TRN 09.30.2013 10Q
Table of Contents


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, 2013
 
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 þ  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 þ   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.
Large accelerated filer þ    Accelerated filer ¨ Non-accelerated filer ¨    Smaller reporting company ¨
(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).  Yes ¨ No þ
At October 15, 2013 the number of shares of common stock outstanding was 78,090,627.


1
Table of Contents

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

2
Table of Contents

PART I
Item 1. Financial Statements

Trinity Industries, Inc.
Consolidated Statements of Operations
(unaudited)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2013
 
2012
 
2013
 
2012
 
(in millions, except per share data)
Revenues:
 
 
 
 
 
 
 
Manufacturing
$
959.7

 
$
748.0

 
$
2,654.7

 
$
2,305.3

Leasing
150.6

 
159.3

 
454.6

 
493.7

 
1,110.3

 
907.3

 
3,109.3

 
2,799.0

Operating costs:
 
 
 
 
 
 
 
Cost of revenues:
 
 
 
 
 
 
 
Manufacturing
767.0

 
643.8

 
2,134.2

 
1,980.8

Leasing
69.3

 
84.3

 
225.4

 
269.8

 
836.3

 
728.1

 
2,359.6

 
2,250.6

Selling, engineering, and administrative expenses:
 
 
 
 
 
 
 
Manufacturing
43.9

 
35.9

 
133.7

 
105.3

Leasing
8.9

 
7.5

 
27.5

 
20.9

Other
17.8

 
12.4

 
49.9

 
33.3

 
70.6

 
55.8

 
211.1

 
159.5

Gains on disposition of property, plant, and equipment:
 
 
 
 
 
 
 
Net gains on railcar lease fleet sales owned more than one year at the time of sale
1.6

 
17.0

 
9.6

 
22.3

Other
0.6

 
0.3

 
0.3

 
4.7

 
2.2

 
17.3

 
9.9

 
27.0

Total operating profit
205.6

 
140.7

 
548.5

 
415.9

Other (income) expense:
 
 
 
 
 
 
 
Interest income
(0.6
)
 
(0.3
)
 
(1.4
)
 
(1.1
)
Interest expense
45.8

 
47.8

 
141.5

 
143.6

Other, net
(0.5
)
 
(1.5
)
 
(2.3
)
 
(4.5
)
 
44.7

 
46.0

 
137.8

 
138.0

Income from continuing operations before income taxes
160.9

 
94.7

 
410.7

 
277.9

Provision for income taxes
55.1

 
32.3

 
143.5

 
97.0

Net income from continuing operations
105.8

 
62.4

 
267.2

 
180.9

Discontinued operations:
 
 
 
 
 
 
 
Gain on sale of discontinued operations, net of provision for income taxes of $-, $-, $5.4 and $-
—

 
—

 
7.1

 
—

Income (loss) from discontinued operations, net of provision (benefit) for income taxes of $0.1, $0.4, $(0.7) and $1.2
0.3

 
0.7

 
(1.2
)
 
2.0

Net income
106.1

 
63.1

 
273.1

 
182.9

Net income (loss) attributable to noncontrolling interest
6.5

 
(0.1
)
 
10.4

 
(1.0
)
Net income attributable to Trinity Industries, Inc.
$
99.6

 
$
63.2

 
$
262.7

 
$
183.9

 
 
 
 
 
 
 
 
Net income attributable to Trinity Industries, Inc. per common share:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Continuing operations
$
1.26

 
$
0.79

 
$
3.24

 
$
2.28

Discontinued operations
—

 
0.01

 
0.07

 
0.02

 
$
1.26

 
$
0.80

 
$
3.31

 
$
2.30

Diluted:
 
 
 
 
 
 
 
Continuing operations
$
1.26

 
$
0.79

 
$
3.24

 
$
2.27

Discontinued operations
—

 
0.01

 
0.07

 
0.02

 
$
1.26

 
$
0.80

 
$
3.31

 
$
2.29

Weighted average number of shares outstanding:
 
 
 
 
 
 
 
Basic
76.1

 
76.5

 
76.7

 
77.3

Diluted
76.2

 
76.7

 
76.8

 
77.5

Dividends declared per common share
$
0.15

 
$
0.11

 
$
0.39

 
$
0.31

See accompanying notes to consolidated financial statements.

3
Table of Contents

Trinity Industries, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(unaudited)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2013
 
2012
 
2013
 
2012
 
(in millions)
Net income
$
106.1

 
$
63.1

 
$
273.1

 
$
182.9

Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized losses on derivative financial instruments:
 
 
 
 
 
 
 
Unrealized gains (losses) arising during the period, net of tax expense (benefit) of $(0.5), $0.7, $(0.1) and $1.8
(0.4
)
 
1.5

 
0.4

 
3.4

Reclassification adjustments for losses included in net income, net of tax benefit of $2.0, $1.0, $6.8 and $2.9
4.4

 
1.3

 
13.7

 
3.9

Currency translation adjustment - reclassification adjustment for losses included in net income, net of tax benefit of $-, $0.1, $- and $0.5
—

 
(0.1
)
 
—

 
0.6

Net actuarial losses of defined benefit plans:
 
 
 
 
 
 
 
Amortization of net actuarial losses, net of tax benefit of $0.4, $0.2, $1.4 and $0.9
0.8

 
0.5

 
2.3

 
1.6

 
4.8

 
3.2

 
16.4

 
9.5

Comprehensive income
110.9

 
66.3

 
289.5

 
192.4

Less: comprehensive income attributable to noncontrolling interest
7.3

 
0.2

 
13.6

 
—

Comprehensive income attributable to Trinity Industries, Inc.
$
103.6

 
$
66.1

 
$
275.9

 
$
192.4

See accompanying notes to consolidated financial statements.

4
Table of Contents

Trinity Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
 
September 30,
2013
 
December 31,
2012
 
(unaudited)
 
 
 
(in millions)
ASSETS
 
 
 
Cash and cash equivalents
$
402.6

 
$
573.0

Short-term marketable securities
96.0

 
—

Receivables, net of allowance
501.5

 
390.0

Inventories:
 
 
 
Raw materials and supplies
419.1

 
405.3

Work in process
211.6

 
140.9

Finished goods
138.9

 
121.5

 
769.6

 
667.7

Restricted cash, including partially-owned subsidiaries of $78.8 and $57.8
249.3

 
223.2

Property, plant, and equipment, at cost, including partially-owned subsidiaries of $1,945.7 and $1,703.1
6,193.2

 
5,642.0

Less accumulated depreciation, including partially-owned subsidiaries of $189.4 and $153.8
(1,491.9
)
 
(1,343.0
)
 
4,701.3

 
4,299.0

Goodwill
250.8

 
240.4

Assets held for sale and discontinued operations
—

 
27.9

Other assets
287.2

 
248.7

 
$
7,258.3

 
$
6,669.9

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Accounts payable
$
207.0

 
$
188.2

Accrued liabilities
685.7

 
583.1

Debt:
 
 
 
Recourse, net of unamortized discount of $77.6 and $87.5
416.2

 
458.1

Non-recourse:
 
 
 
Wholly-owned subsidiaries
1,332.2

 
1,404.2

Partially-owned subsidiaries
1,272.7

 
1,192.7

 
3,021.1

 
3,055.0

Deferred income
41.7

 
44.5

Deferred income taxes
595.6

 
572.4

Liabilities held for sale and discontinued operations
—

 
3.7

Other liabilities
96.7

 
85.4

 
4,647.8

 
4,532.3

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

 
—

Common stock – 200.0 shares authorized
81.7

 
81.7

Capital in excess of par value
673.7

 
652.6

Retained earnings
1,768.9

 
1,536.7

Accumulated other comprehensive loss
(135.5
)
 
(150.1
)
Treasury stock
(124.4
)
 
(67.9
)
 
2,264.4

 
2,053.0

Noncontrolling interest
346.1

 
84.6

 
2,610.5

 
2,137.6

 
$
7,258.3

 
$
6,669.9

See accompanying notes to consolidated financial statements.

5
Table of Contents

Trinity Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
 
Nine Months Ended
September 30,
 
2013
 
2012
 
(in millions)
Operating activities:
 
 
 
Net income
$
273.1

 
$
182.9

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Income from discontinued operations
(5.9
)
 
(2.0
)
Depreciation and amortization
156.2

 
144.5

Stock-based compensation expense
31.1

 
19.9

Excess tax benefits from stock-based compensation
(8.1
)
 
1.4

Provision for deferred income taxes
(41.9
)
 
92.8

Net gains on sales of railcars owned more than one year at the time of sale
(9.6
)
 
(22.3
)
Gains (losses) on disposition of property, plant, equipment, and other assets
(0.3
)
 
(4.7
)
Non-cash interest expense
23.7

 
22.3

Other
(5.8
)
 
(9.7
)
Changes in assets and liabilities:
 
 
 
(Increase) decrease in receivables
(112.3
)
 
(38.5
)
(Increase) decrease in inventories
(86.0
)
 
(141.0
)
(Increase) decrease in other assets
(34.8
)
 
(60.3
)
Increase (decrease) in accounts payable
19.7

 
4.4

Increase (decrease) in accrued liabilities
123.8

 
62.8

Increase (decrease) in other liabilities
45.6

 
(3.0
)
Net cash provided by operating activities - continuing operations
368.5

 
249.5

Net cash provided by operating activities - discontinued operations
6.2

 
2.6

Net cash provided by operating activities
374.7

 
252.1

 
 
 
 
Investing activities:
 
 
 
(Increase) decrease in short-term marketable securities
(96.0
)
 
—

Proceeds from sales of railcars owned more than one year at the time of sale
59.3

 
94.9

Proceeds from lease fleet sales - sale and leaseback
—

 
7.2

Proceeds from disposition of property, plant, equipment, and other assets
1.1

 
15.7

Capital expenditures – leasing, net of sold railcars owned one year or less with a net cost of $15.4 and $79.8
(455.5
)
 
(266.3
)
Capital expenditures – manufacturing and other
(91.2
)
 
(64.6
)
Acquisitions, net of cash acquired
(37.2
)
 
(4.9
)
Other
(9.4
)
 
—

Net cash required by investing activities - continuing operations
(628.9
)
 
(218.0
)
Net cash provided by investing activities - discontinued operations
0.4

 
0.4

Net cash required by investing activities
(628.5
)
 
(217.6
)
 
 
 
 
Financing activities:
 
 
 
Proceeds from issuance of common stock, net
2.1

 
2.1

Excess tax benefits from stock-based compensation
8.1

 
(1.4
)
Payments to retire debt
(227.5
)
 
(122.4
)
Proceeds from issuance of debt
175.4

 
115.1

(Increase) decrease in restricted cash
(26.1
)
 
5.5

Shares repurchased
(71.1
)
 
(45.2
)
Dividends paid to common shareholders
(27.5
)
 
(23.1
)
Proceeds from sale of interests in partially-owned leasing subsidiaries
296.7

 
—

Repurchase of noncontrolling interests in partially-owned leasing subsidiary
(84.0
)
 
—

Contributions from noncontrolling interest
50.0

 
—

Distributions to noncontrolling interest
(3.3
)
 
—

Other
(8.3
)
 
(5.3
)
Net cash provided (required) by financing activities - continuing operations
84.5

 
(74.7
)
Net cash provided (required) by financing activities - discontinued operations
(1.1
)
 
1.3

Net cash provided (required) by financing activities
83.4

 
(73.4
)
Net decrease in cash and cash equivalents
(170.4
)
 
(38.9
)
Cash and cash equivalents at beginning of period
573.0

 
351.1

Cash and cash equivalents at end of period
$
402.6

 
$
312.2

See accompanying notes to consolidated financial statements.

6
Table of Contents

Trinity Industries, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
(unaudited)
 
 
Common
Stock
 
 
 
 
 
 
 
Treasury
Stock
 
 
 
 
 
 
 
 
 
Capital in
Excess of
Par Value
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
 
Trinity
Stockholders’
Equity
 
Noncontrolling
Interest
 
Total
Stockholders’
Equity
 
 
Shares
 
$1 Par Value
 
 
 
 
Shares
 
Amount
 
 
 
 
 
(in millions, except par value)
Balances at
December 31, 2012
 
81.7

 
$
81.7

 
$
652.6

 
$
1,536.7

 
$
(150.1
)
 
(2.6
)
 
$
(67.9
)
 
$
2,053.0

 
$
84.6

 
$
2,137.6

Net income
 
—

 
—

 
—

 
262.7

 
—

 
—

 
—

 
262.7

 
10.4

 
273.1

Other comprehensive income
 
—

 
—

 
—

 
—

 
13.2

 
—

 
—

 
13.2

 
3.2

 
16.4

Cash dividends on common stock
 
—

 
—

 
—

 
(30.5
)
 
—

 
—

 
—

 
(30.5
)
 
—

 
(30.5
)
Restricted shares, net
 
—

 
—

 
10.6

 
—

 
—

 
0.7

 
13.4

 
24.0

 
—

 
24.0

Shares repurchased
 
—

 
—

 
—

 
—

 
—

 
(1.8
)
 
(73.8
)
 
(73.8
)
 
—

 
(73.8
)
Stock options exercised
 
—

 
—

 
(1.8
)
 
—

 
—

 
0.1

 
3.9

 
2.1

 
—

 
2.1

Excess tax benefits from stock-based compensation
 
—

 
—

 
8.3

 
—

 
—

 
—

 
—

 
8.3

 
—

 
8.3

Repurchase of interests in partially-owned leasing subsidiary
 
—

 
—

 
11.8

 
—

 
(11.8
)
 
—

 
—

 
—

 
(84.2
)
 
(84.2
)
Sale of interests in partially-owned leasing subsidiaries
 
—

 
—

 
(7.3
)
 
—

 
13.2

 
—

 
—

 
5.9

 
285.4

 
291.3

Contributions from noncontrolling interest
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
50.0

 
50.0

Distributions to noncontrolling interest
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(3.3
)
 
(3.3
)
Other
 
—

 
—

 
(0.5
)
 
—

 
—

 
—

 
—

 
(0.5
)
 
—

 
(0.5
)
Balances at
September 30, 2013
 
81.7

 
$
81.7

 
$
673.7

 
$
1,768.9

 
$
(135.5
)
 
(3.6
)
 
$
(124.4
)
 
$
2,264.4

 
$
346.1

 
$
2,610.5

See accompanying notes to consolidated financial statements.

7
Table of Contents

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

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 consolidated subsidiaries (“Trinity”, “Company”, “we”, or “our”) including the accounts of its wholly-owned subsidiaries and its partially-owned subsidiaries, TRIP Rail Holdings LLC (“TRIP Holdings”) and RIV 2013 Rail Holdings LLC ("RIV 2013"), in which the Company has controlling interest. In our opinion, all normal and recurring adjustments necessary for a fair presentation of the financial position of the Company as of September 30, 2013, and the results of operations for the three and nine months ended September 30, 2013 and 2012, and cash flows for the nine months ended September 30, 2013 and 2012, have been made in conformity with generally accepted accounting principles. All significant intercompany accounts and transactions have been eliminated. Certain amounts previously reported have been adjusted in the accompanying consolidated financial statements to remove the effects of discontinued operations. See Note 2 Acquisitions and Divestitures. Because of seasonal and other factors, the results of operations for the nine months ended September 30, 2013 may not be indicative of expected results of operations for the year ending December 31, 2013. 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, 2012.

