Tim Wesley - IR Al Neupaver - President and CEO Alvaro Garcia-Tunon - Sr VP, CFO & Secretary Pat Dugan - VP and Controller

Scott Group - Wolfe Trahan Jim Lucas - Janney Montgomery Scott Kristine Kubacki -Avondale Partners Steve Barger - KeyBanc Capital Market Alison Wolf - Longbow Research Scott Blumenthal - Emerald Advisors Tom Albert - BBT Art Hatfield - Morgan Keegan

Good morning and welcome to the Wabtec Corporation Second Quarter 2010 Earnings Conference Call. All participants will be in listen-only mode for the presentation. But there will be an opportunity of course you ask questions, instructions will follow at that time. (Operator Instructions). At this time I would like to turn conference over to Mr. Tim Wesley. Please go ahead Mr. Wesley.

Thank you. Good morning everybody. Welcome to our second quarter 2010 earnings conference call. Introduce you for the rest of our team members who are here. Our President and CEO, Al Neupaver; our CFO, Alvaro Garcia-Tunon, and our Corporate Controller, Pat Dugan. We'll make our prepared remarks as usual and then be happy to take your questions. Of course once I refer to today's press release or the appropriate disclaimers on our forward-looking statements. Also want to point out that we will be referring to some non-GAAP performance measures. So we encourage you to review the reconciliation table within today's press release. With that I'll turn it over to Al.

Yeah. Good morning everyone. I don't know if all of you heard the music. I just want to make sure you knew that that is not the Wabtec theme song. Today we reported a strong quarter and improved outlook. Sales were 374 million that was 12% higher than year ago quarter and 3% increase over the first quarter. Earnings per share was at $0.65, this is the highest in more than a year. This compares to an adjusted non-GAAP number of $0.55 and that's what Tim was referencing there, in the year ago quarter. Our operating margins was strong at 13.3% of sales. We increased our guidance for the year and we made good progress on our gross strategy. This demonstrates the strength of our diversified business model and that our strategic initiatives are paying off. And that we continue to benefit from the Wabtec performance system. Today we increased our 2010 earnings per share guidance based on our performance in the first half and an outlook of the rest of the year to $2.45 to $2.55. This compares to 2.40 to 2.50 was previously our guidance. Sales are still expected to be slightly up for the year with growth in freight more than offsetting a decrease in transit. The overall economy seems to have rebounded which is having a positive effect on the freight rail industry. But this recovery remains sluggish with unemployment's still high and budget issues at the federal, state and local levels. So it's proven to remain cautious about our outlook. I want to emphasize that regardless of the economy we will stick to our long held philosophy. Be discipline went it comes cost and focus on generating cash to invest in growth opportunities. Let's talk a little bit about the freight rail market. Rail traffic…

Great, thanks, Al and good morning everyone. We had a good performance in the quarter and really are optimistic of our market position which is why we improved our outlook for the year. For the quarter, sales were 374 million or about 12% higher than last year this is the highest total to the first quarter of '09. Of this increase about half is organic with the rest coming from acquisitions that Al mentioned. Freight group sales which is I think a good sign for optimism. The sales were up about 40% more than half of that coming from organic growth. We also saw a growth in the after market due to increase in rail traffic and with more rolling stock coming out of storage. Transit group sales on the other hand were slightly lower than last year this is mainly due to the completion of the R160 order in New York which we discussed previously and for some other reason regarding state funding that Al mentioned. Returns and margins, we're continuously focused on driving margins higher with particular attention on the operating margin. For the quarter, operating margin was 13.3% versus 11% last year, on the other hand once you make an adjustment that we talked about for the comparative purposes to last year operating margin for 13.5% last year. So we're slightly down basically level. SG&A was slightly high in the year ago quarter -- I am sorry it's a little bit higher than the year ago quarter mainly due to the acquisitions of Unifin and Gorail the relative purchase price accounting for those units. There was a settlement of a product liability law suit for about a 1 million, 1.5 million which we included in this quarter and some what increased accruals inventive compensation based on a…

Thanks Alvaro. Once again we had a good performance in the second quarter and for the first half of the year and we are cautiously optimistic about the rest of 2010. Longer term we couldn't be more pleased with our strategic progress and the growth opportunities we see. We are really excited about our future growth opportunities. We continue to benefit from our diverse business model and Wabtec performance system which gives us the tools we need to generate the cash and reduce cost. We have an experienced dedicated management team that is managed aggressively through the tough times and continues to drive progress on our growth initiatives. With that we'd be happy to answer your questions.

