美國西屋制動公司 (WAB) 2009 Q4 法說會逐字稿

Good morning and welcome to the Wabtec Corporation's fourth quarter 2009 earnings conference call. All participants will be in a listen-only mode. (Operator instructions). After today's presentation there will be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference over to Mr. Tim Wesley. Sir, please go ahead.

Good morning, everybody. Welcome to our fourth-quarter earnings conference call today. I'll introduce the rest of our team. We have Al Neupaver, our President and CEO; Alvaro Garcia-Tunon, our CFO and our Corporate Controller, Pat Dugan. We'll have our prepared remarks and then answer your questions. I want to refer you to today's press release for the appropriate disclaimers on our forward-looking statements. With that, I'll turn it over to Al.

Good morning, everyone. What I'll be doing today is covering our fourth-quarter and our full-year results. I'll talk about our market conditions. We'll also talk a little bit about the progress that we've made on our strategic initiatives. Alvaro will cover the financials in more detail for you.

In a very challenging year we had a good performance in the fourth quarter and for the total year of 2009. Our fourth-quarter EPS was $0.56, excluding the previously announced charge of $0.06 for an arbitration ruling. As Alvaro will discuss shortly, if you adjust our operating margins to exclude one-time items during the year, we actually improved margins compared to 2008, even though sales declined by about 11% and our mix shifted more toward transit, which historically had been a lower-margin business. Our backlog held steady at just under $1 billion, and we had a very strong cash flow from operations, $71 million for the quarter and a record $161 million for the year. This is the 12th straight year that our cash from operations exceeded net income and the fourth straight year of being more than $140 million.

Keep in mind that this performance was achieved in a weak environment for the US freight rail industry. This performance shows the strength of our diversified business model and that our strategic initiatives are paying off and that we continue to benefit from the Wabtec performance system.

Let's talk a little bit about our markets. We continue to see a stable transit market in North America, driven by federal funding and passenger ridership. We expect new core orders to be awarded from a number of transit authorities during 2010. Some of those include Metra; WMATA, which is the DC transit system, Miami, New York City Transit and Amtrak. New projects are already being planned in other cities, like LA, BART in San Francisco, MBTA in Boston, Denver and Honolulu.

The current federal spending bill, which expired September 30, 2009, has been extended through February 28 and will most likely be extended through September. Transit could also be part of the new jobs bill or second stimulus bill that's being discussed right now. Ridership is good, but it has been affected by the economy. About two thirds of the trips made on transit throughout the nation are work-related. Nationwide, ridership is down about 4% through the third quarter, not bad considering the sluggish economy and the higher unemployment. Some cities are still seeing increases, especially where services were relatively new or upgraded and expanded.

Positive long-term trends such as population growth and urbanization, long-term concerns about fuel prices, reduced dependence on foreign oil and a push for environmentally friendly industries should continue to drive investment in mass transit. So in general, Wabtec is in a good position to take advantage of what seems like a strong commitment in the US to expand the country's mass transit capabilities, including high-speed rail, which I'll talk about more in a minute.

We also have ample growth opportunities in the international transit markets, which have remained strong even during this economic environment. As we have discussed previously, we have a very small share of a much larger global market.

I'd like to talk a little bit about the high-speed rail. There has been significant focus on the US high-speed rail market. The FRA received more than 200-plus projects with a price tag of $100 million to compete for the $8 billion that was allotted. The federal government allocated this $8 billion to various corridors around the country. Wabtec will benefit from this spending over the long-term. Major grants went to California, Chicago, St. Louis, Tampa, Orlando, Miami as well as smaller grants to Ohio, North Carolina, Wisconsin and Portland/Seattle.

The projects include some focus on true high-speed, greater than 150 miles per hour, but most of the funding is for higher speed, 110 to 125 miles per hour, where Wabtec has a greater opportunity with regards to locomotives. With some modifications, our locomotives can be designed to operate up to 150 miles per hour.

Many of the approved projects are related to upgrading existing systems. These will have short completion horizons, but a few are very long-term. For example, the California project which received the highest amount of funding at $2.3 billion has a phase one completion date of 2020.

Let's shift gears to the freight rail market. Rail traffic was down about 15% in 2009, reflecting the severe recession. Traffic did not pick up -- I'm sorry -- traffic did pick up in the second half of the year with a 6% increase in ton miles compared to the first half. This traffic actually bottomed out in the second quarter with an average weekly ton mile of about 26.8 billion compared to 30 billion average in the fourth quarter.

So far this year, traffic is flat, totally dependent on the economy, which seems to be recovering slowly. With traffic down last year, the railroads parked perhaps one third of their freight cars and locomotives, which has a negative impact on both OEM and aftermarket demand. They pulled some cars out of storage, but it's still a very small percentage of what's parked.

As expected, rail car outlook is weak. About 21,000 cars were delivered in 2009. The backlog is at about 10,000, and that's exactly what we are expecting for deliveries during 2010.

Similar slowdown in the locomotive OEM market, which occurred later in the cycle due to longer-term contracts that were being fulfilled. About 400 is expected to be delivered this year, down from 700 in 2009. Some international freight markets, such as Australia and South America, are recovering, but overall conditions remain difficult.

Today we affirmed our 2010 guidance of EPS of $2.35 to $2.50. This is challenging in light of the market conditions and continued uncertainty, but we think it's achievable.

I'd like to review a few of our major assumptions, which are critical to our guidance. The first assumption is the global economy continues to recover slowly. The transit market remains stable with deliveries of new transit cars and new buses about the same as last year with no major impact from state and local budget issues. Freight ton miles continue to improve slightly with the economy, freight car build of about 10,000, locomotive build of 400 and no major changes in exchange rates.

In this environment we will continue to focus on controlling what we can control and in generating cash to invest in our growth opportunities. Cash remains a priority for us. It provides the opportunity to invest in organic growth and acquisitions. We will stay focused on increasing free cash flow by managing costs, driving down working capital and controlling CapEx. Thus, we will be able to continue to invest in our strategic growth opportunities.

We have made good progress in this area. The first strategic thrust is global market expansion. China continues to be a major growth opportunity, as it plans to spend about $120 billion this year to expand its passenger and freight rail systems. We now have three operating JVs in China with others planned for freight transit and power gen markets.

In India, we have decided to expand our local manufacturing capabilities there due to a demand for a number of our products. And we are making good progress in the European transit market with contract wins for components with Alstom and Siemens. Our strategic thrust of aftermarket expansion continues. We expanded our capabilities in South America by opening a service center in Brazil that will also be used as a manufacturing platform for Wabtec products. Our friction business, which is primarily aftermarket, continues to perform well, expanding its share around the world. We also continued to broaden our product offerings in the freight and transit aftermarkets.

New products -- a number of new transit components and systems are on test in Europe and Asia. Some of these include oil-free compressors, couplers, braking equipment and doors. On the freight side we recently won orders for electronic controlled pneumatic braking equipment in Australia and Saudi Arabia. We still have a major focus on our Positive Train Control system. It's a major opportunity, and we are at the forefront of this technology. We've been working with railroads to develop and implement both overlay and vital systems for the onboard locomotive solution. Interoperability standards have been released by the FRA with no surprises for us. Railroads are supposed to submit their implementation plan to the FRA by mid-April.

We expect sales to be about $20 million this year, higher than last year, with a larger ramp-up expected at some point next year.

The last strategic thrust is acquisitions. Our pipeline is active with good opportunities. During the fourth quarter we acquired Unifin International, a good strategic acquisition in an adjacent market where we know the products well. They make cooling systems and related equipment for power generation and transmission. Our Young Touchstone unit already serves a segment of that market with similar products.

Wabtec is now about 15% non-rail, plus power generation, friction and other industrial products. With that, I'd like to turn it over to Alvaro for a more in-depth talk about our financials.

Good morning, everyone. Like Al said, to give you a more in-depth review of our financials, sales for the first quarter were $359 million, which was 11% lower than last year. But last year was a record sales quarter, so the drop wasn't, I think, as steep as it would ordinarily look like on the surface.

The good news is that sales were 9% higher than the third quarter of '09 and our highest quarter since the first, so maybe that's a sign that we've hit bottom and we may be starting to bounce back a little bit. The Transit Group sales, as opposed to the Freight Group sales, actually were up 2% in the quarter and for the year, due mainly to increased sales of transit car components in North America.

Freight Group sales, however -- they are the ones that caused the decrease -- they were down about 25% in both periods, mainly due to lower OE deliveries of locomotives and freight cars in North America and due to the sharp decline in rail traffic, which caused a decline in aftermarket sales as well. But even though we had a 25% drop in sales, the decline in the OE market was actually 50%. So the lower sales drop was actually a reflection on the benefits of our business model.

Margins -- we continue to focus on margins and driving margins higher with particular attention on the operating margin. Gross margin tends to fluctuate quarter to quarter with mix. We had a good performance this quarter and for the year. For example, for the quarter, if you add back the $3.9 million charge for the arbitration ruling that we previously referred to, the operating margin was 12.7% for this year versus 12.4% last year on lower sales. And the same story holds true for the year as a whole. Adjusted margin -- again, making the adjustment referred to earlier -- was 13.7% compared to 13.5%, despite the sales decline of 11%.

And in doing that -- I'm sorry -- there were two charges I'm adding back. One was the $3.9 million charge for the arbitration. The other one was $8 million of restructuring that we took in the second quarter and we disclosed in the second quarter. So once you made an adjustment for those two charges, the adjusted margin was 13.7% compared to 13.5%.

If you look at it another way, our sales were down $173 million but our operating income was down only $21 million after making those adjustments, so the negative contribution margin of about 12% we view as a relatively good performance in this market because we think, on the upside, it should be much greater.

A few of the other P&L items -- interest was higher due to the increased debt incurred for the Standard Car and Truck acquisition, mostly, and then the Unifin acquisition later in the year. The tax rate was just under 34%, which was slightly lower than last year and slightly lower than our historical average of about 36.5%. And that's due to normal year-end adjustments. For the full year the tax rate was just under 30%, reflecting the one-time tax benefit of $9.7 million that we had in the second quarter.

Again, to give you a number that we view as -- obviously, we report GAAP and we'll continue to report GAAP. But if you exclude the three one-timers, the three most significant one-time items, which is a tax benefit of 9.7, the fourth-quarter charge of $3.9 million and the second quarter charge of restructuring expenses, our EPS for the year was 2.36 -- which, again, we think that's a fair number, taking out the major one-time items.

To go over some of the balances that we normally go through in this call, working capital compared to September 30, receivables were $208 million, down $23 million and inventories were $239 million, down $6 million, this in spite of adding some balances for the Unifin acquisition.

Payables were up to about $120 million, about $7 million up. So there's always room for improvement, but we think this is a pretty good performance. And again, that's what helps to generate cash flow in this kind of environment.

Cash from operations was about $71 million in the quarter, certainly a very good performance, we believe, and about $161 million for the year at about 12% of sales.

Debt at the end of the year was $392 million compared to $432 million at September 30, '09. So we managed to pay down about $30 million, $40 million worth of debt. And obviously, with our very conservative capital balances right now, we have plenty of capacity for investing in growth opportunities as we go forward.

A few other miscellaneous items -- depreciation was $6.5 million versus $6.2 million last year. Amortization was $3.7 million versus $1.6 million last year. Amortization was particularly high this quarter because of acquisitions. I think, going forward, you can probably use a run rate of about $2 million per quarter on amortization. Obviously, if we make any more acquisitions, that would have to be adjusted.

CapEx was $7.4 million during the quarter versus $7.2 million last year.

And backlog, which we always give you a backlog update at the end of every quarter -- backlog is just about the same as it was at the end of last quarter at just under $1 billion. The rolling 12-month backlog was up slightly compared to 9-30-09. So this is the backlog that we expect to execute over the next 12 months. In total, it was 552 versus 513 at 9-30-09. Out of these totals, 126 is in freight and 87 was at the end of last quarter. And in transit, $426 million at the end of this quarter versus $426 million at the end of last quarter, so very stable there.

The multi-year backlog, which is the total backlog -- it excludes options but it includes all booked orders -- was $951 million versus $952 million last quarter, so, like we said, basically the same. Out of this, freight was $211 million versus $170 million last quarter, and transit was $740 million versus $782 million last quarter.

And that pretty much wraps up the financial summary, and I'll turn it back over to Al.

We had a good performance in 2009. I couldn't be more pleased with how the team responded to some very challenging market (inaudible). We will continue to face these challenges into 2010, so we believe the Company is well positioned to succeed because we're focused on what we can control, and that's reducing cost, generating cash and continue to invest in these growth initiatives, which is going to drive us over the strategic period.

We have a diverse business model, the Wabtec performance system. I can't emphasize enough how important this performance system is to being able to generate the type of cash that we did this year. It provides the culture, lean manufacturing and continuous improvement. We have a very experienced and strong management team that is proactively and aggressively trying to grow this business through these difficult times.

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

(Operator instructions) Jim Lucas, Janney Montgomery Scott.

I wanted to start first with a couple of housekeeping questions. For the full year, on a percentage basis, what was freight versus aftermarket, and where did international end up as a percent of overall sales?

Okay. For the full year, freight -- I'm sorry; you asked OE versus aftermarket?

Yes.

For the full year, it was 54% after market, 46% OE.

I think it's 63 freight, right, after market?

I'm sorry; I thought he was asking total aftermarket and total OE for the year.

No. That helps. And then freight was 63% after market?

Right. And 47% for transit.

Okay. And international overall?

Overall, it's 40% for the year.

Okay. And there was a couple of -- you had the litigation, the arbitration ruling in the fourth quarter. There was another recent headline regarding another ruling. When you look at the competitive landscape out there, it's interesting that within a couple-month period, you have two legal headlines come out. Could you give us an update of anything else that may potentially be in the pipeline, or is this what we should expect for now?

Let's talk about them individually. First, the simple one is the ITC ruling related to Amsted. That was a lawsuit that was going on prior to our acquisition of Standard Car Truck. We were well aware of it, and that was never put into our projections or plan. So that is something that predated our ownership there.

The Faiveley arbitration has been going on -- you have to look at the history of how this all transpired. First of all, in 1990, when Wabtec took the business private, only the North American portion of the business was taken private. And that consisted mostly of freight products. The European part of that business stayed with a private equity firm, and there was an agreement for licensing that technology back -- I think the contract might have been executed in the mid-'90s. And so they had this relationship between the two companies.

Faiveley acquired that portion of the business in, I believe, 2004. And at that point there was like a year left on that license arrangement. And that dispute between Wabtec and Faiveley started at that point and has been in the court system since then. We feel that the ruling, as we've put out, was obviously a fair one from the standpoint that we are paying royalties for anything we are using, and it's behind us.

We don't know of any other actions other than those two and don't expect to be discussing those kind of things into the future. But that's part of the history of the business.

That is very helpful background. I wanted to just get an update with regards to the cost side. Clearly, it seems as if we are finally getting to a bottoming process on the freight side -- very admirable, what you've been able to do in terms of protecting the margins despite the top-line pressure this year. What are your plans with regards to further cost reductions activities in 2010 and what is the carryover benefit from the 2009 actions?

Two questions there -- first of all, what is our plans for 2010 as far as cost reductions? We feel that most of the heavy restructuring is behind us. That restructuring really totaled -- we spent about $14 million in 2009, $6 million, I think, in the first quarter, $8 million in the second. That amount was related to between $35 million and $40 million of sales -- I mean, not sales but cost reductions.

Half of that we saw in 2009, the other half will flow into 2010. About half of that is fixed cost, the other half variable. So as volumes start ramping up, obviously we will have to add some variable cost. But we did have a large component of fixed costs that were addressed.

Now, how do we continue to approach things? The same way we did over the last four years, and that is it's really being driven by the Wabtec performance system and continuous improvement. We continue to ask every division to have certain goals related to cost reductions, sourcing, lean kaizens that's going to improve our productivity, moving some of our businesses from high-cost platforms to low-cost platforms. That is never ending, and we will continue to have that drive to continue to drive our cost down and improve margins over time.

To be able to do exactly that during this recession is something that, again, I couldn't be more pleased with how the management and each and every one of the employees of Wabtec reacted to those challenges in the last year, year and a half.

Kristine Kubacki, Avondale Partners.

My question revolves around the freight backlog. It looks like it grew a little bit organically. I was wondering if you could give us some insight into what is specifically driving that.

Okay, obviously, in the fourth quarter we had the acquisition of Unifin. And I think that makes up about --

13.

-- 13 of the increases from the Unifin acquisition. And the remainder is, what you are seeing is the pickup in, actually, traffic. If you look at third quarter to fourth quarter, traffic went up about 15%.

So does it have to do more with aftermarket kinds of components or more -- is there any OE kinds of things picking up?

I think there's a little bit of both. We've seen it in the aftermarket. Obviously, after market has a shorter period, so we saw that increase in freight, obviously, in the less than 12 month area. And some of that is aftermarket.

Okay. And then, as we've seen some of the forecasters in the industry, it seems like the outlook was where you are forecasting for the year in terms of new railcar builds, at about 10,000. It seems recently there's been some inflation in that number, up to 15,000-16,000 for 2010. And last week we heard about a rather sizable car order out of one of the car builders.

I was wondering what -- do you think that your forecast is overly conservative at this point, or do you think that some of these forecasters are out over their skis at this point?

First of all, the order that you're talking about was an order that's going to be delivered over a couple years, and not all that will be delivered in the year. And I have to answer your question by saying that I hope and pray that we are overly conservative. But right now, I think that if you look at the number of orders that come in during 2009, which was, I think, 9250, you sure wouldn't take that to the bank and say that that's going to happen.

And those cars parked create another concern for us. But hopefully, we are being conservative. And we are ready -- if that thing picks up, we would be very ready to respond to it.

My last question is on the Transit side. You mentioned several projects in your opening comments, and I was wondering -- as we think about New York finishing up with a sizable contract there, can you talk about the second half of 2010 in terms of Transit projects, or is the timing of those projects too difficult to handicap at this point?

It's pretty difficult to give an exact timing on some of these projects and the awards and some of the new programs. What we are seeing, though, is we expect that the delivery of transit cars in 2010 will be the same as 2009, realizing that our 160 is essentially complete, at least from our standpoint. There will be some deliveries in the quarter. But with that behind us, there's that much activity still throughout the country on these programs.

Now, you could always count on a few delays from transit authorities, and that's why it's hard to really nail down when this will happen.

Can you give us the backlog with the options included or what's outstanding?

The options that are outstanding is about $100 million.

John Mims, BB&T Capital Markets.

Could you just give us a little bit of info on Positive Train Control as far as -- is there a revenue opportunity at all in 2010, or is that still pushed out for years down the line?

On Positive Train Control, I won't go through the whole background related to it, and try just to deal with your question. As you know, there's two railroads that put out pretty large numbers of what they're going to spend in 2010 related to Positive Train Control. One of them was like $170 million, the other was $200 million.

When you look at the total spend for Positive Train Control implementation, you have different components. You've got a component that's on board the locomotive, the computer, the brains of the system. And that's where we have our technology. You've got the back office or the dispatch business, and we also play in that area.

The other area is the wayside or the track and these signals, and that is the largest expenditure and probably the one with the most lead time at this point. What's important for the onboard computer or the PTC that we supply today is to get it through the product safety plan approval through the FRA. And that's what I talked about; their implementation plan needs to be in by mid April. And we continue to test the system and work toward that certification.

Once that certification is given and the total system is understood, that's when we start seeing a lot of this onboard revenue. So what we're seeing right now is a lot of development money to get there. Our system is developed, it's been approved in the overlay condition and is ready to be commercialized. But there's a lot of things the railroads need to work out. And that's why they talk about such large expenditures related to this is that they still have to be able to interoperate. They need a radio system to communicate. There's 75,000 switches out there throughout the country that need to have an interface with our computer. And that's the part, the design of the signaling systems is what's going on, and that's where a lot of that money is being spent.

We expect that to take the lead, and the onboard computer will really start ramping up mid to late next year, 2011.

Thank you for all that color. Just looking at the guidance for 2010, can you give any sense of progression or first-half versus second half, how we should look at that from a modeling perspective?

No. We don't give quarterly guidance there, so I really can't add any color to that. I'm sorry.

Doesn't hurt to ask. And Alvaro, did you give the depreciation expense for Q4?

Sure. Let me give it to you again, happy to do it. Depreciation for this quarter, for the fourth quarter of '09, was $6.5 million versus $6.2 million last year. And (inaudible) was $3.7 million versus $1.6 million last year. And I also added that [AMWRT] also includes some one-time amortization for acquisitions. On an ongoing basis, it will probably be closer to $2 million.

When you're talking about the growth in international, can you give us a sense of -- as far as your guidance and outlook for 2010 or 2011 is concerned, is that mostly organic? Or where are you in the acquisition pipeline? Is the real engine for growth going to be acquisitions or organic on the international front?

We only project organic growth. We never predict acquisitions. There may be opportunities in that arena, but they would not be in our projections. But to answer your question more precisely, is that we did an acquisition, we do have the platforms in place to really take the advantage of this larger market, and we are working very diligently on getting our systems approved and in place.

So you would say the bulk of your acquisition pipeline is international, or can you give that much detail?

We look on a global basis, so I think we've got opportunities both internationally and domestically.

Steve Barger, KeyBanc Capital Markets.

This is actually Joe Box. I just actually wanted to follow up on John's question. You guys had framed up your expectations earlier for the North American freight market. Can you actually just provide a little more granularity on your expectations for some of your growth-oriented markets like China, India and Brazil, specifically?

Yes. In the case of China we would expect to continue to see double-digit growth in that marketplace, which we've experienced over the last couple of years, when you have that amount of money being spent in that arena. We also see some good growth opportunities in Australia, South America and India. So all those markets are way above your normal growth rates. But you've got to keep in mind, we're starting from a small base.

Can you refresh us what China was in 2009 in terms of revenues?

We probably --

A little under $20 million.

Okay. I also wanted to follow up on the PTC question. I'm just wondering if you guys have made any inroads yet with respect to penetrating any of the other categories outside of the [NCAP] technology and whether that would be organically or through any acquisitions.

As I mentioned, we've done well by creating opportunities in the dispatch and the back-office software arena, and we continue to look at other areas, or growth opportunities.

Also, just on the freight revenue side, real quick, your revenues were down 26% in the quarter. How much of that decline was actually volume oriented versus price, and how much did Unifin contribute?

Price didn't have a lot to do with the comparison there. Really, what -- and Unifin quarter on quarter was, I think, $10 million.

Yes; Unifin added $10 million of revenues to the Freight group during the quarter. And I'd confirm what Al's said; most of that was basically volume driven, fortunately, are you don't -- we're fighting over a small market. So (multiple speakers) price to get it.

In terms of input costs in 2010, you obviously were seeing some rising steel cost. What is your expectation on the impact for gross margins in 2010?

We don't anticipate much impact because, remember, we tried to have some type of surcharge or cover the inflation in the direction when it's gone up as well as giving it back when it comes down. So we don't anticipate a large impact from that.

Greg Halter, Great Lakes Review.

The press release references repurchase of about 670,000 shares. I can't remember the first three quarters, but were there any done in the fourth quarter? And what is your outlook going forward regarding that program?

There were a little bit done at the end of the year, but it didn't get reflected because it was toward the end of the year that it will actually be reported, I believe.

Usually what happens is -- you are familiar with it -- you close three days after the trade, and we did some towards the end of the year, which, between holidays and being close to the end of that year, they will actually hit our books towards the beginning of the year. But it was pretty minor; it was about 100,000 shares or so, give or take. And we still have about 50 million left under our repurchase program. And we're not amending that right now. We still have 50 million left.

$50 million?

Yes; I'm sorry, yes. Yes, 50 million shares are pretty much -- we'd be the sole remaining shareholder in control of Wabtec if we had $50 million; sorry.

Nice to hear that train behind you.

We like that.

We open the windows when we're on the call.

Relative to your debt, can you discuss the different components there -- maturities and rates and whether or not you have any swaps hedging any of that?

Yes, a lot of questions there. We have two main components of our debt. We have about $150 million in bonds that are -- I think they mature in 2013. And they are at 6.875%. And then we have a $500 million revolving arrangement with the bank. $200 million of that is a term credit, $300 million of that is a revolver. We are utilizing all the $200 million. We are in the process of -- actually, we had some hedges maturing not too long ago. And we are actually -- actually, I think we locked them in yesterday. And on our bank arrangement -- what are we paying, about 2.25, I think, with our new hedges in place? So on our bank financing we are paying 2.25, and that's mostly -- I'd say about 60% of that is fixed, 40% of that is floating. And the portion that's fixed is out there for one and a half to 2.5 years, if that gives you enough flavor for it.

That's perfect. You didn't provide a figure for the equity balance, and I just wanted to get that if you have it, given the acquisition you made.

Yes; the equity balance is 778.9, so basically about 780. If you are doing debt to total cap, we are at about 33.5.

Okay, and what would you anticipate or capital spending to be in 2010, full year?

I would think, relatively consistent with the past and what we spent in '09. The rough range would be somewhere between $20 million to $25 million.

John Mims, BB&T Capital Markets.

I just wanted to ask one more question regarding -- and, you just touched on it a little bit with the debt structure, but if you look at the $189 million in cash and what's available in the borrowing, is there, I guess, a dry powder zone that could be used for acquisitions for next year?

Sure. Basically, the $189 million, the vast majority of that, over 90%, is in foreign entities. And we basically keep that there, one, to finance future growth in those entities and, two, to provide for future acquisitions abroad. If we were to repatriate it, the US has the second-highest tax rate in the world right now. The only one that's higher than the US is Japan. And if we were to repatriate it, we would face adverse tax consequences as well.

But the plan what the cash is to leave it there, again, to finance future growth and future acquisitions abroad.

Fred Speece, Speece Thorson Capital Group.

My questions have been answered. Thank you.

(Operator instructions). We show no further questions at this time. This concludes the question-and-answer session. I'd like to turn the conference back over to our presenters for any closing remarks.

Okay, thanks for joining us, everyone, and we will talk to you in a couple months. Have a good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.