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Railcar Leasing and Management Services Group
 12 Months Ended
Dec. 31, 2011
Segment Information / Railcar Leasing and Management Services Group [Abstract]  
Railcar Leasing and Management Services Group

Note 5. Railcar Leasing and Management Services Group

The Railcar Leasing and Management Services Group provides fleet management, maintenance, and leasing services. Selected consolidating financial information for the Leasing Group is as follows:

 

 

                                 
    December 31, 2011  
    Leasing Group              
    Wholly
Owned
Subsidiaries		     TRIP
Holdings		     Manufacturing/
Corporate		     Total  
    (in millions)  

Cash, cash equivalents, and short-term marketable securities

   $ 3.2     $ —     $ 347.9     $ 351.1  

Property, plant, and equipment, net

   $  3,066.0     $  1,135.0     $  510.0     $  4,711.0  

Net deferred profit on railcars sold to the Leasing Group

     (344.5 )      (187.0 )      —       (531.5 ) 
   

 

 

    

 

 

    

 

 

    

 

 

  
    $ 2,721.5     $ 948.0     $ 510.0     $ 4,179.5  

Restricted cash

   $ 165.7     $ 74.6     $ —     $ 240.3  

Debt:

                                

Recourse

   $ 103.3     $ —     $ 454.2     $ 557.5  

Less: unamortized discount

     —       —       (99.8 )      (99.8 ) 
   

 

 

    

 

 

    

 

 

    

 

 

  
      103.3       —       354.4       457.7  

Non-recourse

     1,616.0       1,010.0       —       2,626.0  

Less: non-recourse debt owned by Trinity

     —       (108.8 )      —       (108.8 ) 
   

 

 

    

 

 

    

 

 

    

 

 

  

Total debt

   $ 1,719.3     $ 901.2     $ 354.4     $ 2,974.9  

Net deferred tax liabilities

   $ 582.4     $ 4.7     $ (152.4 )    $ 434.7  

 

                                 
    December 31, 2010  
    Leasing Group              
    Wholly
Owned
Subsidiaries		     TRIP
Holdings		     Manufacturing/
Corporate		     Total  
    (in millions)  

Cash, cash equivalents, and short-term marketable securities

   $ 3.8     $ —     $ 508.2     $ 512.0  

Property, plant, and equipment, net

   $ 2,965.4     $ 1,191.8     $ 491.4     $ 4,648.6  

Net deferred profit on railcars sold to the Leasing Group

     (340.4 )      (196.2 )      —       (536.6 ) 
   

 

 

    

 

 

    

 

 

    

 

 

  
    $ 2,625.0     $ 995.6     $ 491.4     $ 4,112.0  

Restricted cash

   $ 161.1     $ 46.0     $ —     $ 207.1  

Debt:

                                

Recourse

   $ 108.6     $ —     $ 452.8     $ 561.4  

Less: unamortized discount

     —       —       (111.1 )      (111.1 ) 
   

 

 

    

 

 

    

 

 

    

 

 

  
      108.6       —       341.7       450.3  

Non-recourse

     1,453.5       1,003.9       —       2,457.4  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total debt

   $ 1,562.1     $ 1,003.9     $ 341.7     $ 2,907.7  

Net deferred tax liabilities

   $ 515.7     $ (0.3 )    $ (124.4 )    $ 391.0  

See Note 1 Summary of Significant Accounting Policies, Note 6 Investment in TRIP Holdings, and Note 11 Debt for a further discussion regarding the accounting for the Company’s investment in TRIP Holdings and TRIP Holdings’ debt.

 

 

 

                                         
    Year Ended
December 31,		     Percent Change  
    2011     2010     2009     2011
versus 2010		     2010
versus 2009		  
    ($ in millions)              

Revenues:

                                        

Wholly-owned subsidiaries:

                                        

Leasing and management

   $ 375.1     $ 345.4     $ 329.3       8.6 %      4.9 % 

Railcar sales (1)

     59.4       3.1       40.9       *       *  
   

 

 

    

 

 

    

 

 

                  
      434.5       348.5       370.2       24.7 %      (5.9 )% 

TRIP Holdings:

                                        

Leasing and management

     117.5       116.0       —       1.3 %      —  

Railcar sales (1)

     —       —       —       —       —  
   

 

