Other Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
Included in
accompanying balance sheet at December 31, 2020
|
|
Effect on cost of revenues – increase/(decrease)
|
|
Notional
Amount
|
|
Asset/(Liability)
|
|
AOCL –
loss/(income)
|
|
Year Ended December 31,
|
|
Expected effect during next twelve months(1)
|
|
|
|
|
2020
|
|
2019
|
|
|
(in millions)
|
Foreign currency hedge
|
$
|
30.0
|
|
|
$
|
4.8
|
|
|
$
|
(7.3)
|
|
|
$
|
3.2
|
|
|
$
|
0.1
|
|
|
$
|
(7.3)
|
|
(1) Based on the fair value of open hedges as of December 31, 2020.
Our exposure related to foreign currency and commodity transactions is currently hedged for up to a maximum of twelve months. The effect of commodity hedge transactions was immaterial to the Consolidated Financial Statements for all periods presented herein.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for that asset or liability in an orderly transaction between market participants on the measurement date. An entity is required to establish a fair value hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are listed below.
Level 1 – This level is defined as quoted prices in active markets for identical assets or liabilities. Our cash equivalents and restricted cash are instruments of the U.S. Treasury or highly-rated money market mutual funds. The assets measured as Level 1 in the fair value hierarchy are summarized below:
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|
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|
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|
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|
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Level 1
|
|
December 31, 2020
|
|
December 31, 2019
|
|
(in millions)
|
Assets:
|
|
|
|
Cash equivalents
|
$
|
24.2
|
|
|
$
|
57.9
|
|
Restricted cash
|
96.4
|
|
|
111.4
|
|
Total assets
|
$
|
120.6
|
|
|
$
|
169.3
|
|
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. Interest rate hedges are valued at exit prices obtained from each counterparty. Foreign currency hedges are valued at exit prices obtained from each counterparty, which are based on currency spot and forward rates and forward points. The assets and liabilities measured as Level 2 in the fair value hierarchy are summarized below:
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|
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|
|
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Level 2
|
|
December 31, 2020
|
|
December 31, 2019
|
|
(in millions)
|
Assets:
|
|
|
|
Foreign currency hedge (1)
|
$
|
4.8
|
|
|
$
|
1.2
|
|
Total assets
|
$
|
4.8
|
|
|
$
|
1.2
|
|
|
|
|
|
Liabilities:
|
|
|
|
Interest rate hedge (2)
|
$
|
45.2
|
|
|
$
|
28.0
|
|
Total liabilities
|
$
|
45.2
|
|
|
$
|
28.0
|
|
(1) Included in other assets in our Consolidated Balance Sheets.
(2) Included in accrued liabilities in our Consolidated Balance Sheets.
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. As of December 31, 2020 and 2019, we have no assets measured as Level 3 in the fair value hierarchy, except as described in Note 10 and Note 11.
See Note 11 for more information regarding the non-recurring fair value measurement considerations during the year ended December 31, 2020 for the impairment charge related to our small cube covered hopper railcars. See Note 8 for the estimated fair values of our debt instruments. The fair values of all other financial instruments are estimated to approximate carrying value.
Note 4. Segment Information
We report our operating results in three principal business segments: (1) the Railcar Leasing and Management Services Group, which owns and operates a fleet of railcars and provides third-party fleet leasing, management, and administrative services; (2) the Rail Products Group, which manufactures and sells railcars and related parts and components, and provides railcar maintenance and modification services; and (3) All Other, which includes our highway products business and legal, environmental, and maintenance costs associated with non-operating facilities. In connection with the implementation of our rail-focused strategy, in the first quarter of 2020, we realigned certain activities previously reported in the All Other segment to now be presented within the Rail Products Group. The prior period results have been recast to reflect these changes and present results on a comparable basis.
Gains and losses from the sale of property, plant, and equipment are included in the operating profit of each respective segment. Our Chief Operating Decision Maker ("CODM") regularly reviews the operating results of our reportable segments in order to assess performance and allocate resources. Our CODM does not consider impairment of long-lived assets or restructuring activities when evaluating segment operating results; therefore, impairment of long-lived assets and restructuring activities are not allocated to segment profit or loss.
Sales and related net profits ("deferred profit") from the Rail Products Group to the Leasing Group are recorded in the Rail Products Group and eliminated in consolidation and are reflected in "Eliminations – Lease Subsidiary" in the tables below. Sales between these groups are recorded at prices comparable to those charged to external customers, taking into consideration quantity, features, and production demand. Amortization of deferred profit on railcars sold to the Leasing Group is included in the operating profit of the Leasing Group, resulting in the recognition of depreciation expense based on our original manufacturing cost of the railcars. Sales of railcars from the lease fleet are included in the Leasing Group, with related gains and losses computed based on the net book value of the original manufacturing cost of the railcars.
The financial information for these segments is shown in the tables below (in millions).
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
Railcar Leasing and Management Services Group
|
|
Rail Products Group
|
|
All Other
|
|
Corporate
|
|
Eliminations – Lease Subsidiary
|
|
Eliminations – Other
|
|
Consolidated Total
|
External Revenue
|
$
|
801.5
|
|
|
$
|
948.2
|
|
|
$
|
249.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,999.4
|
|
Intersegment Revenue
|
0.8
|
|
|
661.3
|
|
|
1.5
|
|
|
—
|
|
|
(652.9)
|
|
|
(10.7)
|
|
|
—
|
|
Total Revenues
|
$
|
802.3
|
|
|
$
|
1,609.5
|
|
|
$
|
251.2
|
|
|
$
|
—
|
|
|
$
|
(652.9)
|
|
|
$
|
(10.7)
|
|
|
$
|
1,999.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation & Amortization
|
$
|
214.7
|
|
|
$
|
35.1
|
|
|
$
|
8.0
|
|
|
$
|
8.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
266.0
|
|
Capital Expenditures
|
$
|
602.2
|
|
|
$
|
78.5
|
|
|
$
|
6.3
|
|
|
$
|
17.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
704.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
Railcar Leasing and Management Services Group
|
|
Rail Products Group
|
|
All Other
|
|
Corporate
|
|
Eliminations – Lease Subsidiary
|
|
Eliminations – Other
|
|
Consolidated Total
|
External Revenue
|
$
|
1,116.3
|
|
|
$
|
1,635.3
|
|
|
$
|
253.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,005.1
|
|
Intersegment Revenue
|
0.9
|
|
|
1,339.5
|
|
|
7.5
|
|
|
—
|
|
|
(1,331.1)
|
|
|
(16.8)
|
|
|
—
|
|
Total Revenues
|
$
|
1,117.2
|
|
|
$
|
2,974.8
|
|
|
$
|
261.0
|
|
|
$
|
—
|
|
|
$
|
(1,331.1)
|
|
|
$
|
(16.8)
|
|
|
$
|
3,005.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation & Amortization
|
$
|
232.2
|
|
|
$
|
34.1
|
|
|
$
|
8.3
|
|
|
$
|
9.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
283.6
|
|
Capital Expenditures
|
$
|
1,122.2
|
|
|
$
|
85.6
|
|
|
$
|
9.1
|
|
|
$
|
2.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,219.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
Railcar Leasing and Management Services Group
|
|
Rail Products Group
|
|
All Other
|
|
Corporate
|
|
Eliminations – Lease Subsidiary
|
|
Eliminations – Other
|
|
Consolidated Total
|
External Revenue
|
$
|
842.0
|
|
|
$
|
1,409.2
|
|
|
$
|
257.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,509.1
|
|
Intersegment Revenue
|
0.8
|
|
|
1,003.7
|
|
|
12.7
|
|
|
—
|
|
|
(990.3)
|
|
|
(26.9)
|
|
|
—
|
|
Total Revenues
|
$
|
842.8
|
|
|
$
|
2,412.9
|
|
|
$
|
270.6
|
|
|
$
|
—
|
|
|
$
|
(990.3)
|
|
|
$
|
(26.9)
|
|
|
$
|
2,509.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation & Amortization
|
$
|
196.6
|
|
|
$
|
35.6
|
|
|
$
|
9.8
|
|
|
$
|
9.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
251.9
|
|
Capital Expenditures
|
$
|
948.3
|
|
|
$
|
18.7
|
|
|
$
|
14.6
|
|
|
$
|
4.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
985.6
|
|
The reconciliation of segment operating profit (loss) to consolidated net income (loss) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(in millions)
|
Operating profit (loss):
|
|
|
|
|
|
Railcar Leasing and Management Services Group
|
$
|
353.7
|
|
|
$
|
406.6
|
|
|
$
|
351.1
|
|
Rail Products Group
|
36.3
|
|
|
277.6
|
|
|
167.6
|
|
All Other
|
28.2
|
|
|
19.9
|
|
|
40.2
|
|
Segment Totals before Eliminations, Corporate Expenses, Impairment of long-lived assets, and Restructuring activities
|
418.2
|
|
|
704.1
|
|
|
558.9
|
|
Corporate
|
(97.7)
|
|
|
(108.0)
|
|
|
(149.1)
|
|
Impairment of long-lived assets
|
(396.4)
|
|
|
—
|
|
|
—
|
|
Restructuring activities, net
|
(11.0)
|
|
|
(14.7)
|
|
|
—
|
|
Eliminations – Lease Subsidiary
|
(35.2)
|
|
|
(164.7)
|
|
|
(95.1)
|
|
Eliminations – Other
|
(2.4)
|
|
|
(0.4)
|
|
|
0.4
|
|
Consolidated operating profit (loss)
|
$
|
(124.5)
|
|
|
$
|
416.3
|
|
|
$
|
315.1
|
|
Other (income) expense
|
370.0
|
|
|
215.6
|
|
|
163.5
|
|
Provision (benefit) for income taxes
|
(268.4)
|
|
|
61.5
|
|
|
42.6
|
|
Income (loss) from discontinued operations, net of income taxes
|
(0.1)
|
|
|
(3.1)
|
|
|
54.1
|
|
Net income (loss)
|
$
|
(226.2)
|
|
|
$
|
136.1
|
|
|
$
|
163.1
|
|
Total assets for these segments is shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
(in millions)
|
Railcar Leasing and Management Services Group
|
$
|
7,652.1
|
|
|
$
|
8,012.6
|
|
Rail Products Group
|
858.6
|
|
|
1,019.8
|
|
All Other
|
199.4
|
|
|
195.7
|
|
Segment Totals before Eliminations and Corporate
|
8,710.1
|
|
|
9,228.1
|
|
Corporate
|
812.0
|
|
|
378.1
|
|
Eliminations – Lease Subsidiary
|
(820.3)
|
|
|
(903.8)
|
|
Eliminations – Other
|
—
|
|
|
(1.0)
|
|
Total Assets
|
$
|
8,701.8
|
|
|
$
|
8,701.4
|
|
Corporate assets are composed of cash and cash equivalents, short-term marketable securities, income tax receivable, notes receivable, certain property, plant, and equipment, and other assets.
We operate principally in North America. Our foreign operations are primarily located in Mexico. Revenues and operating profit for our Mexico operations for the years ended December 31, 2020, 2019, and 2018 were not significant in relation to the Consolidated Financial Statements. Total assets for our Mexico operations as of December 31, 2020 and 2019 are $126.9 million and $136.0 million, respectively. Total long-lived assets for our Mexico operations as of December 31, 2020 and 2019 are $111.9 million and $112.2 million, respectively.
One customer in the Rail Products Group comprised approximately 14% of our consolidated revenues during the year ended December 31, 2020.
Note 5. Partially-Owned Leasing Subsidiaries
Through our wholly-owned subsidiary, TILC, we formed two subsidiaries, TRIP Holdings and RIV 2013, for the purpose of providing railcar leasing services in North America for institutional investors. Each of TRIP Holdings and RIV 2013 are direct, partially-owned subsidiaries of TILC in which we have a controlling interest. Each is governed by a seven-member board of representatives, two of whom are designated by TILC. TILC is the agent of each of TRIP Holdings and RIV 2013 and, as such, has been delegated the authority, power, and discretion to take certain actions on behalf of the respective companies.
At December 31, 2020, the carrying value of our investment in TRIP Holdings and RIV 2013 totaled $145.9 million. Our weighted average ownership interest in TRIP Holdings and RIV 2013 is 38% while the remaining 62% weighted average interest is owned by third-party, investor-owned funds. The investment in our partially-owned leasing subsidiaries is eliminated in consolidation.
Each of TRIP Holdings and RIV 2013 has wholly-owned subsidiaries that are the owners of railcars acquired from our Rail Products and Leasing Groups. These wholly-owned subsidiaries are TRIP Master Funding LLC ("TRIP Master Funding") (wholly-owned by TRIP Holdings) and Trinity Rail Leasing 2012 LLC ("TRL-2012", wholly-owned by RIV 2013). Railcar purchases by these subsidiaries were funded by secured borrowings and capital contributions from TILC and third-party equity investors. TILC is the contractual servicer for TRIP Master Funding and TRL-2012, with the authority to manage and service each entity's owned railcars. Our controlling interest in each of TRIP Holdings and RIV 2013 results from our combined role as both equity member and agent/servicer. The noncontrolling interest included in the accompanying Consolidated Balance Sheets represents the non-Trinity equity interest in these partially-owned subsidiaries.
Trinity has no obligation to guarantee performance under any of our partially-owned subsidiaries' (or their respective subsidiaries') debt agreements, guarantee any railcar residual values, shield any parties from losses or guarantee minimum yields.
