美國西屋制動公司 (WAB) 2014 Q4 法說會逐字稿

Good morning and welcome to the Wabtec fourth quarter 2014 earnings release conference call.

(Operator Instructions)

Please note, this event is being recorded. I would now like to turn the conference over to Tim Wesley, VP of Investor Relations. Please go ahead.

Thank you. Good morning everybody. Welcome to our 2014 fourth quarter and year end earnings call. Here with me are Al Neupaver, our Executive Chairman; our President and CEO, Ray Betler; Pat Dugan, our CFO; and John Mastalerz, our Corporate Controller.

We will make our prepared remarks as usual, and then be happy to take your questions. During the call, of course, we will make forward-looking statements, so we ask that you please review today's press release for the appropriate disclaimers. With that, I'll turn it over to Al.

Thanks, Tim. Good morning everyone. We had an excellent operating performance in the fourth quarter, with record sales, earnings and cash flow from operations. As a result of this strong finish to the year, we also posted full-year records for those metrics. And, we ended the year with a record backlog of about $2.3 billion.

In particular, our cash generation was excellent in 2014, with cash flow from operations of $472 million for the year, exceeding net income by $120 million. We also continued a very important streak.

Wabtec finished 2014 as the only company in North America, on any exchange, who's year-end stock price has increased for 14 consecutive years. The business is performing well, thanks to our diversified business model, our strategic growth initiatives, our dedicated employees and the power of our Wabtec Performance System. We're optimistic and excited about the long-term growth opportunities in our freight and transit rail markets which are being driven by compelling trends around the world.

Today, we also issued our 2015 guidance. We expect full-year earnings per diluted share to be about $4.05, with sales growth of about 10% for the year. This is driven by prior acquisitions and internal growth. Our EPS guidance is about 12% higher than our 2014 results.

Our guidance assumes the following: Modest growth in the global economy, taking into account current conditions in all of our key markets. Top line growth in both segments. With freight growing a little faster than transit, our freight growth will come with about 50% of it from organic initiatives. While in transit, about two-thirds of it's growth will come from prior acquisitions.

Our guidance also assumes continued operating margin expansion, and it assumes no changes in foreign exchange rates from the current level. The impact on 2015 guidance from foreign exchange rates is about $100 million in revenue, and that has an impact of about $0.10 on EPS. Our tax rate of about 31.5% for the year. We assume no major disruption from the labor situation at the west coast ports, and it does include the acquisition of Railroad Controls, which we just completed two weeks ago.

As always, we will be disciplined when it comes to controlling cost. We are going to stay tremendously focused on generating cash, to invest in growth opportunities, and ready to respond, if market conditions change. With that, I'd like to turn it over to our President and CEO, Ray Betler. Ray?

Good morning everyone. It's a pleasure to talk to you about our 2014 results and why we are optimistic about Wabtec's future. The optimism starts with our team markets, which remain compelling. As these markets, mainly freight rail and passenger transit, are large, global and growing.

According to the UNIFE study, the worldwide global addressable rail market exceeds $100 billion, with annual growth of about 3%. One common theme around the world is that customers are focused on improving safety, productivity and efficiency. And, Wabtec plays an important role in all of these.

The markets are also compelling because an efficient transit system, and robust infrastructure, are essential to global economic growth in both developed and emerging countries. Also driving global investment are secular trends such as urbanization, energy evolution and increased environmental awareness.

Freight rail. In NAFTA, freight rail traffic was up 4.4% in 2014. That was led by a 5.4% increase in intermodal. And so far this year, traffic is up 4.5%. So it still remains strong. In fact, all but one traffic category is up this year, including crude by rail.

As a result, OEM rolling stock deliveries in 2015 should be strong and above the long-term average. We expect about 1,300 locomotives to be delivered this year, compared to about 1,450 last year. And, the freight car market also continues to be strong with deliveries of about 70,000; 67,000 in 2014, and a backlog of more than 140,000. And our plan for 2015 assumes 75,000.

Globally, freight traffic is somewhat mixed, depending on the geographical market. With increases in countries such as India and Germany, decreases in countries and regions like UK and Russia. As you know we are focused on increasing our global footprint and product offerings, where we see opportunity to markets that are larger than our traditional NAFTA markets. The global installed base for locomotives exceeds 100,000. The global installed base for freight cars is more than 5 million, with about 75% of those vehicles outside of NAFTA.

Transit. Stability is still the theme in our transit markets, both in the US and abroad. In the US, ridership was up 1% in the third quarter, and was up 1.4% in Canada. In the UK, ridership was up 4.4% in the most recent quarter, where India saw a slight decrease of about 1%. This year, we're expecting North America transit car deliveries to be higher than they were last year, and bus deliveries to be about the same.

Transit funding in the US is also stable at about $11 billion, slightly higher than $7.8 billion last year. The Obama administration recently proposed a six-year transportation bill with a segment that is focused on transit funding increases. But, we don't expect the bill to pass as it's currently represented, in it's present form.

