美國西屋制動公司 (WAB) 2006 Q4 法說會逐字稿

Hello, and welcome to the Wabtec Corporation fourth-quarter 2006 earnings results conference call. As a reminder, all participants will be in listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation and instructions will follow at the time. (OPERATOR INSTRUCTIONS). For your information, this conference is being recorded. At this time, I would like to turn over the conference to Tim Wesley. Mr. Wesley?

Thank you, Keith. Good morning, everyone. Welcome to Wabtec's call. I would like to introduce the rest of the Wabtec team who are here. Our President and CEO, Al Neupaver; our CFO, Alvaro Garcia-Tunon; and Pat Dugan, our Corporate Controller.

As usual, we will have some prepared remarks, and then we will be happy to take your questions. We will make some forward-looking statements during the call so we ask that you please review today's press release or the appropriate disclaimers. With that, let me turn the call over to Al Neupaver, our President and CEO.

Thanks, Tim. Good morning, everyone. What I would like to cover is a review of the fourth quarter and the full year 2006; current market conditions and outlook for 2007; give you an update on our strategic growth initiatives; and we will have Alvaro cover the financials in more detail.

If you look at fourth quarter and full year results, we had a strong fourth quarter, with record sales and earnings growth that capped off a good year for Wabtec in 2006. In the fourth quarter, we had a solid sales increase of 9% year on year.

Earnings per share of $0.53 included $0.08 from a net tax benefit. Excluding this net tax benefit, earnings per share was $0.45, 32% higher than the year ago quarter.

For the full year, sales increased 5%, actually a little higher than we expected at beginning of the year. Earnings per share was $1.73, including both the net tax benefit and a $0.09 restructuring charge that we booked and announced in the third quarter. Excluding both of those items, earnings per share was $1.74, just above the high end of our guidance range we issued a few months ago.

For the year, our revenues were up $53 million, and our operating profit was up $28 million, a great performance. From a cash perspective, we had a record year, generating about $150 million in cash flow. We ended the year with a cash balance that was $47 million higher than a year ago, even after spending $87 million on acquisitions and $19 million to repurchase stock. That is a record cash performance which really drives our ability to invest in future growth opportunities.

Also today, we affirm our previous guidance for 2007. We expect a sales growth of about 10 to 12%; earnings per share of about $2.10, excluding $0.05 to complete the restructuring we announced and started in 2006. This would be a growth of around 20%.

Wabtec is well-positioned to achieve this growth. Our core markets are expected to remain strong. And if you have good hearing, you could have heard trains in the background next to our office (laughter) here passing by. We will benefit the share from the ramp-up of several long-term contracts. Our strategic initiatives, such as new products and international sales, are paying off. We are successfully integrating our 2006 acquisitions.

We have a diversified business model built around selling OEM and aftermarket products and services in both freight and passenger railroad markets around the world. And we will benefit from lower cost through continued applications of our Wabtec Performance System and other internal cost improvement programs.

Let's talk a little bit about the market conditions. Freight rail markets -- railroads posted record volumes in 2006. Revenue ton miles were up 2.5%, and intermodal traffic was up 5%. As a result, railroads reported strong results for the year.

In 2007, rail traffic has started off a bit slow, due in part to weather conditions. The traffic has picked up recently, with intermodal up 1% in the most recent weeks. We will continue to monitor the traffic numbers, but aren't overly concerned, as long as they remain near their record high of the year ago.

The locomotive OEM market should be slightly higher in 2007, with about 1,300 units to be delivered compared to 1,200 last year. It's important to note that part of this increase is due to our own increased production of our locomotives. The freight car OEM markets should have another strong year in 2007.

An organization, Economic Planning Association, is forecasting deliveries of around 69,000 cars. That's down from about 75,000 cars in '06, but still a very good number. And remember, freight car OEM market represents only about 20% of our sales. It's certainly an important market, but just one of the many markets served by our diversified business model.

