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The Greenbrier Companies Inc. (NYSE:GBX)

Q2 2008 Earnings Call

April 9, 2008 11:00 am ET

Executives

William Furman – President & CEO

Mark Rittenbaum – Executive VP & CFO

Analysts

Steve Barger - Keybanc Capital Markets

Frank Magdlen - The Robins Group

Arthur Hatfield - Morgan Keegan & Company

Peter Nesvold - Bear Stearns

J.B. Groh - D.A. Davidson & Co.

Joseph Ciampi – UBS

Alan Robinson - RBC Capital Markets

Operator

Hello and welcome to The Greenbrier Companies second quarter of fiscal year 2008 earnings release conference call. (Operator Instructions) At this time I would like to turn the conference over to Mr. Mark Rittenbaum, Executive Vice President, Chief Financial Officer and Treasurer; Mr. Rittenbaum you may begin.

Mark Rittenbaum

Good morning and welcome to our second fiscal quarter conference call. After we review our earnings release and Bill Furman, our CEO and I make a few remarks about the quarter that just ended and the outlook for 2008 and beyond, we’ll open it up for your questions.

First as always matters discussed in the conference call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Throughout our discussion today we will describe some of the important factors that could cause Greenbrier’s actual results in 2008 and beyond to differ materially from those expressed in any forward-looking statement made by or on behalf of Greenbrier.

Today Greenbrier reported fiscal second quarter 2008 results. Our GAAP net earnings were $0.09 per share on revenues of $260 million, compared to net loss of $0.38 per share on revenues of $240 million in the second quarter of 2007.

Our 2008 quarterly earnings were negatively impacted by $0.19 per share due to the impact of special charges and other costs associated with our Canadian manufacturing facility TrentonWorks. Also our tax rate for the quarter was an unusual 112% due to revisions to our projected mix of geographic and earnings and losses for the year which also revised our expected tax rate for the year.

Operations in Europe, Canada and our Mexican joint venture are currently generating losses with no related accrual of the tax benefit. Of course when these operations turn profitable, the reverse will be true and the earnings will not be tax-effected until these loss carry forwards are fully utilized.

Subsequent to quarter-end, we announced two refurbishment and parts acquisitions; AARE and RBI with combined revenues in excess of $100 million and EBITDA of $16 million on a combined basis. After these acquisitions our marine, refurbishment and parts and leasing and services businesses now generate about $700 million in annual revenues.

As we look into the second half of fiscal 2008 the drag on our earnings from TrentonWorks is now behind us and the tax rate is expected to run around 63% for the year. Obviously this is a very high tax rate overall, again due to the geographic mix of earnings and we are currently seeking ways to more efficiently manage our tax situation.

We expect the second half of the year to be better than the first half as the result of continued strong performance and acquisition growth in our refurbishment and parts segment, a lower tax rate and elimination of the TrentonWorks drag. All of these factors will positively impact our financial performance.

We have entered a difficult macro economic environment and the new railcar market has become increasingly competitive. Our strategic initiatives which we have been implementing for the past couple of years have resulted in the diversification of our revenue and earnings. As a result our financial results now demonstrate much less volatility then if we were so heavily dependent on railcar manufacturing.

I will now provide some color and highlights for the quarter. First turning to manufacturing, new railcar deliveries for the quarter were 1,300 units compared to 1,200 units in the second quarter of 2007. Year-to-date deliveries are 3,200 units, the same as last year. Last quarter we said we anticipated new railcar deliveries for the year would be around 7,500 to 8,000 units. As our earnings release notes we have renegotiated a contract whereby a lesser number of higher unit value cars will be produced at comparable margins to the cars that were substituted. Due to the substitution we now expect fiscal year ’08 deliveries to be around 7,000 units rather than 7,500 to 8,000. Our manufacturing revenues however for the year, again to the change in the mix to higher value units are pretty much unchanged.

