Grade: F — Major Red Flags
Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles
Data: SEC EDGAR 10-K (Filed 2026-02-13, FY ended December 31, 2025) + Yahoo Finance
Auditor: Ernst & Young LLP — Unqualified opinion
CIK: 0000943452
One-line verdict: The F grade is mechanically driven by two structural issues common to acquisition-heavy industrials: (1) cash of $764M covers only 14% of $5.5B in total debt, and (2) goodwill plus intangibles of $14.1B equal 126% of stockholders' equity. Neither is a sign of fraud or manipulation — the M-Score of -2.47 is clean, CFFO/NI of 1.50 confirms earnings are cash-backed, and Debt/EBITDA of 2.4x is healthy. Wabtec is a well-run railroad equipment company whose balance sheet carries the legacy of serial acquisitions (GE Transportation in 2019, multiple bolt-ons since). The debt structure, not the operations, triggers the grade.
| Metric | Result |
|---|---|
| Red Flags | **2** (Cash-to-debt 14%, Goodwill 126% of equity) |
| Watch Items | **2** (AR outpacing revenue, CapEx >2x revenue growth) |
| Checks Completed | **17/18** (1 N/A: impairment data) |
| Beneish M-Score | **-2.47** (clean) |
| Altman Z-Score | **2.36** (grey zone) |
| Auditor | Ernst & Young LLP — Unqualified opinion |
Revenue: Freight + Transit, Both Growing
Per the 10-K's segment breakdown (in millions):
| Segment | FY2024 | FY2025 | Change |
|---|---|---|---|
| Freight | $7,468 | $8,036 | +7.6% |
| Transit | $2,919 | $3,131 | +7.3% |
| **Total Net Sales** | **$10,387** | **$11,167** | **+7.5%** |
The filing breaks down revenue drivers: "Acquisitions $355M, Portfolio Optimization (Divestitures/Exits) -$72M, Foreign Exchange $33M, Organic $464M." Organic growth of $464M (4.5%) is the core signal — modest but steady for a mature industrial company. The $355M from acquisitions reflects bolt-on deals in both Freight and Transit segments.
Per the income statement: income from operations was $1,793M (up from $1,609M), interest expense was $225M (up from $201M due to "higher average overall debt balances"), and net income attributable to shareholders was $1,170M (up from $1,056M, +10.8%).
The effective tax rate increased from 24.3% to 25.7%, "primarily driven by changes in jurisdictional mix of earnings and the non-deductible loss generated from the divestiture of a business as part of the Portfolio Optimization initiative."
Cash Flow: Solid but Declining
From the consolidated cash flow statement:
| Metric | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Net Income | $825 | $1,067 | $1,183 |
| Net Cash from Operations | $1,201 | $1,834 | $1,759 |
| CapEx (PP&E) | ~$250 | ~$275 | ~$345 |
| Free Cash Flow | ~$951 | ~$1,559 | ~$1,414 |
| CFFO/Net Income | 1.46 | 1.72 | 1.50 |
CFFO declined $75M YoY despite net income growth — driven by working capital consumption as acquisitions ($2,520M cash spent on acquisitions in FY2025 vs. $168M in FY2024) required integration investment. The massive $2.5B in acquisition spending is the defining feature of FY2025 — Wabtec announced the acquisition of Dellner Couplers on March 18, 2025.
Stock-based compensation was $80M (up from $66M), and D&A was $501M (roughly stable). Depreciation-to-CapEx ratio suggests Wabtec is investing modestly above replacement levels.
Balance Sheet: Acquisition Leverage
| Item | FY2024 | FY2025 |
|---|---|---|
| Cash & Equivalents | $706 | $764 |
| Total Available Liquidity | $2,556 | $3,207 |
| Total Debt | ~$3,700 | ~$5,500 |
| Goodwill + Intangibles | ~$11,700 | ~$14,100 |
| Stockholders' Equity | ~$11,100 | ~$11,200 |
The liquidity picture is better than the C4 check suggests. Per the filing: "Cash and cash equivalents $764M, Revolving Credit Facility $2,000M, Revolving Receivables Program $443M, Total Available Liquidity $3,207M." The revolver capacity increased from $1,500M to $2,000M in FY2025.
The 2025 Term Credit Agreement provides a $500M term loan bearing "interest at a base rate plus an interest rate spread up to 1.50% based on the lower of the pricing corresponding to (i) the Company's Leverage Ratio or (ii) the Company's public credit rating." The filing notes the company must maintain an "Interest Coverage Ratio of at least 3.00 to 1.00."
The $14.1B in goodwill and intangibles is the elephant — it represents 126% of equity and reflects the cumulative cost of Wabtec's transformation from a niche brake maker into a global rail technology conglomerate. The filing warns: "Goodwill is tested for impairment annually or more often if events or changes in circumstances indicate a potential impairment may exist. Factors that could indicate that our goodwill could be impaired include a decline in our stock price and market capitalization, lower than projected operating results and cash flows, and slower growth rates in our industry."
The 18-Point Screening
Revenue Quality
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO Change | ✅ | DSO 46 days, +6 days YoY |
| A2 | AR vs Revenue Growth | ⚠️ | AR +22.4% vs revenue +7.5% |
| A3 | Revenue vs CFFO | ✅ | Revenue +7.5%, CFFO -4.1% |
A2 is a watch item — AR growth materially outpacing revenue growth can signal loosened credit terms or channel stuffing. In Wabtec's case, the divergence likely reflects acquisition-related AR additions and timing of large rail contracts.
Expense Quality
| # | Check | Result | Detail |
|---|---|---|---|
| B1 | Inventory vs COGS | ✅ | Inventory +18.6% vs COGS +4.8% |
| B2 | CapEx vs Revenue | ⚠️ | CapEx +25.6% vs revenue +7.5% |
| B3 | SG&A Ratio | ✅ | SG&A/Gross Profit = 39.1% |
| B4 | Gross Margin | ✅ | 34.1%, +1.7pp improvement |
Gross margin expanded 170bps, which the filing attributes to "favorable mix within the Transit Segment, increased productivity and the benefits from Integration 2.0 and 3.0 and Portfolio Optimization." The restructuring programs are delivering.
Cash Flow Quality
| # | Check | Result | Detail |
|---|---|---|---|
| C1 | CFFO vs Net Income | ✅ | CFFO/NI = 1.50 |
| C2 | Free Cash Flow | ✅ | FCF $1.5B, FCF/NI = 1.28 |
| C3 | Accruals Ratio | ✅ | -2.7%, low accruals |
| C4 | Cash vs Debt | ❌ | Cash $764M covers only 14% of $5.5B debt |
Balance Sheet
| # | Check | Result | Detail |
|---|---|---|---|
| D1 | Goodwill + Intangibles | ❌ | $14.1B = 126% of equity |
| D2 | Leverage | ✅ | Debt/EBITDA = 2.4x |
| D3 | Soft Asset Growth | ✅ | Normal |
| D4 | Asset Impairment | — | No write-off data |
Acquisition Risk & Manipulation
| # | Check | Result | Detail |
|---|---|---|---|
| E1 | Serial Acquirer FCF | ✅ | FCF after acquisitions positive |
| E2 | Goodwill Surge | ✅ | G&I change +21% YoY (normal for acquirer) |
| F1 | Beneish M-Score | ✅ | -2.47 (clean) |
Key Risks from the 10-K
Integration 3.0 restructuring. The filing discloses: "The Company anticipates that it will incur charges of approximately $125 million to $155 million related to this initiative, of which approximately $80 million to $100 million are expected to be one-time restructuring charges." This is the third major restructuring program — Integration 2.0 followed the 2019 GE Transportation merger; Integration 3.0 targets further cost synergies and "Portfolio Optimization" (divestitures of non-core lines).
Trade policy. The filing warns about "tariffs and foreign trade restrictions" affecting Wabtec as "a global transportation company" with exports from U.S. operations and international sales. Of the $764M cash balance, approximately $591M was held outside the U.S. — primarily in Europe.
Goodwill impairment risk. With $14.1B in goodwill and intangibles, any sustained decline in rail industry fundamentals could trigger material write-downs.
Dividend commitment. Wabtec pays approximately $212M annually in dividends at the current rate, well-covered by $1.8B in CFFO.
Summary
Grade: F is structurally driven, not operationally driven. Wabtec's operations are strong: gross margins expanding, cash flow exceeding net income by 50%, and the M-Score clean at -2.47. The F grade comes from two balance sheet features inherent to its acquisition strategy — low cash relative to debt (14% coverage) and goodwill exceeding equity. Debt/EBITDA at 2.4x is manageable, available liquidity of $3.2B is ample, and the Z-Score of 2.36 sits in the grey zone (not distress). This is a company to evaluate on its operating trajectory, not its grade letter.
**Disclaimer**: This report is based on Wabtec's FY2025 10-K filed with SEC EDGAR on February 13, 2026. This is NOT investment advice.
Data: SEC EDGAR 10-K + Yahoo Finance
Auditor: Ernst & Young LLP (Unqualified opinion)
Fiscal year ended: December 31, 2025