Stockholders' Equity

In September 2012, the Company’s Board of Directors authorized a $200 million share repurchase program, effective October 1, 2012, which expires on December 31, 2014. Under the program, 539,941 shares and 1,834,189 shares, respectively, were repurchased during the three and nine months ended September 30, 2013 at a cost of approximately $23.9 million and $73.8 million, respectively. Certain shares of stock repurchased during September 2013, totaling $2.7 million, were cash settled in October 2013 in accordance with normal settlement practices. During the three and nine months 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.

Revenue Recognition

Revenues for contracts providing for a large number of units and few deliveries are recorded as the individual units are produced, inspected, and accepted by the customer as the risk of loss passes to the customer upon pre-delivery acceptance on these contracts. This occurs primarily in the Rail and Inland Barge Groups. Revenue from rentals and operating leases, including contracts which contain non-level fixed rental payments, is recognized monthly on a straight-line basis. Revenue is recognized 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 for one year or less at the time of sale. Sales of railcars from the lease fleet that have been owned for more than one year are recognized as a net gain or loss from the disposal of a long-term asset. Fees for shipping and handling are recorded as revenue. For all other products, we recognize revenue when products are shipped or services are provided.

Financial Instruments

The Company considers all highly liquid debt instruments to be either cash and cash equivalents if purchased with a maturity of three months or less, or short-term marketable securities if purchased with a maturity of more than three months and less than one year. The Company intends to hold its short-term marketable securities until they are redeemed at their maturity date and believes that under the "more likely than not" criteria, the Company will not be required to sell the securities before recovery of their amortized cost bases, which may be maturity.

Financial instruments that potentially subject the Company to a concentration of credit risk are primarily cash investments including restricted cash, short-term marketable securities, and receivables. The Company places its cash investments and short-term marketable securities in bank deposits and investment grade, short-term debt instruments and limits the amount of credit exposure to any one commercial issuer. Concentrations of credit risk with respect to receivables are limited due to control procedures that monitor the credit worthiness of customers, the large number of customers in the Company's customer base, and their dispersion across different industries and geographic areas. As receivables are generally unsecured, the Company maintains an allowance for doubtful accounts based upon the expected collectability of all receivables. Receivable balances determined to be uncollectible are charged against the allowance. The carrying values of cash, short-term marketable securities, receivables, and accounts payable are considered to be representative of their respective fair values. At September 30, 2013, one customer's net receivable balance in our Energy Equipment Group, all within terms, accounted for 14% of the consolidated net receivables balance outstanding.

8
Table of Contents


Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update No. 2013-02, "Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income," ("ASU 2013-02") which amended prior reporting requirements with respect to comprehensive income by requiring additional disclosures about the amounts reclassified out of accumulated other comprehensive loss by component. ASU 2013-02 became effective for public companies during interim and annual reporting periods beginning after December 15, 2012 with early adoption permitted. Accordingly, the Company adopted this new standard on January 1, 2013. The adoption of ASU 2013-02 did not have an impact on the Company's consolidated financial position, results of operations, or cash flows.

Reclassifications

Certain prior year balances have been reclassified in the Consolidated Statements of Operations, Consolidated Balance Sheets, and Consolidated Statements of Cash Flows to conform to the 2013 presentation.

Note 2. Acquisitions and Divestitures

For the nine months ended September 30, 2013, the Company's acquisition and divestiture activity included the sale of its remaining ready-mix concrete operations in exchange for certain aggregates operations in Texas, Colorado, and California. The aggregates operations acquired and another acquisition completed in April 2013 were recorded based on preliminary valuations of the related assets and liabilities at their acquisition date fair value using Level 3 inputs. Such assets and liabilities were not significant in relation to consolidated assets and liabilities. See Note 3 Fair Value for a discussion of inputs in determining fair value.

In April 2013, the Company completed an acquisition of a business in our Energy Equipment Group whose purchase price, net cash paid, and goodwill recorded amounted to $27.9 million, $27.9 million, and $3.2 million, respectively. All remaining acquisition and divestiture activity for the three and nine months ended September 30, 2013 occurred within our Construction Products Group.

The Company's acquisition and divestiture activity is summarized below:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2013
 
2012
 
2013
 
2012
 
(in millions)
Acquisition:
 
 
 
 
 
 
 
Purchase price
$
—

 
$
5.5

 
$
83.4

 
$
7.5

Net cash paid
$
—

 
$
4.9

 
$
37.2

 
$
4.9

Goodwill recorded
$
—

 
$
3.2

 
$
9.5

 
$
4.0

 
 
 
 
 
 
 
 
Divestiture:
 
 
 
 
 
 
 
Proceeds
$
—

 
$
—

 
$
35.6

 
$
2.1

Gain recognized
$
—

 
$
—

 
$
12.5

 
$
1.5

Goodwill charged off
$
—

 
$
—

 
$
4.8

 
$
0.1



9
Table of Contents

The divestiture of our ready-mix concrete operations has been accounted for and reported as a discontinued operation and, accordingly, historical amounts previously reported have been adjusted, where appropriate, to remove the effect of discontinued operations. Further, assets and liabilities related to the discontinued operations have been classified as Assets/Liabilities Held for Sale and Discontinued Operations in the accompanying consolidated balance sheets as follows:
 
September 30,
2013
 
December 31,
2012
 
(in millions)
Assets of Ready-Mix Concrete Operations:
 
 
 
Inventories
$
—

 
$
4.5

Property, plant, and equipment, net
—

 
16.9

Goodwill
—

 
6.3

Other
—

 
0.2

 
$
—

 
$
27.9

Liabilities of Ready-Mix Concrete Operations:
 
 
 
Debt
$
—

 
$
3.7

 
$
—

 
$
3.7


Condensed results of operations for the ready-mix concrete operations for the three and nine months ended September 30, 2013 and 2012 are as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2013
 
2012
 
2013
 
2012
 
(in millions)
Revenues
$
—

 
$
30.2

 
$
31.6

 
$
92.2

 
 
 
 
 
 
 
 
Income (loss) from discontinued operations before income taxes
$
0.4

 
$
1.1

 
$
(1.9
)
 
$
3.3

Income tax expense (benefit)
0.1

 
0.4

 
(0.7
)
 
1.2

Net income (loss) from discontinued operations
$
0.3

 
$
0.7

 
$
(1.2
)
 
$
2.1



10
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, 2013
 
(in millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
160.3

 
$
—

 
$
—

 
$
160.3

Restricted cash
249.3

 
—

 
—

 
249.3

Total assets
$
409.6

 
$
—

 
$
—

 
$
409.6

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Interest rate hedges:(1)
 
 
 
 
 
 
 
Wholly-owned subsidiaries
$
—

 
$
25.5

 
$
—

 
$
25.5

Partially-owned subsidiaries
—

 
2.8

 
—

 
2.8

Total liabilities
$
—

 
$
28.3

 
$
—

 
$
28.3

 
 
 
 
 
 
 
 
 
Fair Value Measurement as of December 31, 2012
 
(in millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
246.6

 
$
155.0

 
$
—

 
$
401.6

Restricted cash
223.2

 
—

 
—

 
223.2

Equity call agreement with TRIP Holdings equity investor(2)
—

 
—

 
0.8

 
0.8

Fuel derivative instruments(2)
—

 
0.1

 
—

 
0.1

Total assets
$
469.8

 
$
155.1

 
$
0.8

 
$
625.7

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Interest rate hedges:(1)
 
 
 
 
 
 
 
Wholly-owned subsidiaries
$
—

 
$
37.6

 
$
—

 
$
37.6

Partially-owned subsidiaries
—

 
5.2

 
—

 
5.2

Equity put agreement with TRIP Holdings equity investor(3)
—

 
—

 
2.9

 
2.9

Total liabilities
$
—

 
$
42.8

 
$
2.9

 
$
45.7

(1) Included in accrued liabilities on the consolidated balance sheet.
(2) Included in other assets 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, excluding commercial paper, and restricted cash are instruments of the U.S. 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. Cash equivalents include commercial paper valued using quoted prices in secondary markets. The Company’s fuel derivative instruments, which are commodity swaps, 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 cash flow projections and certain assumptions regarding the likelihood of exercising the option under the related agreement. See Note 5 Partially-Owned Leasing Subsidiaries.

11
Table of Contents


The carrying amounts and estimated fair values of our long-term debt are as follows:
 
September 30, 2013
 
December 31, 2012
 
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
 
(in millions)
Recourse:
 
 
 
 
 
 
 
Convertible subordinated notes
$
450.0

 
$
550.7

 
$
450.0

 
$
506.6

Less: unamortized discount
(77.6
)
 
 
 
(87.5
)
 
 
 
372.4

 
 
 
362.5

 
 
Capital lease obligations
42.9

 
42.9

 
45.8

 
45.8

Term loan
—

 
—

 
48.6

 
53.3

Other
0.9

 
0.9

 
1.2

 
1.2

 
416.2

 
594.5

 
458.1

 
606.9

Non-recourse:
 
 
 
 
 
 
 
2006 secured railcar equipment notes
244.7

 
265.0

 
255.8

 
292.0

Promissory notes
403.5

 
396.2

 
424.1

 
414.6

2009 secured railcar equipment notes
201.6

 
234.1

 
209.2

 
260.4

2010 secured railcar equipment notes
330.4

 
348.7

 
341.5

 
387.2

TILC warehouse facility
152.0

 
152.0

 
173.6

 
173.6

TRL 2012 secured railcar equipment notes - RIV 2013
505.6

 
470.5

 
333.8

 
321.7

TRIP Holdings senior secured notes
—

 
—

 
61.2

 
62.5

TRIP Master Funding secured railcar equipment notes
767.1

 
830.7

 
797.7

 
952.0

 
2,604.9

 
2,697.2

 
2,596.9

 
2,864.0

Total
$
3,021.1

 
$
3,291.7

 
$
3,055.0

 
$
3,470.9


The estimated fair value of our convertible subordinated notes was based on a quoted market price in a market with little activity as of September 30, 2013 and December 31, 2012, respectively (Level 2 input). The estimated fair values of our 2006, 2009, 2010, and 2012 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, 2013 and December 31, 2012, 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 (Level 3 input). The fair values of all other financial instruments are estimated to approximate carrying value. See Note 11 Debt for a description of the Company's long-term debt.


12
Table of Contents

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 other steel products for infrastructure-related projects, and produces and sells 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, containers, and tank heads for pressure and non-pressure vessels, 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.

As discussed in Note 2, Acquisitions and Divestitures, the Company sold its remaining ready-mix concrete operations that have historically been a component of the Construction Products Group. The divestiture of our ready-mix concrete operations has been accounted for and reported as a discontinued operation and, accordingly, historical segment information previously reported has been adjusted to exclude the discontinued operations from the Construction Products Group.

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. Intersegment sales and net profit ("deferred profit") are eliminated in consolidation and reflected in the "Eliminations – Lease subsidiary" line in the table below. Amortization of this deferred profit on railcars sold to the Leasing Group is included in the operating profits of the Leasing Group, resulting in the recognition of depreciation expense based on the Company's original manufacturing cost of the railcars. Sales of railcars from the lease fleet are included in the Leasing Group, with related gains and losses computed based on the net book value of the original manufacturing cost of the railcars.

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

Three Months Ended September 30, 2013
 
Revenues
 
Operating Profit (Loss)
 
External
 
Intersegment
 
Total
 
 
(in millions)
Rail Group
$
541.5

 
$
177.0

 
$
718.5

 
$
121.5

Construction Products Group
145.8

 
3.4

 
149.2

 
18.6

Inland Barge Group
136.4

 
—

 
136.4

 
23.8

Energy Equipment Group
135.0

 
34.7

 
169.7

 
15.0

Railcar Leasing and Management Services Group
150.6

 
—

 
150.6

 
74.0

All Other
1.0

 
21.0

 
22.0

 
(1.6
)
Segment Totals before Eliminations and Corporate Expenses
1,110.3

 
236.1

 
1,346.4

 
251.3

Corporate
—

 
—

 
—

 
(17.8
)
Eliminations – Lease subsidiary
—

 
(173.0
)
 
(173.0
)
 
(28.3
)
Eliminations – Other
—

 
(63.1
)
 
(63.1
)
 
0.4

Consolidated Total
$
1,110.3

 
$
—

 
$
1,110.3

 
$
205.6



13
Table of Contents

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
118.0

 
6.1

 
124.1

 
11.5

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
)
Segment Totals before Eliminations and Corporate Expenses
907.3

 
161.3

 
1,068.6

 
166.2

Corporate
—

 
—

 
—

 
(12.4
)
Eliminations – Lease subsidiary
—

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

 
(35.4
)
 
(35.4
)
 
1.0

Consolidated Total
$
907.3

 
$
—

 
$
907.3

 
$
140.7


Nine Months Ended September 30, 2013
 
Revenues
 
Operating Profit (Loss)
 
External
 
Intersegment
 
Total
 
 
(in millions)
Rail Group
$
1,439.2

 
$
572.8

 
$
2,012.0

 
$
332.3

Construction Products Group
393.1

 
14.4

 
407.5

 
45.3

Inland Barge Group
433.8

 
—

 
433.8

 
69.0

Energy Equipment Group
384.9

 
92.0

 
476.9

 
44.2

Railcar Leasing and Management Services Group
454.6

 
—

 
454.6

 
211.3

All Other
3.7

 
59.3

 
63.0

 
(8.0
)
Segment Totals before Eliminations and Corporate Expenses
3,109.3

 
738.5

 
3,847.8

 
694.1

Corporate
—

 
—

 
—

 
(49.9
)
Eliminations – Lease subsidiary
—

 
(560.5
)
 
(560.5
)
 
(95.4
)
Eliminations – Other
—

 
(178.0
)
 
(178.0
)
 
(0.3
)
Consolidated Total
$
3,109.3

 
$
—

 
$
3,109.3

 
$
548.5


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
357.2

 
16.7

 
373.9

 
35.4

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
)
Segment Totals before Eliminations and Corporate Expenses
2,799.0

 
475.4

 
3,274.4

 
487.8

Corporate
—

 
—

 
—

 
(33.6
)
Eliminations – Lease subsidiary
—

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

 
(94.6
)
 
(94.6
)
 
(1.1
)
Consolidated Total
$
2,799.0

 
$
—

 
$
2,799.0

 
$
415.9


14
Table of Contents

Note 5. Partially-Owned Leasing Subsidiaries

The Company, through its wholly-owned subsidiary, TILC, formed two subsidiaries, TRIP Holdings and RIV 2013, for the purpose of providing railcar leasing in North America. Each of TRIP Holdings and RIV 2013 are direct, partially-owned subsidiaries of TILC and are each governed by a seven-member board of representatives, two of whom are designated by TILC. TILC is the agent of each of TRIP Holdings and RIV 2013 and as such, has been delegated the authority, power, and discretion to take certain actions on behalf of the respective companies. Each of TRIP Holdings and RIV 2013 in turn has wholly-owned subsidiaries which are the owners of railcars. These wholly-owned subsidiaries are TRIP Master Funding (wholly-owned by TRIP Holdings) and Trinity Rail Leasing 2012 LLC ("TRL 2012", wholly-owned by RIV 2013). TILC is the contractual servicer for TRIP Master Funding and TRL 2012, with the authority to manage and service each entity's owned railcars. The Company's controlling interest in each of TRIP Holdings and RIV 2013 results from its combined role as both equity member and agent/servicer. The noncontrolling interest included in the accompanying Consolidated Balance Sheets represents the non-Trinity equity interest in these partially-owned subsidiaries. The railcars owned by TRIP Master Funding were originally acquired from the Company's Rail and Leasing Groups by TRIP Rail Leasing LLC ("TRIP Leasing"), a wholly-owned subsidiary of TRIP Holdings. TRIP Master Funding acquired the railcars from TRIP Leasing in July 2011. TRIP Leasing currently owns no railcars and is not expected to acquire any railcars.
TRIP Holdings and RIV 2013, through TRIP Leasing and TRL 2012, respectively, acquired railcars from the Company's Rail and Leasing Groups funded by capital contributions from TILC and third-party equity investors, and from secured borrowings. Railcars purchased from the Company by TRL 2012 are required to be purchased at fair value as determined by TILC and approved by TRL 2012's board of representatives. TRIP Holdings and TRIP Master Funding are not expected to acquire additional railcars, other than as replacements for railcars subject to permitted sale or casualty. The assets of each of TRIP Holdings, TRIP Master Funding, RIV 2013, and TRL 2012 may only be used to satisfy the particular subsidiary's liabilities, and the creditors of each of TRIP Holdings, TRIP Master Funding, RIV 2013, and TRL 2012 have recourse only to the particular subsidiary's assets. Each of TILC and the third-party equity investors receive distributions from TRIP Holdings and RIV 2013, when allowed, in proportion to its respective equity interests, and has an interest in the net assets of the partially-owned subsidiaries upon a liquidation event in the same proportion. TILC is paid fees for the services it provides to TRIP Master Funding and TRL 2012 and has the potential to earn certain incentive fees. With respect to RIV 2013, TILC has a commitment that expires May 2016 to provide additional equity funding for the purchase of railcars and satisfaction of certain other liabilities of RIV 2013 of up to $27.9 million as of September 30, 2013. The third-party equity investors in RIV 2013 have a similar commitment that expires May 2016 to provide up to $63.4 million of additional equity funding. TILC and the third-party equity investors may have additional commitments to provide equity funding to RIV 2013 that expire in May 2019 contingent upon certain returns on investment in RIV 2013 and other conditions being met. Trinity has no obligation to guarantee performance under any of the partially-owned subsidiaries' (or their respective subsidiaries') debt agreements, guarantee any railcar residual values, shield any parties from losses, or guarantee minimum yields.

TRIP Holdings. In March 2013, the Company purchased an additional interest in TRIP Holdings from another equity investor for $31.7 million resulting in a reduction in the carrying amount of noncontrolling interest by $32.3 million. As a result, certain previous put/call agreements with the equity investor regarding their equity interest were terminated. In May 2013, the Company sold an interest in TRIP Holdings to certain third-party investors for a net amount of $200.3 million. Proceeds from the sale along with an additional equity contribution by TILC, were primarily used to retire the TRIP Holdings senior secured notes in their entirety. Additionally, the remaining interests of certain other equity investors were repurchased by TRIP Holdings for $52.3 million. At September 30, 2013, the Company's carrying value of its investment in TRIP Holdings, eliminated in consolidation, was $163.2 million representing the Company's 45% ownership interest.
RIV 2013. In May 2013, the Company formed RIV 2013, contributing its investment in TRL 2012 which had been formed as a wholly-owned railcar leasing subsidiary of TILC in December 2012. In May 2013, the Company sold an interest in RIV 2013 to certain third-party investors for a net amount of $94.6 million. On July 31, 2013, TILC and the third-party investors of RIV 2013 contributed $23.4 million and 50.0 million, respectively, net of expenses, to RIV 2013 in proportion to their respective equity interests. These contributions combined with additional secured borrowings were used to purchase additional railcar equipment from TILC. In August 2013, one of the third-party investors purchased an additional interest in RIV 2013 from the remaining investors for $2.5 million. At September 30, 2013, the Company's carrying value of its investment in RIV 2013, net of proceeds received from the sale of its previously-owned interest and eliminated in consolidation, was $44.2 million, representing the Company's 31% interest.
See Note 11 Debt regarding the debt of TRIP Holdings and RIV 2013 and their respective subsidiaries.

15
Table of Contents

Note 6. 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, 2013
 
Leasing Group
 
 
 
 
 
Wholly-
Owned
Subsidiaries
 
Partially-Owned Subsidiaries
 
Manufacturing/
Corporate
 
Total
 
(in millions)
Cash, cash equivalents, and short-term marketable securities
$
2.5

 
$
—

 
$
496.1

 
$
498.6

Property, plant, and equipment, net
$
2,964.6

 
$
1,756.3

 
$
629.0

 
$
5,349.9

Net deferred profit on railcars sold to
the Leasing Group
 
 
 
 
 
 
(648.6
)
Consolidated property, plant and equipment, net
 
 
 
 
 
 
$
4,701.3

Restricted cash
$
170.5

 
$
78.8

 
$
—

 
$
249.3

Debt:
 
 
 
 
 
 
 
