Trinity Industries Inc (TRN) 2005 Q3 法說會逐字稿

Good day. All sites are on the conference line in the listen-only mode. Please note that this call may be recorded. At this time, I would like to turn the program over to your host, James Perry.

Joining me today on the call are Tim Wallace, Chairman, President and Chief Executive Officer; Bill McWhirter, Vice President and Chief Financial Officer; 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, November 10. The replay number is 402-220-7227.

I would also to welcome our audio webcast listeners today. A replay of this broadcast will also be available on our website located at www.trin.net. In addition to me, you'll hear today from Tim Wallace, Steve Menzies and Bill McWhirter. Following that we will 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 estimates, expectations, intentions, and predictions of future financial performance. Statements that are not historical facts are forward-looking. Participants are directed to Trinity's Form 10-K and other SEC filings for a description of certain of the business issues and risks that a change in any of which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.

Let me address our debt and cash position. At September 30, our borrowings at the corporate level were the $300 million of senior notes and $3.1 million of other indebtedness. The Leasing Company's debt included the $130.1 million of equipment trust certificates and $209.2 million of outstanding under our Railcar Leasing warehouse facility.

We were pleased to announce that in August of this year we renewed the warehouse facility for two years with lower fees and pricing. Additionally, in October we increased the amount of the facility from 300 million to $375 million. At September 30, our total debt to total capital ratio was 35.8%, up slightly from the comparable amount at December 31, 2004 principally due to lease lead (ph) expansion. At September 30, our cash position was $126.6 million.

At the end of the quarter Trinity sold its minority interest, along with the other equity investors, in a railcar leasing portfolio for approximately 8,000 railcars. This resulted in a gain to Trinity of $4.4 million. Trinity also provided certain management services to the partnership. This partnership was formed in 1998, and the timing of the portfolio sale reflected the rise in railcar values. Now here's Tim Wallace.

Good morning everyone. I'm pleased with our progress. All of our business segments improved their profitability over the third quarter last year. We're continuing to build on the momentum we established during the first half of the year. Fortunately, we're not experiencing any significant issues with unexpected material cost increases or delays.

Our European railcar business improved during the third quarter, but is continuing to struggle through the trough of the market. Our backlog of orders in Europe at the end of the third quarter was 730 units compared to 1,000 at the end of the second quarter. We shipped approximately 360 units during the third quarter versus approximately 240 units in the second quarter. We're closely monitoring our European railcar business activities as we continue to review our strategic options. We're confident that demand will eventually improve. Bill McWhirter will provide specific financial information about our European railcar business during his report.

Our third quarter North American railcar shipments were 5,685 units. We expect our quarterly shipments to fluctuate between 5,800 to 6,000 units for the next two quarters. Our 2005 annual shipments should be between 22,500 and 23,000 units. This will be approximately a 50% increased over 2004.

Our short-term objectives for our North American railcar business are to continue to improve our profitability through productivity initiatives, and to pursue orders that extend our production lines. The majority of our third quarter orders extended our existing production. The benefits of our strategic selling are seen in the significant difference between our year-over-year profitability in our railcar segment. We currently have a strong inquiry level for orders. In fact, I've described our October levels as robust.

The quality of orders we are receiving is good. Our production flexibility and available capacity have become key selling tools. As an example, in the first quarter we will convert one of our production lines over to produce additional coal cars. Since we're continuing to receive inquiries for coal equipment deliveries in 2006, we're seriously contemplating converting more space.

During the second quarter of 2006 we will begin shipping products from our new facility in Mexico. Our plans are to launch between 3 and 5 new production lines in Mexico. Short-term, we will invest in training our employees. Long term we will enhance our competitive position and this will provide us with additional low-cost flexibility.

As for the Company as a whole, I continue to be very optimistic about the opportunities we have been front of us. Our barge business has a strong backlog of orders, and our customers are continuing to place inquiries for future business. Fortunately, our facilities did not experience any major problems after the effects of the hurricanes. Bill will provide more detailed financial information on this.

Our Construction Products businesses are also performing well. In addition, I'm very pleased with our successful restart of our structural wind towers business. Our structural wind towers business is a growth business for us. We have a high level of competency of fabricating these types of products. And we converted some of our tank manufacturing facilities in order to pursue these opportunities. Trinity is blessed with a high level of production flexibility.

