Greenbrier Companies Inc (GBX) 2010 Q1 法說會逐字稿

Hello, and welcome to the Greenbrier Companies first quarter of fiscal 2010 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.

Good morning, and welcome to our fiscal 2010 first quarter conference call.

On today's call, we'll discuss our results and make a few remarks about the quarter that ended November 30, and then we will provide an outlook for 2010 and beyond and then after that, we'll open it up for your questions.

As always, as a reminder, matters discussed in the conference call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Throughout our discussion today, we'll describe some of the important factors that could cause our actual results in 2010 and beyond to differ materially from those expressed in any forward-looking statements made by or on behalf of Greenbrier.

Today we report our first quarter results, and you may have noticed the change in the presentation on our P&L, and this is a change only in nomenclature and at the bottom line, profit or loss, which was formerly referred to as net earnings or net loss, is now referred to net earnings or loss prohibitive to controlling interest.

This is in accordance with GAAP to confuse readers of financial statements.

I do want to remind, this is a change in nomenclature only and not in how earnings or EPS are calculated.

And with that said, our net loss attributable to controlling interest for the quarter was $3.2 million, or $0.19 per share on revenues of $172 million.

Net loss for the quarter included non-cash charges of $2.1 million pretax, $1.2 million after tax, or $0.07 per diluted share for warrant amortization expense and amortization of convertible debt discount.

And net loss for the prior quarter -- comparable quarter included a non-cash charge of $0.9 million pretax, $0.6 million net of tax or $0.03 per diluted share for amortization of convertible debt.

And if you comparing this to our numbers previously reported for the prior year's first quarter, also in accordance with GAAP, we restated that quarter for this new accounting pronouncement when related to amortization of convertible debt.

Both of these amounts, both of these amortization amounts are included in interest expense on our P&L.

And for the year as a whole, these two charges will run about $8.6 million pretax, and at currently anticipated tax rates, this equates to about $5.2 million after tax, or roughly about $0.30 a share.

We continue to manage the company's cash flow and liquidity, and our cash balances of $65 million and additional committed borrowing availability of $107 million are substantially unchanged from last quarter.

In addition, during the current quarter we will file our 2009 tax return for the year that ended and as a result of recent changes in the tax laws, we'll be able to carry those losses back a total of five years, and this will allow us to realize a $14 million tax refund within the next -- within 90 days of the filing.

We do continue to believe firmly that we have the adequate level of liquidity to weather the downturn with the favorable debt covenants that we were able to negotiate in the spring of last year, and no significant debt maturing until 2012, and much of our debt maturing in 2015.

Now, let me address some highlights for the quarter that supplements what can be found in our earnings release.

To begin, overall gross margin of 12.6% for the quarter, compared to 7% in the prior comparable quarter, with the improvement primarily driven by our manufacturing segment.

In our refurbishment and parts segment, revenue declines were primarily due to lower sales volumes across all product and service types and a further decline in the price of scrap metal, both due to the current economic environment.

Having said that, we are seeing, and I'm sure many of you have noticed that scrap metal prices have been rising in the recent past.

Gross margin for the refurbishment and part segment was 10.4% of revenues compared to 9.8% of revenues in the prior comparable quarter, and the increase is primarily the result of cost reduction efforts.

Our manufacturing revenues continue to be adversely affected by the weak business environment and depressed demand.

Current quarter deliveries of 350 units were down from 800 units in the prior comparable quarter, but we are pleased with -- having said this, we are pleased with the improvements in operating efficiencies of the segment where our manufacturing gross margin for the quarter was 7% of revenues compared to negative 4.1% in the prior comparable quarter.

The gross margin increase was primarily the result of a more favorable product mix and improved production efficiencies, partially offset by less efficient absorption of overhead at lower operating levels.

In addition, the first quarter of last year, we had improved loss reserves of $0.5 million for contingencies for railcars in our backlog, where we anticipated a loss on production.

We are operating at stable production levels now, and I'm sure Bill will be speaking to this as a result of our GE contract modification, and we're really pleased with the performance of our GEMS operating unit, which is our principal unit for building new railcars in North America.

In response to the weak market conditions, we continue, as I said, to concentrate our production at GEMS, and we have shuttered our new railcar facility in Sahagun as far as new railcar production, although we are doing some refurbishment and heavy fabrication work there.

And as similarly, Gunderson, we're principally focusing on railcar refurbishment and marine barge manufacturing and niche new railcar product opportunities.

Now turning to leasing and services, our lease fleet utilization was up sequentially for the quarter to 91.3%, compared to 88.3% as of the end of August and 93.3% as of the end of November, 2008.

Our gross margin for the quarter was 41.4% of revenue compared to 43.6% the prior quarter of 2008 or the comparable quarter of 2000 -- I say 2000, I mean fiscal 2009, but November 2008.

This is a result of lower fleet utilization and lower earnings on certain car hire leases offset by gains on sales from the lease fleet.

Our gains on sale for the quarter were $0.9 million compared to $0.3 million for the first quarter of 2009.

Selling and administrative costs were $16.2 million for the quarter or 9.4% of revenue versus $16 million, or 6.2% of revenue for the same quarter last year, excluding reversals of certain reserves in both periods, our S&A costs were actually lower in the current period than the prior comparable quarter due to cost reduction efforts and related lower headcounts.

Interest in foreign exchange was $11.1 million for the quarter compared to $11.8 million in the comparable prior quarter, and the decrease was a result of declines in interest rates, lower outstanding borrowings, and lower foreign exchange losses.

In the prior -- in November 2009 quarter, we -- or 2008 quarter, we had a $1.2 million foreign exchange loss that some of you may recall associated with foreign currency contracts that did not qualify for hedge accounting.

And as a reminder, the amortization of the convertible debt and the warrants were also included in these figures.

And in that regard, I want to remind investors that the warrant amortization expense relates to the shares -- or the warrants that were issued to WL Ross in the springtime as a result of the strategic investments that were made, and those have been recorded on our balance sheet at $13.4 million originally, and being amortized over a 3-year period for roughly $4.5 million per annum.

And to the extent that our stock price exceeds this warrant price, the number of diluted shares will be increased in profitable reporting periods.

Lastly, there's a new accounting pronouncement, again, that affected that discount on our warrants.

We continue to be -- or in our convertible debt.

We continue to be disciplined in our CapEx in the current environment, and we expect net CapEx to run about $30 million in 2010, and our depreciation and amortization will run about $40 million.

Based on current industry trends, we continue to remain cautious, and business continues to be challenging.

And with this backdrop, we anticipate that our revenues will be lower in 2010 than in 2009, and while our visibility is limited in certain of our product lines, we currently expect EBITDA, excluding special charges, to be modestly higher in 2010 compared to 2009, principally due to higher margins in our manufacturing segment.

I do want to remind investors, last year and in many previous years, our financial results, that we start the year off slowly, and then the second half of the year is much stronger than the first half, and we anticipate that that -- that the current year is going to play out similarly, but the second half being much stronger than the first half, and with our second quarter being our weakest quarter.

I'll turn this over to Bill, just with the overall reminder and firm statement that we continue to be very optimistic in the longer term about the fundamentals of our industry and in our positioning in the industry.

I'll turn it over to you, Bill.

Okay.

Thank you, Mark.

Welcome, everyone, to the conference call.

I'm going to keep my remarks fairly brief this morning.

And I'm going to start out talking about railcar manufacturing and the status of the railcar manufacturing industry.

Even though today Greenbrier is largely driven by revenues and margins in other segments, railcar refurbishment and subsegments such as parts, particularly wheel services, marine and leasing services such as asset management.

For example, during the current quarter, only 25% of our gross margin as reported was derived from manufacturing, and actually in the prior comparable 2008 quarter, it was a negative contribution, and all of our margin came from these other businesses.

However, as earlier noted, the railcar manufacturing segment is a driver for much of the health of the railcar supply industry, and therefore, I want to start just by talking a little about what's happening to us and the industry in recent quarters.

New railcar demand in North America continues to remain soft.

We believe that builders are continuing to burn through their backlogs.

As was earlier announced, we completed satisfactory negotiates with GE, which provided considerable value to Greenbrier.

Our modified GE order took 8,000 cars out of the industry backlog, and we believe that the GE order now represents about 35% of the estimated North American industry backlog at the end of December.

Industry backlog for the fourth quarter of 2009, as of December, has not yet been published.

We are expecting it soon.

However, assuming the same rate of decline as in previous quarters and removing 8,000 cars from the last published backlog information, we put industry backlog at or under 10,000 units, and therefore, Greenbrier's share of estimated North American industry backlog now approaches 50% with a 4,500 unit North American domestic backlog.

So we are pleased in our manufacturing segment, even though our emphasis has been on railcar repair refurbishment parts, wheel services, leasing and asset management.

We have grown our asset management fleet.

We're very pleased that despite that, our performance in manufacturing in terms of providing stability to our workforce to the entire business model is also above peer performance, and we're pleased to have put behind us the stress of that GE negotiation.

With regard to manufacturing, we continue to focus our new railcar production at our GEMS facility in Mexico, which is essentially a assembly operation for North American parts.

We now have a solid backlog at that facility into 2013, running both covered hoppers and tank cars.

Our Gunderson facility in Portland continues to be our flagship operation, is doing smaller production runs and new cars on one line and is also operating the used car refurbishment line and some of the revenue and margin from refurbishment would be picked up in our refurbishment segment.

The refurbishment line at Gunderson has a good backlog for 2010 as a result of the GE renegotiation.

In Europe, European marketplace has similar trends, though comparable industry information is not readily available on production and backlog.

And our outlook is stable, we believe, in Europe for 2010.

We will be profitable and planning to be profitable in Europe in the current calendar year and fiscal year.

While market conditions and turning to our other markets, while market conditions in all of our core markets are weaker than we would like, there is certain evidence of bottoming out in certain of these markets.

While 2009 railcar loadings in North America continued to be down, down around 16%, and that was lower than earlier statistics.

Q4 loadings were only down 8% and for the last few weeks of the year were slightly up.

Railroad executives remain cautious in their outlook for 2010, and estimates of railcars and storage have only slightly improved with current railroad source estimates at senior levels understating the officially public data and around 25% of the fleet estimated to be idle or less.

Having said all of this, we're starting to see some pockets of opportunity and inquiry in both North American and European new railcar markets.

So perhaps we are at the bottom of the cycle, or near the bottom, or the beginning of the end of the cycle, or something like that.

Marine operating performance has been very is good, and has been a reason for improvement in margin in our earnings in our manufacturing segment over the year.

However, new orders are scarce, and demand is weak.

During the quarter, a customer canceled an order for one barge to be built in fiscal 2011 due to weak demand.

We may be able to reinstate that order.

At current production rates, marine has a hole in its line later if this fiscal year, and the material order dates to protect that line at the current production rates this year is fast approaching.

So we will either need to slow down production, secure a new order, accelerate an existing order, or build a barge in anticipation of an order in order to continue the level of operating performance that marine has provided for our manufacturing segment during 2009.

Marine will therefore become a main driver for the year as a whole and a source of considerable management focus and attention over the next few months.

Turning to repair and refurbishment, this is also a sluggish area as customers are deferring or minimizing capital expenditures, and lower rail volumes translate to lower repair and wheel service needs.

The good news there is that this segment is likely to be the first to benefit in a recovery, and we see considerably upside in both the wheel and repair business and refurbishment business in the second half of 2010 and into 2011, if we have an economic recovery and we say the same sort of upside in manufacturing if we could restore manufacturing to its previous levels of contribution EBITDA and margin.

On the leasing side, our lease fleet utilization increased to 91%,-- 91.3% compared 88.3% at the end of our fourth fiscal quarter of 2009, just a quarter ago.

So we believe the utilization is stabilizing, albeit at depressed rate levels or lower rate levels than we would like to enjoy.

On the plus side, while market conditions are week, our revenues are transactionally oriented and derived were relatively small numbers of large transactions can have a major impact on revenues and earnings.

Also, the fundamentals for rail transportation remain very strong and we are more optimistic about the second half of 2010.

Furthermore, management has been able to deal with a lot of defense issues and protective issues in 2009, and we'll now be able to devote energy to revenue generation rather than conflict resolution as a result of not only strengthening our balance sheet, protecting ourself against debt covenants and completing the GE negotiation, but other protective measures that we have taken to try to strengthen the balance sheet.

So in other words, we're now better equipped to play offense rather than defense in 2010.

And as Mark has indicated and I've repeated in my comments, we are more optimistic about the second half of this fiscal year.

Our principal priorities in 2010 will be the efficient operation of our core businesses, enhanced revenue and EBITDA and continued focus on liquidity and cash.

Turning to one other significant event, which has been tracked by many of our analysts in fiscal 2009 concerning Auto-Max, we sold 500 Auto-Max platforms to BNSF, under an arrangement whereby certain minimum earnings aggregating over $13 million were guaranteed through 2011.

The full amount of this contingency which was derived for the transaction, was accrued in 2009, and any earnings generated through marketing the cars will flow straight to margin and pretax earnings.

At the second half of 20 -- of last year, a major and concentrated commercial effort was undertaken to place these cars in service, notwithstanding a very weak automotive environment.

I'm pleased to report that all 500 platforms and 170 additional used platforms in Greenbrier's lease fleet has now been placed in service on very economic terms, at least as favorable as those in our financial forecast.

This is a real success in the current market and important to our EBITDA goals and our strategic plan for 2010 and 2011.

Turning for just a moment about strategic growth opportunities, we continue to have -- we continue to be very pleased with our relationship with WL Ross, and we are having promising discussions concerning additional strategic opportunities.

This relationship gives us access to capital capacity at a time when very interesting opportunities may exist in our sector to deploy capital.

These are likely to be transactions which will allow us to grow our railcar services business, which over the past year has grown from 137,000 railcars under management to 223,000 railcars under management.

Additionally, we'll consider other opportunities in each of our other business segments if good investment opportunities arise.

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

Thank you.

Operator, we'll open it up now for questions, please.

Thank you.

(Operator Instructions) Our first question is from Art Hatfield from Morgan Keegan

Morning, Bill and Mark.

Just one quick question.

I didn't hear on the call, Mark, but did you tell us how many new car orders you received in the first quarter?

I did not give that figure, Art, and if you will give me a minute, I can probably -- I'll come back to it during the call here.

Sure.

No problem.

And while you're looking for that, the follow up I had to that was, given what you're seeing from orders and from requests for customers, can you kind of give us an indication of where pricing has gone to for new cars for the past few months?

As of the past few months?

Yes.

I would say that they're -- I would say, Mark, that there's not a lot of -- not a considerable change.

Pricing is still very soft, and as other buildings have lines that are shut down, it will become easier to compete if we have lines that are running.

So that's the only significant event that I think is going to occur as many of our competitors are running lines out of backlog and shutting lines.

Right.

Can you give us an indication of where -- I know there's many, many different car types, but generally, where pricing has gone from where it had been at peak levels?

It's a complicated question, because not only have margins been compressed or eroded to cash contribution, which could be in the 10% type of range, but there's been a substantial decrease in the price of certain commodities and other materials that go into the cars, which has been dramatic.

So in terms of peak levels, we could be looking at 25% to 30%, but the bulk of that would be from materials cost.

Do you think that through this past from the peak down to the trough, and when we were looking at the price of a railcar and what was going on with commodity prices, do you think you kind of through the cycle broke even on the price of steel?

Or is it possible that there was a little bit of positive contribution to the company through that period?

Well, it was a very wild ride, and truthfully, I don't have the answer to that question.

I prefer not to go through that kind of cycle, if I could avoid it.

I just don't have a good answer for it.

I think we came out okay, but we took a number of hits on some contracts, and we benefited from others, so, I'm sorry, I just can't really tell you, maybe Mark could comment on it.

I think, Art, where we would have benefited more would have been on the refurbishment and parts side of the business, where we would have lost -- where we commented before that we have had somewhat of a natural hedge of scrap or on steel, because we -- of course, it's an input cost in the new railcar side is of the business and the marine side of the business, and on the refurbishment, that we realized some scrap benefits as well on our lease fleet.

So we took some hits on manufacturing.

We've adequately protected ourselves and have played catchup and in all of our backlog we're protected, but did have some benefit on refurbishment and parts that probably more than adequately covered us on -- in leasing that more than adequately covered us on manufacturing, but as Bill said, it was quite a ride.

Right, okay, great.

That's very helpful.

That's all I have, and if you can get those --

Yes, Art, it's rough -- it's maybe 100, 200 cars.

It's a relatively small figure.

And of course, if you look at our backlog, if you do a reconciliation, it won't add to that, right?

Because we took 8,100 cars out of backlog related to the GE contract.

Well, that's why I asked, because hard to reconcile it.

Right.

So I think if you perform that reconciliation, it's going to be 100 or so, 100, in that kind of range.

Great, that's helpful.

Thanks for your time.

Thanks, Art.

Thank you.

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

Good morning.

Good morning.

You mentioned in your remarks that you might pursue some transactions to grow railcar services.

Are there earn other specific comments you would like to make about what directions your conversations with the Ross team might be taking in terms of strategic positioning?

We've had very positive discussions about investments that would be compatible with their goals and our goals in each of our segments, although I must say that we've been focusing principally on our asset management capabilities, which have grown really dramatically over the past year.

Are you finding there are a lot of customers out there that are looking for those services, or is this something that will have to wait for the upturn?

Well, obviously, if we've been able to grow almost a 100,000 cars in the last year in this market, we think that there are other customers that are interested in almost the unique capabilities we provide.

Not only can we manage an asset and provide any sort of back office maintenance in an administrative handling of a freight car, even for class 1 railroads, and we manage assets for a large number of class 1 and short line railroads today, we can provide a repair network that has a geographic footprint very close to the entire rail system.

So we can provide economical and efficient repair and refurbishment services to those railroad customers and also to the leasing customers.

So we have signed on this year major leasing customers.

We've signed on railroads, and we're intending to continue to target those markets.

There are other opportunities in the area of portfolios that are stressed and we're -- companies are trying to reduce overhead or improve performance, and we're, of course, looking at those in connection with WL Ross as well.

And as a reminder on that end of our -- what we've -- our strategy and what we've said before is that of course, WL Ross gives us access to capital that extends beyond our balance sheet, which of course, does have some limitations on it, and there certainly -- there may be opportunities where we could co-invest on a more limited nature within our own balance sheet and provide products and services that would complement and supplement those investments, and all of these would be in areas of our core competencies.

Right.

And just to clarify further.

Almost all of the structures we would be looking at would, in one form or another, provide minimal capital, direct capital investment on our balance sheet, but we would be either an operator, we would have participation rights, or we would be a manager of assets that principally would be invested by the -- by the Ross group.

I understand.

So the capital would come from them, principally.

Sure.

Do you think there are opportunities also to grow the parts and service network from the current 38 locations, or is that comprehensive enough that you're in good shape there?

No, we think organic growth in particular, as opposed to acquisitions, is probably the thing that will continue to occur.

We've added a few ramp operations in the last year, so we do think that we've got quite a lot of opportunity for organic growth, which has a higher rate of return than acquisition growth, although there may be some attractive opportunities still around to enhance the model with acquisitions, and we're open to looking at those.

As you -- you've stated that you want to manage for cash, which makes sense in this downturn, are there still levers that you can pull in terms of the parts and service network, whether it's purchasing, or increased deficiencies?

Is there more cash that you can take out of that business and ways that you can bump returns, or is it pretty much in good shape?

Most definitely there are.

I'm dissatisfied with the economic performance of that unit in terms of the potential with respect to the entire model.

We need to -- and we're working on further integration efforts, particularly in the commercial sphere, to get those synergies, to use a hackneyed expression.

But also, we need to, in terms of customer surveys near the end of the year, we need to improve and really listen to our customers and improve the economic efficiencies of each of these operations while we think we've done a good job of assimilating the large acquisitions, which were a collection of, in some cases, mom and pop type operations, we still have a flavor of that, and we need to really have more consistency and stream the benefits out of this geographic advantage that Greenbrier has, coupled with our asset management advantages with the railcar assets themselves.

So if we can both management an asset with the lowest transaction cost in the industry for back office and car hire counting and that kind of thing and mechanical audits, if we can do all of that, we can help the railroad and leasing customers -- other customers, even with whom we might compete, can help those people optimize their repair business by using this model.

So I am not pleased that -- we still still a lot of -- I guess I'm pleased there is still opportunity to improve, but I wish that we had made a bit more progress in integrating and getting those benefits.

But we're going to really be targeting that in 2010 now that we have got more time and we are in better condition to allocate that time to those kinds of opportunities.

Okay.

One more, and I'll jump back in line.

The 3,800 cars for the GE contract are, I think, scheduled over the next three and a half years.

Is that a level delivery schedule?

Should I think about that is 1,000 per year, or is that front or back loaded?

No, it's a little bit more front-loaded than it is back-loaded.

Okay.

So, yes, it would be a little more heavily loaded to 2010 and 2011.

Is everything else in backlog scheduled to go this year, this fiscal year?

I think what we had disclosed originally that -- well, the answer to that is yes.

Great.

The answer to that ask yes.

Okay.

I'll get back in line, thanks.

Thanks.

(Operator Instructions) Our next question is from John Parker from Jefferies.

Hi, John.

Hi.

You discussed the peer margin effect of putting those railcars to work that you have reserved for already.

Would that is impact the manufacturing margins?

I'm sorry, can you repeat that question?

The Auto-Max cars, he's talking about where the margins (inaudible).

Yes, it will principally be in the manufacturing segment.

A small piece of it will be in the leasing segment, but it will be principally be in manufacturing.

Okay.

And also, I think at the end of last year, you gave guidance for manufacturing margins in the low to mid single digits, and obviously, you have exceeded that in the first quarter.

Is there any update to those estimates for the full year margins on your different business segments?

Yes, I think as a whole, the guidance of mid-single digits is probably appropriate.

We do expect that the second quarter, again, is going to be our weakest quarter in manufacturing, partly the way that marine revenues and percentage of completion flows through on marine flows through the financial statements.

And, as Bill pointed earlier, marine performance will be a driver in a key metric for the -- how the -- for the year.

But mid-single digits what would be --

If I could just jump in on that and add that our second quarter is always a weaker quarter, because effectively, given the holidays and given our fiscal year end, we lose almost a half month of production in terms of our manufacturing operation across the board.

And that also is true in our repair and refurbishment, many of our repair and refurbishment operations.

Just the effective holidays in our quarter and the way that plays out, it's traditionally been a bad quarter.

So we expect our second quarter to be the low point of this year, and those are the reasons for it.

Okay.

Can you give me a rough estimate of the marine revenues during the quarter?

Approximately $20 million.

Okay.

And that's kind of a consistent run rate right now, assuming you're able to fill the hole that you mentioned earlier, right?

Assuming we would fill that, that would be the type of run rate again in the second quarter.

We would expect that to be down, and overall, probably to run a little bit less than that for the balance of the year.

Okay.

You're working capital seemed to jump up a little bit more than I expected.

Is there anything going on with the inventory popping up there?

Is there anything you can indicate to me of why that happened?

Of the inventory going back up this quarter?

Yes.

Some of this was as we were ramping up some production on the new railcar side is of the business, and we were also buying some -- so as we're ramping up production at higher production rates on the new railcar side of the business, and we were buying some materials a little bit ahead of time to get ahead of some of the increases in scrap surcharges.

So we don't see this until the, obviously, when the economy picks up overall, our working capital needs are going to be greater again, but we don't see this trend of increases really continuing in the near term.

Okay.

And, also, I think you've given this on a prior call.

Can you give us any guidance on scrap sensitivity in both your revenues, your gross margins and your refurbishment business?

At this time, we're less sensitive to it now than we were before, as a result of some changes that we've made and also some changes in contracts, but I wouldn't want to give an algorithm at this point.

Okay.

That's fine.

Thank you very much for your help.

That's all I have.

Thank you.

Thank you, our next question is from Paul Bodnar from Longbow Research.

Hi, good morning.

Just a little follow up on the leasing business there.

Obviously, you had a sequential uptick on utilization.

If you could just talk a little bit about that, kind of what we can expect here out of leasing, both going forward in terms of obviously, with utilization, but also the pricing there.

You want to handle that?

Right.

On the utilization side, as we mentioned, we're pleased that our utilization has come up, and we really have a concentrated effort there.

So we should see that being stabilized or slightly improving.

Having said that, when we have a fairly modest lease fleet of less than 10,000 cars, if you have 300 cars or 400 cars that are in between leases, that obviously as an example can impact those statistics.

But we're pleased overall that we definitely believe that we have hit the bottom and are on the way up, and part of that is increased opportunities and part of it is our concentration.

As far as lease rates as a whole?

Perhaps they've improved some modestly, but I wouldn't want to -- it's still, of course, a challenging market with the surplus assets out there that Bill mentioned.

I wouldn't want to give a percentage of what that might be quarter-over-quarter.

Obviously,as compared to a couple of years ago, lease rates are down, and down meaningfully.

To follow up also on that business, you've had a significant number of cars that you're managing now.

How does revenue maybe break down?

Obviously, there's gains on sales of cars in there, but between management and just leasing at this point?

Management is about -- management maybe runs about $25 million per annum.

Okay.

And, of course, then the balance being leasing, including gains on sales.

Management is very important, however, for other reasons.

It both gives us visibility into the traffic patterns in North America and opportunities for to other deployment of -- deployment opportunities in both our repair and refurbishment network and our manufacturing network.

But even more than importantly, when you look at lease utilization, the way Greenbrier effectively is operating is almost a partner in the North American industry, the railroad industry, so we have an ability to actually be in real-time participation with our partners, and we have some benefits as a result of that in terms of keeping cars utilized when other companies that aren't integrated as we are would have to store those cars.

For example, we don't have any coal cars stored for now, and we haven't renewed our leases on coal cars.

So the management business really gives us us a lot more clout than the bottom line contribution, but that contribution is increasing, and the marginal transaction cost is very, very low for us to add to the fleet.

It's obviously a higher margin business in your portfolio, I guess, the management aspect?

It is.

It would not be as -- that's correct.

And, of course, overall leasing and management services are high margin businesses, but, of course, on the management services side, there is very, very little invested capital.

And then I guess another follow up on refurbishment parts is year-over-year, there was some slight improvement margin, but sequentially, you were down.

I may have missed some of the color on that, but was that largely just lower fixed costs absorption compared to 4Q '09, since revenues are down?

If you could just talk a little about what it going on there and what's -- how to think of the rest of the year.

It is.

And it was also a mix issue, in particular on the repair and refurbishment side a compared to, say, wheel services and parts on the repair and refurbishment side, the mix was less favorable and lower levels of utilization.

We do expect, and some of the reason for the optimism that we expressed in the second half of the year, is that we do expect improvement in that business, both as demand picks up, but also as a result of specific orders that we're working on that would be heavier in nature that would give us improvements on that part of the business.

Would margins look probably similar to last year's levels, or would they improve beyond that?

I think similar to last year.

Obviously, we would have to have some of the pickup that I referred to to achieve that, bit I think similar to last year.

Thanks a lot, guys.

Thanks.

Thanks for your questions.

Thank you.

Our next question is from John Groh from DA Davidson.

Hey, guys, JB from across the parking lot.

Hi JB, how are you?

I'm doing good.

Cold out there, isn't it?

Yes, it's a little windy, too.

I just had a question on the lease utilization, I think I kind of got my question answered, but was there any seasonality in that, or is it just a -- like you said, Mark, a function of a relatively large chunk of cars going from being unleased to leased?

Did that -- looking at it year-over-year versus looking at it sequentially made me think there might be something seasonal there, but --

No, I -- that would not be true on the leasing side.

Certainly, as Bill referred to, on manufacturing or refurbishment and parts, there can be some seasonality.

Right.

And you guys haven't changed your unit delivery outlook obviously from the update you gave last, correct?

Correct.

And so would we expect to deliver -- seems like we would expect to deliver a similar amount of cars in the second quarter, or maybe a little bit more?

How do we reconcile the low number this quarter with the lower number-ish of days of manufacturing in Q2?

I would expect actually that some of the -- that the second quarter would be higher than the first, notwithstanding the comments that there's a lesser number of days that both as -- both that we had built some cars in Q1 that actually will record the revenue in Q2, because they were delivered in Q2, and that we're ramping up one of our production lines at little bit higher production levels, that Q1 will be -- was our lowest level for the year.

Okay.

That makes sense, okay.

And then on the volatility in the refurbishment parts, you guys kind of went over this.

Is there any scrap price impact still in there?

Would that account for any kind of decline?

Or how should we think about that in the next nine months?

We were further impacted in the quarter by scrap price declines, and we will benefit, to some extent, as scrap prices have increased, so we'll see some of that on the refurbishment and parts side in as scrap prices have grown.

Okay, great.

Thanks a lot, guys.

Thank you.

Thank you.

Our next question is from [Ben Brogadier] from Material Capital.

Hi, guys.

Good morning.

Just trying to get a feel for cash flow here.

In terms of -- I'm sure this will be disclosed in your guys' 10-K.

In terms of cash interest and cash taxes, do you guys have those numbers readily available?

I noticed -- looks like you guys had a tax benefit during the quarter, but I didn't know -- trying to get a feel for cash flow here.

Right.

Cash interest was $12.9 million and cash taxes were about $250,000.

$250,000?

Yes.

And we'll be filing our Q later today, and you'll see those figures in the Q.

One positive thing concerning cash is that the new legislation allows a carry back for a longer period, and we do anticipate a refund, which Mark might want to talk about.

Yes.

So we -- I referred to earlier that later on the year, that we expect a $14 million cash refund.

So obviously, that will be a big benefit.

Okay.

That's great.

Thanks, guys, for your time.

Appreciate it.

Thank you.

Thank you.

(Operator Instructions) Our next question is from Steve Barger from Keybanc Capital Markets.

Hi again.

You mentioned scrap prices are ticking up.

Are they high enough that you're seeing old cars start to exit the fleet for going to the steel mills, or is it too early to talk about that?

I was out talking to some of our railroad customers the last month, and they have continued to scrap cars even during the downturn, despite lower cars, but some of them have been holding on to cars, and I think that there -- in terms of the decline in storage statistics, there's a little bit more optimism.

Cars have been coming out of storage and into service on a couple of the western railroads, although that's a mixed story.

And there are -- as each scrap prices come up, I think there's a greater incentive to sort through the deck and scrap cars that are -- that had been otherwise stored.

So I think the answer is is -- that we're seeing an acceleration of that.

That should take down some of those really grotesque storage statistics.

An additional factor will be as business recovers, velocity will probably not be as good as it is today, so more cars will be required to carry the same tonnage, and that will put further pressure downward on storage statistics.

Right, right.

And for my follow up, I just want to go back to the management business.

How should we think about the revenue growth rate for services there?

If the fleet were not to grow, could you get pricing?

Are there other revenue touch points that you can use to get deeper penetration to the customer, or once you have that car under management, is that pretty much it?

The management services business, we offer various products and services.

There's a full menu and a full array of items.

The way we would grow those revenues on a constant number of cars is if we could increase the number of products or services that we offer the customer.

So the -- with the existing contracts, we would run it at the current rate.

So that's the way we would grow it on the existing basis, by increasing the numbers of -- by increasing what we can offer the customer.

In other words, that customer might be using one part of the catalog today, and if we can have a successful launch on many of the new cars we have brought under management, they might take more out of the catalog once they've gotten a taste of what the services -- of what we can do with the services we're providing.

So we have many, many different kinds of services, and we've invested in the last couple of years quite a lot in software products, which will help us really do a great job for leasing companies, other asset shippers and class 1 railroads, in helping them manage their fleet.

I think there is still share growth in the market for increasing the management services in addition to the organic growth that you're talking about.

Have you historically -- do you have a good track record of upselling, or selling more of the catalog to the customers once you get them in the door?

Yes, it's not an easy sell, because there's a lot of inertia.

And this is a very integral part of the operating system, so it really requires a great deal of trust.

Particularly, you have a railroad turn over to you components of the car management system.

And you have to demonstrate that not only can you be more efficient on the costs, the transaction costs, which is relatively easy to do, but they have to really be able to rely on you, because they're operating their network, which is much more important to them than the cost of that individual service.

So if you foul up a car and it doesn't arrive on time when it's supposed to be there, or if it's not reliably dealt with, that can be a big thing.

So it's slower sell.

It can take years to really gain the confidence of one of these customers.

There comes a point where there's a tipping point, though, where the -- if one continues to do well, you can increase the participation in that portfolio, if you will, for that customer, and they become more and more -- you become more and more mutually reliant.

And I think that that's where the industry is going to go with many of it outsourcing initiatives, is this mutual reliance with suppliers.

Right.

Great color, thanks.

Thank you.

Thank you.

And our final question is from Paul Bodnar from Longbow Research.

Hi, Paul.

Hi, just a quick follow-up.

I think you said is that depreciation was going to run at $40 million for the year.

Did that include or did that exclude the amortization of the financing costs?

That does include the -- does not include the amortization of the financing cost.

So the depreciation and amortization was $40 million, and the financing costs are excluded from that number.

Okay.

Thanks a lot.

Thank you.

And I'm showing no further questions at this time, sir.

Thank you for your participation in today's call.

We appreciate your interest, and have a good day.

Thank you, and this concludes today's conference.

You may disconnect at this time.