TRINITY INDUSTRIES INC
10-Qs and 10-Ks
PROXIES
Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Washington, D.C. 20549
Form 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the fiscal year ended December 31, 2009 | ||
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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 (Address of principal executive offices) |
75207-2401
(Zip Code) |
Registrant’s telephone number, including area code:
(214) 631-4420
Securities Registered Pursuant to Section 12(b) of the Act
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Name of each exchange
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Title of each class
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on which registered | |
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Common Stock ($1.00 par value)
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New York Stock Exchange, Inc. |
Securities registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
þ
No
o
Indicate by check mark if the Registrant is not required to
file reports pursuant to Section 13 or Section 15(d)
of the
Act. Yes
o
No
þ
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
o
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
o
No
o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of Registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
þ
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 o | Non-accelerated filer o | Smaller reporting company o |
(Do not check if a smaller reporting company)
Indicate by check mark whether the Registrant is a shell
company. Yes
o
No
þ
The aggregate market value of voting and non-voting common
equity held by non-affiliates computed by reference to the price
at which the common equity was last sold as of the last business
day of the Registrant’s most recently completed second
fiscal quarter (June 30, 2009) was
$1,048.2 million.
At January 31, 2010 the number of shares of common stock
outstanding was 79,198,883.
The information required by Part III of this report, to
the extent not set forth herein, is incorporated by reference
from the Registrant’s definitive 2010 Proxy Statement.
TRINITY
INDUSTRIES, INC.
FORM 10-K
TABLE OF
CONTENTS
Table of Contents
PART I
| Item 1. | Business. |
General Development of Business.
Trinity
Industries, Inc., (“Trinity”, “Company”,
“we”, or “our”) headquartered in Dallas,
Texas, is a multi-industry company that owns a variety of
market-leading businesses which provide products and services to
the industrial, energy, transportation, and construction
sectors. Trinity was incorporated in 1933.
Trinity became a Delaware Corporation in 1987.
Our
principal executive offices are located at 2525 Stemmons
Freeway, Dallas, Texas
75207-2401,
our telephone number is
214-631-4420,
and our Internet website address is www.trin.net.
Financial Information About Industry
Segments.
Financial information about our industry
segments for the years ended December 31, 2009, 2008, and
2007 is presented in Part II, Item 7
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
Narrative Description of Business.
We manufacture
and sell railcars and railcar parts in addition to leasing
railcars to our customers through a captive leasing business,
Trinity Industries Leasing Company (“TILC”). We also
manufacture and sell inland barges, structural wind towers,
concrete and aggregates, asphalt, highway products, structural
steel components used in infrastructure projects, tank
containers, and a variety of steel parts.
We serve our customers through the following five business
groups:
Rail Group.
Through wholly owned
subsidiaries, our Rail Group is the leading freight railcar
manufacturer in North America (“Trinity Rail Group” or
“Rail Group”). We provide a full complement of
railcars used for transporting a wide variety of liquids, gases,
and dry cargo.
Trinity Rail Group offers a complete array of railcar solutions
to our customers. We manufacture a full line of railcars,
including:
| • | Auto Carrier Cars — Auto carrier cars transport automobiles and a variety of other vehicles. |
| • | Box Cars — Box cars transport products such as food products, auto parts, wood products, and paper. |
| • | Gondola Cars — Rotary gondola cars are primarily used for coal service. Top-loading gondola cars transport a variety of other heavy bulk commodities such as scrap metals and steel products. |
| • | Hopper Cars — Covered hopper cars carry cargo such as grain, distillers dried grain, dry fertilizer, plastic pellets, and cement. Open-top hoppers are most often used to haul coal and aggregates. |
| • | Intermodal Cars — Intermodal cars transport intermodal containers and trailers, which are generally interchangeable among railcar, truck, and ship. |
| • | Specialty Cars — Specialty cars are designed to address the special needs of a particular industry or customer, such as waste-hauling gondolas, side dump cars, and pressure differential cars used to haul fine grain food products such as starch and flour. |
| • | Tank Cars — Tank cars transport products such as liquefied petroleum products, alcohol and renewable fuels, liquid fertilizer, and food and grain products such as vegetable oil and corn syrup. |
We produce the widest range of railcars in the industry allowing
us to capitalize on changing industry trends and developing
market opportunities. We also provide a variety of railcar
components for the North American market from our plants in the
United States and Mexico. We manufacture and sell railcar parts
used in manufacturing and repairing railcars, such as auto
carrier doors and accessories, discharge gates, yokes, couplers,
axles, and hitches. We also have two repair and coating
facilities located in Texas.
Our customers include railroads, leasing companies, and shippers
of products, such as utilities, petrochemical companies, grain
shippers, and major construction and industrial companies. We
compete against five major railcar manufacturers in the North
American market.
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For the year ended December 31, 2009, we shipped
approximately 9,100 railcars, or approximately 42% of total
North American railcar shipments. As of December 31, 2009,
our Rail Group backlog was approximately $195.4 million
consisting of approximately 2,320 railcars. The railcar backlog
dollar value as of December 31, 2009 was as follows:
| As of December 31, 2009 | ||||
| (in millions) | ||||
|
External Customers
|
$ | 75.6 | ||
|
Leasing Group
|
119.8 | |||
|
Total
|
$ | 195.4 | ||
The total amount of the backlog dedicated to the Leasing Group
was supported by lease agreements with external customers. The
final amount dedicated to the Leasing Group may vary by the time
of delivery.
We hold patents of varying duration for use in our manufacture
of railcars and components. We believe patents offer a marketing
advantage in certain circumstances. No material revenues are
received from licensing of these patents.
Railcar Leasing and Management Services
Group.
Through wholly owned subsidiaries, primarily
TILC, we provide operating leases for tank cars and freight
cars. Our Railcar Leasing and Management Services Group
(“Leasing Group”) is a provider of leasing and
management services and an important strategic resource that
uniquely links our Rail Group with our customers. Trinity’s
Rail Group and TILC coordinate sales and marketing activities
under the registered trade name
TrinityRail
®
,
thereby providing a single point of contact for railroads and
shippers seeking solutions to their rail equipment and service
needs.
Our railcars are leased to shippers and railroads. These
companies span the petroleum, chemical, agricultural, and energy
industries, among others. Substantially all of our railcars are
manufactured by our Rail Group. The terms of our railcar leases
generally vary from one to twenty years and provide for fixed
monthly rentals. A small percentage of our fleet is leased on a
per diem basis. As of December 31, 2009, our lease fleet
included approximately 50,090 owned or leased railcars that were
97.8% utilized. Of this total, approximately 38,810 railcars
were owned by TILC and approximately 11,280 railcars were
financed in sale leaseback transactions.
In addition, we manage railcar fleets on behalf of third
parties. We believe our railcar fleet management services
complement our leasing business by generating stable fee income,
strengthening customer relationships, and enhancing the view of
Trinity as a leading provider of railcar products and services.
Our railcar leasing business competes against a number of
well-established entities that are also in the business of
leasing railcars.
Construction Products Group.
Through wholly
owned subsidiaries, our Construction Products Group produces
concrete, aggregates, and asphalt and manufactures highway
products as well as other steel products for infrastructure
related projects. Many of these lines of business are seasonal
and revenues are impacted by weather conditions.
We are a leader in the supply of ready mix concrete in certain
areas of Texas. We also have plant locations in Arkansas and
Louisiana. Our customers for concrete include contractors and
subcontractors in the construction and foundation industry who
are located near our plant locations. We also distribute
construction aggregates, such as crushed stone, sand and gravel,
asphalt rock, and recycled concrete in several regions of Texas
as well as smaller operations in Arkansas and Louisiana. Our
aggregates customers are primarily other concrete producers,
paving contractors, and other consumers of aggregates. We
compete with ready mix concrete producers and aggregate
producers located in the regions where we operate. We produce
and sell asphalt material to state agencies and contractors for
road surface and repair.
In highway products, we are the only full line producer of
guardrails, crash cushions, and other protective barriers that
dissipate the force of impact in collisions between vehicles and
fixed roadside objects. Based on revenues, we believe we are the
largest highway guardrail manufacturer in the United States,
with a comprehensive nationwide guardrail supply network. The
Federal Highway Administration, which determines which products
are
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eligible for federal funds for highway projects, has approved
most of our products as acceptable permanent and construction
zone highway hardware according to requirements of the National
Cooperative Highway Research Program.
Our crash cushions and other protective barriers include
multiple proprietary products manufactured through various
product license agreements with certain public and private
research organizations and inventors. We hold patents and are a
licensee for certain of our guardrail and end-treatment products
that enhance our competitive position for these products.
We sell highway products in Canada, Mexico, and all 50 of the
United States. We compete against several national and regional
guardrail manufacturers. We also export our proprietary highway
products to certain other countries.
Inland Barge Group.
Through wholly owned
subsidiaries, our Inland Barge Group is the leading manufacturer
of inland barges in the United States and the largest
manufacturer of fiberglass barge covers. We manufacture a
variety of dry cargo barges, such as deck barges, and open or
covered hopper barges that transport various commodities, such
as grain, coal, and aggregates. We also manufacture tank barges
used to transport liquid products. Our fiberglass reinforced
lift covers are used primarily for grain barges while our
rolling covers are used for other bulk commodities. Our four
barge manufacturing facilities are located along the United
States inland river systems allowing for rapid delivery to our
customers. Our barge order backlog as of December 31, 2009
was approximately $318.8 million.
Our primary Inland Barge customers are commercial marine
transportation companies. Many companies have the capability to
enter into, and from time to time do enter into, the inland
barge manufacturing business. We strive to compete through
operational efficiency and quality products.
Energy Equipment Group.
Through wholly owned
subsidiaries, our Energy Equipment Group manufactures structural
wind towers, tank containers and tank heads for pressure
vessels, tank heads for non-pressure vessels, and propane tanks.
We are a leading manufacturer of structural wind towers in North
America for use in the wind energy market. These towers are
manufactured in the United States and Mexico to customer
specifications and installed by our customers. Our customers are
generally turbine producers. Our structural wind towers order
backlog as of December 31, 2009 was approximately
$1.1 billion.
We are a leading manufacturer of tank containers and tank heads
for pressure and non-pressure vessels. We manufacture tanks in
the United States and Mexico. We market a portion of our
products in Mexico under the brand name of
TATSA
®
.
We manufacture tank heads, which are pressed metal components
used in the manufacturing of many of our finished products. We
manufacture the tank heads in various shapes, and we produce
pressure rated or non-pressure rated tank heads, depending on
their intended use. We use a significant portion of the tank
heads we manufacture in the production of our tank cars and
containers. We also sell our tank heads to a broad range of
other manufacturers. There is strong competition in the tank
heads business.
We manufacture propane tanks that are used by industrial plants,
utilities, residences, and small businesses in suburban and
rural areas. We also manufacture fertilizer containers for bulk
storage, farm storage, and the application and distribution of
anhydrous ammonia. Our propane tank products range from 9-gallon
tanks for motor fuel use to 1,800,000-gallon bulk storage
spheres. We sell our propane tanks to propane dealers and large
industrial users. In the United States we generally deliver the
containers to our customers who install and fill the containers.
Our competitors include large and small manufacturers of tanks.
There are a number of well-established entities that actively
compete with us in the business of manufacturing energy
equipment including several domestic and foreign manufacturers
of structural wind towers for the North American market.
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All Other.
All Other includes our captive
insurance and transportation companies; legal, environmental,
and upkeep costs associated with non-operating facilities; other
peripheral businesses; and the change in market valuation
related to ineffective commodity hedges.
Foreign Operations.
Trinity’s foreign
operations are primarily located in Mexico. Continuing
operations included sales to foreign customers, primarily in
Mexico, which represented 3.4%, 3.1%, and 1.9% of our
consolidated revenues for the years ended December 31,
2009, 2008, and 2007, respectively. As of December 31,
2009, 2008, and 2007, we had approximately 5.1%, 5.0%, and 6.0%,
respectively, of our long-lived assets not held for sale located
outside the United States.
We manufacture railcars, propane tank containers, tank heads,
structural wind towers, and other parts at our Mexico facilities
for local consumption as well as for export to the United States
and other countries. Any material change in the quotas,
regulations, or duties on imports imposed by the United States
government and its agencies or on exports imposed by the
government of Mexico or its agencies could adversely affect our
operations in Mexico. Our foreign activities are also subject to
various other risks of doing business in foreign countries,
including currency fluctuations, political changes, changes in
laws and regulations, and economic instability. Although our
operations have not been materially affected by any of these
factors to date, any substantial disruption of business as it is
currently conducted could adversely affect our operations at
least in the short term.
Backlog.
As of December 31, 2009, our backlog
for new railcars was approximately $195.4 million,
approximately $318.8 million for Inland Barge products, and
approximately $1.1 billion for structural wind towers. The
railcar backlog as of December 31, 2009 and 2008 was as
follows:
| As of December 31, | ||||||||
| 2009 | 2008 | |||||||
| (in millions) | ||||||||
|
External Customers
|
$ | 75.6 | $ | 285.3 | ||||
|
TRIP Leasing
|
— | 124.3 | ||||||
|
Leasing Group
|
119.8 | 312.8 | ||||||
|
Total
|
$ | 195.4 | $ | 722.4 | ||||
The total amount of the backlog dedicated to the Leasing Group
was supported by lease agreements with external customers.
Approximately half of our railcar backlog is expected to be
delivered in the 12 months ending December 31, 2010
with the remainder in 2011. The majority of our backlog for
barges is expected to be delivered in the 12 months ending
December 31, 2010. For multi-year barge orders, the
deliveries for 2010 are included in the backlog at this time;
deliveries beyond 2010 are not included in the backlog if
specific production quantities for future years have not been
determined. The backlog for structural wind towers is expected
to be evenly delivered over the years ending December 31,
2010, 2011, and 2012.
As of December 31, 2008, our backlog for new railcars was
approximately $722.4 million, approximately
$527.8 million for Inland Barge products, and approximately
$1.4 billion for structural wind towers.
Marketing.
We sell substantially all of our products
and services through our own sales personnel operating from
offices in multiple locations in the United States as well as
Canada, Mexico, and Sweden. We also use independent sales
representatives to a limited extent.
Raw Materials and Suppliers.
Railcar Specialty Components and
Steel.
Products manufactured at our railcar
manufacturing facilities require a significant supply of raw
materials such as steel, as well as numerous specialty
components such as brakes, wheels, axles, side frames, bolsters,
and bearings. Specialty components and steel purchased from
third parties comprise approximately 50% of the production cost
of each railcar. Although the number of alternative suppliers of
specialty components has declined in recent years, at least two
suppliers continue to produce most components. However, any
unanticipated interruption in the supply chain of specialty
components would have an impact on both our margins and
production schedules.
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Table of Contents
The principal material used in our Rail, Inland Barge, and
Energy Equipment Groups is steel. During 2009, the supply of
steel was sufficient to support our manufacturing requirements.
Market steel prices were extremely volatile and rose
significantly during most of 2008 before eventually declining
and leveling off at the end of 2008. Generally we are able to
mitigate this volatility through contract purchases and existing
supplier commitments. Steel prices may continue to be volatile
in part as a result of scrap surcharges assessed by steel
production facilities and other market factors. We often use
price escalation clauses and other arrangements with our
customers to reduce the impact of this volatility, thus
minimizing the effect on our operating margins for the year.
In general, we believe there is enough capacity in the supply
industry to meet current production levels. We believe the
existing contracts and other relationships we have in place will
meet our current production forecasts. However, any
unanticipated interruption in our supply chain could have an
adverse impact on both our margins and production schedules.
Aggregates.
Aggregates can be found
throughout the United States, and many producers exist
nationwide. However, as a general rule, shipments from an
individual quarry are limited in geographic scope because the
cost of transporting processed aggregates to customers is high
in relation to the value of the product itself. We operate 14
mining facilities strategically located in Texas, Arkansas, and
Louisiana to fulfill some of our needs for aggregates.
Cement.
Cement required for the concrete and
aggregates business is received primarily from Texas and
overseas. In 2009, the supply of cement was sufficient in our
markets to meet demand. We have not experienced difficulties
supplying concrete to our customers.
Employees.
The following table presents the
approximate breakdown of employees by business group:
|
December 31,
|
||||
|
Business Group
|
2009 | |||
|
Rail Group
|
1,530 | |||
|
Construction Products Group
|
1,530 | |||
|
Inland Barge Group
|
1,400 | |||
|
Energy Equipment Group
|
2,160 | |||
|
Railcar Leasing and Management Services Group
|
80 | |||
|
All Other
|
280 | |||
|
Corporate
|
220 | |||
| 7,200 | ||||
As of December 31, 2009, approximately 5,640 employees
were employed in the United States and approximately
1,560 employees were employed in Mexico.
Acquisitions and Divestitures.
See Note 2 of
the Notes to Consolidated Financial Statements.
Environmental Matters.
We are subject to
comprehensive federal, state, local, and foreign environmental
laws and regulations relating to the release or discharge of
materials into the environment; the management, use, processing,
handling, storage, transport, and disposal of hazardous and
non-hazardous waste and materials; and other activities relating
to the protection of human health and the environment. Such laws
and regulations not only expose us to liability for our own
acts, but also may expose us to liability for the acts of others
or for our actions which were in compliance with all applicable
laws at the time these actions were taken. In addition, such
laws may require significant expenditures to achieve compliance,
and are frequently modified or revised to impose new
obligations. Civil and criminal fines and penalties may be
imposed for non-compliance with these environmental laws and
regulations. Our operations that involve hazardous materials
also raise potential risks of liability under common law.
Environmental operating permits are, or may be, required for our
operations under these laws and regulations. These operating
permits are subject to modification, renewal, and revocation. We
regularly monitor and review our operations, procedures, and
policies for compliance with our operating permits and related
laws and regulations. Despite these compliance efforts, risk of
environmental liability is inherent in the operation of our
businesses, as it is with other companies engaged in similar
businesses. We believe that our operations and facilities,
whether owned, managed, or leased, are in substantial compliance
with applicable environmental laws and regulations and that any
non-compliance is not likely to have a material adverse effect
on our operations or financial condition.
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However, future events, such as changes in, or modified
interpretations of, existing environmental laws and regulations
or enforcement policies, or further investigation or evaluation
of the potential health hazards associated with our products,
business activities, or properties, may give rise to additional
compliance and other costs that could have a material adverse
effect on our financial condition and operations.
In addition to environmental laws, the transportation of
commodities by railcar or barge raises potential risks in the
event of a derailment, spill, or other accident. Generally,
liability under existing law in the United States for a
derailment, spill, or other accident depends on the negligence
of the party, such as the railroad, the shipper, or the
manufacturer of the barge, railcar, or its components. However,
under certain circumstances strict liability concepts may apply.
Governmental Regulation.
Railcar Industry.
The primary regulatory and
industry authorities involved in the regulation of the railcar
industry are the Environmental Protection Agency; the Research
and Special Programs Administration and the Federal Railroad
Administration, both divisions of the United States Department
of Transportation; and the Association of American Railroads.
These organizations establish rules and regulations for the
railcar industry, including construction specifications and
standards for the design and manufacture of railcars and railcar
parts; mechanical, maintenance, and related standards for
railcars; safety of railroad equipment, tracks, and operations;
and packaging and transportation of hazardous materials.
We believe that our operations are in substantial compliance
with these regulations. We cannot predict whether any future
changes in these rules and regulations could cause added
compliance costs that could have a material adverse effect on
our financial condition or operations.
Inland Barge Industry.
The primary regulatory
and industry authorities involved in the regulation of the
inland barge industry are the United States Coast Guard; the
United States National Transportation Safety Board; the United
States Customs Service; the Maritime Administration of the
United States Department of Transportation; and private industry
organizations such as the American Bureau of Shipping. These
organizations establish safety criteria, investigate vessel
accidents, and recommend safety standards. Violations of these
laws and related regulations can result in substantial civil and
criminal penalties as well as injunctions curtailing operations.
We believe that our operations are in substantial compliance
with applicable laws and regulations. We cannot predict whether
future changes that affect compliance costs would have a
material adverse effect on our financial condition and
operations.
Highway Products.
The primary regulatory and
industry authorities involved in the regulation of highway
products business are the United States Department of
Transportation, the Federal Highway Administration, and various
state highway departments.
These organizations establish certain standards and
specifications related to the manufacture of our highway
products. If our products were found not to be in compliance
with these standards and specifications, we would be required to
re-qualify our products for installation on state and national
highways.
We believe that our highway products are in substantial
compliance with all applicable standards and specifications. We
cannot predict whether future changes in these standards and
specifications would have a material adverse effect on our
financial condition and operations.
Occupational Safety and Health Administration and Similar
Regulations.
Our operations are subject to
regulation of health and safety matters by the United States
Occupational Safety and Health Administration. We believe that
we employ appropriate precautions to protect our employees and
others from workplace injuries and harmful exposure to materials
handled and managed at our facilities. However, claims may be
asserted against us for work-related illnesses or injury, and
our operations may be adversely affected by the further adoption
of occupational health and safety regulations in the United
States or in foreign jurisdictions in which we operate. While we
do not anticipate having to make material expenditures in order
to remain in substantial compliance with health and safety laws
and regulations, we are unable to predict the ultimate cost of
compliance. Accordingly, there
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can be no assurance that we will not become involved in future
litigation or other proceedings or if we were found to be
responsible or liable in any litigation or proceeding, that such
costs would not be material to us.
Other Matters.
To date, we have not suffered
any material shortages with respect to obtaining sufficient
energy supplies to operate our various plant facilities or
transportation vehicles. Future limitations on the availability
or consumption of petroleum products, particularly natural gas
for plant operations and diesel fuel for vehicles, could have a
material adverse effect upon our ability to conduct our
business. The likelihood of such an occurrence or its duration,
and its ultimate effect on our operations, cannot be reasonably
predicted at this time.
Executive Officers of the Company.
The following table sets forth the names and ages of all of our
executive officers, their positions and offices presently held
by them, the year each person first became an executive officer,
and the term of each person’s office:
|
Officer
|
Term
|
|||||||||||
|
Name(1)
|
Age | Office | Since | Expires | ||||||||
|
Timothy R. Wallace
|
56 | Chairman, President, and Chief Executive Officer | 1985 | May 2010 | ||||||||
|
William A. McWhirter II
|
45 | Senior Vice President and Chief Financial Officer | 2005 | May 2010 | ||||||||
|
D. Stephen Menzies
|
54 | Senior Vice President and Group President | 2001 | May 2010 | ||||||||
|
Mark W. Stiles
|
61 | Senior Vice President and Group President | 1993 | May 2010 | ||||||||
|
Madhuri A. Andrews
|
43 | Vice President, Information Technology | 2008 | May 2010 | ||||||||
|
Donald G. Collum
|
61 | Vice President, Chief Audit Executive | 2005 | May 2010 | ||||||||
|
Andrea F. Cowan
|
47 | Vice President, Human Resources and Shared Services | 2001 | May 2010 | ||||||||
|
Virginia C. Gray, Ph.D.
|
50 | Vice President, Organizational Development | 2007 | May 2010 | ||||||||
|
John M. Lee
|
49 | Vice President, Business Development | 1994 | May 2010 | ||||||||
|
James E. Perry
|
38 | Vice President, Finance and Treasurer | 2005 | May 2010 | ||||||||
|
S. Theis Rice
|
59 | Vice President, Chief Legal Officer | 2002 | May 2010 | ||||||||
|
Mary E. Henderson
|
51 | Corporate Controller | 2009 | May 2010 | ||||||||
(1) Ms. Andrews joined us in
2008 as Vice President, Information Technology and brings over
10 years of experience driving technological improvements
at global companies in a variety of industries. Since January
2002, she led the information technology organization for Maxim
Integrated Products, Inc., a major semiconductor design and
manufacturing company. Prior to that, she led the information
technology organization for the Americas division of
STMicroelectronics NV, a global semiconductor company for five
years. Dr. Gray joined us in 2007 and was appointed Vice
President, Organizational Development. Prior to that, she was
President of Vehicles of Change, a consulting firm focused on
improving organizational effectiveness. Dr. Gray has more
than 13 years of experience in the field of
Industrial/Organizational Psychology. All of the other
above-mentioned executive officers have been in full time
employment of Trinity or its subsidiaries for more than five
years. Although the titles of certain such officers have changed
during the past five years, all have performed essentially the
same duties during such period of time with the exception of
Mr. McWhirter, Mr. Menzies, Mr. Perry, and
Ms. Henderson. Mr. McWhirter joined the Company in
1985 and held various accounting positions until 1992, when he
became a business group officer. In 1999, he was elected to a
corporate position as Vice President for Mergers and
Acquisitions. In 2001, he was named Executive Vice President of
a business group. In March 2005, he became Vice President and
Chief Financial Officer and in 2006, Senior Vice President and
Chief Financial Officer. Mr. Menzies joined us in 2001 as
President of Trinity Industries Leasing Company. In 2006, he
became Senior Vice President and Group President for
TrinityRail
®
.
Mr. Perry joined Trinity in 2004 and was appointed its
Treasurer in April 2005. Mr. Perry was named a Vice
President of Trinity in 2006 and appointed its Vice President,
Finance in 2007. Ms. Henderson joined us in 2003 as
Director of Financial Reporting. She was named Assistant
Corporate Controller in 2005 and Corporate Controller in 2009.
| Item 1A. | Risk Factors. |
There are risks and uncertainties that could cause our actual
results to be materially different from those indicated by
forward-looking statements that we make from time to time in
filings with the Securities and Exchange Commission
(“SEC”), news releases, reports, proxy statements,
registration statements, and other written communications, as
well as oral forward-looking statements made from time to time
by representatives of our Company.
7
Table of Contents
These risks and uncertainties include, but are not limited to,
the risks described below. Additional risks and uncertainties
not presently known to us or that we currently deem immaterial
but that which may become material in the future also may impair
our business operations. The cautionary statements below discuss
important factors that could cause our business, financial
condition, operating results, and cash flows to be materially
adversely affected. Accordingly, readers are cautioned not to
place undue reliance on the forward-looking statements contained
herein. We undertake no obligations to update or revise publicly
any forward-looking statements, whether as a result of new
information, future events, or otherwise.
Negative global economic conditions could continue to result
in a decrease in our revenues and an increase in our operating
costs, which could adversely affect our business and operating
results.
If the current global economic downturn
continues, many of our customers may continue to delay or reduce
their purchases of railcars, barges, and wind towers. If the
negative conditions in the global credit markets continue to
prevent our customers’ access to credit, product orders may
continue to decrease which could result in lower revenues.
Likewise, if our suppliers continue to face challenges in
obtaining credit, in selling their products, or otherwise in
operating their businesses, they may become unable to continue
to offer the materials we use to manufacture our products. These
actions could continue to result in reductions in our revenues,
increased price competition, and increased operating costs,
which could adversely affect our business results of operations
and financial condition.
Negative global economic conditions may lead to cancellations
or delays in our backlog.
The continued lack of
stability in the global economy, current conditions in the
global credit markets, volatility in the ethanol industry,
and/or
adverse changes in the financial condition of certain third
party lessees could possibly lead to cancellations or delays of
backlog orders.
The cyclical nature of our business results in lower revenues
during economic downturns.
We operate in cyclical
industries. Downturns in overall economic conditions usually
have a significant adverse effect on cyclical industries due to
decreased demand for new and replacement products. Decreased
demand could result in lower sales volumes, lower prices,
and/or
a
loss of profits. The railcar, barge, and wind energy industries
have previously experienced deep down cycles and at such times
operated with a minimal backlog.
The economic and financial crisis experienced by the United
States economy during 2009 and 2008 has impacted our businesses.
New orders for railcars and barges continued to drop
significantly in 2009 as the transportation industry saw a
significant decline in the shipment of freight. The 2010 outlook
for the transportation industry is for continued weakness.
Orders for structural wind towers have been slow since mid-2008
when green energy companies experienced tightened credit markets
coupled with lower prices for electricity and natural gas sales.
The slowdown in the residential and commercial construction
markets impacted our Construction Products Group as well. We
continually assess our manufacturing capacity and take steps to
align our production capacity with demand. As a result of our
assessment, we have adapted to the rapid decline in market
conditions by reducing our production footprint and staffing
levels.
Litigation claims could increase our costs and weaken our
financial condition.
We are currently, and may from
time to time be, involved in various legal proceedings arising
out of our operations. Adverse outcomes in some or all of these
claims could result in significant monetary damages against us
that could increase our costs and weaken our financial
condition. While we maintain reserves for reasonably estimable
liability and liability insurance at coverage levels based upon
commercial norms in our industries, our reserves may be
inadequate to cover the uninsured portion of claims or lawsuits
or any future claims or lawsuits arising from our businesses for
which we are judged liable. Any such claims or lawsuits could
have a material adverse effect on our business, operations or
overall financial condition.
Increases in the price and demand for steel and other
component parts could lower our margins and
profitability.
The principal material used in our Rail,
Inland Barge, and Energy Equipment Groups is steel. During 2009,
the supply of steel was sufficient to support our manufacturing
requirements. Market steel prices were extremely volatile and
rose significantly during most of 2008 before eventually
declining and leveling off at the end of 2008. We were able to
mitigate the majority of this volatility through contract
purchases and existing supplier commitments. Steel prices may
continue to be volatile in part as a result of scrap surcharges
assessed by steel production facilities and other market
factors. We often use price escalation clauses and other
arrangements with our customers to reduce the impact of this
volatility, thus minimizing the effect on our operating margins
for the year.
8
Table of Contents
In general, we believe there is enough capacity in the supply
industry to meet current production levels. We believe the
existing contracts and other relationships we have developed
will meet our current production forecasts. However, any
unanticipated interruption in our supply chain could have an
adverse impact on both our margins and production schedules.
We have potential exposure to environmental liabilities,
which may increase costs and lower profitability.
Our
operations are subject to extensive federal, state, local, and
foreign environmental laws and regulations, including those
dealing with air quality and the handling and disposal of waste
products, fuel products, and hazardous substances. In
particular, we may incur investigation, remediation, and related
expenses related to property conditions that we inherited after
acquiring older manufacturing facilities that were constructed
and operated before the adoption of current environmental laws.
Further, some of the products we manufacture are used to
transport hazardous materials.
Although we conduct due diligence inquiries and analysis with
respect to environmental matters in connection with
acquisitions, we may be unable to identify or be indemnified for
all potential environmental liabilities relating to any acquired
business. Environmental liabilities incurred by us, if not
covered by adequate insurance or indemnification, will increase
our respective costs and have a negative impact on our
profitability.
We operate in highly competitive industries. We may not be
able to sustain our market leadership positions which may impact
our financial results.
We face aggressive competition
in all geographic markets and each industry sector in which we
operate. As a result, competition on pricing, product
performance and service is often intense. The effect of this
competition could reduce our revenues and operating profits,
limit our ability to grow, increase pricing pressure on our
products, and otherwise affect our financial results.
If we are unable to obtain refinancing for existing debt as
it matures or if our railcar leasing subsidiary is unable to
obtain acceptable long-term financing of its railcar lease
fleet, our lenders may foreclose on the portion of our lease
fleet that secures our warehouse facility.
In general, the
ability to refinance maturing debt is significant to our leasing
group’s operations. TILC, our wholly owned captive leasing
subsidiary, uses borrowings under a warehouse facility to
initially finance the railcars it purchases from our rail
manufacturing business. Borrowings under the warehouse facility
are secured by the specific railcars financed by such borrowings
and the underlying leases. The warehouse facility is
non-recourse to us and to our subsidiaries other than Trinity
Rail Leasing Warehouse Trust (“TRLWT”), a qualified
subsidiary of TILC that is the borrower under the warehouse
facility. Borrowings under the warehouse facility are available
through February 2011, and unless renewed would be payable in
three equal installments in August 2011, February 2012, and
August 2012. A decline in the value of the railcars securing
borrowings under the warehouse facility or in the
creditworthiness of the lessees under the associated leases
could reduce TRLWT’s ability to obtain long-term financing
for such railcars. Additionally, fluctuations in interest rates
from the time TRLWT purchases railcars with short-term
borrowings under the warehouse facility and the time TRLWT
obtains permanent financing for such railcars could decrease our
profitability on the leasing of the railcars and could have an
adverse impact on our financial results. If TRLWT is unable to
obtain long-term financing to replace borrowings under the
warehouse facility, Trinity may decide to satisfy TRLWT’s
indebtedness under the warehouse facility or the lenders under
the warehouse facility may foreclose on the portion of
TRLWT’s lease fleet pledged to secure this facility. As of
December 31, 2009, there was $141.4 million of
indebtedness outstanding and $333.6 million was available
under the warehouse facility.
We may be unable to re-market leased railcars on favorable
terms, which could result in lower lease utilization rates and
reduced revenues.
The profitability of our railcar
leasing business is dependent in part on our ability to re-lease
or sell railcars we own upon the expiration of existing lease
terms, the default of leases or bankruptcy of third party
lessees. Our ability to re-lease or sell leased railcars
profitably is dependent upon several factors, including, among
others:
| • | the cost of and demand for newer or specific use models; |
| • | the availability in the market generally of other used or new railcars; |
| • | the degree of obsolescence of leased railcars; |
| • | the prevailing market and economic conditions, including interest and inflation rates; |
9
Table of Contents
| • | the need for refurbishment; |
| • | the cost of materials and labor; and |
| • | the volume of railcar traffic. |
A downturn in the industries in which our lessees operate and
decreased demand for railcars could also increase our exposure
to re-market risk because lessees may demand shorter lease
terms, requiring us to re-market leased railcars more
frequently. Furthermore, the resale market for previously leased
railcars has a limited number of potential buyers. Our inability
to re-lease or sell leased railcars on favorable terms could
result in lower lease utilization rates and reduced revenues.
Fluctuations in the supply of component parts used in the
production of our railcar-related and structural wind towers
products could have a material adverse effect on our ability to
cost-effectively manufacture and sell our products.
A
significant portion of our business depends on the adequate
supply of numerous specialty components at competitive prices
for the railcar business such as brakes, wheels, side frames,
bolsters, and bearings as well as flanges for the wind towers
business. We depend on third-party suppliers for a significant
portion of our component part needs. Specialty components
comprise a significant portion of the production cost of each
railcar we manufacture. Due to consolidations and challenging
industry conditions, the number of alternative suppliers of
specialty components has declined in recent years, though
generally a minimum of two suppliers continue to produce each
type of component we use in our products. While we endeavor to
be diligent in contractual relationships with our suppliers, a
significant decrease in the availability of specialty components
could materially increase our cost of goods sold or prevent us
from manufacturing our products on a timely basis.
Reductions in the availability of energy supplies or an
increase in energy costs may increase our operating
costs.
We use natural gas at our manufacturing
facilities and use diesel fuel in vehicles to transport our
products to customers and to operate our plant equipment. Over
the past three years, prices for natural gas have fluctuated
significantly. An outbreak or escalation of hostilities between
the United States and any foreign power and, in particular, a
prolonged armed conflict in the Middle East, could result in a
real or perceived shortage of petroleum
and/or
natural gas, which could result in an increase in the cost of
natural gas or energy in general. Hurricanes or other natural
disasters could result in a real or perceived shortage of
petroleum
and/or
natural gas, which could result in an increase in natural gas
prices or general energy costs. Speculative trading in energy
futures in the world markets could also result in an increase in
natural gas and general energy cost. Future limitations on the
availability or consumption of petroleum products
and/or
an
increase in energy costs, particularly natural gas for plant
operations and diesel fuel for vehicles and plant equipment,
could have an adverse effect upon our ability to conduct our
business cost effectively.
Our manufacturer’s warranties expose us to potentially
significant claims.
Depending on the product, we
warrant against manufacturing defects due to our workmanship and
certain materials pursuant to express limited contractual
warranties. Accordingly, we may be subject to significant
warranty claims in the future such as multiple claims based on
one defect repeated throughout our mass production process or
claims for which the cost of repairing or replacing the
defective part is highly disproportionate to the original cost
of the part. These types of warranty claims could result in
costly product recalls, significant repair costs, and damage to
our reputation.
Increasing insurance claims and expenses could lower
profitability and increase business risk.
The nature of
our business subjects us to product liability, property damage,
and personal injury claims, especially in connection with the
repair and manufacture of products that transport hazardous,
toxic or volatile materials. We maintain reserves for reasonably
estimable liability claims and liability insurance coverage at
levels based upon commercial norms in the industries in which we
operate and our historical claims experience. Over the last
several years, insurance carriers have raised premiums for many
companies operating in our industries. Increased premiums may
further increase our insurance expense as coverage expires or
otherwise cause us to raise our self-insured retention. If the
number or severity of claims within our self-insured retention
increases, we could suffer costs in excess of our reserves. An
unusually large liability claim or a string of claims based on a
failure repeated throughout our mass production process may
exceed our insurance coverage or result in direct damages if we
were unable or elected not to insure against certain hazards
because of high premiums or other reasons. In addition, the
availability of, and our ability to collect on, insurance
coverage is often subject to factors beyond our control.
Moreover, any accident or incident involving us, even if we are
fully insured or not held to be liable, could negatively affect
our reputation
10
Table of Contents
among customers and the public, thereby making it more difficult
for us to compete effectively, and could significantly affect
the cost and availability of insurance in the future.
Risks related to our operations outside of the United States
could decrease our profitability.
Our operations
outside of the United States are subject to the risks associated
with cross-border business transactions and activities.
Political, legal, trade, or economic changes or instability
could limit or curtail our respective foreign business
activities and operations. Some foreign countries where we
operate have regulatory authorities that regulate railroad
safety, railcar design and railcar component part design,
performance, and manufacture of equipment used on their railroad
systems. If we fail to obtain and maintain certifications of our
railcars and railcar parts within the various foreign countries
where we operate, we may be unable to market and sell our
railcars in those countries. In addition, unexpected changes in
regulatory requirements, tariffs and other trade barriers, more
stringent rules relating to labor or the environment, adverse
tax consequences, and price exchange controls could limit
operations and make the manufacture and distribution of our
products difficult. Furthermore, any material change in the
quotas, regulations, or duties on imports imposed by the United
States government and agencies, or on exports by the government
of Mexico or its agencies, could affect our ability to export
products that we manufacture in Mexico.
Because we do not have employment contracts with our key
management employees, we may not be able to retain their
services in the future.
Our success depends on the
continued services of our key management employees, none of whom
currently have employment agreements with us. Although we have
historically been successful in retaining the services of our
key management, we may not be able to do so in the future. The
loss of the services of one or more key members of our
management team could result in increased costs associated with
attracting and retaining a replacement and could disrupt our
operations and result in a loss of revenues.
Repercussions from terrorist activities or armed conflict
could harm our business.
Terrorist activities,
anti-terrorist efforts, and other armed conflict involving the
United States or its interests abroad may adversely affect the
United States and global economies and could prevent us from
meeting our financial and other obligations. In particular, the
negative impacts of these events may affect the industries in
which we operate. This could result in delays in or
cancellations of the purchase of our products or shortages in
raw materials or component parts. Any of these occurrences could
have a material adverse impact on our operating results,
revenues, and costs.
Violations of or changes in the regulatory requirements
applicable to the industries in which we operate may increase
our operating costs.
We are subject to extensive
regulation by governmental regulatory and industry authorities.
Our railcar operations are subject to regulation by the United
States Environmental Protection Agency; the Research and Special
Programs Administration and the Federal Railroad Administration,
both divisions of the United States Department of
Transportation; and the Association of American Railroads. These
organizations establish rules and regulations for the railcar
industry, including construction specifications and standards
for the design and manufacture of railcars; mechanical,
maintenance, and related standards for railcars; safety of
railroad equipment, tracks, and operations; and packaging and
transportation of hazardous or toxic materials. Future changes
that affect compliance costs may have a material adverse effect
on our financial condition and operations.
Our Inland Barge operations are subject to regulation by the
United States Coast Guard; the National Transportation Safety
Board; the United States Customs Service; the Maritime
Administration of the United States Department of
Transportation; and private industry organizations such as the
American Bureau of Shipping. These organizations establish
safety criteria, investigate vessel accidents and recommend
improved safety standards. Violations of these regulations and
related laws can result in substantial civil and criminal
penalties as well as injunctions curtailing operations.
Our Construction Products Group business is subject to
regulation by the United States Department of Transportation,
the Federal Highway Administration, and various state highway
departments. These organizations establish certain standards and
specifications related to the manufacture of our highway
products. If our products were found to be not in compliance
with these standards and specifications, we would be required to
re-qualify our products for installation on state and national
highways.
