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| TRN > SEC Filings for TRN > Form 10-Q on 29-Oct-2009 | All Recent SEC Filings |
29-Oct-2009
Quarterly Report
As of January 2009 As of May 2009 Percent Change
2009 28,300 24,000 (15.2 )%
2010 23,700 15,100 (36.3 )%
2011 41,550 29,150 (29.8 )%
2012 56,050 48,200 (14.0 )%
2013 62,550 59,750 (4.5 )%
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Our estimate of the Rail Group's fair value (considered to be a level three
fair value measurement) utilized an income approach based on the anticipated
future discounted cash flows of the Rail Group, requiring significant estimates
and assumptions related to future revenues and operating profits, exit
multiples, tax rates and consequences, and discount rates based upon
market-based capital costs. Because the estimated fair value of the Rail Group
was less than the carrying amount of its net assets, we performed step two of
our goodwill impairment analysis as required by generally accepted accounting
principles, by estimating the fair value of individual assets and liabilities of
the Rail Group in accordance with the provisions of the accounting standards
pertaining to business combinations and fair value measurements. The result of
our impairment analysis indicated that the remaining implied goodwill amounted
to $122.5 million for our Rail Group as of June 30, 2009 and, consequently, we
recorded an impairment charge of $325.0 million during the second quarter of
2009. The change in our estimate of the Rail Group's enterprise value from
December 31, 2008 to June 30, 2009 was driven by economic indicators, including
third-party studies that predicted the decline in the railcar industry was
likely to extend longer than was previously expected. In management's opinion,
no interim impairment tests are necessary for our remaining business segments as
there has not been a significant change in market conditions for these segments
since the 2008 annual impairment test. Additionally, there have been no
significant changes in our Rail Group business during the third quarter of 2009
which, in management's opinion, would require an adjustment to the previously
recorded impairment charge of $325.0 million.
During the second quarter of 2009, we performed an interim test for
recoverability of the carrying value of our Rail Group long-lived assets based
on cash flow estimates consistent with those used in the goodwill impairment
test. The carrying value of long-lived assets to be held and used is considered
impaired only when their carrying value is not recoverable through undiscounted
future cash flows and the fair value of the assets is less than their carrying
value. We determined that there was no impairment of the recoverability of the
Rail Group's long-lived assets as the Rail Group's estimated undiscounted future
cash flows exceeded the carrying value of its long-lived assets.
Given the current economic environment and the uncertainties regarding the
potential impact on our businesses, there can be no assurance that our estimates
and assumptions regarding the duration of the ongoing economic downturn, or the
period or strength of recovery, made for the purposes of the long-lived asset
and goodwill impairment tests during the second quarter of 2009 will prove to be
accurate predictions of the future. If our assumptions regarding forecasted cash
flows are not achieved, it is possible that additional impairments of remaining
goodwill and long-lived assets may be required.
Goodwill remaining by segment is as follows:
September 30, December 31,
2009 2008
(as reported)
(in millions)
Rail Group $ 122.5 $ 447.5
Construction Products Group 52.2 50.4
Energy Equipment Group 4.3 4.3
Railcar Leasing and Management Services Group 1.8 1.8
$ 180.8 $ 504.0
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In 2007, Trinity Industries Inc. purchased 20% of the equity in newly-formed
TRIP Rail Holdings LLC ("TRIP Holdings"). TRIP Holdings and its subsidiary, TRIP
Rail Leasing LLC ("TRIP Leasing"), provide railcar leasing and management
services in North America. Railcars are purchased from Trinity by TRIP Leasing.
In January 2009, the Company acquired an additional 5% equity ownership in
TRIP Holdings for approximately $9.0 million from another equity investor. As a
result, the Company now owns a 25% equity ownership in TRIP Holdings, increasing
the Company's total commitment by $12.3 million to $61.3 million, of which
$56.3 million has been paid. Trinity's remaining equity commitment to TRIP
Holdings is $5.0 million through June 2010. On October 15, 2009, TILC loaned
TRIP Holdings $14.5 million to resolve a collateral deficiency. The note is
repayable monthly from TRIP Holdings' excess cash flow plus accrued interest at
11% and is expected to be repaid in full by June 2010.
