SEC Filing | Wabtec Corporation

View:

Download DOC

Download PDF

Download XLS

Form 8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of Earliest Event Reported): December 22, 2016 (December 22, 2016)

WESTINGHOUSE AIR BRAKE

TECHNOLOGIES CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Delaware

(State or other Jurisdiction

of Incorporation)


033-90866		25-1615902
(Commission File No.)		(I.R.S. Employer Identification No.)

1001 Air Brake Avenue Wilmerding, Pennsylvania		15148
(Address of Principal Executive Offices)		(Zip Code)

(412) 825-1000

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name or Former Address, if Changed Since Last Report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 7.01. Regulation FD Disclosure.

As previously reported in a Current Report on Form 8-K filed by Westinghouse Air Brake Technologies Corporation (the “Company”) with the Securities and Exchange Commission (the “SEC”) on October 8, 2015, the Company and FW Acquisition, LLC (“FW”), a wholly owned subsidiary of the Company, entered into (1) a Share Purchase Agreement, as amended (the “Share Purchase Agreement”), relating to Faiveley Transport, S.A. (“Faiveley Transport”) among Financière Faiveley S.A., Famille Faiveley Participations, a société par actions simplifiée, Mr. Francois Faiveley and Mr. Erwan Faiveley (collectively, the “Sellers”), (2) a Tender Offer Agreement among the Company, FW and Faiveley Transport, as amended (the “Tender Offer Agreement”) and (3) a Shareholder’s Agreement (together with the Share Purchase Agreement and the Tender Offer Agreement, the “Transaction Agreements”), among the Company and the Sellers. The Transaction Agreements provide for the acquisition of a majority stake in Faiveley Transport by FW, followed by a tender offer pursuant to which FW would offer to acquire the remaining outstanding shares of Faiveley Transport (together, the “Acquisition”).

As previously reported in a Current Report on Form 8-K filed by the Company with the SEC on December 1, 2016, the Company completed the purchase from the Sellers of 7,475,537 ordinary shares of Faiveley Transport owned in the aggregate by the Sellers, representing a total of approximately 51% of the outstanding share capital of Faiveley Transport, pursuant to the Share Purchase Agreement, with approximately 25% of the consideration, or approximately $212 million, paid in cash, and the remaining consideration consisting of 6.3 million shares of Company common stock.

Pursuant to the terms and subject to the conditions of the Tender Offer Agreement, Wabtec France, as successor-in-interest to FW, filed with the Autorité des Marchés Financiers (“AMF”) in France a mandatory tender to purchase all of the remaining shares of Faiveley Transport. On December 22, 2016, the AMF issued a clearance decision on the tender offer information memorandum. After giving effect to the tender, the total purchase price for Faiveley Transport will be approximately $1.7 billion, including assumed debt.

The Company is furnishing this Current Report on Form 8-K to provide certain historical financial statements of Faiveley Transport, as publicly filed by Faiveley Transport. The unaudited consolidated financial statements of Faiveley Transport included as Exhibit 99.1 to this Current Report on Form 8-K are as of September 30, 2016 and for the six months then ended, including the footnotes thereto. The unaudited consolidated financial statements of Faiveley Transport included in Exhibit 99.1 were prepared in accordance with International Financial Reporting Standards as adopted by the European Union, which differs in certain significant respects from U.S. generally accepted accounting principles (U.S. GAAP). The Company did not participate in the preparation or review of the historical financial statements of Faiveley Transport included in Exhibit 99.1 and cannot guarantee the accuracy of the information therein.

Attached as Exhibit 99.2 and incorporated herein by reference is the unaudited pro forma condensed combined balance sheet as of September 30, 2016, and the unaudited pro forma condensed combined statements of income for the nine months ended September 30, 2016, and the year ended December 31, 2015, including footnotes thereto. The unaudited pro forma condensed combined financial information included in Exhibit 99.2 gives effect to the Acquisition and Credit Arrangements as described therein.

Item 9.01. Financial Statements and Exhibits.

The following exhibits are furnished with this report on Form 8-K:


Exhibit No.		Description
99.1		Unaudited consolidated financial statements of Faiveley Transport S.A. as of September 30, 2016 and for the six months then ended.

99.2		Unaudited pro forma condensed combined financial information of Wabtec as of September 30, 2016 and for the nine months then ended.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

By:		/s/ David L. DeNinno
		David L. DeNinno
		Senior Vice President, General Counsel and Secretary

Date: December 22, 2016

EXHIBIT INDEX


Exhibit No.		Description
99.1		Unaudited consolidated financial statements of Faiveley Transport S.A. as of September 30, 2016 and for the six months then ended.

99.2		Unaudited pro forma condensed combined financial information of Wabtec as of September 30, 2016 and for the nine months then ended.

EX-99.1

Exhibit 99.1

FAIVELEY TRANSPORT, S.A.

HALF-YEAR CONSOLIDATED INCOME STATEMENT


(€ thousands)	Notes		30 September 2016			30 September 2015
NET SALES		NOTE 24		520 472			532 809
Cost of sales		NOTE 25		(383 796	)		(401 103	)
GROSS PROFIT				136 676			131 706
% of Sales				26.3	%		24.7	%
Administrative costs				(51 001	)		(47 083	)
Sales and marketing costs				(26 179	)		(26 545	)
Research and development costs				(8 329	)		(8 601	)
Other operating income		NOTE 26		981			2 647
Other expenses		NOTE 26		(19 392	)		(13 382	)
PROFIT FROM RECURRING OPERATIONS				32 756			38 742
% of Sales				6.3	%		7.3	%
Restructuring costs		NOTE 27		(647	)		(1 322	)
Gain/(loss) on disposal of property, plant and equipment and intangible assets		NOTE 27		(3	)		10
OPERATING PROFIT BEFORE IMPAIRMENT LOSSES AND OTHER NON-RECURRING CHARGES				32 106			37 430
*% of Sales*				*6.2*	%		*7.0*	%
Impairment of assets		NOTE 8		(63 012	)		0
OPERATING PROFIT/(LOSS)				(30 906	)		37 430
*% of Sales*				*-5.9*	%		*7.0*	%
Share of profit of joint ventures		NOTE 9		1 794			3 481
OPERATING PROFIT/(LOSS) AFTER SHARE OF PROFIT OF EQUITY-ACCOUNTED ENTITIES				(29 112	)		40 911
*% of Sales*				*-5.6*	%		*7.7*	%
Amortisation and depreciation charges included in operating profit				9 550			8 958
*Operating profit /(loss) before amortisation and depreciation charges*				*(19 562*	)		*49 869*
Net cost of financial debt				(4 690	)		(5 059	)
Other financial income				17 821			21 281
Other financial expenses				(18 033	)		(20 685	)
NET FINANCIAL EXPENSE		NOTE 28		(4 902	)		(4 463	)
PROFIT/(LOSS) BEFORE TAX				(34 014	)		36 448
Income tax		NOTE 29		(8 713	)		(11 104	)
PROFIT/(LOSS) FOR THE PERIOD FROM CONTINUING OPERATIONS				(42 727	)		25 344
Profit of discontinued operations		NOTE 30		0			0
CONSOLIDATED NET PROFIT/(LOSS)				(42 727	)		25 344
attributable to:
Minority interests				(9 614	)		2 193
Net profit/(loss) - Group share				(33 113	)		23 150
% of Sales				-6.4	%		4.3	%
*Earnings per share, in €:*		*NOTE 32*
Basic earnings per share				(2.29	)		1.61
Diluted earnings per share				(2.29	)		1.59
*Earnings per share, in € – Continuing operations:*
Basic earnings per share				(2.29	)		1.61
Diluted earnings per share				(2.29	)		1.59

The notes 1 to 38 form an integral part of the consolidated financial statements.

HALF-YEAR CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME


(€ thousands)	Notes		30 September 2016			30 September 2015
Net profit/(loss) for the period				(42,727	)		25,344
Translation adjustment		NOTE 16		(2,353	)		(15,605	)
Financial assets available for sale
Gains (losses) on financial hedge instruments		NOTE 20		517			373
Other items that can be reclassified				202			(29	)
Taxes on items that can be reclassified				(178	)		(128	)
Items that can be reclassified to profit or loss				(1,812	)		(15,389	)
of which Share of joint ventures in items that can be reclassified				(280	)		(1,485	)
Actuarial gains and losses on post-employment benefits		NOTE 18		(8,142	)		4,356
Taxes on items that cannot be reclassified				1,840			(1,303	)
Items that cannot be reclassified to profit or loss				(6,302	)		3,053
of which Share of joint ventures in items that cannot be reclassified				—			—
Items of other comprehensive income, after tax				(8,114	)		(12,336	)
of which Share of joint ventures				(280	)		(1,485	)
Total comprehensive income				(50,842	)		13,008
Attributable to:
• Parent Company shareholders				(41,572	)		12,579
• minority interests				(9,270	)		431

The notes 1 to 38 form an integral part of the consolidated financial statements.

HALF-YEAR CONSOLIDATED STATEMENT OF FINANCIAL POSITION

ASSETS

(€ thousands)

Notes

30 September 2016 Net

31 March 2016 Net

Goodwill

NOTE 5

646,982

688,572

Intangible assets

NOTE 6

54,299

63,565

Property, plant and equipment

NOTE 7

Land

5,600

5,575

Buildings

19,079

19,152

Plant and machinery

32,153

34,603

Other property, plant and equipment

17,106

18,350

Equity interests in equity-accounted entities

NOTE 9

Shareholdings in equity-accounted joint ventures

22,256

20,742

Shareholdings in other equity-accounted entities

Other non-current financial assets

NOTE 10

Shareholdings in unconsolidated subsidiaries

246

255

Other long-term financial investments

2,266

2,644

Deferred tax assets

65,775

62,274

TOTAL NON-CURRENT ASSETS (I)

865,762

915,732

Inventories

NOTE 11

177,274

161,222

Work-in-progress on projects

NOTE 12

130,607

123,425

Advances and prepayments paid on orders

5,120

2,323

Trade receivables

NOTE 13

194,969

215,806

Other current assets

NOTE 13

39,107

37,902

Taxation receivable

14,088

18,018

Current financial assets

NOTE 14

12,539

33,911

Short-term investments

NOTE 15

14,991

15,021

Cash

NOTE 15

210,706

221,048

Assets held for sale

NOTE 8

21,658

7,527

TOTAL CURRENT ASSETS (II)

821,059

836,203

TOTAL ASSETS (I + II)

1,686,821

1,751,935


EQUITY AND LIABILITIES (€ thousands)	Notes		30 September 2016			31 March 2016
SHAREHOLDERS’ EQUITY		NOTE 16
Share capital				14,621			14,614
Share premium				103,004			97,305
Translation difference				4,158			6,860
Consolidated reserves				518,965			486,683
Net profit/(loss) for the period				(33,113	)		51,290
*TOTAL EQUITY – GROUP SHARE*				*607,635*			*656,752*
MINORITY INTERESTS		NOTE 17
Share of equity				26,217			27,397
Share of net profit				(9,614	)		4,711
*TOTAL MINORITY INTERESTS*				*16,603*			*32,108*
TOTAL CONSOLIDATED EQUITY (I)				624,238			688,860
Non-current provisions		NOTE 18		48,615			43,136
Deferred tax liabilities				54,528			51,120
Non-current borrowings and financial debt		NOTE 19		361,962			360,930
TOTAL NON-CURRENT LIABILITIES (II)				465,105			455,186
Current provisions		NOTE 18		114,410			112,387
Current borrowings and financial debt		NOTE 19		34,400			57,682
Advances and prepayments received on orders				141,073			158,698
Current liabilities		NOTE 21		286,972			269,574
Tax payable				6,768			9,548
Liabilities related to assets held for sale		NOTE 8		13,855
TOTAL CURRENT LIABILITIES (III)				597,478			607,889
TOTAL EQUITY AND LIABILITIES (I + II + III)				1,686,821			1,751,935

The notes 1 to 38 form an integral part of the consolidated financial statements.

HALF-YEAR CONSOLIDATED STATEMENT OF CHANGES IN EQUITY


(€ thousands)	Share capital		Share premium		Reserves			Translation adjustment			Profit/(loss) for the period			Total Group share			Minority interests			TOTAL
At 31 March 2015		14,614		94,298		436,629			24,549			55,645			625,734			31,716			657,450
Allocation of 2014/2015 net profit						55,645						(55,645	)		0						0
Dividends paid						(12,977	)								(12,977	)		(1,800	)		(14,777	)
Treasury shares				3,007											3,007						3,007
Stock option plans reserved for employees (value of services provided by staff)						7,582									7,582						7,582
Other movements and changes in consolidation scope						(187	)		69						(118	)		(40	)		(158	)
Net profit for the period												51,290			51,290			4,711			56,001
Items of other comprehensive income						(9	)		(17,758	)					(17,767	)		(2,479	)		(20,246	)
Total income and expenses recognised in Comprehensive Income		0		0		(9	)		(17,758	)		51,290			33,523			2,232			35,755
At 31 March 2016		14,614		97,305		486,684			6,860			51,290			656,752			32,108			688,860
Allocation of 2015/2016 net profit						51,290						(51,290	)		0						0
Dividends paid						(14,668	)								(14,668	)		(5,891	)		(20,559	)
Share capital increase		7		377											384						384
Shares delivered to Group employees				3,965		(3,965	)								0						0
Stock option plans reserved for employees (value of services provided by staff)						6,436									6,436						6,436
Other movements				1,357		(1,051	)								306			(344	)		(37	)
Net loss for the period												(33,113	)		(33,113	)		(9,614	)		(42,727	)
Items of other comprehensive income						(5,761	)		(2,702	)					(8,463	)		344			(8,119	)
Total income and expenses recognised in Comprehensive Income		0		0		(5,761	)		(2,702	)		(33,113	)		(41,576	)		(9,270	)		(50,846	)
At 30 September 2016		14,621		103,004		518,965			4,158			(33,113	)		607,635			16,603			624,238

The notes 1 to 38 form an integral part of the consolidated financial statements.

