Attached files
file | filename |
---|---|
EX-31.1 - EX-31.1 - WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORP | wab-ex311_201506308.htm |
EX-32.1 - EX-32.1 - WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORP | wab-ex321_201506306.htm |
EX-31.2 - EX-31.2 - WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORP | wab-ex312_201506307.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2015
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 |
|
25-1615902 |
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
1001 Air Brake Avenue Wilmerding, PA |
|
15148 |
(Address of principal executive offices) |
|
(Zip code) |
412-825-1000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
x |
Accelerated filer |
¨ |
Non-accelerated filer |
¨ |
Smaller reporting company |
¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class |
|
Outstanding at July 27, 2015 |
Common Stock, $.01 par value per share |
|
96,674,083 shares |
TECHNOLOGIES CORPORATION
June 30, 2015
FORM 10-Q
TABLE OF CONTENTS
|
|
Page |
|
PART I—FINANCIAL INFORMATION |
|
Item 1. |
|
3 |
|
Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014 |
3 |
|
|
4 |
|
|
5 |
|
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 |
6 |
|
|
7 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
24 |
Item 3. |
|
33 |
Item 4. |
|
34 |
|
PART II—OTHER INFORMATION |
|
Item 1. |
|
35 |
Item 1A. |
|
35 |
Item 2. |
|
35 |
Item 4. |
|
35 |
Item 6. |
|
35 |
|
|
36 |
2
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
Unaudited |
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
||
In thousands, except shares and par value |
|
2015 |
|
|
2014 |
|
||
Assets |
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
264,844 |
|
|
$ |
425,849 |
|
Accounts receivable |
|
|
505,539 |
|
|
|
443,464 |
|
Unbilled accounts receivable |
|
|
174,730 |
|
|
|
187,762 |
|
Inventories |
|
|
535,002 |
|
|
|
510,949 |
|
Deferred income taxes |
|
|
44,208 |
|
|
|
43,953 |
|
Other |
|
|
55,643 |
|
|
|
25,887 |
|
Total current assets |
|
|
1,579,966 |
|
|
|
1,637,864 |
|
Property, plant and equipment |
|
|
711,966 |
|
|
|
683,034 |
|
Accumulated depreciation |
|
|
(354,996 |
) |
|
|
(343,923 |
) |
Property, plant and equipment, net |
|
|
356,970 |
|
|
|
339,111 |
|
Other Assets |
|
|
|
|
|
|
|
|
Goodwill |
|
|
864,921 |
|
|
|
862,338 |
|
Other intangibles, net |
|
|
454,533 |
|
|
|
422,811 |
|
Other noncurrent assets |
|
|
41,733 |
|
|
|
41,717 |
|
Total other assets |
|
|
1,361,187 |
|
|
|
1,326,866 |
|
Total Assets |
|
$ |
3,298,123 |
|
|
$ |
3,303,841 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
377,457 |
|
|
$ |
399,845 |
|
Customer deposits |
|
|
98,636 |
|
|
|
111,797 |
|
Accrued compensation |
|
|
66,919 |
|
|
|
70,857 |
|
Accrued warranty |
|
|
74,300 |
|
|
|
68,031 |
|
Current portion of long-term debt |
|
|
478 |
|
|
|
792 |
|
Other accrued liabilities |
|
|
81,737 |
|
|
|
87,480 |
|
Total current liabilities |
|
|
699,527 |
|
|
|
738,802 |
|
Long-term debt |
|
|
400,348 |
|
|
|
520,403 |
|
Accrued postretirement and pension benefits |
|
|
79,434 |
|
|
|
81,908 |
|
Deferred income taxes |
|
|
118,396 |
|
|
|
112,915 |
|
Accrued warranty |
|
|
22,353 |
|
|
|
19,818 |
|
Other long-term liabilities |
|
|
21,733 |
|
|
|
21,697 |
|
Total liabilities |
|
|
1,341,791 |
|
|
|
1,495,543 |
|
Shareholders’ Equity |
|
|
|
|
|
|
|
|
Preferred stock, 1,000,000 shares authorized, no shares issued |
|
|
- |
|
|
|
- |
|
Common stock, $.01 par value; 200,000,000 shares authorized: |
|
|
|
|
|
|
|
|
132,349,534 shares issued and 96,666,083 and 96,274,395 outstanding |
|
|
|
|
|
|
|
|
at June 30, 2015 and December 31, 2014, respectively |
|
|
1,323 |
|
|
|
1,323 |
|
Additional paid-in capital |
|
|
456,498 |
|
|
|
448,531 |
|
Treasury stock, at cost, 35,683,451 and 36,075,139 shares, at |
|
|
|
|
|
|
|
|
at June 30, 2015 and December 31, 2014, respectively |
|
|
(388,001 |
) |
|
|
(392,262 |
) |
Retained earnings |
|
|
2,095,224 |
|
|
|
1,909,136 |
|
Accumulated other comprehensive loss |
|
|
(209,696 |
) |
|
|
(159,486 |
) |
Total Westinghouse Air Brake Technologies Corporation shareholders' equity |
|
|
1,955,348 |
|
|
|
1,807,242 |
|
Non-controlling interest (minority interest) |
|
|
984 |
|
|
|
1,056 |
|
Total shareholders’ equity |
|
|
1,956,332 |
|
|
|
1,808,298 |
|
Total Liabilities and Shareholders’ Equity |
|
$ |
3,298,123 |
|
|
$ |
3,303,841 |
|
The accompanying notes are an integral part of these statements.
