01—Abstract
Summary
Summary of the 10-K filed February 24, 2020. Cited figures are marked; the original filing is the authoritative source.
Westinghouse Air Brake Technologies Corporation (doing business as Wabtec Corporation) reported 2019 net sales of $8.2 billiona, up from $4.36 billion in 2018, and net income attributable to Wabtec shareholders of $326.7 million, compared with $294.9 million in 2018.
The increase was driven mainly by the February 25, 2019 merger with GE Transportation, which contributed $3.8 billionb of net sales and $358.0 million of operating income. Diluted EPS fell to $1.84 from $3.05, reflecting a much larger share count of 177.3 million diluted shares versus 96.5 million in 2018. Income from operations rose to $663.1 million from $473.4 million, while gross margin and interest expense ($219.1 million, up from $112.2 million) both moved materially with the acquisition.
The balance sheet expanded significantly. Total assets reached $18.94 billionc, including goodwill of $8.36 billion and other intangibles of $4.10 billion, and total debt rose to $4.43 billion from $3.86 billion. Cash provided by operating activities was $1.02 billion, compared with $314.7 million in 2018, aided by favorable inventory and other working-capital changes.
Backlog stood at $22.4 billiond at December 31, 2019, of which $5.6 billion was expected to be delivered in 2020. The company identified approximately $250 million of expected annual run-rate operating synergies from the GE Transportation combination before 2022.
The company also disclosed that it reached a settlement in January 2020 of a putative class action related to a 2018 consent decree on employee non-solicitation, and that a Siemens patent dispute was settled in September 2019. Management reported that internal control over financial reporting was effective as of December 31, 2019, but excluded GE Transportation from that assessment, which represented 61% of total assets and 47% of revenues.
02—Key points
Key Highlights
- Net sales of $8.2 billion in 2019, up from $4.36 billion in 2018, primarily due to the GE Transportation acquisition, which contributed $3.8 billion of net sales.
- Net income attributable to Wabtec shareholders of $326.7 million in 2019 versus $294.9 million in 2018; diluted EPS of $1.84 versus $3.05, reflecting 177.3 million diluted shares versus 96.5 million.
- Income from operations of $663.1 million versus $473.4 million; interest expense, net increased to $219.1 million from $112.2 million on higher debt.
- Total debt of $4.43 billion at year-end 2019, including $3.5 billion of senior notes, against total equity of $9.99 billion.
- Operating cash flow of $1.02 billion in 2019 versus $314.7 million in 2018, aided by favorable inventory and other working-capital changes.
- Backlog of $22.4 billion at December 31, 2019, with $5.6 billion expected to be delivered in 2020; aftermarket sales represented about 55% of 2019 net sales.
- Company expects approximately $250 million in annual run-rate operating synergies from the GE Transportation integration before 2022; stock repurchase authorization was raised to $500 million on February 7, 2020.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Westinghouse Air Brake Technologies kept $0.04.
- Revenue$8.20B100.0%
- Cost of revenue−$5.92B72.2%
- Gross profit$2.28B27.8%
- Operating costs−$1.61B19.7%
- Operating income$663.0M8.1%
- Interest, other & tax−$336.0M4.1%
- Net income$327.0M4.0%
Where FY2019 revenue went
$8.20B- Cost of revenue: $5.92B, 72% of revenue
- SG&A: $1.17B, 14% of revenue
- Net income: $327.0M, 4.0% of revenue
- R&D: $210.0M, 2.6% of revenue
- Other operating costs: $238.0M, 2.9% of revenue
- Interest, other & tax: $336.0M, 4.1% of revenue
Kept 4.0% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 24, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $8.20B$4.36B | +87.9% |
| Cost of Revenue | $5.92B$3.13B | +89.2% |
| Gross Profit | $2.28B$1.23B | +84.6% |
| R&D Expenses | $210.00M$87.50M | +140.0% |
| SG&A Expenses | $1.17B$633.20M | +84.3% |
| Operating Expenses | $1.61B$760.50M | +112.4% |
| Operating Income | $663.00M$473.40M | +40.1% |
| Net Income | $327.00M$294.90M | +10.9% |
| EPS (Basic) | $1.91$3.06 | −37.6% |
| EPS (Diluted) | $1.84$3.05 | −39.7% |
| Shares Outstanding (Basic) | 170.50M96.00M | +77.6% |
| Shares Outstanding (Diluted) | 177.30M96.50M | +83.7% |
05—Questions
Frequently Asked Questions
What drove the large increase in Wabtec's 2019 revenue and assets?
The February 25, 2019 merger with GE Transportation drove the increase. The filing states that acquisitions contributed $3.9 billion of net sales in 2019, and total assets rose to $18.94 billion from $8.65 billion, including goodwill of $8.36 billion and other intangibles of $4.10 billion.
Why did diluted earnings per share decline even though net income increased?
Net income attributable to Wabtec shareholders rose to $326.7 million from $294.9 million, but diluted EPS fell to $1.84 from $3.05. The filing shows diluted weighted-average shares increased to 177.3 million from 96.5 million, largely because shares were issued in the GE Transportation merger.
How much debt does Wabtec carry and what are its key financial covenants?
Total debt was $4.43 billion at December 31, 2019, versus $3.86 billion a year earlier. The Senior Credit Facility requires an interest coverage ratio of at least 3.0x and a leverage ratio of 3.25x or less, and the company stated it was in compliance at year-end 2019.
What is the status of the main legal matters disclosed?
The Siemens patent litigation was settled globally on September 27, 2019. A putative class action over alleged employee non-solicitation agreements was resolved by a Memorandum of Understanding on January 21, 2020, subject to court approval. The company stated it was not involved in any litigation it believes would have a material adverse effect.
What does the filing say about 2020 expectations and integration?
The filing expects approximately $250 million in annual run-rate operating synergies from the GE Transportation combination before 2022, with proceeds directed toward strategic deleveraging. Positive Train Control deadlines and the cyclical nature of freight and transit demand are identified as risks to revenue timing.
06—Continue