Trinity Industries Inc (TRN) 2009 Q2 法說會逐字稿

Good day, everyone, and welcome to today's program. (Operator instructions) Please note this call will be recorded. I'll be standing by if you should need any assistance. It's now my pleasure to turn the conference over Mr. James Perry, Vice President of Finance and Treasurer.

Thank you, Beth. Good morning from Dallas, Texas, and welcome to the Trinity Industries Second Quarter 2009 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 their comments, we'll move to the Q&A session. Also in the room today is Mary Henderson, our Corporate Controller.

A replay of this conference call will be available starting one hour after the conference call ends today through midnight on Thursday, August 7th. The replay number is 4022200117. 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 direced to Trinity's Form 10-K and other SEC filings for a description of certain of the business issues and risk, the change in any of which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.

On June 30th, 2009, we had total borrowings of $1.91 billion. Borrowings at the corporate level were $450 million of convertible subordinated notes, $201.5 million of senior notes, and $3 million of other indebtedness. The leasing company's debt included $544.6 million of promissory notes, $312.6 million of secured railcar equipment notes, $298.6 million outstanding under our railcar leasing warehouse facility, $61 million of a seven-year term loan, and $39 million of capital leases, for total leasing company debt of $1.26 billion at June 30th, 2009. This compares to a book value for total leasing equipment of $2.8 billion.

In today's call, you will hear us refer to the non-GAAP term EBITDA. A reconciliation of EBITDA was provided in our press release yesterday. For the second quarter, EBITDA was $127.9 million.

During the second quarter, we had several key financing accomplishments that strengthened the balance sheet. We entered into a loan secured by railcars for $61 million. The security used for the facility included railcars that had previously secured the equipment trust certificates that were paid off in the first quarter. This demonstrates our ability to continue to find attractive financing for railcars during their lifecycle.

In the second quarter, we entered into two sale-leaseback transactions for railcars. These provided $26.1 million of cash to the Company and are attractive pieces of financing. These transactions and similar transactions in the first quarter have generated a total of $60 million of cash.

Finally during the second quarter, we renewed our railcar leasing warehouse facility through February of 2011. As previously indicated, we rented the facility for $475 million, an amount lower than our last renewal. This was deliberate, as slower demand for railcars has reduced our need for financing. The lower level saves us unnecessary financing expenses that would have been associated with a larger facility.

At June 30th, we had $176.4 million available under our railcar leasing warehouse facility.

After all of these activities and the cash flows from our businesses, our cash position increased significantly during the quarter, to $440.9 million, up from $170.4 million at March 31st.

In addition to our cash, at June 30th, we had $334 million available under our $425 million revolving credit facility, which matures in October of 2012. The portion of the facility that is utilized is due to our usage of letters of credit. There were no cash borrowings under the facility at June 30th. At quarter end, we were well within all the covenant requirements of this facility.

During the next 12 months, through June 30th of 2010, our debt repayment commitments total $58 million. Our next debt maturity, or renewal, occurs in early 2011, when we will revisit the warehouse facility. Details of future commitments and our debt can be found in our 10-Q.

As you can see, we are positioned well in the current choppy financial markets, with total liquidity from our cash and credit facilities of approximately $950 million. We did not purchase any Trinity shares during the second quarter. Our cumulative purchases under the $200 million program launched in late 2007, which ends December 31st, 2009, totals 3,532,728 shares, for a total of $67.5 million.

In summary, our financing activities have been very successful and our EBITDA has totaled approximately $597 million during the last four quarters. We are positioned well, with a strong balance sheet and cash flows. We have been very focused on these activities, to ensure we are positioned to capitalize on business opportunities as they arise. Now here's Tim Wallace.

Thank you, James, and good morning, everyone. During the second quarter, we made great progress in strengthening our balance sheet. Liquidity and cash generation has been one of our top priorities during the first half of the year. This is reflected in the $440 million cash position on our balance sheet. James provided details of a number of financing activities that have improved our liquidity.

We also made progress in confronting a variety of challenges associated with the recession. Our businesses continue to right size their operations and are maintaining tight control of their costs and staffing levels. Trinity has a seasoned group of employees who have been through periods of decreased demand before and know how to respond appropriately.

The current economic climate has challenged many of our customers. Our businesses are working with some customers to provide flexibility in respect to the timing of deliveries and return from mutually beneficial, longer-term transactions.