3
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
|
Unaudited |
|
|
Unaudited |
|
||||||||||
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
June 30, |
|
|
June 30, |
|
||||||||||
In thousands, except per share data |
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
$ |
847,028 |
|
|
$ |
731,068 |
|
|
$ |
1,665,622 |
|
|
$ |
1,426,317 |
|
Cost of sales |
|
(579,264 |
) |
|
|
(506,410 |
) |
|
|
(1,142,503 |
) |
|
|
(992,090 |
) |
Gross profit |
|
267,764 |
|
|
|
224,658 |
|
|
|
523,119 |
|
|
|
434,227 |
|
Selling, general and administrative expenses |
|
(88,992 |
) |
|
|
(72,982 |
) |
|
|
(173,763 |
) |
|
|
(143,063 |
) |
Engineering expenses |
|
(17,750 |
) |
|
|
(14,221 |
) |
|
|
(34,613 |
) |
|
|
(27,167 |
) |
Amortization expense |
|
(5,162 |
) |
|
|
(5,132 |
) |
|
|
(10,463 |
) |
|
|
(9,828 |
) |
Total operating expenses |
|
(111,904 |
) |
|
|
(92,335 |
) |
|
|
(218,839 |
) |
|
|
(180,058 |
) |
Income from operations |
|
155,860 |
|
|
|
132,323 |
|
|
|
304,280 |
|
|
|
254,169 |
|
Other income and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
(4,041 |
) |
|
|
(4,525 |
) |
|
|
(8,347 |
) |
|
|
(8,975 |
) |
Other (expense) income, net |
|
(1,887 |
) |
|
|
243 |
|
|
|
(4,753 |
) |
|
|
226 |
|
Income from operations before income taxes |
|
149,932 |
|
|
|
128,041 |
|
|
|
291,180 |
|
|
|
245,420 |
|
Income tax expense |
|
(48,428 |
) |
|
|
(39,336 |
) |
|
|
(93,512 |
) |
|
|
(76,581 |
) |
Net income attributable to Wabtec shareholders |
$ |
101,504 |
|
|
$ |
88,705 |
|
|
$ |
197,668 |
|
|
$ |
168,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Common Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Wabtec shareholders |
$ |
1.05 |
|
|
$ |
0.92 |
|
|
$ |
2.05 |
|
|
$ |
1.76 |
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Wabtec shareholders |
$ |
1.04 |
|
|
$ |
0.91 |
|
|
$ |
2.03 |
|
|
$ |
1.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
96,338 |
|
|
|
96,048 |
|
|
|
96,066 |
|
|
|
95,674 |
|
Diluted |
|
97,435 |
|
|
|
97,058 |
|
|
|
97,112 |
|
|
|
96,827 |
|
The accompanying notes are an integral part of these statements.
