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Westinghouse Air Brake Technologies Corporation (NYSE:WAB)

Q4 2009 Earnings Call Transcript

February 23, 2010 10:00 am ET

Executives

Tim Wesley – VP, IR and Corporate Communications

Al Neupaver – President and CEO

Alvaro Garcia-Tunon – SVP, CFO and Secretary

Analysts

Jim Lucas – Janney Montgomery Scott

Kristine Kubacki – Avondale Partners

John Mims – BB&T Capital Markets

Joe Box – KeyBanc Capital Markets

Greg Halter – Great Lakes Review

Fred Speece – Speece Thorson Capital Group

Operator

Good morning and welcome to the Wabtec Corporation's fourth quarter 2009 earnings conference call. All participants will be in a listen-only mode. (Operator instructions) After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference call over to Mr. Tim Wesley. Sir, please go ahead.

Tim Wesley

Thanks Vijay and good morning everybody. Welcome to our fourth quarter earnings conference call today. I’ll introduce the rest of our team. We have Al Neupaver, our President and CEO; Alvaro Garcia-Tunon, our CFO; and our Corporate Controller, Pat Dugan. We'll have our prepared remarks and then answer your questions. I want to refer you to today's press release for the appropriate disclaimers on our forward-looking statements.

And with that, I’ll turn it over to Al.

Al Neupaver

Thanks, Tim. Good morning everyone. What I’ll be doing today is covering our fourth quarter and our full-year results. I’ll talk about our market conditions. We’ll also talk a little bit about the progress that we’ve made on our strategic initiatives. Alvaro will cover the financials in more detail for you.

In a very challenging year, we had a good performance in the fourth quarter and for the total year 2009. Our fourth quarter EPS was $0.56, excluding the previously-announced charge of $0.06 for an arbitration ruling. As Alvaro will discuss shortly, if you adjust our operating margins to exclude one-time items during the year, we actually improved margins compared to 2008.

Even though sales declined by about 11% and our mix shifted more toward transit, which historically had been a lower margin business, our backlog held steady at just under $1 billion and we had a very strong cash flow from operations, $71 million for the quarter and a record $161 million for the year. This is the 12th straight year that our cash from operations exceeded net income and the fourth straight year of being more than $140 million.

Keep in mind that this performance was achieved in a weak environment for the US freight rail industry. This performance shows the strength of our diversified business model and that our strategic initiatives are paying off and that we continue to benefit from the Wabtec Performance System.

Let’s talk a little bit about our markets. We continue to see a stable transit market in North America driven by federal funding and passenger ridership. We expect new car orders to be awarded from a number of transit authorities during 2010. Some of those include, Metra; WMATA, which is the DC transit system; Miami, New York City transit; and Amtrak. New projects are also being planned in other cities like LA, BART in San Francisco, MBTA in Boston, Denver and Honolulu.

The current federal spending bill, which expired September 30, 2009 has been extended through February 28 and will most likely be extended through September. Transit could also be part of the new jobs bill or second stimulus bill that’s being discussed right now.

Ridership is good but it has been affected by the economy. About two-thirds of the trips made on transit throughout the nation are work related. Nation-wide, ridership is down about 4% through the third quarter, not bad considering the sluggish economy and the higher unemployment. Some cities are still seeing increases, especially where services were relatively new or upgraded and expanded.

Positive long-term trends such as population growth and urbanization, long-term concerns about fuel prices, reduced dependence on foreign oil and a push for environmentally-friendly industries should continue to drive investment in mass transit. So in general Wabtec is in a good position to take advantage of what seems like a strong commitment in the US to expand the country’s mass transit capabilities, including high-speed rail, which I will talk about more in a minute.

We also have ample growth opportunities in the international transit markets, which have remained strong even during this economic environment. As we have discussed previously, we have a very small share of a much larger global market.

