UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
----------
(MARK ONE)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNESEPTEMBER 30, 2002
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO ________________.
COMMISSION FILE NUMBER 1-6903
TRINITY INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-0225040
(State of Incorporation) (I.R.S. Employer
Identification No.)
2525 STEMMONS FREEWAY
DALLAS, TEXAS 75207-2401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 631-4420
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] No [ ].
AT JULYOCTOBER 31, 2002 THERE WERE 45,900,14445,899,455 SHARES OF THE REGISTRANT'S COMMON
STOCK OUTSTANDING.
TRINITY INDUSTRIES, INC.
FORM 10-Q
TABLE OF CONTENTS
CAPTION PAGE
---------------------------------------------------------------- ----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.....................................Statements............................................... 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 14Operations.............................. 15
Item 3. Quantitative and Qualitative Disclosures about Market Risks ................................................... 22Risk......... 24
Item 4. Controls and Procedures............................................ 24
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders...... 231. Legal Proceedings.................................................. 25
Item 6. Exhibits and Reports on Form 8-K......................... 248-K................................... 26
SIGNATURES ................................................................... 27
CERTIFICATES ................................................................... 28
2
ITEM 1. FINANCIAL STATEMENTS
TRINITY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSTATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNESEPTEMBER 30,
2002 2001
--------------- ---------------------------- -------------
(UNAUDITED)
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Revenues ....................................................................................... $ 366.0387.6 $ 467.6372.9
Operating costs:
Cost of revenues .................................... 322.1 402.3............................... 334.8 314.3
Selling, engineering and administrative
expenses ......................................... 40.7 42.7
--------------- ---------------
362.8 445.0
--------------- ---------------.................................... 39.1 39.8
------------- -------------
373.9 354.1
------------- -------------
Operating profit ...................................... 3.2 22.6................................. 13.7 18.8
Other (income) expense:
Interest income ..................................................................... (0.3) (1.7)(0.2)
Interest expense .................................... 10.3 7.6............................... 9.1 6.5
Other, net .......................................... 0.9 1.0
--------------- ---------------
10.9 6.9
--------------- ---------------..................................... (3.4) 0.1
------------- -------------
5.4 6.4
------------- -------------
Income (loss) before income taxes ..................... (7.7) 15.7....................... 8.3 12.4
Provision (benefit) for income taxes:
Current ............................................. (16.3) (5.1)
Deferred ............................................ 14.3 11.2
--------------- ---------------
(2.0) 6.1
--------------- ---------------taxes ....................... 2.1 4.5
------------- -------------
Net income (loss) ............................................................................ $ (5.7)6.2 $ 9.6
=============== ===============7.9
============= =============
Net income (loss) per common share:
Basic ......................................................................................... $ (0.13)0.14 $ 0.26
=============== ===============0.21
============= =============
Diluted ..................................................................................... $ (0.13)0.14 $ 0.26
=============== ===============0.21
============= =============
Weighted average number of shares outstanding:
Basic ......................................................................................... 45.5 37.0
Diluted ............................................. 45.5 37.1........................................ 45.6 37.2
See accompanying notes to consolidated financial statements.
3
TRINITY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSTATEMENTS OF OPERATIONS
SIXNINE MONTHS ENDED JUNESEPTEMBER 30,
2002 2001
--------------- ---------------------------- ------------
(UNAUDITED)
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Revenues ....................................................................................... $ 750.31,137.9 $ 886.31,259.2
Operating costs:
Cost of revenues .................................... 670.1 827.6............................... 1,004.9 1,141.9
Selling, engineering and administrative
expenses ......................................... 81.2 94.3
--------------- ---------------
751.3 921.9
--------------- ---------------.................................... 120.3 134.1
------------ ------------
1,125.2 1,276.0
------------ ------------
Operating loss ........................................ (1.0) (35.6)profit loss) ........................... 12.7 (16.8)
Other (income) expense:
Interest income ..................................... (0.6) (3.1)................................ (0.9) (3.3)
Interest expense .................................... 17.3 15.2............................... 26.4 21.7
Other, net .......................................... 1.4 (1.3)
--------------- ---------------
18.1 10.8
--------------- ---------------..................................... (2.0) (1.2)
------------ ------------
23.5 17.2
------------ ------------
Loss before income taxes .............................. (19.1) (46.4)......................... (10.8) (34.0)
Provision (benefit) for income taxes:
Current ............................................. (41.3) (19.1)
Deferred ............................................ 36.5 2.8
--------------- ---------------
(4.8) (16.3)
--------------- ---------------taxes ............. (2.7) (11.8)
------------ ------------
Net loss ....................................................................................... $ (14.3)(8.1) $ (30.1)
=============== ===============(22.2)
============ ============
Net loss per common share:
Basic ......................................................................................... $ (0.32)(0.18) $ (0.81)
=============== ===============(0.60)
============ ============
Diluted ..................................................................................... $ (0.32)(0.18) $ (0.81)
=============== ===============(0.60)
============ ============
Weighted average number of shares outstanding:
Basic ......................................................................................... 44.5 37.0
Diluted ..................................................................................... 44.5 37.0
See accompanying notes to consolidated financial statements.
4
TRINITY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETSHEETS
JUNESEPTEMBER 30, DECEMBER 31,
2002 2001
----------- ----------------------- ------------
(UNAUDITED)
(IN MILLIONS)
ASSETS
ASSETS
Cash and cash equivalents ....................................................................................... $ 10.614.9 $ 22.2
Receivables, net of allowance ................................... 213.6 204.3............................................ 192.4 194.5
Income tax receivable .................................................... 8.1 9.8
Inventories:
Raw materials and supplies .................................. 133.0........................................... 131.6 159.5
Work in process ............................................. 44.6...................................................... 48.8 42.4
Finished goods .............................................. 67.1....................................................... 63.3 73.3
----------- -----------
244.7------------ ------------
243.7 275.2
Property, plant and equipment, at cost .......................... 1,516.2................................... 1,542.9 1,434.9
Less accumulated depreciation ................................... (610.6)............................................ (616.5) (555.8)
----------- -----------
905.6------------ ------------
926.4 879.1
Goodwill ........................................................ 416.0................................................................. 417.9 415.7
Other assets .................................................... 140.8............................................................. 189.0 155.5
----------- ----------------------- ------------
$ 1,931.31,992.4 $ 1,952.0
=========== ======================= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities ......................................................... $ 377.4372.3 $ 424.9
Long-term debt .................................................. 454.9........................................................... 504.0 476.3
Other liabilities ............................................... 69.8........................................................ 87.5 41.4
----------- -----------
902.1------------ ------------
963.8 942.6
Stockholders' equity:
Common stock -- shares issued and outstanding at
JuneSeptember 30, 2002 --- 50.9; at December 31, 2001 - 51.0 ....................... 50.9 51.0
Capital in excess of par value ................................ 442.2......................................... 442.1 464.7
Retained earnings ............................................. 683.5...................................................... 686.9 703.4
Accumulated other comprehensive loss .......................... (18.4)................................... (22.3) (26.0)
Treasury stock (5.0 shares at JuneSeptember 30, 2002 and 6.6 shares at
December 31, 2001) ................................................................................. (129.0) (183.7)
----------- -----------
1,029.2------------ ------------
1,028.6 1,009.4
----------- ----------------------- ------------
$ 1,931.31,992.4 $ 1,952.0
=========== ======================= ============
See accompanying notes to consolidated financial statements.
5
TRINITY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSTATEMENTS CASH FLOWS
SIXNINE MONTHS ENDED
JUNESEPTEMBER 30,
--------------------------------
2002 2001
----------- ------------------------ -------------
(UNAUDITED)
(IN MILLIONS)
Operating activities:
Net loss ............................................................................................................................... $ (14.3)(8.1) $ (30.1)(22.2)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization ....................................... 42.0 45.4...................................... 67.8 67.2
Deferred income taxes .............................................. 36.5 2.840.1 15.1
Gain on sale of property, plant, equipment and
other assets .................................................... (0.4) (1.2)................................................... (4.7) (1.9)
Unusual charges .................................................... -- 55.8
Other .............................................................. 1.4 (5.0)2.9 (16.3)
Changes in assets and liabilities, net of effects
from acquisitions and unusual charges:
Increase(Increase) decrease in receivables ..................................... (9.3) (37.2)......................... 3.8 (26.7)
Decrease in inventories ..................................... 30.5 71.9
Decrease.................................... 31.5 64.8
Increase in other assets .................................... 14.7 20.6................................... (33.5) (1.0)
Decrease in accounts payable and accrued liabilities ........ (39.5) (62.2)....... (47.7) (27.7)
Increase (decrease) in other liabilities .................... (8.1) 1.2
---------- ----------.............................. 6.0 4.6
------------- -------------
Total adjustments .......................................... 67.8 92.1
---------- ----------......................................... 66.2 133.9
------------- -------------
Net cash provided by operating activities ................................. 53.5 62.0
---------- ----------................................ 58.1 111.7
------------- -------------
Investing activities:
Proceeds from sale of property, plant, and
equipment .................... 2.2 98.2.......................................................... 13.9 146.1
Capital expenditures .................................................... (66.3) (158.8)................................................... (123.2) (229.2)
Payment for purchase of acquisitions, net of cash acquired ........................... (1.4) --
0.2
---------- ----------------------- -------------
Net cash required by investing activities ............................... (64.1) (60.4)
---------- ----------.............................. (110.7) (83.1)
------------- -------------
Financing activities:
Issuance of common stock ............................................................................................... 31.2 --
Net borrowings of short-term debt ............................................................................. -- 15.43.4
Payments to retire long-term debt ....................................... (380.4) (7.4)...................................... (370.2) (23.9)
Proceeds from issuance of long-term debt ................................ 359.0............................... 397.9 --
Dividends paid .......................................................... (10.8) (13.2)
---------- ----------......................................................... (13.6) (19.9)
------------- -------------
Net cash usedprovided (used) by financing activities ................................... (1.0) (5.2)
---------- ----------....................... 45.3 (40.4)
------------- -------------
Net decrease in cash and cash equivalents ................................. (11.6) (3.6)................................ (7.3) (11.8)
Cash and cash equivalents at beginning of period ................................................... 22.2 14.8
---------- ----------------------- -------------
Cash and cash equivalents at end of period ............................................................... $ 10.614.9 $ 11.2
========== ==========3.0
============= =============
See accompanying notes to consolidated financial statements.
