notes
231.5
498.0
249.1
744.3
1,240.8
748.5
32.4
4,429.3
95.7
$
4,333.6
$
—
496.8
248.8
743.0
1,239.7
748.3
42.2
3,856.9
64.1
3,792.8
On September 14, 2018 in order to fund the GE Acquisition and related fees and expenses, we issued a total of $2.5
billion in aggregate principal amount of unsecured senior notes (in two separate series of fixed rate unsecured senior notes
“Senior Notes” and one series of floating rate unsecured senior notes “Floating Senior Notes”). We collectively refer to the
Floating Senior Notes and the Senior Notes as the “Notes.” Upon issuance, the Notes were reflected on our Consolidated
Balance Sheets net of discount of $2.9 million and net of the capitalized debt issuance costs, including commissions and
offering expenses of $18.0 million, both of which will be amortized in interest expense through the respective maturity dates of
each series of unsecured senior notes using the effective interest method.
The Floating Senior Notes bear interest at a floating rate equal to the three-month LIBOR rate plus 1.05% per year; the
Senior Notes due 2024 bear interest at 4.15% per year; and the Senior Notes due 2028 bear interest at 4.70% per year. The
interest rate payable on the Notes will be subject to adjustment based on certain rating events. Interest on the Senior Notes is
payable semi-annually in arrears on March 15th and September 15th of each year, commencing on March 15, 2019. Interest on
the Floating Senior Notes is payable quarterly in arrears on December 15, March 15, June 15, and September 15 of each year,
commencing on December 15, 2018.
The U.K Financial Conduct Authority (the "FCA"), which regulates LIBOR, has announced that the FCA will no longer
persuade nor compel banks to submit rates for the calculation of LIBOR after 2021, and the continuation of LIBOR cannot be
guaranteed after 2021. The indenture for the Floating Senior Notes provides that upon a permanent discontinuation of LIBOR
while the Floating Senior Notes remain outstanding, an alternative reference rate will be used subject to adjustments consistent
with industry-accepted practice for such alternative reference rate.
The issuance was comprised of the following three series of notes:
Senior Notes (in millions)
Par Value
Discount
at Issuance
Net Price
at Issuance
Issuance
Cost
Net Proceeds
Floating Senior Notes due 2021
4.15% Senior Notes due 2024
4.70 Senior Notes due 2028
Total
$
$
500.0
$
— $
500.0
$
750.0
1,250.0
2,500.0
$
1.5
1.4
2.9
748.5
1,248.6
$
3.5
7.4
10.6
496.5
741.1
1,238.0
2,475.6
$
2,497.1
$
21.5
$
Consistent with the Company's existing senior notes, the newly issued Notes are senior unsecured obligations of the
Company and rank pari passu with all existing and future senior debt and senior to all existing and future subordinated
indebtedness of the Company. The indentures under which the Notes were issued contain covenants and restrictions which
limit among other things, the following: the incurrence of indebtedness, payment of dividends and certain distributions, sales of
assets, change in control, mergers and consolidations and the incurrence of liens. But the covenants do not require the Company
to maintain any financial ratios or specified levels of net worth or liquidity. The Company may redeem each series of the Notes
37
at any time in whole or from time to time in part in accordance with the provisions of the indentured, under which such series of
Notes was issued.
Upon the occurrence of a change of control repurchase event with respect to the Notes, each holder of the Notes has the
right to require the Company to purchase that holder’s Notes at a price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, unless the Company has exercised its option to redeem all the Notes.
On February 12, 2019, the rating assigned by Moody's was decreased to Ba1. Accordingly, pursuant to the respective
terms of the Senior Notes issued on September 14, 2018, the interest rate increased by 0.25%. The interest rate increase took
effect from the next interest period following February 12, 2019.
The Company is in compliance with the restrictions and covenants in the indenture under which the Notes were issued
and expects that these restrictions and covenants will not be any type of limiting factor in executing our operating activities.
Term Loan Agreement
On June 8, 2018, the Company arranged (i) a $350.0 million term loan with proceeds used to refinance existing loans
(the “Refinancing Term Loan”), and (ii) a new $400.0 million delayed draw term loan in order to fund the GE Acquisition and
related fees and expenses (the “Delayed Draw Term Loan”). The Company collectively refers to the Refinance Term Loans and
the Delayed Draw Term Loans as the “Term Loans.”
Consistent with our other debt securities, the Term Loan Agreement includes covenants that, among other things, limit
our liens and the liens of certain of our consolidated subsidiaries. In addition, it requires us to maintain the same financial
maintenance covenants as discussed below.
Loans under the Term Loan bear interest at a variable rate based on, at the Company’s option, either the ABR rate or the
LIBOR rate (each as defined in the Term Loan Agreement) plus an applicable margin that is determined based on our credit
ratings or the Company’s ratio of total debt (less unrestricted cash up to $300.0 million) to EBITDA (“Leverage Ratio”). As of
December 31, 2019, the applicable margin was 0.375% for base rate loans and 1.375% for Eurodollar rate loans.
Senior Credit Facility
On June 8, 2018, the Company entered into a credit agreement (the “Senior Credit Facility”), which replaced the
Company’s then-existing “2016 Refinancing Credit Agreement.” The Senior Credit Facility is with a syndicate of lenders and
provides for borrowings consisting of (i) term loans denominated in euros and U.S. dollars; and (ii) a multi-currency revolving
loan facility, providing for an equivalent in U.S. dollars of up to $1,200.0 million in multi-currency revolving loans (inclusive
of swingline loans of up to $75.0 million and letters of credit of up to $450.0 million).
The multi-currency revolving loan facility will mature on June 8, 2023, and the Term Loans will mature on June 8, 2021.
Subject to any mandatory or optional prepayments, the Term Loans are required to be repaid on a quarterly basis in an amount
equal to 2.5% of the principal amount drawn, with the final payment due at maturity.
The following table presents availability under our credit facilities:
(in millions)
Maximum Availability
Outstanding Borrowings
LC Under Credit Agreement
Current Availability
Multi-currency revolving loan facility
$
$
1,200.0
232.0
31.0
938.0
Under the Senior Credit Facility, we can elect to receive advances bearing interest based on either the ABR rate or the
LIBOR rate (each as defined in the Credit Agreement) plus an applicable margin that is determined based on our credit ratings
or the Company’s Leverage Ratio. As of December 31, 2019, the applicable margin was 0.375% for base rate advances and
1.375% for LIBOR rate advances.
The Company also pays fees related to the Senior Credit Facility. The largest of these fees is a commitment fee on the
unused portion of the multi-currency revolving loan facility of 0.10% to 0.30% per annum (currently 0.15% per annum),
depending on our credit ratings or Leverage Ratio. None of the fees were material to interest expense.
The obligations under the Senior Credit Facility are guaranteed by Wabtec and each of Wabtec’s wholly owned
subsidiaries (collectively, the “Subsidiary Guarantors”). In addition, the Senior Credit Facility contains a number of customary
affirmative and negative covenants. In addition to other and customary covenants, the Senior Credit Facility and the Term Loan
each require that we maintain the financial covenants listed below as of the end of each fiscal quarter for the period of four
fiscal quarters then ended. The Company was in compliance with all of our covenants in the Credit Agreement and the Term
Loans as of December 31, 2019.
38
Interest Coverage Ratio 1
Leverage Ratio 2
3.0x
3.25x
1. The interest coverage ratio is defined as EBITDA, as defined in the Credit Agreement and Term Loan Agreement, to net interest expense for the four
quarters then ended.
2. The leverage ratio is defined as net debt as of the last day of such fiscal quarter to EBITDA, as defined in the Amendment Credit Agreement and Term Loan
Agreement, for the four quarters then ended.
The 2018 Senior Credit Facility contains an uncommitted accordion feature allowing the Company to request the
establishment, in an aggregate amount not to exceed $600.0 million, of incremental borrowing commitments under the
Revolving Credit Facility or of incremental term loan commitment.
The FCA, which regulates LIBOR, has announced that the FCA will no longer persuade nor compel banks to submit
rates for the calculation of LIBOR after 2021, and the continuation of LIBOR cannot be guaranteed after 2021. The Senior
Credit Agreement provides that upon a permanent discontinuation of LIBOR, an alternate rate of interest will be established by
the administrative agent and the Company giving due consideration to then prevailing U.S. market convention.
At December 31, 2019, the weighted average interest rate on the Company’s variable rate debt was 3.08%.
Cash Pooling
Wabtec aggregates the Company's domestic cash position on a daily basis. Outside the United States, the Company uses
cash pooling arrangements with banks to help manage our liquidity requirements. In these pooling arrangements, Wabtec
subsidiaries “Participants” agree with a single bank that the cash balances of any of the pool Participants with the bank will be
subject to a full right of set-off against amounts other Participants owe the bank, and the bank provides for overdrafts as long as
the net balance for all Participants does not exceed an agreed-upon level. Typically, each Participant pays interest on
outstanding overdrafts and receives interest on cash balances. The Company's Consolidated Balance Sheets reflect cash, net of
bank overdrafts, under all pooling arrangements.
39
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, 2019:
In millions
Operating activities:
Purchase obligations (1)
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:
Standby letters of credit (8)
Total
Total
Less than
1 year
1 - 3
years
3 - 5
years
More than
5 years
$
387.3
$
303.2
206.5
9.4
945.2
4,429.3
92.0
714.0
$
68.4
53.9
19.2
1.1
171.9
95.7
92.0
183.5
93.8
83.4
39.6
2.1
290.8
1,109.8
—
$
217.4
$
62.7
41.4
2.0
222.1
1,234.5
—
112.5
152.9
$
7,086.9
$
685.7
$
1,732.0
$
1,933.0
$
7.7
103.2
106.3
4.2
260.4
1,989.3
—
265.1
2,736.2
(1) Purchase obligations represent non-cancelable contractual obligations at December 31, 2019. In addition, the Company
had $1.5 billion 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 15 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 $10.9 million to
pension plan investments in 2020. See further disclosure in Note 10 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.
(5) Interest payments are payable March, June, September and December of each year at a rate based on contractual terms
of Floating Senior Notes due 2021. Interest payments are payable May and September of each year at 4.15% of $750
million Senior Notes due 2024. Interest payments are payable March and September of each year at 4.7% of $1,250
million Senior Note due 2028. 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 Other Borrowings are based
on contractual terms and the Company’s current interest rates.
(6) Scheduled principal repayments of outstanding loan balances are disclosed in Note 9 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 $92.0 million.
(8) The $714.0 million of standby letters of credit is comprised of outstanding letters of credit for performance and bid
bond purposes, which expire in various dates through 2034. 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 $17.2 million, the timing of which are uncertain. Refer to Note
11 of the “Notes to Consolidated Financial Statements” for additional information on uncertain tax positions.
40
Obligations for operating activities. The Company has entered into $387.3 million of material long-term non-cancelable
materials and supply purchase obligations. Operating leases represent multi-year obligations for rental of facilities and
equipment. Estimated pension funding and post-retirement benefit payments are based on actuarial estimates using current
assumptions for discount rates, expected return on long-term assets, rate of compensation increases and health care cost trend
rates. Benefits paid for pension obligations were $16.0 million and $17.0 million in 2019 and 2018, respectively. Benefits paid
for post-retirement plans were $0.9 million and $1.0 million in 2019 and in 2018, 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 $92.0 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, 2019, the initial value of performance bonds issued on the Company’s behalf is
about $619 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 including but not limited to disease outbreak, fires, earthquakes, explosions, floods, tornadoes,
hurricanes or weather conditions;
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;
41
•
•
•
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, competition and anti-trust matters or intellectual property claims;
completion and integration of acquisitions, including the acquisition of GE Transportation; or
the development and use of new technology;
Competitive factors
•
•
the actions of competitors; or
the outcome of negotiations with partners, suppliers, customers or others;
Political/governmental factors
•
•
•
•
•
•
political stability in relevant areas of the world;
future regulation/deregulation of our customers and/or the rail industry;
levels of governmental funding on transit projects, including for some of our customers;
political developments and laws and regulations, including those related to Positive Train Control; or
federal and state income tax legislation; and
the outcome of negotiations with governments.
Statements in this 10-K apply only as of the date on which such statements are made, and we undertake no obligation to
update any statement to reflect events or circumstances after the date on which the statement is made or to reflect the
occurrence of unanticipated events.
Critical Accounting Estimates
The preparation of the financial statements in accordance with generally accepted accounting principles requires
Management to make judgments, estimates and assumptions regarding uncertainties that affect the reported amounts of assets
and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Areas of
uncertainty that require judgments, estimates and assumptions include the accounting for allowance for doubtful accounts,
inventories, the testing of goodwill and other intangibles for impairment, warranty reserves, pensions and other postretirement
benefits, stock based compensation and tax matters. Management uses historical experience and all available information to
make these judgments and estimates, and actual results will inevitably differ from those estimates and assumptions that are used
to prepare the Company’s financial statements at any given time. Despite these inherent limitations, Management believes that
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and the financial
statements and related footnotes provide a meaningful and fair perspective of the Company. A discussion of the judgments and
uncertainties associated with accounting for derivatives and environmental matters can be found in Notes 2 and 18,
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.
42
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.
Business Combinations:
Description The Company accounts for business acquisitions in accordance with ASC 805, Business Combinations which
requires the purchase price of the acquired business to be allocated to tangible and intangible assets acquired and liabilities
assumed based on the respective fair values. The amount of purchase price which is in excess of the fair values of assets
acquired and liabilities assumed is recognized as goodwill.
Judgments and Uncertainties Discounted cash flow models are used to estimate the fair values of acquired contract backlog,
customer relationships, intellectual property intangibles, and below-market customer contract liabilities. The significant
assumptions used to estimate the value of the intangible assets and off-market customer contract liabilities included revenue
growth rates, projected profit margins, discount rates, royalty rates, customer attrition rates, revenue obsolescence rates and
market participant profit margins. These significant assumptions are forward-looking and could be affected by future economic
and market conditions.
Effect if Actual Results Differ From Assumptions Different assumptions may result in materially different values for assets
acquired and liabilities assumed, which may impact the Company's financial position and future results of operations.
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, 2019, a decline in the terminal growth
rate by 50 basis points would decrease fair market value by $794 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 $2,168 million. Even with such changes the fair value of
the reporting units would be greater than their net book values. 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 exposed to the expense of increasing our reserves for warranty expense.
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 2017-2019. No incentive stock units will vest for performance
below the three-year cumulative threshold. The Company utilizes an economic profit measure for this performance
43
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 $1.5 million.
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 606 “Revenue from Contracts with Customers.” The Company
recognizes revenues on long-term customer agreements involving the design and production of highly engineered products that
require revenue to be recognized over time because these products have no alternative use without significant economic loss
and the agreements contain an enforceable right to payment including a reasonable profit margin from the customer in the event
of contract termination. Generally, the Company uses an input method for determining the amount of revenue, cost and gross
margin to recognize over time for these customer agreements. The input methods used for these agreements include costs of
material and labor, both of which give an accurate representation of the progress made toward complete satisfaction of a
particular performance obligation.
Judgments and Uncertainties Accounting for long-term customer agreements involves a judgmental process of estimating the
total sales and costs for each contract, which results in the development of estimated profit margin percentages. Contract
estimates related to long-term projects are based on various assumptions to project the outcome of future events that could span
several years. These assumptions include cost of materials; labor availability and productivity; complexity of the work to be
performed; and the performance of suppliers, customers and subcontracts that may be associated with the contract. 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. Generally, pricing is defined in our contracts
but may contain include an estimate of variable consideration when required by the terms of the individual customer contract.
Types of variable consideration that the Company typically has include volume discounts, prompt payment discounts,
liquidating damages, and performance bonuses.
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
44
adversely or positively affect financial performance in future periods. Some of our contracts are expected to be completed in a
loss position. Provisions are made currently for estimated losses on uncompleted contracts.
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 32% and 22% of total debt at
December 31, 2019 and 2018, respectively. On an annual basis, a 1% change in the interest rate for variable rate debt at
December 31, 2019, would increase or decrease interest expense by about $14 million.
Foreign Currency Exchange Rate Risk
The Company is exposed 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, 2019, approximately 41% of
Wabtec’s net sales were in the United States, 9% in Canada, 6% in India, 5% in the United Kingdom, 4% in Mexico, 4% in
Germany, 4% in Australia, 4% in France, 4% in China, and 19% in other international locations. (See Note 21 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, 2019.
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.
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, 2019. 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, 2019, 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 52 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 56 and is
incorporated herein by reference.
45
Item 9B.
OTHER INFORMATION
None.
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 15, 2020,
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, 2019.
