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(Unaudited)
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(Unaudited)
33: R7 Consolidated Statements of Operations HTML 29K
Parenthetical
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Parenthetical
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Parenthetical
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37: R11 Segment Information HTML 126K
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Derivatives (Policies)
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Stockholders Equity (Policies)
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Recognition and Remaining performance obligation
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Accounting (Details)
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Accounting (Details)
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Receivables (Details)
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Goodwill (Details)
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Warranties (Details)
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Derivative Instruments (Details)
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Derivative Effect on Interest (Details)
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FX Hedge (Details)
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Assets and liabilities Measured at fair value on
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Selected consolidating income statement
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Future contractual minimum rental revenues on
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Future operating lease obligations and future
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(Exact name of registrant as specified in its
charter)
iDelaware
i75-0225040
(State
or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
i14221 N. Dallas Parkway, Suite 1100
iDallas,
iTexas
i75254-2957
(Address
of principal executive offices)
(Zip Code)
(i214) i631-4420
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title
of each class
Trading Symbol(s)
Name of each exchange
on which registered
iCommon Stock
iTRN
iNew
York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the Registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. iYesþ No
¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to besubmitted pursuant to Rule 405 of Regulation S-T(§ 232.405 of this chapter) during the preceding 12 months (or for suchshorter period that the registrant was required to submit suchfiles). iYesþ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See thedefinitions of “large accelerated filer,”“accelerated filer,”“smaller reportingcompany,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Smaller reporting company i☐Emerging growth companyi☐
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. ¨
Indicate by check mark whether the Registrant is a shellcompany (as defined in Rule 12b-2 of the Exchange Act).
Yes i☐ No
þ
At July 20, 2021, the number of shares of common stock, $0.01 par value, outstanding was i99,305,506.
Loss
from discontinued operations, net of income taxes
i0.4
i0.2
Adjustments
to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
i135.7
i134.6
Stock-based
compensation expense
i9.8
i14.9
Provision
for deferred income taxes
(i0.2)
i233.1
Net
gains on lease portfolio sales
(i12.8)
(i14.4)
Gains
on dispositions of property and other assets
(i12.2)
(i5.3)
Impairment
of long-lived assets
i—
i369.4
Non-cash
impact of restructuring activities
i—
i5.2
Non-cash
interest expense
i6.6
i4.5
Loss
on early extinguishment of debt
i11.7
i5.0
Other
i6.9
(i5.4)
Changes
in operating assets and liabilities:
(Increase) decrease in receivables
(i19.9)
i33.1
(Increase)
decrease in income tax receivable
i208.6
(i448.3)
(Increase)
decrease in inventories
(i47.5)
i11.9
(Increase)
decrease in other assets
i13.3
i169.7
Increase
(decrease) in accounts payable
i31.7
(i15.7)
Increase
(decrease) in accrued liabilities
(i4.0)
(i37.7)
Increase
(decrease) in other liabilities
i0.9
(i1.5)
Net
cash provided by operating activities – continuing operations
i335.1
i327.8
Net
cash used in operating activities – discontinued operations
(i0.4)
(i0.2)
Net
cash provided by operating activities
i334.7
i327.6
Investing
activities:
Proceeds from dispositions of property and other assets
i24.0
i14.2
Proceeds
from lease portfolio sales
i88.8
i132.2
Capital
expenditures – leasing (net of sold lease fleet railcars owned one year or less with a net cost of $i54.0 for the six months ended June 30, 2020)
(i251.7)
(i259.5)
Capital
expenditures – manufacturing and other
(i17.4)
(i41.5)
Acquisitions,
net of cash acquired
(i16.6)
i—
Other
(i0.1)
i—
Net
cash used in investing activities
(i173.0)
(i154.6)
Financing
activities:
Payments to retire debt
(i1,925.2)
(i618.3)
Proceeds
from issuance of debt
i2,176.7
i552.4
Shares
repurchased
(i329.4)
(i35.4)
Dividends
paid to common shareholders
(i47.4)
(i46.4)
Purchase
of shares to satisfy employee tax on vested stock
(i9.1)
(i9.0)
Net
cash used in financing activities
(i134.4)
(i156.7)
Net
increase in cash, cash equivalents, and restricted cash
i27.3
i16.3
Cash,
cash equivalents, and restricted cash at beginning of period
i228.4
i277.6
Cash,
cash equivalents, and restricted cash at end of period
$
i255.7
$
i293.9
See
accompanying notes to Consolidated Financial Statements.
Note
1. Summary of Significant Accounting Policies
i
Basis of Presentation
The foregoing Consolidated Financial Statements are unaudited and have been prepared from the books and records of Trinity Industries, Inc. and its consolidated subsidiaries (“Trinity,”“Company,”“we,”“our,” or "us") including the accounts of our wholly-owned subsidiaries and partially-owned
subsidiaries, TRIP Rail Holdings LLC (“TRIP Holdings”) and RIV 2013 Rail Holdings LLC ("RIV 2013"), in which we have a controlling interest. In our opinion, all normal and recurring adjustments necessary for a fair presentation of our financial position as of June 30, 2021, and the results of operations for the three and six months ended June 30, 2021 and 2020, and cash flows for the six months ended June 30, 2021 and 2020, have been made in conformity with generally accepted accounting principles. All significant intercompany accounts and transactions have been eliminated. Certain prior year balances have been reclassified
to conform to the 2021 presentation.
Due to seasonal and other factors, including the impacts of the coronavirus pandemic (“COVID-19”) and the related governmental response, the results of operations for the six months ended June 30, 2021 may not be indicative of expected results of operations for the year ending December 31, 2021. These interim financial statements and notes are condensed as permitted by the instructions to Form 10-Q and should be read in conjunction with our audited Consolidated Financial Statements included in our Form 10-K for the year ended December 31, 2020.
i
Revenue
Recognition
Revenue is measured based on the allocation of the transaction price in a contract to satisfied performance obligations. The transaction price does not include any amounts collected on behalf of third parties. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer. Payments for our products and services are generally due within normal commercial terms. The following is a description of principal activities from which we generate our revenue, separated by reportable segments. See Note 3 for a further discussion regarding our reportable segments.
Railcar Leasing and Management Services Group
In our Railcar Leasing and Management Services Group ("Leasing Group"),
revenue from rentals and operating leases, including contracts that contain non-level fixed lease payments, is recognized monthly on a straight-line basis. Leases not classified as operating leases are generally considered sales-type leases as a result of an option to purchase.
We review our operating lease receivables for collectibility on a regular basis, taking into consideration changes in factors such as the lessee’s payment history, the financial condition of the lessee, and business and economic conditions in the industry in which the lessee operates. In the event that the collectibility of a receivable with respect to any lessee is no longer probable, we derecognize the revenue and related receivable and recognize future revenue only when the lessee makes a rental payment. Contingent rents are recognized when the contingency
is resolved.
Selling profit or loss associated with sales-type leases is recognized upon lease commencement, and a net investment in the sales-type lease is recorded on the Consolidated Balance Sheet. Interest income related to sales-type leases is recognized over the lease term using the effective interest method. We had no sales-type leases as of June 30, 2021 and December 31, 2020.
During the fourth quarter of 2020, we began presenting sales from our lease fleet in the Railcar Leasing and Management
Services Group on a net basis regardless of the age of railcar that is sold. Historically, in accordance with ASC 606, Revenue from contracts with customers, we presented sales of railcars from the lease fleet on a gross basis in Revenues – Leasing and Cost of revenues – Leasing in our Consolidated Statements of Operations if the railcars had been owned for one year or less at the time of sale. Sales of railcars from the lease fleet owned for more than one year had historically been presented as a net gain or loss from the disposal of a long-term asset. We now report all sales of railcars from the lease fleet as a net gain or loss from the disposal of a long-term asset in accordance with ASC 610-20, Gains and losses from the derecognition of non-financial assets. These sales are presented
in the Lease portfolio sales line in our Consolidated Statements of Operations; however, because this change in presentation was effected on a prospective basis beginning in the fourth quarter of 2020, lease portfolio sales for the three and six months ended June 30, 2020 only include sales of railcars from the lease fleet owned for more than one year. We have concluded that the new presentation is appropriate given the significant change in the strategic focus of the Company. The new presentation had no effect on the Company’s operating profit, net income, earnings per share, or Consolidated Balance Sheet.
We account for shipping and handling costs as activities to fulfill the promise to transfer the good; as
such, these fees are recorded in revenue. The fees and costs of shipping and handling activities are accrued when the related performance obligation has been satisfied.
Rail Products Group
Our railcar manufacturing business recognizes revenue when the customer has submitted its certificate of acceptance and legal title of the railcar has passed to the customer. Certain contracts for the sales of railcars include price adjustments based on steel-price indices; this amount represents variable consideration for which we are unable to estimate the final consideration until the railcar is delivered.
Within our maintenance services business, revenue is recognized over time as repair and maintenance projects are completed, using an input approach based
on the costs incurred relative to the total estimated costs of performing the project. We recorded contract assets of $i5.4 million and $i4.4
million as of June 30, 2021 and December 31, 2020, respectively, related to unbilled revenues recognized on repair and maintenance services that have been performed, but for which the entire project has not yet been completed, and the railcar has not yet been shipped to the customer. These contract assets are included within the Receivables, net of allowance line in our Consolidated Balance Sheets.
All Other
Our highway products business recognizes revenue when shipment has occurred and legal title of the product has passed to the customer.
Unsatisfied Performance Obligations
i
The
following table includes estimated revenue expected to be recognized in future periods related to performance obligations that are unsatisfied or partially satisfied as of June 30, 2021 and the percentage of the outstanding performance obligations as of June 30, 2021 expected to be delivered during the remainder of 2021:
Unsatisfied performance obligations at June 30, 2021
Total Amount
Percent
expected to be delivered in 2021
(in millions)
Rail Products Group:
Rail products:
External customers
$
i891.3
Leasing
Group
i286.4
$
i1,177.7
i48.8
%
Maintenance
services
$
i7.8
i100.0
%
Railcar
Leasing and Management Services Group
$
i73.0
i13.0
%
/
The
remainder of the unsatisfied performance obligations for the Rail Products Group is expected to be delivered through 2024. Unsatisfied performance obligations for the Railcar Leasing and Management Services Group are related to servicing, maintenance, and management agreements and are expected to be performed through 2029.
We
are the lessee of operating leases predominantly for railcars, as well as office buildings, manufacturing equipment, and office equipment. Our operating leases have remaining lease terms ranging from ione year to isixteen years, some of which include options to extend for up to
ifive years, and some of which include options to terminate within ione year. As of June 30, 2021, we had ino
material finance leases in which we were the lessee. Certain of our operating leases include lease incentives, which reduce the right-of-use asset and are recognized on a straight-line basis over the lease term. As applicable, the lease liability is also reduced by the amount of lease incentives that have not yet been reimbursed by the lessor.
i
The following table summarizes the impact of our operating leases on our Consolidated Financial Statements (in millions, except lease term and discount rate):
Our Leasing Group enters into railcar operating leases with third parties with terms generally ranging between ione year and iten
years. The majority of our fleet operates on leases that earn fixed monthly lease payments. Generally, lease payments are due at the beginning of the applicable month. A portion of our fleet operates on per diem leases that earn usage-based variable lease payments. Some of our leases include options to extend the leases for up to ifive years, and a small percentage of our leases include options to terminate within ione
year with certain notice requirements and early termination penalties. As of June 30, 2021, non-Leasing Group operating leases were not significant, and we had iino/
sales-type leases and iino/ direct
finance leases.
We manage risks associated with residual values of leased railcars by investing across a diverse portfolio of railcar types, staggering lease maturities within any given railcar type, avoiding concentration of railcar type and industry, and are active participants in secondary markets. Additionally, our lease agreements contain normal wear and tear return condition provisions and high mileage thresholds designed to protect the value of our residual assets. Our lease agreements do not contain any material residual value guarantees or restrictive covenants.
i
The
following table summarizes the impact of our leases on our Consolidated Statements of Operations:
Future
contractual minimum revenues for operating leases will mature as follows (in millions)(1):
Remaining six months of 2021
$
i288.0
2022
i478.9
2023
i358.9
2024
i268.2
2025
i187.1
Thereafter
i347.1
Total
$
i1,928.2
(1)Total contractual minimum rental revenues on operating leases relates to our wholly-owned and partially-owned subsidiaries and sub-lease rental revenues associated with the Leasing Group's operating lease obligations.