Our Leasing Company is continuing to play a vital support role to our railcar manufacturing businesses that will assist us in diversifying our long-term earnings base, as we continue to expand our leased fleet. Steve Menzies will provide more details about this in his report.

With the passage by U.S. Congress of the energy bill and the transportation bill, we're beginning to see the demand drivers improve in several of our businesses. As you can see all, I'm optimistic about the opportunities for our Company, and I'm pleased provide you with an upbeat report. I will now turn it over to Steve Menzies for his comments.

Good morning. I will make a few comments about the railcar market, followed by a few remarks about our Leasing and Management Services business. Industry demand for railcars in North America remained strong in the third quarter. More than 17,600 railcars were ordered industrywide continuing the strong pace set in early 2004. The number of third quarter railcar orders is in line with the quarterly average of 18,000 ordered during the last seven quarters. Year-to-date industry orders through September totaled more than 54,000 railcars. Strong railcar demand reflects general economic growth, increased railroad freight loadings, and replacement of older, smaller railcars. During the third quarter Trinity received more than 5,100 railcars.

We continue to focus our sales efforts on orders that meet our pricing requirements and extend our existing production lines. Substantially all of the railcar orders received during the third quarter extend existing production lines for a variety of railcars, including several lines producing various types of covered hoppers, auto racks, coal cars and tank cars. While our order levels may fluctuate quarter to quarter, we believe current order levels and inquiries indicate continued strong demand for a variety of railcars supporting our production and sales strategies. As Tim mentioned, our order levels since the quarter closed have been quite robust, extending existing production lines even further.

The industrywide production backlog at the end of the third quarter increased slightly to approximately 61,100 railcars, reflecting a backlog of approximately nine months of industry production. This also indicates that strong industry order levels are keeping pace with increased industry production, and that the supply chain is meeting current demands.

Trinity's railcar production backlog in North America on September 30, decreased slightly to approximately 16,900 railcars compared to approximately 17,500 railcars on June 30.

Trinity Industries' Railcar Leasing and Management Services Group continued to grow its railcar fleet, taking delivery of approximately 1,000 new railcars during the third quarter. This represents about 18% of Trinity's North American third quarter shipments.

Our operating leased fleet now includes more 23,300 railcars, as compared to approximately 19,700 railcars in our fleet on September 30, 2004. Our lease portfolio growth is an important part of our rail strategy to develop long-term relationships with end users of our railcars.

Our committed lease backlog at the end of the third quarter was approximately 4,000 railcars, or 26.5% of Trinity's North American production backlog. Our leased fleet is essentially fully utilized at 99.4% at the end of the third quarter, compared to 98.5% at September 30, 2004.

The average age of our fleet is 5.2 years, and our average remaining lease term is six years. Lease rates continue to rise as a result of high fleet utilization, strong levels of new car building, and rising new car prices.

Our renewal rate, the number of leases renewed as a percentage of expiring leases, has been exceptionally high. Our average fleet lease rate has continued to increase quarter over quarter, reflecting the high number of lease renewals and rising new car lease (indiscernible). The strength of the leasing market, full lease fleet utilization and increasing lease rates on existing railcars further supports our long-term view of continuing strong demand for new built railcars. I will now turn it over to Bill McWhirter.

Thank you, Steve. And good morning everyone. My comments relate primarily to the third quarter of 2005. We will file our Form 10-Q this morning. You'll find more details there summarizing the quarter. During my remarks I will provide earnings per share guidance for the fourth quarter and the full year. Additionally, I will update the previous guidance with respect to operating margins in our Rail and our Inland Barge Group.

We are pleased with our third quarter 2005 earnings of $0.65 per share. These results compare with earnings of $0.43 per share in the second quarter of 2005, and earnings of $0.00 per share in the same quarter of 2004. Revenues for the third quarter of 2005 increased 31% over the same quarter last year of $742 million, which is the second-highest in Trinity's history.

The total effects of Hurricane Katrina and Rita for the third quarter was a reduction in operating profit by approximately $2.2 million. Of this amount 1 million was incurred in our Construction Products Group, 900,000 in the Inland Barge Group, and the remainder in our Railcar Group.

