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Accounting Policies | 6 Months Ended
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Jun. 30, 2017
Accounting Policies [Abstract] |
Accounting Policies | 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 majority owned subsidiaries. These condensed consolidated interim financial statements do not include all of the information and footnotes required for complete financial statements. In management’s opinion, these financial statements reflect all adjustments of a normal, recurring nature necessary for a fair presentation of the results for the interim periods presented. Results for these interim periods are not necessarily indicative of results to be expected for the full year. The Company operates on a four-four-five week accounting quarter, and the quarters end on or about March 31, June 30, September 30, and December 31. The notes included herein should be read in conjunction with the audited consolidated financial statements included in Wabtec’s Annual Report on Form 10-K for the year ended December 31, 2016. The December 31, 2016 information has been derived from the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. Revenue Recognition Revenue is recognized in accordance with Accounting Standards Codification (“ASC”) 605 “Revenue Recognition.” Revenue is recognized when products have been shipped to the respective customers, title has passed and the price for the product has been determined. In general, the Company recognizes revenue from long-term contracts based on the percentage of completion method of accounting. The units-of-delivery method or other input-based or output-based measures, as appropriate, are used to measure the progress toward completion of individual contracts. Contract revenues and cost estimates are reviewed and revised quarterly at a minimum and adjustments are reflected in the accounting period as such amounts are determined. Provisions are made currently for estimated losses on uncompleted contracts. Unbilled accounts receivables were $316.3 million and $274.9 million, customer deposits were $373.4 million and $256.6 million, and provisions for loss contracts were $86.9 million and $60.5 million at June 30, 2017 and December 31, 2016, respectively. Pre-Production Costs Certain pre-production costs relating to long-term production and supply contracts have been deferred and will be recognized over the life of the contracts. Deferred pre-production costs were $31.5 million and $29.4 million at June 30, 2017 and December 31, 2016, respectively. Reclassifications Certain prior year amounts have been reclassified, where necessary, to conform to the current year presentation. Refer to Recently Adopted Accounting Pronouncements below. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from the estimates. On an ongoing basis, management reviews its estimates based on currently available information. Changes in facts and circumstances may result in revised estimates. Financial Derivatives and Hedging Activities As part of its risk management strategy, the Company utilizes derivative financial instruments to manage its exposure due to changes in foreign currencies and interest rates. For further information regarding financial derivatives and hedging activities, refer to Footnotes 12 and 13. Foreign Currency Translation Assets and liabilities of foreign subsidiaries, except for the Company’s Mexican operations whose functional currency is the U.S. Dollar, are translated at the rate of exchange in effect on the balance sheet date while income and expenses are translated at the average rates of exchange prevailing during the period. Foreign currency gains and losses resulting from transactions and the translation of financial statements are recorded in the Company’s consolidated financial statements based upon the provisions of 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. Noncontrolling Interests In accordance with ASC 810 "Consolidation", the Company has classified noncontrolling interests as equity on our condensed consolidated balance sheets as of June 30, 2017 and December 31, 2016. Net income attributable to noncontrolling interests for the three and six months ended June 30, 2017 was a $0.1 million gain and a $1.8 million loss, respectively, and was not material for the three and six months ended June 30, 2016. Other comprehensive income attributable to noncontrolling interests for the three and six months ended June 30, 2017 and 2016 was not material. Recently Issued Accounting Pronouncements In March 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-07 "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost". The amendments in this update require the service cost component of net benefit costs to be reported in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit costs are required to be presented in the income statement separately from the service cost component and outside income from operations. This update also allows the service cost component to be eligible for capitalization when applicable. The ASU is