10-Q 1 wab-10q_20130630.htm FORM 10-Q

      

      

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

      

FORM 10-Q

      

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

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: 1-13782

      

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

(Exact name of registrant as specified in its charter)

      

   

 

Delaware

   

25-1615902

(State or other jurisdiction

of incorporation or organization)

   

(I.R.S. Employer

Identification No.)

   

   

   

1001 Air Brake Avenue

Wilmerding, PA

   

15148

(Address of principal executive offices)

   

(Zip code)

412-825-1000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

      

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

   

 

Large accelerated filer

x

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

   

 

Class

   

Outstanding at July 22, 2013

Common Stock, $.01 par value per share

   

96,270,889 shares

   

      

      

   

   

   


WESTINGHOUSE AIR BRAKE

TECHNOLOGIES CORPORATION

June 30, 2013

FORM 10-Q

TABLE OF CONTENTS

   

 

       

Page

   

PART I—FINANCIAL INFORMATION

   

   

   

   

Item 1.

Financial Statements

   

   

   

   

   

Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012  

3

   

   

   

   

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2013 and 2012  

4

   

   

   

   

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2013 and 2012  

5

   

   

   

   

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012  

6

   

   

   

   

Notes to Condensed Consolidated Financial Statements  

7

   

   

   

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations  

24

   

   

   

Item 3.

Quantitative and Qualitative Disclosures about Market Risk  

34

   

   

   

Item 4.

Controls and Procedures  

34

   

   

   

   

PART II—OTHER INFORMATION

   

   

   

   

Item 1.

Legal Proceedings  

35

   

   

   

Item 1A.

Risk Factors  

35

   

   

   

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds  

35

   

   

   

Item 4.

Mine Safety Disclosures  

35

   

   

   

Item 6.

Exhibits  

35

   

   

   

   

Signatures  

36

   

   

   

 

 2 

   


PART I—FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

   

 

In thousands, except shares and par value

   

Unaudited
June 30,
2013

   

      

December 31,
2012

   

Assets

   

   

   

   

      

   

   

   

Current Assets

   

   

   

   

      

   

   

   

Cash and cash equivalents

   

$

214,505

      

      

$

215,766

      

Accounts receivable

   

   

488,449

      

      

   

389,915

      

Inventories

   

   

405,938

      

      

   

407,039

      

Deferred income taxes

   

   

60,376

      

      

   

60,894

      

Other

   

   

20,717

      

      

   

19,324

      

Total current assets

   

   

1,189,985

      

      

   

1,092,938

      

Property, plant and equipment

   

   

549,573

      

      

   

555,924

      

Accumulated depreciation

   

   

(308,607

      

   

(311,836

Property, plant and equipment, net

   

   

240,966

      

      

   

244,088

      

Other Assets

   

   

   

   

      

   

   

   

Goodwill

   

   

714,954

      

      

   

666,022

      

Other intangibles, net

   

   

329,834

      

      

   

308,321

      

Other noncurrent assets

   

   

40,651

      

      

   

40,173

      

Total other assets

   

   

1,085,439

      

      

   

1,014,516

      

Total Assets

   

$

2,516,390

      

      

$

2,351,542

      

Liabilities and Shareholders’ Equity

   

   

   

   

      

   

   

   

Current Liabilities

   

   

   

   

      

   

   

   

Accounts payable

   

$

272,519

      

      

$

248,593

      

Customer deposits

   

   

80,470

      

      

   

82,810

      

Accrued compensation

   

   

46,191

      

      

   

53,222

      

Accrued warranty

   

   

44,329

      

      

   

39,860

      

Current portion of long-term debt

   

   

43

      

      

   

43

      

Other accrued liabilities

   

   

80,720

      

      

   

128,531

      

Total current liabilities

   

   

524,272

      

      

   

553,059

      

Long-term debt

   

   

396,915

      

      

   

317,853

      

Accrued postretirement and pension benefits

   

   

62,990

      

      

   

66,388

      

Deferred income taxes

   

   

87,735

      

      

   

91,176

      

Accrued warranty

   

   

17,445

      

      

   

18,352

      

Other long-term liabilities

   

   

21,327

      

      

   

22,697

      

Total liabilities

   

   

1,110,684

      

      

   

1,069,525

      

Shareholders’ Equity

   

   

   

   

      

   

   

   

Preferred stock, 1,000,000 shares authorized, no shares issued

   

   

—  

      

      

   

—  

   

Common stock, $ .01 par value; 200,000,000 shares authorized: 132,349,534 shares issued and 96,270,889 and 95,407,368 outstanding at June 30, 2013 and December 31, 2012, respectively

   

   

1,323

      

      

   

1,323

      

Additional paid-in capital

   

   

390,797

      

      

   

381,348

      

Treasury stock, at cost, 36,078,645 and 36,942,166 shares, at June 30, 2013 and December 31, 2012, respectively

   

   

(341,313

      

   

(349,388

Retained earnings

   

   

1,436,566

      

      

   

1,297,111

      

Accumulated other comprehensive loss

   

   

(86,113

      

   

(53,564

Total Westinghouse Air Brake Technologies Corporation shareholders’ equity

   

   

1,401,260

      

      

   

1,276,830

      

Non-controlling interest

   

   

4,446

      

      

   

5,187

      

Total shareholders’ equity

   

   

1,405,706

      

      

   

1,282,017

      

Total Liabilities and Shareholders’ Equity

   

$

2,516,390

      

      

$

2,351,542

      

The accompanying notes are an integral part of these statements.