I’d like to talk a little bit about the high-speed rail. There has been significant focus on the US high-speed rail market. The FRA received more than 200-plus projects with a price tag of $100 million to compete for the $8 billion that was allotted. The federal government allocated this $8 billion to various corridors around the country. Wabtec will benefit from this spending over the long term. Major grants went to California, Chicago, St. Louis, Tampa, Orlando, Miami, as well as smaller grants to Ohio, North Carolina, Wisconsin and Portland/Seattle.

The projects include some focus on true high speed greater than a 150 miles per hour, but most of the funding is for higher speed, 110-mile per hour to 125-mile per hour, where Wabtec has a greater opportunity with regards to locomotives. With some modifications, our locomotives can be designed to operate up to 150 miles per hour.

Many of the approved projects are related to upgrading existing systems. These will have short completion horizons. But a few are very long term; for example, the California project which received the highest amount of funding at $2.3 billion has a Phase 1 completion date of 2020.

Let's shift gears for the freight rail market. Rail traffic was down about 15% in 2009 reflecting the severe recession. Traffic did pick up in the second half of the year with a 6% increase in ton-miles compared to the first half. This traffic actually bottomed out in the second quarter with an average weekly ton-mile of about 26.8 billion compared to 30 billion average in the fourth quarter.

So far this year, traffic is flat, totally dependent on the economy which seems to be recovering slowly. With traffic down last year, the railroads parked perhaps one-third of their freight cars and locomotives, which has a negative impact on both OEM and aftermarket demand. They pulled some cars out of storage but it is still a very small percentage of what’s parked. As expected, railcar outlook is weak; about 21,000 cars were delivered in 2009, the backlog is at about 10,000, and that’s exactly what we are expecting for deliveries during 2010.

Similar slowdown in the locomotive OEM market, which occurred later in the cycle due to longer-term contracts that were being fulfilled. About 400 is expected to be delivered this year, down from 700 in 2009. Some international freight markets such as Australia and South America are recovering, but overall conditions remain difficult.

Today, we affirmed our 2010 guidance of EPS of $2.35 to $2.50. This is challenging in light of the market conditions and continued uncertainty, but we think it’s achievable. I’d like to review a few of our major assumptions which are critical to our guidance. First assumption is the global economy continues to recover slowly; the transit market remains stable with deliveries of new transit cars and new buses about the same as last year; with no major impact from state and local budget issues; freight ton-miles continue to improve slightly with the economy; freight car build of about 10,000, locomotive build of 400; and no major changes in exchange rates.

In this environment, we will continue to focus on controlling what we can control and on generating cash to invest in our growth opportunities. Cash remains a priority for us. It provides the opportunity to invest in organic growth and acquisitions. We will stay focused on increasing free cash flow by managing costs, driving down working capital and controlling CapEx. Thus we will be able to continue to invest in our strategic growth opportunities. We have made good progress in this area.

The first strategic thrust is global market expansion. China continues to be a major growth opportunity as it plans to spend about $120 billion this year to expand its passenger and freight rail systems. We now have three operating JVs in China, with others planned for freight transit and power gen markets. In India, we have decided to expand our loco manufacturing capabilities there due to a demand for a number of our products, and we are making good progress in the European transit market with contract wins for components with Alstom and Siemens.

Our strategic thrust of aftermarket expansion continues. We expanded our capabilities in South America by opening a service center in Brazil that will also be used as a manufacturing platform for Wabtec products. Our friction business, which is primarily aftermarket, continues to perform well expanding its share around the world. We also continued to broaden our product offerings in the freight and transit aftermarkets.

New products; a number of new transit components and systems are on test in Europe and Asia. Some of these include, oil free compressors, couplers, braking equipments and doors. On the freight side, we recently won orders for electronic-controlled pneumatic braking equipment in Australia and Saudi Arabia. We still have a major focus on our positive train control system. It is a major opportunity and we are at the forefront of this technology. We have been working with railroads to develop and implement both overlay and vital systems for the onboard locomotive solution.

Interoperability standards have been released by FRA with no surprises for us. Railroads are supposed to submit their implementation plan to the FRA by mid-April. We expect sales to be about $20 million this year, higher than last year with a larger ramp up expected at some point next year.

