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 MARCH 31, 2005

		OR

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 April 29, 2005 there were 47,832,021 shares of the Registrant’s common stock outstanding.

Item 1. Financial Statements

Trinity Industries, Inc. and Subsidiaries
Consolidated Statements of Operations


	Three Months Ended March 31,
	2005			2004
	(unaudited)
	(in millions except per share amounts)
Revenues	$	646.9		$	454.9
Operating costs:
Cost of revenues		582.7			425.1
Selling, engineering and administrative expenses		46.3			36.3

		629.0			461.4

Operating profit (loss)		17.9			(6.5	)

Other (income) expense:
Interest income		(0.5	)		(0.2	)
Interest expense		10.4			10.1
Other, net		(1.6	)		0.1

		8.3			10.0

Income (loss) before income taxes		9.6			(16.5	)

Provision (benefit) for income taxes		3.6			(5.7	)


Net income (loss)		6.0			(10.8	)

Dividends on Series B preferred stock		(0.8	)		(0.8	)


Net income (loss) applicable to common shareholders	$	5.2		$	(11.6	)


Net income (loss) applicable to common shareholders per common share:
Basic	$	0.11		$	(0.25	)

Diluted	$	0.11		$	(0.25	)


Weighted average number of shares outstanding:
Basic		47.0			46.2
Diluted		47.8			46.2

See accompanying notes to consolidated financial statements.

Trinity Industries, Inc. and Subsidiaries
Consolidated Balance Sheets


	March 31,			December 31,
	2005			2004
	(unaudited)			(as reported)
	(in millions)
Assets
Cash and cash equivalents	$	113.7		$	182.3

Receivables, net of allowance		281.8			214.2

Inventories:
Raw materials and supplies		275.0			248.0
Work in process		117.0			100.0
Finished goods		56.4			54.3

		448.4			402.3

Property, plant and equipment, at cost		1,578.8			1,520.9
Less accumulated depreciation		(719.2	)		(710.0	)

		859.6			810.9

Goodwill		420.4			420.4

Other assets		168.7			180.1

	$	2,292.6		$	2,210.2


Liabilities and Stockholders’ Equity
Accounts payable and accrued liabilities	$	535.3		$	511.7

Debt:
Recourse		435.8			475.3
Non-recourse		134.4			42.7

		570.2			518.0

Deferred income		46.6			47.2
Other liabilities		64.1			62.2

		1,216.2			1,139.1

Series B redeemable convertible preferred stock, no par value, $0.1 liquidation value		58.3			58.2

Stockholders’ equity:

Preferred stock – 1.5 shares authorized and unissued		—			—

Common stock –shares authorized – 100.0; shares issued and outstanding at March 31, 2005 - 50.9; at December 31, 2004 – 50.9		50.9			50.9

Capital in excess of par value		432.6			432.6

Retained earnings		628.6			626.2

Accumulated other comprehensive loss		(23.1	)		(25.3	)

Treasury stock – at March 31, 2005 – 3.1 shares; at December 31, 2004 – 3.1 shares		(70.9	)		(71.5	)

		1,018.1			1,012.9

	$	2,292.6		$	2,210.2

See accompanying notes to consolidated financial statements.

Trinity Industries, Inc. and Subsidiaries
Consolidated Statements Cash Flows


	Three Months Ended March 31,
	2005			2004
	(unaudited)
	(in millions)
Operating activities:
Net income (loss)	$	6.0		$	(10.8	)
Adjustments to reconcile net income (loss) to net cash required by operating activities:
Depreciation and amortization		20.7			22.1
Deferred income taxes		3.6			(5.7	)
Gain on sale of property, plant, equipment and other assets		(1.6	)		(0.6	)
Other		(6.5	)		0.5
Changes in assets and liabilities:
Increase in receivables		(67.6	)		(37.5	)
Increase in inventories		(46.1	)		(16.8	)
Decrease (increase) in other assets		11.3			(6.8	)
Increase (decrease) in accounts payable and accrued liabilities		24.0			(15.2	)
Decrease in other liabilities		(3.0	)		(0.9	)

Net cash required by operating activities		(59.2	)		(71.7	)


Investing activities:
Proceeds from sale of property, plant, equipment and other assets		16.7			4.1
Capital expenditures – lease subsidiary		(67.8	)		(31.8	)
Capital expenditures – other		(6.4	)		(5.0	)
Payment for purchase of acquisitions, net of cash acquired		—			(15.7	)
Sale of investment in equity trust		—			8.5

