Greenbrier Companies Inc (GBX) 2009 Q4 法說會逐字稿

Hello and welcome to The Greenbrier Companies fourth-quarter and fiscal year-end earnings conference call.

Following today's presentation we will conduct a question-and-answer session.

Until that time all lines will be on a listen-only mode.

At the request of The Greenbrier Companies this conference call is being recorded for instant replay purposes.

At this time I would like to turn the conference over to Mr.

Mark Rittenbaum, Executive Vice President and Chief Financial Officer.

Mr.

Rittenbaum, you may begin.

Thank you, operator.

Good morning, everyone, and welcome to our fourth-quarter conference call.

I'm joined today by Bill Furman, our CEO.

We will both have prepared remarks and then we'll open it up for some questions.

As a reminder, matters discussed in this conference call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of '95 and throughout the discussion today we will discuss some important factors that could cause Greenbrier's actual results in 2010 and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of Greenbrier.

Today we reported our results for our fourth quarter ended August 31, 2009.

Net earnings were $6.7 million, or $0,37 per share, on revenues of $230 million.

Results for the quarter included severance costs write-off of loan fees, and warrant amortization expense aggregating $2.5 million net of tax, or $0.14 per share.

The results also include tax benefits of $6.8 million, or $0.37 per share, related to reversal of a deferred tax liability and a deemed liquidation of a foreign subsidiary for tax purposes.

We continue to manage the Company with an eye towards cash flow and liquidity and our cash balances at the end of the quarter were $76 million and we had $106 million of committed additional borrowing capacity.

During the quarter we reduced net debt by $35 million -- an additional $35 million, bringing the total net debt reduction for the year to $102 million.

We expect to remain out of our domestic lines of credit until market conditions improve or until appropriate opportunities avail themselves.

Now let me address some highlights for the quarter.

I will not go into detail in each segment, as that information was provided in the earnings release.

Summing up, our gross margin reached -- aggregated gross margin reached 14% for the quarter, the highest level this year.

The sequential increase over Q3 was primarily due to stronger performance from our Manufacturing and Leasing & Services segments.

Margin for the second half of the year nearly doubled that of the first half.

In our Refurbishments & Parts segment we experienced a sequential decline in revenue, principally re -- principally as a result of lower wheel volumes in the current economic environment.

Our gross margin of 13.1% was a slight improvement from Q3 and we currently anticipate margins should stabilize around 12% to 14% range in 2010.

Our Manufacturing operations experienced a significant improvement in gross margin on a sequential basis on a slight increase in revenue and our performance exceeded our expectations.

The sequential margin improvement was the result of continued strong performance by marine and improved performance in both our North American and European new railcar operations.

During the quarter we consolidated new railcar production in North America in our joint venture facility in Mexico, Gunderson-GIMSA, and we temporarily closed our Concarril facility until market conditions improve.

In our facility here in Portland, Oregon we will continue to focus on railcar refurbishment and marine during these down times.

By consolidating our new railcar production in North American, we realized continued efficiencies from operating at high production rates at GIMSA while minimizing overhead costs at our Concarril facility, which is a leased facility.

Based on our current production plans approximately 2,400 units in our backlog are scheduled for delivery in fiscal 2010.

We shipped 3,700 cars in 2009 and obviously we do have open production space for more orders in 2010.

In 2010 we would hope to achieve low to mid single-digit margins in our Manufacturing segment.

Turning now to Leasing & Services, our fleet utilization was 88.3% at the end of the quarter compared to 92.1% at the end of our third fiscal quarter and 95.2% at end of our fourth quarter of '08.

Performance of lease fleet remains under pressure from the effects of a weak economy, as there still remains a large number of units in North America overall that are idle and we have a strong focus on keeping our cars on lease and we believe that our lease fleet utilization is stabilizing.

Our Leasing & Services margin of 48.1% increased significantly from Q3 margin of 34.1%.

This increase was in due -- due in part to gains on sales of equipment of $1.2 million in the current quarter compared to a loss of $0.4 million in the prior quarter.

