ACQUISITIONS

Faiveley Transport

On July 27, 2015, the Company announced plans to acquire all of the issued and outstanding shares of Faiveley Transport S.A. ("Faiveley Transport") under the terms of a Share Purchase Agreement (the "Share Purchase Agreement") and a Tender Offer Agreement (the "Tender Offer Agreement"). On October 24, 2016, the Company entered into amendments to the Share Purchase Agreement and the Tender Offer Agreement. Faiveley Transport is a leading global provider of value-added, integrated systems and services for the railway industry with annual sales of about $1.2 billion and more than 5,700 employees in 24 countries. Faiveley Transport supplies railway manufacturers, operators and maintenance providers with a range of valued-added, technology-based systems and services in Energy & Comfort (air conditioning, power collectors and converters, and passenger information), Access & Mobility (passenger access systems and platform doors), and Brakes and Safety (braking systems and couplers).

The transaction has been structured in three steps:


•	Wabtec made an irrevocable offer to the owners of approximately 51% of Faiveley Transport's shares for a purchase price of €100 per share, payable between 25% and 45% in cash at the election of those shareholders with the remainder in common stock.


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

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Upon completing the share purchase under the Share Purchase Agreement, Wabtec commenced a tender offer for the remaining publicly traded Faiveley Transport shares. The public shareholders will have the option to elect to receive €100 per share in cash or Wabtec common stock. The common stock portion of the consideration is subject to a cap on issuance of Faiveley common shares that will be equivalent to the rates of cash and stock elected by the 51% owners. Wabtec intends to delist Faiveley Transport from Euronext after the tender offer if minority interests represent less than 5%.

On November 30, 2016, the Company acquired majority ownership of Faiveley Transport, after completing the purchase of the Faiveley family’s ownership interest, which represented approximately 51% of outstanding share capital and approximately 49% of the outstanding voting shares of Faiveley Transport. Under the variable interest entity model the Company concluded that it is the primary beneficiary of Faiveley Transport as it possesses the power to direct the activities of Faiveley Transport that most significantly impact its economic performance and it possesses the obligation and right to absorb losses and benefits from Faiveley Transport; therefore, Faiveley Transport was consolidated by Wabtec under the variable interest model at acquisition. Based on the Company’s $84.77 stock price on November 30, 2016, the aggregate value of consideration paid for the Faiveley Transport family’s ownership interest was $978.1 million, including $534.7 million in stock or approximately 6.3 million shares, $211.8 million in cash, $409.9 million in debt assumed, less $178.3 million in cash acquired. The Company launched a tender offer for the remaining publicly traded Faiveley Transport shares in December 2016. Through the tender offer, the public shareholders of Faiveley Transport will have the option to elect to receive €100 per share of Faiveley Transport in cash or 1.1538 Wabtec common shares per share of Faiveley Transport. On February 3, 2017, the initial cash tender offer was closed which resulted in the Company acquiring an additional 27.5% of outstanding share capital of Faiveley Transport for approximately $411.8 million in cash and $25.2 million in Wabtec stock. The tender offer will be reopened with dates and duration to be determined by the French regulator. The total purchase price for 100% of the shares of Faiveley Transport is approximately $1.7 billion, including assumed debt and net of cash acquired. The approximate $1.0 billion cash portion of the transaction is being funded from cash on hand, the net proceeds from a recent $750 million senior notes offering and the company’s existing revolving credit facility and term note. The $744.7 million included as deposits in escrow on the consolidated balance sheet at December 31, 2016 is cash designated for use as consideration for the tender offer.

The Company’s 2016 operating results include the results from Faiveley Transport following the November 30, 2016 acquisition date. The fair value of the noncontrolling interest was preliminarily determined using the market price of Faiveley Transport’s publicly traded common stock multiplied by the number of publicly traded common shares outstanding at the acquisition date and is considered Level 1. The fair values of the assets acquired and liabilities assumed are preliminarily determined using the income, cost and market approaches. The fair value measurements were primarily based on significant inputs that are not observable in the market and are considered Level 3. The December 31, 2016 consolidated balance sheet includes the assets and liabilities of Faiveley Transport, which have been measured at fair value.

