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FreightCar America, Inc. (NASDAQ:RAIL)

Q2 2014 Earnings Conference Call

August 7, 2014 11:00 ET

Executives

Chip Avery - Chief Financial Officer

Joe McNeely - President and Chief Executive Officer

Ted Baun - Senior Vice President, Marketing and Sales

Analysts

Michael Gallo - C.L. King

Ken Newman - KeyBanc Capital Markets

Mike Baudendistel - Stifel

Sal Vitale - Sterne, Agee

Matt Brooklier - Longbow Research

Barry Haimes - Sage Asset Management

Operator

Welcome to FreightCar America’s Second Quarter 2014 Earnings Conference Call and Webcast. At this time, all participant lines are in a listen-only mode. 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 this conference is being recorded.

An audio replay of the conference call will be available from 1:00 PM Eastern Time today until 11:59 PM Eastern Time on August 7, 2014. To access the replay, please dial 800-475-6701. The replay pass code is 332631. 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 Chip Avery, Chief Financial Officer of FreightCar America. Please go ahead.

Chip Avery - Chief Financial Officer

Thank you, and welcome to FreightCar America’s second quarter 2014 earnings conference call and webcast. Joining me today are Joe McNeely, President and CEO; and Ted Baun, Senior Vice President, Marketing and Sales.

I would 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 2013 Form 10-K for a description of certain business risks, some of which may be outside of 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 2013 Form 10-K and earnings release for the second quarter of 2014 are posted on the company’s website at freightcaramerica.com.

Let me now turn the call over to Joe McNeely.

Joe McNeely - President and Chief Executive Officer

Thank you, Chip. Our second quarter performance was much better than in recent quarters and I believe it was a transition point in our return to sustained profitability. Deliveries, revenue, and net income for the quarter were at their highest level since the third quarter of 2012. In addition, strong order activity during the period raised our manufacturing backlog to its highest quarter end level since 2006, approximately 8,500 railcars, of which over half are non-coal cars.

There are many positive developments to note as you move into the second half of this year. Our product diversification efforts are beginning to pay dividends with 2,400 non-coal cars ordered in the second quarter. In addition, the build out and ramp up at our Shoals facility is progressing as planned and the Danville startup was executed efficiently with production resuming at the end of June. Finally, our services business improved sequentially in both revenue and operating income despite extensive challenges created by a reduction in train sets released for maintenance as the railroads continue to focus on recovering from the winter and spring service disruptions.

With the completion of the Shoals plants build out and Danville startup, we are well positioned to deliver the 7,000 railcars in 2014 as previously communicated and our solid backlog will hope to carry this momentum into next year.

Ted will now provide an update on our markets and commercial activities.

Ted Baun - Senior Vice President, Marketing and Sales

Thank you, Joe. The broad interest in freight cars that we saw in Q1 accelerated in the second quarter with 2,401 railcars ordered, 1,455 of which were covered hoppers. This compares to 693 units ordered in the second quarter of 2013 and 1,654 railcars ordered in the first quarter of 2014. Deliveries for the second quarter totaled 1,635 railcars, which included 835 new and 800 rebuilt railcars. 710 railcars were delivered in the second quarter of 2013, including 360 new cars and 350 rebuilt railcars. There were 753 railcars delivered in the first quarter of this year, of which 363 were new and 390 were rebuilts.

As Joe mentioned, our order backlog at June 30, 2014 was 8,493 railcars with an estimated sales value of $706 million, which was up from 2,065 railcars at June 30, 2013. Our backlog at March 31, 2014 was 7,727 railcars. Industry wide, 33,912 units were ordered and 16,056 units were delivered during the second quarter of 2014. These were significant increases over the same period of the prior year, in which 14,850 units were ordered and 12,511 units were delivered. Over that timeframe, non-tank car orders as a percentage of total orders increased from 53% to 69% with covered hoppers accounting for 74% of the second quarter non-tank car orders.

We expect this trend to continue as there remains broad interest in covered hopper cars throughout the frac sand, cement, grain and chemical industries. The strong activity increased the industry wide backlog to 99,782 units at the end of June 2014, up approximately 22% from the end of March 2014, 53% of the current backlog consist of tank cars, while another 36% of the backlog is made up of covered hoppers. Please note that these industry figures do not include orders or deliveries for rebuilt railcars.

Commodity loadings on U.S. railroads also strengthened in the second quarter and were up 5.4% when compared to the second quarter of 2013. Intermodal container loadings continued to grow during the second quarter, increasing by 8.1% versus the same quarter in 2013. Railcar loadings of certain commodities such as grain, lumber, crushed stone, sand, cement and metals exhibited growth of 8% or more versus the prior year. Coal loadings also grew, but at a more modest 2.9% versus the second quarter of 2013.

The coal market is improving, but still shows some mixed results. As of the end of April, utility coal stockpiles increased to 128 million tons, or 52 days consumption. However, this is still 19% below the 10-year average level and 26% below March 2013 levels. Furthermore, in areas where coal competes as a fuel, total electricity generation through June of 2014 was up 3% when compared to 2013. However, U.S. coal production in the first half of 2014 was flat versus 2013 levels and U.S. coal exports while still trending above historical averages are forecasted to decrease by 19% in 2014 versus the prior year.

Relatively lower rail velocities and the need to refurnish coal stockpiles have lead to a need for more coal cars. This has resulted in a lower number of coal cars in storage as well as strengthening lease rates. We estimate that the number of coal cars in storage declined to about 5,000 railcars at the end of the June compared to 9,000 railcars at the end of March 2014. This is the lowest level of coal cars in storage since December of 2011. While there has been an uptick in demand for Western style coal cars that demand has been met with existing equipment.

Now, I would like to turn the call over to Chip to address our second quarter financial results.

Chip Avery - Chief Financial Officer

Thank you, Ted. For the second quarter of 2014, consolidated revenues were $139.7 million compared to $47.1 million in the second quarter of 2013 and $56.1 million in the first quarter of 2014. Net income for the second quarter of 2014 was $1.6 million or $0.13 per diluted share. The net loss was $3.4 million or $0.29 per diluted share for the second quarter of 2013 and a loss of $6.9 million or $0.58 per diluted share for the first quarter of 2014.

Manufacturing segment revenues for the second quarter of 2014 were $128.8 million compared to $37.1 million in the second quarter of 2013 and $48 million in the first quarter of 2014. This year-over-year sequential increase in revenues reflects a higher number of cars delivered and a more favorable mix. Operating income for the manufacturing segment for the second quarter of 2014 was $7.4 million. Costs associated with the continued ramp up of production volumes at our Shoals facility and the carrying costs associated with the Danville facility prior to startup totaled $1.8 million in the quarter.

Incremental costs associated with the restart of production at Danville totaled $800,000. We expect these costs to diminish significantly in the third quarter of this year, although capital expenditures related to the build out of the Shoals facility will continue through year end. Operating income in the quarter was also negatively impacted by an $800,000 charge to settle a warranty claim. The manufacturing segment operating loss was $1 million in the second quarter of last year and a loss of $5 million in the first quarter of this year.

The services segment had revenues of $10.9 million compared to revenues of $10.1 million in the second quarter of 2013 and $8.1 million in the first quarter of 2014. Operating income for the services segment was $1 million in the second quarter of 2014. This compares to operating income of $1.6 million in the same period of the prior year and an operating loss of $340,000 in the first quarter of 2014. The increases in revenue both year-over-year and sequentially reflect higher part sales. The year-over-year decrease in operating income reflects an unfavorable mix of services and part sales.

Corporate costs for the second quarter of 2014 were $6 million compared to $6.2 million in both the second quarter of 2013 and the first quarter of 2014. The effective tax rate for the second quarter of 2014 was 23.4%, which was lower than the prior quarter, primarily due to a reversal of a portion of the state tax valuation allowance.

Turning to our balance sheet. Our financial position is strong, with no outstanding debt and $94 million in cash and short-term investments at quarter end. The reduction in cash versus the prior quarter was primarily driven by changes in working capital associated with the production volume increases and a decrease in customer deposits. The change in working capital also included a large prepayment for materials to secure pricing. At June 30, 2014, we held 823 leased railcars with a book value of $62 million compared to 748 railcars with a book value of $53 million at the end of 2013. The leased fleet was 88% utilized at the end of the second quarter with the available portion of the leased fleet being marketed for sale.

At this point, I will turn the call over to Joe for concluding remarks.

Joe McNeely - President and Chief Executive Officer

Thanks Chip. We have accomplished a lot in the last 18 months. We have brought a number of new car types to the market, started up our Shoals facility, maintained our coal car leadership position improved our services by operations, all the while retaining a strong balance sheet. Our progress is attributable to the efforts of our outstanding employees, supply chain partners, and importantly our customers. I would like to thank our shareholders for their continued support during this time of transition.

In closing, I want to emphasize that we are focused on capitalizing on the strengthening freight car market by continuing execution of our strategic priorities, which I believe will drive increase shareholder value. With that, we are ready to answer your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question will come from the line of Michael Gallo with C.L. King. Please go ahead.

Michael Gallo - C.L. King

Hi. Good morning. Congratulations on the significant improvement and performance.

Joe McNeely

Thanks Mike.

Michael Gallo - C.L. King

Just wanted to delve in a little bit on the nice traction in the non-coal car types, I know you talked about the industry improvement, particularly in covered hoppers. I was wondering if we should think about covered hoppers is the lion’s share of where you saw the improvement?

Joe McNeely

I mean, there was a good mix of the different car types, but the improvement we did saw was mostly in the covered hoppers space.

Michael Gallo - C.L. King

Okay, great. Second question, I guess clarification, I thought, I heard you say you had $1.8 million of startup costs for Shoals in the second quarter and $800,000 for Danville or roughly $0.10 per share, I think at Shoals and about $0.06 at Danville. Will those diminish to zero in the third quarter or $0.01 or $0.02 or help me with just how I should frame this substantially diminish?

Chip Avery

So, Mike, it’s Chip. In terms of the Danville startup cost, that was an incremental amount that was – that will not repeat itself. So, those were costs to resume production, which we resumed production June 23. So, most of the quarter the facility was idle and these are the costs. So, we expect that to be behind us, no impact going forward. A portion of that $1.8 million I mentioned constituted Danville idle or carrying cost. Certainly, that’s not going to repeat and we expect a substantial reduction in the balance for Shoals. So, again, in terms of the ramp up and the cost that we are incurring again back half we expect those numbers to be very, very small.

Michael Gallo - C.L. King

Okay, great. And then just final question on coal cars, obviously cars in stores come down to really call it de minims at this point. Would you expect to see a pickup in coal activity in the second half of the year or do you expect to continue to see most of what you are securing on the order side to be in the non-core – non-coal cars going forward?

Joe McNeely

Yes, hey Michael. Well, we certainly think the non-coal car orders going forward are going to remain strong. As for coal we are going to continue to see the Eastern coal market replacement like we have been that’s been lumpy, but we still expect to see some replacement there. As far as the Western style aluminum coal cars go, I think if you look at the rail service issues, those are still recovering, gas prices have fallen recently. We have had a very cooler summer in much of the U.S. So, that’s not boding well for coal, but certainly the coal cars in storage number you referenced is a promising statistics. So, I guess we will just have to wait and see how that all pants out.

Michael Gallo - C.L. King

Okay, great. And so it sounds like we see more of the same continued strength in covered hoppers to the remainder of the year, is that fair?

Joe McNeely

Yes. I think it’s fair to say, not just covered hoppers, but intermodal and more broadly I think what we are seeing from an inquiry standpoint is just a very board-based freight car interest at this point from a multitude of customers.

Michael Gallo - C.L. King

Okay, great. Thanks very much.

Operator

Thank you. Our next question then will come from the line of Steve Barger from KeyBanc Capital Markets. Please go ahead.

Ken Newman - KeyBanc Capital Markets

Hi, good morning. It’s Ken Newman on for Steve.

Joe McNeely

Good morning, Ken.

Ken Newman - KeyBanc Capital Markets

Good morning. I just had a couple of questions on backlog. So, from a unit basis is the gross margin on the non-coal cars in backlog, is that higher than the coal cars and rebuilds in the backlog?

Ted Baun

We don’t comment on specific margins on orders.

Ken Newman - KeyBanc Capital Markets

Okay, that’s fair enough. And then on the different non-coal car types you mentioned intermodal and – you mentioned the intermodal and a few other non-coal car types. I was just curious, how many different non-coal car types are you selling that are being included in backlog?

Ted Baun

Ken we sell covered hoppers for the sand, cement, grain industries. We sell open top hoppers in gondolas for a multitude of different industries, flat cars. So, I would say a dozen or more non-coal car.

Ken Newman - KeyBanc Capital Markets

And those are all being represented in backlog, is that fair to say?

Ted Baun

Yes. I would say that’s fair to say.

Ken Newman - KeyBanc Capital Markets

Okay. And then can you tell us is that heavily skewed towards, I mean I know you said it’s heavily skewed towards covered hoppers. What’s – is there another big concentration that you are seeing that in backlog for those non-coal car types?

Ted Baun

I think just the steel – any steel products or rock, along with what I mentioned before with respect to sand, cement, grain etcetera, intermodal.

Ken Newman - KeyBanc Capital Markets

Got it. And then I just – I just have one more question and I will get back in queue. It’s great to see and hear the commentary on coal and things for the color on Western versus Eastern. Just curious if you had any thoughts on what you are hearing on met versus thermal coal?

Ted Baun

Well, the Eastern exports are struggling right now due to soft global conditions. That’s hurting both met coal, but mostly steam coal from an export standpoint. From a domestic standpoint, we are seeing volumes increase in the eastern and steam coal market. So, I think it’s a mixed bag when you look at it from a very high level.

Ken Newman - KeyBanc Capital Markets

Thanks. It’s very helpful.

Ted Baun

Sure.

Operator

Thank you. Our next question then will come from the line of Mike Baudendistel from Stifel. Please go ahead.

Mike Baudendistel - Stifel

Thank you. Your guidance implies at about 2,300 units will be delivered in the next – third quarter and the fourth quarter. In the third quarter, are you still in a period of ramping up production, so the third quarter is still lower than the fourth quarter or should they be about similar?

Ted Baun

Yes, they are going to be about similar. Actually, the third quarter should probably be just a little bit stronger given the holidays that are in the fourth quarter and a couple of production line changeovers?

Mike Baudendistel - Stifel

Okay. And then any reason to think that rate of production will go up or down next year, since the beginning of next year?

Joe McNeely

It’s a little too early to start predicting where we are going to be next year, a lot of that will depend on when customers need deliveries of their cars.

Mike Baudendistel - Stifel

Okay. And with the resumed production in Danville, do you have a sense of sort of how long the backlogs are in Danville and how long you have the visibility to keep that facility up and running?

Joe McNeely

Yes, we don’t comment on specific facilities and where production is going. But I think if you have listened in the past, we put orders into the various plants based upon where our backlogs are at, where customer delivering needs are at in our capacity. Again we are probably a little too early to have good visibility on ‘15 yet we have got a nice foundation in our backlog, but we still have capacity Ted is out trying to market and sell.

Mike Baudendistel - Stifel

Okay. And then, when I look at margin in the second quarter, I mean nice improvement there, absent the cost that you discussed for startup, is there any reason to think that those gross margins would not improve sequentially from the second quarter into the third quarter and fourth quarter given that your expected volumes should be higher?

Chip Avery

Yes. This is Chip. So there should be a bit of an improvement, certainly the – sort of the items that I identified, the warranty expense that we took in the quarter and the startup costs, as you said are weighing down as well as some of the startup at Shoals and the ramp up cost. So again, we don’t comment on guidance and margins and so on, but safe to say with the pickup in volume, we should see good strength there.

Mike Baudendistel - Stifel

Great. That’s all from me. Thank you.

Operator

Thank you. And our next question will come from the line of Sal Vitale with Sterne, Agee. Please go ahead.

Sal Vitale - Sterne, Agee

Good morning, gentlemen.

Joe McNeely

Hey, Sal.

Sal Vitale - Sterne, Agee

So first question, just a clarification, you gave a little color on the 2,400 orders I think you said was it 1,055 or 1,555 that were covered hoppers?

Chip Avery

I believe it’s about 1,500. Yes. I think it was 1,455.

Sal Vitale - Sterne, Agee

Okay, so 1,455. Okay. And then, can you give any breakdown within that 1,455 were they more small, large, medium size.

Ted Baun

Sal, this is Ted. No we are not going to comment on that for competitive reasons.

Sal Vitale - Sterne, Agee

Okay. Fair enough. So just looking forward, looking ahead, was there anything in the quarter of the 2,400 orders in the quarter that would you think was I guess quarter specific, I guess what I am getting at is, traditionally you have said that your coal car orders have been very lumpy, would you say that the non-coal car orders that you – the car types that you are participating in are also pretty lumpy?

Ted Baun

Yes. Sal, I would say it’s probably the broader non-coal cars orders are not as lumpy. We are seeing a fairly consistent wide spread demand in inquiry at this point in time.

Sal Vitale - Sterne, Agee

Right. So I guess – again, I understand you don’t give guidance. But is there any reason to believe that, say over the next three to four quarters that your order flow will be probably about the same as what you did in 2Q?

Ted Baun

Yes. I don’t think we are going to comment on that. I think we are going to stick to our comments from in the prepared remarks and in the Q&A with respect to, just the broadening improvement in the freight car market.

Sal Vitale - Sterne, Agee

Okay. Fair enough. And then just clarification really, so you said $1.8 million that’s a combination of Danville and Shoals, predominantly skewed towards Shoals, correct?

Chip Avery

Correct. Yes.

Sal Vitale - Sterne, Agee

And the 800,000 that was Danville and that will not repeat in 3Q?

Chip Avery

Correct. That’s behind us.

Sal Vitale - Sterne, Agee

And then finally, you had an $800,000 charge to settle a warranty claim?

Chip Avery

Correct. It was from a prior year. So that result itself in the quarter, and that piece is behind us, it’s settled.

Sal Vitale - Sterne, Agee

Okay, great. Thank you very much.

Joe McNeely

Welcome, Sal.

Operator

Thank you. Our next question is from the line of Justin Long with Stephens Incorporated. Please go ahead.

Unidentified Analyst

Good morning. This is actually Brian on for Justin. Congrats on...

Joe McNeely

How are you doing, Brian.

Unidentified Analyst

I am doing well. Congrats on the strong quarter.

Joe McNeely

Thank you.

Unidentified Analyst

So deliveries to the leased fleet were pretty high in the quarter, could you talk about what drove that and also maybe give some color on how much of the backlog is planned for the leased fleet?

Chip Avery

The deliveries – or maybe you are looking at a different – I am not here. Brian again on the deliveries were up a couple of hundred cars from the last quarter on the leased fleet, that’s just the timing. As you know our strategy is we will put them on lease and with anticipation that we will sell those. So we expect to turn that into sales revenue relatively quick and our backlog is for cars that we are delivering that to customers now for our own leased fleet on this back.

Unidentified Analyst

Okay. Alright, that’s helpful. And then could you maybe give us a little bit more color for CapEx expectations for the remainder of the year and into ‘15?

Chip Avery

Yes, we’re worried about the same level as we were for 2014 about $10 million for the entire year, roughly $7 million of that relates to our facility in Alabama, and Shoals. So in terms of ‘15, we haven’t given any guidance at this time.

Unidentified Analyst

I think, it’s fair enough. Thanks guys. Congrats again.

Operator

Thank you. And our next question will come from the line of Matt Brooklier from Longbow Research. Please go ahead.

Matt Brooklier - Longbow Research

Hey, thanks, good morning. So a question on the new car builds in the quarter. Can you talk to the mix there? Roughly how many of those cars were non-coal versus coal?

Joe McNeely

I mean again as we were ramping up on the Shoals idle, the big portion of those were still coal car deliveries in the quarter.

Chip Avery

Did you – I am sorry, Matt, did you say builds or deliveries?

Matt Brooklier - Longbow Research

On the – sorry, so, on the delivery side in the quarter, I’m trying to get feel for how many new coal cars you delivered in 2Q?

Joe McNeely

Well, why don’t you go onto the next question and…

Matt Brooklier - Longbow Research

Okay.

Joe McNeely

I hope we’ll pull that out.

Matt Brooklier - Longbow Research

Sure. And then my other question being at Shoals, I mean roughly what’s the utilization level there? What are your expectations directionally for deliveries into the second half obviously with your guidance. It seems like you’re going to be doing more non-coal cars in second half, but I am just trying to get a rough feel for kind of where you are in that process in terms of ramping up production?

Joe McNeely

Matt, I think you know we don’t comment that specific production and volumes at individual plants. I think as both Chip and I’ve said Shoals start-up is progressing as planned. Over the long-term, we still think that plant to produce 5,000 to 7,000 cars, but we’re still definitely in a ramp-up mode.

Matt Brooklier - Longbow Research

Okay. And then – and just looking at your – the average revenue per car in the quarter that obviously was a bit likely good amount of contribution from non-coal car deliveries in the quarter. Can you talk I guess, industry pricing in general on the non-coal car side of things, would pricing, how pricing is kind of trending currently and then maybe you can provide a little bit of color in terms of coal car pricing, if you’ve seen some improvement at this point?

Ted Baun

Hey Matt, this is Ted. As the non-tank car backlog gets to more normal levels, I think with that we’ll see pricing as well get to normal levels, but I would say that the market is very car type dependent and it remains competitive in some car types more than others and we’re not going to get into the specifics as to which one, but I would say, it’s returning to more normal levels.

Matt Brooklier - Longbow Research

Okay. And then – and just on the coal car side, have you seen a little bit of improvement there in terms of pricing?

Ted Baun

Again, as we talked about, we had a quarter with no coal car order so kind of hard to engage where pricing that on the coal cars.

Matt Brooklier - Longbow Research

Okay, fair enough. Thanks for the time.

Joe McNeely

You’re welcome.

Operator

Thank you. And our next question comes from the line of Barry Haimes from Sage Asset Management. Please go ahead.

Barry Haimes - Sage Asset Management

Thank you. Ted, just a couple of questions. One, the warranty expense that you referenced, could you talk about or mention what car type that was associated with?

Ted Baun

We were not going to get into the details. We call that out as fairly an item that was in the quarter, but we’re not getting into the details there.

Barry Haimes - Sage Asset Management

Can you just say if it was a coal car or non-coal car?

Ted Baun

No.

Barry Haimes - Sage Asset Management

Okay. And then the other question is, you talked about the coal cars in storage having come down. And I’m just wondering if you have any feel for whether a chunk of that was related to the problems on the railroads that we’ve had in the first half of the year and as velocity improves on the Burlington in particular. But in general, will that free some those coal cars back up again? Any feel for how much of that was related to the rail problem?

Ted Baun

I think the rail problem was part of it, Barry, but I also think it’s more broadly replenishing inventories and seeing demand in generals become stabilize a bit.

Barry Haimes - Sage Asset Management

Okay, great. I appreciate the color. Thank you.

Ted Baun

Sure.

Operator

Thank you. Our next question then comes from the line of (indiscernible). Please go ahead.

Unidentified Analyst

Yes. On your asset deposits went down quite a bit, I guess, the customer deposits. Now, what does that mean? Is that mainly coming from that?

Chip Avery

Sure. That actually – it’s a good question. In the fourth quarter of last year, we’ve received a large pre-payment about $90 million fundamentally to secure pricing on material purchases from a customer. As the units have shipped through the year, through mid-year that $90 million roughly has dropped to about $26 million I think and fundamentally really what this represents is instead of paying for the deliveries, we’re drying down the prepayment that was taken so fundamentally, it’s – from a cash flow standpoint that’s driving virtually all of the operating cash burn if you will just because from the cash flow statement just because we’re not collecting as we’re shipping because we collected it last year.

Unidentified Analyst

Okay.

Ted Baun

And the good news is that, we’ll burn this up off here in the third quarter.

Chip Avery

Yes, we expect that to turn to zero here.

Unidentified Analyst

Okay. I’ll just saw it – worried a little bit. The last question is, on the oil tanker business, on this retrofit business, do you all stand to benefit it all from that? Can you all do that?

Chip Avery

We do not do that. We’re not in that business. We do have repair business. But as we understand the retrofit application that’s currently stand, it’s going to be a pretty expensive rebuild on a tank car for those that do that and we’re not in that business.

Unidentified Analyst

Okay, then one other coming on that line. Trinity and Greenbrier and all of them that are in that area, I’m sure they’ve got – they put much a capacity. They’re going to have – probably have some areas where you all competing against them. Will you we all beginning some of that business from them maybe the non-oil tanker business?

Chip Avery

That’s a good question on how that impacts the whole market. I think we have to wait a little bit longer to see how the final U.S. rules, finally without consult they’re out for discussion right now and then how that will actually impact the overall railcar market. Little too soon to be able to comment how that may impact us.

Unidentified Analyst

I guess we could see the pricing from a little bit near area?

Chip Avery

I said, little too soon yet to be able to comment on that.

Unidentified Analyst

Okay. Thank you very much.

Chip Avery

You’re welcome.

Joe McNeely

Thanks.

Operator

Thank you. And our next question comes from the line of Sal Vitale with Sterne, Agee. Please go ahead.

Sal Vitale – Sterne, Agee

Hi, just a quick follow-up. Has there ever been a situation in the past where coal cars in storage have been at around 5,000 level and you haven’t seen a subsequent pickup in orders?

Ted Baun

There have been many times in the past where coal cars in storage were zero and that usually leads to coal-car orders, I think Sal, what’s different this time is, the broader pressures on coal from an environmental standpoint and we just, we can’t comment on that. It’s different this time. But it’s certainly the coal cars in storage number is going in the right direction.

Sal Vitale – Sterne, Agee

Okay, fair enough. And then just, Joe, you mentioned earlier that long-term, you expect the Shoals facility to have capacity of roughly 5,000 to 7,000 cars. Can you give us a sense of once you get to that stage including the Danville facility, what your overall corporate capacity would be?

Joe McNeely

Again, if you go back to, I think what we said at – in a different presentation, each of the facilities can build between 5,000 to 7,000 if they’re fully staffed up, again a lot of that’s depending on how long your production runs are. So, you can take the three facilities and multiply them by three, they’re all pretty similar in terms of capacity.

Sal Vitale – Sterne, Agee

Great, thank you very much.

Joe McNeely

You’re welcome.

Operator

Thank you. (Operator Instructions) At this time, I show no questions in queue.

Chip Avery - Chief Financial Officer

This concludes today’s conference call. Thank you for joining. A replay of this call will be available beginning at 1:00 PM Eastern Time today, at 1800-475-6701, pass code 332631. Good day.

Operator

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

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