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.wabteccorp.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, 2019 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
588,024
—
588,024
$
$
63.36
—
63.36
1,870,396
—
1,870,396
46
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The financial statements, financial statement schedules and exhibits listed below are filed as part of this annual report:
PART IV
(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 on Internal Control Over Financial Reporting
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Income for the three years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income for the three years ended December 31, 2019, 2018
and 2017
Consolidated Statements of Cash Flows for the three years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Shareholders’ Equity for the three years ended December 31, 2019, 2018 and
2017
Notes to Consolidated Financial Statements
(2)
Financial Statement Schedules
Schedule II—Valuation and Qualifying Accounts
2.1
2.2
2.3
2.4
2.5
2.6
2.7**
2.8**
2.9
2.12
2.13**
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
Agreement and Plan of Merger, date May 20, 2018, among Westinghouse Air Brake Technologies
Corporation, General Electric Company, Transportation Systems Holdings Inc. and Wabtec US Rail
Holdings, Inc.
Separation, Distribution and Sale Agreement, date May 20, 2018, among Westinghouse Air Brake
Technologies Corporation, General Electric Company, Transportation Systems Holdings Inc., and
Wabtec US Rail, Inc.
Voting and Support Agreement, dated May 20, 2018, among General Electric Company and each of the
persons listed on Schedule 1 thereto.
Employee Matters Agreement among General Electric Company, Transportation Systems Holdings Inc.,
Westinghouse Air Brake Technologies Corporation and Wabtec US Rail, Inc.
Amendment to the Agreement and Plan of Merger, dated January 25, 2019, by and among Westinghouse
Air Brake Technologies Corporation, General Electric Company, Transportation Systems Holdings Inc.,
and Wabtec US Rail Holdings, Inc.
Page
52
53
56
57
58
59
60
61
62
99
Filing
Method
16
16
16
17
17
17
24
24
24
28
27
47
2.14**
2.15
2.16**
3.1
3.2
3.3
3.4
3.5
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
10.1
10.2
10.3
10.4
10.5
Amendment to the Separation, Distribution and Sale Agreement, dated January 25, 2019, by and between
Westinghouse Air Brake Technologies Corporation and General Electric Company.
Shareholders Agreement between General Electric Company and Westinghouse Air Brake Technologies
Corporation.
Tax Matters Agreement among General Electric Company, Transportation Systems Holdings Inc.,
Westinghouse Air Brake Technologies Corporation and Wabtec US Rail, Inc.
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 and Restated By-Laws of the Company, effective September 5, 2019
Certificate of Amendment to Restated Certificate of Incorporation dated November 19, 2018
Certificate of Designations of Series A Non-Voting Convertible Preferred Stock of Westinghouse Air
Brake Technologies Corporation, dated February 22, 2019
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
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.
Seventh Supplemental Indenture, dated June 8, 2018, by and among Westinghouse Air Brake
Technologies Corporation, the subsidiary guarantors named therein and Wells Fargo Bank, National
Association, as Trustee
Eighth Supplemental Indenture, dated June 29, 2018, by and among Westinghouse Air Brake
Technologies Corporation, the subsidiary guarantors named therein and Wells Fargo Bank, National
Association, as Trustee
Ninth Supplemental Indenture, dated September 14, 2018, by and among the Company, the guarantors
party thereto and Wells Fargo Bank, National Association, as Trustee.
Tenth Supplemental Indenture, date June 6, 2019, by and among the Company, the guarantors party
thereto and Wells Fargo Bank, National Association, as Trustee
Description of Wabtec Common Stock registered pursuant to Section 12 of the Securities Act of 1934
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 Westinghouse Air
Brake Technologies Corporation 2000 Stock Incentive Plan, as amended * *
48
27
28
28
9
11
8
29
28
12
12
12
19
19
19
20
21
22
25
25
26
30
1
2
2
2
4
4
10.6
10.7
10.8
10.9
10.1
10.1
10.12
10.12
10.13
10.14
10.15
10.16
10.17
10.19
10.20
10.21
10.22
21.0
23.1
31.1
31.2
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,
David L. DeNinno, Patrick D. Dugan, Scott E. Wahlstrom, Michael E. Fetsko, and John A Mastalerz Jr.*
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*
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*
Credit Agreement, dated as of June 8, 2018, by and among Westinghouse Air Brake Technologies
Corporation, Wabtec Netherlands B.V. and the other borrowing subsidiaries party thereto, the lenders
party thereto and PNC Bank, National Association, as Administrative Agent, Goldman Sachs Bank USA,
HSBC Bank USA, N.A., JPMorgan Chase Bank, N.A., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, PNC Capital Markets LLC and TD Securities (USA) LLC, as Joint Lead Arrangers and
Joint Bookrunners, Goldman Sachs Bank USA and PLC Capital Markets LLC, as Syndication Agents,
and Bank of America, N.A., HSBC Bank USA, N.A., JPMorgan Chase Bank, N.A., and TD Securities
First Amendment to Credit Agreement, dated as of February 22, 2019, among Westinghouse Air Brake
Technologies Corporation, Wabtec Netherlands B.V. and the other borrowing subsidiaries party thereto,
the lenders party thereto and PNC Bank, National Association, as Administrative Agent
Separation Agreement between Stephane Rambaud-Measson and Westinghouse Air Brake Technologies
Corporation, dated as of February 13, 2019
Transition Agreement between Raymond T. Betler and Westinghouse Air Brake Technologies
Corporation, dated as of April 24, 2019
Westinghouse Air Brake Technologies Corporation Summary of Employment Terms of Rafael Santana
dated as of February 25, 2019
List of subsidiaries of the Company
Consent of Ernst & Young LLP
Rule 13a-14(a)/15d-14(a) Certifications
Rule 13a-14(a)/15d-14(a) Certifications
32.1
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
49
3
10
5
6
14
21
23
7
10
10
10
10
25
29
31
31
31
1
1
1
1
1
1
1
1
1
1
1
104
XBRL Cover Page Interactive Data (embedded within the Inline XBRL document)
1
1 Filed herewith.
2 Filed as an exhibit to the Company’s Registration Statement on Form S-1 (File No. 033-90866).
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. 033-90866) filed on March 31, 2017.
5 Filed as an Annex to the Company’s Schedule 14A Proxy Statement (File No. 033-90866) filed on March 31, 2017.
6 Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q (File No. 033-90866) for the period ended
September 30, 2008.
7 Filed as an exhibit to the Company’s Current Report on Form 8-K (File No. 033-90866) dated July 2, 2009.
8 Filed as an exhibit to the Company’s Current Report on Form 8-K (File No. 033-90866), dated September 9, 2019.
9 Filed as an exhibit to the Company’s Annual Report on Form 10-K (File No. 033-90866), dated February 25, 2011.
10 Filed as an exhibit to the Company’s Annual Report on Form 10-K (File No. 033-90866), dated February 22, 2013.
11 Filed as an exhibit to the Company’s Current Report on Form 8-K (File No. 033-90866), dated September 9, 2019.
12 Filed as an exhibit to the Company’s Current Report on Form 8-K (File No. 033-90866), dated August 8, 2013.
13 Filed as an exhibit to the Company’s Annual Report on Form 10-K (File No. 033-90866), dated February 21, 2014.
14 Filed as an exhibit to the Company's Current Report on Form 8-K (File No. 033-90866), dated June 24, 2016.
15 Filed as an exhibit to the Company's Current Report on Form 8-K (File No. 033-90866), dated July 30, 2015.
16 Filed as an exhibit to the Company's Current Report on Form 8-K (File No. 033-90866), dated October 6, 2015.
17 Filed as an exhibit to the Company's Current Report on Form 8-K (File No. 033-90866), dated October 26, 2016.
18 Filed as an exhibit to the Company's Current Report on Form 8-K (File No. 033-90866), dated November 1, 2016.
19 Filed as an exhibit to the Company's Current Report on Form 8-K (File No. 033-90866), dated November 3, 2016.
20 Filed as an exhibit to the Company’s Annual Report on Form 10-K (File No. 033-90866), dated February 28, 2017.
21 Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q (File No. 033-90866) 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. 033-90866) for the period ended
September 30, 2017.
24 Filed as an exhibit to the Company's Current Report on Form 8-K (File No 033-90866), dated May 24, 2018.
25 Filed as an exhibit to the Company's Quarterly Report on Form 10-Q (File No. 033-90866), for the period ended June
30, 2018.
26 Filed as an exhibit to the Company's Current Report on Form 8-K (File No 033-90866), dated September 14, 2018.
27 Filed as an exhibit to the Company's Current Report on Form 8-K (File No 033-90866), dated January 31, 2019.
50
28 Filed as an exhibit to the Company's Current Report on Form 8-K (File No 033-90866), dated February 25, 2019.
29 Filed as an exhibit to the Company's Annual Report on Form 10-K (File No 033-90866), dated February 27, 2019.
30 Filed as an exhibit to the Company's Quarterly Report on Form 10-Q (File No. 033-90866), dated August 1, 2019.
31 Filed as an exhibit to the Company's Quarterly Report on Form 10-Q (File No. 033-90866), dated May 9, 2019.
*
**
Management contract or compensatory plan.
Certain schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Wabtec hereby undertakes to
furnish supplementally, copies of any of the omitted schedules upon request by the SEC.
51
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 GE Transportation from its assessment of internal controls over financial reporting as of
December 31, 2019 because the Company acquired GE Transportation effective February 25, 2019. GE Transportation is a
subsidiary whose total assets and customer revenues represents 61% and 47%, respectively, of the related consolidated financial
statement amounts as of and for the year ended December 31, 2019.
Based on its assessment, Management has concluded that the Company maintained effective internal control over
financial reporting as of December 31, 2019, 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, 2019, has been audited by
Ernst & Young LLP, independent registered public accounting firm, as stated in their report which is included herein.
52
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, 2019 and 2018, the related consolidated statements of income, comprehensive income, cash
flows and shareholders' equity for each of the three years in the period ended December 31, 2019, and the related notes and
financial statement schedule listed in the Index at Item 15.(2) (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
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, 2019, 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 24, 2020 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 provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgements. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as
a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit
matters or on the accounts or disclosures to which they relate.
53
Accounting for Business Combinations
Description of the
Matter
As described in Note 3 of the consolidated financial statements, the Company completed its
merger with GE Transportation for net consideration of approximately $10.3 billion on February
25, 2019. The transaction was accounted for as a business combination.
Auditing the Company's accounting for its merger with GE Transportation was complex due to
the significant estimation in determining the fair value of the acquired intangible assets of
approximately $3.2 billion, which included contract backlog, customer relationships and
intellectual property, and assumed liabilities, which included certain off-market customer
contract liabilities totaling $0.5 billion. The significant estimation in determining the fair value of
such assets and liabilities was primarily due to the sensitivity of the respective fair values to
underlying assumptions. The Company used a discounted cash flow model to estimate the fair
values of acquired contract backlog, customer relationships, and intellectual property intangibles
and assumed off-market customer contract liabilities. The significant assumptions used to
estimate the value of the intangible assets and off-market customer contract liabilities included
revenue growth rates, projected profit margins, discount rates, royalty rates, customer attrition
rates, revenue obsolescence rates and market participant profit margins. These significant
assumptions are forward-looking and could be affected by future economic and market
conditions.
How We Addressed
the Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of the
Company's controls over accounting for acquisitions, including controls over the recognition and
measurement of, identifiable intangible assets and off-market customer contract liabilities and
management's judgments and evaluation of underlying assumptions with regard to the valuation
models applied. We also tested management's controls to validate that the data used in the
valuation models was complete and accurate.
To test the estimated fair value of the Company’s identifiable intangible assets and off-market
customer contract liabilities, our audit procedures included, among others, evaluating the
Company's selection of the valuation methodology, evaluating the methods and significant
assumptions used by the Company's valuation specialist, and evaluating the completeness and
accuracy of the underlying data supporting the significant assumptions and estimates. For
example, when evaluating the assumptions related to the revenue growth rates, projected profit
margins, customer attrition rates, revenue obsolescence rates and market participant profit
margins, we compared the assumptions to the past performance of GE Transportation,
contractual arrangements that GE Transportation has with customers, the Company's history
related to similar acquisitions and third-party industry data where available. We also performed
sensitivity analyses of significant assumptions to evaluate the changes in the fair value that
would result from changes in the assumptions. When evaluating the assumptions related to
discount rates and royalty rates, we compared the assumptions to the Company’s history related
to similar acquisitions and third-party industry data. We involved a valuation specialist to assist
with our evaluation of the methodologies used by the Company and significant assumptions
included in the fair value estimates, including the discount rates and royalty rates. Our
procedures also included comparison of the selected discount rates to the acquired business’s
weighted average cost of capital, an evaluation of the relationship of the weighted average cost
of capital, internal rate of return and weighted-average return on assets, and consideration of
guideline public company benchmarking analyses reflecting the composition of purchase prices
for similar transactions.
54
Description of the
Matter
Over Time Revenue Recognition for Long-Term Contracts
As described in Note 2 to the consolidated financial statements, the Company has long-term
customer arrangements involving the design and production of highly engineered products that
require revenue to be recognized over time. The Company uses input-based measures for
determining the amount of revenue, cost and gross margin to recognize over time for these
customer arrangements. The input methods used for these arrangements include costs of
material and labor. During the year ended December 31, 2019, a material amount of the
Company's total revenues were derived from performance obligations that are satisfied over
time.
Auditing the Company's measurement of revenue recognized over time on long-term contracts
is especially challenging because it involves subjective management assumptions regarding the
estimated remaining costs of the long-term contract that could span several years. These
assumptions could be impacted by the future cost of materials, labor availability and
productivity, complexity of the work to be performed, and the performance of suppliers,
customers and subcontractors that may be associated with the contract and may be affected by
future market or economic conditions.
How We Addressed
the Matter in Our
Audit
We obtained an understanding, evaluated the design and tested (except for those contracts
pertaining to GE Transportation) the operating effectiveness of controls over the Company's
process to recognize revenue over time on long-term contracts, including controls over
management’s review of the significant underlying assumptions described above.
Our audit procedures also included, among others, evaluating the significant assumptions and
the accuracy and completeness of the underlying data used in management's calculations. This
included, for example, inspection of the executed contract and testing management's cost
estimates by comparing the inputs to the Company’s historical data or experience for similar
contracts, the performance of sensitivity analysis and the performance of retrospective review
analysis of prior management cost estimates to actual costs incurred for completed contracts. In
addition, for a sample of contracts, we involved our construction and engineering specialists to
assist in our evaluation of management’s cost estimates at completion.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2002.
Pittsburgh, Pennsylvania
February 24, 2020
55
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, 2019, 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, 2019, 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 GE Transportation which is included in the 2019 consolidated financial statements of the Company and constituted
61% of total assets as of December 31, 2019 and 47% of revenues 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 GE
Transportation.
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, 2019 and 2018, the related consolidated
statements of income, comprehensive income, cash flows and shareholders’ equity for each of the three years in the period
ended December 31, 2019, and the related notes and financial statement schedule listed in the Index at Item 15.(2) and our
report dated February 24, 2020 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 24, 2020
56
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31,
2019
2018
$
604.2
$
—
1,149.9
514.0
1,773.1
150.9
4,192.1
2,216.0
(560.2)
1,655.8
8,360.6
4,104.0
631.7
13,096.3
18,944.2
$
1,157.5
$
$
$
604.2
343.8
226.5
95.7
830.3
3,258.0
4,333.6
113.0
145.3
291.8
808.9
580.9
1,761.4
801.2
345.6
844.9
115.6
4,449.6
1,036.6
(472.8)
563.8
2,396.5
1,129.9
109.4
3,635.8
8,649.2
589.4
373.5
173.2
135.6
64.1
310.8
1,646.6
3,792.8
95.4
198.3
—
47.0
8,950.6
5,780.1
—
2.0
7,877.2
(807.1)
3,267.0
(382.6)
9,956.5
37.1
9,993.6
$
18,944.2
$
—
1.3
914.6
(816.1)
3,022.0
(256.6)
2,865.2
3.9
2,869.1
8,649.2
In millions, except shares and par value
Assets
Current Assets
Cash and cash equivalents
Restricted cash
Accounts receivable
Unbilled accounts receivables
Inventories
Other current 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
Total Assets
Current Liabilities
Accounts payable
Customer deposits
Accrued compensation
Accrued warranty
Liabilities and Shareholders’ Equity
Current portion of long-term debt
Other accrued liabilities
Total current liabilities
Long-term debt
Accrued postretirement and pension benefits
Deferred income taxes
Contingent consideration
Other long term liabilities
Total Liabilities
Commitment and Contingencies (Note 20)
Equity
Convertible preferred stock, $.01 par value; 1,000,000 shares authorized, no shares issued and outstanding, at
December 31, 2019 and December 31, 2018
Common stock, $.01 par value; 500,000,000 shares authorized: 226,947,180 and 132,349,534 shares issued and
191,699,193 and 96,614,946 outstanding at December 31, 2019 and December 31, 2018, respectively
Additional paid-in capital
Treasury stock, at cost, 35,247,987 and 35,734,588 shares, at December 31, 2019 and December 31, 2018,
respectively
Retained earnings
Accumulated other comprehensive loss
Total Westinghouse Air Brake Technologies Corporation shareholders’ equity
Noncontrolling interest
Total Equity
Total Liabilities and Equity
The accompanying notes are an integral part of these statements.