The last strategic thrust is acquisitions; our pipeline is active with good opportunities. During the fourth quarter, we acquired Unifin International, a good strategic acquisition in an adjacent market where we know the products well. They make cooling systems and related equipments for power generation and transmission. Our Young Touchstone unit already serves a segment of that market with similar products. Wabtec is now about 15% non-rail plus power generation, friction and other industrial products.

With that, I’d like to turn it over to Alvaro for a more in-depth talk about our financials.

Alvaro Garcia-Tunon

Thanks, Al. Good morning, everyone. Like Al said, to give you a more in-depth review of our financials; sales for the first quarter were $359 million, which was 11% lower than last year. But last year was a record sales quarter, so the drop wasn’t I think as steep as it would ordinarily look like on a surface.

The good news is that sales were 9% higher than the third quarter of ‘09, and our highest quarters since the first. So maybe that’s a sign that we have hit bottom and we may be starting to bounce back a little bit. The Transit Group sales as opposed to the Freight Group sales actually were up 2% in the quarter and for the year due mainly to increased sales of transit car components in North America.

Freight Group sales, however – they are the ones that caused the decrease, they were down about 25% in both periods mainly due lower OE deliveries of locomotives and freight cars in North America and due to the sharp decline in rail traffic, which caused a decline in aftermarket sales as well. But even though we had a 25% drop in sales, the decline in the OE market was actually 50%; so the lower sales drop was actually a reflection on the benefits of our business model.

Margins; we continue to focus on margins and driving margins higher with particular attention on the operating margins; gross margin tends to fluctuate quarter to quarter with mix. We had a good performance this quarter and for the year. For example, for the quarter, if you add back the $3.9 million charge for the arbitrational ruling that we previously referred to, the operating margin was 12.7% for this year versus 12.4% last year on a lower sales. And the same story holds true for the year as a whole.

Adjusted margin, again making the adjustment referred to earlier, was 13.7% compared to 13.5%, despite the sales decline of 11%. And in doing that, I am sorry, there were two charges I am adding back, one was the $3.9 million charge for the arbitration, the other one is $8 million of restructuring that we took in the second quarter and we disclosed in the second quarter. So, once you made an adjustment for those two charges, the adjusted margin was 13.7% compared to 13.5%.

If you look at it in another way, our sales were down $173 million, but our operating income was down only $21 million after making those adjustments. So, the negative contribution margin of about 12%, we view as a relatively good performance in this market because we think on the upside it should be much greater.

Few of the other P&L items; interest was higher due to increased debt incurred for the Standard Car and Truck acquisition, mostly, and then the Unifin acquisition later in the year. The tax rate was just under 34%, which was slightly lower than last year and slightly lower than our historical average of about 36.5%, and that’s due to normal year-end adjustments.

For the full year, the tax rate was just under 30% reflecting the one-time tax benefit of $9.7 million that we had in the second quarter. And again, to give you a number of that we view as – obviously, we report GAAP and we will continue to report GAAP, but if you exclude the three one timers, the three more significant one-time items, which is a tax benefit of $9.7 million, the fourth quarter charge of $3.9 million and the second quarter charge of restructuring expenses, our EPS for the year was $2.36, which again we think, that’s a fair number taking out the major one-time items.

To go over some of the balances that we normally go over through in this call; working capital compared to September 30, receivables were $208 million, down $23 million; and inventories were $239 million, down $6 million; this in spite of adding some balances for the Unifin acquisition. Payables were up to about $120 million, about $7 million up. There is always room for improvement. But we think it’s a pretty good performance, and again that’s what helps to generate cash flow in this kind of environment.

Cash from operations was about $71 million in the quarter, certainly a very good performance we believe, and about $161 million for the year at about 12% of sales. Debt at the end of the year was $392 million compared to $432 million at September 30, ‘09. So we managed to pay down about $30 million, $40 million worth of debt and obviously with our very conservative capital balances, right now, we have plenty of capacity for investing in growth opportunities as we go forward.