Net cash required by investing activities		(57.5	)		(39.9	)


Financing activities:
Issuance of common stock		0.1			6.5
Payments to retire debt		(40.5	)		(177.6	)
Proceeds from issuance of debt		92.7			392.2
Dividends paid to common shareholders		(2.8	)		(2.8	)
Dividends paid to preferred shareholders		(1.4	)		(1.4	)

Net cash provided by financing activities		48.1			216.9


Net (decrease) increase in cash and cash equivalents		(68.6	)		105.3
Cash and cash equivalents at beginning of period		182.3			46.0

Cash and cash equivalents at end of period	$	113.7		$	151.3

Interest paid for the three months ended March 31, 2005 and 2004 was $17.3 million and $10.7 million, respectively. Taxes paid, net of refunds received, were $0.9 million and $4.0 million for the three months ended March 31, 2005 and 2004, respectively.

See accompanying notes to consolidated financial statements.

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


	Three Months Ended March 31,
	2005			2004
	(unaudited)
	(in millions, except par value
	and dividend per share)
Common Stock (par value $1.00)
Balance, beginning and end of period	$	50.9		$	50.9

Capital in Excess of Par Value
Balance, beginning of period		432.6			434.7
Restricted shares issued		—			(0.1	)
Stock options exercised		—			(3.1	)

Balance, end of period		432.6			431.5

Retained Earnings
Balance, beginning of period		600.9			622.6

Net income (loss)		6.0			(10.8	)
Other comprehensive income (loss):
Currency translation adjustments, net of tax		2.2			0.1
Unrealized loss on derivative financial instruments, net of tax		—			(0.4	)

Comprehensive net income (loss)		8.2			(11.1	)

Dividends on Common Stock ($0.06 per common share)		(2.8	)		(2.8	)
Dividends on Series B preferred stock		(0.8	)		(0.8	)

Balance, end of period		605.5			607.9

Treasury Stock
Balance, beginning of period		(71.5	)		(104.4	)
Restricted shares issued		0.5			0.6
Stock options exercised		0.1			9.6

Balance, end of period		(70.9	)		(94.2	)


Total Stockholders’ Equity	$	1,018.1		$	996.1

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 March 31, 2005 and the results of operations for the three-month periods ended March 31, 2005 and 2004, and cash flows for the three-month periods ended March 31, 2005 and 2004, in conformity with generally accepted accounting principles, have been made. Because of seasonal and other factors, the results of operations for the three-month period ended March 31, 2005 may not be indicative of expected results of operations for the year ending December 31, 2005. 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, 2004.

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 months ended March 31, 2005 and 2004 is shown in the accompanying table.


	Three Months Ended
	March 31,
	2005			2004
	(in millions)
Pro forma
Net income (loss) applicable to common shareholders, as reported	$	5.2		$	(11.6	)

Add: Stock compensation expense related to restricted stock, net of related income tax effect		0.5			0.5

Deduct: Total stock based employee compensation expense determined under fair value based method for all awards, net of related income tax effects		(1.1	)		(1.2	)


Pro forma net income (loss) applicable to common shareholders	$	4.6		$	(12.3	)


Pro forma net income (loss) applicable to common shareholders per diluted share	$	0.10		$	(0.27	)


Net income (loss) applicable to common shareholders per diluted share – as reported	$	0.11		$	(0.25	)

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123R, “Share-Based Payments”. SFAS No. 123R is a revision of SFAS No. 123, “Accounting for Stock Based Compensation”, and supersedes APB 25. Among other items, SFAS 123R eliminates the use of APB 25 and the intrinsic value method of accounting, and requires companies to recognize the cost of employee services received in exchange for awards of equity instruments, based on the grant date fair value of those awards, in the financial statements. The effective date of SFAS 123R is currently the beginning of the next fiscal year that begins after June 15, 2005, which is the first quarter of the Company’s year ending December 31, 2006. The Company currently expects to adopt SFAS 123R using the “modified prospective” method. Under the modified prospective method, compensation expense is recognized in

the financial statements beginning with the effective date, based on the requirements of SFAS 123R for all share-based payments granted after that date, and based on the requirements of SFAS 123 for all unvested awards granted prior to the effective date of SFAS 123R. Financial information for periods prior to the date of adoption of SFAS 123R would not be restated. The Company currently utilizes a standard option pricing model (i.e., Black-Scholes) to measure the fair value of stock options granted to employees. While SFAS 123R permits entities to use other models, the Company has not yet determined which model will be used to measure the fair value of awards of equity instruments to employees upon the adoption.

The impact of SFAS 123R on the Company’s results of operations cannot be predicted at this time, because it will depend on the number of equity awards granted in the future, as well as the model and assumptions used to value the awards.

SFAS 123R also requires that the benefits associated with the tax deductions in excess of recognized compensation cost be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. Future amounts cannot be estimated because they depend on, among other things, when employees exercise stock options. However, the amounts recognized in prior periods for such excess tax deductions were not material for the three month periods ended March 31, 2005 and 2004.

Net Income (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 both basic and diluted net income (loss) applicable to common shareholders is net income (loss), adjusted for dividends on the Series B preferred stock in 2005 and 2004. The difference between the denominator in the basic calculation and the denominator in the diluted calculation for the three months ended March 31, 2005 was attributable to the effect of employee stock options. Employee stock options were antidilutive for the three months ended March 31, 2004. The assumed conversion of 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.

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 Construction 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 March 31, 2005


									Operating
	Revenues								Profit
	Outside		Intersegment			Total			(Loss)
	(in millions)
Rail Group	$	361.8	$	72.6		$	434.4		$	8.8
Construction Products Group		142.8		0.3			143.1			6.7
Inland Barge Group		44.9		—			44.9			(3.4	)
Industrial Products Group		33.5		2.2			35.7			4.6
Railcar Leasing and Management Services Group		52.5		—			52.5			13.6
All Other		11.4		9.0			20.4			(1.3	)
Corporate		—		—			—			(6.6	)
Eliminations		—		(84.1	)		(84.1	)		(4.5	)

Consolidated Total	$	646.9	$	—		$	646.9		$	17.9

Three Months Ended March 31, 2004


									Operating
	Revenues								Profit
	Outside		Intersegment			Total			(Loss)
	(in millions)
Rail Group	$	225.2	$	35.7		$	260.9		$	(3.6	)
Construction Products Group		120.0		0.1			120.1			2.0
Inland Barge Group		43.3		—			43.3			(5.7	)
Industrial Products Group		30.4		1.4			31.8			0.8
Railcar Leasing and Management Services Group		35.1		—			35.1			9.6
All Other		0.9		6.7			7.6			1.3
Corporate		—		—			—			(7.6	)
Eliminations		—		(43.9	)		(43.9	)		(3.3	)

Consolidated Total	$	454.9	$	—		$	454.9		$	(6.5	)

Note 3. Property, Plant and Equipment

The following table summarizes the components of property, plant and equipment as of March 31, 2005 and December 31, 2004.


	March 31,			December 31,
	2005			2004
	(in millions)
Corporate/Manufacturing:
Property, plant and equipment	$	886.8		$	885.2
Less accumulated depreciation		(596.9	)		(589.6	)

		289.9			295.6

Leasing:
Property, plant and equipment		692.0			635.7
Less accumulated depreciation		(122.3	)		(120.4	)

		569.7			515.3


	$	859.6		$	810.9

Note 4. Warranties

The Company provides for the estimated cost of product warranties at the time revenue is recognized and assesses the adequacy of the resulting reserves on a quarterly basis. The change in the accruals for warranties for the three months ended March 31, 2005 and 2004 was as follows:


	Three Months Ended
	March 31,
	2005			2004
	( in millions)
Beginning balance	$	19.3		$	23.0
Additions		3.4			2.5
Reductions		(1.5	)		(5.9	)

Ending balance	$	21.2		$	19.6


	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	16

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21

Item 4.	Controls and Procedures	21

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	22

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22

Item 5.	Other Information	22

Item 6.	Exhibits	22

SIGNATURES		23

CERTIFICATIONS
Summary of Changes Being Made to Profit Sharing 401(K) Plan for Employees
Form of Restricted Stock Unit Agreement
rule 13a-15(e) and 15d-15(e) Certification of Chief Executive Officer
rule 13a-15(e) and 15d-15(e) Certification of Chief Financial Officer
Certificaiton Pursuant to 18 U.S. C., Section 1350
Certificaiton Pursuant to 18 U.S. C., Section 1350

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