TRINITY INDUSTRIES INC - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

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

Securities Registered Pursuant to Section 12(b) of the Act

Securities registered Pursuant to Section 12(g) of the Act: NONE
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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 [ ]

INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [X]

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED IN RULE 12B-2 OF THE ACT). YES [X] NO [ ]

THE AGGREGATE MARKET VALUE OF VOTING AND NON-VOTING COMMON EQUITY HELD BY
NON-AFFILIATES COMPUTED BY REFERENCE TO THE PRICE AT WHICH THE COMMON EQUITY WAS
LAST SOLD AS OF THE LAST BUSINESS DAY OF THE REGISTRANT'S MOST RECENTLY
COMPLETED SECOND FISCAL QUARTER (JUNE 30, 2002) WAS $766,822,046.

AT FEBRUARY 28, 2003 THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING WAS
45,898,361.

THE INFORMATION REQUIRED BY PART III OF THIS REPORT, TO THE EXTENT NOT SET
FORTH HEREIN, IS INCORPORATED BY REFERENCE FROM THE REGISTRANTS DEFINITIVE PROXY
STATEMENT RELATING TO THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 12,
2003.
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TRINITY INDUSTRIES, INC.

FORM 10-K

TABLE OF CONTENTS

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PART I

ITEM 1. BUSINESS

GENERAL DEVELOPMENT OF BUSINESS. Trinity Industries, Inc. ("we", "Trinity"
or "the Company") was incorporated in 1933 and is one of the nation's leading
diversified industrial companies providing a variety of products and services
for the transportation, industrial, construction, and energy sectors of the
marketplace.

In September 2001, we changed our year-end from March 31 to December 31.
Unless stated otherwise, all references to fiscal year 2001 shall mean the full
fiscal year ended March 31, 2001. The nine months ended December 31, 2001 covers
the period from April 1, 2001 to December 31, 2001. The information for the year
ended December 31, 2001 and the nine months ended December 31, 2000 are
unaudited and have been included herein for informational and comparison
purposes.

Trinity became a Delaware Corporation in 1987. The Company's principal
executive offices are located at 2525 Stemmons Freeway, Dallas, Texas
75207-2401, and our telephone number is 214-631-4420.

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS. Financial information about
our industry segments for the year ended December 31, 2002, the nine months
ended December 31, 2001 and fiscal year 2001 is presented in Part II, Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 13 through 24.

NARRATIVE DESCRIPTION OF BUSINESS. The Company is engaged in the
manufacture, marketing, and leasing of a variety of products consisting of the
following five business groups:

TRINITY RAIL GROUP. Our railcar group primarily serves two markets: North
America and Europe. We develop and manufacture a comprehensive selection of
railcars used for transporting a wide variety of liquids, gases and dry cargo.
We are the leading railcar manufacturer in North America and in Europe. Our
railcar operations offer a wide range of car types to take advantage of changing
industry trends and developing market opportunities including:

- - Tank Cars -- Tank cars transport products such as liquefied petroleum gas,
liquid fertilizer, sulfur, sulfuric acids and corn syrup.

- - Auto Carrier Cars -- Auto carrier cars transport automobiles and sport utility
vehicles.

- - Hopper Cars -- Covered hopper cars carry cargo such as grain, dry fertilizer,
plastic pellets and cement. Open-top hoppers are most often used to haul coal.

- - Box Cars -- Box cars transport products such as food goods, auto parts, wood
products and paper.

- - Intermodal Cars -- Intermodal cars transport intermodal containers and
trailers, which are generally interchangeable among railcar, truck and ship,
thus making it possible to move cargo without repeated loading and unloading.

- - Gondola Cars -- Rotary gondolas are used for coal service, and top-loading
gondola cars transport a variety of other heavy bulk commodities such as scrap
metals and steel products.

- - Specialty Cars -- Specialty cars are designed to address the special needs of
a particular industry or customer, such as waste hauling gondolas, side dump
cars, and pressure differential cars used to haul fine grain food products
such as sugar and flour.

We also manufacture and sell railcar parts, such as auto carrier doors and
accessories, discharge gates, yokes, couplers, axles, hitches and bogies. These
parts are ultimately used in manufacturing and repair of railcars.

We also maintain, repair and modify railcars through our repair network,
Trinity Railcar Repair, Inc. In December of 2002, Trinity entered into an
agreement subject to certain conditions, including obtaining financing, to sell
Trinity's railcar repair business. For the year ended December 31, 2002, Trinity
Railcar Repair, Inc. had revenues and operating profit of $38.8 million and $1.8
million, respectively. There is no assurance that this transaction will be
completed.

Our customers include railroads, leasing companies, and shippers, such as
utilities, petrochemical companies, grain shippers, and major construction

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and industrial companies. In North America, we compete against five major
railcar manufacturers. In Europe, we compete against a number of manufacturers
in various countries.

We hold patents of varying duration for use in our manufacture of railcar
and component products. We cannot quantify the importance of such patents, but
patents are believed to offer a marketing advantage in certain circumstances. No
material revenues are received from licensing of these patents.

CONSTRUCTION PRODUCTS GROUP. Our Construction Products segment is composed
of highway safety products, concrete and aggregates, beams and girders used in
highway bridge construction and weld pipe fittings. Many of these lines of
business are seasonal and subject to weather conditions.

We are one of the largest manufacturers of roadside safety products in
North America. Our products include highway safety guardrails and patented
products such as guardrail end terminals, crash cushions, and other protective
barriers that absorb and dissipate the force of impact in collisions between
vehicles and fixed roadside objects. Our predominantly galvanized steel product
lines use the principles of momentum transfer and kinetic energy absorption to
decelerate errant vehicles. The Federal Highway Administration determines which
products are eligible for federal funds for highway projects and has approved
most of our products as acceptable permanent and construction zone highway
hardware according to requirements of the National Cooperation Highway Research
Program.

We hold patents and are a licensee for certain of our guardrail and
end-treatment products that enhance our competitive position for these products.

We sell highway safety products in all 50 U.S. states, Canada, Mexico and
other countries. We compete against several national and regional guardrail
producers.

We supply ready mix concrete and construction aggregates, such as crushed
stone, sand and gravel, asphalt rock and recycled concrete, primarily in Texas.
Our customers are primarily owners, contractors and subcontractors in the
construction and foundation industry who are located near our plant locations.
We compete with ready mix concrete producers and aggregate producers located in
the regions where we operate.

Weld pipe fittings, such as caps, elbows, return bends, tees, concentric
and eccentric reducers and full and reducing outlet tees, are sold primarily to
pipeline, petrochemical, and non-petrochemical process industries. We compete
with numerous companies throughout the United States and foreign importers.
Competition for fittings has been intense during the previous three years.

We manufacture structural steel beams and girders for the construction of
new, restored and/or replacement railroad bridges, county, municipal and state
highway bridges and power generation plants. We sell bridge construction and
support products primarily to owners, general contractors and subcontractors on
highway and railroad construction products. Our competitors primarily include
fabricators with facilities located in Texas, Oklahoma and Arkansas.

INLAND BARGE GROUP. We are the largest producer of inland barges in the
United States and the largest producers of fiberglass barge covers. Our six
manufacturing facilities are located along the United States inland river system
allowing for rapid delivery to our customers.

We manufacture a variety of dry-cargo barges, such as deck barges and, open
or covered hopper barges that transport various commodities, such as grain, coal
and aggregates. We also produce tank barges used to transport liquid products at
high or low temperatures. Fiberglass reinforced lift covers are primarily for
grain and rolling covers are for other bulk commodities.

Our Inland Barge segment customers primarily include commercial marine
transportation companies. Many companies have the capability to enter into, and
from time to time do enter into, the inland barge manufacturing business. The
Company strives to compete through efficiency in operations and quality of
product.

