Greenbrier Companies Inc (GBX) 2010 Q2 法說會逐字稿

Welcome to The Greenbriar Companies second 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 in 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 call over to Mr.

Mark Rittenbaum, Executive Vice President and Chief Financial Officer.

Mr.

Rittenbaum you may begin.

Good morning and welcome to Greenbrier's fiscal second quarter 2010 conference call.

On today's call I am joined by Bill Furman our CEO and also sitting in on our call is one of our new Directors, Victoria McManus who is based out of New York and joined the Board in May of last year.

On today's call we will discuss results and make a few remarks about the quarter that ended and then we'll update our outlook for 2010 and after that we will open it up for questions.

But first, as always, matters discussed in this conference call include forward-looking statements and I would like to remind you of that.

And these statements are within the meaning of the Private Securities Litigation Reform Act of 1995.

Throughout our discuss today we will describe some of the important factors that could cause our actual results in 2010 and beyond to differ materially from those expressed in any of our forward-looking statements.

And I invite you to look at these statements and risk factors as they appear in our SEC filings.

With that behind us, today, we did report our results for the second quarter.

I would like to remind investors when you look at our statement of operations, that the accounting world has decided to change a convention that has been in place since the beginning of mankind, and net earnings and losses now referred to as net earnings attributable to controlling interest.

But it really is comparing apples to apples as to what used to be called net income or net loss or the bottom line.

So our -- we reported a net loss attributable to controlling interest for the quarter of $4.8 million, or a loss of $0.28 per share on revenues of $200 million.

The results for the quarter include a non-cash charge of $1.3 million net of tax or $0.08 a share related to one amortization expense and amortization of convertible debt discount.

These charges are included in interest expense on our income statement and excluding these charges our loss per share would have been $0.20.

These non-cash charges will continue to appear through the third quarter of our fiscal 2013.

As anticipated, the results for the quarter were weaker than our first quarter.

We expect this to be our weakest quarter of the year and in fact that the second half of year will be significantly stronger than the first half.

And for the year as a whole, our outlook in guidance is not changed from the prior quarter, where we do expect that we will have modestly higher EBITDA before special charges for the year on lower revenues than in our fiscal 2009.

Now, let me address some highlights for the quarter.

To supplement the year-over-year comparisons you will find in the financial tables in the press release, I will add color on a sequential basis, that is as related to comparing the second quarter of this year to the first quarter of this year.

In our Refurbishment & Parts segment on a sequential basis, as compared to Q1, revenue increased modestly, primarily due to improving business trends and higher scrap metal prices.

Both of which are consistent with improved macro economic trends.

Gross margin for this segment was 11.6% of revenues, essentially flat with Q2 of last year but up sequential from Q1 of this year, again due to the same reasons I just mentioned, improving economic macro -- macro economic climate and higher scrap prices.

While we would prefer mix of business more weighted to refurbishment rather than repairs, our shops are becoming increasingly full as cars have pulled out of storage and in need of repair as the economy recovers.

We are also bringing back work as a result to increase -- to address the increased activity levels.

We expect that over time, as a recovery is sustained, the mix of work will become more favorable and weighted towards refurbishment.

As well wheel volumes should increase.

Turning to our Manufacturing segment, results improved from last quarter, and we are pleased with the performance of this segment throughout.

That is both with the performance of new rail car and North American Europe and with our marine manufacturing business.

New rail car deliveries were -- of 800 units were more than double the 350 units in Q1 and year-to-date new rail car deliveries were 1,150 units and we anticipate delivering 2,600 units for the entire fiscal year.

Overall our gross margin for the second quarter was 7.3% of revenue, up a bit from the 7% of revenue we experienced in Q1, and our ability to maintain the margins in the 7% to 8% range for the balance of the year, will in part be dependent on marine production rates at current levels and Bill will speak to this a bit more in his comments.

We currently anticipate restarting new rail car production at our Mexico facility in Sahagun, otherwise known as our Concarril facility in the fourth quarter, as a result of an increased new rail car demand and orders received after the quarter end.

Turning now to Leasing & Services, our lease fleet utilization was up sequentially to 92.4%, compared to 91.3% in our Q1, and for the quarter our margin was 38.5% of revenue which is down from 41.4% of revenue in Q1.

The sequential decline is really due to two reasons -- one is lower gains on sales of equipment, which flows directly to the margin line.

Gains for the quarter were minimal at $0.1 million compared to $0.9 million last quarter.

As well, we took a rate adjustment, an annual rate adjustment for truing up rates that we charge on one of our management contracts and that also impacted the quarter.

