SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2001
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 Company as specified in its charter)
75-0225040
Incorporated Under the Laws -------------------
of the State of Delaware (I.R.S. Employer
Identification No.)
2525 Stemmons Freeway
Dallas, Texas 75207-2401
--------------------- ----------
(Address of Principal (Zip Code)
Executive Offices)
(214) 631-4420
----------------------------
(Company's Telephone Number,
Including Area Code)
Indicate by check mark whether the Company (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 [ ]
37,013,626
(Number of shares of common stock outstanding as of September 30, 2001)
Part I
Item 1 - Financial Statements
Trinity Industries, Inc.
Consolidated Balance Sheet
(in millions except per share data)
<Table>
<Caption>
Sept. 30 March 31
Assets 2001 2001
------ ---------- ----------
(unaudited)
Cash and equivalents ........................... $ 3.0 $ 13.5
Receivables .................................... 241.8 245.7
Inventories:
Raw materials and supplies ................... 206.4 235.5
Work in process .............................. 37.2 43.5
Finished goods ............................... 79.4 73.5
---------- ----------
323.0 352.5
Property, plant and equipment, at cost ......... 1,495.3 1,534.1
Less accumulated depreciation .................. (559.2) (541.7)
---------- ----------
936.1 992.4
Goodwill ....................................... 73.1 71.4
Other assets ................................... 166.0 150.4
---------- ----------
239.1 221.8
---------- ----------
$ 1,743.0 $ 1,825.9
========== ==========
Liabilities and Stockholders' Equity
Bank debt ...................................... $ 409.0 $ 493.8
Accounts payable and accrued liabilities ....... 364.7 364.2
Long-term debt ................................. 24.2 44.0
Deferred income taxes .......................... 26.4 7.1
Other liabilities .............................. 37.3 37.8
---------- ----------
861.6 946.9
---------- ----------
Stockholders' equity:
Common stock - shares issued
and outstanding at September 30, 2001
- 43.8; at March 31, 2001 - 43.8 ........... 43.8 43.8
Capital in excess of par value ............... 290.9 291.8
Retained earnings ............................ 763.6 759.4
Accumulated other comprehensive loss ......... (26.2) (21.1)
Treasury stock -(shares held at
September 30, 2001 - 6.8; at March 31,
2001 - 7.0), at cost ....................... (190.7) (194.9)
---------- ----------
881.4 879.0
---------- ----------
$ 1,743.0 $ 1,825.9
========== ==========
</Table>
See accompanying notes to consolidated financial statements.
2
Trinity Industries, Inc.
Consolidated Income Statement
(unaudited)
(in millions except per share data)
<Table>
<Caption>
Six Months
Ended Sept. 30
2001 2000
---------- ----------
Revenues ............................................. $ 840.5 $ 1,084.4
Operating costs:
Cost of revenues ................................... 716.6 958.5
Selling, engineering and administrative expenses ... 82.5 103.3
---------- ----------
799.1 1,061.8
---------- ----------
Operating profit ..................................... 41.4 22.6
Other (income) expense:
Interest income .................................... (1.9) (3.3)
Interest expense ................................... 14.1 12.9
Other, net ......................................... 1.1 1.0
---------- ----------
13.3 10.6
---------- ----------
Income before income taxes ........................... 28.1 12.0
Provision (benefit) for income taxes:
Current ............................................ (12.6) 4.9
Deferred ........................................... 23.2 (0.6)
---------- ----------
10.6 4.3
---------- ----------
Net income ........................................... $ 17.5 $ 7.7
========== ==========
Net income per common share:
Basic .............................................. $ 0.47 $ 0.20
========== ==========
Diluted ............................................ $ 0.47 $ 0.20
========== ==========
Weighted average number of shares outstanding:
Basic .............................................. 37.0 37.9
Diluted ............................................ 37.1 38.0
</Table>
See accompanying notes to consolidated financial statements.
3
Trinity Industries, Inc.
