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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________
FORM 10-Q
____________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 033-90866
____________________________________
WESTINGHOUSE AIR BRAKE TECHNOLOGIESCORPORATION
(Exact name of registrant as specified in its charter)
____________________________________
Delaware25-1615902
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
30 Isabella Street Pittsburgh, Pennsylvania
15212
(Address of principal executive offices)(Zip code)
412-825-1000
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
____________________________________
Securities registered pursuant to Section 12(b) of the Act:
Class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $.01 par value per share
WAB
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filer
Emerging growth companySmaller reporting company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of April 29, 2020, there were 190,288,623,shares of common stock, par value $.01 per share, of the registrant outstanding.




WESTINGHOUSE AIR BRAKE
TECHNOLOGIES CORPORATION
March 31, 2020
FORM 10-Q
TABLE OF CONTENTS
Page
PART I—FINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART II—OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 4.
Item 6.

2


PART I—FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
In millions, except shares and par valueMarch 31,
2020
December 31,
2019
Assets
Current Assets
Cash and cash equivalents $615.9  $604.2  
Accounts receivable 1,149.1  1,149.9  
Unbilled accounts receivable522.9  514.0  
Inventories 1,785.7  1,773.1  
Other current assets 167.5  150.9  
Total current assets 4,241.1  4,192.1  
Property, plant and equipment 2,208.9  2,216.0  
Accumulated depreciation (585.9) (560.2) 
Property, plant and equipment, net 1,623.0  1,655.8  
Other Assets
Goodwill 8,273.7  8,360.6  
Other intangibles, net 4,010.0  4,104.0  
Other noncurrent assets 625.3  631.7  
Total other assets 12,909.0  13,096.3  
Total Assets $18,773.1  $18,944.2  
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable $1,087.2  $1,157.5  
Customer deposits 602.8  604.2  
Accrued compensation 257.4  343.8  
Accrued warranty 216.8  226.5  
Current portion of long-term debt92.8  95.7  
Other accrued liabilities 724.6  830.3  
Total current liabilities 2,981.6  3,258.0  
Long-term debt 4,655.1  4,333.6  
Accrued postretirement and pension benefits109.2  113.0  
Deferred income taxes 151.4  145.3  
Contingent consideration294.7  291.8  
Other long-term liabilities 783.4  808.9  
Total Liabilities 8,975.4  8,950.6  
Commitments and contingencies (Note 15)
Equity
Convertible preferred stock, $.01 par value; 1,000,000 shares authorized, no shares issued and outstanding, at March 31, 2020 and December 31, 2019
    
Common stock, $.01 par value; 500,000,000 shares authorized: 226,947,180 and 226,947,180 shares issued and 190,277,837 and 191,699,193 outstanding at March 31, 2020 and December 31, 2019, respectively
2.0  2.0  
Additional paid-in capital 7,875.0  7,877.2  
Treasury stock, at cost, 36,669,343 and 35,247,987 shares, at March 31, 2020 and December 31, 2019, respectively
(910.2) (807.1) 
Retained earnings 3,355.6  3,267.0  
Accumulated other comprehensive loss (560.6) (382.6) 
Total Westinghouse Air Brake Technologies Corporation shareholders’ equity 9,761.8  9,956.5  
Noncontrolling interest35.9  37.1  
Total Equity 9,797.7  9,993.6  
Total Liabilities and Equity $18,773.1  $18,944.2  
The accompanying notes are an integral part of these statements.
3


WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited
Three Months Ended
March 31,
In millions, except per share data20202019
Net sales:
Sales of goods$1,590.8  $1,434.5  
Sales of services339.1  159.1  
Total net sales1,929.9  1,593.6  
Cost of sales:
Cost of goods(1,155.9) (1,073.6) 
Cost of services(195.3) (131.0) 
Total cost of sales(1,351.2) (1,204.6) 
Gross profit578.7  389.0  
Operating expenses:
Selling, general and administrative expenses(243.4) (259.8) 
Engineering expenses(49.0) (34.5) 
Amortization expense(69.0) (27.4) 
Total operating expenses(361.4) (321.7) 
Income from operations217.3  67.3  
Other income and expenses:
Interest expense, net(53.3) (44.6) 
Other expense, net(14.8) (8.2) 
Income from operations before income taxes 149.2  14.5  
Income tax expense(38.0) (18.5) 
Net income (loss)111.2  (4.0) 
Less: Net loss (gain) attributable to noncontrolling interest0.4  (0.5) 
Net income (loss) attributable to Wabtec shareholders111.6  (4.5) 
Earnings Per Common Share
Basic
Net income (loss) attributable to Wabtec shareholders$0.58  $(0.04) 
Diluted
Net income (loss) attributable to Wabtec shareholders$0.58  $(0.04) 
Weighted average shares outstanding
Basic190.8  121.2  
Diluted191.4  121.2  
 