During the downturn our strategy has been to focus in short term leases, so to be able to benefit from the upturn in the strategy is paying off as evidenced both by increases in utilization rates and increased lease rates, and a stabilization of lease rates as compared to what we have been experiencing over the prior several quarters.

Selling and administrative costs for quarter were $17 million, an increase from the $16.3 million for the same quarter of last year and the increase in G&A in principally due to higher activity levels at our GIMSA manufacturing joint venture.

Interest and foreign exchange was $12.4 million for the quarter, compared to $11.1 million in Q1.

The increase from last quarter was due to an increase in foreign exchange losses of $0.5 million a $0.6 million accrual of interest associated with the recording of certain tax reserves.

On a more normalized basis, this should run about $11 million to $11.5 million a quarter.

We anticipate our net CapEx for the year to run about $30 million our depreciation and amortization will run about $40 million for this year.

We continue to manage the Company with the view towards cash flow and liquidity and ended the quarter with $68 million of cash and $103 million of unused additional borrowing capacity, virtually unchanged from our prior quarter and subsequent to quarter end we received a $14 million tax refund.

Finally one last thing before I wrap it up and turn it over to Bill.

I -- some of you may have noted that we filed a $300 million universal shelf registration statement last night with the SEC.

I wanted to address that -- the shelf is of course still subject to review by the SEC and has not been declared effective.

It does cover a wide variety of securities including debt, warrants, convertible issues and equity, and we really put this in place as a part of our overall capital structure management strategy.

I'd put it in the category of just prudent management and good financial housekeeping.

We don't have any current plans to draw on the shelf and we will continue to evaluate that as we go forward.

Those are my comments, I'll turn it over to Bill and then we will open it up for questions.

Thank you, Mark.

I will comment briefly this morning on our results for quarter and then turn the rest of my comments to operations and the industry market conditions.

During the quarter, we had stronger than expected results for manufacturing, both rail and marine, and this was partly offset by weaker than anticipated performance from our Refurbishment & Parts business.

Also, as expected our lower tax rate for the quarter gave us little protection from the pre-tax loss of $5.2 million converting this pre-tax loss to a net loss of $4.8 million.

However our EBITDA of $16 million compared favorably to $9 million for the previous quarter -- the same quarter last year.

Our goal the balance of 2010 is to return to profitability and this goal -- this plan -- remains sensitive as Mark indicated to actual marine backlog and run rates as well as expected improvements in our Refurbish & Parts business segment.

Turning to the marketplace, in general market conditions in all of our core markets remained weak in the quarter, and visibility is still limited.

However, in the last six weeks, the one month following the end of the quarter in the last few weeks of the the quarter, there has been evidence of strengthening in all of our markets.

With early signs of increased activity and demand across all lines of business.

These improved conditions have been reflected in improved new order conditions both for rail cars and marine in our Manufacturing segment, and for wheels, repair, and refurbishment in our Refurbishment & Parts segment.

In addition, lease rates are beginning to firm up on leased equipment and utilizations statistics are increasing on our leased fleet.

Improvements in rail loadings and declines in storage statistics are helping fuel this increased demand.

In the first 12 weeks of 2010 ending 27 March, North American rail car loadings were up 4.8% from the same period in 2009.

Most commodity groups showed increases except for coal, which was down 6.4%.

For example, grain was up 10%, metallic ores 33%, chemicals 33%, automotive 38%, and intermodal containers 12%.

Metals and products were also up 38%.

Car storage has declined in the two western railroads and at least one of the eastern railroads in significant amounts.

During the quarter, Greenbrier placed an order for a sponsored barge and our order for an additional marine barge was received from a third party customer allowing our marine business to continue to operate at present rates of production.

In recent weeks, two separate orders were received in North America for a total of 300 new covered hopper cars.

Some of these cars will be placed at our Concarril facility which will be reopened on a limited basis in light of renewed demand.

Our European unit received orders for 130 freight car wagons, the total of all of this new business was about $40 million.

On a consolidated basis, Europe reported a small pre-tax profit exceeding its goal of breakeven during a difficult year in that marketplace.

We have reduced the breakeven rate level of that facility over the past 12 months, so that we can breakeven at a run rate of only 600 to 700 cars per year.

This remains our goal for 2010 and we are hopeful for improvement in that marketplace.

For longer term we hope to diversify our business base in Europe, and we are actively recruiting for additional senior management talent there.

Our relationship with GE Railcar continues to be constructive, and GIMSA has settled into the agreed production schedules and run quota on this contract.

Ancillary benefits are being realized as expected with repair work for our Gunderson facility in Portland, Oregon and other agreed work flowing from the GE settlement.

Since the close of our quarter we received orders for program and at order work on almost 1,000 units of equipment for our Refurbishment & Parts segment, valued at about $15 million as well as a number of other smaller rewards.

With this and an increase in car loadings, we expect Refurbishment & Parts performance to improve during the second half of this year and into 2011.

We were disappointed in the results for the first half.

The outlook at our major locations for repair as Mark has indicated has improved considerably since the close of the quarter.

We are quickly moving from having considerable excess capacity in that unit to filling out most of our locations to the limited present manpower and we are hiring in multiple locations.

We expect pricing and yields to improve as cars move out of industry storage and into service with many needing repair or rehabilitation after being placed in storage in bad order condition.

Our wheel business similarly had suffered during the first six months as volumes declined.

However, with higher scrap pricing and volume expected this is good news for our Refurbishment & Parts segments and we expect wheels to also be a part of that.

During the quarter we were successful in being awarded two important wheel renewal contracts.

These will have the effect of protecting our base business in that part of this segment.

In our parts business, we also received important long term awards for bearings and cushioning units.

Turning to our leasing business, lease fleet utilization continued to improve on our own fleet of approximately 9,000 cars increasing to 92.5% from 91% at the end of Q1 as compared to the 88% at the end of our August 31 fiscal year.

We have remained as Mark said, short term on most of our renewals.

As the economy improves we have significant upside in lease maturities and therefore will be seeking higher rates on renewals.

We continue to grow our managed fleet, and we are pleased with the assimilation in new business from the addition of major new customers in the past year.

Overall, we continue to manage for cash flow, and our immediate goals are to return to profitable operations in 2010.

Our new shelf registration demonstrates our continued interest in our balance sheet.

We will be ready for improved conditions for raising capital in the future as our operations improve and as the economy stabilizes.

We will also continue our drive for increased operational efficiency during the balance of this year.

Again, as Mark has indicated we believe that our second half of the year will be an improvement over the first half, and we are cautiously optimistic about the near term upside in each of our business segments.

Back to you, Mark.

Thank you, Bill.

Operator, we will go ahead and open it up for questions now if you can give our callers instructions on how to do so.

(Operator Instructions).

One moment please for the first question.

No questions?

Paul Bodnar with Longbow Research, your line is open.

Hi, good morning.

We are glad someone was out there.

Thanks.

Just wanted to get a follow up on some car types and where you are seeing strength.

It sounds like you had some orders for covered hoppers here in the quarter and if you could talk a little what you have seen since the end.

And anything also out there in terms of maybe getting some additional orders or activity on the ethanol car side -- I know you guys are not going to build those car types post the GE deal.

On the tank car side, our production is pretty much committed to GE during the next two years.

Although we are in a position to accept additional orders.

We see some strength in the DDG market -- the dry distilled grain market -- which is related to ethanol thought Paul.

And in general you are correct, there's selected demand emerging for higher capacity and good operating condition covered hopper cars.

Okay, and then in the Refurbishment & Parts business, is that starting to outperform or is it -- come along with expectations on what your outlook is there or is it recovering a little bit sooner.

If you could just compare that to what your thoughts were on the last call.

Well, Refurbishment & Parts repair is intended to be less cyclical and to balance the more extreme cyclicality of our Manufacturing segment.

However having said that I am disappointed in the actual performance of that unit in the first six months, particularly in the rail repair -- railcar repair subsegment.

Of course everyone in the industry has deferred CapEx.

Many cars when they were taken out of service were replaced with -- a bad order was simply stored -- and were replaced with cars that were operable.

So there's quite a lot of deferred maintenance in the industry that we are now seeing the early signs of that coming back.

But we need to be more proactive in that unit to have longer term repair and refurbishment programs that bridge the cycles.

But having said all of that we are optimistic that that part of the business will recover comparatively given changes we are making and the trends and need by our customers in the next six months.

Sounds like some of the recent results were a little bit disappointing but you are optimistic here though.

Just to give you an example, the first five months of the year, our gross margin in that business was equal to the gross margin in the last month of the year in the repair subsegment -- just for the repair part of it -- not wheels, not -- wheels are a major driver in that segment in the current environment.

On the repair side, we've seen just a real surge in business with pricing firming up and we were able to -- I think we've got much better visibility in that part of our business now, that piece of the refurbishment and repair business.

On the wheel side in particular, as these cars sit, at what point does rust become a factor -- if it is at six months, a year, and that wheels almost have to be replaced when it come back or did that not happen or what part, will we see that impact from.

The railroads do a very good job of storing cars, occasionally they can have some vandalism depending on the location of the cars, but a car can remain in storage for quite a while without deteriorating.

So that's not really a factor -- rust and that sort of thing can easily be cleaned up.

If something sits for years and years and years -- for ten years or five years -- it is difficult to put it back in service.

I think, more importantly, you have queueing problems -- getting long trains of equipment stored, getting a car out in the back of the queue -- a series of cars in the back of the queue can be costly for a railroad.

So once cars are stored they tend to remain stored until they are really needed.

So that's what's been happening -- again is that broken cars or bad order cars have been put in storage and replaced by other cars -- now as at least in the western railroads, a substantial amount of cars are coming out of storage.

Those cars, many of them have to be restored or repaired at least in term of their conditions.

That's filling up railroad shops and is certainly beginning to fill up the contract shops on the outside as well.

Okay.

One last question, it looks like the shelf registration is out there, and things are getting a little better.

Any further thoughts -- or any thoughts just on industry consolidation on the railcar side or any further potential targets of the refurbishment and parts -- expanding that business?

We are always open to strategic opportunities.

I think that it is very important that we stay the course and keep our eye on the operational profitability.

The preoccupation with strategic things can -- is certainly a matter of timing and opportunity -- it's difficult to consolidate in this -- in the Manufacturing segment, and given the massive amount of overcapacity, it's questionable why one would want to take the trip.

I think there will be industry rationalization over time, but I don't see that as a major strategic priority for us right now.

Okay.

Thanks a lot.

J.B.

Groh with D.A.

Davidson, your line is open.

Hello, guys.

Hello J.B.

Had a question on the car types you delivered in Q2.

I think there was a lot of boxcars in there and it sound like more of the stuff is shifting to Mexico.

Is there a pretty significant geographic shift in terms of the number of units you are going to deliver in the second half of the year versus this quarter?

No.

There's a couple of things here.

One we are currently building hopper cars and tank cars, that's where our focus is and our focus is out of our -- this is on the new car side -- out of our GIMSA joint venture facility.

You are correct that we we are shipping some refrigerated boxcars out of our Gunderson facility here that are winding down and perhaps you saw some of those recently.

But we will continue to focus our new car production -- major production -- at our GIMSA facility.

I guess you are correct that we will open our Concarril facility as Bill said on a limited basis and Gunderson will more focus on a repair and refurbishment that -- in the big scheme of things, GIMSA is still going to be the vast majority of the production.

I was just trying to get a feel for how the margins could change in manufacturing with more production there versus here.

I -- I think in the shorter run, it is not going to be material.

The bigger driver is as Bill mentioned was the ability to maintain our marine production rates at our Gunderson facility which really ties in both to overhead absorption here at our Gunderson facility and the margins we realize in the marine business.

That's going be the biggest driver in the near term.

Yes, that was my next question, last quarter you mentioned there was a potential hole in your production schedule and I think you mentioned -- I was writing fast -- that you received a barge order in the quarter.

Is that correct?

Yes, we did two things in the quarter, one is that we anticipated stronger demand in the second half of year and working some of our with marine customers we sponsored a barge which we are hoping to syndicate and sell in second half of the year -- by year end.

Secondly, we received an order that plugged the hole -- we talked about it last quarter.

One of the things that's really good about a marine operation is using lean manufacturing and with the strong backlog they have been very, very efficient and they're able to get throughput through that facility, very rapidly compared to our original forecast.

So they're performing better than we had expected.

But the bad news is that when they do that, they open up space earlier than anticipated, and these can customers we have queued up for the backlog, which is sizable, don't want to take barges early.

So they are creating issues with their success.

So I think that major thing to focus on as an analyst looking at us for balance of the year is whether we are able to maintain that marine rate of production.

If we have to change it, and if it is material, as I would expect it to be, we will make an announcement about it.

Okay.

I am hopeful though that we can continue to do as we have done this quarter, and secure new business that will bridge us into the backlog that we have.

But when you make your guidance comment of slightly lower revenues, does that assume that barge business stays stable?

I am sorry, when you made the comment about slightly --.

What you said -- your, I don't want to call it guidance -- but your outlook says slightly lower revenues but better EBITDA, does that assume that a steady state at the barge business?

A steady state at the barge business at current production rates.

We are not increasing those rates, we expect to be able to maintain them.

If that expectation changes we will say something about it if it is material.

Okay.

Mark on this refund that you guys are getting, that's just a cash flow impact, right, there's no earnings.

There was in our tax rate for the quarter, there was about a -- related to that refund there was a tax reserve of about $1 million that affected the tax line as well, and that's why we had such a low tax rate for the quarter and there's about $0.5 million of interest and that just related to setting up a reserve against part of the refund.

Okay.

Thank you.

