01—Abstract
Summary
Summary of the 10-K filed February 27, 2019. Cited figures are marked; the original filing is the authoritative source.
Westinghouse Air Brake Technologies Corporation (doing business as Wabtec Corporation) reported 2018 net sales of $4,363.5 milliona, up from $3,881.8 million in 2017, with net income attributable to Wabtec shareholders of $294.9 million, or $3.05 per diluted share, compared with $262.3 million, or $2.72 per diluted share, in 2017.
Income from operations rose to $473.4 millionb from $421.1 million. Growth was driven mainly by organic increases in Specialty Products and Electronics and Brake Products, $134.7 million of acquisition sales, and $62.3 million of favorable foreign exchange. Aftermarket sales and services represented about 57% of 2018 total sales, and about 67% of sales were to customers outside the U.S. The most significant event disclosed is the merger with GE Transportation, completed on February 25, 2019, after a $2.875 billion cash Direct Sale payment.
The filing states the total value of consideration was approximately $10.2 billionc, and that GE and former GE common stockholders would hold about 49.2% of Wabtec common shares on a fully diluted, as-converted basis. To finance the transaction, the company issued $2.5 billion of senior notes in September 2018, and total debt rose to $3,856.9 million at December 31, 2018 from $1,870.5 million a year earlier. Cash, cash equivalents and restricted cash were $2,342.4 million at year-end, largely restricted cash held for the Direct Sale.
The filing also flags risks including dependence on key customers, cyclicality in rail and transit markets, international operations (including a large India project), leverage covenants, and pending litigation, notably the Siemens patent case and a Department of Justice-related class action over employee non-compete allegations. Backlog was about $4.5 billiond at December 31, 2018, and year-end 2018 management stated the company had 18,000 full-time employees.
02—Key points
Key Highlights
- Net sales rose to $4,363.5 million in 2018 from $3,881.8 million in 2017; income from operations increased to $473.4 million from $421.1 million.
- Diluted earnings per share were $3.05 in 2018 versus $2.72 in 2017; net income attributable to Wabtec shareholders was $294.9 million.
- The GE Transportation merger was completed February 25, 2019, for total consideration the filing values at approximately $10.2 billion, with the $2.875 billion Direct Sale cash payment.
- Total debt was $3,856.9 million at December 31, 2018, up from $1,870.5 million, after $2.5 billion of senior notes issued in September 2018.
- Aftermarket sales and services were about 57% of 2018 total sales, and about 67% of sales came from customers outside the U.S.
- Backlog was about $4.5 billion at December 31, 2018, with about $2.46 billion expected to be delivered in 2019.
- Management expects $250 million of annual run-rate operating synergies within four years after the GE Transportation closing.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Westinghouse Air Brake Technologies kept $0.07.
- Revenue$4.36B100.0%
- Cost of revenue−$3.13B71.7%
- Gross profit$1.23B28.3%
- Operating costs−$760.5M17.4%
- Operating income$473.4M10.8%
- Interest, other & tax−$178.5M4.1%
- Net income$294.9M6.8%
Where FY2018 revenue went
$4.36B- Cost of revenue: $3.13B, 72% of revenue
- SG&A: $633.2M, 15% of revenue
- Net income: $294.9M, 6.8% of revenue
- R&D: $87.5M, 2.0% of revenue
- Other operating costs: $39.8M, 0.9% of revenue
- Interest, other & tax: $178.5M, 4.1% of revenue
Kept 6.8% as net incomeOther operating costs $39.8M · 0.9%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 27, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $4.36B$3.88B | +12.4% |
| Cost of Revenue | $3.13B$2.82B | +11.1% |
| Gross Profit | $1.23B$1.07B | +15.8% |
| R&D Expenses | $87.50M$95.20M | −8.1% |
| SG&A Expenses | $633.20M$512.50M | +23.6% |
| Operating Expenses | $760.50M$644.20M | +18.1% |
| Operating Income | $473.40M$421.10M | +12.4% |
| Net Income | $294.90M$262.30M | +12.4% |
| EPS (Basic) | $3.06$2.74 | +11.7% |
| EPS (Diluted) | $3.05$2.72 | +12.1% |
| Shares Outstanding (Basic) | 96.00M95.50M | +0.5% |
| Shares Outstanding (Diluted) | 96.50M96.10M | +0.4% |
05—Questions
Frequently Asked Questions
What drove the increase in 2018 sales?
Net sales increased by $481.8 million to $4,363.5 million. The filing attributes $158.9 million to organic growth in Specialty Products and Electronics, $126.2 million to Brake Products, $134.7 million to acquisitions, and $62.3 million to favorable foreign exchange.
How is the GE Transportation transaction being financed?
The cash portion of the $2.875 billion Direct Sale was financed mainly by $2.5 billion of senior notes issued September 14, 2018, and a $400 million delayed draw term loan. The remaining proceeds were classified as restricted cash of $1,761.4 million at December 31, 2018.
How will ownership change after the merger?
The filing states that, on a fully diluted, as-converted basis as of December 31, 2018, about 49.2% of Wabtec common stock would be held by GE and Spin-Off record date holders of GE common stock, and about 50.8% by pre-Merger Wabtec stockholders. GE was required to reduce its ownership over time under the Shareholders Agreement.
What are the main risks flagged in the filing?
Key risks include dependence on a limited number of key customers, cyclical freight and transit markets, international operations, leverage and debt covenants, and integration of acquisitions. The filing also highlights asbestos-related claims, the Siemens Positive Train Control patent litigation, and a putative class action tied to a proposed Department of Justice consent decree on employee non-compete agreements.
How much cash did the company have and how much did it return to shareholders?
Cash and cash equivalents were $580.9 million at December 31, 2018, with restricted cash of $1,761.4 million. Cash dividends paid were $46.3 million in 2018, and the company made no share repurchases during 2018, leaving $137.8 million available under its authorization.
06—Continue