Oct 31, 2010
Executives
Gail Peck – Treasurer Tim Wallace - Chairman, CEO and President Steve Menzies - SVP and Group President, TrinityRail Antonio Carrillo - SVP and Group President, Energy Equipment Group Bill McWhirter - SVP and Group President, Construction Products and Inland Barge Groups James Perry - VP and CFO Mary Henderson – VP and CAO
Analysts
Steve Barger - KeyBanc Capital Arthur Hatfield – Morgan Keegan Alex Blanton – Ingalls & Snyder Joe Box - KeyBanc Capital Paul Bodnar - Longbow Research Tom Albrecht - BB&T Alex Blanton - Ingalls & Snyder Steve Barger - KeyBanc Capital
Operator
Good day. All sites are now on the conference line in a listen only mode.
Later there will be an opportunity to ask questions during our Q&A segment. (Operator Instructions) 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 description of certain of the business issues at risk.
A change in any of which would cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. At this time I’d like to turn the call over to our Moderator, Gail Peck, Treasurer of Trinity Industries.
Go ahead please.
Gail Peck
Thank you Ty. Good morning from Dallas, Texas.
Welcome to the Trinity Industries third quarter 2010 results conference call. I am Gail Peck, Treasurer of Trinity.
Thank you for joining us today. Following the introduction, you will hear from Tim Wallace, our Chairman, Chief Executive Officer and President.
After Tim, our business group leaders will provide overviews of the businesses within their respective groups. Today’s speakers are Steve Menzies, Senior Vice President and Group President of the Rail and Railcar Leasing Groups; Antonio Carrillo, Vice President and Group President of the Energy Equipment Group; and Bill McWhirter, Senior Vice President and Group President of the Construction Products and Inland Barge Groups.
Following their comments, James Perry, our Vice President and Chief Financial Officer will provide the financial summary and guidance. We will then move to the Q & A session.
Mary Henderson, our Vice President and Chief Accounting Officer is also in the room with us today. I will now turn the call over to Tim Wallace for his comments.
Tim
Thank you, Gail, and good morning everyone. I’m pleased with our accomplishments during the third quarter.
We had a number of positive events during the third quarter, which contributed to our success. I anticipate that each quarter will continue to have its own unique characteristics, challenges and opportunities based on different levels of uncertainty that continues to circulate within the global business environment.
During the third quarter, our Barge Manufacturing facility in Tennessee fully recovered from the damage it received due to the flood last May. James will provide details about the financial aspects of this unique situation during his comments.
I’m very pleased by the way our employees responded to the challenges associated with the flood. Our structural wind towers business completed additional re-shuffling of its production schedules during the quarter to accommodate customers.
Our Railcar Leasing Group provided consistent earnings during the quarter. Our Rail Group generated a profit in a highly competitive market environment.
Our Barge Group was very successful extending their backlogs. Demand for products in most of our businesses continues to reflect a positive trend.
During the past six months we’ve seen a steady demand for products in our Highway Construction related businesses that were consistent with previous construction seasons. I’m very pleased with the progress our businesses made during the third quarter and pursuing quarters.
Our overall performance during the quarter reflects the talents and hard work of our people, the diversification of our businesses, our emphasis on operational excellence, and the strength of our market leadership positions. Our manufacturing businesses remain prepared to flex as their demands in their market shift.
I’m confident in their ability to successfully respond as their markets change. In a rapidly changing business climate like the one’s we’re experiencing, we are fortunate to have a highly seasoned group of employees.
I will now turn it over to Steve Menzies for his comment.
Wallace
Thank you, Gail, and good morning everyone. I’m pleased with our accomplishments during the third quarter.
We had a number of positive events during the third quarter, which contributed to our success. I anticipate that each quarter will continue to have its own unique characteristics, challenges and opportunities based on different levels of uncertainty that continues to circulate within the global business environment.
During the third quarter, our Barge Manufacturing facility in Tennessee fully recovered from the damage it received due to the flood last May. James will provide details about the financial aspects of this unique situation during his comments.
I’m very pleased by the way our employees responded to the challenges associated with the flood. Our structural wind towers business completed additional re-shuffling of its production schedules during the quarter to accommodate customers.
Our Railcar Leasing Group provided consistent earnings during the quarter. Our Rail Group generated a profit in a highly competitive market environment.
Our Barge Group was very successful extending their backlogs. Demand for products in most of our businesses continues to reflect a positive trend.
During the past six months we’ve seen a steady demand for products in our Highway Construction related businesses that were consistent with previous construction seasons. I’m very pleased with the progress our businesses made during the third quarter and pursuing quarters.
Our overall performance during the quarter reflects the talents and hard work of our people, the diversification of our businesses, our emphasis on operational excellence, and the strength of our market leadership positions. Our manufacturing businesses remain prepared to flex as their demands in their market shift.