HALF-YEAR CONSOLIDATED CASH FLOW STATEMENT


CASH FLOW STATEMENT (€ thousands)	Notes		30 September 2016			30 September 2015 *
Net profit - Group share				(33 113	)		23 150
Net profit - Minority interests				(9 614	)		2 193
Adjustments for non-cash items:				—
• Depreciation and amortisation charges				9 550			8 958
• Cost of performance-based shares				6 436			1 200
• Asset impairment (including goodwill)				63 012			—
• Unrealised gains and losses on derivative instruments and revaluation of monetary assets and liabilities				5 604			(3 297	)
• Movement in provisions for current assets and liabilities and charges				(2 763	)		1 497
• Other calculated income and expenses				—			(77	)
• Net loss/(gain) on asset disposals				64			124
• Grant income				—			—
• Share of profit of equity-accounted entities		NOTE 8		(1 794	)		(3 481	)
• Dividends received from equity-accounted joint ventures				1 298			—
• Dilution profit				—			—
Net cost of financial debt				4 690			5 059
Income tax charge (including deferred tax)				8 713			11 104
Self-financing capacity before interest and tax				52 083			46 430
Change in current assets and liabilities				(14 038	)		4 295
Decrease (+) increase (-) in inventories				(22 715	)		(8 568	)
Decrease (+) increase (-) in trade and other receivables				13 344			41 699
Increase (+) decrease (-) in trade and other payables				(4 989	)		(28 615	)
Increase (+) decrease (-) in income tax				322			(221	)
Income tax paid				(7 095	)		(2 703	)
Net financial interest paid				(3 156	)		(3 506	)
Cash flow from operating activities				27 794			44 516
Purchase of intangible assets				(5 156	)		(5 678	)
Purchase of property, plant and equipment				(11 356	)		(10 072	)
Proceeds from disposal of PPE and intangible assets				810			35
Purchase of non-current financial assets				(231	)		(151	)
Proceeds from sale of non-current financial assets				2 809			31
*Free cash flow ⁽¹⁾*				*14 670*			*28 681*
Cash outflows/inflows related to acquisitions of subsidiaries and minority interests				(1 133	)		(1 281	)
Cash outflows/inflows related to disposals of subsidiaries and minority interests				—			—
Impact of changes in consolidation scope				—			—
Cash flow from investment activities				(14 257	)		(17 116	)
Proceeds from new shares issue				383			—
Buyback of treasury shares				—			2 039
Premiums (paid) received on hedge instruments				5 238			5 491
Cash dividends paid to parent company shareholders				—			—
Cash dividends paid to minority interests				(5 891	)		(1 801	)
Proceeds from new borrowings				255			4 186
Repayment of borrowings				(15 622	)		(18 900	)
Cash flow from financing activities				(15 637	)		(8 985	)
Net foreign exchange difference				(6 411	)		(774	)
Net increase/(decrease) in total cash and cash equivalents				(8 511	)		17 641
Of which cash transferred to assets held for sale				(128	)		—
Cash and cash equivalents at beginning of the period				233 914			234 675
Cash and cash equivalents at end of the period		NOTE 15		225 403			252 316

(1)

Free cash flow is defined as cash flow from operating activities plus cash flow from investment activities excluding cash flow from acquisitions/disposals of subsidiaries

*	Cash flow statement after presentation restatements. See Note 3 to the half-year financial statements

The notes 1 to 38 form an integral part of the condensed financial statements.

2.2. NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS


Note 1:	General information	8

Note 2:	Highlights	8

Note 3:	Accounting principles and methods	8

Note 4:	Changes in consolidation scope and assets held for sale	10

Note 5:	Goodwill	11

Note 6:	Intangible assets	12

Note 7:	Property, plant and equipment	13

Note 8:	Assets held for sale	14

Note 9:	Investments in equity-accounted entities	14

Note 10:	Other non-current financial assets	15

Note 11:	Inventories	15

Note 12:	Work-in-progress on projects	16

Note 13:	Current receivables	16

Note 14:	Current financial assets	17

Note 15:	Cash and cash equivalents	17

Note 16:	Group equity	17

Note 17:	Minority interests	19

Note 18:	Analysis of provisions	19

Note 19:	Borrowings and financial debt	20

Note 20:	Financial risk management	22

Note 21:	Current liabilities	25

Note 22:	Factoring	25

Note 23:	Segment reporting	26

Note 24:	Sales	27

Note 25:	Gross profit and Cost of sales	27

Note 26:	Other income and expenses from recurring operations	28

Note 27:	Restructuring costs and gains and losses on disposal of property, plant and equipment and intangible assets	28

Note 28:	Net financial income/(expense)	28

Note 29:	Income tax	29

Note 30:	Profit or loss of operations held for disposal and discontinued operations	29

Note 31:	Payroll costs and workforce	29

Note 32:	Earnings per share	29

Note 33:	Post-balance sheet events	30

Note 34:	Transactions with related parties	30

Note 35:	Dividends	31

Note 36:	Off-balance sheet commitments	31

Note 37:	Consolidation scope and method	32

Note 38:	Financial communication	33

NOTE 1:

GENERAL INFORMATION

Faiveley Transport is a French public limited company (société anonyme) with a Management Board and a Supervisory Board. At 30 September 2016, its registered office was located at:

Immeuble le Delage, Hall Parc, Bâtiment 6A

3 rue du 19 mars 1962

92230 - GENNEVILLIERS, France

The consolidated financial statements are prepared by the Management Board and submitted for approval to the shareholders at the General Meeting.

The 2015/16 financial statements have been submitted for approval at the Shareholders’ General Meeting of 30 September 2016.

The interim financial statements were approved by the Management Board at its meeting on 17 November 2016. They were presented to and reviewed by the Supervisory Board at its meeting on 17 November 2016.

The financial statements have been prepared on the basis that the Faiveley Transport Group operates as a going concern.

The Group’s functional and presentation currency is the Euro. Figures are expressed in thousands of Euros unless indicated otherwise.

NOTE 2:

HIGHLIGHTS

SIGNIFICANT EVENTS

•

At 30 September 2016, the process for applying to the European Commission for authorisation of the Faiveley Transport / Wabtec combination was ongoing. Following the formal notification submitted on 4 April 2016, on 12 May 2016 the European Commission opened an in-depth investigation (Phase 2) regarding certain segments which could be affected by the combination. In the United States, the Department of Justice is continuing the additional information (“second request”) proceedings in relation to the planned acquisition. In this context, the acquisition of a controlling interest from the Faiveley family by Wabtec is expected in the fourth quarter of 2016 and the proposed public offer will be filed with the Autorité des Marchés Financiers (AMF – French financial markets authority) in the weeks following this change in control.

•

In order to meet the regulatory requirements of the process of combining with Wabtec, Faiveley Group has decided to dispose of its two subsidiaries “Amsted Rail – Faiveley LLC” and “Faiveley Transport Gennevilliers”. This disposal is highly probable and should take place during 2017. These subsidiaries have therefore been reclassified as a group of assets held for sale (see Notes 4, 8 and 33).

•

The Combined General Meeting of 30 September 2016 decided to change the financial year-end and to set it as 31 December of each year. As a result, the current financial year will exceptionally last for nine months.

NOTE 3:

ACCOUNTING PRINCIPLES AND METHODS

BASIS OF PREPARATION

In application of regulation 1606/2002 (EC) of the European Union, the consolidated financial statements of the Faiveley Transport Group are prepared in accordance with IFRS (International Financial Reporting Standards), as adopted by the European Union.

The condensed consolidated financial statements at 30 September 2016 have been prepared in accordance with “IAS 34 Interim financial reporting”, which allows the presentation of selected notes. The condensed consolidated financial statements must be read in conjunction with the consolidated financial statements for the financial year ended 31 March 2016.

Except for the new standards and interpretations presented below, the accounting principles used for the preparation of the half-year financial statements are unchanged from those used for the preparation of the consolidated financial statements at 31 March 2016 as detailed in the consolidated financial statements published at that date.

The Group made presentation adjustments in order to improve the readability and clarity of the information presented in the cash flow statement. From now on, the “Premiums (paid) received on hedge instruments” are restated for the self-financing capacity in order to be presented on a separate line under cash flow from financing activities.

Changes in accounting policies due to new standards and interpretations of mandatory application for interim periods and financial years starting on or after 1 April 2016

New standards of mandatory application

•

Equity method in separate financial statements (amendments to IAS 27)

•

Disclosure initiative (amendments to IAS 1 “Presentation of financial statements”)

•

Recognition of acquisitions of interests in joint operations (amendments to IFRS 11)

•

Clarification of acceptable methods of depreciation and amortisation (amendments to IAS 16 – Property, plant and equipment and IAS 38 – Intangible assets)

•

Annual improvements to IFRS 2012-2014

These mandatory texts applicable from 1 April 2016 had no significant impact on the Group’s financial statements.

New standards and interpretations adopted by the European Union, the application of which is not yet mandatory

•

Revenue from contracts with customers (IFRS 15): published in May 2014 and ratified by EU Regulation of 22 September 2016, it provides a new framework for recognising revenue. IFRS 15 will replace current standards relating to the recognition of revenue, notably IAS 18 – Revenue, IAS 11 – Construction contracts, and associated interpretations when they become applicable. The standard applies from financial years beginning on or after 1 January 2018. Early application from 1 January 2017 is permitted.

New standards and interpretations not yet adopted by the European Union, the application of which is not yet mandatory

•

Classification and measurement of financial assets (IFRS 9)

•

Regulatory deferral accounts (IFRS 14)

•

Investment entities: Application of the consolidation exemption, (Amendments to IFRS 10, IFRS 12 and IAS 28 )

•

Sale or contribution of assets between an investor and its associate or joint venture (amendments to IAS 28 and IFRS 10)

•

Recognition of deferred tax assets for unrealised losses (IAS 12)

•

Amendment to IAS 7 “Cash flow statement”

•

IFRS 16 “Leases”

•

Amendments to IFRS 2 “Classification and measurement of share-based payment transactions”

•

Amendments to IFRS 4: Applying IFRS 9 “Financial Instruments” with IFRS 4 “Insurance Contracts”.

The impact of these new texts on the consolidated financial statements is currently being analysed by the Group.

USE OF ESTIMATES

The interim financial statements have been prepared in accordance with the same accounting principles and policies as have been applied to the annual financial statements. However, in relation to interim financial statements and pursuant to IAS 34, unless otherwise specified certain estimates may be based on assumptions to a greater extent than annual financial data. Concerning the interim financial statements, the significant accounting estimates and assumptions relate to the valuation of the provision for employee benefits, the valuation of the income tax charge and the estimation of the R&D Tax Credit.

INTERIM BALANCE SHEET DATE

All companies are consolidated on the basis of financial statements drawn up at 30 September 2016.

NOTE 4:

CHANGES IN CONSOLIDATION SCOPE AND ASSETS HELD FOR SALE

ADDITION TO THE SCOPE

The Group consolidates its Moroccan subsidiary “Faiveley Transport Service Maroc” as of 1 April 2016 following the growth of its activity. The consolidation of this entity does not have any material impact on the Consolidated Financial Statements of the Group.

NEWLY CREATED ENTITIES

Nil

ACQUISITIONS

Acquisition of minority interests

In application of the terms and conditions of the agreement of 23 December 2014 between Faiveley Transport and the minority shareholders in Faiveley Transport Schweiz AG, the legal and financial transfer of 10% of shares held by minority shareholders to Faiveley Transport took place on 7 April 2016, thereby increasing Faiveley Transport’s equity investment in Faiveley Transport Schweiz AG to 100%.

DISPOSALS AND COMPANIES NO LONGER CONSOLIDATED

Nil

MOVEMENTS IN GOODWILL DURING THE ALLOCATION PERIOD

Nil

ASSETS HELD FOR SALE

At 30 September 2016, the main group of assets to be sold primarily related to the subsidiaries Amsted Rail-Faiveley LLC and Faiveley Transport Gennevilliers, the disposal of which is necessary in order to meet the regulatory requirements related to the combination with Wabtec.

In accordance with the provisions of IFRS 5, all the assets and liabilities directly connected with the two subsidiaries intended for sale were respectively presented under the items “Assets held for sale” and “Liabilities related to assets held for sale” in the consolidated balance sheet at 30 September 2016.

Impairment losses resulting from the classification under the group of assets held for sale are reported in the income statement under “Impairment of assets” for a total amount of €63 million.

The accounting impacts of the classification under assets held for sale are presented in “Note 8 – Assets held for sale” and reflect the current best estimate of Management, taking into account current discussions. They will be finalised following completion of the transactions, which is expected in the coming months.

NOTE 5:

GOODWILL

Goodwill mainly arose from the acquisition of subsidiaries and the purchase of minority interests in Faiveley SA by the holding company Faiveley Transport in 2008; these two companies have since merged into the current Faiveley Transport parent company.

This goodwill was calculated in accordance with the partial goodwill method.

Faiveley Group Management monitors its business performance by entity or group of entities, which generally correspond to a major area of specialisation. Goodwill has been allocated to the companies or groups acquired, except for goodwill arising from the purchase of minority interests which is monitored as a whole at Group level.

The following tables provide details of opening and closing goodwill balances for the reported periods, their change during the period and their allocation to the various companies or groups of companies corresponding to the groups of cash generating units used by Faiveley Transport for in-house monitoring.

The following table provides details of goodwill as at 30 September 2016:


	Gross		Accumulated impairment		Net 30 September 2016		Net 31 March 2016
Faiveley Transport minority interests		265 778		—		265 778		265 778
Sab Wabco Group (brakes and couplers)		234 004				234 004		234 004
Graham-White Manufacturing Co. (compressed air drying and brake components)		88 007		—		88 007		86 275
Amsted Rail-Faiveley LLC		—		—		—		30 179
Faiveley Transport North America Inc (formely Ellcon National Inc - braking components)		9 585		—		9 585		9 396
Faiveley Transport NSF (air conditioning)		10 057		—		10 057		10 057
Faiveley Transport Nowe GmbH (sanding systems)		3 273		—		3 273		3 273
Faiveley Transport Tours ⁽¹⁾		6 061		—		6 061		6 061
Faiveley Transport Schweiz AG (formerly Urs Dolder AG) (heating)		2 676		—		2 676		2 662
Faiveley Transport Gennevilliers (sintered brakes)		—		—		—		13 470
Faiveley Transport Schwab AG		24 696		—		24 696		24 571
Other		2 845		—		2 845		2 846
Total		646 982				646 982		688 572

(1)

Goodwill recognised following the purchase of Espas Group.

Changes during the period


	Net 31 March 2016		Adjustments to opening goodwill		Acquisitions		Disposals		Impairment		Reclassified as held for sale			Other movements			Net 30 September 2016
Faiveley Transport minority interests		265 778		—		—		—		—					—			265 778
Sab Wabco Group (brakes and couplers)		234 004		—		—		—		—					—			234 004
Graham-White Manufacturing Co. (compressed air drying and brakes)		86 275		—		—		—		—					1 732	⁽¹⁾		88 007
Amsted Rail-Faiveley LLC		30 179		—		—		—		—		(30 785	)		606	⁽¹⁾		—
Faiveley Transport North America Inc (formely Ellcon National Inc - braking components)		9 396													189			9 585
Faiveley Transport NSF (air conditioning)		10 057		—		—		—		—					—			10 057
Faiveley Transport Nowe GmbH (sanding systems)		3 273		—		—		—		—					—			3 273
Faiveley Transport Tours		6 061		—		—		—		—					—			6 061
Faiveley Transport Schweiz AG (heating)		2 662		—		—		—		—					14	⁽²⁾		2 676
Faiveley Transport Gennevilliers (sintered brakes)		13 470		—		—		—		—		(13 470	)		—			—
Faiveley Transport Schwab AG		24 571		—											125	⁽²⁾		24 696
Other		2 846		—		—		—		—					(1	)		2 845
Total		688 572		—		—		—		—		(44 255	)		2 666			646 982

(1)

These movements are due to the translation difference on goodwill recognised in US Dollars: Graham-White Manufacturing Co. (USD 98,224 K) and Amsted Rail-Faiveley LLC (USD 34,359 K) / Ellcon National Inc. (USD 10,658 K).

