The Greenbrier Companies, Inc. (GBX) Q4 2012 Earnings Report, Transcript and Summary

Hello, and welcome to the Greenbrier Companies Fourth Quarter of Fiscal Year 2012 Earnings Conference Call. [Operator Instructions] At the request of Greenbrier Companies, this conference is being recorded for instant replay purposes. At this time, I would like to turn the conference over to Ms. Lorie Leeson, Vice President and Treasurer. Ms. Leeson, you may begin.

Good morning, and welcome to Greenbrier's Fiscal 2012 Fourth Quarter Conference Call. On today's call, I'm joined by our CEO, Bill Furman; and CFO, Mark Rittenbaum. We will discuss our results and make a few remarks about the fiscal fourth quarter and full year ended August 31, 2012. We will also comment on our outlook for the 2013 fiscal year, and after that, we'll open up the call for questions. Please note that we've included additional financial information in our earnings release, and there is a slide deck now available on the IR section of our website that includes supplemental financial information. Starting on this call, we will no longer be discussing quarterly results and relevant comparisons to prior periods. That information, as well as key factors for changes in the figures, have been captured in the financial slide of our earnings presentation. This is a new format for our earnings call. Our goal is to make the information clear and accessible, and we welcome all suggestions. As always, matters discussed in this conference call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Throughout our discussion today, we'll describe some of the important factors that could cause Greenbrier's actual results in 2013 and beyond to differ materially from those expressed in any forward-looking statements made by or on behalf of Greenbrier. Mark?

Thank you, Lorie. I'd now like to take a few minutes to summarize our financial performance at a high level, as well as to elaborate on how we are thinking about the fiscal year 2013 that is now in front of us from a financial perspective. Here are the highlights for the past quarter and the year. In fiscal 2012, we delivered record revenue in net earnings, and cash provided by operating activities for the fiscal year were a record of $160 million. Our Manufacturing segment delivered a record 15,000 units this year compared to 9,400 units in fiscal '11 and our owned or managed fleet of 230,000 rail cars grew by 6,000 cars during the year. Despite our record-setting year, however, our fourth quarter performance was below our expectations, and a number of factors contributed to this. We delivered 3,500 rail cars for the quarter compared to our expectations and the guidance that we gave of 4,000 units. This was principally due to the timing of delivery of 560 railcars with an aggregate value of nearly $50 million. We expected it to occur by year end but were postponed due to delays in lease indication transaction and one customer's acceptance of certain railcars. The margins on these cars exceeded our manufacturing gross margin for the quarter of 11.8%, so they were profitable, very profitable transactions. And all these deliveries occurred subsequent to quarter end. Additionally, our actual tax rate for the quarter of 51% was significantly higher than our expected rate of around 34%. This difference was primarily due to a change in geographic mix of our earnings, and the difference or the delta as a result of this was about $0.10 a share. Also, we incurred certain severance costs of nearly $1 million after-tax during the quarter. And…

And just as a reminder to everyone on the call, the calculation of diluted EPS can be complicated, so we have added some disclosures in both our press release and in our supplemental slides but we'd be happy to take any questions off-line regarding that. This year, as Mark said, we've been very focused on the balance sheet in addition to all the earnings items discussed. For the fiscal year, our cash flow from operations improved to a positive $116 million compared to a negative $34.3 million last year. A similar improvement can be seen in our free cash flow, which improved to a positive $45.6 million from negative $93 million last year. These improvements came as we hit more of our stride on operations and at a high level of focus on improving our working capital metrics. We will remain focused on working capital, particularly as we ramp up tank car production and make production line changes that Mark discussed. We ended the year with $353 million of liquidity, measured as cash plus undrawn credit facilities. Additionally, during the year, we reduced our total debt by almost $34 million, resulting in a ratio of debt to EBITDA of 3.1x. This is a considerable improvement from 5.1x in fiscal 2011, and this came through a combination of debt reduction and EBITDA improvement. I'll now turn the call over to Bill for his remarks on Greenbrier and the overall market.

Thank you, Lorie. Mark has touched on the issues that contributed to a weaker fourth quarter in fiscal 2012. A couple of major items there that I will not repeat. And despite all that, we have a healthy beat in the company's fundamentals, with backlog and dollar terms increasing and manufacturing margin up sequentially over the previous quarter. As Mark also indicated weaker coal traffic has contributed to lower margins in our wheel business during the quarter. And while this is concerning, we have solid cash flows in that business as in our total business and have strategic initiatives which should drive stronger performance during the course of this fiscal year and beyond in that unit. As I'll touch on a little later, we are very focused on capital efficiency, and GRS is the one area where we need to continue to improve return on invested capital. We're in an unconventional recovery cycle this quarter and looking into 2013, with a few segments of railroad being hammered, a good example is coal, which has a negative year-over-year decline in traffic, almost 12%. Trailing in the earlier year, grain due to weather and other selected commodities, has also been weak. But intermodal loadings, energy, chemicals, automotive as well as other commodities have all been very strong. So one must look closely not only at car loadings but because we have positive car loadings if you pull out that noise in many of these car types. But one must look also at what this means for underlying demand in all of our segments, leasing manufacturing, wheels and repair. Railroads continue to be strong financially and have made up most of the headwinds in their other businesses which they've experienced these headwinds in coal. They've improved velocity. Their capital structure is excellent. Overall,…

Thank you, Bill. We'll now open it up to questions, please, Operator.

[Operator Instructions] Our first question comes from Allison Poliniak with Wells Fargo.