Our February quarter-end backlog includes 3,600 units that will be produced during the balance of 2008. The difference between the 3,600 units and the 3,200 units delivered during the quarter is cars hung up in our balance sheet on assets held for sale. Manufacturing margin for the quarter was 4.2%, down sequentially from Q1 due to the start-up and inefficiencies of our Mexican joint venture and the pricing environment in which we are operating. As I previously mentioned we are experiencing start-up losses in our Mexican joint venture which were $856,000 this quarter or about $0.05 a share; that being our share of the losses as we shift our manufacturing footprint to lower cost facilities.

We are seeing to add efficiency improvements and cost reductions in the near term and this operation is improving on a daily basis and a longer term basis we are much better positioned for the long-term. Manufacturing margin expectations for the balance of the year are more muted then they were on our last call as the macro economic and pricing environment has weakened.

Turning now to TrentonWorks, our manufacturing facility in Canada, as I mentioned the drag on earnings this quarter was $0.19 a share compared to $0.10 in the prior quarter. The increase this quarter is due to a $0.09 a share special charge for severance benefits incurred as a result of a lost arbitration. After our quarter-end in attempts to sell this facility we placed TrentonWorks in bankruptcy on March 13. We have not guaranteed any of the obligations at TrentonWorks. Since we no longer control the operations starting in Q3 the results of TrentonWorks will no longer be included in Greenbrier’s consolidated results and no additional charges related to this operation are expected. Conversely, we now have a negative net investment of about $13 million on our books. Once the bankruptcy process is fully completed, if there is any remaining negative, negative investment on our books, it will flow back through the P&L as an income pickup.

Our marine, refurbishment and parts and leasing and services businesses continue to perform well and we anticipate this momentum should continue throughout 2008. Including our two new acquisitions, again these businesses that generate about $700 million in annual revenues, and when we combine our European operations these combined business units can generate about $900 million of annual revenues.

Turning specifically to refurbishment and parts segments, our revenues for this year should now approach about $500 million. We believe the margins for the balance of the year should remain at about 15% to 16%. Our leasing and services segment which has 9,000 owned railcars and a managed fleet of 138,000 cars continues to perform well too. Our leased fleet utilization for the quarter remains unchanged at about 97% and we expect this strong utilization to continue during the year. Recently we have seen firming of lease rates and at times some very aggressive pricing in the market on certain new railcar transactions. It is possible that in this environment we could see come declining utilization.

The current quarter includes $1.2 million in gains on equipment sales compared to $2.6 million in Q2 of 207 and $0.8 million in Q1 of 2008. As we continuously state equipment sales are hard to forecast as they are opportunistic in nature however we continue to expect gains on sales this year to be down significantly from $13 million realized in ’07. The decline is due to less trading activity rather than reduction in asset values. While the secondary market for selling leased assets remains liquid we observed some contraction in market liquidity during the quarter is to be expected given the difficult financial markets.

When you pull out the gains on equipment sales, the leasing and services margins were 46% of revenues this period comparable to last quarter and again we expect this to continue throughout 2008. Our near-term financial focus is on cost reductions, paying down debt and strategies to reduce our tax rate. We are continuously and aggressively looking to take cost out of the system and eliminate discretionary CapEx. We continue to look at driving out about $10 million of G&A and overhead costs and this will be part of our focus going forward.

We expect our net leasing CapEx to run about $40 million to $45 million this year and we expect our manufacturing CapEx to be about $30 million and refurbishment and parts around $10 million. Our D&A expense should run around $35 million this year.

The current operating environment is challenging but we remain optimistic about the long-term fundamentals of the rail industry and we believe that we are well positioned both in the near and long term to successfully compete in changing environments as a result of our strategic decisions.

I will now turn it over to Bill and then we’ll open it up for your questions.

William Furman

Thank you Mark, well this has been a very active quarter and a number of very important activities. We are disappointed in the quarter’s results but I believe that in light of the activities that we sustained during the last two quarters that these results are understandable. There are many positive things that have occurred and I’d like to put some of these short-term numbers in financial perspective.

