UNITED STATES
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 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011
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 registrant as specified in its charter)
Delaware | 75-0225040 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification |
2525 Stemmons Freeway Dallas, Texas | 75207-2401 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code(214) 631-4420
Indicate by check mark whether the registrant (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 (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yesþx Noo¨.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesþx Noo¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one).
Large accelerated filer | x | Accelerated filer | ¨ | |||||
Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
At October 14, 2011April 13, 2012 the number of shares of common stock outstanding was 80,134,838.
FORM 10-Q
Caption | Page | |||||||||
PART I | ||||||||||
Item 1. | ||||||||||
2 | ||||||||||
Item 2. | ||||||||||
Item 3. | ||||||||||
Item 4. | Controls and Procedures | 33 | ||||||||
PART II | OTHER INFORMATION | |||||||||
Item 1. | Legal Proceedings | 34 | ||||||||
Item | ||||||||||
Item 2. | ||||||||||
Item 3. | ||||||||||
Item 4. | Mine Safety Disclosures | 34 | ||||||||
Item 5. | Other Information | 34 | ||||||||
Item | ||||||||||
36 | ||||||||||
CERTIFICATIONS | ||||||||||
1
Trinity Industries, Inc. and Subsidiaries
Consolidated Statements of Operations
(unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in millions, except per share amounts) | ||||||||||||||||
Revenues: | ||||||||||||||||
Manufacturing | $ | 643.7 | $ | 417.9 | $ | 1,738.2 | $ | 1,174.2 | ||||||||
Leasing | 153.1 | 122.1 | 413.3 | 362.9 | ||||||||||||
796.8 | 540.0 | 2,151.5 | 1,537.1 | |||||||||||||
Operating costs: | ||||||||||||||||
Cost of revenues: | ||||||||||||||||
Manufacturing | 548.7 | 343.7 | 1,474.7 | 975.3 | ||||||||||||
Leasing | 82.7 | 63.8 | 217.2 | 198.3 | ||||||||||||
Other | 7.1 | 2.1 | 22.6 | 8.3 | ||||||||||||
638.5 | 409.6 | 1,714.5 | 1,181.9 | |||||||||||||
Selling, engineering, and administrative expenses: | ||||||||||||||||
Manufacturing | 35.8 | 33.7 | 103.2 | 99.6 | ||||||||||||
Leasing | 6.2 | 5.4 | 17.5 | 14.3 | ||||||||||||
Other | 11.5 | 9.6 | 30.6 | 28.7 | ||||||||||||
53.5 | 48.7 | 151.3 | 142.6 | |||||||||||||
Gain on disposition of flood-damaged property, plant, and equipment | 0.6 | 10.2 | 0.6 | 10.2 | ||||||||||||
Total operating profit | 105.4 | 91.9 | 286.3 | 222.8 | ||||||||||||
Other (income) expense: | ||||||||||||||||
Interest income | (0.5 | ) | (0.3 | ) | (1.2 | ) | (1.0 | ) | ||||||||
Interest expense | 47.9 | 45.3 | 136.2 | 136.3 | ||||||||||||
Other, net | 5.3 | 0.2 | 4.2 | 1.1 | ||||||||||||
52.7 | 45.2 | 139.2 | 136.4 | |||||||||||||
Income before income taxes | 52.7 | 46.7 | 147.1 | 86.4 | ||||||||||||
Provision for income taxes | 21.1 | 15.2 | 58.3 | 29.5 | ||||||||||||
Net income | 31.6 | 31.5 | 88.8 | 56.9 | ||||||||||||
Net income (loss) attributable to noncontrolling interest | (0.3 | ) | 1.8 | 2.7 | 6.8 | |||||||||||
Net income attributable to Trinity Industries, Inc. | $ | 31.9 | $ | 29.7 | $ | 86.1 | $ | 50.1 | ||||||||
Net income attributable to Trinity Industries, Inc. per common share: | ||||||||||||||||
Basic | $ | 0.40 | $ | 0.37 | $ | 1.07 | $ | 0.63 | ||||||||
Diluted | $ | 0.40 | $ | 0.37 | $ | 1.07 | $ | 0.63 | ||||||||
Weighted average number of shares outstanding: | ||||||||||||||||
Basic | 77.7 | 77.0 | 77.4 | 76.8 | ||||||||||||
Diluted | 77.9 | 77.1 | 77.7 | 76.9 | ||||||||||||
Dividends declared per common share | $ | 0.09 | $ | 0.08 | $ | 0.26 | $ | 0.24 |
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
(in millions, except per share amounts) | ||||||||
Revenues: | ||||||||
Manufacturing | $ | 783.2 | $ | 514.4 | ||||
Leasing | 142.1 | 119.8 | ||||||
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925.3 | 634.2 | |||||||
Operating costs: | ||||||||
Cost of revenues: | ||||||||
Manufacturing | 672.0 | 431.7 | ||||||
Leasing | 73.4 | 60.5 | ||||||
Other | 11.1 | 8.1 | ||||||
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756.5 | 500.3 | |||||||
Selling, engineering, and administrative expenses: | ||||||||
Manufacturing | 36.5 | 34.0 | ||||||
Leasing | 6.1 | 5.7 | ||||||
Other | 11.3 | 10.6 | ||||||
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53.9 | 50.3 | |||||||
Gain on disposition of property, plant, and equipment: | ||||||||
Net gains on railcar lease fleet sales | 3.7 | 1.1 | ||||||
Other | 3.8 | 0.8 | ||||||
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Total operating profit | 122.4 | 85.5 | ||||||
Other (income) expense: | ||||||||
Interest income | (0.4 | ) | (0.3 | ) | ||||
Interest expense | 47.9 | 44.5 | ||||||
Other, net | (3.0 | ) | (0.5 | ) | ||||
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44.5 | 43.7 | |||||||
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Income before income taxes | 77.9 | 41.8 | ||||||
Provision for income taxes | 25.6 | 16.2 | ||||||
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Net income | 52.3 | 25.6 | ||||||
Net income (loss) attributable to noncontrolling interest | (0.6 | ) | 1.4 | |||||
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Net income attributable to Trinity Industries, Inc. | $ | 52.9 | $ | 24.2 | ||||
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Net income attributable to Trinity Industries, Inc. per common share: | ||||||||
Basic | $ | 0.66 | $ | 0.30 | ||||
Diluted | $ | 0.66 | $ | 0.30 | ||||
Weighted average number of shares outstanding: | ||||||||
Basic | 77.8 | 77.1 | ||||||
Diluted | 78.1 | 77.4 | ||||||
Dividends declared per common share | $ | 0.09 | $ | 0.08 |
See accompanying notes to consolidated financial statements.
2
Consolidated Balance Sheets
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(unaudited) | ||||||||
(in millions) | ||||||||
Assets | ||||||||
Cash and cash equivalents | $ | 272.8 | $ | 354.0 | ||||
Short-term marketable securities | — | 158.0 | ||||||
Receivables, net of allowance | 317.3 | 232.0 | ||||||
Income tax receivable | — | 7.4 | ||||||
Inventories: | ||||||||
Raw materials and supplies | 314.2 | 169.4 | ||||||
Work in process | 138.5 | 83.3 | ||||||
Finished goods | 93.8 | 78.6 | ||||||
546.5 | 331.3 | |||||||
Property, plant, and equipment, at cost, including TRIP Holdings of $1,273.5 and $1,282.1 | 5,422.7 | 5,202.2 | ||||||
Less accumulated depreciation, including TRIP Holdings of $115.6 and $90.3 | (1,191.7 | ) | (1,090.2 | ) | ||||
4,231.0 | 4,112.0 | |||||||
Goodwill | 225.9 | 197.6 | ||||||
Restricted cash, including TRIP Holdings of $61.5 and $46.0 | 229.4 | 207.1 | ||||||
Other assets | 192.2 | 160.6 | ||||||
$ | 6,015.1 | $ | 5,760.0 | |||||
Liabilities and Stockholders’ Equity | ||||||||
Accounts payable | $ | 212.9 | $ | 132.8 | ||||
Accrued liabilities | 363.4 | 375.6 | ||||||
Debt: | ||||||||
Recourse, net of unamortized discount of $102.7 and $111.1 | 456.3 | 450.3 | ||||||
Non-recourse: | ||||||||
Parent and wholly-owned subsidiaries | 1,602.3 | 1,453.5 | ||||||
TRIP Holdings | 913.3 | 1,003.9 | ||||||
2,971.9 | 2,907.7 | |||||||
Deferred income | 31.9 | 33.6 | ||||||
Deferred income taxes | 423.2 | 391.0 | ||||||
Other liabilities | 93.9 | 73.6 | ||||||
4,097.2 | 3,914.3 | |||||||
Stockholders’ equity: | ||||||||
Preferred stock — 1.5 shares authorized and unissued | — | — | ||||||
Common stock — 200.0 shares authorized | 81.7 | 81.7 | ||||||
Capital in excess of par value | 626.1 | 606.1 | ||||||
Retained earnings | 1,265.8 | 1,200.5 | ||||||
Accumulated other comprehensive loss | (114.3 | ) | (95.5 | ) | ||||
Treasury stock | (24.7 | ) | (28.0 | ) | ||||
1,834.6 | 1,764.8 | |||||||
Noncontrolling interest | 83.3 | 80.9 | ||||||
1,917.9 | 1,845.7 | |||||||
$ | 6,015.1 | $ | 5,760.0 | |||||
(unaudited)
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Net income | $ | 52.3 | $ | 25.6 | ||||
Unrealized loss on derivative financial instruments: | ||||||||
Unrealized gains arising during the period | 2.7 | 14.3 | ||||||
Reclassification adjustments for losses included in net income | 2.3 | 0.8 | ||||||
Funded status of pension liability – amortization of actuarial loss | 0.9 | — | ||||||
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Other comprehensive income, before tax | 5.9 | 15.1 | ||||||
Income tax expense related to components of other comprehensive income | 2.4 | 5.4 | ||||||
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Other comprehensive income, net of tax | 3.5 | 9.7 | ||||||
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Comprehensive income | 55.8 | 35.3 | ||||||
Less: comprehensive income (loss) attributable to noncontrolling interest | (0.1 | ) | 3.7 | |||||
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Comprehensive income attributable to Trinity Industries, Inc. | $ | 55.9 | $ | 31.6 | ||||
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See accompanying notes to consolidated financial statements.
3
Consolidated Statements of Cash Flows(unaudited)
Nine Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Operating activities: | ||||||||
Net income | $ | 88.8 | $ | 56.9 | ||||
Adjustments to reconcile net income to net cash (required) provided by operating activities: | ||||||||
Depreciation and amortization | 144.3 | 143.3 | ||||||
Stock-based compensation expense | 16.3 | 11.3 | ||||||
Excess tax benefits from stock-based compensation | (0.3 | ) | 0.1 | |||||
Provision for deferred income taxes | 32.4 | 48.2 | ||||||
Gain on disposition of railcars from our lease fleet | (11.0 | ) | (4.5 | ) | ||||
Gain on disposition of property, plant, equipment, and other assets | (3.5 | ) | (7.7 | ) | ||||
Gain on disposition of flood-damaged property, plant, and equipment | (0.6 | ) | (10.2 | ) | ||||
Other | 3.8 | 3.6 | ||||||
Changes in assets and liabilities: | ||||||||
(Increase) decrease in receivables | (79.3 | ) | (81.8 | ) | ||||
(Increase) decrease in income tax receivable | 7.4 | (11.0 | ) | |||||
(Increase) decrease in inventories | (208.8 | ) | (114.9 | ) | ||||
(Increase) decrease in other assets | (37.7 | ) | 17.6 | |||||
Increase (decrease) in accounts payable | 78.6 | 58.1 | ||||||
Increase (decrease) in accrued liabilities | (25.6 | ) | (40.1 | ) | ||||
Increase (decrease) in other liabilities | 15.9 | (21.7 | ) | |||||
Net cash provided by operating activities | 20.7 | 47.2 | ||||||
Investing activities: | ||||||||
(Increase) decrease in short-term marketable securities | 158.0 | (150.0 | ) | |||||
Proceeds from sales of railcars from our lease fleet | 48.1 | 19.7 | ||||||
Proceeds from disposition of property, plant, equipment, and other assets | 6.2 | 37.3 | ||||||
Proceeds from disposition of flood-damaged property, plant, and equipment | 0.6 | 11.9 | ||||||
Capital expenditures — leasing | (236.0 | ) | (173.2 | ) | ||||
Capital expenditures — manufacturing and other | (38.8 | ) | (21.8 | ) | ||||
Capital expenditures — replacement of flood-damaged property, plant, and equipment | (13.3 | ) | (9.7 | ) | ||||
Acquisitions, net of cash acquired | (42.5 | ) | (46.9 | ) | ||||
Net cash required by investing activities | (117.7 | ) | (332.7 | ) | ||||
Financing activities: | ||||||||
Proceeds from issuance of common stock, net | 1.8 | 1.2 | ||||||
Excess tax benefits from stock-based compensation | 0.3 | (0.1 | ) | |||||
Payments to retire debt — assumed debt of Quixote | — | (40.0 | ) | |||||
Payments to retire debt — other | (1,068.5 | ) | (77.3 | ) | ||||
Proceeds from issuance of long-term debt | 1,124.5 | — | ||||||
(Increase) decrease in restricted cash | (22.3 | ) | (11.3 | ) | ||||
Purchase of additional interest in TRIP Holdings | — | (28.6 | ) | |||||
Dividends paid to common shareholders | (20.0 | ) | (19.0 | ) | ||||
Net cash provided (required) by financing activities | 15.8 | (175.1 | ) | |||||
Net decrease in cash and cash equivalents | (81.2 | ) | (460.6 | ) | ||||
Cash and cash equivalents at beginning of period | 354.0 | 611.8 | ||||||
Cash and cash equivalents at end of period | $ | 272.8 | $ | 151.2 | ||||
March 31, 2012 | December 31, 2011 | |||||||
(unaudited) | ||||||||
(in millions) | ||||||||
Assets | ||||||||
Cash and cash equivalents | $ | 304.8 | $ | 351.1 | ||||
Receivables, net of allowance | 367.2 | 384.3 | ||||||
Income tax receivable | 1.4 | 1.6 | ||||||
Inventories: | ||||||||
Raw materials and supplies | 340.8 | 324.8 | ||||||
Work in process | 146.2 | 125.6 | ||||||
Finished goods | 109.0 | 99.5 | ||||||
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596.0 | 549.9 | |||||||
Restricted cash, including TRIP Holdings of $59.2 and $74.6 | 224.0 | 240.3 | ||||||
Property, plant, and equipment, at cost, including TRIP Holdings of $1,271.4 and $1,257.7 | 5,479.3 | 5,407.9 | ||||||
Less accumulated depreciation, including TRIP Holdings of $128.7 and $122.7 | (1,262.0 | ) | (1,228.4 | ) | ||||
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4,217.3 | 4,179.5 | |||||||
Goodwill | 225.9 | 225.9 | ||||||
Other assets | 193.6 | 188.4 | ||||||
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$ | 6,130.2 | $ | 6,121.0 | |||||
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Liabilities and Stockholders’ Equity | ||||||||
Accounts payable | $ | 220.9 | $ | 207.4 | ||||
Accrued liabilities | 384.0 | 421.3 | ||||||
Debt: | ||||||||
Recourse, net of unamortized discount of $96.8 and $99.8 | 461.2 | 457.7 | ||||||
Non-recourse: | ||||||||
Parent and wholly-owned subsidiaries | 1,575.5 | 1,616.0 | ||||||
TRIP Holdings | 890.8 | 901.2 | ||||||
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2,927.5 | 2,974.9 | |||||||
Deferred income | 37.4 | 38.7 | ||||||
Deferred income taxes | 465.5 | 434.7 | ||||||
Other liabilities | 90.6 | 95.7 | ||||||
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4,125.9 | 4,172.7 | |||||||
Stockholders’ equity: | ||||||||
Preferred stock – 1.5 shares authorized and unissued | — | — | ||||||
Common stock – 200.0 shares authorized | 81.7 | 81.7 | ||||||
Capital in excess of par value | 633.7 | 626.5 | ||||||
Retained earnings | 1,360.4 | 1,314.7 | ||||||
Accumulated other comprehensive loss | (131.0 | ) | (134.0 | ) | ||||
Treasury stock | (24.9 | ) | (25.1 | ) | ||||
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1,919.9 | 1,863.8 | |||||||
Noncontrolling interest | 84.4 | 84.5 | ||||||
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2,004.3 | 1,948.3 | |||||||
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$ | 6,130.2 | $ | 6,121.0 | |||||
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See accompanying notes to consolidated financial statements.
4
Consolidated StatementStatements of Stockholders’ Equity
Cash Flows
(unaudited)
Common Stock | Treasury Stock | |||||||||||||||||||||||||||||||||||||||
Capital in | Accumulated Other | Trinity | Total | |||||||||||||||||||||||||||||||||||||
Excess of | Retained | Comprehensive | Stockholders’ | Noncontrolling | Stockholders’ | |||||||||||||||||||||||||||||||||||
Shares | Amount | Par Value | Earnings | Loss | Shares | Amount | Equity | Interest | Equity | |||||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||||||||||
Balances at December 31, 2010 | 81.7 | $ | 81.7 | $ | 606.1 | $ | 1,200.5 | $ | (95.5 | ) | (1.9 | ) | $ | (28.0 | ) | $ | 1,764.8 | $ | 80.9 | $ | 1,845.7 | |||||||||||||||||||
Net income | — | — | — | 86.1 | — | — | — | 86.1 | 2.7 | 88.8 | ||||||||||||||||||||||||||||||
Other comprehensive income, net of tax: | ||||||||||||||||||||||||||||||||||||||||
Currency translation adjustments | — | — | — | — | (0.1 | ) | — | — | (0.1 | ) | — | (0.1 | ) | |||||||||||||||||||||||||||
Change in unrealized loss on derivative financial instruments | — | — | — | — | (3.2 | ) | — | — | (3.2 | ) | (0.3 | ) | (3.5 | ) | ||||||||||||||||||||||||||
Comprehensive net income | 82.8 | 2.4 | 85.2 | |||||||||||||||||||||||||||||||||||||
Cash dividends on common stock | — | — | — | (20.8 | ) | — | — | — | (20.8 | ) | — | (20.8 | ) | |||||||||||||||||||||||||||
Restricted shares issued, net | — | — | 5.1 | — | — | 0.2 | 0.9 | 6.0 | — | 6.0 | ||||||||||||||||||||||||||||||
Stock options exercised | — | — | (0.6 | ) | — | — | 0.2 | 2.4 | 1.8 | — | 1.8 | |||||||||||||||||||||||||||||
Reclassification of purchase of additional interest in TRIP Holdings | — | — | 15.5 | — | (15.5 | ) | — | — | — | — | — | |||||||||||||||||||||||||||||
Balances at September 30, 2011 | 81.7 | $ | 81.7 | $ | 626.1 | $ | 1,265.8 | $ | (114.3 | ) | (1.5 | ) | $ | (24.7 | ) | $ | 1,834.6 | $ | 83.3 | $ | 1,917.9 | |||||||||||||||||||
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Operating activities: | ||||||||
Net income | $ | 52.3 | $ | 25.6 | ||||
Adjustments to reconcile net income to net cash provided (required) by operating activities: | ||||||||
Depreciation and amortization | 49.1 | 47.6 | ||||||
Stock-based compensation expense | 6.9 | 5.3 | ||||||
Excess tax benefits from stock-based compensation | (0.3 | ) | — | |||||
Provision for deferred income taxes | 26.1 | 11.5 | ||||||
Net gains on sales of railcars owned more than one year at the time of sale | (3.7 | ) | (1.1 | ) | ||||
Gain on disposition of property, plant, equipment, and other assets | (3.8 | ) | (0.8 | ) | ||||
Other | 2.3 | 2.3 | ||||||
Changes in assets and liabilities: | ||||||||
(Increase) decrease in receivables | 17.1 | (75.6 | ) | |||||
(Increase) decrease in income tax receivable | 0.2 | (0.6 | ) | |||||
(Increase) decrease in inventories | (46.1 | ) | (82.2 | ) | ||||
(Increase) decrease in other assets | (3.3 | ) | (1.6 | ) | ||||
Increase (decrease) in accounts payable | 13.5 | 47.0 | ||||||
Increase (decrease) in accrued liabilities | (33.4 | ) | 12.2 | |||||
Increase (decrease) in other liabilities | (5.9 | ) | 4.8 | |||||
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Net cash provided (required) by operating activities | 71.0 | (5.6 | ) | |||||
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Investing activities: | ||||||||
(Increase) decrease in short-term marketable securities | — | 41.0 | ||||||
Proceeds from sales of railcars owned more than one year at the time of sale | 26.5 | 10.0 | ||||||
Proceeds from disposition of property, plant, equipment, and other assets | 12.9 | 2.9 | ||||||
Capital expenditures – leasing, net of sold railcars owned one year or less | (100.0 | ) | (81.5 | ) | ||||
Capital expenditures – manufacturing and other | (16.4 | ) | (8.0 | ) | ||||
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Net cash required by investing activities | (77.0 | ) | (35.6 | ) | ||||
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Financing activities: | ||||||||
Proceeds from issuance of common stock, net | 0.7 | 1.4 | ||||||
Excess tax benefits from stock-based compensation | 0.3 | — | ||||||
Payments to retire debt – other | (52.6 | ) | (42.8 | ) | ||||
Proceeds from issuance of debt | 2.2 | — | ||||||
Deferred loan issuance costs | — | (5.9 | ) | |||||
(Increase) decrease in restricted cash | 16.3 | 1.1 | ||||||
Dividends paid to common shareholders | (7.2 | ) | (6.3 | ) | ||||
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Net cash required by financing activities | (40.3 | ) | (52.5 | ) | ||||
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Net decrease in cash and cash equivalents | (46.3 | ) | (93.7 | ) | ||||
Cash and cash equivalents at beginning of period | 351.1 | 354.0 | ||||||
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Cash and cash equivalents at end of period | $ | 304.8 | $ | 260.3 | ||||
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See accompanying notes to consolidated financial statements.