Just as with freight, we're focused on global growth and increasing our product offerings because the markets outside of NAFTA are larger. We estimate that the global installed base for transit cars, worldwide, to be about 330,000, with about 95% of that overall fleet outside of NAFTA.

Energy prices. We participate in share markets that are affected by oil and gas prices and drilling activities. Through acquisitions and organic growth, about 5% of our sales in 2014 were in the energy sector. With the price of oil much lower and more volatile in 2015, drilling activity has slowed and so we expect to see some headwinds in those markets. Today's guidance takes into account that issue, and we will monitor market conditions going forward.

Long-term, we continue to be optimistic about these markets and our opportunities in them. We continue to focus on growth in cash generation within Wabtec. Our priorities for allocating free cash remain the same. The fund internal growth programs, including CapEx to fund acquisitions, to return money to shareholders through a combination of dividends and stock buybacks. In 2014, we repurchased 346,800 shares for about $27 million.

We have about $173 million left on our $200 million buyback authorization. During the year, we increased our dividend for the fourth consecutive year. And, we've remained focused on increasing free cash flow by managing costs, by driving down working capital and controlling capital expenditures.

Our corporate growth strategies remain the same, global and market expansion, aftermarket expansion, new product development and acquisitions. Let me talk about each.

In the area of growth strategies related to global and market expansion. In 2014, sales outside the US were about $1.5 billion. Half of our total sales force is about one-third of our total sales five years ago. We continue to expand our capability to market presence in various markets around the world.

During the year, we grew our sales in China to more than $100 million for the first time. We increased our sales in the UK, to allow continental Europe and Brazil. And the common denominator in these markets is an ongoing need for transportation infrastructure, investment and maintenance.

In the area of aftermarket expansion, our overall aftermarket sales were almost $1.9 billion, about 60% of our total sales. This growth is due to both acquisitions, as well as internal growth initiatives.

In the area of new product development. We continue to have tremendous focus on this effort, with many internal development projects. Project Train Control has been one of the most significant growth drivers within Wabtec. PTC related sales came in at about $290 million in 2014. We are expecting growth of about 10% in 2015, as we continue to work with railroads, and other industry suppliers, to develop an inter-operable system for freight and commuter railroads.

Electronic breaking, or ECP. It's another new product that has been in the headlines recently. New rules from the Federal Railway Administration under consideration, could require ECP on certain tank cars. The new rules are expected to be announced sometime around June.

Acquisitions. Our pipeline continues to be very active and we're pleased with the opportunities which we are reviewing. During 2014, we closed several acquisitions including Fandstan, Dia-Frag, C2CE. And we completed the acquisition of Railroads Controls, which Al mentioned earlier.

We've talked about the three -- the first three on prior calls, so I'd like to spend a minute on Railroad Controls. Railroad Controls is based in Texas and has annual revenues of about $75 million. This company is a leading provider of railway signal construction services, for both freight and transit customers. It's abilities include installation of great crossing warning signals, wayside and interlocking signals, and PTC related equipment. But, the majority of the revenues are in the aftermarket area, and all revenues are in the US.

As you know, in recent years, we've expanded our presence in signal design engineering, project management and construction, through both acquisitions and organic growth initiatives. Railroad Controls strengthens our turnkey capabilities in this key market sector, and it also provides technical expertise that complements our existing electronics, signaling and train control offerings.

We are confident that all these recent acquisitions will be excellent additions to our overall portfolio within the Wabtec Corporation. And now, I'd like to turn it over to Pat for a more detailed discussion about our numbers.

Thank you, Ray, and good morning to everyone. Our sales for the fourth quarter were a record $821 million, which is 20% higher than the year ago quarter. Of this increase, a little more than half was from acquisitions. As a reminder, we expected over the long-term, about half of our growth will come from organic initiatives and half from acquisitions.

Freight segment sales increased 24%, or about $92 million. Only $19 million of that growth was from acquisitions. The majority of growth in the freight segment was organic. Transit segment sales increased 16%, or $48 million.

Acquisitions added $64 million to the trade segment sales, which means that we were down a little bit organically. That decrease was due to the completion of certain locomotive projects, which contributed significant revenues in 2013. Adjusting for these projects, organic revenue in the segment would have been up about 8%.

Changes in foreign exchange rates reduced sales by about $17 million in the quarter, compared to the prior-year quarter, mostly in the transit segments. Operating income for the quarter was a record $137 million, or 16.7% of sales, compared to 16.3% in the year ago quarter. As expected, that operating margin was slightly lower than in certain prior quarters, mainly due to the Fandstan acquisition, which occurred earlier in 2014.

We have said that Fandstan would contribute significant revenues in the second half of 2014, but minimal earnings, due to expenses from purchase price accounting and integration. In addition, its historical margins are lower than our transit segment margins.