At this time I will discuss the performance of our individual business segments. In our Rail Group North American railcar revenues was 56% higher on a quarter over quarter basis. Rail Group sales to Trinity's Leasing Group were $83 million in the third quarter of 2005, with profits of 13.8 million, or approximately $0.18 per diluted share. This compares with sales for our Leasing Group in the third quarter 2004 of 34 million, with profits of $2 million, or $0.03 per diluted share. These intercompany sales and profits are eliminated in consolidation.

Our European rail business continues to suffer from a depressed market. During the third quarter we incurred a loss of our approximately $2 million. At our current build rate we expect to continue to incur a quarterly loss of between 1.5 and $3 million. We currently have fixed assets with a net book value of approximately $57 million in our European rail operations. Our previously forecasted operating margins for our Rail segment during the third quarter was 5.5 to 6.5%. Actual results were 7.3%. When you remove the effect of our European operations, North American experienced an operating margin of 8.3%.

Based on our current operating performance and the quality of our backlog, we are adjusting our guidance with regard to operating margins for the Rail Group for the fourth quarter to a margin of 6.5 to 7.5%. This guidance is based on the following assumptions, European results consistent with the guidance provided today, continued production efficiencies in North America, and no significant supply problems with steel and other basic materials. There was no on recoverable steel costs for the third quarter in the Rail Group.

Our North American backlog as of September 30 consisted of approximately 16,900 rail (indiscernible) with an estimated sales value of $1.2 billion. This backlog is subject to a variety of escalation provisions and firm raw material content. Together these items are referred to internally as cost coverage. Cost coverage for the current backlog is approximately 92%.

Our Construction Products Group played a key part in our earnings diversification strategy. The third quarter is normally strong for this group due to construction friendly weather conditions. Revenues were up by 7% on a quarter over quarter basis. Operating profit increased by $2.7 million. And margins improved from 10.(technical difficulty) to 11.6%. These improvements were primarily due to improved pricing that offset raw material price increases.

Our Concrete and Aggregate business accounted for 52% of the Construction Products Group's revenue. The business unit's overall performance was positively impacted by strong demand, combined with tight supplies of raw materials. Our Concrete Group enjoys diversified customer base which provides flexibility in the market sectors we target.

Our Highway Products business, which accounted for 32% of the Construction Products Group revenue is also performing well. Revenues from this unit's proprietary line of products continued to be strong. Additionally, our pipe fittings and bridge girders business continued to perform at nice levels.

The Inland Barge Group's third quarter performance was strong. While we did suffer additional costs due to Hurricane Katrina, much of these costs were offset by operational efficiencies during the quarter at other facilities. Our current backlog of work is approximately $285 million versus 115 million one year ago. Additionally, we have a very strong inquiry list at this time. We anticipate Inland Barge revenues of approximately 65 to $70 million in the fourth quarter, moving to a run rate of about 80 million per quarter during the first half of 2006. We anticipate operating margins of between 8 and 10% for the fourth quarter.

In our Railcar Leasing and Management Services business, we reported revenues of $44 million, which were up 7.5 million on a quarter over quarter basis. Total operating profit increased by 5 million due to the additions to the fleet, improved utilization and increased rates. Growing our Leasing and Management Services Group continues to be a key part of our earnings diversification strategy. We plan to spend between 350 and 375 million on net fleet additions during 2005. And we look for a similar level of investment for 2006.

As announced in our news release yesterday, we have added our structural wind tower business to our Industrial Products segment, and renamed the group Energy Equipment. We very pleased with the Energy Equipment Group's third quarter performance. On a quarter over quarter basis revenues increased by approximately 70% to $60 million, and operating profit jumped by 4.3 million, bringing quarterly margins to 13.9%. This business continues to benefit from the cost savings improvements we implemented during late 2003 and early 2004, as well as a solid demand in Mexico for our products. Our current backlog for structural wind towers is strongly. And we believe wind energy will continue to become more competitive with traditional energy sources given the current price for natural gas.

On a consolidated basis, cash flows from operating activities was a positive $71.7 million for the quarter. Nonleasing capital expenditures are currently projected to be between 80 and 90 million for 2005. Of this amount, approximately 40 million is related to our new railcar plant in Mexico and our new (technical difficulty) facility.

During the fourth quarter we expect our construction business will be down when compared with second and third quarters, due to the normal winter weather patterns. We anticipate consolidated earnings for the fourth quarter to range between $0.40 and $0.47 per share. Overall, our updated Company guidance for 2005 is for earnings per share of between $1.60 and $1.67 for the full year on a fully diluted basis.