As Mark has outlined we concluded two important bolt-on acquisitions for our Greenbrier rail services segment. These acquisitions have trailing revenues of about $100 million and EBITDA of about $16 million. But our most recent one, Roller Bearings Industries, is especially important because while smaller it builds on the platform we already have in wheel services and adds to the American Allied and former Meridian businesses in important ways.

Currently the GRS wheel services division consumes approximately 430,000 reconditioned bearings per year. American Allied has a run rate of about 60,000 bearings and that’s included in that total. This is approximately 35% of the total reconditioned bearing market. Though our normal operations and through those operations we generate cores of bearings which we sell to a reconditioner and in turn that reconditioner has sold those back to us after doing the work. By entering this business we will not only take out the middle man but we’ll substantially reduce our costs by internalizing bearing reconditioning margins.

It will improve our competitiveness throughout this segment and match the abilities of any other party in the industry. RBI, Roller Bearings Industries, owns a 52,000 square-foot facility and three acres in Elizabethtown, Kentucky and it’s supported by our other facilities. We expect this to move very smoothly and be a very positive acquisition.

During the quarter we also concluded a lengthy negotiation with a major customer which has the effect of stabilizing our manufacturing backlog at our Portland and Mexico facilities at a run rate that, while disappointing in terms of the short-term financial performance and particularly the effect its had in our first half, will assist us greatly in the long haul sustaining these facilities through difficult economic times.

This is very important and the brunt of the financial drag in the company has been taken in the first half. We now have finally come to the end of the costs and distraction from closing our Canadian facility and we’ve redeployed to cheaper facilities both in Mexico and a continuing core facility here in Portland, Oregon.

We sustained at our GIMSA facility very good quality covered hopper cars and while manufacturing CapEx will be up this year and while the short-term performance as can be expected in starting up a new facility is a drag on earnings, we believe that this will be an exciting and successful venture and we appreciate the confidence our partner at GIMSA has placed in us. Our project is proceeding on line and while all this has come at a cost we believe that it will pay important dividends in the very near term.

Meanwhile as you know in February Carl Icahn and affiliated companies took a 9.45% stake in Greenbrier stock and stated an interest in a possible business combination between Greenbrier and the railcar manufacturer ARI, which is controlled by Mr. Icahn. As you would expect we’ve had some conversations in response to this request from him on this topic. We have made other investments with ARI and with Mr. Icahn and respect him and his companies. Our interest is however to serve our stockholders. We’re not going to comment further at this time and undertake no obligation to update on this subject.

The markets in the rail industry continue to be weak. Overall car loadings have declined 3% in 2007. This decline is expected to continue in 2008. However we are entering this down turn if that is the appropriate term to use for it in good condition with a strong backlog. We do have some concentration in our backlog and we are managing the risks of concentration aggressively as has been evidenced in this last quarter; the redeployment of the railcar backlog and the building of cars that are at more in market demand. There are some very bright spots in the economy for the railroad business and for railroad suppliers. Increased fuel prices continue to drive traffic from truck to rail. The lower dollar is while driving commodity prices higher increasing the competitiveness of US export and we expect growth in those areas of cars where exports can be served.

Our two substantial markets, forest products and international container loadings have been hit early with the softened weakness and there are stored cars in both areas. However we have been successful in redeploying our product mix. We are building cars that are in demand and we believe we can sustain at this point our backlog at the current run rates.

Additionally not all things are rosy in this environment even though we have expanded greatly our GRS network, strengthened our integrated business model in the maintenance area there are some risks. We are concerned about the movement of class one railroads toward pushing costs and risk downward in the supply chain at a time when the owners of cars and railroads do not own the majority of these cars when at a time when the supply chain and its owners cannot assume these burdens. We have recently terminated one maintenance agreement with a significant customer in order to resist this trend where it most affects us.

