Trinity Industries Inc (TRN) 2004 Q1 法說會逐字稿

Good day. All sites are now on the conference line on a listen-only mode. If you do need any assistance at any time, please press the "*" and "0" and now Id like to turn the program over to one of your host today Mr. Neil Shoop. Please go ahead.

Thank you, Christy. Good morning from Dallas, Texas, and welcome to the Trinity Industries First Quarter Results Conference Call. I'm Neil Shoop, Treasurer for Trinity, and thank you for being with us today. First I'd like to apologize about the wrong phone number being sent out, that was the number we received and had it confirmed from our Conference Call provider, and I think it's being sent out to all the parties who signed up now, the correct one and hopefully since we have the ones that with me here, that has happened. 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 Chalres Michel, Vice President and Controller; and Steve Menzies, President of Trinity Industries Leasing Company.

A replay of this conference call will be available starting one hour after the conference call ends today through midnight on Thursday May 13. The replay number is 402-351-0788. 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, Tim Wallace, Steve Menzies and Jim Ivy will have some brief comment. Following that, we'll move to the Q&A session. But 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. We appreciate you joining us. Shortly after our most recent conference call, we decided to go to the capital markets for longer term debt financing and also to renew our bank credit financing. We hired J.P. Morgan and CSFB to be joint book owners on the $300 million 10 year financing and asked JP Morgan, our existing bank agent, to expand and amend our bank financing.

On March 10, we funded a 300 million, 10-year 5-year no call term loan at 6.5%. The market was very receptive and we are most pleased with the quality of our investors and the work of JP Morgan and CSFB. Because this was our first public debt for the parent company in some years, I believe that not only is it attractive financing but it also should be a benefit to us if and when we decide to approach the debt markets again. Our people did a very nice job in finalizing this financing. At the same time, we also amended our bank agreement, which is now for 250 million and will expire in March 2007. Our borrowing rate was lower. Property, plant and equipment were released as collateral and covenants were amended to allow us greater borrowing flexibility. Banc of America joined our existing banks in participating and JP Morgan is the Agent. This financing was oversubscribed as well.

At March 31, our only borrowing at the corporate level was the 300 million just mentioned and 5.6 million of other indebtedness. The leasing company had the 170 million equipment trust certificates and a 108.6 million owing under our 300 million rail car leasing warehouse facility. Although the leasing warehouse facility matures in August, we expect at that time CSFB be lead and the two other participants will renew it for another year. This financing has been most helpful to our leasing subsidiary. At March 31, our cash position exceeded $150 million. Our balance sheet is much improved and with these two financings, the Company has the flexibility needed to finance the improved opportunities we see in the markets. Now Tim Wallace would give his view of the quarter.

Thank you, John, and good morning everyone. During the first quarter, our earnings were affected by a variety of supply issues and lingering winter weather conditions. Our manufacturing businesses incurred steel price increases and a few of these businesses were affected by delays and deliveries and by spot shortages. Steel prices are fluctuating on a month-to-month basis. During the past few months we've worked diligently to overcome obstacles associated with managing for a time period of unusually high steel price increases.

We've set up a new internal process to account for the unique aspects of this situation. I wish I could say we have a crystal bowl that allows us to project the future steel prices. We reasonably have seen a downward movement on scrap steel surcharges. We will continue to report on a quarterly basis the significant adjustments we incur; generally speaking it doesn't appear that steel prices will retreat as quickly as they increase. If this is the case the window of opportunity for inexpensive steel base products may be closed for a while. During the first quarter we modified our sales growths in order to account for steel cost increases. Some of our customers responded by ordering products to protect their positions while a few others have taken a wait and see approach. Generally speaking, I think the market has accepted the fact that steel prices have changed the pricing landscape for a period of time.

Our first quarter results reflect reduced margins on current shipments due to steel price increases as well as some reserves for future contracts that are estimated to be at a loss. In situations where we have contracts that are projected to generate a loss, we must record the estimated loss during the quarter, in which this information becomes apparent to us. Jim Ivy will provide further details in his update. Needless to say, this is a very challenging time period for companies that use steel in their manufacturing processes. Fortunately, our leasing company's financial performance was not affected by these issues and continue to provide strong earnings. As John mentioned, we took steps during the first quarter to enhance our balance sheet. I was very pleased with the smoothness and efficiency of our refinancing. It appears our timing was very good, and I am pleased with the flexibility, our new financings provides us.

