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Executives

Joe McNeely - President and Chief Operating Officer

Ed Whalen - Chief Executive Officer

Ted Baun - Senior Vice President, Marketing and Sales

Terry Heidkamp - Senior Vice President, Operations

Analysts

Michael Gallo - CL King

Justin Long - Stephens

Mike Baudendistel - Stifel

Sal Vitale - Sterne Agee

Matt Brooklier - Longbow Research

Barry Haimes - Sage Asset Management

FreightCar America, Inc. (RAIL) Q1 2013 Earnings Conference Call May 2, 2013 11:00 AM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the FreightCar America’s First Quarter 2013 Earning Conference Call and Webcast. At this time, all participants’ lines are in a listen-only model. For those of you participating on the conference call, there will be an opportunity for your questions at the end of today’s prepared comments. Please note that this conference is being recorded. An audio replay of the conference call will be available from 1 o’clock PM Eastern Daylight Time today until 11:59 PM Eastern Daylight Time on June 2, 2013. To access the replay, please dial 800-475-6701. The replay pass code is 291347. 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 call over to Joe McNeely, President and Chief Operating Officer of FreightCar America.

Joe McNeely - President and Chief Operating Officer

Thank you and welcome to FreightCar America’s first quarter 2013 earnings conference call and webcast. Joining me today are Ed Whalen, CEO; Ted Baun, Senior Vice President, Marketing and Sales, and Terry Heidkamp, Senior Vice President, Operations. Before we begin, I’d like to remind everyone that statements made during this conference call relating to the company’s expected future performance, future business prospects, or future events or plans may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995.

Participants are directed to FreightCar America’s 2012 Form 10-K for a description of certain business risks, some of which may be outside the control of the company that may cause actual results to materially differ from those expressed in the forward looking statements.

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 2011 Form 10-K and earnings release for the fourth quarter of 2012 are posted on the company’s website at www.freightcaramerica.com.

I’d now like to turn the call over to Ed Whalen, our CEO.

Ed Whalen - Chief Executive Officer

Thank you, Joe and good morning. Before we review our first quarter results, I want to comment on the leadership transition we announced last night. As you may have read in our press release, Joe McNeely has been appointed by the Board of Directors to the position of President and Chief Operating Officer effective immediately. Given the progress we have recently made on our strategic initiatives, the Board of Directors felt that the time was right to begin a leadership transition. As the President and Chief Operating Officer, Joe will focus on running and managing the day-to-day business and executing the company’s strategic plans. He will also continue to oversee the finance function until a successor is hired, which we expect will occur in the third quarter of this year.

As far as my role is concerned, I will remain CEO and will focus on the company's strategic growth initiatives and support Joe as he transitions into his new role. This is the first step in our leadership transition plan. I am convinced to say I’m a CEO to ensure a smooth and successful transition of the President’s role in advancement of our strategic priorities. Once the Board and I are comfortable that the transition has been successfully completed, I will retire from my position as CEO. Joe is well suited for the President and CEO position. He has a diverse management experience, a comprehensive knowledge of the industry and a deep familiarity with FreightCar America’s existing and future challenges and opportunities. These experiences make him well-positioned for this role. Joe joined FreightCar America as our CFO in September 2010 and since that time, has been instrumental in the development of our strategic initiatives. Joe has implemented numerous cost containment projects, rebuilt the finance organization and drove a number of improvements across the company.

Further, he has preserved our healthy financial profile by focusing on cost efficiency and cash generation. I’m excited to work closely with Joe to help FreightCar America to achieve our long-term strategic goals and grow value for our shareholders. Now turning back to our operations, as we expected, this will be a challenging year for coal and for other freight railcar markets. In that regard, we remain focused on executing our strategic initiatives, which include the diversification of our railcar product offerings, implementing a successful startup of the Shoals plant and improving the returns from our service business and as always effectively managing costs. As you remember in conjunction with our fourth-quarter 2012 earnings results, we announced our capacity expansion via the sub lease of approximately 25% of earnings Cherokee, Alabama manufacturing facility.

