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Trinity Industries Inc. Reports Operating Results (10-Q)

July 29, 2010 | About:
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10qk

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Trinity Industries Inc. (TRN) filed Quarterly Report for the period ended 2010-06-30.

Trinity Industries Inc. has a market cap of $1.64 billion; its shares were traded at around $20.72 with a P/E ratio of 21.4 and P/S ratio of 0.7. The dividend yield of Trinity Industries Inc. stocks is 1.5%. Trinity Industries Inc. had an annual average earning growth of 67.7% over the past 5 years.TRN is in the portfolios of Robert Rodriguez of FPA Capital, First Pacific Advisors of First Pacific Advisors, LLC, Steven Romick of FPA Crescent Fund, John Keeley of Keeley Fund Management, NWQ Managers of NWQ Investment Management Co, Diamond Hill Capital of Diamond Hill Capital Management Inc, Chuck Royce of Royce& Associates, Bruce Kovner of Caxton Associates, Kenneth Fisher of Fisher Asset Management, LLC, George Soros of Soros Fund Management LLC, Jeremy Grantham of GMO LLC.

Highlight of Business Operations:

On January 1, 2010, the Company adopted the provisions of a new accounting pronouncement which amended the rules regarding the consolidation of variable interest entities. Under this new standard, which changed the criteria for determining which enterprise has a controlling financial interest, the Company was determined to be the primary beneficiary of TRIP Holdings because of its combined role as both equity member and manager/servicer of TRIP Holdings. Accordingly, the consolidated balance sheet of the Company as of June 30, 2010, the consolidated statements of operations for the three and six months ended June 30, 2010, and the consolidated statements of cash flows and stockholders equity for the six months ended June 30, 2010 include the accounts of TRIP Holdings. Prior periods were not restated. As a result of adopting this pronouncement, we determined the effects on Trinitys consolidated financial statements as if TRIP Holdings had been included in the Companys consolidated financial statements from TRIP Holdings inception and recorded a charge to retained earnings of $105.4 million, net of $57.7 million of tax benefit, and a noncontrolling interest of $129.9 million as of January 1, 2010. All significant intercompany accounts and transactions have been eliminated including the deferral of profits on sales of railcars from the Rail or Leasing Group to TRIP Holdings. These deferred profits will be amortized over the life of the related equipment. Additionally, any future profits on the sale of railcars to TRIP Holdings will be deferred and amortized over the life of the related equipment. The noncontrolling interest represents the non-Trinity equity interest in TRIP Holdings. See further discussion in Note 1 Summary of Significant Accounting Policies Basis of Presentation and Note 6 Investment in TRIP Holdings in the consolidated financial statements. The assets of TRIP Holdings may only be used to satisfy liabilities of TRIP Holdings and the liabilities of TRIP Holdings have recourse only to TRIP Holdings assets.

In February 2010, pursuant to a tender offer, the Company acquired the outstanding stock of Quixote Corporation (Quixote) at a total cost of $58.1 million, including $17.1 million in cash balances and $1.1 million consisting of the Companys pre-acquisition investment in Quixote. In addition, the Company assumed $40.0 million in debt that was subsequently retired in the first quarter of 2010. Quixote is a leading manufacturer of energy-absorbing highway crash cushions, truck-mounted attenuators, and other transportation products. In connection with the acquisition, Trinity recorded goodwill of $22.0 million based on its preliminary valuation of the net assets acquired. As a result of the acquisition, the Company recorded transaction-related expenses of $4.6 million including a $1.5 million write-down of its pre-acquisition

Other Income and Expense. Interest expense, net of interest income, was $45.0 million and $90.3 million, respectively, for the three and six month periods ended June 30, 2010 compared to $28.5 million and $57.2 million, respectively, for the same periods last year. Interest income was unchanged from the same quarter last year and increased $0.1 million over the same six month period last year. Interest expense increased $16.5 million and $33.2 million, respectively, over the same

periods last year due to the inclusion of TRIP Holdings interest expense of $11.8 million and $23.6 million, respectively, in 2010 and an increase in debt levels, including $238.3 million of secured railcar equipment notes for the Leasing Group entered into in November 2009. The decrease in Other, net expense for the three month period ended June 30, 2010 was primarily due to lower foreign currency translation gains and lower gains on equity investments. The decrease in Other, net expense for the six month period ended June 30, 2010 was primarily due to lower foreign currency translation losses partially offset by the recorded decline in fair value of the Companys pre-acquisition investment in Quixote Corporation.

The operating loss for the Rail Group decreased $326.0 million and $323.9 million, respectively, for the three and six month periods ended June 30, 2010 compared to the same periods last year. This decrease was primarily due to a $325 million goodwill impairment charge during the quarter ended June 30, 2009. The effect on operating profit from significantly reduced railcar deliveries during 2010 was offset by a reduction in operating expenses.

In the three months ended June 30, 2010, railcar shipments included sales to the Leasing Group of $65.9 million compared to $138.8 million in the comparable period in 2009 with a deferred profit of $1.9 million compared to $8.8 million for the same period in 2009. In the six months ended June 30, 2010, railcar shipments included sales to the Leasing Group of $103.9 million compared to $255.3 million in the comparable period in 2009 with a deferred profit of $5.5 million compared to $17.7 million for the same period in 2009. Sales to the Leasing Group and related profits are included in the operating results of the Rail Group but are eliminated in consolidation. There were no railcar sales to TRIP Leasing during the three and six month periods ended June 30, 2010. Results for the three and six month periods ended June 30, 2009 included $75.0 million and $113.0 million, respectively, in railcars sold to TRIP Leasing, that resulted in a gain of $6.2 million and $11.2 million, respectively, of which $1.6 million and $2.8 million, respectively, in profit was deferred based on our equity interest. See Note 6 Investment in TRIP Holdings of the consolidated financial statements for information about TRIP Leasing.

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