Now that we've had Fandstan in the fold for a few months, we're confident that we can increase margins over time. And we expect our operating margin to improve over the long-term, as well. That said, it's worth noting that, for our full-year margin continued to increase up to 17.3%, versus 17% for the full year of 2013.

Our interest expense was up with about $4 million, about $600,000 lower than a year ago quarter. Our other expense income line had an expense of $1.8 million in the fourth quarter, compared to income of about $1 million in the year ago quarter. This $2.8 million change resulted mainly from non-cash, foreign currency translation losses in the current year quarter. These are paper losses on the translation of certain balance sheet items.

For the most part, we have natural hedges for our transactions and our projects against currency fluctuations, by selling and producing in local markets. And to the extent that we do have an exposure, we enter into a limited number of FX hedges.

To reinforce what was said earlier, I want to make a few comments on the effect of FX on our guidance. We do have exposure, due to the consolidation of our results. As Al mentioned, today's guidance takes into account the foreign exchange rate at current levels. The further changes could affect our 2015 results. But using today's FX rate, our sales guidance is negatively impacted by about $100 million with a corresponding effect on earnings. This is mainly due to the fluctuation and change in the euro and the pound currencies.

For taxes. Our tax rate for the quarter was 29.4%, versus 31.2% in the year ago quarter. It's lower in the current quarter, due to certain positive, discrete items, including the effect of the R&D tax credit. We expect that the annual rate for 2015 to be about 31.5%, slightly higher than the prior year. That's mostly due to the mix of earnings between US and foreign jurisdictions. I will remind you that, this is an annual forecast. And the quarters will vary, due to timing of any discrete items.

We had a strong working capital performance in the fourth quarter. Just to give you some numbers, at December 31, our trade and unbilled receivables were $631 million; inventories were $511 million; accounts payable were about $400 million. For comparison, at September 30, 2014, trade and unbilled receivables were $715 million, inventories were $489 million, and accounts payable were $389 million.

So, while the inventories and payables were about the same, we had a significant decrease in receivables, both trade and unbilled, mainly due to hitting milestones on our major contracts and billing our customers for the work. As we promised, during the quarter, we reduced our unbilled receivables from about $240 million to $188 million. And we expect to continue to make progress on this in 2015.

As a result, our cash of operations was strong. We generated $242 million for the quarter. And for the year, we produced a record $472 million of cash from operations, compared to net income of $352 million.

At December 31, our cash on hand was $426 million, compared to $213 million at September 30. At December 31, our debt was about $520 million, which is about the same as at the end of September, so our net debt was less than $100 million at year end.

So, just a few miscellaneous items that we always highlight for the group. Our depreciation in the quarter was $10.4 million, compared to $9.1 million in last year's quarter. Our amortization expense was $5.9 million, compared to $5 million, slightly up because of the increase due to acquisitions. And our CapEx was $16.7 million, compared to $17.6 million in last year's quarter. For the year, $48 million and last year, we had $41 million. We expect to see that go up in 2015.

For backlog at the end of the year. We had a record multi-year backlog of $2.3 billion. Transit had $1.3 billion and freight was about $1 billion. Of the increase from the third quarter, about half came from acquisitions and half came from contracts for locomotive overhauls, freight car components and signaling projects.

Our rolling 12-month backlog, which is a subset of the multi-year backlog, was a record $1.5 million. Transit held $660 million and freight, about $840 million.

Total backlog figures do not include about $300 million of pending orders, and options that are not counted in the backlog until the customer exercises those options, or solidifies the pending order. With that, I'll turn it over to Al.

Thanks Pat. Once again, we had a good performance in the fourth quarter and for the full year. Taking one final look back at 2014, revenues increased 19% to a record $3 billion. Income from operations increased 21% to a record $527 million. EPS increased 20% to a record $3.62. And our backlog ended the year at a record $2.3 billion.

Looking ahead to 2015, we are anticipating another record year, with EPS guidance of about $4.05 on revenue growth of about 10%. We are very pleased with our strategic progress and the long-term growth opportunities we see. Countries around the world continue to invest in freight rail and passenger transit infrastructure. We continue to benefit from our diverse business model and our Wabtec Performance System, which provides the tools we need to generate cash and reduce costs.

We have an experienced management team and a dedicated group of employees that are poised to take advantage of our growth opportunities, and ready to respond to any changes in market conditions. With that, we would be more than happy to answer your questions.

Thank you.

(Operator Instructions)

The first question comes from Justin Long with Stephens. Please go ahead.

Thanks. Good morning guys and congrats on the quarter.

Thanks Justin.

You alluded to this in the prepared remarks, but there's been some press recently about ECP potentially getting included in the final 10 car regulations. I wanted to ask a couple questions on that topic. First, in your experience with ECP brakes, have you found statistical support that it reduces the chances of a derailment?

Obviously, we've been working with electronic controlled pneumatic braking for a long while. And some of the original interests related to it, dates well back into the early 2000s.

Thus far, globally, there's installations of well over 40,000 cars that have ECP braking on it. Most of those cars are in Australia, some in the Middle East and South Africa. So, it is a technology that has been adopted around the world.

There have been pilot trains that have been run here in the states since 2006. I think it was in 2008 when we outfitted a few trains here in the US.

The thing that ECP does is, it does provide shorter stopping distances. Those stopping distances can be reduced anywhere from 40 to 60, or even a little higher, depending on the size of the train.

ECP allows for what is called graduated release. That means that right now, on just a pneumatic brake, you either have brakes that are fully applied or fully released. This -- what it does is, it lessens the in-train forces, because you are able to gradually put the brakes on, and release them.

They also allow for what would be a faster recovery time for the air system. It uses less air, therefore the air pressure is not depleted during the break application. That eliminates the potential of not having enough air to apply to brakes.

Having electricity or power throughout the train creates an opportunity for adding sensors and diagnostic type tools. It can be tied into the train control system, if the train is equipped with Positive Train Controls.

So, I think that, to answer your question, has it statistically been proven? I think that these advantages have been proven. And these advantages are being seen and proven, primarily around the world.

Thanks, Al.

Did that answer your questions?

That did. Thank you. That's all very, very helpful color.

And, as a followup to that question, we are of course, trying to estimate the cost that ECP could present for the industry. I guess, we can look at the 10 car's inflammable service, and it's a little bit easier to run the math on the cost to add ECP there. I wanted to ask about locomotive.

Obviously, you would have to outfit some of these locomotives, but do you think this is a situation where the rails would what update all locomotives in service, the 20,000 units or so? Or, do you think they will focus more on a subset of the population, that's dedicated to moving flammable commodities, if we did see this regulation get passed?

First of all, I think we all realize that there was an administration group that was set up, The Pipeline and Hazardous Materials Safety Administration. This group was tasked with making recommendations, as far as the proposed rule making for safer transport of crude oil. We have, at this point -- there is no verification that this particular technology will be approved or not approved. I wanted to make sure that you understand that.

When you look at -- if it was part of this rule making, which I believe is, right now, being reviewed by the White House's Office of Information and Regulatory Affairs. If it was part of that regulation, ECP, the actual unit on the cars, the cost of those ranges anywhere from $4,000 to $6,000. It depends because, the technology that is offered is in two forms.

One is what we call standalone ECP unit. That would actually require every car on the train to have that unit. That way, you would also need the locomotive, and that's part of your question, and I will get to that.

But we also offer alternative, so that, there's a unit, which we call an overlay, that could be used. It can be switched back and forth to an ECP train or a regular pneumatic train.

So, that's the reason for some type of the range of cost, and it could be anywhere from $4,000 to $6000, depending on which way you choose. And there is also wiring required and installation costs associated with that. If the locomotive -- in order for the train to operate with ECP, the locomotive also has to be fitted with electronic brakes and have been adapted to also accept and transmit the signals for ECP.

The estimate of cost on a locomotive could be, dependent on whether you are putting a new electronic braking on, or just adapting it. That price could be anywhere from $30,000 to $50,000. I think when you look at a train, I don't know the number of locomotives, in general, but I think there's at least three locomotives on a train that might be 100 cars or so. So, you could use your calculations from that information, I believe.

Okay. That's great detail Al. And I will sneak one more in, and pass it along.

But, you gave the updated backlog numbers. I was curious, how much of the backlog right now is PTC related? And if it's possible, could you comment on the level of PTC related backlog that's allocated for this year, versus future years.

Okay, we have about $100 million of backlog in the PTC related products. I also want to go back to ECP just for a second. Not sure everyone's modelized this, but we have none of the ECP regulation requirements in our guidance, for ECP, multi-year. But, as far as PTC, the backlog is about $100 million.

Okay perfect. I'll leave it at that. Thank you so much for the time.

Thank you, Justin.

The next question comes from Scott Group with Wolfe Research. Please go ahead.

Hey thanks, good morning guys. Just a couple of quick follow-ups on ECP. Are we correct that you guys have -- you guys would have the technology for both the car and the locomotive, and I think, both in the US and Canada? And then if you could clarify if there's anyone else in the market that has this technology, currently.

Yes. Scott, we have both the technology for the locomotives and the car, and our major competitor in braking is Knorr/New York Air Brake, and they have the technology as well.

Okay. Perfect. In terms of PTC, what are you guys expecting, in terms of any aftermarket, this year? And when is a realistic timeframe for when the aftermarket kicks in? I don't know if we've talked about this before.

Is it once it's fully installed? Or does some of the aftermarket start sooner?

Yes, Scott. This is Ray. The aftermarket really doesn't effect our warranty period finishes. So a warranty is normally a year on these contracts, and that warranty period, as far as it goes into effect, once the product's in service. The aftermarket is going to be developed over time.

