Wabtec repays $40 million in Q4, cuts net debt more than in half

By Paul Deckelman

New York, Feb. 22 - Wabtec Corp. said Tuesday that it had repaid about $40 million of debt in the fourth quarter of 2004 and had cut its net debt more than in half from a year earlier.

Executives of the Wilmerding, Pa.-based maker of railroad and industrial equipment - sometimes known as Westinghouse Air Brake Technologies Corp. - said that the company generated "substantial cash," allowing it to clean up its balance sheet as it reported better results for the fourth quarter and for the year.

On a conference call following the release of the earnings results, Wabtec's chief financial officer, Alvaro Garcia-Tunon, said that net debt - total debt minus available cash - had fallen to $54.08 million as of Dec. 31, less than half of what it had been the previous year, and only about one-tenth of the $562 million peak level seen in the third quarter of 2000. Net debt declined to 15% of total capital in the latest quarter, down from 33% a year earlier and well down from 75% in the 2000 third quarter.

During the latest fourth quarter, the company repaid the outstanding balance on its revolving credit agreement, leaving it $175 million of borrowing availability. It ended the year with $95 million of cash, although the CFO said that $36 million of that was subsequently used to purchase the assets of Rutgers Rail SpA, an Italy-based manufacturer of brake shoes, disc pads and interior trim components in Europe.

With the revolver balance having been repaid, the only current outstanding debt on Wabtec's balance sheet is its $150 million of 6 7/8% senior notes due 2013, which the company sold in July 2003. But it is unlikely to be planning any further debt reductions, as the notes are non-callable for the life of the issue, except for the standard equity clawback provision, good through July 2006.

On the conference call, Garcia-Tunon stated - and reiterated for the benefit of an analyst who asked again anyway - that the company intends to use its cash stockpile "to look at acquisitions; at any one point in time, we probably have one to three that we may be examining. But we are being very disciplined and highly selective. We don't want the cash to burn a hole in our pocket - we want to make sure that we meet our strategic objectives."

The CFO also said that net interest expense declined by $2.1 million in the quarter, due to the lower debt balance and higher interest generated by the company's investments.

In the fourth quarter, Wabtec reported net income of $9.247 million, or 20 cents per diluted share, up from $5.891 billion, or 13 cents per share, in the year-ago quarter, as sales increased to $224.3 million from $206.3 million a year earlier.

For the full year, earnings rose to $32.445 million, or 71 cents per diluted share, in 2004 from $22.703 million, or 52 cents a share in 2003, as sales increased to $822 million from $717.9 million.

2004 "was a solid year," said Wabtec chairman, president and chief executive officer William Kassling on the call. "We met our financial targets." For 2005, he said, "we certainly will focus on generating cash and we expect strong cash flow," with $900 million of sales projected and $1 per share of earnings for the year.

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