SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the quarterly period
ended September 30, 1998
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 Company as specified in its charter)
Incorporated Under the Laws 75-0225040
of the State of Delaware (I.R.S. Employer
Identification No.)
2525 Stemmons Freeway
Dallas, Texas 75207-2401
(Address of Principal (Zip Code)
Executive Offices)
(214) 631-4420
(Company's Telephone Number,
Including Area Code)
Indicate by check mark whether the Company (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
43,312,181
(Number of shares of common stock outstanding as of September 30, 1998)
Part I
Item 1 - Financial Statements
Trinity Industries, Inc.
Consolidated Balance Sheet
(in millions except per share data)
September 30 March 31
Assets 1998 1998
(unaudited)
Cash and cash equivalents . . . . . . . . . $ 11.0 $ 3.1
Receivables . . . . . . . . . . . . . . . . 376.0 390.5
Inventories:
Raw materials and supplies. . . . . . . . 250.0 248.5
Work in process . . . . . . . . . . . . . 46.1 42.5
Finished goods . . . . . . . . . . . . . 58.6 51.6
354.7 342.6
Property, plant and equipment, at cost. . . 1,167.3 1,201.9
Less accumulated depreciation . . . . . . . (442.3) (475.0)
725.0 726.9
Other assets. . . . . . . . . . . . . . . . 136.9 110.8
$1,603.6 $1,573.9
Liabilities and Stockholders' Equity
Short-term debt . . . . . . . . . . . . . . $ 125.0 $ 101.0
Accounts payable and accrued liabilities. . 329.6 386.6
Long-term debt. . . . . . . . . . . . . . . 132.4 149.6
Deferred income taxes . . . . . . . . . . . 26.3 27.5
Other liabilities . . . . . . . . . . . . . 27.2 21.7
640.5 686.4
Stockholders' equity:
Common stock - par value $1 per
share; authorized 100.0 shares;
shares issued at September 30,
1998 - 43.5 and shares issued and
outstanding at March 31, 1998 - 43.5 . . 43.5 43.5
Capital in excess of par value. . . . . . 271.4 276.5
Retained earnings . . . . . . . . . . . . 655.4 567.5
Treasury stock(0.2 shares held), at cost: (7.2) -
963.1 887.5
$1,603.6 $1,573.9
Trinity Industries, Inc.
Consolidated Income Statement
(unaudited)
(in millions except per share data)
Six Months
Ended September 30
1998 1997
Revenues. . . . . . . . . . . . . . . . . . . . . . $1,428.9 $1,120.4
Operating costs:
Cost of revenues. . . . . . . . . . . . . . . . . 1,199.2 917.6
Selling, engineering and administrative expenses. 71.2 72.1
Retirement plans expense. . . . . . . . . . . . . 9.7 9.2
1,280.1 998.9
Operating profit. . . . . . . . . . . . . . . . . . 148.8 121.5
Other (income) expenses:
Litigation settlement . . . . . . . . . . . . . . - 70.0
Interest income . . . . . . . . . . . . . . . . . (2.0) (1.2)
Interest expense. . . . . . . . . . . . . . . . . 9.2 10.2
Other, net. . . . . . . . . . . . . . . . . . . . (22.5) 1.0
(15.3) 80.0
Income before income taxes . . . . . . . . . . . . 164.1 41.5
Provision (benefit) for income taxes:
Current . . . . . . . . . . . . . . . . . . . . . 62.6 14.5
Deferred. . . . . . . . . . . . . . . . . . . . . (1.1) 1.1
61.5 15.6
________ ________
Net income. . . . . . . . . . . . . . . . . . . . . $ 102.6 $ 25.9
Net income per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . $ 2.36 $ 0.60
Diluted . . . . . . . . . . . . . . . . . . . . . $ 2.33 $ 0.59
Weighted average number of shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . 43.4 43.1
Diluted . . . . . . . . . . . . . . . . . . . . . 44.0 43.8
Trinity Industries, Inc.