5
Consolidated Statement of Stockholders’ Equity
(unaudited)
Common Stock | Treasury Stock | |||||||||||||||||||||||||||||||||||||||
Shares | Amount | Capital in Excess of Par Value | Retained Earnings | Accumulated Other Comprehensive Loss | Shares | Amount | Trinity Stockholders’ Equity | Noncontrolling Interest | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||||||||||
Balances at December 31, 2011 | 81.7 | $ | 81.7 | $ | 626.5 | $ | 1,314.7 | $ | (134.0 | ) | (1.5 | ) | $ | (25.1 | ) | $ | 1,863.8 | $ | 84.5 | $ | 1,948.3 | |||||||||||||||||||
Net income | — | — | — | 52.9 | — | — | — | 52.9 | (0.6 | ) | 52.3 | |||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | 3.0 | — | — | 3.0 | 0.5 | 3.5 | ||||||||||||||||||||||||||||||
Cash dividends on common stock | — | — | — | (7.2 | ) | — | — | — | (7.2 | ) | — | (7.2 | ) | |||||||||||||||||||||||||||
Restricted shares issued, net | — | — | 6.2 | — | — | 0.0 | 0.0 | 6.2 | — | 6.2 | ||||||||||||||||||||||||||||||
Stock options exercised | — | — | 0.5 | — | — | 0.1 | 0.2 | 0.7 | — | 0.7 | ||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | 0.5 | — | — | — | — | 0.5 | — | 0.5 | ||||||||||||||||||||||||||||||
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Balances at March 31, 2012 | 81.7 | $ | 81.7 | $ | 633.7 | $ | 1,360.4 | $ | (131.0 | ) | (1.4 | ) | $ | (24.9 | ) | $ | 1,919.9 | $ | 84.4 | $ | 2,004.3 | |||||||||||||||||||
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See accompanying notes to consolidated financial statements.
Trinity Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The foregoing consolidated financial statements are unaudited and have been prepared from the books and records of Trinity Industries, Inc. and its subsidiaries (“Trinity”, “Company”, “we”, or “our”) including its majority-owned subsidiary, TRIP Rail Holdings LLC (“TRIP Holdings”). In our opinion, all normal and recurring adjustments necessary for a fair presentation of the financial position of the Company as of September 30, 2011,March 31, 2012, and the results of operations for the three and nine month periods ended September 30, 2011 and 2010, and cash flows for the ninethree month periods ended September 30,March 31, 2012 and 2011, and 2010, have been made in conformity with generally accepted accounting principles. Because of seasonal and other factors, the results of operations for the ninethree month period ended September 30, 2011March 31, 2012 may not be indicative of expected results of operations for the year ending December 31, 2011.2012. 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 included in its Form 10-K for the year ended December 31, 2010.
Stockholders’ Equity
In December 9, 2010, the Company’s Board of Directors authorized a new $200 million share repurchase program, effective January 1, 2011. This program replaced the Company’s previous share repurchase program and2011, which expires on December 31, 2012. No shares were repurchased under this program during the ninethree months ended September 30, 2011.
Recent Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-05, “Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income,” (“ASU 2011-05”) which amendsamended current comprehensive income guidance. This accounting update eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity. Instead, the Company must report comprehensive income in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. ASU 2011-05 will bebecame effective for public companies during the interim and annual periods beginning after Dec. 15, 2011 with early adoption permitted. Accordingly, the Company adopted this new standard on January 1, 2012 by including the consolidated statement of comprehensive income with its consolidated financial statements and revising Note 13 Accumulated Other Comprehensive Loss. The adoption of ASU 2011-05 willdid not have an impact on the Company’s consolidated financial position, results of operations or cash flows as it only requires a change in reporting format with regard to components of other comprehensive income.
Reclassifications
Effective December 31, 2011, the formatCompany adopted the emerging industry policy of recognizing revenue from the current presentation.
Three Months Ended | Nine Months Ended | |||||||
September 30, 2011 | September 30, 2011 | |||||||
(in millions) | ||||||||
Acquisitions: | ||||||||
Purchase price | $ | 32.8 | $ | 56.4 | ||||
Net cash paid | $ | 27.2 | $ | 42.5 | ||||
Goodwill recorded | $ | 22.3 | $ | 29.3 | ||||
Divestitures: | ||||||||
Proceeds | $ | — | $ | 8.3 | ||||
Gain recognized | $ | — | $ | 0.7 | ||||
Goodwill charged off | $ | — | $ | 1.0 |
6March 31, 2011.
Note 3.2. Fair Value Accounting
Assets and liabilities measured at fair value on a recurring basis are summarized below:
Fair Value Measurement as of September 30, 2011 | ||||||||||||||||
(in millions) | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Cash equivalents | $ | 162.0 | $ | — | $ | — | $ | 162.0 | ||||||||
Restricted cash | 229.4 | — | — | 229.4 | ||||||||||||
Equity call agreement with TRIP Holdings equity investor(3) | — | — | 0.7 | 0.7 | ||||||||||||
Total assets | $ | 391.4 | $ | — | $ | 0.7 | $ | 392.1 | ||||||||
Liabilities: | ||||||||||||||||
Interest rate hedges(1) | ||||||||||||||||
Wholly-owned subsidiary | $ | — | $ | 52.4 | $ | — | $ | 52.4 | ||||||||
TRIP Holdings | — | 4.7 | — | 4.7 | ||||||||||||
Equity put agreement with TRIP Holdings equity investor(2) | — | — | 3.1 | 3.1 | ||||||||||||
Total liabilities | $ | — | $ | 57.1 | $ | 3.1 | $ | 60.2 | ||||||||
Fair Value Measurement as of December 31, 2010 | ||||||||||||||||
(in millions) | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Cash equivalents | $ | 286.0 | $ | — | $ | — | $ | 286.0 | ||||||||
Short-term marketable securities | 158.0 | — | — | 158.0 | ||||||||||||
Restricted cash | 207.1 | — | — | 207.1 | ||||||||||||
Fuel derivative instruments(3) | — | 0.1 | — | 0.1 | ||||||||||||
Total assets | $ | 651.1 | $ | 0.1 | $ | — | $ | 651.2 | ||||||||
Liabilities: | ||||||||||||||||
Interest rate hedges(1) | ||||||||||||||||
Wholly-owned subsidiary | $ | — | $ | 45.7 | $ | — | $ | 45.7 | ||||||||
TRIP Holdings | — | 48.3 | — | 48.3 | ||||||||||||
Total liabilities | $ | — | $ | 94.0 | $ | — | $ | 94.0 | ||||||||
Fair Value Measurement as of March 31, 2012 | ||||||||||||||||
(in millions) | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Cash equivalents | $ | 134.8 | $ | — | $ | — | $ | 134.8 | ||||||||
Restricted cash | 224.0 | — | — | 224.0 | ||||||||||||
Equity call agreement with TRIP Holdings equity investor1 | — | — | 0.7 | 0.7 | ||||||||||||
Fuel derivative instruments1 | — | 0.1 | — | 0.1 | ||||||||||||
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Total assets | $ | 358.8 | $ | 0.1 | $ | 0.7 | $ | 359.6 | ||||||||
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Liabilities: | ||||||||||||||||
Interest rate hedges2 | ||||||||||||||||
Wholly-owned subsidiary | $ | — | $ | 46.2 | $ | — | $ | 46.2 | ||||||||
TRIP Holdings | — | 4.2 | — | 4.2 | ||||||||||||
Equity put agreement with TRIP Holdings equity investor3 | — | — | 2.6 | 2.6 | ||||||||||||
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Total liabilities | $ | — | $ | 50.4 | $ | 2.6 | $ | 53.0 | ||||||||
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Fair Value Measurement as of December 31, 2011 | ||||||||||||||||
(in millions) | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets: | ||||||||||||||||
Cash equivalents | $ | 246.6 | $ | — | $ | — | $ | 246.6 | ||||||||
Restricted cash | 240.3 | — | — | 240.3 | ||||||||||||
Equity call agreement with TRIP Holdings equity investor1 | — | — | 0.7 | 0.7 | ||||||||||||
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Total assets | $ | 486.9 | $ | — | $ | 0.7 | $ | 487.6 | ||||||||
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Liabilities: | ||||||||||||||||
Interest rate hedges2 | ||||||||||||||||
Wholly-owned subsidiary | $ | — | $ | 48.9 | $ | — | $ | 48.9 | ||||||||
TRIP Holdings | — | 4.8 | — | 4.8 | ||||||||||||
Equity put agreement with TRIP Holdings equity investor3 | — | — | 3.1 | 3.1 | ||||||||||||
Fuel derivative instruments2 | — | 0.1 | — | 0.1 | ||||||||||||
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Total liabilities | $ | — | $ | 53.8 | $ | 3.1 | $ | 56.9 | ||||||||
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1 | Included in other assets on the consolidated balance sheet. |
2 | ||
Included in accrued liabilities on the consolidated balance sheet. |
Included in other liabilities on the consolidated balance sheet. | ||
September 30, 2011 | December 31, 2010 | |||||||||||||||
Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | |||||||||||||
(in millions) | ||||||||||||||||
Recourse: | ||||||||||||||||
Convertible subordinated notes | $ | 450.0 | $ | 416.3 | $ | 450.0 | $ | 448.3 | ||||||||
Less: unamortized discount | (102.7 | ) | (111.1 | ) | ||||||||||||
347.3 | 338.9 | |||||||||||||||
Capital lease obligations | 49.2 | 49.2 | 51.2 | 51.2 | ||||||||||||
Term loan | 55.4 | 56.4 | 57.4 | 54.2 | ||||||||||||
Other | 4.4 | 4.4 | 2.8 | 2.8 | ||||||||||||
456.3 | 526.3 | 450.3 | 556.5 | |||||||||||||
Non-recourse: | ||||||||||||||||
2006 secured railcar equipment notes | 271.7 | 281.2 | 283.2 | 302.8 | ||||||||||||
Promissory notes | 471.5 | 456.4 | 493.8 | 482.2 | ||||||||||||
2009 secured railcar equipment notes | 220.9 | 231.9 | 229.2 | 256.1 | ||||||||||||
2010 secured railcar equipment notes | 357.5 | 335.8 | 367.1 | 345.5 | ||||||||||||
TILC warehouse facility | 280.7 | 280.7 | 80.2 | 80.2 | ||||||||||||
TRIP Holdings senior secured notes | 63.0 | 63.0 | — | — | ||||||||||||
TRIP Master Funding secured railcar equipment notes | 850.3 | 844.9 | — | — | ||||||||||||
TRIP Holdings warehouse loan | — | — | 1,003.9 | 994.0 | ||||||||||||
2,515.6 | 2,493.9 | 2,457.4 | 2,460.8 | |||||||||||||
Total | $ | 2,971.9 | $ | 3,020.2 | $ | 2,907.7 | $ | 3,017.3 | ||||||||
7
Level 1 —– This level is defined as quoted prices in active markets for identical assets or liabilities. The Company’s cash equivalents short-term marketable securities, and restricted cash are instruments of the United States Treasury fully-insured certificates of deposit or highly-rated money market mutual funds.
Level 2 —– This level is defined as observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The Company’s fuel derivative instruments, which are commodity options, are valued using energy and commodity market data. Interest rate hedges are valued at exit prices obtained from each counterparty. See Note 76 Derivative Instruments and Note 119 Debt.
Level 3 —– This level is defined as unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The equity put and call agreements with the TRIP equity investor are valued based on cash flow projections and certain assumptions regarding the likelihood of exercising the option under the related agreement. See Note 65 Investment in TRIP Holdings.
The carrying amounts and estimated fair values of our long-term debt were as follows:
March 31, 2012 | December 31, 2011 | |||||||||||||||
Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | |||||||||||||
(in millions) | ||||||||||||||||
Recourse: | ||||||||||||||||
Convertible subordinated notes | $ | 450.0 | $ | 490.4 | $ | 450.0 | $ | 439.4 | ||||||||
Less: unamortized discount | (96.8 | ) | (99.8 | ) | ||||||||||||
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353.2 | 350.2 | |||||||||||||||
Capital lease obligations | 47.9 | 47.9 | 48.6 | 48.6 | ||||||||||||
Term loan | 54.0 | 54.6 | 54.7 | 55.7 | ||||||||||||
Other | 6.1 | 6.1 | 4.2 | 4.2 | ||||||||||||
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461.2 | 599.0 | 457.7 | 547.9 | |||||||||||||
Non-recourse: | ||||||||||||||||
2006 secured railcar equipment notes | 266.0 | 283.0 | 269.3 | 278.5 | ||||||||||||
Promissory notes | 459.3 | 443.1 | 465.5 | 448.6 | ||||||||||||
2009 secured railcar equipment notes | 216.2 | 240.3 | 218.4 | 228.6 | ||||||||||||
2010 secured railcar equipment notes | 351.3 | 354.2 | 354.3 | 333.1 | ||||||||||||
TILC warehouse facility | 282.7 | 282.7 | 308.5 | 308.5 | ||||||||||||
TRIP Holdings senior secured notes | 61.2 | 62.2 | 61.2 | 61.6 | ||||||||||||
TRIP Master Funding secured railcar equipment notes | 829.6 | 890.8 | 840.0 | 834.9 | ||||||||||||
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2,466.3 | 2,556.3 | 2,517.2 | 2,493.8 | |||||||||||||
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Total | $ | 2,927.5 | $ | 3,155.3 | $ | 2,974.9 | $ | 3,041.7 | ||||||||
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The estimated fair value of our convertible subordinated notes was based on a quoted market price as of March 31, 2012 and December 31, 2011, respectively (level 1 input). The estimated fair values of our 2006, 2009, and 2010 secured railcar equipment notes, promissory notes, TRIP Holdings senior secured notes, TRIP Master Funding secured railcar equipment notes, and term loan are based on our estimate of their fair value as of March 31, 2012 and December 31, 2011, respectively. These values were determined by discounting their future cash flows at the current market interest rate (level 3 inputs). The carrying value of our Trinity Industries Leasing Company (“TILC”) warehouse facility approximates fair value because the interest rate adjusts to the market interest rate and the Company’s credit rating has not changed since the loan agreement was renewed in February 2011 (level 3 input). The fair values of all other financial instruments are estimated to approximate carrying value.
Note 4.3. Segment Information
The Company reports operating results in five principal business segments: (1) the Rail Group, which manufactures and sells railcars and related parts and components; (2) the Construction Products Group, which manufactures and sells highway products and concrete and aggregates; (3) the Inland Barge Group, which manufactures and sells barges and related products for inland waterway services; (4) the Energy Equipment Group, which manufactures and sells products for energy related businesses, including structural wind towers, tank containers and tank heads for pressure and non-pressure vessels, propanefrac tanks, and utility, traffic, and lighting structures; and (5) the Railcar Leasing and Management Services Group (“Leasing Group”), which provides fleet management, maintenance, and leasing services. The segment All Other includes our captive insurance and transportation companies; legal, environmental, and upkeepmaintenance costs associated with non-operating facilities; other peripheral businesses; and the change in market valuation related to ineffective commodity hedges. Gains and losses from the sale of property, plant, and equipment which are related to manufacturing and dedicated to the specific manufacturing operations of a particular segment are recordedincluded in the cost of revenuesoperating profit of that respective segment. Gains and losses from the sale of property, plant, and equipment whichthat can be utilized by multiple segments are recordedincluded in the cost of revenuesoperating profit of the All Other segment.
Sales and related net profits from the Rail Group to the Leasing Group are recorded in the Rail Group and eliminated in consolidation. Sales between these groups are recorded at prices comparable to those charged to external customers taking into consideration quantity, features, and production demand. Amortization of deferred profit on railcars sold to the Leasing Group is included in the operating profits of the Leasing Group. Sales of railcars from the lease fleet are included in the Leasing Group.
The financial information for these segments is shown in the tables below. We operate principally in North America.
8
Revenues | Operating | |||||||||||||||
Profit | ||||||||||||||||
External | Intersegment | Total | (Loss) | |||||||||||||
(in millions) | ||||||||||||||||
Rail Group | $ | 227.7 | $ | 93.2 | $ | 320.9 | $ | 18.2 | ||||||||
Construction Products Group | 161.1 | 3.7 | 164.8 | 17.8 | ||||||||||||
Inland Barge Group | 143.2 | — | 143.2 | 26.0 | ||||||||||||
Energy Equipment Group | 107.3 | 4.3 | 111.6 | (1.9 | ) | |||||||||||
Railcar Leasing and Management Services Group | 153.1 | — | 153.1 | 64.2 | ||||||||||||
All Other | 4.4 | 13.6 | 18.0 | (0.3 | ) | |||||||||||
Corporate | — | — | — | (11.5 | ) | |||||||||||
Eliminations — Lease subsidiary | — | (87.9 | ) | (87.9 | ) | (8.1 | ) | |||||||||
Eliminations — Other | — | (26.9 | ) | (26.9 | ) | 1.0 | ||||||||||
Consolidated Total | $ | 796.8 | $ | — | $ | 796.8 | $ | 105.4 | ||||||||
Revenues | Operating | |||||||||||||||
Profit | ||||||||||||||||
External | Intersegment | Total | (Loss) | |||||||||||||
(in millions) | ||||||||||||||||
Rail Group | $ | 341.2 | $ | 125.9 | $ | 467.1 | $ | 40.1 | ||||||||
Construction Products Group | 149.6 | 5.4 | 155.0 | 10.8 | ||||||||||||
Inland Barge Group | 169.4 | — | 169.4 | 30.0 | ||||||||||||
Energy Equipment Group | 120.1 | 4.9 | 125.0 | (3.8 | ) | |||||||||||
Railcar Leasing and Management Services Group | 142.1 | 0.2 | 142.3 | 66.5 | ||||||||||||
All Other | 2.9 | 12.8 | 15.7 | 1.2 | ||||||||||||
Corporate | — | — | — | (11.6 | ) | |||||||||||
Eliminations – Lease subsidiary | — | (122.6 | ) | (122.6 | ) | (10.9 | ) | |||||||||
Eliminations – Other | — | (26.6 | ) | (26.6 | ) | 0.1 | ||||||||||
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Consolidated Total | $ | 925.3 | $ | — | $ | 925.3 | $ | 122.4 | ||||||||
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Three Months Ended September 30, 2010
Revenues | Operating | |||||||||||||||
Profit | ||||||||||||||||
External | Intersegment | Total | (Loss) | |||||||||||||
(in millions) | ||||||||||||||||
Rail Group | $ | 57.3 | $ | 73.7 | $ | 131.0 | $ | 3.3 | ||||||||
Construction Products Group | 155.7 | 4.7 | 160.4 | 20.3 | ||||||||||||
Inland Barge Group | 98.9 | — | 98.9 | 22.4 | ||||||||||||
Energy Equipment Group | 103.0 | 3.6 | 106.6 | 6.0 | ||||||||||||
Railcar Leasing and Management Services Group | 122.1 | — | 122.1 | 52.9 | ||||||||||||
All Other | 3.0 | 9.4 | 12.4 | (1.3 | ) | |||||||||||
Corporate | — | — | — | (9.6 | ) | |||||||||||
Eliminations — Lease subsidiary | — | (69.6 | ) | (69.6 | ) | (0.9 | ) | |||||||||
Eliminations — Other | — | (21.8 | ) | (21.8 | ) | (1.2 | ) | |||||||||
Consolidated Total | $ | 540.0 | $ | — | $ | 540.0 | $ | 91.9 | ||||||||
Revenues | Operating | |||||||||||||||
Profit | ||||||||||||||||
External | Intersegment | Total | (Loss) | |||||||||||||
(in millions) | ||||||||||||||||
Rail Group | $ | 556.0 | $ | 265.4 | $ | 821.4 | $ | 42.9 | ||||||||
Construction Products Group | 439.2 | 8.5 | 447.7 | 42.2 | ||||||||||||
Inland Barge Group | 398.9 | — | 398.9 | 66.8 | ||||||||||||
Energy Equipment Group | 335.6 | 12.2 | 347.8 | 9.8 | ||||||||||||
Railcar Leasing and Management Services Group | 413.3 | — | 413.3 | 178.6 | ||||||||||||
All Other | 8.5 | 36.9 | 45.4 | (0.8 | ) | |||||||||||
Corporate | — | — | — | (30.6 | ) | |||||||||||
Eliminations — Lease subsidiary | — | (252.8 | ) | (252.8 | ) | (23.3 | ) | |||||||||
Eliminations — Other | — | (70.2 | ) | (70.2 | ) | 0.7 | ||||||||||
Consolidated Total | $ | 2,151.5 | $ | — | $ | 2,151.5 | $ | 286.3 | ||||||||
9
Revenues | Operating | |||||||||||||||
Profit | ||||||||||||||||
External | Intersegment | Total | (Loss) | |||||||||||||
(in millions) | ||||||||||||||||
Rail Group | $ | 131.0 | $ | 88.8 | $ | 219.8 | $ | 9.3 | ||||||||
Construction Products Group | 130.1 | 3.5 | 133.6 | 8.3 | ||||||||||||
Inland Barge Group | 137.9 | — | 137.9 | 21.7 | ||||||||||||
Energy Equipment Group | 113.2 | 5.5 | 118.7 | 10.5 | ||||||||||||
Railcar Leasing and Management Services Group | 119.8 | — | 119.8 | 54.7 | ||||||||||||
All Other | 2.2 | 10.9 | 13.1 | (0.3 | ) | |||||||||||
Corporate | — | — | — | (10.7 | ) | |||||||||||
Eliminations – Lease subsidiary | — | (85.4 | ) | (85.4 | ) | (8.1 | ) | |||||||||
Eliminations – Other | — | (23.3 | ) | (23.3 | ) | 0.1 | ||||||||||
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Consolidated Total | $ | 634.2 | $ | — | $ | 634.2 | $ | 85.5 | ||||||||
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Effective December 31, 2011, the Company adopted the emerging industry policy of recognizing revenue from the sales of railcars from the lease fleet on a gross basis in leasing revenues and cost of revenues if the railcar has been owned by the lease fleet for one year or less at the time of sale. Sales of railcars from the lease fleet which have been owned by the lease fleet for more than one year are recognized as a net gain or loss from the disposal of a long-term asset. Prior year reported balances have been reclassified to conform to this policy.
Revenues | Operating | |||||||||||||||
Profit | ||||||||||||||||
External | Intersegment | Total | (Loss) | |||||||||||||
(in millions) | ||||||||||||||||
Rail Group | $ | 131.6 | $ | 185.9 | $ | 317.5 | $ | (7.3 | ) | |||||||
Construction Products Group | 433.0 | 16.7 | 449.7 | 40.7 | ||||||||||||
Inland Barge Group | 295.8 | — | 295.8 | 52.2 | ||||||||||||
Energy Equipment Group | 304.8 | 7.2 | 312.0 | 29.9 | ||||||||||||
Railcar Leasing and Management Services Group | 362.9 | — | 362.9 | 150.3 | ||||||||||||
All Other | 9.0 | 25.5 | 34.5 | (6.0 | ) | |||||||||||
Corporate | — | — | — | (28.6 | ) | |||||||||||
Eliminations — Lease subsidiary | — | (173.5 | ) | (173.5 | ) | (6.4 | ) | |||||||||
Eliminations — Other | — | (61.8 | ) | (61.8 | ) | (2.0 | ) | |||||||||
Consolidated Total | $ | 1,537.1 | $ | — | $ | 1,537.1 | $ | 222.8 | ||||||||
Note 5.4. Railcar Leasing and Management Services Group
The Railcar Leasing and Management Services Group provides fleet management, maintenance, and leasing services. Selected consolidating financial information for the Leasing Group is as follows:
September 30, 2011 | ||||||||||||||||
Leasing Group | ||||||||||||||||
Wholly- Owned | TRIP | Manufacturing/ | ||||||||||||||
Subsidiaries | Holdings | Corporate | Total | |||||||||||||
(in millions, unaudited) | ||||||||||||||||
Cash, cash equivalents, and short-term marketable securities | $ | 4.2 | $ | — | $ | 268.6 | $ | 272.8 | ||||||||
Property, plant, and equipment, net | $ | 3,104.5 | $ | 1,157.9 | $ | 510.8 | $ | 4,773.2 | ||||||||
Net deferred profit on railcars sold to the Leasing Group | (351.5 | ) | (190.7 | ) | — | (542.2 | ) | |||||||||
$ | 2,753.0 | $ | 967.2 | $ | 510.8 | $ | 4,231.0 | |||||||||
Restricted cash | $ | 167.9 | $ | 61.5 | $ | — | $ | 229.4 | ||||||||
Debt: | ||||||||||||||||
Recourse | $ | 104.6 | $ | — | $ | 454.4 | $ | 559.0 | ||||||||
Less: unamortized discount | — | — | (102.7 | ) | (102.7 | ) | ||||||||||
104.6 | — | 351.7 | 456.3 | |||||||||||||
Non-recourse | 1,602.3 | 1,025.3 | — | 2,627.6 | ||||||||||||
Less: non-recourse debt owned by Trinity | — | (112.0 | ) | — | (112.0 | ) | ||||||||||
Total debt | $ | 1,706.9 | $ | 913.3 | $ | 351.7 | $ | 2,971.9 |
December 31, 2010 | ||||||||||||||||
Leasing Group | ||||||||||||||||
Wholly- Owned | TRIP | Manufacturing/ | ||||||||||||||
Subsidiaries | Holdings | Corporate | Total | |||||||||||||
(in millions) | ||||||||||||||||
Cash, cash equivalents, and short-term marketable securities | $ | 3.8 | $ | — | $ | 508.2 | $ | 512.0 | ||||||||
Property, plant, and equipment, net | $ | 2,965.4 | $ | 1,191.8 | $ | 491.4 | $ | 4,648.6 | ||||||||
Net deferred profit on railcars sold to the Leasing Group | (340.4 | ) | (196.2 | ) | — | (536.6 | ) | |||||||||
$ | 2,625.0 | $ | 995.6 | $ | 491.4 | $ | 4,112.0 | |||||||||
Restricted cash | $ | 161.1 | $ | 46.0 | $ | — | $ | 207.1 | ||||||||
Debt: | ||||||||||||||||
Recourse | $ | 108.6 | $ | — | $ | 452.8 | $ | 561.4 | ||||||||
Less: unamortized discount | — | — | (111.1 | ) | (111.1 | ) | ||||||||||
108.6 | — | 341.7 | 450.3 | |||||||||||||
Non-recourse | 1,453.5 | 1,003.9 | — | 2,457.4 | ||||||||||||
Total debt | $ | 1,562.1 | $ | 1,003.9 | $ | 341.7 | $ | 2,907.7 |
March 31, 2012 | ||||||||||||||||
Leasing Group | ||||||||||||||||
Wholly- Owned Subsidiaries | TRIP Holdings | Manufacturing/ Corporate | Total | |||||||||||||
(in millions, unaudited) | ||||||||||||||||
Cash and cash equivalents | $ | 3.7 | $ | — | $ | 301.1 | $ | 304.8 | ||||||||
Property, plant, and equipment, net | $ | 3,108.6 | $ | 1,142.7 | $ | 500.4 | $ | 4,751.7 | ||||||||
Net deferred profit on railcars sold to the Leasing Group | (348.0 | ) | (186.4 | ) | — | (534.4 | ) | |||||||||
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| |||||||||
$ | 2,760.6 | $ | 956.3 | $ | 500.4 | $ | 4,217.3 | |||||||||
Restricted cash | $ | 164.8 | $ | 59.2 | $ | — | $ | 224.0 | ||||||||
Debt: | ||||||||||||||||
Recourse | $ | 101.9 | $ | — | $ | 456.1 | $ | 558.0 | ||||||||
Less: unamortized discount | — | — | (96.8 | ) | (96.8 | ) | ||||||||||
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|
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| |||||||||
101.9 | — | 359.3 | 461.2 | |||||||||||||
Non-recourse | 1,575.5 | 999.6 | — | 2,575.1 | ||||||||||||
Less: non-recourse debt owned by Trinity | — | (108.8 | ) | — | (108.8 | ) | ||||||||||
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|
| |||||||||
Total debt | $ | 1,677.4 | $ | 890.8 | $ | 359.3 | $ | 2,927.5 | ||||||||
Net deferred tax liabilities | $ | 557.9 | $ | 4.6 | $ | (97.0 | ) | $ | 465.5 |
December 31, 2011 | ||||||||||||||||
Leasing Group | ||||||||||||||||
Wholly- Owned Subsidiaries | TRIP Holdings | Manufacturing/ Corporate | Total | |||||||||||||
(in millions) | ||||||||||||||||
Cash and cash equivalents | $ | 3.2 | $ | — | $ | 347.9 | $ | 351.1 | ||||||||
Property, plant, and equipment, net | $ | 3,066.0 | $ | 1,135.0 | $ | 510.0 | $ | 4,711.0 | ||||||||
Net deferred profit on railcars sold to the Leasing Group | (344.5 | ) | (187.0 | ) | — | (531.5 | ) | |||||||||
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| |||||||||
$ | 2,721.5 | $ | 948.0 | $ | 510.0 | $ | 4,179.5 | |||||||||
Restricted cash | $ | 165.7 | $ | 74.6 | $ | — | $ | 240.3 | ||||||||
Debt: | ||||||||||||||||
Recourse | $ | 103.3 | $ | — | $ | 454.2 | $ | 557.5 | ||||||||
Less: unamortized discount | — | — | (99.8 | ) | (99.8 | ) | ||||||||||
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| |||||||||
103.3 | — | 354.4 | 457.7 | |||||||||||||
Non-recourse | 1,616.0 | 1,010.0 | — | 2,626.0 | ||||||||||||
Less: non-recourse debt owned by Trinity | — | (108.8 | ) | — | (108.8 | ) | ||||||||||
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| |||||||||
Total debt | $ | 1,719.3 | $ | 901.2 | $ | 354.4 | $ | 2,974.9 | ||||||||
Net deferred tax liabilities | $ | 582.4 | $ | 4.7 | $ | (152.4 | ) | $ | 434.7 |
See Note 65 Investment in TRIP Holdings and Note 119 Debt for a further discussion regarding the Company’s investment in TRIP Holdings and TRIP Holdings’ debt.
10
Three Months Ended March 31, | ||||||||||||
2012 | 2011 | Percent | ||||||||||
($ in millions) | Change | |||||||||||
Revenues: | ||||||||||||
Wholly owned subsidiaries: | ||||||||||||
Leasing and management | $ | 98.3 | $ | 90.3 | 8.9 | % | ||||||
Railcar sales(1) | 14.9 | — | * | |||||||||
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| |||||||||
113.2 | 90.3 | 25.4 | ||||||||||
TRIP Holdings: | ||||||||||||
Leasing and management | 29.1 | 29.5 | (1.4 | ) | ||||||||
Railcar sales(1) | — | — | — | |||||||||
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| |||||||||
29.1 | 29.5 | (1.4 | ) | |||||||||
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| |||||||||
Total revenues | $ | 142.3 | $ | 119.8 | 18.8 | |||||||
Operating Profit: | ||||||||||||
Wholly owned subsidiaries: | ||||||||||||
Leasing and management | $ | 43.1 | $ | 36.5 | ||||||||
Railcar sales(1): | ||||||||||||
Railcars owned one year or less at the time of sale | 2.9 | — | ||||||||||
Railcars owned more than one year at the time of sale | 4.1 | 1.0 | ||||||||||
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| |||||||||
50.1 | 37.5 | |||||||||||
TRIP Holdings: | ||||||||||||
Leasing and management | 16.8 | 17.1 | ||||||||||
Railcar sales(1): | ||||||||||||
Railcars owned one year or less at the time of sale | — | — | ||||||||||
Railcars owned more than one year at the time of sale | (0.4 | ) | 0.1 | |||||||||
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| |||||||||
16.4 | 17.2 | |||||||||||
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| |||||||||
Total operating profit | $ | 66.5 | $ | 54.7 | ||||||||
Operating profit margin: | ||||||||||||
Leasing and management | 47.0 | % | 44.7 | % | ||||||||
Railcar sales(1) | * | * | ||||||||||
Total operating profit margin | 46.7 | 45.7 | ||||||||||
Interest and rent expense(2): | ||||||||||||
Rent expense | $ | 12.7 | $ | 12.1 | ||||||||
Interest expense: | ||||||||||||
Wholly-owned subsidiaries | $ | 24.6 | $ | 25.2 | ||||||||
TRIP Holdings: | ||||||||||||
External | 15.2 | 11.5 | ||||||||||
Intercompany | 3.3 | — | ||||||||||
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| |||||||||
18.5 | 11.5 | |||||||||||
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| |||||||||
Total interest expense | $ | 43.1 | $ | 36.7 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2011 | 2010 | Percent | 2011 | 2010 | Percent | |||||||||||||||||||
($ in millions) | Change | ($ in millions) | Change | |||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Wholly owned subsidiaries: | ||||||||||||||||||||||||
Leasing and management | $ | 94.6 | $ | 86.1 | 9.9 | % | $ | 277.8 | $ | 256.2 | 8.4 | % | ||||||||||||
Sales of cars from the lease fleet | 28.9 | 7.2 | (1) | 39.6 | 18.8 | (1) | ||||||||||||||||||
123.5 | 93.3 | 32.4 | 317.4 | 275.0 | 15.4 | |||||||||||||||||||
TRIP Holdings: | ||||||||||||||||||||||||
Leasing and management | 29.2 | 28.8 | 1.4 | 87.4 | 87.0 | 0.5 | ||||||||||||||||||
Sales of cars from the lease fleet | 0.4 | — | (1) | 8.5 | 0.9 | (1) | ||||||||||||||||||
29.6 | 28.8 | 2.8 | 95.9 | 87.9 | 9.1 | |||||||||||||||||||
Total revenues | $ | 153.1 | $ | 122.1 | 25.4 | $ | 413.3 | $ | 362.9 | 13.9 | ||||||||||||||
Operating Profit: | ||||||||||||||||||||||||
Wholly owned subsidiaries: | ||||||||||||||||||||||||
Leasing and management | $ | 40.3 | $ | 34.3 | $ | 116.3 | $ | 94.9 | ||||||||||||||||
Sales of cars from the lease fleet | 6.5 | 2.3 | 10.9 | 4.5 | ||||||||||||||||||||
46.8 | 36.6 | 127.2 | 99.4 | |||||||||||||||||||||
TRIP Holdings: | ||||||||||||||||||||||||
Leasing and management | 17.4 | 16.3 | 51.3 | 50.9 | ||||||||||||||||||||
Sales of cars from the lease fleet | — | — | 0.1 | — | ||||||||||||||||||||
17.4 | 16.3 | 51.4 | 50.9 | |||||||||||||||||||||
Total operating profit | $ | 64.2 | $ | 52.9 | $ | 178.6 | $ | 150.3 | ||||||||||||||||
Operating profit margin: | ||||||||||||||||||||||||
Leasing and management | 46.6 | % | 44.0 | % | 45.9 | % | 42.5 | % | ||||||||||||||||
Sales of cars from the lease fleet | 22.2 | 31.9 | 22.9 | 22.8 | ||||||||||||||||||||
Total operating profit margin | 41.9 | 43.3 | 43.2 | 41.4 | ||||||||||||||||||||
Interest and rent expense(2): | ||||||||||||||||||||||||
Rent expense | $ | 12.1 | $ | 12.2 | $ | 36.4 | $ | 36.5 | ||||||||||||||||
Interest expense | ||||||||||||||||||||||||
Wholly-owned subsidiaries | $ | 24.8 | $ | 21.6 | $ | 75.4 | $ | 67.2 | ||||||||||||||||
TRIP Holdings: | ||||||||||||||||||||||||
External | 15.3 | 11.7 | 37.6 | 35.3 | ||||||||||||||||||||
Intercompany | 3.2 | — | 3.2 | — | ||||||||||||||||||||
18.5 | $ | 11.7 | 40.8 | $ | 35.3 | |||||||||||||||||||
Total interest expense | $ | 43.3 | $ | 33.3 | $ | 116.2 | $ | 102.5 |
* | Not meaningful |
(1) | Effective December 31, 2011, the Company adopted the emerging industry policy of recognizing revenue from the sales of railcars from the lease fleet on a gross basis in leasing revenues and cost of revenues if the railcar has been owned by the lease fleet for one year or less at the time of sale. Sales of railcars from the lease fleet which have been owned by the lease fleet for more than one year are recognized as a net gain or loss from the disposal of a long-term asset. Prior year reported balances have been reclassified to conform to this policy. |
(2) | Rent expense is a component of operating profit. Interest expense is not a component of operating profit and includes the effect of hedges. Intercompany interest expense arises from Trinity’s ownership of a portion of TRIP Holdings’ Senior Secured Notes and is eliminated in consolidation. See Note |
Equipment consists primarily of railcars leased by third parties. The Leasing Group purchases equipment manufactured predominantly by the Rail Group and enters into lease contracts with third parties with terms generally ranging between one and twenty years. The Leasing Group primarily enters into operating leases. Future contractual minimum rental revenues on leases are as follows:
Remaining three | ||||||||||||||||||||||||||||
months | ||||||||||||||||||||||||||||
of 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | ||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||
Wholly-owned subsidiaries | $ | 66.5 | $ | 239.9 | $ | 191.8 | $ | 141.6 | $ | 108.9 | $ | 245.8 | $ | 994.5 | ||||||||||||||
TRIP Holdings | 26.4 | 91.5 | 60.8 | 40.2 | 33.3 | 83.3 | 335.5 | |||||||||||||||||||||
$ | 92.9 | $ | 331.4 | $ | 252.6 | $ | 181.8 | $ | 142.2 | $ | 329.1 | $ | 1,330.0 | |||||||||||||||
Remaining nine months of 2012 | 2013 | 2014 | 2015 | 2016 | Thereafter | Total | ||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||
Wholly-owned subsidiaries | $ | 200.4 | $ | 220.5 | $ | 168.5 | $ | 128.1 | $ | 92.7 | $ | 188.4 | $ | 998.6 | ||||||||||||||
TRIP Holdings | 71.4 | 69.3 | 48.8 | 39.6 | 33.1 | 62.6 | 324.8 | |||||||||||||||||||||
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| |||||||||||||||
$ | 271.8 | $ | 289.8 | $ | 217.3 | $ | 167.7 | $ | 125.8 | $ | 251.0 | $ | 1,323.4 | |||||||||||||||
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Debt.The Leasing Group’s debt at September 30, 2011March 31, 2012 consists of both recourse and non-recourse debt including debt owed by TRIP Holdings and its subsidiaries which is secured solely by the assets of TRIP Holdings.debt. As of September 30, 2011,March 31, 2012, Trinity’s wholly-owned subsidiaries included in the Leasing Group held equipment with a net book value of approximately $2,442.8$2,436.8 million that is pledged as collateral for Leasing Group debt held by those subsidiaries, including equipment with a net book value of $51.3$50.6 million securing capital lease obligations. The net book value of unpledged equipment at March 31, 2012 was $575.1 million. See Note 9 Debt regarding Leasing Group debt.
TRIP Holdings.Debt owed by TRIP Holdings and its subsidiaries is nonrecourse to Trinity and TILC and is secured solely by the consolidated assets of TRIP Holdings and the equity interests of TRIP Holdings. In July 2011, TRIP Holdings and its newly-formed subsidiary, TRIP Rail Master Funding LLC (“TRIP Master Funding”), issued $1,032.0 million in new debt and repaid all of the outstanding borrowings of the existing TRIP Warehouse Loan. TRIP Master Funding equipment with a net book value of $1,142.7 million, excluding deferred profit resulting from the sale of railcars to TRIP Master Funding, is pledged as collateral for the TRIP Master Funding debt. See Note 65 Investment in TRIP Holdings for a description of TRIP Holdings and Note 11 Debt for the form, maturities, and descriptions of Leasing Group debt.
11
These Leasing Group subsidiaries had total assets as of September 30, 2011March 31, 2012 of $222.9$214.6 million, including cash of $91.7$85.5 million and railcars of $98.3$96.5 million. The right, title, and interest in each sublease, cash, and railcars are pledged to collateralize the lease obligations to the Trusts and are included in the consolidated financial statements of the Company. Trinity does not guarantee the performance of the subsidiaries’ lease obligations. Certain ratios and cash deposits must be maintained by the Leasing Group’s subsidiaries in order for excess cash flow, as defined in the agreements, from the lease to third parties to be available to Trinity. Future operating lease obligations of the Leasing Group’s subsidiaries as well as future contractual minimum rental revenues related to these leases due to the Leasing Group are as follows:
Remaining | ||||||||||||||||||||||||||||
three months of 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | ||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||
Future operating lease obligations of Trusts’ railcars | $ | 10.6 | $ | 44.5 | $ | 45.7 | $ | 44.9 | $ | 43.2 | $ | 382.0 | $ | 570.9 | ||||||||||||||
Future contractual minimum rental revenues of Trusts’ railcars | $ | 15.2 | $ | 53.2 | $ | 37.5 | $ | 23.5 | $ | 17.7 | $ | 33.9 | $ | 181.0 |
Remaining nine months of 2012 | 2013 | 2014 | 2015 | 2016 | Thereafter | Total | ||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||
Future operating lease obligations of Trusts’ railcars | $ | 33.6 | $ | 45.6 | $ | 44.8 | $ | 43.1 | $ | 40.1 | $ | 341.3 | $ | 548.5 | ||||||||||||||
Future contractual minimum rental revenues of Trusts’ railcars | $ | 44.8 | $ | 44.2 | $ | 29.7 | $ | 22.2 | $ | 14.5 | $ | 26.1 | $ | 181.5 |
Operating Lease Obligations.Future amounts due as well as future contractual minimum rental revenues related to operating leases other than leases with the Trusts are as follows:
Remaining | ||||||||||||||||||||||||||||
three months of 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | ||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||
Future operating lease obligations | $ | 1.4 | $ | 5.6 | $ | 5.3 | $ | 5.2 | $ | 5.2 | $ | 16.1 | $ | 38.8 | ||||||||||||||
Future contractual minimum rental revenues | $ | 1.4 | $ | 5.2 | $ | 4.2 | $ | 3.7 | $ | 2.8 | $ | 7.0 | $ | 24.3 |
Remaining nine months of 2012 | 2013 | 2014 | 2015 | 2016 | Thereafter | Total | ||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||
Future operating lease obligations | $ | 6.5 | $ | 8.4 | $ | 8.3 | $ | 8.3 | $ | 8.1 | $ | 35.6 | $ | 75.2 | ||||||||||||||
Future contractual minimum rental revenues | $ | 7.4 | $ | 9.1 | $ | 8.6 | $ | 5.1 | $ | 4.3 | $ | 7.6 | $ | 42.1 |
Operating lease obligations totaling $31.2$29.2 million are guaranteed by Trinity Industries, Inc. and certain subsidiaries.
See Note 5 of the December 31, 20102011 Consolidated Financial Statements filed on Form 10-K for a detailed explanation of these financing transactions.
Note 6.5. Investment in TRIP Holdings
In 2007, the Company and other third-party equity investors formed TRIP Holdings for the purpose of providing railcar leasing and management services in North America. TRIP Holdings, through its wholly-owned subsidiary, TRIP Rail Leasing LLC (“TRIP Leasing”), purchased railcars from the Company’s Rail and Leasing Groups funded by capital contributions from TRIP Holdings’ equity investors and borrowings under the TRIP Warehouse Loan, defined as such in Note 11 Debt.Loan. As of September 30, 2011,March 31, 2012, TRIP LeasingHoldings’ subsidiaries had purchased $1,284.7$1,325.2 million of railcars from the Company. Railcars purchased from the Company by TRIP LeasingHoldings’ subsidiaries were required to be purchased at prices comparable with the prices of all similar, new railcars sold contemporaneously by the Company and at prices based on third-party appraised values for used railcars.
In July 2011, as a result of refinancing TRIP Holdings’ previous credit facility, TRIP Holdings and its newly-formed subsidiary, TRIP Master Funding, issued $1,032.0 million in new debt. The debt was used by TRIP Master Funding to purchase all of the railcar equipment owned by TRIP Leasing which, in turn, repaid all outstanding borrowings under the existing TRIP credit facility and settled all outstanding related interest rate hedges. See Note 9 Debt regarding TRIP Holdings and its related debt. Additionally, Trinity entered into agreements with an equity investor of TRIP Holdings potentially requiring Trinity, under certain limited circumstances, to acquire from the equity investor an additional 16.3% equity ownership in TRIP Holdings if the option is exercised to its fullest extent. Under the agreement, if exercised, Trinity would be required to pay the equity investor an amount equal to 90% of the equity investor’s net investment in TRIP Holdings. Similarly, at its option, Trinity, under certain limited circumstances, may acquire all of the equity investor’s equity ownership in TRIP Holdings at an amount equal to 100% of the equity investor’s net investment in TRIP Holdings. The agreements expire in July 2014. See Note 2 Fair Value Accounting.
At March 31, 2012, the Company currently ownsowned 57% of TRIP Holdings with the remainder owned by three other third-party equity investors. The Company receives distributions from TRIP Holdings as an equity investor, when allowed, in proportion to its 57% equity interest, and has an interest in the net assets of TRIP Holdings upon a liquidation event in the same proportion. The terms of the Company’s equity investment are identical to the terms of each of the other equity investors. Other than as described further below,above, Trinity hashad no remaining equity commitment to TRIP Holdings as of September 30, 2011March 31, 2012 and hashad no obligation to guarantee performance under any TRIP-related debt agreements, guarantee any railcar residual values, shield any parties from losses, or guarantee minimum yields.
12
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Capital contributions | $ | 47.3 | $ | 47.3 | ||||
Equity purchased from investors | 44.8 | 44.8 | ||||||
92.1 | 92.1 | |||||||
Equity in earnings | 11.2 | 7.5 | ||||||
Equity in unrealized losses on derivative financial instruments | (1.9 | ) | (1.4 | ) | ||||
Distributions | (7.0 | ) | (7.0 | ) | ||||
Deferred broker fees | (0.6 | ) | (0.8 | ) | ||||
$ | 93.8 | $ | 90.4 | |||||
March 31, 2012 | December 31, 2011 | |||||||
(in millions) | ||||||||
Capital contributions | $ | 47.3 | $ | 47.3 | ||||
Equity purchased from investors | 44.8 | 44.8 | ||||||
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| |||||
92.1 | 92.1 | |||||||
Equity in earnings | 11.2 | 12.0 | ||||||
Equity in unrealized losses on derivative financial instruments | (0.6 | ) | (1.3 | ) | ||||
Distributions | (7.0 | ) | (7.0 | ) | ||||
Deferred broker fees | (0.5 | ) | (0.6 | ) | ||||
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| |||||
$ | 95.2 | $ | 95.2 | |||||
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|
Administrative fees paid to TILC by TRIP Holdings and subsidiaries for the three and nine month periods ended September 30,March 31, 2012 and 2011 were $1.2$1.3 million and $3.1 million, respectively, and $0.9 million, and $2.8 million, respectively, for the same periods last year.
See Note 6 of the December 31, 20102011 Consolidated Financial Statements filed on Form 10-K for additional information.
Note 7.6. Derivative Instruments
We use derivative instruments to mitigate the impact of changes in interest rates and pricing for zinc, natural gas, and diesel fuel prices, as well as to convert a portion of our variable-rate debt to fixed-rate debt. Additionally, we use derivative instruments to mitigate the impact of unfavorable fluctuations in foreign currency exchange rates. We also use derivatives to lock in fixed interest rates in anticipation of future debt issuances. Derivative instruments that are designated and qualify as cash flow hedges are accounted for in accordance with applicable accounting standards. See Note 32 Fair Value Accounting to the consolidated financial statements for discussion of how the Company valued its commodity hedges and interest rate swaps at September 30, 2011.
Interest rate hedges
Included in accompanying balance sheet | ||||||||||||||||||||
at September 30, 2011 | ||||||||||||||||||||
AOCL — | ||||||||||||||||||||
Notional | Interest | loss/ | Noncontrolling | |||||||||||||||||
Amount | Rate(1) | Liability | (income) | Interest | ||||||||||||||||
(in millions, except %) | ||||||||||||||||||||
Interest rate locks: | ||||||||||||||||||||
2005-2006 | $ | 200.0 | 4.87 | % | — | $ | (2.4 | ) | — | |||||||||||
2006-2007 | $ | 370.0 | 5.34 | % | — | $ | 11.4 | — | ||||||||||||
TRIP Holdings(2) | $ | 788.5 | 3.60 | % | — | $ | 24.2 | $ | 18.2 | |||||||||||
Interest rate swaps: | ||||||||||||||||||||
TRIP Rail Master Funding secured railcar equipment notes | $ | 92.3 | 2.62 | % | $ | 4.7 | $ | 2.6 | $ | 2.0 | ||||||||||
2008 debt issuance | $ | 482.1 | 4.13 | % | $ | 52.4 | $ | 50.9 | — |
Included in accompanying balance sheet at March 31, 2012 | ||||||||||||||||||||
Notional Amount | Interest Rate(1) | Liability | AOCL – loss/ (income) | Noncontrolling Interest | ||||||||||||||||
(in millions, except %) | ||||||||||||||||||||
Interest rate locks: | ||||||||||||||||||||
2005-2006 | $ | 200.0 | 4.87 | % | — | $ | (2.2 | ) | — | |||||||||||
2006-2007 | $ | 370.0 | 5.34 | % | — | $ | 9.7 | — | ||||||||||||
TRIP Holdings | $ | 788.5 | 3.60 | % | — | $ | 22.5 | $ | 16.9 | |||||||||||
Interest rate swaps: | ||||||||||||||||||||
TRIP Rail Master Funding secured railcar equipment notes | $ | 86.7 | 2.62 | % | $ | 4.2 | $ | 2.4 | $ | 1.8 | ||||||||||
2008 debt issuance | $ | 467.2 | 4.13 | % | $ | 46.2 | $ | 44.4 | — |
(1) | Weighted average fixed interest rate | |
13
Effect on interest expense – increase/(decrease) | ||||||||||||
Three Months Ended March 31, | Expected effect during next twelve months(1) | |||||||||||
2012 | 2011 | |||||||||||
(in millions) | ||||||||||||
Interest rate locks: | ||||||||||||
2005-2006 | $ | (0.1 | ) | $ | (0.1 | ) | $ | (0.3 | ) | |||
2006-2007 | $ | 0.9 | $ | 0.9 | $ | 3.3 | ||||||
TRIP Holdings | $ | 1.5 | $ | 7.3 | $ | 6.0 | ||||||
Interest rate swaps: | ||||||||||||
TRIP Rail Master Funding secured railcar equipment notes | $ | 0.5 | $ | — | $ | 1.9 | ||||||
2008 debt issuance | $ | 4.2 | $ | 4.5 | $ | 17.4 |
Effect on interest expense—increase/(decrease) | |||||||||||||||||||||
Expected effect | |||||||||||||||||||||
during next | |||||||||||||||||||||
Three Months Ended | Nine Months Ended | twelve | |||||||||||||||||||
September 30, | September 30, | months(1) | |||||||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||||||||
(in millions) | |||||||||||||||||||||
Interest rate locks: | |||||||||||||||||||||
2005-2006 | $ | (0.1 | ) | $ | (0.1 | ) | $ | (0.3 | ) | $ | (0.3 | ) | $ | (0.3 | ) | ||||||
2006-2007 | $ | 0.9 | $ | 0.9 | $ | 2.7 | $ | 2.8 | $ | 3.4 | |||||||||||
TRIP Holdings(2) | $ | 1.8 | $ | 7.2 | $ | 15.9 | $ | 22.0 | $ | 6.0 | |||||||||||
Interest rate swaps: | |||||||||||||||||||||
TILC warehouse | — | $ | 0.1 | — | $ | 0.5 | — | ||||||||||||||
TRIP Rail Master Funding secured railcar equipment notes | $ | 0.5 | $ | — | $ | 0.5 | $ | — | $ | 1.8 | |||||||||||
2008 debt issuance | $ | 4.6 | $ | 4.5 | $ | 14.3 | $ | 15.2 | $ | 17.6 |
(1) | Based on fair value as of |
During 2005 and 2006, we entered into interest rate swap transactions in anticipation of a future debt issuance. These instruments, with a notional amount of $200 million, fixed the interest rate on a portion of a future debt issuance associated with a railcar leasing transaction in 2006 and settled at maturity in the first quarter of 2006. These interest rate swaps were being accounted for as cash flow hedges with changes in the fair value of the instruments of $4.5 million in income recorded in accumulated other comprehensive loss (“AOCL”) through the date the related debt issuance closed in May 2006. The balance is being amortized over the term of the related debt. The effect on interest expense is due to amortization of the AOCL balance.
In anticipation of a future debt issuance, we entered into interest rate swap transactions during the fourth quarter of 2006 and during 2007. These instruments, with a notional amount of $370 million, hedged the interest rate on a portion of a future debt issuance associated with an anticipated railcar leasing transaction, which closed in May 2008. These instruments settled during the second quarter of 2008, and were accounted for as cash flow hedges with changes in the fair value of the instruments of $24.5 million recorded as a loss in AOCL through the date the related debt issuance closed in May 2008. The balance is being amortized over the term of the related debt. The effect on interest expense is due to amortization of the AOCL balance.
In May 2008, we entered into an interest rate swap transaction that is being used to fix the Libor component of the debt issuance which closed in May 2008. The effect on interest expense results primarily from monthly interest settlements.
Between 2007 and 2009, TRIP Holdings, as required by its warehouse loan agreement, entered into interest rate swap transactions, all of which qualified as cash flow hedges, to reduce the effect of changes in variable interest rates. In July 2011, these interest rate hedges were terminated in connection with the refinancing of the TRIP Warehouse Loan. Balances included in AOCL at the date the hedges were terminated are being amortized over the expected life of the new debt with $6.0 million of additional interest expense expected to be recognized during the next twelve months following September 30, 2011.March 31, 2012. Also in July 2011, TRIP Holdings’ wholly-owned subsidiary, TRIP Rail Master Funding, entered into an interest rate swap transaction with a notional amount of $94.1 million to reduce the effect of changes in variable interest rates associated with the Class A-1b secured railcar equipment notes.
See Note 119 Debt for a discussion ofregarding the related debt instruments.
Other Derivatives
Effect on operating income — increase/(decrease) | ||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||||
(in millions) | ||||||||||||||||||||
Fuel hedges(1) | ||||||||||||||||||||
Effect of mark to market valuation | $ | (0.2 | ) | $ | (0.0 | ) | $ | 0.0 | $ | (0.1 | ) | |||||||||
Settlements | 0.2 | (0.1 | ) | 0.3 | (0.1 | ) | ||||||||||||||
$ | — | $ | (0.1 | ) | $ | 0.3 | $ | (0.2 | ) | |||||||||||
Foreign exchange hedges(2) | $ | 0.6 | $ | (0.3 | ) | $ | 0.0 | $ | (0.6 | ) |
Effect on operating income – increase/(decrease) | ||||||||
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Fuel hedges(1) | ||||||||
Effect of mark to market valuation | $ | 0.1 | $ | 0.5 | ||||
Settlements | 0.1 | 0.0 | ||||||
|
|
|
| |||||
$ | 0.2 | $ | 0.5 | |||||
Foreign exchange hedges(2) | $ | (0.4 | ) | $ | (0.6 | ) |
(1) | Included in cost of revenues in the accompanying consolidated statement of |
(2) | Included in other, net in the accompanying consolidated statement of |
14
We maintain a program to mitigate the impact of fluctuations in the price of natural gas and diesel fuel purchases. The intent of the program is to protect our operating profit from adverse price changes by entering into derivative instruments. For those instruments that do not qualify for hedge accounting treatment, any changes in their valuation are recorded directly to the consolidated statement of operations. The amount recorded in the consolidated balance sheet as of September 30, 2011March 31, 2012 for these instruments was not significant.
Foreign exchange hedge
We enter into foreign exchange hedges to mitigate the impact on operating profit of unfavorable fluctuations in foreign currency exchange rates. These instruments are short term with quarterly maturities and no remaining balance in AOCL as of September 30, 2011.
Note 8.7. Property, Plant, and Equipment
The following table summarizes the components of property, plant, and equipment as of September 30, 2011March 31, 2012 and December 31, 2010.
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(as reported) | ||||||||
(in millions) | ||||||||
Manufacturing/Corporate: | ||||||||
Land | $ | 40.8 | $ | 40.9 | ||||
Buildings and improvements | 414.2 | 418.4 | ||||||
Machinery and other | 750.3 | 699.7 | ||||||
Construction in progress | 29.6 | 9.7 | ||||||
1,234.9 | 1,168.7 | |||||||
Less accumulated depreciation | (724.1 | ) | (677.3 | ) | ||||
510.8 | 491.4 | |||||||
Leasing: | ||||||||
Wholly-owned subsidiaries: | ||||||||
Machinery and other | 9.2 | 38.2 | ||||||
Equipment on lease | 3,447.3 | 3,249.8 | ||||||
3,456.5 | 3,288.0 | |||||||
Less accumulated depreciation | (352.0 | ) | (322.6 | ) | ||||
3,104.5 | 2,965.4 | |||||||
TRIP Holdings: | ||||||||
Equipment on lease | 1,273.5 | 1,282.1 | ||||||
Less accumulated depreciation | (115.6 | ) | (90.3 | ) | ||||
1,157.9 | 1,191.8 | |||||||
Net deferred profit on railcars sold to the Leasing Group | ||||||||
Sold to wholly-owned subsidiaries | (351.5 | ) | (340.4 | ) | ||||
Sold to TRIP Holdings | (190.7 | ) | (196.2 | ) | ||||
$ | 4,231.0 | $ | 4,112.0 | |||||
15
March 31, | December 31, | |||||||
2012 | 2011 | |||||||
(as reported) | ||||||||
(in millions) | ||||||||
Manufacturing/Corporate: | ||||||||
Land | $ | 41.6 | $ | 41.6 | ||||
Buildings and improvements | 430.2 | 429.7 | ||||||
Machinery and other | 746.4 | 758.7 | ||||||
Construction in progress | 17.3 | 12.8 | ||||||
|
|
|
| |||||
1,235.5 | 1,242.8 | |||||||
Less accumulated depreciation | (735.1 | ) | (732.8 | ) | ||||
|
|
|
| |||||
500.4 | 510.0 | |||||||
|
|
|
| |||||
Leasing: | ||||||||
Wholly-owned subsidiaries: | ||||||||
Machinery and other | 9.6 | 9.6 | ||||||
Equipment on lease | 3,497.2 | 3,429.3 | ||||||
|
|
|
| |||||
3,506.8 | 3,438.9 | |||||||
Less accumulated depreciation | (398.2 | ) | (372.9 | ) | ||||
|
|
|
| |||||
3,108.6 | 3,066.0 | |||||||
|
|
|
| |||||
TRIP Holdings: | ||||||||
Equipment on lease | 1,271.4 | 1,257.7 | ||||||
Less accumulated depreciation | (128.7 | ) | (122.7 | ) | ||||
|
|
|
| |||||
1,142.7 | 1,135.0 | |||||||
|
|
|
| |||||
Net deferred profit on railcars sold to the Leasing Group | ||||||||
Sold to wholly-owned subsidiaries | (348.0 | ) | (344.5 | ) | ||||
Sold to TRIP Holdings | (186.4 | ) | (187.0 | ) | ||||
|
|
|
| |||||
$ | 4,217.3 | $ | 4,179.5 | |||||
|
|
|
|
Note 8. Warranties
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(as reported) | ||||||||
(in millions) | ||||||||
Rail Group | $ | 122.5 | $ | 122.5 | ||||
Construction Products Group | 90.7 | 62.4 | ||||||
Energy Equipment Group | 10.9 | 10.9 | ||||||
Railcar Leasing and Management Services Group | 1.8 | 1.8 | ||||||
$ | 225.9 | $ | 197.6 | |||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in millions) | ||||||||||||||||
Beginning balance | $ | 12.0 | $ | 18.6 | $ | 13.2 | $ | 19.6 | ||||||||
Warranty costs incurred | (1.6 | ) | (1.0 | ) | (4.3 | ) | (3.2 | ) | ||||||||
Warranty originations and revisions | 2.1 | 0.4 | 4.6 | 3.3 | ||||||||||||
Warranty expirations | (0.9 | ) | (0.5 | ) | (1.9 | ) | (2.2 | ) | ||||||||
Ending balance | $ | 11.6 | $ | 17.5 | $ | 11.6 | $ | 17.5 | ||||||||
16
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Beginning balance | $ | 13.5 | $ | 13.2 | ||||
Warranty costs incurred | (2.4 | ) | (1.3 | ) | ||||
Warranty originations and revisions | 3.8 | 1.6 | ||||||
Warranty expirations | (0.4 | ) | (0.8 | ) | ||||
|
|
|
| |||||
Ending balance | $ | 14.5 | $ | 12.7 | ||||
|
|
|
|
Note 9. Debt
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(as reported) | ||||||||
(in millions) | ||||||||
Manufacturing/Corporate — Recourse: | ||||||||
Revolving credit facility | $ | — | $ | — | ||||
Convertible subordinated notes | 450.0 | 450.0 | ||||||
Less: unamortized discount | (102.7 | ) | (111.1 | ) | ||||
347.3 | 338.9 | |||||||
Other | 4.4 | 2.8 | ||||||
351.7 | 341.7 | |||||||
Leasing — Recourse: | ||||||||
Capital lease obligations | 49.2 | 51.2 | ||||||
Term loan | 55.4 | 57.4 | ||||||
456.3 | 450.3 | |||||||
Leasing — Non-recourse: | ||||||||
2006 secured railcar equipment notes | 271.7 | 283.2 | ||||||
Promissory notes | 471.5 | 493.8 | ||||||
2009 secured railcar equipment notes | 220.9 | 229.2 | ||||||
2010 secured railcar equipment notes | 357.5 | 367.1 | ||||||
TILC warehouse facility | 280.7 | 80.2 | ||||||
TRIP Holdings senior secured notes: | ||||||||
Total outstanding | 175.0 | — | ||||||
Less: owned by Trinity | (112.0 | ) | — | |||||
63.0 | — | |||||||
TRIP Master Funding secured railcar equipment notes | 850.3 | — | ||||||
TRIP warehouse loan | — | 1,003.9 | ||||||
2,515.6 | 2,457.4 | |||||||
Total debt | $ | 2,971.9 | $ | 2,907.7 | ||||
March 31, | December 31, | |||||||
2012 | 2011 | |||||||
(as reported) | ||||||||
(in millions) | ||||||||
Manufacturing/Corporate – Recourse: | ||||||||
Revolving credit facility | $ | — | $ | — | ||||
Convertible subordinated notes | 450.0 | 450.0 | ||||||
Less: unamortized discount | (96.8 | ) | (99.8 | ) | ||||
|
|
|
| |||||
353.2 | 350.2 | |||||||
Other | 6.1 | 4.2 | ||||||
|
|
|
| |||||
359.3 | 354.4 | |||||||
|
|
|
| |||||
Leasing – Recourse: | ||||||||
Capital lease obligations | 47.9 | 48.6 | ||||||
Term loan | 54.0 | 54.7 | ||||||
|
|
|
| |||||
101.9 | 103.3 | |||||||
|
|
|
| |||||
Total recourse debt | 461.2 | 457.7 | ||||||
|
|
|
| |||||
Leasing – Non-recourse: | ||||||||
2006 secured railcar equipment notes | 266.0 | 269.3 | ||||||
Promissory notes | 459.3 | 465.5 | ||||||
2009 secured railcar equipment notes | 216.2 | 218.4 | ||||||
2010 secured railcar equipment notes | 351.3 | 354.3 | ||||||
TILC warehouse facility | 282.7 | 308.5 | ||||||
TRIP Holdings senior secured notes: | ||||||||
Total outstanding | 170.0 | 170.0 | ||||||
Less: owned by Trinity | (108.8 | ) | (108.8 | ) | ||||
|
|
|
| |||||
61.2 | 61.2 | |||||||
TRIP Master Funding secured railcar equipment notes | 829.6 | 840.0 | ||||||
|
|
|
| |||||
Total non-recourse debt | 2,466.3 | 2,517.2 | ||||||
|
|
|
| |||||
Total debt | $ | 2,927.5 | $ | 2,974.9 | ||||
|
|
|
|
We have a $425.0 million unsecured revolving credit facility whichthat matures on October 19, 2012.20, 2016. As of September 30, 2011,March 31, 2012, we had letters of credit issued under our revolving credit facility in an aggregate principal amount of $82.6$72.6 million, leaving $342.4$352.4 million available for borrowing. Other than with respect to suchthese letters of credit, there were no borrowings under our revolving credit facility as of September 30, 2011March 31, 2012, or for the ninethree month period then ended. Of the outstanding letters of credit as of September 30, 2011,March 31, 2012, a total of $8.1$0.4 million is expected to expire in 20112012 and the remainder in 2012.2013. The majority of our letters of credit obligations supports the Company’s various insurance programs and generally renewrenews each year. As of September 30, 2011, borrowings under the credit facility bear interest at Libor plus 75.0 basis points or prime. Trinity’s revolving credit facility requires the maintenance of ratios related to minimum interest coverage for the leasing and manufacturing operations leverage, and minimum net worth. On October 20, 2011, we amended and extended this $425.0 million facility for an additional four years and it now matures on October 20, 2016.maximum leverage. Borrowings under the amended credit facility bear interest at Libor plus 150.0 basis points or prime plus 50.0 basis points. Financial covenants are similar to existing covenants but no longer include a minimum net worth requirement. As of September 30, 2011,March 31, 2012, we were in compliance with all such financial covenants.
The Company’s 3 7/8% convertible subordinated notes are recorded net of unamortized discount to reflect their underlying economics by capturing the value of the conversion option as borrowing costs. As of September 30, 2011March 31, 2012 and December 31, 2010,2011, capital in excess of par value included $92.8 million related to the estimated value of the Convertible
Subordinated Notes’ conversion options.options, in accordance with ASC 470-20. Debt discount recorded in the consolidated balance sheet is being amortized through June 1, 2018 to yield an effective annual interest rate of 8.42% based upon the estimated market interest rate for comparable non-convertible debt as of the issuance date of the Convertible Subordinated Notes. Total interest expense recognized on the Convertible Subordinated Notes for the three and nine months ended September 30,March 31, 2012 and 2011 and 2010 is as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in millions) | ||||||||||||||||
Coupon rate interest | $ | 4.4 | $ | 4.4 | $ | 13.1 | $ | 13.1 | ||||||||
Amortized debt discount | 2.9 | 2.6 | 8.4 | 7.7 | ||||||||||||
$ | 7.3 | $ | 7.0 | $ | 21.5 | $ | 20.8 | |||||||||
17
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Coupon rate interest | $ | 4.4 | $ | 4.4 | ||||
Amortized debt discount | 3.0 | 2.7 | ||||||
|
|
|
| |||||
$ | 7.4 | $ | 7.1 | |||||
|
|
|
|
The $475$475.0 million TILC warehouse loan facility, established to finance railcars owned by TILC, had $280.7$282.7 million outstanding and $194.3$192.3 million available as of September 30, 2011.March 31, 2012. The warehouse loan is a non-recourse obligation secured by a portfolio of railcars and operating leases, certain cash reserves, and other assets acquired and owned by the warehouse loan facility. The principal and interest of this indebtedness are paid from the cash flows of the underlying leases. Advances under the facility bear interest at a defined index rate plus a margin, for an all-in interest rate of 2.25% at September 30, 2011.March 31, 2012. In February 2011, the warehouse loan facility was renewed for an additional two years and now matures in February 2013. Amounts outstanding at maturity, absent renewal, will be payable in three installments in August 2013, February 2014, and August 2014.
Terms and conditions of other debt, including recourse and non-recourse provisions, are described in Note 11 of the December 31, 20102011 Consolidated Financial Statements filed on Form 10-K.
18
Remaining | ||||||||||||||||||||||||
three | ||||||||||||||||||||||||
months of | ||||||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Recourse: | ||||||||||||||||||||||||
Manufacturing/Corporate | $ | 0.4 | $ | 1.2 | $ | 1.1 | $ | 1.1 | $ | 0.2 | $ | 450.4 | ||||||||||||
Leasing — capital lease obligations (Note 5) | 0.7 | 2.8 | 2.9 | 3.1 | 3.3 | 36.4 | ||||||||||||||||||
Leasing — term loan (Note 5) | 0.7 | 2.8 | 3.0 | 3.3 | 3.5 | 42.1 | ||||||||||||||||||
Non-recourse — leasing (Note 5): | ||||||||||||||||||||||||
2006 secured railcar equipment notes | 3.3 | 13.5 | 15.1 | 16.9 | 18.6 | 204.3 | ||||||||||||||||||
Promissory notes | 6.4 | 26.8 | 29.1 | 25.9 | 22.4 | 360.9 | ||||||||||||||||||
2009 secured railcar equipment notes | 2.5 | 9.2 | 10.2 | 9.9 | 9.6 | 179.5 | ||||||||||||||||||
2010 secured railcar equipment notes | 3.1 | 12.8 | 14.6 | 14.0 | 15.3 | 297.7 | ||||||||||||||||||
TILC warehouse facility | 2.0 | 8.1 | 8.1 | 5.4 | — | — | ||||||||||||||||||
TRIP Holdings senior secured notes | ||||||||||||||||||||||||
Total outstanding | — | — | — | 175.0 | — | — | ||||||||||||||||||
Less: owned by Trinity | — | — | — | (112.0 | ) | — | — | |||||||||||||||||
63.0 | ||||||||||||||||||||||||
TRIP Master Funding secured railcar equipment notes | 10.3 | 41.0 | 41.1 | 40.2 | 35.9 | 681.8 | ||||||||||||||||||
Facility termination payments: | ||||||||||||||||||||||||
TILC warehouse facility | — | — | 85.3 | 171.8 | — | — | ||||||||||||||||||
Total principal payments | $ | 29.4 | $ | 118.2 | $ | 210.5 | $ | 354.6 | $ | 108.8 | $ | 2,253.1 | ||||||||||||
Remaining nine months of 2012 | 2013 | 2014 | 2015 | 2016 | Thereafter | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Recourse: | ||||||||||||||||||||||||
Manufacturing/Corporate | $ | 1.3 | $ | 1.7 | $ | 2.4 | $ | 0.2 | $ | 0.2 | $ | 450.3 | ||||||||||||
Leasing – capital lease obligations (Note 4) | 2.1 | 2.9 | 3.1 | 3.3 | 3.5 | 33.0 | ||||||||||||||||||
Leasing – term loan (Note 4) | 2.1 | 3.0 | 3.3 | 3.5 | 42.1 | — | ||||||||||||||||||
Non-recourse – leasing (Note 4): | ||||||||||||||||||||||||
2006 secured railcar equipment notes | 10.2 | 15.1 | 16.9 | 18.6 | 21.9 | 183.3 | ||||||||||||||||||
Promissory notes | 19.5 | 29.0 | 26.2 | 23.2 | 361.4 | — | ||||||||||||||||||
2009 secured railcar equipment notes | 7.0 | 10.2 | 9.9 | 9.6 | 6.5 | 173.0 | ||||||||||||||||||
2010 secured railcar equipment notes | 9.7 | 14.6 | 14.0 | 15.3 | 15.0 | 282.7 | ||||||||||||||||||
TILC warehouse facility | 6.4 | 7.8 | 4.3 | — | — | — | ||||||||||||||||||
TRIP Holdings senior secured notes: | ||||||||||||||||||||||||
Total outstanding | — | — | 170.0 | — | — | — | ||||||||||||||||||
Less: owned by Trinity | — | — | (108.8 | ) | — | — | — | |||||||||||||||||
61.2 | ||||||||||||||||||||||||
TRIP Master Funding secured railcar equipment notes | 30.6 | 41.1 | 40.2 | 35.9 | 29.4 | 652.4 | ||||||||||||||||||
Facility termination payments: | ||||||||||||||||||||||||
TILC warehouse facility | — | 87.6 | 176.6 | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total principal payments | $ | 88.9 | $ | 213.0 | $ | 358.1 | $ | 109.6 | $ | 480.0 | $ | 1,774.7 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Note 12.10. Other, Net
Other, net (income) expense consists of the following items:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in millions) | ||||||||||||||||
Foreign currency exchange transactions | $ | 3.0 | $ | 0.3 | $ | 3.1 | $ | 0.1 | ||||||||
Loss (gain) on equity investments | (0.1 | ) | — | (0.6 | ) | 1.7 | ||||||||||
Other | 2.4 | (0.1 | ) | 1.7 | (0.7 | ) | ||||||||||
Other, net | $ | 5.3 | $ | 0.2 | $ | 4.2 | $ | 1.1 | ||||||||
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Foreign currency exchange transactions | $ | (2.0 | ) | $ | 0.3 | |||
Gain on equity investments | (0.1 | ) | (0.5 | ) | ||||
Other | (0.9 | ) | (0.3 | ) | ||||
|
|
|
| |||||
Other, net | $ | (3.0 | ) | $ | (0.5 | ) | ||
|
|
|
|
Note 3 Fair Value Accounting and Note 6 Investment in TRIP Holdings.
19
The provision for income taxes results in effective tax rates different from the statutory rates. The following is a reconciliation between the statutory United States Federal income tax rate and the Company’s effective income tax rate:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | ||||||||
State taxes | 3.2 | 1.2 | 2.8 | 2.1 | ||||||||||||
Tax settlements | 0.0 | 11.6 | 0.0 | 6.5 | ||||||||||||
Changes in tax reserves | (0.9 | ) | (16.9 | ) | 0.3 | (12.7 | ) | |||||||||
Foreign tax adjustments | 2.1 | (0.9 | ) | 0.3 | 0.4 | |||||||||||
Other, net | 0.6 | 2.5 | 1.2 | 2.8 | ||||||||||||
Effective rate | 40.0 | % | 32.5 | % | 39.6 | % | 34.1 | % | ||||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2012 | 2011 | |||||||
Statutory rate | 35.0 | % | 35.0 | % | ||||
State taxes | 1.9 | 2.4 | ||||||
Changes in tax reserves, net of settlements | (4.6 | ) | 1.2 | |||||
Other, net | 0.6 | 0.2 | ||||||
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Effective rate | 32.9 | % | 38.8 | % | ||||
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During the first quarter of 2012, we settled our audit with the Internal Revenue Service (“IRS”) for the 2004-2005 tax years. As a result of closing this audit, we recognized a $3.5 million tax benefit primarily related to favorable claims filed and approved by the IRS in the final audit settlement. The statute of limitations for this audit cycle will remain open until September 30, 2012.
In addition, we are currently under examination cyclesby the IRS for the years ended 2004 through 2005 andDecember 31, 2006 through 2008. Our statute of limitations therefore remains open fromCertain issues have been tentatively agreed upon by us and the year ended December 31, 2004IRS and forward. Our 2004-2005 exam cycle is currently under administrative appeal for certain unresolved issues.issues will be challenged by us. We expect this cycle to be effectively settled duringsettle all 2006-2008 issues within the first or second quarternext 12 months except for any potential transfer pricing adjustments. Due to the length of 2012. Additionally,the appeals process, we cannot determine when the 2006-2008 cycle is still in the examination level and thus,will close. Thus, we are unable to determine how long these periodsthe statute of limitations for years after December 31, 2005 will remain open.
We have various subsidiaries in Mexico which file separate tax returns and thus are subject to examination by taxing authorities at different times. The 2003 tax year of one of our Mexican subsidiaries is still under review and thus its statute of limitations remains open. The 2004 andopen through June 2014. Another Mexican subsidiary’s 2005 statute of limitations of all of our Mexican subsidiariesremains open through July 2013. The remaining entities are closedopen for their 2006 tax years and the 2006 and forward years remain open.
Our various other European subsidiaries, including subsidiaries that were sold in 2006, are impacted by various statutes of limitations. The statute of limitations which are generally open from 2003 forward. An exception to this isfor our discontinued operations in Romania, the Czech Republic, Slovakia, and Switzerland through the year of disposition are now closed. Our two remaining Swiss subsidiaries, one of which is a holding company and the other which is dormant, have been audited by the taxing authorities through 2004.
We also currently have sales offices in Europe and Canada that are subject to various statutes.
Generally, states’ statutes of limitations in the United States are open from 19982003 forward because we filed amendeddue to the use of tax returns to reflect previous IRS adjustments. We expect the 1998-2001 state statutes of limitations to close by the end of 2011.
The change in unrecognized tax benefits for the ninethree months ended September 30,March 31, 2012 and 2011 and 2010 was as follows:
Nine Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Beginning balance | $ | 36.8 | $ | 40.1 | ||||
Additions for tax positions related to the current year | 2.9 | 2.6 | ||||||
Additions for tax positions of prior years | 15.1 | 6.0 | ||||||
Reductions for tax positions of prior years | (0.1 | ) | (5.3 | ) | ||||
Settlements | (3.5 | ) | (8.1 | ) | ||||
Expiration of statute of limitations | (0.5 | ) | (0.5 | ) | ||||
Ending balance | $ | 50.7 | $ | 34.8 | ||||
Three Months Ended | ||||||||
March 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Beginning balance | $ | 52.5 | $ | 36.8 | ||||
Additions for tax positions related to the current year | 1.0 | 0.9 | ||||||
Additions for tax positions of prior years | — | 2.6 | ||||||
Reductions for tax positions of prior years | (1.1 | ) | — | |||||
Settlements | (3.0 | ) | — | |||||
Expiration of statute of limitations | (0.1 | ) | (0.1 | ) | ||||
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Ending balance | $ | 49.3 | $ | 40.2 | ||||
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Additions for tax positions related to the current year in the amounts of $2.9$1.0 million and $2.6$0.9 million recorded in the ninethree months ended September 30,March 31, 2012 and 2011, and 2010, respectively, were amounts provided for tax positions previously taken in foreign jurisdictions and tax positionsthat will be taken for Federal and state income tax purposes as well as deferredwhen we file the 2012 tax liabilities that have been reclassified to uncertain tax positions.
Additions for tax positions of prior years for the ninethree months ended September 30,March 31, 2011 and 2010 of $15.1$2.6 million and $6.0, million, respectively, are primarily due to Federal tax positions taken on prior year returns that have been proposed by the IRS but not previously reserved. These items are primarily timing differences and thus we would be allowed a future tax deduction. We haveDuring 2011, we recorded a corresponding deferred tax asset for the future reduction of taxes related to these adjustments.
20
The total amount of unrecognized tax benefits including interest and penalties at September 30,March 31, 2012 and 2011, and 2010, that would affect the Company’s effective tax rate if recognized was $18.8$17.5 million and $14.9$14.8 million, respectively.
Trinity accounts for interest expense and penalties related to income tax issues as income tax expense. Accordingly, interest expense and penalties associated with an uncertain tax position are included in the income tax provision. The total amount of accrued interest and penalties as of September 30, 2011March 31, 2012 and December 31, 20102011 was $12.8$12.4 million and $11.2$13.3 million, respectively. Income tax expense for the three and nine months ended September 30, 2011,March 31, 2012, included a decrease in income tax expense of $0.3$0.9 million and an increase of $1.5 million, respectively, in interest expense and penalties related to uncertain tax positions. Income tax expense for the three and nine months ended September 30, 2010,March 31, 2011, included a reductiondecrease in income tax expense of $3.2$0.9 million and $5.5 million, respectively, in interest expense and penalties related to uncertain tax positions.
Note 14.12. Employee Retirement Plans
The following table summarizes the components of net retirement cost for the Company.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in millions) | ||||||||||||||||
Service cost | $ | 0.2 | $ | 0.2 | $ | 0.7 | $ | 0.7 | ||||||||
Interest | 4.9 | 4.4 | 14.7 | 14.2 | ||||||||||||
Expected return on plan assets | (5.7 | ) | (5.0 | ) | (17.1 | ) | (15.0 | ) | ||||||||
Actuarial loss | 0.4 | 0.4 | 1.4 | 1.6 | ||||||||||||
Prior service cost | 0.1 | — | 0.1 | — | ||||||||||||
Profit sharing | 1.9 | 2.0 | 6.4 | 6.3 | ||||||||||||
Net expense | $ | 1.8 | $ | 2.0 | $ | 6.2 | $ | 7.8 | ||||||||
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Service cost | $ | 0.2 | $ | 0.3 | ||||
Interest | 4.8 | 4.9 | ||||||
Expected return on plan assets | (5.6 | ) | (5.7 | ) | ||||
Actuarial loss | 0.9 | 0.5 | ||||||
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Defined benefit expense | 0.3 | 0.0 | ||||||
Profit sharing | 2.6 | 2.3 | ||||||
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Net expense | $ | 2.9 | $ | 2.3 | ||||
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Trinity contributed $2.9$6.1 million and $11.7$5.6 million to the Company’s defined benefit pension plans for the three and nine month periods ended September 30,March 31, 2012 and 2011, respectively. Trinity contributed $3.4 million and $10.1 millionTotal contributions to the Company’s defined benefit pension plans for the three and nine month periods ended September 30, 2010, respectively. Total contributions to the Company’s pension plans in 20112012 are expected to be approximately $15.2$17.3 million.
21
Note 15.13. Accumulated Other Comprehensive Loss
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in millions) | ||||||||||||||||
Net income attributable to Trinity Industries, Inc. | $ | 31.9 | $ | 29.7 | $ | 86.1 | $ | 50.1 | ||||||||
Other comprehensive income (loss): | ||||||||||||||||
Change in currency translation adjustment, net of tax benefit of $0.0 | — | — | (0.1 | ) | — | |||||||||||
Change in unrealized loss on derivative financial instruments, net of tax benefit of $(2.8), $(4.3), $(2.0), and $(11.6) | (5.2 | ) | (7.6 | ) | (3.2 | ) | (23.5 | ) | ||||||||
Other changes, net of tax expense of $0.7 | — | — | — | 1.1 | ||||||||||||
Comprehensive net income attributable to Trinity Industries, Inc. | $ | 26.7 | $ | 22.1 | $ | 82.8 | $ | 27.7 | ||||||||
Changes in accumulated other comprehensive loss for the three months ended March 31, 2012 are as follows:
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(as reported) | ||||||||
(in millions) | ||||||||
Currency translation adjustments, net of tax benefit of $(0.2) | $ | (17.2 | ) | $ | (17.1 | ) | ||
Unrealized loss on derivative financial instruments, net of tax benefit of $(31.7) and $(21.4) | (55.0 | ) | (36.3 | ) | ||||
Funded status of pension liability, net of tax benefit of $(24.8) | (42.1 | ) | (42.1 | ) | ||||
$ | (114.3 | ) | $ | (95.5 | ) | |||
Currency translation adjustments | Unrealized loss on derivative financial instruments | Funded status of pension liability | Accumulated Other Comprehensive Loss | |||||||||||||
(in millions) | ||||||||||||||||
Balance at December 31, 2011 | $ | (17.1 | ) | $ | (46.2 | ) | $ | (70.7 | ) | $ | (134.0 | ) | ||||
Other comprehensive income | — | 2.4 | 0.6 | 3.0 | ||||||||||||
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Balance at March 31, 2012, net of tax benefit of $0.2, $33.1, $41.4 and $74.7 | $ | (17.1 | ) | $ | (43.8 | ) | $ | (70.1 | ) | $ | (131.0 | ) | ||||
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See Note 76 Derivative Instruments for information on the reclassification of amounts in accumulated other comprehensive loss into earnings.
Note 16.14. Stock-Based Compensation
Stock-based compensation totaled approximately $6.9 million and $16.3$5.3 million for the three and nine months ended September 30,March 31, 2012 and 2011, respectively. Stock-based compensation totaled approximately $4.3 million and $11.3 million for the three and nine months ended September 30, 2010, respectively.
22
Basic net income attributable to Trinity Industries, Inc. per common share is computed by dividing net income attributable to Trinity remaining after allocation to unvested restricted shares by the weighted average number of basic common shares outstanding for the period. Except when the effect would be antidilutive, the calculation of diluted net income attributable to Trinity per common share includes the net impact of unvested restricted shares and shares that could be issued under outstanding stock options. Total weighted average restricted shares and antidilutive stock options were 3.1 million shares and 2.9 million shares for the three and nine month periods ended September 30, 2011. Total weighted average restricted sharesMarch 31, 2012 and antidilutive stock options were 2.8 million shares for the three and nine month periods ended September 30, 2010.
The computation of basic and diluted net income attributable to Trinity Industries, Inc. is as follows:
Three Months Ended | Three Months Ended | |||||||||||||||||||||||
September 30, 2011 | September 30, 2010 | |||||||||||||||||||||||
(in millions, except per share amounts) | ||||||||||||||||||||||||
Income (Loss) | Average Shares | EPS | Income (Loss) | Average Shares | EPS | |||||||||||||||||||
Net income attributable to Trinity Industries, Inc. | $ | 31.9 | $ | 29.7 | ||||||||||||||||||||
Unvested restricted share participation | (1.0 | ) | (1.0 | ) | ||||||||||||||||||||
Net income attributable to Trinity Industries, Inc. — basic | 30.9 | 77.7 | $ | 0.40 | 28.7 | 77.0 | $ | 0.37 | ||||||||||||||||
Effect of dilutive securities: | ||||||||||||||||||||||||
Stock options | — | 0.2 | — | 0.1 | ||||||||||||||||||||
Net income attributable to Trinity Industries, Inc. — diluted | $ | 30.9 | 77.9 | $ | 0.40 | $ | 28.7 | 77.1 | $ | 0.37 | ||||||||||||||
Nine Months Ended | Nine Months Ended | |||||||||||||||||||||||
September 30, 2011 | September 30, 2010 | |||||||||||||||||||||||
(in millions, except per share amounts) | ||||||||||||||||||||||||
Income (Loss) | Average Shares | EPS | Income (Loss) | Average Shares | EPS | |||||||||||||||||||
Net income attributable to Trinity Industries, Inc. | $ | 86.1 | $ | 50.1 | ||||||||||||||||||||
Unvested restricted share participation | (2.9 | ) | (1.7 | ) | ||||||||||||||||||||
Net income attributable to Trinity Industries, Inc. — basic | 83.2 | 77.4 | $ | 1.07 | 48.4 | 76.8 | $ | 0.63 | ||||||||||||||||
Effect of dilutive securities: | ||||||||||||||||||||||||
Stock options | — | 0.3 | — | 0.1 | ||||||||||||||||||||
Net income attributable to Trinity Industries, Inc. — diluted | $ | 83.2 | 77.7 | $ | 1.07 | $ | 48.4 | 76.9 | $ | 0.63 | ||||||||||||||
23
Three Months Ended March 31, 2012 | Three Months Ended March 31, 2011 | |||||||||||||||||||||||
(in millions, except per share amounts) | ||||||||||||||||||||||||
Income (Loss) | Average Shares | EPS | Income (Loss) | Average Shares | EPS | |||||||||||||||||||
Net income attributable to Trinity Industries, Inc. | $ | 52.9 | $ | 24.2 | ||||||||||||||||||||
Unvested restricted share participation | (1.7 | ) | (0.9 | ) | ||||||||||||||||||||
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Net income attributable to Trinity Industries, Inc. – basic | 51.2 | 77.8 | $ | 0.66 | 23.3 | 77.1 | $ | 0.30 | ||||||||||||||||
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Effect of dilutive securities: Stock options | — | 0.3 | — | 0.3 | ||||||||||||||||||||
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Net income attributable to Trinity Industries, Inc. – diluted | $ | 51.2 | 78.1 | $ | 0.66 | $ | 23.3 | 77.4 | $ | 0.30 | ||||||||||||||
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Note 16. Contingencies
As previously reported, in June 2011 the Company received a letter fromthe approval of the Federal Railroad Administration (“FRA”) containingto implement a railworthiness directive pertaining to a specific designvoluntary recertification of 948 tank cars manufacturedowned or managed by the Company for useCompany’s wholly-owned, railcar leasing subsidiary and used in transporting poison inhalation hazard (“PIH”) materials. The Company has manufactured 948 railcars of this design. These tank cars are owned or managed by the Company’s wholly-owned, railcar leasing subsidiary. The FRA was notified of five tank cars with potential leaks around the manway nozzles. Pursuant to the directive, 100 recently manufactured tank cars were removed from service. An additional 67 randomly selected tank cars out of 848 manufactured since 2006, which have operated without incident, have been removed from service.
Other Matters
As previously reported, Trinity Structural Towers, Inc., a wholly-owned subsidiary of the Company, is in litigation with a structural wind tower customer for the customer’s breach of a long-term supply contract for the manufacture of towers. While the customer partially performed the contract, it ultimately defaulted its purchase obligation and did not remedy such default. Discovery in this litigation is underway.
The Company is involved in claims and lawsuits incidental to our business. Based on information currently available, itbusiness arising from various matters including product warranty, personal injury, environmental issues, workplace laws, and various governmental regulations. The Company evaluates its exposure to such claims periodically and establishes accruals for these contingencies when a range of loss can be reasonably estimated. The range of loss for such matters, taking into consideration our rights in indemnity and recourse to third parties is management’s opinion that the ultimate outcome$4.3 million to $20.5 million. Total accruals of all current litigation$9.3 million, including environmental and other claims, including settlements,workplace matters described below, are included in accrued liabilities in the aggregate willaccompanying consolidated balance sheet. The Company believes any additional liability would not have abe material adverse effect on the Company’s overallto its financial condition for purposes of financial reporting. However, resolution of certain claimsposition or lawsuits by settlement or otherwise could impact the operating results of the reporting period in which such resolution occurs.
Trinity is subject to Federal, state, local, and foreign laws and regulations relating to the environment and the workplace. The Company has reserved $7.7$6.8 million to cover our probable and estimable liabilities with respect to the investigations, assessments, and remedial responses to such matters, taking into account currently available information and our contractual rights to indemnification and recourse to third parties. However, estimates of liability arising from future proceedings, assessments, or remediation are inherently imprecise. Accordingly, there can be no assurance that we will not become involved in future litigation or other proceedings involving the environment and the workplace or, if we are found to be responsible or liable in any such litigation or proceeding, that such costs would not be material to the Company. We believe that we are currently in substantial compliance with environmental and workplace laws and regulations.
24
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Our MD&A is presented in the following sections:
Executive Summary
Results of Operations
Liquidity and Capital Resources
Contractual Obligations and Commercial Commitments
Recent Accounting Pronouncements
Forward-Looking Statements
Our MD&A should be read in conjunction with the unaudited consolidated financial statements of Trinity Industries, Inc. and subsidiaries (“Trinity”, “Company”, “we”, or “our”) and related notes in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Executive Summary
The Company’s revenues for railcars improved significantlythe three month period ended March 31, 2012 were $925.3 million representing an increase of $291.1 million or 46% over the same period in 20112011. Operating profit for the three month period ended March 31, 2012 totaled $122.4 million compared with $85.5 million for the same period in 2011. While all of our business segments reported an increase in revenues for the three month period ended March 31, 2012 when compared to the prior year, the largest contributors to the increase were our Rail, Inland Barge, and Leasing Groups. The increase in revenues in our Rail and Inland Barge Groups was due to higher shipment volumes while the increase in revenues in our Leasing Group was due to higher railcar sales from the lease fleet, higher rental revenues from lease fleet additions, an increase in rental rates, and higher utilization. Operating profit grew for the three month period ended March 31, 2012 when compared with the prior year, primarily due to higher shipment levels in our Rail and Inland Barge Groups and from revenue growth in our Leasing Group. Our business segments reported an increase in operating margins due to higher volumes and improved efficiencies with the exception of our Energy Equipment Group whose decline in operating margin resulted from competitive pricing pressures and additional costs related to product mix changes. Net income attributable to Trinity Industries, Inc. common stockholders for the three month period ended March 31, 2012 increased $28.7 million or 119% over the same period in 2011.
Our Rail and Inland Barge Groups and our structural wind towers and containers businesses operate in cyclical industries. Results in our Construction Products and Energy Equipment Groups are subject to seasonal fluctuations with the first quarter historically being the weakest quarter. Railcar sales from the lease fleet are the primary driver of fluctuations in results in the Railcar Leasing and Management Services Group. Following an extended period of weak demand for new railcars through 2010, demand for new railcars recovered sharply, primarily due to an increase in the shipment of commodities, replacement of older railcars, and federal tax benefits received from taking delivery of railcars in 2011 and 2012. While moderating from the accelerated pace in the first half of 2011, demand conditions and corresponding order levels for new railcars in the first quarter of 2012 continued to be favorable. Orders for structural wind towers have been slow since mid-2008 when energy development companies encountered tightened credit markets, coupled with lower demand and prices for electricity, and heightened competition arising from declining natural gas sales.prices and imports from foreign manufacturers. The continued slowdown in the residential and commercial construction markets negatively impacted the results of our Construction Products Group as well. We continually assess our manufacturing capacity and take steps to align our production capacity with demand for our products. As a result of our assessment, we adapted to the rapid decline in market conditions by reducing our production footprint and staffing levels and causing certain facilities to be on non-operating status, but to the extent that demand increases, these facilities on non-operating status would be available for future operations. Due to improvements in demand, we have increased production staff at certain facilities have taken on additional production staff insince late 2010 and during 2011.
Our backlog at September 30, 2011March 31, 2012 compared with prior period was approximately as follows:
September 30, | September 30, | |||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Rail Group | ||||||||
External Customers | $ | 1,939.0 | $ | 250.8 | ||||
Leasing Group | 431.7 | 137.6 | ||||||
Total | $ | 2,370.7 | $ | 388.4 | ||||
Inland Barge | $ | 564.4 | $ | 515.6 | ||||
Structural wind towers | $ | 929.5 | $ | 1,000.0 |
March 31, 2012 | March 31, 2011 | |||||||
(in millions) | ||||||||
Rail Group | ||||||||
External Customers | $ | 2,008.2 | $ | 1,534.2 | ||||
Leasing Group | 553.7 | 272.4 | ||||||
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$ | 2,561.9 | $ | 1,806.6 | |||||
Inland Barge | $ | 512.1 | $ | 460.5 | ||||
Structural wind towers | $ | 884.6 | $ | 974.0 |
For the ninethree months ended September 30, 2011, the CompanyMarch 31, 2012, our rail manufacturing businesses received orders for approximately 30,880 railcars including a supply agreement3,255 railcars. The total amount of orders in our backlog from the Leasing Group was supported by lease commitments with GATX Corporationexternal customers. The final amount dedicated to deliver 12,500 railcars over a five-year period, significantly increasing the Company’s RailLeasing Group backlog.may vary by the time of delivery. For multi-year barge orders,agreements, the deliveries for 2012 are included in the backlog at this time; deliveries beyond 2012 are not included in the backlog if specific production quantities for future years have not been determined.
25
Results of Operations
Overall Summary
Revenues
Three Months Ended March 31, 2012 | Three Months Ended March 31, 2011 | |||||||||||||||||||||||||||
Revenues | Revenues | Percent | ||||||||||||||||||||||||||
External | Intersegment | Total | External | Intersegment | Total | Change | ||||||||||||||||||||||
($ in millions) | ||||||||||||||||||||||||||||
Rail Group | $ | 341.2 | $ | 125.9 | $ | 467.1 | $ | 131.0 | $ | 88.8 | $ | 219.8 | 112.5 | % | ||||||||||||||
Construction Products Group | 149.6 | 5.4 | 155.0 | 130.1 | 3.5 | 133.6 | 16.0 | |||||||||||||||||||||
Inland Barge Group | 169.4 | — | 169.4 | 137.9 | — | 137.9 | 22.8 | |||||||||||||||||||||
Energy Equipment Group | 120.1 | 4.9 | 125.0 | 113.2 | 5.5 | 118.7 | 5.3 | |||||||||||||||||||||
Railcar Leasing and Management Services Group | 142.1 | 0.2 | 142.3 | 119.8 | — | 119.8 | 18.8 | |||||||||||||||||||||
All Other | 2.9 | 12.8 | 15.7 | 2.2 | 10.9 | 13.1 | 19.8 | |||||||||||||||||||||
Eliminations – Lease subsidiary | — | (122.6 | ) | (122.6 | ) | — | (85.4 | ) | (85.4 | ) | ||||||||||||||||||
Eliminations – Other | — | (26.6 | ) | (26.6 | ) | — | (23.3 | ) | (23.3 | ) | ||||||||||||||||||
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Consolidated Total | $ | 925.3 | $ | — | $ | 925.3 | $ | 634.2 | $ | — | $ | 634.2 | 45.9 | |||||||||||||||
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Operating Profit (Loss)
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Rail Group | $ | 40.1 | $ | 9.3 | ||||
Construction Products Group | 10.8 | 8.3 | ||||||
Inland Barge Group | 30.0 | 21.7 | ||||||
Energy Equipment Group | (3.8 | ) | 10.5 | |||||
Railcar Leasing and Management Services Group | 66.5 | 54.7 | ||||||
All Other | 1.2 | (0.3 | ) | |||||
Corporate | (11.6 | ) | (10.7 | ) | ||||
Eliminations – Lease subsidiary | (10.9 | ) | (8.1 | ) | ||||
Eliminations – Other | 0.1 | 0.1 | ||||||
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Consolidated Total | $ | 122.4 | $ | 85.5 | ||||
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Other Income and Expense. Other income and expense is summarized in May 2010, operating profitthe following table:
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Interest income | $ | (0.4 | ) | $ | (0.3 | ) | ||
Interest expense | 47.9 | 44.5 | ||||||
Other, net | (3.0 | ) | (0.5 | ) | ||||
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Consolidated Total | $ | 44.5 | $ | 43.7 | ||||
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Interest expense for the three and nine month periodsperiod ended September 30, 2011 includes insurance proceeds of $2.5March 31, 2012, increased $3.4 million and $6.5 million, respectively, and a $0.6 million gain fromover the disposition of damaged property, plant, and equipment related to the flood.
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Three Months Ended September 30, 2011 | Three Months Ended September 30, 2010 | |||||||||||||||||||||||||||
Revenues | Revenues | Percent | ||||||||||||||||||||||||||
External | Intersegment | Total | External | Intersegment | Total | Change | ||||||||||||||||||||||
($ in millions) | ||||||||||||||||||||||||||||
Rail Group | $ | 227.7 | $ | 93.2 | $ | 320.9 | $ | 57.3 | $ | 73.7 | $ | 131.0 | 145.0 | % | ||||||||||||||
Construction Products Group | 161.1 | 3.7 | 164.8 | 155.7 | 4.7 | 160.4 | 2.7 | |||||||||||||||||||||
Inland Barge Group | 143.2 | — | 143.2 | 98.9 | — | 98.9 | 44.8 | |||||||||||||||||||||
Energy Equipment Group | 107.3 | 4.3 | 111.6 | 103.0 | 3.6 | 106.6 | 4.7 | |||||||||||||||||||||
Railcar Leasing and Management Services Group | 153.1 | — | 153.1 | 122.1 | — | 122.1 | 25.4 | |||||||||||||||||||||
All Other | 4.4 | 13.6 | 18.0 | 3.0 | 9.4 | 12.4 | 45.2 | |||||||||||||||||||||
Eliminations — lease subsidiary | — | (87.9 | ) | (87.9 | ) | — | (69.6 | ) | (69.6 | ) | ||||||||||||||||||
Eliminations — other | — | (26.9 | ) | (26.9 | ) | — | (21.8 | ) | (21.8 | ) | ||||||||||||||||||
Consolidated Total | $ | 796.8 | $ | — | $ | 796.8 | $ | 540.0 | $ | — | $ | 540.0 | 47.6 | |||||||||||||||
Nine Months Ended September 30, 2011 | Nine Months Ended September 30, 2010 | |||||||||||||||||||||||||||
Revenues | Revenues | Percent | ||||||||||||||||||||||||||
External | Intersegment | Total | External | Intersegment | Total | Change | ||||||||||||||||||||||
($ in millions) | ||||||||||||||||||||||||||||
Rail Group | $ | 556.0 | $ | 265.4 | $ | 821.4 | $ | 131.6 | $ | 185.9 | $ | 317.5 | 158.7 | % | ||||||||||||||
Construction Products Group | 439.2 | 8.5 | 447.7 | 433.0 | 16.7 | 449.7 | (0.4 | ) | ||||||||||||||||||||
Inland Barge Group | 398.9 | — | 398.9 | 295.8 | — | 295.8 | 34.9 | |||||||||||||||||||||
Energy Equipment Group | 335.6 | 12.2 | 347.8 | 304.8 | 7.2 | 312.0 | 11.5 | |||||||||||||||||||||
Railcar Leasing and Management Services Group | 413.3 | — | 413.3 | 362.9 | — | 362.9 | 13.9 | |||||||||||||||||||||
All Other | 8.5 | 36.9 | 45.4 | 9.0 | 25.5 | 34.5 | 31.6 | |||||||||||||||||||||
Eliminations — lease subsidiary | — | (252.8 | ) | (252.8 | ) | — | (173.5 | ) | (173.5 | ) | ||||||||||||||||||
Eliminations — other | — | (70.2 | ) | (70.2 | ) | — | (61.8 | ) | (61.8 | ) | ||||||||||||||||||
Consolidated Total | $ | 2,151.5 | $ | — | $ | 2,151.5 | $ | 1,537.1 | $ | — | $ | 1,537.1 | 40.0 | |||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in millions) | ||||||||||||||||
Rail Group | $ | 18.2 | $ | 3.3 | $ | 42.9 | $ | (7.3 | ) | |||||||
Construction Products Group | 17.8 | 20.3 | 42.2 | 40.7 | ||||||||||||
Inland Barge Group | 26.0 | 22.4 | 66.8 | 52.2 | ||||||||||||
Energy Equipment Group | (1.9 | ) | 6.0 | 9.8 | 29.9 | |||||||||||
Railcar Leasing and Management Services Group | 64.2 | 52.9 | 178.6 | 150.3 | ||||||||||||
All Other | (0.3 | ) | (1.3 | ) | (0.8 | ) | (6.0 | ) | ||||||||
Corporate | (11.5 | ) | (9.6 | ) | (30.6 | ) | (28.6 | ) | ||||||||
Eliminations — lease subsidiary | (8.1 | ) | (0.9 | ) | (23.3 | ) | (6.4 | ) | ||||||||
Eliminations — other | 1.0 | (1.2 | ) | 0.7 | (2.0 | ) | ||||||||||
Consolidated Total | $ | 105.4 | $ | 91.9 | $ | 286.3 | $ | 222.8 | ||||||||
Income Taxes.The provision for income taxes results in 2011 and additional expense of $2.4 millioneffective tax rates different from the recognition of certain equity repurchase agreements with an investor in TRIP Holdings at fair value. The nine month period ended September 30, 2010 included a $1.8 million write-down of the Company’s pre-acquisition investment in Quixote Corporation.
27
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | ||||||||
State taxes | 3.2 | 1.2 | 2.8 | 2.1 | ||||||||||||
Tax settlements | 0.0 | 11.6 | 0.0 | 6.5 | ||||||||||||
Changes in tax reserves | (0.9 | ) | (16.9 | ) | 0.3 | (12.7 | ) | |||||||||
Foreign tax adjustments | 2.1 | (0.9 | ) | 0.3 | 0.4 | |||||||||||
Other, net | 0.6 | 2.5 | 1.2 | 2.8 | ||||||||||||
Effective rate | 40.0 | % | 32.5 | % | 39.6 | % | 34.1 | % | ||||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2012 | 2011 | |||||||
Statutory rate | 35.0 | % | 35.0 | % | ||||
State taxes | 1.9 | 2.4 | ||||||
Changes in tax reserves, net of settlements | (4.6 | ) | 1.2 | |||||
Other, net | 0.6 | 0.2 | ||||||
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| |||||
Effective rate | 32.9 | % | 38.8 | % | ||||
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During the first quarter of 2012, we settled our audit with the Internal Revenue Service (“IRS”) for the 2004-2005 tax years. As a result of closing this audit, we recognized a $3.5 million tax benefit primarily related to favorable claims filed and approved by the IRS in the final audit settlement. The statute of limitations for this audit cycle will remain open until September 30, 2012.
Rail Group
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2011 | 2010 | Percent | 2011 | 2010 | Percent | |||||||||||||||||||
($ in millions) | Change | ($ in millions) | Change | |||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Rail | $ | 278.1 | $ | 97.6 | 184.9 | % | $ | 690.7 | $ | 223.7 | 208.8 | % | ||||||||||||
Components | 42.8 | 33.4 | 28.1 | 130.7 | 93.8 | 39.3 | ||||||||||||||||||
Total revenues | $ | 320.9 | $ | 131.0 | 145.0 | $ | 821.4 | $ | 317.5 | 158.7 | ||||||||||||||
Operating profit (loss) | $ | 18.2 | $ | 3.3 | $ | 42.9 | $ | (7.3 | ) | |||||||||||||||
Operating profit (loss) margin | 5.7 | % | 2.5 | % | 5.2 | % | (2.3 | )% |
Three Months Ended March 31, | ||||||||||||
2012 | 2011 | Percent | ||||||||||
($ in millions) | Change | |||||||||||
Revenues: | ||||||||||||
Rail | $ | 426.4 | $ | 177.8 | 139.8 | % | ||||||
Components | 40.7 | 42.0 | (3.1 | ) | ||||||||
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| |||||||||
Total revenues | $ | 467.1 | $ | 219.8 | 112.5 | |||||||
Operating profit | $ | 40.1 | $ | 9.3 | ||||||||
Operating profit margin | 8.6 | % | 4.2 | % |
Railcar shipments increased 216%by 2,770 railcars to approximately 3,605 railcars and 255% to approximately 8,9605,010 railcars during the three and nine month periodsperiod ended September 30, 2011March 31, 2012 when compared to approximately 1,140 railcar shipments and 2,5252,240 railcar shipments during the same periodsperiod in 2010. 2011.
As of September 30, 2011 and September 30, 2010,March 31, 2012, our Rail Group backlog was approximately as follows:
As of September 30, | ||||||||
2011 | 2010 | |||||||
(in millions, except railcars) | ||||||||
External Customers | $ | 1,939.0 | $ | 250.8 | ||||
Leasing Group | 431.7 | 137.6 | ||||||
Total | $ | 2,370.7 | $ | 388.4 | ||||
Number of railcars | 27,885 | 4,860 |
As of March 31, | ||||||||
2012 | 2011 | |||||||
(in millions, except railcars) | ||||||||
External Customers | $ | 2,008.2 | $ | 1,534.2 | ||||
Leasing Group | 553.7 | 272.4 | ||||||
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| |||||
Total | $ | 2,561.9 | $ | 1,806.6 | ||||
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| |||||
Number of railcars | 27,245 | 22,490 |
For the first ninethree months of 2011, the Rail Groupended March 31, 2012, our rail manufacturing businesses received orders for approximately 30,880 railcars including a supply agreement with GATX Corporation to deliver 12,500 railcars over a five-year period.3,255 railcars. The total amount of the backlog dedicated to the Leasing Group was supported by lease commitments with external customers.
Operating profit for the Rail Group increased $14.9$30.8 million and $50.2 million, respectively,for the three months ended March 31, 2012 compared to the same periodsperiod last year. This increase was primarily due to a significantly higher volume of railcars with higher sales prices delivered during the period.
In the three months ended September 30, 2011,March 31, 2012, railcar shipments included sales to the Leasing Group of $87.9$122.6 million compared to $69.6$85.4 million in the comparable period in 20102011 with a deferred profit of $8.1$10.9 million compared to $0.9$8.1 million for the same period in 2010. In the nine months ended September 30, 2011, railcar shipments included sales to the Leasing Group of $252.8 million compared to $173.5 million in the comparable period in 2010 with a deferred profit of $23.3 million compared to $6.4 million for the same period in 2010.2011. Sales to the Leasing Group and related profits are included in the operating results of the Rail Group but are eliminated in consolidation.
28
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2011 | 2010 | Percent | 2011 | 2010 | Percent | |||||||||||||||||||
($ in millions) | Change | ($ in millions) | Change | |||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Concrete and Aggregates | $ | 47.9 | $ | 70.3 | (31.9 | )% | $ | 143.5 | $ | 200.9 | (28.6 | )% | ||||||||||||
Highway Products | 107.2 | 87.0 | 23.2 | 284.4 | 243.2 | 16.9 | ||||||||||||||||||
Other | 9.7 | 3.1 | * | 19.8 | 5.6 | * | ||||||||||||||||||
Total revenues | $ | 164.8 | $ | 160.4 | 2.7 | $ | 447.7 | $ | 449.7 | (0.4 | ) | |||||||||||||
Operating profit | $ | 17.8 | $ | 20.3 | $ | 42.2 | $ | 40.7 | ||||||||||||||||
Operating profit margin | 10.8 | % | 12.7 | % | 9.4 | % | 9.1 | % |
Three Months Ended March 31, | ||||||||||||
2012 | 2011 | Percent | ||||||||||
($ in millions) | Change | |||||||||||
Revenues: | ||||||||||||
Concrete and Aggregates | $ | 41.5 | $ | 49.6 | (16.3 | )% | ||||||
Highway Products | 102.5 | 79.7 | 28.6 | |||||||||
Other | 11.0 | 4.3 | * | |||||||||
|
|
|
| |||||||||
Total revenues | $ | 155.0 | $ | 133.6 | 16.0 | |||||||
Operating profit | $ | 10.8 | $ | 8.3 | ||||||||
Operating profit margin | 7.0 | % | 6.2 | % |
* |
Revenues increased for the three and nine month periodsperiod ended September 30, 2011March 31, 2012 compared to the same periodsperiod in 2010 were substantially unchanged as2011 primarily due to higher volumes in our Highway Products business wereand other product lines partially offset by lower revenues in our Concrete and Aggregates business resulting from the divestiture of our asphalt operations in August 2010 and our Central Texas Region ready mix concrete facilities in April 2011. Operating profit and operating margin increased for the three and nine months ended September 30, 2011March 31, 2012 compared to the same period in 2010 changed2011 primarily as a result of higheracquisitions made in our Highway Products sales volumes being offset by reduced Concretebusiness in prior years and Aggregates sales volumes. Additionally, $3.8 million in gains were recognized during the quarter ended September 30, 2010 resulting from divestituresCentral Texas Region divestiture along with improved efficiencies in our Concrete and Aggregates business.
Inland Barge Group
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2011 | 2010 | Percent | 2011 | 2010 | Percent | |||||||||||||||||||
($ in millions) | Change | ($ in millions) | Change | |||||||||||||||||||||
Revenues | $ | 143.2 | $ | 98.9 | 44.8 | % | $ | 398.9 | $ | 295.8 | 34.9 | % | ||||||||||||
Operating profit | $ | 26.0 | $ | 22.4 | $ | 66.8 | $ | 52.2 | ||||||||||||||||
Operating profit margin | 18.2 | % | 22.6 | % | 16.7 | % | 17.6 | % |
Three Months Ended March 31, | ||||||||||||
2012 | 2011 | Percent | ||||||||||
($ in millions) | Change | |||||||||||
Revenues | $ | 169.4 | $ | 137.9 | 22.8 | % | ||||||
Operating profit | $ | 30.0 | $ | 21.7 | ||||||||
Operating profit margin | 17.7 | % | 15.7 | % |
Revenues and operating profit increased for the three and nine month periodsperiod ended September 30, 2011March 31, 2012 compared to the same periodsperiod in the prior year due to higher volumes of hopper and tank barges and a change in the mix of tank barge types. These increasesOperating profit for the three months ended March 31, 2012 includes a $3.4 million net gain from sales of barges previously included in operating profitproperty, plant, and equipment which were affected by the impact, as describedunder lease to third-party customers. The two barges remaining in the following table, of two separate flood events in May 2010 and May 2011 at our manufacturing facilities in Tennessee and Missouri, respectively.
Impact to operating profit as a result of the floods Benefit/(Cost) | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
($ in millions) | ||||||||||||||||
Tennessee flood — May 2010 | ||||||||||||||||
Costs, net of insurance advances related to damages and lost productivity | $ | — | $ | (0.5 | ) | $ | — | $ | (3.9 | ) | ||||||
Insurance proceeds | 2.5 | — | 6.5 | — | ||||||||||||
Gain on disposition of damaged property, plant, and equipment | 0.6 | 10.2 | 0.6 | 10.2 | ||||||||||||
$ | 3.1 | $ | 9.7 | $ | 7.1 | $ | 6.3 | |||||||||
Missouri flood — May 2011 | ||||||||||||||||
Costs, net of insurance advances related to damages and lost productivity | $ | — | $ | — | $ | (8.4 | ) | $ | — | |||||||
Combined net effect of both floods | $ | 3.1 | $ | 9.7 | $ | (1.3 | ) | $ | 6.3 |
As of September 30, 2011,March 31, 2012, the backlog for the Inland Barge Group was approximately $564.4$512.1 million compared to approximately $515.6$460.5 million as of September 30, 2010.March 31, 2011. For multi-year barge orders,agreements, the deliveries for 2012 are included in the backlog at this time; deliveries beyond 2012 are not included in the backlog if specific production quantities for future years have not been determined.
29
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2011 | 2010 | Percent | 2011 | 2010 | Percent | |||||||||||||||||||
($ in millions) | Change | ($ in millions) | Change | |||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Structural wind towers | $ | 52.7 | $ | 65.2 | (19.2 | )% | $ | 188.5 | $ | 198.2 | (4.9 | )% | ||||||||||||
Other | 58.9 | 41.4 | 42.3 | 159.3 | 113.8 | 40.0 | ||||||||||||||||||
Total revenues | $ | 111.6 | $ | 106.6 | 4.7 | $ | 347.8 | $ | 312.0 | 11.5 | ||||||||||||||
Operating profit (loss) | $ | (1.9 | ) | $ | 6.0 | $ | 9.8 | $ | 29.9 | |||||||||||||||
Operating profit (loss) margin | (1.7 | )% | 5.6 | % | 2.8 | % | 9.6 | % |
Three Months Ended March 31, | ||||||||||||
2012 | 2011 | Percent | ||||||||||
($ in millions) | Change | |||||||||||
Revenues: | ||||||||||||
Structural wind towers | $ | 52.8 | $ | 66.5 | (20.6 | )% | ||||||
Other | 72.2 | 52.2 | 38.3 | |||||||||
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| |||||||||
Total revenues | $ | 125.0 | $ | 118.7 | 5.3 | |||||||
Operating profit (loss) | $ | (3.8 | ) | $ | 10.5 | |||||||
Operating profit margin (loss) | (3.0 | )% | 8.8 | % |
Revenues for the three and nine month periodsperiod ended September 30, 2011March 31, 2012 increased when compared to the same periodsperiod in 20102011 as a result of higher shipments of tank containers, and tank heads, and utility structures offsetting lower structural wind tower shipments. Operating profit for the three and nine month periodsperiod ended September 30, 2011March 31, 2012 decreased when compared to the same periodsperiod in 20102011 due to competitive pricing pressures on certaintransition issues arising from changes in product mix in the structural wind towers and new product introduction manufacturing inefficiencies, primarily related tobusiness as well as competitive pricing on structural wind towers.towers, partially offset by increased operating profit in other product lines. As of September 30, 2011,March 31, 2012, the backlog for structural wind towers was approximately $0.9 billion$884.6 million compared to approximately $1.0 billion$974.0 million as of September 30, 2010.
Railcar Leasing and Management Services Group
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2011 | 2010 | Percent | 2011 | 2010 | Percent | |||||||||||||||||||
($ in millions) | Change | ($ in millions) | Change | |||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Wholly owned subsidiaries: | ||||||||||||||||||||||||
Leasing and management | $ | 94.6 | $ | 86.1 | 9.9 | % | $ | 277.8 | $ | 256.2 | 8.4 | % | ||||||||||||
Sales of cars from the lease fleet | 28.9 | 7.2 | * | 39.6 | 18.8 | * | ||||||||||||||||||
123.5 | 93.3 | 32.4 | 317.4 | 275.0 | 15.4 | |||||||||||||||||||
TRIP Holdings: | ||||||||||||||||||||||||
Leasing and management | 29.2 | 28.8 | 1.4 | 87.4 | 87.0 | 0.5 | ||||||||||||||||||
Sales of cars from the lease fleet | 0.4 | — | * | 8.5 | 0.9 | * | ||||||||||||||||||
29.6 | 28.8 | 2.8 | 95.9 | 87.9 | 9.1 | |||||||||||||||||||
Total revenues | $ | 153.1 | $ | 122.1 | 25.4 | $ | 413.3 | $ | 362.9 | 13.9 | ||||||||||||||
Operating Profit: | ||||||||||||||||||||||||
Wholly owned subsidiaries: | ||||||||||||||||||||||||
Leasing and management | $ | 40.3 | $ | 34.3 | $ | 116.3 | $ | 94.9 | ||||||||||||||||
Sales of cars from the lease fleet | 6.5 | 2.3 | 10.9 | 4.5 | ||||||||||||||||||||
46.8 | 36.6 | 127.2 | 99.4 | |||||||||||||||||||||
TRIP Holdings: | ||||||||||||||||||||||||
Leasing and management | 17.4 | 16.3 | 51.3 | 50.9 | ||||||||||||||||||||
Sales of cars from the lease fleet | — | — | 0.1 | — | ||||||||||||||||||||
17.4 | 16.3 | 51.4 | 50.9 | |||||||||||||||||||||
Total operating profit | $ | 64.2 | $ | 52.9 | $ | 178.6 | $ | 150.3 | ||||||||||||||||
Operating profit margin: | ||||||||||||||||||||||||
Leasing and management | 46.6 | % | 44.0 | % | 45.9 | % | 42.5 | % | ||||||||||||||||
Sales of cars from the lease fleet | 22.2 | 31.9 | 22.9 | 22.8 | ||||||||||||||||||||
Total operating profit margin | 41.9 | 43.3 | 43.2 | 41.4 | ||||||||||||||||||||
Fleet utilization: | ||||||||||||||||||||||||
Wholly owned subsidiaries | 99.4 | % | 98.9 | % | 99.4 | % | 98.9 | % | ||||||||||||||||
TRIP Holdings | 99.9 | % | 99.6 | % | 99.9 | % | 99.6 | % |
Three Months Ended March 31, | ||||||||||||
2012 | 2011 | Percent | ||||||||||
($ in millions) | Change | |||||||||||
Revenues: | ||||||||||||
Wholly owned subsidiaries: | ||||||||||||
Leasing and management | $ | 98.3 | $90.3 | 8.9 | % | |||||||
Railcar sales(1) | 14.9 | — | * | |||||||||
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| ||||||||||
113.2 | 90.3 | 25.4 | ||||||||||
TRIP Holdings: | ||||||||||||
Leasing and management | 29.1 | 29.5 | (1.4 | ) | ||||||||
Railcar sales(1) | — | — | — | |||||||||
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| ||||||||||
29.1 | 29.5 | (1.4 | ) | |||||||||
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| ||||||||||
Total revenues | $ | 142.3 | $119.8 | 18.8 | ||||||||
Operating Profit: | ||||||||||||
Wholly owned subsidiaries: | ||||||||||||
Leasing and management | $ | 43.1 | $36.5 | |||||||||
Railcar sales(1): | ||||||||||||
Railcars owned one year or less at the time of sale | 2.9 | — | ||||||||||
Railcars owned more than one year at the time of sale | 4.1 | 1.0 | ||||||||||
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| ||||||||||
50.1 | 37.5 | |||||||||||
TRIP Holdings: | ||||||||||||
Leasing and management | 16.8 | 17.1 | ||||||||||
Railcar sales(1): | ||||||||||||
Railcars owned one year or less at the time of sale | — | — | ||||||||||
Railcars owned more than one year at the time of sale | (0.4 | ) | 0.1 | |||||||||
|
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| ||||||||||
16.4 | 17.2 | |||||||||||
|
|
| ||||||||||
Total operating profit | $ | 66.5 | $54.7 | |||||||||
Operating profit margin: | ||||||||||||
Leasing and management | 47.0 | % | 44.7% | |||||||||
Railcar sales(1) | * | * | ||||||||||
Total operating profit margin | 46.7 | 45.7 | ||||||||||
Fleet utilization: | ||||||||||||
Wholly-owned subsidiaries | 99.4 | % | 99.2% | |||||||||
TRIP Holdings | 99.9 | % | 99.8% | |||||||||
Total fleet | 99.5 | % | 99.4% |
* | ||
Not meaningful |
(1) | Effective December 31, 2011, the Company adopted the emerging industry policy of recognizing revenue from the sales of railcars from the lease fleet on a gross basis in leasing revenues and cost of revenues if the railcar has been owned by the lease fleet for one year or less at the time of sale. Sales of railcars from the lease fleet which have been owned by the lease fleet for more than one year are recognized as a net gain or loss from the disposal of a long-term asset. Prior year reported balances have been reclassified to conform to this policy. |
Total revenues increased for the three and nine month periodsperiod ended September 30, 2011March 31, 2012 compared to the same periodsperiod last year due to increased utilization,railcar sales from the lease fleet, as well as rental revenues related to additions to the lease fleet, higher rental rates, and total sales from the lease fleet.
Operating profit increased for the three and nine month periodsperiod ended September 30, 2011 increasedMarch 31, 2012 compared to the same periodsperiod in 20102011 due to increased utilization,profit from lease fleet sales, lease fleet additions, higher rental rates, lower maintenance expenses, and profit from lease fleet sales.
To fund the continued expansion of its lease fleet to meet market demand, the Leasing Group generally uses its non-recourse $475 million warehouse facility or excess cash to provide initial financing for a portion of the purchase price of the railcars. After initial financing, the Leasing Group generally obtains long-term financing for the railcars in the lease
30
Information regarding the Leasing Group’s lease fleet as of September 30, 2011March 31, 2012 follows:
Average remaining | ||||||||||||
No. of cars | Average age | lease term | ||||||||||
Wholly-owned subsidiaries | 54,445 | 6.4 | 3.5 | |||||||||
TRIP Holdings | 14,600 | 4.1 | 3.3 |
No. of cars | Average age | Average remaining lease term | ||||||||||
Wholly-owned subsidiaries | 55,485 | 6.7 | 3.4 | |||||||||
TRIP Holdings | 14,470 | 4.5 | 3.1 | |||||||||
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| |||||||||||
Total fleet | 69,955 | 6.2 | 3.3 |
All Other
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2011 | 2010 | Percent | 2011 | 2010 | Percent | |||||||||||||||||||
($ in millions) | Change | ($ in millions) | Change | |||||||||||||||||||||
Revenues. | $ | 18.0 | $ | 12.4 | 45.2 | % | $ | 45.4 | $ | 34.5 | 31.6 | % | ||||||||||||
Operating loss | $ | (0.3 | ) | $ | (1.3 | ) | $ | (0.8 | ) | $ | (6.0 | ) |
Three Months Ended March 31, | ||||||||||||
2012 | 2011 | Percent | ||||||||||
($ in millions) | Change | |||||||||||
Revenues | $ | 15.7 | $ | 13.1 | 19.8 | % | ||||||
Operating profit (loss) | $ | 1.2 | $ | (0.3 | ) |
The increase in revenues and operating profit for the three and nine month periodsperiod ended September 30, 2011 overMarch 31, 2012 compared to the same periodsperiod last year was primarily due to an increase in intersegment sales by our transportation company. Operating loss decreased
Corporate
Three Months Ended March 31, | ||||||||||||
2012 | 2011 | Percent | ||||||||||
($ in millions) | Change | |||||||||||
Operating costs | $ | 11.6 | $ | 10.7 | 8.4 | % |
Liquidity and Capital Resources
Cash Flows
The following table summarizes our cash flows from operating, investing, and financing activities for the three months ended March 31, 2012 and nine month periods ended September 30, 2011 over the same periods last year primarily due to higher intersegment transportation sales.
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Total cash provided by (required by) | ||||||||
Operating activities | $ | 71.0 | $ | (5.6 | ) | |||
Investing activities | (77.0 | ) | (35.6 | ) | ||||
Financing activities | (40.3 | ) | (52.5 | ) | ||||
|
|
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| |||||
Net decrease in cash and cash equivalents | $ | (46.3 | ) | $ | (93.7 | ) | ||
|
|
|
|
Operating Activities. Net cash provided by operating activities for the ninethree months ended September 30, 2011 and 2010March 31, 2012 was $20.7$71.0 million and $47.2compared to net cash required by operating activities of $5.6 million respectively.for the three months ended March 31, 2011. Cash flow provided by operating activities decreasedincreased due primarily, to higher operating profits in 2012, a decrease in receivables during the first quarter of 2012 compared with an overall increase in accounts receivablereceivables during the first quarter of 2011, and lower increases in inventories in 20112012 compared with 20102011.
Receivables at March 31, 2012 decreased by $17.1 million or 4.4% since December 31, 2011, primarily due to lower receivables from the Energy Equipment Group partially offset by higher operating profitsreceivables in 2011.
Investing Activities.Net cash required by investing activities for the ninethree months ended September 30, 2011 and 2010March 31, 2012 was $117.7$77.0 million and $332.7compared to $35.6 million respectively. Investments in short-term marketable securities decreased by $158.0 million duringfor the ninethree months ended September 30, 2011 compared with an increase of $150.0 million during the nine months ended September 30, 2010.March 31, 2011. Capital expenditures for the ninethree months ended September 30, 2011March 31, 2012 were $288.1$116.4 million, of which $236.0$100.0 million were for additions to the lease fleet and $13.3 million were for replacement of flood-damaged property.fleet. This compares to $204.7$89.5 million of capital expenditures for the same period last year, of which $173.2$81.5 million were for additions to the lease fleet. Capital expenditures for 2012 are projected to be approximately $400.0 to $475.0 million, including $300.0 to $350.0
million in net lease fleet and $9.7 million were for replacement of flood-damaged property.additions. Proceeds from the sale of property, plant, and equipment were $54.9and other assets totaled $39.4 million for the ninethree months ended September 30,March 31, 2012 composed primarily of railcar sales from the lease fleet owned more than one year at the time of sale totaling $26.5 million. This compares to $12.9 million for the same period in 2011 composed primarily of railcar sales from the lease fleet owned more than one year at the time of sale totaling $48.1$10.0 million. This compares to $68.9 million for the same period in 2010 composed primarily of the sale of assets in our Construction Products Group for $30.8 million, railcar sales from the lease fleet totaling $19.7 million, and proceeds from the disposition of flood-damaged property, plant, and equipment of $11.9 million. Net cash required related to acquisitions amounted to $42.5 million and $46.9 million for the nine months ended September 30, 2011 and 2010, respectively.
Financing Activities.Net cash providedrequired by financing activities during the ninethree months ended September 30, 2011March 31, 2012 was $15.8$40.3 million compared to $175.1$52.5 million of cash required by financing activities for the same period in 2010.2011. During the ninethree months ended September 30, 2011 we borrowed $1,124.5 million, primarily consisting of $920.0 million raised to refinance the TRIP Warehouse Loan as described further below, with the remainder primarily from our TILC warehouse loan facility. During the nine months ended September 30,March 31, 2012 and 2011, we retired $1,068.5$52.6 million and $42.8 million, respectively, in debt principally consisting of repayment of the TRIP Warehouse Loan. During the comparable prior year period we retired $117.3 million in debt including $40.0 million in debt assumed as a result of the Quixote acquisition. We also purchased an additional equity interest in TRIP Holdings from one of its other investors for $28.6 million during the nine months ended September 30,
31
Other Financing Activities
At September 30, 2011March 31, 2012 and for the ninethree month period then ended, there were no borrowings under our $425.0 million revolving credit facility that matures on October 19, 2012.20, 2016. Interest on the revolving credit facility is calculated at prime or Libor plus 75.0 basis points. After $82.6 million was considered for letters of credit, $342.4 million was available under the revolving credit facility as of September 30, 2011. On October 20, 2011, we amended and extended the facility for an additional four years and it now matures on October 20, 2016. Borrowings under the amended credit facility bear interest at Libor plus 150.0 basis points or prime plus 50.0 basis points. Financial covenants are similar but no longer include a minimum net worth requirement.
The $475$475.0 million TILC warehouse loan facility, established to finance railcars owned by TILC, had $280.7$282.7 million outstanding and $194.3$192.3 million available as of September 30, 2011.March 31, 2012. The warehouse loan is a non-recourse obligation secured by a portfolio of railcars and operating leases, certain cash reserves, and other assets acquired and owned by the warehouse loan facility. The principal and interest of this indebtedness are paid from the cash flows of the underlying leases. Advances under the facility bear interest at a defined index rate plus a margin, for an all-in interest rate of 2.25% at September 30, 2011.March 31, 2012. In February 2011, the warehouse loan facility was renewed for an additional two years and now matures in February 2013. Amounts outstanding at maturity, absent renewal, will be payable in three installments in August 2013, February 2014, and August 2014.
In December 9, 2010, the Company’s Board of Directors authorized a new $200 million share repurchase program, effective January 1, 2011. This program replaced the Company’s previous share repurchase program and2011, which expires on December 31, 2012. No shares were repurchased under this program during the ninethree months ended September 30, 2011.
Following an extended period of weak demand for new railcars improved significantly in 2011through 2010, demand for new railcars recovered sharply, primarily due to demand foran increase in the shipment of commodities, replacement of older railcars, and federal tax benefits received from taking delivery of railcars in 2011 and 2012. While moderating from the accelerated pace in the first half of 2011, demand conditions and corresponding order levels for new railcars in the first quarter of 2012 continued to be favorable. Orders for structural wind towers have been slow since mid-2008 when energy development companies encountered tightened credit markets, coupled with lower demand and prices for electricity, and heightened competition arising from declining natural gas sales.prices and imports from foreign manufacturers. The continued slowdown in the residential and commercial construction markets negatively impacted the results of our Construction Products Group as well. We continually assess our manufacturing capacity and take steps to align our production capacity with demand for our products. As a result of our assessment, we adapted to the rapid decline in market conditions by reducing our production footprint and staffing levels and causing certain facilities to be on non-operating status, but to the extent that demand increases, these facilities on non-operating status would be available for future operations. Due to improvements in demand, we have increased production staff at certain facilities have taken on additional production staff insince late 2010 and during 2011.
Equity Investment
See Note 65 of the Consolidated Financial Statements for information about the investment in TRIP Holdings.
32
We expect to finance future operating requirements with cash on hand, cash flows from operations, and depending on market conditions, short-term and long-term debt, and equity. Debt instruments that the Company has utilized include its revolving credit facility, the TILC warehouse facility, senior notes, convertible subordinated notes, asset-backed securities, and sale/leasebacksale-leaseback transactions. The Company has also issued equity at various times. As of September 30, 2011,March 31, 2012, the Company had $342.4unrestricted cash balances of $304.8 million, $352.4 million available under its revolving credit facility, and $194.3$192.3 million available under its TILC warehouse facility. Despite the volatile conditions in both the credit and stock markets, theThe Company believes it has access to adequate capital resources to fund operating requirements and is an active participant in the credit markets.
Off Balance Sheet Arrangements
See Note 54 of the Consolidated Financial Statements for information about off balance sheet arrangements.
Derivative Instruments
We use derivative instruments to mitigate the impact of changes in interest rates and pricing for zinc, natural gas, and diesel fuel prices, as well as to convert a portion of our variable-rate debt to fixed-rate debt. Additionally, we use derivative
instruments to mitigate the impact of unfavorable fluctuations in foreign currency exchange rates. We also use derivatives to lock in fixed interest rates in anticipation of future debt issuances. Derivative instruments that are designated and qualify as cash flow hedges are accounted for in accordance with applicable accounting standards. See Note 32 Fair Value Accounting to the consolidated financial statements for discussion of how the Company valued its commodity hedges and interest rate swaps at September 30, 2011.
Interest rate hedges
Included in accompanying balance sheet | ||||||||||||||||||||
at September 30, 2011 | ||||||||||||||||||||
AOCL— | ||||||||||||||||||||
Notional | Interest | loss/ | Noncontrolling | |||||||||||||||||
Amount | Rate(1) | Liability | (income) | Interest | ||||||||||||||||
(in millions, except %) | ||||||||||||||||||||
Interest rate locks: | ||||||||||||||||||||
2005-2006 | $ | 200.0 | 4.87 | % | — | $ | (2.4 | ) | — | |||||||||||
2006-2007 | $ | 370.0 | 5.34 | % | — | $ | 11.4 | — | ||||||||||||
TRIP Holdings(2) | $ | 788.5 | 3.60 | % | — | $ | 24.2 | $ | 18.2 | |||||||||||
Interest rate swaps: | ||||||||||||||||||||
TRIP Rail Master Funding secured railcar equipment notes | $ | 92.3 | 2.62 | % | $ | 4.7 | $ | 2.6 | $ | 2.0 | ||||||||||
2008 debt issuance | $ | 482.1 | 4.13 | % | $ | 52.4 | $ | 50.9 | — |
Included in accompanying balance sheet at March 31, 2012 | ||||||||||||||||||||
Notional Amount | Interest Rate(1) | Liability | AOCL – loss/ (income) | Noncontrolling Interest | ||||||||||||||||
(in millions, except %) | ||||||||||||||||||||
Interest rate locks: | ||||||||||||||||||||
2005-2006 | $ | 200.0 | 4.87 | % | — | $ | (2.2 | ) | — | |||||||||||
2006-2007 | $ | 370.0 | 5.34 | % | — | $ | 9.7 | — | ||||||||||||
TRIP Holdings | $ | 788.5 | 3.60 | % | — | $ | 22.5 | $ | 16.9 | |||||||||||
Interest rate swaps: | ||||||||||||||||||||
TRIP Rail Master Funding secured railcar equipment notes | $ | 86.7 | 2.62 | % | $ | 4.2 | $ | 2.4 | $ | 1.8 | ||||||||||
2008 debt issuance | $ | 467.2 | 4.13 | % | $ | 46.2 | $ | 44.4 | — |
(1) | Weighted average fixed interest rate | ||
Effect on interest expense—increase/(decrease) | ||||||||||||||||||||
Three Months Ended | Nine Months Ended | Expected effect | ||||||||||||||||||
September 30, | September 30, | during next twelve | ||||||||||||||||||
2011 | 2010 | 2011 | 2010 | months(1) | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Interest rate locks: | ||||||||||||||||||||
2005-2006 | $ | (0.1 | ) | $ | (0.1 | ) | $ | (0.3 | ) | $ | (0.3 | ) | $ | (0.3 | ) | |||||
2006-2007 | $ | 0.9 | $ | 0.9 | $ | 2.7 | $ | 2.8 | $ | 3.4 | ||||||||||
TRIP Holdings(2) | $ | 1.8 | $ | 7.2 | $ | 15.9 | $ | 22.0 | $ | 6.0 | ||||||||||
Interest rate swaps: | ||||||||||||||||||||
TILC warehouse | — | $ | 0.1 | — | $ | 0.5 | — | |||||||||||||
TRIP Rail Master Funding secured railcar equipment notes | $ | 0.5 | $ | — | $ | 0.5 | $ | — | $ | 1.8 | ||||||||||
2008 debt issuance | $ | 4.6 | $ | 4.5 | $ | 14.3 | $ | 15.2 | $ | 17.6 |
Effect on interest expense – increase/(decrease) | ||||||||||||
Three Months Ended March 31, | Expected effect during next twelve months(1) | |||||||||||
2012 | 2011 | |||||||||||
(in millions) | ||||||||||||
Interest rate locks: | ||||||||||||
2005-2006 | $ | (0.1 | ) | $ | (0.1 | ) | $ | (0.3 | ) | |||
2006-2007 | $ | 0.9 | $ | 0.9 | $ | 3.3 | ||||||
TRIP Holdings | $ | 1.5 | $ | 7.3 | $ | 6.0 | ||||||
Interest rate swaps: | ||||||||||||
TRIP Rail Master Funding secured railcar equipment notes | $ | 0.5 | $ | — | $ | 1.9 | ||||||
2008 debt issuance | $ | 4.2 | $ | 4.5 | $ | 17.4 |
(1) | Based on fair value as of | ||
During 2005 and 2006, we entered into interest rate swap transactions in anticipation of a future debt issuance. These instruments, with a notional amount of $200 million, fixed the interest rate on a portion of a future debt issuance associated with a railcar leasing transaction in 2006 and settled at maturity in the first quarter of 2006. These interest rate swaps were being accounted for as cash flow hedges with changes in the fair value of the instruments of $4.5 million in income
33
In anticipation of a future debt issuance, we entered into interest rate swap transactions during the fourth quarter of 2006 and during 2007. These instruments, with a notional amount of $370 million, hedged the interest rate on a portion of a future debt issuance associated with an anticipated railcar leasing transaction, which closed in May 2008. These instruments settled during the second quarter of 2008 and were accounted for as cash flow hedges with changes in the fair value of the instruments of $24.5 million recorded as a loss in AOCL through the date the related debt issuance closed in May 2008. The balance is being amortized over the term of the related debt. The effect on interest expense is due to amortization of the AOCL balance.
In May 2008, we entered into an interest rate swap transaction that is being used to fix the Libor component of the debt issuance which closed in May 2008. The effect on interest expense results primarily from monthly interest settlements.
Between 2007 and 2009, TRIP Holdings, as required by its warehouse loan agreement, entered into interest rate swap transactions, all of which qualified as cash flow hedges, to reduce the effect of changes in variable interest rates. In July 2011, these interest rate hedges were terminated in connection with the refinancing of the TRIP Warehouse Loan. Balances included in AOCL at the date the hedges were terminated are being amortized over the expected life of the new debt with $6.0 million of additional interest expense expected to be recognized during the next twelve months following September 30, 2011.March 31,
2012. Also in July 2011, TRIP Holdings’ wholly-owned subsidiary, TRIP Rail Master Funding, entered into an interest rate swap transaction with a notional amount of $94.1 million to reduce the effect of changes in variable interest rates associated with the Class A-1b secured railcar equipment notes.
See Note 119 Debt for a discussion of the related debt instruments.
Other Derivatives
Effect on operating income—increase/(decrease) | ||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||
September 30, | September 30, | |||||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||||
(in millions) | ||||||||||||||||||||
Fuel hedges(1) | ||||||||||||||||||||
Effect of mark to market valuation | $ | (0.2 | ) | $ | (0.0 | ) | $ | 0.0 | $ | (0.1 | ) | |||||||||
Settlements | 0.2 | (0.1 | ) | 0.3 | (0.1 | ) | ||||||||||||||
$ | — | $ | (0.1 | ) | $ | 0.3 | $ | (0.2 | ) | |||||||||||
Foreign exchange hedges(2) | $ | 0.6 | $ | (0.3 | ) | $ | 0.0 | $ | (0.6 | ) |
Effect on operating income – increase/(decrease) | ||||||||
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
(in millions) | ||||||||
Fuel hedges(1) | ||||||||
Effect of mark to market valuation | $ | 0.1 | $ | 0.5 | ||||
Settlements | 0.1 | 0.0 | ||||||
|
|
|
| |||||
$ | 0.2 | $ | 0.5 | |||||
Foreign exchange hedges(2) | $ | (0.4 | ) | $ | (0.6 | ) |
(1) | Included in cost of revenues in the accompanying consolidated statement of |
(2) | Included in other, net in the accompanying consolidated statement of |
Natural gas and diesel fuel
We maintain a program to mitigate the impact of fluctuations in the price of natural gas and diesel fuel purchases. The intent of the program is to protect our operating profit from adverse price changes by entering into derivative instruments. For those instruments that do not qualify for hedge accounting treatment, any changes in their valuation are recorded directly to the consolidated statement of operations. The amount recorded in the consolidated balance sheet as of September 30, 2011March 31, 2012 for these instruments was not significant.
Foreign exchange hedge
We enter into foreign exchange hedges to mitigate the impact on operating profit of unfavorable fluctuations in foreign currency exchange rates. These instruments are short term with quarterly maturities and no remaining balance in AOCL as of September 30, 2011.
34
As of September 30, 2011,March 31, 2012, other commercial commitments related to letters of credit increaseddecreased slightly to $82.6$72.6 million from $79.9$74.1 million as of December 31, 2010.2011. Refer to Note 119 of the Consolidated Financial Statements for changes to our outstanding debt and maturities. Other commercial commitments that relate to operating leases including sale/leaseback transactions were basically unchanged as of September 30, 2011.
Recent Accounting Pronouncements
See Note 1 of the Consolidated Financial Statements for information about recent accounting pronouncements.
Forward-Looking Statements
This quarterly report on Form 10-Q (or statements otherwise made by the Company or on the Company’s behalf from time to time in other reports, filings with the Securities and Exchange Commission (“SEC”), news releases, conferences, World Wide Web postings or otherwise) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not historical facts are forward-looking statements and involve risks and uncertainties. These forward-looking statements include expectations, beliefs, plans, objectives, future financial performances, estimates, projections, goals, and forecasts. Trinity uses the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “forecasts,” “may,” “will,” “should,” and similar expressions to identify these forward-looking statements. Potential factors, which could cause our actual results of operations to differ materially from those in the forward-looking statements include, among others:
market conditions and demand for our business products and services;
the cyclical nature of industries in which we compete;
variations in weather in areas where our construction products are sold, used, or installed;
naturally-occurring events and disasters causing disruption to our manufacturing, product deliveries, and production capacity, thereby giving rise to an increase in expenses, loss of revenue, and property losses;
the timing of introduction of new products;
the timing and delivery of customer orders or a breach of customer contracts;
the credit worthiness of customers and their access to capital;
product price changes;
changes in mix of products sold;
the extent of utilization of manufacturing capacity;
availability and costs of steel, component parts, supplies, and other raw materials;
competition and other competitive factors;
changing technologies;
surcharges and other fees added to fixed pricing agreements for steel, component parts, supplies and other raw materials;
interest rates and capital costs;
counter-party risks for financial instruments;
long-term funding of our operations;
taxes;
the stability of the governments and political and business conditions in certain foreign countries, particularly Mexico;
changes in import and export quotas and regulations;
business conditions in emerging economies;
costs and results of litigation; and
legal, regulatory, and environmental issues.
Any forward-looking statement speaks only as of the date on which such statement is made. Trinity undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made.
35
There has been no material change in our market risks since December 31, 20102011 as set forth in Item 7A of our 20102011 Form 10-K. Refer to Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for a discussion of debt-related activity and the impact of hedging activity for the three and nine months ended September 30, 2011.
Disclosure Controls and Procedures
The Company maintains controls and procedures designed to ensure that it is able to collect the information it is required to disclose in the reports it files with the SEC, and to process, summarize, and disclose this information within the time periods specified in the rules of the SEC. The Company’s Chief Executive and Chief Financial Officers are responsible for establishing and maintaining these procedures and, as required by the rules of the SEC, evaluating their effectiveness. Based on their evaluation of the Company’s disclosure controls and procedures which took place as of the end of the period covered by this report, the Chief Executive and Chief Financial Officers believe that these procedures are effective to ensure that the Company is able to collect, process, and disclose the information it is required to disclose in the reports it files with the SEC within the required time periods.
Internal Controls
The Company maintains a system of internal controls designed to provide reasonable assurance that: transactions are executed in accordance with management’smanagement;s general or specific authorization; transactions are recorded as necessary (1) to permit preparation of financial statements in conformity with generally accepted accounting principles, and (2) to maintain accountability for assets; access to assets is permitted only in accordance with management’s general or specific authorization; and the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
During the period covered by this report, there have been no changes in the Company’s internal controls over financial reporting that have materially affected or are reasonably likely to materially affect the Company’s internal controls over financial reporting.
36
The information provided in Note 1816 of the Consolidated Financial Statements is hereby incorporated into this Part II, Item 1 by reference.
There have been no material changes from the risk factors previously disclosed in Item 1A of our 20102011 Form 10-K.
This table provides information with respect to purchases by the Company of shares of its Common Stock during the quarter ended September 30, 2011:
Maximum | ||||||||||||||||
Total | Number (or | |||||||||||||||
Number of | Approximate | |||||||||||||||
Shares (or | Dollar Value) of | |||||||||||||||
Units) | Shares (or | |||||||||||||||
Purchased | Units) | |||||||||||||||
as | that May Yet | |||||||||||||||
Part of | Be | |||||||||||||||
Average | Publicly | Purchased | ||||||||||||||
Number of | Price | Announced | Under the | |||||||||||||
Period | Shares Purchased(1) | Paid per Share(1) | Plans or Programs(2) | Plans or Programs(2) | ||||||||||||
July 1, 2011 through July 31, 2011 | — | $ | — | — | $ | 200,000,000 | ||||||||||
August 1, 2011 through August 31, 2011 | 122 | $ | 22.41 | — | $ | 200,000,000 | ||||||||||
September 1, 2011 through September 30, 2011 | 11,167 | $ | 24.79 | — | $ | 200,000,000 | ||||||||||
Total | 11,289 | $ | 24.77 | — | $ | 200,000,000 | ||||||||||
Period | Number of Shares Purchased(1) | Average Price Paid per Share (1) | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2) | Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs(2) | ||||||||||||
January 1, 2012 through January 31, 2012 | 1,670 | $ | 31.53 | — | $ | 200,000,000 | ||||||||||
February 1, 2012 through February 29, 2012 | 6,907 | $ | 33.49 | — | $ | 200,000,000 | ||||||||||
March 1, 2012 through March 31, 2012 | 1,537 | $ | 35.00 | — | $ | 200,000,000 | ||||||||||
|
|
|
| |||||||||||||
Total | 10,114 | $ | 33.39 | — | $ | 200,000,000 | ||||||||||
|
|
|
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(1) | These columns include the following transactions during the three months ended March 31, 2012: (i) the deemed surrender to the Company of 8,353 shares of Common Stock to pay the exercise price and satisfy tax withholding in connection with the exercise of employee stock options, (ii) the surrender to the Company of | |
(2) |
37
The Third Agreement amended and restated in its entirety the Second Amended and Restated Credit Agreement (the “Second Agreement”), dated as of April 20, 2005, between the Company, JPMorgan, and the lenders party thereto. The amount of the facility remained at $425.0 million, the maturity of the facility was extended to October 20, 2016, and applicable rates and fees increased. Financial covenants are similar to those in the Second Agreement but no longer include a minimum net worth requirement.
Pending | ||||||||||||||||||||||||||||||||||||
Total no. of | Total no. | legal action | ||||||||||||||||||||||||||||||||||
Total no. of | unwarrantable | of | Total dollar | Received | before the | |||||||||||||||||||||||||||||||
significant | compliance | Total no. | imminent | value of | written | Federal | ||||||||||||||||||||||||||||||
and | Total no. | failure | of flagrant | danger | proposed | Total no. | notice | Mine Safety | ||||||||||||||||||||||||||||
substantial | of orders | citations and | violations | orders | assessments | of | under | and Health | ||||||||||||||||||||||||||||
violations | under | orders under | under | under | from | mining | Mine Act | Review | ||||||||||||||||||||||||||||
Quarry Site | under Mine | Mine Act | Mine Act | Mine Act | Mine Act | MSHA (in | related | §104(e) | Commission | |||||||||||||||||||||||||||
(MSHA ID) | Act §104 | §104(b) | §104(d) | §110(b)(2) | §107(a) | thousands) | fatalities | (yes/no)? | (yes/no)? | |||||||||||||||||||||||||||
Rye (4102547) | 0 | 0 | 0 | 0 | 0 | $ | 0.000 | 0 | No | No | ||||||||||||||||||||||||||
Belton (4101043) | 0 | 0 | 0 | 0 | 0 | $ | 0.000 | 0 | No | No | ||||||||||||||||||||||||||
Malloy Bridge (4102946) | 0 | 0 | 0 | 0 | 0 | $ | 0.000 | 0 | No | No | ||||||||||||||||||||||||||
Cottonwood (4104553) | 0 | 0 | 0 | 0 | 0 | $ | 0.000 | 0 | No | No | ||||||||||||||||||||||||||
Wills Point (4104113) | 0 | 0 | 0 | 0 | 0 | $ | 0.000 | 0 | No | No | ||||||||||||||||||||||||||
Waco-Angerman (4103492) | 0 | 0 | 0 | 0 | 0 | $ | 0.000 | 0 | No | No | ||||||||||||||||||||||||||
Indian Village (1600348) | 0 | 0 | 0 | 0 | 0 | $ | 0.100 | 0 | No | No | ||||||||||||||||||||||||||
Alvord (4103689)(1) | 0 | 0 | 0 | 0 | 0 | $ | 0.000 | 0 | No | No | ||||||||||||||||||||||||||
Lockesburg (0301681) | 0 | 0 | 0 | 0 | 0 | $ | 0.000 | 0 | No | No | ||||||||||||||||||||||||||
Kopperl (4104450) | 0 | 0 | 0 | 0 | 0 | $ | 0.000 | 0 | No | No | ||||||||||||||||||||||||||
Wills Point II (4104071) | 0 | 0 | 0 | 0 | 0 | $ | 0.000 | 0 | No | No | ||||||||||||||||||||||||||
Beckett (4101849) | 0 | 0 | 0 | 0 | 0 | $ | 0.000 | 0 | No | No | ||||||||||||||||||||||||||
Paradise (4103253) | 0 | 0 | 0 | 0 | 0 | $ | 0.000 | 0 | No | No | ||||||||||||||||||||||||||
Anacoco (1600543) | 0 | 0 | 0 | 0 | 0 | $ | 0.100 | 0 | No | No |
None.
Exhibit Number | Description |
38
3.2 | Amended and Restated By-Laws of Trinity Industries, Inc., as amended March 8, 2012 (filed herewith). | |
10.1 | ||
31.1 | Rule 13a-15(e) and 15d-15(e) Certification of Chief Executive Officer (filed herewith). | |
31.2 | Rule 13a-15(e) and 15d-15(e) Certification of Chief Financial Officer (filed herewith). | |
32.1 | Certification pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). | |
32.2 | Certification pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). | |
Mine Safety Disclosure Exhibit (filed herewith). | ||
101.INS | XBRL Instance Document (filed electronically herewith)* | |
101.SCH | XBRL Taxonomy Extension Schema Document (filed electronically herewith)* | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document (filed electronically herewith)* | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document (filed electronically herewith)* | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document (filed electronically herewith)* | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document (filed electronically herewith)* |
* | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability. |
39
TRINITY INDUSTRIES, INC. | By /s/ JAMES E. PERRY | |||
Registrant | James E. Perry | |||
Senior Vice President and | ||||
Chief Financial Officer | ||||
April 26, 2012 |
40
Exhibit Number | Description | |||
Trinity Industries, Inc. Supplemental Retirement Plan Trust | ||||
31.1 | Rule 13a-15(e) and 15d-15(e) Certification of Chief Executive Officer (filed herewith). | |||
31.2 | Rule 13a-15(e) and 15d-15(e) Certification of Chief Financial Officer (filed herewith). | |||
32.1 | Certification pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). | |||
32.2 | Certification pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). | |||
95 | Mine Safety Disclosure Exhibit (filed herewith). | |||
101.INS | XBRL Instance Document (filed electronically herewith)* | |||
101.SCH | XBRL Taxonomy Extension Schema Document (filed electronically herewith)* | |||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document (filed electronically herewith)* | |||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document (filed electronically herewith)* | |||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document (filed electronically herewith)* | |||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document (filed electronically herewith)* |
* | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability. |
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