At this point, I'll provide a brief over -- operational overview of our non-rail businesses and then our rail businesses. Steve Menzies will comment on our North American railcar market and our leasing company's performance. During the first quarter our construction businesses were affected by winter weather conditions. Fortunately, the weather is improved and we are seeing a significant improvement in our construction related businesses. Generally speaking, we've been able to revise our prices in our highway safety business to reflect current steel cost. During the past 30 days, our business volume and margins have improved on a year-over-year comparison basis. Our access to steel is helping generate sales in this business. In our bridge steel business the majority of our orders have firm prices. A strange it may sound, we felt a little fortunate not to have a large backlog in this business.

The demand for bridge steel in our market region continues to be slow. Our concrete and aggregate business maintain a strong demand throughout the winter, but the weather impacted our ability to deliver these products. And if weather improved in March and April, we responded -- we've resumed a normal delivery pace. We are experiencing cost increases in cement, and we are in a process of raising our prices. Our industrial products group performed better during the first quarter of this year than in 2003. This business normally operates for the short-term backlog and we price our products based on the current cost of our steel. Several of our customers purchase tanks during the first quarter to avoid price increases. The demands for large storage tanks did not surface like it normally does in the spring. We think this may be as a result of the rising steel prices. We expect to convert some of our large tank capacity to maintain our structures. During the first quarter, our barge business continue to be effective by the increased in steel prices and by litigation expenses. Jim Ivy, will provide some specific data on this during his update.

On a positive side, we recently sold some barges at prices that reflect the current price of steel. Our customers are expressing needs for barges with several are waiting to see what prices would do. Our backlogs almost carry us through the end of the year. Discovery and pre-trial proceedings continue on our barge litigation. During the first quarter we announced that we settle the original barge litigation suit that was filed against this in 2002. In conjunction with this settlement, we implemented a barge-monitoring program. We believe this is fair and equitable means for resolving these issues. It has always been our position that the collusion issues are directly related to the environmental conditions within the void spaces. It will be most helpful for us to be able to monitor these conditions. Our other barge litigation suits are described in detail in our 10-Q.

Now, I will touch on some of the highlights pertaining to our railcar businesses. Our first quarter shipments in Europe increased 42% over the fourth quarter to approximately 760 units. We do not see this is a sustainable level. Our second quarter shipments should be in the 600-650 units range. The market demand remains relatively low in Europe. We've also started seeing the effects of higher steel prices surface in this business. Our European rail business was profitable during the first quarter and we expect it to be profitable during the second quarter as well. During the third quarter in which we have a small break in our production, we planned a summer shutdown for maintenance purposes. We expect to lose a little money during this time period, and then during the fourth quarter we expect to breakeven. For the year we expect to make a small profit in our European rail business.

During the first quarter, the North American railcar industry continued to improve. Steve Menzies will provide the information pertaining to industry order levels. As I stated before, we are not pursing orders based on market share percentage goals. We are highly focused on obtaining orders that allows us to tack on to existing production lines and reload our facilities. At this point, the majority of our production lines are booked through the end of this year. We've tried to balance our production schedules close to what we expect to obtain in materials and with adequate time to train our workforce. We also don't want to get too far ahead of the overall market demand.

Our first quarter earnings were affected by a shortage of materials. This is very difficult figure to precisely quantify. Numerous times we had to idle our workforce due to spot material shortages. Late delivery on steel has also put several of our suppliers to use steel in a position of late delivery. We continue to have a variety of material related issues in our rail business. As an example, during April, the spring storms washed out a major rail bridge between the U.S. and Mexico. This effected our material deliveries in the Mexico. This is a very challenging time period for our production personnel and as I have stated in previous conference calls the North American railcar supply chain is struggling to support the rapid industry growth. We expect a magnitude of these issues to decrease as we transition through the year. This reinforces the reason for our multiphase structured program of expanding our production and our tactical sales approach.

At the end of the first quarter our backlog of orders for railcars in North America increased to approximately 16,700 units. In addition we have approximately 500 auto racks. Since all the racks are a super structure built on top of an existing railcar we do not included them in our railcar backlog figures.

Our shipments for the first quarter were basically flat when compared to the fourth quarter. In North America we shipped approximately 2800 railcars during the first quarter. During this time period we reopened one of our idle facilities in Texas and we are currently reopening a second facility.

