Westinghouse Air Brake Technologies Corporation (WAB) Q4 2011 Earnings Report, Transcript and Summary

Good day and welcome to the Wabtec Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Tim Wesley, Vice President of Investor Relations. Mr. Wesley, please go ahead, sir.

Thanks, Danie. Good morning, everybody, welcome to our earnings call for the fourth quarter and full year. Introduce the Wabtec people who are here with me in the room, our President and CEO, Al Neupaver; Alvaro Garcia-Tunon, our CFO; Ray Betler, our Chief Operating Officer; and our Senior V.P. of Finance and Corporate Controller, Pat Dugan. As usual we'll have our prepared remarks from Al and Alvaro, and then we'll be happy to take your questions. During the call, we will make forward-looking statements. So please review today's press release for the appropriate disclaimers. I also want to point out that on today's call, we will refer to both GAAP and non-GAAP EPS because of the special items we discussed in our second quarter report. Listed as special items again in today's press release. We believe that non-GAAP EPS provide useful, supplemental information to assess our operating performance and to evaluate period-to-period comparisons. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, Wabtec's reported results in accordance with GAAP. And with that, I'll turn it over to Al.

Thanks, Tim. Good morning. We had a strong operating performance in the fourth quarter. We have record sales of $535 million, with earnings of $0.96. This tied the record earnings we announced in the third quarter this year. Included in the results were charges of about $5.5 million. These charges were for restructuring and contract reserves in the Transit Group. Alvaro will talk more about these later. As a result of the strong finish to the year, we ended 2011 with record sales and earnings, record cash from operations of $249 million in a record backlog. To top it off, Wabtec finished 2011 as the only company in the United States on any exchange who's year-end stock price has increased for 11 consecutive years. We accomplished this during a period that included 2 recessions, one of which was probably the worst any of us will ever experience. Clearly our business is performing very well, thanks to our diversified business model, our strategic growth initiatives and the power of Wabtec Performance System. As a result, we are well-positioned to take advantage of future growth opportunities around the world. Today, we are also issuing our 2012 guidance based on our current backlog and outlook, we expect full year earnings per diluted share to be about $4.30 with a sales growth of about 10% for the year. This EPS guidance is about 15% higher than our non-GAAP EPS of $3.70 in 2011. Our guidance has certain assumptions associated with it. The global economy grows modestly. The freight rail traffic improves with the economy. Our transient markets remain stable and there are no major changes in foreign exchange rates. As always, we will be disciplined when it comes to controlling costs. We're going to be focused on generating cash to invest in growth opportunities and we will be ready to respond decisively if any changes occur in the market conditions. Next, I'd like to address our markets. We'll address the freight rail market first. Rail traffic grew in 2011 and continues to grow so far this year. In 2011, ton miles increased 3.2% and intermodal traffic was up 5.4%. Through mid-February this year, ton miles were up 2.3% and intermodal traffic, it increased 3.7%. This is despite very weak coal shipments. Our OEM market drivers should continue to be positive in 2012. About 48,000 new cars, freight cars were delivered in 2011 compared to 17,000 in 2010. At year end, the backlog was 65,000 cars, highest level in more than 3 years. Forecasters are expecting about 55,000 this year. As for new locomotives including kits, almost 1,100 were delivered in 2011. We expect to see about 1200 this year. Now moving to the transit markets. Looking at transit, we continue to see stable markets in the U.S. and abroad. In the U.S., ridership was up 2% in the third quarter. That's the third consecutive quarter it has increased. In 2012, transit car deliveries will be about 1000, that's slightly up from last year this -- in 2011. Bus deliveries will be about 4500, slightly down from 2011. As for U.S. federal funding, as I think we all know, Congress is talking about a new Transportation Bill, but it's still very uncertain when something will be passed, the date. A house committee has proposed a 5-year bill and the Senate committee has proposed a 2-year bill with the President asking for a 6-year