The accompanying notes are an integral part of these statements.
4


WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited
Three Months Ended
March 31,
In millions20202019
Net income (loss) attributable to Wabtec shareholders$111.6  $(4.5) 
Foreign currency translation loss(181.4) (46.6) 
Unrealized gain (loss) on derivative contracts8.1  (4.1) 
Unrealized loss on pension benefit plans and post-retirement benefit plans(3.6) (3.6) 
Other comprehensive loss before tax(176.9) (54.3) 
Income tax (expense) benefit related to components of other comprehensive income(1.1) 1.9  
Other comprehensive loss, net of tax(178.0) (52.4) 
Comprehensive loss attributable to Wabtec shareholders$(66.4) $(56.9) 
 
The accompanying notes are an integral part of these statements.

5


WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Three Months Ended
March 31,
In millions, except per share data20202019
Operating Activities
Net income (loss)$111.2  $(4.0) 
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization115.8  55.9  
Stock-based compensation expense7.3  8.5  
Below market intangible amortization(37.6)   
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable and unbilled accounts receivable(22.6) (51.6) 
Inventories(23.5) 75.3  
Accounts payable(60.2) (116.4) 
Accrued income taxes(4.4) 18.4  
Accrued liabilities and customer deposits(84.7) (60.0) 
Other assets and liabilities(83.2) 105.2  
Net cash (used for) provided by operating activities(81.9) 31.3  
Investing Activities
Purchase of property, plant and equipment(33.3) (29.7) 
Proceeds from disposal of property, plant and equipment6.4  0.8  
Acquisitions of businesses, net of cash acquired(35.7) (2,710.7) 
Net cash used for investing activities(62.6) (2,739.6) 
Financing Activities
Proceeds from debt981.5  1,736.5  
Payments of debt(663.8) (837.7) 
Repurchase of stock(105.3)   
Cash dividends(23.0) (11.7) 
Other financing activities(5.9) (4.1) 
Net cash provided by financing activities183.5  883.0  
Effect of changes in currency exchange rates(27.3) (4.2) 
Increase (decrease) in cash11.7  (1,829.5) 
Cash, cash equivalents, and restricted cash, beginning of period604.2  2,342.4  
Cash and cash equivalents, end of period$615.9  $512.9  
 
The accompanying notes are an integral part of these statements.
 

6


WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
Common
Stock
Common
Stock
Additional
Paid-in
Treasury
Stock
Treasury
Stock
RetainedAccumulated
Other
Non-controlling
In millions, except share and per share dataSharesAmountCapitalSharesAmountEarningsComprehensive LossInterestTotal
Balance, December 31, 2019226,947,180  $2.0  $7,877.2  (35,247,987) $(807.1) $3,267.0  $(382.6) $37.1  $9,993.6  
Cash dividends ($0.12 dividend per share)
—  —  —  —  —  (23.0) —  —  (23.0) 
Proceeds from treasury stock issued from the exercise of stock
options and other benefit plans, net of tax
—  —  (7.9) 202,444  2.2  —  —  —  (5.7) 
Stock based compensation—  —  10.0  —  —  —  —  —  10.0  
Net income (loss)—  —  —  —  —  111.6  —  (0.4) 111.2  
Other comprehensive loss, net of tax—  —  —  —  —  —  (178.0) —  (178.0) 
Stock repurchase—  —  —  (1,623,800) (105.3) —  —  —  (105.3) 
Other owner changes—  —  (4.3) —  —  —  —  (0.8) (5.1) 
Balance, March 31, 2020226,947,180  $2.0  $7,875.0  (36,669,343) $(910.2) $3,355.6  $(560.6) $35.9  $9,797.7  
Balance, December 31, 2018132,349,534  $1.3  $914.6  (35,734,588) $(816.1) $3,022.0  $(256.6) $3.9  $2,869.1  
Cash dividends ($0.12 dividend per share)
—  —  —  —  —  (11.7) —  —  (11.7) 
Proceeds from treasury stock issued from the exercise of stock
options and other benefit plans, net of tax
—  —  (14.4) 420,472  8.9  —  —  —  (5.5) 
Stock based compensation—  —  8.5  —  —  —  —  —  8.5  
Net (loss) income—  —  —  —  —  (4.5) —  0.5  (4.0) 
Other comprehensive loss, net of tax—  —  —  —  —  —  (52.4) —  (52.4) 
Acquisitions, net65,782,182  0.7  6,887.6  —  —  —  —  86.7  6,975.0  
Other owner changes—  —  —  —  —  —  —  1.4  1.4  
Balance, March 31, 2019198,131,716  $2.0  $7,796.3  (35,314,116) $(807.2) $3,005.8  $(309.0) $92.5  $9,780.4  

