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Section 1: 8-K (8-K)

Document
false0000099780TRINITY INDUSTRIES INC 0000099780 2019-10-23 2019-10-23



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported):
 
October 23, 2019
400639936_trnlogoverticalhrblaca03.jpg
_______________________________________
(Exact name of registrant as specified in its charter)
 
 
 
 
 
Delaware
 
1-6903
 
75-0225040
(State or other jurisdiction
of incorporation)
 
(Commission File No.)
 
(I.R.S. Employer
Identification No.)
2525 N. Stemmons Freeway,
Dallas, Texas 75207-2401
(Address of Principal Executive Offices, and Zip Code)
(214) 631-4420
Registrant's Telephone Number, Including Area Code
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
______________________________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
TRN
New York Stock Exchange
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.






Item 2.02 Results of Operations and Financial Condition.
The Registrant hereby furnishes the information set forth in its News Release, dated October 23, 2019, announcing operating results for the three month period ended September 30, 2019, a copy of which is furnished as Exhibit 99.1 and incorporated herein by reference. On October 24, 2019, the Registrant held a conference call and webcast with respect to its financial results for the three month period September 30, 2019. The conference call scripts of Jessica Greiner, Vice President of Investor Relations and Communications; Timothy R. Wallace, Chief Executive Officer and President; Eric R. Marchetto, Senior Vice President and Group President, TrinityRail; and Melendy E. Lovett, Senior Vice President and Chief Financial Officer; are furnished as exhibits 99.2, 99.3, 99.4, and 99.5, respectively, and incorporated herein by reference.
The conference call included references to Pre-Tax Return on Equity ("Pre-Tax ROE") and Free Cash Flow, which are not calculations based on generally accepted accounting principles (“GAAP”). The Registrant defines Pre-Tax ROE as a ratio for which (i) the numerator is calculated as income from continuing operations before income taxes, adjusted to exclude the net income or loss attributable to non-controlling interest and (ii) the denominator is calculated as average stockholders’ equity (which excludes noncontrolling interest), adjusted to exclude accumulated other comprehensive income or loss. The Registrant defines Free Cash Flow as Net Cash Provided by Operating Activities from Continuing Operations as computed in accordance with GAAP, plus cash proceeds from sales of leased railcars owned more than one year at the time of sale, less cash payments for manufacturing capital expenditures and dividends. The Registrant has not provided quantitative reconciliations of forward-looking non-GAAP measures to the most directly comparable GAAP measures because it cannot, without unreasonable effort, predict the timing and amounts of certain items included in the computations of each of these measures. These factors include, but are not limited to, the product mix of expected railcar deliveries, and the timing and amount of significant transactions and investments, such as railcar sales from the lease fleet, capital expenditures, and returns of capital to shareholders.
This information is not "filed" pursuant to the Securities Exchange Act of 1934 and is not incorporated by reference into any Securities Act of 1933 registration statements. Additionally, the submission of the report on Form 8-K is not an admission of the materiality of any information in this report that is required to be disclosed solely by Regulation FD.
Item 7.01 Regulation FD Disclosure.
See "Item 2.02 — Results of Operations and Financial Condition."
Forward-Looking Statements
Some statements in this release, which are not historical facts, are “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about Trinity's estimates, expectations, beliefs, intentions or strategies for the future, and the assumptions underlying these forward-looking statements, including, but not limited to, future financial and operating performance, future opportunities and any other statements regarding events or developments that Trinity believes or anticipates will or may occur in the future. Trinity uses the words “anticipates,” “assumes,” “believes,” “estimates,” “expects,” “intends,” “forecasts,” “may,” “will,” “should,” “guidance,” “projected,” “outlook,” and similar expressions to identify these forward-looking statements. Forward-looking statements speak only as of the date of this release, and Trinity expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Trinity’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based, except as required by federal securities laws. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or our present expectations, including but not limited to risks and uncertainties regarding economic, competitive, governmental, and technological factors affecting Trinity’s operations, markets, products, services and prices, and such forward-looking statements are not guarantees of future performance. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” and “Forward-Looking Statements” in Trinity’s Annual Report on Form 10-K for the most recent fiscal year, as may be revised and updated by Trinity’s Quarterly Reports on Form 10-Q, and Trinity’s Current Reports on Form 8-K.





Item 9.01 Financial Statements and Exhibits.

(a) - (c) Not applicable.

(d) Exhibits:
NO.
 
DESCRIPTION
99.1

 
99.2

 
99.3

 
99.4

 
99.5

 
99.6

 
101.INS

 
Inline XBRL Instance Document — the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH

 
Inline XBRL Taxonomy Extension Schema Document (filed electronically herewith).
101.CAL

 
Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed electronically herewith).
101.LAB

 
Inline XBRL Taxonomy Extension Label Linkbase Document (filed electronically herewith).
101.PRE

 
Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed electronically herewith).
101.DEF

 
Inline XBRL Taxonomy Extension Definition Linkbase Document (filed electronically herewith).
104

 
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).







SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
Trinity Industries, Inc.
 
 
 
October 24, 2019
By:
/s/ Melendy E. Lovett
 
 
Name: Melendy E. Lovett
 
 
Title: Senior Vice President and Chief Financial Officer



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit

Exhibit 99.1
NEWS RELEASE
                 400639936_trnverticalblacalogo09.jpg
FOR IMMEDIATE RELEASE
Trinity Industries, Inc. Announces Strong Improvement in Third Quarter 2019 Results

Reports significant year over year growth in revenue, operating profit, and EPS
Generates year to date operating and free cash flow before leasing investment of $164.0 million and $214.9 million, respectively
Returns $117 million of capital to stockholders in the third quarter
Narrows 2019 earnings guidance range

DALLAS, Texas - October 23, 2019 - Trinity Industries, Inc. (NYSE:TRN) today announced earnings results for the third quarter ended September 30, 2019.

Financial and Operational Highlights - Third Quarter 2019 (as of September 30, 2019):
Quarterly total company revenue of $813.6 million, reflecting growth of 34.1% year over year
Quarterly earnings from continuing operations per common diluted share ("EPS") of $0.39, an increase of 105% year over year
Quarterly revenues from leasing and management services of $190.1 million with a 42.0% operating profit margin
Growth of the wholly-owned and partially-owned lease fleet to 102,090 units, bringing the total value of net property, plant and equipment for the lease fleet (before deferred profit) to $7.4 billion
Lease fleet utilization of 96.7% at quarter-end
Rail Products Group quarterly revenues of $723.0 million and a 9.0% operating profit margin
Rail Products Group quarterly railcar orders and deliveries of 2,530 and 5,320, respectively, resulting in total railcar backlog of $2.4 billion at quarter-end
Repurchases of approximately 5.2 million shares at a cost of $100.9 million
Successful execution of a $386.5 million secured railcar financing transaction with a blended coupon average of 2.98% subsequent to quarter-end

“Trinity’s third quarter financial results significantly improved year over year due to the growth of our railcar lease fleet and increased deliveries of new railcars,” said Timothy R. Wallace, Trinity’s Chief Executive Officer and President. “The 34% increase in revenues and doubling of earnings per share reflects TrinityRail’s ability to improve our financial performance.”
Mr. Wallace continued, “Demand continued at lower levels during the third quarter due to economic uncertainty associated with industrial production and global trade. These factors, combined with pressure on railcar loading volumes, are impacting railcar lease rates and utilization as well as orders for new railcars. Our management team has responded accordingly and is being highly selective in its originations of new railcar leases. The team has shifted a portion of new railcar production from 2019 into the first half of 2020 to facilitate the transition to lower railcar production next year.”
“Trinity is positioned to successfully navigate through shifts in market demand. We are highly experienced at both short- and long-term cycles and are prepared to respond to the needs of our customers. The recurring revenues associated with long-term leases in our railcar leasing business provide the company with a predictable level of steady cash flows. In addition, our management team has been highly focused on lowering Trinity’s cost of capital and streamlining our operating structure. We have made good progress in these areas, and there are various other initiatives underway that we expect to have a positive effect on the company’s performance in 2020,” Mr. Wallace concluded.

