Saul,
This is an ongoing whistleblower case that originated in 2005. On October 20, 2014, a federal jury decided that Trinity Industries should pay $175 million in a case brought by a whistleblower who questioned the safety of thousands of highway guardrail end caps.
Here some articles about the decision.
http://www.wsj.com/articles/jury-awards-trinity-whistleblowe…
http://www.nytimes.com/2014/10/21/business/jury-says-trinity…
According to the WSJ article, the TRN stock price declined sharply after the announced verdict, falling 12% during regular trading. I did not experience this, since I had already bailed out of my TRN position earlier that month.
The TRN Form 10-K Annual Report for FY ending 12/31/2014 provides more info. Here are a few excerpts:
The District Court has not yet entered a final judgment or determined a civil penalty amount. While the Company believes the District Court does not have the evidence required under the law to quantify civil penalties, the total range of loss in this case, based on the jury’s verdict and Mr. Harman’s damage model for civil penalties, is $525 million to $709 million, exclusive of attorney’s fees, costs, and interest.
The Company maintains that Mr. Harman’s allegations are without merit. Accordingly, the Company intends to challenge the damages award on the ground of insufficient evidence and to vigorously defend its positions in post-trial motions and on appeal to the United States Court of Appeals for the Fifth Circuit (“Fifth Circuit”). Such post-trial motions and appellate review will result in certain legal expenses, including potential costs associated with posting a supersedeas bond upon the District Court’s entry of a final judgment. The face amount of such bond could equal the amount of the final judgment entered plus twenty (20) percent. The Company has confidence that such bond will be issued if, when, and to the extent required.
Texas A&M Transportation Institute (“TTI”), a member of The Texas A&M University System, designed the technology employed in the ET Plus. The Texas A&M University System is the owner of patents issued by the U.S. Patent Office that cover the ET Plus. Trinity Highway Products manufactures and markets the ET Plus pursuant to an exclusive license granted by The Texas A&M University System of their intellectual property.
(snip)
Pending entry of a final judgment and completion of the Company’s post-trial and appellate activities in this matter, we currently do not believe that a loss is probable, therefore no accrual has been included in the accompanying consolidated financial statements.
(snip)
On October 21, 2014, in light of the jury’s finding, the FHWA requested that the Company perform eight (8) additional crash tests of the ET Plus to support the FHWA’s ongoing evaluation of ET Plus performance. The eight tests were comprised of four tests at a guardrail height of 27 3/4" and four tests at a guardrail height of 31". On October 24, 2014, the Company issued a press release stating that it will stop shipments of the ET Plus until additional crash testing of the ET Plus was completed. The requested tests were conducted in December 2014 and January 2015, in accordance with Report 350 at Southwest Research Institute, an FHWA-approved and independent research facility. Report 350 sets forth the performance evaluation criteria applicable to the ET Plus and many other roadside safety features used on U.S. highways. The ET Plus extruder heads tested in all eight tests were randomly selected by the FHWA from inventory at the California Department of Transportation. These extruder heads were representative of what is in use on U.S. and Canadian highways.
On January 27, 2015, Trinity Highway Products completed the eighth, and final, test. On February 6, 2015, the FHWA released the crash test results of the first four tests conducted at the 27 3/4" installation height of the ET Plus. This release reports that the ET Plus passed Report 350 crash test criteria at the 27 3/4" guardrail height. The vast majority of guardrails installed on the roadways in the U.S. and Canada are at the 27 3/4" height. These test results validate Trinity Highway Products’ long standing position that when installed, maintained and impacted within the Report 350 standards, the 27 3/4" height ET Plus performs to Report 350 criteria. When all eight test results are reviewed and released by the FHWA, the Company will perform a thorough analysis before resuming any shipments of the ET Plus to its customers.
Is it prudent to take no accrual? Who knows; it depends on how long the post-trial motions and appellate process will take (most likely a long time) and whether or not it goes in favor or against the company.
Regards,
Ray