The accompanying notes are an integral part of these statements.
7


WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020 (UNAUDITED)

1. BUSINESS
Westinghouse Air Brake Technologies Corporation (“Wabtec” or the "Company") is one of the world’s largest providers of locomotives, value-added, technology-based equipment, systems and services for the global freight rail and passenger transit industries. Our highly engineered products, which are intended to enhance safety, improve productivity and reduce maintenance costs for customers, can be found on most locomotives, freight cars, passenger transit cars and buses around the world. Our products enhance safety, improve productivity and reduce maintenance costs for customers, and many of our core products and services are essential in the safe and efficient operation of freight rail and passenger transit vehicles. Wabtec is a global company with operations in over 50 countries and our products can be found in more than 100 countries throughout the world. In the first three months of 2020, approximately 59% of the Company’s revenues came from customers outside the United States.
On March 11, 2020, the World Health Organization designated the outbreak of the novel strain of coronavirus, known as COVID-19, as a global pandemic. Governments and businesses around the world have taken unprecedented actions to mitigate the spread of COVID-19, including but not limited to, shelter-in-place orders, quarantines, significant restrictions on travel, as well as restrictions that prohibit many employees from going to work. Our top concern is, and remains, the health and well-being of our employees around the world. To date, COVID-19 has surfaced in nearly all regions around the world and has impacted our sales channels, supply chain, manufacturing operations, workforce, and other key aspects of our operations. The outbreak and preventive measures, including temporary plant closures in China, India, Italy and other countries where outbreaks were most prevalent as well as stay at home orders, taken to help curb the spread had an adverse impact on our operations and business results for the first three months of 2020.

2. ACCOUNTING POLICIES
Basis of Presentation The unaudited condensed consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") in the United States of America and the rules and regulations of the Securities and Exchange Commission and include the accounts of Wabtec and its subsidiaries in which Wabtec has a controlling interest. These condensed consolidated interim financial statements do not include all of the information and footnotes required for complete financial statements. In management’s opinion, these financial statements reflect all adjustments of a normal, recurring nature necessary for a fair presentation of the results for the interim periods presented. Results for these interim periods are not necessarily indicative of results to be expected for the full year particularly in light of the rapidly evolving COVID-19 pandemic that is impacting our sales channels, supply chain, manufacturing operations, workforce, or other key aspects of our operations and the high degree of uncertainty regarding the pandemic's duration and severity, government actions to control it, and the potential impact on global economic activity, global supply chain operations and our customers, suppliers, and end-markets.
The Company operates on a four-four-five week accounting quarter, and the quarters end on or about March 31, June 30, September 30, and December 31.
The notes included herein should be read in conjunction with the audited consolidated financial statements included in Wabtec’s Annual Report on Form 10-K for the year ended December 31, 2019. The December 31, 2019 information has been derived from the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
Revenue Recognition A majority of the Company’s revenues are derived from performance obligations that are satisfied at a point in time when control passes to the customer. The remaining revenues are earned over time. Generally, for performance obligations satisfied at a point in time control passes at the time of shipment in accordance with agreed upon delivery terms.
The Company also has long-term customer agreements involving the design and production of highly engineered products that require revenue to be recognized over time because these products have no alternative use without significant economic loss and the agreements contain an enforceable right to payment including a reasonable profit margin from the customer in the event of contract termination. Additionally, the Company has customer agreements involving the creation or enhancement of an asset that the customer controls which also require revenue to be recognized over time. Generally, the Company uses an input method for determining the amount of revenue, cost and gross margin to recognize over time for these customer agreements. The input methods used for these agreements include costs of material and labor, both of which give an accurate representation of the progress made toward complete satisfaction of a particular performance obligation. Contract revenues and cost estimates are reviewed and revised periodically through the year and adjustments are reflected in the accounting period as such amounts are determined.
8


