Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The foregoing Consolidated Financial Statements are unaudited and have been prepared from the books and records of Trinity Industries, Inc. and its consolidated subsidiaries (“Trinity,” “Company,” “we,” “our,” or "us") including the accounts of our wholly-owned subsidiaries and partially-owned subsidiaries, TRIP Rail Holdings LLC (“TRIP Holdings”) and RIV 2013 Rail Holdings LLC ("RIV 2013"), in which we have a controlling interest. In our opinion, all normal and recurring adjustments necessary for a fair presentation of our financial position as of March 31, 2020, and the results of operations for the three months ended March 31, 2020 and 2019, and cash flows for the three months ended March 31, 2020 and 2019, have been made in conformity with generally accepted accounting principles. All significant intercompany accounts and transactions have been eliminated. Certain prior year balances have been reclassified to conform to the 2020 presentation.
Due to seasonal and other factors, including the potential impacts of the coronavirus disease 2019 (“COVID-19”) pandemic and the related governmental response, the results of operations for the three months ended March 31, 2020 may not be indicative of expected results of operations for the year ending December 31, 2020. These interim financial statements and notes are condensed as permitted by the instructions to Form 10-Q and should be read in conjunction with our audited Consolidated Financial Statements included in our Form 10-K for the year ended December 31, 2019.
Revenue Recognition
Revenue is measured based on the allocation of the transaction price in a contract to satisfied performance obligations. The transaction price does not include any amounts collected on behalf of third parties. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer. Payments for our products and services are generally due within normal commercial terms. The following is a description of principal activities from which we generate our revenue, separated by reportable segments. See Note 3 for a further discussion regarding our reportable segments.
Railcar Leasing and Management Services Group
In our Railcar Leasing and Management Services Group ("Leasing Group"), revenue from rentals and operating leases, including contracts that contain non-level fixed lease payments, is recognized monthly on a straight-line basis. Leases not classified as operating leases are generally considered sales-type leases as a result of an option to purchase.
We review our operating lease receivables for collectibility on a regular basis, taking into consideration changes in factors such as the lessee’s payment history, the financial condition of the lessee, and business and economic conditions in the industry in which the lessee operates. In the event that the collectibility of a receivable with respect to any lessee is no longer probable, we de-recognize the revenue and related receivable and recognize future revenue only when the lessee makes a rental payment. Contingent rents are recognized when the contingency is resolved.
Selling profit or loss associated with sales-type leases is recognized upon lease commencement, and a net investment in the sales-type lease is recorded on the Consolidated Balance Sheet. Interest income related to sales-type leases is recognized over the lease term using the effective interest method. We had no sales-type leases as of March 31, 2020.
Revenue is recognized from the sales of railcars from the lease fleet on a gross basis in leasing revenues and cost of revenues if the railcar has been owned for one year or less at the time of sale. Sales of railcars from the lease fleet owned for more than one year are recognized as a net gain or loss from the disposal of a long-term asset. Revenue from servicing and management agreements is recognized as each performance period occurs.
We account for shipping and handling costs as activities to fulfill the promise to transfer the goods; as such, these fees are recorded in revenue. The fees and costs of shipping and handling activities are accrued when the related performance obligation has been satisfied.
Rail Products Group
Our railcar manufacturing business recognizes revenue when the customer has submitted its certificate of acceptance and legal title of the railcar has passed to the customer. Certain contracts for the sales of railcars include price adjustments based on steel-price indices; this amount represents variable consideration for which we are unable to estimate the final consideration until the railcar is delivered.
Within our maintenance services business, revenue is recognized over time as repair and maintenance projects are completed, using an input approach based on the costs incurred relative to the total estimated costs of performing the project. We recorded contract assets of $9.3 million and $5.2 million as of March 31, 2020 and December 31, 2019, respectively, related to unbilled revenues recognized on repair and maintenance services that have been performed, but for which the entire project has not yet been completed, and the railcar has not yet been shipped to the customer. These contract assets are included within the Receivables, net of allowance line in our Consolidated Balance Sheets.
All Other
Our highway products business recognizes revenue when shipment has occurred and legal title of the product has passed to the customer.
Unsatisfied Performance Obligations
The following table includes estimated revenue expected to be recognized in future periods related to performance obligations that are unsatisfied or partially satisfied as of March 31, 2020 and the percentage of the outstanding performance obligations as of March 31, 2020 expected to be delivered during the remainder of 2020:
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|
|
|
|
|
|
|
|
Unsatisfied performance obligations at March 31, 2020
|
|
Total
Amount
|
|
Percent expected to be delivered in 2020
|
|
(in millions)
|
|
|
Rail Products Group:
|
|
|
|
Products:
|
|
|
|
External Customers
|
$
|
976.1
|
|
|
|
Leasing Group
|
581.7
|
|
|
|
|
$
|
1,557.8
|
|
|
53
|
%
|
|
|
|
|
Maintenance Services
|
$
|
20.0
|
|
|
92
|
%
|
|
|
|
|
Railcar Leasing and Management Services Group
|
$
|
102.4
|
|
|
12
|
%
|
The remainder of the unsatisfied performance obligations for the Rail Products Group is expected to be delivered through 2023. Unsatisfied performance obligations for the Railcar Leasing and Management Services Group are related to servicing, maintenance, and management agreements and are expected to be performed through 2029.