Thank you.

Joe Box with KeyBanc, your line is open.

Yes, hi, good morning.

Good morning Mark.

Good morning Bill.

Good morning, how are you?

I'm not too bad, thanks.

My first question is actually in relation to the leasing business.

You mentioned earlier that there was actually a contract renegotiation -- just curious if that was a one time true up item that could be considered somewhat non-recurring to the margin or is that something that is actually going be ongoing that could impact the margin going forward?

Right.

I think we view it.

It is more of the latter, and just to clarify it was not a contract renegotiation, we have a contract that has been in place for a while that at the end of the year, based on the actual number of miles cars travel and how many of them are in storage, we true up an estimated rate that we charge the customer -- it is an actual rate -- and at the end of the year, the true up actually resulted in a downward adjustment.

But that's not an ongoing thing.

That adjustment was about $700,000.

So each year we would have some kind of true up plus or minus but this is not going be a recurring negative amount to each quarter.

Okay.

My follow up question is actually on the aftermarket side -- I would have actually expected this business to probably more closely track car loadings through the downturn.

It seems like it was off about twice as much as car loadings.

As we look at car loadings sequentially improving, could this be a two times grower as we move into the upturn?

Are you referring to two times grower on the revenue side?

On the revenue side, correct.

I'm not sure we would take it all the way to that.

I think that we view with our current footprint, at the peak of the market, with our current footprint, we were running about $150 million a quarter of revenue from that segment.

Scrap prices were a little bit higher then.

But if you go back to 2008 time period, that is the levels that we were operating at, and that might be a better type of an indicator.

I agree.

That would be a better goal to look at actually on a higher side to the near term.

We are constrained somewhat by labor availability and we will have to be bringing people back as well.

But you're correct that off of $100 million, that is still a pretty substantial -- or $94 million as last quarter.

That would be a pretty substantial increase but not a doubling.

Sure.

I am not sure if this was addressed earlier, so if it was let me know and I will circle back to the transcript.

But, can you talk about the number of intermodal cars in storage?

I know it has been a pretty quiet market over the last couple of years but given we are starting to see a nice acceleration in container loadings, is it possible that we could see some new car activity come into play or are we still looking at cut down work?

Any color there would be helpful.

I think that it is really good news immediately for the cut down work.

We are tracking additional cut down work for our Gunderson facility or expansion -- expansion work -- where we would be lengthening 48-foot wells to 53-foot wells for domestic service.

We see strength in the domestic market, and we expect that that might be a source of the next round of orders in intermodal.

And, more importantly, we are seeing a lot of intermodal equipment now coming out of storage and being put into service.

As that happens, that will drive both of those items -- the mix of equipment that is required probably more of 53s than 40-foot wells in the near term.

But also a rush by the railroads and other owners to try to make their equipment as efficient as they can, so that railroad velocity won't be impacted negatively by having the wrong size equipment in service, and having longer trains than necessary.

Great.

Thank for the color.

I appreciate it.

Thank you.

John Parker with Jefferies, your line is open.

One housekeeping question, can you tell me what the unamortized discount on your debt was at the end of the quarter.

If not I can get back to you later on that.

Why don't we see if we can find that off of the cuff here and if not, then perhaps I can take this offline with you.

If I can then I will answer it later in the call.

Okay.

And I will continue my questions.

You said there's a worst quarter of the year, you thought, but were you talking about the calendar year because it seems that you did show some strength over the first quarter of fiscal year.

I am sorry.

Let me --

I thought I heard you say earlier in the call you thought this was the worst quarter -- this looks like it could have been the worst quarter of the year, were you talking about the calendar year because it seems like it was a little stronger than the first quarter of the fiscal year.

We think -- I was referring to the fiscal year, that we expect the second half to be stronger than the first half of the year.

And in Q1 we lost that $0.19 and this quarter, we lost $0.28 in Q2.

So that's why we referred to that as the worst quarter of the year.

Okay.

The fiscal year.

I was looking at EBITDA and revenues.

Your [A/R] number it seems -- your day sales outstanding -- seems to be staying persistently high.

Can you give us any color on driving that down or is it something you don't have a good handle on?

I think the tax refund at the end of the quarter which -- at the end of the quarter that $14 million was sitting on the balance sheet as A/R.

And I don't think -- we are certainly not seeing a deterioration in our receivables or in our debt -- bad debt allowances.

So that is not what is driving this at all.

Of course in this economy, we are focused on credit review and managing working capital, but we are not seeing a deterioration in that area.

That $14 million explains it.

And I think in the past you have had hazarded guesses as to the overall percentage of the fleet business in storage.

But can you hazard a guess now or is it really hard to say.

The A/Rs statistics suggest that the fleet storage data has improved to down to closer to 400,000 units stored.

I don't agree with that number.

I think the actual storage -- effective storage -- is less than that.

I just anecdotally looking at three railroads -- the [pole, we have seen] the movement out of storage, segments of the fleet equal -- in the last quarter equal to 50% of the stored equipment -- on three separate railroads.

I think that -- as we expected, when traffic does begin to bounce back, velocity changes -- declines -- and railroads need more equipment to carry the same volume of traffic and I think that that trend will continue.

This snaps back faster than people expect.

As it went into recession faster than people expected, it always seems to snap back faster.

So, I am much more -- as you probably can hear from the content of this call -- much more bullish on the storage situation than some of the industry commentary.

Okay.

Earlier in the call, I think I missed some of this, you mentioned some subsequent orders -- orders subsequent to the end of the quarter.

I just wanted to clarify -- I think you have one barge you are building.

Was that included in the backlog or was that subsequent to the end of the quarter and then you have an additional barge order subsequent to the end of the quarter, is that correct?

We had a barge order that was subsequent to the quarter end.

If we -- when we place an order for a barge, which Bill refers to as a sponsor barge -- that's not included in our backlog statistics.

When it is from the third party customer, it is included in our backlog statistics.

Okay.

But when you talked, in your disclosure I guess you talked about I think $35 million of anticipated production for the rest of the year, does that include both of those barges, right?

No, because that -- the orders are all for 2011 production or very late in the end of this year.

Okay.

If you are taking of orders that we we talking about.

We have long lead times in that segment.

For materials.

It seems that your guidance picked up.

I thought at the end of the first quarter, you had $30 million of planned production for the remaining three quarters.

But then you bump that up to $35 million for the remaining two quarters.

Is that just some of the other orders that came in during the quarter or --?

You are still talking about marine.

Yes, marine.

All right, you're a very discerning fellow because we have become a bit more optimistic about marine than we were at the end of the last quarter.

Perhaps that's what you have picked up on.

Okay.

Just because of our ability to continue the production rate at the high rate that we have been able to achieve.

Okay, and there's a similar bump up in your production plans for the full year.

Before I think you had them at 22,000 railcars, now I think you're coming in around 22,000 or 24,000.

But --

2,200, and 2,400.

But, yes.

Okay, got it.

And then, finally, you went over it earlier, there were some additional railcar orders, subsequent to the end of the quarter, could you just recap those for me, again, please.

There is a total of 430 cars with a value of about $40 million that we received subsequent to quarter end, and 300 of those are in North America and 130 of those are in Europe.

In addition to that, we received about $15 million of new major identified program order repair work -- substantial amount of smaller contracts.

That's important directionally, just because we are seeing reviving demand in parts of the business that affect positively both our new car manufacturing and our repair and refurbishment -- GRS -- segment.

Can you comment at all on -- this is my last question -- on the nature of the buyers?

Were they leasing companies, were they rail companies?

We prefer not to comment on that now just due to the nature of the agreements, they often prefer not to be published.

Thank you very much for your help.

I will answer your very first question last as well.

You asked about how much that debt discount is on the books and it is at $25 million of that unamortized debt discount which is really shown as a [contra] to notes payable on the balance sheet.

Okay, so that increased from 12 at the end of the year?

No.

We will talk this offline.

Okay.

I am missing something here.

Thank you very much.

Art Hatfield with Morgan Keegan your line is open.

Morning, Bill and Mark.

Just a couple of quick questions.

Most of my other questions have been answered.

But on the expense side, Mark I think you made some comments -- and I got distracted for a second -- but you made some comments with regards to your ability to keep the gross profit margin in manufacturing in that to 7% to 8% area.

Did you make comments to that and if so can you reiterate them?

Yes, I completely understand, because I get distracted while I am talking.

So I think our comments on the margin we ran at 7.3% for the quarter, which was off a little bit from Q1, and the comments really centered around our ability to maintain margins in the 7% to 8% range -- probably the greatest dependency on that is keeping marine at current production rates and Bill talked about that.

So far we have been able to do that.

We said at the end of our Q1 call back in January that we were concerned about our ability to do it.

But we have been over the last three months.

But we still have some hurdles to clear to be able to maintain those production rates.

That's what's going to be the biggest driver of our manufacturing margin.

Okay.

You wouldn't become distracted if you would stop patting your head and rubbing your tummy at the time you are talking.

That's right, you've got so many things going on at the same time.

I try to chew gum.

The follow up on that, then thinking about the impact from railcar manufacturing, on the go forward, is that -- if things get better and that picks up -- two part question -- again if you mentioned this and I missed it, I apologize.

Are there any start up costs related to getting the Concarril line back up and going?

Yes there are but we factor that into the analysis and it is more efficient to use that facility to the losses of keeping the facility closed.

There's substantial upside in that facility if we can just bring it to a breakeven.

Got it.

So that is -- that is perfect.

That's helpful.

We are definitely anticipating more demand for that car type, and so that would be another driver for the next year of operations of whether we can keep that factory open.

We have also developed a small business sideline there, during the downturn, that looks promising.

So, we will remain attentive to keeping that momentum going in Concarril.

Great.

And then finally just as we think about railcar production moving, is there any way -- and I know this is a difficult question, being through a couple of these cycles -- but is there any way to think about the incremental margin on say a certain number of railcars, being manufactured on the go forward?

I'm not clear exactly what your question is.

You are talking --.

On any incremental cars that you build on the go forward, is there a way we can think about the incremental margin to the business, or is it too complicated to get into?

I don't think there's a template.

It is driven by market conditions, and whether we go after major big orders and cut pricing or we try to pick off selected higher yield opportunities which is what we prefer to do.

I agree with that Art.

I would say one benefit we have -- again we have a relatively strong backlog which is a real benefit and blessing -- you can see that that is profitable backlog.

So that also gives us the ability to be very select in the orders that we take down so some of the orders -- larger orders -- in the near term that might get taken down by others with a lot of the overcapacity out there may not be attractive business, and you may see that our market share -- that we may choose to pass on a number of those opportunities and focus on the ones that are really going to give us a bang for the buck.

Just to clarify, in an upturn, one of the common mistakes in our industry is to fill up factories with unprofitable business because it is there.

Right.

And because you can take a big order down.

Right.

We understand why companies do that because you can achieve operating efficiencies quickly and get a high run rate.

However, if you get a long backlog with weak margin you lose the ability to price moving up the cycle.

So we tend to hold our fire until the very last minute if we can at this stage of the cycle, and pick off transactions and move our production up a little more smoothly, which allows us to be in many ways more efficient in restarting a factory like Concarril.

Okay, well, all that leads me -- makes me think of a followup -- if I were to look at your Company right now and try and look at a cyclical analysis, on how you could -- what kind of profitability you could have through a cycle and I understand there's a lot of variables to that -- but given what you've done, alleviating yourself of the cost headaches related to Nova Scotia.

Secondly, I take it from this call, that on the go forward you really aren't going to do much new railcar production at Gunderson.

With all of that said, is it fair to say that all other things being equal that you should be a much more profitable Company through this cycle than you have in the past?

There are three or four major points in that regard.

First if one assumes a little more optimistic slant on new car demand, that the market is seeming to suggest with storage statistics today, and I have already said that I share that.

And secondly, if you will accept the philosophy of timing, as being important about how we ramp up in that.

And then you look at Gunderson and Concarril as the major upsides, but with a very stable base of backlog at GIMSA so that if we play our cards right in the next six months we should be able to optimize our pricing and fill our plants with more profitable business than unprofitable business, if we are selective.

So I think we have a lot of upside manufacturing, which -- and just to correct one misunderstanding -- we are not saying we won't be building new cars at Gunderson -- that continues to be our nerve center as far as engineering and other business is concerned.

We are focusing on marine manufacturing today which is using a lot of our plate steel capacity and we are doing repair and cut down work which is equally profitable -- better -- more profitable than new cars in the current climate.

Gunderson will continue to be our primary double stack car producer.

Okay.

Thank you very much.

That's very helpful.

Thank you.

Philip Volpicelli with Cantor Fitzgerald, your line is open.

Good morning.

At the end of the quarter you had $68 million of cash and you received the $14 million post the end of the quarter so you have quite a bit of cash sitting on the balance sheet.

How much cash do you think you need to run the business and how much of that is cash that you can use for discretionary purposes like paying down debt?

I don't know that there's a magic number that we say -- this is the amount of cash we want on the balance sheet -- we definitely want to maintain liquidity, and are managing the Company for cash flow during the downturn.

Having said that it does very little good to just sit there with $68 million or $75 million or $100 million and just have it sit on the balance sheet earning 1% interest over the longer term.

So we are looking at ways to deploy that capital -- to deploy that capital prudently -- but we are going to continue to be prudent during the downturn.

I don't know that I would look at it as a magic number we can't go below $X million of cash.

We are very liquid right now and we are pleased with the liquidity that we have.

Okay.

In terms of restrictions to buy back your bonds, is there restricted payments that you would have to get underneath to be able to buy back the 8.375?

No.

Okay.

So you would have the ability to buy those back at any point.

Yes if we so choose to do.

Right.

Understood.

What was the balance on the term loan at the end of --

I can't resist saying it would have been -- we would have been better off buying those bonds back when the yield was 25% or 30% than it is at 10%.

However, we continue to look at that.

Understood.

The bonds have moved quite a bit reflecting the good work that you have done.

What was the balance on the term loan at the end of the second quarter?

Which term loan are you referring to or just term loans overall.

I know there's $75 million on the term loan due June 2012 and then there is the original term loan that was in place prior to the Wilbur Ross investment.

Right.

The total amount of notes payable are $527 million and again we have about $25 million of debt discounts, so the face value of all of our notes payable is about $550 million.

So about $142 million outstanding on that?

But the first maturities really are the Ross maturities, aren't they Mark?

Right.

So.

Maturing in 2012.

So we have -- of that $550 million, there is $75 million maturing in 2012, $100 million maturing in 2013, about $140 million in 2014 and $235 million in 2015.

So they're pretty staggered maturities, and again, those as Bill said, the first one coming up in 2012.

Great.

Thank you very much.

Wayne Archambo with Monarch Partners, your line is open.

Yes, thank you.

Just on the restart of the facility in Mexico, I'm just curious to know, was it the new activity in the -- at the end of the quarter that prompted you to get that started -- or had you thought that through early on in the prior quarter?

Well, referring to the reopening of our Concarril facility, we had viewed that when GIMSA had reached high production rates, and nearing capacity, with near-term demand that the next likely facility to produce cars other than as Bill mentioned, double stacks, would be our Concarril facility.

But the decision to reopen that on a limited basis is based on actual demand and actual orders, rather than just speculation on our part.

So, that order was received after quarter end.

So we knew strategically that we would be with looking at Concarril but the decision was made after quarter end based on actual orders.

It is driven specifically by two things just elaborating on what Mark has said -- the type of cars we are running at Concarril now and the production rate in the near term takes that -- now that we are running at a high rate on covered hoppers at Concarril, unless we open another line there, we have to go to another facility for cars that are materially different.

And, two kinds of cars we received -- each of those markets look like they will have legs.

So we don't want to move back and forth from one type of car to another.

That's why we really needed to open Concarril.

Is there any way you can open it earlier than you have mentioned?

No, I think we will be able to open it -- and if necessary, we could close it down again, very efficiently.

We have a very favorable labor agreement there that would allow us to do that.

But I don't anticipate that will occur.

I think that you will have enough legs in that market to continue that line.

Great.

Thank you.

Okay.

I think we have time for one more question here and then we will be happy to take any other ones offline.

[Daniel Max with Chaselet], your line is open.

Good morning.

Can you tell us what the split was in revenue that you booked for the marine business as a subsection of manufacturing and what the gross margins were for that?

We don't break out -- actually we don't break out either -- but what we have said is that marine is currently about a $70 million to $80 million a year business.

So you can prorate that, but I would prefer not to --

On a gross margin.

Correct.

All of these are heavy -- all of these barges that we are building are heavy ocean-going barges they are not river barges -- they're 4,000-ton or 5,000-ton minimum barges.

They're 400 -- typically 400 by 100 two story deck barges -- or something similar or oil barges.

So that's the general category of most of the barges that we are -- have been producing -- all ocean-going or Jones Act trade.

Great.

Just to clarify then on the hole -- or potentially hole -- in your production.

Are you cleared through the rest of the fiscal year, or are you facing a hole in barge production without getting new orders sometime in the next quarter or the fourth quarter.

We are faced with a material order date during this fiscal year.

That a decision would need to be made on on a material order date during the fiscal year.

Which again would be -- driven -- the decision to order those materials would be based on a third party order.

And so, as Bill refers to, if we are not able to keep the order book at the current rates then that's where we'd be faced with the decision to slow down production.

Great.

And one more question, just what -- can you talk about costs associated with the restarting railcar production at Sahagun.

It is relatively nominal -- one of the advantages of that facility is that we leased the facility from Bombardier and the employees are provided by Bombardier.

We have maintained during the downturn, key employees at that facility.

But the cost and the entire facility itself was not a cold facility because Bombardier continues to operate out of there and we have been doing some small non-railcar related work.

So it is relatively nominal cost of start up, of that facility.

Great.

Thank you.

Thank you everyone for participating on the call today.

As I mentioned, that is all the time we have online here, but I will be happy to take calls offline, and we appreciate your interest in the Company and have a good day.

Thank you.

Bye bye.

This concludes today's conference call.

Please disconnect at this time.