 

    

 

 

    

 

 

                  
      117.5       116.0       —       1.3 %      —  
   

 

 

    

 

 

    

 

 

                  

Total revenues

   $ 552.0     $ 464.5     $ 370.2       18.8 %      25.5 % 
           

Operating profit:

                                        

Wholly-owned subsidiaries:

                                        

Leasing and management

   $ 156.3     $ 131.7     $ 128.5                  

Railcar sales (1):

                                        

Railcars owned one year or less at the time of sale

     13.2       0.2       2.1                  

Railcars owned more than one year at the time of sale

     11.8       6.6       18.4                  
   

 

 

    

 

 

    

 

 

                  
      181.3       138.5       149.0                  

TRIP Holdings:

                                        

Leasing and management

     68.8       68.5       —                  

Railcar sales (1):

                                        

Railcars owned one year or less at the time of sale

     —       —       —                  

Railcars owned more than one year at the time of sale

     4.4       —       —                  
   

 

 

    

 

 

    

 

 

                  
      73.2       68.5       —                  
   

 

 

    

 

 

    

 

 

                  

Total operating profit

   $ 254.5     $ 207.0     $ 149.0                  
           

Operating profit margin:

                                        

Leasing and management

     45.7 %      43.4 %      39.0 %                 

Railcar sales

     *       *       *                  

Total operating profit margin

     46.1 %      44.6 %      40.2 %                 

Interest and rent expense (2):

                                        

Rent expense

   $ 48.6     $ 48.6     $ 46.7                  

Interest expense:

                                        

Wholly-owned subsidiaries

   $ 101.3     $ 91.7     $ 80.1                  

TRIP Holdings:

                                        

External

   $ 53.1     $ 46.9     $ —                  

Intercompany

     6.4       —       —                  
   

 

 

    

 

 

    

 

 

                  
      59.5       46.9       —                  
   

 

 

    

 

 

    

 

 

                  

Total interest expense

   $     160.8     $     138.6     $     80.1                  

*Not meaningful

 

(1) 

Effective December 31, 2011, the Company adopted the emerging industry policy of recognizing revenue 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 by the lease fleet for one year or less at the time of sale. Sales of railcars from the lease fleet which have been owned by the lease fleet for more than one year are recognized as a net gain or loss from the disposal of a long-term asset. Prior year reported balances have been reclassified to conform to this policy. See Note 1 of the Notes to Consolidated Financial Statements.

 

(2) 

Rent expense is a component of operating profit. Interest expense is not a component of operating profit and includes the effect of hedges. Intercompany interest expense arises from Trinity’s ownership of a portion of TRIP Holdings’ Senior Secured Notes and is eliminated in consolidation. See Note 11 Debt.

For the year ended December 31, 2009, revenues of $39.4 million and operating profit of $2.0 million were related to sales of railcars from the lease fleet to TRIP Holdings. There were no sales to TRIP Holdings during the years ended December 31, 2011 and 2010. See Note 6 Investment in TRIP Holdings.

 

Equipment consists primarily of railcars leased by third parties. The Leasing Group purchases equipment manufactured predominantly by the Rail Group and enters into lease contracts with third parties with terms generally ranging between one and twenty years. The Leasing Group primarily enters into operating leases. Future contractual minimum rental revenues on leases are as follows:

 

 

                                                         
    2012     2013     2014     2015     2016     Thereafter     Total  
    (in millions)  

Wholly-owned subsidiaries

   $     255.9     $     205.7     $     153.5     $     116.3     $     81.6     $     181.8     $     994.8  

TRIP Holdings

     93.6       62.6       41.9       33.7       28.9       55.7       316.4  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
    $     349.5     $     268.3     $     195.4     $     150.0     $     110.5     $     237.5     $     1,311.2  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Debt. The Leasing Group’s debt at December 31, 2011 consists of both recourse and non-recourse debt. In 2009, the Company entered into a seven-year $61.0 million term loan agreement and capital lease obligations totaling $56.6 million. These debt obligations are guaranteed by Trinity Industries, Inc. and certain subsidiaries, and secured by railcar equipment and related leases. As of December 31, 2011, Trinity’s wholly-owned subsidiaries included in the Leasing Group held equipment with a net book value of approximately $2,489.1 million that is pledged as collateral for Leasing Group debt held by those subsidiaries, including equipment with a net book value of $51.0 million securing capital lease obligations. See Note 11 Debt for the form, maturities, and descriptions of Leasing Group debt.