Consolidated Income Statement
(unaudited)
(in millions except per share data)
Three Months
Ended September 30
1998 1997
Revenues. . . . . . . . . . . . . . . . . . . . . . $ 717.4 $ 560.3
Operating costs:
Cost of revenues. . . . . . . . . . . . . . . . . 602.4 458.4
Selling, engineering and administrative expenses. 36.2 34.7
Retirement plans expense. . . . . . . . . . . . . 4.1 4.0
642.7 497.1
Operating profit. . . . . . . . . . . . . . . . . . 74.7 63.2
Other (income) expenses:
Litigation settlement . . . . . . . . . . . . . . - 70.0
Interest income . . . . . . . . . . . . . . . . . (1.1) (0.7)
Interest expense. . . . . . . . . . . . . . . . . 4.7 5.2
Other, net. . . . . . . . . . . . . . . . . . . . (0.5) (0.2)
3.1 74.3
Income (loss) before income taxes . . . . . . . . . 71.6 (11.1)
Provision (benefit) for income taxes:
Current . . . . . . . . . . . . . . . . . . . . . 42.1 (3.8)
Deferred. . . . . . . . . . . . . . . . . . . . . (15.3) -
26.8 (3.8)
________ ________
Net income (loss) . . . . . . . . . . . . . . . . . $ 44.8 $ (7.3)
Net income (loss) per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . $ 1.03 $ (0.17)
Diluted . . . . . . . . . . . . . . . . . . . . . $ 1.02 $ (0.17)
Weighted average number of shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . 43.4 43.2
Diluted . . . . . . . . . . . . . . . . . . . . . 43.9 43.2
Trinity Industries, Inc.
Consolidated Statement of Cash Flows
(unaudited)
(in millions)
Six Months
Ended September 30
1998 1997
Cash flows from operating activities :
Net income. . . . . . . . . . . . . . . . . . . . . $102.6 $ 25.9
Adjustments to reconcile net income to net cash
provided (required) by operating activities:
Depreciation. . . . . . . . . . . . . . . . . . . 37.3 40.5
Deferred provision (benefit) for income taxes . . (1.1) 1.1
Gain on sale of property, plant and equipment
and other assets . . . . . . . . . . . . . . . . (23.0) (0.7)
Other . . . . . . . . . . . . . . . . . . . . . . 0.4 1.5
Change in assets and liabilities:
(Increase) decrease in receivables . . . . . . . 14.5 (51.8)
Increase in inventories . . . . . . . . . . . . (12.1) (2.2)
Increase in other assets . . . . . . . . . . . . (30.5) (22.1)
Decrease in accounts payable and
accrued liabilities . . . . . . . . . . . . . . (76.5) (2.7)
Increase in other liabilities. . . . . . . . . . 5.5 1.2
Total adjustments . . . . . . . . . . . . . . . (85.5) (35.2)
Net cash provided (required) by operating
activities. . . . . . . . . . . . . . . . . . . 17.1 (9.3)
Cash flows from investing activities:
Proceeds from sale of property, plant
and equipment and other assets . . . . . . . . . . 106.7 15.1
Capital expenditures. . . . . . . . . . . . . . . . (95.3) (50.0)
Payment for acquisitions, net of cash acquired. . . (6.0) (57.2)
Net cash provided (required) by
investing activities . . . . . . . . . . . . . 5.4 (92.1)
Cash flows from financing activities:
Issuance of common stock. . . . . . . . . . . . . . 0.5 0.7
Net borrowings under short-term debt. . . . . . . . 24.0 126.0
Repurchase of common stock. . . . . . . . . . . . . (7.2) -
Payments to retire long-term debt . . . . . . . . . (17.2) (19.5)
Dividends paid. . . . . . . . . . . . . . . . . . . (14.7) (14.6)
Net cash provided (required) by
financing activities. . . . . . . . . . . . . . (14.6) 92.6
Net increase (decrease) in cash
and cash equivalents. . . . . . . . . . . . . . . . 7.9 (8.8)
Cash and cash equivalents at beginning of year . . . 3.1 12.2
Cash and cash equivalents at end of period . . . . . $ 11.0 $ 3.4
<TABLE>
Trinity Industries, Inc.
