TRN 03.31.2015 10Q

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 MARCH 31, 2015
 
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 N. 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 April 15, 2015 the number of shares of common stock outstanding was 154,943,488.



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

All share and per share information, including dividends, has been retroactively adjusted to reflect the 2-for-1 stock split.


2
Table of Contents

PART I
Item 1. Financial Statements
Trinity Industries, Inc. and Subsidiaries
Consolidated Statements of Operations
(unaudited)
 
Three Months Ended
March 31,
 
2015
 
2014
 
(in millions, except per share amounts)
Revenues:
 
 
 
Manufacturing
$
1,382.5

 
$
1,018.3

Leasing
244.2

 
442.2

 
1,626.7

 
1,460.5

Operating costs:
 
 
 
Cost of revenues:
 
 
 
Manufacturing
1,084.5

 
794.7

Leasing
126.6

 
279.3

 
1,211.1

 
1,074.0

Selling, engineering, and administrative expenses:
 
 
 
Manufacturing
61.3

 
49.5

Leasing
10.3

 
11.0

Other
26.7

 
23.1

 
98.3

 
83.6

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
14.9

 
77.5

Other
0.9

 
10.9

 
15.8

 
88.4

Total operating profit
333.1

 
391.3

Other (income) expense:
 
 
 
Interest income
(0.5
)
 
(0.4
)
Interest expense
51.5

 
46.3

Other, net
(2.3
)
 
(0.1
)
 
48.7

 
45.8

Income before income taxes
284.4

 
345.5

Provision for income taxes
95.4

 
112.5

Net income
189.0

 
233.0

Net income attributable to noncontrolling interest
8.8

 
6.6

Net income attributable to Trinity Industries, Inc.
$
180.2

 
$
226.4

 
 
 
 
Net income attributable to Trinity Industries, Inc. per common share:
 
 
 
Basic
$
1.15

 
$
1.46

Diluted
$
1.13

 
$
1.42

Weighted average number of shares outstanding:
 
 
 
Basic
151.2

 
150.2

Diluted
154.3

 
154.0

Dividends declared per common share
$
0.100

 
$
0.075

See accompanying notes to consolidated financial statements.

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Table of Contents

Trinity Industries, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(unaudited)
 
Three Months Ended
March 31,
 
2015
 
2014
 
(in millions)
Net income
$
189.0

 
$
233.0

Other comprehensive income (loss):
 
 
 
Derivative financial instruments:
 
 
 
Unrealized losses arising during the period, net of tax benefit of $0.2 and $0.4
(0.3
)
 
(1.2
)
Reclassification adjustments for losses included in net income, net of tax benefit of $2.1 and $2.0
3.8

 
4.3

Currency translation adjustment
(3.8
)
 
—

Defined benefit plans:
 
 
 
Amortization of net actuarial losses, net of tax benefit of $0.5 and $0.1
0.8

 
0.2

 
0.5

 
3.3

Comprehensive income
189.5

 
236.3

Less: comprehensive income attributable to noncontrolling interest
9.4

 
7.3

Comprehensive income attributable to Trinity Industries, Inc.
$
180.1

 
$
229.0

See accompanying notes to consolidated financial statements.

4
Table of Contents

Trinity Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
 
March 31,
2015
 
December 31,
2014
 
(unaudited)
 
 
 
(in millions)
ASSETS
 
 
 
Cash and cash equivalents
$
590.7

 
$
887.9

Short-term marketable securities
100.0

 
75.0

Receivables, net of allowance
544.9

 
405.3

Income tax receivable
—

 
58.6

Inventories:
 
 
 
Raw materials and supplies
590.8

 
585.4

Work in process
303.3

 
298.2

Finished goods
151.2

 
184.8

 
1,045.3

 
1,068.4

Restricted cash, including partially-owned subsidiaries of $89.1 and $91.9
211.1

 
234.7

Property, plant, and equipment, at cost, including partially-owned subsidiaries of $2,260.6 and $2,261.2
6,870.3

 
6,586.0

Less accumulated depreciation, including partially-owned subsidiaries of $277.2 and $261.3
(1,721.4
)
 
(1,683.1
)
 
5,148.9

 
4,902.9

Goodwill
771.7

 
773.2

Other assets
309.8

 
327.8

 
$
8,722.4

 
$
8,733.8

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Accounts payable
$
299.6

 
$
295.4

Accrued liabilities
612.3

 
709.6

Debt:
 
 
 
Recourse, net of unamortized discount of $56.2 and $60.0
832.3

 
829.3

Non-recourse:
 
 
 
Wholly-owned subsidiaries
1,155.4

 
1,207.8

Partially-owned subsidiaries
1,498.2

 
1,515.9

 
3,485.9

 
3,553.0

Deferred income
29.1

 
36.4

Deferred income taxes
630.6

 
632.6

Other liabilities
113.5

 
109.4

 
5,171.0

 
5,336.4

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

 
—

Common stock – 200.0 shares authorized
155.7

 
155.7

Capital in excess of par value
480.2

 
463.2

Retained earnings
2,654.5

 
2,489.9

Accumulated other comprehensive loss
(112.0
)
 
(111.9
)
Treasury stock
(26.6
)
 
(1.0
)
 
3,151.8

 
2,995.9

Noncontrolling interest
399.6

 
401.5

 
3,551.4

 
3,397.4

 
$
8,722.4

 
$
8,733.8

See accompanying notes to consolidated financial statements.

5
Table of Contents

Trinity Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
 
Three Months Ended
March 31,
 
2015
 
2014
 
(in millions)
Operating activities:

 

Net income
$
189.0

 
$
233.0

Adjustments to reconcile net income to net cash provided by operating activities:

 

Depreciation and amortization
64.0

 
55.3

Stock-based compensation expense
16.4

 
10.9

Excess tax benefits from stock-based compensation
(0.4
)
 
(0.4
)
Provision (benefit) for deferred income taxes
(2.9
)
 
1.0

Net gains on railcar lease fleet sales owned more than one year at the time of sale
(14.9
)
 
(77.5
)
Gains on disposition of property, plant, equipment, and other assets
(0.9
)
 
(10.9
)
Non-cash interest expense
7.7

 
7.8

Other
0.8

 
(0.2
)
Changes in assets and liabilities:

 

(Increase) decrease in receivables
(76.6
)
 
(43.3
)
(Increase) decrease in inventories
31.7

 
(57.9
)
(Increase) decrease in restricted cash
(9.4
)
 