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 March 31, 2020, 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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|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
Three Months Ended March 31, 2019
|
Consolidated Statement of Operations
|
|
|
|
Operating lease expense
|
$
|
3.9
|
|
|
$
|
5.2
|
|
Short-term lease expense
|
$
|
0.2
|
|
|
$
|
1.4
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
Consolidated Balance Sheet
|
|
|
|
Right-of-use assets (1)
|
$
|
42.6
|
|
|
$
|
44.2
|
|
Lease liabilities (2)
|
$
|
43.4
|
|
|
$
|
44.8
|
|
|
|
|
|
Weighted average remaining lease term
|
4.6 years
|
|
|
4.8 years
|
|
Weighted average discount rate
|
4.1
|
%
|
|
4.1
|
%
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
Three Months Ended March 31, 2019
|
Consolidated Statement of Cash Flows
|
|
|
|
Cash flows from operating activities
|
$
|
3.9
|
|
|
$
|
5.2
|
|
Right-of-use assets recognized in exchange for new lease liabilities
|
$
|
2.1
|
|
|
$
|
—
|
|
(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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing Group
|
|
Non-Leasing Group (1)
|
|
Total
|
Remaining nine months of 2020
|
$
|
7.8
|
|
|
$
|
3.0
|
|
|
$
|
10.8
|
|
2021
|
8.5
|
|
|
3.0
|
|
|
11.5
|
|
2022
|
7.8
|
|
|
2.8
|
|
|
10.6
|
|
2023
|
5.9
|
|
|
2.5
|
|
|
8.4
|
|
2024
|
2.7
|
|
|
1.3
|
|
|
4.0
|
|
Thereafter
|
1.8
|
|
|
2.9
|
|
|
4.7
|
|
Total operating lease payments
|
$
|
34.5
|
|
|
$
|
15.5
|
|
|
$
|
50.0
|
|
Less: Present value adjustment
|
|
|
|
|
(6.6
|
)
|
Total operating lease liabilities
|
|
|
|
|
$
|
43.4
|
|
(1) Excludes approximately $77.9 million of legally binding minimum operating lease liabilities for a lease that has been signed but has not yet commenced for the relocation of our corporate headquarters. See Note 10 for more information.
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. Generally, lease payments are due at the beginning of the applicable month. 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.
Leases previously classified as sales-type leases included an option for the lessee to purchase the leased railcars with certain notice. During the three months ended March 31, 2020, the lessee exercised its option to purchase the leased railcars. As of March 31, 2020, non-Leasing Group operating leases were not significant, and we had no sales-type leases and 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):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
Three Months Ended March 31, 2019
|
Operating lease revenues
|
$
|
172.2
|
|
|
$
|
179.2
|
|
Variable operating lease revenues
|
$
|
12.6
|
|
|
$
|
10.8
|
|
Interest income on sales-type lease receivables
|
$
|
1.7
|
|
|
$
|
—
|
|
Future contractual minimum revenues for operating leases will mature as follows (in millions):
|
|
|
|
|
Remaining nine months of 2020
|
$
|
446.5
|
|
2021
|
482.1
|
|
2022
|
376.3
|
|
2023
|
268.8
|
|
2024
|
183.7
|
|
Thereafter
|
330.8
|
|
Total
|
$
|
2,088.2
|
|
(1) Total contractual minimum rental revenues on operating leases relates to our wholly-owned and partially-owned subsidiaries and sub-lease rental revenues associated with the Leasing Group's operating lease obligations.
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. We place our cash investments in bank deposits and investment grade, short-term debt instruments and limit the amount of credit exposure to any one commercial issuer. The carrying values of cash, receivables, and accounts payable are considered to be representative of their respective fair values.
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. Receivables are generally evaluated at a portfolio level based on these characteristics. As receivables are generally unsecured, we maintain an allowance for credit losses using a forward-looking approach based on historical expected losses and consideration of current and expected future economic conditions. Historically, we have observed that the likelihood of loss increases when receivables have aged beyond 180 days. When a receivable is deemed uncollectible, the write-off is recorded as a reduction to allowance for credit losses. During the three months ended March 31, 2020, we recognized approximately $1.2 million of credit loss expense related to our in-scope receivables, bringing the allowance for credit losses balance at March 31, 2020 to $6.7 million. This balance excludes the general reserve for operating lease receivables that is permitted under ASC 842.
Property, Plant, and Equipment
In early 2020, we finalized an assessment of the estimated useful lives and salvage value assumptions for the railcars in our lease fleet. Based upon analysis of historical fleet data, review of industry standards, and consideration of certain economic factors by railcar type, we determined that it was appropriate to revise the useful lives and salvage values of certain railcar types in our lease fleet. The net impact of these changes, which took effect January 1, 2020, resulted in a change in the weighted average useful life from approximately 34 years to approximately 37 years. This change was accounted for as a change in accounting estimate, which is required to be accounted for on a prospective basis. This change in estimate resulted in a decrease in depreciation expense and an increase in income from continuing operations of approximately $7.7 million, as well as an increase in net income of approximately $5.9 million for the three months ended March 31, 2020. Further, basic and diluted earnings per share increased $0.05 per share for the three months ended March 31, 2020, respectively.
Goodwill
As of March 31, 2020 and December 31, 2019, 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 months ended March 31, 2020 and 2019 are as follows:
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|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
|
(in millions)
|
Beginning balance
|
$
|
8.1
|
|
|
$
|
7.4
|
|
Warranty costs incurred
|
(0.9
|
)
|
|
(0.9
|
)
|
Warranty originations and revisions
|
0.6
|
|
|
0.7
|
|
Warranty expirations
|
(0.1
|
)
|
|
(0.1
|
)
|
Ending balance
|
$
|
7.7
|
|
|
$
|
7.1
|
|
Recent Accounting Pronouncements
Adopted in 2020
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 adopted ASU 2016-13 effective January 1, 2020 using a cumulative-effect adjustment to the opening balance of retained earnings on January 1, 2020. Therefore, comparative financial information was not adjusted. We assessed our outstanding receivables by reportable segment and determined the expected loss rate using historical loss information and aging considerations, as well as the current and future economic conditions of our customer base and the end markets in which they operate. The Leasing Group's outstanding receivables primarily relate to their servicing and management agreements. The method for evaluating the Leasing Group's operating lease receivables remained unchanged by ASU 2016-13. The Rail Products Group's outstanding receivables primarily relate to amounts due on manufactured railcars, as well as completed repairs and maintenance projects. Upon adoption, we recorded an adjustment to opening retained earnings of approximately $0.7 million ($0.5 million, net of tax). The ongoing application of ASU 2016-13 is not expected to materially impact our results of operations, financial position, or cash flows.
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 adopted ASU 2018-15 effective January 1, 2020 on a prospective basis. Beginning January 1, 2020, capitalized implementation costs are included within other assets in the Consolidated Balance Sheet and are depreciated within selling, general, and administrative expenses in the Consolidated Statement of Operations. The adoption did not have a significant impact on our Consolidated Financial Statements.