(2)

These movements are due to the translation difference on goodwill recognised in CHF: Faiveley Transport Schweiz AG (CHF 2,910 K) and Schwab Verkehrstechnik AG (CHF 26,859 K).

As part of the process of combining with Wabtec, the goodwill attached to the “Amsted Rail-Faiveley LLC” and “Faiveley Transport Gennevilliers” groups of assets was reclassified as held for sale as of 30 September 2016 for a total of €44,255 K (see Note 8).

In accordance with IAS 36, the Group carried out an analysis aimed at identifying potential indications of impairment on CGUs that were not classified as held for sale at 30 September 2016. No indication of impairment was identified.

The €2.7 million increase in “Goodwill” over the first half year was due to currency fluctuations.

NOTE 6:

INTANGIBLE ASSETS


	Gross		Amortisation charges		Net 30 September 2016		Net 31 March 2016
Development costs		30,897		14,381		16,516		16,868
Concessions, patents and licences		38,861		22,836		16,025		14,459
Other intangible assets		25,074		3,316		21,758		32,238
Total		94,832		40,533		54,299		63,565

The reduction in “Other intangible assets” mainly results from the classification of the value of sales agency agreements (USD 11.5 million) – which form part of the “Amsted Rail-Faiveley LLC” group of assets – as “held for sale”.

At 30 September 2016, intangible assets were broken down as follows:

•

Development costs: development costs incurred as part of technical innovation projects that comply with the IAS 38 capitalisation criteria. These costs are amortised over a period of 3 years.

•

Concessions, patents and licences: this item mainly includes IT software amortised over a maximum period of 10 years.

•

Other intangible assets primarily include:

•

The value of the customer portfolio contributed by the acquisition of Graham-White Manufacturing Co. of €3.0 million (USD 3.3 million).

•

The value of the customer portfolio contributed by the acquisition of Schwab, of a gross amount of €5.7 million (CHF 6.2 million) and expertise of €0.8 million (CHF 0.9 million)

•

Costs corresponding to the implementation of a major IT system integration programme, totalling a gross amount of €17.7 million the objective of which is to optimise organisations, processes, tools and the sharing of technical data within the Faiveley Transport Group.

Changes during the period


	Development costs			Concessions, patents and licences			Other intangible assets			TOTAL
Gross 31 March 2016		30,192			40,677			35,496			106,364
Changes in consolidation scope		—			—			—			—
Acquisitions		2,197	⁽¹⁾		3,215			(257	)		5,156
Disposals		—			(243	)		(127	)		(370	)
Reclassified as held for sale		(1,726	)		(4,429	)		(10,259	)		(16,415	)
Other movements		237			(350	)		209			96
Gross 30 September 2016		30,899			38,871			25,062			94,831
Accumulated amortisation at 1 April 2016		(13,324	)		(26,206	)		(3,269	)		(42,799	)
Changes in consolidation scope		—			—			—			—
Charges to provision		(1,193	)		(1,420	)		(437	)		(3,050	)
Reversal of provision		—			238			—			238
Reclassified as held for sale		140			4,175			435			4,750
Other movements		(4	)		377			(44	)		329
Accumulated amortisation at 30 September 2016		(14,381	)		(22,836	)		(3,316	)		(40,532	)
Net amounts		16,518			16,035			21,746			54,299

(1)

Development costs capitalised over the period

NOTE 7:

PROPERTY, PLANT AND EQUIPMENT


	Gross		Depreciation charges		Net 30 September 2016		Net 31 March 2016
Land		5,852		252		5,600		5,575
Buildings		77,864		58,785		19,079		19,152
Plant and machinery		155,650		123,497		32,153		34,603
Other PPE		45,781		37,162		8,619		8,758
Under construction		8,487		—		8,487		9,592
Total		293,634		219,696		73,938		77,681

Changes during the period


	Land			Buildings			Plant and machinery			Other property, plant and equipment			Under construction			TOTAL
Gross 1 April 2016		5,826			78,097			168,566			45,482			9,592			307,565
Changes in consolidation scope		—			10			35			54			—			100
Acquisitions		—			832			4,164			1,207			3,825			10,027
Disposals		—			(943	)		(2,479	)		(595	)		(10	)		(4,028	)
Reclassified as held for sale		—			(784	)		(15,690	)		(395	)		(3,634	)		(20,502	)
Other movements		27			652			1,054			27			(1,287	)		473
Gross 30 September 2016		5,853			77,864			155,650			45,780			8,487			293,634
Accumulated depreciation at 1 April 2016		(251	)		(58,945	)		(133,964	)		(36,724	)		—			(229,883	)
Changes in consolidation scope		—			(12	)		7			6						1
Charges to provision		(2	)		(1,049	)		(4,051	)		(1,399	)					(6,500	)
Reversal of provision		—			275			2,427			584						3,286
Reclassified as held for sale		—			730			12,072			371			—			13,173
Other movements		(0	)		216			11			0						228
Accumulated depreciation at 30 September 2016		(253	)		(58,785	)		(123,497	)		(37,162	)		—			(219,696	)
Net amounts		5,600			19,079			32,153			8,618			8,487			73,938

The majority of Group sites are owned outright or through operating leases, except the property assets of Faiveley Transport Iberica, which are leased-financed.

NOTE 8:

ASSETS HELD FOR SALE

At 30 September 2016, assets held for sale were composed of:

•

The group of assets of the “Faiveley Transport Gennevilliers” subsidiary,

•

The group of assets of the “Amsted Rail-Faiveley LLC” subsidiary,

•

Assets related to the “Control valve” development,

•

A building belonging to the company Leipzig,

•

A building owned by Faiveley Transport North America Inc.

In accordance with IFRS 5, these groups of assets are valued at the lower of their net book value and of their probable disposal value.

Details of the assets and liabilities held for sale are provided below:


(€ thousands)	31 March 2016		Translation difference			Disposals during the period			Assets classified as held for sale		Impairment of assets			30 September 2016
Goodwill		—		(187	)					44 255		(44 068	)		—
Other non-current assets		7 527		105			(659	)		19 652		(10 987	)		15 637
Current assets		—								7 850		(1 957	)		5 893
Cash		—								128		—			128
Total assets held for sale		7 527		(82	)		(659	)		71 884		(57 013	)		21 658
Non-current liabilities		—								1 178		—			1 178
Current liabilities		—								6 677		6 000			12 677
Total liabilities related to assets held for sale		—		—			—			7 855		6 000			13 855

The item “Impairment of assets”, representing €63,012 K in the income statement, includes a €57,013 K impairment loss on assets held for sale and €6,000 K in provisions for charges related to assets held for sale.

At 30 September 2016, the gain accumulated in other items of comprehensive income and corresponding to translation differences on these assets was estimated at approximately €5 million and will be recognised in the income statement at the completion date of the transaction.

At 31 March 2016, assets held for sale were composed of:

•

A building owned by the company Faiveley Transport Leipzig GmbH & Co. KG with a net value of €1,658 K

•

A building owned by the company Graham-White Manufacturing Co. with a net value of €659 K. It was sold for €606 K (USD 681 K) during the course of the financial year.

•

A building owned by Faiveley Transport North America Inc. with a net value of €5,210 K

NOTE 9:

INVESTMENTS IN EQUITY-ACCOUNTED ENTITIES

Joint ventures are entities over which Faiveley Group exercises joint control.

Change in equity value of joint ventures during the period


	30 September 2016			31 March 2016
Net value of securities at beginning of the period		20,742			21,817
Share of profit of equity-accounted entities		1,794			5,561
Dividends paid		—			(3,761	)
Other movements ⁽¹⁾		(280	)		(2,875	)
Writedowns
Net value of securities at period-end		22,256			20,742

(1)

including translation loss of €280 K

Risks associated with interests in joint ventures

Commitments given by the Group in respect of its joint ventures and contingent liabilities incurred by its joint ventures are presented in Note 36 “Off-balance sheet commitments”.

NOTE 10:

OTHER NON-CURRENT FINANCIAL ASSETS

Changes during the period


	Shareholdings in unconsolidated subsidiaries			Other financial investments			TOTAL
Gross 1 April 2016		932			2,669			3,601
Changes in consolidation scope		—			21			21
Acquisitions		—			24			24
Disposals		—			(339	)		(339	)
Reclassified as held for sale		—			(94	)		(94	)
Other movements		(9	)		10			1
Gross 30 September 2016		923			2,291			3,214
Accumulated writedowns at 1 April 2016		677			25			702
Changes in consolidation scope		—			—			—
Charges to provision		—			—			—
Reversal of provision		—			—			—
Reclassified as held for sale		—			—			—
Other movements		—			—			—
Accumulated writedowns at 30 September 2016		677			25			702
Net amounts		246			2,266			2,512

Maturity date of other financial investments


	1 to 5 years		More than 5 years		Gross 30 September 2016		Gross 31 March 2016
Other non-current investments		7				7		140
Loans		571		419		990		989
Guaranteed deposits and securities		1,159		73		1,232		1,502
Other financial receivables		38		25		62		38
Total		1,775		517		2,291		2,669

Financial information on unconsolidated securities


			Net book value of securities
(€ thousands)	% interest		Gross		Impairment			Net
SUECOBRAS (Brazil)⁽¹⁾		100		865		(666	)		199
SAB WABCO SHARAVAN Ltd. (Iran)⁽²⁾		49		11		(11	)		—
SOFAPORT (France) ⁽¹⁾		59.50		47		—			47
FAIVELEY TRANSPORT SOUTH AFRICA⁽²⁾		100		—		—			—
TOTAL				923		(677	)		246

(1)

Companies undergoing liquidation

(2)

Dormant companies

The unconsolidated securities had an overall net book value of €0.2 million at 30 September 2016, which was representative of their fair value.

NOTE 11:

INVENTORIES


	Gross		Writedowns		Net 30 September 2016		Net 31 March 2016
Raw materials		122,731		16,370		106,361		103,560
Work-in-progress		25,143		933		24,210		20,288
Finished products		40,449		4,797		35,652		27,319
Merchandise		11,972		921		11,051		10,055
Total		200,295		23,021		177,274		161,222

Movements in provisions during the period


	Provisions at 1 April 2016		Changes in consolidation scope		Charges to provision		Reversals provisions used			Reversals provisions unused			Reclassified as held for sale			Other movements⁽¹⁾			Provisions at 30 September 2016
Raw materials		16 579		—		1 842		(367	)		(603	)		(512	)		(570	)		16 370
Work-in-progress		1 102		—		239		(69	)		—			(14	)		(325	)		933
Finished products		4 183		—		203		(72	)		(135	)		(212	)		830			4 797
Merchandise		895		—		92		(33	)		(40	)		—			6			921
Total		22 759		—		2 376		(540	)		(777	)		(738	)		(59	)		23 021

(1)

Translation adjustment for the period and reclassifications.

During the period, old inventories and inventories that had become totally obsolete were scrapped. 40 % of the value of these inventories had previously been written down. The impact on the income statement for the period was a loss of €0.7 million.

NOTE 12:

WORK-IN-PROGRESS ON PROJECTS

At 30 September 2016, net work-in-progress on projects was valued at €130.6 million, compared with €123.4 million at 31

March 2016. This primarily includes engineering costs on long-term contracts. At each balance sheet date, the Group assesses the recoverable amount. In the event of a loss-making contract, a writedown is recognised as a reduction of contracts in progress.

Gross work-in-progress on projects was €148.9 million at 30 September 2016, compared with €145.2 million at 31 March 2016.

Provisions for losses on completion, presented as a reduction of work-in-progress on projects, totalled €18.5 million at 30 September 2016 as against €21.9 million at 31 March 2016.

NOTE 13:

CURRENT RECEIVABLES

TRADE RECEIVABLES


	Gross			Writedowns		Net 30 September 2016			Net 31 March 2016
Trade receivables		279,727			5,079		274,648			311,475
Assignment of receivables (factoring and ad hocassignments)		(79,679	)		—		(79,679	)		(95,669	)
Total		200,048			5,079		194,969			215,806

Movements in provisions for doubtful trade receivables


Financial periods ended:	Opening balance of provision		Changes in consolidation scope	Charges to provision		Reversals provisions used			Reversals provisions unused			Reclassified as held for sale			Other movements			Closing balance of provision
30 September 2016		5,178			484		(216	)		(292	)		(49	)		(24	)		5,079
31 March 2016		4,652			1,624		(0	)		(950	)		—			(147	)		5,178

Trade receivables at year-end


										Receivables due
	Total balance sheet			Receivables not yet due			Total due			Less than 60 days			Between 60 and 120 days			Between 120 and 240 days			More than 240 days
Gross value		200,048			143,707			56,341			27,437			9,221			9,584			10,100
Writedowns		(5,079	)		(486	)		(4,593	)		(19	)		(349	)		(350	)		(3,875	)
Net value		194,969			143,221			51,748			27,418			8,871			9,233			6,225

Receivables remaining unpaid beyond the contractual due date represent, in most cases, amounts confirmed by customers but in respect of which payment is subject to the retentions identified when work was inspected.

OTHER CURRENT ASSETS


	Gross		Writedowns		Net 30 September 2016		Net 31 March 2016
Supplier credit notes pending		390		—		390		630
Social security and tax receivables		14,669		—		14,669		15,085
Prepaid expenses		8,686		—		8,686		10,147
Accrued income		3,353		—		3,353		2,623
Other receivables		12,009		—		12,009		9,417
Total		39,107		—		39,107		37,902

NOTE 14:

CURRENT FINANCIAL ASSETS


	30 September 2016		31 March 2016
Guaranteed deposits and securities ⁽¹⁾		5,086		8,034
Other financial receivables		73		65
Current accounts		3		1,002
Fair value of derivatives - assets		7,377		24,810
Total		12,539		33,911

(1)

Under factoring programmes, in order to guarantee the repayment of amounts for which the Group may become liable, a non-interest bearing escrow account has been established representing 10% of factored receivables outstanding. This rate may potentially be adjusted in the event of an increase in disallowed receivables (credit notes, disputes, non-payment or discounts). The outstanding guarantees at 30 September 2016 totalled €4,740 K and €5,438 K at 31 March 2016.