Our backlog is substantial but it is concentrated as I said earlier and we intend to spend more resources in the area of risk management and perhaps will resist this trend that I spoke about as we have in the past. But we believe that our integrated business model is going to be successful in the near-term and we are very pleased with the activities of the last quarter and the quarter before in redeploying our business emphasis.

Looking at the last three years we have dramatically changed the mix of revenue and the mix of margin contribution from what was a predominantly new car manufacturing to today, a balanced mix of revenue from leasing, refurbishment and parts and from a continuing contribution of manufacturing, particularly in the area of marine. We have a strong backlog and good prospects and today less than 20% of our total margin contribution is coming from all manufacturing segments; about 50% from refurbishment and parts and 32% from leasing. Manufacturing will continue to be a very important part of our business and I think the shifts we have taken to redeploy from Canada into cheaper facilities with high quality products will be successful in the long-term.

Mark, I’ll turn it back to you.

Mark Rittenbaum

Thank you Bill and we’ll now open it up to for questions.

Question-and-Answer Session

Operator

Your first question comes from Steve Barger - Keybanc Capital Markets

Steve Barger - Keybanc Capital Markets

Back to your prepared comments can you tell me what that means to spend more resources in the area of risk management, what will that really entail?

William Furman

I think that it’s important to participate in the industry groups that are also studying the issue of transfer of risks from class one railroads to the rest of the supply chain network. We are active in several of these and I think it’s an important subject and that’s the area that I was referring to.

Steve Barger - Keybanc Capital Markets

Have you already started that process and have you found ways in those industry groups to offset some of those risks of class ones pushing costs down?

William Furman

Yes, I think that while it’s a trend, it’s not something that is shifting rapidly; it’s just a longer term thing that I think we have to be conscious of.

Steve Barger - Keybanc Capital Markets

Okay. Quarter-to-date 3Q ’08, can you talk about order activity, any activity so far?

Mark Rittenbaum

Yes there is activity out there. We do have orders subsequent to quarter-end and so there’s still activity and obviously the market environment that—we described the market environment in our prepared remarks as being an increasingly difficult market environment.

Steve Barger - Keybanc Capital Markets

Okay. For your total backlog of 19,000 cars, what’s deliverable in 2009 from that? Do you have that number?

Mark Rittenbaum

We don’t breakout the backlog by year other than the current year’s production.

Steve Barger - Keybanc Capital Markets

Okay and last question, we know that grain prices are near all time highs, so are diesel and fertilizer costs, you talked about the transportation, given those dynamics can you tell me what you think utilization rates are for the covered hopper fleet in general and are you seeing customers talking about dialing back CapEx budgets due to input costs inflation?

William Furman

Most of our CapEx budget and I know you’re talking about customers but I want to take the opportunity to say it, most of our CapEx budget is on expansion and efficiency enhancement in our Mexico joint venture facility. We believe there remains very decent demand for covered hopper cars of several types but I think that grain is still—there’s still a lot of activity in grain. Some of the stimulus package that was put together probably favors orders this year and there are a couple of major transactions in the market. Having said that we’re seeing both substantial competition, we’re seeing the pressures in the short run on pricing which are toward fixed priced deals and the market is generally not tremendously positive and this was reflected in our financial performance.

Steve Barger - Keybanc Capital Markets

Since you mentioned fixed price contract, can you talk about your steel buy? Are you protected under contract on that or how much of your steel buy is open to spot market?

William Furman

We are in the current year and under our multi-year agreements protected for a large of our backlog. We are observing the activity of our competitors in the current year to quote on a fixed price basis so there is some exposure there and we don’t have—we’re not prepared to discuss the full amount but all of our multi-year agreements are covered with escalators and the substantial portion of our 2008 costs are committed as well.

Steve Barger - Keybanc Capital Markets

Okay thanks.