Few other miscellaneous items; depreciation was $6.5 million versus $6.2 million last year. Amortization was $3.7 million versus $1.6 million last year. Amortization was particularly high this quarter because of acquisitions. I think going forward, you can probably use a run rate of about $2 million per quarter on amortization, and obviously if you make any more acquisitions, that would have to be adjusted.

CapEx was $7.4 million during the quarter versus $7.2 million last year. And backlog, which we always give you a backlog update at the end of every quarter, our backlog is just about the same as it was at the end of last quarter at just under $1 billion. The rolling 12-month backlog was up slightly compared to 09/30/09. So this is the backlog that we expect to execute over the next 12 months.

In total, it was $552 million versus $513 million at 09/30/09. Out of these totals, a $126 million is in Freight and $87 million was at the end last quarter; and in Transit, $426 million at the end of this quarter versus $426 million at the end of last quarter, so very stable there. The multi-year backlog, which is the total backlog, it excludes options but it includes all booked orders, was $951 million versus $952 million last quarter; so like we said, basically the same. Out of this, Freight was $211 million versus $170 million last quarter and Transit was $740 million versus $782 million last quarter.

And that pretty much wraps up the financial summary, and I will turn it back over to Al.

Al Neupaver

Thanks, Alvaro. We had a good performance in 2009. I couldn’t be more pleased with how the team here responded to some very challenging market conditions. We will continue to face these challenges into 2010, but we believe the company is well positioned to succeed because we are focused on what we could control; and that is, reducing costs, generating cash and continue to invest in these growth initiatives, which is going to drive us over the strategic period.

We have a diverse business model, the Wabtec Performance System, I can’t emphasize enough how important this performance system is to being able to generate the type of cash that we did this year. It provides the culture of lean manufacturing and continuous improvement.

We have a very experienced and strong management team that is proactively and aggressively trying to grow this business through these difficult times.

With that, we’ll be happy to answer your questions.

Question-and-Answer Session

Operator

Thank you, we will now begin the question-and-answer session. (Operator instructions).

Al Neupaver

Okay, Vijay, let’s take the first question.

Operator

All right. Our first question comes from Jim Lucas from Janney Montgomery Scott. Please go ahead.

Jim Lucas – Janney Montgomery Scott

Thanks, good morning guys.

Al Neupaver

Hi Jim, how are you?

Jim Lucas – Janney Montgomery Scott

All right, thank you. I wanted to start first with a couple of housekeeping questions. For the full year, on a percentage basis, what was freight versus aftermarket and where did the international end up as a percent of overall sales?

Alvaro Garcia-Tunon

Okay. For the full year, freight – I am sorry, you asked OE versus aftermarket?

Jim Lucas – Janney Montgomery Scott

Yes.

Alvaro Garcia-Tunon

For the full year, let us see, it was 54% aftermarket, 46% OE.

Al Neupaver

I think it is 63% freight, right, aftermarket.

Alvaro Garcia-Tunon

I am sorry. I thought he was asking total aftermarket and total OE for the year.

Jim Lucas – Janney Montgomery Scott

No. That helps. And then freight was 63% aftermarket?

Al Neupaver

Right. And 47% for transit.

Jim Lucas – Janney Montgomery Scott

Okay. And international, overall?

Al Neupaver

Overall, it is 40% for the year.

Jim Lucas – Janney Montgomery Scott

Okay. There was a couple of – you had the litigation, the arbitration ruling in the fourth quarter. There was another recent headline regarding another ruling. When you look at the competitive landscape out there, it is interesting that within a couple-month period you have two legal headlines come out. Could you give us an update of anything else that may potentially be in the pipeline, or is this what we should expect for now?

