TRN 09.30.2012 10Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________________________________ 
Form 10-Q
 _________________________________________________________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2012

OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________ .
Commission File Number 1-6903
 _________________________________________________________________________
Trinity Industries, Inc.
(Exact name of registrant as specified in its charter)
  _________________________________________________________________________
Delaware
 
75-0225040
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
2525 Stemmons Freeway
Dallas, Texas
 
75207-2401
(Address of principal executive offices)
 
(Zip Code)
(214) 631-4420
(Registrant’s telephone number, including area code)
 _________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one).

Large accelerated filer
 
x
 
Accelerated filer
 
¨
 
 
 
 
 
 
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
 
Smaller reporting company
 
¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ¨    No  x.

At October 15, 2012 the number of shares of common stock outstanding was 78,933,933.


TRINITY INDUSTRIES, INC.
FORM 10-Q
TABLE OF CONTENTS
 
Caption
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CERTIFICATIONS
 

1
Table of Contents

PART I
Item 1. Financial Statements

Trinity Industries, Inc. and Subsidiaries
Consolidated Statements of Operations
(unaudited)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2012
 
2011
 
2012
 
2011
 
 
(in millions, except per share amounts)
Revenues:
 
 
 
 
 
 
 
 
Manufacturing
 
$
778.2

 
$
643.7

 
$
2,397.5

 
$
1,738.2

Leasing
 
159.3

 
147.4

 
493.7

 
395.4

 
 
937.5

 
791.1

 
2,891.2

 
2,133.6

Operating costs:
 
 
 
 
 
 
 
 
Cost of revenues:
 
 
 
 
 
 
 
 
Manufacturing
 
658.2

 
548.4

 
2,025.1

 
1,478.3

Leasing
 
84.3

 
78.6

 
269.8

 
202.4

Other
 
13.1

 
7.1

 
38.6

 
22.6

 
 
755.6

 
634.1

 
2,333.5

 
1,703.3

Selling, engineering, and administrative expenses:
 
 
 
 
 
 
 
 
Manufacturing
 
38.6

 
35.8

 
114.2

 
103.2

Leasing
 
7.5

 
6.2

 
20.9

 
17.5

Other
 
12.4

 
11.5

 
33.3

 
30.6

 
 
58.5

 
53.5

 
168.4

 
151.3

Gains on disposition of property, plant, and equipment:
 
 
 
 
 
 
 
 
Net gains on railcar lease fleet sales
 
17.0

 
1.6

 
22.3

 
3.1

Other
 
1.5

 
0.3

 
7.6

 
4.2

Total operating profit
 
141.9

 
105.4

 
419.2

 
286.3

Other (income) expense:
 
 
 
 
 
 
 
 
Interest income
 
(0.4
)
 
(0.5
)
 
(1.1
)
 
(1.2
)
Interest expense
 
47.8

 
47.9

 
143.6

 
136.2

Other, net
 
(1.4
)
 
5.3

 
(4.4
)
 
4.2

 
 
46.0

 
52.7

 
138.1

 
139.2

Income before income taxes
 
95.9

 
52.7

 
281.1

 
147.1

Provision for income taxes
 
32.8

 
21.1

 
98.2

 
58.3

Net income
 
63.1

 
31.6

 
182.9

 
88.8

Net income (loss) attributable to noncontrolling interest
 
(0.1
)
 
(0.3
)
 
(1.0
)
 
2.7

Net income attributable to Trinity Industries, Inc.
 
$
63.2

 
$
31.9

 
$
183.9

 
$
86.1

Net income attributable to Trinity Industries, Inc. per common share:
 
 
 
 
 
 
 
 
Basic
 
$
0.80

 
$
0.40

 
$
2.30

 
$
1.07

Diluted
 
$
0.80

 
$
0.40

 
$
2.29

 
$
1.07

Weighted average number of shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
76.5

 
77.7

 
77.3

 
77.4

Diluted
 
76.7

 
77.9

 
77.5

 
77.7

Dividends declared per common share
 
$
0.11

 
$
0.09

 
$
0.31

 
$
0.26

See accompanying notes to consolidated financial statements.

2
Table of Contents

Trinity Industries, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(unaudited)
 
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2012
 
2011
 
2012
 
2011
 
 
(in millions)
Net income
 
$
63.1

 
$
31.6

 
$
182.9

 
$
88.8

Unrealized loss on derivative financial instruments:
 
 
 
 
 
 
 
 
Unrealized gain (loss) arising during the period
 
2.2

 
(10.7
)
 
5.2

 
(8.9
)
Reclassification adjustments for losses included in net income
 
2.3

 
1.5

 
6.8

 
3.2

Currency translation adjustment – reclassification adjustment for loss included in net income
 
0.0

 
0.0

 
1.1

 
(0.1
)
Funded status of pension liability – amortization of actuarial loss
 
0.8

 
—

 
2.5

 
—

Other comprehensive income (loss), before tax
 
5.3

 
(9.2
)
 
15.6

 
(5.8
)
Income tax expense (benefit) related to components of other comprehensive income (loss)
 
2.1

 
(3.3
)
 
6.1

 
(2.2
)
Other comprehensive income (loss), net of tax
 
3.2

 
(5.9
)
 
9.5

 
(3.6
)
Comprehensive income
 
66.3

 
25.7

 
192.4

 
85.2

Less: comprehensive income (loss) attributable to noncontrolling interest
 
0.2

 
(1.0
)
 
0.0

 
2.4

Comprehensive income attributable to Trinity Industries, Inc.
 
$
66.1

 
$
26.7

 
$
192.4

 
$
82.8


See accompanying notes to consolidated financial statements.


3
Table of Contents

Trinity Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
 
 
September 30,
2012
 
December 31,
2011
 
 
(unaudited)
 
 
 
 
(in millions)
Assets
 
 
 
 
Cash and cash equivalents
 
$
312.2

 
$
351.1

Receivables, net of allowance
 
423.5

 
384.3

Income tax receivable
 
5.1

 
1.6

Inventories:
 
 
 
 
Raw materials and supplies
 
400.3

 
324.8

Work in process
 
180.5

 
125.6

Finished goods
 
110.9

 
99.5

 
 
691.7

 
549.9

Restricted cash, including TRIP Holdings of $59.0 and $74.6
 
234.8

 
240.3

Property, plant, and equipment, at cost, including TRIP Holdings of $1,272.3 and $1,257.7
 
5,636.5

 
5,407.9

Less accumulated depreciation, including TRIP Holdings of $145.2 and $122.7
 
(1,352.8
)
 
(1,228.4
)
 
 
4,283.7

 
4,179.5

Goodwill
 
229.8

 
225.9

Other assets
 
238.3

 
188.4

 
 
$
6,419.1

 
$
6,121.0

Liabilities and Stockholders’ Equity
 
 
 
 
Accounts payable
 
$
212.6

 
$
207.4

Accrued liabilities
 
478.1

 
421.3

Debt:
 
 
 
 
Recourse, net of unamortized discount of $90.7 and $99.8
 
462.3

 
457.7

Non-recourse:
 
 
 
 
Parent and wholly-owned subsidiaries
 
1,646.9

 
1,616.0

TRIP Holdings
 
868.9

 
901.2

 
 
2,978.1

 
2,974.9

Deferred income
 
37.0

 
38.7

Deferred income taxes
 
543.0

 
434.7

Other liabilities
 
83.3

 
95.7

 
 
4,332.1

 
4,172.7

Stockholders’ equity:
 
 
 
 
Preferred stock – 1.5 shares authorized and unissued
 
—

 
—

Common stock – 200.0 shares authorized
 
81.7

 
81.7

Capital in excess of par value
 
643.2

 
626.5

Retained earnings
 
1,474.0

 
1,314.7

Accumulated other comprehensive loss
 
(125.5
)
 
(134.0
)
Treasury stock
 
(70.9
)
 
(25.1
)
 
 
2,002.5

 
1,863.8

Noncontrolling interest
 
84.5

 
84.5

 
 
2,087.0

 
1,948.3

 
 
$
6,419.1

 
$
6,121.0


See accompanying notes to consolidated financial statements.

4
Table of Contents

Trinity Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)

 
 
Nine Months Ended
September 30,
 
 
2012
 
2011
 
 
(in millions)
Operating activities:
 
 
 
 
Net income
 
$
182.9

 
$
88.8

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
148.8

 
144.3

Stock-based compensation expense
 
20.4

 
16.3

Excess tax benefits from stock-based compensation
 
1.4

 
(0.3
)
Provision for deferred income taxes
 
92.4

 
32.4

Net gains on sales of railcars owned more than one year at the time of sale
 
(22.3
)
 
(3.1
)
Gain on disposition of property, plant, equipment, and other assets
 
(7.6
)
 
(4.2
)
Other
 
6.6

 
8.3

Changes in assets and liabilities:
 
 
 
 
(Increase) decrease in receivables
 
(38.8
)
 
(79.3
)
(Increase) decrease in income tax receivable
 
(3.5
)
 
7.4

(Increase) decrease in inventories
 
(141.3
)
 
(208.8
)
(Increase) decrease in other assets
 
(53.1
)
 
(10.2
)
Increase (decrease) in accounts payable
 
5.2

 
78.6

Increase (decrease) in accrued liabilities
 
63.6

 
(30.0
)
Increase (decrease) in other liabilities
 
(2.6
)
 
15.9

Net cash provided by operating activities
 
252.1

 
56.1

Investing activities:
 
 
 
