Westinghouse Air Brake Technologies Corporation (WAB) Q1 2013 Earnings Report, Transcript and Summary

Good morning, and welcome to the Wabtec First Quarter 2013 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, VP of IR. Please go ahead.

Thank you, Ted. Good morning, everybody. Welcome to our first quarter earnings call. Let me introduce the Wabtec people who are here with us: Al Neupaver, our President and CEO; our CFO, Alvaro Garcia-Tunon; our Chief Operating Officer, Ray Betler; and our Senior VP of Finance and Corporate Controller, Pat Dugan. We'll make our prepared remarks, from Alvaro and Al, and then we'll take your questions as usual. Before starting the call, we will make some forward-looking statements, so please review our press release today for the appropriate disclaimers. Al, go ahead.

Thanks, Tim. Good morning. We had another good operating performance in the first quarter. We had record sales of $616 million and record earnings of $1.44. Very important is our backlog increased to about $1.7 billion, a record high and an increase of about 8% compared to the year ago quarter. Overall, our business is performing well in what appears to be a slowly recovering global economy. It is important to note that our performance shows the effectiveness of Wabtec's diversified business model, the importance of our strategic growth initiatives and the power of our Wabtec performance system. We remain excited about our long-term growth opportunities in our Freight and Transit rail markets, which are being driven by several mega trends: ongoing demand for natural resources, increasing global trade, increasing urbanization, continuing need for infrastructure investment and the demand for more environmentally friendly technology. Today, we affirmed our 2013 guidance. Based on our first quarter results and the current outlook, we continue to expect full year earnings per diluted share to be about $5.85 with sales growth of 8% to 10% for the year. This guidance is about 13% higher than our 2012 results. We now expect transit to drive most of our growth for the year. Our strong transit backlog, both domestic and internationally, as well as acquisitions, are driving that segment's growth. We expect Freight to grow but at a slower pace because we think the economic recovery will remain slow. If we looked at the quarterly comparison in Freight, it shows of the impact of weaker industrial sales for gen sets and power generation products. It shows lower rail car and locomotive builds and a mix shift at our NPI locomotive division from Freight to Transit locomotive builds. Although we expect to see some improvement in our Freight markets during the year, it's premature to assume that the economic recovery will be more robust. Our guidance assumes the following: continued slow growth in the global economy, the U.S. and European transit markets remain stable with the emerging countries driving our growth; our transit revenues should grow based on our existing backlog of projects in the U.S. and internationally; U.S. freight traffic is stable with the OEM locomotive and car builds down 10% or more; and no major changes in foreign exchange rates; and we expect to have a slightly lower tax rate for the year. As always, we will be disciplined when it comes to controlling cost. We're going to be focused on generating cash to invest in growth opportunities and ready to respond decisively to any changes in market conditions. Let's take a look at the transit market. We continue to see stable markets in the U.S. and abroad. In the U.S., ridership was up 1.5% last year and in Canada, increased 2.3%. In 2013, North American transit car deliveries will be about 900. Those are transit cars. And the bus deliveries will be about 4,500. Both of these figures are similar to what it was last year. This stability in the North American market continues despite budget issues and uncertainties about our long-term Transportation Bill. Transit funding in the U.S. is also stable. It's at about $10 billion, and this is federal funding, and that's about where it's been for the past several years. Outside of the U.S., we're seeing stability as well in the developed markets, and we're seeing growth in the emerging markets. Even in Europe, our transit rail markets are stable and seem to be fighting off recessionary pressures because transit public transportation is so ingrained into their culture. We also continue to see incremental improvement in the development of our global transit business. Looking at the freight markets. In NAFTA, freight rail traffic is mixed. In the first quarter, total traffic was up about 1.3% compared to the year ago quarter. This consist of 5% increase in intermodal and a 1.5% decrease in general traffic. The decrease in general traffic is due mainly to a 6.8% decrease in coal. Categories that have increased include petroleum products, aggregates and chemicals. The OEM rolling stock deliveries for 2013 are expected to be lower than in 2012. About 1,200 new locomotives were delivered last year. We expect that number to be around 1,000 to 1,100 for 2013. Forecasters are expecting railcar deliveries to be about 50,000 to 55,000 in 2003. This compares to 59,000 in 2012. If we look at the first quarter, it was about 12,000 cars delivered, this compares to 17,000 that were delivered in the first quarter of 2012, and it was 12,000 delivered in the fourth quarter. The orders in the first quarter were very strong at 23,000, and this drove the backlog now stands at about 72,000. Continuing the recent trend, tank cars dominate the story. They account for about 80% of both orders and current backlog. With builders already sold out for this year, many of those tank cars will be delivered beyond 2013. Over half of the tank cars that are being built is for crude oil by rail applications. Globally, freight traffic is also mixed. China is still growing but not as fast. But that has had a ripple effect on some of the mining countries such as Australia, Brazil and South Africa, where we have seen some slight weaknesses. Our priority is continue to be focused on growth and cash generation. We generate that cash to fund internal growth programs for more acquisitions and also to return money in our shareholders through a combination of dividends and stock buybacks. We're focused on increasing free cash flow by managing cost, driving down working capital and controlling capital expenditures. Our growth strategies also haven't changed, global end market expansion, aftermarket new product and technologies and acquisitions. Let me update you a little bit on these strategies. Global end market expansion. Our sales outside of the U.S. for the quarter was $302 million. That's 4% higher than last year's total, and it accounts for 49% of the total sales. If we look back 5 years ago, that number was only 33%. Some of our new projects include components for transit cars in Taiwan and Brazil, as well as new freight locomotive components in Brazil, thanks to an aftermarket platform that we initiated a few years ago. In the aftermarket area. Aftermarket sales were $336 million. That accounts for about 55% of the total, and that growth is 5% on a year-to-year basis. We saw some of the growth from providing PTC related services and from transit agencies in New York and New Jersey region as they continue to recover from the effects of Hurricane Sandy. New products. We continue to focus on this effort with about 1/3 of our total annual sales coming from new products. We define a new product as a product that has been introduced in the last 5 years. An example of a new product that's growing nicely is our electronic controlled pneumatic braking systems. We recently received additional orders in South Africa to retrofit more rolling stock with that equipment. As for positive train control, that represented about $215 million of our sales in 2012. We expect it to grow by 10%, 15% this year as we continue to work with the railroads and other industry suppliers to deliver an interoperable system by the 2015 deadline. As you know, there has been discussions about extending that deadline. We certainly can't predict whether that will happen, but we have analyzed how a delay would affect us, and we do not think it will have a meaningful impact on our business. In the acquisition area, we had previously announced the acquisition of Napier Turbochargers out of the U.K. in January. Acquisitions actually accounted for our growth in the first quarter this year as compared to last year's first quarter. I'll turn it over to Alvaro for some additional comments.