Included in our assumptions for the remainder of 2005 are the deferral of approximately 16 million of profit on sales for our Railcar Group to our Leasing Group in the fourth corner, or roughly $0.22 per diluted share; results in our European rail operations, as discussed earlier, continuing to achieve production efficiencies in North America; no significant supply problems in steel or components; normal weather conditions; no unanticipated adverse resolution on legal matters; and our estimate of $2.1 million in costs associated with Hurricane Katrina and Rita in the fourth quarter.

We are currently engaged in our annual budget process, and we will provide 2006 guidance at our fourth quarter conference call consistent with prior year. We believe 2006 will provide strong opportunities for continued improved earnings.

At this time I'll turn the presentation back to James for the question and answer session.

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

(OPERATOR INSTRUCTIONS). Wendy Caplan with Wachovia Securities.

A couple of questions. I have in front of me the press release that you issued on the 15th of September, where you said that you thought that the Barge Group margin would be 5 to 6.5%. What happened between then and the end of September that made it so high?

It is Bill McWhirter. A couple of things. One, the effects of Hurricane Katrina were not as bad as we had anticipated. Our management team did a really outstanding job of bringing the facility back online as quickly they could and minimizing the overall cost effects. The other contributing factor is that our remaining three plants have performed very, very, well and the start up plant in Fort Alen is doing an excellent job and coming in ahead of schedule.

Good answers. In the long run, do you think that the hurricane represents opportunities for Trinity on the barge side?

This is Tim. We think that the passage of the energy bill and the highway bills have a positive impact on our business. And they will result in additional construction spending. And clearly, there will be some focus in the region affected by hurricanes. And we're keeping our eyes on this area there. We think a lot of materials will be moved into that area that will also compete with the construction spending that will be used elsewhere. And our barge business and our rail business should benefit from increase in traffic that moves in these areas.

Tim, you mentioned that you expected railcar deliveries to be in the 5,800 to 6,000 units range for the next couple of quarters. As you look at the -- you also said that order activity was, I think you said robust in terms of October inquiries. Do you expect that given that it is the end of year and customers may be just thinking about '06 requirements that the backlog would continue to decline slightly in '04 given the big shipments.

The backlog during the fourth quarter normally drops off. This year we have a lot of customers who are trying to get space in 2006. And we have some space that we can shuffle around, as I mentioned in my report, that will allow us to provide some additional railcars for them. And those are usually good quality orders when you're shuffling around space like we're doing.

We've got a great management team in place that can look at tje production lines and try to squeeze out some additional product. We're not so concerned about where our backlog is going to increase or decrease. We're really focused on the quality of the orders that we're receiving, and how well they tie in to existing lines, and the line start ups that we're trying to bring on. And fortunately, we have been seeing some positive signs in that area.

Thank you very much. And just one clarification. When you refer to the full year, your full year forecast of 160 to 167, that includes the gain that you reported, the $0.06 gain this quarter -- so excluding the gain, it would be 1.54 to 1.61, correct?

That's correct.

Kevin Macda (ph) with BB&T Capital Markets.

A quick question just on capacity and pricing. On barge capacity you gave the number of 5,400 -- excuse me, 5,800 to 6,000 units that you expect for deliveries in the quarter.

That was rail. Excuse me, that was rail, not barges.

Sure. On the rail side, on that number, what is your capacity? Is that -- and I am just wondering where you are in terms of capacity there?

When you talk about capacity in our Company right now, it can be termed as idle capacity that we have sitting idle and new capacity that we're bringing on, and existing capacity at the current run rate. It is a fairly complex answer to a simple question.

Generally speaking, we don't plan to bring on additional capacity that would flood the market. We plan on trying to move at the same momentum that the market withstand in the various lines. As an example, like I said in my speech, the coal car demand right now is strong, and so we will convert some capacity that we have over to coal cars. It is almost kind of like you have in the real estate market where it is the highest and best use. That is the tactical philosophy that we're using.

But when you say that you are expecting 22.5 to 23,000 units in '05, as you look out to '06, what is the number of -- can you help us at all with the number of units you think you could produce given continued strong demand?

We will address our '06 production at our fourth quarter conference call. By that time we will have worked through the supply community. Right now there are some constraints on some supply items. As well as the various mixes that we have for the products as they go through our highest and best use analysis that we have. It is a little premature. We surely won't ship, in my mind at this point, less in '06 then we shipped in '05. There will be more, but it is a matter of how much more, and that depends on the product mix of orders we are processing.