ASU 2020-04 — In March 2020, the FASB issued ASU No. 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting," which provides temporary optional expedients to accounting guidance on contract modifications and hedge accounting to ease the potential financial reporting burdens as the market transitions from the London Interbank Offered Rate ("LIBOR") to alternative reference rates. ASU 2020-04 was effective upon issuance. ASU 2020-04 is in response to the July 2017 announcement by United Kingdom's Financial Conduct Authority, which regulates the LIBOR, that it will no longer persuade or require banks to submit rates for the calculation of LIBOR after 2021. We currently have LIBOR-based contracts that extend beyond 2021 including derivative instruments, promissory notes for Trinity Rail Leasing 2017, LLC, a Delaware limited liability company and a limited purpose, indirect wholly-owned subsidiary of the Company owned through Trinity Industries Leasing Company (“TILC”), TILC's warehouse loan facility, and our revolving credit facility. The adoption did not have a significant impact on our Consolidated Financial Statements.
Note 2. 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 7 for a description of our debt instruments.
Interest Rate Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in accompanying balance sheet
at March 31, 2020
|
|
Notional Amount
|
|
Interest Rate (1)
|
|
Asset/(Liability)
|
|
AOCL – loss/(income)
|
|
Noncontrolling Interest
|
|
(in millions, except %)
|
Expired hedges:
|
|
|
|
|
|
|
|
|
|
2018 secured railcar equipment notes
|
$
|
249.3
|
|
|
4.41
|
%
|
|
$
|
—
|
|
|
$
|
1.0
|
|
|
$
|
—
|
|
TRIP Holdings warehouse loan
|
$
|
788.5
|
|
|
3.60
|
%
|
|
$
|
—
|
|
|
$
|
2.0
|
|
|
$
|
2.7
|
|
TRIP Master Funding secured railcar equipment notes
|
$
|
34.8
|
|
|
2.62
|
%
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
2017 promissory notes - interest rate cap
|
$
|
169.3
|
|
|
3.00
|
%
|
|
$
|
—
|
|
|
$
|
(0.6
|
)
|
|
$
|
—
|
|
Open hedge:
|
|
|
|
|
|
|
|
|
|
2017 promissory notes - interest rate swap
|
$
|
563.6
|
|
|
2.68
|
%
|
|
$
|
(51.5
|
)
|
|
$
|
51.1
|
|
|
$
|
—
|
|
(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
March 31,
|
|
Expected effect during next twelve months(1)
|
|
2020
|
|
2019
|
|
|
(in millions)
|
Expired hedges:
|
|
|
|
|
|
2006 secured railcar equipment notes (2)
|
$
|
(0.1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
2018 secured railcar equipment notes
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
0.2
|
|
TRIP Holdings warehouse loan
|
$
|
0.5
|
|
|
$
|
0.5
|
|
|
$
|
2.0
|
|
TRIP Master Funding secured railcar equipment notes
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
2017 promissory notes - interest rate cap
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
Open hedge:
|
|
|
|
|
|
2017 promissory notes - interest rate swap
|
$
|
1.7
|
|
|
$
|
0.6
|
|
|
$
|
6.8
|
|
(1) Based on the fair value of open hedges as of March 31, 2020.
(2) Upon settlement of the debt in March 2020, the remaining balance of $0.1 million in AOCL was recognized through interest expense. See Note 7 for additional information on the debt redemption.
Other Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in accompanying balance sheet at March 31, 2020
|
|
Effect on cost of revenues –increase/(decrease)
|
|
Notional
Amount
|
|
Asset/(Liability)
|
|
AOCL –
loss/(income)
|
|
Three Months Ended
March 31, 2020
|
|
Expected effect during next twelve months(1)
|
|
(in millions)
|
Foreign currency hedge
|
$
|
35.0
|
|
|
$
|
(6.7
|
)
|
|
$
|
7.6
|
|
|
$
|
(0.8
|
)
|
|
$
|
7.6
|
|
(1) Based on the fair value of open hedges as of March 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:
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
March 31, 2020
|
|
December 31, 2019
|
|
(in millions)
|
Assets:
|
|
|
|
Cash equivalents
|
$
|
104.4
|
|
|
$
|
57.9
|
|
Restricted cash
|
96.3
|
|
|
111.4
|
|
Total assets
|
$
|
200.7
|
|
|
$
|
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:
|
|
|
|
|
|
|
|
|
|
Level 2
|
|
March 31, 2020
|
|
December 31, 2019
|
|
(in millions)
|
Assets:
|
|
|
|
Foreign currency hedge (1)
|
$
|
—
|
|
|
$
|
1.2
|
|
Total assets
|
$
|
—
|
|
|
$
|
1.2
|
|
|
|
|
|
Liabilities:
|
|
|
|
Interest rate hedge (2)
|
$
|
51.5
|
|
|
$
|
28.0
|
|
Foreign currency hedge (2)
|
6.7
|
|
|
—
|
|
Total liabilities
|
$
|
58.2
|
|
|
$
|
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 March 31, 2020 and December 31, 2019, we have no assets measured as Level 3 in the fair value hierarchy, except as described in Note 10 to this Form 10-Q and Note 10 to the Consolidated Financial Statements included in our 2019 Annual Report on Form 10-K.
See Note 7 for the estimated fair values of our debt instruments. The fair values of all other financial instruments are estimated to approximate carrying value.