Right, and then we can go to Q&A as usual. Thanks, Al, and good morning, everyone. We're always happy to discuss financial results like these with sales and earnings at record high. I'll start with sales. Sales for the first quarter were at $616 million, 6% higher than last year. As Al said, most of the net increase was from acquisitions, as well as increased transit sales. The transit group sales increased due to revenues from our backlog of existing projects, mainly locomotives and also from acquisitions as well as we mentioned earlier. The Freight Group sales were down mainly due to 3 factors. Although NAFTA rail traffic was slightly higher in the '13 first quarter as Al mentioned earlier, deliveries on new freight cars were appreciably lower by about 5,000 units. In the first quarter of '12, we were delivering new freight locomotives to a customer in Australia under a contract that ended in the first half of that year. While that locomotive manufacturing facility is still being fully utilized, that mix has shifted from freight to transit locomotives this year. And then the third reason sales are off a little bit is reduced drilling activity, both oil and gas, has resulted in lower demand for our industrial heat exchangers that are used for gen sets in that market. However, we started to see some pickup in orders in that market there, and we're optimistic for the rest of the year. Margins as you know, that's key for us, and we're always striving to drive our operating margins higher, which we did this quarter. SG&A increased due mainly to acquisitions. Hopefully, we can reduce a little bit of that as we go forward, but it was still only 10.4% of sales compared to 10.6% of sales in the year ago quarter. For the quarter, for this quarter, operating income was $104 million or 16.8% of sales compared to 16.1% of sales last year. Margin performance was driven by several factors, including higher sales, but also obviously benefits from the Wabtec performance system. And right on cue, if you hear some background noise, one of our customers is riding a big train, it's full, right by our windows over here. It might get a little -- yes, they tooted our horn for us, so it may be a little noisy, I apologize for that. The effective tax rate was lower in the first quarter. It was about 30% versus 34.4% last year. I believe we mentioned in the last call that we were expecting taxes to be lower in Q1. We now expect the tax rate for the remainder of the year to be at around 32%. So for each of the next 3 quarters, we expect that to be around 32%, which is slightly lower than what we said during the last call. This is obviously good news and due largely to an international sales and international tax plan. The tax rate for the first quarter of '13 was actually lower than that 32% at 30%. And this is primarily due to the extension of the R&D tax credit by Congress on January 1 of this year. The accounting rules provided that we can only recognize that benefit this year even though a big chunk of it related to activities in the prior year. We recognized approximately $1.47 million, $1.5 million of benefits from this from the first quarter which translates roughly to about $0.03 per share. So you won't see that continuing. But again, for the tax rate will fluctuate somewhat we'll be about 32% going forward. Cash from operations. We had a good quarter. We generated about $32 million in cash from operations. The first quarter is always a little bit tough for us because of funding on year-end items such as federal state taxes, incentive comp payments, benefit payments and interest on our bonds. So we expect that this result will improve during the year, but again, a good start to the year. Working capital increased in part due to higher sales. Just to give you a couple of balances. At March 31, receivables were $433 million. Inventories were at about $429 million, and payables were at $267 million. Our GAAP working capital's, again, a little bit higher than what we would like. It was about 15.7% of sales for the quarter versus about 13.6% at year end. So it's deteriorated somewhat and then obviously gives us something to shoot for and get that back on track. One of the issues that we wrestle with and I think you're familiar with this is that our business has become more global and as we expand our sourcing requirements into low-cost countries that affects our working capital. We tend to have to order more and we tend to have to pay for it when it leaves the port rather than when it arrives so we have a lot of inventory and transit. But even so, we think we can do better, and we expect to continue improvement in that area as we go forward. Cash and debt, again, just to give you a few numbers. At March 31, we had $225 million in cash, mostly outside the U.S. This compares to $216 million at December 31. At March 31, we had total debt of $418 million. This is up $100 million from $318 million at December 31. This was due primarily to the acquisition of Napier in the U.K. in January. A few other miscellaneous items. Depreciation was $7.6 million compared to $7.1 million in last year's quarter. Again that's a nominal increase but mostly due to acquisitions. Amortization was $3.6 million versus $3.1 million last year. And again, the difference is due to acquisitions. And CapEx for the quarter was $6.4 million versus $10.2 million last year. Our budget for 2013 is about $48 million in CapEx. We tend to underspend that a little bit, and I think the results for the first quarter reflect that. In terms of backlog, I think Al mentioned that we were at a record high. The total for as of the end of the quarter was $1.7 billion versus $1.66 billion at December 31. So a slight increase. But both Transit and Freight increased, so it's nice to see an increase of -- in both segments. Transit increased from 1.17 to 1.19. And freight increased from $492 million to $515 million. I think we've said this before, but just as a reminder, backlog has to be more significant in Transit than Freight. The rolling 12 month backlog, which is the backlog that we expect to execute in the next 12 months, was relatively steady, $1.1 billion in both periods. In transit, it went down slightly from about 700 to 661. And in freight, it was a relatively steady from about 414 to 403 at the end of Q1. And those figures we mentioned just to give you an idea what we have out there in options, but we don't book options until they -- we execute the agreement and they become firm but we have about $250 million of options related to this backlog. And then with that, I'll turn it back over to Al for final comments.