4
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
Unaudited |
|
|
Unaudited |
|
||||||||||
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
In thousands, except per share data |
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Wabtec shareholders |
|
$ |
101,504 |
|
|
$ |
88,705 |
|
|
$ |
197,668 |
|
|
$ |
168,839 |
|
Foreign currency translation gain (loss) |
|
|
36,082 |
|
|
|
8,731 |
|
|
|
(51,849 |
) |
|
|
8,088 |
|
Unrealized gain (loss) on derivative contracts |
|
|
949 |
|
|
|
(876 |
) |
|
|
(756 |
) |
|
|
(593 |
) |
Pension benefit plans and post-retirement benefit plans |
|
|
(822 |
) |
|
|
(26 |
) |
|
|
3,000 |
|
|
|
1,782 |
|
Other comprehensive income (loss) before tax |
|
|
36,209 |
|
|
|
7,829 |
|
|
|
(49,605 |
) |
|
|
9,277 |
|
Income tax (expense) benefit related to components of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other comprehensive income (loss) |
|
|
(320 |
) |
|
|
274 |
|
|
|
(605 |
) |
|
|
(381 |
) |
Other comprehensive income (loss), net of tax |
|
|
35,889 |
|
|
|
8,103 |
|
|
|
(50,210 |
) |
|
|
8,896 |
|
Comprehensive income attributable to Wabtec shareholders |
|
$ |
137,393 |
|
|
$ |
96,808 |
|
|
$ |
147,458 |
|
|
$ |
177,735 |
|
The accompanying notes are an integral part of these statements.
5
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Unaudited |
|
|||||
|
|
Six Months Ended |
|
|||||
|
|
June 30, |
|
|||||
In thousands, except per share data |
|
2015 |
|
|
2014 |
|
||
|
|
|
|
|
|
|
|
|
Operating Activities |
|
|
|
|
|
|
|
|
Net income attributable to Wabtec shareholders |
|
$ |
197,668 |
|
|
$ |
168,839 |
|
Adjustments to reconcile net income to cash provided by operations: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
31,612 |
|
|
|
27,862 |
|
Stock-based compensation expense |
|
|
14,989 |
|
|
|
12,103 |
|
Loss on disposal of property, plant and equipment |
|
|
420 |
|
|
|
106 |
|
Excess income tax benefits from exercise of stock options |
|
|
(1,388 |
) |
|
|
(1,281 |
) |
Changes in operating assets and liabilities, net of acquisitions |
|
|
|
|
|
|
|
|
Accounts receivable and unbilled accounts receivable |
|
|
(35,788 |
) |
|
|
(91,926 |
) |
Inventories |
|
|
(25,536 |
) |
|
|
(20,249 |
) |
Accounts payable |
|
|
(25,015 |
) |
|
|
43,653 |
|
Accrued income taxes |
|
|
19,185 |
|
|
|
15,459 |
|
Accrued liabilities and customer deposits |
|
|
(27,089 |
) |
|
|
(3,878 |
) |
Other assets and liabilities |
|
|
(38,132 |
) |
|
|
(13,029 |
) |
Net cash provided by operating activities |
|
|
110,926 |
|
|
|
137,659 |
|
Investing Activities |
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
|
(20,860 |
) |
|
|
(18,357 |
) |
Proceeds from disposal of property, plant and equipment |
|
|
178 |
|
|
|
217 |
|
Acquisitions of businesses, net of cash acquired |
|
|
(100,108 |
) |
|
|
(199,417 |
) |
Net cash used for investing activities |
|
|
(120,790 |
) |
|
|
(217,557 |
) |
Financing Activities |
|
|
|
|
|
|
|
|
Proceeds from debt |
|
|
174,300 |
|
|
|
266,900 |
|
Payments of debt |
|
|
(294,589 |
) |
|
|
(216,698 |
) |
Purchase of treasury stock |
|
|
- |
|
|
|
(16,622 |
) |
Proceeds from exercise of stock options and other benefit plans |
|
|
1,409 |
|
|
|
1,844 |
|
Excess income tax benefits from exercise of stock options |
|
|
1,388 |
|
|
|
1,281 |
|
Payment of income tax withholding on share-based compensation |
|
|
(14,565 |
) |
|
|
- |
|
Earn-out settlement |
|
|
- |
|
|
|
(4,429 |
) |
Cash dividends ($0.12 and $0.08 per share for the six months |
|
|
|
|
|
|
|
|
ended June 30, 2015 and 2014, respectively) |
|
|
(11,580 |
) |
|
|
(7,691 |
) |
Net cash (used for) provided by financing activities |
|
|
(143,637 |
) |
|
|
24,585 |
|
Effect of changes in currency exchange rates |
|
|
(7,504 |
) |
|
|
(4,540 |
) |
Decrease in cash |
|
|
(161,005 |
) |
|
|
(59,853 |
) |
Cash, beginning of period |
|
|
425,849 |
|
|
|
285,760 |
|
Cash, end of period |
|
$ |
264,844 |
|
|
$ |
225,907 |
|
The accompanying notes are an integral part of these statements.