6
TRINITY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
COMMON COMMON CAPITAL ACCUMULATED
SHARES STOCK IN EXCESS OTHER TREASURY TOTAL
(100,000,000 $1.00 PAR OF PAR RETAINED COMPREHENSIVE TREASURY STOCK AT STOCKHOLDERS'
AUTHORIZED) VALUE VALUE EARNINGS LOSS SHARES COST EQUITY
------------ --------- --------- -------- ------------- ----------- ----------- ----------- ----------- -------------------- -------------
(IN MILLIONS EXCEPT SHARE AND PER SHARE DATA)
Balance at December 31, 2001 ................ 50,946,351 $ 51.0 $ 464.7 $ 703.4 $ (26.0) (6,608,522) $ (183.7) $ 1,009.4
Net loss .................................................... -- -- -- (14.3)(8.1) -- -- -- (8.1)
Currency translation
adjustments .......................................... -- -- -- -- 4.84.0 -- -- 4.0
Unrealized gain(loss) on
derivative financial
instruments and foreign
exchange contracts................................contracts ...... -- -- -- -- 2.8(0.3) -- -- (0.3)
---------
Comprehensive loss .................. (4.4)
Cash dividends ($0.120.18 per
share) .................................................... -- -- -- (5.6)(8.4) -- -- -- (8.4)
Stock issued ............................................ -- -- (19.9) -- -- 1,500,000 51.1 31.2
Other .......................................................... (8,129) (0.1) (2.6)(2.7) -- -- 67,813 3.6 0.8
----------- --------- --------- -------- --------- ----------- ----------- ----------- -------------------- ---------
Balance at JuneSeptember 30,
2002 .......................................... 50,938,222 $ 50.9 $ 442.2442.1 $ 683.5686.9 $ (18.4)
=========== =========== =========== =========== ===========
TREASURY TOTAL
TREASURY STOCK AT STOCKHOLDERS'
SHARES COST EQUITY
----------- ----------- -------------
(IN MILLIONS EXCEPT SHARE AND PER SHARE DATA)
Balance at December 31, 2001 ................ (6,608,522) $ (183.7) $ 1,009.4
Net loss .................................. -- -- (14.3)
Currency translation
adjustments ............................. -- -- 4.8
Unrealized gain on derivative financial
instruments and foreign exchange
contracts................................ -- -- 2.8
-----------
Comprehensive loss ................ (6.7)
Cash dividends ($0.12 per
share) .................................. -- -- (5.6)
Stock issued .............................. 1,500,000 51.1 31.2
Other ..................................... 68,813 3.6 0.9
----------- ----------- -----------
Balance at June 30, 2002 .................... (5,039,709)(22.3) (5,040,709) $ (129.0) $ 1,029.21,028.6
=========== ========= ========= ======== ========= =========== ==================== =========
See accompanying notes to consolidated financial statements.
7
TRINITY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The foregoing consolidated financial statements are unaudited and have been
prepared from the books and records of Trinity Industries, Inc. and subsidiaries
("Trinity" or the "Company"). We changed our year-end in 2001 from March 31 to
December 31. In the opinion of management, all adjustments consisting(consisting only of
normal and recurring adjustmentsadjustments) considered necessary for a fair presentation of the
financial position of the Company as of June 30, 2002 and the results of
operations for the three-month and six-month periods ended June 30, 2002 and
2001 and cash flows for the six-month periods ended June 30, 2002 and 2001, in
conformity with generally accepted accounting principles,
have been made. Because of seasonal and other factors, the results of operations
for the three-month and six-monthnine-month periods ended JuneSeptember 30, 2002 may not be
indicative of expected results of operations for the year ending December 31,
2002. These interim financial statements and notes are condensed as permitted by
the instructions to Form 10-Q and should be read in conjunction with the audited
consolidated financial statements of the Company included in its Form 10-K
Report for the nine months ended December 31, 2001.
NOTE 2. UNUSUAL CHARGES
In the three months ended March 31, 2001, the Company recorded pretax
charges of $55.8 million, $35.7 million after tax, or $0.97 per share, related
primarily to additional plant closings, severance, asset write downs and a
litigation reserve for an adverse jury verdict announced on May 14, 2001.
Restructuring and other reserve activity for the sixnine months ended
JuneSeptember 30, 2002 is:
RESERVES RESERVES
DECEMBER 31, JUNESEPTEMBER 30,
2001 PAYMENT RECLASSIFICATIONS 2002
------------- ------------------------- ------------ ----------------- -------------
(in millions)
Property, plant & equipment
-- write-downs to net realizable
value to be disposed of and related
shut-down costs and other asset write
downs ......................................................................... $ 18.9 $ 6.05.7 $ 3.4(3.8) $ 9.59.4
Environmental liabilities ........................................... 11.1 0.1 -- 11.0-- 11.1
Severance costs ............................................................... 4.9 1.42.1 -- 3.52.8
Adverse jury verdict ..................................................... 14.8 -- -- 14.8
Asset-write downs and exit cost related
to wholly owned businesses .............................................. 0.2 0.2 -- --
Other ................................................................................... 3.2 0.91.0 -- 2.3
------------- ------------- ------------- -------------2.2
------------ ------------ ------------ ------------
$ 53.1 $ 8.69.0 $ 3.4(3.8) $ 41.1
============= ============= ============= =============40.3
============ ============ ============ ============
NOTE 3. SEGMENT INFORMATION
As of December 31, 2001, the Company modified its segment reporting to align
the reportable segments with current management responsibilities and internal
reporting.
The new reporting format includes the following business segments: (1) the
Trinity Rail group, which manufactures and sells railcars and component parts;
(2) the Construction Products group, which manufactures and sells highway
guardrail and safety products, concrete and aggregate, girders and beams used in
the construction of highway and railway bridges and weld fittings used in
pressure piping systems; (3) the Inland Barge group, which manufactures and
sells barges and related products for inland waterway services; (4) the
Industrial Products group, which manufactures and sells container heads and
pressure and non-pressure containers for the storage and transportation of
liquefied gases and other liquid and dry products; and (5) the Trinity Railcar
Leasing and Management Services group, which provides services such as fleet
management and leasing. Finally, All Other includes the Company's captive
insurance and transportation companies, structural towers, and other peripheral
businesses.
8
Sales from Trinity Rail group to Trinity Railcar Leasing and Management
Services group are recorded in Trinity Rail group and eliminated in
consolidation. Sales of railcars from the lease fleet are included in the
Trinity Railcar Leasing and Management Services group segment. Sales among
groups are recorded at prices comparable to external customers.