Okay. Thanks, Alvaro. Considering all the factors, we're off to a good start for the year. Record sales and earnings, excellent margin performance and a backlog at record levels. We are anticipating another record year in 2013 with EPS guidance of about $5.85 and revenue growth of 8% to 10%. We couldn't be more pleased with our strategic progress and the long-term growth opportunities we see as countries around the world continue to invest in freight rail and passenger transit infrastructure. 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 and a very dedicated workforce. So we're poised to take advantage of our growth opportunities and ready to respond to any changes in the market conditions. With that, we'll be happy to answer your questions.

[Operator Instructions] Our first question comes from Allison Poliniak with Wells Fargo.

Just going to the margins. I understand you'll give us the segment margins, let me get the Q. But you certainly saw nice expansion there year-over-year. Was that expansion more weighted towards freight, transit or was it sort of balance at this point?

We actually we improved our margins in transit during the quarter. You get the benefit of some of the volume related to that, but as you know, and when we talked about it at the last conference call was our focus on that improvement, and I think that focus resulted in some good results, which you'll see. We also have performed well in the freight area as well.

Okay. And then just on transit with on positive train control we certainly heard a lot from the Freight side but transit -- I don't know if it's just that we don't hear as much about it but do you have any color on what's going on with PTC there? It seems to be a bit quiet on the Freight side.

Yes, we have only been able to announce a few of the projects we're working on. There's 21 different transit authorities throughout the country that will need to have some form of PTC in order to operate and share the rail space with the freight people. We've announced work with Metrolink in Denver so far. We are working with most of those transit authorities. A lot of them are struggling to find funding for their programs but they are moving forward with them. I'm hoping that we can announce in the near future some of these contracts that we've signed. The thing I have to tell you though that there's big projects. It depends on the scope of our work. Some of the projects that fit in the turnkey basis could be large, and we could have small content as well. It's just providing the onboard PTC equipment. So we're excited about the opportunity. Right now, I think transit has the $350 million of PTC work makes up about $50 million of that $350 million so far.

Our next question comes from Art Hatfield with Raymond James. Arthur W. Hatfield - Raymond James & Associates, Inc., Research Division: Al, if I can ask you a question about your comments about growth for the year. You had mentioned that you expect most of the growth to come from the Transit side but yet, you do expect Freight to grow. Looking at first quarter year-over-year, you were down at about 23% understandably so given where the Freight markets are, and you got a tough comp in Q2. I am assuming you are expecting much greater growth in the back half of the year. If so, can you kind of get into some specifics about areas where you think you are going to see that growth and what's going to happen to be able to get you to get to flat to slightly up in that business?

Yes. I think that we feel that the growth will come in a number of areas for Freight. One is as the economy recovers, we expect our industrial product, that's part of the Freight Group to improve as the year goes on. We've seen some of that. And I think if you take a look at some of the industrial -- diversified industrial companies, I think most people were talking about that type of recovery as it goes forward. I think the second area is that we expect to see more strength in our international markets as the year goes on as well and some of the opportunities we're working on. The third thing we saw and I'm sure this will be a question, our sales in PTC for the first quarter was about $50 million. What we saw was there was a lot of large purchases towards the last part of last year, so there was a little bit of a holdback, I think, in the first quarter. As we said before we expect that 215 or 220 whatever it was last year to grow by 10% to 15%. So we think we'll see that improvement. And I think if we see the economy improve in general, I think the Freight markets from a car loading standpoint and other impact it would have on this would be positive as well. Arthur W. Hatfield - Raymond James & Associates, Inc., Research Division: That's interesting that say that. We've been hearing -- at least I've been hearing from other companies. There seems to be a lot of pent-up demand, a lot of customer inquiries. And clearly, that's hope for optimism but have you started to see at least in late Q1 or early Q2, people starting to ink deals where you're kind of getting stuff in the backlog that you're confident, that builds your confidence for the back half of the year?

Well, we stated on the backlog being up at $1.7 billion. And if you break -- Alvaro broke it down, but if you look at it on some percentage basis, about 38% of that backlog for the next 12 months is in Freight and 62% of it is in Transit. So that's probably about normal. The place where we have seen an uptick is really in the industrial part of our business. And we're hoping that's the same. We don't know. So -- and we see slight indications of it, but nowhere near enough to give us confidence to get overly aggressive with our projections. Arthur W. Hatfield - Raymond James & Associates, Inc., Research Division: Okay. And your industrial business, is that always -- if that's in backlog, is that in the Freight side?

That's in the Freight side, yes. Arthur W. Hatfield - Raymond James & Associates, Inc., Research Division: Just one other question on margins, the last couple of years, you guys and of the nominal job on margins, and I know your strategy of continuous improvement. You'll say you always want to improve margins, but you'll probably agree that the level that you've been able to improve margin in the last couple of years, that kind of growth year in, year out is not sustainable. But when we think about kind of a more slow growth environment, kind of a more stable organic growth without a lot of acquisitions, can you talk about the areas within your operating margins that you feel like you can get growth improvement year in and year out just from the things you can do internally?

Yes. And I'm glad that you've just articulated our strategy related to margin. So we must be communicating well. That's good. But if you take a look at the first quarter, I think it's a good indication, and we talk a lot about how we approach it, and it is continuous improvement. But when -- it's the times when you see some of the revenue backing off that we really heightened our activities in those areas and focus on that. When you don't have volume that tends to cover some of your problems and wounds, you really have to focus on the fundamentals of improving margins. And I think the Wabtec Performance System and I think Ray Betler, our Chief Operating Officer and his team really do a good job on focusing on those things. It's savings from sourcing, savings from our lean applications and manufacturing, increased pricing, moving products from high-cost platforms to low-cost platforms. And we have a very rigid budgeting process that ask each of our divisions to come in with improvements year-on-year. And I think that yes, it's going to get incrementally more difficult to improve our margins but I think the one thing that we're going to focus on is how we continue to do that no matter what the market conditions are. Arthur W. Hatfield - Raymond James & Associates, Inc., Research Division: Could you -- would you be comfortable if you could articulate publicly kind of what those goals are in sourcing and lay them out? Do you have like a goal of 20 basis points a year to sourcing and -- or 30 to...

I can explain to you that when every division comes in with their plan, it's a number that is much large than we expect to end up at the bottom line. As a matter of fact, they need to have actions that would improve by about 2%. But we know we're not going to get 2% falling through the bottom line. We've got inflation. We've got wage increases. We've got issues that are going to exist. If you look at any point in time, yes, you can predict a number. But over time, it's going to get incrementally harder. So I'd hate to say that we're going to increase by 0.5 or 50 basis points each year because next year, it's going to be more difficult to do that. So we really focus on trying to identify action items that will result in margin improvement and making sure that some of that flows to the bottom line. If you look at our contribution margin in the quarter, it's very high in the incremental sales. And the reason it's high is because those results were driven to the bottom line.

Our next question comes from Tom Albrecht with BB&T. Thomas S. Albrecht - BB&T Capital Markets, Research Division: I just want to go with Art's question a little bit. So as I look at 2013, right now, you've got about a 50-50 mix of Transit and Freight. Just on a revenue side, would you expect that mix to stay about that or is transit going to end up larger because it sure seems like freight's going to be down in the second quarter before it begin to stabilize.

The one thing, and you bring up a good point, Tom, that I didn't mention. When you look at that margin improvement in light of the fact that we had a large shift of business going to transit, which is traditionally a lower margin business, I think it really is a good reflection on how hard our team worked to improve margins during the quarter. Right now, we still feel that the Freight business will be larger than the Transit business for the year. Although the numbers right now are 50-50, we would expect our year result to be Freight being a larger portion of our business. And I don't know if I really want to go on beyond that and give you numbers. But I can tell you that our plan shows that being larger than Transit for the year. Thomas S. Albrecht - BB&T Capital Markets, Research Division: Okay. Well, that's at least helpful. So then a follow-on would be there is a big margin profile difference between Freight and Transit. Freight's been over 20% in recent quarters and upper teens before that versus, I'll call it, 9% to 12% margin for transit. Would you be able to drive the consolidated EBIT margin if, let's say, it's a 55 freight, 45 transit margin given a huge discrepancy in transit margins being lower?

Yes, I think just how we performed in the first quarter is a good indication of the future. And if Freight is higher, then the comparison gets easier. Thomas S. Albrecht - BB&T Capital Markets, Research Division: Okay. And then the last question, I know you cited some of the factors behind freight's drop but -- and maybe this is just something you didn't want to mention but did weather have some sort of an impact on Freight's revenues beyond locomotive and rail car deliveries in the industrial power, et cetera?

I really don't think so. I think that the reduction in coal maybe -- I don't think so. I don't think weather was a major factor, Tom. But one thing that does happen during the winter, you get a lot more maintenance related to breakdowns if it's a very severe winter. I'm not sure it was that severe compared to others, but it is -- that's amplified when you consider the weight of the coal cars in the winter. So there may be effect there, but I don't think we were able to measure anything from the market data that we looked at.

The next question comes from Scott Group with Wolfe Trahan. Scott H. Group - Wolfe Trahan & Co.: So just a couple of things. So the lower PTC guidance I think you were saying last quarter 15% to 20% and now 10% to 15% growth. Is that all just from the first quarter?

Yes. I'm sorry, Scott. We still think it's 15% to 20%. I just forgot the number that I gave you. Scott H. Group - Wolfe Trahan & Co.: Okay, okay. That's helpful.

We haven't backed up from that. I apologize. I sometimes forget things. I'm getting old. Scott H. Group - Wolfe Trahan & Co.: I hear you. We don't hear a lot about the industrial business, and that seems to be where you're being more confident in things getting better. Can you just give us maybe a little bit of update on kind of the strategy on the industrial side and how we should think about the mix of that domestically versus internationally and maybe a sense on the margin profile there?

Yes. The industrial side of our business is about 15% of the total. The markets that we focus in primarily -- we have a number of markets. Remember, our strategy is to take existing technology, existing products and try to take those into new markets to help diversify our portfolio. We definitely don't want to be a major force and get out of the rail business. We love the rail business. It's a compelling business. It's a long-term growth story. The mega trends, all the things we talk about. But if we could take our technology and we could take our products and sell in other markets without distracting our management. We don't want to go into something we don't understand. So the things we do understand is thermal management. We understand friction and a few other areas, and those are the areas we concentrate on. Of that marketplace for thermal management the 2 areas that we've been able to grow in is one is gen sets. Gen set market is driven a lot by the drilling and the frac-ing work that's going on, and that has slowed down considerably. I think if you look at the Caterpillar results and their discussion, you would sense that. That market is a global market. Half of our market is outside of the U.S. in thermal management. We also focus on power generation, primarily, aftermarket in the U.S. and on OEM new construction and some of the emerging markets. And the winter time is a slow period for power generation aftermarket work. That should pick up. And hopefully, the demand for electricity will continue to grow, which we know it will over time, but there's lapses sometimes in that growth. So that's probably a pretty good summary of that business area and what we see and what we're looking for. Scott H. Group - Wolfe Trahan & Co.: That's great. Maybe just -- if you have any color on the margin profile there relative to overall freight or the overall business?

Yes. It's about the overall freight number when you put everything together. A couple of the business are better, and a couple are worse. Scott H. Group - Wolfe Trahan & Co.: Okay. That's helpful. Just on ECP brakes, you talked about contraction in South Africa. Do you view that as an isolated opportunity here with one customer, or do you think that, just given commodity demand, that ECP could become a pretty material driver for you guys going forward? Maybe if you have any sense or any color on kind of how much ECP revenue we're talking about right now, would be helpful.

Yes. On an international basis, it is a driver. We have continued to have acceptance of that product in Australia. South Africa was actually the first application of that product even before Australia. And what they're doing, they're getting the results. They're getting efficiencies. They're getting productivity improvements from it. And what they've done is they decided to add to their fleet more ECP-equipped cars. And that's what's happened in Australia. We were just visiting South America, and we're starting to see pilots being run there. They see the same advantages. The large opportunity, obviously, would be an acceptance in the U.S. market, which I think are years off because their priorities of capital are in other areas right now, including the PTC and their infrastructure build. In the U.S., there's a different model. When you talk about the easy application in Australia or South Africa, Brazil, you're talking about unit trains, trains that go from the port to the mine and back and forth. And they don't have the problem of having a train that is partially equipped. A partially equipped ECP train is useless. You won't get the advantage. The other problem is who pays for it and who gets the advantage. In those mining countries, the mining companies own the railcars and the trains, and thus, they pay for it, and they get the advantage. So I think the complexity of that marketplace in the U.S. prevent it from becoming more accepted in the U.S. But I think over time, you have a product that would advance the technology, would advance the efficiency, productivity and safety of the railroads. And I think it will get adopted. It will just take a long time. Scott H. Group - Wolfe Trahan & Co.: Okay. That's helpful. And then just last thing, one for Alvaro, kind of on the leverage side, debt to EBITDA now clearly below 1x. Where do you feel comfortable taking that, and would you get back to 2, 2.5x? And are you itching to start doing something on the leverage side, either a big acquisition or a big buyback?

No. I'll take the last one first there, Scott. I'm not really -- obviously, we're in a very, very favorable interest rate environment, one that, after a certain point in time, you probably won't see. And I think our primary focus right now is how we refinance the bonds going forward. For the benefit of the people on the call, to just put everybody on the same page with you, we had about $150 million worth of debt that we have in public bonds that will mature in around July, and we're taking a look at different alternatives, and we haven't really made a final decision yet on what we're going to do. But our primary focus is on that refinancing and how we can take advantage of -- take maximum advantage of the current low interest rate, but we're not really itching to do anything. We -- in terms of acquisitions, in terms of how we spend, we're still very, very selective. We still have very tight standards for spending. And just because we have the flexibility, just because we have the gunpowder, doesn't mean that we feel pressure to use it. In terms of leverage, our cash flow, obviously, we focus various heavily on cash flow, and we still have that LPO mentality back from the 1990s. And so we feel comfortable with more debt. And if we had to get it up to a level 2, even 2.5, which is starting to stretch where we feel comfortable with, we feel comfortable with that. So in summary, we have the gunpowder, and we have the ability to leverage up and to do more, but we're going to be very selective about it. We're just not going to, like you say, to satisfy an itch and go on do something just to do something.

