UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
| | |
þ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007MARCH 31, 2008
OR
| | |
o | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto ___to ___..
Commission File Number 1-6903
Trinity Industries, Inc.
(Exact name of registrant as specified in its charter)
| | |
Delaware | | 75-0225040 |
(State of Incorporation) | | 75-0225040 (I.R.S. Employer Identification No.) |
| | |
2525 Stemmons Freeway | | |
Dallas, Texas | | 75207-2401 |
(Address of principal executive offices) | | 75207-2401 (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 and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a non-accelerated filer.smaller reporting company. See definitionthe definitions of “large accelerated filer,” “accelerated filer,” and large accelerated filer”“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ | | | | | | |
| | | | | | |
Large accelerated filerþ | | Accelerated filero Non-accelerated filer o | | Non-accelerated filero | | Smaller reporting companyo |
| | | | (Do not check if a smaller reporting company) | | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yeso Noþ.
At October 26, 2007April 25, 2008 there were 81,494,23380,945,644 shares of the Registrant’s common stock outstanding.
TRINITY INDUSTRIES, INC.
FORM 10-Q
TABLE OF CONTENTS
1
PART I
Item 1. Financial Statements
Trinity Industries, Inc. and Subsidiaries
Consolidated Statements of Operations
| | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | | | | | | | | |
| | September 30, | | September 30, | | | Three Months Ended | |
| | 2007 | | 2006 | | 2007 | | 2006 | | | March 31, | |
| | (unaudited) | | | 2008 | | 2007 | |
| | (in millions, except per share amounts) | | | (unaudited) | |
| | | (in millions, except per share amounts) | |
Revenues | | $ | 1,008.4 | | $ | 810.1 | | $ | 2,729.5 | | $ | 2,383.9 | | | $ | 898.9 | | $ | 828.5 | |
Operating costs: | | |
Cost of revenues | | 804.9 | | 660.0 | | 2,194.5 | | 1,949.6 | | | 716.5 | | 665.7 | |
Selling, engineering, and administrative expenses | | 56.6 | | 49.4 | | 168.3 | | 149.7 | | | 56.2 | | 54.1 | |
| | | | | | | | | | | | | | |
| | 861.5 | | 709.4 | | 2,362.8 | | 2,099.3 | | | 772.7 | | 719.8 | |
| | | | | | | | | | | | | | |
Operating profit | | 146.9 | | 100.7 | | 366.7 | | 284.6 | | | 126.2 | | 108.7 | |
| | |
Other (income) expense: | | |
Interest income | | | (2.5 | ) | | | (5.7 | ) | | | (8.8 | ) | | | (9.3 | ) | | | (2.3 | ) | | | (3.7 | ) |
Interest expense | | 19.5 | | 18.1 | | 55.8 | | 46.5 | | | 21.0 | | 17.5 | |
Other, net | | | (3.6 | ) | | | (1.3 | ) | | | (14.5 | ) | | | (13.9 | ) | | | (1.1 | ) | | | (1.0 | ) |
| | | | | | | | | | | | | | |
| | 13.4 | | 11.1 | | 32.5 | | 23.3 | | | 17.6 | | 12.8 | |
| | | | | | | | | | | | | | |
Income from continuing operations before income taxes | | 133.5 | | 89.6 | | 334.2 | | 261.3 | | | 108.6 | | 95.9 | |
| | |
Provision for income taxes | | 46.3 | | 34.3 | | 118.9 | | 103.2 | | | 43.0 | | 36.8 | |
| | | | | | | | | | | | | | |
| | |
Income from continuing operations | | 87.2 | | 55.3 | | 215.3 | | 158.1 | | | 65.6 | | 59.1 | |
| | |
Discontinued operations: | | |
Gain (loss) on sales of discontinued operations, net of provision (benefit) for income taxes of $—, $(0.5), $—, and $13.3 | | — | | | (1.4 | ) | | — | | 21.0 | | |
| | |
Loss from discontinued operations, net of provision (benefit) for income taxes of $(0.1), $1.6, $(0.2), and $(1.1) | | | (0.2 | ) | | | (3.1 | ) | | | (0.5 | ) | | | (5.5 | ) | |
Loss from discontinued operations, net of benefit for income taxes of $0.1 and $0 | | | | (0.3 | ) | | — | |
| | | | | | | | | | | | | | |
| | |
Net income | | $ | 87.0 | | $ | 50.8 | | $ | 214.8 | | $ | 173.6 | | | $ | 65.3 | | $ | 59.1 | |
| | | | | | | | | | | | | | |
| | |
Net income per common share: | | |
Basic: | | |
Continuing operations | | $ | 1.10 | | $ | 0.71 | | $ | 2.73 | | $ | 2.07 | | | $ | 0.83 | | $ | 0.76 | |
Discontinued operations | | 0.00 | | | (0.06 | ) | | 0.00 | | 0.20 | | | — | | — | |
| | | | | | | | | | | | | | |
| | $ | 1.10 | | $ | 0.65 | | $ | 2.73 | | $ | 2.27 | | | $ | 0.83 | | $ | 0.76 | |
| | | | | | | | | | | | | | |
| | |
Diluted: | | |
Continuing operations | | $ | 1.08 | | $ | 0.70 | | $ | 2.67 | | $ | 2.00 | | | $ | 0.81 | | $ | 0.74 | |
Discontinued operations | | 0.00 | | | (0.06 | ) | | 0.00 | | 0.19 | | | — | | — | |
| | | | | | | | | | | | | | |
| | $ | 1.08 | | $ | 0.64 | | $ | 2.67 | | $ | 2.19 | | | $ | 0.81 | | $ | 0.74 | |
| | | | | | | | | | | | | | |
| | |
Weighted average number of shares outstanding: | | |
Basic | | 79.1 | | 77.5 | | 78.8 | | 76.5 | | | 78.9 | | 78.0 | |
Diluted | | 80.6 | | 79.2 | | 80.5 | | 79.1 | | | 80.2 | | 79.9 | |
| | |
Dividends declared per common share | | $ | 0.07 | | $ | 0.06 | | $ | 0.19 | | $ | 0.15 | | | $ | 0.07 | | $ | 0.06 | |
See accompanying notes to consolidated financial statements.
2
Trinity Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
| | | | | | | | | | | | | | | | |
| | September 30, | | December 31, | | | March 31, | | December 31, | |
| | 2007 | | 2006 | | | 2008 | | 2007 | |
| | (unaudited) | | (as reported) | | | (unaudited) | | (as reported) | |
| | (in millions) | | | (in millions) | |
Assets | | |
Cash and cash equivalents | | $ | 222.4 | | $ | 311.5 | | | $ | 199.7 | | $ | 289.6 | |
| | |
Receivables, net of allowance | | 341.9 | | 252.5 | | | 283.5 | | 296.5 | |
| | |
Inventories: | | |
Raw materials and supplies | | 331.0 | | 316.5 | | | 303.3 | | 302.6 | |
Work in process | | 138.7 | | 139.1 | | | 130.1 | | 127.3 | |
Finished goods | | 144.7 | | 73.3 | | | 217.4 | | 156.8 | |
| | | | | | | | | | |
| | 614.4 | | 528.9 | | | 650.8 | | 586.7 | |
| | |
Property, plant, and equipment, at cost | | 2,791.5 | | 2,318.8 | | | 3,019.4 | | 2,849.6 | |
Less accumulated depreciation | | | (756.8 | ) | | | (728.5 | ) | | | (797.9 | ) | | | (779.8 | ) |
| | | | | | | | | | |
| | 2,034.7 | | 1,590.3 | | | 2,221.5 | | 2,069.8 | |
| | |
Goodwill | | 500.0 | | 463.7 | | | 503.5 | | 503.5 | |
| | |
Assets held for sale and discontinued operations | | 3.7 | | 10.8 | | | 3.3 | | 3.6 | |
| | |
Other assets | | 307.8 | | 267.9 | | | 288.6 | | 293.5 | |
| | | | | | | | | | |
| | $ | 4,024.9 | | $ | 3,425.6 | | | $ | 4,150.9 | | $ | 4,043.2 | |
| | | | | | | | | | |
| | |
Liabilities and Stockholders’ Equity | | |
| | |
Accounts payable and accrued liabilities | | $ | 728.7 | | $ | 655.8 | | | $ | 663.1 | | $ | 684.3 | |
| | |
Debt: | | |
Recourse | | 730.1 | | 772.4 | | | 715.8 | | 730.3 | |
Non-recourse | | 674.6 | | 426.5 | | | 714.6 | | 643.9 | |
| | | | | | |
| | | | | | | 1,430.4 | | 1,374.2 | |
| | 1,404.7 | | 1,198.9 | | |
Deferred income | | 52.7 | | 42.9 | | | 64.2 | | 58.4 | |
| | |
Liabilities held for sale and discontinued operations | | 1.2 | | 7.8 | | | 1.2 | | 1.2 | |
| | |
Other liabilities | | 186.8 | | 116.7 | | | 229.9 | | 198.4 | |
| | | | | | | | | | |
| | 2,374.1 | | 2,022.1 | | | 2,388.8 | | 2,316.5 | |
| | |
Stockholders’ equity: | | |
Preferred stock – 1.5 shares authorized and unissued | | | — | | — | |
| | |
Preferred stock — 1.5 shares authorized and unissued | | — | | — | | |
| | |
Common stock — 200.0 shares authorized | | 81.6 | | 80.0 | | |
Common stock – 200.0 shares authorized | | | 81.6 | | 81.6 | |
| | |
Capital in excess of par value | | 540.2 | | 484.3 | | | 538.5 | | 538.4 | |
| | |
Retained earnings | | 1,105.4 | | 908.8 | | | 1,237.3 | | 1,177.8 | |
| | | �� | |
Accumulated other comprehensive loss | | | (69.4 | ) | | | (69.2 | ) | | | (74.5 | ) | | | (61.6 | ) |
| | |
Treasury stock | | | (7.0 | ) | | | (0.4 | ) | | | (20.8 | ) | | | (9.5 | ) |
| | | | | | | | | | |
| | 1,650.8 | | 1,403.5 | | | 1,762.1 | | 1,726.7 | |
| | | | | | | | | | |
| | $ | 4,024.9 | | $ | 3,425.6 | | | $ | 4,150.9 | | $ | 4,043.2 | |
| | | | | | | | | | |
See accompanying notes to consolidated financial statements.
3
Trinity Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
| | | | | | | | | | | | | | | | |
| | Nine Months Ended | | | Three Months Ended | |
| | September 30, | | | March 31, | |
| | 2007 | | 2006 | | | 2008 | | 2007 | |
| | (unaudited) | | | (unaudited) | |
| | (in millions) | | | (in millions) | |
Operating activities: | | |
Net income | | $ | 214.8 | | $ | 173.6 | | | $ | 65.3 | | $ | 59.1 | |
Adjustments to reconcile net income to net cash provided by continuing operating activities: | | |
Loss (gain) from discontinued operations, including gain on sale | | 0.5 | | | (15.5 | ) | |
Loss from discontinued operations | | | 0.3 | | — | |
Depreciation and amortization | | 86.0 | | 63.3 | | | 31.8 | | 26.5 | |
Stock-based compensation expense | | 13.5 | | 9.1 | | | 5.0 | | 3.9 | |
Excess tax benefits from stock-based compensation | | | (5.3 | ) | | | (6.2 | ) | | — | | | (2.3 | ) |
Deferred income taxes | | 50.5 | | 65.3 | | | 33.1 | | 27.4 | |
Gain on disposition of property, plant, equipment, and other assets | | | (17.5 | ) | | | (12.6 | ) | | | (0.1 | ) | | | (1.7 | ) |
Other | | | (31.0 | ) | | | (2.4 | ) | | | (8.5 | ) | | 0.9 | |
Changes in assets and liabilities: | | |
(Increase) decrease in receivables | | | (91.1 | ) | | | (79.7 | ) | | 13.0 | | | (26.5 | ) |
(Increase) decrease in inventories | | | (78.6 | ) | | | (120.8 | ) | | | (64.1 | ) | | | (20.2 | ) |
(Increase) decrease in other assets | | | (63.3 | ) | | | (56.6 | ) | | — | | | (7.0 | ) |
Increase (decrease) in accounts payable and accrued liabilities | | 104.2 | | 39.5 | | | | (21.6 | ) | | | (24.0 | ) |
Increase (decrease) in other liabilities | | 5.5 | | | (8.7 | ) | | | (15.2 | ) | | 3.7 | |
| | | | | | | | | | |
Net cash provided by operating activities — continuing operations | | 188.2 | | 48.3 | | |
Net cash provided by operating activities — discontinued operations | | — | | 15.0 | | |
Net cash provided by operating activities – continuing operations | | | 39.0 | | 39.8 | |
Net cash required by operating activities – discontinued operations | | | — | | | (0.2 | ) |
| | | | | | | | | | |
Net cash provided by operating activities | | 188.2 | | 63.3 | | | 39.0 | | 39.6 | |
| | | | | | | | | | |
| | |
Investing activities: | | |
Proceeds from sales of railcars from our leased fleet | | 238.1 | | 32.6 | | | 49.7 | | 8.4 | |
Proceeds from disposition of property, plant, equipment, and other assets | | 48.8 | | 18.5 | | | 0.2 | | 3.0 | |
Capital expenditures — lease subsidiary | | | (585.6 | ) | | | (390.3 | ) | |
Capital expenditures — other | | | (140.2 | ) | | | (93.1 | ) | |
Payment for purchase of acquisitions, net of cash acquired | | | (47.3 | ) | | | (2.3 | ) | |
| | | | | | |
Net cash required by investing activities — continuing operations | | | (486.2 | ) | | | (434.6 | ) | |
Net cash provided by investing activities — discontinued operations | | — | | 82.9 | | |
Capital expenditures – lease subsidiary | | | | (190.2 | ) | | | (147.4 | ) |
Capital expenditures – other | | | | (26.9 | ) | | | (46.1 | ) |
| | | | | | | | | | |
Net cash required by investing activities | | | (486.2 | ) | | | (351.7 | ) | | | (167.2 | ) | | | (182.1 | ) |
| | | | | | | | | | |
| | |
Financing activities: | | |
Issuance of common stock, net | | 12.0 | | 13.1 | | | — | | 5.1 | |
Excess tax benefits from stock-based compensation | | 5.3 | | 6.2 | | | — | | 2.3 | |
Payments to retire debt | | | (98.4 | ) | | | (405.5 | ) | | | (44.3 | ) | | | (47.6 | ) |
Proceeds from issuance of debt | | 304.2 | | 920.1 | | | 100.5 | | 100.1 | |
Stock repurchases | | | | (12.2 | ) | | — | |
Dividends paid to common shareholders | | | (14.2 | ) | | | (11.7 | ) | | | (5.7 | ) | | | (4.8 | ) |
Dividends paid to preferred shareholders | | — | | | (1.7 | ) | |
| | | | | | | | | | |
Net cash provided by financing activities | | 208.9 | | 520.5 | | | 38.3 | | 55.1 | |
| | | | | | | | | | |
| | |
Net (decrease) increase in cash and cash equivalents | | | (89.1 | ) | | 232.1 | | |
Net decrease in cash and cash equivalents | | | | (89.9 | ) | | | (87.4 | ) |
Cash and cash equivalents at beginning of period | | 311.5 | | 136.0 | | | 289.6 | | 311.5 | |
| | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 222.4 | | $ | 368.1 | | | $ | 199.7 | | $ | 224.1 | |
| | | | | | | | | | |
See accompanying notes to consolidated financial statements.
4
Trinity Industries, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Capital | | | | | | | | |
| | Common Stock | | in | | Accumulated | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shares | | Excess | | Other | | Treasury | | Total | | | Common Stock | | | | | | | | | |
(unaudited) | | (200.0 | | $1.00 Par | | of Par | | Retained | | Comprehensive | | Treasury | | Stock at | | Stockholders’ | | | Shares (200.0 | | $1.00 Par | | Capital in Excess | | Retained | | Accumulated Other Comprehensive | | Treasury | | Treasury Stock at | | Total Stockholders’ | |
(in millions, except par value) | | Authorized) | | Value | | Value | | Earnings | | Loss | | Shares | | Cost | | Equity | | | Authorized) | | Value | | of Par Value | | Earnings | | Loss | | Shares | | Cost | | Equity | |
Balances at December 31, 2007 | | | 81.6 | | $ | 81.6 | | $ | 538.4 | | $ | 1,177.8 | | $ | (61.6 | ) | | | (0.2 | ) | | $ | (9.5 | ) | | $ | 1,726.7 | |
| | |
Balances at December 31, 2006 | | 80.0 | | $ | 80.0 | | $ | 484.3 | | $ | 908.8 | | $ | (69.2 | ) | | | (0.0 | ) | | $ | (0.4 | ) | | $ | 1,403.5 | | |
Cumulative effect of adopting FIN 48 (see Note 17) | | — | | — | | — | | | (3.1 | ) | | — | | — | | — | | | (3.1 | ) | |
Net income | | — | | — | | — | | 214.8 | | — | | — | | — | | 214.8 | | | — | | — | | — | | 65.3 | | — | | — | | — | | 65.3 | |
Other comprehensive income: | | |
Currency translation adjustments, net of tax | | — | | — | | — | | — | | 0.2 | | — | | — | | 0.2 | | |
Unrealized gain on derivative financial instruments, net of tax | | — | | — | | — | | — | | | (0.4 | ) | | — | | — | | | (0.4 | ) | |
Change in unrealized loss on derivative financial instruments, net of tax | | | — | | — | | — | | — | | | (12.9 | ) | | — | | — | | | (12.9 | ) |
| | | | | | |
Comprehensive net income | | 214.6 | | | 52.4 | |
Cash dividends on common stock | | — | | — | | — | | | (15.1 | ) | | — | | — | | — | | | (15.1 | ) | | — | | — | | — | | | (5.7 | ) | | — | | — | | — | | | (5.7 | ) |
Restricted shares issued | | 0.5 | | 0.5 | | 21.7 | | — | | — | | — | | 3.0 | | 25.2 | | | — | | — | | | (0.6 | ) | | — | | — | | — | | 1.4 | | 0.8 | |
Shares issued for acquisition | | 0.3 | | 0.3 | | 11.4 | | — | | — | | — | | — | | 11.7 | | |
Shares retained for taxes on vested restricted stock | | — | | — | | — | | — | | — | | | (0.1 | ) | | | (4.5 | ) | | | (4.5 | ) | |
Shares repurchased | | | — | | — | | — | | — | | — | | | (0.5 | ) | | | (12.2 | ) | | | (12.2 | ) |
Stock options exercised | | 0.8 | | 0.8 | | 14.3 | | — | | — | | | (0.1 | ) | | | (3.5 | ) | | 11.6 | | | — | | — | | | (0.1 | ) | | — | | — | | — | | 0.1 | | — | |
Income tax benefit from stock options exercised | | — | | — | | 6.6 | | — | | — | | — | | — | | 6.6 | | |
Stock-based compensation expense | | — | | — | | 1.2 | | — | | — | | — | | — | | 1.2 | | | — | | — | | 0.4 | | — | | — | | — | | — | | 0.4 | |
Other | | — | | — | | 0.7 | | — | | — | | — | | | (1.6 | ) | | | (0.9 | ) | | — | | — | | 0.4 | | | (0.1 | ) | | — | | — | | | (0.6 | ) | | | (0.3 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances at September 30, 2007 | | 81.6 | | $ | 81.6 | | $ | 540.2 | | $ | 1,105.4 | | $ | (69.4 | ) | | | (0.2 | ) | | $ | (7.0 | ) | | $ | 1,650.8 | | |
Balances at March 31, 2008 | | | 81.6 | | $ | 81.6 | | $ | 538.5 | | $ | 1,237.3 | | $ | (74.5 | ) | | | (0.7 | ) | | $ | (20.8 | ) | | $ | 1,762.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
5
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 subsidiaries (“Trinity”, “Company”, “we” or “our”). In our opinion, all normal and recurring adjustments necessary for a fair presentation of the financial position of the Company as of September 30, 2007,March 31, 2008, the results of operations for the three and nine month periods ended September 30,March 31, 2008 and 2007, and 2006, and cash flows for the ninethree month periods ended September 30,March 31, 2008 and 2007 and 2006 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, 2007March 31, 2008 may not be indicative of expected results of operations for the year ending December 31, 2007.2008. 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, 2006.2007.
RecentStockholders’ Equity
On December 13, 2007, the Company’s Board of Directors authorized a $200 million stock repurchase program of its common stock. This program allows for the repurchase of the Company’s common stock through December 31, 2009. During the three months ended March 31, 2008, 471,100 shares with a value of approximately $12.2 million had been repurchased under this program. Since the inception of this program through March 31, 2008, a total of 575,300 shares with an approximate value of $15.1 million were repurchased.
Fair Value Accounting Pronouncements
In FebruarySeptember 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 159,The Fair Value Option for Financial Assets and Financial Liabilities(“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is expected to expand the use of fair value measurement.
In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements(“SFAS 157”). SFAS 157 defines fair value, establishesintroduces a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosuresrequired disclosure about fair value measurements.
The provisionsmeasurements of SFAS 159assets and liabilities. SFAS 157 arefor financial assets and liabilities is effective for fiscal years beginning after November 15, 2007. The Company adopted this standard as of January 1, 2008 and the impact of the adoption was not significant.
SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market to that asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. SFAS 157 describes three levels of inputs that may be used to measure fair value which are listed below.
Level 1 – This level is defined as quoted prices in active markets for identical assets or liabilities. The Company’s cash equivalents and restricted assets, other than cash, are United States Treasury instruments.
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.
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.
6
Assets and liabilities measured at fair value on a recurring basis are summarized below:
| | | | | | | | | | | | | | | | |
| | Fair Value Measurement as of March 31, 2008 | |
| | (in millions) | |
| | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Assets: | | | | | | | | | | | | | | | | |
Cash equivalents | | $ | 158.8 | | | $ | — | | | $ | — | | | $ | 158.8 | |
Fuel derivative instruments(1) | | | — | | | | 2.1 | | | | — | | | | 2.1 | |
Restricted assets(1) | | | 117.9 | | | | — | | | | — | | | | 117.9 | |
| | | | | | | | | | | | |
Total assets | | $ | 276.7 | | | $ | 2.1 | | | $ | — | | | $ | 278.8 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Interest rate hedges(2) | | $ | — | | | $ | 36.5 | | | $ | — | | | $ | 36.5 | |
| | | | | | | | | | | | |
Total liabilities | | $ | — | | | $ | 36.5 | | | $ | — | | | $ | 36.5 | |
| | | | | | | | | | | | |
| | |
(1) | | Restricted assets and fuel derivative instruments are included in Other assets on the Consolidated Balance Sheet. |
|
(2) | | Interest rate hedges are included in Other liabilities on the Consolidated Balance Sheet. |
Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141R, “Business Combinations,”and SFAS No. 160,“Accounting and Reporting Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51.”These new standards significantly change the accounting for and reporting of business combination transactions and noncontrolling interests (previously referred to as minority interests) in consolidated financial statements. Both standards are effective for fiscal years beginning after December 15, 2008 and are applicable only to transactions occurring after the effective date.
In March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133(“SFAS 161”). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedge items are accounted for under Statement 133,Accounting for Derivative Instruments and Hedging Activities(“SFAS 133”),and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows.
SFAS 161 is intended to enhance the current disclosure framework in SFAS 133 and requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk related contingent features in derivative agreements.
The provisions of SFAS 161 are effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The provisions of SFAS 161 need not be applied to immaterial items. We are currently evaluating the potential impact of the provisions of SFAS 159 and SFAS 157.161.
Reclassifications
Certain prior year balances have been reclassified to conform to the 2007 presentation for discontinued operations.
Note 2. Acquisition and Divestitures
In June 2006, we sold our weld pipe fittings business (“Fittings”). In August 2006, we also sold our European Rail business (“Europe”). Condensed results of operations relating to Fittings and Europe for the three and nine month periods ended September 30, 2006 were as follows:
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Nine Months Ended | |
| | September 30, | | | September 30, | |
| | 2006 | | | 2006 | |
| | | | | | (in millions) | | | | |
| | Fittings | | | Europe | | | Fittings | | | Europe | |
| | | | | | | | | | | | | | | | |
Revenues | | $ | — | | | $ | 15.2 | | | $ | 28.0 | | | $ | 69.4 | |
Operating costs | | | — | | | | 17.8 | | | | 23.5 | | | | 80.0 | |
Other (income) expense | | | — | | | | (1.1 | ) | | | — | | | | 0.5 | |
| | | | | | | | | | | | |
Income (loss) from discontinued operations before income taxes | | | — | | | | (1.5 | ) | | | 4.5 | | | | (11.1 | ) |
Provision (benefit) for income taxes | | | (0.2 | ) | | | 1.9 | | | | 1.5 | | | | (2.5 | ) |
| | | | | | | | | | | | |
Net income (loss) from discontinued operations | | $ | 0.2 | | | $ | (3.4 | ) | | $ | 3.0 | | | $ | (8.6 | ) |
| | | | | | | | | | | | |
In September 2006, we implemented a plan to divest our Brazilian operations. Total net assets of these operations as of September 30, 2007 were $2.4 million. For the three and nine months ended September 30, 2007 and 2006, revenues and net income from these discontinued operations were insignificant.
6
In September 2007, our subsidiary, Transit Mix Concrete & Materials Company (“Transit Mix”), sold a group of assets in South Texas. Included in the sale were four ready mix concrete facilities. Annual revenues from the assets sold represented approximately $17.0 million. In connection with the sale, goodwill of $0.7 million was written-off. In August 2007, Transit Mix sold three ready mix concrete facilities in West Texas. Total proceeds from the third quarter dispositions were $9.7 million with an after-tax gain of $1.8 million. These assets were part of our Construction Products Group.
In August 2007, our subsidiary, Trinity Highway Products, LLC (“Trinity Highway”), acquired companies operating under the names of Central Fabricators, Inc. and Central Galvanizing, Inc. The total acquisition cost was $15.5 million paid at closing, plus 325,800 shares of Trinity common stock valued at $11.7 million, and additional future2008 cash consideration of $5.5 million to be paid during the next five years. In connection with the acquisition, Trinity Highway recorded goodwill of approximately $21.1 million. The final acquisition cost is subject to final adjustments in accordance with the purchase agreement. Annual revenues for the acquired businesses are estimated to be approximately $26.0 million. The acquired companies will be a part of our Construction Products Group.flow presentation.
In August and September 2007, Transit Mix and one of its subsidiaries acquired assets in two separate transactions for a total of approximately $4.9 million. The acquired assets will be a part of our Construction Products Group.
In May 2007, Transit Mix sold a group of assets in Houston, Texas. Included in the sale were seven ready mix concrete facilities and an aggregates distribution yard. Annual revenues related to the ready mix concrete assets sold represented approximately $40.0 million. In connection with the sale, goodwill of $1.2 million was written-off. In June 2007, Transit Mix sold two ready mix concrete facilities in the North Texas area. Total proceeds from the second quarter dispositions were $33.2 million with an after-tax gain of $7.5 million. These assets were part of our Construction Products Group.
In April 2007, Transit Mix acquired a combined group of East Texas asphalt, ready mix concrete, and aggregates businesses operating under the name Armor Materials. The businesses were owned by a common group of individuals and companies. The total acquisition cost was $30.5 million paid at closing, additional future cash consideration of $5.2 million to be paid during the next three to five years, and contingent payments not to exceed $6.0 million paid during a three year period. In connection with the acquisition, Transit Mix recorded goodwill of $17.1 million. Annual revenues for the acquired businesses are estimated to be approximately $55.0 million. The acquired group will be a part of our Construction Products Group.
Note 3.2. Segment Information
The Company reports operating results in five principal business segments: (1) the Rail Group, which manufactures and sells railcars and component parts; (2) the Construction Products Group, which manufactures and sells highway products, concrete and aggregates, and girders and beams used in the construction of highway and railway bridges; (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 tank heads, structural wind towers, and pressure and non-pressure containers for the storage and transportation of liquefied gases and other liquid and dry products; and (5) the Railcar Leasing and Management Services Group, which provides fleet management, maintenance, and leasing services. The category All Other includes our captive insurance and transportation companies,companies; legal, environmental, and environmentalupkeep costs associated with non-operating facilities,facilities; other peripheral businesses,businesses; and the change in market valuation related to ineffective commodity hedges. Historical segment information has been retroactively adjusted to exclude the Fittings and Europe divestitures described in Note 2 from the Construction Products and Rail Groups, respectively.
Sales and related profits from the Rail Group to the Railcar Leasing and Management Services Group are recorded in the Rail Group and eliminated in consolidation. Sales of railcars from the lease fleet are included in the Railcar Leasing and Management Services Group. Sales between groups are recorded at prices comparable to those charged to external
7
customers. See Note 4 Equity Investment for discussion of sales to a company in which we have an equity investment.
The financial information from continuing operations for these segments is shown in the tables below. We operate principally in the continental United States and Mexico.
7
Three Months Ended September 30, 2007March 31, 2008
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Operating | | | Revenues | | Operating | |
| | Revenues | | Profit | | | Profit | |
| | External | | Intersegment | | Total | | (Loss) | | | External | | Intersegment | | Total | | (Loss) | |
| | (in millions) | | | (in millions) | |
Rail Group | | $ | 382.2 | | $ | 239.1 | | $ | 621.3 | | $ | 96.5 | | | $ | 347.7 | | $ | 220.1 | | $ | 567.8 | | $ | 77.2 | |
Construction Products Group | | 193.8 | | 0.4 | | 194.2 | | 19.0 | | | 165.0 | | 4.3 | | 169.3 | | 12.2 | |
Inland Barge Group | | 126.6 | | — | | 126.6 | | 22.3 | | | 137.8 | | — | | 137.8 | | 26.5 | |
Energy Equipment Group | | 98.4 | | 3.0 | | 101.4 | | 11.6 | | | 126.2 | | 3.3 | | 129.5 | | 18.2 | |
Railcar Leasing and Management Services Group | | 204.0 | | — | | 204.0 | | 47.0 | | | 119.8 | | — | | 119.8 | | 34.1 | |
All Other | | 3.4 | | 14.5 | | 17.9 | | 0.1 | | | 2.4 | | 15.8 | | 18.2 | | | (0.3 | ) |
Corporate | | — | | — | | — | | | (7.0 | ) | | — | | — | | — | | | (5.4 | ) |
Eliminations — lease subsidiary | | — | | | (235.4 | ) | | | (235.4 | ) | | | (37.3 | ) | |
Eliminations — other | | — | | | (21.6 | ) | | | (21.6 | ) | | | (5.3 | ) | |
Eliminations — Lease subsidiary | | | — | | | (216.7 | ) | | | (216.7 | ) | | | (31.2 | ) |
Eliminations — Other | | | — | | | (26.8 | ) | | | (26.8 | ) | | | (5.1 | ) |
| | | | | | | | | | | | | | | | | | |
Consolidated Total | | $ | 1,008.4 | | $ | — | | $ | 1,008.4 | | $ | 146.9 | | | $ | 898.9 | | $ | — | | $ | 898.9 | | $ | 126.2 | |
| | | | | | | | | | | | | | | | | | |
Three Months Ended September 30, 2006
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Operating | |
| | Revenues | | | Profit | |
| | External | | | Intersegment | | | Total | | | (Loss) | |
| | (in millions) | |
Rail Group | | $ | 377.5 | | | $ | 170.8 | | | $ | 548.3 | | | $ | 62.2 | |
Construction Products Group | | | 190.3 | | | | 0.7 | | | | 191.0 | | | | 19.9 | |
Inland Barge Group | | | 93.7 | | | | — | | | | 93.7 | | | | 11.9 | |
Energy Equipment Group | | | 85.9 | | | | 2.2 | | | | 88.1 | | | | 13.4 | |
Railcar Leasing and Management Services Group | | | 61.4 | | | | — | | | | 61.4 | | | | 24.5 | |
All Other | | | 1.3 | | | | 13.7 | | | | 15.0 | | | | (3.9 | ) |
Corporate | | | — | | | | — | | | | — | | | | (8.3 | ) |
Eliminations — lease subsidiary | | | — | | | | (168.1 | ) | | | (168.1 | ) | | | (19.6 | ) |
Eliminations — other | | | — | | | | (19.3 | ) | | | (19.3 | ) | | | 0.6 | |
| | | | | | | | | | | | |
Consolidated Total | | $ | 810.1 | | | $ | — | | | $ | 810.1 | | | $ | 100.7 | |
| | | | | | | | | | | | |
Nine Months Ended September 30,March 31, 2007
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Operating | | | Revenues | | Operating | |
| | Revenues | | Profit | | | Profit | |
| | External | | Intersegment | | Total | | (Loss) | | | External | | Intersegment | | Total | | (Loss) | |
| | (in millions) | | | (in millions) | |
Rail Group | | $ | 1,088.5 | | $ | 700.6 | | $ | 1,789.1 | | $ | 271.2 | | | $ | 394.3 | | $ | 174.4 | | $ | 568.7 | | $ | 78.1 | |
Construction Products Group | | 553.9 | | 0.8 | | 554.7 | | 44.9 | | | 163.1 | | 0.1 | | 163.2 | | 10.1 | |
Inland Barge Group | | 355.8 | | — | | 355.8 | | 46.3 | | | 108.7 | | — | | 108.7 | | 17.4 | |
Energy Equipment Group | | 283.8 | | 8.3 | | 292.1 | | 33.4 | | | 88.9 | | 2.5 | | 91.4 | | 10.1 | |
Railcar Leasing and Management Services Group | | 437.4 | | — | | 437.4 | | 114.3 | | | 70.9 | | — | | 70.9 | | 27.8 | |
All Other | | 10.1 | | 40.3 | | 50.4 | | 2.0 | | | 2.6 | | 13.0 | | 15.6 | | 1.3 | |
Corporate | | — | | — | | — | | | (26.7 | ) | | — | | — | | — | | | (10.0 | ) |
Eliminations — lease subsidiary | | — | | | (690.9 | ) | | | (690.9 | ) | | | (115.8 | ) | |
Eliminations — other | | — | | | (59.1 | ) | | | (59.1 | ) | | | (2.9 | ) | |
Eliminations — Lease subsidiary | | | — | | | (172.5 | ) | | | (172.5 | ) | | | (28.2 | ) |
Eliminations — Other | | | — | | | (17.5 | ) | | | (17.5 | ) | | 2.1 | |
| | | | | | | | | | | | | | | | | | |
Consolidated Total | | $ | 2,729.5 | | $ | — | | $ | 2,729.5 | | $ | 366.7 | | | $ | 828.5 | | $ | — | | $ | 828.5 | | $ | 108.7 | |
| | | | | | | | | | | | | | | | | | |
8
Nine Months Ended September 30, 2006
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Operating | |
| | Revenues | | | Profit | |
| | External | | | Intersegment | | | Total | | | (Loss) | |
| | (in millions) | |
Rail Group | | $ | 1,165.1 | | | $ | 440.1 | | | $ | 1,605.2 | | | $ | 187.1 | |
Construction Products Group | | | 526.9 | | | | 1.3 | | | | 528.2 | | | | 49.5 | |
Inland Barge Group | | | 265.7 | | | | — | | | | 265.7 | | | | 29.0 | |
Energy Equipment Group | | | 232.7 | | | | 6.7 | | | | 239.4 | | | | 36.5 | |
Railcar Leasing and Management Services Group | | | 189.5 | | | | — | | | | 189.5 | | | | 66.3 | |
All Other | | | 4.0 | | | | 35.5 | | | | 39.5 | | | | (7.3 | ) |
Corporate | | | — | | | | — | | | | — | | | | (26.8 | ) |
Eliminations — lease subsidiary | | | — | | | | (435.6 | ) | | | (435.6 | ) | | | (50.3 | ) |
Eliminations — other | | | — | | | | (48.0 | ) | | | (48.0 | ) | | | 0.6 | |
| | | | | | | | | | | | |
Consolidated Total | | $ | 2,383.9 | | | $ | — | | | $ | 2,383.9 | | | $ | 284.6 | |
| | | | | | | | | | | | |
Note 4.3. Railcar Leasing and Management Services Group
The Railcar Leasing and Management Services Group (“Leasing Group”) provides fleet management, maintenance, and leasing services. Selected combined financial information for the Leasing Group is as follows:
| | | | | | | | | | | | | | | | |
| | September 30, 2007 | | December 31, 2006 | | | March 31, 2008 | | December 31, 2007 | |
| | (as reported) | | | (as reported) | |
| | (in millions) | | | (in millions) | |
Balance Sheet | | |
Cash | | $ | 27.6 | | $ | 13.0 | | | $ | 26.7 | | $ | 40.8 | |
Leasing equipment Machinery and other | | 35.9 | | 35.1 | | |
Leasing equipment: | | |
Machinery and other | | | 36.1 | | 36.1 | |
Equipment on lease | | 1,977.1 | | 1,511.5 | | | 2,170.6 | | 1,996.7 | |
| | | | | | | | | | |
| | 2,013.0 | | 1,546.6 | | | 2,206.7 | | 2,032.8 | |
Accumulated depreciation | | | (201.9 | ) | | | (163.9 | ) | | | (229.0 | ) | | | (214.4 | ) |
| | | | | | | | | | |
| | 1,811.1 | | 1,382.7 | | | 1,977.7 | | 1,818.4 | |
| | |
Restricted assets | | 113.2 | | 111.6 | | | 117.9 | | 129.1 | |
Debt: | | |
Recourse | | 75.7 | | 119.1 | | | 61.4 | | 75.7 | |
Non-recourse | | 674.6 | | 426.5 | | | 714.6 | | 643.9 | |
8
| | | | | | | | |
| | Three Months Ended |
| | March 31, |
| | 2008 | | 2007 |
| | (in millions) |
Statement of Operations | | | | | | | | |
Revenues | | $ | 119.8 | | | $ | 70.9 | |
Operating profit | | | 34.1 | | | | 27.8 | |
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2007 | | 2006 | | 2007 | | 2006 |
| | (in millions) | | (in millions) |
Statement of Operations | | | | | | | | | | | | | | | | |
Revenues | | $ | 204.0 | | | $ | 61.4 | | | $ | 437.4 | | | $ | 189.5 | |
Operating profit | | | 47.0 | | | | 24.5 | | | | 114.3 | | | | 66.3 | |
For the three months ended March 31, 2008, revenues of $37.9 million and operating profit of $5.8 million were related to sales of cars from the lease fleet to a company in which Trinity holds an equity investment. See Note 4 Equity Investment. Interest expense, which is not a component of operating profit, was $11.4$10.8 million and $31.0$9.2 million for the three and nine months ended September 30,March 31, 2008 and 2007, respectively, and $9.7 million and $25.0 million, respectively, for the same periods last year.respectively. Rent expense, which is a component of operating profit, was $11.4$11.2 million and $34.0$11.3 million for the three and nine months ended September 30,March 31, 2008 and 2007, respectively, and $11.0 million and $33.7 million, respectively, for the same periods last year.respectively.
Equipment consists primarily of railcars leased by third parties. The Leasing Group purchases equipment manufactured by Trinity’s rail subsidiaries 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 minimum rental revenues on leases in each year are as follows:
9
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Remaining | | | | | | | | | | | | |
| | three months | | | | | | | | | | | | |
| | of 2007 | | 2008 | | 2009 | | 2010 | | 2011 | | Thereafter | | Total |
| | (in millions) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Future Minimum Rental Revenues on Leases | | $ | 45.8 | | | $ | 173.3 | | | $ | 162.2 | | | $ | 148.9 | | | $ | 121.3 | | | $ | 410.8 | | | $ | 1,062.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Remaining | | | | | | | | | | | | |
| | nine months | | | | | | | | | | | | |
| | of 2008 | | 2009 | | 2010 | | 2011 | | 2012 | | Thereafter | | Total |
| | | | | | | | | | (in millions) | | | | | | | | | | | | |
Future Minimum Rental Revenues on Leases | | $ | 139.2 | | | $ | 173.5 | | | $ | 157.4 | | | $ | 126.4 | | | $ | 105.0 | | | $ | 295.5 | | | $ | 997.0 | |
The Leasing Group’s debt consists of both recourse and non-recourse debt. See Note 8 for the form and maturities of the debt. Leasing Group equipment with a net book value of approximately $1,033.5 million is pledged as collateral for Leasing Group debt. Leasing Group equipment with a net book value of $108.6 million is pledged as collateral against operating lease obligations.
In prior years, the Leasing Group completed a series of financing transactions whereby railcars were sold to one or more separate independent owner trusts (“Trusts”). See Note 4 of the December 31, 20062007 Consolidated Financial Statements filed on Form 10-K for a detailed explanation of these financing transactions. Future operating lease obligations of the Leasing Group’s subsidiaries as well as future minimum rental revenues related to these leases due to the Leasing Group are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Remaining | | | | | | | | | | | | | | Remaining | | | | | | | | | | | | |
| | three months | | | | | | | | | | | | | | nine months | | | | | | | | | | | | |
| | of 2007 | | 2008 | | 2009 | | 2010 | | 2011 | | Thereafter | | Total | | of 2008 | | 2009 | | 2010 | | 2011 | | 2012 | | Thereafter | | Total |
| | (in millions) | | (in millions) | |
Future Operating Lease Obligations of Trusts’ Cars | | $ | 12.2 | | $ | 48.5 | | $ | 47.6 | | $ | 40.7 | | $ | 41.7 | | $ | 566.0 | | $ | 756.7 | | | $ | 36.1 | | $ | 47.6 | | $ | 40.7 | | $ | 41.7 | | $ | 44.9 | | $ | 521.1 | | $ | 732.1 | |
| | |
Future Minimum Rental Revenues of Trusts’ Cars | | $ | 15.4 | | $ | 56.8 | | $ | 47.5 | | $ | 37.0 | | $ | 29.2 | | $ | 104.9 | | $ | 290.8 | | | $ | 44.2 | | $ | 49.5 | | $ | 38.5 | | $ | 30.9 | | $ | 24.8 | | $ | 80.2 | | $ | 268.1 | |
The Leasing Group’s debt consists of both recourse and non-recourse debt. See Note 10 for maturities of debt. Equipment with a net book value of $982.5 million is pledged as collateral for Leasing Group debt. Equipment with a net book value of $107.8 million is pledged as collateral against lease obligations.
Note 5.4. Equity Investment
In June 2007, Trinity purchased 20% of the equity in newly-formed TRIP Rail Holdings LLC (“TRIP Holdings”) for $8.1$21.3 million. Trinity funded an additional $7.2$5.8 million for the three months ended September 30, 2007,March 31, 2008, pursuant to Trinity’s 20% equity ownership obligation under the formation agreements for TRIP Holdings, totaling a $15.3$27.1 million investment in TRIP Holdings for the nine months ended September 30, 2007.as of March 31, 2008. Trinity’s remaining equity commitment to TRIP Holdings is $21.9 million, which is expected to be completely funded by 2009. TRIP Holdings provides railcar leasing and management services in North America. Trinity also paid $13.8 million in 2007 for structuring and placement fees related to the formation of TRIP Holdings that are being expensed on a pro rata basis as railcars are purchased from Trinity by a wholly-owned subsidiary of TRIP Holdings, TRIP Rail Leasing LLC (“TRIP Leasing”). TRIP Holding’s remaining equity is held by five investors not related to Trinity or our subsidiaries. Trinity’s remaining equity commitment to TRIP Holdings is $33.7 million. As partFor the three months ended March 31, 2008, $1.8 million of the transaction, TRIP Leasing plans to purchase approximately $1.4 billion in railcars from Trinity’s Rail Groupthese structuring and Trinity Industries Leasing Company (“TILC”),placement fees were expensed, leaving a wholly-owned subsidiarynet unamortized balance of Trinity. Purchases$6.9 million as of railcars by TRIP Leasing are funded by capital contributions from TRIP Holdings and third party debt. The Company has no obligation to guarantee performance under the debt agreement, guarantee any residual values, shield any parties from losses, or guarantee minimum yields.
TILC serves as manager of TRIP Holdings and has the authority to bind TRIP Holdings and perform all acts necessary to conduct the business of TRIP Holdings. For its services as manager, TILC receives a monthly administrative fee and a potential performance fee. Additionally, a disposition fee may be earned by TILC if, no more than twelve months prior to a liquidity event, TILC was serving as the manager. The manager may be removed without cause as a result of a majority vote of the non-Trinity equity members. TILC also serves as servicer under an agreement between TRIP Leasing and TILC, providing remarketing and management services. For its services as servicer, TILC receives: 1) a monthly servicing fee, 2) a broker fee on the purchase of equipment by TRIP Leasing and 3) a sales fee on the sale of equipment by TRIP Leasing to an unaffiliated third party. The servicer may be terminated upon the occurrence and during the continuation of a servicer replacement event by a vote of the lenders with credit exposure in the aggregate exceeding 66 2/3%.
Based on the provisions of FASB Interpretation No. 46 (revised December 2003),Consolidation of Variable Interests Entities(“FIN 46R”), TRIP Holdings does not qualify as a variable interest entity. The equity method of accounting will be used to account for our investment in TRIP Holdings. Profit on equipment sales to TRIP Leasing is recognized at the time of sale to the extent of the non-Trinity interests in TRIP Leasing. The deferred profit on the sale of equipment to TRIP Leasing pertaining to TILC’s interest in TRIP Holdings is amortized over the depreciable life of the related equipment. All other fee income to TILC earned from services provided to TRIP Holdings is recognized by TILC to the extent of the non-Trinity interests in TRIP Holdings.March 31, 2008.
109
For the three months ended September 30, 2007,March 31, 2008, the Rail Group sold $138.5$146.0 million and TILCTrinity Industries Leasing Company (“TILC”), a wholly owned subsidiary of Trinity, sold $93.8$37.9 million of railcars to TRIP Leasing resulting in a gain of $42.1$32.8 million, of which $8.5$6.5 million was deferred based on ourTrinity’s 20% equity interest. Fees for the same period were insignificant. The purchases were financed with borrowings by TRIP Leasing
See Note 5 of $198.2 million and the remainder with capital contributions from TRIP Holdings. For the nine months ended September 30,December 31, 2007 the Rail Group sold $138.5 and TILC sold $187.5 million of railcars to TRIP Leasing resulting in a gain of $56.5 million, of which $11.5 million was deferred basedConsolidated Financial Statements filed on our 20% equity interest. FeesForm 10-K for the same period were insignificant. The purchases were financed with borrowings by TRIP Leasing of $277.8 million and the remainder with capital contributions from TRIP Holdings.additional information.
Note 6.5. Derivative Instruments
The Company uses derivative instruments to mitigate the impact of increases in zinc, natural gas, and diesel fuel prices and interest rate swapsrates, as well as to fix the LIBOR component forconvert a portion of our outstandingits variable-rate debt to fixed-rate debt. We also use derivatives to lock in fixed interest rates in anticipation of future debt issuances. These swaps are accounted for as cash flow hedges under SFAS 133,133.
Accounting for Derivative Instruments and Hedging Activities. Trinity had a $15.0 million interestInterest rate swap which expired in the third quarter of 2007. The effect on the consolidated statement of operations for the three month period ended September 30, 2007 was not significant and for year-to-date was $0.4 million of income. The effect on the consolidated statement of operations for the three and nine month periods ended September 30, 2006 was income of $0.2 million and $0.8 million, respectively.hedges
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 future debt issuance associated with an anticipated secured borrowing facility. The original scheduled close date of the facility was in the fourth quarter of 2007, but due to market conditions, the scheduled close date of the future debt issuance was moved to the end of the first quarter of 2008. Again, due to market conditions, the scheduled close date of the future debt issuance was moved to the second quarter of 2008. The interest rate swap transactions were renewed in the first quarter of 2008 and will expire in the second quarter of 2008. The weighted average fixed interest rate under these instruments was 5.34% at March 31, 2008. These interest rate swaps are being accounted for as cash flow hedges with changes in the fair value of the instruments of $34.1 million of loss recorded in Accumulated Other Comprehensive Loss (“AOCL”) and a liability of $36.5 million recorded in the consolidated balance sheet as of March 31, 2008. The effect on the consolidated statement of operations for the three months ended March 31, 2008 was expense of $2.2 million due to the ineffective portion of the hedges primarily associated with anticipated interest payments that will not be made.
During 2005 and 2006.2006, 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 2006 railcar leasing transaction in 2006 and settled at maturity in the first quarter of 2006. The weighted average fixed interest rate under these instruments was 4.87%. 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”)AOCL through the date the related debt issuance closed in May 2006. The balance is being amortized over the term of the related debt. As of the nine months ended September 30, 2007,At March 31, 2008, the balance remaining in AOCL was $3.9$3.7 million. The effect of the amortization on the consolidated statement of operations for each of the three and nine month periods ended September 30,March 31, 2008 and 2007 was income of $0.1 millionmillion.
Natural gas and $0.3 million, respectively. The effect of the amortization on the consolidated statement of operations for the three and nine month periods ended September 30, 2006 was not significant.
In addition, in anticipation of a future debt issuance, we entered into interest rate swap transactions during the fourth quarter of 2006 and the first nine months of 2007. These instruments, with a notional amount of $370 million, hedge the interest rate on a future debt issuance associated with an anticipated secured borrowing facility in 2007 and will expire in the fourth quarter of 2007. The weighted average fixed interest rate under these instruments was 5.20%. These interest rate swaps are being accounted for as cash flow hedges with changes in the fair value of the instruments being recorded in AOCL. The balance in AOCL as of September 30, 2007 was not significant.diesel fuel
We continuecontinued a program to mitigate the impact of fluctuations in the price of our natural gas and diesel fuel purchases. The intent of the program is to protect our operating profit and overall profitability from adverse price changes by entering into derivative instruments. TheSince the majority of these instruments do not qualify for hedge accounting treatment, andany changes in their valuation are recorded directly to the consolidated statement of operations. The amount recorded in the consolidated balance sheet for these instruments was an asset of $0.6$2.1 million as of September 30, 2007. The balanceMarch 31, 2008, with $0.1 million of income in AOCL as of September 30, 2007 was not significant.AOCL. The effect on the consolidated statement of operations for the three and nine month periods ended September 30,March 31, 2008 and 2007 was income of $0.1$1.4 million and $1.1$0.9 million, respectively,respectively.
Zinc
In 2007, we entered into a program to mitigate the impact of fluctuations in the price of zinc purchases. The intent of this program is to protect our operating profit from adverse price changes by entering into derivative instruments. These instruments are short term with monthly maturities and no remaining balances in AOCL as of March 31, 2008. The effect on the consolidated statement of operations for the three months ended March 31, 2008 and nine month periods September 30, 20062007 was an expenseincome of $2.6$0.5 million and $4.0$0.3 million, respectively.
1110
Note 7.6. Property, Plant, and Equipment
The following table summarizes the components of property, plant, and equipment as of September 30, 2007March 31, 2008 and December 31, 2006.2007.
| | | | | | | | | | | | | | | | |
| | September 30, | | December 31, | | | March 31, | | December 31, | |
| | 2007 | | 2006 | | | 2008 | | 2007 | |
| | (as reported) | | | (as reported) | |
| | (in millions) | | | (in millions) | |
Corporate/Manufacturing: | | |
Land | | $ | 35.7 | | $ | 35.8 | | | $ | 37.0 | | $ | 36.5 | |
Buildings and improvements | | 328.5 | | 329.2 | | | 353.2 | | 341.3 | |
Machinery and other | | 578.8 | | 538.6 | | | 644.5 | | 608.0 | |
Construction in progress | | 82.4 | | 39.5 | | | 49.5 | | 79.8 | |
| | | | | | | | | | |
| | 1,025.4 | | 943.1 | | | 1,084.2 | | 1,065.6 | |
Less accumulated depreciation | | | (554.9 | ) | | | (564.6 | ) | | | (568.9 | ) | | | (565.4 | ) |
| | | | | | | | | | |
| | 470.5 | | 378.5 | | | 515.3 | | 500.2 | |
| | |
Leasing: | | |
Machinery and other | | 35.9 | | 35.1 | | | 36.1 | | 36.1 | |
Equipment on lease | | 1,977.1 | | 1,511.5 | | | 2,170.6 | | 1,996.7 | |
| | | | | | | | | | |
| | 2,013.0 | | 1,546.6 | | | 2,206.7 | | 2,032.8 | |
| | |
Less accumulated depreciation | | | (201.9 | ) | | | (163.9 | ) | | | (229.0 | ) | | | (214.4 | ) |
| | | | | | |
| | 1,811.1 | | 1,382.7 | | | | | | |
| | | 1,977.7 | | 1,818.4 | |
Deferred profit on railcars sold to the Leasing Group | | | (246.9 | ) | | | (170.9 | ) | | | (271.5 | ) | | | (248.8 | ) |
| | | | | | | | | | |
| | $ | 2,034.7 | | $ | 1,590.3 | | | $ | 2,221.5 | | $ | 2,069.8 | |
| | | | | | | | | | |
Note 8. Goodwill
The following table summarizes the components of goodwill as of September 30, 2007 and December 31, 2006.
| | | | | | | | |
| | September 30, | | | December 31, | |
| | 2007 | | | 2006 | |
| | | | | | (as reported) | |
| | (in millions) | |
Rail | | $ | 447.5 | | | $ | 447.5 | |
Construction Products | | | 46.4 | | | | 10.1 | |
Energy Equipment | | | 4.3 | | | | 4.3 | |
Railcar Leasing and Management Services | | | 1.8 | | | | 1.8 | |
| | | | | | |
| | $ | 500.0 | | | $ | 463.7 | |
| | | | | | |
Note 9.7. Warranties
The Company provides for the estimated cost of product warranties at the time revenue is recognized related to products covered by warranties and assesses the adequacy of the resulting reserves on a quarterly basis. The changechanges in the accruals for warranties for the three and nine month periods ended September 30,March 31, 2008 and 2007 and 2006 waswere as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | | Three Months Ended | |
| | September 30, | | September 30, | | | March 31, | |
| | 2007 | | 2006 | | 2007 | | 2006 | | | 2008 | | 2007 | |
| | (in millions) | | (in millions) | | | (in millions) | |
Beginning balance | | $ | 26.2 | | $ | 32.9 | | $ | 28.6 | | $ | 36.8 | | | $ | 28.3 | | $ | 28.6 | |
Warranty costs incurred | | | (1.9 | ) | | | (1.6 | ) | | | (8.3 | ) | | | (11.9 | ) | | | (1.3 | ) | | | (2.6 | ) |
Product warranty accrual | | 3.2 | | 2.7 | | 7.2 | | 9.4 | | | 1.6 | | 2.5 | |
Discontinued operations | | — | | — | | — | | | (0.3 | ) | |
| | | | | | | | | | | | | | |
Ending balance | | $ | 27.5 | | $ | 34.0 | | $ | 27.5 | | $ | 34.0 | | | $ | 28.6 | | $ | 28.5 | |
| | | | | | | | | | | | | | |
The warranty balance as of September 30, 2007 includes certain amounts that we believe are sufficient to cover remaining obligations related to the divestiture of Trinity’s European Rail operations.
12
Note 10.8. Debt
The following table summarizes the components of debt as of September 30, 2007March 31, 2008 and December 31, 2006.2007.
| | | | | | | | | | | | | | | | |
| | September 30, | | December 31, | | | March 31, | | December 31, | |
| | 2007 | | 2006 | | | 2008 | | 2007 | |
| | (as reported) | | | (as reported) | |
| | (in millions) | | | (in millions) | |
Corporate/Manufacturing — Recourse: | | |
Revolving credit facility | | $ | — | | $ | — | | |
Revolving commitment | | | $ | — | | $ | — | |
Convertible subordinated notes | | 450.0 | | 450.0 | | | 450.0 | | 450.0 | |
Senior notes | | 201.5 | | 201.5 | | | 201.5 | | 201.5 | |
Other | | 2.9 | | 1.8 | | | 2.9 | | 3.1 | |
| | | | | | | | | | |
| | 654.4 | | 653.3 | | | 654.4 | | 654.6 | |
| | |
Leasing — Recourse: | | |
Equipment trust certificates | | 75.7 | | 119.1 | | | 61.4 | | 75.7 | |
| | | | | | |
| | | | | | | 715.8 | | 730.3 | |
| | 730.1 | | 772.4 | | | | | | |
| | | | | | |
Leasing — Non-recourse: | | |
Secured railcar equipment notes | | 337.6 | | 347.5 | | | 330.5 | | 334.1 | |
Warehouse facility | | 337.0 | | 79.0 | | | 384.1 | | 309.8 | |
| | | | | | | | | | |
| | 674.6 | | 426.5 | | | 714.6 | | 643.9 | |
| | | | | | | | | | |
Total debt | | $ | 1,404.7 | | $ | 1,198.9 | | | $ | 1,430.4 | | $ | 1,374.2 | |
| | | | | | | | | | |
11
Trinity’s revolving credit facility matures April 2011. The agreement requires maintenance of ratios related to interest coverage for Trinity’sthe leasing and manufacturing operations, leverage, and minimum net worth. In June 2007, Trinity amended the revolving credit facility to increase the permitted leverage ratio and add a senior leverage ratio, as well as other minor modifications. At September 30, 2007,March 31, 2008, there were no borrowings under theour $425 million revolving credit facility. After $97.9$93.5 million was considered for letters of credit, $252.1$331.5 million was available under the revolving credit facility. Subsequent to September 30, 2007, Trinity amended and restated its revolving credit agreement. The new agreement is a $425 million facility that matures October 19, 2012. Other minor changes were made to the agreement.
In August 2007,February 2008, TILC extendedincreased its $375 million non-recourse warehouse facility to $600 million with the availability period of the facility remaining through August 2009, amended certain terms of the existing facility, and increased the facility by $25 million to $400 million.2009. This facility, established to finance railcars owned by TILC, had $337.0$384.1 million outstanding as of September 30, 2007.March 31, 2008. The warehouse facility is duematures August 2009 and unless renewed will be payable in three equal installments in February 2010, August 2010, and February 2011. Railcars financed by the warehouse facility have historically been refinanced under long-term financing agreements. Specific railcars and the underlying leases secure the facility. Advances under the facility may not exceed 78% of the fair market value of the eligible railcars securing the facility as defined by the agreement. Advances under the facility bear interest at a defined index rate plus a margin, for an all-in rate of 6.62%4.18% at September 30, 2007.March 31, 2008. At September 30, 2007, $63.0March 31, 2008, $215.9 million was available under this facility.
Terms and conditions of other debt are described in our 2006 Annual ReportNote 10 of the December 31, 2007 Consolidated Financial Statements filed on
Form 10-K.
The remaining principal payments under existing debt agreements as of September 30, 2007March 31, 2008 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Remaining | | | | | | | | | | | | | Remaining | | | | | | | | | | | |
| | three months | | | | | | | | | | | | | nine months | | | | | | | | | | | |
| | of 2007 | | 2008 | | 2009 | | 2010 | | 2011 | | Thereafter | | | of 2008 | | 2009 | | 2010 | | 2011 | | 2012 | | Thereafter | |
| | (in millions) | | | (in millions) | |
Recourse: | | |
Corporate/Manufacturing | | $ | 0.4 | | $ | 0.7 | | $ | 0.1 | | $ | 0.2 | | $ | 0.2 | | $ | 652.8 | | | $ | 0.8 | | $ | 0.5 | | $ | 0.2 | | $ | 0.2 | | $ | 0.1 | | $ | 652.6 | |
Leasing — equipment trust certificates (Note 4) | | — | | 14.2 | | 61.5 | | — | | — | | — | | |
Leasing – equipment trust certificates (Note 3) | | | — | | 61.4 | | — | | — | | — | | — | |
| | |
Non-recourse: | | |
Leasing —secured railcar equipment notes (Note 4) | | 3.5 | | 14.2 | | 15.3 | | 16.4 | | 14.9 | | 273.3 | | |
Leasing —warehouse facility (Note 4) | | 3.0 | | 9.1 | | 216.6 | | 108.3 | | — | | — | | |
Leasing – secured railcar equipment notes (Note 3) | | | 10.5 | | 15.3 | | 16.4 | | 14.9 | | 13.7 | | 259.7 | |
| | |
Leasing – warehouse facility (Note 3) | | | 13.8 | | 246.9 | | 123.4 | | — | | — | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
Total principal payments | | $ | 6.9 | | $ | 38.2 | | $ | 293.5 | | $ | 124.9 | | $ | 15.1 | | $ | 926.1 | | | $ | 25.1 | | $ | 324.1 | | $ | 140.0 | | $ | 15.1 | | $ | 13.8 | | $ | 912.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Note 9. Other, Net
Other, net (income) expense consists of the following items:
| | | | | | | | |
| | Three Months Ended | |
| | March 31, | |
| | 2008 | | | 2007 | |
| | (in millions) | |
Gain on disposition of property, plant, and equipment | | $ | (0.1 | ) | | $ | (1.7 | ) |
Foreign currency exchange transactions | | | (0.7 | ) | | | 0.7 | |
(Gain) loss on equity investments | | | (0.2 | ) | | | 0.1 | |
Other | | | (0.1 | ) | | | (0.1 | ) |
| | | | | | |
Other, net | | $ | (1.1 | ) | | $ | (1.0 | ) |
| | | | | | |
Note 10. Income Taxes
On January 1, 2007, we adopted the provisions of FASB Interpretation No. 48 (“FIN 48”),Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109(“SFAS 109”). See Note 12 of the December 31, 2007 Consolidated Financial Statements filed on Form 10-K for a detailed explanation of the impact of FIN 48.
1312
Note 11. Other, Net The change in unrecognized tax benefits for the three months ended March 31, 2008 and 2007 was as follows:
| | | | | | | | |
| | Three Months Ended | |
| | March 31, | |
| | 2008 | | | 2007 | |
| | (in millions) | |
Beginning balance | | $ | 23.7 | | | $ | 32.0 | |
Additions for tax positions of prior years | | | 3.9 | | | | 0.5 | |
Reductions for tax positions of prior years | | | (1.0 | ) | | | — | |
Settlements | | | — | | | | (0.5 | ) |
| | | | | | |
Ending balance | | $ | 26.6 | | | $ | 32.0 | |
| | | | | | |
Other, net consistsThe additions for the three months ended March 31, 2008, were amounts provided for tax positions previously taken in foreign jurisdictions and tax positions taken for state income tax purposes as well as deferred tax liabilities that have been reclassed to uncertain tax positions.
The reduction for tax positions of other (income)prior years for the three months ended March 31, 2008 related primarily to the completion of state audits in which the tax position was not challenged by the state and for which the position is now effectively settled.
The total amount of unrecognized tax benefits at March 31, 2008, that would affect the Company’s effective tax rate if recognized was determined to be $10.8 million. There is a reasonable possibility that unrecognized Federal and state tax benefits will decrease by March 31, 2009 due to a lapse in the statute of limitations for assessing tax. Further, there is a reasonable possibility that the unrecognized tax benefits related to Federal and state tax positions will decrease significantly by March 31, 2009 due to settlements with taxing authorities. As of March 31, 2008, the amounts expected to settle or lapse in the statute of limitations by March 31, 2009 were $11.8 million.
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 March 31, 2008 and December 31, 2007 was $10.4 million and $8.0 million, respectively.
Income tax expense for the following items:three months ended March 31, 2008 and 2007, included $2.3 million and $0.4 million, respectively, in interest expense and penalties related to uncertain tax positions.
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Nine Months Ended | |
| | September 30, | | | September 30, | |
| | 2007 | | | 2006 | | | 2007 | | | 2006 | |
| | (in millions) | | | (in millions) | |
Gain on disposition of property, plant, and equipment | | $ | (3.4 | ) | | $ | (0.4 | ) | | $ | (17.5 | ) | | $ | (12.6 | ) |
Foreign currency exchange transactions | | | (0.2 | ) | | | (0.8 | ) | | | (1.8 | ) | | | (1.0 | ) |
Write-down of equity investment | | | — | | | | — | | | | 5.4 | | | | — | |
Loss on equity investments | | | 0.5 | | | | — | | | | 0.9 | | | | 0.1 | |
Other | | | (0.5 | ) | | | (0.1 | ) | | | (1.5 | ) | | | (0.4 | ) |
| | | | | | | | | | | | |
Other, net | | $ | (3.6 | ) | | $ | (1.3 | ) | | $ | (14.5 | ) | | $ | (13.9 | ) |
| | | | | | | | | | | | |
We are currently under Internal Revenue Service (“IRS”) examination for the tax years ended 1998 through 2002 and 2004 through 2005, thus our statute remains open from the year ended March 31, 1998, forward. We expect the 1998 through 2002 examination and the 2004 through 2005 examination to be completed within the next 12 months. This could be affected by any adjustments that the IRS and the Company do not agree upon, in which case the statute could remain open for an undeterminable period. In addition, statutes of limitations governing the right of Mexico’s tax authorities to audit the tax returns of our Mexican operations remain open for the 2002 tax year forward. Our Mexican subsidiaries are currently under audit for their 2002 tax year. Additionally our Swiss subsidiary is under audit for the 2006 tax year. We expect these examinations to be completed within the next 12 months. Our various European subsidiaries, including the subsidiaries that were sold during 2006, are impacted by various statutes of limitations which are generally open from 2003 forward. An exception to this is our discontinued Romanian operations, which have been audited through 2004. Generally, states’ statutes in the United States are open from 2002 forward.Note 12.11. Employee Retirement Plans
The following table summarizes the components of net periodic pension cost for the Company.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | | Three Months Ended | |
| | September 30, | | September 30, | | | March 31, | |
| | 2007 | | 2006 | | 2007 | | 2006 | | | 2008 | | 2007 | |
| | (in millions) | | (in millions) | | | (in millions) | |
Service cost | | $ | 2.8 | | $ | 3.1 | | $ | 8.5 | | $ | 9.2 | | | $ | 2.4 | | $ | 2.8 | |
Interest | | 4.9 | | 4.5 | | 14.7 | | 13.6 | | | 5.2 | | 4.9 | |
Expected return on assets | | | (4.4 | ) | | | (4.5 | ) | | | (13.2 | ) | | | (13.6 | ) | | | (5.0 | ) | | | (4.4 | ) |
Amortization and deferral | | 1.1 | | 1.0 | | 3.2 | | 3.1 | | | 0.5 | | 1.1 | |
Profit sharing | | 1.9 | | 1.6 | | 5.2 | | 4.4 | | | 2.0 | | 1.6 | |
| | | | | | | | | | | | | | |
Net expenses | | $ | 6.3 | | $ | 5.7 | | $ | 18.4 | | $ | 16.7 | | | $ | 5.1 | | $ | 6.0 | |
| | | | | | | | | | | | | | |
13
Trinity contributed $6.3$3.5 million and $12.7$2.4 million to the Company’s defined benefit pension plans for the three and nine month periods ended September 30,March 31, 2008 and 2007, respectively. Trinity contributed $10.5 million and $15.3 million to the Company’s defined benefit pension plans for the three and nine month periods ended September 30, 2006, respectively. Total contributions to our pension plans in 20072008 are expected to be approximately $16.1$26.1 million.
14
Note 13.12. Accumulated Other Comprehensive Loss
Comprehensive net income is as follows:
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Nine Months Ended | |
| | September 30, | | | September 30, | |
| | 2007 | | | 2006 | | | 2007 | | | 2006 | |
| | (in millions) | | | (in millions) | |
Net income | | $ | 87.0 | | | $ | 50.8 | | | $ | 214.8 | | | $ | 173.6 | |
Other comprehensive income: | | | | | | | | | | | | | | | | |
Sale of European operations, net of tax expense of $8.1 and $8.1 | | | — | | | | (8.7 | ) | | | — | | | | (8.7 | ) |
Change in currency translation adjustment, net of tax expense (benefit) of $(0.1), $—, $(0.1), and $3.2 | | | 0.2 | | | | — | | | | 0.2 | | | | 6.3 | |
Other | | | — | | | | 2.4 | | | | — | | | | 2.4 | |
Change in unrealized gain on derivative financial instruments, net of tax expense of $4.4, $0.5, $0.3, and $0.9 | | | (7.1 | ) | | | (0.6 | ) | | | (0.4 | ) | | | 1.4 | |
| | | | | | | | | | | | |
Comprehensive net income | | $ | 80.1 | | | $ | 43.9 | | | $ | 214.6 | | | $ | 175.0 | |
| | | | | | | | | | | | |
| | | | | | | | |
| | Three Months Ended | |
| | March 31, | |
| | 2008 | | | 2007 | |
| | (in millions) | |
Net income | | $ | 65.3 | | | $ | 59.1 | |
Other comprehensive income (loss): | | | | | | | | |
Change in unrealized (loss) gain on derivative financial instruments, net of tax (benefit) expense of $(6.9) and $0.3 | | | (12.9 | ) | | | 0.4 | |
| | | | | | |
Comprehensive net income | | $ | 52.4 | | | $ | 59.5 | |
| | | | | | |
The components of accumulated other comprehensive loss are as follows:
| | | | | | | | |
| | September 30, | | | December 31, | |
| | 2007 | | | 2006 | |
| | | | | | (as reported) | |
| | (in millions) | |
Currency translation adjustments | | $ | (17.3 | ) | | $ | (17.5 | ) |
Unrealized gain on derivative financial instruments | | | 2.4 | | | | 2.8 | |
Funded status of pension plans | | | (54.5 | ) | | | (54.5 | ) |
| | | | | | |
| | $ | (69.4 | ) | | $ | (69.2 | ) |
| | | | | | |
| | | | | | | | |
| | March 31, | | | December 31, | |
| | 2008 | | | 2007 | |
| | | | | | (as reported) | |
| | (in millions) | |
Currency translation adjustments | | $ | (17.3 | ) | | $ | (17.3 | ) |
Unrealized loss on derivative financial instruments | | | (21.4 | ) | | | (8.5 | ) |
Funded status of pension liability | | | (35.8 | ) | | | (35.8 | ) |
| | | | | | |
| | $ | (74.5 | ) | | $ | (61.6 | ) |
| | | | | | |
Note 14.13. Stock-Based Compensation
On January 1, 2006, we adopted SFAS No. 123RShare-Based Paymentwhich requires companies to recognize in their financial statements the cost of employee services received in exchange for awards of equity instruments. These costs are based on the grant date fair-value of those awards. Stock-based compensation includes compensation expense, recognized over the applicable vesting periods, for both new share-based awards and share-based awards granted prior to, but not yet vested, as of January 1, 2006. Stock-based compensation totaled approximately $5.3$5.0 million and $13.5$3.9 million for the three and nine months ended September 30,March 31, 2008 and 2007, respectively. Stock-based compensation totaled approximately $4.5 million and $9.1 million for the three and nine months ended September 30, 2006, respectively.
Note 15.14. Net Income Per Common Share
Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding for the period. Except when the effect would be anti-dilutive, the calculation of diluted net income per common share includes the impact of shares that could be issued under outstanding stock options. Anti-dilutive stock options for the three and nine monthsmonth period ended September 30, 2007March 31, 2008 were equivalent to 0.2 million and 0.1 million shares, respectively. The number ofshares. There were no anti-dilutive stock options for the three and nine monthsmonth period ended September 30, 2006 was equivalent to 0.5 million and 0.2 million shares, respectively.March 31, 2007.
15
The computation of basic and diluted net income applicable to common stockholders is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Three Months Ended | | | Three Months Ended | | Three Months Ended | |
| | September 30, 2007 | | September 30, 2006 | | | March 31, 2008 | | March 31, 2007 | |
| | (in millions, except per share amounts) | | | (in millions, except per share amounts) | |
| | Average | | Average | | | | | Income | | Average | | Average | | | |
| | Income | | Shares | | EPS | | Income | | Shares | | EPS | | | (Loss) | | Shares | | EPS | | Income | | Shares | | EPS | |
| | | | | | | | |
| | |
Income from continuing operations — basic | | $ | 87.2 | | 79.1 | | $ | 1.10 | | $ | 55.3 | | 77.5 | | $ | 0.71 | | |
Income from continuing operations – basic | | | $ | 65.6 | | 78.9 | | $ | 0.83 | | $ | 59.1 | | 78.0 | | $ | 0.76 | |
| | | | | | | | | | |
Effect of dilutive securities: | | |
Stock options | | — | | 1.5 | | — | | 1.7 | | | — | | 1.3 | | — | | 1.9 | |
| | | | | | | | | | | | | | | | | | |
| | |
Income from continuing operations — diluted | | $ | 87.2 | | 80.6 | | $ | 1.08 | | $ | 55.3 | | 79.2 | | $ | 0.70 | | |
Income from continuing operations – diluted | | | $ | 65.6 | | 80.2 | | $ | 0.81 | | $ | 59.1 | | 79.9 | | $ | 0.74 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
Loss from discontinued operations, net of taxes — basic | | $ | (0.2 | ) | | 79.1 | | $ | 0.00 | | $ | (4.5 | ) | | 77.5 | | $ | (0.06 | ) | |
Loss from discontinued operations, net of taxes – basic | | | $ | (0.3 | ) | | 78.9 | | $ | — | | $ | — | | 78.0 | | $ | — | |
| | | | | | | | | | |
Effect of dilutive securities: | | |
Stock options | | — | | 1.5 | | — | | 1.7 | | | — | | 1.3 | | — | | 1.9 | |
| | | | | | | | | | | | | | | | | | |
Loss from discontinued operations, net of taxes — diluted | | $ | (0.2 | ) | | 80.6 | | $ | 0.00 | | $ | (4.5 | ) | | 79.2 | | $ | (0.06 | ) | |
Loss from discontinued operations, net of taxes – diluted | | | $ | (0.3 | ) | | 80.2 | | $ | — | | $ | — | | 79.9 | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
14
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended | | | Nine Months Ended | |
| | September 30, 2007 | | | September 30, 2006 | |
| | (in millions, except per share amounts) | |
| | | | | | Average | | | | | | | | | | | Average | | | | |
| | Income | | | Shares | | | EPS | | | Income | | | Shares | | | EPS | |
| | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income from continuing operations — basic | | $ | 215.3 | | | | 78.8 | | | $ | 2.73 | | | $ | 158.1 | | | | 76.5 | | | $ | 2.07 | |
| | | | | | | | | | | | | | | | | | | | | | |
Effect of dilutive securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Stock options | | | — | | | | 1.7 | | | | | | | | — | | | | 1.9 | | | | | |
Series B preferred stock | | | — | | | | — | | | | | | | | — | | | | 0.7 | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income from continuing operations — diluted | | $ | 215.3 | | | | 80.5 | | | $ | 2.67 | | | $ | 158.1 | | | | 79.1 | | | $ | 2.00 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
(Loss) income from discontinued operations, net of taxes — basic | | $ | (0.5 | ) | | | 78.8 | | | $ | 0.00 | | | $ | 15.5 | | | | 76.5 | | | $ | 0.20 | |
| | | | | | | | | | | | | | | | | | | | | | |
Effect of dilutive securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Stock options | | | — | | | | 1.7 | | | | | | | | — | | | | 1.9 | | | | | |
Series B preferred stock | | | — | | | | — | | | | | | | | — | | | | 0.7 | | | | | |
| | | | | | | | | | | | | | | | | | | | |
(Loss) income from discontinued operations, net of taxes — diluted | | $ | (0.5 | ) | | | 80.5 | | | $ | 0.00 | | | $ | 15.5 | | | | 79.1 | | | $ | 0.19 | |
| | | | | | | | | | | | | | | | | | |
Note 16.15. Contingencies
Barge Litigation
The Company and its wholly owned subsidiary, Trinity Marine Products, Inc. (“TMP”), and certain material suppliers and others, arewere co-defendants in a class-action lawsuit filed byin April 2003 entitled Waxler Transportation Company, Inc. (thev. Trinity Marine Products, Inc., et al. (Suit No. 49-741, Division “B” in the 25th Judicial District Court in and for the Parish of Plaquemines, Louisiana: the “Waxler Case”). The plaintiff has petitioned the court for certification ofTo avoid a class which, if certified, could significantly increase the total number of barges at issue. The current class representative owns four tank barges on which allegedly defective coatings were applied. These four barges were sold at an approximate average price of $1.4 million. Legal counsel for the Company and TMP have each advised that factual disputes exist regarding the legal merits of class certification. Discovery is underway in the case and the court has scheduled the class certification hearing for December 2007. Independent experts investigating the claims for the Company and TMP have opined that the plaintiff’s assertion the coating applied to the barges is a food source for microbiologically influenced corrosion is without merit. While the Company and TMP have continued to vigorously defend the Waxler Case, in order to avoid thecontinuing commitment of management and executive time andas well as the legal, expert, and transactional costs associated with litigating the claims alleged, the Company and TMP have reached anentered into a settlement agreement within the class representative and their counsel to resolve the litigation, which agreement has been preliminarilyWaxler Case that was approved by the court. We reserved ancourt and became final February 9, 2008. Pursuant to the settlement agreement, the court certified the class for settlement purposes. The Company and TMP are currently working with the Court Appointed Disbursing Agent (“CADA”) to process the claims submitted. As of March 31, 2008, based on instructions from the CADA to the settlement funds escrow agent, the Company has received $2.0 million in refund of unclaimed settlement funds. See Note 19 of the December 31, 2007 Consolidated Financial Statements filed on Form 10-K for additional $15.0 million forinformation.
The settlement agreement required each class member whose individual claims will be settled via the class settlement to elect one of three, months ended June 30, 2007, bringing the total reserve to $18.0
16
million to cover our probable and estimable liabilities assuming thismutually exclusive settlement is implemented. The deadline for putativeoptions. Potential class members who elected not to settle their individual claims via the class settlement were entitled to opt-out of the class or object to the settlement was in October 2007, and aspursue such claims independently of the dateclass. No potential class member opted out of this filing, there were no opt-outs or objections filed. The court has scheduled the fairness hearing for November 2007, at which time the court will hear arguments from putative class members, if any, who object to the settlement. If the preliminary class settlement agreement does not ultimately become effective, the Company and TMP will continue to vigorously defend all claims alleged in the litigation.
Other Litigation
Transit Mix iswas named as a defendant in a case involving the death of an employee of an independent contractor who was working at a Transit Mix facility. Following a jury verdict in favor of the plaintiff, the presiding judge entered a final judgment that, together with fees, costs, and judgment interest, totaled $48.5$50.2 million. This case was appealed by Transit Mix and its insurers. In October 2006, the original trial court judgment was reversed and a take-nothing judgment was rendered by the Eleventh Court of Appeals, State of Texas. Plaintiffs filed a motion for rehearing in such court, which was denied. On March 22, 2007, Plaintiffs filed their Petition for Review with the Texas Supreme Court. Transit Mix filed its Response to Plaintiff’s Petition for Review on July 13, 2007. In September 2007, the Texas Supreme Court requested briefing by the parties on the underlying merits of the case. The Texas Supreme Court has not yet granteddenied the Plaintiff’s Petition for Review.Review on February 22, 2008, and the Plaintiff filed a Motion for Rehearing on April 9, 2008.
We also are also involved in other claims and lawsuits incidental to our business. Based on information currently available, it is management’s opinion that the ultimate outcome of all current litigation and other claims, including settlements, in the aggregate will not have a material adverse effect on the Company’s overall financial condition for purposes of financial reporting. However, resolution of certain claims or lawsuits by settlement or otherwise could have a significant impact on the operating results of the reporting period in which such resolution occurs.
We are subject to federal,Federal, state, local, and foreign laws and regulations relating to the environment and the workplace. We believe that we are currently in substantial compliance with such laws and regulations.
We are involved in various proceedings relating to environmental matters. We have reserved $13.0$9.7 million to cover our probable and estimable liabilities with respect to investigation, assessment,the investigations, assessments, and remedial responseresponses to such matters, taking into account currently available information and our contractual rights to indemnification and recourse to third parties. However, estimates of future remedial response costs are inherently imprecise. Accordingly, there can be no assurance that we will not become involved in future environmental litigation or other proceedings 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. Other than with respect to the foregoing, we believe that we are currently in substantial compliance with environmental and workplace laws and regulations.
Note 17. Accounting for Uncertainty in Income Taxes
In July 2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”),Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 (“SFAS 109”). This interpretation, which became effective for fiscal years beginning after December 15, 2006, introduces a new approach that significantly changes how enterprises recognize and measure tax benefits associated with tax positions and how enterprises disclose uncertainties related to income tax positions in their financial statements.
This interpretation applies to all tax positions within the scope of SFAS 109 and establishes a single approach in which a recognition and measurement threshold is used to determine the amount of tax benefit that should be recognized in the financial statements. FIN 48 also provides guidance on (1) the recognition, derecognition, and measurement of uncertain tax positions in a period subsequent to that in which the tax position is taken; (2) the accounting for interest and penalties; (3) the presentation and classification of recorded amounts in the financial statements; and (4) disclosure requirements.
On January 1, 2007, we adopted the provisions of FIN 48. As a result, we recorded a $3.1 million charge to the January 1, 2007 balance of retained earnings. This amount is inclusive of penalties and interest, net of deferred tax assets that were recorded against uncertain tax positions related to state income taxes and federal and state interest expense that was accrued.
Prior to the adoption of FIN 48, the Company had recorded $8.3 million of tax contingency reserves. Additionally, $20.7 million of deferred tax liabilities had been recorded for items that have been identified as uncertain tax positions that have now been reclassified as a FIN 48 liability. Upon the adoption of FIN 48, we identified an additional $3.0 million of taxes related to uncertain tax positions which increased our total FIN 48 balance on January 1, 2007 to $32.0 million.
17
The change in unrecognized tax benefits for the nine months ended September 30, 2007 is as follows (in millions):
| | | | |
Balance at January 1, 2007 | | $ | 32.0 | |
Additions for tax positions of prior years | | | 1.9 | |
Reductions for tax positions of prior years | | | (11.3 | ) |
Settlements | | | (0.5 | ) |
| | | |
Balance at September 30, 2007 | | $ | 22.1 | |
| | | |
The additions for the nine months ended September 30, 2007, are due to deferred tax liabilities that have been reclassed as uncertain tax positions.
The reduction for tax positions of prior years relates primarily to temporary items that we had previously intended to take a position on in the 2006 Federal Income Tax Return (“tax return”) that would have resulted in an uncertain tax position. During the third quarter of 2007, that tax position was not taken on the tax return when it was filed in September 2007, thus there is no longer an uncertain tax position liability related to this item. The nature of this item was temporary; therefore, there was not an impact to the overall effective tax rate related to this item.
The total amount of unrecognized tax benefits at September 30, 2007, that would affect the Company’s effective tax rate if recognized was determined to be $9.0 million. There is a reasonable possibility that unrecognized federal and state tax benefits will decrease by September 30, 2008 due to a lapse in the statute of limitations for assessing tax. Further, there is a reasonable possibility that the unrecognized tax benefits related to federal and state tax positions will decrease significantly by September 30, 2008 due to settlements with taxing authorities. Amounts expected to settle or lapse in the statute of limitations by September 30, 2008 are $4.6 million.
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 January 1, 2007 was $5.8 million. The total amount of accrued interest and penalties as of September 30, 2007 was $7.5 million.
Income tax expense (benefit) for the three and nine months ended September 30, 2007, includes $(0.7) million and $1.7 million, respectively, in interest expense (benefit) and penalties related to uncertain tax positions.
We are currently under Internal Revenue Service (“IRS”) examination for the tax years ended 1998 through 2002 and 2004 through 2005, thus our statute remains open from the year ended March 31, 1998, forward. We expect the 1998 through 2002 examination to be completed within the next twelve months and expect the 2004 through 2005 examination to be completed within the next eighteen to twenty-four months. In addition, statutes of limitations governing the right of Mexico’s tax authorities to audit the tax returns of our Mexican operations remain open for the 2002 tax year forward. Our various European subsidiaries, including the subsidiaries that were sold during 2006, are impacted by various statutes of limitations which are generally open from 2001 forward. An exception to this is our Romanian operations, which have been audited through 2004. Generally, states’ statutes in the United States are open from 2002 forward.
Note 18.16. Financial Statements for Guarantors of the Senior Notes
The Company’s senior debt is fully and unconditionally and jointly and severally guaranteed by certain of Trinity’s wholly owned subsidiaries: Transit Mix Concrete & Materials Company, Trinity Industries Leasing Company, Trinity Marine Products, Inc., Trinity Rail Group, LLC, Trinity North American Freight Car, Inc., Trinity Tank Car, Inc., and Trinity Parts & Components, LLC. No other subsidiaries guarantee the senior debt. As of September 30, 2007,March 31, 2008, assets held by the non-guarantor subsidiaries include $113.2$117.9 million of restricted assets that are not available for distribution to the Trinity Industries, Inc. (“Parent”), $854.9$909.7 million of assetsequipment securing certain debt, and $107.8$108.6 million of assetsequipment securing certain lease obligations held by the non-guarantor subsidiaries, and $261.8$296.7 million of assets located in foreign locations.
1815
Statement of Operations
For the Three Months Ended September 30, 2007March 31, 2008
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Combined | | | Combined Non- | | | | | | | |
| | | | | | Guarantor | | | Guarantor | | | | | | | |
| | Parent | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | | | | | | | | (in millions) | | | | | | | | | |
Revenues | | $ | 3.2 | | | $ | 721.6 | | | $ | 408.8 | | | $ | (125.2 | ) | | $ | 1,008.4 | |
Cost of revenues | | | 44.9 | | | | 556.7 | | | | 328.5 | | | | (125.2 | ) | | | 804.9 | |
Selling, engineering, and administrative expenses | | | 7.5 | | | | 29.7 | | | | 19.4 | | | | — | | | | 56.6 | |
| | | | | | | | | | | | | | | |
| | | 52.4 | | | | 586.4 | | | | 347.9 | | | | (125.2 | ) | | | 861.5 | |
| | | | | | | | | | | | | | | |
Operating profit (loss) | | | (49.2 | ) | | | 135.2 | | | | 60.9 | | | | — | | | | 146.9 | |
Other (income) expense | | | (121.6 | ) | | | (21.4 | ) | | | 13.1 | | | | 143.3 | | | | 13.4 | |
| | | | | | | | | | | | | | | |
Income from continuing operations before income taxes | | | 72.4 | | | | 156.6 | | | | 47.8 | | | | (143.3 | ) | | | 133.5 | |
Provision (benefit) for income taxes | | | (14.6 | ) | | | 42.9 | | | | 18.0 | | | | — | | | | 46.3 | |
| | | | | | | | | | | | | | | |
Income from continuing operations | | | 87.0 | | | | 113.7 | | | | 29.8 | | | | (143.3 | ) | | | 87.2 | |
Loss from discontinued operations, net of benefit for income taxes of $0.1 | | | — | | | | — | | | | (0.2 | ) | | | — | | | | (0.2 | ) |
| | | | | | | | | | | | | | | |
Net income | | $ | 87.0 | | | $ | 113.7 | | | $ | 29.6 | | | $ | (143.3 | ) | | $ | 87.0 | |
| | | | | | | | | | | | | | | |
Statement of Operations
For the Nine Months Ended September 30, 2007
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Combined | | | | | |
| | Combined | | Combined Non- | | | | | | | Combined | | Non- | | | | | |
| | Guarantor | | Guarantor | | | | | | | Guarantor | | Guarantor | | | | | |
| | Parent | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated | | | Parent | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated | |
| | (in millions) | | | (in millions) | |
Revenues | | $ | 56.2 | | $ | 1,881.1 | | $ | 1,220.9 | | $ | (428.7 | ) | | $ | 2,729.5 | | | $ | 2.6 | | $ | 594.9 | | $ | 436.7 | | $ | (135.3 | ) | | $ | 898.9 | |
Cost of revenues | | 167.7 | | 1,460.6 | | 994.9 | | | (428.7 | ) | | 2,194.5 | | | 38.8 | | 458.3 | | 354.7 | | | (135.3 | ) | | 716.5 | |
Selling, engineering, and administrative expenses | | 28.0 | | 84.5 | | 55.8 | | — | | 168.3 | | | 5.5 | | 29.0 | | 21.7 | | — | | 56.2 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | 195.7 | | 1,545.1 | | 1,050.7 | | | (428.7 | ) | | 2,362.8 | | | 44.3 | | 487.3 | | 376.4 | | | (135.3 | ) | | 772.7 | |
| | | | | | | | | | | | | | | | | | | | | | |
Operating profit (loss) | | | (139.5 | ) | | 336.0 | | 170.2 | | — | | 366.7 | | | | (41.7 | ) | | 107.6 | | 60.3 | | — | | 126.2 | |
Other (income) expense | | | (313.9 | ) | | 1.4 | | 41.2 | | 303.8 | | 32.5 | | | | (94.4 | ) | | | (0.2 | ) | | 14.7 | | 97.5 | | 17.6 | |
| | | | | | | | | | | | | | | | | | | | | | |
Income from continuing operations before income taxes | | 174.4 | | 334.6 | | 129.0 | | | (303.8 | ) | | 334.2 | | | 52.7 | | 107.8 | | 45.6 | | | (97.5 | ) | | 108.6 | |
Provision (benefit) for income taxes | | | (40.4 | ) | | 112.9 | | 46.4 | | — | | 118.9 | | | | (12.6 | ) | | 38.3 | | 17.3 | | — | | 43.0 | |
| | | | | | | | | | | | | | | | | | | | | | |
Income from continuing operations | | 214.8 | | 221.7 | | 82.6 | | | (303.8 | ) | | 215.3 | | | 65.3 | | 69.5 | | 28.3 | | | (97.5 | ) | | 65.6 | |
Loss from discontinued operations, net of benefit for income taxes of $0.2 | | — | | — | | | (0.5 | ) | | — | | | (0.5 | ) | |
Loss from discontinued operations, net of benefit for income taxes of $0.1 | | | — | | — | | | (0.3 | ) | | — | | | (0.3 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 214.8 | | $ | 221.7 | | $ | 82.1 | | $ | (303.8 | ) | | $ | 214.8 | | | $ | 65.3 | | $ | 69.5 | | $ | 28.0 | | $ | (97.5 | ) | | $ | 65.3 | |
| | | | | | | | | | | | | | | | | | | | | | |
Statement of Operations
For the Three Months Ended September 30, 2006March 31, 2007
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Combined | | | Combined Non- | | | | | | | |
| | | | | | Guarantor | | | Guarantor | | | | | | | |
| | Parent | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | | | | | | | | (in millions) | | | | | | | | | |
Revenues | | $ | 120.3 | | | $ | 479.3 | | | $ | 302.7 | | | $ | (92.2 | ) | | $ | 810.1 | |
Cost of revenues | | | 119.8 | | | | 393.3 | | | | 239.1 | | | | (92.2 | ) | | | 660.0 | |
Selling, engineering and administrative expenses | | | 16.3 | | | | 24.3 | | | | 8.8 | | | | — | | | | 49.4 | |
| | | | | | | | | | | | | | | |
| | | 136.1 | | | | 417.6 | | | | 247.9 | | | | (92.2 | ) | | | 709.4 | |
| | | | | | | | | | | | | | | |
Operating profit (loss) | | | (15.8 | ) | | | 61.7 | | | | 54.8 | | | | — | | | | 100.7 | |
Other (income) expense | | | (51.3 | ) | | | 7.7 | | | | 8.5 | | | | 46.2 | | | | 11.1 | |
| | | | | | | | | | | | | | | |
Income from continuing operations before income taxes | | | 35.5 | | | | 54.0 | | | | 46.3 | | | | (46.2 | ) | | | 89.6 | |
Provision (benefit)for income taxes | | | (16.7 | ) | | | 25.2 | | | | 25.8 | | | | — | | | | 34.3 | |
| | | | | | | | | | | | | | | |
Income from continuing operations | | | 52.2 | | | | 28.8 | | | | 20.5 | | | | (46.2 | ) | | | 55.3 | |
Loss on sale of discontinued operations, net of benefit for income taxes of $0.5 | | | (1.4 | ) | | | — | | | | — | | | | — | | | | (1.4 | ) |
Loss from discontinued operations, net of provision for income taxes of $1.6 | | | — | | | | — | | | | (3.1 | ) | | | — | | | | (3.1 | ) |
| | | | | | | | | | | | | | | |
Net income | | $ | 50.8 | | | $ | 28.8 | | | $ | 17.4 | | | $ | (46.2 | ) | | $ | 50.8 | |
| | | | | | | | | | | | | | | |
19
Statement of Operations
For the Nine Months Ended September 30, 2006
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Combined | | Combined Non- | | | | | | | Combined | | Combined Non- | | | | | |
| | Guarantor | | Guarantor | | | | | | | Guarantor | | Guarantor | | | | | |
| | Parent | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated | | | Parent | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated | |
| | (in millions) | | | (in millions) | |
Revenues | | $ | 365.3 | | $ | 1,474.6 | | $ | 849.4 | | $ | (305.4 | ) | | $ | 2,383.9 | | | $ | 45.4 | | $ | 559.0 | | $ | 338.3 | | $ | (114.2 | ) | | $ | 828.5 | |
Cost of revenues | | 358.6 | | 1,228.5 | | 667.9 | | | (305.4 | ) | | 1,949.6 | | | 65.4 | | 443.3 | | 271.2 | | | (114.2 | ) | | 665.7 | |
Selling, engineering and administrative expenses | | 51.0 | | 71.0 | | 27.7 | | — | | 149.7 | | | 11.1 | | 26.5 | | 16.5 | | — | | 54.1 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | 409.6 | | 1,299.5 | | 695.6 | | | (305.4 | ) | | 2,099.3 | | | 76.5 | | 469.8 | | 287.7 | | | (114.2 | ) | | 719.8 | |
| | | | | | | | | | | | | | | | | | | | | | |
Operating profit (loss) | | | (44.3 | ) | | 175.1 | | 153.8 | | — | | 284.6 | | | | (31.1 | ) | | 89.2 | | 50.6 | | — | | 108.7 | |
Other (income) expense | | | (179.4 | ) | | 17.3 | | 14.0 | | 171.4 | | 23.3 | | | | (82.0 | ) | | 16.3 | | 11.3 | | 67.2 | | 12.8 | |
| | | | | | | | | | | | | | | | | | | | | | |
Income from continuing operations before income taxes | | 135.1 | | 157.8 | | 139.8 | | | (171.4 | ) | | 261.3 | | | 50.9 | | 72.9 | | 39.3 | | | (67.2 | ) | | 95.9 | |
Provision (benefit) for income taxes | | | (17.5 | ) | | 70.0 | | 50.7 | | — | | 103.2 | | | | (8.2 | ) | | 29.9 | | 15.1 | | — | | 36.8 | |
| | | | | | | | | | | | | | | | | | | | | | |
Income from continuing operations | | 152.6 | | 87.8 | | 89.1 | | | (171.4 | ) | | 158.1 | | | 59.1 | | 43.0 | | 24.2 | | | (67.2 | ) | | 59.1 | |
Gain on sale of discontinued operations, net of provision for income taxes of $13.3 | | 21.0 | | — | | — | | — | | 21.0 | | |
Loss from discontinued operations, net of benefit for income taxes of $1.1 | | — | | — | | | (5.5 | ) | | — | | | (5.5 | ) | |
Loss from discontinued operations, net of provision for income taxes of $0 | | | — | | — | | — | | — | | — | |
| | | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 173.6 | | $ | 87.8 | | $ | 83.6 | | $ | (171.4 | ) | | $ | 173.6 | | | $ | 59.1 | | $ | 43.0 | | $ | 24.2 | | $ | (67.2 | ) | | $ | 59.1 | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance Sheet
September 30, 2007March 31, 2008
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Combined | | | | | |
| | Combined | | Combined Non- | | | | | | | Combined | | Non- | | | | | |
| | Guarantor | | Guarantor | | | | | | | Guarantor | | Guarantor | | | | | |
| | Parent | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated | | | Parent | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated | |
| | (in millions) | | | (in millions) | |
Assets: | | |
Cash and cash equivalents | | $ | 184.5 | | $ | 0.4 | | $ | 37.5 | | $ | — | | $ | 222.4 | | | $ | 163.9 | | $ | 0.7 | | $ | 35.1 | | $ | — | | $ | 199.7 | |
Receivables, net of allowance | | 11.4 | | 173.4 | | 157.1 | | — | | 341.9 | | | 5.1 | | 125.6 | | 152.8 | | — | | 283.5 | |
Inventory | | 0.8 | | 403.9 | | 209.7 | | — | | 614.4 | | | 1.1 | | 480.1 | | 169.6 | | — | | 650.8 | |
Property, plant, and equipment, net | | 22.8 | | 754.1 | | 1,257.8 | | — | | 2,034.7 | | | 22.0 | | 849.4 | | 1,350.1 | | — | | 2,221.5 | |
Investments in subsidiaries/intercompany receivable (payable), net | | 2,200.5 | | | (498.8 | ) | | | (82.0 | ) | | | (1,619.7 | ) | | — | | | 2,407.4 | | | (621.3 | ) | | 391.0 | | | (2,177.1 | ) | | — | |
Goodwill and other assets | | 210.7 | | 435.6 | | 257.2 | | | (92.0 | ) | | 811.5 | | | 187.3 | | 447.3 | | 267.2 | | | (106.4 | ) | | 795.4 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | $ | 2,630.7 | | $ | 1,268.6 | | $ | 1,837.3 | | $ | (1,711.7 | ) | | $ | 4,024.9 | | | $ | 2,786.8 | | $ | 1,281.8 | | $ | 2,365.8 | | $ | (2,283.5 | ) | | $ | 4,150.9 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | |
Liabilities: | | |
Accounts payable and accrued liabilities | | $ | 251.0 | | $ | 307.0 | | $ | 199.1 | | $ | (28.4 | ) | | $ | 728.7 | | | $ | 277.0 | | $ | 186.3 | | $ | 199.8 | | $ | — | | $ | 663.1 | |
Debt | | 651.8 | | 78.2 | | 674.7 | | — | | 1,404.7 | | | 651.7 | | 64.1 | | 714.6 | | — | | 1,430.4 | |
Deferred income | | 26.9 | | 2.9 | | 22.9 | | — | | 52.7 | | | 38.0 | | 4.0 | | 22.2 | | — | | 64.2 | |
Other liabilities | | 50.2 | | 197.3 | | 4.1 | | | (63.6 | ) | | 188.0 | | | 58.0 | | 274.8 | | 4.7 | | | (106.4 | ) | | 231.1 | |
| |
Total stockholders’ equity | | 1,650.8 | | 683.2 | | 936.5 | | | (1,619.7 | ) | | 1,650.8 | | | 1,762.1 | | 752.6 | | 1,424.5 | | | (2,177.1 | ) | | 1,762.1 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | $ | 2,630.7 | | $ | 1,268.6 | | $ | 1,837.3 | | $ | (1,711.7 | ) | | $ | 4,024.9 | | | $ | 2,786.8 | | $ | 1,281.8 | | $ | 2,365.8 | | $ | (2,283.5 | ) | | $ | 4,150.9 | |
| | | | | | | | | | | | | | | | | | | | | | |
2016
Balance Sheet
December 31, 20062007
(as reported)
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Combined | | | | | |
| | Combined | | Combined Non- | | | | | | | Combined | | Non- | | | | | |
| | Guarantor | | Guarantor | | | | | | | Guarantor | | Guarantor | | | | | |
| | Parent | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated | | | Parent | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated | |
| | (in millions) | | | (in millions) | |
Assets: | | |
Cash and cash equivalents | | $ | 283.1 | | $ | 0.2 | | $ | 28.2 | | $ | — | | $ | 311.5 | | | $ | 238.0 | | $ | 0.7 | | $ | 50.9 | | $ | — | | $ | 289.6 | |
Receivables, net of allowance | | 58.6 | | 124.0 | | 69.9 | | — | | 252.5 | | | 5.8 | | 156.6 | | 134.1 | | — | | 296.5 | |
Inventory | | 68.2 | | 292.7 | | 168.0 | | — | | 528.9 | | | 5.3 | | 412.1 | | 169.3 | | — | | 586.7 | |
Property, plant, and equipment, net | | 45.8 | | 687.7 | | 856.8 | | — | | 1,590.3 | | | 22.5 | | 807.1 | | 1,240.2 | | — | | 2,069.8 | |
Investments in subsidiaries/ intercompany receivable (payable), net | | 1,674.4 | | | (432.0 | ) | | 109.1 | | | (1,351.5 | ) | | — | | | 2,271.3 | | | (522.4 | ) | | 314.2 | | | (2,063.1 | ) | | — | |
Goodwill and other assets | | 188.1 | | 432.0 | | 221.7 | | | (99.4 | ) | | 742.4 | | | 227.4 | | 440.9 | | 264.2 | | | (131.9 | ) | | 800.6 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | $ | 2,318.2 | | $ | 1,104.6 | | $ | 1,453.7 | | $ | (1,450.9 | ) | | $ | 3,425.6 | | | $ | 2,770.3 | | $ | 1,295.0 | | $ | 2,172.9 | | $ | (2,195.0 | ) | | $ | 4,043.2 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | |
Liabilities: | | |
Accounts payable and accrued liabilities | | $ | 228.2 | | $ | 274.7 | | $ | 152.9 | | $ | — | | $ | 655.8 | | | $ | 307.4 | | $ | 174.2 | | $ | 202.7 | | $ | — | | $ | 684.3 | |
Debt | | 651.5 | | 120.9 | | 426.5 | | — | | 1,198.9 | | | 651.7 | | 78.5 | | 644.0 | | — | | 1,374.2 | |
Deferred income | | 17.2 | | 3.5 | | 22.2 | | — | | 42.9 | | | 32.3 | | 3.9 | | 22.2 | | — | | 58.4 | |
Other liabilities | | 17.8 | | 197.3 | | 8.8 | | | (99.4 | ) | | 124.5 | | | 52.2 | | 274.8 | | 4.5 | | | (131.9 | ) | | 199.6 | |
| | |
Total stockholders’ equity | | 1,403.5 | | 508.2 | | 843.3 | | | (1,351.5 | ) | | 1,403.5 | | | 1,726.7 | | 763.6 | | 1,299.5 | | | (2,063.1 | ) | | 1,726.7 | |
| | | | | | | | | | | |
| | | | | | | | | | | | | $ | 2,770.3 | | $ | 1,295.0 | | $ | 2,172.9 | | $ | (2,195.0 | ) | | $ | 4,043.2 | |
| | $ | 2,318.2 | | $ | 1,104.6 | | $ | 1,453.7 | | $ | (1,450.9 | ) | | $ | 3,425.6 | | | | | | | | | | | | |
| | | | | | | | | | | | |
Statement of Cash Flows
For the NineThree Months Ended September 30, 2007March 31, 2008
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Combined | | | Combined Non- | | | | | | | |
| | | | | | Guarantor | | | Guarantor | | | | | | | |
| | Parent | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | | | | | | | | (in millions) | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Net cash (required) provided by operating activities | | $ | (111.3 | ) | | $ | 64.3 | | | $ | 235.2 | | | $ | — | | | $ | 188.2 | |
Net cash provided (required) by investing activities | | | 9.3 | | | | (21.4 | ) | | | (474.1 | ) | | | — | | | | (486.2 | ) |
Net cash provided (required) by financing activities | | | 3.4 | | | | (42.7 | ) | | | 248.2 | | | | — | | | | 208.9 | |
| | | | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | (98.6 | ) | | | 0.2 | | | | 9.3 | | | | — | | | | (89.1 | ) |
Cash and equivalents at beginning of period | | | 283.1 | | | | 0.2 | | | | 28.2 | | | | — | | | | 311.5 | |
| | | | | | | | | | | | | | | |
Cash and equivalents at end of period | | $ | 184.5 | | | $ | 0.4 | | | $ | 37.5 | | | $ | — | | | $ | 222.4 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Combined | | | | | | | |
| | | | | | Combined | | | Non- | | | | | | | |
| | | | | | Guarantor | | | Guarantor | | | | | | | |
| | Parent | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | | | | | | | | (in millions) | | | | | | | | | |
Net cash (required) provided by operating activities | | $ | (55.9 | ) | | $ | 62.3 | | | $ | 32.6 | | | $ | — | | | $ | 39.0 | |
Net cash (required) provided by investing activities | | | (0.3 | ) | | | (47.9 | ) | | | (119.0 | ) | | | — | | | | (167.2 | ) |
Net cash (required) provided by financing activities | | | (17.9 | ) | | | (14.4 | ) | | | 70.6 | | | | — | | | | 38.3 | |
| | | | | | | | | | | | | | | |
Net decrease in cash and cash equivalents | | | (74.1 | ) | | | — | | | | (15.8 | ) | | | — | | | | (89.9 | ) |
Cash and cash equivalents at beginning of period | | | 238.0 | | | | 0.7 | | | | 50.9 | | | | — | | | | 289.6 | |
| | | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 163.9 | | | $ | 0.7 | | | $ | 35.1 | | | $ | — | | | $ | 199.7 | |
| | | | | | | | | | | | | | | |
Statement of Cash Flows
For the NineThree Months Ended September 30, 2006March 31, 2007
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Combined | | Combined Non- | | | | | | | Combined | | | | | |
| | Guarantor | | Guarantor | | | | | | | Combined | | Non- | | | | | |
| | Parent | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated | | | Guarantor | | Guarantor | | | | | |
| | (in millions) | | | Parent | | Subsidiaries | | Subsidiaries | | Eliminations | | Consolidated | |
| | | (in millions) | |
Net cash (required) provided by operating activities | | $ | (192.0 | ) | | $ | 189.0 | | $ | 66.3 | | $ | — | | $ | 63.3 | | | $ | (83.5 | ) | | $ | 63.5 | | $ | 59.6 | | $ | — | | $ | 39.6 | |
Net cash provided (required) by investing activities | | 71.1 | | | (179.2 | ) | | | (243.6 | ) | | — | | | (351.7 | ) | | 0.6 | | | (19.5 | ) | | | (163.2 | ) | | — | | | (182.1 | ) |
Net cash provided (required) by financing activities | | 355.9 | | | (10.0 | ) | | 174.6 | | — | | 520.5 | | | 2.6 | | | (43.6 | ) | | 96.1 | | — | | 55.1 | |
| | | | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | 235.0 | | | (0.2 | ) | | | (2.7 | ) | | — | | 232.1 | | | | (80.3 | ) | | 0.4 | | | (7.5 | ) | | — | | | (87.4 | ) |
Cash and equivalents at beginning of period | | 110.8 | | 0.3 | | 24.9 | | — | | 136.0 | | |
Cash and cash equivalents at beginning of period | | | 283.1 | | 0.2 | | 28.2 | | — | | 311.5 | |
| | | | | | | | | | | | | | | | | | | | | | |
Cash and equivalents at end of period | | $ | 345.8 | | $ | 0.1 | | $ | 22.2 | | $ | — | | $ | 368.1 | | |
Cash and cash equivalents at end of period | | | $ | 202.8 | | $ | 0.6 | | $ | 20.7 | | $ | — | | $ | 224.1 | |
| | | | | | | | | | | | | | | | | | | | | | |
2117
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
In September 2007, our subsidiary, Transit Mix Concrete & Materials Company (“Transit Mix”), sold a group of assets in South Texas. Included in the sale were four ready mix concrete facilities. Annual revenues from the assets sold represented approximately $17.0 million. In connection with the sale, goodwill of $0.7 million was written-off. In August 2007, Transit Mix sold three ready mix concrete facilities in West Texas. Total proceeds from the third quarter dispositions were $9.7 million with an after-tax gain of $1.8 million. These assets were part of our Construction Products Group.
In August 2007, our subsidiary, Trinity Highway Products, LLC (“Trinity Highway”), acquired companies operating under the names of Central Fabricators, Inc. and Central Galvanizing, Inc. The total acquisition cost was $15.5 million paid at closing, plus 325,800 shares of Trinity common stock valued at $11.7 million, and additional future cash consideration of $5.5 million to be paid during the next five years. In connection with the acquisition, Trinity Highway recorded goodwill of approximately $21.1 million. The final acquisition cost is subject to final adjustments in accordance with the purchase agreement. Annual revenues for the acquired businesses are estimated to be approximately $26.0 million. The acquired companies will be a part of our Construction Products Group.
In August and September 2007, Transit Mix and one of its subsidiaries acquired assets in two separate transactions for a total of approximately $4.9 million. The acquired assets will be a part of our Construction Products Group.
In May 2007, Transit Mix sold a group of assets in Houston, Texas. Included in the sale were seven ready mix concrete facilities and an aggregates distribution yard. Annual revenues related to the ready mix concrete assets sold represented approximately $40.0 million. In connection with the sale, goodwill of $1.2 million was written-off. In June 2007, Transit Mix sold two ready mix concrete facilities in the North Texas area. Total proceeds from the second quarter dispositions were $33.2 million with an after-tax gain of $7.5 million. These assets were part of our Construction Products Group.
In April 2007, Transit Mix acquired a combined group of East Texas asphalt, ready mix concrete, and aggregates businesses operating under the name Armor Materials. The businesses were owned by a common group of individuals and companies. The total acquisition cost was $30.5 million paid at closing, additional future cash consideration of $5.2 million to be paid during the next three to five years, and contingent payments not to exceed $6.0 million paid during a three year period. In connection with the acquisition, Transit Mix recorded goodwill of $17.1 million. Annual revenues for the acquired businesses are estimated to be approximately $55.0 million. The acquired group will be a part of our Construction Products Group.
In June 2007, Trinity purchased 20% of the equity in newly-formed TRIP Rail Holdings LLC (“TRIP Holdings”) for $8.1 million. Trinity funded an additional $7.2 million for the three months ended September 30, 2007, totaling a $15.3 million investment in TRIP Holdings for the nine months ended September 30, 2007. TRIP Holdings provides railcar leasing and management services in North America. Trinity also paid $13.8 million in structuring and placement fees that are being expensed on a pro rata basis as railcars are purchased by a wholly-owned subsidiary of TRIP Holdings, TRIP Rail Leasing LLC (“TRIP Leasing”). TRIP Holding’s remaining equity is held by five investors not related to Trinity or our subsidiaries. Trinity’s remaining equity commitment to TRIP Holdings is $33.7 million. As part of the transaction, TRIP Leasing plans to purchase approximately $1.4 billion in railcars from Trinity’s Rail Group and Trinity Industries Leasing Company (“TILC”), a wholly-owned subsidiary of Trinity. Purchases of railcars by TRIP Leasing are funded by capital contributions from TRIP Holdings and third party debt. The Company has no obligation to guarantee performance under the debt agreement, guarantee any residual values, shield any parties from losses, or guarantee minimum yields. See Note 5 to the Consolidated Financial Statements.
The following discussion should be read in conjunction with the unaudited consolidated financial statements and related notes thereto appearing elsewhere in this document.
22
In 2007, Trinity Industries Inc. (“Trinity”, “Company”, “we” or “our”) purchased 20% of the equity in newly-formed TRIP Rail Holdings LLC (“TRIP Holdings”). TRIP Holdings provides railcar leasing and management services in North America. Railcars are purchased from Trinity by a wholly-owned subsidiary of TRIP Holdings, TRIP Rail Leasing LLC (“TRIP Leasing”).
Overall Summary for Continuing Operations
Revenues
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2007 | | | Three Months Ended September 30, 2006 | | | | |
| | Revenues | | | Revenues | | | Percent | |
| | External | | | Intersegment | | | Total | | | External | | | Intersegment | | | Total | | | Change | |
| | ($ in millions) | |
Rail Group | | $ | 382.2 | | | $ | 239.1 | | | $ | 621.3 | | | $ | 377.5 | | | $ | 170.8 | | | $ | 548.3 | | | | 13.3 | % |
Construction Products Group | | | 193.8 | | | | 0.4 | | | | 194.2 | | | | 190.3 | | | | 0.7 | | | | 191.0 | | | | 1.7 | |
Inland Barge Group | | | 126.6 | | | | — | | | | 126.6 | | | | 93.7 | | | | — | | | | 93.7 | | | | 35.1 | |
Energy Equipment Group | | | 98.4 | | | | 3.0 | | | | 101.4 | | | | 85.9 | | | | 2.2 | | | | 88.1 | | | | 15.1 | |
Railcar Leasing and Management Services Group | | | 204.0 | | | | — | | | | 204.0 | | | | 61.4 | | | | — | | | | 61.4 | | | | 232.2 | |
All Other | | | 3.4 | | | | 14.5 | | | | 17.9 | | | | 1.3 | | | | 13.7 | | | | 15.0 | | | | 19.3 | |
Eliminations — lease subsidiary | | | — | | | | (235.4 | ) | | | (235.4 | ) | | | — | | | | (168.1 | ) | | | (168.1 | ) | | | | |
Eliminations — other | | | — | | | | (21.6 | ) | | | (21.6 | ) | | | — | | | | (19.3 | ) | | | (19.3 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Consolidated Total | | $ | 1,008.4 | | | $ | — | | | $ | 1,008.4 | | | $ | 810.1 | | | $ | — | | | $ | 810.1 | | | | 24.5 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2007 | | Nine Months Ended September 30, 2006 | | | | | Three Months Ended March 31, 2008 | | Three Months Ended March 31, 2007 | | | |
| | Revenues | | Revenues | | Percent | | | Revenues | | Revenues | | Percent | |
| | External | | Intersegment | | Total | | External | | Intersegment | | Total | | Change | | | External | | Intersegment | | Total | | External | | Intersegment | | Total | | Change | |
| | ($ in millions) | | | ($ in millions) | |
Rail Group | | $ | 1,088.5 | | $ | 700.6 | | $ | 1,789.1 | | $ | 1,165.1 | | $ | 440.1 | | $ | 1,605.2 | | | 11.5 | % | | $ | 347.7 | | $ | 220.1 | | $ | 567.8 | | $ | 394.3 | | $ | 174.4 | | $ | 568.7 | | | (0.2 | )% |
Construction Products Group | | 553.9 | | 0.8 | | 554.7 | | 526.9 | | 1.3 | | 528.2 | | 5.0 | | | 165.0 | | 4.3 | | 169.3 | | 163.1 | | 0.1 | | 163.2 | | 3.7 | |
Inland Barge Group | | 355.8 | | — | | 355.8 | | 265.7 | | — | | 265.7 | | 33.9 | | | 137.8 | | — | | 137.8 | | 108.7 | | — | | 108.7 | | 26.8 | |
Energy Equipment Group | | 283.8 | | 8.3 | | 292.1 | | 232.7 | | 6.7 | | 239.4 | | 22.0 | | | 126.2 | | 3.3 | | 129.5 | | 88.9 | | 2.5 | | 91.4 | | 41.7 | |
Railcar Leasing and Management Services Group | | 437.4 | | — | | 437.4 | | 189.5 | | — | | 189.5 | | 130.8 | | | 119.8 | | — | | 119.8 | | 70.9 | | — | | 70.9 | | 69.0 | |
All Other | | 10.1 | | 40.3 | | 50.4 | | 4.0 | | 35.5 | | 39.5 | | 27.6 | | | 2.4 | | 15.8 | | 18.2 | | 2.6 | | 13.0 | | 15.6 | | 16.7 | |
Eliminations — lease subsidiary | | — | | | (690.9 | ) | | | (690.9 | ) | | — | | | (435.6 | ) | | | (435.6 | ) | | | — | | | (216.7 | ) | | | (216.7 | ) | | — | | | (172.5 | ) | | | (172.5 | ) | |
Eliminations — other | | — | | | (59.1 | ) | | | (59.1 | ) | | — | | | (48.0 | ) | | | (48.0 | ) | | | — | | | (26.8 | ) | | | (26.8 | ) | | — | | | (17.5 | ) | | | (17.5 | ) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated Total | | $ | 2,729.5 | | $ | — | | $ | 2,729.5 | | $ | 2,383.9 | | $ | — | | $ | 2,383.9 | | 14.5 | | | $ | 898.9 | | $ | — | | $ | 898.9 | | $ | 828.5 | | $ | — | | $ | 828.5 | | 8.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenues for the three and nine month periodsperiod ended September 30, 2007March 31, 2008 increased due to higher total sales across all segments. Increased railcar shipments to our Leasing Group, partially offset by a decline in externalimproved sales in all segments with exception of our Rail Group as compared to the nine monthsame period yielded higher revenuesin the prior year. Revenues for the Rail Group.Group were substantially unchanged. The increase in revenues for the Construction Products Group can be attributed primarily to increased sales volumes in our aggregateshighway products business, sales generated by our entry into the asphalt business, and an increase in various raw material costs that have resulted in higher sales pricesprices. These increases were offset by decreased volumes in our highway productsbridge girder business and the impact of divestitures in the concrete businesses.and aggregates businesses that took place during 2007. Inland Barge Group revenues increased primarily as a result of greater barge shipments and a change in the mix of barges sold. An increase in structural wind towers sales was the primary reason for the revenue increase in revenues in the Energy Equipment Group. Higher rental revenues related to additions to the fleet and increasedIncreased sales of cars from the lease fleet and higher rental revenues resulting from additions to the fleet drove revenue increasesthe increase in revenues in the Railcar Leasing and Management Services Group.Group (“Leasing Group”).
Operating Profit (Loss)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | | Three Months Ended | |
| | September 30, | | September 30, | | | March 31, | |
| | 2007 | | 2006 | | 2007 | | 2006 | | | 2008 | | 2007 | |
| | (in millions) | | (in millions) | | | (in millions) | |
Rail Group | | $ | 96.5 | | $ | 62.2 | | $ | 271.2 | | $ | 187.1 | | | $ | 77.2 | | $ | 78.1 | |
Construction Products Group | | 19.0 | | 19.9 | | 44.9 | | 49.5 | | | 12.2 | | 10.1 | |
Inland Barge Group | | 22.3 | | 11.9 | | 46.3 | | 29.0 | | | 26.5 | | 17.4 | |
Energy Equipment Group | | 11.6 | | 13.4 | | 33.4 | | 36.5 | | | 18.2 | | 10.1 | |
Railcar Leasing and Management Services Group | | 47.0 | | 24.5 | | 114.3 | | 66.3 | | | 34.1 | | 27.8 | |
All Other | | 0.1 | | | (3.9 | ) | | 2.0 | | | (7.3 | ) | | | (0.3 | ) | | 1.3 | |
Corporate | | | (7.0 | ) | | | (8.3 | ) | | | (26.7 | ) | | | (26.8 | ) | | | (5.4 | ) | | | (10.0 | ) |
Eliminations — lease subsidiary | | | (37.3 | ) | | | (19.6 | ) | | | (115.8 | ) | | | (50.3 | ) | | | (31.2 | ) | | | (28.2 | ) |
Eliminations — other | | | (5.3 | ) | | 0.6 | | | (2.9 | ) | | 0.6 | | | | (5.1 | ) | | 2.1 | |
| | | | | | | | | | | | | | |
Consolidated Total | | $ | 146.9 | | $ | 100.7 | | $ | 366.7 | | $ | 284.6 | | | $ | 126.2 | | $ | 108.7 | |
| | | | | | | | | | | | | | |
Operating profit for the three and nine month periodsperiod ended September 30, 2007March 31, 2008 increased as the result of overall higher revenues, an increase in the size of our lease fleet, and increased sales of cars from the lease fleet. These improvements were offset by a $15.0fleet, and the refund of $2.0 million charge forin unclaimed settlement funds related to the potential resolution of a barge litigation settlement for the nine months ended September 30, 2007. See Note 16 of the Consolidated Financial Statements.Waxler Case.
Other Income and Expense.Interest expense, net of interest income, was $17.0$18.7 million and $47.0$13.8 million, respectively, for the three and nine month periods ended September 30, 2007 compared to $12.4 millionMarch 31, 2008 and $37.2 million, respectively,
23
for the same periods last year.2007. Interest income decreased $3.2$1.4 million and $0.5 million, respectively, over the same periodsperiod last year primarily due to lower investment income as a result of lower interest rates and a decrease in cash available for investment, partially offset by an increase in leasing interest income.investment. Interest expense increased $1.4$3.5 million and $9.3 million, respectively, over the same periodsperiod last year due to an increase in debt levels. The increase inlevels and expense of $2.2 million related to the ineffective portion of interest rate hedges. Other, net was substantially unchanged
18
with income of $1.1 million for the three and nine month periodsperiod ended September 30, 2007 was primarily due to gains on the disposal of property, plant, and equipment and foreign currency gains partially offset by the write-down of an equity investment.March 31, 2008.
Income Taxes.The current effective tax ratesrate of 34.7% and 35.6%, respectively,39.6% for continuing operations for the three and nine month periodsperiod ended September 30, 2007March 31, 2008 varied from the statutory rate of 35.0% due primarily to state income taxes offset by an increase in the temporary creditand discrete adjustments related to be applied against the Texas margin tax, the benefit of the domestic production deduction,foreign and the utilization of capital losses previously not benefited.state taxes. The prior year effective tax ratesrate of 38.3% and 39.5%, respectively,38.4% for continuing operations for the three and nine month periodsperiod ended September 30, 2006 wereMarch 31, 2007 was greater than the statutory rate of 35.0% due primarily to state income taxes, tax credits, and other permanent differences.taxes.
Rail Group
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, | |
| | 2007 | | 2006 | | Percent | | 2007 | | 2006 | | Percent | | | 2008 | | 2007 | | Percent | |
| | ($ in millions) | | Change | | ($ in millions) | | Change | | | ($ in millions) | | Change | |
Revenues: | | |
Rail | | $ | 584.7 | | $ | 491.9 | | | 18.9 | % | | $ | 1,668.0 | | $ | 1,428.1 | | | 16.8 | % | | $ | 525.9 | | $ | 523.1 | | | 0.5 | % |
Components | | 36.6 | | 56.4 | | | (35.1 | ) | | 121.1 | | 177.1 | | | (31.6 | ) | | 41.9 | | 45.6 | | | (8.1 | ) |
| | | | | | | | | | | | | | |
Total revenues | | $ | 621.3 | | $ | 548.3 | | 13.3 | | $ | 1,789.1 | | $ | 1,605.2 | | 11.5 | | | $ | 567.8 | | $ | 568.7 | | | (0.2 | ) |
| | |
Operating profit | | $ | 96.5 | | $ | 62.2 | | $ | 271.2 | | $ | 187.1 | | | $ | 77.2 | | $ | 78.1 | |
Operating profit margin | | | 15.5 | % | | | 11.3 | % | | | 15.2 | % | | | 11.7 | % | | | | 13.6 | % | | | 13.7 | % | |
Railcar shipments increased 8.0%decreased 8.5% to approximately 7,070 and 8.9% to approximately 20,6206,010 railcars during the three and nine month periodsperiod ended September 30, 2007, respectively,March 31, 2008 compared to the same periodsperiod in 2006.2007. As of September 30, 2007,March 31, 2008, our Rail Group backlog was approximately $2.6$2.4 billion consisting of approximately 31,30027,960 railcars. Approximately 54%53% of theour railcar total backlog was dedicated to sales to external customers, which includes approximately 22% of the total backlog of railcars dedicated to TRIP Leasing. The remaining railcarapproximately 47% of our total backlog of approximately 46% was dedicated to the Leasing Group of which 100% have lease agreements for these railcars with external customers. The final amount dedicated to the Leasing Group may vary by the time of delivery. This compares with ato approximately 37,790 railcars in the backlog of approximately 32,200 railcars as of September 30, 2006. Approximately 45%March 31, 2007, of those railcarswhich approximately 61% were dedicated to the Leasing Group of which 100% had lease agreements for those railcars with external customers. Sales for the three and nine month periodsperiod ended September 30, 2007March 31, 2008 included $138.5$146.0 million in cars sold to TRIP Leasing, that resulted in a gain of $25.6 million of which $5.3$5.1 million in profit was deferred based on our 20% equity interest. See Note 54 Equity Investment of the Consolidated Financial Statements for information about TRIP Leasing.
Operating profit for the Rail Group increased $34.3 million and $84.1 millionwas substantially unchanged for the three and nine month periodsperiod ended September 30, 2007March 31, 2008 compared to the same periodsperiod last year. This increase was primarily due to increased pricing, product mix, and volume, as well as improved operating efficiencies.
In the three months ended September 30, 2007March 31, 2008 railcar shipments included sales to the Railcar Leasing and Management Services Group of $235.4$216.7 million compared to $168.1$172.5 million in the comparable period in 20062007 with a deferred profit of $37.3$31.2 million compared to $19.6$28.2 million for the same period in 2006. In the nine months ended September 30, 2007 railcar shipments included sales to the Railcar Leasing and Management Services Group of $690.9 million compared to $435.6 million in the comparable period in 2006 with a deferred profit of $115.8 million compared to $50.3 million for the same period in 2006.2007. Sales to the Railcar Leasing and Management Services Group and related profits are included in the operating results of the Rail Group but are eliminated in consolidation.
Condensed results of operations related to the European rail business sold in August 2006 for the three and nine month periods ended September 30, 2006 were as follows:
| | | | | | | | |
| | Three Months | | Nine Months |
| | Ended | | Ended |
| | September 30, | | September 30, |
| | 2006 | | 2006 |
| | ($ in millions) |
| | | | | | | | |
Revenues | | $ | 15.2 | | | $ | 69.4 | |
Operating loss | | $ | (2.6 | ) | | $ | (10.6 | ) |
Operating loss margin | | | (17.1 | )% | | | (15.3 | )% |
24
Construction Products Group
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, | |
| | 2007 | | 2006 | | Percent | | 2007 | | 2006 | | Percent | | | 2008 | | 2007 | | Percent | |
| | ($ in millions) | | Change | | ($ in millions) | | Change | | | ($ in millions) | | Change | |
Revenues: | | |
Concrete and Aggregates | | $ | 120.4 | | $ | 111.4 | | | 8.1 | % | | $ | 343.3 | | $ | 305.3 | | | 12.4 | % | | $ | 104.5 | | $ | 101.4 | | | 3.1 | % |
Highway Products | | 68.5 | | 65.2 | | 5.1 | | 180.1 | | 181.2 | | | (0.6 | ) | | 57.3 | | 48.2 | | 18.9 | |
Other | | 5.3 | | 14.4 | | | (63.2 | ) | | 31.3 | | 41.7 | | | (24.9 | ) | | 7.5 | | 13.6 | | | (44.9 | ) |
| | | | | | | | | | | | | | |
Total revenues | | $ | 194.2 | | $ | 191.0 | | 1.7 | | $ | 554.7 | | $ | 528.2 | | 5.0 | | | $ | 169.3 | | $ | 163.2 | | 3.7 | |
| | |
Operating profit | | $ | 19.0 | | $ | 19.9 | | $ | 44.9 | | $ | 49.5 | | | $ | 12.2 | | $ | 10.1 | |
Operating profit margin | | | 9.8 | % | | | 10.4 | % | | | 8.1 | % | | | 9.4 | % | | | | 7.2 | % | | | 6.2 | % | |
The increase in revenues and operating profit for the three and nine month periodsperiod ended September 30, 2007March 31, 2008 compared to the same periodsperiod in 20062007 was primarily attributable to an increase in volume in our aggregateshighway products business, sales generated by our entry into the asphalt business, and pricean increase in various raw material costs that have resulted in higher sales prices. These increases in our concrete businesswere offset by a decrease in volumes in our highway productsbridge girder business and concrete businesses. Operating profit and operating profit margins for the three months ended September 30, 2007 decreased due to higher production costsimpact of divestitures in the highway products business. The decrease in operating profitconcrete and operating profit margin for the nine months ended September 30, 2007 was due to higher production costs in the highway products business and lost production days in our concrete business due to inclement weather.aggregates businesses that took place during 2007.
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Condensed results of operations related to the weld pipe fittings business sold in June 2006 for the three and nine month periods ended September 30, 2006 were as follows:
| | | | | | | | |
| | Three Months | | Nine Months |
| | Ended | | Ended |
| | September 30, | | September 30, |
| | 2006 | | 2006 |
| | ($ in millions) |
| | | | | | | | |
Revenues | | $ | 0.0 | | | $ | 28.0 | |
Operating profit | | $ | 0.0 | | | $ | 4.5 | |
Operating profit margin | | | * | | | | 16.1 | % |
Inland Barge Group
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, | |
| | 2007 | | 2006 | | Percent | | 2007 | | 2006 | | Percent | | 2008 | | 2007 | | Percent | |
| | ($ in millions) | | Change | | ($ in millions) | | Change | | ($ in millions) | | Change | |
Revenues | | $ | 126.6 | | $ | 93.7 | | | 35.1 | % | | $ | 355.8 | | $ | 265.7 | | | 33.9 | % | | $ | 137.8 | | $ | 108.7 | | | 26.8 | % |
| | |
Operating profit | | $ | 22.3 | | $ | 11.9 | | $ | 46.3 | | $ | 29.0 | | | $ | 26.5 | | $ | 17.4 | |
Operating profit margin | | | 17.6 | % | | | 12.7 | % | | | 13.0 | % | | | 10.9 | % | | | | 19.2 | % | | | 16.0 | % | |
Revenues increased for the three and nine month periodsperiod ended September 30, 2007March 31, 2008 compared to the same periodsperiod in the prior year due to an increase in the sales of hopper and tank barges andas well as a change in the mix of barges sold. Operating profit for the three months ended September 30, 2007March 31, 2008 increased compared to the same period last year due to increased revenues, a change in the mix of barges sold, and improved capacity utilization resulting in improved margins. Operating profit for the nine months ended September 30, 2007 increased compared to the same period last year due to increased revenues, a change in the mix of barges sold, and improved margins due to operating efficiencies partially offset by a $15.0and the refund of $2.0 million charge forin unclaimed settlement funds related to the probable resolution of a barge litigation settlement. See Note 16 of the Consolidated Financial Statements.Waxler Case. As of September 30, 2007,March 31, 2008, the backlog for the Inland Barge Group was approximately $771.5$792.4 million compared to approximately $424.2$569.5 million as of September 30, 2006.March 31, 2007.
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Energy Equipment Group
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | | | | | | | | | | | | |
| | 2007 | | 2006 | | Percent | | 2007 | | 2006 | | Percent | | | Three Months Ended March 31, | |
| | ($ in millions) | | Change | | ($ in millions) | | Change | | | 2008 | | 2007 | | Percent | |
| | | ($ in millions) | | Change | |
Revenues: | | |
Structural wind towers | | $ | 54.6 | | $ | 40.3 | | | 35.5 | % | | $ | 155.0 | | $ | 105.5 | | | 46.9 | % | | $ | 84.0 | | $ | 46.4 | | | 81.0 | % |
Other | | 46.8 | | 47.8 | | | (2.1 | ) | | 137.1 | | 133.9 | | 2.4 | | | 45.5 | | 45.0 | | 1.1 | |
| | | | | | | | | | | | | | |
Total revenues | | $ | 101.4 | | $ | 88.1 | | 15.1 | | $ | 292.1 | | $ | 239.4 | | 22.0 | | | $ | 129.5 | | $ | 91.4 | | 41.7 | |
| | |
Operating profit | | $ | 11.6 | | $ | 13.4 | | $ | 33.4 | | $ | 36.5 | | | $ | 18.2 | | $ | 10.1 | |
Operating profit margin | | | 11.4 | % | | | 15.2 | % | | | 11.4 | % | | | 15.2 | % | | | | 14.1 | % | | | 11.1 | % | |
Revenues increased for the three and nine month periodsperiod ended September 30, 2007March 31, 2008 compared to the same periodsperiod in 2006,2007 due to higher sales of structural wind towers. The operating profit and operating profit marginsmargin for the three and nine month periodsperiod ended September 30, 2007March 31, 2008 are lowerhigher than the same periodsperiod last year due to expansion costs related toincreased sales of structural wind tower production andtowers, partially offset by a weaker domestic LPG tankstorage container market in the United States and Mexico.States. As of March 31, 2008, the backlog for structural wind towers was approximately $1.6 billion compared to approximately $0.2 billion as of March 31, 2007.
Railcar Leasing and Management Services Group
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, | |
| | 2007 | | 2006 | | Percent | | 2007 | | 2006 | | Percent | | | 2008 | | 2007 | | Percent | |
| | ($ in millions) | | Change | | ($ in millions) | | Change | | | ($ in millions) | | Change | |
Revenues: | | |
Leasing and management | | $ | 69.2 | | $ | 56.7 | | | 22.0 | % | | $ | 199.3 | | $ | 156.9 | | | 27.0 | % | | $ | 70.1 | | $ | 62.6 | | | 12.0 | % |
Sales of cars from the lease fleet | | 134.8 | | 4.7 | | * | | 238.1 | | 32.6 | | * | | | 49.7 | | 8.3 | | 498.8 | |
| | | | | | | | | | | | | | |
Total revenues | | $ | 204.0 | | $ | 61.4 | | 232.2 | | $ | 437.4 | | $ | 189.5 | | 130.8 | | | $ | 119.8 | | $ | 70.9 | | 69.0 | |
| | |
Operating Profit: | | |
Leasing and management | | $ | 28.6 | | $ | 23.4 | | $ | 82.9 | | $ | 60.5 | | | $ | 26.7 | | $ | 26.5 | |
Sales of cars from the lease fleet | | 18.4 | | 1.1 | | 31.4 | | 5.8 | | | 7.4 | | 1.3 | |
| | | | | | | | | | | | | | |
Total operating profit | | $ | 47.0 | | $ | 24.5 | | $ | 114.3 | | $ | 66.3 | | | $ | 34.1 | | $ | 27.8 | |
| | |
Operating profit margin: | | |
Leasing and management | | | 41.3 | % | | | 41.3 | % | | | 41.6 | % | | | 38.6 | % | | | | 38.1 | % | | | 42.3 | % | |
Sales of cars from the lease fleet | | 13.6 | | 23.4 | | 13.2 | | 17.8 | | | 14.9 | | 15.7 | |
Total operating profit margin | | 23.0 | | 39.9 | | 26.1 | | 35.0 | | | 28.5 | | 39.2 | |
| | |
Fleet utilization | | | 99.6 | % | | | 99.7 | % | | | 99.6 | % | | | 99.7 | % | | | | 99.2 | % | | | 99.9 | % | |
20
Total revenues increased for the three and nine month periodsperiod ended September 30, 2007March 31, 2008 compared to the same periodsperiod last year due to increased sales from the lease fleet and increased rental revenues related to additions to the leasing and management fleet, higher average rental rates on the remarketed fleet, and increased sales of cars from the lease fleet. Operating profit for leasing and management operations increased for the three and nine month periodsperiod ended September 30, 2007March 31, 2008 primarily due to an increase in sales from the fleet and rental proceeds from fleet additions, partially offset by higher maintenance and higher average lease rates.compliance costs. Results for the three months ended September 30, 2007March 31, 2008 included $93.8$37.9 million in sales of railcars to TRIP Leasing that resulted in a gain of $15.9$7.2 million, of which $3.2 million was deferred based on our 20% equity interest. Results for the nine months ended September 30, 2007, included $187.5 in sales of railcars to TRIP Leasing that resulted in a gain of $30.3 million, of which $6.2$1.4 million was deferred based on our 20% equity interest. See Note 54 of the Consolidated Financial Statements for information about TRIP Leasing.
To fund the continued expansion of its lease fleet to meet market demand, the Leasing Group generally uses its non-recourse warehouse facility or excess cash to provide initial financing for a portion of the manufacturing costs of the cars. In February 2008, the warehouse facility was increased to $600 million with the availability period of this facility remaining through August 2009. SeeFinancing Activities.
We use a non-GAAP measure to compare performance for the Leasing Group between periods. This non-GAAP measure is EBITDAR, which is Operating Profit of the Leasing Group plus depreciation and rental or lease expense, excluding the impact of sales of cars from the lease fleet. We use this measure to eliminate the costs resulting from financings. EBITDAR should not be
26
considered as an alternative to operating profit or other GAAP financial measurements or as an indicator of our operating performance. EBITDAR is shown below:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | | Three Months Ended March 31, | |
| | September 30, | | September 30, | | | 2008 | | 2007 | |
| | 2007 | | 2006 | | 2007 | | 2006 | | | ($ in millions) | |
| | ($ in millions) | | ($ in millions) | | |
Operating profit — leasing and management | | $ | 28.6 | | $ | 23.4 | | $ | 82.9 | | $ | 60.5 | | |
Operating profit – leasing and management | | | $ | 26.7 | | $ | 26.5 | |
Add: Depreciation and amortization | | 12.3 | | 8.6 | | 33.9 | | 22.6 | | | 13.2 | | 10.2 | |
Rental expense | | 11.4 | | 11.0 | | 34.0 | | 33.7 | | | 11.2 | | 11.3 | |
| | | | | | | | | | | | | | |
EBITDAR | | $ | 52.3 | | $ | 43.0 | | $ | 150.8 | | $ | 116.8 | | | $ | 51.1 | | $ | 48.0 | |
| | | | | | | | | | | | | | |
EBITDAR margin | | | 75.6 | % | | | 75.8 | % | | | 75.7 | % | | | 74.4 | % | | | 72.9 | % | | | 76.7 | % |
The increasedecrease in EBITDAR margin for the three and nine month periodsperiod ended September 30, 2007March 31, 2008 was due to rental proceeds from fleet additionshigher maintenance and compliance costs as well as higher average lease rates on new and existing equipment.freight costs.
As of September 30, 2007,March 31, 2008, the Railcar Leasing and Management Services Group’s rental fleet of approximately 35,89038,030 owned or leased railcars had an average age of 4.34.8 years and an average remaining lease term of 5.55.2 years.
All Other
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | 2007 | | 2006 | | Percent | | 2007 | | 2006 | | Percent | | 2008 | | 2007 | | Percent |
| | ($ in millions) | | Change | | ($ in millions) | | Change | | ($ in millions) | | Change |
Revenues | | $ | 17.9 | | $ | 15.0 | | | 19.3 | % | | $ | 50.4 | | $ | 39.5 | | | 27.6 | % | | $ | 18.2 | | $ | 15.6 | | | 16.7 | % |
Operating profit (loss) | | $ | 0.1 | | $ | (3.9 | ) | | $ | 2.0 | | $ | (7.3 | ) | | |
Operating (loss) profit | | | $ | (0.3 | ) | | $ | 1.3 | |
The increase in revenues for the three and nine month periodsperiod ended September 30, 2007March 31, 2008 over the same periodsperiod last year was primarily attributabledue to an increase in intersegment sales by our transportation company. The increasedecrease in the operating profit for the three and nine month periodsperiod ended September 30, 2007March 31, 2008 was primarily due to the increasea $1.9 million decrease in intersegment sales, income related to the market valuation of commodity hedges that are required to be marked to market, and a decrease in costs associated with non-operating facilities.market.
Liquidity and Capital Resources
Cash Flows
Operating Activities. Net cash provided by operating activities of continuing operations for the ninethree months ended September 30, 2007March 31, 2008 was $188.2$39.0 million compared to $48.3$39.8 million of net cash provided by operating activities of continuing operations for the same period in 2006.2007. This was primarily due to an increase in net income from continuing operations for the nine month period,inventories primarily associated with finished railcars to be delivered to our Leasing Group, TRIP Leasing, and other external customers, partially offset by a smaller increasedecrease in inventories, and an increase in accounts payable and accrued liabilities. The smaller increase in inventory compared to the nine months ended September 30, 2006 was the result of large increases required in 2006 related to an increase in production volumes. There was no net cash required or provided by operating activities of discontinued operations for the nine months ended September 30, 2007 compared to $15.0 million of net cash provided by operating activities for discontinued operations for the same period in 2006.receivables.
Investing Activities.Net cash required by investing activities of continuing operations for the ninethree months ended September 30, 2007March 31, 2008 was $486.2$167.2 million compared to $434.6$182.1 million for the same period last year. Capital expenditures for the ninethree months ended September 30, 2007March 31, 2008 were $725.8$217.1 million, of which $585.6$190.2 million were for additions to the lease fleet. This compares to $483.4$193.5 million of capital expenditures for the same period last year, of which $390.3$147.4 million were for additions
21
to the lease fleet. Proceeds from the sale of property, plant, and equipment and other assets were $286.9$49.9 million for the ninethree months ended September 30, 2007March 31, 2008 composed primarily of railcar sales from the lease fleet, which included $37.9 million to TRIP Leasing, and the sale of non-operating assets, compared to $51.1$11.4 million for the same period in 20062007 composed primarily of railcar sales from the lease fleet and the sale of non-operating assets.
Financing Activities.Net cash provided by financing activities during the ninethree months ended September 30, 2007March 31, 2008 was $208.9$38.3 million compared to $520.5$55.1 million for the same period in 2006.2007. We intend to use our cash to fund the operations, expansions, and growth initiatives of the Company.
27
In June 2007, Trinity amended the $350 million revolving credit facility to increase the permitted leverage ratio, and add a senior leverage ratio, as well as other minor modifications. At September 30, 2007,March 31, 2008, there were no borrowings under our $350$425 million revolving credit facility. In October 2007, Trinity amended and restated its revolving credit agreement. This new agreement is a $425 million facility that matures October 19, 2012. Other minor changes were made to the agreement.
In August 2007,February 2008, Trinity Industries Leasing Company (“TILC”) extended, a wholly owned subsidiary of Trinity increased its $375 million non-recourse warehouse facility through 2009, amended certain termsto $600 million with the availability period of the existing facility and increased the facility by $25 million to $400 million.remaining through August 2009. This facility, established to finance railcars owned by TILC, had $337.0$384.1 million outstanding as of September 30, 2007.March 31, 2008. The warehouse facility is duematures August 2009 and unless renewed will be payable in three equal installments in February 2010, August 2010, and February 2011. Railcars financed by the warehouse facility have historically been refinanced under long-term financing agreements. Specific railcars and the underlying leases secure the facility. Advances under the facility may not exceed 78% of the fair market value of the eligible railcars securing the facility as defined by the agreement. Advances under the facility bear interest at a defined index rate plus a margin, for an all-in rate of 6.62%4.18% at September 30, 2007.March 31, 2008. At September 30, 2007, $63.0March 31, 2008, $215.9 million was available under this facility.
On December 13, 2007, the Company’s Board of Directors authorized a $200 million stock repurchase program of its common stock. This program allows for the repurchase of the Company’s common stock through December 31, 2009. During the three months ended March 31, 2008, 471,100 shares with a value of approximately $12.2 million had been repurchased under this program. Since the inception of this program through March 31, 2008, a total of 575,300 shares with an approximate value of $15.1 million were repurchased.
Equity Investment
See Note 54 of the Consolidated Financial Statements for information about the equity investment.
Future Operating Requirements
We expect to finance future operating requirements with cash flows from operations, and depending on market conditions, long-term and short-term debt, and equity. Debt instruments that the Company has utilized include its revolving credit facility, the warehouse facility, senior notes, convertible subordinated notes, asset-backed securities, and sale/leaseback transactions. The Company has also issued equity at various times. The Company assesses the market conditions at the time of its financing needs and determines which of these instruments to utilize.
Derivative InstrumentsOff Balance Sheet Arrangements
See Note 63 of the Consolidated Financial Statements for information about off balance sheet arrangements.
Derivative Instruments
The Company uses derivative instruments to mitigate the impact of increases in zinc, natural gas and diesel fuel prices and interest rates, as well as to convert a portion of its variable-rate debt to fixed-rate debt. We also use derivatives to lock in fixed interest rates in anticipation of future debt issuances. These swaps are accounted for as cash flow hedges under SFAS 133.
Interest rate hedges
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 future debt issuance associated with an anticipated secured borrowing facility. The original scheduled close date of the facility was in the fourth quarter of 2007, but due to market conditions, the scheduled close date of the future debt issuance was moved to the end of the first quarter of 2008. Again, due to market conditions, the scheduled close date of the future debt issuance was moved to the second quarter of 2008. The interest rate swap transactions were renewed in the first quarter of 2008 and will expire in the second quarter of 2008. The weighted average fixed interest rate under these instruments was 5.34% at March 31, 2008. These interest rate swaps are being accounted for as cash flow hedges with changes in the fair value of the instruments of $34.1 million of loss recorded in Accumulated Other Comprehensive Loss (“AOCL”) and a liability of
22
$36.5 million recorded in the consolidated balance sheet as of March 31, 2008. The effect on the consolidated statement of operations for the three months ended March 31, 2008 was expense of $2.2 million due to the ineffective portion of the hedges primarily associated with anticipated interest payments that will not be made.
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. The weighted average fixed interest rate under these instruments was 4.87%. 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 AOCL through the date the related debt issuance closed in May 2006. The balance is being amortized over the term of the related debt. At March 31, 2008, the balance remaining in AOCL was $3.7 million. The effect of the amortization on the consolidated statement of operations for each of the three month periods ended March 31, 2008 and 2007 was income of $0.1 million.
Natural gas and diesel fuel
We continued 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. Since the majority of these instruments 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 for these instruments was an asset of $2.1 million as of March 31, 2008, with $0.1 million of income in AOCL. The effect on the consolidated statement of operations for the three month periods ended March 31, 2008 and 2007 was income of $1.4 million and $0.9 million, respectively.
Zinc
In 2007, we entered into a program to mitigate the impact of fluctuations in the price of zinc purchases. The intent of this program is to protect our operating profit from adverse price changes by entering into derivative instruments. These instruments are short term with monthly maturities and no remaining balances in AOCL as of March 31, 2008. The effect on the consolidated statement of operations for the three months ended March 31, 2008 and 2007 was income of $0.5 million and $0.3 million, respectively.
Contractual Obligation and Commercial Commitments
As of September 30, 2007,March 31, 2008, other commercial commitments related to letters of credit decreasedincreased to $101.4$93.6 million from $118.9$93.3 million as of December 31, 2006.2007. Refer to Note 108 of the Consolidated Financial Statements for changes to our outstanding debt and maturities. Other commercial commitments that relate to operating leases under sale/leaseback transactions were basically unchanged as of September 30, 2007.March 31, 2008.
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 performance,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 products; |
|
• | | the cyclical nature of both the railcar and barge industries; |
|
• | | continued expansion of the structural wind towers business; |
|
• | | variations in weather in areas where our construction products are sold and used; |
|
• | | disruption of manufacturing capacity due to weather related events; |
|
• | | the timing of introduction of new products; |
23
the cyclical nature of both the railcar and barge industries;
continued expansion of the structural wind towers business;
variations in weather in areas where our construction products are sold and used;
disruption of manufacturing capacity due to weather related events;
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• | | the timing of customer orders; |
|
• | | product price changes; |
|
• | | changes in mix of products sold; |
|
• | | the extent of utilization of manufacturing capacity; |
|
• | | availability and costs of component parts, supplies, and raw materials; |
|
• | | competition and other competitive factors; |
|
• | | changing technologies; |
|
• | | steel prices; |
|
• | | surcharges added to fixed pricing agreements for raw materials; |
|
• | | interest rates and capital costs; |
|
• | | long-term funding of our leasing warehouse facility; |
|
• | | 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 foreign economies; |
|
• | | results of litigation; and |
|
• | | legal, regulatory, and environmental issues. |
the timing of introduction of new products;
the timing of customer orders;
changes in mix of products sold;
the extent of utilization of manufacturing capacity;
availability and costs of component parts, supplies, and raw materials;
competition and other competitive factors;
surcharges added to fixed pricing agreements for raw materials;
interest rates and capital costs;
long-term funding of our leasing warehouse facility;
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 foreign economies;
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.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in our market risks since December 31, 2006.2007. Refer to Note 6Item 2, Management’s Discussion and Analysis of the Consolidated Financial StatementsCondition and Results of Operations, for a discussion of debt related activity and the impact of hedging activity for the ninethree months ended September 30, 2007. Refer to Note 10 of the Consolidated Financial Statements for a discussion of debt related activity for the nine months ended September 30, 2007.March 31, 2008.
Item 4.Controls and Procedures
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, evaluateevaluating 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’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 control over financial reporting that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
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PART II
Item 1.Legal Proceedings
The information provided in Note 1615 of the Consolidated Financial Statements is hereby incorporated into this Part II, Item 1 by reference.
Item 1A.Risk Factors
There have been no material changes from the risk factors previously disclosed in Item 1A of our 2006 annual report on2007 Form 10-K.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
On August 2, 2007, our subsidiary, Trinity Highway Products, LLC, acquired companies operating underThis table provides information with respect to purchases by the namesCompany of Central Fabricators, Inc. and Central Galvanizing, Inc. The total acquisition price consisted of $15.5 million cash paid at closing, plus 325,800 shares of the Company’s common stock, and additional future cash consideration of $5.5 million to be paidits Common Stock during the next five years. The 325,800 shares of common stock were issued to Rosemary E. Atwood and William D. Atwood pursuant to an exemption from registration provided by Section 4(2) of the Securities Act of 1933.quarter ended March 31, 2008:
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Maximum | |
| | | | | | | | | | | | | | Number (or | |
| | | | | | | | | | Total Number of | | | Approximate | |
| | | | | | | | | | Shares (or Units) | | | Dollar Value) of | |
| | | | | | | | | | Purchased as | | | Shares (or Units) | |
| | | | | | | | | | Part of Publicly | | | that May Yet Be | |
| | Number of | | | Average Price | | | Announced | | | Purchased | |
| | Shares | | | Paid per | | | Plans or | | | Under the Plans | |
Period | | Purchased(1) | | | Share(1) | | | Programs | | | or Programs | |
January 1, 2008 through January 31, 2008 | | | 366 | | | $ | 24.32 | | | | — | | | | — | |
February 1, 2008 through February 29, 2008 | | | — | | | | — | | | | — | | | | — | |
March 1, 2008 through March 31, 2008 | | | 471,100 | | | $ | 25.88 | | | | 471,100 | | | $ | 184,941,063 | |
| | | | | | | | | | | | | |
Total | | | 471,466 | | | $ | 25.88 | | | | 471,100 | | | $ | 184,941,063 | |
| | | | | | | | | | | | | |
| | |
(1) | | These columns include the following transaction during the three months ended March 31, 2008: (i) the surrender to the Company of 366 shares of common stock to satisfy withholding obligations in connections with the vesting of restricted stock issued to employees and (ii) the purchase of 471,100 shares of Common Stock on the open market as part of the Stock Repurchase Program. This Stock Repurchase Program was authorized by the Company’s Board of Directors on December 13, 2007 allowing the Company to repurchase $200 million of its common stock through December 31, 2009. Since the inception of this program through March 31, 2008, a total of 575,300 shares with an approximate value of $15.1 million were repurchased. |
Item 3.Defaults Upon Senior Securities
None.
Item 4.Submission of Matters to a Vote of Security Holders
None.
Item 5.Other Information
None.
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Item 6.Exhibits
| | |
Exhibit Number | | Description |
| | |
3.210.11.6 | | By-Laws ofAmendment No. 2 to the Trinity Industries, Inc. as amended September 10, 2007.2004 Stock Option and Incentive Plan (filed herewith).* |
| | |
10.18.510.13 | | Fourth Amendment to Second AmendedForm of 2008 Deferred Compensation Plan and Restated Credit Agreement dated October 19, 2007, byas amended and amongrestated entered into between Trinity Industries, Inc., JPMorgan Chase Bank, N.A., as the Administrative Agent, and the financial institutions parties thereto, as Lenders.certain officers of Trinity Industries, Inc. or its subsidiaries (incorporated by reference to exhibit 10.18.5Exhibit 10.13 to our Form 8-K10-K filed October 19, 2007)February 21, 2008).* |
| | |
10.19.1310.19.1 | | Amendment No. 1 to the Amended and Restated Warehouse Loan Agreement, as of August 7, 2007,dated February 13, 2008, amending the Amended and Restated Warehouse Loan Agreement dated June 27, 2002 (filed herewith)August 2, 2007. (incorporated by reference to our Form 8-K filed on February 14, 2008). |
| | |
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). |
| | |
* | | Management contracts and compensatory plan arrangements. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| | TRINITY INDUSTRIES, INC. Registrant | | By | | /s/ WILLIAM A. MCWHIRTER II | | |
| | | | | | | | |
| | |
TRINITY INDUSTRIES, INC. | By | /s/ WILLIAM A. MCWHIRTER II | |
Registrant | | William A. McWhirter II | | |
| | | | Senior Vice President and Chief Financial Officer November | | |
| | | | May 1, 20072008 | | |
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INDEX TO EXHIBITS
| | |
Exhibit Number | | Description |
| | |
3.210.11.6 | | By-Laws ofAmendment No. 2 to the Trinity Industries, Inc. as amended September 10, 2007.2004 Stock Option and Incentive Plan (filed herewith).* |
| | |
10.18.510.13 | | Fourth Amendment to Second AmendedForm of 2008 Deferred Compensation Plan and Restated Credit Agreement dated October 19, 2007, byas amended and amongrestated entered into between Trinity Industries, Inc., JPMorgan Chase Bank, N.A., as the Administrative Agent, and the financial institutions parties thereto, as Lenders.certain officers of Trinity Industries, Inc. or its subsidiaries (incorporated by reference to exhibit 10.18.5Exhibit 10.13 to our Form 8-K10-K filed October 19, 2007)February 21, 2008).* |
| | |
10.19.1310.19.1 | | Amendment No. 1 to the Amended and Restated Warehouse Loan Agreement, as of August 7, 2007,dated February 13, 2008, amending the Amended and Restated Warehouse Loan Agreement dated June 27, 2002 (filed herewith)August 2, 2007. (incorporated by reference to our Form 8-K filed on February 14, 2008). |
| | |
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). |
| | |
* | | Management contracts and compensatory plan arrangements. |
3228