25.0

(Increase) decrease in other assets
0.8

 
(10.6
)
Increase (decrease) in accounts payable
4.0

 
38.4

Increase (decrease) in accrued liabilities
(103.3
)
 
30.8

Increase (decrease) in other liabilities
3.4

 
3.9

Net cash provided by operating activities
109.4

 
205.3



 

Investing activities:

 

(Increase) decrease in short-term marketable securities
(25.0
)
 
(106.7
)
Proceeds from railcar lease fleet sales owned more than one year at the time of sale
78.5

 
224.3

Proceeds from disposition of property, plant, equipment, and other assets
1.6

 
17.2

Capital expenditures – leasing, net of sold lease fleet railcars owned one year or less with a net cost of $53.1 and $204.0
(283.4
)
 
0.4

Capital expenditures – manufacturing and other
(53.5
)
 
(49.1
)
Acquisitions, net of cash acquired
(45.5
)
 
(112.6
)
Other
4.2

 
2.9

Net cash required by investing activities
(323.1
)
 
(23.6
)


 

Financing activities:

 

Proceeds from issuance of common stock, net
—

 
0.3

Excess tax benefits from stock-based compensation
0.4

 
0.4

Payments to retire debt
(70.9
)
 
(53.1
)
(Increase) decrease in restricted cash
33.0

 
4.3

Shares repurchased
(18.0
)
 
(12.5
)
Dividends paid to common shareholders
(15.6
)
 
(11.6
)
Purchase of shares to satisfy employee tax on vested stock
(0.4
)
 
(0.1
)
Distributions to noncontrolling interest
(11.3
)
 
(5.4
)
Other
(0.7
)
 
(0.3
)
Net cash required by financing activities
(83.5
)
 
(78.0
)
Net increase (decrease) in cash and cash equivalents
(297.2
)
 
103.7

Cash and cash equivalents at beginning of period
887.9

 
428.5

Cash and cash equivalents at end of period
$
590.7

 
$
532.2

See accompanying notes to consolidated financial statements.

6
Table of Contents

Trinity Industries, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
(unaudited)
 
 
Common
Stock
 
Capital in
Excess of
Par Value
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Treasury
Stock
 
Trinity
Stockholders’
Equity
 
Noncontrolling
Interest
 
Total
Stockholders’
Equity
 
 
Shares
 
$1 Par Value
 
 
 
 
Shares
 
Amount
 
 
 
 
 
(in millions, except par value)
Balances at
December 31, 2014
 
155.7

 
$
155.7

 
$
463.2

 
$
2,489.9

 
$
(111.9
)
 
(0.1
)
 
$
(1.0
)
 
$
2,995.9

 
$
401.5

 
$
3,397.4

Net income
 
—

 
—

 
—

 
180.2

 
—

 
—

 
—

 
180.2

 
8.8

 
189.0

Other comprehensive income (loss)
 
—

 
—

 
—

 
—

 
(0.1
)
 
—

 
—

 
(0.1
)
 
0.6

 
0.5

Cash dividends on common stock
 
—

 
—

 
—

 
(15.6
)
 
—

 
—

 
—

 
(15.6
)
 
—

 
(15.6
)
Restricted shares, net
 
—

 
—

 
16.6

 
—

 
—

 
—

 
(0.6
)
 
16.0

 
—

 
16.0

Shares repurchased
 
—

 
—

 
—

 
—

 
—

 
(0.7
)
 
(25.0
)
 
(25.0
)
 
—

 
(25.0
)
Excess tax benefits from stock-based compensation
 
—

 
—

 
0.4

 
—

 
—

 
—

 
—

 
0.4

 
—

 
0.4

Distributions to noncontrolling interest
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(11.3
)
 
(11.3
)
Balances at
March 31, 2015
 
155.7

 
$
155.7

 
$
480.2

 
$
2,654.5

 
$
(112.0
)
 
(0.8
)
 
$
(26.6
)
 
$
3,151.8

 
$
399.6

 
$
3,551.4

See accompanying notes to consolidated financial statements.

7
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 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 a controlling interest. In our opinion, all normal and recurring adjustments necessary for a fair presentation of the financial position of the Company as of March 31, 2015, and the results of operations and cash flows for the three months ended March 31, 2015 and 2014, have been made in conformity with generally accepted accounting principles. All significant intercompany accounts and transactions have been eliminated. Because of seasonal and other factors, the results of operations for the three months ended March 31, 2015 may not be indicative of expected results of operations for the year ending December 31, 2015. 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, 2014.

Stockholders' Equity

On May 5, 2014, the Company's Board of Directors authorized a 2-for-1 stock split on its common shares in the form of a 100% stock dividend. The additional shares were distributed on June 19, 2014, to shareholders of record at the close of business on June 5, 2014. All share and per share information, including dividends, has been retroactively adjusted to reflect the 2-for-1 stock split.

In March 2014, the Company’s Board of Directors authorized a $250 million share repurchase program that expires on December 31, 2015. Under the program, 721,040 shares were repurchased during the three months ended March 31, 2015, at a cost of approximately $25.0 million. During the three months ended March 31, 2014, the Company repurchased 276,546 shares at a cost of approximately $10.0 million. Certain shares of stock repurchased during March 2015, totaling $7.0 million, were cash settled in April 2015 in accordance with normal settlement practices.

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 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 collectibility of all receivables. Receivable balances determined to be uncollectible

8
Table of Contents

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.

Recent Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs" ("ASU 2015-03") which changes the presentation of debt issuance costs in financial statements to present such costs as a direct deduction from the related debt liability rather than as an asset. ASU 2015-03 will become effective for public companies during interim and annual reporting periods beginning after December 15, 2015. Early adoption is permitted. We do not expect the adoption of ASU 2015-03 will have a material impact on our consolidated financial statements.

In February 2015, the FASB issued Accounting Standards Update No. 2015-02, "Consolidation (Topic 810): Amendments to the Consolidation Analysis" ("ASU 2015-02") which updates the considerations on whether an entity should consolidate certain legal entities. The update removes the indefinite deferral of specialized guidance for certain investment funds and changes the way that entities evaluate limited partnerships and fees paid to service providers in the consolidation determination. ASU 2015-02 will become effective for public companies during interim and annual reporting periods beginning after December 15, 2015. Early adoption is permitted. We do not expect the adoption of ASU 2015-02 will have a material impact on our consolidated financial statements.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers," ("ASU 2014-09") providing common revenue recognition guidance for U.S. GAAP. Under ASU 2014-09, an entity recognizes revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. It also requires additional detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 will become effective for public companies during interim and annual reporting periods beginning after December 15, 2016; however, in April 2015, the FASB voted to propose a one year deferral of the effective date. The proposed deferral may permit early adoption, but would not allow adoption any earlier than the original effective date of the standard. We are currently evaluating the impact this standard will have on our consolidated financial statements.