Thank you. (Operator Instructions). And our first question comes from Ed Wolfe of Wolfe Trahan.

Hey morning guys its Scott Group, in for Ed.

Hey good morning.

First, why don't you talk a little bit about positive train control? Is there anything for PTC currently in the backlog? And if not when do you think it does show up in the backlog?

Let's talk in generality and then I'll answer your backlog question. I'll answer that first. There is very little PTC in the backlog. We do have some contract with Xorail from the signaling design and engineering standpoint. But actual hardware orders are not in the backlog. We do have development programs going on with each of the railroad. We're making great progress on the development of the PTC systems right now. That development would probably continue to probably later this year well into the third quarter at which we will go into the testing phase. At the completion of that testing phase then it will move into a product safety plan approval from FRA, the Federal Railroad Association. Some other things that are being worked out with the class one railroads or inner operate-ability, that is their ability to drive their trains on other peoples railroads and be able to communicate. And that work is also going on right now. So there is progress being made. However as far as our backlog is concerned there's not much backlog in there for that particular technology at this point.

Okay. That's helpful. And when -- I think I heard you Al talk about the 250 million to 500 million in revenue that you think from PTC and that's in line with what you've said in the past. Does -- can you just refresh me, does that include opportunities with Xorail or do you think brings you above that 250 to 500 range?

The 250 to 500 does include Xorail. We figured that Xorail added about 50 million to 100 million to our faded opportunity in the past for the on-board computer. And that's always been in $200 million to $400 million range. I want to make sure you understand there's a lot of other expenditure that are going to be associated with positive train control some of which we have product and interest in trains to develop that is not included in those numbers. And if that program rolls out as the development of those product like on the dispatch system or trying to tie these systems together between the on-board computer and our capability in engineering design for the signaling side with Xorail that creates other opportunities for us.

Okay, that's helpful. Next can you give us the breakout of a transit for freight operating margins the quarter?

We typically don't give those out, they will be in K which will -- the Q I'm sorry. And that should be out in early, August okay?

Okay. So actually though can you talk about was there some pressure on transit margins now that's a big subway car contract with New York has finished? And then with respect to that contract can you talk about the time for new bid with the MTA for subway cars in New York?

Okay. I really can't comment on the trends of those margins, you can look at past performance and I could tell you that we're a -- the company was is very focused continues improvement and there's a lot of things that impact the margins quarter-to-quarter. But over the long run our goal is to continually improve and grow our margins which we've been successful in the past in doing. As far as new orders from the New York City systems, there is two contracts. One is already been granted to the car builder and that is smaller car number, I think its only like 26 or 28 cars with some options and that's called R 188, A larger car order, we're working on the design and that is called R179 that should follow shortly they are doing a lot of work right now on the specification. That would be a larger car order probably in the range of 100's of cars versus smaller R188.

And what's the timing for that going out to bid?

We're not a 100% sure, but it defiantly is probably at least 12 months, if not a little bit longer all.

Okay. And then last two quick ones. First on the acquisition side, it's been three acquisitions over the past two quarters. So want to get your sense, is the focus now on integrating those deals? Or you still out there looking for additional acquisitions?

We continue to have a very active pipeline and continue to look for acquisitions. It's an important part of our growth strategy. Typically we have a corporate development team that -- what we try to do is have a seamless hand off from the execution of a contract and the acquisition. We hand it out to the integration team that has been part of diligent team. And that's usually our operating folks that take control as such. They are the once that are actually doing the integration and we got the corporate development team out there digging up more opportunities.

Okay. And then, the tax rate of 33% was a little lower than we thought. Can you give some guidance going forward? And thanks for the time guys.

Okay.

Yeah. I think going forward we'll probably be somewhere around the 35 to 36 range probably somewhere in the middle phase. But somewhere around 35.5.

Okay. Thanks guys.

Thank you.

Thank you.

And the next question comes from Jim Lucas of Janney Montgomery Scott.

Thanks, good morning guys.

Good morning Jim.

Good morning Jim.

First question, Alvaro could we go back and talk a moment about SG&A. You talked about a few things in the pocket there. But that was a bigger jump than we've seen on the SG&A line in a while. And I was hoping you might be able to bridge a little bit more further what exactly that year-over-year jump came from.

Year-over-year well that -- well might be more relevant, I don't know you tell me, Jim is actually run-rate from last quarter to this quarter.

Yeah, that's --

And I can tell that either. But I thought basically you guys probably needed -- excuse me, for modeling purposes. And I'd be happy to do it from either quarter. But from last quarter we were about 44.5, 44.6 in SG&A. Acquisitions added about 4 million to the SG&A line. 1 million of that was some expenses that one of our acquisitions used to re-class in cost of sales and actually under our account we put those under SG&A. But about 4 million of the increase is do to the acquisition on Gorail and Unifin. Incentive comp is up about 1.2 million we've been kind of under approving incentive comp a little bit, just pending results but now results you saw what the increased guidance look pretty solid and we increased the incentive comp like I said by about 1.2 million. And then we had a settlement of a law suit it was a product liability in one of our units that we thought was just more prudent settle. This was more of a one time item. But again there always -- that's why I always caution you with SG&A. There is always something in SG&A either a good guy or a bad guy and this quarter turned out to be a bad guy. And that was for about 1.5 million. It was law suit in Texas which is a plain of friendly state which we thought it was prudent to go ahead and settle. And I think if you add all that up you can see about 51 million that we had this quarter.

Okay. That's very helpful, thank you.

Absolutely.

And then switching gears you gave a little bit actually you gave a lot of color what is going on the transit side and freight the mix issue after market doing a lot better here. Could you talk a little about what you're seeing and the pricing environment both freight and transit right now? And any update of how you're thinking about potential inflation impact in the second half of the year?

I think any time that volumes are down especially in the freight market there is some aggressiveness on everyone's part to try to get some volume back into their shops. So there is that pressure. However we have been very disciplined and we will continue to be disciplined. In the transit area you always have specially on contracts where close bid there is always been a pressure there try to obtain the order. So I don't think any things really changed in that arena at all. When you look at inflation and how we're handling what we are try to do is again have discipline with in the cooperation where we have agreements where there is a surcharge where there isn't a surcharge then we have to have the supply that needs to be guaranteed at a certain price. So we have always even while all the prices have been down on the raw material side we tried to continue to make sure our contracts were favorable from a standpoint of inflation and handling surcharges related to them.

Okay. But nothing out of the ordinary that you're seeing out there?

Not at this point. I think the one commodity that probably is risen more than the others has been rubber. And I think that that's maybe driven by the automotive business. But that's kind of leveled off as of late.

Okay. And then in your prepared remarks you referred to a couple times about the progress you're making on getting your -- getting qualified on European systems. And was just wondering if you can give us a little bit more color on exactly what kind of progress you made there? And what's still to come there?

Yeah. We continue to sale our components and we've actually had some small systems orders, a few systems in Europe. They give you some idea about the opportunity. Over the last 12 months we have bid on in excess of $300 million worth of business. And we didn't win any of the contracts, but not all of them has been let. There's still good portion of that where we're still competing that try to win some systems business. As I stated before and I state it again today, it's just going to take time. We'll break through that door.

Okay. And finally, with your third JV in China, can you talk a little bit more about what you're opportunities are currently and longer term for the market in China?

Yeah. We've grown that business nicely over the last two years to where our sales in China are between $60 million and $70 million. And we expect that to grow with a great pace over the next couple of years. And we would anticipate we have more than a $100 million work of sales in only a few years. We think that there is a nice window of opportunities that we need to take advantage of. So we've been pushing hard, getting a place and the position we're in right now. We have a few more JVs that we're working on that would really broaden the product offering that we could make and position us better. It is a great market, it is growing rapidly. I think the time to really be in there is now because it is only a window of opportunities as far as we view it.

Okay. Great, thank you very much.

Thank you, Jim.

Thank you, Jim.

Thank you. The next question comes from Kristine Kubacki of Avondale Partners.

Kristine are you there?

Good morning.

Good morning.

Okay. I took a minute there. I'm still here. A few questions, you talked about the transit after market softness in North America as short term in nature. I was wondering if you can give us some insight or what kind of insight do you have into kind of the inventories or a slowdown in maintenance. I mean I guess I'm trying to figure out is it a two quarter kind of phenomena, that is a four quarter phenomena, do we need to get pass the highway there? Or what kind of -- what does short term mean?