All of our businesses are aggressively pursuing orders to maintain as much production continuity as possible. The diversity of our portfolio is apparent in our operating results. Our businesses are confronting a variety of market scenarios. We anticipate that each quarter will have it's own unique set of challenges because of the uncertainty surrounding the direction of the economy. An example is the write down of goodwill in our railcar group. This reflects the significant decrease in railcar demand that has occurred recently in North America. It's caused in part by the large number of railcars that are currently idle on the tracks.

We are closely monitoring all of our markets for opportunities and signs of recovery. At this point, we're seeing some positive improvements in demand for our highway related businesses. Most of our businesses continue to experience uncertainty in their markets. We're taking a cautious view in our planning and management activities. Thus far, the recession has impacted our railcar manufacturing businesses more than our other businesses.

Our rail group continued to reduce its production levels during the second quarter. We expect volumes to decline further as we go through the next few quarters. Our railcar leasing Company generated solid earnings for the quarter. Steve will provide more information on the rail group during his comments.

I'm pleased with the way our construction products group improved its financial performance during the second quarter compared to the first quarter. This group's year-over-year revenue level was down slightly as a result of the economic slowdown, but its profitability improved dramatically compared to the first quarter. Until the overall economy improves, we expect our construction products group to have lower than normal business activity and profitability.

Our inland barge group performed well during the second quarter. It is continuing to benefit from the positive momentum associated with long production runs. The large size of our barge order backlog allowed our barge business to continue to operate at high level of productivities. We obtained some orders for barges during the second quarter and have a steady flow of inquiries for additional orders. We continue to expect our profitability to decrease in the barge business as we progress through the year. Bill will provide margin projections during his comments.

Our Energy Equipment group's second quarter profit was flat compared to last year. Our large order backlog for structural wind towers provided production continuity during the second quarter. We expect orders for structural wind towers to improve when North American wind energy industry begins its next stage of growth.

It remains very difficult to precisely determine when this will occur. Financing for wind projects and a lack of electricity transmission capacity located near wind farms are two crucial factors that impact this industry. We are planning for a recovery in this business to begin in late 2010 or the first part of 2011. We are ready to respond quickly if recovery begins earlier. We continue to remain highly focused on productivity and cost reduction initiatives as we produce towers from our large backlog of orders.

At this point, I'm pleased with Trinity's overall position and financial strength given the state of the general economy. We are continuing to weather the recession much better than we did during the last economic downturn in 2001. We are focused on enhancing our balance sheet and aggressively pursing orders. We are also closely monitoring and reviewing a variety of opportunities.

Historically, our businesses have strengthened their market leadership positions during down cycles and we expect this to be the case during the current downturn. The diversity of our multi-industry platform and our liquidity allow us time to think through a variety of tactics and strategies. Our performance during the second quarter reflects the talents and hard work of our people, the diversification of our businesses, our emphasis on efficient manufacturing, and the strength of our market leadership positions.

In a rapidly changing business climate like the one we're experiencing today it's extremely difficult to establish firm forecasts. In light of this, we are continuing to evaluate business conditions daily and make decisions on a month-to-month basis. One of our strengths is our flexibility, and we will continue to shift and direct our resources in areas that will build shareholder value.

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

Thank you, Tim. Good morning. Operating results for Trinity Rail during the second quarter of 2009 reflected the impact of the rapid decline in railcar market conditions, which began in the second half of 2008. We shipped 3,080 new railcars during the quarter and attained lease fleet utilization of 96.4%. Our manufacturing operating margin, excluding the goodwill impairment charge, was a loss of 1.2% in the second quarter of 2009 compared to a 2% loss during the first quarter.

Operating results during the quarter were adversely affected by lower railcar production volumes, plant closing costs, and employee severance expense. During the second quarter, we continued to execute our plan to reduce our railcar production footprint to align with forecasted near-term demand. Our current production facilities are capable of producing a substantial portion of our broad product line and they are also positioned to quickly ramp up production when market conditions improve. Our operating flexibility at these facilities allows us to meet shifting customer demand for various railcar types.

During the second quarter, Trinity Rail shipped approximately 3,080 railcars, 53% less than the 6,580 railcars shipped in the second quarter of 2008. We expect shipments to be approximately 1,000 to 1,500 railcars during both the third and fourth quarters of 2009 as we work off our order backlog and further align car production with current market demand.