57
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
2019
2018
2017
In millions, except per share data
Net sales
Sales of goods
Sales of services
Total net sales
Cost of sales
Cost of goods
Cost of services
Total 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 income, net
Income from operations before income taxes
Income tax expense
Net income
Less: Net loss attributable to noncontrolling interest
Net income attributable to Wabtec shareholders
Earnings Per Common Share
Basic
Net income attributable to Wabtec shareholders
Diluted
Net income attributable to Wabtec shareholders
Weighted average shares outstanding
Basic
Diluted
$
6,907.9
$
4,178.0
$
1,292.1
8,200.0
(5,128.4)
(793.6)
(5,922.0)
2,278.0
(1,166.6)
(209.9)
(238.4)
(1,614.9)
663.1
(219.1)
2.8
446.8
(120.3)
326.5
0.2
185.5
4,363.5
(2,973.5)
(156.1)
(3,129.6)
1,233.9
(633.2)
(87.5)
(39.8)
(760.5)
473.4
(112.2)
6.4
367.6
(75.9)
291.7
3.2
$
$
$
326.7
$
294.9
$
1.91
1.84
$
$
170.5
177.3
$
$
3.06
3.05
96.0
96.5
3,685.6
196.1
3,881.7
(2,667.8)
(148.6)
(2,816.4)
1,065.3
(512.5)
(95.2)
(36.5)
(644.2)
421.1
(77.9)
8.9
352.1
(89.8)
262.3
—
262.3
2.74
2.72
95.5
96.1
The accompanying notes are an integral part of these statements.
58
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In millions
Net income attributable to Wabtec shareholders
Foreign currency translation (loss) gain
Unrealized (loss) gain on derivative contracts
Unrealized (loss) gain on pension benefit plans and post-retirement benefit plans
Other comprehensive (loss) gain before tax
Income tax benefit (expense) related to components of other comprehensive loss
Other comprehensive (loss) income, net of tax
Year Ended December 31,
2019
2018
2017
$
326.7
$
294.9
$
(106.4)
(4.3)
(21.5)
(132.2)
6.2
(126.0)
(207.3)
(5.3)
(3.8)
(216.4)
4.8
(211.6)
Comprehensive income attributable to Wabtec shareholders
$
200.7
$
83.3
$
The accompanying notes are an integral part of these statements.
262.3
326.1
9.8
2.8
338.7
(4.1)
334.6
596.9
59
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
In millions
Operating Activities
Net income
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization
Stock-based compensation expense
Below market intangible amortization
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
Other
December 31,
2019
2018
2017
$
326.5
$
291.7
$
262.3
401.4
50.0
(82.2)
(27.3)
15.9
(6.3)
255.9
(144.3)
10.7
(11.9)
227.1
1,015.5
(185.3)
3.9
(2,996.4)
—
109.3
25.3
—
(5.3)
0.9
(54.6)
(108.9)
48.8
7.9
31.7
(32.1)
314.7
(93.3)
11.3
(51.2)
(14.1)
103.2
21.3
—
(67.4)
1.9
(68.7)
(9.0)
(91.7)
47.6
(18.9)
8.2
188.8
(89.5)
1.3
(945.3)
—
Net cash used for investing activities
(3,177.8)
(147.3)
(1,033.5)
Financing Activities
Proceeds from debt, net of issuance costs
Payments of debt
Proceeds from exercise of stock options and other benefit plans
Payment of income tax withholding on share-based compensation
Payment of contingent consideration on acquisitions
Cash dividends
Net cash provided by (used for) financing activities
Effect of changes in currency exchange rates
(Decrease) increase in cash
Cash, cash equivalents and restricted cash, beginning of year
3,982.4
(3,423.6)
0.8
(6.3)
(10.1)
(81.7)
461.5
(37.3)
(1,738.1)
2,342.3
3,480.7
(1,454.0)
10.0
(12.3)
—
(46.3)
1,978.1
(36.6)
2,108.9
233.4
Cash, cash equivalents and restricted cash, end of year
$
604.2
$
2,342.3
$
The accompanying notes are an integral part of these statements.
1,216.7
(1,269.5)
4.4
(6.8)
—
(42.2)
(97.4)
32.3
(909.8)
1,143.2
233.4
60
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
In millions, except share and per share
data
Common
Stock
Shares
Common
Stock
Amount
Additional
Paid-in
Treasury
Stock
Treasury
Stock
Retained
Accumulated
Other
Non-
controlling
Capital
Shares
Amount
Earnings
Comprehensive
Loss
Interest
Total
Balance, December 31, 2016
132,349,534
$
1.3
$
870.0
(36,924,102)
$
(839.0)
$
2,553.3
$
(379.6)
$
770.8
$
2,976.8
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
Other comprehensive income, net of
tax
Stock issued for Faiveley Transport
Acquisition
—
—
—
—
—
—
—
Balance, December 31, 2017
132,349,534
Cash dividends ($0.48 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 (loss)
Other comprehensive loss, net of tax
Stock issued for Faiveley Transport
Acquisition
—
—
—
—
—
—
Balance, December 31, 2018
132,349,534
Cash dividends ($0.48 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
Other comprehensive loss, net of tax
—
—
—
—
—
Acquisition of GE Transportation
94,597,646
Other owner changes
—
Balance, December 31, 2019
226,947,180
$
—
—
—
—
—
—
—
1.3
—
—
—
—
—
—
1.3
—
—
—
—
—
0.7
—
2.0
—
—
608,920
—
—
—
—
—
—
5.0
—
—
—
—
6.6
(42.2)
—
—
—
262.3
—
—
(36,315,182)
(827.4)
2,773.4
—
—
(46.3)
580,594
11.3
—
—
—
—
—
—
—
—
—
—
294.9
—
—
(7.4)
16.7
8.9
—
—
18.4
906.6
—
(13.5)
21.5
—
—
—
914.6
(35,734,588)
(816.1)
3,022.0
—
—
(14.6)
38.2
—
—
6,939.0
—
486,601
—
—
—
—
—
—
9.0
—
—
—
—
—
(81.7)
—
—
326.7
—
—
—
—
—
—
—
—
334.6
—
(45.0)
—
—
—
—
(211.6)
—
(256.6)
—
—
—
—
(126.0)
—
—
—
—
—
(751.1)
—
—
—
(42.2)
(2.4)
16.7
(742.2)
262.3
334.6
25.0
19.7
2,828.6
—
—
—
(3.2)
—
(46.3)
(2.2)
21.5
291.7
(211.6)
(12.6)
(12.6)
3.9
—
—
—
(0.2)
—
30.6
2.8
2,869.1
(81.7)
(5.6)
38.2
326.5
(126.0)
6,970.3
2.8
$
7,877.2
(35,247,987)
$
(807.1)
$
3,267.0
$
(382.6)
$
37.1
$
9,993.6
The accompanying notes are an integral part of these statements.
61
1. BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Wabtec is one of the world’s largest providers of locomotives, value-added, technology-based equipment, systems and
services for the global freight rail and passenger transit industries. Our highly engineered products, which are intended to
enhance safety, improve productivity and reduce maintenance costs for customers, can be found on most locomotives, freight
cars, passenger transit cars and buses around the world. Our products enhance safety, improve productivity and reduce
maintenance costs for customers, and many of our core products and services are essential in the safe and efficient operation of
freight rail and passenger transit vehicles. Wabtec is a global company with operations in over 50 countries and our products
can be found in more than 100 countries throughout the world. In 2019, about 60% of the Company’s net sales 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 $19.9 million and $16.9
million as of December 31, 2019 and 2018, 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 financing lease. The remaining
arrangements are treated as operating leases. Right-of-use lease assets are classified as long-term assets under the caption
"Other noncurrent assets" and lease liabilities are classified under the captions "Other accrued liabilities' and "Other long-term
liabilities."
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 2019, the Company opted to proceed directly to the quantitative impairment test for all reporting units with goodwill.
The discounted cash flow approach and the market approach were used to estimate the fair value of each reporting unit using a
weighting of 75% and 25%, respectively. The discounted cash flow model requires several assumptions including future sales
growth, EBIT (earnings before interest and taxes) margins, capital expenditures, a discount rate and a terminal revenue growth
rate (the revenue growth rate for the period beyond the years forecasted by the reporting units) for each reporting unit. 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 the Company’s reporting units. The
estimated fair value of all reporting units was 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 material trade names subject to the quantitative impairment test exceeded its respective carrying
62
value, resulting in a conclusion that no material 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.
Equity Method Investments The Company invests in privately-held companies which are accounted for using the equity
method. The equity method is applied in situations where the Company has the ability to exercise significant influence, but not
control, over the investee. Equity method investments were $95.2 million and $30.8 million at December 31, 2019 and 2018,
respectively.
Warranty Costs Warranty costs are accrued based on Management’s estimates of repair or upgrade costs per unit and
historical experience. Warranty expense was $105.5 million, $58.0 million and $50.4 million for 2019, 2018 and 2017,
respectively. Accrued warranty was $267.7 million and $153.7 million at December 31, 2019 and 2018, 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 In the normal course of business, the Company is exposed to interest rate,
commodity price and foreign currency exchange rate fluctuations. At times, the Company limits these risks through the use of
derivatives such as cross-currency swaps, foreign currency forward contracts, interest rate swaps, commodity forwards and
futures. In accordance with the Company's policy, derivatives are only used for hedging purposes. The Company does not use
derivatives for trading or speculative purposes. 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 Note 18.
Foreign Currency Translation Certain of our international operations have determined that the local currency is the
functional currency whereas others have determined the U.S. dollar is their functional currency. Assets and liabilities of foreign
subsidiaries where the functional currency is the local currency are translated at the rate of exchange in effect on the balance
sheet date while income and expenses are translated at the average rates of exchange prevailing during the period. Foreign
currency gains and losses resulting from transactions and the translation of financial statements are recorded in the Company’s
consolidated financial statements based upon the provisions of 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 income, net were $13.5 million, $5.7 million and $6.6 million for 2019,
2018 and 2017, 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, 2019 and 2018. Net loss attributable to noncontrolling interests
was not material for the years ended December 31, 2019, 2018 and 2017, respectively.
Revenue Recognition On January 1, 2018, the Company adopted ASC 606 “Revenue from Contracts with Customers.”
This new guidance provides a five-step analysis of transactions to determine when and how revenue is recognized and requires
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.
A majority of the Company’s revenues are derived from performance obligations that are satisfied at a point in time
when control passes to the customer which is generally at the time of shipment in accordance with agreed upon delivery terms.
The remaining revenues are earned over time.
The Company also has long-term customer agreements involving the design and production of highly engineered
products that require revenue to be recognized over time because these products have no alternative use without significant
economic loss and the agreements contain an enforceable right to payment including a reasonable profit margin from the
63
customer in the event of contract termination. Additionally, the Company has customer agreements involving the creation or
enhancement of an asset that the customer controls which also require revenue to be recognized over time. Generally, the
Company uses an input method for determining the amount of revenue, cost and gross margin to recognize over time for these
customer agreements. The input methods used for these agreements include costs of material and labor, both of which give an
accurate representation of the progress made toward complete satisfaction of a particular performance obligation. Contract
revenues and cost estimates are reviewed and revised periodically through the year and adjustments are reflected in the
accounting period as such amounts are determined.
Contract assets include unbilled amounts resulting from sales under long-term contracts where revenue is recognized
over time and revenue exceeds the amount that can be billed to the customer based on the terms of the contract. The current
portion of the contract assets are classified as current assets under the caption “Unbilled Accounts Receivable” while the
noncurrent contract assets are classified as other assets under the caption "Other Noncurrent Assets" on the consolidated
balance sheet. Noncurrent contract assets were $109.4 million at December 31, 2019 and were not material at December 31,
2018. Included in noncurrent contract assets are certain costs that are specifically related to a contract, however, do not directly
contribute to the transfer of control of the tangible product being created, such as pre-production costs. The Company has
elected to use the practical expedient and not consider unbilled amounts anticipated to be paid within one year as significant
financing components.
Contract liabilities include customer deposits that are made prior to the incurrence of costs related to a newly agreed
upon contract and advanced customer payments that are in excess of revenue recognized. The current portion of contract
liabilities are classified as current liabilities under the caption “Customer Deposits” while the noncurrent contract liabilities are
classified as noncurrent liabilities under the caption "Other Long-Term Liabilities" on the consolidated balance sheet.
Noncurrent contract liabilities were $77.0 million at December 31, 2019 and were not material at December 31, 2018. These
contract liabilities are not considered a significant financing component because they are used to meet working capital demands
that can be higher in the early stages of a contract and revenue associated with the contract liabilities is expected to be
recognized within one year. Contract liabilities also include provisions for estimated losses from uncompleted contracts.
Provisions for loss contracts were $118.5 million and $71.2 million at December 31, 2019 and 2018, respectively. These
provisions for estimated losses are classified as current liabilities and included within the caption “Other accrued liabilities” on
the consolidated balance sheet.
Due to the nature of work required to be performed on the Company’s long-term projects, the estimation of total revenue
and cost at completion is subject to many variables and requires significant judgment. Contract estimates related to long-term
projects are based on various assumptions to project the outcome of future events that could span several years. These
assumptions include cost of materials; labor availability and productivity; complexity of the work to be performed; and the
performance of suppliers, customers and subcontractors that may be associated with the contract. We have a disciplined process
where management reviews the progress of long term-projects periodically throughout the year. As part of this process,
management reviews information including key contract matters, progress towards completion, identified risks and
opportunities and any other information that could impact the Company’s estimates of revenue and costs. After completing this
analysis, any adjustments to net sales, cost of goods sold, and the related impact to operating income are recognized as
necessary in the period they become known.
Generally, the Company’s revenue contains a single performance obligation for each distinct good; however, a single
contract may have multiple performance obligations comprising multiple promises to customers. When there are multiple
performance obligations, revenue is allocated based on the relative stand-alone selling price. Pricing is defined in our contracts
on a line item basis and includes an estimate of variable consideration when required by the terms of the individual customer
contract. Types of variable consideration the Company typically has include volume discounts, prompt payment discounts,
price escalation clauses, liquidating damages, and performance bonuses. Sales returns and allowances are also estimated and
recognized in the same period the related revenue is recognized, based upon the Company’s experience.
Remaining performance obligations represent the allocated transaction price of unsatisifed or partially unsatisfied
performance obligations. As of December 31, 2019, the Company's remaining performance obligations were $21.3 billion. The
Company expects to recognize revenue of approximately 25% of remaining performance obligations over the next 12 months,
with the remainder recognized thereafter.
SEC regulations require that revenue categories that exceed 10% of total revenue are presented separately on the
company's statement of income. As such, the Company has displayed sales of goods and sales of services, and the related cost,
in line with those regulations. Additionally, those regulations also require that goods are to include all sales of tangible
products, and services must include all other sales. In Note 21 we refer to sales of both goods, such as spare parts and
equipment upgrades, and related services, such as monitoring, maintenance and repairs, as sales in our Services product line.
64
Letters of Credit In the ordinary course of its business, the Company issues letters of credit related to commercial
products. The outstanding amount, including the letters of credit issues under the credit facility, were $714.0 million and
$354.2 million at December 31, 2019 and 2018, respectively.
Pre-Production Costs Certain pre-production costs relating to long-term production and supply contracts have been
deferred and will be recognized over the life of the contracts. Deferred pre-production costs were $88.0 million and $16.4
million at December 31, 2019 and 2018, respectively.
Significant Customers and Concentrations of Credit Risk The Company’s trade receivables are primarily 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 2019, 2018 or 2017.
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.
Engineering Expenses Engineering expenses are charged to expense as incurred. For the years ended December 31,
2019, 2018 and 2017, the Company incurred costs of approximately $209.9 million, $87.5 million, and $95.2 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 12 “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 materially 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 December 2019, the Financial Accounting Standards Board ("FASB")
issued ASU 2019-12, “Income Taxes: Simplifying the Accounting for Income Taxes.” The amendments in this update simplify
the accounting for certain income tax transactions by removing specific exceptions to the general principles in Topic 740,
Income Taxes. This guidance is effective for fiscal years beginning after December 15, 2020 with early adoption permitted.
The Company is currently evaluating the potential impact of adopting this guidance on its consolidated financial statements.
In January 2017, the FASB issued Accounting Standards Update ("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 unit's 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, 2019.
In June 2016, FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments." This updated guidance sets forth a current expected credit loss model based on expected
losses. Under this model, an entity recognizes an allowance for expected credit losses based on historical experience, current
conditions and forecasted information rather than the current methodology of delaying recognition of credit losses until it is
probable a loss has been incurred. This guidance is effective for fiscal years beginning after December 15, 2019 with early
adoption permitted. The Company has evaluated the potential impact of adopting this guidance on its consolidated financial
statements and does not expect the impact of adopting this new standard to be material.
Recently Adopted Accounting Pronouncements In February 2018, FASB issued 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 (the "Tax Act"). 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
65
accounting period that includes the period of enactment, even if the related income tax effects were originally charged or
credited directly to AOCI. The amendments in this update allow a reclassification from AOCI to retained earnings for stranded
effects resulting from the Tax Act. 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 the Tax Act related to items in AOCI. The updated guidance became effective for reporting periods beginning
after December 15, 2018. The Company adopted this accounting standard at the beginning of the period and elected to not
retrospectively apply the new standard. The impact of adopting the new standard was not material to the consolidated statement
of income or the consolidated balance sheet.
In February 2016, 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. This guidance became effective for the Company on January 1, 2019. The Company elected the
practical expedient which does not require the capitalization of leases with terms of 12 months or less, and the Company did not
elect the practical expedient which allows hindsight to be used to determine the term of a lease. The Company adopted the
standard using the transition alternative, which allowed for the application of the guidance at beginning of the period in which it
is adopted, rather than requiring the adjustment of prior comparative periods. For further information regarding the Company's
adoption of the new standard, see Note 15.
66
3. ACQUISITIONS
General Electric Transportation
Wabtec, General Electric Company ("GE"), GE Transportation, a Wabtec company formerly known as Transportation
System Holdings Inc. ("SpinCo"), which was a newly formed wholly owned subsidiary of GE, and Wabtec US Rail Holdings,
Inc. ("Merger Sub"), which was a newly formed wholly owned subsidiary of the Company, entered into the Original Merger
Agreement on May 20, 2018, and GE, SpinCo, Wabtec and Wabtec US Rail, Inc. ("Direct Sale Purchaser") entered into the
Original Separation Agreement on May 20, 2018, which together provided for the combination of Wabtec and GE
Transportation. The Original Merger Agreement and Original Separation Agreement were subsequently amended on January
25, 2019 and the Merger was completed on February 25, 2019.
As part of the Merger, certain assets of GE Transportation, including the equity interests of certain pre-Transaction
subsidiaries of GE that compose part of GE Transportation, were sold to Direct Sale Purchaser for a cash payment of
$2.875 billion, and Direct Sale Purchaser assumed certain liabilities of GE Transportation in connection with this purchase (the
"Direct Sale"). Thereafter, GE transferred the SpinCo business to SpinCo and its subsidiaries (to the extent not already held by
SpinCo and its subsidiaries), and SpinCo issued to GE shares of SpinCo Class A preferred stock, SpinCo Class B preferred
stock, SpinCo Class C preferred stock and additional shares of SpinCo common stock. Following this issuance of additional
SpinCo common stock to GE, and immediately prior to the Distribution (as defined below), GE owned 8,700,000,000 shares of
SpinCo common stock, 15,000 shares of SpinCo Class A preferred stock, 10,000 shares of SpinCo Class B preferred stock and
one share of SpinCo Class C preferred stock, which constituted all of the outstanding stock of SpinCo.
Following the Direct Sale, GE distributed the distribution shares of SpinCo in a spin-off transaction to its stockholder
(the "Distribution"). Immediately after the Distribution, Merger Sub merged with and into SpinCo (the "Merger"), whereby the
separate corporate existence of Merger Sub ceased and SpinCo continued as the surviving company and a wholly owned
subsidiary of Wabtec (except with respect to shares of SpinCo Class A preferred stock held by GE). In the Merger, subject to
adjustment in accordance with the Merger Agreement, each share of SpinCo common stock converted into the right to receive a
number of shares of Wabtec common stock based on the common stock exchange ratio set forth in the Merger Agreement and
the share of SpinCo Class C preferred stock was converted into the right to receive (a) 10,000 shares of Wabtec convertible
preferred stock and (b) a number of shares of Wabtec common stock equal to 9.9% of the fully-diluted pro forma Wabtec
shares. Immediately prior to the Merger, Wabtec paid $10.0 million in cash to GE in exchange for all of the shares of SpinCo
Class B preferred stock.
Upon consummation of the Merger, Wabtec issued 46,763,975 shares of common stock to the holders of GE common
stock, 19,018,207 shares of common stock to GE and 10,000 shares of preferred stock to GE and made a cash payment to GE of
$2.885 billion. As a result and calculated based on Wabtec’s outstanding common stock on a fully-diluted, as-converted and as-
exercised basis, as of February 25, 2019, approximately 49.2% of the outstanding shares of Wabtec common stock was held
collectively by GE and holders of GE common stock (with 9.9% held by GE directly in shares of Wabtec common stock and
15% underlying the shares of Wabtec convertible preferred stock held by GE) and approximately 50.8% of the outstanding
shares of Wabtec common stock would be held by pre-Merger Wabtec stockholders, in each case calculated on a fully-diluted,
as-converted and as-exercised basis. Following the Merger, GE also retained 15,000 shares of SpinCo Class A non-voting
preferred stock, and Wabtec held 10,000 shares of SpinCo Class B non-voting preferred stock.
After the Merger, SpinCo, which is Wabtec’s wholly owned subsidiary (except with respect to shares of SpinCo Class A
preferred stock held by GE), and Direct Sale Purchaser, which also is Wabtec’s wholly owned subsidiary, together, SpinCo and
Direct Sale Purchaser own and operate the post-transaction GE Transportation. All shares of the Company’s common stock,
including those issued in the Merger, are listed on the NYSE under the Company’s current trading symbol “WAB.” On the date
of the Distribution, GE and SpinCo, directly or through subsidiaries entered into additional agreements relating to, among other
things, intellectual property, employee matters, tax matters, research and development and transition services.
On May 6, 2019, GE completed the sale of approximately 8,780 shares of Wabtec's Series A Preferred stock which
converted upon the sale to 25,300,000 shares of Wabtec's common stock. On August 9, 2019, GE completed a sale of the
remaining shares of Series A Preferred Stock outstanding which converted to approximately 3,515,500 shares of common
stock, as well as 16,969,656 shares of common stock owned directly by GE. Finally, on September 12, 2019, GE completed a
sale of all of its remaining shares of common stock of Wabtec, approximately 2,048,515 shares. In conjunction with these
secondary offerings, the Company waived the requirements under the shareholders agreement for GE to maintain certain
ownership levels of Wabtec's stock following the closing date of the Merger. The Company did not receive any proceeds from
the sale of any of these shares.
Total future consideration to be paid by Wabtec to GE includes a fixed payment of $470.0 million, which is directly
related to the timing of tax benefits expected to be realized by Wabtec as a result of the acquisition of GE Transportation. This
payment is considered contingent consideration because the timing of cash payments to GE is directly related to the future
timing of tax benefits received by the Company as a result of the acquisition of GE Transportation. The estimated total value of
67
the consideration to be paid by Wabtec in the acquisition transactions is approximately $10.3 billion, including the cash paid for
the Direct Sales Assets, equity transferred for SpinCo, contingent consideration, assumed debt and net of cash acquired. The
consideration is based on the Company’s closing share price of $73.36 on February 22, 2019 and the fair value of the
contingent consideration.
The fair values of the assets acquired and liabilities assumed were determined using the income, cost and market
approaches. Discounted cash flow models were used to estimate the fair values of acquired contract backlog, customer
relationships, intellectual property intangibles, and below-market customer contracts liabilities. The fair value measurements
were primarily based on significant inputs that are not observable in the market and are considered Level 3. The December 31,
2019 consolidated balance sheet includes the assets and liabilities of GE Transportation, which have been initially measured at
fair value. The noncontrolling interest includes equity interests in GE Transportation's Brazil operations held by third parties on
the date of acquisition. At the time of acquisition, quotable market prices of the noncontrolling interest existed; therefore, the
noncontrolling interest in the GE Transportation Brazil operations were measured using a Level 1 input. In April 2019, the
Company acquired the noncontrolling interest in GE Transportation's Brazil operations for $56.2 million which approximated
the fair value assigned to the noncontrolling interest on the date of acquisition. The remaining noncontrolling interest value was
determined based on inputs that are not observable in the market and are considered Level 3.
The following table summarizes the preliminary fair value of the GE Transportation assets acquired and liabilities
assumed:
In millions
Assets acquired
Cash and cash equivalents
Accounts receivable
Inventories
Other current assets
Property, plant, and equipment
Goodwill
Trade names
Customer relationships
Intellectual property
Backlog
Other noncurrent assets
Total assets acquired
Liabilities assumed
Current liabilities
Contingent consideration
Other noncurrent liabilities
Total liabilities assumed
Net assets acquired
Noncontrolling interest
$
$
177.6
515.5
1,189.2
71.5
1,089.6
5,987.5
55.0
550.0
1,180.0
1,440.0
330.3
12,586.2
1,587.5
440.0
652.9
2,680.4
9,905.8
86.8
These estimates are preliminary in nature; however the Company is in the final stages of completing the purchase price
allocation and does not expect the final allocation to differ materially from the preliminary allocation included in the table
above. Any necessary adjustments will be finalized within one year from the date of acquisition. During the year ended
December 31, 2019, the estimated fair value current liabilities and other noncurrent liabilities decreased $92.1 million and
increased $129.1 million, respectively, primarily due to estimate revisions for long term contracts and deferred tax liabilities.
The revisions to the initial estimates were based on information that existed at the date of acquisition. Substantially all of the
accounts receivable acquired are expected to be collectible. Trade names, customer relationships, patents and backlog intangible
assets are all subject to amortization. Contingent liabilities assumed as part of the transaction were not material. The contingent
liabilities are related to legal and tax matters. Contingent liabilities are recorded at fair value in purchase accounting, aside from
those pertaining to uncertainty in income taxes which are an exception to the fair value basis of accounting. Included in other
noncurrent liabilities are approximately $504.7 million of customer contracts whose terms are unfavorable compared to market
terms at the date of consummation of the GE Transportation acquisition.
Goodwill was calculated as the difference between the acquisition date fair value of the consideration transferred and the
fair value of the net assets acquired, and represents the future economic benefits, including synergies, and assembled workforce,
that are expected to be achieved as a result of the consummation of the acquisition of GE Transportation. A majority of the
purchased goodwill is expected to be deductible for tax purposes. The goodwill has been allocated to the Freight segment.
68
Included in the Company's consolidated statement of income for the year ended December 31, 2019 is $3.8 billion of
revenues and $358.0 million of operating income from GE Transportation. Costs related to the acquisition of GE Transportation
were approximately $63.0 million for the year ended December 31, 2019 and are included in selling, general and administrative
expenses on the consolidated statements of income.
Other Acquisitions
The Company made the following acquisition operating as a business unit or component of a business unit in the Transit
Segment:
•
On March 22, 2018, the Company acquired Annax GmbH ("Annax"), a leading supplier of public address and
passenger information systems for transit vehicles, for a purchase price of approximately $45.2 million, net of cash
acquired and including contingent consideration, resulting in final goodwill of $38.5 million, none of which will be
deductible for tax purposes. A payment of $10.1 million was made in the three months ended June 30, 2019 related to
contingent consideration associated with the purchase of Annax.
The following table summarizes the final estimated fair value of the assets acquired and liabilities assumed at the date of
acquisition for Annax:
In millions
Current assets, net of cash acquired
Property, plant & equipment
Goodwill
Other intangible assets
Total assets acquired
Total liabilities assumed
Net assets acquired
Annax
March 22, 2018
$
$
32.8
0.7
38.5
11.7
83.7
(55.1)
28.6
The $11.7 million of total acquired other intangible assets includes $3.8 million assigned to trade names and $7.5 million
assigned to customer relationships. The trade names were determined to have indefinite useful lives, while the customer
relationships’ average useful lives are 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, 2018:
In millions
Net sales
Gross profit
Net income attributable to Wabtec shareholders
Diluted earnings per share
As Reported
Pro forma
For the year ended
December 31,
2019
2018
8,675.6
$
2,528.3
485.1
1.84
2.53
$
$
8,030.5
2,102.8
234.8
3.05
1.22
$
$
$
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.
69
4. SUPPLEMENTAL CASH FLOW DISCLOSURES
In millions
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
Net cash paid
5. INVENTORIES
The components of inventory, net of reserves, were:
In millions
Raw materials
Work-in-progress
Finished goods
Total inventories
6. PROPERTY, PLANT & EQUIPMENT
The major classes of depreciable assets are as follows:
In millions
Machinery and equipment
Buildings and improvements
Land and improvements
Property, plant and equipment
Less: accumulated depreciation
Total
Year Ended December 31,
2019
2018
2017
$
$
193.1
99.5
$
$
81.8
83.9
$
$
12,612.9
2,466.3
30.9
10,115.7
179.6
6,939.7
91.8
32.9
—
58.9
7.7
—
$
2,996.4
$
51.2
$
75.3
89.4
452.2
207.8
(761.8)
1,006.2
35.4
25.5
945.3
December 31,
2019
2018
786.4
$
374.0
612.7
1,773.1
$
465.9
154.5
224.5
844.9
December 31,
2019
2018
1,363.8
$
774.2
78.0
2,216.0
(560.2)
1,655.8
$
749.8
248.1
38.7
1,036.6
(472.8)
563.8
$
$
$
$
Years
10 to 20
20 to 40
3 to 15
The estimated useful lives of property, plant and equipment are as follows:
Land improvements
Building and improvements
Machinery and equipment
Depreciation expense was $157.8 million, $66.4 million, and $66.7 million for 2019, 2018 and 2017, 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 lived intangible assets were not impaired at December 31, 2019 and 2018.
70
The change in the carrying amount of goodwill by segment for the year ended December 31, 2019 is as follows:
In millions
Balance at December 31, 2018
Additions
Foreign currency impact
Balance at December 31, 2019
Freight
Segment
Transit
Segment
899.1
$
1,497.4
$
5,989.3
(11.8)
12.2
(25.6)
Total
2,396.5
6,001.5
(37.4)
6,876.6
$
1,484.0
$
8,360.6
$
$
As of December 31, 2019 and 2018, the Company’s trade names had a net carrying amount of $623.1 million and
$582.8 million, respectively, and the Company believes these intangibles have indefinite lives, with the exception of the GE
Transportation trade name, to which the Company has assigned a useful life of 5 years.
Intangible assets of the Company, other than goodwill and trade names, consist of the following:
In millions
Intellectual property, patents, and other intangibles, net of accumulated amortization of $123.8 and $40.1
Backlog, net of accumulated amortization of $92.0 and $2.0
Customer relationships, net of accumulated amortization of $212.9 and $158.5
Total
December 31,
2019
2018
$
$
1,108.9
$
1,342.1
1,029.9
3,480.9
$
The remaining weighted average useful lives of backlog, intellectual property, customer relationships, and other
intangibles were 14 years, 9 years, 18 years, and 13 years, respectively. Amortization expense for intangible assets was
$238.4 million, $39.8 million, and $36.5 million for the years ended December 31, 2019, 2018, and 2017, respectively.
Estimated amortization expense for the five succeeding years is as follows (in millions):
2020
2021
2022
2023
2024
$
13.3
2.0
531.8
547.1
278.7
277.7
277.3
276.8
267.3
71
8. CONTRACT ASSETS AND CONTRACT LIABILITIES
Contract assets include unbilled amounts resulting from sales under long-term contracts where revenue is recognized
over time and revenue exceeds the amount that can be billed to the customer based on the terms of the contract. Contract
liabilities include customer deposits that are made prior to the incurrence of costs related to a newly agreed upon contract,
advanced customer payments that are in excess of revenue recognized, and provisions for estimated losses from uncompleted
contracts.