Note 3. 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 restructuring activities when evaluating segment operating results; therefore, 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). We operate principally in North America.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
Railcar Leasing and Management Services Group
|
|
Rail Products Group
|
|
All Other
|
|
Corporate
|
|
Eliminations — Lease Subsidiary
|
|
Eliminations — Other
|
|
Consolidated Total
|
External Revenue
|
$
|
236.1
|
|
|
$
|
317.2
|
|
|
$
|
61.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
615.2
|
|
Intersegment Revenue
|
0.2
|
|
|
192.2
|
|
|
1.5
|
|
|
—
|
|
|
(190.4
|
)
|
|
(3.5
|
)
|
|
—
|
|
Total Revenues
|
$
|
236.3
|
|
|
$
|
509.4
|
|
|
$
|
63.4
|
|
|
$
|
—
|
|
|
$
|
(190.4
|
)
|
|
$
|
(3.5
|
)
|
|
$
|
615.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
Railcar Leasing and Management Services Group
|
|
Rail Products Group
|
|
All Other
|
|
Corporate
|
|
Eliminations — Lease Subsidiary
|
|
Eliminations — Other
|
|
Consolidated Total
|
External Revenue
|
$
|
200.2
|
|
|
$
|
345.6
|
|
|
$
|
59.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
604.8
|
|
Intersegment Revenue
|
0.2
|
|
|
282.3
|
|
|
3.1
|
|
|
—
|
|
|
(270.1
|
)
|
|
(15.5
|
)
|
|
—
|
|
Total Revenues
|
$
|
200.4
|
|
|
$
|
627.9
|
|
|
$
|
62.1
|
|
|
$
|
—
|
|
|
$
|
(270.1
|
)
|
|
$
|
(15.5
|
)
|
|
$
|
604.8
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2020
|
|
2019
|
|
(in millions)
|
Operating profit:
|
|
|
|
Railcar Leasing and Management Services Group
|
$
|
92.9
|
|
|
$
|
85.8
|
|
Rail Products Group
|
25.1
|
|
|
47.1
|
|
All Other
|
9.3
|
|
|
10.1
|
|
Segment Totals before Eliminations, Corporate Expenses, and Restructuring activities
|
127.3
|
|
|
143.0
|
|
Corporate
|
(28.1
|
)
|
|
(23.6
|
)
|
Restructuring activities, net
|
(5.5
|
)
|
|
—
|
|
Eliminations – Lease Subsidiary
|
(19.9
|
)
|
|
(27.2
|
)
|
Eliminations – Other
|
(0.8
|
)
|
|
(0.4
|
)
|
Consolidated operating profit
|
$
|
73.0
|
|
|
$
|
91.8
|
|
Other (income) expense
|
58.1
|
|
|
51.7
|
|
Provision (benefit) for income taxes
|
(147.6
|
)
|
|
8.9
|
|
Loss from discontinued operations, net of income taxes
|
(0.2
|
)
|
|
(1.1
|
)
|
Net income
|
$
|
162.3
|
|
|
$
|
30.1
|
|
Note 4. 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 March 31, 2020, the carrying value of our investment in TRIP Holdings and RIV 2013 totaled $187.2 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 Rail 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 7 regarding the debt of TRIP Holdings and RIV 2013 and their respective subsidiaries.
Note 5. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 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
|
$
|
7.3
|
|
|
$
|
—
|
|
|
$
|
7.3
|
|
|
$
|
—
|
|
|
$
|
7.3
|
|
Accounts receivable
|
75.7
|
|
|
9.3
|
|
|
85.0
|
|
|
—
|
|
|
85.0
|
|
Property, plant, and equipment, net
|
5,837.5
|
|
|
1,776.6
|
|
|
7,614.1
|
|
|
(899.7
|
)
|
|
6,714.4
|
|
Restricted cash
|
69.0
|
|
|
27.3
|
|
|
96.3
|
|
|
—
|
|
|
96.3
|
|
Other assets
|
53.4
|
|
|
1.3
|
|
|
54.7
|
|
|
—
|
|
|
54.7
|
|
Total assets
|
$
|
6,042.9
|
|
|
$
|
1,814.5
|
|
|
$
|
7,857.4
|
|
|
$
|
(899.7
|
)
|
|
$
|
6,957.7
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
85.6
|
|
|
$
|
42.4
|
|
|
$
|
128.0
|
|
|
$
|
—
|
|
|
$
|
128.0
|
|
Debt, net
|
3,078.8
|
|
|
1,263.5
|
|
|
4,342.3
|
|
|
—
|
|
|
4,342.3
|
|
Deferred income taxes
|
912.4
|
|
|
1.1
|
|
|
913.5
|
|
|
(202.9
|
)
|
|
710.6
|
|
Other liabilities
|
82.7
|
|
|
—
|
|
|
82.7
|
|
|
—
|
|
|
82.7
|
|
Total liabilities
|
4,159.5
|
|
|
1,307.0
|
|
|
5,466.5
|
|
|
(202.9
|
)
|
|
5,263.6
|
|
Noncontrolling interest
|
—
|
|
|
349.7
|
|
|
349.7
|
|
|
—
|
|
|
349.7
|
|
Total Equity
|
$
|
1,883.4
|
|
|
$
|
157.8
|
|
|
$
|
2,041.2
|
|
|
$
|
(696.8
|
)
|
|
$
|
1,344.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
$
|
72.7
|
|
|
$
|
44.6
|
|
|
$
|
117.3
|
|
|
$
|
—
|
|
|
$
|
117.3
|
|
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
|
60.7
|
|
|
—
|
|
|
60.7
|
|
|
—
|
|
|
60.7
|
|
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 4 and Note 7 for a further discussion regarding our investment in our partially-owned leasing subsidiaries and the related indebtedness.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2020
|
|
2019
|
|
Percent
|
|
($ in millions)
|
|
Change
|
Revenues:
|
|
|
|
|
|
Leasing and management
|
$
|
192.0
|
|
|
$
|
187.1
|
|
|
2.6
|
%
|
Sales of railcars owned one year or less at the time of sale
|
44.3
|
|
|
13.3
|
|
|
233.1
|
%
|
Total revenues
|
$
|
236.3
|
|
|
$
|
200.4
|
|
|
17.9
|
%
|
|
|
|
|
|
|
|
Operating profit(1):
|
|
|
|
|
|
|
Leasing and management
|
$
|
82.5
|
|
|
$
|
77.1
|
|
|
7.0
|
%
|
Railcar sales:
|
|
|
|
|
|
|
Railcars owned one year or less at the time of sale
|
1.7
|
|
|
0.8
|
|
|
112.5
|
%
|
Railcars owned more than one year at the time of sale
|
8.7
|
|
|
7.9
|
|
|
10.1
|
%
|
Total operating profit
|
$
|
92.9
|
|
|
$
|
85.8
|
|
|
8.3
|
%
|
Total operating profit margin
|
39.3
|
%
|
|
42.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Leasing and management operating profit margin
|
43.0
|
%
|
|
41.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Selected expense information:
|
|
|
|
|
|
|
Depreciation (2)
|
$
|
53.6
|
|
|
$
|
54.4
|
|
|
(1.5
|
)%
|
Maintenance and compliance
|
$
|
25.9
|
|
|
$
|
27.8
|
|
|
(6.8
|
)%
|
Rent
|
$
|
3.0
|
|
|
$
|
5.5
|
|
|
(45.5
|
)%
|
Selling, engineering, and administrative expenses
|
$
|
14.3
|
|
|
$
|
12.8
|
|
|
11.7
|
%
|
Interest
|
$
|
55.1
|
|
|
$
|
46.0
|
|
|
19.8
|
%
|
(1) 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.