We continue to experience weak demand in new railcar order inquiries across most major railcar types. This is because of low railcar loadings, improved railcar cycle times, and a large overhang of idle railcars in the rail system.

During the second quarter, declining North American railcar loadings appeared to stabilize at a level about 20% below railcar loadings from a year ago. However, we have yet to see indications of a recovery in railcar loadings.

During the second quarter, Trinity Rail received approximately 650 new railcar orders. At the end of the second quarter, Trinity Rail's order backlog was approximately 3,780 railcars, a 39% decrease from the prior quarter.

We shipped approximately 1,595 new railcars to customers of our Leasing Company. This represented about 52% of Trinity Rail's second quarter new railcar shipments. We also sold 615 railcars from our lease fleet primarily to TRIP. As a result, our lease fleet totaled 48,630 railcars at the end of the second quarter of 2009, 18% higher than the 41,100 railcars in our lease fleet at the end of the second quarter of 2008.

The committed lease backlog as of the end of the second quarter was 1,810 railcars, or 48% of our total production backlog.

Our lease fleet utilization was 96.4% at the end of the second quarter, compared to 98.4% at the end of the first quarter. As a result of weak railcar demand, we expect lease fleet utilization to decline further during the balance of 2009 although we do not have a disproportionate number of leases expiring during the next few quarters.

The average age of our lease fleet is 4.9 years. The average remaining lease term of our portfolio is approximately 3.9 years, compared with 5.1 years at the end of the second quarter of 2008. Our average remaining lease term has declined because we are renewing leases and assigning railcars to lessees for shorter terms to avoid locking in current low market lease rates for extended periods. Our intent is to have the opportunity to re-price assets in a more favorable market setting.

Lease rates for renewals and assignments are highly competitive and in general reflect moderate rate declines. Our commercial team is keenly focused on maintaining fleet utilization and we have been effective at assigning returned or idle railcars.

As railcar loadings stabilize and subsequently recover, we expect overall railcar demand to improve and lease rates to firm.

While the credit profile of our lease portfolio remains strong, the economic downturn has added risk to the railcar market. We have had an increase in lessee defaults above historical norms and we are closely monitoring our lease receivables.

In summary, we have adapted to the rapid decline in market conditions by reducing our railcar production footprint and staffing levels. Some key indicators show the rate of decline in market conditions easing and in some cases bottoming out. We are well positioned to respond to any increase in railcar demand.

Our current focus is to maintain our lease fleet utilization and to firm up lease rates when possible. We expect this to be a challenging market environment for a period of time, but believe the long-term fundamentals of the railcar market are sound. Trinity Rail's well positioned to compete effectively in the short-term and to take advantage of market opportunities in the long-term.

I'll now turn it over to Bill McWhirter.

Thank you, Steve, and good morning, everyone. My comments relate primarily to the second quarter of 2009. We will file our Form 10-Q this morning.

For the second quarter of 2009, we reported earnings of $0.43 per diluted share excluding the after tax goodwill impairment charge of $243 million. This compares with $1.03 per share in the same quarter of 2008. Revenues for the second quarter of 2009 were $716 million. Excluding the charge, earnings exceeded the upper end of our guidance by $0.13 per share. This was primarily due to a better than expected results in our barge, highway products, and wind tower businesses. Including the after tax charge of $243 million for the impairment of goodwill, the net loss for the second quarter was $2.75 per diluted share.

Moving to our Rail Group, revenues for this group decreased on a quarter-over-quarter basis by 49% to $303 million. Margin results for the Rail Group were a loss of 1.2% excluding the goodwill charge.

Looking forward, we anticipate that the Rail Group will report an operating margin loss of between 5% and 8% for the third quarter of 2009. This projection reflects the lower pricing environment and the number of cars to be shipped during the period. The Rail Group backlog as of June 30, 2009 consisted of approximately 3,780 railcars with an estimated sales value of $325 million.

Now, turning to our Inland Barge Group. The Inland Barge Group's second quarter performance was once again strong, posting revenues of $137 million and operating profits of $30.3 million. This group's backlog as of June 30, 2009 totaled approximately $350 million. We anticipate Inland Barge revenues of between $110 million and $120 million in the third quarter. Operating profit margins for this group are expected to range between 17% and 19% for the same period.

Now, moving to the Energy Equipment Group. During the second quarter, this group's revenue declined quarter-over-quarter to $134 million. Operating profits were $25.2 million with an operating profit margin of 18.8%. Backlog for the wind tower business remains healthy at $1.2 billion as of June 30, 2009.

Revenues for this group will remain in the $130 million range in the third quarter. However, margins are expected to decline to between 13% and 15% as we manufacture less profitable orders from our backlog.

Revenues for the Construction Product Group declined 30% compared to the same quarter of the previous year due to the overall slowdown in infrastructure spending during the second quarter. This group did, however, recover nicely from the first quarter, posting operating profits of $15.5 million and a margin of 10%.

Our Railcar Leasing and Management Services Group reported revenues of $134 million compared with $86 million in the same quarter of 2008. Operating profit for the second quarter was $35 million with $3 million resulting from railcar sales. Of the increase in second quarter revenues, $45 million is due to cars sold from the fleet.

For 2009, we anticipate approximately $175 million to $225 million in net fleet additions to our lease fleet. This level of investment compares with $940 million in net fleet additions during 2008.

Moving to our consolidated results. For 2009, we now expect non-leasing capital expenditures of between $60 million and $65 million. This compares to $132 million in 2008. During the third quarter, we expect to eliminate approximately $60 million in revenue and between $3 million and $5 million in operating profits. We anticipate earnings per share for the Company to range between $0.22 and $0.30 per diluted share in the third quarter.

Our current view of the fourth quarter is that consolidated revenue could decline to between $475 million and $500 million. At this revenue level, the Company should be in a near break-even earnings position.

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) Our first question comes from Paul Bodnar with Longbow Research.

Hi. Good morning, guys. First question was just in this quarter you had said that the second half you didn't have kind of a disproportionate of leases coming up for renewal. Does that imply that the second quarter you did have a higher than usual number?

Steve, why don't you answer that one?

Sure, Tim. Thanks, Paul. Yes, just to be clear, we do not have a disproportionate number of expirations in the second half of the year, nor did we have a disproportionate number of expirations in the first half of the year. The point was is it's very consistent, very smooth for us year to year.

Okay, thanks. And then I guess just along the lines of leasing as well, can you guys give me any kind of numbers around TRIP or what maybe that contributed in terms of operating profit at all?

Bill, you want to handle that?

Yes, I will. Paul, we had a rather large car sale to TRIP in the second quarter. But when you get into the leasing statements, you'll find out that there wasn't much profit associated with the sale. So, in fact we had about $3 million posted to the leasing company. We did have sales coming out of the manufacturing group and we don't break those out individually.

Okay, well, I mean just in terms of TRIP's contribution to any income coming back over.

About $3 million to the leasing company.

About $3 million, okay. Just that one. And then I guess in the manufacturing segment, I mean you kind of guided for negative 5%, negative 8% margins here in the second half. Do you have something we can kind of carry forward to next year? Are there some costs you take -- can take out? Or if you stayed at those kind of production models?

Well, this is Tim. It's too early right now for us to be trying to project anything for 2010. There's too much uncertainty in the market and we stretched out there. And I try to give you some general information of what we think -- what we're looking at for the fourth quarter.

Well, I guess, Tim, another way -- what else can you do in terms of that business to take out some additional costs? Like what else is still out there?

Well, that business it really relates well to revenue increases and if the market picks up in some fashion and we are able to get some orders, then that can substantially help us. We have people searching throughout our Company in all different areas for ways to reduce costs and there's numerous areas where there are opportunities always within a Company the size of ours to eliminate cost. And so -- and those are pretty much in the conventional areas. Further staffing reductions as well as eliminating duplications, and streamlining processes, and things like that.

Okay. And then just one last question. It looks like Barge sequentially, given your backlog declined a little bit, but it looks like -- feels a little bit better than I expected. Was that just due to that one order you guys tend to get in 2Q? Or anything that we can -- any color you can provide on that?

Bill, would you take that?

Yes, sure Paul. Backlog in the Barge Group went to $350 million. That's coming off $400 million in the first quarter, so we had a slight decline, but we obviously had orders as we went through $136 million in revenue. As we've said before in the past, the major customer that we have in a long-term contract does place their orders in the second quarter and those are inclusive in that backlog.

Okay, thanks a lot.

Thank you. Our next question comes from Steve Barger with KeyBanc Capital. Go ahead, please.

Hey, good morning guys. This is actually Joe Box standing in for Steve. I have a question for you, Steve. Can you just talk generally about how many railcar plants you had online in the quarter? And as you continue to right size your production in the back half, just generally how many do you think you'll have online in 3Q and 4Q?

Steve, go ahead and take that.

Joe, we obviously have reduced the number of production facilities since the second half of 2008. And we're working with enough facilities today we think that is responsive to the demand in the marketplace and gives us the flexibility to produce our entire production -- or our product line. But we really don't discuss what plants were operating or what lines are operating. But we're confident that the capacity we have on stream can respond to any improvements in the market.

Is there maybe any way that you can quantify either with a percentage change or a headcount reduction? Any way so we could kind of quantify that decline in capacity?

Well, this is Tim. It's very difficult in our system to talk about that because we have so much flexibility. We have certain plants that make subassemblies for other plants that also make products for numerous plants that we have in the Company. That's what happens in Mexico. They'll be doing products for a number of our different plants. So, it's hard for us to identify specific numbers of plants that are associated with various product lines unless it's a dedicated facility.

All right. That's fair enough. Tim, I have a strategic question for you as well. Earlier in the call you mentioned that you generally try to firm up your competitive position in the market during troughs. Are you seeing any good interesting properties come online in the market right now? And if so, how do valuations look?

Well, we're constantly looking for opportunities in the market in all cycles. And we have been in the past an acquirer of companies during down cycles. And all of our businesses right now are coming forth with various opportunities that they see in the market. I wouldn't really say that there's an average valuation that is out there in the market. There's still a lot of uncertainty in that area as well as the general marketplace.

All right. And my last question, then I'll turn it over, is would you be willing to look at distressed railcar opportunities maybe with leases attached to them? Or as you think about growing your lease fleet, would you primarily want to do that via purchases from your rail manufacturing business?

We're just interested in opportunities in any area that connects with our Company, with our core competencies, and the areas in the markets that we serve. And distressed opportunities usually get our attention. Some we respond to and some we don't.

Thanks for your time, guys.

Thank you. Our next question comes from Art Hatfield with Morgan Keegan. Go ahead, please.

Good morning, everybody. Just a couple of things. I kind of want to -- James was going through pretty fast on the liquidity stuff and I wasn't able to write everything down quickly enough. But just to get an understanding on the flexibility of the $950 million in liquidity that you have. Correct me if I'm wrong, but the cash position you have is about $441 million. You've got the bank facility, which allows you $334 million. And then the warehouse facility of $175 million. If that's correct, on both the bank and the warehouse side are there any restrictions with regards to your ability to access any of that -- those -- either one of those two facilities?

James, you want to take that one?

Sure, Art. And you do have the numbers correct. And they're in the press release and the 10-Q will give you some detail as well. But no, there are no restrictions. The revolving credit facility's an unsecured facility. The only thing we use that for right now is letters of credit. In the warehouse facility we simply pledge unencumbered cars, of which you can see through the 10-Q we mention the $2.8 billion of book value of cars. There's a lot of unencumbered cars on our balance sheet right now we access. So, we do not have restrictions regarding that liquidity.

Okay, great. So, the warehouse facility, it's just unencumbered. It doesn't have -- it's not for use to buy new cars or whatnot.

We simply pledge cars from Trinity into the lease fleet that have leases attached to them. But we do have unencumbered cars there. The cars are used as security, but we can pledge cars there, yes.

Right, okay. No, that's very helpful. Secondly, on the lease fleet, some of the issues. I want to make sure. I think I mis-heard, but if Steve can go over a couple of issues again on the -- I think I heard the average age of the lease fleet is 4.9 years. Is that correct?

That's correct.

And you -- I think you mentioned the number for the average term that you have on lease agreements right now. Is that roughly 3.9 years? Is that right or am I wrong about that one?

That's correct, 3.9.

Okay, 3.9. Did you mention -- again did you talk anything about what you're seeing in the pricing environment? I know you're focused on utilization, but are you seeing kind of an acceleration in downward pricing on leasing contracts right now?

Well, Art, certainly as you can appreciate it's a highly competitive market out there. And generally we are seeing a downward pressure on lease rates and we have seen that on both renewals and assignments. At this point, I would characterize those as moderate in general. Some car types are suffering a little bit more than others. And some car types are stronger than others. And that's one of the dangers when we start to talk in broad generalities because the railcar market really is a series of individual markets with their own drivers and at times their own behaviors.

But I think the key indicator in our business is railcar loadings. And if that starts to stabilize, I think you'll start to see lease rates stabilize. And then as we get a recovery we'll start to absorb some of the idle cars in the fleet and we'll start to see lease rates firm and perhaps even start to increase at that point in time.

Great, that's helpful. If you don't mind, I kind of want to press you on something. And you may not have an answer to this, but -- and it's probably too early to tell. But one of the things the [Class Ones] mentioned as they reported earnings this quarter was that some of them were starting to take some cars out of storage. And it may be way too early to get any sense for that. But have you seen that? And if so, is anything noticeable like in the last month with regards to what you've seen in the market?

I'd love to have some optimism here but I'm just not quite there yet. I think again we've seen some stabilization in railcar loadings. But I haven't seen any meaningful movement of taking cars out of storage in response to increased demand. Hopefully next conference call we'll be able to talk about that.

Great. That's very helpful. Thank you for your time.

Thank you. Our next question comes from Patrick McGlinchey with Sidoti & Company. Go ahead, please.

Good morning. Just two quick follow-up questions on the leasing business here. You mentioned that there were no disproportionate contract terminations either in the first half for CNE here in the second half. Is there looking out into 2010, is there any points where you would see some higher contract terminations that we should be aware of?

Steve, would you handle that?

Sure, Tim. No, Patrick, we don't. And I think our team has really done a nice job of managing our lease lapsing schedules so as not to put us in any vulnerable positions or extraordinarily vulnerable positions in portions of our fleet. So, I think 2010 from an expiration standpoint looks very similar to 2009 in its smoothness.

Okay, great. Thanks. And then just on the pricing. You said that you're obviously seeing prices continuing to come down and hopefully if you have some stabilization. But on the average of your contracts now, how does that compare to sort of the market prices that we're seeing now in this environment?

I mean clearly lease rates have downward pressure and are trending down from what we saw six months ago and 12 months ago. But to get into a whole lot of detail about that, Patrick, is very difficult because you really have to start talking about individual car types in individual markets because there's varying behaviors within those different groupings.

Okay, all right. Thanks then.

It's a classic supply and demand, isn't it Steve? In little markets when cars are available then you get certain pressures and when there's no cars available.

And in certain markets right now there are a lot of cars chasing very little demand and so appropriately lease rates are very soft now.

And then just to sum it up, I guess. That on your shorter-term contracts though is where you might have some of your lower prices, but you've been able to maintain higher prices with longer-term contracts. Is that correct?

I think that's a fair characterization, yes.

Okay, great. All right. Thanks, guys.

Thank you. Our next question comes from Sandy Burns with Sterne, Agee. Go ahead, please.

Hi, good morning.

Good morning.

You mentioned you plan to build up the leasing fleet through the second half of the year. One, is that in anticipation of customers that you currently have pretty much all lined up to lease those cars as you use them? And then secondly, is that also essentially cars that in the past were being sold to TRIP that looks like they no really have the ability to be buying cars from the Company?

Bill, you want to take that?

Sandy, this is Bill. No, I think first of all the growth in the lease fleet in the back half of the year is relatively moderate. In our press release we talked about getting close to 50,000 cars. We're already well over 48,000, almost to 49,000 cars. In addition to that, we talked about net fleet additions of 175 to 225 for the entire year as compared to 940.

The cars that do go into our leasing company already have a lessee on the other side. So, it's not a speculative move as we place those cars in. But it is rather moderate CapEx considering growth through 2008.

And Sandy, just to add to Bill's comment, our committed lease back log at the end of the second quarter was 1,810 railcars. All of those have leases associated with them. And that's about 48% of our total production, so you can imply that the other 52% are sales to independent third parties.

Okay. And then also just to make sure I understood it correctly, I guess you mentioned in the press release that the financing that TRIP uses to purchase the rail cars expired at the end of June. Has that been renewed or replaced? Or are they essentially (inaudible)?

James, do you want to take that?

Sure, yes. The availability period did end on June 27th, Sandy, as you mentioned, with the portfolio now simply being operated as normal. So, as the capital markets recover, we'll look at terming those facilities out. It was a warehouse facility, but there's no imminent deadline for that to occur. There's several options we have for TRIP, but now it's running as its own portfolio.

Okay. So, I guess it's fair to say that they won't be purchasing cars in the second half until they get a new financing line?

That's correct.

Okay. And then lastly and I'm kind of new to the industry, so I apologize for this question, if it's better handled offline. But given what's going on with CIT, one, can you discuss any Company exposure there? And then kind of more broadly, the impact that you expect to see it on the industry and possible opportunities for the Company given the disruptions that they're having over there.

Bill, why don't you take that one?

Yes, Sandy. CIT has historically been a customer of our manufacturing group. We do not currently have any outstanding orders with CIT, so we're comfortable from not having an exposure perspective with CIT.

Okay. And I guess just given what's going on there, I mean have you seen them start to behave kind of irrationally in the marketplace? Maybe trying to dump railcars or renew leases at really far below current market rates?

We don't really comment about what other companies are doing out in the marketplace.

Okay, thanks.

Thank you. Our next question comes from Alex Blanton with Ingalls & Snyder. Go ahead, please.

Good morning. I missed the first part of your call because I was on a call that just came before you which ran overtime. But you mentioned that it's too early to talk about next year, 2010. But when you look at what's going on in the economy from your point of view, would you agree with the forecasts that there's going to be an economic recovery in the second half of this year or not? I mean does it look like that to you?

Well, Alex, I think there's so much uncertainty right now out in the marketplace that it's very difficult to determine what's going to happen in the next six to nine months to a year. People talk about green shoots, and they talk about economy recovering, and things like this. And we're just taking a very conservative view from a planning standpoint and preparing for an extended downturn if it happens.

Fortunately Trinity is a highly responsive Company and we are accustomed to operating in cyclical environments. And so, if the economy does improve, we are definitely ready to respond to improvement. So, we want to kind of play both sides of the equation where we're prepared if its an extended downturn or we're prepared to respond.

You can look at TV and watch all the talk shows and listen to all the economists, and there's really not a consensus out in the marketplace. So, I don't really think I have a view that is any different than what any of them would say, other than we need to be best prepared for whatever situation we're confronted with as a Company.

Second question's on the decremental margins. In the Rail Group they were pretty good. I mean I'm talking the decline in operating profits versus the decline in sales. If you exclude the impairment charge, it's about 26.5%, which is not bad in that kind of business it strikes me. But the construction products group was even better. Your operating profit went down $5.6 million and your sales went down $65.9 million. So, in -- particularly in the construction products group, how did you achieve such a modest decline in profits on that kind of sales decline?

Bill, why don't you handle that?

Okay, great. Alex, I think when you look inside the construction products, in my comments I made a comment that we exceeded the upper end of the guidance due in part to our highway products group. And that's the guardrail crash cushion proprietary side of the business. So, that piece of the business did perform very well.

In addition to which on the concrete side, during the past 12, 18 months, we have done a little repositioning of the portfolio. We've divested of a couple of the regions that were not performing as well and we've expanded some of the regions that have better margins. So, I think you're seeing the overall mix of that but if I had to say one particular area, I'd the highway products side.

Well, true. But it sounds to me like you're saying that you got rid of some loss operations.

We got rid of some operations that aren't performing as well as those that are now.

Yes, okay. Thank you.

Thanks, Alex.

Thank you. Our next question is a follow-up from Steve Barger with KeyBanc Capital.

Yes, this is Joe Box again. I have a quick follow-up for you on the scrappage rates for either rail or barge. The scrap steel prices that we actually track appear to have bottomed and seem to be kicking up lately. Given the underutilization of the fleet, are you seeing any acceleration in either railcars or barges being scrapped?

Steve, you want to take that?

Yes, Joe, I think your fundamentals are correct, but we have not seen any real change in scrappage. I think you can expect that as scrap prices go up we that will see increased scrapping activities. But it hasn't taken hold yet.

All right. And while I have you guys, I just want to ask another follow-up too. Tim, you had mentioned earlier that you expect to see or you're planning for a wind tower recovery potentially in the back half of 2010, early 2011. Is that from an order standpoint? Or is that more a delivery standpoint?

No, it's from an order standpoint. We're currently delivering off of our backlog, which is a very large backlog and will carry us through that time period.

Thanks.

Thank you. At this time there are no further questions in queue. I'd like to turn it back to our speakers for any closing remarks.

Thank you, Beth. This does conclude 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 7th. The access number is 402-220-0117. 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.

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