NOTE 15:

CASH AND CASH EQUIVALENTS


	30 September 2016			31 March 2016
Short-term investments		14,991			15,021
Cash		210,706			221,048
Bank overdrafts		(69	)		(12	)
Invoices factored and not guaranteed		(226	)		(2,143	)
Total		225,403			233,914

The Group does not hold a share portfolio but invests excess cash balances. At 30 September 2016, it had money market funds and certificates of deposits of €0.5 million and fixed-term deposits of €14.5 million. These investments meet the criteria specified by IAS 7, which allows them to be classified as cash equivalents.

NOTE 16:

GROUP EQUITY

SHARE CAPITAL

At 30 September 2016, the Company’s share capital totalled €14,621,152 divided into 14,621,152 shares of €1 each, fully paid up. Shares registered in the name of the same shareholder for at least two years have double voting rights.

The Group manages its capital by ensuring that it maintains financial ratios within the limits defined by its credit agreements (see Note 19).

Composition of the share capital


Shares	Par value		1 April 2016		New shares issued		Voting rights granted			30 September 2016
Ordinary		1		6,952,386		7,000		8,435			6,967,821
Redeemed		—		—		—		—			—
With preferred dividends		—		—		—		—			—
With double voting rights		1		7,661,766		—		(8,435	)		7,653,331
Total		1		14,614,152		7,000		—			14,621,152

Treasury shares

Faiveley Transport held 89,437 treasury shares as at 30 September 2016 (155,390 at 31 March 2016). This reduction was due to the allocation in July 2016 of 65,833 shares as part of the Free share allocation plan of 02/07/2014, and the anticipated allocation of 120 shares as part of the Free share allocation plan of 15/01/2013.

Translation differences

Translation differences comprise mainly the gains and losses resulting from the translation of the equity of subsidiaries the functional currency of which is not the Euro.

The translation differences presented in the consolidated statement of comprehensive income primarily reflect the change in the US dollar, for a positive €1.5 million, and the Pound Sterling, for a negative €3.7 million, against the Euro at 30 September 2016.

SHARE-BASED PAYMENTS

Share purchase or subscription option plans

Plan features


Allocation	Share subscription option plan
Date of Management Board		23/11/2009
Exercise price in € (*)		54.91
Date from which options can be exercised		22/11/2013
Expiry date		22/11/2017
Number of options remaining to be exercised at 31 March 2016		74,000
Options granted during the period
Options cancelled during the period		—
Options exercised during the period		(7,000	)
Number of options remaining to be exercised at 30 September 2016		67,000

The exercise of the 7,000 subscription options of the plan dated 23/11/2009 automatically resulted in a €7,000 increase in the share capital of Faiveley Transport S.A. through the issue of 7,000 new shares.

Summary and valuation of plans


Allocation	Share subscription option plan
Date of Management Board		23/11/2009
Initial fair value of the plan *(€ millions)*		2.8
Charge for the financial year (€ millions)		—

Free performance-based share allocation plans and free share plans

Plan features

Allocation

Free performance-based shares

Free shares

Date of authorisation by the AGM

12/09/2013

12/09/2014

18/09/2015

14/09/2012

Date of Management Board

02/07/2014

27/03/2015

10/08/2015

01/10/2015

27/01/2016

15/01/2013

Date ownership of free shares transferred to French tax residents

02/07/2016

27/03/2017

10/08/2017

01/10/2016

27/01/2017

15/01/2015

Date ownership of free shares transferred to non-French tax residents

02/07/2018

27/03/2019

N/A

01/10/2016

27/01/2017

15/01/2017

Vesting date of free shares

02/07/2018

27/03/2019

10/08/2019

01/10/2017

27/01/2018

15/01/2017

Total number of shares allocated at 31 March 2016

125,046

4,000

5,400

139,275

4,500

30,504

Number of shares allocated during the period

Number of shares cancelled during the period

(16,357

)

—

(3,431

)

—

Total number of shares vested during the period under this plan

(65,833

)

—

(120

)

Total number of shares allocated at 30 Septembre 2016

42,856

4,000

5,400

135,844

4,500

30,384

Terms and conditions of share allocation under the plan

Determination
of % of shares
vested at
02/07/2016

Determination
of % of shares
vested at
27/03/2017

Determination
of % of shares
vested at
10/08/2017

Determination
of % of shares
vested at
01/10/2016

Determination
of % of shares
vested at
27/01/2017

Allocation
subject to
personal
investment by
beneficiaries,
with two free
shares
granted for
every share
bought

Plan valuation

Allocation

Free performance-based shares

Free shares

Date of Management Board

02/07/2014

27/03/2015

10/08/2015

01/10/2015

27/01/2016

15/01/2013

Initial fair value of the plan (€ millions)

2.9

0.1

0.3

8.8

0.3

1.8

Charge for the financial year (€ millions)

0.3

0.0

0.1

5.9

0.1

NOTE 17:

MINORITY INTERESTS

SUMMARY OF MINORITY INTERESTS INCLUDED IN EQUITY


	30 September 2016		31 March 2016
Shanghai Faiveley Railway Technology		7,666		8,098
Amsted Rail - Faiveley LLC		7,760		22,677
Other minority interests		1,177		1,333
Total		16,603		32,108

Minority interests fell by €15.5 million in comparison with 31 March 2016. This was primarily due to:

•

The distribution of dividends by “Amsted Rail – Faiveley LLC” for €5.9 million;

•

The €9.5 million impairment loss recorded by the company “Amsted Rail – Faiveley LLC”;

NOTE 18:

ANALYSIS OF PROVISIONS

NON-CURRENT PROVISIONS


	Amount at 1 April 2016		Changes in consolidation scope		Charges to provision			Reversals used			Items of other Comprehensive Income		Reversals provisions unused			Reclassified as held for sale			Other movements⁽¹⁾			Amount at 30 September 2016
Provisions for retirement commitments and employee benefits		42,195		—		1,384			(1,128	)		8,141		(1,265	)		(492	)		(697	)		48,139
Provisions for liabilities		941		—		(221	)		(150	)		—		(100	)		—			6			476
Total		43,136		—		1,164			(1,278	)		8,141		(1,365	)		(492	)		(691	)		48,615

(1)

Including exchange differences of € (690) K

PROVISIONS FOR RETIREMENT COMMITMENTS AND EMPLOYEE BENEFITS

Provisions for retirement benefits are calculated using the projected unit credit method and based on the following assumptions:

•

The charge recognised for the period is equal to half the estimated annual charge for the 2016/17 financial year,

•

Benefits paid on retirement or as contributions to pension plans have been recognised on an actual basis,

•

Since the discount and inflation rates changed significantly over the period, the actuarial loss generated by the valuation of pension commitments has been recognised under Items of other comprehensive income, for €8.1 million.

Actuarial assumptions:

The actuarial assumptions used to measure commitments take into account the demographic and financial conditions specific to each country or Group company.

Discount rates are determined by reference to the yields on AAA bonds with similar durations to those of the commitments as at the valuation date (Bloomberg Corporate AA 15 years for France and Germany and Iboxx 15+ for the UK).

The assumptions used for those countries with the most significant commitments are shown in the following table:


	30 September 2016									31 March 2016
	France			Germany			United Kingdom			France			Germany			United Kingdom
Discount rate		1.00	%		1.00	%		2.15	%		1.45	%		1.45	%		3.45	%
Inflation rate		2.00	%		2.00	%		3.05	%		2.00	%		2.00	%		2.90	%
Average salary increase rate		[2% - 2.5	%]		2.22	%		3.30	%		[2% - 2.5	%]		2.22	%		3.30	%

CURRENT PROVISIONS


	Amount at 1 April 2016		Changes in consolidation scope		Charges to provision		Reversals provisions used			Reversals provisions unused			Items of other Comprehensive Income		Reclassified as held for sale			Other movements			Amount at 30 September 2016
Provisions for risks, warranty and penalties		98,966		—		21,642		(11,536	)		(9,676	)		—		(403	)		1,249			100,242
Provisions for losses on completion		1,909		—		—		—			—			—		—			1,591			3,500
Total contract provisions		100,875		—		21,642		(11,536	)		(9,676	)		—		(403	)		2,840			103,742
Provisions for restructuring		5,048		—		27		(771	)		—			—		—			—			4,304
Provisions for other risks		6,463		—		54		(35	)		(74	)		—		(56	)		12			6,364
Total other provisions		11,511		—		81		(806	)		(74	)		—		(56	)		12			10,668
Total		112,386		—		21,723		(12,342	)		(9,750	)		—		(459	)		2,852	⁽¹⁾		114,410

(1)

Including exchange losses: € (10) K and reclassifications: € 2,862 K

Current provisions primarily relate to provisions for liabilities, guarantees and after-sales service granted to our customers and litigations and claims on completed contracts. The methods underlying the recognition of these provisions are specified in the notes to the consolidated financial statements, Note 3, included in the 2015/16 Registration Document.

Provisions for losses on completion are shown here for the amount not allocated as a reduction of work-in-progress on projects.

Provisions for losses on completion, presented as a reduction of work-in-progress on projects, totalled €18.5 million at 30 September 2016 as against €21.9 million at 31 March 2016.

NOTE 19:

BORROWINGS AND FINANCIAL DEBT

In respect of all its sources of financing, Faiveley Transport Group must now comply with the following three financial conditions (as defined in the various financing agreements):

•

Leverage ratio “Consolidated Net Debt/Consolidated EBITDA”, which must be below 3.

•

Gearing ratio “Consolidated Net Debt/Equity”, which must be below 1.5

•

“Consolidated EBITDA/Cost of Consolidated Net Financial Debt”, which must exceed 3.5.

Non-compliance with one of these covenants may result in the debt becoming immediately repayable.

At 30 September 2016, ratios were as follows for the various sources of financing:


At 30 September 2016	Syndicated credit		US private placement		SCHULDSCHEIN loan
“Consolidated Net Debt/Consolidated EBITDA” ratio		1.37		1.45		1.42
“Net Financial Debt/Consolidated Equity” ratio		n/a		0.26		0.25
“Consolidated EBITDA/Cost of Consolidated Net Financial Debt” ratio		12.25		11.84		11.84

ANALYSIS AND MATURITY OF NON-CURRENT AND CURRENT FINANCIAL DEBT


	30 September 2016
	Current portion		Non-current portion
	Under 1 year		1 to 5 years		Over 5 years		TOTAL		31 March 2016
Borrowings		24,609		210,345		150,777		385,730		398,760
Leases		210		840		—		1,050		1,160
Employee profit sharing		65						65		65
Various other financial liabilities		10						10		3
Guarantees and deposits received		56						56		56
Credit current accounts		61						61		75
Bank overdrafts		69						69		12
Short-term facilities (credit balance)		—						—		—
Invoices factored and not guaranteed		226						226		2,143
Total excluding fair value of derivatives		25,306		211,185		150,777		387,267		402,274
Fair value of derivatives - liabilities		9,095						9,095		16,338
Total		34,401		211,185		150,777		396,362		418,612

BREAKDOWN OF NON-CURRENT AND CURRENT FINANCIAL DEBT BY CURRENCY


	TOTAL 30 September 2016		TOTAL 31 March 2016
Euro		320,882		344,208
US Dollar		67,072		65,740
Hong Kong Dollar		179		200
Brazilian Real		53		51
Chinese Yuan		7,915		8,341
Indian Rupee		219		59
Czech Koruna		12		13
Korean Won		29		—
Total		396,362		418,612

CALCULATION OF NET FINANCIAL DEBT:


	At 30 September 2016			At 31 March 2016
Non-current financial debt		361,962			360,930
Current financial debt		25,011			39,189
Bank overdrafts		69			12
Invoices factored and not guaranteed		226			2,143
Total Financial Debt (a)		387,268			402,274
Receivables from investments					—
Loans		1,055			1,054
Guaranteed deposits and securities paid		6,318			7,077
Other financial receivables		44			2,611
Current accounts		3			1,002
Total net financial receivables (b)		7,419			11,744
Cash (c)		225,697			236,069
NET FINANCIAL DEBT (a-b-c)		154,152			154,461
Equity		624,238			688,860
Net debt / equity ratio		24.7	%		22.4	%

In economic terms, net debt should be reduced by the value of treasury shares held for sale as part of the share purchase/subscription option and free share allocation plans.

The liquidation value of these shares was €3.7 million at 30 September 2016, given the exercise prices granted for share purchase/subscription options and the average share price prevailing during the month preceding the balance sheet date for shares not allocated to these plans.

For accounting purposes, the value of treasury shares held is deducted from equity under IFRS; this amounted to €5.5 million at 30 September 2016 and €9.4 million at 31 March 2016.

NOTE 20:

FINANCIAL RISK MANAGEMENT

The Faiveley Transport Group’s treasury policy is based on overall financial risk management principles and provides specific strategies for areas such as foreign exchange risk, interest rate risk, raw materials risk, credit risk and liquidity risk.

Within this framework, the Group also uses derivative instruments, mainly forward purchases and sales of currencies, exchange rate and interest rate swaps, interest rate options and raw material swaps. The aim of these instruments is to manage the exchange, interest rate and raw material risks associated with the Group’s activities and financing.

The Group’s policy is not to invest in derivative instruments for speculative purposes.

The Supervisory Board of Faiveley Transport examines risk management principles as well as policies covering certain specific fields such as exchange risk, interest rate risk, raw materials risk, credit risk and liquidity risk. These policies are summarised below.

The market values of interest rate and foreign exchange derivative instruments have been determined based on period-end market prices. They have been appraised by an independent expert.

MARKET RISKS

Foreign exchange risk

The Group operates in foreign countries and is therefore exposed to exchange risk as a result of various foreign currency exposures.

The main currencies concerned are the US Dollar, the Hong Kong Dollar, the Czech Koruna, the Swedish Krona, the Pound Sterling and the Chinese Yuan.

The management of exchange risk on commercial contracts is centralised in the parent company’s Treasury Department and comprises two parts: certain and uncertain risk.

•

Exchange risk management relating to tenders in foreign currencies (uncertain risk):

Faiveley Transport Group is required to submit tenders denominated in foreign currencies. The Group’s hedging policy is not to use hedge instruments during the offer phase, unless specifically authorised by Management. The aim is to manage the exchange risk through normal commercially available means. If necessary, the Group Treasury Department would mainly use exchange options.

•

Exchange risk management relating to commercial contracts (certain risk):

Commercial contracts in foreign currencies (most often successful tenders) are hedged by the Group Treasury Department from contractual commitment. The instruments used primarily include forward purchases and exchange rate swaps. Treasury may also use options.

