Trinity Industries Inc (TRN) 2002 Q3 法說會逐字稿

Good day. All sites are on a conference line. I would like to turn the program over to your host, Neil Shoop (ph). Go ahead.

Thank you. Good morning from Dallas, Texas, and welcome to the Trinity Industries third quarter 2002 results conference call. I'm Neil Shoop, treasurer for Trinity. We want to thank you for being with us. With us is Tim Wallace, Chairman, President and Chief Executive Officer, John Adams, executive vice president, Jim Ivy, Senior Vice President and Chief Financial Officer, and Chaz Mitchell, controller. A replay of this conference call will be available starting one hour after the conference call ends today through midnight, Thursday November 14th. The replay number is (402) 220-0668. I would also like to welcome our audio webcast listeners today. Replay will be able on the Web site located at www.TRIN.net. In a moment, John Adams and Jim Ivy will have some brief comments. Then Tim Wallace will give perspective and outlook. Following that we will move to Q&A. 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 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 description of certain business issues and risk, a change in any of which could cause actual results or outcomes to differ than those expressed in the forward-looking statements. Here is John Adams.

John Adams, Executive Vice President, Trinity Industries: Good morning. We appreciate you joining us this morning. So much attention is focused on the company's ability to obtain adequate financing. I will give a brief overview of our borrowing facilities. First, can he corporate level we have a 425 million facility. It is divided in two parts, a 275 million, three-year piece and a five-year, 150 million institutional piece. These expire two and a half and four and a half years from now. Of the 425 million, we had 245 million outstanding at September 30. We are in compliance with all of our long covenants and our present projections indicate we will continue to be in compliance.

We have, also, a 200 million leasing company facility which is used to warehouse our railcars under lease prior to our going to the long-term debt market. I use the term warehouse as it is anticipate that this facility will be used until a large enough barring level is reached to go to the long-term market, say, $150 million. The warehouse would then be paid down by the long-term funding that we would do at that time, and then will be used to finance additional lease cars until we go to the long-term market again. We are working with Credit Suisse First Boston and Wachovia Securities, co arrangers of the warehouse prepared to go to the long-term market by next year. At September 30, we had $76 million outstanding under this $200 million facility, secured by railcars under lease with an appraised value of $103 million. It is not anticipated we will have any difficulty going to the long-term market as our advisors anticipate that the funding, because of the quality of the cars and leases, will receive a high investment grade. The warehouse and the capability to go to the long-term market give our leasing company sufficient flexibility to fund itself.

As you know, S&P us under credit watch with negative implications. Our S&P rating is presently triple B minus with negative implications. Our Moody's rating is BA 1 with negative outlook. We have meetings scheduled with each later this quarter. If we did receive a further downgrade, no event of the fault would be triggered under any of our credit facilities. There would be only an increase in our borrowing cost of approximately $600,000. The final on balance sheet facility we have is our 170 million trust certificate financing for our leasing company which was completed this past February. This borrowing is for seven years and has rail cars with an appraised value of $265 million securing it. This, plus six and a half million of maturing ETCs bring our total om (ph) balance to 253 million. That is 253 million secured by rail cars appraised at 416 million. So if you take the 253, our 245 million mentioned earlier as our corporate and other debt of six, that will add up to the 504 - the 504 million shown on the 9/30 balance sheet. Our off balance sheet financing is $190 million secured by rail cars appraised at $220 million and has an average life of ten years, a final maturity of 22 years. Now, Jim Ivy will give you an overview of our financial results.

Jim Ivy, Senior Vice President and Chief Financial Officer: Thank you. Good morning, everyone. Before I get to the numbers, I would like to very briefly describe the quarterly financial statement preparation process we use at Trinity. Our corporate controller, his staff, our external auditors, our director of internal audit and I have face to face financial reviews with business unit controllers for each of our different business units covering a fairly extensive financial reporting package. All accounting auditing and reporting issues are discussed and followed up as necessary before final results are determined. Our in-house counsel carries out similar data gathering process with various outside counsel and other in-house attorneys. Our own staff, environmental specialists update environmental issues, and we representation letters from business unit controllers and business unit presidents are obtained covering a wide variety of accounting and disclosure issues.

These letters have been part of our normal process for a couple of years, but language has been added recently to parallel the language Sarbanes-Oxley Acts in the CEO, CFO certificates which are new this quarter. We also obtained representation letters from corporate and shared personnel who are in a position to know information which should be disclosed or should be considered in the financial statement preparation process. All significant judgment items are discussed with our CEO and with the audit committee. Draft Form 10-Qs are reviewed by the audit committee as well as an internal disclosure committee with representatives from treasury, legal, and accounting. Business unit controllers and presidents review relevant sections of the draft, and our external auditors also reviewed drafts and report on the review of the interim financial statements to management and to the audit committee. The point of all this is to reinforce the fact we take very seriously our responsibility to make appropriate disclosures and maintain the credibility the financial markets need today. Now, I will briefly cover some items that affect comparability of our financial results for the quarter.