When our shipments are at this level our products mix impacts our financial results. In the first quarter, almost 20% of our shipments were delivered to customers of our leasing company. We expect to increase our shipments during the second quarter by 18-25% to approximately 3300-3500 range.

Approximately 25-30% of our shipments in the second quarter will be to customers of our leasing company. We expect our Rail Group to make $1-2 million of operating profit in the second quarter.

We expect to increase our shipments in the third quarter to the 3800-4000 unit level. We expect our Rail Groups third quarter operating profit to be over $8 million. The primary issue we see that could effect our ability to increase our production and generate the income we expect relates to material shortage and cost issues.

From an over all earnings point of view Trinity's first quarter should be the worst quarter for this year. For the second quarter we expect an earnings range from a small loss to a profit of 10 cents per share. We expect the third quarter to be in the 10 cents to 20 cents earnings per share range. There is still too much uncertainty from supply point of view and a steel price point of view for us to project a precise figure for the fourth quarter.

Generally speaking I am upbeat about the progress we're making as a company. Each of our businesses appears to be on a recovery stage and our leasing business is generating consistent results. Trinity is fortunate that several business platforms with a significant amount of potential for growth.

At this point I'll turn it over to Steve [inaudible].

Thank you Tim. Good morning. I'll first provide a few comments regarding the North American railcar market, followed by comments concerning Trinity Rail's market performance in the first quarter of 2004. I will conclude with a few remarks on the performance of our Leasing and Management Services business group.

In the first quarter of 2004, the North America railcar industry received orders for over 17,900 railcars. This is an increase from the fourth quarter of 2003 during which 12000 railcars were ordered and the largest number of railcars ordered since 25000 rail cars in the third quarter of 1998.

The continued robust growth of the intermodal sector and the aggressive purchasing strategy of TTX [fueled] a significant portion of industry orders during the first quarter of 2004. Industry orders during the quarter also included, a wide array of different railcar types, servicing numerous end user markets. The increased demand for covered hopper cars that served the grain industry is encouraging, expanding grain exports and replacement of older smaller covered hoppers is driving demand for this railcar type.

With low coal inventories at power plants and greater demand for coal fired steam generated electricity due to high natural gas prices, we are experiencing solid demand for new aluminum coal cars.

In addition railroads continue to upgrade their boxcar fleets as they gained [motor] share from trucks and industry demand for new tank cars improved for the fourth consecutive quarter reflecting rise in demand from basic chemicals and continued strong demand for commodities such as ethanol. As the first quarter of 2004 ended, the industry had a backlog of 41300 railcars, highest since 1999.

During the first quarter Trinity Rail received orders for approximately 7700 railcars or 43% of the industries total. Trinity Rail received orders for covered hopper cars, [new] gondolas, aluminum coal cars, boxcars and tank cars. In addition we also received orders for auto racks, which as Tim mentioned are not included in railcar order figures. We are targeting additional tank cars orders for auto racks responding to the increasing demand to replace older auto racks.

Our railcar order backlog of over 16,700 railcars, 40% of the industry backlog is at its highest level since the second quarter of 1999. We continue to selectively increase our production capacity to meet the growing demand for railcars and to officially manage our production rate to address our sizeable order backlog.

Our Leasing and Management Services Group showed continued fleet growth, improved utilization, and operating earnings growth in the first quarter of 2004. During the quarter Trinity industries leasing company added approximately 530 new railcars to its fleet. At the end of the quarter our owned and leased railcar fleet had grown to 19,000 compared to 16,200 at the end of the first quarter of 2003.

All of our fleet additions in the first quarter were placed on lease. Our committed lease backlog is approximately 1,380 rail cars or 8.3% of Trinity Rail's total backlog. Fleet utilization increased to 98.3% at March 31, 2004 compared to 98.1% at December 31, 2003 and only 94% a year earlier at March 31, 2003. The improved fleet utilization and fleet additions have resulted in improved profitability for our leasing and management services business group. Our lease portfolio was well diversified by car type, industry served and customer concentration. The average age of the lease is approximately 5 years with an average of many of lease term of over 6 years. Credit quality remains stable. Given the rapid rise a new rail car price and increase free utilization in our owned fleet and throughout the industry, we expect lease rates to strengthen over the near tern. Thank you. I will now turn it over to Jim Ivy.