//i
Financial
Instruments
We consider all highly liquid debt instruments to be either cash and cash equivalents if purchased with a maturity of three months or less, or short-term marketable securities if purchased with a maturity of more than three months and less than one year.
Financial instruments that potentially subject us to a concentration of credit risk are primarily cash investments including restricted cash and receivables. We place our cash investments in bank deposits and investment grade, short-term debt instruments and limit the amount of credit exposure to any one commercial issuer. The carrying values of cash, receivables, and accounts payable are considered to be representative of their respective fair values.
Concentrations of credit risk with respect to receivables are limited due to control procedures that monitor the credit
worthiness of customers, the large number of customers in our customer base, and their dispersion across different end markets and geographic areas. Receivables are generally evaluated at a portfolio level based on these characteristics. As receivables are generally unsecured, we maintain an allowance for credit losses using a forward-looking approach based on historical losses and consideration of current and expected future economic conditions. Historically, we have observed that the likelihood of loss increases when receivables have aged beyond 180 days. When a receivable is deemed uncollectible, the write-off is recorded as a reduction to allowance for credit losses. The balance for allowance for credit losses that are in the scope of ASC 326, Financial Instruments - Credit Losses was $i10.8 million
and $i9.3 million at June 30, 2021 and December 31, 2020, respectively. This balance excludes the general reserve for operating lease receivables that is permitted under ASC 450, Contingencies.
In January 2021, we completed the acquisition of a company that owns and operates proprietary railcar cleaning technology systems. This transaction was recorded as a business combination within the Rail Products Group, based on preliminary valuations of the acquired assets and liabilities at their acquisition date fair value using Level 3 inputs. The acquisition did not have a significant impact on our Consolidated Financial Statements. This transaction resulted in goodwill of $i6.9 million.
There was no acquisition activity for the three and six months ended June 30, 2020.
/i
Goodwill
As of June 30, 2021 and December 31, 2020, the carrying amount of our goodwill totaled $i215.7
million and $i208.8 million, respectively, which is primarily attributable to the Rail Products Group.
/i
Warranties
We
provide various express, limited product warranties that generally range from ione year to ifive years depending on the product. The warranty costs are estimated using a two-step approach. First, an engineering estimate is made for the cost of all claims that have been asserted by customers. Second, based on historical claims experience,
a cost is accrued for all products still within a warranty period for which no claims have been filed. We provide for the estimated cost of product warranties at the time revenue is recognized related to products covered by warranties and assess the adequacy of the resulting reserves on a quarterly basis. iThe changes in the accruals for warranties for the three and six months ended June 30, 2021 and 2020 are as follows:
Note 2. Derivative Instruments and Fair Value Accounting
Derivative Instruments
We use derivative instruments to mitigate the impact of changes in interest rates, both in anticipation of future debt issuances and to offset interest rate variability of certain floating rate debt issuances outstanding. We also may use derivative instruments to mitigate the impact of changes in natural gas and diesel fuel prices and changes in foreign currency
exchange rates. Derivative instruments that are designated and qualify as cash flow hedges are accounted for by recording the effective portion of the gain or loss on the derivative instrument in accumulated other comprehensive loss ("AOCL") as a separate component of stockholders' equity and reclassified into earnings in the period during which the hedged transaction affects earnings. We continuously monitor our derivative positions and the credit ratings of our counterparties and do not anticipate losses due to non-performance. iSee
Note 7 for a description of our debt instruments.
Our exposure related to foreign currency transactions is currently hedged for up to a maximum of
twelve months. The effect of commodity hedge transactions was immaterial to the Consolidated Financial Statements for all periods presented herein. Information related to our foreign currency hedge is as follows:
(1)Based on the fair value of open hedges as of June 30, 2021.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for that asset or liability in an orderly transaction between market participants on the measurement date. An entity is required to establish a fair value hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are listed below.
Level 1 – This level is defined as quoted prices in active markets for identical assets or liabilities. Our cash equivalents and restricted cash are instruments
of the U.S. Treasury or highly-rated money market mutual funds. iThe assets measured as Level 1 in the fair value hierarchy are summarized below:
Level
2 – This level is defined as observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Interest rate hedges are valued at exit prices obtained from each counterparty. Foreign currency hedges are valued at exit prices obtained from each counterparty, which are based on currency spot and forward rates and forward points. iThe
assets and liabilities measured as Level 2 in the fair value hierarchy are summarized below:
Level 3 – This level is defined as unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. As of June 30, 2021 and December 31, 2020, we have iino/
assets measured as Level 3 in the fair value hierarchy.
See Note 10 for information regarding the non-recurring fair value measurement considerations during the three and six months ended June 30, 2020 for the impairment charge related to our small cube covered hopper railcars. See Note 7 for the estimated fair values of our debt instruments. The fair values of all other financial instruments are estimated to approximate carrying value.
Note 3. iSegment
Information
We report our operating results in ithree principal business segments: (1) the Railcar Leasing and Management Services Group, which owns and operates a fleet of railcars and provides third-party fleet leasing, management, and administrative services; (2) the Rail Products Group, which manufactures and sells railcars and related parts and components, and provides railcar maintenance and modification services; and (3) All Other, which includes our highway products business and legal, environmental, and
maintenance costs associated with non-operating facilities.
Gains and losses from the sale of property, plant, and equipment are included in the operating profit of each respective segment. Our Chief Operating Decision Maker ("CODM") regularly reviews the operating results of our reportable segments in order to assess performance and allocate resources. Our CODM does not consider impairment of long-lived assets or restructuring activities when evaluating segment operating results; therefore, impairment of long-lived assets and restructuring activities are not allocated to segment profit or loss.
Sales and related net profits ("deferred profit") from the Rail Products Group to the Leasing Group are recorded in the Rail Products Group and eliminated in consolidation and are reflected in "Eliminations – Lease Subsidiary" in the tables below. Sales between these
groups are recorded at prices comparable to those charged to external customers, taking into consideration quantity, features, and production demand. Amortization of deferred profit on railcars sold to the Leasing Group is included in the operating profit of the Leasing Group, resulting in the recognition of depreciation expense based on our original manufacturing cost of the railcars. Lease portfolio sales are included in the Leasing Group, with related gains and losses computed based on the net book value of the original manufacturing cost of the railcars.
The financial information for these segments is shown in the tables below (in millions). We operate principally in North America.
Through our wholly-owned subsidiary, Trinity Industries Leasing Company ("TILC"), we formed itwosubsidiaries, TRIP Holdings and RIV 2013, for the purpose of providing railcar leasing services in North America for institutional investors. Each of TRIP Holdings and RIV 2013 are direct, partially-owned subsidiaries of TILC in which we have a controlling interest. Each is governed by a iseven-member board of representatives, itwo
of whom are designated by TILC. TILC is the agent of each of TRIP Holdings and RIV 2013 and, as such, has been delegated the authority, power, and discretion to take certain actions on behalf of the respective companies.
At June 30, 2021, the carrying value of our investment in TRIP Holdings and RIV 2013 totaled $i140.3 million. Our weighted average ownership interest in TRIP Holdings and RIV 2013 is i38%
while the remaining i62% weighted average interest is owned by third-party, investor-owned funds. The investment in our partially-owned leasing subsidiaries is eliminated in consolidation.
Each of TRIP Holdings and RIV 2013 has wholly-owned subsidiaries that are the owners of railcars acquired from our Rail Products and Leasing
Groups. TRIP Holdings has wholly-owned subsidiaries known as Triumph Rail LLC ("Triumph Rail"), formerly known as TRIP Master Funding LLC ("TRIP Master Funding”), and TRIP Railcar Co. LLC ("TRIP Railcar Co."). RIV 2013 has a wholly owned-subsidiary known as TRP 2021 LLC ("TRP-2021"), formerly known as Trinity Rail Leasing 2012 LLC (“TRL-2012”). TILC is the contractual servicer for Triumph Rail, TRIP Railcar Co., and TRP-2021, with the authority to manage and service each entity's owned railcars. Our controlling interest in each of TRIP Holdings and RIV 2013 results from our combined role as both equity member and agent/servicer. The noncontrolling interest included in the accompanying Consolidated Balance Sheets represents the non-Trinity equity interest in these partially-owned subsidiaries.
Trinity
has ino obligation to guarantee performance under any of our partially-owned subsidiaries' (or their respective subsidiaries') debt agreements, guarantee any railcar residual values, shield any parties from losses or guarantee minimum yields.
The assets of each of Triumph Rail, TRIP Railcar Co., and TRP-2021 may only be used to satisfy the particular subsidiary's liabilities,
and the creditors of each of Triumph Rail, TRIP Railcar Co., and TRP-2021 have recourse only to the particular subsidiary's assets. Each of TILC and the third-party equity investors receive distributions from TRIP Holdings and RIV 2013, when available, in proportion to its respective equity interests, and has an interest in the net assets of the partially-owned subsidiaries upon a liquidation event in the same proportion. TILC is paid fees for the services it provides to Triumph Rail, TRIP Railcar Co., and TRP-2021 and has the potential to earn certain incentive fees. There are ino
remaining equity commitments with respect to TRIP Holdings or RIV 2013.
See Note 7 regarding TRIP Holdings and RIV 2013, including the redemption and refinancing of the debt of their respective subsidiaries.
Note 5. iRailcar
Leasing and Management Services Group
The Railcar Leasing and Management Services Group owns and operates a fleet of railcars as well as provides third-party fleet leasing, management, and administrative services. iSelected consolidated financial information for the Leasing Group is as follows:
(1)
Net deferred profit on railcars sold to the Leasing Group consists of intersegment profit that is eliminated in consolidation. Net deferred profit and the related deferred tax impact are included as adjustments to the property, plant, and equipment, net and deferred income taxes line items, respectively, in the Eliminations – Lease Subsidiary column above to reflect the net book value of the railcars purchased by the Leasing Group from the Rail Products Group based on manufacturing cost. See Note 4 and Note 7 for a further discussion regarding our investment in our partially-owned leasing subsidiaries and the related indebtedness.
Sales
of railcars owned one year or less at the time of sale (1)
i—
i10.1
(i100.0)
%
i—
i54.4
(i100.0)
%
Total
revenues
$
i185.1
$
i192.8
(i4.0)
%
$
i368.6
$
i429.1
(i14.1)
%
Operating
profit (2):
Leasing and management
$
i70.0
$
i78.5
(i10.8)
%
$
i146.6
$
i161.0
(i8.9)
%
Lease
portfolio sales (1)
$
i11.1
$
i4.4
i152.3
%
i12.8
i14.8
(i13.5)
%
Total
operating profit
$
i81.1
$
i82.9
(i2.2)
%
$
i159.4
$
i175.8
(i9.3)
%
Total
operating profit margin
i43.8
%
i43.0
%
i43.2
%
i41.0
%
Leasing
and management operating profit margin
i37.8
%
i43.0
%
i39.8
%
i43.0
%
Selected
expense information:
Depreciation (3)
$
i57.2
$
i54.0
i5.9
%
$
i111.8
$
i107.6
i3.9
%
Maintenance
and compliance
$
i25.3
$
i23.0
i10.0
%
$
i50.9
$
i48.9
i4.1
%
Rent
$
i1.7
$
i3.0
(i43.3)
%
$
i3.4
$
i6.0
(i43.3)
%
Selling,
engineering, and administrative expenses
$
i13.2
$
i13.0
i1.5
%
$
i24.5
$
i27.3
(i10.3)
%
Interest
(4)
$
i57.0
$
i47.1
i21.0
%
$
i102.7
$
i102.2
i0.5
%
(1)
Beginning in the fourth quarter of 2020, we made a prospective change in the presentation of sales of railcars from the lease fleet. Therefore, all railcar sales for the three and six months ended June 30, 2021 are presented as a net gain or loss from the disposal of a long-term asset regardless of the age of railcar that is sold. See Note 1 for more information.
(2) Operating profit includes: depreciation; maintenance and compliance; rent; and selling, engineering, and administrative expenses. Amortization of deferred profit on railcars sold from the Rail Products Group to the Leasing Group is included in the operating profit of the Leasing Group, resulting in the recognition of depreciation expense based on our original manufacturing cost of the railcars. Interest expense is not a component of operating profit and includes the effect of hedges.
(3)
Depreciation expense related to our small cube covered hopper railcars decreased by approximately $i3.5 million and $i7.0 million for
the three and six months ended June 30, 2021, respectively, relative to the three and six months ended June 30, 2020 as a result of the impairment charge recorded in the second quarter of 2020 related to these railcars.
