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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
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(MARK ONE)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO ________________.
COMMISSION FILE NUMBER 1-6903
TRINITY INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-0225040
(State of Incorporation) (I.R.S. Employer Identification No.)
2525 STEMMONS FREEWAY
DALLAS, TEXAS 75207-2401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 631-4420
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] No [ ].
AT JULY 31, 2002 THERE WERE 45,900,144 SHARES OF THE REGISTRANT'S COMMON
STOCK OUTSTANDING.
TRINITY INDUSTRIES, INC.
FORM 10-Q
TABLE OF CONTENTS
CAPTION PAGE
--------------------------------------------------------- ----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements..................................... 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 14
Item 3. Quantitative and Qualitative Disclosures about Market
Risks ................................................... 22
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders...... 23
Item 6. Exhibits and Reports on Form 8-K......................... 24
2
ITEM 1. FINANCIAL STATEMENTS
TRINITY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30,
2002 2001
--------------- ---------------
(UNAUDITED)
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Revenues .............................................. $ 366.0 $ 467.6
Operating costs:
Cost of revenues .................................... 322.1 402.3
Selling, engineering and administrative
expenses ......................................... 40.7 42.7
--------------- ---------------
362.8 445.0
--------------- ---------------
Operating profit ...................................... 3.2 22.6
Other (income) expense:
Interest income ..................................... (0.3) (1.7)
Interest expense .................................... 10.3 7.6
Other, net .......................................... 0.9 1.0
--------------- ---------------
10.9 6.9
--------------- ---------------
Income (loss) before income taxes ..................... (7.7) 15.7
Provision (benefit) for income taxes:
Current ............................................. (16.3) (5.1)
Deferred ............................................ 14.3 11.2
--------------- ---------------
(2.0) 6.1
--------------- ---------------
Net income (loss) ..................................... $ (5.7) $ 9.6
=============== ===============
Net income (loss) per common share:
Basic ............................................... $ (0.13) $ 0.26
=============== ===============
Diluted ............................................. $ (0.13) $ 0.26
=============== ===============
Weighted average number of shares outstanding:
Basic ............................................... 45.5 37.0
Diluted ............................................. 45.5 37.1
See accompanying notes to consolidated financial statements.
3
TRINITY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30,
2002 2001
--------------- ---------------
(UNAUDITED)
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
Revenues .............................................. $ 750.3 $ 886.3
Operating costs:
Cost of revenues .................................... 670.1 827.6
Selling, engineering and administrative
expenses ......................................... 81.2 94.3
--------------- ---------------
751.3 921.9
--------------- ---------------
Operating loss ........................................ (1.0) (35.6)
Other (income) expense:
Interest income ..................................... (0.6) (3.1)
Interest expense .................................... 17.3 15.2
Other, net .......................................... 1.4 (1.3)
--------------- ---------------
18.1 10.8
--------------- ---------------
Loss before income taxes .............................. (19.1) (46.4)
Provision (benefit) for income taxes:
Current ............................................. (41.3) (19.1)
Deferred ............................................ 36.5 2.8
--------------- ---------------
(4.8) (16.3)
--------------- ---------------
Net loss .............................................. $ (14.3) $ (30.1)
=============== ===============
Net loss per common share:
Basic ............................................... $ (0.32) $ (0.81)
=============== ===============
Diluted ............................................. $ (0.32) $ (0.81)
=============== ===============
Weighted average number of shares outstanding:
Basic ............................................... 44.5 37.0
Diluted ............................................. 44.5 37.0
See accompanying notes to consolidated financial statements.
4
TRINITY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, DECEMBER 31,
2002 2001
----------- -----------
(UNAUDITED)
(IN MILLIONS)
ASSETS
Cash and cash equivalents ....................................... $ 10.6 $ 22.2
Receivables, net of allowance ................................... 213.6 204.3
Inventories:
Raw materials and supplies .................................. 133.0 159.5
Work in process ............................................. 44.6 42.4
Finished goods .............................................. 67.1 73.3
----------- -----------
244.7 275.2
Property, plant and equipment, at cost .......................... 1,516.2 1,434.9
Less accumulated depreciation ................................... (610.6) (555.8)
----------- -----------
905.6 879.1
Goodwill ........................................................ 416.0 415.7
Other assets .................................................... 140.8 155.5
----------- -----------
$ 1,931.3 $ 1,952.0
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities ........................ $ 377.4 $ 424.9
Long-term debt .................................................. 454.9 476.3
Other liabilities ............................................... 69.8 41.4
----------- -----------
902.1 942.6
Stockholders' equity:
Common stock -- shares issued and outstanding at
June 30, 2002 -- 50.9; at December 31, 2001 - 51.0 ......... 50.9 51.0
Capital in excess of par value ................................ 442.2 464.7
Retained earnings ............................................. 683.5 703.4
Accumulated other comprehensive loss .......................... (18.4) (26.0)
Treasury stock (5.0 shares at June 30, 2002 and 6.6
shares at December 31, 2001) ............................... (129.0) (183.7)
----------- -----------
1,029.2 1,009.4
----------- -----------
$ 1,931.3 $ 1,952.0
=========== ===========
See accompanying notes to consolidated financial statements.
5
TRINITY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT CASH FLOWS
SIX MONTHS ENDED
JUNE 30,
2002 2001
----------- -----------
(UNAUDITED)
(IN MILLIONS)
Operating activities:
Net loss ................................................................ $ (14.3) $ (30.1)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization ....................................... 42.0 45.4
Deferred income taxes .............................................. 36.5 2.8
Gain on sale of property, plant, equipment and
other assets .................................................... (0.4) (1.2)
Unusual charges .................................................... -- 55.8
Other .............................................................. 1.4 (5.0)
Changes in assets and liabilities, net of effects
from acquisitions and unusual charges:
Increase in receivables ..................................... (9.3) (37.2)
Decrease in inventories ..................................... 30.5 71.9
Decrease in other assets .................................... 14.7 20.6
Decrease in accounts payable and accrued liabilities ........ (39.5) (62.2)
Increase (decrease) in other liabilities .................... (8.1) 1.2
---------- ----------
Total adjustments .......................................... 67.8 92.1
---------- ----------
Net cash provided by operating activities ................................. 53.5 62.0
---------- ----------
Investing activities:
Proceeds from sale of property, plant, and equipment .................... 2.2 98.2
Capital expenditures .................................................... (66.3) (158.8)
Payment for purchase of acquisitions, net of cash acquired .............. -- 0.2
---------- ----------
Net cash required by investing activities ............................... (64.1) (60.4)
---------- ----------
Financing activities:
Issuance of common stock ................................................ 31.2 --
Net borrowings of short-term debt ....................................... -- 15.4
Payments to retire long-term debt ....................................... (380.4) (7.4)
Proceeds from issuance of long-term debt ................................ 359.0 --
Dividends paid .......................................................... (10.8) (13.2)
---------- ----------
Net cash used by financing activities ................................... (1.0) (5.2)
---------- ----------
Net decrease in cash and cash equivalents ................................. (11.6) (3.6)
Cash and cash equivalents at beginning of period .......................... 22.2 14.8
---------- ----------
Cash and cash equivalents at end of period ................................ $ 10.6 $ 11.2
========== ==========
See accompanying notes to consolidated financial statements.