   

   

   

 

 3 

   


WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

   

 

   

      

Unaudited
Three Months Ended
June 30,

   

   

Unaudited
Six Months Ended
June 30,

   

In thousands, except per share data

      

2013

   

      

2012

   

   

2013

   

      

2012

   

Net sales

      

$

638,002

      

      

$

609,820

      

   

$

1,253,512

      

      

$

1,193,129

      

Cost of sales

      

   

(445,121

      

   

(436,393

   

   

(877,743

      

   

(850,321

Gross profit

      

   

192,881

      

      

   

173,427

      

   

   

375,769

      

      

   

342,808

      

Selling, general and administrative expense

      

   

(63,874

      

   

(59,163

   

   

(128,174

      

   

(121,192

Engineering expense

      

   

(11,280

      

   

(10,145

   

   

(22,614

      

   

(20,294

Amortization expense

      

   

(5,173

      

   

(3,254

   

   

(8,760

      

   

(6,347

Total operating expenses

      

   

(80,327

      

   

(72,562

   

   

(159,548

      

   

(147,833

Income from operations

      

   

112,554

      

      

   

100,865

      

   

   

216,221

      

      

   

194,975

      

Other income and expenses

      

   

   

   

      

   

   

   

   

   

   

   

      

   

   

   

Interest expense, net

      

   

(3,271

      

   

(3,509

   

   

(6,885

      

   

(7,233

Other income (expense) , net

      

   

406

      

      

   

223

      

   

   

(175

      

   

109

      

Income from operations before income taxes

      

   

109,689

      

      

   

97,579

      

   

   

209,161

      

      

   

187,851

      

Income tax expense

      

   

(35,051

      

   

(32,867

   

   

(64,910

      

   

(63,878

Net income attributable to Wabtec shareholders

      

$

74,638

      

      

$

64,712

      

   

$

144,251

      

      

$

123,973

      

Earnings Per Common Share

      

   

   

   

      

   

   

   

   

   

   

   

      

   

   

   

Basic

      

   

   

   

      

   

   

   

   

   

   

   

      

   

   

   

Net income attributable to Wabtec shareholders

      

$

0.78

      

      

$

0.67

      

   

$

1.51

      

      

$

1.29

      

Diluted

      

   

   

   

      

   

   

   

   

   

   

   

      

   

   

   

Net income attributable to Wabtec shareholders

      

$

0.77

      

      

$

0.67

      

   

$

1.49

      

      

$

1.28

      

Weighted average shares outstanding

      

   

   

   

      

   

   

   

   

   

   

   

      

   

   

   

Basic

      

   

95,762

      

      

   

95,671

      

   

   

95,243

      

      

   

95,479

      

Diluted

      

   

97,102

      

      

   

96,844

      

   

   

96,606

      

      

   

96,666

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

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
June 30,

   

   

Unaudited
Six Months Ended
June 30,

   

In thousands

      

2013

   

      

2012

   

   

2013

   

      

2012

   

Net income attributable to Wabtec shareholders

      

$

74,638

      

      

$

64,712

      

   

$

144,251

      

      

$

123,973

      

Foreign currency translation loss

      

   

(9,037

      

   

(16,519

   

   

(36,978

      

   

(5,618

Unrealized gain (loss) on interest rate swap contracts

      

   

1,067

      

      

   

(2,378

   

   

1,010

      

      

   

(2,161

Pension benefit plans and post-retirement benefit plans

      

   

2,303

      

      

   

1,920

      

   

   

5,405

      

      

   

2,286

      

Other comprehensive loss before tax

      

   

(5,667

      

   

(16,977

   

   

(30,563

      

   

(5,493

Income tax (expense) benefit related to components of other comprehensive loss

      

   

(1,142

      

   

351

      

   

   

(1,986

      

   

92

   

Other comprehensive loss, net of tax

      

   

(6,809

      

   

(16,626

   

   

(32,549

      

   

(5,401

Comprehensive income attributable to Wabtec shareholders

      

$

67,829

      

      

$

48,086

      

   

$

111,702

      

      

$

118,572

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

The accompanying notes are an integral part of these statements.

   

   

 

 5 

   


WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

   

 

   

      

Unaudited
Six Months Ended
June 30,

   

In thousands

      

2013

   

      

2012

   

Operating Activities

      

   

   

   

      

   

   

   

Net income attributable to Wabtec shareholders

      

$

144,251

      

      

$

123,973

      

Adjustments to reconcile net income to net cash provided by operations:

      

   

   

   

      

   

   

   

Depreciation and amortization

      

   

25,019

      

      

   

20,194

      

Stock-based compensation expense

      

   

11,090

      

      

   

9,920

      

(Gain) loss on disposal of property, plant and equipment

      

   

(743

      

   

1,498

      

Excess income tax benefits from exercise of stock options

      

   

(4,162

      

   

(725

Changes in operating assets and liabilities, net of acquisitions

      

   

   

   

      

   

   

   

Accounts receivable

      

   

(103,155

      

   

(87,079

Inventories

      

   

7,003

      

      

   

(28,373

Accounts payable

      

   

21,308

      

      

   

(2,205

Accrued income taxes

      

   

(5,004

      

   

(16,158

Accrued liabilities and customer deposits

      

   

(44,316

      

   

12,286

      

Other assets and liabilities

      

   

(6,195

      

   

(2,795

Net cash provided by operating activities

      

   

45,096

      

      

   

30,536

      

Investing Activities

      

   

   

   

      

   

   

   

Purchase of property, plant and equipment

      

   

(14,608

      

   

(16,461

Proceeds from disposal of property, plant and equipment

      

   

5,832

      

      

   

93

      

Acquisitions of business, net of cash acquired

      

   

(115,071

      

   

(88,370

)

Net cash used for investing activities

      

   

(123,847

      

   

(104,738

Financing Activities

      

   

   

   

      

   

   

   

Proceeds from debt

      

   

244,800

      

      

   

172,400

      

Payments of debt

      

   

(165,744

      

   

(125,135

Proceeds from exercise of stock options and other benefit plans

      

   

2,649

      

      

   

1,465

      

Excess income tax benefits from exercise of stock options

      

   

4,162

      

      

   

725

      

Stock repurchase

      

   

—  

      

      

   

(21,927

)  

Cash dividends ($ 0.05 and $ 0.03 per share for the six months ended June 30, 2013 and 2012, respectively)

      

   

(4,796

      

   

(2,880

Net cash provided by financing activities

      

   

81,071

      

      

   

24,648

      

Effect of changes in currency exchange rates

      

   

(3,581

      

   

(1,956

Decrease in cash

      

   

(1,261

      

   

(51,510

Cash, beginning of year

      

   

215,766

      

      

   

285,615

      

Cash, end of period

   

 $

214,505

      

      

$

234,105

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

The accompanying notes are an integral part of these statements.