Thank you, Steve, and good morning everyone. I'll make a few comments regarding the comparison of our first quarter results to the first quarter of last year. We have filed our Form-Q for this quarter this morning and you will find more details there. Our results for the first quarter of 2004 improved 7 cents per share over the results for the first quarter of 2003 to a loss per share of 25 cents. This improvement is in spite of recording an after-tax loss provision in the first quarter of 2004 of 4.8 million or 10 cents per share related to the steel pries increases Tim discussed. I will provide more information on this issue in a moment. Other expense increased 1.2 million over the prior year in connection with the early retirement of our term debt during the first quarter of 2004, which John mentioned; the 1.2 million amounts to 769,000 after-tax or 2 cents per share.

As Tim, mentioned earlier, steel cost increases have impacted several of our businesses. Steel and steel-related cost increases from the December 31, 2003 price levels impacted first quarter profits in our railcar group by 3.8 million. Of this amount, 2.7 million is related to estimated losses on sales contracts that will be delivered in future periods and is based on prices currently in effect. Of the railcars in our North American backlog, approximately 35% or 6,100 units have escalation clauses at March 31. At the beginning of the first quarter, there were no contracts in the backlog with escalation clauses. Each quarter, as we deliver railcars on older orders and add new orders with escalation clauses, our exposure to fixed sales price contracts diminishes.

A similar situation exists in our barge group, where contract losses of 4.6 million based on current pricing were recorded in the first quarter. This loss provision includes about $3 million of costs that are yet to be incurred. Steel cost increases impacted the construction products group by approximately $700,000 in the bridge unit. While steel-related pricing has had an impact on other groups, these groups are generally able to pass through the cost increases.

Revenues in the rail group grew $111.8 million from the $149 million in the first quarter of 2003 to $261 million in the first quarter of 2004. Year-over-year North American railcar sales increased approximately 75 million. European sales grew 26 million and component sales at North America grew 11 million. The rail group results were affected in North America by an unfavorable mix of cars in the first quarter of 2004, steel cost increases, steel and component availability and start-up cost associated with pre-opening plants. Sales by the rail group to the leasing and management services group were 34.2 million in the first quarter of 2004 with profits of 3.3 million compared to sales to the leasing group in the first quarter of 2003 of 64.3 million with profits of 3.9 million. These inter-company sales and profits are eliminated in consolidation.

In addition to the contract losses related to steel pricing already mentioned, barge corrosion litigation expenses in the first quarter of 2004 were $1 million, an increase of 400,000 over the same period in 2003. In our construction products group, revenues were up year-over-year due to favorable weather conditions in our highway safety business and a small acquisition in the concrete business. Operating profits were down, primarily due to the steel cost increases I mentioned and some pricing pressure in certain concrete markets. In the industrial products group, profitability improved year-over-year due to the increased sales volume of LPG tanks in the U.S. and increased volume of head sales for tank cars.

The revenues in the leasing and management services group in the first quarter of 2004 were up due to the growth in the size of the fleet and improved utilization of the fleet as Steve mentioned. Sales from the leased fleet were only $500,000 in the first quarter of 2004 compared to $800,000 in the first quarter of 2003. Profits on those sales were $200,000 each year. Operating margins in the first quarter of 2004 were impacted by the sale on leaseback that was completed in December of 2003. Adjusting to put all cost of ownerships such as interest, lease expense, and depreciation on the same basis. Profit margins are slightly improved year-over-year. In the all other group the cost of maintaining idle or non-operating facilities included in this group declined about $700,000 year-over-year.

On a consolidated basis, investment in working capital grew primarily due to increasing sales and production volumes in the rail group, and to a lesser extent due to a seasonal build up in the construction products businesses. Now, I will turn it back over to Neil to begin the Q&A.

Thanks Jim. Now our operator will prepare us for the Q&A session. Chrisy.

Thank you. At this time, if you would like to ask a question, please press the "*" and "1" on your touchtone phone. To withdraw your question press the "#" sign. Again, if you would like to ask a question please press the "*" and "1" on your touchtone phone at this time. Our first quarter comes from Mike Peasley (ph.) with BDNT [ph]. Please go ahead.

Hey guys, Good morning.

Let's just start with steel, I guess. Tim you threw out some numbers here, I just want to make sure, I understand, the charge that you took in the quarter, was it -- how did that break out rail versus barge. Was it 2.7 million for barge?

No, just the opposite, it is 2.7 in rail.

Okay.