Our consolidated process before tax this quarter of $8.3 million includes about 4.3 million in pretax gains from the sale of excess assets, namely the corporate jet we had taken out of service last year and two plants that were idle last year. Year over year EBITDA increased six percent for the quarter and 50 percent in the year to date comparisons. In the rail group, revenue increases in Europe were partially offset by reduced shipments in revenue in North America compared to last year. On orders and backlog have improved again this quarter. Tim will have more to say about that in a few minutes. Included in rail group revenues in the current quarter is 31.3 million of railcar sales to our leasing and management services group for additions to our lease fleet compared to 46.6 million in the same quarter last year. Operating profit on the sales was about 2.6 million this year, compared to 2.3 million last year. I would remind you that both the revenues and profits resulting from sales to our leasing group are eliminated in consolidation.

In our Construction Products Group, revenues declined 3.2 percent compared to the prior year due to having exited some non-core businesses. In our Inland Barge Group, revenues declined year over year this quarter due to slightly lower volume in both tank and (inaudible) barges. Operating profit was adversely impacted by about $700,000 in costs incurred related to issues raised by litigation by tank barge customer in May. In the Industrial Products Group, year over year revenues are up slightly as the Mexico LPG business continuing a return to a normal demand level. Revenues in our railcar leasing and services management group are up 3.5 million due to the increased size of the lease fleet. Sales of rail cars out of the lease fleet were only $400,000 with less than a $100,000 in operating profit related to the sales in both this quarter and the prior year quarter so the impact of lease fleet sales on either quarter is negligible. The decline in all other segment revenues reflects reduced revenues from the wind tower (ph) business. The wind tower (ph) business was close to break even with a $200,000 pretax loss. This business presently has no backlog and will be, essentially, mothballed for the next several month until the longer term viability of the business is determined. Should the business be exited, there should be no adverse financial effect. We plan to file our Form 10-Q for this quarter tomorrow, so the information will be available to use sooner after this call than it has been in the past. Now, I will turn it over to Tim and we'll be available for question after Tim completes his remarks. Tim.

Tim Wallace, Chairman, President and CEO, Trinity Industries: Thank you. Good morning. Once again, our Construction Products Group continuing to be our strongest performer. We are fortunate to have a relatively steady demand for the majority of the construction products. Our highway safety guard rail group is challenged to maintain a consistent backlog because some of the states are slowing down their highway and road spending programs due to a shortage of matching funds. We placed a strong priority on market or proprietary highway safety products. These are most commonly used as barriers and crash cushions at the end or beginning of highway guard rails. We have been successful of designing a new variety of new highway safety products which supplement our basic guard rails. Since 1995 our sales in this area have grow at a compounded annual growth rate of 20 percent. We expect our annual sales of these products to be in the $65 million range, or 40 percent of our highway safety products revenue.

In Texas our bridge structural steel business has a year's backlog. We currently have three facilities producing products for bridge structures. Our concrete and aggregates business performed well in the third quarter. The second and third quarters are historically the second best quarters of the year. As we head into the winter months, we are keeping a watchful eye on the weather conditions which can affect our construction related businesses. During the last three weeks it has been very wet in Texas and still too early to predict how the weather will affect the entire fourth quarter. Our Inland Barge Group has been highly focused on maintaining production while continuing to investigate barge corrosion issues. The decrease in the grain harvest is having a short-term effect on the demand for barges. We have seen a slow down in orders during the past quarter and we're attempting to stretch out our back logs by reducing our production. The barge corrosion lawsuits are in the early stage of the legal process is premature for us to make comments. I will say it is our opinion that we have a very strong legal position in this case, and we're continuing to prepare ourselves from a legal and technical point of view.

Industrial Products Group is operating efficiency continuing to improve. The demand for LBG (ph) tanks in the U.S. improved in the third quarter and the recent cold weather has continued this trend. In Mexico the demand to LBG (ph) tanks is strong and the profits in this segment reflect the improvements in these markets. We are continuing with the program of consolidating our industrial products businesses. We are making great strides in reducing our operating costs and we install updated equipment. We are optimistic we will lower the cost and improve the overall competitive position. During October we acquired the assets of a relatively small specialty storage tank manufacturer in Mississippi. We are currently consolidating this business into our operations.

Now, I will devote the remainder of the comments on the rail business. In our European rail manufacturing business we are continuing with our initiatives to consolidate our European rail business. We are in the process of closing the facility in England and close to completing the sale of the smaller Romanian facility which specializes in refurbishing rail wagons. In addition, we are down sizing our facility in the Czech Republic. The majority of the really wagons will be produced in the Romanian operation and will supplement a line in the Czech Republic. Long term should continue to position our European rail operation as a low cost producer of rail equipment in Europe. Even with these moves, we are currently the largest producer of rail wagons in Europe. Unfortunately the demand is not real strong at this point.