The following table summarizes the preliminary estimated fair values of the Faiveley Transport assets acquired and liabilities assumed.



In thousands
Assets acquired
Cash and cash equivalents	$	178,318
Accounts receivable	385,754
Inventories	207,151
Other current assets	66,152
Property, plant, and equipment	161,663
Goodwill	1,188,296
Trade names	333,823
Customer Relationships	255,354
Patents	1,201
Other noncurrent assets	141,756
Total assets acquired	2,919,468
Liabilities assumed
Current liabilities	653,679
Debt	409,899
Other noncurrent liabilities	349,074
Total liabilities assumed	1,412,652
Noncontrolling interest	760,343
Net assets acquired	$	1,506,816

These estimates are preliminary in nature and subject to adjustments, which could be material. Any necessary adjustments will be finalized within one year from the date of acquisition. Substantially all of the accounts receivable acquired are expected to be collectible. Included in current liabilities is $25.9 million of accrued compensation for acquired share-based stock plans that are obligated to be settled in cash. Contingent liabilities assumed as part of the transaction were not material. These contingent liabilities are related to environmental, legal and tax matters. Contingent liabilities are recorded at fair value in purchase accounting, aside from those pertaining to uncertainty in income taxes which are an exception to the fair value basis of accounting.

Goodwill was calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of the net assets acquired, and represents the future economic benefits, including synergies and assembled workforce, that we expect to achieve as a result of the acquisition. Purchased goodwill is not expected to be deductible for tax purposes. The goodwill has been preliminarily allocated to our Transit segment.

For the 31 day period ended December 31, 2016, the Company’s consolidated statement of income included $110.8 million of revenues and $0.6 million of operating income from Faiveley Transport. Additionally, a net tax benefit of $30.6 million was recognized from Faiveley Transport primarily due to an enacted legislative change in the French corporate tax rate and the benefit from charges related to the repayment of debt acquired from Faiveley Transport. Acquisition related costs were $38.9 million in 2016 and are included in selling, general and administrative expenses on the consolidated statements of income.

Other Acquisitions

The Company made the following acquisitions operating as a business unit or component of a business unit in the Freight Segment:


•	On December 14, 2016, the Company acquired Workhorse Rail LLC ("Workhorse"), a supplier of engineered freight car components, mainly for the aftermarket for a purchase price of approximately $44.3 million, net of cash acquired, resulting in preliminary goodwill of $23.1 million, 37.8% of which will be deductible for tax purposes.

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On November 17, 2016, the Company acquired the assets of Precision Turbo & Engine ("Precision Turbo"), a designer and manufacturer of high-performance, aftermarket turbochargers, wastegates, and heat exchangers for the automotive performance market for a purchase price of approximately $13.8 million, net of cash acquired, resulting in preliminary goodwill of $3.9 million, all of which will be deductible for tax purposes.


•	On May 5, 2016, the Company acquired the assets of Unitrac Railroad Materials ("Unitrac"), a leading designer and manufacturer of railroad products and track work services for a purchase price of approximately $14.4 million, net of cash acquired, resulting in preliminary goodwill of $1.4 million, all of which will be deductible for tax purposes.


•	On October 30, 2015, the Company acquired Relay Monitoring Systems PTY Ltd. ("RMS"), an Australian based manufacturer of electrical protection and control products for a purchase price of approximately $18.7 million, net of cash acquired, resulting in preliminary goodwill of $8.9 million, none of which will be deductible for tax purposes.


•	On October 8, 2015, the Company acquired Track IQ, an Australian based manufacturer of wayside sensor systems for the global rail industry for a purchase price of approximately $9.3 million, net of cash acquired, resulting in preliminary goodwill of $6.5 million, all of which will be deductible for tax purposes.


•	On February 4, 2015, the Company acquired Railroad Controls L.P. ("RCL"), a provider of railway signal construction services, for a purchase price of approximately $78.0 million, net of cash acquired, resulting in goodwill of $14.8 million, all of which will be deductible for tax purposes.

