The Greenbrier Companies, Inc. (GBX) Q1 2014 Earnings Report, Transcript and Summary

Hello, and welcome to The Greenbrier Companies First Quarter of Fiscal Year 2014 Earnings Conference Call. [Operator Instructions] At the request of the Greenbrier Companies, this conference call is being recorded for instant replay purposes. At this time, I would like to turn the conference over to Ms. Lorie Leeson, Senior Vice President and Treasurer. Ms. Leeson, you may begin.

Thank you, Leslie. Good morning, everyone, and welcome to Greenbrier's first quarter of fiscal 2014 conference call. On today's call, I'm joined by our CEO, Bill Furman; and CFO, Mark Rittenbaum. We'll discuss our results for the quarter ended November 30 and comment on our outlook for 2014. After that, we'll open up the call for questions. In addition to the press release issued this morning, which includes supplemental data, additional financial information and key metrics can be found in the presentation posted today on the IR section of our website. 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 will describe some of the important factors that could cause Greenbrier's actual results in 2014 and beyond to differ materially from those expressed in any forward-looking statements made by or on behalf of Greenbrier. So turning to the quarter one results, highlights for the quarter include adjusted EBITDA of $50 million; and net earnings of $16 million or $0.51 per diluted share, excluding restructuring charges, on revenue of $490.4 million. Economic EPS was $0.56 per share, which excludes restructuring charges and the impact of the out-of-the-money shares underlying our 3.5% convertible bonds. Results for the quarter also include costs, which we do not expect to repeat in the future, of approximately $2 million pretax or $1.5 million after tax or $0.04 per share, associated with our Wheels, Repair & Parts segment. We ended the quarter with almost $400 million of liquidity and net funded debt to last 12 months EBITDA of 1.8x, almost a full turn improvement compared to 2.7x at February 28, 2013. Now I'll turn it over to Mark to discuss our gross margin and capital efficiencies goal progress.

Thank you, Lorie. We're pleased with our quarter. Our aggregate gross margin, as you saw, grew slightly to 12.6% compared to 12.5% last quarter and at 11.5% just 3 quarters ago, when we initiated our margin enhancement goals. We are more than halfway to our minimum goal of improving gross margin by 200 basis points and are on track to meet or beat our minimum goal of a 13.5% gross margin by the fourth quarter of 2014. In our Manufacturing segment, gross margin grew 110 basis points from the fourth quarter 2013 to 13.4%. Gross margin of 4.8% in our Wheels, Repair & Parts segment was disappointing. However, as Lorie noted, there were over $2 million of costs impacting gross margin that we do not expect to recur. These costs include a write-off of certain intangible assets associated with closing of one of our shops during the quarter and adjustments to certain reserves. Excluding these charges, as well as the drag on margin associated with locations that were closed fiscal year-to-date, this segment gross margin would have been 7.7% and aggregate gross margin would be at 3.3%. As a reminder, though, some of these disclosures occurred after Q1. So these numbers I just cited are not necessarily indicative of the level and margin that we will achieve in Q2. In addition to the elimination of these headwinds going forward, we are encouraged by solid improvements in a number of locations, as Bill will speak to. On our capital efficiency efforts, our net debt declined by over $90 million from February 28, when we -- 2013, when we established our capital liberation goals and we substantially met our goal of liberating $100 million of capital. This has come from a number of sources. As part of this initiative, we have reduced permanent capital-invested leasing assets by $49 million. And we expect this amount to increase as a result of additional sales as part of this initiative. As we said last quarter, make no mistake. We are committed to this business, and it's an integral part of our integrated model. It plays a vital role and it provides stability and visibility to our earnings. Our plan is to drive more leasing volume as an originator and underwriter. We hold these assets short term on our balance sheet, then syndicates them to investors and manage these assets. We're reducing the permanent capital we invest in this business on our balance sheet and are increasing fee income. We also continue to make working capital improvements. Our annualized inventory turns have improved to 5.2x compared to 4x, and our inventory at our Wheels, Repair & Parts segment have declined by $13 million, both since we started our capital liberation initiative. Lastly, we continue to liberate capital by closing or selling underperforming facilities. And to date, we closed 6 such facilities with another to occur in February. And like our margin initiative, remain -- we remain committed to our focus on liberating capital and capital efficiency. And our share repurchase program announced last quarter, we purchased 110,000 shares to date that cost to $3.4 million, and we expect these share repurchases to continue. Now I'll turn it over to Bill, and then he'll turn it back to Lorie.