Reclassifications
 
Certain prior year balances have been reclassified in the consolidated statements of operations and cash flows to conform to the 2015 presentation.


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Table of Contents

Note 2. Acquisitions and Divestitures

The Company's acquisition and divestiture activities are summarized below:
 
Three Months Ended
March 31,
 
2015
 
2014
 
(in millions)
Acquisitions:
 
 
 
Purchase price
$
46.4

 
$
117.6

Net cash paid
$
45.5

 
$
112.6

Goodwill recorded
$
—

 
$
82.1


In March 2015, we completed the acquisition of the assets of a lightweight aggregates business in our Construction Products Group with facilities located in Louisiana, Alabama, and Arkansas. As of March 31, 2015, the acquisition was recorded based on a preliminary valuation of the acquired assets and liabilities at their acquisition date fair value using level three inputs. Such assets and liabilities were not significant in relation to assets and liabilities at the consolidated or segment level. See Note 3 Fair Value Accounting for a discussion of inputs in determining fair value. There were no business divestitures during the three months ended March 31, 2015 and 2014.

With regard to the acquisition of Meyer Steel Structures (“Meyer”) in August 2014, the purchase price allocation continues to be preliminary as of March 31, 2015 due to the size and complexity of Meyer. We expect to complete our purchase price allocation as soon as reasonably possible not to exceed one year from the acquisition date. The following table represents our preliminary purchase price allocation as of March 31, 2015:
 
March 31,
2015
 
(in millions)
Accounts receivable
$
29.4

Inventories
36.1

Property, plant, and equipment
70.5

Goodwill
409.1

Other assets
76.0

Accounts payable
(15.4
)
Accrued liabilities
(10.1
)
Total net assets acquired
$
595.6



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 March 31, 2015
 
(in millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
353.8

 
$
—

 
$
—

 
$
353.8

Restricted cash
211.1

 
—

 
—

 
211.1

Total assets
$
564.9

 
$
—

 
$
—

 
$
564.9

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

 
$
2.5

 
$
—

 
$
2.5

Partially-owned subsidiaries
—

 
2.2

 
—

 
2.2

Fuel derivative instruments(1)
—

 
1.4

 
—

 
1.4

Total liabilities
$
—

 
$
6.1

 
$
—

 
$
6.1

 
 
 
 
 
 
 
 
 
Fair Value Measurement as of December 31, 2014
 
(in millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
415.2

 
$
—

 
$
—

 
$
415.2

Restricted cash
234.7

 
—

 
—

 
234.7

Total assets
$
649.9

 
$
—

 
$
—

 
$
649.9

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

 
$
6.4

 
$
—

 
$
6.4

Partially-owned subsidiaries
—

 
2.0

 
—

 
2.0

Fuel derivative instruments(1)
—

 
2.1

 
—

 
2.1

Total liabilities
$
—

 
$
10.5

 
$
—

 
$
10.5

(1) Included in accrued 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 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. 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.


11
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The carrying amounts and estimated fair values of our long-term debt are as follows:
 
March 31, 2015
 
December 31, 2014
 
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
 
(in millions)
Recourse:
 
 
 
 
 
 
 
Senior notes
$
399.6

 
$
402.6

 
$
399.6

 
$
387.0

Convertible subordinated notes
449.5

 
699.0

 
449.5

 
593.9

Less: unamortized discount
(55.8
)
 
 
 
(59.6
)
 
 
 
393.7

 
 
 
389.9

 
 
Capital lease obligations
38.3

 
38.3

 
39.1

 
39.1

Other
0.7

 
0.7

 
0.7

 
0.7

 
832.3

 
1,140.6

 
829.3

 
1,020.7

Non-recourse:
 
 
 
 
 
 
 
2006 secured railcar equipment notes
218.6

 
240.6

 
223.0

 
245.6

Promissory notes
341.3

 
340.8

 
363.9

 
362.7

2009 secured railcar equipment notes
186.4

 
225.2

 
188.8

 
227.7

2010 secured railcar equipment notes
307.7

 
340.9

 
311.5

 
344.0

TILC warehouse facility
101.4

 
101.4

 
120.6

 
120.6

TRL 2012 secured railcar equipment notes (RIV 2013)
466.1

 
466.1

 
472.2

 
470.3

TRIP Master Funding secured railcar equipment notes
1,032.1

 
1,110.0

 
1,043.7

 
1,121.4

 
2,653.6

 
2,825.0

 
2,723.7

 
2,892.3

Total
$
3,485.9

 
$
3,965.6

 
$
3,553.0

 
$
3,913.0


The estimated fair value of our senior notes and convertible subordinated notes were based on a quoted market price in a market with little activity as of March 31, 2015 and December 31, 2014, respectively (Level 2 input). The estimated fair values of our 2006, 2009, 2010, and 2012 secured railcar equipment notes, promissory notes, and TRIP Rail Master Funding LLC (“TRIP Master Funding”) secured railcar equipment notes are based on our estimate of their fair value as of March 31, 2015 and December 31, 2014, 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.

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, components, and maintenance services; (2) the Construction Products Group, which manufactures and sells highway products and other primarily-steel products and services 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, storage and distribution containers, tank heads for pressure and non-pressure vessels, and utility structures for electricity transmission and distribution; 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 leasing, management, maintenance, and administrative services. The segment All Other includes our captive insurance and transportation companies; legal, environmental, and maintenance costs associated with non-operating facilities; and other peripheral businesses. 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. 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 deferred profit on railcars sold to the Leasing Group is included in the operating profit 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.