I’m confident in their ability to successfully respond as their markets change. In a rapidly changing business climate like the one’s we’re experiencing, we are fortunate to have a highly seasoned group of employees.
I will now turn it over to Steve Menzies for his comment.
Steve
Thank you Tim, good morning. Third quarter operating results for the Rail Group and Leasing Group were in line with our expectations.
Our Leasing Group saw leasing increase to 98.9% while continuing to grow. Our Rail Group posted a modest operating profit while shipping approximately 1,140 new railcars.
And our order backlog during the third quarter allowing us to plan a high level of production for the balance of the year, and into the first quarter of 2011. I am pleased with our operating performance in a highly challenging and competitive railcar marketplace.
We have seen continued modest improvement in Railcar demand in certain markets. Demand has improved for railcars that transport chemicals, minerals, and agricultural products; while railcars that serve the lumber, paper, automotive, and coal industries continue to suffer from weak demand.
Significant numbers of idle, intermodal rail cars have been placed back into service and orders to renew intermodal railcars were prominent during the quarter. Lease renewals and lease rates appear to have stabilized, and are even improving in certain markets.
The overhang of vital railcars and slow economic recovery, however, continue to dampen demand for certain railcar types. During the third quarter, the industry received orders to build approximately 9,200 new railcars bringing the year-to-date total to more than 19,200.
Industry orders during the third quarter were heavily weighted towards strategic purchases of intermodal railcars by Railroads and TTX. The balance of industry orders were principally for covered hoppers and tank cars.
Current order inquiries reflected additional strategic purchases being considered by Railroads. TrinityRail received approximately 2,000 railcar orders during the third quarter.
We’ve continued to be very selective about orders we pursue. Our orders during the quarter fit well with our production plans and profitability targets.
They included tank and covered hopper cars for industrial shippers and third party lessors. TrinityRail’s backlog was approximately 4,680 railcars at the end of the third quarter, up 22% from the end of the prior quarter.
Approximately 31% of the units in our railcar production backlog are for customers of our Leasing business. Based upon orders received and current inquiry levels, we have increased our projection for railcar production through the end of the year.
We now expect to deliver between 1,900 and 2,100 railcars during the fourth quarter. In comparison, we shipped 1,140 in the third quarter, and 890 in the same quarter of this year.
We added 790 new railcars to our lease portfolio during the third quarter, bringing our total lease fleet to over 51,640 railcars at a 4% increase compared to the end of the quarter 2009. Our lease reutilization increased sequentially to 98.9% from 98.7% at the end of the second quarter.
Our average remaining lease term declined to 3.5 years and the average age of a fleet is 5.8 years. The triple lease fleet totals 14,700 railcars operating at a 99.6% utilization.
We’ve adjusted our new railcar production plant as a result of our increased backlog. Our operating flexibility has allowed us to increase production to meet customer needs.
We continue to closely monitor demand in various market segments. Each of which has its own set of supply and demand dynamics.
The economic data in rail transportation metrics are leading indicators proudly reporting toward a slow recovery in railcar demand. We will adjust the further changes in the market place as needed while aggressively pursuing select railcar building and lease investment opportunities then we are objectives.
We continue to expect our lease fleet to grow which continues to perform very well. I’ll now turn it over to Antonio.
Menzies
Thank you Tim, good morning. Third quarter operating results for the Rail Group and Leasing Group were in line with our expectations.
Our Leasing Group saw leasing increase to 98.9% while continuing to grow. Our Rail Group posted a modest operating profit while shipping approximately 1,140 new railcars.
And our order backlog during the third quarter allowing us to plan a high level of production for the balance of the year, and into the first quarter of 2011. I am pleased with our operating performance in a highly challenging and competitive railcar marketplace.
We have seen continued modest improvement in Railcar demand in certain markets. Demand has improved for railcars that transport chemicals, minerals, and agricultural products; while railcars that serve the lumber, paper, automotive, and coal industries continue to suffer from weak demand.
Significant numbers of idle, intermodal rail cars have been placed back into service and orders to renew intermodal railcars were prominent during the quarter. Lease renewals and lease rates appear to have stabilized, and are even improving in certain markets.
The overhang of vital railcars and slow economic recovery, however, continue to dampen demand for certain railcar types. During the third quarter, the industry received orders to build approximately 9,200 new railcars bringing the year-to-date total to more than 19,200.
Industry orders during the third quarter were heavily weighted towards strategic purchases of intermodal railcars by Railroads and TTX. The balance of industry orders were principally for covered hoppers and tank cars.
Current order inquiries reflected additional strategic purchases being considered by Railroads. TrinityRail received approximately 2,000 railcar orders during the third quarter.
