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| TRN > SEC Filings for TRN > Form 10-Q on 30-Apr-2009 | All Recent SEC Filings |
30-Apr-2009
Quarterly Report
Revenues
Three Months Ended March 31, 2009 Three Months Ended March 31, 2008
Revenues Revenues Percent
External Intersegment Total External Intersegment Total Change
($ in millions)
Rail Group $ 162.7 $ 121.2 $ 283.9 $ 347.7 $ 220.1 $ 567.8 (50.0 )%
Construction Products
Group 121.0 2.5 123.5 165.0 4.3 169.3 (27.1 )
Inland Barge Group 157.0 - 157.0 137.8 - 137.8 13.9
Energy Equipment
Group 126.7 1.8 128.5 126.2 3.3 129.5 (0.8 )
Railcar Leasing and
Management Services
Group 222.4 - 222.4 119.8 - 119.8 85.6
All Other 3.7 10.7 14.4 2.4 15.8 18.2 (20.9 )
Eliminations - lease
subsidiary - (116.5 ) (116.5 ) - (216.7 ) (216.7 )
Eliminations - other - (19.7 ) (19.7 ) - (26.8 ) (26.8 )
Consolidated Total $ 793.5 $ - $ 793.5 $ 898.9 $ - $ 898.9 (11.7 )
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Our revenues for the three month period ended March 31, 2009 decreased in all groups, except the Railcar Leasing and Management Services Group (the "Leasing Group") and the Inland Barge Group, as compared to the same period in the prior year. Inland Barge Group revenues increased primarily due to a change in the mix of barges shipped. Revenues from the Leasing Group were higher due to higher rental revenues resulting from additions to the lease and management fleet and higher sales of railcars from the lease fleet. Rail Group revenues declined due to a decrease in shipments. Revenues for the Construction Products Group decreased due to lower volumes and highly competitive markets. Energy Equipment Group revenues were down slightly resulting from an increase in structural wind towers sales offset by lower domestic container sales.
Operating Profit (Loss)
Three Months Ended March 31,
2009 2008
(in millions)
Rail Group $ (5.8 ) $ 77.2
Construction Products Group (1.9 ) 12.2
Inland Barge Group 38.9 26.5
Energy Equipment Group 18.3 18.2
Railcar Leasing and Management Services Group 52.7 34.1
All Other (1.4 ) (0.3 )
Corporate (7.6 ) (5.4 )
Eliminations - lease subsidiary (8.9 ) (31.2 )
Eliminations - other (1.0 ) (5.1 )
Consolidated Total $ 83.3 $ 126.2
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Operating profit for the three month period ended March 31, 2009 decreased as
the result of overall lower revenues, lower pricing pressure for new railcars
and costs resulting from right-sizing the Company in response to current market
conditions. These decreases in operating profit were offset by higher operating
profit resulting from an increase in the size of our lease fleet, more car sales
from our lease fleet, a more profitable mix of barge units delivered and
increased wind tower sales.
Other Income and Expense. Interest expense, net of interest income, was
$28.7 million and $20.9 million (as adjusted - see Note 8), respectively, for
the three month periods ended March 31, 2009 and March 31, 2008. Interest income
decreased $2.0 million over the same quarter last year as a result of lower
interest rates and a decrease in cash available for investment. Interest expense
increased $5.8 million over the same period last year due to an increase in debt
levels, including $551.1 million of promissory notes for the Leasing Group, and
expense related to the ineffective portion of interest rate hedges. The decrease
in Other, net for the three month period ended March 31, 2009 was primarily due
to unfavorable foreign currency translation adjustments.
Income Taxes. The effective tax rate for continuing operations for the three
month periods ended March 31, 2009 and 2008 was 38.4% and 39.8%, respectively,
and varied from the statutory rate of 35.0% due primarily to state income taxes
and discrete adjustments related to foreign and state taxes.
Rail Group
Three Months Ended March 31,
Percent
2009 2008 Change
($ in millions)
Revenues:
Rail $ 250.8 $ 525.9 (52.3 )%
Components 33.1 41.9 (21.0 )
Total revenues $ 283.9 $ 567.8 (50.0 )
Operating profit (loss) $ (5.8 ) $ 77.2
Operating profit (loss) margin (2.0 )% 13.6 %
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Railcar shipments decreased 49% to approximately 3,050 during the three month period ended March 31, 2009, compared to the same period in 2008. As of March 31, 2009, our Rail Group backlog was approximately $547.1 million consisting of approximately 6,210 railcars as compared to approximately 27,960 railcars as of March 31, 2008. The railcar backlog dollar value as of March 31, 2009 and March 31, 2008 was as follows:
As of March 31,
2009 2008
(in millions)
External Customers $ 201.2 $ 768.4
TRIP Leasing 85.1 515.9
Leasing Group 260.8 1,065.9
Total $ 547.1 $ 2,350.2
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The total amount of the backlog dedicated to the Leasing Group was supported
by lease agreements with external customers. The final amount dedicated to the
Leasing Group or TRIP Leasing may vary by the time of delivery. Results for the
three months ended March 31, 2009 included $38.0 million in railcars sold to
TRIP Leasing that resulted in a gain of $5.0 million, of which $1.2 million in
profit was deferred based on our 25% equity interest. Results for the three
months ended March 31, 2008 included $146.0 million in railcars sold to TRIP
Leasing that resulted in a gain of $25.6 million, of which $5.1 million in
profit was deferred based on our 20% equity interest. See Note 4 Equity
Investment of the Consolidated Financial Statements for information about TRIP
Leasing.
Operating profit for the Rail Group decreased $83.0 million for the three
month period ended March 31, 2009 compared to the same period last year. This
decrease was primarily due to a significantly reduced volume of railcars
delivered during the period and the lower pricing environment.
In the three months ended March 31, 2009, railcar shipments included sales to
the Leasing Group of $116.5 million compared to $216.7 million in the comparable
period in 2008 with a deferred profit of $8.9 million compared to $31.2 million
for the same period in 2008. Sales to the Leasing Group and related profits are
included in the operating results of the Rail Group but eliminated in
consolidation.
Construction Products Group
Three Months Ended March 31,
Percent
2009 2008 Change
($ in millions)
Revenues:
Concrete and Aggregates $ 77.9 $ 104.5 (25.5 )%
Highway Products 43.1 57.3 (24.8 )
Other 2.5 7.5 (66.7 )
Total revenues $ 123.5 $ 169.3 (27.1 )
Operating profit (loss) $ (1.9 ) $ 12.2
Operating profit (loss) margin (1.5 )% 7.2 %
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The decrease in revenues for the three month period ended March 31, 2009 compared to the same period in 2008 was primarily attributable to the overall decline in the economic conditions related to the markets served by this segment. Operating profit for the three months ended March 31, 2009 compared to the same period in 2008 decreased as a result of lower volumes coupled with margin compression resulting from the sale of higher priced inventory into a lower-priced market place. Additionally the Construction Products Group recorded a $1.7 million write down of inventory to market value.
Inland Barge Group
Three Months Ended March 31,
Percent
2009 2008 Change
($ in millions)
Revenues $ 157.0 $ 137.8 13.9 %
Operating profit $ 38.9 $ 26.5
Operating profit margin 24.8 % 19.2 %
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Revenues and operating profit increased for the three month period ended March 31, 2009 compared to the same period in the prior year due to a change in the mix of barges sold. Operating profit for the three months ended March 31, 2009 and 2008 included the refund of $0.9 and $2.0 million, respectively, in unclaimed settlement funds related to the Waxler Case. As of March 31, 2009, the backlog for the Inland Barge Group was approximately $401.6 million compared to approximately $792.4 million as of March 31, 2008.
Energy Equipment Group
Three Months Ended March 31,
Percent
2009 2008 Change
($ in millions)
Revenues:
Structural wind towers $ 91.8 $ 84.0 9.3 %
Other 36.7 45.5 (19.3 )
Total revenues $ 128.5 $ 129.5 (0.8 )
Operating profit $ 18.3 $ 18.2
Operating profit margin 14.2 % 14.1 %
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Revenues decreased slightly for the three month period ended March 31, 2009 compared to the same period in 2008 due to an increase in sales of structural wind towers offset by lower sales in the weaker domestic container market as well as lower sales on products manufactured and sold in Mexico. Operating profit increased slightly due to higher sales of structural wind towers. As of March 31, 2009, the backlog for structural wind towers was approximately $1.3 billion compared to approximately $1.6 billion as of March 31, 2008.
Railcar Leasing and Management Services Group
Three Months Ended March 31,
Percent
2009 2008 Change
($ in millions)
Revenues:
Leasing and management $ 85.7 $ 70.1 22.3 %
Sales of cars from the lease fleet 136.7 49.7 175.1
Total revenues $ 222.4 $ 119.8 85.6
Operating Profit:
Leasing and management $ 35.8 $ 26.7
Sales of cars from the lease fleet 16.9 7.4
Total operating profit $ 52.7 $ 34.1
Operating profit margin:
Leasing and management 41.8 % 38.1 %
Sales of cars from the lease fleet 12.4 14.9
Total operating profit margin 23.7 28.5
Fleet utilization 98.4 % 99.2 %
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Total revenues increased for the three month period ended March 31, 2009
compared to the same period last year due to increased sales from the lease
fleet as well as increased rental revenues related to additions to the lease
fleet and management and origination fees.
Operating profit for leasing and management operations increased for the
three month period ended March 31, 2009 compared to the same period last year
due primarily to increased rental proceeds from fleet additions and increased
sales from the lease fleet. Results for the three months ended March 31, 2009
included $132.1 million in sales of railcars to TRIP Leasing that resulted in
the recognition of previously deferred gain of $24.8 million, of which
$6.2 million was deferred based on our 25% equity interest. Results for the
three months ended March 31, 2008 included $37.9 million in sales of railcars to
TRIP Leasing that resulted in the recognition of previously deferred gain of
$7.2 million, of which $1.4 million was deferred based on our 20% equity
interest. For the three months ended March 31, 2009 and 2008, operating profit
included $1.7 million and $0.4 million, respectively, in structuring and
placement fees related to TRIP Holdings that was expensed. See Note 4 of the
Consolidated Financial Statements for information about TRIP Leasing.
To fund the continued expansion of its lease fleet to meet market demand, the
Leasing Group generally uses its non-recourse $600 million warehouse facility or
excess cash to provide initial financing for a portion of the purchase price of
the railcars. See Financing Activities.
As of March 31, 2009, the Leasing Group's lease fleet of approximately 47,650
owned or leased railcars had an average age of 4.8 years and an average
remaining lease term of 4.3 years.
All Other
Three Months Ended March 31,
Percent
2009 2008 Change
($ in millions)
Revenues $ 14.4 $ 18.2 (20.9 )%
Operating loss $ (1.4 ) $ (0.3 )
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The decrease in revenues for the three month period ended March 31, 2009 over the same period last year was primarily due to a decrease in intersegment sales by our transportation company. The increase in the operating loss for the three month period ended March 31, 2009 was primarily due to the decrease in intersegment sales and a decline in the market valuation of commodity hedges that are required to be marked to market.
Liquidity and Capital Resources
Cash Flows
Operating Activities. Net cash provided by operating activities of continuing
operations for the three months ended March 31, 2009 was $51.6 million compared
to $39.0 million of net cash provided by operating activities of continuing
operations for the same period in 2008.
Accounts receivables at March 31, 2009 as compared to the accounts
receivables balance at December 31, 2008 decreased by approximately
$45.5 million or 18% due to lower shipping volumes and the collection of foreign
tax receivables. Raw materials inventory at March 31, 2009 decreased by
$87.1 million or approximately 25% since December 31, 2008 primarily
attributable to lower production offset by a $52.3 million increase in finished
goods inventory in our Rail Group. Accounts payable and accrued liabilities
decreased from December 31, 2008 by $119.9 million primarily due to lower
production activity. We continually review reserves related to bad debt as well
as the adequacy of lower of cost or market valuations related to accounts
receivable and inventory.
Investing Activities. Net cash provided by investing activities of continuing
operations for the three months ended March 31, 2009 was $43.5 million compared
to $167.2 million of cash required by investing activities for the same period
last year. Capital expenditures for the three months ended March 31, 2009 were
$131.0 million, of which $112.0 million were for additions to the lease fleet.
This compares to $217.1 million of capital expenditures for the same period last
year, of which $190.2 million were for additions to the lease fleet. Proceeds
from the sale of property, plant, and equipment and other assets were
$174.5 million for the three months ended March 31, 2009 composed primarily of
railcar sales from the lease fleet, which included $132.1 million to TRIP
Leasing, and the sale of non-operating assets. This compares to $49.9 million
for the same period in 2008 composed primarily of railcar sales from the lease
fleet, which included $37.9 million to TRIP Leasing, and the sale of
non-operating assets.
Financing Activities. Net cash required by financing activities during the
three months ended March 31, 2009 was $86.5 million compared to $38.3 million of
cash provided by financing activities for the same period in 2008. In
February 2009, we repaid in full our Leasing Group's equipment trust
certificates in the amount of $61.4 million. We intend to use our cash and
credit facilities to fund the operations, expansions, and growth initiatives of
the Company.
At March 31, 2009, there were no borrowings under our $425 million revolving
credit facility that matures on October 19, 2012. Interest on the revolving
credit facility is calculated at prime or LIBOR plus 75 basis points. After
$91.2 million was considered for letters of credit, $333.8 million was available
under the revolving credit facility as of March 31, 2009.
In May 2008, the Financial Accounting Standards Board ("FASB") issued FASB
Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That
May Be Settled in Cash upon Conversion (including Partial Cash Settlement) ("APB
14-1"). APB 14-1 requires that issuers of certain convertible debt instruments
that may be settled in cash upon conversion to separately account for the
liability and equity components in a manner that will reflect the entity's
nonconvertible debt borrowing rate when interest expense is recognized in
subsequent periods. The effective date of APB 14-1 is for financial statements
issued for fiscal years and interim periods beginning after December 15, 2008
and does not permit earlier application. The pronouncement requires that all
periods presented be adjusted. The Company adopted the provisions of APB 14-1 as
of January 1, 2009 and has accordingly adjusted amounts previously reported with
respect to Debt, Other assets, Capital in excess of par value, Deferred income
taxes and Interest expense. See Note 8 of the Consolidated Financial Statements
for a further explanation of the effects of implementing this pronouncement as
it applies to our Convertible Subordinated Notes.
The $600 million warehouse facility, established to finance railcars owned by
TILC, had $310.2 million outstanding as of March 31, 2009. The warehouse
facility matures August 2009 and, unless renewed, will be payable in three equal
installments in February 2010, August 2010, and February 2011. Advances under
the facility bear interest at a defined index rate plus a margin, for an all-in
interest rate of 1.76% at March 31, 2009. At March 31, 2009, $289.8 million was
available under this facility.
On December 13, 2007, the Company's Board of Directors authorized a
$200 million common stock repurchase program allowing for repurchases through
December 31, 2009. During the three months ended March 31, 2009 and 2008,
813,028 and 471,100 shares were repurchased under this program at a cost of
approximately $6.3 million and $12.2 million, respectively. Since the inception
of this program through March 31, 2009, the Company has repurchased a total of
3,532,728 shares at a cost of approximately $67.5 million.
The economic and financial crisis experienced by the United States economy
during 2008 and into 2009 impacted our businesses. New orders for railcars and
barges continued to drop significantly in the first quarter of 2009 as the
transportation industry saw a significant decline in the shipment of freight.
The 2009 outlook for the transportation industry
is for a continued significant downturn. Orders for structural wind towers have
been slow since mid-2008 as green energy companies experienced tightened credit
markets coupled with lower prices for electricity and natural gas sales. The
slowdown in the residential and commercial construction markets impacted our
Construction Products Group as well. We continually assess our manufacturing
capacity and take steps to align our production capacity with demand. As a
result of our assessment, we idled four railcar production facilities and one
structural wind towers production facility during the fourth quarter of 2008 and
in the first quarter of 2009.
Equity Investment
See Note 4 of the Consolidated Financial Statements for information about the
equity investment.
Future Operating Requirements
We expect to finance future operating requirements with cash flows from
operations, and depending on market conditions, long-term and short-term debt,
and equity. Debt instruments that the Company has utilized include its revolving
credit facility, the warehouse facility, senior notes, convertible subordinated
notes, asset-backed securities, and sale/leaseback transactions. The Company has
also issued equity at various times. As of March 31, 2009, the Company had
$333.8 million available under its revolving credit facility and $289.8 million
available under its warehouse facility. Despite the volatile conditions in both
the credit and stock markets, the Company believes it has access to adequate
capital resources to fund operating requirements and is active in the financial
markets.
Off Balance Sheet Arrangements
See Note 3 of the Consolidated Financial Statements for information about off
balance sheet arrangements.
Derivative Instrument
We use derivative instruments to mitigate the impact of increases in zinc,
natural gas, and diesel fuel prices and interest rates, 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
designated as hedges are accounted for as cash flow hedges under SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), as
amended.
Interest rate hedges
In anticipation of a future debt issuance, we entered into interest rate swap
. . .
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