Investment in TRIP Holdings

12 Months Ended

Dec. 31, 2011

Investment in TRIP Holdings [Abstract]

Investment in TRIP Holdings

Note 6. Investment in TRIP Holdings

In 2007, the Company and other third-party equity investors formed TRIP Holdings for the purpose of providing railcar leasing and management services in North America. TRIP Holdings, through its wholly-owned subsidiary, TRIP Rail Leasing LLC (“TRIP Leasing”), purchased railcars from the Company’s Rail and Leasing Groups funded by capital contributions from TRIP Holdings’ equity investors and borrowings under the TRIP Warehouse Loan, defined as such in Note 11 Debt. As of December 31, 2011, TRIP Leasing had purchased $1,284.7 million of railcars from the Company. Railcars purchased from the Company by TRIP Leasing were required to be purchased at prices comparable with the prices of all similar, new railcars sold contemporaneously by the Company and at prices based on third-party appraised values for used railcars.

In 2010, Trinity purchased a 29% interest in TRIP Holdings for $28.6 million from another equity investor. The carrying amount of the noncontrolling interest was reduced by $45.3 million to reflect the change in its ownership interest, resulting in an increase to stockholders’ equity attributable to Trinity Industries’ controlling interest of $10.3 million, net of tax.

In July 2011, TRIP Holdings and its newly-formed subsidiary, TRIP Master Funding, issued $1,032.0 million in new debt which was used by TRIP Master Funding to purchase all of the railcar equipment owned by TRIP Leasing which, in turn, repaid all outstanding borrowings under the previously-existing TRIP Warehouse Loan and settled all outstanding related interest rate hedges. See Note 11 Debt for a description of TRIP Holdings and its related debt.

At December 31, 2011, the Company owned 57% of TRIP Holdings with the remainder owned by three other third-party equity investors. The Company receives distributions from TRIP Holdings as an equity investor, when allowed, in proportion to its 57% equity interest, and has an interest in the net assets of TRIP Holdings upon a liquidation event in the same proportion. The terms of the Company’s equity investment are identical to the terms of each of the other equity investors. Other than as described further below, Trinity has no remaining equity commitment to TRIP Holdings as of December 31, 2011 and has no obligation to guarantee performance under any TRIP-related debt agreements, guarantee any railcar residual values, shield any parties from losses, or guarantee minimum yields.

The manager of TRIP Holdings, Trinity Industries Leasing Company (“TILC”), may be removed without cause as a result of a majority vote of the third-party equity investors.

The Company’s carrying value of its investment in TRIP Holdings is as follows:

	December 31, 2011			December 31, 2010
	(in millions)
Capital contributions	$	47.3		$	47.3
Equity purchased from investors		44.8			44.8
		92.1			92.1
Equity in earnings		12.0			7.5
Equity in unrealized losses on derivative financial instruments		(1.3	)		(1.4	)
Distributions		(7.0	)		(7.0	)
Deferred broker fees		(0.6	)		(0.8	)
	$	95.2		$	90.4

On January 1, 2010, the Company adopted the provisions of a new accounting pronouncement, ASC 810-10, which amended the rules regarding the consolidation of variable interest entities. Under this new standard, which changed the criteria for determining which enterprise has a controlling financial interest, the Company was determined to be the primary beneficiary of TRIP Holdings because of its combined role as both equity member and manager/servicer of TRIP Holdings. As a result of adopting this pronouncement, the consolidated financial statements of TRIP Holdings and subsidiary are required to be included with the consolidated financial statements of the Company. We determined the effects on Trinity’s consolidated financial statements as if TRIP Holdings had been included in the Company’s consolidated financial statements from TRIP Holdings’ inception, and recorded a charge to retained earnings of $105.4 million, net of $57.7 million in tax benefit, and a noncontrolling interest of $129.9 million as of January 1, 2010. With the acquisition by Trinity of the additional ownership interest in TRIP Holdings in September 2010, the Company’s controlling financial interest in TRIP Holdings derives from its majority ownership. Accordingly, the consolidated balance sheets of the Company as of December 31, 2011 and 2010 and the consolidated statements of operations, cash flows, and stockholders’ equity for the twelve months ended December 31, 2011 and 2010 include the accounts of TRIP Holdings. Prior periods were not restated. All significant intercompany accounts and transactions have been eliminated. Profits have been deferred on sales of railcars from the Rail or Leasing Group to TRIP Holdings and will be amortized over the life of the related equipment. Additionally, any future profits on the sale of railcars to TRIP Holdings will be deferred and amortized over the life of the related equipment. The noncontrolling interest represents the non-Trinity equity interest in TRIP Holdings. The assets of TRIP Holdings may only be used to satisfy liabilities of TRIP Holdings, and the liabilities of TRIP Holdings have recourse only to TRIP Holdings’ assets.

Prior to January 1, 2010, profit on equipment sales to TRIP Leasing was recognized at the time of sale to the extent of the non-Trinity interests in TRIP Holdings. The deferred profit on the sale of equipment to TRIP Leasing pertaining to TILC’s interest in TRIP Holdings was being amortized over the depreciable life of the related equipment. All other fee income to TILC earned from services provided to TRIP Holdings was recognized by TILC to the extent of the non-Trinity interests in TRIP Holdings. Effective January 1, 2010, amortization of the deferred profit on the sale of equipment is recorded as if the entire profit on equipment sales to TRIP Leasing was deferred at the time of the sale and amortized over the depreciable life of the related equipment. All fee income to TILC earned from services provided to TRIP Holdings has been eliminated for the twelve months ended December 31, 2011 and 2010.

Sales of railcars to TRIP Leasing and related gains for the years ended December 31, 2011, 2010, and 2009 are as follows:

	Year Ended December 31,
	2011		2010		2009
	(in millions)
Rail Group:
Sales of railcars to TRIP Leasing	$	—	$	—	$	113.0
Gain on sales of railcars to TRIP Leasing	$	—	$	—	$	11.2
Deferral of gain on sales of railcars to TRIP Leasing based on Trinity’s equity interest	$	—	$	—	$	2.8
TILC:
Sales of railcars to TRIP Leasing:
Railcars owned one year or less at the time of sale	$	—	$	—	$	39.4
Railcars owned for more than one year at the time of sale		—		—		144.4
	$	—	$	—	$	183.8
Recognition of previously deferred gain on sales of railcars to TRIP Leasing	$	—	$	—	$	30.3
Deferral of gain on sales of railcars to TRIP Leasing based on Trinity’s equity interest	$	—	$	—	$	7.6

In July 2011, Trinity entered into agreements with an equity investor of TRIP Holdings potentially requiring Trinity, under certain limited circumstances, to acquire from the equity investor an additional 16.3% equity ownership in TRIP Holdings if the option is exercised to its fullest extent. Under the agreement, if exercised, Trinity would be required to pay the equity investor an amount equal to 90% of the equity investor’s net investment in TRIP Holdings. Similarly, at its option, Trinity, under certain limited circumstances, may acquire all of the equity investor’s equity ownership in TRIP Holdings at an amount equal to 100% of the equity investor’s net investment in TRIP Holdings. The agreements expire in July 2014. The fair value of these agreements was recorded in the accompanying consolidated statement of operations as an expense of $2.4 million for the year ended December 31, 2011. See Note 3 Fair Value Accounting and Note 12 Other, Net.

Administrative fees paid to TILC by TRIP Holdings and subsidiaries for the years ended December 31, 2011, 2010, and 2009 were $4.3 million, $3.7 million, and $4.5 million, respectively.