INDUSTRIAL PRODUCTS GROUP. We are a leading producer of tank containers
and tank heads for pressure vessels. We manufacture tanks in the United States,
Mexico and Brazil. We market a portion of our industrial products in Mexico
under the brand name of TATSA. The following paragraphs describe the types of
tanks and heads that we produce.

Pressure liquefied petroleum gas containers are used by industrial plants,
utilities and small businesses and in suburban and rural areas for residen-

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tial heating and cooking needs. We manufacture fertilizer containers for highway
and railway transport, bulk storage, farm storage and the application and
distribution of anhydrous ammonia. Our tanks range from 13 gallon tanks for
motor fuel use to 57-gallon tanks for residential use to 120,000-gallon bulk
storage containers. We sell our containers to experienced propane dealers and
technicians. We generally deliver the containers to our customers who install
and fill the containers. Our competitors include large and small manufacturers.

We manufacture container heads, which are pressed metal components used in
the manufacturing of many of our finished products. We manufacture the container
heads in various shapes, and we produce pressure rated or non-pressure rated
container heads, depending on their intended use. We use a significant portion
of the heads we manufacture in the production of our tank cars and containers.
We also sell our heads to a broad range of other manufacturers. Competition for
heads in recent years has been intense and has resulted in sharply reduced
prices for these products.

TRINITY RAILCAR LEASING AND MANAGEMENT SERVICES GROUP. Through our wholly
owned subsidiaries, primarily Trinity Industries Leasing Company ("TILC"), we
lease specialized types of railcars, both tank cars and freight cars. As of
December 31, 2002, we owned or leased approximately 15,000 railcars that were
94.5% utilized. Additionally, we managed another 62,700 railcars on behalf of
independent third parties.

We lease our railcars to industrial companies in the petroleum, chemical,
agricultural, energy and other industries that supply their own railcars to the
railroads. The terms of our railcar leases generally vary from one to twenty
years and provide for fixed monthly rentals, with an additional mileage charge
when usage exceeds a specified maximum. In addition we have a small percentage
of our fleet leased on a per diem basis.

The leasing business in which we are engaged is very competitive and there
are a number of well-established companies that actively compete with us in the
business of owning and leasing railcars. There are also a number of banks,
investment partnerships and other financial institutions that compete with us in
railcar leasing.

ALL OTHER. All Other includes our captive insurance and transportation
companies, structural towers, and other peripheral businesses.

FOREIGN OPERATIONS. Trinity's foreign operations are in Brazil, the Czech
Republic, Mexico, Romania, Slovakia, and the United Kingdom. Sales to foreign
customers, primarily in Europe and Mexico, represented 16.8%, 7.6% and 5.3% of
our consolidated revenues for the year ended December 31, 2002, the nine months
ended December 31, 2001 and fiscal year 2001, respectively. As of December 31,
2002 and 2001 and March 31, 2001, we had approximately 10.9%, 11.0%, and 14.4%
of our long-lived assets located outside the United States.

We manufacture railcars and LP Gas Containers at our Mexico facilities for
export to the United States. Any material change in the quotas, regulations, or
duties on imports imposed by the United States government and its agencies or on
exports by the government of Mexico or its agencies could adversely affect our
operations in Mexico. Our foreign activities are also subject to various other
risks of doing business in foreign countries, including currency fluctuations,
political changes, changes in laws and regulations and economic instability.
Although our operations have not been materially affected by any of such factors
to date, any substantial disruption of business as it is currently conducted
could adversely affect our operations at least in the short term.

BACKLOG. As of December 31, 2002, our backlog for new railcars was $664.7
million and was $46.4 million for Inland Barge products. Included in the backlog
for the railcars are $205.9 million of railcars to be sold to the Trinity
Railcar Leasing and Management Services Group. Our entire backlog is expected to
be delivered in the 12 months ending December 31, 2003. Trinity Rail Group has a
multi-year sales agreement for 1,000 new railcars per year for the next five
years. No backlog amounts for orders after 2003 are included for this agreement
because the type of car and price has not been determined.

As of December 31, 2001, our backlog for new railcars was $153.7 million
and was $133.6 million for Inland Barge products. Included in the backlog for
the railcars were $31.3 million of railcars to be sold to the Trinity Railcar
Leasing and Management Services Group.

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MARKETING. We sell substantially all of our products through our own sales
personnel operating from offices in the following states and foreign countries:
Alabama, Arkansas, Arizona, Connecticut, Florida, Illinois, Kentucky, Louisiana,
Michigan, Minnesota, Mississippi, Missouri, New Hampshire, New Jersey, New York,
Ohio, Pennsylvania, Tennessee, Texas, Vermont, Utah, Washington, Brazil, Canada,
Mexico, Romania, and Sweden. We also use independent sales representatives to a
limited extent. Except in the case of weld fittings, guardrail and standard size
LPG containers, we ordinarily fabricate our products to our customer's
specifications contained in a purchase order.

RAW MATERIALS AND SUPPLIERS.

RAILCAR MANUFACTURING. Products manufactured at our railcar manufacturing
facilities require a significant supply of raw materials such as steel as well
as numerous specialty components such as brakes, wheels and axles. Steel is
available from numerous domestic and foreign sources. Specialty components
purchased from third parties comprise approximately 50% of the production cost
of each railcar. Although the number of alternative suppliers of specialty
components has declined in recent years, at least two suppliers continue to
produce most components. We continually monitor supply inventory levels and
sources to ensure adequate support for our production. We maintain good
relationships with our suppliers and have not experienced any significant
interruptions in recent years in the supply of raw materials or specialty
components. Changes in the price of components and raw materials have not had a
material effect on earnings.

AGGREGATES. Aggregates can be found in abundant quantities throughout the
United States, and many producers exist nationwide. However, as a general rule,
shipments from an individual quarry are limited in geographic scope because the
cost of transporting processed aggregates to customers is high in relation to
the value of the product itself. We operate 12 mining facilities strategically
located in Texas and Louisiana to fulfill some of our needs for aggregates. We
have not experienced difficulty fulfilling the rest of our needs from local
suppliers.

OTHER. The principal material used by us in our other operating segments
is steel. We believe that many domestic and foreign sources can provide an
adequate supply of these materials.

EMPLOYEES. The following table presents the breakdown of employees by
business group as of December 31, 2002:

As of December 31, 2002, approximately 6,600 employees were employed in the
United States.

ACQUISITIONS. We made certain acquisitions during the nine months ended
December 31, 2001 and during fiscal year 2001 accounted for by the purchase
method. The acquired operations have been included in the consolidated financial
statements from the effective dates of the acquisitions. See Note 4 to the
consolidated financial statements.

ENVIRONMENTAL MATTERS. We are subject to comprehensive federal, state,
local and foreign environmental laws and regulations relating to the release or
discharge of materials into the environment, the management, use, processing,
handling, storage, transport or disposal of hazardous materials, or otherwise
relating to the protection of human health and the environment. Such laws and
regulations not only expose us to liability for our own negligent acts, but also
may expose us to liability for the conduct of others or for our actions which
were in compliance with all applicable laws at the time these actions were
taken. In addition, such laws may require significant expenditures to achieve
compliance, and are frequently modified or revised to impose new obligations.
Civil and criminal fines and penalties may be imposed for non-compliance with
these environmental laws and regulations. Our operations that involve hazardous
materials also raise potential risks of liability under the common law.

Environmental operating permits are, or may be, required for our operations
under these laws and

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regulations. These operating permits are subject to modification, renewal and
revocation. We regularly monitor and review our operations, procedures and
policies for compliance with these laws and regulations. Despite these
compliance efforts, risk of environmental liability is inherent in the operation
of our businesses, as it is with other companies engaged in similar businesses.
We believe that our operations and facilities, owned, managed, or leased, are in
substantial compliance with applicable laws and regulations and that any
noncompliance is not likely to have a material adverse effect on our operations
or financial condition.