At the first half, I know you talked about the backlog, they're 7,300 firm. Should we assume that those are in the first half of the year? And then can you comment, just in general, I know your -- the quarter ended at the end of August, just in terms of the new orders that you may have seen in the past couple of months?

Well, we haven't -- we didn't disclose -- we didn't disclose, Allison, orders subsequent to quarter end, but we certainly have received orders and the inquiry level remains strong. So I wouldn't want to disclose now what we've had since we didn't put it in our release, but the inquiry level was strong. The backlog is fairly evenly weighted throughout the year, as we've mentioned, as far as the 7,300 cars. Obviously, our overall backlog is stronger than that and the rest of that goes into fiscal '14. But the existing backlog is pretty even, perhaps weighted a little bit more to the first half of the year.

Okay, perfect. And then with intermodal, are you surprised that we haven't seen more orders? And is it just, I guess, overall caution in terms of what people are going to expect in terms of intermodal for next year? And if it's still strong, should we expect some more orders coming through?

We expect orders for intermodal next year at a level less than this year. There's still an interesting mix between Eastern rail traffic and Western rail traffic, international and the more domestic box reloading and domestic containerization. So the whole picture requires more detailed analysis than it has in previous years. In addition, there's been the absorption of all of the cars built during the past year, which was sizable. And finally, the coal traffic decline, since coal is such a large portion of railroad traffic, has improved -- well, has contributed to the improved velocities. And of course, the railroads have improved their operating velocity and service efficiency in general. So it takes a bit of time for those forces to work through the system. However, this is an area we track very closely. We believe that we will be selling cars. And in fact, we are anticipating that in our tactics for the year and continue to build double-stack units at our Gunderson facility today, and we'll be building them into the early part of the year.

Your next question comes from Bascome Majors with Susquehanna.

You talked a little bit about beginning to invest a little more heavily in your lease fleet, and certainly your leasing CapEx rose pretty substantially this quarter, as well as the size of your company-owned fleet. How much of this is timing with perhaps the railcar syndications and how much of this is truly lease [ph] fleet investment? And sort of what's your strategy on diverting cash flow to that going forward?

Bascome, our net leasing CapEx for the year was about $40 million, which is also what we're anticipating for 2013, and that is kind of what we consider as steady-state. We might ramp that up a little bit this year as we'll be in a higher paying tax position and leasing will offer a tax shelter, but that's not -- that's kind of a steady-state for us. I think what we're referring to is more of our model of driving more leasing business through -- with manufacturing and repair and refurbishment and tying that into our syndication activities where we earn high rates of return on those types of transactions, both holding the cars at shorter term and earning rent while we hold the cars then realizing the margin, which are attractive margins on the sale of the asset and then maintaining ongoing management. To give you an idea, just the syndications that we did this year and the 6,000 rail cars that we through [ph] overall [ph] , and owned and managed -- just on the managed side, the present value of the future fee income from that was over $3 million.

Actually that would not have been recorded.

Right. Exactly. It's not -- of course, that's not recorded, but that's just the present value of it.

Understood. Just as a follow-up. You talked a little bit about your flexible manufacturing footprint. With freight car demand certainly slower than it was earlier this year, have you already taken any actions or what actions do you plan to take near-term to sort of rightsize capacity in certain car types as you shift to those markets where perhaps demand is still pretty strong?

Well, our -- the only rightsizing that we would want to do if we were to consider it in North American manufacturing, the only possibility would be here in Portland, but that's the facility center for our marine business, which is recovering. And so we can deploy labor over there if the intermodal market is weak. We anticipate running double-stack cars through this fiscal year at Gunderson. And for that reason, we don't have any plans to downsize capacity. Rightsizing capacity to us means higher market share and investment and lower cost and efficient and flexible facilities. We're actually hitting our stride with the new capacity we're bringing on. And as long as we can maintain the present market shares that we have and we continue to target, I think we'll have a very robust year. And that will really help us a great deal as we continue to gain operating leverage from running longer runs and from having these lower-cost facilities as they ramp up in the third and fourth quarter and even some in the following -- in the coming quarter.

Our next question comes from Peter Nesvold with Jefferies. H. Peter Nesvold - Jefferies & Company, Inc., Research Division: First on the backlog. So you said the backlog was relatively well distributed throughout the year, and that SG&A was lighter in the first half versus the second half of next year. But it sounds like EPS is going to get back-end loaded. So why the mismatch between that? Why is EPS back-end loaded? Is it mix in the back-end half of the year? Is it something related to the usual seasonality of margins or something else?

It would be that if our back -- it's primarily relating, Peter, to the ramping up of our production. We talked about tank car production ramping up throughout the year. So when we said we're going to triple deliveries, anticipate tripling deliveries in 2013 relating to '12, that is ramping up throughout the year. We're also bringing on capacity at our Concarril facility that will be back-end weighted. And then as Bill mentioned as well, on the intermodal side of the business, we're anticipating demand in the second half of the year and we are currently building in anticipation of that demand. So those are the 3 primary drivers of why it would be back-end weighted. H. Peter Nesvold - Jefferies & Company, Inc., Research Division: Okay, that's really helpful. Yes, second question, the industry backlog has gotten more and more concentrated towards tanks. Yours has too, which is -- it's a function of where the strength is in the industry. How can you manage the potential mismatch in capacity utilization? You talked about not wanting to downsize in any particular plant, but you're going to have some plants where they're going to be highly utilized and other plants where you're going to go through periods where they're underutilized. So I'm just curious, from a manufacturing standpoint how do you manage through that without suffering margins?

