Westinghouse Air Brake Technologies Corporation (WAB) Q3 2011 Earnings Report, Transcript and Summary

Good day, and welcome to the Wabtec Third Quarter 2011 Earnings Conference Call. [Operator Instructions] Please also note that today's event is being recorded. At this time, I would like to turn your conference call over to Mr. Tim Wesley, Senior Vice President and CFO. Mr. Wesley, please go ahead.

Thanks, Jamie. That's actually not my title. We have our CFO, Alvaro Garcia-Tunon here, so I'll...

Battlefield promotions always work. That's okay.

Well then good morning, everybody, and welcome to our third quarter call. So with us today, we've got, as I mentioned, our CFO, Alvaro Garcia-Tunon; our CEO and President, Al Neupaver; Ray Betler, Chief Financial Officer; and Pat Dugan, our Corporate Controller. Al and Alvaro will make some prepared remarks and then we'll be happy to take your questions. During the call, we'll make forward-looking statements, so please review today's press release for the appropriate disclaimers. I also want to point out that on today's call, we will refer to both GAAP and non-GAAP EPS guidance because of the special items that we discussed in our second quarter report. We lifted those special items again in today's press release. We believe that Non-GAAP guidance provides useful supplemental information to assess our operating performance and to evaluate period-to-period comparisons. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, Wabtec's reported results and guidance in accordance with GAAP. Al, go ahead.

