Trinity Industries Inc (TRN) 2008 Q1 法說會逐字稿

Good day and welcome to today's teleconference. At this time, all participants are in listen-only mode. Later there will be an opportunity to ask questions during our Q&A session. Please note this call may be recorded. Now I'd like to turn the program over to James Perry, Vice President Finance Treasurer. Please go ahead.

Thank you, Kevin. Good morning from Dallas, Texas, and welcome to the Trinity Industries First Quarter 2008 Results Conference Call. I am James Perry, Vice President of Finance and Treasurer for Trinity. Thank you for being with us today.

In addition to me, you will hear today from Tim Wallace, Chairman, Chief Executive Officer and President; Steve Menzies, Senior Vice President and Group President of the Rail Group; and Bill McWhirter, Senior Vice President and Chief Financial Officer. Following that, we'll move to the Q&A session. Also in the room today is Chas Michel, Vice President, Controller, and Chief Accounting Officer.

A replay of this conference call will be available starting one hour after the conference call ends today through midnight on Thursday, May 8th. The replay number is 402-220-0116. I would also like to welcome to our call, our audio webcast listeners today. Replays of this broadcast will also be available on our website located at www.trin.net.

Before we get started, let me remind you that today's conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995 and includes statements as to estimates, expectations, intentions, and predictions of future financial performance. Statements that are not historical facts are forward-looking.

Participants are directed to Trinity's Form 10-K and other SEC filings for a description of certain of the business issues and risks, a change in any of which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.

On March 31, 2008, our borrowings at the corporate level were the $450 million of convertible subordinated notes, $201.5 million of senior notes, and $2.9 million of other indebtedness. The leasing company's debt include $330.5 million of secured railcar equipment notes; $61.4 million of equipment trust certificates; and $384.1 million outstanding under our railcar leasing warehouse facility. Our total debt to total capital ratio was 44.8% on March 31, 2008, as compared to 46.1% at March 31, 2007. Net of cash, our net debt to capital ratio was 41.1% on March 31, 2008, as compared to 41.3% at March 31, 2007. On March 31, 2008, our cash position was $199.7 million.

In December 2007, Trinity announced authorization for a $200 million share repurchase program through 2009. During the first quarter, we purchased 471,100 shares of stock in the open market for $12.2 million. Our cumulative purchase through the first quarter totals 575,300 shares for $15.1 million. We will provide details of our purchases when we report our results at the end of each quarter. Now here is Tim Wallace.

Thank you, James, and good morning, everyone. I am pleased with our first quarter financial results. Trinity's businesses are performing well in a challenging economy. We are benefiting from the diversity of our multi-industry portfolio, our sizable order backlogs, as well as product efficiencies. Each of our business segments except the rail group increased its first quarter profits over last year. Our rail group's profitability was within 2% of last year's record results. This was a great accomplishment on the North American rail group's part in light of the slowdown in the demand for railcars in North America.

We continue to invest capital to enhance and improve our competitive positions in all of our businesses. Trinity's overall position is stronger as a result of our investments in a variety of initiatives designed to reduce costs, diversify our product lines, and increase manufacturing flexibility. We are positioned to compete in virtually any operating environment.

General economic downturns like the one the United States is currently experiencing often cause highly competitive pricing. In these types of markets, our businesses aggressively pursue orders to maintain production continuity and efficiencies. We have been an aggressive competitor in all of our businesses for decades. Our businesses strive to have a low-cost basis, which provides them flexibility.

During the past decade, we have transitioned much of our manufacturing capacity from higher-cost facilities to lower-cost operations. We currently have a number of different products being manufactured in our Mexico facilities. By consolidating manufacturing operations for several of our businesses in Mexico, we are able to spread our fixed costs over several product lines. This makes a significant difference in highly competitive markets.

Another challenge we are confronted with today is inflationary pricing in the supply side of our business. We are seeing another round of inflationary pricing beginning to creep into our raw materials. Still, prices are on the move again. We have experienced sourcing personnel in our businesses who are working diligently to maintain our low-cost structure. Each of our businesses are attempting to pass through material cost increases via product pricing. This may not be possible in a few select markets where industry supply exceeds demand. To avoid compression of our margins, we are working in these businesses to reduce our other costs at a rate faster than raw material cost increase.