Our operations are also subject to regulation of health and
safety matters by the United States Occupational Safety and
Health Administration. We believe that we employ appropriate
precautions to protect our employees and others from workplace
injuries and harmful exposure to materials handled and managed
at our facilities. However, claims that may be asserted against
us for work-related illnesses or injury, and the further
adoption of occupational
11
Table of Contents
health and safety regulations in the United States or in foreign
jurisdictions in which we operate could increase our operating
costs. We are unable to predict the ultimate cost of compliance
with these health and safety laws and regulations. Accordingly,
there can be no assurance that we will not become involved in
future litigation, investigations, or other proceedings or if we
were found to be responsible or liable in any litigation,
investigations, or proceedings, that such costs would not be
material to us.
We may be required to reduce the value of our long-lived
assets
and/or
goodwill, which would weaken our financial results.
We
periodically evaluate for potential impairment the carrying
values of our long-lived assets to be held and used. The
carrying value of a long-lived asset to be held and used is
considered impaired when the carrying value is not recoverable
through undiscounted future cash flows and the fair value of the
asset is less than the carrying value. Fair value is determined
primarily using the anticipated cash flows discounted at a rate
commensurate with the risks involved or market quotes as
available. Impairment losses on long-lived assets held for sale
are determined in a similar manner, except that fair values are
reduced commensurate with the estimated cost to dispose of the
assets. In addition, goodwill is required to be tested for
impairment annually, or on an interim basis, whenever events or
circumstances change, indicating that the carrying amount of the
goodwill might be impaired. The goodwill impairment test is a
two-step process requiring the comparison of a reporting
unit’s estimated fair value with the carrying amount of its
net assets. Step two of the impairment test determines the
amount of goodwill impairment to be recorded when a reporting
unit’s recorded net assets exceed its fair value. We
perform this test for our five principal business segments,
considered to be “reporting units”: (1) the Rail
Group, (2) the Construction Products Group, (3) the
Inland Barge Group, (4) the Energy Equipment Group, and
(5) the Railcar Leasing and Management Services Group. Due
to an overall market decline for products in the Rail Group
during the second quarter of 2009, we concluded that indications
of impairment required an interim goodwill impairment analysis.
Accordingly, we tested the Rail Group’s goodwill for
impairment as of June 30, 2009 and recorded a charge of
$325 million during the second quarter of 2009. See
Note 9 of the Notes to Consolidated Financial Statements
for further explanation and results of this test. Any resulting
impairment loss related to reductions in the value of our
long-lived assets or our goodwill could weaken our financial
condition and results of operations.
We may incur increased costs due to fluctuations in interest
rates and foreign currency exchange rates.
We are
exposed to risks associated with fluctuations in interest rates
and changes in foreign currency exchange rates. We seek to
minimize these risks, when considered appropriate, through the
use of interest rate hedges and similar financial instruments
and other activities, although these measures may not be
implemented or effective. Any material and untimely changes in
interest rates or exchange rates could result in significant
losses to us.
Railcars as a significant mode of transporting freight could
decline, become more efficient over time, experience a shift in
types of modal transportation
and/or
certain railcar types could become obsolete.
As the freight
transportation markets we serve continue to evolve and become
more efficient, the use of railcars may decline in favor of
other more economic transportation modalities. Features and
functionality specific to certain railcar types could result in
those railcars becoming obsolete as customer requirements for
freight delivery change.
Business, regulatory, and legal developments regarding
climate change may affect the demand for our products or the
ability of our critical suppliers to meet our
needs.
The Company has followed the current debate over
climate change in general, and the related science, policy
discussion, and prospective legislation. Additionally, the
potential challenges and opportunities for the Company that
climate change policy and legislation may pose, have been
reviewed. However, any such challenges or opportunities are
heavily dependent on the nature and degree of climate change
legislation and the extent to which it applies to our
industries. At this time, the Company cannot predict the
ultimate impact of climate change and climate change legislation
on the Company’s operations or opportunities. Potential
opportunities could include greater demand for wind towers and
certain types of rail cars, while potential challenges could
include decreased demand for certain types of rail cars and
higher energy costs. Further, when or if these impacts may occur
cannot be assessed until scientific analysis and legislative
policy are more developed and specific legislative proposals
begin to take shape.
12
Table of Contents
Additional Information.
Our Internet website address
is www.trin.net. Information on the website is available free of
charge. We make available on our website our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and any amendments thereto, as soon as reasonably practicable
after such material is filed with, or furnished to, the SEC. The
contents of our website are not intended to be incorporated by
reference into this report or in any other report or document we
file and any reference to our website is intended to be an
inactive textual reference only.
| Item 1B. | Unresolved Staff Comments. |
None.
13
Table of Contents
| Item 2. | Properties. |
We principally operate in various locations throughout the
United States and in Mexico. Our facilities are considered to be
in good condition, well maintained, and adequate for our
purposes. The productive capacity utilized represents the
percentage for all of 2009.
|
Approximate Square
|
Productive
|
|||||||||
| Feet |
Capacity
|
|||||||||
| Owned | Leased | Utilized | ||||||||
|
Rail Group
|
5,450,173 | 152,016 | 27% | |||||||
|
Construction Products Group
|
1,027,000 | — | 67% | |||||||
|
Inland Barge Group
|
911,800 | 81,000 | 78% | |||||||
|
Energy Equipment Group
|
1,264,761 | 247,580 | 72% | |||||||
|
Executive Offices
|
173,000 | 2,300 | N/A | |||||||
| 8,826,734 | 482,896 | |||||||||
| Item 3. | Legal Proceedings. |
See Note 18 of the Notes to Consolidated Financial
Statements.
| Item 4. | Submission of Matters to a Vote of Security Holders. |
None.
14
Table of Contents
PART II
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
Our common stock is traded on the New York Stock Exchange under
the ticker symbol “TRN”. The following table shows the
closing price range of our common stock by quarter for the years
ended December 31, 2009 and 2008.
| Prices | ||||||||
|
Year Ended December 31,
2009
|
High | Low | ||||||
|
Quarter ended March 31, 2009
|
$ | 17.90 | $ | 6.47 | ||||
|
Quarter ended June 30, 2009
|
16.95 | 9.57 | ||||||
|
Quarter ended September 30, 2009
|
19.07 | 12.01 | ||||||
|
Quarter ended December 31, 2009
|
19.45 | 16.35 | ||||||
|
Year Ended December 31,
2008
|
High | Low | ||||||
|
Quarter ended March 31, 2008
|
$ | 31.09 | $ | 22.34 | ||||
|
Quarter ended June 30, 2008
|
40.85 | 25.05 | ||||||
|
Quarter ended September 30, 2008
|
38.80 | 25.73 | ||||||
|
Quarter ended December 31, 2008
|
25.31 | 10.14 | ||||||
Our transfer agent and registrar as of December 31, 2009
was American Stock Transfer & Trust Company.
Holders
At December 31, 2009, we had approximately 1,957 record
holders of common stock. The par value of the common stock is
$1.00 per share.
Dividends
Trinity has paid 183 consecutive quarterly dividends. The
quarterly dividend was increased to $0.08 per common share
effective with the July 2008 dividend payment, an increase of
over 14% as compared to the April 2008 dividend payment.
Quarterly dividends declared by Trinity for the years ended
December 31, 2009 and 2008 are as follows:
| Year Ended December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Quarter ended March 31,
|
$ | 0.08 | $ | 0.07 | ||||
|
Quarter ended June 30,
|
0.08 | 0.08 | ||||||
|
Quarter ended September 30,
|
0.08 | 0.08 | ||||||
|
Quarter ended December 31,
|
0.08 | 0.08 | ||||||
|
Total
|
$ | 0.32 | $ | 0.31 | ||||
Recent
Sales of Unregistered Securities
None.
15
Table of Contents
Performance
Graph
The following Performance Graph and related information shall
not be deemed “soliciting material” or to be
“filed” with the SEC, nor shall such information be
incorporated by reference into any future filing under the
Securities Act of 1933 or Securities Exchange Act of 1934, each
as amended, except to the extent that the Company specifically
incorporates it by reference into such filing.
The following graph compares the Company’s cumulative total
stockholder return (assuming reinvestment of dividends) during
the five-year period ended December 31, 2009 with an
overall stock market index (New York Stock Exchange index) and
the Company’s peer group index (Dow Jones Commercial
Vehicles & Trucks Index). The data in the graph
assumes $100 was invested on December 31, 2004.
COMPARISON
OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG TRINITY INDUSTRIES,
INC.,
DJ COMMERCIAL VEHICLES & TRUCKS and NYSE MARKET INDEX
ASSUMES $100
INVESTED ON Dec. 31, 2004
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31,
2008
| 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | |||||||||||||||||||
|
Trinity Industries, Inc.
|
100 | 130 | 157 | 125 | 72 | 81 | ||||||||||||||||||
|
Dow Jones Commercial Vehicles & Trucks Index
|
100 | 109 | 140 | 203 | 98 | 143 | ||||||||||||||||||
|
New York Stock Exchange Index
|
100 | 109 | 132 | 143 | 87 | 112 | ||||||||||||||||||
16
Table of Contents
Issuer
Purchases of Equity Securities
This table provides information with respect to purchases by the
Company of shares of its common stock during the quarter ended
December 31, 2009:
|
Maximum
|
||||||||||||||||
|
Number (or
|
||||||||||||||||
|
Total Number of
|
Approximate
|
|||||||||||||||
|
Shares (or Units)
|
Dollar Value) of
|
|||||||||||||||
|
Purchased as
|
Shares (or Units)
|
|||||||||||||||
|
Part of Publicly
|
that May Yet Be
|
|||||||||||||||
|
Number of
|
Average Price
|
Announced
|
Purchased
|
|||||||||||||
|
Shares
|
Paid per
|
Plans or
|
Under the Plans
|
|||||||||||||
|
Period
|
Purchased (1) | Share (1) | Programs (2) | or Programs (2) | ||||||||||||
|
October 1, 2009 through October 31, 2009
|
640 | $ | 18.57 | — | $ | 132,536,481 | ||||||||||
|
November 1, 2009 through November 30, 2009
|
262 | $ | 19.37 | — | $ | 132,536,481 | ||||||||||
|
December 1, 2009 through December 31, 2009
|
2,074 | $ | 18.48 | — | $ | 132,536,481 | ||||||||||
|
Total
|
2,976 | $ | 18.58 | — | $ | 132,536,481 | ||||||||||
| (1) | These columns include the following transactions during the three months ended December 31, 2009: (i) the deemed surrender to the Company of 340 shares of common stock to pay the exercise price in connection with the exercise of employee stock options, (ii) the surrender to the Company of 1,828 shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees, and (iii) the purchase of 808 shares of common stock by the Trustee for assets held in a non-qualified employee profit sharing plan trust. | |
| (2) | On December 8, 2009, the Company’s Board of Directors authorized an extension of its stock repurchase program. This extension allows for the repurchase of the Company’s common stock through December 31, 2010. The repurchase program originally commenced in 2007 with an authorization of $200 million. No shares were repurchased under this program for the three months ended December 31, 2009. Since the inception of this program through December 31, 2009, the Company has repurchased a total of 3,532,728 shares at a cost of approximately $67.5 million. |
17
Table of Contents
| Item 6. | Selected Financial Data. |
The following financial information for the five years ended
December 31, 2009 has been derived from our audited
consolidated financial statements. Historical information
previously reported has been adjusted as a result of the
adoption of accounting pronouncements and reclassified to
conform to the 2009 presentation. See Notes 11 and 17 of
the Notes to Consolidated Financial Statements for further
discussion. This information should be read in conjunction with
Management’s Discussion and Analysis of Financial Condition
and Results of Operations and the consolidated financial
statements and notes thereto included elsewhere herein.
|
Year Ended
December 31,
|
||||||||||||||||||||
|
(in millions, except percent and per share data)
|
2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||
|
Statement of Operations Data:
|
||||||||||||||||||||
|
Revenues
|
$ | 2,575.2 | $ | 3,882.8 | $ | 3,832.8 | $ | 3,218.9 | $ | 2,709.7 | ||||||||||
|
Operating profit (loss)
|
(30.7 | ) | 559.5 | 529.8 | 396.0 | 209.6 | ||||||||||||||
|
Income (loss) from continuing operations
|
(137.5 | ) | 282.4 | 289.8 | 212.6 | 110.5 | ||||||||||||||
|
Discontinued operations:
|
||||||||||||||||||||
|
Gain on sales of discontinued operations, net of provision for
income taxes of $12.2
|
— | — | — | 20.4 | — | |||||||||||||||
|
Income (loss) from discontinued operations, net of provision
(benefit) for income taxes of $(0.0), $(0.0), $(0.2), $(1.7),
and $(8.3)
|
(0.2 | ) | (1.5 | ) | (0.7 | ) | (5.8 | ) | (24.2 | ) | ||||||||||
|
Net income (loss)
|
$ | (137.7 | ) | $ | 280.9 | $ | 289.1 | $ | 227.2 | $ | 86.3 | |||||||||
|
Net income (loss) applicable to common shareholders
|
$ | (137.7 | ) | $ | 280.9 | $ | 289.1 | $ | 227.2 | $ | 83.1 | |||||||||
|
Net income (loss) applicable to common shareholders per common
share:
|
||||||||||||||||||||
|
Basic:
|
||||||||||||||||||||
|
Continuing operations
|
$ | (1.81 | ) | $ | 3.49 | $ | 3.58 | $ | 2.69 | $ | 1.48 | |||||||||
|
Discontinued operations
|
(0.00 | ) | (0.02 | ) | (0.01 | ) | 0.19 | (0.34 | ) | |||||||||||
| $ | (1.81 | ) | $ | 3.47 | $ | 3.57 | $ | 2.88 | $ | 1.14 | ||||||||||
|
Diluted:
|
||||||||||||||||||||
|
Continuing operations
|
$ | (1.81 | ) | $ | 3.47 | $ | 3.55 | $ | 2.64 | $ | 1.42 | |||||||||
|
Discontinued operations
|
(0.00 | ) | (0.02 | ) | (0.01 | ) | 0.18 | (0.31 | ) | |||||||||||
| $ | (1.81 | ) | $ | 3.45 | $ | 3.54 | $ | 2.82 | $ | 1.11 | ||||||||||
|
Weighted average number of shares outstanding:
|
||||||||||||||||||||
|
Basic
|
76.4 | 78.4 | 78.7 | 76.9 | 71.0 | |||||||||||||||
|
Diluted
|
76.4 | 78.8 | 79.4 | 78.5 | 76.2 | |||||||||||||||
|
Dividends declared per common share
|
$ | 0.32 | $ | 0.31 | $ | 0.26 | $ | 0.21 | $ | 0.17 | ||||||||||
|
Balance Sheet Data:
|
||||||||||||||||||||
|
Total assets
|
$ | 4,656.4 | $ | 4,911.6 | $ | 4,039.7 | $ | 3,422.3 | $ | 2,586.5 | ||||||||||
|
Debt — recourse
|
646.0 | 584.4 | 590.3 | 624.3 | 432.7 | |||||||||||||||
|
Debt — non-recourse
|
1,199.1 | 1,190.3 | 643.9 | 426.5 | 256.3 | |||||||||||||||
|
Series B Preferred Stock
|
— | — | — | — | 58.7 | |||||||||||||||
|
Stockholders’ equity
|
$ | 1,806.3 | $ | 1,912.3 | $ | 1,812.7 | $ | 1,493.5 | $ | 1,114.4 | ||||||||||
|
Ratio of total debt to total capital
|
50.5 | % | 48.1 | % | 40.5 | % | 41.3 | % | 37.0 | % | ||||||||||
|
Book value per share
|
$ | 22.81 | $ | 24.08 | $ | 22.27 | $ | 18.67 | $ | 15.04 | ||||||||||
A goodwill impairment charge of $325 million was recorded
in 2009 related to the Rail Group segment. See Note 9 of
the Notes to Consolidated Financial Statements for further
discussion.
18
Table of Contents
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Company
Overview
Trinity Industries, Inc., headquartered in Dallas, Texas, is a
multi-industry company that owns a variety of market-leading
businesses which provide products and services to the
industrial, energy, transportation, and construction sectors. We
operate in five distinct business groups which we report on a
segment basis: the Rail Group, Construction Products Group,
Inland Barge Group, Energy Equipment Group, and Railcar Leasing
and Management Services Group. We also report All Other which
includes the Company’s captive insurance and transportation
companies; legal, environmental, and upkeep costs associated
with non-operating facilities; other peripheral businesses; and
the change in market valuation related to ineffective commodity
hedges.
Our Rail and Inland Barge Groups and our structural wind towers
business operate in cyclical industries. Our Construction
Products and Energy Equipment Groups are subject to seasonal
fluctuations with the first quarter historically being the
weakest quarter. Fluctuations in the Railcar Leasing and
Management Services Group are primarily driven by railcar sales
from the lease fleet. The economic and financial crisis
experienced by the United States economy during 2009 and 2008
has impacted our businesses. During 2008, market steel prices
were extremely volatile and rose significantly during most of
2008 before eventually declining and leveling off at the end of
2008. Generally we are able to mitigate this volatility through
contract purchases, existing supplier commitments and price
escalation clauses and other arrangements with our customers.
New orders for railcars and barges continued to drop
significantly in 2009 as the transportation industry saw a
significant decline in the shipment of freight. The 2010 outlook
for the transportation industry is for continued weakness.
Orders for structural wind towers have been slow since mid-2008
when green energy companies experienced tightened credit markets
coupled with lower prices for electricity and natural gas sales.
The slowdown in the residential and commercial construction
markets impacted our Construction Products Group as well. We
continually assess our manufacturing capacity and take steps to
align our production capacity with demand. As a result of our
assessment, we idled a significant amount of our production
capacity commencing in the fourth quarter of 2008 and continuing
through 2009.
Executive
Summary
The Company’s revenues for 2009 exceeded $2.5 billion.
Operating loss from continuing operations was $30.7 million
including a goodwill impairment charge of $325 million
recorded during the second quarter of 2009. For the year ended
December 31, 2009, we experienced decreases in both income
from continuing operations and net income over the prior year
primarily as a result of the goodwill impairment charge and an
overall decline in product shipments. Net income for 2009
decreased $418.6 million from the previous year.
Goodwill is required to be tested for impairment annually, or on
an interim basis, whenever events or circumstances change,
indicating that the carrying amount of the goodwill might be
impaired. The goodwill impairment test is a two-step process
requiring the comparison of a reporting unit’s estimated
fair value with the carrying amount of its net assets. Step two
of the impairment test is necessary to determine the amount of
goodwill impairment to be recorded when a reporting unit’s
recorded net assets exceed its fair value. Impairment is
assessed at the “reporting unit” level by applying a
fair value-based test. We perform this test for our five
principal business segments: (1) the Rail Group,
(2) the Construction Products Group, (3) the Inland
Barge Group, (4) the Energy Equipment Group, and
(5) the Railcar Leasing and Management Services Group.
During the second quarter of 2009, there was a significant
decline in new orders for railcars and continued weakening
demand for products in the Rail Group as well as a change in the
average estimated railcar deliveries from independent third
party research firms. Additionally, the significant number of
idled railcars in the North American fleet resulted in the
creation of new internal sales estimates by railcar type. Based
on this information, we concluded that indications of impairment
existed with respect to the Rail Group which required an interim
goodwill impairment analysis and, accordingly, we performed such
a test as of June 30, 2009. As a basis for our conclusion,
the table below is an average of the estimates of approximate
industry railcar deliveries for the next five years from two
independent third party research firms, Global Insight, Inc. and
Economic Planning Associates, Inc.
19
Table of Contents
|
Average Estimated Railcar Deliveries
|
||||||||||||
|
As of January 2009
|
As of May 2009 | Percent Change | ||||||||||
|
2009
|
28,300 | 24,000 | (15.2 | )% | ||||||||
|
2010
|
23,700 | 15,100 | (36.3 | )% | ||||||||
|
2011
|
41,550 | 29,150 | (29.8 | )% | ||||||||
|
2012
|
56,050 | 48,200 | (14.0 | )% | ||||||||
|
2013
|
62,550 | 59,750 | (4.5 | )% | ||||||||
Our estimate of the Rail Group’s fair value (considered to
be a level three fair value measurement) utilized an income
approach based on the anticipated future discounted cash flows
of the Rail Group, requiring significant estimates and
assumptions related to future revenues and operating profits,
exit multiples, tax rates and consequences, and discount rates
based upon market- based capital costs. Because the estimated
fair value of the Rail Group was less than the carrying amount
of its net assets, we performed step two of our goodwill
impairment analysis as required by generally accepted accounting
principles, by estimating the fair value of individual assets
and liabilities of the Rail Group in accordance with the
provisions of the accounting standards pertaining to business
combinations and fair value measurements. The result of our
impairment analysis indicated that the remaining implied
goodwill amounted to $122.5 million for our Rail Group as
of June 30, 2009 and, consequently, we recorded an
impairment charge of $325.0 million during the second
quarter of 2009. The change in our estimate of the Rail
Group’s enterprise value from December 31, 2008 to
June 30, 2009 was driven by economic indicators, including
third-party studies that predicted the decline in the railcar
industry was likely to extend longer than was previously
expected. In management’s opinion, no interim impairment
tests were necessary for our remaining business segments as
there had not been a significant change in market conditions for
these segments since the 2008 annual impairment test. As of
December 31, 2009, the Company’s annual impairment
test of goodwill was completed at the reporting unit level and
no additional impairment charges were determined to be necessary.
During the second quarter of 2009, we performed an interim test
for recoverability of the carrying value of our Rail Group
long-lived assets based on cash flow estimates consistent with
those used in the goodwill impairment test. The carrying value
of long-lived assets to be held and used is considered impaired
only when their carrying value is not recoverable through
undiscounted future cash flows and the fair value of the assets
is less than their carrying value. We determined that there was
no impairment of the recoverability of the Rail Group’s
long-lived assets as the Rail Group’s estimated
undiscounted future cash flows exceeded the carrying value of
its long-lived assets.
Given the current economic environment and the uncertainties
regarding the potential impact on our businesses, there can be
no assurance that our estimates and assumptions regarding the
duration of the ongoing economic downturn, or the period or
strength of recovery, made for the purposes of the long-lived
asset and goodwill impairment tests will prove to be accurate
predictions of the future. If our assumptions regarding
forecasted cash flows are not achieved, it is possible that
additional impairments of remaining goodwill and long-lived
assets may be required.
Goodwill remaining by segment is as follows:
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
|
(in millions) |
||||||||
|
Rail Group
|
$ | 122.5 | $ | 447.5 | ||||
|
Construction Products Group
|
52.2 | 50.4 | ||||||
|
Energy Equipment Group
|
4.3 | 4.3 | ||||||
|
Railcar Leasing and Management Services Group
|
1.8 | 1.8 | ||||||
| $ | 180.8 | $ | 504.0 | |||||
Capital expenditures for 2009 were $429.2 million with
$381.8 million utilized for lease fleet additions, net of
deferred profit of $22.6 million.
20
Table of Contents
We ended 2009 with a backlog in our Rail Group of approximately
$195.4 million consisting of approximately 2,320 railcars.
The railcar backlog dollar value as of December 31, 2009
was as follows:
| As of December 31, 2009 | ||||
| (in millions) | ||||
|
External Customers
|
$ | 75.6 | ||
|
Leasing Group
|
119.8 | |||
|
Total
|
$ | 195.4 | ||
The total amount of the backlog dedicated to the Leasing Group
was supported by lease agreements with external customers. The
final amount dedicated to the Leasing Group may vary by the time
of delivery.
Global Insight, Inc., an independent industry research firm, has
estimated in its Fourth Quarter 2009 report that the average age
of the North American freight car fleet is approximately
19.3 years, with approximately 39% older than 25 years
and has estimated that United States carload traffic will grow
by 2.0% in 2010, with an increase of 4.0% for 2011 and 2012.
The table below is an average of the most recent estimates of
approximate industry railcar deliveries for the next five years
from two independent third party research firms, Global Insight,
Inc. and Economic Planning Associates, Inc.
|
2010
|
14,300 | |||
|
2011
|
23,700 | |||
|
2012
|
42,000 | |||
|
2013
|
56,800 | |||
|
2014
|
61,400 |
TILC purchases a portion of our railcar production, financing a
portion of the purchase price through a non-recourse warehouse
lending facility and periodically refinances those borrowings
through equipment financing transactions. In 2009, TILC
purchased approximately 50.9% of our railcar production, up
slightly from 50.0% in 2008. On a segment basis, sales to TILC
and related profits are included in the operating results of our
Rail Group but are eliminated in consolidation.
In 2007, the Company purchased 20% of the equity in newly-formed
TRIP Rail Holdings LLC (“TRIP Holdings”). TRIP
Holdings and its subsidiary, TRIP Rail Leasing LLC (“TRIP
Leasing”), provide railcar leasing and management services
in North America. Railcars are purchased from Trinity by TRIP
Leasing. In 2009, the Company acquired an additional 8.16%
equity ownership in TRIP Holdings for approximately
$16.2 million from another equity investor. As a result,
the Company now owns a 28.16% equity ownership in TRIP Holdings,
increasing the Company’s total investment to
$63.5 million. Trinity’s remaining equity commitment
to TRIP Holdings is $5.5 million through June 2010.
Trinity’s carrying value of its investment in TRIP Holdings
follows:
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
| (in millions) | ||||||||
|
Capital contributions
|
$ | 47.3 | $ | 35.9 | ||||
|
Equity purchased from another investor
|
16.2 | — | ||||||
|
Equity in earnings
|
3.0 | 0.5 | ||||||
|
Equity in unrealized losses on
derivative financial instruments |
(3.2 | ) | (9.5 | ) | ||||
|
Distributions
|
(6.0 | ) | (3.1 | ) | ||||
|
Deferred broker fees
|
(1.0 | ) | (0.8 | ) | ||||
| $ | 56.3 | $ | 23.0 | |||||
21
Table of Contents
On October 15, 2009, TILC loaned TRIP Holdings
$14.5 million to resolve a collateral deficiency. The note
has a balance of $10.4 million as of December 31, 2009
and is repayable monthly from TRIP Holdings’ excess cash
flow plus accrued interest at 11% and is expected to be repaid
in full by June 2010.
On December 8, 2009, the Company’s Board of Directors
authorized an extension of its stock repurchase program. This
extension allows for the repurchase of the Company’s common
stock through December 31, 2010. The repurchase program
originally commenced in 2007 with an authorization of
$200 million. During the year ended December 31, 2009,
813,028 shares were repurchased under this program at a
cost of approximately $6.3 million. Since the inception of
this program, the Company has repurchased a total of
3,532,728 shares at a cost of approximately
$67.5 million.
In May 2008, the Financial Accounting Standards Board
(“FASB”) issued a new accounting pronouncement that
requires issuers of certain convertible debt instruments that
may be settled in cash upon conversion to separately account for
the liability and equity components in a manner that reflects
the entity’s nonconvertible debt borrowing rate when
interest expense is recognized in subsequent periods. The
effective date of the new accounting pronouncement was for
financial statements issued for fiscal years and interim periods
beginning after December 15, 2008 and does not permit
earlier application. The pronouncement requires that all periods
presented be adjusted. The Company adopted the provisions of the
new accounting pronouncement as of January 1, 2009 and has
accordingly adjusted amounts previously reported with respect to
Debt, Other assets, Capital in excess of par value, Deferred
income taxes and Interest expense. See Note 11 of the Notes
to Consolidated Financial Statements for a further explanation
of the effects of implementing this pronouncement as it applies
to our Convertible Subordinated Notes.
In May 2009, TILC renewed its railcar leasing warehouse facility
through February 2011. This facility, which was set to mature in
August 2009, was established to finance railcars owned by TILC.
In November 2009, TILC and Trinity Rail Leasing VII LLC, a
Delaware limited liability company, (“TRL VII”), a
limited purpose, indirect wholly-owned subsidiary of Trinity,
owned by Trinity through TILC, closed a railcar leasing
financing in the amount of approximately $238.3 million
with a coupon of 6.657%. The transaction is secured by a
portfolio of railcars and operating leases thereon, certain cash
reserves, and other assets acquired and owned by TRL VII. The
proceeds were used, in part, to pay down a portion of
TILC’s railcar leasing warehouse facility, and will be
used, in part, for future growth of TILC’s lease fleet.
Additionally, TILC completed several other financings during the
year ended December 31, 2009 totaling $117.6 million.
See
Financing Activities.
22
Table of Contents
Results
of Operations
Years
Ended December 31, 2009, 2008, and 2007
Overall
Summary for Continuing Operations
Revenues
| Year Ended December 31, 2009 | ||||||||||||||||
| Revenues |
Percent Change
|
|||||||||||||||
| External | Intersegment | Total | 2009 versus 2008 | |||||||||||||
| (in millions, except percents) | ||||||||||||||||
|
Rail Group
|
$ | 485.2 | $ | 410.1 | $ | 895.3 | (65.1 | )% | ||||||||
|
Construction Products Group
|
524.0 | 14.5 | 538.5 | (27.3 | )% | |||||||||||
|
Inland Barge Group
|
527.3 | — | 527.3 | (15.7 | )% | |||||||||||
|
Energy Equipment Group
|
502.2 | 7.8 | 510.0 | (19.4 | )% | |||||||||||
|
Railcar Leasing and Management Services Group
|
524.5 | — | 524.5 | (2.1 | )% | |||||||||||
|
All Other
|
12.0 | 36.4 | 48.4 | (38.5 | )% | |||||||||||
|
Eliminations – lease subsidiary
|
— | (391.6 | ) | (391.6 | ) | |||||||||||
|
Eliminations – other
|
— | (77.2 | ) | (77.2 | ) | |||||||||||
|
Consolidated Total
|
$ | 2,575.2 | $ | — | $ | 2,575.2 | (33.7 | )% | ||||||||
| Year Ended December 31, 2008 | ||||||||||||||||
| Revenues |
Percent Change
|
|||||||||||||||
| External | Intersegment | Total | 2008 versus 2007 | |||||||||||||
| (in millions, except percents) | ||||||||||||||||
|
Rail Group
|
$ | 1,381.0 | $ | 1,182.4 | $ | 2,563.4 | 7.6 | % | ||||||||
|
Construction Products Group
|
719.7 | 21.5 | 741.2 | 1.1 | % | |||||||||||
|
Inland Barge Group
|
625.2 | — | 625.2 | 26.8 | % | |||||||||||
|
Energy Equipment Group
|
605.7 | 26.9 | 632.6 | 45.8 | % | |||||||||||
|
Railcar Leasing and Management Services Group
|
535.9 | — | 535.9 | (15.2 | )% | |||||||||||
|
All Other
|
15.3 | 63.4 | 78.7 | 12.8 | % | |||||||||||
|
Eliminations – lease subsidiary
|
— | (1,162.4 | ) | (1,162.4 | ) | |||||||||||
|
Eliminations – other
|
— | (131.8 | ) | (131.8 | ) | |||||||||||
|
Consolidated Total
|
$ | 3,882.8 | $ | — | $ | 3,882.8 | 1.3 | % | ||||||||
| Year Ended December 31, 2007 | ||||||||||||||
| Revenues | ||||||||||||||
| External | Intersegment | Total | ||||||||||||
| (in millions) | ||||||||||||||
|
Rail Group
|
$ | 1,540.0 | $ | 841.5 | $ | 2,381.5 | ||||||||
|
Construction Products Group
|
731.2 | 1.8 | 733.0 | |||||||||||
|
Inland Barge Group
|
493.2 | — | 493.2 | |||||||||||
|
Energy Equipment Group
|
422.4 | 11.5 | 433.9 | |||||||||||
|
Railcar Leasing and Management
Services Group |
631.7 | — | 631.7 | |||||||||||
|
All Other
|
14.3 | 55.5 | 69.8 | |||||||||||
|
Eliminations – lease subsidiary
|
— | (828.5 | ) | (828.5 | ) | |||||||||
|
Eliminations – other
|
— | (81.8 | ) | (81.8 | ) | |||||||||
|
Consolidated Total
|
$ | 3,832.8 | $ | — | $ | 3,832.8 | ||||||||
Our revenues for the year ended December 31, 2009 decreased
primarily due to the impact of the economic downturn on the
markets we serve, especially the new railcar market. In
addition, pricing from certain segments resulting from lower
material costs and competitive pricing pressures. Our revenues
for the year ended December 31, 2008 increased due to
improved sales in all our business groups, except the Railcar
Leasing and
23
Table of Contents
Management Services Group (“Leasing Group”) whose
revenues declined because of a decline in sales of railcars from
the lease fleet.
Operating
Profit (Loss)
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (in millions) | ||||||||||||
|
Rail Group
|
$ | (355.9 | ) | $ | 247.7 | $ | 347.6 | |||||
|
Construction Products Group
|
32.6 | 64.2 | 72.4 | |||||||||
|
Inland Barge Group
|
125.2 | 119.2 | 72.6 | |||||||||
|
Energy Equipment Group
|
73.8 | 100.3 | 50.1 | |||||||||
|
Railcar Leasing and Management Services Group
|
149.0 | 158.9 | 161.2 | |||||||||
|
All Other
|
0.8 | 7.0 | 4.6 | |||||||||
|
Corporate
|
(30.6 | ) | (41.3 | ) | (34.9 | ) | ||||||
|
Eliminations – lease subsidiary
|
(22.6 | ) | (86.3 | ) | (138.0 | ) | ||||||
|
Eliminations – other
|
(3.0 | ) | (10.2 | ) | (5.8 | ) | ||||||
|
Consolidated Total
|
$ | (30.7 | ) | $ | 559.5 | $ | 529.8 | |||||
Our operating profit for the year ended December 31, 2009
decreased as a result of the $325 million goodwill
impairment charge and lower revenues coupled with reduced
pricing driven by lower material costs and highly competitive
markets. Selling, engineering, and administrative expenses as a
percentage of revenues increased to 7.2% for 2009 as compared to
6.3% for 2008. Overall, selling, engineering, and administrative
expenses decreased $57.1 million year over year as a result
of decreased headcount and related costs and decreased
professional services.
Our operating profit for the year ended December 31, 2008
increased compared to 2007 as the result of overall higher
revenues, an increase in the size of our lease fleet, and higher
barge and structural wind towers sales. These increases in
operating profit were offset by higher raw material costs and
competitive pricing pressure in the market for new railcars.
Selling, engineering, and administrative expenses as a
percentage of revenues increased to 6.3% for 2008 as compared to
6.0% for 2007. Overall, selling, engineering, and administrative
expenses increased $14.1 million year over year as a result
of increased headcount and related costs, increased professional
services, and approximately $4.2 million for due diligence
related to potential acquisitions that are no longer being
pursued.
Other Income and Expense.
Interest expense, net of
interest income and capitalized interest of $0.9 million
for 2008, was $121.5 million for the year ended
December 31, 2009 and $104.3 million for the year
ended December 31, 2008 (as adjusted — see
Note 11 of the Notes to Consolidated Financial Statements).
Interest income in 2009 decreased $3.4 million over the
prior year as a result of lower interest rates more than
offsetting the effect of an increase in cash available for
investment. Interest expense in 2009 increased
$13.8 million over the prior year due to an increase in
debt levels and an increase in expense related to the
ineffective portion of interest rate hedges. Interest expense
for the year ended December 31, 2009 included
$3.9 million of interest expense related to the ineffective
portion of interest rate hedges. The increase in Other, net for
the year ended December 31, 2009 was primarily due to the
$3.7 million gain recognized on the sale of one of our
equity investments partially offset by foreign currency
translation losses.
Interest expense, net of interest income and capitalized
interest of $0.9 million and $0.6 million,
respectively, was $104.3 million for the year ended
December 31, 2008 and $72.3 million for the year ended
December 31, 2007. Interest income in 2008 decreased
$7.1 million over the prior year as a result of lower
interest rates and a decrease in cash available for investment.
Interest expense in 2008 increased $24.9 million over the
prior year due to an increase in debt levels and expense related
to the ineffective portion of interest rate hedges. Interest
expense for the year ended December 31, 2008 included
$6.8 million of interest expense related to the ineffective
portion of interest rate hedges. The decrease in Other, net for
the year ended December 31, 2008 was primarily due to an
increase in foreign currency translation losses, partially
offset by a write-down of an equity investment in the prior year.
Income Taxes.
The effective tax rate of 6.4% for
continuing operations for 2009 varied from the federal statutory
rate of 35.0% due primarily to the goodwill impairment charge
not being fully deductible for income tax
24
Table of Contents
purposes; the recording of a valuation reserve related to the
utilization of foreign tax credits previously benefited; state
income taxes and discrete adjustments related to foreign and
state taxes. The prior year effective tax rate of 37.8% for
continuing operations for 2008 varied from the federal statutory
rate of 35.0% due primarily to state income taxes and the loss
of the benefit of the domestic production deduction. The
effective tax rate for continuing operations for 2007 of 36.3%
varied from the federal statutory rate of 35.0% due primarily to
state income taxes, offset by an increase in the temporary
credit to be applied against the State of Texas margin tax, the
benefit of the domestic production deduction, and the
utilization of capital losses previously not benefited.
Segment
Discussion
Rail
Group
|
Year Ended
December 31,
|
Percent Change
|
|||||||||||||||||||
|
2009 |
2008 | 2007 |
2009 versus 2008 |
2008 versus 2007 | ||||||||||||||||
| ($ in millions) | ||||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||
|
Rail
|
$ | 776.8 | $ | 2,396.9 | $ | 2,221.8 | (67.6 | )% | 7.9 | % | ||||||||||
|
Components
|
118.5 | 166.5 | 159.7 | (28.8 | )% | 4.3 | % | |||||||||||||
|
Total revenues
|
$ | 895.3 | $ | 2,563.4 | $ | 2,381.5 | (65.1 | )% | 7.6 | % | ||||||||||
|
Operating profit (loss)
|
$ | (355.9 | ) | $ | 247.7 | $ | 347.6 | |||||||||||||
|
Operating profit (loss) margin
|
(39.8 | )% | 9.7 | % | 14.6 | % | ||||||||||||||
Railcar shipments in 2009 decreased 67.7% as compared to 2008
shipments to approximately 9,100 railcars compared to the
railcars shipped in 2008 and 2007 of approximately 28,200 and
27,370 railcars, respectively. As of December 31, 2009, our
Rail Group backlog was approximately $195.4 million and
consisted of approximately 2,320 railcars. The railcar backlog
dollar value as of December 31, 2009, 2008, and 2007 was as
follows:
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (in millions) | ||||||||||||
|
External Customers
|
$ | 75.6 | $ | 285.3 | $ | 748.4 | ||||||
|
TRIP Leasing
|
— | 124.3 | 514.5 | |||||||||
|
Leasing Group
|
119.8 | 312.8 | 1,426.7 | |||||||||
|
Total
|
$ | 195.4 | $ | 722.4 | $ | 2,689.6 | ||||||
The total amount of the backlog dedicated to the Leasing Group
was supported by lease agreements with external customers. The
final amount dedicated to the Leasing Group may vary by the time
of delivery. Backlog as of December 31, 2008 and 2007 was
approximately 8,260 and 31,870 railcars, respectively.
Operating profit for the Rail Group decreased for the year ended
December 31, 2009 compared to the prior year primarily due
to a $325 million goodwill impairment charge during the
quarter ended June 30, 2009 and lower railcar shipments.
See Note 9 of the Notes to Consolidated Financial
Statements. Additionally, a significantly reduced volume of
railcars was delivered during the year amid a lower pricing and
unit demand environment.
Operating profit for the Rail Group decreased for the year ended
December 31, 2008 by $99.9 million compared to the
same period in 2007. This decrease was primarily due to the
competitive pricing environment, increases in raw material
costs, and a reserve for future losses on railcar sales. Steel
costs were very volatile and rose significantly during most of
the year before eventually declining and leveling off at the end
of the year. On certain fixed price railcar contracts, actual
cost increases and surcharges caused the total cost of the
railcar to exceed the amounts originally anticipated, and in
some cases, the actual contractual sale price of the railcar.
The expense related to reserves for estimated losses on fixed
price contracts of $4.6 million was recorded during the
year ended December 31, 2008. The expense related to
reserves for estimated losses on fixed price contracts was not
significant for the year ended December 31, 2007.
25
Table of Contents
In the year ended December 31, 2009, railcar shipments
included sales to the Leasing Group of $391.6 million
compared to $1,162.4 million in 2008 with a deferred profit
of $22.6 million compared to $86.3 million for the
year ended December 31, 2008. Railcar sales to the Leasing
Group for 2007 were $828.5 million with a deferred profit
of $138.0 million. Results for the year ended
December 31, 2009 included $113.0 million in railcars
sold to TRIP Leasing, that resulted in a gain of
$11.2 million of which $2.8 million in profit was
deferred based on our equity interest. Results for the years
ended December 31, 2008 and December 31, 2007 included
$337.5 million and $232.6 million, respectively, in
railcars sold to TRIP Leasing that resulted in gains of
$61.6 million and $41.1 million, respectively, of
which $12.4 million and $8.2 million, respectively, in
profit was deferred based on our equity interest. Sales to the
Leasing Group and related profits are included in the operating
results of the Rail Group but eliminated in consolidation.