Contract assets include unbilled amounts resulting from sales under long-term contracts where revenue is recognized over time and revenue exceeds the amount that can be billed to the customer based on the terms of the contract. The current portion of the contract assets are classified as current assets under the caption “Unbilled Accounts Receivable” while the noncurrent contract assets are classified as other assets under the caption "Other Noncurrent Assets" on the consolidated balance sheet. Noncurrent contract assets were $106.3 million at March 31, 2020 and $109.4 million at December 31, 2019, respectively. Included in noncurrent contract assets are certain costs that are specifically related to a contract, however, do not directly contribute to the transfer of control of the tangible product being created, such as non-recurring engineering costs. The Company has elected to use the practical expedient and does not consider unbilled amounts anticipated to be paid within one year as significant financing components.
Contract liabilities include customer deposits that are made prior to the incurrence of costs related to a newly agreed upon contract and advanced customer payments that are in excess of revenue recognized. The current portion of contract liabilities are classified as current liabilities under the caption “Customer Deposits” while the noncurrent contract liabilities are classified as noncurrent liabilities under the caption "Other Long-Term Liabilities" on the consolidated balance sheet. Noncurrent contract liabilities were $57.7 million at March 31, 2020 and were $77.0 million at December 31, 2019. These contract liabilities are not considered a significant financing component because they are used to meet working capital demands that can be higher in the early stages of a contract or revenue associated with the contract liabilities is expected to be recognized within one year. Contract liabilities also include provisions for estimated losses from uncompleted contracts. Provisions for loss contracts were $100.6 million and $118.5 million at March 31, 2020 and December 31, 2019, respectively. These provisions for estimated losses are classified as current liabilities and included within the caption “Other Accrued Liabilities” on the consolidated balance sheet.
Due to the nature of work required to be performed on the Company’s long-term projects, the estimation of total revenue and cost at completion is subject to many variables and requires significant judgment. Contract estimates related to long-term projects are based on various assumptions to project the outcome of future events that could span several years. These assumptions include cost of materials; labor availability and productivity; complexity of the work to be performed; and the performance of suppliers, customers and subcontractors that may be associated with the contract. We have a disciplined process where management reviews the progress of long term-projects periodically throughout the year. As part of this process, management reviews information including key contract matters, progress towards completion, identified risks and opportunities and any other information that could impact the Company’s estimates of revenue and costs. After completing this analysis, any adjustments to net sales, cost of goods sold, and the related impact to operating income are recognized as necessary in the period they become known.
Generally, the Company’s revenue contains a single performance obligation for each distinct good; however, a single contract may have multiple performance obligations comprising multiple promises to customers. When there are multiple performance obligations, revenue is allocated based on the relative stand-alone selling price. Pricing is defined in our contracts on a line item basis and includes an estimate of variable consideration when required by the terms of the individual customer contract. Types of variable consideration the Company typically has include volume discounts, prompt payment discounts, liquidating damages, and performance bonuses. Sales returns and allowances are also estimated and recognized in the same period the related revenue is recognized, based upon the Company’s experience.
Remaining performance obligations represent the transaction price of firm customer orders subject to standard industry cancellation provisions and substantial scope-of-work adjustments. As of March 31, 2020, the Company's remaining performance obligations were $20.6 billion. The Company expects to recognize revenue of approximately 25% of remaining performance obligation over the next 12 months, with the remainder recognized thereafter.
Reclassifications Certain prior year amounts have been reclassified, where necessary, to conform to the current year presentation.
Use of Estimates The preparation of financial statements in conformity with GAAP in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from the estimates. On an ongoing basis, management reviews its estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.
Goodwill and Intangibles Assets Goodwill and other intangible assets with indefinite lives are not amortized. Other intangibles (with definite lives) are amortized on a straight-line basis over their estimated economic lives. Amortizable intangible assets are reviewed for impairment when indicators of impairment are present. The Company tests goodwill and indefinite-lived intangible assets for impairment at the reporting unit level and at least annually. The Company performs its annual impairment test during the fourth quarter after the annual forecasting process is completed, and also tests for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Periodically,
9