What is happening at the authorities obviously is, their budgets have been cut, they're cutting service and they're cutting ridership. As you cut ridership and service out there, it has an impact on the ware and tare of their systems. And there is a decline that's proportional to that. We also feel that because they are so tight on cash, they're being very careful with their inventories. So they run that down. Those are two things we'd have to see. We do not know, we had a good feeling for where their inventories are at, although we're seeing some -- a little bit of life there on the after market side from replenishing some inventory. But I can't say that's a trend right now. The ridership stabilizing and actually showing improvement is a positive thing for the after market in the transit area. So if -- however I have to caution you this doesn't solve big problem. The big problem is that government needs you to come up with a way of funding the transit system in this country. And -- but that needs to happen. And I think that a long term in with -- the transit people want to see is a long term build. It supports the transit funding with increased spending over that period. And I think once that's in place that would go a long way in getting transit to where it needs to be. As everyone knows, a transit is it's a politically correct market. It really solves a lot of the countries problem. If they can pull an industry that we are really feel good about it's long term potential. Not only in North America but around the world.

Do you have any guess if to say if the Federal -- there has been some Federal push to kind of take over the safety over site. Do you have -- are you following that closely? And do you think that that would be an increase to the amount of maintenance? You're getting it into a state of good repair. I guess it’s a question where the funding will come from

Yeah. I have to tell you Kristine, I have not followed that closely. So I really don’t know much about the impact.

Okay. Fair enough. Moving on to Europe I know you mentioned it about some of the trying to grow your market share there. But just looking at the market kind of come up in macro perspective, now we see there has been a lot going on economically over there. Have you seen anything related to the transit systems over there about them pulling back and spending there as the result of their economic world so to speak?

No. We've seen no reduced spending or activity in the transit area from the economic problems in few of the countries there.

Okay.

Their business really held up during the recession.

Okay. Anything that will suggest that would have continued to be the case?

None that we have, no.

Okay. And then my last question is we have been hearing some of the rail roads have been making some pretty bullish commentary and even talking about adding locomotives next year which is a bit over than what I have anticipated. What is your sense from talking to the railroads that are here in North America kind of what their direction is locomotives purchase are for next year versus this year in kind of railcar additions for next year replacement?

Yeah it's hard to predict. I think the railroad like us want to be cautiously optimistic about the future and if they can continue to grow that volume and ton miles I think they will continue to take what they have parked back into use and would lead to OEM orders into the future. And I have heard the same discussions what you heard there are some talk about that. But I think they are going to very cautious I think they have done a great job improving the velocity and efficiency and they want to continue to do that.

Okay. Thank you

Thank you

Thank you. And the next question comes from Steve Barger of KeyBanc Capital Market.

Hi, good morning guys.

Good morning, Steve.

Good morning.

I think overall you sound pretty confident about conditions and how your performance is shaken out you have done a couple of acquisitions which should be agreed cost margin has been great in the first half if you look at the mid point of your guidance it suggest lower EPS in the back after what you put up in the front half so my question is are there any specific factors you see coming up that make you think earnings might fall below about 28 in the second half or you just being conservative

I am going to give you the quick as these answers. We are being prudent and conservative because I don’t think any one feels that this economy is road buff and in order to freight market to continue the economy has to continue to reboundAnd in the transit side, as I said spoke to it, this whole funding issue needs to be resolved I think to lift the cloud from especially North America.

As you've gone through July so far as it relates to the freight side of your business, have you seen any moderation? Or are things continuing to get better? Right now are you generally -- you said cautiously optimistic. But do you see anything that makes you overly concerned right now?

Nothing's overly concerned, although a ton mile being the plateau a little bit into the second quarter.

Okay.

On a week-to-week basis if you look at it.

Right, got it. Okay. And moving on to some of your commentary earlier on the PTC side. I know it's hard to frame up, but given some of your new acquisitions what's the market size of some of the other opportunities that you might have with your engineering towards right now? Any color there?

Well, again the railroads talk about spending between 5 billion and 10 billion on PTC. And if you look at that and you know what has been spend already, what you're going to see is that opportunity -- I think this year what CFS had close to 200 million budged, another railroad had a 170 million. Depending on the size of various numbers, those numbers add up to maybe $600 million to $800 million a year, $1 billion a year for the next four years. So their numbers have gone too far up. You're look at $3 billion to $5 billion maybe more. We can not -- we do not participate in that entire market and there is a lot of competitors out there in the various marketplace. We have not fully quantified that other opportunity. So there is opportunity, we'll get some share of it. But we have not quantified it at this point.

Just to kind of help us frame up the potential opportunity. Is it -- could it potentially double the 250 to 500 you're talking about? Is it a function of that size? Any broad commentary on what is potentially available?

I can tell you that doubling it would be -- that would far fetch. But getting percentage of that in other areas is possibility. So I'm being very wage only because we haven't developed the product and those orders are not out there right now. And I don’t want to lead people on that it's going to be a major doubling of the 500 million type of thing until we have better visibility of those opportunities.

It's understandable. So, just my last question then, as you think about those opportunities in the context of the acquisitions you've done, is it reasonable to think that the margin profile would be at corporate average? Or maybe where you're freight margins are or just what's the potential?

I think that depending on the product I think that would be allover the place. So in general we feel that we could at least be as good we're doing. And hopefully do a little better because we have sunk a lot of cost into this technology. And hopefully the future margins would be better so that we get the return on our investment.

Sure. Alright, thanks. I'll get back in line.

Okay. Go ahead.

Thank you. The next question comes from Paul Bodnar of Longbow Research.

Hi this is Alison Wolf calling in for Paul Bodnar.

Hi Alison.

Hi, how are you?

Good.

Good. Most of my questions have already been asked. But I do have question about what you were commenting on the European save the environment. And you said over the last 12 months that with over 300 million in bids--

Right.

And you're not won any. First of all, how many have not been awarded out of that 300 million?

Probably about 30% to 40% have not been awarded yet.

Okay. And would you consider sort of 300 million in bid sort of a typical annual rate of it for that market? Or do you think it's a little late?

Yeah. We haven't been playing in that market that long. But the study suggest that that's a pretty good profit it's running at.

Okay, alright. And then in terms of the impact of the --

And keep in mind we didn't bid on all the opportunity. Those were the once we bid on.

Okay, right. So this 300 million you see a sort of a good kind of run-rate fore the foreseeable future, for next year, for year after?

Right.

Okay. And then in terms of the impact of the decline of the euro, how do you see that impacting your penetration into this market?

We have -- we acquired a company by a name of Polly few years ago and that is out European platform, our cost is in euros. So we really don’t feel that there is a major issue there. Some of the technology in some of our products may come for the U.S. But a majority of the product would be laid at our European site.

Okay.

And we also have a low cost platform in Macedonia.

Okay. Alright, thank you very much.

Thank you.

Thank you. And the next question comes from Tom Albert of BBT.

Hey, Al, Tim and everyone else. Couple of questions here, you had this really strong revenue growth in the freight segment 40%. If I just plug in just a 40% growth rate for the third quarter you went up about a 174 million revenues which would be below the 190 historically the third quarter was a little softer than the Q2. But its been so long since we have had kind of normal period can you just talk about what the revenue potential might be for the freight division here as we move back towards normal times?

I think you got to keep in mind that what the numbers that we're being able to deliver. The railcar build is still at the deliveries was 2900 back to the 12,000 car build rate for the year. I don’t know if we were over that low maybe back in the early 80's but I know when the kind trade I have been involved looked at 17,000 was low. I mean we're still at an awful low railcar build. And if you look at the locomotive build we talked about in the 400’s I mean just last year we were looking at 8 9 almost a thousand 700 last year so still have a very low basis the market place and there is a tremendous amount of expansion going to be available if this economy continues to rebound and the question. That’s what $60million question is will it continue to rebound.

So Al, you are saying that I mean I get the big picture comments. But are you saying that its not clear whether we should be thinking about a similar or even a greater revenue growth rate at least for the next one to two quarter?

I think the builds the next one or two quarter you have guessed railcar builds and locomotives builds is probably as good as anyone. And I mean we could really openly discuss what things consultants are saying and in next few quarter they do not see a major rebound.

Right. And with in the transit space what percentage of the backlog I guess relative to the next 12 months is with in North America versus elsewhere?

Oh boy now you are getting.

I would say a large chunk of that is with in north America as long you include NAFTA a large chunk of that is within in NAFTA.

I'll calculate in a few minutes.

Okay. And then I wanted to clarify one thing on, as you went through the SG&A which was very helpful, you mentioned a $1 million was re-classed from cost of goods, was that a $1 million on top of the 4 million?

No. No, no.

Within the four.

I'm sorry. Actually I could have made that clearer, I'm sorry. No, the 4 million includes the re-class.