Construction
Products Group
|
Year Ended
December 31,
|
Percent Change
|
|||||||||||||||||||
|
2009 |
2008 | 2007 |
2009 versus 2008 |
2008 versus 2007 | ||||||||||||||||
| ($ in millions) | ||||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||
|
Concrete and Aggregates
|
$ | 291.4 | $ | 430.5 | $ | 458.8 | (32.3 | )% | (6.2 | )% | ||||||||||
|
Highway Products
|
238.0 | 284.1 | 239.1 | (16.2 | )% | 18.8 | % | |||||||||||||
|
Other
|
9.1 | 26.6 | 35.1 | (65.8 | )% | (24.2 | )% | |||||||||||||
|
Total revenues
|
$ | 538.5 | $ | 741.2 | $ | 733.0 | (27.3 | )% | 1.1 | % | ||||||||||
|
Operating profit
|
$ | 32.6 | $ | 64.2 | $ | 72.4 | ||||||||||||||
|
Operating profit margin
|
6.1 | % | 8.7 | % | 9.9 | % | ||||||||||||||
The decrease in revenues for the year ended December 31,
2009 compared to the same period in 2008 was primarily
attributable to the overall decline in the economic conditions
related to the markets served by this segment including a
reduction in state funding of highway construction and in
commercial and residential construction. Additionally, revenues
declined as the result of lower material costs that are passed
onto the customer.
Revenues increased for the year ended December 31, 2008
compared to the same period in 2007 primarily due to an increase
in volume in our highway products business, sales generated by
our entry into the asphalt business in 2007, and an increase in
various raw material costs that have resulted in higher sales
prices. These increases were offset by a decrease in volume in
our bridge girder business and the impact of divestitures in the
concrete and aggregates businesses. Revenues were also offset by
lower revenues in the concrete and aggregates businesses due to
adverse weather conditions in Texas and Louisiana during the
year ended December 31, 2008 as well as decreased demand.
Operating profit and operating margin for the year ended
December 31, 2009 compared to the same period in 2008
decreased as a result of lower volumes and decreased operating
efficiencies. Additionally, operating profit included a
$2.8 million write down of surplus inventory quantities in
2009 while 2008 included higher gains from property dispositions
related to our concrete and aggregates operations.
Operating profit and operating margin for the year ended
December 31, 2008 compared to the same period in 2007
decreased due to higher gains from property dispositions in 2007
related to our concrete and aggregates operations. Increased
sales in the highway products and asphalt businesses was offset
by lower margins in the concrete and aggregates businesses due
to volume decreases, unfavorable weather conditions, and
increased raw material prices.
26
Table of Contents
Inland
Barge Group
|
Year Ended
December 31,
|
Percent Change
|
|||||||||||||||||||
|
2009 |
2008 | 2007 |
2009 versus 2008 |
2008 versus 2007 | ||||||||||||||||
| ($ in millions) | ||||||||||||||||||||
|
Revenues
|
$ | 527.3 | $ | 625.2 | $ | 493.2 | (15.7 | )% | 26.8 | % | ||||||||||
|
Operating profit
|
$ | 125.2 | $ | 119.2 | $ | 72.6 | ||||||||||||||
|
Operating profit margin
|
23.7 | % | 19.1 | % | 14.7 | % | ||||||||||||||
Revenues decreased for the year ended December 31, 2009
compared to the same period in 2008 due to the shipment of fewer
hopper barges and a change in the mix of tank barge types. The
increase in revenues for the year ended December 31, 2008
compared to the same period in 2007 was due to an increase in
the sales of hopper and tank barges, a change in the mix of
barges sold, and an increase in raw material costs that resulted
in higher sales prices.
Operating profit for the year ended December 31, 2009
increased compared to the same period in 2008 due to lower
material costs and better operating efficiencies. Operating
profit for the years ended December 31, 2009 and
December 31, 2008 included the refund of $1.6 million
and $2.0 million, respectively, in unclaimed settlement
funds related to a legal settlement. Operating profit for the
year ended December 31, 2008 increased compared to the same
period in 2007 due to increased revenues, a change in the mix of
barges sold, improved margins due to operating efficiencies, and
the $2.0 million refund in unclaimed settlement funds
related to the legal settlement (see Note 18 of the Notes
to Consolidated Financial Statements). Barge litigation and
related costs were insignificant for 2009, $0.2 million for
2008, and $16.5 million for 2007, which included a
$15.0 million charge for the resolution of the legal
settlement. As of December 31, 2009, the backlog for the
Inland Barge Group was approximately $318.8 million
compared to approximately $527.8 million and approximately
$752.8 million for 2008 and 2007, respectively.
Energy
Equipment Group
|
Year Ended
December 31,
|
Percent Change
|
|||||||||||||||||||
|
2009 |
2008 | 2007 |
2009 versus 2008 |
2008 versus 2007 | ||||||||||||||||
| ($ in millions) | ||||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||
|
Structural wind towers
|
$ | 358.3 | $ | 422.5 | $ | 245.9 | (15.2 | )% | 71.8 | % | ||||||||||
|
Other
|
151.7 | 210.1 | 188.0 | (27.8 | )% | 11.8 | % | |||||||||||||
|
Total revenues
|
$ | 510.0 | $ | 632.6 | $ | 433.9 | (19.4 | )% | 45.8 | % | ||||||||||
|
Operating profit
|
$ | 73.8 | $ | 100.3 | $ | 50.1 | ||||||||||||||
|
Operating profit margin
|
14.5 | % | 15.9 | % | 11.5 | % | ||||||||||||||
Revenues decreased for the year ended December 31, 2009
compared to the same period in 2008 due to overall lower
volumes. Revenues increased for the year ended December 31,
2008 compared to the same period in 2007 due to an increase in
sales of structural wind towers and products manufactured and
sold in Mexico offset by lower sales in the weaker U.S. LPG
tank market. As of December 31, 2009, the backlog for
structural wind towers was approximately $1.1 billion and
is expected to be evenly delivered over the years ending
December 31, 2010, 2011, and 2012 compared to approximately
$1.4 billion and approximately $702.4 million for 2008
and 2007, respectively.
Operating profit and operating margin for the year ended
December 31, 2009 decreased compared to the same period in
2008 as a result of lower volumes partially offset by improved
operating profit in structural wind towers due to better
operating efficiencies and product mix. Operating profit and
operating profit margin for the year ended December 31,
2008 increased compared to the same period in 2007 due to an
increase in sales of structural wind towers and the improved
margins on containers produced in Mexico.
27
Table of Contents
Railcar
Leasing and Management Services Group
|
Year Ended
December 31,
|
Percent Change
|
|||||||||||||||||||
|
2009 |
2008 | 2007 |
2009 versus 2008 |
2008 versus 2007 | ||||||||||||||||
| ($ in millions) | ||||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||
|
Leasing and management
|
$ | 329.3 | $ | 313.8 | $ | 272.4 | 4.9 | % | 15.2 | % | ||||||||||
|
Sales of cars from the lease fleet
|
195.2 | 222.1 | 359.3 | (12.1 | )% | (38.2 | )% | |||||||||||||
|
Total revenues
|
$ | 524.5 | $ | 535.9 | $ | 631.7 | (2.1 | )% | (15.2 | )% | ||||||||||
|
Operating profit:
|
||||||||||||||||||||
|
Leasing and management
|
$ | 128.5 | $ | 124.2 | $ | 112.0 | ||||||||||||||
|
Sales of cars from the lease fleet
|
20.5 | 34.7 | 49.2 | |||||||||||||||||
|
Total operating profit
|
$ | 149.0 | $ | 158.9 | $ | 161.2 | ||||||||||||||
|
Operating profit margin:
|
||||||||||||||||||||
|
Leasing and management
|
39.0 | % | 39.6 | % | 41.1 | % | ||||||||||||||
|
Sales of cars from the lease fleet
|
10.5 | 15.6 | 13.7 | |||||||||||||||||
|
Total operating profit margin
|
28.4 | 29.7 | 25.5 | |||||||||||||||||
|
Fleet utilization at year end
|
97.8 | % | 98.6 | % | 99.2 | % | ||||||||||||||
Total revenues decreased for the year ended December 31,
2009 due to decreased sales from the lease fleet partially
offset by increased rental revenues related to additions to the
lease fleet. Total revenues decreased for the year ended
December 31, 2008 due to decreased sales from the lease
fleet offset by increased rental revenues related to additions
to the lease fleet, and management and origination fees.
Operating profit decreased for the year ended December 31,
2009 due to lower profit for lease fleet sales, lower fleet
utilization and lower rental rates partially offset by increased
rental proceeds from fleet additions. Operating profit for
leasing and management operations increased for the year ended
December 31, 2008 primarily due to rental proceeds from
fleet additions. Results for the year ended December 31,
2009 included $183.8 million in sales of railcars to TRIP
Leasing that resulted in the recognition of previously deferred
gains of $30.3 million of which $7.6 million were
deferred based on our equity interest. Results for the years
ended December 31, 2008 and December 31, 2007 included
$134.2 million and $283.6 million, respectively, in
sales of railcars to TRIP Leasing that resulted in the
recognition of previously deferred gains of $20.8 million
and $48.6 million, respectively, of which $4.2 million
and $9.7 million, respectively, in profit was deferred
based on our equity interest.
To fund the continued expansion of its lease fleet to meet
market demand, the Leasing Group generally uses its non-recourse
$475 million warehouse facility or excess cash to provide
initial financing for a portion of the purchase price of the
railcars. Due to the lower level of demand for railcars and the
Company’s resulting need for less financing of this type,
the size of the warehouse facility commitment was reduced from
$600 million to $475 million at the time of the
renewal. After initial financing, the Leasing Group generally
obtains long-term financing for the railcars in the lease fleet
through long-term recourse debt such as equipment trust
certificates, long-term non-recourse operating leases pursuant
to sales/leaseback transactions, non-recourse asset-backed
securities, or recourse convertible subordinated notes. In
November 2009, Trinity Rail Leasing VII LLC issued
$238.3 million of
20-year
non-recourse secured railcar equipment notes. See
Financing
Activities
.
As of December 31, 2009, the Leasing Group’s lease
fleet of approximately 50,090 owned or leased railcars had an
average age of 5.3 years and an average remaining lease
term of 3.8 years.
28
Table of Contents
All
Other
|
Year Ended
December 31,
|
Percent Change
|
|||||||||||||||||||
|
2009 |
2008 | 2007 |
2009 versus 2008 |
2008 versus 2007 | ||||||||||||||||
| ($ in millions) | ||||||||||||||||||||
|
Revenues
|
$ | 48.4 | $ | 78.7 | $ | 69.8 | (38.5 | )% | 12.8 | % | ||||||||||
|
Operating profit (loss)
|
$ | 0.8 | $ | 7.0 | $ | 4.6 | ||||||||||||||
The decrease in revenues for the year ended December 31,
2009 over the same period in 2008 was primarily due to a
decrease in both external and intersegment sales by our
transportation company as a result of an overall decline in
business activity. The increase in revenues for the year ended
December 31, 2008 over 2007 was primarily attributable to
an increase in intersegment sales by our transportation company.
The decrease in operating profit for the year ended
December 31, 2009 as compared to 2008 was primarily due to
the decrease in transportation company revenue and a decline in
the market valuation of commodity hedges that are required to be
marked to market. The increase in operating profit for the year
ended December 31, 2008 as compared to 2007 was due to the
increase in intersegment sales, partially offset by an increase
in legal and environmental costs associated with non-operating
facilities and a decline in the market valuation of commodity
hedges that are required to be marked to market.
Liquidity
and Capital Resources
Cash
Flows
Operating Activities.
Net cash provided by the
operating activities of continuing operations for the year ended
December 31, 2009 was $659.9 million compared to
$420.7 million of net cash provided by the operating
activities of continuing operations for the same period in 2008.
There was $0.2 million of net cash required by operating
activities of discontinued operations for the year ended
December 31, 2009 compared to $1.5 million of net cash
required by operating activities for discontinued operations for
the same period in 2008.
Accounts receivables at December 31, 2009 as compared to
the accounts receivables balance at December 31, 2008
decreased by $91.5 million or approximately 36.4% due to
lower shipping volumes and the collection of foreign tax
receivables. Income tax receivable declined primarily due to the
receipt of $111.4 million in income tax refunds. Raw
materials inventory at December 31, 2009 decreased by
$255.9 million or approximately 72.5% since
December 31, 2008 primarily attributable to lower demand
resulting from lower production levels. Finished goods inventory
decreased by $59.7 million since December 31, 2008
primarily due to lower finished goods inventory in our Rail
Group. Accounts payable and accrued liabilities decreased from
December 31, 2008 by $248.1 million primarily due to
lower production activity.
Investing Activities.
Net cash required by investing
activities of continuing operations for the year ended
December 31, 2009 was $185.3 million compared to
$1.0 billion for the same period last year. Capital
expenditures for the year ended December 31, 2009 were
$429.2 million, of which $381.8 million were for
additions to the lease fleet. This compares to
$1,243.1 million of capital expenditures for the same
period last year, of which $1,110.8 million were for
additions to the lease fleet. Proceeds from the sale of
property, plant, and equipment and other assets were
$313.9 million for the year ended December 31, 2009,
composed primarily of railcar sales from the lease fleet, which
included $183.8 million to TRIP Leasing, and the sale of
non-operating assets. This compared to $242.9 million for
the same period in 2008 composed primarily of railcar sales from
the lease fleet, which included $134.2 million to TRIP
Leasing, and the sale of non-operating assets.
Financing Activities.
Net cash required by financing
activities during the year ended December 31, 2009 was
$24.4 million compared to $453.2 million provided by
financing activities for the same period in 2008. In February
2009, we repaid in full our Leasing Group’s equipment trust
certificates in the amount of $61.4 million. In May 2009,
TILC entered into a seven-year $61 million term loan
agreement. During the year ended December 31, 2009, TILC
entered into ten-year capital lease obligations totaling
$56.6 million. These new debt obligations are guaranteed by
the Company and secured by railcar equipment and related leases.
We intend to use our cash and credit facilities to fund the
operations, expansions, and growth initiatives of the Company.
29
Table of Contents
At December 31, 2009, there were no borrowings under our
$425 million revolving credit facility that matures on
October 19, 2012. Interest on the revolving credit facility
is calculated at prime or LIBOR plus 75 basis points. After
$89.6 million was considered for letters of credit,
$335.4 million was available under the revolving credit
facility as of December 31, 2009.
In May 2008, the Financial Accounting Standards Board
(“FASB”) issued a new accounting pronouncement which
requires that issuers of certain convertible debt instruments
that may be settled in cash upon conversion to separately
account for the liability and equity components in a manner that
will reflect the entity’s nonconvertible debt borrowing
rate when interest expense is recognized in subsequent periods.
The effective date of the new accounting pronouncement is for
financial statements issued for fiscal years and interim periods
beginning after December 15, 2008 and does not permit
earlier application. The pronouncement requires that all periods
presented be adjusted. The Company adopted the provisions of the
new accounting pronouncement as of January 1, 2009 and has
accordingly adjusted amounts previously reported with respect to
Debt, Other assets, Capital in excess of par value, Deferred
income taxes and Interest expense. See Note 11 of the Notes
to Consolidated Financial Statements for a further explanation
of the effects of implementing this pronouncement as it applies
to our Convertible Subordinated Notes.
In May 2008, Trinity Rail Leasing VI LLC , a Delaware limited
liability company (“TRL VI”), a limited purpose,
indirect subsidiary of the Company owned through TILC, issued
$572.2 million of
30-year
promissory notes (the “Promissory Notes”) to financial
institutions. The Promissory Notes were secured by a portfolio
of railcars valued at approximately $743.1 million,
operating leases thereon, and certain cash reserves. The
Promissory Notes are obligations of TRL VI and are non-recourse
to Trinity. TRL VI acquired the railcars securing the Promissory
Notes by purchase from TILC and a subsidiary. The proceeds were
used to repay a portion of our warehouse facility and to finance
unencumbered railcars on our consolidated balance sheet. TILC
entered into certain agreements relating to the transfer of the
railcars to TRL VI and the management and servicing of TRL
VI’s assets. The Promissory Notes bear interest at a
floating rate of one-month LIBOR plus a margin of 1.50%. The
LIBOR portion of the interest rate on the Promissory Notes is
fixed at approximately 4.13% for the first seven years from the
date of issuance of the Promissory Notes through interest rate
hedges. The interest rate margin on the Promissory Notes will
increase by 0.50% on each of the seventh and eighth anniversary
dates of the issuance of the Promissory Notes and by an
additional 2.00% on the tenth anniversary date of the issuance
of the Promissory Notes. The Promissory Notes may be prepaid at
any time and may be prepaid without penalty at any time after
the third anniversary date of the issuance of the Promissory
Notes.
In May 2009, TILC renewed its railcar leasing warehouse facility
through February 2011. Unless renewed, this facility will be
payable in three equal installments in August 2011, February
2012, and August 2012. The facility, which originally matured in
August 2009, was established to finance railcars owned by TILC.
Railcars financed by the warehouse facility have historically
been refinanced under long-term financing agreements. Specific
railcars and the underlying leases secure the facility. Advances
under the facility may not exceed 75% of the fair market value
of the eligible railcars securing the facility as defined by the
agreement. Due to the lower level of demand for railcars and the
Company’s resulting need for less financing of this type,
the size of the warehouse facility commitment was reduced from
$600 million to $475 million at the time of the
renewal. Advances under this facility bear interest at a defined
index rate plus a margin, for an all-in interest rate of 2.77%
at December 31, 2009. At December 31, 2009,
$141.4 million was outstanding and $333.6 million was
available under this facility.
In November 2009, TRL VII, a limited purpose, indirect
wholly-owned subsidiary of the Company owned through TILC,
issued $238.3 million in aggregate principal amount of
Secured Railcar Equipment Notes,
Series 2009-1
(“the 2009 Secured Railcar Equipment Notes”). The 2009
Secured Railcar Equipment Notes were issued pursuant to a Master
Indenture, dated November 5, 2009 between TRL VII and
Wilmington Trust Company, as indenture trustee. The 2009
Secured Railcar Equipment Notes bear interest at a fixed rate of
6.657% per annum, are payable monthly, and have a final maturity
date of November 16, 2039. The 2009 Secured Railcar
Equipment Notes are limited recourse obligations of TRL VII
only, secured by a portfolio of railcars and operating leases
thereon, certain cash reserves, and other assets acquired and
owned by TRL VII.
On December 8, 2009, the Company’s Board of Directors
authorized an extension of its stock repurchase program. This
extension allows for the repurchase of the Company’s common
stock through December 31, 2010.
30
Table of Contents
The repurchase program originally commenced in 2007 with an
authorization of $200 million. During the year ended
December 31, 2009, 813,028 shares were repurchased
under this program at a cost of approximately $6.3 million.
Since the inception of this program, the Company has repurchased
a total of 3,532,728 shares at a cost of approximately
$67.5 million.
The economic and financial crisis experienced by the United
States economy during 2009 and 2008 has impacted our businesses.
New orders for railcars and barges continued to drop
significantly in 2009 as the transportation industry saw a
significant decline in the shipment of freight. The 2010 outlook
for the transportation industry is for continued weakness.
Orders for structural wind towers have been slow since mid-2008
when green energy companies experienced tightened credit markets
coupled with lower prices for electricity and natural gas sales.
The slowdown in the residential and commercial construction
markets impacted our Construction Products Group as well. We
continually assess our manufacturing capacity and take steps to
align our production capacity with demand. As a result of our
assessment, we have adapted to the rapid decline in market
conditions by reducing our production footprint and staffing
levels.
Equity
Investment
See Note 6 of the Notes to Consolidated Financial
Statements.
Future
Operating Requirements
We expect to finance future operating requirements with cash
flows from operations, and depending on market conditions,
long-term and short-term debt, and equity. Debt instruments that
the Company has utilized include its revolving credit facility,
the warehouse facility, senior notes, convertible subordinated
notes, asset-backed securities, and sale/leaseback transactions.
The Company has also issued equity at various times. As of
December 31, 2009, the Company had $335.4 million
available under its revolving credit facility and
$333.6 million available under its warehouse facility.
Despite the volatile conditions in both the credit and stock
markets, the Company believes it has access to adequate capital
resources to fund operating requirements and is active in the
credit markets.
Off
Balance Sheet Arrangements
See Notes 5 and 6 of the Notes to Consolidated Financial
Statements.
Derivative
Instruments
We use derivative instruments to mitigate the impact of
increases in interest rates and zinc, natural gas, and diesel
fuel prices, as well as to convert a portion of our
variable-rate debt to fixed-rate debt. Additionally, we use
derivative instruments to mitigate the impact of unfavorable
fluctuations in foreign currency exchange rates. We also use
derivatives to lock in fixed interest rates in anticipation of
future debt issuances. For instruments designated as hedges, the
Company formally documents the relationship between the hedging
instrument and the hedged item, as well as the risk management
objective and strategy for the use of the hedging instrument.
This documentation includes linking the derivatives that are
designated as fair value or cash flow hedges to specific assets
or liabilities on the balance sheet, commitments, or forecasted
transactions. At the time a derivative contract is entered into,
and at least quarterly thereafter, the Company assesses whether
the derivative item is effective in offsetting the changes in
fair value or cash flows. Any change in fair value resulting in
ineffectiveness, as defined by accounting standards issued by
the FASB is recognized in current period earnings. For
derivative instruments that are designated and qualify as cash
flow hedges, the effective portion of the gain or loss on the
derivative instrument is recorded in Accumulated Other
Comprehensive Loss (“AOCL”) as a separate component of
stockholders’ equity and reclassified into earnings in the
period during which the hedge transaction affects earnings.
Trinity monitors its derivative positions and credit ratings of
its counterparties and does not anticipate losses due to
counterparties’ non- performance. See Notes 3 and 7 of
the Notes to Consolidated Financial Statements for discussion on
how the Company valued its commodity hedges and interest rate
swaps at December 31, 2009.
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Table of Contents
Interest
rate hedges
In anticipation of a future debt issuance, we entered into
interest rate swap transactions during the fourth quarter of
2006 and during 2007. These instruments, with a notional amount
of $370 million, hedged the interest rate on a portion of a
future debt issuance associated with an anticipated railcar
leasing transaction, which closed in May 2008. These instruments
settled during the second quarter of 2008. The weighted average
fixed interest rate under these instruments was 5.34%. These
interest rate swaps were accounted for as cash flow hedges with
changes in the fair value of the instruments of
$24.5 million recorded as a loss in AOCL through the date
the related debt issuance closed with a principal balance of
$572.2 million in May 2008. The balance is being amortized
over the term of the related debt. On December 31, 2009,
the balance remaining in AOCL was $17.9 million. The effect
on interest expense for the year ended December 31, 2009
was an increase of $4.0 million due to the amortization of
the AOCL balance. The effect on interest expense for the year
ended December 31, 2008 was an increase of
$7.1 million. Of the expense, $4.5 million was due to
the ineffective portion of the hedges primarily associated with
hedged interest payments that were never made and
$2.6 million was due to amortization of the AOCL balance.
It is expected that $3.8 million in interest expense will
be recognized during 2010 from amortization of the AOCL balance.
In May 2008, we entered into an interest rate swap transaction
that is being used to fix the LIBOR component of the debt
issuance which closed in May 2008. The fixed interest rate under
this instrument is 4.126%. The amount recorded for this
instrument as of December 31, 2009 in the consolidated
balance sheet was a liability of $30.1 million, with
$28.1 million of expense in AOCL. The effect on interest
expense for the years ended December 31, 2009 and
December 31, 2008 was an increase of $21.6 million and
$5.5 million, respectively, which related to the monthly
settlement of interest and in 2009, included $1.0 million
in unrealized derivative losses reclassified from AOCL that was
related to a partial retirement of the debt issuance. See
Notes 11 and 15 of the Notes to Consolidated Financial
Statements. Based on the fair value of the interest rate hedge
as of December 31, 2009, it is expected that
$18.5 million in interest expense will be recognized during
2010.
During the fourth quarter of 2008, we entered into interest rate
swap transactions, with a notional amount of $200 million,
which are being used to counter our exposure to changes in the
variable interest rate associated with our warehouse facility.
The weighted average fixed interest rate under these instruments
at December 31, 2009 was 1.798%. The amount recorded for
these instruments as of December 31, 2009 in the
consolidated balance sheet was a liability of $2.4 million.
The effect on interest expense for the years ended
December 31, 2009 and December 31, 2008 was an
increase of $2.9 million and $2.4 million,
respectively, which included the mark to market valuation on the
interest rate swap transactions and the monthly settlement of
interest. Based on the fair value of the interest rate hedges as
of December 31, 2009, it is expected that $2.4 million
in interest expense will be recognized during 2010.
During 2005 and 2006, we entered into interest rate swap
transactions in anticipation of a future debt issuance. These
instruments, with a notional amount of $200 million, fixed
the interest rate on a portion of a future debt issuance
associated with a railcar leasing transaction in 2006 and
settled at maturity in the first quarter of 2006. The weighted
average fixed interest rate under these instruments was 4.87%.
These interest rate swaps were being accounted for as cash flow
hedges with changes in the fair value of the instruments of
$4.5 million in income recorded in AOCL through the date
the related debt issuance closed in May 2006. The balance is
being amortized over the term of the related debt. At
December 31, 2009, the balance remaining in AOCL was
$3.0 million of income. The effect of the amortization on
interest expense for each of the years ended December 31,
2009, 2008, and 2007 was a decrease of $0.4 million. It is
expected that $0.4 million in earnings will be recognized
during 2010 from amortization of the AOCL balance.
Natural
gas and diesel fuel
We continue a program to mitigate the impact of fluctuations in
the price of natural gas and diesel fuel purchases. The intent
of the program is to protect our operating profit from adverse
price changes by entering into derivative instruments. For those
instruments that do not qualify for hedge accounting treatment,
any changes in their valuation are recorded directly to the
consolidated statement of operations. The amount recorded in the
consolidated balance sheet as of December 31, 2009 for
these instruments was not significant. The effect on the
consolidated statement of operations for the year ended
December 31, 2009 was operating expense of
$1.5 million,
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which includes the mark to market valuation resulting in a loss
of $0.3 million. In July 2008, we settled our 2008
outstanding diesel fuel hedge contracts. The effect of the
change in fair value of the diesel fuel hedges, as well as the
effect of the settled 2008 diesel fuel contracts, on the
consolidated statement of operations for the year ended
December 31, 2008 was operating income of
$9.5 million. The amount recorded in the consolidated
balance sheet for natural gas hedges was a liability of
$2.0 million as of December 31, 2008 and
$1.0 million of expense in AOCL for both types of
derivative instruments. The effect of the natural gas hedges on
the consolidated statement of operations for the year ended
December 31, 2008 was operating expense of
$1.3 million, including losses of $0.3 million
resulting from the mark to market valuation for the year ended
December 31, 2008. The effect on the consolidated statement
of operations for both types of derivative instruments for the
year ended December 31, 2007 was operating income of
$2.2 million.
Foreign
Exchange Hedge
During the year ended December 31, 2009, we entered into
foreign exchange hedges to mitigate the impact on operating
profit of unfavorable fluctuations in foreign currency exchange
rates. These instruments are short term with quarterly
maturities and no remaining balance in AOCL as of
December 31, 2009. The effect on the consolidated statement
of operations for the year ended December 31, 2009 was
expense of $1.9 million included in other, net on the
consolidated statement of operations.
Zinc
In 2008, we continued a program to mitigate the impact of
fluctuations in the price of zinc purchases. The intent of this
program was to protect our operating profit from adverse price
changes by entering into derivative instruments. During the
third quarter of 2009, we entered into a derivative instrument
which expired on December 31, 2009. The effect of this
derivative instrument on the 2009 consolidated financial
statement of operations was not significant. During the fourth
quarter of 2009, we entered into a derivative instrument
expiring on March 31, 2010. The effect of this derivative
instrument on the 2009 consolidated financial statements was not
significant. The effect on the consolidated statement of
operations for the years ended December 31, 2008 and
December 31, 2007 was income of $1.8 million and
$2.6 million, respectively.
Stock-Based
Compensation
We have a stock-based compensation plan covering our employees
and our Board of Directors. See Note 16 of the Notes to
Consolidated Financial Statements.
Employee
Retirement Plans
As disclosed in Note 14 of the Notes to Consolidated
Financial Statements, the projected benefit obligation for the
employee retirement plans exceeds the plans’ assets by
$68.5 million as of December 31, 2009 as compared to
$133.4 million as of December 31, 2008. The change was
primarily due to an increase in actual investment returns and
well as the curtailment of plan benefits as further discussed
below. We continue to sponsor an employee savings plan under the
existing 401(k) plan that covers substantially all employees and
includes a Company matching contribution of up to 6% based on
our performance, as well as a Supplemental Profit Sharing Plan.
Employer contributions for the year ending December 31,
2010 are expected to be $12.3 million for the defined
benefit plans compared to $19.3 million contributed during
2009. Employer contributions to the 401(k) plans and the
Supplemental Profit Sharing Plan for the year ending
December 31, 2010 are expected to be $7.7 million
compared to $7.4 million during 2009.
During the first quarter of 2009, the Company amended its
Supplemental Retirement Plan (the “Supplemental Plan”)
to reduce future retirement plan costs. This amendment provides
that all benefit accruals under the Supplemental Plan cease
effective March 31, 2009, and the Supplemental Plan was
frozen as of that date. In addition, the Company amended the
Trinity Industries, Inc. Standard Pension Plan (the
“Pension Plan”). This amendment was designed to reduce
future pension costs and provides that, effective March 31,
2009, all future benefit accruals under the Pension Plan
automatically cease for all participants, and the accrued
benefits under the Pension Plan were determined and frozen as of
that date. Accordingly, as a result of these amendments, accrued
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Table of Contents
pension liability was reduced by $44.1 million with an
offsetting reduction in funded status of pension liability
included in AOCL.
Contractual
Obligations and Commercial Commitments
As of December 31, 2009, we had the following contractual
obligations and commercial commitments:
| Payments Due by Period | ||||||||||||||||||||
|
1 Year
|
2-3
|
4-5
|
After
|
|||||||||||||||||
|
Contractual Obligations and Commercial Commitments
|
Total | or Less | Years | Years | 5 Years | |||||||||||||||
| (in millions) | ||||||||||||||||||||
|
Debt, excluding interest
|
$ | 1,966.7 | $ | 62.6 | $ | 253.7 | $ | 321.4 | $ | 1,329.0 | ||||||||||
|
Operating leases
|
22.4 | 12.1 | 9.0 | 1.0 | 0.3 | |||||||||||||||
|
Purchase obligations(1)
|
44.2 | 44.2 | — | — | — | |||||||||||||||
|
Letters of credit
|
89.6 | 84.4 | 5.2 | — | — | |||||||||||||||
|
Leasing Group — operating leases related to
sale/leaseback transactions
|
690.3 | 46.4 | 96.0 | 100.2 | 447.7 | |||||||||||||||
|
Other
|
56.8 | 39.4 | 13.1 | 4.3 | — | |||||||||||||||
|
Total
|
$ | 2,870.0 | $ | 289.1 | $ | 377.0 | $ | 426.9 | $ | 1,777.0 | ||||||||||
| (1) | Non-cancelable purchase obligations principally relate to the Inland Barge Group. |
On January 1, 2007, we adopted the provisions of a
pronouncement issued by the FASB regarding the accounting
treatment of uncertain tax positions. See Note 13 of the
Notes to Consolidated Financial Statements. As of
December 31, 2009 and 2008, we had approximately
$56.1 million and $43.5 million, respectively, of tax
liabilities, including interest and penalties, related to
uncertain tax positions. Because of the high degree of
uncertainty regarding the timing of future cash outflows
associated with these liabilities, we are unable to estimate the
years in which settlement will occur with the respective taxing
authorities.
Critical
Accounting Policies and Estimates
Management’s Discussion and Analysis of Financial Condition
and Results of Operations discusses our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States.
The preparation of these consolidated financial statements
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues
and expenses during the reporting period. On an on-going basis,
management evaluates its estimates and judgments, including
those related to bad debts, inventories, property, plant, and
equipment, goodwill, income taxes, warranty obligations,
insurance, restructuring costs, contingencies, and litigation.
Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under
different assumptions or conditions.
We believe the following critical accounting policies, among
others, affect our more significant judgments and estimates used
in the preparation of our consolidated financial statements.
Inventory
We state all our inventories at the lower of cost or market. Our
policy related to excess and obsolete inventory requires the
inventory to be analyzed at the business unit level on a
quarterly basis and to record any required adjustments. In
assessing the ultimate realization of inventories, we are
required to make judgments as to future demand requirements and
compare that with the current or committed inventory levels. It
is possible that changes in required inventory reserves may
occur in the future due to then current market conditions.
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Long-lived
Assets
We periodically evaluate the carrying value of long-lived assets
to be held and used for potential impairment. The carrying value
of long-lived assets to be held and used is considered impaired
only when the carrying value is not recoverable through
undiscounted future cash flows and the fair value of the assets
is less than its carrying value. Fair value is determined
primarily using the anticipated cash flows discounted at a rate
commensurate with the risks involved or market quotes as
available. Impairment losses on long-lived assets held for sale
are determined in a similar manner, except that fair values are
reduced by the estimated cost to dispose of the assets.
Goodwill
Goodwill is required to be tested for impairment annually, or on
an interim basis, whenever events or circumstances change,
indicating that the carrying amount of the goodwill might be
impaired. The goodwill impairment test is a two-step process
requiring the comparison of the reporting unit’s estimated
fair value with the carrying amount of its net assets. Step two
of the impairment test is necessary to determine the amount of
goodwill impairment to be recorded when the reporting
unit’s recorded net assets exceed its fair value.
Impairment is assessed at the “reporting unit” level
by applying a fair value-baed test. We perform this test for our
five principal business segments: (1) the Rail Group,
(2) the Construction Products Group, (3) the Inland
Barge Group, (4) the Energy Equipment Group, and
(5) the Railcar Leasing and Management Services Group. The
estimates and judgments that most significantly affect the fair
value calculations are assumptions related to revenue and
operating profit growth, discount rates and exit multiples. Due
to an overall market decline for products in the Rail Group
during the second quarter of 2009, we concluded that indications
of impairment existed that required an interim goodwill
impairment analysis. Accordingly, we tested the Rail
Group’s goodwill for impairment as of June 30, 2009
and recorded a charge of $325 million during the second
quarter of 2009. As of December 31, 2009, the
Company’s annual impairment test of goodwill was completed
at the reporting unit level and no additional impairment charges
were determined to be necessary. See Note 9 of the Notes to
Consolidated Financial Statements for further explanation and
results of this test.
Given the current economic environment and the uncertainties
regarding the potential impact on our businesses, there can be
no assurance that our estimates and assumptions regarding the
duration of the ongoing economic downturn, or the period or
strength of recovery, made for the purposes of the long-lived
asset and goodwill impairment tests will prove to be accurate
predictions of the future. If our assumptions regarding
forecasted cash flows are not achieved, it is possible that
additional impairments of remaining goodwill and long-lived
assets may be required.
Warranties
The Company provides warranties against workmanship and
materials defects generally ranging from one to five years
depending on the product. The warranty costs are estimated using
a two step approach. First, an engineering estimate is made for
the cost of all claims that have been filed by a customer.
Second, based on historical claims experience, a cost is accrued
for all products still within a warranty period for which no
claims have been filed. The Company provides for the estimated
cost of product warranties at the time revenue is recognized
related to products covered by warranties and assesses the
adequacy of the resulting reserves on a quarterly basis.
Insurance
We are effectively self-insured for workers’ compensation
claims. A third-party administrator processes all such claims.
We accrue our workers’ compensation liability based upon
independent actuarial studies. To the extent actuarial
assumptions change and claims experience rates differ from
historical rates, our liability may change.
Contingencies
and Litigation
We are currently involved in certain legal proceedings. As
discussed in Note 18 of the Notes to Consolidated Financial
Statements, as of December 31, 2009, we have accrued our
estimate of the probable settlement or judgment costs for the
resolution of certain of these claims. This estimate has been
developed in consultation with
35
Table of Contents
outside counsel handling our defense in these matters and is
based upon an analysis of potential results, assuming a
combination of litigation and settlement strategies. We do not
believe these proceedings will have a material adverse effect on
our consolidated financial position. It is possible, however,
that future results of operations for any particular quarterly
or annual period could be materially affected by changes in our
assumptions related to these proceedings.
Environmental
We are involved in various proceedings related to environmental
matters. We have provided reserves to cover probable and
estimable liabilities with respect to such proceedings, taking
into account currently available information and our contractual
rights of indemnification. However, estimates of future response
costs are necessarily imprecise. Accordingly, there can be no
assurance that we will not become involved in future litigation
or other proceedings or, if we were found to be responsible or
liable in any litigation or proceeding, that such costs would
not be material to us.
Recent
Accounting Pronouncements
See Note 1 of the Notes to Consolidated Financial
Statements.
Forward-Looking
Statements
This annual report on
Form 10-K
(or statements otherwise made by the Company or on the
Company’s behalf from time to time in other reports,
filings with the SEC, news releases, conferences, World Wide Web
postings or otherwise) contains forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995. Any statements contained herein that are not
historical facts are forward-looking statements and involve
risks and uncertainties. These forward-looking statements
include expectations, beliefs, plans, objectives, future
financial performances, estimates, projections, goals, and
forecasts. Trinity uses the words “anticipates,”
“believes,” “estimates,”
“expects,” “intends,” “forecasts,”
“may,” “will,” “should,” and
similar expressions to identify these forward-looking
statements. Potential factors, which could cause our actual
results of operations to differ materially from those in the
forward-looking statements include, among others:
| • | market conditions and demand for our business products and services; |
| • | the cyclical nature of industries in which we compete; |
| • | variations in weather in areas where our construction and energy products are sold, used, or installed; |
| • | disruption of manufacturing capacity due to weather related events; |
| • | the timing of introduction of new products; |
| • | the timing of customer orders or a breach of customer contracts; |
| • | the credit worthiness of customers and their access to capital; |
| • | product price changes; |
| • | changes in mix of products sold; |
| • | the extent of utilization of manufacturing capacity; |
| • | availability and costs of steel, component parts, supplies, and other raw materials; |
| • | competition and other competitive factors; |
| • | changing technologies; |
| • | surcharges and other fees added to fixed pricing agreements for raw materials; |
| • | interest rates and capital costs; |
| • | counter-party risks for financial instruments; |
| • | long-term funding of our operations; |
| • | taxes; |
| • | the stability of the governments and political and business conditions in certain foreign countries, particularly Mexico; |
| • | changes in import and export quotas and regulations; |
| • | business conditions in foreign economies; |
| • | results of litigation; and |
| • | legal, regulatory, and environmental issues. |
36
Table of Contents
Any forward-looking statement speaks only as of the date on
which such statement is made. Trinity undertakes no obligation
to update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made.
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk. |
Our earnings could be affected by changes in interest rates due
to the impact those changes have on our variable rate debt
obligations, which represented approximately 36.4% of our total
debt as of December 31, 2009. If interest rates average one
percentage point more in fiscal year 2010 than they did during
2009, our interest expense would increase by $0.6 million.
In comparison, at December 31, 2008, we estimated that if
interest rates averaged one percentage point more in fiscal year
2009 than they did during the year ended December 31, 2008,
our interest expense would increase by $1.1 million. The
impact of an increase in interest rates was determined based on
the impact of the hypothetical change in interest rates and
scheduled principal payments on our variable-rate debt
obligations as of December 31, 2009 and 2008. A one
percentage point increase in the interest rate yield would
decrease the fair value of the fixed rate debt by approximately
$111.9 million. A one percentage point decrease in the
interest rate yield would increase the fair value of the fixed
rate debt by approximately $130.4 million.
Trinity uses derivative instruments to mitigate the impact of
increases in natural gas, diesel fuel prices, and zinc. Existing
hedge transactions as of December 31, 2009 are based on the
New York Mercantile Exchange for natural gas and heating oil.