In some businesses, we expect to have decreased margins as we begin using higher-priced raw materials. This is a very dynamic situation and it's very difficult to precisely predict the total impact that cost increases could have on our margins. We have tried to incorporate our assumptions for these variables into our forward-looking guidance figures. We will provide an update on this at our second quarter conference call.

Historically, during tough markets, we have become a stronger company, and I am confident we will repeat this again as we navigate through the current challenging times.

On a company-wide basis with large backlogs of orders in place, the timing is now ideal for us to extract additional efficiencies from our operations by utilizing the principals of lean manufacturing. This year we are expanding lean manufacturing initiatives throughout many of our companies.

We continue to strengthen our multi-industry footprint by pursuing a broad spectrum of opportunities. We are expanding our structural wind towers business and our railcar leasing business. Our investments in growing these businesses will help diversify our sources for future earnings. We have grown our leasing business revenues from operating activities 150% during the past five years. This has helped diversify our revenue stream and strengthen our relationships with the end users of railcars. Revenue from our structural wind towers business has grown 70% over the last 12 months. We are very bullish on our opportunities to continue to grow this business.

We also consider product development a high priority and plan to continue launching a variety of new and enhanced products in our railcar and highway products businesses.

We have teams of people working on a variety of initiatives to design -- to utilize the full potential of the synergies we have as a company. Our multi-industry portfolio of market-leading manufacturing businesses provides us numerous opportunities to share best practices. The cumulative effect of these initiatives enhances Trinity's position as a multi-industry company.

At this point, I'll cover some high-level points about several of our businesses. I'll start with our rail group. Overall demand for railcars in North America was not as strong in the first quarter as it was in the first quarter of last year. We continue to see this as a moderate down cycle as opposed to a deep trough like we experienced at the beginning of the decade. Despite difficult industry conditions, our rail group generated operating profit of $77.2 million for the first quarter. This level of profitability was the fourth highest in the company's history. I believe this was quite an accomplishment on their part and reflects the benefits associated with several of the initiatives I mentioned earlier.

This year I expect our rail group's performance will illustrate the strength and depth of its manufacturing flexibility along with the benefits of having a broad product offering. Steve Menzies will provide more details in his report.

Trinity's inland barge group continues to perform well. I am very pleased with this group's substantial increase in profitability during the first quarter. Our momentum is strong in this business. The value of our barge backlog increased slightly, and our customers continue to visit with us about opportunities for future business.

Our Constructions Products group had a good first quarter. The portfolio restructuring that took place last year in our concrete business is producing good results. These changes, along with the other initiatives, have helped us improve our year-over-year profitability. Demand remains steady for construction products as we enter the prime season of this segment.

Our structural wind towers business continues to both improve and grow as illustrated by our revenue and profit improvements over the last year. I am very excited about the potential for this business. Demand for structural wind towers remains robust. Our order backlog more than doubled during the first quarter and is an all-time record of more than $1.6 billion. I am very proud of the way our people have approached the growth opportunities in this market. Our new wind tower manufacturing facility in Mexico will increase its production during the next 12 months.

We recently negotiated terms for a structural wind tower factory in Newton, Iowa, and expect to begin shipping towers during the first half of 2009. We continue to expect a learning curve for this business as our expansion program ramps up. It will take us a couple of more years to reach optimum production for this business segment. I am very excited about the opportunities this business provides for Trinity and its shareholders.

Trinity's railcar leasing and management services group had a good first quarter. We continue to grow the size of our lease fleet. Railcar leasing and management services continue to be a key component of our overall growth statistics. Steve will provide more detail in his report.

From an overall perspective, I am very pleased with the performance of our company and our unique position within the industries we serve. We have excellent market leadership positions and healthy backlogs that allow us to continue our focus on improving our performance. The internal expansion activities we initiated during the past several years have enhanced our competitive positions. We are closely monitoring the demand levels in our markets as we search for opportunities. We expect our markets to be challenging and dynamic until the economy begins to recover. I remain optimistic about Trinity's ability to effectively compete as we leverage off the strengths within our multi-industry platform.

I will now turn it over to Steve Menzies for his comments.

Thank you, Tim, good morning. TrinityRail continue to perform well during the first quarter of 2008. Operating profits and margins held steady as continued gains and productivity helped to offset the impact of a competitive pricing environment and materials cost increases.

TrinityRail shipments decreased 8.5% to 6,010 railcars compared to the first quarter 2007. At this time we expect our production levels to remain stable with combined shipments of between 13,000 and 14,000 railcars through the second and third quarters of 2008.

One of our operating goals is to retain the production efficiencies we gained during the last few years. By keeping our production volumes stable, we should be able to accomplish this. In fact, continued improvements in operating efficiencies have partially offset the downward pricing pressures we anticipated during 2008. Our operations group is doing an outstanding job generating further efficiencies and cost reductions.

We are beginning to see benefits from lean manufacturing initiatives in our production facilities. We do, however, expect our operating margins to decline over the course of 2008 amid a highly competitive environment and rising raw material costs.

With regard to the overall railcar market, industry railcar orders during the first quarter continued at a moderate pace. Approximately 10,900 railcar orders were placed industry-wide during the first quarter. At quarter-end the total industry backlog stood at approximately 66,300 railcars compared to a backlog of 76,700 railcars at the end of the fourth quarter.

Trinity's order backlog comprises 42% of the total industry backlog. Recent order inquiry levels indicate second quarter 2008 orders could be in line with first quarter order levels. Independent forecasts place 2008 railcar production in the low 50,000-car range, which is consistent with the market inputs we continue to review.

As you know, railcar demand shifts periodically from car type to car type and fluctuates from quarter to quarter. Order levels in the first quarter reflected steady demand for auto racks, multiple types of covered hoppers, improving demand for coal cars and continued weak demand from select markets such as intermodal and boxcars.

Demand for tank cars this quarter was lower than recent levels -- unique to this railcar cycle for the demand to replace older, smaller, and less efficient railcars. This is particularly the case for tank cars and covered hoppers. Larger, more efficient railcars allow the railroads to increase system capacity without infrastructure spending, and the high price for scrap steel encourages railcar owners to scrap older railcars.

The replacement cycle for an aging North American railcar fleet will be a consistent driver for railcar demand.

During the first quarter of 2008, TrinityRail received approximately 4,080 railcar orders. Many of these orders extend production lines for a variety of railcars. Specifically, we received orders from third-party leasing companies, railroads, industrial shippers, and utilities for covered hoppers, coal cars, open-top hoppers, new gondolas, [leg] cars, auto racks, and tank cars.

The diversity of our orders reflects the broad breadth of TrinityRail's product line and customer base.

At the end of the first quarter, TrinityRail's firm order backlog was approximately 27,960 railcars compared to approximately 31,870 at the end of the fourth quarter 2007. The March 31, 2008, backlog reflect the removal of 1,970 railcars due to uncertainty associated with the bankruptcy of a customer from whom we had an order to produce 10 cars and covered hoppers in 2009.

Our strong order backlog, which extends through 2009, produces good visibility for our production plans. This visibility enables effective production planning, and positions us to pursue additional operating efficiencies. Our production facilities are operating at very high efficiency levels. This reflects the benefits of our strategy to maintain our current production levels.

As I reported last quarter, our planned production for 2008 includes a number of open slots weighted toward the second half of the year. I am pleased to report today that we have reduced the number of open production slots remaining in the second half of the year as a result of our sales efforts.

We will continue to aggressively pursue additional orders, which extend existing production lines to maintain current production rates. Our key component of our marketing strategy is ensuring railcars are available when our customers need them. Thus far we have been very successful with anticipating the needs of our customers. Our flexibility to meet customer delivery requirements, often at short notice, is a key competitive factor.

We are building railcars to hold for future sale to meet those customers' needs and to bridge or extend production continuity, our broad product line, operating flexibility, and ability to deliver railcars when our customers require them provides us a competitive advantage to secure orders and sustain production.

Our railcar leasing and management services group continue to grow its railcar fleet during the fourth quarter. TrinityRail shipped 2,530 new railcars to customers of our leasing company during the first quarter, all subject to firm, non-cancelable leases. This represented about 42% of TrinityRail's first quarter railcar shipments.