Thank you, Mark, and thanks to all of you for joining our call this morning. We had a robust first quarter, considering some noise in the background that Mark described. We had very solid financial performance, led by Manufacturing, and we expect positive momentum that will build throughout the year. We made a strong $39 million in operating profits and significantly outperformed speed estimates after removing $1.5 million after tax or $0.04 a share from unusual charges and other costs in the quarter, which we do not expect to recur, relating to our Wheels, Repair & Parts business on top of a discontinued charge that is disclosed in the statement. Manufacturing led the way, and there is the really bright spot for 2014 and 2015. In fact, all of our operations performed well this quarter, except for Wheels, Repair & Parts, which I'll speak to in a moment. Manufacturing profits during the quarter improved meaningfully, as margins increased to 13.4%, a trend we expect to continue and build on, and also, to contribute significantly to our minimum corporate goal of 13.5% company margins by our fiscal year end, as Mark also alluded to. We achieved a solid full month of production at our GIMSA facility on the tank car line at 16 per day earlier than expected, while seeing margins improve significantly at that facility during the Q. And the other thing disguised in the -- or embedded in the numbers were that, as we ramped some shops or some of the lines at our Bombardier and our facility in the Sahagun, Mexico, Concarril, we were not meeting in the first couple of months the plan. We are on the plan now. So both of these units are going to be very strong contributors to profits in the months and the quarters to come. We began also to develop new fabrication outsourcing capabilities in Mexico, one of the reasons that we were a bit behind plan at that facility for replacement of our plant lease from Bombardier this fall. We expect even better financial performance sequentially in Manufacturing for successive quarters this year, as we improve efficiency and margins of both Mexican facilities with the benefit of fully ramped-up production levels. I'd also remind everybody that this is a very strong quarter, given our historical pattern of weaker first quarter numbers, given the full year and the seasonality in our business. Turning to the Bombardier plant, which I spoke to. The lease with Bombardier for production space located to our nearest and more most modern and efficient plant, a former Komatsu plant in Sahagun, Mexico, Concarril, expires -- this lease expires in November 2014. This is a very positive thing that's going to occur because this facility is our highest cost and lowest margin Mexican manufacturing facility. This will allow us to further refine our footprint, particularly in fabrication and replacing the lines that we'll be losing in the fall. We've made or continue to making plans for replacement of this capacity. We do not expect it to impact fiscal year 2014 or 2015. I'd like to reiterate that we are not expanding capacity but replacing it with more efficient lower-cost production space and a good swap or a good trade for the higher rents we were paying in the leased facility. Turning to our Wheels, Repair & Parts business, while we had some noise in the financial results for this segment, clearly, the results of this segment are not meeting our expectations. However, I want to emphasize we are more than midway through our surgery in this business. That's not always the best time to look at trailing financial while the patient is on the table. We have strong green shoots emerging from these actions. And we expect that now that most of the heavy lifting has been carried out in the first quarter and before that, that margins and ROIC should improve throughout successive quarters in this unit, removing a drag on earnings, as all of this remedial action takes effect. To be specific about it, over the past 2 quarters, we've completed multiple actions with the goal of creating acceptable margins and ROIC in the segment within our fiscal 2014 year, including, we've closed 6 shops in that -- in the Repair & Parts businesses, with the seventh to be closed later this month. We've fixed 4 low-margin shops to improve levels of profitability by facility rationalization, including renegotiating terms with key customers, reducing capital and improving operational efficiency. We've also strengthened our management teams while reducing redundant levels of middle management. We've written off assets that don't fit the ongoing model, and we've reduced fixed costs. We've reduced inventories and other capital employed in our Wheel business by $20 million. So we are making a solid progress. We expect that all of this will show up in the margins and in the numbers in successive quarters. Turning to Leasing. Leasing performed very well during the quarter. We're getting traction by expanding our service offerings, adding important new customers in the energy field and by focusing on downstream car management and repair management opportunities. Many, many shippers, particularly in this new energy arena, require expert management of assets and a number of mechanical services. We are very strong in that space. And we believe that there will continue to be rapid expansion in the shipper demand for services and maintenance, particularly in the tank car area as well, as the substantial fleet of tank cars in North America continues to grow. Leasing does play a pivotal role in our integrated business model, as well as providing stability and visibility to our earnings. In 2014, we'll continue to emphasize a different type of growth in our leasing model with a capital-light footprint and tax efficiency, which should produce cash on a base of cars, both managed and owned. Turning for a moment to the tank car regulatory environment. I'd like to address a topic that has quite properly captured public attention, and that is the recent developments involving tank cars. Our industry's foremost concern and Greenbrier's foremost concern is safety, safety and the protection of human health and human lives. On this issue, Greenbrier is and intends to be an industry leader in advocating for rail safety. And more importantly, we are committed to building the safest tank car available, as well as implementing safe and immediate retrofitting of cars that can apply the principle of Pareto optimal and doing something about the issues that are validly involved with tank cars sooner rather than later. The concern for public safety here is delay, delay through inability to act on the regulatory front, while the public would like to see something done sooner. Crude by rail is here to stay, provided that the public remains confident in the safety of rail transportation. And Greenbrier will do everything in its power to uphold and, where necessary, restore public confidence in freight transportation by rail. Since more than 99.9% of all freight traffic that travels by rail reaches its destination safely, public perception should favor rail transportation. Yet, it is clear that there should be and will be some form of regulatory response to the recent accidents. And yet, the record is cleared by much muddy and unscientific thinking. The images of these accidents are startling. But we must do all we can to mitigate identifiable risks by being practical and scientific about it and not hysterical. We believe that it is likely that older DOT-111 cars used in hazardous service will have to be replaced or modified with an appropriate retrofit. We have recommended a retrofit proposal to regulators of more modest but meaningful tank car improvements that can be implemented immediately and reduce the major risks, perhaps as much as 80% of the risks of hazardous material release in the case of a derailment. We believe a retrofit proposal, if adopted, can be completed in a reasonably expedited time frame and do not accept that there is not adequate capacity in the industry to do so. Ultimately, the regulatory authorities will determine the outcome of this issue, and we will maintain an active dialogue with policymakers and our associates in the railroad industry throughout the process. Regardless, Greenbrier is well positioned to respond whether the result is significant retrofit or newly constructed tank cars or both. There's approximately 80,000 cars out there that are in question. And we believe that for the future, our diversified product offerings really aid us in this environment since less than 50% of our current backlog is in tank cars, unlike others, and we are participating in other robust markets. So while our eggs aren't all in one basket, we are actively engaged in the policymaking process and will be ready for whatever outcome emerges from these very unfortunate accidents that have taken place. There was another one just yesterday or this morning on a Canadian national. An unfortunate event, no casualties, but again, lots of pictures of flames and so on. Relating to the economy, railroading and the rail supply space in general, we feel confident the present state of demand in this space as energy trends transform. Yet, along with other industries, we believe all of this is very positive. We're more mildly bullish on the economy sequentially, quarter-after-quarter. And whereas we experienced a number of headwinds last year, as far as Greenbrier is concerned, we see tailwinds going forward. The energy revolution in North America is still an unappreciated story. It is great for the economy. U.S. Congress is openly discussing lifting the 39-year ban on exporting domestically originated crude. This will be development to many of us who experienced the oil embargoes in 1970s, perhaps none of you on this call never thought we would see again in our lifetimes. Housing demand is on the rise. Automotive has had its stronger year ever in 2013 and remains strong with record deliveries. The U.S. auto fleet remains as old as it has ever been, so the replacement cycle continues in full force. Over 70% of automobiles reached their destination of sale by rail transportation, and our product mix is robust. They are just -- these are just a few examples where Greenbrier has products to address these markets. In fact, because of our continued focus on innovation, just a few years ago, Greenbrier was not participating in the railcar markets for energy-related products, tank cars and sand-covered hoppers, nor were we robustly participating in the auto market on a broad base. Today, we're generating almost 80% of our revenue and margins from markets we were not really in a few years ago, 5 years ago. However, we remain very strong in intermodal and enforced products. And as those markets come back, we expect very strong tailwinds there. So in conclusion, I believe that the best has come -- is yet to come for Greenbrier. We've worked tirelessly over the last few years. Greenbrier is well positioned to benefit from the strength of the current markets and in the future. So I turn it back to you, Mark and to Lorie. Thank you.