Hedge transactions are settled with the counterparty in cash. At
December 31, 2009, the effect on the consolidated balance
sheet was insignificant, and at December 31, 2008 we had
recorded in the consolidated balance sheet a liability of
$2.0 million. The effect on the consolidated statement of
operations for the year ended December 31, 2009 was
operating expense of $1.5 million, and for the year ended
December 31, 2008 was operating income of
$10.0 million. We estimate that the impact to earnings and
the balance sheet that could result from hypothetical price
changes of up to 10% are not significant based on hedge
positions at December 31, 2009.
In addition, we are subject to market risk related to our net
investments in our foreign subsidiaries. The net investment in
foreign subsidiaries as of December 31, 2009 was
$181.9 million. The impact of such market risk exposures as
a result of foreign exchange rate fluctuations has not been
material to us. See Note 12 of the Notes to Consolidated
Financial Statements.
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Table of Contents
| Item 8. | Financial Statements and Supplementary Data. |
Trinity
Industries, Inc.
Index to Financial Statements
| Page | ||||
| 39 | ||||
| 40 | ||||
| 41 | ||||
| 42 | ||||
| 43 | ||||
| 44 | ||||
| 45 | ||||
The Consolidated Balance Sheet as of December 31, 2008, the
Consolidated Statements of Operations for the years ended
December 31, 2007 and 2008 and the Consolidated Statements
of Cash Flows for the years ended December 31, 2007 and
2008 have been adjusted due to the adoption of new accounting
pronouncements. See Notes 11 and 17 of the Notes to
Consolidated Financial Statements for an explanation of the
effects of these pronouncements.
38
Table of Contents
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Trinity Industries, Inc.
We have audited Trinity Industries, Inc. and Subsidiaries’
internal control over financial reporting as of
December 31, 2009, based on criteria established in
Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). Trinity Industries, Inc.’s management
is responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness
of internal control over financial reporting included in the
accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion
on the Company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Trinity Industries, Inc. and Subsidiaries
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2009, based on
the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Trinity Industries, Inc. and
Subsidiaries as of December 31, 2009 and 2008, and the
related consolidated statements of operations, cash flows, and
stockholders’ equity for each of the three years in the
period ended December 31, 2009 of Trinity Industries, Inc.
and Subsidiaries and our report dated February 18, 2010
expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Dallas, Texas
February 18, 2010
39
Table of Contents
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Trinity Industries, Inc.
We have audited the accompanying consolidated balance sheets of
Trinity Industries, Inc. and Subsidiaries as of
December 31, 2009 and 2008, and the related consolidated
statements of operations, cash flows and stockholders’
equity for each of the three years in the period ended
December 31, 2009. These financial statements are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Trinity Industries, Inc. and Subsidiaries
at December 31, 2009 and 2008, and the consolidated results
of their operations and their cash flows for each of the three
years in the period ended December 31, 2009, in conformity
with U.S. generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial
statements, during the year ended December 31, 2009, the
Company adopted new accounting standards relating to convertible
debt instruments that may be settled in cash upon conversion and
the manner in which basic and diluted earnings per share are
calculated.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Trinity Industries, Inc. and subsidiaries’ internal control
over financial reporting as of December 31, 2009, based on
criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated February 18,
2010 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Dallas, Texas
February 18, 2010
40
Table of Contents
Trinity
Industries, Inc. and Subsidiaries
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (adjusted – see Notes 11 and 17) | ||||||||||||
| (in millions, except per share data) | ||||||||||||
|
Revenues
|
$ | 2,575.2 | $ | 3,882.8 | $ | 3,832.8 | ||||||
|
Operating costs:
|
||||||||||||
|
Cost of revenues
|
2,095.0 | 3,080.3 | 3,074.1 | |||||||||
|
Selling, engineering, and administrative expenses
|
185.9 | 243.0 | 228.9 | |||||||||
|
Goodwill impairment
|
325.0 | — | — | |||||||||
| 2,605.9 | 3,323.3 | 3,303.0 | ||||||||||
|
Operating profit (loss)
|
(30.7 | ) | 559.5 | 529.8 | ||||||||
|
Other (income) expense:
|
||||||||||||
|
Interest income
|
(1.7 | ) | (5.1 | ) | (12.2 | ) | ||||||
|
Interest expense
|
123.2 | 109.4 | 84.5 | |||||||||
|
Other, net
|
(5.3 | ) | 1.4 | 2.6 | ||||||||
| 116.2 | 105.7 | 74.9 | ||||||||||
|
Income (loss) from continuing operations before income taxes
|
(146.9 | ) | 453.8 | 454.9 | ||||||||
|
Provision (benefit) for income taxes:
|
||||||||||||
|
Current
|
14.4 | (75.8 | ) | 110.1 | ||||||||
|
Deferred
|
(23.8 | ) | 247.2 | 55.0 | ||||||||
| (9.4 | ) | 171.4 | 165.1 | |||||||||
|
Income (loss) from continuing operations
|
(137.5 | ) | 282.4 | 289.8 | ||||||||
|
Discontinued operations:
|
||||||||||||
|
Loss from discontinued operations, net of benefit for income
taxes of $(0.0), $(0.0), and $(0.2)
|
(0.2 | ) | (1.5 | ) | (0.7 | ) | ||||||
|
Net income (loss)
|
$ | (137.7 | ) | $ | 280.9 | $ | 289.1 | |||||
|
Net income (loss) per common share:
|
||||||||||||
|
Basic:
|
||||||||||||
|
Continuing operations
|
$ | (1.81 | ) | $ | 3.49 | $ | 3.58 | |||||
|
Discontinued operations
|
(0.00 | ) | (0.02 | ) | (0.01 | ) | ||||||
| $ | (1.81 | ) | $ | 3.47 | $ | 3.57 | ||||||
|
Diluted:
|
||||||||||||
|
Continuing operations
|
$ | (1.81 | ) | $ | 3.47 | $ | 3.55 | |||||
|
Discontinued operations
|
(0.00 | ) | (0.02 | ) | (0.01 | ) | ||||||
| $ | (1.81 | ) | $ | 3.45 | $ | 3.54 | ||||||
|
Weighted average number of shares outstanding:
|
||||||||||||
|
Basic
|
76.4 | 78.4 | 78.7 | |||||||||
|
Diluted
|
76.4 | 78.8 | 79.4 | |||||||||
|
Dividends declared per common share
|
$ | 0.32 | $ | 0.31 | $ | 0.26 | ||||||
See accompanying notes to consolidated financial statements.
41
Table of Contents
Trinity
Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
Consolidated Balance Sheets
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
|
(adjusted – see
|
||||||||
| Note 11) | ||||||||
| (in millions) | ||||||||
|
ASSETS
|
||||||||
|
Cash and cash equivalents
|
$ | 611.8 | $ | 161.8 | ||||
|
Short-term marketable securities
|
70.0 | — | ||||||
|
Receivables, net of allowance for doubtful accounts of $5.1 and
$6.8
|
159.8 | 251.3 | ||||||
|
Income tax receivable
|
11.2 | 98.7 | ||||||
|
Inventories:
|
||||||||
|
Raw materials and supplies
|
97.1 | 353.0 | ||||||
|
Work in process
|
46.5 | 111.2 | ||||||
|
Finished goods
|
87.9 | 147.6 | ||||||
| 231.5 | 611.8 | |||||||
|
Property, plant, and equipment, at cost
|
3,973.3 | 3,843.5 | ||||||
|
Less accumulated depreciation
|
(935.1 | ) | (852.9 | ) | ||||
| 3,038.2 | 2,990.6 | |||||||
|
Goodwill
|
180.8 | 504.0 | ||||||
|
Restricted cash
|
138.6 | 112.1 | ||||||
|
Other assets
|
214.5 | 181.3 | ||||||
| $ | 4,656.4 | $ | 4,911.6 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
|
Accounts payable
|
$ | 76.8 | $ | 217.6 | ||||
|
Accrued liabilities
|
374.5 | 481.8 | ||||||
|
Debt:
|
||||||||
|
Recourse, net of unamortized discount of $121.6 and $131.2
|
646.0 | 584.4 | ||||||
|
Non-recourse
|
1,199.1 | 1,190.3 | ||||||
| 1,845.1 | 1,774.7 | |||||||
|
Deferred income
|
77.7 | 71.8 | ||||||
|
Deferred income taxes
|
397.9 | 388.3 | ||||||
|
Other liabilities
|
78.1 | 65.1 | ||||||
| 2,850.1 | 2,999.3 | |||||||
|
Stockholders’ equity:
|
||||||||
|
Preferred stock — 1.5 shares authorized and
un-issued
|
— | — | ||||||
|
Common stock — shares authorized — 200.0;
shares issued and outstanding at December 31,
2009 — 81.7; at December 31, 2008 — 81.7
|
81.7 | 81.7 | ||||||
|
Capital in excess of par value
|
598.4 | 612.7 | ||||||
|
Retained earnings
|
1,263.9 | 1,427.0 | ||||||
|
Accumulated other comprehensive loss
|
(98.0 | ) | (161.3 | ) | ||||
|
Treasury stock — at December 31, 2009 —
2.5 shares; at December 31, 2008 —
2.3 shares
|
(39.7 | ) | (47.8 | ) | ||||
| 1,806.3 | 1,912.3 | |||||||
| $ | 4,656.4 | $ | 4,911.6 | |||||
See accompanying notes to consolidated financial statements.
42
Table of Contents
Trinity
Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Consolidated Statements of Cash Flows
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (adjusted – see Note 11) | ||||||||||||
| (in millions) | ||||||||||||
|
Operating activities:
|
||||||||||||
|
Net income (loss)
|
$ | (137.7 | ) | $ | 280.9 | $ | 289.1 | |||||
|
Adjustments to reconcile net income (loss) to net cash provided
by continuing operating activities:
|
||||||||||||
|
Loss from discontinued operations
|
0.2 | 1.5 | 0.7 | |||||||||
|
Goodwill impairment
|
325.0 | — | — | |||||||||
|
Depreciation and amortization
|
160.8 | 140.3 | 118.9 | |||||||||
|
Stock-based compensation expense
|
13.5 | 18.7 | 18.6 | |||||||||
|
Excess tax benefits from stock-based compensation
|
— | (0.9 | ) | (4.0 | ) | |||||||
|
(Benefit) provision for deferred income taxes
|
(23.8 | ) | 247.2 | 55.0 | ||||||||
|
Gain on disposition of property, plant, equipment, and other
assets
|
(5.9 | ) | (10.5 | ) | (17.0 | ) | ||||||
|
Other
|
(11.8 | ) | (17.8 | ) | (37.7 | ) | ||||||
|
Changes in assets and liabilities:
|
||||||||||||
|
(Increase) decrease in receivables
|
91.5 | 43.4 | (45.7 | ) | ||||||||
|
Decrease in income tax receivable — collection of
refunds
|
111.4 | — | — | |||||||||
|
Increase in income tax receivable — other
|
(23.9 | ) | (98.7 | ) | — | |||||||
|
(Increase) decrease in inventories
|
380.1 | (25.8 | ) | (50.9 | ) | |||||||
|
(Increase) decrease in restricted cash
|
(26.5 | ) | (20.4 | ) | 8.5 | |||||||
|
(Increase) decrease in other assets
|
(43.1 | ) | (18.6 | ) | (61.5 | ) | ||||||
|
Increase (decrease) in accounts payable
|
(140.8 | ) | (13.8 | ) | (5.2 | ) | ||||||
|
Increase (decrease) in accrued liabilities
|
(20.5 | ) | (114.5 | ) | 92.4 | |||||||
|
Increase (decrease) in other liabilities
|
11.4 | 9.7 | (16.0 | ) | ||||||||
|
Net cash provided by operating activities — continuing
operations
|
659.9 | 420.7 | 345.2 | |||||||||
|
Net cash required by operating activities —
discontinued operations
|
(0.2 | ) | (1.5 | ) | (0.7 | ) | ||||||
|
Net cash provided by operating activities
|
659.7 | 419.2 | 344.5 | |||||||||
|
Investing activities:
|
||||||||||||
|
Investment in short-term marketable securities
|
(70.0 | ) | — | — | ||||||||
|
Proceeds from sales of railcars from our lease fleet
|
195.2 | 222.1 | 359.3 | |||||||||
|
Proceeds from sales of railcars from our lease fleet —
sale and leaseback
|
103.6 | — | — | |||||||||
|
Proceeds from disposition of property, plant, equipment, and
other assets
|
15.1 | 20.8 | 51.0 | |||||||||
|
Capital expenditures — lease subsidiary
|
(381.8 | ) | (1,110.8 | ) | (705.4 | ) | ||||||
|
Capital expenditures — manufacturing and other
|
(47.4 | ) | (132.3 | ) | (188.7 | ) | ||||||
|
Payment for purchase of acquisitions, net of cash acquired
|
— | — | (51.0 | ) | ||||||||
|
Net cash required by investing activities
|
(185.3 | ) | (1,000.2 | ) | (534.8 | ) | ||||||
|
Financing activities:
|
||||||||||||
|
Issuance of common stock, net
|
1.1 | 3.1 | 12.2 | |||||||||
|
Excess tax benefits from stock-based compensation
|
— | 0.9 | 4.0 | |||||||||
|
Payments to retire debt
|
(294.0 | ) | (390.8 | ) | (129.5 | ) | ||||||
|
Proceeds from issuance of debt
|
300.1 | 922.5 | 304.8 | |||||||||
|
Stock repurchases
|
(6.3 | ) | (58.3 | ) | (2.9 | ) | ||||||
|
Dividends paid to common shareholders
|
(25.3 | ) | (24.2 | ) | (20.2 | ) | ||||||
|
Net cash (required) provided by financing activities
|
(24.4 | ) | 453.2 | 168.4 | ||||||||
|
Net increase (decrease) in cash and cash equivalents
|
450.0 | (127.8 | ) | (21.9 | ) | |||||||
|
Cash and cash equivalents at beginning of period
|
161.8 | 289.6 | 311.5 | |||||||||
|
Cash and cash equivalents at end of period
|
$ | 611.8 | $ | 161.8 | $ | 289.6 | ||||||
Interest paid for the years ended December 31, 2009, 2008,
and 2007, net of $0.9 million and $0.6 million in
capitalized interest for 2008, and 2007, respectively, was
$101.4 million, $84.3 million, and $71.5 million,
respectively. There was no capitalized interest in 2009. Tax
refunds received, net of payments made, for the year ended
December 31, 2009 were $85.6 million. Taxes paid, net
of refunds received, for the years ended December 31, 2008,
and 2007 were $33.6 million, and $71.3 million,
respectively.
Non-cash investing and financing activity: During the year ended
December 31, 2009, the Company acquired $56.6 million
of equipment on lease through the assumption of capital lease
obligations. The Company issued 325,800 shares of its
common stock valued at $11.7 million in connection with a
2007 acquisition. See Note 2 Acquisitions and Divestitures.
See accompanying notes to consolidated financial statements.
43
Table of Contents
Trinity
Industries, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Stockholders’ Equity
| Common Stock |
Accumulated
|
|||||||||||||||||||||||||||||||
|
Shares
|
Capital in
|
Other
|
Treasury
|
Total
|
||||||||||||||||||||||||||||
|
(200.0
|
$1.00 Par
|
Excess of Par
|
Retained
|
Comprehensive
|
Treasury
|
Stock at
|
Stockholders’
|
|||||||||||||||||||||||||
| Authorized) | Value | Value | Earnings | Loss | Shares | Cost | Equity | |||||||||||||||||||||||||
| (in millions, except par value) | ||||||||||||||||||||||||||||||||
|
Balances at December 31, 2006 as originally reported
|
80.0 | $ | 80.0 | $ | 484.3 | $ | 908.8 | $ | (69.2 | ) | (0.0 | ) | $ | (0.4 | ) | $ | 1,403.5 | |||||||||||||||
|
Cumulative effect of adopting accounting pronouncement (see
Note 11)
|
— | — | 92.8 | (2.8 | ) | — | — | — | 90.0 | |||||||||||||||||||||||
|
Balances at December 31, 2006 as adjusted
|
80.0 | $ | 80.0 | $ | 577.1 | $ | 906.0 | $ | (69.2 | ) | (0.0 | ) | $ | (0.4 | ) | $ | 1,493.5 | |||||||||||||||
|
Cumulative effect of adopting accounting pronouncement (see
Note 13)
|
— | — | — | (3.1 | ) | — | — | — | (3.1 | ) | ||||||||||||||||||||||
|
Net income
|
— | — | — | 289.1 | — | — | — | 289.1 | ||||||||||||||||||||||||
|
Other comprehensive income:
|
||||||||||||||||||||||||||||||||
|
Change in funded status of pension liability, net of tax
|
— | — | — | — | 18.7 | — | — | 18.7 | ||||||||||||||||||||||||
|
Currency translation adjustments, net of tax
|
— | — | — | — | 0.2 | — | — | 0.2 | ||||||||||||||||||||||||
|
Unrealized loss on derivative financial instruments, net of tax
|
— | — | — | — | (11.3 | ) | — | — | (11.3 | ) | ||||||||||||||||||||||
|
Comprehensive net income
|
296.7 | |||||||||||||||||||||||||||||||
|
Cash dividends on common stock
|
— | — | — | (21.0 | ) | — | — | — | (21.0 | ) | ||||||||||||||||||||||
|
Restricted shares issued, net
|
0.5 | 0.5 | 21.5 | — | — | — | (1.2 | ) | 20.8 | |||||||||||||||||||||||
|
Shares repurchased
|
— | — | — | — | — | (0.1 | ) | (2.9 | ) | (2.9 | ) | |||||||||||||||||||||
|
Shares issued for acquisition
|
0.3 | 0.3 | 11.4 | — | — | — | — | 11.7 | ||||||||||||||||||||||||
|
Stock options exercised
|
0.8 | 0.8 | 14.3 | — | — | (0.1 | ) | (3.4 | ) | 11.7 | ||||||||||||||||||||||
|
Income tax benefit from stock options exercised
|
— | — | 4.7 | — | — | — | — | 4.7 | ||||||||||||||||||||||||
|
Stock-based compensation expense
|
— | — | 1.6 | — | — | — | — | 1.6 | ||||||||||||||||||||||||
|
Other
|
— | — | 0.6 | — | — | — | (1.6 | ) | (1.0 | ) | ||||||||||||||||||||||
|
Balances at December 31, 2007 as adjusted
|
81.6 | $ | 81.6 | $ | 631.2 | $ | 1,171.0 | $ | (61.6 | ) | (0.2 | ) | $ | (9.5 | ) | $ | 1,812.7 | |||||||||||||||
|
Net income
|
— | — | — | 280.9 | — | — | — | 280.9 | ||||||||||||||||||||||||
|
Other comprehensive income:
|
||||||||||||||||||||||||||||||||
|
Currency translation adjustments, net of tax
|
— | — | — | — | 0.2 | — | — | 0.2 | ||||||||||||||||||||||||
|
Change in funded status of pension liability, net of tax
|
— | — | — | — | (50.6 | ) | — | — | (50.6 | ) | ||||||||||||||||||||||
|
Unrealized loss on derivative financial instruments, net of tax
|
— | — | — | — | (48.3 | ) | — | — | (48.3 | ) | ||||||||||||||||||||||
|
Other changes, net of tax
|
— | — | — | — | (1.0 | ) | — | — | (1.0 | ) | ||||||||||||||||||||||
|
Comprehensive net income
|
181.2 | |||||||||||||||||||||||||||||||
|
Cash dividends on common stock
|
— | — | — | (24.9 | ) | — | — | — | (24.9 | ) | ||||||||||||||||||||||
|
Restricted shares surrendered, net
|
— | — | (16.0 | ) | — | — | 0.3 | 11.1 | (4.9 | ) | ||||||||||||||||||||||
|
Shares repurchased
|
— | — | — | — | — | (2.6 | ) | (58.3 | ) | (58.3 | ) | |||||||||||||||||||||
|
Stock options exercised
|
0.1 | 0.1 | (5.9 | ) | — | — | 0.2 | 8.9 | 3.1 | |||||||||||||||||||||||
|
Income tax benefit from stock options exercised
|
— | — | 1.7 | — | — | — | — | 1.7 | ||||||||||||||||||||||||
|
Stock-based compensation expense
|
— | — | 1.2 | — | — | — | — | 1.2 | ||||||||||||||||||||||||
|
Other
|
— | — | 0.5 | — | — | — | — | 0.5 | ||||||||||||||||||||||||
|
Balances at December 31, 2008 as adjusted
|
81.7 | $ | 81.7 | $ | 612.7 | $ | 1,427.0 | $ | (161.3 | ) | (2.3 | ) | $ | (47.8 | ) | $ | 1,912.3 | |||||||||||||||
|
Net loss
|
— | — | — | (137.7 | ) | — | — | — | (137.7 | ) | ||||||||||||||||||||||
|
Other comprehensive loss:
|
||||||||||||||||||||||||||||||||
|
Change in funded status of pension liability, net of tax
|
— | — | — | — | 35.6 | — | — | 35.6 | ||||||||||||||||||||||||
|
Unrealized loss on derivative financial instruments, net of tax
|
— | — | — | — | 27.8 | — | — | 27.8 | ||||||||||||||||||||||||
|
Other changes, net of tax
|
— | — | — | (0.1 | ) | — | — | (0.1 | ) | |||||||||||||||||||||||
|
Comprehensive net loss
|
(74.4 | ) | ||||||||||||||||||||||||||||||
|
Cash dividends on common stock
|
— | — | — | (25.3 | ) | — | — | — | (25.3 | ) | ||||||||||||||||||||||
|
Restricted shares issued, net
|
— | — | (12.6 | ) | — | — | 0.5 | 12.6 | — | |||||||||||||||||||||||
|
Shares repurchased
|
— | — | — | — | — | (0.8 | ) | (6.3 | ) | (6.3 | ) | |||||||||||||||||||||
|
Stock options exercised
|
— | — | (0.6 | ) | — | — | 0.1 | 1.7 | 1.1 | |||||||||||||||||||||||
|
Income tax expense from stock options exercised
|
— | — | (2.1 | ) | — | — | — | — | (2.1 | ) | ||||||||||||||||||||||
|
Stock-based compensation expense
|
— | — | 1.0 | — | — | — | — | 1.0 | ||||||||||||||||||||||||
|
Other
|
— | — | — | (0.1 | ) | — | — | 0.1 | — | |||||||||||||||||||||||
|
Balances at December 31, 2009
|
81.7 | $ | 81.7 | $ | 598.4 | $ | 1,263.9 | $ | (98.0 | ) | (2.5 | ) | $ | (39.7 | ) | $ | 1,806.3 | |||||||||||||||
See accompanying notes to consolidated financial statements.
44
Table of Contents
Trinity
Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
| Note 1. | Summary of Significant Accounting Policies |
Principles
of Consolidation
The financial statements of Trinity Industries, Inc. and its
consolidated subsidiaries (“Trinity”,
“Company”, “we” or “our”) include
the accounts of all majority owned subsidiaries. The equity
method of accounting is used for companies in which the Company
has significant influence and 50% or less ownership. All
significant intercompany accounts and transactions have been
eliminated.
Stockholders’
Equity
On December 8, 2009, the Company’s Board of Directors
authorized an extension of its stock repurchase program. This
extension allows for the repurchase of the Company’s common
stock through December 31, 2010. The repurchase program
originally commenced in 2007 with an authorization of
$200 million. During the year ended December 31, 2009,
813,028 shares were repurchased under this program at a
cost of approximately $6.3 million. Since the inception of
this program, the Company has repurchased a total of
3,532,728 shares at a cost of approximately
$67.5 million.
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. Revenues from construction contracts are recorded
using percentage of completion accounting, using incurred labor
hours to estimated total hours of the contract. Estimated losses
on all contracts are recorded when determined to be probable and
estimable. Revenue from rentals and operating leases, including
contracts which contain non-level fixed rental payments, is
recognized monthly on a straight-line basis. Fees for shipping
and handling are recorded as revenue. For all other products, we
recognize revenue when products are shipped or services are
provided.
Income
Taxes
The liability method is used to account for income taxes.
Deferred income taxes represent the tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Valuation allowances reduce
deferred tax assets to an amount that will more likely than not
be realized.
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.
Financial instruments which potentially subject the Company to
concentration of credit risk are primarily cash investments,
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 to 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.
45
Table of Contents
Inventories
Inventories are valued at the lower of cost or market, with cost
determined principally on the first in first out method. Market
is replacement cost or net realizable value. Work in process and
finished goods include material, labor, and overhead.
Property,
Plant, and Equipment
Property, plant, and equipment are stated at cost and
depreciated over their estimated useful lives using the
straight-line method. The estimated useful lives are: buildings
and improvements — 3 to 30 years; leasehold
improvements — the lesser of the term of the lease or
7 years; machinery and equipment — 2 to
10 years; information systems hardware and
software — 2 to 5 years; and railcars in our lease
fleet — generally 35 years. The costs of ordinary
maintenance and repair are charged to operating costs while
renewals and major replacements are capitalized.
Long-lived
Assets
The Company periodically evaluates the carrying value of
long-lived assets to be held and used for potential impairment.
The carrying value of long-lived assets to be held and used is
considered impaired only when their carrying value is not
recoverable through undiscounted future cash flows and the fair
value of the assets is less than their carrying value. Fair
value is determined primarily using the anticipated cash flows
discounted at a rate commensurate with the risks involved or
market quotes as available. Impairment losses on long-lived
assets held for sale are determined in a similar manner, except
that fair values are reduced for the estimated cost to dispose
of the assets. Impairment losses were not material for the years
ended December 31, 2009, 2008, and 2007.
Goodwill
and Intangible Assets
Goodwill is required to be tested for impairment annually, or on
an interim basis whenever events or circumstances change,
indicating that the carrying amount of the goodwill might be
impaired. The goodwill impairment test is a two-step process
requiring the comparison of the reporting unit’s estimated
fair value with the carrying amount of its net assets. Step two
of the impairment test is necessary to determine the amount of
goodwill impairment to be recorded when the reporting
unit’s recorded net assets exceed its fair value.
Impairment is assessed at the “reporting unit” level
by applying a fair value-based test. We perform this test for
our five principal business segments: (1) the Rail Group,
(2) the Construction Products Group, (3) the Inland
Barge Group, (4) the Energy Equipment Group, and
(5) the Railcar Leasing and Management Services Group. The
estimates and judgments that most significantly affect the fair
value calculations are assumptions related to revenue and
operating profit growth, discount rates and exit multiples. Due
to an overall market decline for products in the Rail Group
during the second quarter of 2009, we concluded that indications
of impairment existed that required an interim goodwill
impairment analysis. Accordingly, we tested the Rail
Group’s goodwill for impairment as of June 30, 2009
and recorded a charge of $325 million during the second
quarter of 2009. See Note 9 for further explanation and
results of this test. Other than the Rail Group goodwill
impairment charge, we determined that there was no additional
impairment of the recorded goodwill balance of $180.8 as of
December 31, 2009.
Intangible assets with defined useful lives, which as of
December 31, 2009 had net book values of $7.0 million,
are amortized over their estimated useful lives and are also
evaluated for potential impairment at least annually. Impairment
losses were not material for the years ended December 31,
2009, 2008, and 2007.
Restricted
Cash
Restricted cash consists of cash and cash equivalents which are
held as collateral for the Company’s debt and lease
obligations and as such are restricted in use.
Insurance
The Company is effectively self-insured for workers’
compensation. A third party administrator is used to process
claims. We accrue our workers’ compensation liability based
upon independent actuarial studies.
46
Table of Contents
Warranties
The Company provides warranties against workmanship and
materials defects generally ranging from one to five years
depending on the product. The warranty costs are estimated using
a two-step approach. First, an engineering estimate is made for
the cost of all claims that have been filed by a customer.
Second, based on historical claims experience, a cost is accrued
for all products still within a warranty period for which no
claims have been filed. The Company provides for the estimated
cost of product warranties at the time revenue is recognized
related to products covered by warranties and assesses the
adequacy of the resulting reserves on a quarterly basis.
Foreign
Currency Translation
Operations outside the United States prepare financial
statements in currencies other than the United States dollar.
The income statement amounts are translated at average exchange
rates for the year, while the assets and liabilities are
translated at year-end exchange rates. Translation adjustments
are accumulated as a separate component of stockholders’
equity and other comprehensive loss.
Other
Comprehensive Income (Loss)
Other comprehensive income (loss) is defined as the change in
equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner
sources. Comprehensive net income (loss) consists of net income
(loss), foreign currency translation adjustments, the effective
unrealized portions of changes in fair value of the
Company’s derivative financial instruments, and the change
in the funded status of pension liabilities. See Note 15
Accumulated Other Comprehensive Loss (“AOCL”). All
components are shown net of tax.
Recent
Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board
(“FASB”) issued new rules that significantly change
the accounting for and reporting of business combination
transactions and noncontrolling interests (previously referred
to as minority interests) in consolidated financial statements.
These rules were effective for fiscal years beginning after
December 15, 2008 and are applicable only to transactions
occurring after the effective date. The Company adopted the new
rules as of January 1, 2009; however, for the year ended
December 31, 2009, the Company did not enter into any
transactions for which these rules would be applicable.
In March 2008, the FASB issued a new accounting standard that
changes the disclosure requirements for derivative instruments
and hedging activities. Entities are required to provide
enhanced disclosures about (a) how and why an entity uses
derivative instruments, (b) how derivative instruments and
related hedge items are accounted for
,
and (c) how
derivative instruments and related hedged items affect an
entity’s financial position, financial performance, and
cash flows. This standard enhances the previously existing
disclosure framework and requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of gains and losses on
derivative instruments, and disclosures about credit-risk
related contingent features in derivative agreements. The
provisions of this standard were effective for financial
statements issued for fiscal years and interim periods beginning
after November 15, 2008, with early application encouraged.
The Company adopted this standard as of January 1, 2009,
and the impact of the adoption was not significant. See
Note 7 for required disclosures.
In May 2008, the FASB issued a new accounting pronouncement that
requires issuers of certain convertible debt instruments that
may be settled in cash upon conversion to separately account for
the liability and equity components in a manner that reflects
the entity’s nonconvertible debt borrowing rate when
interest expense is recognized in subsequent periods. The
effective date of the new accounting pronouncement is for
financial statements issued for fiscal years and interim periods
beginning after December 15, 2008 and does not permit
earlier application. The Company adopted the provisions of the
new pronouncement as of January 1, 2009. See Note 11
for a further explanation of the effects of implementing this
pronouncement as it applies to our Convertible Subordinated
Notes.
47
Table of Contents
In June 2008, the FASB issued a new accounting pronouncement
that applies to the calculation of earnings per share for
share-based payment awards with nonforfeitable rights to
dividends or dividend equivalents under the existing rules for
earnings per share. The pronouncement is effective for financial
statements issued for fiscal years beginning after
December 15, 2008, and all interim periods within those
years. The Company adopted the provisions of the new
pronouncement as of January 1, 2009. See Note 17 for a
further explanation of the effects of implementing this
pronouncement.
In May 2009, the FASB issued a new accounting standard that
requires the disclosure of the date through which an entity has
evaluated subsequent events and whether that represents the date
the financial statements were issued or were available to be
issued. This standard was not expected to result in significant
changes in the subsequent events that an entity reports, either
through recognition or disclosure, in its financial statements.
The provisions of this standard were effective for interim or
annual financial periods ending after June 15, 2009, and
are applied prospectively. The Company adopted this standard on
June 30, 2009, and the impact of the adoption was not
significant. Subsequent events through February 18, 2010
were evaluated for disclosure in these consolidated financial
statements.
In June 2009, the FASB issued a new accounting standard that
amends the previous accounting rules for consolidation of
variable interest entities. This new accounting standard
addresses the elimination of the concept of a qualifying special
purpose entity. The new standard also replaces the
quantitative-based risks and rewards calculation for determining
which enterprise has a controlling financial interest in a
variable interest entity with an approach focused on identifying
which enterprise has the power to direct the activities of a
variable interest entity that most significantly affect its
economic performance and the obligation to absorb losses of the
entity or the right to receive benefits from the entity.
Additionally, the new standard provides more timely and useful
information about an enterprise’s involvement with a
variable interest entity. This standard is effective for annual
reporting periods beginning after November 15, 2009.
Accordingly, the Company adopted this new standard on
January 1, 2010. See Note 6 for a further explanation
of the effects of implementing this pronouncement as it applies
to our equity investment in TRIP Rail Holdings LLC (“TRIP
Holdings”).
Management’s
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Reclassifications
Amounts previously reported have been adjusted as a result of
the adoption of accounting pronouncements as previously
explained under Recent Accounting Pronouncements and
Notes 11 and 17. Certain prior year balances have been
reclassified in the Consolidated Financial Statements to conform
to the 2009 presentations.
| Note 2. | Acquisitions and Divestitures |
During 2009, there were no significant acquisitions or
divestitures.
During 2008, the Construction Products Group sold various ready
mix concrete facilities located in West Texas and a bridge
business production facility. Total proceeds from the 2008
dispositions were $17.8 million with a gain of
$8.1 million. Included in the gain was a goodwill write-off
of $1.5 million.
There were no significant acquisitions during the year ended
December 31, 2008.
During 2007, the Construction Products Group, through wholly
owned subsidiaries, made a number of acquisitions including the
following:
| • | highway products companies operating under the names of Central Fabricators, Inc. and Central Galvanizing, Inc.; |
48
Table of Contents
| • | a combined group of East Texas asphalt, ready mix concrete, and aggregates businesses operating under the name Armor Materials; and | |
| • | a number of assets in five separate smaller transactions. |
The total cost of the 2007 acquisitions was approximately
$58.5 million, plus 325,800 shares of Trinity common
stock valued at $11.7 million, additional future cash
consideration of $10.7 million to be paid during the next
three to five years, and contingent payments not to exceed
$6.0 million paid during the three year period following
the acquisition. In connection with the acquisitions, the
Construction Products Group recorded goodwill of approximately
$41.7 million and other intangible assets of approximately
$5.3 million. The intangible assets acquired in connection
with the acquisitions made by the Company during the year ended
December 31, 2007, were all related to or resulting from
non-compete agreements with the seller(s). Their useful lives
were all determined by the contractual terms of the purchase
agreements.
Also during 2007, the Construction Products Group sold the
following assets:
| • | a group of assets located in South Texas including four ready mix concrete facilities; | |
| • | two ready mix concrete facilities located in the North Texas area; | |
| • | three ready mix concrete facilities located in West Texas; and | |
| • | a group of assets located in Houston, Texas which included seven ready mix concrete facilities and an aggregates distribution yard. |
Total proceeds from the 2007 dispositions were
$42.9 million with an after-tax gain of $9.3 million.
Included in the after tax gain of $9.3 million was a
goodwill write-off of $1.9 million.
On January 7, 2010, Trinity Industries, Inc. commenced a
tender offer through a wholly owned subsidiary, THP Merger Co.,
for all outstanding shares of common stock of Quixote
Corporation (“Quixote”) for $6.38 per share, including
the associated preferred stock purchase rights. The tender offer
and merger, with a transactional value of approximately
$61 million, were subject to customary closing conditions
contained in a Merger Agreement dated December 23, 2009,
including the acquisition by THP Merger Co. of at least 60% of
Quixote Corporation’s issued and outstanding shares on a
fully-diluted basis in the tender offer. At the date of the
expiration of the tender offer on February 4, 2010,
approximately 87% of the outstanding shares of Quixote had been
validly tendered and accepted for purchase bringing the
Company’s total ownership in Quixote to approximately 92%
after taking into account the shares already owned by Trinity.
On February 5, 2010, THP Merger Co. merged with and into
Quixote in a short-form merger with Quixote surviving as a
wholly-owned subsidiary of Trinity Industries, Inc as a part of
the Construction Products Group.
| Note 3. | Fair Value Accounting |
Assets and liabilities measured at fair value on a recurring
basis are summarized below:
| Fair Value Measurement as of December 31, 2009 | ||||||||||||||||
| (in millions) | ||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
|
Assets:
|
||||||||||||||||
|
Cash equivalents
|
$ | 581.1 | $ | — | $ | — | $ | 581.1 | ||||||||
|
Short-term marketable securities
|
70.0 | — | — | 70.0 | ||||||||||||
|
Restricted cash
|
138.6 | — | — | 138.6 | ||||||||||||
|
Fuel derivative instruments
(1)
|
— | 0.0 | — | 0.0 | ||||||||||||
|
Total assets
|
$ | 789.7 | $ | 0.0 | $ | — | $ | 789.7 | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Fuel derivative instruments
(1)
|
$ | — | $ | 0.0 | $ | — | $ | 0.0 | ||||||||
|
Interest rate hedges
(2)
|
— | 32.5 | — | 32.5 | ||||||||||||
|
Total liabilities
|
$ | — | $ | 32.5 | $ | — | $ | 32.5 | ||||||||
| (1) | Fuel derivative instruments are included in Other assets and Accrued liabilities on the Consolidated Balance Sheet. | |
| (2) | Interest rate hedges are included in Accrued liabilities on the Consolidated Balance Sheet. |
49
Table of Contents
The carrying amounts and estimated fair values of our long-term
debt at December 31, 2009 were as follows:
|
Estimated Fair
|
||||||||
| Carrying Value | Value | |||||||
| (in millions) | ||||||||
|
Convertible subordinated notes
|
$ | 328.4 | $ | 310.5 | ||||
|
Senior notes
|
201.5 | 202.8 | ||||||
|
Term loan
|
59.8 | 59.8 | ||||||
|
2006 secured railcar equipment notes
|
304.7 | 298.2 | ||||||
|
Warehouse facility
|
141.4 | 141.4 | ||||||
|
Promissory notes
|
515.4 | 506.5 | ||||||
|
2009 secured railcar equipment notes
|
237.6 | 237.6 | ||||||
|
Capital lease obligations
|
53.6 | 53.6 | ||||||
|
Other
|
2.7 | 2.7 | ||||||
|
Total
|
$ | 1,845.1 | $ | 1,813.1 | ||||
The estimated fair values of our convertible subordinated notes
and senior notes were based on quoted market prices as of
December 31, 2009. The estimated fair values of our 2006
secured railcar equipment notes and promissory notes were based
on our estimate of their fair value as of December 31, 2009
determined by discounting their future cash flows at an
appropriate market interest rate. The carrying values of our
warehouse facility and term loan approximate fair value because
the interest rates adjust to market interest rates and there has
been no change in the Company’s credit rating since the
loan agreements were entered into during 2009. The fair values
of all other financial instruments are estimated to approximate
carrying value.
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 to 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 which 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, short-term marketable
securities and restricted cash are instruments of the United
States Treasury, United States government agencies or
fully-insured certificates of deposit.
Level 2 – This level is defined as observable
inputs other than Level 1 prices such as quoted prices for
similar assets or liabilities; quoted prices in markets that are
not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the
full term of the assets or liabilities. The Company’s fuel
derivative instruments, which are commodity options, are valued
using energy and commodity market data. Interest rate hedges are
valued at exit prices obtained from each counterparty.
Level 3 – This level is defined as unobservable
inputs that are supported by little or no market activity and
that are significant to the fair value of the assets or
liabilities.
| 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, concrete and aggregates, and asphalt;
(3) the Inland Barge Group, which manufactures and sells
barges and related products for inland waterway services;
(4) the Energy Equipment Group, which manufactures and
sells products for energy related businesses, including
structural wind towers, tank containers and tank heads for
pressure and non-pressure vessels, and propane tanks; and
(5) the Railcar Leasing and Management Services Group,
which provides fleet management, maintenance, and leasing
services. The category All Other includes our captive insurance
and transportation companies; legal, environmental, and upkeep
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 related to manufacturing, except
for the concrete and aggregates operations, are recorded in the
cost of revenues of the All Other Segment. Gains and losses from
the sale of property, plant, and equipment for the Railcar
Leasing and
50
Table of Contents
Management Services Group and the concrete and aggregates
operations included in the Construction Products Group are
recorded in the cost of revenues of these respective segments
because the assets in these two groups are dedicated to these
specific operations. All other property, plant, and equipment
can be and has been utilized by multiple segments.
Sales and related net profits from the Rail Group to the Railcar
Leasing and Management Services 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 giving consideration for quantity, features,
and production demand. Sales of railcars from the lease fleet
are included in the Railcar Leasing and Management Services
Group. See Note 6 Equity Investment for discussion of sales
to a company in which we have an equity investment.
The financial information from continuing operations for these
segments is shown in the tables below. We operate principally in
North America.