management of the Company assesses whether or not an indicator of impairment is present that would necessitate an impairment analysis be performed.
As a result of the COVID-19 pandemic and the uncertainty surrounding the global economy, the Company's stock price was highly volatile during the second half of the first quarter 2020. The Company considered the Company's stock price volatility combined with overall macroeconomic conditions and concluded that it was not more likely than not that the fair value of its three reporting units declined below their carrying value and therefore an interim quantitative impairment test was not required at March 31, 2020. The present uncertainty surrounding the global economy due to the COVID-19 pandemic increases the likelihood that adverse changes could occur in key assumptions used to determine the fair value of reporting units like sales estimates, cost factors, discount rates and stock price resulting in interim quantitative goodwill impairment tests and non-cash goodwill impairments in future periods.
Also, as a result of the COVID-19 pandemic the Company reviewed indefinite-lived tradename intangible assets and concluded that it was not more likely than not that the fair value of such tradename assets were below their carrying value. However, uncertainty surrounding the impact of the COVID-19 pandemic increases the likelihood that adverse changes in key assumptions used to determine the fair value of indefinite-lived intangibles like sales estimates or discount rates could result in interim quantitative tradename impairments tests and non-cash tradename impairments in future periods. Additionally, uncertainty around the current macroeconomic environment could result in changes to the Company’s marketing and branding strategy which also could impact the carrying value or estimated useful lives of the Company’s tradenames.
Financial Derivatives and Hedging Activities As part of its risk management strategy, the Company utilizes derivative financial instruments to mitigate the impact of changes in foreign currency exchange rates and interest rates on earnings and cash flow. For further information regarding financial derivatives and hedging activities, refer to Notes 13 and 14.
Foreign Currency Translation Certain of our international operations have determined that the local currency is the functional currency whereas others have determined the U.S. dollar is their functional currency. Assets and liabilities of foreign subsidiaries where the functional currency is the local currency are translated at the rate of exchange in effect on the balance sheet date while income and expenses are translated at the average rates of exchange prevailing during the period. Foreign currency gains and losses resulting from transactions and the translation of financial statements are recorded in the Company’s consolidated financial statements based upon the provisions of Accounting Standards Codification ("ASC") 830 “Foreign Currency Matters.” The effects of currency exchange rate changes on intercompany transactions and balances of a long-term investment nature are accumulated and carried as a component of accumulated other comprehensive loss. The effects of currency exchange rate changes on intercompany transactions that are denominated in a currency other than an entity’s functional currency are charged or credited to earnings.
Recently Issued Accounting Pronouncements In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, “Income Taxes: Simplifying the Accounting for Income Taxes.” The amendments in this update simplify the accounting for certain income tax transactions by removing specific exceptions to the general principles in Topic 740, Income Taxes. This guidance is effective for fiscal years beginning after December 15, 2020 with early adoption permitted. The Company is currently evaluating the potential impact of adopting this guidance on its consolidated financial statements.
Recently Adopted Accounting Pronouncements In June 2016, FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." This updated guidance sets forth a current expected credit loss model based on expected losses. Under this model, an entity recognizes an allowance for expected credit losses based on historical experience, current conditions and forecasted information rather than the current methodology of delaying recognition of credit losses until it is probable a loss has been incurred. This guidance became effective for the Company on January 1, 2020. The Company adopted this accounting standard at the beginning of the period. The impact of adopting the new standard was not material to the consolidated statement of income or the consolidated balance sheet.
In January 2017, FASB issued ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." The amendments in this update eliminate the requirement to perform Step 2 of the goodwill impairment test. Instead, an entity should perform a goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value up to the carrying amount of the goodwill. This guidance became effective for the Company on January 1, 2020. The adoption of this guidance had no impact on the Company, however, the amendments in this update could result in a change to the overall conclusion as to whether or not a reporting unit's goodwill is impaired and the amount of an impairment charge recognized in the event a reporting unit's carrying value exceeds its fair value.
Other Comprehensive Income (Loss) Comprehensive income comprises both net income and the change in equity from transactions and other events and circumstances from nonowner sources.
10