Again that loss in the prior quarter was a bit of an anomaly due to an unique event.

In addition, the current quarter benefited from higher earnings on utilization leases -- certain utilization leases and a reversal of certain maintenance reserves on terminated leases.

In 2010 we currently anticipate margins will run around 40%.

Our selling and administrative expense increased sequentially from Q3, principally due to write-off of a receivable subject to a contract dispute.

I want to emphasize it is not due to deterioration in the credit of our receivables but due to an unique event where we wrote off a receivable.

We expect selling and administrative to run about $17 million per quarter in 2010.

Interest expense was $12.3 million, which was in a sequential increase from $10.7 in the prior quarter, principally due to write-off of loan fees of $0.9 million and warrant amortization expense of $1.1 million.

In 2010, excluding any foreign exchange gains or losses, which are hard to predict, we expect interest expense to run about $11.5 million to $12 million per quarter and about $2.9 million of this expense is from three non-cash items, which I'll go into a little bit more detail, and all three of these non-cash items, which aggregate $2.9 million, will run through the interest expense line.

First, in conjunction with our WL Ross investment we issued warrants at $6 a share.

These warrants were placed at fair market value on our balance sheet at $13.4 million and they'll be amortized over the next three years at a rate of about $4.5 million per anum, and also to the extent our average stock price exceeds the warrant strike price the number of diluted shares will be increased, as was the case this current quarter.

Secondly, we'll incur amortization expense of about $2.8 million per year related to the amortization of fees and expenses associated with the refinancing of our bank lines and with the WL Ross financing.

And then lastly, there's a new accounting pronouncement starting in September of 2009 related to our convertible bonds where we'll associate a debt discount of $17 million on the balance sheet and this $17 million will be amortized over -- through May, 2013, and the current year that'll be about $4.1 million of amortization expense.

Summarizing this all up, as we noted in our press release, we do expect an increase in EBITDA on lower earnings this year and we will have about 27 -- or on lower revenues this year -- I'm sorry -- and that we expect that these non-cash charges that I just discussed related to the warrant and the debt discount will be $0,27 a share.

We continue to be disciplined in our CapEx given the current environment and our CapEx in 2009 was 23 -- a little over $23 million.

We currently expect it to run about $0 million in 2010 and our depreciation and amortization expense in 2010 will run about $40 million.

With that I'll turn it over to Bill Furman.

Thank you, Mark.

Despite some busyness in the numbers for the quarter we had a very sol -- both pluses and minuses we had a very solid fourth quarter driven by performance, as Mark indicates, in our Manufacturing, Leasing & Services segment.

I'm very pleased to see us continue to increase our liquidity and I was pleased during the year with our strategic investment with WL Ross, which allowed to us renegotiate our banking lines and really reduce the risk in the Company.

I'm going to contain my remarks this morning to just some comments about the economy and our industry, touch on some highlights for the year -- I think that's important to see the forward movement that we've made toward achieving liquidity and safety goals for our shareholders and shareholder value -- to talk a little bit about our specific tactical objectives going into 2010 and the execution to our long-term strategy, and then we'll open this up for questions in a few moments.

First of all, turning to the state of the industry, we continue to be very optimistic about the rail industry.

Our customers, and especially the rail companies themselves, have demonstrated relative resiliency throughout this recession and we believe that as an economic recovery, or whatever passes for an economic recovery takes hold, it will translate into new railcar orders and higher levels, more importantly, for us of leasing, refurbishment, repair, wheel and other services, which we have been mutating toward in the last several years.

Even though the present market remains very weak, we have recently seen -- and earlier in the year very important and savvy investors working into the rail space, investors like Wilbur Ross in Greenbrier and more recently Warren Buffett's position in BNI, both indicate strong confidence in the rail industry and I think that confidence is based on solid demographics, as well as history.

Despite that, record fleet storage statistics still have abated only slightly.

These are at very high levels compared to the total industry fleet.

Railroad loadings, while slightly improved by about 10% from recent levels from 20% to 18%, are still at a very big discount from a year ago.