And the 4.6 in Barge.

Okay. And then beyond that, Jim there was, I guess, $1.1 million impact at the margin outside of any provisions you've taken in the past, is that correct in the rail group?

Well, that's not quite right. The impact of steel price increases on profits, for the quarter was 4.2 million. 2.7 relates to loss on contracts that will be delivered in the future, but the difference between the 4.2 and the 2.7 is just steel price increase on things that were delivered during the quarter, not -- didn't have anything to do with the lost contracts.

Okay. Well, I guess, you know, maybe better picture, you have taken about $9 million in loss provisions in Q4 and Q1 combined. Steel prices while high seemed to have peaked, Tim alluded of the fact, as you are seeing scrap surcharges and pricing go down a little bit. And I know you don't have a crystal ball, but it seems like the worse is behind us. Is it -- do you foresee any more of these loss provision charges going forward, how do think that plays out? And then the second part would be, explain the dynamic if steel were to begin to decline more than you're expecting, how would that work on the income statement?

Okay, your right that the surcharges have begun to decline. What we are seeing is that some steel vendors are eliminating or getting away from surcharges and increasing base prices. So it's difficult to predict the real outcome of this. And the prices -- the surcharges have just started showing that they are declining, we hope that that continues. But what we also saw this quarter was a kind of a delayed impact on components that have steel content where price increases began occurring this quarter related to base raw material prices that went into -- they go into those components earlier. The impact on future quarters if the prices go down on these loss provisions, I mentioned that in the Barge Group about $3 million of that loss provision has not been incurred yet. If prices went down for deliveries that we need to finish those contracts, soon enough, then that would increase the profit -- that would go back into profit as those products are delivered. But it's really how fast the prices go down compared to when we had to commit to the steel to finish off those contracts.

That's helpful.

Yeah and this is Tim. It's also provides a little bit different challenge because I talked about the shortages of steel and most of our buying people are trying to get their hands on steel if they can right now just to keep our lines running. So, in the past we had some very strong inventory and working capital thresholds and now they kind of turn from stainless, don't bring in as much to the situation of stainless keep these lines going, but we don't want to flood our facilities with this high-priced steel. So, there is a little timeline there that people are managing through.

Sure. Is it only steel that's in shortage now? How's the castings market fare in?

The casting market continues to be tight and the casting market is tied to the steel market because they make castings out of scrap, steel is one of their components within that and so the casting market is a day-to-day delivery expediting situations and we end up having -- this last quarter we had some problems where castings were shipped to wrong facilities or castings were not matched up properly. So, we've ended up putting some people almost exclusively in and with some of the major casting manufacturers to be sure that our orders are sorted out properly. That were some of the steps that I've said we've taken to ensure our process up there.

Is Amsted your biggest castings [provider] still?

Yes.

Okay. And then is there any way to know, I mean, how many railcar deliveries were delayed in Q1 due to the shortages?

No, we really don't have a system that precisely identifies that, but we do know that there are certain things like, I mentioned the bridge being out, and other delays that we have and other components that we delivered, that we kind of track. So we try our best to track them.

And then, Jim, you also mentioned some production goals in Q2 and beyond. Are you accounting for steel shortages, casting shortages, or maybe a better questions is, are those shortages more than you might have thought maybe last quarter on these production levels or goals are little bit less than you would have hoped for?

Yes, I think we have to monitor the steel situation and then throttle back our production increases based on deliveries of steel. And so, we had hoped to be at a higher level of production at this time and, you know, when you look at the second quarter, we're probably 300-400 cars below what we anticipated that we would be at. And so, there is no reason to have the lines ready to go if we don't have the materials.

Okay. I guess that kind of leads into my next question. With the facilities that you are reopening, I guess, one is, is completely opened and I am assuming running at full capacity, maybe not. Can you give us a little color for how that facility is operated at this point and then when you expect the second facility to be open and ramped up?

Yes, the term full capacity is kind of misleading because when you are starting up the facility you size the production to what you are able to train the people and now what we are able to receive materials for. So, it's not at what we would perceive to be full capacity. And the two facilities that we're opening probably will not be at their full capacity as manufacturing entities for I would say a year probably. And we will throttle those facilities up at a relatively slow rate so we can train the people and have them in place. One of the facilities is, we'll be producing some of the grain cars that we have for the Burlington Northern.