6
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2015 (UNAUDITED)
1. BUSINESS
Westinghouse Air Brake Technologies Corporation (“Wabtec”) is one of the world’s largest providers of value-added, technology-based products and services for the global rail industry. Our products are found on virtually all U.S. locomotives, freight cars and passenger transit vehicles, as well as in more than 100 countries throughout the world. Our products enhance safety, improve productivity and reduce maintenance costs for customers, and many of our core products and services are essential in the safe and efficient operation of freight rail and passenger transit vehicles. Wabtec is a global company with operations in 20 countries. In the first six months of 2015, about 48% of the Company’s revenues came from customers outside the U.S.
2. ACCOUNTING POLICIES
Basis of Presentation The unaudited condensed consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles and the rules and regulations of the Securities and Exchange Commission and include the accounts of Wabtec and its majority owned subsidiaries. These condensed consolidated interim financial statements do not include all of the information and footnotes required for complete financial statements. In management’s opinion, these financial statements reflect all adjustments of a normal, recurring nature necessary for a fair presentation of the results for the interim periods presented. Results for these interim periods are not necessarily indicative of results to be expected for the full year.
The Company operates on a four-four-five week accounting quarter, and the quarters end on or about March 31, June 30, September 30, and December 31.
The notes included herein should be read in conjunction with the audited consolidated financial statements included in Wabtec’s Annual Report on Form 10-K for the year ended December 31, 2014. The December 31, 2014 information has been derived from the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
Revenue Recognition Revenue is recognized in accordance with Accounting Standards Codification (“ASC”) 605 “Revenue Recognition.” Revenue is recognized when products have been shipped to the respective customers, title has passed and the price for the product has been determined.
In general, the Company recognizes revenues on long-term contracts based on the percentage of completion method of accounting. The units-of-delivery method or other input-based or output-based measures, as appropriate, are used to measure the progress toward completion of individual contracts. Contract revenues and cost estimates are reviewed and revised at a minimum quarterly and adjustments are reflected in the accounting period as such amounts are determined. Provisions are made currently for estimated losses on uncompleted contracts. Unbilled accounts receivables were $174.7 million and $187.8 million, customer deposits were $98.6 million and $111.8 million, and provisions for loss contracts were $8.4 million and $7.1 million at June 30, 2015 and December 31, 2014, respectively.
Certain pre-production costs relating to long-term production and supply contracts have been deferred and will be recognized over the life of the contracts. Deferred pre-production costs were $28.7 million and $24.9 million at June 30, 2015 and December 31, 2014, respectively.
Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from the estimates. On an ongoing basis, management reviews its estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.
Financial Derivatives and Hedging Activities The Company periodically enters into foreign currency forward contracts to reduce the impact of changes in currency exchange rates. Forward contracts are agreements with a counter-party 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. On June 24, 2015, the Company entered into a forward contract for the sale of Brazilian Real (BRL) and the purchase of U.S. dollars (USD). As of June 30, 2015 the notional value of this contract was 84.6 million BRL, or $27.0 million USD.
7
To reduce the impact of interest rate changes on a portion of its variable-rate debt, the Company has entered into two forward starting interest rate swap agreements with notional values of $150.0 million. As of June 30, 2015, the Company has recorded a current liability of $4.2 million and a corresponding offset in accumulated other comprehensive loss of $2.5 million, net of tax, related to this agreement. For further information regarding the forward starting interest rate swap agreements, see Footnote 6.
Foreign Currency Translation Assets and liabilities of foreign subsidiaries, except for the Company’s Mexican operations whose functional currency is the U.S. Dollar, are translated at the rate of exchange in effect on the balance sheet date while income and expenses are translated at the average rates of exchange prevailing during the year. 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.
Non-controlling Interests In accordance with ASC 810, the Company has classified non-controlling interests as equity on our condensed consolidated balance sheets as of June 30, 2015 and December 31, 2014. Net income attributable to non-controlling interests for the three and six months ended June 30, 2015 and 2014 was not material.