Our backlog extends into the second quarter of next year, but during the fourth quarter we are accelerating the completion of a contract with rail wagons associated with the closing of the facility in England. We pulled units forward from the first quarter into the fourth quarter. We also have somewhat of a hold over from the third quarter out of our Romanian facility. As a result, our shipments in Europe will increase on a one-time basis in the fourth quarter. This will cause the revenues to spike up $15 million during the fourth quarter. Our European rail business was operates at a break even level during the third quarter, and we expect the fourth quarter to have similar results. We are currently anticipating we will operate at a small loss during the first half of '03 until our down sizing and consolidation program has been completed. Trinity's North American rail group continues to focus on the challenges associated with a very competitive market.

During the first quarter of this year, the demand for rail cars hit the bottom of the cycle. We reacted swiftly and further down sized our operations to a base load level. In the first quarter we shipped close to 1250 units. In the second quarter that number was reduced to approximately 960 units. As we down size, we did not want to lose sight of the fact long term there will be a recovery. We took extra care to schedule production in our lowest cost facilities while developing a production plan for the future. As we increase our production, we will use this plan as a guide for ensuring deliveries from our lowest cost operations.

In the third quarter, our shipments returned to a volume comparable to the first quarter, shipments at approximately 1160 units. During the third quarter the industry order levels showed signs of a recovery by increasing 45 percent over the second quarter industry order levels. It appears that the increase in demand for new rail cars is primarily supported by the replacement cycle and new product introductions. The general economic activity has not recovered to a point where demand for rail transportation is growing beyond current equipment and supply capacity. Our backlog in North America increased from 3100 units at the end of June, to 4800 units at the end of September. The majority of these orders we booked in the third quarter provided either an extension to an existing product line or was large enough to justify the start-up of new production line.

During the fourth quarter, we are increasing our production to between 1300 and 1400 units. We are producing rail cars in Mexico, Texas and Georgia. Our backlog consists of covered hoppers, boxcars, cool cars, enter model equipment, and a variety of tank cars. The market pricing on the third quarter orders reflected the fact that the majority of the orders had been in process for several months. A potential railcar order can be re-quoted and re-priced several times before it finally becomes an official order. Prices are fluctuating on an order by order basis. During the third quarter we did not see a noticeable price increase. Needless to say, our customers are acquiring equipment at attractive prices. It is important for me to stress the point that we are not pursuing orders based purely on market share percentage goals. Since we have a diversified portfolio of railcar products, we are selective in the business we pursue. We closely monitor each potential order and perform a detailed evaluation of the attractiveness of an inquiry before we prepare a quote. We usually target specific orders which will enhance our commercial and operational positions.

Today our objective is to aggressively pursue orders critical to covering the base load. We are interested in orders which are large enough to provide opportunities for us to obtain production efficiency. In June and July we received two orders for tank cars which are excellent examples of this situation. One order was for 600 cars. The second order was 300 cars. These were crucial for covering a portion of our base load. We do not see value in obtaining large number of low margin orders for the sake of proving we can maintain a certain market share percentage. We're more focused on creating value and looking toward the future. We see it as a totally different situation when we are competing for orders in a 20,000 car year than competing for orders in a year with a demand for over 30,000 units. Once the market show signs of a longer term recovery and pricing improves, then we plan to layer additional higher more Jane orders over our base load.

At that point, the market share percentages become more important to us. As a general rule in a market like this, we are also very cautious about taking low margin orders which would require us to restart an idle production line. We do not see a lot of benefit or operational value in prematurely restarting a facility or production line. We watch the market closely and look for opportunities to introduce updated products while obtaining the efficiencies of a long run. An example was an order we received in July for 1,065 coal cars. This order provides us an opportunity to produce an updated verse of our coal cars over a nine month period from January through September of next year. At the last conference call I mentioned we were starting a new jumbo hopper car line in Mexico. This railcar specifically is designed to transport light weight high protein animal feed product called dry distillers grain, or DDG. DDG is a by product of the ethanol production process. In July, we successfully launched our new jumbo hopper car and have been fortunate to book additional orders.

During the third quarter we added another quarters worth to our production backlog and are close to receiving additional order. This is an example of starting a line with a new product with the thought of booking additional orders. Our railcar sales and marketing people understand our priorities and are focused in their efforts of pursuing orders which fit our needs. During the third quarter, approximately 45 percent of our north American shipments went to our leasing company. This represents approximately $31 million worth of equipment. As John mentioned earlier we are fortunate to have a financing facility to accommodate our leasing business. Our shipments to the lease fleet were 65 freight tanks ask 40 percent tank cars. It is important to note all of this equipment has been leased customers. Our leasing company plays an important marketing role for us. Our customers expect us to provide a sales quote and a lease. We are currently projecting that approximately 50 percent of the fourth quarter rail cars we will ship will be leased through our leasing company. This ratio will probably change as we go through the quarter.

We try to remain very flexible and routinely re-market our lease cars to other leasing companies, many times after we negotiate a lease, our customers decide they would prefer to purchase the equipment. Both of the large tank cars I mentioned earlier or leases and transitioned into purchases. Our primary objective in this process is to maintain responsibility for manufacturing the railcar. Recently we have seen some of the financial leasing companies increase their orders for equipment. This is usually a sign that they believe the industry has bottomed out and they want to take advantage of the depressed prices before they begin to improve. This is supported by GATX announced it is their intention to acquire 7500 units over the next five years. I'm very pleased to announce that we signed an agreement with GATX to build 5,000 of these rail cars. This is a five-year agreement for 1,000 rail cars per year. Now, this is a perfect example of a base load program for our tank car operations, and I'm very, very pleased with this order.

During the past quarter, we continued to grow our railcar management customer base as well. Trinity Rail management provides fleet management services to other railcar fleet owners by consolidating rail management services under one organization, our customer are able to leverage off the size of our fleet, our systems, and fleet management expertise. This is a fee based business and provides a unique synergy opportunities. Most of the fleet owners are customers of Trinity and other areas of our business. We currently have 80,000 cars in the fleet we manage for third parties as well as ourselves. We expect our rail management business to continue to grow. This business provides a nice cash flow but, more importantly, it helps us enrich our relationships with our customers. I continue to mention in each of our conference calls the fact that the U.S. rail fleet is growing older.

Today I would like to share some of the statistics we use in our long-term planning process. There are over 885,000 cars in the north American fleet in excess of 21 years old. I will do a very conservative calculation which reinforces my perspective pertaining to the long-term opportunities in this market. I start with the fact that the 885,000 cars are over 21 years old. Next, I will subtract 85,000 cars out of the equation to account for fleet downsizing due to improved utilization. This leaves 800,000 cars which need to be replaced. Now, let's assume the industry rebuilds five percent or 40,000 of these cars. That leaves 760,000 cars. Then let's assume we have a 35-year life with these cars. This leaves 14 years to replace these cars. On a straight line basis, this equates to 54,000 cars per year, or more than two and a half times as many cars as the entire industry will deliver this year. Now, that's a lot of rail cars. There are not many industries which have such a large pinup (ph)of demand growing on a yearly basis.

We see the aging fleet as an opportunity reservoir for us. Our strategic planning process has this reservoir of opportunities as a primary target. Trinity is ideally positioned to take advantage of opportunities as they develop over time, and the short term we realize the market is in the trough of the cycle and it is very, very competitive atmosphere down in the trenches. The north American railcar industry is still very difficult to predict. The industry levels the past quarter were the strongest in two years. Short term we expect the orders to continue to come in peak cents and valleys for a while. As a company, we have always strived to focus or resources of today without losing sight of the opportunities which are on the horizon. This is exactly where we are positioned today. We are fortunate to have a diversified portfolio of businesses which are providing us with the financial strength to weight out the single of the industry com-n a very loyal and capable work force. I assure you we will be ready to respond when the de demand increases. At this time, I will turn it back over to Neil for questions. Thank you.

Thanks, Tim. Now our operator will prepare you for the Q&A session. Josh (ph)?

Very good. At this time if you would like to ask a question, press one on the touch tone phone. Can you withdraw that any time by pressing the pound key. Again to register a question, press the one on the phone. We go to Alex Blanton (ph)with Ingalls & Snyder (ph). Please go ahead.

Alex Blanton, Ingalls & Snyder Thanks. First, I would like to just get some details on where the extraordinary gain which was, I guess, a net gain of 3 million mentioned in the first paragraph of the press release. Where were those items in the segment data? Was that in other income?

Unidentified Yes. That's another income.

So that's responsible for about the five and a half million dollar swing, positive swing in other expense sequentially?

It is about half of our profit before tax this quarter

Well, that was the other question. What is the per share impact of that?

It was about half. So it would have been about seven cents

OK. It works out to five cents if you use the corporate tax rate. So was there a lower tax rate on that? I'm talking about the net gain. In other words, you have 4.3 million gain, but you had 1.3 million in charges.

OK We don't look at it that way. If you just look at the charges, it is half of the profit before tax. Those other charges we mentioned of 1.3 would, obviously, reduce it

It is five cents including those. Thank you. Second question relates to the orders for the quarter. If the backlog went up 1700 cars sequentially, it would mean that the orders were 1700 more than the shipments, correct, so that would give you orders of 2860 for the quarter? Is that correct?

That's pretty close

OK. That was up 45 percent sequentially?

Yes.

So orders for the second quarter were just under 2,000?

Orders for the second quarter were almost - orders for the second quarter and the third quarter were kind of close in the same range, 27, 2800 cars

I thought you said orders were up sequentially?

Our backlog was up.

Backlog was up, OK.

Backlog was up 45 percent

OK.

The orders (ph) were at the similar level.

All right. So, now, what are the industry orders during those two periods? I'm trying to ...-

Industry orders during the third quarter was around 10,000, around 7,000 during the second quarter.

OK. So that you're running about 30 percent of that?

Yeah. We were - that's right in the area.

