FreightCar America Inc (RAIL) 2008 Q4 法說會逐字稿

Ladies and gentlemen, good morning and welcome to the FreightCar America fourth quarter 2008 earnings conference call. At this time all participant lines are in a listen-only mode. There will be an opportunity for 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 p.m. Eastern Daylight Time today and will run through 11.15 p.m. Eastern daylight Time February 24, 2009. To access the replay dial 800-475-6701 and then you will be prompted for an access code. The access code is 985084. An audio replay of the call will be available from the Company's website within two days following the earnings call.

I would now like to turn the conference over to Chris Nagel, Chief Financial Officer of FreightCar America. Mr. Nagel, please go ahead.

Thank you. Before we begin, we would 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 risk 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 including increasing surcharges, and additional risk factors described in our earnings release for the fourth quarter of 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 fourth quarter of 2008 is posted on the Company's website at www.FreightCarAmerica.com.

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

Thank you, Chris. Good morning. Joining Chris Nagel and me today is Ted Baun, our Senior Vice President of Marketing and Sales. We would like to welcome you to FreightCar America's fourth quarter 2008 earnings call.

Before we discuss the quarter I would like to note that this will be Chris Nagel's first earnings call with us as our CFO. On behalf of the Board and the rest of the management team I would like to welcome Chris to FreightCar America.

Now on the business at hand I am going to discuss the highlights of the Company's performance in the fourth quarter and full year. Then Chris will provide a detailed review of our financial performance.

Despite our challenging market conditions, we are very pleased with the financial results for the fourth quarter and full year. Total sales revenues in the fourth quarter of 2008 were $272 million while net income was $8.3 million or $0.70 per diluted share. For the full year sales and revenues were $746 million, while net income was $4.6 million and $0.39 per diluted share.

Clearly, we had a strong finish to the year while taking important steps to prepare us for the continued near-term downturn to take advantage of our strategic opportunities as they arise. I will speak more to this in a moment.

Regarding the overall railroad market, for the fourth quarter commodity loadings for North American rails continued to weaken yet coal loadings increased 3.4% compared to the fourth quarter of 2007. Record loadings of Powder River Basin coal along with significant export activity contributed to this strength. While coal loadings remained strong in the fourth quarter, the ongoing recession and its impact in terms of lower domestic demand for electricity generation along with the reduced export activity have served to weigh down the loadings in the closing weeks of 2008/early 2009.

The economic headlines are anticipated to continue to pressure global coal demand throughout the year. But while downward economic pressures are generating uncertainty in the near term, we believe that the long-term fundamentals of coal demand are strong.

On the intermediate horizon we expect coal to remain the primary fuel source for electricity generation. There are approximately 27 plants representing 15,000 MW of coal fired capacity currently under construction and we expect that coal will continue to provide roughly half of the projected fuel source for total electricity generated during the foreseeable future.

In addition, increased industrialization and associated demand for coal-fired electricity generation in the emerging markets including India and China will continue to drive growth. We believe the long-term demand for our main products and services is healthy and we are confident FreightCar America remains well positioned to capitalize on this demand.

I would now like to spend a few minutes discussing the Company's proactive efforts to mitigate the impact of the current economic conditions. We implemented several key initiatives. We engaged our customers and vendors to creatively and actively manage cost increases. We also took measures to minimize internal costs by concentrating on reduced SG&A expenses.

Further, we streamlined manufacturing operations and maximized plant efficiencies while taking advantage of available capacity to meet customer demand. In addition, during the year we adapted our pricing model to provide coverage for material cost escalation moving forward.

During the past few quarters we have also worked diligently on cost reduction initiatives to generate margin improvement to help offset deteriorating market conditions. Our cross-functional margin improvement teams and our value engineering teams exceeded their goals in 2008 and have been charged with continuing their efforts in 2009, evaluating costs at every level of the organization. These teams remain focused on the identification and elimination of waste in our processes in order to foster a continuous cost improvement culture.