   

   

 

 6 

   


WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2013 (UNAUDITED)

   

1. BUSINESS

Wabtec is one of the world’s largest providers of value-added, technology-based products and services for the global rail industry. Our products are found on virtually all U.S. locomotives, freight cars and passenger transit vehicles, as well as in more than 100 countries throughout the world. Our products enhance safety, improve productivity and reduce maintenance costs for customers, and many of our core products and services are essential in the safe and efficient operation of freight rail and passenger transit vehicles. Wabtec is a global company with operations in 19 countries. In the first six months of 2013, about 49% of the Company’s revenues came from customers outside the U.S.

   

2. ACCOUNTING POLICIES

Basis of Presentation The unaudited condensed consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles and the rules and regulations of the Securities and Exchange Commission and include the accounts of Wabtec and its majority owned subsidiaries. These condensed consolidated interim financial statements do not include all of the information and footnotes required for complete financial statements. In management’s opinion, these financial statements reflect all adjustments of a normal, recurring nature necessary for a fair presentation of the results for the interim periods presented. Results for these interim periods are not necessarily indicative of results to be expected for the full year.

The Company operates on a four-four-five week accounting quarter, and the quarters’ end on or about March 31, June 30, September 30 and December 31.

The notes included herein should be read in conjunction with the audited consolidated financial statements included in Wabtec’s Annual Report on Form 10-K for the year ended December 31, 2012. The December 31, 2012 information has been derived from the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

Capital Structure On May 14, 2013, our stockholders approved an amendment to our Amended and Restated Certificate of Incorporation to increase the number of authorized shares of our common stock to 200.0 million shares.  In addition, on May 14, 2013, our Board of Directors approved a two-for-one split of the Company’s issued and outstanding common stock in the form of a 100% stock dividend.  The increase in the authorized shares and the stock split became effective on May 14, 2013 and June 11, 2013, respectively.  

The Company issued approximately 66.2 million shares of its common stock as a result of the two-for-one stock split. The par value of the Company’s common stock remained unchanged at $0.01 per share.

Information regarding shares of common stock (except par value per share), retained earnings, and net income per common share attributable to Wabtec shareholders for all periods presented reflects the two-for-one split of the Company’s common stock. The number of shares of the Company’s common stock issuable upon exercise of outstanding stock options and vesting of other stock-based awards was proportionally increased, and the exercise price per share thereof was proportionally decreased, in accordance with the terms of the stock incentive plans.

Reclassifications Certain prior year amounts have been reclassified where necessary to conform to the current year presentation.

Revenue Recognition Revenue is recognized in accordance with Accounting Standards Codification (“ASC”) 605 “Revenue Recognition”. Revenue is recognized when products have been shipped to the respective customers, title has passed and the price for the product has been determined.

In general, the Company recognizes revenues on long-term contracts based on the percentage of completion method of accounting. The units-of-delivery method or other input-based or output-based measures, as appropriate, are used to measure the progress toward completion of individual contracts. Contract revenues and cost estimates are reviewed and revised at a minimum quarterly and adjustments are reflected in the accounting period as such amounts are determined. Provisions are made currently for estimated losses on uncompleted contracts. Unbilled accounts receivables were $152.3 million and $97.1 million, customer deposits were $80.5 million and $82.8 million, and provisions for loss contracts were $12.1 million and $14.2 million at June 30, 2013 and December 31, 2012, respectively.

Certain pre-production costs relating to long-term production and supply contracts have been deferred and will be recognized over the life of the contracts. Deferred pre-production costs were $17.0 million and $20.5million at June 30, 2013 and December 31, 2012, respectively.

 

 7 

   


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.

Stock-Based Compensation The Company recognizes compensation expense for stock-based compensation based on the grant date fair value amortized ratably over the requisite service period following the date of grant.

Financial Derivatives and Hedging Activities The Company has periodically entered into foreign currency forward contracts to reduce the impact of changes in currency exchange rates. Forward contracts are agreements with a counter-party to exchange two distinct currencies at a set exchange rate for delivery on a set date at some point in the future. There is no exchange of funds until the delivery date. At the delivery date the Company can either take delivery of the currency or settle on a net basis. At June 30, 2013, the Company had no material foreign currency forward contracts.

To reduce the impact of interest rate changes on a portion of this variable-rate debt, the Company entered into a forward starting interest rate swap agreement with a notional value of $150.0 million. Effective July 31, 2013, with a termination date of November 7, 2016, this interest rate swap agreement will convert a portion of the Company’s then outstanding debt from a variable rate to a fixed-rate borrowing. The Company is exposed to credit risk in the event of nonperformance by the counterparty. However, since only the cash interest payments are exchanged, exposure is significantly less than the notional amount. The counterparty is a large financial institution with an excellent credit rating and history of performance. The Company currently believes the risk of nonperformance is negligible. The Company concluded that the interest rate swap agreements qualify for special cash flow hedge accounting which permits the recording of the fair value of the interest rate swap agreement and corresponding adjustment to other comprehensive income (loss), net of tax, on the balance sheet. During the term of the interest rate swap agreement the interest rate on the notional value will be fixed at 1.415% plus the Alternate Rate margin. As of June 30, 2013, the Company has recorded a current liability of $2.8million and a corresponding offset in accumulated other comprehensive loss of $1.7 million, net of tax, related to this agreement.

Foreign Currency Translation Assets and liabilities of foreign subsidiaries, except for the Company’s Mexican operations whose functional currency is the U.S. Dollar, are translated at the rate of exchange in effect on the balance sheet date while income and expenses are translated at the average rates of exchange prevailing during the year. Foreign currency gains and losses resulting from transactions, and the translation of financial statements are recorded in the Company’s consolidated financial statements based upon the provisions of ASC 830 “Foreign Currency Matters.” The effects of currency exchange rate changes on intercompany transactions and balances of a long-term investment nature are accumulated and carried as a component of accumulated other comprehensive loss. The effects of currency exchange rate changes on intercompany transactions that are denominated in a currency other than an entity’s functional currency are charged or credited to earnings. Foreign exchange transaction losses recognized in other income (expense), net were $1.0 million and $1.9 million for the three and six months ended June 30, 2013, respectively. Foreign exchange transaction gains recognized in other income (expense), net were $0.6 million and $1.0 million for the three and six months ended June 30, 2012, respectively.

Non-controlling Interests In accordance with ASC 810, the Company has classified non-controlling interests as equity on our condensed consolidated balance sheets as of June 30, 2013 and December 31, 2012. Net income attributable to non-controlling interests for the three and six months ended June 30, 2013 and 2012 was not material.

Other Comprehensive Income Comprehensive income is defined as net income and all other non-owner changes in shareholders’ equity.

The changes in accumulated other comprehensive loss by component, net of tax, for the six months ended June 30, 2013 are as follows:

   

 

In thousands

Foreign
currency
translation

   

      

Interest
rate swap
contracts

   

   

Pension
and post
retirement
benefit
plans

   

   

Total

   

Balance at December 31, 2012

$

11,981

      

      

$

(2,459

   

$

(63,086

   

$

(53,564

Other comprehensive income before reclassifications

   

(36,978

)  

      

   

574

      

   

   

1,908

      

   

   

(34,496

Amounts reclassified from accumulated other comprehensive income

   

—  

      

      

   

—  

      

   

   

1,947

      

   

   

1,947

      

Net current period other comprehensive income

   

(36,978

      

   

574

      

   

   

3,855

      

   

   

(32,549

)  

Balance at June 30, 2013

$

(24,997

      

$

(1,885

   

$

(59,231

)  

   

$

(86,113

)  

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

 

 8 

   


Reclassifications out of accumulated other comprehensive loss for the three months ended June 30, 2013 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

$

(612)

      

      

Cost of sales

    Amortization of net loss

   

2,018

      

      

Cost of sales

   

   

1,406

      

      

Income from Operations

   

   

(450)

      

      

Income tax expense

   

$

956

      

      

Net income

Reclassifications out of accumulated other comprehensive loss for the six months ended June 30, 2013 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

$

(1,224)

      

      

Cost of sales

    Amortization of net loss

   

4,046

      

      

Cost of sales

   

   

2,822

      

      

Income from Operations

   

   

(875)

      

      

Income tax expense

   

$

1,947

      

      

Net income

   

3. ACQUISITIONS

The Company has made the following acquisitions within the Transit Segment:

 

·   On October 1, 2012, the Company acquired LH Group (“LH”), a UK-based provider of maintenance and overhaul services for the passenger transit market, for a net purchase price of approximately $48.1 million, net of cash, resulting in preliminary goodwill of $20.4 million, none of which will be deductible for tax purposes.

 

·   On July 13, 2012, the Company acquired Tec Tran Corp. and its affiliates (“Tec Tran”), the only U.S.-owned manufacturer of hydraulic braking systems for transit cars, based in North Carolina, for a net purchase price of approximately $8.3 million, net of cash, resulting in preliminary additional goodwill of $1.7 million, which will be deductible for tax purposes.

 

·   On June 14, 2012, the Company acquired Mors Smitt Holding (“Mors Smitt”), a leading manufacturer of electronic components for rail and industrial markets with operations in the Netherlands, the United Kingdom, the U.S., France, China and Hong-Kong, for a net purchase price of approximately $90.0 million, net of cash, resulting in additional goodwill of $42.9 million, none of which will be deductible for tax purposes.

   

 

 9 

   


The Company has made the following acquisitions within the Freight Segment:

 

·   On February 26, 2013, the Company acquired Transdyne (“Transdyne”), a distributor of wear-protection components and other hardware used primarily on railroad freight cars, for a net purchase price of approximately $2.4 million, net of cash, resulting in preliminary goodwill of $1.5 million, which will be deductible for tax purposes.

 

·   On January 31, 2013, the Company acquired Napier Turbochargers Ltd. (“Napier”), a UK-based provider of turbochargers and related parts for the worldwide power generation and marine markets, for a net purchase price of approximately $112.3 million, net of cash, resulting in preliminary goodwill of $59.6 million, none of which will be deductible for tax purposes.

 

·   On July 31, 2012, the Company acquired Winco Equipamentos Ferroviarios Ltda. (“Winco”), an established marketing and sales company and provider of freight car components with capabilities including value-added engineering and assembly, service, technical support and logistics, based in Brazil, for an initial net payment of approximately $3.7 million, net of cash, resulting in preliminary additional goodwill of $4.8 million, none of which will be deductible for tax purposes. In addition to the $3.7 million, the purchase agreement includes contingent consideration to be paid in future periods based on the achievement of certain financial results.

The acquisitions listed above include escrow deposits of $12.2 million, which act as security for indemnity and other claims in accordance with the purchase and related escrow agreements.

For the Transdyne, Tec Tran, Winco, LH and Napier acquisitions, the following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of the acquisition.  For the Mors Smitt acquisition, the following table summarizes the final fair values of the assets acquired and liabilities assumed at the date of acquisition.