We're not going to see a lot of aftermarket revenue this year. We're obviously focused on developing those agreements. And the opportunity in MRS is maybe the best example of where revenue will be realized, in the near- to medium-term, because that contract is almost complete.

That project will be finished out this year and the vehicles are in service. They had been in service. They are being phased in. And the entire project will be closed out. So, we will transition over into a service agreement.

So, we look for annual annuities of about, anywhere from 5% to 10%, depending on the volume. In the particular customer technology, we think we will start to realize those after the warranty period is finished. Which, obviously, is going to be in future years, not this year.

Okay. That's really helpful. Last question.

The guidance for 10% revenue and 12% earnings, doesn't imply much for margin expansion, if you are buying back some stock? But, I think Al, you mentioned that you do expect margin expansion this year. So, maybe just help close the -- help us think about that.

Results has answered that question, consistently. We strive for continuous improvement, and one of the areas that we will continue to focus on. Ray and his team have done a tremendous job in 2014. And in 2015, we expect that margin to expand again.

Okay. All right. Thank you, guys.

The next question comes from Matt Brooklier clear with Longbow Research. Please go ahead.

Hey thanks. Good morning. So, I had a followup PTC question.

The 10% growth you are expecting for 2015, can you talk to, how much of that is going to come from freight? And how much of that growth is going to come from transit PTC?

Yes, it's really --

If you look at -- it's probably inside of some final, based on historical -- it's about 50% is freight, and the other 50% is split between, almost equally, between transit and international. So, we anticipate that will pretty much typify this year's revenue strength.

Okay, that's helpful. And then, you talked to oil and gas, your exposure. I think it's about 5% of your revenue. Can you remind us of, broadly, what products that you have, that are impacted by the oil and gas industry?

And then, what's in your guidance? If you are assuming that contribution from those products, from a revenue and EBIT perspective, if that's expected to be, I guess, down this year? Is it flat? Maybe just give a little bit more color on that.

So in terms of -- I'll address the product area. In terms of products, it's basically cooling systems. Heat exchanger systems that are used at drill heads, drilling wells.

And, for the power systems that power those products, and some rubber products. So, we have some rubber products that are used in oil and gas, as well. We talked about one, that product line we acquired, when we acquired Longwood. Those are the products.

On the guidance -- we have included, basically, what we view the current market conditions are, into our guidance. So, that has been put into the guidance that you received. The impact from the energy business that we have.

Okay. And then, can you just touch upon how much Fandstan earnings contribution -- It is also anticipated in the 2015 guide? We know it was a big part of the revenue contribution in 2014. But it didn't contribute much to the bottom line. I'm just trying to get a feel for, how much Fandstan, in incremental earnings, you guys are baking into the 2015 guide.

Fandstan -- there's two negative factors that are basically behind us. And that's the amortization related to inventory in our backlog. So, those are behind us, so we will see that improvement.

What you will also see is that, the synergies of the acquisition, and the profit improvement program, is built into the guidance. We really do not want to break out this specific numbers at this point. But, I think that Ray made some comments related to the way we think that, this acquisition has gone as we planned, and expect to be able to, eventually, get to our margins. That they are about the average for the transit group.

Okay. Appreciate the time.

Thank you.

The next question comes from Thom Albrecht with BBT. Please go ahead.

Hi guys. Good morning. Congratulations on another nice year and another nice quarter. I wanted to square way a couple of things for my model, so maybe these first couple of questions are for Pat.

In the last quarter, your SG&A guidance was $85 million to $86 million, and it came in at $93 million. I'm just wondering why there was such a big variance?

Well, we had a number of discreet items that came through. We had some engineering costs. And we had some other cleanup in some of the corporate items, including truing-up incentives and other benefits that really could be argued, are acquisition related.

So I think in the end, what you're really driving at is, our run rates going forward. We're really thinking it's going to be somewhere around $89 million to $90 million a quarter.

Okay. Did you say incentive comp came into play, too? Or was that incentives tied to earnouts?

Yes. So, you have a number of incentive programs. We added -- with adding Fandstan, and with the performance that we had, we had to true all those up. And, we had more people in the plans, and so, there was just some additional money that needed to be set aside, for the accrual.

And then, you did allude to be amortization, but that was still about $2 million higher than what you guys commented on. Is the $18.3 million kind of the run rate going forward? Or would that also be a little bit lower?

I expect that to come back a little bit, because you have PPA and other items that are front-end loaded in any of these acquisitions. But, of course, we've added RCL and we will continue to have an active acquisition program. So we tend to bounce around a little bit there, on the amortization and depreciation lines.

Okay. And then, on the other income/expense, it was $1.7 million actually expense. A lot of times, that's relatively a small deal. But, it was about a $2.6 million swing year-over-year, adversely. What was in that figure?

It's mostly translation losses. And, with the big move in currency, we do a pretty good job of balancing that exposure. But we did have, because of such dramatic move in certain exchange rates, we did have a negative impact.

We expect that to moderate. Short, of course, of more volatility in the FX markets. I think that's an unusual result.

If you look at the year 2013 and 2014, 2013 had a net plus minus of negative 882, and 2014 was 1680. And I think, as Pat pointed out, the FX changes drove most of that change. Those are things that were really hung up on the balance sheet in a company, issues that can't be washed through, in a given period.

Okay, I appreciate that color. And then, when I back out the revenues from acquisitions which you gave for the quarter, I'm showing organic growth of 8.3%. Is that correct? Or do I need to make some sort of adjustment to the fourth quarter of 2013?

I took out the $19 million and the $64 million, just from this year's fourth quarter, but didn't make any adjustment to Q4 of 2013.

No.

That's it. That's the right numbers, $19 million and $64 million total. And that's 57% of the total change.

Okay good. Thank you.

And then my last question would be, when I look at your revenue guidance for the year, and we never know exactly how acquisitions are performing. But when we factor in the 10% growth target for PTC, plus what we think you've got with acquisitions, and we try to pro rata that based upon the month you acquired it, we're showing that you've already got about 7% of the 10% revenue target.

So are you expecting organic growth to slow? I mean, it seems like it really had a nice solid pace throughout 2014.

Yes, I think that you have got to play in the impact of FX. You put that in. And we talked about, in our guidance, the impact of the price of oil. Long-term, we still feel strongly that we will get half of our growth internally and half from acquisitions.

So that $100 million revenue impact from FX, that wouldn't have been versus zero in 2014. What was your revenue impact on the full year for FX?

In 2014, it was actually positive by about $11 million. So, in the quarter, quarter-to-quarter was down $17 million. But keep in mind, if you look at that FX, that's 3% growth.

Yes, I'm just trying to think of it the right way.

That's fine. I think it's good to point that out.

Okay. That's all I had guys. Thank you for the clarification.

Thank you.

The next question comes from Jason Rodgers with Great Lakes Review. Please go ahead.

Hello. Just getting back to the PTC guidance of 10%, I'm wondering if you could talk a little bit about your assumptions in the growth figure, and what factors that could, potentially, lead to some upside there?

You mean that, the assumptions are that, people at the Class Ones, are going to continue to pursue, as aggressively as possible, the installation and commissioning mark. You probably are aware of the status in the industry of -- the NSF is probably ahead of the other Class Ones. But all the Class Ones are working earnestly to try to get their systems installed and commissioned as close as possible in 2015 deadline day.

We also have assumptions in there that will finish out MRS this year. We have assumptions in there that will continue to support. And, when transit opportunities -- we are assuming that, probably about a third of those transit opportunities will generate revenue this year. And the reason it's only a third is that some of those transit authorities still haven't received funding to support their PTC specification writing process. And ultimately, implementation.

That's helpful.

It's a very difficult thing to project. A lot of it depends on the progress made, and again, the funding on the transit authorities is still up in the air. It will depend heavily on this new transportation bill.

Okay. And could you talk a little bit about the Tier 4 locomotives, and the demand trends there?

The Tier 4 locomotive current status is, GE has an approved Tier 4 locomotive. A lot of Class Ones, what have done is, they've bought forward. Or they're going through rehab processes, rehabilitation processes, self existing locomotives.

GE's forecast is pretty substantial for this year. And obviously, (inaudible). It's going to be accepted and phased into the industry this year. GE has spent about two years qualifying their unit, and we have participated with them on that.

And then finally, looking at the percentage of new products over the past five years, do you have an updated figure, just going through the end of 2014?

About 38%.

Thanks a lot.

Thank you.

The next question comes from Mike Baudendistel.

Thank you. That's actually pretty good, actually.

Just wanted to ask you, how you're thinking about using your balance sheet for acquisitions? Do anticipate having to borrow it all, going forward? The recent ones, it seems, you've been completing with cash, on the balance sheet.

We really are glad at the position that we are in. We've got an extremely strong balance sheet. And I think Ray went through our priorities of what we want to do with that balance sheet. And we will continue to apply it to those priorities.

I think the beauty of it is that, if the opportunity came about, we have room to acquire large companies, continue to do the build ons. And I think it's a great position to be in, especially compared to other companies that do a lot of acquisitions. They may not have that luxury that we do have.

Great. And could you give us a sense for how much of your cash is held overseas? It would just give us a sense for how, many future acquisitions could potentially come.

At the end of the year, on the total cash at $425 million, here Pat?

I would say roughly 60% to 65% of the total cash we had on hand was in foreign jurisdictions. And we had some cash here in the US that we used, right after year-end, in closing and buying RCL.

Okay great. Those are all my questions. Thank you.

Thank you.

The next question comes from Samuel Eisner with Goldman Sachs. Please go ahead.

Yes, thanks. Good morning everyone.

Good morning.