And then the second facility will that be opening --

That's the second -- the second facility we will be doing Burlington Northern. What we did with the first facility as we pulled production off of a facility we had in Georgia so we could produce the, when Steve talked about the auto racks and coal cars, and the intermodal cars, we have three lines running in that facility and we are trying tack on orders to keep that facility going and then there was a handful of other type of cars, that facility also could produce that we removed -- that are in much slower volumes into Fort Worth (ph.) facility.

And in Q1, what were the startup costs associated with these plants, and where do you see those costs being in Q2.

Mike that's more difficult to determine because of the shortages and delays that we've talked about. But I would estimate it around a couple of million dollars.

Right. I think that's all for now, circle back, if I've got follow-up. Thanks guys.

We'll take our next question from Manish Somaiya (ph.) with J.P. Morgan. Please go ahead.

Good morning. Tim you gave out EPS guidance for the second and third quarter, and I just want to make sure I have it correctly written down because you went over it pretty quickly.

Okay.

For the second quarter I think you said EPS a small loss to a profit of 10 cents, is that right?

That's right.

And then for the third quarter, you said a profit of 10-20 cents.

Yes.

And fourth quarter you said not sure at this point.

That's right.

Okay, now. I guess two questions there; one is how does that compare to your previous guidance for Q2 and Q3? And then if you can help us out, you know what does that mean on an operating income line or a EBITDA line?

Okay, our previous guidance that we had, Jim do you remember what that was? I think I said second quarter we expect to return to profitability with the EPS comparable with prior year or slightly better.

Right.

Is what I said in last year in the second quarter, it was -- what did we do?

8 cents.

8 cents, so we are saying we could be in that range or not, it just depends on -- and with this bridge being out in Mexico and the weather situation has cleared and the pricing movement, we just have to have a range right now on our business, it is going to be a little bit broad. So that kind of compares and I don't think I didn't give something for the third quarter previously.

Okay. Now in -- I guess it looks like you are moderately taking down the guidance for the second quarter. I am just going to take it out in the sort of cost that you will incur in the second quarter I mean -- were many from budgeted expected, I mean how much of --?

Well let me help you with that just a little bit. One of the biggest issues that we have is the shortage issues that I talked about, and we routinely, in the rail business, we receive commitments from suppliers for materials to be delivered according to a certain schedule and a lot of these steel mills, as an example, have outages of various types. The Mexican steel mill -- I was meeting with these people earlier this week and they had an outage last Thursday and it went from Thursday through Tuesday Wednesday, I think they said they lost 30,000 tons and everything will kind of be backed up. They are now trying to reconcile that that with our people. ISG has had similar issues, so the Kashdin [ph] people have had similar issues, so and our -- and we have sub-contractors that do certain levels of work, and one of the things that happened to us in the first quarter that we don't know what the effect is going to be totally in the second quarter, some of our subcontractors came and said, they couldn't get steel according to their schedules and that were 3 or 4 weeks delayed. So, that's kind of why we have a broad range there, most of it is pertaining to material. Jim you have any other thoughts?

Yeah. The rail group was impacted going forward by steel prices currently in effect, and based on those prices that are currently in effect the operating margins in our projections for the rest of the year declined this quarter by about $5 million. So, that's 7 or 8 cents per share in total.

Okay. And can you help us out with the EPS and kind of dotting that to the operating income line for the second quarter at least?

I am not sure what you need.

I guess I am just trying to figure out what does that mean on an operating income line basis, the guidance for the second quarter?

I don't -- we don't provide guidance for the operating income other than the ones that I gave for a rail, we think the rail will be over 8 million and it could be higher than that depending on the impact of the shortages.

Okay.

The leasing Company runs pretty consistent. We are having good signs in our construction businesses especially in the highway safety related products where without large purchasing capabilities we have access to steel and we are getting some improvements in the pricing that what we were receiving on that. So, there are still several variables that are out there in front of us.

Okay. In terms of industry demand do you know, I have seen couple of different estimates for rail car deliveries. I think [inaudible] air brake came out and said they were looking for 41,000 units. I think there is a big industry think-tank, which said -- you know 47,000 units -- I am just going to curious based on what we are seeing especially in terms of those issues surrounding the supply base, what kind of delivery estimates are you looking at for the industry?

We use a service called global insight and they give us -- they have a number, but I don't know if they factored in, the delay factors that we are experiencing and we know that we are not alone in this industry on the only company that is around, getting -- having delay and delivery issues that are associated with that and their number was, I think, in the 49,000-50,000 range, we are thinking that's a little optimistic, it may be in the mid 40s to lower 40s for this year.

And what was it last year?

Last year, the number was 32.

Okay.

So, you've got an industry that is going up 10,000 units in a year, which would be a third -- 30% growth so to speak, it is still straining a little bit.

Right. And just going back to the backlog, you've said 35% of your backlog, which is approximately 6,100 units have price escalators and rest of them don't, and I guess, I'm going to figure out just to kind of have our estimates, what percentage of the backlog is due for delivery this year and what kind of falls into the future years and you know, what kind of leverage do you guys have kind of going back and re-negotiating with your customers about the price increases?

Okay. We have -- in all of our products, we are talking to our customers about the need to adjust pricing, and we had several customers that are working with us on this, because they are understanding, they are seeing that everywhere you go you read about steel increase and then they have similar things like the railroads have fuel cost increases and everything, but -- so we have ongoing dialogs with a lot of our customers in this area. Our backlogs in our railcar business is full through the end of this year and then we have cars that go -- railcars that go all through next year for delivery some of the lines and then we have some that stop off in the first quarter that will have to filled in and so it's kind of a hodge-podgy. And then we don't have in our backlog figures the commitment that GATX has for railroad tank car or non-tank cars with railcars in itself of a 1000 cars a year. So we only place those orders in our backlog when we receive firm orders. So you could add a couple of thousand, I think it is cars that are committed by the GATX that are in the out years on that. I think we probably have to see if there is somebody else that has a question so we can get through.

To give everybody a chance then.

Okay, I will just circle back then. Thank you.

We will take our next question from Steven McRoyal (ph.) with Lord Abbot. Please go ahead.

Thanks, thank you. Just a follow-up first on the start-up cost, I think Jim alluded to a couple of million dollars, was that in this quarter? What should we anticipate for the remainder of the year, again the capacity adds?

I think you are probably looking at the first quarter, which is probably million, million and half somewhere, maybe touching on 2 million. It's hard to decide when you stop in, the end of March and beginning April. And you are probably running at that same kind of level this quarter through that. Once these two facilities are up and running to the third quarter then it would just be incremental cost adding more people to the production line that we have. So second and third quarter should flush out the majority of those two facilities.

And what are the capacity accrual?

The capacity of those facilities, it depends on the type of cars and it also -- the capacity as I said earlier is an illusive number because it's capacity now is constrained by ability to train our people, and then we don't publish capacity on each of our facilities for competitive reasons.

Okay. On the shipment expectations for the year, I think you had previously talked about a full 16,000 or thereabouts for the year, obviously, you have spoken to through Q3, I think it would imply about a 6000 shipment number in Q4. Is it fair to say that that is still a reasonable expectation for the full year just given some of the component shortage issues we have here?

No I don't think so, I think you probably find that the shipment numbers would be probably in the 14,000 ranges somewhere in there, 13,000-14,000.

And just because of the --

We don't hesitate to increase it until we know we got a firm supply network because it's so expensive to in our facilities and it's very frustrating for the workers to show up and know they have a job, but then all the sudden you have send them home for a couple of days because you don't have the materials. And we just have to kind of work through this. I am very glad that we made the decision last year that said, let's focus on keeping these lines running and not focus on ratcheting this thing up or we really would have a big mess on our hands.

And are there -- Is there a scenario that you can paint where the supply issue becomes one that's much better. Is this entirely a uncontrollable?

I think it is --

Are there alternate sources you can be looking to?

I think this is natural. If they build up an industry -- they went from a peak production of 60,000-70,000 units and then went down to 18,000 units and laid everybody off and then everybody was hesitating to bring people back. I think that's parted within the real supply industry and then you get into the steel supply industry that the steel mills several ever more on in bankruptcy and had to revive that business and they didn't spend a lot of money on their capital equipment during that time period and their ranks being up as well in that area, and then we all know what's happened in the scrap steel industry and so it's a combination of all these things, culminating together. We see it as a short-term issue that's almost kind of put in the term of growing pains and then once you reach a level of maturity the industry would season and be at a much higher stride to be able to produce a continuous flow of products and that probably, as I said will transition, that would occur in our estimation as we go through this year.

And understanding that, is it fair to say you are looking to alternative sources for steel or are you still working with the pre-existing supply base?

