FreightCar America Inc (RAIL) 2008 Q1 法說會逐字稿

Ladies and gentlemen, good morning and welcome to the FreightCar America Incorporated First Quarter 2008 Earnings Conference Call. (OPERATOR INSTRUCTIONS).

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 Daylight Time today until 11:59 p.m. Eastern Daylight Time on May 8, 2008. To access the replay, please dial 800-475-6701. The replay pass code is 919482. 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 ahead.

Thank you, [Katie].

Before we begin, we'd like to remind everyone that statements made during this conference call related 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 costs of raw materials and additional risk factors described in our earnings release for the first quarter 2008 and in our Annual Report on Form 10-K 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. Our earnings release for the first quarter 2008 is posted on the Company's website at www.freightcaramerica.com.

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

Thank you, Kevin, 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 first quarter 2008 earnings call. We're going to discuss the highlights of the Company's performance in the first quarter and Kevin will provide a detailed review of our financial performance.

The macroeconomic trends and specifically the performance of the railcar sector significantly impacted our financial results on both a year-over-year and sequential comparison. Total sales revenues in the first quarter of 2008 were $95.1 million while net income was $1.1 million and earnings per share were $0.10 on a fully diluted basis. While we have certainly felt the pressure of this difficult operating environment, our continued execution on our strategy of reducing the manufacturing footprint and a broad focus on cost reduction has positioned us to weather the current industry cycle.

Regarding the railroad market, U.S. and Canadian commodity rail loadings for the first quarter 2008 were essentially flat when compared with the first quarter of 2007 levels, while coal car loadings for the quarter were above the 2007 level by 2.8%. Demand for export coal has significantly increased as global supplies tighten.

Coal export activity increased 19.2% in 2007 as compared to 2006 levels. This boost in activity has carried over into the first quarter and is expected to continue throughout 2008, providing a positive impact on car loadings over the remainder of this year. This spike in demand is being driven by several factors including increased industrialization and attendant demand for coal-fired electricity generation in the developing world, including India and China.

Increased levels of coal inventories in the electric power sector persist, however, recent data indicates that inventories at Eastern utilities have declined as domestic demand competes with robust export demand. As such, we expect the trend in overall inventory levels to reverse itself in the near future. Our view is that coal demand is increasing, as evidenced by continued upward pressure on coal prices.

In the near term, we expect the overall market for coal car deliveries to remain relatively soft in 2008. While our order cycles remain lumpy, we expect order activity to improve in subsequent years. On the intermediate horizon, 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 future.

During the next six years, approximately 75 coal-fired power plants are expected to come online, which will require approximately 40,000 coal cars. Of these 75 plants, 47 are currently either under construction, near construction or permitted for construction. These 47 plants are expected to add 24,250 megawatts of coal-fired capacity, requiring approximately 20,000 coal cars.

The Energy Department remains committed to clean coal technologies and is reallocating funding to numerous sites, despite the government recently withdrawing from the FutureGen Clean Coal project. We remain confident that over long term, clean coal technology will make coal an increasingly environmentally friendly fuel source. Clearly, the long-term demand for our main products and services is healthy and we are confident that FreightCar America remains well positioned to capitalize on this increased demand.

As we navigate through this difficult stage of our industry cycle, we are facing significantly lower volume levels, which have generated pricing pressure with a corresponding impact on margins. Industry competitors are aggressively pricing products with both sales and lease rates, fostering pricing declines approaching the high single-digit percent. In our opinion, we believe that these lease rates on new railcars do not cover the owners' cost of capital.

Regarding other related industry issues, we are seeing increases specifically on material costs such as base metals, both steel and aluminum. And we are subject to a variety of surcharges on raw materials and components. These surcharges are highly unpredictable and may further erode our margins. These are all factors that are largely beyond our control. While we constantly seek to mitigate their impact wherever possible, we continue to focus on the items that are within our control, namely internal structure, cost control initiatives and our growth strategy.

We have taken and will continue to take the necessary steps to make our business more cost effective to offset the macroeconomic issues we face. Using a disciplined approach, we are committed to reducing costs throughout the organization and improving our competitive position. We have established cross-functional margin improvement teams charged with evaluating cost at every level of the organization. These teams are focused on identification and elimination of waste in our processes in order to foster a continuous cost improvement culture.

As part of this effort to reduce our overall cost and adjust our capacity, we recently announced the decision to close our Johnstown, Pennsylvania plant. As you know, the cost structure at this facility had historically been higher than our other locations. While we had, in good faith, attempted formal discussions with the union concerning possible labor cost reductions, these discussions proved to be unproductive and ultimately led to a decision to close the plant.

The current contract at this plant will expire on May 15, 2008. As these discussions are ongoing, we cannot provide additional information at this time. The remaining manufacturing footprint, consisting of Danville and Roanoke facilities, will allow us to optimize production capacity.

We are executing on several strategic growth initiatives in order to position FreightCar America for long-term success. We're moving forward with our plan to increase our participation in rail sector with updated and expanded product offerings. We are developing new designs for open-top hopper product offerings with respect to railcars for aggregate or [antaconite] service. In addition, we're in the process of expanding our breadth of product offerings to include auto racks. These updated and expanded product offerings will serve to diversify our revenue stream.

We continue to explore our strategies for revenue diversification, including organic opportunities and acquisitions, both domestically and internationally. Earlier this year, we announced a joint venture with Titagarh Wagons, Ltd of Kolkata, India, to provide freight railcars for the Indian market. FreightCar America and Titagarh will initially develop prototype cars based on FreightCar America's design and assess the market opportunities in India.

Assuming the successful completion of the design and marketing phase, we expect the joint venture company would begin railcar production in India in 2009, using manufacturing methods that FreightCar America has developed. Although we are still in the early stages of venture, our initial work with Titagarh has been very positive and very productive.

During the quarter, we also began to explore railcar leasing markets. In a response to competitive market conditions, we are offering railcar leasing to our customers on a selective and limited basis. These transactions are being packaged and offered for sale to our leasing customers. We believe our leasing activity will improve our ability to service our customers and compete effectively during this phase of the railcar cycle. Long term, we will continue to assess the impact of railcar leasing in our business model.

Regarding our effort to expand activities in the refurbishment market, we continue to explore and evaluate opportunities in this sector. There is clearly a strong strategic fit with our overall portfolio of products and services. Over the long term, we believe we can enhance the value proposition to our customers by offering after-market services that address the entire lifecycle of the coal car.

While the general market conditions have adversely affected our sales volume and margin performance, this management team has established and adhered to its new strategic direction for the Company by executing on the following initiatives. Adjusting our manufacturing footprint through the decision to close down Johnstown location, which will lower our cost structure and improve our competitiveness. We increased our geographical presence with joint ventures in India and continue to explore opportunities with other international locations.

We utilize flexible manufacturing techniques to lower our break even point in the face of rising material costs and more competitive pricing environment. We expanded our revenue platform with the introduction of our redesign articulated intermodel railcar, as well as our upcoming entrance into the autorack business. We developed an organization with the capability to execute on acquisitions and organic growth initiatives.

This quarter, we continued strengthening our management team with the addition of Mr. Nick Matthews who will bring substantial expertise on Lean manufacturing and supply chain management in his new role as Senior Vice President of Operations.

In summary, we continue to successfully implement our strategic initiatives, despite the current industry environment. We believe that these initiatives will help us navigate these difficult times and will ensure the long-term success of the Company for all our stakeholders.

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

Thank you, Chris.

Today, I'm going to expand the scope of my comments to include order and backlog activities, in addition to the financial information usually presented. FreightCar America order activity in the fourth quarter was 2,673 units, which was an increase from the 2,074 units received in the fourth quarter of 2007.

Our total backlog of unfilled orders was 6,785 railcars at the end of the first quarter compared with 5,399 units at December 31, 2007 and 6,006 units at March 31, 2007. Our backlog at March 31, 2008 includes 1,450 units under firm operating leases with independent third parties. As is typical in this industry, our orders remain lumpy and we expect to see similar industry trends for the foreseeable future.

Our sales revenue for the first quarter of 2008 was $95.1 million and that compares with $322.5 million for the same period in 2007. The decrease is attributed primarily to lower industry volume as well as lower demand for coal cars. In addition, the railcar sector continues to be affected by intense pricing competition, including below-market lease rates.

Railcar deliveries totaled 1,287 units in the quarter and that compares to 4,077 units in the same period in 2007. Average selling price increased in the first quarter of 2008 as compared with the first quarter of 2007, reflecting a shift in our product mix to car types with different material costs.

Our gross margin for the quarter was $9.2 million and that compares to $44.1 million for the first quarter of 2007, a decrease of $34.9 million. The corresponding margin rate was 9.6% compared with 13.7% generated in the first quarter of 2007. The change in margin rate was driven primarily by lower volume and related leverage, as well as an aggressive pricing environment.

While the Johnstown plant continues to have a negative affect on our margin performance, the decision to close the plant will improve our cost structure and maintain margins in the long run. During the quarter, we temporarily idled one of our facilities to reflect the lower volume level, which adversely affected margin performance. The combination of an aggressive pricing environment and increased both base metal costs and surcharges also impacted the margin rate in the quarter.

The management team has increased our efforts on process improvements and cost reductions across the Company. We have challenged our management team to focus on all elements of the cost structure. The rationalization of our manufacturing footprint, combined with the efforts of our margin improvement team, has resulted in a lower cost structure. We expect to see additional benefits in the future as we work to reduce the cost structure by focusing on the manufacturing process, product design and material cost reductions.

Selling, general and administrative expenses for the first quarter of 2008 were $8.6 million. This compares to $10.3 million for the same period in 2007. We remain committed to product development and, as we have invested approximately $500,000 during the quarter, our efforts focused on continuing to expand our product family.

The net interest income for the quarter was $1.2 million, reflecting a lower interest rate environment and the Company's focus on liquidity. The income tax provision for the first quarter was $700,000 with an effective tax rate of 37.5%. This compares with an effective tax rate of 36.4% in the first quarter of 2007. The increase in the effective tax rate is primarily due to a change in state apportionment, resulting in a higher percentage of taxable income being allocated to the state with a higher tax rate.

Net income was $1.1 million for the quarter compared to net income of $23 million in the first quarter of 2007. Net income was unfavorably impacted by the same factors addressed earlier. The diluted income per share was $0.10 compared to net income of $1.80 per diluted share for the same period in 2007.

Our working investment increased in the quarter, primarily as the result of our inventory levels which reflect the current competitive and material cost environment. At the end of the quarter, our inventory of $84.1 million included forward buys, which were proactive measures to offset cost increases in the marketplace and accounted for $20 million of the inventory balance.

In addition, finished goods inventory, cars completed but not shipped, accounted for $19.3 million of this inventory balance, reflecting timing related issues associated with delivery. Inventory levels are expected to normalize by year end as we ship completed orders and convert our raw materials. Finally, in support of our leasing activities, we have $7.7 million of leased assets held for sale.

With respect to cash flow, we generated net cash flow from operations of $33.2 million in the first quarter 2008 compared to negative cash flow generated from operations of $700,000 in the same period of 2007. The investment in inventory was primarily responsible for the cash flow performance. Net cash used in investing activities was $1.4 million, net cash used in financing activities was $700,000.

To support the current leasing activities, we have initiated discussions with financial institutions regarding a warehouse lease borrowing facility. As the discussions are ongoing, we cannot disclose terms, conditions or other related issues. In summary, we continue to focus on cost control and execution of our diversification initiatives to generate and maximize returns for our shareholders.

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

Thank you, Kevin.

We face a challenging macroeconomic environment and intensive competition. Our management team is focused on improving our cost structure and our competitive position, which will benefit FCA as the market returns to normalized production levels.

In closing, I would like to thank you for your interest in our Company and for participating in today's call. We look forward to updating you again during our next conference phone call.

We're now ready for questions, Katie.

Thank you. (OPERATOR INSTRUCTIONS).

And our first question comes from the line of Michael Gallo with CLK. Please go ahead.

Hi, good morning.

Good morning, Michael.

Question I have is, I guess when we look at the coal markets in general, certainly there's been a significant improvement in the markets over the last three or four months, obviously some early signs that some of the producers are looking at ways, certainly, to increase their capacity, given the substantial margins they're able to make in the marketplace today. I was wondering if you're seeing any signs of life to suggest that we've seen the bottoms of that market and we should start to see some more steady improvement as the year progresses. Any further color you can give on what you see in that market? Thank you.

In terms of the coal market itself or the coal car market?

The coal car market as it relates to the coal market.

I would say it appears that we are at or near bottom. It's difficult to pick that exact point but there does appear to be some improvement going on at this point.

Would you expect to see some improvement in the order rates as we go forward through the year? Certainly your backlog overall has increased the last couple of quarters, but is there something on the horizon, i.e. are we starting to see some of the cars in underground storage get burned off? Or are we just starting to see an anticipation of an improvement as we get into the back half of the year?

We have seen some reduction in coal cars in storage over the last several months, which is a positive sign. Future orders are primarily transactionally oriented and so, it's very much geared to needs for additional power plants or change over from steel to aluminum cars or whatever. So, that's not necessarily indicative of when the order pattern will improve.

But veritably it sounds like overall, things seem to be improving in that marketplace, is that a fair characterization?

Well, in terms of the fact that existing cars appear to be going back into service, I would agree with that.

Okay, perfect. The second question I have is if you could just comment on the decision to selectively get into the leasing business. I was wondering if you can comment on what drove that decision and also whether you view it as potentially putting you into competition with some of your financial customers.

Well, I think at this time regarding our financial customers, our leasing partners, we continue to work very closely with them. And we package some of the lease deals that we've taken and we've found that our partners, in some cases, are willing to work with us. So, I think the relationship with our leasing partners continues to be good.

As far as getting into a selective and limited basis in the leasing business, we've chosen to do that because of the market conditions that we have in front of us right now. I would say that long term, we continue to explore whether or not we want to make a more long-term strategic move here. But in the short term, we're doing this, as we said before, very selectively and on a limited basis.

Great. And then final question, you know obviously, we haven't had anything yet regarding TXU I assume, or any potential orders there. I know they had originally planned to take delivery late this year or early next year, obviously those orders have been put on hold. I was wondering if there's any update in terms of whether you expect something to occur on that later this year. Thanks.

They remain in need of cars in the future and I really can't comment on the exact timing of their need. But they are going to require cars going forward here.

Okay, great, thanks a lot.

Thank you, Michael.

And our next question comes from the line of Steve Barger with KeyBanc Capital Markets. Please go ahead.

Good morning.

Good morning.

Hi, Steve.

Can you discuss the order levels so far in 2Q '08? Have you booked anything?

Yes, we have. And I don't know if we're in a position right now to expose that, but the order activity level for Q2 is, I would say we're content with it at this time.

Content, okay. Is the idled facility back on line?

Yes.

And did that just come up recently? Was it in the beginning of 2Q or just a few weeks ago?

Actually, it was late Q1. We idled it for a partial period in Q1.

Okay. Of the 47 plants that you talked about that are under construction, near construction or permitted, can you tell me how many are actually under construction right now?

Right now, I don't have that number in front of me.

Yes, I think it's about 15.

I was going to say, it's between 15 to 20, in that range.

Fifteen to 20 actually have broken ground, the rest are just in the early stages?

Other stages that we've already talked about today.

Okay. It was interesting to me that you talked about the leasing environment from other competitors being very aggressive and you don't think they're covering their cost of capital. Yet because of the cycle that's something you want to get involved with and you're talking to lenders. I guess can you just kind of round out for us why you can be more successful in this environment and what the value proposition is of you getting involved in leasing?

Well, I think leasing is a piece of it, Steve. I think what we're trying to do is really focus the lifecycle of the product itself and looking to enhance the value proposition. So it's not just selling cars, we also want to have, when it's necessary, the ability to lease cars while not disintermediating our leasing partners.

And then also offering, downstream, the after-market capabilities of offering peace of mind to our customers in a way that isn't present in the market today. So, if you look at it from cradle to grave, we're spending a lot of time focusing on those type of services, that go beyond the product, that will enhance the value proposition.

I understand. In terms of where orders are coming from right now, whether the ones you just booked or for this quarter, is it more shippers or the Class Is or lease leads? Can you kind of directionally tell us where those are coming from? And is that changing? Are you seeing different trends in who's actually interested in buying cars right now?

It's primarily being driven by shippers and Class Is. And that moves around based on the demand.

Okay. And one last question and I'll get back in line. Are you seeing inquiries being driven by changes to the coal shipping point? And can you talk about utilization rates in the east versus the west?

Utilization rates are quite high in both locations. As I mentioned earlier, we've seen a reduction in cars in storage in the system, so utilization rates are quite high. They're not fully utilized but much better than they were say three months ago.

Right. So, I guess the question is, if utilization rates are higher in the east because of export activity, are you seeing more people wanting to pull coal from the Powder River Basin to replace those tons? Or do you think that you're -- will there not be a fundamental shift in how coal is used geographically in the U.S.?

I think it's price-related and there's a continued migration of coal from the west into the southeast that's going on.

Okay. Thanks, I'll get back in line.

Thanks, Steve.

And our next question comes from the line of Bob Schenosky with Jefferies. Please go ahead.

Good morning, thank you..

Hi, Bob.

Good morning, Bob, how are you?

Good, how are you?

Good.

I've got a couple for you here. First, in terms of the competitiveness on pricing, are you aware that this -- if this is your competitors trying to get excessive cars out or if this is for new orders?

Well, there has to be a customer for the car in order to have it go into service. So, there must be an order there I would imagine.

No, no, I understand that. What I'm saying is, is your competitor here sitting on inventory that they're selling off very cheaply or is it for new production?

I think it's new production. At least our assessment is.

Okay, okay. And then, can you discuss the backlog and timing a little bit in a couple of different ways, first off, the breakdown of coal versus non-coal? And then secondly, we've seen in the Class A truck market previously where, if there's sluggishness in the end market that what truckers will do is they will push out orders as opposed to canceling orders. So, can you give us any color at all in terms of what potentially could be, of the number that you have there today, would be delivered in '08 versus being potentially pushed into '09?

Yes, Bob, we're thinking about 95% of it's '08 delivery. And we haven't had any push out in order activity. The increase in order activity we did receive was for '08 deliveries. So, that's the way I'd characterize the backlog today.

Okay. And then, what about coal versus non-coal?

Yes, most of the backlog is coal right now.

Okay. And then, just one more if I could. Your average price per car obviously, sequentially, has gone up about $9,000 a car. Can you talk about what is making that up in terms of, is it mix, transport cost for any export orders which run through your P&L? And then, any changes because of metals prices?

It's more related to the car type it is, Bob. We have, as you know, different car types like hybrid cars and stainless steel cars. That's really what's causing the average price increase. So, as you know, the material cost itself will affect the price, that's really what's driving it.

Okay. And I'm sorry, just one quick one. In terms of Johnstown, do you expect any additional cost through the year related to that closure?

You know Bob, we're in a position right now where our legal people are telling us we're not to disclose anything with respect to Johnstown beyond what was in the prepared remarks. As you know, we're in negotiations and it's a little difficult to project how that will come out.

Okay fair enough. Thanks for your time.

Thanks.

Thank you.

And your next question comes from the line of Paul Bodnar with Longbow Research. Please go ahead.

Hi, this is Kerri Butcher calling in for Paul Bodnar. I just have a --

Good morning, Kerri.

Good morning, hi. I just have a couple of quick questions. I was wondering if you could breakout revenues from refurbishment and also from leasing income for the quarter.

Yes, I don't have those revenue breakouts for us right now.

Okay, so no break outs right now. But I'm trying to get a calculation on the revenue per car, could you tell me if in general the margins for refurbishment and leasing income are pretty high? Or could you give me it in terms of percentage points?

We don't disclose that information for competitive reasons.

Okay, that's all right. And also, I have a couple of questions on your leasing fleet. Could you tell me what types of cars you're planning on leasing?

We're leasing primarily coal cars.

Coal cars, okay. And then in the future, are you planning on continuing to grow the fleet and lease coal cars?

Well, I think as Chris pointed out, this is a tactical reaction to the marketplace right now and we're still reviewing the potential in the market for the future.

Okay. And then, one last question, I'm not sure if you mentioned this before but could you tell us what percentage of sales for the quarter came from coal cars?

We don't disclose that information.

Okay. All right, well thank you.

Thank you.

Thank you.

And your next question comes from the line of Zack Turnage with Harbert Management. Please go ahead.

Yes, if you look at your backlog and assume it is to be delivered over four quarters, that would imply roughly 1,700 cars per order. Looking at the current pricing environment as well as what you guys are doing on the cost side, what kind of gross margin would that imply? Thank you.

Well Zack, it's a little difficult to tell where things are going. As we talked about, there are material price increases or surcharges. Surcharges are a little difficult to estimate. So, it's kind of difficult to say where the margin rate's going to go, we're fairly comfortable with where it is today. But there are other issues beyond on our control which could affect that performance.

Could you comment on SG&A going forward?

I think we're reasonably comfortable where it is right now. We had some transition costs in 2007 that ran through the SG&A, along with some other costs related to primarily Johnstown and issues there. So, we're reasonably comfortable with what it is today.

As far as the leases that you guys currently have, will they cover the cost of capital?

We're still looking at those leases. As you know, we have kind of a unique situation there where in some cases we're leasing the cars, in other cases we're packaging and selling. So, we're still evaluating that.

Thank you.

Thank you, Zack.

And we have a follow-up question from Michael Gallo with CLK. Please go ahead.

Hi. Just a follow-up on the backlog question. I think you implied in your remarks, or a response to a previous question, that you expected 95% or so of the backlog to be delivered this year. That would imply obviously a significant increase in deliveries over the last three quarters. Is that going to be significantly more back-end weighted? Or was there something in the timing of deliveries that led to, certainly on a run rate basis, the first quarter being down significantly?

I think, Mike, that order activity picked up in Q4 of '07 and then again picked up in the first quarter of '08. And that's more indicative of how the production levels will look through the remainder of the year. I mean, we're obviously benefiting from a return of order activity in the last six months.

Right. But so, starting in the second quarter though, you'd expect to see the deliveries maybe more in the 1,500 unit type range? Or would it be more the second half of the year most of that backlog you would expect to be delivered?

You know, orders will pick up in the second quarter. Obviously, we don't give guidance so it's a little --.

No, I mean on the deliveries, not on the orders there.

I'm sorry, thanks, Mike. We expect deliveries to pick up.

Okay, great. Thanks a lot.

Thank you, Michael.

And your next question comes from the line of Cory Armand with Rice Voelker. Please go ahead.

Good morning. I was wondering, with volatility in the input costs, if there is a possibility for you to put in surcharges into your contracts to your customers, if that's something that's standard for the industry and whether or not you're able to protect yourself at all.

Let's say, Cory, that we're looking into that right now because the input prices have obviously gone up a little higher than we had projected here earlier this year. So, we're going through that analysis right now, we're trying to determine whether or not we have the capability of doing that.

I will tell you that there is focus on it from our side. It is not necessarily an industry practice, it all depends on the marketplace. And I think we have to do that somewhat on a selective basis. But I will tell you that it is something that we are currently analyzing.

In terms of the dollar value of cost of goods sold, the mix between steel and aluminum, what is the mix? Is it 80% aluminum dollars and 20% steel, is that roughly around where it is?

You know Cory, we tend to stay away from that kind of information because it is competitive in nature. As you know, our competitors are always on these calls.

Okay. And do you provide the backlog dollars? You may have done that in your scripted commentary, I didn't get that.

We didn't disclose that either.

Okay. All right, thank you very much.

Thanks, Cory.

Thanks, Cory.

(OPERATOR INSTRUCTIONS)

And our next question comes from the line of [Andrew Wetole] from [S.L. Putnam]. Please go ahead.

Hi, guys.

Good morning.

Just a quick question, in the prepared remarks it seemed like the orders and backlog data was a little different from the press release. Can you just go over those figures again for me?

Sure.

Maybe I wrote them down wrong.

Yes, I don't think it's different from the ones in the press release though. Bear with me for a moment. Backlog in terms at the March 31, 2008 was 6,785 units.

Okay.

Did you need something else?

What were orders again?

Order activity was 2,673 units.

All right. And you had 1,450 cars in the operating leases in the quarter?

Right.

Okay. And you said 1,287 units delivered?

Right.

Okay. All right, thanks.

Okay.

Your next question comes from the line of Peter Park from Park West Asset Management. Please go ahead.

Hi. Just given the rise in steel prices et cetera, are you at all upside down on some of your contracts? Or do you hedge the metal at the time of signing the order? Thank you.

You know Peter, we have a variety of ways that we try to reduce the material cost. As we talked about earlier, in some cases, we buy forward and we did that during the quarter. We haven't gotten involved in hedging activities as of this date. And then to your last question about being upside down in orders, typically you have to value out your backlog order activity for the accountant at the end of every quarter to determine if you have any what's referred to as lost contracts.

I see. So, if you had those, those would have already been reflected in the first quarter earnings?

That's correct.

Okay, great, thanks very much and good luck.

Okay.

Thank you.

And your next question comes from the line of Brian Loftus with Maple Capital. Please go ahead.

Hi, good morning.

Good morning, Brian.

Has the Board considered another stock buy-back authorization?

Has the Board considered it? Well, we're at a point we didn't really put that in front of the Board at this time. But it's prudent for us to always take that under consideration.

Yes, Brian --.

Well, when will you be talking about it again?

Well, we talk about the allocation of capital at every Board meeting. At this point in time, we're pursuing acquisition and organic growth initiatives. And again, every quarter, we review the same issue in terms of capital allocation.

Okay. I think you were doing the acquisition and growth initiatives last year when you were buying back the stock at $45 to $50 a share. So, now would be a good time with the stock price lower and the orders improving. I just wanted to mention that.

Thank you for that.

Thank you.

Could you expand on the comments on Titagarh Wagons, tell us what you've been doing with them so far this year, what you hope to accomplish this quarter?

Just real briefly, we've sent over our engineering staff and supporting staff into various meetings with our folks, our joint venture partner in India, really to take the time to deeply understand the market requirements and the product specifications. We've done a lot of those meetings now and we're moving forward. So, so far so good with the meetings and people are coming back with very enthusiastic feelings about the project and the market itself.

Very good, thank you.

Thank you.

And we have a follow-up question from Bob Schenosky from Jefferies. Please go ahead.

Thank you. Just to clarify, the cars that you're leasing and trying to be opportunistic in a difficult market, which is great, are you finding that these lease agreements are to what you would consider existing customers that because the metals prices are somewhat hesitant in the current market to become more aggressive and buy?

Typically, a customer doesn't make a lease by choice. These are mostly shorter-term leases the customer intends to lease right along. So, I don't think that's an issue.

Okay. And then, the shorter-term leases, what would be say average duration?

Three years or less.

Okay, thank you.

Thank you.

Thanks, Bob.

And there are no further questions at this time. Please continue.

Very good. Well thank you, everyone, for joining us on today's call and thank you, Katie, for monitoring it. And goodbye and talk to everyone next time. Thank you.

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