Year
Ended December 31, 2009
|
Operating
|
||||||||||||||||||||||||||||
| Revenues |
Profit
|
Depreciation &
|
Capital
|
|||||||||||||||||||||||||
| External | Intersegment | Total | (Loss) | Assets | Amortization | Expenditures | ||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||
|
Rail Group
|
$ | 485.2 | $ | 410.1 | $ | 895.3 | $ | (355.9 | ) | $ | 450.7 | $ | 25.0 | $ | 19.6 | |||||||||||||
|
Construction Products Group
|
524.0 | 14.5 | 538.5 | 32.6 | 277.3 | 23.5 | 11.6 | |||||||||||||||||||||
|
Inland Barge Group
|
527.3 | — | 527.3 | 125.2 | 69.4 | 6.1 | 1.3 | |||||||||||||||||||||
|
Energy Equipment Group
|
502.2 | 7.8 | 510.0 | 73.8 | 242.0 | 16.9 | 9.1 | |||||||||||||||||||||
|
Railcar Leasing and
Management Services Group |
524.5 | — | 524.5 | 149.0 | 3,167.3 | 82.4 | 381.8 | |||||||||||||||||||||
|
All Other
|
12.0 | 36.4 | 48.4 | 0.8 | 27.6 | 3.1 | 2.0 | |||||||||||||||||||||
|
Corporate
|
— | — | — | (30.6 | ) | 753.1 | 4.2 | 3.8 | ||||||||||||||||||||
|
Eliminations-Lease subsidiary
|
— | (391.6 | ) | (391.6 | ) | (22.6 | ) | (329.0 | ) | — | — | |||||||||||||||||
|
Eliminations – Other
|
— | (77.2 | ) | (77.2 | ) | (3.0 | ) | (2.0 | ) | (0.4 | ) | — | ||||||||||||||||
|
Consolidated Total
|
$ | 2,575.2 | $ | — | $ | 2,575.2 | $ | (30.7 | ) | $ | 4,656.4 | $ | 160.8 | $ | 429.2 | |||||||||||||
Year
Ended December 31, 2008
|
Operating
|
||||||||||||||||||||||||||||
| Revenues |
Profit
|
Depreciation &
|
Capital
|
|||||||||||||||||||||||||
| External | Intersegment | Total | (Loss) | Assets | Amortization | Expenditures | ||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||
|
Rail Group
|
$ | 1,381.0 | $ | 1,182.4 | $ | 2,563.4 | $ | 247.7 | $ | 1,098.6 | $ | 26.9 | $ | 43.4 | ||||||||||||||
|
Construction Products Group
|
719.7 | 21.5 | 741.2 | 64.2 | 335.1 | 24.7 | 25.5 | |||||||||||||||||||||
|
Inland Barge Group
|
625.2 | — | 625.2 | 119.2 | 135.9 | 5.3 | 8.7 | |||||||||||||||||||||
|
Energy Equipment Group
|
605.7 | 26.9 | 632.6 | 100.3 | 301.9 | 12.1 | 42.7 | |||||||||||||||||||||
|
Railcar Leasing and Management Services Group
|
535.9 | — | 535.9 | 158.9 | 3,020.3 | 65.2 | 1,110.8 | |||||||||||||||||||||
|
All Other
|
15.3 | 63.4 | 78.7 | 7.0 | 41.8 | 2.6 | 8.6 | |||||||||||||||||||||
|
Corporate
|
— | — | — | (41.3 | ) | 325.2 | 4.0 | 3.4 | ||||||||||||||||||||
|
Eliminations – Lease subsidiary
|
— | (1,162.4 | ) | (1,162.4 | ) | (86.3 | ) | (342.3 | ) | — | — | |||||||||||||||||
|
Eliminations
–
Other
|
— | (131.8 | ) | (131.8 | ) | (10.2 | ) | (4.9 | ) | (0.5 | ) | — | ||||||||||||||||
|
Consolidated Total
|
$ | 3,882.8 | $ | — | $ | 3,882.8 | $ | 559.5 | $ | 4,911.6 | $ | 140.3 | $ | 1,243.1 | ||||||||||||||
51
Table of Contents
Year
Ended December 31, 2007
|
Operating
|
||||||||||||||||||||||||||||
| Revenues |
Profit
|
Depreciation &
|
Capital
|
|||||||||||||||||||||||||
| External | Intersegment | Total | (Loss) | Assets | Amortization | Expenditures | ||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||
|
Rail Group
|
$ | 1,540.0 | $ | 841.5 | $ | 2,381.5 | $ | 347.6 | $ | 1,172.2 | $ | 23.6 | $ | 83.3 | ||||||||||||||
|
Construction Products Group
|
731.2 | 1.8 | 733.0 | 72.4 | 342.4 | 24.1 | 31.9 | |||||||||||||||||||||
|
Inland Barge Group
|
493.2 | — | 493.2 | 72.6 | 115.8 | 4.2 | 8.2 | |||||||||||||||||||||
|
Energy Equipment Group
|
422.4 | 11.5 | 433.9 | 50.1 | 228.0 | 7.8 | 48.5 | |||||||||||||||||||||
|
Railcar Leasing and
Management Services Group |
631.7 | — | 631.7 | 161.2 | 2,039.9 | 51.0 | 705.4 | |||||||||||||||||||||
|
All Other
|
14.3 | 55.5 | 69.8 | 4.6 | 45.1 | 2.0 | 10.1 | |||||||||||||||||||||
|
Corporate
|
— | — | — | (34.9 | ) | 341.5 | 6.2 | 6.7 | ||||||||||||||||||||
|
Eliminations – Lease subsidiary
|
— | (828.5 | ) | (828.5 | ) | (138.0 | ) | (247.4 | ) | — | — | |||||||||||||||||
|
Eliminations
–
Other
|
— | (81.8 | ) | (81.8 | ) | (5.8 | ) | (1.4 | ) | — | — | |||||||||||||||||
|
Consolidated Total
|
$ | 3,832.8 | $ | — | $ | 3,832.8 | $ | 529.8 | $ | 4,036.1 | $ | 118.9 | $ | 894.1 | ||||||||||||||
Corporate assets are composed of cash and cash equivalents,
short-term marketable securities, notes receivable, certain
property, plant, and equipment, and other assets. Capital
expenditures do not include business acquisitions.
Externally reported revenues and operating profit for our Mexico
operations for the years ended December 31, 2009, 2008, and
2007 are presented below:
| External Revenues | Operating Profit | |||||||||||||||||||||||||||
|
Year Ended
|
Year Ended
|
|||||||||||||||||||||||||||
| December 31, | December 31, | |||||||||||||||||||||||||||
| 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | |||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||
|
Mexico
|
$ | 86.8 | $ | 119.0 | $ | 73.3 | $ | 15.2 | $ | 31.1 | $ | 12.5 | ||||||||||||||||
Total assets and long-lived assets for our Mexico operations as
of December 31, 2009 and 2008 are presented below:
| Total Assets | Long-Lived Assets | |||||||||||||||
| December 31, | ||||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
| (in millions) | ||||||||||||||||
|
Mexico
|
$ | 213.9 | $ | 266.9 | $ | 164.1 | $ | 174.3 | ||||||||
| Note 5. | Railcar Leasing and Management Services Group |
The Railcar Leasing and Management Services Group (“Leasing
Group”) provides fleet management, maintenance, and leasing
services. Selected combined financial information for the
Leasing Group is as follows:
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
| (in millions) | ||||||||
|
Cash
|
$ | 6.7 | $ | 12.7 | ||||
|
Leasing equipment:
|
||||||||
|
Machinery and other
|
38.1 | 37.0 | ||||||
|
Equipment on lease
|
3,098.9 | 2,973.2 | ||||||
| 3,137.0 | 3,010.2 | |||||||
|
Accumulated depreciation
|
(286.9 | ) | (232.7 | ) | ||||
| 2,850.1 | 2,777.5 | |||||||
|
Restricted cash
|
138.6 | 112.1 | ||||||
|
Debt:
|
||||||||
|
Recourse
|
113.4 | 61.4 | ||||||
|
Non-recourse
|
1,199.1 | 1,190.3 | ||||||
52
Table of Contents
|
Year Ended December 31,
|
||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (In millions) | ||||||||||||
|
Revenues
|
$ | 524.5 | $ | 535.9 | $ | 631.7 | ||||||
|
Operating profit
|
149.0 | 158.9 | 161.2 | |||||||||
For the years ended December 31, 2009, 2008, and 2007,
revenues of $183.8 million, $134.2 million, and
$283.6 million, respectively, and operating profit of
$22.7 million, $16.6 million, and $38.9 million,
respectively, were related to sales of railcars from the lease
fleet to a company in which Trinity holds an equity investment.
See Note 6 Equity Investment.
The Leasing Group’s interest expense, which is not a
component of operating profit and includes the effects of hedges
related to the Leasing Group’s debt, was
$80.1 million, $67.2 million, and $43.1 million
for the years ended December 31, 2009, 2008, and 2007,
respectively. Rent expense, which is a component of operating
profit, was $46.7 million, $44.8 million, and
$45.1 million for the years ended December 31, 2009,
2008, and 2007, respectively.
Equipment consists primarily of railcars leased by third
parties. The Leasing Group purchases equipment manufactured 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 minimum rental revenues on leases in each year are as
follows:
| 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | ||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||
|
Future Contractual Minimum Rental Revenues on Leases
|
$ | 208.8 | $ | 168.4 | $ | 132.4 | $ | 101.1 | $ | 75.5 | $ | 192.6 | $ | 878.8 | ||||||||||||||
Debt.
The Leasing Group’s debt at
December 31, 2009 consists of both recourse and
non-recourse debt. In February 2009, the Company repaid in full
the $61.4 million of recourse debt outstanding at
December 31, 2008 while entering into a seven-year
$61.0 million term loan agreement in the second quarter of
2009. New capital lease obligations totaling $56.6 million
were entered into during the year ended December 31, 2009.
These new debt obligations are guaranteed by the Company and
secured by railcar equipment and related leases. See
Note 11 Debt for the form, maturities, and descriptions of
the debt. Leasing Group equipment with a net book value of
approximately $1,870.2 million is pledged as collateral for
Leasing Group debt including equipment with a net book value of
$53.8 million securing capital lease obligations. Certain
wholly owned subsidiaries of the Company, including Trinity
Industries Leasing Company, are guarantors of the Company’s
senior debt and certain operating leases. See Note 19
Financial Statements for Guarantors of the Senior Debt for
further discussion.
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 Trust 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 Trusts and
therefore, the debt related to the Trusts is not included as
part of these consolidated financial statements. The Leasing
Group, through newly formed, 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. Under the terms of the operating
lease agreements between the subsidiaries and the Trusts, the
Leasing Group has the option to purchase at a predetermined
fixed price, certain of the railcars from the Trusts in 2016 and
other railcars in 2019. The Leasing Group also has options to
purchase the railcars at the end of the respective lease
agreements in 2023, 2026, and 2027 at the then fair market value
of the railcars as determined by a third party, independent
appraisal. At the expiration of the operating lease agreements,
the Company has no further obligations with respect to the
leased railcars.
These Leasing Group’s subsidiaries had total assets as of
December 31, 2009 of $230.6 million, including cash of
$84.4 million and railcars of $105.3 million. The
rights, title, and interest in each sublease, cash, and railcars
are pledged to collateralize the lease obligations to the Trusts
and are included in the consolidated financial statements of the
Company. Trinity does not guarantee the performance of the
subsidiaries’ lease obligations. Certain ratios and
53
Table of Contents
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 minimum rental
revenues related to these leases due to the Leasing Group are as
follows:
Non-recourse Leases
| 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | ||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||
|
Future Operating Lease Obligations of Trusts’ Cars
|
$ | 40.7 | $ | 41.7 | $ | 44.9 | $ | 46.1 | $ | 45.3 | $ | 429.7 | $ | 648.4 | ||||||||||||||
|
Future Contractual Minimum Rental Revenues of Trusts’ Cars
|
$ | 54.8 | $ | 44.5 | $ | 36.2 | $ | 24.6 | $ | 15.8 | $ | 55.7 | $ | 231.6 | ||||||||||||||
In each transaction the Leasing Group has entered into a
servicing and re-marketing agreement with the Trusts that
requires the Leasing Group to endeavor, consistent with
customary commercial practice as would be used by a prudent
person, to maintain railcars under lease for the benefit of the
Trusts. The Leasing Group also receives management fees under
the terms of the agreements. In each transaction, an independent
trustee for the Trust has authority for appointment of the
railcar fleet manager.
Operating Lease Obligations.
During the year
ended December 31, 2009, the Leasing Group entered into
operating lease obligations totaling $40.8 million that are
guaranteed by the Company and secured by railcar equipment and
related leases. Future amounts due as well as future contractual
minimum rental revenues related to operating leases other than
leases with the Trusts are as follows:
| 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | ||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||
|
Future Operating Lease Obligations
|
$ | 5.7 | $ | 5.0 | $ | 4.4 | $ | 4.4 | $ | 4.4 | $ | 18.0 | $ | 41.9 | ||||||||||||||
|
Future Contractual Minimum Rental Revenues
|
$ | 5.2 | $ | 4.4 | $ | 3.1 | $ | 2.7 | $ | 2.4 | $ | 9.3 | $ | 27.1 | ||||||||||||||
| Note 6. | Equity Investment |
In 2007, the Company and five other equity investors unrelated
to the Company or its subsidiaries formed TRIP Rail Holdings LLC
(“TRIP Holdings”) for the purpose of providing railcar
leasing and management services in North America. TRIP Holdings,
through its wholly-owned subsidiary, TRIP Rail Leasing LLC
(“TRIP Leasing”) purchased railcars from the
Company’s Rail and Leasing Groups funded by capital
contributions from TRIP Holdings’ equity investors and
third-party debt from 2007 through June 2009. The Company
provided 20% of the total of all capital contributions required
by TRIP Holdings in exchange for 20% of the equity in TRIP
Holdings. In 2009, the Company acquired an additional 8.16%
equity ownership in TRIP Holdings for approximately
$16.2 million from another equity investor increasing the
Company’s equity investment to $63.5 million. The
Company receives 28.16% of the distributions made from TRIP
Holdings to equity investors and has a 28.16% interest in the
net assets of TRIP Holdings upon a liquidation event. The terms
of the Company’s equity investment are identical to the
terms of each of the other four equity investors. Railcars
purchased from the Company by TRIP Leasing are required to be
purchased at prices comparable with the prices of all similar
railcars sold by the Company during the same period for new
railcars and at prices based on third party appraised values for
used railcars. The manager of TRIP Holdings, Trinity Industries
Leasing Company (“TILC”), a wholly owned subsidiary of
the Company, may be removed without cause as a result of a
majority vote of the non-Company equity members.
In 2008 and 2007, the Company contributed $14.6 million and
$21.3 million, respectively, in capital to TRIP Holdings
equal to its 20% pro rata share of total capital received during
those years by TRIP Holdings from the equity investors of TRIP
Holdings. During the year ended December 31, 2009, Trinity
contributed $11.4 million to TRIP Holdings pursuant to
Trinity’s equity ownership obligation, totaling a
$63.5 million investment in TRIP Holdings as of
December 31, 2009 after considering equity interests
purchased from another equity owner. Trinity’s
54
Table of Contents
remaining equity commitment to TRIP Holdings is
$5.5 million through June 2010. In 2007, the Company also
paid $13.8 million in structuring and placement fees to the
principal underwriter in conjunction with the formation of TRIP
Holdings that were expensed on a pro rata basis as railcars were
purchased from the Company. For the year ended December 31,
2009, $4.1 million of these restructuring and placement
fees were expensed, leaving the balance fully amortized as of
December 31, 2009. Such expense was treated as sales
commissions included in operating costs in the Company’s
Consolidated Statement of Operations. As of December 31,
2009, TRIP Leasing had purchased $1,284.7 million of
railcars from the Company. Under TRIP Leasing’s debt
agreement, the lenders’ availability period to finance
additional railcar purchases ended on June 27, 2009. The
Company has no obligation to guarantee performance under the
debt agreement, guarantee any railcar residual values, shield
any parties from losses, or guarantee minimum yields.
TILC, as manager of TRIP Holdings, has the authority to bind
TRIP Holdings and perform all acts necessary to conduct the
business of TRIP Holdings. For its services as manager, TILC
receives a monthly administrative fee and a potential
performance fee. Additionally, a disposition fee may be earned
by TILC if, no more than twelve months prior to a liquidity
event, TILC was serving as the manager. TILC also serves as
servicer under an agreement between TRIP Leasing and TILC,
providing remarketing and management services. For its services
as servicer, TILC receives: 1) a monthly servicing fee,
2) a broker fee on the purchase of equipment by TRIP
Leasing, and 3) a sales fee on the sale of equipment by
TRIP Leasing to an unaffiliated third party. The servicer may be
terminated upon the occurrence and during the continuation of a
servicer replacement event by a vote of the lenders with credit
exposure in the aggregate exceeding
66
2
/
3
%.
The equity method of accounting is being used to account for
Trinity’s investment in TRIP Holdings. The Company’s
carrying value of its investment in TRIP Holdings is as follows:
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
| (in millions) | ||||||||
|
Capital contributions
|
$ | 47.3 | $ | 35.9 | ||||
|
Equity purchased from another investor
|
16.2 | — | ||||||
|
Equity in earnings
|
3.0 | 0.5 | ||||||
|
Equity in unrealized losses on
derivative financial instruments |
(3.2 | ) | (9.5 | ) | ||||
|
Distributions
|
(6.0 | ) | (3.1 | ) | ||||
|
Deferred broker fees
|
(1.0 | ) | (0.8 | ) | ||||
| $ | 56.3 | $ | 23.0 | |||||
Profit on equipment sales to TRIP Leasing was recognized at the
time of sale to the extent of the non-Trinity interests in TRIP
Holdings. The deferred profit on the sale of equipment to TRIP
Leasing pertaining to TILC’s interest in TRIP Holdings is
amortized over the depreciable life of the related equipment.
All other fee income to TILC earned from services provided to
TRIP Holdings is recognized by TILC to the extent of the
non-Trinity interests in TRIP Holdings.
55
Table of Contents
Sales of railcars to TRIP Leasing and related gains for the
years ended December 31, 2009, 2008, and 2007 are as
follows:
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (in millions) | ||||||||||||
|
Rail Group:
|
||||||||||||
|
Sales of railcars to TRIP Leasing
|
$ | 113.0 | $ | 337.5 | $ | 232.6 | ||||||
|
Gain on sales of railcars to TRIP Leasing
|
$ | 11.2 | $ | 61.6 | $ | 41.1 | ||||||
|
Deferral of gain on sales of railcars to TRIP Leasing based on
Trinity’s equity interest
|
$ | 2.8 | $ | 12.4 | $ | 8.2 | ||||||
|
TILC:
|
||||||||||||
|
Sales of railcars to TRIP Leasing
|
$ | 183.8 | $ | 134.2 | $ | 283.6 | ||||||
|
Gain on sales of railcars to TRIP Leasing
|
$ | 30.3 | $ | 20.8 | $ | 48.6 | ||||||
|
Deferral of gain on sales of railcars to TRIP Leasing based on
Trinity’s equity interest
|
$ | 7.6 | $ | 4.2 | $ | 9.7 | ||||||
Administrative fees paid to TILC by TRIP Holdings and TRIP
Leasing for the years ended December 31, 2009, 2008, and
2007 were $4.5 million, $4.1 million, and
$2.5 million, respectively.
On October 15, 2009, TILC loaned TRIP Holdings
$14.5 million to resolve a collateral deficiency. The note
has a balance of $10.4 million as of December 31, 2009
and is repayable monthly from TRIP Holdings’ excess cash
flow plus accrued interest at 11% and is expected to be repaid
in full by June 2010.
On January 1, 2010, the Company adopted the provisions of a
new accounting pronouncement requiring the inclusion of the
consolidated financial statements of TRIP Holdings and
subsidiary in the consolidated financial statements of the
Company. See further discussion in Note 1 under Recent
Accounting Pronouncements. The estimated condensed proforma
effects on the Consolidated Balance Sheet of the Company as of
December 31, 2009 of the consolidation of the financial
statements of TRIP Holdings are as follows:
56
Table of Contents
| Balance Sheet as of December 31, 2009 | ||||||||||||||||
|
Trinity
|
||||||||||||||||
|
Industries,
|
TRIP
|
Eliminations
|
Proforma
|
|||||||||||||
| Inc. | Holdings | Consolidation | ||||||||||||||
| (unaudited) | ||||||||||||||||
| (in millions) | ||||||||||||||||
|
Assets:
|
||||||||||||||||
|
Cash and cash equivalents
|
$ | 611.8 | $ | — | $ | — | $ | 611.8 | ||||||||
|
Short-term marketable securities
|
70.0 | — | — | 70.0 | ||||||||||||
|
Receivables
|
171.0 | 1.0 | (2.3 | ) | 169.7 | |||||||||||
|
Inventory
|
231.5 | — | — | 231.5 | ||||||||||||
|
Property, plant and equipment, net
|
3,038.2 | 1,227.2 | (203.4 | ) | 4,062.0 | |||||||||||
|
Investment in TRIP Holdings
|
56.3 | — | (56.3 | ) | — | |||||||||||
|
Goodwill
|
180.8 | — | — | 180.8 | ||||||||||||
|
Restricted cash
|
138.6 | 43.1 | — | 181.7 | ||||||||||||
|
Other assets
|
158.2 | 14.9 | (15.0 | ) | 158.1 | |||||||||||
| $ | 4,656.4 | $ | 1,286.2 | $ | (277.0 | ) | $ | 5,665.6 | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Accounts payable and accrued liabilities
|
$ | 451.3 | 42.6 | $ | (2.3 | ) | $ | 491.6 | ||||||||
|
Debt:
|
||||||||||||||||
|
Recourse
|
646.0 | — | — | 646.0 | ||||||||||||
|
Non-recourse
|
1,199.1 | 1,056.4 | (10.4 | ) | 2,245.1 | |||||||||||
| 1,845.1 | 1,056.4 | (10.4 | ) | 2,891.1 | ||||||||||||
|
Deferred income
|
77.7 | — | (42.7 | ) | 35.0 | |||||||||||
|
Deferred income taxes
|
397.9 | — | — | 397.9 | ||||||||||||
|
Other liabilities
|
78.1 | — | (0.7 | ) | 77.4 | |||||||||||
| 2,850.1 | 1,099.0 | (56.1 | ) | 3,893.0 | ||||||||||||
|
Equity:
|
||||||||||||||||
|
Non-controlling interest
|
— | — | 129.9 | 129.9 | ||||||||||||
|
Stockholders’ equity
|
1,806.3 | 187.2 | (350.8 | ) | 1,642.7 | |||||||||||
| 1,806.3 | 187.2 | (220.9 | ) | 1,772.6 | ||||||||||||
| $ | 4,656.4 | $ | 1,286.2 | $ | (277.0 | ) | $ | 5,665.6 | ||||||||
57
Table of Contents
Selected consolidating proforma financial information including
the effects of TRIP Holdings as of December 31, 2009 is as
follows:
| Leasing Entities | ||||||||||||||||
|
TRIP
|
||||||||||||||||
|
Leasing
|
Holdings,
|
Corporate/
|
||||||||||||||
| Group | Inc. | Manufacturing | Total | |||||||||||||
| (in millions) | ||||||||||||||||
|
Cash, cash equivalents and short-term marketable securities
|
$ | 6.7 | $ | — | $ | 675.1 | $ | 681.8 | ||||||||
|
Property, plant and equipment, net
|
2,850.1 | 1,227.2 | 517.1 | 4,594.4 | ||||||||||||
|
Deferred profit on railcars sold to TILC or TRIP
|
(329.0 | ) | (203.4 | ) | — | (532.4 | ) | |||||||||
| 2,521.1 | 1,023.8 | 517.1 | 4,062.0 | |||||||||||||
|
Restricted cash
|
138.6 | 43.1 | — | 181.7 | ||||||||||||
|
Debt:
|
||||||||||||||||
|
Recourse
|
113.4 | — | 654.2 | $ | 767.6 | |||||||||||
|
Less: unamortized discount
|
— | — | (121.6 | ) | (121.6 | ) | ||||||||||
|
Total recourse
|
113.4 | — | 532.6 | 646.0 | ||||||||||||
|
Non-recourse
|
1,199.1 | 1,046.0 | — | 2,245.1 | ||||||||||||
|
Total debt
|
$ | 1,312.5 | $ | 1,046.0 | $ | 532.6 | $ | 2,891.1 | ||||||||
Certain wholly owned subsidiaries of the Company, including
Trinity Industries Leasing Company, are guarantors of the
Company’s senior debt and certain operating leases. See
Note 19 Financial Statements for Guarantors of the Senior
Debt for further discussion.
Note 7.
Derivative Instruments
We use derivative instruments to mitigate the impact of
increases in interest rates and zinc, natural gas, and diesel
fuel prices, as well as to convert a portion of our
variable-rate debt to fixed-rate debt. Additionally, we use
derivative instruments to mitigate the impact of unfavorable
fluctuations in foreign currency exchange rates. We also use
derivatives to lock in fixed interest rates in anticipation of
future debt issuances. For instruments designated as hedges, the
Company formally documents the relationship between the hedging
instrument and the hedged item, as well as the risk management
objective and strategy for the use of the hedging instrument.
This documentation includes linking the derivatives that are
designated as fair value or cash flow hedges to specific assets
or liabilities on the balance sheet, commitments, or forecasted
transactions. At the time a derivative contract is entered into,
and at least quarterly thereafter, the Company assesses whether
the derivative item is effective in offsetting the changes in
fair value or cash flows. Any change in fair value resulting in
ineffectiveness, as defined by accounting standards issued by
the FASB is recognized in current period earnings. For
derivative instruments that are designated and qualify as cash
flow hedges, the effective portion of the gain or loss on the
derivative instrument is recorded in AOCL as a separate
component of stockholders’ equity and reclassified into
earnings in the period during which the hedge transaction
affects earnings. Trinity monitors its derivative positions and
credit ratings of its counterparties and does not anticipate
losses due to counterparties’ non-performance. See
Note 3 for discussion on how the Company valued its
commodity hedges and interest rate swaps at December 31,
2009.
Interest
rate hedges
In anticipation of a future debt issuance, we entered into
interest rate swap transactions during the fourth quarter of
2006 and during 2007. These instruments, with a notional amount
of $370 million, hedged the interest rate on a portion of a
future debt issuance associated with an anticipated railcar
leasing transaction, which closed in May 2008. These instruments
settled during the second quarter of 2008. The weighted average
fixed interest rate under these instruments was 5.34%. These
interest rate swaps were accounted for as cash flow hedges with
changes in the fair value of the instruments of
$24.5 million recorded as a loss in AOCL through the date
the related debt issuance closed with a principal balance of
$572.2 million in May 2008. The balance is being amortized
over the term of the related debt. On December 31, 2009,
the balance remaining in AOCL was $17.9 million. The effect
on interest expense for the year ended December 31, 2009
was an increase of $4.0 million due to the amortization of
the
58
Table of Contents
AOCL balance. The effect on interest expense for the year ended
December 31, 2008 was an increase of $7.1 million. Of
the expense, $4.5 million was due to the ineffective
portion of the hedges primarily associated with hedged interest
payments that were never made and $2.6 million was due to
amortization of the AOCL balance. It is expected that
$3.8 million in interest expense will be recognized during
2010 from amortization of the AOCL balance.
In May 2008, we entered into an interest rate swap transaction
that is being used to fix the LIBOR component of the debt
issuance which closed in May 2008. The fixed interest rate under
this instrument is 4.126%. The amount recorded for this
instrument as of December 31, 2009 in the consolidated
balance sheet was a liability of $30.1 million, with
$28.1 million of expense in AOCL. The effect on interest
expense for the years ended December 31, 2009 and
December 31, 2008 was an increase of $21.6 million and
$5.5 million, respectively, which related to the monthly
settlement of interest and in 2009, included $1.0 million
in unrealized derivative losses reclassified from AOCL that was
related to a partial retirement of the debt issuance. See
Notes 11 and 15. Based on the fair value of the interest
rate hedge as of December 31, 2009, it is expected that
$18.5 million in interest expense will be recognized during
2010.
During the fourth quarter of 2008, we entered into interest rate
swap transactions, with a notional amount of $200 million,
which are being used to counter our exposure to changes in the
variable interest rate associated with our warehouse facility.
The weighted average fixed interest rate under these instruments
at December 31, 2009 was 1.798%. The amount recorded for
these instruments as of December 31, 2009 in the
consolidated balance sheet was a liability of $2.4 million.
The effect on interest expense for the years ended
December 31, 2009 and December 31, 2008 was an
increase of $2.9 million and $2.4 million,
respectively, which included the mark to market valuation on the
interest rate swap transactions and the monthly settlement of
interest. Based on the fair value of the interest rate hedges as
of December 31, 2009, it is expected that $2.4 million
in interest expense will be recognized in 2010.
During 2005 and 2006, we entered into interest rate swap
transactions in anticipation of a future debt issuance. These
instruments, with a notional amount of $200 million, fixed
the interest rate on a portion of a future debt issuance
associated with a railcar leasing transaction in 2006 and
settled at maturity in the first quarter of 2006. The weighted
average fixed interest rate under these instruments was 4.87%.
These interest rate swaps were being accounted for as cash flow
hedges with changes in the fair value of the instruments of
$4.5 million in income recorded in AOCL through the date
the related debt issuance closed in May 2006. The balance is
being amortized over the term of the related debt. At
December 31, 2009, the balance remaining in AOCL was
$3.0 million of income. The effect of the amortization on
interest expense for each of the years ended December 31,
2009, 2008, and 2007 was a decrease of $0.4 million. It is
expected that $0.4 million in earnings will be recognized
during 2010 from amortization of the AOCL balance.
Natural
gas and diesel fuel
We continue a program to mitigate the impact of fluctuations in
the price of natural gas and diesel fuel purchases. The intent
of the program is to protect our operating profit from adverse
price changes by entering into derivative instruments. For those
instruments that do not qualify for hedge accounting treatment,
any changes in their valuation are recorded directly to the
consolidated statement of operations. The amount recorded in the
consolidated balance sheet as of December 31, 2009 for
these instruments was not significant. The effect on the
consolidated statement of operations for the year ended
December 31, 2009 was operating expense of
$1.5 million, which includes the mark to market valuation
resulting in a loss of $0.3 million. In July 2008, we
settled our 2008 outstanding diesel fuel hedge contracts. The
effect of the change in fair value of the diesel fuel hedges, as
well as the effect of the settled 2008 diesel fuel contracts, on
the consolidated statement of operations for the year ended
December 31, 2008 was operating income of
$9.5 million. The amount recorded in the consolidated
balance sheet for natural gas hedges was a liability of
$2.0 million as of December 31, 2008 and
$1.0 million of expense in AOCL for both types of
derivative instruments. The effect of the natural gas hedges on
the consolidated statement of operations for the year ended
December 31, 2008 was operating expense of
$1.3 million, including losses of $0.3 million
resulting from the mark to market valuation for the year ended
December 31, 2008. The effect on the consolidated statement
of operations for both types of derivative instruments for the
year ended December 31, 2007 was operating income of
$2.2 million.
59
Table of Contents
Foreign
Exchange Hedge
During the year ended December 31, 2009, we entered into
foreign exchange hedges to mitigate the impact on operating
profit of unfavorable fluctuations in foreign currency exchange
rates. These instruments are short term with quarterly
maturities and no remaining balance in AOCL as of
December 31, 2009. The effect on the consolidated statement
of operations for the year ended December 31, 2009 was
expense of $1.9 million included in other, net on the
consolidated statement of operations.
Zinc
In 2008, we continued a program to mitigate the impact of
fluctuations in the price of zinc purchases. The intent of this
program was to protect our operating profit from adverse price
changes by entering into derivative instruments. During the
third quarter of 2009, we entered into a derivative instrument
which expired on December 31, 2009. The effect of this
derivative instrument on the 2009 consolidated financial
statement of operations was not significant. During the fourth
quarter of 2009, we entered into a derivative instrument
expiring on March 31, 2010. The effect of this derivative
instrument on the 2009 consolidated financial statements was not
significant. The effect on the consolidated statement of
operations for the years ended December 31, 2008 and
December 31, 2007 was income of $1.8 million and
$2.6 million, respectively.
Note 8.
Property, Plant, and Equipment
The following table summarizes the components of property,
plant, and equipment as of December 31, 2009 and 2008.
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
| (in millions) | ||||||||
|
Corporate/Manufacturing:
|
||||||||
|
Land
|
$ | 39.1 | $ | 38.1 | ||||
|
Buildings and improvements
|
405.9 | 401.4 | ||||||
|
Machinery and other
|
708.1 | 685.4 | ||||||
|
Construction in progress
|
12.2 | 50.7 | ||||||
| 1,165.3 | 1,175.6 | |||||||
|
Less accumulated depreciation
|
(648.2 | ) | (620.2 | ) | ||||
| 517.1 | 555.4 | |||||||
|
Leasing:
|
||||||||
|
Machinery and other
|
38.1 | 37.0 | ||||||
|
Equipment on lease
|
3,098.9 | 2,973.2 | ||||||
| 3,137.0 | 3,010.2 | |||||||
|
Less accumulated depreciation
|
(286.9 | ) | (232.7 | ) | ||||
| 2,850.1 | 2,777.5 | |||||||
|
Deferred profit on railcars sold to the Leasing Group
|
(329.0 | ) | (342.3 | ) | ||||
| $ | 3,038.2 | $ | 2,990.6 | |||||
We lease certain equipment and facilities under operating
leases. Future minimum rent expense on non-Leasing Group leases
in each year is (in millions): 2010 — $12.1;
2011 — $6.9; 2012 — $2.1; 2013 —
$0.8; 2014 — $0.2; and $0.3 thereafter. See
Note 5 Railcar Leasing and Management Services Group for
information related to the lease agreements, future operating
lease obligations, and future minimum rent expense associated
with the Leasing Group.
We capitalized $0.9 million of interest expense as part of
the cost of construction of facilities and equipment during
2008. We did not capitalize any interest expense in 2009.
We estimate the fair market value of properties no longer in use
or held for sale based on the location and condition of the
properties, the fair market value of similar properties in the
area, and the Company’s experience
60
Table of Contents
selling similar properties in the past. As of December 31,
2009, the Company had non-operating plants with a net book value
of $3.6 million. Our estimated fair value of these assets
exceeds their book value.
| Note 9. | Goodwill |
During the second quarter of 2009, there was a significant
decline in new orders for railcars and continued weakening
demand for products in the Rail Group as well as a change in the
average estimated railcar deliveries from independent third
party research firms. Additionally, the significant number of
idled railcars in the North American fleet resulted in the
creation of new internal sales estimates by railcar type. Based
on this information, we concluded that indications of impairment
existed with respect to the Rail Group which required an interim
goodwill impairment analysis and, accordingly, we performed such
a test as of June 30, 2009. As a basis for our conclusion,
the table below is an average of the estimates of approximate
industry railcar deliveries for the next five years from two
independent third party research firms, Global Insight, Inc. and
Economic Planning Associates, Inc.
Average
Estimated Railcar Deliveries (unaudited)
|
As of January 2009
|
As of May 2009
|
Percent Change
|
||||
|
2009
|
28,300 | 24,000 | (15.2)% | |||
|
2010
|
23,700 | 15,100 | (36.3)% | |||
|
2011
|
41,550 | 29,150 | (29.8)% | |||
|
2012
|
56,050 | 48,200 | (14.0)% | |||
|
2013
|
62,550 | 59,750 | (4.5)% |
Our estimate of the Rail Group’s fair value (considered to
be a level three fair value measurement) utilized an income
approach based on the anticipated future discounted cash flows
of the Rail Group, requiring significant estimates and
assumptions related to future revenues and operating profits,
exit multiples, tax rates and consequences, and discount rates
based upon market-based capital costs. Because the estimated
fair value of the Rail Group was less than the carrying amount
of its net assets, we performed step two of our goodwill
impairment analysis as required by generally accepted accounting
principles by estimating the fair value of individual assets and
liabilities of the Rail Group in accordance with the provisions
of the accounting standards pertaining to business combinations
and fair value measurements. The result of our impairment
analysis indicated that the remaining implied goodwill amounted
to $122.5 million for our Rail Group as of June 30,
2009 and, consequently, we recorded an impairment charge of
$325.0 million during the second quarter of 2009. The
change in our estimate of the Rail Group’s enterprise value
from December 31, 2008 to June 30, 2009 was driven by
economic indicators, including third-party studies that
predicted the decline in the railcar industry was likely to
extend longer than was previously expected. In management’s
opinion, no interim impairment tests were necessary for our
remaining business segments as there had not been a significant
change in market conditions for these segments since the 2008
annual impairment test. As of December 31, 2009, the
Company’s annual impairment test of goodwill was completed
at the reporting unit level and no additional impairment charges
were determined to be necessary.
During the second quarter of 2009, we performed an interim test
for recoverability of the carrying value of our Rail Group
long-lived assets based on cash flow estimates consistent with
those used in the goodwill impairment test. The carrying value
of long-lived assets to be held and used is considered impaired
only when their carrying value is not recoverable through
undiscounted future cash flows and the fair value of the assets
is less than their carrying value. We determined that there was
no impairment of the recoverability of the Rail Group’s
long-lived assets as the Rail Group’s estimated
undiscounted future cash flows exceeded the carrying value of
its long-lived assets.
Given the current economic environment and the uncertainties
regarding the potential impact on our businesses, there can be
no assurance that our estimates and assumptions regarding the
duration of the ongoing economic downturn, or the period or
strength of recovery, made for the purposes of the long-lived
asset and goodwill impairment tests will prove to be accurate
predictions of the future. If our assumptions regarding
forecasted cash flows are not achieved, it is possible that
additional impairments of remaining goodwill and long-lived
assets may be required.
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Table of Contents
Goodwill by segment is as follows:
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
| (in millions) | ||||||||
|
Rail
|
$ | 122.5 | $ | 447.5 | ||||
|
Construction Products
|
52.2 | 50.4 | ||||||
|
Energy Equipment
|
4.3 | 4.3 | ||||||
|
Railcar Leasing and Management Services
|
1.8 | 1.8 | ||||||
| $ | 180.8 | $ | 504.0 | |||||
The increase in Construction Products goodwill as of
December 31, 2009 over the same period last year is due to
a $2.0 million contingent payment related to an acquisition
in 2007, offset by a $0.2 million reduction related to the
sale of a plant.
Note 10.
Warranties
The Company provides warranties against manufacturing defects
generally ranging from one to five years depending on the
product. The warranty costs are estimated using a two step
approach. First, an engineering estimate is made for the cost of
all claims that have been filed by a customer. Second, based on
historical claims experience, a cost is accrued for all products
still within a warranty period for which no claims have been
filed. The Company provides for the estimated cost of product
warranties at the time revenue is recognized related to products
covered by warranties and assesses the adequacy of the resulting
reserves on a quarterly basis. The changes in the accruals for
warranties for the years ended December 31, 2009, 2008, and
2007 are as follows:
|
December 31,
|
December 31,
|
December 31,
|
||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (in millions) | ||||||||||||
|
Beginning balance
|
$ | 25.7 | $ | 28.3 | $ | 28.6 | ||||||
|
Warranty costs incurred
|
(8.6 | ) | (6.2 | ) | (10.0 | ) | ||||||
|
Warranty originations and revisions
|
9.8 | 9.7 | 10.3 | |||||||||
|
Warranty expirations
|
(7.3 | ) | (6.1 | ) | (0.5 | ) | ||||||
|
Currency translation
|
— | — | (0.1 | ) | ||||||||
|
Ending balance
|
$ | 19.6 | $ | 25.7 | $ | 28.3 | ||||||
62
Table of Contents
Note 11.
Debt
The following table summarizes the components of debt as of
December 31, 2009 and 2008.
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
| (in millions) | ||||||||
|
Corporate/Manufacturing — Recourse:
|
||||||||
|
Revolving commitment
|
$ | — | $ | — | ||||
|
Convertible subordinated notes
|
450.0 | 450.0 | ||||||
|
Less: unamortized discount
|
(121.6 | ) | (131.2 | ) | ||||
| 328.4 | 318.8 | |||||||
|
Senior notes
|
201.5 | 201.5 | ||||||
|
Other
|
2.7 | 2.7 | ||||||
| 532.6 | 523.0 | |||||||
|
Leasing — Recourse:
|
||||||||
|
Capital lease obligations
|
53.6 | — | ||||||
|
Term loan
|
59.8 | — | ||||||
|
Equipment trust certificates
|
— | 61.4 | ||||||
| 646.0 | 584.4 | |||||||
|
Leasing — Non-recourse:
|
||||||||
|
2006 secured railcar equipment notes
|
304.7 | 320.0 | ||||||
|
2009 secured railcar equipment notes
|
237.6 | — | ||||||
|
Warehouse facility
|
141.4 | 312.7 | ||||||
|
Promissory notes
|
515.4 | 557.6 | ||||||
| 1,199.1 | 1,190.3 | |||||||
|
Total debt
|
$ | 1,845.1 | $ | 1,774.7 | ||||
On January 1, 2009, we adopted the provisions of a new FASB
accounting pronouncement that is applicable to the
Company’s 3 7/8% Convertible Subordinated Notes issued
June 2006. The pronouncement requires that the accounting for
these types of instruments reflect their underlying economics by
capturing the value of the conversion option as borrowing costs
and recognizing their potential dilutive effects on earnings per
share. This pronouncement required retrospective application to
all periods presented and did not grandfather existing
instruments.
As a result of adopting the new rules, on January 1, 2009,
we recorded the following adjustments to amounts previously
reported in our December 31, 2008 Consolidated Balance
Sheet:
| Increase/(Decrease) | ||||||||||||||||
|
Adjustments to
|
||||||||||||||||
|
income from
|
||||||||||||||||
|
debt issuance
|
||||||||||||||||
|
Adjustments
|
date through
|
|||||||||||||||
|
Originally
|
as of debt
|
December 31,
|
||||||||||||||
| reported | issuance date | 2008 | Adjusted | |||||||||||||
| (In millions) | ||||||||||||||||
|
Other assets and restricted
cash |
$ | 297.1 | $ | (3.2 | ) | $ | (0.5 | ) | $ | 293.4 | ||||||
|
Deferred income taxes
|
$ | 341.9 | $ | 56.6 | $ | (10.2 | ) | $ | 388.3 | |||||||
|
Debt
|
$ | 1,905.9 | $ | (152.6 | ) | $ | 21.4 | $ | 1,774.7 | |||||||
|
Capital in excess of par value
|
$ | 519.9 | $ | 92.8 | $ | — | $ | 612.7 | ||||||||
|
Retained earnings
|
$ | 1,438.7 | $ | — | $ | (11.7 | ) | $ | 1,427.0 | |||||||
These adjustments record the effects of (1) reclassifying
$152.6 million to capital in excess of par value with an
offsetting reduction to debt in the form of unamortized discount
representing the amount of the proceeds received
63
Table of Contents
from the issuance of the Convertible Subordinated Notes
attributable to their conversion options; (2) reclassifying
$3.2 million in debt origination costs related to the
Convertible Subordinated Notes from other assets to capital in
excess of par value; (3) recognizing additional
amortization of debt discount and debt origination costs as an
increase to interest expense for the period from the issuance of
the Convertible Subordinated Notes through December 31,
2008; and (4) the corresponding effect of these adjustments
on deferred tax expense and deferred tax liability.
Additionally, interest expense for the years ended
December 31, 2008 and December 31, 2007, was increased
by $9.0 million and $8.3 million, respectively, from
amounts originally reported to include amortization of debt
discount and debt origination costs with offsetting tax benefits
of $4.1 million and $4.3 million, respectively. The
effect of these adjustments for the years ended
December 31, 2008 and December 31, 2007 was to
decrease basic net income per share from continuing operations
by $0.07 and $0.05, respectively, and to decrease diluted net
income per share from continuing operations by $0.07 and $0.05,
respectively. There was no change to the discontinued operations
per common share data.
As of December 31, 2009 and 2008, as adjusted, capital in
excess of par value included $92.8 million related to the
estimated value of the Convertible Subordinated Notes’
conversion options. 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 Subordinated
Convertible Notes for the years ended December 31, 2009,
2008, and 2007, is as follows:
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (in millions) | ||||||||||||
|
Coupon rate interest
|
$ | 17.4 | $ | 17.4 | $ | 17.4 | ||||||
|
Amortized debt discount
|
9.6 | 8.8 | 8.1 | |||||||||
| $ | 27.0 | $ | 26.2 | $ | 25.5 | |||||||
The Company’s $450 million of Convertible Subordinated
Notes due 2036 (“Convertible Subordinated Notes”) bear
an interest rate of 3 7/8% per annum on the principal amount
payable semi-annually in arrears on June 1 and December 1 of
each year. In addition, commencing with the six-month period
beginning June 1, 2018, and for each six-month period
thereafter, we will pay contingent interest to the holders of
the Convertible Subordinated Notes under certain circumstances.
The Convertible Subordinated Notes mature on June 1, 2036,
unless redeemed, repurchased, or converted earlier. We may not
redeem the Convertible Subordinated Notes before June 1,
2018. On or after that date, we may redeem all or part of the
Convertible Subordinated Notes for cash at 100% of the principal
amount of the notes to be redeemed, plus accrued and unpaid
interest (including any contingent interest) up to, but
excluding, the redemption date. Holders of the Convertible
Subordinated Notes may require us to purchase all or a portion
of their notes on June 1, 2018 or upon a fundamental
change. In each case, the Convertible Subordinated Notes would
be purchased for cash at a price equal to 100% of the principal
amount of the notes to be purchased plus any accrued and unpaid
interest (including any contingent interest) to, but excluding,
the purchase date.
At December 31, 2009, the Convertible Subordinated Notes
were convertible at a price of $51.79 per share resulting in
8,688,936 issuable shares. As of December 31, 2009, if the
Subordinated Convertible Notes had been converted, no shares
would have been issued since the trading price of the
Company’s common stock was below the conversion price of
the Convertible Subordinated Notes. The Company has not entered
into any derivatives transactions associated with these Notes.
Trinity’s revolving credit facility requires maintenance of
ratios related to interest coverage for the leasing and
manufacturing operations, leverage, and minimum net worth.
Interest on the revolving credit facility is calculated at prime
or LIBOR plus 75 basis points. At December 31, 2009,
there were no borrowings under our $425 million revolving
credit facility that matures on October 19, 2012. After
$89.6 million was considered for letters of credit,
$335.4 million was available under the revolving credit
facility.
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Table of Contents
The Company’s 6 1/2% senior notes (“Senior
Notes”) due 2014 rank equally with all of the
Company’s existing and future senior debt but are
subordinated to all the Company’s existing and future
secured debt to the extent of the value of the assets securing
such debt. We may redeem some or all of the Senior Notes at any
time on or after March 15, 2009 at a redemption price of
103.25% in 2009, 102.167% in 2010, 101.083% in 2011 and 100.0%
in 2012 and thereafter plus accrued interest. The Senior Notes
could restrict our ability to incur additional debt; make
certain distributions, investments, and other restricted
payments; create certain liens; merge; consolidate; or sell
substantially all or a portion of our assets. Certain wholly
owned subsidiaries of the Company, including Trinity Industries
Leasing Company, are guarantors of the Company’s Senior
Notes and certain operating leases. See Note 19 Financial
Statements for Guarantors of the Senior Debt for further
discussion.
In May 2006, Trinity Rail Leasing V, L.P., a limited
partnership (“TRL V”) and a limited purpose, indirect
wholly-owned subsidiary of the Company owned through TILC issued
$355.0 million in aggregate principal amount of Secured
Railcar Equipment Notes,
Series 2006-1A
(the “2006 Secured Railcar Equipment Notes”). The 2006
Secured Railcar Equipment Notes were issued pursuant to a Master
Indenture, dated May 24, 2006, between TRL V and Wilmington
Trust Company, as indenture trustee. The 2006 Secured
Railcar Equipment Notes bear interest at a fixed rate of 5.9%
per annum, are payable monthly, and have a final maturity of
May 14, 2036. The 2006 Secured Railcar Equipment Notes are
limited recourse obligations of TRL V only, secured by a
portfolio of railcars and operating leases thereon, certain cash
reserves, and other assets acquired and owned by TRL V.
In May 2008, Trinity Rail Leasing VI LLC, a Delaware limited
liability company (“TRL VI”), a limited purpose,
indirect wholly-owned subsidiary of Trinity, issued
$572.2 million of
30-year
promissory notes (the “Promissory Notes”) to financial
institutions. The Promissory Notes were secured by a portfolio
of railcars valued at approximately $743.1 million,
operating leases thereon, and certain cash reserves. The
Promissory Notes are obligations of TRL VI and are non-recourse
to Trinity. TRL VI acquired the railcars securing the Promissory
Notes by purchase from TILC and a subsidiary. The proceeds were
used to repay a portion of our warehouse facility and to finance
unencumbered railcars on our consolidated balance sheet. TILC
entered into certain agreements relating to the transfer of the
railcars to TRL VI and the management and servicing of TRL
VI’s assets. The Promissory Notes bear interest at a
floating rate of one-month LIBOR plus a margin of 1.50%. The
LIBOR portion of the interest rate on the Promissory Notes is
fixed at approximately 4.13% for the first seven years from the
date of issuance of the Promissory Notes through interest rate
hedges. The interest rate margin on the Promissory Notes will
increase by 0.50% on each of the seventh and eighth anniversary
dates of the issuance of the Promissory Notes and by an
additional 2.00% on the tenth anniversary date of the issuance
of the Promissory Notes. The Promissory Notes may be prepaid at
any time and may be prepaid without penalty at any time after
the third anniversary date of the issuance of the Promissory
Notes.
In May 2009, TILC renewed its railcar leasing warehouse facility
through February 2011. Unless renewed, this facility will be
payable in three equal installments in August 2011, February
2012, and August 2012. The facility, which originally matured in
August 2009, was established to finance railcars owned by TILC.
Railcars financed by the warehouse facility have historically
been refinanced under long-term financing agreements. Specific
railcars and the underlying leases secure the facility. Advances
under the facility may not exceed 75% of the fair market value
of the eligible railcars securing the facility as defined by the
agreement. Due to the lower level of demand for railcars and the
Company’s resulting need for less financing of this type,
the size of the warehouse facility commitment was reduced from
$600 million to $475 million at the time of the
renewal. Advances under this facility bear interest at a defined
index rate plus a margin, for an all-in interest rate of 2.77%
at December 31, 2009. At December 31, 2009,
$141.4 million was outstanding and $333.6 million was
available under this facility.
In November 2009, Trinity Rail Leasing VII LLC, a Delaware
limited liability company (“TRL VII”), a limited
purpose, indirect wholly-owned subsidiary of the Company owned
through TILC, issued $238.3 million in aggregate principal
amount of Secured Railcar Equipment Notes,
Series 2009-1
(“the 2009 Secured Railcar Equipment Notes”). The 2009
Secured Railcar Equipment Notes were issued pursuant to a Master
Indenture, dated November 5, 2009 between TRL VII and
Wilmington Trust Company, as indenture trustee. The 2009
Secured Railcar Equipment Notes bear interest at a fixed rate of
6.657% per annum, are payable monthly, and have a final maturity
date of November 16, 2039. The 2009 Secured Railcar
Equipment Notes are limited recourse obligations of TRL VII
only, secured by a portfolio of railcars and operating leases
thereon, certain cash reserves, and other assets acquired and
owned by TRL VII.
65
Table of Contents
In February 2009, the Company repaid in full the
$61.4 million of equipment trust certificates outstanding
at December 31, 2008 while entering into a seven-year
$61.0 million term loan agreement in the second quarter of
2009. New capital lease obligations totaling $56.6 million
were entered into during the year ended December 31, 2009.
These new debt obligations are guaranteed by the Company and
secured by railcar equipment and related leases.
Principal payments due during the next five years as of
December 31, 2009 are as follows:
| 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | |||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
|
Recourse:
|
||||||||||||||||||||||||
|
Corporate/Manufacturing
|
$ | 0.7 | $ | 0.5 | $ | 0.4 | $ | 0.2 | $ | 201.7 | $ | 450.7 | ||||||||||||
|
Leasing – term loan (Note 5)
|
2.5 | 2.6 | 2.8 | 3.0 | 3.3 | 45.6 | ||||||||||||||||||
|
Leasing – capital leases (Note 5)
|
2.4 | 2.6 | 2.8 | 2.9 | 3.1 | 39.8 | ||||||||||||||||||
|
Non-recourse:
|
||||||||||||||||||||||||
|
Leasing – 2006 secured railcar equipment notes
(Note 5)
|
16.4 | 14.9 | 13.7 | 15.4 | 17.2 | 227.1 | ||||||||||||||||||
|
Leasing – 2009 secured railcar equipment notes
(Note 5)
|
8.4 | 10.2 | 9.2 | 10.2 | 9.9 | 189.7 | ||||||||||||||||||
|
Leasing – warehouse trust facility (Note 5)
|
4.6 | 7.1 | 4.0 | — | — | — | ||||||||||||||||||
|
Leasing – promissory notes (Note 5)
|
27.6 | 27.3 | 29.9 | 27.9 | 26.6 | 376.1 | ||||||||||||||||||
|
Total principal payments excluding termination of warehouse
facility
|
62.6 | 65.2 | 62.8 | 59.6 | 261.8 | 1,329.0 | ||||||||||||||||||
|
Warehouse trust facility termination payments
|
— | 42.3 | 83.4 | — | — | — | ||||||||||||||||||
|
Total principal payments
|
$ | 62.6 | $ | 107.5 | $ | 146.2 | $ | 59.6 | $ | 261.8 | $ | 1,329.0 | ||||||||||||
Commitments under letters of credit, primarily related to
insurance, are $89.6 million, expiring $84.4 million
in 2010 $4.2 million in 2011, and $1.0 million in
2012.
Note 12.
Other, Net
Other, net (income) expense consists of the following items:
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (in millions) | ||||||||||||
|
Foreign currency exchange transactions
|
$ | 2.2 | $ | 4.6 | $ | (1.7 | ) | |||||
|
(Gain) loss on equity investments
|
(6.5 | ) | (0.6 | ) | 6.5 | |||||||
|
Other
|
(1.0 | ) | (2.6 | ) | (2.2 | ) | ||||||
|
Other, net
|
$ | (5.3 | ) | $ | 1.4 | $ | 2.6 | |||||
Gain on equity investments includes a $3.7 million gain
from the sale of an investment during the year ended
December 31, 2009.
Note 13.
Income Taxes
On January 1, 2007, we adopted the provisions of an
accounting pronouncement issued by the FASB regarding the
accounting treatment of uncertain tax positions. As a result, we
recorded a $3.1 million charge to the January 1, 2007
balance of retained earnings. This amount is inclusive of
penalties and interest and net of deferred tax assets that were
recorded against uncertain tax positions related to state income
taxes and Federal and state interest expense that was accrued.
Prior to the adoption of the pronouncement, we had recorded
$8.3 million of tax contingency reserves. Additionally,
$20.7 million of deferred tax liabilities had been recorded
for items that have been identified as uncertain tax positions
that have now been reclassified to Other Liabilities. Upon the
adoption of the pronouncement, we identified an additional
$3.0 million of taxes related to uncertain tax positions
which increased our total
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Table of Contents
liability for unrecognized tax benefits on January 1, 2007
to $32.0 million. This amount was charged to
January 1, 2007 retained earnings as a cumulative change in
accounting principle.
The change in unrecognized tax benefits for the years ended
December 31, 2009 and 2008 were as follows:
| Year Ended December 31, | ||||||||
| 2009 | 2008 | |||||||
| (in millions) | ||||||||
|
Beginning balance
|
$ | 32.9 | $ | 23.7 | ||||
|
Additions for tax positions related to the current year
|
5.8 | 2.8 | ||||||
|
Additions for tax positions of prior years
|
7.5 | 9.1 | ||||||
|
Reductions for tax positions of prior years
|
(4.5 | ) | (1.9 | ) | ||||
|
Settlements
|
(1.5 | ) | — | |||||
|
Expirations of statute of limitations
|
(0.1 | ) | (0.8 | ) | ||||
|
Ending balance
|
$ | 40.1 | $ | 32.9 | ||||
The additions for the years ended December 31, 2009 and
December 31, 2008, were amounts provided for tax positions
previously taken in foreign jurisdictions and tax positions
taken for Federal and state income tax purposes as well as
deferred tax liabilities that have been reclassified to
uncertain tax positions.
The reduction for tax positions of prior years and settlements
for the year ended December 31, 2009 related primarily to a
Federal position that we believe will be sustained upon audit
and therefore is no longer at risk and the completion of state
audits in which the Company’s tax position was not
challenged by the state, respectively. The reduction for tax
positions of prior years for the year ended December 31,
2008 related primarily to the completion of state audits in
which the tax position was not challenged by the state and for
which the position is now effectively settled.
The total amount of unrecognized tax benefits including interest
and penalties at December 31, 2009 and 2008, that would
affect the Company’s effective tax rate if recognized was
$25.0 million and $17.1 million, respectively. There
is a reasonable possibility that unrecognized Federal and state
tax benefits will decrease by December 31, 2010 due to a
lapse in the statute of limitations for assessing tax. Amounts
subject to a lapse in statute by December 31, 2010 are
$0.5 million. Further, there is a reasonable possibility
that the unrecognized Federal tax benefits will decrease
significantly by December 31, 2010 due to settlements with
taxing authorities. Amounts expected to settle by
December 31, 2010 are $7.7 million.
Trinity accounts for interest expense and penalties related to
income tax issues as income tax expense. Accordingly, interest
expense and penalties associated with an uncertain tax position
are included in the income tax provision. The total amount of
accrued interest and penalties as of December 31, 2009 and
2008 was $16.0 million and $10.6 million,
respectively. Income tax expense for the year ended
December 31, 2009 and 2008, includes $5.4 million and
$2.5 million in interest expense and penalties related to
uncertain tax positions.
67
Table of Contents
The components of the provision for income taxes from continuing
operations are as follows:
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (in millions) | ||||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | 5.8 | $ | (97.1 | ) | $ | 89.4 | |||||
|
State
|
0.7 | 7.2 | 14.1 | |||||||||
|
Foreign
|
7.9 | 14.1 | 6.6 | |||||||||
|
Total current
|
14.4 | (75.8 | ) | 110.1 | ||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
(27.1 | ) | 250.9 | 48.4 | ||||||||
|
State
|
(3.5 | ) | 4.6 | 2.8 | ||||||||
|
Foreign
|
6.8 | (8.3 | ) | 3.8 | ||||||||
|
Total deferred
|
(23.8 | ) | 247.2 | 55.0 | ||||||||
|
Provision
|
$ | (9.4 | ) | $ | 171.4 | $ | 165.1 | |||||
Deferred income taxes represent the tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. The components of deferred tax
liabilities and assets are as follows:
| December 31, | ||||||||
| 2009 | 2008 | |||||||
| (in millions) | ||||||||
|
Deferred tax liabilities:
|
||||||||
|
Depreciation, depletion, and amortization
|
$ | 563.6 | $ | 532.7 | ||||
|
Convertible debt
|
74.0 | 67.9 | ||||||
|
Total deferred tax liabilities
|
637.6 | 600.6 | ||||||
|
Deferred tax assets:
|
||||||||
|
Workers compensation, pensions, and other benefits
|
53.1 | 49.9 | ||||||
|
Warranties and reserves
|
16.7 | 19.8 | ||||||
|
Equity items
|
48.2 | 79.7 | ||||||
|
Tax loss carryforwards and credits
|
104.5 | 32.4 | ||||||
|
Inventory
|
7.6 | 8.9 | ||||||
|
Accrued liabilities and other
|
2.6 | 9.8 | ||||||
|
Total deferred tax assets
|
232.7 | 200.5 | ||||||
|
Net deferred tax liabilities before valuation allowance
|
404.9 | 400.1 | ||||||
|
Valuation allowance
|
15.6 | 4.4 | ||||||
|
Net deferred tax liabilities before reserve for uncertain tax
positions
|
420.5 | 404.5 | ||||||
|
Deferred tax liabilities included in reserve for uncertain tax
positions
|
(22.6 | ) | (16.2 | ) | ||||
|
Adjusted net deferred tax liabilities
|
$ | 397.9 | $ | 388.3 | ||||
At December 31, 2009, the Company had $174.1 million
of Federal consolidated net operating loss carry forwards and
tax effected $5.1 million of state loss carry forwards. The
Federal tax loss carry forwards are due to expire between 2010
and 2029. Management is currently evaluating the advisability of
carrying back a portion of this tax loss to recover taxes paid
in prior years and the impact the carry back would have on tax
credits which have been previously realized. Thus, at this time
we are reflecting the entire tax loss carry forward within our
Deferred tax asset account. We have established a valuation
allowance for state net operating losses which may not be
realizable. These net operating losses expire between 2010 and
2029. We have also established valuation allowances against
certain credits that have a short carry forward period and will
most likely not be utilized.
Realization of deferred tax assets is dependent on generating
sufficient taxable income in future periods. We have established
valuation allowances against tax losses and credits that we will
most likely be unable to utilize. We
68
Table of Contents
believe that it is more likely than not that we will be able to
generate sufficient future taxable income to utilize the
remaining deferred tax assets.
We are currently under three separate Internal Revenue Service
(“IRS”) examination cycles. These include the tax
years ended 1998 through 2002; 2004 through 2005; and 2006
through 2008. Thus our statute remains open from the year ended
March 31, 1998, forward. We have agreed upon all issues
related to the
1998-2002
exam cycle and are currently waiting for the final Revenue Agent
Report and tax assessment. We expect to receive this report and
assessment during the first quarter of 2010. We are fully
reserved for these issues and have made a preliminary tax
payment to stop the accrual of additional interest. We have also
concluded the field work for the 2004-2005 exam cycle and have
been issued a Revenue Agent Report, or
“30-Day
Letter.” Certain issues have been agreed upon by us and the
IRS and certain issues remain unresolved. Accordingly, we have
appealed those unresolved issues to the Appeals Division of the
IRS. Due to the uncertainty of the length of the appeals process
and possible post-appeals litigation on any issues, the statute
related to the 2004-2005 exam cycle will remain open for an
indeterminable period of time. Likewise, as the 2006-2008 cycle
has only recently begun, we are unable to determine how long
these periods will remain open.
In addition, the statute of limitations governing the right of
Mexico’s tax authorities to audit the tax returns of our
operations in Mexico remains open for the 2002 tax year forward.
Our Mexico subsidiaries are currently under audit for the 2002
and 2003 tax years. During the fourth quarter of 2009, the
Mexican government issued a preliminary observation of issues
regarding our 2002 transfer pricing but has not issued an
assessment. We anticipate receiving a final assessment during
the third quarter of 2010. We expect that we will not agree with
their final findings and thus anticipate challenging the final
assessment. Accordingly, we are unable to estimate when the
2002-2003 examination period will conclude. Our Swiss subsidiary
has been audited through the 2007 tax year and no adjustments
have been proposed. Our various other European subsidiaries,
including subsidiaries that were sold in 2006, are impacted by
various statutes of limitations which are generally open from
2003 forward. An exception to this is our discontinued
operations in Romania, which have been audited through 2004.
Generally, states’ statutes in the United States are open
from 2002 forward.
The Company received income tax refunds of $111.4 million
during the year ended December 31, 2009. During the third
quarter of 2009, the Company filed a superseded Federal tax
return, final Mexican tax returns and some state tax returns
that resulted in additional tax refunds in excess of amounts
previously estimated.
The provision for income taxes from continuing operations
results in effective tax rates different from the statutory
rates. The following is a reconciliation between the statutory
United States Federal income tax rate and the Company’s
effective income tax rate:
|
Year Ended December 31,
|
||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Statutory rate
|
35.0 | % | 35.0 | % | 35.0 | % | ||||||
|
State taxes
|
1.9 | 1.7 | 3.6 | |||||||||
|
Impairment of goodwill
|
(23.7 | ) | — | — | ||||||||
|
Changes in tax laws and rates
|
— | — | (1.2 | ) | ||||||||
|
Changes in valuation allowance
|
(6.5 | ) | — | — | ||||||||
|
Other, net
|
(0.3 | ) | 1.1 | (1.1 | ) | |||||||
|
Total taxes
|
6.4 | % | 37.8 | % | 36.3 | % | ||||||
Income (loss) from continuing operations before income taxes for
the year ended December 31, 2009, 2008, and 2007 was
$(158.4) million, $430.5 million, and
$438.2 million, respectively, for United States operations,
and $11.5 million, $23.3 million, and
$16.7 million, respectively, for foreign operations. The
Company has provided United States deferred income taxes on the
un-repatriated earnings of its foreign operations. The Company
has $25.9 million of foreign tax credit carry forwards
which will expire between 2014 and 2019.
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Table of Contents
Note 14.
Employee Retirement Plans
The Company sponsors defined benefit plans and defined
contribution profit sharing plans which provide income and death
benefits for eligible employees. The annual measurement date of
the benefit obligations, fair value of plan assets, and funded
status is December 31.
Actuarial
Assumptions
|
Year Ended December 31,
|
||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Assumptions used to determine benefit obligations at the
annual measurement date were:
|
||||||||||||
|
Obligation discount rate
|
6.10 | % | 6.50 | % | 6.50 | % | ||||||
|
Compensation increase rate
|
3.00 | % | 4.00 | % | 4.00 | % | ||||||
|
Assumptions used to determine net periodic benefit costs
were:
|
||||||||||||
|
Obligation discount rate
|
6.50 | % | 6.50 | % | 6.00 | % | ||||||
|
Long-term rate of return on plan assets
|
7.75 | % | 7.75 | % | 7.75 | % | ||||||
|
Compensation increase rate
|
4.00 | % | 4.00 | % | 4.00 | % | ||||||
The expected long-term rate of return on plan assets is an
assumption reflecting the anticipated weighted average rate of
earnings on the portfolio over the long-term. To arrive at this
rate, we developed estimates based upon the anticipated
performance of the assets in its portfolio.
Components
of Net Retirement Cost
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (in millions) | ||||||||||||
|
Expense Components
|
||||||||||||
|
Service cost
|
$ | 3.0 | $ | 9.7 | $ | 11.3 | ||||||
|
Interest
|
19.7 | 20.8 | 19.6 | |||||||||
|
Expected return on plan assets
|
(15.7 | ) | (20.1 | ) | (17.6 | ) | ||||||
|
Amortization and deferral:
|
||||||||||||
|
Actuarial loss
|
4.2 | 1.8 | 4.1 | |||||||||
|
Prior service cost
|
0.1 | 0.2 | 0.2 | |||||||||
|
Transition asset
|
— | (0.1 | ) | (0.1 | ) | |||||||
|
Profit sharing
|
7.6 | 7.6 | 7.0 | |||||||||
|
Other
|
(0.4 | ) | — | — | ||||||||
|
Net expense
|
$ | 18.5 | $ | 19.9 | $ | 24.5 | ||||||
70
Table of Contents
Obligations
and Funded Status
|
Year Ended December 31,
|
||||||||
| 2009 | 2008 | |||||||
| (in millions) | ||||||||
|
Accumulated Benefit Obligations
|
$ | 326.0 | $ | 294.3 | ||||
|
Projected Benefit Obligations
|
||||||||
|
Beginning of year
|
$ | 334.0 | $ | 316.8 | ||||
|
Service cost
|
3.0 | 9.7 | ||||||
|
Interest
|
19.7 | 20.8 | ||||||
|
Benefits paid
|
(11.6 | ) | (11.2 | ) | ||||
|
Actuarial (gain) loss
|
15.1 | (2.1 | ) | |||||
|
Curtailments
|
(33.8 | ) | — | |||||
|
Settlements
|
(0.3 | ) | — | |||||
|
End of year
|
$ | 326.1 | $ | 334.0 | ||||
|
Plans’ Assets
|
||||||||
|
Beginning of year
|
$ | 200.6 | $ | 249.6 | ||||
|
Actual return on assets
|
49.6 | (63.6 | ) | |||||
|
Employer contributions
|
19.3 | 25.8 | ||||||
|
Benefits paid
|
(11.6 | ) | (11.2 | ) | ||||
|
Settlements
|
(0.3 | ) | — | |||||
|
End of year
|
$ | 257.6 | $ | 200.6 | ||||
|
Consolidated Balance Sheet Components
|
||||||||
|
Funded status
|
$ | (68.5 | ) | $ | (133.4 | ) | ||
The unfunded status of the plans of $68.5 million at
December 31, 2009 was recognized in the accompanying
balance sheet as accrued pension liability and included in
Accrued Liabilities. No plan assets are expected to be returned
to us during the year ending December 31, 2010.
Amounts
Recognized in Other Comprehensive Income (Loss)
|
Year Ended December 31,
|
||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (In millions) | ||||||||||||
|
Actuarial gain (loss)
|
$ | 18.7 | $ | (81.6 | ) | $ | 25.8 | |||||
|
Amortization of actuarial loss
|
4.2 | 1.9 | 4.1 | |||||||||
|
Amortization of prior service cost
|
0.1 | 0.2 | 0.2 | |||||||||
|
Amortization of transition asset
|
— | (0.1 | ) | (0.1 | ) | |||||||
|
Curtailments
|
33.5 | — | — | |||||||||
|
Total before income taxes
|
56.5 | (79.6 | ) | 30.0 | ||||||||
|
Income tax expense (benefit)
|
20.9 | (29.0 | ) | 11.3 | ||||||||
|
Net amount recognized in other comprehensive income (loss)
|
$ | 35.6 | $ | (50.6 | ) | $ | 18.7 | |||||
Included in AOCL at December 31, 2009 were the following
amounts that have not been recognized in net periodic pension
cost: prior service cost of $0.3 million ($0.2 million
net of related income taxes) and unrecognized actuarial losses
of $80.5 million ($50.6 million net of related income
taxes).
Actuarial loss included in AOCL and expected to be recognized in
net periodic pension cost for the year ended December 31,
2010 is $2.4 million ($1.5 million net of related
income taxes).
71
Table of Contents
Plan
Assets
The estimated fair value of plan assets at year end 2009 and
2008, indicating input levels used to determine fair value, and
the range of target asset allocations are as follows:
|
Target
|
December 31,
|
December 31,
|
||||||||||
| Allocation | 2009 | 2008 | ||||||||||
| (in millions) | ||||||||||||
|
Asset category:
|
||||||||||||
|
Cash and cash equivalents – Level 1
|
$ | 4.4 | $ | 15.0 | ||||||||
|
Equity securities
|
||||||||||||
|
Level 1
|
80.4 | 49.8 | ||||||||||
|
Level 2
|
77.9 | 51.4 | ||||||||||
| 55-65 | % | 158.3 | 101.2 | |||||||||
|
Fixed income – Level 1
|
||||||||||||
|
Corporate
|
69.1 | 60.1 | ||||||||||
|
Government agencies
|
25.8 | 24.3 | ||||||||||
| 35-45 | % | 94.9 | 84.4 | |||||||||
|
Total
|
$ | 257.6 | $ | 200.6 | ||||||||
The Company’s pension investment strategies have been
developed as part of a comprehensive asset/liability management
process that considers the relationship between both the assets
and liabilities of the plans. These strategies consider not only
the expected risk and returns on plan assets, but also the
actuarial projections of liabilities, projected contributions,
and funded status. The equity allocation is heavily weighted
toward domestic large capitalized companies. There is also a
lesser exposure to domestic small/mid cap companies, as well as,
international equities. The fixed income allocation is equally
split between a limited duration portfolio and a core plus
portfolio that has a duration in-line with published bond
indices. This asset mix is designed to meet the longer-term
obligations of the plan as projected by actuarial studies.
The principal pension investment strategies include asset
allocation and active asset management. The range of target
asset allocations has been determined after giving consideration
to the expected returns of each asset category, the expected
performance of each asset category, the volatility of the asset
returns over time and the complementary nature of the asset mix
within the portfolio. Each asset category is managed by external
money managers with the objective of generating returns that
exceed market-based benchmarks.
Cash
Flows
Employer contributions for the year ending December 31,
2010 are expected to be $12.3 million for the defined
benefit plans compared to $19.3 million contributed during
2009. Employer contributions to the 401(k) plans and the
Supplemental Profit Sharing Plan for the year ending
December 31, 2010 are expected to be $7.7 million
compared to $7.4 million during 2009.
Benefit payments expected to be paid during the next ten years
are as follows:
| Amounts | ||||
| (in millions) | ||||
|
2010
|
$ | 12.8 | ||
|
2011
|
13.7 | |||
|
2012
|
15.1 | |||
|
2013
|
16.6 | |||
|
2014
|
18.2 | |||
|
2015-2019
|
121.2 | |||
During the first quarter of 2009, the Company amended its
Supplemental Retirement Plan (the “Supplemental Plan”)
to reduce future retirement plan costs. This amendment provides
that all benefit accruals under the Supplemental Plan cease
effective March 31, 2009, and the Supplemental Plan was
frozen as of that date. In addition, the Company amended the
Trinity Industries, Inc. Standard Pension Plan (the
“Pension Plan”). This
72
Table of Contents
amendment was designed to reduce future pension costs and
provides that, effective March 31, 2009, all future benefit
accruals under the Pension Plan automatically cease for all
participants, and the accrued benefits under the Pension Plan
were determined and frozen as of that date. Accordingly, as a
result of these amendments, accrued pension liability was
reduced by $44.1 million with an offsetting reduction in
funded status of pension liability included in AOCL.
Note 15.
Accumulated Other Comprehensive Loss
Comprehensive net income (loss) is as follows:
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (in millions) | ||||||||||||
|
Net income (loss)
|
$ | (137.7 | ) | $ | 280.9 | $ | 289.1 | |||||
|
Other comprehensive income (loss):
|
||||||||||||
|
Change in currency translation adjustment, net of tax expense of
$0.0, $0.1, and $0.2
|
— | 0.2 | 0.2 | |||||||||
|
Change in funded status of pension liability, net of tax expense
(benefit) of $20.9, $(29.0), and $11.3
|
35.6 | (50.6 | ) | 18.7 | ||||||||
|
Change in unrealized (loss) gain on derivative financial
instruments, net of tax (benefit) expense of $12.0, $(23.4), and
$(6.3)
|
27.8 | (48.3 | ) | (11.3 | ) | |||||||
|
Other changes, net of tax benefit of $(0.0), (0.6), and (0.0)
|
(0.1 | ) | (1.0 | ) | — | |||||||
|
Comprehensive net income (loss)
|
$ | (74.4 | ) | $ | 181.2 | $ | 296.7 | |||||
The components of accumulated other comprehensive loss are as
follows:
|
December 31,
|
December 31,
|
|||||||
| 2009 | 2008 | |||||||
| (in millions) | ||||||||
|
Currency translation adjustments, net of tax benefit of $(0.2)
and $(0.1)
|
$ | (17.1 | ) | $ | (17.1 | ) | ||
|
Funded status of pension liability, net of tax benefit of
$(30.0) and $(50.9)
|
(50.8 | ) | (86.4 | ) | ||||
|
Unrealized loss on derivative financial instruments, net of tax
benefit of $(15.9) and $(28.0)
|
(29.0 | ) | (56.8 | ) | ||||
|
Other changes, net of tax benefit of $(0.7) and $(0.6)
|
(1.1 | ) | (1.0 | ) | ||||
| $ | (98.0 | ) | $ | (161.3 | ) | |||
See Note 7 Derivative Instruments for information on the
reclassification of amounts in accumulated other comprehensive
loss into earnings.
| Note 16. | Stock-Based Compensation |
The Company’s 2004 Stock Option and Incentive Plan
(“the Plan”) authorized 2,500,000 (not adjusted for
stock splits) shares of common stock plus (i) shares
covered by forfeited, expired, and canceled options granted
under prior plans; (ii) shares tendered as full or partial
payment for the purchase price of an award or to satisfy tax
withholding obligations; and (iii) shares covered by an
award settled in cash. At December 31, 2009, a total of
1,496,209 shares were available for issuance. The Plan
provides for the granting of nonqualified and incentive stock
options having maximum ten-year terms to purchase common stock
at its market value on the award date; stock appreciation rights
based on common stock fair market values with settlement in
common stock or cash; restricted stock; restricted stock units;
and performance awards with settlement in common stock or cash
on achievement of specific business objectives. Under previous
plans, nonqualified and incentive stock options, restricted
shares, and restricted stock units were granted at their fair
market values. Options become exercisable in various percentages
over periods ranging up to five years.
73
Table of Contents
On January 1, 2006, we adopted the accounting standard
which required companies to recognize in their financial
statements the cost of employee services received in exchange
for awards of equity instruments. This is referred to as
share-based payments. These costs were based on the grant date
fair-value of those awards. Stock-based compensation includes
compensation expense, recognized over the applicable vesting
periods, for both new share-based awards and share-based awards
granted prior to, but not yet vested, as of January 1,
2006. The Company uses the Black-Scholes-Merton option pricing
model to determine the fair value of stock options granted to
employees, consistent with that used for pro forma disclosures
under the accounting standard for stock-based compensation.
Stock-based compensation totaled approximately
$13.5 million, $18.7 million, and $18.6 million
for the years ended December 31, 2009, 2008, and 2007,
respectively.
The income tax benefit related to stock-based compensation
expense was $2.3 million, $6.7 million, and
$9.8 million for the years ended December 31, 2009,
2008, and 2007, respectively. In accordance with the accounting
standard, the Company has presented excess tax benefits from the
exercise of stock-based compensation awards as a financing
activity in the consolidated statement of cash flows. No
stock-based compensation costs were capitalized as part of the
cost of an asset for the years ended December 31, 2009,
2008, and 2007.
Stock
Options
Effective with the adoption of this accounting standard, expense
related to stock options issued to eligible employees under the
Plan is recognized over their vesting period on a straight line
basis. Stock options generally vest over 5 years and have
contractual terms of 10 years.
|
Weighted-
|
||||||||||||||||
|
Average
|
||||||||||||||||
|
Weighted-
|
Remaining
|
|||||||||||||||
|
Number
|
Average
|
Contractual
|
Aggregate
|
|||||||||||||
|
of
|
Exercise
|
Terms
|
Intrinsic
|
|||||||||||||
| Shares | Price | (Years) | Value | |||||||||||||
| (in millions) | ||||||||||||||||
|
Options outstanding at December 31, 2008
|
1,310,593 | $ | 16.55 | |||||||||||||
|
Granted
|
— | — | ||||||||||||||
|
Exercised
|
(81,620 | ) | 14.05 | |||||||||||||
|
Cancelled
|
(213,508 | ) | 19.18 | |||||||||||||
|
Options outstanding at December 31, 2009
|
1,015,465 | 16.20 | 5.9 | $ | 1.7 | |||||||||||
|
Options exercisable at December 31, 2009
|
543,940 | $ | 16.03 | 3.5 | $ | 1.2 | ||||||||||
At December 31, 2009, unrecognized compensation expense
related to stock options was $1.6 million. At
December 31, 2009, for unrecognized compensation expense
related to stock options, the weighted average recognition
period was 2.2 years. The intrinsic value of options
exercised totaled approximately $0.3 million,
$8.7 million, and $19.7 million during fiscal years
2009, 2008, and 2007, respectively.
Restricted
Stock
Restricted share awards consist of restricted stock and
restricted stock units. Expense related to restricted stock and
restricted stock units issued to eligible employees under the
Plan is recognized ratably over the vesting period or to the
date on which retirement eligibility is achieved, if shorter.
Restricted stock and restricted stock units issued to eligible
employees under our long-term incentive plans generally vest
one-third per year on the first, third, and fifth anniversary,
one-third per year on the fourth, sixth, and eighth anniversary
or one-hundred percent on the fifth anniversary of the date of
grant. Certain awards vest one-hundred percent upon the
employee’s retirement from the Company or when the
employee’s age plus years of vested service equal 80.
Restricted stock units issued to non-employee directors under
the Plan vest on the grant date or on the first business day
immediately preceding the next Annual Meeting of Stockholders.
74
Table of Contents
|
Weighted
|
||||||||
|
Number of
|
Average Fair
|
|||||||
|
Restricted
|
Value per
|
|||||||
| Share Awards | Award | |||||||
|
Restricted share awards outstanding at
December 31, 2008 |
2,594,668 | $ | 29.67 | |||||
|
Granted
|
877,201 | 15.68 | ||||||
|
Vested
|
(477,532 | ) | 26.53 | |||||
|
Forfeited
|
(192,547 | ) | 28.96 | |||||
|
Restricted share awards outstanding at
December 31, 2009 |
2,801,790 | $ | 25.32 | |||||
At December 31, 2009, unrecognized compensation expense
related to restricted share awards totaled approximately
$41.0 million which will be recognized over a weighted
average period of 5.0 years. The total fair value of shares
vested during fiscal years 2009, 2008, and 2007 was
$7.4 million, $10.3 million, and $13.5 million,
respectively.
Note 17.
Earnings Per Common Share
On January 1, 2009, we adopted the provisions of the new
FASB accounting pronouncement requiring that unvested
share-based payment awards containing non-forfeitable rights to
dividends be considered participating securities and included in
the computation of earnings per share pursuant to the two-class
method. This pronouncement requires that, upon adoption, all
prior period earnings per share data presented be adjusted
retrospectively. The effect of adopting this pronouncement for
the years ended December 31, 2008 and December 31,
2007 was to decrease basic net income per common share from
continuing operations by $0.11 and $0.10, respectively. The
effect of adopting this pronouncement for the years ended
December 31, 2008 and December 31, 2007 was to
decrease diluted net income per common share from continuing
operations by $0.07 and $0.05, respectively. There was no change
to the discontinued operations per common share data.
Basic earnings per common share is computed by dividing net
income remaining after allocation to unvested restricted shares
by the weighted average number of common shares outstanding for
the period. Except when the effect would be antidilutive, the
calculation of diluted net income per common share includes the
net impact of unvested restricted shares and shares that could
be issued under outstanding stock options. Total weighted
average restricted shares and antidilutive stock options were
3.7 million shares, 2.6 million shares, and
2.3 million shares, respectively, for the years ended
December 31, 2009, 2008 and 2007, respectively.
75
Table of Contents
The computation of basic and diluted net income (loss)
applicable to common stockholders is as follows:
|
Year Ended December 31,
2009
|
||||||||||||
|
Earnings
|
||||||||||||
|
Avg. Shares
|
(Loss)
|
|||||||||||
| Income (Loss) | Outstanding | Per Share | ||||||||||
| (in millions, except per share amounts) | ||||||||||||
|
Loss from continuing operations
|
$ | (137.5 | ) | |||||||||
|
Unvested restricted share participation
|
(1.0 | ) | ||||||||||
|
Loss from continuing operations — basic
|
(138.5 | ) | 76.4 | $ | (1.81 | ) | ||||||
|
Effect of dilutive securities:
|
||||||||||||
|
Stock options
|
— | — | ||||||||||
|
Loss from continuing operations — diluted
|
$ | (138.5 | ) | 76.4 | $ | (1.81 | ) | |||||
|
Loss from discontinued operations, net of taxes
|
$ | (0.2 | ) | |||||||||
|
Loss allocable to unvested restricted shares
|
— | |||||||||||
|
Loss from discontinued operations, net of taxes — basic
|
(0.2 | ) | 76.4 | $ | (0.00 | ) | ||||||
|
Effect of dilutive securities:
|
||||||||||||
|
Stock options
|
— | — | ||||||||||
|
Loss from discontinued operations, net of taxes —
diluted
|
$ | (0.2 | ) | 76.4 | $ | (0.00 | ) | |||||
|
Year Ended December 31,
2008
|
||||||||||||
|
Earnings
|
||||||||||||
|
Avg. Shares
|
(Loss)
|
|||||||||||
| Income (Loss) | Outstanding | Per Share | ||||||||||
| (in millions, except per share amounts) | ||||||||||||
|
Income from continuing operations
|
$ | 282.4 | ||||||||||
|
Unvested restricted share participation
|
(9.0 | ) | ||||||||||
|
Income from continuing operations — basic
|
273.4 | 78.4 | $ | 3.49 | ||||||||
|
Effect of dilutive securities:
|
||||||||||||
|
Stock options
|
— | 0.4 | ||||||||||
|
Income from continuing operations — diluted
|
$ | 273.4 | 78.8 | $ | 3.47 | |||||||
|
Loss from discontinued operations, net of taxes
|
$ | (1.5 | ) | |||||||||
|
Loss allocable to unvested restricted shares
|
— | |||||||||||
|
Loss from discontinued operations, net of taxes — basic
|
(1.5 | ) | 78.4 | $ | (0.02 | ) | ||||||
|
Effect of dilutive securities:
|
||||||||||||
|
Stock options
|
— | 0.4 | ||||||||||
|
Loss from discontinued operations, net of taxes —
diluted
|
$ | (1.5 | ) | 78.8 | $ | (0.02 | ) | |||||
76
Table of Contents
| Year Ended December 31, 2007 | ||||||||||||
|
Earnings
|
||||||||||||
|
Avg. Shares
|
(Loss)
|
|||||||||||
| Income (Loss) | Outstanding | Per Share | ||||||||||
| (in millions, except per share amounts) | ||||||||||||
|
Income from continuing operations
|
$ | 289.8 | ||||||||||
|
Unvested restricted share participation
|
(8.1 | ) | ||||||||||
|
Income from continuing operations — basic
|
281.7 | 78.7 | $ | 3.58 | ||||||||
|
Effect of dilutive securities:
|
||||||||||||
|
Stock options
|
— | 0.7 | ||||||||||
|
Income from continuing operations — diluted
|
$ | 281.7 | 79.4 | $ | 3.55 | |||||||
|
Loss from discontinued operations, net of taxes
|
$ | (0.7 | ) | |||||||||
|
Loss allocable to unvested restricted shares
|
— | |||||||||||
|
Loss from discontinued operations, net of taxes —basic
|
(0.7 | ) | 78.7 | $ | (0.01 | ) | ||||||
|
Effect of dilutive securities:
|
||||||||||||
|
Stock options
|
— | 0.7 | ||||||||||
|
Loss from discontinued operations, net of taxes —
diluted
|
$ | (0.7 | ) | 79.4 | $ | (0.01 | ) | |||||
| Note 18. | Commitments and Contingencies |
Barge
Litigation
The Company and its wholly owned subsidiary, Trinity Marine
Products, Inc., were co-defendants in a
class-action
lawsuit filed in April 2003 entitled Waxler Transportation
Company, Inc. v. Trinity Marine Products, Inc., et al. A
settlement of this case was approved by the court and became
final February 13, 2008. The Court Appointed Disbursing
Agent (“CADA”) prepared an Allocation Plan and
Distribution Plan for the disbursement of settlement
compensation that was approved by the court on November 14,
2008. As of December 31, 2009, based on instructions from
the CADA to the settlement funds escrow agent, the Company had
received $3.6 million in refunds of unclaimed settlement
funds.
Other
Litigation and Contingencies
The Company is involved in other claims and lawsuits incidental
to our business. Based on information currently available, it is
management’s opinion that the ultimate outcome of all
current litigation and other claims, including settlements, in
the aggregate will not have a material adverse effect on the
Company’s overall financial condition for purposes of
financial reporting. However, resolution of certain claims or
lawsuits by settlement or otherwise could impact the operating
results of the reporting period in which such resolution occurs.
Trinity is subject to Federal, state, local, and foreign laws
and regulations relating to the environment and the workplace.
The Company has reserved $6.5 million to cover our probable
and estimable liabilities with respect to the investigations,
assessments, and remedial responses to such matters, taking into
account currently available information and our contractual
rights to indemnification and recourse to third parties.
However, estimates of liability arising from future proceedings,
assessments, or remediation are inherently imprecise.
Accordingly, there can be no assurance that we will not become
involved in future litigation or other proceedings involving the
environment and the workplace or, if we are found to be
responsible or liable in any such litigation or proceeding, that
such costs would not be material to the Company. Other than with
respect to the foregoing, we believe that we are currently in
substantial compliance with environmental and workplace laws and
regulations.
Other
Commitments
Non-cancelable purchase obligations, principally for the Inland
Barge Group, are $44.2 million in 2010.
77
Table of Contents
| Note 19. | Financial Statements for Guarantors of the Senior Debt |
The Company’s senior debt and certain operating leases are
fully and unconditionally and jointly and severally guaranteed
by certain of Trinity’s wholly owned subsidiaries: Transit
Mix Concrete & Materials Company, Trinity Industries
Leasing Company, Trinity Marine Products, Inc., Trinity Rail
Group, LLC, Trinity North American Freight Car, Inc., Trinity
Tank Car, Inc., and Trinity Parts & Components, LLC.
No other subsidiaries guarantee the senior debt. As of
December 31, 2009, assets held by the non-guarantor
subsidiaries included $138.6 million of restricted cash
that was not available for distribution to Trinity Industries,
Inc. (“Parent”), $1,870.2 million of equipment
securing certain debt, $105.3 million of equipment securing
certain lease obligations held by the non-guarantor
subsidiaries, and $213.9 million of assets located in
foreign locations. As of December 31, 2008, assets held by
the non-guarantor subsidiaries included $112.1 million of
restricted cash that was not available for distribution to the
Parent , $1,546.5 million of equipment securing certain
debt, $107.2 million of equipment securing certain lease
obligations held by the non-guarantor subsidiaries, and
$266.9 million of assets located in foreign locations.
The following financial information presents condensed
consolidated statements of operations, balance sheets, and
statements of cash flows for Trinity Industries, Inc., its
guarantor subsidiaries and non-guarantor subsidiaries. The
information is presented on the basis of Trinity Industries,
Inc. accounting for its ownership of its wholly owned
subsidiaries using the equity method of accounting.
Inter-company transactions of goods and services between the
guarantor and non-guarantor subsidiaries are presented as
intercompany receivable/(payable), net. The following represents
the supplemental consolidated condensed financial information of
Trinity Industries, Inc., the issuer of the Senior Notes, and
its guarantor and non-guarantor subsidiaries, as of
December 31, 2009 and 2008, and for the years ended
December 31, 2009, 2008, and 2007.
Statement
of Operations
For the Year Ended December 31, 2009
For the Year Ended December 31, 2009
|
Combined
|
||||||||||||||||||||
|
Combined
|
Non-
|
|||||||||||||||||||
|
Guarantor
|
Guarantor
|
|||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
|
Revenues
|
$ | — | $ | 1,439.0 | $ | 1,325.2 | $ | (189.0 | ) | $ | 2,575.2 | |||||||||
|
Cost of revenues
|
23.6 | 1,188.2 | 1,072.2 | (189.0 | ) | 2,095.0 | ||||||||||||||
|
Selling, engineering, and administrative expenses
|
30.2 | 85.7 | 70.0 | — | 185.9 | |||||||||||||||
|
Goodwill impairment
|
2.2 | 276.5 | 46.3 | — | 325.0 | |||||||||||||||
| 56.0 | 1,550.4 | 1,188.5 | (189.0 | ) | 2,605.9 | |||||||||||||||
|
Operating profit (loss)
|
(56.0 | ) | (111.4 | ) | 136.7 | — | (30.7 | ) | ||||||||||||
|
Other (income) expense
|
21.0 | 24.3 | 96.2 | (25.3 | ) | 116.2 | ||||||||||||||
|
Income (loss) from continuing operations before income
taxes
|
(77.0 | ) | (135.7 | ) | 40.5 | 25.3 | (146.9 | ) | ||||||||||||
|
Provision (benefit) for income taxes:
|
||||||||||||||||||||
|
Current
|
43.3 | (48.7 | ) | 19.8 | — | 14.4 | ||||||||||||||
|
Deferred
|
17.4 | (52.0 | ) | 10.8 | — | (23.8 | ) | |||||||||||||
| 60.7 | (100.7 | ) | 30.6 | — | (9.4 | ) | ||||||||||||||
|
Income (loss) from continuing operations
|
(137.7 | ) | (35.0 | ) | 9.9 | 25.3 | (137.5 | ) | ||||||||||||
|
Loss from discontinued operations, net of benefit for income
taxes of $0.0
|
— | — | (0.2 | ) | — | (0.2 | ) | |||||||||||||
|
Net income (loss)
|
$ | (137.7 | ) | $ | (35.0 | ) | $ | 9.7 | $ | 25.3 | $ | (137.7 | ) | |||||||
78
Table of Contents
Statement
of Operations
For the Year Ended December 31, 2008
For the Year Ended December 31, 2008
|
Combined
|
||||||||||||||||||||
|
Combined
|
Non-
|
|||||||||||||||||||
|
Guarantor
|
Guarantor
|
|||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
|
Revenues
|
$ | 6.2 | $ | 2,511.1 | $ | 2,017.3 | $ | (651.8 | ) | $ | 3,882.8 | |||||||||
|
Cost of revenues
|
97.0 | 2,008.6 | 1,626.5 | (651.8 | ) | 3,080.3 | ||||||||||||||
|
Selling, engineering, and administrative expenses
|
41.9 | 112.4 | 88.7 | — | 243.0 | |||||||||||||||
| 138.9 | 2,121.0 | 1,715.2 | (651.8 | ) | 3,323.3 | |||||||||||||||
|
Operating profit (loss)
|
(132.7 | ) | 390.1 | 302.1 | — | 559.5 | ||||||||||||||
|
Other (income) expense
|
(392.8 | ) | 28.0 | 94.3 | 376.2 | 105.7 | ||||||||||||||
|
Income from continuing operations before income taxes
|
260.1 | 362.1 | 207.8 | (376.2 | ) | 453.8 | ||||||||||||||
|
Provision (benefit) for income taxes:
|
||||||||||||||||||||
|
Current
|
(19.4 | ) | (58.1 | ) | 1.7 | — | (75.8 | ) | ||||||||||||
|
Deferred
|
(1.4 | ) | 189.2 | 59.4 | — | 247.2 | ||||||||||||||
| (20.8 | ) | 131.1 | 61.1 | — | 171.4 | |||||||||||||||
|
Income from continuing operations
|
280.9 | 231.0 | 146.7 | (376.2 | ) | 282.4 | ||||||||||||||
|
Loss from discontinued operations, net of benefit for income
taxes of $0.0
|
— | — | (1.5 | ) | — | (1.5 | ) | |||||||||||||
|
Net income
|
$ | 280.9 | $ | 231.0 | $ | 145.2 | $ | (376.2 | ) | $ | 280.9 | |||||||||
Statement
of Operations
For the
Year Ended December 31, 2007
|
Combined
|
||||||||||||||||||||
|
Combined
|
Non-
|
|||||||||||||||||||
|
Guarantor
|
Guarantor
|
|||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
|
Revenues
|
$ | 57.6 | $ | 2,642.7 | $ | 1,709.4 | $ | (576.9 | ) | $ | 3,832.8 | |||||||||
|
Cost of revenues
|
191.8 | 2,068.7 | 1,390.5 | (576.9 | ) | 3,074.1 | ||||||||||||||
|
Selling, engineering, and administrative expenses
|
36.1 | 115.1 | 77.7 | — | 228.9 | |||||||||||||||
| 227.9 | 2,183.8 | 1,468.2 | (576.9 | ) | 3,303.0 | |||||||||||||||
|
Operating profit (loss)
|
(170.3 | ) | 458.9 | 241.2 | — | 529.8 | ||||||||||||||
|
Other (income) expense
|
(406.2 | ) | 28.0 | 75.0 | 378.1 | 74.9 | ||||||||||||||
|
Income from continuing operations before income taxes
|
235.9 | 430.9 | 166.2 | (378.1 | ) | 454.9 | ||||||||||||||
|
Provision (benefit) for income taxes:
|
||||||||||||||||||||
|
Current
|
(27.2 | ) | 72.6 | 64.7 | — | 110.1 | ||||||||||||||
|
Deferred
|
(26.0 | ) | 83.6 | (2.6 | ) | — | 55.0 | |||||||||||||
| (53.2 | ) | 156.2 | 62.1 | — | 165.1 | |||||||||||||||
|
Income from continuing operations
|
289.1 | 274.7 | 104.1 | (378.1 | ) | 289.8 | ||||||||||||||
|
Loss from discontinued operations, net of benefit for income
taxes of $(0.2)
|
— | — | (0.7 | ) | — | (0.7 | ) | |||||||||||||
|
Net income
|
$ | 289.1 | $ | 274.7 | $ | 103.4 | $ | (378.1 | ) | $ | 289.1 | |||||||||
79
Table of Contents
Balance
Sheet
December 31, 2009
December 31, 2009
|
Combined
|
Combined Non-
|
|||||||||||||||||||
|
Guarantor
|
Guarantor
|
|||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
|
Assets:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 596.3 | $ | 2.6 | $ | 12.9 | $ | — | $ | 611.8 | ||||||||||
|
Short-term marketable securities
|
70.0 | — | — | — | 70.0 | |||||||||||||||
|
Receivables, net of allowance
|
— | 41.5 | 118.3 | — | 159.8 | |||||||||||||||
|
Income tax receivable
|
11.2 | — | — | — | 11.2 | |||||||||||||||
|
Inventory
|
— | 94.4 | 137.1 | — | 231.5 | |||||||||||||||
|
Property, plant, and equipment, net
|
19.4 | 849.5 | 2,169.3 | — | 3,038.2 | |||||||||||||||
|
Investments in subsidiaries/intercompany receivable
(payable), net
|
1,808.4 | 891.3 | 618.2 | (3,317.9 | ) | — | ||||||||||||||
|
Restricted cash
|
— | — | 138.6 | — | 138.6 | |||||||||||||||
|
Goodwill and other assets
|
175.3 | 193.8 | 140.3 | (114.1 | ) | 395.3 | ||||||||||||||
| $ | 2,680.6 | $ | 2,073.1 | $ | 3,334.7 | $ | (3,432.0 | ) | $ | 4,656.4 | ||||||||||
|
Liabilities:
|
||||||||||||||||||||
|
Accounts payable
|
$ | 5.5 | $ | 29.8 | $ | 41.5 | $ | — | $ | 76.8 | ||||||||||
|
Accrued liabilities
|
194.6 | 49.0 | 130.9 | — | 374.5 | |||||||||||||||
|
Debt
|
530.4 | 115.7 | 1,199.0 | — | 1,845.1 | |||||||||||||||
|
Deferred income
|
70.0 | 4.2 | 3.5 | — | 77.7 | |||||||||||||||
|
Deferred income taxes
|
— | 500.6 | 11.4 | (114.1 | ) | 397.9 | ||||||||||||||
|
Other liabilities
|
73.8 | 1.0 | 3.3 | — | 78.1 | |||||||||||||||
|
Total stockholders’ equity
|
1,806.3 | 1,372.8 | 1,945.1 | (3,317.9 | ) | 1,806.3 | ||||||||||||||
| $ | 2,680.6 | $ | 2,073.1 | $ | 3,334.7 | $ | (3,432.0 | ) | $ | 4,656.4 | ||||||||||
80
Table of Contents
Balance
Sheet
December 31, 2008
December 31, 2008
|
Combined
|
Combined Non-
|
|||||||||||||||||||
|
Guarantor
|
Guarantor
|
|||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
|
Assets:
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 139.7 | $ | 2.1 | $ | 20.0 | $ | — | $ | 161.8 | ||||||||||
|
Receivables, net of allowance
|
0.4 | 90.0 | 160.9 | — | 251.3 | |||||||||||||||
|
Income tax receivable
|
98.7 | — | — | — | 98.7 | |||||||||||||||
|
Inventory
|
0.3 | 407.7 | 203.8 | — | 611.8 | |||||||||||||||
|
Property, plant, and equipment, net
|
20.7 | 957.7 | 2,012.2 | — | 2,990.6 | |||||||||||||||
|
Investments in subsidiaries/intercompany receivable (payable),
net
|
2,399.5 | 217.5 | 497.2 | (3,114.2 | ) | — | ||||||||||||||
|
Restricted cash
|
— | — | 112.1 | — | 112.1 | |||||||||||||||
|
Goodwill and other assets
|
168.7 | 438.4 | 173.3 | (95.1 | ) | 685.3 | ||||||||||||||
| $ | 2,828.0 | $ | 2,113.4 | $ | 3,179.5 | $ | (3,209.3 | ) | $ | 4,911.6 | ||||||||||
|
Liabilities:
|
||||||||||||||||||||
|
Accounts payable
|
$ | 8.1 | $ | 130.4 | $ | 79.1 | $ | — | $ | 217.6 | ||||||||||
|
Accrued liabilities
|
260.9 | 53.6 | 167.3 | — | 481.8 | |||||||||||||||
|
Debt
|
520.3 | 64.2 | 1,190.2 | — | 1,774.7 | |||||||||||||||
|
Deferred income
|
64.9 | 3.3 | 3.6 | — | 71.8 | |||||||||||||||
|
Deferred income taxes
|
— | 456.8 | 26.6 | (95.1 | ) | 388.3 | ||||||||||||||
|
Other liabilities
|
61.5 | 0.9 | 2.7 | — | 65.1 | |||||||||||||||
|
Total stockholders’ equity
|
1,912.3 | 1,404.2 | 1,710.0 | (3,114.2 | ) | 1,912.3 | ||||||||||||||
| $ | 2,828.0 | $ | 2,117.4 | $ | 3,175.5 | $ | (3,209.3 | ) | $ | 4,911.6 | ||||||||||
81
Table of Contents
Statement
of Cash Flows
For the Year Ended December 31, 2009
For the Year Ended December 31, 2009
|
Combined
|
Combined Non-
|
|||||||||||||||||||
|
Guarantor
|
Guarantor
|
|||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
|
Operating activities:
|
||||||||||||||||||||
|
Net income (loss)
|
$ | (137.7 | ) | $ | (35.0 | ) | $ | 9.7 | $ | 25.3 | $ | (137.7 | ) | |||||||
|
Adjustments to reconcile net income (loss) to net cash
provided (required) by continuing operating activities:
|
||||||||||||||||||||
|
Loss from discontinued operations
|
— | — | 0.2 | — | 0.2 | |||||||||||||||
|
Goodwill impairment
|
2.2 | 276.5 | 46.3 | — | 325.0 | |||||||||||||||
|
Depreciation and amortization
|
4.3 | 52.3 | 104.2 | — | 160.8 | |||||||||||||||
|
Stock-based compensation expense
|
13.5 | — | — | — | 13.5 | |||||||||||||||
|
Provision (benefit) for deferred income taxes
|
17.4 | (52.0 | ) | 10.8 | — | (23.8 | ) | |||||||||||||
|
(Gain) loss on disposition of property, plant, equipment, and
other assets
|
(5.5 | ) | (0.5 | ) | 0.1 | — | (5.9 | ) | ||||||||||||
|
Net transfers with subsidiaries
|
615.9 | (673.6 | ) | 83.0 | (25.3 | ) | — | |||||||||||||
|
Other
|
14.8 | (25.6 | ) | (1.0 | ) | — | (11.8 | ) | ||||||||||||
|
Changes in assets and liabilities:
|
||||||||||||||||||||
|
(Increase) decrease in receivables
|
0.4 | 48.5 | 42.6 | — | 91.5 | |||||||||||||||
|
Decrease in income tax receivable – collection of
refunds
|
111.4 | — | — | — | 111.4 | |||||||||||||||
|
Increase in income tax receivable – other
|
(23.9 | ) | — | — | — | (23.9 | ) | |||||||||||||
|
(Increase) decrease in inventories
|
0.3 | 313.1 | 66.7 | — | 380.1 | |||||||||||||||
|
(Increase) decrease in restricted cash
|
— | — | (26.5 | ) | — | (26.5 | ) | |||||||||||||
|
(Increase) decrease in other assets
|
(1.3 | ) | (27.7 | ) | (14.1 | ) | — | (43.1 | ) | |||||||||||
|
Increase (decrease) in accounts payable
|
(2.6 | ) | (100.6 | ) | (37.6 | ) | — | (140.8 | ) | |||||||||||
|
Increase (decrease) in accrued liabilities
|
(7.2 | ) | (8.6 | ) | (4.7 | ) | — | (20.5 | ) | |||||||||||
|
Increase (decrease) in other liabilities
|
(48.8 | ) | 95.9 | (35.7 | ) | — | 11.4 | |||||||||||||
|
Net cash provided (required) by operating
activities – continuing operations
|
553.2 | (137.3 | ) | 244.0 | — | 659.9 | ||||||||||||||
|
Net cash required by operating activities –
discontinued operations
|
— | — | (0.2 | ) | — | (0.2 | ) | |||||||||||||
|
Net cash provided (required) by operating activities
|
553.2 | (137.3 | ) | 243.8 | — | 659.7 | ||||||||||||||
|
Investing activities:
|
||||||||||||||||||||
|
Investment in short-term marketable securities
|
(70.0 | ) | — | — | — | (70.0 | ) | |||||||||||||
|
Proceeds from sales of railcars from our leased fleet
|
— | 420.0 | 23.0 | (247.8 | ) | 195.2 | ||||||||||||||
|
Proceeds from sales of railcars from our leased
fleet – sale and leasebacks
|
— | 98.5 | 5.1 | — | 103.6 | |||||||||||||||
|
Proceeds from disposition of property, plant, equipment, and
other assets
|
7.2 | 5.2 | 2.7 | — | 15.1 | |||||||||||||||
|
Capital expenditures – lease subsidiary
|
— | (376.9 | ) | (252.7 | ) | 247.8 | (381.8 | ) | ||||||||||||
|
Capital expenditures – manufacturing and other
|
(3.8 | ) | (5.8 | ) | (37.8 | ) | — | (47.4 | ) | |||||||||||
|
Net cash (required) provided by investing activities
|
(66.6 | ) | 141.0 | (259.7 | ) | — | (185.3 | ) | ||||||||||||
|
Financing activities:
|
||||||||||||||||||||
|
Issuance of common stock, net
|
1.1 | — | — | — | 1.1 | |||||||||||||||
|
Payments to retire debt
|
— | (64.6 | ) | (229.4 | ) | — | (294.0 | ) | ||||||||||||
|
Proceeds from issuance of debt
|
0.5 | 61.4 | 238.2 | — | 300.1 | |||||||||||||||
|
Stock repurchases
|
(6.3 | ) | — | — | — | (6.3 | ) | |||||||||||||
|
Dividends paid to common shareholders
|
(25.3 | ) | — | — | — | (25.3 | ) | |||||||||||||
|
Net cash (required) provided by financing activities
|
(30.0 | ) | (3.2 | ) | 8.8 | — | (24.4 | ) | ||||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
456.6 | 0.5 | (7.1 | ) | — | 450.0 | ||||||||||||||
|
Cash and cash equivalents at beginning of period
|
139.7 | 2.1 | 20.0 | — | 161.8 | |||||||||||||||
|
Cash and cash equivalents at end of period
|
$ | 596.3 | $ | 2.6 | $ | 12.9 | $ | — | $ | 611.8 | ||||||||||
82
Table of Contents
Statement
of Cash Flows
For the Year Ended December 31, 2008
For the Year Ended December 31, 2008
|
Combined
|
Combined Non-
|
|||||||||||||||||||
|
Guarantor
|
Guarantor
|
|||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
|
Operating activities:
|
||||||||||||||||||||
|
Net income
|
$ | 280.9 | $ | 231.0 | $ | 145.2 | $ | (376.2 | ) | $ | 280.9 | |||||||||
|
Adjustments to reconcile net income to net cash provided
(required) by continuing operating activities:
|
||||||||||||||||||||
|
Loss from discontinued operations
|
— | — | 1.5 | — | 1.5 | |||||||||||||||
|
Depreciation and amortization
|
4.0 | 53.0 | 83.3 | — | 140.3 | |||||||||||||||
|
Stock-based compensation expense
|
18.7 | — | — | — | 18.7 | |||||||||||||||
|
Excess tax benefits from stock – based compensation
|
(0.9 | ) | — | — | — | (0.9 | ) | |||||||||||||
|
Provision (benefit) for deferred income taxes
|
(1.4 | ) | 189.2 | 59.4 | — | 247.2 | ||||||||||||||
|
Gain on disposition of property, plant, equipment and other
assets
|
(1.9 | ) | (5.3 | ) | (3.3 | ) | — | (10.5 | ) | |||||||||||
|
Net transfers with subsidiaries
|
(171.6 | ) | (321.9 | ) | 117.3 | 376.2 | — | |||||||||||||
|
Other
|
42.7 | (12.1 | ) | (48.4 | ) | — | (17.8 | ) | ||||||||||||
|
Changes in assets and liabilities:
|
||||||||||||||||||||
|
(Increase) decrease in receivables
|
5.4 | 64.8 | (26.8 | ) | — | 43.4 | ||||||||||||||
|
(Increase) decrease in income tax
receivable – other
|
(98.7 | ) | — | — | — | (98.7 | ) | |||||||||||||
|
(Increase) decrease in inventories
|
5.0 | 3.7 | (34.5 | ) | — | (25.8 | ) | |||||||||||||
|
(Increase) decrease in restricted cash
|
— | — | (20.4 | ) | — | (20.4 | ) | |||||||||||||
|
(Increase) decrease in other assets
|
(3.6 | ) | (9.3 | ) | (5.7 | ) | — | (18.6 | ) | |||||||||||
|
Increase (decrease) in accounts payable
|
0.9 | (6.6 | ) | (8.1 | ) | — | (13.8 | ) | ||||||||||||
|
Increase (decrease) in accrued liabilities
|
(125.3 | ) | 16.0 | (5.2 | ) | — | (114.5 | ) | ||||||||||||
|
Increase (decrease) in other liabilities
|
26.1 | (6.3 | ) | (10.1 | ) | — | 9.7 | |||||||||||||
|
Net cash (required) provided by operating activities –
continuing operations
|
(19.7 | ) | 196.2 | 244.2 | — | 420.7 | ||||||||||||||
|
Net cash required by operating activities –
discontinued operations
|
— | — | (1.5 | ) | — | (1.5 | ) | |||||||||||||
|
Net cash (required) provided by operating activities
|
(19.7 | ) | 196.2 | 242.7 | — | 419.2 | ||||||||||||||
|
Investing activities:
|
||||||||||||||||||||
|
Proceeds from sales of railcars from our leased fleet
|
— | 940.3 | 58.9 | (777.1 | ) | 222.1 | ||||||||||||||
|
Proceeds from disposition of property, plant, equipment, and
other assets
|
3.1 | 14.1 | 3.6 | — | 20.8 | |||||||||||||||
|
Capital expenditures – lease subsidiary
|
— | (1,107.3 | ) | (780.6 | ) | 777.1 | (1,110.8 | ) | ||||||||||||
|
Capital expenditures – manufacturing and other
|
(3.0 | ) | (27.6 | ) | (101.7 | ) | — | (132.3 | ) | |||||||||||
|
Net cash provided (required) by investing activities
|
0.1 | (180.5 | ) | (819.8 | ) | — | (1,000.2 | ) | ||||||||||||
|
Financing activities:
|
||||||||||||||||||||
|
Issuance of common stock, net
|
3.1 | — | — | — | 3.1 | |||||||||||||||
|
Excess tax benefits from stock-based compensation
|
0.9 | — | — | — | 0.9 | |||||||||||||||
|
Payments to retire debt
|
(0.2 | ) | (15.1 | ) | (375.5 | ) | — | (390.8 | ) | |||||||||||
|
Proceeds from issuance of debt
|
— | 0.8 | 921.7 | — | 922.5 | |||||||||||||||
|
Stock repurchases
|
(58.3 | ) | — | — | — | (58.3 | ) | |||||||||||||
|
Dividends paid to common shareholders
|
(24.2 | ) | — | — | — | (24.2 | ) | |||||||||||||
|
Net cash (required) provided by financing activities
|
(78.7 | ) | (14.3 | ) | 546.2 | — | 453.2 | |||||||||||||
|
Net (decrease) increase in cash and cash equivalents
|
(98.3 | ) | 1.4 | (30.9 | ) | — | (127.8 | ) | ||||||||||||
|
Cash and cash equivalents at beginning of period
|
238.0 | 0.7 | 50.9 | — | 289.6 | |||||||||||||||
|
Cash and cash equivalents at end of period
|
$ | 139.7 | $ | 2.1 | $ | 20.0 | $ | — | $ | 161.8 | ||||||||||
83
Table of Contents
Statement
of Cash Flows
For the Year Ended December 31, 2007
For the Year Ended December 31, 2007
|
Combined
|
Combined Non-
|
|||||||||||||||||||
|
Guarantor
|
Guarantor
|
|||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
|
Operating activities:
|
||||||||||||||||||||
|
Net income
|
$ | 289.1 | $ | 274.7 | $ | 103.4 | $ | (378.1 | ) | $ | 289.1 | |||||||||
|
Adjustments to reconcile net income to net cash provided
(required) by continuing operating activities:
|
||||||||||||||||||||
|
Loss from discontinued operations
|
— | — | 0.7 | — | 0.7 | |||||||||||||||
|
Depreciation and amortization
|
7.0 | 50.7 | 61.2 | — | 118.9 | |||||||||||||||
|
Stock-based compensation expense
|
18.6 | — | — | — | 18.6 | |||||||||||||||
|
Excess tax benefits from stock-based compensation
|
(4.0 | ) | — | — | — | (4.0 | ) | |||||||||||||
|
Provision (benefit) for deferred income taxes
|
(26.0 | ) | 83.6 | (2.6 | ) | — | 55.0 | |||||||||||||
|
(Gain) loss on disposition of property, plant, equipment and
other assets
|
(2.9 | ) | (14.5 | ) | 0.4 | — | (17.0 | ) | ||||||||||||
|
Net transfers with subsidiaries
|
(584.9 | ) | 71.1 | 135.7 | 378.1 | — | ||||||||||||||
|
Other
|
48.4 | (69.8 | ) | (16.3 | ) | — | (37.7 | ) | ||||||||||||
|
Changes in assets and liabilities, net of effects from
acquisitions:
|
||||||||||||||||||||
|
(Increase) decrease in receivables
|
52.8 | (41.4 | ) | (57.1 | ) | — | (45.7 | ) | ||||||||||||
|
(Increase) decrease in inventories
|
62.9 | (120.5 | ) | 6.7 | — | (50.9 | ) | |||||||||||||
|
(Increase) decrease in restricted cash
|
— | — | 8.5 | — | 8.5 | |||||||||||||||
|
(Increase) decrease in other assets
|
(6.6 | ) | (37.1 | ) | (17.8 | ) | — | (61.5 | ) | |||||||||||
|
Increase (decrease) in accounts payable
|
(14.0 | ) | (10.4 | ) | 19.2 | — | (5.2 | ) | ||||||||||||
|
Increase (decrease) in accrued liabilities
|
137.4 | (66.8 | ) | 21.8 | — | 92.4 | ||||||||||||||
|
Increase (decrease) in other liabilities
|
(12.4 | ) | (6.9 | ) | 3.3 | — | (16.0 | ) | ||||||||||||
|
Net cash (required) provided by operating activities –
continuing operations
|
(34.6 | ) | 112.7 | 267.1 | — | 345.2 | ||||||||||||||
|
Net cash required by operating activities –
discontinued operations
|
— | — | (0.7 | ) | — | (0.7 | ) | |||||||||||||
|
Net cash (required) provided by operating activities
|
(34.6 | ) | 112.7 | 266.4 | — | 344.5 | ||||||||||||||
|
Investing activities:
|
||||||||||||||||||||
|
Proceeds from sales of railcars from our leased fleet
|
— | 646.0 | 101.5 | (388.2 | ) | 359.3 | ||||||||||||||
|
Proceeds from disposition of property, plant, equipment, and
other assets
|
3.6 | 43.7 | 3.7 | — | 51.0 | |||||||||||||||
|
Capital expenditures – lease subsidiary
|
— | (702.3 | ) | (391.3 | ) | 388.2 | (705.4 | ) | ||||||||||||
|
Capital expenditures – manufacturing and other
|
(7.4 | ) | (54.3 | ) | (127.0 | ) | — | (188.7 | ) | |||||||||||
|
Payments for purchase of acquisitions, net of cash acquired
|
— | (2.9 | ) | (48.1 | ) | — | (51.0 | ) | ||||||||||||
|
Net cash required by investing activities
|
(3.8 | ) | (69.8 | ) | (461.2 | ) | — | (534.8 | ) | |||||||||||
|
Financing activities:
|
||||||||||||||||||||
|
Issuance of common stock, net
|
12.2 | — | — | — | 12.2 | |||||||||||||||
|
Excess tax benefits from stock-based compensation
|
4.0 | — | — | — | 4.0 | |||||||||||||||
|
Payments to retire debt
|
(0.8 | ) | (44.9 | ) | (83.8 | ) | — | (129.5 | ) | |||||||||||
|
Proceeds from issuance of debt
|
1.0 | 2.5 | 301.3 | — | 304.8 | |||||||||||||||
|
Stock repurchases
|
(2.9 | ) | — | — | — | (2.9 | ) | |||||||||||||
|
Dividends paid to common shareholders
|
(20.2 | ) | — | — | — | (20.2 | ) | |||||||||||||
|
Net cash (required) provided by financing activities
|
(6.7 | ) | (42.4 | ) | 217.5 | — | 168.4 | |||||||||||||
|
Net (decrease) increase in cash and cash equivalents
|
(45.1 | ) | 0.5 | 22.7 | — | (21.9 | ) | |||||||||||||
|
Cash and cash equivalents at beginning of period
|
283.1 | 0.2 | 28.2 | — | 311.5 | |||||||||||||||
|
Cash and cash equivalents at end of period
|
$ | 238.0 | $ | 0.7 | $ | 50.9 | $ | — | $ | 289.6 | ||||||||||
84
Table of Contents
| Note 20. | Selected Quarterly Financial Data (Unaudited) |
|
Three Months
|
Three Months
|
Three Months
|
Three Months
|
|||||||||||||
|
Ended
|
Ended
|
Ended
|
Ended
|
|||||||||||||
|
March 31,
|
June 30,
|
September 30,
|
December 31,
|
|||||||||||||
| 2009 | 2009 | 2009 | 2009 | |||||||||||||
| (in millions except per share data) | ||||||||||||||||
|
Year ended December 31, 2009:
|
||||||||||||||||
|
Revenues
|
$ | 793.5 | $ | 716.1 | $ | 557.4 | $ | 508.2 | ||||||||
|
Operating profit (loss)
|
85.9 | (240.3 | ) | 64.6 | 59.1 | |||||||||||
|
Income (loss) from continuing operations
|
34.0 | (209.4 | ) | 23.2 | 14.7 | |||||||||||
|
Loss from discontinued operations, net of provision (benefit)
for income taxes of $0.0, $0.0, $0.0, and $0.0
|
(0.1 | ) | — | (0.0 | ) | (0.1 | ) | |||||||||
|
Net income (loss)
|
33.9 | (209.4 | ) | 23.2 | 14.6 | |||||||||||
|
Net income (loss) per common share:
|
||||||||||||||||
|
Basic:
|
||||||||||||||||
|
Continuing operations
|
$ | 0.43 | $ | (2.75 | ) | $ | 0.29 | $ | 0.19 | |||||||
|
Discontinued operations
|
0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
| $ | 0.43 | $ | (2.75 | ) | $ | 0.29 | $ | 0.19 | ||||||||
|
Diluted:
|
||||||||||||||||
|
Continuing operations
|
$ | 0.43 | $ | (2.75 | ) | $ | 0.29 | $ | 0.19 | |||||||
|
Discontinued operations
|
0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||
| $ | 0.43 | $ | (2.75 | ) | $ | 0.29 | $ | 0.19 | ||||||||
A goodwill impairment charge of $325 million was recorded
during the three months ended June 30, 2009 related to the
Rail Group segment. See Note 9 for further discussion.
|
Three Months
|
Three Months
|
Three Months
|
Three Months
|
|||||||||||||
|
Ended
|
Ended
|
Ended
|
Ended
|
|||||||||||||
|
March 31,
|
June 30,
|
September 30,
|
December 31,
|
|||||||||||||
| 2008 | 2008 | 2008 | 2008 | |||||||||||||
| (adjusted - see Notes 11 and 17) | ||||||||||||||||
| (in millions except per share data) | ||||||||||||||||
|
Year ended December 31, 2008:
|
||||||||||||||||
|
Revenues
|
$ | 898.9 | $ | 945.5 | $ | 1,154.6 | $ | 883.8 | ||||||||
|
Operating profit
|
126.3 | 160.4 | 163.3 | 109.5 | ||||||||||||
|
Income from continuing operations
|
64.1 | 84.2 | 91.0 | 43.1 | ||||||||||||
|
Income (loss) from discontinued operations, net of provision
(benefit) for income taxes of $(0.1), $0.0, $(0.1), and $0.2
|
(0.3 | ) | — | (1.4 | ) | 0.2 | ||||||||||
|
Net income
|
63.8 | 84.2 | 89.6 | 43.3 | ||||||||||||
|
Net income per common share:
|
||||||||||||||||
|
Basic:
|
||||||||||||||||
|
Continuing operations
|
$ | 0.79 | $ | 1.03 | $ | 1.11 | $ | 0.54 | ||||||||
|
Discontinued operations
|
0.00 | 0.00 | (0.02 | ) | 0.00 | |||||||||||
| $ | 0.79 | $ | 1.03 | $ | 1.09 | $ | 0.54 | |||||||||
|
Diluted:
|
||||||||||||||||
|
Continuing operations
|
$ | 0.78 | $ | 1.03 | $ | 1.11 | $ | 0.54 | ||||||||
|
Discontinued operations
|
0.00 | 0.00 | (0.02 | ) | 0.00 | |||||||||||
| $ | 0.78 | $ | 1.03 | $ | 1.09 | $ | 0.54 | |||||||||
85
Table of Contents
| Item 9. | Changes In and Disagreements with Accountants on Accounting and Financial Disclosure. |
None.
| Item 9A. | Controls and Procedures. |
Disclosure
Controls and Procedures.