•

Exchange risk management relating to other transactions:

The Group’s policy is to systematically hedge the full value of future transactions expected in every major currency. The minimum trigger threshold for a foreign exchange hedge is €250 K.

Various cash flows are hedged for a minimum of 80% of the annual budget.

In addition to commercial contracts, all financial positions and management fees deemed significant are hedged.

Interest rate risks

The syndicated debt, excluding the revolving facility, is indexed on Euribor variable rates. The “SSD Schuldschein” private placement includes several maturities, some of which are indexed on a variable rate, others bearing a fixed rate. This debt may be hedged in accordance with the Group’s interest rate risk policy. All revolving facilities, drawn or undrawn, bear a variable rate and are not subject to interest hedges. The same applies to the US private placement bond issue, which bears a fixed rate.

To manage its risk, the Treasury Department has implemented a hedging strategy using interest rate swaps, tunnels, caps and options.

The exposure to interest rates on loans in Euros is hedged for 91% of the drawn debt, depending on interest rate fluctuations during the current financial year.

The US dollar denominated debt comprising the “US Private Placement” bond issue exclusively bears fixed rates.

The estimated cost of the Euro-denominated syndicated debt and “Schuldschein” loan is 1.58 % for the 2016/2017 period, hedges and spreads included. The estimated cost of the US-denominated debt is estimated at 4.85%. The total cost of the Group’s debt for 2016/2017 is therefore estimated at 2.16%.

Raw material risk

The Faiveley Transport Group is exposed to increases in the cost of raw materials such as steel, aluminium and copper, as well as to increases in transportation costs.

The Group has already anticipated these effects, through both its procurement policy and the preparation of its commercial offers. Certain contracts relating to projects include price indexation clauses which enable the Group to pass on a part of the increases in raw material costs.

Derivative financial instruments

•

Fair value of derivative instruments

The fair value of derivative instruments for hedging exchange, interest rate and raw materials risks reflected in the balance sheet was as follows:

At 30 September 2016

Financial
instruments Assets

Financial
instruments Liabilities

Unrealised
gains/
(losses) Equity

Interest rate hedges⁽¹⁾

768

1,472

(687

)

Raw material hedges⁽¹⁾

—

Foreign exchange hedges

6,601

7,623

)

• fair value hedges

3,703

3,814

—

• cash flow hedges

230

234

)

• not eligible for hedge accounting

2,668

3,575

—

Total

7,377

9,095

(683

)

(1)

Cash flow hedges.

•

Movement in equity reserve (excl. deferred tax):


	Amount 1 April 2016			Movement in the period			Amounts reclassified to the income statement			Amount 31 September 2016
Interest rate hedges		(731	)		288			(244	)		(687	)
Foreign exchange hedges		(482	)		1,191			(713	)		(4	)
Raw material hedges		12			(4	)		—			8
TOTAL		(1,201	)		1,475			(957	)		(683	)

•

Future release of amounts recorded in equity at 30 September 2016:

The amount of €(687) K recorded in equity in respect of interest rate derivatives will be released to the income statement between 1 October 2016 and 31 March 2021 according to the maturity of the flows hedged.

The amount of €(4) K recorded in equity in respect of exchange rate derivatives will be transferred to the income statement for the year ending 31 December 2016.

The amount of €8 K recorded in equity in relation to raw material derivatives will be transferred to the income statement for the year ending 31 December 2016.

CREDIT RISK

Owing to its commercial activities, Faiveley Transport Group is exposed to credit risk, in particular the risk of default on the part of its customers.

The Group only enters into commercial relationships with third parties whose financial position is known to be healthy. The Group’s policy is to verify the financial health of those customers wishing to obtain credit.

In the case of derivative instruments and cash transactions, counterparties are limited to the high-quality financial institutions that currently finance the Group.

Faiveley Transport Group makes use of factoring arrangements in France, Germany, Spain, Italy and China. In addition, at the request of major customers, the Group participates in two reverse factoring programmes in Canada, Germany, the UK and the US.

Factoring enables the Group to sell, without recourse, part of its receivables to various factoring companies and banks. This selling without recourse has enabled the Group to improve trade receivables recovery and to transfer the risk of default or bankruptcy on the part of customers or other debtors to the factors.

At 30 September 2016, receivables sold without recourse totalled €79.7 million, including €26.6 million for reverse factoring programmes implemented at the request of customers. The total amount of receivables sold without recourse was €95.7 million at 31 March 2016.

The amount of receivables factored and not guaranteed was €0.2 million.

As regards the risk associated with financial assets, the Group’s maximum exposure is equal to their book value.

LIQUIDITY RISK

Prudent liquidity risk management requires the Group to retain a sufficient level of cash and securities that can be traded in a market, to have adequate financial resources due to the implementation of appropriate credit facilities and to be in a position to unwind positions in the market.

At 30 September 2016, the Group had €125 million in undrawn confirmed credit facilities.

At 30 September 2016, the Group complied with all financial conditions required by all credit agreements.

The Group considers that the cash flows generated by its operating activities, cash and funds available via existing credit lines will be sufficient to cover the expenditure and investment necessary for its operations, to service its debt and to pay dividends. Conversely, the Group may have to borrow to finance potential acquisitions.

NOTE 21:

CURRENT LIABILITIES


	30 September 2016		31 March 2016
Trade payables		183,252		171,640
Tax and social security liabilities		70,715		72,338
Accrued credit notes		1,099		1,375
Deferred income		1,292		593
Accrued expenses		11,760		18,144
Non-current assets suppliers		0		650
Dividends payable		14,668		—
Other operating liabilities		4,188		4,835
Total		286,974		269,575

At 30 September 2016, “Trade payables” included €40.5 million of credit work-in-progress on projects (compared with €42.9 million at 31 March 2016).

NOTE 22:

FACTORING

In order to diversify the Group’s sources of financing and reduce the credit risk, several subsidiaries factor their receivables. At 30 September 2016, the assignment of receivables to the various factors resulted in a €79,679 K reduction in “Trade receivables”. These transactions include factoring contracts without recourse as requested by two Group customers, totalling €26,545 K.

In addition, available and uncalled cash with the factoring companies amounted to €46,653 K and is included in cash and cash equivalents. Conversely, the portion of receivables factored and not guaranteed was recorded as financial debt under “Current borrowings and financial liabilities” for an amount of €226 K. The risk incurred by the Group in respect of receivables factored and not guaranteed relates to the non-collection of these receivables.

NOTE 23:

SEGMENT REPORTING

The Group opted for a presentation similar to IAS 14, pursuant to IFRS 8, consisting of presenting information for the rail operating segment.

INCOME STATEMENT


	30 September 2016			30 September 2015
Continuing activities:
Sales		520,472			532,809
Operating profit after share of profit of equity-accounted entities		(29,112	)		40,911
Net financial expense		(4,902	)		(4,463	)
Income tax		(8,713	)		(11,104	)
Share of profit of other equity-accounted entities		—			—
Net profit from continuing operations		(42,727	)		25,344
Consolidated net profit		(42,727	)		25,344
Depreciation and amortisation for the period		(9,550	)		(8,958	)

BALANCE SHEET


	30 September 2016		31 March 2016
Property, plant and equipment and intangible assets, net		775,219		829,817
Non-current financial assets		24,768		23,641
Deferred tax assets		65,775		62,274
Sub-total non-current assets		865,762		915,732
Inventories and receivables (excluding tax)		507,970		502,776
Other current assets		65,734		89,831
Cash		225,697		236,069
Assets held for sale		21,658		7,527
Sub-total current assets		821,059		836,203
Total assets		1,686,821		1,751,935
Equity		624,238		688,860
Employee benefits and other non-current provisions		48,615		43,136
Deferred tax liabilities		54,528		51,120
Non-current financial debt		361,962		360,930
Sub-total non-current liabilities		465,105		455,186
Current provisions		114,410		112,387
Current financial debt		34,400		57,682
Advances, prepayments and non-financial liabilities (excluding tax)		428,045		428,272
Other current liabilities		6,768		9,548
Liabilities held for sale		13,855		—
Sub-total current liabilities		597,478		607,889
Total equity and liabilities		1,686,821		1,751,935
Acquisitions of property, plant and equipment and intangible assets (excluding goodwill) for the period		15,183		36,253
Workforce		5,989		5,635

INFORMATION BY GEOGRAPHIC REGION

Main contribution figures by geographic region of origin at 30 September 2016:


	France			Europe (excl. France)			Americas			Asia/Pacific			Other			Total
Sales		112,762			220,680			75,706			110,313			1,011			520,472
Closing balance of property, plant and equipment and intangible assets (excluding goodwill)		53,844			44,299			14,468			15,072			554			128,237
Acquisition of property, plant and equipment and intangible assets (excluding goodwill)		5,726			5,786			691			3,118			462			15,783
Amortisation and depreciation of property, plant and equipment and intangible assets (excluding goodwill)		(3,861	)		(3,158	)		(1,317	)		(1,203	)		(11	)		(9,550	)

NOTE 24:

SALES


	30 September 2016		30 September 2015
Sales of products and services associated with contracts > 1 year		501,147		511,695
Sales of products and services associated with contracts < 1 year		19,325		21,114
Total⁽¹⁾		520,472		532,809

(1)

Of which sales related to the “Services” division: €222.2 million at 30 September 2016 and €236.3 million at 30 September 2015.

NOTE 25:

GROSS PROFIT AND COST OF SALES

Gross profit is defined as sales less cost of sales.

Gross profit for the first half of 2016/2017 totalled €136.7 million, representing 26.3% of sales, compared with 24.7% for the first half of 2015/16.

Cost of sales can be analysed as follows:


	30 September 2016			30 September 2015
Direct labour		(52,858	)		(49,019	)
Raw materials and components		(187,838	)		(195,083	)
Structure costs		(39,360	)		(40,516	)
Procurement costs		(25,518	)		(28,285	)
Engineering costs		(31,272	)		(26,844	)
Other direct costs		(28,096	)		(28,713	)
Change in projects in progress		5,231			(11,352	)
Net change in provisions for projects and warranty costs		(26,036	)		(18,643	)
Net change in provisions for losses on completion		1,951			(2,647	)
Total cost of sales		(383,796	)		(401,103	)

NOTE 26:

OTHER INCOME AND EXPENSES FROM RECURRING OPERATIONS


	30 September 2016			30 September 2015
Royalties		139			843
Reversal of provisions for other liabilities		340			1,362
Insurance compensation		5			—
Other income		497			442
Total other income		981			2,647
Royalties		(0	)		0
Bad debts		(216	)		(231	)
Charges to provisions for other liabilities		—			(414	)
Inventory writedowns		(2,965	)		(1,751	)
Employee profit sharing		(787	)		(415	)
Costs related to the combination with Wabtec Corporation		(14,421	)		(9,545	)
Other expenses		(1,004	)		(1,026	)
Total other expenses		(19,392	)		(13,382	)
Net total		(18,411	)		(10,735	)

The costs relating to the merger with Wabtec Corporation primarily consist of advisors’ and lawyers’ fees, as well as of the additional cost of the latest performance-based plan relating to the impact of the transaction.

NOTE 27:

RESTRUCTURING COSTS AND GAINS AND LOSSES ON DISPOSAL OF PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS

RESTRUCTURING COSTS

Restructuring costs for the period totalled €0.6 million, compared with €1.3 million in the previous financial year. Over the period, these restructuring costs primarily related to “Shanghai Faiveley Railway Technology”.

DISPOSAL OF NON-CURRENT ASSETS


	30 September 2016			30 September 2015
Sales price of assets sold		742			31
Net book value of assets sold		(745	)		(21	)
Total		(3	)		10

NOTE 28:

NET FINANCIAL INCOME/(EXPENSE)


	30 September 2016			30 September 2015
Gross cost of financial debt		(5,077	)		(5,560	)
Income from cash and cash equivalents		387			501
Net cost of financial debt		(4,690	)		(5,059	)
Financial instrument income		3,107			8,609
Income linked to exchange differences		14,323			12,483
Proceeds from sale of marketable securities		67			4
Reversal of financial provisions		3			—
Dividends received		18			25
Other financial income		305			160
Other financial income		17,823			21,281
Financial instrument charges		(6,050	)		(4,450	)
Charges linked to exchange differences		(10,862	)		(14,945	)
Interest charges on retirement commitments		(291	)		(370	)
Net book value of financial assets sold					—
Charges on bank guarantees		(702	)		(587	)
Other financial expenses		(130	)		(333	)
Other financial expenses		(18,035	)		(20,685	)
NET FINANCIAL EXPENSE		(4,902	)		(4,463	)

The net cost of financial debt for the period was €4.7 million, compared with €5.1 million in the previous period. The Group benefited from lower interest rates on the markets as well as a more favourable interest rate hedge portfolio.

The foreign exchange gain for the financial year, including charges and income related to currency fluctuations and financial income, was €0.5 million. This virtually neutral impact was due to the limited cumulative effects of matured and unrealised swaps over the period as well as a minor exchange gain on unhedged items.

NOTE 29:

INCOME TAX

In accordance with IAS 34, the income tax charge is determined by applying the projected effective tax rate for the entire financial year to the pre-tax profit for the first half-year. This effective rate is set on the basis of internal forecasts entity by entity.

The negative effective tax rate of 24.3% was mainly due to the impacts of non-tax deductible impairment losses recorded over the period.

The effective tax rate for the first half of 2016 before the impact of impairment losses was 32.0% (against 33.7% over the first half of 2015).

ANALYSIS BY TYPE


	30 September 2016			30 September 2015
Current tax - continuing operations		(7,927	)		(9,016	)
Deferred tax - continuing operations		(786	)		(2,088	)
Total income tax - continuing operations		(8,713	)		(11,104	)
Tax on discontinued operations		—			—
TOTAL TAX		(8,713	)		(11,104	)

NOTE 30:

PROFIT OR LOSS OF OPERATIONS HELD FOR DISPOSAL AND DISCONTINUED OPERATIONS

Nil

NOTE 31:

PAYROLL COSTS AND WORKFORCE


	30 September 2016		30 September 2015
Salaries		119,701		113,514
Social security charges		27,094		30,188
Retirement and other post-employment benefits		9,536		7,915
Charges associated with share-based payments		6,730		1,200
TOTAL PAYROLL COSTS		163,061		152,817
TOTAL WORKFORCE		5,989		5,636

Employees of joint ventures are excluded from the consolidated workforce.

NOTE 32:

EARNINGS PER SHARE

The table below shows the reconciliation between earnings per share and diluted earnings per share:


	30 September 2016			30 September 2015
Net profit - Group share used in the calculation of basic and diluted earnings per share (€ K)		(33,113	)		23,150
Average number of shares (a)		14,614,152			14,614,152
Weighted average number of treasury shares (b)		(122,835	)		(216,303	)
Average number of outstanding shares (a - b = c)		14,491,317			14,397,849
Weighted average number of dilutive instruments (d)		0			164,503
Diluted average number of shares (c + d)		14,491,317			14,562,352
Basic earnings per share		(2.29	)		1.61
Diluted earnings per share		(2.29	)		1.59

NOTE 33:

POST-BALANCE SHEET EVENTS

•

On 1 October 2016, the vesting of free shares referred to as performance-based shares for the plan of 1 October 2015 took place. This vesting led to the issue of 135,844 new shares which automatically translated into a €135,844 increase in the share capital of Faiveley Transport. The Company’s share capital now stands at €14,756,996.

•

On 4 October 2016, Faiveley Transport announced that it had been granted conditional authorisation by the European Commission regarding the proposed combination with Wabtec. This authorisation is contingent upon the commitment to sell Faiveley Transport Gennevilliers, the subsidiary specialised in the Group’s sintered brake business. Completion of the proposed combination of Faiveley Transport and Wabtec remains therefore subject to the potential buyer of Faiveley Transport Gennevilliers being approved by the European Commission.

•

On 18 October 2016, the Management Board decided to allocate free performance-based shares to certain employees pursuant to the authorisation granted at the Extraordinary General Meeting of 30 September 2016. This involved allocating a total of 144,000 shares to 203 beneficiaries. The allocation of free shares after a period of one year is subject to the beneficiary’s employment by the Group and the fulfilment of financial and operational performance criteria.

•

On 26 October 2016, Faiveley Transport announced that the US Department of Justice (DOJ) had submitted a draft decree authorising the planned combination with Wabtec to the Washington D.C. district court. The draft decree filed by the DOJ approves the combination agreement subject to the sale of certain of Faiveley Transport’s US assets, in particular its joint venture with Amsted-Rail. The assets to be sold represent annual sales of approximately €55 million.

•

On 2 November 2016, Faiveley Transport began negotiations with an industrial company with a view to selling Faiveley Transport Gennevilliers, the Group’s sintered brakes business, which represents annual sales of approximately €12 million. The signing of the disposal agreement could take place after completion of the information-consultation procedures with the competent employee representative bodies of Faiveley Transport Gennevilliers and Faiveley Transport. Completion of the proposed combination of Faiveley Transport and Wabtec remains therefore only subject to the potential buyer of Faiveley Transport Gennevilliers being approved by the European Commission.

NOTE 34:

TRANSACTIONS WITH RELATED PARTIES

With the exception of the items disclosed hereafter, no significant change in transactions with related parties as mentioned in the Registration Document dated 31 March 2016 occurred during the first six months to 30 September 2015.

TRANSACTIONS WITH RELATED COMPANIES

A list of consolidated companies is provided in Note 37.

Transactions with consolidated companies

Transactions with joint ventures not eliminated on consolidation:

Joint ventures are equity consolidated:

•

Qingdao Faiveley SRI Rail Brake Co. Ltd

•

Datong Faiveley Railway Vehicle Equipment Co., Ltd

•

Shijiazhuang Jiaxiang Precision Machinery Co. Ltd

•

Faiveley Rail Engineering Singapore

The consolidated financial statements include transactions carried out by the Group with its joint ventures as part of its normal business activities.

These transactions are normally carried out at arm’s length.


(€ thousands)	30 September 2016			30 September 2015
Sales		4,619			10,269
Operating receivables		7,223			9,794
Operating liabilities		(1,244	)		(1,429	)

Agreements entered with companies that have control over Faiveley Transport, and certain corporate officers

With Famille Faiveley Participations, Financière Faiveley, Erwan Faiveley, and François Faiveley:

At its meeting of 17 October 2016, the Board of Directors reviewed the proposed amendments to both the agreements signed between the Faiveley family and Wabtec Corporation and the TOA (Tender Offer Agreement) signed by the Company and Wabtec Corporation, whose primary purpose is to extend the period of validity of these agreements. The Board decided to authorise the Chairman of the Management Board, in accordance with the provisions of articles L. 225-86 and subsequent of the French Commercial Code relating to regulated agreements, to sign the amendment to the TOA.

NOTE 35:

DIVIDENDS

Approval was granted at the General Meeting of 30 September 2016 for the payment of a dividend (including treasury shares) in respect of the 2015/2016 financial year totalling €14,756,996 including:

•

€14,667,559 in respect of the €1.00 dividend per share paid on 7 October 2016 to 14,667,559 shares for the 2015/16 financial year.

•

€89,437 in unpaid dividends, corresponding to the 89,437 treasury shares held by Faiveley Transport at the time of the ex-dividend date, i.e. 5 October 2016.


	Number of shares		Treasury shares		Number of shares to which dividends have been paid		Dividends approved
Ordinary shares		7,103,665		89,437		7,014,228		7,014,228
Shares with double voting rights rights		7,653,331		0		7,653,331		7,653,331
		14,756,996		89,437		14,667,559		14,667,559	⁽¹⁾

(1)

Including €6,315,412 to Financière Faiveley and €1,159,288 to François Faiveley Participation (F.F.P.)

This dividend was paid on 7 October 2016. The distributable dividend was therefore recognised as a current liability at 30 September 2016.

NOTE 36:

OFF-BALANCE SHEET COMMITMENTS

LEASES

Operating leases

During the period, there were no significant changes to the value and nature of operating lease commitments reported at 31 March 2016.

OTHER COMMITMENTS GIVEN


(€ thousands)	30 September 2016		31 March 2016
Deposits, securities and bank guarantees given to customers		252,365		251,524
- of which given by joint ventures		—		—
Guarantees and securities given by the parent company to customers and banks *		455,781		518,726
- of which on behalf of joint ventures		10,438		10,604
Borrowings guaranteed by pledges:		—		—
- Mortgages of buildings		—		—

*	amount restated for parent company securities included in deposits, securities and bank guarantees given.

The off-balance sheet commitments above entitled “Deposits, securities and bank guarantees” is related to guarantees or securities provided to the banks essentially in favour of customers with whom commercial contracts have been signed. These guarantees are generally issued for defined periods and for defined amounts. These are principally guarantees for the repayment of deposits and guarantees for the satisfactory completion of contracts. Bank counter-guarantees may be issued for the benefit of banks supplying credit lines, and guarantees may also be issued for the benefit of certain subsidiaries of the Group.

The off-balance sheet commitments above entitled “Guarantees and securities given by the parent company” are guarantees agreed by the parent company Faiveley Transport in favour of customers who have signed commercial contracts with subsidiaries of the Group. As for bank guarantees, these are issued for defined periods and for defined amounts and essentially relate to guarantees for the repayment of deposits and guarantees for the satisfactory completion of contracts.

COMMITMENTS RECEIVED

Other guarantees from suppliers: €2,445 K

NOTE 37:

CONSOLIDATION SCOPE AND METHOD

Faiveley Transport is the Group’s holding company.

The following companies, over which Faiveley Transport exercises direct or indirect control, are fully consolidated.

LIST OF CONSOLIDATED COMPANIES AND CONSOLIDATION METHOD


ENTITY	COUNTRY		% control		% interest
Parent company:
FAIVELEY TRANSPORT
Full consolidation:
FAIVELEY TRANSPORT LEIPZIG GmbH & Co. KG		Germany		100.00		100.00
FAIVELEY TRANSPORT WITTEN GmbH		Germany		100.00		100.00
FAIVELEY TRANSPORT VERWALTUNGS GmbH		Germany		100.00		100.00
FAIVELEY TRANSPORT HOLDING GmbH & Co. KG		Germany		100.00		100.00
FAIVELEY TRANSPORT NOWE GmbH		Germany		100.00		100.00
FAIVELEY TRANSPORT AUSTRALIA Ltd.		Australia		100.00		100.00
FAIVELEY TRANSPORT BELGIUM NV		Belgium		100.00		100.00
FAIVELEY TRANSPORT DO BRASIL Ltda.		Brazil		100.00		100.00
FAIVELEY TRANSPORT CANADA Ltd.		Canada		100.00		100.00
FAIVELEY TRANSPORT CHILE Ltda.		Chile		100.00		99.99
FAIVELEY TRANSPORT SYSTEMS TECHNOLOGY (Beijing) Co. Ltd.		China		100.00		100.00
FAIVELEY TRANSPORT FAR EAST Ltd.		China		100.00		100.00
SHANGHAI FAIVELEY RAILWAY TECHNOLOGY Co. Ltd.		China		51.00		51.00
FAIVELEY TRANSPORT METRO TECHNOLOGY SHANGHAI Ltd.		China		100.00		100.00
FAIVELEY TRANSPORT RAILWAY TRADING (Shanghai) Co. Ltd.		China		100.00		100.00
FAIVELEY TRANSPORT ASIA PACIFIC Co. Ltd.		China		100.00		100.00
FAIVELEY TRANSPORT KOREA Ltd.		Korea		100.00		100.00
FAIVELEY TRANSPORT IBERICA S.A.		Spain		100.00		100.00
FAIVELEY TRANSPORT USA Inc.		United States		100.00		100.00
FAIVELEY TRANSPORT NORTH AMERICA Inc.		United States		100.00		100.00
ELLCON DRIVE LLC.		United States		100.00		100.00
AMSTED RAIL - FAIVELEY LLC		United States		67.50		67.50
GRAHAM-WHITE MANUFACTURING Co.		United States		100.00		100.00
OMNI GROUP CORPORATION		United States		100.00		100.00
ADVANCED GLOBAL ENGINEERING LLC.		United States		100.00		55.00
ATR INVESTMENTS LLC.		United States		100.00		100.00


ENTITY	COUNTRY		% control		% interest
FAIVELEY TRANSPORT AMIENS		France		100.00		100.00
FAIVELEY TRANSPORT NSF		France		100.00		100.00
FAIVELEY TRANSPORT TOURS		France		100.00		100.00
FAIVELEY TRANSPORT GENNEVILLIERS		France		100.00		100.00
FAIVELEY TRANSPORT BIRKENHEAD Ltd.		United Kingdom		100.00		100.00
FAIVELEY TRANSPORT TAMWORTH Ltd.		United Kingdom		100.00		100.00
SAB WABCO Ltd.		United Kingdom		100.00		100.00
SAB WABCO DAVID & METCALF Ltd.		United Kingdom		100.00		100.00
SAB WABCO DAVID & METCALF PRODUCTS Ltd.		United Kingdom		100.00		100.00
SAB WABCO INVESTMENTS Ltd.		United Kingdom		100.00		100.00
SAB WABCO PRODUCTS Ltd.		United Kingdom		100.00		100.00
SAB WABCO UK Ltd.		United Kingdom		100.00		100.00
FAIVELEY TRANSPORT RAIL TECHNOLOGIES INDIA Ltd.		India		100.00		100.00
F.M.P.R.		Iran		51.00		51.00
FAIVELEY TRANSPORT ITALIA Spa		Italy		100.00		98.70
FAIVELEY TRANSPORT POLSKA z.o.o.		Poland		100.00		100.00
FAIVELEY TRANSPORT PLZEN s.r.o.		Czech Republic		100.00		100.00
FAIVELEY TRANSPORT TREMOSNICE s.r.o.		Czech Republic		100.00		100.00
FAIVELEY TRANSPORT CZECH a.s.		Czech Republic		100.00		100.00
o.o.o FAIVELEY TRANSPORT		Russia		100.00		98.00
FAIVELEY TRANSPORT METRO TECHNOLOGY SINGAPORE Ltd.		Singapore		100.00		100.00
FAIVELEY TRANSPORT MALMÖ AB		Sweden		100.00		100.00
FAIVELEY TRANSPORT NORDIC AB		Sweden		100.00		100.00
FAIVELEY TRANSPORT SCHWEIZ AG		Switzerland		100.00		100.00
FAIVELEY TRANSPORT SCHWAB AG		Switzerland		100.00		100.00
FAIVELEY TRANSPORT METRO TECHNOLOGY THAILAND Ltd.		Thailand		100.00		100.00
FAIVELEY TRANSPORT SERVICE MAROC		Morocco		100.00		100.00
FAIVELEY TRANSPORT METRO TECHNOLOGY TAIWAN Ltd.		Taiwan		100.00		100.00
Equity-accounted joint ventures
QINGDAO FAIVELEY SRI RAIL BRAKE Co. Ltd.		China		50.00		50.00
DATONG FAIVELEY RAILWAY VEHICLE EQUIPMENT Co., Ltd		China		50.00		50.00
SHIJIAZHUANG JIAXIANG PRECISION MACHINERY Co. Ltd.		China		50.00		50.00
FAIVELEY RAIL ENGINEERING SINGAPORE Pte Ltd,		Singapore		50.00		50.00
Other equity-accounted entities:
Nil		—		—		—
Partnerships qualifying as joint arrangements:
Nil		—		—		—

NOTE 38:

FINANCIAL COMMUNICATION

These consolidated financial statements are available in both French and English.

2.3.

STATUTORY AUDITORS’ REPORT ON THE 2016/17

CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (PERIOD FROM 1 APRIL TO 30 SEPTEMBER 2016)

This is a free translation into English of the Statutory Auditors’ review report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France.

To the Shareholders,

Faiveley Transport SA

Le Delage Building

3 rue du 19 mars 1962

92230 Gennevilliers

In compliance with the assignment entrusted to us by your Shareholder’s Meeting and in accordance with the requirements of article L. 451-1-2 III of the French Monetary and Financial Code (Code monétaire et financier), we hereby report to you on:

•

The review of the accompanying condensed interim consolidated financial statements of Faiveley Transport, for the period from 1^st April 2016 to 30^th September 2016;

•

The verification of the information contained in the interim management report.

These condensed interim consolidated financial statements are the responsibility of the Board of Directors. Our role is to express a conclusion on these financial statements based on our review.

I. Conclusion on the financial statements

We conducted our review in accordance with professional standards applicable in France. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed interim consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - the standard of IFRS as adopted by the European Union applicable to interim financial information.

II. Specific verification

We have also verified the information given in the interim management report on the condensed interim consolidated financial statements subject to our review. We have no matters to report as to its fair presentation and consistency with the condensed interim consolidated financial statements.


Neuilly-sur-Seine and Dijon, November 23, 2016

The Statutory Auditors

PricewaterhouseCoopers Audit				Expertise Comptable et Audit

Philippe Vincent				Claude Cornuot

EX-99.2

Exhibit 99.2

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial statements are presented to illustrate the estimated effects of the merger of Faiveley Transport S.A. (“Faiveley”) and Westinghouse Air Brake Technologies Corporation (the “Company”) (the “Acquisition”). On October 6, 2015, the Company announced that it entered into a Share Purchase Agreement to acquire from certain members of the Faiveley family approximately 51% of Faiveley, which was subsequently amended on October 24, 2016 (the “Share Purchase Agreement”). We also entered into a Tender Offer Agreement with Faiveley on October 6, 2015, which was subsequently amended on October 24, 2016 (the “Tender Offer Agreement”).

Under the Share Purchase Agreement, we agreed to purchase approximately 51% of Faiveley’s shares from certain members of the Faiveley family for €100 per share, payable respectively between 25% and 45% in cash and 55% and 75% in our common stock (the “Faiveley Family Share Purchase”). Upon completing the Faiveley Family Share Purchase, we will commence a tender offer for the remaining publicly traded Faiveley shares (the “Tender Offer”) pursuant to the Tender Offer Agreement. Faiveley’s public shareholders will have the option to elect to receive €100 per share in cash or our common stock. The total purchase price for the Acquisition is approximately $1.7 billion, including assumed debt and net of cash acquired. Wabtec is funding the Acquisition through (i) cash on hand of approximately $340 million (including approximately $210 million which has been placed in escrow), (ii) additional borrowings under the $1.2 billion amended revolving credit facility, (iii) net proceeds from a $750 million senior note offering which closed on November 3, 2016, and (iv) proceeds from a term loan of $400 million (items (ii)-(iv) are hereinafter the “Credit Arrangements”).

On November 30, 2016, Wabtec completed the Faiveley Family Share Purchase, as the Faiveley family elected to receive approximately 29% of its consideration in cash, and the remainder in Wabtec common stock. Assuming all remaining outstanding shares of Faiveley are purchased in the Tender Offer for cash, we intend to use the amount remaining from (i) the approximately $340 million of cash on hand (including approximately $210 million which has been placed in escrow) and (ii) the Credit Arrangements after completion of the Faiveley Family Share Purchase to pay the cash portion of the Tender Offer and to refinance Faiveley’s outstanding indebtedness. To the extent that (i) Faiveley’s public shareholders elect to receive consideration in common stock in accordance with the terms of the Tender Offer or (ii) Faiveley has less outstanding indebtedness upon completion of the Acquisition, we will use less cash on hand or borrow less funds under our existing credit facilities to pay the cash portion of the Tender Offer and to refinance Faiveley’s outstanding indebtedness.

The accompanying unaudited pro forma condensed combined balance sheet as of September 30, 2016, and the unaudited pro forma condensed combined statements of income for the nine months ended September 30, 2016, and the year ended December 31, 2015, (collectively, the “Pro Forma Statements”) have been prepared in compliance with the requirements of SEC Regulation S-X using accounting policies in accordance with U.S. GAAP. The unaudited pro forma condensed combined financial information is based on the Company’s historical consolidated financial statements and Faiveley’s historical consolidated financial statements as adjusted to give effect to the Company’s acquisition of Faiveley and the Credit Arrangements. The Company’s fiscal year end is December 31st. Faiveley’s fiscal year end is March 31st. The Faiveley amounts included in the unaudited pro forma condensed combined balance sheet are as of September 30, 2016 and the Faiveley amounts included in the unaudited condensed combined pro forma statements of income for the nine months ended September 30, 2016 and the year ended December 31, 2015 are for the nine months ended September 30, 2016 and the year ended March 31, 2016, respectively. Faiveley amounts included in the unaudited condensed combined pro forma statements of income for the nine months ended September 30, 2016 have been prepared on the basis of mid-year financial data (period from April 1 to September 30, 2016), combined with financial data extracted from internal reporting from the first quarter of the 2016 calendar year. Given that the fiscal year-end of Faiveley is within 93 days of Wabtec’s, in accordance with Article 11 of Regulation S-X, the historical financial statements of each entity have been combined without any conforming adjustments with respect to this difference in fiscal periods to the historical financial information of Faiveley presented in the pro forma financial information.

Accounting policies used in the preparation of the Pro Forma Statements are consistent with those disclosed in the audited consolidated financial statements of Wabtec as of and for the year ended December 31, 2015 and the unaudited condensed consolidated financial statements as of and for the nine-months ended September 30, 2016. Faiveley prepares its consolidated financial statements in Euros and in accordance with IFRS. Faiveley’s IFRS financial statements have been converted to U.S. Dollars and adjusted to conform to U.S. GAAP. Certain historical Faiveley financial statement caption amounts have been combined to conform to Wabtec’s presentation.

The pro forma adjustments are based on preliminary estimates and currently available information and assumptions that management believes are reasonable. The notes to the Pro Forma Statements provide a discussion of how such adjustments were derived and presented in the Pro Forma Statements. Changes in facts and circumstances or discovery of new information may result in revised estimates. As a result, there may be material adjustments to the Pro Forma Statements. See note 5 to the Pro Forma Statements.

The Pro Forma Statements should be read in conjunction with the audited consolidated financial statements of Wabtec for the year ended December 31, 2015, the consolidated financial statements of Faiveley for the year ended March 31, 2016, Wabtec’s interim financial statements for the nine month period ended September 30, 2016, and Faiveley’s interim financial statements for the six month period ended September 30, 2016, each incorporated by reference herein. The note disclosure requirements of annual consolidated financial statements provide additional disclosures to that required for pro forma condensed combined financial information. The unaudited Pro Forma Statements give effect to the Acquisition as if it had occurred on January 1, 2015, for the purposes of the unaudited pro forma condensed combined statements of income for the year ended December 31, 2015 and the nine months ended September 30, 2016. The unaudited Pro Forma Statements give effect to the Acquisition as if it had occurred on September 30, 2016, for the purposes of the unaudited pro forma condensed combined balance sheet. In the opinion of Wabtec’s management, these Pro Forma Statements include all material adjustments to be in accordance with Regulation S-X, Article 11.

The Pro Forma Statements are presented for illustrative purposes only and may not be indicative of the results of operations that would have occurred if the events reflected therein had been in effect on the dates indicated or the results which may be obtained in the future. In preparing the Pro Forma Statements, no adjustments have been made to reflect the potential operating synergies and administrative cost savings that could result from the combination of the Wabtec and Faiveley operations. Actual amounts recorded upon consummation of the proposed Acquisition will differ from the Pro Forma Statements, and the differences may be material.

Westinghouse Air Brake Technologies Corporation

Pro Forma Condensed Combined Balance Sheet (Unaudited)

As of September 30, 2016

In thousands (In U.S. dollars unless otherwise indicated)


	Wabtec Historical			Faiveley Historical (IFRS) (EURO)⁽¹⁾			Faiveley GAAP Adjustments (EURO)⁽¹⁾⁽³⁾			Disposal of FT Entities (EURO)⁽¹⁾⁽⁴⁾			Faiveley Pro Forma (EURO)⁽¹⁾			Faiveley Pro Forma⁽¹⁾⁽²⁾			Pro Forma Adjustments⁽⁵⁾			Notes			Pro Forma Combined Wabtec/FT
							Note (5c)			Note (5o)
Assets
Current Assets
Cash and cash equivalents	$	250,382		€	225,698		€	—		€	—		€	225,698		$	241,497		$	(130,000	)		5	(a)	$	361,879
Accounts receivable		477,500			239,195			—			—			239,195			255,939			—						733,439
Unbilled accounts receivables		146,726			130,607			(3,600	)		(1	)		127,006			135,896			—						282,622
Inventories		495,998			177,274			—			1			177,275			189,684			4,949			5	(n)		690,631
Deposit in Escrow		210,025			—			—			—			—			—			(210,025	)		5	(b)		—
Deferred income taxes		75,741			—			6,400			—			6,400			6,848			—						82,589
Other current assets		38,760			48,285			—			(14,685	)		33,600			35,952			—						74,712

Total current assets		1,695,132			821,059			2,800			(14,685	)		809,174			865,816			(335,076	)					2,225,872
Property, plant and equipment		750,547			293,634			—			—			293,634			314,188			(187,707	)		5	(d)		877,028
Accumulated depreciation		(392,577	)		(219,696	)		—			—			(219,696	)		(235,075	)		235,075			5	(d)		(392,577	)

Property, plant and equipment, net		357,970			73,938			—			—			73,938			79,113			47,368						484,451
Other Assets
Goodwill		877,054			646,982			—			—			646,982			692,271			507,631			5	(e)		2,076,956
Other intangibles, net		457,262			54,299			(17,856	)		—			36,443			38,994			530,358			5	(f)		1,026,614
Other noncurrent assets		40,739			90,543			—			—			90,543			96,881			9,322						146,942

Total other assets		1,375,055			791,824			(17,856	)		—			773,968			828,146			1,047,311						3,250,512

Total Assets	$	3,428,157		€	1,686,821		€	(15,056	)	€	(14,685	)	€	1,657,080		$	1,773,075		$	759,603					$	5,960,835

Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable	$	276,539		€	197,838		€	—		€	—		€	197,838		$	211,687		$	—					$	488,226
Customer deposits		108,718			141,073			—			—			141,073			150,948			—						259,666
Accrued compensation		54,984			70,715			—			—			70,715			75,665			—						130,649
Accrued warranty		76,465			45,296			—			—			45,296			48,467			—						124,932
Current portion of long-term debt		134			34,400			—			—			34,400			36,808			(36,808	)		5	(g)		134
Other accrued liabilities		108,095			108,156			(1,451	)		(13,856	)		92,849			99,348			—						207,443

Total current liabilities		624,935			597,478			(1,451	)		(13,856	)		582,171			622,923			(36,808	)					1,211,050
Long-term debt		819,770			361,962			—			—			361,962			387,299			696,156			5	(g)		1,903,225
Reserve for postretirement and pension benefits		55,609			48,139			—			—			48,139			51,509			—						107,118
Deferred income taxes		156,900			54,528			—			—			54,528			58,345			234,107			5	(h)		449,352
Accrued warranty		17,645			—			—			—			—			—			—						17,645
Other long term liabilities		22,807			476			—			—			476			509			—						23,316

Total liabilities		1,697,666			1,062,583			(1,451	)		(13,856	)		1,047,276			1,120,585			893,455						3,711,706
Shareholders’ Equity
Preferred stock		—			—			—			—			—			—			—						—
Common stock		1,323			14,621			—			—			14,621			15,644			(15,644	)		5	(i)(m)		1,323
Additional paid-in capital		470,908			103,004			—			—			103,004			110,214			281,911			5	(m)		863,033
Treasury stock		(983,456	)		—			—			—			—			—			143,318			5	(m)		(840,138	)
Retained earnings		2,524,354			490,458			(13,605	)		6,931			483,784			517,649			(543,916	)		5	(i)		2,498,087
Accumulated other comprehensive loss		(286,055	)		(448	)		—			—			(448	)		(479	)		479			5	(i)		(286,055	)

Total Group shareholders’ equity		1,727,074			607,635			(13,605	)		6,931			600,961			643,028			(133,852	)					2,236,250
Non-controlling interest (minority interest)		3,417			16,603			—			(7,760	)		8,843			9,462			—			5	(i)		12,879

Total shareholders’ equity		1,730,491			624,238			(13,605	)		(829	)		609,804			652,490			(133,852	)					2,249,129

Total Liabilities and Shareholders’ Equity	$	3,428,157		€	1,686,821		€	(15,056	)	€	(14,685	)	€	1,657,080		$	1,773,075		$	759,603					$	5,960,835

⁽¹⁾	Represents historical Faiveley’s balance sheet as of September 30, 2016 following Wabtec’s balance sheet presentation.

⁽²⁾	Faiveley financial information was prepared in Euro and converted to U.S. Dollars using the rate of 1.07 U.S. Dollars to Euro for the purpose of the Pro Forma Combined Balance Sheet as of September 30, 2016.

⁽³⁾	Represents the adjustments to convert historical Faiveley’s financial information prepared under IFRS to US GAAP as applied by Wabtec.

⁽⁴⁾

Represents the contribution of FTG and the Amsted Rail JV to Faiveley’s historical financial information as the EU clearance for the Acquisition is conditional upon the commitment to sell FTG and the U.S. Department of Justice requires the disposal of the Amsted Rail JV and control valve related assets.

⁽⁵⁾	Represents the adjustments relating to the Preliminary purchase price allocation and the financing transactions.

Westinghouse Air Brake Technologies Corporation

Pro Forma Condensed Combined Statements of Income (Unaudited)

For the Nine Months Ended September 30, 2016

In thousands, except per share data

(In U.S. dollars unless otherwise indicated)


	Wabtec Historical			Faiveley Historical (IFRS) (EURO)⁽¹⁾			Faiveley GAAP Adjustments (EURO)⁽¹⁾⁽³⁾			Disposal of FT Entities (EURO)⁽¹⁾⁽⁴⁾			Faiveley Pro Forma (EURO)⁽¹⁾			Faiveley Pro Forma⁽¹⁾⁽²⁾			Pro Forma Adjustments⁽⁵⁾			Notes			Pro Forma Combined Wabtec/FT
								Note (5c)			Note (5o)
Net sales	$	2,171,206		€	823,464		€	8,000		€	(41,390	)	€	790,074		$	876,982		$	—					$	3,048,188
Cost of sales		(1,466,156	)		(599,627	)		(9,100	)		32,587			(576,140	)		(639,515	)		(1,187	)		5	(d)		(2,106,858	)

Gross profit		705,050			223,837			(1,100	)		(8,803	)		213,934			237,467			(1,187	)					941,330
Selling, general and administrative expenses		(241,118	)		(116,814	)		—			2,711			(114,103	)		(126,654	)		12,583			5	(j)		(355,189	)
Engineering expenses		(52,271	)		(13,142	)		(1,901	)		1,151			(13,892	)		(15,420	)		—						(67,691	)
Amortization expense		(16,100	)		(2,009	)		—			—			(2,009	)		(2,230	)		(6,997	)		5	(f)		(25,327	)

Total operating expenses		(309,489	)		(131,965	)		(1,901	)		3,862			(130,004	)		(144,304	)		5,586						(448,207	)
Income from operations		395,561			91,872			(3,001	)		(4,941	)		83,930			93,163			4,399						493,123
Interest expense, net		(15,897	)		(4,733	)		—			24			(4,709	)		(5,227	)		(24,329	)		5	(k),5(j)		(45,453	)
Other (expense) income, net		113			(79,914	)		—			53,841			(26,073	)		(28,941	)		20,356			5	(j)		(8,472	)

Income from operations before income taxes		379,777			7,225			(3,001	)		48,924			53,148			58,995			426						439,198
Income tax expense		(112,701	)		(16,605	)		1,127			1,723			(13,755	)		(15,268	)		(856	)		5	(l)		(128,825	)

Net income attributable to Group shareholders	$	267,076		€	(9,380	)	€	(1,874	)	€	50,647		€	39,393		$	43,727		$	(430	)				$	310,373

Earnings Per Common Share
Basic
Net income attributable to Group shareholders	$	2.94																							$	3.20

Diluted
Net income attributable to Group shareholders	$	2.92																							$	3.17

Weighted average shares outstanding
Basic		90,546																		6,307			5	(m)		96,853

Diluted		91,316																		6,307			5	(m)		97,623

⁽¹⁾	Represents historical Faiveley’s income statement for the nine months ended September 30, 2016, following Wabtec’s income statement presentation.