The changes in accumulated other comprehensive income (loss) by component, net of tax, for the three months ended March 31, 2020 are as follows:
In millionsForeign
currency
translation
Derivative
contracts
Pension and
post
retirement
benefit plans
Total
Balance at December 31, 2019$(308.6) $(3.3) $(70.7) $(382.6) 
Other comprehensive income (loss) before reclassifications(181.4) 6.1  (3.4) (178.7) 
Amounts reclassified from accumulated other
comprehensive income    0.7  0.7  
Net current period other comprehensive income (loss)(181.4) 6.1  (2.7) (178.0) 
Balance at March 31, 2020$(490.0) $2.8  $(73.4) $(560.6) 
Reclassifications out of accumulated other comprehensive income (loss) for the three months ended March 31, 2020 are as follows:
In millionsAmount reclassified from
accumulated other
comprehensive income
Affected line item in the
Condensed Consolidated
Statements of Income
Amortization of defined pension and post retirement items
Amortization of initial net obligation and prior service cost$(0.4) Other income (expense), net
Amortization of net loss1.4  Other income (expense), net
1.0  Other income (expense), net
(0.3) Income tax expense
$0.7  Net income
The changes in accumulated other comprehensive loss by component, net of tax, for the three months ended March 31, 2019 are as follows:
In millionsForeign
currency
translation
Derivative
contracts
Pension and
post
retirement
benefit plans
Total
Balance at December 31, 2018$(202.2) $(0.1) $(54.3) $(256.6) 
Other comprehensive income (loss) before reclassifications(46.6) (3.1) (3.3) (53.0) 
Amounts reclassified from accumulated other
comprehensive income    0.6  0.6  
Net current period other comprehensive income (loss) (46.6) (3.1) (2.7) (52.4) 
Balance at March 31, 2019$(248.8) $(3.2) $(57.0) $(309.0) 
Reclassifications out of accumulated other comprehensive loss for the three months ended March 31, 2019 are as follows:
In millionsAmount reclassified from
accumulated other
comprehensive income
Affected line item in the
Condensed Consolidated
Statements of Income
Amortization of defined pension and post retirement items
Amortization of initial net obligation and prior service cost$(0.4) Other income (expense), net
Amortization of net loss1.1  Other income (expense), net
0.7  Other income (expense), net
(0.2) Income tax expense
$0.5  Net income

