01—Abstract
Summary
Summary of the 10-K filed February 26, 2018. Cited figures are marked; the original filing is the authoritative source.
Westinghouse Air Brake Technologies Corporation, doing business as Wabtec Corporation, reported 2017 net sales of $3,881.8 milliona, up from $2,931.2 million in 2016, driven mainly by acquisitions of $1,183.2 million, the majority related to the Faiveley Transport acquisition.
Net income attributable to Wabtec shareholders was $262.3 millionb in 2017, down from $304.9 million in 2016. Income from operations fell to $421.7 million from $458.4 million, and cost of sales rose to 72.5% of sales from 68.4%, reflecting product mix, $44.5 million of higher project adjustments and $11.8 million of restructuring and integration costs. Diluted EPS was $2.72 versus $3.34.
Backlog was about $4.6 billionc at December 31, 2017, up from $3.98 billion a year earlier. Cash flow weakened. Operating cash flow was $188.8 million, compared with $450.5 million in 2016, due to unfavorable working capital and lower net income.
Cash used in investing activities was $275.7 milliond, which included $921.5 million of net cash paid for acquisitions, partly offset by $734.0 million released from escrow related to Faiveley. Total debt was $1,870.5 million at year-end, versus $1,892.8 million a year earlier, and cash was $233.4 million. Dividends per share rose to $0.44 from $0.36, and no shares were repurchased in 2017.
The filing highlights a diversified business: the Transit Segment accounted for 64% of 2017 sales and the Freight Segment for 36%. Sales outside the U.S. were about 66% of the total, and aftermarket sales were about 56%. Key risks include the Positive Train Control deadline of December 31, 2018, the Siemens patent lawsuit, the Denver Transit dispute involving Xorail with damages alleged at $36.8 million through July 31, 2017, and asbestos claims against subsidiary Railroad Friction Products Corporation.
02—Key points
Key Highlights
- Net sales rose 32.4% to $3,881.8 million in 2017, with acquisitions contributing $1,183.2 million, mainly from Faiveley Transport.
- Net income attributable to Wabtec shareholders fell to $262.3 million from $304.9 million, and diluted EPS was $2.72 versus $3.34.
- Cost of sales increased to 72.5% of sales from 68.4%, reflecting unfavorable product mix and $44.5 million of higher project adjustments.
- Operating cash flow was $188.8 million, down from $450.5 million, due to working capital changes and lower net income.
- Backlog was about $4.6 billion at December 31, 2017, compared with $3.98 billion at December 31, 2016.
- The Transit Segment grew to $2,485.2 million in sales (64% of total), while the Freight Segment declined 9.5% to $1,396.6 million.
- Total debt was $1,870.5 million at year-end, and the company disclosed a Siemens patent lawsuit and a Denver Transit contract dispute involving Xorail.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Westinghouse Air Brake Technologies kept $0.07.
- Revenue$3.88B100.0%
- Cost of revenue−$2.82B72.6%
- Gross profit$1.07B27.4%
- Operating costs−$644.2M16.6%
- Operating income$421.1M10.8%
- Interest, other & tax−$158.8M4.1%
- Net income$262.3M6.8%
Where FY2017 revenue went
$3.88B- Cost of revenue: $2.82B, 73% of revenue
- SG&A: $512.5M, 13% of revenue
- Net income: $262.3M, 6.8% of revenue
- R&D: $95.2M, 2.5% of revenue
- Other operating costs: $36.6M, 0.9% of revenue
- Interest, other & tax: $158.8M, 4.1% of revenue
Kept 6.8% as net incomeOther operating costs $36.6M · 0.9%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 26, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $3.88B$2.93B | +32.4% |
| Cost of Revenue | $2.82B$2.01B | +40.3% |
| Gross Profit | $1.07B$924.24M | +15.3% |
| R&D Expenses | $95.20M$71.38M | +33.4% |
| SG&A Expenses | $512.50M$373.56M | +37.2% |
| Operating Expenses | $644.20M$467.63M | +37.8% |
| Operating Income | $421.10M$456.61M | −7.8% |
| Net Income | $262.30M$304.89M | −14.0% |
| EPS (Basic) | $2.74$3.37 | −18.7% |
| EPS (Diluted) | $2.72$3.34 | −18.6% |
| Shares Outstanding (Basic) | 95.50M90.36M | +5.7% |
| Shares Outstanding (Diluted) | 96.10M91.14M | +5.4% |
05—Questions
Frequently Asked Questions
Why did Wabtec's sales increase while net income declined?
Net sales increased $950.6 million to $3,881.8 million, mainly from $1,183.2 million of acquisition sales, with most tied to Faiveley Transport. Net income fell to $262.3 million because cost of sales rose to 72.5% of sales from 68.4%, driven by product mix shifting toward lower-margin transit business, $44.5 million of higher project adjustments and $11.8 million of restructuring and integration costs. Operating expenses also rose to 16.6% of sales from 15.9%, and interest expense, net, increased to $68.7 million from $42.6 million.
How did the Faiveley Transport acquisition affect the company's financial position?
Wabtec acquired 100% ownership of Faiveley Transport for a purchase price of $1,507 million in a step acquisition completed by March 21, 2017. The company recorded goodwill of $1,262.4 million and trade names of $346.3 million from the purchase. Total goodwill rose to $2,460.1 million from $2,078.8 million, and noncontrolling interest fell to $19.7 million from $770.8 million.
What is the main risk to revenue in the near term?
The filing identifies the Positive Train Control mandate as a key revenue factor. Wabtec recorded about $322 million of revenue from train control and signaling projects in 2017, and the PTC deadline is December 31, 2018, with possible extensions into 2019 and 2020. The filing says this could change the timing of revenue. The company also cites dependence on key customers, where the top five accounted for about 18% of 2017 net sales.
How much cash did Wabtec have available and how was its debt structured?
Cash and cash equivalents were $233.4 million at December 31, 2017. Total debt was $1,870.5 million, including $750.0 million of 3.45% senior notes due 2026, $250.0 million of 4.375% senior notes due 2023, and $853.1 million under the revolving credit facility and term loan. The 2016 Refinancing Credit Agreement provided a $1.2 billion revolver expiring June 22, 2021, with about $679.0 million of available borrowing capacity at year-end.
Did Wabtec return capital to shareholders in 2017?
Wabtec paid cash dividends of $42.2 million in 2017, with quarterly dividends rising to $0.12 per share in the second half of 2017 from $0.10 earlier in the year. The company did not repurchase any stock in 2017, compared with $212.2 million of repurchases in 2016. At year-end, $137.8 million remained under the repurchase authorization.
06—Continue