⁽²⁾	Faiveley financial information was prepared in Euro and converted to U.S. Dollars using the rate of 1.11 U.S. Dollars to Euro for the purpose of the Pro Forma Combined Statements of Income for the nine-months ended September 30, 2016.

⁽³⁾	Represents the adjustments to convert historical Faiveley’s financial information prepared under IFRS to US GAAP as applied by Wabtec.

⁽⁴⁾

⁽⁵⁾	Represents the adjustments relating to the Preliminary purchase price allocation and the financing transactions.

Westinghouse Air Brake Technologies Corporation

Pro Forma Condensed Combined Statements of Income (Unaudited)

For the Year Ended December 31, 2015

In thousands, except per share data

(In U.S. dollars unless otherwise indicated)


	Wabtec Historical			Faiveley Historical (IFRS) (EURO)⁽¹⁾			Faiveley GAAP Adjustments (EURO)⁽¹⁾⁽³⁾			Disposal of FT Entities (EURO)⁽¹⁾⁽⁴⁾			Faiveley Pro Forma (EURO)⁽¹⁾			Faiveley Pro Forma⁽¹⁾⁽²⁾			Pro Forma Adjustments⁽⁵⁾			Notes			Pro Forma Combined Wabtec/FT
							Note (5c)			Note (5o)
Net sales	$	3,307,998		€	1,105,184		€	3,700		€	(78,166	)	€	1,030,718		$	1,144,097		$	—					$	4,452,095
Cost of sales		(2,260,182	)		(824,062	)		(1,400	)		59,167			(766,295	)		(850,587	)		(1,579	)		5	(d)		(3,112,348	)

Gross profit		1,047,816			281,122			2,300			(18,999	)		264,423			293,510			(1,579	)					1,339,747
Selling, general and administrative expenses		(347,373	)		(152,238	)		—			3,749			(148,489	)		(164,823	)		3,383			5	(j)		(508,813	)
Engineering expenses		(71,213	)		(18,405	)		(3,115	)		1,718			(19,802	)		(21,980	)		—						(93,193	)
Amortization expense		(21,663	)		(4,163	)		—			—			(4,163	)		(4,621	)		(7,681	)		5	(f)		(33,965	)

Total operating expenses		(440,249	)		(174,806	)		(3,115	)		5,467			(172,454	)		(191,424	)		(4,298	)					(635,971	)
Income from operations		607,567			106,316			(815	)		(13,532	)		91,969			102,086			(5,877	)					703,776
Interest expense, net		(16,888	)		(7,040	)		—			55			(6,985	)		(7,753	)		(33,898	)		5	(k),5(j)		(58,539	)
Other (expense) income, net		(5,311	)		(26,797	)		—			5,170			(21,627	)		(24,006	)		17,308			5	(j)		(12,009	)

Income from operations before income taxes		585,368			72,479			(815	)		(8,307	)		63,357			70,327			(22,467	)					633,228
Income tax expense		(186,740	)		(21,189	)		66			4,233			(16,890	)		(18,748	)		8,450			5	(l)		(197,038	)

Net income attributable to Group shareholders	$	398,628		€	51,290		€	(749	)	€	(4,074	)	€	46,467		$	51,579		$	(14,017	)				$	436,190

Earnings Per Common Share
Basic
Net income attributable to Group shareholders	$	4.14																							$	4.25

Diluted
Net income attributable to Group shareholders	$	4.10																							$	4.21

Weighted average shares outstanding
Basic		96,074																		6,307			5	(m)		102,381

Diluted		97,006																		6,307			5	(m)		103,313

⁽¹⁾	Represents historical Faiveley’s income statement for the year ended March 31, 2016, following Wabtec’s income statement presentation.

⁽²⁾	Faiveley financial information was prepared in Euro and converted to U.S. Dollars using the rate of 1.11 U.S. Dollars to Euro for the purpose of the Pro Forma Combined Statements of Income for the year ended December 31, 2015.

⁽³⁾	Represents the adjustments to convert historical Faiveley’s financial information prepared under IFRS to US GAAP as applied by Wabtec.

⁽⁴⁾

⁽⁵⁾	Represents the adjustments relating to the Preliminary purchase price allocation and the financing transactions.

Westinghouse Air Brake Technologies Corporation

Notes to the Pro Forma Statements (Unaudited)

(Expressed in U.S. Dollars, unless otherwise indicated)

1.	Description of the transaction

Wabtec plans to acquire all of the issued and outstanding shares of Faiveley under the terms of the Share Purchase Agreement and the Tender Offer Agreement. Wabtec has acquired approximately 51% of Faiveley upon completion of the Faiveley Family Share Purchase. Faiveley is a leading global provider of value-added, integrated systems and services for the railway industry. Faiveley supplies railway manufacturers, operators and maintenance providers with a range of valued-added, technology-based systems and services in Energy & Comfort (air conditioning, power collectors and converters, and passenger information), Access & Mobility (passenger access systems and platform doors), and Brakes & Safety (braking systems and couplers). Upon completion of the Acquisition, Faiveley became a subsidiary of Wabtec.

The transaction has been structured in three steps:

•

Wabtec made an irrevocable offer to the owners of approximately 51% of Faiveley’s shares for a purchase price of €100 per share payable in cash or equity.

•

Upon completion of required labor group consultations, on October 6, 2015, the 51% shareholders entered into a definitive share purchase agreement, which was amended on October 24, 2016, and Faiveley entered into the Tender Offer Agreement with Wabtec.

•

Upon completing the share purchase under the Share Purchase Agreement, Wabtec will commence a tender offer for the remaining publicly traded Faiveley shares. The public shareholders will have the option to elect to receive €100 per share in cash or Wabtec common stock. Wabtec intends to delist Faiveley from Euronext after the Tender Offer if minority interests represent less than 5%.

The total purchase price offered is approximately $1.7 billion, including assumed debt net of cash acquired. Wabtec is funding the cash portion of the transaction with cash on hand (including cash held in escrow) and existing credit facilities. Prior to December 31, 2015, Wabtec set aside €186.9 million ($210.0 million) as an escrow deposit for the Faiveley purchase.

2.	Basis of presentation

The Acquisition is accounted for as a business combination using the acquisition method in accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 805, Business Combinations. As the acquirer for accounting purposes, Wabtec has estimated the fair value of Faiveley’s assets acquired and liabilities assumed and conformed the accounting policies of Faiveley to its own accounting policies.

The pro forma purchase price allocation is subject to change based on the finalization of purchase price adjustments and completion of management’s assessment of the fair values of the assets and liabilities acquired. Due to the timing of the announcement of the Acquisition, Wabtec has not completed the final valuation necessary to determine the acquisition date fair market value of Faiveley’s net assets. The unaudited pro forma condensed combined balance sheet includes a preliminary allocation of the purchase price to reflect the estimated fair value of those assets and liabilities. As more information becomes available, Wabtec will complete a more detailed review of the preliminary allocation of the purchase price to reflect the acquisition date fair value of those assets and liabilities. As a result of that review, more information could become available that, when analyzed, could have a material impact on the Pro Forma Statements.

Estimated transaction costs of approximately $65 million have been charged against retained earnings and cash in the unaudited pro forma condensed combined balance sheet but have not been reflected in the pro forma consolidated statements of income on the basis that these expenses are directly incremental to the Acquisition but are nonrecurring in nature.

3.	Preliminary purchase price allocation

The Acquisition will be accounted for as a business combination in accordance with Financial Accounting Standards Board ASC 805, Business Combinations. Under the acquisition method of accounting, we allocated purchase price to the tangible and intangible net assets acquired based on the preliminary estimated fair values as of the assumed date of the Acquisition.

Wabtec has performed a preliminary valuation analysis of the fair market value of Faiveley’s assets and liabilities. The following table summarizes the allocation of the preliminary purchase price as of the acquisition date (in thousands):


Cash	$	236,497
Accounts receivable		255,939
Unbilled accounts receivables		135,896
Inventories		194,633
Other current assets		35,952
Property, plant and equipment		126,481
Goodwill		1,199,900
Other intangibles, net		569,352
Other noncurrent assets		105,543
Accounts payable		(209,756	)
Customer deposits		(150,948	)
Other accrued liabilities		(223,482	)
Long-term debt		(424,107	)
Other long-term liabilities		(52,018	)
Deferred tax liabilities, net		(285,604	)
Minority Interest		(9,463	)

Total consideration	$	1,504,815

This preliminary purchase price allocation has been used to prepare pro forma adjustments in the Pro Forma Statements. The final purchase price allocation will be determined when Wabtec has completed the detailed valuations and necessary calculations. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments. The final allocation may include (1) changes in fair values of property, plant and equipment, (2) changes in allocations to intangible assets such as trade names and customer relationships as well as goodwill and (3) other changes to assets and liabilities.

4.	Financing transactions

Wabtec is funding the Acquisition through a combination of cash on hand of $340 million (including cash held in escrow), additional borrowings under the $1.2 billion amended revolving credit facility, $400 million from a new term loan, the net proceeds of a $750 million senior notes offering and the issuance of Wabtec common stock valued at approximately $535 million.

Wabtec will repay all of the $424 million of Faiveley long-term debt in the first quarter of 2017, which is expected to result in $1,908 million of borrowings outstanding under Wabtec’s credit arrangements. Pro forma cash balance and retained earnings have been adjusted for the estimated transaction costs not reflected in the pro forma consolidated statements of income on the basis that these expenses are directly incremental to the Acquisition but are non-recurring in nature.

5.	Pro forma adjustments

The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the Pro Forma Statements:

Represents the use of Wabtec cash on hand of $130 million related to the purchase.

Represents the use of funds held in escrow of $210 million related to the purchase

Reflects adjustments to Faiveley’s historical IFRS financial statements for differences compared to U.S. GAAP in the accounting for recognition of revenue under long-term contracts and for the accounting related to research and development expenditures which are labeled Engineering expenses in the pro forma condensed combined statements of Income.

Reflects the adjustment of $47.4 million to increase the basis in the acquired property, plant and equipment to estimated fair value of $126.5 million. The estimated useful lives range from four to thirty years. The fair value and useful life calculations are preliminary and subject to change after Wabtec finalizes its review of the specific types, nature, age, condition and location of Faiveley’s property, plant and equipment. The following table summarizes the changes in the estimated depreciation expense (in thousands):


	Year Ended			Nine Months Ended
	December 31, 2015			September 30, 2016
Estimated depreciation expense	$	15,676		$	11,275
Historical depreciation expense		(14,098	)		(10,088	)

Pro forma adjustments to depreciation expense	$	1,578		$	1,187

Reflects adjustment to remove Faiveley’s historical goodwill of $692.3 million and record goodwill associated with the acquisition of $1,184.6 million as shown in Note 3.

Reflects the adjustment of historical intangible assets acquired by Wabtec to their estimated fair values. As part of the preliminary valuation analysis, Wabtec identified intangible assets, including trade names, and customer relationships. The fair value of identifiable intangible assets is determined primarily using the “income approach,” which requires a forecast of all of the expected future cash flows.

The following table summarizes the estimated fair values of Faiveley’s identifiable intangible assets and their estimated useful lives, and their amortization on a linear basis (in thousands):


					Amortization
	Estimated Fair Value		Estimated Useful Life in Years		Year Ended December 31, 2015			Nine Months Ended September 30, 2016
Trade Names	$	330,014		indefinite	$	—		$	—
Customer Relationships		239,338		20		12,302			9,227

	$	569,352				12,302			9,227

Historical amortization expense						(4,621	)		(2,230	)

Pro forma adjustments to amortization expense					$	7,681		$	6,997

Reflects the new debt incurred to finance the acquisition of Faiveley, minus the effects of extinguishing Faiveley’s outstanding debt upon completion of the acquisition. The net increase to debt includes (in thousands):


Issuance of net debt, net of debt issuance costs of $5.0 million	$	1,083,455
Decrease for extinguishment of existing Faiveley debt		(424,107	)

Pro forma adjustment to debt	$	659,348

The effect of a 1/8 percent variance in the interest rate related to variable rate debt would impact pro forma income from operations before income taxes by $0.9 million and $0.7 million for the year ended December 31, 2015 and the nine months ended September 30, 2016, respectively.

Adjusts the deferred tax liabilities resulting from the acquisition. The estimated increase in deferred tax liabilities of $234.1 million stems primarily from the fair value adjustments for non-deductible intangible assets as well as long life amortizable intangibles. The average estimated tax applied is 34.7%. This estimate of deferred income tax balances is preliminary and subject to change based on management’s final determination of the fair value of assets acquired and liabilities assumed by jurisdiction.

Represents the elimination of the historical equity of Faiveley.

Reflects the elimination of certain incurred costs directly related to the Acquisition which will not have a recurring impact on operations.

Represents the net increase to interest expense resulting from interest on the new term debt to finance the acquisition of Faiveley and the amortization of related debt issuance costs, as follows (in thousands):


	Year Ended December 31, 2015			Nine-months Ended September 30, 2016
Elimination of interest expense and amortization of debt issuance costs - Faiveley debt	$	(7,753	)	$	(5,227	)
Interest expense on new debt		41,151			29,181
Amortization of new debt issuance costs		500			375

Pro forma adjustments to interest expense	$	33,898		$	24,329

Reduction of income taxes related to pro forma adjustments is based upon the statutory rate of 32.0% and 30.3% for the pro forma periods ending December 31, 2015 and September 30, 2016, respectively.

Represents the issuance of 6,307,489 common shares to finance the acquisition.

Represents the estimated adjustment to step up Faiveley’s finished goods and work in process inventory to a fair value of approximately $64.1 million, an increase of $4.9 million from the carrying value. The fair value calculation is preliminary and subject to change. The fair value was determined based on the estimated selling price of the inventory less the remaining manufacturing and selling costs and a normal profit margin on those manufacturing and selling efforts. After the acquisition, the step-up in inventory fair value of $4.9 million will increase cost of sales over approximately 12 months as the inventory is sold. This increase is not reflected in the unaudited pro forma condensed combined statements of income because it does not have a continuing impact.

As a result of the regulatory approval process, certain businesses of Faiveley are subject to divestiture and accordingly have been excluded from the Pro Forma Statements.