Trinity's carrying value of its investment in TRIP Holdings follows:
September 30, December 31,
2009 2008
(in millions)
Capital contributions $ 56.3 $ 35.9
Equity in earnings 2.3 0.5
Equity in unrealized losses on derivative financial instruments (5.5 ) (9.5 )
Distributions (6.0 ) (3.1 )
Deferred broker fees (1.0 ) (0.8 )
$ 46.1 $ 23.0
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On December 13, 2007, the Company's Board of Directors authorized a
$200 million common stock repurchase program allowing for repurchases through
December 31, 2009. During the nine months ended September 30, 2009, 813,028
shares were repurchased under this program at a cost of approximately
$6.3 million. No shares were repurchased under this program for the three months
ended September 30, 2009. During the three months and nine months ended
September 30, 2008, 150,000 and 621,100 shares were repurchased under this
program at a cost of approximately $3.8 million and $16.0 million, respectively.
Since the inception of this program through September 30, 2009, the Company has
repurchased a total of 3,532,728 shares at a cost of approximately
$67.5 million.
In May 2008, the Financial Accounting Standards Board ("FASB") issued a new
accounting pronouncement that requires issuers of certain convertible debt
instruments that may be settled in cash upon conversion to separately account
for the liability and equity components in a manner that reflects the entity's
nonconvertible debt borrowing rate when interest expense is recognized in
subsequent periods. The effective date of the new accounting pronouncement is
for financial statements issued for fiscal years and interim periods beginning
after December 15, 2008 and does not permit earlier application. The
pronouncement requires that all periods presented be adjusted. The Company
adopted the provisions of the new accounting pronouncement as of January 1, 2009
and has accordingly adjusted amounts previously reported with respect to Debt,
Other assets, Capital in excess of par value, Deferred income taxes and Interest
expense. See Note 10 of the Consolidated Financial Statements for a further
explanation of the effects of implementing this pronouncement as it applies to
our Convertible Subordinated Notes.
In May 2009, Trinity Industries Leasing Company ("TILC"), a wholly-owned
subsidiary of Trinity, renewed its railcar leasing warehouse facility through
February 2011. This facility, which was set to mature in August 2009, was
established to finance railcars owned by TILC. Additionally, TILC completed
several other financings during the first nine months of 2009 totaling $117.6
million. See Financing Activities.
The economic and financial crisis experienced by the United States economy
during 2008 and into 2009 has impacted our businesses. New orders for railcars
and barges continued to drop significantly in the first nine months of 2009 as
the transportation industry saw a significant decline in the shipment of
freight. The 2009 outlook for the transportation industry is for continued
weakness. Orders for structural wind towers have been slow since mid-2008 when
green energy companies experienced tightened credit markets coupled with lower
prices for electricity and natural gas sales. The slowdown in the residential
and commercial construction markets impacted our Construction Products Group as
well. We continually assess our manufacturing capacity and take steps to align
our production capacity with demand. As a result of our assessment, we idled a
significant amount of our railcar production capacity and one structural wind
tower production facility commencing in the fourth quarter of 2008 and
continuing into 2009.
Overall Summary for Continuing Operations
Revenues
Three Months Ended September 30, 2009 Three Months Ended September 30, 2008
Revenues Revenues Percent
External Intersegment Total External Intersegment Total Change
($ in millions)
Rail Group $ 87.4 $ 78.7 $ 166.1 $ 419.2 $ 333.5 $ 752.7 (77.9 )%
Construction Products
Group 141.1 5.2 146.3 193.7 7.3 201.0 (27.2 )
Inland Barge Group 113.8 - 113.8 160.6 - 160.6 (29.1 )
Energy Equipment Group 130.2 2.5 132.7 169.2 15.3 184.5 (28.1 )
Railcar Leasing and
Management Services
Group 81.5 - 81.5 207.3 - 207.3 (60.7 )
All Other 3.4 7.8 11.2 4.6 16.9 21.5 (47.9 )
Eliminations - lease
subsidiary - (75.0 ) (75.0 ) - (323.0 ) (323.0 )
Eliminations - other - (19.2 ) (19.2 ) - (50.0 ) (50.0 )
Consolidated Total $ 557.4 $ - $ 557.4 $ 1,154.6 $ - $ 1,154.6 (51.7 )
Revenues
Nine Months Ended September 30, 2009 Nine Months Ended September 30, 2008
Revenues Revenues Percent
External Intersegment Total External Intersegment Total Change
($ in millions)
Rail Group $ 409.5 $ 343.8 $ 753.3 $ 1,101.8 $ 809.3 $ 1,911.1 (60.6 )%
Construction Products
Group 414.3 8.8 423.1 573.0 16.5 589.5 (28.2 )
Inland Barge Group 407.5 - 407.5 449.3 - 449.3 (9.3 )
Energy Equipment Group 389.5 6.1 395.6 449.7 21.6 471.3 (16.1 )
Railcar Leasing and
Management Services
Group 437.4 - 437.4 413.5 - 413.5 5.8
All Other 8.8 27.2 36.0 11.7 46.4 58.1 (38.0 )
Eliminations - lease
subsidiary - (330.3 ) (330.3 ) - (792.3 ) (792.3 )
Eliminations - other - (55.6 ) (55.6 ) - (101.5 ) (101.5 )
Consolidated Total $ 2,067.0 $ - $ 2,067.0 $ 2,999.0 $ - $ 2,999.0 (31.1 )
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Our revenues for the three and nine month periods ended September 30, 2009
decreased due to fewer railcar sales and lower volume and pricing from certain
segments resulting from lower material costs and competitive pricing pressures.