Well, it is an excellent question. One of the ways we're managing it is to use our leasing company in this type of market as we have done historically, cycle through cycle. And you might recall, historically, our market share has risen during down cycles but has diminished in up cycles. We still consider this to be an up cycle. We think it's an up cycle for a bundle or some basket, the total basket of car types. So by being able to produce more of these car types and using our leasing company along with -- associated with our leasing partners, established leasing companies with whom we've got excellent relationships -- we believe we can take positions in those cars and market them aggressively, moving from one car type to another. And this is something we've done before very, very effectively. And the leasing -- retailing arm is incredibly effective. It's also a model that's been copied very effectively and actually put on steroids by Trinity. So it's a useful tool, and it's what we intend to do to keep the factories full of good margin and products.

Don't take any of our comments, Peter, to mean that -- a 30,000-car-build year versus a 50,000- or 60,000-car-build year, the dynamics are very different, but we believe we have the tools and the diversity that we would perform better throughout the cycle and at the down part of the cycle than the overall decline in demand would indicate.

Yes, we really have the capacity now, Peter, to operate through the cycle with a targeted market share. And that's a capability we haven't had before. And it has some real benefits as the cycle moves down. So we can move from one car type with these lines that we've set up, which are very flexible. We can move from one car type to another without a loss in learning curve. And we anticipate, using the capacity we've built, we don't see it as a negative. We see it as a very positive capability that we do intend to deploy throughout the year. And the trick will be to juggle the different car types and be sure that we have backlog. That backlog may be shorter and shorter, but we've done that very effectively in the past. And the leasing company, again, is our entry point with the partners that we operate within the industry, the leasing partners, established leasing companies and also new institutional sources that we're working with as part of our syndication effort. H. Peter Nesvold - Jefferies & Company, Inc., Research Division: Okay. I'll sneak one last one in if I can. Just on the tax rate, Mark, you talked about returning to the normalized levels next year. Can you just elaborate briefly, what was the geographic mix shift that happened in the quarter that drove the higher tax rate? And what kind of precludes that from carrying over to the first -- into the next quarter or 2?

Good question, Peter. The 2 primary shifts are that we had more earnings in our European operations and less in our -- certain of our Mexican operations. And while some of that may not be totally intuitive, we had the result of the higher European earnings as we had tax loss carryforwards that we fully burned through during the year, and we had more taxable income than we would have anticipated there, and that partly drove up the rate. And then in part due to the syndications that got postponed. Our earnings that are -- principally at our GIMSA facility were less than we would have anticipated. And the part that flows up to our U.S. operations only get -- only 1/2 of those get taxed because it's a flow-through entity. We have 50% of it. So in essence only 17% of the U.S. earnings are getting taxed. And since that was a lower amount, that contributed to the higher rate. Then we had some -- a few permanent differences down in Mexico that we're looking to address as well. So this -- we have had our tax rate fluctuate, and we're aware of that. It is a challenge with the geographic mix of earnings so that is going to be an ongoing challenge given that we operate in 3 different tax jurisdictions with 3 very different tax rates. But what we -- we'll definitely put more resource on -- so there continue to be volatility -- but we're going to put more resource on what we can do to reduce that volatility and the overall tax rate.

Our next question comes from Art Hatfield with Raymond James. Arthur W. Hatfield - Raymond James & Associates, Inc., Research Division: In your comments about -- in the release and in your commentary on the call you talked about -- for fiscal '13, at the high end of the range you make comments about revenue, EBITDA and EPS. Just so we're on the same page with you, when you make that reference to EPS being roughly the same as '12, are you using the $1.91 when you think about that?

Yes. Arthur W. Hatfield - Raymond James & Associates, Inc., Research Division: Okay. Secondly, on the lease utilization, it was down a little bit. I know we're talking a couple of hundred cars here and there, and you would attribute that to the coal business. Can you talk a little bit about the makeup of your lease fleet and kind of what -- kind of where you think utilization may go over the next couple of quarters?

I think -- we have -- our fleet is a pretty diverse fleet, Art. We do not have much coal exposure in our own fleet, maybe 400 to 500 to 600 cars. And you correctly point out that with a fleet of only 10,000 cars, that when you have a couple of hundred cars going in one direction or the other, it tends to skew the impact. Outside of that, it's pretty diverse. We have less double-stack cars than one might think given our lead position in double stacks, but most of those, most of that equipment is owned. So hoppers, boxcars are a significant portion, but I would expect that we're going to operate in the 93% to 97% range, and the driver of that really is going to be our ability to get the coal cars back in service. The dip for the quarter, the couple of points down in the quarter, as we put some equipment in our lease fleet that was not coal cars that actually got into service right after the quarter end, so that drove it down for the quarter. But -- so 93% to 97%. Arthur W. Hatfield - Raymond James & Associates, Inc., Research Division: Great, that's very -- that's great color, Mark. I want to go -- last thing, too, I want to go back to the -- ask some questions about this -- the manufacturing. You've had a lot of questions about the implications of ramping up the tank lines, but just a couple -- question on that. As you know, and you mentioned that your production lines are pretty much sold out into '14, I think it's fairly common knowledge that that's the case throughout the industry.

That's true of tank cars, Art. Arthur W. Hatfield - Raymond James & Associates, Inc., Research Division: Correct, and yes -- correct. And I'm addressing tanks specifically. Given that environment, if I was in your shoes, I would want to be paid a lot of money to ramp up production in order to either -- I guess, the question is, are you pulling forward cars that were actually scheduled for delivery later? Are these new orders that you've taken on more recently where your offering a quicker delivery than people can get otherwise? And if so, do you feel like you're getting adequately compensated for ramping up this capacity?

