Good morning and welcome to the Wabtec Corporation's first quarter 2010 earnings conference call. All participants will be in a listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr. Tim Wesley. Please go ahead sir.

Thanks (inaudible) good morning everybody. Welcome to our first quarter 2010 earnings conference call. Let me introduce you to the rest of our team members who are here Al Neupaver, our President and CEO; Alvaro Garcia-Tunon, our CFO; and Pat Dugan our Cooperate Controller. We'll make our prepared remarks as usual and then be happy to take your questions. And I do want to refer you to today's press release for the appropriate disclaimers on our forward-looking statements. With that, I'll turn it over to Al.

Thanks, Tim. Good morning. We are off to a good start this year; our sales were at $364 million the highest level since the first quarter of 2009. Earnings per share came in at $0.63. Our operating margin was strong at 14.1% of sales and our backlog held steady at about $940 million. This performance shows the strength of our diversified business model and that our strategic initiatives are paying off. We continue to benefit from the Wabtec performance system as you could see with those impressive margins. Today we also updated our 2010 guidance for EPS based on our performance in the first quarter and in our outlook for the rest of the year. Our guidance is now $2.40 to $2.50 compared to $2.35 to $2.50. Sales now are expected to be up slightly for the year. Clearly the overall economy has rebounded off the bottom. It's having a positive effect on the rail industry and on some of the segments of our business. So overall we are consciously optimistic about the economy and our markets while recognizing that it's still early in the year and there is still a lot of locomotive and rail cars parked. I want to emphasize that even as the economy continues to improve, we will maintain our cost discipline and focus on generating cash to invest in our growth opportunities. Let's take a look at our markets. First the transit market. We still continue to see a stable transit market in North America which is driven by federal funding and passenger ridership. The current federal spending bill has been extended through year-end. Transit could also be part of the jobs bill or second stimulus bill which is being discussed. Over the next several years we expect the new sub-way car orders from a…

Thanks Al and good morning everyone, sales for the quarter were $364 million while this was 4% lower than last year, it was the highest level since then. A sign that we've hit bottom and are starting to bounce back. Going by segments, transit group sales were about the same as last year. Freight group sales were down about 8%; this was mainly due to lower OEM deliveries of locomotive and freight cars in North America. However, the benefits of our business models evidenced by the fact that rail car deliveries were off more than 65% which is obviously much greater than the 8% sales decrease in the freight segment. Moving down the income statement, we continue to be focused on improving margins with particular tension on the operating margin. Gross margin improved by 150 basis points showing the benefits of restructuring and the operating margin was still strong at 14.1% even though we had lower sales than last year when it was 14.7%. SG&A was higher than the year ago quarter but this was mainly due to acquisitions of units in Xorail and their related purchase price accounting. As we have discussed before when you make an acquisition it's typically in the first year you have to take certain charges for the value of the profits inherent their inventory and backlog and that can lead to some charges in the first year. Also when you compare it to the first quarter last year we had an asset sale in the first quarter which produced a gain of about $2 million and that reduced SG&A. The margin performance we believe reflects the good work of our operations to reduce cost as well as general cost reductions overall in the company. Interest expense was lower due to borrowing at lower interest…

Thanks, Alvaro. Once again we had a good performance in the first quarter. Our transit business is holding at a high level, freight traffic is rebound to the point where its only off about 6% to 8% from the peak levels in 2008. This is driving the improvement in our freight after market businesses. Except for our locomotive and freight car OEM markets, other segments of our diverse business model are quite positive. I am very proud of our Wabtec team and how that team managed aggressively and proactively through the downturn; with the Wabtec performance system providing an established culture of remanufacturing and continuous improvement. We are well positioned to take advantage of the improving market conditions. With that, we'll be more than happy to answer your questions. Thank you.

Thank you. We will now begin the question-and-answer session. (Operator Instructions). We'll pause momentarily to assemble our roster. Our first question comes from (Operator Instructions). Our first question comes from Arthur Hatfield from Morgan Keegan. Please go ahead.

Hey Al, you had mentioned in your prepared remarks, comments about the possibility of seeing some pressure in the transit aftermarket as some of these transit agencies reevaluate their budgets. Did you see any of that in the first quarter? If not, can you talk about when you may start to see some of that?