However, future events, such as changes in or modified interpretations of
existing laws and regulations or enforcement policies, or further investigation
or evaluation of the potential health hazards of products or business
activities, may give rise to additional compliance and other costs that could
have a material adverse effect on our financial conditions and operations.

In addition to environmental laws, the transportation of commodities by
railcar or barge raises potential risks in the event of a derailment, spill or
other accident. Generally, liability under existing law in the United States for
a derailment, spill or other accident depends on the negligence of the party,
such as the railroad, the shipper or the manufacturer of the railcar or its
components. However, for certain hazardous commodities being shipped, strict
liability concepts may apply.

GOVERNMENTAL REGULATION

Railcar Industry

The primary regulatory and industry authorities involved in the regulation
of the railcar industry are the Environmental Protection Agency; the Research
and Special Programs Administration, a division of the Department of
Transportation; the Federal Railroad Administration, a division of the
Department of Transportation; and the Association of American Railroads.

These organizations establish rules and regulations for the railcar
industry, including construction specifications and standards for the design and
manufacture of railcars; mechanical, maintenance and related standards for
railcars; safety of railroad equipment, tracks and operations; and packaging and
transportation of hazardous materials.

We believe that our operations are in substantial compliance with these
regulations. We cannot predict whether future changes that affect compliance
costs would have a material adverse effect on financial conditions and
operations.

Inland Barge Industry

The primary regulatory and industry authorities involved in the regulation
of the barge industry are the United States Coast Guard; the National
Transportation Safety Board; the United States Customs Service; the Maritime
Administration of the United States Department of Transportation; and private
industry organizations such as the American Bureau of Shipping.

These organizations establish safety criteria, investigate vessel accidents
and recommend improved safety standards. Violations of these regulations and
related laws can result in substantial civil and criminal penalties as well as
injunctions curtailing operations. We believe that our operations are in
substantial compliance with these regulations.

Occupational Safety and Health Administration and similar regulations

Our operations are subject to regulation of health and safety matters by
the United States Occupational Safety and Health Administration. We believe that
we employ appropriate precautions to protect our employees and others from
workplace injuries and harmful exposure to materials handled and managed at our
facilities. However, claims may be asserted against us for work-related
illnesses or injury, and our operations may be adversely affected by the further
adoption of occupational health and safety regulations in the United States or
in foreign jurisdictions in which we operate. While we do not anticipate having
to make material expenditures in order to remain in substantial compliance with
these health and safety laws and regulations, we are unable to predict the
ultimate cost of compliance. 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.

OTHER MATTERS. To date, we have not suffered any material shortages with
respect to obtaining sufficient energy supplies to operate our various plant
facilities or its transportation vehicles.

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Future limitations on the availability or consumption of petroleum products,
particularly natural gas for plant operations and diesel fuel for vehicles,
could have an adverse effect upon our ability to conduct our business. The
likelihood of such an occurrence or its duration, and its ultimate effect on our
operations, cannot be reasonably predicted at this time.

EXECUTIVE OFFICERS OF THE COMPANY. The following table sets forth the
names and ages of all executive officers of the Company, all positions and
offices with the Company presently held by them, the year each person first
became an executive officer and the term of each person's office:

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(1) Mr. Adams joined the Company in 1999. Prior to that, Mr. Adams served as
chief executive officer for a national financial institution. Mr. Flannery
joined the Company in 2001. Prior to that he was Chief Administrative
Officer and General Counsel of Duchossois Industries, Inc. and Vice Chairman
of Thrall Car Manufacturing Company, a railcar manufacturing company that
merged with a subsidiary of the Company in October of 2001. Ms. Cowan joined
the Company in January 2000 as a divisional officer. Prior to that she was a
consultant to Trinity for six months having spent fifteen years with the
State of Texas in a variety of positions relating to policy and finance. Mr.
Michel joined the Company in 2001. Prior to that he served as Vice President
and Chief Financial Officer of a national restaurant/entertainment company
from 1994 to 2001. All of the other above-mentioned executive officers have
been in the full time employment of the Company or its subsidiaries for more
than five years. Although the titles of certain such officers have changed
during the past five years, all have performed essentially the same duties
during such period of time except for Timothy R. Wallace, Mark W. Stiles and
S. Theis Rice. Mr. Wallace became Chairman and Chief Executive Officer on
December 31, 1998. He was previously the President and Chief Operating
Officer. In addition to Group President, Mr. Stiles became Senior Vice
President on June 10, 1999. Mr. Rice recently served as President of the
Company's European operations before being elected to his present position
on March 14, 2002.

FORWARD LOOKING STATEMENTS. This annual report on Form 10-K 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

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to differ materially from those in the forward-looking statements include:

- - market conditions and demand for our products;

- - the cyclical nature of both the railcar and barge industries;

- - abnormal periods of inclement weather in areas where construction products are
sold and used;

- - the timing of introduction of new products;

- - the timing of customer orders;

- - price erosion;

- - changes in mix of products sold;

- - the extent of utilization of manufacturing capacity;

- - availability and costs of supplies and raw materials;

- - price competition and other competitive factors;

- - changing technologies;

- - steel prices;

- - interest rates and capital costs;

- - taxes;

- - the stability of the governments and political and business conditions in
certain foreign countries, particularly Mexico and Romania;

- - changes in import and export quotas and regulations;

- - 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. Trinity undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made.

ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS. We caution you that
there are risks and uncertainties that could cause our actual results to be
materially different from those indicated by forward-looking statements that we
make from time to time in filings with the Securities and Exchange Commission,
news releases, reports, proxy statements, registration statements and other
written communications, as well as oral forward-looking statements made from
time to time by representatives of our Company. These risks and uncertainties
include, but are not limited to, those risks described below. Additional risks
and uncertainties not presently known to us or that we currently deem immaterial
also may impair our business operations. The cautionary statements below discuss
important factors that could cause our business, financial condition, operating
results and cash flows to be materially adversely effected.

The cyclical nature of our business results in lower revenues during
economic downturns. We operate in cyclical industries. Downturns in overall
economic conditions usually have a significant adverse effect on cyclical
industries due to a decreased demand for new and replacement products. This
decreased demand could continue to result in lower sales volumes, lower prices
and/or a loss of profits. In addition, our recent acquisition of Thrall has
increased our exposure to the effects of the cyclical nature of the railcar
business. The railcar industry is in a deep down cycle and operating with a
minimal backlog. If this down cycle continues, we could experience increased
losses and could make additional plant closures and incur related costs.

We have potential exposure to environmental liabilities, which may increase
costs and lower profitability. Our operations are subject to extensive and
frequently changing federal, state and local environmental laws and regulations,
including those dealing with air quality and the handling and disposal of waste
products, fuel products and hazardous substances. In particular, we may incur
remediation costs and other related expenses because:

- - Some of our manufacturing facilities were constructed and operated before the
adoption of current environmental laws and the institution of compliance
practices; and

- - Some of the products that we manufacture are used to transport hazardous
materials.

Furthermore, although we intend to conduct appropriate due diligence with
respect to environmental matters in connection with future acquisitions, we may
be unable to identify or be indemnified for all potential environmental
liabilities relating to any acquired business. Environmental liabilities
incurred by us, if not covered by adequate insurance or indemnification will
increase
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our respective costs and have a negative impact on our profitability.

We compete in highly competitive industries, which may impact our
respective financial results. We face aggressive competition in all geographic
markets and each industry sector in which we operate. As a result, competition
on pricing is often intense. The effect of this competition could reduce our
revenues, limit our ability to grow, increase pricing pressure on our products,
and otherwise affect our financial results.