12
Table of Contents


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

Three Months Ended March 31, 2015
 
Revenues
 
Operating Profit (Loss)
 
External
 
Intersegment
 
Total
 
 
(in millions)
Rail Group
$
875.4

 
$
269.1

 
$
1,144.5

 
$
212.7

Construction Products Group
111.4

 
1.4

 
112.8

 
8.3

Inland Barge Group
153.1

 
—

 
153.1

 
27.5

Energy Equipment Group
241.5

 
58.6

 
300.1

 
37.2

Railcar Leasing and Management Services Group
244.2

 
0.6

 
244.8

 
122.8

All Other
1.1

 
27.0

 
28.1

 
(1.5
)
Segment Totals before Eliminations and Corporate
1,626.7

 
356.7

 
1,983.4

 
407.0

Corporate
—

 
—

 
—

 
(26.7
)
Eliminations – Lease subsidiary
—

 
(259.0
)
 
(259.0
)
 
(48.3
)
Eliminations – Other
—

 
(97.7
)
 
(97.7
)
 
1.1

Consolidated Total
$
1,626.7

 
$
—

 
$
1,626.7

 
$
333.1


Three Months Ended March 31, 2014 
 
Revenues
 
Operating Profit (Loss)
 
External
 
Intersegment
 
Total
 
 
(in millions)
Rail Group
$
601.1

 
$
256.3

 
$
857.4

 
$
167.5

Construction Products Group
112.2

 
0.9

 
113.1

 
21.7

Inland Barge Group
136.9

 
—

 
136.9

 
26.7

Energy Equipment Group
167.0

 
43.6

 
210.6

 
22.9

Railcar Leasing and Management Services Group
442.2

 
0.9

 
443.1

 
230.3

All Other
1.1

 
22.1

 
23.2

 
(5.4
)
Segment Totals before Eliminations and Corporate
1,460.5

 
323.8

 
1,784.3

 
463.7

Corporate
—

 
—

 
—

 
(23.1
)
Eliminations – Lease subsidiary
—

 
(249.1
)
 
(249.1
)
 
(49.3
)
Eliminations – Other
—

 
(74.7
)
 
(74.7
)
 
—

Consolidated Total
$
1,460.5

 
$
—

 
$
1,460.5

 
$
391.3


13
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 in which the Company has a controlling interest. Each is 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.
At March 31, 2015, the Company's carrying value of its investment in TRIP Holdings and RIV 2013 totaled $227.8 million representing the Company's weighted average 39% ownership interest. The remaining 61% weighted average interest is owned by institutional investors. The Company's investments in its partially-owned leasing subsidiaries are eliminated in consolidation.
Each of TRIP Holdings and RIV 2013 has wholly-owned subsidiaries which are the owners of railcars acquired from the Company's Rail and Leasing Groups. 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). Railcar purchases were funded by secured borrowings and capital contributions from TILC and third-party equity investors.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.
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.
The assets of each of TRIP Master Funding and TRL 2012 may only be used to satisfy the particular subsidiary's liabilities, and the creditors of each of TRIP Master Funding 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 TRIP Holdings as of March 31, 2015, TILC has a commitment that expires in May 2016 to provide additional equity funding of up to $5.7 million for the purchase of railcars and satisfaction of certain other liabilities of TRIP Holdings. The third-party equity investors in TRIP Holdings have a similar commitment that expires in May 2016 to provide up to $12.9 million of additional equity funding. TILC and the third-party equity investors may have additional commitments to provide equity funding to TRIP Holdings that expire in May 2019 contingent upon certain returns on investment in TRIP Holdings and other conditions being met.

See Note 11 Debt regarding the debt of TRIP Holdings and RIV 2013 and their respective subsidiaries.

14
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:
 
March 31, 2015
 
Leasing Group
 
 
 
 
 
Wholly-
Owned
Subsidiaries
 
Partially-Owned Subsidiaries
 
Manufacturing/
Corporate
 
Total
 
(in millions)
Cash, cash equivalents, and short-term marketable securities
$
4.4

 
$
—

 
$
686.3

 
$
690.7

Property, plant, and equipment, net
$
2,833.3

 
$
1,983.4

 
$
916.4

 
$
5,733.1

Net deferred profit on railcars sold to
the Leasing Group
 
 
 
 
 
 
(584.2
)
Consolidated property, plant and equipment, net
 
 
 
 
 
 
$
5,148.9

Restricted cash
$
122.0

 
$
89.1

 
$
—

 
$
211.1

Debt:
 
 
 
 
 
 
 
Recourse
$
38.3

 
$
—

 
$
850.2

 
$
888.5

Less: unamortized discount
—

 
—

 
(56.2
)
 
(56.2
)
 
38.3

 
—

 
794.0

 
832.3

Non-recourse
1,155.4

 
1,498.2

 
—

 
2,653.6

Total debt
$
1,193.7

 
$
1,498.2

 
$
794.0

 
$
3,485.9

Net deferred tax liabilities
$
654.7

 
$
0.9

 
$
(40.9
)
 
$
614.7

 
 
December 31, 2014
 
Leasing Group
 
 
 
 
 
Wholly-
Owned
Subsidiaries
 
Partially-Owned Subsidiaries
 
Manufacturing/
Corporate
 
Total
 
(in millions)
Cash, cash equivalents, and short-term marketable securities
$
11.9

 
$
—

 
$
951.0

 
$
962.9

Property, plant, and equipment, net
$
2,599.2

 
$
1,999.9

 
$
861.0

 
$
5,460.1

Net deferred profit on railcars sold to
the Leasing Group
 
 
 
 
 
 
(557.2
)
Consolidated property, plant and equipment, net
 
 
 
 
 
 
$
4,902.9

Restricted cash
$
142.8

 
$
91.9

 
$
—

 
$
234.7

Debt:
 
 
 
 
 
 
 
Recourse
$
39.1

 
$
—

 
$
850.2

 
$
889.3

Less: unamortized discount
—

 
—

 
(60.0
)
 
(60.0
)
 
39.1

 
—

 
790.2

 
829.3

Non-recourse
1,207.8

 
1,515.9

 
—

 
2,723.7

Total debt
$
1,246.9

 
$
1,515.9

 
$
790.2

 
$
3,553.0

Net deferred tax liabilities
$
658.2

 
$
0.9

 
$
(44.1
)
 
$
615.0


Net deferred profit on railcars sold to the Leasing Group consists of intersegment profit that is eliminated in consolidation and is, therefore, not allocated to an operating segment. 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.