6
TRINITY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
COMMON COMMON CAPITAL ACCUMULATED
SHARES STOCK IN EXCESS OTHER
(100,000,000 $1.00 PAR OF PAR RETAINED COMPREHENSIVE
AUTHORIZED) VALUE VALUE EARNINGS LOSS
----------- ----------- ----------- ----------- -----------
(IN MILLIONS EXCEPT SHARE AND PER SHARE DATA)
Balance at December 31, 2001 ................ 50,946,351 $ 51.0 $ 464.7 $ 703.4 $ (26.0)
Net loss .................................. -- -- -- (14.3) --
Currency translation
adjustments ............................. -- -- -- -- 4.8
Unrealized gain on derivative financial
instruments and foreign exchange
contracts................................ -- -- -- -- 2.8
Comprehensive loss ................
Cash dividends ($0.12 per
share) .................................. -- -- -- (5.6) --
Stock issued .............................. -- -- (19.9) -- --
Other ..................................... (8,129) (0.1) (2.6) -- --
----------- ----------- ----------- ----------- -----------
Balance at June 30, 2002 .................... 50,938,222 $ 50.9 $ 442.2 $ 683.5 $ (18.4)
=========== =========== =========== =========== ===========
TREASURY TOTAL
TREASURY STOCK AT STOCKHOLDERS'
SHARES COST EQUITY
----------- ----------- -------------
(IN MILLIONS EXCEPT SHARE AND PER SHARE DATA)
Balance at December 31, 2001 ................ (6,608,522) $ (183.7) $ 1,009.4
Net loss .................................. -- -- (14.3)
Currency translation
adjustments ............................. -- -- 4.8
Unrealized gain on derivative financial
instruments and foreign exchange
contracts................................ -- -- 2.8
-----------
Comprehensive loss ................ (6.7)
Cash dividends ($0.12 per
share) .................................. -- -- (5.6)
Stock issued .............................. 1,500,000 51.1 31.2
Other ..................................... 68,813 3.6 0.9
----------- ----------- -----------
Balance at June 30, 2002 .................... (5,039,709) $ (129.0) $ 1,029.2
=========== =========== ===========
See accompanying notes to consolidated financial statements.
7
TRINITY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The foregoing consolidated financial statements are unaudited and have been
prepared from the books and records of Trinity Industries, Inc. and subsidiaries
("Trinity" or the "Company"). We changed our year-end in 2001 from March 31 to
December 31. In the opinion of management, all adjustments, consisting only of
normal and recurring adjustments necessary for a fair presentation of the
financial position of the Company as of June 30, 2002 and the results of
operations for the three-month and six-month periods ended June 30, 2002 and
2001 and cash flows for the six-month periods ended June 30, 2002 and 2001, in
conformity with generally accepted accounting principles, have been made.
Because of seasonal and other factors, the results of operations for the
three-month and six-month periods ended June 30, 2002 may not be indicative of
expected results of operations for the year ending December 31, 2002. These
interim financial statements and notes are condensed as permitted by the
instructions to Form 10-Q and should be read in conjunction with the audited
consolidated financial statements of the Company included in its Form 10-K
Report for the nine months ended December 31, 2001.
NOTE 2. UNUSUAL CHARGES
In the three months ended March 31, 2001, the Company recorded pretax
charges of $55.8 million, $35.7 million after tax, or $0.97 per share, related
primarily to additional plant closings, severance, asset write downs and a
litigation reserve for an adverse jury verdict announced on May 14, 2001.
Restructuring reserve activity for the six months ended June 30, 2002 is:
RESERVES RESERVES
DECEMBER 31, JUNE 30,
2001 PAYMENT RECLASSIFICATIONS 2002
------------- ------------- ----------------- -------------
(in millions)
Property, plant & equipment -- write-downs to
net realizable value to be disposed of and
related shut-down costs and other asset
write downs ...................................... $ 18.9 $ 6.0 $ 3.4 $ 9.5
Environmental liabilities .......................... 11.1 0.1 -- 11.0
Severance costs .................................... 4.9 1.4 -- 3.5
Adverse jury verdict ............................... 14.8 -- -- 14.8
Asset-write downs and exit cost related to wholly
owned businesses ................................. 0.2 0.2 -- --
Other .............................................. 3.2 0.9 -- 2.3
------------- ------------- ------------- -------------
$ 53.1 $ 8.6 $ 3.4 $ 41.1
============= ============= ============= =============
NOTE 3. SEGMENT INFORMATION
As of December 31, 2001, the Company modified its segment reporting to
align the reportable segments with current management responsibilities and
internal reporting.
The new reporting format includes the following business segments: (1) the
Trinity Rail group, which manufactures and sells railcars and component parts;
(2) the Construction Products group, which manufactures and sells highway
guardrail and safety products, concrete and aggregate, girders and beams used in
the construction of highway and railway bridges and weld fittings used in
pressure piping systems; (3) the Inland Barge group, which manufactures and
sells barges and related products for inland waterway services; (4) the
Industrial Products group, which manufactures and sells container heads and
pressure and non-pressure containers for the storage and transportation of
liquefied gases and other liquid and dry products; and (5) the Trinity Railcar
Leasing and Management Services group, which provides services such as fleet
management and leasing. Finally, All Other includes the Company's captive
insurance and transportation companies, structural towers, and other peripheral
businesses.
8
Sales from Trinity Rail group to Trinity Railcar Leasing and Management
Services group are recorded in Trinity Rail group and eliminated in
consolidation. Sales of railcars from the lease fleet are included in the
Trinity Railcar Leasing and Management Services group segment. Sales among
groups are recorded at prices comparable to external customers.