The change in the carrying amount of contract assets and contract liabilities for the twelve months ended December 31,
2019, and 2018 is as follows:
In millions
Balance at beginning of year
Acquisitions
Recognized in current year
Reclassified to accounts receivable
Foreign currency impact
Balance at December 31
In millions
Balance at beginning of year
Acquisitions
Recognized in current year
Amounts in beginning balance reclassified to revenue
Current year amounts reclassified to revenue
Foreign currency impact
Balance at December 31
Contract Assets
2019
2018
345.6
$
237.5
619.3
(578.6)
(0.4)
623.4
$
Contract Liabilities
2019
2018
444.8
$
333.9
917.5
(410.6)
(483.5)
(2.4)
799.7
$
366.2
0.0
426.8
(432.3)
(15.1)
345.6
463.7
0.0
230.1
(199.7)
(30.9)
(18.4)
444.8
$
$
$
$
72
—
497.4
254.2
727.4
1,179.6
675.1
42.2
3,714.0
64.1
3,649.9
95.7
809.8
300.0
479.0
755.5
1,989.3
4,429.3
9. LONG-TERM DEBT
Long-term debt consisted of the following:
In millions
Senior Credit Facility:
U.S. dollar-denominated Term Loans, net of unamortized
debt issuance costs of $1.1 and $1.2
Multi-Currency Revolving loan facility net of unamortized
debt issuance costs of $0.9 and $1.9
Floating Senior Notes, due 2021, net of unamortized debt
issuance costs of $2.0 and $3.2
4.375% Senior Notes, due 2023, net of unamortized
discount and debt issuance costs of $0.9 and $1.2
4.15% Senior Notes, due 2024, net of unamortized debt
issuance costs of $5.7 and $7.0
4.70% Senior Notes, due 2028, net of unamortized debt
issuance costs of $9.2 and $10.3
3.45% Senior Notes, due 2026, net of unamortized debt
issuance costs of $1.5 and $1.7
Other Borrowings
Total
Less - current portion
Long-term portion
Effective
Interest
Rate
2019
2018
Book Value
Fair Value 1
Book Value
Fair Value 1
December 31,
3.1 % $
684.7
$
684.7
$
338.1
$
338.1
3.4 %
3.9 %
4.5 %
4.6 %
5.0 %
3.5 %
231.5
498.0
249.1
744.3
1,240.8
748.5
32.4
4,429.3
95.7
231.5
500.0
263.9
805.5
1,378.3
759.1
32.4
4,655.4
95.7
—
496.8
248.8
743.0
1,239.7
748.3
42.2
3,856.9
64.1
$
4,333.6
$
4,559.7
$
3,792.8
$
1
See Note 19 for information on the fair value measurement of the Company's long-term debt.
As of December 31, 2019, the annual repayment requirements for debt obligations are as follows:
In millions
2020
2021
2022
2023
2024
Thereafter
Total
$
$
For those debt securities that have a premium or discount at the time of issuance, the Company amortizes the amount
through interest expense based on the maturity date or the first date the holders may require the Company to repurchase the debt
securities, if applicable. A premium would result in a decrease in interest expense, and a discount would result in an increase in
interest expense in future periods. Additionally, the Company has debt issuance costs related to certain financing transactions
which are also amortized through interest expense. As of December 31, 2019 and 2018, the Company had total unamortized
debt issuance costs of $21.3 million and $26.5 million, respectively.
Debt Transactions
See Note 3 for further information regarding the Company’s acquisition of GE Transportation.
Senior Notes
On September 14, 2018 in order to fund the GE Acquisition and related fees and expenses, we issued a total of $2.5
billion in aggregate principal amount of unsecured senior notes (in two separate series of fixed rate unsecured senior notes
“Senior Notes” and one series of floating rate unsecured senior notes “Floating Senior Notes”). We collectively refer to the
Floating Senior Notes and the Senior Notes as the “Notes.” Upon issuance, the Senior Notes and Floating Senior Notes were
reflected on our Consolidated Balance Sheets net of discount of $2.9 million and net of the capitalized debt issuance costs,
including commissions and offering expenses of $18.0 million, both of which will be amortized in interest expense through the
respective maturity dates of each series of unsecured senior notes using the effective interest method.
The Floating Senior Notes bear interest at a floating rate equal to the three-month LIBOR rate plus 1.050% per year; the
Senior Notes due 2024 bear interest at 4.150% per year; and the Senior Notes due 2028 bear interest at 4.700% per year. The
interest rate payable on the Notes will be subject to adjustment based on certain rating events. Interest on the Senior Notes is
payable semi-annually in arrears on March 15th and September 15th of each year, commencing on March 15, 2019. Interest on
73
the Floating Senior Notes is payable quarterly in arrears on December 15, March 15, June 15, and September 15 of each year,
which commenced on December 15, 2018.
The issuance was comprised of the following three series of notes:
Senior Notes (in millions)
Par Value
Discount
at Issuance
Net Price
at Issuance
Issuance
Cost
Net Proceeds
Floating Senior Notes due 2021
4.15% Senior Notes due 2024
4.70% Senior Notes due 2028
Total
$
$
500.0
$
— $
500.0
$
750.0
1,250.0
2,500.0
$
1.5
1.4
2.9
748.5
1,248.6
$
2,497.1
$
3.5
7.4
10.6
21.5
$
$
496.5
741.1
1,238.0
2,475.6
Consistent with the Company's existing senior notes, the newly issued 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 Notes were issued contains covenants and restrictions which
limit among other things, the following: the incurrence of indebtedness, payment of dividends and certain distributions, sales of
assets, change in control, mergers and consolidations and the incurrence of liens. But the covenants do not require the Company
to maintain any financial ratios or specified levels of net worth or liquidity. The Company may redeem each series of the Notes
at any time in whole or from time to time in part in accordance with the provisions of the indenture, under which such series of
Notes was issued.
Upon the occurrence of a change of control repurchase event with respect to the Notes, each holder of the Notes has the
right to require the Company to purchase that holder’s Notes at a price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, unless the Company has exercised its option to redeem all the Notes.
On February 12, 2019, the rating assigned by Moody's was decreased to Ba1. Accordingly, pursuant to the respective
terms of the Senior Notes issued on September 14, 2018, the interest rate increased by 0.25%. The interest rate increase took
effect from the next interest period following February 12, 2019.
The Company is in compliance with the restrictions and covenants in the indenture under which the Notes were issued
and expects that these restrictions and covenants will not be any type of limiting factor in executing our operating activities.
Term Loan Agreement
On June 8, 2018, the Company arranged (i) a $350.0 million term loan with proceeds used to refinance existing loans
(the “Refinancing Term Loan”), and (ii) a new $400.0 million delayed draw term loan in order to fund the GE Acquisition and
related fees and expenses (the “Delayed Draw Term Loan”). The Company collectively refers to the Refinance Term Loans and
the Delayed Draw Term Loans as the “Term Loans.”
Consistent with our other debt securities, the Term Loan Agreement includes covenants that, among other things, limit
our liens and the liens of certain of our consolidated subsidiaries. In addition, it requires us to maintain the same financial
maintenance covenants as discussed below.
Loans under the Term Loan bear interest at a variable rate based on, at the Company’s option, either the ABR rate or the
LIBOR rate (each as defined in the Term Loan Agreement) plus an applicable margin that is determined based on our credit
ratings or the Company’s ratio of total debt (less unrestricted cash up to $300.0 million) to EBITDA (“Leverage Ratio”). As of
December 31, 2019, the applicable margin was 0.375% for base rate loans and 1.375% for Eurodollar rate loans.
Senior Credit Facility
On June 8, 2018, the Company entered into a credit agreement (the “Senior Credit Facility”), which replaced the
Company’s then-existing “2016 Refinancing Credit Agreement.” The Senior Credit Facility is with a syndicate of lenders and
provides for borrowings consisting of (i) term loans denominated in euros and U.S. dollars; and (ii) a multi-currency revolving
loan facility, providing for an equivalent in U.S. dollars of up to $1,200.0 million in multi-currency revolving loans (inclusive
of swingline loans of up to $75.0 million and letters of credit of up to $450.0 million).
The multi-currency revolving loan facility will mature on June 8, 2023, and the Term Loans will mature on June 8, 2021.
Subject to any mandatory or optional prepayments, the Term Loans are required to be repaid on a quarterly basis in an amount
equal to 2.5% of the principal amount drawn, with the final payment due at maturity.
74
The following table presents availability under our credit facilities:
(in millions)
Maximum Availability
Outstanding Borrowings
Letters of Credit Under Credit Agreement
Current Availability
Multi-currency revolving
loan facility
$
$
1,200.0
232.0
30.0
938.0
Under the Senior Credit Facility, we can elect to receive advances bearing interest based on either the ABR rate or the
LIBOR rate (each as defined in the Credit Agreement) plus an applicable margin that is determined based on our credit ratings
or the Company’s Leverage Ratio. As of December 31, 2019, the applicable margin was 0.375% for base rate advances and
1.375% for LIBOR rate advances.
The Company also pays fees related to the Senior Credit Facility. The largest of these fees is a commitment fee on the
unused portion of the multi-currency revolving loan facility of 0.10% to 0.30% per annum (currently 0.15% per annum),
depending on our credit ratings or Leverage Ratio. None of the fees were material to interest expense.
The obligations under the Senior Credit Facility are guaranteed by Wabtec and each of Wabtec’s wholly owned
subsidiaries (collectively, the “Subsidiary Guarantors”). In addition, the Senior Credit Facility contains a number of customary
affirmative and negative covenants. In addition to other and customary covenants, the Senior Credit Facility require that we
maintain the financial covenants listed below as of the end of each fiscal quarter for the period of four fiscal quarters then
ended. The Company was in compliance with all of our covenants in the Credit Agreement and the Term Loans as of December
31, 2019.
Interest Coverage Ratio 1
Leverage Ratio 2
3.0x
3.25x
1. The interest coverage ratio is defined as EBITDA, as defined in the Credit Agreement and Term Loan Agreement, to net interest expense for the four
quarters then ended.
2. The leverage ratio is defined as net debt as of the last day of such fiscal quarter to EBITDA, as defined in the Amendment Credit Agreement and Term Loan
Agreement, for the four quarters then ended.
The 2018 Senior Credit Facility contains an uncommitted accordion feature allowing the Company to request the
establishment, in an aggregate amount not to exceed $600.0 million, of incremental borrowing commitments under the
Revolving Credit Facility or of incremental term loan commitment.
At December 31, 2019, the weighted average interest rate on the Company’s variable rate debt was 3.08%.
Cash Pooling
Wabtec aggregates the Company's domestic cash position on a daily basis. Outside the United States, the Company uses
cash pooling arrangements with banks to help manage our liquidity requirements. In these pooling arrangements, Wabtec
subsidiary “Participants” agree with a single bank that the cash balances of any of the pool Participants with the bank will be
subject to a full right of set-off against amounts other Participants owe the bank, and the bank provides for overdrafts as long as
the net balance for all Participants does not exceed an agreed-upon level. Typically, each Participant pays interest on
outstanding overdrafts and receives interest on cash balances. The Company's Consolidated Balance Sheets reflect cash, net of
bank overdrafts, under all pooling arrangements.
75
10. 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 significant defined benefit pension plans summarized
by U.S. and international components.
Obligations and Funded Status
In millions
Change in projected benefit obligation
Obligation at beginning of year
Service cost
Interest cost
Employee contributions
Plan settlements 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
Actual return on plan assets
Employer contributions
Employee contributions
Benefits paid
Settlements
Acquisition
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
Noncurrent liabilities
Net amount recognized
Amounts recognized in accumulated other comprehensive income (loss)
consist of:
Prior service cost
Net actuarial loss
Net amount recognized
U.S.
International
2019
2018
2019
2018
$
(39.4) $
(44.2) $
(309.2) $
(353.0)
(0.3)
(1.5)
—
—
3.0
—
(2.9)
—
(0.3)
(1.3)
—
—
3.5
—
2.9
—
(2.7)
(7.0)
(0.5)
4.4
13.1
(5.0)
(32.4)
(8.0)
(2.6)
(7.0)
(0.4)
15.2
13.5
(0.9)
6.7
19.3
(41.1) $
(39.4) $
(347.3) $
(309.2)
31.9
$
37.4
$
239.4
$
5.3
—
—
(2.9)
—
—
—
34.3
34.3
(41.1)
$
$
(2.0)
—
—
(3.5)
—
—
—
31.9
31.9
(39.4)
$
$
23.9
9.4
0.5
(13.1)
(0.4)
1.2
8.9
269.8
269.8
(347.3)
$
$
(6.8) $
(7.5) $
(77.5) $
— $
— $
11.8
$
—
(6.9)
—
(7.5)
(2.4)
(86.9)
(6.9) $
(7.5) $
(77.5) $
—
(18.8)
—
(20.3)
(1.4)
(78.3)
(18.8) $
(20.3) $
(79.7) $
281.6
(6.9)
10.8
0.4
(13.5)
(16.6)
—
(16.4)
239.4
239.4
(309.2)
(69.8)
8.9
(2.1)
(76.6)
(69.8)
(1.4)
(58.7)
(60.1)
$
$
$
$
$
$
$
$
76
The aggregate accumulated benefit obligation for the U.S. pension plans was $40.2 million and $38.8 million as of
December 31, 2019 and 2018, respectively. The aggregate accumulated benefit obligation for the international pension plans
was $336.0 million and $301.1 million as of December 31, 2019 and 2018, respectively.
In millions
Information for pension plans with accumulated benefit obligations in excess
of Plan assets:
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Information for pension plans with projected benefit obligations in
excess of plan assets:
Projected benefit obligation
Fair value of plan assets
Components of Net Periodic Benefit Costs
U.S.
International
2019
2018
2019
2018
$
$
(41.1) $
(39.4) $
(283.1) $
(40.2)
34.3
(38.8)
31.9
(272.6)
193.9
(41.1) $
(39.5) $
(284.4) $
34.3
32.0
195.1
(251.0)
(243.6)
172.3
(251.0)
172.3
In millions
Service cost
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
Net periodic benefit cost
2019
U.S.
2018
2017
2019
2018
2017
International
$
$
0.3
1.5
(1.7)
—
0.8
—
0.9
$
$
0.3
1.3
(1.8)
—
1.0
—
0.8
$
$
0.3
1.4
(1.7)
—
1.0
—
1.0
$
$
$
2.7
7.0
$
2.6
7.0
2.7
7.3
(11.8)
(13.5)
(12.4)
0.1
2.5
—
0.5
$
—
2.1
3.1
1.3
$
—
2.8
0.8
1.2
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income during 2019 are as follows:
In millions
Net gain (loss) arising during the year
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
U.S.
International
0.7
$
—
—
—
0.8
1.5
0.6
$
$
(20.3)
(2.1)
0.4
0.1
2.5
(19.4)
(19.9)
$
$
$
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
2019
3.27 %
5.35 %
3.00 %
U.S.
2018
4.30 %
5.15 %
3.00 %
International
2017
2019
2018
2017
3.56 %
4.95 %
3.00 %
1.84 %
5.01 %
2.64 %
2.53 %
5.10 %
2.61 %
2.40 %
5.02 %
2.54 %
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.
As of December 31, 2019, the following table represents the amounts included in other comprehensive loss that are
expected to be recognized as components of periodic benefit costs in 2020.
In millions
Prior service cost
Net actuarial loss
U.S.
International
—
1.0
1.0
$
0.1
4.3
4.4
$
77
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 19 “Fair Value Measurement” included herein). Plan assets by asset category at December 31, 2019 and 2018 are as
follows:
In millions
Pension Plan Assets
Equity security funds
Debt security funds and other
Cash and cash equivalents
Fair value of plan assets
U.S.
International
2019
2018
2019
2018
$
$
$
16.4
16.3
1.6
13.2
17.5
1.2
$
70.8
$
191.3
7.7
34.3
$
31.9
$
269.8
$
95.1
140.9
3.4
239.4
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 26% equity securities, 53% debt securities and 21% 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 19):
In millions
US:
Equity
Debt Securities and other
Cash and cash equivalents
International:
Equity
Debt Securities and other
Insurance Contracts
Cash and cash equivalents
Total
In millions
US:
Equity
Debt Securities
Cash and cash equivalents
International:
Equity
Debt Securities
Insurance Contracts
Cash and cash equivalents
Total
NAV
Level 1
Level 2
Level 3
Total
December 31, 2019
— $
16.4
$
— $
— $
—
—
3.5
1.5
12.8
—
—
—
4.9
$
19.9
$
46.0
$
— $
—
—
—
3.1
—
7.0
179.2
4.3
0.7
—
4.6
—
16.4
16.3
1.5
70.8
182.4
8.9
7.8
4.9
$
51.5
$
243.1
$
4.6
$
304.1
NAV
Level 1
Level 2
Level 3
Total
December 31, 2018
— $
13.2
$
— $
— $
—
—
4.5
1.3
13.0
—
—
—
3.7
$
34.8
$
56.5
$
— $
—
—
—
—
—
3.5
125.6
5.4
—
—
9.9
—
13.2
17.5
1.3
95.1
125.6
15.3
3.5
3.7
$
57.4
$
200.5
$
9.9
$
271.5
$
$
$
$
$
$
78
The following table presents a reconciliation of Level 3 assets:
In millions
Balance at December 31, 2017
Net purchases, issuances, and settlements
Actual return of plan assets
Transfers
Effect of currency rate changes
Balance at December 31, 2018
Net purchases, issuances, and settlements
Actual return of plan assets
Transfers
Effect of currency rate changes
Balance at December 31, 2019
Cash Flows
Total
13.1
(3.6)
0.3
0.7
(0.5)
9.9
0.2
0.3
(5.8)
—
4.6
$
$
$
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 $2.1 million and $8.8 million to the U.S. and international
plans respectively during 2020.
Benefit payments expected to be paid to plan participants are as follows:
In millions
Year ended December 31,
2020
2021
2022
2023
2024
2025 through 2029
Defined Contribution Plans
U.S.