15
Table of Contents

 
Three Months Ended March 31,
 
2015
 
2014
 
Percent
 
($ in millions)
 
Change
Revenues:
 
 
 
 
 
Leasing and management
$
166.1

 
$
150.2

 
10.6
 %
Sales of railcars owned one year or less at the time of sale
78.7

 
292.9

 
*
Total revenues
$
244.8

 
$
443.1

 
(44.8
)
 
 
 
 
 
 
Operating profit:
 
 
 
 
 
Leasing and management
$
82.3

 
$
63.9

 
28.8

Railcar sales:
 
 
 
 
 
Railcars owned one year or less at the time of sale
25.6

 
88.9

 
 
Railcars owned more than one year at the time of sale
14.9

 
77.5

 
 
Total operating profit
$
122.8

 
$
230.3

 
(46.7
)
 
 
 
 
 
 
Operating profit margin:
 
 
 
 
 
Leasing and management
49.5
%
 
42.5
%
 
 
Railcar sales
*
 
*
 
 
Total operating profit margin
50.2
%
 
52.0
%
 
 
 
 
 
 
 
 
Selected expense information(1):
 
 
 
 
 
Depreciation
$
34.1

 
$
32.5

 
4.9

Maintenance
$
19.9

 
$
21.0

 
(5.2
)
Rent
$
11.8

 
$
13.3

 
(11.3
)
Interest
$
37.9

 
$
37.3

 
1.6

 * 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.

During the three months ended March 31, 2015 and 2014, the Company received proceeds from the sale of leased railcars to Element Financial Corporation ("Element") under the strategic alliance with Element announced in December 2013 as follows:
 
Three Months Ended March 31,
 
2015
 
2014
 
(in millions)
Leasing Group:
 
 
 
Railcars owned one year or less at the time of sale
$
50.1

 
$
277.9

Railcars owned more than one year at the time of sale
61.7

 
222.7

Rail Group
15.2

 
13.7

 
$
127.0

 
$
514.3

Since the inception of our alliance, the Company has received proceeds of $1,114.7 million from the sale of leased railcars to Element.

16
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 nine months of 2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
 
Total
 
 
(in millions)
Future contractual minimum rental revenue
 
$
384.8

 
$
437.7

 
$
363.4

 
$
289.0

 
$
206.5

 
$
304.0

 
$
1,985.4


Debt. The Leasing Group’s debt at March 31, 2015 consisted of both recourse and non-recourse debt. As of March 31, 2015, Trinity’s wholly-owned subsidiaries included in the Leasing Group held equipment with a net book value of $1,781.5 million which is pledged as collateral for Leasing Group debt held by those subsidiaries, including equipment with a net book value of $45.2 million securing capital lease obligations. The net book value of unpledged equipment at March 31, 2015 was $983.2 million. See Note 11 Debt for the form, maturities, and descriptions of Leasing Group debt.

Partially-owned subsidiaries. Debt owed by TRIP Holdings and RIV 2013 and their respective subsidiaries is nonrecourse to its members, including Trinity and TILC. Creditors of each of TRIP Holdings and RIV 2013 and their respective subsidiaries have recourse only to the particular subsidiary's assets. TRIP Master Funding equipment with a net book value of $1,387.4 million is pledged as collateral for the TRIP Master Funding debt. TRL 2012 equipment with a net book value of $596.0 million is pledged solely as collateral for the TRL 2012 secured railcar equipment notes. See Note 5 Partially-Owned Leasing Subsidiaries for a description of TRIP Holdings and RIV 2013.

Off Balance Sheet Arrangements. 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”). Each of the Trusts financed the purchase of the railcars with a combination of debt and equity. In each transaction, the equity participant in the Trust is considered to be the primary beneficiary of the Trust and therefore, the debt related to the Trust is not included as part of the consolidated financial statements. The Leasing Group, through wholly-owned, qualified subsidiaries, leased railcars from the Trusts under operating leases with terms of 22 years, and subleased the railcars to independent third-party customers under shorter term operating rental agreements. In February 2015, the Leasing Group purchased all of the railcars of one of the Trusts for $121.1 million, resulting in the termination of the selling Trust and the Leasing Group's remaining future operating lease obligations to the selling Trust totaling $105.8 million.

These Leasing Group subsidiaries had total assets as of March 31, 2015 of $146.3 million, including cash of $51.0 million and railcars of $67.8 million. The subsidiaries' cash, railcars, and an interest in each sublease are pledged to collateralize the lease obligations to the Trusts and are included in the consolidated financial statements of the Company. Trinity does not guarantee the performance of the subsidiaries’ lease obligations. Certain ratios and cash deposits must be maintained by the Leasing Group’s subsidiaries in order for excess cash flow, as defined in the agreements, from the lease to third parties to be available to Trinity. Future operating lease obligations of the Leasing Group’s subsidiaries as well as future contractual minimum rental revenues related to these leases due to the Leasing Group are as follows:
 
 
Remaining nine months of 2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
 
Total
 
 
(in millions)
Future operating lease obligations of Trusts’ railcars
 
$
22.5

 
$
29.3

 
$
29.2

 
$
29.2

 
$
28.8

 
$
170.2

 
$
309.2

Future contractual minimum rental revenues of Trusts’ railcars
 
$
39.6

 
$
45.7

 
$
36.7

 
$
27.3

 
$
18.3

 
$
32.8

 
$
200.4





17
Table of Contents

Operating Lease Obligations. Future amounts due as well as future contractual minimum rental revenues related to operating leases other than leases discussed above are as follows: 
 
 
Remaining nine months of 2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
 
Total
 
 
(in millions)
Future operating lease obligations
 
$
9.7

 
$
12.8

 
$
12.1

 
$
12.0

 
$
9.5

 
$
28.7

 
$
84.8

Future contractual minimum rental revenues
 
$
15.4

 
$
18.6

 
$
11.0

 
$
6.6

 
$
3.7

 
$
5.9

 
$
61.2


Operating lease obligations totaling $16.5 million are guaranteed by Trinity Industries, Inc. and certain subsidiaries. See Note 6 of the December 31, 2014 Consolidated Financial Statements filed on Form 10-K for a detailed explanation of these financing transactions.


18
Table of Contents

Note 7. Derivative Instruments

We use derivative instruments to mitigate the impact of changes in interest rates, both in anticipation of future debt issuances and to offset interest rate variability of certain floating rate debt issuances outstanding. We also use derivative instruments to mitigate the impact of changes in natural gas and diesel fuel prices and changes in foreign currency exchange rates. Derivative instruments that are designated and qualify as cash flow hedges are accounted for in accordance with applicable accounting standards. See Note 3 Fair Value Accounting for discussion of how the Company valued its commodity hedges and interest rate swaps at March 31, 2015. See Note 11 Debt for a description of the Company's debt instruments.