Al Neupaver

Let’s talk about them individually. First the simple one is the ITC ruling related to Amsted. That was a lawsuit that was going on prior to our acquisition of Standard Car Truck. We are well aware of it and that was never put into our projections or plan. So, that is something that pre-dated our ownership there. The Faiveley arbitration has been going on. You have to look at the history of how this all transpired. First of all, in 1990, when Wabtec took the business private, only the North American portion of the business was taken private and that consisted mostly of freight products. The European part of that business stayed with a private-equity firm and there was an agreement for licensing that technology back. I think the contract might have been executed in the mid ‘90s. So they had this relationship between the two companies.

Faiveley acquired that portion of the business in, I believe, 2004, and at that point there was like a year left on that license arrangement. That dispute between Wabtec and Faiveley started at that point and has been in the court system since then. We feel that the ruling as we put out was obviously a fair one from the standpoint that we are paying royalties for anything we are using, and it's behind us. We don’t know of any other factors [ph] other than those two and don’t expect to be discussing those kind of things into the future. But that’s part of the history of the business.

Jim Lucas – Janney Montgomery Scott

Okay. That is very helpful background. I wanted to just get an update with regards to the cost side. Clearly, it seems as if we are finally getting to a bottoming process on the freight side – very admirable, what you've been able to do in terms of protecting the margins despite the top line pressure this year. What are your plans with regards to further cost reductions activities in 2010? What are the carryover benefits from the 2009 actions?

Al Neupaver

Okay. Two questions there. First of all, what are our plans for 2010 as far as cost reductions? We feel that most of the heavy restructuring is behind us. That restructuring really totaled – we spent about $14 million in 2009, $6 million I think in the first quarter, $8 million in the second. That amount was related to between $35 million and $40 million of sales – not sales, the cost reductions. Half of that we saw in 2009, the other half will flow into 2010. About half of that is fixed cost, the other half variable. So, as volumes start ramping up, obviously we will have to add some variable costs, but we did have a large component to fix costs that were addressed.

Now how do we continue to approach things? The same we did over the last four years and that is it’s really being driven by the Wabtec Performance System and continuous improvement. We continue to ask every division to have certain goals related to cost reductions, sourcing, lean kaizens that’s going to improve our productivity, moving some of our businesses from high-cost platforms to low cost platforms. That is never-ending, and we will continue to have that drive to continue to drive our costs down and improve margins over time. To be able to do exactly that during this recession is something that, again, I couldn’t be more pleased with how the management and each and every one of the employees of Wabtec reacted to those challenges in the last year, year-and-a-half.

Jim Lucas – Janney Montgomery Scott

Okay, great. Thank you very much for the update.

Al Neupaver

Okay. Thanks, Jim.

Operator

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

Kristine Kubacki – Avondale Partners

Good morning.

Al Neupaver

Good morning. How are you doing Kristine?

Kristine Kubacki – Avondale Partners

I am great, thank you. My question revolves around the freight backlog. It looks like it grew a little bit organically. I was wondering if you could give us some insight into what is specifically driving that.

Al Neupaver

Okay. Obviously, in the fourth quarter we had the acquisition of Unifin. I think that makes up about 13 of the increases from the Unifin acquisition and the remainder is – what you are seeing is the pickup in, actually, traffic. If you look at third quarter to fourth quarter, traffic went up about 15%.

Kristine Kubacki – Avondale Partners

So, does it have to do more with aftermarket kinds of components or are there any OE kinds of things picking up?

Al Neupaver

I think there is a little bit of both. We have seen it in the aftermarket; obviously aftermarket has a shorter period. So we saw that increase in freight obviously in the less than 12-month period, and some of that is aftermarket.

Kristine Kubacki – Avondale Partners

Okay. Then as we’ve seen some of the forecasters in the industry, it seems like the outlook where you are forecasting for the year in terms of new railcar builds at about 10,000. It seems recently there has been some inflation in that number up to 15,000; 16,000 for 2010, and last week we heard about a rather sizable car order out of one of the car builders. I was wondering, do you think that your forecast is overly conservative at this point or do you think that some of these forecasters are out over their skies at this point?

Al Neupaver

First of all, the order that you are talking about was an order that’s going to be delivered over a couple years, and not all of that will be delivered in a year. I have to answer your question by saying that I hope and pray that we are overly conservative. But right now, I think that if you look at the number of orders that come in 2009, which was I think 9,250, you are sure wouldn’t take up to the bank and say that that is going to happen and those cars parked create another concern for us. But hopefully we are being conservative and we are ready, if that thing picks up, we will be very read to respond to it.

Kristine Kubacki – Avondale Partners

Okay. Then my last question is on the transit side. You mentioned several projects in your opening comments, and I was wondering – as we think about your [ph] finishing up with a sizable contract there, can you talk about the second half of 2010 in terms of transit projects or the timing of those projects too difficult to handicap at this point.

Al Neupaver

It is pretty difficult to give an exact timing of some of these projects and the awards in some of the new programs. What we are seeing though is we expect that the delivery of transit cars in 2010 will be the same as 2009 realizing that R-160 is essentially complete. At least from our standpoint, there will be some deliveries in the quarter. But with that behind us, there is that much activity still throughout the country on these programs. Now you could always count on a few delays from transit authorities and that is why it is hard to really nail down when this will happen.

Kristine Kubacki – Avondale Partners

Can you give us the backlog with the options included or what’s outstanding?

Al Neupaver

The options that are outstanding is about $100 million.

Kristine Kubacki – Avondale Partners

Okay, great. Thank you very much. I appreciate it.

Al Neupaver

Thank you, Kristine.

Operator

Our next question comes from John Mims of BB&T Capital Markets. Please go ahead.

John Mims – BB&T Capital Markets

Hi, good morning.

Al Neupaver

Good morning, John.

John Mims – BB&T Capital Markets

Could you talk about – just give us a little bit of info on positive train controls as far as – is there a revenue opportunity at all in 2010 or is that still pushed out for years down the line?

Al Neupaver

Okay. On positive train control I won’t go through the whole background related to it and try just to deal with your question. As you know there are two railroads that put up pretty large numbers of what they are going to spend in 2010 related to positive train control. One of them was like $170 million; the other was $200 million. When you look at the total spend for positive train control implementation, you have different components. You got a component that’s onboard the locomotive, the computer, the brains of this system and that’s where we have our technology. You’ve got the back office or the dispatch business and we also play in that area. The other area is the wayside or the track and the signals and that is the largest expenditure and probably the one with the most lead time at this point.

What’s important for the onboard computer or the PTC that we supply today is to get it through the product safety plan approval through the FRA, and that’s what I talked about; their implementation plan needs to be in by mid-April and we continue to test the system and work toward that certification. Once that certification is given and the total system is understood that’s when we start seeing a lot of this onboard revenue. So what we are seeing right now is a lot of development money to get there. Our system is developed; it’s been approved in the overlay condition and is ready to be commercialized.

But there is a lot of things that railroads need to work out, and that’s why they talk about such large expenditures related to this is that they still have to be able to interoperate. They need a radio system to communicate. There are 75,000 switches out there throughout the country that need to have an interface with our computer. And that’s the part, the design of the signaling systems is what’s going on and that’s where a lot of that money is being spent. We expect that to take the lead and the onboard computer will really start ramping up mid-to-late next year 2011.

John Mims – BB&T Capital Markets

Okay. Thank you for all the color. Just looking at the guidance for 2010, can you give any sense of progression first half versus second half, how we should look about from a modeling perspective?

Al Neupaver

Now we do not give quarterly guidance there. So I really can’t add any color to that. I am sorry.

John Mims – BB&T Capital Markets

Okay. Doesn’t hurt to ask. And Alvaro, did you give the depreciation expense for Q4?

Alvaro Garcia-Tunon

Sure. Let me give it to you again, happy to do it. Depreciation for this quarter, for the quarter of ’09 was $6.5 million versus $6.2 million last year. And amort was $3.7 million versus $1.6 million last year. And I also added that amort includes some one-time amortization for acquisitions. On an ongoing basis, it will probably be closer to $2 million.

John Mims – BB&T Capital Markets

Okay, thanks. I missed a couple in the beginning. Just one last question and I’ll hand it back. When you’re talking about the growth in international, can you give us a sense of – as far as your guidance and just outlook for 2010 or 2011 is concerned, is that mostly organic or where are you on the acquisition pipeline? Is the real engine for growth going to be acquisitions or organic on the international front?

Al Neupaver

We only project organic growth, we never predict acquisitions. There may be opportunities in that arena, but they would not be in our projections. But to answer your question more precisely is that we did an acquisition, we do have the platforms in place to really take the advantage of this larger market and we are working very diligently on getting our systems approved and in place, okay?

John Mims – BB&T Capital Markets

Yes. That sounds great. So you would say the bulk of your acquisition pipeline is international or can you give that much detail?

Al Neupaver

We look on a global basis. So I think we’ve got opportunities both internationally and domestically.

John Mims – BB&T Capital Markets

All right. I appreciate the time. Thanks.

Al Neupaver

Okay. Thanks.

Operator

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

Joe Box – KeyBanc Capital Markets

Hi, good morning guys. This is actually Joe Box.

Al Neupaver

Hi, Joe.

Joe Box – KeyBanc Capital Markets

I just actually want to follow up on John’s question. You guys had framed up your expectations earlier for the North American freight market. Can you actually just provide a little more granularity on your expectations for some of your growth-oriented markets, like China, India and Brazil superficially?

Al Neupaver

Yes, in the case of China, we would expect to continue to see double-digit growth in that marketplace, which we’ve experienced over the last couple of years, when you have that amount of money being spent in that arena. We also see some good growth opportunities in Australia, South America and India; so all of those markets are way above your normal growth rates but you got to keep in mind we are starting from a small base.

Joe Box – KeyBanc Capital Markets

Sure. Can you refresh us what China was in 2009 in terms of revenues?

Al Neupaver

We probably –

Alvaro Garcia-Tunon

Little under $20 million.

Joe Box – KeyBanc Capital Markets

Okay.

Al Neupaver

Okay?

Joe Box – KeyBanc Capital Markets

I also wanted to follow up on the PTC question. Just wondering if you guys made any inroads yet with respect to penetrating any of the other categories outside of the NYAB [ph] technology and whether that would be organically or through any acquisitions?

Al Neupaver

We obviously – as I mentioned, we’ve done well by creating opportunities in the dispatch and the back office software arena. And we continue to look at other areas for growth opportunities.

Joe Box – KeyBanc Capital Markets

Also just on the freight revenue side, real quick, your revenues were down 26% in the quarter. How much of that decline was actually volume oriented versus price? How much did Unifin contribute?

Al Neupaver

The price didn’t have a lot to do with the comparison there. Really, what – and Unifin quarter on quarter was, I think $10 million.

Alvaro Garcia-Tunon

Yes. Unifin added $10 million of revenues to the freight group during the quarter. And I would confirm what Al said, most of that was basically volume driven. Fortunately, we are fighting over a small market. So (inaudible) price to get it.

Joe Box – KeyBanc Capital Markets

My last question, and then I will turn it over is in terms of input costs in 2010, obviously we’re seeing some rising steel costs. What is your expectation on the impact for gross margins in 2010?

Al Neupaver

We don’t anticipate much impact because, remember, we tried to have some type of surcharge or cover the inflation in the direction when it’s going up as well as giving it back when it comes down. So we don't anticipate a large impact from that.

Joe Box – KeyBanc Capital Markets

Okay. Fair enough. Thanks, guys.

Al Neupaver

Okay. Thanks.

Operator

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

Greg Halter – Great Lakes Review

Yes, good morning.

Al Neupaver

Good morning, Greg.

Alvaro Garcia-Tunon

Good morning, Greg.

Greg Halter – Great Lakes Review

The press release references a repurchase of about 670,000 shares. I can't remember the first three quarters, but were there any done in the fourth quarter? And what is your outlook going forward regarding that program?

Al Neupaver

They were a little bit done at the end of the year, but it didn’t get reflected because it was toward the end of the year. It will actually be reported, I believe –

Alvaro Garcia-Tunon

Usually what happens is – you are familiar with it – you close three days after the trade, and we did some towards the end of the year, which between holidays and being close to the end of the year, they will actually hit our books towards the beginning of the year. But it was pretty minor. It was about 100,000 shares or so, give or take. And we still have about 50 million left under our repurchase program. We are not amending that right now. We still have 50 million left.

Greg Halter – Great Lakes Review

$50 million?

Alvaro Garcia-Tunon

Yes, I am sorry. Yes, 50 million shares are pretty much – we'd be the sole remaining shareholder in control of Wabtec. Yes, $50 million. Sorry.

Greg Halter – Great Lakes Review

Nice to hear that train behind you.

Alvaro Garcia-Tunon

We like that.

Al Neupaver

We open the windows when we are on the call.

Greg Halter – Great Lakes Review

Relative to your debt, could you discuss the different components there – maturities and rates and whether or not you have any swaps hedging any of that?

Alvaro Garcia-Tunon

Yes, a lot of questions there. We have two main components of our debt. We have about $150 million in bonds that are – I think they mature in ’13, and they are at 6.875. And then we have a $500 million revolving arrangement with a bank, $200 million of that’s a term credit, $300 million of that is a revolver. We are utilizing all of the $200 million. We are in the process of – actually, we had some hedges maturing not too long ago and we are actually – I think, we locked them in yesterday. And on our bank arrangement, we are repaying probably about 2.25, I think with the new hedges in place. So on our bank financing we are paying 2.25 and that’s mostly, let’s say, about 60% of that is fixed, 40% of that is floating; and the portion that’s fixed is out there for 1.5 years to 2.5 years. That gives you enough flavor for it.

Greg Halter – Great Lakes Review

That's perfect. You didn't provide a figure for the equity balance, and I just wanted to get that if you have it, given the acquisition you made.

Alvaro Garcia-Tunon

Yes, the equity balance is 778.9, so basically about 780. If you are doing debt to total cap, we’re at about 33.5.

Greg Halter – Great Lakes Review

Okay. And what would you anticipate your capital spending to be in 2010, full year?

Alvaro Garcia-Tunon

I would think relatively consistent with the past and what we spent in ’09. The rough range would be somewhere between $20 million to $25 million.

Greg Halter – Great Lakes Review

All right, great. Thank you.

Alvaro Garcia-Tunon

Sure.

Al Neupaver

Thank you.

Operator

Our next question comes as a follow up from John Mims from BB&T Capital Markets. Please go head.

John Mims – BB&T Capital Markets

Hi Alvaro, I just wanted to ask one more question regarding – and, you just touched on it a little bit with the debt structure, but if you look at the $189 million in cash and what's available on the borrowing, is there, I guess, a dry powder zone that could be used for acquisitions for next year?

Alvaro Garcia-Tunon

Sure. Basically, the $189 million, the vast majority of that over 90% is in foreign entities. And we basically keep that there, one, to finance future growth in those entities and, two, to provide for future acquisitions abroad. If we were to repatriate it, the US has the second highest tax rate in the world right now. The only one that’s higher than the US is Japan. And if we were to repatriate it, we would face adverse tax consequences as well. But the plan with the cash is to leave it there, again, to finance future growth and future acquisitions abroad.

John Mims – BB&T Capital Markets

Great. That’s very helpful. Thanks a lot.

Al Neupaver

Thank you.

Operator

Our next question comes from Fred Speece from Speece Thorson Capital Group. Please go ahead.

Fred Speece – Speece Thorson Capital Group

Our questions have been answered. Thank you.

Al Neupaver

Thanks.

Alvaro Garcia-Tunon

I appreciate that Fred. Thank you.

Operator

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

Tim Wesley

Okay. Thanks for joining us everyone and we will talk to you in a couple of months. Have a good day.

Alvaro Garcia-Tunon

Great. Thanks everybody.

Al Neupaver

Bye, bye.

Operator

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

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