Our next question comes from Mike Baudendistel with Stifel. Michael J. Baudendistel - Stifel, Nicolaus & Co., Inc., Research Division: I wanted to ask about the railcar data in the first quarter. I noticed there was a big pickup in tank car deliveries from the fourth quarter to the first quarter maybe because of production capacity increasing. I was wondering if that increase of the, say, from 6,000 to 6,500 or even 7,000 later in the year, is that something that's included in your guidance, or would that be sort of incremental to that.

I think it's included in the guidance. The -- one of the issues that you have, even with the order intake of 23,000, I think it was for the first quarter 23,900, they could only produce at full capacity 6,000 or 7,000, as you just stated, tank car capacity. So these orders really get -- they're being placed for far out. I know that everyone's trying to add capacity to meet the demand on the tank cars. So is there a possibility that, that capacity increase? And I know that most of the tank car builders are trying to do that right now. That could be an upside, but that is not figured into our guidance.

The nice thing is that, that backlog does provide really a large amount of stability going forward. Typically, your visibility with freight is not that great, but now with this backlog, when there are capacity, that gives you some more visibility going forward, and it lends a higher degree of stability to that market, I think, than you'd normally expect. So overall, it's positive. Michael J. Baudendistel - Stifel, Nicolaus & Co., Inc., Research Division: Great. That's helpful. And then I know there's been a lot of questions on margins, but I also wanted to ask on the mix impact sort of within the segments that maybe we wouldn't see sort of if there's been any change in mix within freight or within transit that's having an impact there to the positive. And is it safe to say that the areas of your business that are growing faster or at least just high-margin if not higher than sort of the older areas?

Yes. I don't think there's anything that's out of the ordinary of what we're seeing in the mix within each segment. Well, obviously, the segment change has an impact that we've more than been able to overcome.

Our next question comes from Kristine Kubacki with Avondale.

My question is on the PTC in Brazil. I was just wondering if you could give us an update on that project and kind of what the opportunity remains for 2013 and then even as we look into 2014.

Okay. We were just there. So that was one of the reasons for our visit to Brazil, and the project is going well. Late this month, early May, we will commence a pilot. We have individual trains right now running. This will be a series of trains that will be in the pilot. If that pilot is successful, and we would expect that this project will continue and be complete early 2014. As far as there is additional work that could be done with this particular railroad, there's a couple more lines that, I think, could be equipped. I think a lot of that depends on whether they'd equip it, the timing of doing that work. I'm confident that they get the benefits that we think they're going to get, and I think they're seeing some of it already. I think that what you would see, they'd eventually do it. But that's going to depend on the demand that will need to continue to be driven by iron ore and coal demand from some of the emerging countries like China. The value of that, if they did all the work that they need to do, it would be equivalent to another maybe $80 million of additional work. We're also hoping that other people will see the benefits once we have this up and running in 2014, and we'd be able to talk to other railroads about the system.

Okay, that's helpful. And then just my follow-up question was you mentioned about iron ore, and we've seen input costs across the board go down. I was just wondering is that any tailwind during the quarter, And would you expect it to be -- is there anything you can hold on to, or are you being asked in more of a, what I call, squishy economic environment right now? Is the pricing power the ability to hold on to pricing, or do you have to pass through any input cost reductions?

We typically don't see the pressure from the market in those cases.

And you've alluded to, Kristine, we do -- which helps us when material costs are going up, we typically do have surcharges when they're going down. We don't get that much of -- we don't get too much of a benefit, obviously, because the surcharges go both ways. So I don't expect -- it would be nice, but I don't expect to get a whole lot of headwind from the raw material costs going down.

Our next question is from Liam Burke with Janney.

Al, in terms of the acquisition pipeline, is it getting stronger? And also, how does pricing look on that front?

Okay. We're pretty active right now. The pipeline is starting to move a lot better. It started out a little slow at the beginning of the year because there's a lot of transactions forced by the uncertainty related to tax laws, but we've seen a lot of activity right now. Pricing has strengthened because there's a lot more people with cash looking for ways to grow. So it's become more competitive.

Great. And, Alvaro, you mentioned your cash flow remains strong. You anticipate it getting stronger to the balance of the year. But most of your cash now resides overseas, understanding there is a tax implication to repatriate it. Does that constrain any of your financial planning in terms of buybacks or returning cash to shareholders or acquisitions?

Not really, and it doesn't in two respects, Liam. Because long term, we were holding that cash there basically to utilize it. We think that in the countries where we are currently accumulating cash, there are opportunities present there. And so hopefully, over time, obviously, you can't predict acquisitions. You have to be opportunistic; you take them as they come. But hopefully over time, we'll be able to use that, utilize that cash locally to make acquisitions, to make CapExes, et cetera, et cetera. So it's not just being trapped there. We actually expect to be able to use it. In terms of does that limit our financial flexibility, not really. I mean, I haven't done the calculation the last couple of days, but typically, without the cash worth by 1x EBITDA, debt to cash flow may be a little bit above maybe 1:1 in the quarter, and that still provides us an amount -- a significant amount of flexibility. So we don't feel constrained by having that cash abroad at all. And again, hopefully, over time, we'll be able to use it very well.

Next question is from Jason Rodgers with Great Lakes Review.