THREE MONTHS ENDED JUNESEPTEMBER 30, 2002
REVENUES OPERATING
-------------------------------------------------------------------------------------- PROFIT
OUTSIDE INTERSEGMENT TOTAL (LOSS)
---------- ------------ ---------- ---------------------- ------------ ------------
(IN MILLIONS)
Rail Group ............................................ $ 101.1123.2 $ 38.334.7 $ 139.4157.9 $ (12.8)(6.1)
Construction Products Group .. 146.0 0.2 146.2........ 141.4 0.1 141.5 17.2
Inland Barge Group ........... 57.9................. 47.7 -- 57.9 1.147.7 1.3
Industrial Products Group .... 32.4 0.5 32.9 (1.6).......... 40.0 1.0 41.0 3.0
Railcar Leasing and Management
Services Group ............. 26.9................... 28.1 -- 26.9 7.128.1 7.2
All Other .................... 1.7 6.5 8.2 (0.9).......................... 7.2 7.3 14.5 (1.1)
Eliminations & Corporate
Items .................................................. -- (45.5) (45.5) (6.9)
---------- ---------- ---------- ----------(43.1) (43.1) (7.8)
------------ ------------ ------------ ------------
Consolidated Total ............................ $ 366.0387.6 $ -- $ 366.0387.6 $ 3.2
========== ========== ========== ==========13.7
============ ============ ============ ============
THREE MONTHS ENDED JUNESEPTEMBER 30, 2001
REVENUES OPERATING
-------------------------------------------------------------------------------------- PROFIT
OUTSIDE INTERSEGMENT TOTAL (LOSS)
---------- ------------ ---------- ---------------------- ------------ ------------
(IN MILLIONS)
Rail Group ..................................................... $ 187.995.5 $ 50.448.8 $ 238.3144.3 $ 4.0(3.6)
Construction Products Group ....... 155.7 2.1 157.8 16.8............ 144.5 1.7 146.2 17.8
Inland Barge Group ................ 49.6..................... 50.6 -- 49.6 2.950.6 2.1
Industrial Products Group ......... 31.0 0.7 31.7 (0.4).............. 38.8 0.8 39.6 2.4
Railcar Leasing and Management
Services Group .................. 26.5....................... 24.6 -- 26.5 10.124.6 9.1
All Other ......................... 16.9 10.1 27.0 (3.2).............................. 18.9 9.4 28.3 (2.0)
Eliminations & Corporate Items ............. -- (63.3) (63.3) (7.6)
---------- ---------- ---------- ----------(60.7) (60.7) (7.0)
------------ ------------ ------------ ------------
Consolidated Total ..................................... $ 467.6372.9 $ -- $ 467.6372.9 $ 22.6
========== ========== ========== ==========18.8
============ ============ ============ ============
9
SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2002
REVENUES OPERATING
----------------------------------------------------------------------------------------------- PROFIT
OUTSIDE INTERSEGMENT TOTAL (LOSS)
------------- ------------- ------------- ------------------------- ------------ ------------ ------------
(IN MILLIONS)
Rail Group ..................................................... $ 251.7374.9 $ 58.893.5 $ 310.5468.4 $ (25.0)(31.1)
Construction Products Group ....... 258.6 0.7 259.3 24.7............ 400.0 0.8 400.8 41.9
Inland Barge Group ................ 119.1..................... 166.8 -- 119.1 3.0166.8 4.3
Industrial Products Group ......... 63.1 1.1 64.2 (0.7).............. 103.1 2.1 105.2 2.3
Railcar Leasing and Management
Services Group .................. 53.6....................... 81.7 -- 53.6 14.281.7 21.4
All Other ......................... 4.2 13.2 17.4 (3.8).............................. 11.4 20.5 31.9 (4.9)
Eliminations & Corporate
Items ........................................................... -- (73.8) (73.8) (13.4)
------------- ------------- ------------- -------------(116.9) (116.9) (21.2)
------------ ------------ ------------ ------------
Consolidated Total ..................................... $ 750.31,137.9 $ -- $ 750.31,137.9 $ (1.0)
============= ============= ============= =============12.7
============ ============ ============ ============
SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2001
REVENUES OPERATING
----------------------------------------------------------------------------------------------- PROFIT
OUTSIDE INTERSEGMENT TOTAL (LOSS)
------------- ------------- ------------- ------------------------- ------------ ------------ ------------
(IN MILLIONS)
Rail Group ........................................................ $ 366.6462.1 $ 165.1213.9 $ 531.7676.0 $ (34.6)(38.2)
Construction Products Group ....... 272.3 3.6 275.9 20.1............... 416.8 5.3 422.1 37.9
Inland Barge Group ................ 108.0........................ 158.6 0.1 108.1 4.7158.7 6.8
Industrial Products Group ......... 64.2 6.0 70.2 (1.5)................. 103.0 6.8 109.8 0.9
Railcar Leasing and Management
Services Group .................. 46.6.......................... 71.2 -- 46.6 17.971.2 27.0
All Other ......................... 28.6 25.9 54.5 (17.9)................................. 47.5 35.3 82.8 (19.9)
Eliminations & Corporate Items ................ -- (200.7) (200.7) (24.3)
------------- ------------- ------------- -------------(261.4) (261.4) (31.3)
------------ ------------ ------------ ------------
Consolidated Total ........................................ $ 886.31,259.2 $ -- $ 886.31,259.2 $ (35.6)
============= ============= ============= =============(16.8)
============ ============ ============ ============
NOTE 4. GOODWILL
The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets,
effective April 1, 2001. Under SFAS No. 142, goodwill is no longer amortized but
reviewed for impairment annually or more frequently if certain indicators arise.
The Company has completed the impairment test required upon adoption of SFAS No. 142
and determined there iswas no impairment to its recorded goodwill balances. There
has been no material change in the carrying amount of the Company's goodwill for
the sixnine months ended JuneSeptember 30, 2002. While the Company believes the
cyclical downturn of the railcar industry in North America has not permanently
impaired the carrying value of goodwill, impairment tests required by SFAS 142
will be completed in the fourth quarter.
Had the Company been accounting for its goodwill under SFAS No. 142 for the
sixentire nine months ended JuneSeptember 30, 2001, the Company's net loss and loss per
share would have been reduced by $0.6 million and $0.02 per share.
10
NOTE 5. DEBT
JUNESEPTEMBER 30, DECEMBER 31,
2002 2001
------------- -------------
(IN MILLIONS)
Revolving commitment ............................................ $ 80.096.0 $ 288.0
Term commitment ................................................. 150.0149.6 --
Warehouse facility .............................................. 37.575.8 --
6.0-9.25 percent industrial development revenue bonds payable
in varying amounts through 2005 ................................. 1.00.9 1.0
3.0-8.0 percent promissory notes, generally payable annually
through 2005 .................................................... 3.83.7 4.0
6.96-9.44 percent equipment trust certificates to
institutional investors generally payable in semi-annual
installments of varying amounts through 2003 ................... 9.3.................... 5.1 10.5
7.755 percent equipment trust certificates to institutional
investors generally payable in semi-annual installments of
varying amounts through 2009 .................................. 170.0 170.0
11.3 percent notes payable monthly through 2003 ................. 1.91.4 2.8
Other ........................................................... 1.41.5 --
------------- -------------
$ 454.9504.0 $ 476.3
============= =============
In June 2002, the Company completed a secured credit agreement for $425
million. The agreement includes a $275 million 3-year revolving commitment and a
$150 million 5-year term commitment. The agreement calls for quarterly payments
of principal on the term debt in the amount of $0.375 million beginning
September 30, 2002 through June 30, 2006 and $36.0 million beginning on
September 30, 2006 and ending on the maturity date. Amounts borrowed under the
revolving commitment bear interest at LIBOR plus 2.00% (3.84%(3.89% at JuneSeptember 30,
2002). Amounts borrowed under the term commitment bear interest at LIBOR plus
3.00% (4.84%(4.92% at JuneSeptember 30, 2002). The agreement is secured by a portion of
the Company's accounts receivable and inventory and a portion of its property,
plant and equipment. The agreement limits the amount of capital expenditures
related to the Company's leasing business, requires maintenance of ratios
related to interest coverage, leverage, asset coverage, and minimum net worth
and restricts the amount of dividend payments. At JuneSeptember 30, 2002, $230$245.6
million was borrowed under this agreement and $102.5$125.2 million was available under
the facility, net of $92.5 million of letters of credit.credit outstanding under the agreement. At
JuneSeptember 30, 2002, the most restrictive of the debt covenants based on trailing
twelve month calculations as defined by the debt agreements allow $119.0approximately
$70.6 million additional principal and $15.6approximately $17.9 million additional
annual interest expense. CompanyThe Company's projections through December 31,
2002for the next twelve months
indicate compliance with all covenants.
In June 2002 the Company's wholly-owned subsidiary Trinity Industries
Leasing Company ("TILC") through a newly formed, wholly owned, business trust
entered into a $200 million nonrecourse warehouse facility to finance or
refinance railcars acquired or owned by TILC. The facility is secured by
specific railcars and the underlying leases. Advances under the facility may not
exceed 75% of the fair market value of the railcars securing the facility less
any excluded assets as defined by the agreement. Advances under the facility
bear interest at LIBOR plus 1.775% (3.635%(3.47% at JuneSeptember 30, 2002) and are due no
later than 30 months from the commencement date of the facility. At JuneSeptember
30, 2002, $162.5$124.2 million was available under this facility.
The Company's wholly-owned subsidiary,In February 2002 TILC sold $170,000,000 of 2002-1 Pass Through Certificates
with interest at 7.755%, commencing on August 15, 2002 and due semiannually
thereafter. Equipment notes issued by TILC for the benefit of the holders of the
Pass Through Certificates are collateralized by interest in certain railcars
owned by TILC and the leases pursuant to which such railcars are leased to
customers. The equipment notes, including the obligations to
11
make payments of principal and interest thereon are direct obligations of TILC
and are fully and unconditionally guaranteed by Trinity Industries, Inc. as
guarantor.
11
The proceeds of $170 million from the issuance of the equipment notes
were used to repay outstanding indebtedness of Trinity as of December 31, 2001.
On October 15, 2002, Standard & Poor's Rating Services placed the Company's
investment grade rating on credit watch with negative implications and indicated
it would meet with Company management to discuss its strategy to deal with the
downturn in the railcar industry and other relevant issues. A downgrade below
investment grade in the Company's credit rating would have the effect of
increasing the interest rate under the Company's bank lines by 1/4% which is
approximately $610 thousand of additional interest expense per year based on
debt levels at September 30, 2002, restricting up to $12 million of future cash
flows from the Company's off-balance sheet railcar financing arrangement, and in
the current environment, could impact interest rates on any new financing
arrangements but would not result in acceleration of any obligations. As the
term of the Company's existing bank facility runs through June 2005, the Company
does not have any current plans or requirements to refinance existing debt
arrangements.
Principal payments due during the next five years as of JuneSeptember 30, 2002,
including the above Pass Through Certificates, are (in millions) 2003 - $14.6;$11.0;
2004 - $26.3;$51.3; 2005 - $134.0;$162.5; 2006 - $12.3;$47.6; 2007 - $187.7;$151.7; and $80.0$79.9 thereafter.
For amounts due under the sale/leaseback financing see footnote 9 in the Annual
Report.
NOTE 6. STOCKHOLDERS' EQUITY
On March 6, 2002, Trinity privately placed a total of 1.5 million
unregistered shares of its common stock for net proceeds of $31.3$31.2 million.
Trinity has now registered these shares.
NOTE 7. DEPOSIT AGREEMENT
The Company entered intois a party to a deposit agreement with Altos Hornos de Mexico,
SA de C.V. ("AHMSA") which provides for funds to be deposited by the Company
with AHMSA which are then used along with other funds from the Company to
purchase steel from AHMSA. As of JuneSeptember 30, 2002, total funds on deposit
including interest due
amounted to approximately $42.5$31.1 million. The Company recovered approximately
$8.5 million of this deposit through inventory purchases during the nine months
ended September 30, 2002. Since May 1999 AHMSA has been operating under a
judicial declaration of suspension of payments, which under applicable Mexican
law, allows companies in Mexico to (1) seek a debt restructuring agreement with
their creditors in an orderly fashion; (2) continue their operations; and (3)
avoid declaration of bankruptcy and liquidation of assets. Should AHMSA not be
able to operate under the declaration of suspension of payments because of its
financial condition, AHMSA's creditors have no access to the funds on deposit
and all funds on deposit with AHMSA under Mexican law should be returned to the
Company.