THREE MONTHS ENDED JUNE 30, 2002
REVENUES OPERATING
------------------------------------- PROFIT
OUTSIDE INTERSEGMENT TOTAL (LOSS)
---------- ------------ ---------- ----------
(IN MILLIONS)
Rail Group ................... $ 101.1 $ 38.3 $ 139.4 $ (12.8)
Construction Products Group .. 146.0 0.2 146.2 17.2
Inland Barge Group ........... 57.9 -- 57.9 1.1
Industrial Products Group .... 32.4 0.5 32.9 (1.6)
Railcar Leasing and Management
Services Group ............. 26.9 -- 26.9 7.1
All Other .................... 1.7 6.5 8.2 (0.9)
Eliminations & Corporate
Items ...................... -- (45.5) (45.5) (6.9)
---------- ---------- ---------- ----------
Consolidated Total ........... $ 366.0 $ -- $ 366.0 $ 3.2
========== ========== ========== ==========
THREE MONTHS ENDED JUNE 30, 2001
REVENUES OPERATING
------------------------------------- PROFIT
OUTSIDE INTERSEGMENT TOTAL (LOSS)
---------- ------------ ---------- ----------
(IN MILLIONS)
Rail Group ........................ $ 187.9 $ 50.4 $ 238.3 $ 4.0
Construction Products Group ....... 155.7 2.1 157.8 16.8
Inland Barge Group ................ 49.6 -- 49.6 2.9
Industrial Products Group ......... 31.0 0.7 31.7 (0.4)
Railcar Leasing and Management
Services Group .................. 26.5 -- 26.5 10.1
All Other ......................... 16.9 10.1 27.0 (3.2)
Eliminations & Corporate Items .... -- (63.3) (63.3) (7.6)
---------- ---------- ---------- ----------
Consolidated Total ................ $ 467.6 $ -- $ 467.6 $ 22.6
========== ========== ========== ==========
9
SIX MONTHS ENDED JUNE 30, 2002
REVENUES OPERATING
---------------------------------------------- PROFIT
OUTSIDE INTERSEGMENT TOTAL (LOSS)
------------- ------------- ------------- -------------
(IN MILLIONS)
Rail Group ........................ $ 251.7 $ 58.8 $ 310.5 $ (25.0)
Construction Products Group ....... 258.6 0.7 259.3 24.7
Inland Barge Group ................ 119.1 -- 119.1 3.0
Industrial Products Group ......... 63.1 1.1 64.2 (0.7)
Railcar Leasing and Management
Services Group .................. 53.6 -- 53.6 14.2
All Other ......................... 4.2 13.2 17.4 (3.8)
Eliminations & Corporate
Items ........................... -- (73.8) (73.8) (13.4)
------------- ------------- ------------- -------------
Consolidated Total ................ $ 750.3 $ -- $ 750.3 $ (1.0)
============= ============= ============= =============
SIX MONTHS ENDED JUNE 30, 2001
REVENUES OPERATING
---------------------------------------------- PROFIT
OUTSIDE INTERSEGMENT TOTAL (LOSS)
------------- ------------- ------------- -------------
(IN MILLIONS)
Rail Group ........................ $ 366.6 $ 165.1 $ 531.7 $ (34.6)
Construction Products Group ....... 272.3 3.6 275.9 20.1
Inland Barge Group ................ 108.0 0.1 108.1 4.7
Industrial Products Group ......... 64.2 6.0 70.2 (1.5)
Railcar Leasing and Management
Services Group .................. 46.6 -- 46.6 17.9
All Other ......................... 28.6 25.9 54.5 (17.9)
Eliminations & Corporate Items .... -- (200.7) (200.7) (24.3)
------------- ------------- ------------- -------------
Consolidated Total ................ $ 886.3 $ -- $ 886.3 $ (35.6)
============= ============= ============= =============
NOTE 4. GOODWILL
The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets,
effective April 1, 2001. Under SFAS No. 142, goodwill is no longer amortized but
reviewed for impairment annually or more frequently if certain indicators arise.
The Company has completed the impairment test required upon adoption of SFAS No.
142 and determined there is no impairment to its recorded goodwill balances.
There has been no material change in the carrying amount of the Company's
goodwill for the six months ended June 30, 2002.
Had the Company been accounting for its goodwill under SFAS No. 142 for the
six months ended June 30, 2001, the Company's net loss and loss per share would
have been reduced by $0.6 million and $0.02 per share.
10
NOTE 5. DEBT
JUNE 30, DECEMBER 31,
2002 2001
------------- -------------
(IN MILLIONS)
Revolving commitment ............................................ $ 80.0 $ 288.0
Term commitment ................................................. 150.0 --
Warehouse facility .............................................. 37.5 --
6.0-9.25 percent industrial development revenue bonds payable
in varying amounts through 2005 ................................. 1.0 1.0
3.0-8.0 percent promissory notes, generally payable annually
through 2005 .................................................... 3.8 4.0
6.96-9.44 percent equipment trust certificates to
institutional investors generally payable in semi-annual
installments of varying amounts through 2003 ................... 9.3 10.5
7.755 percent equipment trust certificates to institutional
investors generally payable in semi-annual installments of
varying amounts through 2009 .................................. 170.0 170.0
11.3 percent notes payable monthly through 2003 ................. 1.9 2.8
Other ........................................................... 1.4 --
------------- -------------
$ 454.9 $ 476.3
============= =============
In June 2002, the Company completed a secured credit agreement for $425
million. The agreement includes a $275 million 3-year revolving commitment and a
$150 million 5-year term commitment. The agreement calls for quarterly payments
of principal on the term debt in the amount of $0.375 million beginning
September 30, 2002 through June 30, 2006 and $36.0 million beginning on
September 30, 2006 and ending on the maturity date. Amounts borrowed under the
revolving commitment bear interest at LIBOR plus 2.00% (3.84% at June 30, 2002).
Amounts borrowed under the term commitment bear interest at LIBOR plus 3.00%
(4.84% at June 30, 2002). The agreement is secured by a portion of the Company's
accounts receivable and inventory and a portion of its property, plant and
equipment. The agreement limits the amount of capital expenditures related to
the Company's leasing business, requires maintenance of ratios related to
interest coverage, leverage, asset coverage, and minimum net worth and restricts
the amount of dividend payments. At June 30, 2002, $230 million was borrowed
under this agreement and $102.5 million was available under the facility, net of
$92.5 million of letters of credit. At June 30, 2002, the most restrictive of
the debt covenants based on trailing twelve month calculations as defined by the
debt agreements allow $119.0 million additional principal and $15.6 million
additional annual interest expense. Company projections through December 31,
2002 indicate compliance with all covenants.
In June 2002 the Company's wholly-owned subsidiary Trinity Industries
Leasing Company ("TILC") through a newly formed, wholly owned, business trust
entered into a $200 million nonrecourse warehouse facility to finance or
refinance railcars acquired or owned by TILC. The facility is secured by
specific railcars and the underlying leases. Advances under the facility may not
exceed 75% of the fair market value of the railcars securing the facility less
any excluded assets as defined by the agreement. Advances under the facility
bear interest at LIBOR plus 1.775% (3.635% at June 30, 2002) and are due no
later than 30 months from the commencement date of the facility. At June 30,
2002, $162.5 million was available under this facility.
The Company's wholly-owned subsidiary, TILC, sold $170,000,000 of 2002-1
Pass Through Certificates with interest at 7.755%, commencing on August 15, 2002
and due semiannually thereafter. Equipment notes issued by TILC for the benefit
of the holders of the Pass Through Certificates are collateralized by interest
in certain railcars owned by TILC and the leases pursuant to which such railcars
are leased to customers. The equipment notes, including the obligations to make
payments of principal and interest thereon are direct obligations of TILC and
are fully and unconditionally guaranteed by Trinity Industries, Inc. as
guarantor.
11
The proceeds of $170 million from the issuance of the equipment notes were
used to repay outstanding indebtedness of Trinity as of December 31, 2001.
Principal payments due during the next five years as of June 30, 2002,
including the above Pass Through Certificates, are (in millions) 2003 - $14.6;
2004 - $26.3; 2005 - $134.0; 2006 - $12.3; 2007 - $187.7; and $80.0 thereafter.
NOTE 6. STOCKHOLDERS' EQUITY
On March 6, 2002, Trinity privately placed a total of 1.5 million
unregistered shares of its common stock for net proceeds of $31.3 million.
Trinity has now registered these shares.
NOTE 7. DEPOSIT AGREEMENT
The Company entered into a deposit agreement with Altos Hornos de Mexico,
SA de C.V. ("AHMSA") which provides for funds to be deposited with AHMSA which
are then used along with other funds from the Company to purchase steel from
AHMSA. As of June 30, 2002, total funds on deposit including interest due
amounted to approximately $42.5 million. Since May 1999 AHMSA has been operating
under a judicial declaration of suspension of payments, which under applicable
Mexican law, allows companies in Mexico to (1) seek a debt restructuring
agreement with their creditors in an orderly fashion; (2) continue their
operations; and (3) avoid declaration of bankruptcy and liquidation of assets.
Should AHMSA not be able to operate under the declaration of suspension of
payments because of its financial condition, AHMSA's creditors have no access to
the funds on deposit and all funds on deposit with AHMSA under Mexican law
should be returned to the Company.
NOTE 8. OTHER, NET
Other (income) expense consists of the following items (in millions):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Gain on sale of property,
plant and equipment ............. $ (0.2) $ -- $ (0.4) $ (1.2)
Foreign exchange
transactions .................... 0.8 0.5 1.0 (0.3)
Loss on equity
investments ..................... 0.3 0.6 1.0 0.7
Other ............................. -- (0.1) (0.2) (0.5)
---------- ---------- ---------- ----------
Other, net ...................... $ 0.9 $ 1.0 $ 1.4 $ (1.3)
========== ========== ========== ==========
NOTE 9. CONTINGENCIES
In May 2002, a lawsuit was filed against the Company and a coating
manufacturer by a tank barge customer seeking recovery of damages related to the
customer's corrosion problem with eighteen barges purchased from the Company's
Inland Barge Division. The total purchase price of the barges was $27.6 million.
The Company believes that the claims are without merit. Issues raised by this
litigation have created uncertainty in the industry regarding barge corrosion
and its causes. As a result, the Company has had communications with customers
ranging from inquiries to threatened litigation. The Company has been gathering
substantial scientific and other pertinent data. While management believes,
based on this data, the effect of this litigation and issues raised by the
litigation related to other customers on the Company's financial position and
results of operations will not be material for financial reporting purposes, the
ultimate resolution is uncertain.
In May of 2001, a judgment in the amount of $14.8 million was entered
against the Company in a lawsuit brought for an alleged breach of contract
involving the proposed production of a composite component for a refrigerated
railcar for the Company. The amount of the judgment was accrued by the Company
in fiscal 2001. The judgement is currently under appeal by the Company.
12
The Company is subject to federal, state, local and foreign laws and
regulations relating to the environment and to work places. The Company believes
that it is currently in substantial compliance with such laws and the
regulations promulgated thereunder.
The Company is involved in various proceedings relating to environmental
matters. The Company has provided reserves to cover probable and estimable
liabilities of the Company with respect to such investigations and cleanup
activities, taking into account currently available information and the
Company's contractual rights of indemnification. However, estimates of future
response costs are necessarily imprecise. Accordingly, there can be no assurance
that the Company will not become involved in future litigation or other
proceedings or, if the Company were found to be responsible or liable in any
litigation or proceeding, that such costs would not be material to the Company.
The Company is involved in various other claims and lawsuits incidental to
its business. In the opinion of management, their claims and suits in the
aggregate will not have a material adverse effect on the Company's consolidated
financial statements.
NOTE 10. ACCOUNTING CHANGES
In October 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which is effective for fiscal years
beginning after December 15, 2001. SFAS 144 addresses accounting and reporting
of long-lived assets, except goodwill, that are held and used or disposed of
through sale or other means. The Company adopted SFAS 144 as of January 1, 2002.
There was no impact to the Company's financial statements.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The following discussion should be read in conjunction with the unaudited
consolidated financial statements and related notes thereto appearing elsewhere
in this document
Trinity is one of the nation's leading diversified industrial companies
providing a variety of high volume, repetitive products and services for the
transportation, industrial and construction sectors of the marketplace. We
compete in cyclical markets and are continuously looking for opportunities to
improve our competitive positions.
In October 2001, we completed our merger transaction with privately owned
Thrall Car Manufacturing Company (Thrall). This merger combines Trinity's
strength in tank car production, Thrall's strength in auto rack manufacturing
and research and development expertise across the entire spectrum of railcars.
Due to the integration of Trinity and Thrall's operations, separate financial
information for Thrall only is not available.
During the quarter ended June 30, 2002 the Company signed a managed
services contract to implement a new financial system and to outsource certain
accounting and processing activities. While expected to produce an overall
savings, this project is expected to add five to ten cents per share in
incremental costs related to training and other transition costs over the next
twelve months. The timing of the charges will depend on project progress but one
to two cents per share of the front-end costs may be incurred in the quarter
ending September 30, 2002.
During the quarter ended June 30, 2002 the Company renewed its major
insurance policies. Based on these renewals, premium increases will cost the
equivalent of approximately 5 cents per share for the remainder of the current
year.
UNUSUAL CHARGES
During the three months ended March 31, 2001, Trinity recorded special
pretax charges of approximately $55.8 million, $35.7 million net of tax or $0.97
per share, related primarily to additional plant closings, severance, asset
write downs and a litigation reserve for an adverse jury verdict announced May
14, 2001. All of these charges were charged to operating profit. These charges
are reflected in the following income statement categories and segments for the
six months end June 30, 2001. (in millions).
RAILCAR
LEASING &
CONSTRUCTION INLAND INDUSTRIAL MANAGEMENT CORPORATE
RAIL PRODUCTS BARGE PRODUCTS SERVICES & OTHER TOTAL
----------- ----------- ----------- ----------- ----------- ----------- -----------
Cost of revenues ....................... $ 45.9 $ -- $ -- $ -- $ -- $ 8.0 $ 53.9
Selling, engineering & administrative... 1.3 -- -- -- -- 0.6 1.9
----------- ----------- ----------- ----------- ----------- ----------- -----------
Charged to operating profit ........... 47.2 -- -- -- -- 8.6 55.8
Operating profit (loss) before charges.. 12.6 20.1 4.7 (1.5) 17.9 (33.6) (20.2)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating profit (loss) reported ....... $ (34.6) $ 20.1 $ 4.7 $ (1.5) $ 17.9 $ (42.2) $ (35.6)
=========== =========== =========== =========== =========== =========== ===========
THREE MONTHS ENDED JUNE 30, 2002 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2001
- -- RESULTS OF OPERATIONS
Revenues decreased $101.6 million to $366.0 million for the three months
ended June 30, 2002 compared to $467.6 million for the three months ended June
30, 2001, a decrease of 21.7%. The decline in revenues was due to the reduction
in railcar shipments and a reduction in the Construction Products and All Other
groups due to exiting certain lines of business. A temporary halt in the wind
towers business also added to the decline in total revenues and revenues in the
All Other group.
14
The following table reconciles the revenue amounts discussed under each
segment with the consolidated total revenues (in millions).
THREE MONTHS ENDED JUNE 30, 2002 THREE MONTHS ENDED JUNE 30, 2001
---------------------------------------- ----------------------------------------
REVENUES REVENUES
OUTSIDE INTERSEGMENT TOTAL OUTSIDE INTERSEGMENT TOTAL
----------- ------------ ----------- ----------- ------------ -----------
Rail Group ........................... $ 101.1 $ 38.3 $ 139.4 $ 187.9 $ 50.4 $ 238.3
Construction Products Group .......... 146.0 0.2 146.2 155.7 2.1 157.8
Inland Barge Group ................... 57.9 -- 57.9 49.6 -- 49.6
Industrial Products Group ............ 32.4 0.5 32.9 31.0 0.7 31.7
Railcar Leasing and
Management ........................... 26.9 -- 26.9 26.5 -- 26.5
Services Group
All Other ............................ 1.7 6.5 8.2 16.9 10.1 27.0
Eliminations & Corporate Items........ -- (45.5) (45.5) -- (63.3) (63.3)
----------- ----------- ----------- ----------- ----------- -----------
Consolidated Total ................... $ 366.0 $ -- $ 366.0 $ 467.6 $ -- $ 467.6
=========== =========== =========== =========== =========== ===========
Operating profit decreased $19.4 million to $3.2 million for the three
months ended June 30, 2002 compared to $22.6 million for the same period in
2001. Reduced revenues and unabsorbed overhead due to lower volumes caused
operating losses in the Rail group. Operating profit for the Inland Barge group
was adversely impacted by $0.9 million in cost incurred related to litigation
initiated by a tank barge customer in May. The operating loss in the Industrial
Products group increased due to a $2.2 million reserve established for a
long-term LPG equipment lease receivable from a customer who began operating
under bankruptcy protection during the quarter.
Selling, engineering and administrative expenses decreased $2.0 million to
$40.7 million for the three months ended June 30, 2002 compared to $42.7 million
for the comparable period in 2001, a decrease of 4.7%. The decrease was a result
of lower head count and cost reduction efforts.
Interest expense, net of interest income, increased $4.1 million to $10.0
million for the three months ended June 30, 2002 compared to $5.9 million for
the same period in 2001, an increase of 69.5%. The increase was attributable to
a change in rates, to charging off debt issuance costs of $1.3 million related
to debt that was replaced with other credit facilities in the current period and
lower interest income.
Other, net was an expense of $0.9 million for the three months ended June
30, 2002 compared to expense of $1.0 million for the comparable period in 2001
The current year effective tax rate of 26.0% is primarily due to the
absence of tax benefits on certain foreign losses.
Net loss for the three months ended June 30, 2002 was $5.7 million, or
$0.13 per diluted share as compared to net income of $9.6 million, or $0.26 per
diluted share, for the same period in 2001.
TRINITY RAIL GROUP
THREE MONTHS
ENDED
JUNE 30,
---------------------------
2002 2001
----------- -----------
(IN MILLIONS)
Revenues .................................................................. $ 139.4 $ 238.3
Operating profit (loss) ................................................... $ (12.8) $ 4.0
Operating profit (loss) margin ............................................ (9.2)% 1.7%
15
Revenues declined 41.5% for the three months ended June 30, 2002 compared
to the same period in 2001. This decline is due to the current downturn in the
North American railcar market. Railcar units shipped dropped approximately 69%
compared to the prior year to approximately 1,000 cars. Operating profit margins
were impacted by the inefficiencies of lower production levels and price
pressures in the current competitive environment. With the current railcar
market, our domestic shipments are expected to be 4,000 to 5,000 in 2002.
In the three months ended June 30, 2002, railcar sales to Trinity
Industries Leasing Company included in the Rail Group results were $37.0 million
compared to $48.1 million in the comparable period in 2001 with operating profit
of $1.4 million compared to $2.6 million for the same period in 2001. Sales to
Trinity Industries Leasing Company and related profits are eliminated in
consolidation.
In connection with the consolidation of our European railcar operations and
the expected completion of a major contract by year end at our United Kingdom
facility, we are preparing to close the facility at the end of the current year.
As a result, we will have a short-term step-up in deliveries and profitability.
This facility produced revenues of $21.9 million in the current quarter with an
operating profit of $1.1 million. The Company has provided for estimated closing
costs.
CONSTRUCTION PRODUCTS GROUP
THREE MONTHS
ENDED
JUNE 30,
--------------------------
2002 2001
----------- -----------
(IN MILLIONS)
Revenues .......................... $ 146.2 $ 157.8
Operating profit .................. $ 17.2 $ 16.8
Operating profit margin ........... 11.8% 10.6%
Revenues declined 7.4% for the three months ended June 30, 2002 compared to
the same period in 2001. The decrease in revenues was primarily due to the
closure of two under performing concrete and aggregate locations in Louisiana
and, to a lesser extent, continued foreign competition in the fittings business.
Operating profit margins increased as a result of cost reduction in the concrete
and aggregates and efficiency improvements in the bridge business partially
offset by steel cost increases in the highway and safety business not passed on
to customers in the quarter.
INLAND BARGE GROUP
THREE MONTHS
ENDED
JUNE 30,
--------------------------
2002 2001
----------- -----------
(IN MILLIONS)
Revenues ............................ $ 57.9 $ 49.6
Operating profit .................... $ 1.1 $ 2.9
Operating profit margin ............. 1.9% 5.8%
Revenues increased 16.7% for the three months ended June 30, 2002 compared
to the same period in 2001. The increase in revenues was primarily attributable
to increased deliveries of hopper barges. Operating profit was adversely
impacted by $0.9 million in cost incurred related to litigation initiated by a
tank barge customer in May 2002.
16
INDUSTRIAL PRODUCTS GROUP
THREE MONTHS
ENDED
JUNE 30,
---------------------------
2002 2001
----------- -----------
(IN MILLIONS)
Revenues ............................ $ 32.9 $ 31.7
Operating profit (loss) ............. $ (1.6) $ (0.4)
Operating profit (loss) margin ...... (4.9)% (1.3)%
Revenues increased 3.8% for the three months ended June 30, 2002 compared
to the same period in 2001. The increase in revenues is primarily due to a
return to more normal demand levels in the Mexico liquefied petroleum gas
market. Operating losses increased due to a $2.2 million reserve established for
a long-term LPG equipment lease receivable from a customer who began operating
under bankruptcy protection during the quarter. Margins in this business have
been hurt by reduced demand in the container head business, which is affected by
the railcar business and the petrochemical industry.
RAILCAR LEASING AND MANAGEMENT SERVICES GROUP
THREE MONTHS
ENDED
JUNE 30,
--------------------------
2002 2001
----------- -----------
(IN MILLIONS)
Revenues ................................. $ 26.9 $ 26.5
Operating profit ......................... $ 7.1 $ 10.1
Operating profit margin .................. 26.4% 38.1%
Revenues for this group include railcar lease revenue and management fees
as well as sales of railcars from our lease fleet. Railcar lease revenue and
management fees increased $5.8 million over prior year due to the increase in
the size of the lease fleet that includes both on-balance sheet railcars and
railcars we lease under operating leases. Operating profit was down due to the
increased size of the fleet that we lease compared to the fleet we own. This
shift resulted from the fact that, in the March quarter a year ago, we were
building a substantial portfolio of lease cars that were subsequently moved from
owned cars to leased cars later in the year in a sale and leaseback transaction
described in our report on Form 10-K. The reason that leased cars result in
lower operating profit margins is that operating lease expense on the railcars
we lease includes both a depreciation component and an interest component that
is charged to operating expense. For owned cars, only a depreciation component
is charged to operating expense. Also affecting operating profit this quarter
was a reduction in the lease fleet utilization and reduced pricing. Selling,
engineering and administrative expense also increased due to our strategy to
grow both the lease fleet and the managed car fleet.
Revenues from the sale of railcars from the lease fleet were $0.3 million
in the three months ended June 30, 2002 and $5.7 million in the same period in
2001. Operating profits on these sales were $0.1 million for the three months
ended June 30, 2002 and $1.1 million in the same period in 2001.
ALL OTHER
Revenues in All Other decreased to $8.2 million in the three months ended
June 30, 2002 from $27.0 million for the three months ended June 30, 2001. This
decrease is primarily due to discontinuing the concrete mixer and related
products business in 2001. Additionally, a temporary halt in the wind tower
business this year contributed to lower revenues and operating profit.
17
Operating loss was $0.9 for the three months ended June 30, 2002, and $3.2
in the same period in 2001. The operating loss in the same period in 2001 was
due primarily to operating losses associated with the discontinued e-commerce
initiatives.
SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2001 --
RESULTS OF OPERATIONS
Revenues decreased $136.0 million to $750.3 million for the six months
ended June 30, 2002 compared to $886.3 million for the six months ended June 30,
2001, a decrease of 15.3%. The decline in revenues was due to the reduction in
railcar shipments and a reduction in the Construction Products and All Other
groups due to exiting certain lines of business. A temporary halt in the wind
towers business also added to the decline in total revenues and revenues in the
All Other group.
The following table reconciles the revenue amounts discussed under each
segment with the consolidated total revenues (in millions).
SIX MONTHS ENDED JUNE 30, 2002 SIX MONTHS ENDED JUNE 30, 2001
---------------------------------------- ----------------------------------------
REVENUES REVENUES
OUTSIDE INTERSEGMENT TOTAL OUTSIDE INTERSEGMENT TOTAL
----------- ------------ ----------- ----------- ------------ -----------
Rail Group ........................ $ 251.7 $ 58.8 $ 310.5 $ 366.6 $ 165.1 $ 531.7
Construction Products Group ....... 258.6 0.7 259.3 272.3 3.6 275.9
Inland Barge Group ................ 119.1 -- 119.1 108.0 0.1 108.1
Industrial Products Group ......... 63.1 1.1 64.2 64.2 6.0 70.2
Railcar Leasing and Management
Services Group .................. 53.6 -- 53.6 46.6 -- 46.6
All Other ......................... 4.2 13.2 17.4 28.6 25.9 54.5
Eliminations & Corporate Items .... -- (73.8) (73.8) -- (200.7) (200.7)
----------- ----------- ----------- ----------- ----------- -----------
Consolidated Total ................ $ 750.3 $ -- $ 750.3 $ 886.3 $ -- $ 886.3
=========== =========== =========== =========== =========== ===========
Operating loss decreased $34.6 million to $1.0 million for the six months
ended June 30, 2002 compared to a loss of $35.6 million for the same period in
2001. Special charges for the six months ended June 30, 2001 were $55.8 million.
Reduced revenues and unabsorbed overhead due to lower volumes caused operating
losses in the Rail group. Operating profit for Inland Barge group was adversely
impacted by $0.9 million in cost incurred related to litigation initiated by a
tank barge customer in May. The operating loss in the Industrial Products group
was impacted by a $2.2 million reserve established for a long-term LPG equipment
lease receivable from a customer who began operating under bankruptcy protection
during the second quarter. Improved operating profits in the Construction
Products and All Other groups were due to exiting unprofitable business.
Selling, engineering and administrative expenses decreased $13.1 million to
$81.2 million for the six months ended June 30, 2002 compared to $94.3 million
for the comparable period in 2001, a decrease of 13.9%. The decrease was a
result of lower head count, cost reduction efforts and special charges recorded
in the prior year.
Interest expense, net of interest income increased $4.6 million to $16.7
million for the six months ended June 30, 2002 compared to $12.1 million for the
same period in 2001, an increase of 38.0%. The increase was attributed to a
change in rates, to charging off debt issuance costs of $1.3 million related to
debt that was replaced with other credit facilities in the current period and
lower interest income.
Other, net was an expense of $1.4 million for the six months ended June 30,
2002 compared to income of $1.3 million for the comparable period in 2001. The
decrease was due to a lesser amount of gains on sale of property, plant and
equipment in the current period compared to the same period last year and
foreign exchange losses in the current period compared to gains in the prior
year period.
The current year effective tax rate of 25.1% is primarily due to the
absence of tax benefits on certain foreign losses.
Net loss for the six months ended June 30, 2002 was $14.3 million, or $0.32
per diluted share as compared to a net loss of $30.1 million, or $0.81 per
diluted share, the same period in 2001.
18
TRINITY RAIL GROUP
SIX MONTHS
ENDED
JUNE 30,
---------------------------
2002 2001
----------- -----------
(IN MILLIONS)
Revenues ......................................... $ 310.5 $ 531.7
Operating profit (loss) including unusual
charges ........................................ $ (25.0) $ (34.6)
Operating profit (loss) before unusual
charges ........................................ $ (25.0) $ 12.6
Operating profit (loss) margin before
unusual charges ................................ (8.1)% 2.4%
Revenues declined 41.6% for the six months ended June 30, 2002 compared to
the same period in 2001. This decline is due to the current downturn in the
North American railcar market. Railcar units shipped dropped approximately 68%
compared to the prior year to approximately 2,200 cars. Operating profit (loss)
margins were impacted by the inefficiencies of lower production levels and price
pressures in the current competitive environment.
In the six months ended June 30, 2002, railcar sales to Trinity Industries
Leasing Company included in the Rail Group results were $57.0 million compared
to $161.1 million in the comparable period in 2001 with operating profit of $2.2
million in 2002 compared to $8.5 million for the same period in 2001. Sales to
Trinity Industries Leasing Company and related profits are eliminated in
consolidation.
CONSTRUCTION PRODUCTS GROUP
SIX MONTHS
ENDED
JUNE 30,
--------------------------
2002 2001
----------- -----------
(IN MILLIONS)
Revenues .................................... $ 259.3 $ 275.9
Operating profit ............................ $ 24.7 $ 20.1
Operating profit margin ..................... 9.5% 7.3%
Revenues declined 6.0% for the six months ended June 30, 2002 compared to
the same period in 2001. The decrease in revenues was primarily attributable to
closing under performing concrete and aggregate locations in Louisiana in the
second quarter and exiting the sheet pile, flange and valve businesses.
Operating profit margins increased as a result of cost reductions in the
concrete and aggregate, elimination of unprofitable products, and efficiency
improvements in the bridge business partially offset by steel cost increases in
the highway and safety business not passed on to customers.
19
INLAND BARGE GROUP
SIX MONTHS
ENDED
JUNE 30,
--------------------------
2002 2001
----------- -----------
(IN MILLIONS)
Revenues ................................. $ 119.1 $ 108.1
Operating profit ......................... $ 3.0 $ 4.7
Operating profit margin .................. 2.5% 4.3%
Revenues increased 10.2% for the six months ended June 30, 2002 compared to
the same period in 2001. The increase in revenues was primarily attributable to
increased deliveries of hopper barges. Operating profit was lower primarily due
to cost incurred related to litigation initiated by a tank barge customer in May
2002 and higher prior year margins on deck barges.
INDUSTRIAL PRODUCTS GROUP
SIX MONTHS
ENDED
JUNE 30,
---------------------------
2002 2001
----------- -----------
(IN MILLIONS)
Revenues ................................. $ 64.2 $ 70.2
Operating profit (loss) .................. $ (0.7) $ (1.5)
Operating profit (loss) margin ........... (1.1)% (2.1)%
Revenues decreased 8.5% for the three months ended June 30, 2002 compared
to the same period in 2001. The decrease in revenues is primarily due to below
normal demand levels in the Mexico liquefied petroleum gas market. Operating
losses were 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
SIX MONTHS
ENDED
JUNE 30,
--------------------------
2002 2001
----------- -----------
(IN MILLIONS)
Revenues ...................................... $ 53.6 $ 46.6
Operating profit .............................. $ 14.2 $ 17.9
Operating profit margin ....................... 26.5% 38.4%
Revenues for this group include railcar lease revenue and management fees
as well as sales of railcars from our lease fleet. Railcar lease revenue and
management fees increased $13.6 million over prior year due to the increase in
the size of the lease fleet that includes both on-balance sheet railcars and
railcars we lease under operating leases. Operating profit is down due to the
increased size of the fleet that we lease compared to the fleet we own. This
shift resulted from the fact that, in the March quarter a year ago, we were
building a substantial portfolio of lease cars that were subsequently moved from
owned cars to leased cars later in the year in a sale and leaseback transaction
described in our report on Form 10-K. The reason that leased cars result in
lower operating profit margins is that operating lease expense on the railcars
we lease includes both a depreciation component and an interest component
20
that is charged to operating expense. For owned cars, only a depreciation
component is charged to operating expense. Also affecting operating profit this
quarter was a reduction in the lease fleet utilization and reduced pricing.
Selling, engineering and administrative expense also increased due to our
strategy to grow both the lease fleet and the managed car fleet.
Revenues from the sale of railcars from the lease fleet of $1.3 million in
the six months ended June 30, 2002 and $7.5 million in the same period in 2001.
Operating profits on these sales were $0.2 million for the six months ended June
30, 2002 and $1.4 million in the same period in 2001.
ALL OTHER
Revenues in All Other decreased to $17.4 million in the six months ended
June 30, 2002 from $54.5 million for the six months ended June 30, 2001. This
decrease is primarily due to discontinuing the concrete mixer and related
products business in 2001. Additionally, a temporary slowdown in the wind tower
business contributed to lower revenues and operating profits.
Operating loss was $3.8 million for the six months ended June 30, 2002, and
$17.9million in the same period in 2001. Restructuring charges included in the
six months ended June 30, 2001 were $8.0 million primarily related to exiting
the concrete mixer and related products business referred to above and
environmental liabilities. Excluding restructuring charges, a larger operating
loss was recorded in the same period in 2001 due primarily to operating losses
associated with concrete mixer and related products business.
INSERT B
RANGE OF EXPECTED LOSSES
Our outlook for the year is a consolidated loss per share in the range of 25 to
40 cents per share.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the six months ended June 30,
2002 was $53.5 million compared to $62.0 million for the same period in 2001.
Reductions in working capital were offset by a net loss in the current period.
Capital expenditures for the six months ended June 30, 2002 were $66.3 million,
of which $55.1 million was for additions to the lease portfolio. This compares
to $158.8 million of capital expenditures for the same period last year, of
which $130.5 million was for additions to the lease portfolio. Proceeds from the
sale of property, plant and equipment were $2.2 million for the six months ended
June 30, 2002 composed primarily of the sale of cars from the lease fleet in
2002, compared to $98.2 million for the same period in 2001.
We expect to finance future operating requirements with cash flows from
operations, long-term and short-term debt, and privately placed equity.
In June 2002, the Company completed a secured credit agreement for $425
million. The agreement includes a $275 million 3-year revolving commitment and a
$150 million 5-year term commitment. The agreement calls for quarterly payments
of principal on the term debt in the amount of $0.375 million beginning
September 30, 2002 through June 30, 2006 and $36.0 million beginning on
September 30, 2006 and ending on the maturity date. Amounts borrowed under the
revolving commitment bear interest at LIBOR plus 2.00% (3.84% at June 30, 2002).
Amounts borrowed under the term commitment bear interest at LIBOR plus 3.00%
(4.84% at June 30, 2002). The agreement is secured by a portion of the Company's
accounts receivable and inventory and a portion of its property, plant and
equipment. The agreement limits the amount of capital expenditures related to
the Company's leasing business, requires maintenance of ratios related to
interest coverage, leverage, asset coverage, and minimum net worth and restricts
the amount of dividend payments. At June 30, 2002, $230 million was borrowed
under this agreement and $102.5 million was available under the facility, net of
$92.5 million of letters of credit. At June 30, 2002, the most restrictive of
the debt covenants based on trailing twelve month calculations as defined by the
debt agreements allow $119.0 million additional principal and $15.6 million
additional annual interest expense. Company projections through December 31,
2002 indicate compliance with all covenants.
21
In June 2002 the Company's wholly-owned subsidiary Trinity Industries
Leasing Company ("TILC") through a newly formed, wholly owned, business trust
entered into a $200 million nonrecourse warehouse facility to finance or
refinance railcars acquired or owned by TILC. The facility is secured by
specific railcars and the underlying leases. Advances under the facility may not
exceed 75% of the fair market value of the railcars securing the facility less
any excluded assets as defined by the agreement. Advances under the facility
bear interest at LIBOR plus 1.775% (3.635% at June 30, 2002) and are due no
later than 30 months from the commencement date of the facility. At June 30,
2002, $162.5 million was available under this facility.
The Company's wholly-owned subsidiary, TILC, sold $170,000,000 of 2002-1
Pass Through Certificates with interest at 7.755%, commencing on August 15, 2002
and due semiannually thereafter. Equipment notes issued by TILC for the benefit
of the holders of the Pass Through Certificates are collateralized by interest
in certain railcars owned by TILC and the leases pursuant to which such railcars
are leased to customers. The equipment notes, including the obligations to make
payments of principal and interest thereon are direct obligations of TILC and
are fully and unconditionally guaranteed by Trinity Industries, Inc. as
guarantor.
On March 6, 2002, we privately placed a total of 1.5 million unregistered
shares of our common stock for net proceeds of $31.3 million. We have registered
these shares.
CONTRACTUAL OBLIGATION AND COMMERCIAL COMMITMENTS
As of June 30, 2002 other commercial commitments related to letters of
credit has increased to $92.5 million from $81.2 as of December 31, 2001. Other
commercial commitments related to operating leases under sale/leaseback
transactions were unchanged.
FORWARD LOOKING STATEMENTS. This quarterly report on Form 10-Q contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Any statements contained herein that are not
historical facts are forward-looking statements and involve risks and
uncertainties. These forward-looking statements include expectations, beliefs,
plans, objectives, future financial performance, estimates, projections, goals
and forecasts. Potential factors which could cause our actual results of
operations to differ materially from those in the forward-looking statements
include:
o market conditions and demand for our products;
o the cyclical nature of both the railcar and barge industries;
o abnormal periods of inclement weather in areas where construction products
are sold and used;
o the timing of introduction of new products;
o the timing of customer orders;
o price erosion;
o changes in mix of products sold;
o the extent of utilization of manufacturing capacity;
o availability of supplies and raw materials;
o price competition and other competitive factors;
o changing technologies;
o steel prices;
o interest rates and capital costs;
o taxes;
o the stability of the governments and political and business conditions in
certain foreign countries, particularly Mexico and Romania;
o changes in import and export quotas and regulations;
o business conditions in emerging economies; and
o legal, regulatory and environmental issues.
Any forward-looking statement speaks only as of the date on which such
statement is made. Trinity undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There has been no material change in our market risks since December
31, 2001.
22
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Annual Meeting of Stockholders held May 13, 2002, stockholders
elected nine incumbent directors for a one-year term (Proposal 1) and approved
ratification of Ernst & Young LLP as independent auditors for the year ending
December 31, 2002 (Proposal 2). The vote tabulation follows for each proposal:
Proposal 1 - Election of Directors
Nominee For Withheld
------------------- ---------- --------
David W. Biegler 40,139,105 441,917
Craig J. Duchossois 40,257,010 324,012
Ronald J. Gafford 40,298,171 282,851
Barry J. Galt 40,168,498 412,524
Clifford J. Grum 40,176,179 404,843
Jess T. Hay 40,219,051 361,971
Diana S. Natalicio 40,331,306 249,716
Timothy R. Wallace 40,296,710 284,312
W. Ray Wallace 40,173,264 407,758
Proposal 2 - Independent Auditors
For Against Abstentions
--- ------- -----------
39,642,850 906,350 31,822
ITEM 5. OTHER INFORMATION
During the second quarter, Trinity disclosed to the U. S. Treasury
Department's Office of Foreign Assets Control ("OFAC") that its Mexican
subsidiary, Trinity Industries de Mexico, S.A. ("TIMSA"), last year sold, in one
isolated transaction, four liquid petroleum gas ("LPG") storage tanks to a
second Mexican company which were ultimately delivered to Cuba. LPG tanks are
typically used to store liquefied petroleum gas for residential heating and
cooking. TIMSA made this sale relying upon a legal opinion from its outside
legal counsel in Mexico. Trinity did not authorize or approve the sale and only
became aware of it after the LPG tanks had been delivered to Cuba. Upon learning
of the sale, Trinity retained independent counsel to investigate the incident
and subsequently made the voluntary disclosure to OFAC. Trinity is cooperating
fully with OFAC to resolve the matter. In the opinion of management, the Company
will incur no liability in connection with this matter that will be material for
financial reporting purposes.
23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit Number Description
10.1 Credit Agreement dated as of June 4, 2002 among
Trinity Industries, Inc., as Borrower, JPMorgan Chase
Bank, individually as a Lender and Issuing Bank and
as Administrative Agent, and Dresdner Bank AG, New
York and Grand Cayman Branches and The Royal Bank of
Scotland plc., each individually as a Lender and
collectively as Syndication Agents, and certain other
Lenders party thereto from time to time.
10.2 Warehouse Loan Agreement dated as of June 27, 2002
among Trinity Industries Leasing Company, Trinity
Rail Leasing Trust II, the Borrower, Credit Suisse
First Boston, New York Branch, as Agent, and the
Lenders party thereto from time to time.
10.12.3 Amendment No. 3 to the Trinity Industries, Inc. 1998
Stock Option and Incentive Plan.
99.1 Certification pursuant to 18 U.S.C., Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
99.2 Certification pursuant to 18 U.S.C., Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on Form 8-K
(1) Trinity filed a Current Report on Form 8-K dated July 25, 2002,
reporting, under Item 5, operating results for the three months
ended June 30, 2002. Pursuant to Form 8-K: under Item 7, the news
release dated July 24, 2002 and conference call scripts of July
25, 2002 of various officers were filed.
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TRINITY INDUSTRIES, INC. By: /s/ Jim S. Ivy
Registrant ----------------------------
Jim S. Ivy
Senior Vice President and
Chief Financial Officer
August 12, 2002
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.1 Credit Agreement dated as of June 4, 2002 among Trinity
Industries, Inc., as Borrower, JPMorgan Chase Bank, individually
as a Lender and Issuing Bank and as Administrative Agent, and
Dresdner Bank AG, New York and Grand Cayman Branches and The
Royal Bank of Scotland plc., each individually as a Lender and
collectively as Syndication Agents, and certain other Lenders
party thereto from time to time.
10.2 Warehouse Loan Agreement dated as of June 27, 2002 among Trinity
Industries Leasing Company, Trinity Rail Leasing Trust II, the
Borrower, Credit Suisse First Boston, New York Branch, as Agent,
and the Lenders party thereto from time to time.
10.12.3 Amendment No. 3 to the Trinity Industries, Inc. 1998 Stock Option
and Incentive Plan.
99.1 Certification pursuant to 18 U.S.C., Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C., Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.