1


Consolidated Results
Trinity Industries, Inc. reported net income from continuing operations attributable to Trinity stockholders of $49.4 million, or $0.39 per common diluted share, for the third quarter ended September 30, 2019. Net income from continuing operations attributable to Trinity stockholders for the same quarter of 2018 was $27.9 million, or $0.19 per common diluted share. Revenues for the third quarter of 2019 increased to $813.6 million compared with revenues of $606.9 million for the same quarter of 2018.
Quarterly Business Group Results
Railcar Leasing and Management Services Group
In the third quarter of 2019, the Leasing Group increased its revenues and operating profit to $326.4 million and $115.7 million, respectively, when compared with $227.5 million and $92.2 million, respectively, in the same quarter of 2018. The increase in the Leasing Group's revenues was primarily due to a higher volume of railcars sold from the lease fleet, growth in the lease fleet, and higher average lease rates when compared to the third quarter of 2018. The wholly-owned and partially-owned lease fleet grew to 102,090 units as of September 30, 2019, an increase of approximately 7.6% in comparison to September 30, 2018. The total owned and managed lease fleet now stands at 126,305 railcars at the end of the third quarter. The increase in operating profit for the third quarter was primarily due to higher profits from railcar sales, growth in the lease fleet, and lower rent expense resulting from our first quarter purchase of railcars that were previously financed under a sale-leaseback arrangement. These increases in profit were partially offset by higher depreciation expense associated with lease fleet growth. Total sales of leased railcars were $211.4 million in the third quarter of 2019 compared with $118.6 million in the third quarter of 2018. These totals include sales of railcars owned for more than one year that are not reported as revenues, as well as railcars sold under sales-type leases. Supplemental information for the Leasing Group is provided in the accompanying tables.
Rail Products Group
The Rail Products Group reported revenues of $723.0 million during the quarter compared with revenues of $497.6 million in the third quarter of 2018. Operating profit and operating profit margin for the Rail Products Group increased to $65.4 million and 9.0%, respectively, in the third quarter of 2019 compared with $28.0 million and 5.6%, respectively, in the third quarter of 2018. The increase in revenues and operating profit primarily resulted from higher railcar deliveries, favorable railcar pricing, and product mix changes, as well as growth in our maintenance services business compared to the prior year period. As a result of softening railcar demand, as well as operational disruptions and capacity expansion delays during the quarter, the Company reduced its production schedule for the third quarter and the year and shifted these railcar deliveries to 2020. The Rail Products Group received orders for 2,530 railcars with a value of $259.2 million and delivered 5,320 railcars during the third quarter of 2019, compared with orders for 7,725 railcars and deliveries of 3,990 railcars, respectively, in the same quarter last year. In addition, the Rail Products Group reported negative adjustments to the railcar backlog of 430 railcars reflecting a cancellation due to the financial condition of a Leasing customer, as well as a negotiated removal of railcars from backlog in which the Company received compensation for terminating the agreement. The railcar backlog in the Rail Products Group decreased during the quarter to $2.4 billion as of September 30, 2019, representing 19,950 railcars, compared with a railcar backlog of $2.9 billion as of June 30, 2019, representing 23,170 railcars.
All Other Group
In the third quarter of 2019, the All Other Group, which primarily includes the results of our highway products and logistics businesses, reported revenues of $90.4 million compared with revenues of $102.4 million in the third quarter of 2018. The decrease in revenues was primarily due to decreased demand and lower shipping volumes in our highway products business. Operating profit for the All Other Group was $3.9 million for the third quarter of 2019, compared with operating profit of $9.5 million in the third quarter of 2018. The decline in operating profit was primarily related to insurance recoveries and gains on dispositions of property recognized in the prior year.

Progress on Other 2019 Priorities
Cost Optimization
Throughout 2019, Trinity has implemented various cost-saving initiatives and has identified actions to further reduce total spend, with a focus on selling, engineering, and administrative expenses. Year to date, Corporate expenses are down $36.9 million, a decrease of 32% year over year, primarily due to lower litigation-related expenses and cost optimization efforts. In the fourth quarter, in connection with the Company's assessment of future needs to support its go-forward business strategy, the Company anticipates recognizing a restructuring charge of approximately $10 million to $20 million, primarily from write-downs related to underutilized assets in our manufacturing footprint, and employee transition costs. Trinity currently anticipates that these specific changes will generate approximately $8 million to $10 million in future cost savings on an annualized basis. As the Company continues to reposition the organization to better support the operating structure of Trinity's rail-focused strategy and drive innovation and platform efficiency, we anticipate identifying further cost savings opportunities in 2020.

2


Balance Sheet Optimization
Subsequent to quarter-end, wholly-owned subsidiaries, Trinity Industries Leasing Company ("TILC") and Trinity Rail Leasing 2019 LLC, ("TRL-2019”) closed a two-tranche railcar asset-backed securitization (“Series 2019-2”) in the aggregate amount of $386.5 million with a blended fixed interest rate of approximately 2.98% and a blended weighted average life of approximately 6.1 years. This transaction, combined with the initial TRL-2019 Series 2019-1 transaction of $528.3 million which TILC closed in April of this year, is secured by 13,426 railcars with an appraised fair-market value of $1,177.0 million, and their associated operating leases. Both Standard & Poor's Global Ratings and Kroll Bond Rating Agency rated the Series 2019-2 senior notes with a single “A” rating. The obligations of the equipment notes are non-recourse to Trinity and TILC. Net proceeds received from the transaction are being used to repay approximately $167 million in outstanding borrowings under the Leasing Group's secured warehouse credit facility, to repay approximately $125 million in outstanding borrowings under the Company's revolving credit facility, and for general corporate purposes.
“Series 2019-2 is the second securitization issuance Trinity has completed this year and is aligned with our near-term priority of recapitalizing our balance sheet to lower our cost of capital,” said Melendy E. Lovett, Senior Vice President and Chief Financial Officer for Trinity Industries, Inc. “With this securitization, our loan-to-value ratio on Trinity’s wholly-owned lease fleet increases to 56%, nearing our short term target of 60-65%. Interest from investors in Trinity’s securitizations continues to exceed our expectations and reflects the strong financial performance of these railcar portfolios over the financing term. Railcar assets are an attractive long-term investment given the stable and predictable cash flows from long-term leases. I am pleased that the bond ratings and investor interest in Trinity’s securitizations continue to reflect the strength of our diversified portfolio of railcar assets and strong portfolio management.”
Capital Allocation - Business Investment
Year to date, Trinity has invested $679.3 million in railcars for the growth of the leased railcar portfolio, net of proceeds from the sales of leased railcars. Additionally, Trinity has invested $63.3 million in manufacturing and other capital expenditures for both maintenance and expansion.
Return of Capital to Stockholders
During the third quarter of 2019, the Company repurchased approximately 5.2 million shares at a cost of $100.9 million, bringing year to date share repurchases to approximately 10.8 million shares at a cost of $233.9 million. The year to date total includes approximately 2.6 million shares that were delivered to the Company in the first quarter of 2019 upon final settlement of the previously announced accelerated share repurchase program, which was funded in November 2018. As of September 30, 2019, the Company had a remaining authorization to repurchase up to $186.1 million, not to exceed 5.5 million shares, of its common stock under the current repurchase program.
When combining capital returned to stockholders in the form of dividends and share repurchases, Trinity has returned over $294.7 million to stockholders year to date in 2019.
Planned Pension Plan Termination
On September 4, 2019, our Board of Directors approved the termination of the Trinity Industries, Inc. Consolidated Pension Plan (the "Pension Plan"), effective December 31, 2019. Except for retirees currently receiving payments under the Pension Plan, participants will have the choice of receiving a single lump sum payment or an annuity from a highly-rated insurance company that will pay and administer future benefit payments. The Pension Plan is currently fully funded and is expected to be settled between late 2020 and early 2021, subject to required governmental approvals, and would then result in the Company no longer having any remaining funded pension plan obligations.
Upon settlement, we expect to recognize pre-tax pension settlement charges totaling between $145 million and $195 million. This range includes: (1) a non-cash charge for the recognition of all pre-tax actuarial losses accumulated in Accumulated Other Comprehensive Loss, which totaled approximately $140.4 million ($107.2 million, net of tax) as of December 31, 2018; and (2) a potential additional cash contribution to settle all of the Pension Plan’s obligations, which is not expected to exceed $25 million. The actual amount of the settlement charges and any potential cash contribution will depend on interest rates, Pension Plan asset returns, the lump-sum election rate, and other factors.
2019 Guidance
For the full year 2019, the Company has narrowed its annual guidance range to between $1.17 and $1.27 per common diluted share. The change in guidance primarily reflects fewer railcar deliveries expected in 2019, some of which were expected to be added to the lease fleet, partially offset by a higher level of railcar sales from the lease fleet. Railcar deliveries for 2019 are now expected to be between 21,500 and 22,000 railcars. The Leasing Group now expects a net lease fleet investment of between $850 million and $950 million in 2019. Additional guidance information is included in the accompanying tables.