For the Workhorse, Precision Turbo, and Unitrac acquisitions, the following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of the acquisitions. For the RMS, Track IQ, and RCL acquisitions, the following table summarizes the final fair value of assets acquired and liabilities assumed at the date of acquisition.



	Workhorse			Precision Turbo			Unitrac			RMS			Track IQ			RCL
	December 14, 2016			November 17, 2016			May 5, 2016			October 30, 2015			October 8, 2015			February 4, 2015
In thousands	December 14, 2016			November 17, 2016			May 5, 2016			October 30, 2015			October 8, 2015			February 4, 2015
Current assets	$	9,432		$	4,155		$	12,136		$	3,604		$	660		$	16,421
Property, plant & equipment	—			1,346			1,768			1,378			121			12,136
Goodwill	23,052			3,861			1,388			8,855			6,490			14,787
Other intangible assets	20,900			5,200			1,230			8,622			3,246			40,403
Total assets acquired	53,384			14,562			16,522			22,459			10,517			83,747
Total liabilities assumed	(9,093		)	(716		)	(2,144		)	(3,749		)	(1,205		)	(5,736		)
Net assets acquired	$	44,291		$	13,846		$	14,378		$	18,710		$	9,312		$	78,011

The Company made the following acquisitions operating as a business unit or component of a business unit in the Transit Segment:


•	On August 1, 2016, the Company acquired Gerken Group S.A. ("Gerken"), a manufacturer of specialty carbon and graphite products for rail and other industrial applications, for a purchase price of approximately $62.8 million, net of cash acquired, resulting in preliminary goodwill of $17.5 million, none of which will be deductible for tax purposes.


•	On June 17, 2015, the Company acquired Metalocaucho ("MTC"), a manufacturer of transit products, primarily rubber components for suspension and vibration control systems, for a purchase price of approximately $23.4 million, net of cash acquired, resulting in preliminary goodwill of $13.2 million, none of which will be deductible for tax purposes.

For the Gerken acquisition, the following table summarizes the preliminary estimated fair value of the assets acquired and liabilities assumed at the date of acquisition. For the MTC acquisition, the following table summarizes the final fair value of the assets acquired and liabilities assumed at the date of the acquisition.



	Gerken			MTC
	August 1, 2016			June 17, 2015
In thousands	August 1, 2016			June 17, 2015
Current assets	$	32,706		$	10,348
Property, plant & equipment	7,667			1,450
Goodwill	17,470			13,198
Other intangible assets	30,560			7,650
Other assets	1,706			114
Total assets acquired	90,109			32,760
Total liabilities assumed	(27,262		)	(9,400		)
Net assets acquired	$	62,847		$	23,360

The acquisitions listed above include escrow deposits of $42.0 million, which may be released to the Company for indemnity and other claims in accordance with the purchase and escrow agreements.

The total goodwill and other intangible assets for acquisitions listed in the tables above was $1,985.6 million, of which $1,277.4 million and $708.2 million was related to goodwill and other intangible assets, respectively. Of the allocation of $708.2 million of acquired intangible assets, $345.1 million was assigned to customer relationships, $353.1 million was assigned to trade names, $5.0 million was assigned to intellectual property, $2.0 million was assigned to non-compete agreements and $1.8 million was assigned to customer backlog. The trade names are considered to have an indefinite useful life while the intellectual property and customer relationships’ useful life is 20 years and the non-compete agreements' useful life is five years.

The following unaudited pro forma financial information presents income statement results as if the acquisitions listed above had occurred January 1, 2015:



	For the year ended December 31,
In thousands	2016		2015
Net sales	$	4,091,246	$	4,638,466
Gross profit	1,238,206		1,405,746
Net income attributable to Wabtec shareholders	368,929		453,944
Diluted earnings per share
As Reported	$	3.34	$	4.10
Pro forma	$	4.04	$	4.67

The historical consolidated financial information of the Company and the acquisitions detailed above have been adjusted in the pro forma information to give effect to pro forma events that are (1) directly attributable to the transactions, (2) factually supportable and (3) expected to have a continuing impact on the combined results. Pro forma data may not be indicative of the results that would have been obtained had these acquisitions occurred at the beginning of the periods presented, nor is it intended to be a projection of future results.