bill. All seem to be favoring maintaining or increased spending as we go forward in the transit area. The multi-year bill would give transit agencies the planning horizon they need to really dust off some of their long-term projects. So all in all, we're positive about our transit opportunities here in the U.S., but also on a global basis based on long-term demographic and economic trends and our relatively small market share in large global markets. In 2011, our transit sales increased 5%. This growth was driven by acquisitions. However, if you take a look at our backlog in orders, our 12-month backlog increased 65% and our orders booked were up 17% last year, another positive indicator. Our diversity and growth initiatives have helped the transit business remain stable. In 2011, sales outside of the U.S., transit sales that is, were 56% of the total, an all-time high and 64% were made up of aftermarket products. Product-wise, we're also diverse. We make components for subway cars, components for buses, we build new transit locomotives, we overhaul and maintain locomotives and passenger cars, we provide positive train control systems and electronic products. Our customer base, therefore, is very diverse. Also, we continue to invest in transit growth through acquisition, new products and global expansion. As in the past, we'll continue to focus on growth and cash generation. Cash remains a priority. We're focused on increasing free cash flow by managing cost, driving down working capital and controlling capital expenditures. Cash provides the opportunity to invest in organic growth and acquisitions, and to return money directly to shareholders in a variety of ways. In 2011, we invested $38 million in capital expenditures with most of those focused on growth opportunities. In addition to that $38 million, we spent $109 million on acquisitions. We also repurchased 438,600 shares of Wabtec's stock for about $26 million and we also increased our quarterly dividend from $0.01 per share to $0.03 per share during the year. Going forward, we'll continue to invest in our 4 growth strategies: Global and market expansion; aftermarket expansion; new product development; acquisitions. Let's talk a little bit about the progress we've made on these strategies. Global and market expansion. In 2011, sales outside of the U.S. were a record $916 million, that was 32% higher than 2010, almost half of our total sales; 5 years ago, it was only about 1/3. We won a contract to build 22 new locomotives for a company in Australia. We won a number of projects in Europe recently. Orders for bogey break equipment for Siemens on a new platform in Warsaw worth about $3 million, that was a Cat project, that's the manufacturer. The actual end customer was in neatly for $4 million. We also had several other orders for door system and components for projects around the continent for an additional $10 million of new orders. In China, we completed our fifth joint venture. We now serve a variety of markets there. We serve the freight, transit, friction and power generation markets. We also had growth in non-rail with strong performance by our heat exchanger business in the power generation market. In the aftermarket area, overall aftermarket sales were $1.1 billion, another record year, 57% of our total and had a growth of over 35% compared to the prior year. This growth is due in part to rail traffic increasing, acquisitions and internal growth initiatives, such as expanding our locomotives service capability in Chicago and our service center in Brazil. In the new product area over the last few years, we've had tremendous focus in this area with about 1/3 of our annual sales coming from new products. Positive train control gets the headline, so I'll talk a little bit about that separately. On other fronts, we won a $21 million contract for ECP, electronically controlled pneumatic braking equipment with Australia's Rio Tinto. We also introduced the next-generation end of train device for freight cars. Our locomotive business has developed a new engine package that will meet tier 4 emission requirements ahead of EPA deadline and ahead of the competition. As for acquisitions, we completed 4 acquisitions last year. In the first half, we acquired Brush Traction in the U.K. and we also acquired an aftermarket transit business division from GE. In the fourth quarter, we acquired a company by the name of Bearward Engineering which makes cooling systems for power generation market, and the Fulmer company, which makes motor components for rail and industrial markets. Combine these acquisitions contributed by the $125 million in revenue in 2011. We also continue to