3


Conference Call
Trinity will hold a conference call at 11:00 a.m. Eastern on October 24, 2019 to discuss its third quarter results. To listen to the call, please visit the Investor Relations section of the Company's website at www.trin.net and access the Events & Presentations webpage. An audio replay may be accessed through the Company’s website or by dialing (402) 220-7205 until 11:59 p.m. Eastern on October 31, 2019.
About Trinity Industries
Trinity Industries, Inc., headquartered in Dallas, Texas, owns businesses that are leading providers of rail transportation products and services in North America. Our rail-related businesses market their railcar products and services under the trade name TrinityRail®. The TrinityRail integrated platform provides railcar leasing and management services, as well as railcar manufacturing, maintenance and modifications. Trinity also owns businesses engaged in the manufacture of products used on the nation’s roadways and in traffic control, as well as logistical and transportation businesses that provide support services to a variety of industrial manufacturers. Trinity reports its financial results in three principal business segments: the Railcar Leasing and Management Services Group, the Rail Products Group, and the All Other Group. For more information, visit: www.trin.net.
Some statements in this release, which are not historical facts, are “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about Trinity's estimates, expectations, beliefs, intentions or strategies for the future, and the assumptions underlying these forward-looking statements, including, but not limited to, future financial and operating performance, future opportunities and any other statements regarding events or developments that Trinity believes or anticipates will or may occur in the future. Trinity uses the words “anticipates,” “assumes,” “believes,” “estimates,” “expects,” “intends,” “forecasts,” “may,” “will,” “should,” “guidance,” “projected,” “outlook,” and similar expressions to identify these forward-looking statements. Forward-looking statements speak only as of the date of this release, and Trinity expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Trinity’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based, except as required by federal securities laws. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or our present expectations, including but not limited to risks and uncertainties regarding economic, competitive, governmental, and technological factors affecting Trinity’s operations, markets, products, services and prices, and such forward-looking statements are not guarantees of future performance. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” and “Forward-Looking Statements” in Trinity’s Annual Report on Form 10-K for the most recent fiscal year, as may be revised and updated by Trinity’s Quarterly Reports on Form 10-Q, and Trinity’s Current Reports on Form 8-K.

Investor & Media Contact:
Jessica Greiner
Vice President, Investor Relations and Communications
Trinity Industries, Inc.
 
(Investors) 214/631-4420
(Media Line) 214/589-8909
- TABLES TO FOLLOW -

4



Trinity Industries, Inc.
Condensed Consolidated Statements of Operations
(in millions, except per share amounts)
(unaudited)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Revenues
$
813.6

 
$
606.9

 
$
2,154.4

 
$
1,774.1

Operating costs:
 
 
 
 
 
 
 
Cost of revenues
649.1

 
466.5

 
1,691.0

 
1,348.3

Selling, engineering, and administrative expenses
62.1

 
75.6

 
191.5

 
224.6

Gains (losses) on dispositions of property:
 
 
 
 
 
 
 
Net gains on railcar lease fleet sales owned more than one year at the time of sale
18.1

 
9.4

 
44.7

 
21.0

Other
(0.2
)
 
1.0

 
2.5

 
3.1

 
693.3


531.7


1,835.3


1,548.8

Operating profit
120.3

 
75.2


319.1


225.3

Interest expense, net
54.0

 
40.4

 
160.8

 
122.9

Other, net

 
(0.4
)
 
0.2

 
(3.5
)
Income from continuing operations before income taxes
66.3

 
35.2

 
158.1

 
105.9

Provision for income taxes
18.2

 
6.7

 
41.2

 
24.9

Income from continuing operations
48.1

 
28.5

 
116.9

 
81.0

Income (loss) from discontinued operations, net of income taxes
(0.4
)
 
(0.2
)
 
(2.3
)
 
54.4

Net income
47.7

 
28.3

 
114.6

 
135.4

Net income (loss) attributable to noncontrolling interest
(1.3
)
 
0.6

 
(1.4
)
 
3.4

Net income attributable to Trinity Industries, Inc.
$
49.0

 
$
27.7

 
$
116.0

 
$
132.0

 
 
 
 
 
 
 
 
Basic earnings per common share:
 
 
 
 
 
 
 
Income from continuing operations
$
0.39

 
$
0.19

 
$
0.91

 
$
0.52

Income (loss) from discontinued operations

 

 
(0.02
)
 
0.37

Basic net income attributable to Trinity Industries, Inc.
$
0.39

 
$
0.19

 
$
0.89

 
$
0.89

Diluted earnings per common share:
 
 
 
 
 
 
 
Income from continuing operations
$
0.39

 
$
0.19

 
$
0.90

 
$
0.51

Income (loss) from discontinued operations

 

 
(0.02
)
 
0.36

Diluted net income attributable to Trinity Industries, Inc.
$
0.39

 
$
0.19

 
$
0.88

 
$
0.87

Weighted average number of shares outstanding:
 
 
 
 
 
 
 
Basic
124.7

 
145.0

 
127.6

 
146.1

Diluted
126.0

 
145.8

 
129.2

 
148.8

Trinity is required to utilize the two-class method of accounting when calculating earnings per share as a result of unvested restricted shares that have non-forfeitable rights to dividends and are, therefore, considered to be a participating security. The unvested restricted shares are excluded from the weighted average number of shares outstanding for the purposes of determining earnings per share; therefore, the two-class method may result in a lower earnings per share than is calculated from the face of the income statement.