So, while things have improved slightly, they remain rather difficult in the near term, especially as it relates to new manufacturing.

Current industry backlog now only about 19,000 cars, but amazingly Greenbrier has about two-thirds of this background.

if we count the GE order.

Historically Greenbrier's market share has always increased during a downturn, but this is the largest share we have ever had so far and naturally we must resolve our issues with GE but we continue to work on that and I am reasonably optimistic that some accommodation can be reached.

Our integrated business model with its emphasis on railcar services touches points in the life of a freight car from cradle to grave and it's clear to me that Greenbrier has unique visibility into this market.

So from our viewpoint the environment remains challenging for manufacturing.

The confluence of all these events is significantly and adversely affected the demand for new railcars in the immediate term.

Railcar operators continue to postpone scrapping decisions, which means that an increasing number of obsolete and older railcars are likely sitting idle instead of being scrapped.

This will change quickly as the economy shows real strength and improvement.

Railcar velocity remains very high in the downturn.

again a normal thing.

meaning fewer cars are required to haul the same number of ton miles during normalized economic activity and once again, that will change once normalized activity resumes.

Other fundamentals that we all know about to support rail in the long term, including green initiatives and fuel efficiency compared to trucks and prospective public policy.

If the new Congress and administration's serious about these things, all of these should favor rail transportation and therefore, rail supply companies.

A prominent investor said recently that our country's future prosperity depends on having an efficient and well-maintained rail system and we agree.

Rail transport is significantly more efficient in term of time and energy usage as it reduces highway congestion and in addition, rail infrastructure costs less to build and maintain than highway infrastructure, and finally, rail carries its full social and economic costs compared to trucking, which has been heavily subsidized by past national and state transportation policies.

Let me turn for a moment to 2009.

While it was a turbulent and challenging year for our industry, Greenbrier was able to realize a number of strategic accomplishments, including first, the delivery of our initial tank cars in North America to very high-quality standards.

We're very proud of this achievement at our joint venture facility at GIMSA in Monclova, Mexico.

Secondly, we experienced significant growth and achieved significant growth in our fleet of managed units, growing this fleet from about 135,000 units at the end of last year to almost 220,000 units this year, an increase of about 85,000 units.

Third, we had a record year in our marine operations.

And fourth, the strategic investment by WL Ross & Co.

allowed to us restructure our balance sheet and renegotiate our bank lines of credit, address issues with covenants in long-term debt instruments, and other moves that have increased liquidity and increased safety with respect to shareholder value.

And I think it's clear that over the year these changes have been reflected in the stock price and we hope to do a better job in 2010 in that regard.

Turning for a moment to our Refurbish & Parts business,which has 38 locations at the end of the year, this represented about 45% of our total Company revenues for the fourth quarter.

Gross margin percentages for the segment was up, but down -- in terms of percentage to 13.1%, but down slightly in actual dollars, as Mark had indicated earlier.

Lower volumes in net scrap pricing, as well as a less favorable mix of repair and refurbishment, has had an adverse effect on that segment revenue, but we see the potential for a significant rebound, not only by the number of cars that will have to come out of storage to be repaired in the system as the economy recovers, but also a weaker US dollar and higher scrap prices anticipated in 2010 are expected to favor our wheel business in this repair, refurbishment and wheel segment.

Finally, looking at our Manufacturing segment, we continue to -- and this isn't finally because we have leasing, as well -- it continues to be down year over year but sequentially performance was up and the decline in demand has led, as Mark said, to focus our new railcar production at one facility in Mexico, at our GIMSA joint venture facility, and at Gunderson in the United States.

We are a US Company and I think it's important to remember that in perilous economic times it's essential that we keep balance in our manufacturing platform.

We're very pleased with our investment in Mexico, but we are equally pleased that we have a strong base of employment in North America through our US operations.

And looking at Mexico, Mexico operates principally as an assembly plant, with most of the materials value added from the United States with US labor.

During this quarter we were able to add 400-basis points to Manufacturing gross margin, which reached 8.6%, and these gross margin improvements reflect significant marine labor efficiencies and a more favorable railcar mix.