I’m pleased to report that the start-up at the state-of-the-art production facility is progressing as planned. We have installed the management team comprised the both internal and industry veterans to run the facility and we are in the process of staffing and training our early workers. We have already secured our first order for the facility and are on track to begin production in the third quarter of this year. While our existing facilities will continue support our coal car products, the Shoals facility will allow us to produce a broad variety of railcars in a cost effective and efficient manner.

Despite the overall lackluster freight railcar market, we are seeing notable interest in our recent introduction of railcar products. Moving on to our service businesses, we are beginning to see the benefits of our improvement in efforts implemented last year. As revenue and operating income were the highest since we acquired the service shops in late 2010. Given the uncertainties in the freight car market and overall, economy, we estimate our deliveries for 2013 to be in the 4000 to 5000 unit range. Despite this, I am optimistic that through achievement of our strategic objective, the company will be well-positioned to capitalize on the freight railcar market recovery.

I will now turn the call over to Ted Baun, our Senior Vice President, Marketing and Sales will provide an update on our markets and commercial activity.

Ted Baun - Senior Vice President, Marketing and Sales

Thank you, Ed. Good morning. To recap 274 railcars were ordered in the first quarter of 2013 including 174 new cars. This compares to 1,244 new units ordered in the first quarter of 2012 and 473 new railcars ordered in the fourth quarter of 2012. First quarter 2013 deliveries of 1,073 railcars included 448 new and 625 rebuilt railcars. This compares to 2,613 railcars delivered in the first quarter of 2012 including 2,563 new cars and 80 used cars. There were 1,308 railcars delivered in the fourth quarter of 2012, of which, 528 were new and 780 were rebuilt.

Our backlog of unfulfilled orders at March 31, 2013, totaled 2,082 railcars compared to 6,934 railcars at March 31, 2012 and 2,881 railcars at December 31, 2012. Industry-wide 23,901 units were ordered and 11,952 units were delivered in the first quarter of 2013 with orders up significantly from the first and fourth quarters of 2012 and deliveries down from first quarter 2012 and flat to fourth quarter 2012.

Industry-wide backlog increased to 71,704 units at the end of March. The increase in orders and backlog were driven by strong tank car demand, which accounted for 81% of total industry orders in the quarter. Non-tank car orders of 4,600 units were 400 units higher than the fourth quarter of last year and non-tank car deliveries decreased 500 units to 5,900 units in the first quarter of this year. The overall number of railcars in stores decreased to roughly 311,000 as of March 31, 2013, a decrease of 6,000 railcars when compared to December 31, 2012.

We estimate that the number of coal cars in storage increased from about 27,000 at the end of December to approximately 28,000 at the end of March. U.S. commodity loadings in the first quarter of 2013 were down 3% when compared to the first quarter of 2012. While railcar loadings at certain commodities such as chemicals, forest products, motor vehicles, and non-metallic minerals exhibited growth, coal loadings continue to be challenged decreasing 5.9% versus the first quarter of 2012.

Weaknesses in loadings from metallic ores and metals along with agricultural products also contributed to the overall decline in loadings. Intermodal container loadings remained strong for the quarter, increasing by 7.2% versus the same quarter in 2012. The coal market continues to show mixed results. Rising natural gas prices have increased the demand for thermal coal, which has resulted in a decrease in utility coal stockpiles to 177 million tons, 4.7% below the year-ago stockpile levels. Despite those positive signs, U.S. coal production rail coal shipment volumes are both down 8% year-over-year. The coal export market however, saw an increase of 3.5% through February year-over-year to 18 million tons.

Now, I would like to turn the call back to Joe McNeely to address our first quarter financial results.