(4) Interest expense for the three and six months ended June 30, 2021 includes $11.7 million of loss on extinguishment of debt associated with the refinancing of our partially-owned subsidiaries' debt. See Note 7 for more information. Interest expense for the six months ended June 30, 2020 includes $5.0 million of loss on extinguishment of debt associated with the early redemption of debt.
/i
Information
related to lease portfolio sales is as follows:
Railcar Leasing Equipment Portfolio. The Leasing Group's equipment consists primarily of railcars leased by third parties. The Leasing Group purchases equipment manufactured predominantly by the Rail Products Group and enters into lease contracts with third parties with terms generally ranging between ione year and iten
years. The Leasing Group primarily enters into operating leases. iFuture contractual minimum rental revenues on operating leases related to our wholly-owned and partially-owned subsidiaries are as follows:
Remaining
six months of 2021
2022
2023
2024
2025
Thereafter
Total
(in millions)
Future contractual minimum rental revenues
$
i285.4
$
i475.1
$
i357.0
$
i267.1
$
i186.8
$
i347.0
$
i1,918.4
Debt.
Wholly-owned subsidiaries. The Leasing Group’s debt at June 30, 2021 consisted primarily of non-recourse debt. As of June 30, 2021, Trinity’s wholly-owned subsidiaries included in the Leasing Group held equipment with a net book value of $i4,731.0
million, which is pledged solely as collateral for Leasing Group debt held by those subsidiaries. The net book value of unpledged equipment at June 30, 2021 was $i1,109.8 million. See Note 7 for more information regarding the Leasing Group debt.
Partially-owned subsidiaries. Debt
owed by TRIP Holdings and RIV 2013 and their respective subsidiaries is nonrecourse to Trinity and TILC. Creditors of each of TRIP Holdings and RIV 2013 and their respective subsidiaries have recourse only to the particular subsidiary's assets. TRIP Holdings held equipment with a net book value of $i1,137.2 million, which is pledged solely as collateral for the TRIP Holdings' debt held by its
subsidiaries. TRP-2021 equipment with a net book value of $i468.4 million is pledged solely as collateral for the TRP-2021 debt. See Note 4 for a description of TRIP Holdings and RIV 2013 and their respective subsidiaries.
Operating Lease Obligations.iFuture
amounts due as well as future contractual minimum rental revenues related to the Leasing Group's railcar operating lease obligations are as follows:
Remaining
six months of 2021
2022
2023
2024
2025
Thereafter
Total
(in millions)
Future operating lease obligations
$
i5.4
$
i10.1
$
i8.3
$
i4.9
$
i3.2
$
i6.2
$
i38.1
Future
contractual minimum rental revenues
$
i2.6
$
i3.8
$
i1.9
$
i1.1
$
i0.3
$
i0.1
$
i9.8
Operating
lease obligations totaling $i1.9 million are guaranteed by Trinity Industries, Inc. and certain subsidiaries. The Leasing Group also has future amounts due for operating lease obligations related to office space of approximately $i1.8
million, which is excluded from the table above.
Secured railcar equipment notes, net of unamortized discount of $i0.3 and $i—
i915.1
i1,237.5
TRIP
Railcar Co. term loan
i329.6
i—
Less: unamortized
debt issuance costs
(i12.2)
(i9.2)
i1,232.5
i1,228.3
Total
non–recourse debt
i4,839.8
i4,568.8
Total
debt
$
i5,288.2
$
i5,017.0
/
Estimated
Fair Value of Debt – The estimated fair value of our i4.55% senior notes due 2024 ("Senior Notes") is based on a quoted market price in a market with little activity (Level 2 input). The estimated fair values of our secured railcar equipment notes are based on our estimate of their fair value using unobservable input values provided by a third party (Level 3 inputs). The respective carrying values of our revolving credit facility, 2017 promissory notes, TILC warehouse facility, and TRIP Railcar Co. term loan approximate fair value because the interest
rate adjusts to the market interest rate. The estimated fair values of our long-term debt are as follows:
Revolving
Credit Facility – We have a $i450.0 million unsecured corporate revolving credit facility. During the six months ended June 30, 2021, we had total borrowings of $i370.0
million and total repayments of $i370.0 million under the revolving credit facility. Additionally, we had outstanding letters of credit issued in an aggregate amount of $i35.2
million. Of the $i364.8 million remaining unused amount, $i361.1 million is available for borrowing
as of June 30, 2021. The outstanding letters of credit as of June 30, 2021 are scheduled to expire in July 2022. The revolving credit facility bears interest at a variable rate which resulted in an interest rate of LIBOR plus i1.75%, with a LIBOR floor of i0.30%,
as of June 30, 2021. A commitment fee accrues on the average daily unused portion of the revolving facility at the rate of i0.175% to i0.40%
(i0.25% as of June 30, 2021).
The revolving credit facility requires the maintenance of ratios related to minimum interest coverage for the leasing and manufacturing operations and maximum leverage.
In March 2021, we amended our revolving credit facility to increase the maximum leverage ratio through March 31, 2022 and to decrease the minimum interest coverage ratio through December 31, 2021 to provide additional near-term flexibility. As of June 30, 2021, we were in compliance with all such financial covenants.
TILC Warehouse Loan Facility – TILC has a $i1.0 billion
warehouse loan facility, which was established to finance railcars owned by TILC. In March 2021, the facility was extended through March 15, 2024, the total commitment was increased from $i750 million to $i1.0
billion, with a potential increase of up to an additional $i250 million, subject to certain conditions, and provided for a facility margin of 185 basis points. During the six months ended June 30, 2021, we had total borrowings of $i257.3
million and total repayments of $i242.5 million under the TILC warehouse loan facility. Under the renewed facility, the entire unused facility amount of $i465.8
million was available as of June 30, 2021 based on the amount of warehouse-eligible, unpledged equipment. Advances under the facility bear interest at a defined index rate plus a margin, for an all-in interest rate of i1.95% at June 30, 2021.
TRL-2021 – In June 2021, Trinity Rail Leasing 2021 LLC, a Delaware limited liability company ("TRL-2021") and a limited purpose, indirect wholly-owned subsidiary
of the Company owned through TILC, issued an aggregate principal amount of (i) $i305.2 million of its Series 2021-1 Class A Green Secured Railcar Equipment Notes (the "TRL-2021 Class A Notes") and (ii) $i19.8
million of its Series 2021-1 Class B Green Secured Railcar Equipment Notes (the "TRL-2021 Class B Notes") (the TRL-2021 Class A Notes and the TRL-2021 Class B Notes are, collectively, the “TRL-2021 Notes”). The TRL-2021 Class A Notes bear interest at a fixed rate of i2.26%, and the TRL-2021 Class B Notes bear interest at a fixed rate of i3.08%.
The TRL-2021 Notes are payable monthly, and have a stated final maturity date of July 19, 2051. We incurred $i3.3 million in debt issuance costs, which will be amortized to interest expense through the anticipated repayment date of the TRL-2021 Notes. The TRL-2021 Notes are obligations of TRL-2021 and are non-recourse to Trinity. The obligations are secured by a portfolio of railcars and operating leases thereon, certain cash reserves, and other assets acquired and owned by TRL-2021. Net proceeds received from the railcars acquired in connection with the issuance
of the TRL-2021 Notes were used to repay approximately $i214.4 million of borrowings under TILC's warehouse loan facility and for general corporate purposes.
June 2021 Refinancing of Partially-Owned Leasing Subsidiaries
Triumph Rail– In June 2021, Triumph Rail, formerly known as TRIP Master Funding, issued an aggregate
principal amount of (i) $i535.0 million of its Series 2021-2 Class A Green Secured Railcar Equipment Notes (the “Triumph Class A Notes”) and (ii) $i25.4 million of its Series 2021-2 Class
B Green Secured Railcar Equipment Notes (the “Triumph Class B Notes”) (the Triumph Class A Notes and the Triumph Class B Notes are, collectively, the “Triumph Notes”). The Triumph Class A Notes bear interest at a fixed rate of i2.15%, and the Triumph Class B Notes bear interest at a fixed rate of i3.08%.
The Triumph Notes are payable monthly, and have a stated final maturity date of June 15, 2051. We incurred $i5.6 million in debt issuance costs, which will be amortized to interest expense through the anticipated repayment date of the Triumph Notes. The Triumph Notes are non-recourse to Trinity, TILC, TRIP Holdings, and the other equity investors in TRIP Holdings, and are secured by Triumph Rail's portfolio of railcars and operating leases thereon, its cash reserves, and all other assets owned by Triumph Rail.
Triumph
Rail used the net proceeds received from the issuance of the Triumph Notes, as well as proceeds from the sale of railcars and related operating leases to TRIP Railcar Co. described below, to redeem its outstanding debt, consisting of (i) the Series 2011 Class A-2 TRIP Master Funding Secured Railcar Equipment Notes due July 2041, (ii) the Series 2014-1 Class A-2 Secured Railcar Equipment Notes due April 2044, and (iii) the Series 2017-1 Secured Railcar Equipment Notes due August 2047, of which $i869.1 million was outstanding at the redemption date. The all-in rate for
these notes was i5.16% per annum at the time of redemption. In connection with the redemption, we recognized a loss on extinguishment of debt of $i8.7 million, which included a $i3.3
million early redemption premium and a write-off of $i5.4 million in unamortized debt issuance costs. These charges are reflected in the loss on extinguishment of debt line of our Consolidated Statements of Operations for the three and six months ended June 30, 2021.
TRIP Railcar Co. Term Loan – In June 2021, TRIP Railcar Co. drew down $i329.6 million
under a term loan agreement ("TRIP Railcar Co. term loan"). The TRIP Railcar Co. term loan was established to finance railcars and operating leases thereon purchased by TRIP Railcar Co. from Triumph Rail. The principal and interest of this indebtedness are paid from the cash flows of the underlying leases. The TRIP term loan bears interest at LIBOR plus i1.85%, for an all-in interest rate of i1.92%
at June 30, 2021, and has a stated maturity date of June 2025. We incurred $i2.9 million in debt issuance costs, which will be amortized to interest expense over the anticipated repayment term of the TRIP Railcar Co. term loan. The TRIP Railcar Co. term loan is non-recourse to Trinity, TILC, TRIP Holdings, and the other equity investors in TRIP Holdings; and are secured by TRIP Railcar Co.'s portfolio of railcars, operating leases thereon, and all other assets owned by TRIP Railcar Co. Net proceeds received from the
transaction were used to purchase railcars and related operating leases from Triumph Rail.
TRP-2021 – In June 2021, TRP-2021, formerly known as TRL-2012, issued an aggregate principal amount of (i) $i334.0 million of its Series 2021-1
Class A Green Secured Railcar Equipment Notes (the “TRP-2021 Class A Notes”) and (ii) $i21.0 million of its Series 2021-1 Class B Green Secured Railcar Equipment Notes (the “TRP-2021 Class B Notes”) (the TRP-2021 Class A Notes and the TRP-2021 Class B Notes are, collectively, the “TRP-2021 Notes”). The TRP-2021 Class A Notes bear interest at a fixed rate of i2.07%,
and the TRP-2021 Class B Notes bear interest at a fixed rate of i3.06%. The TRP-2021 Notes are payable monthly, and have a stated final maturity date of June 15, 2051. We incurred $i3.7 million
in debt issuance costs, which will be amortized to interest expense through the anticipated repayment date of the TRP-2021 Notes. The TRP-2021 Notes are non-recourse to Trinity, TILC, RIV 2013, and the other equity investors in RIV 2013, and are secured by TRP-2021's portfolio of railcars and operating leases thereon, its cash reserves, and all other assets owned by TRP-2021.
TRP-2021 used the net proceeds from the issuance of the TRP-2021 Notes to redeem its outstanding debt, consisting of (i) the Series 2012-1 Secured Railcar Equipment Notes due January 2043 and (ii) the Series 2013-1 Class A-1 Secured Railcar Equipment Notes due July 2043, of which $i348.0 million
was outstanding at the redemption date. The all-in rate for these notes was i3.59% per annum at the time of redemption. In connection with the redemption, we recognized a loss on extinguishment of debt of $i3.0 million,
which related to the write-off of unamortized debt issuance costs. This write-off is reflected in the loss on extinguishment of debt line of our Consolidated Statements of Operations for the three and six months ended June 30, 2021.
Each of our secured railcar equipment notes, including the TRL-2021 Notes, the Triumph Rail Notes, and the TRP-2021 Notes, generally has an anticipated repayment date and a stated final maturity date. While the stated final maturity date of these notes is in 2051, the cash flows from the assets of each of TRL-2021, Triumph Rail, and TRP-2021 will be applied, pursuant to the payment priorities of their respective indentures, so as to amortize their respective notes to achieve monthly targeted principal balances. If the cash flow assumptions used in determining
the targeted balances are met, it is anticipated that the Notes will be repaid well in advance of their stated final maturity date. There can be no assurance, however, that such cash flow assumptions will be realized. If these notes are not repaid by the anticipated repayment date, the respective interest rates on these notes would increase from the fixed rates stated above.
Terms and conditions of our other long-term debt, including recourse and non-recourse provisions and scheduled maturities, are described in Note 8 of our 2020 Annual Report on Form 10-K.
Note 8. iIncome
Taxes
The effective tax rate from continuing operations for the three months ended June 30, 2021 was a benefit of i23.1%, which differs from the U.S. statutory rate of iiii21.0///%
primarily due to excess tax benefits associated with equity based compensation. The effective tax rate from continuing operations for the six months ended June 30, 2021 was an expense of i44.0%, which differs from the U.S. statutory rate primarily due to an adjustment to the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") carryback benefit previously recognized, partially offset by excess tax benefits associated with equity based compensation.
Our
effective tax rates from continuing operations for the three and six months ended June 30, 2020 were a benefit of i20.0% and a benefit of i63.6%,
respectively, primarily due to carryback claims as permitted under the CARES Act, partially offset by the portion of the non-cash impairment charge that is not tax-effected because it is related to the noncontrolling interest. Our effective tax rates, without the impact of the CARES Act, were an expense of i16.9% and an expense of i15.5%
for the three and six months ended June 30, 2020, respectively, which differs from the U.S. statutory rate primarily due to the impacts of state income taxes, the incremental tax on profits of branches taxed in both U.S. and foreign jurisdictions, tax return true-ups, and non-deductible executive compensation.
Income tax refunds received, net of payments, during the six months ended June 30, 2021 totaled $i206.7 million. The
total income tax receivable position as of June 30, 2021 was $i233.1 million, primarily related to carryback claims that have been filed.
Our 2016 and 2017 tax years are effectively settled. The statutes of limitations for auditing the 2013-2015 and 2018-2020 tax years will remain open due to tax loss carryback claims that have been filed. We have state tax returns that are under audit in the normal course of business, and our Mexican subsidiaries'
tax return statutes of limitations remain open for auditing 2014 forward. We believe we are appropriately reserved for any potential matters.
The
non-service cost components of net periodic benefit cost in the table above are included in other, net (income) expense in our Consolidated Statements of Operations. For the three and six months ended June 30, 2021, net periodic benefit cost relates to the Supplemental Executive Retirement Plan.
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. The Pension Plan was settled in the fourth quarter of 2020 which resulted in the Company no longer having any remaining funded pension plan obligations.
Upon settlement, we recognized a pre-tax non-cash pension settlement charge in the fourth quarter of 2020 of $i151.5 million, which was inclusive of all unamortized losses previously recorded in AOCL.
During the six months ended June 30, 2021, as permitted by applicable regulations, we used $i10.2 million
of the Pension Plan surplus to fund obligations associated with the Company's profit sharing plans. There was ino funding from the Pension Plan surplus to the Company's profit sharing plans during the three months ended June 30, 2021. During the three and six months ended June
30, 2021, we used $i1.0 million and $i2.2 million, respectively, to fund pension administrative expenses
required to finalize the settlement of the Pension Plan. The remaining surplus of the Pension Plan of $i11.2 million will be used to fund final pension administrative expenses. We expect that any remaining surplus would be used for other corporate purposes, subject to applicable taxes.
Note 10. Asset Impairments and iRestructuring
Activities
Second quarter of 2020 impairment of small cube covered hopper railcars
During the second quarter of 2020, the oil and gas proppants (or “frac sand”) industry continued to experience economic pressure created by low oil prices, reduced fracking activity, and the ongoing economic impact of COVID-19. Significant price declines in the crude oil market, as well as lower demand for certain commodities, resulted in a decline in customer demand for certain types of railcars. As a result, certain of the Leasing Group's small cube covered hopper customers requested rent relief and, in a number of cases, filed for bankruptcy in the second quarter of 2020. Therefore, we determined that the events and circumstances that arose during the second quarter of 2020 constituted an impairment triggering event related to the small cube covered hopper car type in our lease fleet
portfolio.
We performed a cash flow recoverability test of our small cube covered hopper railcars and compared the undiscounted cash flows to the carrying value of the assets. Significant management judgment was used to determine the key assumptions utilized in our impairment analysis, the substantial majority of which represent unobservable (Level 3) inputs. The aggregate impairment charge of $ii369.4/
million is reflected in the impairment of long-lived assets line of our Consolidated Statements of Operations for the three and six months ended June 30, 2020. See Note 11 of our 2020 Annual Report on Form 10-K for further information regarding impairment of long-lived assets related to our small cube covered hopper railcars.
During the three months ended June 30, 2021, restructuring activities resulted in a net gain of $i0.7
million from the disposition of non-operating facilities included in previous restructuring plans. During the six months ended June 30, 2021, restructuring activities resulted in a net gain of $i1.0 million, primarily as a result of a $i1.4
million gain on the disposition of certain non-operating facilities included in previous restructuring plans, partially offset by $i0.4 million in employee severance costs.
During the three months ended June 30, 2020, we recorded total restructuring charges of $i0.3
million from a loss on the disposition of a non-operating facility. During the six months ended June 30, 2020, we recorded total restructuring charges of $i5.8 million, consisting of $i5.2
million of non-cash charges from the write-down of our corporate headquarters campus and $i4.1 million in cash charges for severance costs, partially offset by a $i3.5 million net
gain on the disposition of a non-operating facility and certain related assets.
i
The following table sets forth the restructuring activity and balance of the restructuring liability, which is included in other liabilities in our Consolidated Balance Sheets:
Although
restructuring activities are not allocated to our reportable segments, the following tables summarize the restructuring activities by reportable segment:
See
Note 2 for information on the reclassification of amounts in AOCL into earnings. Reclassifications of unrealized before-tax gains and losses on derivative financial instruments are included in interest expense for our interest rate hedges and in cost of revenues for our foreign currency hedges in our Consolidated Statements of Operations. Reclassifications of before-tax net actuarial gains/(losses) and prior service costs of defined benefit plans are included in other, net (income) expense in our Consolidated Statements of Operations.
Note
12. iCommon Stock and Stock-Based Compensation
i
Stockholders' Equity
Repurchase Agreement with ValueAct
On
April 29, 2021, we entered into a stock repurchase agreement with ValueAct Capital Master Fund, L.P. (“ValueAct”), the Company's largest shareholder and a related party, to repurchase i8.1 million shares of our common stock for $i27.47
per share, for an aggregate purchase price of $i222.5 million, in a privately negotiated transaction. The price per share represents a discount of i3.5%
from the closing price for a share of common stock on the New York Stock Exchange on April 29, 2021. Under the repurchase agreement, ValueAct will not make any additional sales of common stock without our consent through September 1, 2021. The repurchase from ValueAct was approved by our Board of Directors separately from, and will not reduce the authorized amount remaining under, the existing share repurchase program described below.
Share Repurchase Authorization
In October 2020, our Board of Directors authorized a new share repurchase program effective October 23, 2020 through December 31, 2021. The new share repurchase program authorized the
Company to repurchase up to $i250.0 million of its common stock. iShare repurchase activity under this program is as follows:
During
the three and six months ended June 30, 2021, total share repurchases were i10.5 million and i11.8 million,
respectively, at a cost of approximately $i290.8 million and $i327.6 million, respectively. During the six months ended
June 30, 2020, share repurchases totaled i1.9 million at a cost of approximately $i35.4
million under the previous share repurchase program, which was completed in the third quarter of 2020. There were ino shares repurchases during the three months ended June 30, 2020.
/i
Stock-Based
Compensation
Stock-based compensation totaled approximately $i4.4 million and $i9.8
million for the three and six months ended June 30, 2021, respectively. Stock-based compensation totaled approximately $i7.6 million and $i14.9
million for the three and six months ended June 30, 2020, respectively. The Company's annual grant of share-based awards generally occurs in the second quarter under our 2004 Fourth Amended and Restated Stock Option and Incentive Plan (the "Plan”). Our stock options have contractual terms of iten years. Expense related to stock options issued to eligible employees
under the Plan is recognized on a straight-line basis over their vesting period. Expense related to restricted stock units ("RSUs") issued to eligible employees under the Plan is recognized ratably over the vesting period, generally between ithree years and ifour
years. Beginning in 2020, certain RSU grants provide for full vesting when the award recipients reach 60 years of age and have provided at least 10 years of service to the Company, provided that the awards remain outstanding for a period of six months from the date of grant. The expense for these awards is recognized over the applicable service period for each of the eligible award recipients. Expense related to RSUs and restricted stock awards ("RSAs") granted to non-employee directors under the Plan is recognized ratably over the vesting period, generally ione
year. Expense related to performance units is recognized ratably from their award date to the end of the performance period, generally ithree years.
i
The
following table summarizes stock-based compensation awards granted during the six months ended June 30, 2021:
Basic net income (loss) attributable to Trinity Industries, Inc. per common share ("EPS") is computed by dividing net income (loss) attributable to Trinity remaining after allocation to unvested restricted shares by the weighted average number of basic common shares outstanding for the period. Except when the effect would be antidilutive, the calculation of diluted EPS includes the net impact of potentially dilutive common shares. The
Company has certain unvested RSAs that participate in dividends on a nonforfeitable basis and are therefore considered to be participating securities. Consequently, diluted net income (loss) attributable to Trinity Industries, Inc. per common share is calculated under both the two-class method and the treasury stock method, and the more dilutive of the two calculations is presented. There were no restricted shares and stock options included in the computation of diluted earnings per common share for the three and six months ended June 30, 2020 as we incurred a loss for these periods, and any effect on loss per common share would have been antidilutive.
i
The
following table sets forth the computation of basic and diluted net income (loss) attributable to Trinity Industries, Inc. for the three and six months ended June 30, 2021 and 2020.
We previously reported the filing of a False Claims Act (“FCA”) complaint in the United States District Court for the Eastern District of Texas, Marshall Division (“District Court”) styled Joshua Harman, on behalf of the United States of America, Plaintiff/Relator v. Trinity Industries, Inc., Defendant,
Case No. 2:12-cv-00089-JRG (E.D. Tex.). In this case, in which the U.S. Government declined to intervene, the relator, Mr. Joshua Harman, alleged the Company violated the FCA pertaining to sales of the Company's ET-Plus® System, a highway guardrail end-terminal system (“ET Plus”). On October 20, 2014, a trial in this case concluded with a jury verdict stating that the Company and its subsidiary, Trinity Highway Products, LLC (“Trinity Highway Products”), “knowingly made, used or caused to be made or used, a false record or statement material to a false or fraudulent claim," and the District Court entered judgment on the verdict in the total amount of $i682.4
million.
On September 29, 2017, the United States Court of Appeals for the Fifth Circuit ("Fifth Circuit") reversed the District Court’s $i682.4 million judgment and rendered judgment as a matter of law in favor of the Company and Trinity Highway Products. On January 7, 2019, the United States Supreme Court denied Mr. Harman's
petition for certiorari seeking review of the Fifth Circuit's decision. The denial of Mr. Harman's petition ended this action.
