UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

Trinity Industries, Inc.

(Exact name of registrant as specified in its charter)

Delaware		75-0225040
(State of Incorporation)		(I.R.S. Employer Identification No.)
2525 Stemmons Freeway
Dallas, Texas		75207-2401
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (214) 631-4420

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes þ     No o.

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer   o (Do not check if a smaller reporting company)		Smaller reporting company o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o     No þ.

     At October 24, 2008 there were 79,535,316 shares of the Registrant’s common stock outstanding.

 

 

TRINITY INDUSTRIES, INC.

FORM 10-Q

TABLE OF CONTENTS

Caption		Page
PART I    FINANCIAL INFORMATION
Item 1. Financial Statements			2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Item 3. Quantitative and Qualitative Disclosures About Market Risk			30
Item 4. Controls and Procedures			30
PART II  OTHER INFORMATION
Item 1. Legal Proceedings			31
Item 1A. Risk Factors			31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			31
Item 3. Defaults Upon Senior Securities			31
Item 4. Submission of Matters to a Vote of Security Holders			31
Item 5. Other Information			31
Item 6. Exhibits			32
SIGNATURES			33
CERTIFICATIONS
EX-10.1.1
EX-10.7
EX-10.11.3
EX-10.11.4
EX-10.27
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I

Item 1. Financial Statements

Trinity Industries, Inc. and Subsidiaries
Consolidated Statements of Operations

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
		(unaudited)
		(in millions, except per share amounts)
Revenues		$	1,154.6			$	1,008.4			$	2,999.0			$	2,729.5
Operating costs:
Cost of revenues			928.8				804.9				2,375.8				2,194.5
Selling, engineering, and administrative expenses			62.8				56.6				184.0				168.3
			991.6				861.5				2,559.8				2,362.8
Operating profit			163.0				146.9				439.2				366.7
Other (income) expense:
Interest income			(1.3	)			(2.5	)			(4.6	)			(8.8	)
Interest expense			25.6				19.5				71.4				55.8
Other, net			(1.1	)			(3.6	)			(14.4	)			(14.5	)
			23.2				13.4				52.4				32.5
Income from continuing operations before income taxes			139.8				133.5				386.8				334.2
Provision for income taxes			48.3				46.3				144.1				118.9
Income from continuing operations			91.5				87.2				242.7				215.3
Discontinued operations:
Loss from discontinued operations, net of benefit for income taxes of $(0.1), $(0.1), $(0.2), and $(0.2)			(1.4	)			(0.2	)			(1.7	)			(0.5	)
Net income		$	90.1			$	87.0			$	241.0			$	214.8
Net income per common share:
Basic:
Continuing operations		$	1.16			$	1.10			$	3.07			$	2.73
Discontinued operations			(0.02	)			—				(0.02	)			—
		$	1.14			$	1.10			$	3.05			$	2.73
Diluted:
Continuing operations		$	1.14			$	1.08			$	3.01			$	2.67
Discontinued operations			(0.02	)			—				(0.02	)			—
		$	1.12			$	1.08			$	2.99			$	2.67
Weighted average number of shares outstanding:
Basic			79.1				79.1				79.0				78.8
Diluted			80.4				80.6				80.5				80.5
Dividends declared per common share		$	0.08			$	0.07			$	0.23			$	0.19

See accompanying notes to consolidated financial statements.

Trinity Industries, Inc. and Subsidiaries
Consolidated Balance Sheets

		September 30,				December 31,
		2008				2007
		(unaudited)				(as reported)
		(in millions)
Assets
Cash and cash equivalents		$	183.2			$	289.6
Receivables, net of allowance			353.6				296.5
Inventories:
Raw materials and supplies			384.1				302.6
Work in process			126.4				127.3
Finished goods			171.7				156.8
			682.2				586.7
Property, plant, and equipment, at cost			3,471.8				2,849.6
Less accumulated depreciation			(800.0	)			(779.8	)
			2,671.8				2,069.8
Goodwill			504.0				503.5
Assets held for sale and discontinued operations			1.5				3.6
Other assets			331.3				293.5
		$	4,727.6			$	4,043.2
Liabilities and Stockholders’ Equity
Accounts payable and accrued liabilities		$	631.2			$	684.3
Debt:
Recourse			715.9				730.3
Non-recourse			1,044.8				643.9
			1,760.7				1,374.2
Deferred income			69.6				58.4
Deferred income taxes			271.4				142.1
Liabilities held for sale and discontinued operations			1.5				1.2
Other liabilities			65.1				56.3
			2,799.5				2,316.5
Stockholders’ equity:
Preferred stock – 1.5 shares authorized and unissued			—				—
Common stock – 200.0 shares authorized			81.7				81.6
Capital in excess of par value			519.0				538.4
Retained earnings			1,400.0				1,177.8
Accumulated other comprehensive loss			(67.5	)			(61.6	)
Treasury stock			(5.1	)			(9.5	)
			1,928.1				1,726.7
		$	4,727.6			$	4,043.2

See accompanying notes to consolidated financial statements.

Trinity Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows

		Nine Months Ended
		September 30,
		2008				2007
		(unaudited)
		(in millions)
Operating activities:
Net income		$	241.0			$	214.8
Adjustments to reconcile net income to net cash provided by continuing operating activities:
Loss from discontinued operations			1.7				0.5
Depreciation and amortization			103.1				86.0
Stock-based compensation expense			15.0				13.5
Excess tax benefits from stock-based compensation			(0.3	)			(5.3	)
Deferred income taxes			135.9				50.5
Gain on disposition of property, plant, equipment, and other assets			(10.8	)			(17.5	)
Other			(24.5	)			(31.0	)
Changes in assets and liabilities:
(Increase) decrease in receivables			(58.9	)			(91.1	)
(Increase) decrease in inventories			(96.2	)			(78.6	)
(Increase) decrease in other assets			(58.6	)			(63.3	)
Increase (decrease) in accounts payable and accrued liabilities			(59.2	)			104.2
Increase (decrease) in other liabilities			(6.3	)			5.5
Net cash provided by operating activities – continuing operations			181.9				188.2
Net cash provided by operating activities – discontinued operations			0.7				—
Net cash provided by operating activities			182.6				188.2
Investing activities:
Proceeds from sales of railcars from our leased fleet			185.4				238.1
Proceeds from disposition of property, plant, equipment, and other assets			19.9				48.8
Capital expenditures – lease subsidiary			(757.6	)			(585.6	)
Capital expenditures – other			(96.5	)			(140.2	)
Payment for purchase of acquisitions, net of cash acquired			—				(47.3	)
Net cash required by investing activities			(648.8	)			(486.2	)
Financing activities:
Issuance of common stock, net			3.1				12.0
Excess tax benefits from stock-based compensation			0.3				5.3
Payments to retire debt			(368.4	)			(98.4	)
Proceeds from issuance of debt			754.9				304.2
Stock repurchases			(12.2	)			—
Dividends paid to common shareholders			(17.9	)			(14.2	)
Net cash provided by financing activities			359.8				208.9
Net decrease in cash and cash equivalents			(106.4	)			(89.1	)
Cash and cash equivalents at beginning of period			289.6				311.5
Cash and cash equivalents at end of period		$	183.2			$	222.4

See accompanying notes to consolidated financial statements.

Trinity Industries, Inc. and Subsidiaries
Consolidated Statement of Stockholders’ Equity

		Common Stock								Capital in								Accumulated
		Shares								Excess								Other								Treasury				Total
(unaudited)		(200.0				$1.00 Par				of Par				Retained				Comprehensive				Treasury				Stock at				Stockholders’
(in millions, except par value)		Authorized)				Value				Value				Earnings				Loss				Shares				Cost				Equity
Balances at December 31, 2007			81.6			$	81.6			$	538.4			$	1,177.8			$	(61.6	)			(0.2	)		$	(9.5	)		$	1,726.7
Net income			—				—				—				241.0				—				—				—				241.0
Other comprehensive income:
Currency translation adjustments, net of tax			—				—				—				—				0.1				—				—				0.1
Change in unrealized loss on derivative financial instruments, net of tax			—				—				—				—				(5.4	)			—				—				(5.4	)
Other changes, net of tax			—				—				—				—				(0.6	)			—				—				(0.6	)
Comprehensive net income																															235.1
Cash dividends on common stock			—				—				—				(18.7	)			—				—				—				(18.7	)
Restricted shares issued, net			—				—				(15.1	)			—				—				0.4				11.5				(3.6	)
Shares repurchased			—				—				—				—				—				(0.6	)			(16.0	)			(16.0	)
Stock options exercised			0.1				0.1				(5.9	)			—				—				0.2				8.9				3.1
Stock-based compensation expense			—				—				1.0				—				—				—				—				1.0
Other			—				—				0.6				(0.1	)			—				—				—				0.5
Balances at September 30, 2008			81.7			$	81.7			$	519.0			$	1,400.0			$	(67.5	)			(0.2	)		$	(5.1	)		$	1,928.1

See accompanying notes to consolidated financial statements.

Trinity Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

     The foregoing consolidated financial statements are unaudited and have been prepared from the books and records of Trinity Industries, Inc. and subsidiaries (“Trinity”, “Company”, “we” or “our”). In our opinion, all normal and recurring adjustments necessary for a fair presentation of the financial position of the Company as of September 30, 2008, the results of operations for the three and nine month periods ended September 30, 2008 and 2007, and cash flows for the nine month periods ended September 30, 2008 and 2007 have been made in conformity with generally accepted accounting principles. Because of seasonal and other factors, the results of operations for the nine month period ended September 30, 2008 may not be indicative of expected results of operations for the year ending December 31, 2008. These interim financial statements and notes are condensed as permitted by the instructions to Form 10-Q and should be read in conjunction with the audited consolidated financial statements of the Company included in its Form 10-K for the year ended December 31, 2007.

Stockholders’ Equity

     On December 13, 2007, the Company’s Board of Directors authorized a $200 million stock repurchase program of its common stock. This program allows for the repurchase of the Company’s common stock through December 31, 2009. During the three months and nine months ended September 30, 2008, 150,000 and 621,100 shares were repurchased under this program at a cost of approximately $3.8 million and $16.0 million, respectively. The shares of common stock purchased during the three months ended September 30, 2008 were cash settled in October 2008. On October 3, 2008, the Company repurchased under the program 1,994,400 shares of its common stock in a privately negotiated transaction at a cost of approximately $42.2 million. Since the inception of this program through October 3, 2008, the Company had purchased a total of 2,719,700 shares at a cost of approximately $61.1 million.

Fair Value Accounting

     In September 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 introduces a framework for measuring fair value and expands required disclosure about fair value measurements of assets and liabilities. SFAS 157 for financial assets and liabilities is effective for fiscal years beginning after November 15, 2007. The Company adopted this standard as of January 1, 2008 and the impact of the adoption was not significant.

     SFAS 157 defines fair value 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 to that asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. SFAS 157 describes three levels of inputs that may be used to measure fair values which are listed below.

     Level 1 – This level is defined as quoted prices in active markets for identical assets or liabilities. The Company’s cash equivalents and restricted assets, other than cash, are United States Treasury instruments.

     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. The Company’s fuel derivative instruments, which are commodity options, are valued using energy and commodity market data. Interest rate hedges are valued at exit prices obtained from each counterparty.

     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.

     Assets and liabilities measured at fair value on a recurring basis are summarized below:

		Fair Value Measurement as of September 30, 2008
		(in millions)
		Level 1				Level 2				Level 3				Total
Assets:
Cash equivalents		$	160.4			$	—			$	—			$	160.4
Restricted assets (1)			131.7				—				—				131.7
Total assets		$	292.1			$	—			$	—			$	292.1
Liabilities:
Fuel derivative instruments (2)		$	—			$	2.0			$	—			$	2.0
Interest rate hedges (2)			—				0.9				—				0.9
Total liabilities		$	—			$	2.9			$	—			$	2.9

Recent Accounting Pronouncements

     In December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” and SFAS No. 160, “Accounting and Reporting Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51.” These new standards significantly change the accounting for and reporting of business combination transactions and noncontrolling interests (previously referred to as minority interests) in consolidated financial statements. Both standards are effective for fiscal years beginning after December 15, 2008 and are applicable only to transactions occurring after the effective date.  

     In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedge items are accounted for under SFAS 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”), and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows.

     SFAS 161 is intended to enhance the current disclosure framework in SFAS 133 and requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk related contingent features in derivative agreements.

     The provisions of SFAS 161 are effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The provisions of SFAS 161 need not be applied to immaterial items. We are currently evaluating the potential impact of the provisions of SFAS 161.

     In May 2008, the FASB issued FASB Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (including Partial Cash Settlement) (“APB 14-1”). APB 14-1 requires that issuers of certain convertible debt instruments that may be settled in cash upon conversion to separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest expense is recognized in subsequent periods.

     The accounting for these types of instruments under APB 14-1 is intended to appropriately reflect the underlying economics by capturing the value of the conversion options as borrowing costs; therefore, recognizing their potential dilutive effects on earnings per share.

     The effective date of APB 14-1 is for financial statements issued for fiscal years and interim periods beginning after December 15, 2008 and does not permit earlier application. However, the transition guidance requires retrospective application to all periods presented and does not grandfather existing instruments. In June 2006, Trinity issued $450 million in 3 7/8% Convertible Subordinated Notes due 2036. We plan to adopt APB 14-1 on January 1, 2009. Upon adoption of APB 14-1, we expect to revise prior periods by reclassifying $152.6 million of our Convertible Subordinated Notes from debt to capital in excess of par in the equity section of the balance sheet. Our interest expense will increase $4.5 million and $8.1 million for the years ended December 31, 2006 and 2007, respectively, and $6.6 million for the nine months ended September 30, 2008. Upon adoption, debt origination costs of $3.2 million will be reclassified against capital in excess of par.

     In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities (“FSP EITF 03-6-1”). FSP EITF 03-6-1 applies to the calculation of earnings per share for share-based payment awards with rights to dividends or dividend equivalents under Statement No. 128, Earnings Per Share. Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents will be considered participating securities and will be included in the computation of earning per share pursuant to the two-class method. The effective date of FSP EITF 03-6-1 is for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those years. Early adoption is not permitted. Once effective, all prior period earnings per share data presented will be adjusted retrospectively. We are currently evaluating the impact of the provisions of FSP EITF 03-6-1.

Note 2. Segment Information

     The Company reports operating results in five principal business segments: (1) the Rail Group, which manufactures and sells railcars and component parts; (2) the Construction Products Group, which manufactures and sells highway products, concrete and aggregates, and girders and beams used in the construction of highway and railway bridges; (3) the Inland Barge Group, which manufactures and sells barges and related products for inland waterway services; (4) the Energy Equipment Group, which manufactures and sells products for energy related businesses, including tank heads, structural wind towers, and pressure and non-pressure containers for the storage and transportation of liquefied gases and other liquid and dry products; and (5) the Railcar Leasing and Management Services Group, which provides fleet management, maintenance, and leasing services. The category All Other includes our captive insurance and transportation companies; legal, environmental, and upkeep costs associated with non-operating facilities; other peripheral businesses; and the change in market valuation related to ineffective commodity hedges.

     Sales and related net profits from the Rail Group to the Railcar Leasing and Management Services Group are recorded in the Rail Group and eliminated in consolidation. Sales between these groups are recorded at prices comparable to those charged to external customers giving consideration for quantity, features, and production demand. Sales of railcars from the lease fleet are included in the Railcar Leasing and Management Services Group. See Note 4 Equity Investment for discussion of sales to a company in which we have an equity investment.

     The financial information from continuing operations for these segments is shown in the tables below. We operate principally in North America.

Three Months Ended September 30, 2008

														Operating
		Revenues												Profit
		External				Intersegment				Total				(Loss)
		(in millions)
Rail Group		$	419.2			$	333.5			$	752.7			$	56.8
Construction Products Group			193.7				7.3				201.0				17.3
Inland Barge Group			160.6				—				160.6				29.8
Energy Equipment Group			169.2				15.3				184.5				32.5
Railcar Leasing and Management Services Group			207.3				—				207.3				53.9
All Other			4.6				16.9				21.5				(4.1	)
Corporate			—				—				—				(12.5	)
Eliminations — Lease subsidiary			—				(323.0	)			(323.0	)			(9.9	)
Eliminations — Other			—				(50.0	)			(50.0	)			(0.8	)
Consolidated Total		$	1,154.6			$	—			$	1,154.6			$	163.0

Three Months Ended September 30, 2007

														Operating
		Revenues												Profit
		External				Intersegment				Total				(Loss)
		(in millions)
Rail Group		$	382.2			$	239.1			$	621.3			$	96.5
Construction Products Group			193.8				0.4				194.2				19.0
Inland Barge Group			126.6				—				126.6				22.3
Energy Equipment Group			98.4				3.0				101.4				11.6
Railcar Leasing and Management Services Group			204.0				—				204.0				47.0
All Other			3.4				14.5				17.9				0.1
Corporate			—				—				—				(7.0	)
Eliminations — Lease subsidiary			—				(235.4	)			(235.4	)			(37.3	)
Eliminations — Other			—				(21.6	)			(21.6	)			(5.3	)
Consolidated Total		$	1,008.4			$	—			$	1,008.4			$	146.9

Nine Months Ended September 30, 2008

														Operating
		Revenues												Profit
		External				Intersegment				Total				(Loss)
		(in millions)
Rail Group		$	1,101.8			$	809.3			$	1,911.1			$	206.4
Construction Products Group			573.0				16.5				589.5				50.6
Inland Barge Group			449.3				—				449.3				83.5
Energy Equipment Group			449.7				21.6				471.3				76.1
Railcar Leasing and Management Services Group			413.5				—				413.5				124.0
All Other			11.7				46.4				58.1				1.4
Corporate			—				—				—				(29.7	)
Eliminations — Lease subsidiary			—				(792.3	)			(792.3	)			(64.2	)
Eliminations — Other			—				(101.5	)			(101.5	)			(8.9	)
Consolidated Total		$	2,999.0			$	—			$	2,999.0			$	439.2

Nine Months Ended September 30, 2007

														Operating
		Revenues												Profit
		External				Intersegment				Total				(Loss)
		(in millions)
Rail Group		$	1,088.5			$	700.6			$	1,789.1			$	271.2
Construction Products Group			553.9				0.8				554.7				44.9
Inland Barge Group			355.8				—				355.8				46.3
Energy Equipment Group			283.8				8.3				292.1				33.4
Railcar Leasing and Management Services Group			437.4				—				437.4				114.3
All Other			10.1				40.3				50.4				2.0
Corporate			—				—				—				(26.7	)
Eliminations — Lease subsidiary			—				(690.9	)			(690.9	)			(115.8	)
Eliminations — Other			—				(59.1	)			(59.1	)			(2.9	)
Consolidated Total		$	2,729.5			$	—			$	2,729.5			$	366.7

Note 3. Railcar Leasing and Management Services Group

     The Railcar Leasing and Management Services Group (“Leasing Group”) provides fleet management, maintenance, and leasing services. Selected combined financial information for the Leasing Group is as follows:

		September 30, 2008				December 31, 2007
						(as reported)
		(in millions)
Cash		$	12.8			$	40.8
Leasing equipment:
Machinery and other			36.6				36.1
Equipment on lease			2,635.2				1,996.7
			2,671.8				2,032.8
Accumulated depreciation			(214.1	)			(214.4	)
			2,457.7				1,818.4
Restricted assets			131.7				129.1
Debt:
Recourse			61.4				75.7
Non-recourse			1,044.8				643.9

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
		(in millions)
Revenues		$	207.3			$	204.0			$	413.5			$	437.4
Operating profit			53.9				47.0				124.0				114.3

     For the three and nine months ended September 30, 2008, revenues of $52.6 million and operating profit of $5.7 million and revenues of $98.8 million and operating profit of $12.9 million, respectively, were related to sales of railcars from the lease fleet to a company in which Trinity holds an equity investment. For the three and nine months ended September 30, 2007, revenues of $93.8 million and operating profit of $12.7 million and revenues of $187.5 million and operating profit of $24.1 million, respectively, were related to sales of railcars from the lease fleet to a company in which Trinity holds an equity investment. See Note 4 Equity Investment.

     The Leasing Group’s interest expense, which is not a component of operating profit, was $16.3 million and $40.8 million for the three and nine months ended September 30, 2008, respectively, and $11.4 million and $31.0 million, respectively, for the same periods last year. Rent expense, which is a component of operating profit, was $11.3 million and $33.7 million for the three and nine months ended September 30, 2008, respectively, and $11.4 million and $34.0 million, respectively, for the same periods last year.

     Equipment consists primarily of railcars leased by third parties. The Leasing Group purchases equipment manufactured by Trinity’s rail subsidiaries and enters into lease contracts with third parties with terms generally ranging between one and twenty years. The Leasing Group primarily enters into operating leases. Future minimum rental revenues on leases in each year are as follows:

		Remaining
		three months
		of 2008				2009				2010				2011				2012				Thereafter				Total
		(in millions)
Future Minimum Rental Revenues on Leases		$	53.7			$	203.8			$	184.1			$	145.4			$	114.8			$	347.4			$	1,049.2

     The Leasing Group’s debt consists of both recourse and non-recourse debt. See Note 8 for the form, maturities, and descriptions of the debt. Leasing Group equipment with a net book value of approximately $1,460.5 million is pledged as collateral for Leasing Group debt. Leasing Group equipment with a net book value of approximately $107.1 million is pledged as collateral against operating lease obligations.

     In prior years, the Leasing Group completed a series of financing transactions whereby railcars were sold to one or more separate independent owner trusts (“Trusts”). The Leasing Group leased railcars from the Trusts under operating leases and subleased the railcars to independent third party customers. See Note 4 of the December 31, 2007 Consolidated Financial Statements filed on Form 10-K for a detailed explanation of these financing transactions. Future operating lease obligations of the Leasing Group’s subsidiaries as well as future minimum rental revenues related to these leases due to the Leasing Group are as follows:

		Remaining
		three months
		of 2008				2009				2010				2011				2012				Thereafter				Total
		(in millions)
Future Operating Lease Obligations of Trusts’ Cars		$	11.8			$	47.6			$	40.7			$	41.7			$	44.9			$	521.1			$	707.8
Future Minimum Rental Revenues of Trusts’ Cars		$	15.0			$	52.4			$	41.4			$	33.2			$	26.6			$	82.3			$	250.9

Note 4. Equity Investment

     In 2007, the Company and five other equity investors unrelated to the Company or its subsidiaries formed TRIP Rail Holdings LLC (“TRIP Holdings”) for the purpose of providing railcar leasing and management services in North America. TRIP Holdings, through its wholly-owned subsidiary, TRIP Rail Leasing LLC (“TRIP Leasing”) purchases railcars from the Company’s Rail and Leasing Groups funded by capital contributions from TRIP Holdings’ equity investors and third-party debt. The Company agreed to provide 20% of the total of all capital contributions required by TRIP Holdings up to a total commitment of $49.0 million in exchange for 20% of the equity in TRIP Holdings. The Company will receive 20% of the distributions made from TRIP Holdings to equity investors and has a 20% interest in the net assets of TRIP Holdings upon a liquidation event. The terms of the Company’s 20% equity investment are identical to the terms of each of the other five equity investors. Railcars purchased from the Company by TRIP Leasing are required to be purchased at prices comparable with the prices of all similar railcars sold by the Company during the same period for new railcars and at prices based on third party appraised value for used railcars. The manager of TRIP Holdings, Trinity Industries Leasing Company (“TILC”), a wholly owned subsidiary of Trinity, may be removed without cause as a result of a majority vote of the non-Company equity members. In 2007, the Company contributed $21.3 million in capital to TRIP Holdings equal to its 20% pro rata share of total capital received in 2007 by TRIP Holdings from the equity investors of TRIP Holdings. Trinity funded an additional $3.4 million and $11.9 million, respectively, for the three and nine months ended September 30, 2008, pursuant to Trinity’s 20% equity ownership obligation under the formation agreements for TRIP Holdings, totaling a $33.2 million investment in TRIP Holdings as of September 30, 2008. Trinity’s remaining equity commitment to TRIP Holdings is $15.8 million, which is expected to be completely funded by the end of 2009. The Company also paid $13.8 million in structuring and placement fees to the principal underwriter in conjunction with the formation of TRIP Holdings that are expensed on a pro rata basis as railcars are purchased from the Company. For the three and nine months ended September 30, 2008, $1.1 million and $3.8 million, respectively, of these structuring and placement fees were expensed, leaving a net unamortized balance of $4.9 million as of September 30, 2008. Such expense is treated as sales commissions included in operating costs in the Company’s Consolidated Statements of Operations. As of September 30, 2008, TRIP Leasing had purchased $900.8 million of railcars from the Company and plans to purchase an additional $499.2 million.

     Sales of railcars to TRIP Leasing and related gains for the three and nine month periods ended September 30, 2008 and 2007 are as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
		(in millions)
Rail Group:
Sales of railcars to TRIP Leasing		$	56.8			$	138.5			$	285.8			$	138.5
Gain on sales of railcars to TRIP Leasing		$	6.5			$	26.2			$	51.3			$	26.2
Deferral of gain on sales of railcars to TRIP Leasing based on Trinity’s 20% equity interest		$	1.4			$	5.3			$	10.3			$	5.3
TILC:
Sales of railcars to TRIP Leasing		$	52.6			$	93.8			$	98.8			$	187.5
Gain on sales of railcars to TRIP Leasing		$	7.1			$	15.9			$	16.1			$	30.3
Deferral of gain on sales of railcars to TRIP Leasing based on Trinity’s 20% equity interest		$	1.4			$	3.2			$	3.2			$	6.2

     Administrative fees for the three and nine month periods ended September 30, 2008, were $1.0 million and $3.1 million, respectively. Fees for the same period in the prior year were insignificant.

     In June 2008, the Company entered into an agreement with an equity investor of TRIP Holdings potentially requiring Trinity to acquire from the equity investor up to an additional 5% equity ownership in TRIP Holdings if the option is exercised to its fullest extent. In that event, the Company would own a 25% equity ownership in TRIP Holdings, increasing the Company’s total commitment by $12.3 million to $61.3 million, of which $33.2 million had been paid. Should this agreement be exercised, the treatment of TRIP Holdings in the Company’s consolidated financial statements does not change. The exercise period for the agreement is from September 2008 until January 2009.

     See Note 5 of the December 31, 2007 Consolidated Financial Statements filed on Form 10-K for additional information.

Note 5. Derivative Instruments

     We use derivative instruments to mitigate the impact of increases in zinc, natural gas, and diesel fuel prices and interest rates, as well as to convert a portion of our variable-rate debt to fixed-rate debt. We also use derivatives to lock in fixed interest rates in anticipation of future debt issuances. These swaps are accounted for as cash flow hedges under SFAS 133.

     Interest rate hedges

     In anticipation of a future debt issuance, we entered into interest rate swap transactions during the fourth quarter of 2006 and during 2007. These instruments, with a notional amount of $370 million, hedged the interest rate on a portion of a future debt issuance associated with an anticipated railcar leasing transaction, which closed in May 2008. These instruments settled during the second quarter of 2008. The weighted average fixed interest rate under these instruments was 5.34%. These interest rate swaps were being accounted for as cash flow hedges with changes in the fair value of the instruments of $24.5 million of loss recorded in Accumulated Other Comprehensive Loss (“AOCL”) through the date the related debt issuance closed with a principal balance of $572.2 million in May 2008. The balance is being amortized over the term of the related debt. At September 30, 2008, the balance remaining in AOCL was $22.9 million. The effect on the consolidated statement of operations for the three and nine months ended September 30, 2008 was expense of $1.1 million and $6.1 million, respectively. The expense for the nine months ended September 30, 2008 was primarily due to the ineffective portion of the hedges associated with hedged interest payments that will not be made.

     In May 2008, we entered into an interest rate swap transaction which is being used to fix the LIBOR component of the debt issuance which closed in May 2008. The fixed interest rate under this instrument is 4.126%. The amount recorded for this instrument as of September 30, 2008 in the consolidated balance sheet was a liability of $0.9 million, with $0.5 million of expense in AOCL. The effect on the consolidated statement of operations for the three and nine month periods ended September 30, 2008 was expense of $2.3 million and $3.4 million, respectively.

     During 2005 and 2006, we entered into interest rate swap transactions in anticipation of a future debt issuance. These instruments, with a notional amount of $200 million, fixed the interest rate on a portion of a future debt issuance associated with a railcar leasing transaction in 2006 and settled at maturity in the first quarter of 2006. The weighted average fixed interest rate under these instruments was 4.87%. These interest rate swaps were being accounted for as cash flow hedges with changes in the fair value of the instruments of $4.5 million in income recorded in AOCL through the date the related debt issuance closed in May 2006. The balance is being amortized over the term of the related debt. At September 30, 2008, the balance remaining in AOCL was $3.5 million. The effect of the amortization on the consolidated statement of operations for the three and nine month periods ended September 30, 2008 was income of $0.1 million and $0.3 million, respectively. The effect on the same periods in the prior year was $0.1 million and $0.3 million, respectively.

     Natural gas and diesel fuel

     We continued a program to mitigate the impact of fluctuations in the price of natural gas and diesel fuel purchases. The intent of the program is to protect our operating profit from adverse price changes by entering into derivative instruments. For those instruments that do not qualify for hedge accounting treatment, any changes in their valuation are recorded directly to the consolidated statement of operations. In July of 2008, we settled our outstanding diesel fuel hedge contracts. The effect of the settled diesel fuel contracts on the consolidated statement of operations for the three and nine month periods ended September 30, 2008 was income of $1.1 million. The amount recorded in the consolidated balance sheet for natural gas hedges was a liability of $2.0 million as of September 30, 2008 and $1.2 million of expense in AOCL for both derivative instruments. The effect of both derivatives on the consolidated statement of operations for the three and nine month periods ended September 30, 2008 was expense of $0.4 million and income of $9.5 million, respectively, including losses of $1.7 million and gains of $5.2 million resulting from the mark to market valuation for the three and nine months

periods ended September 30, 2008, respectively. For the three and nine month periods ended September 30, 2007 the effect on the consolidated statement of operations was income of $0.1 million and $1.1 million, respectively.

     Zinc

     We also continued a program to mitigate the impact of fluctuations in the price of zinc purchases. The intent of this program is to protect our operating profit from adverse price changes by entering into derivative instruments. These instruments are short term with monthly maturities and no remaining balances in AOCL as of September 30, 2008. The effect on the consolidated statement of operations for the three months ended September 30, 2008 was not material. The effect on the consolidated statement of operations for the nine months ended September 30, 2008 was income of $0.9 million and for the three and nine month periods ended September 30, 2007 was income of $1.2 million and $2.0 million, respectively.

Note 6. Property, Plant, and Equipment

     The following table summarizes the components of property, plant, and equipment as of September 30, 2008 and December 31, 2007.

		September 30,				December 31,
		2008				2007
						(as reported)
		(in millions)
Corporate/Manufacturing:
Land		$	37.7			$	36.5
Buildings and improvements			366.2				341.3
Machinery and other			654.8				608.0
Construction in progress			66.4				79.8
			1,125.1				1,065.6
Less accumulated depreciation			(585.9	)			(565.4	)
			539.2				500.2
Leasing:
Machinery and other			36.6				36.1
Equipment on lease			2,635.2				1,996.7
			2,671.8				2,032.8
Less accumulated depreciation			(214.1	)			(214.4	)
			2,457.7				1,818.4
Deferred profit on railcars sold to the Leasing Group			(325.1	)			(248.8	)
		$	2,671.8			$	2,069.8

Note 7. Warranties

     The Company provides warranties against workmanship and materials defects ranging from one to five years depending on the product. The warranty costs are estimated using a two step approach. First, an estimate is made for the cost of all claims that have been filed by a customer. 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. The Company provides for the estimated cost of product warranties at the time revenue is recognized related to products covered by warranties and assesses the adequacy of the resulting reserves on a quarterly basis. The changes in the accruals for warranties for the three and nine month periods ended September 30, 2008 and 2007 were as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
		(in millions)
Beginning balance		$	29.6			$	26.2			$	28.3			$	28.6
Warranty costs incurred			(1.6	)			(1.9	)			(4.3	)			(8.3	)
Product warranty accrual			0.7				3.2				4.7				7.2
Ending balance		$	28.7			$	27.5			$	28.7			$	27.5

Note 8. Debt

     The following table summarizes the components of debt as of September 30, 2008 and December 31, 2007.

		September 30,				December 31,
		2008				2007
						(as reported)
		(in millions)
Corporate/Manufacturing — Recourse:
Revolving commitment		$	—			$	—
Convertible subordinated notes			450.0				450.0
Senior notes			201.5				201.5
Other			3.0				3.1
			654.5				654.6
Leasing — Recourse:
Equipment trust certificates			61.4				75.7
			715.9				730.3
Leasing — Non-recourse:
Secured railcar equipment notes			323.5				334.1
Warehouse facility			157.3				309.8
Promissory notes			564.0				—
			1,044.8				643.9
Total debt		$	1,760.7			$	1,374.2

     Trinity’s revolving credit facility requires maintenance of ratios related to interest coverage for the leasing and manufacturing operations, leverage, and minimum net worth. At September 30, 2008, there were no borrowings under our $425 million revolving credit facility. After $100.4 million was considered for letters of credit, $324.6 million was available under the revolving credit facility. Interest on the revolving credit facility is calculated at prime or LIBOR plus 75 basis points.

     On October 15, 2008, the Company sent a notice to the holders of its Convertible Subordinated Notes. This notice, as required by the Indenture, notified the holders that as a result of increases in the Company’s dividend, the Conversion Rate has been adjusted to 19.2004 and the Conversion Price has been adjusted to $52.08.

     In May 2008, Trinity Rail Leasing VI LLC, a Delaware limited liability company (“TRL VI”), a limited purpose, indirect wholly-owned subsidiary of Trinity, issued $572.2 million of 30-year promissory notes (the “Promissory Notes”) to financial institutions. The Promissory Notes were secured by a portfolio of railcars valued at approximately $743.1 million, operating leases thereon, and certain cash reserves. The Promissory Notes are obligations of TRL VI and are non-recourse to Trinity. TRL VI acquired the railcars securing the Promissory Notes by purchase from TILC and a subsidiary. The proceeds were used to repay a portion of our warehouse facility and to finance unencumbered railcars on our consolidated balance sheet. TILC entered into certain agreements relating to the transfer of the railcars to TRL VI and the management and servicing of TRL VI’s assets. The Promissory Notes bear interest at a floating rate of one-month LIBOR plus a margin of 1.50%. The LIBOR portion of the interest rate on the Promissory Notes is fixed at approximately 4.13% for the first seven years from the date of issuance of the Promissory Notes through interest rate hedges. The interest rate margin on the Promissory Notes will increase by 0.50% on each of the seventh and eighth anniversary dates of the issuance of the Promissory Notes and by an additional 2.00% on the tenth anniversary date of the issuance of the Promissory Notes. The Promissory Notes may be prepaid at any time and may be prepaid without penalty at any time after the third anniversary date of the issuance of the Promissory Notes.

     In February 2008, TILC increased its warehouse facility to $600 million with the availability period of the facility remaining through August 2009. This facility, established to finance railcars owned by TILC, had $157.3 million outstanding as of September 30, 2008. The warehouse facility matures August 2009 and, unless renewed, will be payable in three equal installments in February 2010, August 2010, and February 2011. Railcars financed by the warehouse facility have historically been refinanced under long-term financing agreements. Specific railcars and the underlying leases secure the facility. Advances under the facility may not exceed 78% of the fair market value of the eligible railcars securing the facility as defined by the agreement. Advances under the facility bear interest at a defined index rate plus a margin, for an all-in rate of 3.59% at September 30, 2008. At September 30, 2008, $442.7 million was available under this facility.

     Terms and conditions of other debt, including recourse and non-recourse provisions, are described in Note 10 of the December 31, 2007 Consolidated Financial Statements filed on Form 10-K.

     The remaining principal payments under existing debt agreements as of September 30, 2008 are as follows:

		Remaining
		three months
		of 2008				2009				2010				2011				2012				Thereafter
		(in millions)
Recourse:
Corporate/Manufacturing		$	0.4			$	0.6			$	0.2			$	0.3			$	0.2			$	652.8
Leasing – equipment trust certificates (Note 3)			—				61.4				—				—				—				—
Non-recourse:
Leasing – secured railcar equipment notes (Note 3)			3.6				15.3				16.5				14.9				13.7				259.5
Leasing – warehouse facility (Note 3)			1.4				4.3				101.1				50.5				—				—
Leasing – promissory notes (Note 3)			6.4				26.3				27.6				29.0				30.9				443.8
Total principal payments		$	11.8			$	107.9			$	145.4			$	94.7			$	44.8			$	1,356.1

Note 9. Other, Net

     Other, net (income) expense consists of the following items:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
		(in millions)
Gain on disposition of property, plant, and equipment		$	(0.3	)		$	(3.4	)		$	(10.8	)		$	(17.5	)
Foreign currency exchange transactions			1.4				(0.2	)			(2.0	)			(1.8	)
Write-down of equity investment			—				—				—				5.4
(Gain) loss on equity investments			(0.1	)			0.5				(0.5	)			0.9
Other			(2.1	)			(0.5	)			(1.1	)			(1.5	)
Other, net		$	(1.1	)		$	(3.6	)		$	(14.4	)		$	(14.5	)

Note 10. Income Taxes

     On January 1, 2007, we adopted the provisions of FASB Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109. See Note 12 of the December 31, 2007 Consolidated Financial Statements filed on Form 10-K for a detailed explanation of the impact of FIN 48.

     The change in unrecognized tax benefits for the nine months ended September 30, 2008 and 2007 was as follows:

		Nine Months Ended
		September 30,
		2008				2007
		(in millions)
Beginning balance		$	23.7			$	32.0
Additions for tax positions related to the current year			2.0				—
Additions for tax positions of prior years			5.9				1.9
Reductions for tax positions of prior years			(1.6	)			(11.3	)
Expiration of statute of limitations			(0.4	)			—
Settlements			—				(0.5	)
Ending balance		$	29.6			$	22.1