Interest rate hedges
 
 
 
 
 
Included in accompanying balance sheet
at March 31, 2015
 
Notional
Amount
 
Interest
Rate(1)
 
Liability
 
AOCL –
loss/
(income)
 
Noncontrolling
Interest
 
(in millions, except %)
Expired hedges:
 
 
 
 
 
 
 
 
 
2006 secured railcar equipment notes
$
200.0

 
4.87
%
 
$
—

 
$
(1.2
)
 
$
—

Promissory notes
$
370.0

 
5.34
%
 
$
—

 
$
0.5

 
$
—

TRIP Holdings warehouse loan
$
788.5

 
3.60
%
 
$
—

 
$
9.5

 
$
12.8

Open hedges:
 
 
 
 
 
 
 
 
 
TRIP Master Funding secured railcar equipment notes
$
53.8

 
2.62
%
 
$
2.2

 
$
0.9

 
$
1.3

Promissory notes
$
364.2

 
4.13
%
 
$
2.5

 
$
1.6

 
$
—

(1) 
Weighted average fixed interest rate
 
Effect on interest expense - increase/(decrease)
 
Three Months Ended
March 31,
 
Expected effect during next twelve months(1)
 
2015
 
2014
 
 
(in millions)
Expired hedges:
 
 
 
 
 
2006 secured railcar equipment notes
$
(0.1
)
 
$
(0.1
)
 
$
(0.3
)
Promissory notes
$
0.7

 
$
0.8

 
$
0.5

TRIP Holdings warehouse loan
$
1.3

 
$
1.3

 
$
4.9

Open hedges:
 
 
 
 
 
TRIP Master Funding secured railcar equipment notes
$
0.3

 
$
0.4

 
$
1.1

Promissory notes
$
3.7

 
$
3.9

 
$
2.5

(1) Based on the fair value of open hedges as of March 31, 2015

During 2005 and 2006, we entered into interest rate swap derivatives in anticipation of issuing our 2006 Secured Railcar Equipment Notes. These derivative instruments, with a notional amount of $200.0 million, were settled in 2006 and fixed the interest rate on a portion of the related debt issuance. These derivative instrument transactions are being accounted for as cash flow hedges with changes in the fair value of the instruments of $4.5 million in income recorded in Accumulated Other Comprehensive Loss ("AOCL") through the date the related debt issuance closed in 2006. The balance is being amortized over the term of the related debt. The effect on interest expense is due to amortization of the AOCL balance.

During 2006 and 2007, we entered into interest rate swap derivatives in anticipation of issuing our Promissory Notes. These derivative instruments, with a notional amount of $370.0 million, were settled in 2008 and fixed the interest rate on a portion of the related debt issuance. These derivative instrument transactions are being accounted for as cash flow hedges with changes in the fair value of the instruments of $24.5 million recorded as a loss in AOCL through the date the related debt issuance closed in 2008. The balance is being amortized over the term of the related debt. The effect on interest expense is due to amortization of the AOCL balance.

In 2008, we entered into an interest rate swap derivative instrument, expiring in 2015, to fix the variable Libor component of the Promissory Notes. This derivative instrument transaction is being accounted for as a cash flow hedge. The effect on interest expense is primarily a result of monthly interest settlements.


19
Table of Contents

Between 2007 and 2009, TRIP Holdings, as required by the TRIP Warehouse Loan, entered into interest rate swap derivatives, all of which qualified as cash flow hedges, to reduce the effect of changes in variable interest rates in the TRIP Warehouse Loan. In July 2011, these interest rate hedges were terminated in connection with the refinancing of the TRIP Warehouse Loan. Balances included in AOCL at the date the hedges were terminated are being amortized over the expected life of the new debt with $4.9 million of additional interest expense expected to be recognized during the twelve months following March 31, 2015. Also in July 2011, TRIP Holdings’ wholly-owned subsidiary, TRIP Master Funding, entered into an interest rate swap derivative instrument, expiring in 2021, with a notional amount of $94.1 million to reduce the effect of changes in variable interest rates associated with the Class A-1b notes of the TRIP Master Funding secured railcar equipment notes. The effect on interest expense is primarily a result of monthly interest settlements.

See Note 11 Debt regarding the related debt instruments.

Other Derivatives

Natural gas and diesel fuel

We maintain a program to mitigate the impact of fluctuations in the price of natural gas and diesel fuel. The intent of the program is to protect our operating profit from adverse price changes by entering into derivative instruments. For those instruments that do not qualify for hedge accounting treatment, any changes in their valuation are recorded directly to the consolidated statement of operations. The effect on operating income for these instruments was not significant. The amount recorded in the consolidated balance sheet as of March 31, 2015 for these instruments was a liability of $1.4 million.

Foreign exchange hedge

We may enter into foreign exchange hedges to mitigate the impact on operating profit of unfavorable fluctuations in foreign currency exchange rates. The amounts recorded in the consolidated financial statements as of March 31, 2015 for these instruments were not significant. These instruments are short term with quarterly maturities and no remaining balance in AOCL as of March 31, 2015.

Note 8. Property, Plant, and Equipment

The following table summarizes the components of property, plant, and equipment as of March 31, 2015 and December 31, 2014.
 
March 31,
2015
 
December 31,
2014
 
(in millions)
Manufacturing/Corporate:
 
 
 
Land
$
88.6

 
$
81.4

Buildings and improvements
557.2

 
548.2

Machinery and other
1,020.3

 
975.7

Construction in progress
88.9

 
76.4

 
1,755.0

 
1,681.7

Less accumulated depreciation
(838.6
)
 
(820.7
)
 
916.4

 
861.0

Leasing:
 
 
 
Wholly-owned subsidiaries:
 
 
 
Machinery and other
10.7

 
10.7

Equipment on lease
3,428.2

 
3,189.6

 
3,438.9

 
3,200.3

Less accumulated depreciation
(605.6
)
 
(601.1
)
 
2,833.3

 
2,599.2

Partially-owned subsidiaries:
 
 
 
Equipment on lease
2,260.6

 
2,261.2

Less accumulated depreciation
(277.2
)
 
(261.3
)
 
1,983.4

 
1,999.9

 
 
 
 
Net deferred profit on railcars sold to the Leasing Group
(584.2
)
 
(557.2
)
 
$
5,148.9

 
$
4,902.9



20
Table of Contents


Note 9. Goodwill

Goodwill by segment is as follows:
 
