Why did net income more than double in 2001 when sales declined?

Net income of $61.8 million included $47.8 million from discontinued operations, principally a $41.5 million gain, net of tax, on the sale and writedown of businesses. Income from continuing operations was $14.0 million in 2001 compared with $19.2 million in 2000.

What caused the decline in net sales?

The filing attributes the 3.4% decline primarily to decreased North American OEM freight car and locomotive component sales volumes and lower locomotive overhauls within the Freight Group, partly offset by increased Transit Group shipments under the MTA contract. Freight car deliveries fell to 34,247 in 2001 from 55,821 in 2000.

How did the company use the proceeds from the GE asset sale?

The company reported $240.9 million in cash received from the disposition of discontinued operations and reduced long-term debt by $298.3 million during 2001. Its revolving credit borrowings fell to $60.0 million at year-end from $358.0 million, and the 364-day facility was reduced from $213 million to $100 million.

What does the company expect for 2002?

The company expects 2002 interest expense of about $22 million, an ongoing effective tax rate of approximately 35-36%, and capital expenditures of about $21.5 million. It also expects the Transit Group delivery rate to be in the range of 600-800 units for the next several years, with about 1,230 transit vehicle deliveries in 2002.

What are the main concentration and financing risks?

One customer represented 11% of consolidated sales in 2001, and the company states that losing a few key customers could adversely affect its financial condition. The credit agreement restricts cash dividends, and the 9.375% senior notes due 2005 are callable at par in June 2002, with the company evaluating whether to call them and refinance under the credit agreement.

WAB 10-K FY2001 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed April 1, 2002. Cited figures are marked; the original filing is the authoritative source.

Westinghouse Air Brake Technologies Corporation (Wabtec) reported 2001 net sales of $783.7 million^a, down 3.4% from $811.2 million in 2000, as weak North American freight car and locomotive demand offset growth in the Transit Group.

Net income rose to $61.8 million^b, or $1.43 per diluted share, from $25.4 million, or $0.59 per diluted share, but the increase was driven by $47.8 million of income from discontinued operations, including a $41.5 million gain on the sale of certain assets to GE Transportation Systems. Excluding non-recurring and non-operating items, earnings from continuing operations were $0.49 per diluted share in 2001 versus $0.82 in 2000. The company used the $240 million GETS sale proceeds and operating cash flow of $119.1 million to reduce long-term debt by $298.3 million, bringing total debt to $241.9 million from $540.2 million at year-end 2000.

Operating income fell to $54.1 million^c from $77.8 million, and the company expects 2002 interest expense of about $22 million and an ongoing effective tax rate of approximately 35-36%. Management expects industry deliveries of about 700 new locomotives and about 20,000 new freight cars in 2002, well below historical averages, while transit deliveries are expected to be about 1,230 units.

At year-end 2001, backlog stood at $513.0 million^d, of which $296.5 million was expected to be recognized in 2002. Key risks include customer concentration (one customer accounted for 11% of 2001 consolidated sales), a credit agreement that restricts dividends, and a Freight Group market that the company describes as highly dependent on railroad capital spending cycles.

02—Key points

Key Highlights

Net sales declined 3.4% to $783.7 million in 2001 from $811.2 million, with Freight Group sales down to $490.3 million and Transit Group sales up to $293.4 million.
Net income was $61.8 million, or $1.43 per diluted share, including $47.8 million from discontinued operations; excluding non-recurring and non-operating items, diluted EPS from continuing operations was $0.49 versus $0.82 in 2000.
Income from operations fell to $54.1 million from $77.8 million, and gross margin declined to 26.8% from 29.1%.
Total debt was reduced to $241.9 million from $540.2 million, and cash provided by operating activities rose to $119.1 million from $60.2 million.
The November 2001 sale of locomotive aftermarket assets to GE Transportation Systems for $240 million in cash was the principal driver of the investing cash inflow and debt paydown.
Year-end 2001 backlog was $513.0 million, with $296.5 million expected to be recognized in 2002.
The company expects 2002 industry deliveries of about 700 new locomotives and about 20,000 new freight cars, both below prior-year levels and historical averages.

03—Questions

Frequently Asked Questions

Why did net income more than double in 2001 when sales declined?
Net income of $61.8 million included $47.8 million from discontinued operations, principally a $41.5 million gain, net of tax, on the sale and writedown of businesses. Income from continuing operations was $14.0 million in 2001 compared with $19.2 million in 2000.
What caused the decline in net sales?
The filing attributes the 3.4% decline primarily to decreased North American OEM freight car and locomotive component sales volumes and lower locomotive overhauls within the Freight Group, partly offset by increased Transit Group shipments under the MTA contract. Freight car deliveries fell to 34,247 in 2001 from 55,821 in 2000.
How did the company use the proceeds from the GE asset sale?
The company reported $240.9 million in cash received from the disposition of discontinued operations and reduced long-term debt by $298.3 million during 2001. Its revolving credit borrowings fell to $60.0 million at year-end from $358.0 million, and the 364-day facility was reduced from $213 million to $100 million.
What does the company expect for 2002?
The company expects 2002 interest expense of about $22 million, an ongoing effective tax rate of approximately 35-36%, and capital expenditures of about $21.5 million. It also expects the Transit Group delivery rate to be in the range of 600-800 units for the next several years, with about 1,230 transit vehicle deliveries in 2002.
What are the main concentration and financing risks?
One customer represented 11% of consolidated sales in 2001, and the company states that losing a few key customers could adversely affect its financial condition. The credit agreement restricts cash dividends, and the 9.375% senior notes due 2005 are callable at par in June 2002, with the company evaluating whether to call them and refinance under the credit agreement.

04—Continue

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