Trinity Industries, Inc.
Q2 2009 Earnings Call Transcript

Published: 30 Jul 2009

[Operator:]

Good day everyone and welcome to today’s program. At this time all participants are in a listen only mode. Later you will have the opportunity to ask questions during the question-and-answer session. (Operator Instructions). It is now my pleasure to turn the conference over to Mr. James Perry, Vice President, Finance and Treasurer.

[James Perry:]

Good morning from Dallas, Texas and welcome to the Trinity Industries second quarter 2009 results conference call. I am James Perry, Vice President, Finance and Treasurer for Trinity. Thank you for being with us today. In addition to me, you will hear today from Tim Wallace, Chairman, Chief Executive Officer and President, Steve Menzies Senior Vice President and Group President of the Rail Group and Bill McWhirter, Senior Vice President and Chief Financial Officer. Following their comments, we will move to the Q&A session. Also in the room today is, Mary Henderson our Corporate Controller. A replay of this conference call will be available starting one hour after the conference call ends today through midnight on Thursday August 7th. The replay number is 4022200117. Replay of this broadcast will also be available on our website located at www.trin.net. Before we get started, let me remind you that today’s conference call contains forward-looking statements, as defined by the Private Securities Litigation Reform Act of 1995 and includes statements as to estimates, expectations, intentions and predictions of future financial performance. Statements that are not historical facts are forward-looking. Participants are directed to Trinity's Form 10-K and other SEC filings, for a description of certain of the business issues and risks, a change in any of which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. On June 30, 2009, we had total borrowings of $1.91 billion. Borrowings at the corporate level were $450 million of convertible subordinated notes, $201.5 million of senior notes, and $3 million of other indebtedness. The leasing company's debt included $544.6 million of promissory notes, $312.6 million of secured railcar equipment notes, $298.6 million outstanding under our railcar leasing warehouse facility, $61 million of seven year term loan, and $39 million of capital leases, for total leasing company debt of $1.26 billion at June 30, 2009. This compares to a book value for total leasing equipment of $2.8 billion. In today's call, you will hear us refer to the non-GAAP term EBITDA. A reconciliation of EBITDA was provided in our press release yesterday. For the second quarter, EBITDA was $127.9 million. During the second quarter, we had several key financing accomplishments that strengthened the balance sheet. We entered into a loan secured by railcars for $61 million. The security used for the facility, included railcars that are previously secured the equipment trust certificates that were paid off in the first quarter. This demonstrates our ability to continue to find attractive financing for railcars during their life cycle. In the second quarter, we entered into two sale lease-back transactions for railcars. These provided $26.1 million of cash to the company and are attractive pieces of financing. These transactions and similar transactions in the first quarter have generated a total of $60 million of cash. Finally, during the second quarter, we renewed our railcar leasing warehouse to February of 2011. As previously indicated, we renewed this facility for $475 million, an amount lower than our last renewal. This was deliberate a slower demand for railcars has reduced our need for financing. The lower level of sales is unnecessary financing expenses that would have been associated with a larger facility. At June 30th, we had $176.4 million available under our railcar leasing warehouse facility. After all of these activities in the cash flow from our businesses, our cash position increased significantly during the quarter to $440.9 million, up from $170.4 million in March 31st. In addition to our cash at June 30th, we had $334 million available under our $425 million revolving credit facility, which matures in October of 2012. The portion of the facility that is utilized is due to our usage of letters of credit. There were no cash borrowings under the facility at June 30th. At quarter end, we were well within, all of the covenant requirements of this facility. During the next 12 months through June 30th, of 2010 our debt repayment commitments totaled $58 million. Our next debt maturity or renewal occurs in early 2011, when we will revisit the warehouse facility. Details of future commitments and our debt can be found in our 10-Q. As you can see we are position well in the current choppy financial markets with total liquidity from our cash and credit facilities of approximately $950 million. We did not purchase any Trinity shares during the second quarter. Accumulative purchases under the $200 million program launched in late 2007, which ends December 31, 2009, totals 3,532,728 shares for a total of $67.5 million. In summary, our financing activities have been very successful and our EBITDA has totaled approximately $597 million during the last four quarters. We are positioned well with the strong balance sheet and cash flows. We have been very focused on this activity to ensure, we are position to capitalize on business opportunities as they arise. Now here is Tim Wallace.