Recent Accounting Pronouncements In April 2015, the FASB issued Accounting Standards Update No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”) which changes the presentation of debt issuance costs in financial statements to present such costs as a direct deduction from the related debt liability rather than as an asset. ASU 2015-03 will become effective for public companies during interim and annual reporting periods beginning after December 15, 2015. Early adoption is permitted. The Company is currently evaluating the impact the pronouncement will have on the consolidated financial statements and related disclosures.
In May 2014, the FASB issued ASU no. 2014-09, “Revenue from Contract with Customers.” The ASU will supersede most of the existing revenue recognition requirements in U.S. GAAP and will require entities to recognize revenue at an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer. The new standard also requires significantly expanded disclosures regarding the qualitative and quantitative information of an entity’s nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Pronouncement is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period and is to be applied retrospectively, with early application not permitted. The Board voted to propose that the standard would take effect for reporting periods beginning after December 15, 2017 and that early adoption would be allowed as of the original effective date. The Company is currently evaluating the impact the pronouncement will have on the consolidated financial statements and related disclosures.
Other Comprehensive Income Comprehensive income is defined as net income and all other non-owner changes in shareholders’ equity.
The changes in accumulated other comprehensive loss by component, net of tax, for the six months ended June 30, 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
Pension and |
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
|
post |
|
|
|
|
|
||
|
|
currency |
|
|
Derivative |
|
|
retirement |
|
|
|
|
|
|||
In thousands |
|
translation |
|
|
contracts |
|
|
benefits plans |
|
|
Total |
|
||||
Balance at December 31, 2014 |
|
$ |
(94,450 |
) |
|
|
(2,243 |
) |
|
|
(62,793 |
) |
|
$ |
(159,486 |
) |
Other comprehensive (loss) income before reclassifications |
|
|
(51,849 |
) |
|
|
(1,070 |
) |
|
|
1,165 |
|
|
|
(51,754 |
) |
Amounts reclassified from accumulated other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
comprehensive income |
|
|
- |
|
|
|
627 |
|
|
|
917 |
|
|
|
1,544 |
|
Net current period other comprehensive (loss) income |
|
|
(51,849 |
) |
|
|
(443 |
) |
|
|
2,082 |
|
|
|
(50,210 |
) |
Balance at June 30, 2015 |
|
$ |
(146,299 |
) |
|
$ |
(2,686 |
) |
|
$ |
(60,711 |
) |
|
$ |
(209,696 |
) |
8
Reclassifications out of accumulated other comprehensive loss for the three months ended June 30, 2015 are as follows:
|
|
Amount reclassified from |
|
|
Affected line item in the |
|
|
|
accumulated other |
|
|
Condensed Consolidated |
|
In thousands |
|
comprehensive income |
|
|
Statements of Operations |
|
Amortization of defined pension and post retirement items |
|
|
|
|
|
|
Amortization of initial net obligation and prior service cost |
|
$ |
(521 |
) |
|
Cost of sales |
Amortization of net loss |
|
|
1,198 |
|
|
Cost of sales |
|
|
|
677 |
|
|
Income from Operations |
|
|
|
(219 |
) |
|
Income tax expense |
|
|
$ |
458 |
|
|
Net income |
|
|
|
|
|
|
|
Derivative contracts |
|
|
|
|
|
|
Realized loss on derivative contracts |
|
$ |
460 |
|
|
Interest expense, net |
|
|
|
(149 |
) |
|
Income tax expense |
|
|
$ |
311 |
|
|
Net income |
Reclassifications out of accumulated other comprehensive loss for the six months ended June 30, 2015 are as follows:
|
|
Amount reclassified from |
|
|
Affected line item in the |
|
|
|
accumulated other |
|
|
Condensed Consolidated |
|
In thousands |
|
comprehensive income |
|
|
Statements of Operations |
|
Amortization of defined pension and post retirement items |
|
|
|
|
|
|
Amortization of initial net obligation and prior service cost |
|
$ |
(1,043 |
) |
|
Cost of sales |
Amortization of net loss |
|
|
2,394 |
|
|
Cost of sales |
|
|
|
1,351 |
|
|
Income from Operations |
