Trinity Industries(TRN) - 2019 Q3 - Quarterly Report

PART I Financial Statements The company reported significant increases in revenue and operating profit, asset growth, and completed the spin-off of Arcosa, Inc - The company completed the spin-off of Arcosa, Inc. on November 1, 2018, reclassifying its financial results as discontinued operations[22][23] Consolidated Statements of Operations Highlights (in millions, except per share data) | Metric | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $813.6 | $606.9 | $2,154.4 | $1,774.1 | | Total operating profit | $120.3 | $75.2 | $319.1 | $225.3 | | Income from continuing operations | $48.1 | $28.5 | $116.9 | $81.0 | | Net income attributable to Trinity | $49.0 | $27.7 | $116.0 | $132.0 | | Diluted EPS from continuing operations | $0.39 | $0.19 | $0.90 | $0.51 | Consolidated Balance Sheet Highlights (in millions) | Metric | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total assets | $8,643.1 | $7,989.2 | | Total liabilities | $6,183.8 | $5,427.2 | | Total stockholders' equity | $2,459.3 | $2,562.0 | Consolidated Statement of Cash Flows Highlights (in millions) | Metric | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $164.0 | $319.9 | | Net cash used in investing activities | ($723.3) | ($311.0) | | Net cash provided by (used in) financing activities | $423.6 | ($416.8) | Note 1: Summary of Significant Accounting Policies This note details the basis of presentation, revenue recognition policies, and the adoption of ASC 842, recognizing new lease assets and liabilities - The company adopted ASC 842 on January 1, 2019, recognizing $47.0 million in right-of-use assets and $48.3 million in lease liabilities, with a $13.7 million cumulative-effect adjustment to retained earnings[45][46] - Unsatisfied performance obligations totaled $2.45 billion for Rail Products (products), $44.9 million for maintenance services, and $90.0 million for Railcar Leasing and Management Services as of September 30, 2019[33] Note 2: Discontinued Operations This note details the spin-off of Arcosa, Inc. on November 1, 2018, with its historical results reclassified as discontinued operations - The spin-off of Arcosa, Inc. was completed on November 1, 2018, with its historical results reclassified to discontinued operations for all periods presented[49] Discontinued Operations Financial Summary (in millions) | Metric | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $— | $334.8 | $— | $966.0 | | Income (loss) from discontinued operations, net of taxes | $(0.4) | $(0.2) | $(2.3) | $54.4 | Note 4: Segment Information The company reports results across three segments: Railcar Leasing, Rail Products, and All Other, detailing their respective revenues and operating profits Segment Financials for Nine Months Ended Sep 30, 2019 (in millions) | Segment | External Revenue | Operating Profit (Loss) | | :--- | :--- | :--- | | Railcar Leasing and Management Services | $803.3 | $306.3 | | Rail Products Group | $1,125.9 | $184.0 | | All Other | $225.2 | $16.7 | | Corporate | N/A | $(78.1) | Segment Financials for Three Months Ended Sep 30, 2019 (in millions) | Segment | External Revenue | Operating Profit (Loss) | | :--- | :--- | :--- | | Railcar Leasing and Management Services | $326.2 | $115.7 | | Rail Products Group | $409.0 | $65.4 | | All Other | $78.4 | $3.9 | | Corporate | N/A | $(23.9) | Note 8: Debt Total debt increased to $4.69 billion as of September 30, 2019, with new secured note issuances in April and October 2019 contributing to the rise Debt Summary as of Sep 30, 2019 (in millions) | Debt Category | Carrying Value | | :--- | :--- | | Corporate – Recourse | $472.7 | | Leasing – Non-recourse (Wholly-owned) | $2,923.2 | | Leasing – Non-recourse (Partially-owned) | $1,289.3 | | Total Debt | $4,685.2 | - In April 2019, subsidiary TRL-2019 issued $528.3 million in Secured Railcar Equipment Notes at a fixed rate of 3.82%[94] - In October 2019, TRL-2019 issued an additional $386.5 million in Secured Railcar Equipment Notes, with proceeds used to repay other borrowings[96] Note 10: Employee Retirement Plans The Board approved the termination of the Consolidated Pension Plan, effective December 31, 2019, anticipating a pre-tax settlement charge of $145 million to $195 million - The Board approved the termination of the Consolidated Pension Plan, effective December 31, 2019[102] - Upon settlement, the company expects a pre-tax charge between $145 million and $195 million, including a non-cash charge for actuarial losses and a potential cash contribution up to $25 million[103] Note 12: Common Stock and Stock-Based Compensation The company actively repurchased 10.8 million shares for $233.9 million during the first nine months of 2019, with $186.1 million remaining under authorization - A new share repurchase program was authorized in March 2019 for up to $350.0 million through December 31, 2020[107] - During Q3 2019, the company repurchased 5.2 million shares for $100.9 million, totaling 10.8 million shares for $233.9 million in the first nine months of 2019[108] - As of September 30, 2019, $186.1 million remained available for repurchases under the current program[108] Note 14: Contingencies This note details ongoing litigation, including the favorable conclusion of the federal FCA case, pending state-level actions, and a $7.5 million shareholder class action settlement - The federal FCA lawsuit related to the ET-Plus® System concluded in the company's favor after the U.S. Supreme Court denied the relator's petition for certiorari in January 2019[116] - Several state-level qui tam actions filed by the same relator remain pending in Virginia, Tennessee, Massachusetts, New Jersey, and California[117] - A shareholder class action lawsuit was settled for $7.5 million, with the company accruing a $2.5 million charge net of insurance recoveries[126] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes revenue and operating profit growth to favorable product mix and sales, while noting a slowdown in railcar demand and ongoing restructuring efforts - Demand for railcars slowed in Q3 2019 due to economic uncertainty, impacting lease rates, utilization, and new orders, a trend expected to continue in the near term[164] - The company anticipates a Q4 restructuring charge of $10 million to $20 million from streamlining efforts, expected to generate $8 million to $10 million in annualized cost savings[165] - For full year 2019, the company anticipates a net investment in its lease fleet between $850 million and $950 million, and manufacturing/corporate capital expenditures between $110 million and $120 million[215] Consolidated Results of Operations Consolidated revenues increased 21.4% to $2.15 billion and operating profit rose 41.6% to $319.1 million for the nine months ended September 30, 2019, driven by railcar deliveries and sales Consolidated Results of Operations (in millions) | Metric | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | | Revenues | $2,154.4 | $1,774.1 | | Operating profit | $319.1 | $225.3 | | Income from continuing operations | $116.9 | $81.0 | - Operating profit increased due to favorable product mix in Rail Products, higher profits from railcar sales in Leasing, and reduced corporate expenses[178] - Net interest expense increased to $160.8 million for the first nine months of 2019 from $122.9 million in the prior-year period, driven by higher debt in the Leasing Group[180] Segment Discussion Operating profit increased for Railcar Leasing (20.1%) and Rail Products (43.8%), driven by sales and deliveries, while the All Other segment's profit declined Railcar Leasing and Management Services Group Performance (9 Months Ended Sep 30, in millions) | Metric | 2019 | 2018 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $803.9 | $615.5 | 30.6% | | Operating Profit | $306.3 | $255.1 | 20.1% | - The Leasing Group's fleet utilization was 96.7% on 102,090 company-owned railcars as of September 30, 2019[192] Rail Products Group Performance (9 Months Ended Sep 30, in millions) | Metric | 2019 | 2018 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $2,038.9 | $1,651.9 | 23.4% | | Operating Profit | $184.0 | $128.0 | 43.8% | | Railcar Backlog | $2,445.7 | $3,200.8 | (23.6)% | Liquidity and Capital Resources As of September 30, 2019, the company had $97.6 million in cash and $339.5 million available under its credit facility, with significant debt issuances and share repurchases - In April 2019, a subsidiary issued $528.3 million in Secured Railcar Equipment Notes, with an additional $386.5 million issued in October 2019[206] - The company repurchased $100.9 million of its common stock in Q3 2019 under a new $350 million authorization[207] - On January 14, 2019, the company purchased 6,779 previously leased railcars for $218.4 million, funded by cash and the revolving credit facility[209] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes in market risks since December 31, 2018, referring to its 2018 Annual Report and Notes 3 and 8 for further details - There has been no material change in the company's market risks since December 31, 2018[223] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2019, with no material changes to internal controls over financial reporting during the quarter - The Chief Executive and Chief Financial Officers concluded that the company's disclosure controls and procedures were effective as of September 30, 2019[225] - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls over financial reporting[226] PART II OTHER INFORMATION Legal Proceedings This section incorporates by reference legal contingencies from Note 14, including the conclusion of the federal FCA case and status of ongoing state-level litigation - Information regarding legal proceedings is detailed in Note 14 of the Consolidated Financial Statements and is incorporated here by reference[228] Risk Factors The company reports no material changes to the risk factors previously disclosed in its 2018 Annual Report on Form 10-K - There have been no material changes from the risk factors previously disclosed in the 2018 Annual Report on Form 10-K[229] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2019, the company repurchased 5,176,370 shares of common stock, with $186.1 million remaining available under the repurchase program as of September 30, 2019 Common Stock Repurchases for Q3 2019 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2019 | 837,069 | $19.12 | | August 2019 | 1,516,505 | $19.29 | | September 2019 | 2,822,796 | $19.75 | | Total | 5,176,370 | | - As of September 30, 2019, the company had a remaining authorization to repurchase up to $186.1 million of its common stock[231] Exhibits This section lists exhibits filed with the Form 10-Q, including a Note Purchase Agreement, CEO/CFO certifications, and XBRL data files - Exhibits filed include a Note Purchase Agreement dated October 8, 2019, CEO/CFO certifications, and XBRL data files[233]