 
(Increase) decrease in short-term marketable securities
 
—

 
158.0

Proceeds from sales of railcars owned more than one year at the time of sale
 
94.9

 
17.8

Proceeds from lease fleet sales – sale and leaseback
 
7.2

 
—

Proceeds from disposition of property, plant, equipment, and other assets
 
18.9

 
6.8

Capital expenditures – leasing, net of sold railcars owned one year or less
 
(266.3
)
 
(213.6
)
Capital expenditures – manufacturing and other
 
(67.4
)
 
(52.1
)
Acquisitions, net of cash acquired
 
(4.9
)
 
(42.5
)
Net cash required by investing activities
 
(217.6
)
 
(125.6
)
Financing activities:
 
 
 
 
Proceeds from issuance of common stock, net
 
2.1

 
1.8

Excess tax benefits from stock-based compensation
 
(1.4
)
 
0.3

Payments to retire debt – other
 
(123.4
)
 
(1,068.5
)
Proceeds from issuance of debt
 
117.4

 
1,124.5

Deferred loan issuance costs
 
—

 
(21.1
)
(Increase) decrease in restricted cash
 
5.5

 
(22.3
)
Shares repurchased
 
(45.2
)
 
—

Dividends paid to common shareholders
 
(23.1
)
 
(20.0
)
Other
 
(5.3
)
 
(6.4
)
Net cash required by financing activities
 
(73.4
)
 
(11.7
)
Net decrease in cash and cash equivalents
 
(38.9
)
 
(81.2
)
Cash and cash equivalents at beginning of period
 
351.1

 
354.0

Cash and cash equivalents at end of period
 
$
312.2

 
$
272.8


See accompanying notes to consolidated financial statements.

5
Table of Contents

Trinity Industries, Inc. and Subsidiaries
Consolidated Statement of Stockholders’ Equity
(unaudited)
 
 
 
Common
Stock
 
 
 
 
 
 
 
Treasury
Stock
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Capital in
Excess of
Par Value
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Shares
 
Amount
 
Trinity
Stockholders’
Equity
 
Noncontrolling
Interest
 
Total
Stockholders’
Equity
 
 
(in millions)
Balances at
December 31, 2011
 
81.7

 
$
81.7

 
$
626.5

 
$
1,314.7

 
$
(134.0
)
 
(1.5
)
 
$
(25.1
)
 
$
1,863.8

 
$
84.5

 
$
1,948.3

Net income
 
—

 
—

 
—

 
183.9

 
—

 
—

 
—

 
183.9

 
(1.0
)
 
182.9

Other comprehensive income
 
—

 
—

 
—

 
—

 
8.5

 
—

 
—

 
8.5

 
1.0

 
9.5

Cash dividends on common stock
 
—

 
—

 
—

 
(24.6
)
 
—

 
—

 
—

 
(24.6
)
 
—

 
(24.6
)
Restricted shares issued, net
 
—

 
—

 
18.5

 
—

 
—

 
0.4

 
(1.5
)
 
17.0

 
—

 
17.0

Shares repurchased
 
—

 
—

 
—

 
—

 
—

 
(1.8
)
 
(45.2
)
 
(45.2
)
 
—

 
(45.2
)
Stock options exercised
 
—

 
—

 
0.6

 
—

 
—

 
0.2

 
1.5

 
2.1

 
—

 
2.1

Stock-based compensation expense
 
—

 
—

 
(2.4
)
 
—

 
—

 
—

 
—

 
(2.4
)
 
—

 
(2.4
)
Other
 
—

 
—

 
—

 
—

 
—

 
(0.1
)
 
(0.6
)
 
(0.6
)
 
—

 
(0.6
)
Balances at
September 30, 2012
 
81.7

 
$
81.7

 
$
643.2

 
$
1,474.0

 
$
(125.5
)
 
(2.8
)
 
$
(70.9
)
 
$
2,002.5

 
$
84.5

 
$
2,087.0


See accompanying notes to consolidated financial statements.

6
Table of Contents

Trinity Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

The foregoing consolidated financial statements are unaudited and have been prepared from the books and records of Trinity Industries, Inc. and its subsidiaries (“Trinity”, “Company”, “we”, or “our”) including its majority-owned subsidiary, TRIP Rail Holdings LLC (“TRIP Holdings”). In our opinion, all normal and recurring adjustments necessary for a fair presentation of the financial position of the Company as of September 30, 2012, and the results of operations for the three and nine month periods ended September 30, 2012 and 2011, and cash flows for the nine month periods ended September 30, 2012 and 2011, have been made in conformity with generally accepted accounting principles. Because of seasonal and other factors, the results of operations for the nine month period ended September 30, 2012 may not be indicative of expected results of operations for the year ending December 31, 2012. These interim financial statements and notes are condensed as permitted by the instructions to Form 10-Q and should be read in conjunction with the audited consolidated financial statements of the Company included in its Form 10-K for the year ended December 31, 2011.

Stockholders’ Equity

In September 2012, the Company’s Board of Directors authorized a new $200 million share repurchase program, effective October 1, 2012, which expires on December 31, 2014. The new program replaces the Company's prior program which expired on September 30, 2012. During the three and nine month periods ended September 30, 2012, the Company repurchased 141,992 shares and 1,834,221 shares, respectively, under the prior program at a cost of approximately $4.0 million and $45.2 million, respectively. No shares were repurchased under the prior program during the three and nine month periods ended September 30, 2011.

Financial Instruments

Financial instruments that potentially subject the Company to a concentration of credit risk are primarily cash investments, short-term marketable securities, and receivables. The carrying values of cash, receivables, and accounts payable are considered to be representative of their respective fair values. At September 30, 2012, one customer’s net receivable balance in our Energy Equipment Group, all within terms, accounted for approximately 22% of the consolidated net receivables balance outstanding.

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-05, “Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income,” (“ASU 2011-05”) which amended prior comprehensive income guidance. ASU 2011-05 became effective for public companies during the interim and annual periods beginning after December 15, 2011 with early adoption permitted. Accordingly, the Company adopted this new standard on January 1, 2012 by including the consolidated statement of comprehensive income with its consolidated financial statements and revising Note 15 Accumulated Other Comprehensive Loss. The adoption of ASU 2011-05 did not have an impact on the Company’s consolidated financial position, results of operations or cash flows as it only requires a change in reporting format with regard to components of other comprehensive income.

Reclassifications

Effective December 31, 2011, the Company adopted the emerging industry policy of recognizing revenue from the sales of railcars from the lease fleet on a gross basis in leasing revenues and cost of revenues if the railcar has been owned by the lease fleet for one year or less at the time of sale. Sales of railcars from the lease fleet which have been owned by the lease fleet for more than one year are recognized as a net gain or loss from the disposal of a long-term asset. Prior year reported balances have been reclassified to conform to this policy resulting in a decrease in revenue of $5.7 million and $17.9 million for the three and nine months ended September 30, 2011, respectively. The adoption of this policy had no effect on operating profit or net income. Certain prior year balances have been reclassified in the Consolidated Statements of Cash Flows to conform to the 2012 presentation.


7
Table of Contents

Note 2. Acquisitions and Divestitures

For the three and nine months ended September 30, 2012 and 2011, all of our acquisition and divestiture activity occurred in the Construction Products Group as summarized below:

 
Three Months Ended
September 30,
Nine Months Ended
September 30,
 
2012
 
2011
 
2012
 
2011
 
 
 
(in millions)
 
 
Acquisitions:
 
 
 
 
 
 
 
Total cost
$
5.5

 
$
32.8

 
$
7.5

 
$
56.4

Net cash paid
$
4.9

 
$
27.2

 
$
4.9

 
$
42.5

Goodwill recorded
$
3.2

 
$
22.3

 
$
4.0

 
$
29.3

 
 
 
 
 
 
 
 
Divestitures:
 
 
 
 
 
 
 
Proceeds
$
—

 
$
—

 
$
2.1

 
$
8.3

Gain recognized
$
—

 
$
—

 
$
1.5

 
$
0.7

Goodwill charged off
$
—

 
$
—

 
$
0.1

 
$
1.0


           

8
Table of Contents

Note 3. Fair Value Accounting

Assets and liabilities measured at fair value on a recurring basis are summarized below:
 
 
Fair Value Measurement as of September 30, 2012
 
 
(in millions)
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 
Cash equivalents
 
$
200.6

 
$
—

 
$
—

 
$
200.6

Restricted cash
 
234.8

 
—

 
—

 
234.8

Equity call agreement with TRIP Holdings equity investor1
 
—

 
—

 
0.2

 
0.2

Fuel derivative instruments1
 
—

 
0.4

 
—

 
0.4

Total assets
 
$
435.4

 
$
0.4

 
$
0.2

 
$
436.0

Liabilities:
 
 
 
 
 
 
 
 
Interest rate hedges:2
 
 
 
 
 
 
 
 
Wholly-owned subsidiary
 
$
—

 
$
41.9

 
$
—

 
$
41.9

TRIP Holdings
 
—

 
5.6

 
—

 
5.6

Equity put agreement with TRIP Holdings equity investor3
 
—

 
—

 
1.2

 
1.2

Total liabilities
 
$
—

 
$
47.5

 
$
1.2

 
$
48.7

 
 
 
 
 
 
 
 
 
 
 
Fair Value Measurement as of December 31, 2011
 
 
(in millions)
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 
Cash equivalents
 
$
246.6

 
$
—

 
$
—

 
$
246.6

Restricted cash
 
240.3

 
—

 
—

 
240.3

Equity call agreement with TRIP Holdings equity investor1
 
—

 
—

 
0.7

 
0.7

Total assets
 
$
486.9

 
$
—

 
$
0.7

 
$
487.6

Liabilities:
 