|
|
|
(434 |
) |
|
Income tax expense |
|
|
$ |
917 |
|
|
Net income |
|
|
|
|
|
|
|
Derivative contracts |
|
|
|
|
|
|
Realized loss on derivative contracts |
|
$ |
923 |
|
|
Interest expense, net |
|
|
|
(296 |
) |
|
Income tax expense |
|
|
$ |
627 |
|
|
Net income |
3. ACQUISITIONS
The Company has made the following acquisitions operating as a business unit or component of a business unit in the Freight Segment:
· |
On February 4, 2015, the Company acquired Railroad Controls L.P. (“RCL”), a provider of railway signal construction services, for a purchase price of approximately $76.4 million, net of cash acquired, resulting in preliminary goodwill of $12.2 million, none of which will be deductible for tax purposes. |
· |
On September 3, 2014, the Company acquired C2CE Pty Ltd. (“C2CE”), a provider of railway signal design services, for a purchase price of approximately $25.5 million, net of cash acquired, resulting in preliminary goodwill of $15.6 million, none of which will be deductible for tax purposes. |
The Company has made the following acquisitions operating as a business unit or component of a business unit in the Transit Segment:
· |
On June 17, 2015, the Company acquired Metalocaucho (“MTC”), a manufacturer of transit products, primarily rubber components for suspension and vibration control systems, for a purchase price of approximately $23.4 million, net of cash acquired, resulting in preliminary goodwill of $10.1 million, none of which will be deductible for tax purposes. |
· |
On August 21, 2014, the Company acquired Dia-Frag (“Dia-Frag”), a manufacturer of friction products for various markets with a focus on motorcycle braking, for a purchase price of approximately $70.6 million, net of cash acquired, resulting in preliminary goodwill of $36.1 million, none of which will be deductible for tax purposes. |
9
· |
On June 6, 2014, the Company acquired Fandstan Electric Group Ltd. (“Fandstan”), a leading rail and industrial equipment manufacturer for a variety of markets, including rail and tram transportation, industrial and energy, for a purchase price of approximately $199.4 million, net of cash acquired, resulting in additional goodwill of $64.7 million, none of which will be deductible for tax purposes. |
The acquisitions listed above include escrow deposits of $53.9 million, which act as security for indemnity and other claims in accordance with the purchase and related escrow agreements.
For the MTC, RCL, C2CE, and Dia-Frag acquisitions, the following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of the acquisition. For the Fandstan acquisition, the following table summarizes the final fair values of the assets and liabilities assumed at the date of acquisition.
|
|
MTC |
|
|
RCL |
|
|
C2CE |
|
|
Dia-Frag |
|
|
Fandstan |
|
|||||
|
|
June 17, |
|
|
February 4, |
|
|
September 3, |
|
|
August 21, |
|
|
June 6, |
|
|||||
In thousands |
|
2015 |
|
|
2015 |
|
|
2014 |
|
|
2014 |
|
|
2014 |
|
|||||
Current assets |
|
$ |
10,906 |
|
|
$ |
16,445 |
|
|
$ |
9,812 |
|
|
$ |
12,476 |
|
|
$ |
124,280 |
|
Property, plant & equipment |
|
|
1,510 |
|
|
|
11,983 |
|
|
|
1,853 |
|
|
|
13,749 |
|
|
|
67,948 |
|
Goodwill |
|
|
10,051 |
|
|
|
12,197 |
|
|
|
15,572 |
|
|
|
36,050 |
|
|
|
64,713 |
|
Other intangible assets |
|
|
11,414 |
|
|
|
40,403 |
|
|
|
3,654 |
|
|
|
26,150 |
|
|
|
50,598 |
|
Other assets |
|
|
114 |
|
|
|
- |
|
|
|
- |
|
|
|
66 |
|
|
|
216 |
|
Total assets acquired |
|
|
33,995 |
|
|
|
81,028 |
|
|
|
30,891 |
|
|
|
88,491 |
|
|
|
307,755 |
|
Total liabilities assumed |
|
|
(10,635 |
) |
|
|
(4,646 |
) |
|
|
(5,412 |
) |
|
|
(17,850 |
) |
|
|
(108,351 |
) |
Net assets acquired |
|
$ |
23,360 |
|
|
$ |
76,382 |
|
|
$ |
25,479 |
|
|
$ |
70,641 |
|
|
$ |
199,404 |
|
Of the $132.2 million of total acquired intangible assets, $95.2 million was assigned to customer relationships, $29.3 million was assigned to trade names, $2.1 million was assigned to non-compete agreements and $5.6 million was assigned to customer backlog. The trade names were determined to have an indefinite useful life, while the customer relationships’ average useful life is 20 years, and the non-compete useful life is five years.
