Trinity Industries Inc (TRN) 2008 Q2 法說會逐字稿

Good day and welcome to today's teleconference. (Operator Instructions). I will now turn the call over to the Vice President of Finance and Treasurer, James Perry. Please go ahead, sir.

Thank you, Curtis. Good morning from Dallas, Texas, and welcome to the Trinity Industries second-quarter 2008 results conference call. I'm James Perry, Vice President, 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 will move to the Q&A session. Also in the room today is Chas Mitchell, 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, August 7. The replay number is 402-220-0121. A replay 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 June 30, 2008, our borrowings at the corporate level were the $450 million of convertible subordinated notes, $201.5 million of senior notes and $3.3 million of other indebtedness. The leasing company's debt included $570.2 million of promissory notes, $327 million of secured railcar equipment notes, $76.3 million outstanding under our railcar leasing warehouse facility and $61.4 million of equipment trust certificates.

Our total debt to total capital ratio was 47.7% on June 30, 2008 as compared to 46% at June 30, 2007. Net of cash, our net debt to total capital ratio was 44.4% on June 30, 2008, as compared to 41.3% at June 30, 2007. On June 30, 2008, our cash position was $210 million.

In December 2007, Trinity announced authorization for a $200 million share repurchase program through 2009. During the second quarter, we did not purchase any shares under this program, instead using our capital for investments in our leasing and manufacturing businesses. Our cumulative purchase through the second 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'm very pleased with our results for the second quarter. Our performance reflects the success of the initiatives that we put in place during the past few years, including expanded diversification of our portfolio.

Our barge and wind tower businesses are examples of this. During the second quarter, our Inland Barge Group earned $27 million and our Energy Equipment Group earned $25 million. These earnings are significantly greater for each group than earnings during the same quarter last year.

Despite a highly competitive railcar market, our Rail Group generated an operating profit of $72 million for the second quarter. This was consistent with our first-quarter results. The Rail Group's operating margin was a solid 12.3%. Industry orders for rail cars in the second quarter were up 5% year over year. Our quarterly order rate was more than double what it was last year during the second quarter and 80% more than the first quarter of this year.

I'm very pleased with the fact that our railcar backlog increased. This is a result of our focus on obtaining orders that help us maintain production continuity and minimize line changeovers. Industry pricing remains highly competitive, indicating a challenging railcar market. Customers are getting excellent value at current pricing levels.

During the next few quarters, we expect to see the margins in our Rail Group reflect the highly competitive conditions they are experiencing, along with material cost increases. We're not sure how long the decreased demand levels will continue. Fortunately, rail is still a very efficient mode of transportation, and fleet statistics continue to reflect replacement opportunities.

In the interim, we're taking steps to shift a portion of our production capacity to wind towers. Responding to customer demand levels by shifting production capacity is one of Trinity's core strengths.

Trinity's Leasing and Management Services Group had a good second quarter. We continue to invest in our future by increasing the size of our lease fleet. Our railcar lease fleet surpassed 41,000 railcars. Three years ago at this time, our lease fleet totaled 22,300 units. We have made significant progress in achieving our goal of increasing the size of our railcar lease fleet. Steve will provide more information about Trinity's rails performance.

Trinity's Construction Products Group also had a great second quarter. This group's operating profit increased by 34% year over year, from $16 million to $21 million. We completed another small concrete divestiture during the second quarter. This divestiture was consistent with the steps we took last year to improve our concrete business' profitability.

We're in the prime period of the construction season, and demand continues to be good. We're exploring opportunities to expand our concrete business in areas where demand remains steady. Our highway products business has also been steady during this busy season. We sell our highway products in a number of other countries and in every state in the US. We have a wide variety of products to offer customers and the ability to shift production as the demand moves from product to product. If the weather continues to cooperate, we expect the balance of the construction season to be in line with normal seasonal activity.

I remain very optimistic about our structural wind towers business. We continue to explore additional ways to expand our participation in the wind energy market. We're very pleased with the Texas Public Utility Commission's decision to fund additional transmission lines for wind energy. Texas is at the heart of our market, and we expect the PUC's action will encourage our customers to pursue additional windfarms.

We have targeted Mexico and the central part of the United States as our key markets. Order inquiries remain very strong, and we expect our backlog to grow as we progress through the year. Our large backlog enables us to stage our growth and maximize our efficiencies.

Later this year, we will start converting two existing railcar facilities to wind tower production. This is part of an expansion plan that we have in progress to satisfy the growing demand for wind towers. Our ability to convert a facility from one product to another is a key strength in our Company. It allows us to aggressively pursue orders for a variety of products. We can select products which provide the best returns and then quickly ramp up facilities. Our highly skilled workforce makes this possible.

Our raw materials market remains very dynamic. Global demand for steel remains very strong. As a result, some steel products are on allocation. Fortunately, Trinity has a lengthy track record as a steel buyer, and we purchase a significant volume of steel on a consolidated basis. We're one of the largest purchasers of plate steel in North America.

We're currently focusing on securing the steel sources we need for 2009 and beyond. Because demand is so great, pricing is a major challenge in the plate steel market. The prices of the key raw materials required to produce steel are increasing at a rapid pace and impacting steel prices. The entire supply chain in the capital goods market is being challenged to absorb another round of commodity cost increases.

As our products absorb the higher cost of raw materials, we must be able to pass these increases on to our customers. It is too early to predict the full economic effect of steel cost increases. The majority of the long-term orders in our backlog have some type of provision for cost increases. Some do not, however, and in those instances, our margins will be reduced unless we can lower our costs.

We have attempted to take this into account in the forward-looking earnings estimates and margin guidance figures that we provide. We will update this information on our quarterly earnings conference calls.

From an overall perspective, I continue to be very pleased with the performance of our Company. We remain highly focused on our costs and strategic opportunities as we confront the challenges associated with a tough national economy and volatile capital goods market. We expect to continue to benefit from the investments we have made during the past, and we're exploring additional investments that should benefit us in the future. Our momentum continues.

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

Thank you, Tim. Good morning. Trinity Rail had another solid performance during the second quarter of 2008. Operating profits and margins held steady as continued gains in productivity helped to offset the impact of the competitive pricing environment and increases in raw materials costs.

Operating margins for the second quarter were 12.3% compared to 16.1% a year earlier and 13.6% during the first quarter of 2008. We've been able to keep our volume stable, which has enabled us to retain the production efficiencies we gained during the last few years. We anticipate continued benefits from lean manufacturing initiatives at our production facilities as well.

Our highly seasoned operations group is doing an outstanding job driving further efficiencies and cost reductions. We do, however, expect our operating margins to decline over the balance of 2008 amid a highly competitive sales environment and rising raw materials costs. The cost to build a railcar will continue to rise in 2009, driven by further significant increases in raw material costs.

During the second quarter, Trinity Rail's shipments were 6580 railcars, 9.5% greater than the 6110 railcars shipped in the first quarter of 2008 and 5.7% less than the shipments in the second quarter of 2007. We expect combined shipments of between 14,000 and 15,000 railcars during the third and fourth quarters of 2008. Some of these shipments will come from our finished goods inventory of railcars, built in advance of customers' needs.

We're currently reviewing our 2009 production plans. Based upon our current view of market demand, we anticipate decreasing our total production footprint going into 2009. Most noteworthy is the anticipated decline in tank car production in 2009. Year-over-year industry tank car production will be significantly less than in 2008 and 2007.

Ethanol production growth has slowed, and many idle new tank cars have yet to be absorbed by the market. In fact, as Tim mentioned, we're converting two railcar production facilities to wind power production and we're evaluating additional opportunities. These facilities and the men and women working in them embody the operating flexibility competency we strive to achieve at Trinity. This competency allows us to optimize our product mix, in this case to take advantage of the strong market demand for wind towers.

With regard to the railcar market, industry railcar orders during the second quarter continued at a moderate pace. Approximately 12,150 railcar orders were placed industrywide during the second quarter. This brings the industry total for the first six months of 2008 to over 22,300 railcars.

At quarter end, the total industry backlog stood at approximately 62,320 railcars, down 6% compared to the end of the first quarter. However, this is still a healthy backlog from an historical perspective and represents almost one year's production at today's industry operating levels.

Recent order inquiries indicate third-quarter 2008 industry orders could again be in line with second-quarter order levels. Industry orders seem to have reached a stable level, in the range of 10,000 to 12,000 railcars ordered each quarter, as evidenced by the last six quarters. Independent forecasts place 2009 industry railcar production in the 40,000- to 50,000-car range, which is consistent with the market inputs we review.

While making broad, general statements about the railcar market is tempting, it is more valuable to examine demand for various railcar types serving discrete end-use markets. As you know, railcar demand shifts periodically from car type to car type. Order and inquiry levels in the second quarter reflected steady demand for autoracks. A consumer shift to smaller, more fuel-efficient autos has prompted demand for trilevel autoracks, currently in short supply. Replacement of early-generation autoracks is also driving demand for new autoracks.

Demand also strengthened for multiple types of covered hoppers used to transport agricultural products and for coal cars, both driven in large part by export demand and improved railroad system fluidly.

We see continued weak demand in select markets such as intermodal, plastic pellet, centerbeam and boxcars, reflecting weakness in housing, automotive and consumer spending. We also see slowing demand for tank cars, although replacement of smaller, less-efficient tank cars and pending regulatory actions regarding hazardous commodities may spur demand in the near term.

During the second quarter of 2008, Trinity Rail received approximately 7430 railcar orders, raising our order total for the first half of 2008 to slightly more than 11,500 railcars. Many of these orders extend current 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, mill gondolas, autoracks and tank cars. The diversity of our orders reflects the breadth of Trinity Rail's product line and customer base.

At the end of the second quarter, Trinity Rails' firm order backlog was approximately 28,680 railcars, an increase of 2.6% over the first quarter of 2008. Our strong order backlog, which comprises 46% of the industry total, extends through 2009. This visibility enables effective production planning, materials sourcing, and positions us to pursue additional operating efficiencies.

Our Railcar Leasing and Management Services Group continued to grow its railcar fleet during the second quarter. Trinity Rail shipped 3170 new railcars to customers of our leasing company during the second quarter, all subject to firm noncancelable leases. This represented about 48% of Trinity Rail's second-quarter railcar shipments.

Our lease fleet has grown 18.5% to over 41,100 railcars compared to approximately 34,670 railcars in our lease fleet at the end of the second quarter 2007. Demand for railcar leasing continues increase, as evidenced by our strong leasing backlog. Our committed lease backlog as of June 30, 2008, was approximately 17,000 railcars or 60% of our total production backlog.

We continue to see a long-term trend for railroads and industrial producers to use their capital resources to acquire assets which are core to their businesses while relying on leasing for operating assets such as railcars.

Our lease fleet utilization remained at more than 99% at the end of the second quarter 2008. The average age of the railcars in our lease fleet is 4.6 years, and the average remaining lease term is approximately 5.1 years. These two key operating metrics underscore our ability to maintain high fleet utilization.

During a market downturn, our newer, highly productive railcars are less likely to be returned from lessees when their lease expires. Customers typically return older, less-efficient railcars when they downsize their fleets. Our high average remaining lease term provides a hedge against short-term market downturns, therefore mitigating some remarketing risk.

In summary, market demand, excess industry capacity and increasing raw materials costs are creating a highly competitive environment. The initiatives Trinity Rail put into place the last few years have helped position us well, operationally, to be successful in this highly competitive environment. Gains in operating efficiencies, however, will only partially offset raw materials cost increases.

We must successfully raise the price of our railcars and our lease rates to reflect the rapidly rising railcar costs. The scale of our 41,100 railcar lease fleet and its continued growth provides financial stability, greater customer access and flexibility in placing railcars into the market. Leasing has been and will continue to be an important strategic tool, integral to our successful performance.

I will now turn it over to Bill McWhirter.

Thank you, Steve, and good morning, everyone. My comments relate primarily to the second quarter of 2008. We will file our Form 10-Q this morning.

For the second quarter of 2008, we reported earnings of $1.06 per diluted share from continuing operations. This compares with $0.85 per share from continuing operations same quarter of 2007. Revenues for the second quarter of 2008 increased 5.9% over the same quarter last year.

Earnings from continuing operations exceeded the high end of our guidance by $0.16 per share. $0.11 of this performance was associated with the gains on divestitures and profits recognized on hedging activities. The remainder can be attributed to the strong operating performance in all of the manufacturing groups. These gains were somewhat offset by a $0.02 per share charge for anticipated losses on future sales in our Rail Group.

Moving to our Rail Group, revenues for this group declined on a quarter-over-quarter basis by 1.4%. Rail Group sales through Trinity's Leasing and Management Services Group were $253 million in the second quarter of 2008, with profits of $23.1 million or approximately $0.19 per share. This compares with sales to our Leasing Group in the second quarter of 2007 of $283 million, with profits of $50.3 million or $0.41 per diluted share. These intercompany sales and profits are eliminated in consolidation.

Our margin results for the Rail Group were 12.3%. At this time, we anticipate margins for the Rail Group of between (technical difficulty) for the quarter. This projected margin level represents the competitive price environment, the mix of car types to be built and anticipated raw material price increases.

The Rail Group backlog as of June 30, 2008, consisted of approximately 28,680 railcars, with an estimated sales value of $2.4 billion. Our railcar backlog is broken down approximately as follows -- backlog to our leasing company, $1.4 billion; backlog to TRIP, $250 million; and backlog to third parties, $750 million.

During the second quarter, our finished goods inventory increased as we produced railcars ahead of the contracted delivery dates to maintain production continuity. We anticipate that deliveries will exceed production in the third and fourth quarter as we deliver these railcars from our finished inventories.

Now, turning to our Inland Barge Group, the Inland Barge Group second-quarter performance was very strong, posting revenues of $151 million and operating profit of $27.2 million. The results for the Inland Barge Group continue to reflect a high level of operational excellence. This group's backlog as of June 30, 2008, totaled approximately $755 million. This compares with $677 million one year ago. We anticipate Inland Barge revenues of between $150 million and $160 million per quarter for the remainder of 2008. Operating profit margins are expected to range between 16% and 17.5% for the same period.

Now, moving to the Energy Equipment Group, during the second quarter, this group's revenues were $157 million. Operating profits were $25.4 million, with an operating profit margin of 16.1%. The Energy Equipment Group's revenue growth continues to be driven by our structural wind tower business. Wind tower revenues should account for account for approximately $425 million in 2008.

Revenues from our Construction Products Group grew by 11% when compared with the same quarter of the previous year. Operating profit was $21.1 million for the quarter, representing a 33% improvement over last year. We're pleased with these results and believe our portfolio adjustments in this segment have been successful.

Our Railcar Leasing and Management Services Group reported revenues of $86.4 million compared with $162 million in the same quarter of 2007. The higher 2007 revenues reflect $95 million in railcar sales from the fleet, which makes quarterly comparisons difficult. Operating profit for the second quarter of 2008 was $36 million, with $1.9 million resulting from railcar sales.

During the second quarter, car sales from the fleet were $9 million. TRIP accounted for $8.3 million of those sales. In addition, TRIP purchased $83 million worth of railcars from our manufacturing companies during the second quarter of 2008.

For 2008, we anticipate between $700 million and $800 million in net additions to our lease 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 nonleasing capital expenditures of between $160 million and $170 million. During the third quarter, we expect to defer approximately $285 million in revenue and between $12 million and $14 million in operating profit as we grow our leasing business and sell cars to TRIP. This represents between $0.10 and $0.12 per diluted share.

We anticipate earnings from continuing operations for the third quarter of 2008 to range between $0.91 and $0.96 per diluted share. Our 2008 full-year guidance has been refined to $3.45 to $3.55 per diluted share. Included in our assumptions for 2008 are normal weather conditions and no unanticipated adverse resolutions of legal matters.

In our earnings release yesterday, we provided a reconciliation of the non-GAAP term EBITDA. EBITDA from continuing operations for the second quarter of 2008 was approximately $197 million as compared to $153 million in the same quarter last year.

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

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

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

Bill, last quarter you provided us a little bit of a margin outlook, and I apologize if I missed it. I got pulled into another call briefly. Margin outlook for the balance of the year in the rail sector -- can you just talk through what you are anticipating and how much of that is an issue with raw material costs versus how much of it is a mix issue?

Yes, we gave two sets of guidance, John, for rail margins, 6% to 8% in the third quarter and 3% to 5% in the fourth quarter. As I've stated, that's a combination of really three events -- the current pricing environment, the mix of cars to be produced, and raw materials price increases that we anticipate running through the system. I don't think we're comfortable saying one is a third or one is a fourth, etc. So we put all of those together, and that's the guidance that rolls up to the annual guidance for the Company.

Do you recall the guidance you gave on margins for the second quarter?

Yes. For the second quarter, I said that it would be between 6% and 9% for the rest of the year. So 6% to 9% for the rest of the year, and this breaks it down to a little more refined, giving you both quarters.

Very good. I appreciate that. Sorry I missed that in your prepared comment. One thing, even if we look at some margin degradation in the second quarter, with your whole business in your third quarter versus the second quarter, I'm getting kind of a consolidated operating margin maybe 15.5% or a little higher. I know you're up against a tough comp in the third quarter from a year ago, where you had 25% revenue growth. But even if I modeled a low-single-digit revenue growth with kind of still a midteens margin in your tax rate, I'm coming up with something that's still in excess of your third-quarter guidance.

And I think more importantly, as I go back and look at the first quarter and the second quarter, you significantly exceeded your guidance on both measures. I'm just curious, what in the third and fourth quarter are you most concerned about to issue what from our viewpoint is a little bit more conservative?

John, I think a couple things to keep in mind. One is that interest expense for the Company has grown as we've grown the leasing business. So while you see the topline growth of the leasing business and the operating profit, you need to be cognizant that the interest expense grows with that.

Obviously, a 2-point margin range in the Rail Group between 6 and 8 can give you some vacillation in the overall number, and that's going to have a lot to do with how we perform at the plant level and how successful we are in some of the raw material price mitigation strategies. So the guidance is what the guidance is, but I can understand how the model could give you a range of numbers.

Two other small questions, one on kind of refining your production footprint on the railcar side. Can you give us a little bit more color behind how many facilities are you talking about this potentially impacting? Are we talking about taking a facility completely offline? As you look at it, can you give us an idea of what percentage of cars in '09 you are anticipating being produced in Mexico versus the US? Just any more color you can on that thought process.

Steve, why don't you answer that one?

Sure. John, first of all, we really are looking at our 2009 production plans as we speak. So as those start to become a little more clear to us, perhaps in next quarter's call we will be able to shed a little bit more light on our 2009 production plans.

With respect to the two plants that we're converting, those are plants that are making railcars today. We have plans in place where we think we will be able to make a very smooth transition to producing wind towers. And that's just capacity that we just don't see demand for in the railcar market going forward, at least for a couple of years.

And we have considerable demand for wind towers, so we think it's a great opportunity for us to utilize our skilled labor force and to make plant transitions, which we again believe is a competency of our Company that we seem to do well. So those two plants we're taking down and we will continue to look at our plants or 2009 as we move forward.

And then lastly, I can't let you off the phone unless I ask you about the Texas decision, the $4.5 billion being spent on the general (technical difficulty) lines and from West Texas into Dallas-Fort Worth, and T. Boone Pickens and his comments recently on wind towers. We've heard numbers range on demand in West Texas anywhere from 2700 towers to 7800 towers.

Can you just elaborate at all as to -- I mean, this is in your backyard. Can you elaborate at all as to what that potentially means for your wind tower business? Is your current backlog reflective of any of that development already, or is this new incremental demand out in the marketplace?

This is Tim. We sell to the wind turbine manufacturers and provide towers to them. And we have all of them talking with our management, leadership and salespeople and our wind energy business about a number of different opportunities. And we don't go back through them to try to determine which farms their towers that they are buying from us at this stage, when they are buying out there in the '09 and the '10 and '11 time period; we're just dealing with them on contract issues as well as the quantities and the run rate.

So we don't have an ability to reconcile windfarms to towers that we produce. We do know, though, that we're the largest producer of wind towers in the country. And as you say, this is right in our backyard. And that's why, as Steve said and I said in my prepared remarks, we have plans of converting a couple of our facilities, and we're looking at other opportunities in our Company in a number of different areas. We just have a real strong team of people that are dedicating 24/7 their energy and activities towards helping us pursue the business opportunities there, and it's very robust right now.

And then, I'm sorry, one last thing. In third quarter of '08 -- excuse me, third quarter of '07, you gave your initial 2008 full-year guidance and outlook. Should we expect similar when you report third-quarter numbers? Do you think you'll have a good enough handle on kind of the redefining of your production footprint on the rail side and that type of thing to actually provide some '09 guidance at that point?

John, this is Bill. At this time, we're just undecided as to whether we will provide that guidance in Q3. So, as soon as we know, we will post that number and/or we will provide it in Q3.

Yes, we were fortunate last year. In many of our product lines we had long backlogs and commitments from customers, and it gave us the opportunity to provide the outlook that we could in the third quarter. If we still have a lot of balls up in the air and space that we're trying to fill, then it's just a best guess at that time. And we prefer, when we provide long-term outlooks, to have as much substance as possible to provide those figures.

Nice quarter, guys. Thanks for your time.

Steve Barger, KeyBanc Capital.

Did you mention where those plants are that you're converting to the wind tower plants?

No.

Is that something that you would tell us?

No, it's not really public information at this stage. We're in the planning stage and taking some steps, and we don't really talk plant by plant until we are well underway in the construction project of converting them.

Okay, fair enough. Any idea -- can you talk about the CapEx associated with doing a switchover like that per plant?

Yes, I think from a CapEx perspective, I think Trinity is very fortunate that the flexibility in a lot of these plants, obviously, when we look at converting a plant, we look for a plant to fit the products as best as possible. So the CapEx is baked into our overall projections right now for the year, which is $160 million to $170 million total CapEx.

All right. Can we talk about the timing of the current backlog? If you had the capacity to monetize the entire backlog now, would it theoretically be deliverable over four quarters or is that a multiyear kind of contractual setup?

Specifically which product are you talking about?

I'm sorry, wind towers.

With regard to wind tower, wind tower has certain delivery dates which match up with projects. So you could not deliver the entire backlog in time.

Given that you've taken the expectation for wind tower revenues up for '08 to $425 million now, does that also mean that you're -- is it fair to think that you would accelerate the target of the $800 million to $900 million in revenues on an annual basis?

I don't think the two are really related. The $425 million is much more reflective of some successful ramp-up in one of our newer facilities, and a little more production issues than we had anticipated based on that ramp-up. So the $800 million to $900 million is a little more of a strategic view of what we see in this industry as we go forward. That $425 million is a near-term efficiency that our plants have been able to produce for us.

Well, I guess just to ask it another way, the $800 million to $900 million was a five-year plan, which implies 2012 or 2013. So given the conversion of the two plants that we're talking about and the other opportunities that you talked about, is it physically possible for you to get to $800 million to $900 million faster than that five-year plan?

As you have seen in the past -- this is Tim talking -- whether it was us bringing up our barge lines or our railcar lines or the wind energy, the wind tower business lines, a lot of times things happen faster than we can anticipate. But then there's other times where you have situations that occur that you don't obtain the goals as fast. I think it's very realistic to think that we will obtain those targets that we set out there. And it's probably safe to assume that if the people continue performing like they have in the past that we should be able to beat them as well.

That's great. And then just kind of one procedural question about the wind turbine backlog. Can you talk about the typical lag between a turbine OEM announcing an order and when a tower might hit the books? Is there any kind of consistency there or how does that work?

There's really no correlation. At this time, the wind tower OEMs are out booking space, so they can then commit to their customers on the quantities that they have. And in a very dynamic market like this, you have a lot of factors that are coming into play. And so there's really not a correlation there.

Paul Bodnar, Longbow Research.

Congratulations on a good quarter. One question here had on the lease fleet, I guess the timing of some new orders there -- as you guys have booked those to the past, I mean, obviously these were booked in periods when car prices were low and we've got an increase in raw material costs, now, these lease prices, you can't go back to that customer, I'm assuming, and reprice those leases. So do those now become unprofitable, or what happens to those transactions? I guess just a little color on that.

Well, the leasing business is just like a high-rise building, where you are leasing space. And when you build the building, sometimes you will make special deals with people to get the building filled up, and then you get renewal rates. We use our leasing company for launching new products from time to time. And we've been launching a new coal car in there. And we've had lease rates that encourage customers to take that coal car, and we're getting very good feedback on the use of it. And that provides a lot of good strategic information to us.

Then there's other competitive issues. Steve and his people spend a lot of time working over the strategies on all the various car types that we have. So, Steve, I don't know if there's a simple answer to this.

Well, I guess, Paul, when we're talking about railcar prices and lease rates, the price of a new railcar sets the feeling on lease rates. And in today's environment, we have high-priced railcars, and the price of railcars continue to increase based upon raw material costs. So that typically raises the lease rates for all car types.

If an existing car lease rate is discounted to a new car rate, as new car rates move up, existing car rates move up as well. So that car that we put in our lease fleet a couple of years ago at a much lower capital cost, as that car comes up for renewal or reassignment, we have the opportunity to increase those lease rates in a stronger lease rate environment, based upon higher new car prices, if you follow me on all that.

Yes. I guess my question was more that you have 17,000 cars in your backlog going into the lease fleet. And I assume that many of these leases were signed over the past six to 12 months or so, obviously prior to steel prices going up.

Now that the steel prices have gone up, the cost to produce that car has significantly increased. So are you in a contract there now on 17,000 or 15,000-some cars, where the cost to produce that car is not going to generate a good return on capital or even a potential (multiple speakers)?

Yes, most of those transactions, Paul, have escalation provisions in our leasing agreements as well.

Okay. That was my question exactly. So you could pass that through to the lease, the (multiple speakers)?

Yes.

Okay. And then secondly was, so when TRIP in the quarter, I just noticed [to have you see] delivered $93 million there. Last quarter, I just think at the end of the backlog you said you were going to have -- you had $500 million in the backlog going in there and now that's $250 million. Any kind of reason for the difference there? If you deliver $93 million, you should still have $400 million left in the backlog. Did you just reallocate that to your current lease fleet, or what's going on there?

This is Bill. We did make some allocation adjustments associated with TRIP in our backlog. We will do that from time to time just on certain diversification issues, whether it's diversification of car type, customer or credit risk. So we did make an adjustment that lowered TRIP, but raised the Trinity Leasing Company backlog.

Barry Haimes, Sage Asset.

I had just a clarification relating to some of the leasing numbers. I think it was mentioned that $253 million of the sales in the current quarter went to the lease company, and then $83 million for TRIP. Is the $83 million embedded in the $253 million, or are those two separate numbers that need to be added together to get the total lease, the total amount of cars that went to the two lease entities?

You would have to add the two numbers together. They are two separate pieces of business.

Got it. Okay. And then, so in doing that, it looks like about 57% of revenue, in round numbers, went to the two leasing entities. And do I have it straight that on a backlog bases, about -- it looks to be 68% or 69% of the backlog is contracted by the two leasing entities. Does that sound about right?

Yes, it sounds about right. But keep in mind, we're viewing TRIP as -- TRIP is a third-party entity, not a Trinity entity. We own 20% of that entity. We have a fairly robust footnote within our Q that I think walks you through those pieces of business.

Louis Sapir, Oppenheimer.

Would you kindly indicate how much more stock you have authorized to buy under existing authorization?

The original authorization was for 200 million. We purchased right at 15 million, so there's 185 million remaining under the authorization.

Is there any price limit or level?

There's not a price limit or level.

Who are your principal competitors in the wind tower business?

This is Bill. I think from a wind tower perspective, again, keep in mind we have somewhat of a regional focus, the center corridor of the US and through Mexico. And so within that region, there are competitors. We don't like to spend a lot of time talking about our competitors on the conference call. But there are both public and private sector competitors in that general geographic area.

The indication that T. Boone Pickens has a plan to go from Texas all the way up to the Canadian border -- do you expect that you will be participating in that, to any extent?

I think, as Tim mentioned earlier, our participation is primarily with the wind turbine manufacturing. So to the extent that wind turbine manufacturers are contracting on that particular piece of business and it sits in our operating model where our facilities are, I anticipate that our wind tower focus -- they are quite aggressive, and I'm sure they will be pursuing all opportunities for profitable business.

And if you look at the corridor that he is talking about and referring to, it's the central part of the United States. And that is the target market that we have identified as the corridor that we are pursuing business as well.

As I recall, you set up a plant in Iowa. Is that correct?

That's correct, Newton, Iowa.

Now, the last question is, is there any delay in delivery of turbines from GE?

Well, we're not purchasing turbines from GE. So that's not something that our people are monitoring. It's, GE is buying towers from us to fit up with their turbines. And so you probably would have to talk to one of their customers or somebody in that industry to get an understanding of the delivery delays there.

At this time, it appears we have no further questions. Mr. Perry, I will turn it back over to you.

Thank you, Curtis. This concludes today's conference call. Remember, a replay of this call will be available starting one hour after the call ends today through midnight, Thursday, August 7. The access number is 402-220-0121. Also, this replay will be available on our website at www.trin.net. We look forward to visiting with you again on our next conference call. Thank you for joining us this morning.

This does conclude today's conference. You may disconnect your lines at any time. Have a great day.