Joe McNeely - President and Chief Operating Officer

Thank you, Ted. Let me start by spending a few minutes talking about my priorities and areas of focus as I transition into my new role of President and Chief Operating Officer. In an effort to make this transition as seamless as possible, the senior leadership team, the Board of Directors and I have worked closely to carefully map out a plan for the coming month. In addition to managing the day-to-day operations of the business, I will be focusing on four key areas first, meeting with key customers and suppliers, I’ll face them on our strategic direction; two, making the Shoals facility operational and commencing production of non-coal cars at the facility; three, reaching out and updating our shareholders and investment community on the Freightcar America story; and lastly, replacing our current credit facility that expires in July of this year.

We firmly believe that our business strategy is fundamentally strong and remains unchanged. Ed and I will continue to execute our strategic initiatives as we feel this is the best way to address our cyclical market and ensure the long-term success of our company. I look forward to keeping you updated on our progress and our success going forward and I look forward to meeting with many of you over the coming months.

As Ed mentioned, we began the process of searching for my successor to fill the CFO role. And we expect to add the position till sometime during the third quarter. In the meantime, I will continue to oversee the finance function with the help of my capable team. Let me give you a little color on the quarter results. Consolidated revenues were $88 million in the first quarter of 2013, which were $131 million lower than the first quarter of 2012 and $29 million lower than the fourth quarter of last year.

The year-over-year and sequential decrease in revenues reflects a lower number of railcars delivered in a different product mix. The net results for the first quarter of 2013 was a loss of $2.6 million, or $0.22 per diluted share, reflective of lower deliveries and a non-cash tax charge taken in the quarter that I will address in a moment.

Net income for the first quarter of 2012 was $9.7 million or $0.81 per diluted share and was a loss of $1.08 per diluted share in the fourth quarter of last year. Manufacturing segment revenues for first quarter of 2013 were $7 million to $8 million compared to $210 million in the fourth quarter of last year and a $109 million in the fourth quarter of 2012, the decreases reflects lower railcar deliveries in different mix of railcar sold. Operating income for the manufacturing segments for the first quarter of 2013 was $2.1 million or 2.7% of revenues, which was $21 million or (3.1) percentage points lower than the first quarter of 2012 and $4.4 million or 3.2 percentage points lower than the fourth quarter of last year.

The decrease in operating income versus prior periods was different by decrease in deliveries and the negative impact of lower volumes on our operating efficiency and also product mix changes. Our services segment had a good quarter with revenues of $9.9 million for the period compared to revenues of $8.6 million in the first quarter of 2012 and $7.3 million in the fourth quarter of last year. Operating income for the services segment was $1.3 million in the first quarter of 2013 compared to 700,000 in the same period of last year and 100,000 in the fourth quarter of last year.

The increase in revenue in operating income reflects a favorable change in work mix and modest pricing improvement. Corporate costs for the first quarter of 2013 were $2.8 million, a decrease of $4.6 million over the first quarter of 2012 and $3.8 million over the fourth quarter of last year. During the quarter, we settled some longstanding litigation, which resulted in a $3.4 million net reserve reduction. Even without this benefit, selling, general and administrative costs were at their lowest levels since the first quarter of 2011, reflecting lower spending across the board.

However, we will incur additional administrative costs related to the Shoals facility in the second and third quarters of this year. Our income tax provision of $3.1 million included a $3 million net write-down of certain deferred tax assets. The weak near-term outlook for coal car orders and addition of Shoals facility will change the mix of income from the states we operate in resulting in a lower projected state effective tax rate. This lower tax rate applied for the deferred tax balances resulted in a write-down of our deferred tax asset.

In addition, the projected income in certain states in which we operate may not be sufficient to realize the full value reported deferred tax assets related in net operating loss carry forward. As a result, we took a non-cash charge reserve, a portion of those deferred tax assets. Excluding these write-down, our effective tax rate was 25.9% for the quarter, which is reflective of a full year forecasted effective tax rate. At March 31, 2013, we had 658 railcars on lease with a book of value of $43 million which is unchanged from December of last year.

Our financial position remains strong with no outstanding debt in a $118 million in cash and short-term investments at quarter end. The decrease in cash and investments from the 2012 year-end balance of the $155 million was driven by the purchase of equipment for the Shoals facility, payment of accounts payable and approvals in a reduction of customer deposits. To-date we have set $12.5 million at Shoals facility and expect capital spending on a consolidated basis for all of 2013 to be approximately $20 million. We have no current plans to draw on our current revolving credit facility. This ends our prepared comments. We are now ready to address your questions.