Our margins in tanks are very good as reflected in the market. If you compare us to our industry peers who are more pure plays, and ARI would be a good example, they're more concentrated in tanks, and they're obtaining exceptional margins. When you look at our manufacturing margins, keep in mind that 2 or 3 forces are moving on that. One is that we're getting a good margin in tanks, and we're being well-paid. In fact, our customers always think we're being paid too much. But in other car types, while we're building these facilities and we're trying to get the economies of utilization in them, not every freight car is equal to a tank car in its profitability. We are focused on gross profit dollars per day and gross profit dollars per month as opposed to gross margin percentage. And the reasons for that are I think just very obvious. So it's difficult to talk about margins in the general context. You have to talk specific car types, and we generally don't release margins on a segment basis. But I can assure you that our car -- that our margins in tanks are very good, and that's the reason for the back-end loading this year as we expand that capacity. So we have all of that sold. And no, we're not pulling production forward. This is all new demand. And you've seen Trinity announce that it's going to increase its capacity. How long will this continue to go on? Well, it looks like it's going to have momentum, solid momentum, going through 2014. They're making -- I think all of us who have efficient factories are trying to expand the capacity to build more for the higher demand cars, it makes sense. And I know it bothers some analysts that companies are adding capacity in this climate where there's a conception of overcapacity, but we are doing it and we believe we'll be successful at it. Arthur W. Hatfield - Raymond James & Associates, Inc., Research Division: Just the last thing relative to that. If other car types come into demand, say the economy were to improve, and as you mentioned, you feel like you're -- we're still in the early stages of a railcar cycle, would this inhibit your ability to take on orders of those other car types if they were to come into demand?

You mean the tank car business? Our tank car business... Arthur W. Hatfield - Raymond James & Associates, Inc., Research Division: No, no. Outside of tank. Outside of tank.

No, in fact, the whole point of our manufacturing strategy is to have diverse facilities at low -- with a low-cost footprint that can manufacture virtually any kind of car required by the marketplace, and that can -- those cars can be sponsored and inserted into the marketplace by our leasing company. So it's at two-prong strategy involving both manufacturing capacity diversity and leasing. So in fact, the opposite would be the case. I think that the versatility of being able to move from one car type to another and focusing on the car types that come into demand as opposed to being a one-note samba, just one car type. A few years ago, we used to be principally intermodal and forest products. And by the way, forest products are starting to show some signs of life. I don't see a lot of energy in 2013, but we expect to see -- we expect to be continuing to build the boxcars through 2013, at least on one line. And it could be that in 2014, we're going to see some real demand in forest products, which will be a real boost to us because we had very high market shares in that product area in the past. So we need the facilities. We just have found it unacceptable in a market like this in the past that our market share declined. So we've gone after the market share that we're capable of getting during a downturn, sustaining it during a more normalized market like I see this being today.

So, Art, if demand is stronger in 2013 than we're currently forecasting because, as Bill said earlier, we're tempering -- some of our remarks are tempered by the uncertainty in the global economy. And so if demand does play out stronger than what you're currently seeing, then absolutely we have the ability and the capacity to deliver more than 13,000 cars this year and with a higher average selling price than in 2012.

Our next question comes from Sal Vitale with Sterne Agee. Salvatore Vitale - Sterne Agee & Leach Inc., Research Division: So just a clarification if you could, and I apologize if you mentioned this already, but within your backlog, how many tank cars are within your backlog currently?

We don't break it out, Sal. What we did say is that our tank car backlog like the industry as a whole does go well into 2014. Salvatore Vitale - Sterne Agee & Leach Inc., Research Division: Okay. What I'm trying to get a sense for is -- so given your guidance of roughly 11,500 cars to 13,000 cars, so that the high end of that range would be, call it, a 25% to 30% decrease from fiscal '12. So I'm just trying to get a sense, so should we conclude from that, that part of that is that you're pulling forward deliveries from fiscal '14, so that we should see fiscal '14 be a lot higher than it otherwise would?

We're not pulling forward orders. I think, Sal, the biggest driver, because we also said that revenues would be flat for the -- flat for the year. So as an example, tank cars have an average higher selling price than our conventional -- the rest of our mix. But the other thing that is driving relatively or flat revenues on lower deliveries, another example is automotive cars have a much higher average selling price. They also have a lot more labor hours than, say, a frac sand car. And we had previously noted that a lot of demand in 2012 was driven by frac sand and hopper cars for that marketplace. And while we're still building our frac sand cars and we still see demand in that, we would expect to deliver less of those this year than in the prior year and again offset by a mix of higher labor content, higher selling price cars but a lower number of units actually outside the door. So that's what would -- those would be the factors.

Our sales, Sal, are constrained right now in tank cars by the -- our production capacity per day. And on the previous question, on your question, if you take the information I provided earlier, current production is 6, and we want to have the capability of going up, normalized to, say, 14. That's a fairly modest step-up. And physical facility is already there. It's just a matter of executing on the ramp itself, but it does take time to ramp to those higher levels. So you can do the math on that. It's a relatively straight line curve between the end of 2013 and now. Salvatore Vitale - Sterne Agee & Leach Inc., Research Division: Okay. And then just the final question. What do you expect the -- your capacity to be, say, a year -- let's call it the end of fiscal '14 -- end of fiscal '13, sorry?