NOTE 8. OTHER, NET
Other (income) expense consists of the following items (in millions):
THREE MONTHS ENDED SIXNINE MONTHS ENDED
JUNESEPTEMBER 30, JUNESEPTEMBER 30,
------------------------ ----------------------------------------------------- -----------------------------
2002 2001 2002 2001
---------- ---------- ---------- --------------------- ----------- ----------- -----------
Gain on sale of property,
plant and equipment ............................... $ (0.2)(4.3) $ --(0.7) $ (0.4)(4.7) $ (1.2)(1.9)
Foreign exchange
transactions .................... 0.8 0.5 1.0 (0.3)......................... 0.4 (0.1) 1.4 (0.4)
Loss on equity
investments ..................... 0.3 0.6 1.0.......................... 0.5 0.7 1.5 1.4
Other ............................................................... -- (0.1)0.2 (0.2) (0.5)
---------- ---------- ---------- ----------(0.3)
----------- ----------- ----------- -----------
Other, net ................................................. $ 0.9(3.4) $ 1.00.1 $ 1.4(2.0) $ (1.3)
========== ========== ========== ==========(1.2)
=========== =========== =========== ===========
12
NOTE 9. CONTINGENCIES
In May, 2002, a lawsuit was filed against the Company, and a coating
manufacturer and several other parties by a tank barge customer, Florida Marine
Transporters, Inc., seeking recovery of damages related to the customer's
corrosion problem with eighteen tank barges purchased from the Company's Inland
Barge Division.Group. The totalplaintiffs seek damages and/or recision of the purchase
contract. The purchase price of the barges was $27.6 million. TheThis customer
presently owes the Company believes that$3.1 million in connection with the purchase of other
barges. A second case involving similar legal and factual issues was filed on
October 7, by another customer, J. Russell Flowers, Inc., against the Company,
the coating manufacturer and several other parties regarding fifty-six hopper
barges with a claimed value of approximately $14 million seeking damages,
including punitive damages, and/or recision of the purchase contract. This
customer, pursuant to a separate contract, presently owes the Company $7.2
million in connection with tank barges purchased from the Company. An officer of
J. Russell Flowers Inc. is also a board member of Florida Marine Transporters,
Inc. Outside experts, after investigation, expressed the opinion the technical
claims presented in both cases are without merit. Issues raised by this
litigationin these cases
have created uncertainty in the industry regarding barge corrosion and its
causes. As a result, the CompanyTrinity Marine has had communications with customers
ranging from inquiries to threatened litigation. The Company has been gathering
substantial scientificconcerns of corrosion problems. Although this
litigation is in the early stages and other pertinent data. Whilethe ultimate resolution is uncertain,
management believes, based on this data, the effect of this litigation and
issues raised by the litigation related to other customers on the Company's financial position and results
of operations will not be material for financial reporting purposes, the
ultimate resolution is uncertain.purposes.
In May of 2001, a judgment in the amount of $14.8 million was entered
against the Company in a lawsuit brought for an alleged breach of contract
involving the proposed production of a composite component for a refrigerated
railcar for the Company. The amount of the judgment was accrued by the Company
in fiscal 2001. The judgement is currently under appeal by the Company.
12
The Company is subject to federal, state, local and foreign laws and
regulations relating to the environment and to work places. The Company believes
that it is currently in substantial compliance with such laws and the
regulations promulgated thereunder.
The Company is involved in various proceedingsactions relating to environmental
matters. The Company has provided reserves to cover probable and estimable
liabilities of the Company with respect to such investigations and cleanup
activities, taking into account currently available information and the
Company's contractual rights of indemnification. However, estimates of future
response costs are necessarily imprecise. Accordingly, there can be no assurance
that the Company will not become involved in future litigation or other
proceedings or, if the Company were found to be responsible or liable in any
litigation or proceeding, that such costs would not be material to the Company.
The Company is involved in various other claims and lawsuits incidental to
its business. In the opinion of management, their claims and suits in the
aggregate will not have a material adverse effect on the Company's consolidated
financial statements.
NOTE 10. NET INCOME (LOSS) PER SHARE
Diluted net income per common share is based on the weighted average
shares outstanding plus the assumed exercise of dilutive stock options less the
number of treasury shares assumed to be purchased from the proceeds using the
average market price of Trinity's common stock. Basic net income per common
share is based on the weighted average number of common shares outstanding for
the period. The numerator for both basic net income (loss) per common share and
diluted net income per common share is net income (loss). The difference between
the denominator in the basic calculation and the denominator in the diluted
calculation is attributable to the effect of employee stock options.
13
NOTE 11. ACCOUNTING CHANGES
In October 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which is effective for fiscal years
beginning after December 15, 2001. SFAS 144 addresses accounting and reporting
of long-lived assets, except goodwill, that are held and used or disposed of
through sale or other means. The Company adopted SFAS 144 as of January 1, 2002.
There was no impact to the Company's financial statements.
1314
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The following discussion should be read in conjunction with the unaudited
consolidated financial statements and related notes thereto appearing elsewhere
in this document
Trinity is one of the nation's leading diversified industrial companies
providing a variety of high volume, repetitive products and services for the
transportation, industrial and construction sectors of the marketplace. We
compete in cyclical markets and are continuously looking for opportunities to
improve our competitive positions.
In October 2001, we completed our merger transaction with privately owned
Thrall Car Manufacturing Company (Thrall). This merger combines Trinity's
strength in tank car production, Thrall's strength in auto rack manufacturing
and research and development expertise across the entire spectrum of railcars. Due to the integration of Trinity and
Thrall's operations, separate financial information for Thrall only is not
available.
During the quarter ended June 30, 2002 the Company signed a managed services
contract to implement a new financial system and to outsource certain accounting
and processing activities. While expected to produce an overall savings, this
project is expected to add fiveten to tenfifteen cents per share in incremental costs
related to training and other transition costs over the next
twelve months.costs. The timing of the charges will
depend on project progress but one
to two cents per share of the front-end costs may be incurred in the quarter
ending September 30, 2002.progress. During the quarter ended JuneSeptember 30, 2002 the
Company renewedaccrued $600 thousand in severance pay related to its major
insurance policies. Based on these renewals, premium increasesoutsourcing of
certain administrative functions.
During the quarter ended September 30, 2002 the Company signed a Share
Purchase Agreement to sell 100% of the shares held by the Company in one of its
Romanian railcar facilities. The Agreement provides for cash at closing and
installment payments totaling approximately $7.6 million. The Company also is
entitled to compensation from certain earn-out payments tied to post-closing
cash flows. At the time of closing, no gain will cost the
equivalentbe recognized and a gain of
approximately 5 cents per share for the remainder of the current
year.$6.0 million will be recognized when payments are received.
UNUSUAL CHARGES
During the three months ended March 31, 2001, Trinity recorded special
pretax charges of approximately $55.8 million, $35.7 million net of tax or $0.97
per share, related primarily to additional plant closings, severance, asset
write downs and a litigation reserve for an adverse jury verdict announced May
14, 2001. All of these charges were charged to operating profit. These charges
are reflected in the following income statement categories and segments for the
sixnine months end Juneended September 30, 2001. (in millions).
RAILCAR
LEASING &
CONSTRUCTION INLAND INDUSTRIAL MANAGEMENT CORPORATE
RAIL PRODUCTS BARGE PRODUCTS SERVICES & OTHER TOTAL
----------- ----------- ----------- ----------- ----------- ----------- -----------
Cost of revenues ......................................... $ 45.9 $ -- $ -- $ -- $ -- $ 8.0 $ 53.9
Selling, engineering &
administrative...administrative ................. 1.3 -- -- -- -- 0.6 1.9
----------- ----------- ----------- ----------- ----------- ----------- -----------
Charged to operating profit ................. 47.2 -- -- -- -- 8.6 55.8
Operating profit (loss) before
charges.. 12.6 20.1 4.7 (1.5) 17.9 (33.6) (20.2)charges ......................... 9.0 37.9 6.8 0.9 27.0 (42.6) 39.0
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating profit (loss) reported ......... $ (34.6)(38.2) $ 20.137.9 $ 4.76.8 $ (1.5)0.9 $ 17.927.0 $ (42.2)(51.2) $ (35.6)(16.8)
=========== =========== =========== =========== =========== =========== ===========
THREE MONTHS ENDED JUNESEPTEMBER 30, 2002 COMPARED WITH THREE MONTHS ENDED JUNESEPTEMBER
30, 2001
- -- RESULTS OF OPERATIONS
Revenues decreased $101.6increased $14.7 million to $366.0$387.6 million for the three months
ended JuneSeptember 30, 2002 compared to $467.6$372.9 million for the three months ended
JuneSeptember 30, 2001, a decreasean increase of 21.7%3.9%. The declineincrease in revenues was
dueattributable to Trinity Rail Group's European operations acquired last year with
the Thrall acquisition offset by the reduction in domestic railcar shipments,
and a reductionreduced revenues in the Construction Products and All Other
groups due to exiting certain lines of
business. A temporary haltbusiness, and reduced revenues in the wind towers business also added to the decline in total revenues and revenues in the
All Other group.
14business.
15
The following table reconciles the revenue amounts discussed under each
segment with the consolidated total revenues (in millions).
THREE MONTHS ENDED JUNESEPTEMBER 30, 2002 THREE MONTHS ENDED JUNESEPTEMBER 30, 2001
---------------------------------------- ----------------------------------------------------------------------------------- -------------------------------------------
REVENUES REVENUES
------------ ------------
OUTSIDE INTERSEGMENT TOTAL OUTSIDE INTERSEGMENT TOTAL
----------- ------------ ----------- ----------- ------------ ----------------------- ------------ ------------ ------------
Rail Group ................................................... $ 101.1123.2 $ 38.334.7 $ 139.4157.9 $ 187.995.5 $ 50.448.8 $ 238.3144.3
Construction Products Group .......... 146.0 0.2....... 141.4 0.1 141.5 144.5 1.7 146.2 155.7 2.1 157.8
Inland Barge Group ................... 57.9................ 47.7 -- 57.9 49.647.7 50.6 -- 49.650.6
Industrial Products Group ............ 32.4 0.5 32.9 31.0 0.7 31.7......... 40.0 1.0 41.0 38.8 0.8 39.6
Railcar Leasing and Management
........................... 26.9 -- 26.9 26.5 -- 26.5
Services Group .................. 28.1 -- 28.1 24.6 -- 24.6
All Other ............................ 1.7 6.5 8.2 16.9 10.1 27.0......................... 7.2 7.3 14.5 18.9 9.4 28.3
Eliminations & Corporate Items........Items .... -- (45.5) (45.5)(43.1) (43.1) -- (63.3) (63.3)
----------- ----------- ----------- ----------- ----------- -----------(60.7) (60.7)
------------ ------------ ------------ ------------ ------------ ------------
Consolidated Total ................................... $ 366.0387.6 $ -- $ 366.0387.6 $ 467.6372.9 $ -- $ 467.6
=========== =========== =========== =========== =========== ===========372.9
============ ============ ============ ============ ============ ============
Operating profit decreased $19.4$5.1 million to $3.2$13.7 million for the three
months ended JuneSeptember 30, 2002 compared to $22.6$18.8 million for the same period in
2001. Reduced revenues and unabsorbed overhead due to lower North American
railcar volumes caused operating losses in the Rail group. Operating profit for
the Inland Barge group was adversely impacted by $0.9$0.7 million in cost incurred
related to litigation initiated by a tank barge customer in May.
The operating loss in the Industrial
Products group increased due to a $2.2 million reserve established for a
long-term LPG equipment lease receivable from a customer who began operating
under bankruptcy protection during the quarter.
Selling, engineering and administrative expenses decreased $2.0$0.7 million to
$40.7$39.1 million for the three months ended JuneSeptember 30, 2002 compared to $42.7$39.8
million for the comparable period in 2001, a decrease of 4.7%1.8%. The decrease was
a result of lower head count and cost reduction efforts.
Interest expense, net of interest income, increased $4.1$2.5 million to $10.0$8.8
million for the three months ended JuneSeptember 30, 2002 compared to $5.9$6.3 million
for the same period in 2001, an increase of 69.5%39.7%. The increase was attributable
to a change inhigher interest rates to charging offand higher debt issuance costs of $1.3 million related
to debt that was replaced with other credit facilities in the current period and
lower interest income.levels.
Other, net was an expenseincome of $0.9$3.4 million for the three months ended JuneSeptember
30, 2002 compared to expense of $1.0$0.1 million for the comparable period in 20012001.
The income in the current year effective tax rate of 26.0% isquarter was primarily due to the
absencegains on sales of
tax benefits on certain foreign losses.property, plant and equipment.
Net lossincome for the three months ended JuneSeptember 30, 2002 was $5.7$6.2 million,
or $0.13$0.14 per diluted share as compared to net income of $9.6$7.9 million, or $0.26$0.21
per diluted share, for the same period in 2001.
TRINITY RAIL GROUP
THREE MONTHS
ENDED
JUNESEPTEMBER 30,
----------------------------------------------------------
2002 2001
----------- ----------------------- ------------
(IN MILLIONS)
Revenues ............................................................................................ $ 139.4157.9 $ 238.3144.3
Operating profit (loss) ...................................................loss .................... $ (12.8)(6.1) $ 4.0(3.6)
Operating profit (loss)loss margin ............................................ (9.2)............. (3.9)% 1.7%(2.5)%
15
Revenues declined 41.5%increased 9.4% for the three months ended JuneSeptember 30, 2002
compared to the same period in 2001. This decline is dueincrease in revenues was attributable
to the European operations acquired last year as part of the Thrall acquisition
offset by the current downturn in the North American railcar market. Railcar units shippedNorth
American railcar shipments of approximately 1,200 cars dropped approximately 69%31%
compared to the prior year to approximately 1,000 cars.year. Operating profit margins were
16
impacted by the inefficiencies of lower production levels and price pressures in the current
competitive environment. With theBased on current railcar
market,run rates, our domesticNorth American
shipments are expected to be 4,000 to 5,000 in 2002.
In the three months ended JuneSeptember 30, 2002, railcar sales to Trinity
Industries Leasing Company included in the Rail Group results were $37.0$31.1 million
compared to $48.1$46.6 million in the comparable period in 2001 with operating profit
of $1.4$2.6 million compared to $2.6$2.3 million for the same period in 2001. Sales to
Trinity Industries Leasing Company and related profits are eliminated in
consolidation.
In connection with the consolidation of our European railcar operations and
the expected completion of a major contract by year end at our United Kingdom
facility, we are preparing to close the facility at the end of the current year.
As a result, we will have a short-term step-up in deliveries and profitability.
This facility produced revenues of $21.9 million in the current quarter with an
operating profit of $1.1 million. The Company has provided for estimated closing
costs.
CONSTRUCTION PRODUCTS GROUP
THREE MONTHS
ENDED
JUNESEPTEMBER 30,
--------------------------------------------------------
2002 2001
----------- ----------------------- ------------
(IN MILLIONS)
Revenues ............................................... $ 141.5 $ 146.2
$ 157.8
Operating profit ............................... $ 17.2 $ 16.817.8
Operating profit margin ........... 11.8% 10.6%...... 12.2% 12.2%
Revenues declined 7.4%3.2% for the three months ended JuneSeptember 30, 2002
compared to the same period in 2001. The decrease in revenues was primarily due to the
closure of two under performing concrete and aggregate locations in Louisiana
and, to a lesser extent, continued foreign competition in the fittings business.
Operatingexiting
certain non-core product lines. Even though revenues declined, operating profit
margins increased as a result of cost reductionwere flat due to gains in the concreteoperation efficiencies and aggregates and efficiency improvements in the bridge business partially
offset by steel cost increases in the highway and safety business not passed on
to customers in the quarter.lower raw material
costs.
INLAND BARGE GROUP
THREE MONTHS
ENDED
JUNESEPTEMBER 30,
--------------------------------------------------------
2002 2001
----------- ----------------------- ------------
(IN MILLIONS)
Revenues ...................................................... $ 57.947.7 $ 49.650.6
Operating profit ...................................... $ 1.11.3 $ 2.92.1
Operating profit margin ............. 1.9% 5.8%........... 2.7% 4.2%
Revenues increased 16.7%declined 5.7% for the three months ended JuneSeptember 30, 2002
compared to the same period in 2001. The increasedecline in revenues was primarily
attributable to increaseddecreased deliveries of hopper and tank barges. Operating profit
was adversely impacted by $0.9$0.7 million in cost incurred related to litigation
initiated by a tank barge customer in May 2002.
162002 and related issues.
17
INDUSTRIAL PRODUCTS GROUP
THREE MONTHS
ENDED
JUNESEPTEMBER 30,
-----------------------------------------------------------
2002 2001
----------- ------------------------ -------------
(IN MILLIONS)
Revenues ...................................................... $ 32.941.0 $ 31.739.6
Operating profit (loss) ............................... $ (1.6)3.0 $ (0.4)2.4
Operating profit (loss) margin ...... (4.9)% (1.3)%........... 7.3% 6.1%
Revenues increased 3.8%3.5% for the three months ended JuneSeptember 30, 2002
compared to the same period in 2001. The increase in revenues is primarily due
to a
return to more normal demand levelsan increase in the Mexico liquefied petroleum gas
market. Operating losses increased due to a $2.2 million reserve established for
a long-term LPG transport equipment lease receivable from a customer who began operating
under bankruptcy protection during the quarter.sales offset by lower heads
revenues. Margins in this business have
been hurt by reduced demand in the container head business, which is affected by
the railcar business and the petrochemical industry.improved due to manufacturing efficiencies.
RAILCAR LEASING AND MANAGEMENT SERVICES GROUP
THREE MONTHS
ENDED
JUNESEPTEMBER 30,
--------------------------------------------------------
2002 2001
----------- ----------------------- ------------
(IN MILLIONS)
Revenues ........................................................... $ 26.928.1 $ 26.524.6
Operating profit ........................................... $ 7.17.2 $ 10.19.1
Operating profit margin .................. 26.4% 38.1%........... 25.6% 37.0%
Revenues for this group include railcar lease revenue and management fees as
well as sales of railcars from our lease fleet. Railcar lease revenue and
management fees increased $5.8$3.6 million over prior year due to the increase in
the size of the lease fleet that includes both on-balance sheet railcars and
railcars we lease under operating leases. Operating profit was down due to the
increased size of the fleet that we lease compared to the fleet we own. This
shift resulted from the fact that, in the March quarter a year ago, we were
building a substantial portfolio of lease cars that were subsequently moved from
owned cars to leased cars later in the year in a sale and leaseback transaction
described in our report on Form 10-K. The reason that leased cars result in
lower operating profit margins is that operating lease expense on the railcars
we lease includes both a depreciation component and an interest component that
is charged to operating expense. For owned cars, only a depreciation component
is charged to operating expense. Also affecting operating profit this quarter
was a reduction in the lease fleet utilization and reduced pricing. Selling, engineering and administrative expense
also increased due to our strategy to grow both the lease fleet and the managed
car fleet.
Revenues from the sale of railcars from the lease fleet were $0.3$0.4 million in
the three months ended JuneSeptember 30, 2002 and $5.7$0.4 million in the same period in
2001. Operating profits on these sales were $0.1 million for the three months
ended June 30, 2002 and $1.1 million in the same period in 2001.negligible.
ALL OTHER
Revenues in All Other decreased to $8.2$14.5 million in the three months ended
JuneSeptember 30, 2002 from $27.0$28.3 million for the three months ended JuneSeptember 30,
2001. This
decrease is primarily2001 due to discontinuing the concrete mixer and related
products business in 2001. Additionally, a temporary haltdecline in the wind tower business this year contributed to lower revenues and operating profit.
17revenues.
18
Operating loss was $0.9$1.1 for the three months ended JuneSeptember 30, 2002, and
$3.2$2.0 in the same period in 2001. The operating loss in the same period in 2001
was due primarily to operating losses associated with the discontinued
e-commerce initiatives.
SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2002 COMPARED WITH SIXNINE MONTHS ENDED JUNESEPTEMBER
30, 2001 -- RESULTS OF OPERATIONS
Revenues decreased $136.0$121.3 million to $750.3$1,137.9 million for the sixnine months
ended JuneSeptember 30, 2002 compared to $886.3$1,259.2 million for the sixnine months ended
JuneSeptember 30, 2001, a decrease of 15.3%9.6%. The decline in revenues was due to the
reduction in North American railcar shipments, and a reductionexiting certain lines of business
in the Construction Products and All Other groups, due to exiting certain lines of business. Aand a temporary halt in the
wind towers business also added to the decline in total revenues and revenues in the
All Other group.business.
The following table reconciles the revenue amounts discussed under each
segment with the consolidated total revenues (in millions).:
SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2002 SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2001
---------------------------------------- ---------------------------------------------------------------------------------- ------------------------------------------
REVENUES REVENUES
------------- -------------
OUTSIDE INTERSEGMENT TOTAL OUTSIDE INTERSEGMENT TOTAL
----------- ------------------------- ----------- ----------- ------------------------- -----------
Rail Group ............................................... $ 251.7374.9 $ 58.893.5 $ 310.5468.4 $ 366.6462.1 $ 165.1213.9 $ 531.7676.0
Construction Products Group ....... 258.6 0.7 259.3 272.3 3.6 275.9...... 400.0 0.8 400.8 416.8 5.3 422.1
Inland Barge Group ................ 119.1............... 166.8 -- 119.1 108.0166.8 158.6 0.1 108.1158.7
Industrial Products Group ......... 63.1 1.1 64.2 64.2 6.0 70.2........ 103.1 2.1 105.2 103.0 6.8 109.8
Railcar Leasing and Management
Services Group .................. 53.6................. 81.7 -- 53.6 46.681.7 71.2 -- 46.671.2
All Other ......................... 4.2 13.2 17.4 28.6 25.9 54.5........................ 11.4 20.5 31.9 47.5 35.3 82.8
Eliminations & Corporate Items ....... -- (73.8) (73.8)(116.9) (116.9) -- (200.7) (200.7)(261.4) (261.4)
----------- ------------- ----------- ----------- ----------- ----------- ------------------------ -----------
Consolidated Total ............................... $ 750.31,137.9 $ -- $ 750.31,137.9 $ 886.31,259.2 $ -- $ 886.31,259.2
=========== ============= =========== =========== =========== =========== ======================== ===========
Operating loss decreased $34.6profit (loss) improved to a $12.7 million to $1.0 millionprofit for the sixnine
months ended JuneSeptember 30, 2002 compared to a loss of $35.6$16.8 million for the same
period in 2001. Special charges for the sixnine months ended JuneSeptember 30, 2001
were $55.8 million. Reduced revenues and unabsorbed overhead due to lower North
American railcar volumes caused operating losses in the Rail group. Operating
profit for Inland Barge group was adversely impacted by $0.9$1.8 million in cost
incurred related to litigation and related issues initiated by a tank barge
customer in May. The operating loss in the Industrial Products group was
impacted by a $2.2 million reserve established for a long-term LPG equipment
lease receivable from a customer who began operating under bankruptcy protection
during the second quarter. Improved operating profits in the Construction
Products and All Other groups were due to exiting unprofitable business.product issues.
Selling, engineering and administrative expenses decreased $13.1$13.8 million to
$81.2$120.3 million for the sixnine months ended JuneSeptember 30, 2002 compared to $94.3$134.1
million for the comparable period in 2001, a decrease of 13.9%10.3%. The decrease was
a result of lower head count, cost reduction efforts and special charges
recorded in the prior year.
Interest expense, net of interest income increased $4.6$7.1 million to $16.7$25.5
million for the sixnine months ended JuneSeptember 30, 2002 compared to $12.1$18.4 million
for the same period in 2001, an increase of 38.0%38.6%. The increase was attributed
to a
change inhigher interest rates, to charging off debt issuance costs of $1.3 million
related to debt that was replaced with other credit facilities in the current
period and lower interest income.
Other, net was an expenseincome of $1.4$2.0 million for the sixnine months ended JuneSeptember
30, 2002 compared to income of $1.3$1.2 million for the comparable period in 2001.
The decreaseincrease was due to a lesser amount of gains on sale of property, plant and equipment in the
current period compared to the same period last year and foreign exchange losses
in the current period compared to gains in the prior year period.
The current year effective tax rate of 25.1% is primarily due to the
absence of tax benefits on certain foreign losses.
Net loss for the sixnine months ended JuneSeptember 30, 2002 was $14.3$8.1 million, or
$0.32$0.18 per diluted share as compared to a net loss of $30.1$22.2 million, or $0.81$0.60 per
diluted share, the same period in 2001.
1819
TRINITY RAIL GROUP
SIXNINE MONTHS
ENDED
JUNESEPTEMBER 30,
--------------------------------------------------------
2002 2001
----------- ----------------------- ------------
(IN MILLIONS)
Revenues ............................................................................... $ 310.5468.4 $ 531.7676.0
Operating profit (loss) including unusual
charges ............................................................................. $ (25.0)(31.1) $ (34.6)(38.2)
Operating profit (loss) before unusual
charges ............................................................................. $ (25.0)(31.1) $ 12.69.0
Operating profit (loss) margin before
unusual charges ................................ (8.1)............................. (6.6)% 2.4%1.3%
Revenues declined 41.6%30.7% for the sixnine months ended JuneSeptember 30, 2002
compared to the same period in 2001. This decline is due to the current downturn
in the North American railcar market. Railcar units shippedNorth American railcar shipments dropped
approximately 68%61% compared to the prior year to approximately 2,2003,400 cars.
Operating profit (loss) margins were impacted by the inefficiencies of lower production levels and
price pressures in the current competitive environment.
In the sixnine months ended JuneSeptember 30, 2002, railcar sales to Trinity
Industries Leasing Company included in the Rail Group results were $57.0$88.4 million
compared to $161.1$207.7 million in the comparable period in 2001 with operating
profit of $2.2$4.8 million in 2002 compared to $8.5$10.7 million for the same period in
2001. Sales to Trinity Industries Leasing Company and related profits are
eliminated in consolidation.
CONSTRUCTION PRODUCTS GROUP
SIXNINE MONTHS
ENDED
JUNESEPTEMBER 30,
------------------------------------------------------
2002 2001
----------- ----------------------- ------------
(IN MILLIONS)
Revenues ............................................................ $ 259.3400.8 $ 275.9422.1
Operating profit ............................................ $ 24.741.9 $ 20.137.9
Operating profit margin ..................... 9.5% 7.3%......... 10.5% 9.0%
Revenues declined 6.0%5.0% for the sixnine months ended JuneSeptember 30, 2002 compared
to the same period in 2001. The decrease in revenues was primarily attributable
to closing under performing concrete and aggregate locations in Louisiana in the
second quarter and exiting the sheet pile, flange and valve businesses.
Operating profit margins increased as a result of cost reductions in the
concrete and aggregate, elimination of unprofitable products, and efficiency
improvements in the bridge business partially offset by steel cost increases in
the highway and safety business not passed on to customers.
1920
INLAND BARGE GROUP
SIXNINE MONTHS
ENDED
JUNESEPTEMBER 30,
------------------------------------------------------
2002 2001
----------- ----------------------- ------------
(IN MILLIONS)
Revenues .......................................................... $ 119.1166.8 $ 108.1158.7
Operating profit .......................................... $ 3.04.3 $ 4.76.8
Operating profit margin .................. 2.5%.......... 2.6% 4.3%
Revenues increased 10.2%5.1% for the sixnine months ended JuneSeptember 30, 2002
compared to the same period in 2001. The increase in revenues was primarily
attributable to increased deliveries of hopper barges. Operating profit was
lower primarily due to cost incurred related to litigation initiated by a tank
barge customer in May 2002 and related issues and higher prior year margins on
deck barges.
INDUSTRIAL PRODUCTS GROUP
SIXNINE MONTHS
ENDED
JUNESEPTEMBER 30,
-------------------------------------------------------
2002 2001
----------- ----------------------- ------------
(IN MILLIONS)
Revenues ........................................................... $ 64.2105.2 $ 70.2109.8
Operating profit (loss) .................. $ (0.7)2.3 $ (1.5)0.9
Operating profit (loss) margin ........... (1.1)% (2.1)%2.2% 0.1%
Revenues decreased 8.5%4.2% for the threenine months ended JuneSeptember 30, 2002
compared to the same period in 2001. The decrease in revenues is primarily due
to below
normal demand levelsa reduction in theheads sales offset by an increase in Mexico liquefied petroleum gas market.LPG transport
equipment sales. Operating losses wereincome in 2002 was impacted by a $2.2 million reserve
established for a long-term, LPG equipment lease receivable from a customer who
began operating under bankruptcy protection during the second quarter.
RAILCAR LEASING AND MANAGEMENT SERVICES GROUP
SIXNINE MONTHS
ENDED
JUNESEPTEMBER 30,
------------------------------------------------------
2002 2001
----------- ----------------------- ------------
(IN MILLIONS)
Revenues ................................................................ $ 53.681.7 $ 46.671.2
Operating profit ................................................ $ 14.221.4 $ 17.927.0
Operating profit margin ....................... 26.5% 38.4%........... 26.2% 37.9%
Revenues for this group include railcar lease revenue and management fees as
well as sales of railcars from our lease fleet. Railcar lease revenue and
management fees increased $13.6$16.8 million over prior year due to the increase in
the size of the lease fleet that includes both on-balance sheet railcars and
railcars we lease under operating leases. Operating profit is down due to the
increased size of the fleet that we lease compared to the fleet we own. This
shift resulted from the fact that, in the March quarter a year ago, we were
building a substantial portfolio of lease cars that were subsequently moved from
owned cars to leased cars later in the year in a sale and leaseback transaction
described in our report on Form 10-K. The reason that leased cars result in
lower operating profit margins is that
21
operating lease expense on the railcars we lease includes both a depreciation
component and an interest component
20
that is charged to operating expense. For
owned cars, only a depreciation component is charged to operating expense. Also affecting operating profit this
quarter was a reduction in the lease fleet utilization and reduced pricing.
Selling, engineering and administrative expense also increased due to our
strategy to grow both the lease fleet and the managed car fleet.
Revenues from the sale of railcars from the lease fleet of $1.3were $1.7 million in
the sixnine months ended JuneSeptember 30, 2002 and $7.5$7.9 million in the same period in
2001. Operating profits on these sales were $0.2$0.3 million for the sixnine months
ended JuneSeptember 30, 2002 and $1.4 million in the same period in 2001.
ALL OTHER
Revenues in All Other decreased to $17.4$31.9 million in the sixnine months ended
JuneSeptember 30, 2002 from $54.5$82.8 million for the sixnine months ended JuneSeptember 30,
2001. This decrease is primarily due to discontinuing the concrete mixer and
related products business in 2001. Additionally, a temporary slowdowndecline in the wind tower
business contributed to lower revenues and operating profits.
Operating loss was $3.8$4.9 million for the sixnine months ended JuneSeptember 30,
2002, and $17.9million$19.9 million in the same period in 2001. Restructuring charges
included in the sixnine months ended JuneSeptember 30, 2001 were $8.0 million primarily
related to exiting the concrete mixer and related products business referred to
above and environmental liabilities. Excluding restructuring charges, a larger
operating loss was recorded in the same period in 2001 due primarily to
operating losses associated with concrete mixer and related products business.
INSERT B
RANGE OF EXPECTED LOSSES FROM OPERATIONS
Our outlook for the year is a consolidated loss per share in the range of
25 to 40 cents per share.share reflecting the seasonal nature of the Construction
Products Group businesses.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the sixnine months ended
JuneSeptember 30, 2002 was $53.5$58.1 million compared to $62.0$111.7 million for the same
period in 2001. Reductions in working capital were offset by a net loss in the current period.
Capital expenditures for the sixnine months ended JuneSeptember 30,
2002 were $66.3$123.2 million, of which $55.1$96.4 million waswere for additions to the lease
portfolio. This compares to $158.8$229.2 million of capital expenditures for the same
period last year, of which $130.5$200.6 million was for additions to the lease
portfolio. Proceeds from the sale of property, plant and equipment were $2.2$13.9
million for the sixnine months ended JuneSeptember 30, 2002 composed primarily of the
sale of cars from the lease fleetclosed facilities in 2002, compared to $98.2$146.1 million for the same
period in 2001.
We expect to finance future operating requirements with cash flows2001 consisting of sales of railcars from operations, long-term and short-term debt, and privately placed equity.the lease fleet in a
sale/leaseback financing for $126.7 million.
In June 2002, the Company completed a secured credit agreement for $425
million. The agreement includes a $275 million 3-year revolving commitment and a
$150 million 5-year term commitment. The agreement calls for quarterly payments
of principal on the term debt in the amount of $0.375 million$375 thousand beginning September
30, 2002 through June 30, 2006 and $36.0 million beginning on September 30, 2006
and ending on the maturity date. Amounts borrowed under the revolving commitment
bear interest at LIBOR plus 2.00% (3.84%(3.89% at JuneSeptember 30, 2002). Amounts
borrowed under the term commitment bear interest at LIBOR plus 3.00% (4.84%(4.92% at
JuneSeptember 30, 2002). The agreement is secured by a portion of the Company's
accounts receivable and inventory and a portion of its property, plant and
equipment. The agreement limits the amount of capital expenditures related to
the Company's leasing business, requires maintenance of ratios related to
interest coverage, leverage, asset coverage, and minimum net worth and restricts
the amount of dividend payments. At JuneSeptember 30, 2002, $230$245.6 million was
borrowed under this agreement and $102.5$125.2 million was available under the
facility, net of
$92.5 million of letters of credit.facility. At JuneSeptember 30, 2002, the most restrictive of the debt covenants
based on trailing twelve month calculations as defined by the debt agreements
allow $119.0approximately $70.6 million additional principal and $15.6approximately $17.9
million additional annual interest expense. CompanyThe Company's projections through December 31,
2002for the
next twelve months indicate compliance with all covenants.
21
In June 2002 the Company's wholly-owned subsidiary Trinity Industries
Leasing Company ("TILC")TILC through a newly formed, wholly owned, business trust
entered into a $200 million nonrecourse warehouse facility to finance or
refinance railcars acquired or owned by TILC. The facility is secured by
specific railcars and the underlying leases. Advances under the facility may not
exceed 75% of the fair market value of the railcars securing the facility less
any excluded assets as defined by the agreement. Advances under the facility
bear interest at LIBOR plus 1.775% (3.635%(3.47% at JuneSeptember 30, 2002) and are due no
later than 30 months
22
from the commencement date of the facility. At JuneSeptember 30, 2002, $162.5$124.2
million was available under this facility.
The Company's wholly-owned subsidiary,In February 2002 TILC, sold $170,000,000 of 2002-1 Pass Through Certificates
with interest at 7.755%, commencing on August 15, 2002 and due semiannually
thereafter. Equipment notes issued by TILC for the benefit of the holders of the
Pass Through Certificates are collateralized by interest in certain railcars
owned by TILC and the leases pursuant to which such railcars are leased to
customers. The equipment notes, including the obligations to make payments of
principal and interest thereon are direct obligations of TILC and are fully and
unconditionally guaranteed by Trinity Industries, Inc. as guarantor.
On October 15, 2002, Standard & Poor's Rating Services placed the Company's
investment grade rating on credit watch with negative implications and indicated
it would meet with Company management to discuss its strategy to deal with the
downturn in the railcar industry and other relevant issues. A downgrade below
investment grade in the Company's credit rating would have the effect of
increasing the interest rate under the Company's bank lines by 1/4% which is
approximately $610 thousand of additional interest expense per year based on
debt levels at September 30, 2002, restricting up to $12 million of future cash
flows from the Company's off-balance sheet railcar financing arrangement, and in
the current environment, could impact interest rates on any new financing
arrangements but would not result in acceleration of any obligations. As the
terms of the Company's existing bank facility runs through June, 2005, the
Company does not have any current plans or requirements to refinance existing
debt arrangements.
On March 6, 2002, we privately placed a total of 1.5 million unregistered
shares of our common stock for net proceeds of $31.3$31.2 million. We have registered
these shares.
We expect to finance future operating requirements with cash flows from
operations, and, depending on market conditions, long-term and short-term debt
and privately placed equity.
CONTRACTUAL OBLIGATION AND COMMERCIAL COMMITMENTS
As of JuneSeptember 30, 2002 other commercial commitments related to letters of
credit has increased to $92.5$88.9 million from $81.2 as of December 31, 2001. Other
commercial commitments related to operating leases under sale/leaseback
transactions were unchanged.
RECENT PRONOUNCEMENTS
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145 ("FAS 145"):, "Rescission of FASB Statements No. 4, 44 and 64, Amendment
of FASB Statement No. 13, and Technical Corrections." FAS 145 rescinds both
Statement of Financial Accounting Standards No. 4, "Reporting Gains and Losses
from Extinguishment of Debt" ("FAS 4") and Statement of Financial Accounting
Standards No. 64, "Extinguishments of Debt Made to Satisfy Sinking Fund
Requirements." In so doing, FAS 145 eliminates the requirement that gains and
losses from the extinguishment of debt be aggregated, and if material,
classified as an extraordinary item, net of the related income tax effect,
unless the criteria in Accounting Principles Board Opinion No. 30, "Reporting
the Results of Operations -- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" are met. FAS 145 amends Statement of Financial Accounting
Standards No. 44 which was issued to establish accounting requirements for the
effects of transition to the provisions of the Motor Carrier Act 1980. Because
the transition has been completed, FAS 44 is no longer necessary. FAS145 amends
Statement of Financial Accounting Standards No. 13, "Accounting for Leases"
("FAS 13") to require that certain lease modifications that have economic
effects similar to sale-leaseback transactions are accounted for in the same
manner as sale-leaseback transactions. FAS 145 also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings or describe their applicability under changed conditions. The
provisions of FAS 145 related to the rescission of FAS 4 are effective for
fiscal years beginning after May 15, 2002. The provisions of FAS 145 related to
the amendment of FAS 13 are effective for transactions occurring after May 15,
2002. All other provisions of FAS 145 are effective for financial statements
issued on or after May 15, 2002. The provisions of this new standard are
generally applied prospectively. The adoption of this standard had no material
impact on the Company's operations.
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated
with Exit or Disposal Activities" (FAS 146). This statement supercedes Emerging
Issues Task Force (EIFT) Issue No. 94-3 "Liability
23
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)". FAS 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Under EITF 94-3, a
liability is recognized at the date an entity commits to an exit plan. FAS 146
also establishes that the liability should initially be measured and recorded at
fair value. The provisions of FAS 146 will be effective for any exit and
disposal activities initiated after December 31, 2002.
FORWARD LOOKING STATEMENTS.STATEMENTS
This quarterly report on Form 10-Q contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Any
statements contained herein that are not historical facts are forward-looking
statements and involve risks and uncertainties. These forward-looking statements
include expectations, beliefs, plans, objectives, future financial performance,
estimates, projections, goals and forecasts. Potential factors which could cause
our actual results of operations to differ materially from those in the
forward-looking statements include:
o market conditions and demand for our products;
o the cyclical nature of both the railcar and barge industries;
o abnormal periods of inclement weather in areas where construction products
are sold and used;
o the timing of introduction of new products;
o the timing of customer orders;
o price erosion;
o changes in mix of products sold;
o the extent of utilization of manufacturing capacity;
o availability of supplies and raw materials;
o price competition and other competitive factors;
o changing technologies;
o steel prices;
o interest rates and capital costs;
o taxes;
o the stability of the governments and political and business conditions in
certain foreign countries, particularly Mexico and Romania;
o changes in import and export quotas and regulations;
o business conditions in emerging economies; and
o legal, regulatory and environmental issues.
Any forward-looking statement speaks only as of the date on which such
statement is made. Trinity undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSUREDISCLOSURES ABOUT MARKET RISK
There has been no material change in our market risks since December
31, 2001.
22ITEM 4. CONTROLS AND PROCEDURES
As of September 30, 2002, an evaluation was performed under the
supervision and with the participation of the Company's management, including
the CEO and CFO, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on that evaluation, the
Company's management, including the CEO and CFO, concluded that the Company's
disclosure controls and procedures were effective as of September 30, 2002.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
September 30, 2002.
24
PART II
ITEM 4. SUBMISSION OF MATTERS TO1. LEGAL PROCEEDINGS
On May 15, 2002, Florida Marine Transporters, Inc. and JAR Assets, Inc.
filed suit in the 22nd Judicial Court, St. Tammany Parish, Louisiana against the
Company, its wholly owned subsidiary Trinity Marine Products, Inc. ("Trinity
Marine"), a coating manufacturer, a coating distributor, and three insurance
companies seeking damages related to corrosion problems with eighteen tank
barges purchased from Trinity Marine. The plaintiffs seek damages and/or
recision of the purchase contract. The purchase price of the barges was $27.6
million. A VOTE OF SECURITY HOLDERS.
Atsecond case involving similar legal and factual issues was filed on
October 7, 2002 in the Annual MeetingU.S. Northern District Court of Stockholders held May 13, 2002, stockholders
elected nine incumbent directors forMississippi by J. Russell
Flowers, Inc. against the Company, Trinity Marine, a one-year term (Proposal 1)coating manufacturer and approved
ratificationa
coating distributor involving fifty-six hopper barges with a claimed value of
Ernst & Young LLP as independent auditors$13,977,578. Punitive damages are sought against the Company. Issues raised in
these cases have created uncertainty in the industry regarding barge corrosion
and its causes. As a result, Trinity Marine has had communications with
customers ranging from inquiries to concerns of corrosion problems. Outside
experts, after investigation, expressed the opinion the technical claims
presented in both cases are without merit. As of this date, the Company has
found there is no scientific basis for the year ending
December 31, 2002 (Proposal 2). The vote tabulation followsassertion that the coating material
is a food source for each proposal:
Proposal 1 - Electionbacteria, or is causing or contributing to corrosion.
Although these cases are in early stages and the ultimate resolution is
uncertain, management believes, based on this data, the effect of Directors
Nominee For Withheld
------------------- ---------- --------
David W. Biegler 40,139,105 441,917
Craig J. Duchossois 40,257,010 324,012
Ronald J. Gafford 40,298,171 282,851
Barry J. Galt 40,168,498 412,524
Clifford J. Grum 40,176,179 404,843
Jess T. Hay 40,219,051 361,971
Diana S. Natalicio 40,331,306 249,716
Timothy R. Wallace 40,296,710 284,312
W. Ray Wallace 40,173,264 407,758
Proposal 2 - Independent Auditors
For Against Abstentions
--- ------- -----------
39,642,850 906,350 31,822
ITEM 5. OTHER INFORMATION
Duringthis
litigation and issues raised by the second quarter, Trinity disclosed tolitigation on the U. S. Treasury
Department's OfficeCompany's financial
position and results of Foreign Assets Control ("OFAC") that its Mexican
subsidiary, Trinity Industries de Mexico, S.A. ("TIMSA"), last year sold, in one
isolated transaction, four liquid petroleum gas ("LPG") storage tanks to a
second Mexican company which were ultimately delivered to Cuba. LPG tanks are
typically used to store liquefied petroleum gas for residential heating and
cooking. TIMSA made this sale relying upon a legal opinion from its outside
legal counsel in Mexico. Trinity didoperations will not authorize or approve the sale and only
became aware of it after the LPG tanks had been delivered to Cuba. Upon learning
of the sale, Trinity retained independent counsel to investigate the incident
and subsequently made the voluntary disclosure to OFAC. Trinity is cooperating
fully with OFAC to resolve the matter. In the opinion of management, the Company
will incur no liability in connection with this matter that will be material for financial reporting
purposes.
23On August 30, 2002, the Company entered into a Consent Agreement and Final
Order ("CAFO") with the United States Environmental Protection Agency ("EPA")
relating to allegations that the Company failed to make certain submissions
timely to the EPA resulting in a violation of the Emergency Planning Community
Right to Know Act. The CAFO provides for the payment of a civil administrative
penalty of $90,351.
25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit Number Description
10.1 Credit Agreement dated as of June 4, 2002 among
Trinity Industries, Inc., as Borrower, JPMorgan Chase
Bank, individually as a Lender and Issuing Bank and
as Administrative Agent, and Dresdner Bank AG, New
York and Grand Cayman Branches and The Royal Bank of
Scotland plc., each individually as a Lender and
collectively as Syndication Agents, and certain other
Lenders party thereto from time to time.
10.2 Warehouse Loan Agreement dated as of June 27, 2002
among Trinity Industries Leasing Company, Trinity
Rail Leasing Trust II, the Borrower, Credit Suisse
First Boston, New York Branch, as Agent, and the
Lenders party thereto from time to time.
10.12.3 Amendment No. 3 to the Trinity Industries, Inc. 1998
Stock Option and Incentive Plan.
99.1 Certification pursuant to 18 U.S.C., Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C., Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Notice: A copy of Exhibits omitted from the reproduction will be furnished
upon written request to Neil Shoop, Treasurer, Trinity Industries, Inc.,
P.O. Box 568887, Dallas, Texas 75356-8887. We may impose a reasonable fee
for our expense in connection with providing the above-referenced
Exhibits.
(b) Reports on Form 8-K
(1) Trinity filed a Current Report on Form 8-K dated July 25,August 13,
2002, that furnished to the Securities and Exchange
Commission, under Item 9, the statements under oath of its
Principal Executive Officer and its Principal Financial
Officer pursuant to the Commission's order of June 27, 2002
requiring the filing of sworn statements pursuant to Section
21(a)(1) of the Securities Exchange Act of 1934.
(2) Trinity filed a Current Report on Form 8-K dated August 30,
2002, reporting under Item 5, operating results forrestated quarterly segment
information that aligns the three months
ended June 30, 2002. Pursuantreportable segments with current
management responsibilities and internal reporting.
(3) Trinity filed a Current Report on Form 8-K dated October 15,
2002, that reported an update to Form 8-K: under Item 7, the news
release dated July 24, 2002issues raised in a
previously reported lawsuit filed against Trinity and conference call scriptsa
coating manufacturer seeking recovery of July
25, 2002 of various officers were filed.
24damages related to
corrosion problems with eighteen barges manufactured by
Trinity.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TRINITY INDUSTRIES, INC. By: /s/ Jim S. Ivy
Registrant -------------------------------------------------
Jim S. Ivy
Senior Vice President and
Chief Financial Officer
August 12,November 7, 2002
27
CERTIFICATION
I, Timothy R. Wallace, Chairman, President and Chief Executive Officer, certify
that:
1. I have reviewed this quarterly report on Form 10-Q of Trinity
Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of and for the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 7, 2002
/s/ Timothy R. Wallace
Timothy R. Wallace
Chairman, President and Chief Executive Officer
28
CERTIFICATION
I, Jim S. Ivy, Senior Vice President and Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Trinity Industries,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of and for the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 7, 2002
/s/ Jim S. Ivy
Jim S. Ivy
Senior Vice President and Chief Financial Officer
29
EXHIBIT INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------------- -----------
10.1 Credit Agreement dated as of June 4, 2002 among Trinity
Industries, Inc., as Borrower, JPMorgan Chase Bank, individually
as a Lender and Issuing Bank and as Administrative Agent, and
Dresdner Bank AG, New York and Grand Cayman Branches and The
Royal Bank of Scotland plc., each individually as a Lender and
collectively as Syndication Agents, and certain other Lenders
party thereto from time to time.
10.2 Warehouse Loan Agreement dated as of June 27, 2002 among Trinity
Industries Leasing Company, Trinity Rail Leasing Trust II, the
Borrower, Credit Suisse First Boston, New York Branch, as Agent,
and the Lenders party thereto from time to time.
10.12.3 Amendment No. 3 to the Trinity Industries, Inc. 1998 Stock Option
and Incentive Plan.
99.1 Certification pursuant to 18 U.S.C., Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C., Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.