effective for public companies in the fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption was permitted as of the beginning of an annual period. The amendments should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The Company does not expect the adoption of this guidance in 2018 to have a material impact on the Company's financial statements. In January 2017, the FASB issued ASU No. 2017-04 "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment". The amendments in this update eliminate the requirement to perform Step 2 of the goodwill impairment test. Instead, an entity should perform a goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value up to the carrying amount of the goodwill. The ASU is effective for public companies in the fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The impact of adopting this guidance could result in a change in the overall conclusion as to whether or not a reporting units' goodwill is impaired and the amount of an impairment charge recognized in the event a reporting units' carrying value exceeds its fair value. All of the Company's reporting units had fair values that were substantially greater than the carrying value as of the Company's last quantitative goodwill impairment test, which was performed as of October 1, 2016. In November 2016, the FASB issued ASU No. 2016-18 "Statement of Cash Flows (Topic 230): Restricted Cash". The amendments in this update require a statement of cash flows to explain the change during the period in total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The ASU is effective for public companies in the fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the potential impact of adopting this guidance on its consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 814)" which requires lessees to recognize a right of use asset and lease liability on the balance sheet for all leases with terms longer than 12 months. For leases with terms less than 12 months, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize a right of use asset and lease liability. The ASU is effective for public companies in the fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating the potential impact of adopting this guidance on its consolidated financial statements. In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contract with Customers.” The ASU will supersede most of the existing revenue recognition requirements in U.S. GAAP and will require entities to recognize revenue at an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer. The new standard also requires significantly expanded disclosures regarding the qualitative and quantitative information of an entity’s nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Board voted to propose that the standard would take effect for reporting periods beginning after December 15, 2017 and that early adoption would be allowed as of the original effective date. The impact of adopting the new standard on net sales and operating income for the three and six months ended June 30, 2017 and 2016 is not expected to be material. The Company also does not expect a material impact to the consolidated balance sheet. The impact to results is not anticipated to be material because the analysis of the Company's current contracts under the new revenue recognition standard supports how the Company is currently recognizing revenue over time and at a point in time; however, the Company's conclusions may evolve as management completes its contract reviews and evaluation. The Company plans to adopt this accounting standard update using the modified retrospective method, with the cumulative effect of initially applying this update recognized in the first reporting period of 2018. The Company is in the process of drafting an updated accounting policy, evaluating new disclosure requirements and identifying and implementing appropriate changes to its business processes, systems and controls to support recognition and disclosure under the new guidance. The Company believes it is following an appropriate timeline to appropriately adopt this new standard on January 1, 2018. Recently Adopted Accounting Pronouncements In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”. The ASU simplifies several aspects for the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The ASU became effective for public companies during interim and annual reporting periods beginning after December 15, 2016. In accordance with this update, the Company began recognizing all excess tax deficiencies and tax benefits from share-based payment awards as a benefit or expense to income tax in the income statement. This update has been adopted prospectively in accordance with the ASU and the impact of adoption on the income statement was not material. Additionally in accordance with this update, the Company began classifying excess income tax benefits from exercise of stock options as an operating activity on the consolidated statement of cash flows. The Company elected to adopt this amendment retrospectively and the impact of the adoption on operating and financing cash flows for the three and six months ended June 30, 2016 was not material. In November 2015, the FASB issued ASU No. 