Trinity Industries Inc. Reports Operating Results (10-Q)
Trinity Industries Inc. has a market cap of $1.88 billion; its shares were traded at around $23.49 with a P/E ratio of 30.7 and P/S ratio of 0.7. The dividend yield of Trinity Industries Inc. stocks is 1.4%. 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, Diamond Hill Capital of Diamond Hill Capital Management Inc, 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, Jim Simons of Renaissance Technologies LLC, Manning & Napier Advisors, Inc.
Highlight of Business Operations: In May 2010, the Companys inland barge manufacturing facilities in Tennessee experienced a flood resulting in significant damages to Trinitys property and a temporary disruption of its production activities. The Company is fully insured against losses due to property damage and business interruption subject to certain deductibles. As of September 30, 2010, Trinity had received $20 million in payments from its insurance carrier of which $11.9 million pertains to the replacement of or repairs to property, plant, and equipment damaged with a net book value of $1.7 million. Accordingly, the Company has recognized a gain of $10.2 million from the disposition of flood-damaged property, plant, and equipment. As of October 1, 2010, the Companys inland barge production capacity at its Tennessee operations was restored to its pre-flood levels.
In 2007, the Company purchased 20% of the equity in newly-formed TRIP Rail Holdings LLC (TRIP Holdings). TRIP Holdings and its subsidiary, TRIP Rail Leasing LLC (TRIP Leasing), provide railcar leasing and management services in North America. Railcars are purchased from the Rail and Railcar Leasing and Management Services groups of Trinity by TRIP Leasing. In 2009 and in 2010, the Company acquired an additional 37.14% equity ownership in TRIP Holdings for approximately $44.8 million from other equity investors including an additional 28.98% interest acquired in September 2010 for $28.6 million. As a result, the Company now owns a 57.14% equity ownership in TRIP Holdings, increasing the Companys total investment to $92.1 million. Trinity has no remaining equity commitment to TRIP Holdings as of September 30, 2010.
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 also recorded transaction-related expenses of $4.7 million including a $1.5 million write-down of its pre-acquisition investment in Quixote classified as other selling, engineering, and administrative costs. In addition to the transaction-related expenses listed above, there was a $1.8 million reclassification of previously-recognized charges from Accumulated Other Comprehensive Loss (AOCL) to earnings representing the decline in fair value of its pre-acquisition investment in Quixote, included in other, net in the consolidated statement of operations. The Companys valuation of certain pre-acquisition amounts has not yet been finalized. See Note 2 Acquisition and Divestitures, Note 12 Other, Net and Note 15 Accumulated Other Comprehensive Loss in the consolidated financial statements.
Other Income and Expense. Interest expense, net of interest income, was $45.0 million and $135.3 million, respectively, for the three and nine month periods ended September 30, 2010 compared to $31.3 million and $88.5 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 nine month period last year. Interest expense increased $13.7 million and $46.9 million, respectively, over the same periods last year due to the inclusion of TRIP Holdings interest expense of $11.7 million and $35.3 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 increase in Other, net expense for the three month period ended September 30, 2010 of $4.6 million was primarily due to higher foreign currency translation expense and lower gains on equity investments. The increase in Other, net expense for the nine month period ended September 30, 2010 of $6.0 million was primarily due to lower gains in 2010 on equity investments and the recorded decline in fair value of the Companys pre-acquisition investment in Quixote Corporation partially offset by lower foreign currency translation losses.
For the three month period ended September 30, 2010, the operating profit for the Rail Group increased $15.3 million compared to the same period last year. For the nine month period ended September 30, 2010, the operating loss for the Rail Group decreased $339.2 million compared to the same period last year. This decrease was primarily due to a $325 million goodwill impairment charge during the quarter ended June 30, 2009. The effect of significantly reduced railcar deliveries on operating profit during 2010 was offset by a reduction in operating expenses.
In the three months ended September 30, 2010, railcar shipments included sales to the Leasing Group of $69.6 million compared to $75.0 million in the comparable period in 2009 with a deferred profit of $0.9 million compared to $1.9 million for the same period in 2009. In the nine months ended September 30, 2010, railcar shipments included sales to the Leasing Group of $173.5 million compared to $330.3 million in the comparable period in 2009 with a deferred profit of $6.4 million compared to $19.6 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 nine month periods ended September 30, 2010. Results for the nine month period ended September 30, 2009 included $113.0 million in railcars sold to TRIP Leasing, that resulted in a gain of $11.2 million of which $2.8 million in profit was deferred based on our equity interest. There were no railcar sales to TRIP Leasing during the three month period ended September 30, 2009. See Note 6 Investment in TRIP Holdings of the consolidated financial statements for information about TRIP Leasing.
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