FreightCar America Inc (RAIL) 2007 Q4 法說會逐字稿

Thank you, ladies and gentlemen. Good morning. Welcome to the FreightCar America, Incorporated, fourth quarter 2007 earnings conference call. At this time, all participant lines are in a listen-only mode. There will be an opportunity for your questions at the end of today's presentation. Please note this conference call is being recorded. An audio replay of the conference call will be available beginning at 1:00 p.m. Eastern Standard Time today until 11:59 p.m. Eastern Standard Time on February 13th, 2008. To access the replay, please dial 800-475-6701. The replay pass code is 907039. An audio replay of the call will be available on the company's website within two days following this earnings call.

I'd now like to turn the conference over to Kevin P. Bagby, Vice President of Finance and Chief Financial Officer of FreightCar America. Mr. Bagby, please go a head.

Thank you, Karen. Before we begin, we'd like to remind everyone that statements made during this conference call relating to the company's expected future performance or future business prospects, events, and plans, may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Certain risks and uncertainties may cause forward-looking statements to differ from actual results, including, among other things, the cyclicality of our business, adverse economic and market conditions, fluctuating cost of raw materials, and additional risk factors described in our earnings release for the fourth quarter 2007, and in our annual report on form 10K filed with the Securities and Exchange Commission. Forward-looking statements represent our estimates and assumptions only as of the date of this call. We expressly disclaim any duty to provide updates to our forward-looking statements, whether as a result of new information, future events, or otherwise.

The discussion today may reference non-GAAP financial measures of adjusted earnings per share, reconciliation of our net income, and net income per common share to adjusted earnings per share is available in supplemental disclosure included in our earnings release for the fourth quarter of 2007. This earnings release is posted on the company's website at www.freightcaramerica.com.

I'd like to turn the call over to Chris Ragot, our President and CEO.

Thank you, Kevin, and good morning. Joining Kevin and me today is Ed Whalen, our Senior Vice President of Marketing and Sales. We'd like to welcome you to FreightCar America's fourth quarter 2007 earnings call.

I'm going to discuss the highlights of the company's performance in the fourth quarter, and Kevin will provide a detailed review of our financial performance. Regarding our operating performance, total sales revenues in the fourth quarter of 2007, were $137.1 million, and there was a net loss of $16.6 million, while the fourth quarter net loss per share was $1.42 on a fully diluted basis.

During the fourth quarter, we executed several strategic -- significant strategic actions, including the reduction of our manufacturing footprint, with the decision to close the Johnstown, Pennsylvania manufacturing facility. As a result of this action, we incurred a next -- a after-tax charge of $19.4 million, or $1.66 per fully diluted share. In addition, we incurred a special charge related to a commercial claim and a supply chain management activity of $4 million, or $0.34 per diluted -- fully diluted share. Earnings per share excluded the special charges of -- earnings per share excluding the special charges are $0.58 per diluted share outstanding. These actions were necessary to position ourselves to move forward with our growth initiatives.

Regarding the railroad market, U.S. and Canadian commodity rail loadings for the full year 2007 were below the 2006 levels by 1.9%, while coal car loadings for the year were below the 2006 level by 0.5%. Conversely, the commodity rail loadings for the fourth quarter 2007 were above the 2006 levels by 0.9%., while coal loadings for the quarter were 0.3% higher than the 2006 level.

The demand for export coal, and particularly steam coal, has significantly increased as global supplies tighten. Coal production activities increased 14.3% based on the most recent information as compared with the 2006 level. This increased activity should have a positive impact on car loadings in 2008. Recent data suggests coal inventories in the electric power sector have increased. We believe this is seasonally (sic) activity and expect this trend to reverse itself in the near future. Further, our view is that coal demand is increasing as evidenced by the continued increase in coal prices as prices have returned to the 2005 levels.

In the near term, we expect the market for coal car deliveries will remain soft in 2008. On an interim basis horizon, however, the coal as the primary fuel source for electricity generation remains strong. We expect that coal will continue to provide roughly half of the projected fuel source for total electricity generated during the foreseeable near future. During the next six years, approximately 80 coal-fired power plants are expected to come online, which will require approximately 40,000 coal cars over that time frame. Of these 80 plants, 45 are currently either under construction, near construction, or permitted for construction. These 45 plants are expected to add 23,240 megawatts of coal-power capacity requiring approximately 19,000 coal cars.

Although the government recently withdrew from the FutureGen Clean Coal Project, the Energy Department remains committed to clean coal technology as they're allocating funding to numerous sites. We remain confident over the long term clean coal technology will make coal an increasingly environmentally friendly fuel source. With that outlook, we continue to focus on our coal car production, building in our heritage as we move forward.

Regarding order activity in the quarter, 23,722 new cars were ordered in North America in the fourth quarter of 2007, an increase of 192% sequentially from the third quarter of 2007. It should be noted that a significant number of car orders pertain to multi-year agreements. Industry-wide these deliver -- these were deliveries -- there were deliveries of 14,862 new freight cars in the fourth quarter of 2007, down 1% sequentially from the third quarter of 2007. The industry backlog, therefore, increase is 75,860 units of which 78% was a combination of covered hoppers and tank cars.

FreightCar America order activity in the fourth quarter was 2,074 units, which was an increase from 1,262 units received in the third quarter of 2007. Our total backlog of unfulfilled orders was 5,399 railcars at the end of the fourth quarter, which represents an increase from 4,930 units as of the end of the third quarter. Moreover, during the five weeks since year-end, we have booked approximately 1,579 new orders. While this order trend may not continue to near term, we remain optimistic about recent activity.

As we navigate through this difficult business cycle, we are facing significantly lower volume levels, which have generated pricing pressures with the corresponding impact on margins. Industry competitors are aggressively pricing products. In addition, we have encountered lease rates on new railcars, which, in our opinion, did not cover the owner's cost of capital.

During this time, we have significantly increased our focus on cost-reduction activities at all levels of the organization and our total employment levels are 20% below September 2007 levels and at 62% below December 2006 levels. Using a discipline approach, we are committed to reducing costs throughout the organization to reduce our cost structure and improve our competitive position. We continue to identify and eliminate waste in our processes and to emphasize a continuous cost-improvement culture.

In an effort to reduce our overall cost and adjust our capacity, we recently announced a decision to close our Johnstown, Pennsylvania facility. As you know, the cost structure of this facility has historically been higher than that of our other locations. While we had attempted formal discussions with the union concerning possible labor reductions at the facility, these discussions proved to be unproductive and ultimately led to a decision to close the plant. We have recently been issued an injunction in connection with the Johnstown employees' pension and OPEC rights, and we are currently appealing this issue -- this decision with the courts and we cannot provide additional information or comments at this time.

The remaining manufacturing footprint consisting of Danville and Roanoke facilities will allow us to optimize production and benefit from the low-cost production at those facilities.

We are continuing to position FreightCar America for long-term success, as we progress on several strategic growth initiatives. 22% of our deliveries in the fourth quarter were non-coal cars, as we move forward with our plan to participate in the rail sector with additional car types such as our five-unit double-stack articulated intermodal well car, which is currently in revenue service. Other products include the next generation aggregate cars and the oar-taconite car. In addition, we are in the process of developing additional product offerings to expand our breadth of product line.

For the full year 2007, 12% of our deliveries came from non-coal carrying cars. This compares with less then 5% for the full year of 2006. FreightCar America is committed to diversifying its product portfolio to address market needs and our progress in this area remains on schedule.

We continue to explore strategies for revenue diversification, including organic opportunities and acquisitions both domestically and internationally. We recently announced a joint venture with Titagarh Wagons Limited of Kolkata, India, to develop freight railcars for the Indian market. Under the terms of the joint venture agreement, the FreightCar America/Titagarh will initially develop prototype cars based on FreightCar America's designs and assess the market opportunity in India. Assuming the successful completion of the design and market phase -- marketing phase, we expect the joint venture company will begin railcar production in India in 2009, using manufacturing methods that FreightCar America has developed. We anticipate the joint venture to enhance shareholder value in 2010.

Regarding our efforts to expand our activities in the refurbishment market, in January, we received an initial order for refurbishment services. Using our existing manufacturing facilities, the company will use this order as an opportunity to explore the market, evaluate the opportunities, and gain an understanding of potential success factors while providing our customers with quality products and services. This business will fit nicely into our overall offering of -- portfolio offering and will provide an additional source of ongoing revenue.

In 2007, as my first year as CEO, the industry has experienced a significant reduction in volume, which has generated pricing pressure and aggressive lease-rate activities. These market conditions have adversely affected our sales volume and margin performance. During this time, this management team has established a new strategic direction for the company. Although we have not yet completed all these initiatives, we have executed on the following: we have adjusted our manufacturing footprint through the decision to close the Johnstown location, which will lower our cost structure and improve our competitiveness. We've increased our geographical presence with the joint venture in India and continue to explore opportunities in other international locations. We've also expanded our product portfolio with the introduction of new intermodal well car and we expect to continue to expand our product portfolio in 2008, with newly designed open-top railcars for the aggregate services. We've developed an organization with the capabilities to execute on acquisition and our organic growth initiatives. And we completed the repurchase of approximately one million shares of our stock, fulfilling our goal of 50 million in shares repurchases. The share repurchase program was consistent with our commitment to enhancing the value of our shareholders. We will continue to explore our shareholder value enhancements in the future.

In summary, we continue to drive toward successful implementation of our strategic initiatives. These initiatives are aimed at ensuring the long-term success of the company for our shareholders and our customers.

Now I'd like to return the call back to Kevin to address our fourth quarter financial results in more detail.

Thank you, Chris. As indicated earlier, our sales revenue for the fourth quarter of 2007 was $137.1 million, and that compares with $390.8 million for the same period in 2006. The decrease in revenue is attributed primarily to lower industry volume, as well as lower demand for coal cars. Railcar deliveries totaled 1,605 units in the quarter, and that compares to 5,060 units in the same period in 2006. Average unit prices increased in the fourth quarter as compared with the fourth quarter 2006, reflecting a shift in our product mix to include steel hopper cars, triple hopper cars, hybrid and international car types. These car types have a higher selling price and a higher cost structure compared with aluminum car types.

Our gross margin for the quarter was $15.1 million, and that compares to $61.5 million for the fourth quarter of 2006, a decline of $46.4 million. The corresponding margin rate was 11%, compared with 15.7% generated in the fourth quarter of 2006. The change in margin rate was driven primarily by lower volume and related leverage. In addition, an aggressive pricing environment existed during the quarter.

As production levels have declined, we have adjusted our production rates and employment levels accordingly. As Chris indicated, our employment level is 62% below the fourth quarter of 2006. The management team is focused on process improvement and cost reduction across the company. We have challenged our management team to focus on all elements of the cost structure, including manufacturing processes, product design, and material cost.

Selling, general, and administrative expenses were $12.4 million compared to $9.3 million for the same period in 2006. SG&A cost for the quarter included various expenses related to acquisition and labor-related issues. Investment and product development for the quarter was approximately $500,000, reflecting our initiative to expand the current product bandwidth.

Net interest income for the quarter was $1.7 million. The effective tax rate for the quarter was 37%, and that compares with a effective tax rate in the fourth quarter of 2006, of 37.4%.

Net loss was $16.6 million for the quarter, compared to net income of $34 million in the fourth quarter of 2006. Net income was unfavorably impacted by the same factors addressed earlier. The diluted loss per share was $1.42, including special charges of $2.00 per share. Excluding the special charges, net income for the quarter was $0.58 per diluted share compared to net income of $2.65 per diluted share for the same period in 2006.

With respect to cash flow, we generated net cash flow from operations of $23.3 million for the fourth quarter of 2007, compared to cash flow generated from operations of $29.6 million in the same period in 2006. Net cash used in the investing activities was approximately $1 million. Net cash used in financing activities was $700,000. The impact on cash flow related to plant closure and impairment charges was approximately $2.1 million.

In summary, we've demonstrated a track record of enhancing shareholder value with our drive to lower manufacturing costs and our stock repurchase program. We continue to focus on cost control and execution of our diversification initiatives and to maintain our focus on maximizing returns for our shareholders.

With that, I'd like to turn the call back over to Chris.

Thank you, Kevin. As noted before, we are pleased to report on our performance and the initiatives we're pursuing to ensure a healthy stream of earnings in the future.

In closing, I want to thank you for your interest in our company and for participating in this call. And we look forward to updating you again during our next conference phone call. We are now ready for questions, Karen.

Thank you. (OPERATOR INSTRUCTIONS) The first question comes from the line of Michael Gallo, C.L. King. Please go ahead.

Hi. Good morning.

Morning, Michael.

Morning, Mike.

Couple questions. First thing, I missed in your prepared remarks, Chris, you indicated what the new orders were in the first five weeks of the quarter. Could you just repeat what that number was?

I believe that was one thousand -- let me just --

-- five-something.

Yes. Five -- 1,579.

Okay. Perfect. Thanks a lot. Second question I have, just as it relates to, you mentioned, obviously, in your prepared remarks that you're pursuing several different international opportunities. Obviously, you've announced the JV in India. I was wondering if you could elaborate on some of the markets you're looking at, whether you would also pursue some of those markets with JV, and what kind of potential that you see longer term for the Indian JV. Thanks.

We're selling whole goods into markets internationally today. I'm not going to give specifics on that. But generally we're enjoying some successes in Latin America and other parts of the world.

As far as the JV's concerned, we're very excited about the opportunity in India. We've got a lot of work ahead of us in '08, but we feel confident that the market is there and we've joined up with a very good partner. And we'll hope for the best for the future, but we're working very hard at it.

And then finally, looking at other opportunities internationally, all I would say there is we're not necessarily looking into the European sector at this time, but we are looking outside of those areas, including places in Latin America, the Middle East, Russia, India, and parts of Asia Pacific.

Okay. Great. The second question I have as it relates to, obviously, the cash now approaching $200 million on the balance sheet, I was wondering, I guess, you know, as you've looked at in the past year, I know you've been evaluating various opportunities. But you talk about, again, some of the higher priority uses of cash going forward. Obviously, it looks like you're still generating good cash flow even over what looks to be the trough of the cycle.

Well, some of that cash and -- will be used, obviously for the organic growth in our organization and product development, although it's a fairly small amount in general. But we'll continue to do that. We have some other products that are being developed right now we're looking to introduce in 2009, cars that we don't necessarily -- are involved with today.

Other parts of the cash, I would say we'd use for acquisitions and which would include areas in -- related to refurbishments, more international opportunities, aftermarket services, and track and infrastructure products and services.

So we have a lot of irons in the fire. We're looking at a multitude of targets. And in the same time, I think Kevin and I are also having some talks regarding the strategic use of the cash internally and looking to better our shareholder investments.

Okay. Perfect. And just a final question. You mentioned in your prepared remarks you received some -- a refurbishment order in January. I was wondering if you can elaborate on that at all. I know it's been an area you've wanted to make a more significant part of the company. Is that something you expect to be a more significant driver in 2008, or is this just kind of being done on a test basis? Thanks.

What I would say, the refurbishment business in general, the market right now for that particular segment is good. And we're -- we have an initial order from a customer that we're going to be refurbishing cars that we feel comfortable with the car types that we can add value. And we're going to do this refurbishment here in the first half of the year. We're going to analyze it. We're going to look back on it, and then we're looking to grow that business as we move forward.

Okay. Perfect. Thanks a lot.

Thank you. The next question comes from the line of Robert LaGaipa, Oppenheimer. Please go ahead.

Thank you. Good morning.

Morning, Robert.

One, just to circle back on the refurbishment. Maybe just if you could just provide maybe the magnitude of the order from a revenue perspective here in the first half.

Well, I don't want to get into the magnitude. We're at a stage right now where we've decided that this market is -- there's a demand for refurbishments in the markets right now. Customers are telling us in our sector, in our rail sector, that the queue is long and that they're looking for other people to get involved with this business. We're trying to leverage the existing assets that we have within our organization. And we have our toe in the water and we're going to explore this with at least one or two customers here this year. And if we find success in doing this, it has a good return for our business, then we will take this to a next level.

Okay. Terrific. And second question is just related to -- you know, obviously, there's reports out there, you know, with the lending standards being tightened for new coal plant construction, a lot of that tied to environmental concerns. And I know previously you had been looking for a significant increase in new coal plant construction possibly coming on online, 2009, 2010, possibly your orders might start picking up second, third quarter of this year. Now, obviously, you have this 1,500-unit order -- or worth of orders here early in the year. I mean, is that all coal? And are you still comfortable with possibly a ramp second and third quarter? Or do you think it's just too early to tell at this point? And what impact are -- is some of this tightening lending standards and the environmental concerns going to have on the existing plants that are out there?

This is Ed Whalen. The orders early on in this year are a mixture of various car types. They're not all coal cars. There's still a very significant number of plants on the drawing board, although somewhat lower than the last time we spoke. And we're still seeing that pretty much going -- moving forward and driving the demand for coal cars.

In terms of timing, I think we're still waiting to see what's going to happen the next several quarters here. We're hopeful that there will be a more significant up-turn later in the year. But we just don't have a lot of visibility to that right now.

Okay. And then with regard, you know, on the same lines, production volumes from here on out, obviously, you've been cutting the production volumes, the backlog has increased slightly here this last quarter. I mean, what kind of production rate are you expecting over the course of the next year on a quarterly basis?

Well, Bob, we're going to produce at a level that's consistent with the demand activity. So we'll probably produce the rest of our backlog or most of it during 2008.

So do you think that this 1,600 level in the fourth quarter is representative of at least the next several quarters in 2008, or could it possibly move somewhat higher in the next couple quarters?

I think Ed's comments are on point. It's a little early to tell.

Okay.

We just don't have that kind of visibility. We're hopeful that the back half of the year picks up. But it's a little difficult to tell from here.

Okay. Terrific. And the last two questions, if I could. Cash levels for this Indian joint venture, obviously, I would think that the prototype's probably fairly minimal. Maybe if you could just give us some idea of what that might be, and then, also, if, in fact, the market demands there and you go ahead full throttle with the -- with the joint venture in 2008, what kind of cash use -- or how much cash is going to be necessary to support the venture?

I think we've been on record consistently saying we think that venture would require between 10 and 20 million dollars of capital, depending on what site we picked, whether we, you know, buy a site or lease a site. Those kind of decisions need to be made going forward. So that's a pretty consistent number we've used in the past.

Okay. And then last question. This one's probably for you, Chris. Obviously, there's stories out there about a competitor talking to Greenbrier. I just want -- just was interested in your thoughts on just industry consolidation and what FreightCar America's role might be in any consolidation in the industry.

Yes. Well, regarding the GBX ARI talks that are going on right now and the press on that, I really have no additional comment on that particular transaction at this time.

My comments regarding the consolidation in this industry and the car market itself, obviously, if you buy at the right price and you're able to execute on the synergies that exist, that's a challenge in itself. So the execution piece, obviously, is over the challenge for any acquisition. I guess the bottom line for me is you really have to take a really hard look. You're diversifying the possibility of the product lines within both organizations. But does that really help you in terms of dampening the cyclicality of this business we're in?

So I don't have all the answers to that. But those are the concerns and things that I look at when I look at acquisitions and consolidation in this space.

Okay. Terrific. Thanks very much.

Thank you. The next question comes from the line of Brannon Cook, JP Morgan. Please go ahead.

Yes. Good morning.

Morning, Brannon.

Good morning, Brannon.

So nice pickup in order activity in the fourth quarter and going into January here. Could you talk a little bit about some of the drivers behind that? You talked about some non-coal car orders. But, obviously, we've seen the coal export market pick up a bit. Has some of the new demand for coal orders been related to that export market?

No. Most of the demand for the orders have been related to the traditional (inaudible) river basin demand. As you know there -- our order patterns tend to be lumpy and we do have some better quarters and quarters that are a little weaker.

Okay. So I mean, there's been a lot of talk about coal export growth. But would you say that that's not a big enough component to really move the needle that much for you guys?

Oh, it's certainly been a positive event because it's occupied cars that would otherwise be idle. So that's been very good for us and for the industry. That doesn't necessarily immediately translate into new car orders.

Okay. And just any sense you could give us on the order activity you've gotten in terms of how much of that is related to coal versus non-coal?

It's a mixture of coal and other car types.

Are the majority of the orders coal-related?

It's a mixture of coal and other car types.

Okay. I'll let you guys stick to that. So just a question on gross margin levels looking to 2008. You guys have done a good job adjusting the cost to a changing demand environment. With the outlook for production and where backlogs stand right now, do you feel like you can hold the gross margins close to where they are right now or should we look for some continued pressure on gross margins looking into next year?

Well, Brannon, I would say that we've done the right things in terms of trying to adjust our break-even and our cost structure. Obviously, we took capacity offline during the fourth quarter of the year to help reduce our cost structure. And we'll continue to evaluate opportunities for cost improvement with our existing plants. That being said, margins usually can constrict during a -- during this time of the cycle. And more importantly, we don't control the pricing that goes on in the market. So we're doing what we can do to maintain margin performance, but it's a very aggressive market right now and we don't control the pricing that goes on.

Okay. And just a final question. You talked about the supply chain and customer claim charges you took in the fourth quarter. Could you provide a little more color around those?

They were legacy-related issues that we needed to get behind us, and so we recorded the charges in the fourth quarter.

When you say legacy-related issues, related to the closing of the plant, or --

No. These are the special charges that you just mentioned?

Right.

Those are issues that had been being negotiated, let's say, during the year, and we thought our best position was to get those charges behind us in the quarter.

Okay. Thank you.

Thank you.

Next question comes from the line of Paul Bodnar, Longbow Research. Please go ahead.

Hello. This is [Carrie Butcher] calling in for Paul Bodnar. Thank you for taking my call.

Good morning.

Morning.

Thank you. I just have a couple of quick questions. I wanted to circle back to the India venture. When do you expect production to begin in the India venture?

At this point in time, we're anticipating it'll be 2009.

Okay. Thank you. And my second question is, with lower coal car lease rates and increased competition, what kind of actions are you planning on taking to remain competitive in the next two years?

Well, I think Kevin's already touched on this. We've done a, I think a fair job, in fact, I would say a good job in 2007, really adjusting the cost structure of this organization by taking a multitude of actions. We think we have some additional things that we can do in '08, and we're pursuing those right now with a lot of work and dedication. So at the end of the day, you know you can't control the marketplace, but you sure have to take control of your organization and do what's right.

Okay. Thank you very much.

Next question comes from the line of Barry Haimes, Sage Asset Management. Please go ahead.

Hi. Good morning. I had I guess three questions. Could you just talk a little bit more about the overhang of coal cars in the market and kind of where you think we are in absorbing those cars so that incremental demand would actually translate into orders on a like-for-like basis? Second question is, you alluded to the share repurchase. Could you just review what you bought in '07, at what price, and then whether you've got remaining authorization? And then finally, I wanted to follow up on one of the earlier questions on margins in '08. And you got the negatives of operating leverage and perhaps pricing, but you've got the positive of closing Johnstown. And so when we roll all that together, should we be thinking flattish or down in terms of margins in '08? Thanks.

Okay. I guess we'll start with the market first and the overhang issue, Ed, if you wouldn't mind.

I think what we've seen in the fourth quarter is a reduction in the overhead -- overhang of existing equipment that's partially been driven by the demand in the east for export coal and improved shipments out of the (inaudible) river basin. So there has been some improvement from what we saw in the third quarter in terms of supply of existing equipment, but there still is a fairly significant number of train sets in storage right now. Okay. And your next question we'll just talk about the buyback.

Yes. In terms of the buyback, I think the average price on that stock was about $49 a share. We don't have authorization at this time to initiate another buyback. I think I -- I think I answered the two questions you wanted answered there.

And really, in terms of the margin performance, we talked a little bit about that with Brannon. I think that's really the extent of our comments in terms of margin performance. It's really difficult to provide guidance on margin performance when we're where we are in the business cycle. As Chris indicated, we're taking as many actions as we can internally to reduce our cost structure. And so we're kind of doing what we can do, but the market is not within our control.

Okay. Thanks.

Thank you, Barry.

The next question comes from the line of Marcelo Luno (inaudible). Please go ahead.

Hello. Good morning.

Morning.

Couple of -- most of my questions have been answered. But I have a question about your cash balance there. It seems that you generated about $29.9 million of net cash in the quarter, but your cash and equivalents went up by $21.7 million. Just wondering what the difference of about $8.2 million is over there.

I think we generated roughly $21 million in cash. We used -- $29 million was generated in the fourth quarter of 2007.

Right. But I'm saying --

I'm sorry. That was '06. I'm sorry. 2006. We generated roughly $21 million in operating cash flow.

Okay. Well, maybe I got the math wrong because of the cash flow. Okay. Well, the other question is, just could you just provide a little bit more color on the SG&A ramp up there from $7.5 million in Q3 to $12.3 million in Q4? I know you said $500,000 of that was for product development and some of it was related, I guess to Johnstown.

Some of it was related to Johnstown. There was also some impact related to the special charges. So going forward, we probably go forward at an SG&A level that's more consistent with the third quarter activity.

Okay. All right. Thank you very much.

Thank you.

Next question comes from the line of Robert Henderson, Rutabaga Capital Management. Please go ahead.

Good morning. Thank you. But you just answered my questions about the SG&A, so I don't have a question. Thanks.

All right. Thanks.

Thank you, Robert.

The next question comes from the line of [Peter Greisler], GLG Partners. Please go ahead.

Hi. It's actually Rick Showbin from GLG. How are you?

Good. How are you?

Good.

Good. I wanted to ask a question and try to simply your -- the coal car demand a little bit -- a little bit better so that I can understand it going forward. If we were going to assume, and I mean just to simplify it, not to say that this is realistic, because I'm sure coal plants will be built again. But just to assume that there's no more coal plants getting built ever again, including the ones that are in 2009 and 2010, how many -- like what is the replacement market for cars on an annual basis?

That's dependent on the rate of scrappage of cars. But I would estimate that going forward the replacement rate is somewhere in the area of eight to 10 thousand units a year.

And you guys have historically had north of 70% market share with regards to coal cars; is that correct?

Go back in history, that's probably a fair average.

Okay. And if we're going to assume that some of your competitors may be becoming more aggressive, then you may either wind up getting lower margins, same number percentage of cars, or lower cars, and the like. Is that -- I mean, that's a fair assessment, correct?

That's a fair assessment.

And when we go -- when we look at how you go into 2009 and 2010, then we start to get additional coal cars for additional units -- I mean coal plants being built, that's when we start to get the orders like the '08, late '08, early '09; is that correct?

Well, yes, we expect orders to -- we are hopeful that orders will pick up later this year and into the following year as we come out of this trough.

So why -- I mean, is there any reason for me to assume that just on a normalized basis going as far into the future as we can see, barring any shutdown of significant numbers of coal plants, why we shouldn't have on order five to six thousand cars per year for you guys?

Given what you've laid out, I guess that's reasonable.

Yes, I would agree.

Okay. Fair enough. And one other question I have is just with regards to the cash. You guys have generated a significant amount of cash of close to $17 (sic) of cash on the balance sheet. And I'm just wondering, I mean, it's a very good problem to have. But I'm just wondering, when you look at buybacks and investment, it just -- I mean, I don't see what you guys do. But to me it doesn't seem like there's just enough places to put this cash. So how -- like how do you look at where this cash is going to go, what kind of returns you target for the cash, et cetera, et cetera?

Okay. We have a very -- I can pick up a piece of that and I think Chris can address it as well. But we have a very aggressive business development program that outlines potential targets. So we think there's a lot of opportunity out there for the targets. So when we look at targets, we try to generate a 20% return, pre-tax, pre-interest for each investment that we make.

So going forward, we'll continue to evaluate strategically where we want to put the cash. We're as -- we're as anxious in some regards as everybody else is to make the right acquisition. But on the other hand, we also have to be deliberate and prudent about the acquisitions we do make.

A lot of activity on that side, Rick. So I would say to you right now, the activities are not just domestically focused, but internationally focused.

As far as --

And any option of doing a stock buyback in the future, that's an option that we have in front of us. We're not in a window right now where we're going to execute on something like that. But it's an option we're looking at and, obviously, we have the dividends we could be looking at in the future also.

The acquisition, I mean, we've seen like Greenbrier buying like parts and service providers -- I mean refurbishment guys. Is that something like -- is that what you guys are looking at? Or what kind of acquisitions are you guys looking at?

We're looking at a multitude of things. But just, in general, I'll give you a flavor. We're looking at refurbishments. We're looking at international opportunities. We're looking at aftermarket services in general in the rail sector. And we're also looking at track and infrastructure products and services also. So we think there are a lot of generally downstream, aftermarket services and products that we can get involved with that would add some value and things that are -- that we find with our customers are really asking for in this particular market that we're in right now.

Great. And I promise this is my last question. What is your CapEx guidance again for '08?

I don't think we have provided guidance for '08 on CapEx.

Is there any reason why it should be significantly different than '07?

It depends on -- depends on what the activity levels are in '08.

Fair enough. Thank you very much.

Thank you.

Thank you. The next question comes from the line of Steve Barger, KeyBanc. Please go ahead.

Good morning.

Good morning.

Morning, Steve.

Good morning, Steve.

I heard what you said about the difficulty of trying to forecast margins relative to lumpy deliveries. But can you talk about the domestic and international backlog mix and how pricing and margin in the backlog compares to recent deliveries?

We don't really -- we don't get into separating that. We just feel a lot of that information is not something we want to share on an open basis. Needless to say, our international focus has been strong in '07, and will continue in '08. Not only do we feel there's opportunities for partnerships or joint ventures internationally, but we think we'll be successful, continue to be successful in shipping whole good products overseas in '08.

Great. And one other thing. We knew that production had already slowed considerably at Johnstown before you took the charges here. Can you talk about numerically what the changes to your cost structure are going forward as a result of taking the charges and the actions that you've pursued?

We really can't comment on that given the nature of the lawsuit.

I understand. Okay. Thanks.

Thank you.

Next question comes from the line of Andrew Wetzel, F.L. Putnam. Please go ahead.

Hi, guys.

Morning, Andrew.

Good morning.

Morning.

I was hoping we can talk about the aggregate cars for a minute. I spent some time talking to a bunch of utilities about lime and limestone needs for scrubbers that are going to be coming on over the next few years. Just to give a couple examines, I have AEP going from 90,000 tons out of last year up to 2.2 million tons annually in 2012. Reliant going from one million tons now to about two million tons in two years. Southern going from basically none now to 1.5 million tons annually in 2013. So there's going to be a real ramp up in need for lime and limestone for scrubbers.

Is that -- are you guys targeting some of that with these aggregate cars and just what do you see here?

Yes, that's the primary market we're targeting for this particular product. The material is shipped by a combination of truck, water, and rail. And so -- but we are certainly targeting the rail piece of that.

Thanks.

Next question comes from the line of Michael Goldenberg, Luminous Management. Please go ahead.

Good morning, gentlemen.

Morning, Michael.

I just had a question following up on new coal plant construction. If we assume that it's roughly somewhere between 10 and 15 gigawatts of coal plants being constructed over the next five years, let's say 12 gigawatts, do you know how many of those have already placed their orders for railcars and how many still have to do so?

By far, virtually all of them still have to do so.

Okay. So basically we can assume that all plants that are in construction right now have not done any of their purchasing yet?

There is a very, very small percentage that have already placed their order. But the vast majority have not.

Okay. Gotcha. Thank you very much.

Thank you, Michael.

Next question comes from the line of [Jonathan Bagel], Manning and Napier Advisors. Please go ahead.

Hi. Good morning, guys.

Good morning.

Morning.

I just wanted to -- I was wondering -- maybe I missed it during the call. But could you give me the number of deliveries for the full year and also the dollar value of the backlog?

Full-year deliveries I think that's about 10,000 units. Let me just --

10,094.

Thanks. 10,094. And you asked for the backlog?

The dollar value of the backlog. I know you typically disclose that in the K, but I was just wondering if you could go ahead and let us know now.

I can give you an approximate number.

Okay.

About $450 million.

Okay. All right. Thank you very much.

Great. Thank you.

We have a follow-up now from the line of Michael Gallo. Please go ahead. C.L. King.

Good morning. Just had a follow-up. I was wondering if you can give us any update on anything new with regards to the potential order from TXU.

I would say that TXU continues to investigate the acquisition of equipment, but there's really been no activity other than that at this point.

Okay. Great. Thanks a lot.

Thank you.

Mr. Bagby, there are no further questions in queue at this time. Please continue.

Well, thank you very much for joining us today. And, Karen, thank you for facilitating the call.

Yes, sir.

Good-bye to everyone.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. Thanks for using AT&T Executive Teleconference. You may now disconnect.