March 31,
2015
 
December 31,
2014
 
 
 
(as reported)
 
(in millions)
Rail Group
$
134.6

 
$
134.6

Construction Products Group
128.3

 
128.3

Energy Equipment Group
507.0

 
508.5

Railcar Leasing and Management Services Group
1.8

 
1.8

 
$
771.7

 
$
773.2


Note 10. Warranties

The changes in the accruals for warranties for the three months ended March 31, 2015 and 2014 are as follows:
 
Three Months Ended
March 31,
 
2015
 
2014
 
(in millions)
Beginning balance
$
17.8

 
$
14.7

Warranty costs incurred
(1.7
)
 
(0.8
)
Warranty originations and revisions
5.7

 
2.3

Warranty expirations
(1.4
)
 
(1.0
)
Ending balance
$
20.4

 
$
15.2



21
Table of Contents

Note 11. Debt

The following table summarizes the components of debt as of March 31, 2015 and December 31, 2014:
 
March 31, 2015
 
December 31,
2014
 
(in millions)
Corporate – Recourse:
 
 
 
Revolving credit facility
$
—

 
$
—

Senior notes, net of unamortized discount of $0.4 and $0.4
399.6

 
399.6

Convertible subordinated notes, net of unamortized discount of $55.8 and $59.6
393.7

 
389.9

Other
0.7

 
0.7

 
794.0

 
790.2

Leasing – Recourse:
 
 
 
Capital lease obligations
38.3

 
39.1

Total recourse debt
832.3

 
829.3

 
 
 
 
Leasing – Non-recourse:
 
 
 
Wholly-owned subsidiaries:
 
 
 
2006 secured railcar equipment notes
218.6

 
223.0

Promissory notes
341.3

 
363.9

2009 secured railcar equipment notes
186.4

 
188.8

2010 secured railcar equipment notes
307.7

 
311.5

TILC warehouse facility
101.4

 
120.6

 
1,155.4

 
1,207.8

Partially-owned subsidiaries:
 
 
 
TRL 2012 secured railcar equipment notes (RIV 2013)
466.1

 
472.2

TRIP Master Funding secured railcar equipment notes
1,032.1

 
1,043.7

 
1,498.2

 
1,515.9

Total non–recourse debt
2,653.6

 
2,723.7

Total debt
$
3,485.9

 
$
3,553.0


We have a $425.0 million unsecured revolving credit facility that matures on October 20, 2016. As of March 31, 2015, we had letters of credit issued under our revolving credit facility in an aggregate principal amount of $88.6 million, leaving $336.4 million available for borrowing. Other than these letters of credit, there were no borrowings under our revolving credit facility as of March 31, 2015, or for the three month period then ended. Of the outstanding letters of credit as of March 31, 2015, a total of $87.2 million is expected to expire in 2015 and the remainder in 2016. The majority of our letters of credit obligations support the Company’s various insurance programs and generally renew each year. Trinity’s revolving credit facility requires the maintenance of ratios related to minimum interest coverage for the leasing and manufacturing operations and maximum leverage. As of March 31, 2015, we were in compliance with all such financial covenants. Borrowings under the credit facility bear interest at Libor plus 1.50% or prime plus 0.50% and are guaranteed by certain 100%-owned subsidiaries of the Company.

The Company's 3 7/8% Convertible Subordinated Notes are recorded net of unamortized discount to reflect their underlying economics by capturing the value of the conversion option as borrowing costs. As of March 31, 2015 and December 31, 2014, capital in excess of par value included $92.5 million related to the estimated value of the Convertible Subordinated Notes’ conversion options, in accordance with ASC 470-20. Debt discount recorded in the consolidated balance sheet is being amortized through June 1, 2018 to yield an effective annual interest rate of 8.42% based upon the estimated market interest rate for comparable non-convertible debt as of the issuance date of the Convertible Subordinated Notes. Total interest expense recognized on the Convertible Subordinated Notes for the three months ended March 31, 2015 and 2014 is as follows:
 
Three Months Ended
March 31,
 
2015
 
2014
 
(in millions)
Coupon rate interest
$
4.4

 
$
4.4

Amortized debt discount
3.8

 
3.5

 
$
8.2

 
$
7.9


Holders of the Convertible Subordinated Notes may convert their notes under the following circumstances: 1) if the daily closing price of our common stock is greater than or equal to 130% of the conversion price during 20 of the last 30 trading days of the

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preceding calendar quarter; 2) upon notice of redemption; or 3) upon the occurrence of specified corporate transactions pursuant to the terms of the applicable indenture. Upon conversion, the Company is required to pay cash up to the aggregate principal amount of the Convertible Subordinated Notes to be converted. Any conversion obligation in excess of the aggregate principal amount of the Convertible Subordinated Notes to be converted may be settled in cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at the Company’s election. The conversion price, which is subject to adjustment upon the occurrence of certain events, was $25.16 per share as of March 31, 2015. The Convertible Subordinated Notes were subject to conversion as of April 1, 2015. Holders of the Convertible Subordinated Notes have the right to convert the notes until June 30, 2015. The Convertible Subordinated Notes may continue to be convertible after June 30, 2015, if certain conditions are satisfied during future measurement periods. See Note 17 Earnings Per Common Share for an explanation of the effects of the Convertible Subordinated Notes on earnings per share. The Company has not entered into any derivatives transactions associated with these notes.

The TILC warehouse loan facility, established to finance railcars owned by TILC, had $101.4 million in outstanding borrowings as of March 31, 2015. In April 2015, the facility was increased to $1 billion and extended through April 2018. Under the renewed facility, $898.6 million was unused as of the renewal date, of which $642.3 million was available based on the amount of warehouse-eligible, unpledged equipment. The warehouse loan facility is a non-recourse obligation secured by a portfolio of railcars and operating leases, certain cash reserves, and other assets acquired and owned by the warehouse loan facility trust. The principal and interest of this indebtedness are paid from the cash flows of the underlying leases. Advances under the facility bear interest at a defined index rate plus a margin, for an all-in interest rate of 1.95% at March 31, 2015. Interest rate pricing remained unchanged under the renewed facility. Amounts outstanding at maturity, absent renewal, are payable under the renewed facility in April 2019.