 
 
 
 
 
 
 
Interest rate hedges:2
 
 
 
 
 
 
 
 
Wholly-owned subsidiary
 
$
—

 
$
48.9

 
$
—

 
$
48.9

TRIP Holdings
 
—

 
4.8

 
—

 
4.8

Equity put agreement with TRIP Holdings equity investor3
 
—

 
—

 
3.1

 
3.1

Fuel derivative instruments2
 
—

 
0.1

 
—

 
0.1

Total liabilities
 
$
—

 
$
53.8

 
$
3.1

 
$
56.9

1 Included in other assets on the consolidated balance sheet.
2 Included in accrued liabilities on the consolidated balance sheet.
3 Included in other liabilities on the consolidated balance sheet.

Fair value is defined 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 for that asset or liability in an orderly transaction between market participants on the measurement date. An entity is required to establish a fair value hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair values 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 cash are instruments of the United States Treasury or highly-rated money market mutual funds.

Level 2 – This level is defined as observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The Company’s fuel derivative instruments, which are commodity options, are valued using energy and commodity market data. Interest rate hedges are valued at exit prices obtained from each counterparty. See Note 7 Derivative Instruments and Note 11 Debt.

Level 3 – This level is defined as unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The equity put and call agreements with the TRIP equity investor are valued based on

9
Table of Contents

cash flow projections and certain assumptions regarding the likelihood of exercising the option under the related agreement. See Note 6 Investment in TRIP Holdings.

The carrying amounts and estimated fair values of our long-term debt are as follows:
 
 
September 30, 2012
 
December 31, 2011
 
 
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
 
 
(in millions)
Recourse:
 
 
 
 
 
 
 
 
Convertible subordinated notes
 
$
450.0

 
$
465.7

 
$
450.0

 
$
439.4

Less: unamortized discount
 
(90.7
)
 
 
 
(99.8
)
 
 
 
 
359.3

 
 
 
350.2

 
 
Capital lease obligations
 
46.5

 
46.5

 
48.6

 
48.6

Term loan
 
51.4

 
54.5

 
54.7

 
55.7

Other
 
5.1

 
5.1

 
4.2

 
4.2

 
 
462.3

 
571.8

 
457.7

 
547.9

Non-recourse:
 
 
 
 
 
 
 
 
2006 secured railcar equipment notes
 
259.1

 
287.2

 
269.3

 
278.5

Promissory notes
 
445.5

 
431.2

 
465.5

 
448.6

2009 secured railcar equipment notes
 
211.6

 
251.8

 
218.4

 
228.6

2010 secured railcar equipment notes
 
345.0

 
371.6

 
354.3

 
333.1

TILC warehouse facility
 
385.7

 
385.7

 
308.5

 
308.5

TRIP Holdings senior secured notes
 
61.2

 
62.5

 
61.2

 
61.6

TRIP Master Funding secured railcar equipment notes
 
807.7

 
913.7

 
840.0

 
834.9

 
 
2,515.8

 
2,703.7

 
2,517.2

 
2,493.8

Total
 
$
2,978.1

 
$
3,275.5

 
$
2,974.9

 
$
3,041.7


The estimated fair value of our convertible subordinated notes was based on a quoted market price as of September 30, 2012 and December 31, 2011, respectively (Level 1 input). The estimated fair values of our 2006, 2009, and 2010 secured railcar equipment notes, promissory notes, TRIP Holdings senior secured notes, TRIP Rail Master Funding LLC (“TRIP Master Funding”) secured railcar equipment notes, and term loan are based on our estimate of their fair value as of September 30, 2012 and December 31, 2011, respectively. These values were determined by discounting their future cash flows at the current market interest rate (Level 3 inputs). The carrying value of our Trinity Industries Leasing Company (“TILC”) warehouse facility approximates fair value because the interest rate adjusts to the market interest rate and the Company’s credit rating has not changed since the loan agreement was renewed in February 2011 (Level 3 input). The fair values of all other financial instruments are estimated to approximate carrying value.

Note 4. Segment Information

The Company reports operating results in five principal business segments: (1) the Rail Group, which manufactures and sells railcars and related parts and components; (2) the Construction Products Group, which manufactures and sells highway products and concrete and aggregates; (3) the Inland Barge Group, which manufactures and sells barges and related products for inland waterway services; (4) the Energy Equipment Group, which manufactures and sells products for energy related businesses, including structural wind towers, tank containers and tank heads for pressure and non-pressure vessels, frac tanks, and utility, traffic, and lighting structures; and (5) the Railcar Leasing and Management Services Group (“Leasing Group”), which owns and operates a fleet of railcars as well as provides third-party fleet management, maintenance, and leasing services. The segment All Other includes our captive insurance and transportation companies; legal, environmental, and maintenance costs associated with non-operating facilities; other peripheral businesses; and the change in market valuation related to ineffective commodity hedges. Gains and losses from the sale of property, plant, and equipment that are related to manufacturing and dedicated to the specific manufacturing operations of a particular segment are included in operating profit of that respective segment. Gains and losses from the sale of property, plant, and equipment that can be utilized by multiple segments are included in operating profit of the All Other segment.

Sales and related net profits from the Rail Group to the Leasing Group are recorded in the Rail Group and eliminated in consolidation. Sales between these groups are recorded at prices comparable to those charged to external customers, taking into consideration quantity, features, and production demand. Amortization of deferred profit on railcars sold to the Leasing Group is included in the operating profits of the Leasing Group. Sales of railcars from the lease fleet are included in the Leasing Group.


10
Table of Contents

The financial information for these segments is shown in the tables below. We operate principally in North America.

Three Months Ended September 30, 2012
 
 
Revenues
 
Operating
Profit
(Loss)
 
 
External
 
Intersegment
 
Total
 
 
 
(in millions)
Rail Group
 
$
328.3

 
$
129.6

 
$
457.9

 
$
35.2

Construction Products Group
 
148.2

 
6.1

 
154.3

 
12.7

Inland Barge Group
 
166.5

 
—

 
166.5

 
26.9

Energy Equipment Group
 
131.0

 
4.6

 
135.6

 
9.5

Railcar Leasing and Management Services Group
 
159.3

 
0.6

 
159.9

 
85.1

All Other
 
4.2

 
20.4

 
24.6

 
(2.0
)
Corporate
 
—

 
—

 
—

 
(12.4
)
Eliminations – Lease subsidiary
 
—

 
(125.9
)
 
(125.9
)
 
(14.1
)
Eliminations – Other
 
—

 
(35.4
)
 
(35.4
)
 
1.0

Consolidated Total
 
$
937.5

 
$
—

 
$
937.5

 
$
141.9


Three Months Ended September 30, 2011
 
 
Revenues
 
Operating
Profit
(Loss)
 
 
External
 
Intersegment
 
Total
 
 
 
(in millions)
Rail Group
 
$
227.7

 
$
93.2

 
$
320.9

 
$
18.2

Construction Products Group
 
161.1

 
3.7

 
164.8

 
17.8

Inland Barge Group
 
143.2

 
—

 
143.2

 
26.0

Energy Equipment Group
 
107.3

 
4.3

 
111.6

 
(1.9
)
Railcar Leasing and Management Services Group
 
147.4

 
—

 
147.4

 
64.2

All Other
 
4.4

 
13.6

 
18.0

 
(0.3
)
Corporate
 
—

 
—

 
—

 
(11.5
)
Eliminations – Lease subsidiary
 
—

 
(87.9
)
 
(87.9
)
 
(8.1
)
Eliminations – Other
 
—

 
(26.9
)
 
(26.9
)
 
1.0

Consolidated Total
 
$
791.1

 
$
—

 
$
791.1

 
$
105.4



11
Table of Contents

Nine Months Ended September 30, 2012
 
 
Revenues
 
Operating
Profit
(Loss)
 
 
External
 
Intersegment
 
Total
 
 
 
(in millions)
Rail Group
 
$
1,049.7

 
$
392.2

 
$
1,441.9

 
$
128.3

Construction Products Group
 
449.4

 
16.7

 
466.1

 
38.7

Inland Barge Group
 
509.8

 
—

 
509.8

 
93.5

Energy Equipment Group
 
377.7

 
13.6

 
391.3

 
9.7

Railcar Leasing and Management Services Group
 
493.7

 
2.7

 
496.4

 
228.0

All Other
 
10.9

 
50.2

 
61.1

 
(7.1
)
Corporate
 
—

 
—

 
—

 
(33.6
)
Eliminations – Lease subsidiary
 
—

 
(380.8
)
 
(380.8
)
 
(37.2
)
Eliminations – Other
 
—

 
(94.6
)
 
(94.6
)
 
(1.1
)
Consolidated Total
 
$
2,891.2

 
$
—

 
$
2,891.2

 
$
419.2


Nine Months Ended September 30, 2011 
 
 
Revenues
 
Operating
Profit
(Loss)
 
 
External
 
Intersegment
 
Total
 
 
 
(in millions)
Rail Group
 
$
556.0

 
$
265.4

 
$
821.4

 
$
42.9

Construction Products Group
 
439.2

 
8.5

 
447.7

 
42.2

Inland Barge Group
 
398.9

 
—

 
398.9

 
66.8

Energy Equipment Group
 
335.6

 
12.2

 
347.8

 
9.8

Railcar Leasing and Management Services Group
 
395.4

 
—

 
395.4

 
178.6

All Other
 
8.5

 
36.9

 
45.4

 
(0.8
)
Corporate
 
—

 
—

 
—

 
(30.6
)
Eliminations – Lease subsidiary
 
—

 
(252.8
)
 
(252.8
)
 
(23.3
)
Eliminations – Other
 
—

 
(70.2
)
 
(70.2
)
 
0.7

Consolidated Total
 
$
2,133.6

 
$
—

 
$
2,133.6

 
$
286.3


Effective December 31, 2011, the Company adopted the emerging industry policy of recognizing revenue from the sales of railcars from the lease fleet on a gross basis in leasing revenues and cost of revenues if the railcar has been owned by the lease fleet for one year or less at the time of sale. Sales of railcars from the lease fleet which have been owned by the lease fleet for more than one year are recognized as a net gain or loss from the disposal of a long-term asset. Prior year reported balances have been reclassified to conform to this policy.

12
Table of Contents

Note 5. Railcar Leasing and Management Services Group

The Railcar Leasing and Management Services Group owns and operates a fleet of railcars as well as provides third-party fleet management, maintenance, and leasing services. Selected consolidating financial information for the Leasing Group is as follows:
 
 
September 30, 2012
 
 
Leasing Group
 
 
 
 
 
 
Wholly-
Owned
Subsidiaries
 
TRIP
Holdings
 
Manufacturing/
Corporate
 
Total
 
 
(in millions, unaudited)
Cash and cash equivalents
 
$
5.0

 
$
—

 
$
307.2

 
$
312.2

Property, plant, and equipment, net
 
$
3,175.3

 
$
1,127.1

 
$
516.6

 
$
4,819.0

Net deferred profit on railcars sold to the Leasing Group
 
(352.8
)
 
(182.5
)
 
—

 
(535.3
)
 
 
$
2,822.5

 
$
944.6

 
$
516.6

 
$
4,283.7

Restricted cash
 
$
175.8

 
$
59.0

 
$
—

 
$
234.8

Debt:
 
 
 
 
 
 
 
 
Recourse
 
$
97.9

 
$
—

 
$
455.1

 
$
553.0

Less: unamortized discount
 
—

 
—

 
(90.7
)
 
(90.7
)
 
 
97.9

 
—

 
364.4

 
462.3

Non-recourse
 
1,646.9

 
977.7

 
—

 
2,624.6

Less: non-recourse debt owned by Trinity
 
—

 
(108.8
)
 
—

 
(108.8
)
Total debt
 
$
1,744.8

 
$
868.9

 
$
364.4

 
$
2,978.1

Net deferred tax liabilities
 
$
622.4

 
$
5.1

 
$
(84.5
)
 
$
543.0

 
 
 
December 31, 2011
 
 
Leasing Group
 
 
 
 
 
 
Wholly-
Owned
Subsidiaries
 
TRIP
Holdings
 
Manufacturing/
Corporate
 
Total
 
 
(in millions)
Cash and cash equivalents
 
$
3.2

 
$
—

 
$
347.9

 
$
351.1

Property, plant, and equipment, net
 
$
3,066.0

 
$
1,135.0

 
$
510.0

 
$
4,711.0

Net deferred profit on railcars sold to the Leasing Group
 
(344.5
)
 
(187.0
)
 
—

 
(531.5
)
 
 
$
2,721.5

 
$
948.0

 
$
510.0

 
$
4,179.5

Restricted cash
 
$
165.7

 
$
74.6

 
$
—

 
$
240.3

Debt:
 
 
 
 
 
 
 
 
Recourse
 
$
103.3

 
$
—

 
$
454.2

 
$
557.5

Less: unamortized discount
 
—

 
—

 
(99.8
)
 
(99.8
)
 
 
103.3

 
—

 
354.4

 
457.7

Non-recourse
 
1,616.0

 
1,010.0

 
—

 
2,626.0

Less: non-recourse debt owned by Trinity
 
—

 
(108.8
)
 
—

 
(108.8
)
Total debt
 
$
1,719.3

 
$
901.2

 
$
354.4

 
$
2,974.9

Net deferred tax liabilities
 
$
582.4

 
$
4.7

 
$
(152.4
)
 
$
434.7


See Note 6 Investment in TRIP Holdings and Note 11 Debt for a further discussion regarding the Company’s investment in TRIP Holdings and TRIP Holdings’ debt.

13
Table of Contents

 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2012
 
2011
 
Percent
Change
 
2012
 
2011
 
Percent
Change
 
 
($ in millions)
 
 
($ in millions)
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
Wholly owned subsidiaries:
 
 
 
 
 
 
 
 
 
 
 
 
Leasing and management
 
$
106.4

 
$
94.6

 
12.5
%
 
$
306.9

 
$
277.8

 
10.5
%
Railcar sales(1)
 
23.4

 
23.6

 
*
 
100.5

 
30.2

 
*
 
 
129.8

 
118.2

 
9.8

 
407.4

 
308.0

 
32.3

TRIP Holdings:
 
 
 
 
 
 
 
 
 
 
 
 
Leasing and management
 
30.1

 
29.2

 
3.1

 
89.0

 
87.4

 
1.8

Railcar sales(1)
 
—

 
—

 
—

 
—

 
—

 
—

 
 
30.1

 
29.2

 
3.1

 
89.0

 
87.4

 
1.8

Total revenues
 
$
159.9

 
$
147.4

 
8.5

 
$
496.4

 
$
395.4

 
25.5

Operating Profit:
 
 
 
 
 
 
 
 
 
 
 
 
Wholly owned subsidiaries:
 
 
 
 
 
 
 
 
 
 
 
 
Leasing and management
 
$
47.1

 
$
40.3

 
 
 
$
134.2

 
$
116.3

 
 
Railcar sales(1):
 
 
 
 
 
 
 
 
 
 
 
 
Railcars owned one year or less at the time of sale
 
4.3

 
4.9

 
 
 
20.7

 
7.9

 
 
Railcars owned more than one year at the time of sale
 
15.9

 
1.6

 
 
 
21.6

 
3.0

 
 
 
 
67.3

 
46.8

 
 
 
176.5

 
127.2

 
 
TRIP Holdings:
 
 
 
 
 
 
 
 
 
 
 
 
Leasing and management
 
16.7

 
17.4

 
 
 
50.8

 
51.3

 
 
Railcar sales(1):
 
 
 
 
 
 
 
 
 
 
 
 
Railcars owned one year or less at the time of sale
 
—

 
—

 
 
 
—

 
—

 
 
Railcars owned more than one year at the time of sale
 
1.1

 
—

 
 
 
0.7

 
0.1

 
 
 
 
17.8

 
17.4

 
 
 
51.5

 
51.4

 
 
Total operating profit
 
$
85.1

 
$
64.2

 
 
 
$
228.0

 
$
178.6

 
 
Operating profit margin:
 
 
 
 
 
 
 
 
 
 
 
 
Leasing and management
 
46.7
%
 
46.6
%
 
 
 
46.7
%
 
45.9
%
 
 
Railcar sales(1)
 
*
 
*
 
 
 
*
 
*
 
 
Total operating profit margin
 
53.2

 
43.6

 
 
 
45.9

 
45.2

 
 
Interest and rent expense(2):
 
 
 
 
 
 
 
 
 
 
 
 
Rent expense
 
$
12.7

 
$
12.1

 
 
 
$
38.2

 
$
36.4

 
 
Interest expense:
 
 
 
 
 
 
 
 
 
 
 
 
Wholly-owned subsidiaries
 
$
24.3

 
$
24.8

 
 
 
$
73.2

 
$
75.4

 
 
TRIP Holdings:
 
 
 
 
 
 
 
 
 
 
 
 
External
 
15.0

 
15.3

 
 
 
45.2

 
37.6

 
 
Intercompany
 
3.3

 
3.2

 
 
 
9.8

 
3.2

 
 
 
 
18.3

 
18.5

 
 
 
55.0

 
40.8

 
 
Total interest expense
 
$
42.6

 
$
43.3

 
 
 
$
128.2

 
$
116.2

 
 
 * Not meaningful

(1)
Effective December 31, 2011, the Company adopted the emerging industry policy of recognizing revenue from the sales of railcars from the lease fleet on a gross basis in leasing revenues and cost of revenues if the railcar has been owned by the lease fleet for one year or less at the time of sale. Sales of railcars from the lease fleet which have been owned by the lease fleet for more than one year are recognized as a net gain or loss from the disposal of a long-term asset. Prior year reported balances have been reclassified to conform to this policy.

(2)
Rent expense is a component of operating profit. Interest expense is not a component of operating profit and includes the effect of hedges. Intercompany interest expense arises from Trinity’s ownership of a portion of TRIP Holdings’ Senior Secured Notes and is eliminated in consolidation. See Note 11 Debt.



14
Table of Contents

Equipment consists primarily of railcars leased by third parties. The Leasing Group purchases equipment manufactured predominantly by the Rail Group and enters into lease contracts with third parties with terms generally ranging between one and twenty years. The Leasing Group primarily enters into operating leases. Future contractual minimum rental revenues on leases are as follows:
 
 
Remaining
three months
of 2012
 
2013
 
2014
 
2015
 
2016
 
Thereafter
 
Total
 
 
(in millions)
Wholly-owned subsidiaries
 
$
73.5

 
$
261.0

 
$
210.7

 
$
167.0

 
$
128.6

 
$
268.8

 
$
1,109.6

TRIP Holdings
 
24.8

 
85.5

 
64.1

 
52.3

 
43.2

 
70.1

 
340.0

 
 
$
98.3