Consolidated Statement of Stockholders' Equity
(unaudited)
(in millions except share and per share data)
Common Stock Capital
Amount in Total
Shares $1.00 Excess Stock-
(100,000,000) Par of Par Retained Treasury Stock holders
(Authorized) Value Value Earnings Shares Amount Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1997 . 43,046,365 $43.0 $273.3 $493.2 - $ - $809.5
Other. . . . . . . . . . . 185,223 0.2 4.9 - - - 5.1
Net income . . . . . . . . - - - 25.9 - - 25.9
Cash dividends
($0.34 per share) . . . - - - (14.6) - - (14.6)
Balance September 30, 1997. 43,231,588 $43.2 $278.2 $504.5 - $ - $825.9
Balance at March 31, 1998 . 43,489,276 $43.5 $276.5 $567.5 - $ - $887.5
Other. . . . . . . . . . . 45,905 - (5.1) - - - (5.1)
Stock repurchases. . . . . - - - - (223,000) (7.2) (7.2)
Net income . . . . . . . . - - - 102.6 - - 102.6
Cash dividends
($0.34 per share) . . . - - - (14.7) - - (14.7)
Balance September 30, 1998. 43,535,181 $43.5 $271.4 $655.4 (223,000) $ (7.2) $963.1
</TABLE>
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 the Company, all
adjustments, consisting only of normal and recurring adjustments
necessary to a fair presentation of the financial position of the
Company as of September 30, 1998, the results of operations for the six
and three month periods ended September 30, 1998 and 1997 and cash flows
for the six month periods ended September 30, 1998 and 1997, in conformity
with generally accepted accounting principles, have been made. Because
of seasonal and other factors, the results of operations for the six
month period ended September 30, 1998 may not be indicative of expected
results of operations for the year ending March 31, 1999. 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 incorporated
by reference in its Form 10-K for the year ended March 31, 1998.
Trinity Industries, Inc.
Notes to Consolidated Financial Statements
(unaudited)
September 30, 1998
Contingencies
The Company is involved in various claims and lawsuits incidental
to its business. In the opinion of management, these claims and
suits in the aggregate will not have a material adverse affect
on the Company's consolidated financial statements.
Subsequent Event
On October 7, 1998, the Company acquired MCT Holding Inc.("MCT"), the
parent of McConway & Torley, a leading manufacturer of casting products
for the railcar industry for approximately $85 million. MCT is
recognized as the premier domestic manufacturer of railcar coupler
systems and has approximately 625 employees and major casting
facilities in Kutztown and Pittsburgh, PA. MCT's annual revenues are
approximately $80 million of which approximately 25 percent are from
the Company.
New Accounting Standards
In fiscal 1998, Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information,"
was issued. The disclosure requirements for this statement are
effective for the Company's financial statements for the year ended
March 31, 1999, but not for interim financial reporting until fiscal
2000. The Company has not yet determined the impact of adopting
Statement No. 131.
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Statement of Operations
Six Months Ended September 30, 1998 vs.
Six Months Ended September 30, 1997
Operating profit in the current six month period increased $27.3 million,
or 22.5%, compared to the same period last year primarily due to increased
volume in the Transportation Products segment and improvement in the
Construction Products segment.
Revenues and operating profit for the Transportation Products segment
increased by $310.5 and $27.4 million, respectively, in the current six
month period when compared to the prior year period. The factors driving
the increases continue to be the ongoing replacement cycle for railcars,
advancements made in new car types, and increases in rail traffic for
certain car types. The Company continues to receive orders faster than
current shipping rates and has expanded its production lines. Overall
railcar margins have improved slightly compared to last year, offset
by a decline in marine margins due to lower volumes. The Company's barge
business has seen a decline in overall demand as a result of a
reduction in the transports of grain and other economic forces.
However, due to the age of the fleet and the inherent replacement
cycle, the long-term outlook for barges continues to be positive.
Nearly one third of the nation's hopper barges are over 20 years old.
Construction Products revenues and operating profit for the current
six months increased by $19.1 and $5.0 million, respectively, due to
the continuance of governmental spending on the nation's transportation
infrastructure, which utilizes the Company's highway guardrail and safety
systems products, and the increasing residential, commercial, industrial
and municipal construction in the markets served by the Company's ready-mix
concrete and aggregate businesses. The ready-mix concrete and aggregate
businesses also experienced improvements due to better weather conditions
in the first six months of fiscal 1999 compared to the same time period
in the previous year.