Just on the RCL transaction, it's about $75 million in LTM revenue. Do you have any kind of indication of what the margin profile is of that business? And can you also let us know what the percentages of revenue are between the segments? It seems as though it's both.

The margin is very similar to this overall margins, and the freight margins, that we've enjoyed, Sam. Overall, as far as the type of work, is that the question you're asking?

Of the $75 million of revenue, how much -- yes, exactly.

The majority of the sales our in the freight side. Almost all of the sales are in freight side.

Got it. And then, so, perhaps moving to that the incrementals implied in your guidance. I think, if you kind of back into them, they are around 20% contribution margins that you guys are guiding to. And this past year, you did around 19%, with a lot of moving pieces in SG&A, while integrating the Fandstan transaction.

I want to understand, is there anything else that we are missing in the implied contribution margins for next year? It just seems as though you have somewhat easing comps throughout the course of the year. So just help me understand that please.

Well I think that, we really -- to begin a year that has the uncertainty that this year has, related to oil pricing, foreign exchange rates, just the amount of internal growth that we can count on. I think that our number is probably what we normally are at this point, a bit conservative. We will obviously be looking for opportunities to improve on that contribution, as we go forward.

Great. And then, you mentioned that FX is, I guess as of today, can you just let us know what rates you are using for the euro and the pound, going forward throughout the course of the year, that's applied in your guidance?

Yes. So, I would just look at today's spot rate, and use that as a benchmark for how we've quantified the impact of FX. And of course, when you get into the accounting, you use a weighted average rate.

So, it ends up being a little tough to pick a jump-off point, and do some comparisons. But, I think that if you look at today's rate for the euro, for the pound, those are our big exposures. And that is what we based our analysis on.

Great. And then lastly, obviously with a lot of cash on hand, Al, you are commenting before about acquisitions. But, can you talk about the size of the acquisitions within your funnel?

Have they -- now that you have, effectively, more cash on hand, does that mean that you're looking at larger transactions? Or are you still looking at these $100 million, sweet spot type transactions?

We continue to be opportunistic. Again, we have the ability to do a larger acquisition. But, as in the past, if you look at the 30-plus acquisitions we've had, most of them are more in the $50 million to $100 million range.

That is what we mostly see. There is a lot less of those larger acquisitions that are out there.

Great. I will hop back in queue, thanks.

Thanks.

The next question comes from Liam Burke, Wunderlich Securities. Please go ahead.

Thank you. Outside of PTC and ECP, where you highlighted on your product development, are there any products that you see in the near term that will help fuel growth?

Yes. There's Tier -- Liam, that Tier 4 heat exchanger. We just talked about their 4 locomotives.

That's certainly more than we have, a lot of products across our business units. We don't talk a lot about friction products that are coming to market. We just -- were qualified as one of only two suppliers in Europe, to replace all iron shoes with new composite shoes.

We have oil-free compressors that are being qualified and sold in both transit and freight markets. So, if you go across our businesses, yes, there is products in every business unit. It's a major strategic focus of ours, and we invest in every business unit and in product development.

Thank you. And then on markets, do you see any particular market this year that provides near-term opportunity? And conversely, do see any challenges out there?

We face challenges every day. I will guarantee you that. Ray, you can comment about the market.

In near-term opportunity, obviously, we're watching very closely, the freight car build, car loadings. That can go either way. We are very hopeful that it's going to continue to go in a positive direction. And that the US economy's going to hold up. And that there's not going to be [protivations] because of oil prices or other issues, geopolitical issues or whatever else, might effect us.

So freight market certainly is a good opportunity for us. Longer-term, starting, as you know, to invest in international markets like, in a more substantial way, in places like India, where we've entered into a joint venture with Texmaco, the largest freight car builder in India.

And so, there is opportunities in Europe, even though the economy is sluggish, maybe. We certainly have great opportunities there, because we are a small player in a big market. So, all those are opportunities that we are excited about.

Great. Thank you.

Thank you.

The next question comes from Cleo Zagrean and with Macquarie Capital. Please go ahead.

Good morning and thank you. My first question relates to the long-term EPS growth trend. As you just pointed out earlier, on a constant currency basis, India's growth for 2015 is about 15%.

So could you please comment how that may differ from the long-term trend you see? Maybe highlighting puts and takes this year, versus the long-term outlook. Thank you.

Okay, Cleo. I think you've got to go back to really take a look at what our -- what we establish as our vision, our goal. And that is to have double-digits per share earnings growth, through the business cycle.

And if you go back to 2006 to the day, that growth has been almost 19% over that period. We to better when there's an uptick in the economy, and obviously, in the downturn, we do worse.

So, as we look forward, we are extremely excited about our future. And we have a lot of opportunity. We are a small player in the global markets, especially in transit.

We have new technology that is focused on the safety, efficiency and productivity of the railroads. With that excitement, as we look forward, we hope that we can continue our track record.

