TRINITY INDUSTRIES INC - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004


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

For the transition period from to .

Commission File Number 1-6903

Trinity Industries, Inc.

(Exact name of registrant as specified in its charter)


Delaware		75-0225040
(State of Incorporation)		(I.R.S. Employer Identification No.)

2525 Stemmons Freeway
Dallas, Texas		75207-2401
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (214) 631-4420

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o.

At October 29, 2004 there were 47,557,191 shares of the Registrant’s common stock outstanding.

Item 1. Financial Statements

Trinity Industries, Inc. and Subsidiaries
Consolidated Statements of Operations


	Three Months Ended September 30,
	2004			2003
	(unaudited)
	(in millions except per share amounts)
Revenues	$	567.2		$	363.4
Operating costs:
Cost of revenues		519.5			314.2
Selling, engineering and administrative expenses		43.9			39.1

		563.4			353.3

Operating profit		3.8			10.1
Other (income) expense:
Interest income		(8.8	)		(0.1	)
Interest expense		11.1			8.4
Other, net		(0.2	)		(0.2	)

		2.1			8.1

Income before income taxes		1.7			2.0
Provision for income taxes		0.8			0.2

Net income		0.9			1.8
Dividends on Series B preferred stock		(0.8	)		(0.8	)

Net income applicable to common shareholders	$	0.1		$	1.0

Net income applicable to common shareholders per common share:
Basic	$	0.00		$	0.02

Diluted	$	0.00		$	0.02

Weighted average number of shares outstanding:
Basic		46.5			45.6
Diluted		47.5			46.2

See accompanying notes to consolidated financial statements.

Trinity Industries, Inc. and Subsidiaries
Consolidated Statements of Operations


	Nine Months Ended September 30,
	2004			2003
	(unaudited)
	(in millions except per share amounts)
Revenues	$	1,570.8		$	1,018.3
Operating costs:
Cost of revenues		1,436.0			901.1
Selling, engineering and administrative expenses		123.2			108.1

		1,559.2			1,009.2

Operating profit		11.6			9.1
Other (income) expense:
Interest income		(9.5	)		(0.4	)
Interest expense		32.1			26.3
Other, net		(1.7	)		(3.6	)

		20.9			22.3

Loss before income taxes		(9.3	)		(13.2	)
Provision (benefit) for income taxes		(3.0	)		(4.0	)

Net loss		(6.3	)		(9.2	)
Dividends on Series B preferred stock		(2.3	)		(0.8	)

Net loss applicable to common shareholders	$	(8.6	)	$	(10.0	)

Net loss applicable to common shareholders per common share:
Basic	$	(0.19	)	$	(0.22	)

Diluted	$	(0.19	)	$	(0.22	)

Weighted average number of shares outstanding:
Basic		46.4			45.6
Diluted		46.4			45.6

See accompanying notes to consolidated financial statements.

Trinity Industries, Inc. and Subsidiaries
Consolidated Balance Sheets


	September 30,			December 31,
	2004			2003
	(unaudited)			(as reported)
	(in millions)
Assets
Cash and cash equivalents	$	154.2		$	46.0
Receivables, net of allowance		263.4			198.1
Inventories:
Raw materials and supplies		231.2			158.4
Work in process		104.7			60.0
Finished goods		47.3			39.6

		383.2			258.0
Property, plant and equipment, at cost		1,491.7			1,627.1
Less accumulated depreciation		(699.8	)		(681.9	)

		791.9			945.2
Goodwill		420.3			415.1
Other assets		167.7			145.5

	$	2,180.7		$	2,007.9

Liabilities and Stockholders’ Equity
Accounts payable and accrued liabilities	$	484.5		$	460.2
Debt:
Recourse		475.3			298.5
Non-recourse		47.1			96.7

		522.4			395.2
Deferred income		44.4			32.2
Other liabilities		62.9			58.7

		1,114.2			946.3
Series B redeemable convertible preferred stock, no par value, $0.1 liquidation value		58.1			57.8
Stockholders’ equity:
Preferred stock - 1.5 shares authorized and unissued		—			—
Common stock — shares issued and outstanding at September 30, 2004 - 50.9; at December 31, 2003 - 50.9		50.9			50.9
Capital in excess of par value		432.7			434.7
Retained earnings		632.8			649.9
Accumulated other comprehensive loss		(26.4	)		(27.3	)
Treasury stock (3.4 shares at September 30, 2004 and 4.3 shares at December 31, 2003)		(81.6	)		(104.4	)

		1,008.4			1,003.8

	$	2,180.7		$	2,007.9

See accompanying notes to consolidated financial statements.