I believe we've seen some of those already Art, we saw our after markets drop off in two of the business areas not significant but enough to be noticed. And what you find is that they are probably working off their inventory and I think that as these transit authorities get under further pressure, they may even defer some of the activities that can be deferred. But in total you are not going to see a major impact because when it comes to the after market you have to really take care of the equipment and they don't have a lot of choice. But working off the inventory obviously it's the first action that they take.

Next, still on the transit area, you had mentioned several potential longer-term opportunities for new vehicle orders in the transit market. Any thoughts on any of those that you mentioned kind of like what the timing is, where you may see the process for those different opportunities develop?

Yeah the opportunities that I mentioned are ones that have been quoted or are in the quoting or the bidding phase. And some of the deliveries on these projects would be late 2010 in to 2011. And they could run out to 2017.

When do you expect to start hearing the awarding of those contracts?

I would think it's by mid-summer, early third quarter.

And then finally, if you could just walk us through kind of your thoughts on PTC, what you think the market opportunity is now with your new acquisition, what you think you can do in that market, and over the kind of the timeframe that you should see that impact on the business.

Let's first talk about our existing market potential which we've talked about before but it's worth discussing again. We view that the potential for the on-board hardware and software system is between 200 and 400 over the next four to five years. And that is a conservative amount and only goes with the on-board computer. We also should have some opportunity related to the installation and the maintenance of that equipment. We have a existing product for the back-office and the dispatch as well and we should see incremental business flow out as well. Most of those expenditures will not start as I said until probably well into 2011, where most of the focus right now is on the wayside of the installation of PTC. And this is where Xorail is involved and the Xorail opportunity; let me go through with a little slower than the prepared remarks. Basically what the FRA has said is that the PTC spend for design, engineering and installation on the wayside is probably about $2.5 billion. Of that $2.5 billion we think that Xorail would be able to compete about 10% to 20% of that. So you could do the multiplication. Now for that amount of business we would be competing with either three or four different competitors, GE, Enventi (inaudible) possibly all of them. And the biggest competitor is the class one rail roads themselves. So traditionally or historically we have done a lot of this work inside and has really started forming this out of it for the last few years and that's really how the Xorail got its genesis. So you have say $250 million to $500 million divide it by the four or five years give you $50 million to $100 million per year over those number of years and we expect to get a representative share of that amount. Were you able to follow that?

No, I got that and so could you ballpark what you would hope that you could get at the $50 million to $100 million a year?

We'd like to see annually $10 million to $20 million of additional sales for that business unit.

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

Just to follow-up on your last comment there, if you were to see $10 million and $20 million per year in additional sales from Xorail on PTC, is that a typical freight margin or what margin profile would you expect for that?

We talked about a typical freight market margin.

Okay, I want to take a stab at guidance. Looking at the recent trend in freight volumes, as you noted, we're seeing sequential improvements. It seems like that's hopefully going to continue. You noted that transit is stable at a high level. You have good backlog visibility. So given that backdrop, why won't you better than annualize the current result? If I just annualized this quarter you get $2.52 which is above the high end of the range. So where is the risk to the next three quarters in terms of coming in below the current result?

We are obviously excited about our opportunities and the improvement in the marketplace. If you look at our opportunities on a global basis we've had the global markets that rebounded nicely. We are small player or small share in large markets in both Asia as well as Europe. If we look at our new products and our technology, we are excited about those opportunities. We are actually starting to see improvement as we have stated in the after market. So we got all that great things to be optimistic about, but yet we think its prudent to be conservative at this point for a number of reasons: one, this is not a sustained recovery, we hope it is. And secondly, the number of parked cars whether it'd be locomotives or rail cars and we the expected deliveries of both of those are almost half of what they were the year before. So you've got some really great things ahead of you but we have not seen the rail car or the locomotive build show any signs of returning necessarily in the next 12 months.

Right, but to be fair, you were already at kind of trough run rates, right, based on your expectations for production?

I would say that's a fair statement.

So just recapping then, you prefer to take a conservative stance versus trying to make a forward-looking statement that some of those end markets might recover?

That's correct.

I wanted to also dig into the number of cars that are parked and how they are coming out. Are you getting a positive bump from having some of those idle cars get refurbished? And how much of an opportunity is that, just kind of dealing with what may have been scavenged relative to any benefit you're seeing from a normal increase in freight loadings?

Yeah we're seeing defiantly we have an opportunity as they bring the cars back out, especially the rail cars and we are seeing that but we really and I took a real good look at the ton miles which we like to compare to our aftermarket business and boy its tracking pretty close to ton miles right now and so I cant quantify that extra pop although we've really went out and we've closed our service centers and yeah that's some of the products that come in there, but we're tracking pretty close those ton miles and we've really bottomed out in the second quarter of '09, we saw the incremental improvements from [268] up to 31 and that's the kind of business improvement that we've seen that those businesses are directly related to that. So, I cant quantify that pop or whether its maybe coming but right now, is falling ton miles.

Can you remind us what your guidance suggests for ten mile increase year-over-year?

Our original guidance expected, it was 3% to 5% recovery if I remember correctly and I am getting some nodding heads that agree with me.

Okay, so that's a reasonable thing for us to track, just to think about how your year is progressing on the freight side.

Right.

All right, one last question and I'll get back in line. How should we think about the SG&A spend in the coming three quarters in terms of absolute dollars? Is that going to be in line generally with the $45 million or so in 1Q?

Yeah I think in terms for modeling purposes you can use that number Steve. There's always a few moving parts in SG&A and as you well know by now, you know we don't like to report a lot of exceptions and a lot of exclusions, we just like to go with the GAAP numbers and they are what they are and there's always a few moving parts but I think in general for ongoing purposes you can use what we have in the first quarter.

Thank you. Our next question comes from Scott Blumenthal from Emerald Advisors. Please go ahead.

Would you be able to share with us the revenue contribution from Xorail in the first quarter?

Yeah we had about $13 million. We had an improvement of about $13 million from acquisitions and $11.5 of unit sales and only $2 million of revenues was from Xorail.

And I guess following up on Steve's questions and your comments there, Al, I guess we saw the inflection or the percentage contribution from freight to transit. We saw that kind of flip at the end of Q3 '08 and historically we've been more freight-centric than transit-centric. How does that track with ton miles and can you give us an idea as to where we are in that, I guess in that continuum you made?

If you look at the balance between freight and transit what you have if you compare the first quarter of last year our range is actually down by about 8% from first quarter last year and we held steady in transit. Now what that was is this year we are 45% freight and 55% transit in last year first quarter was 47% freight, 52% transit. But if you look at the fourth quarter and that's probably a little more telling because what you had is transit was down about 6% fourth quarter to first quarter and freight was up 12%. And that split was 60-40 and right now we are 45-55. I would think if transit could hold steady at the high level and freight comes back I think traditionally we will probably get back to a ratio more like the 60-40 freights in transit. And then on our ability to grow transit on the international basis and that's what drove the lot, we had a 55% of our transit business, was international in the quarter.

Okay, that's helpful. And maybe you can help us then with your expectation as to when we might cross over to being a more freight-centric.

Well I couldn't even take a stab at that because I would hope that they both grow but I think it really limits us is probably an inflection point as probably somewhere around the real car build when the locomotive build takes off.

One more, if I may. Alvaro, you as always, did your usual terrific job giving us all of those facts and figures…

I can read numbers from the sheet as well as the next guy.

Better.

Thank you (inaudible).

Can you give us an idea as to the margin composition of the backlog currently? And after that maybe a comment or two about what you are seeing with regards to metal prices?

Okay I'll take the second one first. What we are seeing with regard to metal prices I think is very similar to what other people are experiencing which is that you are having increased demand by other countries primarily China, India and that's driving prices back up. The one thing we did learn and we left in affect is during the last metals increase is our surcharge mechanism and nobody likes the rising prices but we do think we do have a mechanism in place to minimize the damage. What you will always see from that is we don't mark up our surcharge so obviously what I have heard of the price increase is but we pass through so it has some slight effect on margin, you get an increased revenue and increased costs (inaudible) each other out. But we are seeing increasing metals prices but right now we think we are dealing with it okay. With respect to margins in the backlog that's kind of I would say in general they tend to be at company averages. A lot of the backlog is for OE rather than aftermarket work. So they would be may be on average slightly lower but in general if you try to model something out I would do it with respect to the averages for each business segment.

Okay and I guess a follow-up on the metals thing, one last one. You have a quarter or so delay in capturing those surcharges. Is that how we should kind of look at that?

It depends, sometimes the industries are right on top of it and sometimes there can be a delay. Sometimes we are pretty effective at resisting the price increases on our end from our own suppliers so I would say in general there may be a little bit of a lag but not (inaudible).

Thank you. Our next question comes from Kristine Kubacki from Avondale Partners. Please go ahead.

Yeah it's pretty hard to estimate what it is but I'll tell you as you know we are situated here next to the rail track and we've seen some rail cars go by here. I don't even know if they are worthy to be put back in service. So I don't know if they are going for the scrap yard possibly but I think there's an opportunity there Kristine, its pretty hard to quantify and I really wouldn't expect 1.5 times of impact, I think it would possibly be less than that.

Okay and then in terms of switching gears a little bit, in terms of your workforce, what have you kind of brought back online in terms of employees and what's kind of your anticipation with a better freight market? Are you bringing back employees? Are you hiring yet? What are you planning to do in front of the PTC demand?

That's a great question Kristine because we've been very focused on only bringing back a variable direct employees that are necessary to meet the customer demand and we still have a pretty rigid request approval arrangements that we are adding what we would consider salaried individuals. We've selectively added a few plan but the only additional manning that we've really have had is through the acquisition arena. There has been no significant hiring and we will support the hiring as the businesses can support it.

Okay. Then I was just wondering on the international front, can you talk a little bit about China and what's going on there and what the contribution you expect over the next few years and then how your recent start-up in Brazil is going?

Okay let's start with Brazil. The Brazil startup has gone extremely well. We are starting to actually offer more products. We have a plan that not only do the aftermarket business but also take some other of our products down there, manufacture and selling for that markets and its exceeded our expectations up to this point. Now China the market is very strong there, we have situated ourselves in I think in improving basis. We have two freight JVs that are in operation and we have one transit JV that's in operation. We expect to see this year $60 to $70 million of revenue and that has grown double digits for the last few years and we'll continue to grow double digit over the next couple of years without any problem at all and we are working on a few other JVs right now.

Thank you. Our next question comes from Jim Lucas from Janney Montgomery Scott.

I was wondering if you could tell me a little bit more about PTC and specifically your relationship with the class ones I know that they had to file their plans with the FRA as of April 16, are you in direct communication with them to find out how those plans were laid out or any update there?

Yeah we were obviously involved in with the class one as they made the proposals as far as the review by the FRA, we are in no position to have any information and I am not sure that any feedback has been given up to this point but we don't anticipate that being an issue. I think that everyone is being aggressive and has laid out some good plans for the implementation of PTC.

And is there any updates you can give on the product testing of the onboard system?

As you know we've been commercialized on the BNSF for almost three four years now and without any issues and we have pilots running without issues on the UP and our development program with all the other rail roads is moving along and no major issues that we are seeing at this point. A lot to be done though. There's a lot of work to be done but there's no issues that we are aware of at this point.

Okay and then aside from the Xorail acquisition, are there still other M&A opportunities that you are looking at to try to get a little bit more of the PTC business that's out there in the next five years.

Yeah we really don't comment about our strategy related to acquisitions although we do have an active pipeline of opportunities that will continue to determine if it's a good strategic fit and meets with our financial criteria.

And can you say if you are planning to go after additional business, whether it's the internal or acquisitions aside from the Xorail like are you still planning to...

Again I don't think its appropriate to talk about our strategy related to acquisitions so any acquisition that makes strategic sense, as you know its our priority is related to you know we generated good cash a $150 million plus over the last three four years and our priorities really number 1 is to grow internally. Number 2 is acquisitions and so we have a keen eye for good acquisitions whatever they may be.

And then lastly I was just wondering if you can give any update I may have missed it at the start of the call on (inaudible) any progress there as far as bidding or making some headway in to European?

Yeah we continue to make good progress on component sales and a few small system sales and qualification. So it's going to take time as we said it could be a few years before we really reap the benefits of our activity there.

Our next question comes from Paul Bodnar from Longbow Research. Please go ahead.

One is in the fourth quarter last year, what was the aftermarket percentage? I know you said it was 60% this quarter.

In the fourth quarter the aftermarket for freight was 65 and for transit it was 46.

Okay, so just trying to see if you had that kind of sequential improvement along with ton mileage. Is there any additional inventory restocking to be done too that we should be looking for on that side of the aftermarket freight?

We didn't hear the question, could you please repeat?

Is there inventory restocking kind of still ahead on the aftermarket freight side? And do you think you have already kind of done that in 3Q and 4Q of last year?

I think that there could be some inventory restocking of business, it picks back up because obviously that amount that you have on the shelf is directly related to the 10 miles that you are using and there is a build I don't know whether or not they did do that build.

Okay, then this is just kind of a housekeeping question. What was the purchase accounting charges, I don't know if you said how much that was in the quarter in SG&A or for (inaudible).

Yeah the one for Xorail what we again call purchase price accounting which is not the continuing accounting charge from the step up in assets but the one we expect to amortize over the year. During the quarter it was about 300,000. After there was a meaningful…

Keep in mind we only had that for two weeks.

Yes, (inaudible) so much for this year, what the ongoing expense you are going to have there kind of thinking like 2011 for this acquisition as well as anything else (inaudible).

See basically if you try to model what I would do is I would model Xorail and Unifin and basically the freight margins, you are going to get some step up on both, what happens is they have to go through an appraisal process. The appraisals have to be approved and right now it's just an estimate but if you try to model it I would just model the sales that we mentioned previously and take at it at those margins. Anything we say right now would just be a very preliminary estimate, it would be very rough.

Okay, and this kind of goes back to what I think was asked about before. But in terms of steel price and the impact on margins and just rising raw material costs, I am beginning to think I know you obviously '08 to '09 we had a big step down in the price of raw materials. And anything you can answer in terms of Transit margins, how much that gave you a benefit kind of going from I think it was 12.3% to 15.8% from '08 to '09? Was that a big piece of that increase?

I don't think there was much increase in the transit area. Where we did see some margin improvement was really in the freight.

And see what happens a while with these transit contracts Paul is we try and lock in our pricing ahead of time. In other words these transit contracts can take a number of years to execute and one of the things we try and do is protect ourselves against price increases and price decreases so we tend to lock it in. Lock in the prices from supplier so if raw material prices go down may be the supplier benefits, but if the price goes up its not to our detriment and we prefer that security rather than trying to estimate what prices may do. We don't do that much on transit contract. Hopefully our goal is that you don't see too much one way or the other.

Okay, just basically the past certainly. And then the last question, I guess you know I think this week or later this week, or last week I am sorry, some MTAs you are kind of revisiting their capital budget. They looked at making some cuts and adjustments to how they spend on new cars and refurbished cars. I mean any kind of further information you guys have on that that we don't that…

Yeah I think it must have hit the press just yesterday and I did read it, it talked about the total budget was like $26 billion and they talked about cutting it by $2 billion and talked about various projects and that's part of the issue as you see these municipalities running into operating budget issues. The one thing they said that I like to see was the fact that they are going to focus on longer term how do they save money through their capital spend through efficiency safety and productivity and that's really what we are all about so I mean that's just positive although that's the kind of thing you are going to see at the states and local municipalities figure out how they are going to deal with running these transit authorities.

Our next question comes from Greg Halter from Great Lakes Review. Please go ahead.

Just quickly looks like everything else I had has been asked. But Alvaro, do you have a figure for your equity or approximation for the equity balance at the end of the quarter?

Yeah it was about, let me I want to say 700, it's about 799 to 800 and debt to cap is about 34. And that was very steady. We had the 34% was the same at the year end balance sheet as well.

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

Okay thanks for joining us this morning and we will talk to you again in three months.

Thank you again. Thanks everybody.

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