During the first quarter, we sold approximately 560 railcars from our lease point. As a result of these first quarter sales and our fleet additions, our lease fleet grew to approximately 38,030 railcars compared to approximately 32,500 at the end of the first quarter 2007. Demand for railcar leasing continues to increase as evidenced by our strong lease backlog. Trinity's committed lease backlog as of March 31, 2008, was approximately 13,065 railcars, or 47% of our total production backlog. We continue to see a long-term trend for railroads and industry producers to use their capital resources to acquire assets, which are part of their businesses, while relying on lessees for operating assets such as railcars.

Our lease fleet utilization remained at more than 99% at the end of the first quarter 2008. The average age of the railcars in our leasing fleet is 4.8 years, and the average remaining lease term is approximately 5.2 years. These two key operating metrics underscore our ability to maintain high-speed utilization. Our newer, highly productive railcars are less likely to be returned from lessees upon lease expirations during a market downturn.

Customers typically return older, less efficient railcars as they downsize their fleets during the economic cycle. Our high average remaining lease term provides a hedge against short-term market downturns therefore mitigating some re-marketing risks.

In summary, I am very pleased with the overall performance of TrinityRail. While we face a challenging market environment, our highly competitive cost structure, broad product line, and focused organization positions us well to be successful. Our operating, marketing, and leasing strategies are showing good results.

I'll now turn it over to Bill McWhirter.

Thank you, Steve, and good morning, everyone. My comments relate primarily to the first quarter of 2008. We filed our Form 10-Q this morning. You will find more details there about our first quarter.

For the first quarter of 2008, we reported earnings of $0.81 per diluted share from continuing operations. This compares with $0.74 per share from continuing operations in the same quarter of 2007. Revenues for the first quarter of 2008 increased 8.5% over the same quarter last year. Earnings from continuing operations exceeded the high end of our guidance by $0.07 per share. These positive results were primarily due to the following -- excellent operational performance in our rail and inland barge groups and improved results in our structural wind tower business.

Moving to our rail group -- revenues for this group were flat on a quarter-over-quarter basis. Rail Group sales to Trinity's leasing and management services group were $217 million in the first quarter of 2008 with profits of $31.2 million, or approximately $0.25 per diluted share. This compares to our sales for our leasing group in the first quarter of 2007 of $173 million with profits of $28.2 million or $0.23 per diluted share. These intercompany sales and profits are eliminated in consolidation.

Our margin results for the rail group were 13.6%. At this time we anticipate margins for the rail group of between 11% and 12% for the second quarter. As we look forward, we expect margins of between 6% and 9% for the second half of the year. This margin level represents the competitive pricing environment, the mix of car types to be built during the year, and recently announced raw material price increases.

The rail group backlog as of March 31, 2008, consisted of 27,960 railcars with an estimated sales value of $2.4 billion. Our railcar backlog is broken down approximately as follows -- backlog to our leasing company, $1.1 billion; backlog to TRIP, $500 million; and backlog to third parties, $750 million.

Now turning to our inland barge group. The inland barge group's first quarter performance was, once again, very strong posting revenues of $138 million, an operating profit of $26.5 million. $2 million of the operating profit was the result of unclaimed damages in the class-action lawsuit for which Trinity received a refund. The results of the inland barge group continue to reflect a high level of operational excellence.

The group's backlog as of March 31, 2008, totaled $792 million. This compares with $569 million one year ago. We anticipate inland barge revenues of between $140 million and $150 million per quarter for the remainder of 2008. Operating profit margins are expected to range between 15% and 17% for the same period.

Now moving to the energy equipment group. During the first quarter this group's revenues were $130 million; operating profits were $18.2 million; and operating profit margin was 14.1%. The energy equipment group's revenue and growth continues to be driven by our structural wind tower business.

The first quarter operating profit margins represents an operational improvement in our newer plants. We see annual revenue for 2008 of between $580 million and $600 million for the (inaudible). Wind tower revenue should account for approximately $390 million of this total.

Revenues for our construction products group grew slightly when compared to the same quarter of the previous year. Operating profit was $12.2 million for the quarter representing a 21% improvement over last year.

Our railcar leasing and management services group reported revenues of $120 million compared with $71 million in the same quarter of 2007. Operating profit was $34 million with $7.4 million resulting from car sales.

During the first quarter, car sales from the fleet were $49.7 million. TRIP accounted for $38 million of those sales. In addition, TRIP purchased $146 million worth of railcars from our manufacturing companies during the quarter.