Operating Profit (Loss)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
(in millions)
Rail Group $ (12.0 ) $ 56.8 $ (346.5 ) $ 206.4
Construction Products Group 13.1 17.2 27.1 56.8
Inland Barge Group 26.7 29.8 95.9 83.5
Energy Equipment Group 16.2 32.5 59.7 76.1
Railcar Leasing and Management Services Group 30.3 53.9 118.2 124.0
All Other 0.1 (3.7 ) 1.2 6.0
Corporate (7.3 ) (12.5 ) (22.7 ) (29.7 )
Eliminations - lease subsidiary (1.9 ) (9.9 ) (19.6 ) (64.2 )
Eliminations - other (0.6 ) (0.8 ) (3.1 ) (8.9 )
Consolidated Total $ 64.6 $ 163.3 $ (89.8 ) $ 450.0
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Operating profit for the three month period ended September 30, 2009 decreased as a result of lower revenues coupled with reduced pricing driven by lower material costs and highly competitive markets. In addition to these factors, operating profit for the nine month period ended September 30, 2009 decreased as a result of a goodwill impairment charge of $325 million recorded during the second quarter of 2009.
Other Income and Expense. Interest expense, net of interest income, was
$31.3 million and $88.5 million, respectively, for the three and nine month
periods ended September 30, 2009 compared to $26.6 million and $73.5 million (as
adjusted - see Note 10 of the Consolidated Financial Statements), respectively,
for the same periods last year. Interest income decreased $1.0 million over the
same quarter last year and $3.7 million over the same nine month period last
year as a result of lower interest rates more than offsetting the effect of an
increase in cash available for investment. Interest expense increased
$3.7 million and $11.3 million, respectively, over the same periods last year
due to an increase in debt levels, including $544.6 million of promissory notes
for the Leasing Group entered into in May 2008, and expense related to the
ineffective portion of interest rate hedges. The increase in Other, net for the
three month period ended September 30, 2009 was primarily due to a $3.7 million
gain recognized on the sale of one of our equity investments. The increase in
Other, net for the nine month period ended September 30, 2009 was primarily due
to the $3.7 million gain recognized on the sale of one of our equity investments
partially offset by foreign currency translation losses.
Income Taxes. The effective tax rate for continuing operations for the three
month period ended September 30, 2009 was 38.5% and varied from the federal
statutory rate of 35.0% due primarily to state income taxes and discrete
adjustments related to foreign and state taxes. The effective tax rate for
continuing operations for the nine month period ended September 30, 2009 was
12.2% and varied from the 35% federal statutory rate due primarily to the second
quarter goodwill impairment charge not being fully deductible for income tax
purposes; the recording in the second quarter of a $6.3 million valuation
reserve related to the utilization of foreign tax credits previously benefited;
and state income taxes and other discrete adjustments. The prior year effective
tax rates for continuing operations for the three and nine month periods ended
September 30, 2008 were 33.8% and 37.0%, respectively, and varied from the
federal statutory rate of 35.0% due primarily to state income taxes, discrete
adjustments related to federal foreign and state taxes, and true ups of federal
deferred tax items.
Rail Group
Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 Percent 2009 2008 Percent
($ in millions) Change ($ in millions) Change
Revenues:
Rail $ 139.2 $ 710.6 (80.4 )% $ 661.1 $ 1,782.1 (62.9 )%
Components 26.9 42.1 (36.1 ) 92.2 129.0 (28.5 )
Total revenues $ 166.1 $ 752.7 (77.9 ) $ 753.3 $ 1,911.1 (60.6 )
Operating profit (loss) $ (12.0 ) $ 56.8 $ (346.5 ) $ 206.4
Operating profit
(loss) margin (7.2 )% 7.5 % (46.0 )% 10.8 %
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Railcar shipments decreased 81% to approximately 1,630 and 63% to approximately 7,750 during the three and nine month periods ended September 30, 2009, compared to the same periods in 2008. As of September 30, 2009, our Rail Group backlog consisted of approximately 3,160 railcars as compared to approximately 24,130 railcars as of September 30, 2008. The railcar backlog dollar value as of September 30, 2009 and September 30, 2008 was as follows:
As of September 30,
2009 2008
(in millions)
External Customers $ 129.7 $ 440.3
TRIP Leasing - 143.7
Leasing Group 134.1 1,442.5
Total $ 263.8 $ 2,026.5
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The total amount of the backlog dedicated to the Leasing Group is supported
by lease agreements with external customers. The final amount dedicated to the
Leasing Group may vary by the time of delivery. Results for the nine month
period ended September 30, 2009 included $113.0 million in railcars sold to TRIP
Leasing, that resulted in a gain of $11.2 million of which $2.8 million in
profit was deferred based on our 25% equity interest. There were no railcar
sales to TRIP Leasing during the three month period ended September 30, 2009.
Results for the three and nine month periods ended September 30, 2008 included
$56.8 million and $285.8 million, respectively, in railcars sold to TRIP
Leasing, that resulted in a gain of $6.5 million and $51.3 million,
respectively, of which $1.4 million and $10.3 million, respectively, in profit
was deferred based on our 20% equity interest. See Note 5 Equity Investment of
the Consolidated Financial Statements for information about TRIP Leasing.
Operating profit for the Rail Group decreased $68.8 million and
$552.9 million, respectively, for the three and nine month periods ended
September 30, 2009 compared to the same periods last year. This decrease was
primarily due to a $325 million goodwill impairment charge during the quarter
ended June 30, 2009 (see Note 8 of the Consolidated Financial Statements).
Additionally, a significantly reduced volume of railcars was delivered during
the period amid a lower pricing and unit demand environment.
In the three months ended September 30, 2009, railcar shipments included sales to the Leasing Group of $75.0 million compared to $323.0 million in the comparable period in 2008 with a deferred profit of $1.9 million compared to $9.9 million for the same period in 2008. In the nine months ended September 30, 2009, railcar shipments included sales to the Leasing Group of $330.3 million compared to $792.3 million in the comparable period in 2008 with a deferred profit of $19.6 million compared to $64.2 million for the same period in 2008. Sales to the Leasing Group and related profits are included in the operating results of the Rail Group but eliminated in consolidation. Construction Products Group
Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 Percent 2009 2008 Percent
($ in millions) Change ($ in millions) Change
Revenues:
Concrete and Aggregates $ 72.2 $ 106.9 (32.5 )% $ 236.0 $ 337.7 (30.1 )%
Highway Products 72.6 90.3 (19.6 ) 180.6 232.0 (22.2 )
Other 1.5 3.8 (60.5 ) 6.5 19.8 (67.2 )
Total revenues $ 146.3 $ 201.0 (27.2 ) $ 423.1 $ 589.5 (28.2 )
Operating profit $ 13.1 $ 17.2 $ 27.1 $ 56.8
Operating profit margin 9.0 % 8.6 % 6.4 % 9.6 %
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The decrease in revenues for the three and nine month periods ended
September 30, 2009 compared to the same periods in 2008 was primarily
attributable to the overall decline in the economic conditions related to the
markets served by this segment including a reduction in state funding of highway
construction. Additionally, revenues declined as the result of lower material
costs that are passed on to the customer. Operating profit for the three and
nine months ended September 30, 2009 compared to the same periods in 2008
decreased as a result of lower volumes and lower material costs. Additionally
operating profit for the nine months ended September 30, 2009 included a
$2.8 million write down of surplus inventory quantities while 2008 included
higher gains from property dispositions related to our concrete and aggregates
operations.
Inland Barge Group
Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 Percent 2009 2008 Percent
($ in millions) Change ($ in millions) Change
Revenues $ 113.8 $ 160.6 (29.1 )% $ 407.5 $ 449.3 (9.3 )%
Operating profit $ 26.7 $ 29.8 $ 95.9 $ 83.5
Operating profit margin 23.5 % 18.6 % 23.5 % 18.6 %
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Revenues and operating profit decreased for the three month period ended . . .
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