5


Trinity Industries, Inc.
Condensed Segment Data
(in millions)
(unaudited)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
Revenues:
2019
 
2018
 
2019
 
2018
Railcar Leasing and Management Services Group
$
326.4

 
$
227.5

 
$
803.9

 
$
615.5

Rail Products Group
723.0

 
497.6

 
2,038.9

 
1,651.9

All Other
90.4

 
102.4

 
265.3

 
271.9

Segment Totals before Eliminations
1,139.8

 
827.5

 
3,108.1

 
2,539.3

Eliminations - Lease subsidiary
(314.0
)
 
(207.4
)
 
(913.0
)
 
(732.0
)
Eliminations - Other
(12.2
)
 
(13.2
)
 
(40.7
)
 
(33.2
)
Consolidated Total
$
813.6

 
$
606.9

 
$
2,154.4

 
$
1,774.1

 
 
 
 
 
 
 
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
Operating profit (loss):
2019
 
2018
 
2019
 
2018
Railcar Leasing and Management Services Group
$
115.7

 
$
92.2

 
$
306.3

 
$
255.1

Rail Products Group
65.4

 
28.0

 
184.0

 
128.0

All Other
3.9

 
9.5

 
16.7

 
27.7

Segment Totals before Eliminations and Corporate Expenses
185.0

 
129.7

 
507.0

 
410.8

Corporate
(23.9
)
 
(37.4
)
 
(78.1
)
 
(115.0
)
Eliminations - Lease subsidiary
(40.7
)
 
(18.1
)
 
(109.5
)
 
(71.3
)
Eliminations - Other
(0.1
)
 
1.0

 
(0.3
)
 
0.8

Consolidated Total
$
120.3

 
$
75.2

 
$
319.1

 
$
225.3





6


Trinity Industries, Inc.
Selected Financial Information - Leasing Group
(in millions, except lease portfolio data)
(unaudited)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
Leasing and management
$
190.1

 
$
175.9

 
$
566.6

 
$
534.7

Sales of railcars owned one year or less at the time of sale(1) (2)
136.3

 
51.6

 
237.3

 
80.8

Total revenues
$
326.4

 
$
227.5

 
$
803.9

 
$
615.5

Operating profit(3):
 
 
 
 
 
 
 
Leasing and management
$
79.8

 
$
69.7

 
$
234.6

 
$
216.6

Railcar sales(1):
 
 
 
 
 
 
 
Railcars owned one year or less at the time of sale
17.8

 
13.1

 
27.0

 
17.5

Railcars owned more than one year at the time of sale
18.1

 
9.4

 
44.7

 
21.0

Total operating profit
$
115.7

 
$
92.2

 
$
306.3

 
$
255.1

 
 
 
 
 
 
 
 
Operating profit margin:
 
 
 
 
 
 
 
Leasing and management operating margin
42.0
%

39.6
%

41.4
%

40.5
%
Railcar sales
*
 
*
 
*
 
*
Total operating profit margin
35.4
%

40.5
%

38.1
%

41.4
%
 
 
 
 
 
 
 
 
Selected expense information:
 
 
 
 
 
 
 
Depreciation
$
59.4

 
$
48.8

 
$
171.6

 
$
140.9

Maintenance and compliance
$
24.9

 
$
24.1

 
$
79.2

 
$
75.5

Rent
$
3.8

 
$
9.7

 
$
13.6

 
$
29.7

Selling, engineering, and administrative expenses
$
10.7

 
$
11.9

 
$
36.2

 
$
36.7

Interest
$
50.0

 
$
37.4

 
$
146.4

 
$
101.2

 
September 30, 2019
 
September 30, 2018
Number of railcars:
 
 
 
Wholly-owned
77,485

 
70,220

Partially-owned
24,605

 
24,650

 
102,090

 
94,870

Managed (third-party owned)
24,215

 
27,160

 
126,305

 
122,030

Fleet utilization (Company-owned railcars)
96.7
%
 
97.6
%
 
Nine Months Ended September 30,
 
2019
 
2018
Proceeds from sales of leased railcars:
 
 
 
Railcars owned one year or less at the time of sale (2)
$
237.3

 
$
80.8

Railcars owned more than one year at the time of sale
175.0

 
123.4

 
$
412.3

 
$
204.2

* Not meaningful
(1) The Company recognizes sales of railcars from the lease fleet which have been owned by the lease fleet for one year or less as revenue. 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.
(2) Includes revenues associated with sales-type leases of $26.3 million and $60.5 million, respectively, for the three and nine months ended September 30, 2019.
(3) Operating profit includes: depreciation; maintenance and compliance; rent; and selling, engineering, and administrative expenses. Amortization of deferred profit on railcars sold from the Rail Group to the Leasing Group is included in the operating profit of the Leasing Group, resulting in the recognition of depreciation expense based on the Company's original manufacturing cost of the railcars. Interest expense is not a component of operating profit and includes the effect of hedges.


7


Trinity Industries, Inc.
Condensed Consolidated Balance Sheets
(in millions)
(unaudited)
 
September 30, 2019
 
December 31, 2018
ASSETS
 
 
 
Cash and cash equivalents
$
97.6

 
$
179.2

Receivables, net of allowance
304.7

 
276.6

Income tax receivable
21.1

 
40.4

Inventories
632.9

 
524.7

Restricted cash
117.5

 
171.6

Property, plant, and equipment, net
6,916.7

 
6,334.4

Goodwill
208.8

 
208.8

Other assets
343.8

 
253.5

Total assets
$
8,643.1

 
$
7,989.2

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Accounts payable
$
250.8

 
$
212.1

Accrued liabilities
368.9

 
368.3

Debt
4,685.2

 
4,029.2

Deferred income

 
17.7

Deferred income taxes
784.1

 
743.1

Other liabilities
94.8

 
56.8

Stockholders' equity:
 
 
 
Trinity Industries, Inc.
2,110.6

 
2,210.8

Noncontrolling interest
348.7

 
351.2

 
2,459.3

 
2,562.0

Total liabilities and stockholders' equity
$
8,643.1

 
$
7,989.2



8


Trinity Industries, Inc.
Additional Balance Sheet Information
(in millions)
(unaudited)


September 30, 2019
 
December 31, 2018
Property, Plant, and Equipment
 
 
 
Manufacturing/Corporate:
 
 
 
Property, plant, and equipment
$
1,013.8

 
$
963.2

Accumulated depreciation
(617.5
)
 
(592.3
)
 
396.3

 
370.9

Leasing:
 
 
 
Wholly-owned subsidiaries:
 
 
 
Machinery and other
13.8

 
13.5

Equipment on lease
6,677.9

 
5,934.8

Accumulated depreciation
(1,094.7
)
 
(971.8
)
 
5,597.0

 
4,976.5

Partially-owned subsidiaries:
 
 
 
Equipment on lease
2,401.0

 
2,371.9

Accumulated depreciation
(606.5
)
 
(557.2
)
 
1,794.5

 
1,814.7

 
 
 
 
Deferred profit on railcars sold to the Leasing Group
(1,094.7
)
 
(1,030.0
)
Accumulated amortization
223.6

 
202.3

 
(871.1
)
 
(827.7
)
 
$
6,916.7

 
$
6,334.4

 
September 30, 2019
 
December 31, 2018
Debt
 
 
 
Corporate - Recourse:
 
 
 
Revolving credit facility
$
75.0

 
$

Senior notes, net of unamortized discount of $0.2 and $0.3
399.8

 
399.7

 
474.8

 
399.7

Less: unamortized debt issuance costs
(2.1
)
 
(2.3
)
 
472.7

 
397.4

Leasing:
 
 
 
Wholly-owned subsidiaries:
 
 
 
Non-recourse:
 
 
 
Secured railcar equipment notes
1,763.5

 
1,301.3

TILC warehouse facility
545.8

 
374.8

Promissory notes
635.4

 
660.2

 
2,944.7

 
2,336.3

Less: unamortized debt issuance costs
(21.5
)
 
(19.7
)
 
2,923.2

 
2,316.6

Partially-owned subsidiaries - non-recourse:
 
 
 
Secured railcar equipment notes
1,300.6

 
1,327.9

Less: unamortized debt issuance costs
(11.3
)
 
(12.7
)
 
1,289.3

 
1,315.2

 
$
4,685.2

 
$
4,029.2



9


Trinity Industries, Inc.
Additional Balance Sheet Information
($ in millions)
(unaudited)
 
September 30, 2019
 
December 31, 2018
Leasing Debt Summary
 
 
 
Total Recourse Debt
$

 
$

Total Non-Recourse Debt
4,212.5

 
3,631.8

 
$
4,212.5

 
$
3,631.8

Total Leasing Debt
 
 
 
Wholly-owned subsidiaries
$
2,923.2

 
$
2,316.6

Partially-owned subsidiaries
1,289.3

 
1,315.2

 
$
4,212.5

 
$
3,631.8

Equipment on Lease(1)
 
 
 
Wholly-owned subsidiaries
$
5,597.0

 
$
4,976.5

Partially-owned subsidiaries
1,794.5

 
1,814.7

 
$
7,391.5

 
$
6,791.2

Total Leasing Debt as a % of Equipment on Lease
 
 
 
Wholly-owned subsidiaries
52.2
%
 
46.6
%
Partially-owned subsidiaries
71.8
%
 
72.5
%
Combined
57.0
%
 
53.5
%
(1) Excludes net deferred profit on railcars sold to the Leasing Group.


10


Trinity Industries, Inc.
Condensed Consolidated Statements of Cash Flows
(in millions)
(unaudited)

 
Nine Months Ended
September 30,
 
2019
 
2018
Operating activities:
 
 
 
Net income
$
114.6

 
$
135.4

(Income) loss from discontinued operations, net of income taxes
2.3

 
(54.4
)
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
210.5

 
184.3

Provision for deferred income taxes
38.5

 
36.4

Net gains on railcar lease fleet sales owned more than one year at the time of sale
(44.7
)
 
(21.0
)
Other
25.0

 
32.4

Changes in operating assets and liabilities:
 
 
 
(Increase) decrease in receivables, inventories, and other assets
(185.6
)
 
(169.4
)
Increase (decrease) in accounts payable, accrued liabilities, and other liabilities
3.4

 
35.8

Net cash provided by operating activities – continuing operations
164.0

 
179.5

Net cash provided by operating activities – discontinued operations

 
140.4

Net cash provided by operating activities
164.0

 
319.9

Investing activities:
 
 
 
Proceeds from railcar lease fleet sales owned more than one year at the time of sale
175.0

 
123.4

Proceeds from disposition of property and other assets
19.5

 
6.9

Capital expenditures – leasing, net of sold lease fleet railcars owned one year or less with a net cost of $210.3 and $63.2
(854.3
)
 
(675.8
)
Capital expenditures – manufacturing and other
(63.3
)
 
(30.0
)
Decrease in short-term marketable securities

 
319.5

Other
(0.2
)
 
(1.9
)
Net cash used in investing activities – continuing operations
(723.3
)
 
(257.9
)
Net cash used in investing activities – discontinued operations

 
(53.1
)
Net cash used in investing activities
(723.3
)
 
(311.0
)
Financing activities:
 
 
 
Net proceeds (payments) from debt
649.4

 
(177.6
)
Shares repurchased
(154.9
)
 
(156.1
)
Dividends paid to common shareholders
(60.8
)
 
(58.1
)
Other
(10.1
)
 
(25.0
)
Net cash provided by (used in) financing activities
423.6

 
(416.8
)
Net decrease in cash, cash equivalents, and restricted cash
(135.7
)
 
(407.9
)
Cash, cash equivalents, and restricted cash at beginning of period
350.8

 
973.8

Cash, cash equivalents, and restricted cash at end of period
$
215.1

 
$
565.9


11


Trinity Industries, Inc.
Reconciliations of Non-GAAP Measures
(in millions)
(unaudited)

Free Cash Flow
Free Cash Flow is a non-GAAP financial measure and is defined as Net Cash Provided by Operating Activities from Continuing Operations as computed in accordance with GAAP, plus cash proceeds from sales of leased railcars owned more than one year at the time of sale, less cash payments for manufacturing capital expenditures and dividends. We believe Free Cash Flow is useful to both management and investors as it provides a relevant measure of liquidity and a useful basis for assessing our ability to fund our operations and repay our debt. Free Cash Flow is reconciled to Net Cash Provided by Operating Activities from Continuing Operations, the most directly comparable GAAP financial measure, in the following table. Non-GAAP measures should not be considered in isolation or as a substitute for our reporting results prepared in accordance with GAAP and, as calculated, may not be comparable to other similarly titled measures for other companies.
 
Nine Months Ended September 30,
 
2019
 
2018
Net cash provided by operating activities – continuing operations
$
164.0

 
$
179.5

Add:
 
 
 
Proceeds from railcar lease fleet sales owned more than one year at the time of sale
175.0

 
123.4

Adjusted Net Cash Provided by Operating Activities
$
339.0

 
$
302.9

Less:
 
 
 
Capital expenditures - manufacturing and other
(63.3
)
 
(30.0
)
Dividends paid to common shareholders
(60.8
)
 
(58.1
)
Free Cash Flow (before Capital expenditures – leasing)
$
214.9

 
$
214.8



EBITDA
“EBITDA” is defined as income from continuing operations plus interest expense, income taxes, and depreciation and amortization expense. EBITDA is a non-GAAP financial measure; however, the amounts included in the EBITDA calculation are derived from amounts included in our GAAP financial statements. EBITDA is reconciled to net income, the most directly comparable GAAP financial measure, in the following table. This information is provided to assist investors in making meaningful comparisons of our operating performance between periods. We believe EBITDA is a useful measure for analyzing the performance of our business. We also believe that EBITDA is commonly reported and widely used by investors and other interested parties as a measure of a company’s operating performance and debt servicing ability because it assists in comparing performance on a consistent basis without regard to capital structure, depreciation or amortization (which can vary significantly depending on many factors). EBITDA should not be considered as an alternative to net income as an indicator of our operating performance, or as an alternative to operating cash flows as a measure of liquidity. The EBITDA measure presented in this press release may not be comparable to similarly titled measures by other companies due to differences in the components of the calculation.
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Net income
$
47.7

 
$
28.3

 
$
114.6

 
$
135.4

Less: income (loss) from discontinued operations, net of income taxes
(0.4
)
 
(0.2
)
 
(2.3
)
 
54.4

Income from continuing operations
$
48.1

 
$
28.5

 
$
116.9

 
$
81.0

Add:
 
 
 
 
 
 
 
Interest expense
55.8

 
42.8

 
165.5

 
132.9

Provision for income taxes
18.2

 
6.7

 
41.2

 
24.9

Depreciation and amortization expense
72.4

 
64.6

 
210.5

 
184.3

EBITDA
$
194.5

 
$
142.6

 
$
534.1

 
$
423.1



12


Trinity Industries, Inc.
2019 Full Year Guidance and Outlook
(unaudited)

Total Company:
 
Total earnings per share(1)
$1.17 - $1.27 per share
Corporate expense
$105 - $110 million
Interest expense, net
$210 - $220 million
Estimated tax rate
26.5%
 
 
Railcar Leasing and Management Services Group:
 
Leasing and Management revenues(2)
$760 - $765 million
Leasing and Management operating profit(3)
$320 - $325 million
Proceeds from sales of leased railcars to RIV partners and secondary market(4)
$400 million
 
 
Rail Products Group:
 
Revenue
$3.0 billion
Operating margin
9.0%
Railcar deliveries
21,500 to 22,000 railcars
Revenue elimination from sales to Leasing Group(5)
$1.4 billion
Operating profit elimination from sales to Leasing Group(5)
$165 million
 
 
All Other Group Operating Profit (6)
$10 - $15 million
 
 
(1) The range for earnings per share guidance reflects variability in the point estimates provided above for each business segment.
(2) Excludes sales of railcars owned one year or less at time of sale.
(3) Excludes operating profit from railcar sales.
(4) Excludes approximately $160 million of sales from transactions that are being accounted for as sales-type leases; however, the operating profit impact of these transactions has been factored into our full year 2019 EPS guidance.
(5) Revenue and operating profit eliminations from sales to the Leasing Group include maintenance services in addition to railcar sales.
(6) Includes Highway Products and Logistics businesses, as well as facilities engineering and non-operating plant expenses.

13
(Back To Top)

Section 3: EX-99.2 (EXHIBIT 99.2)

Exhibit


Exhibit 99.2
Trinity Industries, Inc.
Earnings Release Conference Call – Q3 2019
Comments of Jessica Greiner
Vice President, Investor Relations and Communications
October 24, 2019
Thank you, Aaron. Good morning everyone and thank you for joining us today. I’m Jessica Greiner, Vice President of Investor Relations and Communications. We welcome you to Trinity Industries’ third quarter 2019 financial results conference call.
We will begin our earnings conference call with our prepared remarks from Tim Wallace, Chief Executive Officer and President; followed by Eric Marchetto, Senior Vice President and Group President of TrinityRail. Melendy Lovett, Senior Vice President and Chief Financial Officer will provide the financial highlights and outlook. Following the prepared remarks from the leadership team, we will move to the Q&A session.
Brian Madison, President of Trinity Leasing and Management Services, and Paul Mauer, President of Trinity Rail Products are also in the room with us today, and will be a part of the Q&A session. Sarah Teachout, Senior Vice President and Chief Legal Officer and Steve McDowell, Vice President and Chief Accounting Officer are also in the room with us today.
It’s now my pleasure to turn the call over to Tim.
Tim
Eric
Melendy
Q&A Session
Thank you, Aaron. That concludes today's conference call. A replay of today’s call will be available after one o'clock eastern standard time through midnight on October 31, 2019. The access number is (402) 220-7205. A replay of the webcast and definitions and reconciliations of certain non-GAAP measures discussed during the call will also be available under the Events and Presentations page on our Investor Relations website located at www.trin.net.
We look forward to visiting with you again on our next conference call. Thank you for joining us this morning.


(Back To Top)

Section 4: EX-99.3 (EXHIBIT 99.3)

Exhibit


Exhibit 99.3
Trinity Industries, Inc.
Earnings Release Conference Call – Q3 2019
Comments of Timothy R. Wallace
Chief Executive Officer and President
October 24, 2019
Thank you, Jessica, and good morning everyone.
Trinity’s third quarter financial results significantly improved year over year due to the growth of our railcar lease fleet and increased deliveries of new railcars. The 34% increase in revenues and doubling of earnings per share reflects TrinityRail’s ability to grow and improve its financial results.
Demand continued at lower levels during the third quarter due to several economic factors. Our management team is responding accordingly, and is being highly selective when originating new railcar leases. In addition, our third-quarter delivery schedule was impacted by various challenges. As a result, our team worked with our customers to shift a portion of our new railcar production from this year into the first half of next year. This helps smooth out the transition to a lower level of railcar production for next year. Eric will provide specifics on this topic during his remarks.
Trinity is positioned to successfully navigate through the shifts in market demand. We are highly experienced at responding to both short- and long-term cycles. The recurring revenues associated with long-term leases in our railcar leasing business provide the company with a predictable level of steady cash flows. In addition, our management team has been successful in lowering Trinity’s cost of capital and streamlining our operating structure. We are making great progress in optimizing our balance sheet. We just completed another successful financing of a portfolio of railcars. Melendy will provide information about this during her comments.
I am optimistic about the opportunities that lie ahead for our company. During my 44 years with Trinity, we have successfully navigated through a wide variety of situations, transformed our company multiple times, and significantly expanded our competencies. Our railcar lease fleet is now one of the largest in North America. Our management team is highly collaborative and capable. In my opinion, our strengths open the door to a wide range of new possibilities to create value for our customers and shareholders.
Early last month, I informed our Board of my desire to transition into retirement. The Board has initiated a search to identify Trinity’s next CEO. The search includes both internal and external candidates and is progressing well. I will continue in my current role as long as necessary to facilitate a smooth transition. I am confident our Board will select a strong, well-qualified CEO.
It has been my honor and privilege to be the CEO of this great company for 20 years. Trinity has played an important role in shaping key aspects of our country’s infrastructure and has a bright future. The Board and Trinity’s management team is committed to executing a robust strategy that supports our vision of being a premier provider of railcar products and services in North America.
My career at Trinity has been very fulfilling. I grew up within Trinity‘s culture, which emphasizes collaboration, flexibility, professionalism, integrity and other values. I have a deep appreciation for the craftsmanship of our employees. They are dedicated to the quality and excellence of our products. I treasure my relationships with our employees, customers, suppliers and other stakeholders. I am very grateful for all the people who have helped make Trinity a great company. I will always be passionate about Trinity, our vision, and our stakeholders. Trinity has a great legacy, and I look forward to watching our Company continue to grow and flourish.
I will now turn the conference call over to Eric for his comments.


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Section 5: EX-99.4 (EXHIBIT 99.4)

Exhibit


Exhibit 99.4
Trinity Industries, Inc.
Earnings Release Conference Call – Q3 2019
Comments of Eric R. Marchetto
Senior Vice President and Group President, TrinityRail
October 24, 2019
Thank you, Tim - and good morning everyone. TrinityRail had strong year over year financial performance during the third quarter.
Throughout much of 2019, demand for railcars in North America has remained at or above replacement levels. However, continued declines in rail traffic volumes, ongoing trade disputes, and slowing industrial production are creating unfavorable conditions in rail equipment markets. In the near term, we believe these headwinds will be a drag on demand for new railcars and drive existing railcars into storage. With that said, a few railcar markets are likely to see strong interest despite the broader market trend. Investments in North American petrochemical capacity, new opportunities to ship fuels from Canada and the U.S. to Mexico, and ongoing attrition are likely to drive demand for new and existing railcars in portions of the North American fleet. We are being very deliberate as to the business we pursue as we adjust our platform for a softer railcar demand environment.
TrinityRail’s third quarter financial results reflect continued growth of our portfolio of leased railcars, and higher manufacturing railcar deliveries with a favorable product mix year over year. Railcar utilization slipped sequentially, primarily due to two customers' filings of Chapter 11 during the quarter, one of which was the result of a major fire that shuttered the operations of the company. I am pleased with our ability to renew and assign leased railcars in our portfolio given the competitive market environment, while differentiating TrinityRail’s platform of products and services. We expect our lease portfolio to experience a slight increase in average lease rates year over year in 2019.
Our team has done a good job managing the diversification and renewal risk exposure of our railcar lease fleet. As we look ahead to 2020, less than 15% of our portfolio is up for renewal. Based on current market pricing, lease rates are approximately 2% below the average expiring lease rates next year. We anticipate Leasing revenue and profit from operations will be higher in 2020 as a result of fleet growth.
We are also positioning our manufacturing footprint in response to a softer railcar market. Industry orders have declined in 2019 relative to the order pace in 2018 leading to lower delivery expectations for 2020. In the third quarter, the industry received orders for approximately 7,300 railcars and delivered 14,500. Our team secured orders for 2,530 railcars during the quarter across our five commercial end markets, and we are pleased with the associated economics. As a result of this demand trend, as well as operational disruptions and capacity expansion delays in the third quarter, we tempered our railcar production plan for the remainder of this year, and worked with our customers to shift these deliveries into 2020. This change in our plan will facilitate a smoother transition to our expected production pace for the first half of 2020. Based on our current market insights, we expect industry railcar deliveries for 2020 to be in the low to mid 40,000 range. Approximately 40% of our backlog, or approximately 8,100 railcars, is scheduled to deliver in 2020, of which approximately 3,000 will be delivered to our lease fleet from originated lease agreements. The outlook for our Maintenance Services business is solid with a backlog and additional line of sight on tank car modification work, and foreseeable compliance events. Our Platform has demonstrated numerous times the ability to successfully navigate through railcar demand cycles, and we are responding proactively to changing market conditions.
We have built the TrinityRail Platform to outperform the industry throughout the railcar business cycle. Our business model is designed to foster and maintain engagement with the direct customer and end user of our railcar equipment. Our services - from leasing and administration, to maintenance, design and engineering, to field support - are all an important part of our platform, generating unique market insights, and providing steady, recurring, and predictable levels of revenue and cash flow throughout the railcar cycle.





The commercial and financial synergies generated from the platform have a number of benefits which include the following:
a lower overall cost of business operations, including a cost-advantaged asset base, lower cost of ownership from maintenance, and lower relative SE&A;
a tax-advantaged investment in lease equipment that generates significant cash flow; and
a valuable sales channel to originate organic lease fleet growth of our railcar lease portfolio.
We expect significant cash flow generation and a lower overall cost platform to result in a higher level of relative return on investment through the railcar cycle.
Our vision is to be the premier provider of railcar products and services. Across our organization, Trinity’s teams are actively working to differentiate our platform of products and services. Our expectations are to build customer loyalty with industrial shippers, by enhancing the customer experience through innovation and technology that improve the value proposition of railcar transportation.
The North American rail transportation ecosphere encompasses over 1.7 million railcars - with an owned and managed railcar fleet of approximately 125,000 railcars, TrinityRail has room to expand our presence in the railcar market - and we will do this in a deliberate and returns-focused manner. Our integrated platform of businesses work together to deliver solutions that optimize the life-cycle ownership and usage of railcar equipment, and provide our customers with a single-source for all of their railcar equipment and service needs. Few railcar providers if any, can offer the breadth and depth of TrinityRail’s platform to any given customer. Our platform provides a unique ability to integrate new services with our traditional product offering, grow our existing base of recurring revenue from long-term leases, and add high margin services that enhance our returns. We are built to deliver.
I’ll now turn it over to Melendy to discuss our financial performance and guidance.



(Back To Top)

Section 6: EX-99.5 (EXHIBIT 99.5)

Exhibit


Exhibit 99.5
Trinity Industries, Inc.
Earnings Release Conference Call – Q3 2019
Comments of Melendy E. Lovett
Senior Vice President and Chief Financial Officer
October 24, 2019
Thank you, Eric, and good morning everyone.
Before I begin my prepared remarks on our financial priorities and outlook, I will quickly review the third quarter 2019 performance highlights announced in our press release yesterday. The Company reported significant growth in year over year revenue, operating profit, and earnings per share, primarily due to higher overall railcar manufacturing deliveries with a favorable product mix, as well as growth in our railcar lease fleet and sales of leased railcars from our portfolio. Third quarter railcar deliveries were lower than our expectations due to the challenges Eric mentioned as well as weakening market demand going into 2020. Our team has responded and replanned our production schedules for the remainder of the year and the first half of 2020. A reduction in corporate related expenses also contributed to our financial performance during the quarter. Year to date, corporate expense is down $37 million or 32% due to lower litigation-related spend and cost optimization efforts.
As of the end of the third quarter, the Company has generated operating and free cash flow before lease fleet investment of $164 million and $215 million year to date, respectively. We believe free cash flow generation before lease fleet investment will be approximately $240 million for 2019 or around 10% of our market cap as of yesterday’s close. Our third quarter performance is indicative of Trinity’s ability to leverage our integrated platform and scale our operations to meet customer demand while generating strong results for shareholders.
We are making good progress on our key financial priorities for 2019 including: lowering our cost of capital; deploying capital to return-accretive investments; and returning meaningful and steady amounts of capital to shareholders.
Subsequent to quarter end, Trinity issued $387 million of "A" rated notes under an existing railcar asset backed securitization. This issuance yielded a blended interest rate of 2.98% and increased our loan to value ratio for our wholly-owned lease fleet to 56%. By optimizing the balance sheet of our railcar leasing company, Trinity has lowered our weighted average cost of capital by more than 20% since the spin-off. As we achieve our near-term LTV target for the wholly-owned lease fleet of 60% to 65%, we believe we can further lower our cost of capital to stay competitive with other railcar leasing companies.
During the third quarter, we made a number of investments in our businesses, including a net lease fleet investment of approximately $90 million, and $30 million in capital expenditures for our manufacturing and maintenance platforms. Our year to date investment in the lease fleet totals approximately $679 million with solid returns which we expect to be accretive to Trinity’s Return on Equity.
Trinity also completed approximately $100 million of share repurchases during the third quarter, bringing our year to date total to approximately $234 million. Our quarterly cash dividend will be paid at the end of October, and results in a dividend yield of 3.7% as of yesterday’s closing price. When combining year to date share repurchases and dividends, we have returned $295 million of capital to shareholders, or around 12% of our market cap. The combined strength and cash flow generation capability of the integrated rail platform enables Trinity to meaningfully invest in high-return growth opportunities and return substantial capital to shareholders.
All of these accomplishments are aligned with management’s goal to deliver 2019 earnings growth and to improve our pre-tax ROE to a 3-year average target range of between 11% and 13% by year end 2021. Our financial forecast for 2019, the first year of this 3-year plan, is on track for a pre-tax ROE of between 9% and 9.5%. This is a significant improvement from the 6.3% pre-tax ROE following our spin-off at the end of last year.