Thanks, Tim. Good morning. We had a very strong operating performance in the third quarter with record sales of $499 million and record earnings of $0.96. As we'll discuss, this performance was driven mostly by growth in our Freight Group, but our Transit Group continues to perform well. Based on this third quarter performance and our outlook for the rest of the year, we've raised our annual guidance for sales and EPS. Clearly, our business is performing very well, thanks to our diversified business model, our strategic initiatives and the power of Wabtec Performance System. We are well-positioned to take advantage of our growth opportunities around the world, yet prepared to manage through an economic downturn should one occur. As I mentioned, we raised our 2011 sales and EPS guidance based on our current backlog and outlook. We're now expecting earnings per diluted share between $3.65 and $3.70, with sales growth of about 25% for the year. This guidance excludes the special items we recorded in the second quarter. If we had included those items, our guidance would be $3.46 to $3.51. Our guidance assumes the following: the global economy continues to grow modestly; freight rail traffic continues to improve with the economy; transit market continues to be stable; and there is no major changes in foreign exchange rates. We will continue to stick to our long-held philosophy and that is, be disciplined when it comes to controlling cost and focus on generating cash to invest in our growth opportunities. Let's first look at the freight rail market. Rail traffic continues to grow this year and, in fact, it is currently running at the high point for the year. Through mid-October, ton miles increased 2.7% and intermodal traffic was up 5.3%. The Increase in traffic has led to strong growth in our North American aftermarket business with aftermarket sales in the third quarter up 26% compared to a year ago quarter. The OEM markets in freight also continued to strengthen, with OEM sales almost double that of the year ago quarter. We expect about 40,000 new freight cars to be delivered this year. We just got the statistics related to rail car build just this morning. Third quarter deliveries were at 12,519. Orders were at 20,165. So that means that the backlog rose to 65,000, the highest level in more than 3 years. We do not expect any changes in the locomotive build, about 800 this year, and that's about double what it was last year. In the third quarter, our freight revenues hit a record -- quarterly record of $316 million, even with OEM deliveries still well below recent annual high, which bodes well for continued growth. Now if we look at the transit market. We continue to see stable markets in the U.S. as well as abroad. In the U.S., ridership was up 1.7% in the second quarter, the second consecutive quarter it has increased. Transit car deliveries were about 1,000, but bus deliveries will be at 4,800, both are slightly less than in 2010. And these numbers are projections for 2011. As for funding, the politicians in D.C. on both sides of the aisle are now talking about a new federal Transportation Bill, that we could see something by the end of the year if they manage to tie it to the Jobs Bill. In the Senate, Boxer's going to introduce a two-year bill and Mica in the house is taking a look at a 6-year bill. More important, they both seem to agree that stable funding plus inflation is the way to go. That's a far cry from just a couple of months ago when Mica was calling for a 20% to 30% cut. So we are positive about our transit opportunities based on the long-term demographic and economic trends on a relatively small market share and large global market. For the quarter, our transit sales increased 10%, and our 12-month backlog increased 6% as orders continue to run ahead of last year's pace. Our strength in transit is related to our diversity and growth initiatives and that has really helped to stabilize the transit business. Year-to-date, sales are 57% outside of the U.S., and we have about 63% of our business in the aftermarket. Product-wise, we were also diversed. We make components for subway cars, for buses. We build new locomotives. We overhaul and maintain locomotives and passenger cars. We provide positive train control at the transit industry, electronic products. Therefore, as you could see, our customer base is diverse. Also, we continue to invest in transit growth through acquisition, new products and global expansion. As a corporation, we continue to focus on growth and cash generation. Cash remains a priority. It provides the opportunity to invest in organic growth and acquisitions and to return money directly to shareholders in a variety of ways. The board has set our dividend at $0.03 per quarter and has increased our stock buyback authorization to $150 million. During the third quarter, we repurchased 308,000 shares of Wabtec stock for about $18 million. We are focused on increasing free cash flow by managing cost, driving down working capital and controlling capital expenditures. This will enable us to continue to invest in our 4 strategic growth opportunities: global market expansion, after market expansion, new products and technologies, acquisitions. If we look at our strategies, in the global market expansion area in this quarter, sales outside of the U.S. were $230 million, that's 46% higher than in 2010. We've also seen growth in non-rail with strong performance by our thermal management businesses. In the aftermarket expansion area, overall aftermarket sales were at $282 million for the quarter, 57% of our total, growth of 33% compared to the prior year. This was due to our growth initiatives, acquisitions, increased traffic and the rails which benefits our Wabtec Global Services unit among others and increased service contracts. We continue to stress looking for strong candidates for acquisitions in rail and adjacent non-rail markets. In the new product arena, we've decided we like to focus on one new product that we have for just a little bit. I'd like to really update you on positive train control. Positive train control is a technology designed to automatically stop or slow trains to prevent collisions, derailment and unauthorized movement. It includes computer hardware and software on a locomotive and electronic devices along the track. It uses GPS to monitor the train's location and communicates with the railroad's back office and dispatch centers. For many years, positive train control was at the top of the NTSB's wish list for safety project. And Wabtec has been in the forefront of developing the onboard locomotive equipment required for this system. In fact, we've invested more than 10 years and $100 million in the development of positive train control. In 2004, BNSF began a pilot program using our PTC product and the railroad received approval to expand PTC along its network in the year 2007. Meanwhile, we began working on pilots with other railroads including Metra, a commuter railroad that serves Chicago. So the industry seemed to be progressing toward PTC implementation on its own. As we all know, in 2008, there was a very serious collision between a freight train and a commuter train in California. More than 20 people were killed. After one month, Congress passed the Rail Safety Act, which mandates that positive train control is to be installed by December 15 on commuter locomotives, freight locomotives that share track, as well as locomotives that carry certain types of hazardous materials. Given our success with BNSF and the projects we’d already started with other railroads, Class 1 eventually decided to standardize on the Wabtec onboard solution. Along the way, we expanded our PTC capabilities that include signal design and engineering, project management, back office and dispatch work. Currently, we are working closely with the railroads to design a positive train control system that will consistently perform across the entire U.S. rail network. The industry uses the term interoperability to describe the system-wide performance, obviously, a test that is not a simple one. Now let's talk about the work we're doing this year and the next steps. We've released the latest version of the onboard software which provides the majority of the interoperable functionality. Railroads have begun doing lab testing. We're working on software that integrates the onboard with the back office server. At least one railroad has surpassed 1,000 hardware platforms ordered, while others expect to increase purchases going into next year. We expect field testing to begin next year, followed by submission of the product safety plan to the FRA by year end. Now what does all that mean in terms of PTC revenues for Wabtec? As you know, we have said that our U.S. freight railroad opportunity is between $250 million and $500 million through the 2015 implementation deadline. This may proved to be conservative, but we think it's a prudent range at this point given the complexity and the other uncertainties of PTC which I'll review in a minute. This range includes potential revenues of $200 million to $400 million based on the cost of onboard systems which ranges anywhere from $20,000 to $40,000 and a number of locomotives that will need to have it installed on between 15,000 and 20,000. The competitive factors such as market share are also taken in consideration. It also includes potential revenues of between $50 million to $100 million for services at Xorail, our signaling engineering division can provide. In addition to the U.S. freight rail opportunity, we're also generating PTC revenues from U.S. transit agencies as well as internationally. These opportunities are not included in the range I just discussed. Last year, we had about $20 million of revenue that can be contributed to PTC technology. We now expect about $100 million this year. If the programs proceed as planned, we should see continued growth next year as well. In the U.S., 21 commuter agencies will need to install some form of PTC, and we expect to play a role in many of these projects. We have announced contracts for 2 of the largest ones, in Denver and Los Angeles. We just signed a $63 million contract with Denver Transit Partners to provide a dispatch office, wayside engineer and project management services for a PTC system to be installed on 3 new commuter rail lines. We also have a $27 million contract with Metrolink in Southern California to provide PTC equipment and services. This project is to be completed by the end of next year. Please keep in mind that most of the other transit PTC projects will be much smaller than the ones we've already booked. In Brazil, meanwhile, internationally, we've signed a $165 million contract with MRS Logistica to provide a turnkey PTC solution, including project management, signaling, communications, train dispatch equipment, onboard electronic equipment for 500 locomotives and 50 auxiliary vehicles scheduled to be completed in 2013. MRS is the fourth largest freight railroad Brazil. Thus, others may show interest in PTC, but any additional opportunities would likely be a bit into the future. In addition to these opportunities, the U.S. freight and transit markets, we would expect to generate PTC-related revenue through service contracts, system upgrade, related products and services. But it's too soon to quantify that. Clearly, the Wabtec PTC opportunity is significant and ongoing, and we will keep you informed as we make progress. As you want to make assumptions about this opportunity, we think you should keep in mind that many factors could affect the size and timing such as market share. There are obviously other companies working on competitive systems, so market share is certainly a variable. Complexity and scale of PTC. We're still in the early stages of a multi-year, multi-hundred million dollar new product rollout. We can't predict the exact number or timing of revenues or the profitability of the various projects. Actions by the federal government. In the U.S., PTC is an unfunded mandate and the railroads have opposed that for various reasons. We can't predict whether the government will modify the law or delay the deadline. Scope of transit projects is also a risk. It's very difficult to quantify the transit opportunity because the agency size and the project scope varies greatly. For example, Metrolink, which is the commuter railroad in L.A., has about 100 vehicles, where North County in San Diego only has 10. And finally, funding itself. The U.S. transit agencies already have budget issues that are affecting their existing operations. PTC will require substantial additional funding. All that being said, we are truly excited about the PTC opportunity. But I want to remind you and I want to emphasize to you that we -- although we're extremely excited about all these growth opportunities, in fact, PTC is only accounted for about 20% of our growth in total revenues so far this year. So we clearly have a lot of other initiatives that we're excited about as well and that are ongoing. With that, I'll turn it over to Alvaro.

Thanks, Al, and good morning, everybody. Financial results for the quarter, I believe, were very positive. Sales were a record $499 million, about 33% higher than last year. While this increase, about 3 quarters was organic growth. In the Freight Group, sales were up about 51% with almost all of that coming from internal growth and the rebounding freight markets. Al talked about the Freight car orders a little bit earlier in the call. OEM sales almost doubled based on increasing demand for new locomotives and freight cars. Increased sales of PTC products, services growth in the non-rail market, such as power generation, also helped in the growth. Aftermarket growth increased by about 25%, and this was due to increasing rail traffic. Transit growth sales increased 10% with acquisitions in higher aftermarket and international sales, more than offsetting lower OE and U.S. sales. Margins, as you know, well we're always striving to drive our operating margin higher. For the quarter, operating income was a record $75 million or 15.1% of sales compared to 13.5% of sale last year. This was a good performance but, obviously, we have room for more improvement, and we're confident we can do so over time. Interest and other. Interest expense was a little bit lower this quarter due to lower net debt compared to last year. However, other expense increased by a little bit over $1 million due mostly to paper FX, foreign-exchange translation losses. In terms of taxes, the effective tax rate this quarter was about 33.6%, about the same as last year. The rail fluctuate, obviously, as we go forward, but we do it -- it's a little bit lower than it has been in the past due to some tax saving initiatives, and we expect it to be somewhere around 34% in the future. Working capital was up mostly due to increased sales. Receivables were $346 million, up about $10 million from last quarter. Inventories were about $325 million, up $14 million. And payables actually went down, and their balance was about $179 million. In terms of cash at September 30, we had $220 million in cash, about the same as the end of the last quarter. And during the quarter, we generated cash from operations of about $34 million for the year. Year-to-date, we're at about $100 million in terms cash generation. In terms of debt, at September 30, we had about $405 million compared to $396 million total debt at June 30, which given the strength of our cash flow and other prospects, I think, is a very reasonable balance. Few miscellaneous items. We always discussed during the call, depreciation during the period was $8.8 million compared to $7.1 million last year. Amortization was about $4.1 million versus $2.6 million last year. The increase in both is mostly due to acquisitions. CapEx spending was $9.4 million for the quarter. Year-to-date, CapEx is about $22 million. We're forecasting about $25 million to $28 million for the year. Given our size, we think that, that's a reasonable total. And again, lands to the strength of our cash flow. Our backlog, I think, that's a number that always draw some interest, and we always discussed it during the call. The multi-year and the 12-month backlog are at record levels, reflecting a slight increase from last quarter balances. The multi-year backlog, this includes the backlog that we expect to execute during the next 12 months, as well as after that period, was pretty stable compared to the last quarter. It was $1.5 billion in both quarters. In terms of transit, the total backlog went down slightly from $811 million to $778 million, but the freight backlog reached a record high of about $710 million versus $700 million last quarter. The rolling 12-month backlog, this is a backlog that we expect to execute in just the next 12 months, is about $1 billion versus $970 billion -- I'm sorry, $970 million last quarter, so an increase of $30 million. In transit, it increased by about $26 million from $410 million to $436 million. And in freight, it went up slightly to $573 million from to -- I'm sorry, to $573 million from $560 million. And with that, I'll turn it back over to Al.

Thanks a lot, Alvaro. Once again, we've had a strong performance in the quarter, record sales and earnings. Longer term, we're very pleased with our strategic progress and the growth opportunities we see from all aspects. We continue to benefit from the diverse business model that we have and the culture that exist in the company from our Wabtec Performance System, which gives us the tools we need to generate cash and reduce cost. We have an experienced management team that is now taking advantage of our growth opportunities. With that, we'll be happy to answer your questions.

[Operator Instructions] And our first question comes from Allison Poliniak from Wells Fargo.

So there's been a lot of concerns, obviously, about 2012. Obviously, the OEM orders have been really strong. You had the potential for the PTC. Could you just give some general thoughts as you look into next year in terms of your growth opportunities, as well as potential risks that are out there?

Okay. We're -- as we've said in the prepared remarks, we're really excited about the opportunities we have ahead of us. I think these lay the statistics that -- as it relates to the freight markets, which I'll talk about first, are encouraging. Number one, the last 3 weeks, 10 miles average weekly number was over 36 billion ton miles. And that's where the numbers were in 2008. So that continues to bode well. If you look at the orders in the backlog, orders are exceeding deliveries by 8,000. The backlog going up to 65,000. If you look back, there's just probably only a few quarters that exist where that backlog was much higher than that number. I think that from a freight standpoint, everything looks good, but the risk is the economy. And the economy is what drives that freight market. When you look domestically at the transit markets, I think that what we're seeing is more encouraging than we've seen in the last 18 months to 2 years. And that's -- that people are seriously talking about a Transportation Bill that would eliminate the uncertainty that exist in the marketplace. And even if the amount of funding is not major -- is not increased by a large amount, it's good to have a consistent number that you can plan ahead on. We are excited also, from a transit standpoint, on the international basis, the global basis because, again, we're small player in large markets. And we're making great progress in that area. So, I think that, again, the big risk and that's what we're looking for as we look into 2012 is the economy. But I think Wabtec is uniquely positioned right now. We saw when we went in to the -- if there was a downturn, I think it would be a 6, 9 month delay before we would see the impact of that. And we also have good internal growth from our new technologies and other growth initiatives we started. And lastly, we've shown that we're a proven company that can find companies. We could acquire them and then integrate them well and get the advantage of that. So we're extremely excited like most businesses are right now, but that doom and gloom of the economy is definitely something that weighs on our minds as we look forward.

Okay, perfect. And then last, just going back to the positive train control. You gave a lot of great detail. Can you remind us again, at what point at least on the freight side where we could expect to see more contracts announced? Is it the field testing, or is it the submission of the product safety plan, or is it longer-term out there?

In the freight arena, you will not see large contracts. What you'll see is that we will continue to get orders for the onboard computer and some of the service work. But most of the large contracts would really be more associated in the international and transit arena. So what we will see is our backlog should actually increase as people put more orders into -- install the computers onboard. So I don't think you're going to see large orders that would give you that indication. It would probably just be our backlog that would go up in that area.

And our next question comes from Art Hatfield from Morgan Keegan. Arthur W. Hatfield - Morgan Keegan & Company, Inc., Research Division: Just a couple of quick ones. Al, you've talked about your optimism and about the outlook. Are you seeing any slowdown in any segments of your business, whether it's a product-wise or geographic?

Only thing we have seen is the impact of the corruption and the crash in China. Now we don't have a large investment at this time in China, but they have definitely slowed down. One, they slowed down their high-speed trains, which has an impact because we have a lot of friction products on those high-speed trains. And some of their programs are delayed right now. We think they'll work their way through that, but that is the only thing that I have, and that is just such a small part of our business right now. Arthur W. Hatfield - Morgan Keegan & Company, Inc., Research Division: Is it less than 1%?

The impact is less than 1% easily. Arthur W. Hatfield - Morgan Keegan & Company, Inc., Research Division: Okay. Then, just the other thing, I heard your commentary on PTC. This has been a long evolving thing. You guys have been pretty specific about your guidance on the freight side. But I get a sense from your comments today that you're trying to temper expectations on the transit side. Am I hearing you right? And if so, where is that coming from?

Yes, we're not trying to do any kind of tempering. We're not trying to show optimism. What we're trying to do is give you facts. And I think that with those facts we continue, we'll continue to announce when we do have contracts. But it's a marketplace where, as I indicated, the assumptions need to take in consideration market share, complexity, government transit projects. And I just think it's prudent to be very cautious on coming to quick assumptions in that area. Arthur W. Hatfield - Morgan Keegan & Company, Inc., Research Division: Is your lack of willingness to give us kind of a range of opportunity due to what you just said, lack of visibility, or do you have internal numbers, but yet, the range is so wide, you just don't feel comfortable putting that out there.

I think that because of the uncertainties that I tried to point out, I think it -- I would hate to mislead anyone, and I want to make sure that they understand the variables that really, truly exist when you try to quantify this. Yes, we've quantified it internally. And as I stated, we're excited about our opportunity. But I'm... Arthur W. Hatfield - Morgan Keegan & Company, Inc., Research Division: That's really helpful. So when you think about when you give a guidance going forward, are you leaving out that opportunity based on those variables you talked about? Are you giving us an extremely low number relative to your internal expectations about what that...

Well, as you know, we don't give guidance out beyond the annual guidance. And right now, all we've done is given guidance for the year, this year. So we really haven't given any guidance out beyond that. Next year, when we do the annual guidance which is, normally, we do it -- and if we do it the same way this year, it'd be at the end of the first quarter. Yes, the end of the fourth quarter, earnings are released, we'll try to give you more color on it. But at this point, we're not trying to give any guidance whatsoever. We're just trying to give you facts about the marketplace and the various variables that exist in that market place.

Our next question comes from Steve Barger from KeyBanc Capital Markets.

First, Alvaro, you said there's room for improvement to the 15.1% op margin in the quarter. Just given the good volume environment we're seeing right now and presumably into next year, where do you think that can go?

We really need to be honest. I think Al touched on it with PTC, so I want to repeat the same thing. So we're going to be repeating ourselves. We really don't give guidance on margins. Obviously, it's a factor that we stress considerably. And with our QPS efforts, we're always seeking continuous improvements, and that's one of the reasons we've been able to raise them. I think going forward, volume could have an impact on margins. Mix could have an impact on margins, and our ongoing QPS efforts could have an effort -- could have an effect on margins. And as we give guidance, we'll talk about margins a little bit. But we really don't like to predict where they could go other than to say, "Geez, we seek to continuously improve them and, hopefully, we can, going forward."

And one thing's for sure, there's going to be a tremendous amount of pressure on the team here that continue to improve the margins as we have in the last 5 years. And As we go through our budgeting cycle or planning cycle that we're doing right now, there's a lot of focus on continuing to improved on those margins.

Okay, that's great color. And just to help me frame it up, you're not talking about 10 or 20 or 30 basis points, but there are opportunities based on what you see internally to go beyond that? At least, is that fair to think about?

Yes. I think that we would -- if you look backwards, you realize that when you -- every bit of improvement going forward is more difficult than the one you just had. But we obviously incrementally want to continue to improve those margins just as we have in the past.

Okay. And another PTC question. If I heard you correctly, you said you think about $100 million for the year. How will 4Q compare to the first 3 quarters? Or can you tell us how PTC has come in so far?

Yes. Then not because we're wise people, but if you do remember back to earlier in the year, the questions related to PTC, we told everyone that we thought that we'd start to see increased revenue in the back half of the year, and most of it in the fourth quarter. And that's holding to be true.

So 4Q will be bigger than the first 3 quarters combined, is that right?

No, I didn't say that. I just said this will increase as the year goes on. Good try.

Incremental margins came in at 20%, same as last quarter on a big volume increase. Can you talk through price, cost, the manufacturing efficiencies? Can you tell us what's going right, right now? And where you potentially see upside?

Yes. I thing the environment is not terrific on the price side, and there are some pressure from inflation. But we are still able to get a little bit of pricing in those areas where we have a niche or a differentiated product. When you look at the efficiencies in the manufacturing, when we're ramping up still from what was a very low level of production just 9, 12 months ago, I think there's still some inefficiencies. So we would expect we could do better than the percent. And I think that's something that we will stay focused on especially as we do our planning into 2012.

Okay. And one more, I'll get back in line. If you look at the order data right now, you're seeing a lot of tank and small cube covered hopper. Is there a big difference in content per car on a tank car versus a cement car?

No. We're agnostic when it comes to type of car.

So then, really, the mix doesn't have a big effect on your revenue through the cycle?

That's correct.

And our next question comes from Kristine Kubacki from Avondale Partners.

You mentioned a little bit about China slowing down. And I was just wondering, the bigger macro worry of the day, depending on what day it is, is Europe. Are you seeing anything in that end market that could spell trouble for you all? And can you update us maybe a little bit more in the longer-term how your push into that market is going?

I think that Europe could have a major impact from an economic standpoint, which could change the dynamics going forward for the economy on a global basis. That we really have -- we're like everyone else. We're hoping they get through their issues. I think that Europe, this economic crisis could have -- this a personal opinion, I think it could have an impact on Europe for a couple of years here, even if the rest of the global economy grows. How does that impact us? Not a tremendous amount at this point because we do -- the areas that we play in, in Europe are primarily a lot of aftermarket and a lot of transit. And I think that what we've been seeing in the last recession, there's not a major impact in there. Now, what I would be concerned about is the fact that they may not create some of the new transit programs because of that particular crisis. But we're not seeing that. We're -- we still see a lot of projects going on. And obviously, we have the same concern as others, but I kind of feel they'll work through their promise. It's going to take time.

Okay, that's helpful. And then, I guess, can you -- you mentioned a little bit about your similar interest, obviously, in acquisitions. Can you give us an idea on the strength of the acquisition pipeline? And are you seeing any opportunities in parts of the world where maybe the macro concerns are a bit higher?

Yes, our acquisition program is very busy right now. We've got a lot going on. There's a lot more activity. What we have seen is there's a lot more people in that area right now because a lot of people do have cash. So private equities back into the game as well. So there's a lot of activity. We have a good pipeline. And hopefully, we'll stay very disciplined on how we approach it going forward as we have in the past. But I think if you look at our track record, we've been able to acquire close to $125 million, $150 million with the businesses annually. And most importantly, we've been able to integrate them and get the value from them.

Perfect. And then just one last housekeeping question, Alvaro, maybe. Other income or other expense item was a little bit higher than I expected. Can you give us a little bit of color on that line item?

Yes, sure. It is actually pretty simple. Interest expense is relatively stable. So the interest in other was relatively stable. It was down slightly. The reason for the increase was a paper FX loss. If you want to get into the details of accounting, I can bore you with it. It basically relates to how you've translated all the company balances. But it resulted in the paper FX loss a little bit over $1 million. And that's what drove it up. We expect that to be nonrecurring, I mean, that's one area that we try to emphasize, so we keep those to a minimum. But we had that one this quarter.

And our next question comes from Scott Group from Wolfe Trahan Scott H. Group - Wolfe Trahan & Co.: So, Al, it seems like you've got a pretty good feel for the upcoming Highway Bills from Boxer and Mica. Wondering if you have any sense if there's going to be anything in there related to PTC, either funding directly for PTC, or perhaps, I don't know, on the negative side, potentially a delay to PTC? I know there was some talk about that in the original Mica proposal a few months ago?

Yes, we've heard a lot of talk, but we have no intelligence whatsoever that -- of any of that related to PTC. I think right now, they're trying to get the headlines out, and that is, they both want to get a Transportation Bill done. And I think the details in the committee are just not known at this point. I think there's some speculation out there, but we'll just have to wait and see. Scott H. Group - Wolfe Trahan & Co.: Okay. And I know it sounds like it's too early to make any sort of -- give any sort of guidance on the Wabtec opportunity with PTC on the transit site. But is there any way to put some industry numbers around what you think the market opportunity is for PTC with transit authorities?

I don't have the number. I'd hate to pull one out of the sky. I think it's kind of early right now because what happens is there's only 4 or 5 transit agencies that are actually working on it right out. There's others talking about it. But the extent of the project could be as simple as putting on a few onboard computers and maybe a little bit of track work to really doing a lot more and upgrading their entire signaling system. So it really is a broad range, and I'd hate to give you a number that we really don't have a great feel for at this time because of the variance that you're going to get from one agency to the another. I mean, in the case of Denver, I mean, this is 3 brand new lines. And you know that Metrolink is a very large project because of just the vastness of that system. And we've tried to point out, I mean, you go down to Northern County and San Diego, only 10 locomotives. That could be a very simple system, or they can make them more complex and change their entire dispatch system. So if it's a broad range. Scott H. Group - Wolfe Trahan & Co.: Okay, well that makes sense. Any sense on the -- how much of the backlog is PTC-related at this point?

We have the -- the Brazil contract would be in there, Metrolink. Denver is not in the number yet because we didn't sign that until the fourth quarter. And then beyond the -- so beyond this Brazil and the transit, it's probably a pretty small number.

Yes, maybe 200-plus.

Including those. Yes.

Yes. Scott H. Group - Wolfe Trahan & Co.: Okay. Just last one if I can. I know we don't get the segment breakout until the queue on the margin side, but we've seems some -- certainly some pressure on transit margins the past 2 quarters. If we're think about an environment going forward of flatfish funding in the U.S. and growing international business, is that still an environment where you can get those margins back to where they were a few years ago? So I'm just trying to understand if you think that there's a margin improvement story getting -- kind of getting back to where we were even with some changes in mix in the transit business?

Yes. This is Alvaro. I think you're going to see the transit margins remain relatively stable. They're affected by a few factors. Obviously, volume and mix are very significant factors in the transit margins. And obviously, we try to improve them with our QPS efforts as we go forward as well. But I would say going forward, we would expect the transit margins to be stable.

And our next question comes from Greg Halter from Great Lakes Review.

You mentioned the increase in the amortization. Is that $4.1 million number a good run rate to use going forward for the rest of this year and, obviously, into 2012 after any other acquisitions?

Yes. I think amortization is mostly related to acquisitions and amortization of intangibles. You should expect it to be stable to slightly decreasing. Some of it is what we'd call -- whenever you make an acquisition, the amortization in the first few periods are a little bit higher than the recurring amortization. And we still have a little bit of that working its way through. So I would expect that, say, over the next couple of quarters, if you assume neutral acquisition, it should go down a little bit. But it's not a big number to begin with. So I would say a modest decrease going forward. A few hundred thousand in the quarter - for a couple of quarters and then that's about it.

All right. And I don't know if you have this, but do you have your -- the quarter-end share count on a basic basis?

The spot number?

Yes.

Yes we have it somewhere here.

And it's $47.965 million on a -- not the weighted average, but the actual shares outstanding at the end of the quarter.

All right. And what's the outlook for the share repurchase given the price having a good day today of about $3.40 or so?

Well, that's good.

It's nice to have it go up. I'm glad that there's a favorable reaction to the news today. The share, we don't have a set target. We just acquaint everybody that's on the call. We have $150 million share repurchase program. I think we still have about $120 million available under that repurchase program, and we try to be opportunistic. We try to buy it when we believe the price is right. If you ask me, this is a personal opinion, this is not a -- this is just a personal opinion, not guidance. But in my mind, the stock is cheap. But we do tend to be opportunistic when we buy. And we have no set target for executing it, but we do have about $120 million of availability

Okay. And looking at the -- another component of the balance sheet, the equity balance, I think the last quarter, it was around slightly over $1 billion.

Right, right.

Yes. It should be right around there. We got a kind of preliminary basis, and it's still subject to review. But it's about $1.015 billion.

15?