And what are the - who are the largest competitors getting the rest of the orders?

It was really kind of across the board in this. It always depends on the car types. In certain car categories, we had very high percentages. In other car categories we didn't participate that much. So it is kind of spread across the board. Most of the industry booked business, a large portion of the whole industry booked business. The green briar (ph) booked quite a bit of business. I think I read something someplace that said they were in the 40 percent range or something like that.

Of the industry. What were the primary ... -

They loaded up a lot of their shops on two or three different car types.

Those were what?

The car types?

Yes.

One car was a what's called a sinner (ph) beam (ph) car which trance ports lumber. It is a new model of sinner beam (ph) that has never been built out there. It was, I think, 800 or 900 car order. They got boxcar and enter modal cars.

OK. Finally, you indicated that you hadn't changed your guidance for the year, which is a loss of 25 to 40 cents. Given the nine month EPS of 18 loss, that's a range of seven-cent loss to 22-cent loss for the fourth quarter. Versus an adjusted nine-cent profit in the third before the net gain. I'm wondering, what are the factors that would lead to a fall-off of that magnitude in the fourth quarter, given the fact you are expecting a significant increase of railcar shipment in the fourth quarter from the third, maybe 200 car increase. You are getting pretty good incremental margins in that business. Why would the fourth quarter earnings decline by that much from the third?

the largest single reason is the seasonality of the construction products business and the sensitivity to the winter weather in the fourth quarter. So we have allowed a lot of room for the adverse effect of winter weather. Also, I mentioned the increased sales in Europe this quarter, and Tim mentioned the accelerated sales in Europe in our England facility. That will not recur in the fourth quarter. So profits in the fourth quarter should decline somewhat.

How much did that contribute to the third? That won't be there the fourth?

Europe was about breakeven for this quarter

the shipments in Europe for the third were in the 560 or 70 range. They are going to go up to the - almost a thousand cars in this quarter, but what we have had is we have two factors which I mentioned in my talk. One of them is an acceleration. Another is we had two new lines that we were starting up in our Romanian facility in the second and third quarter of car types. We had a buildup of production. Just recently our customers have been there. They got the lines moving. We had a buildup of finished goods sitting on the track waiting for inspection. When you are building cars in Romania, sometimes it is a challenge to get people out of Germany or Brussels or where the cars are being shipped to, especially when it is a new line

One other factor. Our projections do not typically include any asset sales, so when you are comparing this third quarter to the fourth quarter, there wouldn't be the projection of the $4 million gain.

I already took that out.

Yeah. It is really - this quarter right now is a hard quarter for us. That's why we left such a wide ... -

It seemed like - the products group, 17 million. You had a six million positive swing sequentially on the railcar on about a 20 million positive increase sequentially. That's a good incremental margin. You are indicating you are going to have another improvement of sales in the rail cars in the fourth quarter.

Alex, improvement - you have done a good job of studying the numbers. You are asking good questions. Sometimes the improvements in the revenue on the cars, depending on the car types in the rail and where we were in the startup phase in starting lines up or the competitive nature of the cars, just because the car volume right now is improving doesn't mean that the margin is improving. In fact, on some cars where we haven't had good margins we get a negative effect. It swings the other way where you ship more cars at a lower margin in that mix. The car pricing has been extremely competitive, as I said, earlier.

OK. Thank you.

OK. You did some good research there

Thank you.

the next line is Ari Blane (ph) with Samson Strategic (ph). Please go ahead

Ari Blane, Samson Strategic: Yes. Thanks for taking the call. I want to find out, in regard to the lawsuits that are outstanding, give me your best guess as to best case and worst case scenario. Thank you.

Best case scenario is always the lawsuit goes away that's associated with it. I think worst case scenario is you go through a lawsuit and you lose the lawsuit. You spend a lot of money and you lose the lawsuit. It is really hard at this stage because what we did that probably has people a little confused. These lawsuits, the actual legal proceedings are in their infant stage. We haven't even started doing depositions or anything in the one with Florida Marine (ph) that was filed last spring. The other lawsuit we were just served our papers in the last day or two on that. So they are both in their infant stages, and until you go through the initial investigations and you do the depositions and have the various court proceedings, you really don't have as good a feel as to how the lawsuit may - what type of life it may take on.

How long in terms of the Florida Marine (ph) lawsuit, how long do you anticipate that will be until some kind of an outcome is there?

Our attorneys are telling us it may be next summer before that goes to trial

Thank you very much.

OK.

We go next to the line of Stevens Simmons with (inaudible). Please go ahead.

Yes. It is Flippen (ph), Bruce (ph), and porter (ph). I guess I had a question. The debt increased about 50 million sequentially. John, did you a good job of going through the financing. Where did that increase - where did it go?

Well, 31 of it went into the rail.

It mainly went into rail and the support of the warehouse for leasing.

So it's mostly to rail, right?

Yeah. If you step back and just looked at it on a global basis, I will use that term, it all went into rail

So if you look at your operations - just your manufacturing operations, you are not burning cash at this point?

That is correct. We have been on a reduced capex program with most of our businesses and we have seen pretty good EBITDA this last quarter. We probably had positive EBITDA in comparison to the other non-rail businesses

Is your pension fund add adequately funded? Do you have numbers on that?

We have preliminary numbers, Steven. If you looked at our annual report last year, you would see based on the projected benefit obligation, it came about $20 million under-funded. I think that number may triple or be in the neighborhood of tripling when we get to this year's calculations. Half of the increase in the under-funding will be changes in assumptions, lower the discount rate which automatically raises the liability about 25 million bucks, and the rest of it was market losses.

OK. Tim, have you had any luck in your earnings model sensitivity work you have been doing? I know you are putting together a pretty detailed model. At some point in time are you going to be willing to have enough information to go through that?

Tim Wallace Yeah. In fact, I met with the people on that this week. We are making some progress on that. We are really trying to target, probably after our fiscal year numbers come out, that we can start talking about what-ifs on our various financial ratios. Our team of people, our marketing group is getting a good, strong understanding of who we are as a company, what our capabilities are, what our costs are, how to get things done in the company. The last year of integrating Thrall (ph) has been a challenge, but I must say we have done, I think, a fantastic job. Our people have really worked hard at focusing on that. Part of the culmination of this is pulling this model together, being able to do some what-ifs, depending on product mixes and annual rates of builds that would be required

OK. Just one question, kind of two-fold. If you look at the orders during the quarter and year round 30 percent, I guess you're saying the reason you are not going out more aggressively for orders is you don't want to restart a line prematurely. Does that mean that line is a higher cost than your competitors? That's the first part of that question. With the pressure so severe from a competitive standpoint, do you see any further opportunities for Trinity from a consolidation standpoint on the rail side?

I think there's always opportunities out there and various types of consolidations in this type of market. As far as costs, I think if you talk to anybody in the industry, everybody always thinks their cost is the lowest cost. Surely, we think our cost is the lowest cost that we have, but we really have tried to put in some research on kind of activity base costing on what does it really cost us to start up a line, and then what does it cost us if we don't continue the line and have continuity and there is a lot of intangible costs that are associated with that in that particular area. So we really try to say, let's look at the various lines we have, let's establish base load targets, and let's keep the lines with these low margin cars running at this level and then let's do some enhancement of our research and development and let's do some internal assessments internally as to things we can work on in that area. As well as integration. Being sure that we really got fully integrated, we didn't want to put a whole lot of different orders on top of a team when they were trying to become familiar and get integrated

OK. The math you ran through for the industry is 35-year, is that a true finite life or is that the average life?

Well, I think - it depends on the car type. You are not going to have many tank cars that have that 35-year life. You will end up having other cars that have been rebuilt that will extend themselves up to that life. 30 years used to be the standard. They then passed some rules that allowed some cars to go up to 40 years in that time and there are some cars between 35 and 40 years. Most of these cars have been rebuilt once or twice in their life. You have this whole issue of greater carrying capacity now and utilization that comes into play where there's large groups of fleets that are not carrying the pay load and the marketing people in the railroads as well as the carriers that own the cars are looking at this factor and saying, you know, we are paying this money to have the cars go up the track, but we are not carrying the capacity we need. So there's a little bit of ...

So if that truly is an average and you actually have rail cars, which I don't doubt, you know, on the tracks at 40 plus years, then the 54,000, you know, dividing it by 14 and getting- 54,000, when you say that's a little bit aggressive?

I think you are going to have it be aggressive short term. Long term, because of each year that goes by, they are taking more off the tracks than they are putting on the tracks, you have more in the fleet. The GATX thing is a great example. They've really looked at their fleet and made tough decisions and said, we have to replace a large portion of our fleet. We are going to put the capital out there and going with newer equipment. We were fortunate to be in a spot where we could negotiate a deal that was good for us and a deal that was good for them. You will see other types of things like that on the horizon with large fleets of cars

OK. Thanks a lot.

We will go next to the line of Matthew Kelleher (ph) of Morgan Stanley. Go mead.

What is the total capacity? How much cars can be built in a year if the industry is operating at a hundred percent?

I think the car building capacity is greater than the supply industry. The limiting factor right now is being able to get components in the railcar casting industry. You have had two of the major railcar casting companies that have taken some significant down sizing. There is a company called Buckeye Steel that closed its doors about two weeks ago. When they did that, they took capacity out. I think everybody would pretty well say the capacity is probably 50 to 60,000 range realistically, maybe push it to 90. We did 65, 70 three or four years ago. There has been a lot of downsizing since then. 50 is a good number to shoot as a ball park

In the Flowers (ph) lawsuit you were just served the papers, so you have 30 days to answer that?

Yes. I think in federal court they have 30 days to substantiate their case, and we have 30 days to serve our papers, yeah

So the answer should be in on that within the next month or so. Great. Thank you.

OK.

We go next to Kathy Muldoon with Sage Asset Management. Please go ahead.

Kathy Muldoon, Sage Asset Management: I had a question on the Construction Products Group. I just wonder what you saw in pricing and volume.

I didn't understand the question. Could you ask it again

I saw that revenue was down in your construction products segment. I wanted to know what pricing and volume were like.

the main reason that revenue was down was the exiting of a couple of non-core businesses. The sheet piling business and pipe business, which were not really part of the main products there. So that was down a little bit. That accounts for just about the entire reduction in revenue. We have seen some cost increases, slight volume declines, and some pricing increases

OK. Also, on your guidance for next year, if I understood correctly, you understood a small loss the first half for Europe. Do you have guidance for North America?

Unidentified No. We have in the process of firming up our budgeting for next year. We just don't have that at this time

OK. Thanks.

We will go neck to the line of Sean McDaniel (ph) with Blackbird (ph).

Sean McDaniel, Blackbird: Could you give us a break down of the other liabilities line? The other granularity there. It looks like it popped up pretty significantly

Other liabilities?

Yes, sir.

The primary thing in the other liabilities is just benefit plan obligations.

OK. And as far as your return assumptions, you said you were taking it as a discount. What about the return assumption? Did you get what you were going to take a return assumption?

On the pension plan?

Yes.

We haven't finalized what the return assumptions will be for your year-end calculations. For every percent that we would change that, it would increase the expense the following year by about a million six

OK. One last question. I think - I'm not sure if you have given (inaudible) do you have a breakdown of your railcar back loss, some numbers at the end of the quarter?

You say a breakdown, what do you.

In (ph) a historical press releases quarterly announcements, there have has been granularity on the breakdown of the backlog

We don't issue a press release with a backlog. Our backlog has a mixture of cars which probably 45 percent of them are tank cars. The rest are the combination of other cars that we talked about. In our backlog we don't have the GATX order we just received. That will skew it a bit when you put 5,000 cars in there for that

OK. Great. Thank you.

Our next can he comes from the line of Robert Hoffman with (inaudible). Please go ahead.

Hi. Good morning. Just a couple points. What was G&A (ph) for the quarter and capex?

Capex for the quarter was about 57 million

OK.

... and depreciation amortization was about 26

OK. How much do you have under LCs being used against your bank revolver (ph)?

About 35.

OK. I don't know if you gave the number. Do you have, like, a bank calculated EBITDA for the quarter they would use for the covenants?

We do. We don't run through those calculations. They are fairly complex

OK.

We do have a calculation. That's when I made reference to the projections we used looking forward to next year that we were in compliance and would continue to be. We assume some EBITDA numbers is really calculated on a trailing 12 months

OK. I guess - if I take sort of the operating profit less the gain for the sale and add the G&A (ph) sort of 35 million of EBITDA, roughly, you know, less the - sort of being cash flow negative because of the large cap ex number, you know, how much of that cap ex, I guess, was covered by increasing the debt in the leasing warehouse?

Well, the capex number includes almost 50 million in leasing, and that's why the warehouse is so helpful to us. Initially, when we go into that, we are only financing about 75 percent of the value of the cars as it goes into the warehouse, and then when we fund it long term, we will get that additional, say, 20 percent back. It will be a benefit to the corporation cash flow wise once we go to the market with the warehouse. Most of the cap ex for the last three quarters has been focused on the leasing company

OK. I guess - my last question is if you were downgraded by the rating agency itself, would that have an impact on your LC requirements?

I don't think so. I'm thinking through it as I respond to it. Ticket think of anything that would be triggered by that. The other heads are shaking no around the table as well

Thank you.

Our next question comes from the line of George Mallitch (ph), investor. Please go ahead.

Hi. Thanks for taking the call. You were kind enough to go through your belief you will stay in compliance with your EBITDA covenants as it steps down through year end. Is it fair to say you were stay in compliance with your total leverage as it tightens up the end of March?

Yes. When I made comment about the covenants, we have two principal covenants. One is a debt covenant. One is an EBITDA interest covenant.

OK, thank you very much.

Yes, sir.

Again, if there are any questions, press 1. We will take a follow up from Alex Blanton from Ingalls & Snider. Go ahead.

Hi. My question relates to the previous industry capacity of 50,000. Orders in the quarter were 10,000. So that's a 40,000 annual rate. So the orders in the quarter, according to that, were at 85 percent of industry capacity, which isn't that bad. So I'm wondering why there would be some tremendous pricing pressure on the business if this is the case or perhaps the capacity is really greater than you are indicating.

Well, in my presentation, I mentioned that most of the orders that came through in the third quarter had been in the pipeline for several quarters and that it is not uncommon to have an order in this type of market when you are in the trough where it is replaced and re-quoted a couple, two, three times, and people get last looks and things like that. So the buyers were working the supply industry very aggressively, and once the orders started coming out, then it is not like you could go back after the orders start flowing and adjust any of the pricing. The good news is we didn't load up with a whole lot of low margin orders out there on that side. I think you can't take my number - I was throwing a ball park number of 50,000. We haven't run it - we were talking about this week about saying the capacity is not what the car builders could do. It is really a matter of what the component suppliers could increase up to, and you could probably, Alex, go to 60,000, 65, 70,000 given enough time. It is a good question on the pricing phenomena that was occurring

One more thing on your share of the business. You indicated you didn't participate in low margin orders in the quarter. Your share was about 30 percent, in the prior quarter was 40 percent. In the fourth quarter is going to be way above that because you got an order for 5,000 cars. That's over five years. It skews the share for that one quarter, skews the backlog. So if we sort of adjust for all these factors, can you give us an estimate of what your share of total business is on a normalized basis because it is going to jump around?

Well, I think you go back to the comment I made earlier that market share at 20,000 car year is different than market share at 30 or 40 or 50,000. I think as you move into the 30, 40, 50,000 car years, that you will see our market share should increase almost for every 10,000 cars, 10 percent. You could look at it that way. In the 20,000 range, we may be at the 30,000, at the 30,000, we may be at the 40, and the 40 we may be at the 50. I don't know. I'm doing like John said, I'm saying what comes off the top of my head. It is a function of what types of cars are purchased. There are certain cars that are out there depending where the market is that our market share is higher than it is on other cars, depending on the attractiveness of the order and whether we want to pursue that market. We compete against - everybody else are niche players. They have particular products they try to keep in their lines. We have a wide variety of products and, based on the efficiencies we get, we become niche players based on how efficient we get in the facilities.

Why does your share go down with industry volume? Is that because you don't participate in a more competitive marketplace?

It is a couple different reasons. We compete against a lot of private companies. They can make a decision that says we don't care about paying taxes, we don't care about paying money. We want staying power and we will go down as low as we can. An individual can make a decision. We were learned this from our merger with Thrall that a lot of times being a private company they would make a different decision we do as a public company. There is some of that going in there, there is some of it on preserving on work forces when there is a particular line out there, types of cars, how many people out there have got a line going and what the status everybody has on a line. If you are a line where everybody is looking at your employees and you know you have to lay them off next week and you are trying to preserve that work force, you may do something different than if you have a month's worth of it

You are talking 60 percent share of the incremental business?

Well, we are talking generalities, too. So you can probably sun some statistics back at me and I may adjust it because it may not make real good sense. I think what does make sense is the thought we have a base load and we're going to watch the market and our anticipation is the market improves, we would like to layer on top of something. We may be running one shift and you think, well, let's bring in a second shift or we bring on some additional people in Mexico. We have to be cautious about our people in Mexico because there is a law down there, when you hire people and you put them on and lay them off, you have to pay some extra money when you lay them off where you don't have that in the U.S.

I'm reflecting on the fact you said your share, let's say, 30 percent of 20,000, 40 percent at 30,000, 50 percent of 50,000, if you run the numbers, you will see that your cars would have to go up by 6,000 where the industry goes up by 10,000 between 20, and 30, the new cars would go up by 13,000 when the industry goes up by 20,000 ...

I guess I made a mistake. Was talking off the top of my head

OK.

Don't hold me to that. Was talking conceptually

If those numbers were correct, you would be getting 60 percent of the incremental business, which might not be that far out since you do have a lot of capacity

Well, there is a different market share. You calculate one market share on the orders and another on the backlog. So I think your adjusting to the total backlog, aren't you?

Well, I think we were talking shipment numbers in this. OK. Thanks.

OK.

We will go now to the line of Greg Stevenson (ph) with MGN (ph). Go ahead

Greg Stevenson, MGN: I had a question that related to the barge litigation. How many barges had the coding that's in question on the litigation?

The one barge litigation that we have is 56 covered hoppers - not covered hoppers, but hopper barges form the other one is tank barges, which is, I think, about 17 or 18 banks, is what we're talking about

OK. Thank you.

Josh, if there are no more questions, we can wrap it up.

We have one follow up with Matthew Kelleher (ph) from Morgan Stanley.

You guys stated there were 70 or so barges you used the Jo ten coating on

No. I thought he asked how many barges in those lawsuits had the coating on it

How many were made with the coating?

I think we have out there with that coating - I'm going to pull a number out of the air. I think it is 2,000 with yotden (ph) coating on them. We have lots of customers that have those on it. They say to us they understand the issues and they are maintaining their barges and going on down the road

Have there been any more than the two lawsuits filed?

No. We don't have anybody that is pursuing us aggressively. We don't have any other lawsuits filed.

Thank you very much.

It appears we have no further questions at this time, gentlemen.

Thanks. This concludes today's conference call. Remember, a replay of this call will be able one hour after this call ends today through midnight Thursday, November 14th. The access number is (402)220-0668. Also, this replay will be available on our Web site located at www.trin.net. We look forward visiting with you on our next conference call. Thank you for joining us this morning.

That does conclude today's teleconference. You may now disconnect your line. Thank you for participating.