The Company maintains controls and procedures designed to ensure
that it is able to collect the information it is required to
disclose in the reports it files with the SEC, and to process,
summarize, and disclose this information within the time periods
specified in the rules of the SEC. The Company’s Chief
Executive and Chief Financial Officers are responsible for
establishing and maintaining these procedures and, as required
by the rules of the SEC, evaluating their effectiveness. Based
on their evaluation of the Company’s disclosure controls
and procedures which took place as of the end of the period
covered by this report, the Chief Executive and Chief Financial
Officers believe that these procedures are effective to ensure
that the Company is able to collect, process, and disclose the
information it is required to disclose in the reports it files
with the SEC within the required time periods.
Management’s
Report on Internal Control over Financial Reporting.
Management of the Company is responsible for establishing and
maintaining effective internal control over financial reporting
as defined in
Rules 13a-15(f)
under the Securities Exchange Act of 1934. The Company’s
internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with accounting principles
generally accepted in the United States.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Therefore, even those systems determined to be effective can
provide only reasonable assurance, as opposed to absolute
assurance, of achieving their internal control objectives.
Management assessed the effectiveness of the Company’s
internal control over financial reporting as of
December 31, 2009. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in
Internal
Control — Integrated Framework.
Based on our
assessment, we believe that, as of December 31, 2009, the
Company’s internal control over financial reporting was
effective based on those criteria.
The effectiveness of internal control over financial reporting
as of December 31, 2009, has been audited by
Ernst & Young LLP, the independent registered public
accounting firm who also audited the Company’s consolidated
financial statements. Ernst & Young LLP’s
attestation report on effectiveness of the Company’s
internal control over financial reporting is included herein.
| Item 9B. | Other Information. |
None.
86
Table of Contents
PART III
| Item 10. | Directors, Executive Officers and Corporate Governance. |
Information regarding the directors of the Company is
incorporated by reference to the information set forth under the
caption “Proposal 1 — Election of
Directors” in the Company’s Proxy Statement for the
2010 Annual Meeting of Stockholders (the “2010 Proxy
Statement”). Information relating to the executive officers
of the Company is set forth in Part I of this report under
the caption “Executive Officers of the Company.”
Information relating to the Board of Directors’
determinations concerning whether at least one of the members of
the Audit Committee is an “audit committee financial
expert” as that term is defined under Item 407 (d)(5)
of
Regulation S-K
is incorporated by reference to the information set forth under
the caption “Corporate Governance — Audit
Committee” in the Company’s 2010 Proxy Statement.
Information regarding the Company’s Audit Committee is
incorporated by reference to the information set forth under the
caption “Corporate Governance — Audit
Committee” in the Company’s 2010 Proxy Statement.
Information regarding compliance with Section 16(a) of the
Securities and Exchange Act of 1934 is incorporated by reference
to the information set forth under the caption “Additional
Information — Section 16(a) Beneficial Ownership
Reporting Compliance” in the Company’s 2010 Proxy
Statement.
The Company has adopted a Code of Business Conduct and Ethics
that applies to all of its directors, officers, and employees.
The Code of Business Conduct and Ethics is on the Company’s
website at www.trin.net under the caption “Investor
Relations/ Governance.” The Company intends to post any
amendments or waivers for its Code of Business Conduct and
Ethics to the Company’s website at
www.trin.net
to
the extent applicable to an executive officer or director of the
Company.
| Item 11. | Executive Compensation. |
Information regarding compensation of executive officers and
directors is incorporated by reference to the information set
forth under the caption “Executive Compensation” in
the Company’s 2010 Proxy Statement. Information concerning
compensation committee interlocks and insider participation is
incorporated by reference to the information set forth under the
caption “Corporate Governance — Compensation
Committee Interlocks and Insider Participation” in the
Company’s 2010 Proxy Statement. Information about the
compensation committee report is incorporated by reference to
the information set forth under the caption “Executive
Compensation — Human Resources Committee Report”
in the Company’s 2010 Proxy Statement.
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
Information concerning security ownership of certain beneficial
owners and management is incorporated herein by reference from
the Company’s 2010 Proxy Statement, under the caption
“Security Ownership — Security Ownership of
Certain Beneficial Owners and Management.”
87
Table of Contents
The following table sets forth information about Trinity common
stock that may be issued under all of Trinity’s existing
equity compensation plans as of December 31, 2009.
Equity
Compensation Plan Information
| (a) | (b) | (c) | ||||||||||
|
Number of Securities
|
||||||||||||
|
Number of Securities
|
Remaining Available for
|
|||||||||||
|
to be Issued
|
Weighted-Average
|
Future Issuance under
|
||||||||||
|
Upon Exercise of
|
Exercise Price of
|
Equity Compensation
|
||||||||||
|
Outstanding Options,
|
Outstanding Options,
|
Plans (Excluding Securities
|
||||||||||
| Warrants and Rights | Warrants and Rights | Reflected in Column (a)) | ||||||||||
|
Plan Category
|
||||||||||||
|
Equity compensation plans approved by security holders:
|
||||||||||||
|
Stock Options
|
1,015,465 | |||||||||||
|
Restricted stock units
|
159,670 | |||||||||||
| 1,175,135 | $ | 14.00 | (1) | 1,496,209 | ||||||||
|
Equity compensation plans not approved by security holders
|
— | (2) | — | — | ||||||||
|
Total
|
1,175,135 | $ | 14.00 | 1,496,209 | ||||||||
| (1) | Includes 159,670 shares of common stock issuable upon the vesting and conversion of restricted stock units. The restricted stock units do not have an exercise price. | |
| (2) | Excludes information regarding the Trinity Deferred Plan for Director Fees. This plan permits the deferral of the payment of the annual retainer fee and board and committee meeting fees. At the election of the participant, the deferred fees may be converted into phantom stock units with a fair market value equal to the value of the fees deferred, and such phantom stock units are credited to the director’s account (along with the amount of any dividends or stock distributions). At the time a participant ceases to be a director, cash will be distributed to the participant. At December 31, 2009, 69,600 phantom stock units were credited to the accounts of participants. Also excludes information regarding the Trinity Industries Supplemental Profit Sharing Plan (“Supplemental Plan”) for certain of its highly compensated employees. Information about the Supplemental Plan is incorporated herein by reference from the Company’s 2010 Proxy Statement, under the caption “Executive Compensation — Post-Employment Benefits.” At December 31, 2009, 50,772 stock units were credited to the accounts of participants under the Supplemental Plan. |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
Information regarding certain relationships and related person
transactions is incorporated by reference to the information set
forth under the captions “Corporate Governance-Compensation
Committee Interlocks and Insider Participation” and
“Transactions with Related Persons” in the
Company’s 2010 Proxy Statement. Information regarding the
independence of directors is incorporated by reference to the
information set forth under the captions “Corporate
Governance-Independence of Directors” in the Company’s
2010 Proxy Statement.
| Item 14. | Principal Accountant Fees and Services. |
Information regarding principal accountant fees and services is
incorporated by reference to the information set forth under the
captions “Fees of Independent Registered Public Accounting
Firm for Fiscal Years 2009 and 2008” in the Company’s
2010 Proxy Statement.
88
Table of Contents
PART IV
| Item 15. | Exhibits and Financial Statement Schedules. |
(a) (1)
Financial Statements.
See Item 8.
(2)
Financial Statement Schedule.
For the years ended December 31, 2009, 2008, and 2007.
II — Allowance for Doubtful Accounts
(3)
Exhibits.
See Index to Exhibits for a listing of Exhibits which are filed
herewith or incorporated herein by reference to the location
indicated.
89
Table of Contents
EXHIBIT 23
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Post-Effective
Amendment No. 3 to the Registration Statement
(Form S-8,
No. 2-64813),
Post-Effective Amendment No. 1 to the Registration
Statement
(Form S-8,
No. 33-10937),
Registration Statement
(Form S-8,
No. 33-35514),
Registration Statement
(Form S-8,
No. 33-73026),
Registration Statement
(Form S-8,
No. 333-77735),
Registration Statement
(Form S-8,
No. 333-91067),
Registration Statement
(Form S-8,
No. 333-85588),
Registration Statement
(Form S-8,
No. 333-85590),
Registration Statement
(Form S-8,
No. 333-114854),
Registration Statement
(Form S-8,
No. 333-115376),
Registration Statement
(Form S-3,
No. 333-134596),
and Registration Statement
(Form S-8,
No. 333-159552)
of Trinity Industries, Inc. and Subsidiaries and in the related
Prospectuses of our reports dated February 18, 2010 with
respect to the consolidated financial statements and schedule of
Trinity Industries, Inc. and Subsidiaries and the effectiveness
of internal control over financial reporting of Trinity
Industries, Inc. and Subsidiaries included in this Annual Report
(Form 10-K)
for the year ended December 31, 2009.
/s/
ERNST & YOUNG LLP
Dallas, Texas
February 18, 2010
90
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Trinity Industries, Inc.
We have audited the consolidated financial statements of Trinity
Industries, Inc. and Subsidiaries as of December 31, 2009,
and for each of the three years in the period ended
December 31, 2009 and have issued our report thereon dated
February 18, 2010. Our audits also included the financial
statement schedule of Trinity Industries, Inc. and Subsidiaries
listed in Item 15. This schedule is the responsibility of
the Company’s management. Our responsibility is to express
an opinion based on our audits.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/S/
ERNST & YOUNG LLP
Dallas, Texas
February 18, 2010
91
Table of Contents
SCHEDULE II
Trinity
Industries, Inc. and Subsidiaries
Allowance For Doubtful Accounts
Years Ended December 31, 2009, 2008, and 2007
(in millions)
Allowance For Doubtful Accounts
Years Ended December 31, 2009, 2008, and 2007
(in millions)
|
Additions
|
||||||||||||||||
|
Balance at
|
Charged to
|
Accounts
|
Balance
|
|||||||||||||
|
Beginning
|
Costs and
|
Charged
|
at End of
|
|||||||||||||
| of Period | Expenses | Off | Period | |||||||||||||
|
Year Ended December 31, 2009
|
$ | 6.8 | $ | 0.4 | $ | 2.1 | $ | 5.1 | ||||||||
|
Year Ended December 31, 2008
|
$ | 4.0 | $ | 3.3 | $ | 0.5 | $ | 6.8 | ||||||||
|
Year Ended December 31, 2007
|
$ | 3.8 | $ | 1.8 | $ | 1.6 | $ | 4.0 | ||||||||
92
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
TRINITY INDUSTRIES, INC.
Registrant |
By
/s/ William
A. McWhirter II
William
A. McWhirter II
Senior Vice President and Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
Directors:
|
/s/ John
L.
Adams
Director Dated: February 18, 2010 |
/s/ Diana
S. Natalicio
Director Dated: February 18, 2010 |
|
|
/s/ Rhys
J.
Best
Director |
Principal Executive Officer: | |
|
Dated: February 18, 2010
|
/s/ Timothy
R. Wallace
Chairman, President, Chief Executive Officer, and Director |
|
|
/s/ David
W.
Biegler
Director Dated: February 18, 2010 |
Dated: February 18, 2010
Principal Financial Officer: |
|
|
/s/ Leldon
E.
Echols
Director Dated: February 18, 2010 |
/s/ William
A. McWhirter II
Senior Vice President and Chief Financial Officer Dated: February 18, 2010 |
|
|
/s/ Ronald
J.
Gafford
Director Dated: February 18, 2010 |
Principal Accounting Officer:
/s/ Mary
E. Henderson
Corporate Controller Dated: February 18, 2010 |
|
|
/s/ Ronald
W.
Haddock
Director Dated: February 18, 2010 |
||
|
/s/ Jess
T.
Hay
Director Dated: February 18, 2010 |
||
|
/s/ Adrián
Lajous
|
||
|
Director
Dated: February 18, 2010 |
93
Table of Contents
Trinity
Industries, Inc.
Index to Exhibits
(Item 15(b))
Index to Exhibits
(Item 15(b))
| NO. | DESCRIPTION | |
|
(3.1)
|
Certificate of Incorporation of Trinity Industries, Inc., as amended May 23, 2007 (incorporated by reference to Exhibit 3.1 to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007). | |
|
(3.2)
|
By-Laws of Trinity Industries, Inc., as amended December 13, 2007 (incorporated by reference to Exhibit 3.2 to our Annual Report on Form 10-K for the annual period ended December 31, 2007). | |
|
(3.3)
|
Certificate of Incorporation of Transit Mix Concrete & Materials Company, as amended (incorporated by reference to Exhibit 3.3 of Registration Statement No. 333-117526 filed July 21, 2004). | |
|
(3.4)
|
By-Laws of Transit Mix Concrete & Materials Company (incorporated by reference to Exhibit 3.4 of Registration Statement No. 333-117526 filed July 21, 2004). | |
|
(3.5)
|
Certificate of Incorporation of Trinity Industries Leasing Company (incorporated by reference to Exhibit 3.5 of Registration Statement No. 333-117526 filed July 21, 2004). | |
|
(3.6)
|
By-Laws of Trinity Industries Leasing Company (incorporated by reference to Exhibit 3.6 of Registration Statement No. 333-117526 filed July 21, 2004). | |
|
(3.7)
|
Certificate of Incorporation of Trinity Marine Products, Inc., as amended (incorporated by reference to Exhibit 3.7 of Registration Statement No. 333-117526 filed July 21, 2004). | |
|
(3.8)
|
By-Laws of Trinity Marine Products, Inc. (incorporated by reference to Exhibit 3.8 of Registration Statement No. 333-117526 filed July 21, 2004). | |
|
(3.9)
|
Certificate of Formation of Trinity Rail Group, LLC (incorporated by reference to Exhibit 3.9 of Registration Statement No. 333-117526 filed July 21, 2004). | |
|
(3.10)
|
Limited Liability Company Agreement of Trinity Rail Group, LLC (incorporated by reference to Exhibit 3.10 of Registration Statement No. 333-117526 filed July 21, 2004). | |
|
(3.11)
|
Certificate of Incorporation of Trinity North American Freight Car, Inc. (formerly Thrall Trinity Freight Car, Inc. and Trinity North American Rail Car, Inc.) (incorporated by reference to Exhibit 3.11 to our Annual Report on Form 10-K for the annual period ended December 31, 2007). | |
|
(3.12)
|
By-Laws of Trinity North American Freight Car, Inc. (formerly Thrall Trinity Freight Car, Inc. and Trinity North American Rail Car, Inc.) (incorporated by reference to Exhibit 3.12 to our Annual Report on Form 10-K for the annual period ended December 31, 2007). | |
|
(3.13)
|
Certificate of Incorporation of Trinity Tank Car, Inc. (incorporated by reference to Exhibit 3.13 of Registration Statement No. 333-117526 filed July 21, 2004). | |
|
(3.14)
|
By-Laws of Trinity Tank Car, Inc. (incorporated by reference to Exhibit 3.14 of Registration Statement No. 333-117526 filed July 21, 2004). | |
|
(3.15)
|
Certificate of Formation of Trinity Parts & Components, LLC (formerly Trinity Rail Components & Repair, Inc.) (incorporated by reference to Exhibit 3.15 to our Annual Report on Form 10-K for the annual period ended December 31, 2007). | |
|
(3.16)
|
Limited Liability Company Agreement of Trinity Parts & Components, LLC. (incorporated by reference to Exhibit 3.16 to our Annual Report on Form 10-K for the annual period ended December 31, 2007). | |
|
(4.01)
|
Indenture, dated June 7, 2006, between Trinity Industries, Inc. and Wells Fargo Bank, National Association, as trustee (including the Form of 3 7 / 8 % Convertible Subordinated Note due 2036 as an exhibit thereto) (incorporated by reference to Exhibit 4.01 to our Form 8-K filed June 7, 2006). | |
|
(4.01.1)
|
Officers’ Certificate of Trinity Industries, Inc. pursuant to the Indenture dated June 7, 2006, relating to the Company’s 3 7 / 8 % Convertible Subordinated Notes due 2036 (incorporated by reference to Exhibit 4.01.1 to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006). | |
|
(4.1)
|
Specimen Common Stock Certificate of Trinity Industries, Inc. (incorporated by reference to Exhibit 4.1 of Registration Statement No. 333-159552 filed May 28, 2009). |
94
Table of Contents
| NO. | DESCRIPTION | |
|
(4.2)
|
Pass Through Trust Agreement dated as of February 15, 2002 among Trinity Industries Leasing Company, Trinity Industries, Inc. and Wilmington Trust Company, as Trustee (incorporated by reference to Exhibit 4.4 to our Annual Report on Form 10-K for the annual period ended December 31, 2007). | |
|
(4.2.1)
|
Trust Indenture and Security Agreement dated as of February 15, 2002 among Trinity Industries Leasing Company, Trinity Industries, Inc. and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.4.1 to our Annual Report on Form 10-K for the annual period ended December 31, 2007). | |
|
(4.2.2)
|
Trust Indenture and Security Agreement dated as of February 15, 2002 among Trinity Industries Leasing Company, Trinity Industries, Inc. and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.4.2 to our Annual Report on Form 10-K for the annual period ended December 31, 2007). | |
|
(4.2.3)
|
Trust Indenture and Security Agreement dated as of February 15, 2002 among Trinity Industries Leasing Company, Trinity Industries, Inc. and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.4.3 to our Annual Report on Form 10-K for the annual period ended December 31, 2007). | |
|
(4.3)
|
Indenture dated as of March 10, 2004 by and between Trinity Industries, Inc., certain subsidiary guarantors party thereto and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.6 of Registration Statement No. 333-117526 filed July 21, 2004). | |
|
(4.4)
|
Form of 6 1 / 2 % Senior Note due 2014 of Trinity Industries, Inc. (incorporated by reference to Exhibit 4.7 of Registration Statement No. 333-117526 filed July 21, 2004). | |
|
(10.1.1)
|
Form of Amended and Restated Executive Severance Agreement dated September 9, 2008 entered into between Trinity Industries, Inc. and the Chief Executive Officer, and each of the three Senior Vice Presidents (incorporated by reference to Exhibit 10.1.1 to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008).* | |
|
(10.1.2)
|
Form of Amended and Restated Executive Severance Agreement dated September 9, 2008, entered into between Trinity Industries, Inc. and certain executive officers and certain other subsidiary and divisional officers of Trinity Industries, Inc. (incorporated by reference to Exhibit 10.1.2 to our Annual Report on Form 10-K for the annual period ended December 31, 2008).* | |
|
(10.2)
|
Trinity Industries, Inc. Directors’ Retirement Plan, as amended September 10, 1998 (incorporated by reference to Exhibit 10.2 of Registration Statement No. 333-117526 filed July 21, 2004).* | |
|
(10.2.1)
|
Amendment No. 2 to the Trinity Industries, Inc. Directors’ Retirement Plan (incorporated by reference to Exhibit 10.2.1 to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2005).* | |
|
(10.2.2)
|
Amendment No. 3 to the Trinity Industries, Inc. Directors’ Retirement Plan (incorporated by reference to Exhibit 10.2.2 to our Annual Report on Form 10-K for the annual period ended December 31, 2005).* | |
|
(10.3)
|
1993 Stock Option and Incentive Plan (incorporated by reference to Exhibit 4.1 of Registration Statement No. 33-73026 filed December 15, 1993).* | |
|
(10.3.1)
|
Amendment No. 1 to the 1993 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.3.1 to our Annual Report on Form 10-K for the annual period December 31, 2005).* | |
|
(10.3.2)
|
Amendment No. 2 to the 1993 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.3.2 to our Annual Report on Form 10-K for the annual period December 31, 2005).* | |
|
(10.3.3)
|
Amendment No. 3 to the 1993 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.3.3 to our Annual Report on Form 10-K for the annual period ended December 31, 2005).* | |
|
(10.3.4)
|
Amendment No. 4 to the 1993 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.3.4 to our Annual Report on Form 10-K for the annual period ended December 31, 2005).* | |
|
(10.3.5)
|
Amendment No. 5 to the 1993 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.3.5 to our Annual Report on Form 10-K for the annual period ended December 31, 2005).* |
95
Table of Contents
| NO. | DESCRIPTION | |
|
(10.4)
|
Supplemental Profit Sharing Plan for Employees of Trinity Industries, Inc. and Certain Affiliates as restated effective January 1, 2005 (incorporated by reference to Exhibit 10.5 to our Annual Report on Form 10-K for the annual period ended December 31, 2007).* | |
|
(10.5)
|
Trinity Industries, Inc. Supplemental Profit Sharing and Deferred Director Fee Trust dated March 31, 1999 (incorporated by reference to Exhibit 10.7 of Registration Statement No. 333-117526 filed July 21, 2004).* | |
|
(10.5.1)
|
Amendment No. 1 to the Trinity Industries, Inc. Supplemental Profit Sharing and Deferred Director Fee Trust dated December 27, 2000 (incorporated by reference to Exhibit 10.7.1 of Registration Statement No. 333-117526 filed July 21, 2004).* | |
|
(10.6)
|
Supplemental Retirement Plan as Amended and Restated effective January 1, 2009 (incorporated by reference to Exhibit 10.7 to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008).* | |
|
(10.6.1)
|
Amendment No. 1 to the Supplemental Retirement Plan as Amended and Restated effective January 1, 2009 (incorporated by reference to Exhibit 10.7.1 to our Form 8-K filed February 17, 2009).* | |
|
(10.7)
|
Trinity Industries, Inc. Deferred Plan for Director Fees, as amended (incorporated by reference to Exhibit 10.9 of Registration Statement No. 333-117526 filed July 21, 2004).* | |
|
(10.7.1)
|
Amendment to Trinity Industries, Inc. Deferred Plan for Director Fees dated December 7, 2005 (incorporated by reference to Exhibit 10.8.1 to our Annual Report on Form 10-K for the annual period ended December 31, 2005).* | |
|
(10.7.2)
|
Trinity Industries, Inc. 2005 Deferred Plan for Director Fees (incorporated by reference to Exhibit 10.8.2 to our Annual Report on Form 10-K for the annual period ended December 31, 2005).* | |
|
(10.8)
|
Deferred Compensation Trust of Trinity Industries, Inc. and Certain Affiliates effective January 1, 2002 (incorporated by reference to Exhibit 10.10 of Registration Statement No. 333-117526 filed July 21, 2004).* | |
|
(10.9)
|
Trinity Industries, Inc. 1998 Stock Option and Incentive Plan (incorporated by reference to Exhibit 4.2 of Registration Statement No. 333-77735 filed May 4, 1999).* | |
|
(10.9.1)
|
Amendment No. 1 to the Trinity Industries, Inc. 1998 Stock Option Plan and Incentive Plan (filed herewith).* | |
|
(10.9.2)
|
Amendment No. 2 to the Trinity Industries, Inc. 1998 Stock Option and Incentive Plan (filed herewith).* | |
|
(10.9.3)
|
Amendment No. 3 to the Trinity Industries, Inc. 1998 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.10.3 to our Annual Report on Form 10-K for the annual period ended December 31, 2005).* | |
|
(10.9.4)
|
Amendment No. 4 to the Trinity Industries, Inc. 1998 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.10.4 to our Annual Report on Form 10-K for the annual period ended December 31, 2005).* | |
|
(10.10)
|
Trinity Industries, Inc. 2004 Stock Option and Incentive Plan (incorporated by reference to Exhibit 99.1 to the Form S-8 Registration Statement No. 333-115376 filed by Trinity Industries, Inc. on May 11, 2004).* | |
|
(10.10.1)
|
Form of Notice of Grant of Stock Options and Non-Qualified Option Agreement with Non-Qualified Stock Option Terms and Conditions as of September 8, 2004 (incorporated by reference to Exhibit 10.11.1 to our Annual Report on Form 10-K for the annual period ended December 31, 2004).* | |
|
(10.10.1.1)
|
Non-Qualified Stock Option Terms and Conditions as of December 6, 2005 (incorporated by reference to Exhibit 10.11.1.1 to our Annual Report on Form 10-K for the annual period ended December 31, 2005).* | |
|
(10.10.1.2)
|
Form of Notice of Grant of Stock Options and Non-Qualified Option Agreement with Non-Qualified Stock Option Terms and Conditions as of December 9, 2008 (incorporated by reference to Exhibit 10.11.1.2 to our Annual Report on Form 10-K for the annual period ended December 31, 2008).* | |
|
(10.10.2)
|
Form of Notice of Grant of Stock Options and Incentive Stock Option Agreement with Incentive Stock Option Terms and Conditions as of September 8, 2004 (incorporated by reference to Exhibit 10.11.2 to our Annual Report on Form 10-K for the annual period ended December 31, 2004).* |
96
Table of Contents
| NO. | DESCRIPTION | |
|
(10.10.2.1)
|
Incentive Stock Option Terms and Conditions as of December 6, 2005 (incorporated by reference to Exhibit 10.11.2.1 to our Annual Report on Form 10-K for the annual period ended December 31, 2005).* | |
|
(10.10.2.2)
|
Form of Notice of Grant of Stock Options and Incentive Stock Option Agreement with Incentive Stock Option Terms and Conditions as of December 9, 2008 (incorporated by reference to Exhibit 10.11.2.2 to our Annual Report on Form 10-K for the annual period ended December 31, 2008).* | |
|
(10.10.3)
|
Form of Restricted Stock Grant Agreement for grants issued prior to 2008 (incorporated by reference to Exhibit 10.11.3 to our Annual Report on Form 10-K for the annual period ended December 31, 2007).* | |
|
(10.10.3.1)
|
Form of Restricted Stock Grant Agreement for grants issued commencing 2008 (incorporated by reference to Exhibit 10.11.3 to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008).* | |
|
(10.10.4)
|
Form of Non-Qualified Stock Option Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.11.4 to our Annual Report on Form 10-K for the annual period ended December 31, 2004).* | |
|
(10.10.5)
|
Form of Restricted Stock Unit Agreement for Non-Employee Directors for grants issued prior to 2008 (incorporated by reference to Exhibit 10.11.5 to our Annual Report on Form 10-K for the annual period ended December 31, 2007).* | |
|
(10.10.5.1)
|
Form of Restricted Stock Unit Agreement for Non-Employee Directors for grants issued commencing 2008 (incorporated by reference to Exhibit 10.11.5 to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008).* | |
|
(10.10.6)
|
Amendment No. 2 to the Trinity Industries, Inc. 2004 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.11.6 to our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008).* | |
|
(10.10.7)
|
Amendment No. 3 to the Trinity Industries, Inc. 2004 Stock Option and Incentive Plan (filed herewith).* | |
|
(10.11)
|
Supplemental Retirement and Director Retirement Trust of Trinity Industries, Inc. (filed herewith).* | |
|
(10.12)
|
Form of 2008 Deferred Compensation Plan and Agreement as amended and restated entered into between Trinity Industries, Inc. and certain officers of Trinity Industries, Inc. or its subsidiaries (incorporated by reference to Exhibit 10.13 to our Annual Report on Form 10-K for the annual period ended December 31, 2007).* | |
|
(10.13)
|
Trinity Industries, Inc. Short-Term Management Incentive Plan (incorporated by reference to Exhibit 10.14 to our Annual Report on Form 10-K for the annual period ended December 31, 2007).* | |
|
(10.14)
|
Equipment Lease Agreement (TRL 1 2001-1A) dated as of May 17, 2001 between TRLI-1A Railcar Statutory Trust, lesser, and Trinity Rail Leasing I L.P., lessee (incorporated by reference to Exhibit 10.15 to our Annual Report on Form 10-K for the annual period ended December 31, 2007). | |
|
(10.14.1)
|
Participation Agreement (TRL 1 2001-1A) dated as of May 17, 2001 among Trinity Rail Leasing I L.P., lessee, et. al. (incorporated by reference to Exhibit 10.15.1 to our Annual Report on Form 10-K for the annual period ended December 31, 2007). | |
|
(10.14.2)
|
Equipment Lease Agreement (TRL 1 2001-1B) dated as of July 12, 2001 between TRL 1 2001-1B Railcar Statutory Trust, lessor, and Trinity Rail Leasing I L.P., lessee (incorporated by reference to Exhibit 10.15.2 to our Annual Report on Form 10-K for the annual period ended December 31, 2007). | |
|
(10.14.3)
|
Participation Agreement (TRL 1 2001-1B) dated as of May 17, 2001 among Trinity Rail Leasing I L.P., lessee, et. al. (incorporated by reference to Exhibit 10.15.3 to our Annual Report on Form 10-K for the annual period ended December 31, 2007). | |
|
(10.14.4)
|
Equipment Lease Agreement (TRL 1 2001-1C) dated as of December 28, 2001 between TRL 1 2001-1C Railcar Statutory Trust, lessor, and Trinity Rail Leasing 1 L.P., lessee (incorporated by reference to Exhibit 10.15.4 to our Annual Report on Form 10-K for the annual period ended December 31, 2007). |
97
Table of Contents
| NO. | DESCRIPTION | |
|
(10.14.5)
|
Participation Agreement (TRL 1 2001-1C) dated as of December 28, 2001 among Trinity Rail Leasing 1 L.P., lessee, et. al. (incorporated by reference to Exhibit 10.15.5 to our Annual Report on Form 10-K for the annual period ended December 31, 2007). | |
|
(10.15)
|
Equipment Lease Agreement (TRL III 2003-1A) dated as of November 12, 2003 between TRL III-1A Railcar Statutory Trust, lessor, and Trinity Rail Leasing III L.P., lessee (incorporated by reference to Exhibit 10.16 to our Annual Report on Form 10-K for the annual period ended December 31, 2007). | |
|
(10.15.1)
|
Participation Agreement (TRL III 2003-1A) dated as of November 12, 2003 between TRL III-1A among Trinity Rail Leasing III L.P., lessee, et. al. (incorporated by reference to Exhibit 10.16.1 to our Annual Report on Form 10-K for the annual period ended December 31, 2007). | |
|
(10.15.2)
|
Equipment Lease Agreement (TRL III 2003-1B) dated as of November 12, 2003 between TRL III-1B Railcar Statutory Trust, lessor, and Trinity Rail Leasing III L.P., lessee, (incorporated by reference to Exhibit 10.16.2 to our Annual Report on Form 10-K for the annual period ended December 31, 2007). | |
|
(10.15.3)
|
Participation Agreement (TRL III 2003-1B) dated as of November 12, 2003 between TRL III-1B among Trinity Rail Leasing III L.P., lessee, et. al. (incorporated by reference to Exhibit 10.16.3 to our Annual Report on Form 10-K for the annual period ended December 31, 2007). | |
|
(10.15.4)
|
Equipment Lease Agreement (TRL III 2003-1C) dated as of November 12, 2003 between TRL III-1C Railcar Statutory Trust, lessor, and Trinity Rail Leasing III L.P., lessee (incorporated by reference to Exhibit 10.16.4 to our Annual Report on Form 10-K for the annual period ended December 31, 2007). | |
|
(10.15.5)
|
Participation Agreement (TRL III 2003-1C) dated as of November 12, 2003 between TRL III-1C among Trinity Rail Leasing III L.P., lessee, et. al. (incorporated by reference to Exhibit 10.16.5 to our Annual Report on Form 10-K for the annual period ended December 31, 2007). | |
|
(10.16)
|
Equipment Lease Agreement (TRL IV 2004-1A) between TRL IV 2004-1A Statutory Trust, lessor, and Trinity Rail Leasing IV L.P., lessee (incorporated by reference to Exhibit 10.17 to our Annual Report on Form 10-K for the annual period ended December 31, 2007). | |
|
(10.16.1)
|
Participation Agreement (TRL IV 2004-1A) among Trinity Rail Leasing IV, L.P., lessee, et. al (incorporated by reference to Exhibit 10.17.1 to our Annual Report on Form 10-K for the annual period ended December 31, 2007). | |
|
(10.17)
|
Amended and Restated Credit Agreement dated as of March 10, 2004 among Trinity Industries, Inc, as Borrower, JP Morgan Chase Bank, individually as a Lender and Issuing Bank and as Administrative Agent, and Dresdner Bank AG, New York and Grand Cayman Branches and The Royal Bank of Scotland plc., each individually as a Lender and collectively as Syndication Agents, and certain other Lenders party thereto from time to time (incorporated by reference to Exhibit 10.18 of Registration Statement No. 333-117526 filed July 21, 2004). | |
|
(10.17.1)
|
Second Amended and Restated Credit Agreement dated as of April 20, 2005 among Trinity Industries, Inc, as Borrower, JP Morgan Chase Bank, N.A., individually and as Issuing Bank and Administrative Agent, The Royal Bank of Scotland plc, Wachovia Bank, N.A., and Bank of America, N.A., each individually and as Syndication Agents, Dresdner Bank AG, Individually and as Documentation Agent, and certain other Lenders party thereto from time to time (incorporated by reference to Exhibit 10.1 of our quarterly report on Form 10-Q for the period ended June 30, 2005). | |
|
(10.17.2)
|
First Amendment to the Second Amended and Restated Credit Agreement dated June 9, 2006, amending the Second Amended and Restated Credit Agreement dated April 20, 2005 (incorporated by reference to Exhibit 10.18.2 to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006). | |
|
(10.17.3)
|
Second Amendment to the Second Amended and Restated Credit Agreement dated June 21, 2006, amending the Second Amended and Restated Credit Agreement dated April 20, 2005 (incorporated by reference to Exhibit 10.18.3 to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006). |
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| NO. | DESCRIPTION | |
|
(10.17.4)
|
Third Amendment to the Second Amended and Restated Credit Agreement dated June 22, 2007, amending the Second Amended and Restated Credit Agreement dated April 20, 2005 (incorporated by reference to Exhibit 10.18.4 to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007). | |
|
(10.17.5)
|
Fourth Amendment to the Second Amended and Restated Credit Agreement dated October 19, 2007, amending the Second Amended and Restated Credit Agreement dated April 20, 2005 (incorporated by reference to Exhibit 10.18.5 to our Form 8-K filed on October 19, 2007). | |
|
(10.17.6)
|
Fifth Amendment to the Second Amended and Restated Credit Agreement dated February 9, 2009, amending the Second Amended and Restated Credit Agreement dated April 20, 2005 (incorporated by reference to Exhibit 10.18.6 to our Annual Report on Form 10-K for the annual period ended December 31, 2008). | |
|
(10.17.7)
|
Sixth Amendment to the Second Amended and Restated Credit Agreement dated March 31, 2009, amending the Second Amended and Restated Credit Agreement dated April 20, 2005 (incorporated by reference to Exhibit 10.18.7 to our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009). | |
|
(10.18)
|
Amended and Restated Warehouse Loan Agreement, dated as of August 7, 2007, amending and restating the Warehouse Loan Agreement dated June 27, 2002 among Trinity Industries Leasing Company, Trinity Rail Leasing Trust II, the Borrower, Credit Suisse, New York Branch, as Agent, Wilmington Trust Company, as Collateral Agent and Depository, and the Lenders party thereto from time to time (incorporated by reference to Exhibit 10.19.13 to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2007). | |
|
(10.18.1)
|
Amendment No. 1 to the Amended and Restated Warehouse Loan Agreement, dated February 13, 2008, amending the Amended and Restated Warehouse Loan Agreement dated August 7, 2007. (incorporated by reference to Exhibit 10.19.1 to our Form 8-K filed on February 14, 2008). | |
|
(10.18.2)
|
Second Amendment and Restatement dated as of May 29, 2009 of Warehouse Loan Agreement dated as of June 27, 2002 among Trinity Industries Leasing Company, Trinity Rail Leasing Warehouse Trust (formerly known as Trinity Rail Leasing Trust II), The Committed Lenders and the Conduit Lenders from time to time party hereto, Credit Suisse, New York Branch, as Agent, and Wilmington Trust Company, as Collateral Agent and Depositary (incorporated by reference to Exhibit 10.19 to our Form 8-K filed on June 2, 2009). | |
|
(10.19)
|
Term Loan Agreement dated as of May 9, 2008 among Trinity Rail Leasing VI LLC, the Committed Lenders and the Conduit Lenders From Time to Time Party Hereto, DVB Bank AG, as Agent, and Wilmington Trust Company; as Collateral and Depositary (incorporated by reference to Exhibit 10.20 to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008). | |
|
(10.19.1)
|
Purchase and Sale Agreement (TILC) dated as of May 9, 2008 among Trinity Industries Leasing Company, as Seller and Trinity Rail Leasing VI LLC, as Buyer (incorporated by reference to Exhibit 10.20.1 to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008). | |
|
(10.19.2)
|
Purchase and Sale Agreement (TRLT-II) dated as of May 9, 2008 among Trinity Rail Leasing Trust II, as Seller, Trinity Rail Leasing VI LLC, as Buyer and Trinity Industries Leasing Company (incorporated by reference to Exhibit 10.20.2 to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008). | |
|
(10.20)
|
Master Indenture dated November 5, 2009, between Trinity Rail Leasing VII LLC and Wilmington Trust Company, as indenture trustee (filed herewith). | |
|
(10.20.1)
|
Purchase and Contribution Agreement, dated November 5, 2009, among Trinity Industries Leasing Company, Trinity Rail Leasing Warehouse Trust, and Trinity Rail Leasing VII L.L.C. (filed herewith). | |
|
(10.21)
|
Perquisite Plan beginning January 1, 2004 in which the Company’s Executive Officers participate (incorporated by reference to Exhibit 10.25 to our Annual Report on Form 10-K for the annual period ended December 31, 2004).* | |
|
(10.22)
|
Purchase and Contribution Agreement, dated May 18, 2006, among Trinity Industries Leasing Company, Trinity Leasing Trust II, and Trinity Rail Leasing V L.P. (incorporated by reference to Exhibit 10.26 to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006). |
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| NO. | DESCRIPTION | |
|
(10.22.1)
|
Master Indenture dated May 18, 2006, between Trinity Rail Leasing V L.P. and Wilmington Trust Company, as indenture trustee (incorporated by reference to Exhibit 10.26.1 to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006). | |
|
(10.23)
|
Board Compensation Summary Sheet (incorporated by reference to Exhibit 10.27 to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008).* | |
|
(10.24)
|
Retirement Transition Agreement between Trinity North American Freight Car, Inc. and Martin Graham (incorporated by reference to Exhibit 10.28 to our Annual Report on Form 10-K for the annual period ended December 31, 2007).* | |
|
(12)
|
Computation of Ratio of Earnings to Fixed Charges (filed herewith). | |
|
(21)
|
Listing of subsidiaries of Trinity Industries, Inc. (filed herewith). | |
|
(23)
|
Consent of Ernst & Young LLP (contained on page 90 of this document and filed herewith). | |
|
(31.1)
|
Rule 13a-15(e) and 15d-15(e) Certification of the Chief Executive Officer (filed herewith). | |
|
(31.2)
|
Rule 13a-15(e) and 15d-15(e) Certification of the Chief Financial Officer (filed herewith). | |
|
(32.1)
|
Certification pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). | |
|
(32.2)
|
Certification pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). | |
|
*
|
Management contracts and compensatory plan arrangements. |
100
TABLE OF CONTENTS
Part IprintItem 1. BusinessprintItem 1A. Risk FactorsprintItem 1B. Unresolved Staff CommentsprintItem 2. PropertiesprintItem 3. Legal ProceedingsprintItem 4. Submission Of Matters To A Vote Of Security HoldersprintPart IIprintItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesprintItem 6. Selected Financial DataprintItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 7A. Quantitative and Qualitative Disclosures About Market RiskprintItem 8. Financial Statements and Supplementary DataprintNote 1. Summary Of Significant Accounting PoliciesprintNote 2. Acquisitions and DivestituresprintNote 3. Fair Value AccountingprintNote 4. Segment InformationprintNote 5. Railcar Leasing and Management Services GroupprintNote 6. Equity InvestmentprintNote 7. Derivative InstrumentsprintNote 8. Property, Plant, and EquipmentprintNote 9. GoodwillprintNote 10. WarrantiesprintNote 11. DebtprintNote 12. Other, NetprintNote 13. Income TaxesprintNote 14. Employee Retirement PlansprintNote 15. Accumulated Other Comprehensive LossprintNote 16. Stock-based CompensationprintNote 17. Earnings Per Common ShareprintNote 18. Commitments and ContingenciesprintNote 19. Financial Statements For Guarantors Of The Senior DebtprintNote 20. Selected Quarterly Financial Data (unaudited)printItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureprintItem 9A. Controls and ProceduresprintItem 9B. Other InformationprintPart IIIprintItem 10. Directors, Executive Officers and Corporate GovernanceprintItem 11. Executive CompensationprintItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersprintItem 13. Certain Relationships and Related Transactions, and Director IndependenceprintItem 14. Principal Accountant Fees and ServicesprintPart IVprintItem 15. Exhibits and Financial Statement Schedulesprint