Consolidated Income Statement
(unaudited)
(in millions except per share data)
<Table>
<Caption>
Three Months
Ended Sept. 30
2001 2000
---------- ----------
Revenues ............................................ $ 372.9 $ 550.7
Operating costs:
Cost of revenues .................................. 314.3 511.5
Selling, engineering and administrative expenses .. 39.8 54.1
---------- ----------
354.1 565.6
---------- ----------
Operating profit (loss) ............................. 18.8 (14.9)
Other (income) expense:
Interest income ................................... (0.2) (2.2)
Interest expense .................................. 6.5 6.9
Other, net ........................................ 0.1 1.0
---------- ----------
6.4 5.7
---------- ----------
Income (loss) before income taxes ................... 12.4 (20.6)
Provision (benefit) for income taxes:
Current ........................................... (7.5) (5.1)
Deferred .......................................... 12.0 (2.3)
---------- ----------
4.5 (7.4)
---------- ----------
Net income (loss) ................................... $ 7.9 $ (13.2)
========== ==========
Net income (loss) per common share:
Basic ............................................. $ 0.21 $ (0.35)
========== ==========
Diluted ........................................... $ 0.21 $ (0.35)
========== ==========
Weighted average number of shares outstanding:
Basic ............................................. 37.0 37.6
Diluted ........................................... 37.2 37.6
</Table>
4
Trinity Industries, Inc.
Consolidated Statement of Cash Flows
(unaudited)
(in millions)
<Table>
<Caption>
Six Months
Ended Sept. 30
2001 2000
---------- ----------
Operating activities:
Net income ........................................ $ 17.5 $ 7.7
Adjustments to reconcile net income to net cash
provided (required) by operating activities:
Depreciation and amortization ................... 44.3 43.8
Deferred income taxes ........................... 23.2 (0.6)
Gain on sale of property, plant and equipment ... (1.5) (8.4)
Restructuring and other special charges ......... -- 41.7
Other ........................................... 0.6 8.5
Changes in assets and liabilities, net of
effects from acquisitions:
Decrease in receivables ....................... 3.9 90.8
(Increase) decrease in inventories ............ 29.5 (45.5)
Increase in other assets ...................... (21.4) (46.5)
Decrease in accounts payable and
accrued liabilities .......................... (7.7) (31.2)
Decrease in other liabilities ................. (0.5) (1.4)
---------- ----------
Total adjustments ............................ 70.4 51.2
---------- ----------
Net cash provided by operating activities ....... 87.9 58.9
Investing activities:
Proceeds from sale of property, plant
and equipment .................................... 139.1 52.3
Capital expenditures .............................. (119.6) (111.5)
Payment for acquisitions, net of cash acquired .... -- (16.2)
---------- ----------
Net cash provided (required) by
investing activities .......................... 19.5 (75.4)
Financing activities:
Net borrowings (repayments)of bank debt ........... (84.8) 143.9
Stock repurchases ................................. -- (22.5)
Payments to retire long-term debt ................. (19.8) (49.7)
Dividends paid .................................... (13.3) (13.7)
---------- ----------
Net cash provided (required) by
financing activities .......................... (117.9) 58.0
---------- ----------
Net increase (decrease) in cash and equivalents .... (10.5) 41.5
Cash and equivalents at beginning of period ........ 13.5 16.9
---------- ----------
Cash and equivalents at end of period .............. $ 3.0 $ 58.4
========== ==========
</Table>
See accompanying notes to consolidated financial statements
5
Trinity Industries, Inc.
Consolidated Statement of Stockholders' Equity
(unaudited)
(in millions except share and per share data)
<Table>
<Caption>
Common Stock
-------------------- Capital Accumulated
Amount in Other Total
Shares $1.00 Excess Compre- Treasury Stock Stock-
(100,000,000) Par of Par Retained hensive ------------------- holders'
(Authorized) Value Value Earnings Income Shares Amount Equity
------------- ------ ------- -------- ----------- ---------- ------ --------
Balance at March 31, 2000 43,796,351 $43.8 $295.1 $860.6 $ (19.8) (5,455,743) $(164.6) $1,015.1
Net income -- -- -- 7.7 -- -- -- 7.7
Currency translation
Adjustments -- -- -- -- (0.4) -- -- (0.4)
--------
Comprehensive income 7.3
Cash dividends
($0.36 per share) -- -- -- (13.5) -- -- -- (13.5)
Stock repurchases -- -- -- -- -- (1,118,900) (22.5) (22.5)
Other -- -- (1.7) -- -- 87,702 3.2 1.5
---------- ----- ------ ------ --------- ---------- ------- --------
Balance at September 30, 2000 43,796,351 $43.8 $293.4 $854.8 $ (20.2) (6,486,941) $(183.9) $ 987.9
========== ===== ====== ====== ========= ========== ======= ========
Balance at March 31, 2001 43,796,351 $43.8 $291.8 $759.4 $ (21.1) (6,953,386) $(194.9) $ 879.0
Net income -- -- -- 17.5 -- -- -- 17.5
Currency translation
and derivative fair
value adjustments -- -- -- -- (5.1) -- -- (5.1)
---------
Comprehensive income 12.4
Cash dividends
($0.36 per share) -- -- -- (13.3) -- -- -- (13.3)
Other -- -- (0.9) -- -- 170,661 4.2 3.3
---------- ----- ------ ------ --------- ---------- ------- ---------
Balance at September 30,2001 43,796,351 $43.8 $290.9 $763.6 $ (26.2) (6,782,725) $(190.7) $ 881.4
========== ===== ====== ====== ========== ========== ======= =========
</Table>
See accompanying notes to consolidated financial statements
6
Trinity Industries, Inc.