State, county, and municipal actions
Mr. Harman also has separate state qui tam actions currently pending pursuant to: the Virginia Fraud Against Taxpayers Act (Commonwealth of Virginia ex rel. Joshua M. Harman v. Trinity Industries, Inc. and Trinity Highway Products, LLC, Case No. CL13-698, in the Circuit Court, Richmond, Virginia) and the Massachusetts False Claims Act (Commonwealth of Massachusetts ex rel. Joshua M. Harman Qui Tam v. Trinity Industries, Inc. and Trinity Highway Products, LLC, Case No. 1484-CV-02364, in the Superior Court Department of the Trial Court). In addition to these two currently pending state qui tam actions, Mr. Harman has also filed
a second amended complaint in a previously dismissed action pursuant to the Tennessee False Claims Act (State of Tennessee ex rel. Joshua M. Harman v. Trinity Industries, Inc., and Trinity Highway Products, LLC, Case No. 14C2652, in the Circuit Court for Davidson County, Tennessee) and sought leave to file an amended complaint in a previously dismissed action pursuant to the New Jersey False Claims Act (State of New Jersey ex rel. Joshua M. Harman v. Trinity Industries, Inc. and Trinity Highway Products, LLC, Case No.L-1344-14, in the Superior Court of New Jersey Law Division: Mercer County). In each of these cases, Mr. Harman alleged the Company violated the respective states' false claims act pertaining to sales of the ET Plus, and he is seeking damages, civil penalties, attorneys’ fees, costs
and interest. Also, the respective states’ Attorneys General filed Notices of Election to Decline Intervention in all of these matters, with the exception of the Commonwealth of Virginia Attorney General, who intervened in the Virginia matter.
In a similar California state qui tam action filed by Mr. Harman (State of California ex rel. Joshua M. Harman Qui Tam v. Trinity Industries, Inc. and Trinity Highway Products, LLC, Case No. RG 14721864, in the Superior Court of California, Alameda County), on July 15, 2021, Mr. Harman filed an unopposed Request for Dismissal. On July 21, 2021, the Court entered an order dismissing the case.
The Company believes
these state qui tam lawsuits are without merit and intends to vigorously defend all allegations. Other states could take similar or different actions, and could be considering similar state false claims or other litigation against the Company.
As previously reported, state qui tam actions filed by Mr. Harman in the states of Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Minnesota, Montana, Nevada, Rhode Island, Tennessee, and New Jersey were dismissed.
The
Company has been served in a lawsuit filed November 5, 2015, titled Jackson County, Missouri, individually and on behalf of a class of others similarly situated vs. Trinity Industries, Inc. and Trinity Highway Products, LLC, Case No. 1516-CV23684 (Circuit Court of Jackson County, Missouri). The case is being brought by plaintiff for and on behalf of itself and all Missouri counties with a population of 10,000 or more persons, including the City of St. Louis, and the State of Missouri’s transportation authority. The plaintiff alleges that the Company and Trinity Highway Products did not disclose design changes to the ET Plus and these allegedly undisclosed design changes made the ET Plus allegedly defective, unsafe, and unreasonably dangerous. The plaintiff alleges product liability negligence,
product liability strict liability, and negligently supplying dangerous instrumentality for supplier’s business purposes. The plaintiff seeks compensatory damages, interest, attorneys' fees and costs, and in the alternative plaintiff seeks a declaratory judgment that the ET Plus is defective, the Company’s conduct was unlawful, and class-wide costs and expenses associated with removing and replacing the ET Plus throughout Missouri. On December 6, 2017, the Court granted plaintiff's Motion for Class Certification, certifying a class of Missouri counties with populations of 10,000 or more persons, including the City of St. Louis and the State of Missouri's transportation authority that have or had ET Plus guardrail end terminals with 4-inch wide guide channels installed on roadways they own or maintain. A trial date has been scheduled in
this case for April 4, 2022.
The Company believes this lawsuit is without merit and intends to vigorously defend all allegations. While the financial impacts of these state, county, and municipal actions are currently unknown, they could be material.
Based on information currently available to the Company and previously disclosed, we currently do not believe that a loss is probable in any one or more of the actions described under "State, county, and municipal actions," therefore ino
accrual has been included in the accompanying Consolidated Financial Statements. Because of the complexity of these actions as well as the current status of certain of these actions, we are not able to estimate a range of possible losses with respect to any one or more of these actions.
Product liability cases
The Company is currently defending product liability lawsuits in several different states that are alleged to involve the ET Plus as well as other products manufactured by Trinity Highway Products. These cases are diverse in light of the randomness of collisions in general and the fact that each accident involving a roadside device, such as an end terminal, or any other fixed object along the highway, has its own unique facts and circumstances. The
Company carries general liability insurance to mitigate the impact of adverse judgment exposures in these product liability cases. To the extent that the Company believes that a loss is probable with respect to these product liability cases, the accrual for such losses is included in the amounts described below under "Other matters".
Other matters
The Company is involved in claims and lawsuits incidental to our business arising from various matters, including product warranty, personal injury, environmental issues, workplace laws, and various governmental regulations. The Company evaluates its exposure to such claims and suits
periodically and establishes accruals for these contingencies when a range of loss can be reasonably estimated. The range of reasonably possible losses for such matters is $i10.9 million to $i19.1
million, which includes our rights in indemnity and recourse to third parties of approximately $i5.3 million, which is recorded in other assets on our Consolidated Balance Sheet as of June 30, 2021. This range includes any amounts related to the Highway Products litigation matters described above in the section titled “Highway products litigation." At June 30, 2021, total accruals of $i11.3
million, including environmental and workplace matters described below, are included in accrued liabilities in the accompanying Consolidated Balance Sheets. The Company believes any additional liability would not be material to its financial position or results of operations.
Trinity is subject to remedial orders and federal, state, local, and foreign laws and regulations relating to the environment and the workplace. The Company has reserved $i1.2
million to cover our probable and estimable liabilities with respect to the investigations, assessments, and remedial responses to such matters, taking into account currently available information and our contractual rights to indemnification and recourse to third parties. However, estimates of liability arising from future proceedings, assessments, or remediation are inherently imprecise. Accordingly, there can be no assurance that we will not become involved in future litigation or other proceedings involving the environment and the workplace or, if we are found to be responsible or liable in any such litigation or proceeding, that such costs would not be material to the Company. We believe that we are currently in substantial compliance with environmental and workplace laws and regulations.
On March 26, 2021, a tornado damaged the Company’s rail maintenance facility in Cartersville, Georgia. We have incurred costs related to cleanup and damage remediation activities in order for the facility to resume operations in the second quarter. We believe our insurance coverage is sufficient to cover property damage costs related to the event. Accordingly, at March 31, 2021, we recorded an insurance receivable of approximately $i1.2 million
for property damage recoveries that we have concluded are probable of collection. As of June 30, 2021, we have received advanced payments from insurance of approximately $i4.8 million for cleanup and damage remediation activities.
Any property damage insurance proceeds received in excess of the net book value of property lost and related cleanup costs will be accounted for as a gain. Additionally, the
Company may be entitled to business interruption proceeds related to the event. We will not record these recoveries until final settlement has been reached with the insurance carriers.
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide management's perspective on
our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Our MD&A should be read in conjunction with the unaudited Consolidated Financial Statements and related Notes in Part I, Item 1 of this Quarterly Report on Form 10-Q and Item 8, Financial Statements and Supplementary Data, of our 2020 Annual Report on Form 10-K.
This MD&A includes financial measures compiled in accordance with generally accepted accounting principles ("GAAP") and certain non-GAAP measures. Please refer to the Non-GAAP Financial Measures section herein for information on the non-GAAP measures included in the MD&A, reconciliations to the most directly comparable GAAP financial measure, and the reasons why management believes each measure is useful to management and investors.
Matters Affecting Comparability
During
the fourth quarter of 2020, we began presenting sales from our lease fleet in the Railcar Leasing and Management Services Group on a net basis regardless of the age of railcar that is sold. Historically, in accordance with ASC 606, Revenue from contracts with customers, we presented sales of railcars from the lease fleet on a gross basis in Revenues – Leasing and Cost of revenues – Leasing in our Consolidated Statements of Operations if the railcars had been owned for one year or less at the time of sale. Sales of railcars from the lease fleet owned for more than one year had historically been presented as a net gain or loss from the disposal of a long-term asset. We now report all sales of railcars from the lease fleet as a net gain or loss from the disposal of a long-term asset in accordance with ASC 610-20, Gains
and losses from the derecognition of non-financial assets. These sales are presented in the Lease portfolio sales line in our Consolidated Statements of Operations; however, because this change in presentation was effected on a prospective basis beginning in the fourth quarter of 2020, lease portfolio sales for the three and six months ended June 30, 2020 only include sales of railcars from the lease fleet owned for more than one year. We have concluded that the new presentation is appropriate given the significant change in the strategic focus of the Company. The new presentation had no effect on the Company’s operating profit, net income, earnings per share, or Consolidated Balance Sheet.
This quarterly report on Form 10-Q (or statements otherwise made by the Company or on the Company’s behalf from time to time in other reports, filings with the Securities and Exchange Commission (“SEC”), news releases, conferences, website postings or otherwise) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not historical facts are forward-looking statements and involve risks and uncertainties. These forward-looking statements include expectations,
beliefs, plans, objectives, future financial performances, estimates, projections, goals, and forecasts. Trinity uses the words “anticipates,”“believes,”“estimates,”“expects,”“intends,”“forecasts,”“may,”“will,”“should,” and similar expressions to identify these forward-looking statements. Potential factors, which could cause our actual results of operations to differ materially from those in the forward-looking statements, include, among others:
•market conditions and customer demand for our business products and services;
•the cyclical nature of the industries in which we compete;
•variations in weather in areas where our products are sold, used, or installed;
•naturally-occurring
events, pandemics, and/or disasters causing disruption to our manufacturing, product deliveries, and production capacity, thereby giving rise to an increase in expenses, loss of revenue, and property losses;
•the impact of the coronavirus pandemic (“COVID-19”) and the response thereto, on, among other things, demand for our products and services, our customers' ability to pay, disruptions to our supply chain, our liquidity and financial position, results of operations, stock price, payment of dividends, our ability to generate new railcar orders, our ability to originate and/or renew leases at favorable rates, our ability to convert backlog to revenue, and the operational status of our facilities;
•impacts from asset impairments and related charges;
•the timing
of introduction of new products;
•the timing and delivery of customer orders, lease portfolio sales, or a breach of customer contracts;
•the creditworthiness of customers and their access to capital;
•product price changes;
•changes in mix of products sold;
•the costs incurred to align manufacturing capacity with demand and the extent of its utilization;
•the operating leverage and efficiencies that can be achieved by our manufacturing businesses;
•availability
and costs of steel, component parts, supplies, and other raw materials;
•competition and other competitive factors;
•changing technologies;
•material failure, interruption of service, compromised data security, phishing emails, or cybersecurity breaches in our information technology (or that of the third-party vendors who provide information technology services);
•surcharges and other fees added to fixed pricing agreements for steel, component parts, supplies, and other raw materials;
•interest rates and capital costs;
•counter-party risks for financial instruments;
•long-term
funding of our operations;
•taxes;
•the stability of the governments and political and business conditions in certain foreign countries, particularly Mexico;
•changes in import and export quotas and regulations;
•business conditions in emerging economies;
•costs and results of litigation, including trial and appellate costs;
•changes in accounting standards or inaccurate estimates or assumptions in the application of accounting policies;
•changes in laws and regulations that may have an adverse
effect on demand for our products and services, our results of operations, financial condition or cash flows;
•legal, regulatory, and environmental issues, including compliance of our products with mandated specifications, standards, or testing criteria and obligations to remove and replace our products following installation or to recall our products and install different products manufactured by us or our competitors;
•actions by U.S. and/or foreign governments (particularly Mexico and Canada) relative to federal government budgeting, taxation policies, government expenditures, borrowing/debt ceiling limits, tariffs, and trade policies;
•the use of social or digital media to disseminate false, misleading and/or unreliable or inaccurate information; and
•the
inability to sufficiently protect our intellectual property rights.
Any forward-looking statement speaks only as of the date on which such statement is made. Except as required by federal securities laws, Trinity undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made. For a discussion of risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” in our 2020 Annual Report on Form 10-K, this Form 10-Q and future Forms 10-Q and Current Reports on Forms 8-K.
Trinity Industries, Inc. and its consolidated subsidiaries (“Trinity,”“Company,”“we,”“our,” or "us") own businesses that are leading providers of railcar products and services in North America. Our rail-related businesses market their railcar products and services under the trade name TrinityRail®. The TrinityRail platform provides railcar leasing and management services, railcar manufacturing, and railcar maintenance and modification services. We also own businesses engaged in the manufacturing of products used on the nation's roadways and in traffic control.
We
report our operating results in three principal business segments: (1) the Railcar Leasing and Management Services Group (the "Leasing Group"), which owns and operates a fleet of railcars and provides third-party fleet leasing, management, and administrative services; (2) the Rail Products Group, which manufactures and sells railcars and related parts and components, and provides railcar maintenance and modification services; and (3) All Other, which includes our highway products business and legal, environmental, and maintenance costs associated with non-operating facilities.
Executive Summary
Recent Market Developments
COVID-19
The COVID-19 pandemic significantly impacted global and North American economic conditions. The social and economic effects of the pandemic have been widespread
and are ongoing. We continue to monitor the operational and financial impacts of the pandemic and other economic factors. Although we have not experienced significant interruptions to our daily operations or a material impact to our operating costs, the economic pressures created by the pandemic have negatively impacted our results of operations for the three and six months ended June 30, 2021. While we are beginning to see signs of economic recovery, we are monitoring the evolving impacts of COVID-19 variants on the economy, and expect that our results of operationsmay remain under pressure in the near term.
Please refer to the "Forward-Looking Statements" section above and Part I, Item 1A “Risk Factors” of the 2020 Annual Report on Form 10-K for additional information regarding the potential impacts of COVID-19
on our business.
Other Cyclical and Seasonal Trends Impacting Our Business
The industries in which we operate are cyclical in nature. Weaknesses in certain sectors of the North American and global economy may make it more difficult to sell or lease certain types of railcars. Additionally, adverse changes in commodity prices, including depressed prices in the crude oil market, or lower demand for certain commodities, could result in a decline in customer demand for various types of railcars. We continuously assess demand for our products and services and take steps to rationalize and diversify our leased railcar portfolio and align our manufacturing capacity appropriately. We diligently evaluate the creditworthiness of our customers and monitor performance of relevant market sectors; however, additional weaknesses in any of these market sectors could affect the financial viability
of our underlying Leasing Group customers, which could continue to negatively impact our recurring leasing revenues and operating profits.
Additionally, current economic conditions within the industries in which our customers operate have resulted in reduced demand for railcars. Although railcar loading volumes, levels of railcars in storage, and orders for new railcar equipment are beginning to improve, railcar lease rates and utilization remain under pressure. While we currently expect this trend to continue in the near term, we believe that our rail platform is designed to respond to cyclical changes in demand and perform throughout the railcar cycle.
Steel prices have experienced an unprecedented increase since the fourth quarter of 2020 and are a significant component of our cost of revenues. We typically use contract-specific
purchasing practices, existing supplier commitments, contractual price escalation provisions, and other arrangements with our customers to reduce the impact of steel price volatility on our operating profit. However, current steel prices could negatively impact demand for new railcars and create potential headwinds to operating profit in our near-term deliveries. We will continue to monitor the impact of steel price changes on our business.
Due to their transactional nature, lease portfolio sales are the primary driver of fluctuations in results in the Leasing Group. Results in our All Other Group are affected by seasonal fluctuations, with the second and third quarters historically being the quarters with the highest revenues.
•Our revenues for the six months ended June 30, 2021 were $770.3 million, representing a decrease of 31.5%, compared to the six months ended June 30, 2020. Our operating profit for the six months ended June 30, 2021 was $127.6 million compared to operating loss for the six months ended June 30, 2020 of $234.3 million.
•The Leasing Group reported additions to the wholly-owned and partially-owned lease fleet of 4,550 railcars, for a total of 108,635 railcars as of June 30, 2021, an increase
of 4.4% compared to June 30, 2020.
•The Leasing Group's lease fleet of 108,635 company-owned rail cars was 94.3% utilized as of June 30, 2021, in comparison to a lease fleet utilization of 94.7% on 104,085 company-owned railcars as of June 30, 2020. Our company-owned railcars include wholly-owned, partially-owned, and railcars under sale-leaseback arrangements.
•For the six months ended June 30, 2021, we made a net investment in our lease fleet of approximately $162.9 million, which primarily includes new railcar additions and railcar modifications, net
of deferred profit, and secondary market purchases; and is net of proceeds from lease portfolio sales.
•The total value of the railcar backlog at June 30, 2021 was $1.2 billion, compared to $1.3 billion at June 30, 2020. The Rail Products Group received orders for 5,980 railcars and delivered 3,660 railcars in the six months ended June 30, 2021, in comparison to orders for 2,810 railcars and deliveries of 6,690 railcars in the six months ended June 30, 2020.
•For the six months ended June 30, 2021, we generated operating cash flows from continuing operations and Free Cash Flow After Investments
and Dividends ("Free Cash Flow") of $335.1 million and $358.9 million(1), respectively, in comparison to $327.8 million and $46.7 million(1), respectively, for the six months ended June 30, 2020.
(1) Non-GAAP financial measure. See the Non-GAAP Financial Measures section within this Form 10-Q for a reconciliation to the most directly comparable GAAP measure and why management believes this measure is useful to management and investors.
See "Consolidated Results of Operations" and "Segment Discussion" below for additional information regarding our operating results.
Returns of capital to shareholders in the form of dividends and share repurchases are summarized below:
(1)Dividend yield is calculated as dividends paid for the four previous quarters divided by the closing stock price on the last trading day of each respective quarter.
(2)There were no shares repurchased during the second quarter of 2020.
(3)
In the third quarter of 2020, we completed the previous share repurchase program.
(4) In the fourth quarter of 2020, our Board of Directors authorized a new $250.0 million share repurchase program.
(5) In the second quarter of 2021, we entered into a stock repurchase agreement with ValueAct Capital Master Fund, L.P. in a privately negotiated transaction. See Note 12 of the Consolidated Financial Statements for more information.
Capital Structure Updates
TILC warehouse facility – In March 2021, the Trinity Industries Leasing Company ("TILC") warehouse facility was extended through March 15, 2024, and the total facility commitment was increased from $750 million to $1.0
billion.
Repurchase Agreement with ValueAct – On April 29, 2021, we entered into a stock repurchase agreement with ValueAct Capital Master Fund, L.P. (“ValueAct”), the Company's largest shareholder and a related party, to repurchase 8.1 million shares of our common stock for $27.47 per share, for an aggregate purchase price of $222.5 million, in a privately negotiated transaction. The price per share represents a discount of 3.5% from the closing price for a share of common stock on the New York Stock Exchange on April 29, 2021. Under the repurchase agreement, ValueAct will not make any additional sales of common stock without our consent through September 1, 2021.
Triumph Rail – In June 2021, Triumph Rail LLC ("Triumph Rail"), formerly known as TRIP Master Funding LLC, an indirect, wholly-owned subsidiary of TRIP Rail Holdings LLC ("TRIP Holdings"), issued $560.4 million of its Series 2021-2 Green Secured Railcar Equipment Notes. These notes bear interest at an all-in interest rate of 2.20% and have a stated final maturity date of 2051. Net proceeds received from the issuance of these notes, as well as proceeds from the sale of railcars and related operating leases to TRIP Railcar Co. LLC described below, were used to redeem Triumph Rail's existing Secured Railcar Equipment Notes, of which $869.1 million was outstanding at the redemption date. The all-in rate for these notes was 5.16% per annum.
TRIP Railcar Co. Term Loan – In June 2021, TRIP Railcar Co. LLC ("TRIP Railcar
Co."), an indirect wholly-owned subsidiary of TRIP Holdings, drew down $329.6 million under a term loan agreement ("TRIP Railcar Co. term loan"). The TRIP Railcar Co. term loan bears interest at LIBOR plus 1.85% and has a stated maturity date of June 2025. Net proceeds received from the transaction were used to purchase railcars and related operating leases from Triumph Rail.
TRP-2021 – In June 2021, TRP 2021 LLC ("TRP-2021"), formerly known as Trinity Rail Leasing 2012 LLC, an indirect, wholly-owned subsidiary of RIV 2013 Rail Holdings LLC, issued $355.0 million of its Series 2021-1 Green Secured Railcar
Equipment Notes. These notes bear interest at an all-in interest rate of 2.13% and have a stated final maturity date of 2051. Net proceeds received from these notes were used to redeem TRP-2021's existing Secured Railcar Equipment Notes, of which $348.0 million was outstanding at the redemption date. The all-in rate for these notes was 3.59% per annum.
TRL-2021 – In June 2021, Trinity Rail Leasing 2021 LLC, a Delaware limited liability company ("TRL-2021") and a limited purpose, indirect wholly-owned subsidiary of the Company owned through TILC, issued $325.0 million of its Series 2021-1 Green Secured Railcar Equipment Notes. These notes bear interest at an all-in interest rate of 2.31% and have a final maturity date of 2051. Net proceeds received from the transaction were used to repay borrowings under TILC's
secured warehouse credit facility and for general corporate purposes.
See "Liquidity and Capital Resources" below for further information regarding these activities.
Litigation Updates
See Note 14 of the Consolidated Financial Statements for an update on the status of our Highway Products litigation.
Operating costs are comprised of cost of revenues; selling, engineering, and administrative costs; gains or losses on property disposals; impairment of long-lived assets; and restructuring activities. Operating costs by segment for the three and six months ended June 30, 2021 and 2020 were as follows:
Segment Totals before Eliminations,
Corporate Expenses, Impairment of long-lived assets, and Restructuring activities
97.1
98.1
181.9
225.4
Corporate
(27.1)
(24.2)
(49.8)
(52.3)
Impairment
of long-lived assets
—
(369.4)
—
(369.4)
Restructuring activities, net
0.7
(0.3)
1.0
(5.8)
Eliminations
– Lease Subsidiary
(3.0)
(11.0)
(4.8)
(30.9)
Eliminations – Other
(0.3)
(0.5)
(0.7)
(1.3)
Consolidated
Total
$
67.4
$
(307.3)
$
127.6
$
(234.3)
Discussion of Consolidated Results
Revenues – Our revenues for the three months ended June 30, 2021 were $371.5 million, representing a decrease of $137.7 million, or 27.0%, over the prior year period. Our revenues for the six months ended June
30, 2021 were $770.3 million, representing a decrease of $354.1 million, or 31.5%, over the prior year period. The decreases in revenues primarily related to lower deliveries in the Rail Products Group and the change in the presentation of sales of railcars from the lease fleet. See Matters Affecting Comparability above and Note 1 of the Consolidated Financial Statements for further information regarding the change in presentation.
Cost of revenues – Our cost of revenues for the three months ended June 30, 2021 was $259.2 million, representing a decrease of $137.4 million, or 34.6%, over the prior year period. Our cost of revenues for the six months ended June 30, 2021 was $555.2 million, representing a decrease of $323.4 million, or 36.8%, over the prior year period. The decreases in cost of revenues
were primarily due to lower deliveries in the Rail Products Group and the change in the presentation of sales of railcars from the lease fleet.
Selling, engineering, and administrative expenses – Selling, engineering, and administrative expenses increased by 1.6% for the three months ended June 30, 2021 when compared to the prior year period primarily due to higher litigation-related expenses. Selling, engineering, and administrative expenses decreased by 7.4% for the six months ended June 30, 2021 primarily due to consulting
costs incurred in the prior year period associated with realigning our operating structure to support our rail-focused strategy, partially offset by higher employee-related costs, including adjustments to incentive-based compensation.
Impairment of long-lived assets – Impairment of long-lived assets for the three and six months ended June 30, 2020 was $369.4 million related to our small cube covered hopper railcars. See Note 10 of the Consolidated Financial Statements for more information. We had no impairment of long-lived assets during the three and six months ended June 30, 2021.
Restructuring activities, net – Our restructuring activities for the three months ended June 30, 2021 resulted
in a net gain of $0.7 million from the disposition of non-operating facilities. Our restructuring activities for the six months ended June 30, 2021 resulted in a net gain of $1.0 million, primarily as a result of the disposition of certain non-operating facilities, partially offset by employee transition costs. Our restructuring activities for the three months ended June 30, 2020 totaled $0.3 million. We had restructuring expenses of $5.8 million during the six months ended June 30, 2020 primarily as a result of asset write-downs related to our corporate headquarters facility and employee transition costs, partially offset by a net gain on the disposition of a non-operating facility and certain related assets.
Operating profit (loss) – Operating profit
for the three months ended June 30, 2021 totaled $67.4 million, representing an increase of 121.9% from the prior year period. Operating profit for the six months ended June 30, 2021 totaled $127.6 million, representing an increase of 154.5% from the prior year period. Operating loss for the three and six months ended June 30, 2020 included a $369.4 million impairment charge related to our small cube covered hopper railcars. Operating profit for the three and six months ended June 30, 2021 was further impacted by lower deliveries in the Rail Products Group, and lower lease rates and higher fleet management operating costs in the Leasing Group. Operating profit for the six months ended June 30, 2021 was favorably impacted
by lower selling, engineering, and administrative expenses.
For further information regarding the operating results of individual segments, see "Segment Discussion" below.
Interest expense, net – Interest expense, net for the three and six months ended June 30, 2021 totaled $51.0 million and $102.3 million, respectively, compared to $53.0 million and $106.9 million for the three and six months ended June 30, 2020, respectively. The decreases in interest expense, net for the three and six months ended June 30, 2021 were primarily driven lower overall borrowing costs associated with the Company's debt facilities, partially
offset by higher overall average debt.
Loss on extinguishment of debt – Loss on extinguishment of debt for the three and six months ended June 30, 2021 was $11.7 million from the refinancing of our partially-owned subsidiaries' debt, which included the write-off of $8.4 million in unamortized debt issuance costs and a $3.3 million early redemption premium. Loss on extinguishment of debt for the six months ended June 30, 2020 was $5.0 million, which included a $4.7 million early redemption premium and the write-off of $0.3 million in unamortized debt issuance costs. There was no loss on extinguishment of debt for the three months ended June 30, 2020.
Income
taxes – The effective tax rate from continuing operations for the three months ended June 30, 2021 was a benefit of 23.1%, which differs from the U.S. statutory rate of 21.0% primarily due to excess tax benefits associated with equity based compensation. The effective tax rate from continuing operations for the six months ended June 30, 2021 was an expense 44.0%, which differs from the U.S. statutory rate primarily due to an adjustment to the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") carryback benefit previously recognized, partially offset by excess tax benefits associated with equity based compensation.
Our effective tax rates from continuing operations for the three and six months ended June 30, 2020 were a benefit
of 20.0% and a benefit of 63.6%, respectively, primarily due to carryback claims as permitted under the CARES Act, partially offset by the portion of the non-cash impairment charge that is not tax-effected because it is related to the noncontrolling interest. Our effective tax rates, without the impact of the CARES Act, were an expense of 16.9% and an expense of 15.5% for the three and six months ended June 30, 2020, respectively, which differs from the U.S. statutory rate primarily due to the impacts of state income taxes, the incremental tax on profits of branches taxed in both U.S. and foreign jurisdictions, tax return true-ups, and non-deductible executive compensation.
Income tax refunds received, net of payments, during the six months ended June 30, 2021 totaled $206.7 million. The total income tax receivable position
as of June 30, 2021 was $233.1 million, primarily related to carryback claims that have been filed.
Sales
of railcars owned one year or less at the time of sale (1)
—
10.1
(100.0)
%
—
54.4
(100.0)
%
Total revenues
$
185.1
$
192.8
(4.0)
%
$
368.6
$
429.1
(14.1)
%
Operating
profit (2):
Leasing and management
$
70.0
$
78.5
(10.8)
%
$
146.6
$
161.0
(8.9)
%
Lease
portfolio sales (1)
11.1
4.4
152.3
%
12.8
14.8
(13.5)
%
Total operating profit
$
81.1
$
82.9
(2.2)
%
$
159.4
$
175.8
(9.3)
%
Total
operating profit margin
43.8
%
43.0
%
43.2
%
41.0
%
Leasing
and management operating profit margin
37.8
%
43.0
%
39.8
%
43.0
%
Selected
expense information:
Depreciation (3)
$
57.2
$
54.0
5.9
%
$
111.8
$
107.6
3.9
%
Maintenance
and compliance
$
25.3
$
23.0
10.0
%
$
50.9
$
48.9
4.1
%
Rent
$
1.7
$
3.0
(43.3)
%
$
3.4
$
6.0
(43.3)
%
Selling,
engineering, and administrative expenses
$
13.2
$
13.0
1.5
%
$
24.5
$
27.3
(10.3)
%
Interest (4)
$
57.0
$
47.1
21.0
%
$
102.7
$
102.2
0.5
%
(1)
Beginning in the fourth quarter of 2020, we made a prospective change in the presentation of sales of railcars from the lease fleet. Therefore, all railcar sales for the three and six months ended June 30, 2021 are presented as a net gain or loss from the disposal of a long-term asset regardless of the age of railcar that is sold. See Matters Affecting Comparability above and Note 1 of the Consolidated Financial Statements for more information.
(2)Operating profit includes: depreciation; maintenance and compliance; rent; and selling, engineering, and administrative expenses. Amortization of deferred profit on railcars sold from the Rail Products Group to the Leasing Group is included in the operating profits of the Leasing Group, resulting in the recognition of depreciation expense based on our original
manufacturing cost of the railcars. Interest expense is not a component of operating profit and includes the effect of hedges.
(3) Depreciation expense related to our small cube covered hopper railcars decreased by approximately $3.5 million and $7.0 million for the three and six months ended June 30, 2021, respectively, relative to the three and six months ended June 30, 2020 as a result of the impairment charge recorded in the second quarter of 2020 related to these railcars.
(4) Interest expense for the three and six months ended June 30, 2021 includes $11.7 million of loss on extinguishment of debt associated with the refinancing of our partially-owned subsidiaries'
debt. See Note 7 of the Consolidated Financial Statements for more information. Interest expense for the six months ended June 30, 2020 includes $5.0 million of loss on extinguishment of debt associated with the early redemption of debt.
Information related to lease portfolio sales is as follows:
Total revenues for the Railcar Leasing and Management Services Group decreased by 4.0% and 14.1% for the three and six months ended June 30, 2021, respectively, compared to the prior year period. Revenues related to sales of leased railcars owned one year or less decreased due to the change in the presentation of sales of railcars from the lease fleet. Leasing and management revenues were relatively flat for the three and six months ended June 30, 2021, respectively, when compared to the three and six months ended June 30, 2020.
Operating profit decreased by 2.2% and 9.3% for the three and six months ended June 30, 2021, respectively, compared to the prior year
period primarily due to lower lease rates, higher fleet management operating costs, and slightly lower utilization, partially offset by growth in the lease fleet. Additionally, operating profit for the three months ended June 30, 2021 was favorably impacted by higher margins on lease portfolio sales.
The Leasing Group generally uses its non-recourse warehouse loan facility or cash to provide initial funding for a portion of the purchase price of the railcars. After initial funding, the Leasing Group may obtain long-term financing for the railcars in the lease fleet through non-recourse asset-backed securities; long-term non-recourse operating leases pursuant to sale-leaseback transactions; long-term recourse debt such as equipment trust certificates; long-term non-recourse promissory notes; or third-party equity.
Information regarding
the Leasing Group’s lease fleet is as follows:
(1) For the six months ended June 30, 2020, the adjustment includes 540 railcars valued at $81 million that were removed from the backlog because of a change in the underlying financial condition of the customers.
Revenues and cost of revenues for
the Rail Products Group decreased for the three months ended June 30, 2021 by 35.5% and 35.6%, respectively, when compared to the prior year period. Revenues and cost of revenues for the Rail Products Group decreased for the six months ended June 30, 2021 by 42.9% and 40.6%, respectively, when compared to the prior year period. These decreases primarily resulted from lower deliveries and a shift in the mix of railcar products and services sold. Additionally, cost of revenues for the three and six months ended June 30, 2021 was further impacted by operational cost savings initiatives, partially offset by increases in steel prices.
Total backlog dollars decreased by 11.9% when compared to the prior year period primarily from a 16.9% lower average selling price as a result of changes
in the mix of railcars in the backlog. Approximately 48.8% of our railcar backlog value is expected to be delivered during 2021 with the remainder to be delivered thereafter into 2024. The orders in our backlog from the Leasing Group are fully supported by lease commitments with external customers. The final amount of backlog attributable to the Leasing Group may vary by the time of delivery as customers may choose to change their procurement decision.
During the three months ended June 30, 2021, railcar shipments included sales to the Leasing Group of $115.9 million with nominal deferred profit,
representing 1,125 railcars, compared to $141.7 million with a deferred profit of $9.5 million, representing 1,239 railcars, in the comparable period in 2020. During the six months ended June 30, 2021, railcar shipments included sales to the Leasing Group of $208.4 million with nominal deferred profit, representing 2,071 railcars, compared to $306.2 million with a deferred profit of $26.3 million, representing 2,542 railcars, in the comparable period in 2020.
Revenues and cost of revenues increased for the three and six months ended June 30, 2021 when compared to the prior year period primarily from increased demand and higher input costs in our highway products business. Operating profit was favorably impacted in the six months ended June 30, 2021 by gains associated with the disposition of a non-operating facility. As we continue to streamline our operational footprint, we may have additional gains or losses on the disposition of other non-operating facilities.
Operating
costs for the three months ended June 30, 2021 increased 12.0% compared to the prior year period primarily from higher employee-related costs, including adjustments to incentive-based compensation, and higher litigation-related expenses, partially offset by reduced costs associated with streamlining our corporate structure to support our rail-focused strategy.
Operating costs for the six months ended June 30, 2021 decreased 4.8% compared to the prior year period primarily from reduced costs associated with streamlining our corporate structure to support our rail-focused strategy, partially offset by higher employee-related costs, including adjustments to incentive-based compensation.
We expect to finance future operating requirements with cash, cash equivalents, and short-term marketable securities; cash flows from operations; and short-term debt, long-term debt, and equity. Debt instruments that we have utilized include the TILC warehouse facility, senior notes, convertible subordinated notes, asset-backed securities, non-recourse promissory notes, sale-leaseback transactions, and our revolving credit facility.
As of June 30, 2021, we have total committed liquidity of $917.9 million. Our total available liquidity includes: $91.0 million of unrestricted cash and cash equivalents; $361.1 million unused and available under our revolving credit facility; and $465.8
million unused and available under the TILC warehouse facility based on the amount of warehouse-eligible, unpledged equipment. We believe we have access to adequate capital resources to fund operating requirements and are an active participant in the capital markets.
Liquidity Highlights
TILC warehouse facility – In March 2021, the TILC warehouse facility was extended through March 15, 2024, and the total facility commitment was increased from $750 million to $1.0 billion.
TRL-2021 – In June 2021, TRL-2021 issued $325.0 million of its Series 2021-1 Green Secured Railcar Equipment Notes. These notes bear interest at an all-in interest rate of 2.31% and have a final maturity date of 2051. Net proceeds received from the transaction were used
to repay borrowings under TILC's secured warehouse credit facility and for general corporate purposes.
Dividend Payments – We paid $47.4 million in dividends to our common stockholders during the six months ended June 30, 2021.
Repurchase Agreement with ValueAct – On April 29, 2021, we entered into a stock repurchase agreement with ValueAct, the Company's largest shareholder and a related party, to repurchase 8.1 million shares of our common stock for $27.47 per share, for an aggregate purchase price of $222.5 million, in a privately negotiated transaction. The price per share represents a discount of 3.5% from the closing price for a share of common stock
on the New York Stock Exchange on April 29, 2021. Under the repurchase agreement, ValueAct will not make any additional sales of common stock without our consent through September 1, 2021.
Share Repurchase Authorization – In October 2020, our Board of Directors authorized a new share repurchase program effective October 23, 2020 through December 31, 2021. The new share repurchase program authorized the Company to repurchase up to $250.0 million of its common stock. Share repurchase activity under this program is as follows:
During
the three and six months ended June 30, 2021, total share repurchases were 10.5 million and 11.8 million, respectively, at a cost of approximately $290.8 million and $327.6 million, respectively.
Net increase in cash, cash equivalents, and restricted cash
$
27.3
$
16.3
Operating
Activities. Net cash provided by operating activities from continuing operations for the six months ended June 30, 2021 was $335.1 million compared to net cash provided by operating activities from continuing operations of $327.8 million for the six months ended June 30, 2020. The changes in our operating assets and liabilities are as follows:
(Increase) decrease in receivables, inventories, and other assets
$
(54.1)
$
214.7
(Increase) decrease in income tax receivable
208.6
(448.3)
Increase (decrease) in accounts payable, accrued liabilities, and other liabilities
28.6
(54.9)
Changes
in operating assets and liabilities
$
183.1
$
(288.5)
The changes in our operating assets and liabilities resulted in a net source of $183.1 million for the six months ended June 30, 2021, as compared to a net use of $288.5 million for the six months ended June 30, 2020. The decrease in the income tax receivable was primarily driven by the collection of approximately $207.0 million of income tax refunds in the current year period associated with the loss carryback provisions included in recent tax legislation. Additionally, in the
prior year period, the changes in our operating assets and liabilities were impacted by a customer's election to exercise a purchase option on a sales-type lease.
Investing Activities. Net cash used in investing activities for the six months ended June 30, 2021 was $173.0 million compared to $154.6 million for the six months ended June 30, 2020. Significant investing activities are as follows:
•We made a net investment in the lease fleet of $162.9 million during the six months ended June 30, 2021, compared to $127.3 million in the prior year period. Our net investment in the lease fleet primarily includes new railcar additions and railcar modifications, net of deferred profit, and secondary
market purchases; and is net of proceeds from lease portfolio sales.
•We acquired a company that owns and operates proprietary railcar cleaning technology systems during the six months ended June 30, 2021 for net cash of $16.6 million. We had no acquisitions during the six months ended June 30, 2020.
Financing Activities. Net cash used in financing activities during the six months ended June 30, 2021 was $134.4 million compared to $156.7 million of net cash used in financing activities for the same period in 2020. Significant financing activities are as follows:
•During the six months ended June
30, 2021, we had total borrowings of $2,176.7 million and total repayments of $1,925.2 million, for net proceeds of $251.5 million, primarily from debt proceeds to support our investment in the lease fleet. During the six months ended June 30, 2020, we had total borrowings of $552.4 million and total repayments of $618.3 million, for net repayments of $65.9 million, primarily related to the early redemption of debt, partially offset by debt proceeds to support our investment in the lease fleet.
•We paid $47.4 million and $46.4 million in dividends to our common stockholders during the six months ended June 30, 2021 and 2020, respectively.
•We repurchased common stock totaling $329.4 million and $35.4 million during the six months ended June 30, 2021 and 2020, respectively. The current year period includes shares repurchased in a privately negotiated transaction with ValueAct totaling $222.5 million.
Current Debt Obligations
The revolving credit facility contains several financial covenants that require the maintenance of ratios related to minimum interest coverage for the leasing and manufacturing operations and maximum leverage. In March 2021, we amended our revolving credit facility to increase the maximum leverage ratio through March 31, 2022 and to decrease the minimum interest
coverage ratio through December 31, 2021 to provide additional near-term flexibility. A summary of our financial covenants is detailed below:
(1)Defined as the ratio of consolidated total indebtedness to consolidated earnings before interest, taxes, depreciation and amortization ("EBITDA") for the Borrower and its Restricted Subsidiaries
for the period of four consecutive quarters ending with June 30, 2021.
(2) Defined as the ratio of the difference of (A) consolidated EBITDA less (B) consolidated capital expenditures – manufacturing and other to consolidated interest expense to the extent paid in cash, in each case for the Borrower and its Restricted Subsidiaries for the period of four consecutive quarters ending with June 30, 2021.
As of June 30, 2021, we were in compliance with all such financial covenants. Please refer to Note 7 of the Consolidated Financial Statements for a description of our current debt obligations.
Our Senior Notes are fully and unconditionally and jointly and severally guaranteed by certain of Trinity’s 100%-owned subsidiaries: Trinity Industries Leasing Company; Trinity North American Freight Car, Inc.; Trinity Rail Group, LLC; Trinity Tank Car, Inc.; Trinity Highway Products, LLC; and TrinityRail Maintenance Services, Inc. (collectively, the "Guarantor Subsidiaries”).
The Senior Notes indenture agreement includes customary provisions for the release of the guarantees by the Guarantor Subsidiaries
upon the occurrence of certain allowed events including the release of one or more of the Combined Guarantor Subsidiaries as guarantor under our revolving credit facility. See Note 8 of our 2020 Annual Report on Form 10-K. The Senior Notes are not guaranteed by any of our remaining 100%-owned subsidiaries or partially-owned subsidiaries (“Non-Guarantor Subsidiaries”).
As of June 30, 2021, assets held by the Non-Guarantor Subsidiaries
included $130.3 million of restricted cash that was not available for distribution to Trinity Industries, Inc. (“Parent”), $6,551.6 million of equipment securing certain non-recourse debt, and $119.9 million of assets located in foreign locations. As of December 31, 2020, assets held by the Non-Guarantor Subsidiaries included $76.7 million of restricted cash that was not available for distribution to the Parent, $6,238.3 million of equipment securing certain non-recourse debt, and $126.9 million of assets located in foreign locations.
The following tables include the summarized financial information for Parent and Guarantor Subsidiaries (together the obligor group) on a combined basis after
elimination of intercompany transactions within the obligor group (in millions). Investments in and equity in the earnings of the Non-Guarantor Subsidiaries (the non-obligor group) have been excluded.
(1)There were no net sales from the obligor group to Non-Guarantor Subsidiaries during the six months ended June 30,
2021.
(2) Cost of revenues includes $64.4 million of purchases from Non-Guarantor Subsidiaries during the six months ended June 30, 2021.
(3) Receivables, net of allowance includes $98.4 million and $86.7 million of receivables from Non-Guarantor Subsidiaries as of June 30, 2021 and December 31, 2020, respectively.
For the full year 2021, we anticipate a net investment in our lease fleet of between $200 million and $250 million. Capital expenditures related to manufacturing and other activities, including expansion of our fleet maintenance capabilities and systems upgrades, are projected to range between $45 million and $55 million for the full year 2021.
Equity
Investment
See Note 4 of the Consolidated Financial Statements for information about our investment in partially-owned leasing subsidiaries.
Off Balance Sheet Arrangements
As of June 30, 2021, we had letters of credit issued under our Credit Agreement in an aggregate amount of $35.2 million, the full amount of which is expected to expire in July 2022. Our letters of credit obligations support our various insurance programs and generally renew by their terms each year. See Note 7 of the Consolidated Financial Statements for further information about our corporate revolving credit facility.
Derivative Instruments
We
may use derivative instruments to mitigate the impact of changes in interest rates, both in anticipation of future debt issuances and to offset interest rate variability of certain floating rate debt issuances outstanding. We also may use derivative instruments from time to time to mitigate the impact of changes in natural gas and diesel fuel prices and changes in foreign currency exchange rates. Derivative instruments that are designated and qualify as cash flow hedges are accounted for in accordance with applicable accounting standards. See Note 2 of the Consolidated Financial Statements for discussion of how we utilize our derivative instruments.
LIBOR Transition
The United Kingdom's Financial Conduct Authority, which regulates the London Interbank Offered Rate ("LIBOR"), has announced that it will no longer persuade or require banks to submit rates for the calculation
of LIBOR after June 2023. In the U.S., the Alternative Reference Rates Committee has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative to LIBOR. We currently have LIBOR-based contracts that extend beyond June 2023 including derivative instruments, promissory notes for Trinity Rail Leasing 2017 LLC, TILC's warehouse loan facility, the TRIP Railcar Co. term loan facility, and our revolving credit facility. After LIBOR is phased out, the interest rates for these obligations might be subject to change. The replacement of LIBOR with an alternative benchmark reference rate may adversely affect interest rates and result in higher borrowing costs under these agreements and any future agreements.
We have included financial measures compiled in accordance with GAAP and certain non-GAAP measures in this Quarterly Report on Form 10-Q to provide management and investors with additional information regarding our financial results. 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. For each non-GAAP financial measure, we provide a reconciliation to the most comparable GAAP measure.
Free Cash Flow
Total Free Cash Flow After Investments and Dividends ("Free Cash Flow") is a non-GAAP financial measure. The change in presentation of sales of railcars from the
lease fleet, which was effected on a prospective basis beginning in the fourth quarter of 2020, had no effect on the Company’s previously reported Free Cash Flow.
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 tables.
For the six months ended June 30, 2021, Free Cash Flow is defined as net cash provided by operating activities from continuing operations as computed in accordance with GAAP, plus cash proceeds from lease portfolio
sales, less capital expenditures for manufacturing, dividends paid, and Equity CapEx for new leased railcars. Equity CapEx for new leased railcars is defined as leasing capital expenditures, adjusted to exclude net proceeds from (repayments of) debt.
For the six months ended June 30, 2020, Free Cash Flow 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 capital expenditures for manufacturing, dividends paid, and Equity CapEx for new leased railcars. Equity CapEx for new leased railcars is defined as leasing capital expenditures, net of sold lease fleet railcars owned one year or less, adjusted to exclude net proceeds from (repayments of) debt.
Net cash provided by operating activities – continuing operations
$
327.8
Proceeds
from railcar lease fleet sales owned more than one year at the time of sale
132.2
Adjusted Net Cash Provided by Operating Activities
460.0
Capital expenditures – manufacturing and other
(41.5)
Dividends paid to common stockholders
(46.4)
Free Cash Flow (before Capital expenditures – leasing)
372.1
Equity
CapEx for new leased railcars
(325.4)
Total Free Cash Flow After Investments and Dividends
$
46.7
Capital expenditures – leasing, net of sold lease fleet railcars owned one year or less of $54.0
$
259.5
Less:
Payments to retire debt
(618.3)
Proceeds
from issuance of debt
552.4
Net proceeds from (repayments of) debt
(65.9)
Equity CapEx for new leased railcars
$
325.4
Contractual Obligations and Commercial Commitments
Except as described below, as of June 30, 2021, there have been no material changes to our contractual obligations from December
31, 2020:
•In March 2021, the TILC warehouse facility was extended through March 15, 2024, and the total facility commitment was increased from $750 million to $1.0 billion.
•In June 2021, Triumph Rail issued $560.4 million of its Series 2021-2 Green Secured Railcar Equipment Notes. These notes have a stated final maturity date of 2051. Additionally, Triumph Rail redeemed its existing Secured Railcar Equipment Notes, of which $885.0 million was outstanding as of December 31, 2020.
•In June 2021, TRIP Railcar Co. drew down $i329.6 million
under a term loan agreement with a stated maturity date of June 2025.
•In June 2021, TRP-2021 issued $355.0 million of its Series 2021-1 Green Secured Railcar Equipment Notes. These notes have a stated final maturity date of 2051. Additionally, TRP-2021 redeemed its existing Secured Railcar Equipment Notes, of which $352.5 million was outstanding as of December 31, 2020.
•In June 2021, TRL-2021 issued $325.0 million of its Series 2021-1 Green Secured Railcar Equipment Notes. These notes have a stated final maturity date of 2051.
See Note 7 of the Consolidated Financial Statements for additional information regarding these debt transactions.
Recent
Accounting Pronouncements
There have been no material changes in recently issued or adopted accounting standards from those disclosed in our 2020 Annual Report on Form 10-K.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There has been no material change in our market risks since December 31, 2020 as set forth in Item 7A of our 2020 Annual Report
on Form 10-K. Refer to Note 7 and Note 2 of the Consolidated Financial Statements for a discussion of debt-related activity and the impact of hedging activity, respectively, for the three and six months ended June 30, 2021.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that we are able to collect and record the information we are required to disclose in the reports we file with the SEC, and to process, summarize, and disclose this information within the time periods specified in the rules of the SEC. Our Chief Executive and Chief Financial Officers are responsible
for establishing and maintaining these procedures and, as required by the rules of the SEC, evaluating their effectiveness. Based on their evaluation of our disclosure controls and procedures that took place as of the end of the period covered by this report, the Chief Executive and Chief Financial Officers concluded that these procedures are effective to 1) ensure that we are able to collect, process, and disclose the information we are required to disclose in the reports we file with the SEC within the required time periods and 2) accumulate and communicate this information to our management, including our Chief Executive and Chief Financial Officers, to allow timely decisions regarding this disclosure.
Internal Controls over Financial Reporting
During the period covered by this report, there have been no changes in our internal controls over financial reporting that have materially
affected or are reasonably likely to materially affect our internal controls over financial reporting.
(1)These columns include the following transactions during the three months ended June 30, 2021: (i) the surrender to the Company of 406,889 shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees, (ii) the purchase of 245 shares of common stock by the Trustee for assets held in a non-qualified employee profit sharing plan trust, (iii) the purchase of 2,440,793 shares of common stock on the open market as part of our share repurchase program, and (iv) the purchase of 8,100,000 shares of common stock in a privately negotiated transaction with ValueAct.
(2) In October 2020, our Board of Directors authorized a new share repurchase program effective October 23,
2020 through December 31, 2021. The share repurchase program authorized the Company to repurchase up to $250.0 million of its common stock. The Company repurchased 2,440,793 shares under the share repurchase program during the three months ended June 30, 2021, at a cost of approximately $68.3 million. As of June 30, 2021, the Company had a remaining authorization to repurchase up to $77.1 million of its common stock under the share repurchase program. The approximate dollar value of shares that were eligible to be repurchased under such share repurchase program is shown as
of the end of such month or quarter.
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.
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, thereunto duly authorized.