International
$
$
3.2
3.1
3.0
3.0
2.9
13.0
16.0
16.5
17.0
17.7
17.9
93.4
The Company also participates in certain defined contribution plans and multiemployer pension plans. Costs recognized
under these plans are summarized as follows:
In millions
Multi-employer pension and health & welfare plans
401(k) savings and other defined contribution plans
Total
For the year ended
December 31,
2019
2018
2017
$
$
0.9
55.7
56.6
$
$
1.0
27.9
28.8
$
$
1.5
23.2
24.7
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, 2019 and 2018, the plan held on behalf of its participants about 431,744 shares
with a market value of $33.6 million, and 442,239 shares with a market value of $31.1 million, respectively. Additionally, the
Company has stock option based benefit and other plans further described in Note 13.
The Company contributes to a multi-employer defined benefit pension plan under a collective bargaining agreement that
covers 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 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.
79
The Company’s participation in multi-employer plans for the year ended December 31, 2019 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)
In thousands
Pension Fund
EIN/PN (a)
2019
2018
FIP/
RP Status
Pending/
Implemented
(c)
Contributions by
the Company
2019
2018
2017
Idaho Operating Engineers-
EIN #
91-607553
8
Employers Pension Trust
Fund
Plan#
001
Green
Green
No
$ 881
(1)
$ 965
(1)
$ 1,020
(1)
Expiration
Dates of
Collective
Bargaining
Agreements
8/6/2021
Surcharge
Imposed
(d)
No
Total
Contributions
$ 881
$ 965
$ 1,020
(1) The Company’s contribution represents more than 5% of the total contributions to the plan.
(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 2019 and 2018 is for plan years that ended in 2019 and 2018, 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 2019.
(d) The “Surcharge Imposed” column indicates whether the Company’s contribution rate for 2019 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.
11. 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 affected 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 established new tax laws that 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.
In relation to the analysis of the impact of the all tax law changes, the Company recorded a net tax expense of
$4.3 million in fiscal 2017. This included 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. Of this amount, net tax expense of
$27.2 million is related to the Tax Act and a benefit of $22.9 million is related to the French Finance Act for 2018.
In fiscal 2018, the Company completed its accounting for the income tax effects of the Tax Act. The Company adjusted
the provisional amounts previously recorded in accordance with SEC Staff Accounting Bulletin No. 118. As such, the Company
included the following tax provisions in its financial statements for the year ending December 31, 2018:
Revaluation of deferred tax assets and liabilities: The Tax Act reduced the U.S. federal corporate tax rate from 35% to
21% for tax years beginning after December 31, 2017. In addition, the Tax Act made certain changes to the depreciation rules
and implemented new limits on the deductibility of certain executive compensation. The Company evaluated these changes and
recorded a provisional benefit to net deferred taxes of $24.6 million at December 31, 2017. As a result of the completion of its
2017 U.S. corporate tax return in fiscal 2018, the Company adjusted its U.S. deferred tax balances which resulted in a benefit of
$5.1 million being recorded fiscal 2018. The Company has completed its calculation of the impact of these changes on its
80
deferred tax balances. As of December 31, 2018, the Company completed its analysis of the impact of the Tax Act on the
deductibility of certain executive compensation. As a result, no further adjustments were made during the year ended December
31, 2018.
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 had to 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 recorded a provisional Transition Tax expense of $51.8 million at December 31,
2017. As of December 31, 2018, the Company completed its calculation of the Transition Tax which resulted in a benefit of
$14.4 million for the twelve months ended December 31, 2018.
Global intangible low taxed income ("GILTI"): The Tax Act created 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. 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 made the election to treat taxes due on future inclusions related to GILTI as current
period expense and has included a current period expense of $11.9 million and $9.3 million in its financial statements for the
twelve months ended December 31, 2019 and December 31, 2018, respectively.
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 finalized its calculation of 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. Therefore, the Company has not
recorded deferred taxes for this item in its financial statements for fiscal year ended December 31, 2019.
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 millions
Domestic
Foreign
Income from operations before income taxes
For the year ended
December 31,
2019
2018
2017
$
$
117.9
328.9
446.8
$
$
145.1
222.5
367.6
$
$
140.3
211.8
352.1
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,
2019
2018
2017
$
$
5.7
0.5
141.4
147.6
19.8
2.9
(50.0)
(27.3)
$
6.9
5.8
68.5
81.2
4.7
1.3
(11.3)
(5.3)
Total provision
$
120.3
$
75.9
$
86.2
3.6
67.4
157.2
(22.9)
(1.0)
(43.5)
(67.4)
89.8
81
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 millions
U.S. federal statutory rate
State taxes
Foreign
Research and development credit
Manufacturing deduction
France tax rate change
U.S. tax rate change
U.S. tax reform (benefit) provision
Transaction costs related to acquisitions
Other, net
Effective rate
For the year ended
December 31,
2019
2018
2017
21.0 %
21.0 %
35.0 %
0.7
3.2
(1.7)
—
—
—
2.0
1.0
0.7
1.6
0.7
(1.1)
—
—
(0.6)
(1.4)
—
0.4
0.4
(8.3)
(0.8)
(1.1)
(6.5)
(7.9)
15.6
—
(0.9)
26.9 %
20.6 %
25.5 %
The increase in the effective tax rate in 2019 is primarily the result of non-deductible transaction related expenses
incurred as a result of the acquisition of GE Transportation, a higher earnings mix in higher tax jurisdictions, increased
estimated liabilities resulting from provisions of the 2017 Tax Cuts and Jobs Act as well as a benefit from the completion of the
accounting for the income tax effects of the Tax Act that was recorded in the tax year ending December 31, 2018.
Components of deferred tax assets and liabilities were as follows:
In millions
Deferred income tax assets:
Accrued expenses and reserves
Warranty reserve
Deferred compensation/employee benefits
Right-of-use asset
Pension and postretirement obligations
Inventory
Net operating loss carry forwards
Other
Gross deferred income tax assets
Valuation allowance
Total deferred income tax assets
Deferred income tax liabilities:
Property, plant & equipment
Right-of-use liability
Intangibles
Total deferred income tax liabilities
Net deferred income tax liability
$
December 31,
2019
2018
$
35.8
46.6
32.3
63.1
28.1
25.8
95.6
18.8
346.1
58.0
288.1
42.7
63.1
235.6
341.4
13.8
25.9
9.8
—
19.5
16.8
85.1
19.2
190.1
41.7
148.4
35.5
—
287.4
322.9
$
(53.3) $
(174.5)
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, 2019, the valuation allowance for certain foreign deferred tax asset carryforwards was
$58.0 million primarily in China, France, the Netherlands, United Kingdom, and South Africa.
Net operating loss carry-forwards in the amount of $390.5 million expire in various periods from December 31, 2019 to
December 31, 2039.
As of December 31, 2019, the liability for income taxes associated with unrecognized tax benefits was $17.2 million, of
which $17.2 million, if recognized, would favorably affect the Company’s effective income tax rate. As of December 31, 2018,
the liability for income taxes associated with unrecognized tax benefits was $9.5 million, of which $8.4 million, if recognized,
82
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 millions
Gross liability for unrecognized tax benefits at beginning of year
Gross increases - 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
2019
2018
2017
$
$
$
9.5
9.7
—
(2.0)
17.2
$
$
6.9
5.4
—
(2.8)
9.5
$
8.4
2.5
(4.0)
—
6.9
The Company includes interest and penalties related to unrecognized tax benefits in income tax expense. As of
December 31, 2019, the total interest and penalties accrued was approximately $4.0 million. As of December 31, 2018, the
total interest and penalties accrued was approximately $0.9 million.
With limited exception, the Company is no longer subject to examination by various U.S. and foreign taxing authorities
for years before 2014. At this time, the Company believes that it is reasonably possible that unrecognized tax benefits of
approximately $7.6 million may change within the next 12 months due to the expiration of statutory review periods and current
examinations.
83
12. EARNINGS PER SHARE
The computation of earnings per share from operations is as follows:
In millions, except per share data
Numerator
For the Year Ended
December 31,
2019
2018
2017
Numerator for basic and diluted earnings per common share - net income attributable
to Wabtec shareholders
$
326.7
$
294.9
$
Less: dividends declared - common shares and non-vested restricted stock
Undistributed earnings
Percentage allocated to common shareholders (1)
Add: dividends declared - common shares
Less: dividends declared - preferred shares
Numerator for basic earnings per common share
Add: dividends declared - preferred shares
Numerator for diluted earnings per common share
Denominator
Denominator for basic earnings per common share - weighted average shares
Effect of dilutive securities:
Assumed conversion of preferred shares
Assumed conversion of dilutive stock-based compensation plans
Denominator for diluted earnings per common share - adjusted weighted average
shares and assumed conversion
Net income per common share attributable to Wabtec shareholders
Basic
Diluted
(80.3)
246.4
99.7 %
245.7
80.0
(0.4)
(46.3)
248.6
99.7 %
247.9
46.3
—
325.3
$
294.2
$
0.4
—
325.7
$
294.2
$
170.5
6.4
0.4
177.3
96.0
—
0.5
96.5
1.91
1.84
$
$
3.06
3.05
$
$
$
$
$
$
(1) Basic weighted-average common shares outstanding
170.5
96.0
Basic weighted-average common shares outstanding and non-vested restricted
262.3
(42.2)
220.1
99.7 %
219.4
42.2
—
261.6
—
261.6
95.5
—
0.6
96.1
2.74
2.72
95.5
stock expected to vest
Percentage allocated to common shareholders
171.0
99.7 %
96.3
99.7 %
95.7
99.7 %
Options to purchase approximately 312,000, 135,000, and 24,000 shares of Common Stock were outstanding in 2019,
2018 and 2017, respectively, but were not included in the computation of diluted earnings because their impact would have
been antidilutive.
13. STOCK-BASED COMPENSATION PLANS
As of December 31, 2019, 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, 2019 the number of shares available for future grants under the 2011 Plan was 1,870,396
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, 2019, 2018 and 2017, the Company issued a total of 15,729,
12,960 and 16,500 shares of restricted stock to non-employee directors. The total number of shares issued under the plan as of
December 31, 2019 was 909,881 shares.
84
Stock-based compensation expense for all of the plans was $50.0 million, $25.3 million and $21.3 million for the years
ended December 31, 2019, 2018 and 2017, respectively. The Company recognized associated tax benefits related to the stock-
based compensation plans of $1.4 million, $6.3 million and $8.9 million for the respective periods. Included in the stock-based
compensation expense for 2019 above is $2.3 million of expense related to stock options, $20.8 million related to non-vested
restricted stock, $9.4 million related to restricted stock units, $16.5 million related to incentive stock units and $1.0 million
related to units issued for Directors’ fees. At December 31, 2019, unamortized compensation expense related to those stock
options, non-vested restricted shares and incentive stock units expected to vest totaled $41.9 million and will be recognized
over a weighted period of 1.4 years.
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 three 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:
Outstanding at December 31, 2016
Granted
Exercised
Canceled
Outstanding at December 31, 2017
Granted
Exercised
Canceled
Outstanding at December 31, 2018
Granted
Exercised
Canceled
Outstanding at December 31, 2019
Exercisable at December 31, 2019
Weighted
Average
Exercise
Price
Weighted Average
Remaining
Contractual Life
Aggregate
Intrinsic value
(in millions)
35.39
86.91
21.37
76.89
32.52
77.54
28.29
69.76
61.04
70.44
22.45
73.00
63.36
55.25
4.3
$
4.0
$
5.7
$
5.7
4.7
$
$
52.3
—
(10.0)
(0.1)
40.1
—
(24.4)
—
4.3
1.0
(0.3)
—
8.5
8.6
Options
1,098,823
$
65,522
(166,838)
(13,995)
983,512
$
82,580
(582,303)
(17,112)
466,677
$
134,450
(4,868)
(8,235)
588,024
383,150
$
$
Options outstanding at December 31, 2019 were as follows:
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 $35.00
35.00 - 50.00
50.00 - 65.00
65.00 - 80.00
Over 80.00
67,026
$
107,033
64,167
227,639
122,159
588,024
$
28.41
41.36
61.33
71.20
88.27
63.36
1.1
2.6
6.1
8.1
6.5
67,026
$
107,033
48,373
77,731
82,987
383,150
$
28.41
41.36
61.33
59.39
87.45
55.25
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:
Dividend yield
Risk-free interest rate
Stock price volatility
Expected life (years)
For the year ended
December 31,
2019
2018
2017
0.66 %
2.6 %
25.8 %
5.0
0.31 %
2.8 %
23.9 %
5.0
Weighted average fair value of options granted during the year
$
19.54
$
20.59
$
0.23 %
2.2 %
23.4 %
5.0
20.69
85
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 three years
from the date of grant. Under the Directors Plan, restricted stock units vest one year from the date of grant.
In addition, the Company has issued incentive stock units to eligible employees that vest upon attainment of certain
cumulative three-year performance goals. Based on the Company’s performance for each three year period then ended, the
incentive stock units can vest 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, 2019, the Company estimates that
it will achieve 115%, 111% and 108% for the incentive stock units expected to vest based on performance for the three year
periods ending December 31, 2019, 2020, and 2021, respectively, and has recorded incentive compensation expense
accordingly. If estimates 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, 2016
Granted
Vested
Adjustment for incentive stock awards expected to vest
Canceled
Outstanding at December 31, 2017
Granted
Vested
Adjustment for incentive stock awards expected to vest
Canceled
Outstanding at December 31, 2018
Granted
Vested
Adjustment for incentive stock awards expected to vest
Canceled
Outstanding at December 31, 2019
14. OTHER COMPREHENSIVE LOSS
Restricted
Stock
and Units
Incentive
Stock
Awards
Weighted
Average Grant
Date Fair
Value
396,295
153,516
(137,088)
—
(13,723)
399,000
224,060
(148,644)
—
(29,327)
445,089
608,813
(235,406)
—
(27,465)
791,031
424,750
$
157,025
(153,271)
(87,592)
(13,579)
327,333
$
175,100
(93,312)
32,996
(26,875)
415,242
$
259,950
(119,835)
80,403
(63,758)
572,002
$
72.18
86.66
70.34
73.69
76.61
78.76
73.76
81.55
74.62
78.60
75.51
70.61
71.65
78.04
74.04
73.64
The components of accumulated other comprehensive loss were:
In millions
Foreign currency translation gain (loss)
Unrealized gain (loss) on interest rate swap contracts, net of tax of $0 and $0
Unrealized loss on pension and post-retirement benefit plans, net of tax of $24.7 and $23.0
Total accumulated other comprehensive loss
December 31,
2019
2018
$
$
(308.6) $
(3.3)
(70.7)
(382.6) $
(202.2)
(0.1)
(54.3)
(256.6)
86
The changes in accumulated other comprehensive loss by component, net of tax, for the year-ended December 31, 2019
are as follows:
In millions
Balance at December 31, 2018
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other comprehensive income
Net current period other comprehensive income
Balance at December 31, 2019
Foreign
currency
translation
Derivative
contracts
Pension and
post
retirement
benefits plans
(202.2) $
(0.1) $
(54.3) $
(106.4)
—
(106.4)
(3.2)
—
(3.2)
(18.5)
2.1
(16.4)
(308.6) $
(3.3) $
(70.7) $
$
$
Total
(256.6)
(128.1)
2.1
(126.0)
(382.6)
Reclassifications out of accumulated other comprehensive loss for the year-ended December 31, 2019 are as follows:
In millions
Amortization of defined pension and post retirement items
Amortization of initial net obligation and prior service cost
Amortization of net loss (gain)
Amount reclassified from
accumulated other
Affected line item in the
Condensed Consolidated
comprehensive income
Statements of Income
$
$
(1.5) Other income, net
4.4 Other income, net
2.9 Other income, net
(0.8)
Income tax expense
2.1 Net income
The changes in accumulated other comprehensive loss by component, net of tax, for the year-ended December 31, 2018
are as follows:
Balance at December 31, 2017
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other comprehensive income
Net current period other comprehensive income
Balance at December 31, 2018
Foreign
currency
Derivative
Pension and
post
retirement
translation
contracts
benefits plans
Total
$
$
5.1
$
4.0
$
(54.1) $
(207.3)
—
(207.3)
(7.8)
3.7
(4.1)
(2.3)
2.1
(0.2)
(202.2) $
(0.1) $
(54.3) $
(45.0)
(217.4)
5.8
(211.6)
(256.6)
Reclassifications out of accumulated other comprehensive loss for the year-ended December 31, 2018 are as follows:
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
15. LEASES
Amount reclassified from
accumulated other
Affected line item in the
Condensed Consolidated
comprehensive income
Statements of Income
$
$
$
(1.5) Other income, net
4.3 Other income, net
2.8 Other income, net
(0.7)
Income tax expense
2.1 Net income
4.9
Interest expense, net
(1.2)
Income tax expense
3.7 Net income
During the first quarter of 2019, the Company adopted ASU No. 2016-02, "Leases (Topic 842)," which requires leases
with durations greater than twelve months to be recognized on the balance sheet. The Company adopted the standard using the
modified retrospective approach with an effective date as of the beginning of our fiscal year, January 1, 2019. Prior year
financial statements were not recast under the new standard and, therefore, those amounts are not presented below.
