01—Abstract
Summary
Summary of the 10-K filed February 28, 2017. Cited figures are marked; the original filing is the authoritative source.
Westinghouse Air Brake Technologies Corporation (Wabtec) reported 2016 net sales of $2.93 billiona, down from $3.31 billion in 2015, as lower Freight Segment demand from reduced freight car and locomotive builds offset growth in the Transit Segment, which was boosted by acquisitions.
Income from operations fell to $458.4 millionb from $607.6 million, and net income attributable to Wabtec shareholders was $304.9 million, compared with $398.6 million in 2015. Diluted earnings per share were $3.34, versus $4.10 a year earlier. Aftermarket sales represented about 59% of 2016 total sales, and about 54% of sales came from outside the U.S. The defining event of the year was the acquisition of majority ownership of Faiveley Transport S.A., completed November 30, 2016, for a purchase price the filing describes as approximately $1.7 billion for 100% of the shares, including assumed debt.
Total assets rose to $6.58 billionc from $3.23 billion, goodwill to $2.08 billion, and total debt to $1.89 billion from $692.2 million. The company issued $750.0 million of 3.450% senior notes due 2026 to help fund the cash portion of the transaction, and it continued a tender offer for the remaining Faiveley shares, with the initial closing on February 3, 2017 adding a further 27.5% stake. Cash from operations was $449.3 million in 2016, essentially flat with $448.3 million in 2015.
Investing outflows of $775.1 milliond reflected acquisitions and $744.7 million of cash deposited in escrow for the pending tender offer. The company returned cash to shareholders through $212.2 million of stock repurchases and $32.4 million of dividends, and backlog stood at about $4.0 billion at December 31, 2016.
02—Key points
Key Highlights
- Net sales declined 11.4% to $2.93 billion in 2016 from $3.31 billion, driven by a 24.9% drop in Freight Segment sales, partly offset by a 10.8% increase in Transit Segment sales.
- Income from operations fell 24.6% to $458.4 million; net income attributable to Wabtec shareholders was $304.9 million versus $398.6 million in 2015.
- Acquired majority ownership of Faiveley Transport S.A. on November 30, 2016; total assets increased to $6.58 billion from $3.23 billion and goodwill rose to $2.08 billion.
- Total debt increased to $1.89 billion at December 31, 2016 from $692.2 million, including $750.0 million of 3.450% senior notes due 2026 issued in October 2016.
- Aftermarket sales were about 59% of 2016 total sales, supporting a more stable revenue mix; backlog was about $4.0 billion at December 31, 2016.
- Cash from operations was $449.3 million, while $212.2 million was used for stock repurchases and $32.4 million for dividends in 2016.
- The Positive Train Control mandate, with a December 31, 2018 deadline, generated about $345 million of 2016 train control and signaling revenue, and Siemens filed a patent infringement lawsuit over PTC technology.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Westinghouse Air Brake Technologies kept $0.10.
- Revenue$2.93B100.0%
- Cost of revenue−$2.01B68.5%
- Gross profit$924.2M31.5%
- Operating costs−$467.6M16.0%
- Operating income$456.6M15.6%
- Interest, other & tax−$151.7M5.2%
- Net income$304.9M10.4%
Where FY2016 revenue went
$2.93B- Cost of revenue: $2.01B, 68% of revenue
- SG&A: $373.6M, 13% of revenue
- Net income: $304.9M, 10% of revenue
- R&D: $71.4M, 2.4% of revenue
- Other operating costs: $22.7M, 0.8% of revenue
- Interest, other & tax: $151.7M, 5.2% of revenue
Kept 10% as net incomeOther operating costs $22.7M · 0.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 28, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $2.93B$3.31B | −11.4% |
| Cost of Revenue | $2.01B$2.26B | −11.2% |
| Gross Profit | $924.24M$1.05B | −11.8% |
| R&D Expenses | $71.38M$71.21M | +0.2% |
| SG&A Expenses | $373.56M$347.37M | +7.5% |
| Operating Expenses | $467.63M$440.25M | +6.2% |
| Operating Income | $456.61M$607.57M | −24.8% |
| Net Income | $304.89M$398.63M | −23.5% |
| EPS (Basic) | $3.37$4.14 | −18.6% |
| EPS (Diluted) | $3.34$4.10 | −18.5% |
| Shares Outstanding (Basic) | 90.36M96.07M | −5.9% |
| Shares Outstanding (Diluted) | 91.14M97.01M | −6.0% |
05—Questions
Frequently Asked Questions
Why did Wabtec's sales and profits decline in 2016?
Net sales fell $376.8 million to $2.93 billion, mainly because Freight Segment sales dropped $511.6 million, or 24.9%, on lower demand for freight original equipment rail products and train control products tied to reduced freight car and locomotive builds. Income from operations fell to $458.4 million from $607.6 million, and the filing notes $38.9 million of acquisition-related costs in selling, general and administrative expenses.
What was the Faiveley Transport acquisition and how was it financed?
Wabtec acquired majority ownership of Faiveley Transport S.A. on November 30, 2016, from the Faiveley family, which held about 51% of share capital. The filing describes the aggregate value of that consideration as $978.1 million, including $534.7 million in stock, $211.8 million in cash, and $409.9 million in debt assumed. The total purchase price for 100% of the shares is described as about $1.7 billion, with the approximately $1.0 billion cash portion funded from cash on hand, net proceeds of a $750 million senior notes offering, and its revolving credit facility and term loan.
How much debt does Wabtec carry and what are the key maturities?
Total debt was $1,892.8 million at December 31, 2016, up from $692.2 million a year earlier. Principal components include $747.5 million of 3.450% senior notes due 2026, $248.3 million of 4.375% senior notes due 2023, $796.2 million under the revolving credit facility and term loan, and $98.7 million of Schuldschein loan. The 2016 Refinancing Credit Agreement provides a $1.2 billion revolving facility expiring June 22, 2021.
What dividends and share repurchases did Wabtec make in 2016?
Cash dividends declared were $0.36 per share in 2016, up from $0.28 in 2015, and total dividend payments were $32.4 million. During 2016 the company repurchased 3,046,408 shares for $212.2 million, leaving $137.8 million under its $350 million authorization. The filing notes no repurchases in the fourth quarter of 2016.
What are the main risks highlighted in the filing?
The filing highlights dependence on key customers, with the top five accounting for 23% of 2016 net sales; cyclicality in freight and transit markets; integration risks from recent acquisitions; and international operations exposure, with about 54% of 2016 sales outside the U.S. It also cites leverage, noting that covenants in the credit agreement and senior notes limit management's discretion, and that PTC deadline changes could affect revenue timing.
06—Continue