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Accounting Policies | 6 Months Ended
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Jun. 30, 2019
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 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. 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, 2018. The December 31, 2018 information has been derived from the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Revenue Recognition On January 1, 2018, the Company adopted ASC 606 “Revenue from Contracts with Customers”. This new guidance provides a five-step analysis of transactions to determine when and how revenue is recognized, and requires entities to recognize revenue at an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer. Approximately 75% 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. 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 $122.5 million at June 30, 2019 and were not material at December 31, 2018, 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 $36.9 million at June 30, 2019 and were not material at December 31, 2018. These contract liabilities are not considered a significant financing component because they are used to meet working capital demands that can be higher in the early stages of a contract 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 $103.6 million and $71.2 million at June 30, 2019 and December 31, 2018, respectively. These provisions for estimated losses are classified as current liabilities and included within the caption “Other Accrued Liabilities” on the consolidated balance sheet. Due to the nature of work required to be performed on the Company’s long-term projects, the estimation of total revenue and cost at completion is subject to many variables and requires significant judgment. Contract estimates related to long-term projects are based on various assumptions to project the outcome of future events that could span several years. These assumptions include cost of materials; labor availability and productivity; complexity of the work to be performed; and the performance of suppliers, customers and subcontractors that may be associated with the contract. We have a disciplined process where management reviews the progress of long term-projects periodically throughout the year. As part of this process, management reviews information including key contract matters, progress towards completion, identified risks and opportunities and any other information that could impact the Company’s estimates of revenue and costs. After completing this analysis, any adjustments to net sales, cost of goods sold, and the related impact to operating income are recognized as necessary in the period they become known. Generally, the Company’s revenue contains a single performance obligation for each distinct good; however, a single contract may have multiple performance obligations comprising multiple promises to customers. Performance obligations are determined based on customer's intended use of products and services. Less complex products principally result in each completed product being a separate performance obligation recognized at a point in time. More complex products or services principally result in a single performance obligation as a customer is either procuring a bundled offering that is managed or utilized on a combined basis or there are multiple complex goods or services in the contract, which are substantially the same and recognized over time. 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 June 30, 2019, the Company's remaining performance obligations were $21.3 billion. The Company expects to recognize revenue of approximately 26% 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, including the reclassification of "Net Sales" to "Sales of Goods" and "Sales of Services". 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 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 Footnotes 14 and 15. Foreign Currency Translation Certain of our international operations have determined that the local currency is the functional currency whereas others have determined the U.S. dollar is their functional currency. Assets and liabilities of foreign subsidiaries where the functional currency is the local currency are translated at the rate of exchange in effect on the balance sheet date while income and expenses are translated at the average rates of exchange prevailing during the period. Foreign currency gains and losses resulting from transactions and the translation of financial statements are recorded in the Company’s consolidated financial statements based upon the provisions of ASC 830 “Foreign Currency Matters.” The effects of currency exchange rate changes on intercompany transactions and balances of a long-term investment nature are accumulated and carried as a component of accumulated other comprehensive loss. The effects of currency exchange rate changes on intercompany transactions that are denominated in a currency other than an entity’s functional currency are charged or credited to earnings. Noncontrolling Interests In accordance with ASC 810 "Consolidation", the Company has classified noncontrolling interests as equity on the condensed consolidated balance sheets as of June 30, 2019 and December 31, 2018. Net loss attributable to noncontrolling interests was $1.4 million and $1.1 million for the three months ended June 30, 2019 and 2018, respectively. Net loss attributable to noncontrolling interests was $0.9 million and $2.1 million for the six months ended June 30, 2019 and 2018, respectively. Recently Issued Accounting Pronouncements In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment". The amendments in this update eliminate the requirement to perform Step 2 of the goodwill impairment test. Instead, an entity should perform a goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value up to the carrying amount of the goodwill. The ASU is effective for public companies in the fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The impact of adopting this guidance could result in a change in the overall conclusion as to whether or not a reporting unit's goodwill is impaired and the amount of an impairment charge recognized in the