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

April 29, 2010 | About:

Trinity Industries Inc. (NYSE:TRN) filed Quarterly Report for the period ended 2010-03-31.

Trinity Industries Inc. has a market cap of $2.02 billion; its shares were traded at around $25.51 with a P/E ratio of 19 and P/S ratio of 0.8. The dividend yield of Trinity Industries Inc. stocks is 1.3%.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 Buckingham of Al Frank Asset Management, Inc., John Keeley of Keeley Fund Management, Diamond Hill Capital of Diamond Hill Capital Management Inc, Chuck Royce of Royce& Associates, Kenneth Fisher of Fisher Asset Management, LLC, Jim Simons of Renaissance Technologies LLC, Jeremy Grantham of GMO LLC.

Highlight of Business Operations:

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, the Company acquired an additional 8.16% equity ownership in TRIP Holdings for approximately $16.2 million from another equity investor. As a result, the Company now owns a 28.16% equity ownership in TRIP Holdings, increasing the Companys total investment to $63.5 million. Trinitys remaining equity commitment to TRIP Holdings is $5.5 million through June 2010.

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 March 31, 2010 and the consolidated statements of operations, cash flows and stockholders equity for the three months ended March 31, 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. In addition, the Company acquired $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 $22.3 million based on its preliminary valuation of the net assets acquired. As a result of the acquisition, the Company recorded transaction-related expenses of $4.3 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

Other Income and Expense. Interest expense, net of interest income, was $45.3 million for the three month period ended March 31, 2010 compared to $28.7 million for the same period last year. Interest income increased $0.1 million over the same quarter of last year. Interest expense increased $16.7 million over the same period last year due to the inclusion of TRIP Holdings interest expense of $11.8 million 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 March 31, 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.

In the three months ended March 31, 2010, railcar shipments included sales to the Leasing Group of $38.0 million compared to $116.5 million in the comparable period in 2009 with a deferred profit of $3.6 million compared to $8.9 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 month period ended March 31, 2010. Results for the three month period ended March 31, 2009 included $38.0 million in railcars sold to TRIP Leasing, that resulted in a gain of $5.0 million of which $1.2 million 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.

Revenues and operating profit decreased for the three month period ended March 31, 2010 compared to the same period in the prior year due to a change in the mix of tank barge types, more competitive hopper barge prices, lower raw material prices and fewer barges shipped overall. Operating profit for the three months ended March 31, 2009 included the refund of $0.9 million in unclaimed settlement funds related to a legal settlement. No refunds were received during the three months ended March 31, 2010 for the same settlement. As of March 31, 2010, the backlog for the Inland Barge Group was approximately $361.1 million compared to approximately $401.6 million as of March 31, 2009.

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