SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-8099
Trinity Industries Leasing Company
( Exact name of registrant as specified in its charter)
Delaware 75-1640393
( State of Incorporation) (I.R.S. Employer Identification No.)
2000 Gardner Expressway
Quincy, IL 62306
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (217) 224-7236
Securities Registered Pursuant to Section 12(b) of the Act
Name of each exchange
Title of each class on which registered
N/A N/A
Securities Registered Pursuant to Section 12(g) of the Act:
None
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 X No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. X
The aggregate market value of voting stock held by nonaffiliates of
the Registrant is none as of March 31, 1997.
1,000
( Number of Shares of common stock outstanding as of May 30, 1997)
PART I
Item 1. Business.
General Development of Business. Trinity Industries Leasing Company,
(the "Registrant") was incorporated under the laws of the State of Texas in
1979. On April 4, 1988, the Registrant reorganized as a Delaware
corporation by Registrant's merger into a wholly-owned subsidiary of the
same name.
Narrative Description of Business and Financial Information About
Industry Segments. The Registrant is engaged in the business of leasing
specialized types of railcars, consisting of both tank railcars and hopper
railcars and the leasing of liquefied petroleum gas ("LPG") tanks, (the
"Equipment"). The revenues and profits from LPG tank leases are not
significant to the operations of the Registrant and are included in the
Railcar Leasing segment for reporting purposes. At March 31, 1997, the
Registrant had under lease 10,405 railcars, including 5,932 tank cars and
4,473 hopper cars. Included in railcars under lease are 3,163 railcars
(2,128 tank cars and 1,035 hopper cars) that are owned by third parties and
subleased to the Registrant's customers. Substantially all of the
Equipment is manufactured by the Registrant's parent company, Trinity
Industries, Inc. ("Trinity").
In addition to the overall condition of the United States economy, the
volume of Equipment purchased and leased by the Registrant depends upon a
number of factors, including the demand for Equipment manufactured by
Trinity, the cost and availability of funds to finance the purchase of
Equipment, Trinity's decisions to solicit orders for the purchase or lease
of Equipment and factors which may affect the decisions of Trinity's
customers to purchase or lease Equipment.
Both the decision by Trinity regarding whether to solicit orders from
customers for the purchase or lease of Equipment and the customer's
decision regarding whether to buy or lease the Equipment are influenced by
the relative abilities of Trinity (on a total enterprise basis) and the
customer to realize the benefit of accelerated tax depreciation associated
with ownership of the Equipment. The decision is also influenced by the
relative costs of funds to Trinity (on a total enterprise basis) and to the
customer to finance the purchase of the Equipment and the relative
perceptions by Trinity and the customer of the residual value of the
Equipment at the end of the lease term.
Other significant factors which may affect the decision of Trinity's
customers whether to lease or buy Equipment include the willingness of the
customer to commit its resources to finance the acquisition of the
Equipment and whether the customer expects that its need for the Equipment
will be short-term or long-term, which may be affected by the nature of its
industry.
Additional information concerning the Registrant's business and
financial information about industry segments is contained in this report
under Item 7 "Management's Discussion and Analysis of Financial Condition
and Results of Operations" on pages 5 through 7 and in the Financial
Statements and Notes to Financial Statements on pages 9 through 14.
Types of Leases. The Registrant primarily enters into operating
leases. The Registrant records its cost as an investment in the Equipment
leased. Depreciation expense is provided for financial reporting purposes
on the straight-line method over the estimated useful life of the
Equipment. For federal income tax purposes, depreciation expense is
provided using accelerated methods.
Operating leases may be either "full service" or "net" leases. Under
full service leases, the Registrant is responsible for the maintenance and
repair of the Equipment, modifications required to meet governmental or
industry safety or other standards, the costs of insuring the Equipment,
and ad valorem and other taxes. Under full service leases, the Registrant
bears the risk of an uninsured loss of the Equipment. Under net leases,
these matters are the responsibility of the lessee.
Railcar Leasing. The Registrant's railcars are leased to industrial
companies in the petroleum, chemical, grain, food processing, fertilizer,
coal, plastic pellet, and other industries which supply their own railcars
to the railroads. The practice of United States railroads using
privately-owned railcars developed because many types of commodity
shipments were best handled in specialized railcars. The railroads either
did not or were not in a position to supply these specialized railcars to
shippers, and railcar leasing companies have come into existence as a
result. Federal laws and regulations provide that it is the duty of common
carrier railroads to furnish such railcars as may be reasonably necessary
for the transportation of all commodities they hold themselves out as
carrying, except that they have no obligation to supply tank railcars and
no right to exclude tank railcars provided to shippers for loading on the
railroads' lines. Railroads also have the exclusive right to furnish
railcars other than tank railcars. Use of other privately-owned railcars
is, therefore, optional with the railroads, and they are not required to
use them if they are able to furnish railcars of their own. The approval
of the railroad on which privately-owned railcars (other than tank
railcars) are to be used is required before such railcars may be placed in
service or assigned to handle traffic. The approval, known as OT-5, is
obtained fairly easily in periods of railcar shortages, but in periods of
oversupply, railroads may cancel OT-5 approvals or decline to grant new
approvals.