You gave the number of 5,685 of units for the quarter on the rail side. Can you give us -- give the number of barges you produced in the quarter?

No, for competitive reasons we're not disclosing the quantity in units of barges that we're producing. We're primarily talking about dollars. And Bill tried to provide enough assistance so you all could do your forecasting with the revenue and the margins that we expect in that area. But the barge business is very dynamic. There is a lot of strong positive signs occurring in that business. And we want to be able to maximize the opportunities we have as best we can, and so we're just taking with dollars.

Sure. And you had given some backlog numbers on the rail side but not the barge. Is it fair to say that the rail backlog and/or the barge backlog are full through the end of '06 and into '07?

No, I don't think -- in the rail side, as I said earlier, we're doing some things that we are trying to pursue some opportunistic orders right now on the rail side. The barge side is very, very tight. But like Bill said, our management team has been able to do things that in the barge business that are above and beyond what our internal expectations are. And so we're constantly looking for ways to try to free up some additional space in that area and work with customers that have needs. I will say our customers have needs greater in '06 than we will probably be able to meet. And so we're looking and talking to some of them about going ahead and booking their '07 needs.

Bill Baldwin with Baldwin Anthony.

Tim, is there any thing that shows any sign that we are going to see a pickup in the European business as we go down the road here over the next several quarters, let's say, or looking over the next year? Are there any early signs -- early indications that that business --?.

No, that market -- when you're in the trough of the market, orders can fall in a particular time period that can -- you can misread and can be a little bit lumpy. So it is difficult to be able to say that we are seeing some kind of indicator. I will say that in the last 30 or 45 days we have sold some railcars over there. But it is not enough for us to say that we think this market is into a recovery. But when you look at the age of the fleet in Europe, you'll find that the fleet is an old fleet. A lot of the same characteristics that occurred and have occurred in the barge business and in the U.S. rail business will eventually in my estimation occur with the European demand.

Tim, do you get any stats over there like we get here on railcar loadings, that type of thing to show maybe what is going on there?

No, the European market is fragmented and doesn't have something complementary to the American Association of Railroads that gather statistics there. So each supplier and OEM manufacturer has to do their own gathering of data.

One other area that I wanted to chat a minute about here, Tim, it in this wind tower area that is getting a lot of attention. Where geographically are those towers basically being utilized that you are building? What part of the United States are they going into?

The towers that we are building are in -- the wind tower business is a geographical business. And it is related to cost of transporting these large diameter structures. They're moving -- you move them by truck. And so you're limited on how far you can go. And the majority of the towers that we're producing are right here -- will be used in Texas in the western part of the state. And then they do go on up into the Oklahoma and Midwestern part as well.

Are there any other parts of the United States are using wind towers, Tim, that it would make sense at some point for you all to get involved with, with other plants or other operations?

Yes, we broke this country into geographical regions. And we are currently doing a strategic review of options in the other regions. You've got a region in the western part of the United States. You have one in the northwestern part. It would be up on the Canadian border, in that area. And then you have one in the Northeastern part of the country that are using these.

Lastly, Tim, as you look at the highway bill and so forth, does Trinity see an opportunity to broaden out its geographical exposure into structural steel that goes into bridges? Is that a meaningful opportunity longer term?

In the past we were the largest structural fabricator of bridges in the country, and this was back in the '80s. And we played a more of a nationwide role in that area. And we have found that for the resources that we have and the type of products that we're producing that the area that we know best, kind of like our Concrete and Aggregate business, is the southwestern part of the country. And we decided to channel our resources in those areas.

Barry Haimes with Stage Asset Management.

Great quarter. I had two questions. One is could you give us an update on the new tooling program for the coal car line? Is that in currently? And if so, are you hitting your profitability targets with that new program?

And then my second question was for intermodal cars, it seems like there has been a dearth of orders recently. And is that just the normal lumpiness and you expect to see some major orders over the next one or two quarters, or do you think there is some change in that part of the marketplace? Thank you.

This is Tim. I will do the first one. As far as the coal business goes we're in a process during the fourth quarter of installing that equipment. We're still very optimistic that we will obtain the benefits on that. That is why we have elected to go ahead and pursue this business fairly aggressively. We are bullish on coal. Steve, do you want to handle the question on the intermodal?