The Industrial Products segment's revenues and operating profit
declined by $21.2 and $5.6 million, respectively, in the current six
month period as compared to the prior year six month period. The
sales decline is due primarily to the sale of 100% of the outstanding
stock of Beaird Industries, Inc. in the quarter ended June 30, 1998.
The decline in profit was primarily attributable to increased price
competition, partly as a result of the "Asian Crisis," in the fittings
and flange business and the mild winter and fall which impacted demand
for the Company's LPG products.
Other, net in the current six month period increased $23.5 million,
compared to the same period last year primarily due to receipts in
the first quarter of fiscal 1999 from the sale of certain real estate
not associated with the Company's manufacturing operations.
Statement of Operations
Three Months Ended September 30, 1998 vs.
Three Months Ended September 30, 1997
Operating profit in the current quarter increased $11.5 million, or 18.2%,
compared to the same period last year due primarily to an increase in
revenues in the Transportation Products segment.
Revenues and operating profit for the Transportation Products segment
increased by $179.8 and $16.9 million, respectively, in the current three
month period when compared to the prior year quarter. This is the result of
the strong demand for a broad range of railcars as discussed in the above
section. Railcar revenue increases more than offset a decline in marine
revenues of approximately 40 percent.
Construction Products revenues and operating profit for the current quarter
increased by $1.8 and $2.2 million, respectively, due to acquisitions in the
second and third quarters of last year. The recent passage of new highway
spending legislation should lead to increased spending for transportation
infrastructure improvements. This factor and the strong backlog of
construction projects in the markets served by the ready-mix concrete and
aggregate businesses point to continued growth and improvement in this segment.
The Industrial Products segment's revenues and operating profit declined
in the current quarter by $24.7 and $4.6 million, respectively, when
compared to the prior year quarter. The decline in revenues is a direct
result of the sale of Beaird Industries, Inc. in the first quarter of
fiscal 1999. The decline in operating profit is attributed to the price
competition in the fittings and flange business as well as a decline in the
LPG business due to the recent mild winter and fall.
Financial Condition
The decrease in 'Property, Plant and Equipment' at September 30, 1998
compared to March 31, 1998 is due primarily to the divestiture of
Beaird Industries, Inc. and Trinity Marine Orange, Inc. in the first
quarter of the current year.
The decrease in 'Accounts payable and accrued liabilities' is due primarily
to the timing of payments for normal vendor payables along with the previously
accrued payment of the Johnstown settlement in the first fiscal quarter.
Liquidity & Capital Resources
The Company's cash and cash equivalents increased $7.6 million
from $3.4 million at September 30, 1997 to $11.0 million at September
30, 1998. Cash generated from operations increased to $17.1 million
in the current period, compared to cash required for operations of
$9.3 million in the prior year. This increase is primarily due to
normal fluctuations in working capital levels and the litigation
settlement which resulted in an after tax charge of $43.8 million
recorded in the second quarter of fiscal year 1998. Cash provided by
investing activities increased to $5.4 million in the current period
ended September 30, 1998 compared to cash required of $92.1 million in
the prior year period. This increase is due primarily to proceeds from
the sale of property, plant, and equipment as well as other assets.
Cash flows provided by financing activities decreased by $107.2 million
due primarily to reduced short-term borrowings as compared to the
corresponding period in the prior year.
Year 2000 Issue
Trinity, like most companies, will have to modify its hardware and
software programs to accommodate issues surrounding the Year 2000 issue.
Most of the Company's information technology ("IT") systems are purchased
packages. Where necessary, these purchased systems are being replaced or
upgraded and internally developed systems are being remediated to achieve
Year 2000 compliance. Non-IT systems, consisting primarily of machinery
with embedded date chips, are being identified and assessed for replacement
where necessary. The Company has a Year 2000 Project Management Office that
is taking those actions it believes are reasonable to manage compliance so
that Year 2000 issues do not materially impact the Company's operations.
The Company has engaged outside consultants to assist with vendor compliance,
assessment, and to advise the Company regarding its overall Year 2000
compliance program.
The Company presently estimates that over 85 percent of the Company's Mission
Critical IT Systems will be remediated by December 31, 1998. Remaining
critical IT systems are in various stages of completion and are expected
to be remediated before critical impact dates. Identification and assessment
of non-critical IT systems are estimated to be complete by early 1999.
To date, over half of the Company's Non-IT systems have been tested for
compliance.
