美國西屋制動公司 (WAB) 2011 Q1 法說會逐字稿

Good morning, and welcome to the Wabtec Corporation first-quarter 2011 earnings conference call. (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. Please go ahead.

Thanks Linda. Good morning, everybody, and welcome to Wabtec's first-quarter earnings conference call this morning. Let me introduce the rest of our team who is here. Our President and CEO, Al Neupaver, Alvaro Garcia-Tunon, our CFO, and our Corporate Controller, Pat Dougan. As always, we will make our prepared remarks and then we will be happy to take your questions. We will of course make some forward-looking statements during the call so please review today's press release for the appropriate disclaimers. With that, I will turn it over to Al Neupaver, our President and CEO.

Thanks, Tim. Good morning, everyone. Obviously, our first-quarter performance was strong. We had record sales, record earnings, and a record backlog. As we've discussed, this performance was driven mostly by growth in our freight group. But our transit group also showed some strength. With sales increasing 10% compared to the fourth-quarter of last year. And our transit backlog also grew by about 14%. As a result of this first-quarter performance, and our outlook for the rest of the year, we raised our annual EPS guidance again. Our new guidance is $3.20 to $3.30. Clearly, Wabtec is performing very well. Which demonstrates the strength of our diversified business model, the benefits of our strategic initiatives, and the power of our Wabtec performance system.

As I said, we have raised our 2011 EPS guidance based on our current backlog and our outlook. We are now expecting EPS between $2.30 -- I mean $3.20 and $3.30 with sales growth of about 15% for the year. Some of you may call this conservative, but I just want to remind you that it is still early in the year. Our guidance assumes the following. The global economy continues to grow. Freight rail traffic continues to improve with the economy. Transit market continues to be stable. And no major changes in foreign exchange rates. We will continue to stick to our long-held philosophy, be disciplined when it comes to costs, focus on generating cash to invest in growth opportunities. Let's first take a look at the freight rail market.

In North America, rail traffic continues to grow this year. Through mid-April, ton miles increased 6%, and intermodal traffic was up 9%. The increase in traffic has led to a rebound in our North American after-market business. With after-market sales in the first-quarter up 37% compared to a year ago quarter. Freight traffic is also growing globally. Especially in mining countries like Australia and Brazil. The North American railroads have continued to pull more parked cars and locomotives out of stowage which is driving the OEM markets. Only about 280,000 cars or about 19% of the total fleet remain parked, down from a peak of more than 500,000 cars in the middle of 2009. New rail car outlook continues to improve.

First-quarter deliveries are estimated to be about 7,000, with orders at 26,000. So the backlog will rise to about 40,000. The highest in nearly three years. Most forecasters have the North American freight car build between 30,000 and 35,000 this year. With the locomotive build of about 700. In the first-quarter, our freight revenues hit a quarterly record of $265 million. Even with OEM deliveries still well below the long-term average, this bodes well for continued growth. Railcar deliveries peaked in 2006 at about 75,000 and the locomotive build reached 1,500 in 2008. Let's look at the transit market.

Global transit markets have remained stable. This is consistent with what we have indicated in prior quarters. This stability is despite some short-term challenges in the US market due to budget issues at our transit agency customers. OEM transit car deliveries are estimated at about 1,000 and new bus deliveries at about 4,800. Both figures are slightly less than last year. We have been selected for several projects this year, and are in various stages of negotiating final contracts. So no announcements just yet. As transit agencies and federal governments sort out funding matters, we should continue to see orders pick up but it will take some time.

We have seen a recovery in ridership, which was flat last year, after being down 3% in 2009. Positive long-term trends in transit should continue to drive investment. Population growth and urbanization, long-term concerns about fuel prices, reduced dependence on foreign oil and environmental concerns. We continue to make good progress in various international markets. And that has helped our transit backlog grow. Transit backlog is up 12% compared to a year-ago quarter. And up 14% compared to fourth-quarter of 2010. Our transit business remains stable because of its diversity. About half of its business is outside of the US. The global transit after-market business grew nicely in the first-quarter as well, greater than 20% over 2010 first-quarter, and 28% greater than fourth-quarter, and we've continued to invest strategically in future growth with acquisitions, new product development, and global expansion.