<TABLE>
The number of railcars purchased in each of the last five fiscal years
and all railcars purchased as a group prior to fiscal 1993 with the
remaining economic life of the railcars in the lease fleet are detailed
below. The remaining economic life for railcars purchased prior to fiscal
1993 is based on a weighted average. Some prior year totals have been
adjusted to more accurately reflect amounts presented in the fiscal 1997
report.
<CAPTION> Prior to
Year of purchase 1997 1996 1995 1994 1993 1993
<S> <C> <C> <C> <C> <C> <C>
Tank Cars 283 171 177 150 600 2,423
Remaining economic life 30 29 28 27 26 21
Hopper Cars 1,581 882 110 169 266 429
Remaining economic life 25 24 23 22 21 19
</TABLE>
The terms of the Registrant's railcar leases predominantly vary from one
to fifteen years and provide for fixed monthly rentals, with an additional
mileage charge when usage exceeds a specified maximum. The average
remaining lease term for the fleet is approximately 5.4 years. Under full
service leases, if the Registrant makes a modification required by
governmental or industry standards, the monthly car rental is increased
on the basis of a prescribed formula.
The Registrant has the responsibility for maintaining its railcars in
good condition and repair in accordance with the interchange rules of the
Association of American Railroads ("AAR"). The AAR rules governing
railroad equipment require the railroads to be responsible for the
condition of railcars traveling on their lines and, accordingly, the
railroads are entitled to make all repairs on such railcars. The cost of
repairs is governed by AAR guidelines. Although most railroads generally
have the capability to make repairs, they usually prefer to limit their
involvement to routine maintenance. If a railroad chooses not to repair a
car, the Registrant is notified and makes arrangements for one of its
facilities or another private maintenance facility to perform the necessary
repairs. Written estimates are required from all repair facilities prior
to the repair being performed.
Maintenance and repair of new railcars are normally minor in nature and
cost. Typical repairs include replacement of brake shoes, repairs of
safety equipment, testing of air brake equipment and replacement of
wheels. As the railcars age, the frequency of repair and maintenance and
the associated expenses normally increase. Most maintenance and repair
expenses are a result of a combination of circumstances, including the
number of miles traveled, condition of railroad tracks traveled, condition
of the roadbed, terrain traveled, weight, nature and balance of cargo,
train handling (including speed and coupling procedures) and loading and
unloading methods. As the railcars age, increased maintenance and repair
expenses may have an effect on the Registrant's results of operations.
Marketing. The Registrant generates its railcar leases through
employees of Trinity who are employed to sell or lease railcars. Proposals
are submitted to prospective customers on a basis which permits the
customer to either purchase or lease the railcars.
In addition to the railcar marketing personnel, Trinity employs customer
service, fleet management and accounting personnel on behalf of the
Registrant.
Competition. The businesses in which the Registrant is engaged are
highly competitive, and there are a number of well-established companies
which actively compete with the Registrant in the business of owning and
leasing railcars. There are also a number of banks, investment
partnerships and other financial institutions which compete with the
Registrant in railcar leasing. The principal competitive factors in
leasing railcars include price and other terms of the lease, proximity of
the manufacturing plant to the customer's loading point, quality of
equipment, and delivery time.
Regulations. The Registrant is not a common carrier and is not subject
to the comprehensive federal and state regulation of common carriers as to
rates and other matters. There are certain areas, however, in which the
Registrant's operations are or can be affected by governmental regulation
and by rules adopted as standards by the railroad industry.
To be eligible for operation on United States railroads, all railroad
freight railcars must be built to meet construction specifications and
standards of the AAR. In addition, all such railcars must meet certain
federal regulations with respect to safety appliances and features which
are promulgated and administered by the U.S. Department of Transportation
("DOT"). The manufacturer is obligated to make sure that its railcars meet
such requirements.
Operation of freight railcars in railroad interchange service is subject
to the AAR Interchange Rules. These rules prescribe mechanical, maintenance
and related standards and provide a method for placing responsibility for
maintenance and repair on all railcars operated in interchange between
railroads. Under its full-service leases, the Registrant is responsible for
meeting the maintenance and repair standards of the AAR Interchange Rules.
Operation and maintenance of freight railcars are also subject to
federal regulation by DOT under the Federal Railroad Safety Act. DOT may
periodically require modifications to existing railcars for safety reasons.
Relationship of the Registrant with Trinity. The Registrant's business
consists principally of leasing Equipment purchased from Trinity. Such
Equipment is purchased at prices comparable to the prices for Equipment
sold by Trinity to third parties. The determination of the price to be
paid to Trinity is made by the Registrant's officers, all of whom are also
officers of Trinity.
Although Trinity is not contractually obligated to offer to the
Registrant Equipment proposed to be leased by Trinity's customers, it is
Trinity's intention to effect all such leasing transactions through the
Registrant. Similarly, while the Registrant is not contractually obligated
to purchase from Trinity any Equipment proposed to be leased, the
Registrant intends to purchase and lease all Equipment which Trinity's
customers desire to lease when the lease rentals and other terms of the
proposed lease are satisfactory to the Registrant, subject to the
availability and cost of funds to finance the acquisition of the Equipment.
Trinity has entered into an agreement (the "Fixed Charges Coverage
Agreement") with the Registrant whereby Trinity is obligated to make such
payments to the Registrant as may be required to maintain the Registrant's
net earnings available for fixed charges (as defined) at an amount equal to
not less than one and one-half times the fixed charges (as defined) of the
Registrant. The Fixed Charges Coverage Agreement will terminate in
accordance with its terms at such time as the Registrant shall have
delivered a certificate of its certified public accountants demonstrating
that net earnings available for fixed charges, without considering any
payments by Trinity, have been not less than 1.5 times fixed charges in
each of the five then most recently completed fiscal years; provided that
the Registrant and Trinity may agree in connection with "Future Financing
Agreements" to maintain the Fixed Charges Coverage Agreement in force and
effect during the term of such "Future Financing Agreements." The Fixed
Charges Coverage Agreement also provides that neither Trinity nor the
Registrant will amend, modify or terminate or waive the observance of the
Fixed Charges Coverage Agreement without the prior written consent of the
holder of at least the requisite percentage of "Benefitted Holders" under
"Future Financing Agreements". The Fixed Charges Coverage Agreement
further provides that the holders of any other indebtedness incurred by
the Registrant under any agreement designated by the Registrant as a
"Future Financing Agreement" may be designated, with the acceptance of
Trinity, "Benefitted Holders". Any Benefitted Holder may enforce the Fixed
Charges Coverage Agreement directly against Trinity.
The holders of the 11.55% Equipment Trust Certificates due November 30,
1997, the holders of the 8.75% Equipment Trust Certificates due March 31,
1999, the holders of 10.25% Equipment Trust Certificates due January 31,
2000, the holders of the 10.2% Equipment Trust Certificates due October 31,
1998, the holders of the 9.44% Equipment Trust Certificates due September
3, 2001, the holders of the 8.24% Equipment Trust Certificates due June 30,
2002, the holders of the 7.65% Equipment Trust Certificates due December
31, 2002, the holders of the 6.96% Equipment Trust Certificates due June
24, 2003, the Trustee in the Leveraged Lease financing dated as of April 1,
1985, and Greyhound Leasing and Financial Corp. and CIT Group/Equipment
Financing, Inc. (Lessors in two investment leases) and Pitney Bowes Credit
Corp. (Lessor in three investment leases) have been designated "Benefitted
Holders," and the requisite percentage of the holders of such Certificates
for the aforementioned consent is 66 2/3%.
Under a tax allocation agreement between Trinity and its subsidiaries, a
consolidated federal income tax return is filed by the group, and it is
agreed that each subsidiary will pay to Trinity an amount equal to its
proportionate share of the consolidated federal income tax liability of the
group, but not in excess of the amount that the subsidiary would pay if it
were filing a separate federal income tax return. Similarly, if there is a
tax benefit by virtue of a net operating loss, the entity to which such
benefit is attributable is entitled to receive from all the other entities
payment of an amount equal to the tax benefit within 90 days after the end
of the applicable taxable year. Additionally, if Trinity is not able to
fully recognize the benefit of a consolidated net operating loss, each
entity contributing to the net operating loss will receive its
proportionate share of the tax benefit recognized by Trinity.
The Registrant has an arrangement with Trinity whereby it pays Trinity
for furnishing certain staff functions, including financial and data
processing services. In addition, marketing and primary administration are
provided by employees of Trinity. Such payments are based on Trinity's
cost of providing such services, including allocation of overhead.