Just a question on PTC, if you've seen any other competitor enter the space?

There's a lot of activity by others to try to be involved in the PTC potential. There's a lot of areas related to it. I think that a number of companies try to work on an onboard solution. There's other companies that are working on the back-office products. They're typically good companies, so we stay abreast of any progress but not a lot of change from when we last talked. So -- but there are other people involved, and there's plenty out there, plenty of opportunity, and there is plenty of work to be done to get this interoperable by the year 2015 or beyond if it is extended.

And are you seeing any additional activity lately in the Tier 4 locomotive?

One thing that I understand is that you would've expected with the Tier 4 requirement that there would been a large push to buy locomotives. But I think that with the two factors that are impacting the railroads, one is coal and the other is grain, that they don't need as many locomotives. So I think they're waiting and seeing what happens with the economy now. Whether there'll be a big push before that expiration or not, we don't know. We're personally involved in upgrading some locomotives for Toronto Transit, GO Transit, I think they changed their name to Metrolink. And we're actually doing some Tier 4. I think we'll deliver the first Tier 4 locomotive in the country to Toronto here this year. So it's a little bit of a mixed bag, and I think it's probably something that wasn't predicted.

All right. And just finally, just a few items here. If you have a shareholders' equity balance for the quarter, as well as any share repurchases for the quarter.

Sure. Share repurchase. I'll take just the second one because that's relatively easy. The way our quiet periods work, we are virtually in a quiet period for most of the quarter because we didn't release fourth quarter until late February, and then we start a quiet period shortly thereafter. So we were in a quiet period for most of the quarter, so we did not buy back any shares. In terms of shareholders' equity, and again, this is subject to final adjustments and reclasses, et cetera, et cetera. But our total shareholders' equity is about $1.326 million at -- I'm sorry, $1.331 million. I forgot minority interest. I heard a couple of moans when I said that. I figured I was reading the wrong line. It's $1.331 million as of March 31.

Okay. Just finally, did turns have any impact on sales in the quarter?

Very little.

3.7 quarter-to-quarter negative.

Next question is from Scott Blumenthal with Emerald Advisers.

So this morning, the CEO of Norfolk Southern was on TV talking about his CapEx plans and how he plans to spend about $2 billion this year plus an additional $200 million on PTC. Now when Kristine was asking questions a few minutes ago about PTC, you talked about piloting Brazil. I know that we've been piloting PTC since it was ETMS, I believe, in 2007. So can you comment at all about what's going on with Norfolk Southern this year, and if this is the first time that you're actually going to start to collect some revenues from this ongoing pilot that you've had with them?

Norfolk Southern, like the other Class 1 railroads right now, are working very closely with us on getting an interoperable system. As you stated, Scott, I mean, we do have an operating system, ETMS, that has been running and will continue to run on BNSF. And BNSF is moving in, I think, in a good direction. So they expect to ask for product safety plan being approved by the FRA probably before the other groups, but they would also need to be integrated into the interoperable system. All the Class 1s that we're working with right now, where they're at is they're doing a lot of what you would call testing of the system, lab testing to make sure that software is working real well. We're finalizing some of the software changes. Hopefully, all those will be in place by summer. If it is and the specification is known, I think you'll see that the railroads will then go into a pilot test, actually start running trains, utilizing the system and then continuing their efforts. When you look at their spend, their spend there is in a lot of different areas. And thus far, if you look at the total spend, I think the railroads -- if you add it all together, and I think this is public, they spent probably $2.5 billion so far on PTC, $2.5 billion to $2.7 billion. And they expect to spend upwards of $8 billion. So there's a -- that would show about 30% progress on what they plan to spend. But if you look at the amount of work that's been done so far in the locomotive, the onboard, next to the only part that we actually report on, it probably have about 6,000 or 7,000. Another 18,000 to 20,000 locomotives have some portion of being equipped with the onboard computer. Some of them are just provisional kits. The equivalent in number would be 4,000 to 4,500 locomotives, which is about 25% of the weight done. If you look at the number of wayside switches that need to be adapted, again, they're -- they probably have touched maybe 8,000 or 9,000 out of 40,000, so they're 20% to 25% along. And so I think that the $200 million is, if you look at the various roads, I think most of them have identified spending somewhere in that area as well. Hopefully, that answers your question, Scott.

Oh I guess, yes, that answered much of it. I might have to pick some of that up offline. Alvaro, could you maybe -- to switch gears here, could you maybe give us an idea as to how much the 5 acquisitions from the last year added to results? I know that you mentioned that much of the growth was acquisition, if not all of it, maybe how that might have fallen into the 2 segments?

Yes. Quarter-to-quarter last year to this year Q1-to-Q1, acquisitions added about $40 million of total revenues.

Okay. And most of that was skewed towards transit, I imagine, right?

Yes, most of that was...

95%, and I think close to $1 million was freight.

Okay. And since we -- you threw out the $40 million number, Al mentioned that the PTC sales during the quarter were about $50 million. Am I correct in guessing that they were about $40 million in the same quarter last year?

I don't have -- maybe Al has the first quarter last year.

They're flat.

They're flat quarter-to-quarter.

Okay, okay. And just one more clarification if I may. Alvaro, you mentioned that the tax rate will be about 32% going forward. Is that going -- is that from here on out, or did you mention that it would be 32%, you expect it to be 32% for the year?

Yes, it will be slightly -- I expect it to be 32% for the, say, second quarter, third quarter, fourth quarter, which will give you a slightly lower rate -- overall rate for the year. Again, that's a rough estimate. These things can fluctuate. But right now, that's our best guess.

Our next question comes from Matt Brooklier with Longbow Research.

Back to PTC. Just trying to get a sense for, I guess, the timing of booking revenue in '13. If I look back at '12, PTC revenue was kind of back end-weighted. Should we assume kind of a similar pattern of overall PTC revenue in '13, or could it be a little bit different?

Yes. Based on what we're seeing, it's going to improve, grow year-on-year. I think it's going to have to be back-end loaded since the first quarter is only 50. So I think that's what we should see.

Okay. And the $50 million, which is a little bit below kind of the average midpoint of your, I guess, quarterly guide if we distribute PTC revenue evenly in '13 across the quarters, I think earlier commentary was that, that modest step-down was driven by more activity at the end of the year. Did I hear that correctly?

That's correct.

Okay. Does it matter what types of railcars are being delivered going forward, i.e., a much larger percentage of railcars, tanks this year was there a similar situation last year. Do you get incremental dollars and revenue per the components and parts that you're providing to the OEMs, or is that not the case?

Not the case. We're basically agnostic to the type of car.

Okay. And then when I look at -- I think you did touch on these 3 components of the revenue decline, at freight being down 23% year-over-year into first quarter, it was a tougher railcar delivery, comp, and then there was also some locomotive and industrial product headwind. How should we think about the, I guess, the contributors to that decline? I mean, if I look at your fourth quarter, the industry fourth quarter railcar delivery comparison, it was down and kind of similar to what it was in first quarter. So should we assume that the declines in locomotives and the industrial products were a bigger contributor to that overall decline in revenue, or was there some timing issue in terms of railcar orders and deliveries in the quarter?

Yes. Most of our comments were related to 2012 first quarter to first quarter 2013 because that's the comparison that we need to make. If you look at fourth quarter to first quarter, freight was down about 12%, I think, is the number. And more of that was really due to decreased demand on locomotive content, not necessarily railcar content, because we still delivered 12,000, as you said, in the fourth quarter as the first quarter. We also saw some slowdown in the higher generation and gen set areas from fourth to first. And we also saw some slight decrease on freight demand on an international basis, which we think is only temporary.

Okay. And maybe just a final question. Provide a little bit of color on the European rail market. Has there been any change in terms of kind of the demand dynamics there, or are we -- is it kind of a similar operating environment versus fourth quarter?

As you know, I mean, they're under some really strong recessionary pressures. But the transit market has maintained good stability throughout this. And the freight markets are down, but we've made some good progress in introducing some of our new products into that market. So for us, it's actually been a little bit of a gain.

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

Just a couple of quick ones. The receivables increase on the balance sheet, was that due to timing, or are there any customers that are delaying payment? Just kind of any color there.

Yes. It's mostly -- some of it is due to acquisitions, obviously, when you're just looking at raw receivables balances. Some of it is due to the acquisition of Napier in the interim, and the rest is pretty much timing, Steve. We're fortunate in the sense that large, large, large proportion of our customers are pretty creditworthy. Like everybody else, we may have a receivable issue now and then, but for the most part, they are pretty solid.

And a similar question on the inventory increase, were you building ahead on transit, did it slow a little faster than you thought in the freight, or is this -- is it maybe just a function of the broader global footprint?

There is a little bit of building up on transit because, again, the lead times in transit tend to be longer than the lead times on freight. And typically in transit, you get this at end of the month. We're trying to get inventory out of there, and they try to send inspectors in because they will inspect it actually before it leaves, and sometimes there's a little bit of -- they missed the end of the month because they can't get the investors in -- I'm sorry, the inspectors in before the end of the month. So it's a little bit of transit, a little bit of acquisitions, a little bit of sourcing from low-cost sources abroad, which, again, you take title to that, as soon as it leaves their port. So while it's in transport, it's in our inventory balance, and then you have to order larger quantities. And in general, it's a little bit of increased activity. It's all 4. Having said that, and you heard Karl-Heinz is in the room. Karl-Heinz is one of those that we constantly talk to him about working capital and receivables and inventory. So I'm glad you brought up the point because, hopefully, he will take the message home, and he will relay it to the troop how concerned investors are about it.

Great. Glad I could help. And last question. If we look at sales by product type categories that you report in the filings, do the industrial products fall into Specialty Products?

Yes. They either fall into transit or freight. So far, they fall primarily into freight.

No, he's asking about the specific quantities in the 10-K and...

And the brake products, the manufacturing, specialty products and electronics, those categories there.

Pat's flipping the pages, but yes, in general, it probably is.

Yes, in generally, it probably is.

Exact. It's...

It's specialty?

Yes, you can actually go see the -- where all these fall in by the 10-K and the segment description in the front.

Oh, that's -- okay, great. That's -- I just have a list in my model, but I don't have the description.

[Operator Instructions] There appear to be no further questions at this time. So I'd like to turn the conference back over to management for any closing remarks.

Yes. Thank you very much, and we look forward to talking to you in July. Is that right? Yes. Okay. Talk to you then. Bye-bye.

Thanks, everybody.

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