review an active pipeline of strategic opportunities. I'm going to focus a little bit on PTC, positive train control. As I think as everyone knows, it's a technology designed to automatically stop or slow trains to prevent collisions, derailments and unauthorized movements. In 2008, Congress passed the Rail Safety Act, which mandates that positive train control must be installed by December 2015 on commuter locomotives, freight locomotives that share track and locomotives that carry certain types of hazardous materials. We have been the technology leader in PTC in North America, as our onboard locomotive system was picked by all the Class 1 railroads. Currently, we are working very closely with the Class 1 railroads to design a PTC system that will consistently perform across the entire U.S. rail network. The industry uses the term interoperability to describe this system-wide performance. Obviously, a task that is not simple, but the industry is making good progress and our PTC sales has been increasing. In 2011, we had about $125 million in PTC-related revenues. If the programs proceed as planned, we should see continued growth in 2012. Our PTC revenues are coming from 3 different areas. The first area is the U.S. freight railroad opportunity. We stated that this opportunity is between $250 million and $500 million over the next few years. Although this may prove to be conservative, we think it's prudent to stay within this range given the complexity and the other uncertainties of PTC. Second, in addition to the U.S. freight rail opportunity, we are also generating PTC revenues from U.S. transit agencies. At least 21 transit agencies will need to install some form of PTC and we expect to play a role in many of these projects. We have announced contracts for 2 of the larger ones, Denver for $63 million and Metrolink out in Los Angeles for $27 million. We have not quantified additional transit opportunities and they are not included in the freight range I just discussed. The third area is international. In Brazil last year, we signed $165 million contract with MRS, the fourth largest railroad in Brazil, for a turnkey PTC solution. It is scheduled to be completed in 2013, and hopefully there will be other projects that would follow in that country. So clearly, PTC opportunity for Wabtec is significant and ongoing, and we'll continue to keep you informed as we make progress. As you model and make assumptions about this opportunity, we think you should keep in mind that many factors can affect the size and timing. For example, a House committee has proposed a 5-year extension of the PTC deadline to 2020, that's part of the new Transportation Bill I've mentioned earlier. We don't think that the current Senate version includes any discussion about it, any PTC extension. And in fact, California Senators, Boxer and Feinstein have expressed concerns about delaying PTC. Obviously, we can't predict whether the government will extend the deadline, but we don't think an extension would change the dollar amount of the opportunity for us. It would, of course, spread opportunity over a longer period of time. If there is an extension, we'll certainly manage our internal resources accordingly. Other factors to keep in mind, market share. Other companies are working on PTC, so market share is a variable. It is a complex system and it's a large scale project, we are still in the early stages of a multi-year, multi-hundred million dollar new product rollout. We can't predict the exact amount of timing of revenues or the profitability of the various projects. Scope of transit projects. It's very difficult to quantify the transit opportunity because the agency size and the project scope varies greatly. For example, I talked about the Los Angeles Metrolink. They have about 100 locomotives. In North County in San Diego, which is another area that we'll install PTC, they only have 10. You also have the difference in quantity related to the scope that you take on. As for an example, our project in Brazil, we are the prime contractor for that contract, and it's $165 million contract. And finally, funding. U.S. transit agencies already have budget issues that are affecting their existing operations. PTC will require substantial additional funding. All that said, we are truly excited about our PTC opportunity. But I want to remind you that we are also extremely excited about all of our growth opportunities. In fact, PTC represented only 5% of our revenues in 2011 and only 20% of our growth. So we clearly have a lot of other initiatives that are going on. With that, I'm gonna turn it over to Alvaro to give you a little more detail on the financials.