11


3. ACQUISITIONS
General Electric Transportation
        Wabtec, General Electric Company ("GE"), GE Transportation, a Wabtec Company formerly known as Transportation System Holdings Inc. ("SpinCo"), which was a newly formed wholly owned subsidiary of GE, and Wabtec US Rail Holdings, Inc. ("Merger Sub"), which was a newly formed wholly owned subsidiary of the Company, entered into the Original Merger Agreement on May 20, 2018, and GE, SpinCo, Wabtec and Wabtec US Rail, Inc. ("Direct Sale Purchaser") entered into the Original Separation Agreement on May 20, 2018, which together provided for the combination of Wabtec and GE Transportation. The Original Merger Agreement and Original Separation Agreement were subsequently amended on January 25, 2019 and the Merger was completed on February 25, 2019.
As part of the Merger, certain assets of GE Transportation, including the equity interests of certain pre-Transaction subsidiaries of GE that composed part of GE Transportation, were sold to Direct Sale Purchaser for a cash payment of $2.875 billion, and Direct Sale Purchaser assumed certain liabilities of GE Transportation in connection with this purchase (the "Direct Sale"). Thereafter, GE transferred the SpinCo business to SpinCo and its subsidiaries (to the extent not already held by SpinCo and its subsidiaries), and SpinCo issued to GE shares of SpinCo Class A preferred stock, SpinCo Class B preferred stock, SpinCo Class C preferred stock and additional shares of SpinCo common stock. Following this issuance of additional SpinCo common stock to GE, and immediately prior to the Distribution (as defined below), GE owned 8,700,000,000 shares of SpinCo common stock, 15,000 shares of SpinCo Class A preferred stock, 10,000 shares of SpinCo Class B preferred stock and one share of SpinCo Class C preferred stock, which constituted all of the outstanding stock of SpinCo.
Following the Direct Sale, GE distributed the distribution shares of SpinCo in a spin-off transaction to its stockholders (the "Distribution"). Immediately after the Distribution, Merger Sub merged with and into SpinCo (the "Merger"), whereby the separate corporate existence of Merger Sub ceased and SpinCo continued as the surviving company and a wholly owned subsidiary of Wabtec (except with respect to shares of SpinCo Class A preferred stock held by GE). In the Merger, subject to adjustment in accordance with the Merger Agreement, each share of SpinCo common stock converted into the right to receive a number of shares of Wabtec common stock based on the common stock exchange ratio set forth in the Merger Agreement and the share of SpinCo Class C preferred stock was converted into the right to receive (a) 10,000 shares of Wabtec convertible preferred stock and (b) a number of shares of Wabtec common stock equal to 9.9% of the fully-diluted pro forma Wabtec shares. Immediately prior to the Merger, Wabtec paid $10.0 million in cash to GE in exchange for all of the shares of SpinCo Class B preferred stock.
Upon consummation of the Merger, Wabtec issued 46,763,975 shares of common stock to the holders of GE common stock, 19,018,207 shares of common stock to GE and 10,000 shares of preferred stock to GE and made a cash payment to GE of $2.885 billion. As a result and calculated based on Wabtec’s outstanding common stock on a fully-diluted, as-converted and as-exercised basis, as of February 25, 2019, approximately 49.2% of the outstanding shares of Wabtec common stock was held collectively by GE and holders of GE common stock (with 9.9% held by GE directly in shares of Wabtec common stock and 15% underlying the shares of Wabtec convertible preferred stock held by GE) and approximately 50.8% of the outstanding shares of Wabtec common stock would be held by pre-Merger Wabtec stockholders, in each case calculated on a fully-diluted, as-converted and as-exercised basis. Following the Merger, GE also retained 15,000 shares of SpinCo Class A non-voting preferred stock, and Wabtec held 10,000 shares of SpinCo Class B non-voting preferred stock.
After the Merger, SpinCo, which is Wabtec’s wholly owned subsidiary (except with respect to shares of SpinCo Class A preferred stock held by GE), and Direct Sale Purchaser, which also is Wabtec’s wholly owned subsidiary, together, SpinCo and Direct Sale Purchaser own and operate the post-transaction GE Transportation. All shares of the Company’s common stock, including those issued in the Merger, are listed on the NYSE under the Company’s current trading symbol “WAB.” On the date of the Distribution, GE and SpinCo, directly or through subsidiaries entered into additional agreements relating to, among other things, intellectual property, employee matters, tax matters, research and development and transition services.
On May 6, 2019, GE completed the sale of approximately 8,780 shares of Wabtec's Series A Preferred stock which converted upon the sale to 25,300,000 shares of Wabtec's common stock. On August 9, 2019, GE completed a sale of the remaining shares of Series A Preferred Stock outstanding which converted to approximately 3,515,500 shares of common stock, as well as 16,969,656 shares of common stock owned directly by GE. Finally, on September 12, 2019, GE completed a sale of all of its remaining shares of common stock of Wabtec, approximately 2,048,515 shares. In conjunction with these secondary offerings, the Company waived the requirements under the shareholders agreement for GE to maintain certain ownership levels of Wabtec's stock following the closing date of the Merger. The Company did not receive any proceeds from the sale of any of these shares.
Total future consideration to be paid by Wabtec to GE includes a fixed payment of $470.0 million, which is directly related to the timing of tax benefits expected to be realized by Wabtec as a result of the acquisition of GE Transportation. This payment is considered contingent consideration because the timing of cash payments to GE is directly related to the future
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timing of tax benefits received by the Company as a result of the acquisition of GE Transportation. The total value of the consideration paid, and to be paid, by Wabtec in the acquisition transactions is approximately $10.3 billion, including the cash paid for the Direct Sales Assets, equity transferred for SpinCo, contingent consideration, assumed debt and net of cash acquired. The consideration is based on the Company’s closing share price of $73.36 on February 22, 2019 and the fair value of the contingent consideration.
The fair values of the assets acquired and liabilities assumed were determined using the income, cost and market approaches. Discounted cash flow models were used to estimate the fair values of acquired contract backlog, customer relationships, intellectual property intangibles, and below-market customer contracts liabilities. The fair value measurements were primarily based on significant inputs that are not observable in the market and are considered Level 3. The noncontrolling interest includes equity interests in GE Transportation's Brazil operations held by third parties on the date of acquisition. At the time of acquisition, quotable market prices of the noncontrolling interest existed; therefore, the noncontrolling interest in the GE Transportation Brazil operations were measured using a Level 1 input. In April 2019, the Company acquired the noncontrolling interest in GE Transportation's Brazil operations for $56.2 million which approximated the fair value assigned to the noncontrolling interest on the date of acquisition. The remaining noncontrolling interest value was determined based on inputs that are not observable in the market and are considered Level 3.
The following table summarizes the final fair value of the GE Transportation assets acquired and liabilities assumed:
In millions  
Assets acquired  
Cash and cash equivalents  $177.2  
Accounts receivable  541.3  
Inventories  1,189.7  
Other current assets  71.5  
Property, plant, and equipment  1,088.6  
Goodwill  5,978.0  
Trade names  55.0  
Customer relationships  550.0  
Intellectual property  1,180.0  
Backlog  1,450.0  
Other noncurrent assets  321.2  
Total assets acquired  12,602.5  
Liabilities assumed  
Current liabilities  1,594.2  
Contingent consideration  440.0  
Other noncurrent liabilities  661.0  
Total liabilities assumed  2,695.2  
Net assets acquired  9,907.3  
Noncontrolling interest  $88.3  
The revisions to the initial estimates were based on information that existed at the date of acquisition. Substantially all of the accounts receivable acquired are expected to be collectible. Trade names, customer relationships, patents and backlog intangible assets are all subject to amortization. Contingent liabilities assumed as part of the transaction were not material. The contingent liabilities are related to legal and tax matters. Contingent liabilities are recorded at fair value in purchase accounting, aside from those pertaining to uncertainty in income taxes which are an exception to the fair value basis of accounting. Included in other noncurrent liabilities are approximately $524.6 million of customer contracts whose terms are unfavorable compared to market terms at the date of consummation of the GE Transportation acquisition.
Goodwill was calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of the net assets acquired, and represents the future economic benefits, including synergies, and assembled workforce, that are expected to be achieved as a result of the consummation of the acquisition of GE Transportation. A majority of the purchased goodwill is deductible for tax purposes. The goodwill has been allocated to the Freight segment.
Costs related to the acquisition of GE Transportation were approximately $14.0 million for the three months ended March 31, 2020 and are included in selling, general and administrative expenses on the consolidated statements of income.
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The Company also made smaller acquisitions not listed above which are individually and collectively immaterial.
The following unaudited pro forma consolidated financial information presents income statement results as if the GET acquisition listed above had occurred on January 1, 2019:
In millions, except per share dataThree Months Ended March 31, 2020Three Months Ended March 31, 2019
Net sales$1,929.9  $2,069.2  
Gross profit578.7  454.3  
Net income attributable to Wabtec shareholders111.6  (53.7) 
Diluted earnings per share
As Reported$0.58  $(0.04) 
Pro forma$0.58  $(0.44) 