(2) 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 three months ended March 31, 2020 of approximately $7.7 million. This decrease was partially offset by higher depreciation associated with growth in the lease fleet. See Note 1 of the Consolidated Financial Statements for further information.
During the three months ended March 31, 2020 and 2019, information related to the sales of leased railcars is as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2020
|
|
2019
|
|
(in millions)
|
Sales of leased railcars:
|
|
|
|
Railcars owned one year or less at the time of sale
|
$
|
44.3
|
|
|
$
|
13.3
|
|
Railcars owned more than one year at the time of sale
|
68.5
|
|
|
29.4
|
|
|
$
|
112.8
|
|
|
$
|
42.7
|
|
|
|
|
|
Operating profit on sales of leased railcars:
|
|
|
|
Railcars owned one year or less at the time of sale
|
$
|
1.7
|
|
|
$
|
0.8
|
|
Railcars owned more than one year at the time of sale
|
8.7
|
|
|
7.9
|
|
|
$
|
10.4
|
|
|
$
|
8.7
|
|
|
|
|
|
Operating profit margin on sales of leased railcars:
|
|
|
|
Railcars owned one year or less at the time of sale
|
3.8
|
%
|
|
6.0
|
%
|
Railcars owned more than one year at the time of sale
|
12.7
|
%
|
|
26.9
|
%
|
Weighted average operating profit margin on sales of leased railcars
|
9.2
|
%
|
|
20.4
|
%
|
Railcar Leasing 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, 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 nine months of 2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
Thereafter
|
|
Total
|
|
(in millions)
|
Future contractual minimum rental revenues
|
$
|
440.7
|
|
|
$
|
475.9
|
|
|
$
|
371.7
|
|
|
$
|
266.6
|
|
|
$
|
183.2
|
|
|
$
|
330.5
|
|
|
$
|
2,068.6
|
|
Debt. Wholly-owned subsidiaries. The Leasing Group’s debt at March 31, 2020 consisted primarily of non-recourse debt. As of March 31, 2020, Trinity’s wholly-owned subsidiaries included in the Leasing Group held equipment with a net book value of $4,347.2 million, which is pledged solely as collateral for Leasing Group debt held by those subsidiaries. The net book value of unpledged equipment at March 31, 2020 was $1,471.2 million. See Note 7 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 $1,238.5 million is pledged solely as collateral for the TRIP Master Funding debt. TRL-2012 equipment with a net book value of $538.1 million is pledged solely as collateral for the TRL-2012 secured railcar equipment notes. See Note 4 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining nine months of 2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
Thereafter
|
|
Total
|
|
(in millions)
|
Future operating lease obligations
|
$
|
7.5
|
|
|
$
|
8.2
|
|
|
$
|
7.5
|
|
|
$
|
5.5
|
|
|
$
|
2.3
|
|
|
$
|
0.9
|
|
|
$
|
31.9
|
|
Future contractual minimum rental revenues
|
$
|
5.8
|
|
|
$
|
6.2
|
|
|
$
|
4.6
|
|
|
$
|
2.2
|
|
|
$
|
0.5
|
|
|
$
|
0.3
|
|
|
$
|
19.6
|
|
Operating lease obligations totaling $2.8 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 $2.6 million, which is excluded from the table above.
Note 6. Property, Plant, and Equipment
The following table summarizes the components of property, plant, and equipment:
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
(in millions)
|
Manufacturing/Corporate:
|
|
|
|
Land
|
$
|
28.6
|
|
|
$
|
28.4
|
|
Buildings and improvements
|
400.9
|
|
|
402.2
|
|
Machinery and other
|
544.7
|
|
|
546.7
|
|
Construction in progress
|
71.3
|
|
|
63.1
|
|
|
1,045.5
|
|
|
1,040.4
|
|
Less accumulated depreciation
|
(641.2
|
)
|
|
(631.6
|
)
|
|
404.3
|
|
|
408.8
|
|
Leasing:
|
|
|
|
Wholly-owned subsidiaries:
|
|
|
|
Machinery and other
|
13.7
|
|
|
13.7
|
|
Equipment on lease
|
7,000.0
|
|
|
6,944.2
|
|
|
7,013.7
|
|
|
6,957.9
|
|
Less accumulated depreciation
|
(1,176.2
|
)
|
|
(1,139.0
|
)
|
|
5,837.5
|
|
|
5,818.9
|
|
Partially-owned subsidiaries:
|
|
|
|
Equipment on lease
|
2,415.0
|
|
|
2,410.0
|
|
Less accumulated depreciation
|
(638.4
|
)
|
|
(623.3
|
)
|
|
1,776.6
|
|
|
1,786.7
|
|
|
|
|
|
Deferred profit on railcars sold to the Leasing Group
|
(1,138.5
|
)
|
|
(1,135.8
|
)
|
Less accumulated amortization
|
238.8
|
|
|
232.0
|
|
|
(899.7
|
)
|
|
(903.8
|
)
|
|
$
|
7,118.7
|
|
|
$
|
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.
Note 7. Debt
The carrying amounts and estimated fair values of our long-term debt are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
(in millions)
|
Corporate – Recourse:
|
|
|
|
|
|
|
|
Revolving credit facility
|
$
|
130.0
|
|
|
$
|
130.0
|
|
|
$
|
125.0
|
|
|
$
|
125.0
|
|
Senior notes, net of unamortized discount of $0.2 and $0.2
|
399.8
|
|
|
343.0
|
|
|
399.8
|
|
|
411.7
|
|
|
529.8
|
|
|
473.0
|
|
|
524.8
|
|
|
536.7
|
|
Less: unamortized debt issuance costs
|
(1.9
|
)
|
|
|
|
(2.0
|
)
|
|
|
Total recourse debt
|
527.9
|
|
|
|
|
522.8
|
|
|
|
|
|
|
|
|
|
|
|
Leasing – Non-recourse:
|
|
|
|
|
|
|
|
Wholly-owned subsidiaries:
|
|
|
|
|
|
|
|
2006 secured railcar equipment notes
|
—
|
|
|
—
|
|
|
109.3
|
|
|
114.0
|
|
2009 secured railcar equipment notes
|
146.2
|
|
|
174.7
|
|
|
147.8
|
|
|
168.7
|
|
2010 secured railcar equipment notes
|
246.2
|
|
|
233.9
|
|
|
248.5
|
|
|
264.3
|
|
2017 promissory notes
|
618.8
|
|
|
618.8
|
|
|
627.1
|
|
|
627.1
|
|
2018 secured railcar equipment notes, net of unamortized discount of $0.2 and $0.2
|
447.2
|
|
|
483.1
|
|
|
452.1
|
|
|
466.2
|
|
TRIHC 2018 secured railcar equipment notes, net of unamortized discount of $1.1 and $1.4
|
262.6
|
|
|
261.3
|
|
|
265.4
|
|
|
270.9
|
|
2019 secured railcar equipment notes, net of unamortized discount of $0.4 and $0.4
|
892.0
|
|
|
854.8
|
|
|
901.0
|
|
|
904.9
|
|
TILC warehouse facility
|
488.0
|
|
|
488.0
|
|
|
353.4
|
|
|
353.4
|
|
|
3,101.0
|
|
|
3,114.6
|
|
|
3,104.6
|
|
|
3,169.5
|
|
Less: unamortized debt issuance costs
|
(22.2
|
)
|
|
|
|
(23.9
|
)
|
|
|
|
3,078.8
|
|
|
|
|
3,080.7
|
|
|
|
Partially-owned subsidiaries:
|
|
|
|
|
|
|
|
TRL 2012 secured railcar equipment notes
|
364.0
|
|
|
362.0
|
|
|
371.4
|
|
|
374.4
|
|
TRIP Master Funding secured railcar equipment notes
|
909.9
|
|
|
884.9
|
|
|
917.9
|
|
|
984.0
|
|
|
1,273.9
|
|
|
1,246.9
|
|
|
1,289.3
|
|
|
1,358.4
|
|
Less: unamortized debt issuance costs
|
(10.4
|
)
|
|
|
|
(10.9
|
)
|
|
|
|
1,263.5
|
|
|
|
|
1,278.4
|
|
|
|
Total non–recourse debt
|
4,342.3
|
|
|
|
|
4,359.1
|
|
|
|
Total debt
|
$
|
4,870.2
|
|
|
$
|
4,834.5
|
|
|
$
|
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 as of March 31, 2020 and December 31, 2019 (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 Master Funding secured railcar equipment notes are based on our estimate of their fair value as of March 31, 2020 and December 31, 2019 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. Additionally, we are permitted to increase the amount of the commitments under the revolving credit facility by an aggregate amount not to exceed $200.0 million, subject to certain conditions, including the agreement of existing lenders to increase their commitments or by obtaining commitments from one or more new lenders.
During the three months ended March 31, 2020, we had total borrowings of $180.0 million and total repayments of $175.0 million under the revolving credit facility, with a remaining outstanding balance of $130.0 million as of March 31, 2020. Additionally, we had outstanding letters of credit issued in an aggregate principal amount of $35.5 million, leaving $284.5 million available for borrowing as of March 31, 2020. The outstanding letters of credit as of March 31, 2020 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 (1) LIBOR or an alternate base rate at the time of the borrowing and (2) Trinity’s leverage as measured by a consolidated total indebtedness to consolidated EBITDA ratio, which resulted in an interest rate of LIBOR plus 1.50% as of March 31, 2020. 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 March 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. As of March 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.
TILC Warehouse Loan Facility — TILC has a $750.0 million warehouse loan facility, which was established to finance railcars owned by TILC. During the three months ended March 31, 2020, we had total borrowings of $168.6 million and total repayments of $34.0 million under the TILC warehouse loan facility, with a remaining outstanding balance of $488.0 million as of March 31, 2020. The entire unused facility amount of $262.0 million was available as of March 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 3.04% at March 31, 2020. Amounts outstanding at maturity, absent renewal, are payable in March 2022.
Early Redemption of TRL V — In March 2020, 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, 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.
Terms and conditions of other debt, including recourse and non-recourse provisions, are described in Note 8 of our 2019 Annual Report on Form 10-K.
The remaining principal payments under existing debt agreements as of March 31, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining nine months of 2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
Thereafter
|
|
Total
|
|
(in millions)
|
Recourse:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
130.0
|
|
|
$
|
400.0
|
|
|
$
|
—
|
|
|
$
|
530.0
|
|
Non-recourse – leasing (Note 5):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 secured railcar equipment notes
|
5.0
|
|
|
13.4
|
|
|
14.0
|
|
|
11.7
|
|
|
14.5
|
|
|
87.6
|
|
|
146.2
|
|
2010 secured railcar equipment notes
|
12.2
|
|
|
20.0
|
|
|
20.9
|
|
|
22.4
|
|
|
18.5
|
|
|
152.2
|
|
|
246.2
|
|
2017 promissory notes
|
24.9
|
|
|
33.1
|
|
|
33.1
|
|
|
33.2
|
|
|
33.2
|
|
|
461.3
|
|
|
618.8
|
|
2018 secured railcar equipment notes
|
15.0
|
|
|
20.0
|
|
|
20.0
|
|
|
20.0
|
|
|
20.0
|
|
|
352.4
|
|
|
447.4
|
|
TRIHC 2018 secured railcar equipment notes
|
7.5
|
|
|
11.8
|
|
|
9.3
|
|
|
11.7
|
|
|
14.7
|
|
|
208.7
|
|
|
263.7
|
|
2019 secured railcar equipment notes
|
27.2
|
|
|
38.0
|
|
|
37.0
|
|
|
35.1
|
|
|
36.8
|
|
|
718.3
|
|
|
892.4
|
|
TILC warehouse facility
|
11.4
|
|
|
15.2
|
|
|
2.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
29.2
|
|
Facility termination payments – TILC warehouse facility
|
—
|
|
|
—
|
|
|
458.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
458.8
|
|
TRL 2012 secured railcar equipment notes
|
14.5
|
|
|
19.9
|
|
|
19.6
|
|
|
22.5
|
|
|
28.9
|
|
|
258.6
|
|
|
364.0
|
|
TRIP Master Funding secured railcar equipment notes
|
25.0
|
|
|
40.4
|
|
|
41.8
|
|
|
37.0
|
|
|
191.6
|
|
|
574.1
|
|
|
909.9
|
|
Total principal payments
|
$
|
142.7
|
|
|
$
|
211.8
|
|
|
$
|
657.1
|
|
|
$
|
323.6
|
|
|
$
|
758.2
|
|
|
$
|
2,813.2
|
|
|
$
|
4,906.6
|
|
Note 8. Income Taxes
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was enacted. The CARES Act is a stimulus package that is a 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 plans to carry back the tax losses incurred in 2018 and 2019, as well as the anticipated tax losses that will be generated in 2020, to its 2013-2015 tax years. The income taxes to be recovered as a result of these anticipated carrybacks 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 net deferred tax liability and the federal income tax receivable were remeasured to account for amounts that will be carried back, resulting in a tax benefit of $154.7 million for the three months ended March 31, 2020. The effective tax rate for the three months ended March 31, 2020 was a benefit of 990.6%, primarily due to the CARES Act.
Our effective tax rates, without the CARES Act impact above, were 47.7% and 22.2% for the three months ended March 31, 2020 and 2019, 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, tax return true-ups, and non-deductible executive compensation.
Income tax payments, net of refunds received, during the three months ended March 31, 2020 totaled $2.3 million. The total income tax receivable position as of March 31, 2020 was $389.1 million, of which approximately $303 million relates to the 2018 and 2019 expected carryback claims.
Our federal tax years remain open under statute from 2014 forward. The 2014-2018 tax years have been reviewed by the Internal Revenue Service but remain open due to tax loss carryback claims we have filed. We have received a notice from the IRS that the returns have been accepted and our refund claim from the carryback is being processed. 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.
Note 9. Employee Retirement Plans
The following table summarizes the components of our net retirement cost:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2020
|
|
2019
|
|
(in millions)
|
Expense Components
|
|
|
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
Interest
|
3.7
|
|
|
4.9
|
|
Expected return on plan assets
|
(5.2
|
)
|
|
(5.7
|
)
|
Amortization of actuarial loss
|
1.5
|
|
|
1.1
|
|
Amortization of prior service cost
|
0.3
|
|
|
—
|
|
Net periodic benefit cost
|
0.3
|
|
|
0.3
|
|
Profit sharing
|
2.7
|
|
|
2.2
|
|
Net expense
|
$
|
3.0
|
|
|
$
|
2.5
|
|
We contributed $0.3 million and $0.2 million to our defined benefit pension plans for the three months ended March 31, 2020 and 2019, respectively. Total contributions for our defined benefit pension plans in 2020 are expected to be approximately $1.1 million. 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 $155 million and $185 million. The settlement charges will be recognized in our Statement of Operations in two phases, with the first charge to be recognized when payments are made to those participants electing to receive a lump sum distribution, and the second charge to be recognized when the annuity contracts are purchased to settle all remaining outstanding pension obligations. The range of settlement charges includes: (1) a non-cash charge for the recognition of all pre-tax actuarial losses accumulated in AOCL related to the Pension Plan, which totaled approximately $170.1 million ($131.2 million, net of tax) as of December 31, 2019; and (2) a potential additional cash contribution to settle all of the Pension Plan’s obligations, which is not expected to exceed $15 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 10. Restructuring Activities
In late 2019, we approved a restructuring plan to resize certain resources, reduce stranded costs resulting from the spin-off of Arcosa, Inc., and better align support services with our rail-focused strategy. In the first quarter of 2020, we continued our efforts and eliminated additional positions 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 to evaluate for impairment. This test indicated that the carrying value of our corporate headquarters campus 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 three months ended March 31, 2020, we recorded total restructuring charges of $5.5 million, consisting of $5.2 million of non-cash charges from the write-down of our corporate headquarters campus described above and $4.1 million in cash charges for severance costs, partially offset by a $3.8 million gain on the disposition of a non-operating facility.
Other restructuring actions associated with these plans are expected to be substantially completed in 2020. As we continue to reposition the organization, it is possible that we will engage in additional restructuring activities in 2020.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued charges as of
December 31, 2019
|
|
Charges and adjustments
|
|
Payments
|
|
Accrued charges as of
March 31, 2020
|
|
(in millions)
|
Cash charges:
|
|
|
|
|
|
|
|
Employee severance costs
|
$
|
3.4
|
|
|
$
|
4.1
|
|
|
$
|
(6.5
|
)
|
|
$
|
1.0
|
|
|
$
|
3.4
|
|
|
$
|
4.1
|
|
|
$
|
(6.5
|
)
|
|
$
|
1.0
|
|
Asset impairment charges:
|
|
|
|
|
|
|
|
Write-down of assets
|
|
|
$
|
5.2
|
|
|
|
|
|
Gain on disposition of assets
|
|
|
(3.8
|
)
|
|
|
|
|
|
|
|
$
|
1.4
|
|
|
|
|
|
Total restructuring activities
|
|
|
$
|
5.5
|
|
|
|
|
|
Although restructuring activities are not allocated to our reportable segments, the following table summarizes the restructuring activities by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
Employee Severance Costs
|
|
Gain on Disposition of Assets
|
|
Write-down of Assets
|
|
Total
|
|
(in millions)
|
Railcar Leasing and Management Services Group
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Rail Products Group
|
2.6
|
|
|
—
|
|
|
—
|
|
|
2.6
|
|
All Other
|
0.1
|
|
|
(3.8
|
)
|
|
—
|
|
|
(3.7
|
)
|
Corporate
|
1.4
|
|
|
—
|
|
|
5.2
|
|
|
6.6
|
|
Total restructuring activities
|
$
|
4.1
|
|
|
$
|
(3.8
|
)
|
|
$
|
5.2
|
|
|
$
|
5.5
|
|
Note 11. Accumulated Other Comprehensive Loss
Changes in AOCL for the three months ended March 31, 2020 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, 2019
|
$
|
(1.3
|
)
|
|
$
|
(17.9
|
)
|
|
$
|
(133.9
|
)
|
|
$
|
(153.1
|
)
|
Other comprehensive loss, net of tax, before reclassifications
|
—
|
|
|
(25.6
|
)
|
|
—
|
|
|
(25.6
|
)
|
Amounts reclassified from accumulated other comprehensive loss, net of tax benefit of $-, $0.5, $0.4, and $0.9
|
—
|
|
|
1.0
|
|
|
1.4
|
|
|
2.4
|
|
Less: noncontrolling interest
|
—
|
|
|
(0.3
|
)
|
|
—
|
|
|
(0.3
|
)
|
Other comprehensive income (loss)
|
—
|
|
|
(24.9
|
)
|
|
1.4
|
|
|
(23.5
|
)
|
Balances at March 31, 2020
|
$
|
(1.3
|
)
|
|
$
|
(42.8
|
)
|
|
$
|
(132.5
|
)
|
|
$
|
(176.6
|
)
|
See Note 2 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.
Note 12. Common Stock and Stock-Based Compensation
Stockholders' Equity
In March 2019, our Board of Directors authorized a share repurchase program effective March 7, 2019 through December 31, 2020. The share repurchase program authorizes 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 current market conditions, the Board of Directors amended the repurchase program to remove the share limitation. Share repurchase activity under the current program is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Total
|
12,954,794
|
|
|
$
|
260.1
|
|
|
|
Additionally, for the three months ended March 31, 2019, repurchases include 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.
Stock-Based Compensation
Stock-based compensation totaled approximately $7.3 million and $5.5 million for the three months ended March 31, 2020 and 2019, 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”). Our stock options have contractual terms of ten years. Expense related to stock options issued to eligible employees under the Plan is recognized over their vesting period on a straight-line basis, generally three years. Expense related to restricted stock units ("RSUs") 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 ("RSAs") and RSUs 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 three months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
Number of Shares Granted
|
|
Weighted Average Grant-Date Fair Value per Award
|
Stock options
|
300,000
|
|
|
$
|
5.26
|
|
Restricted stock units
|
119,012
|
|
|
$
|
21.26
|
|
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:
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
Exercise price
|
$
|
21.61
|
|
Risk-free interest rate
|
1.48
|
%
|
Expected life (in years)
|
6.50
|
|
Equity volatility
|
35.0
|
%
|
Dividend yield
|
3.42
|
%
|
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 the net impact of unvested RSAs and RSUs. Total weighted average restricted shares were 5.5 million shares for the three months ended March 31, 2020. Approximately 0.1 million restricted shares and 0.1 million stock options were excluded from the EPS calculation for the three months ended March 31, 2020, as their effect would have been antidilutive. Total weighted average restricted shares were 5.4 million shares for the three months ended March 31, 2019. Approximately 0.3 million of these shares were excluded from the EPS calculation for the three months ended March 31, 2019, as their effect would have been antidilutive.
The computation of basic and diluted net income attributable to Trinity Industries, Inc. is as follows.
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2020
|
|
2019
|
|
(in millions, except per share amounts)
|
Income from continuing operations
|
$
|
162.5
|
|
|
$
|
31.2
|
|
Less: Net (income) loss attributable to noncontrolling interest
|
(0.6
|
)
|
|
0.5
|
|
Unvested restricted share participation — continuing operations
|
(1.9
|
)
|
|
(0.5
|
)
|
Net income from continuing operations attributable to Trinity Industries, Inc.
|
160.0
|
|
|
31.2
|
|
Net loss from discontinued operations, net of income taxes
|
(0.2
|
)
|
|
(1.1
|
)
|
Unvested restricted share participation — discontinued operations
|
—
|
|
|
—
|
|
Net loss from discontinued operations attributable to Trinity Industries, Inc.
|
(0.2
|
)
|
|
(1.1
|
)
|
Net income attributable to Trinity Industries, Inc., including the effect of unvested restricted share participation
|
$
|
159.8
|
|
|
$
|
30.1
|
|
|
|
|
|
Basic weighted average shares outstanding
|
118.0
|
|
|
130.4
|
|
Effect of dilutive securities:
|
|
|
|
Nonparticipating unvested RSUs and RSAs
|
1.9
|
|
|
1.8
|
|
Diluted weighted average shares outstanding
|
119.9
|
|
|
132.2
|
|
|
|
|
|
Basic earnings per common share:
|
|
|
|
Income from continuing operations
|
$
|
1.36
|
|
|
$
|
0.24
|
|
Income (loss) from discontinued operations
|
—
|
|
|
(0.01
|
)
|
Basic net income attributable to Trinity Industries, Inc.
|
$
|
1.36
|
|
|
$
|
0.23
|
|
Diluted earnings per common share:
|
|
|
|
Income from continuing operations
|
$
|
1.33
|
|
|
$
|
0.24
|
|
Income (loss) from discontinued operations
|
—
|
|
|
(0.01
|
)
|
Diluted net income attributable to Trinity Industries, Inc.
|
$
|
1.33
|
|
|
$
|
0.23
|
|
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 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); 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 Tennessee state qui tam action filed by Mr. Harman (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), at a telephonic hearing on March 16, 2020, the Court orally granted Trinity’s Motion to Dismiss Harman’s Amended Complaint without prejudice.
As previously reported, state qui tam actions filed by Mr. Harman in the states of Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Minnesota, Montana, Nevada, and Rhode Island were dismissed.
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 October 26, 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, 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".
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 was 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. On November 12, 2019, the Court entered an Order Preliminarily Approving Settlement and Providing for Notice, and on March 31, 2020, the Court granted final approval of the settlement and dismissed the case with prejudice.
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 $19.3 million to $32.5 million, which includes our rights in indemnity and recourse to third parties of approximately $16.5 million, which is recorded in other assets on our Consolidated Balance Sheet as of March 31, 2020. This range includes any amounts related to the Highway Products litigation matters described above in the section titled “Highway products litigation." At March 31, 2020, total accruals of $21.0 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 $1.3 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.