FreightCar America Inc (RAIL) 2009 Q3 法說會逐字稿

Ladies and gentlemen, good morning, and welcome to the FreightCar America third-quarter 2009 earnings conference call. At this time all participants 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 12 p.m. Eastern Standard Time today until 11.59 pm Eastern Standard Time on December 5, 2009.

To access the replay, please dial 1-800-475-6701; the replay pass code is 121-923. An audio replay of the call will be available on the Company's website within two days following this 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 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 including increasing surcharges and additional risk factors described in our earnings releases during 2009 and in our amended annual report on Form 10-Ka 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 third quarter of 2009 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, Chris, good morning. We would like to welcome you to FreightCar America's third-quarter 2009 earnings call. I'd like to discuss our operating results for the quarter and what we're seeing in the marketplace, and then Chris will provide a detailed review of our financial performance.

As you know, the market for new railcars continues to be very challenging. Reflecting this, total sales revenues for the quarter dipped to $55 million from $104 million in the previous quarter. Net income declined in the quarter as well from $7 million or $0.59 per diluted share in the second quarter of this year to about $1 million or $0.09 per share this quarter.

There were no orders for new railcars in the third quarter of 2009 compared to 694 units last quarter. Railcar deliveries were 695 units this quarter compared to 1,207 units in the second quarter. Our total backlog of unfulfilled orders was 777 units as of September 30, compared to 1,472 units as of June 30.

It is clear from these metrics that the market for new coal cars continues to be very soft. Coal loadings have improved in recent weeks, yet commodity loadings for North American rails continue to be significantly reduced compared to last year.

Coal loadings in the third quarter of 2009 decreased 10.7% compared to the third quarter of 2008, but we have declined significantly less than other commodities. Sequentially coal loadings for the third quarter of 2009 increased 6.9% as compared to the second quarter of this year. The number of railcars that are currently in storage and rail velocity metrics remain high placing downward pressure on coal car demand.

Recession driven reductions in demand for electricity, ample utility stockpiles, natural gas substitution, and lower coal production also continue to negatively impact coal activity. Not surprisingly given these factors, order activity for coal cars has continued to decline. We believe that these economic headwinds will continue to challenge the coal railcar market in North America well into 2010.

On the positive side, roughly half of the nation's electricity is generated from coal and domestic coal consumption is projected to grow through 2030. To meet this demand there are approximately 25 new power plants representing around 14,900 megawatts of coal-fired capacity currently under construction. As a result we believe that our main products and services should be in demand for the foreseeable future.

However, we acknowledge the uncertainty about future government policies in this area and the potential of a long-term shift away from coal as a primary fuel source for electric power generation. Notwithstanding the uncertainty surrounding growth in coal fired power generation and resulting impact of demand for new coal cars, a significant portion of the current coal car fleet consists of aging sealed body railcars. We remain confident that our customers will continue to take advantage of our enhanced payload capabilities afforded by the acquisition of aluminum bodied coal cars.

During the quarter we continued to offer railcar leasing to our customers although we have seen a slowdown in these opportunities reflecting the weakness of the market. While we intend to continue to offer leasing options to our customers, we will likely even -- will likely even be more selective in pursuing leasing opportunities given the importance of maintaining liquidity and our strong balance sheet. And as I've said before, we're not seeking to build and hold for long-term lease portfolio per yield, we continue to work with our leasing partners to monetize our leases as opportunities present themselves.

As of September 30, 2009 the Company's investment in railcars under operating leases was $63 million, which represents a net reduction of $8 million since the end of the second quarter. During the quarter we invested $8 million in additional railcars under leases and successfully sold approximately $16 million of leases at a positive gross margin. We still do not anticipate a significant increase in our investments in leased railcars through the end of the year.

Although the growth of our aftermarket business slowed during the third quarter due to the high level of railcars in storage, year to date sales have increased significantly over last year and the business continues to enjoy strong margins.

International, we continue to work towards approval of our railcar design for use in India. The Indian rail market, despite the delays we face in getting into market we still believe that a market potential for aluminum coal cars in India is very strong and is worth our continued effort. We are pursuing other opportunities to enter other railcar markets and opportunities for export shipments in 2010.

It goes without saying that we are in the midst of a very unhealthy railcar market. Until we see a meaningful reduction in the number of railcars in storage it is unlikely we will see a recovery in the market for new railcars. At this point there is very little visibility as to when this will occur. At a minimum it seems unlikely that we'll see any uptick in new car orders in 2010. Our current outlook suggests that the orders next year will likely fall below 2009 levels.

Facing this difficult forecast we are taking immediate steps to further reduce costs. These actions include additional headcount and salary reductions and limits on outside services which will result in further meaningful reductions in spending.

Over the summer we temporarily idled our new railcar manufacturing at our facility in Roanoke, Virginia further reducing costs. While we must continue to adjust our cost structure to be in line with declining revenues, we also recognize that we cannot cut our way to growth.

We are aggressively pursuing our strategic initiatives to broaden and strengthen our business including refurbishment, aftermarket parts and services and international expansion. We believe that patience will be rewarded as the railcar market continues to be soft and we will be prudent investing in opportunities as they present themselves.

In light of the weak outlook for new railcar sales, preservation of liquidity in our strong balance sheet remains a critical priority. We are dedicated to maintaining our strong cash position throughout this downturn. Our cash and investment balance decreased to $134 million at the end of the third quarter compared to $152 million at the end of the second quarter. Most of this decrease was due to the required pension contributions we made in September. Chris Nagel will give you more details on third-quarter cash flows in a moment.

In summary, the near-term picture for new railcars isn't bright. We are once again proactively responding to market conditions by aggressively reducing costs while we strategically position ourselves to weather the storm and emerge a stronger company. Now I'd like to return the call to Chris Nagel to address our third-quarter financial results in more detail.

Thank you, Chris. As Chris mentioned, our sales revenue for the third quarter of 2009 was $55 million including $17 million from the sale of leased cars. This compares to sales revenue of $104 million including $46 million from the sale of leased cars in the previous quarter. Revenues from leasing and aftermarket sales continue to make important contributions to margin, but still represent less than 10% of sales.

Gross margin rate for the third quarter was 12.5% compared with 15.3% last quarter and 9.5% for the third quarter of 2008. The decrease in the rate from the previous quarter was due to lower margins on new car sales. Recall that revenues in the second quarter of this year included the sales of some higher margin specialty cars. The increase in the margin rate compared to the prior year was due to an increase in part sales and leasing revenues which carry higher margin than new car sales.

Selling, general and administrative expenses for the third quarter were $6.6 million reflecting a small decline from the second quarter SG&A of $6.7 million. Year to date SG&A of $20.6 million is 11% lower than the prior year reflecting the headcount, salary and other reductions we've implemented this year to reduce spending. Costs associated with the recent restatement of our financial statements have partially offset our planned reduction in SG&A spending this year.

Our effective tax rate for the third quarter was a very unusual negative 1241%. Our effective tax rate through the second quarter of this year was already unusually low at about 24% due to the favorable impact of certain tax deductible items on a relatively low earnings base.

The further distortion in the third quarter was caused by an upward valuation of our current deferred tax assets due to an increase in our effective state tax rate this year as a result of a shift of taxable income among states. This positive valuation adjustment applied to the low level of pretax earnings this quarter results in a large beneficial tax rate. For the full year we estimate our effective tax rate will be around 20%.

Net income was $1.1 million or $0.09 per share for the third quarter compared to $7 million or $0.59 per share for the previous quarter and $10.2 million or $0.87 per share for the third quarter of 2008. There has been no significant change in the number of diluted shares outstanding over the past 12 months.

As Chris mentioned, our quarter-end cash investment balance was $134 million compared to $152 million at the end of the previous quarter. The decrease in our cash balance is primarily driven by the $12 million pension contribution we made in September, but we also saw an increase in inventory from the timing of orders and taking in some used cars on trade partially offset by a decrease in leased cars of $8 million.

The assets in our pension plan experienced a significant decline in value with the drop in the market last year causing our plans to fall below the targeted funding level of 80%. As a result we were required to make a large contribution this year. We do not anticipate having to make a similarly large pension contribution again next year, but this ultimately depends on the performance of the market and the movement of interest rates. For the full year we still -- as of today our two credit facilities still remain untapped.

In summary, it's clear that we are in a challenging earnings environment and there is little visibility to when we'll see meaningful improvement. The market in 2010 looks like it will be soft, yet we are hopeful that momentum will build towards some recovery in 2011. In the meantime we will continue to cut costs and manage for cash while we strategically improve our business. With that we are now ready for questions, Gwen.

(Operator Instructions). Michael Gallo, C.L. King.

Good morning. First question is on inventory, it was about $16 million sequentially even though obviously the outlook is things are going to remain challenging for the foreseeable future. So just to get a better feel again for, one, what drove that; and two, whether you would expect inventory then to be a source of cash in Q4?

Mike, most of that inventory increase is we took in some used cars that we're in the process of trying to re-market. So that could be a source of cash. And then with the quarter cutoffs you can just get the timing of when we're building orders. So, yes, most of that increase I would expect to flip in the next quarter or so.

Okay, great. You mentioned you're looking at some additional SG&A reductions. Any feel for what kind of order of magnitude you think is left that you can take out? Is it another $1 million or $2 million of G&A? Obviously you've taken a fair amount out already. And then also the second part to that question, how much was the unusual cost in G&A in the third quarter from the restatement?

Yes, on the reductions in SG&A for next year, we can't give you much guidance right now unfortunately; we're still working through our reduction plans and are going to be presenting our budget to our Board here in December. So we'll need to get them comfortable with our plans and our estimates.

So we can't give you much guidance right now on that, but we certainly would think by the next call we can provide more clarity on the order of magnitude. But we're looking for another meaningful reduction, we can say that. I would say that costs associated with the restatement would be plus or minus around $1 million over the summer.

So excluding that the G&A would have been about $1 million lower? Is that --?

Well, I think that -- it was spread -- that was spread across a little bit of Q2 and a little bit of Q3.

Right, okay. I'm just trying to get a feel for what the run rate -- what run rate of G&A we're at right now excluding that? Would you say it's $0.5 million, a little more than that, lower than it was in Q3?

Well, I think there were statements -- costs again were across both Q2 and Q3. So I don't remember if it was exactly evenly split or not in the third quarter.

Okay. And then just final question. Can you give us an update on where you are in the Indian JV, how long you think -- whether you still expect approval of the prototypes by the end of the year or how long you think it will be before you get into production? Thank you.

We just had a group of people who visited India and they just got back. So they said things were very promising and they are giving me an update this afternoon. In general, we think we'll have the approval process done here in short order and still hoping to ship the prototype here some time the first part of next year. I'll have more on that after I get a download from the team that just came back. But they did say to me, initially they got back last week, that things look very promising.

Okay, thank you.

George Pickral, Stephens, Inc.

Good morning, guys. Chris, I'm trying to reconcile your comments here. You're talking about the need to conserve cash and then you're talking about looking at acquisitions. I guess how do we reconcile those comments and how should we think about that going forward? Would you be willing to draw down on your revolvers or on your cash balance if the right opportunity presented itself? Or issue stock? I mean, how flexible are you going to be with your balance sheet?

Well, I think that -- I'll take a stab at that. I think operationally our focus on cash and liquidity is something that we obviously are -- is very important to us. And we are constantly doing whatever it takes, we think, to be proactive in terms of realigning the size of the overhead with the revenue opportunities. So operationally that remains our focus.

That being said, I think we also recognize that strategically we are going to broaden and strengthen this business. So as opportunities present themselves I don't think we're in a position right now to state to you what we are or aren't willing to do, I think it depends on the opportunity and how compelling it is.

Right now we're not interested in making any big bet because of the need to preserve liquidity. But we are going to continue to look for opportunities to broaden the business. So I can't give you any bright line guidance on what we will or wouldn't do with respect to our cash or tapping debt facilities or issuing shares, that would depend on how attractive the opportunity is.

Okay, but it sounds like if it was an attractive opportunity it's something you would likely do?

I can't say likely or not. I guess I can safely say this -- at this point we're not drawing any lines in the sand. I can't tell you that there's anything we wouldn't do. But we also recognize first and foremost if we are going to make a strategic move we have to focus on liquidity in this marketplace. So we can't sacrifice liquidity for a strategic move, we understand that. We're trying to balance the two.

Thank you. The zero orders in the quarter, was there any sort of timing issue with that whereas maybe Q2 had more than it should have or possibly Q4?

No, I would say there wasn't really a timing issue on that. When we get the orders we post it the way they come in. So there are no orders in Q3 and that's all there is to it and it's a very tough market right now.

Have you all had a quarter before where you had zero new orders?

Not since I've been here.

Is this the lowest the backlog has ever been?

Lowest since I've been here.

Okay. Well then maybe one last question here. How realistic is it to think that we could see another quarter without any orders? And then kind of a follow-up to that -- if we work through the backlog is the right way to think about it being the only -- I guess the effective loss would just be your G&A or would there be anything on top of that that we'd need to think about?

Well, obviously we're trying to reduce the SG&A, but it's an easy business to think about. We have a certain amount of SG&A every quarter. Now we don't just sell railcars obviously, we do have other smaller parts of the business. So we have leasing revenue, we have part sales, we can do refurbishments. But, yes, it's pretty simple. If we don't sell any railcars in a quarter then we look to those other revenue sources and they have to cover our $5 million or $6 million of SG&A in a quarter. So I think you've thought about the math right.

Okay, great. Thanks for the time, guys.

Steve Barger, KeyBanc Capital Markets.

Good morning. You said the gross margin was positive for the lease cars that you sold. How did the economics compare to what you sold in 1Q and 2Q?

Not meaningfully different.

Okay. And is it your -- are those economics -- I know it's based on market prices, but should the economics be the same if you sell other cars going forward?

Well, the cars that you see on the balance sheet, as you know, are in two different buckets. The cars that are up in the current assets in terms of leased railcars held for sale are the ones that we think are still the most attractive for sale. So I think that if we were to flip those you would see that flip at reasonably similar economics.

The ones that are down in long-term are the ones that we think are least attractive, most difficult to sell. So you, one, probably wouldn't see us sell those, but if we got in a position where we thought we needed to sell those in the next 12 months those are the ones that are going to have the more challenging economics.

Right. And the majority of cars that are left on the balance sheet are in the shorter-term asset category, right?

No, it's the other way around.

Okay. I'm sorry if I missed this -- delivery cadence for the 777 that are left, did you talk about that?

The majority of deliveries --.

(multiple speakers) most of it's going to be in Q4, might spill a little bit into Q1 of next year.

Correct.

Okay. And if orders do indeed fall below 2009 levels and the lease economics don't support taking more orders -- I guess trying to go back to the prior question about G&A, is there any way to see a positive EPS outcome in that scenario?

We're working on it. We can't comment yet, but we're working very hard to pull together our plan for 2010. So we're going to do everything we possibly can to make that happen. But we can't tell you with any certainty right now.

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

[Alison Wolf], Longbow Research.

Good morning; this is actually Paul Bodnar. Just a quick question here I guess to follow up on the -- you said the 10% of sales, or slightly less than 10% of sales were aftermarket leasing. Anything you can say on the gross profit side of what maybe that makes up of gross profit this quarter or so far this year?

No, we can't, Paul, right now. All we can say is that they continue to be really healthy.

Okay. And then I guess as well, I mean any kind of new updates on what you're looking at on the acquisition front? I mean, it sounds like you obviously wouldn't be opposed maybe to acquiring something on the refurbishment and parts side or maybe also -- or any thoughts on acquiring some leased assets if they came up for sale and they're attractive?

I would say there are a lot of opportunities out there that we are looking at. As you know, we're focusing on international opportunities, and international I mean beyond India. So we have things going on there but I don't want to get specific at this time. The other opportunities would be around aftermarket which would be service and parts. Any other areas we look for, maybe some areas where you can buy some distressed assets in a market place and we're keeping those options open.

So we've got a lot of irons in the fire right now and keep the options open. I actually think things are ripening quite well and I hope that they'll present themselves in such a way we can take advantage of them in the future. But again, we focus on liquidity. We're going to be very prudent about this and we're not going to do obviously anything foolish.

(inaudible) distressed assets (inaudible) referring to distressed railcars or maybe some leased railcars that are for sale. I mean any preference you'd just name outright saying that I'd rather do refurbishment and parts than buy some distressed railcars or --?

I'd rather focus more on aftermarket.

Okay. That's helpful, thanks a lot.

[Addie Brunstein], [Pro Partners].

Addie, are you there?

James Bank, Sidoti & Co.

Good morning. Chris Nagel, were there any cancellations in your net order, the net to zero number?

No, not this quarter.

Okay. Are you still anticipating this to be a 4,000 car year roughly?

I think it will come in a little bit under that.

Okay. And what was the mix in the deliveries in the third quarter, on the 695 units -- between leasing and new railcar?

I think it was about two-thirds -- I think it was at least two-thirds new cars.

Okay.

Yes, that's correct.

Okay. My question was answered on the SG&A. The securities available for sale, the near $20 million on the balance sheet, what actual type of security is that?

Those were Fannie Mae securities we invested -- we actually had liquidated those early in -- shortly after the end of the quarter, so they're back sitting in cash. We just were able to get a little higher yield on those for a short period.

Okay, great. And at what point do you think you'll have an idea of what the industry might do in 2010 in regard to total railcar deliveries, the fourth-quarter announcement at the end of February?

It's kind of hard to say right now. We're spending a lot of time with our customers because they're going through their budget process too. So it's really important for us over the next 60 days how we see things work out. We'll have maybe more for you on our thoughts there on our next call.

Right, okay. That's all I have, thank you.

[Rick Wilson], Lakeshore Financial.

Good morning, guys. What's the current production rate right now since you've only got the one facility going?

The current production rate -- you mean in terms of capacity?

How many tons are you producing on a monthly basis?

Well, we're just producing to our backlog for right now, so that's all that we have scheduled to deliver right now.

We'll do most of that in the fourth quarter --.

Yes, we'll do most of that in the fourth quarter, a little carry over to Q1.

That's it.

So if no new orders come in in Q4 does that mean you won't be producing any cars for inventory?

I'm not going to produce cars for inventory unless there's an order. I'm not going to consume any cash to build on speculation.

And by doing that you'd be able to (technical difficulty) at that point?

I didn't hear the question.

You'd be able to reduce SG&A if that were the case then?

If we didn't get any more orders?

Correct.

Well, we're already planning for a reduction in orders as we've described next year. So we're going to take those SG&A reductions here fairly quickly.

So my math says that SG&A is roughly about $20 million to $24 million a year.

Well, it depends on where -- for this year we'll end up probably around $27 million and change. So the run rate at the end of this -- we had like $6.5 million worth here that included some restatements of the cost in the third quarter. So I don't know -- SG&A depends on what you want to say. It could be in the run rate of $25 million to $26 million right now before we take further reductions.

Okay. What would you say your market share of delivered coal cars was for the quarter?

It was very strong, normal rates.

And what are normal rates?

You know, 70%, 80%.

So who's producing the other coal cars, is that Trinity or ARI?

I mean, I think at the end of the day it's primarily Trinity. I haven't heard anything from anybody else.

Do you see any pressure coming from those other competitors?

No.

Okay. The aftermarket piece of your business is less than 10%.

Yes, that's right.

And that includes the leasing as well?

Well, I said the two combined are still less than 10%, yes.

Okay. And what are the other markets for international growth?

I don't want to get into specifics right now, but we are working on some things that -- we are working in areas where we haven't worked before and we're seeing some promising signs.

Okay. So do you have any idea what type of orders will come in for coal cars for 2010?

It will be less than 2009.

Okay. Thank you very much.

Jason Feldman, UBS.

Good morning. A small amount of PP&E is now categorized as held for sale. Is that a facility or just a couple of random pieces of equipment, anything we should pay attention to?

It is what remains of the Johnstown production facility that we actually are in the process of marketing. And actually are hoping to consummate that sale fairly shortly.

Okay. And do you have some sense -- I've heard varying industry wide numbers, but specific to coal cars do have a sense of how much of the fleet is in storage? Basically how much slack needs to be absorbed before customers come back to ordering cars?

It's hard to say for sure, but I just use a number that could be around 30,000, 35,000.

Okay. And then the last question is, you've done a fair amount of product development over the past year or two. When the market recovers what car types do you think you're going to be competitive in or really participating in? Obviously coal, but in the past you talked about Intermodal and covered hoppers.

Not covered, I would say open hoppers. I mean right now I'm just telling you what I think we could do today. Intermodal and we continue to expand that family line a little bit, but there is no Intermodal activity right now for cars. And then open top hoppers and coal cars and I think aggregate cars and we've done some other type of cars in the past where we'll play competitively.

Okay. Thank you very much.

[Ace Brunstein], [Troll] Partners.

Thank you. You just now -- you didn't mention ethanol cars at all as something you could be involved in. Was that an oversight or just an area that you haven't been involved in?

Ethanol?

Yes.

Well, first of all, we've never done that before. And second, right now there are ethanol cars sitting all over the place. So the storage on ethanol cars, from what I understand talking to people in the industry, there are cars stored everywhere. So there is -- I don't see any short-term demand for ethanol cars. But I'm not in that market, so maybe it's not fair for me to say much more on that.

Just thinking about the total demand going forward in '10 and '11. What percentage of cars in say 2008 were ethanol cars, do you have any idea?

I don't know. I mean -- listen, it's not something we focus on. We probably have that information somewhere but it's not our area of focus.

Okay, thanks very much for that taking the call.

George Pickral, Stephens, Inc.

Real quick, sorry if I missed this. Can you tell us how many borders you've gotten quarter to date in Q4?

Quarter to date in Q4 is zero.

Zero. Okay, thank you.

Thank you.

[Alison Wolf], Longbow Research.

Hi, good morning again. Just a quick question on the scrapping activity. What are you seeing out there on that side and has that picked up or increased at all for the old steel coal cars?

Just in general, I mean you have so many cars in storage right now and the numbers are 130 the entire fleet. So I would say that economic decisions are going to be made here. They're already being made and you'll see some more made. You'll either you put those cars back in service or you'll continue paying storage fees or you'll heavily consider scrapping out the old cars. I think there will be some momentum in scrapping out the older coal steel cars.

This is something that obviously came out of this 2011 time or whenever things start to get better, it could lead to a better -- a little better next cycle because of the scrapping activity?

Could be. I think the scrapping activity should go up.

Okay, thanks a lot.

James Bank, Sidoti & Company.

One question on met coal versus thermal coal. Do you guys have any idea with the coal cars that you sell how much is going toward steel production versus just utility?

There's been quite -- there's been a little bit of a pickup here recently on met coal on an export basis.

Right.

You'll see that going out to the East Coast. I think from what I can gather CSX and NS have seen an uptick there on some of their exports on the East Coast East Coast on met coal. I think obviously there has been some demand for it, but I also think the dollar and where it's positioned today is making us very attractive for met coal international deliveries.

And then I'm hearing a little bit more in the marketplace where there might be some Powder River Basin coal going West and those shipments going to China and other areas of that part of the world. So generally I see some increases on international right now with coal. But it's nothing dramatic.

Do you guys participate in the Powder River Basin?

Participate in what way?

I guess in a way where I guess CSX or Norfolk Southern had railway into that region? I don't believe they do.

No, it's primarily Union Pacific and Burlington Northern Santa Fe, they service most of the shipments coming out of there. And we enjoy, I don't know -- our total market share for Powder River Basin coal and coal cars, we're probably easily 80% to 90%.

Oh, okay. Terrific. Thank you, that's all I have. Thank you.

Steve Barger, KeyBanc Capital Markets.

Just a quick cash flow statement question. In 2Q '09 there's a $300,000 non-cash item, in 3Q '09 that's $2.4 million. What was that incremental $2 million non-cash charge, if you know offhand?

Steve, I don't know off the top of my head.

Okay.

I can follow up for you.

Yes, that sounds good. Thank you.

Yvonne Varano, Jeffries.

Thanks. I joined a little late, so I don't know if I missed you telling us how many cars you currently have out on lease?

How many cars we currently have on lease.

It's about 1,000.

Yes.

Okay. And then were there any comments made in regard to the refurbishment market?

Any comments? Well, we had a strong start to the year, third quarter the refurbishment aftermarket piece, the revenues were down but margins continue to be good. We continue to work with our customers to find new opportunities moving forward.

Okay. Does it seem like customers are still moving more towards refurbishing than buying new at this point? Or is refurbishment just still --?

Well, there are so many cars in storage, so there are a lot of opportunities to get some cars, short-term leases that are economically very enticing. The other thing I would say is that I think customers are really taking a hard look at their existing inventory of cars and they're talking to us and others really about what can we do to possibly convert existing cars into other car types per se that are more beneficial and provide a better economic return.

So there's quite a bit of talk in the marketplace right now about all these cars in storage and what do we do. Do we scrap them? Do we convert them? What do we do with them? So I think there's probably more opportunity for us to focus more on that with our customers than trying to really grow new car sales. Really hard to sell new cars in this type of market.

Sure. What is the market -- the margin on the refurbishment?

Better than new car sales.

Okay. And then just lastly, in regard to the SG&A, were there any metrics that you threw out on what your actual headcount reduction was?

No, in the fourth quarter, as we speak right now, we are taking some actions to further reduce our cost structure right now. We are very realistic about where we are in the marketplace and we will do what's needed to be done. But we're not going to get into specifics there because we're still working that through with ourselves, the Board and future plans going to 2010.

Be assured thought that this company will -- has to right size itself in this type of marketplace. We have been doing that for the last 12 months and we'll continue to do some here in the fourth quarter.

Okay, terrific. Thanks very much.

Thank you. And there are no further questions. Please continue.

Well, Gwen, thank you and thank you, everybody, for joining our call. I look forward to having our call here forth quarter next year. Thank you.

And, 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.