For 2008, we anticipate between $650 million and $750 million in net fleet additions to our Trinity leasing fleet. As a form of clarity, net fleet additions are the fair market value of cars added to our fleet less the proceeds of cars sold from the fleet.

Moving to our consolidated results -- for 2008, we expect non-leasing capital expenditures of between $180 million and $190 million. During the second quarter, we expect to defer approximately $250 million in revenue and between $28 million and $32 million in operating profit as we grow our own leasing business and sell cars TRIP. This represents between $0.23 and $0.26 per diluted share.

We anticipate earnings from continuing operations for the second quarter of 2008 to range between $0.85 and $0.90 per diluted share. Our 2008 full-year guidance is $3.20 to $3.45 per diluted share. Included in our assumptions for 2008 are normal weather conditions, no unanticipated adverse resolution of legal matters, and railcar demand remaining at moderate levels.

Clearly, Trinity is a large buyer of steel products. As many of you are aware, there have been recent announcements regarding increased pricing in the steel marketplace. Trinity's cost coverage program includes a combination of customer contracts with escalation clauses, firm purchase order contracts with our suppliers, and the use of raw materials in inventory.

Cost pressures for the steel industry surrounding scrap, iron ore, and coal have resulted in a new round of negotiations with the OEM community. As a matter of policy, we do not discuss the details of our contracts or the negotiations with our suppliers. However, we do see this as a challenging steel-buying environment.

Our overall company guidance range represents our estimate for the likely outcomes surrounding this issue and all other projected data at this time.

In our earnings release yesterday, we provided a reconciliation of the non-GAAP term EBITDA. EBITDA from continuing operations for the first quarter of 2008 was approximately $161.4 million, as compared to $139.9 million in the same quarter last year.

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

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

(Operator Instructions) John Barnes, BB&T Capital Markets.

First, on your raw material costs, can you talk a little bit about what kind of increase you've seen in steel prices maybe through the quarter and where it is today, and then can you also elaborate a little bit as to what percentage of your total business, and I'm talking railcar, wind tower, construction products, you name it, anything that requires steel -- what percentage of your business or your contracts or backlog is covered by raw material escalators?

John, Bill McWhirter -- this question, obviously, in my script today we covered what we call "cost coverage," which is the escalation, the firm purchase order contracts and the use of raw materials. We're not going to dive into the details of what percent of contracts as any one of those particular types of coverage. As I stated, it is included in our guidance, our expectation of the likely outcome.

Just from a spot basis of where steel is today, steel today has risen anywhere from the $700, $800 range upwards to close to $1,000 a ton, just to give you kind of magnitude of steel pricing.

Okay, and how much steel are you actually buying on the spot or how far out do you commit to buying under contract given -- you've got some pretty decent visibility into your business with the backlog, so how far out are you going ahead and committing to lock in better rates and not be as exposed to the spot rates?

John, again, all of our products are different. Clearly, the bigger the products the more likely they are to have long-term contracts associated with them. We do use a variety of the steel distribution system for a lot of different reasons. In some cases, we're buying parts that are already stamped or cut, to that extent. So, again, we're not going to go into the details other than to tell you that it is included in our guidance for the full year.

Okay. There seems to be some M&A activity heating up. There are a couple of larger lease fleets out there that books are out on and other services type business. Can you talk a little bit about your appetite for any acquisitions? And, also, from a lease fleet perspective being for sale, does that give you any kind of -- does it put up any kind of roadblock in terms of more railcar orders in the near term just from the perspective of that a lease fleet being sold is less likely to buy or is that adding to what's already a weaker railcar market? Or does that have any impact at all?

John, this is Tim Wallace. As far as potential acquisitions be your companies or cars that may be available in certain lease fleets, we are always in the market looking at a variety of different transactions, and we don't make any public statements on any of these transactions unless we are completed with the negotiations of the transaction, and we have a firm contract.

So we are not really going to disclose anything that we may be currently looking at other than the fact that, as a company, Trinity has always been an active acquirer of assets of all types. What was your other question related to?

In terms of lease fleets available for sale right now, the books are out on -- given that there are a couple of larger ones out there, is that -- do you see that being an impediment to railcar orders from the standpoint that maybe a fleet that's for sale is not engaged in purchasing railcars while it's shopping itself and puts another hurdle on what's already a tough railcar market? Have you ever seen fleets this size being sold and therefore really don't have any kind of basis to know?

I think it's a little too early to try to speculate on what may happen, because leasing companies have annual plans and a lot of times they have their orders placed for months and a year or two out, and this is all just fresh, new information.

Okay, all right, and then, lastly, I don't have the information, I can't find it, I don't know if I overlooked it or if you have not provided it yet, but do you have where your wind tower backlog was a year ago? Just to give us an idea of the magnitude of increase?

Well, we have where the wind tower backlog was at the end of the year, and it was -- where was it a year ago. I don't think we disclosed it back then. We started disclosing it in the third quarter, I believe, and it was in the $700 million range, 750, and then it went to 700, and now it's at the $1.6 billion.

Okay, very good. Is there any -- are you beginning to hit any constraint issues on that side? I know you've taken on a couple of new facilities on the wind tower side, and maybe you could update us on the status of those, but any further constraints that you see right now in terms of delivering that backlog?

No, we don't see any major constraints. We've been very successful, thus far, at bringing on additional capacity in the wind tower structure industry, and we don't really see any constraints on a go-forward basis. As I said in my prepared comments, we are extremely pleased, and I'm very proud of the capabilities and the execution that our wind tower, wind structure tower people have -- folks have been able to perform. They are doing a really good job.

Yeah, I've got to congratulate you on that, because I never would have expected your wind tower backlog to begin to rival the railcar backlog. So you guys are to be congratulated for that. Hey, listen, nice quarter, thank you for your time.

Thank you.

(Operator Instructions) Alex Blanton, Ingalls & Snyder.

I'm having a little problem seeing how the guidance stays where it is -- 320, what is it, 320 to 340?

320 to 345.

Okay, because you just reported $0.81, and you said the margins in the railcars is expected to drop to 6% to 9% in the second half and 11% to 12% for the second quarter. So if I assume sales flat on the railcar side, and I put those margins on, that's a reduction of, I believe, about $0.09 in the second quarter from that lower margin. And then $0.25 for each of the next two quarters just from the lower margins on the railcar side.

Now, your guidance for the year assumes that the $0.80 continues per quarter, four times 81 would be 324, so how do you make up for the decline in the margin side in the railcars, which I assume is coming from the fact that you won't be able to recover all of these steel cost increases. And that's understandable, but -- and those steel cost increases must be affecting other parts of your business, too, so what is the effect there? It has a big impact on the margins on the railcar side. Wouldn't it have an equally big impact on the barges and some of the other products? It's hard for me to see how this all fits together.

Bill, I think you need to handle that question.

Yeah, Alex, I think you -- obviously, you've asked a very detailed question about each particular business segment. As we give company guidance consistent with our past practices, each quarter we try and bear the overall range down so that we're a little more consistent as we go into the year.

Given the current market (inaudible) for our rail products, the competitive pricing environment, and the raw material pressures, we believe the guidance, as a whole, 320 to 345, is representative of our best estimates of the total company's performance. We are not willing to break into a dialog to extract each individual business segment and steel componentry within those segments.

So you're not going to say how you expect to make up for the decline on the railcar side then?

What we're going to say is that we believe the earnings pattern and the margin guidance that we've provided coupled with overall tax rates, interest expense, et cetera, will bring us to the 320 to 345 range, and then the next conference call we'll try to refine that guidance even further.

Alex, this is Tim Wallace. We have a really elaborate forecasting system that all of our businesses report in to us on a monthly basis, how they are performing, and when we prepare for our conference call we use the April forecasting system that we have for information, and it's fairly complicated, so it's not easy for us to break it down into as many businesses as we have -- and moving parts -- to give the numbers. So that's why we provide the annual guidance because it lets everybody get a look into what our system is saying to us.

Okay, a couple of smaller points -- when you say the highest profitability, are you talking about margins, is that what you mean? The fourth highest in history, I think you said, in the railcar business?

No, we were talking operating profit for the quarter in dollars.

Oh, you're not talking margins when you say profitability. You're talking operating --?

No.

Okay. And I just want a definition there. On the backlog of the wind towers, you said that in the release that was several years. How many? Can you narrow that down a bit? How many years are we talking in the backlog area? Could you envision that being flat or a ramp up of some kind?

This is Tim Wallace. When you have multiple facilities that are growing at the rate that our facilities are growing, as well as some of the lean manufacturing initiatives that we have going in our facilities, there is free additional capacity for us. It's a very dynamic scheduling matrix, and it's very similar to what we have in our barge business as well as our railcar business where you have multiple facilities producing products, and you have the flexibility that we have. We don't have one facility that -- we don't have the total number that we can say our backlog stretches out through this time period, and that's why we give our backlog in dollars, and then we focus on growing as aggressively as we can to remain -- retain the efficiency levels that we have to be able to meet it. And for competitive reasons, we really don't want to disclose the timeframe as well.

(Operator Instructions) [Giles Van Praagh], Atlantic Investment.

Just a quick housekeeping question, if I might. The tax rate was higher than I expected for the first quarter. What are you expecting for the remainder of the year?

Giles, we typically say we look for a tax rate in the 37% to 38% range. It was a little higher this quarter. We had a one-time tax (inaudible) with one of our foreign entities. So I look for it to be something in the 37s and 38s as the year continues.

Steve Barger, KeyBanc.

I was hopping around on another call, so sorry if I missed any of this, but can you -- in the -- what's the theoretical capacity on a dollar basis in the wind business, once you get all those facilities ramped? I just caught the end of the last -- sorry if you covered this.

Well, Bill, why don't you address that?

Yeah, we haven't addressed a theoretical capacity. What we have provided are two looks at forward guidance. One is the kind of year where we've said that we are anticipating around $390 million in revenue. That's up from $245 million last year, to give you a perspective on growth.

But even more important than that, going forward, Tim Wallace provided on our annual conference call, our five-year targeted run rate for revenue is between $800 million and $900 million. So there obviously is significant growth still ahead of us.

Presumably, that lease facility wasn't included in the $800 million to $900 million contemplated on last quarter, or was it?

Yes, from a strategic point of view, we anticipated that we would have growth through additional facilities.

Okay, including this lease facility are there more implied in the $800 million to $900 million or is this it?

I think in the $800 million to $900 million, we're not going to get into the details of how many facilities or what facilities. A lot of our facilities have the potential just to be expanded within themselves as well the opportunity to look at other facilities. The $800 million to $900 million is a strategic plan more representative of the marketplace and Trinity's leading position in the marketplace.

Okay. Can you talk about the operating margin spread between the wind towers and the storage tanks?

No, we don't talk about the spread between that. We disclose the spread for the segment, and the segment was 14.1% for the quarter.

Right, understand that, okay. Barge -- can you break out volume versus price for the quarter?

No, we don't break out that. For competitive reasons, in this business, we prefer to talk in dollars. We currently have production lines set up building various types of barges, and we feel that it's much easier to talk with the investment community in a dollar figure, and Bill provides the guidance numbers so you have an idea of what that business will look like from a financial standpoint.

Okay, thanks for that. Can you talk about the coal market? I think, in your earlier comments, you had said something about it improving, but East versus West utilization rates by car type, and are you seeing a mix in the geographic usage of coal that's potentially going to drive coal car orders?

Okay, Steve, why don't you handle that one?

Yeah, I guess we're seeing two phenomena in the coal market, Steve. One is continued replacement of steel coal cars certainly in the West with the lighter aluminum cars. We are also starting to see some replacement on the first generation of aluminum cars, which are a little smaller and a little heavier.

I think the other dynamic we're seeing in part driven by the weaker U.S. dollar is significant exports of coal. Those seem to be going both offshore from the East and West Coast ports, and that has driven additional demand for coal cars to support that export growth.

Do you have any idea how many cars are in storage right now and what the outlook is for utilization in the East versus West if you just have an explicit number?

I don't have an explicit number. Our sense is that we're seeing some of the newer cars that were in storage beginning to be placed into service, and I think some of that overhang is evaporating.

(Operator Instructions)

Kevin, if there are no more questions, I'll go ahead and conclude today's conference call. Thank you. And remember to everyone, a replay of this call will be available starting one hour after the call ends today through midnight Thursday, May 8th. The access number is 402-220-0116. 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. Thank you for joining us this morning.

And, once again, this does conclude today's teleconference. You may disconnect at any time. Thank you for your participation and everyone have a wonderful day.