Sal, this is Lorie. I would say, you know what, it's tough for us. We always -- a lot of people ask the question about capacity, we like to answer it from a theoretic perspective just exactly based on what Mark was saying about -- depends on our mix. I think historically, we've said our theoretic capacity is somewhere around 15,000 or 16,000 with the increase in our tank car line. I think the theoretic capacity could be -- in North America, could be closer to 18,000 cars per fiscal year. But again, that's going to be driven by the mix. So to the extent that we're building more of these automotive cars that take more hours, that's a lower number of units, to the extent that when intermodal demand comes back, we can deliver those at a fairly high production rate, similar too on the small-tube covered hoppers, which gets us closer to -- or it's higher deliveries. And then, on top of that, we have our European operations, which can range in deliveries on an annual basis from about 1,000 to 2,000 cars per year.

Right. So one thing we could say to you is this year, we've developed -- we've built -- in North America, delivered around 15,000 cars, and we've added capacity at both of the Mexican facilities. So if we had the same mix, that capacity goes up but it very much depends, as Lorie says, on the mix of cars.

Our next question comes from Steve Barger with KeyBanc Capital Markets.

I wanted to shift gears for a second and ask about the barge letter of intent. $60 million is a pretty nice number, but what are the permitting and other conditions that have to be taken care of?

The customer on that is -- it's been in the newspaper, a lot of you Googled point -- or Port of Morrow project, you'd see more information than you probably ever want to see on it. Generally, there's 6 or 7 coal export projects going on in the Pacific Northwest. Most all of those -- all of those are rail exports that require transit through communities. And the environmental lobbies have targeted coal and specifically in the Pacific Northwest, these lobbies are very strong. So there's concern about coal dust contamination, congestion in urban areas. The project we're working on is a very interesting project with a company called Amber, an Australian company that has mining properties in Wyoming and Montana. They're bringing coal in -- from unit trains down through Washington to Port Morrow, which is up the Columbia River in a rural environment, an excellent port and then we will -- they will transload into barges, which we will manufacture along with another company in Portland. And then those will be contained and brought down the Columbia through the urban area and exported through Port Westward out of -- below -- west of the Portland metropolitan area. This takes out 2 of the arguments the environmentalists have, coal dust contamination and transit through urban areas. It does not take out the definite -- the targeting of coal. But that coal will be exported whether the Pacific Northwest exports it or not. So the permitting, specifically, is Corps of Engineers. They've already announced that they are not going to take up any systemic programic effort -- or review, and so they will most likely make their permitting decision on the facility that is being constructed [indiscernible] by sometime in December or January. Our expectations would be that this permit would be issued, and the circumstances surrounding it would -- are still in flux because there's quite a lot of political activity going on around the issue. So it depends on whether the Corps sticks to the position it has more or less telegraphed, or it changes its view due to pressure from the EPA or the White House, which pressure is not at this point being systematically applied.

So even if the permit is approved, just from a timing perspective, would you assume that any of that would fall in FY '13?

Yes, it's a portion of it, not a huge portion, but a portion of it is budgeted in 2014.

So when you think about your commentary about at the high end of your railcar delivery guidance that revenue would look this [ph] similar. Should we assume that all the $25 million that's existing in the barge backlog is in that number, and then a little bit or none of the $60 million?

All of the $25 million that's in firm backlog, yes and that some of that $60 million or that replaced by other demand.

So more tangibly, I suppose, we could exceed our expectations in marine if we accelerated our production, and we still have the capacity to maneuver to do that. We don't have the firm order book without any contingencies that would warrant our doing that right now, and we still have some manpower constraints due to railcar production over at our Gunderson facility, where we build railcars and those particular barges.

And it’s been a while since we've talked too much about barge, but that was typically higher-margin business or it's margin accretive to the Manufacturing segment, is that right?

Yes, it absorbs overhead and it's very good margins, quite comparable to -- well, the high-end margins in railcars.

Got it. And on the refurbishment and parts segment, you said you're working to improve labor efficiencies. Really, what's the new initiative there? And is there anything else you can do to improve that business in light of some of the challenges that are out there?

One thing we can do is to try to take more capital out of it, plant rationalization service, design rationalization, we have strategies in both of those areas. Another is to expand our concentration in downstream energy-related products such as tank car maintenance and repair. There's quite a wave of demand coming in that area. Other builders such as ARI are very well established, but there's plenty of room for -- but that competition is on a regional network basis. There's plenty of room in that market, and we're positioning ourselves in that market, which would improve utilization at some of our facilities and perhaps redeploy assets from one facility to another. So those are -- that's kind of the highlights.

And in the past, and this has been a while, but you talked about taking some efforts to consolidate purchasing, things like that. Has that all been done? Or is there still work to do in terms of nondirect Manufacturing cost savings in that segment?

We still have a very robust -- a pointed directive on that since labor is a low component of the total value add. It's very important, but materials are much more important. So materials is a very, very -- and transportation are 2 of the big cost items that we have to manage. Last year, we took -- I believe we took -- we made $15 million of improvements. And so it's a fairly major piece of our strategic SIP [ph] -- and this year, we have the numbers baked in the budget to continue on that pace. But we'll be working more on that, and I'm believing that this would contribute to margin increases in the second half of our fiscal year, and we don't have that in our -- baked in budget outlook, though. And as many of these strategic things, we're making an effort to do them. We're targeting them, but we don't have them baked into our actual budget.

So when you -- as you think about the budget and refurbishing parts, are you essentially assuming that margins will be flat year-over-year?