Thank you, Bill. One quick item that I wanted to clarify from Mark's statement, when he was giving an alternate gross margin number for the first quarter, excluding the unusual charges and the headwinds from our shops that we've closed, I believe he indicated that maybe gross margin was 3.3% or would have been 3.3%. Actually, that's 13.3%, so kind of small typo on our script here. And now turning to more of the outlook. As you'll see, we started disclosing segment operating margin in this quarter. This information is included both in the press release and the 10-Q, which will be filed later today or tomorrow. And increases our transparency on our segment performance, particularly with the allocation of our selling and administrative expenses. Because of the integrated nature of our business, certain costs, including commercial and marketing, are not allocated to the operating segments. One interesting result in this process is that for the current quarter, the Leasing & Services segment operating margin is higher than their gross margin, as gains on disposition of assets are shown below the gross margin line on the statement of operations and included as part of operating margin. In our Wheels, Repair & Parts segment, restructuring costs are included in operating margin. And these costs are also below the gross margin line on the statement of operations. Our outlook for 2014 is unchanged. We expect higher deliveries, which should exceed 15,000. These deliveries will be back weighted to the second half of the year. We expect revenue to exceed $2 billion, and earnings per share, excluding restructuring charges to be in the range of $2.45 to $2.70. Further, we expect continued gross margin improvements. But as mentioned earlier, we don't expect these improvements to be linear. Gains on sale will be between $10 million and $12 million for the year; depreciation and amortization of $40 million; a tax rate of 32% million to 34%, depending on the geographic mix of earnings. And as part of the Wheel, Repair & Parts restructuring plan, we expect there will be additional cash restructuring charges of $1 million to $2 million over the next several quarters. This range does not include future noncash gains or losses from facility reductions, as they're not presently determinable. Quarterly earnings attributable to noncontrolling interests, or minority interests, will likely be similar to levels this quarter, due to the improved performance at our GIMSA joint venture. Growth capital expenditures total $80 million, with proceeds from sales of leased railcar equipment to be about $60 million, resulting in net CapEx of $20 million. And overall, we expect fiscal 2014 will be stronger in the second half than the first half. And lastly, our borrowings include $82 million of leasing debt, which matures in March 2014, and another $43 million of debt, which matures in May 2015. We intend to refinance this debt with new leasing debt in the near feature to take advantage of current market conditions and a favorable interest rate environment. Now I'll turn it back to Leslie for Q&A.

[Operator Instructions] And our first question comes from Justin Long from Stephens.

It seems like you're still seeing a pickup in broad-based demand in the railcar equipment market. So as we look into 2014, I was wondering if you could talk about some of the car types where you're expecting to see some pretty sizable orders. And also, if you could just talk about car types where you think there's potential upside versus the forecast you provided of around 15,000 deliveries or above that.

An important market for upside would be intermodal. The -- that's a supply/demand, a very interesting situation where traffic is growing very rapidly on the domestic side, it's a little softer on the international. But the -- if that traffic growth continues, we'll have to see resupply of double-stack cars in the system possibly in 2014 of material numbers. We're tracking that one very closely. That would fall in the category of upside. The areas where we know there is strong demand -- continues to be strong demand, will be tanks, tank cars, including pressure vessel, tank cars. There will be other kinds of tank cars that have been somewhat ignored in the oil boom that's going on, and we expect to continue. The automotive market, of course, product markets are coming back. We would expect to see boxcars built in the coming year. Whether we'll participate in that or not, due to other higher-margin cars, squeezing that product out, we're not sure. But that is good opportunity to know is available. So those are some of the car types, gondola cars, sand cars. Due to the different frac-ing techniques, the more complicated and technologically adept frac-ing techniques are requiring a lot more sand. We're seeing a new wave of interest in that from those companies that are applying those techniques. So there's a fairly broad range of car types that are going to show some strength in the 2014, 2015 time frame. But we also have some good potential in our marine business. We continue to see a lot of negotiation activity going on there. We are negotiating contracts. We haven't anything to announce. But we are expecting awards in the marine business, which would give us a tremendous tailwind if that were to occur. There's some whole different -- wholly different applications -- we give it -- related to the energy boom. Certainly, plastics and gas, as an alternate source of propellant for diesel and for gasoline, is a technological area where we have strength. And then, finally, our base in Mexico, where we have 5,000 employees, lends itself to a Northern -- North/South Hemisphere trading policy. We're seeing a lot of industrial activity in Mexico, so the North South railroads like KCS are going to have a really solid strengthening performance down there, I think.

Well, great, that's helpful. And you actually answered my second question on the marine business. But could you remind me how much you're factoring -- how much contribution you're factoring in from that marine barge business in your 2014 guidance?

Hi, Justin. This is Lorie. The guidance that we've given, we actually don't assume much in the way of marine activities. We expected similar levels to what we saw in 2013. We do think this is upside to the guidance we've given, assuming that some of these barge orders come to pass and we're able to start building them this fiscal year.

Really, 2 big -- the 2 big possible drivers will be marine and double-stacks. Give you just a kernel of information about that. Last year, we had 90% of the orders for double-stack. That was the good news. The bad news is that we produced only 1,500 units. We had received orders for 2,200 units. At some point soon, we expect orders for that car, notwithstanding what the industry pundits are saying, to have to be in the total market area of 5,000, 8,000. So we're -- if not in '14, by '15, we expect a supply change there because railroad velocity is falling. Oil trains are a mixed blessing because they contribute to lower velocity. And the system is getting a little more clogged up than it used to be. So from the perspective -- from the point of replacement demand for double-stacks, that's a really robust story. And we don't know when that will happen for us specifically, but we don't have a lot of expectations in our guidance for that this year, no more than last year.

That's helpful color. I have one more, and then I'll pass it on. So I think the presentation I saw online, you mentioned you have about $400 million of liquidity. The balance sheet is clearly improving. The free cash flow profile is strong. I just wanted to ask about how you expect to utilize this capital going forward. Would you consider acquisitions at this point or incremental share buybacks? Could you just provide a little bit more color on the options you're evaluating right now?

Well, one of the very first opportunities is to replace low-cost production as we're doing with the Bombardier lease facility. That's a proactive effort and we expect that to be very successful. That will take some cash to do that. Our Leasing business, while throwing off a lot of cash, may need our interim cash to continue to increase its scale under the syndication model. And we do have a very high Internal Rate Of Return opportunities. All of our decisions are going to be driven by ROIC and a more rigorous approach to payback. We are really embracing that. Everything is being driven by cash and EBITDA considerations. And when it -- and we're going to have surplus cash. So we have some refinancing of lease assets that will have to take place this year. Some cash could be consumed in that or will -- probably we'll be refinancing that -- those assets, and that will be a net neutral. We have the stock buyback, and we're examining all the different ways to return value to shareholders.

Our next question comes from Allison Poliniak from Wells Fargo.

Bill, I just wanted to touch on. You talked a lot about, obviously, restructuring and fixing the Wheels, Repair & Parts business. Can you talk about how you're looking at growth here and what you're doing to address sort of growth in that business at this point?

Thanks, Allison. That's an excellent question. I think that there's clearly a transformational opportunity in this business to bring it in closer to the 2 businesses that are fully integrated because it's a source of long-term revenue and income as cars are managed over their lives, so it's a great aftermarket business. We'd like to see a stronger -- a bigger scale, but we have to insist on much higher ROICs in that business and good margins in the business as well. One of the opportunities that is very obvious is the changing demographic of the tank car fleet. And also, as you read about these derailments, you notice the corrosive capabilities of some of the products that are being moved: the unit train service, the velocity of those trains. All of that means more maintenance of tank cars is going to take place. We have 4 facilities in our network today, and we believe that that's an area, because of our investment in tank cars, which will be logical for us to profitably expand. We'll probably do that in association with customers, strong association with customers. We have one deal that we've done with a significant customer already building on our car-building side's relationship. And so I'm actually pretty optimistic that there can be a very positive story in a year from now as we look back on what became of the footprint that we now know as GRS or Wheels, Repair & Parts.

Great. And then, just in the gross margin side. I think you commented that you -- we're looking for gross margin improvement for the year but it's not going to be linear. Is that driven by a specific business? It sounds like Manufacturing sounds a bit more linear than maybe the Repair and Parts business. Is that a good way to think about it?

Exactly, Allison. This is Lorie. So as you know, we've got several different segments. And with some of the headwinds that we're facing in Wheel, Repair & Parts, that's one of the headwinds that might make things not be quite as linear as we would expect. Plus, we have some line changeovers that are occurring within our manufacturing operation. And then, the second quarter has a fewer number of work days, as well as tends to have weather-related issues. And then, the last item would be the timing of railcar syndications that have -- can have an implication on our margins. So no one particular item, just there's a lot of different things that manage it. It can't be -- or we don't expect it to be perfectly linear as we progress through 2014.

Our next question comes from Bascome Majors from Susquehanna.

Congrats on the significantly improved Manufacturing margin. And looking forward, longer term, given that you're building on a base there in that segment from a margin perspective that's already a decade-plus best, I was hoping you could kind of frame the expansion opportunity over the longer term. Basically, to the extent you can, what sort of improvement has been what you would consider structural changes that perhaps put you in the path to reach the margins or approach margins that some of your more tech-levered peers had put up and how much of this has been mix and could perhaps give some back when the tank car boom is -- levels out of it. Just, strategically, how you're thinking about that longer term.

Sure. The tank car boom seems to have legs of its own despite some of those of us who have predicted, in 2015, 2016, it might taper off. It seems to be there are many who think that this is going to go on for a longer period of time. However, we're not counting on it, obviously. And our mix is important because some of the broader car types don't have the higher margins that have been enjoyed in the tank car business. So that's one market-driven aspect of your question. Number two, I would say most of our margin-enhancement opportunity comes from 2 major things: hitting our operating stride. What many of you guys would be calling operating leverage. Why haven't we had it before? Because we have been constantly ramping in tanks, we have been changing our mix, we have been adding new products. And as you do that, your efficiencies aren't as attractive. We are hitting our stride in Manufacturing, particularly GIMSA. The results there are very, very welcome and they're very impressive. And so we will expect the same from our other facilities in Mexico. The second major driver, though, of operating leverage will be the investment we've made in the technical side with -- that Alejandro Centurion, who heads our Manufacturing Group, has put in place with Martin Graham: value engineering, the reengineering of assets or cost efficiency, attractiveness to customers, and a number of those things involving pretty mundane aspects, like jigs fixturing, process management and supply management, supply chain management. There's a lot of value that can be added simply by now that we are more on stable production basis and we're not ramping as we had been from those -- the combination of all those factors. So there's plenty of opportunity, and then some investments and replacement of the less efficient plant that we have in Mexico. And I should remind everybody that we built a state-of-the-art plant adjacent to the Bombardier lease facility. That's our -- that was a very good move that we took a number of years ago. That plant is very efficient, very attractive. So once we replace the lease facility, we'll have lower -- the rent will go away and we'll have lower labor costs. So all of those are items that would contribute. Lorie, can you think of any others? Well, intermodal, we talked about we're very efficient and we're continuing, in our Portland facility, to reduce the hours on intermodal. We're reinvesting in the -- through automation and getting our labor cost, labor hours down there. So when that market comes back, which we expect it to do, we should be in a really good position to participate in it.

And that latter point, Bascome. Again, today, we're producing these margins with very low intermodal builds, where we're an industry leader and very efficient. And we're doing it with very little -- on the marine side of the business, which, as we reminded people before, is while the revenue is not that overly large compared to the rail side that may be up to $100 million that with the overhead absorption here at our Gunderson facility, it also moves the dial one at gross margins. So those would be 2 things that we're operating today below what we would consider normalized demand.

All right. So it sounds like you see opportunities for significant margin improvement, assuming those businesses kick in stronger in the future from where we are today.

Right. The overall objective is 13.5% by the end of the year. And in our Manufacturing businesses, we're going to continue to raise the bar sequentially and we expect stronger performance throughout the year.

And again, that's a minimum goal. And it's not the top of where we see things.

All right. One quick one. You talked a little bit about your debt lease refinancings that you're anticipating -- I'm sorry, your lease debt financings that you're anticipating doing later in the year, into next year. Your stock price is rising a bit closer to the strike price on your convert. Can you just talk a little bit about how you expect to manage that should that continue and that potentially become dilutive?

Well, we'll remind, for GAAP EPS, it's already in the share count for diluted EPS. And that's one of the reasons that we distinguish GAAP diluted EPS from what we call economic EPS, but it's already reflected in the GAAP numbers. Obviously, we'd be very pleased if the stock price exceeded the strike price and that, that would actually -- that it would actually end up converting because that would be good for shareholder value. So right now...

Just remind everybody what that strike price is.

Right.

$38.05. The strike price is $38.05 on our 3.5% convertible bond.

And then we still have a small piece.

A small piece outstanding on our 2 3/8, which has a strike price of $48.05.

So the $230 million, is it the $38? And about $33 million, is it the...

Closer to $100 million.

Yes.

Yes. So it is a legitimate point that we're within striking distance of that number with the momentum that we see and the prospects for continued strength in the industry for the next several years.

But we're not currently looking at buying back those bonds. That is a good economic transaction.

Our next question comes from Tom Albrecht from BB&T. Thomas S. Albrecht - BB&T Capital Markets, Research Division: I wanted to just kind of delve in some of the comments in numbers that you've got there. So Lorie or Bill, I don't remember which of you talked about. I mean, if I take the deliveries from this quarter of 3,700 x 4, that's about 14,800. You said it'd be, I think, substantially higher in the second half of the year. I mean, what kind of quarterly delivery rates might we expect by the third and fourth quarter? Are you talking like 4,500 a quarter? Or can you help us out a little bit?

Yes. And as you know, we don't tend to give specific quarterly guidance on deliveries. But we would expect that to be ramping towards the back half of the year with -- I would expect that the last 2 quarters to be stronger than what we saw this quarter. Again, as a reminder, we did have a little bit of carryover from the fourth quarter of 2013 into this first quarter, with the timing of syndication. So again, those timing issues can have an impact on the number of deliveries that are reported for a particular quarter that may not specifically relate to production and can impact that timing. Thomas S. Albrecht - BB&T Capital Markets, Research Division: How much was the syndication?

In general, though, if you're suggesting is -- go ahead -- in general, you're suggesting that if we are going to continue to increase production, that we are on a course to be greater than 15,000 cars for the year. Thomas S. Albrecht - BB&T Capital Markets, Research Division: Okay. And how much was that syndication carryover impact from Q4 into this Q1?

There's about 400 units. Thomas S. Albrecht - BB&T Capital Markets, Research Division: Okay, all right. And then, again, I know you're trying to be positive about the margins and, at the same time, not let the expectations get too wild and crazy. But if I just sort of break down what I've heard here, you guys had a solid month of production at GIMSA, good momentum now in the Bombardier facility, the Concarril as well. It would seem to me that you're going to see gross margin improvement more dramatic, perhaps, than the 110 basis points you saw in Manufacturing from the August and November quarter. I mean, just on those 3 factors alone, can you just delve into that a little bit more?

I'll give a couple of brief remarks. I'm sure Bill will have something to add. But you're absolutely right. I mean, we're excited about what we saw in this first quarter. We're really excited about what's going on at GIMSA and where they've hit their tank car production a bit faster than what we were actually anticipating. But as you're aware from following us for a while now, running so many different production lines and so many different products, there can be a variety of things that go on, particularly in this quarter that we're in right now that will end February, tends to have more weather issues. So you can have things that kind of slow production, that could impact deliveries, could impact margin. Due to things that are maybe a bit beyond our control that aren't huge issues with production, but can have a timing implication on our financial statement. So that's where we try to take not just take counsel of all the positives that are going on but kind of have balance as we look forward for the fiscal year. Thomas S. Albrecht - BB&T Capital Markets, Research Division: So Lorie, would you expect production to be comparable to that 3,700 or deliveries, I mean, or even down a couple of hundred units? Just...

I think -- yes, I think you're in the right range there, but it is dependent on the timing of some of the syndications for the -- for this quarter. So I think the 3,500 to 3,700, actually, that's a pretty tight range, but -- given some of the things. But I think it's in that neighborhood. Thomas S. Albrecht - BB&T Capital Markets, Research Division: Okay. And then, Bill, on the intermodal commentary, I think the way I read that was that hasn't happened. It could be upside. The fact that you didn't have it in the written comments, I know you were adjusting a question. But you're not yet seeing that, even though everything points to eventually intermodal is going to kick in. Is that a correct interpretation?

Yes. I would say, however, that there's been marked change since last year at this time and in midyear with some of the dynamics of the growth in traffic, the nature of that traffic, and some of the congestion issues that are being attributed to by the more robust unit train activity surrounding tanks. Coal has come back slightly and -- in terms of traffic, on some railroads. So it's a complex mix, but we expect the railroads to be struggling to try to maintain their velocity in intermodal. And a little bit of depth in velocity can make a big difference in need. So we're in regular contact with all of the intermodal players, not just TTX, but those who own TTX, and we just watch this very, very closely. I expect -- we can see a big build this year. Personally, I -- a lot of team leaders are pointing in that direction. But it certainly will have to happen by next year. Thomas S. Albrecht - BB&T Capital Markets, Research Division: Okay. And then my last question, I'll get back in the queue. So Lorie, when you were correcting the margin assumption at Wheels, Repairs & Parts adjusted for not only the $2 million expenditure but other costs to get these facilities the way you want them to be, did you say 13.3%? And can we think about this business being a 10-plus percent margin business someday?

Right. So the 13.3% was aggregate gross margins, again, excluding the $2 million of what we believe are kind of onetime costs that occurred in the first quarter, as well as excluding the operating results of the 3 facilities that were closed either during or subsequent to quarter end. For this particular segment, Wheel, Repair & Part, gross margin would have been 7.7%, compared to the actual 4.8%. So that is a bit better from a guidance perspective on gross margin for this segment. We do believe that the aftermarket business should be good margins, as well as being less cyclical than the new railcar side. Is that 10%? Definitely, our goal is to exceed our cost of capital. So I think that is -- that's definitely on the horizons, but I don't think we're getting any specific guidance at this point in time.

Yes, we have 2 metrics that we're focused on for that business. One is gross margin percentage. I -- it should exceed 10% by the time we're done sometime later in this fiscal year, earlier -- early in our 2015. Because, remember, we're August 31 fiscal year, and ROIC. ROIC is a little tougher nut because of the historic cost of some of the wheel properties, but we expect improved ROIC and margins in the margin -- we want to be well over 10% on gross margins. If we can't achieve that, the examples that we have -- our examples that actually we've already taken, we'll just keep taking that action until we get there. But we also think there's some positive opportunities collaboratively with customers that can boost this and change the demand curve of this business. And so there are some exciting opportunities here to continue to reduce capital, improve ROIC and broaden our commercial footprint in that space.

Our last question comes from Sal Vitale from Sterne Agee. Salvatore Vitale - Sterne Agee & Leach Inc., Research Division: So the first question I have is on the minority interest, there was $7.6 million for the quarter. And I think, if I heard you right, you said that expect that to be similar for the rest of the quarters?

Correct. Salvatore Vitale - Sterne Agee & Leach Inc., Research Division: Okay. Can you just refresh my memory? What percentage of the GIMSA joint venture is not owned?

It's a 50-50 JV. Salvatore Vitale - Sterne Agee & Leach Inc., Research Division: 50-50 JV. Okay. So, I guess, how do I think about that? Because it seems like the gross margin was probably, for the first quarter, is probably better than what you had in your forecast internally. So should we be thinking about that, that the minority interest pretty much offsets the better gross margin for the rest of the year? I'm just saying that because you really haven't changed your margin -- or your guidance.

I don't think that we gave specific guidance on minority interest previously. And the thing to think about with gross margins, while definitely our consolidated gross margins benefit from, not only the higher-margin work that's going on at GIMSA with tank cars and the fact that they're getting more efficient, there's also more volume going through. But we're also getting very nice margins at our other Mexican facility where we're doing our automotive products, which are very healthy margin products as well. So I don't think that you can absolutely say that all of the margin improvement is associated with GIMSA and then it goes away with minority interest.

And I think another way to think of it, Sal, is that we had very strong performance in Manufacturing, particularly at GIMSA. We didn't change our guidance for the year. And some of that is tied to some of the disappointment in our Wheel, Repair & Parts segment, and part of it is offset there. And so, for the time being, we're keeping our guidance where it is.

Yes. But looking at it even a different way, if you strip out the headwinds in Wheels & Repair as we flush these onetime charges and the reorganization of that unit, you remove that from the circumstances, we had a strong quarter at GIMSA. We should be able to have even stronger results at GIMSA and at our Bombardier or Concarril facility, Sahagun facility. And these are the things that are going to really be tailwinds -- sort of tailwinds for us. So it's 3 things. So we're seeing a quarter which did reflect a very strong performance at GIMSA, which is really super thing. We're very delighted with that. And that's a very significant thing that happened this quarter. Salvatore Vitale - Sterne Agee & Leach Inc., Research Division: Right. And you got there 16 cars per day at that facility. And I think you were targeting getting there by the end of this calendar year. Is that correct?

Right. So we got there earlier. We had a little different production due to a supply -- a valve issue. But we're going to have a good quarter there this year, probably better. So we're really happy about that operation down there. Salvatore Vitale - Sterne Agee & Leach Inc., Research Division: Okay. And then, just switching back to the intermodal side. So it seems like, at some point, we're going to have that surge in intermodal orders. What do you think is actually going to be the catalyst for that? Because it seems that, like you said, intermodal volumes are very strong and there is starting to be a little bit more congestion. So at a certain point, you're going to need to see orders pick up there. But what do you think is actually going to be the catalyst that causes it?

I think that the industry, particularly the largest owner of that type of car, is a very -- does a very responsible job of investing its capital wisely. When the railroads are having shortages in supply, they will appeal to TTX to place their orders and -- or they could place orders themselves. So the catalyst will just be the number of railroads, the individual operating profiles. And as I say, we monitor those very closely, along with the outlook at TTX. Salvatore Vitale - Sterne Agee & Leach Inc., Research Division: Okay, that's helpful. And then, just the last question on the barge side. The $100 million in barge revenue that you mentioned earlier, you meant that to be a representation of a normalized year in that business, or is that an up year in that business?

I think, Sal, that would be considered a robust year, the $100 million.

Right. $80 million to $100 million is the range. What's driving the -- there's a couple of things driving that demand, Gulf [ph] replacement of flat deck barges. But the oil by barge scenario is really starting to take a win. And those are very large projects, AT/Bs, Integrated Tug/Barge operations that run $50 million, $60 million, not counting the tugs. So a few of those will bang the backlog right together. And you're looking at $80 million to $100 million run rate at really decent margins. Salvatore Vitale - Sterne Agee & Leach Inc., Research Division: Right. And last year, fiscal '13, was more, what, in the, say, $20 million range?

$20 million to $30 million or so, I'd say. Salvatore Vitale - Sterne Agee & Leach Inc., Research Division: Okay. $20 million to $30 million. And was there any in this quarter? Any revenue in that business in this quarter?

Very minimal. Thank you, Sal, and thanks, everyone, for the call today. We'll do some follow-ups with those that we weren't able to get to. So, appreciate your interest.

Thank you, and have a good day.

Thank you. That concludes today's conference. You may disconnect at this time.