TRIP Holdings. Debt owed by TRIP Holdings and its subsidiaries is nonrecourse to Trinity and TILC and is secured solely by the consolidated assets of TRIP Holdings and the equity interests of TRIP Holdings. In July 2011, TRIP Holdings and its newly-formed subsidiary, TRIP Rail Master Funding LLC (“TRIP Master Funding”), issued $1,032.0 million in new debt and repaid all of the outstanding borrowings of the previously-existing TRIP Warehouse Loan. TRIP Holdings equipment with a net book value of $1,135.0 million, excluding deferred profit on railcars sold to TRIP Holdings, is pledged as collateral for the TRIP Holdings' debt. See Note 6 Investment in TRIP Holdings for a description of TRIP Holdings.

Off Balance Sheet Arrangements. In prior years, the Leasing Group completed a series of financing transactions whereby railcars were sold to one or more separate independent owner trusts (“Trusts”). Each of the Trusts financed the purchase of the railcars with a combination of debt and equity. In each transaction, the equity participant in the Trust is considered to be the primary beneficiary of the Trust and therefore, the debt related to the Trust is not included as part of the consolidated financial statements. The Leasing Group, through newly formed, wholly-owned, qualified subsidiaries, leased railcars from the Trusts under operating leases with terms of 22 years, and subleased the railcars to independent third party customers under shorter term operating rental agreements. Under the terms of the operating lease agreements between the subsidiaries and the Trusts, the Leasing Group has the option to purchase at a predetermined fixed price, certain of the railcars from the Trusts in 2016 and other railcars in 2019. The Leasing Group also has options to purchase the railcars at the end of the respective lease agreements in 2023, 2026, and 2027 at the then fair market value of the railcars as determined by a third party, independent appraisal. At the expiration of the operating lease agreements, the Company has no further obligations with respect to the leased railcars.

These Leasing Group subsidiaries had total assets as of December 31, 2011 of $219.1 million, including cash of $88.6 million and railcars of $97.6 million. The right, title, and interest in each sublease, cash, and railcars are pledged to collateralize the lease obligations to the Trusts and are included in the consolidated financial statements of the Company. Trinity does not guarantee the performance of the subsidiaries’ lease obligations. Certain ratios and cash deposits must be maintained by the Leasing Group’s subsidiaries in order for excess cash flow, as defined in the agreements, from the lease to third parties to be available to Trinity. Future operating lease obligations of the Leasing Group’s subsidiaries as well as future contractual minimum rental revenues related to these leases due to the Leasing Group, are as follows:

 

 

                                                         
    2012     2013     2014     2015     2016     Thereafter     Total  
    (in millions)  

Future operating lease obligations of Trusts’ railcars

   $     44.5     $     45.7     $     44.9     $     43.2     $     40.2     $     341.8     $     560.3  

Future contractual minimum rental revenues of Trusts’ railcars

   $     57.5     $     40.7     $     26.3     $     19.8     $     12.5     $     24.0     $     180.8  

In each transaction, the Leasing Group has entered into a servicing and re-marketing agreement with the Trusts that requires the Leasing Group to endeavor, consistent with customary commercial practice as would be used by a prudent person, to maintain railcars under lease for the benefit of the Trusts. The Leasing Group also receives management fees under the terms of the agreements. In each transaction, an independent trustee for the Trusts has authority for appointment of the railcar fleet manager.

 

Operating Lease Obligations. Future amounts due as well as future contractual minimum rental revenues related to operating leases other than leases with the Trusts are as follows:

 

 

                                                         
    2012     2013     2014     2015     2016     Thereafter     Total  
    (in millions)  

Future operating lease obligations

   $ 8.3     $ 8.0     $ 7.9     $ 7.9     $ 7.7     $     33.4     $ 73.2  

Future contractual minimum rental revenues

   $     9.4     $     8.5     $   7.9     $     5.0     $     4.3     $ 7.5     $     42.6  

Operating lease obligations totaling $30.3 million are guaranteed by Trinity Industries, Inc. and certain subsidiaries.