The Company leases property and equipment under finance and operating leases. For leases with terms greater than 12
months, the Company records the related asset and obligation at the present value of lease payments. Many of the Company's
leases include rental escalation clauses, renewal options, and/or termination options that are factored into our determination of
87
lease payments when appropriate. The Company does not separate lease and non-lease components. As most of the Company's
leases do not provide a readily stated discount rate, the Company must estimate our incremental borrowing rate to discount
lease payments. The Company has established discount rates by geographic region ranging from 1.0% to 12.3%.
The components of lease expense are as follows:
In millions
Operating lease expense
Finance lease expense amortization of leased assets
Short-term and variable lease expense
Sublease income
Total
Scheduled payments of lease liabilities are as follows:
In millions
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less: Present value discount
Present value lease liabilities
For the year ended
Ended
December 31,
2019
$
$
0.4
0.2
0.2
0.2
0.1
0.2
1.3
—
1.3
$
$
Total
54.4
1.1
0.6
(0.5)
55.6
54.3
45.5
38.3
33.6
29.4
103.4
304.5
(30.1)
274.4
Finance
Leases
$
$
Operating Leases
53.9
45.3
38.1
33.4
29.3
103.2
303.2
(30.1)
$
273.1
$
The following table summarizes the remaining lease term and discount rate assumptions used to develop the present
value of lease liabilities:
December 31,
2019
Weighted-average remaining lease term (years)
Operating leases
Finance leases
Weighted-average discount rate
Operating leases
Finance leases
16. WARRANTIES
The following table reconciles the changes in the Company’s product warranty reserve as follows:
In millions
Balance at beginning of year
Acquisitions
Warranty expense
Warranty claim payments
Foreign currency impact
Balance at end of year
17. PREFERRED STOCK
2019
2018
$
$
153.7
$
127.8
105.5
(118.0)
(1.3)
267.7
$
7.0
5.2
4.6 %
1.4 %
153.0
3.1
58.0
(54.1)
(6.3)
153.7
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, 2019 and 2018 there was no preferred stock issued or outstanding.
88
18. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING
Hedging Activities In the normal course of business, we are exposed to interest rate, commodity price and foreign
currency exchange rate fluctuations. At times, we limit these risks through the use of derivatives such as cross-currency swaps,
foreign currency forward contracts, interest rate swaps, commodity forwards and futures. In accordance with our policy,
derivatives are only used for hedging purposes. We do not use derivatives for trading or speculative purposes.
Foreign Currency Exchange Risk
The Company uses forward contracts to mitigate its foreign currency exchange rate exposure due to forecasted sales of
finished goods and future settlement of foreign currency denominated assets and liabilities. Derivatives used to hedge
forecasted transactions and specific cash flows associated with foreign currency denominated financial assets and liabilities that
meet the criteria for hedge accounting are designated as cash flow hedges. The effective portion of gains and losses is deferred
as a component of accumulated other comprehensive income and is recognized in earnings at the time the hedged item affects
earnings, in the same line item as the underlying hedged item. The contracts are scheduled to mature within two years. For the
years ended December 31, 2019, 2018 and 2017, the amounts reclassified into income were not material.
The Company has established revenue hedging, balance sheet risk management and net investment hedging programs to
protect against volatility of future foreign currency cash flows and changes in fair value caused by volatility in foreign exchange
rates. We conduct our business worldwide in U.S. dollars and the functional currencies of our foreign subsidiaries, including
Euro, Indian rupee, British pound sterling, Australian dollars and several other foreign currencies. Changes in foreign currency
exchange rates could have a material adverse impact on our financial results that are reported in U.S. dollars. We are also
exposed to foreign currency exchange rate risk related to our foreign subsidiaries, including intercompany loans denominated in
non-functional currencies and net purchases and sales in non-functional currencies. We have certain foreign currency exchange
rate risk programs that use foreign currency forward contracts and cross-currency swaps. These forward contracts and cross-
currency swaps are generally used to offset the potential income statement effects from intercompany loans denominated in
non-functional currencies. In addition, the Company uses forward contracts to mitigate its foreign currency exchange rate
exposure due to forecasted sales of finished goods and future settlement of foreign currency denominated assets and liabilities.
These programs reduce but do not entirely eliminate foreign currency exchange rate risk.
Derivatives used to hedge forecasted transactions and specific cash flows associated with foreign currency denominated
financial assets and liabilities that meet the criteria for hedge accounting are designated as cash flow hedges. The effective
portion of gains and losses is deferred as a component of accumulated other comprehensive income and is recognized in
earnings at the time the hedged item affects earnings, in the same line item as the underlying hedged item. The contracts are
scheduled to mature within two years. For the twelve months ended December 31, 2019 the amounts reclassified into income
were not material.
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 gain related to these contracts was $1.6 million for the three months ended December
31, 2019. These contracts are scheduled to mature within one year.
The following table summarizes the gross notional amounts and fair values of the designated and non-designated hedges
discussed in the above sections as of December 31, 2019:
In millions
Foreign Exchange Contracts
Other current assets
Other current liabilities
Cross-currency Swaps
Other current assets
Other current liabilities
Total
Fair Value
Gross Notional Amount
Designated
Non-Designated
Designated
Non-Designated
$
$
11.2
$
(9.8)
—
(9.4)
(8.0) $
$
1.4
—
—
—
2,429.0
$
1,184.6
—
560.8
412.9
—
—
—
1.4
$
4,174.4
$
412.9
89
The following table summarizes the gross notional amounts and fair values of the designated and non-designated hedged
discussed in the above sections as of December 31, 2018:
In millions
Foreign Exchange Contracts
Other current assets
Other current liabilities
Cross-currency Swaps
Other current assets
Other current liabilities
Total
Interest Rate Risk
Fair Value
Gross Notional Amount
Designated
Non-Designated
Designated
Non-Designated
$
$
— $
(2.3)
—
—
$
1.3
—
—
—
— $
863.0
—
—
834.0
—
—
—
(2.3) $
1.3
$
863.0
$
834.0
The Company may use interest rate swap contracts on certain investing and borrowing transactions to manage its net
exposure to interest rate changes and to reduce its overall cost of borrowing. The Company does not use leveraged swaps and,
in general, does not leverage any of its investment activities that would put principal capital at risk. For the twelve months
ended December 31, 2019 the amounts reclassified into income were not material.
Commodity Price Risk
The Company may use commodity forward contracts and futures to manage its exposure to commodity price changes
and to reduce its overall cost of manufacturing. For the twelve months ended December 31, 2019 the amounts reclassified into
income were not material.
19. FAIR VALUE MEASUREMENT AND FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC 820 “Fair Value Measurements and Disclosures” defines fair value, establishes a framework for measuring fair
value and explains the related disclosure requirements. ASC 820 indicates, among other things, that a fair value measurement
assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the
absence of a principal market, the most advantageous market for the asset or liability and defines fair value based upon an exit
price model.
Valuation Hierarchy. ASC 820 establishes a valuation hierarchy for disclosure of the inputs to valuation used to
measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices
(unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities
in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market
corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the
Company’s assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within
the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of December
31, 2019, which are included in other current assets and liabilities on the Consolidated Balance sheet:
In millions
Foreign Exchange Contracts
Other Current Assets
Other Current Liabilities
Cross-Currency Swap Agreement
Other Current Liabilities
Fair Value Measurements at December 31, 2019 Using
Total Carrying
Value at
December 31,
Quoted Prices in
Active Markets for
Identical Assets
Significant Other
Observable Inputs
2019
(Level 1)
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
12.6
9.8
9.4
—
—
—
12.6
9.8
9.4
—
—
—
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
90
approximated the carrying value at December 31, 2019 and December 31, 2018. 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.
20. 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, Ingersoll Rand, the successor-in-
interest to American Standard, Inc. (“Ingersoll”), has indemnified the Company for certain items including, among other things,
certain environmental claims the Company asserted prior to 2000. If Ingersoll was unable to honor or meet these
indemnifications, the Company would be responsible for such items. In the opinion of Management, Ingersoll 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 the vast majority of the 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 of 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. A limited number of
claims are not covered by insurance, nor are they subject to indemnity from non-affiliated parties. Wabtec has incurred defense,
administrative and indemnity costs in connection with these actions, but these costs have not been material, and the Company
has no information that would suggest these costs would become material in the foreseeable future. Based on the Company’s
history in resolving all asbestos claims over the last twenty years, Management believes that the costs of the Company’s
asbestos-related cases will not be material to the Company’s overall financial position, results of operations and cash flows.
On April 21, 2016, Siemens Industry, Inc. filed a lawsuit against the Company in federal district court in Delaware
alleging that the Company infringed seven patents owned by Siemens related to the Company's Positive Train Control (PTC)
technology. On November 2, 2016, Siemens amended its complaint to add six additional patents they also claimed were
infringed by the Company's PTC Products or End of Train (EOT) Products (Siemens Patent Case). The Company filed
Answers, and asserted counterclaims, in response to Siemens’ complaints. Additionally, after filings by the Company, the US
Patent & Trademark Office’s Patent Trail and Appeal Board (PTAB) granted Inter-Parties Review (IPR) proceedings on eight
(8) of the patents asserted by Siemens to contest their validity. Following pre-trial rulings that greatly reduced Siemens’ alleged
damages, a jury trial was held in federal district court in Delaware in January 2019 on eight patents, two of which were still
subject to an IPR decision on validity from the PTAB. At the conclusion of the trial, the jury awarded Siemens damages of
$5.6 million related to PTC patents and $1.1 million related to EOT patents. On August 15, 2019, the Court entered a final
judgement in the amount of $14.1 million in favor of Siemens, which included post-discovery damages on all Wabtec PTC and
EOT sales through July 2019. Both parties appealed the Final Judgement. On September 27, 2019, the parties entered into a
global settlement agreement, settling all on-going litigation between them, as part of the patent litigation including antitrust
claims Siemens had made against Wabtec initially.
Xorail, Inc., a wholly owned subsidiary of the Company (“Xorail”), has received notices from Denver Transit
Constructors (“DTC”) alleging breach of contract related to the operating of constant warning wireless crossings, and late
delivery of the Train Management & Dispatch System (“TMDS”) for the Denver Eagle P3 Project, which is owned by the
Denver Regional Transit District ("RTD"). No damages have been asserted for the alleged late delivery of the TMDS, and no
formal claim has been filed; Xorail has successfully completed a remediation plan concerning the TMDS issues. With regard to
the wireless crossing issue, as of September 8, 2017, DTC alleged that total damages were $36.8 million through July 31, 2017
and are continuing to accumulate. The majority of the damages stems from a delay in approval of the wireless crossing system
by the Federal Railway Administration ("FRA") and the Public Utility Commission ("PUC"), resulting in the use of flaggers at
all of the crossings pending approval of the wireless crossing system and certification of the crossings. DTC has alleged that
the delay is due to Xorail's failure to achieve constant warning times for the crossings in accordance with the approval
requirements imposed by the FRA and PUC. Xorail has denied DTC's assertions, stating that its system satisfied the
91
contractual requirements. Xorail has worked with DTC to modify its system and implement the FRA's and PUC's previously
undefined approval requirements; the FRA and PUC have both approved modified wireless crossing system, and as of August
2018, DTC completed the process of certifying the crossings and eliminated the use of flaggers. On September 21, 2018, DTC
filed a complaint against RTD in Colorado state court for breach of contract related to non-payments and the costs for the
flaggers, asserting a change-in-law arising from the FRA/PUC’s new certification requirements; a jury trial is scheduled to
begin in May 2020. DTC’s complaint generally supports Xorail’s position and does not name or implicate Xorail; DTC has not
updated its notices against Xorail, nor have they filed any formal claim against Xorail.
On April 3, 2018, the Company and Knorr-Bremse AG entered into a consent decree with the United States Department
of Justice resolving allegations that the Company and Knorr-Bremse AG had maintained unlawful agreements not to compete
for each other’s employees. The allegations also related to Faiveley Transport before it was acquired by the Company in
November 2016. No monetary fines or penalties were imposed on the Company. The Company elected to settle this matter
with the Department of Justice to avoid the cost and distraction of litigation. Putative class action lawsuits thereafter were filed
in several different federal district courts naming the Company and Knorr as defendants in connection with the allegations
contained in the consent decree. The lawsuits seek unspecified damages on behalf of employees of the Company (including
Faiveley Transport) and Knorr allegedly caused by the defendants’ actions. A federal Multi-District Litigation (MDL) Panel
consolidated the cases in the Western District of Pennsylvania, and on October 12, 2018, a consolidated class action complaint
was filed in the Western District of PA with five named plaintiffs. On August 13, 2019, the Company was notified that co-
defendant Knorr-Bremse settled with plaintiffs. On January 21, 2020, following Court-sponsored early mediation, the Company
entered into a Memorandum of Understanding with plaintiffs, agreeing to settle all claims in the case. The parties intend to seek
Court approval of the agreed settlement terms and amount.
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.
21. SEGMENT INFORMATION
The Company has two reportable segments—the Freight Segment and the Transit Segment. The key factors used to
identify these reportable segments are the organization and alignment of the Company’s internal operations, the nature of the
products and services, and customer type. Initiatives to integrate GE Transportation operations into Wabtec including recent
restructuring programs announced in late 2019 resulted in changes to the Company's organizational structure and the financial
reporting utilized by the Company's chief operating decision maker to assess performance and allocate resources; as a result,
certain asset groups were reorganized from the Freight Segment to the Transit Segment and vice versa. The change in the
Company’s reportable segments was effective in the fourth quarter of 2019 and is reflected below in 2019 and through the
retrospective revision of 2018 and 2017 segment information. The Company believes these changes better present
Management's new view of the business. The Company’s business segments are:
Freight Segment primarily builds new locomotives, manufactures and services components for new and existing freight
cars and locomotives, rebuilds freight locomotives, supplies railway electronics, positive train control equipment, signal design
and engineering services, and provides related heat exchange and cooling systems. Customers include large, publicly traded
railroads, leasing companies, manufacturers of original equipment such as locomotives and freight cars, and utilities.
Transit Segment primarily manufactures and services components for new and existing passenger transit vehicles,
typically regional trains, high speed trains, subway cars, light-rail vehicles and buses, 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. The changes to the asset groups comprising the Freight and Transit segments have been reflected
through retrospective revision of prior period segment information.
92
Segment financial information for 2019 is as follows:
In million
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
Segment assets
Segment financial information for 2018 is as follows:
In millions
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
Segment assets
Segment financial information for 2017 is as follows:
In millions
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
Segment assets
Freight
Segment
Transit
Segment
Corporate
Activities and
Elimination
Total
$
$
$
$
$
5,441.4
59.6
5,501.0
642.9
—
642.9
330.4
105.1
$
$
$
$
$
2,758.6
23.4
2,782.0
214.4
—
214.4
62.2
63.7
— $
8,200.0
(83.0)
(83.0) $
(194.2) $
(216.3)
(410.5) $
8.8
$
16.5
—
8,200.0
663.1
(216.3)
446.8
401.4
185.3
14,450.9
6,026.0
(1,532.7)
18,944.2
Freight
Segment
Transit
Segment
Corporate
Activities and
Elimination
Total
$
$
$
$
$
1,766.4
52.8
1,819.2
334.3
—
334.3
41.6
24.6
$
$
$
$
$
2,597.1
11.3
2,608.4
192.5
—
192.5
62.7
61.6
— $
4,363.5
(64.1)
(64.1) $
(53.4) $
(105.8)
(159.2) $
$
5.0
7.1
—
4,363.5
473.4
(105.8)
367.6
109.3
93.3
3,329.6
9,478.6
(4,159.0)
8,649.2
Freight
Segment
Transit
Segment
Corporate
Activities and
Elimination
Total
$
$
$
$
$
1,538.6
39.0
1,577.6
271.7
—
271.7
43.1
32.2
$
$
$
$
$
2,343.1
5.5
2,348.6
177.2
—
177.2
58.0
52.5
— $
3,881.7
(44.5)
(44.5) $
(27.8) $
(69.0)
(96.8) $
$
2.1
4.8
—
3,881.7
421.1
(69.0)
352.1
103.2
89.5
3,104.9
7,885.3
(4,410.2)
6,580.0
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
The following geographic area data as of and for the years ended December 31, 2019, 2018 and 2017, 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 millions
United States
Canada
India
United Kingdom
Mexico
Germany
Australia
France
China
Other international
Total
2019
Net Sales
2018
2017
2019
2018
2017
Long-Lived Assets
$
3,381.0
$
1,460.3
$
1,323.8
$
1,089.8
$
204.3
$
211.6
733.3
504.2
376.2
356.6
340.0
296.4
294.3
290.4
1,627.6
279.0
178.5
395.8
200.6
314.7
173.5
247.8
170.3
943.0
279.0
137.8
356.5
160.0
208.8
136.1
237.5
178.1
864.1
13.2
159.2
55.5
23.7
77.7
12.1
58.9
34.5
131.2
$
8,200.0
$
4,363.5
$
3,881.7
$
1,655.8
$
5.3
12.8
54.8
9.2
75.5
9.6
56.7
33.4
102.2
563.8
$
5.8
12.5
57.7
9.1
71.7
10.5
57.8
36.4
100.9
574.0
93
Export sales from the Company’s United States operations were $905.2 million, $512.5 million and $448.0 million for
the years ended December 31, 2019, 2018 and 2017, respectively.