event a reporting units' carrying value exceeds its fair value. All of the Company's reporting units had fair values that were substantially greater than the carrying value as of the Company's last quantitative goodwill impairment test, which was performed as of October 1, 2018. Recently Adopted Accounting Pronouncements In February 2018, FASB issued ASU No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income". The amendments in this update address certain stranded income tax effects in accumulated other comprehensive income ("AOCI") resulting from the Tax Cuts and Jobs Act (the "Tax Act"). Current guidance requires the effect of a change in tax laws or rates on deferred tax balances to be reported in income from continuing operations in the accounting period that includes the period of enactment, even if the related income tax effects were originally charged or credited directly to AOCI. The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded effects resulting from the Tax Act. The amount of the reclassification would include the effect of the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts and related valuation allowances, if any, at the date of the enactment of the Tax Act related to items in AOCI. The updated guidance became effective for reporting periods beginning after December 15, 2018. The Company adopted this accounting standard at the beginning of the period and elected to not retrospectively apply the new standard. The impact of adopting the new standard was not material to the consolidated statement of income or the consolidated balance sheet. In February 2016, FASB issued ASU No. 2016-02, "Leases (Topic 814)" which requires lessees to recognize a right of use asset and lease liability on the balance sheet for all leases with terms longer than 12 months. For leases with terms less than 12 months, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize a right of use asset and lease liability. This guidance became effective for the Company on January 1, 2019. The Company elected the practical expedient which does not require the capitalization of leases with terms of 12 months or less. And the Company did not elect the practical expedient which allows hindsight to be used to determine the term of a lease. The Company adopted the standard using the transition alternative, which allowed for the application of the guidance at beginning of the period in which it is adopted, rather than requiring the adjustment of prior comparative periods. For further information regarding the Company's adoption of the new standard, see Footnote 7. 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. The changes in accumulated other comprehensive income (loss) by component, net of tax, for the six months ended June 30, 2019 are as follows:
In thousands | Foreign currency translation |  | Derivative contracts |  | Pension and post retirement benefit plans |  | Total
Balance at December 31, 2018 | $ | (202,204 | ) |  | $ | (53 | ) |  | $ | (54,326 | ) |  | $ | (256,583 | )
Other comprehensive income (loss) before reclassifications | (27,721 | ) |  | (3,128 | ) |  | (2,849 | ) |  | (33,698 | )
Amounts reclassified from accumulated other |  |  |  |  |  |  |
comprehensive income | — |  |  | — |  |  | 1,101 |  |  | 1,101 |
Net current period other comprehensive income (loss) | (27,721 | ) |  | (3,128 | ) |  | (1,748 | ) |  | (32,597 | )
Balance at June 30, 2019 | $ | (229,925 | ) |  | $ | (3,181 | ) |  | $ | (56,074 | ) |  | $ | (289,180 | )
Reclassifications out of accumulated other comprehensive income (loss) for the three months ended June 30, 2019 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 | $ | (366 | ) |  | Other income (expense), net
Amortization of net loss | 1,092 |  |  | Other income (expense), net
| 726 |  |  | Other income (expense), net
| (176 | ) |  | Income tax expense
| $ | 550 |  |  | Net income
Reclassifications out of accumulated other comprehensive income (loss) for the six months ended June 30, 2019 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 | $ | (732 | ) |  | Other income (expense), net
Amortization of net loss | 2,184 |  |  | Other income (expense), net
| 1,452 |  |  | Other income (expense), net
| (351 | ) |  | Income tax expense
| $ | 1,101 |  |  | Net income
The changes in accumulated other comprehensive loss by component, net of tax, for the six months ended June 30, 2018 are as follows:
| Foreign currency translation |  | Derivative contracts |  | Pension and post retirement benefit plans |  | Total
Balance at December 31, 2017 | $ | 5,063 |  |  | $ | 4,015 |  |  | $ | (54,070 | ) |  | $ | (44,992 | )
Other comprehensive income (loss) before reclassifications | (114,811 | ) |  | (4,760 | ) |  | 6,744 |  |  | (112,827 | )
Amounts reclassified from accumulated other |  |  |  |  |  |  |
comprehensive income | — |  |  | 579 |  |  | 1,039 |  |  | 1,618 |
Net current period other comprehensive income (loss) | (114,811 | ) |  | (4,181 | ) |  | 7,783 |  |  | (111,209 | )
Balance at June 30, 2018 | $ | (109,748 | ) |  | $ | (166 | ) |  | $ | (46,287 | ) |  | $ | (156,201 | )
Reclassifications out of accumulated other comprehensive loss for the three months ended June 30, 2018 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 | $ | (375 | ) |  | Other income (expense), net
Amortization of net loss | 1,093 |  |  | Other income (expense), net
| 718 |  |  | Other income (expense), net
| (198 | ) |  | Income tax expense
| $ | 520 |  |  | Net income
Derivative contracts |  |  |
Realized loss on derivative contracts | $ | 176 |  |  | Interest expense, net
| (42 | ) |  | Income tax expense
| $ | 134 |  |  | Net income
Reclassifications out of accumulated other comprehensive loss for the six months ended June 30, 2018 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 | $ | (751 | ) |  | Other income (expense), net
Amortization of net loss | 2,186 |  |  | Other income (expense), net
| 1,435 |  |  | Other income (expense), net
| (396 | ) |  | Income tax expense
| $ | 1,039 |  |  | Net income
Derivative contracts | $ | 855 |  |  | Interest expense, net
Realized loss on derivative contracts | (276 | ) |  | Income tax expense
| $ | 579 |  |  | Net income

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