Operator

Your next question comes from Frank Magdlen - The Robins Group

Frank Magdlen - The Robins Group

I’m losing sight because there’s so much noise, what is a comparable margin going forward in new car manufacturing?

Mark Rittenbaum

I think for the current Frank, I think we’re probably looking in the mid-single-digits to the probably 4% to 6% range for the balance of this year.

William Furman

Let me add a little more color to that Frank, the container car and our automotive car are both attractive cars for margin and this is generally known by those of you who follow us. We are running double stack container cars are our Gunderson facility through the balance of this year and we have then redeployed into backlog in Mexico which will have a cheap base for our Auto-Max cars. So the mix is confusing and it varies quarter to quarter. So there’s going to be a lot—a lot of it will be depending on revenue recognition and the timing of actual closings and transactions particularly those cars that are hung up on our balance sheet and attached to leases and that were in the syndication market to sell them.

Frank Magdlen - The Robins Group

What was your actual production then for the quarter and also maybe what was the marine barge revenues and are there about 11 of them in your backlog now?

Mark Rittenbaum

There are, I believe the number Frank is 13 in backlog. Our actual production this quarter was a little under 2,000 units. Some of those, again, are hung up on the balance sheet and some of those went into our lease fleet. As you recall when we report deliveries its only third-party deliveries nothing that goes into our lease fleet.

Frank Magdlen - The Robins Group

And then should we still expect about another $2 million or so gain on sales for the balance of the year?

Mark Rittenbaum

Again that’s a little harder to predict because it’s opportunistic. I’d say from what we see today that’s kind of in the ballpark but that can be a pretty volatile number. That’s probably a little bit on the lower end of what we might expect.

Frank Magdlen - The Robins Group

Okay and then marine revenue in the quarter?

Mark Rittenbaum

I think that’s about in the neighborhood of $15 million. We still see marine being about a $60 million, $60 million plus million dollar business for the year as a whole.

Frank Magdlen - The Robins Group

Thank you very much.

Operator

Your next question comes from Arthur Hatfield - Morgan Keegan & Company

Arthur Hatfield - Morgan Keegan & Company

Mark were you able to do anything, you had mentioned some tax strategies, have you been able to do anything that should impact this year or are those more issues for 2000 and beyond?

Mark Rittenbaum

I think into the guidance of the tax rate for the year as a whole that reflects what we’ve done to-date and what we haven’t been able to do to-date. So 63% is where we are now. We are looking at methods to improve that and bring that rate down for the year.

Arthur Hatfield - Morgan Keegan & Company

Okay, materially different or how should we be thinking about tax rate for the back half of the year?

Mark Rittenbaum

I think our guidance now is 63% for the back half of the year.

Arthur Hatfield - Morgan Keegan & Company

Okay. Secondly in the quarter on the charges, the $0.19, you had broken those out as $0.13 special charge and $0.06 kind of other costs related to Nova Scotia where did that hit the income statement?

Mark Rittenbaum

I’m sorry, where did which hit the income statement?

Arthur Hatfield - Morgan Keegan & Company

The $0.06 number, I’m sorry. Is that an SG&A number?

Mark Rittenbaum

Yes it is. So the part that is not in special charges is in G&A.

Arthur Hatfield - Morgan Keegan & Company

Okay and was that, the $0.06 was that obviously is a net number but is there any tax benefit or implication to that number where a pre-tax would have been say $0.09 or $.010?

Mark Rittenbaum

No, all the losses up in Canada go straight to the bottom line.

Arthur Hatfield - Morgan Keegan & Company

Okay that’s helpful. And then on the 3,600 in deliveries for the balance of the year, are those pretty evenly split between Q3 and Q4?

Mark Rittenbaum

It is pretty evenly split between the two but I want to verify the mix for you as well because we talked about, as Bill talked about, the mix is—so we would expect the dollar value of the mix to be a little bit higher in Q3. So if you’re looking on a quarterly basis that would imply as well both the dollar values of the deliveries in Q3 and the product mix itself in Q3 is a little bit more favorable than Q4 as we see it right now.

Arthur Hatfield - Morgan Keegan & Company

Okay. You had mentioned since the quarter ended you’ve seen a little bit of order activity, is there anything out there—and I don’t want you to commit to anything, but is there anything that you see that may give you some confidence that there’s a possibility you could actually plug some cars in some slots in Q3 and Q4?

Mark Rittenbaum

I think we’re more focused, as Bill talked about earlier, a stable production in—in stabilizing production for the longer term rather than looking at squeezing in cars for this year. Our production rates are pretty much set for this year and so while the number I gave before of the 7,000 units is a ballpark, yes that’s a ballpark about 7,000, but I don’t think we’d expect anything to move the dial dramatically from that. That’s not where our focus is.

Arthur Hatfield - Morgan Keegan & Company

Okay and that’s helpful and as we think about that, you know historically your earnings were highly cyclical because of the mix related to just railcar manufacturing, because of the mix now are you more comfortable in just focusing on longer term profitability as a railcar manufacturing business?

William Furman

Let me say it slightly differently, we’re focused on stabilizing our production rate for a longer pull through 2009 so that we can have a stable platform in manufacturing with cheaper and more efficient facilities. We’ve have major redeployments in the first half. We’ve redeployed assets into Mexico. We’ve engaged in start-up activities there on two important lines. A lot of execution to do with that and we have totally restructured our backlog with one significant multi-year contract to stabilize our Gunderson facility. So I’m not looking during these uncertain economic times for upside in the short-term, I’m looking for the ability to sustain a long distance run. And I think anyone who takes an alternate policy in this kind of uncertain economic environment is running a great danger. If we see opportunities to put in profitable business at these facilities that would affect quarter-to-quarter profits we certainly would take advantage of that. But the manufacturing business is a good business. It’s a core part of our activity and it’s highly cyclical. What we’ve been doing is moving toward a balanced model that enhances our ability to take a hit. We are going into this down turn if that’s what it is, with the biggest backlog we’ve ever had albeit with a concentration on several important customers.

Arthur Hatfield - Morgan Keegan & Company

Great, that’s great color Bill and then Mark, you had mentioned in the pricing—stability in lease rates but you had seen some aggressive pricing on some new lease deals. Is that—you don’t need to mention any names, but is that kind of broad based or are you just seeing that from a small set of competitors in the leasing business?

Mark Rittenbaum

I would say it is the latter; a smaller set. I would not say it’s endemic to the industry as a whole. I think, in fact there are some of us—I think that some of this defies explanation.

Arthur Hatfield - Morgan Keegan & Company

Okay and that leads me I guess to your comment about utilization possibly declining, that’s just a function of you not willing to get into some bad lease contracts or bad lease renewals, is that a fair statement?

Mark Rittenbaum

I think it’s that. I also think when you look at the rail that is correct. Also when you look at rail loadings overall, loadings are down and so…

Arthur Hatfield - Morgan Keegan & Company

…the needs of the industry of just not there.

Mark Rittenbaum

Right.

Arthur Hatfield - Morgan Keegan & Company

Right, okay thank you very much. That was great color, thank you.

Operator

Your next question comes from Peter Nesvold - Bear Stearns

Peter Nesvold - Bear Stearns

Just a couple of very quick questions, realize that during the quarter you said you had roughly 200 or so cars that went into railcars held for sale, it still though appears that that line increased fairly significantly during the quarter. Can you just talk about, given the environment that you see right now, how are we going to see inventories trend from here?

Mark Rittenbaum

Well let’s correct—the comment was that we produced close to 2,000 cars this year and our deliveries this quarter were 1,300 units so the difference of roughly 700 units partly went into the lease fleet and partly went into assets held for sale. So I, perhaps during the course of this conversation I’ll dig up what amount went into each piece of this but it wasn’t—I believe it’s a higher number than 200 that went into assets held for sale.

Peter Nesvold - Bear Stearns

So and we’ll see that reverse out throughout in the course of this year?

Mark Rittenbaum

Yes. We expect—another way of stating this, we expect the assets held for sale, that line item that’s about $100 million to go down to something closer to $50 million by the end of the year. Also when you look at that line item, its both railcars with leases attached that we would be selling, it’s also finished goods, wheel inventory that’s included in that $100 million.

Peter Nesvold - Bear Stearns

Okay thank you, that’s helpful. And then on the minority interest line, can you just give any color on how we’re supposed to look or think about that line for the remainder of the year? I realize, I believe or if you could correct me, most of that is GIMSA correct? Or is there something else going on in that line?

Mark Rittenbaum

That’s our minority, our partner’s share of the earnings and losses at GIMSA. We are—for the balance of the year I think it obviously would reflect the results of GIMSA itself. We’re looking for improvements in the second half of the year. Our share of the losses this quarter were $850,000 but I wouldn’t want to give specific guidance on the financial performance of GIMSA this year.

Peter Nesvold - Bear Stearns

Okay thank you.

Operator

Your next question comes from J.B. Groh - D.A. Davidson & Co.

J.B. Groh - D.A. Davidson & Co.

Just a real quick question, have you seen any increased interest from the customers contemplating orders due to the economic stimulus package?

Mark Rittenbaum

The answer would be yes. Some of the order activity out there is definitely stimulus driven whether it be from the class ones or leasing companies or shippers.

J.B. Groh - D.A. Davidson & Co.

Is it significant?

Mark Rittenbaum

Well I think overall we described the environment out there. It’s still a challenging environment. I think its meaningful compared to what the environment would be without the stimulus package but again on the new railcar side, it’s muted as compared to the last year.

J.B. Groh - D.A. Davidson & Co.

Okay and for your assets held for sale, could you please tell us how much of that is in transit?

Mark Rittenbaum

Very little of that is in transit inventory, the assets held for sale are again railcars we produce in one period where we have a lease attached to the railcar and we are planning to sell it to another—to package it and then sell it to another leasing company in a different quarter. So it has very little to do with in transit inventory.

J.B. Groh - D.A. Davidson & Co.

Okay great, thank you.

Operator

Your next question comes from Joseph Ciampi – UBS

Joseph Ciampi – UBS

Sorry if I may have missed this but what was the combined purchase price for the two acquisitions; around $95 million is that about right?

Mark Rittenbaum

That’s in the ballpark. We didn’t disclose the purchase price of the second acquisition. The first acquisition was $83 million and as Bill talked about earlier, the second acquisition was relatively small in terms of the dollars involved in it, but in terms of the how better it positions us in the refurbishment and parts business very meaningful.

Joseph Ciampi – UBS

I guess if you bring that up, you did talk about internalizing the reconditioning, do you have a dollar cost estimate or is it kind of too early to go there? Of the benefit, I’m sorry, from internalizing the bearing reconditioning.

William Furman

We have estimated costs and they’re significant but—not costs but impact, financial impact, but it’s premature to say anything about it. It’s very positive.

Joseph Ciampi – UBS

Okay that’s fair. So just going back real quickly to the acquisitions, did you fund that through the revolver?

Mark Rittenbaum

Yes we did.

Joseph Ciampi – UBS

And would you be able to walk kind of through your current liquidity, just what the availability is on the revolver as it stands now?

Mark Rittenbaum

I think I will walk through—what you’ll see in our 10-Q when we file it later in the day that our available borrowings are about—based on all of our financial ratios at the end of the quarter would have been about $160 million as of the end of the quarter. That would have gone down as a result of the draw downs for the acquisitions but we’re also in the process of amending our credit facilities to increase the liquidity back up to the levels that I just mentioned.

Joseph Ciampi – UBS

Okay great, that’s helpful thank you.