Terms and conditions of other debt, including recourse and non-recourse provisions, are described in Note 11 of the December 31, 2014 Consolidated Financial Statements filed on Form 10-K.The remaining principal payments under existing debt agreements as of March 31, 2015, after considering the extension of the TILC Warehouse facility in April 2015, are as follows:
 
Remaining nine months of 2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
 
(in millions)
Recourse:
 
Corporate
$
0.2

 
$
0.2

 
$
0.3

 
$
—

 
$
—

 
$
849.5

Leasing – capital lease obligations (Note 6)
2.5

 
3.5

 
3.7

 
28.6

 
—

 
—

Non-recourse – leasing (Note 6):
 
 
 
 
 
 
 
 
 
 
 
2006 secured railcar equipment notes
14.1

 
21.8

 
24.0

 
25.3

 
28.0

 
105.4

Promissory notes
18.9

 
322.4

 
—

 
—

 
—

 
—

2009 secured railcar equipment notes
7.2

 
6.5

 
6.3

 
6.5

 
11.2

 
148.7

2010 secured railcar equipment notes
11.5

 
14.9

 
13.7

 
10.0

 
7.6

 
250.0

TILC warehouse facility
2.8

 
3.7

 
3.7

 
3.7

 
0.7

 
—

TRL 2012 secured railcar equipment notes
(RIV 2013)
17.1

 
22.3

 
22.9

 
23.1

 
22.2

 
358.5

TRIP Master Funding secured railcar equipment notes
34.3

 
39.8

 
29.2

 
41.8

 
50.1

 
836.9

Facility termination payments - TILC warehouse facility
—

 
—

 
—

 
—

 
86.8

 
—

Total principal payments
$
108.6

 
$
435.1

 
$
103.8

 
$
139.0

 
$
206.6

 
$
2,549.0


Note 12. Other, Net

Other, net (income) expense consists of the following items:
 
Three Months Ended
March 31,
 
2015
 
2014
 
(in millions)
Foreign currency exchange transactions
$
(1.2
)
 
$
0.4

Gain (loss) on equity investments
0.1

 
(0.2
)
Other
(1.2
)
 
(0.3
)
Other, net
$
(2.3
)
 
$
(0.1
)


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Note 13. Income Taxes

The provision for income taxes results in effective tax rates that differ from the statutory rates. The following is a reconciliation between the statutory U.S. Federal income tax rate and the Company’s effective income tax rate on income from continuing operations:
 
Three Months Ended
March 31,
 
2015
 
2014
Statutory rate
35.0
 %
 
35.0
 %
State taxes
1.2

 
0.9

Domestic production activities deduction
(2.1
)
 
(2.2
)
Noncontrolling interest in partially-owned subsidiaries
(1.0
)
 
(1.2
)
Other, net
0.4

 
0.1

Effective rate
33.5
 %
 
32.6
 %

Our effective tax rate reflects the Company's estimate for 2015 of its state income tax expense, the current tax benefit available for U.S. manufacturing activities, and income attributable to the noncontrolling interests in TRIP Holdings and RIV 2013 for which no income tax expense is provided. See Note 5 Partially-Owned Leasing Subsidiaries for a further explanation of activities with respect to TRIP Holdings and RIV 2013.

Taxing authority examinations

The IRS field work for our 2006-2008 audit cycle has concluded and all issues, except for transfer pricing, have been agreed upon and tentatively settled. The transfer pricing issue has been appealed, and we are working with both the U.S. and Mexican taxing authorities to coordinate taxation in a formal mutual agreement process (“MAP”). During 2013, we received the revenue agent report for the 2009-2011 audit cycle. All issues have been concluded and agreed to except for transfer pricing issues. The transfer pricing issues have been appealed, and we have requested they be addressed in the same MAP as the 2006-2008 cycle. At this time, we cannot determine when the 2006-2008 or the 2009-2011 cycles will close and all issues formally settled.

We have various subsidiaries in Mexico that file separate tax returns and are subject to examination by taxing authorities at different times. The 2007 tax year of one of our Mexican subsidiaries is still under review for transfer pricing purposes only, and its statute of limitations remains open through the later of the resolution of the MAP or August 2017. In addition, one of our Mexican subsidiaries is under examination for its 2011 tax year. The remaining entities are generally open for their 2009 tax years and forward.

Our two Swiss subsidiaries, one of which is a holding company and the other of which is dormant, have been audited by the taxing authorities through 2008 and 2009, respectively. The statute of limitations in Switzerland is generally five years from the end of the tax year, but can be extended up to 15 years in certain cases if the audit has commenced during the original five year period. We also currently have sales offices in multiple foreign jurisdictions that are subject to various statutes of limitations with regard to their tax status. Generally, states’ statutes of limitations in the U.S. are open from 2003 forward due to the use of tax loss carryforwards in certain jurisdictions.

Unrecognized tax benefits

The change in unrecognized tax benefits for the three months ended March 31, 2015 and 2014 was as follows:
 
Three Months Ended
March 31,
 
2015
 
2014
 
(in millions)
Beginning balance
$
62.3

 
$
55.0

Additions for tax positions related to the current year
1.3

 
1.2

Reductions for tax positions of prior years
(0.1
)
 
(0.1
)
Settlements
(0.2
)
 
—

Ending balance
$
63.3

 
$
56.1


Additions for tax positions related to the current year in the amounts of $1.3 million and $1.2 million recorded in the three months ended March 31, 2015 and 2014, respectively, were amounts provided for tax positions that will be taken for Federal and state income tax purposes when we file those tax returns. The reductions in tax positions of prior years of $0.1 million and $0.1

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million for the three months ended March 31, 2015 and 2014, respectively, were primarily related to changes in state taxes. The total amount of unrecognized tax benefits including interest and penalties at March 31, 2015 and 2014, that would affect the Company’s overall effective tax rate if recognized was $15.1 million and $13.8 million, respectively.

Trinity accounts for interest expense and penalties related to income tax issues as income tax expense. Accordingly, interest expense and penalties associated with an uncertain tax position are included in the income tax provision. The total amount of accrued interest and penalties as of March 31, 2015 and December 31, 2014 was $11.8 million and $11.6 million, respectively. Income tax expense for the three months ended March 31, 2015 and March 31, 2014, included an increase in income tax expense of $0.2 million and $0.1 million in interest expense and penalties, respectively, related to uncertain tax positions.

Note 14. Employee Retirement Plans

The following table summarizes the components of net retirement cost for the Company:
 
Three Months Ended
March 31,
 
2015
 
2014
 
(in millions)
Expense Components
 
 
 
Defined benefit: