Lease Accounting
Lessee
We are the lessee of operating leases predominantly for railcars, as well as office buildings, manufacturing equipment, and office equipment. Our operating leases have remaining lease terms ranging from one year to forty years, some of which include options to extend for up to five years, and some of which include options to terminate within one year. As of September 30, 2019, we had no finance leases in which we were the lessee.
The following table summarizes the impact of our operating leases on our Consolidated Financial Statements (in millions, except lease term and discount rate):
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|
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|
|
|
|
|
|
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Three Months Ended September 30, 2019
|
|
Nine Months Ended September 30, 2019
|
Consolidated Statement of Operations
|
|
|
|
Operating lease expense
|
$
|
4.0
|
|
|
$
|
13.3
|
|
Short-term lease expense
|
$
|
0.9
|
|
|
$
|
3.5
|
|
|
|
|
|
|
|
|
September 30, 2019
|
Consolidated Balance Sheet
|
|
|
|
Right-of-use assets (1)
|
|
$
|
45.3
|
|
Lease liabilities (2)
|
|
$
|
46.0
|
|
|
|
|
|
Weighted average remaining lease term
|
|
4.9 years
|
|
Weighted average discount rate
|
|
4.1
|
%
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
Consolidated Statement of Cash Flows
|
|
|
|
Cash flows from operating activities
|
|
$
|
13.3
|
|
Right-of-use assets recognized in exchange for new lease liabilites
|
|
$
|
8.4
|
|
(1) Included in other assets in our Consolidated Balance Sheet
(2) Included in other liabilities in our Consolidated Balance Sheet
Future contractual minimum operating lease liabilities will mature as follows (in millions):
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|
|
|
|
|
|
|
|
|
|
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|
Leasing Group
|
|
Non-Leasing Group
|
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Total
|
Remaining three months of 2019
|
$
|
3.2
|
|
|
$
|
0.9
|
|
|
$
|
4.1
|
|
2020
|
9.5
|
|
|
3.1
|
|
|
12.6
|
|
2021
|
8.2
|
|
|
2.1
|
|
|
10.3
|
|
2022
|
7.5
|
|
|
1.8
|
|
|
9.3
|
|
2023
|
5.5
|
|
|
1.5
|
|
|
7.0
|
|
Thereafter
|
3.3
|
|
|
3.3
|
|
|
6.6
|
|
Total operating lease payments
|
$
|
37.2
|
|
|
$
|
12.7
|
|
|
$
|
49.9
|
|
Less: Present value adjustment
|
|
|
|
|
(3.9
|
)
|
Total operating lease liabilities
|
|
|
|
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$
|
46.0
|
|
Lessor
Our Leasing Group enters into railcar operating leases with third parties with terms generally ranging between one year and ten years, although certain leases entered into in prior periods had lease terms of up to twenty years. The majority of our fleet operates on leases that earn fixed monthly lease payments. A portion of our fleet operates on per diem leases that earn usage-based variable lease payments. Some of our leases include options to extend the leases for up to five years, and a small percentage of our leases include options to terminate within one year with certain notice requirements and early termination penalties. Our sales-type leases include an option for the lessee to purchase the leased railcars with certain notice. As of September 30, 2019, non-Leasing Group operating leases were not significant, and we had no direct finance leases.
We manage risks associated with residual values of leased railcars by investing across a diverse portfolio of railcar types, staggering lease maturities within any given railcar type, avoiding concentration of railcar type and industry, and participating in active secondary markets. Additionally, our lease agreements contain normal wear and tear return condition provisions and high mileage thresholds designed to protect the value of our residual assets. Our lease agreements do not contain any material residual value guarantees or restrictive covenants.
The following table summarizes the impact of our leases on our Consolidated Statement of Operations (in millions):
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|
|
|
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Three Months Ended September 30, 2019
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Nine Months Ended September 30, 2019
|
Operating lease revenues
|
$
|
169.5
|
|
|
$
|
506.9
|
|
Variable operating lease revenues
|
12.5
|
|
|
36.6
|
|
Sales-type lease revenues
|
26.3
|
|
|
60.5
|
|
Interest income on sales-type lease receivables
|
0.6
|
|
|
0.9
|
|
Profit recognized at sales-type lease commencement
|
3.7
|
|
|
7.8
|
|
Future contractual minimum lease receivables for sales-type leases will mature as follows (in millions):
|
|
|
|
|
Remaining three months of 2019
|
$
|
4.6
|
|
2020
|
15.7
|
|
2021
|
45.9
|
|
2022
|
—
|
|
2023
|
—
|
|
Thereafter
|
—
|
|
Total
|
$
|
66.2
|
|
Less: Unearned interest income
|
(7.8
|
)
|
Net investment in sales-type leases (1)
|
$
|
58.4
|
|
(1) Includes $0.9 million in receivables, net of allowance and $57.5 million in other assets in our Consolidated Balance Sheet
Future contractual minimum revenues for operating leases will mature as follows (in millions):
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|
|
|
|
Remaining three months of 2019
|
$
|
149.4
|
|
2020
|
521.3
|
|
2021
|
413.0
|
|
2022
|
314.8
|
|
2023
|
217.1
|
|
Thereafter
|
388.2
|
|
Total
|
$
|
2,003.8
|
|
Financial Instruments
We consider all highly liquid debt instruments to be either cash and cash equivalents if purchased with a maturity of three months or less, or short-term marketable securities if purchased with a maturity of more than three months and less than one year.
Financial instruments that potentially subject us to a concentration of credit risk are primarily cash investments including restricted cash and receivables. Concentrations of credit risk with respect to receivables are limited due to control procedures that monitor the credit worthiness of customers, the large number of customers in our customer base, and their dispersion across different end markets and geographic areas. As receivables are generally unsecured, we maintain an allowance for doubtful accounts based upon the expected collectibility of all receivables. Receivable balances determined to be uncollectible are charged against the allowance. The carrying values of cash, receivables, and accounts payable are considered to be representative of their respective fair values.
Goodwill
As of September 30, 2019 and December 31, 2018, the carrying amount of our goodwill totaled $208.8 million, which is primarily attributable to the Rail Products Group.
Warranties
We provide various express, limited product warranties that generally range from one year to five years depending on the product. The warranty costs are estimated using a two-step approach. First, an engineering estimate is made for the cost of all claims that have been asserted by customers. Second, based on historical claims experience, a cost is accrued for all products still within a warranty period for which no claims have been filed. We provide for the estimated cost of product warranties at the time revenue is recognized related to products covered by warranties and assess the adequacy of the resulting reserves on a quarterly basis. The changes in the accruals for warranties for the three and nine months ended September 30, 2019 and 2018 are as follows:
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
(in millions)
|
Beginning balance
|
$
|
8.3
|
|
|
$
|
10.5
|
|
|
$
|
7.4
|
|
|
$
|
10.1
|
|
Warranty costs incurred
|
(1.7
|
)
|
|
(1.1
|
)
|
|
(3.2
|
)
|
|
(2.9
|
)
|
Warranty originations and revisions
|
3.2
|
|
|
(2.1
|
)
|
|
5.8
|
|
|
(0.2
|
)
|
Warranty expirations
|
—
|
|
|
(0.1
|
)
|
|
(0.2
|
)
|
|
0.2
|
|
Ending balance
|
$
|
9.8
|
|
|
$
|
7.2
|
|
|
$
|
9.8
|
|
|
$
|
7.2
|
|
Recent Accounting Pronouncements
Adopted in 2019
ASU 2016-02 — In February 2016, the FASB issued ASU No. 2016-02, "Leases", ("ASC 842") which amended the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASC 842 is effective for public companies during interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. In July 2018, the FASB issued ASU No. 2018-11, which permits entities to record the right-of-use asset and lease liability on the date of adoption, with no requirement to recast comparative periods.
We adopted ASC 842 effective January 1, 2019 using the optional transition method of recognizing a cumulative-effect adjustment to the opening balance of retained earnings on January 1, 2019. Therefore, comparative financial information was not adjusted and continues to be reported under the prior lease accounting guidance in ASC 840. We elected the transition relief package of practical expedients, and as a result, we did not assess 1) whether existing or expired contracts contain embedded leases, 2) lease classification for any existing or expired leases, and 3) whether lease origination costs qualified as initial direct costs. We elected the short-term lease practical expedient by establishing an accounting policy to exclude leases with a term of 12 months or less, as well as the land easement practical expedient for maintaining our current accounting policy for existing or expired land easements. For qualifying operating leases in which we are the lessor, we do not separate lease components for our leased railcars from non-lease components, which are comprised of stand-ready maintenance obligations. We did not elect the practical expedient to use hindsight in determining a lease term and impairment of right-of-use assets at the adoption date.
Upon adoption, we recognized right-of-use assets and corresponding lease liabilities of $47.0 million and $48.3 million, respectively, in our Consolidated Balance Sheet based on the present value of future minimum lease payments under operating leases for which we are the lessee. This excluded the impact of railcars that were previously under operating leases as of January 1, 2019 but which were purchased on January 14, 2019 and are now wholly-owned by our Leasing Group. Additionally, we recorded an adjustment to opening retained earnings of $17.7 million ($13.7 million, net of tax) related to the derecognition of deferred profit related to sale-leaseback transactions. Our accounting treatment under ASC 842 for leases in which we are the lessor remained substantially unchanged from our accounting treatment under ASC 840. The adoption of ASC 842 did not have a significant impact on our consolidated results of operations or cash flows.
Effective in 2020
ASU 2018-15 — In August 2018, the FASB issued ASU No. 2018-15, "Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," which aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. ASU 2018-15 is effective for public companies during interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. We plan to adopt ASU 2018-15 effective January 1, 2020 on a prospective basis and are currently evaluating its impact on our Consolidated Financial Statements.
ASU 2016-13 — In June 2016, the FASB issued ASU No. 2016-13, "Measurement of Credit Losses on Financial Instruments," which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. This approach may result in the earlier recognition of allowances for losses. In November 2018, the FASB issued ASU No. 2018-19, "Codification Improvements to Topic 326, Financial Instruments—Credit Losses," which excludes operating lease receivables from the scope of ASU 2016-13. ASU 2016-13 is effective for public companies during interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. We plan to adopt ASU 2016-13 effective January 1, 2020 on a prospective basis and are currently evaluating its impact on our Consolidated Financial Statements.
Note 2. Discontinued Operations
On November 1, 2018, we completed the spin-off of Arcosa. Upon completion of the spin-off transaction, the accounting requirements for reporting Arcosa as a discontinued operation were met, and, accordingly, Arcosa's historical results have been reclassified to discontinued operations for the periods presented herein.
In connection with the spin-off transaction, Trinity and Arcosa entered into various agreements to effect the distribution and provide a framework for their relationship after the separation, including a separation and distribution agreement, a transition services agreement, an employee matters agreement, a tax matters agreement, and an intellectual property matters agreement. Trinity is also party to certain commercial agreements with Arcosa entities. These agreements have various durations ranging between one and eighteen months. We have determined that the continuing cash flows generated by these agreements do not constitute significant continuing involvement in the operations of Arcosa. The amount billed for transition services provided under the above agreements was not material to our results of operations for the three and nine months ended September 30, 2019.
We incurred $0.5 million and $10.5 million in spin-off related transaction costs during the three months ended September 30, 2019 and 2018, respectively, of which $0.5 million and $9.2 million are included in income from discontinued operations, net of income taxes in our Consolidated Statements of Operations. We incurred $2.3 million and $28.8 million in spin-off related transaction costs during the nine months ended September 30, 2019 and 2018, respectively, of which $2.3 million and $25.6 million are included in income from discontinued operations, net of income taxes in our Consolidated Statements of Operations. These costs primarily relate to the preparation of regulatory filings, investment banking fees, professional fees associated with various legal, accounting, and tax matters related to the spin-off, and other separation activities within the finance, tax, legal, and information technology functions.
Arcosa is a stand-alone public company that separately reports its financial results. Due to differences between the basis of presentation for discontinued operations and the basis of presentation as a stand-alone company, the financial results of Arcosa included within discontinued operations may not be indicative of the actual financial results of Arcosa as a stand-alone company.
The following is a summary of operating results included in income (loss) from discontinued operations for the three and nine months ended September 30, 2019 and 2018:
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|
|
|
|
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|
|
Three Months Ended September 30,
|
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Nine Months Ended
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(in millions)
|
Revenues
|
|
$
|
—
|
|
|
$
|
334.8
|
|
|
$
|
—
|
|
|
$
|
966.0
|
|
Cost of revenues
|
|
—
|
|
|
295.6
|
|
|
0.1
|
|
|
786.5
|
|
Selling, engineering, and administrative expenses
|
|
0.5
|
|
|
35.6
|
|
|
2.8
|
|
|
102.0
|
|
Other (income) expense
|
|
—
|
|
|
(0.2
|
)
|
|
—
|
|
|
1.9
|
|
Income (loss) from discontinued operations before income taxes
|
|
(0.5
|
)
|
|
3.8
|
|
|
(2.9
|
)
|
|
75.6
|
|
Provision (benefit) for income taxes
|
|
(0.1
|
)
|
|
4.0
|
|
|
(0.6
|
)
|
|
21.2
|
|
Income (loss) from discontinued operations, net of income taxes
|
|
$
|
(0.4
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
(2.3
|
)
|
|
$
|
54.4
|
|
Note 3. Derivative Instruments and Fair Value Accounting
Derivative Instruments
We use derivative instruments to mitigate the impact of changes in interest rates, both in anticipation of future debt issuances and to offset interest rate variability of certain floating rate debt issuances outstanding. We also may use derivative instruments to mitigate the impact of changes in natural gas and diesel fuel prices and changes in foreign currency exchange rates. Derivative instruments that are designated and qualify as cash flow hedges are accounted for by recording the effective portion of the gain or loss on the derivative instrument in accumulated other comprehensive loss ("AOCL") as a separate component of stockholders' equity and reclassified into earnings in the period during which the hedged transaction affects earnings. We continuously monitor our derivative positions and the credit ratings of our counterparties and do not anticipate losses due to non-performance. See Note 8 for a description of our debt instruments.
Interest Rate Hedges
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Included in accompanying balance sheet
at September 30, 2019
|
|
Notional
Amount
|
|
Interest
Rate (1)
|
|
Asset/(Liability)
|
|
AOCL –
loss/
(income)
|
|
Noncontrolling
Interest
|
|
(in millions, except %)
|
Expired hedges:
|
|
|
|
|
|
|
|
|
|
2006 secured railcar equipment notes
|
$
|
200.0
|
|
|
4.87
|
%
|
|
$
|
—
|
|
|
$
|
(0.2
|
)
|
|
$
|
—
|
|
2018 secured railcar equipment notes
|
$
|
249.3
|
|
|
4.41
|
%
|
|
$
|
—
|
|
|
$
|
1.1
|
|
|
$
|
—
|
|
TRIP Holdings warehouse loan
|
$
|
788.5
|
|
|
3.60
|
%
|
|
$
|
—
|
|
|
$
|
2.4
|
|
|
$
|
3.3
|
|
TRIP Master Funding secured railcar equipment notes
|
$
|
34.8
|
|
|
2.62
|
%
|
|
$
|
—
|
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
2017 promissory notes - interest rate cap
|
$
|
169.3
|
|
|
3.00
|
%
|
|
$
|
—
|
|
|
$
|
(0.7
|
)
|
|
$
|
—
|
|
Open hedge:
|
|
|
|
|
|
|
|
|
|
2017 promissory notes - interest rate swap
|
$
|
578.6
|
|
|
2.68
|
%
|
|
$
|
(34.1
|
)
|
|
$
|
34.0
|
|
|
$
|
—
|
|
(1) Weighted average fixed interest rate, except for the interest rate cap on the 2017 promissory notes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect on interest expense-increase/(decrease)
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
Expected effect during next twelve months(1)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(in millions)
|
Expired hedges:
|
|
|
|
|
|
|
|
|
|
2006 secured railcar equipment notes
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
(0.1
|
)
|
2018 secured railcar equipment notes
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
0.2
|
|
|
$
|
—
|
|
|
$
|
0.2
|
|
TRIP Holdings warehouse loan
|
$
|
0.5
|
|
|
$
|
0.5
|
|
|
$
|
1.5
|
|
|
$
|
1.7
|
|
|
$
|
2.0
|
|
TRIP Master Funding secured railcar equipment notes
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
2017 promissory notes - interest rate cap
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
Open hedge:
|
|
|
|
|
|
|
|
|
|
2017 promissory notes - interest rate swap
|
$
|
0.6
|
|
|
$
|
—
|
|
|
$
|
1.9
|
|
|
$
|
—
|
|
|
$
|
2.6
|
|
(1) Based on the fair value of open hedges as of September 30, 2019.
Other Derivatives
The effect of commodity and foreign exchange 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:
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
September 30, 2019
|
|
December 31, 2018
|
|
(in millions)
|
Assets:
|
|
|
|
Cash equivalents
|
$
|
18.8
|
|
|
$
|
124.9
|
|
Restricted cash
|
117.5
|
|
|
171.6
|
|
Total assets
|
$
|
136.3
|
|
|
$
|
296.5
|
|
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. The liabilities measured as Level 2 in the fair value hierarchy are summarized below:
|
|
|
|
|
|
|
|
|
|
Level 2
|
|
September 30, 2019
|
|
December 31, 2018
|
|
(in millions)
|
Liabilities:
|
|
|
|
Interest rate hedge (1)
|
$
|
34.1
|
|
|
$
|
12.9
|
|
Total liabilities
|
$
|
34.1
|
|
|
$
|
12.9
|
|
(1) 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 September 30, 2019 and December 31, 2018, we have no assets measured as Level 3 in the fair value hierarchy.
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. The All Other segment includes our highway products business; our logistics businesses; legal, environmental, and maintenance costs associated with non-operating facilities; and other peripheral businesses. Gains and losses from the sale of property, plant, and equipment are included in the operating profit of each respective segment.
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). We operate principally in North America.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
Railcar Leasing and Management Services Group
|
|
Rail Products Group
|
|
All Other
|
|
Corporate
|
|
Eliminations — Lease Subsidiary
|
|
Eliminations — Other
|
|
Consolidated Total
|
External Revenue
|
$
|
326.2
|
|
|
$
|
409.0
|
|
|
$
|
78.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
813.6
|
|
Intersegment Revenue
|
0.2
|
|
|
314.0
|
|
|
12.0
|
|
|
—
|
|
|
(314.0
|
)
|
|
(12.2
|
)
|
|
—
|
|
Total Revenues
|
$
|
326.4
|
|
|
$
|
723.0
|
|
|
$
|
90.4
|
|
|
$
|
—
|
|
|
$
|
(314.0
|
)
|
|
$
|
(12.2
|
)
|
|
$
|
813.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit (Loss)
|
$
|
115.7
|
|
|
$
|
65.4
|
|
|
$
|
3.9
|
|
|
$
|
(23.9
|
)
|
|
$
|
(40.7
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
120.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
|
|
Railcar Leasing and Management Services Group
|
|
Rail Products Group
|
|
All Other
|
|
Corporate
|
|
Eliminations — Lease Subsidiary
|
|
Eliminations — Other
|
|
Consolidated Total
|
External Revenue
|
$
|
227.2
|
|
|
$
|
290.2
|
|
|
$
|
89.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
606.9
|
|
Intersegment Revenue
|
0.3
|
|
|
207.4
|
|
|
12.9
|
|
|
—
|
|
|
(207.4
|
)
|
|
(13.2
|
)
|
|
—
|
|
Total Revenues
|
$
|
227.5
|
|
|
$
|
497.6
|
|
|
$
|
102.4
|
|
|
$
|
—
|
|
|
$
|
(207.4
|
)
|
|
$
|
(13.2
|
)
|
|
$
|
606.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit (Loss)
|
$
|
92.2
|
|
|
$
|
28.0
|
|
|
$
|
9.5
|
|
|
$
|
(37.4
|
)
|
|
$
|
(18.1
|
)
|
|
$
|
1.0
|
|
|
$
|
75.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
Railcar Leasing and Management Services Group
|
|
Rail Products Group
|
|
All Other
|
|
Corporate
|
|
Eliminations — Lease Subsidiary
|
|
Eliminations — Other
|
|
Consolidated Total
|
External Revenue
|
$
|
803.3
|
|
|
$
|
1,125.9
|
|
|
$
|
225.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,154.4
|
|
Intersegment Revenue
|
0.6
|
|
|
913.0
|
|
|
40.1
|
|
|
—
|
|
|
(913.0
|
)
|
|
(40.7
|
)
|
|
—
|
|
Total Revenues
|
$
|
803.9
|
|
|
$
|
2,038.9
|
|
|
$
|
265.3
|
|
|
$
|
—
|
|
|
$
|
(913.0
|
)
|
|
$
|
(40.7
|
)
|
|
$
|
2,154.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit (Loss)
|
$
|
306.3
|
|
|
$
|
184.0
|
|
|
$
|
16.7
|
|
|
$
|
(78.1
|
)
|
|
$
|
(109.5
|
)
|
|
$
|
(0.3
|
)
|
|
$
|
319.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018
|
|
Railcar Leasing and Management Services Group
|
|
Rail Products Group
|
|
All Other
|
|
Corporate
|
|
Eliminations — Lease Subsidiary
|
|
Eliminations — Other
|
|
Consolidated Total
|
External Revenue
|
$
|
614.7
|
|
|
$
|
919.9
|
|
|
$
|
239.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,774.1
|
|
Intersegment Revenue
|
0.8
|
|
|
732.0
|
|
|
32.4
|
|
|
—
|
|
|
(732.0
|
)
|
|
(33.2
|
)
|
|
—
|
|
Total Revenues
|
$
|
615.5
|
|
|
$
|
1,651.9
|
|
|
$
|
271.9
|
|
|
$
|
—
|
|
|
$
|
(732.0
|
)
|
|
$
|
(33.2
|
)
|
|
$
|
1,774.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit (Loss)
|
$
|
255.1
|
|
|
$
|
128.0
|
|
|
$
|
27.7
|
|
|
$
|
(115.0
|
)
|
|
$
|
(71.3
|
)
|
|
$
|
0.8
|
|
|
$
|
225.3
|
|
Note 5. Partially-Owned Leasing Subsidiaries
Through our wholly-owned subsidiary, Trinity Industries Leasing Company (“TILC”), we formed two subsidiaries, TRIP Holdings and RIV 2013, for the purpose of providing railcar leasing in North America. Each of TRIP Holdings and RIV 2013 are direct, partially-owned subsidiaries of TILC in which 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 September 30, 2019, the carrying value of our investment in TRIP Holdings and RIV 2013 totaled $186.8 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 (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.
Other Investments
TILC holds a 5% equity interest in an RIV fund that is managed and controlled by a third party that is also one of our RIV partners. We have evaluated the potential for consolidation using the variable interest model and have determined that Trinity is not required to consolidate this entity. The carrying value of our investment was not significant to our Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
Leasing Group
|
|
|
|
|
|
Wholly-
Owned
Subsidiaries
|
|
Partially-Owned Subsidiaries
|
|
Manufacturing/
Corporate
|
|
Total
|
|
(in millions)
|
Cash and cash equivalents
|
$
|
4.0
|
|
|
$
|
—
|
|
|
$
|
93.6
|
|
|
$
|
97.6
|
|
Property, plant, and equipment, net
|
$
|
5,597.0
|
|
|
$
|
1,794.5
|
|
|
$
|
396.3
|
|
|
$
|
7,787.8
|
|
Net deferred profit on railcars sold to the Leasing Group
|
|
|
|
|
|
|
(871.1
|
)
|
Consolidated property, plant, and equipment, net
|
|
|
|
|
|
|
$
|
6,916.7
|
|
Restricted cash
|
$
|
86.5
|
|
|
$
|
30.9
|
|
|
$
|
0.1
|
|
|
$
|
117.5
|
|
Debt:
|
|
|
|
|
|
|
|
Recourse, net of unamortized discount of $-, $-, $0.2, and $0.2
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
474.8
|
|
|
$
|
474.8
|
|
Less: unamortized debt issuance costs
|
—
|
|
|
—
|
|
|
(2.1
|
)
|
|
(2.1
|
)
|
|
—
|
|
|
—
|
|
|
472.7
|
|
|
472.7
|
|
Non-recourse, net of unamortized discount of $2.5, $-, $-, and $2.5
|
2,944.7
|
|
|
1,300.6
|
|
|
—
|
|
|
4,245.3
|
|
Less: unamortized debt issuance costs
|
(21.5
|
)
|
|
(11.3
|
)
|
|
—
|
|
|
(32.8
|
)
|
|
2,923.2
|
|
|
1,289.3
|
|
|
—
|
|
|
4,212.5
|
|
Total debt
|
$
|
2,923.2
|
|
|
$
|
1,289.3
|
|
|
$
|
472.7
|
|
|
$
|
4,685.2
|
|
Net deferred tax liabilities
|
$
|
833.5
|
|
|
$
|
1.0
|
|
|
$
|
(64.8
|
)
|
|
$
|
769.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Leasing Group
|
|
|
|
|
|
Wholly-
Owned
Subsidiaries
|
|
Partially-Owned Subsidiaries
|
|
Manufacturing/
Corporate
|
|
Total
|
|
(in millions)
|
Cash and cash equivalents
|
$
|
6.0
|
|
|
$
|
—
|
|
|
$
|
173.2
|
|
|
$
|
179.2
|
|
Property, plant, and equipment, net
|
$
|
4,976.5
|
|
|
$
|
1,814.7
|
|
|
$
|
370.9
|
|
|
$
|
7,162.1
|
|
Net deferred profit on railcars sold to the Leasing Group
|
|
|
|
|
|
|
(827.7
|
)
|
Consolidated property, plant, and equipment, net
|
|
|
|
|
|
|
$
|
6,334.4
|
|
Restricted cash
|
$
|
134.9
|
|
|
$
|
36.6
|
|
|
$
|
0.1
|
|
|
$
|
171.6
|
|
Debt:
|
|
|
|
|
|
|
|
Recourse, net of unamortized discount of $-, $-, $0.3, and $0.3
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
399.7
|
|
|
$
|
399.7
|
|
Less: uamortized debt issuance costs
|
—
|
|
|
—
|
|
|
(2.3
|
)
|
|
(2.3
|
)
|
|
—
|
|
|
—
|
|
|
397.4
|
|
|
397.4
|
|
Non-recourse, net of unamortized discount of $2.7, $-, $-, and $2.7
|
2,336.3
|
|
|
1,327.9
|
|
|
—
|
|
|
3,664.2
|
|
Less: unamortized debt issuance costs
|
(19.7
|
)
|
|
(12.7
|
)
|
|
—
|
|
|
(32.4
|
)
|
|
2,316.6
|
|
|
1,315.2
|
|
|
—
|
|
|
3,631.8
|
|
Total debt
|
$
|
2,316.6
|
|
|
$
|
1,315.2
|
|
|
$
|
397.4
|
|
|
$
|
4,029.2
|
|
Net deferred tax liabilities
|
$
|
797.6
|
|
|
$
|
1.0
|
|
|
$
|
(67.0
|
)
|
|
$
|
731.6
|
|
Net deferred profit on railcars sold to the Leasing Group consists of intersegment profit that is eliminated in consolidation and is, therefore, not allocated to an operating segment. See Note 5 and Note 8 for a further discussion regarding our investment in our partially-owned leasing subsidiaries and the related indebtedness. See Note 15 for a discussion of subsidiary guarantees of our 4.55% senior notes due 2024 ("Senior Notes").
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2019
|
|
2018
|
|
Percent
|
|
2019
|
|
2018
|
|
Percent
|
|
($ in millions)
|
|
Change
|
|
($ in millions)
|
|
Change
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Leasing and management
|
$
|
190.1
|
|
|
$
|
175.9
|
|
|
8.1
|
%
|
|
$
|
566.6
|
|
|
$
|
534.7
|
|
|
6.0
|
%
|
Sales of railcars owned one year or less at the time of sale (1)
|
136.3
|
|
|
51.6
|
|
|
*
|
|
237.3
|
|
|
80.8
|
|
|
*
|
Total revenues
|
$
|
326.4
|
|
|
$
|
227.5
|
|
|
43.5
|
|
|
$
|
803.9
|
|
|
$
|
615.5
|
|
|
30.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing and management
|
$
|
79.8
|
|
|
$
|
69.7
|
|
|
14.5
|
|
|
$
|
234.6
|
|
|
$
|
216.6
|
|
|
8.3
|
|
Railcar sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Railcars owned one year or less at the time of sale
|
17.8
|
|
|
13.1
|
|
|
*
|
|
27.0
|
|
|
17.5
|
|
|
*
|
Railcars owned more than one year at the time of sale
|
18.1
|
|
|
9.4
|
|
|
*
|
|
44.7
|
|
|
21.0
|
|
|
*
|
Total operating profit
|
$
|
115.7
|
|
|
$
|
92.2
|
|
|
25.5
|
|
|
$
|
306.3
|
|
|
$
|
255.1
|
|
|
20.1
|
|
Total operating profit margin
|
35.4
|
%
|
|
40.5
|
%
|
|
|
|
|
38.1
|
%
|
|
41.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing and management operating profit margin
|
42.0
|
%
|
|
39.6
|
%
|
|
|
|
|
41.4
|
%
|
|
40.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected expense information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
$
|
59.4
|
|
|
$
|
48.8
|
|
|
21.7
|
%
|
|
$
|
171.6
|
|
|
$
|
140.9
|
|
|
21.8
|
%
|
Maintenance and compliance
|
$
|
24.9
|
|
|
$
|
24.1
|
|
|
3.3
|
%
|
|
$
|
79.2
|
|
|
$
|
75.5
|
|
|
4.9
|
%
|
Rent
|
$
|
3.8
|
|
|
$
|
9.7
|
|
|
(60.8
|
)%
|
|
$
|
13.6
|
|
|
$
|
29.7
|
|
|
(54.2
|
)%
|
Selling, engineering, and administrative expenses
|
$
|
10.7
|
|
|
$
|
11.9
|
|
|
(10.1
|
)%
|
|
$
|
36.2
|
|
|
$
|
36.7
|
|
|
(1.4
|
)%
|
Interest
|
$
|
50.0
|
|
|
$
|
37.4
|
|
|
33.7
|
%
|
|
$
|
146.4
|
|
|
$
|
101.2
|
|
|
44.7
|
%
|
* Not meaningful
(1) Includes revenues associated with sales-type leases of $26.3 million and $60.5 million, respectively, for the three and nine months ended September 30, 2019.
(2) 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 profit 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.
During the nine months ended September 30, 2019 and 2018, the Leasing Group recognized sales of leased railcars as follows:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2019
|
|
2018
|
|
(in millions)
|
Railcars owned one year or less at the time of sale (1)
|
$
|
237.3
|
|
|
$
|
80.8
|
|
Railcars owned more than one year at the time of sale
|
175.0
|
|
|
123.4
|
|
|
$
|
412.3
|
|
|
$
|
204.2
|
|
(1) Includes revenues associated with sales-type leases of $60.5 million for the nine months ended September 30, 2019.
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, although certain leases entered into in prior periods had lease terms of up to twenty 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining three months of 2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Thereafter
|
|
Total
|
|
|
(in millions)
|
Future contractual minimum rental revenue
|
|
$
|
146.8
|
|
|
$
|
513.4
|
|
|
$
|
406.9
|
|
|
$
|
310.3
|
|
|
$
|
214.9
|
|
|
$
|
387.4
|
|
|
$
|
1,979.7
|
|
Debt. Wholly-owned subsidiaries. The Leasing Group’s debt at September 30, 2019 consisted primarily of non-recourse debt. As of September 30, 2019, Trinity’s wholly-owned subsidiaries included in the Leasing Group held equipment with a net book value of $4,296.0 million which is pledged solely as collateral for Leasing Group debt held by those subsidiaries. The net book value of unpledged equipment at September 30, 2019 was $1,289.5 million. See Note 8 for more information regarding the Leasing Group 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 $1,249.7 million is pledged as collateral for the TRIP Master Funding debt. TRL-2012 equipment with a net book value of $544.8 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.
Off Balance Sheet Arrangements. In prior years, the Leasing Group completed a series of financing transactions whereby railcars were sold to one or more separate independent owner trusts (“Trusts”). Each of the Trusts financed the purchase of the railcars with a combination of debt and equity. In each transaction, the equity participant in each of the respective Trusts is considered to be the primary beneficiary of the Trust; and therefore, the accounts of the Trusts, including the debt related to each of the Trusts, are not included as part of the Consolidated Financial Statements. The Leasing Group, through wholly-owned, qualified subsidiaries, leased railcars from the Trusts under operating leases with terms of twenty-two years, and subleased the railcars to independent third-party customers under shorter term operating lease agreements. The terms of the operating lease agreements between the subsidiaries and the remaining Trusts provided the Leasing Group with the option to purchase, at a predetermined fixed price, certain railcars from the remaining Trusts in 2019. On January 14, 2019, we completed the purchase for a purchase price of $218.4 million. As a result, 6,779 railcars previously under lease are now wholly-owned by our Leasing Group. The future contractual minimum rental revenues associated with these railcars are included in the table above.
Operating Lease Obligations. Future amounts due as well as future contractual minimum rental revenues related to operating leases related to the Leasing Group other than the leases discussed above are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining three months of 2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Thereafter
|
|
Total
|
|
|
(in millions)
|
Future operating lease obligations
|
|
$
|
3.2
|
|
|
$
|
9.5
|
|
|
$
|
8.2
|
|
|
$
|
7.5
|
|
|
$
|
5.5
|
|
|
$
|
3.3
|
|
|
$
|
37.2
|
|
Future contractual minimum rental revenues
|
|
$
|
2.6
|
|
|
$
|
7.9
|
|
|
$
|
6.1
|
|
|
$
|
4.5
|
|
|
$
|
2.2
|
|
|
$
|
0.8
|
|
|
$
|
24.1
|
|
Operating lease obligations totaling $3.0 million are guaranteed by Trinity Industries, Inc. and certain subsidiaries. See Note 6 in our 2018 Annual Report on Form 10-K for a detailed explanation of these financing transactions.
Note 7. Property, Plant, and Equipment
The following table summarizes the components of property, plant, and equipment:
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
(in millions)
|
Manufacturing/Corporate:
|
|
|
|
Land
|
$
|
25.5
|
|
|
$
|
24.2
|
|
Buildings and improvements
|
389.0
|
|
|
385.5
|
|
Machinery and other
|
548.9
|
|
|
537.2
|
|
Construction in progress
|
50.4
|
|
|
16.3
|
|
|
1,013.8
|
|
|
963.2
|
|
Less accumulated depreciation
|
(617.5
|
)
|
|
(592.3
|
)
|
|
396.3
|
|
|
370.9
|
|
Leasing:
|
|
|
|
Wholly-owned subsidiaries:
|
|
|
|
Machinery and other
|
13.8
|
|
|
13.5
|
|
Equipment on lease
|
6,677.9
|
|
|
5,934.8
|
|
|
6,691.7
|
|
|
5,948.3
|
|
Less accumulated depreciation
|
(1,094.7
|
)
|
|
(971.8
|
)
|
|
5,597.0
|
|
|
4,976.5
|
|
Partially-owned subsidiaries:
|
|
|
|
Equipment on lease
|
2,401.0
|
|
|
2,371.9
|
|
Less accumulated depreciation
|
(606.5
|
)
|
|
(557.2
|
)
|
|
1,794.5
|
|
|
1,814.7
|
|
|
|
|
|
Deferred profit on railcars sold to the Leasing Group
|
(1,094.7
|
)
|
|
(1,030.0
|
)
|
Less accumulated amortization
|
223.6
|
|
|
202.3
|
|
|
(871.1
|
)
|
|
(827.7
|
)
|
|
$
|
6,916.7
|
|
|
$
|
6,334.4
|
|
Note 8. Debt
The carrying amounts and estimated fair values of our long-term debt are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
(in millions)
|
Corporate – Recourse:
|
|
|
|
|
|
|
|
Revolving credit facility
|
$
|
75.0
|
|
|
$
|
75.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Senior notes, net of unamortized discount of $0.2 and $0.3
|
399.8
|
|
|
407.1
|
|
|
399.7
|
|
|
343.7
|
|
|
474.8
|
|
|
482.1
|
|
|
399.7
|
|
|
343.7
|
|
Less: unamortized debt issuance costs
|
(2.1
|
)
|
|
|
|
(2.3
|
)
|
|
|
Total recourse debt
|
472.7
|
|
|
|
|
397.4
|
|
|
|
|
|
|
|
|
|
|
|
Leasing – Non-recourse:
|
|
|
|
|
|
|
|
Wholly-owned subsidiaries:
|
|
|
|
|
|
|
|
2006 secured railcar equipment notes
|
114.7
|
|
|
120.0
|
|
|
133.4
|
|
|
138.0
|
|
2009 secured railcar equipment notes
|
150.7
|
|
|
174.6
|
|
|
159.7
|
|
|
174.0
|
|
2010 secured railcar equipment notes
|
251.2
|
|
|
270.6
|
|
|
257.0
|
|
|
264.0
|
|
2017 promissory notes
|
635.4
|
|
|
635.4
|
|
|
660.2
|
|
|
660.2
|
|
2018 secured railcar equipment notes, net of unamortized discount of $0.2 and $0.2
|
457.3
|
|
|
478.3
|
|
|
472.2
|
|
|
475.2
|
|
TRIHC 2018 secured railcar equipment notes, net of unamortized discount of $2.1 and $2.5
|
268.3
|
|
|
275.2
|
|
|
279.0
|
|
|
278.1
|
|
2019 secured railcar equipment notes, net of unamortized discount of $0.2 and $-
|
521.3
|
|
|
536.0
|
|
|
—
|
|
|
—
|
|
TILC warehouse facility
|
545.8
|
|
|
545.8
|
|
|
374.8
|
|
|
374.8
|
|
|
2,944.7
|
|
|
3,035.9
|
|
|
2,336.3
|
|
|
2,364.3
|
|
Less: unamortized debt issuance costs
|
(21.5
|
)
|
|
|
|
(19.7
|
)
|
|
|
|
2,923.2
|
|
|
|
|
2,316.6
|
|
|
|
Partially-owned subsidiaries:
|
|
|
|
|
|
|
|
TRL 2012 secured railcar equipment notes
|
376.8
|
|
|
387.4
|
|
|
386.2
|
|
|
370.9
|
|
TRIP Master Funding secured railcar equipment notes
|
923.8
|
|
|
1,005.6
|
|
|
941.7
|
|
|
963.0
|
|
|
1,300.6
|
|
|
1,393.0
|
|
|
1,327.9
|
|
|
1,333.9
|
|
Less: unamortized debt issuance costs
|
(11.3
|
)
|
|
|
|
(12.7
|
)
|
|
|
|
1,289.3
|
|
|
|
|
1,315.2
|
|
|
|
Total non–recourse debt
|
4,212.5
|
|
|
|
|
3,631.8
|
|
|
|
Total debt
|
$
|
4,685.2
|
|
|
$
|
4,911.0
|
|
|
$
|
4,029.2
|
|
|
$
|
4,041.9
|
|
The estimated fair value of our Senior Notes is based on a quoted market price in a market with little activity as of September 30, 2019 and December 31, 2018 (Level 2 input). The estimated fair values of our 2006, 2009, 2010, 2012, 2018, and 2019 secured railcar equipment notes, TRIHC 2018 LLC ("TRIHC 2018"), and TRIP Rail Master Funding LLC (“TRIP Master Funding”) secured railcar equipment notes are based on our estimate of their fair value as of September 30, 2019 and December 31, 2018 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 nine months ended September 30, 2019, we had total borrowings of $825.0 million and total repayments of $750.0 million under the revolving credit facility, with a remaining outstanding balance of $75.0 million as of September 30, 2019. Additionally, we had outstanding letters of credit issued in an aggregate principal amount of $35.5 million, leaving $339.5 million available for borrowing as of September 30, 2019. The outstanding letters of credit as of September 30, 2019 are scheduled to expire in July 2020. 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 based on LIBOR or an alternate base rate at the time of the borrowing and Trinity’s leverage as measured by a consolidated total indebtedness to consolidated EBITDA ratio, and was initially set at LIBOR plus 1.25% (1.50% as of September 30, 2019). A commitment fee accrues on the average daily unused portion of the revolving facility at the rate of 0.175% to 0.30% (0.20% as of September 30, 2019).
The revolving credit facility requires the maintenance of ratios related to minimum interest coverage for the leasing and manufacturing operations and maximum leverage. As of September 30, 2019, we were in compliance with all such financial covenants. Borrowings under the credit facility are guaranteed by certain of our 100%-owned subsidiaries.
TILC Warehouse Loan Facility — The TILC warehouse loan facility was established to finance railcars owned by TILC. During the nine months ended September 30, 2019, we had total borrowings of $663.1 million and total repayments of $492.1 million under the TILC warehouse loan facility, with a remaining outstanding balance of $545.8 million as of September 30, 2019. The entire unused facility amount of $204.2 million was available as of September 30, 2019 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 3.69% at September 30, 2019. Amounts outstanding at maturity, absent renewal, are payable in March 2022.
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 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. Net proceeds received from the transaction were used to repay approximately $347.0 million of borrowings under TILC’s secured warehouse loan facility, to repay approximately $125.0 million of borrowings under the Company’s revolving credit facility, and for general corporate purposes.
Terms and conditions of other debt, including recourse and non-recourse provisions, are described in Note 11 of our 2018 Annual Report on Form 10-K.
The remaining principal payments under existing debt agreements as of September 30, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining three months of 2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Thereafter
|
|
(in millions)
|
Recourse:
|
|
Corporate
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
75.0
|
|
|
$
|
400.0
|
|
Non-recourse – leasing (Note 6):
|
|
|
|
|
|
|
|
|
|
|
|
2006 secured railcar equipment notes
|
10.0
|
|
|
29.7
|
|
|
29.1
|
|
|
29.8
|
|
|
16.1
|
|
|
—
|
|
2009 secured railcar equipment notes
|
2.5
|
|
|
6.6
|
|
|
13.4
|
|
|
14.0
|
|
|
11.8
|
|
|
102.4
|
|
2010 secured railcar equipment notes
|
2.6
|
|
|
14.1
|
|
|
20.0
|
|
|
20.9
|
|
|
22.5
|
|
|
171.1
|
|
2017 promissory notes
|
8.3
|
|
|
33.1
|
|
|
33.1
|
|
|
33.2
|
|
|
33.2
|
|
|
494.5
|
|
2018 secured railcar equipment notes
|
5.0
|
|
|
20.0
|
|
|
20.0
|
|
|
20.0
|
|
|
20.0
|
|
|
372.5
|
|
TRIHC 2018 secured railcar equipment notes
|
3.2
|
|
|
10.9
|
|
|
11.9
|
|
|
9.3
|
|
|
11.6
|
|
|
223.5
|
|
2019 secured railcar equipment notes
|
5.3
|
|
|
20.7
|
|
|
22.5
|
|
|
21.5
|
|
|
19.6
|
|
|
431.9
|
|
TILC warehouse facility
|
4.3
|
|
|
17.0
|
|
|
17.0
|
|
|
2.9
|
|
|
—
|
|
|
—
|
|
Facility termination payments - TILC warehouse facility
|
—
|
|
|
—
|
|
|
—
|
|
|
504.6
|
|
|
—
|
|
|
—
|
|
TRL 2012 secured railcar equipment notes
|
4.7
|
|
|
19.3
|
|
|
19.9
|
|
|
19.6
|
|
|
28.5
|
|
|
284.8
|
|
TRIP Master Funding secured railcar equipment notes
|
5.9
|
|
|
32.9
|
|
|
40.4
|
|
|
41.8
|
|
|
37.0
|
|
|
765.8
|
|
Total principal payments
|
$
|
51.8
|
|
|
$
|
204.3
|
|
|
$
|
227.3
|
|
|
$
|
717.6
|
|
|
$
|
275.3
|
|
|
$
|
3,246.5
|
|
Subsequent Event — 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 "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 “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 Class A-1 Notes and Class A-2 Notes bear interest at fixed rates of 2.39% and 3.10%, respectively, 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. Net proceeds received from the transaction are being used to repay approximately $167 million in outstanding borrowings under the Leasing Group's secured warehouse loan facility, to repay approximately $125 million in outstanding borrowings under the Company's revolving credit facility, and for general corporate purposes.
Note 9. Income Taxes
Our effective tax rates were 27.5% and 26.1% for the three and nine months ended September 30, 2019, respectively, and 19.0% and 23.5% for the three and nine months ended September 30, 2018, respectively. Our effective tax rates differ from the U.S. statutory rate of 21.0% due to the impacts of state income taxes, the incremental tax on profits of branches taxed in both U.S. and foreign jurisdictions, excess tax benefits of equity based compensation, tax return true-ups, and non-deductible executive compensation.
Our federal tax years remain open under statute from 2014 forward. The 2014-2017 tax years have been reviewed by the Internal Revenue Service but 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 2013 forward. We believe we are appropriately reserved for any potential matters.
During the nine months ended September 30, 2019, we effectively settled a state tax audit resulting in a decrease in uncertain tax positions of $5.7 million.
Note 10. Employee Retirement Plans
The following table summarizes the components of our net retirement cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
(in millions)
|
Expense Components
|
|
|
|
|
|
|
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
Interest
|
5.0
|
|
|
4.6
|
|
|
14.8
|
|
|
13.7
|
|
Expected return on plan assets
|
(5.8
|
)
|
|
(6.9
|
)
|
|
(17.3
|
)
|
|
(20.6
|
)
|
Amortization of actuarial loss
|
1.2
|
|
|
1.3
|
|
|
3.4
|
|
|
3.6
|
|
Net periodic benefit cost
|
0.4
|
|
|
(1.0
|
)
|
|
1.0
|
|
|
(3.2
|
)
|
Profit sharing
|
3.1
|
|
|
2.6
|
|
|
8.3
|
|
|
7.6
|
|
Net expense
|
$
|
3.5
|
|
|
$
|
1.6
|
|
|
$
|
9.3
|
|
|
$
|
4.4
|
|
We had no contributions to our defined benefit pension plans for the three months ended September 30, 2019. We contributed $0.2 million to our defined benefit pension plans for the nine months ended September 30, 2019. We contributed $28.0 million and $31.7 million to our defined benefit pension plans for the three and nine months ended September 30, 2018, respectively. We do not expect any further contributions to our defined benefit pension plans in 2019. The non-service cost components of net periodic benefit cost in the table above are included in other, net (income) expense in our Consolidated Statements of Operations.
Planned 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. Except for retirees currently receiving payments under the Pension Plan, participants will have 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. The Pension Plan is expected to be settled between late 2020 and early 2021, subject to required governmental approvals, and would then result in the Company no longer having any remaining funded pension plan obligations.
Upon settlement, we expect to recognize pre-tax pension settlement charges totaling between $145 million and $195 million. This range includes: (1) a non-cash charge for the recognition of all pre-tax actuarial losses accumulated in AOCL, which totaled approximately $140.4 million ($107.2 million, net of tax) as of December 31, 2018; and (2) a potential additional cash contribution to settle all of the Pension Plan’s obligations, which is not expected to exceed $25 million. The actual amount of the settlement charges and any potential cash contribution will depend on interest rates, Pension Plan asset returns, the lump-sum election rate, and other factors.
Note 11. Accumulated Other Comprehensive Loss
Changes in AOCL for the nine months ended September 30, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments
|
|
Unrealized gain/(loss) on derivative financial instruments
|
|
Net actuarial gains/(losses) 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
|
—
|
|
|
(18.1
|
)
|
|
—
|
|
|
(18.1
|
)
|
Amounts reclassified from accumulated other comprehensive loss, net of tax benefit of $-, $0.7, $0.9, and $1.6
|
—
|
|
|
2.9
|
|
|
2.5
|
|
|
5.4
|
|
Less: noncontrolling interest
|
—
|
|
|
(1.0
|
)
|
|
—
|
|
|
(1.0
|
)
|
Other comprehensive income (loss)
|
—
|
|
|
(16.2
|
)
|
|
2.5
|
|
|
(13.7
|
)
|
Balances at September 30, 2019
|
$
|
(1.3
|
)
|
|
$
|
(24.5
|
)
|
|
$
|
(104.7
|
)
|
|
$
|
(130.5
|
)
|
See Note 3 for information on the reclassification of amounts in AOCL into earnings. Reclassifications of unrealized before-tax losses on derivative financial instruments are included in interest expense 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.
Note 12. Common Stock and Stock-Based Compensation
Stockholders' Equity
In December 2017, our Board of Directors authorized a $500 million share repurchase program effective January 1, 2018 through December 31, 2019. On November 16, 2018, we entered into an accelerated share repurchase program (the "ASR Program") to repurchase $350 million of the Company's common stock. The $350 million notional value of the ASR Program represented the entire remaining amount that was available to us under the share repurchase program that was in effect at that time. The ASR Program was completed in March 2019.
In March 2019, our Board of Directors authorized a new share repurchase program effective March 7, 2019 through December 31, 2020. The new share repurchase program authorizes the Company to repurchase up to $350.0 million of its common stock, not to exceed 13.7 million shares. The share repurchase program is designed to meet certain IRS safe harbor guidelines associated with our spin-off of Arcosa, which was completed on November 1, 2018.
During the three and nine months ended September 30, 2019, we repurchased 5,171,489 and 10,778,492 shares, respectively, at a cost of approximately $100.9 million and $233.9 million, respectively. The total for the nine months ended September 30, 2019 includes 2,607,172 shares at a cost of approximately $70.0 million representing the final settlement of the ASR Program, which was funded in November 2018 but a portion of which remained outstanding as of December 31, 2018. As of September 30, 2019, the Company had a remaining authorization to repurchase up to $186.1 million, not to exceed 5.5 million shares, of its common stock under the current repurchase program. Certain shares of stock repurchased during September 2019, totaling $9.0 million, were cash settled in October 2019 in accordance with normal settlement practices.
During the three and nine months ended September 30, 2018, 1,356,484 and 4,327,158 shares, respectively, were repurchased at a cost of approximately $50.0 million and $150.1 million, respectively, under the prior share repurchase program.
Stock-Based Compensation
Stock-based compensation totaled approximately $8.4 million and $21.4 million for the three and nine months ended September 30, 2019, respectively. Stock-based compensation totaled approximately $7.6 million and $21.8 million for the three and nine months ended September 30, 2018, respectively. The Company's annual grant of share-based awards generally occurs in the second quarter under our 2004 Fourth Amended and Restated Stock Option and Incentive Plan (the "Plan”). Expense related to restricted stock units issued to eligible employees under the Plan is recognized ratably over the vesting period, generally between three years and four years. Expense related to performance units is recognized ratably from their award date to the end of the performance period, generally three years. Expense related to restricted stock awards granted to non-employee directors under the Plan is recognized ratably over the vesting period, generally one year.
The following table summarizes stock-based compensation awards granted during the nine months ended September 30, 2019:
|
|
|
|
|
|
|
|
|
Number of Shares Granted
|
|
Weighted Average Grant-Date
Fair Value per Award
|
Restricted stock units
|
956,235
|
|
|
$
|
22.20
|
|
Restricted stock awards
|
20,321
|
|
|
$
|
22.27
|
|
Performance units
|
476,394
|
|
|
$
|
22.22
|
|
Note 13. Earnings Per Common Share
Basic net income attributable to Trinity Industries, Inc. per common share ("EPS") is computed by dividing net income 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 nine months ended September 30, 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 5.5 million shares for the three and nine months ended September 30, 2019, respectively. Approximately 1.2 million and 0.2 million of these shares were excluded from the EPS calculation for the three and nine months ended September 30, 2019, respectively as their effect would have been antidilutive. Total weighted average restricted shares were 5.9 million shares for the three and nine months ended September 30, 2018, respectively. There were no antidilutive restrictive shares for the three and nine months ended September 30, 2018.
The computation of basic and diluted net income attributable to Trinity Industries, Inc. is as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
(in millions, except per share amounts)
|
Income from continuing operations
|
$
|
48.1
|
|
|
$
|
28.5
|
|
|
$
|
116.9
|
|
|
$
|
81.0
|
|
Less: Net (income) loss attributable to noncontrolling interest
|
1.3
|
|
|
(0.6
|
)
|
|
1.4
|
|
|
(3.4
|
)
|
Unvested restricted share participation — continuing operations
|
(0.6
|
)
|
|
(0.6
|
)
|
|
(1.6
|
)
|
|
(1.9
|
)
|
Net income from continuing operations attributable to Trinity Industries, Inc.
|
48.8
|
|
|
27.3
|
|
|
116.7
|
|
|
75.7
|
|
Net income (loss) from discontinued operations, net of income taxes
|
(0.4
|
)
|
|
(0.2
|
)
|
|
(2.3
|
)
|
|
54.4
|
|
Unvested restricted share participation — discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.5
|
)
|
Net income (loss) from discontinued operations attributable to Trinity Industries, Inc.
|
(0.4
|
)
|
|
(0.2
|
)
|
|
(2.3
|
)
|
|
53.9
|
|
Net income attributable to Trinity Industries, Inc., including the effect of unvested restricted share participation
|
$
|
48.4
|
|
|
$
|
27.1
|
|
|
$
|
114.4
|
|
|
$
|
129.6
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
124.7
|
|
|
145.0
|
|
|
127.6
|
|
|
146.1
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
Nonparticipating unvested RSUs and RSAs
|
1.3
|
|
|
0.8
|
|
|
1.6
|
|
|
0.9
|
|
Convertible subordinated notes
|
—
|
|
|
—
|
|
|
—
|
|
|
1.8
|
|
Diluted weighted average shares outstanding
|
126.0
|
|
|
145.8
|
|
|
129.2
|
|
|
148.8
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
Income from continuing operations
|
$
|
0.39
|
|
|
$
|
0.19
|
|
|
$
|
0.91
|
|
|
$
|
0.52
|
|
Income (loss) from discontinued operations
|
—
|
|
|
—
|
|
|
(0.02
|
)
|
|
0.37
|
|
Basic net income attributable to Trinity Industries, Inc.
|
$
|
0.39
|
|
|
$
|
0.19
|
|
|
$
|
0.89
|
|
|
$
|
0.89
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
Income from continuing operations
|
$
|
0.39
|
|
|
$
|
0.19
|
|
|
$
|
0.90
|
|
|
$
|
0.51
|
|
Income (loss) from discontinued operations
|
—
|
|
|
—
|
|
|
(0.02
|
)
|
|
0.36
|
|
Diluted net income attributable to Trinity Industries, Inc.
|
$
|
0.39
|
|
|
$
|
0.19
|
|
|
$
|
0.88
|
|
|
$
|
0.87
|
|
Note 14. 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 awarding $175.0 million in damages. On June 9, 2015 the District Court entered judgment on the verdict in the total amount of $682.4 million, comprised of $175.0 million in damages, which amount is automatically trebled under the FCA to $525.0 million plus $138.4 million in civil penalties and $19.0 million in costs and attorneys' fees.
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 October 27, 2017, Mr. Harman filed a Petition for Rehearing En Banc in the Fifth Circuit, which was denied by the Fifth Circuit on November 14, 2017. On February 12, 2018, Mr. Harman, filed a petition for certiorari with the United States Supreme Court, seeking a review of the Fifth Circuit's decision. On January 7, 2019, the United States Supreme Court denied Mr. Harman's petition for certiorari. The denial of Mr. Harman's petition ends 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 Tennessee False Claims Act (State of Tennessee ex rel. Joshua M. Harman v. Trinity Industries, Inc., and Trinity Highway Products, LLC, Case No. 14C2652, in the Circuit Court for Davidson County, Tennessee); 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); the New Jersey False Claims Act (State of New Jersey ex rel. Joshua M. Harman v. Trinity Industries, Inc. and Trinity Highway Products, LLC, Case No.L-1344-14, in the Superior Court of New Jersey Law Division: Mercer County); 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.
In a similar Georgia state qui tam action filed by Mr. Harman (State of Georgia ex rel. Joshua M. Harman v. Trinity Industries, Inc., and Trinity Highway Products, LLC, Case No. 1:15-CV-1260, in the U.S. District Court for the Northern District of Georgia), on July 24, 2019, the Court entered an order dismissing Mr. Harman’s complaint without prejudice for lack of subject matter jurisdiction.
In a similar Illinois state qui tam action filed by Mr. Harman (State of Illinois ex rel. Joshua M. Harman Qui Tam v. Trinity Industries, Inc. and Trinity Highway Products, LLC, Case No. 2014 L 000098, in the Circuit Court for the Sixth Judicial District, Sangamon County, Illinois), on September 27, 2019, Mr. Harman filed an Unopposed Motion for Voluntary Dismissal with prejudice. On October 7, 2019, the Court entered an order dismissing the case.
As previously reported, state qui tam actions filed by Mr. Harman in the states of Delaware, Florida, Indiana, Iowa, Minnesota, Montana, Nevada, and Rhode Island were dismissed earlier this year.
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.
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. A trial date has been scheduled in this case for April 27, 2020.
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, including, but not limited to the significance of the successful completion of eight post-verdict crash tests of the ET Plus in 2015, the favorable findings and conclusions published in 2015 by two joint task forces of the Federal Highway Administration and the American Association of State Highway and Transportation Officials regarding the ET Plus end terminal system, the Fifth Circuit's unanimous panel opinion reversing the $682.4 million judgment and rendering judgment in favor of the Company, and the United States Supreme Court’s subsequent denial of Mr. Harman's petition for certiorari in the FCA case, 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 a number of 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".
Shareholder class actions
On January 11, 2016, the previously reported cases styled Thomas Nemky, Individually and On Behalf of All Other Similarly Situated v. Trinity Industries, Inc., Timothy R. Wallace, and James E. Perry, Case No. (2:15-CV-00732) (“Nemky”) and Richard J. Isolde, Individually and On Behalf of All Other Similarly Situated v. Trinity Industries, Inc., Timothy R. Wallace, and James E. Perry, Case No. (3:15-CV-2093) ("Isolde"), were consolidated in the District Court for the Northern District of Texas, with all future filings to be filed in the Isolde case. On May 11, 2016, the Lead Plaintiffs filed their Consolidated Complaint alleging defendants Trinity Industries, Inc., Timothy R. Wallace, James E. Perry, and Gregory B. Mitchell violated Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 promulgated thereunder, and defendants Mr. Wallace and Mr. Perry violated Section 20(a) of the Securities Exchange Act of 1934 by making materially false and misleading statements and/or by failing to disclose material facts about Trinity's ET Plus and the FCA case 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.). The parties reached an agreement to settle all claims in this case without any admission of liability or fault for $7.5 million, and on September 23, 2019, entered into a Stipulation of Settlement. Defendants have denied and continue to deny specifically each and all of the claims and contentions alleged by Lead Plaintiffs in this case. The settlement is subject to final court approval. On September 24, 2019, Lead Plaintiffs filed with the Court an Unopposed Motion for Preliminary Approval of Settlement and Approval of Notice to the Class. We have accrued a $2.5 million charge for these claims, net of insurance recoveries, which 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 $29.6 million to $46.2 million, which includes our rights in indemnity and recourse to third parties of approximately $24.0 million, which is recorded in Other Assets on our Consolidated Balance Sheet as of September 30, 2019. This range includes any amounts related to the Highway Products litigation matters described above in the section titled “Highway products litigation” and the settlement described above in the section titled "Shareholder class actions." At September 30, 2019, total accruals of $33.8 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 $1.4 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.