The Company is in the process of surveying approximately 5,000 suppliers
and assessment of critical suppliers' Year 2000 readiness is estimated to
be complete by December 31, 1998. Plans on addressing vendors and products
"at risk" will be made in the first quarter of 1999. The Company is also
working with key customers on exchanging Year 2000 status information.
To date, the Company has spent approximately $2 million on remediation
efforts. An additional $6 million is estimated to be spent by the Year
2000. Amounts spent are spread over three fiscal periods and represent
approximately 13 percent of the total IT budget.
Compliance with Year 2000 issues by third parties is outside the control
of the Company, and the Company has no way of providing assurance that
systems of third parties will be Year 2000 compliant on a timely basis.
As a manufacturing company, the Company's worst scenario would be from an
interruption in utility services because production lines would be
inoperable. While there has been recent government focus on utility
companies, the power grid, and water supplies, there is no guarantee that
all systems will be identified and remediated in time, making the number
of hours or days of a possible interruption an uncertainty. The Company
has surveyed each plant's utility vendors as to their Year 2000 readiness,
and will assess the risk as part of its vendor compliance program.
The Company relies on the transportation industry to deliver its finished
products to customers. An interruption of transport services by one of the
key railroads would impact the Company's ability to deliver goods. There
are no practical alternatives to delivering the Company's largest single
product, railroad rolling stock. Railroads have been included in the vendor
compliance project and the Company will monitor their Year 2000 readiness.
Suppliers pose a risk to the Company as its ability to deliver goods and
services depends upon the ability of third parties to deliver raw material.
Based on key suppliers' Year 2000 readiness assessment, the Company will
decide whether an alternate vendor will be appropriate.
The Company is currently remediating internal computing systems, which
otherwise will fail or produce erroneous data. Some key systems have
been completed, and the remaining systems are scheduled to be complete
well before critical impact dates. At this time, the Company believes all
significant areas have been identified and required remediation will be
completed on a timely basis. If no additional work was done, however,
there would be significant consequences including having to manually
perform many currently automated processes such as payroll, accounting,
and inventory management for a significant portion of its business.
It is expected that the occurrence of any one or all of the above stated
worse case scenarios would be of short-term duration and would not have
a material effect on the Company's long-term results of operations,
liquidity, and financial condition. However, third party matters are
outside the control of the Company and the long-term failure of any one
of such items could have a severe adverse effect upon the Company. A
failure in the railroad system would not only prevent delivery of rolling
stock, it would also impact demand for the Company's largest source of
revenue.
The Company is in the process of developing contingency plans to consider
matters such as alternative sources of utilities, identification of
alternative vendors, appropriate inventory levels, and other matters.
_____________
Any statements contained herein that are not historical facts are
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, 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
the Company's actual results of operations to differ materially from
those in the forward-looking statements include market conditions and
demand for the Company's products; competition; technologies; steel
prices; interest rates and capital costs; taxes; unstable governments
and business conditions in emerging economies; and legal, regulatory
and environmental issues. Any forward-looking statement speaks only
as of the date on which such statement is made. The Company
undertakes no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which such statement
is made.
Part II
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description
27 Financial Data Schedule
(b) Form 8-K was filed on September 22, 1998 that reported a stock
repurchase program under which up to 10 percent of the Company's
common stock could be repurchased over time.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
Trinity Industries, Inc.
By: \S\ John M. Lee
John M. Lee
Vice President
November 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 11,000
<SECURITIES> 0
<RECEIVABLES> 376,000
<ALLOWANCES> 0
<INVENTORY> 354,700
<CURRENT-ASSETS> 0
<PP&E> 1,167,300
<DEPRECIATION> (442,300)
<TOTAL-ASSETS> 1,603,600
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 43,500
<OTHER-SE> 919,600
<TOTAL-LIABILITY-AND-EQUITY> 1,603,600
<SALES> 0
<TOTAL-REVENUES> 1,428,900
<CGS> 0
<TOTAL-COSTS> 1,199,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,200
<INCOME-PRETAX> 164,100
<INCOME-TAX> 61,500
<INCOME-CONTINUING> 102,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 102,600
<EPS-PRIMARY> 2.36
<EPS-DILUTED> 2.33
</TABLE>