Yes, $1.015 billion, roughly.

Okay, great. And one last one for you and I think you may have mentioned this, but the Denver PTC contract, that is not in the backlog, correct?

That's correct.

That's correct. That's booked after the quarter. We don't include it in backlog until we have a firm PO or contract. And that wasn't booked until after the quarter.

And our next question comes from Steve Barger from KeyBanc Capital Markets.

Al, you said you expect 40,000 deliveries this year. Year-to-date, we're just under 31,000. So the implication is 9,000 in 4Q. I know you're not trying to figure it down to the car, but do you really think 4Q deliveries would be under 3Q?

I looked at that because I think year-to-date is like 30,772, and that's why we said, "about".

Okay. But you're not looking for a significant decline presumably, right?

No, no. We're not -- realize, the 40,000 was printed before we got the data. The data, actually, I didn't see it until like 9:00 this morning.

Got it. Okay. And...

And if you look at the second quarter, it was 10. So you had 7, 6, 10. So the -- I'm being very honest with you, we didn't change the 40, but we did say, "About".

Right. And just based on how you've seen production ramp and the supply base respond, what level of production do you think the industry can support on a run rate as we go into '12? I'm not asking for a delivery guidance. I'm just trying to say -- to see where are we? If you analyze it, analyze 3Q, we're at 50,000. So presumably, upside from there, right?

Yes, I believe so. I think that -- what I am hearing though that most people are quoting well into 2012 on these orders which I think is good. You far rather see it over a period of time, and not just a prompt jump than a reaction to it. So yes, I think there's room for delivery growth without question. But I'd rather see it the way it's going nice and gradual.

Yes, I understand. Well, I -- the reason I ask, a few quarters ago, we were all talking about castings being constraint...

The supply chain is not a constraint at this point. I don't think with anyone that I'm aware of. Definitely not us.

And we have an additional question from Tom Albrecht from BBT. Thomas S. Albrecht - BB&T Capital Markets, Research Division: The one thing I was a little bit surprised by was the sales performance in the Freight Group, $315 million. A lot of times, historically, there can be some seasonal issues, whether that's Europe or elsewhere, that leads that revenue to not be so dramatically above the second quarter. Can you comment on that? And then historically, your fourth quarter freight revenues because of budget reasons and that tend to accelerate even from the third quarter, so kind of a twofold comment?

Yes, well, first of all, there's not a lot of freight business in Europe. And typically, Europe has the August shutdown type of thing. It impacts the revenue. But that would not impact the freight markets. I think what you're seeing in freight is, I mean, just what we said, 10 miles is up, but $36 billion weekly average. And if -- I don't know if I have it here, but if -- if you went back to -- let me give you some ton miles, I mean ton miles is everything to us, so as we try to track it. In the second quarter -- first quarter was 30, was average for the quarter. Second quarter was 32, third quarter was 32. But at the end of the third quarter, it went up to like halfway through. It was 34 all the way up to 36. So you're seeing quite a difference in ton miles. And also, if you look at the deliveries which drives our business, it's not the orders as much. And you'll see first quarter was 7,600 then 10,600, now 12,500. That 2,000 car deliveries is a big growth number. I mean, we talk about on a share of base the number of almost equivalent to 4,000 per car. So that's -- you're talking about $8 million incremental business just from that. So those are the things driving in our other business. I mean, the fright markets and the international basis are good in Australia, Brazil, even China. So those are the things that drive that. And I think the normal seasonality that you talk about would really be on a year where you don't have those factors that are driving it. We also are seeing some freight PTC growth. And that's in those numbers as well. Thomas S. Albrecht - BB&T Capital Markets, Research Division: Okay, that's helpful. And yes, and obviously, Europe is small in the freight and I remember the traditional U.S. factory shut downs in that, so you did right through it with good trends and I appreciate that color.

Greg has there another question, right?

Correct. We have a follow-up question from Greg Halter from Great Lakes Review.

And again, one quick one. On an overall basis, what is the company's revenues now on an outside the U.S. basis?

Outside of the U.S. basis is -- international sales is 46% in the quarter. Outside of the U.S., I would -- I don't have that number exact, but I'll give you an estimation, probably in the 36% to 38% range.

Outside of that.

Outside of that, yes.

[Operator Instructions] And everyone, at this time, I'm showing no additional questions.

Great, okay. Thanks very much, everybody.

Thanks, everybody. See you in a few months.