[Tim Wallace:]

Thank you, James and good morning everyone. During the second quarter we made great progress and strengthened our balance sheet. Liquidity and cash generation has been one of our top priorities during the first half of the year. This is reflected in the $440 million cash position on our balance sheet. James provided details of a number of financing activities that have improved our liquidity. We also made progress in confronting a variety of challenges associated with the recession. Our businesses continue to right size their operations and are maintaining tight control of their cost and staffing levels. Trinity has a season group of employees, who have been through periods of decreased demand before and know how to respond appropriately. The current economic climate has challenged many of our customers. Our businesses are working with some customers to provide flexibility in respect to the timing of deliveries in return from mutually beneficial longer-term transactions. All of our businesses are aggressively pursuing orders to maintain as much production continuity as possible. The diversity of our portfolio is apparent in our operating results. Our businesses are confronting a variety of market scenarios. We anticipate that each quarter will have its own unique set of challenges because of the uncertainty surrounding the direction of the economy. An example is the write-down of goodwill in our railcar group. This reflects the significant decrease in railcar demand that has occurred recently in North America. Its caused impart by the large number of railcars that are currently idle on the tracks. We are closely monitoring all of our markets for opportunities and signs of recovery. At this point, we are seeing some positive improvements in demand for our highway-related businesses. Most of our businesses continue to experience uncertainty in their market. We are taking a cautious view in our planning and management activities. Thus far, the recession has impacted our railcar manufacturing businesses more than our other businesses. Our Rail Group continued to reduce its production levels during the second quarter. We expect volumes to decline further as we go through the next few quarters. Our railcar leasing company generated solid earnings for the quarter. Steve will provide more information on the Rail Group during his comments. I am pleased with the way our Construction Products Group improved its financial performance during the second quarter compared to the first quarter. This group’s year-over-year revenue level was down slightly as a result of the economic slowdown, but its profitability improved dramatically compared to the first quarter. Until the overall economy improves, we expect our Construction Products Group to have lower than normal business activity and profitability. Our Inland Barge Group performed well during the second quarter. It is continuing to benefit from the positive momentum associated with long production runs. The large size by barge order backlog allowed our barge business to continue to operate at high level of productivities. We obtain some orders for barges during the second quarter and had a steady flow of enquiries for additional orders. We continue to expect our profitability to decrease in the barge business as we progress through the year. Bill, will provide margin projections during his comments. Our Energy Equipment Group second quarter profit was flat compared to last year. Our large order backlog for structural wind towers provided production continuity during the second quarter. We expect orders for structural wind towers to improve, when North American wind energy industry begins its next stage of road. It remains very difficult to precisely determine when this will occur. Financing for wind projects and a lack of electricity transmission capacity located near wind farms are too crucial factors that impact this industry. We are planning for a recovery in this business to begin in late 2010 or the first part of 2011. We are ready to respond quickly, if recover begins earlier. We continue to remain highly focused on productivity and cost reduction initiatives as we produce towers from our large backlog of orders. At this point, I am pleased with Trinity’s overall position and financial strength given the state of the general economy. We are continuing to weather the recession much better than we did during the last economic downturn in 2001. We are focused on enhancing our balance sheet and aggressively pursuing orders. We are also closely monitoring and reviewing a variety of opportunities. Historically, our businesses have strengthened their market leadership positions during down cycles and we expect this to be the case during the current downturn. The diversifications our multi-industry platform and our liquidity allow us time to think through a variety of tactics and strategies. Our performance during the second quarter reflects the talents and hard work of our people, the diversification of our businesses, our emphasis on efficient manufacturing and the strength of our market leadership positions in a rapidly changing business climate like the one we’re experiencing today is extremely difficult to establish firm forecast. In light of this, we are continuing to evaluate business conditions daily and make decisions on a month-to-month basis. One of our strengths is our flexibility and we will continue to shift and direct our resources in areas that will build shareholder value. I will now turn it over to Steve Menzies for his comments.

[Steve Menzies:]

Thank you, Tim. Good morning. Operating results for TrinityRail during the second quarter of 2009 reflected the impact of the rapid decline of railcar market conditions, which began in the second half of 2008. We shipped 3,080 new railcars during the quarter and attained lease fleet utilization of 96.4%. Our manufacturing operating margin excluding the goodwill impairment charge was a loss of 1.2% in the second quarter of 2009, compared to a 2% loss during the first quarter. Operating results during the quarter were adversely affected by lower railcar production volumes, plant closing cost and employee severance expense. During the second quarter, we continue to execute our plan to reduce our railcar production footprint to align with forecasted near-term demand. Our current production facilities are capable of producing a substantial portion of our broad product line and they are also positioned to quickly ramp up production when market conditions improve. Our operating flexibility of these facilities, allows us to meet shifting customer demands of various railcar types. During the second quarter TrinityRail shipped 3,080 railcars, 53% less than the 6,580 railcars shipped in the second quarter of 2008. We expect shipments to be approximately 1,000 to 1,500 railcars during both the third and fourth quarters of 2009, as we work off our order backlog and further align car production with current market demand. We continue to experience weak demand in new railcar order enquiries across most major railcar types. This is because of low railcar loadings, improved railcar cycle times and a large overhang of idle railcars in the rail system. During the second quarter, declining North American railcar loadings appeared to stabilize at a level above 20% below railcar loadings from a year ago. However, we have yet to see indications of our recovery in railcar loadings. During the second quarter TrinityRail received approximately 650 new railcar orders. At the end of the second quarter, TrinityRail's order backlog was approximately 3,780 railcars, a 39% decrease from the prior quarter. We shipped approximately 1,595 new railcars to customers of our leasing company. This represented about 52% of Trinity rail second quarter new railcar shipments. We also sold 615 railcars from our lease fleet primarily to TRIP. As a result, our lease fleet totaled 48,630 railcars at the end of the second quarter of 2009, 18% higher than the 41,100 railcars in our lease fleet at the end of the second quarter of 2008. The committed lease backlog as of the end of the second quarter was 1,810 railcars, or 48% of our total production backlog. Our lease fleet utilization was 96.4% at the end of the second quarter compared to 98.4% at the end of the first quarter. As a result of weak railcar demand, we expect lease fleet utilization to decline further during the balance of 2009, although we do not have a disproportionate number of leases expiring during the next few quarters. The average age of our lease fleet is 4.9 years. The average remaining lease term of our portfolio is approximately 3.9 years, compared with 5.1 years at the end of the second quarter of 2008. Our average remaining lease term has declined, because we are renewing leases and assigning railcars to lessee for shorter terms to avoid locking in current, low market lease rates for extended periods. Our intent is to have the opportunity to reprice assets in a more favorable market setting. Lease rates for renewals and assignments are highly competitive and in general reflect moderate rate declines. Our commercial team is keenly focused on maintaining fleet utilization and we have been effective that assigning returned or idle railcars. As railcar loading stabilized and subsequently recover, we expect the overall railcar demand to improve and lease rates to firm. While the credit profile of our lease portfolio remains strong, the economic downturn has added risk to the railcar market. We have had an increase of lessee default above historical norms and we are closely monitoring our lease receivables. In summary, we have adapted to the rapid decline in market conditions by reducing our railcar production footprint and staffing levels. Some key indicators show the rate of decline in market condition easing and in some cases bottoming out. We are well position to respond to any increase in railcar demand. Our current focus is to maintain our lease fleet utilization and firm up lease rates, when possible. We expect this to be a challenging market environment for a period of time. I believe the long-term fundamentals of the railcar market are sound. Trinity rails well positioned to compete effectively in the short-term and to take advantage of market opportunities in the long-term. I will now turn it over to Bill McWhirter.

[Bill McWhirter:]

Thank you, Steve and good morning everyone. My comments relate primarily to the second quarter of 2009. We filed our form 10-Q this morning. For the second quarter 2009, we reported earnings of $0.43 per diluted share excluding the after tax goodwill impairment charge of $243 million. This compares with $1.03 per hare in the same quarter of 2008. Revenues for the second quarter of 2009 were $716 million. Excluding the charge, earnings exceeded the upper end of our guidance by $0.13 per share. This was primarily due to better than expected results in our barge, highway products, and wind tower businesses. Including the after tax charge of $243 million for the impairment of goodwill, the net loss for the second quarter was $2.75 per diluted share. Moving to our Rail Group, revenues for this group decreased on a quarter-over-quarter basis by 49% to $303 million. Margin results for the Rail Group were a loss of 1.2% excluding the goodwill charge. Looking forward, we anticipate that the Rail Group will report an operating margin loss of between 5% and 8% from the third quarter of 2009. This projection reflects the lower pricing environment and the number of cars to be shipped during the period. The Rail Group backlog as of June 30, 2009 consists of approximately 3,780 railcars with an estimated sales value of $325 million. Now turning to our Inland Barge Group, the Inland Barge Group's second quarter performance was once again strong, posting revenues of $137 million and operating profit of $30.3 million. This group's backlog as of June 30, 2009, totaled approximately $350 million. We anticipate Inland Barge revenues of between $110 million and $120 million in the third quarter. Operating profit margins for this group are expected to range between 17% and 19% for the same period. Now moving to the Energy Equipment Group, during the second quarter, this group's revenue declined quarter-over-quarter to $134 million. Operating profits were $25.2 million with an operating profit margin of 18.8%. Backlog for the wind tower business remained healthy at $1.2 billion as of June 30, 2009. Revenues for this group will remain in the $130 million range in the third quarter. However, margins are expected to decline to between 13% and 15%, as we manufacture less profitable orders from our backlog. Revenues for the Construction Products Group declined 30% compared to the same quarter the previous year, due to the overall slowdown in the infrastructure spending during the second quarter. This group did however recover nicely from the first quarter, posting operating profits of $15.5 million and a margin of 10%. Our Railcar Leasing and Management Services Group reported revenues of $134 million compared with $86 million in the same quarter of 2008. Operating profit for the second quarter was $35 million, with $3 million resulting from railcar sales. Of the increase in second quarter revenues, $45 million is due to car sold from the fleet. For 2009, we anticipate approximately $175 million to $225 million in net fleet additions to our lease fleet. This level of investment compares with 940 million in net fleet additions during 2008. Moving to our consolidated results, for 2009, we now expect non-leasing capital expenditures of between $60 million and $65 million. This compares to $132 million in 2008. During the third quarter, we expect to eliminate approximately $60 million of revenue and between $3 million and $5 million in operating profits. We anticipate earnings per share for the company to range between $0.22 and $0.30 per diluted share in the third quarter. Our current view of the fourth quarter is that consolidated revenue could decline to between $475 million and $500 million. At this revenue level, the company should be in a near breakeven earnings position. At this time, I will turn the presentation back to James for the question-and-answer session.

[James Perry:]

Thanks, Bill. Now, our operator will prepare for us for the Q&A session.

[Operator:]

(Operator Instructions). Our first question comes from Paul Bodnar with Longbow Research.

[Paul Bodnar:]

Hi, good morning guys.

[Tim Wallace:]

Good morning.

[Paul Bodnar:]

First question, in this quarter you'd said that the second half, you didn’t have kind of a disproportionate of leases coming up for renewal. Does that imply that the second quarter you did have a higher renewal number?

[Tim Wallace:]

Steve, why don’t you answer that one?

[Steve Menzies:]

Sure, Tim. Thanks Paul, yeah. Just to be clear, we do not have a disproportionate number of explorations in the second half for the year, not did we have a disproportionate number of explorations in the first half this year. It probably was very consistent, very smooth for us year-to-year.

[Paul Bodnar:]

Okay. Thanks. Then I guess, just one more of leasing as well. Can you guys give in kind of numbers around TRIP or what maybe that contributed in terms of operating profit at all?

[Tim Wallace:]

Bill, you want to handle that?

[Bill McWhirter:]

Yeah, I will. Paul, we had a very large car sale to TRIP in the second quarter, but when you get into the leasing statements, you'll find out that, there wasn't much profit associated with the sale. So in fact, we had about 3 million posted to the leasing company. We did have sales coming out of the manufacturing group, we don't break those out individually.

[Paul Bodnar:]

Okay. Well, just in terms of TRIPs contribution to any income coming back over?

[Bill McWhirter:]

About $3 million to the leasing company.

[Paul Bodnar:]

About 3 million, okay. Then I guess, in the manufacturing segment, you kind of guided for negative 5%, negative 8% margins here in the second half. Then some of them we can kind of carry forward to next year or are there some cost you can takeout or if you stayed at you know those production models?

[Tim Wallace:]

Well, this is Tim. It's too early right now for us to be trying to project anything for 2010. Too much uncertainty in the market and we stretched out there and trying to give you some general information of what we think, what we're looking at for the fourth quarter.

[Paul Bodnar:]

Well, Tim let me another way to ask you just, what else can you do in terms of that business to takeout some additional cost and what else is still out there?

[Tim Wallace:]

Well, that business is really -- relates well to revenue increases and if the market picks up in some fashion and we are able to get some orders then that can substantially help us. We have people searching throughout our company in all different areas for ways to reduce cost and there is numerous areas where there are opportunities always within a company besides of ours to eliminate cost. So, and those are pretty much in the conventional areas further staffing reductions as well as eliminating duplications and streamlining processes and things like that.

[Paul Bodnar:]

Okay. Then just one last question, it looks like barge sequentially your backlog declined a little, but it looks like, a little bit better than I expected. That is still that one order you guys tend to get 2Q or do you think that, any color you can provide on that?

[Tim Wallace:]

Bill, you should take that.

[Bill McWhirter:]

Yeah. Sure, Paul. Backlog in the barge group went to 350 million that is coming on 400 million in the first quarter. So, we had a slight decline, but we obviously had orders as we went through $136 million in revenue. As we have said before in the past, the major customer that we have in the long-term contract does place their orders in the second quarter and those are inclusive in that backlog.

[Operator:]

Our next question comes from Steve Barger with KeyBanc Capital. Go ahead please.

[Joe Bach:]

This is actually [Joe Bach] standing in for Steve. I have a question for you, Steve. Can you just talk generally about how may railcar plants you had online in the quarter and as you continue to right size your production in the back half, just generally how many do you think you will have on line in 3Q and 4Q?

[Tim Wallace:]

Steve, go ahead and take that.

[Steve Menzies:]

Yeah. Joe, we obviously have reduced the number of production facilities since the second half of 2008 and we are working with enough facility say, we think that is responsive to the demand in the marketplace and gives us the flexibility to produce our entire production our product line. We really don’t discuss what plants we are operating or what lines we are operating. We are confident that capacity we have on stream can respond to improvements in the market.

[Joe Bach:]

Is there maybe any way that you can quantify either with a percentage change or headcount reduction anyway, so we can quantify that decline in capacity?

[Tim Wallace:]

Well, this is Tim. It’s very difficult in our system to talk about that, because we have so much flexibility. We have certain plants that make sub-assemblies for other plants that also make products for numerous plants that we have in the company. That’s what happened in Mexico. They will be doing products for a numbers of our different plant. So, it’s hard for us to identify specific numbers of plants that are associated with various product lines unless it’s dedicated facility.

[Joe Bach:]

That’s fair enough. Tim, I have a strategic question for you as well. Earlier in the call you mentioned that you generally try to firm up your competitive position in the market during the trough. Are you seeing any good interesting properties come online in the market right now? If so, how do valuations look?

[Tim Wallace:]

Well, we’re constantly looking for opportunities in the market in all cycles. We have been in the past quite a lot of companies doing down cycles and all of our businesses right now are coming forth with various opportunities they that see in the market. I wouldn’t really say that there is a average valuation that is out there in the market. There is still a lot of uncertainty in that area as well as in the general place.

[Joe Bach:]

My last question and then I’ll turn it over. Would you be willing to look at distressed railcar opportunities maybe with leases attached to them? Or as you think about growing your lease fleet would you primarily want to do that via purchases from your rail manufacturing business?

[Tim Wallace:]

We are just interested in opportunities in any area that connects with our company with core competencies and the areas in the markets that we serve. Distressed opportunities usually get our attention some we respond to and some we don't.

[Operator:]

Our next question comes from Art Hatfield with Morgan Keegan. Go ahead please.

[Art Hatfield:]

Just a couple of things, James has gone too pretty fast on the liquidity side, but I wasn’t able to write everything down quickly enough. Just to get an understanding on the flexibility of the $950 million in liquidity that you have, correct me if I’m wrong. The cash positioning you have about $441 million, you’ve got the bank facility, which allows you $334 million and in the warehouse facility of $175 million. If that’s correct on both the bank and the warehouse side are there any restrictions with regards to your ability to access either one of those two facilities?

[Tim Wallace:]

James, do you want to take that one?

[James Perry:]

Sure, Art and you do have the numbers correct and they are in the press release. I think it will give you some details as well, but there are no restrictions. The revolving credit facility is an unsecured facility. The only thing we use that for right now is letters of credit. In the warehouse facility we simply pledge unencumbered cars of which you can see through the 10-Q, we mentioned the $2.8 billion of book value of cars. There is a lot of unencumbered cars on our balance sheet right now, we can access. So, we do not have restrictions regarding that liquidity.

[Art Hatfield:]

Okay, great. So, the warehouse facility is just unencumbered. It’s not for use to buy new cars or what not?

[James Perry:]

We simply pledge cars from Trinity in to the lease fleet. That have leases attached to them, but we do have unencumbered cars there.

[Art Hatfield:]

Excellent.

[James Perry:]

The cars are either security, but we can pledge cars there, yes.

[Art Hatfield:]

That’s very helpful. Secondly on the lease fleet some of the issues, I want to make, I think I misheard, but as Steve can go over a couple of issues again on. I think I heard the average age of the lease fleet is 4.9 years is that correct?

[Steve Menzies:]

That's correct.

[Art Hatfield:]

I think you mentioned a number for the average term that you have on lease agreements right now. That roughly 3.9 years, is that right or am I wrong about that one?

[Steve Menzies:]

That's correct. 3.9.

[Art Hatfield:]

Okay. 3.9. Did you talk anything about what you’re seeing in the pricing environment, I know you are focused on utilization, but are you seeing acceleration in downward pricing on leasing contracts right now?

[Steve Menzies:]

Certainly as you can appreciate it's a highly competitive market out there. Generally we are seeing downward pressure on lease rates and we have seen that on both renewals and assignments. At this point, I’d characterize those was moderate in general some car types are suffering a little bit more than others and some car types are stronger than others. That's one of the dangers, when we start to talk in broad generalities because the railcar market really is a series of individual markets, their own drivers and at times their own behaviors. I think the key indicator in our business is railcar loadings and if that starts to stabilize, I think you will start to see lease rates stabilize and then as we get recovery, we'll start to absorb some of the idle cars in the fleet and we'll start to see lease rates firm and perhaps even start to increase at that point in time.

[Art Hatfield:]

That's helpful. If you don't mind, I kind of want to pressure on something and you may not have an answer to this, but and it's probably too early to tell. One of the things that (Inaudible) mentioned, as they reported earnings this quarter was that some of them were starting to take some cars out of storage and that may be way to early to get any sense that. Have you seen that and if is, is there any thing noticeable like in the last month with regard to what you’ve seen in the market?

[Steve Menzies:]

You know, I would love to have some optimism here, but I am just not quite there yet. Again, we’ve seen some stabilization in railcar loading, but I haven’t seen any meaningful movement of taking cars out of storage in response to increased demand. Hopefully, next conference call we’ll be able to talk about that.

[Operator:]

Thank you. Our next question comes from Patrick McGlinchey with Sidoti & Company. Go ahead please.

[Patrick McGlinchey:]

Good morning, just two quick follow-up questions on the leasing business here. You mentioned that there were no disproportionate contract termination other than, in the first half you don’t foresee any here in the second half. Looking out into 2010, is there any point where you would see some higher contract terminations that we should be aware of?

[Tim Wallace:]

Steve, will you handle that?

[Steve Menzies:]

Sure, Tim. No Patrick, we don’t and our team has really done a nice job of managing our lease lapsing schedule so as not to put us in any vulnerable positions or extraordinarily vulnerable positions in portions of our fleet. So, 2010 from an exploration standpoint looks very similar to 2009, in its smoothness.

[Patrick McGlinchey:]

Then just on the pricing, you said that obviously, seeing prices continuing to come down and hopefully you have some stabilization. On the average of your contracts now, how does that compare to sort of the market prices that we are seeing now in this environment?

[Tim Wallace:]

Go ahead, Steve.

[Steve Menzies:]

Clearly, lease rates have downward pressure and are trending down from what we saw six months ago and 12 months ago. To get into the whole lot of detailed about that, Patrick, it's very difficult, because really we have to start talking about individual car types and individual markets, because there is varying behaviors within those different groupings.

[Patrick McGlinchey:]

Okay. All right. Thanks guys.

[Tim Wallace:]

It's a classic supply and demand as in, Steve, this little markets, when cars are available, then you get certain pressures and when there is no cars available.

[Steve Menzies:]

In certain markets right now there are a lot of cars chasing very little demand and so, probably lease rates are very soft there.

[Patrick McGlinchey:]

Then just to summing up, I guess that on your (inaudible) contract though, is where you might have some of your lower prices, but you've been able to maintain higher prices with the longer term contracts. Is that right?

[Steve Menzies:]

I think that's a clear characterization, yes.

[Patrick McGlinchey:]

Okay, great. All right. Thanks guys.

[Operator:]

Thank you. Our next question comes from Sandy Burns with Sterne Agee. Go ahead please.

[Sandy Burns:]

Hi. Good morning.

[Tim Wallace:]

Good morning.

[Sandy Burns:]

You mentioned you plan to buildup the leasing fleet through the second half of the year. One, is that in anticipation of customers that you currently have pretty much all lined up to lease those cars as we use them. Then secondly, is that also essentially cars that in the past was being sold to trip that looks like they no longer really have the ability to be buying cars from the company?

[Tim Wallace:]

Bill, do you want to take that?

[Bill McWhirter:]

Sure. Sandy, this is Bill. No, I think first of all the growth in lease fleet in the back half of the year is relatively moderate. In our press release we talked about getting close to 50,000 cars. We’re already well over 48, almost of 49,000 cars. In addition to that, we talked about a net fleet additions of 175 to 225 for the entire year as compared to 940. The cars that do go in to our leasing company already have a let’s see on the other side. So, its not a speculative move as we place those cars in. It is rather moderate CapEx considering growth for 2008.

[Steve Menzies:]

SANDY just to add to Bill's comments there, our committed lease backlogs at the end of the second quarter was 1,810 railcars. All those have leases associated with them and that’s about 48% of our total production. So, you can imply that the other 52% are sales independent third parties.

[Sandy Burns:]

Okay. Then also just to make sure I understood it correctly. You mentioned in your press release that the financing that trip uses, the purchase to railcars expired at the end of June. Has that been renewed or replaced or are they essentially, you know …

[Tim Wallace:]

James, do you want to take that?

[James Perry:]

Sure. The availability period did end on June 27th. Sandy, as you mentioned, but the portfolio now simply being operated is normal. So, is the capital markets recoverable, we’ll look at terming those facilities out, it was a warehouse facility, but there is no imminent deadline for that to occur. There are several options that we have for trade but for now its joining as its own portfolio.

[Sandy Burns:]

Okay. So its fair to say, they won't be purchasing cars in the second half until they get a new financing line?

[James Perry:]

That’s correct.

[Sandy Burns:]

Okay. Then lastly and I am kind of new to the industry, so I apologize for this question, if it better handle off-line, but given what's going on with [CIT], when can you discuss any company exposure there and then kind of more broadly, the impact you expect to see on the industry and possible opportunities for the company given the disruptions they are having over there.

[Tim Wallace:]

Bill, why don't you take that one?

[Bill McWhirter:]

Yes, Sandy. CIT has historically been a customer of our manufacturing group. We do not currently have any outstanding orders with CIT. So, we're comfortable not having an exposure respective with CIT.

[Sandy Burns:]

Okay. I guess, just given what's going on there. Have you seen them start to behave irrationally in the marketplace, maybe trying to dump railcars or renew leases at really far below current market rates.

[Tim Wallace:]

We don't really comment about what other companies are doing out in the marketplace.

[Operator:]

Our next question comes from Alex Blanton with Ingalls & Snyder. Go ahead please.

[Alex Blanton:]

I missed the first part of your call, because I was on a call that just came before you, ran overtime. You mentioned that, its too early to talk about next year, 2010, Tim, but when you look at what's going on in the economy from your point of view, would you agree with the forecast that there is going to be an economic recovery in the second half of this year or not. I mean, does it look like that to you?

[Tim Wallace:]

Well, Alex. I think there is so much uncertainty right now out in the marketplace. That it’s very difficult to determine what's going to happen in the next six to nine months to a year. People talk about green shoots and they talk about economy recovering and things like this. We're just taking a very conservative view from a planning standpoint and preparing for an extended downturn if it happens. Fortunately Trinity is highly responsive company and we are accustomed to operating in cyclical environment. So, if the economy does improve, we are definitely ready to respond to improvement. So, we want to play both sides of the equation, where we are prepared if it’s an extended downturn over repair to respond. You can look at TV and watch all the talk shows and listen to all the economists and there is really not a consensus out in the market place. So, I don’t really think I have a view that is any different than, what any of them would say other than we need to be best prepared for whatever situation we are confronted with as a company.

[Alex Blanton:]

Second question on the decremental margins, in the Rail Group they were pretty good. I mean I’m talking the decline in operating process versus the decline in sales, if you exclude the impairment charge about 26.5%, which is not bad in that business. It strikes and that, but in the Construction Products Group was even better. Your operating profit went down $5.6 million and your sales went down $65.9 million. So, particularly in the Construction Products Group how did you achieve such a modest decline in profits on that sales decline?

[Tim Wallace:]

Bill, why don’t you handle that?

[Bill McWhirter:]

Alex, I think when you look inside the construction products in my comments, I made a comment that we exceeded the upper end of the guidance do impart to our highway products group and that’s the guardrail crash cushion proprietary side of the business. So, that piece of the business did perform very well. In addition to which on the concrete side, during the past 12 to 18 months we have done little repositioning of the portfolio. We divested couple of the regions that were not performing as well and we have expanded some of the regions that have better margins. So, I think you're seeing the overall of that, but if I had to say one particular area, I’d say the highway product side.

[Alex Blanton:]

Well, true. It sounds to me like you're saying that got rid of some loss operations.

[Bill McWhirter:]

We got rid of some operations that are performing as well as those that aren’t now.

[Alex Blanton:]

Okay. Thank you.

[Tim Wallace:]

Thanks Alex.

[Operator:]

Our next question is follow-up from Steve Barger with KeyBanc Capital.

[Joe Bach:]

Yes, this is Joe Bach again. I have a quick follow-up for you on the scrappage rates for either rail or barge. The scrap steel prices that we actually track through those bottomed and seemed to be kicking up lately. Given the under utilization of the fleet, are you seeing any acceleration in either railcars or barges being scarped?

[Tim Wallace:]

Steve you want to take that?

[Steve Menzies:]

Yes. Joe, I think your fundamentals are correct. We have not seen any real change in scrappage. I think you're going to expect that as scrap prices go up, we will see increase scrapping activities, but it hasn’t taken hold yet.

[Joe Bach:]

I just want to ask another follow-up too. Tim, you had mentioned earlier that you expect to see or you are planning for wind power recovery potentially in the back half of 2010, early 2011. Is that from an order standpoint or is that more a deliver standpoint?

[Tim Wallace:]

No. It’s from a order standpoint. We are currently delivering off our backlog which is very large backlog and will carry us through that time period.

[Operator:]

Thank you. At this time there are no further questions in queue. I would like to turn it back to our speakers for any closing remarks.

[James Perry:]

Thank you, Beth. This does conclude today's conference call. Remember a replay of this call will be available starting one hour after the call ends today through midnight Thursday August 7th. The access number is 402-220-0117; also this replay will be available on our website at www.trin.net. We look forward to visiting with you again on our next conference call. Thank you for joining us this morning.