Thanks, Al, and good morning, everyone. Results for the quarter were pretty straightforward and I'm always pleased to be able to report financial results like these. Sales for the fourth quarter were a record $535 million, 36% higher than last year. Of this increase, about 3 quarters was organic growth. The Freight Group sales were up about 58% with almost all of that coming from internal growth and rebounding markets. So the organic growth came principally from the Freight Group, the aftermarket and freight group increasing rail traffic. OEM sales more than doubled based on increasing demand for new locomotives and freight cars, increased sales of PTC products and services, and growth in adjacent markets such as radiators and heat exchangers. Transit Group sales increased 8% as acquisitions lead to higher aftermarket and international sales, which more than offset lower OE sales. As you know, and we emphasized that you'll emphasize it as well and we're always striving to drive our operating margins higher. SG&A increased in dollar terms due mainly to acquisitions and somewhat higher in percent of comp expense in the current year and the current quarter, but it was 11.4% of sales compared to 13.6% of sales in the year-ago quarter, so I think we're making progress there. For the quarter, operating income was $73 million or 13.6% of sales compared to 13.1% of sales in the year ago quarter. Now here, it can get a little confusing here and hopefully I won't confuse you too much, I'll try and clarify. In the current quarter, we recorded charges of $5.5 million for restructuring at our Vapor Rail door unit and contract reserves at our motor power division. Now these are not what we would call non-GAAP special items, we're just providing this as explanation of somewhat unusual events that occurred in the quarter, so you can reconcile back to the margins. If you add these items back to our operating income for the current quarter, the operating margin would have been 14.6%. Now I'm gonna switch to the year. For the year, our operating margin was 14.8%. If you exclude the special items that we recorded in the second quarter, which are non-GAAP disclosure items as well as the items I just mentioned that occurred in the fourth quarter. If you have any questions about that I'll be happy to take them in the Q&A. Hopefully, I didn't confuse you too much. But the 14.8% compares to 13.5% for the full year of '10. So I think that shows good performance. But, again, we're confident that we have room for more improvement over time. In terms of some of the other P&L items, interest expense was a bit lower due lower net debt compared to the year-ago quarter. Other income was positive and this was due mostly of paper FX translation gain. In other, we usually have some minor FX paper gains and losses which we try to minimize, but they do occur. The effect of tax rate was 33.8% a little less than the year-ago quarter. And I think for modeling purposes, you can expect it to be somewhere around 34% going forward. In terms of some of the other numbers we typically disclosed during the conference call, in terms of working capital, receivables were $346 million and this was relatively flat it's the same as the last quarter. Inventories were up somewhat $348 million versus $325 million in the last quarter. Payables were down, they were -- I'm sorry, payables were up, which benefited working capital, they were $179 million at the end of the last quarter, $245 million at the end of the year. In terms of the cash, at the year end, we had $286 million in cash and we generated cash from operations of $249 million for the year, which is a record for us. At the end of the year, we had $396 million in debt compared to $406 million at September 30. And also during the fourth quarter, speaking of debt, we closed a new 5-year $600 million revolving credit facility. This was an increase of over $100 million from the prior facility and this will provide increased flexibility and borrowing capacity to invest in our strategic growth initiatives as well as give us the flexibility to pay off the bonds that are maturing in 2013 if that need arises. In terms of a few other items, I'll just read out the numbers. Depreciation was $6.7 million in the quarter compared to $8.2 million in last year's quarter. Amortization was $4.4 million versus $3.5 million last year. The increase is mainly due to acquisitions and the amortization of the intangibles associated with the acquisitions. CapEx for the quarter was $15.7 million versus $8.5 million last year. And I think as Al mentioned for the year, CapEx was $38 million versus $21 million last year. Of the annual increase in CapEx, about $4 million was for investment that we made in the foundry in '11 to meet the increasing freight demand. And for '12, we expect slightly more than about $40 million in CapEx. In terms of backlog, which I know is a question we always get, the multi-year in the 12-month backlog, we're at record levels. The multi-year backlog, that's the one that is -- that's the backlog in total, was up 4% compared to September 30. That's at a high -- record high of $1.55 billion versus $1.49 billion in September 30. You can break that down by transit and freight. The transit that I think Al mentioned, again, backlog increase is now at $836 million versus $778 million in the fourth -- I'm sorry, in the third quarter of '11, and this is the highest since the fourth quarter of '08. So that's a significant transit backlog. The freight was $713 million versus $710 million in September, so it's relatively flat. Our rolling 12-month backlog, that's the one that we expect to execute over the next 12 months, was up 6% compared to September 30. That total is a record high of $1.1 billion versus $1 billion at September 30. In transit, it's $482 million versus $436 million in September, and in freight it was $591 million versus $573 million. I went pretty fast with those numbers, so if you need any of them repeated, just go ahead and ask away during the Q&A. And with that, I'll turn it back over to Al.