Okay. And I guess last question Al, back to you. Maybe Kristine's question just asked a little bit differently. We know about the softness in the after market some near term weakness with OEM projects. But you did describe a robustness for packages longer term. Why do you think that dichotomy exists between weakness and you had a robustness for packages over the longer term?

I think the real change has been one from just a political standpoint, the correctness of transit. And I just heard here in Pennsylvania, Governor Rendell asked promoting, we need to find ways to fund our transit. We got to use more money in that mode of transportation. I think that we've really, we've got a major change in attitude toward transit and the project. And also the projects that are out there or the programs that are out there are old and they need upgraded and they need placed. So I think that it's a compelling story going forward. And I think that's what we're seeing. You have got all these rules related the funding and their budgets. Yet we are all planning for the future and trying to get high speed rail. Trying to upgrade the quality and safety of our transit systems we have. And I think that's what everyone wants to see in this country right now.

Okay. That's helpful. And if you end up calculating that other thing, the transit feel to share, that's all my questions.

Thanks a lot.

Thank you.

Okay, Tom.

Thank you. And the next question comes from Scott Blumenthal with Emerald Advisors.

Good morning gentlemen.

Hi Scott.

Hi.

Al you talked about the numbers of cars that are still parked in, I think that they are over 25,000 more than last call and were down from about a 0.5 million. When we look at the gross margins which were really terrific for the -- so that suggests some pretty higher margin sales coming through in the current quarter. Could you talk about the opportunity as we see the parked cars, the number of parked cars dropping and the backlog in new rail cars kind of building a little lit the opportunity with Wabtec with regard to would we prefer to have some of those parked cars and rehabilitated or just send new car bill ramped and I guess have to visibility that we would get seeing all those new cars ordered in front of us.

Right. Generally even when they scrap a route car its my understanding that they disassemble it and utilize as many of the good parts if they can now there is obviously parts that get thrown away and provide a -- opportunity to it that we also see the benefit of any part taken off that might need repaired or upgrade so there is a benefit for us when they do scrap a car it creative from both angles one it creates the opportunities that a new car could be built but two we probably get some of the work on the after mark on those products I think we will see is combination of both I mean you going to continue to see the part cars come down which your going to see is surely just cars specialize specific application cars maybe there wont be enough in a modal cars at a specific sight may not be enough covered hoppers may not be enough aluminum coal cars I think it is going to be they are going to come out of unique order for specified particular car. So we will see that during the OEM and non car parts go away what we get backlog the normal run rate which is probably 40,000 to 50,000. Now keep in mind I don’t think anyone knows what a normal number of parked cars is at least no one has able to answer that question to me and I think its all over to place I heard the lowest 15 I’ve heard highest is 250 I have no idea and I am not sure any one does because they never kept records before few years so its all good for us because the economy will recover will come back and as it comes back our after market is going to be good as long as the traffic in is upwards track today or higher.

Now prior to the recession when we look at the fleet we discussed on these on these calls that the tendency obviously the fleet is always aging but the fleet at the time was getting toward the older -- I guess kind of towards the end of its useful life. And I would imagine of the 365 that's currently parked, you obviously have the dregs of the dregs. And much of that will not come back. So do you see or would it be your belief that we are probably closer to an increase in new rail car orders than the 365, would lead us to believe?

I wish I knew the answer to that question. I've been trying to get it and it's really been something that's no one has really been able to get their hands around that. Maybe there is someone that understand that. But I'm not sure what that bottom number is and I'm not sure how many of these cars are cars that are never going to back. And so --

Well if anybody would understand it wouldn't Alvaro understand?

I'm already to give out the first shot. I would say we're certainly in a better position to see what you're saying right now than we were a year ago. And I think the numbers are going to improve. The question is when rather than if, I think.

Okay. And I guess one last --

I can tell you Scott that there was a railcar panel was put together by an analyst and we had all the experts together. They couldn't answer that question.

Was Alvaro one of the experts?

No. No. we were in the audience.

Again guys see you there.

Okay. And if I may one last one about PTC, there was a nice article in the economist this week, that is a female's attempt, talking about the possibility of tax incentives needed and the rail, the railroad company is not being terribly excited about making those large investments believing that it only covers a small portion of the human error that occurs over the course of time, which would require I guess the use of PTC. Do you see tax incentives maybe needed in order to get that, I guess, is that up a little bit?