Moving now to guidance: As you’ve heard from Tim and Eric, railcar demand has been further impacted from declining railroad volumes, and continued uncertainty related to slowing industrial production and global trade issues. Our management team has responded accordingly and has positioned our business for a slower demand market going into next year.
As a result of the lower railcar deliveries in the third quarter, some of which were designated to be added to our lease fleet, we narrowed our EPS guidance range in our press release issued yesterday. Trinity now expects annual EPS from continuing operations in 2019 of between $1.17 and $1.27, excluding the impact of any fourth quarter potential restructuring charge. This update results in growth of between 67% and 81% year over year.
Our revenue expectations for the Railcar Leasing and Management Services Group as a result of timing of railcar deliveries to the lease fleet, is now expected to be between $760 million and $765 million for the year. We expect operating profit for this segment to be between $320 million and $325 million for the year.
We have increased our expectations for proceeds from sales of leased railcars to railcar investment vehicle (RIV) partners and the secondary market to approximately $400 million. Our RIV partners continue to express interest in purchasing leased railcars for their portfolios. A reminder that when we sell railcars to our RIV partners, Trinity keeps the customer relationship and servicing of the cars for a management fee, therefore, we grow our managed lease fleet with RIV partner capital. The timing of railcar sales from the lease fleet is always difficult to predict. Our margin on railcar sales year to date reflects the younger maturity on the railcar assets sold from our lease fleet, as well as some portfolio fine tuning we have done to manage our diversification. Another reminder, we have sales-type leases in our earnings guidance, which are required to be accounted for as sales from the lease fleet in accordance with GAAP. We expect this to add an additional $160 million in car sales revenue for the year, with $61 million of this revenue being recognized year to date. The gain on sales from the lease fleet will be attributed to the total Leasing segment profit, and our EPS guidance range incorporates these assumptions.
Moving to the Rail Products Group, we are revising our railcar delivery guidance range to 21,500 to 22,000 railcars for 2019. Rail Products revenue is now expected to be approximately $3.0 billion with an operating profit margin of approximately 9%.
Operating performance from the All Other segment during the fourth quarter will be impacted by seasonality in the Highway business as well as costs associated with new product development efforts. This segment is also impacted by some transition expenses in peripheral businesses to align with our go-forward operating structure.
Our business and corporate teams continue to work collaboratively to optimize our operating structure and right size corporate costs. As a result, we have again lowered our Corporate Expense guidance range to $105 to $110 million. As a reminder, our Corporate Expenses include transition and stranded costs related to the spin-off and separation of Arcosa, as well as an elevated level of highway-related legal expenses. In our press release yesterday, we highlighted the potential for a restructuring charge in the fourth quarter as a result of cost optimization efforts specific to underutilized asset write-downs in our manufacturing footprint and employee transition costs. Again, our fourth quarter 2019 EPS guidance range does not include any restructuring charges we may incur as these decisions are finalized.
Due to fewer railcar additions to the lease fleet, we are lowering our guidance for revenue and profit eliminations to $1.4 billion and $165 million, respectively. These line items reflect the revenue and profit associated with the market-based transfer pricing for intercompany transactions between our railcar leasing and products business segments primarily for newly manufactured railcars.
Regarding our lease fleet investment, we now expect total net lease fleet investment of $850 to $950 million with fewer secondary market additions, fewer planned railcar additions, and a higher level of portfolio sales from the fleet.
In addition to our planned leasing capital expenditures, our manufacturing and corporate capital expenditures forecast is revised to $110 to $120 million given expected project progress by year end.





Looking into 2020, it is too early to provide any specific financial guidance given the uncertainty of economic factors that affect the railcar market as well as the increased pricing competitiveness as a result of lower demand. As Eric mentioned, we have market driven headwinds affecting our railcar production expectation for next year, however, we anticipate Leasing revenue and profit from operations will be higher in 2020 as a result of lease fleet growth. We are also defining significant goals for cost savings initiatives - both in our businesses and our corporate organization. For 2020, we expect our free cash flow before lease fleet investment to improve year over year primarily as a result of lower working capital needs in the business.
In closing, our leadership team has been working closely with our Board to refine the strategic plan for Trinity Industries and establish key priorities and initiatives going forward. Our vision, purpose, and strategic priorities stem from our belief that TrinityRail’s platform is the best model to compete in the railcar industry - and we aim for our results to demonstrate it.
We are prepared to respond to a lower railcar demand market in 2020. While a number of macroeconomic factors create headwinds for our business, our leadership team is excited about the opportunity to refine and evolve our business, and demonstrate the value of TrinityRail’s integrated platform. We have a number of levers within management’s control that can provide meaningful tailwinds to our financial performance in 2020 - focused on the elements of ROE improvement.
This business model was built to outperform throughout the railcar market cycle, by generating predictable cash flows from long-term leases and capturing upside demand to maximize shareholder value. These combined financial advantages of the integrated rail platform enable Trinity to meaningfully invest in high-return growth opportunities, including our lease fleet, while also returning substantial capital to shareholders.
We’ll now transition into the Q&A session. Operator will you please give our listeners the instructions.



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Section 7: EX-99.6 (EXHIBIT 99.6)

exhibit996
Exhibit 99.6 Pre-Tax ROE Reconciliation FY 2018 Numerator: Income from continuing operations before income taxes $ 151.6 Net income attributable to non-controlling interest (3.8) Adjusted Profit Before Tax $ 147.8 Denominator: Stockholders' Equity $ 2,562.0 Non-controlling interest (351.2) Accumulated other comprehensive loss 116.8 Adjusted Stockholders' Equity $ 2,327.6 Average Stockholders' Equity $ 2,338.0 Pre-tax Return on Equity 6.3% Pre-tax Return on Equity (“Pre-Tax ROE”) is a non-GAAP measure that is derived from amounts included in our GAAP financial statements. We define Pre-Tax ROE as a ratio for which (i) the numerator is calculated as income from continuing operations before income taxes, adjusted to exclude the net income or loss attributable to non-controlling interest and (ii) the denominator is calculated as average stockholders’ equity (which excludes noncontrolling interest), adjusted to exclude accumulated other comprehensive income or loss. In the table above, the numerator and denominator of our Pre-Tax ROE calculation are reconciled to income from continuing operations before income taxes and stockholders’ equity, respectively, which are the most directly comparable GAAP financial measures. No quantitative reconciliation to a GAAP measure is provided for Pre- tax ROE targets because of the inherent difficulty in forecasting and quantifying the amountsnecessary under GAAP. Management believes that Pre-Tax ROE is a useful measure to both management and investors as it provides an indication of the economic return on the Company’s investments over time, and considers the Company’s expected tax position in the near-term. Non-GAAP measures should not be considered in isolation or as a substitute for our reporting results prepared in accordance with GAAP and, as calculated, may not be comparable to other similarly titled measures for other companies. 1


 
Free Cash Flow Reconciliation Free Cash Flow Calculation (in mm's ) - as of September 30 in both years 2018 YTD 2019 YTD Net Cash Provided by Operating Activities, Continuing Operations $ 179.5 $ 164.0 Add: Proceeds from railcar lease fleet sales owned more than one year at the time of sale 123.4 175.0 Net Cash Provided by Operating Activities, Adjusted$ 302.9 $ 339.0 Total Manufacturing CapEx (30.0) (63.3) Dividends paid (58.1) (60.8) Free Cash Flow (before Leasing CapEx)$ 214.8 $ 214.9 Free Cash Flow is a non-GAAP financial measure and is defined as Net Cash Provided by Operating Activities from Continuing Operations as computed in accordance with GAAP, plus cash proceeds from sales of leased railcars owned more than one year at the time of sale, less cash payments for manufacturing capital expenditures and dividends. We believe Free Cash Flow is useful to both management and investors as it provides a relevant measure of liquidity and a useful basis for assessing our ability to fund our operations and repay our debt. Free Cash Flow is reconciled to Net Cash Provided by Operating Activities from Continuing Operations, the most directly comparable GAAP financial measure, in the above table. Non-GAAP measures should not be considered in isolation or as a substitute for our reporting results prepared in accordance with GAAP and, as calculated, may not be comparable to other similarly titled measures for other companies. 2


 
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