The assets of each of TRIP Master Funding and TRL-2012 may only be used to satisfy the particular subsidiary's liabilities, and the creditors of each of TRIP Master Funding and TRL-2012 have recourse only to the particular subsidiary's assets. Each of TILC and the third-party equity investors receive distributions from TRIP Holdings and RIV 2013, when available, in proportion to its respective equity interests, and has an interest in the net assets of the partially-owned subsidiaries upon a liquidation event in the same proportion. TILC is paid fees for the services it provides to TRIP Master Funding and TRL-2012 and has the potential to earn certain incentive fees. TILC and the third-party equity investors have commitments to provide additional equity funding to TRIP Holdings that are scheduled to expire in May 2021, contingent upon certain returns on investment in TRIP Holdings and other conditions being met. There are no remaining equity commitments with respect to RIV 2013.
See Note 8 regarding the debt of TRIP Holdings and RIV 2013 and their respective subsidiaries. See Note 11 for further information regarding impairment of long-lived assets related to our small cube covered hopper railcars recorded in the year ended December 31, 2020.
Note 6. Railcar Leasing and Management Services Group
The Railcar Leasing and Management Services Group owns and operates a fleet of railcars as well as provides third-party fleet leasing, management, and administrative services. Selected consolidated financial information for the Leasing Group is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Wholly-
Owned
Subsidiaries
|
|
Partially-Owned Subsidiaries
|
|
Total Leasing Group
|
|
Eliminations – Lease Subsidiary (1)
|
|
Adjusted Total Leasing Group
|
|
(in millions)
|
Cash and cash equivalents
|
$
|
3.5
|
|
|
$
|
—
|
|
|
$
|
3.5
|
|
|
$
|
—
|
|
|
$
|
3.5
|
|
Accounts receivable
|
82.0
|
|
|
8.4
|
|
|
90.4
|
|
|
—
|
|
|
90.4
|
|
Property, plant, and equipment, net (2)
|
5,795.9
|
|
|
1,626.3
|
|
|
7,422.2
|
|
|
(820.3)
|
|
|
6,601.9
|
|
Restricted cash
|
65.2
|
|
|
31.1
|
|
|
96.3
|
|
|
—
|
|
|
96.3
|
|
Other assets
|
38.1
|
|
|
1.6
|
|
|
39.7
|
|
|
—
|
|
|
39.7
|
|
Total assets
|
$
|
5,984.7
|
|
|
$
|
1,667.4
|
|
|
$
|
7,652.1
|
|
|
$
|
(820.3)
|
|
|
$
|
6,831.8
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
141.4
|
|
|
$
|
30.9
|
|
|
$
|
172.3
|
|
|
$
|
—
|
|
|
$
|
172.3
|
|
Debt, net
|
3,340.5
|
|
|
1,228.3
|
|
|
4,568.8
|
|
|
—
|
|
|
4,568.8
|
|
Deferred income taxes
|
1,062.3
|
|
|
1.1
|
|
|
1,063.4
|
|
|
(186.2)
|
|
|
877.2
|
|
Other liabilities
|
25.7
|
|
|
—
|
|
|
25.7
|
|
|
—
|
|
|
25.7
|
|
Total liabilities
|
4,569.9
|
|
|
1,260.3
|
|
|
5,830.2
|
|
|
(186.2)
|
|
|
5,644.0
|
|
Noncontrolling interest
|
—
|
|
|
277.2
|
|
|
277.2
|
|
|
—
|
|
|
277.2
|
|
Total Equity
|
$
|
1,414.8
|
|
|
$
|
129.9
|
|
|
$
|
1,544.7
|
|
|
$
|
(634.1)
|
|
|
$
|
910.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Wholly-
Owned
Subsidiaries
|
|
Partially-Owned Subsidiaries
|
|
Total Leasing Group
|
|
Eliminations – Lease Subsidiary (1)
|
|
Adjusted Total Leasing Group
|
|
(in millions)
|
Cash and cash equivalents
|
$
|
1.8
|
|
|
$
|
—
|
|
|
$
|
1.8
|
|
|
$
|
—
|
|
|
$
|
1.8
|
|
Accounts receivable
|
73.9
|
|
|
8.7
|
|
|
82.6
|
|
|
—
|
|
|
82.6
|
|
Property, plant, and equipment, net
|
5,818.9
|
|
|
1,786.7
|
|
|
7,605.6
|
|
|
(903.8)
|
|
|
6,701.8
|
|
Restricted cash
|
78.4
|
|
|
33.0
|
|
|
111.4
|
|
|
—
|
|
|
111.4
|
|
Other assets
|
209.8
|
|
|
1.4
|
|
|
211.2
|
|
|
—
|
|
|
211.2
|
|
Total assets
|
$
|
6,182.8
|
|
|
$
|
1,829.8
|
|
|
$
|
8,012.6
|
|
|
$
|
(903.8)
|
|
|
$
|
7,108.8
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
100.7
|
|
|
$
|
44.6
|
|
|
$
|
145.3
|
|
|
$
|
—
|
|
|
$
|
145.3
|
|
Debt, net
|
3,080.7
|
|
|
1,278.4
|
|
|
4,359.1
|
|
|
—
|
|
|
4,359.1
|
|
Deferred income taxes
|
861.7
|
|
|
1.1
|
|
|
862.8
|
|
|
(184.8)
|
|
|
678.0
|
|
Other liabilities
|
32.7
|
|
|
—
|
|
|
32.7
|
|
|
—
|
|
|
32.7
|
|
Total liabilities
|
4,075.8
|
|
|
1,324.1
|
|
|
5,399.9
|
|
|
(184.8)
|
|
|
5,215.1
|
|
Noncontrolling interest
|
—
|
|
|
348.8
|
|
|
348.8
|
|
|
—
|
|
|
348.8
|
|
Total Equity
|
$
|
2,107.0
|
|
|
$
|
156.9
|
|
|
$
|
2,263.9
|
|
|
$
|
(719.0)
|
|
|
$
|
1,544.9
|
|
(1) Net deferred profit on railcars sold to the Leasing Group consists of intersegment profit that is eliminated in consolidation. Net deferred profit and the related deferred tax impact are included as adjustments to the property, plant, and equipment, net and deferred income taxes line items, respectively, in the Eliminations – Lease Subsidiary column above to reflect the net book value of the railcars purchased by the Leasing Group from the Rail Products Group based on manufacturing cost. See Note 5 and Note 8 for a further discussion regarding our investment in our partially-owned leasing subsidiaries and the related indebtedness.
(2) See Note 11 for further information regarding impairment of long-lived assets recorded in the year ended December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Percent Change
|
|
2020
|
|
2019
|
|
2018
|
|
2020 versus 2019
|
|
2019 versus 2018
|
|
($ in millions)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Leasing and management revenues
|
$
|
747.9
|
|
|
$
|
756.5
|
|
|
$
|
728.9
|
|
|
(1.1)
|
%
|
|
3.8
|
%
|
Sales of railcars owned one year or less at the time of sale (1)(2)
|
54.4
|
|
|
360.7
|
|
|
113.9
|
|
|
(84.9)
|
%
|
|
216.7
|
%
|
Total revenues
|
$
|
802.3
|
|
|
$
|
1,117.2
|
|
|
$
|
842.8
|
|
|
(28.2)
|
%
|
|
32.6
|
%
|
|
|
|
|
|
|
|
|
|
|
Operating profit (3):
|
|
|
|
|
|
|
|
|
|
Leasing and management
|
$
|
336.0
|
|
|
$
|
314.7
|
|
|
$
|
291.8
|
|
|
6.8
|
%
|
|
7.8
|
%
|
Railcars owned one year or less at the time of sale
|
0.4
|
|
|
41.4
|
|
|
21.5
|
|
|
(99.0)
|
%
|
|
92.6
|
%
|
Railcars owned more than one year at the time of sale
|
17.3
|
|
|
50.5
|
|
|
50.4
|
|
|
(65.7)
|
%
|
|
0.2
|
%
|
Property disposition losses (4)
|
—
|
|
|
—
|
|
|
(12.6)
|
|
|
*
|
|
*
|
Total operating profit
|
$
|
353.7
|
|
|
$
|
406.6
|
|
|
$
|
351.1
|
|
|
(13.0)
|
%
|
|
15.8
|
%
|
Total operating profit margin
|
44.1
|
%
|
|
36.4
|
%
|
|
41.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing and management operating profit margin
|
44.9
|
%
|
|
41.6
|
%
|
|
40.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected expense information:
|
|
|
|
|
|
|
|
|
|
Depreciation (5)(6)
|
$
|
214.7
|
|
|
$
|
232.2
|
|
|
$
|
196.6
|
|
|
(7.5)
|
%
|
|
18.1
|
%
|
Maintenance and compliance
|
$
|
88.1
|
|
|
$
|
102.1
|
|
|
$
|
99.3
|
|
|
(13.7)
|
%
|
|
2.8
|
%
|
Rent
|
$
|
9.7
|
|
|
$
|
16.9
|
|
|
$
|
42.4
|
|
|
(42.6)
|
%
|
|
(60.1)
|
%
|
Selling, engineering, and administrative expenses
|
$
|
51.3
|
|
|
$
|
49.5
|
|
|
$
|
51.1
|
|
|
3.6
|
%
|
|
(3.1)
|
%
|
Interest
|
$
|
196.2
|
|
|
$
|
197.2
|
|
|
$
|
142.3
|
|
|
(0.5)
|
%
|
|
38.6
|
%
|
* Not meaningful
(1) Includes revenues associated with sales-type leases of $160.5 million for the year ended December 31, 2019.
(2) Beginning in the fourth quarter of 2020, we made a prospective change in the presentation of sales of railcars from the lease fleet. See Note 1 for more information.
(3) Operating profit includes: depreciation; maintenance and compliance; rent; and selling, engineering, and administrative expenses. Amortization of deferred profit on railcars sold from the Rail Products Group to the Leasing Group is included in the operating profits of the Leasing Group, resulting in the recognition of depreciation expense based on our original manufacturing cost of the railcars. Interest expense is not a component of operating profit and includes the effect of hedges.
(4) Property disposition losses for the year ended December 31, 2018 included a non-cash charge of $12.6 million associated with our election to forego the early purchase options contained in certain lease agreements.
(5) Effective January 1, 2020, we revised the estimated useful lives and salvage values of certain railcar types in our lease fleet. This change in estimate resulted in a decrease in depreciation expense in the year ended December 31, 2020 of approximately $30.8 million. This decrease was partially offset by higher depreciation associated with growth in the lease fleet. See Note 1 for further information.
(6) As a result of the impairment of long-lived assets related to our small cube covered hopper railcars recorded in the second quarter of 2020, our quarterly depreciation expense beginning in the third quarter of 2020 has decreased by approximately $3.5 million, for a total reduction of $7.0 million for the year ended December 31, 2020.
During the years ended December 31, 2020, 2019, and 2018, information related to the sales of leased railcars is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(in millions)
|
Sales of leased railcars:
|
|
|
|
|
|
Railcars owned one year or less at the time of sale (1)(2)
|
$
|
54.4
|
|
|
$
|
360.7
|
|
|
$
|
113.9
|
|
Railcars owned more than one year at the time of sale
|
138.7
|
|
|
205.7
|
|
|
230.5
|
|
|
$
|
193.1
|
|
|
$
|
566.4
|
|
|
$
|
344.4
|
|
|
|
|
|
|
|
Operating profit on sales of leased railcars:
|
|
|
|
|
|
Railcars owned one year or less at the time of sale
|
$
|
0.4
|
|
|
$
|
41.4
|
|
|
$
|
21.5
|
|
Railcars owned more than one year at the time of sale
|
17.3
|
|
|
50.5
|
|
|
50.4
|
|
|
$
|
17.7
|
|
|
$
|
91.9
|
|
|
$
|
71.9
|
|
|
|
|
|
|
|
Operating profit margin on sales of leased railcars:
|
|
|
|
|
|
Railcars owned one year or less at the time of sale
|
0.7
|
%
|
|
11.5
|
%
|
|
18.9
|
%
|
Railcars owned more than one year at the time of sale
|
12.5
|
%
|
|
24.6
|
%
|
|
21.9
|
%
|
Weighted average operating profit margin on sales of leased railcars
|
9.2
|
%
|
|
16.2
|
%
|
|
20.9
|
%
|
(1) Includes revenues associated with sales-type leases of $160.5 million for the year ended December 31, 2019.
(2) Beginning in the fourth quarter of 2020, we made a prospective change in the presentation of sales of railcars from the lease fleet. See Note 1 for more information.
Railcar Leasing Equipment Portfolio. The Leasing Group's equipment consists primarily of railcars leased by third parties. The Leasing Group purchases equipment manufactured predominantly by the Rail Products Group and enters into lease contracts with third parties with terms generally ranging between one year and ten years. The Leasing Group primarily enters into operating leases. Future contractual minimum rental revenues on operating leases related to our wholly-owned and partially-owned subsidiaries are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
Thereafter
|
|
Total
|
|
(in millions)
|
Future contractual minimum rental revenues
|
$
|
550.4
|
|
|
$
|
432.8
|
|
|
$
|
322.3
|
|
|
$
|
237.9
|
|
|
$
|
160.9
|
|
|
$
|
290.6
|
|
|
$
|
1,994.9
|
|
Debt. Wholly-owned subsidiaries. The Leasing Group’s debt at December 31, 2020 consisted primarily of non-recourse debt. As of December 31, 2020, Trinity’s wholly-owned subsidiaries included in the Leasing Group held equipment with a net book value of $4,418.5 million, which is pledged solely as collateral for Leasing Group debt held by those subsidiaries. The net book value of unpledged equipment at December 31, 2020 was $1,364.4 million. See Note 8 for more information regarding the Leasing Group's debt.
Partially-owned subsidiaries. Debt owed by TRIP Holdings and RIV 2013 and their respective subsidiaries is nonrecourse to Trinity and TILC. Creditors of each of TRIP Holdings and RIV 2013 and their respective subsidiaries have recourse only to the particular subsidiary's assets. TRIP Master Funding equipment with a net book value of $1,149.9 million is pledged as collateral for the TRIP Master Funding debt. TRL-2012 equipment with a net book value of $476.4 million is pledged solely as collateral for the TRL-2012 secured railcar equipment notes. See Note 5 for a description of TRIP Holdings and RIV 2013.
Operating Lease Obligations. Future amounts due as well as future contractual minimum rental revenues related to the Leasing Group's railcar operating lease obligations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
Thereafter
|
|
Total
|
|
(in millions)
|
Future operating lease obligations
|
$
|
8.2
|
|
|
$
|
7.5
|
|
|
$
|
5.7
|
|
|
$
|
2.5
|
|
|
$
|
0.6
|
|
|
$
|
0.3
|
|
|
$
|
24.8
|
|
Future contractual minimum rental revenues
|
$
|
5.0
|
|
|
$
|
3.4
|
|
|
$
|
1.6
|
|
|
$
|
0.7
|
|
|
$
|
0.2
|
|
|
$
|
—
|
|
|
$
|
10.9
|
|
Operating lease obligations totaling $2.0 million are guaranteed by Trinity Industries, Inc. and certain subsidiaries. The Leasing Group also has future amounts due for operating lease obligations related to office space of approximately $2.0 million, which is excluded from the table above.
Note 7. Property, Plant, and Equipment
The following table summarizes the components of property, plant, and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
(in millions)
|
Manufacturing/Corporate:
|
|
|
|
Land
|
$
|
23.2
|
|
|
$
|
28.4
|
|
Buildings and improvements
|
428.6
|
|
|
402.2
|
|
Machinery and other
|
485.1
|
|
|
546.7
|
|
Construction in progress
|
42.5
|
|
|
63.1
|
|
|
979.4
|
|
|
1,040.4
|
|
Less accumulated depreciation
|
(577.9)
|
|
|
(631.6)
|
|
|
401.5
|
|
|
408.8
|
|
Leasing:
|
|
|
|
Wholly-owned subsidiaries:
|
|
|
|
Machinery and other
|
19.5
|
|
|
13.7
|
|
Equipment on lease
|
7,010.6
|
|
|
6,944.2
|
|
|
7,030.1
|
|
|
6,957.9
|
|
Less accumulated depreciation
|
(1,234.2)
|
|
|
(1,139.0)
|
|
|
5,795.9
|
|
|
5,818.9
|
|
Partially-owned subsidiaries:
|
|
|
|
Equipment on lease
|
2,248.2
|
|
|
2,410.0
|
|
Less accumulated depreciation
|
(621.9)
|
|
|
(623.3)
|
|
|
1,626.3
|
|
|
1,786.7
|
|
|
|
|
|
Deferred profit on railcars sold to the Leasing Group
|
(1,064.7)
|
|
|
(1,135.8)
|
|
Less accumulated amortization
|
244.4
|
|
|
232.0
|
|
|
(820.3)
|
|
|
(903.8)
|
|
|
$
|
7,003.4
|
|
|
$
|
7,110.6
|
|
In early 2020, we finalized an assessment of the estimated useful lives and salvage value assumptions for the railcars in our lease fleet. This resulted in a revision to the useful lives and salvage values of certain railcar types in our lease fleet. See Note 1 for further information.
We lease certain equipment and facilities under operating leases. See Note 1 for future operating lease obligations on non-Leasing Group leases. See Note 1 and Note 6 for information related to the lease agreements, future operating lease obligations, and future minimum rental revenues associated with the Leasing Group.
We capitalized an insignificant amount of interest expense as part of the construction of facilities and equipment during 2020. We did not capitalize any interest expense during 2019.
We estimate the fair market value of properties no longer in use based on the location and condition of the properties, the fair market value of similar properties in the area, and our experience selling similar properties in the past. As of December 31, 2020, we had non-operating plants with a net book value of $12.4 million. See Note 11 for further information regarding impairment of long-lived assets recorded in the year ended December 31, 2020, as well as asset impairment charges related to non-operating plants that were recorded during the year ended December 31, 2019. See Note 1 for more information regarding assets classified as held for sale as of December 31, 2020.
Note 8. Debt
The carrying amounts and estimated fair values of our long-term debt are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
(in millions)
|
Corporate – Recourse:
|
|
|
|
|
|
|
|
Revolving credit facility
|
$
|
50.0
|
|
|
$
|
50.0
|
|
|
$
|
125.0
|
|
|
$
|
125.0
|
|
Senior notes, net of unamortized discount of $0.2 and $0.2
|
399.8
|
|
|
420.3
|
|
|
399.8
|
|
|
411.7
|
|
|
449.8
|
|
|
470.3
|
|
|
524.8
|
|
|
536.7
|
|
Less: unamortized debt issuance costs
|
(1.6)
|
|
|
|
|
(2.0)
|
|
|
|
Total recourse debt
|
448.2
|
|
|
|
|
522.8
|
|
|
|
|
|
|
|
|
|
|
|
Leasing – Non-recourse:
|
|
|
|
|
|
|
|
Wholly-owned subsidiaries:
|
|
|
|
|
|
|
|
2006 secured railcar equipment notes
|
—
|
|
|
—
|
|
|
109.3
|
|
|
114.0
|
|
2009 secured railcar equipment notes
|
142.3
|
|
|
170.0
|
|
|
147.8
|
|
|
168.7
|
|
2010 secured railcar equipment notes
|
235.9
|
|
|
248.5
|
|
|
248.5
|
|
|
264.3
|
|
2017 promissory notes, net of unamortized discount of $10.1 and $—
|
802.7
|
|
|
802.7
|
|
|
627.1
|
|
|
627.1
|
|
2018 secured railcar equipment notes, net of unamortized discount of $0.2 and $0.2
|
434.7
|
|
|
449.3
|
|
|
452.1
|
|
|
466.2
|
|
TRIHC 2018 secured railcar equipment notes, net of unamortized discount of $— and $1.4
|
—
|
|
|
—
|
|
|
265.4
|
|
|
270.9
|
|
2019 secured railcar equipment notes, net of unamortized discount of $0.3 and $0.4
|
860.5
|
|
|
890.8
|
|
|
901.0
|
|
|
904.9
|
|
2020 secured railcar equipments notes, net of unamortized discount of $0.1 and $—
|
369.0
|
|
|
370.2
|
|
|
—
|
|
|
—
|
|
TILC warehouse facility
|
519.4
|
|
|
519.4
|
|
|
353.4
|
|
|
353.4
|
|
|
3,364.5
|
|
|
3,450.9
|
|
|
3,104.6
|
|
|
3,169.5
|
|
Less: unamortized debt issuance costs
|
(24.0)
|
|
|
|
|
(23.9)
|
|
|
|
|
3,340.5
|
|
|
|
|
3,080.7
|
|
|
|
Partially-owned subsidiaries:
|
|
|
|
|
|
|
|
TRL 2012 secured railcar equipment notes
|
352.5
|
|
|
373.9
|
|
|
371.4
|
|
|
374.4
|
|
TRIP Master Funding secured railcar equipment notes
|
885.0
|
|
|
959.7
|
|
|
917.9
|
|
|
984.0
|
|
|
1,237.5
|
|
|
1,333.6
|
|
|
1,289.3
|
|
|
1,358.4
|
|
Less: unamortized debt issuance costs
|
(9.2)
|
|
|
|
|
(10.9)
|
|
|
|
|
1,228.3
|
|
|
|
|
1,278.4
|
|
|
|
Total non–recourse debt
|
4,568.8
|
|
|
|
|
4,359.1
|
|
|
|
Total debt
|
$
|
5,017.0
|
|
|
$
|
5,254.8
|
|
|
$
|
4,881.9
|
|
|
$
|
5,064.6
|
|
The estimated fair value of our 4.55% senior notes due 2024 ("Senior Notes") is based on a quoted market price in a market with little activity (Level 2 input). The estimated fair values of our secured railcar equipment notes are based on our estimate of their fair value using unobservable input values provided by a third party (Level 3 inputs). The respective carrying values of our revolving credit facility, TILC warehouse facility, and 2017 promissory notes approximate fair value because the interest rate adjusts to the market interest rate.
Revolving Credit Facility – We have a $450.0 million unsecured corporate revolving credit facility that matures in November 2023. During the year ended December 31, 2020, we had total borrowings of $545.0 million and total repayments of $620.0 million under the revolving credit facility, with a remaining outstanding balance of $50.0 million as of December 31, 2020. Additionally, we had outstanding letters of credit issued in an aggregate amount of $35.2 million, leaving $364.8 million available for borrowing as of December 31, 2020. The outstanding letters of credit as of December 31, 2020 are scheduled to expire in July 2021. Our letters of credit obligations support our various insurance programs and generally renew by their terms each year. The revolving credit facility bears interest at a variable rate which resulted in an interest rate of LIBOR plus 1.75%, with a LIBOR floor of 0.30%, as of December 31, 2020. A commitment fee accrues on the average daily unused portion of the revolving facility at the rate of 0.175% to 0.40% (0.25% as of December 31, 2020).
The revolving credit facility requires the maintenance of ratios related to minimum interest coverage for the leasing and manufacturing operations and maximum leverage. In July 2020, we amended our revolving credit facility to increase the maximum leverage ratio to provide additional near-term flexibility through December 31, 2021. As of December 31, 2020, we were in compliance with all such financial covenants. Borrowings under the credit facility are guaranteed by certain of our 100%-owned subsidiaries.
Senior Notes Due 2024 – In September 2014, we issued $400.0 million aggregate principal amount of 4.55% senior notes due October 2024. Interest on the Senior Notes is payable semiannually commencing April 1, 2015. The Senior Notes rank senior to existing and future subordinated debt and rank equal to existing and future senior indebtedness, including our revolving credit facility. The Senior Notes are subordinated to all our existing and future secured debt to the extent of the value of the collateral securing such indebtedness. The Senior Notes contain covenants that limit our ability and/or certain subsidiaries' ability to create or permit to exist certain liens; enter into sale and leaseback transactions; and consolidate, merge, or transfer all or substantially all of our assets. Our Senior Notes are fully and unconditionally and jointly and severally guaranteed by each of Trinity’s domestic subsidiaries that is a guarantor under our revolving credit facility. See "Liquidity and Capital Resources" in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report on Form 10-K.
Wholly-owned leasing subsidiaries
TRL V – 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”). In March 2020, TRL V redeemed its 2006 Secured Railcar Equipment Notes due May 2036, of which $104.7 million was outstanding at the redemption date. The fixed interest rate for these notes was at 5.90% per annum. In connection with the early redemption, we recognized a loss on extinguishment of debt of $5.0 million, which included a $4.7 million early redemption premium and $0.3 million in unamortized debt issuance costs. The loss on extinguishment of debt is included in interest expense in our Consolidated Statement of Operations.
TRL VII – In November 2009, Trinity Rail Leasing VII LLC, a Delaware limited liability company (“TRL VII”) and 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”), of which $142.3 million was outstanding as of December 31, 2020. 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 6.66% per annum, are payable monthly, and have a final maturity date of November 16, 2039. The 2009 Secured Railcar Equipment Notes are obligations of TRL VII and are non-recourse to Trinity. The obligations are secured by a portfolio of railcars and operating leases thereon, certain cash reserves, and other assets acquired and owned by TRL VII.
TRL-2010 – In October 2010, Trinity Rail Leasing 2010 LLC, a Delaware limited liability company ("TRL-2010") and a limited purpose, indirect wholly-owned subsidiary of the Company owned through TILC, issued $369.2 million in aggregate principal amount of Secured Railcar Equipment Notes, Series 2010-1 (“2010 Secured Railcar Equipment Notes"), of which $235.9 million was outstanding as of December 31, 2020. The 2010 Secured Railcar Equipment Notes were issued pursuant to an Indenture, dated as of October 25, 2010 between TRL-2010 and Wilmington Trust Company, as indenture trustee. The 2010 Secured Railcar Equipment Notes bear interest at a fixed rate of 5.19%, are payable monthly, and have a stated final maturity date of October 16, 2040. The 2010 Secured Railcar Equipment Notes are obligations of TRL-2010 and are non-recourse to Trinity. The obligations are secured by a portfolio of railcars and operating leases thereon, certain cash reserves, and other assets acquired and owned by TRL-2010.
TILC Warehouse Loan Facility – TILC has a $750.0 million warehouse loan facility, which was established to finance railcars owned by TILC. During the year ended December 31, 2020, we had total borrowings of $283.6 million and total repayments of $117.6 million under the TILC warehouse loan facility, with a remaining outstanding balance of $519.4 million as of December 31, 2020. The entire unused facility amount of $230.6 million was available as of December 31, 2020 based on the amount of warehouse-eligible, unpledged equipment. The warehouse loan facility is a non-recourse obligation and is secured by a portfolio of railcars and operating leases, certain cash reserves, and other assets acquired and owned by the warehouse loan facility trust. The principal and interest of this indebtedness are paid from the cash flows of the underlying leases. Advances under the facility bear interest at a defined index rate plus a margin, for an all-in interest rate of 1.76% at December 31, 2020. Amounts outstanding at maturity, absent renewal, are payable in March 2022.
TRL-2017 – Trinity Rail Leasing 2017, LLC, a Delaware limited liability company ("TRL-2017") and a limited purpose, indirect wholly-owned subsidiary of the Company owned through TILC, previously issued $302.4 million of promissory notes (the "2017 Promissory Notes") due May 15, 2024. In November 2018, the 2017 Promissory Notes were extended through November 8, 2025 at an increased aggregate amount of $663.0 million. In July 2020, TRL-2017 issued an additional $225.0 million of promissory notes pursuant to a provision contained in its existing Amended and Restated Loan Agreement dated November 8, 2018 (together with previously-issued promissory notes, the "2017 Promissory Notes"). As of December 31, 2020, $802.7 million of the 2017 Promissory Notes was outstanding. The 2017 Promissory Notes bear interest at a rate of LIBOR plus 1.50%, for an all-in interest rate of 1.69% as of December 31, 2020, payable monthly. The 2017 Promissory Notes are obligations of TRL-2017 and are non-recourse to Trinity. The 2017 Promissory Notes are secured by a portfolio of railcars and operating leases thereon, certain cash reserves, and other assets acquired and owned by TRL-2017. Net proceeds received from the July 2020 transaction were used to repay approximately $48.3 million of borrowings under TILC's secured warehouse credit facility, and the remaining proceeds were used to repay borrowings under the Company’s revolving credit facility, and for general corporate purposes.
TRL-2018 – In June 2018, Trinity Rail Leasing 2018, LLC, a Delaware limited liability company ("TRL-2018") and a limited purpose, indirect wholly-owned subsidiary of the Company owned through TILC, issued $482.5 million in Secured Railcar Equipment Notes (the "TRL-2018 Secured Railcar Equipment Notes"). The TRL-2018 Secured Railcar Equipment Notes consisted of two classes of notes with (i) an aggregate principal amount of $200.0 million of TRL-2018's Series 2018-1 Class A-1 Secured Railcar Equipment Notes (the "TRL-2018 Class A-1 Notes"), and (ii) an aggregate principal amount of $282.5 million of TRL-2018's Series 2018-1 Class A-2 Secured Railcar Equipment Notes (the “TRL-2018 Class A-2 Notes”). The TRL-2018 Secured Railcar Equipment Notes were issued pursuant to a Master Indenture, dated June 20, 2018 between TRL-2018 and Wilmington Trust Company, as indenture trustee. In October 2020, TRL-2018 issued $155.5 million of Series 2020-1 Class A Secured Railcar Equipment Notes (the “2020-1 Notes”) (the TRL-2018 Class A-1 Notes, the TRL-2018 Class A-2 Notes, and the 2020-1 Notes are, collectively, the “TRL-2018 Notes”) under the existing indenture. In a separate transaction during October 2020, TRL-2018 redeemed its TRL-2018 Class A-1 Notes, of which $153.1 million was outstanding at the redemption date. The fixed interest rate for these notes was 3.82% per annum.
The TRL-2018 Class A-2 Notes, of which $282.5 million was outstanding as of December 31, 2020, bear interest at a fixed rate of 4.62%, are payable monthly, and have a stated final maturity date of June 17, 2048. The 2020-1 Notes, of which $152.4 million was outstanding as of December 31, 2020, bear interest at a fixed rate of 1.96%, are payable monthly, and have a stated final maturity date of October 17, 2050. The TRL-2018 Notes are obligations of TRL-2018 only, secured by a portfolio of railcars and operating leases thereon acquired and owned by TRL-2018, certain cash reserves, and other assets of TRL-2018.
TRIHC 2018 – In October 2018, TRIHC 2018 LLC ("TRIHC 2018") was acquired by the Leasing Group, from an unrelated seller, and included the entire equity interest of a railcar leasing entity for $75.4 million in cash. As a result of the purchase transaction, the Leasing Group acquired approximately 4,150 railcars, substantially all of which are currently under lease to third parties, and assumed indebtedness of approximately $283.9 million with maturities ranging from 2018 through 2035. In November 2020, Trinity Rail Leasing 2020 LLC, a Delaware limited liability company (“TRL-2020”) and a limited purpose, indirect wholly-owned subsidiary of the Company owned through TILC, redeemed in full approximately $258.6 million of secured notes issued by TRIHC 2018.
TRL-2019 – In April 2019, Trinity Rail Leasing 2019 LLC ("TRL-2019"), a Delaware limited liability company and a limited purpose, indirect wholly-owned subsidiary of the Company owned through TILC, issued $528.3 million in Secured Railcar Equipment Notes (the "TRL-2019 Secured Railcar Equipment Notes"). The TRL-2019 Secured Railcar Equipment Notes were issued pursuant to a Master Indenture, dated as of April 10, 2019 between TRL-2019 and U.S. Bank National Association, as indenture trustee. The TRL-2019 Secured Railcar Equipment Notes, of which $491.1 million was outstanding as of December 31, 2020, bear interest at a fixed rate of 3.82%, are payable monthly, and have a stated final maturity date of April 17, 2049. The TRL-2019 Secured Railcar Equipment Notes are obligations of TRL-2019 and are non-recourse to Trinity. The obligations are secured by a portfolio of railcars and operating leases thereon, certain cash reserves, and other assets acquired and owned by TRL-2019.
In October 2019, TRL-2019 issued an additional $386.5 million in Secured Railcar Equipment Notes (the "TRL-2019-2 Secured Railcar Equipment Notes"). The TRL-2019-2 Secured Railcar Equipment Notes consisted of two classes of notes with (i) an aggregate principal amount of $106.9 million of TRL-2019's Series 2019-2 Class A-1 Secured Railcar Equipment Notes (the "TRL-2019 Class A-1 Notes"), and (ii) an aggregate principal amount of $279.6 million of TRL-2019's Series 2019-2 Class A-2 Secured Railcar Equipment Notes (the “TRL-2019 Class A-2 Notes”). The TRL-2019-2 Secured Railcar Equipment Notes were issued pursuant to a Master Indenture, dated April 10, 2019 between TRL-2019 and U.S. Bank National Association, as indenture trustee, as supplemented by a Series 2019-2 Supplement dated as of October 17, 2019. The TRL-2019 Class A-1 Notes, of which $90.1 million was outstanding as of December 31, 2020, bear interest at a fixed rate of 2.39%, are payable monthly, and have a stated final maturity date of October 17, 2049. The TRL-2019 Class A-2 Notes, of which $279.6 million was outstanding as of December 31, 2020, bear interest at a fixed rate of 3.10%, are payable monthly, and have a stated final maturity date of October 17, 2049. The TRL-2019-2 Secured Railcar Equipment Notes are obligations of TRL-2019 and are non-recourse to Trinity. The obligations are secured by a portfolio of railcars and operating leases thereon, certain cash reserves, and other assets acquired and owned by TRL-2019.
TRL-2020 – In November 2020, TRL-2020 issued an aggregate principal amount of (i) $110.0 million of TRL-2020’s Series 2020-2 Class A-1 Secured Railcar Equipment Notes (the “TRL-2020 Class A-1 Notes”), (ii) $240.3 million of TRL-2020’s Series 2020-2 Class A-2 Secured Railcar Equipment Notes (the “TRL-2020 Class A-2 Notes”), and (iii) $20.5 million of TRL-2020’s Series 2020-2 Class B Secured Railcar Equipment Notes (the “TRL-2020 Class B Notes”) (the TRL-2020 Class A-1 Notes, the TRL-2020 Class A-2 Notes, and the TRL-2020 Class B Notes are, collectively, the “TRL-2020 Notes”). The TRL-2020 Notes were issued pursuant to a Master Indenture, dated November 19, 2020 between TRL-2020 and U.S. Bank National Association, as indenture trustee, as supplemented by a Series 2020-2 Supplement dated November 19, 2020. The TRL-2020 Class A-1 Notes, of which $108.3 million was outstanding as of December 31, 2020, bear interest at a fixed rate of 1.83%. The TRL-2020 Class A-2 Notes, of which $240.3 million was outstanding as of December 31, 2020, bear interest at a fixed rate of 2.56%. The TRL-2020 Class B Notes, of which $20.5 million was outstanding as of December 31, 2020, bear interest at a fixed rate of 3.69%. The TRL-2020 Notes are payable monthly, and have a stated final maturity date of November 19, 2050. Net proceeds received from the railcars acquired in connection with the issuance of the TRL-2020 Notes were used to repay approximately $22.1 million of borrowings under the Leasing Group's secured warehouse credit facility, to redeem in full approximately $258.6 million of secured notes issued by TRIHC 2018 as described above, and for general corporate purposes.
Partially-owned leasing subsidiaries
TRIP Master Funding – The TRIP Master Funding Secured Railcar Equipment Notes consisted of three classes with (i) the Class A-1a TRIP Master Funding Secured Railcar Equipment Notes ("TRMF Class A-1a Notes") bearing interest at 4.37%, (ii) the Class A-1b TRIP Master Funding Secured Railcar Equipment Notes ("TRMF Class A-1b Notes") bearing interest at LIBOR plus 2.50%, and (iii) the Class A-2 TRIP Master Funding Secured Railcar Equipment Notes ("TRMF Class A-2 Notes") bearing interest at 6.02%, all payable monthly, with a final maturity date in July 2041. In May 2014, TRIP Master Funding issued $335.7 million in aggregate principal amount of Series 2014-1 Secured Railcar Equipment Notes consisting of two classes with (i) the Class A-1 Series 2014-1 Secured Railcar Equipment Notes ("TRMF 2014-1 Class A-1 Notes") bearing interest at 2.86% and (ii) the Class A-2 Series 2014-1 Secured Railcar Equipment Notes ("TRMF 2014-1 Class A-2 Notes") bearing interest at 4.09%, with a final maturity date of April 2044. In August 2017, TRIP Master Funding issued $237.9 million in aggregate principal amount of Series 2017-1 Secured Railcar Equipment Notes pursuant to the Master Indenture between TRIP Master Funding and Wilmington Trust Company, as indenture trustee, with a final maturity date of August 2047. The proceeds from the issuance were used primarily to retire the TRMF Class A-1a Notes and TRMF Class A-1b Notes as well as the TRMF 2014-1 Class A-1 Notes in full. The TRIP Master Funding Secured Railcar Equipment Notes and the TRIP Master Funding Series 2014-1 Secured Railcar Equipment Notes were issued pursuant to a Master Indenture dated July 6, 2011 between TRIP Master Funding and Wilmington Trust Company, as indenture trustee; are non-recourse to Trinity, TILC, TRIP Holdings, and the other equity investors in TRIP Holdings; and are secured by TRIP Master Funding's portfolio of railcars and operating leases thereon, its cash reserves, and all other assets owned by TRIP Master Funding. As of December 31, 2020, there were $508.8 million outstanding of the TRMF Class A-2 Notes and $220.7 million of the TRMF 2014-1 Class A-2 Notes.
The TRIP Master Funding Series 2017-1 Secured Railcar Equipment Notes consist of two classes with (i) the Class A-1 2017-1 Secured Railcar Equipment Notes ("TRMF 2017-1 Class A-1 Notes") bearing interest at 2.71% and (ii) the Class A-2 2017-1 Secured Railcar Equipment Notes ("TRMF 2017-1 Class A-2 Notes") bearing interest at 3.74%. The TRIP Master Funding Series 2017-1 Secured Railcar Equipment Notes are non-recourse to Trinity, TILC, TRIP Holdings, and the other equity investors in TRIP Holdings and are secured by TRIP Master Funding's portfolio of railcars and operating leases thereon, its cash reserves, and all other assets owned by TRIP Master Funding. As of December 31, 2020, there were $20.6 million and $134.9 million of TRMF 2017-1 Class A-1 Notes and TRMF 2017-1 Class A-2 Notes outstanding, respectively.
TRL-2012 – In December 2012, TRL-2012, a Delaware limited liability company and a limited purpose, indirect wholly-owned subsidiary of the Company owned through TILC, issued $145.4 million in aggregate principal amount of Series 2012-1 Class A-1 Secured Railcar Equipment Notes (the "2012 Class A-1 Notes") and $188.4 million in aggregate principal amount of Series 2012-1 Class A-2 Secured Railcar Equipment Notes (the "2012 Class A-2 Notes" and collectively with the 2012 Class A-1 Notes, the "2012 Secured Railcar Equipment Notes"), of which $25.9 million and $188.4 million, respectively, were outstanding as of December 31, 2020. The 2012 Class A-1 Notes bear interest at a fixed rate of 2.27%, are payable monthly, and have a stated final maturity date of January 15, 2043. The 2012 Class A-2 Notes bear interest at a fixed rate of 3.53%, are payable monthly, and have a stated final maturity date of January 15, 2043. In May 2013, TRL-2012 became a subsidiary of one of the Company's partially-owned subsidiaries, RIV 2013. See Note 5 for further explanation. In August 2013, TRL-2012 issued $183.4 million in aggregate principal amount of Series 2013-1 Secured Railcar Equipment Notes of which $138.2 million was outstanding as of December 31, 2020. The 2013-1 Secured Railcar Equipment Notes bear interest at a fixed rate of 3.90%, are payable monthly, and have a stated final maturity date of July 15, 2043.
The 2012 Secured Railcar Equipment Notes and the 2013-1 Secured Railcar Equipment Notes were issued pursuant to a Master Indenture dated December 19, 2012 between TRL-2012 and Wilmington Trust Company, as indenture trustee; are non-recourse to Trinity, TILC, RIV 2013, and the other equity investors in RIV 2013; and are secured by TRL-2012's portfolio of railcars and operating leases thereon, its cash reserves, and all other assets owned by TRL-2012.
TRIP Master Funding and TRL-2012 are wholly-owned subsidiaries of TRIP Holdings and RIV 2013, respectively, which, in turn, are partially-owned subsidiaries of the Company, through its wholly-owned subsidiary, TILC. Our combined weighted average ownership interest in TRIP Holdings and RIV 2013 is 38%. See Note 5 for further explanation.
The remaining principal payments under existing debt agreements as of December 31, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
Thereafter
|
|
Total
|
|
(in millions)
|
Recourse:
|
|
Corporate
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
50.0
|
|
|
$
|
400.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
450.0
|
|
Non-recourse – leasing (Note 6):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 secured railcar equipment notes
|
14.5
|
|
|
14.0
|
|
|
11.8
|
|
|
14.5
|
|
|
19.9
|
|
|
67.6
|
|
|
142.3
|
|
2010 secured railcar equipment notes
|
22.8
|
|
|
20.8
|
|
|
22.3
|
|
|
18.4
|
|
|
20.6
|
|
|
131.0
|
|
|
235.9
|
|
2017 promissory notes
|
44.4
|
|
|
44.4
|
|
|
44.4
|
|
|
44.4
|
|
|
635.2
|
|
|
—
|
|
|
812.8
|
|
2018 secured railcar equipment notes
|
17.9
|
|
|
19.0
|
|
|
19.1
|
|
|
19.1
|
|
|
14.9
|
|
|
344.9
|
|
|
434.9
|
|
2019 secured railcar equipment notes
|
37.8
|
|
|
36.8
|
|
|
34.9
|
|
|
36.6
|
|
|
35.2
|
|
|
679.5
|
|
|
860.8
|
|
2020 secured railcar equipment notes
|
20.0
|
|
|
18.5
|
|
|
18.3
|
|
|
14.4
|
|
|
11.3
|
|
|
286.6
|
|
|
369.1
|
|
TILC warehouse facility
|
16.7
|
|
|
2.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19.5
|
|
Facility termination payments – TILC warehouse facility
|
—
|
|
|
499.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
499.9
|
|
TRL 2012 secured railcar equipment notes
|
19.8
|
|
|
19.5
|
|
|
22.7
|
|
|
28.9
|
|
|
31.3
|
|
|
230.3
|
|
|
352.5
|
|
TRIP Master Funding secured railcar equipment notes
|
40.5
|
|
|
41.8
|
|
|
37.0
|
|
|
191.6
|
|
|
70.3
|
|
|
503.8
|
|
|
885.0
|
|
Total principal payments
|
$
|
234.4
|
|
|
$
|
717.5
|
|
|
$
|
260.5
|
|
|
$
|
767.9
|
|
|
$
|
838.7
|
|
|
$
|
2,243.7
|
|
|
$
|
5,062.7
|
|
Note 9. Income Taxes
The components of the provision (benefit) for income taxes from continuing operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(in millions)
|
Current:
|
|
|
|
|
|
Federal:
|
|
|
|
|
|
Effect of CARES Act
|
$
|
(373.3)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other
|
(125.4)
|
|
|
(6.0)
|
|
|
(19.1)
|
|
|
(498.7)
|
|
|
(6.0)
|
|
|
(19.1)
|
|
State
|
(0.1)
|
|
|
6.6
|
|
|
(1.5)
|
|
Foreign
|
4.3
|
|
|
6.1
|
|
|
5.3
|
|
Total current
|
(494.5)
|
|
|
6.7
|
|
|
(15.3)
|
|
Deferred:
|
|
|
|
|
|
Federal:
|
|
|
|
|
|
Effect of CARES Act
|
192.9
|
|
|
—
|
|
|
—
|
|
Other
|
23.4
|
|
|
44.0
|
|
|
43.2
|
|
|
216.3
|
|
|
44.0
|
|
|
43.2
|
|
State
|
(0.4)
|
|
|
12.3
|
|
|
14.7
|
|
Foreign
|
10.2
|
|
|
(1.5)
|
|
|
—
|
|
Total deferred
|
226.1
|
|
|
54.8
|
|
|
57.9
|
|
Provision (benefit)
|
$
|
(268.4)
|
|
|
$
|
61.5
|
|
|
$
|
42.6
|
|
The provision for income taxes from continuing operations results in effective tax rates that differ from the statutory rates. The following is a reconciliation between the statutory U.S. federal income tax rate and our effective income tax rate on income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Statutory rate
|
21.0
|
%
|
|
21.0
|
%
|
|
21.0
|
%
|
Effect of CARES Act
|
36.5
|
|
|
—
|
|
|
—
|
|
Impairment - noncontrolling interest in partially-owned subsidiaries
|
(3.5)
|
|
|
—
|
|
|
—
|
|
State taxes
|
1.1
|
|
|
2.2
|
|
|
2.3
|
|
Foreign branch taxes
|
(0.2)
|
|
|
1.2
|
|
|
2.9
|
|
Executive compensation limitations
|
(0.3)
|
|
|
1.2
|
|
|
0.9
|
|
Interest expense limitations from partially-owned subsidiaries
|
0.2
|
|
|
1.0
|
|
|
1.3
|
|
Noncontrolling interest in partially-owned subsidiaries
|
0.1
|
|
|
0.1
|
|
|
(0.5)
|
|
Changes in state laws and apportionment
|
(1.2)
|
|
|
4.3
|
|
|
5.2
|
|
Changes in valuation allowances and reserves
|
0.5
|
|
|
—
|
|
|
1.6
|
|
Equity compensation
|
—
|
|
|
(0.8)
|
|
|
(1.4)
|
|
Effect of Tax Cuts and Jobs Act
|
—
|
|
|
—
|
|
|
(3.9)
|
|
Other, net
|
0.1
|
|
|
0.4
|
|
|
(1.3)
|
|
Effective rate
|
54.3
|
%
|
|
30.6
|
%
|
|
28.1
|
%
|
The effective tax rate is based upon the U.S. statutory rate of 21.0% for the years ended December 31, 2020, 2019, and 2018. For the year ended December 31, 2020, the difference between the U.S. statutory rate and effective tax rate is primarily due the impact of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") partially offset by the portion of the non-cash small cube covered hopper railcar impairment charge that is not tax-effected because it is related to the noncontrolling interest. For the year ended December 31, 2019, the difference between the U.S. statutory rate and effective tax rate is primarily due to state income tax expense, foreign branch taxes, and changes in state tax laws and apportionment. For the year ended December 31, 2018, the difference between the U.S. statutory tax rate and the effective tax rate was primarily attributed to state income tax expense, foreign branch taxes, changes in state tax and apportionment laws, and the final accounting for the effects of the Tax Cuts and Jobs Act (the "Tax Act") that was enacted on December 22, 2017. See Note 5 for a further explanation of activities with respect to our partially-owned leasing subsidiaries.
On March 27, 2020, the CARES Act was enacted. The CARES Act was a stimulus package and part of a series of bills meant to address the economic uncertainties associated with COVID-19. Due to the enactment of the CARES Act, Trinity filed a carryback claim for the 2018 and 2019 tax losses to the 2013-2015 tax years, allowing the recovery of taxes previously paid. The tax losses generated in 2020 will also be carried back to offset the remaining income in 2015. The income taxes associated with the carryback claims were paid at a federal rate of 35.0%, rather than the current rate of 21.0% in effect beginning with the 2018 tax year. The overall net impact of the CARES Act resulted in a tax benefit of $180.4 million for the year ended December 31, 2020.
Income (loss) before income taxes for the years ended December 31, 2020, 2019, and 2018 was $(487.1) million, $201.1 million, and $139.8 million, respectively, for U.S. operations, and $(7.4) million, $(0.4) million, and $11.8 million, respectively, for foreign operations, principally Mexico and Canada.
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,
|
|
2020
|
|
2019
|
|
(in millions)
|
Deferred tax liabilities:
|
|
|
|
Depreciation, depletion, and amortization
|
$
|
996.8
|
|
|
$
|
913.4
|
|
|
|
|
|
Partially-owned subsidiaries basis difference
|
139.9
|
|
|
144.7
|
|
Right-of-use assets
|
17.5
|
|
|
10.0
|
|
Total deferred tax liabilities
|
1,154.2
|
|
|
1,068.1
|
|
Deferred tax assets:
|
|
|
|
Workers compensation, pensions, and other benefits
|
27.1
|
|
|
3.1
|
|
Warranties and reserves
|
3.9
|
|
|
4.5
|
|
Equity items
|
9.5
|
|
|
46.1
|
|
Tax loss carryforwards and credits
|
62.8
|
|
|
229.0
|
|
Inventory
|
5.4
|
|
|
5.1
|
|
Accrued liabilities and other
|
5.3
|
|
|
9.7
|
|
Lease liabilities
|
22.9
|
|
|
10.0
|
|
Total deferred tax assets
|
136.9
|
|
|
307.5
|
|
Net deferred tax liabilities before valuation allowances
|
1,017.3
|
|
|
760.6
|
|
Valuation allowances
|
25.2
|
|
|
19.5
|
|
Net deferred tax liabilities before reserve for uncertain tax positions
|
1,042.5
|
|
|
780.1
|
|
Deferred tax assets included in reserve for uncertain tax positions
|
(1.0)
|
|
|
(1.0)
|
|
Adjusted net deferred tax liabilities
|
$
|
1,041.5
|
|
|
$
|
779.1
|
|
At December 31, 2020, we had $18.9 million of federal consolidated net operating loss carryforwards and $22.8 million of tax-effected state loss carryforwards remaining. All of the federal net operating loss carryforwards were acquired in 2010. The acquired federal net operating loss carryforwards are subject to limitations on the amount that can be utilized in any one year tax year and are due to expire in 2028 and 2029. The federal net operating loss generated in the current year will be carried back five years under the CARES Act to offset income remaining in 2015. We have established valuation allowances for federal, state, and foreign tax operating losses and credits that we have estimated may not be realizable.
Taxing authority examinations
Our 2016 and 2017 tax years are effectively settled. The 2013-2015 tax years statutes will remain open due to tax loss carryback claims that have been filed. We have state tax returns that are under audit in the normal course of business, and our Mexican subsidiaries' tax return statutes remain open from 2014 forward. We believe we are appropriately reserved for any potential matters.
Unrecognized tax benefits
The change in unrecognized tax benefits for the years ended December 31, 2020, 2019, and 2018 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(in millions)
|
Beginning balance
|
$
|
2.3
|
|
|
$
|
8.1
|
|
|
$
|
7.0
|
|
|
|
|
|
|
|
Additions for tax positions of prior years
|
—
|
|
|
—
|
|
|
3.0
|
|
Reductions for tax positions of prior years
|
—
|
|
|
—
|
|
|
(0.3)
|
|
Settlements
|
—
|
|
|
(5.8)
|
|
|
(1.5)
|
|
Expiration of statute of limitations
|
—
|
|
|
—
|
|
|
(0.1)
|
|
Ending balance
|
$
|
2.3
|
|
|
$
|
2.3
|
|
|
$
|
8.1
|
|
Settlements during the years ended December 31, 2019 and 2018 were due to the resolution of state audits.
The total amount of unrecognized tax benefits including interest and penalties at December 31, 2020 and 2019, that would affect our effective tax rate if recognized, was $4.1 million and $4.0 million, respectively.
Trinity accounts for interest expense and penalties related to income tax issues as income tax expense. Accordingly, interest expense and penalties associated with an uncertain tax position are included in the income tax provision. The total amount of accrued interest and penalties from continuing operations as of December 31, 2020 and 2019 was $2.9 million and $2.7 million, respectively. Income tax expense for the years ended December 31, 2020, 2019, and 2018 included an increase of $0.2 million, a decrease of $1.0 million, and an increase of $0.5 million, respectively, with regard to interest expense and penalties related to uncertain tax positions.
Note 10. Employee Retirement Plans
We sponsor defined benefit plans and defined contribution profit sharing plans that provide retirement 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.
Pension Plan Termination
On September 4, 2019, our Board of Directors approved the termination of the Trinity Industries, Inc. Consolidated Pension Plan (the "Pension Plan"), effective December 31, 2019. The Pension Plan was settled in the fourth quarter of 2020 which resulted in the Company no longer having any remaining funded pension plan obligations. Except for retirees receiving payments under the Pension Plan, participants had the choice of receiving a single lump sum payment or an annuity from a highly-rated insurance company that will pay and administer future benefit payments.
Upon settlement, we recognized a pre-tax non-cash pension settlement charge of $151.5 million, which was inclusive of all unamortized losses previously recorded in AOCL. The settlement charge was recognized in our Statement of Operations during the fourth quarter when the payments were made to those participants electing to receive a lump sum distribution and when the annuity contracts were purchased to settle all remaining outstanding pension obligations. The surplus of the Pension Plan of $23.6 million will be used, as prescribed in the applicable regulations, to fund obligations associated with the Company's defined contribution profit sharing plan and final pension administrative expenses. We expect that any remaining surplus would be used for other corporate purposes, subject to applicable taxes.
Actuarial assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Assumptions used to determine benefit obligations at the annual measurement date were:
|
|
|
|
|
|
Obligation discount rate
|
N/A
|
|
2.73
|
%
|
|
4.45
|
%
|
|
|
|
|
|
|
Assumptions used to determine net periodic benefit costs were:
|
|
|
|
|
|
Obligation discount rate
|
2.71
|
%
|
|
4.45
|
%
|
|
3.79
|
%
|
Long-term rate of return on plan assets
|
3.90
|
%
|
|
4.90
|
%
|
|
5.65
|
%
|
|
|
|
|
|
|
Prior to the settlement of our Pension Plan, the obligation discount rate assumption was determined by deriving a single discount rate from a theoretical settlement portfolio of high quality corporate bonds sufficient to provide for the plans' projected benefit payments. The expected long-term rate of return on the plans' assets was an assumption reflecting the anticipated weighted average rate of earnings on the portfolio over the long-term. To arrive at this rate, estimates were developed based upon the anticipated performance of the plans' assets. Substantially all of the accrued benefits of our remaining pension plans were frozen in 2009, with all qualified pension plans settled as of December 31, 2020.
Components of Net Periodic Benefit Cost and Other Retirement Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(in millions)
|
Expense Components
|
|
|
|
|
|
Service cost
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
Interest
|
14.8
|
|
|
19.7
|
|
|
18.3
|
|
Expected return on plan assets
|
(20.9)
|
|
|
(23.0)
|
|
|
(27.4)
|
|
Amortization of actuarial loss
|
6.0
|
|
|
4.6
|
|
|
4.8
|
|
Amortization of prior service cost
|
1.2
|
|
|
—
|
|
|
—
|
|
Settlement loss
|
151.5
|
|
|
—
|
|
|
—
|
|
Other
|
—
|
|
|
—
|
|
|
0.6
|
|
Net periodic benefit cost
|
152.6
|
|
|
1.4
|
|
|
(3.6)
|
|
Profit sharing
|
9.0
|
|
|
11.0
|
|
|
11.1
|
|
Net expense
|
$
|
161.6
|
|
|
$
|
12.4
|
|
|
$
|
7.5
|
|
The expected return on plan assets is based on the plan assets' fair value. Amortization of actuarial loss is determined using the corridor method. Under the corridor method, unamortized actuarial gains or losses in excess of 10% of the greater of the projected benefit obligation or the fair value of plan assets as of the beginning of the plan year are amortized, for frozen plans, over the average expected remaining lifetime of frozen and inactive participants.
Obligations and funded status
Information regarding the terminated Pension Plan and the Supplemental Executive Retirement Plan ("SERP") based upon a December 31 measurement date is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
(in millions)
|
Accumulated Benefit Obligations
|
$
|
15.5
|
|
|
$
|
557.9
|
|
Projected Benefit Obligations:
|
|
|
|
Beginning of year
|
$
|
557.9
|
|
|
$
|
453.2
|
|
Service cost
|
—
|
|
|
0.1
|
|
Interest
|
14.8
|
|
|
19.7
|
|
Benefits paid
|
(23.0)
|
|
|
(22.2)
|
|
Actuarial (gain) loss
|
18.0
|
|
|
105.6
|
|
Plan amendments
|
—
|
|
|
1.5
|
|
Settlements
|
(552.2)
|
|
|
—
|
|
|
|
|
|
End of year
|
$
|
15.5
|
|
|
$
|
557.9
|
|
Plans' Assets:
|
|
|
|
Beginning of year
|
$
|
548.5
|
|
|
$
|
478.7
|
|
Actual return on assets
|
49.3
|
|
|
90.9
|
|
Employer contributions
|
1.0
|
|
|
1.1
|
|
Benefits paid
|
(23.0)
|
|
|
(22.2)
|
|
|
|
|
|
Settlements
|
(552.2)
|
|
|
—
|
|
End of year
|
$
|
23.6
|
|
|
$
|
548.5
|
|
|
|
|
|
Consolidated Balance Sheet Components:
|
|
|
|
Pension Plan:
|
|
|
|
Other assets
|
$
|
23.6
|
|
|
$
|
5.5
|
|
Accrued liabilities
|
—
|
|
|
—
|
|
Net funded status
|
$
|
23.6
|
|
|
$
|
5.5
|
|
|
|
|
|
SERP:
|
|
|
|
Other assets
|
$
|
—
|
|
|
$
|
—
|
|
Accrued liabilities
|
(15.5)
|
|
|
(14.9)
|
|
Net funded status
|
$
|
(15.5)
|
|
|
$
|
(14.9)
|
|
Amounts recognized in other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(in millions)
|
Settlement of pension plan
|
$
|
151.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Actuarial gain (loss)
|
10.4
|
|
|
(37.7)
|
|
|
(12.5)
|
|
Amortization of actuarial loss
|
6.0
|
|
|
4.6
|
|
|
4.8
|
|
Amortization of prior service cost
|
1.2
|
|
|
—
|
|
|
—
|
|
New prior service cost base
|
—
|
|
|
(1.5)
|
|
|
—
|
|
Total before income taxes
|
169.1
|
|
|
(34.6)
|
|
|
(7.7)
|
|
Income tax (benefit) expense
|
39.2
|
|
|
(7.9)
|
|
|
(1.8)
|
|
Net amount recognized in other comprehensive income (loss)
|
$
|
129.9
|
|
|
$
|
(26.7)
|
|
|
$
|
(5.9)
|
|
At December 31, 2020, AOCL included unrecognized actuarial losses related to our SERP of $5.9 million ($4.0 million net of related income taxes). Actuarial losses included in AOCL and expected to be recognized in net periodic pension cost for the year ended December 31, 2021 are $0.3 million ($0.2 million net of related income taxes).
Plan assets
Upon settlement of our Pension Plan in the fourth quarter of 2020, the target and actual investment allocation strategy at December 31, 2020 is 100% cash and cash equivalents. The estimated fair value of the plans' assets at December 31, 2020 was $23.6 million of temporary cash investments (Level 1).
In anticipation of the planned settlement, we adjusted our target allocation at December 31, 2019 to a 100% liability hedging portfolio. Historically, our investment strategies were developed as part of a comprehensive asset/liability management process that considered the relationship between both the assets and liabilities of the plans for the purpose of providing the capital assets necessary to meet the financial obligations made to participants of our pension plans. These strategies considered not only the expected risk and returns on the plans' assets, but also the actuarial projections of liabilities, projected contributions, and funded status. Our investment policy statement allocated our pension plan assets into two portfolios as follows:
•Liability hedging portfolio – The objective of the liability hedging portfolio is to match the characteristics of the pension plans' liabilities. This portfolio consists of fixed income holdings which are generally investment grade.
•Growth portfolio – The objective of the growth portfolio is to focus upon total return with an acceptable level of risk. This portfolio is heavily weighted toward U.S. equities with a lesser exposure to international equities, domestic real estate investment trusts, U.S. high yield and emerging market sovereign debt.
The target allocation between these two portfolios varied based on the pension plans' percentage of projected benefit obligations funded status. The range of target asset allocations were determined after giving consideration to the expected returns of each asset category within the two portfolios, the expected performance of each asset category, the volatility of asset returns over time, and the complementary nature of the asset mix within the portfolio. The principal pension investment strategies included asset allocation and active asset management within approved guidelines. These assets were managed by an investment advisor.
The estimated fair value of the plans' assets at December 31, 2019, indicating input levels used to determine fair value are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement as of December 31, 2019
|
|
(in millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Temporary cash investments
|
$
|
13.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13.5
|
|
Fixed Income – Government and agencies
|
—
|
|
|
121.7
|
|
|
—
|
|
|
121.7
|
|
Fixed Income – Corporate
|
—
|
|
|
370.5
|
|
|
—
|
|
|
370.5
|
|
Fixed Income – Asset-backed securities
|
—
|
|
|
2.2
|
|
|
—
|
|
|
2.2
|
|
Fixed Income – Collateralized mortgage-backed
|
—
|
|
|
4.1
|
|
|
—
|
|
|
4.1
|
|
Equity common trust funds
|
—
|
|
|
29.1
|
|
|
—
|
|
|
29.1
|
|
Debt common trust funds
|
—
|
|
|
—
|
|
|
7.4
|
|
|
7.4
|
|
|
$
|
13.5
|
|
|
$
|
527.6
|
|
|
$
|
7.4
|
|
|
$
|
548.5
|
|
The pension plans' assets are valued at fair value. The following is a description of the valuation methodologies used in determining fair value, including the general classification of such instruments pursuant to the valuation hierarchy as described further in Note 3:
Temporary cash investments – These investments consist of U.S. dollars held in master trust accounts with the trustee. These temporary cash investments are classified as Level 1 instruments.
Fixed Income – Government and agencies – These investments consist primarily of U.S. treasury bonds and notes, U.S. treasury inflation protected securities, U.S. government agency debt, municipal bonds, and other global government bonds. The fair value of these securities is based on quoted market prices when available or is based on yields currently available on comparable securities or on an industry valuation model, which maximizes observable inputs. These securities are categorized as Level 2 instruments.
Fixed Income – Corporate – These investments consist of U.S. and global corporate bonds and notes. The fair value of these securities is based on yields currently available on comparable securities of issuers with similar credit ratings. When quoted prices are not available for identical or similar debt instruments, the fair value is based upon an industry valuation model, which maximizes observable inputs. These securities are categorized as Level 2 instruments.
Fixed Income – Asset-backed securities – Asset-backed securities are valued using quotes from independent pricing vendors based on recent trading activity and other relevant information, including market interest rate curves, referenced credit spreads, and estimated prepayment rates, where applicable. These securities are categorized as Level 2 instruments.
Fixed Income – Collateralized mortgage-backed – Mortgage-backed securities are valued using quotes from independent pricing vendors based on recent trading activity and other relevant information, including market interest rate curves, referenced credit spreads, and estimated prepayment rates, where applicable. These securities are categorized as Level 2 instruments.
Common trust funds – Common trust funds are comprised of shares or units in commingled funds that are not publicly traded. The underlying assets in these funds are publicly traded on exchanges and price quotes for the assets held by these funds are readily available. Holdings of common trust funds are classified as a combination of Level 2 and Level 3 instruments.
Funding of Defined Contribution Plans
Based on the plan provisions that were in effect during the majority of 2020, participants in the 401(k) plan were eligible to receive future retirement benefits through a company-funded annual retirement contribution provided through the Profit Sharing Plan for Employees of Trinity Industries, Inc. and Certain Affiliates. The contribution ranged from one to three percent of eligible compensation based on service. Both the annual retirement contribution and the company matching contribution are discretionary, requiring board approval, and are made annually with the investment of the funds directed by the participants. In August 2020, the Company amended the plan to replace the company-funded annual retirement contribution with a qualified automatic contribution arrangement safe harbor plan structure. The revised matching structure will provide for a dollar-for-dollar Company match on up to 6% of participants' eligible compensation, subject to a two-year cliff vesting period.
Employer contributions to the 401(k) plan and the Supplemental Profit Sharing Plan (effective as of January 1, 2021, the Trinity Industries, Inc. Deferred Compensation Plan) during 2020 totaled $11.4 million. Employer contributions to the 401(k) plan and the Trinity Industries, Inc. Deferred Compensation Plan for the year ending December 31, 2021 are expected to be $18.5 million, which includes the payment of the contributions accrued as of December 31, 2020, as well as the 2021 contributions pursuant to the plan design changes described above.
Note 11. Asset Impairments and Restructuring Activities
Impairment of small cube covered hopper railcars
We monitor the carrying value of long-lived assets and right-of-use assets for potential impairment. The carrying value of long-lived assets and right-of-use assets is considered impaired when the asset's carrying value is not recoverable through undiscounted future cash flows and the asset's carrying value exceeds its fair value.
During the second quarter, the oil and gas proppants (or “frac sand”) industry continued to experience economic pressure created by low oil prices, reduced fracking activity, and the ongoing economic impact of COVID-19. Significant price declines in the crude oil market, as well as lower demand for certain commodities, resulted in a decline in customer demand for certain types of railcars. In particular, small cube covered hopper railcars are primarily used in North America to serve the frac sand industry. In recent years, these railcars primarily transported Northern White sand from Wisconsin and other locations in the Midwest for use in fracking operations, including operations located in the Permian Basin. However, given the decline in global oil prices, reduced fracking activity, and pressure on the oil and gas industry to maintain a low cost structure, fracking operations, particularly those located in the Permian Basin, have increasingly shifted away from the use of Northern White sand and towards the use of in-basin sand, which can be sourced locally rather than transporting by rail. Consequently, the cash flows and profitability of the frac sand industry continued to decline during the second quarter. As a result, certain of the Leasing Group's small cube covered hopper customers requested rent relief and, in a number of cases, filed for bankruptcy in the second quarter.
We believe that the collective impact of these developments, including the shift towards the use of in-basin sand, constituted a fundamental and other-than-temporary change in the future demand for this railcar type. Therefore, we determined that the events and circumstances that arose during the second quarter of 2020 constituted an impairment triggering event related to the small cube covered hopper car type in our lease fleet portfolio.
We performed a cash flow recoverability test of our small cube covered hopper railcars and compared the undiscounted cash flows to the carrying value of the assets. This analysis indicated that the carrying value exceeded the estimated undiscounted cash flows, and therefore, we were required to measure the fair value of our fleet of small cube covered hopper railcars and determine the amount of an impairment loss, if any.
The fair value of the asset group was determined using an income approach, which we believe most accurately reflects a market participant's viewpoint in valuing these railcars. The results of our analysis indicated an estimated fair value of the asset group of approximately $191.7 million, in comparison to the asset group's carrying amount of $550.0 million, net of deferred profit. As a result, during the second quarter, we recorded a pre-tax non-cash impairment charge of $358.3 million related to our small cube covered hopper railcars. Additionally, we evaluated the right-of-use assets associated with our leased-in portfolio of small cube covered hopper railcars and determined that these assets were impaired based on consideration of an expected decline in future cash flows over the remaining lease term, which resulted in an additional pre-tax non-cash impairment charge of approximately $11.1 million. The aggregate impairment charge of $369.4 million, which includes $81.3 million associated with noncontrolling interest, is reflected in the impairment of long-lived assets line of our Consolidated Statements of Operations for the year ended December 31, 2020.
Significant management judgment was used to determine the key assumptions utilized in our impairment analysis, the substantial majority of which represent unobservable (Level 3) inputs. These assumptions include, but are not limited to: estimates regarding the remaining useful life over which the railcars are expected to generate cash flows; average lease rates; railcar utilization percentages; operating expenses; and the selection of an appropriate discount rate. Management selected these estimates and assumptions based on our railcar industry expertise. We also consulted with third-party energy and frac sand industry experts to gain insights with respect to the long-term outlook for these underlying markets. Although we believe the estimates utilized in our analysis were reasonable, any change in these estimates could materially affect the amount of the impairment charge.
Other asset write-downs
During the fourth quarter of 2020, management approved a plan to exit certain non-strategic maintenance facilities (the "disposal group"). We determined that the planned divestiture of the disposal group met the criteria to be classified as assets held for sale, and consequently, we measured the assets of the disposal group at fair value, less any costs to sell. The results of our analysis indicated a pre-tax non-cash write-down of $15.2 million, which we recorded during the year ended December 31, 2020. The charge is reflected in the impairment of long-lived assets line of our Consolidated Statements of Operations for the year ended December 31, 2020.
Additionally, during the year ended December 31, 2020, we recorded a pre-tax non-cash charge to write off $11.8 million related to investments in certain emerging technologies. This charge is reflected in the impairment of long-lived assets line of our Consolidated Statements of Operations for the year ended December 31, 2020.
Restructuring activities
In November 2019, we approved a restructuring plan to resize certain resources, reduce stranded costs, and better align support services with our rail-focused strategy. As part of the restructuring program, we eliminated positions across multiple locations and functions, including certain corporate and operational support functions. During the year ended December 31, 2019, we recorded total restructuring charges of $14.7 million, consisting of approximately $3.8 million in cash charges for severance costs and approximately $10.9 million of non-cash charges, primarily from write-downs of assets associated with our non-operating facilities that will no longer be utilized as we execute our rail-focused strategy.
Throughout 2020, we continued our efforts to better align support services with our rail-focused strategy, which resulted in headcount reductions across multiple functions, including certain corporate and operational support functions primarily at our Dallas headquarters. Additionally, we executed a lease agreement on a new headquarters facility to better suit our new organizational structure, which prompted the need to perform a recoverability test on our existing corporate headquarters campus to evaluate for impairment. This test indicated that the carrying value was not recoverable. The fair value of our corporate headquarters campus was measured based on a third-party valuation estimate using Level 2 and Level 3 inputs in the fair value hierarchy and resulted in a non-cash impairment charge of $5.2 million during the year ended December 31, 2020.
During the year ended December 31, 2020, we recorded total restructuring charges of $11.0 million, consisting of $7.8 million for severance costs, $5.3 million of non-cash charges primarily from the write-down of our corporate headquarters campus described above and certain other assets, and $0.6 million in contract termination costs, partially offset by a $2.7 million net gain on the disposition of a non-operating facility and certain related assets.
As we continue to reposition the organization, it is possible that we will engage in additional restructuring activities in the near term.
The following table sets forth the restructuring activity and balance of the restructuring liability, which is included in other liabilities in our Consolidated Balance Sheet:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued charges as of
December 31, 2019
|
|
Charges and adjustments
|
|
Payments
|
|
Accrued charges as of
December 31, 2020
|
|
(in millions)
|
Cash charges:
|
|
|
|
|
|
|
|
Employee severance costs
|
$
|
3.4
|
|
|
$
|
7.8
|
|
|
$
|
(9.8)
|
|
|
$
|
1.4
|
|
Contract termination costs
|
—
|
|
|
0.6
|
|
|
(0.6)
|
|
|
—
|
|
|
$
|
3.4
|
|
|
$
|
8.4
|
|
|
$
|
(10.4)
|
|
|
$
|
1.4
|
|
Asset impairment charges:
|
|
|
|
|
|
|
|
Write-down of assets
|
|
|
$
|
5.3
|
|
|
|
|
|
(Gain)/loss on disposition of assets
|
|
|
(2.7)
|
|
|
|
|
|
|
|
|
$
|
2.6
|
|
|
|
|
|
Total restructuring activities
|
|
|
$
|
11.0
|
|
|
|
|
|
Although restructuring activities are not allocated to our reportable segments, the following tables summarize the restructuring activities by reportable segment:
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|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
Employee Severance Costs
|
|
Contract Termination Costs
|
|
(Gain)/Loss on Disposition of Assets
|
|
Write-down of Assets
|
|
Total
|
|
(in millions)
|
Railcar Leasing and Management Services Group
|
$
|
1.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.4
|
|
Rail Products Group
|
4.0
|
|
|
0.2
|
|
|
(2.9)
|
|
|
—
|
|
|
1.3
|
|
All Other
|
0.2
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
0.4
|
|
Corporate
|
2.2
|
|
|
0.4
|
|
|
—
|
|
|
5.3
|
|
|
7.9
|
|
Total restructuring activities
|
$
|
7.8
|
|
|
$
|
0.6
|
|
|
$
|
(2.7)
|
|
|
$
|
5.3
|
|
|
$
|
11.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
Employee Severance Costs
|
|
Write-down of Assets
|
|
Total
|
|
(in millions)
|
Railcar Leasing and Management Services Group
|
$
|
0.2
|
|
|
$
|
—
|
|
|
$
|
0.2
|
|
Rail Products Group
|
0.7
|
|
|
—
|
|
|
0.7
|
|
All Other
|
0.5
|
|
|
10.9
|
|
|
11.4
|
|
Corporate
|
2.4
|
|
|
—
|
|
|
2.4
|
|
Total restructuring activities
|
$
|
3.8
|
|
|
$
|
10.9
|
|
|
$
|
14.7
|
|
Note 12. Accumulated Other Comprehensive Loss
Changes in AOCL for the years ended December 31, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments
|
|
Unrealized gain/(loss) on derivative financial instruments
|
|
Net actuarial gains/(losses) and prior service cost of defined benefit plans
|
|
Accumulated Other Comprehensive Loss
|
|
(in millions)
|
Balances at December 31, 2018
|
$
|
(1.3)
|
|
|
$
|
(8.3)
|
|
|
$
|
(107.2)
|
|
|
$
|
(116.8)
|
|
Other comprehensive loss, net of tax, before reclassifications
|
—
|
|
|
(12.8)
|
|
|
(30.2)
|
|
|
(43.0)
|
|
Amounts reclassified from AOCL, net of tax benefit of $—, $0.8, $1.1, and $1.9
|
—
|
|
|
4.5
|
|
|
3.5
|
|
|
8.0
|
|
Less: noncontrolling interest
|
—
|
|
|
(1.3)
|
|
|
—
|
|
|
(1.3)
|
|
Other comprehensive loss
|
—
|
|
|
(9.6)
|
|
|
(26.7)
|
|
|
(36.3)
|
|
Balances at December 31, 2019
|
(1.3)
|
|
|
(17.9)
|
|
|
(133.9)
|
|
|
(153.1)
|
|
Other comprehensive income (loss), net of tax, before reclassifications
|
—
|
|
|
(19.4)
|
|
|
7.7
|
|
|
(11.7)
|
|
Amounts reclassified from AOCL, net of tax benefit of $—, $3.5, $1.6, and $5.1
|
—
|
|
|
12.9
|
|
|
5.6
|
|
|
18.5
|
|
Amounts reclassified from AOCL related to settlement of pension plan, net of tax benefit of
$—, $—, $34.9, and $34.9
|
—
|
|
|
—
|
|
|
116.6
|
|
|
116.6
|
|
Less: noncontrolling interest
|
—
|
|
|
(1.2)
|
|
|
—
|
|
|
(1.2)
|
|
Other comprehensive income (loss)
|
—
|
|
|
(7.7)
|
|
|
129.9
|
|
|
122.2
|
|
Balances at December 31, 2020
|
$
|
(1.3)
|
|
|
$
|
(25.6)
|
|
|
$
|
(4.0)
|
|
|
$
|
(30.9)
|
|
See Note 3 for information on the reclassification of amounts in AOCL into earnings. Reclassifications of unrealized before-tax gains and losses on derivative financial instruments are included in interest expense for our interest rate hedges and in cost of revenues for our foreign currency hedges in our Consolidated Statements of Operations. Reclassifications of before-tax net actuarial gains/(losses) of defined benefit plans are included in other, net (income) expense in our Consolidated Statements of Operations, with the exception of amounts related to the settlement of our pension plan, which are included in the pension plan settlement line in our Consolidated Statements of Operations.
Note 13. Common Stock and Stock-Based Compensation
Stockholders' Equity
Completed Share Repurchase Authorization
In March 2019, our Board of Directors authorized a share repurchase program effective March 7, 2019 through December 31, 2020. The share repurchase program authorized the Company to repurchase up to $350.0 million of its common stock, not to exceed 13.7 million shares. On April 24, 2020, as a result of then-current market conditions, the Board of Directors amended the repurchase program to remove the share limitation. Share repurchase activity under this program was as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Repurchased
|
|
Remaining Authorization to Repurchase
|
Period
|
Number of shares
|
|
Cost
(in millions)
|
|
Cost
(in millions)
|
March 7, 2019 Authorization
|
|
|
|
|
$
|
350.0
|
|
March 7, 2019 through March 31, 2019
|
866,715
|
|
|
$
|
19.0
|
|
|
$
|
331.0
|
|
April 1, 2019 through June 30, 2019
|
2,133,116
|
|
|
44.0
|
|
|
$
|
287.0
|
|
July 1, 2019 through September 30, 2019
|
5,171,489
|
|
|
100.9
|
|
|
$
|
186.1
|
|
October 1, 2019 through December 31, 2019
|
2,933,474
|
|
|
60.8
|
|
|
$
|
125.3
|
|
January 1, 2020 through March 31, 2020
|
1,850,000
|
|
|
35.4
|
|
|
$
|
89.9
|
|
April 1, 2020 through June 30, 2020
|
—
|
|
|
—
|
|
|
$
|
89.9
|
|
July 1, 2020 through September 30, 2020
|
4,466,896
|
|
|
89.9
|
|
|
$
|
—
|
|
Total
|
17,421,690
|
|
|
$
|
350.0
|
|
|
|
In the third quarter of 2020, we completed the existing share repurchase program. In addition to the amounts reported in the table above, share repurchases for the year ended December 31, 2019 included 2.6 million shares at a cost of approximately $70.0 million representing the final settlement of an accelerated share repurchase program, which was funded in November 2018 but a portion of which remained outstanding as of December 31, 2018.
Active Share Repurchase Authorization
In October 2020, our Board of Directors authorized a new share repurchase program effective October 23, 2020 through December 31, 2021. The new share repurchase program authorized the Company to repurchase up to $250.0 million of its common stock. Share repurchase activity under this program is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Repurchased
|
|
Remaining Authorization to Repurchase
|
Period
|
Number of shares
|
|
Cost
(in millions)
|
|
Cost
(in millions)
|
October 23, 2020 Authorization
|
|
|
|
|
$
|
250.0
|
|
October 23, 2020 through December 31, 2020
|
2,974,922
|
|
|
$
|
67.8
|
|
|
$
|
182.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
2,974,922
|
|
|
$
|
67.8
|
|
|
|
Certain shares of stock repurchased during December 2020, totaling $1.8 million, were cash settled in January 2021 in accordance with normal settlement practices. During the years ended December 31, 2020, 2019, and 2018, share repurchases totaled 9.3 million, 13.7 million, and 17.2 million shares, respectively, at a cost of approximately $193.1 million, $294.7 million, and $430.1 million, respectively.
Stock-Based Compensation
Stock Award Plans
Our 2004 Fourth Amended and Restated Stock Option and Incentive Plan (the "Plan”) provides for awarding 20,150,000 (adjusted for stock splits) shares of common stock plus (i) shares covered by forfeited, expired, and canceled options granted under prior plans; and (ii) shares tendered as full or partial payment for the purchase price of an award or to satisfy tax withholding obligations. At December 31, 2020, a total of 1,973,045 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 awards; restricted stock units; and performance awards with settlement in common stock or cash on achievement of specific business objectives. Our stock options have contractual terms of ten years and become exercisable in various percentages over periods ranging up to five years.
Stock-Based Compensation Expense
The cost of employee services received in exchange for awards of equity instruments is referred to as share-based compensation and is based on the grant date fair-value of those awards. Stock-based compensation includes compensation expense, recognized over the applicable vesting periods, for share-based awards. Stock-based compensation expense totaled $26.9 million, $29.2 million, and $29.3 million for the years ended December 31, 2020, 2019, and 2018, respectively.
The income tax benefit related to stock-based compensation expense was $0.4 million, $6.6 million, and $7.7 million for the years ended December 31, 2020, 2019, and 2018, respectively.
Stock Options
Expense related to stock options is recognized on a straight-line basis over the vesting period. There were no options outstanding at December 31, 2019. No options were exercisable at December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Grant-Date Fair Value per Award
|
|
Weighted Average Remaining Contractual Terms (Years)
|
|
Aggregate Intrinsic Value
(in millions)
|
Options outstanding at December 31, 2019
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Granted
|
300,000
|
|
|
$
|
5.26
|
|
|
|
|
|
Exercised
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Cancelled
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Options outstanding at December 31, 2020
|
300,000
|
|
|
$
|
5.26
|
|
|
9.1
|
|
$
|
1.4
|
|
At December 31, 2020, unrecognized compensation expense related to stock options totaled $1.1 million, which will be recognized over a weighted average period of 2.1 years. The weighted average exercise price of stock options outstanding as of December 31, 2020 was $21.61.
The fair value of the stock options granted was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
Exercise price
|
$
|
21.61
|
|
Risk-free interest rate
|
1.48
|
%
|
Expected life (in years)
|
6.50
|
Equity volatility
|
35.00
|
%
|
Dividend yield
|
3.42
|
%
|
Restricted Stock
Restricted share awards consist of restricted stock and restricted stock units ("RSUs"). Expense related RSUs issued to eligible employees under the Plan is recognized ratably over the vesting period, generally between three years and four years. Certain restricted stock and RSUs vest in their entirety upon the employee's retirement from the Company, taking into consideration the employee's age and years of service to the Company, as defined more specifically in our benefit plans. Certain RSU grants made in 2020 provide for full vesting when the award recipients reach 60 years of age and have provided at least 10 years of service to the Company, provided that the awards remain outstanding for a period of six months from the date of grant. The expense for these awards is recognized over the applicable service period for each of the eligible award recipients. Expense related to restricted stock awards ("RSAs") and RSUs granted to non-employee directors under the Plan is recognized ratably over the vesting period, generally one year. Forfeitures are recognized as a reduction to expense in the period in which they occur.
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Restricted Share Awards
|
|
Weighted Average Grant-Date
Fair Value per Award
|
Restricted share awards outstanding at December 31, 2019
|
5,055,461
|
|
|
$
|
20.99
|
|
Granted
|
1,022,115
|
|
|
$
|
18.62
|
|
Vested
|
(1,802,836)
|
|
|
$
|
21.70
|
|
Forfeited
|
(476,309)
|
|
|
$
|
20.59
|
|
Restricted share awards outstanding at December 31, 2020 (1)
|
3,798,431
|
|
|
$
|
20.06
|
|
(1) The balance of restricted share awards outstanding at December 31, 2020 includes approximately 0.7 million restricted shares for Arcosa employees that were converted under the shareholder method at the time of the Arcosa spin-off. These restricted shares will be released to Arcosa employees upon vesting, but as of the spin-off date, Trinity no longer records the compensation expense associated with these shares.
At December 31, 2020, unrecognized compensation expense related to restricted share awards totaled $29.8 million, which will be recognized over a weighted average period of 3.1 years. The total grant-date fair value of shares vested and released during the years ended December 31, 2020, 2019, and 2018 was $39.1 million, $26.4 million, and $30.1 million, respectively. The weighted average grant-date fair value of restricted share awards granted during the years ended December 31, 2020, 2019, and 2018 was $18.62, $22.20, and $25.52 per share, respectively.
Performance Units
Performance units are granted to employees based upon a target level; however, depending upon the achievement of certain specified goals during the performance period, performance units may be adjusted to a level ranging between 0% and 200% of the target level. The performance units vest upon certification by the Human Resources Committee of the Board of Directors of the achievement of the specified performance goals. Expense related to performance units is recognized ratably from their award date to the end of the performance period, generally three years. Forfeitures are recognized as a reduction to expense in the period in which they occur.
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Performance Units
|
|
Weighted Average Grant-Date
Fair Value per Award
|
Performance units outstanding at December 31, 2019
|
800,762
|
|
|
$
|
26.33
|
|
Granted
|
444,252
|
|
|
$
|
20.31
|
|
Vested
|
(3,091)
|
|
|
$
|
28.35
|
|
Forfeited
|
(6,751)
|
|
|
$
|
24.74
|
|
Performance units outstanding at December 31, 2020
|
1,235,172
|
|
|
$
|
24.17
|
|
At December 31, 2020, unrecognized compensation expense related to performance units totaled $6.1 million, which will be recognized over a weighted average period of 1.5 years. The total grant-date fair value of performance units vested and released during the year ended December 31, 2020 was $0.1 million. There were no performance units vested during the years ended December 31, 2019, and 2018. The weighted average grant-date fair value of performance units granted during the years ended December 31, 2020, 2019, and 2018 was $20.31, $22.22, and $32.37 per share, respectively.
Note 14. Earnings Per Common Share
Basic net income (loss) attributable to Trinity Industries, Inc. per common share ("EPS") is computed by dividing net income (loss) attributable to Trinity remaining after allocation to unvested restricted shares by the weighted average number of basic common shares outstanding for the period. Except when the effect would be antidilutive, the calculation of diluted EPS includes 1) the net impact of unvested RSAs and RSUs and 2) with respect to the year ended December 31, 2018, the dilutive impact of our then-outstanding convertible notes due 2036 (the "Convertible Notes"), which were converted and settled in cash during the second quarter of 2018. See Note 11 of our 2018 Annual Report on Form 10-K for further information regarding the settlement of the Convertible Notes. Total weighted average restricted shares were 4.5 million, 5.5 million, and 5.8 million shares for the years ended December 31, 2020, 2019, and 2018, respectively. There were no restricted shares and stock options included in the computation of diluted earnings per common share for the year ended December 31, 2020 as we incurred a loss for the period, and any effect on loss per common share would have been antidilutive. Approximately 0.2 million of these restricted shares were excluded from the EPS calculation for the year ended December 31 2019, as their effect would have been antidilutive. There were no antidilutive restricted shares for the year ended December 31, 2018.
The computation of basic and diluted net income (loss) attributable to Trinity Industries, Inc. is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
|
(in millions, except per share amounts)
|
Income (loss) from continuing operations
|
$
|
(226.1)
|
|
|
$
|
139.2
|
|
|
$
|
109.0
|
|
Less: Net (income) loss attributable to noncontrolling interest
|
78.9
|
|
|
1.5
|
|
|
(3.8)
|
|
Unvested restricted share participation — continuing operations
|
—
|
|
|
(1.8)
|
|
|
(2.2)
|
|
Net income (loss) from continuing operations attributable to Trinity Industries, Inc.
|
(147.2)
|
|
|
138.9
|
|
|
103.0
|
|
Net income (loss) from discontinued operations, net of income taxes
|
(0.1)
|
|
|
(3.1)
|
|
|
54.1
|
|
Unvested restricted share participation — discontinued operations
|
—
|
|
|
—
|
|
|
(0.6)
|
|
Net income (loss) from discontinued operations attributable to Trinity Industries, Inc.
|
(0.1)
|
|
|
(3.1)
|
|
|
53.5
|
|
Net income (loss) attributable to Trinity Industries, Inc., including the effect of unvested restricted share participation
|
$
|
(147.3)
|
|
|
$
|
135.8
|
|
|
$
|
156.5
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
115.9
|
|
|
125.6
|
|
|
144.0
|
|
Effect of dilutive securities:
|
|
|
|
|
|
Nonparticipating unvested RSUs and RSAs
|
—
|
|
|
1.7
|
|
|
1.0
|
|
Convertible subordinated notes
|
—
|
|
|
—
|
|
|
1.4
|
|
Diluted weighted average shares outstanding
|
115.9
|
|
|
127.3
|
|
|
146.4
|
|
|
|
|
|
|
|
Basic earnings per common share:
|
|
|
|
|
|
Income (loss) from continuing operations
|
$
|
(1.27)
|
|
|
$
|
1.11
|
|
|
$
|
0.72
|
|
Income (loss) from discontinued operations
|
—
|
|
|
(0.02)
|
|
|
0.37
|
|
Basic net income (loss) attributable to Trinity Industries, Inc.
|
$
|
(1.27)
|
|
|
$
|
1.09
|
|
|
$
|
1.09
|
|
Diluted earnings per common share:
|
|
|
|
|
|
Income (loss) from continuing operations
|
$
|
(1.27)
|
|
|
$
|
1.09
|
|
|
$
|
0.70
|
|
Income (loss) from discontinued operations
|
—
|
|
|
(0.02)
|
|
|
0.37
|
|
Diluted net income (loss) attributable to Trinity Industries, Inc.
|
$
|
(1.27)
|
|
|
$
|
1.07
|
|
|
$
|
1.07
|
|
Note 15. Contingencies
Highway products litigation
We previously reported the filing of a False Claims Act (“FCA”) complaint in the United States District Court for the Eastern District of Texas, Marshall Division (“District Court”) styled Joshua Harman, on behalf of the United States of America, Plaintiff/Relator v. Trinity Industries, Inc., Defendant, Case No. 2:12-cv-00089-JRG (E.D. Tex.). In this case, in which the U.S. Government declined to intervene, the relator, Mr. Joshua Harman, alleged the Company violated the FCA pertaining to sales of the Company's ET-Plus® System, a highway guardrail end-terminal system (“ET Plus”). On October 20, 2014, a trial in this case concluded with a jury verdict stating that the Company and its subsidiary, Trinity Highway Products, LLC (“Trinity Highway Products”), “knowingly made, used or caused to be made or used, a false record or statement material to a false or fraudulent claim," and the District Court entered judgment on the verdict in the total amount of $682.4 million.
On September 29, 2017, the United States Court of Appeals for the Fifth Circuit ("Fifth Circuit") reversed the District Court’s $682.4 million judgment and rendered judgment as a matter of law in favor of the Company and Trinity Highway Products. On January 7, 2019, the United States Supreme Court denied Mr. Harman's petition for certiorari seeking review of the Fifth Circuit's decision. The denial of Mr. Harman's petition ended this action.
State, county, and municipal actions
Mr. Harman also has separate state qui tam actions currently pending pursuant to: the Virginia Fraud Against Taxpayers Act (Commonwealth of Virginia ex rel. Joshua M. Harman v. Trinity Industries, Inc. and Trinity Highway Products, LLC, Case No. CL13-698, in the Circuit Court, Richmond, Virginia); the Massachusetts False Claims Act (Commonwealth of Massachusetts ex rel. Joshua M. Harman Qui Tam v. Trinity Industries, Inc. and Trinity Highway Products, LLC, Case No. 1484-CV-02364, in the Superior Court Department of the Trial Court); and the California False Claims Act (State of California ex rel. Joshua M. Harman Qui Tam v. Trinity Industries, Inc. and Trinity Highway Products, LLC, Case No. RG 14721864, in the Superior Court of California, Alameda County). In each of these cases, Mr. Harman alleged the Company violated the respective states' false claims act pertaining to sales of the ET Plus, and he is seeking damages, civil penalties, attorneys’ fees, costs and interest. Also, the respective states’ Attorneys General filed Notices of Election to Decline Intervention in all of these matters, with the exception of the Commonwealth of Virginia Attorney General, who intervened in the Virginia matter. Following the United States Supreme Court’s denial of Mr. Harman’s petition for certiorari, the stays have expired or been lifted by court order in all of the above-referenced state qui tam cases except Virginia, whose Motion to Lift Stay of Proceedings was filed on November 13, 2020, and remains pending.
The Company believes these state qui tam lawsuits are without merit and intends to vigorously defend all allegations. Other states could take similar or different actions, and could be considering similar state false claims or other litigation against the Company.
As previously reported, state qui tam actions filed by Mr. Harman in the states of Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Minnesota, Montana, Nevada, Rhode Island, Tennessee, and New Jersey were dismissed.
The Company has been served in a lawsuit filed November 5, 2015, titled Jackson County, Missouri, individually and on behalf of a class of others similarly situated vs. Trinity Industries, Inc. and Trinity Highway Products, LLC, Case No. 1516-CV23684 (Circuit Court of Jackson County, Missouri). The case is being brought by plaintiff for and on behalf of itself and all Missouri counties with a population of 10,000 or more persons, including the City of St. Louis, and the State of Missouri’s transportation authority. The plaintiff alleges that the Company and Trinity Highway Products did not disclose design changes to the ET Plus and these allegedly undisclosed design changes made the ET Plus allegedly defective, unsafe, and unreasonably dangerous. The plaintiff alleges product liability negligence, product liability strict liability, and negligently supplying dangerous instrumentality for supplier’s business purposes. The plaintiff seeks compensatory damages, interest, attorneys' fees and costs, and in the alternative plaintiff seeks a declaratory judgment that the ET Plus is defective, the Company’s conduct was unlawful, and class-wide costs and expenses associated with removing and replacing the ET Plus throughout Missouri. On December 6, 2017, the Court granted plaintiff's Motion for Class Certification, certifying a class of Missouri counties with populations of 10,000 or more persons, including the City of St. Louis and the State of Missouri's transportation authority that have or had ET Plus guardrail end terminals with 4-inch wide guide channels installed on roadways they own or maintain. As previously reported, a trial date had been scheduled in this case for February 22, 2021. On January 19, 2021, the trial date was reset to April 4, 2022.
The Company believes this lawsuit is without merit and intends to vigorously defend all allegations. While the financial impacts of these state, county, and municipal actions are currently unknown, they could be material.
Based on information currently available to the Company and previously disclosed, we currently do not believe that a loss is probable in any one or more of the actions described under "State, county, and municipal actions," therefore no accrual has been included in the accompanying Consolidated Financial Statements. Because of the complexity of these actions as well as the current status of certain of these actions, we are not able to estimate a range of possible losses with respect to any one or more of these actions.
Product liability cases
The Company is currently defending product liability lawsuits in several different states that are alleged to involve the ET Plus as well as other products manufactured by Trinity Highway Products. These cases are diverse in light of the randomness of collisions in general and the fact that each accident involving a roadside device, such as an end terminal, or any other fixed object along the highway, has its own unique facts and circumstances. The Company carries general liability insurance to mitigate the impact of adverse judgment exposures in these product liability cases. To the extent that the Company believes that a loss is probable with respect to these product liability cases, the accrual for such losses is included in the amounts described below under "Other matters".
Other matters
The Company is involved in claims and lawsuits incidental to our business arising from various matters, including product warranty, personal injury, environmental issues, workplace laws, and various governmental regulations. The Company evaluates its exposure to such claims and suits periodically and establishes accruals for these contingencies when a range of loss can be reasonably estimated. The range of reasonably possible losses for such matters is $7.0 million to $14.5 million, which includes our rights in indemnity and recourse to third parties of approximately $5.3 million, which is recorded in other assets on our Consolidated Balance Sheet as of December 31, 2020. This range includes any amounts related to the Highway Products litigation matters described above in the section titled “Highway products litigation." At December 31, 2020, total accruals of $7.5 million, including environmental and workplace matters described below, are included in accrued liabilities in the accompanying Consolidated Balance Sheets. The Company believes any additional liability would not be material to its financial position or results of operations.
Trinity is subject to remedial orders and federal, state, local, and foreign laws and regulations relating to the environment and the workplace. The Company has reserved $1.1 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. We believe that we are currently in substantial compliance with environmental and workplace laws and regulations.