As noted previously, we also worked to control internal costs throughout 2008 by reducing selling, general, and administrative expenses. We are pleased to note that we recognized year-over-year SG&A savings of approximately 20% from 2007 to 2008. Further, based on anticipated volumes we project a further 20% reduction in SG&A expenses from 2008 to 2009.

We have also made the preservation of our strong balance sheet a critical priority. Nick Matthews, our Senior Vice President of Operations, and his team responded to this challenge, reducing year-end inventory levels by approximately 37% versus year-end 2007 levels. Our cash position remains strong with cash on hand of approximately $150 million as of today and we have two credit facilities in place with no borrowings drawn against them.

Strategically, we are executing on several initiatives in order to further position FreightCar America for long-term success. We are moving with our plans to increase our participation in the rail sector with updated and expanded product offerings. For example, in 2008 we introduced a new [VersaFlood] aggregate car design with an independent automatic door system. We believe once the market begins to normalize our updated and expanded product offerings will help us diversify our revenue stream.

In response to competitive market conditions and a constrained lending market, we are offering railcar leasing to our customers on a selected basis. We believe our leasing activity improves our ability to service our customers and compete effectively. Long-term we will continue to access -- to assess our position in the railcar leasing market and the impact of leasing on our business model. In the near-term we continually look forward to opportunities to package our leases for sale to our leasing partners.

To further diversify our revenue base we continue to explore aftermarket initiatives. One such effort we are undertaking in a refurbishment market. We are currently pursuing several refurbishment opportunities and, in fact, have a number of programs currently underway. With respect to our aftermarket parts business, we have increased our revenues by approximately 50% in 2008 versus 2007 and dramatically improved our customer service levels during this period.

We also are evaluating opportunities to acquire capabilities in the aftermarket sector since we believe there is 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 services that address the entire lifecycle of the coal car.

We are continuing to explore opportunities internationally as well. Our joint venture in India is progressing well. The managing director is on board and is actively working with the Indian Railways and other industry participants to develop and capitalize on opportunities in the Indian rail market. The joint venture company is developing prototype cars based on FreightCar America's design and the prototypes are expected to begin shipment here in the first half of 2009. We anticipate the joint venture will be accretive to earnings in 2010.

We have continued to strengthen our executive management team by hiring Nick Matthews as Senior Vice President of Operations, Chris Nagel as the Chief Financial Officer. Further, we successfully transitioned Ted Baun to Senior Vice President of Marketing and Sales. Combined with other strong members of our team we now believe that talent is in place to drive both organic and strategic growth.

As I have mentioned, we expect a challenging economic landscape in 2009 with attendant levels of railcar purchases throughout the year. However, we fully intend to emerge from this downturn in a position of strength. As example, we have taken further steps to reduce our costs already in 2009. We have eliminated additional positions and frozen salaries at all levels. The management team has voluntarily suspended its equity awards for 2009 under our long-term incentive plan.

I believe that these actions demonstrate our proactive approach to dealing with the current economic environment and put us in the best position to capitalize on commercial and strategic opportunities.

Now I would like to return the call to Chris Nagel to address our fourth-quarter financial results in more detail.

Thank you, Chris. I would like to mention how excited I am to join the FreightCar team and believe we can fully meet the challenges and capitalize on the opportunities that lie ahead. Order activity in the fourth quarter was quarter was 1,706 units, which represents a decrease of 623 units or 27% from 2,329 units ordered in the third quarter of 2008. We expect order activity to be at reduced levels for 2009 as we continue to be challenged by difficult market conditions.

Rail car deliveries totaled 3,624 units in the quarter including deliveries of the 3,394 cars sold and 230 cars leased. That compares to 1,605 total units delivered in the same period in 2007. For 2008, railcar deliveries totaled 10,349 including deliveries of 9,614 cars sold and 735 cars leased. That compares to 10,282 total deliveries in 2007.

Our total backlog of unfilled orders was 2,620 units at the end of the quarter compared with 4,401 units at the end of the third quarter of 2008 and 5,399 units at the end of 2007. As Chris mentioned, our sales revenue for the fourth quarter of 2008 was $272 million, up 14% from the previous quarter and up significantly from fourth quarter 2007 sales of $137 million. Sales revenue for the year was $746 million, down 9% from 2007 sales of $817 million reflecting soft activity in the early part of 2008.

Due to heightened competition and general market conditions, average selling prices declined in the fourth quarter of 2008 compared with the fourth quarter of 2007. This reflects a shift in product mix to car types with different material costs and, more importantly, pricing pressures dictated by softer demand.

Gross margin for the quarter was $21.3 million, which is an increase of $6.2 million or 41% over the fourth quarter of 2007. The margin rate for the quarter was 7.8% compared with 11% in the fourth quarter of 2007. The decline in margin rate reflects the pricing pressures I previously mentioned.

Selling, general, and administrative expenses for the fourth quarter were $8.6 million, a 30% decrease compared to the same period of 2007, of $12.4 million. For the year SG&A expenses were $31.7 million, down 18% from 2007 expenses of $38.9 million. Despite this reduction we continue to increase our investment in railcar development activities.

Our effective tax rate for the fourth quarter was 38.0% compared to an effective tax rate of 37.0% in the fourth quarter of 2007. Our full-year effective tax rate was 34.7% compared to 35.9% for 2007. The decrease in the effective tax rate from last year was primarily due to the impact of certain favorable tax benefits on a lower level of earnings.

Net income was $8.3 million for the quarter compared to a loss of $16.6 million in the fourth quarter of 2007. Diluted earnings per share were $0.70 in the quarter compared to a diluted loss per share of $1.42 for the same period in 2007. The loss in the fourth quarter of 2007 includes $30.8 million in costs associated with the shutdown of the Company's manufacturing facility in Johnstown, Pennsylvania. Excluding these costs earnings for the fourth quarter of 2007 were $2.8 million or $0.24 per diluted share.

For the full year net income was $4.6 million, down from 2007 earnings of $26.5 million. Diluted earnings per share were $0.39 in 2008 compared to $2.17 per share for 2007. Earnings for both 2008 and 2007 were significantly impacted by costs associated with the shutdown of the Johnstown manufacturing facility with charges of $20 million in 2008 and $30.8 million in 2007. Excluding these charges net income for 2008 was $17.7 million or $1.49 per diluted share compared to $46.2 million in 2007 or $3.79 per diluted share.

With respect to cash flows, we used $20.7 million in operations in 2008 compared to generating $41.4 million from operations in 2007. The reduction in cash flows from year-to-year was largely due to the decrease in earnings and the timing of certain large shipments to customers. In 2008, the Company also invested about $47 million in railcars put in service under operating leases as we tactically responded to market activity.

Despite the reduced level of cash flows in 2008, we enter 2009 with a strong balance sheet and good liquidity. Our cash balance at the end of the year was $129 million and is approximately $150 million as of today. We have both our $50 million revolving credit facility and our $60 million warehouse facility, both of which are undrawn.

In summary, and as Chris discussed, we finished 2008 in a strong fashion. Our focus in 2009 will be to position ourselves for a soft market by focusing on those things under our control while aggressively pursuing commercial opportunities with our customers. We will continue to reduce expenses and manage working capital to preserve cash and maintain the strength of our balance sheet.

With that I would like to turn the call back over to Chris Ragot.

Thank you, Chris. As 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 FreightCar America going forward. In addition, our financial strength will enable us to navigate the challenging economic environment.

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

(Operator Instructions) Kevin Sterling, Stephens Inc.

Good morning, gentlemen. Chris, you talked about right now you have about $150 million in cash on hand and at the end of Q4 your accounts receivable balance looks like it increased to $73 million at the end of the year. Will this come down in Q1 and have we already seen that reflected in the new cash balance that you talked about?

We had a large receivable that was owed to us in January and that was paid. So that is already behind us and I don't know, Chris Nagel, if you could --?

Reflected in that balance.

Yes.

Okay. With your $150 million in cash on hand today, what do you think your cash position will be later in the year? Because I know you are looking at taking out a lot of costs and things like that. Could you talk about your expectations for the rest of the year with your cash?

Unfortunately, Kevin, I don't think we are in a position right now to be able to tell you by quarter what we think the cash balance might be. But I think the message we are both trying to send is that we intend to be very proactive in terms of managing in this environment. I am already seeing that the Company, after my four weeks here, is very, very intent on doing what it has to do in order to reduce costs and maintain the strength of the balance sheet, including its cash position. So we are going to do everything we can to keep that intact throughout the year.

Okay, thank you.

Kevin, I would second that. As you and I have talked about in the past, we are in a preservation mode right now. We are going to work real hard at that. Market activities are lumpy at best, although you will hear a little bit down the road here I think from Ted, market activities haven't been all that bad for us here as a start in the first quarter. But end of the story, we are going to preserve our cash and we will do the best job we can in that arena.

Okay, thank you. Well, Chris, that is a good segue into my next question. Can we talk a little bit about what you are seeing out there in the market? Are you seeing more bidding activity given the price of aluminum and steel falling making coal cars cheaper? What are you seeing in terms of market activity? And lastly, what were your orders in the fourth quarter?

I believe the orders we received in the fourth quarter right around 1,700 to 1,800 units, right in that range. And I would say now in the first quarter -- I will let Ted speak about this maybe in a little more detail -- but I am pleased with the market activities that we are seeing here in the fourth quarter -- I mean, the first quarter. They are not as robust as they have been in the past, but we are quite pleasantly surprised with the quoting activity that we have going on now.

On top of that I would say that because of input costs being so far down, we are proactively reaching out to our customers and putting some very attractive pricing to them on some cars. And I hope that it's going to stimulate some activity as we go through the year. Ted, do you want to add anything?

Sure, Kevin, this is Ted. The market is uncertain and it's tough to predict but we really believe that the coal car market is more robust than other car types. And as such, we look at this and we sort of anticipate somewhere between 6,000 and 8,000 cars in the industry -- coal cars in the industry being delivered in 2009. And as we have given all of you guidance before, our historic market share over the past couple of years has been in the 70% range, plus or minus.

So we have seen a level of quoting activity pick up here as we progress into 2009. It's not dead by any stretch nor is it where we would like to be, but we think it's -- we are happy with it as we sit here today.

Okay, thank you. Would you say -- is a lot of your quoting activity coming from utilities or is it split between the rails and utilities? Could you just give a little more color on that?

Mostly utilities, some rail.

Okay. Chris, along those lines do you see any benefit from the stimulus package in regards to bonus depreciation for the rails?

You know, I haven't really been able to get my head around all of the different aspects of the stimulus package. But certainly, if there are provisions in there like there were in '08 and they follow through in '09, I do feel that that will help our customers see a way forward on taking what I consider attractive car prices right now and also from an accelerated depreciation point of view, put those in place before the year is over. We will have to see how that all plays out.

Okay. Chris, in regards to your working capital use in the quarter, is that primarily reflective of the large amount of deliveries that you had?

In the fourth quarter?

Yes.

Yes, that is a fair comment.

Okay. Then one last question and I will let others get in the queue. You talked about a significant increase in your refurbishment revenue between 2008 and 2007. Are you looking for continued increase in refurbishment revenue for 2009?

Yes, and we are already seeing some of that. We are very pleased with the start we have had in that arena here in the last 30 days. So we are going to continue pushing that and it seems like there might be more opportunities doing that type of work than maybe selling new cars per se. You just have to balance it out and you have to find your way forward.

We have a very scrappy group of people in this company and we work real hard. We have got really good customer relations, so at the end of the day I think it's going to pay off.

Okay. Is there any way you could help quantify potential refurbishment revenue for '09?

Not quite there yet. I will probably have more information on that as the year progresses, Kevin.

Okay. Well, thanks so much for your time today and best of luck.

Michael Gallo, C.L. King.

I just had a couple of follow-up questions. I wanted to just drill down, Chris, on the refurbishment business in general. What kind of margins you are seeing on that business relative to your existing business?

I know you mentioned that it was up significantly, obviously, off of the low base, and you expect it to be up again. But wanted to just drill down to what we should expect to see on a relative basis in that business in 2009 versus 2008?

I think the margin business in general certainly is better with refurbishment/repair work than it is in new car sales, especially in this environment. I would say that we look for 15%, 20%, 25% in general in that range for the type of work that we do.

The work really varies with the customer base. Some want a comprehensive refurbishment, some want some light repairs and our margins obviously correspond with the type of repair work we do. On new car margins we are talking mid to high single-digits, in that arena.

But in general what we like is the market activity regarding the type of work that we do in refurbishment is well regarded. And there seems to be customers out there who are looking to take advantage of refurbishing and getting repairs done to cars in this general environment that we are in today.

Okay. Then just a follow-up on the international side, I know you mentioned India, that the JV was on track. I wanted to just drill down to whether you see other markets that look attractive to you now. Certainly, it seems like the international story for coal demand is even stronger than what has existed in the United States over the last couple of years. So wanted to get a feel for what you are doing to increase your exposure to that internationally?

Yes, this is Ted Baun. I don't want to get into the details on this call but we have expressed to all of you before what we are doing internationally. We really look at this as the time -- right now is the time to make those sorts of investments and pursue those courses of action in other parts of the world other than India. And we are in other places evaluating opportunities as we sit here today.

I would add one comment to that, Michael. There is one particular area of the world that I don't want to get into the specific area or the country itself, but we are going to be delivering some cars here pretty soon for the purpose of getting them tested. If everything goes well -- this is not India, this is a separate country. If everything goes well, we could see some significant opportunities there.

Okay, great. Thanks a lot.

Jason Feldman, UBS.

So just looking at the gross margins this year, they already look -- if my historical data is right -- lower than they were in '01 and '03. But your manufacturing footprint -- you have done a lot of work and should be a lot more efficient today without Johnstown and with the newer more efficient plants. What else is different that is really hurting the gross margins? Is it just the raw material costs? Is it industry pricing?

We had a lot of volatility in input costs last year as you know. That was all over the map. I would say the other thing that hurts us a little bit is that the large orders where we might get 500, 1,000, or 1,500 cars per customer, we are not getting that type of activity right now so we are producing in smaller batches. And when you produce cars in smaller batches -- 200, 300, 500 -- it does have somewhat of a negative affect on our productivity.

So we don't get the long runs that we might have gotten back in the '04, '05, '06 period but we continue to get orders and we continue to drive as much efficiency as we can with those short order runs.

So when I think about where gross margins could go -- again, I know that the Johnstown closure at various points this year -- I shouldn't necessarily look at the full year 2008, but what can I think of as changing?

We have got production volume that is likely to decline. We should get, hopefully, some more stability at least in raw material costs, but probably not going to get back to those long runs. Are there any other kind of big swing factors that could move things one way or the other?

Well, the input costs -- we are just watching that very closely. Right now we are seeing that they continue to drop down slightly and we are hoping for stabilization there. I think there is a point in time where our customers, once they see that prices are possibly going to increase in terms of aluminum and steel, I think that might generate some additional activity for us. Right now everybody is kind of in a waiting game waiting to see how the supply chain and all figures out.

On the manufacturing side, we continue to be very aggressive in how we deal with our capacity issues. So we have had the type of product that allows us to start up and shut down fairly quickly regarding our lines and we take full advantage of that. It's that along with our manufacturing processes -- I really do think, at least for the car types that we are in, we are best-in-class. So we will do the best job we can in this environment.

Okay. And on SG&A I think you mentioned that you are expecting a 20% decline in '09 versus '08 levels. That is the net number that already takes into account the variable versus fixed components of SG&A?

Sure, it would be attacking both. It's clearly getting toward trying to reduce the fixed level of expenses primarily in the business.

Jason, just a quick comment. We got ahead of this -- we started the process of really adjusting our cost structure here about a year ago this time. I just said we are just going to go do what we have to do and we have done that and we will continue to do that as we move forward.

Agree. Because when I look at the last downturn, for example, you didn't burn through cash at all, pretty much, at almost any point. And I am just trying to figure out what, if anything, is going to be different this time. Obviously, you have got some public company costs you didn't in the '01/'03 timeframe.

Absolutely. We did that and we also realized that last year we got into the leasing business on a tactical level and we have made some investments there. So we have some of that on our balance sheet which consumes some cash. This year we might have to do a little bit of that also, but it's nothing outrageous and we watch that very closely.

Okay, thank you very much.

Paul Bodnar, Longbow Research.

Just the first question, guys, surrounds India and I know actually you said you are looking at it being a little accretive in 2010. What are you expecting there for deliveries in 2010 or do you think you can kind of ramp that up to full production or will it be from a slower phased in process there?

I would say somewhere around midyear this year I will have a little bit more color on that. We have our managing director who started with us who is on board full-time in India. Great guy, great background and expertise; a really strong leader. He started with us in January.

We are working well with our joint venture partner. We are working well with the Ministry officials. The market demand is there; there isn't that type of technology there. I will be able to offer you a little more color as the year goes on. I am more focused right now on making sure I engineer the right car for the market conditions and getting that approved by the Indian committees and associations and so forth.

Okay. Then back to SG&A real quick or just general cost reductions, where do you see yourself at? It sounds like you have done a lot already. What do you have left to do? What have you done already I guess from the end of the year through the first part of 1Q '09 and what else is still out there?

I have already mentioned, we have frozen our salaries throughout the organization. We have had two RIFs here in the last 60 days and the executive management team voluntarily -- we deferred our equity awards for '09 because we didn't think it was an appropriate time to be doing that. On top of that I would say to you that we have in place in our company a plan that says if we see volume reductions of 10%, 20% or anything of that sort versus what we have for our budget, we are prepared to take out additional costs.

We are going to be fairly -- we are going to be mindful because you are-- it is an important thing when you make decisions on making reductions and taking out costs. But at the same time, we have the fortitude to stick with it and move forward in that direction. So we have been aggressive for the last year, we will continue to be so if we need to be.

But it sounds like a lot of what you have, unless things come in worse than expected, really you have already done them.

I would say there is a little bit more to do here in the first quarter.

Okay. I think that is it. I will jump back in the queue.

Steven Barger, KeyBanc Capital.

Good morning. You talked about being proactive on car prices to maybe get in front of some customers. Is that a reaction to competitive pressure or are you just trying to spur some demand from some of the traditional customers?

This is Ted. We are just trying to -- we are doing everything we can in this current environment to stimulate demand, essentially. We are not sitting back and resting on our laurels. We are going after it and we are trying to find initiatives or opportunities both domestically and internationally to be accretive to 2009.

I understand. Do you find that your other competitors are doing the same things right now or is pricing pressure significant in the context of declining material costs or is it still holding up okay to date versus your quoting activity?

In general I think everybody is in the same boat. We are all looking for business. I am going to withhold on pricing commentary at this point. It's a little too early in '09 to see where this is going.

Okay. Can you talk about the lease rates relative to last year or when you started thinking about getting involved in the business? And maybe talk about the life of the leases that you have put out there, how long they are?

Sure. They are generally operating leases. Less than 10 years, I would say 10 years or less. Those leases, as the credit markets tightened up in the fourth quarter, we saw a little bit of lease rate strengthening going on in the market. So we will see where '09 takes us.

Okay. Going back to just the general end-market condition, a lot of people are comparing this to the 2001 downturn, some to the 1982 kind of downturn. Can you talk about the conversations that you are having with customers right now maybe in the context of what it was like in 2001? Are they more concerned about how they are going to fund these cars or more cautious about wanting to defer deliveries?

You know, in general we have a good customer base because the majority of the customers we deal with, both utilities and class one, they are in good financial position these days. So it's always good to have a customer base that is in a good position.

Regarding of the market this year, I think a lot of people have been waiting on the sidelines waiting to see how everything is going to flush out. But I would say that I am fairly encouraged with the quoting activity right now because a lot of these customers have ability to get to capital and to get access to capital. On top of that we have some very low input costs right now, so I am hoping there is an opportune period here where people take advantage of this situation. We are starting to see a little bit of that in our activities right now.

Okay. I know you have talked a lot about gross margin already, but if you are thinking plus or minus 5,000 cars in 2009 you will essentially be running one plant, I think. So is it possible to get back to a double-digit gross margin or at least high single-digit as you move through all of this -- the pricing actions that you are going to take? Or will the smaller orders size that you talked about make kind of mid single-digit gross margin as good as it gets?

I think the high single-digits. It's where we are focusing on in this environment; that is realistic, and so we will see how the year pans out. Certainly, in the fourth quarter we took advantage of some situations with deliveries and input costs coming down and working with our customers proactively and we produced some pretty good results. We are hoping that we will be able to do that in some periods of this year.

Okay. Just one final one, I know that you have been drawing down the Danville plant. Are there going to be other costs associated with that?

In Danville?

Yes. Any cash costs going forward from kind of idling the plant?

You mean as far as employment contracts and stuff like that?

Yes.

No, not really and I would say, obviously, like any business depreciation shows up every day for work so we will have to deal with that issue in Danville. But other than that we are ready to do the things that we need to do.

At the same time, though, we are being very creative right now in how we balance our capacity at both locations. You have to realize, obviously, Roanoke versus Danville, depending where you are shipping the end products there is freight considerations that have to be put in place and we are looking at all of that. So we are at constant analysis on how to balance ourselves as we move forward.

Okay, thanks very much.

(Operator Instructions) [Jonathan Bagdell], Manning & Napier.

Good morning. I just wanted to ask about the receivable and the cash balance that you guys have been talking about. Is this the same receivable that you guys were talking about during the third quarter call?

No, the third-quarter call we were talking about a receivable that was due to us in November. It was approximately $55 million, give or take, and we have received that. And then there was another large receivable that was owed, it was approximately $60 million. And that was, I believe, the third week of January that was paid.

Okay, so is this a new trend that we are going to be seeing in the quarterly statements that the receivables are going to be much higher?

No, this was one specific customer and it had to do with really negotiating a deal where paying it off over a period of time was better than putting these cars on a lease.

Okay. So if you guys received the $60 million receivable and your balance was $129 million so that takes you to $189 million. So that means you have burned about $40 million quarter-to-date. Is that correct, in the first month and a half?

Yes, I mean, I think the math flows but you can realize now that we are right now in production on certain cars for deliveries. So it's just the typical collect and build type cycle.

Yes, I think it's a timing cycle in our production right now in the first quarter. I wouldn't say it's robust, but it's pretty good. So we are just going through the normal process of ordering materials and there are receivables owed to us and I would just say it's more of a timing issue.

Okay. Have you had to relax any of the terms -- your credit terms? Any customers in trouble?

No.

Okay. All right, thank you.

Speakers, at this time no one else is queued up. Please continue with any closing remarks.

Well, that is it. Thank you, everyone, for joining us. I look forward to our next call. Bye-bye.

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