Trinity Industries(TRN) - 2019 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION This section provides the company's unaudited consolidated financial statements and management's discussion for the reporting period Financial Statements This section presents Trinity Industries' unaudited consolidated financial statements, including notes on the Arcosa spin-off and ASC 842 adoption Consolidated Statements of Operations Revenues increased to $1.34 billion and operating profit rose to $198.8 million, though net income declined due to discontinued operations Consolidated Statements of Operations Highlights (Six Months Ended June 30) | Metric | 2019 (in millions) | 2018 (in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $1,340.8 | $1,167.2 | +14.9% | | Manufacturing | $863.7 | $779.7 | +10.8% | | Leasing | $477.1 | $387.5 | +23.1% | | Total operating profit | $198.8 | $150.1 | +32.4% | | Income from continuing operations | $68.8 | $52.5 | +31.0% | | Net income attributable to Trinity | $67.0 | $104.3 | -35.8% | | Diluted EPS (from continuing operations) | $0.52 | $0.32 | +62.5% | | Diluted EPS (Net Income) | $0.51 | $0.68 | -25.0% | Consolidated Balance Sheets Total assets increased to $8.58 billion and total debt rose to $4.62 billion, while stockholders' equity slightly decreased Consolidated Balance Sheet Highlights | Metric | June 30, 2019 (in millions) | Dec 31, 2018 (in millions) | | :--- | :--- | :--- | | Cash and cash equivalents | $102.8 | $179.2 | | Property, plant, and equipment, net | $6,869.6 | $6,334.4 | | Total Assets | $8,575.9 | $7,989.2 | | Total Debt | $4,615.9 | $4,029.2 | | Total Liabilities | $6,046.3 | $5,427.2 | | Total Stockholders' Equity | $2,529.6 | $2,562.0 | Consolidated Statements of Cash Flows Net cash from operations significantly decreased to $2.9 million, while investing activities used $611.9 million and financing provided $474.7 million Cash Flow Summary (Six Months Ended June 30) | Activity | 2019 (in millions) | 2018 (in millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $2.9 | $348.3 | | Net cash used in investing activities | $(611.9) | $(204.4) | | Net cash provided by (used in) financing activities | $474.7 | $(362.8) | | Net decrease in cash | $(134.3) | $(218.9) | Notes to Consolidated Financial Statements Key disclosures include the Arcosa spin-off, ASC 842 adoption, segment performance, debt structure, and legal contingency updates - On November 1, 2018, the company completed the spin-off of Arcosa, Inc. Consequently, Arcosa's financial results are presented as discontinued operations for all periods in the report[18][19][45] - The company adopted the new lease accounting standard, ASC 842, on January 1, 2019, resulting in the recognition of right-of-use assets of $47.0 million and lease liabilities of $48.3 million on the balance sheet[40][41][42] - The company reports in three segments: Railcar Leasing and Management Services Group, Rail Products Group, and All Other, with intersegment sales eliminated in consolidation[58][59] - In April 2019, a subsidiary issued $528.3 million in Secured Railcar Equipment Notes with a fixed rate of 3.82%, maturing in 2049, with proceeds used to repay other debt facilities[91] - The U.S. Supreme Court denied the petition for certiorari in the federal False Claims Act case regarding the ET-Plus® System, ending the action in the company's favor, though some state-level cases remain[109][110][111] - The company reached an agreement in principle to settle a shareholder class action lawsuit for $7.5 million, without admission of liability, accruing a charge of $2.5 million net of insurance in Q2 2019[124] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses strong H1 2019 performance, highlighting increased revenues and operating profit, strategic capital allocation, and robust liquidity - Following the Arcosa spin-off, Trinity is focused on its integrated TrinityRail® platform, which includes railcar leasing, manufacturing, and maintenance services[148][149][150] Key Financial and Operational Highlights (Six Months Ended June 30, 2019) | Metric | Value/Status | Source | | :--- | :--- | :--- | | Revenue Growth (YoY) | +14.9% | Consolidated Results | | Operating Profit Growth (YoY) | +32.4% | Consolidated Results | | Net Investment in Lease Fleet | ~$591.0 million | Capital Allocation | | Lease Fleet Utilization | 97.8% | Operational Data | | Railcar Backlog Value | $2.9 billion | Operational Data | | Share Repurchase Authorization | $287.0 million remaining | Capital Allocation | - The company anticipates a full-year 2019 net investment in its lease fleet of between $0.9 billion and $1.1 billion, and manufacturing/corporate capital expenditures between $120 million and $140 million[207] Consolidated Results of Operations Discussion Consolidated revenues rose 14.9% to $1.34 billion and operating profit increased 32.4% to $198.8 million, driven by fleet sales and pricing - The increase in revenues for H1 2019 was primarily driven by the Leasing Group, which saw higher sales of railcars from its fleet, and the Rail Products Group, which benefited from favorable pricing, product mix, and growth in maintenance services[167] - Operating profit growth was driven by higher profits from railcar sales, growth in the lease fleet, and a 13.2% decrease in Selling, Engineering, and Administrative (SE&A) expenses due to post-spin corporate structure optimization[169][171] Segment Discussion Leasing Group operating profit rose 17.0% and Rail Products Group profit grew 18.6%, with a $2.9 billion backlog and reduced corporate costs Railcar Leasing and Management Services Group Performance (Six Months Ended June 30) | Metric | 2019 | 2018 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $477.5M | $388.0M | +23.1% | | Total Operating Profit | $190.6M | $162.9M | +17.0% | | Company-Owned Railcars | 102,140 | 94,135 | +8.5% | | Fleet Utilization | 97.8% | 97.1% | +0.7 pts | Rail Products Group Performance (Six Months Ended June 30) | Metric | 2019 | 2018 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $1,315.9M | $1,154.3M | +14.0% | | Operating Profit | $118.6M | $100.0M | +18.6% | | Railcar Backlog (Value) | $2,865.5M | $2,664.3M | +7.6% | | Railcar Backlog (Units) | 23,170 | 24,580 | -5.7% | - The Rail Products Group backlog value increased despite a decrease in units, driven by a 14.1% higher average selling price due to product mix changes, with approximately 50% of the backlog expected to be delivered in 2019[191] Liquidity and Capital Resources The company maintained strong liquidity with $102.8 million cash, engaging in significant railcar purchases, share repurchases, and dividend increases - On January 14, 2019, the company purchased 6,779 railcars that were previously under operating leases for $218.4 million, funded by cash and the revolving credit facility[198][81] - A new share repurchase program was authorized in March 2019 for up to $350.0 million through December 2020, with $287.0 million remaining available as of June 30, 2019[199][101] - The quarterly cash dividend was increased by 31% to $0.17 per share in March 2019[200] - Cash flow from operations decreased significantly to $2.9 million in H1 2019 from $219.8 million in H1 2018, primarily due to a build-up of work-in-progress inventory and an increase in accounts receivable[201][203] Quantitative and Qualitative Disclosures About Market Risk No material changes to market risks, including interest rate, commodity price, and foreign currency risks, have occurred since year-end 2018 - There has been no material change in the company's market risks since December 31, 2018[213] Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal controls over financial reporting - The Chief Executive and Chief Financial Officers concluded that the company's disclosure controls and procedures were effective as of June 30, 2019[214] - No changes in internal controls over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[215] PART II OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, and equity security sales Legal Proceedings Legal matters, detailed in Note 14, include the favorable conclusion of the federal FCA lawsuit and a shareholder class action settlement - The information regarding legal proceedings is detailed in Note 14 of the Consolidated Financial Statements[217] Risk Factors No material changes have occurred to the risk factors previously disclosed in the 2018 Annual Report on Form 10-K - No material changes have occurred to the risk factors disclosed in the 2018 Annual Report on Form 10-K[218] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 2,133,116 shares for $44.0 million in Q2 2019, with $287.0 million remaining authorized for future repurchases Share Repurchases (Quarter Ended June 30, 2019) | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Program | | :--- | :--- | :--- | :--- | | April 2019 | 1,246 | $22.13 | — | | May 2019 | 1,483,946 | $21.16 | 1,133,653 | | June 2019 | 1,000,453 | $20.01 | 999,463 | | Total Q2 | 2,485,645 | N/A | 2,133,116 | - As of June 30, 2019, the company had a remaining authorization to repurchase up to $287.0 million of its common stock under the program effective through December 31, 2020[220] Exhibits This section lists exhibits filed with the Form 10-Q, including financing agreements, compensation plans, and CEO/CFO certifications - Exhibits filed include certifications by the CEO and CFO (31.1, 31.2, 32.1, 32.2), agreements related to the TRL-2019 financing (10.2 series), and forms of employee stock agreements (10.4, 10.5)[223]