We’ve continued to be very selective about orders we pursue. Our orders during the quarter fit well with our production plans and profitability targets.
They included tank and covered hopper cars for industrial shippers and third party lessors. TrinityRail’s backlog was approximately 4,680 railcars at the end of the third quarter, up 22% from the end of the prior quarter.
Approximately 31% of the units in our railcar production backlog are for customers of our Leasing business. Based upon orders received and current inquiry levels, we have increased our projection for railcar production through the end of the year.
We now expect to deliver between 1,900 and 2,100 railcars during the fourth quarter. In comparison, we shipped 1,140 in the third quarter, and 890 in the same quarter of this year.
We added 790 new railcars to our lease portfolio during the third quarter, bringing our total lease fleet to over 51,640 railcars at a 4% increase compared to the end of the quarter 2009. Our lease reutilization increased sequentially to 98.9% from 98.7% at the end of the second quarter.
Our average remaining lease term declined to 3.5 years and the average age of a fleet is 5.8 years. The triple lease fleet totals 14,700 railcars operating at a 99.6% utilization.
We’ve adjusted our new railcar production plant as a result of our increased backlog. Our operating flexibility has allowed us to increase production to meet customer needs.
We continue to closely monitor demand in various market segments. Each of which has its own set of supply and demand dynamics.
The economic data in rail transportation metrics are leading indicators proudly reporting toward a slow recovery in railcar demand. We will adjust the further changes in the market place as needed while aggressively pursuing select railcar building and lease investment opportunities then we are objectives.
We continue to expect our lease fleet to grow which continues to perform very well. I’ll now turn it over to Antonio.
Antonio
Thank you Steve and good morning. During the third quarter we received some new orders for wind towers.
Some of these orders given production openings created by the re-shuffling that Steve mentioned. The economics of the wind energy industry continues to be challenged by a number of issues, which is causing additional wind farm projects to be delayed.
In the short term, this impacts our margins as we work to reschedule deliveries. Over the long term, it enhances our customer relationships.
Once a sustainable recovery occurs, we will be in a position to produce strong results. I am pleased with our plant’s ability to handle this production re-shuffling while remaining profitable.
We continue to be optimistic about the long-term prospects for wind energy. A $1 billion backlog provides us with a long-term production platform.
In the short-term, we may face some additional uncertainty about the timing of deliveries. There are too many variables to predict when a sustainable recovery will occur.
We’re concentrating on staying flexible and responsive to customer requirements, while maintaining sufficient capacity to handle new customer demand when it develops. Our other businesses saw demand stabilize during the third quarter for most of their products, and their backlogs began to grow.
I will now turn the call over to Bill for his comments.
Carrillo
Thank you Steve and good morning. During the third quarter we received some new orders for wind towers.
Some of these orders given production openings created by the re-shuffling that Steve mentioned. The economics of the wind energy industry continues to be challenged by a number of issues, which is causing additional wind farm projects to be delayed.
In the short term, this impacts our margins as we work to reschedule deliveries. Over the long term, it enhances our customer relationships.
Once a sustainable recovery occurs, we will be in a position to produce strong results. I am pleased with our plant’s ability to handle this production re-shuffling while remaining profitable.
We continue to be optimistic about the long-term prospects for wind energy. A $1 billion backlog provides us with a long-term production platform.
In the short-term, we may face some additional uncertainty about the timing of deliveries. There are too many variables to predict when a sustainable recovery will occur.
We’re concentrating on staying flexible and responsive to customer requirements, while maintaining sufficient capacity to handle new customer demand when it develops. Our other businesses saw demand stabilize during the third quarter for most of their products, and their backlogs began to grow.
I will now turn the call over to Bill for his comments.
Bill
Thank you, Antonio, and good morning everyone. Our construction products group had a good quarter posting operating profit of $20.3 million.
These results continue to be driven by the performance of our Highway Products business, coupled with construction from New Weather. From a concrete and aggregate side, we continue to see weak demands.
During the quarter, we divested of our east Texas Asphalt business and a single ready-mix plant in Louisiana. We consider these assets not to be core to the operation.
The result was a one-time gain of $3.8 million. The divested assets represented approximately $40 million in annual revenue.
Moving to our Inland Barge Group. During the third quarter we received orders of $264 million bringing our backlog to $516 million.
We consider most of these orders to be replacement orders for aging equipment. This level of backlog helps provide a strong sense of clarity for 2011.
During the third quarter we incurred approximately $500,000 in cost not covered by the insurance policies related to the flooding in our Tennessee barge plant. The plant is now operating at normal production levels.
I continue to be pleased with our performance in this challenging economic climate. I’m now turning the presentation back to James.
McWhirter
Thank you, Antonio, and good morning everyone. Our construction products group had a good quarter posting operating profit of $20.3 million.
These results continue to be driven by the performance of our Highway Products business, coupled with construction from New Weather. From a concrete and aggregate side, we continue to see weak demands.
During the quarter, we divested of our east Texas Asphalt business and a single ready-mix plant in Louisiana. We consider these assets not to be core to the operation.
The result was a one-time gain of $3.8 million. The divested assets represented approximately $40 million in annual revenue.
Moving to our Inland Barge Group. During the third quarter we received orders of $264 million bringing our backlog to $516 million.
We consider most of these orders to be replacement orders for aging equipment. This level of backlog helps provide a strong sense of clarity for 2011.
During the third quarter we incurred approximately $500,000 in cost not covered by the insurance policies related to the flooding in our Tennessee barge plant. The plant is now operating at normal production levels.
I continue to be pleased with our performance in this challenging economic climate. I’m now turning the presentation back to James.
James
Thank you, Bill, and good morning everyone. My comments relate primarily to the third quarter of 2010.
We will file our Form 10-K later today. For the third quarter of 2010, Trinity reported earnings of $0.37 per diluted share.
This compares to our earnings of $0.29 per diluted share in the third quarter of 2009. The results for the third quarter of 2010 included a pre-tax gain of $10.2 million or $0.08 per common diluted share related to the disposition of insured property, plant, and equipment that were damaged by a flood at Trinity’s Tennessee barge manufacturing facility in May.
Revenues for the third quarter were $540 million compared to $557 million in the same quarter last year. For the third quarter, Trinity’s EBITDA was $139 million, compared to $109 million in the same quarter of 2009.
The reconciliation of EBITDA was provided in the news release yesterday. Revenues for our construction products group were $160 million in the third quarter compared to $146 million a year ago.
This group reported operating profit of $20.3 million compared to $13.1 million in the same period a year ago. The results of the third quarter of 2010 include a pre-tax gain of $3.8 million recognized from certain divestitures in our Concrete and Aggregates business.
Our Highway Products business including the acquisition of Quixote Corporation earlier this year continues to perform favorably. Rail Group revenues increased sequentially by 16% over the second quarter to $131 million.
The operating profit for the Rail Group was $3.3 million, a 2.5% margin. The Rail Group backlog grew to an estimated value of $388 million as of September 30, 2010.
Our Railcar Leasing and Management services group reported revenues of $122 million including $29 million of revenues from TRIP. Operating profit from the quarter was $52.9 million, including $16.3 million from TRIP.
In the third quarter, TRIP provided Trinity with earnings per share of $0.02. We expect the ECS quarterly contribution from TRIP to be between $.002 and $0.03 per share for the fourth quarter assuming TRIP’s current operating metrics remain relatively consistent.
During the quarter, Trinity negotiated the acquisition of an additional 29% equity interest in TRIP at a discount for purchase price of $28.6 million. Trinity’s total ownership in TRIP after the purchase was 57% at the end of the third quarter.
The purchase was the result of an investment portfolio restructuring by one of TRIP’s equity partners. The Inland Barge Group generated third quarter revenue of approximately $99 million, an operating profit of $22.4 million resulting in a margin of 22.6%.
As previously mentioned, the Inland Barge Group’s third quarter performance included a $10.2 million pre-tax gain from the disposition of damaged property, plant, and equipment from the flood at our Tennessee manufacturing facility in May. Our barge business received $264 million of orders during the third quarter and had a backlog value of approximately $516 million as of September 30, 2010.
An increase of 48% over the second quarter of this year. During the third quarter, the Energy Equipment Group’s revenues were $107 million, with the wind towers business contributing $65 million.
Operating profit for the group was $6 million resulting in an operating margin of 5.6%. This compares to an operating profit of $16.2 million in the third quarter of 2009.
These results reflect our ability to adjust to our customer’s needs, due to the ongoing softness in the wind tower market. The backlog for the wind towers business as of September 30, 2010 remains healthy at approximately $1 billion.
I will now move to our balance sheet in capital structure. At September 30 we had $338 million available under the leasing warehouse facility, and $344 million available under Trinity’s revolving credit facility after account for $81 million in letters of credit.
Combined with our unrestricted cash and short-term marketable securities balance of $371 million, our total liquidity position was in excess of $1 billion at the end of the third quarter. Subsequent to quarter end, our Leasing Company executed a railcar lease financing transaction for $369 million.
This transaction has a coupon of 5.19%, which provides us with attractively priced capital. With a portion of the proceeds, we paid down $55 million of our warehouse facility, and have issued a redemption notice for all of our $201.5 million of 6.5% senior notes that were scheduled to mature in 2014.
The redemption will settle in late November, and will result in a net charge of approximately $0.04 in the fourth quarter. The net benefit to the company based transactions is a reduction in our overall borrowing rate, and a longer-term maturity profile.
The remaining cash further enhances our liquidity as we continue to grow our Leasing business and see investment opportunities throughout our portfolio of business. I will now discuss our forward-looking guidance.
We anticipate earnings per share for the company to be between $0.10 and $0.15 for the fourth quarter, after including an approximate $.04 net impact from the redemption of the senior notes. For 2010, we anticipate full-year earnings will range between $0.73 and $0.78 per diluted share.
We anticipate that the Rail Group will report operating results between break-even and $2 million profit for the fourth quarter of 2010. And the Barge revenues are expected to be between $115 million and $125 million in the fourth quarter, with an operating margin in the range of 12% to 14% for the same period.
Revenues for Energy Equipment are expected to be approximately $110 million to $120 million in the fourth quarter with margins anticipated to be between 4% and 6%. We expect the wind tower business to contribute $260 million to $280 million in revenue during 2010.
Year-to-date non-leasing capital expenditures are $22 million. Our current forecast is for approximately $30 million of non-leasing capital expenditures in 2010.
Year-to-date, net additions of railcars to the Lease fleet total $154 million. For 2010, we anticipate approximately $175 million to $200 million in net fleet additions.
We remain well positioned with the diversified portfolio of businesses, a strong balance sheet, and solid cash flows. Our continued focus on liquidity, solidly positions us to capitalize on business opportunities as they arise.
Our operator will now prepare us for the question and answer session.
Perry
Thank you, Bill, and good morning everyone. My comments relate primarily to the third quarter of 2010.
We will file our Form 10-K later today. For the third quarter of 2010, Trinity reported earnings of $0.37 per diluted share.
This compares to our earnings of $0.29 per diluted share in the third quarter of 2009. The results for the third quarter of 2010 included a pre-tax gain of $10.2 million or $0.08 per common diluted share related to the disposition of insured property, plant, and equipment that were damaged by a flood at Trinity’s Tennessee barge manufacturing facility in May.
Revenues for the third quarter were $540 million compared to $557 million in the same quarter last year. For the third quarter, Trinity’s EBITDA was $139 million, compared to $109 million in the same quarter of 2009.
The reconciliation of EBITDA was provided in the news release yesterday. Revenues for our construction products group were $160 million in the third quarter compared to $146 million a year ago.
This group reported operating profit of $20.3 million compared to $13.1 million in the same period a year ago. The results of the third quarter of 2010 include a pre-tax gain of $3.8 million recognized from certain divestitures in our Concrete and Aggregates business.
Our Highway Products business including the acquisition of Quixote Corporation earlier this year continues to perform favorably. Rail Group revenues increased sequentially by 16% over the second quarter to $131 million.
The operating profit for the Rail Group was $3.3 million, a 2.5% margin. The Rail Group backlog grew to an estimated value of $388 million as of September 30, 2010.
Our Railcar Leasing and Management services group reported revenues of $122 million including $29 million of revenues from TRIP. Operating profit from the quarter was $52.9 million, including $16.3 million from TRIP.
In the third quarter, TRIP provided Trinity with earnings per share of $0.02. We expect the ECS quarterly contribution from TRIP to be between $.002 and $0.03 per share for the fourth quarter assuming TRIP’s current operating metrics remain relatively consistent.
During the quarter, Trinity negotiated the acquisition of an additional 29% equity interest in TRIP at a discount for purchase price of $28.6 million. Trinity’s total ownership in TRIP after the purchase was 57% at the end of the third quarter.
The purchase was the result of an investment portfolio restructuring by one of TRIP’s equity partners. The Inland Barge Group generated third quarter revenue of approximately $99 million, an operating profit of $22.4 million resulting in a margin of 22.6%.
As previously mentioned, the Inland Barge Group’s third quarter performance included a $10.2 million pre-tax gain from the disposition of damaged property, plant, and equipment from the flood at our Tennessee manufacturing facility in May. Our barge business received $264 million of orders during the third quarter and had a backlog value of approximately $516 million as of September 30, 2010.
An increase of 48% over the second quarter of this year. During the third quarter, the Energy Equipment Group’s revenues were $107 million, with the wind towers business contributing $65 million.
Operating profit for the group was $6 million resulting in an operating margin of 5.6%. This compares to an operating profit of $16.2 million in the third quarter of 2009.
These results reflect our ability to adjust to our customer’s needs, due to the ongoing softness in the wind tower market. The backlog for the wind towers business as of September 30, 2010 remains healthy at approximately $1 billion.
I will now move to our balance sheet in capital structure. At September 30 we had $338 million available under the leasing warehouse facility, and $344 million available under Trinity’s revolving credit facility after account for $81 million in letters of credit.
Combined with our unrestricted cash and short-term marketable securities balance of $371 million, our total liquidity position was in excess of $1 billion at the end of the third quarter. Subsequent to quarter end, our Leasing Company executed a railcar lease financing transaction for $369 million.
This transaction has a coupon of 5.19%, which provides us with attractively priced capital. With a portion of the proceeds, we paid down $55 million of our warehouse facility, and have issued a redemption notice for all of our $201.5 million of 6.5% senior notes that were scheduled to mature in 2014.
The redemption will settle in late November, and will result in a net charge of approximately $0.04 in the fourth quarter. The net benefit to the company based transactions is a reduction in our overall borrowing rate, and a longer-term maturity profile.
The remaining cash further enhances our liquidity as we continue to grow our Leasing business and see investment opportunities throughout our portfolio of business. I will now discuss our forward-looking guidance.
We anticipate earnings per share for the company to be between $0.10 and $0.15 for the fourth quarter, after including an approximate $.04 net impact from the redemption of the senior notes. For 2010, we anticipate full-year earnings will range between $0.73 and $0.78 per diluted share.
We anticipate that the Rail Group will report operating results between break-even and $2 million profit for the fourth quarter of 2010. And the Barge revenues are expected to be between $115 million and $125 million in the fourth quarter, with an operating margin in the range of 12% to 14% for the same period.
Revenues for Energy Equipment are expected to be approximately $110 million to $120 million in the fourth quarter with margins anticipated to be between 4% and 6%. We expect the wind tower business to contribute $260 million to $280 million in revenue during 2010.
Year-to-date non-leasing capital expenditures are $22 million. Our current forecast is for approximately $30 million of non-leasing capital expenditures in 2010.
Year-to-date, net additions of railcars to the Lease fleet total $154 million. For 2010, we anticipate approximately $175 million to $200 million in net fleet additions.
We remain well positioned with the diversified portfolio of businesses, a strong balance sheet, and solid cash flows. Our continued focus on liquidity, solidly positions us to capitalize on business opportunities as they arise.
Our operator will now prepare us for the question and answer session.
Operator
Thank you. (Operator Instructions) Our first question comes from Steve Barger with KeyBanc Capital Margins.
Go ahead Steve.
Steve
Hi, good morning, guys. First question on TRIP – does any outside entities or other participants in TRIP get a look at that, or did you just negotiate directly with the seller there?
Barger – KeyBanc Capital
Hi, good morning, guys. First question on TRIP – does any outside entities or other participants in TRIP get a look at that, or did you just negotiate directly with the seller there?
James
We did have a direct negotiated transaction with the one party because of an opportunity they had to restructure their portfolio.
Perry
We did have a direct negotiated transaction with the one party because of an opportunity they had to restructure their portfolio.
Steve
Got it. How should we think about your increased TRIP investment in the context of the coming refinancing next year?
Can we conclude form your increased exposure that you’re not overly concerned with your ability to get a deal done in some favorable terms?
Barger – KeyBanc Capital
Got it. How should we think about your increased TRIP investment in the context of the coming refinancing next year?
Can we conclude form your increased exposure that you’re not overly concerned with your ability to get a deal done in some favorable terms?
James
Well as we’ve discussed previously, TRIP’s warehouse facility begins amortizing in June of 2011 unless it’s refinanced or renewed by that time. So that gives us a lot of options that are available for the equity partners and our debt participants to discuss.
So we’ll work with best partners as we determine the best solution, but we’ve got some time – we continue to work on that.
Perry
Well as we’ve discussed previously, TRIP’s warehouse facility begins amortizing in June of 2011 unless it’s refinanced or renewed by that time. So that gives us a lot of options that are available for the equity partners and our debt participants to discuss.
So we’ll work with best partners as we determine the best solution, but we’ve got some time – we continue to work on that.
Steve
But generally speaking, you’re happy with the flexibility that you think you have to be able to get a good outcome there?
Barger – KeyBanc Capital
But generally speaking, you’re happy with the flexibility that you think you have to be able to get a good outcome there?
James
Yes, we believe so.
Perry
Yes, we believe so.
Steve
Okay. Can I talk about the lease rate negotiations between TRIP and TILC – any real difference between the economics for the two fleets?
I know TRIP’s a really young fleet, so I’m just trying to get a sense for where least rates are.
Barger – KeyBanc Capital
Okay. Can I talk about the lease rate negotiations between TRIP and TILC – any real difference between the economics for the two fleets?
I know TRIP’s a really young fleet, so I’m just trying to get a sense for where least rates are.
James
TRIP is young. I think you can see lease rates to some degree if you look at our financials.
As you know, TRIP’s fleet and Trinity’s fleet are very similar in mix and so forth. TRIP is a little bit younger and the leases were put on in 2007 through 2009, but very similar parts and customers in the overall Trinity Fleet.
Perry
TRIP is young. I think you can see lease rates to some degree if you look at our financials.
As you know, TRIP’s fleet and Trinity’s fleet are very similar in mix and so forth. TRIP is a little bit younger and the leases were put on in 2007 through 2009, but very similar parts and customers in the overall Trinity Fleet.
Steve
Got it. I’ll ask one more and then I’ll jump back in line.
In terms of the barge orders very solid – anyone buying ahead do you think in terms of steel prices potentially going up, or is that just actual demand in the marketplace?
Barger – KeyBanc Capital
Got it. I’ll ask one more and then I’ll jump back in line.
In terms of the barge orders very solid – anyone buying ahead do you think in terms of steel prices potentially going up, or is that just actual demand in the marketplace?
James
Bill, will you handle that?
Perry
Bill, will you handle that?
Bill
Yeah, sure. No I think it’s just actual demand in the marketplace.
We are seeing a lot of customers come to the table with replacement barge needs if their fleets get a little older. There is always speculation of steel prices rising, so maybe taking a little advantage of that as well.
McWhirter
Yeah, sure. No I think it’s just actual demand in the marketplace.
We are seeing a lot of customers come to the table with replacement barge needs if their fleets get a little older. There is always speculation of steel prices rising, so maybe taking a little advantage of that as well.
Steve
Got it, thanks very much. I’ll get back in line.
Barger – KeyBanc Capital
Got it, thanks very much. I’ll get back in line.
Bill
Thanks Steve.
McWhirter
Thanks Steve.
Operator
And our next question comes from Arthur Hatfield with Morgan Keegan. Your line is open.
Arthur
Just real quick on the TRIP investment – what’s your total equity investment to date in TRIP?
Hatfield – Morgan Keegan
Just real quick on the TRIP investment – what’s your total equity investment to date in TRIP?
Bill
James will you answer that one?
McWhirter
James will you answer that one?
James
Sure. In the 10-Q it will show you the details.
Right now the total equity investment you’ll see in note 6 of the 10-Q that we’ll file shortly after the call, is right at $82 million, all in.
Perry
Sure. In the 10-Q it will show you the details.
Right now the total equity investment you’ll see in note 6 of the 10-Q that we’ll file shortly after the call, is right at $82 million, all in.
Arthur
And that includes the recent $5 million purchase?
Hatfield – Morgan Keegan
And that includes the recent $5 million purchase?
James
The recent about $28.6 million purchase, yes.
Perry
The recent about $28.6 million purchase, yes.
Arthur
Oh yes, excuse me. On that situation going forward, you said that this was a negotiated transaction and I think I recall that you said in the past that your partners – your equity partners don’t have put options.
Hatfield – Morgan Keegan
Oh yes, excuse me. On that situation going forward, you said that this was a negotiated transaction and I think I recall that you said in the past that your partners – your equity partners don’t have put options.
James
That’s correct.
Perry
That’s correct.
Arthur
That’s correct?
Hatfield – Morgan Keegan
That’s correct?
James
That is correct. Yes this was an opportunity that an equity investor had to restructure their portfolio and with the performance and success of TRIP it was a good transaction for us to undertake.
Perry
That is correct. Yes this was an opportunity that an equity investor had to restructure their portfolio and with the performance and success of TRIP it was a good transaction for us to undertake.
Arthur
Great, and finally with that – I’m sorry to dwell on this but is there just three equity partners in this transaction now, or is it four?
Hatfield – Morgan Keegan
Great, and finally with that – I’m sorry to dwell on this but is there just three equity partners in this transaction now, or is it four?
James
There’s four equity partners now including ourselves.
Perry
There’s four equity partners now including ourselves.
Arthur
Okay. And then finally we actually lost the call for a second, but did you give any indication or guidance on what you thought railcar deliveries in quarter four would be?
Hatfield – Morgan Keegan
Okay. And then finally we actually lost the call for a second, but did you give any indication or guidance on what you thought railcar deliveries in quarter four would be?
James
Steve, would you take that one?
Perry
Steve, would you take that one?
Steve
Sure, we’re projecting railcar delivers in the fourth quarter of between 1,900 and 2,100.
Menzies
Sure, we’re projecting railcar delivers in the fourth quarter of between 1,900 and 2,100.
Arthur
Got it. Thank you, that’s all I’ve got today.
Hatfield – Morgan Keegan
Got it. Thank you, that’s all I’ve got today.
Operator
And our next question comes from Alex Blanton with Ingalls & Snyder.
Alex
Regarding the fourth quarter and railcars, that 1,900 to 2,100 cars is up from 1,140 in the third quarter?
Blanton – Ingalls & Snyder
Regarding the fourth quarter and railcars, that 1,900 to 2,100 cars is up from 1,140 in the third quarter?
Steve
That’s correct.
Menzies
That’s correct.
Alex
So that’s a 75% increase. Now I looked at your railcar profit, incremental profit was extraordinary for the nine months because it looks like there was a swing of 14 million positives in the nine months and 58% decline in sales.
And then for the three months, your sales were up 21%, but you had $15 million increase in earnings. So you’re getting very good incremental either from a mix change or cost reduction or both.
But now you’re forecasting a very minimal profit in the fourth quarter for the railcar business despite a 75% sequential increase in railcar deliveries. Why is that?
Why isn’t it a lot more?
Blanton – Ingalls & Snyder
So that’s a 75% increase. Now I looked at your railcar profit, incremental profit was extraordinary for the nine months because it looks like there was a swing of 14 million positives in the nine months and 58% decline in sales.
And then for the three months, your sales were up 21%, but you had $15 million increase in earnings. So you’re getting very good incremental either from a mix change or cost reduction or both.
But now you’re forecasting a very minimal profit in the fourth quarter for the railcar business despite a 75% sequential increase in railcar deliveries. Why is that?
Why isn’t it a lot more?
Steve
Sure Alex, we are increasing our production levels, but along with increase in production levels we do have some cost that we incur in ramping up our production. So we’re mindful of those and we also do have a little bit of a different mix as we expand our production levels impacting the profitability for the fourth quarter.
Menzies
Sure Alex, we are increasing our production levels, but along with increase in production levels we do have some cost that we incur in ramping up our production. So we’re mindful of those and we also do have a little bit of a different mix as we expand our production levels impacting the profitability for the fourth quarter.
Alex
Could you detail the mix changes that are affecting you, and which is bigger? The ramping up, or the mix – because it is – it looks to me like you should have very good incremental process if you’ve got a 75% increase in production.
Blanton – Ingalls & Snyder
Could you detail the mix changes that are affecting you, and which is bigger? The ramping up, or the mix – because it is – it looks to me like you should have very good incremental process if you’ve got a 75% increase in production.
Tim
Alex, this is Tim. And you follow this for quite a while, and you know in the early stages when we are increasing our production, we’re cautious about controlling our costs as best we can, and estimating what we think the impact of the efficiency level is going to be in that area.
And so, we’re still on the same kind of trend that we’ve always been on.
Wallace
Alex, this is Tim. And you follow this for quite a while, and you know in the early stages when we are increasing our production, we’re cautious about controlling our costs as best we can, and estimating what we think the impact of the efficiency level is going to be in that area.
And so, we’re still on the same kind of trend that we’ve always been on.
Alex
Are you hiring a lot of new people to do this?
Blanton – Ingalls & Snyder
Are you hiring a lot of new people to do this?
Tim
We are recalling people back to our factories and in some places they end up being new hires.
Wallace
We are recalling people back to our factories and in some places they end up being new hires.
Alex
Alright. And do you expect that level of production to continue next year?
Blanton – Ingalls & Snyder
Alright. And do you expect that level of production to continue next year?
Tim
We’re hopeful that the level of production will continue through next year, but the uncertainties that exist in the market, you just never know.
Wallace
We’re hopeful that the level of production will continue through next year, but the uncertainties that exist in the market, you just never know.
Alex
You don’t have the orders to do that right now, right?
Blanton – Ingalls & Snyder
You don’t have the orders to do that right now, right?
Tim
Well as Steve said, we’re being very selective and choosing which orders that we pursue based on the whole thought of, let’s get to a consistent level of production that we think is sustainable in the market conditions.
Wallace
Well as Steve said, we’re being very selective and choosing which orders that we pursue based on the whole thought of, let’s get to a consistent level of production that we think is sustainable in the market conditions.
Alex
So therefore the productivity and the incremental earnings ought to increase as you go through next year, is that right?
Blanton – Ingalls & Snyder
So therefore the productivity and the incremental earnings ought to increase as you go through next year, is that right?
Tim
That’s the plan.
Wallace
That’s the plan.
Alex
Okay, thank you.
Blanton – Ingalls & Snyder
Okay, thank you.
Operator
It does appear that we have no more questions, so we’ll turn the call back over to Gail Peck to wrap up.
Gail
That concluded today’s conference call. A replay of this call will be available after 1:00 EST today through midnight on Thursday November 4, 2010.
The access number is 4022200429. Also the replay will be available on the website located at www.trin.net.
We look forward to visiting with again on our next conference call. Thank you for joining us this morning
Peck
That concluded today’s conference call. A replay of this call will be available after 1:00 EST today through midnight on Thursday November 4, 2010.
The access number is 4022200429. Also the replay will be available on the website located at www.trin.net.
We look forward to visiting with again on our next conference call. Thank you for joining us this morning