I think that the class one railroads, first of all in a situation where they spend what 15% to 20% of their revenues in capital each year. And I feel that this technology like other investments that they are asked to make should, they should be helped with the funding. And I -- we think it would help commercialize technology and would help the class ones be a lot more healthy than they actually are, which they are healthy companies today. But when you have mandated technology that you have to implement I sympathize very much.

Okay. I appreciate that. Thank you.

Okay.

Thanks Scott.

I think we have a follow-up question from Tom Alert of BBT.

Yes hey guys.

Tom, you're only allowed one time. You can't have a follow-up.

Oh!

But for you we'll make an exception.

Well there you go. That's always hearty to hear. You might have commented on this, in the beginning I was sort of looking at things and listening. But in the gross margin, would you say that the biggest influence and a favorable gross margin year-over-year was the performance sort of late stage transit project where you've talked about how very late those margins can be favorable? Or was it due really to the strong recovery in the freight side?

I think it's really the mix and I think the favorable performance in the freight side had a bigger impact.

Okay. Thank you.

Okay.

Thanks.

Alright.

And last question comes from Art Hatfield of Morgan Keegan.

Hey good morning everybody.

Good morning, Art.

Just a couple of things. I'm unfortunately been in and out of the calls, so you may have covered this. But the other income line of about $1 million positive in the quarter. What was that due to this quarter?

We always have a mix of things in that line, Art as you can imagine. The predominant portion, that deadline can be negative, it can be positive. Obviously this quarter was positive. And most of that is due to paper FX, you have to recognize FX gains and losses based on inter-company accounts on other asset liability and P7L balances. And that was it was due. I think about 500 or 600 was due to the effects of large majority of that.

Okay. That's helpful. And then you spoke a lot about freight car -- new freight car demand and I don’t want to go into all that again. But just one quick question I didn't hear you address this. Are you seeing from any of the builders them kind of poking around of you with regards to some potentially large orders that they maybe getting and seeing about your abilities to supply those orders?

We'd love to that to happen. And we'd be happy to supply them. But I am not aware of anything.

Okay. And then finally, on the high speed rail, and I know that we're in a countries in the very early stages of discussion on this and kind of the direction going. But in the past I think there are also, the economist was referenced earlier, I hate to reference it again. But in spite of first time in history --

We're impressed that you read it.

Well, I don’t. But somebody else does for me.

That would be more impressive what they have.

Yeah. Well whatever. I'll take the compliment. Thank you. Talking about high speed rail, one of the difficult things that did occur in other countries is the sharing of passenger are freight on the same line. And here we have a unique circumstance relative to some other countries where the infrastructure is owned by the government, here it's owned by private companies. Have you heard or seen anything early stage discussions? Or about how that will occur? Or are you looking into the developing any products that could help make that kind of pass inconvenience a little bit more tolerable than the freight railroads?

Yeah. Well first of all if you look at the programs that were approved, there is only a few of them that are actually going to go on dedicated lines. And yeah you're right, in Europe you have dedicated high speed line, it's electrified. And they are able to create that system. And that's exactly what they're going in China. But China is spending about $300 billion to do that. We've got about 8 billion has been funded for high speed rail. The two programs that are going to be dedicated as you talk is the one in Florida between Tampa and Orlando, and that's only about, I think it's an 84 mile track. And they're going to need quite a bit of money just to get that completed. The rest of the projects really are going to be shared between the freight and the transit programs. There is some expansion in the northeast, that's the only other exception. So -- and to answer your question, are we working on anything that would help those two work together. And that's truly what PTC is about. And if you remember the Genesis of the mandate was that a transit line that can use the railroad was running on a freight line and ran into a freight locomotive. So yeah, we're working hard on that. And what you're going to see is an upgrade of some of the freight lines. So they could take faster trains. But you're not talking about the 300 mile and a 200 mile track. You're talking about lines on 80 mile an hour to maybe 95 or a 110. And that will allow the freight lines which almost upgrade those and we hope to participate in some of that development.

That's very helpful. Thanks Al.

Okay. Anything else Art?

No that's it. I am good. Thank you.

Hey, thanks a lot.

Thank you. (Operator Instructions). Okay. There is nothing more to present Tom. I'd like to turn it over to Mr. Neupaver for any closing remarks.

No. Thanks a lot and we'll talk to you at the end of the next quarter.

Thanks everybody.

Bye-bye.

Thank you. That does conclude today's teleconference. You may now disconnect your phone lines.