Thanks, Al. Once again we had a good performance in the fourth quarter and for the full year. Taking one final look back at 2011. Revenues increased 31% to a record $1.97 billion. Income from operations increased 41% to a record $286 million, excluding the special items that we reported in the second quarter. EPS increased 45% to a record $370 million, again, excluding those second quarter items. And our backlog ended the year at a record $1.55 billion. Looking ahead at 2012, we are expecting another record year with EPS guidance of about $4.30 on revenue growth of about 10%. Longer term, we could not be more pleased with our strategic progress and the growth opportunities that we see. We continue to benefit from our diverse business model and the Wabtec Performance System, which provides the tools we need to generate cash and reduce cost. We have an experienced management team that manage aggressively through the tough times and is poised to take advantage of our growth opportunities. With that, we'd be happy to answer your questions.

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

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

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

Okay. And then in 2012, say for some reason we do get a potential extension on the deadline for PTC, that would necessarily impact 2012, but it'd be probably more impactful to 2013 and '14. Is that a way to look at it?

Yes, we've done a few analysis internally when the committee made their announcement about potential delays and we've look at it in the past. And you're exactly right, Allison, I think that near term, you don't see a lot of change as you go further out, closer to the deadline period is where it would be impacted.

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

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

Sure. It is all organic. We never budget for acquisitions, that's opportunistic. As far as the 2 aspects, it's probably equal across both transit and freight.

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

Well, the only thing we've quoted, Steve, is what we've read from consultants, and they're talking about mid 50s, maybe even a little higher. It was 2 or 3 different reports, but mid-50s was about right. The highest one was 58% and I think we've seen a couple around the 55%, and that's what we referenced in our prepared remarks. And your other question again, Steve?

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

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

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

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

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

Yes, we've -- one, you almost have to be opportunistic, because you have to be able to analyze and get things that are available. But we do target various parts of the world and, obviously, international has been one of those areas. We'd like to increase our international presence, especially in those areas where an acquisition would give us a better platform to grow from. We also look at acquisitions that could broaden the product offering that we have and could be a bolt on to the businesses that we're currently involved in. We're looking for acquisitions that are strategic, that allows for growth in those 4 areas. So we've targeted a number of areas, and I think that probably if you had to prioritize them, international would probably be the first priority we'd be looking at, and probably second would be those bolt-ons that broaden the product offering.

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

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

Our next question comes from Art Hatfield of Morgan Keegan.

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

Yes. As Alvaro said, we had the $5.5 million of items that we thought was worth mentioning, so that there would be a little more color related to margins. And I just made the remarks on -- we think we could get a better contribution margin going forward. So I think that there's nothing that -- I don't think there's any hidden message there or any major problems that exist. I think that we will continue to strive to continuously improve our margins, and that's what we've done in the past. One other thing I want to emphasize is we really try to get you to focus on operating margins and not gross margins because as -- and I think we've explained it in the past, that sometimes there gets to be movement between our SG&A and cost of sales, especially when it relates to engineering projects. We have a lot of these large engineering projects and sometimes the gross margin may not be as reflective of true reality as our operating margins, okay?

Our next question comes from Paul Bodnar of Longbow Research.

Just a quick follow-up on the last question. Sounds like some of the zero well [ph] contracts, I think you've indicated these before, because they are these larger engineering opportunities, you just carry a little bit lower gross margin with them, the kind of what you were trying to say there?

I think -- no, I don't think I was saying that. Okay?

Okay.

I think that longer contracts don't necessarily have to have lower margins. So, yes, I'm not saying that.

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

Okay. In China, we've made great progress. If you take a look at where we were 5 years ago, basically, we had just a small amount of sales. This year, we'll complete the year with revenues in about $70 million range. We expect that to grow double digits, could approach $100 million here in the next 12 to 18 months or so, definitely in the next 2 years. We have 5 operating joint ventures. Those joint ventures support the freight railroads. We have a friction joint venture that sells product to freight and transit applications in China. We have a JV that is max heat exchangers for power generation and we have 2 transit JVs that make products for transit cars, both the couplers. And our newest JV will be related to break-in products. Good progress. We definitely feel that China is a nice opportunity for us. We view it as a window of opportunity. Some of the projects that we're seeing a lot of activity on in China is projects that they're exporting products and products that are, where our product is being specified. Our growth in Brazil continues to develop. We have a service center, we have a separate friction company that we acquired and we have a -- the major contracts. So we have an operating office and some manufacturing, now, related to that contract in Brazil. And we see future growth opportunities there, as well.

Okay. And then, I guess, one last question. I guess somewhere on the Chinese JVs, as well. In the fourth quarter of your acquisition there, you indicated that there was some potential, additional opportunity to get radiators/ gen sets into some other customers in that market. I just wanted to see if you've made any progress on that at this point, kind of what your outlook was there?