No we're looking alternatively alternative sources. In fact, I have -- my brother works for the company and he's been over in China for 3 weeks with numerous sourcing initiatives in this area. He used to run our railcar business, he knows the products real well, and has had a number of different meetings with people. This fellow that runs our Mexican operation has been in Asia looking for various sources as well. So, we are coming to [globe] fortunately we have resources in Europe with our business in Europe, that we are looking at. So, there is hardly a place in the world that has steel making going on that we are not trying to knock on the door and see if there is some opportunities there.

And, as far as, the provisions go, just so I understand, they're calculated based on what spot price as of what date and then secondly, what is the scenario that would have to occur for this charges to reverse, meaning what sort of price declines would one have to see?

Well, the prices are currently in effect what we use. Basically those are -- if you are talking about surcharges they're announced at the -- towards the end of April, around April the 20 or 21. So, there is -- they're the latest prices that we have and we have not projected any declines. But as I mentioned earlier, the ability to avoid the charges were calculated would require pretty rapid decline of the prices because we are taking delivery as steel to produce the products and they will be produced mostly during the next two quarters in the Barge Group that goes out into the fourth quarter. So, there is not a whole lot of opportunity to recover the charges that we've already recorded right now.

Okay. And just last question, Tim, I think you made an interesting comment this with respect to the steel issue and how it is impacting your customer demand dynamics to the extent someone taking waiting seat, someone trying to get ahead of this steel increases. Can you just talk a little bit further about that? I mean what sides actually falling out, more importantly?

In each of you our businesses, our customers are -- in our business the thing that drives it, is there [hugely] a demand. People don't just wakeup and decide they need some guardrail or they need a bridge being or they need a railroad car. And so these are capital goods that come through what we look at is kind of capital goods pipeline of demand. Companies usually have them budgeted or there is construction projects that are approved; they are funded by the government. So, normally when somebody needs something, they can delay it a little while and hold off, but a lot of times they wait till the last minute before they actually release it and they are trying to rush. This happened to a lot of people in the steel industry, a year ago, 8 or 9 months ago, when the steel industry was saying, things are tightening up, things are tightening up, and people hesitated and they got locked out when it timed up. Some of our customers had seen this as kind of a condition that could occur in some of our businesses, where if they are not there to get their slot in place, then things continue to tighten up and they miss out, and they have to wait. So, other customers are placing orders as if they have -- like they have an ongoing demand, which they do and they are saying, we just have to budget for some increase in these capital goods and we are going down the road. We got to get the concrete order. We got to get the bridge [being] there, we need the guardrail in, or we need the railcars because we got -- we have a demand. So, it is very fluid situation. The good news is we've had many customers come to us and place orders in the last 60 days. We don't have a massive number of people sitting on the sideline saying I'm waiting. The highway guardrail business is very robust right now. The barge business where we had some capacity this year we have had people that have filled that in the last 30 days at new prices. We've had orders for railcars. Steve, we have got orders already in during April right for railcars from a variety of orders.

Intermodal cars, covered hopper cars, tank cars, auto racks

So we are having people that are placing orders that have needs for the equipment and they are having the to just revised their budgeting. So, I think it's a budgeting issue as much as anything.

Thank you very much.

Okay.

Again if you would like to ask a question, please press the "*" and "1" on your touchtone phone at this time. In the meanwhile we will take our next question from Bill Baldwin with Baldwin Anthony. Please go ahead.

Looks like the [inaudible] gentlemen, I will just give you a call after the call here. My other questions have been answered but few things I have I will just get back to you. But I thought you did a good job by answering the questions and good luck to you for the rest of the year.

We try to respond.

I know you do, you do a good job and, you know, I know it's a difficult environment right now and you fellows seem to be doing a real good job of managing through it. So, keep it up I will talk to you later.

You can keep talking Bill we are not out of time, if you keep saying things like that.

I will catch up with you later. Thank you Tim.

Okay.

Bye, bye.

Christy (ph.), we will go ahead and wrap it up.

Okay.

This concludes today's conference call. Remember a replay of this call will be available starting one hour after the call ends through midnight Thursday May 13. The access number is 402-351-0788, and also the replay will be available on our website located at www.trin.net. We look forward to visiting with you again on our next conference call, and thank you for joining us this morning.

Thank you. This does conclude today's teleconference. We thank you for participating and you may disconnect your phone lines. Have a wonderful day.