Question-And-Answer Session

Operator

Thank you. (Operator Instructions) And we’ll go to the line of Michael Gallo with CL King. Please go ahead.

Michael Gallo - CL King

Hi, Good morning.

Ed Whalen

Good morning, Michael.

Michael Gallo - CL King

Couple questions, can you break down at all how much the startup costs for the Shoals facility were in the quarter and then also in terms of your cost structure, if you had – how much the cost will be reduced as a result of some of the furloughs at Danville in the second quarter?

Ed Whalen

Yeah, Mike, frankly, we don’t give out that specifics, there were some costs included at the Shoals as we began our startup here in the first quarter. Again, that was only a short period of time. Those costs were about 600,000 in total in the administrative costs that there are total costs that came through. And then in terms of the other cost at (indiscernible), we don’t give out that specific guidance.

Michael Gallo - CL King

Alright, okay. Second question I have is, it sounds like you’ve booked your first order at Shoals I assume that occurred in the second quarter, is that right?

Ed Whalen

The order for the Shoals was actually booked in the first quarter.

Michael Gallo - CL King

Okay, so that was a factor of that. Can I talk you about just where you’re seeing demand on the non-core car type as you market that facility?

Ted Baun

Sure, Michael, this is Ted Baun. What we are seeing is it’s – we are looking at an averaging for the level out there I would say and obviously it’s predominately non-core what we are seeing so, it’s nothing significant either way I say it’s just about average.

Michael Gallo - CL King

Right, but in terms of just which car types you’re seeing traction?

Ed Whalen

I would say, generally open-top hoppers, open-top gondolas, various flat cars some rebuild programs.

Michael Gallo - CL King

All right, okay, great. Thanks very much.

Ed Whalen

Sure, thank you.

Operator

Next, we’ll go to line of Justin Long with Stephens. Please go ahead.

Justin Long - Stephens

Good morning and congratulations, Joe, on the new role.

Joe McNeely

Thanks, Justin, alright.

Justin Long - Stephens

Anyway you could provide some more color on the orders that you received for the new Shoals facility in terms of the magnitude of total orders in the quarter and any color on the car type of that orders as well?

Ed Whalen

Yeah, Justin, we really don’t comment on order specifics and I think we’ll just leave it as that.

Justin Long - Stephens

Okay. And how should we think about the ramp of production at Shoals, you mentioned it’s expected to start-up in the third quarter, but will you wait until you receive incremental orders before you start really ramping production at that facility or is that ramp going to start once you have the equipment and the people on place regardless of how orders trend?

Ed Whalen

Yeah, Justin, in terms of the production in the Shoals, we are going to build the customers orders and we’ll ramp up to meet what the customers’ delivery expectations are in terms of when they want the cars delivered.

Justin Long - Stephens

Okay. So, you would not build any cars on stack?

Ed Whalen

I won’t say that, but traditionally when we build, we try to build to order.

Justin Long - Stephens

Okay. On the cash balance, there was a decent amount of cash burn in the quarter, I know there are several moving pieces on the balance sheet that influence that. But given the investment you’re making at the Shoals facility, do you think we’ll see a similar fluctuation in the cash balance in the second quarter and going forward throughout the year?

Ed Whalen

I think the short answer to that is probably not, if you look at what happened in the first quarter with the Shoals investment being the big piece of that and then the others was pay down of accounts payable was a big piece as we had – we bought a bunch of inventory at year end, if you recall, we talked that in the fourth quarter. And if you look where those balances stand today, we wouldn’t expect to see much fluctuation in those.

Justin Long - Stephens

Okay. And you gave some good color, Joe, on the CapEx expectations for the year, $20 million. I would expect in the second quarter, it would be a relatively heavy CapEx quarter, not quite what we saw in first quarter, but it’s really driven by continued investment in Shoals?