Risks related to our operations outside of the United States could
adversely impact our respective operating results. Our operations outside of
the United States are subject to the risks associated with cross-border business
transactions and activities. Political, legal, trade or economic changes or
instability could limit or curtail our respective foreign business activities
and operations. Some foreign countries where we operate have regulatory
authorities that regulate railroad safety, railcar design and railcar component
part design, performance and manufacture used on their railroad systems. If we
fail to obtain and maintain certifications of our railcars and railcar parts
within the various foreign countries where we operate, we may be unable to
market and sell our railcars in those countries. In addition, unexpected changes
in regulatory requirements, tariffs and other trade barriers, more stringent
rules relating to labor or the environment, adverse tax consequences and price
exchange controls could limit operations and make the manufacture and
distribution of our products difficult. Furthermore, any material change in the
quotas, regulations or duties on imports imposed by the U.S. government and
agencies or on exports by the government of Mexico or its agencies could affect
our ability to export the railcars and liquefied petroleum gas containers that
we manufacture in Mexico. The uncertainty of the legal environment in these and
other areas could limit our ability to enforce our respective rights
effectively. Our Mexican subsidiary currently purchases steel from a company
operating under a judicial declaration of suspension of payments. We have funds
on deposit, which are used along with other funds from us to purchase steel. Our
understanding of Mexican law is that all funds on deposit are required to be
returned to us regardless of whether or not the supplier is able to operate
under the declaration of suspension of payments. See note 7 on page 40 for more
information on this deposit agreement.

Because we do not have employment contracts with our key management
employees, we may not be able to retain their services in the future. Our
success depends on the continued services of our key management employees, none
of whom currently have employment agreements with us. Although we have
historically been successful in retaining the services of our key management, we
may be unable to do so in the future. The loss of the services of one or more
key members of our management team could result in increased costs associated
with attracting and retaining a replacement and could disrupt our operations and
result in a loss of revenues.

Although our businesses were not directly impacted by the recent terrorist
attacks against the United States, the long-term effect of these events, or the
domestic or foreign response to them, could negatively affect our respective
ability to operate profitably in the future. The terrorist attacks that
occurred in the United States on September 11, 2001, the subsequent military
response by the United States, other terrorist attacks and future events
occurring in response to or in connection with these attacks may negatively
impact the economy in general. In particular, the negative impacts of these
events may affect the industries in which we operate. This could result in
delays in or cancellations of the purchase of our products or shortages in raw
materials or component parts. Any of these occurrences could have a significant
adverse impact on our operating results, revenues and costs.

Fluctuations in the supply of component parts used in the production of our
products could have a material adverse effect on our ability to cost effectively
manufacture and sell our products. A significant portion or our business
depends on the adequate supply of numerous specialty components such as brakes,
wheels, side frames and bolsters at competitive prices. We depend on outside
suppliers for a significant portion of our component part needs. While we
endeavor to be diligent in contractual relationships with our suppliers, a
significant decrease in the availability of specialty components could
materially increase our cost of goods sold or prevent us from manufacturing our
products on a timely basis.

Our manufacturer's warranties expose us to potentially significant
claims. We warrant the workmanship and materials of many of our prod-
8

ucts under limited warranties. Accordingly, we may be subject to significant
warranty claims in the future such as multiple claims based on one defect
repeated throughout our mass production process or claims for which the cost of
repairing the defective part is highly disproportionate to the original cost of
the part. We have never experienced any losses attributable to warranty claims
that had a material adverse impact on our consolidated financial statements, but
the possibility exists for these types of warranty claims to result in costly
product recalls, significant repair costs and damage to our reputation.
We may be liable for product liability claims that exceed our insurance
coverage. The nature of our business subjects us to product liability claims,
especially in connection with the repair and manufacture of products that carry
hazardous or volatile materials. We maintain reserves and liability insurance
coverage at levels based upon commercial norms in the industries in which we
operate and our historical claims experience. However, an unusually large
product liability claim or a string of claims based on a failure repeated
throughout our mass production process may exceed our insurance coverage or
result in damage to our reputation.

We may incur increased costs due to fluctuations in interest rates and
foreign currency exchange rates. We are exposed to risks associated with
fluctuations in interest rates and changes in foreign currency exchange rates.
We seek to minimize these risks, when considered appropriate, through the use of
currency and interest rate hedges and similar financial instruments and other
activities, although these measures may not be implemented or effective. Any
material and untimely changes in interest rates or exchange rates could result
in significant losses to us.

ADDITIONAL INFORMATION. The Company's Internet website address is
www.trin.net. The Company makes available on its website its annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any
amendments thereto, as soon as reasonably practicable after such material is
filed with, or furnished to, the SEC.

ITEM 2. PROPERTIES.

We principally operate in various locations throughout the United States
with other facilities in Brazil, the Czech Republic, Mexico, Romania, Slovakia,
and the United Kingdom, all of which are considered to be in good condition,
well maintained and adequate for our purposes.

ITEM 3. LEGAL PROCEEDINGS.

On November 21, 2002, a wholly owned subsidiary of the Company, Trinity
Railcar Repair, Inc. ("Railcar Repair") entered a plea of guilty in the United
States District Court, Northern District of New York, to a one count misdemeanor
complaint charging it with the negligent release of a hazardous substance into
the air, in violation of the Federal Clean Air Act. The incident arose from
repairs made to a tank car owned by a third party that was discovered leaking
anhydrous ammonia gas over a three-day period beginning on August 29, 2000. As
part of the plea agreement, Railcar Repair has deposited into the registry of
the Court a fine of $200,000 payable to the United States of America, a civil
penalty in the amount of $82,400 payable to the Federal Railroad Administration,
$75,000 payable to the National Fish and Wildlife Foundation, which will use the
money to obtain additional emergency response equipment to address releases of
hazardous substances on the railroad transportation corridors of New York State,
$125,000 payable to Washington County, New York, which will use the funds to
obtain additional equipment to address releases of hazardous materials in
Washington County, New York and restitution payments to third parties totaling
$441,372 for costs incurred in connection with the leak of ammonia gas.

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 concerns with eighteen tank
barges purchased from Trinity Marine. The plaintiffs seek
9

damages and/or recision of the purchase contract. The purchase price of the
barges was $27.6 million. A second case involving similar legal and factual
issues was filed on October 7, 2002 in the U.S. Northern District Court of
Mississippi by J. Russell Flowers, Inc. against the Company, Trinity Marine, a
coating manufacturer and a coating distributor involving fifty-six hopper barges
with a claimed value of $13,977,578. Punitive damages are sought against the
Company. On December 4, 2002, a third suit was filed against the Company,
Trinity Marine, coating manufacturers, a coating distributor and various named
and un-named insurance companies by ACF Acceptance Barge I, LLC, the financing
company for 11 of the barges purchased by Florida Marine Transporters, Inc.
Stating similar legal and factual issues, Plaintiff seeks actual and punitive
damages although no specific damage amounts are claimed. Issues raised in these
cases have created uncertainty in the industry regarding barge corrosion and its
causes. As a result, Trinity Marine has communicated with customers ranging from
inquiries to corrosion concerns. Independent experts, after investigation,
expressed the opinion that technical claims presented in both cases are without
merit. As of this date, the Company has found there is no scientific basis for
the assertion that the coating material is a food source for corrosion causing
bacteria, or is causing or contributing to corrosion. We intend to file suit for
collection of payments from these customers on barges that are not part of the
lawsuits. Although these cases are in early stages and the ultimate resolution
is uncertain, management believes, based on these data, the effect of this
litigation and issues raised by the litigation on the Company's financial
position and results of operations will not be material for financial reporting
purposes.

In December 1999, a grand jury sitting in the Western District of Louisiana
returned a two-count felony indictment against Trinity Baton Rouge, Inc., a
wholly owned subsidiary of Trinity. The indictment charges Trinity Baton Rouge,
Inc. with transporting hazardous waste without a proper manifest to an
unpermitted facility in violation of the Resource Conservation Recovery Act.
Trinity Baton Rouge, Inc. continues to deny all charges in the indictment and is
defending this matter vigorously.

We are involved in various other claims and lawsuits incidental to our
business. In the opinion of management, these claims and suits in the aggregate
will not have a material adverse effect on our consolidated financial
statements.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

10

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.

The Company's common stock is traded on the New York Stock Exchange with
the ticker symbol "TRN". The following table shows the price range of the
Company's common stock for the year ended December 31, 2002 and the nine months
ended December 31, 2001:

The Company's transfer agent and registrar as of December 31, 2002 was The
Bank of New York, New York, NY. Effective January 1, 2003, the Company changed
its transfer agent and registrar to Wachovia Bank, N.A.

HOLDERS

At December 31, 2002, the Company had approximately 1,834 record holders of
common stock. The par value of the stock is $1.

DIVIDENDS

Trinity has paid 155 consecutive quarterly dividends. Since April 1, 2002,
Trinity has paid quarterly dividends of $0.06 per common share. See Management's
Discussion and Analysis of Financial Condition and Results of Operations.

RECENT SALES OF UNREGISTERED SECURITIES

On March 6, 2002, Trinity issued 880,000 unregistered shares to Acqua
Wellington Opportunity I for net proceeds of $18,280,000 and 620,000
unregistered shares to Acqua Wellington Private Placement Fund, Ltd. for net
proceeds of $12,920,000. The shares were issued in reliance on the exemption
provided by Section 4(2) of the Securities Act of 1933, as amended. The shares
were subsequently registered.

11

ITEM 6. SELECTED FINANCIAL DATA.

The following financial information for the years ended December 31, 2002
and 2001, the nine months ended December 31, 2001 and 2000 and for the three
years ended March 31, 2001 has been derived from the Company's consolidated
financial statements. This information should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and notes thereto included
elsewhere herein.

- ---------------

(1) Includes charges of:
- $120.1 million for unusual charges for the year ended December 31, 2001,
- $64.3 million for unusual charges for the nine months ended December 31,
2001,
- $85.1 million for unusual charges for the nine months ended December 31,
2000, and
- $140.9 million for unusual charges for fiscal year 2001.

(2) Includes after tax charges or credit of:
- $86.1 million ($2.25 per share) for unusual charges for the year ended
December 31, 2001,
- $50.4 million ($1.30 per share) for unusual charges for the nine months
ended December 31, 2001,
- $75.2 million ($2.00 per share) for unusual charges for the nine months
ended December 31, 2000,
- $110.9 million ($2.96 per share) for unusual charges for fiscal year
2001, and
- $14.0 million ($0.32 per share) for the gain on a sale of an investment
in land in fiscal year 1999.

See Unusual Charges in Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation.

12

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

GENERAL

Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these consolidated financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. On an on-going basis,
management evaluates its estimates and judgments, including those related to bad
debts, inventories, property, plant and equipment, goodwill, income taxes,
warranty obligations, insurance, restructuring costs, and contingencies and
litigation. Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.

Management believes the following critical accounting policies, among
others, affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements.

Inventory

We are required to state our inventories at the lower of cost or market. In
assessing the ultimate realization of inventories, we are required to make
judgments as to future demand requirements and compare that with the current or
committed inventory levels. We have recorded significant changes in inventory
carrying values in recent periods due to discontinuance of product lines as well
as changes in market conditions due to changes in demand requirements. It is
possible that changes in required inventory reserves may continue to occur in
the future due to current market conditions in the railcar business.

Goodwill

We are required, at least annually, to evaluate goodwill related to
acquired businesses for potential impairment indicators that are based on legal
factors, market conditions in the United States and Europe and operational
performance of our acquired businesses. Future events could cause us to conclude
that impairment indicators exist and that goodwill associated with our acquired
businesses is impaired. Any resulting impairment loss could have a material
adverse impact on our financial condition and results of operations.

Warranties

We provide for the estimated cost of product warranties at the time we
recognize revenue. We base our estimates on historical product failure rates. We
also provide for specifically identified warranty obligations. Should actual
product failure rates differ from our estimates, revisions to the estimated
warranty liability would be required.

Insurance

We effectively self-insure for workers' compensation claims. A third-party
administrator processes all such claims. We accrue our workers' compensation
liability based upon an independent actuarial study. To the extent actuarial
assumptions change and claims experience rates differ from historical rates, our
liability may change.

Contingencies and Litigation

We are currently involved in certain legal proceedings. As discussed in
Note 15 of our consolidated financial statements, as of December 31, 2002, we
have accrued our estimate of the probable settlement or judgment costs for the
resolution of these claims. This estimate has been developed in consultation
with outside counsel handling our defense in these matters and is based upon an
analysis of potential results, assuming a combination of litigation and
settlement strategies. We do not believe these proceedings will have a material
adverse effect on our consolidated financial position. It is possible, however,
that future results of operations for any particular quarterly or annual period
could be materially affected by changes in our assumptions related to these
proceedings.

13

BASIS OF PRESENTATION

In September 2001, we changed our year-end from March 31 to December 31.
Unless stated otherwise, all references to fiscal year 2001 shall mean the full
fiscal year ended March 31, 2001. The nine months ended December 31, 2001 covers
the period from April 1, 2001 to December 31, 2001. The information for the year
ended December 31, 2001 and the nine months ended December 31, 2000 are
unaudited and have been included herein for informational and comparison
purposes. The Company's segment reporting aligns the reportable segments with
current management responsibilities and internal reporting.

The segment 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.

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.

See notes to the consolidated financial statements for further discussion
of business segments.

14

UNUSUAL CHARGES

During the twelve months ended December 31, 2001, Trinity recorded special
pretax charges of approximately $122.2 million, $86.1 million net of tax or
$2.25 per share, related primarily to restructuring our Rail Group in connection
with the Thrall merger, additional plant closings, severance, asset write downs
and a litigation reserve for an adverse jury verdict announced May 14, 2001. Of
these charges, $120.1 million were charged to operating profit. These charges
are reflected in the following income statement categories and segments for the
twelve months ended December 31, 2001. (in millions).

During the nine months ended December 31, 2001, Trinity recorded special
pretax charges of approximately $66.4 million, $50.4 million net of tax or $1.30
per share, related primarily to restructuring our Trinity Rail Group in
connection with the Thrall merger and other matters. Of these charges, $64.3
million were charged to operating profit. These charges are reflected in the
following income statement categories and segments (in millions).

Unusual charges reported in other expenses amounted to $2.1 million
primarily for the write down of equity investments during the twelve months and
nine months ended December 31, 2001.

During the fiscal year ended March 31, 2001, we recorded pre-tax charges of
approximately $173.3 million, $110.9 million net of tax or $2.96 per share,
primarily related to the restructuring of our Trinity Rail Group, investment and
asset write downs, litigation reserves and other charges. Of these charges,
$140.9 million were charged to operating profit. These charges are reflected in
the following income statement categories and segments (in millions):

Unusual charges reported in other expenses amounted to $32.4 million
primarily for the write down of equity investments in fiscal year 2001.

Unusual charges of $55.8 million related to the three months ended March
31, 2001 are included in both the fiscal year ended March 31, 2001 and the
twelve months ended December 31, 2001 amounts.

15

YEAR ENDED DECEMBER 31, 2002 COMPARED WITH THE NINE MONTHS ENDED DECEMBER 31,
2001 -- RESULTS OF OPERATIONS

We changed our year-end in 2001 from March 31 to December 31 and, as a
result, our most recent Statement of Operations is for the twelve months ended
December 31, 2002 as compared to the nine months ended December 31, 2001.
Compared to the nine-month period, revenues improved $139.5 million due to
having an additional three months of operation offset by a drop in revenues for
the Rail Group caused by the reduction in North American railcar shipments.
Operating profit improved to a profit of $10.7 million compared from a loss of
$(16.4) million for the nine-month period. The nine-month period included
unusual charges of $64.3 million. (see Unusual Charges). Interest expense also
increased as a result of increased debt incurred. Our management discussion and
analysis which follows is based on a comparison of the twelve months ended
December 31, 2002 to the unaudited comparable twelve months ended December
31,2001.

YEAR ENDED DECEMBER 31, 2002 COMPARED WITH THE YEAR ENDED DECEMBER 31,
2001 -- RESULTS OF OPERATIONS
Revenues decreased $279.2 million to $1,487.3 million for the twelve months
ended December 31, 2002 compared to $1,766.5 million for the twelve months ended
December 31, 2001, a decrease of 15.8%. The decline in revenues was primarily
due to the reduction in North American railcar shipments, exiting certain lines
of business in the Construction Products Group, All Other groups, and the
structural towers business.

The following table reconciles the revenue amounts discussed under each
segment with the consolidated total revenues shown in the Selected Financial
Data (in millions).

Operating profit (loss) improved to a $10.7 million profit for the twelve
months ended December 31, 2002 compared to a loss of $74.6 million for the same
period in 2001. Special charges for the twelve months ended December 31, 2001
were $120.1 million. Reduced revenues of $328.1 million and unabsorbed overhead
due primarily to lower North American railcar volumes caused operating losses in
the Rail Group. Operating profit for Inland Barge Group was adversely impacted
by $3.2 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 product lines.

Selling, engineering and administrative expenses decreased $18.7 million to
$162.6 million for the twelve months ended December 31, 2002 compared to $181.3
million for the comparable period in 2001, a decrease of 10.3%. The decrease was
a result of lower head count, cost reduction efforts and special charges of $9.4
million recorded in the prior year.

16

Interest expense, net of interest income increased $9.7 million to $35.1
million for the twelve months ended December 31, 2002 compared to $25.4 million
for the same period in 2001, an increase of 38.2%. The increase was attributed
to higher debt levels , 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 $0.0 million for the twelve months ended December 31, 2002
compared to an expense of $2.6 million for the comparable period of 2001. The
decrease in expense was due to 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.

Net loss for the twelve months ended December 31, 2002 was $19.6 million,
or $0.43 per diluted share as compared to a net loss of $74.4 million, or $1.94
per diluted share, the same period in 2001.

TRINITY RAIL GROUP

Revenues declined 34.3% for the twelve months ended December 31, 2002
compared to the same period in 2001. This decline is due to the current downturn
in the North American railcar market. North American railcar shipments dropped
approximately 58% compared to the prior year to approximately 4,800 cars.
Operating profit (loss) for the twelve months ended December 31, 2001 included
restructuring charges of $97.5 million (see "Unusual Charges"). Operating profit
(loss) margins, excluding unusual charges, were impacted by lower production
levels and price pressures in the current competitive environment. Shipments for
North America in fiscal year 2003 are expected to improve.

In the twelve months ended December 31, 2002, railcar sales to Trinity
Industries Leasing Company included in the Trinity Rail Group results were
$119.0 million compared to $250.3 million in the comparable period in 2001 with
operating profit of $5.9 million in 2002 compared to $12.4 million for the same
period in 2001. Sales to Trinity Industries Leasing Company and related profits
are eliminated in consolidation.

CONSTRUCTION PRODUCTS GROUP

Revenues declined 8.3% for the twelve months ended December 31, 2002
compared to the same period in 2001. The decrease in revenues consisted of
approximately $13.5 million attributable to closing under performing concrete
and aggregate locations in Louisiana in the second quarter and exiting the sheet
pile, flange and valve product lines and approximately $27.0 million due to
reduced demands in several business lines. Revenue also declined by $7.9 million
due to inclement weather in the fourth quarter. These decreases were offset by
price increases aggregating $10.7 million. Operating profit for the twelve
months ended December 31, 2001 included other charges of $0.9 million (see
"Unusual Charges"). Operating profit margins increased as a result of cost
reductions in the concrete and aggregate business, elimination of unprofitable
products, and efficiency improvements in the bridge business partially offset by
steel cost increases in the highway safety business not passed on to customers.

INLAND BARGE GROUP

Revenues increased 2.4% for the twelve months ended December 31, 2002
compared to the same period in 2001. The increase in revenues was attributable
to increased deliveries of hopper barges and sale of barges in Argentina.
Operating profit was lower primarily due to cost incurred related to litigation
initiated by two customers in 2002 and related issues of $3.2 million and higher
prior year margins due to a one-time steel panel contract of

17

$2.7 million. We believe the barge industry will experience a significant
decline in demand in 2003, which may cause plant closures and lay-offs at some
of the Company's facilities.

INDUSTRIAL PRODUCTS GROUP

Revenues decreased 3.0% for the twelve months ended December 31, 2002
compared to the same period in 2001. The decrease in revenues is primarily due
to a reduction in heads sales offset by an increase in Mexico LPG transport
equipment sales. Operating income 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

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 $18.4 million over prior year due to the increase in
the size of the lease fleet that includes both company-owned 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 of 2001, 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/leaseback transaction. 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.
Selling, engineering and administrative expense also increased due to our
strategy to grow both the lease fleet and the managed car fleet. For the year,
the operating profit margin on lease revenue and management fees declined 7%, of
which 2% was due to pricing and utilization, 2.5% due to increased maintenance
expenses and 2.5% due to the growth in the lease fleet and marketing expenses.

Revenues from the sale of railcars from the lease fleet were $4.8 million
in the twelve months ended December 31, 2002 and $22.5 million in 2001.
Operating profits on these sales were $1.5 million for the twelve months ended
December 31, 2002 and $2.8 million in 2001.

ALL OTHER

Revenues in All Other decreased to $39.5 million in the twelve months ended
December 31, 2002 from $106.0 million for the twelve months ended December 31,
2001. This decrease is due to discontinuing the concrete mixer and related
products business of $9.5 million in 2001. A decline in the structural tower
business of $50.4 million also contributed to lower revenues.

Operating loss was $5.7 million for the twelve months ended December 31,
2002, and $35.8 million in the same period in 2001. Restructuring charges
included in the twelve months ended December 31, 2001 were $17.9 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.

NINE MONTHS ENDED DECEMBER 31, 2001 COMPARED WITH NINE MONTHS ENDED DECEMBER 31,
2000 -- RESULTS OF OPERATIONS

Revenues decreased $137.8 million to $1,347.8 million for the nine months
ended December 31, 2001 compared to $1,485.6 million for the nine months ended
December 31, 2000, a decrease of 9.3%. The

18

decline in revenues was primarily due to the reduction in railcar shipments and
prices offset by increased revenues of $47.3 million due to the Thrall merger.

The following table reconciles the revenue amounts discussed under each
segment with the consolidated total revenues shown in the Selected Financial
Data (in millions).

Operating loss increased $8.5 million to $16.4 million for the nine months
ended December 31, 2001 compared to $7.9 million for the same period in 2000.
The increase was caused by a $29.3 million decrease in operating profits because
of lower revenues, higher cost of revenues and the additional Thrall costs of
$52.9 million offset by lower selling, engineering and administrative expenses.
Additionally, special charges for the nine months ended December 31, 2001 were
$20.8 million lower than the amount recorded for the same period in 2000.

Selling, engineering and administrative expenses decreased $32.4 million to
$129.7 million for the nine months ended December 31, 2001 compared to $162.1
million for the period in 2000, a decrease of 20.0%. The decrease was a result
of lower head counts, cost reduction efforts and a lesser amount of special
charges.

Interest expense, net of interest income, increased $3.4 million to $19.2
million for the nine months ended December 31, 2001 compared to $15.8 million
for the same period in 2000, an increase of 21.5%. The increase was primarily
attributable to lower interest income.

Other, net decreased $25.6 million to $4.9 million for the nine months
ended December 31, 2001 from $30.5 million for the same period in 2000, a 83.9%
decrease. This decrease was due to the write down of equity investments during
the nine months ended December 31, 2000.

The current year effective tax rate of 14.3% is due to lower foreign tax
rates and valuation allowances.

Net loss for the nine months ended December 31, 2001 was $34.7 million, or
$0.90 per diluted share as compared to a net loss of $34.7 million, or $0.92 per
diluted share, for the same period in 2000.

TRINITY RAIL GROUP

Revenues declined 17.6% for the nine months ended December 31, 2001
compared to the same period in 2000. This decline is due to the current downturn
in the North American railcar industry offset by increased revenues of $47.3
million due to the Thrall merger. Railcar units shipped dropped 22% compared to
the prior period to approximately 7,800 cars. Operating profit margins were
impacted by the inefficiencies of lower production levels, costs associated with
more frequent changeovers to different car types and sizes, price pressures in
the

19

current competitive environment, additional costs from Thrall, and restructuring
charges (see "Unusual Charges").
In the nine months ended December 31, 2001 railcar sales to Trinity
Industries Leasing Company included in the Rail Group results were $139.2
million compared to $162.8 million in the same period in 2000 with profit of
$6.6 million compared to $12.2 million for the same period in 2000. Sales to
Trinity Industries Leasing Company and related profits are eliminated in
consolidation.

CONSTRUCTION PRODUCTS GROUP

Revenues declined 2.2% for the nine months ended December 31, 2001 compared
to the same period in 2000. The decrease in revenues was primarily attributable
to exiting the flange and valve business offset by increased revenue and profits
related to improved weather conditions in the concrete and aggregate and bridge
business. Operating profit margins increased as a result of cost reduction
associated with the consolidation of plants, elimination of unprofitable
products and other charges (see "Unusual Charges").

INLAND BARGE GROUP

Revenues increased 2.6% for the nine months ended December 31, 2001
compared to the same period in 2000. The increase in revenues was attributable
to increased deliveries of tank barges offset by lower volumes in hopper barge
sales. The decrease in Inland Barge operating profit margin is mainly due to
competitive price pressures for both hopper barges and tank barges.

INDUSTRIAL PRODUCTS GROUP

Revenues declined 17.2% for the nine months ended December 31, 2001
compared to the same period in 2000. The decline in revenues is primarily
attributable to reduced demand from gas distributors and pricing pressures in
the Mexico liquefied petroleum gas market.

Sales of propane cylinders in Mexico have been negatively affected by a
temporary halt in purchasing by Mexican propane distributors related to price
controls and other matters. When these issues will be resolved, and the impact
on Trinity's consolidated profits, cannot be determined.

RAILCAR LEASING AND MANAGEMENT SERVICES GROUP

Revenues declined 13.4% for the nine months ended December 31, 2001
compared to the same period in 2000. The decrease in revenues was due to a
decline in quantity of railcars sold offset by increases in lease revenues from
net additions to the lease fleet and an increase in the fleet managed under
management agreements.

Included in the results of this group are revenues from the sale of
railcars from the lease fleet of $20.9 million in the nine months ended December
31, 2001 and $48.3 million in the same period in 2000, and operating profits of
$2.6 million in the nine months ended December 31, 2001 and $8.8 million in the
same period in 2000.

ALL OTHER

Revenues in All Other increased from $63.7 million in the nine months ended
December 31, 2000 to $78.5 million in the nine months

20

ended December 31, 2001, due primarily to recording wind tower revenues for the
entire period compared to the prior period start-up year. This increase is
partially offset by discontinuing the operations of TEMCO during the same period
in 2000. TEMCO produced concrete mixers, concrete batch plants and component
parts for concrete related industries.

Operating loss was $21.1 for the nine months ended December 31, 2001, and
$44.4 in the same period in 2000. Restructuring charges included in the nine
months ended December 31, 2000 were $20.9 million primarily related to exiting
the TEMCO business referred to above and environmental liabilities.
Restructuring charges for the nine months ended December 31, 2001 were $13.1
million primarily related to exiting our internet related business and to our
wind tower business which has been affected by the Enron bankruptcy. Excluding
restructuring charges, a larger operating loss was recorded in the same period
in 2000 due primarily to operating losses associated with TEMCO.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities for the year ended December 31,
2002 was $120.7 million compared to $235.0 million for the same period in 2001.
Capital expenditures for the year ended December 31, 2002 were $172.2 million,
of which $134.5 million was for additions to the lease portfolio. This compares
to $254.2 million of capital expenditures for the same period last year, of
which $183.3 million was for additions to the lease portfolio. Proceeds from the
sale of property, plant and equipment were $22.5 million for the year ended
December 31, 2002 composed primarily of the sale of closed facilities in 2002,
compared to $195.2 million for the same period in 2001 consisting primarily of
proceeds from sale/leaseback financing.

As disclosed in note 12 on page 43, the projected benefit obligation for
the employee retirement plans exceed the plans' assets by $74 million as of
December 31, 2002 as compared to $19.0 million as of December 31, 2001.
Approximately one-third of the change was due to changing actuarial assumptions
in line with current market conditions. Specifically, the discount rate used in
the actuarial assumptions was lowered to 6.75% from a previous rate of 7.5% and
the compensation increase rate was lowered to 4% from a previous rate of 4.75%.
The remaining difference was primarily due to market losses on our pension
assets. We expect to incur pension expense of $15 million for the year ending
2003, compared to a $12 million expense for the year ended December 31, 2002.
Employer contributions for the year ending December 31, 2003 are expected to be
$10 million compared to $2.3 million for the year ended December 31, 2002.

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 $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% (3.89% at December 31, 2002). Amounts borrowed
under the term commitment bear interest at LIBOR plus 3.25% (5.09% at December
31, 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 December 31, 2002, $197.3 million was borrowed under this
agreement and $150.0 million was available under the facility. At December 31,
2002, the most restrictive of the debt covenants based on trailing twelve month
calculations as defined by the debt agreements allow approximately $99.0 million
additional principal and approximately $14.8 million additional annual interest
expense.

In June 2002 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 1.375% (2.82% at December 31, 2002) and are due no
later than 30 months from the commence-

21

ment date of the facility. At December 31, 2002, $86.2 million was available
under this facility.

On December 30, 2002, Standard & Poor's Rating Services lowered the
Company's corporate credit rating to BB with stable outlook. This downgrade in
the Company's credit rating had the effect of increasing the interest rate under
the Company's bank lines by 1/4% which is approximately $777 thousand of
additional interest expense per year based on debt levels at December 31, 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. Should Moody's Investors Service
downgrade the Company's credit rating, it would result in a 1/4% increase in our
interest rate on the revolving commitment.

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.

SALE/LEASEBACK TRANSACTION

During the nine months ended December 31, 2001, we completed an off balance
sheet financing arrangement for $199.0 million in railcars. We sold the railcars
to an independent trust. The trust financed the purchase of the railcars with
$151.3 million in debt and $47.7 million in equity provided by large independent
financial institutions. The equity investor in the trust has the risk of
ownership of the assets in the trust except for the $6.5 million of cash
collateral discussed herein. Trinity has made no guarantees with respect to
amounts at risk. An independent trustee for the trust has the authority for the
appointment of the railcar fleet manager.

Trinity, through a newly formed, wholly-owned, qualified subsidiary, leased
the cars from the trust and subleased the railcars to independent third party
customers. Future operating lease obligations of our subsidiary under the lease
agreement are as follows (in millions): 2003 -- $16.8; 2004 -- $17.1;
2005 -- $16.3; 2006 -- $15.9; 2007 -- $16.5 and $209.0 thereafter. Future
minimum rental revenues from subleased railcars as of December 31, 2001 are as
follows (in millions): 2003 -- $19.1; 2004 -- $17.2; 2005 -- $14.9;
2006 -- $13.5, 2007 -- $11.8, and $64.4 thereafter.

Under the terms of the operating lease agreement, Trinity has the option to
purchase the railcars from the trust at the end of sixteen years at a
predetermined, fixed price. Trinity also has an option to purchase the railcars
at the end of the lease agreement at the then fair market value of the railcars.
At the expiration of the operating lease agreement, Trinity has no further
obligation or ownership interest in the assets of the trust.

Included in our accompanying consolidated balance sheet are cash and
company-owned railcars totaling $32.6 million which are in the qualified
subsidiary and pledged as collateral for the duration of the lease obligations
to the trust and an additional $6.5 million of cash which is pledged as
collateral for the equity investor's investment. Trinity, under the terms of a
servicing and remarketing agreement, will endeavor, consistent with customary
commercial practice as would be used by a prudent person, to maintain railcars
under lease for the benefit of the trust. Trinity also receives management fees
under the terms of the agreement. Certain ratios must be maintained in order for
excess cash flow, as defined, from the leases to third parties, to be available
to Trinity.

The sale of the railcars by Trinity to the trust was accounted for as a
sale/leaseback transaction. No revenue or profit was recorded at the time of the
transaction and all profit was deferred and is being amortized over the term of
the operating lease. Neither the assets, the liabilities nor equity of the trust
are reflected on the consolidated balance sheet of Trinity.

22

CONTRACTUAL OBLIGATION AND COMMERCIAL COMMITMENTS.

As of December 31, 2002, we had the following contractual obligations (in
millions):

As of December 31, 2002, we had the following other commercial commitments
(in millions):

INFLATION

Changes in price levels of products and services did not significantly
affect our operations during the year ended December 31, 2002, the nine months
ended December 31, 2001 or in fiscal year 2001.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued Statement No. 143 "Accounting for Asset
Retirement Obligations" (SFAS 143). SFAS 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. It applies to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and/or the normal operation of a
long-lived asset, except for certain obligations of lessees. SFAS 143 is
effective for financial statements issued for fiscal years beginning after June
15, 2002. The Company will adopt SFAS 143 on January 1, 2003. The Company does
not expect that SFAS 143 will have a material effect on its consolidated
financial condition or results of operations.

In October 2001, the FASB issued Statement No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 supersedes
FASB Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of" (SFAS 121); however it retains the
fundamental provisions of that statement related to the recognition and
measurement of the impairment of long-lived assets to be "held and used." In
addition, SFAS 144 provides more guidance on estimating cash flows when
performing a recoverability test, requires that a long-lived asset (group) to be
disposed of other than by sale (e.g. abandoned) be classified as "held and used"
until it is disposed of, and establishes more restrictive criteria to classify
an asset (group) as "held for sale." The adoption of SFAS did not have a
material impact on the Company's consolidated financial condition or results of
operations.

In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" (SFAS 146). SFAS 146 nullifies
Emerging Issues Task Force Issue No. 94-3 "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." SFAS 146 applies to costs
associated with an exit activity that does not involve an entity newly acquired
in a business combination or with a disposal activity covered by SFAS 144. SFAS
146 is effective for exit or disposal activities that are initiated after
December 31, 2002, with earlier application encouraged. The Company does not
expect that SFAS 146 will have a material effect on its consolidated financial
condition or results of operations but it will impact the timing of charges
23

which could impact comparability of results among reporting periods.

During November 2002, the FASB issued Interpretation No. 45 "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires certain
guarantees to be recorded at fair value. The initial recognition and measurement
provisions of FIN 45 are applicable, on a prospective basis, to guarantees
issued or modified after December 31, 2002. FIN 45 also requires a guarantor to
make significant new disclosures. The disclosure requirements are effective for
financial statements ending after December 15, 2002. FIN 45 did not have a
material impact on the Company's consolidated financial statements.

In December 2002, the FASB issued Statement No. 148 "Accounting for
Stock-Based Compensation-Transition and Disclosures" (SFAS 148) which amends
FASB Statement No. 123 "Accounting for Stock-Based Compensation" (SFAS 123).
SFAS 148 provides alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee compensation.
In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require
more prominent and more frequent disclosures in financial statements about the
effects of stock-based compensation. The transition guidance and annual
disclosure provisions of SFAS 148 are effective for fiscal years ending after
December 15, 2002. The interim disclosure provisions are effective for financial
reports containing financial statements for interim periods beginning after
December 15, 2002.

During January 2003, the FASB issued Interpretation No. 46 "Consolidation
of Variable Interest Entities" (FIN 46). The consolidation requirements of FIN
46 apply immediately to variable interest entities created after January 31,
2003 and apply to existing variable interest entities in the first fiscal year
or interim period beginning after June 15, 2003. Until now, one company
generally has included another entity in its consolidated financial statements
only if it controlled the entity through voting interests. Interpretation 46
requires a variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable interest
entity's activities or entitled to receive a majority of the entity's residual
returns or both. A company that consolidates a variable interest entity is
called the primary beneficiary of that entity. Certain of the disclosure
requirements apply in all financial statements issued after January 31, 2003,
regardless of when the variable interest entity was established. We are
currently evaluating whether or not Trinity would be designated the primary
beneficiary of the independent Trust which purchased railcars from us in a
sale/leaseback transaction as described above. Currently, we believe, based on
preliminary analysis, that the Company is not the primary beneficiary and
therefore will not be required to consolidate the Trust.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our earnings are affected by changes in interest rates due to the impact
those changes have on our variable rate debt obligations, which represented
approximately 64% of our total debt as of December 31, 2002. We have hedged a
portion of this exposure with interest rate swaps leaving approximately 23% of
our total debt exposed to fluctuations in interest rates. If interest rates
average one percentage point more in fiscal year 2003 than they did during the
year ended December 31, 2002, our interest expense would increase by
approximately $3.1 million. In comparison, at December 31, 2001, we estimated
that if interest rates averaged one percentage point more in fiscal year 2002
than they did during the nine months ended December 31, 2001, interest expense
would have increased by approximately $2.3 million. The impact of an increase in
interest rates was determined based on the impact of the hypothetical change in
interest rates and scheduled principal payments on our variable-rate debt
obligations as of December 31, 2002 and 2001.

In addition, we are subject to market risk related to our net investments
in our foreign subsidiaries. The net investment in foreign subsidiaries as of
December 31, 2002 is $184.6 million. However, the impact of such market risk
exposures as a result of foreign exchange rate fluctuations has not been
material to us.

24

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

TRINITY INDUSTRIES, INC.

INDEX TO FINANCIAL STATEMENTS

25

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Trinity Industries, Inc.

We have audited the accompanying consolidated balance sheets of Trinity
Industries, Inc. as of December 31, 2002 and 2001, and the related consolidated
statements of operations, cash flows and stockholders' equity for the year ended
December 31, 2002, the nine months ended December 31, 2001 and for the year
ended March 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. These standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Trinity
Industries, Inc. at December 31, 2002 and 2001, and the consolidated results of
their operations and their cash flows for the year ended December 31, 2002, the
nine months ended December 31, 2001 and for the year ended March 31, 2001, in
conformity with accounting principles generally accepted in the United States.

ERNST & YOUNG LLP
Dallas, Texas
February 28, 2003

26

TRINITY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS