Derivative Instruments

3 Months Ended

Mar. 31, 2012

Derivative Instruments [Abstract]

Derivative Instruments

Note 6. Derivative Instruments

We use derivative instruments to mitigate the impact of changes in interest rates and pricing for zinc, natural gas, and diesel fuel prices, as well as to convert a portion of our variable-rate debt to fixed-rate debt. Additionally, we use derivative instruments to mitigate the impact of unfavorable fluctuations in foreign currency exchange rates. We also use derivatives to lock in fixed interest rates in anticipation of future debt issuances. Derivative instruments that are designated and qualify as cash flow hedges are accounted for in accordance with applicable accounting standards. See Note 2 Fair Value Accounting for discussion of how the Company valued its commodity hedges and interest rate swaps at March 31, 2012.

Interest rate hedges

						Included in accompanying balance sheet at March 31, 2012
	Notional Amount		Interest Rate( 1)			Liability		AOCL – loss/ (income)			Noncontrolling Interest
	(in millions, except %)
Interest rate locks:
2005-2006	$	200.0		4.87	%		—	$	(2.2	)		—
2006-2007	$	370.0		5.34	%		—	$	9.7			—
TRIP Holdings	$	788.5		3.60	%		—	$	22.5		$	16.9
Interest rate swaps:
TRIP Rail Master Funding secured railcar equipment notes	$	86.7		2.62	%	$	4.2	$	2.4		$	1.8
2008 debt issuance	$	467.2		4.13	%	$	46.2	$	44.4			—

⁽¹⁾  Weighted average fixed interest rate

Effect on interest expense – increase/(decrease)
	Three Months Ended March 31,						Expected effect during next twelve months(1)
	2012			2011
	(in millions)
Interest rate locks:
2005-2006	$	(0.1	)	$	(0.1	)	$	(0.3	)
2006-2007	$	0.9		$	0.9		$	3.3
TRIP Holdings	$	1.5		$	7.3		$	6.0
Interest rate swaps:
TRIP Rail Master Funding secured railcar equipment notes	$	0.5		$	—		$	1.9
2008 debt issuance	$	4.2		$	4.5		$	17.4

⁽¹⁾  Based on fair value as of March 31, 2012.

During 2005 and 2006, we entered into interest rate swap transactions in anticipation of a future debt issuance. These instruments, with a notional amount of $200 million, fixed the interest rate on a portion of a future debt issuance associated with a railcar leasing transaction in 2006 and settled at maturity in the first quarter of 2006. These interest rate swaps were being accounted for as cash flow hedges with changes in the fair value of the instruments of $4.5 million in income recorded in accumulated other comprehensive loss (“AOCL”) through the date the related debt issuance closed in May 2006. The balance is being amortized over the term of the related debt. The effect on interest expense is due to amortization of the AOCL balance.

In anticipation of a future debt issuance, we entered into interest rate swap transactions during the fourth quarter of 2006 and during 2007. These instruments, with a notional amount of $370 million, hedged the interest rate on a portion of a future debt issuance associated with an anticipated railcar leasing transaction, which closed in May 2008. These instruments settled during the second quarter of 2008, and were accounted for as cash flow hedges with changes in the fair value of the instruments of $24.5 million recorded as a loss in AOCL through the date the related debt issuance closed in May 2008. The balance is being amortized over the term of the related debt. The effect on interest expense is due to amortization of the AOCL balance.

In May 2008, we entered into an interest rate swap transaction that is being used to fix the Libor component of the debt issuance which closed in May 2008. The effect on interest expense results primarily from monthly interest settlements.

Between 2007 and 2009, TRIP Holdings, as required by its warehouse loan agreement, entered into interest rate swap transactions, all of which qualified as cash flow hedges, to reduce the effect of changes in variable interest rates. In July 2011, these interest rate hedges were terminated in connection with the refinancing of the TRIP Warehouse Loan. Balances included in AOCL at the date the hedges were terminated are being amortized over the expected life of the new debt with $6.0 million of additional interest expense expected to be recognized during the next twelve months following March 31, 2012. Also in July 2011, TRIP Holdings’ wholly-owned subsidiary, TRIP Rail Master Funding, entered into an interest rate swap transaction with a notional amount of $94.1 million to reduce the effect of changes in variable interest rates associated with the Class A-1b secured railcar equipment notes.

See Note 9 Debt regarding the related debt instruments.

Other Derivatives

	Effect on operating income – increase/(decrease)
	Three Months Ended March 31,
	2012			2011
	(in millions)
Fuel hedges (1)
Effect of mark to market valuation	$	0.1		$	0.5
Settlements		0.1			0.0
	$	0.2		$	0.5
Foreign exchange hedges (2)	$	(0.4	)	$	(0.6	)

⁽¹⁾  Included in cost of revenues in the accompanying consolidated statement of operations.

⁽²⁾  Included in other, net in the accompanying consolidated statement of operations.

Natural gas and diesel fuel

We maintain a program to mitigate the impact of fluctuations in the price of natural gas and diesel fuel purchases. The intent of the program is to protect our operating profit from adverse price changes by entering into derivative instruments. For those instruments that do not qualify for hedge accounting treatment, any changes in their valuation are recorded directly to the consolidated statement of operations. The amount recorded in the consolidated balance sheet as of March 31, 2012 for these instruments was not significant.

Foreign exchange hedge

We enter into foreign exchange hedges to mitigate the impact on operating profit of unfavorable fluctuations in foreign currency exchange rates. These instruments are short term with quarterly maturities and no remaining balance in AOCL as of March 31, 2012.