The following unaudited pro forma consolidated financial information presents income statement results as if the acquisitions listed above had occurred on January 1, 2014:
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
Six Months Ended |
|
||||
In thousands |
|
June 30, 2015 |
|
|
June 30, 2014 |
|
|
June 30, 2015 |
|
|
June 30, 2014 |
|
||||
Net sales |
|
$ |
853,103 |
|
|
$ |
810,098 |
|
|
$ |
1,692,364 |
|
|
$ |
1,595,832 |
|
Gross profit |
|
|
269,794 |
|
|
|
247,791 |
|
|
|
531,760 |
|
|
|
486,639 |
|
Net income attributable to Wabtec shareholders |
|
|
101,776 |
|
|
|
94,289 |
|
|
|
200,530 |
|
|
|
182,957 |
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Reported |
|
$ |
1.04 |
|
|
$ |
0.91 |
|
|
$ |
2.03 |
|
|
$ |
1.74 |
|
Pro forma |
|
$ |
1.04 |
|
|
$ |
0.97 |
|
|
$ |
2.06 |
|
|
$ |
1.88 |
|
4. INVENTORIES
The components of inventory, net of reserves, were:
|
|
June 30, |
|
|
December 31, |
|
||
In thousands |
|
2015 |
|
|
2014 |
|
||
Raw materials |
|
$ |
202,421 |
|
|
$ |
222,059 |
|
Work-in-progress |
|
|
186,073 |
|
|
|
154,094 |
|
Finished goods |
|
|
146,508 |
|
|
|
134,796 |
|
Total inventories |
|
$ |
535,002 |
|
|
$ |
510,949 |
|
10
5. INTANGIBLES
The change in the carrying amount of goodwill by segment for the six months ended June 30, 2015 is as follows:
|
|
Freight |
|
|
Transit |
|
|
|
|
|
||
In thousands |
|
Segment |
|
|
Segment |
|
|
Total |
|
|||
Balance at December 31, 2014 |
|
$ |
515,067 |
|
|
$ |
347,271 |
|
|
$ |
862,338 |
|
Adjustment to preliminary purchase allocation |
|
|
(170 |
) |
|
|
(9,587 |
) |
|
|
(9,757 |
) |
Acquisitions |
|
|
12,197 |
|
|
|
10,051 |
|
|
|
22,248 |
|
Foreign currency impact |
|
|
(1,374 |
) |
|
|
(8,534 |
) |
|
|
(9,908 |
) |
Balance at June 30, 2015 |
|
$ |
525,720 |
|
|
$ |
339,201 |
|
|
$ |
864,921 |
|
As of June 30, 2015 and December 31, 2014, the Company’s trademarks had a net carrying amount of $173.8 million and $170.1 million, respectively, and the Company believes these intangibles have an indefinite life.
Intangible assets of the Company, other than goodwill and trademarks, consist of the following:
|
|
June 30, |
|
|
December 31, |
|
||
In thousands |
|
2015 |
|
|
2014 |
|
||
Patents, non-compete and other intangibles, net of accumulated |
|
|
|
|
|
|
|
|
amortization of $40,375 and $39,780 |
|
$ |
13,327 |
|
|
$ |
14,722 |
|
Customer relationships, net of accumulated amortization |
|
|
|
|
|
|
|
|
of $63,845 and $56,684 |
|
|
267,456 |
|
|
|
237,983 |
|
Total |
|
$ |
280,783 |
|
|
$ |
252,705 |
|
The weighted average remaining useful life of patents, customer relationships and intellectual property were 10 years, 16 years and 14 years, respectively. Amortization expense for intangible assets was $5.2 million and $10.5 million for the three and six months ended June 30, 2015, and $5.1 million and $9.8 million for the three and six months ended June 30, 2014.
Amortization expense for the five succeeding years is estimated to be as follows (in thousands):
Remainder of 2015 |
|
$ |
12,859 |
|
2016 |
|
|
20,892 |
|
2017 |
|
|
19,486 |
|
2018 |
|
|
18,508 |
|
2019 |
|
|
18,065 |
|