Net sales by product line are as follows:
In millions
Freight Segment:
Equipment
Components
Digital Electronics
Services
Total Freight Segment sales
Transit Segment:
Original Equipment Manufacturer
Aftermarket
Total Transit Segment sales
2019
2018
2017
$
$
$
1,699.7
$
— $
1,073.5
677.1
1,991.1
1,169.1
474.1
123.2
5,441.4
$
1,766.4
$
1,286.6
1,472.0
1,194.0
1,403.1
2,758.6
$
2,597.1
$
—
1,004.6
400.8
133.2
1,538.6
1,050.0
1,293.1
2,343.1
22. GUARANTOR SUBSIDIARIES FINANCIAL INFORMATION
The obligations under the Company's Senior Notes and Senior Credit Facility are fully and unconditionally guaranteed
by certain of the Company's U.S. subsidiaries as guarantors. Each guarantor is 100% owned by the parent company, with the
exception of GE Transportation, a Wabtec company, which has 15,000 shares outstanding of Class A non-voting preferred
stock held by General Electric Company. In accordance with positions established by the Securities and Exchange Commission,
the following shows separate financial information with respect to the parent, the guarantor subsidiaries and the non-guarantor
subsidiaries. The principal elimination entries eliminate investment in subsidiaries and certain intercompany balances and
transactions.
Balance Sheet for December 31, 2019:
In millions
Parent
Guarantors
Non-
Guarantors
Elimination
Consolidated
Cash, cash equivalents, and restricted cash
$
24.0
$
14.7
$
565.5
$
— $
604.2
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
1,663.9
1,773.1
150.9
4,192.1
1,655.8
8,360.6
—
4,104.0
631.7
—
4,333.6
1,359.0
8,950.6
9,956.5
37.1
103.5
135.3
(0.8)
262.0
73.2
564.1
298.2
763.1
22.0
1,098.0
65.0
283.2
1,262.2
874.7
129.7
2,832.1
1,517.6
7,513.3
—
—
—
—
—
—
15,566.2
6,583.9
—
(22,150.1)
$
$
(22,150.1) $
18,944.2
— $
3,258.0
731.2
116.2
$
$
8,877.5
1,109.6
$
$
(2,546.3)
—
154.1
3,337.0
409.9
15,609.9
1,562.4
1,188.7
11.8
819.9
(1,282.6)
3,582.8
$
$
35.8
105.6
16,606.9
586.0
1,357.6
4,321.8
385.0
6,650.4
9,941.5
15.0
—
—
—
—
—
—
10,160.1
12,005.0
(22,150.1)
—
22.1
—
$
$
9,956.5
16,606.9
$
$
10,160.1
8,877.5
$
$
12,027.1
15,609.9
$
$
(22,150.1) $
9,993.6
(22,150.1) $
18,944.2
94
Balance Sheet for December 31, 2018:
In millions
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
$
1,782.6
$
(0.1) $
559.8
$
— $
2,342.3
1,146.8
844.9
115.6
4,449.6
563.8
2,396.5
—
1,129.9
109.4
106.8
149.7
11.9
2,051.0
51.6
25.3
61.5
69.1
0.7
131.2
24.8
283.2
978.5
626.1
103.0
2,267.4
487.4
2,088.0
—
—
—
—
—
—
6,708.0
4,022.1
—
(10,730.1)
29.3
8.8
8,874.0
264.5
1,947.5
3,779.7
17.1
6,008.8
2,865.2
—
78.5
0.1
$
$
4,539.9
91.0
$
$
1,022.1
100.5
5,965.4
1,291.1
$
$
(1,436.2)
(511.3)
—
48.6
(1,296.6)
5,836.5
—
13.1
275.0
1,067.9
4,893.6
3.9
—
—
(10,730.1) $
8,649.2
— $
1,646.6
—
—
—
—
(10,730.1)
—
—
3,792.8
340.7
5,780.1
2,865.2
3.9
2,865.2
8,874.0
$
$
5,836.5
4,539.9
$
$
4,897.5
5,965.4
$
$
(10,730.1) $
2,869.1
(10,730.1) $
8,649.2
$
$
$
$
Income Statement for the Year Ended December 31, 2019:
In millions
Net sales
Cost of sales
Gross profit (loss)
Total operating expenses
Income (loss) from operations
Interest (expense) income, net
Other (expense) income, net
Equity earnings (loss)
Pretax income (loss)
Income tax expense
Net income (loss)
Less: Net loss attributable to noncontrolling interest
Net income (loss) attributable to Wabtec shareholders
Comprehensive income (loss) attributable to Wabtec shareholders
Parent
Guarantors
Non-
Guarantors
Elimination
Consolidated
$
723.4
$
3,245.3
$
5,766.3
$
(1,535.0) $
8,200.0
(562.1)
(2,429.2)
(4,129.4)
1,198.7
(5,922.0)
161.3
(321.6)
(160.3)
(214.8)
(131.5)
809.5
302.9
23.8
326.7
—
326.7
326.7
$
$
816.1
(311.5)
504.6
12.5
(11.1)
613.4
1,119.4
(97.0)
1,022.4
—
1,022.4
1,022.4
$
$
1,636.9
(981.8)
(336.3)
2,278.0
—
(1,614.9)
655.1
(16.8)
145.4
—
783.7
(47.1)
736.6
0.2
736.8
610.8
(336.3)
—
—
(1,422.9)
(1,759.2)
—
(1,759.2)
—
663.1
(219.1)
2.8
—
446.8
(120.3)
326.5
0.2
$
$
(1,759.2) $
326.7
(1,759.2) $
200.7
$
$
95
Income Statement for the Year Ended December 31, 2018:
Parent
Guarantors
Non-
Guarantors
Elimination
Consolidated
$
671.0
$
483.1
$
3,442.2
$
(232.8) $
4,363.5
(495.1)
175.9
(173.0)
2.9
(110.8)
13.5
396.9
302.5
(7.6)
294.9
—
294.9
295.8
$
$
(304.3)
(2,462.5)
178.8
(57.3)
121.5
12.8
—
369.4
503.7
(3.3)
500.4
—
500.4
500.4
$
$
979.7
(530.2)
449.5
(14.2)
(7.1)
—
428.2
(65.0)
363.2
3.2
366.4
153.9
132.3
(100.5)
—
(100.5)
—
—
(766.3)
(866.8)
—
(866.8)
—
(3,129.6)
1,233.9
(760.5)
473.4
(112.2)
6.4
—
367.6
(75.9)
291.7
3.2
$
$
(866.8) $
294.9
(866.8) $
83.3
Parent
Guarantors
Non-
Guarantors
Elimination
Consolidated
$
577.4
$
398.2
$
3,035.4
$
(129.3) $
3,881.7
(440.9)
136.5
(114.2)
22.3
(76.8)
10.0
416.1
371.6
(109.3)
262.3
—
262.3
263.9
$
$
(255.8)
(2,218.4)
142.4
(50.9)
91.5
10.9
0.3
317.6
420.3
18.8
439.1
—
439.1
439.1
$
$
817.0
(479.1)
337.9
(12.0)
(1.4)
—
324.5
0.7
325.2
—
325.2
658.2
98.7
(30.6)
—
(30.6)
—
—
(733.7)
(764.3)
—
(764.3)
—
(2,816.4)
1,065.3
(644.2)
421.1
(77.9)
8.9
—
352.1
(89.8)
262.3
—
$
$
(764.3) $
262.3
(764.3) $
596.9
Less: Net loss attributable to noncontrolling interest
Net income (loss) attributable to Wabtec shareholders
Comprehensive income (loss) attributable to Wabtec shareholders
$
$
Income Statement for the Year Ended December 31, 2017:
In millions
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)
In millions
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) benefit
Net income (loss)
Less: Net income attributable to noncontrolling interest
Net income (loss) attributable to Wabtec shareholders
Comprehensive income (loss) attributable to Wabtec shareholders
$
$
96
Condensed Statement of Cash Flows for the year ended December 31, 2019:
In millions
Parent
Guarantors
Non-
Guarantors
Elimination
Consolidated
Net cash (used in) provided by operating activities
$
(321.2) $
419.4
$
1,253.6
$
(336.3) $
1,015.5
Net cash provided by (used for) investing activities
6,849.3
(1,140.5)
(8,886.6)
Net cash (used in) provided by financing activities
(8,286.7)
735.9
7,676.0
Effect of changes in currency exchange rates
(Decrease) increase in cash
Cash and cash equivalents, beginning of year
—
(1,758.6)
1,782.6
—
14.8
(0.1)
(37.3)
5.7
559.8
—
336.3
—
—
—
(3,177.8)
461.5
(37.3)
(1,738.1)
2,342.3
Cash, cash equivalents, and restricted cash, end of year
$
24.0
$
14.7
$
565.5
$
— $
604.2
Condensed Statement of Cash Flows for the year ended December 31, 2018:
In millions
Parent
Guarantors
Non-
Guarantors
Elimination
Consolidated
Net cash (used in) provided by operating activities
$
(87.2) $
130.1
$
372.3
$
(100.5) $
314.7
Net cash used in investing activities
Net cash provided by (used in) financing activities
Effect of changes in currency exchange rates
Increase (decrease) in cash
Cash and cash equivalents, beginning of year
(16.8)
1,885.7
—
1,781.7
0.9
(2.0)
(128.8)
—
(0.7)
0.6
(128.5)
120.7
(36.6)
327.9
231.9
—
100.5
—
—
—
(147.3)
1,978.1
(36.6)
2,108.9
233.4
Cash, cash equivalents, and restricted cash, end of year
$
1,782.6
$
(0.1) $
559.8
$
— $
2,342.3
Condensed Statement of Cash Flows for the year ended December 31, 2017:
In millions
Parent
Guarantors
Non-
Guarantors
Elimination
Consolidated
Net cash (used in) provided by operating activities
$
(49.2) $
130.3
$
138.3
$
(30.6) $
188.8
Net cash used in investing activities
Net cash provided by (used in) financing activities
Effect of changes in currency exchange rates
(Decrease) increase in cash
(11.2)
58.8
—
(1.6)
Cash, cash equivalents, and restricted cash, beginning of year
Cash and cash equivalents, end of year
2.5
0.9
$
$
23. OTHER INCOME, NET
The components of other income, net are as follows:
(3.4)
(1,018.9)
(127.5)
—
(0.6)
1.2
0.6
(59.3)
32.3
(907.6)
1,139.5
—
30.6
—
—
—
(1,033.5)
(97.4)
32.3
(909.8)
1,143.2
$
231.9
$
— $
233.4
In millions
Foreign currency loss
Equity income
Expected return on pension assets/amortization
Other miscellaneous (expense) income
Total other income, net
For the year ended December 31,
2019
2018
2017
(13.5) $
(5.7) $
8.1
9.9
(1.7)
2.8
$
1.9
9.0
1.2
6.4
$
(6.6)
2.6
9.8
3.1
8.9
$
$
97
24. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
In millions, except per share data
2019
Net sales
Gross profit
Income from operations
Net (loss) income attributable to Wabtec shareholders
Basic (loss) earnings from operations per common share
Diluted (loss) earnings from operations per common share
2018
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
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
$
$
$
$
$
1,593.6
$
2,236.3
$
2,001.7
$
2,368.4
389.0
67.3
(4.2)
(0.04) $
(0.04) $
614.7
200.6
104.1
0.58
0.54
1,056.2
$
1,111.7
310.9
131.3
88.4
0.92
0.92
$
$
324.0
123.5
84.4
0.88
0.87
$
$
$
$
$
599.4
169.1
91.1
0.48
0.48
1,077.8
302.0
125.2
87.7
0.91
0.91
$
$
$
$
$
674.9
226.1
135.7
0.71
0.71
1,117.8
297.0
93.4
34.4
0.36
0.36
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.
98
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
For each of the three years ended December 31
SCHEDULE II
In millions
2019
Allowance for doubtful accounts
Valuation allowance-taxes
2018
Allowance for doubtful accounts
Valuation allowance-taxes
2017
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
$
$
$
16.9
$
41.8
12.3
$
25.7
7.3
$
21.4
7.1
$
16.2
0.2
$
—
9.5
$
(0.4) $
27.4
—
$
2.6
4.3
5.0
$
—
4.5
$
—
4.5
$
11.3
2.6
$
—
19.9
58.0
16.9
41.8
12.3
25.7
(1) Reserves of acquired/(sold) companies; valuation allowances for state and foreign deferred tax assets; impact of
fluctuations in foreign currency exchange rates.
(2) Actual disbursements and/or charges.
Item 16.
FORM 10-K SUMMARY
Not applicable.
99
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 24, 2020
By:
/S/ RAFAEL SANTANA
Rafael Santana,
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
By
Signature and Title
Date
/S/ ALBERT J. NEUPAVER
Albert J. Neupaver,
Executive Chairman of the Board
/S/ RAFAEL SANTANA
Rafael Santana
President and Chief Executive Officer and Director (Principal
Executive Officer)
February 24, 2020
February 24, 2020
/S/ PATRICK D. DUGAN
February 24, 2020
Patrick D. Dugan,
Executive Vice President Finance and Chief Financial Officer
(Principal Financial Officer)
/S/ JOHN A. MASTALERZ
February 24, 2020
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/ ERWAN FAIVELEY
Erwan Faiveley,
Director
/S/ EMILIO A. FERNANDEZ
Emilio A. Fernandez,
Director
/S/ LEE B. FOSTER, II
Lee B. Foster, II,
Director
100
February 24, 2020
February 24, 2020
February 24, 2020
February 24, 2020
February 24, 2020
By
By
By
By
/S/ LINDA S. HARTY
Linda S. Harty,
Director
/S/ BRIAN P. HEHIR
Brian P. Hehir,
Director
February 24, 2020
February 24, 2020
/S/ MICHAEL W. D. HOWELL
February 24, 2020
Michael W. D. Howell,
Director
/S/ ANN R. KLEE
Ann R. Klee,
Director
February 24, 2020
101
[THIS PAGE INTENTIONALLY LEFT BLANK]
BOARD OF DIRECTORS
Albert J. Neupaver (4)
Executive Chairman
Wabtec Corporation
William E. Kassling (4)
Lead Director,
Wabtec Corporation
Emilio A. Fernandez (1,3)
Vice Chairman
Wabtec Corporation
Erwan Faiveley (3)
President and Chairman,
Financiere Faiveley S.A.
Lee B. Foster II (1,2,4)
Chairman
L.B. Foster Co
Linda S. Harty (1)
Former Treasurer, Medtronics, Inc.
Philippe Alfroid (1)
Former Chief Operating Officer
Essilor Corporation
Brian P. Hehir (1,2)
Former Vice Chairman
Investment Banking, Merrill Lynch
Michael W. D. Howell (2,3)
Former Chief Executive Officer
Transport Initiatives Edinburgh Limited
Ann R. Klee (2)
Executive Vice President
Suffolk Construction Company
Rafael Santana (4)
President and Chief Executive Officer
Wabtec Corporation
(1) Audit Committee
(2) Compensation Committee
(3) Nominating and Corporate
Governance Committee
(4) Wabtec Foundation
EXECUTIVE MANAGEMENT
Albert J. Neupaver
Executive Chairman
Rafael Santana
President and
Chief Executive Officer
David L. DeNinno
Executive Vice President,
General Counsel and
Secretary
Scott E. Wahlstrom (4)
Executive Vice President,
Chief Human Resource Officer
Michael Fetsko
President, Freight Components
& Industrial Group
John A. Mastalerz, Jr.
Senior Vice President of Finance, Corporate
Controller and Chief Accounting Officer
Nalin Jain
President, Freight Equipment Group
Dominique Malenfant
Senior Vice President and
Chief Technology Officer
Lilian Leroux
President, Transit Group
Patrick D. Dugan
Executive Vice President Finance,
and Chief Financial Officer
Greg Sbrocco
Senior Vice President,
Global Operations
Pascal Schweitzer
President, Freight Services Group