4. INVENTORIES
The components of inventory, net of reserves, were:
In millionsMarch 31,
2020
December 31,
2019
Raw materials$767.2  $786.4  
Work-in-progress370.0  374.0  
Finished goods648.5  612.7  
Total inventories$1,785.7  $1,773.1  

5. INTANGIBLES
The change in the carrying amount of goodwill by segment for the three months ended March 31, 2020 is as follows:
In millionsFreight SegmentTransit SegmentTotal
Balance at December 31, 2019$6,876.6  $1,484.0  $8,360.6  
Additions(3.7)   (3.7) 
Foreign currency impact(62.8) (20.4) (83.2) 
Balance at March 31, 2020$6,810.1  $1,463.6  $8,273.7  
As of March 31, 2020 and December 31, 2019, the Company’s trade names had a net carrying amount of $614.2 million and $623.1 million, respectively. The Company believes these intangibles have indefinite lives, with the exception of the right to use the GE Transportation trade name, to which the Company has assigned a useful life of 5 years.
Intangible assets of the Company, other than goodwill and trade names, consist of the following:
In millionsMarch 31,
2020
December 31,
2019
Intellectual property, patents, and other intangibles, net of accumulated amortization of $147.8 and $123.8
$1,083.5  $1,108.9  
Backlog, net of accumulated amortization of $119.0 and $92.0
1,312.4  1,342.1  
Customer relationships, net of accumulated amortization of $222.2 and $212.9
999.9  1,029.9  
Total$3,395.8  $3,480.9  
The weighted average remaining useful life of backlog, intellectual property, customer relationships and other intangibles were 14 years, 13 years, 17 years and 9 years, respectively. Amortization expense for intangible assets was $69.0 million and $27.4 million for the three months ended March 31, 2020 and 2019, respectively.
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Amortization expense for the five succeeding years is estimated to be as follows:
In millions
Remainder of 2020$212.5  
2021277.9  
2022277.5  
2023276.9  
2024267.5  

6. CONTRACT ASSETS AND CONTRACT LIABILITIES
Contract assets include unbilled amounts resulting from sales under long-term contracts where revenue is recognized over time and revenue exceeds the amount that can be billed to the customer based on the terms of the contract. Contract liabilities include customer deposits that are made prior to the incurrence of costs related to a newly agreed upon contract, advanced customer payments that are in excess of revenue recognized, and provisions for estimated losses from uncompleted contracts.
The change in the carrying amount of contract assets and contract liabilities for the three months ended March 31, 2020, and 2019 is as follows:
Contract Assets
In millions20202019
Balance at beginning of year$623.4  $345.6  
Acquisitions