Trinity Industries Inc (TRN) 2003 Q1 法說會逐字稿

Good day. All sites are now on the conference line in a listen-only mode. I'd like to turn the program over to your host, Mr. Neil Shoop. Go ahead, please.

Thank you, Leo. Good morning from Dallas, Texas, and welcome to the Trinity Industries First Quarter Results Conference Call. I'm Neil Shoop, Treasurer for Trinity and we want to thank you for being with us today.

With me today are Tim Wallace, Chairman, President and Chief Executive Officer; John Adams, Executive Vice President; Jim Ivy, Senior Vice President and Chief Financial Officer; and Chas Michel, Controller.

A replay of this conference call will be available starting one hour after the conference call ends today and through midnight on Thursday, May 15. The replay number is 402-220-0863. I would also like to welcome our audio webcast listeners today. Replay of this broadcast will also be available on our website, located at www.trin.net.

In a moment, John Adams and Jim Ivy will have some brief comments. Then Tim Wallace will give his perspective and outlook. Following that, we'll move to the Q&A session.

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 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.

Now here's John Adams. John?

Good morning. This is John Adams and we appreciate your joining us this morning. At our last conference call I discussed our debt and its amortization with you. As liquidity and financing flexibility are so important today, I will go into more detail and review our debt from the perspective of a banker or creditor. When I look at our balance sheet, I separate our debt into two categories or buckets; one, our leasing company debt and two, our corporate debt.

First is the debt tied to our leasing company. We have two types of financing, our $170m equipment trust certificate, and our $200m lease railcar warehouse facility. In February 2002, we issued a $170m ETC at 7.75% with a maturity of 2/15/09. This debt is totally supported by the leasing income from our 5,174 railcars securing this indebtedness. The lease railcars collateralizing this debt supports the interest payments plus, provides an additional $10m annually in free cash flow to the parent, as no principal payments are required under this financing until 2005.

The other indebtedness of our leasing company is the $200m committed warehouse or interim railcar lease financing provided by CSFB and Wachovia. We had $171m outstanding as of 3/31/03. This financing facility has worked very nicely for us and I would like to review it with you. CSFB and Wachovia agreed last summer to lend us up to $200m to finance lease railcars until a large-enough amount was borrowed to access the long-term or permanent market, say between $150m to $200m. We are told the $200m interim financing could easily be increased if we desire.

The facility has been rated A-minus by S&P. 75% of the fair market value of the railcar is financed. We were borrowing $171m, as I mentioned, as of 3/31/03 and we are in the process of doing a sale/lease-back non-recourse borrowing which will pay down the warehouse and refund Trinity's equity of 25% or approximately $50m, if you assume we fund out $200m. This sale/lease-back will be very similar to the one we did last year. The warehouse will then be renewed and used again to finance our lease railcars.

Thus, if you were looking at the leasing company as a stand-alone company, you would see a leasing company with two financings of $340m, a book value of $640m and a market value that would exceed that number. Cash flow is approximately $50m.

Our leasing company is not heavily leveraged. As most of you know, most leasing companies have equity more in the 20% to 30% range. If we elected, we could add additional leverage, sell an equity interest or possibly sell or finance the unencumbered cars of $130m. As one investment banker recently said to me, you have a lot of financing options, and a lot of flexibility.

The second kind, or bucket, of debt is attributable to our corporate or non-leasing parts of our business. We only had $150m outstanding as of 3/31, as we had no borrowings remaining on our two-year $275m revolving credit. The $150m just mentioned does not mature until June, 2007. The cash flow of our non-leasing businesses supports this debt.

Our corporate interest-- our corporate principal payments are less than $1m each year for 2003, 2004 and 2005. So when you consider the corporate, non-leasing debt, and compare it to the equity and cash flow of the company, the company, in my opinion, is not highly leveraged and can easily service its principal and interest.

Now while the debt mentioned previously is the only debt on our balance sheet, we do have a leveraged lease of $200m. This, again, is totally supported by the operating income from the 3,356 railcars securing this off-balance-sheet debt. It is rated AA-minus. The income from the lease railcars comfortably cover the principal and interest.

Although most of our debt is tied to railcars under lease, one can mistakenly believe that we have too much debt for a manufacturing company, but we are not just a manufacturing company. We have a large captive leasing subsidiary. When you separate our debt into the buckets just mentioned, hopefully one can better understand the assets and cash flow, and thus the leverage, of our company.

Now Jim Ivy would like to discuss the financials for the second quarter. Jim?

Thank you, John, and good morning, everyone. I will mention some details to help you understand the comparison of our first quarter results to the first quarter of last year. We have filed our Form 10-Q this morning for the first quarter, and you will find more details there some time today.

Loss per share for the first quarter of 2003 was 32 cents, or in the middle of the 5 cents per share range mentioned in our conference call last quarter. The per share loss for the first quarter of last year was 19 cents.

Going through the segments in the order listed in the press release, the rail group showed a decline in revenues and an improved operating loss for the segment compared to last year. In our European business, both volumes and total revenue dollars declined, but operating profit was flat at about break-even. In North America, a 37% increase in units was more than offset by a change in the mix of railcars delivered. The increased volume did improve burden absorption and margins for the group.

This year substantially more of the quarter's shipments were to our own leasing company than in the same quarter last year. In the first quarter this year, approximately $64.3m in revenues and $3.9m in operating profit for this segment, were produced by sales to our own leasing subsidiary. In the year-ago quarter, sales to our leasing group were $20.4m and related operating profit was $900,000. The revenues and profits from these intra-company sales are eliminated in consolidation.

Our North American railcar backlog grew for the fourth straight quarter to over 8,200 units or a growth of 12% for the quarter.

Year-over-year, revenues in the Construction Products Group declined due to exiting certain non-core product lines, bad weather in some markets, and reduced demand in the fittings business. Operating profits were impacted by these factors, as well as by competitive pricing pressure. Backlogs are strong in this group as they move into the traditionally good weather of the second and third quarters.

The Inland Barge Group revenues declined, primarily due to a 47% decline in hopper barge shipments. Operating profits followed the decline in volume and the related effects of lower volume on overhead absorption. Barge corrosion/litigation expenses were approximately $600,000 this quarter compared to $300,000 in the first quarter of last year. Recent orders, including the order for 16 tank barges announced earlier this week, have grown the backlog in this group, as well.

Revenues in the Industrial Products Group declined due to reduced volume of tank heads, primarily resulting from the sale of a plant in December of 2002, which manufactured custom heads and, to a lesser extent, reduced demand for heads in the petrochemical and pharmaceutical industries. Our operating profits were affected by the reduced head sales and lower average pricing for certain products in the Mexico LPG market.

In our Railcar Leasing and Management Services Group, revenues and operating profits grew, year-over-year, with the growth in the size of our fleet. The number of railcars in our lease fleet at March 31, 2003, was approximately 16,000, compared to approximately 13,000 at the same time last year.

Utilization of the fleet was fairly steady at 94% compared to 93.9% at the same time last year. Gross additions to our lease fleet for 2003 are on track to be about $230m. This $230m is before reduction for the $200m warehouse facility sale and lease-back refinancing that John mentioned and before any return of capital related to a sale of fleet assets.

In the all-other group, year-over-year profit improved due to selling certain inventory related to a canceled contract in our wind tower business.

On a consolidated basis, SG&A expense includes approximately $2.6m of incremental costs related to outsourcing accounting and finance processing activities and the implementation of a new Oracle financial system, which went live on April 6. Excluding these costs, consolidated SG&A expenses declined about $3.6m over the first quarter of last year as a result of head count and other reductions.

Looking at our balance sheet, debt increased $7.3m as the warehouse facility John referred to nears the point where it will be refinanced. Our investment in inventory and receivables declined another $21m during the quarter, which brings the total reduction in inventory and receivables since March 31, 2001, to $225m.

And now, I'll turn it over to Tim Wallace, our CEO, for his perspective.

Thank you, Jim, and good morning, everyone. Our first quarter results were very close to what we expected. Our leasing company's earnings continue to be our strongest performance.

During the first quarter, the winter weather came on stronger and last longer than we had anticipated and, as a result, we had a year-over-year performance difference in our Construction Products business. Our Highway Safety Products business were affected the most by winter weather conditions because we ship a large number of our products into several key northern states.

During the past 30 days, as the winter weather has become less of an issue, we're seeing a significant improvement in demand in the majority of our Construction Products businesses. Our backlogs have improved significantly.

Our Industrial Products Group operated at break-even during the first quarter. The U.S. LP gas industry in the Northeast was consumed by the winter weather challenges, as well. In March and April we started to see some signs of improvement in this area.

As I mentioned in our last conference call, we have consolidated our executive oversight of our industrial group into our Construction Products Group and we're very pleased with the early results.

During the first quarter, our barge group felt the effects of an industry-wide reduction in demand for hopper barges. Our hopper barge business hit bottom in February. Recently we've been fortunate to book some additional hopper barges, which provide a base load for our business into the fall. The orders we received have options for additional barges and if our customers exercise their options we'll have our base load covered through the end of the year. We have also booked some tank barge business recently and our existing production extends for a year. I'm very pleased with the way the barge business has rebounded as quickly as it has.

Discovery and pretrial proceedings continue in our barge litigation lawsuit. We've begun to explore the possibility of settling with certain of the parties, but there is no assurance that any agreement will be reached with any party. At this time, it's too premature for me to make any additional comments.

Now I'll provide some brief comments pertaining to our railcar business. During the first quarter, the North American railcar industry continued to improve. The industry order levels were slightly over 11,700 units for the entire industry.

The majority of the orders placed during the first quarter were for railcars used to transport coal and intermodal container equipment. These two categories account for almost 60% of the entire first quarter industry orders.

As I've stated before, we're not pursuing orders based on market share percentage goals. During the first quarter in the coal and intermodal markets we booked enough orders to keep our existing production lines running through the end of the year.

We do not see value in investing in additional production capacity on these product lines until there is a sustainable order level. ``Sustainability'' is a key word for us as we assess the railcar industry order levels. At the end of the first quarter, our backlog of orders for railcars in North America improved about 11% over the fourth quarter to approximately 8,200 units, plus we have an additional 4,000 units with our multi-year agreement with GATX, which has not been included in our backlog.

In North America, we shipped approximately 1,700 railcars during the first quarter. Our shipments increased 18% from the fourth quarter. This sounds like a significant increase in shipments from a percentage point of view, but it's still a very reduced rate. Let me remind you that during 2000 Trinity and Thrall shipped an average of 6,700 railcars per quarter and in 2001 we shipped an average of 4,000 rails cars per quarter and during 2002 our shipments averaged 1,200 units per quarter.

Until we reach the 3,000 to 3,500 units per quarter range, our objectives and our priorities in our rail-related businesses remain focused on obtaining a base load of business. When our shipments are at such a reduced level, our product mix significantly impacts our financial performance. Our financial results will fluctuate as our product mix changes.

Also, at a low rate of production, when we deliver a large portion of railcars to our lease fleet, it has an effect on our consolidated earnings because we defer profits on cars delivered into our leasing company. In the first quarter, 68% of our shipments were delivered to our lease fleet customers. During the second quarter, we expect to ship a comparable amount of cars as we did in the first quarter, with approximately half of our production going to our lease fleet customers.

In the second quarter, from an earnings point of view, we're expecting our rail group's operating performance to improve around $1m. In the third quarter we're expecting to increase our railcar production in North America to a level between 2,500 to 2,700 units. At that point, we plan to be profitable.

The primary issue we see which could affect our ability to increase our production is related to the current casting shortage. The North American railcar manufacturing industry is currently constrained by the casting industry's ability to product under-frame castings. Recently, our production has been affected by this shortage and we're hopeful we will be able to obtain a sufficient supply of castings as we increase our production.

In our European Rail Group, the demand for rail wagons in Europe remains relatively steady. We have recently announced we are closing our Czech Republic facility and consolidating our manufacturing into our Romanian operation. This move will improve our absorption of cost in Romania.

Our backlog for orders in Europe extends into 2004 and we have booked some very nice orders recently. We expect to be profitable in Europe by the fourth quarter.

From an overall earnings point of view, our first quarter should be our worst quarter. We expect our second quarter to be a break-even to a loss of 20 cents per share. We expect to return to profitability during the third quarter. There's still too much uncertainty with the general economy for us to project a precise figure for the entire year.

At this point, I'll turn it over to Neil for questions.

Thanks, Tim. Now our operator will prepare us for the question-and-answer session. Leo?

Very good. If you'd like to ask a question, please press star-one now on your Touch-Tone telephone. To withdraw yourself from the queue, you may press pound. Once again, to ask a question at this time, please press star-one now on your Touch-Tone phone. Pound will withdraw you from the queue. We'll take our first question from the site of Michelle Page of Global Investments.

Yeah, I have a couple of questions. The first question regards your leasing fleet. It's very new so I was wondering why isn't the utilization rate 100%? Why are you continuing to put more cars into that fleet when your utilization is only 94%? And also, you know, there's-- obviously leasing rates right now are pretty horrible in the industry as a whole. How is your leasing comparing to your competitors?

The second question is about your Construction Products Group. With the federal government and the states in the worst economic situation in decades, how do you see your construction product group faring in the next decade-- in the next year, given that this is the situation, the backdrop, the economic backdrop?

And then I wanted to understand your liquidity position. Your liquidity for the year seems pretty tight, even with the $50m tax refund and you've said that your bank covenants are tight. I understand that you're saying that you have a number of financing options. But when I look at your bank covenants, it looks like-- I've tried to understand them, and to calculate them and it looks to me that they're very close or you're already in breach of those covenants.

OK. I guess we've got a number of different questions. I'll try to-- This is Tim Wallace. I'll try to handle a couple of the first ones and then we'll let John and Jim deal with those.

On the lease fleet, our lease fleet is a relatively young fleet, as you say, and the reason it's young is because we continuously have been able to churn our lease fleet, meaning that we put cars in and then we are able to sell them although we've been in the leasing business since the late '70s and so it's-- we're not new to this business.

We have-- in the leasing business, when you have a-- when you've been in the business for a while, you end up with renewals on cars and you work to get your leases renewed as fast as possible, but I think if you took kind of an industry average, which you were asking kind of where our performance is, we're right in line or a little bit higher than the industry average on utilization.

There's not a lot of public information available on leasing companies that are-- a lot of the leasing companies are consolidated into other companies' financial statements or they're private companies. So we can't chart a number of different metrics to be able to say where we fit, but we really feel like we're competitive and we will always have our eyes on our utilization number and be focused on what it takes to get renewals.

We don't have a practice of putting cars in our lease fleet without leases, without lessees already signed up and so we don't produce cars and put them in our lease fleet and increase the utilization number by having idle cars. The idle cars come when our-- occur when cars come off the lease fleet.

As far as the Construction Products business goes, there's definitely several eyes that we have on this and when you look at our Construction Products business, you've got the concrete and aggregate business in Texas and there's several projects that are still funded in Texas. In particular the highway funding in Texas is a dedicated fund and it's currently funded. Other states have this.

You look at highway spending as something that probably will be used to try to help spur the economy over the next year to two, and so we think that the Construction Products business that we have-- the biggest challenge we normally have in that business is weather-related, rather than related to lack of funding, although we have found in some states where we produce and ship guard rails that there is some funding that has been cut back because states don't have matching funding. And I think the federal governments and state governments are working on that.

I'll let Jim and John talk about the finance and liquidity question.

Michelle, this is John Adams. If I could, let me walk through that with you. First, I'd like to discuss just the corporate or non-leasing business and where we are with liquidity for it, second the liquidity that we have for the leasing company and then, third you asked a question about our covenants and I'll address that.

Looking at it, as I said, from a banker's standpoint, if you look at the corporate we have a $275m revolving credit that is not presently being used of 3/31. That is led by J.P. Morgan. Obviously, that is something that if we needed cash we could access.

And you say-- how much available do you have on that currently?

The amount of the commitment is $275m. If you get into the covenants, maybe that full amount will not be available to us, but I'll address that under the covenants. But it's a $275m facility and at 3/31 we had zero outstanding.

I also mentioned in my comments to you that in our lease fleet we had $130m of unencumbered cars. We would be able to put that into the warehouse if we wanted to, literally almost tomorrow, and so that would give us additional liquidity in the event that we wanted that.

And then, also in my comments, I made reference to funding out the warehouse and the fact that now we're borrowing 75% against lease railcars. When that is funded out, we will get almost all of our 25% equity back, which would be $50m.

So by the first part of July I would estimate that we would get $50m just from the equity. So as I step back and look--

You get the whole equity back?

Excuse me?

You get your entire equity position back?

We get everything but about 3% or 4% of it.

Is that considered like an over-collateralization in the securitization pool? Is that it?

Well, when we initially put this together, we weren't sure how the rating agencies would rate it and I did mention A-minus and your comment about over-collateralization is correct.

So you went get the entire equity position back?

We'll get 23% of it.

So you only need 2%?

We'll only leave 2% to 3% in it.

And that gets you an A-minus?

And we are at-- we've already gotten an A-minus from S&P on the interim financing and we are working with CSFB on the permanent financing.

Then if I look at our leasing -- so that takes care of the corporation. We're getting, say, $40m to $50m back in cash, we have our $275m revolving credit and we have additional capacity under our lease fleet to bring cash into the company if we were to need it.

On the lease side, the main liquidity line there is our warehouse. We will fund that permanent, as I just mentioned, and then we have been assured by CSFB, Wachovia and, in fact, we've had others come and tell us that they would like to either take it over or join that facility, and I'm sure we will renew that facility and probably renew it at a higher amount, possibly as high as $300m, but certainly more like $250m.

So you're going to lose some of your equity in that, though, right?

It will require equity, but hopefully we can only require 20% equity versus the 75% equity-- I mean, the 25% that we have tied up. But we will need cash for that.

OK. So you'll use the cash that you got from securitizing the other, the first warehouse facility?

Yeah, that's one way to look at it. If you wanted to--

So that's a wash?

--put the cash in a bucket, that would be one way to look at it.

It recycles through.

OK. OK, so that would be a wash, maybe 5% -- no, actually 3% if you count-- you have to keep 2% in over-collateralization so you're only getting 23% of your equity back on that, but you're going to have to put 25%-- no, 20% [up], so it's 3%. OK, so you're going to get 3% of that.

OK. That's it.

All right now, let's talk about the covenants, just briefly. Based on our conversations and based on our relationships with our banks, even if we were to go, quote, ``in default,'' which we do not project that we are going into default, but if we were to go into default, we have been assured that they will either, quote, ``give us a waiver,'' or, quote, ``give us an amendment,'' to allow us the flexibility that we need.

This credit is led by J.P. Morgan. We stay in close touch with them, as we do all of our participating banks, but our projections right now do not show us to be out of compliance with our covenants.

And how much is available, currently?

It depends upon the various times. I think that we mentioned-- Excuse me?

Yeah, Michelle, this is Jim. At March 31, which is-- quarterly we do these calculations, based on the most restrictive covenant, we had $81.1m available.

OK.

Another question?

Any thing else with liquidity or the covenants, Michelle?

Nope. That's what I wanted to know.

OK, thank you.

Thank you.

We'll take our next question from the site of Matthew Kelliher [ph] of Morgan Stanley. Go ahead.

Tracking the barge lawsuits, there's a Marquette transportation company, Iowa Fleeting [ph], sued for 84 barges and I can't find where you guys have disclosed that anywhere and I guess my question is there other suits related to the barge issue that you also haven't disclosed?

Yeah, I think if you look in the Q that's filed today it's got a disclosure of all of the current barge suits that have been filed against us.

OK, so the Marquette is in the Q?

Yes.

Are there any others? I didn't realize you'd filed the Q until you mentioned it.

Yeah, we filed the Q--

This morning.

--this morning and so it covers as up-to-date information as we have on the barge. There's a company called Waxler [ph] that had four barges, four tank barges that also filed a suit and it's in there.

OK. Are you in possession of any demand letters from more customers in the barge area, sort of the demand letter you see before you see a lawsuit?

Not to my knowledge.

OK.

I mean, we've got-- The good news on the barge business is the-- several of the major barge companies like Kirby and Ashland, Marathon and some of the others have recently placed big orders with us where they're showing confidence in our capability and they're kind of seeing through the challenges that we have with some of the others. And so it's been very refreshing to us from a marketing and a commercial standpoint that we have a number of the larger customers that are coming to us and taking advantage of an opportunity to buy barges at kind of a base load market situation.

Are they also using the Jotun paint?

No.

OK. Great. Thank you.

OK.

We'll take our next question from the site of Greg Stephenson [ph] of Laird Norton Trust.

Yes. Thank you. I'd like to ask about the experimental-- I think there were 500 aluminum tanker cars that were an experimental tanker car that you're repairing due to a design flaw and I just wanted to confirm that those are-- the costs to do that are all reserved and I'd like to get some idea as to the actual cash cost to repair those cars and when those might-- when you're going to be repairing those?

Sure. They're not tank cars. Those are covered hoppers. They are jumbo cars. They're used to transport plastic pellet products. They're cars that we built back in the '97-'98 time period when you-- The advantage of these cars are is they're lightweight and they don't require a lining on the inside. All plastic pellet cars that are steel have epoxy-type linings that protect the product from the steel for contamination.

So we developed a design that was an aluminum-covered hopper that we put out and I think there was, like, 500 of those, maybe 600, somewhere in that range and what we have found is that in some of the cars there was a defective welding that had taken place. Aluminum is a real challenge to weld. You have to be sure that it's extremely clean and we found that, I think, in some of the roof welding that we had on the cars that there was some weld defects, so we've recalled those cars back in and we're doing some weld defects.

We've also found on some of the cars that are out there that there's some other structural things that are needing to be reinforced and it's not uncommon when you produce a prototype car you design it to the standards that are known in the industry at the time when you're designing it and you test it and we went through a series of testing on these cars and then you have to really put the cars out in the market place -- and every builder does this that is involved with railcars -- and then you have to see, over a period of time, what develops.

And we have two customers that we were primarily involved with, with these and it's-- we're handling it as a normal recall of a warranty situation. It's not out of the ordinary, and we are fully reserved in our current financial statements through the end of the quarter for what we anticipate would be the cost. We talked about this a little bit, I think, at the last conference call, and I think totally we're reserving somewhere in the-- I think it's somewhere in the $3m range, $3m to $4m have been reserved to repair this.

So I guess that's all that I know that I could say about it. But they're not tank cars.

OK, great. Thank you very much.

Once again, if you'd like to ask a question, press star-one now on your Touch-Tone telephone. We have a question from Mr. Mike Peasley [ph] of BD&T Capital Markets.

Hey, guys. I had a quick question on-- you announced back in March with $164m jury award, I believe, that you were appealing. I just wanted to get a couple more comments on that. You know, number one, it seems awfully large and then, number two, can you comment to maybe, to what extent you're covered for that in terms of your insurance?

Mike, this is John Adams. I'll do that. Obviously, today if you look at several states you're getting jury awards that just really question one's imagination. I can go through the facts with the case, but it was an independent contractor that came on to our premises to perform a task, not at our instruction, and had an explosion on the tire that he was working on and he passed away 10 days later. Obviously, we're very, very sorry that that occurred.

It went to the jury and the jury returned an amount. The judge has not entered that as a final order yet. The parties are in a process of mediation. We do have insurance coverage, as you would expect, and the amount of our coverage would be around $3m and everything above that, obviously, would be covered.

OK.

But we're hopeful of being able to work that out and I think it just draws attention, again, to states-- I know Mississippi, I know California's already passed one. Texas is working on one. You hear conversations in Washington on how you start to deal with these issues.

OK, good. Thank you. And then on the railcar side, you know, it obviously seems like things have been improving a little bit. You mentioned in your press release with regard to the new order a market share on certain vehicles or cars that were better than others and, obviously, the ones that you have the best market share in seem to be the most profitable ones. I guess I'm wondering which cars are those that you were referring to, number one, and then how does demand for those cars seem to be improving as you look throughout the year?

Well, the car types that we are really currently running are-- that we focus on are covered hoppers and we also-- tank cars in that particular area and so we're really focused on covered hoppers, boxcars. As I said in our conversation, the intermodal was a real high purchase. TTX is purchasing a lot of intermodal cars and they're making some pretty good buys at the bottom of the market and loading up. But basically, you would be talking about covered hoppers, boxcars and tank cars for the ones that were the higher percentage of market share.

And do those-- is the market feeling better for those cars? How is demand shaping up for those?

I think demand in-- demand in tank cars was relatively low during the first quarter and-- but at the same time, the tank car fleet is a relatively-- has a relatively older fleet and we-- there should be, we anticipating, a steady demand for the next several years for that type car.

The covered hoppers of various types-- we have a covered hopper that we've talked about on the conference call before that serves a particular market niche that is in the ethanol family. It's a co-product, they call it, that's DDG, distillers dry grain. It's a grain product when they're refining ethanol. And we have a steady demand for that car. In fact, I think our backlog runs into '04 on that car.

And then in the boxcar, I think the boxcar-- most people think boxcars are a dinosaur, but there's been a number of boxcars and we still see a demand improving for boxcars.

OK, good. And then the barge market, I know in your 10-K you alluded to the fact that demand is expected to decline throughout the year in 2003, although with some recent orders it seems like maybe it's a little bit better than expected. Is that the case, number one, and then, number two, what are some of the factors that are driving, you know, any capacity additions?

Well, when you really look at the barges, you have to look at two different types. You look at the tank barges and what's happening with the tank barge fleet.

Right.

And we anticipate that there would be kind of a steady demand for tank barges over the next, kind of like I was saying for tank cars, over the next three or four years. The tank barge fleet is a relatively older fleet and there's some legislation for double hull barges that's taking shape as we move into the years of '09-- '08, '09, and '10 and so tank barges are different than hopper.

What we had talked about at the last conference call and in our last Q was the hopper barge and there has been a decrease in demand in hopper barges. We had a customer that I just can't tell you -- you know, you get relationships with customers that you want to just talk about and tell how great they are -- and we have one customer that we've got a great relationship with that came in on the 11th hour of when we were getting ready to have to lay off our employees and said, ``I know you all are in the midst of a bunch of struggles and I need some barges and I'd like to place the barges and keep you from shutting down your facility.'' And it's a barge line called Canal Barge Line and I recently attended a function with the principal in that business and they just really, really helped us in a way.

And so they gave us a bridge and then we were able to produce some other customers that had some need for hopper barges, and just through some sales efforts and everything we've been able to tack on some orders and then each of these customers have said, well, I've got some other deals pending and I'll put some options on there and I may exercise our options. So we'll know in the next couple of three or four weeks whether they exercise their options or not.

And then we're also talking with another customer that is looking at maybe doing a base-load-type deal with us that would be something that we could negotiate a longer-term agreement [where] we get a base load. I really think the hopper barge market for the next year to two years it's going to take a little while before you get back to the robustness there where it was four or five years ago.

What's the lead time on a hopper barge?

The lead time on a hopper barge when we were dealing back in February, when our line was going down, was about three or four weeks in that case. So, you know, we had some material and we were able to put our people to it and you could get some barges out in three-- two-three weeks.

Wow. And then, just for perspective, how many barges, I guess both kinds, or if you want to break it out, that's fine, did you deliver this year in Q1 versus last year?

I don't totally understand what your question is. When you say barges delivered this year versus last year, when you say this year being--

Q-- for the quarter.

What do we expect-- Oh, for the--

For the first quarter that just ended, first quarter '03.

OK. Jim, do you have that number?

Yeah, I've got the number. For the first quarter of '03 we delivered 93 barges. There were 81 hoppers and 12 tanks. If you go back to the year-ago quarter, it was 158 and the mix was 145 hoppers with 13 tank barges.

OK, great. Thank you. Thanks for your time.

Sure.

Our next question comes from the site of Stephen Simmons [ph] of Flippin [ph].

Yeah. Good morning, guys. It's nice to see the shorts all out in full force this morning. I just had a question regarding-- you mentioned on the settlement you may or may not--

Can you talk up a little bit? We're having a hard time hearing you.

Yeah, I was going to comment on the settlement that you mentioned on the barge side. Maybe you can't comment on this, but are any of the talks in the settlement also with you and other defendants or is it just you solely by yourself?

We're just doing some analysis to determine the risk and the feasibility and what benefits we could get or not. You know, you do that as you move through every trial or every litigation proceeding. You have to stop and ask yourself what's it going to cost us, how much distraction do we have, what do we see the commercial benefits are? You know, there's a lot of commercial benefits of resolving issues like that.

So you kind of do an analysis in that area and that's basically what I'm referring to.

So it's more of a normal course of the litigation?

Yeah, as these things go through.

OK. Thanks.

Um-hmm [affirmative].

Once again, if you'd like to ask a question, please press star-one now. We have a question-- a follow-up from Matthew Kelliher [ph] from Morgan Stanley.

Back to these earnings, next quarter-- in the second quarter this year you think you're going to lose 20 cents if I heard it right. In the third quarter, going to be profitable and then what was going to happen in the fourth?

Well, the fourth is a little bit too early because of, one, fourth is a weather-related situation. It's also-- you know, the Construction Products is hard to pick. We're still working on filling in our lines on the railcars. This casting issue that we talked about, we're optimistic that we can increase our production up there, sustainability of that production is a key question for us on that and we really don't have an early-- probably by the July conference call we'll be able to have a much better read-- or the July or August, whenever it occurs, on the fourth quarter.

So--

It's hard to tell. With the war winding down, are companies-- the big question that a company like us has is what's going to happen to the valve of capital spending in companies? Are they going to turn it on? Is there going to be some expansion? Will there be some movement? The railroads are all seeing some positive signs.

So you can't tell yet if it's going to be a profitable year?

No, we really-- we really can't tell on that.

All righty. Thank you.

OK.

Please press star-one if you have a question.

Leo?

Yes?

This is Neil Shoop. We can go ahead and conclude the call.

There are no further questions. I'll turn it over to you for further comments.

Thanks, Leo. This concludes today's conference call. Remember, a replay of the call will be available starting one hour after the call ends today, through midnight Thursday, May 15th. The access number, again, is 402-220-0863. Also, this replay will be available on our website, located at www.trin.net.

We'll look forward to visiting with you again on our next conference call. Thank you for joining us this morning.