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes" which simplifies the presentation of deferred income taxes by requiring deferred tax assets and liabilities to be classified as noncurrent on the balance sheet. The Company elected to early adopt this ASU as of December 31, 2016; therefore, all deferred income tax assets and liabilities are classified in the noncurrent deferred income taxes line-items on the consolidated balance sheets. Other Comprehensive Income Comprehensive income comprises both net income and the change in equity from transactions and other events and circumstances from nonowner sources. The changes in accumulated other comprehensive loss by component, net of tax, for the six months ended June 30, 2017 are as follows:
In thousands | Foreign currency translation |  | Derivative contracts |  | Pension and post retirement benefit plans |  | Total
Balance at December 31, 2016 | $ | (321,033 | ) |  | $ | (2,957 | ) |  | $ | (55,615 | ) |  | $ | (379,605 | )
Other comprehensive income (loss) before reclassifications | 195,079 |  |  | 1,978 |  |  | (4,029 | ) |  | 193,028 |
Amounts reclassified from accumulated other |  |  |  |  |  |  |
comprehensive income | — |  |  | 843 |  |  | 1,184 |  |  | 2,027 |
Net current period other comprehensive income (loss) | 195,079 |  |  | 2,821 |  |  | (2,845 | ) |  | 195,055 |
Balance at June 30, 2017 | $ | (125,954 | ) |  | $ | (136 | ) |  | $ | (58,460 | ) |  | $ | (184,550 | )
Reclassifications out of accumulated other comprehensive loss for the three months ended June 30, 2017 are as follows:
In thousands | Amount 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 | $ | (422 | ) |  | Cost of sales
Amortization of net loss | 1,240 |  |  | Cost of sales
| 818 |  |  | Income from Operations
| (226 | ) |  | Income tax expense
| $ | 592 |  |  | Net income
Derivative contracts |  |  |
Realized loss on derivative contracts | $ | 566 |  |  | Interest expense, net
| (149 | ) |  | Income tax expense
| $ | 417 |  |  | Net income
Reclassifications out of accumulated other comprehensive loss for the six months ended June 30, 2017 are as follows:
In thousands | Amount 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 | $ | (844 | ) |  | Cost of sales
Amortization of net loss | 2,480 |  |  | Cost of sales
| 1,636 |  |  | Income from Operations
| (452 | ) |  | Income tax expense
| $ | 1,184 |  |  | Net income
Derivative contracts |  |  |
Realized loss on derivative contracts | $ | 1,155 |  |  | Interest expense, net
| (312 | ) |  | Income tax expense
| $ | 843 |  |  | Net income
The changes in accumulated other comprehensive loss by component, net of tax, for the six months ended June 30, 2016 are as follows:
| Foreign currency translation |  | Derivative contracts |  | Pension and post retirement benefit plans |  | Total
Balance at December 31, 2015 | $ | (227,349 | ) |  | $ | (2,987 | ) |  | $ | (46,383 | ) |  | $ | (276,719 | )
Other comprehensive income (loss) before reclassifications | (10,119 | ) |  | (2,758 | ) |  | (2,293 | ) |  | (15,170 | )
Amounts reclassified from accumulated other |  |  |  |  |  |  |
comprehensive income | — |  |  | 647 |  |  | 896 |  |  | 1,543 |
Net current period other comprehensive (loss) | (10,119 | ) |  | (2,111 | ) |  | (1,397 | ) |  | (13,627 | )
Balance at June 30, 2016 | $ | (237,468 | ) |  | $ | (5,098 | ) |  | $ | (47,780 | ) |  | $ | (290,346 | )
Reclassifications out of accumulated other comprehensive loss for the three months ended June 30, 2016 are as follows:
In thousands | Amount reclassified from accumulated other comprehensive income |  | Affected line item in the Condensed Consolidated Statements of Operations
Amortization of defined pension and post retirement items |  |  |
Amortization of initial net obligation and prior service cost | $ | (422 | ) |  | Cost of sales
Amortization of net loss | 971 |  |  | Cost of sales
| 549 |  |  | Income from Operations
| (157 | ) |  | Income tax expense
| $ | 392 |  |  | Net income
Derivative contracts |  |  |
Realized loss on derivative contracts | $ | 453 |  |  | Interest expense, net
| (130 | ) |  | Income tax expense
| $ | 323 |  |  | Net income
Reclassifications out of accumulated other comprehensive loss for the six months ended June 30, 2016 are as follows:
In thousands | Amount reclassified from accumulated other comprehensive income |  | Affected line item in the Condensed Consolidated Statements of Operations
Amortization of defined pension and post retirement items |  |  |
Amortization of initial net obligation and prior service cost | $ | (807 | ) |  | Cost of sales
Amortization of net loss | 2,091 |  |  | Cost of sales
| 1,284 |  |  | Income from Operations
| (388 | ) |  | Income tax expense
| $ | 896 |  |  | Net income
Derivative contracts |  |  |
Realized loss on derivative contracts | $ | 927 |  |  | Interest expense, net
| (280 | ) |  | Income tax expense
| $ | 647 |  |  | Net income

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