Operator

Your next question comes from Alan Robinson - RBC Capital Markets

Alan Robinson - RBC Capital Markets

Mark regarding your focus on tax reduction over the next couple of years, how feasible do you think it is to get your taxes for FY09 down towards the sort of low 40% rate that we’ve seen in the past?

Mark Rittenbaum

I think part of this Alan, the biggest part of this is still the geographic mix of earnings so to the extent that our Mexican operations turn profitable next year, the extent that our European operations turn profitable next year, then that could portend to lower tax rate than around 40%. Our US tax rate is around 40 so we haven’t given an outlook for ’09 yet but I think as much as our tax strategies those would be the two key variables in driving the overall tax rate.

Alan Robinson - RBC Capital Markets

Okay that’s helpful. Then in terms of European railcar manufacturing, can you give us some color on how the market is there, whether the down turn we’ve seen domestically is being reflected in Europe, whether Europe’s lagging in any way?

William Furman

The market in Europe has been robust. Our earnings have been affected by a lag effect on supply chain issues and costs over there but we see that as a more positive environment in 2009. While the growth rate in the European economy may fall off, I think that the secular changes in Europe are going to continue to favor a reliable supply network especially in Western Europe and there’s quite an awful lot of activity going on in Eastern Europe and Russia that creates a lot of background noise so generally I think the market over there is pretty positive.

Alan Robinson - RBC Capital Markets

Thank you.

Operator

Your next question is a follow-up from Steve Barger - Keybanc Capital Markets

Steve Barger - Keybanc Capital Markets

Sorry if I missed this earlier but it looks like you only spent about $1.5 million in the quarter on CapEx which seems to be below your manufacturing maintenance CapEx level of I think from past quarters you’ve talked about $12 million a year or $3 million a quarter. So can you go through again what’s happening with manufacturing CapEx and how we should think about that in the back half?

Mark Rittenbaum

Well the guidance we gave for the year as a whole and I’d have to go with you offline on the reconciliation of your million dollar number, but what we expect for the year as a whole in manufacturing is around $30 million principally related to Mexico and that is a gross number before our partners’ contribution so net of our partners’ contribution that number is closer to the lower $20 million is for manufacturing again principally related to Mexico, $10 million refurbishment and parts and then about $40 million to $45 million net CapEx for leasing.

Steve Barger - Keybanc Capital Markets

Okay great, thanks very much.

Operator

Your final question is a follow-up from Peter Nesvold - Bear Stearns

Peter Nesvold - Bear Stearns

Just one quick follow-up, and sorry if I missed this, but can you just remind us for large multi-year order with GE where you’re going to build tank cars, has any production started from that yet or when will it start, if you can remind us of that?

William Furman

We are in the advanced stages of setting up the line. The project is on tap and we expect it to start up in the summer.

Peter Nesvold - Bear Stearns

So we should start seeing deliveries for this hit in the back half of the year?

Mark Rittenbaum

Back half; I’d say more back half of the calendar year. I think that you’ll really see it in the first fiscal quarter although as you would expect the ramp we’re going to take it slow in the beginning so I’d not really expect that you’d see a meaningful impact until the second quarter of next year.

William Furman

That was essentially a fine existing facility but a cold plant. During the last half we’ve ramped up covered hoppers. We’ve reached our quality and rate expectations out of the covered hoppers and we’ve put a lot of energy and time in setting up the tank car line. Things are moving ahead with the normal kind of issues particularly with respect to financial performance that you would expect when you’re starting up a cold plant. So we are—we think we’re making good progress down there.

Peter Nesvold - Bear Stearns

Okay thank you.

Operator

I have no further questions at this time so I’d like to turn the call back to Greenbrier management for closing comments.

William Furman

Thank all of those of you who participated in today’s call. We appreciate your interest in Greenbrier and have a good day. Thanks. Goodbye.

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Source: The Greenbrier Companies Inc. F2Q08 (Qtr End 02/29/08) Earnings Call Transcript

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