However, we are also realistic. You are going to have challenges, ups and downs. And not only from the economy, but also the marketplace. So, I think if we stay focused on these growth initiatives we have, that we will continue that track record.

Thank you very much. And my second question tries to gather a little bit of detail on that. In the North American market, and mainly, could you share with us what your outlook for freight car deliveries in the US is, that you are counting on for your EPS growth target? And helps us think how that delivery outlook feeds into EPS growth?

The freight car assumption is 75,000 vehicles this year. That's the assumption we have.

And longer-term? I'm sorry longer-term, beyond this year.

We really don't provide any long-term growth rates. I think that if you look at the backlog, you have got a 142,000 car backlog, which bodes well for freight car builds. However, that could be affected by a lot of things.

I think the backlog that is there, is sound and good. The timing is, how it will flow out is, anyone could estimate that. I think that you have to look at history when you look at the railcar build, and understand it's a cyclic business. That's the reason why we diversified our business model.

Right now, OEM car build, you know, is less than 10% of our total business. At one point it, was more like 30% to 40%. I think the backlog bodes well. But, the economy is really going to drive the cyclicality of that business.

Very, very helpful. Thank you. And my last question relates to Europe.

I know that your growth there is just ramping up, after many years of efforts of getting established in the market. And you've just made the few comments of that. Can you give us a little more detail about the main initiatives and opportunities you are excited about for this year, and maybe the year after that?

We are pursuing, with all the major car builders in Europe, opportunities that's on continental Europe. Those car builders not only have products and systems, but the new cars that they are building for European markets, but also internationally.

So, if you look at car builders like Alstom, Siemens, and Bombardier. Alstom has a huge contract, for instance, in South Africa. Bombardier has a lot of contracts over in India. We are talking to those car builders about opportunities inside and outside of Europe.

There is good opportunities for us also in the UK, that's in the overall market. Those are with the ROSCOs, the main rolling stock companies that operate over there. And, we are probably in a leading market share position there, and continue to win major contracts in the UK.

Very much appreciated.

Thank you.

Now we have a followup question from Scott Group. Please go ahead.

Hey guys, thanks for the followups. So, in terms of the Tier 4, has your content per logo changed with that? And, any difference between GE, and then eventually CAD, on your content?

Scott, if so, the little bit of a premium that we get for the Tier 4 equipment, it really reflects the investment we've made into development. But, they are in the same position with their locomotives. I don't think there will be a big difference between GE and the EMD. EMD puts they're forecasting at about two years, 2017, before they're able to introduce a Tier 4.

Okay. And then just, last thing, on PTC, what percent of the logos now have the computer system? And what kind of delay are you assuming is going to be coming?

We think it's about 50% overall. It's a little bit more complicated than that, because some have complete kits of them have provision kits. But overall, on average, it's a little bit more than 50% installed, as far as the load goes.

Relative to the delays, we really can't anticipate what the railroads are planning, as far as their deadline dates. The PTC system is a lot more extensive than just our onboard computer. You have employee side equipment. You have a back-office systems, CAD systems, you have the overall network as well as the rolling stock.

And so to be honest, we just do whatever it takes that we can. We're trying to support our customers every day in that area. And I again can tell you that they are honestly trying to do whatever they can to come into compliance with the 2015 deadline.

Maybe a better way to ask that would've been, the guidance for this year, what does that assume? That you go from 50% of locomotives to what percent of locomotives.

We are probably, you know, can't really give you that color right now. I would just assume that 10% growth is the right number. And you can apply that to onboard computer. Basically, we've given you 50% of the freight is freight, and 25 trans and 25 international.

Okay. Perfect. Thank you guys.

The next followup question comes from Thom Albrecht. Please go ahead.

Just a simple question, I guess for Al. On the 1,300 locomotive forecast for 2015, is that all freight locomotives? And given CADs position, I'm assuming that that's all GE, or are there some switcher locomotives in that number?

It's mostly freight, Tom. We do some commuter locomotives, but it's mostly freight. And it's both GE and EMD because it includes international.

Okay, alright. That helps. Thank you.

Thank you. Any other questions?

Hello?

The next question comes from Jason Rogers.

Thanks for taking the followup. Just looking for a few balance sheet numbers. Total assets, equity and then if you could repeat the accounts receivable number, that would be great. Thank you.

Okay so the total assets are $3.3 billion. I will give the exact number, $3.308206 billion. Our shareholder's equity is, total is $1.808298 billion. And sorry, what was the last one?

You said it before, but if you could repeat it, the accounts receivable.

Okay. The total accounts receivable, including unbilled is --

It's in the text.

$631 million.

Okay, anything else?

That's it.

Thank you.

With nobody else in the queue, this concludes our question-and-answer session. And I would like to turn the conference back over to Al Neupaver for closing remarks. Please go ahead, sir.

Okay thanks a lot. I look forward to talking to you again, in April. Thank you.

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