We've made good progress. We've got 2 different type of market places in heat exchangers in China. One is related to the power generation and we have been supplying product into the railroad area on the locomotive. So we do have heat exchanger products that are going in there. Both are doing well and we've done a nice job in penetrating the market.

And that's for -- are those export as well or..

There's some export content and some -- the power generator, almost all made in China. But the rail product, we do export product from here into there and some of that product, the power gen stays in China as does the rail product right now. Although they may export some locomotives, but most of the locomotives have been used in country.

Our next question comes from Kristine Kubacki of Avondale Partners.

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

That's why we identified -- these were extraordinary and normally we don't. If it balances out, we really don't make any reference, and there were none in the fourth quarter of 2010 and/or the third quarter.

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

We seem to be going full steam ahead here and as are they. There's still that deadline. There's a lot of work to be done and we're making great progress with them. I don't see any change in their behavior whatsoever.

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

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

Can you remind again, and I apologize if you already said this, how much is that...

In 2010, we had -- I think, sales with PTC around $26 million, $28 million. And I think this year, we have about $125 million.

And how much of the contracts that you've announced already is expected to follow into 2012, your international opportunity?

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

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

Our next question comes from Liam Burke of Janney Capital Markets.

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

Nothing major. There's a few expansions related to, probably, service -- in the service area. But no major projects.

Okay. And you're driving your cash, one of the highlights in driving your cash has been your working capital management. As, Alvaro, excuse me -- as international sales grow, how much more of a challenge is working capital management becoming?

I think that's very astute, and you're absolutely right. There is a difference between, to be honest, how quickly you get paid in the states versus abroad. Inventory is inventory, and the main issue with inventory doesn't relate -- it relates more to outsourcing, which is that if you outsource to China, or if you outsource to low-cost countries, your inventory balances are necessarily going to go up because it takes a while to get them from the source country back to the using country, you can call it that. But in essence, inventory's inventory. But receivable balances tend to be higher in Europe and they tend to be higher in China. And from our perspective, we say we want to stress quick collection everywhere around the globe. But it is more challenging abroad than it is here in the states, you're right.

Our next question comes from Jason Rodgers of Great Lakes Review.

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

That's on cost of sales.

Okay. And what was the shareholder equity for the quarter?

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

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

You were talking about a mid-to-high 50,000 delivery number for 2012, but the industry is producing in annualized rate in kind of mid-60,000 range right now. Did the supply chain build ahead or did some of the constraints ease? How do you reconcile those 2?

Yes, I think that there is no -- I'm not aware of any supply chain major issues that exist. And I think that the one that existed early in 2011 that kind of ran into mid-year pretty much behind them. So I think what you did see and you're exactly right, you saw orders come in at 16,000 and deliveries at 16,000 for the fourth quarter. And there's a hefty backlog. The thing that we would prefer to see, we can't control it. It would be a more level approach to both orders. Well, orders could come in straight but deliveries we'd like to see a little more level approach to it. And I think that's possibly that's what we will see as we go in 2012.

Discipline from the builders?

Yes. Discipline from -- exactly.

But if demand were there and the order support of the supply chain, and you could support more like a mid-60 versus a high 50? I mean...

Without a doubt, it's supported it last time we had this peak. But I think, hopefully, discipline will prevail here.

Our next question comes from Tom Albrecht of BB&T. Thomas S. Albrecht - BB&T Capital Markets, Research Division: On the $5.5 million items, if you will, that was at Vapor and what other division?

It was at Vapor and Motopower, which is our locomotive manufacturing operation. I'm sorry, Vapor Rail, yes. Thomas S. Albrecht - BB&T Capital Markets, Research Division: Okay. And then I guess I'm a little confused on the description on the revenue growth for the 2 segments. Al, could you talk about that again? On one hand, I thought I heard kind of about the same for freight and transit in terms of the 10% guidance. But then I thought I heard some distinguishing elements maybe because of the PTC. How much uniformity would you expect? Because I think we would have modeled more...

Keep in mind that PTC goes to freight and transit, okay? And I'm going to read you a headline about transit. There's so much discussion. First of all, I hope you all heard the intermodal train going by. We staged that so that you know volume is going well here. In troubled times, still growing, this is the 2012 passenger rail outlook, and that not only stands for North America, but I think globally. What you find is these markets are compelling and there's continuing investment globally in these markets. We have opportunities in both transit and freight as we look into 2012. Does that address your question, Tom? Thomas S. Albrecht - BB&T Capital Markets, Research Division: Well, it did. I guess a little bit. I mean, we would have thought maybe a low-to-mid teens freight revenue growth rate and a 5%, 6% transit. But I just want to make sure that you're at least at this juncture and I realized it's only February, but your sort of thinking about the same for both depending upon new business wins and the pace of rail car bills and everything else.

Yes. That's -- I think it's a valid question. I think as we look at our guidance, we really think we're going to have some balanced opportunities going forward. Is the number conservative when it comes to either one of them? Possibly. And we tend to be conservative. Thomas S. Albrecht - BB&T Capital Markets, Research Division: Yes. No, I like that. And then Alvaro, the $61.1 million for SG&A, that's kind of the new run rate right now?

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

Our next question comes from Scott Group of Wolfe Trahan. Scott H. Group - Wolfe Trahan & Co.: Quick thing. How do we think about the content per car for, let's say, a hopper car or a tank car versus like a coal car?

No, we're indifferent basically, it's about the same. And we've always given out about our share adjusted contents right around $4,000 per car build. Scott H. Group - Wolfe Trahan & Co.: Okay. And in terms of a potential delay for PTC, how close do you think we are to having a new competitor in the market? And obviously, if you have a few more years to do PTC there, more potential for a competitor, how close do you think we really are to seeing a competitor?

Well, there's a lot of people that are working on signaling systems around the world and so there's people out there that provide different types of systems. I think the key to North America is the fact that these systems have to inter operate. We've got operating systems, it's been operating in over 5 years on the BNSF railroad and I'm sure that there's other systems out there that could run. But I think the amount of testing and qualification that's going to be required is large, but we are conservative in our numbers based on the fact that, if we can do it I'm sure someone else can, and that's how we view it. Scott H. Group - Wolfe Trahan & Co.: But if I hear you it sounds like even with a delay, you're so far ahead in terms of the onboard computer that a real competitor seems unlikely to emerge?

I didn't say that, but one could -- I didn't say that. Scott H. Group - Wolfe Trahan & Co.: Right, okay. And then I think you mentioned, Allison, or referenced or maybe some pent up demand on the transit side for once we get a highway bill?

Yes. I think... Go ahead, I'm sorry. Scott H. Group - Wolfe Trahan & Co.: Can you just talk about -- are there any ways to put some numbers around that in terms of their -- this many specific projects or this potential revenue opportunity is not for you but just for the market overall?

Yes, it's very difficult. There's a lot of projects that are out there. And what happens when you have the uncertainty that it's not the projects that we'd see in the next couple of years. We're talking about projects that we'd like to see on the table right now being discussed and designed, that would be 4, 5, 6 years out, the projects that are already beyond the design phase. And what happens when there's uncertainty on the funding, there seems to be a reluctance to start looking at those and you see a lot more people wanting to overhaul repair existing instead of new designs. So that's the pent up demand that we were talking about. And it's really probably more long term than it is near future. Scott H. Group - Wolfe Trahan & Co.: Okay, that makes sense. And then just last thing, kind of at a high level. If we think about the initial guidance for 2011, I think it was give or take about right around $290 million and we ended up about 30% better. Just in retrospect, is it that the overall market ended up better, market share was better, comps were better, more acquisitions. How do we think about kind of what drove the upside in 2011? And when you think about some of the assumptions for 2012, where do you think you maybe are most conservative?

I think that the markets themselves when you make a prediction in earnings 11 months or 10 months, you're only a 1.5 months into it, it's hard to predict. And I think the markets performed better than we had anticipated, especially the freight recovery. I think that the development that we had related to growth and some of the new product areas. And lastly is we don't predict acquisitions, so they're not in our plan. You had that together with our general typical way of being conservative, that would reflect what happened in 2011.

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

Okay. Well, thank you all for participating in our conference call and look forward to seeing you either personally or talking to you again at, I believe, it's April, next call. Thanks a lot.

Have a great day.

Bye-bye.

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