Well, you know, Mark and I have different personalities, I'm more optimistic than he is. Unfortunately, he handles the numbers, so I'd agree with the profile, but the effect of this strategy that we've had in place now for the last 18 months has been very dramatic. We just came away from our strategic board review for the year, and we're really making some very good progress in the model we've gotten. So that's one of the big areas is materials improvement and transportation, and plant efficiencies, and getting operating leverage. The rap on Greenbrier is we're not getting operating leverages to the mix. It's all about this mix because we're trying to increase our market share, we're doing that. We don't get much credit for that, but we have more average, middle of the pack margins because we don't have the rich energy mix that more of the specialty builders have -- the pure car builder plays have.

Our next question comes from J.B. Groh with D.A. Davidson. J. B. Groh - D.A. Davidson & Co., Research Division: I just want to get back to barge. Can you remind us what barge revenue was in the quarter and what it amounted to for the year?

It was nominal for the quarter, J.B. And for the year as a whole, it was pretty nominal as well. It's probably less than $10 million for the year as a whole.

J.B., there's a lot of activity in the Alaska market, and that should be hitting in the -- middle of the summer 2013. So we do see more activity in the barge business, and as you probably recall, that business has hit revenue numbers as high as $80 million to $90 million in the -- when the markets are back to more normal perspective. It's all [indiscernible] Oceangoing barges. J. B. Groh - D.A. Davidson & Co., Research Division: Right. And so it looks like these Morrow barges are smaller, correct? These are river?

These are river barges. They do anticipate that there will be follow-on business if they're successful in getting the permit. They really do have a different mousetrap. They really addressed -- they've done a very good job of pre-selling this, and the opposition to this project is much, much less effective than the opposition to exports in general on coal. Coal is going to be exported though whether it comes out of the Pacific Northwest or goes down the Mississippi River in the Gulf or goes up through Canada. It's going to be exported. So it's all an oddity if you look at the reality of it. J. B. Groh - D.A. Davidson & Co., Research Division: Okay. And then I had a question on the gains on sale. Obviously, that was down pretty significantly from the pace that you are running out over the first 3 quarters. What -- how should we view that? Is that a strategic decision on your part? Is the market just a little softer? Was the mix of cars differ? How should we think about that?

It's definitely not due to the market being softer. In fact, one of our competitors noted they had a more robust quarter in this area, and really as we've said before, as we sell out of the lease fleet it is both opportunistic and the timing of some of these things. And again, we're also balancing that with our own tax bill. So it's really due to timing and unfortunately, that makes it hard for us to give guidance quarter-to-quarter. I would tell you for 2013 that we're anticipating less activity in this area. And again, it's not due to the market. It's that we're going to want to hold on to more of this equipment, and so we just have less that we're anticipating this year. J. B. Groh - D.A. Davidson & Co., Research Division: So why do you want to hold them if you just think the leasing market is going to be better than selling?

Yes, part of it again is we had repositioned the fleet, and again part of it is managing our own tax bill, too. When we sell assets out of the fleet, we realize nice gains, but we also realize very nice tax gains. And as I mentioned earlier, our tax position has shifted.

Our next question comes from Mike Baudendistel with Stifel, Nicolaus. Michael J. Baudendistel - Stifel, Nicolaus & Co., Inc., Research Division: Just wanted to ask about the Canadian National press release in the quarter where they talked about their fleet replenishment efforts going forward, and it looks like they have some growth there. Wondering if you could talk about whether they're a major partner of yours and whether you expect to receive orders directly as a result of that plan.

I haven't had a chance to absorb that, and they are a very valued customer. But we don't have a material -- that's not on our radar screen as a material matter right now. That be our [indiscernible] it will be certainly good news for all the car builders, but I haven't had a chance to digest that or get up to speed on what we might be doing specifically about it. Michael J. Baudendistel - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then on the units guidance that you're expecting in 2013, and it sounds like you have quite a bit of orders that you're expecting in there, too, or at least some. What type of kind of economic scenario are you envisioning, either for just GDP or freight volume growth and also interested just in your expectations for intermodal volume growth in '13 realizing that it's certainly an area of uncertainty. Are you expecting a similar growth pattern in '13 as '12?

Right. Well, intermodal has actually been up 5%, which is a very nice growth rate. And as Bill had talked about earlier, what had somewhat offset that is the improvement in velocity of the railroads with lower and softer coal loadings and then as well, a little bit of sitting on the sidelines by customers looking for more clarity and less uncertainty in the market. So I think at a minimum, we would anticipate continued intermodal growth in that 5% range and possibly, possibly higher.

Overall, though, the GDP question, they keep revising these numbers. The third and so-called final estimate in Q2 was 1.3%, slower than the 2% growth rate. We're generally looking at slightly under 2%, maybe more conservative U.S. GDP growth rate, maybe in the 1.7% rate, but that may be too pessimistic. Michael J. Baudendistel - Stifel, Nicolaus & Co., Inc., Research Division: And just one final one, in your repair business, is Hurricane Sandy the type of thing that typically damages railcars and spurs some incremental demand in your repair business?

Yes, regrettably. It's a very big natural disaster. It has a technical consequence of causing congestion in the rail network, ties up freight cars and it damages equipment. And there will be some, some unknown amount of fallout from that. In general, you raise a good question. We had a very light winter overall last year. Weather being unpredictable, if we have a tough winter, it will affect a lot of these statistics, velocity being one, coal loadings being another. And so given the weather patterns that we've seen and then the crop failures for the drought, we don't expect to repeat in 2013. We hope not, but who knows. But weather can be a big unknown. And generally, last year was a fairly mild winter as far as it affected operating profiles on the railroads.

Our next question comes with Tom Albrecht with BB&T. Thomas S. Albrecht - BB&T Capital Markets, Research Division: A couple of things, now that you're about 2/3 of the way through this first quarter, can you give us a little bit of guidance help for this Q1? And secondly, and I apologize if you've addressed some of these things, I've got so many calls today. Gains for fiscal '13, you've had 3 years in a row where gains have been in the $8 million neighborhood. Do you have some thoughts on gains for this year? And then I have a small follow-up.

Right. On the last question, first on the gains. We do anticipate them being a little bit less in 2013. It is again difficult to forecast with precision on that because a lot of this is opportunistic in nature. What we talked about a few minutes ago is that it is definitely not due to any slowdown in the secondary market. That's still a quite robust market. The reason we anticipate it being down at this point is more management of our internal tax bill as they generate nice book gains but even greater tax gains. As far as how the year unfolds, what we see is it being sequentially higher as we go throughout the year. We said we expect it to be significantly weighted towards the second half of the year. And then even within the first part of the year, we expect the second quarter to be greater than the first. So we haven't given exact guidance on the first quarter, but I hope that can lead you, then it would be significantly less than 25% of our full year guidance.

Tom, on the leasing company though, that company is a real jewel, it's has very low leverage. It does add complexity to our financial picture. We're looking at some pretty exciting stuff in our leasing company, building on the momentum we have this year and some of the institutional relationships we've developed such as the Green Union transaction. We're looking at shareholder value, capital -- our return on capital. And so we could look at some interesting strategies with our leasing company that would be very compatible continuing to work with our good leasing customers in the network and increase volume and perhaps address debt and other things as well and improve our cash -- capital efficiency. And that could have a P&L effect if we pull the trigger on some of those things. Thomas S. Albrecht - BB&T Capital Markets, Research Division: All right. So Mark, on the production then or deliveries, given that you just did 3,500 and the year is going to build more to a crescendo -- the fiscal year. Is it conceivable that Q1 could be under 3,000 deliveries?

Yes, I believe that is correct. And again, part of that is that we're also, as Bill mentioned earlier, is that we have production going on in the double-stack market that is in anticipation of demand in the second half of the year. So we're producing at higher rates than that, but the timing of when we would expect a delivery would be deferred until later in the year. Thomas S. Albrecht - BB&T Capital Markets, Research Division: Okay. And then my last question is on the tank production you expect this next year, what's an approximate mix between petroleum and chemical base customers? I mean, there's so many different dynamics there?

Well, a lot of our companies -- or a lot of our customers are leasing companies and, Tom, we haven't really released that distribution. There's a lot of dynamics in that, we'd probably be better to consider what we would like to release on that offline and have a follow-up question on it.

As you recall, Tom, when we got into the tank car market it was the leasing companies that helped us get into the marketplace. So again, that's what a lot of our order book is tied to.

Our next question comes from Brad Delco with Stephens.

Mark, I think most of my questions actually were just addressed, but I want to make sure I understood something or maybe get more color on. So earnings, it sounds like cadence should improve throughout the year, but it sounded like the backlog, you said, more deliveries toward the front half versus the back half versus, I guess, on the 7,300 or so in the backlog currently. I guess, what I'm trying to reconcile is you have the units that weren't delivered in fourth quarter that now go into first quarter. What are the offsets to, I guess, that being a positive contributor to earnings in the first quarter, and then how do you improve on that going forward, I guess?

Right. I think the biggest offset, because you're absolutely correct that I said we deferred delivery of 560 cars that were higher-margin cars are getting deferred to the first quarter. So that is absolutely a positive. What is a negative is that, again, probably the biggest offset to that is that the production of double-stack cars that we would be producing now that would not be sold until the second half of the year. So that would be one of the bigger offsets. And then the timing of some of our lease syndications, you'll note that we did say that these syndications that were deferred -- occurred in the first quarter, but will also have actual production in the first quarter that we would expect to be syndicated in the second quarter. So I'm not necessarily trying to indicate that our earnings per share in Q1 will be down from Q4. But perhaps, it would be closer to that type of a range than it would be to 25% of the full year earnings.

Okay. When you make that comment, what are you using as a base for Q4 given that there's some onetime items, I guess?

It was our actual reported earnings of $0.26 a share when I just made that comment.

Okay. That's great. And then I think you kind of addressed my second question, but when you say you're building double-stack cars in anticipation of delivering the back half of the year, you don't have order for those or we -- I don't want to read incorrectly, are you building those on specs right now, or what exactly is the message there?

We're building them and putting them into leasing service, and we are taking some delivery in anticipation of orders during the -- we study this market very closely. We believe there will be orders or positioning for lease opportunity in 2013. One of the things Mark has talked to is our tax basis. These cars built before the end of December would have bonus depreciation, and we would like to capture that and put it in service to address tax planning. And we have the financial capacity to do it, and we believe we can place those cars in lease, worst case, or we can sell them.

And this is not uncommon particularly with the double-stack cars as well as that the timing of demand would be weighted towards the front end of the calendar year in anticipation of the overall demand, double-stack demand for the year, and that with our own production that we would build cars and place them into service such as we're doing now.

Our final question today comes from Ken Hoexter with Merrill Lynch.

Just a quick follow-up, I know it's been a long call and you've hit a lot. But I just want to go back to manufacturing for a quick second. You talked about how it's not a peak build yet, but you still see, I guess, some growth going, yet you're obviously pulling out some capacity in the next year. Can you talk about how you think about how you prepared for that? I guess, as you ramped up and obviously, you've been bringing on new lines at your facilities, it seemed like the last year you were always talking about the launching of new lines. You filled up your book. You raised the rates. Was this step unexpected for you then? I'm just wondering why you'd have such a pause in the midst of the growth rebound.

Yes, I'm sorry. Let me correct any misunderstanding. We continue to see the lines that we've ramped up as being very viable, and we intend to operate them. When we ramp a line up -- we've constructed the facility, so we have the lines. So it's just a matter of whether we use them or not use them. My only point earlier was that we have the flexibility with our plant network. It was designed to be very flexible. So if we do get caught in a downward sweep of the market, and our business is -- can be cyclical. I don't expect that sweep, a bad sweep or anything like that. I think it's a more normalized market if you look at the 4- to 5-year forecast, they're all reasonably strong, a lower build rate next year than this year and deliveries. However, if we were to get into that, then we can very quickly size these facilities down and run off working capital and have a very positive cash flow during a lull in the market. That's the only point I was making. In fact, what we have here is a situation where the recovery is very spotty, very mixed, but it's still a recovery. It's in very specific car types. So we expect to have to have shorter backlogs in some of these car types, and be selling on very short horizons using our leasing fleet to move from car type to car type to position the cars in the marketplace. So I think this is a purely tactical description. We'll try to get a better description up on the system if I've confused you.

So tactical, but I guess I just want to understand, was this something you would have -- I mean, in a recovery, I guess, just going through a normal car cycle. As you get all those lines back up and running and then you fill them up, would you, I guess, I'm trying to understand -- did you anticipate then, this step back in -- or flattening, I guess, it's not a step back. I guess, you're looking for flat -- yes, I mean, sequential downtick in year-over-year cars. So I guess, that's what I'm trying to get at. Did you kind of know that, that was part of the plan to step back like that in terms of number of cars?

Stepping back you mean from the volume? Well, the number of cars has come down but the volume -- the revenue volume and the margin, it's more like flat as opposed to down. So the tanks are a big driver of all of this. We have a production rate of, as I said, 6 a day. We're intending to more than double that. And we have those cars sold, so we better be able to produce them. And we do intend to produce them and we want to have that capacity on stream and have smooth execution. We're going to go beyond that doubling to -- by an additional 4 cars. So the other capacity that we've built in the Sahagun plant will be deployed on a number of the -- other higher growth areas, automotive and downstream petroleum products like plastic pellets. And we think that we can keep that plant full. We need that capacity. But the tanks are a part of the capacity picture that's probably muddling it up a bit.

So the biggest difference between the 13,000 cars and the 15,000 cars this year, Ken, is -- or 15,000 in '12 is due to the mix. Our plants would be fully -- we'd be using all the capacity. But as we talked about earlier, some of the cars that we'd be building this year, the prices would be maybe double the price of the cars of last year, they are also double the labor hours. So that leads to the flattish Manufacturing revenues. It's not that we're downwardly revising other than, as Bill noted, overall, for the industry in 2013, the industry forecast are for build that's slightly smaller than 2012.

I appreciate the explanation. That's really helpful. Let me just take it one step further, if I may. When you look at the future of the tank car demand, the rails are very hesitant to make long-term capital investments because of the nature of when pipelines get built and the like. How do you think about that investment that you make now to ramp up on this side over the next few years?

I think of it this way and very simply that tank cars have been a stable part of the U.S. industrial base. The operating protocol for tank cars has been sound. It's another market in which we should participate irrespective of cycle, and we should be targeting at least a 20% market share. So that's how I see it. As far as pipelines and how the railroads are going to deal with the additional traffic, there's a lot of momentum behind this. There is a lot of talk, of course, about are we building too many tank cars for oil? And is that going to go away when pipelines come? We do think that there will be, at some point, surplus capacity created in the system. So, on the leasing side one has to be cautious on owning tank cars that aren't leased for a long period of time with a stable customer. But the market is a very good solid market, and we think that our targeted market share is appropriate to our company's size and our capabilities in Mexico. The other advantage that we have is we're not leasing in competition with some of the established leasing companies -- and there are 3 big ones that don't have their own manufacturing facilities. So with at least 2 of those and a third emerging one, we have formed a strong alliance and we're building cars for them. We don't -- we have a lot of synergies in association with those kinds of customers. So it's a challenge for us, and there are obviously execution risks and bumps along the road. But basically I'll go back to what I said earlier, we have always had double the market share in a downturn that we had in upturns. So I don't see any problem defending our market share and we're just targeting -- taking a fair share of the market during the upturns by having enough capacity, flexible capacity to take that share, and that's what we've been doing. Look at our -- look at the deliveries that Greenbrier's had. We're selling 15,000 cars this year. We expect, depending on mix, to sell a comparable amount of capacity next year and the future should be pretty good. And I wish we could achieve the -- and I hope that we can achieve the some of the consensus, but I think there's all kinds of -- there are all kinds of uncertainties going on in the global economy, and we've tempered our enthusiasm somewhat just because of that realism.

At this time, that does conclude the question-and-answer session. I'd like to now turn it back to our presenters for closing remarks.

Well, thank you very much, everybody, for participating today. We know we had a long call, and we appreciate your interest. And as always, if you have a follow-up, we'll look forward to it. Thank you. Bye-bye.

Thank you for joining today's conference. That does conclude the call at this time. All participants may disconnect.