Joe McNeely

Yeah, that will be stretched out over the next couple of quarters.

Justin Long - Stephens

Okay. And then, I think my last question was on the backlog. Anyway you could break out the number of rebuilds that are currently in the backlog versus new cars?

Joe McNeely

Yeah, the number of rebuilds in the backlog are, let me just get to that of the 2000 already Ted mentioned rebuilds are 1,375.

Justin Long - Stephens

Okay great. That’s all I had. I appreciate the time.

Joe McNeely

Thanks Justin.

Operator

Next we’ll go to line of Mike Baudendistel with Stifel. Please go ahead.

Mike Baudendistel - Stifel

Thanks and congratulations Joe.

Joe McNeely

Thank you.

Mike Baudendistel - Stifel

Just wanted to ask on the guidance of 4,000 to 5,000 units delivered in the year, you don’t say the guidance for how many of those are new versus rebuilds?

Joe McNeely

Yeah, we don’t comment on the mix of that nature Mike.

Mike Baudendistel - Stifel

Okay. Then, can you remind us on particularly the economics of a new car builds for you versus a rebuild? I think you say that the margin percentage is similar, but if you can comment on the difference and maybe revenue or margins dollars?

Joe McNeely

Yeah, Mike we haven’t done that from a competitive standpoint. The percentage that we said are pretty comparable and the rebuild really depend on how expensive those are and met that ranges that’s why we haven’t commented specifically on those.

Mike Baudendistel - Stifel

Okay. And then maybe you can talk a little bit higher levels on the services side of the business, some nice growth there. What’s your, sort of strategy for continuing to grow that business?

Joe McNeely

In terms of the strategy on that there is definitely potential there as we have talked in the past, we have the two shops really focusing on the coal cars in the Powder River Basin. There is opportunities to look at replicating that model. And then also on the parts side of the business and expanding that both organic and inorganically that’s where we see the potential.

Mike Baudendistel - Stifel

Okay, good. And then related to, one of the other analyst’s question, the cash in the quarter, just paying down the payable balances and giving up some working capital, would you expect debt to sort of reverse in the rest of the year or is the working capital going to be more of a neutral impact on your cash flow?

Joe McNeely

I would think that’s a hard question to answer statistically depending on where the builds go and the amount of inventory we have at any kind of period. And for the future again we buy inventory for orders. So, I would expect it not to change a whole lot and maybe a little upside with as we build through our order book here with the inventory that’s already on the books.

Mike Baudendistel - Stifel

Okay great. Those were my questions. Thank you.

Operator

Next we’ll go to line of Sal Vitale with Sterne Agee. Please go ahead.

Sal Vitale - Sterne Agee

Good morning and congratulations Joe.

Joe McNeely

Thanks Sal.

Sal Vitale - Sterne Agee

Just a few questions, I guess, just first is a clarification to make sure I heard this right. You said that the coal cars and storage increased by about 1,000 cars from or rather decreased 1,000 cars from 28,000 at December 31 to 27,000 at the end of March?

Joe McNeely

Coal cars and storage were 28,000 at the end of March.

Sal Vitale - Sterne Agee

Okay. Up from 27,000 at the end of December?

Joe McNeely

Yes.

Sal Vitale - Sterne Agee

Okay, thank you very much. Other question, Joe, you mentioned $600,000 of costs at the Shoals facility in 1Q. Is that right?

Joe McNeely

Yeah, on the expense side, yes.

Sal Vitale - Sterne Agee

On the expense side, now would that be in corporate expense or would that be on the applied to the manufacturing profit?

Joe McNeely

Applied to the manufacturing profit.

Sal Vitale - Sterne Agee

Okay. So then, that’s – so if just look at that, that’s worth roughly I guess about 80 basis points of margin, how do we think about was there anything else in 1Q that impacted the margin?

Joe McNeely

There were a couple of things. We had some operating costs in the quarter that were higher than they had been in the past totaling about a $0.5 million in total.

Sal Vitale - Sterne Agee

What was the major of those, just curious?

Joe McNeely

Just various operating costs.

Sal Vitale - Sterne Agee

Okay. I guess one-time in nature or there is something we should expect to repeat?

Joe McNeely

These are higher than we normally see in the quarter.

Sal Vitale - Sterne Agee

Okay, higher than normal. Anything else, I am just trying to get a sense, I look at the degradation in the margin sequentially, and it was pretty significant. And I understand that part of that’s operating leverage and you said the other two, you said, a part of it is just lower deliveries and then you have the product mix change. I guess on the product mix, is it rebuild versus new car, is that what you were getting at?

Joe McNeely

No, not necessarily with the kind of the composite mix of cars delivered.

Sal Vitale - Sterne Agee

Okay. Can you give a sense – thank you for breaking out the new build versus – the new versus rebuild. Just a clarification, when you say that your new cars, let me just go to that part of my model here, so when you say that old cars were 625, are those the rebuilt cars?

Joe McNeely

Yeah.

Ed Whalen

Those were the rebuilt cars, yeah.

Sal Vitale - Sterne Agee

Those were the rebuilt cars. Okay. And then just the last question is, in the past when you have seen periods of depressed coal market and you have seen a rebound, what is the typical lag time between when you actually see the coal volume start to come back and when you actually see companies and the railroads and etcetera start to open up their checkbooks and place orders?

Ted Baun

Yeah Sal, this is Ted. In general, the swings occur fairly quickly in both directions. So, in the past, when the coal cars swing to the positive, it happens quickly and conversely when the market starts to decline, it declines quickly as well. And we have seen that. It’s tough to predict what’s going to happen in the future. I think we all agree that there is a little bit of a different market dynamic going on right now with natural gas. But I think suffice to say when one utility needs coal cars generally a group of them do, it’s not just one or the other.

Ed Whalen

Yeah. And just Sal as we have talked in the past, when you look at the coal market, you even go back to 2011 we started out that year, there was a lot of coal cars and storage and by year end, they were basically all in service and changes Ted said pretty quick. But you guys remember what we said in the past too, the west market is a more difficult market and that’s where a lot of the coal cars and storage are at. The eastern market, we still feel confident that those cars are going to get replaced over time, especially supported by still strong export demand.

Sal Vitale - Sterne Agee

Okay. And then on the eastern market that you touched upon, regarding CSX and Norfolk Southern, do you see them – do you see any change in their intention to replace their coal car fleet, because I know they had some pretty substantial plans in terms of orders over the next couple of years, do you see anything significantly changed there?

Joe McNeely

Well, their long-term strategy is still the same.

Sal Vitale - Sterne Agee

Okay, because it sounds like they are delaying it, do you have any sense for when they will start to come back in and place those orders?

Joe McNeely

No, nothing we can really comment on.

Sal Vitale - Sterne Agee

Right, okay. Thank you very much.

Ed Whalen

Thanks, Sal.

Operator

Next we’ll go to line of Matt Brooklier with Longbow Research. Please go ahead.

Matt Brooklier - Longbow Research

Thanks. Good morning. Congratulations Joe.

Joe McNeely

Thanks Matt.

Matt Brooklier - Longbow Research

Had a question of the 2013 delivery guide, 4,000 to 5,000 cars, can you talk to or provide some color as to how much of that will be the Shoals facility versus your core existing operations from a contribution perspective?

Joe McNeely

Yeah, Matt, we cannot comment on the specifics of that.

Matt Brooklier - Longbow Research

Okay. If we look at the average selling price for your cars, realize mix was an impact and was part of the reason why that was down on a year-over-year basis and I also think sequentially, but on just a mix adjusted basis, can you talk to the trends that you saw in first quarter in terms of I guess the different categories of the railcars?

Joe McNeely

Yeah, Ted can comment on some more color here. In general specifics, you don’t give out other than to say, this is a pretty competitive freight car market at the moment. I think you saw the industry information on deliveries and orders on the non-tank cars side where I think historically by historical standards, weak. So, it’s pretty competitive.

Matt Brooklier - Longbow Research

Okay, I mean I guess, I think that as pricing a little bit more competitive this year versus last on cars on a mix adjusted basis, is it’s a fair way of looking at it?

Ed Whalen

Yeah I would say that’s a fair way. I think say, it’s always competitive and this year might be a little more competitive.

Matt Brooklier - Longbow Research

Okay, that’s helpful. Thank you.

Joe McNeely

Thanks Matt.

Operator

And next we’ll go to line of Barry Haimes with Sage Asset Management. Please go ahead.

Barry Haimes - Sage Asset Management

Good morning, thanks. I had a couple of questions. I’ll just kind of go one by one. First, on the $118 million of cash balance, I wasn’t sure from your previous comments, do you mean to imply that by year end cash will be around the same or should we expect it to be up a little or a down a little?

Ed Whalen

I think it’s tough to be precise on that depending on where working capital needs to be satisfy deliveries. In terms of you look at the working, I think the question for us on our working capital, kind of giving where the balance of that you’re looking to expect a big change in that other than maybe inventories going down as we utilize inventory to produce orders.

Barry Haimes - Sage Asset Management

Okay great thanks. And second question is if I take the delivery guidance of 4000 to 5000, you delivered about a little over 1000 in the first, you got a little over 2000 in backlog, which is 3000. So, that would imply you need to get orders another 1,000 to 2,000 of orders in a pretty much the second and third quarter to deliver by the fourth. Am I thinking about that correctly and can you give us a sense of where are you seeing interest at that level? Thanks.

Ted Baun

Yeah Barry, Ted, again here your math is pretty close and Joe and Ed remind me everyday that we need to go get orders. So, we are out chasing them down. There are active inquiries and we are pursuing a lot of different inquiries at this point in time.

Barry Haimes - Sage Asset Management

Okay great thanks. Just two more quick ones, one, you mentioned that 20,000 coal cars and storage, just to put that in perspective, about how big is the total size of the fleet, coal cars?

Ed Whalen

Yeah that’s about the total size of the fleet is around 280,000 cars plus or minus. So, it’s roughly about 10% of the coal car fleet.

Barry Haimes - Sage Asset Management

Great thanks. And final one, on Shoals, could you give us some sense of either by deliveries or by revenue what sort of a breakeven level of activity for that facility, thanks?

Joe McNeely

Yeah, Barry we don’t comment on specific plants, plant questions like that.

Barry Haimes - Sage Asset Management

Okay. Thanks for your help, appreciate it.

Operator

(Operator Instructions) And we’ll go to the line of (indiscernible) Investments. Please go ahead.

Unidentified Analyst

Hey, guys, thanks for taking my call. First question, I just wanted to verify, I think last quarter you reported that the Shoals facility is going to have around 7,000 cars in annual production, is that in the ballpark?

Ed Whalen

Yeah, that’s what we said when the facility is fully built out and up and running, it has that capability.

Unidentified Analyst

Okay, are you doing intermodals or are you just doing the flat tops and gondolas?

Ed Whalen

What we said is all of our non-coal car products that we are looking to build there, whether it be flat cars intermodal cars other tops, open tops and hoppers, and gons are non-coal.

Unidentified Analyst

Alright and is there anything specific about your design quality or your actual manufacturing process that you think is going to provide an advantage for you guys over some of your competitors that you seem to be pretty entrenched?

Joe McNeely

Hi, Nick, there are always those sorts of ways to differentiate our product. But in the end customers makes decisions on price and deliveries. And the other stuff is more pricing on the take if you will.

Unidentified Analyst

Alight, great. Thanks guys.

Joe McNeely

Sure.

Ed Whalen

Thank you.

Operator

And at this time I’m showing no questions in queue.

Joe McNeely - President and Chief Operating Officer

Okay, thank you. That concludes today’s conference call. Thank you for joining. A replay this call will be available beginning at 1 PM Eastern Time today at 1800-475-671, pass code 291437. Good day.

Operator

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

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