美國西屋制動公司 (WAB) 2011 Q4 法說會逐字稿

Good day and welcome to the Wabtec fourth quarter 2011 earnings conference call. All participants will be in listen-only mode. (Operator Instructions) After today's presentations, 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, Vice President of Investor Relations. Mr. Wesley, please go ahead, sir.

Thank you, Annie. Good morning, everybody. Welcome to our earnings call for the fourth quarter and full year. Let me introduce the Wabtec people who are here with me in the room, our President and CEO, Al Neupaver; Alvaro Garcia-Tunon our CFO; Ray Betler our Chief Operating Officer; and our Senior VP of Finance and Corporate Controller, Pat Dugan. As usual, we will have our prepared remarks from Al and Alvaro, and then we will be happy to take your questions.

During the call, we will make forward-looking statements, so please review today's press release for the appropriate disclaimers. I also want to point out that on today's call we will refer to both GAAP and non-GAAP EPS because of the special items we discussed in our second quarter report. We listed those special items again in today's press release. We believe that non-GAAP EPS provides useful supplemental information to assess our operating performance and to evaluate period-to-period comparisons. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, Wabtec's reported results in accordance with GAAP. With that, I will turn it over to Al,

Thank you, Tim. Good morning. We had a strong operating performance in the fourth quarter. We had record sales of $535 million with earnings of $0.96. This tied the record earnings we announced in the third quarter this year. Included in the results were charges of about $5.5 million. These charges were for restructuring and contract reserves in the Transit Group. Alvaro will talk more about these later.

As a result of this strong finish to the year, we ended 2011 with record sales and earnings, record cash from operations of $249 million, and a record backlog. To top it off, Wabtec finished 2011 as the only company in the United States on any exchange who's year-end stock price has increased for 11 consecutive years. We accomplished this during the period that included two recessions, one of which was probably the worst any of us will ever experience. Clearly our business is performing very well, thanks to our diversified business model, our strategic growth initiatives, and the power of Wabtec performances. As a result, we are well-positioned to take advantage of future growth opportunities around the world.

Today we are also issuing our 2012 guidance. Based on our current backlog and outlook, we expect full year earnings per diluted share to be about $4.30, with a sales growth of about 10% for the year. This EPS guidance is about 15% higher than our non-GAAP EPS of $3.70 in 2011. Our guidance has certain assumptions associated with it -- the global economy grows modestly, the Freight Rail traffic improves with the economy, our Transit markets remained stable, and there are no major changes in foreign exchange rates. As always, we will be disciplined when it comes to controlling costs. We are going to be focused on generating cash to invest in growth opportunities, and we will be ready to respond decisively if any changes occur in the market conditions.

Next would like to address our markets. We will address the Freight Rail market first. Rail traffic grew in 2011, and continues to grow so far this year. In 2011, ton miles increased 3.2% and intermodal traffic was up 5.4%. Through mid-February this year, ton miles were up 2.3% and intermodal traffic had increase of 3.7%. This is despite very weak pull shipments. Our OEM market drivers should continue to be positive in 2012. About 48,000 new freight cars were delivered in 2011 compared to 17,000 in 2010. At year-end, the backlog was 65,000 cars, highest level in more than three years. Forecasters are expecting about 55,000 this year. As for new locomotives, including kits, almost 1,100 were delivered in 2011. We expect to see about 1,200 this year.

Now moving to the Transit markets. Looking at Transit, we continue to see stable markets in the US and abroad. In the US, ridership was up 2% in the third quarter. That is the third consecutive quarter it has increased. In 2012, Transit car deliveries will be about 1,000. That is slightly up from last year in 2011. Bus deliveries will be about 4,500, slightly down from 2011.

As for US federal funding, as I think we all know, Congress is talking about a new transportation bill, but it still very uncertain when something will be passed. To date, a House committee has proposed a five-year bill and a Senate committee has proposed a two-year bill, with the President asking for a six-year bill. All seems to be favoring maintaining or increase spending as we go forward in the Transit area. A multi-year bill would give Transit agencies the planning horizon that they need to really dust off some of their long-term projects. All in all, we are positive about our Transit opportunities here in the US, but also on a global basis. Based on long-term demographic and economic trends and our relatively small market share in large global markets.

In 2011 Transit sales increased 5%. This growth was driven by acquisitions. However, if you take a look at our backlog in orders, our 12-month backlog increased 65%, and our orders booked were up 17% last year, another positive indicator. Our diversity and growth initiatives have helped the Transit business remained stable. In 2011, sales outside of the US, Transit sales that is, were 56% of the total, at an all-time high and 64% were made up of aftermarket products. Product-wise we are also diverse. We make components for subway cars, components for buses, we build new Transit locomotives, we overhaul and maintain locomotives and passenger cars, we provide positive train control systems and electronic products. Our customer base, therefore, is very diverse. Also we continue to invest in Transit growth through acquisition, new products, and global expansion.

As in the past, we will continue to focus on growth and cash generation. Cash remains a priority. We are focused on increasing free cash flow by managing costs, driving down working capital, and controlling capital expenditures. Cash provides the opportunity to invest in organic growth and acquisitions, and to return money directly to shareholders in a variety of ways. In 2011, we invested $38 million in capital expenditures, with most of those focused on growth opportunities. In addition to that $38 million, we spent $109 million on acquisitions. We also repurchased 438,600 shares of Wabtec stock for about $26 million. We also increased our quarterly dividend from $0.01 per share to $0.03 per share during the year. Going forward, we will continue to invest in our four growth strategies -- global and market expansion, aftermarket expansion, new product development, acquisitions.

Let's talk a little bit about the progress we have made on these strategies. Global and market expansion. In 2011, sales outside of the US were a record $916 million. That was 32% higher than 2010. Almost half of our total sales. Five years ago, it was only about one-third. We won a contract to build 22 new locomotives for a company in Australia. We won a number of projects in Europe recently, orders for bogie brake equipment for Siemens on a new platform in Warsaw, worth about $3 million. There was a [CAT] project, that is the manufacturer. The actual in-customer was in Italy for $4 million. We also had several other orders for door systems and components for projects around the continent for an additional $10 million of new orders.

In China, we completed our fifth joint venture. We now serve a variety of markets there. We serve the Freight, Transit, Friction, and Power Generation markets. We also had growth in non-rail, with strong performance by our heat exchanger business in the power generation market. In the aftermarket area, overall aftermarket sales were $1.1 billion, another record year. 57% of our total, and had a growth of over 35% compared to the prior year. This growth is due in part to rail traffic increasing, acquisitions, and internal growth initiatives such as expanding our locomotive service capabilities in Chicago and our service center in Brazil.

In the new product area, over the last few years we have had tremendous focus in this area with about one-third of our annual sales coming from new products. Positive train control gets the headlines, so I will talk a little bit about that separately. On other fronts, we won a $21 million contract for ECP, Electronically Controlled Pneumatic Braking equipment, with Australia's Rio Tinto. We also introduced the next generation end-of-train device for freight cars. Our locomotive business has developed a new engine package that will meet Tier 4 emission requirements, ahead of EPA deadlines and ahead of the competition.

As for acquisitions, we completed four acquisitions last year. In the first half we acquired Brush Traction in the UK, and we also acquired an aftermarket Transit business division from GE. In the fourth quarter we acquired a company by the name of Bearwood Engineering which makes cooling systems for power generation market, and the Fillmore Company, which makes more components for rail and industrial markets. Combined, these acquisitions contributed about $125 million in revenue in 2011. We also continue to review an active pipeline of strategic opportunities.

I am going to focus a little bit on PTC, Positive Train Control is, I think as everyone knows, is a technology designed to automatic stop or slow trains to prevent collisions, derailments, and unauthorized movements. In 2008, Congress passed a Rail Safety Act which mandates that Positive Train Control must be installed by December 2015 on commuter locomotives, freight locomotives that share track, and locomotives that carry certain types of hazardous materials. We have been the technology leader in PTC in North America, as our onboard locomotive system was picked by all the Class 1 railroads. Currently we are working very closely the with the Class 1 railroads to design a PTC system that will consistently perform across the entire US rail network. The industry uses the term interoperability to describe this system-wide performance. Obviously a task that is not simple, but the industry is making good progress and our PTC sales have been increasing.

In 2011 we had about $125 million in PTC-related revenues. If the programs proceed as planned, we should see continued growth in 2012. Our PTC revenues are coming from three different areas. The first area is the US freight railroad opportunity. We stated that this opportunity is between $250 million and $500 million over the next few years. Although this may prove to be conservative, we think it is prudent to stay within this range, given the complexity and the other uncertainties of PTC.

Second, in addition to the US freight rail opportunity, we are also generating PTC revenues from US transit agencies. At least 21 transit agencies will need to install some form of PTC, and we expect to play a role in many of these projects. We have announced contracts for two of the larger ones, Denver for $63 million and Metrolink out in Los Angeles for $27 million. We have not quantified additional Transit opportunities, and they are not included in the Freight range I just discussed.

The third area is international. In Brazil last year we signed $165 million contract with MRS, the fourth largest railroad in Brazil, for a turnkey PTC solution. It is scheduled to be completed in 2013, and hopefully there will be other projects that would follow in that country. So, clearly PTC opportunity for Wabtec is significant and ongoing, and we will continue to keep you informed as we make progress.

As you model and make assumptions about this opportunity, we think you should keep in mind that many factors can affect the size and timing. For example, a House committee has proposed a five-year extension of the PTC deadline to 2020 as part of the new transportation bill I mentioned earlier. We do not think that the current Senate version includes any discussion about any PTC extension. In fact, California Senators Boxer and Feinstein have expressed concerns about delaying PTC.

Obviously we cannot predict whether the government will extend the deadline, but we do not think an extension would change the dollar amount of the opportunity for us. It would, of course, spread the opportunity over a longer period of time. If there is an extension we will certainly manage our internal resources accordingly. Other factors to keep in mind. Market share. Other companies are working on PTC, so market share is a variable. It is a complex system, and it is a large scale project. We are still in the early stages of a multi-year, multi $100 million new product rollout. We cannot predict the exact amount of timing and revenues, or the profitability of various projects.

Scope of transit projects. It is very difficult to quantify the transit opportunity because the agencies' size and the project scope varies greatly. For example, I talked about the Los Angeles Metrolink. They have about 100 locomotives. In North County in San Diego, which is another area that we will install PTC, they only have 10. You also have the difference in quantity related to the scope that you take on. As for an example in our project in Brazil, we are the prime contractor for that contract, and it is $165 million contract.

Finally, funding. US transit agencies already have budget issues that are affecting their existing operations. PTC will require substantial additional funding. All of that said, we are truly excited about our PTC opportunity, but I want to remind you that we are also extremely excited about all of our growth opportunities. In fact, PTC represented only 5% of our revenues in 2011 and only 20% of our growth. So, we clearly have a lot of other initiatives that are going on. With that I am going to turn it over to Alvaro to give you a little more detail on the financials.

Thank you Al, and good morning everyone. Results for the quarter were pretty straightforward, and I am always pleased to be able to report financial results like these. Sales for the fourth quarter were a record $535 million, 36% higher than last year. This increase, about 75% was organic growth. The Freight Group sales were up about 58%, with almost all of that coming from internal growth and rebounding markets. So, the organic growth came principally from the Freight Group. The aftermarket in Freight grew to increasing rail traffic. OEM sales more than doubled based on increase in demand for new locomotives and freight cars, increased sales of PTC products and services, and growth in adjacent markets such as radiators and heat exchangers. Transit Group sales increased 8% as acquisitions led to higher aftermarket and international sales, which were then offset lower OE sales.

As you know, we emphasize it, you always emphasize it as well, and we are always striving to drive our operating margins higher. SG&A increase in dollar terms due mainly to acquisitions and somewhat higher incentive comp expense in the current year in the current quarter, but it was 11.4% of sales compared to 13.6% of sales in the year ago quarter. So, I think we are making progress there. For the quarter, operating income was $73 million or 13.6% of sales, compared to 13.1% of sales in the year ago quarter.

Now, here it can get a little confusing here and hopefully I will not confuse you too much. I will try and clarify. In the current quarter, we recorded charges of a $5.5 million for restructuring at our Vapor Rail door unit and contract reserves at our MotivePower divisions. Now, these are not what we will call non-GAAP special items. We are just providing this as explanation of somewhat unusual events that occurred in the quarter so you can reconcile back to the margins. If you add these items back to our operating income for the current quarter, the operating margin would have been 14.6%.

Now I am going to switch to the year. For the year our operating margin was 14.8%.If you exclude the special items that we recorded in the second quarter, which are non-GAAP disclosure items, as well as the items I just mentioned that occurred in the fourth quarter. If you have any questions about that, I would be happy to take them in the Q & A.

Hopefully I did not confuse you too much, but the 14.8% compares to 13.5% for the full year of '10. So, I think that shows good performance. Again, we are confident that we have room for more improvement over time. In terms of some of the other P&L items, interest expense was a bit lower due to lower net debt compared to the year ago quarter. Other income was positive, and this was due mostly to paper FX translation gains. In other, we usually have some minor FX paper gains and losses, which we try to minimize but they do occur. The effective tax rate was a 33.8%, a little less than the year ago quarter, and I think for modeling purposes you can expect it to be around 34% going forward.

In terms of some of the other numbers we typically disclose during the conference call. In terms of working capital, receivables were $346 million, and this was relatively flat. It was the same as the last quarter. Inventories were up somewhat, $348 million versus $325 million in the last quarter. Payables were up, which benefited working capital. They were $179 million at the end of the last quarter. $245 million at the end of the year. In terms of cash, at year-end we had $286 million in cash, and we generated cash from operations of $249 million for the year, which is a record for us.

At the end of the year, we had $396 million in debt compared to $406 million at September 30. Also, during the fourth quarter, speaking of debt, we closed a new five-year, $600 million revolving credit facility. This was an increase of over $100 million from the prior facility, and this will provide increased facility and borrowing capacity to invest in our strategic growth initiatives, as well as give us the flexibility to pay off the bonds maturing in 2013 if that need arises.

In terms of a few other items, I will just read off the numbers. Depreciation was $6.7 million in the quarter compared to $8.2 million in last year's quarter. Amortization was $4.4 million versus $3.5 million last year. The increase is mainly due to acquisitions and the amortization of the intangibles associated with the acquisitions. CapEx for the quarter was $15.7 million versus $8.5 million last year, and I think as Al mentioned, for the year CapEx was $38 million versus $21 million last year. Of the annual increase in CapEx, about $4 million for investment that we made in a foundry and '11 to meet the increasing Freight demand. For '12 we expect slightly more than $40 million in CapEx.

In terms of backlog, which I know is a question we always get, the multi-year in the 12-month backlog were at record levels. The multi-year backlog, that the one that is the backlog in total was up 4% compared to September 30. That set a record high $1.55 billion versus $1.49 billion September 30. You can break that down by Transit and Freight. The Transit, as I think Al mentioned again, backlog increased. It is now at $836 million versus $778 million in the third quarter of '11, and this is the highest since the fourth quarter of 2008. That is a significant Transit backlog.

The Freight was $713 million versus $710 million in September. So, it is relatively flat. Our rolling 12-month backlog, that is the one that we expect to execute over the next 12 months, was up 6% compared to September 30. That totals a record high of $1.1 billion versus $1 billion at September 30. In Transit, it's $482 million versus $436 million in September, and in Freight it was $591 million versus $573 million. I went pretty fast with those numbers, so if you need any of them repeated just go ahead and ask away during the Q & A. With that I will turn it back over to Al.

Thank you, Alvaro. Once again we had a good performance in the fourth quarter and for the full year. Taking one final look back at 2011. Revenues increased 31% to a record $1.97 billion. Income from operations increased 41% to a record $286 million, excluding a special items which we recorded in the second quarter. EPS increased 45% to a record $3.70, again excluding those second quarter items, and our backlog ended the year at a record $1.55 billion.

Looking ahead at 2012, we are expecting another record year with EPS guidance of about $4.30 on revenue growth of about 10%. Longer-term we could not be more pleased with our strategic progress and the growth opportunities that we see. We continue to benefit from our diverse business model and the Wabtec Performance System, which provides the tools we need to generate cash and reduce costs. We have an experienced Management team that managed aggressively through the tough times and is poised to take advantage of our growth opportunities. With that, we would be happy to answer your questions.

Thank you. We will now begin the question-and-answer session.

(Operator Instructions)

Allison Poliniak, Wells Fargo Securities.

Al, you gave a lot of color on the PTC. The $125 million that you guys were able to do in 2011. Is there any way to break that down in terms of US freight, transit, and international?

Between transit and freight, we probably were looking at half and half, and the international portion would be probably about 25% of the total.

Okay. Then in 2012, say for some reason we do get a potential extension on a deadline for PTC. That would not necessarily impact 2012, but it would be probably more impactful to 2013 and '14. Is that a way to look at it?

Yes. We have done a few analyses internally when the committee made their announcement about potential delays, and we have looked at in the past. You are exactly right, Allison. I think that near-term you do not see a lot of change. As you go further out, closer to the deadline period, is where it would be impacted.

Okay, great. Thank you.

Steve Barger, KeyBanc Capital Markets.

Your 10% revenue growth guidance. First question, is that all organic and can you tell us how that breaks down by segment?

Sure. It is all organic. We never budget for acquisitions. That is opportunistic. As far as the two aspects, it is probably equal across both transit and freight.

Okay. Well, to that point, can you talk about how order momentum for new rail cars has been so far from 2012 as you talk to your customers, and did you say what you expect for freight car deliveries this year?

Only thing we've quoted, Steve is what we have read from consultants, and they are talking about mid-50s, maybe even a little higher. It was two or three different reports, but mid-50s is about right. The highest one was 58, and I think we have seen a couple around the 55, and that is what we referenced in our prepared remarks. Your other question again, Steve?

As you have talked to your customers, how has order momentum for new rail cars been so far in 2012?

Yes, I think we are still seeing quite a bit of activity at the rail car builders. I have talked to a few just here in the last couple of weeks, and they seem to still be pretty busy and looking for a good 2012.

Okay, and you obviously have a strong freight cycle and good operational tail winds from your execution. That has put you in a great position with respect to record margins. I guess the question is, as revenue comps get a little bit tougher, how much room do you have on pricing in 2012, given what looks like a pretty strong freight cycle, and can you quantify at all what you think is available from productivity-driven margin improvements?

Yes. I think if you take a look at the guidance, there is a little bit of intuitive way that we are thinking. There is an explanation, the way we are thinking. You are looking at revenues are up 10% and EPS is up 15%. As we look backward and evaluate how we performed in 2011, and I use the term contribution margin. You could call it flow through, whatever. We think that we should be able to get flow throughs in the low 20%, plus 20%, around 21%, 22%, and for the year, when you take back the adjustments, it was 19%, and even in the fourth quarter it was lower. So we think that, obviously we have always been focused on continuous improvement when it comes to margin, and we think that those improvements are possible as we go into 2012.

That's great. One more and I will get back in line. You talked about generating cash to invest for growth. Can you talk about where you see the most opportunity for acquisition-driven growth, maybe talk about that by geography and product exposure. Where is the real focus?

Yes. One, you almost have to be opportunistic because you have to be able to analyze and get things that are available. We do target various parts of the world, and obviously international has been one of those areas. We would like to increase our international presence, especially in those areas where an acquisition would give us a better platform to grow from. We also look at acquisitions that could broaden the product offering that we have and could be a bolt onto the businesses that we currently involved in. We are looking for acquisitions that are strategic, that allows for growth in those four areas. So we have targeted a number of areas, and I think probably if you had to prioritize them, international would probably be the first priority we would be looking at. Probably second would be those bolt-ons that broadened the product offering.

So when you say international, is that more Asia or Latin America, or are you still focused on Europe as well, or is that just building out share gains?

Yes, we are focused around the world. So it's no one area.

Okay. I will get back in line, thanks.

Art Hatfield, Morgan Keegan & Co., Inc.

This is [Derek Rabian] for Art. Wanted to look at the 21 or so PTC opportunities that you mentioned on the transit side. Basically what I am wondering here is just from a timing perspective. Do you see those being opportunities more from a one- to two-year standpoint, or maybe longer term, maybe five years? Basically, if you could talk to how long those bid processes typically play out.

Yes, the bid processes take a little bit of time. I would think that probably more than half of them, probably in the range of 60%, 70% of them, have started discussions in earnest, and they have all looked at it and have problems going forward. So, yes, they will take a little longer. Just a reminder, what I said in the remarks, they also have to find ways to fund it. Federal funding is going to have to be there for most of those projects to go forward.

Okay, which also might provide some additional delays. Looking at your gross margins, they did come under pressure a bit more than what we were expecting in the quarter. Anything specific that we should be thinking about from a gross margin perspective, or is that kind of a one-time blip and should see that snap back?

Yes, as Alvaro said, we had the $5.5 million of items that we thought was worth mentioning. So there would be a little more color related to margins. I just made the remarks on, we think that we could get a better contribution margin going forward. I do not think there is any hidden message there or any major problems that exist. I think that we will continue to strive to continuously improve our margins, and that is what we done in the past. One other thing I want to emphasize is we really try to get you to focus on operating margins and not gross margins because, and I think we have explained it in the past, that sometimes there gets to be movement between our SG&A and cost of sales, especially when it relates to engineering projects. We have a lot of these large engineering projects, and sometimes the gross margin may not be as reflective of true reality as our operating margins, okay?

All right. Appreciate the time guys.

Paul Bodnar, Longbow Research.

Just a quick follow-up on the last question. Sounds like some of the XORAIL contracts, and I think you have indicated this before, because they are these larger engineering opportunities, just carry a little bit lower gross margin with them. Is that what you are trying to say there?

I do not think I was saying that, okay?

Okay.

I think that longer contracts do not necessarily have to have lower margins. I am not saying that.

Okay. Next question is can you just give us an update on some of the joint ventures you have in China and the progress you have been making along with those, as well as anything else you have out there in Brazil, and the rest of the developing world?

Okay. In China we have made great progress. If you take a look at where we were five years ago, basically, we had just a small amount of sales. This year we will complete the year with revenues in about the $70 million range. We expect that to grow double-digits, could approach $100 million here in the next 12 to 18 months or so, definitely in the next two years. We have five operating joint ventures. Those joint ventures support the freight railroads. We have a friction joint venture that sells product to freight and transit applications in China. We have a JV that makes heat exchangers for power generation, and we have two transit JVs that make products for transit cars, both couplers and our newest JV will be related to braking products.

Good progress. We definitely feel that China is a nice opportunity for us. We view it as a window of opportunity. Some of the projects that we are seeing a lot of activity on in China is projects that they are exporting products, end products where our product is being specified. Our growth in Brazil continues to develop. We have a service center. We have a separate friction company that we acquired, and we have the major contracts. So we have an operating office and some manufacturing now related to that contract in Brazil, and we see future growth opportunities there as well.

Okay. Just one last question, somewhat on the Chinese JVs as well. I know in the fourth quarter your acquisition there, you indicated that there was some potential additional opportunity to get [reater/gen tests] into some other customers in that market. Just wanted to see if you have made any progress on that at this point, and kind of what your outlook was there?

We have made good progress. We have got two different types of market places in heat exchanges in China. One is related to the power generation, and we have been supplying product into the railroad area on the locomotives. So we do have heat exchanger products that are going in there. Both are doing well, and we have done a nice job in penetrating the market.

Are those exports as well?

There are some export content, and the power generator, almost all made in China, but the rail product, we do export product from here into there. Some of that product, the power gen, stays in China, as does the rail product right now, although they may export some locomotives, but most of the locomotives are being used in-country.

Okay, thanks a lot guys.

Kristine Kubacki, Avondale Partners

Just a quick question again on the margins, not to beat a dead horse, but was there any restructuring costs in the quarter a year ago, or in the third quarter? I am just trying to make sure I am comparing apples to apples.

No, that is why we identified. These were extraordinary. Normally if it balances out, we really do not make any reference to them. There were none in the fourth quarter of 2010, and/or the third quarter.

Okay, perfect. Then just a question on PTC. I am being a relative neophyte to the legislative process and the headlines are changing daily. The railroads have made comments about hoping for a delay. Are you seeing any of them pull back in hopes of a delay, or are they continuing on with their plans until a resolution is ultimately announced?

We seem to be going full steam ahead here, as are they. There is still that deadline. There is a lot of work to be done, and we are making great progress with it. I do not see any change in their behavior whatsoever.

Okay. Then, you broke out a little bit on the revenue growth assumptions for 2012 in transit and in freight. How much of the growth rate is related to PTC in 2012?

We have not given that number specifically. I think you could take a look at what we saw in 2010 to '11 and make some assumptions from that.

Can you remind me again and I apologize if you already said this.

In 2010 we had, I think, sales from PTC around $26 million, $28 million. I think this year we took about $125 million.

How much of the contracts that you have announced already is expected to fall into 2012? Your international opportunity.

That would be like giving you what we were going to sell, right?

The problem is it is not all PTC. It is insulation of all the communication units, because the contract is much bigger than PTC. So just isolating the PTC part of it is very, very difficult. Off of the top of my head, to be honest, it is pretty difficult.

Okay, fair enough. Thank you very much.

Liam Burke, Janney Capital Markets.

Al, you mentioned that 2012, your capital expenditures will be about $40 million, up slightly from 2012 where you highlighted one project. Are there any significant capital projects in 2012 related to your growth initiatives?

Nothing major. There is a few expansions related to probably service, in the service area, but no major projects.

Okay, and you are driving your cash. One of the highlights in driving your cash has been your working capital management. Alvaro, as international sales grow, how much more of a challenge is working capital management becoming?

I think that is very astute, and you are absolutely right. There is a difference between, to be honest, how quickly you get paid in the States versus abroad. Inventory is inventory. The main issue with inventory, it relates more to our outsourcing, which is that if you outsource to China, or you if you outsource to low-cost countries, your inventory balances are necessarily going to go up because it takes a while to get them from the source country back to the using country, if you could call it that. In essence, inventory is inventory. But receivable balances tend to be higher in Europe and they tend to be higher in China. From our perspective we say we want to stress quick collection everywhere around the globe, but it is more challenging abroad than it is here in the States, you are right.

Okay, thank you.

Jason Rogers, Great Lakes Review.

Looking at the $5.5 million in unusual charges, where is that located on the income statement?

That is all in cost of sales.

Okay, and what was shareholders' equity for the quarter?

Give me one second. It is a little bit over $1 billion for the ending balance. We have a preliminary balance sheet that is still subject to completion, But it's about $1.050 billion, somewhere roughly in that neighborhood.

Okay, thank you.

Steve Barger, KeyBanc Capital Markets.

Thank you for the follow-up. You were talking about a mid to high 50,000 delivery number for 2012, but the industry is producing an annualized rate in the mid-60,000 range right now. Did the supply chain build ahead, or did some of the constraints ease? How do you reconcile those two?

Yes, I think I am not aware of any supply chain major issues that exist, and I think that the ones that existed early in 2011, that kind of ran into midyear, are pretty much behind them. I think what you did see, and you are exactly right, you saw orders come in at 16,000 and deliveries at 16,000 for the fourth quarter. There is a hefty backlog. The thing that we would prefer to see, we cannot control it, would be a more level approach to both orders. Well, orders could come in straight, but deliveries, we would like to see a little more level approach to it. I think that possibly that is what we will see as we go into 2012.

Discipline from the builders?

Yes, discipline. Exactly.

But if demand were there and the orders supported the supply chain, in your view could support more like a mid-60,000 versus a high 50,000?

Yes, without a doubt. It supported it last time we had this peak, but I think hopefully discipline will prevail here.

I like your optimism. Thanks.

You have to be an optimist. We are all optimists.

Tom Albrecht, BB&T.

On the $5.5 million items, if you will, that was at Vapor and what other division?

It was at Vapor and MotivePower, which is our locomotive manufacturing operation. I'm sorry, Vapor Rail.

Okay. I was a little confused on the description on the revenue growth for the two segments. Al, could you talk about that again? On one hand I thought I heard about the same for freight and transit in terms of the 10% guidance, but then I thought I heard some distinguishing elements, maybe because of the PTC. How much uniformity would you expect, because I think we would rely more --

Keep in mind that PTC goes to freight and transit, okay?

Correct.

I am going to read you a headline about transit. There's so much discussion. First of all, I hope you heard all the intermodal train going by. We staged that so that you know the volume is going well here. In troubled times, still growing. This is the 2012 Passenger Rail Outlook, and that not only stands for North America, but I think globally. What you find is these markets are compelling and there is continuing investment globally in these markets. We have opportunities in both transit and freight as we look into 2012. Does that address your question, Tom?

It did, I guess, a little bit. I mean, we would have thought maybe a low to mid-teens, freight revenue growth rate and a 5%, 6% transit. I just want to make sure that you are, at least at this juncture, and I realize it is only February, but you are sort of thinking about the same for both, depending upon new business wins and the pace of railcar builds and everything else, would that be correct?

I think that it is a valid question. I think as we look at our guidance, we really think we are going to have some balanced opportunities going forward. Is the number conservative when it comes to either one of them? Possibly. We tend to be conservative.

Yes. No. I like that. Then Alvaro, the $61.1 million for SG&A. That is kind of the new run rate right now?

I think so, Tom. It has been impacted by acquisitions as well as a couple of other items, but I think going forward, a run rate right where you said, somewhere between $60 million to $62 million would be good. So if you want to pick the midpoint, I think that would be a good run rate.

Okay, that's all I had. Thank you.

Scott Group, Wolfe Trahan.

Quick thing. How do we think about the content per car, for let's say a hopper car or a tank car versus like a coal car?

We are indifferent, basically. It is about the same and we have always given out about our share adjusted content's right around $4,000 per car build.

Okay. In terms of a potential delay for PTC. How close do you think we are to having a new competitor in the market? Obviously if you have a few more years to do PTC, there is more potential for a competitor. How close do you think we really are to seeing a competitor?

There is a lot of people that are working on signaling systems around the world. So there's people out there that provide different types of systems. I think the key to North America is the fact that these systems have to interoperate. We have got operating systems. It has been operating over five years on the BNSF railroad. I am sure that there are other systems out there that could run, but I think the amount of testing and qualification that is going to be required is large. But we are conservative in our numbers based on the fact that if we could do it, I am sure someone else can, and that is how we view it.

If I hear you, it sounds like even with a delay, you are so far ahead in terms of the onboard computer, that a real competitor seems unlikely to emerge.

I did not say that, but one could -- I did not say that.

Right, okay. Then I think you mentioned, Al, or referenced, or maybe some pent-up demand on the transit side for once we get a Highway Bill? Can you just talk about, are there any ways to put some numbers around that in terms of there are this many specific projects, or this potential revenue opportunity, not for you but just for the market overall?

It's very difficult. There is a lot of projects that are out there. What happens when you have the uncertainty, that it is not the projects that we would see in the next couple of years. We are talking about projects that we would like to see on the table right now being discussed and designed that would be four or five, six years out. The projects that are already beyond the design phase. What happens when there is uncertainty on the funding, there seems to be a reluctance to start looking at those, and you see a lot more people wanting to overhaul, repair existing instead of new design. So, that is the pent-up demand that we were talking about. It is really probably more long-term than it is near future.

Okay, that makes sense. Then just the last thing, kind of at a high level. If we think about the initial guidance for 2011, I think it was, give or take, about right around $290 million, and we ended up about 30% better. Just in retrospect, is it that the overall market ended up better, market share was better, costs were better, more acquisitions? How do we think about what drove the upside in 2011? When you think about some of the assumptions for 2012, where do you think you maybe are most conservative?

I think that the markets themselves, when you make a prediction on earnings 11 months or 10 months, you are only a month and a half into it. It is hard to predict, and I think the markets performed better than we had anticipated, especially the freight recovery. I think that the development that we had related to growth in some of the new product areas, and lastly is we do not predict acquisitions. So they are not in our plan. You add that together with our general, typical way of being conservative, that would reflect what happened in 2011.

Got it. So a little bit of everything. I guess that is the way to do it. All right, thanks for the time guys. Appreciate it.

(Operator Instructions)

I show no further questions, sir. This concludes our question-and-answer session. I would like to turn the conference back over to Wabtec Management. Please go ahead.

Okay. Thank you all for participating in our conference call, and look forward to seeing you either personally or talking to you again at, I believe, it is April, the next call. Thanks a lot. Have a great day.

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