Recourse
$
42.9

 
$
—

 
$
450.9

 
$
493.8

Less: unamortized discount
—

 
—

 
(77.6
)
 
(77.6
)
 
42.9

 
—

 
373.3

 
416.2

Non-recourse
1,332.2

 
1,272.7

 
—

 
2,604.9

Total debt
$
1,375.1

 
$
1,272.7

 
$
373.3

 
$
3,021.1

Net deferred tax liabilities
$
693.2

 
$
—

 
$
(124.9
)
 
$
568.3

 
 
December 31, 2012
 
Leasing Group
 
 
 
 
 
Wholly-
Owned
Subsidiaries
 
Partially-Owned Subsidiaries
 
Manufacturing/
Corporate
 
Total
 
(in millions)
Cash and cash equivalents
$
5.7

 
$
—

 
$
567.3

 
$
573.0

Property, plant, and equipment, net
$
2,773.1

 
$
1,549.3

 
$
539.3

 
$
4,861.7

Net deferred profit on railcars sold to
the Leasing Group
 
 
 
 
 
 
(562.7
)
Consolidated property, plant and equipment, net
 
 
 
 
 
 
$
4,299.0

Restricted cash
$
165.4

 
$
57.8

 
$
—

 
$
223.2

Debt:
 
 
 
 
 
 
 
Recourse
$
94.4

 
$
—

 
$
451.2

 
$
545.6

Less: unamortized discount
—

 
—

 
(87.5
)
 
(87.5
)
 
94.4

 
—

 
363.7

 
458.1

Non-recourse
1,404.2

 
1,301.5

 
—

 
2,705.7

Less: non-recourse debt owned by Trinity
—

 
(108.8
)
 
—

 
(108.8
)
Total debt
$
1,498.6

 
$
1,192.7

 
$
363.7

 
$
3,055.0

Net deferred tax liabilities
$
671.1

 
$
5.4

 
$
(120.7
)
 
$
555.8


See Note 5 Partially-Owned Leasing Subsidiaries and Note 11 Debt for a further discussion regarding the Company’s investment in its partially-owned leasing subsidiaries and the related indebtedness. Certain prior year balances with respect to RIV 2013 have been reclassified as pertaining to a partially-owned subsidiary to conform to the 2013 presentation. See Note 5 Partially-Owned Leasing Subsidiaries.

16
Table of Contents

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
Percent
 
2013
 
2012
 
Percent
 
($ in millions)
 
Change
 
($ in millions)
 
Change
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Leasing and management
$
150.6

 
$
136.5

 
10.3
 %
 
$
435.6

 
$
395.9

 
10.0
 %
Sales of railcars owned one year or less at the time of sale
—

 
23.4

 
*
 
19.0

 
100.5

 
*
Total revenues
$
150.6

 
$
159.9

 
(5.8
)
 
$
454.6

 
$
496.4

 
(8.4
)
 
 
 
 
 
 
 
 
 
 
 
 
Operating profit:
 
 
 
 
 
 
 
 
 
 
 
Leasing and management
$
72.4

 
$
63.8

 
13.5

 
$
198.2

 
$
185.0

 
7.1

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

 
4.3

 
 
 
3.5

 
20.7

 
 
Railcars owned more than one year at the time of sale
1.6

 
17.0

 
 
 
9.6

 
22.3

 
 
Total operating profit
$
74.0

 
$
85.1

 
(13.0
)
 
$
211.3

 
$
228.0

 
(7.3
)
 
 
 
 
 
 
 
 
 
 
 
 
Operating profit margin:
 
 
 
 
 
 
 
 
 
 
 
Leasing and management
48.1
%
 
46.7
%
 
 
 
45.5
%
 
46.7
%
 
 
Railcar sales
*
 
*
 
 
 
*
 
*
 
 
Total operating profit margin
49.1
%
 
53.2
%
 
 
 
46.5
%
 
45.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Selected expense information(1):
 
 
 
 
 
 
 
 
 
 
 
Depreciation
$
32.8

 
$
30.6

 
7.2

 
$
95.8

 
$
89.9

 
6.6

Maintenance
$
16.4

 
$
14.4

 
13.9

 
$
53.8

 
$
43.2

 
24.5

Rent
$
13.3

 
$
12.7

 
4.7

 
$
40.0

 
$
38.2

 
4.7

Interest:
 
 
 
 
 
 
 
 
 
 
 
External
$
37.3

 
$
39.3

 
 
 
$
116.2

 
$
118.4

 
 
Intercompany
—

 
3.3

 
 
 
3.8

 
9.8

 
 
Total interest expense
$
37.3

 
$
42.6

 
(12.4
)
 
$
120.0

 
$
128.2

 
(6.4
)
 * Not meaningful

(1) Depreciation, maintenance, and rent expense are components of operating profit. Amortization of deferred profit on railcars sold from the Rail Group to the Leasing Group is included in the operating profits of the Leasing Group resulting in the recognition of depreciation expense based on the Company's original manufacturing cost of the railcars. Interest expense is not a component of operating profit and includes the effect of hedges. Intercompany interest expense arises from Trinity’s previous ownership of a portion of TRIP Holdings’ Senior Secured Notes and is eliminated in consolidation. See Note 11 Debt.



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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 2013