There were no orders that we're aware of for intermodal equipment during the third quarter. You're right. Those orders are typically lumpy. But clearly the traffic, the intermodal freight traffic, continues to grow at a very robust rate. And equipment will be continued to be needed to respond to those loadings. We would expect there will be intermodal orders in the near future.

Louis Supear (ph) with Oppenheimer & Co.

I'm situated in the Northeast and I am interested in the wind tower business. Do you have any indications that you might enter in this particular area? Or do you have any plans for Maine, New Hampshire, Vermont, etc.?

As I said earlier, it is a geographical business and we're looking at the various regions. We would have a tendency of looking to the western part of the United States before we would look to the eastern part of the United States on that. But in our business we always have opportunities that we're pursuing. And a lot of people come to us with opportunities, and so we can't ever say that we won't do something. But our focus is looking more towards the western United States than the Eastern.

Remember that they want to do something in the Nantucket Bay area which could be tremendous.

Yes, I would love to go up there and inspect those products being built up there. But we'll just have to see. Wind tower business takes large facilities with heavy cranes. The location to steal, and so -- and then very specialized equipment. It is a challenge for people to just go enter into that business. When you look at this business you have to look at the long-term effects of the production tax credits.

What is your backlog of business in this particular area?

Our backlog of business in this area is carrying is through '06, and we're booking into '07.

Bob Fetch with Lord Abbett.

As far as the -- just to follow up on the wind tower -- are there any issues there in terms of steel supply currently? And what would you due to preempt that in the future?

This is Bill. On the steel supply in the wind tower business, we have a good supply and we have a good contract in place with their steel supplier, and don't have any concerns about a steel shortage right now.

Is that domestically supplied?

Yes, it is.

Is that beams you are buying?

I beg your pardon?

Are you buying beams -- steel beams?

No, that is plate steel.

And are you using the same supplier for your tank cars?

We use a lot of different suppliers for steel throughout the Company. And we don't get into specifics of the individual suppliers we use for any one given product.

This is Tim. There is synergy on that product that the tonnage that we get on the wind tower there is a lot of tons on that that also plays into the other plate steel that we use on the bridge girders, as well as our plate steel for our railcars and other products like that.

Are you talking purchasing cost synergies?

Yes.

In regards to another costs line item, wages. Can you update us in terms of what you are experiencing in terms of year-over-year wage cost increases, and whether you have any supply issues?

Our wage cost increases are in line with cost of living numbers that you see reported basically. We do have some hot spots in some areas of the country where we're trying to hire workers faster then the market can supply them. I think most all heavy manufacturers and manufacturing people have the same type of challenges and issues that we have. And our goal is always to pay competitive wages and benefits in the areas where we compete. We monitor this very closely. And it is all about attracting a good workforce.

In that regard, I know some previous cycles in the past there have been some issues, say, finding enough good welders. Is that the case then today?

It is the case in some areas of being able to get welders onboard, and then at that point you put in weld schools and you try to train them and enter them into the system at a relatively slow rate. And then they progress as they learn and grow.

Then just from a bigger picture standpoint, going back to the Thrall acquisition and the demand you are seeing in some areas like wind tower and construction, and the growth in your asset base say relative to the late '90s when you were 2,000 when you were earning at a $4 earnings power rate. Is there any reason into '07, '08 that this cycle shouldn't support a new peak in earnings?

That is why I said earlier we're focused on productivity enhancements and our profitability, and not quite as much on topline growth but bottom line improvement. And we have a lot of egos in this Company that are heavily focused on saying, let's beat what we have done in the past. We've got a lot of momentum moving in that direction from people setting goals and targets who are trying to say, let's improve on what we have in the past. But at same time we've got a kind of -- we have got a business structure than we had then.

If there were an item or two that would inhibit the performance up to the levels that you would like to see, what might they be?

What we experienced last year was material cost increases. You've got a lot of energy increases that we're dealing with now, and basic materials increases. So materials and energy do play a major role in the transportation cost, as well as the manufacturing cost of our businesses. And all businesses now are having to absorb some significant increases in these areas, and do their best to try to pass then on through the system. And I think that is probably the thing that gives us the most exposure.

Stephen McBoyd (ph) with Lord Abbett.

First on the wind energy business as well, did you actually quote the dollar backlog there?

No, we did not quote the dollar backlog on that.

Would you be willing to do that, since you quote the dollar backlog in the other segments.

We will probably look at considering doing that at the fourth quarter when we've got that business scheduled through our operations as effectively as we can.

I think you were doing approximately $17 million run rate first half. What would be the current quarter?

The current quarter is a little closer to 20 million, as we said in the last call. And looking to move that up slightly as we move into '06.

And the margins on wind?

We're not going to get into the individual margins of wind as compared to the other businesses.

Are you serving only one customer there today? And would that change going forward?

We have multiple customers with inquiries for products in this area. There are several different customers that we're looking at.

If you can support, call it, 20 million in run rate today. Looking out one, two years, what sort of revenue run rate would you like to be able to support?

We are going to be cautious about how much production we convert over to this. A lot of this depends on how effective the turbines are going to be at providing efficient energy. And that is tied back to the cost of natural gas and such. We're going to bring on capacity as we feel there is sustainability in the market. But this is an good growth opportunity for us as a Company, and we have recently put some people in here from other parts of our business that we dedicated management to this so we can focus their attention 100% on this. We will know more as we go through the next couple of quarters of being able to give you some projections so you can make your analysis.

Any capacity additions that you would have there would be for committed demand?

Absolutely.

On the barge side of the business, what was the second quarter dollar backlog?

The second quarter dollar backlog was $250 million.

You're fully booked now for both hopper and tank '06?

As I said earlier, fully booked is a term that we don't know in some of our businesses if we are ever fully booked because of some other productivity gains that we're getting, and some of the improvements that we have in place with capital projects. Bill had mentioned, and I think it is somewhere in the $40 million range that we have for capital that is dedicated to all types of improvements and replacement capital inside of our business. And a lot of times that, along with long-term production efficiencies, allows us to squeeze more out.

But based on the level of productivity today and the efficiency rate that you are running at, what sort of revenue rate would you require to get back to say 12% type margins, that which you have done historically?

That is too theoretical of a question for me to try to address at this time. We're focused on let's improve the operating margins that we have bits and pieces at a time. And you're looking at something of long-term strategy disclosure and all that type stuff, and we just can't get into that.

Unfortunately, we are put in the position of having to try to do so. What would your EBITDA margin be in that business today?

In which business?

Barge?

We haven't disclosed the EBITDA margin, but if you get into the Q and the K, you'll have the depreciation for the segment lined out, and you can work your way back from there.

On the leasing side, I was wondering maybe if Steve could just elaborate on the lease rate? In terms of the spot market today, what sort of lease rate increases he is seeing year-over-year, and how those have maybe kind of run through the year?

Lease rate changes vary quite a bit by car type. And it is largely in part a function of utilization of that car type, as well as new car pricing. As we have seen, new car prices increase, and we have seen substantial price increases on new cars. We are also seen lease rates move up as well.

Clarify what sort of order of magnitude?

It just depends on the car type that you are dealing with there. Across the Board though lease rates have been moving up in what, double-digit?

Low double-digits, high single digit increases.

Can you just refresh me, does GATX still have their committed purchase program with you? And maybe you can refresh me on the terms there in terms of when that may run out?

We do have a committed program through 2007 with GATX.

Just the last question, the share count in the fourth quarter for the guidance that you've given?

A little over 51 million on a fully diluted basis. 51.3.

Congratulations. Good quarter.

Bill Baldwin with Baldwin Anthony.

Can you give an indication as to -- on the railcar pricing what kind of year-over-year price realizations we're looking at as far as changes are concerned?

It is just extremely hard with the product mix that we have, since we built a wide variety of products, to come out with a generic number that says railcar prices have moved up. Railcar pricing is always a function of the delivery and capacity of the industry versus the strength of the demand. And sometimes the orders are a little bit lumpy.

And so you end up having quarter to quarter fluctuations on the various pricings. And in the last couple of years with all the increase in pricing and material costs that the OEMs have had, they have been trying to pass those through. There is really not a standard number that we can say railcar pricing has moved up X number of dollars or X%.

Eric, we will have time for one more caller to ask questions before you turn it back over.

Actually that was the last question, so I will turn get back over to James Perry for closing comments.

This does conclude today's conference call. And remember a replay of this call will be available starting one hour after the call ends today through midnight Thursday, November 10. The access number for the replay is 402-220-7227. Also, this 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.