They were offset somewhat by lower plant utilization levels.

Finally, our Leasing & Services segment, while it continues to be under pressure is a very good base of operations for our integrated business model.

This segment includes our own and leased fleet, 9,000 railcars owned and about 220,000 -- a total of 226,000 railcars counting the managed fleet.

Mark has addressed the utilization issues that we face in that fleet, but we hope that the bottom is near in that cycle.

Greenbrier continues to execute its long-term strategy of diversification of revenue.

Only a few years ago our business was concentrated almost entirely on the highly-cyclical new railcar market, a problem now faced by almost all our competitors in this space.

With the more integrated business model investors can now think of Greenbrier as adding value throughout the life of a railcar literally, as I said earlier, from the cradle to grave of a railcar, something that has a 50-year life.

We successfully assimilated the business that we acquired last year.

However, we still have much room to improve in the integration of our business segments.

With our business model Greenbrier's much less exposed to drastic and dramatic market swings as we would have been had we remained strictly in the manufacturing space.

Overall we are very well positioned to serve customers as a strategic vendor.

An example is our recent order for 100 cryogenic railcars being built at Gunderson, a transaction which benefits all of our operating units -- Manufacturing, Services & Leasing -- aggregating a very significant gross margin compared to what we might have imagined had we only been looking at building the car and not providing other services.

Looking ahead in 2010, our first objective tacticically is to arrive at a final resolution regarding the GE contract and to stabilize our backlog at acceptable levels.

We expect to be able to operate GIMSA at a reasonable level and we are hopeful that we will be able to reach a resolution of the General Electric contract in 2010 fiscal year.

Secondly, we plan to improve the operational efficiency of our facilities while maintaining the flexibility to respond to market demand when the new cycle begins, so we will continue to focus on tactical things that need to be done to improve our operating efficiencies.

Third, as Mark has said, we will continue to manage for cash flow and liquidity, we'll aim to further improve our balance sheet and pay down more debt than we did in fiscal 2009.

Finally we expect to improve gross margins.

We've taken significant strides to strengthen the Company in the past year and I'm particularly pleased with our strategic relationship with WL Ross & Co.

That partnership -- or this relationship, rather, has allowed us to not only address liquidity and risk concerns in this capital structure of our Company, but it provides Greenbrier access to creative individuals and capital so that we may invest in future growth opportunities in a prudent manner.

So we see the WL Ross association as an opportunity for Greenbrier to hitch a ride with a very savvy investor.

In conclusion, I'm very pleased that the positive trends that began in the third quarter,continued in our fourth quarter and leading to a positive second half of the year.

Our team is experienced with market cycles and while this recent downturn was more severe than most and is expected to continue to be severe, our experiences served us well.

We've made many of the operational adjustments necessary to emerge as a strong company in the railroad supply industry as the economic landscape improves.

Mark, I'll turn it back to you for questions.

Thank you, Bill, and operator, we will go ahead and open it up for questions, if you can provide instructions, please?

Thank you.

(Operator Instructions).

Our first question today is from Steve Barger from KeyBanc Capital Markets.

Hi, Steve.

Hi, good morning.

Mark, in your comments you said you think the lease fleet is stabilizing.

Has your renewal rate improved since the quarter ended, or can you talk about why you think it's stabilizing?

I think it's the trend overall that we've been seeing over the last several months here where we are hitting our stride and keeping equipment on lease, albeit at lower rates.

We're taking a proactive approach ahead of lease expirations and looking to extend leases and trade it for some rate while still trying to go as short -- reasonably short as we can so that when the market returns, we'll get the benefit of that.

But it's just based on hard facts of what we're seeing at the ground level, those in the trenches.

Can you talk about the change in the lease rate as you renew these cars versus where they were?

It would really be on a case by case-type basis and car type by car type.

There's no doubt that rates are down, but it's hard to make just a global statement about how much they're down.

Is it fair to say they're down double digit, just generally speaking 20%?

That's probably -- I think that's reasonable to say.

Okay.