Overall, Wabtec is in a good position to take advantage of global investment in mass transit. Our strategic focus will continue to be on growth and cash generation. Cash remains a priority. It provides the opportunity to invest in organic growth and acquisitions. We are focused on increasing free cash flow by managing costs, driving down working capital, and controlling capital expenditures. This will enable us to continue to invest in our four growth strategies. Global and market expansion, after-market expansion, new products and technologies, and acquisitions. We continue to make progress in each of these areas. In the global and market expansion area, in the quarter, sales outside of the US were $199 million, that's 44% of the total, and 11% higher than 2010. During the quarter, we announced major new projects in Australia and Brazil, and we continue to grow in places such as China and South Africa. We have also seen growth in the non-rail sector with strong performance by our heat exchanger business in the stand-by power and prime power generation markets. In the after-market expansion area, overall after-market sales were $248 million, that's 54% of total, a growth of 29%, compared to the prior year. This is due to our growth initiatives and increasing rail traffic, which benefits our Wabtec global services unit, among others. We've also remained busy in the acquisition area.

We are pleased with the acquisition and integration of Brush Traction, which we acquired during the first-quarter. Brush Traction is based in the UK and has two facilities. One near Birmingham and the other one in Scotland. Brush provides locomotive overhaul and maintenance services, with sales of about $55 million. It is a good complement. And that's in dollars. It is a good complement to our Wabtec rail business in Doncaster, England. It also fits all of our strategic buckets. It's global, has a good after-market percentage, provides some good engineering talent for new products and services. We see opportunities for top-line growth with Brush, as well as margin expansion. We have an active pipeline and other acquisition opportunities.

On the new product front, positive train control continues to be a major focus of ours. We continue working with class one customers, to develop intraoperatable solutions. These efforts are moving into the testing phase at this point. While this development process continues, the railroads are seeking some clarifications to the PTC law which they hope will reduce their potential investment. We don't expect these changes, if approved, would have any material impact on our market opportunity. During the quarter, we signed two major positive train control contracts, a $165 million contract with MRS of Brazil. That's a railroad, fourth largest railroad in Brazil, for a turn-key PTC solution. It includes project management, signaling, communications, a train dispatch equipment, and onboard electronic equipment, for about 500 locomotives and 50 auxiliary vehicles. The project is scheduled to be completed in 2013. We also inked a $27 million contract to provide PTC equipment and services for Metrolink, a commuter rail agency that serves southern California. Their goal is to have this project completed by the end of next year. With that, I will turn it over to Alvaro.

Great. Thanks, Al, and good morning, everyone. I think you will agree with me when I say it is always nice to report financial results like these. Sales for the quarter were a record $455 million, about 25% higher than last year. Of this increase, almost two-thirds was organic growth. As Al mentioned earlier, the growth was driven by freight group sales, which were up 61%, with more than three quarters of that coming from organic growth. Growth in the after-market was very strong due to increase in rail traffic and more rolling stock coming out of storage, OEM sales were also strong, they almost doubled, from the prior year.

Transit sales were a little lower than the year-ago quarter, mainly due to the completion of major OEM programs in New York and locomotive contracts, but they were actually 11% higher than the fourth-quarter of '10, showing the stability that we expected back then. In terms of margins, we continue our focus on driving margins higher, with particular attention on the operating margin. For the quarter, operating margin was 14.6%, compared to 14.1% in the year ago quarter. In dollar terms, SG&A was higher than the year ago quarter, mainly due to the acquisitions of various companies, Gmb, Bach-Simpson, Swiger and Brush, and in line with our expectations. As a percent of sales, it was actually slightly lower, 12% versus 12.3% last year. Also, this year's quarter included about $664,000 of purchase price accounting, or PPA, which are the near-term charges associated with acquisitions. This compares to the 393,000 in the year-ago quarter. Excluding PPA operating margin was 14.7% in this year's quarter and again operating margin is the number we key on.

Interest, interest expense was lower due to lower net debt, compared to the year-ago quarter but relatively modest. Other income, it fluctuates a little bit due mostly to paper FX, translation gains and losses this quarter, we had a gain. The effective tax rate was 35.2%, slightly higher than last year. But pretty much in line with our expectations as well. Working capital was up in line with increased sales as well as acquisitions. The receivables were $306 million, up about $48 million from the year-end. About $10 million of that was contributed by acquisitions and FX translation increases. Inventories were $285 million, up about $31 million, but again, FX and acquisitions accounted for $11 million to $12 million of that, and payables were $175 million, up $4 million from the year-end. At March 31, we had $201 million in cash, compared to $237 million at year-end, so relatively stable. We generated cash from operations of about $16 million in the quarter.