Transit rail markets -- passenger railroads have also been on the growth track in recent years, and indicators look positive for the future. The key market drivers in transit, federal funding and passenger ridership, remain strong. Federal spending is set to increase 5% this year. Ridership increased an estimated 3% last year, and at a double-digit pace in cities such as L.A., Boston, and New York.

And we continue to see potential for new orders for our new commuter locomotives. With our current backlog, transit will be a larger percentage of our total revenues going forward.

Let's shift gears and talk a little bit about our strategic growth initiatives. Remember, it all starts with our Wabtec Performance System, which we really believe gives us the ability to generate cash and to deliver the performance that we have in '06 as I stated earlier as compared to '05.

And it allows us to invest in our four growth strategies -- global and market expansion, aftermarket products and services, new products, and acquisitions. We're making good progress in each of these areas and I would like to highlights some examples.

In recent months, we've seen progress in areas of railway electronics, with both our electronic train management system and the electronically controlled pneumatic braking. Last month, the FRA approved BNSF's product safety plans for ETMS. This is very important to us, and gives the railroad the ability to expand the our ETMS product beyond its initial pilot program. BN says it will begin installing ETMS in the second quarter on a 300-mile route between Texas in Kansas. This approval also allows BNSF to install ETMS on other rail lines in 17 states, which could happen over the next several years.

In the meantime, we're also proceeding with other pilot programs for our ETMS product with Union Pacific and Metra, Chicago transit commuter railroad. On the ECP front, the FRA has said it will issue new rules this year that will encourage the railroads to consider using electronic braking. We are of course a leader in this effort. We have proven systems operating in both Australia and South Africa. For Wabtec, ETMS and ECP represent revenue opportunities of several hundred million dollars over the next several years.

During the year, we completed two acquisitions, both of which demonstrated many of the characteristics we are looking for. Schaefer Equipment, a $36 million purchase, makes forged brake rigging components for freight cars. It's a market leader, with about $30 million in sales and a history of success of managing through the business cycle.

Becorit, a European leader in technology-based friction products, with sales of about $30 million, was the second acquisition. This increases our aftermarket and global sales and provides non rail opportunities for the friction products that we make at other operations. Both companies were a good strategic fit, with solid financials, and both are accretive.

I would now like to ask Alvaro to cover the financials in more detail.

Great. Thanks, Al, and good morning, everyone. Welcome to the call again. Obviously, were very pleased with the results this quarter, and we remain optimistic about the future.

To get into the specific numbers, sales were 9% higher than the prior year quarter, and hit a record of $294 million. Transit sales were 29% higher, due mainly to higher sales from transit car refurbishment projects in the UK and commuter locomotives in North America. Al, I think, mentioned it, and I will reiterate -- we expect transit to continue growing, as some of the group's larger contracts are starting to generate revenues. Freight group sales were relatively stable, and in line with our expectations, as demand has remained steady at a high level for freight car and locomotive components.

Gross margin was 26.7% compared to 25.7 in the year ago quarter. For the 12 months, we showed a marked improvement in margins from 25.1% last year to 27.3% this year. Operating expenses showed the benefit of the leverage of increased sales, and they were 14.4% of sales compared to 14.9 in the prior year quarter. This led to an improvement in operating margin, which was 12.4% compared to 10.9% last year.

This improvement was to due to increased volume -- obviously, that helps, which provides operating leverage; and also due to our efforts to lower costs and sourcing of lean manufacturing. I think you all know as well that a hallmark of a lean company is continuous improvement. Operating margins is one area where we have placed particular emphasis on improvement in the future.

Interest expense -- nothing much happening there. It was $238,000 compared to $1.8 million last year. This was due to higher interest rates as well as increased cash balance. So our interest income went up.

The income tax expense -- the effective rate for the quarter was 25.4%, obviously much lower than our normal 35 to 36%. This was due to a net -- there were a couple of items that offset each other, but due to a net tax benefit of $3.8 million which equates to $0.08 per diluted share.

This resulted primarily from a reduction in a valuation allowance associated with certain net operating loss carryforwards. This will get a technical -- hopefully, I can provide an explanation that makes sense. The valuation allowance is associated with state tax NOL carryforwards. In the past, we had not included the benefit of these NOL carryforwards in our calculation because realization was not assured. Until you are sure you can generate sufficient profits to offset the NOL carryforwards, you're not allowed to recognize their benefit.

The good news though is because of our increased profitability and the confidence in the success of our future operations, it was determined by ourselves as well as the auditors that the realization of these NOL carryforwards was virtually assured, and that the benefits should be included all at once in our tax provision. And that significantly decreased our tax provision, obviously, from the normal 36.5 to the 25.4 that I mentioned earlier.

Cash flow -- to turn to cash flow for the year which, again, as you all well know is one of our key barometers. Our cash balance -- this is just cash year-over-year -- increased by $47 million during 2006. And that was after we completed two acquisitions for $87 million, and also used $19 million for a stock buyback.

If you add up those three numbers, that means we generated more than $150 million of cash during the year, which for us is a record number, and one, to be quite honest, we take particular pride in. Part of this resulted from customer prepayments, particularly for long-term locomotive contracts as well as other transit contracts. This will reverse in the future. But again, we expect cash flow to remain strong.

Obviously, with the strong cash flow, that raises the question of what are we going to use the cash for? And that's a question that we are frequently asked. We will continue to invest in our organic growth strategy. So we continue to explore different ways to grow organically, and that will utilize some of the cash. These would include new products, aftermarket initiatives, and international growth.

Acquisitions will remain a priority use for the cash. We're extremely pleased with the results of our latest two acquisitions, Schaefer and Becorit. We've set no timetables, but the pipeline right now is increasing, and we continue to explore meaningful opportunities -- though the one thing I can assure you is we will remain disciplined and highly selective as we seek transactions that will build long-term shareholder value.

To cover a few of the miscellaneous items that we always cover at the end, depreciation for the quarter was $6 million versus $5.2 million last year. Amort was flat -- $1.1 million versus 1 million last year; and CapEx relatively stable. A little bit higher this quarter -- $7.4 million versus $5.5 million. But year-over-year, CapEx was very steady. CapEx for this year is about $21 million. Last year, it was about 23.

Backlog continues to grow from the record numbers that we reported last quarter. Our rolling -- and by rolling, I mean what's going to roll out of the next 12 months -- grew by 12% from the prior quarter. And our total over the multi-year backlog remains slightly over $1 billion. Again, to help you build your models, the rolling 12-month backlog, about $540 million -- that number is about $540 million. Freight is $193 million of that number, and the balance, 347 is in the transit segment.

And then the multi-year backlog -- it grew 3%, again, from the prior quarter. And that stands right now at $1.041 billion. Freight was up to $262 million, and transit was up to $779 million.

One point to mention when you're talking about backlog -- we've mentioned it before, but for the newer people on the call, transit is much more of a backlog driven business than freight. Freight is more driven by purchase orders and current activity. And that's why you do see the imbalance between the two numbers.

Speaking of segments, you'll notice in the press release that we did make some small changes to how we classify sales between our two segments, freight and transit. The accounting regulations provided segment reporting has to mirror how we report internally. That's one of the key factors in how you design your segments.

As I am sure you could have surmised, Al in the year that he has been here has made some changes in the area. And we thought it appropriate to incorporate these changes in the segment reporting. So that has changed a little bit. And also, in recent years, as you can well imagine, several of our business units have seen a shift in the markets they serve. Starting in '06 -- we've actually done this before -- we began splitting the results into different segments rather than just grouping each individual unit as either freight or transit. Acquisitions have also had an impact on the mix, and that's why the revenues that you see are a little bit different.

Another change that we're making going forward is once we report the operating income by segment, we're going to allocate certain corporate expenses to the operating group's revenue, just capturing those costs of corporate -- for example, international marketing expenses, which before, we used to keep at corporate. But obviously, that's probably more appropriate to put in the units.

These changes are more consistent with how we manage the business. Again, that's one of the key parameters in how you define your segments. And I think, and I think everybody here agrees that it will give you a better picture of the relative size and profitability of our segments.

You will see again in what we reported today they include the changes on the revenue line. When we file our 10-K next week -- we are an accelerated filer, so we'll file next week -- we will also file a separate 8-K that will include the quarterly segment results for the past two years so you can update your models with comparable numbers.

And with that, that's pretty much it for the financial highlights. I'll turn it back over to Al.

Thanks, Alvaro. To summarize, earlier in the year, and I think throughout the year, we communicated very strongly that we felt that freight sales would be flat, but at a high level. And I think that is what happened there.

We said we would get a ramp up in transit. And as you can see, in the fourth quarter, that's what we got out. We got a nice pop, and most of that ramp up was in the transit area.

We said we would drive earnings through margin improvement. The margin improvement has been significant, and we delivered the result.

We said we'd establish and implement an acquisition program. That we have done. We had two good acquisitions under our belt, and we're starting to fill up that pipeline, as Alvaro said.

As we look forward, our balance sheet and cash flow are very strong. Our end markets continue to be positive. The diversity of our business model -- freight and transit, aftermarket and OEM, NAFTA and international -- is serving the Company well.

And I think most importantly, we are truly a lean company that is trying to get better. Our Wabtec Performance System provides an established culture of lean manufacturing, and with an experience dedicated management team.

With that, we'll be happy to answer your questions.

(OPERATOR INSTRUCTIONS) John Barnes, BB&T Capital Markets.

I'm sorry; I got on the call just a little bit late. Could you give me some insight into where the backlog stands, and if you can provide any insight as to the trends there versus the freight side?

Sure, let me give you the numbers again, John, real quick. The rolling 12 month -- and this is what we expect to realize during the next year -- during the next 12 months, actually -- was up 12%. And that totaled $540 million. 193 of that was in freight. 347 was in transit. The total backlog -- this is the multi-year backlog -- was $1.41 billion. $262 million of that was in freight. $779 million of that was in transit.

Are you surprised at the ratio -- in the multi-year backlog, the ratio of transit versus freight? I have not gone back and looked historically, but do you anticipate now you will begin to see some increase in the freight side, and that ratio will close a little bit?

Not really. What I tried to explain is -- I think that ratio in general -- I mean, to be honest, I haven't done the percentages. But I think in general, you'll find that it's very consistent with our recent history. Obviously, if you look back three or four years ago, transit wasn't as active as it is right now. But if you go back for the last couple of years, I think that's very consistent.

And what happens is transit is a very long term business. It's a long leadtime business. The good thing is you have a high amount of visibility in that.

Freight is not. Freight typically is done via purchase orders rather than long-term contracts. And so you don't see big fluctuations in backlog, and you don't see a big backlog. So no, that's not unusual or surprising at all.

Okay, very good. In terms of further acquisitions, Al, you made two nice ones. And I know you continue to look. But can you give us an idea of what the pipeline looks like of available candidates for purchase? And are you being -- give us an idea; if there are ten things you are looking at, what percentage of them are you getting run out of because the multiples are just a bit egregious?

Yes, John, we do have a pipeline that has a number of acquisitions that we are evaluating right now. And what we are seeing is quality companies. And we're seeing a very competitive environment for those companies. And we're continuing to be as selective and as disciplined as we can as we go forward with those companies.

As you know, we have set some financial guidelines which really are based around -- first of all, it has to be a strategic fit for us. We have to have a champion within the Company.

Once we see that strategic fit, we apply a number of guidelines, which includes earnings related to EBITDA multiple. We think our upper limits are in the 7 to 8 range. We have to have generated economic profit from it. We want the acquisition to be accretive. And we have to return better than our cost of capital, which we've stated is around 10%.

All that said, when you look at those guidelines and the environment out there, we feel confident that we can continue to be successful with our acquisition program. We'd like to stay as close as possible to our core which is rail, freight and transit. But at the same time, we will not limit ourselves to looking at strategic businesses that are adjacent to that core.

Can you just remind us on the repurchase -- I know you repurchased some during the quarter -- shares. What is left on your current authorization?

We had authorization of $50 million. And we now have expended 19. So we have the remainder there.

Okay, so you still have plenty to go --

Right.

Guys, nice quarter. Thanks for your time.

Lawrence Casse, M Partners.

Congratulations on a good quarter. I'm wondering if you can tell me what percentage of the revenue in Q4 came from the two acquisitions? I know the Becorit was late in the quarter.

That was about $10 million of revenue in the fourth quarter.

Okay, so the majority of the revenue increase is coming from organic growth.

That's correct.

Okay. And when we look into 2007, the double-digit revenue growth that you're guiding for -- do you see that coming from any particular segment or area of the business that it wasn't previously? Are there any new products or new geographic territories that are going to drive your revenue?

As we look into 2007, as we stated, we expect to the freight car deliveries to decrease according to the numbers we had. We had 75,000 going down to 69 by one firm.

However, we do feel that our growth in the freight area will be there, only it will be slight. Most of our growth is going to come from the transit area, which is really driven by our backlog, our commuter locomotives, other locomotive products, and some of our products that are nonrail like our heat exchanger business.

Okay, and I know you've been asked this many times, but given the increase in transit as a percentage, do you still believe you can increase your operating margins?

Let me just give you an example. If you take a look at our numbers, and the adjusted number -- if you look at third quarter to fourth quarter, if you look at the adjusted operating income, we were able to perform to a 12.4% operating income margin in '06 fourth quarter, where in third quarter, when it was adjusted, it was 12.8. So if you compare that to the increase of what transit made up of that, it went from 35% to 40%. So I think we have shown that we could manage that margin even with this mix change. And I think there's other opportunities to continue to improve on that margin as we go forward.

Okay, and how do you handle increases in materials prices like steel and copper? Well, copper may be going down, but some of those -- do you have a hedging program or a sourcing program?

In each case, we really cover the materials. Either we have an escalator with a surcharge in the contract or the order. And if not, then we go out and buy forward the product that we need, whether it be copper, steel or other products, to make sure that we are covered. So we are in good shape as it's related to inflation of material costs.

Okay. So that's not going to have any significant impact?

No, it should not.

And I noticed for example Bombardier has announced over $6.5 billion in new orders for transit in the last four months. Do you see some of those units you have in the UK generating increased revenues for things like subway doors, heat exchangers, that kind of thing?

We're working very hard and very close with them and others transit car manufacturers to get some of those orders. We have been successful in many of the cases. Some of their international business is a more difficult task. But those opportunities are there as well.

[Meyer MacLean], Janney Montgomery Scott.

Al, I was just wondering if you could provide us with an update on the integration of the two acquisitions that were made?

Yes, definitely. The first acquisition was Schaefer. And we have fully integrated that company as a division reporting in the freight group. And we made an executive office visit out there just a few weeks ago. And they had already adopted some of the Wabtec Performance System lean manufacturing techniques. We're very impressed with the business and the progress they made.

In the short time they were with us, they were able to participate and actually deliver their budget program just as every other division in the Company has done. So we feel that that business has been integrated nicely and we're moving forward.

Next week, we'll be making a visit to the other acquisition as an executive office in Germany. And up to this point, we have seen great progress there. They have come on board. I think we closed this early in December, and they were able to close their numbers at the end of the month and deliver the results that we expected. And we're moving forward on making sure the synergies that we had planned on would be achieved. They both have been integrated extremely well.

Sounds good, thanks. I also have a housekeeping question. Could you talk about what your CapEx or D&A expectations are for the full year?

For '07?

For '07, yes.

You know, it's very steady from the numbers that I gave you. Typically, depreciation is in the 22 range, plus or minus. And if you look at CapEx, historically, they have been in the 20 to 25 range. And I would not anticipate anything different going forward -- I think very consistent with what we've done in the prior years.

Scott Blumenthal, Emerald Advisors.

Great quarter. Thank you. The ETMS -- we have been hearing about this thing for two or three years now. It's kind of like Waiting for Godot. Do think the approval by the FRA is going to move things enough that we might see some benefit from that this year? Are we going to start to see some revenues from this product this year, or do you think that's next year? And is there any potential for that in Europe?

To answer your first question, what do we see as far as incremental improvement related to ETMS -- we think it's reasonable to expect revenues to incrementally go higher each year. But I think it's going to be slow in coming. And we really can't commit to a number now, because it's really up to BN and the other programs to continue their successful implementation.

As you know, the benefits of our Electronic Train Management Systems are just fantastic from all aspects, and especially the safety aspects. And we expect it to be adopted, and we will incrementally see sales over the next few years.

Related to train control in Europe, most of the train control in Europe is related to train control of the transit system. And that is a different type of train control. Our system is one that is based on providing digital communication that is built out through switches and aspects of signals that is related back to the computers that's on board. And that get a message from a GPS signal, tells you where you are. And based on authority limit, speed limit, signal aspects, switch positions, and work zones, it will tell and actually control the engineer on what to do with the train.

Where in Europe, their systems, their positive train control systems, really, they go manless in a lot of cases. And it's a different type of system that's really only based on switches. And it's a more vital application of train control. We do have opportunities for ETMS on an international basis. But the system is not directly -- can be overlaid to the transit systems in Europe.

I would think that since what you're trying to do is get more equipment onto the same rail system that there could be some applicability there. They are moving freight around Europe as well, aren't they?

Yes, that's where we get the applicability, whether it be in Europe. Or we think some of the more will favorable opportunities would be in Australia, Brazil, Egypt, where they are using a lot of freight products -- South Africa.

Can you comment about the type of new products or technologies that you acquired with Becorit and potential to sell some of those things and to current friction product groups -- customers? And did you get any new customers that you hadn't had an opportunity to get into before you made that acquisition?

I don't know if you know or not, but we had a friction company in Italy, CoFren, which was acquired a few years ago. And CoFren has technology primarily in centered disk products that are used in transit primarily. And they do have some composite friction products.

Becorit is really the technology leader in the composite area in Europe. And they also have a centered product as well. The combination of these two companies is a tremendously strong technological force for our European market. And we have -- they had a number of development programs with customers that the CoFren business did not have. So this is a tremendous addition from a technological standpoint. And there's also synergies in the integration of these businesses, as you can imagine. So this is just a real plus.

And there's also technology where the centered technology is not as strong or used as much in the North American market. And we think there's opportunities for that as well. We have some products that are developed and used on the super high-speed trains that are being tested in Europe right now.

Scott, this is Alvaro. I could also add about 20% of Becorit sales are outside of rail. Believe it or not, they actually started by selling friction products to the mining industry. And mining, windmills, etc., etc. -- there's 3 or 4 ancillary areas where, like I said, they constitute 20% of their sales. And we think we can take those products and introduce those in North America, which really perfectly aligns with our strategy of internal growth through adjacencies rather than just directly in rail.

That sounds great. And since I have you, Alvaro --

I should have kept my mouth shut -- I could have gotten off easy.

I was going to say that anyway.

You mentioned cash flow being helped by customer prepayments. And since we don't have a balance sheet here, can you talk about that one liability items on your balance sheet?

I have to be honest -- it would be even hard just to pick up off the balance sheet. In general, though, I think probably about 30 to 40 of the cash flow this year would be from a net increase in customer prepayments year-over-year. And you'll expect to see that reversing over the next couple of years.

Art Hatfield, Morgan Keegan.

Pretty much everything has been answered. And if I missed this, I apologize. But just one quick question -- can you break down your backlog between freight and transit?

Sure, let me give that to you one more time. The multiyear backlog, which would take about probably three or four years in total to produce -- that right now is $1.041 billion. Freight is $262 million of that, and transit is $779 million of that.

Of the freight group, how is that broken out? Is that mostly locomotive, or do you have a portion of that that is related to the freight car OEMs?

It's spread pretty well out throughout our freight group. I'll give you an example -- $193 million of that, so out of the 262, $193 million should be produced during the next 12 months. And that could be locomotive valves. It could be friction products. It could be some locomotive products such as compressors, electronics -- (multiple speakers) it really runs the gamut.

The only thing we won't have a lot of visibility on is the aftermarket in freight. That's very short, within a month period. But everything else -- I actually have the list by divisions in front of me. And other than that particular division, every other division has a nice backlog.

That's all I had, guys. Great quarter, guys. Good year, and I look forward to '07.

Matt McGeary, Sentinel.

I'm not going to ask you to repeat the backlog numbers again. I got them the first few times. (laughter)

Just one question. You talked about -- Al, you were saying about if you look from third quarter to fourth quarter, you saw a 500 basis point increase or change in mix from freight to transit. And you saw operating margin decline 40 basis points. Is that kind of a good rule of thumb to use? Or can you do better than that, or should we be concerned that it's going to get worse than that in terms of the margin impact on the mix?

Actually, the reason I gave those numbers is actually we're pretty pleased with those, because we are very focused on the fact that our mix was going to change. And there has been a lot of attention placed on that internally that when you have a 5% switch in mix between products where we have stated before, and I think it's well known that the transit business has lower margins. And to be able to manage that -- I think I feel very good about the team's results there.

Going forward, we're going to continue to try to improve on that. That's part of the lean culture. And we want to just have a continuous improvement program on our margins. So I'm happy with what we saw in the third to the fourth. And we want to try to improve on it.

(OPERATOR INSTRUCTIONS) Lawrence Casse, M Partners.

Just one thing I would like to understand better about the ETMS. There are some competing technologies out there. At the end of the day, will the rail industry have to settle on one technology because there's so much interoperability of track and train? Or will the two competing technologies be able to coexist?

Obviously, we would like it to be our system and everyone learning how to operate with it. And I think that it's possible that there will be competition. I think what you will find is that this may not be 100% deployed across all railroads. And there are a number of lines that are going to require interoperability. As a matter of fact this line going from Texas up to Kansas is jointly operated by UP. So we're going to see that ability of our system and their ability to operate together.

But at the same time, there are pilots and other tests going on in other railroads where it doesn't overlap. And I think it's very possible to believe that there will be competitive products out there and utilized on some of the railroads. Although obviously, we think we have the product of choice, and we're trying to make advancements on that.

And obviously, we are ahead of the game. We're ahead of the other competition. It's the only one approved -- the product planned safety for implementation.

But if there were two systems, they could coexist from a technical point of view?

From a technical point of view, it could, yes.

And just one follow-up question about the increase in cash flow coming from customer deposits. I don't see that on the balance sheet under change in customer deposits. Where is that --

Basically, once we get the K out, you'll see that in other current liabilities. That's where the -- but then that's mixed in with a bunch of -- that's why when I was answering Scott's question, you won't necessarily -- it's not material enough to merit a one line on the balance sheet. It's combined with other items and put in other current liabilities.

Thank you. There are no more questions at the present time.

Okay, thanks a lot.

Okay, thanks, everybody. Talk to you in about another three months.