More broadly speaking, I think OEMs with an aggressive leasing strategy should be able to generate more deals on a downturn, like we're seeing now, than a nondiversified OE or a pure financial lessor.

I think they can just be more aggressive.

Now that you have some new board members and you're changing your thinking about -- are you changing your thinking about what the integrated OE/lessor model means from a competitive standpoint?

Well, we certainly are adapting to the times and I wouldn't want to leave you with the impression we think everything is rosy out there at all.

I think it's improving sequentially slowly as most economic pundits are saying, but certainly we are going to adapt to the situation and you're right, leasing will give us more flexibility.

However, when you've got so many cars parked and you're trying to manufacture new cars in competition with used cars and those cars are parked, it is very, very difficult to make that math work.

It's often much better to take a used car and refurbishment it or work with it and convert it to something that it's not.

So I think it favors -- I think this environment and the capital that we have access with and the creativity -- with the WL Ross investment that we have access to, I think that favors repair refurbishment and other parts of our business, including leasing, probably as much as it does manufacturing.

So is it -- historically leasing has been a relatively small part of your business.

Do you intend to grow that?

Your balance sheet's looking healthier, so should we think that you would grow that lease lead over time?

You've got to look at what we've done in the last year and where we've been heading.

We've been move aggressively word management services in leasing.

We really have significantly included the stable of services.

We have significantly improved the tools and the transactional costs to manage we have over the industry.

We have almost one-eighth of the national fleet under management at this point with many esoteric value adds we provide to our customers.

That gives us a unique visibility into the marketplace.

So I think we're more likely to use those tools, along with prudent investment, because we still are limited by capital and our balance sheet and we mustn't forget that by 2015 we have debt that will mature and we want to be sure that we're earning money and we'll be able to refinance those maturities, as well as these 2013 maturities that are coming up.

Time goes by quickly.

So we're going to focus not only on just head-on direct investments, but we will be doing work to leverage our strengths and add to our asset base under management by getting also an equity participation in the transactions that we originate, syndicate and finally manage over the life of the cars.

Of course, when we do that, it feeds right into our repair and refurbishment business, as long as we're competitive on that business and the national network of shops that can literally not be duplicated in the current environment.

Right.

That's actually a good segway into the next question.

Refurb & Parts was down 15% sequentially on a sequential increase in railcar loadings.

Are there market shares there, or can you talk about some of the market dynamics that exist in the Refurb & Parts market?

We'll have to move on to other questions, but very briefly I don't think it's the market share, I think it's the market.

There is a lot of deferred maintenance going on.

To give you an example, a railroad or a customer that's got a bad order car is less likely to repair that car at a time like this when they've got surplus cars.

To give you an example, [Rared] or a customer that's got a bad order car is less likely to repair that car at a time like this when they've got surplus cars.

They'll just throw the car into storage and pull one out that's in serviceable condition.

So what's really happening there is deferred maintenance, deferred refurbishment and I think building pent up demand.

Great, I'll jump back in line.

Thanks.

Thank you.

Thanks for your questions, good questions.

Thank you.

Our next question is from John Parker from Jefferies.

Hi.

In the last call you gave us an estimate of how many cars were currently in storage or parked.

Can you give us an update on what your view is and how many cars are in storage?

Well, those estimates honestly are all over the map.

I think that we had estimated somewhere between 400,000 and upward number in the last call, I can't remember.

In the last call, just to refresh your memory, you said that 500,000 cars were possibly in storage, but you thought the real number was closer to 300,000 with the remainder going in and out of storage.

Is it similar now?

I would say that it's slightly improved, but not materially improved.

We've seen in the western railroads a lot of background noise with cars coming out, going back in, coal has especially been somewhat erratic.

But directionally I think the number of stored cars may be down.

Qualitatively it's probably true that the number is higher, but some of that is false -- is really false storage.

There's a lot of obsolete cars and so the railroad presidents whom I speak with continue to think that the core number is lower than the general -- generally expected 500,000 car scary number.

You got to remember, also, when those cars -- when the economy recovers velocity does something to that equation because it takes more cars to carry the same number of ton miles and a lot of scrapping and paring out of the fleet and repair of that fleet will have to occur.

In fact, that's going to be a very significant logistics problem for shippers and railroads is getting equipment out of storage.

It just physically a very complicated and difficult thing with this much viscosity in the system today.

It's a very physical business and the very viscosity of storage is going to create problems for these railroads and for the shipper customers that will make opportunity for us.

Okay.

Can you give us any indication of where the barge revenues were and what your outlook is for next year?

Our barge revenues for the quarter were somewhere around $20 million, maybe a little less than that.

We still have a strong outlook for 2010, although a little bit down from 2009, but our barge business continues to be robust.

Okay.

And then you talked about the gain on the sale of your assets.

It seems like it'd be a tough time to be making profit on sale of assets.

Can you give us any color on how you had a gain as opposed to a loss in the prior quarter and where those -- what types of assets those are and where they're being sold?

Well, the loss in the prior quarter was really an anomaly.

I think if you look at our history, I can't actually recall another time where we had -- maybe once or twice over the last 15 years where we've had a loss on the sale out of our lease fleet.

There's no doubt that railcars are somewhat commodities and their value goes up or down over time, but we do have lower gains on sales during the downturns because we tend to want to sell less during the downturns, as well.

So our average age of our fleet is about 18 years.

We do anticipate -- we do regularly sell some assets out of the fleet and we still would expect to have some modest gains from sales out of the fleet in 2010.

Okay.

And then you guided to low Manufacturing margins this next year and I assume that's just because of lower deliveries expected at this point.You had a very strong fourth quarter but as the overall numbers lower next year, is that why you're guiding towards slightly lower margins for the full-year next year.

Is that right?

Yes.

Operating at lower production rates, a little bit of mix, but operating at lower production rates and frankly, any new orders on the margin are not going to be particularly attractive, though they're more likely in this environment to make a contribution to overhead or very low margin on the increment.

Okay.

And then finally, the Refurbishment & Parts margins, maybe I missed it.

You seemed to give us some guidance about next year for the other sectors -- or segments, did you give any guidance on that or can you provide any guidance?

On the margins I believe I said around the 12% to 14%.

We would hope that on the revenue side that we kind of reached a bottom around the hundred thou -- or around $100 million revenue level and as the economy picks up, we would anticipate that we would start to see that grow again, but the question is when will we see meaningful pickup in the economy?

All right, that's all I have.

Thanks a lot for your help.

Thank you.

Thank you.

Our next question is from Frank Magdlen from The Robins Group.

Good morning.

Morning, Frank, how are you?

I'm fine, thank you.

On the deliveries for next year how many are going to be in Europe?

Let me get that for you.

A fairly nominal amount, about less than 1,000, more than 500.

Okay.

I know it's a big range, but it's somewhere in the middle of that number, probably a little lower than the median between those two numbers.

Okay.

And then the balance is almost entirely -- is that almost entirely GE, or is that a combination?

It doesn't leave -?

Our backlog certainly is heavily weighted towards GE.

If we're successful in resolving the GE conflict, we would not expect to -- we would expect to have to compromise that backlog.

However, Mark can address the actual numbers for next year, which reflect a fairly solid domestic non-GE content.

Yes.

So, Frank, there are orders in there other than GE on the domestic side, and some meaningful orders in there.

All right.

And then, Mark, what's the tax rate you were using when you were talking about the $0.27 net of tax on the amortization of fees, et cetera?

40%.

40% tax rate on that.

And then could you explain a little bit of -- if you did change your pricing on contracts on refurbishment and parts as to how meaningful scrap prices are for you going forward?

Frank, I know we gave an algorithm in the past and just lost on the tip of my tongue.

We are somewhat capped on the upside of that, but today we're definitely below where we're capped out and so there is room for that.

Let's see if before the end of the call we might be able to come back to that.

If not, we'll get back to you.

Frank, realistically the earlier algorithm may not be applicable in a market like this and I think one of the assumptions is we have any control over pricing in an environment like this.

There's just not a lot of work out there and affect your pricing -- it's not that it's so competitive, it's just the work isn't there.

So we have to manufa -- we have to create that work by doing creative transactions.

I think that's one of our biggest challenges in 2010 and we've historically done that, but it's been a busy year and we haven't done it this year.

I'm sure it's been busy and you've certainly built the liquidity and congratulations on that and I'll go back in queue.

Okay, Frank, thank you.

Thank you.

Our next question is from J.B.

Groh from D.A.

Davidson.

Morning, guys.

Morning.

I guess I just want to hammer on Frank's question.

I think you're saying 2,400 units scheduled for 2010 and if you subtract out the midpoint of that European number, it looks like you're doing -- what you've banked on in terms of GE is the lower production rate that they're accepting cars at now, correct?

They're not really accepting cars at a lower production rate than had been scheduled.

We have a ramping issue.

It's -- I think the ramping has been delayed slightly, but we've been increasing the production and they've been buying the cars -- we've been shipping the cars and GE's been buying the cars.

And you're still getting paid for them, correct?

Yes, we're getting paid for them.

Okay, so maybe my math might be off a little bit.

Mark, could you -- I could probably get this from Frank's question, but how much pre-tax severance is in that Manufacturing number, or is it somewhere else?

No, it's all in the Manufacturing and the number, I believe, is $1.7 million.

Okay.

For the quarter.

And that's also up in the Manufacturing segment?

Yes.

Okay.

And then, Bill, you said -- I think I can read through, but it seems to me that you seem to believe that there's some pent up demand for refurbishment and part business in that stored number in that obviously a rail operator's going to store cars that are close to some maintenance interval.

Is that a pretty safe assumption?

Well, I think for a company like Greenbrier it's true, but we're in a position, particularly now with more liquidity and a strong strategic partner, to monetize demand that might not be able to be monetized by others.

We have amazing engineering capabilities through our Manufacturing segment so we can take cars that are not useful in one type of service and convert them to something else with the engineering and capabilities that we have.

So I think that if we step in aggressively -- and this is a perspective statement, of course, and a hopeful statement -- and become more proactive in 2010 that we should be able to move the bar on that.

'd also say it's a fair question that there is developing in the fleet of cars a lot of just heavy static with obsolete cars being stored, cars that are actually physically loaded with scrap with low scrap prices and the expectation of higher commodity prices and a lower dollar.

People aren't selling it and when they start moving this stuff, it's going to be a very interesting situation.

I think it creates a tremendous opportunity for companies that are in the scrap business like Progress and Schnitzer.

I think it creates tremendous opportunities for companies like Greenbrier that can help the railroads with those kinds of issues and help shippers with those kinds of issues.

They're very, very real physical issues.

And when you talk about conversion work, is it more than just cutdown work?

Are there other things you could do?

Maybe you could give us an example of something there.

Well, the cutdown work is a very good example, actually, of what you're talking about because we're taking cars that are 48 feet in length for containers and cutting them into 40.

We're also expanding cars that are -- we have the capability of expanding cars from 48 to 53-foot units to go to a domestic market.

So that is actually a good -- and you have to use finite element analysis engineering to convert one type of car to another, it's not as simple as it sounds.

Other kinds of prosaic kinds of equipment, boxcars that have specialty doors or specialty applications, particularly mechanical refrigerated cars, they're all targeted to certain narrow markets and if you can convert one from a -- one application into another, while they still look the same to an ordinary observer, they're quite different mechanically and from an engineering perspective.

So those kinds of things are easy for us to do because we have a broad product mix across now, with tank cars, almost all of the kinds of railcars that are built in America, or designed in America, or engineered in America, or serviced in America -- or North America and I think it gives us a tremendous flexibility.

We are not in the coal car engineering business, but we have access to good coal engineers and we do a lot of leasing of coal cars.

So we really can hit on all of the points that are necessary to achieve total coverage in the North American economy particularly.

We are not quite as well positioned, although we're going to position ourselves we think, in Europe to do the very same thing.

Okay.

Then one last housekeeping thing, Mark, you mentioned a $40 million D&A number for 2010.

Does that include all the amortization from the warrants and the loan fee and the new convertible rule, all that stuff is included in that $40 million?

That's an excellent question, Steve, and the answer is no.

The D&A expense is related specifically to either depreciation or amortization of intangibles.

Any of the amortization of the interest, which I gave -- I'm sorry, J.B.

-- that I gave is not included in that number --

$11.4 million?

Yes, exactly.

Okay, so you basically have non-cash of $51.4 million, something like that?

Yes.

Okay.

Thank you.

Thank you.

(Operator Instructions).

Our next question is from Art Hatfield from Morgan Keegan.

Morning, gentlemen.

Mark, I apologize, but when you were going over the numbers today I wasn't able to keep up and I missed -- you were talking about how to think this share count in the quarter and how we should think about that going forward with regards to earnings calculations?

I'm sorry, Art.

Can you repeat that?

He wants to know the share count on the dilution with warrants, the formula for that.

Right.

So the calculation would be the number of shares in the warrants times the $6 strike price and then divide that by the average market price of the stock for the quarter and that would be the -- and as long as the average stock price exceeds the $6, that number of shares would be the incremental number of shares and the diluted shares outstanding.

Okay.

Okay, that's helpful.

And then secondly, I know you walked through where you are from a production standpoint, but let's -- I want to ask a forward-thinking question and let's say we get to a point in life where instead of producing 500, 600 cars a quarter all of a sudden you're flexing up to 1,500 to 2,000 cars a quarter.

Can you talk about how easy that would be to do and what, if any, up-front costs you would need to put in place to get that higher level of production?

Let me take a quick shot at that.

Obviously we would have working capital.

Much of the cash that's been generated has been by very tight management of working capital, so it would be working capital.

We feel we have adequate complementary liquidity to address that where and when those circumstances occur.

Except for that, reopening a Concarril rail facility would be fairly easy.

We can switch that facility on and off fairly easily.

However, longer term we still have some issues there because we don't own that facility, we lease it from [Bombardier].

But in the short term in the next five years we expect that we would have a lot of flexibility in moving up in terms of our production without a lot of fixed cost.

Okay.

Thank you.

Thank you.

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

Hi, again.

When I look at your industry orders about 75% in the quarter were for tank cars.

Other than the GE order have you received any additional tank car orders, or are you quoting prices to third parties?

No, nor can we.

We're just -- until we resolve the GE issue we are locked into an agreement and the agreement requires all of our capacity in tank cars at that facility during a relevant timeframe.

I see.

Is --

I -- go ahead,

Go ahead.

I was just going to say that's not a bad thing necessarily, at all.

Right, I think my follow up is it seems like the tone vis-a-vis your conversations about GE are a little more positive this quarter than last, is it fair to say you've made progress in whatever conversations are taking place there?

I really can't comment other than I'm by natural -- by nature more optimistic than Mark.

(LAUGHTER) We make a good pair.

Now we-- I think that it's basically important to realize that we haven't had a huge explosion.

We have had a lot of contention.

I think that we're -- we continue to talk, we continue to ship cars, they continue to buy them.

Just the passage of time gives me some comfort that there's hope.

One has to always be hopeful that we can resolve this.

And there must be some reason that we have not had the explosion by now, but we always are waiting to see if there will be one.

Got it.

Okay, thanks.

We all that optimism.

That's optimism.(LAUGHTER) Well, I'm sorry, it's optimism [as a start].

Obviously GE is a good company.

If you read all the -- and you watch their advertisements and all we've ever asked is that GE be like they appear to be in the market, and I think that we have GE's attention and they have our attention.

And a lot of -- misunderstandings, by their nature, are difficult and each contributes to them, so we have to just be hopeful about this.

And, sir, I'm showing no --

I'm hopeful, too, Steve.

-- further questions at this time.

Very good.

If that's it thank you for your participation in today's call.

We appreciate it and we'll look forward to talking to you again.

Have a good day.

Bye-bye.

Thank you, and this concludes today's conference.

You may disconnect that this time.