In terms of debt at March 31, we had $400 million of debt, compared to $422 million at December 31, '10, and as you can see from our operating ratios, and from our capital ratios, we have plenty of capacity for investing in internal growth and other growth opportunities. A few miscellaneous items which we always cover. Depreciation was $7.4 million, versus $6.5 million last year. Amortization was $3.1 million, versus $1.9 million. CapEx was $7.4 million, versus $3.6 million last year. CapEx is going to be up slightly this year over last year, I think last year, historically, it was about $25 million give or take, this year, we were estimating that it is going to be about $30 million, given the increasing size of the Company with acquisitions, as well as a couple of capital projects that we're investing in this year, including a new building for our friction facility in China.

In terms of backlog, as we mentioned in the release, and now mentioned as well, the multi-year and the 12 month backlog are both at record highs. The multi-year backlog which includes the 12 month number, this is the total number, compared to year-end, the total right now is $1.5 billion, versus $1.1 billion at year-end. So it rose by about $400 million. Transit is $791 million, versus $695 million at year-end, and freight is $705 million, versus $384 million at year-end. Freight increased substantially because of the contract in Brazil that Al mentioned, which is for freight railroad, as well as the locomotive contract, which we released and discussed earlier.

The rolling 12 month backlog, this is the backlog that we expect to execute in the next 12 months, compared to year-end, the total was $821 million, versus $590 million at year-end. If you break it down, transit is $365 million, versus $293 million at year-end and freight is $456 million, versus $297 million at year-end. That pretty much concludes the number session of this call. I will turn it back to Al.

Thanks, Alvaro. In summary once again we've had a strong performance in the quarter, with record sales, record earnings and a record backlog. Longer term, we could not be any more pleased than we are today with our strategic progress and the growth opportunities that we see ahead for Wabtec. We continue to benefit from our diverse business model, and the Wabtec performance system, which gives us the tools we need to generate cash and reduce costs. We have a experienced management team that managed aggressively through the tough times, and is now taking advantage of those growth opportunities. With that, we will be happy to answer your questions.

We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Allison Poliniak of Wells Fargo.

Just a question. On positive train control, you talked about, you know, the railroads going sort of after more clarification. Could that delay any of the ramp-up costs as we head into 2015, do you think? I know it is -- ?

The thing, what they've done, is that the tracks that were covered or the route miles that were contained in the original FRA document, was based on route miles that were traveled in 2008. And what the railroads have done is they have gone to Congress and they said, you know, this doesn't make sense. It is going to be implemented in 2015, so it ought to be based on how we run our railroads in 2015. And by taking a look at those routes, they think they can reduce the traffic in certain areas with hazardous waste by about 10%. And thus, they don't have to make that PTC ready in that area. And Senator Hutchison put a bill forward, it makes a lot of sense. We agree with her approach, and you don't want to see a program that is based on old data. So that is the one thing that is moving forward for the railroads.

As far as the delay of the spending, or the delay of PTC being implemented, there is really a lot of discussion around can the deadline be met. Decisions related to that are probably, in 2012, sometime that year, they have to report back to the FRA on the status. We're moving full speed ahead. We don't anticipate any delays, especially related to our particular commitment on this program. Whether or not, again, it is always good to hear a train whistle in the background while we're talking. That was special effects that I paid for, so just to let you know how busy things are here at Wabtec. But, we at this point do not see those delays. And even if it was a delay, I don't think it is going to change much the spending pattern related to our products.

Okay, and then you had a nice ramp in the overall operating margin sequentially. Are you guys facing any input price issues right now that are pressuring that a little bit?

There is obviously a lot of inflation that we're seeing. And we've been very disciplined in trying to make sure that those escalations in raw material prices, labor costs, and other areas, are controlled, and we try to cover the fact, if we're going to have raw material, either through a surcharge, or some type of pricing increase. We must admit we're not going to be 100% capable of doing that. But we think in general that we've got most of the escalation and costs covered.

Great. Thank you.

Our next question comes from Jim Lucas of Janney Capital Markets. Please go ahead.

First, on the numbers side. I was following up on that last theme. Very dynamic top-line growth. But gross margins are still in that sub 30% range. And was wondering if you could give any sort of color or clarity about the mix issue on the gross margins. And what is that gross margin potential as freight becomes a more important part of the mix here?

One thing I tell you, Jim, we in Wabtec, we don't allow people to use mix as an excuse very often, okay? So I will start out by saying you know that the mix impact, yes, there's better margins in freight than there are in transit, so that really should have been a help in the quarter. We did have good top- line growth. We were able to deliver about 17%, 18% after you adjust for PPA to the bottom-line operating profit. We think that we can do a little better than that. But all in all, to deliver 18% contribution margin, in this kind of rapid build-up in revenue, I think that the Company performed pretty well.

And one minor point, Jim, this is Alvaro. If you take a look at engineering expenses, this might be another one of your questions Al anticipated, you will see that it went down from last year, and even a little bit in the fourth-quarter, and this is mix. It is not an excuse, but it is mix. But what we do is we have some contracts where we are actually taking some of that engineering expense and reclassifying it as cost of sales because those engineering charges are in cost of sales. And you will have some of those reclasses going back and forth, depending on the mix of products, and depending on how you do the accounting. Which is another reason, when we look at margins, to be honest, what we really focus on is operating margins. Because that does take the mix out of it and that reflects on how the overall Company's doing.

Okay. That's helpful. And then on the strategic side, you know a lot of the focus on PTC has been domestically, but very nice contract in Brazil. Could you talk about the PTC opportunities internationally, since prior that hadn't really been as much of a focus, and just any color you could give there, please?

Yes, we had started working about six to nine months prior to our announcement with MRS on that PTC opportunity, and we were really invited by them to participate. They had signed an agreement with Alston to put in that type of system, back in 2005, and they were unable to come to the point where they had an operating system, so they reached out, and knew that we had made good progress in the United States on our program. So we were able to, you know, participate in that contract. We feel that there's other opportunities in countries like Brazil.

One of the things that is unique about this contract is they don't have the kind signaling system that exists. They don't have a standard signaling system. So instead of putting in a normal signaling system, they could actually go to this electronic, positive train control method, not only from safety standpoints but it is a capacity play as well. So we think this really bodes well in a lot of other countries. Brazil, Australia, maybe some of the other mining countries as well. Keep in mind that we did implement PTC in Iraq. This was done probably, what, three, four years ago. So yes, there is an international opportunity and we will continue to take a look at where our system, which is a unique system, can help us, you know, develop growth on a global basis.

Okay. And finally, with regards to Europe, any update in terms of getting your system over there up to the European standards?

Yes, we're making excellent progress. First, on the component technology side, as well as a system. We have had couple of small system orders. The key to our approach there is that we've got to get our entire system, not just components, on some of the platforms that exist there. That is the model that you would use, as you develop business. And our success has been good so far. It is just going to take time. And we understand it. We're in for the long time. Long time, not going to be a next-year type of item. But four or five years from now, I will assure you that we will be successful.

Alright. Great. Thank you very much.

Our next question comes from Steve Barger of KeyBanc Capital Markets. Please go ahead.

Al, you said that most forecasters expect a freight build of 35,000 cars. Do you see any issues with the supply chain supporting that? Or where do you think the build rate can go to this year?

What I gave is a range, about 30,000 to 35,000. There are supply issues across the board, I think, with everyone building back up, which has created a concern. Although there is a couple of things that are driving some of the order rate right now, is the rapid depreciation of investment in rail cars, drops from 100% to 50% next year, so there is a lot of people looking at this. They are also looking at their own needs, because they haven't bought any cars for the last 18 months to 24 months. So, I think there's been a big push there. It has stressed the supply chain. We're, in general, in pretty good shape. Except for some of the large casting products -- casted products.

But I think the supply chain will work itself out. It may, when you see an order intake of 26,000 in a quarter, I mean that is a huge amount of orders in one quarter. The question is, is that really filling up some pent-up needs in the supply chain of the rail cars or not? We don't know. So I would expect 30,000 to 35,000 is probably the build that could be sustained with the current supply chain that we have.

Okay. And as that ramps up, as you kind of take a look at 2012, would it be your expectation that you could get to a 40,000 or 50,000 number, just as everybody comes back online and starts to figure out production again?

I think most forecasters are suggesting that, or even a little higher.

Okay. And can you talk about the order momentum you're seeing in freight so far. I mean we know that 1Q had huge numbers. Are there still good inquiries in 2Q? And can you talk about your inquiry to order conversion so far this quarter?

Let's see. The first question is, is what do we anticipate in orders next quarter? I mean obviously, we would hope that you know, the economy continues to grow, and that the freight rail continues to rebound. So we would expect that the incoming order rate would support that. As far as the projection, we really can't make that projection. I didn't understand the second part of your question.

Well, just in terms of the inquiries that you're seeing, and how you're converting that to orders, has that changed? Is that, you know, increasing or decreasing? And just what are your sales guys telling you about what activity is like so far in 2Q?

There is obviously a lot of activity and our hit rate is where it normally is.

Okay. You said you expect incrementals better than 18% as you start to benefit from the revenue ramp. Can you talk about any specific inefficiencies that you saw in the quarter or was it material cost? And is there anything to stop you from getting into the low 20% range?

Some of the issues you know, we touched briefly on the supply chain, and some of the inflation areas. In general, we feel that long-term, we're covered real well on that. So I would hope that you know, our goal has always been never to predict a certain level of gross margin, or operating margin, but it is continuous improvement, and we want to improve month-on-month, quarter-on-quarter, year-on-year. And I think if you go back six years, you will see that continuous improvement and we would hope that we could continue that.

Alright, and last one, I will get back in line. For the two PTC contracts that you signed, once you deliver against the combined $192 million, from those contracts, can you tell us what the follow-on revenue opportunities look like from maintenance or upgrades and how should we think about the future opportunity from that installed base?

Yes, we have done a number of scenarios trying to calculate the ongoing revenue that is generated by the installed base. And generally, electronics and software has a higher percentage because of the need to update and upgrade. With that, here is a range that could go from 20% to 40%. It depends on just how much of the maintenance contract you get, and what components need to be upgraded. But there is a certain annuity that is associated with installed base.

That is great. Thanks for the update. And I will get back in line.

The next question comes from Art Hatfield of Morgan Keegan. Please go ahead.

Al, I want to follow up on your comments about guidance. And you had in your prepared remarks mentioned that some of us, or some may think that you're being conservative and pointed out a couple of things to think about. But on the other side of that, I mean given where the freight markets are and how the OEM markets are ramping up, and the rail traffic is staying pretty good, consistent levels, which should drive the after-market, isn't it fair to say also that we should be thinking about Q1 2011 being the lowest earnings quarter of the year given directionally where your markets are headed?

One thing that we get a real big push in the first-quarter in the after-market area, because of the weather, Art. You know, that equipment does not work well in zero degree temperatures. And there is a lot more after-market and some of that really, you can see in the numbers. So typically, our first quarter is a very strong quarter for us. I think that your point is, it is a valid one, in that you would expect that you know with the economy continuing to recover, that you would expect that maybe business is going to be a little bit different this year than it would be in a normal year. It is awful early in the year. And I wish I had you know, the ability to really gauge that economy out there. I know there is a lot of people that feel good about it. There is also some naysayers out there, that, I thought I read something just today that indicated some, you know, who knows. So, we're being cautious. We're being conservative.

Okay, with that said, I mean can you quantify kind of what that typical impact is in the first-quarter from winter weather on the after-market?

You know, I would be just pulling something out of the air. I haven't really thought about that, that incremental amount. We could get that, but I'm assuming that you know, knowing that business, I can only look at one business, but a lot of business units are covered by that, and that's our global service business, and you know, we normally see you know maybe -- let's see. It would equate to 4% or 5% type of gain overall. And for that division, it would be higher than that obviously.

Okay. If that's something you could look at, down the road -- ?

I think Tim could follow up with you, Art, on that, because I just -- I'm pulling that right out of the air.

No, that's fine, I don't want to put you in that spot. But if I can get that later, that would be helpful. A couple of other things. Just real quick. Looking at engineering expense in the quarter, I didn't go back that far, but it is the lowest level that I've seen. Are you doing something there where I would have thought over time, with all of the acquisitions that you've made, that that would start to continue to trend up, from a gross dollar standpoint, as you look to develop new products in these businesses that you've developed. Is something going on there cyclically or is this seasonally within the quarter? Or is this kind of just a level we need to think about going forward that maybe your ability to develop new products in some of your legacy businesses has kind of run its course?

Art, this is Alvaro. And, I touched on that earlier as well when I was answering Jim's question. But a big chunk of that decrease basically, relates basically to product mix in the sense that what we're doing is because of the nature of the products, say for example, a locomotive contract, we're actually taking some of the engineering expense, which we'd normally put in SG&A, and we're actually allocating that to cost of sales. So it is just a re-class. It is not really a net decrease in the total number. It is just on a different line. And in terms of acquisitions, you also touched on that. And one of the things about the acquisitions is to a certain, to a large extent, their engineering expenses go into cost of sales rather than in engineering expense as well.

I think at the level it is right now, it should be pretty much stable, going forward. So I think that will be, you know, until the mix changes again, and then maybe it will go up and you will be asking me why it is going up and I'll telling you I'm re-classing it from cost of sales. But, that's one of the reasons you know when we talk about margins, we really focus on the operating margin side, because there could be a number of classification changes back and forth between the different lines. And in the end, you know we focus on is operating margin. But that's why you see that decrease in engineering expense.

But there is no less focus on internal development or anything like that.

Is there anything going on there, too, like how you're -- the way you're investing, changing where you're capitalizing some of those expenses now and it is flowing through D&A.

It really doesn't flow through D&A because we're not capitalizing. You know, it is just in cost of sales. It is just instead of being in the -- the way it is released -- it's classified in the press release, the way, it is an engineering expense and it is just going from engineering expense to cost of sales, it is not being capitalized, not being depreciated.

Okay. Finally, Al, you had addressed this a little bit, some of the supply constraints but one of the things that we're hearing for the car builders that was in short supply, were side frames and bolsters and people were trying to ramp up capacity and one of the things that we had heard that you know due to downturn, I think rightfully so, standard car and truck had really worked their inventories down, and you guys were trying to play catch-up there, as things ramped up. Can you tell us a little bit where you're at on that? And if they are going to be able to supply product more readily as we move into the back half of the year?

Yes, side trains and bolsters is one of those areas, there's bearings issues which we don't supply, there's other issues in the supply chain, but side frame and bolsters, when I mention larger casting, that's exactly what I was referring to. The key there was not the inventory. The real issue is that you have these large foundries that exist. And we have a light asset model where we purchase, using a supply chain, to supply these larger castings. And those foundries took their capacity and put it in other areas. And you just can't start up a foundry overnight and get things going again. So that is really been the constraint. And we're working very diligently now to meet the needs of our customers by getting other foundries qualified, and our foundries back up to speed.

Can you tell us quick where sourcing -- break down geographically where historically standard has got sourced their product?

We get them from a number of locations, so Eastern Europe, China, India, US, so it is a global sourcing. This is not -- this problem is not unique to Wabtec.

No, I understand that. But is any one of those areas that you source from, being particularly difficult in getting product from?

Well, the one, during the downturn, the Eastern Europe business ran into some financial troubles. And they're one that we're having to find other supply to offset that.

Got it. Thank you so much for your time.

The next question comes from Scott Blumenthal of Emerald Advisors. Please go ahead.

Alvaro, I am going to ask you one more question about engineering expense and hopefully that will it be.

That's alright. You shoot and hopefully I will have an answer.

Hopefully we will put that to bed. Do you make the decision as to which -- where you're going to classify those? Or is that something that your audit firm is -- ?

Well, no, no, no, the audit firm would never want to be on the hook for making the decisions. They review our decisions, but basically the decision is actually made at the unit level. And it really is, I don't want to say it is automatic, but it is basically a function of the product. In other words, if we're doing more locomotives than you know, some of that engineering is automatically going to go in there, because we're building more locomotives rather than having the people working on so let's say new projects. So it is almost not a decision, I mean it is just a function of the way accounting works. And, it is made at the unit, but obviously the auditing firm will review all of that, and hopefully agree with our conclusion. They have. So -- .

Okay. That's really helpful. Thank you. Can you tell us, or give us an idea as to the degree of any PTC revenues that were in the current quarter, and maybe compare those to the level in the same quarter last year?

We don't have the exact PTC revenue for the quarter. But it was higher than previous quarters.

I'm going to take a swag at it, Scott, just in the sense of answering your question, and maybe again like Art, you can follow up with Tim. I would say that they were higher than last year, but probably not more than say $10 million to $15 million higher than last year. If I were to take a guess, I would say it was somewhere around the $10 million, plus or minus.

Okay, that is helpful, too, Alvaro, thank you. And can you tell us, also, maybe along the same lines, a general idea as to the degree of how the improvement in rail car builds helped both the quarter and also the backlog?

We gave you the backlog build related to freight.

And yes, in terms of backlog, we will take the second question first, Scott. Most of the increase in the freight in the backlog was because of MRS and, I'm sorry, that's the contract in Brazil, the install PTC, as well as a locomotive contract in Australia, and then we had a couple of other contracts that went into backlog as well. But the primary reason for the increase in the freight backlog was not so much -- because you see, the freight car OE business, that turns over relatively quickly. That is basically done on POs. You know, we get a PO and we turn it over in about 30 days or so. So you don't see a whole lot of backlog effect to that. Most of the backlog effect on freight was to, was for those contracts.

Okay. And on the top-line then, Alvaro, you know, the freight car, I guess you know the improvement in orders, the improvement in builds, did that have a significant year-over-year effect on the top-line?

Yes, I know OE sales doubled this quarter, versus last year's. Let me dig out what the OE numbers -- I tell you what. If you can give me one second we will dig out what the OE sales numbers were. In freight, OE was --

$126 million versus $64 million. And the fourth-quarter was $80 million in OE. After-market went from $100 million, first-quarter 2010, to $140 million in 2011 first-quarter. So very significant increases.

Okay. Great. Thank you. And Al, could you just give us an idea as to how the activity is right now in maybe locomotive reconditioning?

There is a lot of activity in the reconditioning area. There's a number of railroads are taking a strong look at either doing a re-manufacturing or what they call a re-power of their locomotives, and we've been involved with those opportunities.

Does that mean you're still giving tours of mode of power or have you stopped that, you're too busy?

No, we still give tours. If you want to get to Boise, it is a great place to visit, especially this time of the year. And always giving tours there.

Terrific. Thanks for taking my questions.

The next question comes from Kristine Kubacki of Avondale Partners. Please go ahead.

Most of my questions have been answered so I'm having to dig deep a little bit here. In terms of the after-market, the freight after-market first, I guess you talked a little bit, it sounded a little bit like it was seasonality. And then you know I guess the other thing is we keep hearing from shippers now. I guess is there a mixed shift in terms of some the after-market that is being done on rail cars and locomotives? And I guess what we've been hearing, is that capacity is continuing to be so tight, especially in a lot of car types, that now shippers kind of went from the, I don't want to spend the money to do maybe after-market that I don't know I'm going to need to, now that, I don't want to take the car out of service. So, I guess, is it that there was a seasonal component to it? And then also, kind of what are you seeing in terms of people taking cars out of service and what kinds of repairs they're doing on the cars?

I think it is two things. I think it is a good question. Because we just had an operational review with that division. And one is seasonality, which they emphasized. The second part of it is that you know, I don't have the exact number that come out of -- it was over 20,000 that come out of being parked, out of stowage, and their comment was these things are coming out with needing a lot more repair than it was a year ago, when they come out. So these units have been cannibalized, so there is a lot more repair being required to get some of these, and it is really caused by what you said, Kristine, you know, there's certain types of cars that they're actually having shortages on and that's one of the reasons why we saw the you know, the order rate jump up. I think that there is, you know, they have the normal maintenance on them, but I think those are the two main factors for the pop in this particular quarter.

Okay. And kind of flipping to the other side of the business, which I didn't think we talked about a lot and I was looking back at my notes over the last half of last year on the transit market side and I didn't hear, and maybe I missed it but you guys really talk about. I mean, we still don't have a highway bill and we were worried there that there was going to be a drop-off in the level of after-market because the transit authority, so maybe I know there is maybe some disjointedness in the inventory, but are you seeing now transit authorities more normal they're seeing inventory levels more normalized and that, that behavior, given that ridership levels have continued to grow here, are you seeing more normalized kinds of levels in after-market on the transit side?

Yes, the after-market really has bounced back very nicely. You know, in the first-quarter, after-market in transit was $109 million. It was $90 million in the first-quarter 2010, and the fourth-quarter, was all the way down at $85 million. So, but driving that is exactly what you said, ridership is number one. Again, weather. You know, they have a lot more maintenance activities. And I think when you talk about the problems that some of these municipalities and transit authorities have, you can only run your inventory down so far and they have to start doing the maintenance. So maybe a little bit of pickup from there is happening as well.

Perfect. Thank you very much. I appreciate it.

The next question comes from Scott Group of Wolfe Trahan. Please go ahead.

So just wanted to follow-up on the guidance question and understand that maybe there was some weather-related strength in the first-quarter, but if I take a look at the $455 million of revenue in the first-quarter, the guidance implies about $425 million a quarter going forward. And I'm just wondering, are you starting to see any of that pressure or deceleration into April? Or is this something that you think is just back-end loaded and maybe you are just being a little conservative? I'm just trying to get a better grip on the revenue guidance.

You know we really can't comment on April at this point. But as we said, as we look forward, we expect the economy, we need the economy to continue to grow. We find the transit business pretty stable. And we have a aggressive forecast that we presented. Conservative I mean.

Right, and with $455 million going to $425 million give or take a quarter, which segment do you think feels that pressure, at least within your conservative expectations?

Which one fills the conservatism or which one do you feel is going to have pressure from a negative standpoint? What is your question?

Well, I guess both. If you're expecting revenue to fall off from first-quarter, I guess which segment do you expect to see that revenue fall off? And where do you think you could be conservative?

Yes, I think we could be conservative on -- definitely on the freight side. A little less conservative on the transit. I will answer it that way.

Okay. That's helpful. And then just last question. With Brush, how do you think that acquisition helps you drive further penetration of the European markets? And maybe what do you think your market share is today there, and where do you think it can go, or be a couple of years from now?

You know, the Brush acquisition was an excellent acquisition. And it primarily gives us the opportunity now to offer in the UK not only re-furbishment and overhaul and engineering capability on transit vehicles, but their expertise is really on the locomotive side. They also have a contract for the high speed locomotives used in the Eurotrain and the Eurotunnel. So, you know, we feel that it really gives us a broader product offering in the UK market and it establishes us a little bit in the locomotive market even on the Continent a bit. So we think the opportunities there are going to be great. We still -- we have a good market share in UK. And our market share in the Continent is still very small and a big opportunity for us.

Okay. Thanks for the time, guys.

Our next question comes from Jason Rogers of Great Lake Review. Please go ahead.

If you could comment on the -- where we're at right now in the Federal funding situation in the US as far as the SAFETEA-LU bill?

Yes, the SAFETEA-LU, at this point, I believe it has been extended now to the end of the year, along with you know the budget. And I think that it was really held at last year's level or very close to it. I know our government has a lot to do between now and the end of the year, and we feel this is one important area that they really need to come to grips in, is how they fund the transportation area, not just transit, but our highways, our bridges, and I think that most politicians would tell you, it is pretty high on their priority to really grapple this. We would expect that, you know, it is still, the biggest controversy we see is not related to transit funding and trying to improve the freight area. It really is around the high speed rail where some of the politicians in the states are saying, hey, you've got this $8 billion you put into high speed rail. You want to give me a few million of it, but you're not going to tell me how we're going to get funding in this ongoing, and are you going to be here for us five years from now, when we have to spend more money? And I think that is just been a little bit of a political football.

I think you also see other states are saying hey, I will take that and I will find ways to not necessarily put in the super high speed rail, but maybe I could upgrade the rail systems we have, to get the speeds up faster. I think the funding is going to be there. I think it is a must. When you really sit back and think about funding for our transit system, you know, we don't have, we don't have an alternative. If we expect this economy to continue to grow, if we expect the recovery to continue, we got to put money into the infrastructure, and that infrastructure is really mass transit and our freight railroads, which is the backbone of that whole system. And when you look at what trains are able to do, whether it be freight or transit, the amount of cars it takes off the road, the amount of trucks, the environmental friendliness, you know, the urbanization that I mentioned earlier, I think that that funding is going to be there. I think there's going to be some political positioning related to some of the more issues that kind of are hot, but overall, that funding is going to be there.

Okay. That's helpful. And then just looking overseas, this may be too early to ask, but do you see any potential opportunities in Japan from the infrastructure rebuilding that has to take place there?

Well, in Japan, we've had a, over a 100-year relationship with two companies there. And matter of fact, I will be traveling there within the next month to meet with those two partners that we have. I think there is going to have to be you know, a lot of money put into the infrastructure there, and some opportunities there. But that opportunity would really be through those partners.

Okay. And then finally on the numbers side, do you have a shareholders equity balance for the quarter?

Yes, we do. We have to dig it out. I think it is $970 million.

Close. Let's see, $969.6 million. So I will concede the $970 million. How is that?

That was pretty good. Alright, thanks a lot.

(Operator Instructions)

Linda, while we wait for a moment, I understand we did have some technical difficulties at the beginning of the webcast so we apologize for that. I want to give you the replay number for the phone call, the conference call here. The replay number, this will be available for, if you wait about an hour, after this call, it is 412-317-0088. And the passcode for that replay is 466-pound. So again, apologize for any difficulties on the webcast, but if you can dial in and listen to the replay, I'm sure you will get everything you need. Linda?

At this time, we're showing no further questions. This would conclude our question-and-answer session. And I would like to turn the conference back over to Mr. Neupaver for any closing remarks.

Okay. Well, we're really, as I said earlier, pretty excited about the opportunity that we have during this recovery, and our growth opportunities, and look forward to talking to you soon. Thanks a lot.

Thanks, everybody.