Trinity Industries, Inc. and Subsidiaries
Consolidated Statements Cash Flows


	Nine Months Ended September 30,
	2004			2003
	(unaudited)
	(in millions)
Operating activities:
Net loss	$	(6.3	)	$	(9.2	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		66.5			64.7
Deferred income taxes		(3.0	)		26.6
Gain on sale of property, plant, equipment and other assets		(4.4	)		(6.0	)
Other		(5.6	)		2.8
Changes in assets and liabilities:
Increase in receivables		(65.6	)		(43.1	)
Decrease in tax receivable		—			23.7
Increase in inventories		(124.2	)		(12.3	)
(Increase) decrease in other assets		(18.6	)		9.4
Increase in accounts payable and accrued liabilities		24.4			21.2
Increase (decrease) in other liabilities		7.5			(12.1	)

Net cash (required) provided by operating activities		(129.3	)		65.7

Investing activities:
Proceeds from sale of property, plant, equipment and other assets		230.4			33.6
Capital expenditures — lease subsidiary		(112.5	)		(188.5	)
Capital expenditures — other		(24.4	)		(16.7	)
Payment for purchase of acquisitions, net of cash acquired		(15.7	)		—
Sale of investment in equity trust		8.5			—

Net cash provided (required) by investing activities		86.3			(171.6	)

Financing activities:
Issuance of redeemable preferred stock		—			57.6
Payments to retire debt		(297.0	)		(145.6	)
Proceeds from issuance of debt		449.8			194.4
Proceeds from issuance of common stock, net		9.5			2.4
Dividends paid to common shareholders		(8.4	)		(8.4	)
Dividends paid to preferred shareholders		(2.7	)		—

Net cash provided by financing activities		151.2			100.4

Net increase in cash and cash equivalents		108.2			(5.5	)
Cash and cash equivalents at beginning of period		46.0			19.1

Cash and cash equivalents at end of period	$	154.2		$	13.6

Interest paid for the nine months ended September 30, 2004 and 2003 was $30.6 and $26.3, respectively. Taxes paid, net of refunds received, were $5.9 for the nine months ended September 30, 2004 and taxes received, net of payments made were $43.5 for the nine months ended September 30, 2003.

See accompanying notes to consolidated financial statements.

Trinity Industries, Inc. and Subsidiaries
Consolidated Statement of Stockholders’ Equity


	Common		Common		Capital						Accumulated
	Shares		Stock		in Excess						Other						Treasury			Total
	(100,000,000		$1.00 Par		of Par			Retained			Comprehensive			Treasury			Stock at			Stockholders'
	Authorized)		Value		Value			Earnings			Loss			Shares			Cost			Equity
	(unaudited)
	(in millions except share and per share data)
Balance at December 31, 2003		50,940,351	$	50.9	$	434.7		$	649.9		$	(27.3	)		(4,260,860	)	$	(104.4	)	$	1,003.8
Net loss		—		—		—			(6.3	)		—			—			—			(6.3	)
Currency translation adjustments		—		—		—			—			0.1			—			—			0.1
Unrealized loss on derivative financial instruments		—		—		—			—			0.7			—			—			0.7

Comprehensive net loss																					(5.5	)
Cash dividends ($0.18 per common share)		—		—		—			(8.4	)		—			—			—			(8.4	)
Dividends on Series B preferred stock		—		—		—			(2.3	)		—			—			—			(2.3	)
Restricted shares issued		—		—		3.1			—			—			383,400			7.9			11.0
Stock options exercised		—		—		(4.8	)		—			—			415,025			14.1			9.3
Other		—		—		(0.3	)		(0.1	)		0.1			25,425			0.8			0.5

Balance at September 30, 2004		50,940,351	$	50.9	$	432.7		$	632.8		$	(26.4	)		(3,437,010	)	$	(81.6	)	$	1,008.4

See accompanying notes to consolidated financial statements.

Trinity Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

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, 2004 and the results of operations for the three-month and nine-month periods ended September 30, 2004 and 2003, and cash flows for the nine-month periods ended September 30, 2004 and 2003, in conformity with generally accepted accounting principles, have been made. Because of seasonal and other factors, the results of operations for the three-month and nine-month periods ended September 30, 2004 may not be indicative of expected results of operations for the year ending December 31, 2004. 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 December 31, 2003.

Stock Based Compensation

The Company has elected to apply the accounting provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (APB No. 25) and its interpretations and, accordingly, no compensation expense has been recorded for the stock options. The effect of computing compensation expense in accordance with Statement of Accounting Standards No. 123, “Accounting for Stock Based Compensation,” using the Black-Scholes option pricing method for the three and nine months ended September 30, 2004 and 2003 are shown in the accompanying table (in millions).


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
Pro forma Net income (loss) applicable to common shareholders, as reported	$	0.1		$	1.0		$	(8.6	)	$	(10.0	)
Add: Stock compensation expense related to restricted stock		0.9			0.5			2.2			1.4
Deduct: Total stock based employee compensation expense determined under fair value based method for all awards, net of related income tax effects		(1.5	)		(1.4	)		(4.2	)		(4.4	)

Pro forma net income (loss) applicable to common shareholders	$	(0.5	)	$	0.1		$	(10.6	)	$	(13.0	)

Pro forma net income (loss) applicable to common shareholders per diluted share	$	(0.01	)	$	0.00		$	(0.23	)	$	(0.29	)

Net income (loss) applicable to common shareholders per diluted share — as reported	$	0.00		$	0.02		$	(0.19	)	$	(0.22	)

Net Loss Applicable to Common Shareholders

Diluted net income applicable to common shareholders is based on the weighted average shares outstanding plus the dilutive impact of stock options and Series B preferred stock. Basic net income applicable to common shareholders is based on the weighted average number of common shares outstanding for the period. The numerator for basic net income (loss) applicable to common shareholders is net income (loss) adjusted for dividends on the Series B preferred stock in 2004 and 2003. The numerator for diluted net income (loss) applicable to common shareholders is net income (loss), adjusted for dividends on the Series B preferred stock in 2004 and 2003. The difference between the denominator in the basic calculation and the denominator in the diluted calculation for the three months ended September 30, 2004 and September 30, 2003 was

attributable to the effect of employee stock options. Employee stock options were antidilutive for all other periods presented. The Series B preferred stock was antidilutive for all periods presented and therefore not considered in the diluted net income (loss) per common share calculation.

Reclassifications

Certain reclassifications have been made to prior year statements to conform to the current period presentation.

Note 2. Segment Information

The Company reports operating results in the following business segments: (1) the Rail Group, which manufactures and sells railcars and component parts; (2) the Constructions Products Group, which manufactures and sells highway safety products, concrete and aggregates, 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 tank heads and pressure and non-pressure containers for the storage and transportation of liquefied gases and other liquid and dry products; and (5) the Railcar Leasing and Management Services Group, which provides fleet management, maintenance and leasing services. Finally, All Other includes the Company’s captive insurance and transportation companies, structural towers, and other peripheral businesses.

Sales and related profits from the Rail Group to Railcar Leasing and Management Services Group are recorded in Rail Group and eliminated in consolidation. Sales of railcars from the lease fleet are included in the Railcar Leasing and Management Services Group. Sales between groups are recorded at prices comparable to those charged to external customers.

Three Months Ended September 30, 2004 (in millions)


	Revenues								Operating
									Profit
	Outside		Intersegment			Total			(Loss)
Rail Group	$	279.8	$	35.4		$	315.2		$	(14.5	)
Construction Products Group		170.3		0.5			170.8			18.5
Inland Barge Group		46.2		—			46.2			(1.7	)
Industrial Products Group		33.0		2.0			35.0			4.5
Railcar Leasing and Management Services Group		36.5		—			36.5			7.9
All Other		1.4		7.9			9.3			(1.7	)
Corporate		—		—			—			(7.2	)
Eliminations		—		(45.8	)		(45.8	)		(2.0	)

Consolidated Total	$	567.2	$	—		$	567.2		$	3.8

Three Months Ended September 30, 2003 (in millions)


	Revenues								Operating
									Profit
	Outside		Intersegment			Total			(Loss)
Rail Group	$	126.4	$	63.8		$	190.2		$	2.9
Construction Products Group		133.3		0.4			133.7			11.4
Inland Barge Group		42.5		—			42.5			0.3
Industrial Products Group		30.1		1.4			31.5			2.7
Railcar Leasing and Management Services Group		29.9		—			29.9			9.3
All Other		1.2		6.7			7.9			(2.0	)
Corporate		—		—			—			(9.6	)
Eliminations		—		(72.3	)		(72.3	)		(4.9	)

Consolidated Total	$	363.4	$	—		$	363.4		$	10.1

Nine Months Ended September 30, 2004 (in millions)


	Revenues								Operating
									Profit
	Outside		Intersegment			Total			(Loss)
Rail Group	$	729.6	$	120.1		$	849.7		$	(17.2	)
Construction Products Group		443.5		1.1			444.6			35.0
Inland Barge Group		153.6		—			153.6			(12.8	)
Industrial Products Group		97.7		4.5			102.2			9.2
Railcar Leasing and Management Services Group		143.3		—			143.3			31.9
All Other		3.1		22.1			25.2			(2.0	)
Corporate		—		—			—			(23.8	)
Eliminations		—		(147.8	)		(147.8	)		(8.7	)

Consolidated Total	$	1,570.8	$	—		$	1,570.8		$	11.6

Nine Months Ended September 30, 2003 (in millions)


	Revenues						Operating
							Profit
	Outside		Intersegment		Total		(Loss)
Rail Group	$	317.2	$	176.8	$	494.0	$	(13.5	)
Construction Products Group		368.9		0.6		369.5


	Caption	Page
PART I	FINANCIAL INFORMATION
Item 1	Financial Statements		3
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3	Quantitative and Qualitative Disclosures About Market Risk		29
Item 4	Controls and Procedures		29
PART II	OTHER INFORMATION
Item 1	Legal Proceedings		30
Item 6	Exhibits and Reports on Form 8-K		31
SIGNATURES			32
CERTIFICATIONS
Equipment Lease Agreement
Participation Agreement
Amendment No. 4 to the Warehouse Loan Agreement
Amendment No. 5 to the Warehouse Loan Agreement
Amendment No. 6 to the Warehouse Loan Agreement
Amendment No. 7 to the Warehouse Loan Agreement
Computation of Ratio of Earnings to Fixed Charges
Certification of Chief Executive Officer
Certification of Chief Financial Officer
Certification Pursuant to Section 906
Certification Pursuant to Section 906

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