   

 

   

      

Transdyne

   

   

Napier

   

   

LH

   

   

Winco

   

   

Tec Tran

   

   

Mors Smitt

   

In thousands

      

February 26,
2013

   

   

January 31,
2013

   

   

October 1,
2012

   

   

July 31,
2012

   

   

July 13,
2012

   

   

June 14,
2012

   

Current assets

      

$

1,062

      

   

$

15,935

      

   

$

19,126

      

   

$

1,584

      

   

$

1,955

      

   

$

23,649

      

Property, plant & equipment

      

   

83

      

   

   

9,184

      

   

   

5,553

      

   

   

47

      

   

   

116

      

   

   

10,389

      

Goodwill and other intangible assets

      

   

1,483

      

   

   

97,652

      

   

   

39,033

      

   

   

7,401

      

   

   

6,717

      

   

   

79,730

      

Other assets

      

   

—  

      

   

   

—  

      

   

   

—  

   

   

   

—  

   

   

   

—  

   

   

   

944

      

Total assets acquired

      

   

2,628

      

   

   

122,771

      

   

   

63,712

      

   

   

9,032

      

   

   

8,788

      

   

   

114,712

      

Total liabilities assumed

      

   

(226

   

   

(10,430

   

   

(15,592

   

   

(5,376

   

   

(470

   

   

(24,724

Net assets acquired

      

$

2,402

      

   

$

112,341

      

   

$

48,120

      

   

$

3,656

      

   

$

8,318

      

   

$

89,988

      

The total goodwill and other intangible assets for acquisitions listed in the table above was $232.0 million, of which $130.9 million and 101.1 million was related to goodwill and other intangible assets, respectively.  Of the allocation of $101.1 million of acquired intangible assets for the companies listed in the above table exclusive of goodwill, $68.8 million was assigned to customer relationships, $25.1 million was assigned to trade names, $2.6 million was assigned to patents, $0.6 million was assigned to non-compete agreements, $0.8 million was assigned to favorable leasehold interest and $3.2 million was assigned to customer backlog. The trade names are considered to have an indefinite useful life, while the customer relationships’ average useful life is 20 years, the patents’ useful life is eight years, the favorable leasehold interest useful life is five years and the non-compete agreements average useful life is two years.

The following unaudited pro forma financial information presents income statement results as if the acquisitions listed above had occurred on January 1, 2012:

   

 

In thousands

      

Three Months Ended
June 30, 2013

   

      

Three Months Ended
June 30, 2012

   

      

Six Months Ended
June 30, 2013

   

      

Six Months Ended
June 30, 2012

   

Net sales

      

$

638,002

      

      

$

659,482

      

      

$

1,258,327

      

      

$

1,296,406

      

Gross profit

      

   

192,881

      

      

   

189,267

      

      

   

377,404

      

      

   

375,374

      

Net income attributable to Wabtec shareholders

      

   

74,638

      

      

   

69,225

      

      

   

145,151

      

      

   

133,965

      

Diluted earnings per share

      

   

   

   

      

   

   

   

      

   

   

   

      

   

   

   

As Reported

      

$

0.77

      

      

$

0.67

      

      

$

1.49

      

      

$

1.28

      

Pro forma

      

$

0.77

      

      

$

0.71

      

      

$

1.50

      

      

$

1.39

      

   

 

 10 

   


4. INVENTORIES

The components of inventory, net of reserves, were:

   

 

In thousands

      

June 30,
2013

   

      

December 31,
2012

   

Raw materials

      

$

181,125

      

      

$

186,341

      

Work-in-process

      

   

128,881

      

      

   

129,605

      

Finished goods

      

   

95,932

      

      

   

91,093

      

Total inventories

      

$

405,938

      

      

$

407,039

      

   

5. INTANGIBLES

The change in the carrying amount of goodwill by segment for the six months ended June 30, 2013 is as follows:

   

 

In thousands

      

Freight
Segment

   

      

Transit
Segment

   

      

Total

   

Balance at December 31, 2012

      

$

397,184

      

      

$

268,838

      

      

$

666,022

      

Acquisition

      

   

60,115

      

      

   

—  

      

      

   

60,115

      

Adjustment to preliminary purchase allocation

      

   

(43

)  

      

   

912

      

      

   

869

      

Foreign currency impact

      

   

(7,340

)  

      

   

(4,712

)  

      

   

(12,052

)  

Balance at June 30, 2013

      

$

449,916

      

      

$

265,038

      

      

$

714,954

      

As of June 30, 2013 and December 31, 2012, the Company’s trademarks had a net carrying amount of $138.5 million and $131.3 million, respectively, and the Company believes these intangibles have an indefinite life.

Intangible assets of the Company, other than goodwill and trademarks, consist of the following:

   

 

In thousands

      

June 30,
2013

   

      

December 31,
2012

   

Patents and other, net of accumulated amortization of $ 36,121 and  $35,556

      

$

12,250

      

      

$

11,835

      

Customer relationships, net of accumulated amortization of $ 37,571 and $31,572

      

   

179,059

      

      

   

165,160

      

Total

      

$

191,309

      

      

$

176,995

      

The weighted average remaining useful life of patents, customer relationships and intellectual property were six years, 16 years and 16 years, respectively. Amortization expense for intangible assets was $5.2 million and $8.8 million for the three and six months ended June 30, 2013, respectively, and $3.3 million and $6.3 million for the three and six months ended June 30, 2012, respectively.

Amortization expense for the five succeeding years is as follows (in thousands):

   

 

Remainder of 2013

$

8,035

      

2014

   

15,295

      

2015

   

14,259

      

2016

   

14,106

      

2017

   

12,584

      

   

6. LONG-TERM DEBT

Long-term debt consisted of the following:

   

 

In thousands

      

June 30,
2013

   

      

December 31,
2012

   

6.875% Senior Notes, due 2013

      

$

150,000

      

      

$

150,000

      

Revolving Credit Facility

      

   

246,400

      

      

   

167,000

      

Capital Leases

      

   

558

      

      

   

896

      

Total

      

   

396,958

      

      

   

317,896

      

Less—current portion

      

   

43

      

      

   

43

      

Long-term portion

      

$

396,915

      

      

$

317,853

      

 

 11 

   


2011 Refinancing Credit Agreement

On November 7, 2011, the Company refinanced its existing revolving credit and term loan facility with a consortium of commercial banks. This “2011 Refinancing Credit Agreement” provides the Company with a $600million, five-year revolving credit facility. The Company incurred approximately $1.9 million of deferred financing cost related to the 2011 Refinancing Credit Agreement. The facility expires on November 7, 2016. The 2011 Refinancing Credit Agreement borrowings bear variable interest rates indexed to the indices described below. At June 30, 2013, the Company had available bank borrowing capacity, net of $58.0 million of letters of credit, of approximately $295.6 million, subject to certain financial covenant restrictions.

Under the 2011 Refinancing Credit Agreement, the Company may elect a Base Rate of interest or an interest rate based on the London Interbank Offered Rate (“LIBOR”) of interest (“the Alternate Rate”). The Base Rate adjusts on a daily basis and is the greater of the Federal Funds Effective Rate plus 0.5%per annum, the PNC, N.A. prime rate or the Daily LIBOR Rate plus 100 basis points plus a margin that ranges from 0 to 75 basis points. The Alternate Rate is based on quoted LIBOR rates plus a margin that ranges from 75 to 175 basis points. Both the Base Rate and Alternate Rate margins are dependent on the Company’s consolidated total indebtedness to cash flow ratios. The current Base Rate margin is 0 basis points and the Alternate Rate margin is 100 basis points.

At June 30, 2013 the weighted average interest rate on the Company’s variable rate debt was 1.24%. On January 12, 2012, the Company entered into a forward starting interest rate swap agreement with a notional value of $150.0 million. The effective date of the interest rate swap agreement is July 31, 2013, and the termination date is November 7, 2016. The impact of the interest rate swap agreement will be to convert a portion of the Company’s then outstanding debt from a variable rate to a fixed-rate borrowing. During the term of the interest rate swap agreement the interest rate on the notional value will be fixed at 1.415% plus the Alternate Rate margin. The Company is exposed to credit risk in the event of nonperformance by the counterparty. However, since only the cash interest payments are exchanged, exposure is significantly less than the notional amount. The counterparty is a large financial institution with an excellent credit rating and history of performance. The Company currently believes the risk of nonperformance is negligible.

The 2011 Refinancing Credit Agreement limits the Company’s ability to declare or pay cash dividends and prohibits the Company from declaring or making other distributions, subject to certain exceptions. The 2011 Refinancing Credit Agreement contains various other covenants and restrictions including the following limitations: incurrence of additional indebtedness; mergers, consolidations, sales of assets and acquisitions; additional liens; sale and leasebacks; permissible investments, loans and advances; certain debt payments; and imposes a minimum interest expense coverage ratio of 3.0 and a maximum debt to cash flow ratio of 3.25. The Company does not expect that these measurements will limit the Company in executing our operating activities.

6.875% Senior Notes Due July 31, 2013

In August 2003, the Company issued $150.0 million of Senior Notes due in 2013 (“the Notes”). The Notes were issued at par. Interest on the Notes accrues at a rate of 6.875% per annum and is payable semi-annually on January 31 and July 31 of each year. The proceeds were used to repay debt outstanding under the Company’s existing credit agreement, and for general corporate purposes. The principal balance is due in full at maturity. The Company has both the intent and ability to refinance the Notes, maturing July 31, 2013, on a long term basis utilizing available capacity under the 2011 Refinancing Credit Agreement. The 2011 Refinancing Credit Agreement will provide available bank borrowing capacity sufficient to refinance the Notes on a long-term basis. In addition, the 2011 Refinancing Credit Agreement has provisions for increasing available capacity. The Notes are included in the long-term portion of debt as of June 30, 2013. The Company is in compliance with the restrictions and covenants in the indenture under which the Notes were issued and expects that these restrictions and covenants will not be any type of limiting factor in executing our operating activities.

The Notes are senior unsecured obligations of the Company and rank pari passu with all existing and future senior debt and senior to all existing and future subordinated indebtedness of the Company. The indenture under which the Notes were issued contains covenants and restrictions which limit among other things, the following: the incurrence of indebtedness, payment of dividends and certain distributions, sale of assets, change in control, mergers and consolidations and the incurrence of liens.

   

7. EMPLOYEE BENEFIT PLANS

Defined Benefit Pension Plans

The Company sponsors defined benefit pension plans that cover certain U.S., Canadian, German, and United Kingdom employees and which provide benefits of stated amounts for each year of service of the employee.

The Company uses a December 31 measurement date for the plans.

 

 12 

   


The following tables provide information regarding the Company’s defined benefit pension plans summarized by U.S. and international components.

   

 

   

      

U.S.

   

   

International

   

   

      

Three months ended
June 30,

   

   

Three months ended
June 30,

   

In thousands, except percentages

      

2013

   

   

2012

   

   

2013

   

   

2012

   

Net periodic benefit cost

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Service cost

      

$

106

      

   

$

95

      

   

$

506

      

   

$

491

      

Interest cost

      

   

491

      

   

   

542

      

   

   

1,656

      

   

   

1,764

      

Expected return on plan assets

      

   

(740

   

   

(775

   

   

(2,095

   

   

(2,021

Net amortization/deferrals

      

   

839

      

   

   

807

      

   

   

855

      

   

   

674

      

Net periodic benefit cost

      

$

696

      

   

$

669

      

   

$

922

      

   

$

908

      

Assumptions

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Discount rate

      

   

3.90

%

   

   

4.30

%

   

   

4.30

%

   

   

4.96

%

Expected long-term rate of return

      

   

7.50

%

   

   

7.50

%

   

   

6.09

%

   

   

6.12

%

Rate of compensation increase

      

   

3.00

%

   

   

3.00

%

   

   

3.10

%

   

   

3.21

%

   

   

      

U.S.

   

   

International

   

   

      

Six months ended
June 30,

   

   

Six months ended
June 30,

   

In thousands, except percentages

      

2013

   

   

2012

   

   

2013

   

   

2012

   

Net periodic benefit cost

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Service cost

      

$

212

      

   

$

191

      

   

$

1,019

      

   

$

986

      

Interest cost

      

   

982

      

   

   

1,084

      

   

   

3,333

      

   

   

3,536

      

Expected return on plan assets

      

   

(1,480

   

   

(1,550

   

   

(4,217

   

   

(4,050

Net amortization/deferrals

      

   

1,678

      

   

   

1,613

      

   

   

1,721

      

   

   

1,351

      

Settlement loss recognized

      

   

—  

      

   

   

—  

   

   

   

—  

      

   

   

293

      

Net periodic benefit cost

      

$

1,392

      

   

$

1,338

      

   

$

1,856

      

   

$

2,116

      

Assumptions

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Discount rate

      

   

3.90

%

   

   

4.30

%

   

   

4.30

%

   

   

4.96

%

Expected long-term rate of return

      

   

7.50

%

   

   

7.50

%

   

   

6.09

%

   

   

6.12

%

Rate of compensation increase

      

   

3.00

%

   

   

3.00

%

   

   

3.10

%

   

   

3.21

%

The Company’s funding methods are based on governmental requirements and differ from those methods used to recognize pension expense. The Company expects to contribute $4.9 million to the international plans and does not expect to make a contribution to the U.S. plans during 2013.

Post Retirement Benefit Plans

In addition to providing pension benefits, the Company has provided certain unfunded postretirement health care and life insurance benefits for a portion of North American employees. The Company is not obligated to pay health care and life insurance benefits to individuals who had retired prior to 1990.

The Company uses a December 31 measurement date for all post retirement plans.

 

 13 

   


The following tables provide information regarding the Company’s post retirement benefit plans summarized by U.S. and international components.

   

 

   

   

U.S.

   

   

International

   

   

      

Three months ended
June 30,

   

   

Three months ended
June 30,

   

In thousands, except percentages

      

2013

   

   

2012

   

   

2013

   

   

2012

   

Net periodic benefit cost

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Service cost

      

$

7

      

   

$

10

      

   

$

12

      

   

$

11

      

Interest cost

      

   

321

      

   

   

350

      

   

   

43

      

   

   

50

      

Net amortization/deferrals

      

   

(212

   

   

(200

   

   

(76

   

   

(82

Net periodic benefit cost

      

$

116

      

   

$

160

      

   

$

(21

   

$

(21

Assumptions

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Discount rate

      

   

3.90

%

   

   

4.30

%

   

   

4.30

%

   

   

5.15

%

   

 

   

      

U.S.

   

   

International

   

   

      

Six months ended
June 30,

   

   

Six months ended
June 30,

   

In thousands, except percentages

      

2013

   

   

2012

   

   

2013

   

   

2012

   

Net periodic benefit cost

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Service cost

      

$

14

      

   

$

19

      

   

$

24

      

   

$

22

      

Interest cost

      

   

642

      

   

   

701

      

   

   

87

      

   

   

100

      

Net amortization/deferrals

      

   

(424

   

   

(401

   

   

(153

   

   

(164

Net periodic benefit cost

      

$

232

      

   

$

319

      

   

$

(42

   

$

(42

Assumptions

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Discount rate

      

   

3.90

%

   

   

4.30

%

   

   

4.30

%

   

   

5.15

%

   

8. STOCK-BASED COMPENSATION

As of June 30, 2013, the Company maintains employee stock-based compensation plans for stock options, restricted stock, restricted units, and incentive stock awards as governed by the 2011 Stock Incentive Compensation Plan (the “2011 Plan”) and the 2000 Stock Incentive Plan, as amended (the “2000 Plan”). The 2011 Plan has a 10-year term through March 27, 2021 and provides a maximum of 3,800,000 shares for grants or awards. The 2011 Plan was approved by stockholders of Wabtec on May 11, 2011. The Company also maintains a Non-Employee Directors’ Fee and Stock Option Plan (“Directors Plan”). No awards may be made under the 2000 Plan or the Directors Plan subsequent to October 31, 2016.

Stock-based compensation expense was $11.5 million and $10.1 million for the six months ended June 30, 2013 and 2012, respectively. Included in the stock-based compensation expense for the six months ended June 30, 2013 above is $1.1 million of expense related to stock options, $2.8 million related to restricted stock, $0.8 million related to restricted units, $6.3 million related to incentive stock awards and $0.5 million related to awards issued for Directors’ fees. At June 30, 2013, unamortized compensation expense related to stock options, restricted stock, restricted units and incentive stock awards expected to vest totaled $30.4 million and will be recognized over a weighted average period of 1.5 years.

Stock Options Stock options are granted to eligible employees and directors at the fair market value, which is the average of the high and low Wabtec stock price on the date of grant. Under the 2011 Plan and the 2000 Plan, options become exercisable over a four-year vesting period and expire 10 years from the date of grant.

The following table summarizes the Company’s stock option activity and related information for the 2011 Plan, the 2000 Plan and the Directors Plan for the six months ended June 30, 2013:

   

 

   

Options

   

      

Weighted
Average
Exercise
Price

   

      

Weighted Average
Remaining
Contractual Life

   

      

Aggregate
intrinsic value
(in thousands)

   

Outstanding at December 31, 2012

   

1,465,678

      

      

$

20.24

      

      

   

6.3

      

      

$

34,487

      

Granted

   

116,392

      

      

   

48.29

      

      

   

   

   

      

   

598

      

Exercised

   

(199,204

)  

      

   

13.30

      

      

   

   

   

      

   

(7,994

)  

Canceled

   

(3,052

      

   

17.49

      

      

   

   

   

      

   

(110

Outstanding at June 30, 2013

   

1,379,814

      

      

$

23.61

      

      

   

6.4

      

      

$

41,140

      

Exercisable at June 30, 2013

   

944,898

      

      

$

18.55

      

      

   

5.7

      

      

$

32,961

      

 

 14 

   


The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

   

 

   

Six months ended
June 30,

   

   

2013

   

   

2012

   

Dividend yield

   

.21

%

   

   

.23

%

Risk-free interest rate

   

1.38

%

   

   

1.34

%

Stock price volatility

   

43.8

%

   

   

44.95

%

Expected life (years)

   

5.0

      

   

   

5.0

      

The dividend yield is based on the Company’s dividend rate and the current market price of the underlying common stock at the date of grant. Expected life in years is determined from historical stock option exercise data. Expected volatility is based on the historical volatility of the Company’s stock. The risk-free interest rate is based on the U.S. Treasury bond rates for the expected life of the option.

Restricted Stock, Restricted Units and Incentive Stock Beginning in 2006 the Company adopted a restricted stock program. As provided for under the 2011 and 2000 Plans, eligible employees are granted restricted stock or restricted units that generally vest over four years from the date of grant. Under the Directors Plan, restricted stock awards vest one year from the date of grant.

In addition, the Company has issued incentive stock awards to eligible employees that vest upon attainment of certain cumulative three year performance goals. Based on the Company’s performance for each three year period then ended, the incentive stock awards can vest and be awarded ranging from 0% to 200% of the initial incentive stock awards granted. The incentive stock awards included in the table below represent the number of shares that are expected to vest based on the Company’s estimate for meeting those established performance targets. As of June 30, 2013, the Company estimates that it will achieve 200%, 159% and 100% for the incentive stock awards expected to vest based on performance for the three year periods ending December 31, 2013, 2014, and 2015, respectively, and has recorded incentive compensation expense accordingly. If our estimate of the number of these stock awards expected to vest changes in a future accounting period, cumulative compensation expense could increase or decrease and will be recognized in the current period for the elapsed portion of the vesting period and would change future expense for the remaining vesting period.

Compensation expense for the restricted stock and incentive stock awards is based on the average of the high and low Wabtec stock price on the date of grant and recognized over the applicable vesting period.

The following table summarizes the restricted stock and unit activity for the 2011 Plan, the 2000 Plan and the Directors Plan, and incentive stock awards activity for the 2011 Plan and the 2000 Plan with related information for the six months ended June 30, 2013:

   

 

   

Restricted
Stock
and Units

   

      

Incentive
Stock
Awards

   

      

Weighted
Average Grant
Date Fair
Value

   

Outstanding at December 31, 2012

   

546,773

      

      

   

1,329,078

      

      

$

26.69

      

Granted

   

170,987

      

      

   

196,990

      

      

   

48.55

      

Vested

   

(204,042

)  

      

   

(570,918

)  

      

   

20.85

      

Adjustment for incentive stock awards expected to vest

   

—  

      

      

   

77,232

      

      

   

35.29

      

Canceled

   

(1,288

)  

      

   

(6,350

)  

      

   

20.50

      

Outstanding at June 30, 2013

   

512,430

      

      

   

1,026,032

      

      

$

35.32

      

   

9. INCOME TAXES

The overall effective income tax rate was 32.0% and 31.0% for the three and six months ended June 30, 2013, respectively and 33.7% and 34.0% for the three and six months ended June 30, 2012, respectively. For the three months ended June 30, 2013, the decrease in the effective rate is primarily due to an increase in foreign income taxed at lower statutory rates. For the six months ended June 30, 2013, the decrease in the effective rate is due to retroactive extension of the R&D tax credit and an increase in foreign income taxed at a lower statutory rates.

As of June 30, 2013, the liability for income taxes associated with uncertain tax positions is $10.7million, of which $3.8 million, if recognized would favorably affect the Company’s effective tax rate. As of December 31, 2012 the liability associated with uncertain tax positions was $11.3 million, of which $3.7 million, if recognized, would favorably affect the Company’s effective tax rate.

 

 15 

   


The Company includes interest and penalties related to uncertain tax positions in income tax expense. As of June 30, 2013 the total accrued interest and penalties are $2.3 million and $1.3 million, respectively. As of December 31, 2012 the total accrued interest and penalties were $2.5 million and $1.4 million, respectively.

At this time, the Company believes that it is reasonably possible that unrecognized tax benefits of approximately $1.6 million may change within the next 12 months due to the expiration of statutory review periods and current examinations.  With limited exception, the Company is no longer subject to examination by various U.S. and foreign taxing authorities for years before 2011.

   

10. EARNINGS PER SHARE

The computation of basic and diluted earnings per share for net income attributable to Wabtec shareholders is as follows:

   

 

   

      

   

Three Months Ended
June 30,

   

In thousands, except per share

      

2013

   

   

2012

   

Numerator

      

   

   

   

   

   

   

   

Numerator for basic and diluted earnings per common share—net income attributable to Wabtec shareholders

      

$

74,638

      

   

$

64,712

      

Less: dividends declared—common shares and non-vested restricted stock

      

   

(2,410

   

   

(1,442

Undistributed earnings

      

   

72,228

      

   

   

63,270

      

Percentage allocated to common shareholders(1)

      

   

99.6

%

   

   

99.5

   

      

   

71,939

      

   

   

62,954

      

Add: dividends declared—common shares

      

   

2,399

      

   

   

1,435

      

Numerator for basic and diluted earnings per common share

      

$

74,338

      

   

$

64,389

      

Denominator