Notes to Consolidated Financial Statements
(unaudited)
September 30, 2001
General
The foregoing consolidated financial statements are unaudited and have been
prepared from the books and records of Trinity Industries, Inc. ("Trinity" or
the "Company"). In the opinion of management, all adjustments, consisting only
of normal and recurring adjustments necessary for a fair presentation of the
financial position of the Company as of September 30, 2001, the results of
operations for the six months and three month periods ended September 30, 2001
and 2000 and cash flows for the six month periods ended September 30, 2001 and
2000, in conformity with generally accepted accounting principles, have been
made. Because of seasonal and other factors, the results of operations for the
six-month and three-month period ended September 30, 2001 may not be indicative
of expected results of operations for the nine months ending December 31, 2001.
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 for
the year ended March 31, 2001. On September 13, 2001, the Board of Directors
approved to change Trinity's year-end to December 31 from March 31. The Annual
Meeting of Stockholder's will be held on May 13, 2002.
Contingencies
The Company is involved in various claims and lawsuits incidental to its
business. In the opinion of management, these claims and suits in the aggregate
will not have a material adverse effect on the Company's consolidated financial
statements.
The Company has an interest bearing advance payment and deposit for inventory
purchases of approximately $44 million with a supplier who is under court
protection from its creditors. While management does not believe recovery of
this amount has been impaired, future operating results and restructuring of the
supplier could affect recovery.
Unusual Charges
During fiscal year 2001, the Company recorded pre-tax charges of approximately
$173.3 million. The charges related to the restructuring of the Company's
railcar operations, investment and asset write downs, litigation reserves, and
other charges. $140.9 million of the unusual charges were charged to operating
profit. $32.4 million of the unusual charges were reported in Other expense
primarily for the write down of equity investments in fiscal 2001.
For the quarter ended September 30, 2000, the Company recorded pre-tax charges
of $51.9 million ($33.2 million after tax), or $0.88 per share. Of the $51.9
million, $44.1 million is included in cost of revenues, $4.8 million in selling,
engineering and administrative expenses, and $3.0 million in other expense.
Of the $173.3 million charges, $130.5 million were writedowns of existing assets
or, in the case of accrued expenses, reflected in such classification and, as of
September 30, 2001, $10.2 million of cash
7
payments have been made. The remaining reserve of $31.8 million is detailed
below (in millions). Cash flow requirements of approximately $6 million are
expected to be paid over the next year and cash flow requirements for the
remaining liabilities, due to the nature of such liabilities, are currently
unknown.
<Table>
<Caption>
Reserve
Sept. 30, 2001
--------------
Severance pay and plant shutdown costs
related primarily to plant closings
and headcount reductions $ 3.9
Environmental liabilities 11.0
Adverse jury verdict 14.4
Other 2.5
-------
$ 31.8
=======
</Table>
Segments of Business
Trinity Industries, Inc. is a diversified industrial manufacturer. As of March
31, 2001, the Company modified its segment reporting to align the reportable
segments with current internal reporting. The Company combined the Highway
Construction Products segment and the Concrete and Aggregate segment into the
Construction Products segment, moved its Heads business into the Industrial
Products segment from Parts and Services, and moved its Deck Fittings and Marine
Parts business into the Inland Barge segment from Parts and Services.
Furthermore, the Company changed the definition of operating profit at the
segment level to include corporate shared services charges. Information
reflecting these changes for fiscal years 2001, 2000 and 1999 was presented in
the 2001 Annual Report in order to conform to these changes. The determination
of operating segments is based on the types of products and services provided by
the Company and the internal reporting relationships.
The new reporting format includes the following business segments: (1) the
Railcar segment, which manufactures and sells railcars; (2) the Inland Barge
segment, which manufactures barges and related products for inland waterway
services; (3) the Parts & Services segment, which manufactures and sells various
parts to manufacturers of railcars and other industrial products and provides
services such as railcar maintenance, fleet management, and leasing; (4) the
Construction Products segment, consisting primarily of highway guardrail and
safety products, concrete and aggregate, and girders and beams used in the
construction of highway and railway bridges; (5) the Industrial Products
segment, which manufactures and sells containers, container heads, weld fittings
used in pressure piping systems, and pressure and non-pressure containers for
the storage and transportation of liquefied gases and other liquid and dry
products. Finally, All Other includes transportation services, the Company's
captive insurance company, structural towers, and other peripheral businesses.
The financial information for the year-to-date and quarter ended September 30,
2001 and 2000 is shown in the tables below.
8
Six months ended September 30, 2001 (unaudited)
(in millions)
<Table>
<Caption>
Revenues Operating
-------------------------------------- Profit
Outside Intersegment Total (Loss)
---------- ------------ ---------- ----------
Railcar Segment ................... $ 241.4 $ 2.8 $ 244.2 $ (0.1)
Inland Barge Segment .............. 100.2 -- 100.2 5.0
Parts & Services Segment .......... 102.3 34.8 137.1 15.3
Construction Products Segment ..... 260.7 0.2 260.9 31.7
Industrial Products Segment ....... 95.3 2.1 97.4 3.9
All Other ......................... 40.6 20.3 60.9 (4.4)
Eliminations and Corporate Items .. -- -- (60.2) (10.0)
---------- ----------
Consolidated Total................. $ 840.5 $ 41.4
========== ==========
</Table>
Six months ended September 30, 2000 (unaudited)
(in millions)
<Table>
<Caption>
Revenues Operating
-------------------------------------- Profit
Outside Intersegment Total (Loss)
---------- ------------ ---------- ----------
Railcar Segment ................... $ 452.8 $ 2.3 $ 455.1 $ 6.1
Inland Barge Segment .............. 103.3 -- 103.3 8.4
Parts & Services Segment .......... 135.2 28.7 163.9 7.3
Construction Products Segment ..... 252.9 -- 252.9 32.1
Industrial Products Segment ....... 116.7 3.1 119.8 (2.6)
All Other ......................... 23.5 27.9 51.4 (5.8)
Eliminations and Corporate Items .. -- -- (62.0) (22.9)
---------- ----------
Consolidated Total ................ $ 1,084.4 $ 22.6
========== ==========
</Table>
Three months ended September 30, 2001 (unaudited)
(in millions)
<Table>
<Caption>
Revenues Operating
-------------------------------------- Profit
Outside Intersegment Total (Loss)
---------- ------------ ---------- ----------
Railcar Segment ................... $ 72.2 $ 2.0 $ 74.2 $ (3.7)
Inland Barge Segment .............. 50.6 -- 50.6 2.1
Parts & Services Segment .......... 50.6 15.6 66.2 7.1
Construction Products Segment ..... 125.4 0.2 125.6 16.0
Industrial Products Segment ....... 51.3 1.2 52.5 3.5
All Other ......................... 22.8 9.8 32.6 (1.5)
Eliminations and Corporate Items .. -- -- (28.8) (4.7)
---------- ----------
Consolidated Total ................ $ 372.9 $ 18.8
========== ==========
</Table>
Three months ended September 30, 2000 (unaudited)
(in millions)
<Table>
<Caption>
Revenues Operating
-------------------------------------- Profit
Outside Intersegment Total (Loss)
---------- ------------ ---------- ----------
Railcar Segment ................... $ 238.7 $ 1.0 $ 239.7 $ (6.1)
Inland Barge Segment .............. 51.7 -- 51.7 1.9
Parts & Services Segment .......... 62.6 13.8 76.4 (4.0)
Construction Products Segment ..... 127.0 -- 127.0 16.2
Industrial Products Segment ....... 57.6 1.8 59.4 (4.3)
All Other ......................... 13.1 11.9 25.0 (2.0)
Eliminations and Corporate Items .. -- -- (28.5) (16.6)
---------- ----------
Consolidated Total ................ $ 550.7 $ (14.9)
========== ==========
</Table>
9
Carrying Value of Goodwill by Segment:
<Table>
<Caption>
Balance Balance
Sept 30, 2001 March 31, 2001
------------- --------------
Railcar Segment $ 1.9 $ 0.2
Parts & Services Segment 66.4 66.4
Construction Products Segment 4.8 4.8
----- -----
Consolidated Total $73.1 $71.4
===== =====
</Table>
Other
Effective April 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, as amended, "Accounting for Derivative Instruments
and Hedging Activities," which establishes a comprehensive standard for the
recognition and measurement of derivatives and hedging activities. Due to the
Company's limited use of derivatives, the impact was not material. In the first
six months of fiscal 2002, the Company entered into 7 interest rate swap
agreements with a total notional amount of $200.0 million in order to mitigate
the impact from interest rate fluctuations on outstanding debt obligations. The
Company pays an average fixed rate of 4.01% and receives a floating rate based
on the three-month LIBO rates. As of September 30, 2001, the fair value of these
swaps was recorded as a liability on the Company's books of ($ 4.3) million with
the offset to other comprehensive income.
Effective April 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets," (SFAS No. 142) which
requires that goodwill not be amortized but instead be tested for impairment
annually by reporting unit which is scheduled to be completed by the Company as
of December 31, 2001. The adoption of SFAS No. 142 is not expected to have a
material effect on the financial statements, however, the fair values of the
respective reporting units have not been finally determined. Recent developments
in the rail supply business could impact the valuation of goodwill related to
the acquisition of the Company's foundry business which specializes in
manufacturing railcar couplers and other components. For the six months ended
September 30, 2000, goodwill amortization was $1.4 million ($900 thousand after
tax or $0.02 per share). For the three months ended September 30, 2000, goodwill
amortization was $700 thousand ($400 thousand after tax or $0.01 per share). If
SFAS 142 had not been adopted goodwill amortization of approximately $1.8
million ($1.1 million after tax or $0.03 per share) would have been recorded for
the six months ended September 30,2001. Goodwill amortization of $1.0 million
($600 thousand after tax or $0.02 per share) would have been recorded for the
three months ended September 30, 2001.
During the six months ended September 30, 2001, the Company received total
proceeds of approximately $150 million pursuant to a sale-leaseback transaction
under a non-recourse-financing program to fund certain railcar leasing
activities. The net proceeds from the transaction were used to reduce the
Company's outstanding indebtedness. No revenue or profit was recorded at the
time of the sale-leaseback transaction. The related operating leases are
obligations of a bankruptcy remote, special-purpose corporation that is wholly
owned by Trinity but does not represent legal obligations of Trinity.
10
<Table>
<Caption>
Other, Net
(in millions)
Six months ended Three months ended
Other (income) loss: Sept.01 Sept.00 Sept.01 Sept.00
------- ------- ------- -------
Gain on sale of property,
plant, and equipment $ (0.7) $ (3.1) $ (0.7) $ (2.6)
(Gain) loss on foreign
exchange transactions 0.4 (0.2) (0.1) (0.1)
Unusual charges - equity
investment writeoff -- 3.0 -- 3.0
Loss on all other equity
investments 1.2 2.0 0.7 0.6
All other (income) expense 0.2 (0.7) 0.2 0.1
------ ------ ------ ------
Total other, net $ 1.1 $ 1.0 $ 0.1 $ 1.0
====== ====== ====== ======
</Table>
Subsequent Events
Thrall Merger
On October 26, 2001, the Company completed its merger transaction between a
subsidiary and privately owned Thrall Car Manufacturing Company ("Thrall").
Under terms of the agreement, Trinity paid $165 million in cash and issued 7.15
million shares of its common stock at the closing. In addition, Trinity has
agreed to make additional payments, not to exceed $45 million over five years,
based on a formula related to annual railcar industry production levels plus
certain amounts related to working capital balances at the closing date. The
purchase price will be allocated to the assets acquired and liabilities assumed
based upon estimated fair market values. The Company is currently in the process
of preparing the purchase price allocation and determining the useful lives of
the assets acquired. Results of operations for Thrall will be included with
those of the Company beginning after October 26, 2001. The cash portion was
funded by bank financing and is expected to be refinanced with long term debt.
Credit Facility
In October certain modifications were made to the company's committed revolving
bank facility to allow financing of the Thrall acquisition, establishing the
total available under the facility at $450 million. Amounts borrowed under the
facility bear interest at LIBOR plus 0.95% or other alternative rates at the
Company's option and can be converted to a one-year term loan on June 6, 2002.
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Six Months Ended September 30, 2001 Compared to
Six Months Ended September 30, 2000
Revenues for the first six months of fiscal 2002 decreased to $840.5 million
from $1,084.4 million primarily due to reduced car shipments in the Railcar
segment. Operating profit increased to $41.4 million compared to $22.6 million.
For the six months ended September 30, 2000, the Company recorded unusual
charges, included in operating profit, of $48.9 million. If these unusual
charges had not occurred, operating profit for the six months ended September
30, 2000 would have been $71.5 million. Such a decrease is mainly due to the
Railcar segment results.
Revenues for the Railcar segment decreased to $241.4 million from $452.8 million
while operating profit decreased to a loss of $0.1 million from a profit of $6.1
million. The decline in revenues and operating profit is a result of the
significant weakening in demand for new railcars in North America combined with
a
11
higher percentage of railcar deliveries going to Trinity's lease fleet than in
the prior year. Prior year operating profit was affected by unusual charges of
$21.1 million. Operating margins declined as well due to sales price declines
and lower volumes.
Revenues for the Inland Barge segment decreased to $100.2 million from $103.3
million. Operating profit decreased to $5.0 million from $8.4 million. Unusual
charges of $3.7 million were recorded during the same period last year.
Competitive price pressures for both hopper barges and tank barges continue to
adversely affect operating profit.
Revenues decreased by $26.8 million in the Parts & Services segment, from $163.9
million (including intersegment sales of $28.7 million), to $137.1 million
(including intersegment sales of $34.8 million), while operating profit
increased to $15.3 million from $7.3 million. This decrease in revenues is
primarily due to the soft market conditions in the railcar market. The increase
in operating profit is due to the unusual charges of $6.2 million that were
recorded in the quarter ended September 30, 2000. This is in addition to prior
year operating losses associated with the Company's concrete mixer, concrete
batch plants and component parts for concrete related industries business which
was closed as of March 31, 2001.
Revenues for the Construction Products segment increased to $260.7 million from
$252.9 million, a 3.1% increase, while operating profit remained flat. The
increase in revenue is attributed to better weather conditions in the Concrete &
Aggregate business.
Industrial Products segment revenues decreased to $95.3 million compared to
$116.7 million. Operating profit increased to $3.9 million from a loss of $2.6
million. The reduction of revenues is primarily a result of reduced demand from
gas distributors in the Mexico LPG market. While this situation is not believed
to be long-term, it is uncertain as to when improvement will occur. The increase
in operating profit is due to the unusual charges of $6.5 million associated
with exiting the flange and valve business that was recorded in the quarter
ended September 30, 2000. In addition, improved margins for the US LPG business
contributed to the operating profit increase.
In the six months ended September 30, 2001, selling, engineering and
administrative expenses decreased to $82.5 million from $103.3 million in
comparison to the same period last year primarily due to headcount and other
cost reduction efforts. A total of $4.8 million of prior period unusual charges
was included in the selling, engineering and administrative expenses. During the
quarter ended September 30, 2001, the Company recorded non-rail related charges
of approximately $1.2 million primarily related to discontinuing the Company's
s-Venture subsidiary, which was formed to invest in service type companies, and
severance.
Net interest expense increased due to higher debt levels. The Company's
effective tax rate increased from 36% to 37.5% due to the impact of reduced
taxable income on available tax credits.
Three Months Ended September 30, 2001 Compared to
Three Months Ended September 30, 2000
Revenues for the second quarter of fiscal 2001 declined to $372.9 million from
$550.7 million for the second quarter of fiscal 2000 primarily due to reduced
railcar shipments and related declines in railcar parts and services sales.
Operating profit increased to $18.8 million compared to a loss of $14.9 million.
In the quarter ended September 30, 2000, the Company recorded unusual charges,
12
included in operating profit, of $48.9 million. If these unusual charges had not
occurred, operating profit for the three months ended September 30, 2000 would
have been $34.0 million.
Revenues for the Railcar segment decreased to $72.2 million compared to $238.7
million. Operating loss was $3.7 million compared to a loss $6.1 million for the
same period last year. Unusual charges of $21.1 million were recorded during the
same period last year. The decline in revenues and operating profit before
unusual charges is a result of the significant weakening in demand for new
railcars in North America combined with a higher percentage of railcar
deliveries going to Trinity's lease fleet than in the prior year. Operating
margins declined due to sales price declines and lower volumes.
Revenues for the Inland Barge segment decreased to $50.6 million from $51.7
million. Operating profit was $2.1 million compared to $1.9 million for the same
period last year. Unusual charges of $3.7 million were recorded during the same
period last year. The decrease in revenues and operating profit before unusual
charges is primarily due to reduced prices for both hopper barges and tank
barges.
Revenues decreased by $10.2 million in the Parts & Services segment, from $76.4
million (including intersegment sales of $13.8 million), to $66.2 million
(including intersegment sales of $15.6 million). Operating profit increased to
$7.1 million from a loss of $4.0 million. The decrease in revenues is primarily
due to the soft market conditions in the railcar market. The increase in
operating profit is due to the unusual charges of $6.2 million that were
recorded in the quarter ended September 30, 2000 and prior year operating losses
associated with the Company's concrete mixer, concrete batch plants and
component parts for concrete related industries business which was discontinued
last year.
Revenues for the Construction Products segment declined slightly due to material
cost reductions which were passed through to customers. Operating profit margins
were impacted by an increased proportion of revenues coming from lower margin
bridge sales.
Revenues for the Industrial Products segment declined to $51.3 million from
$57.6 million, primarily due to reduced demand from gas distributors in the
Mexico LPG market. Operating profit increased to $3.5 million from a loss of
$4.3 million for the same period last year primarily due to unusual charges of
$6.5 million associated with exiting the flange and valve business recorded in
the quarter ended September 30, 2000 and, to a lesser extent, improved margins
in the US LPG business.
In the quarter ended September 30, 2001, selling, engineering and administrative
expenses were $39.8 million compared to $54.1 million for the same period last
year primarily due to staffing and other cost reductions and unusual charges of
$4.8 million recorded in the quarter ended September 30, 2000. During the
quarter ended September 30, 2001, the Company recorded non-rail related charges
of approximately $1.2 million primarily related to discontinuing the Company's
s-Venture subsidiary, which was formed to invest in service type companies, and
severance.
Range of Expected Earnings
Prior to the decision to change the Company's year end and approval for the
closing of the Thrall merger on October 26, 2001, the Company had indicated the
expected range of earnings per share for the fiscal year ended March 31, 2002
was $0.80 to $1.00 per share. Presently, the range of expected earnings per
share for the nine months ended December 31, 2001 is $0.50 to $0.60 per share
excluding the effect of
13
any restructuring charges related to the Thrall merger or other charges that may
be recorded in the quarter ending in December 2001. Presently, such charges are
expected to be in the range of $25 to $40 million or $0.37 to $0.59 per share
for the three month period.
Liquidity & Capital Resources
Net cash provided by operating activities increased to $87.9 million during the
first six months of fiscal 2002 compared to $58.9 million in the first six
months of fiscal 2001. Capital expenditures during the first six months of
fiscal 2002 were approximately $119.6 million of which approximately $97.5
million was for additions to the railcar lease fleet. This compares to $111.5
million of capital expenditures in the first six months of fiscal 2001 of which
$67.7 million was for additions to the railcar lease fleet. Proceeds from the
sale of property, plant and equipment (primarily lease fleet sales) were $139.1
million in the first six months of fiscal 2002 compared to $52.3 million in
fiscal 2001.
The Company presently has no intention to repurchase any additional shares. The
Company believes cash provided from operations and cash available under the bank
credit facility will be sufficient to meet its operating and capital expenditure
requirements for the remainder of the fiscal year. The Company believes
acquisitions could be financed through its bank credit facility and additional
borrowing with the consent of lenders.
New Accounting Standards
During the six months ended September 30, 2001, the Company received total
proceeds of approximately $150 million pursuant to a sale-leaseback transaction
with a non-recourse-financing program to fund certain railcar leasing
activities. The net proceeds from the transaction were used to reduce the
Company's outstanding indebtedness. No revenue or profit was recorded at the
time of the sale-leaseback transaction. The related leases are accounted for as
operating leases.
In June 2001, the Financial Accounting Standards Board issued Statement No. 141,
"Business Combinations" ("SFAS No. 141"). SFAS No. 141 eliminates the pooling of
interest method of accounting for business combinations. The company adopted
this statement on July 1, 2001. The adoption of SFAS No. 141 did not have a
material effect on the Company's financial statements.
Effective April 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets," (SFAS No. 142) which
requires that goodwill not be amortized but instead be tested for impairment
annually by reporting unit which is scheduled to be completed by the Company as
of December 31, 2001. The adoption of SFAS No. 142 is not expected to have a
material effect on the financial statements, however, the fair values of the
respective reporting units have not been finally determined. Recent developments
in the rail supply business could impact the valuation of goodwill related to
the acquisition of the Company's foundry business which specializes in
manufacturing railcar couplers and other components. For the six months ended
September 30, 2000, goodwill amortization was $1.4 million ($900 thousand after
tax or $0.02 per share). For the three months ended September 30, 2000, goodwill
amortization was $700 thousand ($400 thousand after tax or $0.01 per share). If
SFAS 142 had not been adopted goodwill amortization of approximately $1.8
million ($1.1 million after tax or $0.03 per share) would have been recorded for
the six months ended September 30,2001. Goodwill amortization of $1.0 million
($600 thousand after tax or $0.02 per share) would have been recorded for the
three months ended September 30, 2001.
14
Railcar Market Outlook
Based on current order activity, the Company believes that railcar industry
shipments for 2002 may be in the range of 15,000 - 20,000 units. At that level
of industry shipments, the Company may take additional restructuring charges and
would not expect to be profitable in the railcar segment.
----------------
Any statements contained herein that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, 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 the Company's actual results of operations
to differ materially from those in the forward-looking statements include market
conditions and demand for the Company's products; competition; technologies;
steel prices; interest rates and capital costs; taxes; unstable governments and
business conditions in emerging economies; and legal, regulatory and
environmental issues. Any forward-looking statement speaks only as of the date
on which such statement is made. The Company undertakes no obligation to update
any forward-looking statement to reflect events or circumstances after the date
on which such statement is made.
Part II
Item 5 - Other Information
Year-End Change
As previously announced, Trinity is changing its year-end to December 31 from
March 31. The Annual Meeting of Stockholder's will be held on May 13, 2002. The
Board of Directors of the Company has determined stockholder proposals to be
included in the Registrant's Proxy Statement and form of proxy relating to the
2002 Annual Meeting must be received by the Company at its offices in Dallas,
Texas, addressed to the Secretary of the Registrant, no later than December 13,
2001. In order for a stockholder to nominate persons for election as directors
or to introduce an item of business at the 2002 Annual Meeting of Stockholders,
written notice must be made to the Secretary of the Company and received on or
before March 14, 2002. The Bylaws specify the information that must be contained
or accompany the notice. Copies of Registrant's Bylaws are available from the
Secretary of the Company.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
10.17.1 First Amendment to Credit Agreement dated October 15,
2001.
10.17.2 Term Credit Agreement dated October 15, 2001 among
Trinity Industries, Inc, as borrower, and The Chase
Manhattan Bank, as lender and as administrative agent,
et,al.
15
(b) Form 8-K
1. Form 8-K was filed on August 1, 2001 that reported the Company's
operating results for the first quarter of fiscal 2002.
2. Form 8-K was filed on August 16, 2001 that reported the proposed
merger between Trinity Industries and Thrall Car Manufacturing
Company.
3. Form 8-K was filed on September 18, 2001 to announce the change in
fiscal year to December 31 from March 31 and next Annual Meeting of
Stockholder's.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Trinity Industries, Inc.
By: /s/ Jim S. Ivy
------------------------------
Jim S. Ivy
Vice President and
Chief Financial Officer
November 13, 2001
16
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.17.1 First Amendment to Credit Agreement dated October 15, 2001.
10.17.2 Term Credit Agreement dated October 15, 2001 among Trinity
Industries, Inc, as borrower, and The Chase Manhattan Bank, as
lender and as administrative agent, et,al.
</Table>