Employees. At March 31, 1997, approximately 25 persons participated in
the Registrant's operations, all of whom were employees of Trinity.
Item 2. Properties.
The Registrant owns no significant physical properties other than the
Equipment it leases. All office space and equipment necessary to the
Registrant's business are provided by Trinity.
Item 3. Legal Proceedings.
The Registrant is involved in various claims and lawsuits incidental to
its business. In the opinion of management, these claims and suits in the
aggregate will not have a material adverse effect on the Registrant's
financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 1997.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
All of the issued and outstanding shares of common stock of the
Registrant are owned by Trinity Industries, Inc. and are not traded on any
exchange or otherwise. No dividends were declared or paid during the last
two fiscal years.
<TABLE>
Item 6. Selected Financial Data.
(in millions)
<CAPTION>
Year Ended March 31
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Operating results:
Revenues. . . . . . . . . . . . $106.1 $135.4 $156.9 $104.6 $ 79.6
Income maintenance fees
from Trinity . . . . . . . . . $ - $ - $ - $ - $ 1.4
Net income. . . . . . . . . . . $ 17.7 $ 20.7 $ 20.8 $ 19.1 $ 11.7
At year-end:
Total assets. . . . . . . . . . $437.1 $442.7 $471.9 $495.1 $490.6
Total long-term debt
and obligation under
capital lease. . . . . . . . . $143.4 $168.8 $205.2 $236.0 $244.0
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Financial Condition. The increase in Equipment on Lease at March 31,
1997 compared to March 31, 1996 is the result of the purchase of 1,864
railcars, partially offset by the sale or destruction of 1,081 railcars.
The railcars sold were older cars with an average age of approximately 7.7
years. The decrease in 'Note receivable from Trinity' at March 31, 1997
compared to March 31, 1996 is due principally to equipment purchases and
debt payments partially offset by proceeds from railcar sales. The
decrease in 'Long-term debt' at March 31, 1997 compared to March 31, 1996
is due to scheduled principal payments.
Operations. The decrease in revenues in fiscal 1997 compared to fiscal
1996 is due principally to higher levels of sales of selected railcar types
previously held for lease in fiscal 1996. The decrease in revenues in
fiscal 1996 compared to fiscal 1995 is due principally to the sale of the
barge fleet in fiscal 1995. Changes in operating profit were caused by
the same factors.
Revenue data on the average number of railcars and barges owned during
the last five fiscal years is shown below. Revenue data below excludes
proceeds from the sale of railcars and barges, and lease revenues from
railcars not owned by the Registrant.
Year Ended March 31
1997 1996 1995 1994 1993
Average railcars owned 6,683 6,582 7,783 8,589 8,064
Average revenue per railcar $7,018 $6,898 $6,412 $6,578 $6,164
Average barges owned - - 219 219 220
Average revenue per barge $ - $ - $92,817 $84,475 $102,272
Interest income decreased in fiscal 1997 compared to fiscal 1996 due to a
decrease in the average outstanding Note Receivable from Trinity. Interest
income increased in fiscal 1996 compared to fiscal 1995 due to increase in
the average outstanding Note Receivable from Trinity. The provision
for income taxes was 35.0% in fiscal years 1997, 1996, and 1995. (See
Income Taxes in Notes to Financial Statements). Liquidity and Financial
Resources. Liquidity for the leasing business differs significantly from
that of industrial companies. Inflows of cash including lease and rental
revenue, investment income and other income, and outflows of cash,
including interest, maintenance, insurance and other operating expenses are
reasonably determinable. Generally, excluding acquisition of Equipment for
lease, sufficient funds are generated from operations to meet liquidity
requirements. Sources of funds are principally from operations, borrowings
and when required, quarterly payments from Trinity under the Fixed Charges
Coverage Agreement. To the extent that funds generated from operations
cannot provide adequate funds for investment in new assets for lease
objectives or the timing of funds cannot be satisfactorily matched,
external short-term or long-term financing may be required. In fiscal
1997, the combination of net cash provided by operating activities ($32.5
million) and net cash provided by financing activities ($39.7 million) were
required to fund investing activities ($77.4 million). Short-term
financing for working capital and to temporarily finance additional
Equipment purchases is generally available from Trinity or from lines of
credit from banks. Capital resources represent those funds available for
long- term financing and major business commitments of the Registrant. For
a leasing company, the capital assets available for lease are the principal
resource of the business. For a leasing company to expand and grow, it is
necessary to purchase additional capital assets.
The average age of the Registrant's railcar fleet is approximately 4.2
years. The average economic life of the fleet is expected to be twenty
five to thirty years. As the railcars age, increased maintenance and
repair expenses may have an effect on the Registrant's results of
operations. Capital expenditures for fiscal 1997 were $129.0 million.
Capital expenditures projected for fiscal 1998 are approximately $64.3
million. Long-term financing needs have been and are expected to be met
through the issuance of equipment trust certificates, and from time to
time, the public offering of debt securities.
The volume of Equipment purchased and leased by the Registrant is
affected by the ability of the Registrant to obtain long-term external
financing at satisfactory rates and on satisfactory terms and conditions.
If the Registrant is unable to obtain satisfactory long-term financing from
third parties, it is likely that the only other source of external funds
available to the Registrant would be borrowings from Trinity. The
Registrant was formed in large part to provide a vehicle to obtain
financing for the lease of Equipment independent of Trinity. The need for
Trinity to finance the Registrant's acquisition of Equipment may make it
less desirable for Trinity to offer its customers the option of leasing
rather than purchasing Equipment, and it may be expected that Trinity will
be willing to provide only a limited amount of funds to the Registrant to
meet the Registrant's financing requirements, except on an interim basis.
The Registrant's results of operations in future periods will be affected
by the volume of Equipment purchased and leased.
Inflation. Changes in price levels did not significantly affect the
Registrant's operation in fiscal 1997, 1996, or 1995.
Item 8. Financial Statements and Supplementary Data.
Page
Report of independent auditors. . . . . . . . . . . . . 8
Balance sheets. . . . . . . . . . . . . . . . . . . . . 9
Statements of income and retained earnings . . . . . . 10
Statements of cash flows. . . . . . . . . . . . . . . . 11
Notes to financial statements . . . . . . . . . . . . . 12
Report of Independent Auditors
Board of Directors
Trinity Industries Leasing Company
We have audited the accompanying balance sheets of Trinity Industries
Leasing Company as of March 31, 1997 and 1996, and the related statements
of income and retained earnings and cash flows for each of the three years
in the period ended March 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Trinity Industries
Leasing Company as of March 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period
ended March 31, 1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Dallas, Texas
May 6, 1997
Trinity Industries Leasing Company
Balance Sheets
(in millions except share data)
March 31
1997 1996
Assets
Cash and cash equivalents. . . . . . . . . . $ 0.1 $ 5.3
Note receivable from Trinity . . . . . . . . 43.4 108.5
Equipment on lease (predominantly
long-term), at cost . . . . . . . . . . . . 454.1 391.6
Less accumulated depreciation. . . . . . . . (70.6) (70.2)
Other assets . . . . . . . . . . . . . . . . 10.1 7.5
$437.1 $442.7
Liabilities and Stockholder's Equity
Accounts payable and accrued liabilities . . $ 8.8 $ 9.7
Long-term debt . . . . . . . . . . . . . . . 143.4 168.8
Deferred federal income tax. . . . . . . . . 68.4 64.9
Other liabilities. . . . . . . . . . . . . . 2.4 2.9
223.0 246.3
Stockholder's equity:
Common stock $1.00 par; authorized
10,000 shares; issued 1,000
shares at March 31, 1997 and
1996, respectively . . . . . . . . . . . . - -
Additional paid-in capital . . . . . . . . 19.3 19.3
Retained earnings. . . . . . . . . . . . . 194.8 177.1
214.1 196.4
$437.1 $442.7
See accompanying notes to financial statements.
Trinity Industries Leasing Company
Statements of Income
and Retained Earnings
(in millions)
Year Ended March 31
1997 1996 1995
Revenues . . . . . . . . . . . . . . . $106.1 $135.4 $156.9
Cost of revenues . . . . . . . . . . . 69.6 94.4 112.2
Operating profit. . . . . . . . . . . . 36.5 41.0 44.7
Other (income)expenses:
Interest income (including $6.9,$11.2,
and $8.1 from Trinity in 1997, 1996,
and 1995, respectively) . . . . . . . (7.3) (11.4) (8.2)
Interest expense . . . . . . . . . . . 14.6 17.6 21.1
Other, net . . . . . . . . . . . . . . 1.9 2.9 (0.2)
9.2 9.1 12.7
Income before income taxes. . . . . . . 27.3 31.9 32.0
Provision (benefit) for income taxes:
Current. . . . . . . . . . . . . . . . 6.0 24.6 28.7
Deferred . . . . . . . . . . . . . . . 3.6 (13.4) (17.5)
9.6 11.2 11.2
Net income . . . . . . . . . . . . . . 17.7 20.7 20.8
Retained earnings at beginning of year. 177.1 156.4 135.6
Retained earnings at end of year. . . . $194.8 $177.1 $156.4
See accompanying notes to financial statements.
Trinity Industries Leasing Company
Statements of Cash Flows
(in millions)
Year Ended March 31
1997 1996 1995
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . $ 17.7 $ 20.7 $ 20.8
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization . . . 18.8 18.1 21.1
Deferred provision (benefit) for
federal income tax . . . . . . . . 3.6 (13.4) (17.5)
Gain on sale of equipment . . . . . (4.7) (10.2) (8.1)
Other . . . . . . . . . . . . . . . 1.1 1.1 0.1
Changes in assets and liabilities:
(Increase) decrease in other
assets . . . . . . . . . . . . . (2.6) (1.2) 1.7
Increase (decrease) in accounts
payable and accrued liabilities . (0.9) 0.7 5.1
Decrease in other liabilities. . . (0.5) (0.9) (0.7)
Total adjustments. . . . . . . . 14.8 (5.8) 1.7
Net cash provided by operating
activities . . . . . . . . . . . . 32.5 14.9 22.5
Cash flows from investing activities:
Proceeds from sale of equipment. . . . 51.6 91.3 76.1
Capital expenditures . . . . . . . . . (129.0) (86.1) (28.7)
Net cash provided (required) by
investing activities . . . . . (77.4) 5.2 47.4
Cash flows from financing activities:
(Increase) decrease in note receivable
from Trinity. . . . . . . . . . . . . 65.1 21.4 (39.1)
Payments to retire long-term debt. . . (24.4) (35.5) (29.9)
Decrease in long-term obligation
under capital lease . . . . . . . . . (1.0) (0.9) (0.9)
Net cash provided (required)
by financing activities. . . . . . 39.7 (15.0) (69.9)
Net increase (decrease) in
cash and cash equivalents . . . . . . (5.2) 5.1 -
Cash and cash equivalents at
beginning of year. . . . . . . . . . . 5.3 0.2 0.2
Cash and cash equivalents at
end of year. . . . . . . . . . . . . . $ 0.1 $ 5.3 $ 0.2
See accompanying notes to financial statements.
Trinity Industries Leasing Company
Notes to Financial Statements
March 31, 1997, 1996, 1995
Summary of Significant Accounting Policies and Basis of Presentation
(in millions)
The Registrant purchases equipment manufactured by Trinity, of which the
Registrant is a wholly- owned subsidiary, at market prices and leases the
equipment to third parties. In addition, Trinity performs certain repairs
and maintenance for the Registrant's equipment on lease. Costs and
expenses include amounts paid or accrued to Trinity for repairs and
maintenance of $0.2, $0.9, and $0.9, in fiscal 1997, 1996 and 1995,
respectively. As described further in Income Taxes and Long-Term Debt, the
Registrant has transactions with Trinity which are recorded on the bases
determined by the parties.
For purposes of the Statement of Cash Flows, the Registrant considers
all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
The Registrant enters into predominantly long-term lease contracts with
third parties wherein the equipment is leased for a specified type of
service over the term of the contract. The Registrant primarily enters
into operating leases. Generally, lease contracts have terms of one to
fifteen years. Future minimum rentals on operating leases in each of the
following five fiscal years are approximately $59.1 in 1998, $49.4 in 1999,
$41.7 in 2000, $34.3 in 2001,$29.7 in 2002 and $120.1 in the aggregate.
The Registrant has future lease commitments of approximately $7.7 in
1998, $7.5 in 1999, $8.2 in fiscal 2000 and 2001, $7.9 in 2002 and $71.1
in the aggregate under six operating leases and one capital lease. The
railcars are leased by the Registrant to established lessees under normal
leasing arrangements.
Depreciation expense is provided for financial reporting by the
straight-line method over the estimated useful lives of the assets ranging
from twenty five to thirty years. For federal income tax purposes,
depreciation expense is provided using accelerated methods. Ordinary
maintenance and repairs are charged to expense in the period incurred.
Under arrangements between the Registrant and Trinity, Trinity provides
to or receives from the Registrant financing, with interest at market
rates. The note receivable from Trinity is dated March 1, 1994 and will
mature in fiscal 2001. The interest rate on the note at March 31, 1997 is
currently 7.50 percent. The note is not collateralized.
In fiscal 1997, the Registrant adopted Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of, which did not have a material
impact on the assets of the Registrant.
Certain reclassifications have been made to prior year statements to
conform to the current year presentation.
Income Taxes
(in millions)
The Registrant is included in the consolidated federal income tax return
of Trinity. Trinity reimburses or charges the Registrant for current
income tax benefits or expenses incurred from inclusion of the Registrant
in Trinity's consolidated federal income tax return. The provision for
income taxes reflected in the Statement of Income and Retained Earnings
approximates the provision as if calculated on a separate return basis.
Deferred taxes are provided for temporary differences, principally
depreciation, between financial and tax reporting.
The net deferred tax liability at March 31, 1997 is $68.4 million and
is comprised primarily of tax over book depreciation. All other items are
not material.
<TABLE>
Long-term Debt
(in millions)
<CAPTION>
March 31
1997 1996
<S> <C> <C>
6.96 - 11.55 percent equipment trust certificates to
institutional investors, generally payable in semi-annual
installments of varying amounts through 2003 . . . . . . . . $133.8 $158.1
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 9.6 10.7
$143.4 $168.8
</TABLE>
The equipment trust agreements contain provisions which, among other
things, prohibit the Registrant from incurring funded indebtedness, as
defined, if, after giving effect to the funded indebtedness proposed, the
total funded indebtedness of the Registrant would then exceed eighty
percent of the total capitalization, as defined, of the Registrant. Titles
to railcars with a cost of $303.8 at March 31, 1997 have been assigned for
the life of the respective equipment trusts to the trustees of the
equipment trusts. Leases relating to such railcars financed by equipment
trust certificates have been assigned as collateral.
Trinity is required to pay fees to the Registrant quarterly to maintain
net earnings, as defined, at specified levels.
Interest of $15.0, $18.3, and $21.6 was paid by the Registrant in
fiscal 1997, 1996, and 1995, respectively.
Principal payments due during each of the next five fiscal years are:
1998 - $26.3; 1999 - $26.1; 2000 - $23.9; 2001 - $23.1; and 2002 - $23.8.
The fair value of non-traded, fixed rate outstanding debt, estimated
using discounted cash flow analysis, approximates its carrying value.
Segment Information
The Registrant is engaged in the business of (1) leasing specialized
types of railcars ("Railcar Leasing"); and (2) the leasing of liquefied
petroleum gas ("LPG") tanks. The revenues and profits from LPG tank leases
are not significant to the operations of the Registrant and are included in
the Railcar Leasing segment for reporting purposes. Corporate assets
consist primarily of cash and cash equivalents and note receivable from
Trinity.
The Railcar operations include revenues from one customer which accounted
for 50% of consolidated revenues in fiscal 1996.
Financial information for these segments is summarized in the following
table. The Registrant operates principally in the continental United
States.
Segments of Business Railcar Corporate
(in millions) Leasing Items Total
Year ended March 31, 1997
Revenues . . . . . . . . . . . $106.1 - 106.1
Operating profit . . . . . . . $ 36.5 - 36.5
Identifiable assets. . . . . . $375.7 61.4 437.1
Depreciation . . . . . . . . . $ 18.8 - 18.8
Additions (net) to equipment . $ 82.0 - 82.0
Segments of Business Railcar Corporate
(in millions) Leasing Items Total
Year ended March 31, 1996
Revenues . . . . . . . . . . . $135.4 - 135.4
Operating profit . . . . . . . $ 41.0 - 41.0
Identifiable assets. . . . . . $312.5 130.2 442.7
Depreciation . . . . . . . . . $ 18.1 - 18.1
Additions (net) to equipment . $ 4.7 - 4.7
Segments of Business Railcar Barge Corporate
(in millions) Leasing Operations Items Total
Year ended March 31, 1995
Revenues . . . . . . . . . . . $104.8 52.1 - 156.9
Operating profit . . . . . . . $ 41.5 3.2 - 44.7
Identifiable assets. . . . . . $325.5 - 146.4 471.9
Depreciation . . . . . . . . . $ 18.1 2.1 - 20.2
Additions (net) to equipment . $ (8.6) (30.7) - (39.3)
Item 9. Disagreements on Accounting Financial Disclosure.
No disclosure required.
Subsequent Event
The Registrant filed Form 15 with the Securities and Exchange Commission
to terminate its registration.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Registrant has three directors, all of whom are also executive
officers of the Registrant. Mr. W. Ray Wallace became director at the time
of the organization of the Registrant. Mr. F. Dean Phelps, Jr. became a
director on May 31, 1986. Mr. John T. Sanford became a director in
February 1996.
The following table sets forth the names and ages of, and the positions
and offices with the Registrant presently held by, all executive officers
of the Registrant:
Name Age Office Principal Occupation
W. Ray Wallace 74 President & President and Chief
Director Executive Officer of
Trinity since 1958
John T. Sanford 45 Senior Vice Executive Vice President,
President and Senior Vice President or
Director Group Vice President of
Trinity since 1993
F. Dean Phelps, Jr. 53 Vice President Vice President
and Director or Controller of
Trinity since 1979
John M. Lee 36 Vice President Vice President of
Trinity since 1994
Neil O. Shoop 53 Treasurer Treasurer
or Assistant Treasurer
of Trinity since 1979
J. J. French, Jr. 66 Secretary Attorney, Joe French &
Associates (a Professional
Corporation)
Mr. Lee joined the Registrant in 1994. For at least five years prior
thereto, Mr. Lee was a manager for a national public accounting firm.
Mr. French, an attorney, is President of Joe French & Associates (a
Professional Corporation). For at least five years prior thereto, Mr.
French was employed by Locke Purnell Rain Harrell (a Professional
Corporation). <PAGE>
Item 11. Executive Compensation.
All of the officers and directors of the Registrant are employees of
Trinity except Mr. French, an attorney who is President of Joe French &
Associates (A Professional Corporation). The Registrant does not pay
remuneration and/or provide other benefits to its officers and directors in
addition to the remuneration and benefits they receive from Trinity.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The Registrant is a wholly-owned subsidiary of Trinity. No officers or
directors of the Registrant have beneficial ownership of the common stock
nor an option or other right to acquire the common stock of the Registrant.
Item 13. Certain Relationships and Related Transactions.
Mr. J. J. French, Jr., Secretary of the Registrant, is President and
Owner of Joe French & Associates (a Professional
Corporation).
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1 & 2 Financial statements and financial statement schedules.
The financial statements listed in the
accompanying index to financial statements
are filed as part of this annual report.
3 Exhibits.
The exhibits listed on the accompanying index
to exhibits are filed as part of this annual report.
(b) Reports on Form 8-K
No Form 8-K was filed during the fourth
quarter of fiscal 1997.
Trinity Industries Leasing Company
Index to Financial Statements
(Item 14(a))
Page
Balance sheets at March 31, 1997 and 1996 . . . . . . . . 9
For each of the three years in the period ended
March 31, 1997:
Statements of income and retained earnings . . . . . . . 10
Statements of cash flows . . . . . . . . . . . . . . . . 11
Notes to financial statements . . . . . . . . . . . . . . 12
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of
the schedule or because the information required is
included in the financial statements and notes thereto.
<PAGE>
Trinity Industries Leasing Company
Index to Exhibits
(Item 14(a))
NO. DESCRIPTION PAGE
(3.1) Articles of Incorporation of Registrant
(incorporated by reference to Exhibit 3.1
to Registration Statement No. 2-70378 filed
January 29, 1981). *
(3.2) By-Laws of Registrant (incorporated by
reference to Exhibit 3.2 to Registration
Statement No. 2-70378 filed January 29, 1981). *
(10.1) Fixed Charges Coverage Agreement dated as
of January 15, 1980, between Registrant and
Trinity Industries, Inc. (incorporated by
reference to Exhibit 10.1 to Registration
Statement No. 2-70378 filed January 29,
1981). *
(10.2) Tax Allocation Agreement dated as of
January 22, 1980 between Registrant and
Trinity Industries, Inc. (incorporated by
reference to Exhibit 10.2 to Registration
Statement No. 2-70378 filed January 29,
1981). *
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Trinity Industries Leasing Company
Registrant
By: F. Dean Phelps, Jr.
F. Dean Phelps, Jr.
Vice President
August 18, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons of the Registrant and
in the capacities and on the dates indicated:
W. Ray Wallace
W. Ray Wallace
President and Director
Principal Executive Officer
August 18, 1997
John T. Sanford
John T. Sanford
Senior Vice President and Director
Principal Financial Officer
August 18, 1997
John M. Lee
John M. Lee
Vice President
Principal Accounting Officer
August 18, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 100,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 454,100,000
<DEPRECIATION> (70,600,000)
<TOTAL-ASSETS> 437,100,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 1,000
0
0
<OTHER-SE> 214,100,000
<TOTAL-LIABILITY-AND-EQUITY> 437,100,000
<SALES> 0
<TOTAL-REVENUES> 106,100,000
<CGS> 0
<TOTAL-COSTS> 69,600,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,600,000
<INCOME-PRETAX> 27,300,000
<INCOME-TAX> 9,600,000
<INCOME-CONTINUING> 17,700,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,700,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
