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Section 1: 10-Q (10-Q)

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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, 2018
 
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 1-6903
395482253_trnlogoverticalhrblac.jpg
(Exact name of registrant as specified in its charter)

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

(214) 631-4420
(Registrant's telephone number, including area code)
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 (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ  No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes þ   No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer ¨ Non-accelerated filer ¨
Smaller reporting company ¨ Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨ No þ
At October 17, 2018 the number of shares of common stock outstanding was 146,298,614.




TRINITY INDUSTRIES, INC.
FORM 10-Q
TABLE OF CONTENTS
 
Caption
Page
 
 
 
 
 
 
 
 
 
 
CERTIFICATIONS
 




2

Table of Contents

PART I
Item 1. Financial Statements
Trinity Industries, Inc. and Subsidiaries
Consolidated Statements of Operations
(unaudited)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
 
(in millions, except per share amounts)
Revenues:
 
 
 
 
 
 
 
Manufacturing
$
703.7

 
$
698.7

 
$
2,089.8

 
$
2,111.0

Leasing
227.2

 
274.9

 
614.7

 
645.4

 
930.9

 
973.6

 
2,704.5

 
2,756.4

Operating costs:
 
 
 
 
 
 
 
Cost of revenues:
 
 
 
 
 
 
 
Manufacturing
619.0

 
566.1

 
1,755.3

 
1,732.8

Leasing
133.0

 
156.6

 
344.9

 
332.4

 
752.0

 
722.7

 
2,100.2

 
2,065.2

Selling, engineering, and administrative expenses:
 
 
 
 
 
 
 
Manufacturing
57.6

 
59.2

 
165.2

 
177.3

Leasing
11.9

 
14.0

 
36.7

 
37.9

Other
41.6

 
41.4

 
124.5

 
114.9

 
111.1

 
114.6

 
326.4

 
330.1

Gains (losses) on dispositions of property:
 
 
 
 
 
 
 
Net gains on railcar lease fleet sales owned more than one year at the time of sale
9.4

 
16.5

 
21.0

 
40.2

Other
1.7

 
(0.4
)
 
4.1

 
1.6

 
11.1

 
16.1

 
25.1

 
41.8

Total operating profit
78.9

 
152.4

 
303.0

 
402.9

Other (income) expense:
 
 
 
 
 
 
 
Interest income
(2.4
)
 
(3.1
)
 
(10.0
)
 
(7.1
)
Interest expense
42.8

 
46.8

 
132.9

 
137.5

Other, net
(0.5
)
 
1.1

 
(1.4
)
 
1.1

 
39.9

 
44.8

 
121.5

 
131.5

Income before income taxes
39.0

 
107.6

 
181.5

 
271.4

Provision for income taxes
10.7

 
39.7

 
46.1

 
97.8

Net income
28.3

 
67.9

 
135.4

 
173.6

Net income attributable to noncontrolling interest
0.6

 
1.0

 
3.4

 
9.6

Net income attributable to Trinity Industries, Inc.
$
27.7

 
$
66.9

 
$
132.0

 
$
164.0

 
 
 
 
 
 
 
 
Net income attributable to Trinity Industries, Inc. per common share:

 
 
 

 
 
Basic
$
0.19

 
$
0.44

 
$
0.89

 
$
1.08

Diluted
$
0.19

 
$
0.43

 
$
0.87

 
$
1.06

Weighted average number of shares outstanding:
 
 
 
 
 
 
 
Basic
145.0

 
148.0

 
146.1

 
148.6

Diluted
145.8

 
151.3

 
148.8

 
151.1

Dividends declared per common share
$
0.13

 
$
0.13

 
$
0.39

 
$
0.37

See accompanying notes to consolidated financial statements.

3

Table of Contents

Trinity Industries, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(unaudited)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
 
(in millions)
Net income
$
28.3

 
$
67.9

 
$
135.4

 
$
173.6

Other comprehensive income (loss):
 
 
 
 
 
 
 
Derivative financial instruments:
 
 
 
 
 
 
 
Unrealized gains (losses) arising during the period, net of tax expense (benefit) of $-, $(0.1), $-, and $(0.1)
0.2

 
(0.6
)
 
0.1

 
(0.8
)
Reclassification adjustments for losses included in net income, net of tax benefit of $0.2, $0.1, $0.1, and $0.4
0.4

 
1.0

 
1.7

 
3.2

Currency translation adjustment
0.5

 
0.8

 
(1.0
)
 
1.6

Defined benefit plans:
 
 
 
 
 
 
 
Amortization of net actuarial losses, net of tax benefit of $0.3, $0.5, $0.9, and $1.4
1.0

 
0.9

 
2.7

 
2.4

 
2.1

 
2.1

 
3.5

 
6.4

Comprehensive income
30.4

 
70.0

 
138.9

 
180.0

Less: comprehensive income attributable to noncontrolling interest
0.9

 
1.5

 
4.5

 
11.6

Comprehensive income attributable to Trinity Industries, Inc.
$
29.5

 
$
68.5

 
$
134.4

 
$
168.4

See accompanying notes to consolidated financial statements.

4

Table of Contents

Trinity Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
 
September 30,
2018
 
December 31,
2017
 
(unaudited)
 
 
 
(in millions)
ASSETS
 
 
 
Cash and cash equivalents
$
427.4

 
$
778.6

Short-term marketable securities

 
319.5

Receivables, net of allowance
396.2

 
369.7

Income tax receivable
46.3

 
29.0

Inventories:
 
 
 
Raw materials and supplies
376.6

 
296.7

Work in process
182.2

 
179.0

Finished goods
148.2

 
164.9

 
707.0

 
640.6

Restricted cash, including partially-owned subsidiaries of $38.6 and $62.9
138.5

 
195.2

Property, plant, and equipment, at cost, including partially-owned subsidiaries of $2,019.0 and $1,985.9
8,978.1

 
8,385.2

Less accumulated depreciation, including partially-owned subsidiaries of $458.2 and $418.0
(2,440.1
)
 
(2,250.5
)
 
6,538.0

 
6,134.7

Goodwill
787.8

 
780.3

Other assets
363.8

 
295.6

 
$
9,405.0

 
$
9,543.2

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Accounts payable
$
219.5

 
$
175.4

Accrued liabilities
411.0

 
440.0

Debt:
 
 
 
Recourse
424.2

 
866.8

Non-recourse:
 
 
 
Wholly-owned subsidiaries
1,531.0

 
1,024.8

Partially-owned subsidiaries
1,320.5

 
1,350.8

 
3,275.7

 
3,242.4

Deferred income
18.4

 
20.5

Deferred income taxes
755.9

 
743.2

Other liabilities
85.1

 
63.7

 
4,765.6

 
4,685.2

Stockholders’ equity:
 
 
 
Preferred stock – 1.5 shares authorized and unissued

 

Common stock – 400.0 shares authorized
1.5

 
1.6

Capital in excess of par value
250.2

 
482.5

Retained earnings
4,212.1

 
4,123.4

Accumulated other comprehensive loss
(121.1
)
 
(104.8
)
Treasury stock
(54.4
)
 
(1.6
)
 
4,288.3

 
4,501.1

Noncontrolling interest
351.1

 
356.9

 
4,639.4

 
4,858.0

 
$
9,405.0

 
$
9,543.2

See accompanying notes to consolidated financial statements.

5

Table of Contents

Trinity Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
 
Nine Months Ended
September 30,
 
2018
 
2017
 
(in millions)
Operating activities:

 

Net income
$
135.4

 
$
173.6

Adjustments to reconcile net income to net cash provided by operating activities:

 

Depreciation and amortization
234.0

 
220.7

Stock-based compensation expense
29.3

 
22.4

Provision for deferred income taxes
57.8

 
151.7

Net gains on railcar lease fleet sales owned more than one year at the time of sale
(21.0
)
 
(40.2
)
Gains on dispositions of property and other assets
(4.1
)
 
(1.6
)
Non-cash interest expense
15.0

 
24.1

Impairment of disposal group held for sale
24.8

 

Other
4.8

 
(0.6
)
Changes in assets and liabilities:

 

(Increase) decrease in receivables
(23.5
)
 
(94.3
)
(Increase) decrease in inventories
(110.1
)
 
10.6

(Increase) decrease in other assets
(57.1
)
 
(4.3
)
Increase (decrease) in accounts payable
45.9

 
38.4

Increase (decrease) in accrued liabilities
(14.7
)
 
12.5

Increase (decrease) in other liabilities
3.4

 
(24.8
)
Net cash provided by operating activities
319.9

 
488.2



 

Investing activities:

 

(Increase) decrease in short-term marketable securities
319.5

 
84.7

Proceeds from dispositions of property and other assets
11.8

 
8.1

Proceeds from railcar lease fleet sales owned more than one year at the time of sale
123.4

 
160.3

Capital expenditures – leasing, net of sold lease fleet railcars owned one year or less with a net cost of $63.2 and $74.3
(675.8
)
 
(360.4
)
Capital expenditures – manufacturing and other
(63.0
)
 
(61.9
)
Acquisitions, net of cash acquired
(25.0
)
 
(47.5
)
Other
(1.9
)
 
(0.3
)
Net cash required by investing activities
(311.0
)
 
(217.0
)


 

Financing activities:

 

Payments to retire debt
(739.0
)
 
(334.9
)
Proceeds from issuance of debt
561.3

 
534.1

Shares repurchased
(156.1
)
 
(52.4
)
Dividends paid to common shareholders
(58.1
)
 
(53.0
)
Purchase of shares to satisfy employee tax on vested stock
(11.5
)
 
(14.1
)
Distributions to noncontrolling interest
(10.3
)
 
(41.4
)
Other
(3.1
)
 
(0.1
)
Net cash (required) provided by financing activities
(416.8
)
 
38.2

Net (decrease) increase in cash, cash equivalents, and restricted cash
(407.9
)
 
309.4

Cash, cash equivalents, and restricted cash at beginning of period
973.8

 
741.6

Cash, cash equivalents, and restricted cash at end of period
$
565.9

 
$
1,051.0

See accompanying notes to consolidated financial statements.

6

Table of Contents

Trinity Industries, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
(unaudited)
 
 
Common
Stock
 
Capital in
Excess of
Par Value
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Treasury
Stock
 
Trinity
Stockholders’
Equity
 
Noncontrolling
Interest
 
Total
Stockholders’
Equity
 
 
Shares
 
$0.01 Par Value
 
 
 
 
Shares
 
Amount
 
 
 
 
 
(in millions, except par value)
Balances at
December 31, 2017
 
150.9

 
$
1.6

 
$
482.5

 
$
4,123.4

 
$
(104.8
)
 
(0.1
)
 
$
(1.6
)
 
$
4,501.1

 
$
356.9

 
$
4,858.0

Cumulative effect of adopting accounting standards (see Note 1)
 

 

 

 
14.7

 
(18.7
)
 

 

 
(4.0
)
 

 
(4.0
)
Net income
 

 

 

 
132.0

 

 

 

 
132.0

 
3.4

 
135.4

Other comprehensive income
 

 

 

 

 
2.4

 

 

 
2.4

 
1.1

 
3.5

Cash dividends on common stock
 

 

 

 
(58.0
)
 

 

 

 
(58.0
)
 

 
(58.0
)
Restricted shares, net
 
0.2

 

 
35.1

 

 

 
(0.5
)
 
(17.5
)
 
17.6

 

 
17.6

Shares repurchased
 

 

 

 

 

 
(4.3
)
 
(150.1
)
 
(150.1
)
 

 
(150.1
)
Stock options exercised
 

 

 
0.3

 

 

 

 

 
0.3

 

 
0.3

Distributions to noncontrolling interest
 

 

 

 

 

 

 

 

 
(10.3
)
 
(10.3
)
Retirement of treasury stock
 
(3.4
)
 

 
(114.8
)
 

 

 
3.4

 
114.8

 

 

 

Redemption of convertible subordinated notes (see Note 11)
 

 

 
(152.9
)
 

 

 

 

 
(152.9
)
 

 
(152.9
)
Other
 

 
(0.1
)
 

 

 

 

 

 
(0.1
)
 

 
(0.1
)
Balances at
September 30, 2018
 
147.7

 
$
1.5

 
$
250.2

 
$
4,212.1

 
$
(121.1
)
 
(1.5
)
 
$
(54.4
)
 
$
4,288.3

 
$
351.1

 
$
4,639.4

See accompanying notes to consolidated financial statements.

7

Table of Contents

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 its consolidated subsidiaries (“Trinity,” “Company,” “we,” or “our”) including the accounts of its wholly-owned subsidiaries and its partially-owned subsidiaries, TRIP Rail Holdings LLC (“TRIP Holdings”) and RIV 2013 Rail Holdings LLC ("RIV 2013"), in which the Company has a controlling interest. In our opinion, all normal and recurring adjustments necessary for a fair presentation of the financial position of the Company as of September 30, 2018, and the results of operations for the three and nine months ended September 30, 2018 and 2017, and cash flows for the nine months ended September 30, 2018 and 2017, have been made in conformity with generally accepted accounting principles. All significant intercompany accounts and transactions have been eliminated. Because of seasonal and other factors, the results of operations for the nine months ended September 30, 2018 may not be indicative of expected results of operations for the year ending December 31, 2018. 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, 2017.
Spin-off Transaction
In December 2017, the Company announced that its Board of Directors unanimously approved a plan to pursue a spin-off of the Company's infrastructure-related businesses to Trinity stockholders. The separation is planned as a tax-free spin-off transaction to the Company's stockholders for U.S. federal income tax purposes. The transaction will result in two separate public companies: (1) Trinity, the currently existing company, which will be comprised primarily of Trinity’s rail-related businesses and (2) Arcosa, Inc. ("Arcosa"), a new infrastructure company, focused on infrastructure-related products and services.
On September 25, 2018, Trinity’s Board of Directors formally approved the separation of its infrastructure-related businesses from Trinity through a distribution of all of the common stock of Arcosa held by Trinity to Trinity stockholders. In connection with the approval, the Board set the distribution ratio, record date, and distribution date for the separation. The distribution is expected to be made at 12:01 a.m. local New York City time on November 1, 2018 to Trinity stockholders of record as of 5:00 p.m. local New York City time on October 17, 2018, the record date for the distribution. On the distribution date, Trinity stockholders will receive one share of Arcosa common stock for every three shares of Trinity common stock held as of the record date. No fractional shares of Arcosa’s common stock will be distributed. Fractional shares of Arcosa’s common stock will be aggregated and sold on the open market, and the aggregate net proceeds of the sales will be distributed ratably in the form of cash payments to Trinity stockholders who would otherwise be entitled to receive a fractional share of Arcosa’s common stock.
The completion of the spin-off transaction is subject to the satisfaction or waiver of a number of conditions, including certain conditions described in the Information Statement included in Arcosa’s Form 10 filed with the Securities and Exchange Commission and in the form of the Separation and Distribution Agreement, which is filed as an exhibit to the Form 10. Trinity and Arcosa expect all conditions to the Arcosa distribution to be satisfied or waived on or before the distribution date. Following the distribution, Arcosa will be an independent, publicly-traded company on the New York Stock Exchange, and Trinity will retain no ownership interest in Arcosa. Upon completion of the spin-off transaction, Arcosa's results of operations will be presented as discontinued operations.
See information in Item 1A "Risk Factors"of our 2017 Annual Report on Form 10-K under the heading "Risks Related to the Proposed Spin-Off of our Infrastructure-Related Businesses" for a description of some of the risks and uncertainties associated with the proposed transaction.
Stockholders' Equity
In December 2017, the Company’s Board of Directors authorized a $500 million share repurchase program effective January 1, 2018 through December 31, 2019. Under the program, 1,356,484 and 4,327,158 shares, respectively, were repurchased during the three and nine months ended September 30, 2018, at a cost of approximately $50.0 million and $150.1 million, respectively, leaving a remaining authorization of $350.0 million. Certain shares of stock repurchased during December 2017, totaling $6.0 million, were cash settled in January 2018 in accordance with normal settlement practices. Under the Company's previous program that expired on December 31, 2017, 1,942,200 shares were repurchased during the nine months ended September 30, 2017, at a cost of approximately $52.4 million. There were no shares repurchased during the three months ended September 30, 2017.

8

Table of Contents

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. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. The following is a description of principal activities from which the Company generates its revenue, separated by reportable segments. Payments for our products and services are generally due within normal commercial terms. For a further discussion regarding the Company’s reportable segments, see Note 4 Segment Information.
Rail Group
The Rail Group recognizes revenue when the customer has submitted its certificate of acceptance and legal title of the railcar has passed to the customer. Certain long-term contracts for the sales of railcars include price adjustments based on steel-price indices; this amount represents variable consideration for which we are constrained and we do not estimate these amounts prior to the time the railcar is delivered, at which time the pricing becomes fixed.
Construction Products Group
The Construction Products Group recognizes revenue when the customer has accepted the product and legal title of the product has passed to the customer.
Inland Barge Group
The Inland Barge Group recognizes revenue when the customer has accepted the product and legal title of the product has passed to the customer.
Energy Equipment Group
Within the Energy Equipment Group, revenue is recognized for our wind tower and certain utility structure product lines over time as the products are manufactured using an input approach based on the costs incurred relative to the total estimated costs of production. We recognize revenue over time for these products as they are highly customized to the needs of an individual customer resulting in no alternative use to the Company if not purchased by the customer after the contract is executed, and we have the right to bill the customer for our work performed to date plus at least a reasonable profit margin for work performed. For all other products, revenue is recognized when the customer has accepted the product and legal title of the product has passed to the customer.
Railcar Leasing and Management Services Group
Revenue from rentals and operating leases, including contracts that contain non-level fixed rental payments, is recognized monthly on a straight-line basis. Revenue is recognized from the sales of railcars from the lease fleet on a gross basis in leasing revenues and cost of revenues if the railcar has 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 are recognized as a net gain or loss from the disposal of a long-term asset. Revenue from servicing, maintenance, and management agreements is recognized as each performance period occurs.
Fees for shipping and handling are recorded as revenue. The Company has elected to account for shipping and handling costs as activities to fulfill the promise to transfer the good. The fees and costs of shipping and handling activities are accrued if the related performance obligation has been satisfied.
Unsatisfied Performance Obligations
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 September 30, 2018 and the percentage of the outstanding performance obligations as of September 30, 2018 expected to be delivered during the remainder of 2018:

9

Table of Contents

 
Unsatisfied performance obligations at September 30, 2018
 
Total
Amount
 
Percent expected to be delivered in 2018
 
(in millions)
 
 
Rail Group:
 
 
 
Railcars:
 
 
 
External Customers
$
2,001.2

 
 
Leasing Group
1,199.6

 
 
 
$
3,200.8

 
20
%
Components and maintenance services
$
58.5

 
36
%
 
 
 
 
Inland Barge Group
$
210.4

 
21
%
 
 
 
 
Energy Equipment Group:
 
 
 
Wind towers and utility structures
$
700.3

 
23
%
Other
$
83.5

 
37
%
 
 
 
 
Railcar Leasing and Management Services Group
$
123.1

 
5
%
The remainder of the unsatisfied performance obligations for the Rail Group is expected to be delivered through 2023. The remainder of the unsatisfied performance obligations for the Inland Barge Group and wind towers and utility structures is expected to be delivered through 2020. 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 2024. Substantially all other unsatisfied performance obligations beyond 2018 are expected to be delivered during 2019.
Financial Instruments
The Company considers 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. The Company intends to hold its short-term marketable securities until they are redeemed at their maturity date and believes that under the "more likely than not" criteria, the Company will not be required to sell the securities before recovery of their amortized cost bases, which may be at maturity.
Financial instruments that potentially subject the Company to a concentration of credit risk are primarily cash investments including restricted cash, short-term marketable securities, and receivables. The Company places its cash investments and short-term marketable securities in bank deposits and investment grade, short-term debt instruments and limits the amount of credit exposure to any one commercial issuer. Concentrations of credit risk with respect to receivables are limited as a result of control procedures that monitor the credit worthiness of customers, the large number of customers in the Company's customer base, and their dispersion across different industries and geographic areas. As receivables are generally unsecured, the Company maintains an allowance for doubtful accounts based upon the expected collectibility of all receivables. Receivable balances determined to be uncollectible are charged against the allowance. The carrying values of cash, short-term marketable securities (using level two inputs), receivables, and accounts payable are considered to be representative of their respective fair values.
Restricted Cash
Restricted cash consists of cash and cash equivalents held either as collateral for the Company's non-recourse debt and lease obligations or as security for the performance of certain product sales agreements. As such, they are restricted in use.
Recent Accounting Pronouncements
On January 1, 2018, the Company adopted Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers," ("ASU 2014-09") which provides common revenue recognition guidance for U.S. generally accepted accounting principles. Under ASU 2014-09, an entity recognizes revenue when it transfers promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the goods or services. It also requires additional detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

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Table of Contents

The Company applied ASU 2014-09 to all contracts that were not complete as of January 1, 2018 using the modified retrospective method of adoption, resulting in a reduction to retained earnings of $4.0 million, net of tax, as of January 1, 2018 related to the cumulative effect of applying this standard. Therefore, the comparative information for the three and nine months ended September 30, 2017 has not been adjusted and continues to be reported under Accounting Standards Codification ("ASC") Topic 605.
The primary impact of adopting the standard is a change in the timing of revenue recognition for our wind towers and certain utility structures product lines within our Energy Equipment Group. Previously, the Company recognized revenue when the product was delivered. Under ASU 2014-09, revenue is recognized over time as the products are manufactured. Revenue recognition policies in our other business segments remain substantially unchanged.
The following tables summarize the impact of adopting ASU 2014-09 on the Company’s consolidated financial statements as of September 30, 2018 and for the three and nine months then ended:
 
As Reported
 
Adjustments
 
Balance without adjustment for adoption of ASU 2014-09
 
(in millions)
Consolidated Statement of Operations
 
 
 
 
 
For the three months ended September 30, 2018:
 
 
 
 
 
Revenues - manufacturing
$
703.7

 
$
(8.3
)
 
$
695.4

Cost of revenues - manufacturing
619.0

 
(5.7
)
 
613.3

Operating profit
78.9

 
(2.6
)
 
76.3

Income before income taxes
39.0

 
(2.6
)
 
36.4

Provision for income taxes
10.7

 
(0.6
)
 
10.1

Net income
28.3

 
(2.0
)
 
26.3

Net income attributable to Trinity Industries, Inc.
27.7

 
(2.0
)
 
25.7

 
 
 
 
 
 
For the nine months ended September 30, 2018:
 
 
 
 
 
Revenues - manufacturing
$
2,089.8

 
$
6.4

 
$
2,096.2

Cost of revenues - manufacturing
1,755.3

 
5.4

 
1,760.7

Operating profit
303.0

 
1.0

 
304.0

Income before income taxes
181.5

 
1.0

 
182.5

Provision for income taxes
46.1

 
0.2

 
46.3

Net income
135.4

 
0.8

 
136.2

Net income attributable to Trinity Industries, Inc.
132.0

 
0.8

 
132.8

 
 
 
 
 
 
Consolidated Balance Sheet
 
 
 
 
 
Receivables, net of allowance
$
396.2

 
$
(16.1
)
 
$
380.1

Inventories:
 
 
 
 
 
Raw materials and supplies
376.6

 

 
376.6

Work in process
182.2

 
17.1

 
199.3

Finished goods
148.2

 
5.4

 
153.6

 
 
 
 
 
 
Accrued liabilities
411.0

 
(0.1
)
 
410.9

Deferred income taxes
755.9

 
1.5

 
757.4

Retained earnings
4,212.1

 
5.0

 
4,217.1

 
 
 
 
 
 
Consolidated Statement of Cash Flows
 
 
 
 
 
For the nine months ended September 30, 2018:
 
 
 
 
 
Operating activities:
 
 
 
 
 
Net income
$
135.4

 
$
0.8

 
$
136.2

Provision for deferred income taxes
57.8

 
0.2

 
58.0

(Increase) decrease in receivables
(23.5
)
 
8.3

 
(15.2
)
(Increase) decrease in inventories
(110.1
)
 
5.4

 
(104.7
)
Increase (decrease) in accrued liabilities
(14.7
)
 
(14.7
)
 
(29.4
)
Net cash provided by operating activities
319.9

 

 
319.9


11

Table of Contents

In February 2016, the FASB issued ASU No. 2016-02, "Leases," ("ASU 2016-02") which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 will become effective for public companies during interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. In July 2018, the FASB issued ASU No. 2018-11, which amends ASU 2016-02, permitting entities to record the right of use asset and lease liability on date of adoption with no requirement to recast comparative periods. The Company plans to adopt ASU 2016-02 and 2018-11 effective January 1, 2019. We are finalizing our assessment of the effects of the new standard, including its effects on our consolidated financial statements.
In November 2016, the FASB issued Accounting Standards Update No. 2016-18, "Restricted Cash," ("ASU 2016-18") which clarifies how entities should present restricted cash and restricted cash equivalents in the statement of cash flows. The new guidance requires a reconciliation of totals in the statement of cash flows to the related cash and cash equivalents and restricted cash captions in the balance sheet. The Company adopted ASU 2016-18 effective January 1, 2018. Amounts previously reported have been adjusted to reflect this change.
In March 2017, the FASB issued Accounting Standards Update No. 2017-07, “Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” (“ASU 2017-07”) which changes how companies that sponsor defined benefit pension plans present the related net periodic benefit cost in the income statement. The service cost component of the net periodic benefit cost will continue to be presented in the same income statement line items; however, other components of the net periodic benefit cost will be presented in other income and excluded from operating profit. The Company adopted ASU 2017-07 effective January 1, 2018. Amounts previously reported have been adjusted to reflect this change.
In February 2018, the FASB issued Accounting Standards Update No. 2018-02, “Income Statement - Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” (“ASU 2018-02”) which gives entities the option to reclassify from Accumulated Other Comprehensive Loss ("AOCL") to retained earnings the stranded tax effects resulting from the Tax Cuts and Jobs Act (the "Act") enacted on December 22, 2017. ASU 2018-02 will become effective for public companies during interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company elected to adopt ASU 2018-02 as of January 1, 2018 resulting in a reclassification adjustment from AOCL, increasing retained earnings by $18.7 million for the nine months ended September 30, 2018.
Reclassifications
Certain prior year balances have been reclassified in the Notes to Consolidated Financial Statements to conform to the 2018 presentation.

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Table of Contents

Note 2. Acquisitions and Divestitures
Acquisitions
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
 
(in millions)
Acquisitions:
 
 
 
 
 
 
 
Purchase price
$

 
$
42.2

 
$
25.0

 
$
48.3

Net cash paid
$

 
$
42.2

 
$
25.0

 
$
47.5

Goodwill recorded
$
(0.3
)
 
$
14.8

 
$
9.6

 
$
14.8

In March 2018, we completed the acquisition of certain assets of an inland barge business, which was recorded as a business combination based on preliminary valuations of the acquired assets and liabilities at their acquisition date fair value using level three inputs. Such assets and liabilities were not significant in relation to assets and liabilities at the consolidated or segment level. See Note 3 Fair Value Accounting for a discussion of inputs in determining fair value.
In May 2017, we completed the acquisition of the net assets of a lightweight aggregates business, and in July 2017, we completed the acquisition of the net assets of a trench shoring products business. Both acquisitions were in our Construction Products Group. Such acquired assets and liabilities were not significant in relation to assets and liabilities at the consolidated or segment level. See Note 3 Fair Value Accounting for a discussion of inputs in determining fair value.
Divestitures
During the third quarter of 2018, the Company’s management team committed to plans to divest certain businesses whose revenues are included in the other revenues component of the Energy Equipment Group. We are actively engaged with prospective buyers and expect to complete the divestiture of these businesses within the next twelve months. Accordingly, as of September 30, 2018, assets of $13.5 million and liabilities of $10.3 million related to these businesses have been allocated to the disposal group and are classified as held for sale in our Consolidated Balance Sheet. These amounts are included in Other assets and Other liabilities, respectively.
The assets and liabilities of the businesses expected to be divested are recorded at fair value less expected costs to sell in accordance with ASC Topic 360. Our fair value estimates consist of level three inputs and are based on our ongoing discussions with the prospective buyers of these businesses. As a result, we recorded a pre-tax impairment charge of $24.8 million during the three months ended September 30, 2018 associated with the write-down of the net assets of these businesses to their estimated fair values. The impairment charge is recorded in Cost of revenues - manufacturing in our Consolidated Statement of Operations.
We have concluded that the divestiture of these businesses does not represent a strategic shift that would result in a material effect on our operations and financial results; therefore, these pending disposals have not been reflected as discontinued operations in our Consolidated Financial Statements.
There was no divestiture activity for the three and nine months ended September 30, 2017.

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Table of Contents

Note 3. Fair Value Accounting
Assets and liabilities measured at fair value on a recurring basis are summarized below:
 
Fair Value Measurement as of September 30, 2018
 
(in millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
199.9

 
$

 
$

 
$
199.9

Restricted cash
138.5

 

 

 
138.5

Equity instruments(1)

 
0.4

 

 
0.4

Interest rate hedge(1)

 
3.0

 

 
3.0

Total assets
$
338.4

 
$
3.4

 
$

 
$
341.8

 
 
 
 
 
 
 
 
 
Fair Value Measurement as of December 31, 2017
 
(in millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
113.1

 
$

 
$

 
$
113.1

Restricted cash
195.2

 

 

 
195.2

Equity instruments(1)

 
1.3

 

 
1.3

Interest rate hedge(1)

 
1.6

 

 
1.6

Total assets
$
308.3

 
$
2.9

 
$

 
$
311.2

(1) Included in other assets on the consolidated balance sheet.

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. The Company’s cash equivalents and restricted cash are instruments of the U.S. Treasury or highly-rated money market mutual funds.
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 swaps, are valued using energy and commodity market data. Interest rate hedges are valued at exit prices obtained from each counterparty. See Note 7 Derivative Instruments and Note 11 Debt. The equity instruments consist of warrants for the purchase of certain publicly-traded equity securities and are valued using the Black-Scholes-Merton option pricing model and certain assumptions regarding the exercisability of the options under the related agreement.
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.

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Table of Contents

The carrying amounts and estimated fair values of our long-term debt are as follows:
 
September 30, 2018
 
December 31, 2017
 
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
 
(in millions)
Recourse:
 
 
 
 
 
 
 
Senior notes
$
399.7

 
$
388.2

 
$
399.7

 
$
400.3

Convertible subordinated notes

 

 
449.4

 
715.0

Less: unamortized discount

 
 
 
(8.2
)
 
 
 

 
 
 
441.2

 
 
Capital lease obligations
26.5

 
26.5

 
28.3

 
28.3

Other
0.4

 
0.4

 
0.5

 
0.5

 
426.6

 
415.1

 
869.7

 
1,144.1

Less: unamortized debt issuance costs
(2.4
)
 
 
 
(2.9
)
 
 
 
424.2

 
 
 
866.8

 
 
Non-recourse:
 
 
 
 
 
 
 
2006 secured railcar equipment notes
139.4

 
143.2

 
158.5

 
165.7

2009 secured railcar equipment notes
161.7

 
173.6

 
166.2

 
169.6

2010 secured railcar equipment notes
258.9

 
261.3

 
266.9

 
281.9

2017 promissory notes
282.3

 
282.3

 
293.6

 
293.6

2018 secured railcar equipment notes
477.3

 
479.9

 

 

TILC warehouse facility
228.7

 
228.7

 
150.7

 
150.7

TRL 2012 secured railcar equipment notes
386.7

 
362.2

 
402.8

 
390.4

TRIP Master Funding secured railcar equipment notes
946.9

 
952.5

 
962.5

 
1,007.6

 
2,881.9

 
2,883.7

 
2,401.2

 
2,459.5

Less: unamortized debt issuance costs
(30.4
)
 
 
 
(25.6
)
 
 
 
2,851.5

 
 
 
2,375.6

 
 
Total
$
3,275.7

 
$
3,298.8

 
$
3,242.4

 
$
3,603.6

The estimated fair values of our senior notes and convertible subordinated notes are based on a quoted market price in a market with little activity as of September 30, 2018 and December 31, 2017 (Level 2 input). The estimated fair values of our 2006, 2009, 2010, 2012, and 2018 secured railcar equipment notes and TRIP Rail Master Funding LLC (“TRIP Master Funding”) secured railcar equipment notes are based on our estimate of their fair value as of September 30, 2018 and December 31, 2017 using unobservable input values provided by a third party (Level 3 inputs). The respective carrying values of our Trinity Industries Leasing Company (“TILC”) warehouse facility and 2017 promissory notes approximate fair value because the interest rate adjusts to the market interest rate (Level 3 input). The fair values of all other financial instruments are estimated to approximate carrying value. See Note 11 Debt for a description of the Company's long-term debt.


15

Table of Contents

Note 4. Segment Information
The Company reports operating results in five principal business segments: (1) the Rail Group, which manufactures and sells railcars and related parts, components, and maintenance services; (2) the Construction Products Group, which manufactures and sells highway products, trench shields, shoring products, and services for infrastructure-related projects, and produces and sells construction aggregates; (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 structural wind towers, steel utility structures for electricity transmission and distribution, storage and distribution containers, and tank heads for pressure and non-pressure vessels; and (5) the Railcar Leasing and Management Services Group (“Leasing Group”), which owns and operates a fleet of railcars as well as provides third-party fleet leasing, management, maintenance, and administrative services. The segment All Other includes our captive insurance and transportation companies; legal, environmental, and maintenance costs associated with non-operating facilities; and other peripheral businesses. Gains and losses from the sale of property, plant, and equipment related to manufacturing and dedicated to the specific manufacturing operations of a particular segment are included in the operating profit of that respective segment. Gains and losses from the sale of property, plant, and equipment that can be utilized by multiple segments are included in operating profit of the All Other segment.
Sales and related net profits ("deferred profit") from the Rail Group to the Leasing Group are recorded in the Rail Group and eliminated in consolidation and reflected in the "Eliminations - Lease subsidiary" line in the table 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 the Company's original manufacturing cost of the railcars. Sales of railcars from the lease fleet 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. We operate principally in North America.

16

Table of Contents

Three Months Ended September 30, 2018
 
Revenues
 
Operating Profit (Loss)
 
External
 
Intersegment
 
Total
 
 
(in millions)
Railcars
 
 
 
 
$
408.2

 
 
Components and maintenance services
 
 
 
 
98.6

 
 
Rail Group
$
299.4

 
$
207.4

 
506.8

 
$
32.9

 
 
 
 
 
 
 
 
Highway products
 
 
 
 
79.4

 
 
Construction aggregates
 
 
 
 
52.9

 
 
Other
 
 
 
 
19.7

 
 
Construction Products Group
148.3

 
3.7

 
152.0

 
29.1

 
 
 
 
 
 
 
 
Inland Barge Group
49.3

 

 
49.3

 
3.0

 
 
 
 
 
 
 
 
Wind towers and utility structures
 
 
 
 
147.0

 
 
Other
 
 
 
 
71.2

 
 
Energy Equipment Group
203.1

 
15.1

 
218.2

 
(13.7
)
 
 
 
 
 
 
 
 
Leasing and management
 
 
 
 
175.9

 
 
Sales of leased railcars owned one year or less at the time of sale
 
 
 
 
51.6

 
 
Railcar Leasing and Management Services Group
227.2

 
0.3

 
227.5

 
92.2

 
 
 
 
 
 
 
 
All Other
3.6

 
23.6

 
27.2

 
(5.9
)
 
 
 
 
 
 
 
 
Segment Totals before Eliminations and Corporate
930.9

 
250.1

 
1,181.0

 
137.6

Corporate

 

 

 
(41.5
)
Eliminations – Lease subsidiary

 
(207.4
)
 
(207.4
)
 
(18.1
)
Eliminations – Other

 
(42.7
)
 
(42.7
)
 
0.9

Consolidated Total
$
930.9

 
$

 
$
930.9

 
$
78.9

Three Months Ended September 30, 2017
 
Revenues
 
Operating Profit (Loss)
 
External
 
Intersegment
 
Total
 
 
(in millions)
Railcars
 
 
 
 
$
437.0

 
 
Components and maintenance services
 
 
 
 
55.4

 
 
Rail Group
$
317.4

 
$
175.0

 
492.4

 
$
50.5

 
 
 
 
 
 
 
 
Highway products
 
 
 
 
62.4

 
 
Construction aggregates
 
 
 
 
53.3

 
 
Other
 
 
 
 
16.2

 
 
Construction Products Group
130.1

 
1.8

 
131.9

 
16.8

 
 
 
 
 
 
 
 
Inland Barge Group
28.1

 

 
28.1

 
(0.7
)
 
 
 
 
 
 
 
 
Wind towers and utility structures
 
 
 
 
167.1

 
 
Other
 
 
 
 
79.1

 
 
Energy Equipment Group
220.6

 
25.6

 
246.2

 
26.3

 
 
 
 
 
 
 
 
Leasing and management
 
 
 
 
188.5

 
 
Sales of leased railcars owned one year or less at the time of sale
 
 
 
 
86.6

 
 
Railcar Leasing and Management Services Group
274.9

 
0.2

 
275.1

 
120.6

 
 
 
 
 
 
 
 
All Other
2.5

 
23.2

 
25.7

 
(4.9
)
 
 
 
 
 
 
 
 
Segment Totals before Eliminations and Corporate
973.6

 
225.8

 
1,199.4

 
208.6

Corporate

 

 

 
(41.4
)
Eliminations – Lease subsidiary

 
(175.0
)
 
(175.0
)
 
(14.6
)
Eliminations – Other

 
(50.8
)
 
(50.8
)
 
(0.2
)
Consolidated Total
$
973.6

 
$

 
$
973.6

 
$
152.4


17

Table of Contents

Nine Months Ended September 30, 2018
 
Revenues
 
Operating Profit (Loss)
 
External
 
Intersegment
 
Total
 
 
(in millions)
Railcars
 
 
 
 
$
1,413.1

 
 
Components and maintenance services
 
 
 
 
267.4

 
 
Rail Group
$
948.7

 
$
731.8

 
1,680.5

 
$
149.5

 
 
 
 
 
 
 
 
Highway products
 
 
 
 
205.9

 
 
Construction aggregates
 
 
 
 
166.6

 
 
Other
 
 
 
 
60.1

 
 
Construction Products Group
425.1

 
7.5

 
432.6

 
79.9

 
 
 
 
 
 
 
 
Inland Barge Group
123.0

 

 
123.0

 
5.2

 
 
 
 
 
 
 
 
Wind towers and utility structures
 
 
 
 
427.5

 
 
Other
 
 
 
 
216.7

 
 
Energy Equipment Group
586.2

 
58.0

 
644.2

 
20.7

 
 
 
 
 
 
 
 
Leasing and management
 
 
 
 
534.7

 
 
Sales of leased railcars owned one year or less at the time of sale
 
 
 
 
80.8

 
 
Railcar Leasing and Management Services Group
614.7

 
0.8

 
615.5

 
255.1

 
 
 
 
 
 
 
 
All Other
6.8

 
68.5

 
75.3

 
(12.2
)
 
 
 
 
 
 
 
 
Segment Totals before Eliminations and Corporate
2,704.5

 
866.6

 
3,571.1

 
498.2

Corporate

 

 

 
(124.4
)
Eliminations – Lease subsidiary

 
(731.8
)
 
(731.8
)
 
(71.3
)
Eliminations – Other

 
(134.8
)
 
(134.8
)
 
0.5

Consolidated Total
$
2,704.5

 
$

 
$
2,704.5

 
$
303.0

Nine Months Ended September 30, 2017
 
Revenues
 
Operating Profit (Loss)
 
External
 
Intersegment
 
Total
 
 
(in millions)
Railcars
 
 
 
 
$
1,269.4

 
 
Components and maintenance services
 
 
 
 
167.2

 
 
Rail Group
$
938.8

 
$
497.8

 
1,436.6

 
$
137.7

 
 
 
 
 
 
 
 
Highway products
 
 
 
 
191.5

 
 
Construction aggregates
 
 
 
 
155.1

 
 
Other
 
 
 
 
39.7

 
 
Construction Products Group
381.7

 
4.6

 
386.3

 
54.5

 
 
 
 
 
 
 
 
Inland Barge Group
124.3

 

 
124.3

 
6.1

 
 
 
 
 
 
 
 
Wind towers and utility structures
 
 
 
 
514.4

 
 
Other
 
 
 
 
225.7

 
 
Energy Equipment Group
660.6

 
79.5

 
740.1

 
80.0

 
 
 
 
 
 
 
 
Leasing and management
 
 
 
 
552.4

 
 
Sales of leased railcars owned one year or less at the time of sale
 
 
 
 
93.7

 
 
Railcar Leasing and Management Services Group
645.4

 
0.7

 
646.1

 
316.4

 
 
 
 
 
 
 
 
All Other
5.6

 
65.6

 
71.2

 
(15.2
)
 
 
 
 
 
 
 
 
Segment Totals before Eliminations and Corporate
2,756.4

 
648.2

 
3,404.6

 
579.5

Corporate

 

 

 
(114.9
)
Eliminations – Lease subsidiary

 
(497.8
)
 
(497.8
)
 
(58.4
)
Eliminations – Other

 
(150.4
)
 
(150.4
)
 
(3.3
)
Consolidated Total
$
2,756.4

 
$

 
$
2,756.4

 
$
402.9


18

Table of Contents

Note 5. Partially-Owned Leasing Subsidiaries
The Company, through its wholly-owned subsidiary, TILC, formed two subsidiaries, TRIP Holdings and RIV 2013, for the purpose of providing railcar leasing in North America. Each of TRIP Holdings and RIV 2013 are direct, partially-owned subsidiaries of TILC in which the Company has a controlling interest. Each is governed by a seven-member board of representatives, two 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 September 30, 2018, the Company's carrying value of its investment in TRIP Holdings and RIV 2013 totaled $189.6 million. The Company's weighted average ownership interest in TRIP Holdings and RIV 2013 is 38% while the remaining 62% weighted average interest is owned by third-party investor-owned funds. The Company's investments in its partially-owned leasing subsidiaries are eliminated in consolidation.
Each of TRIP Holdings and RIV 2013 has wholly-owned subsidiaries that are the owners of railcars acquired from the Company's Rail and Leasing Groups. These wholly-owned subsidiaries are TRIP Master Funding (wholly-owned by TRIP Holdings) and Trinity Rail Leasing 2012 LLC ("TRL 2012," wholly-owned by RIV 2013). Railcar purchases by these subsidiaries were funded by secured borrowings and capital contributions from TILC and third-party equity investors. TILC is the contractual servicer for TRIP Master Funding and TRL 2012, with the authority to manage and service each entity's owned railcars. The Company's controlling interest in each of TRIP Holdings and RIV 2013 results from its 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 no obligation to guarantee performance under any of the 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 TRIP Master Funding and TRL 2012 may only be used to satisfy the particular subsidiary's liabilities, and the creditors of each of TRIP Master Funding and TRL 2012 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 TRIP Master Funding and TRL 2012 and has the potential to earn certain incentive fees. TILC and the third-party equity investors have commitments to provide additional equity funding to TRIP Holdings that expire in May 2019 contingent upon certain returns on investment in TRIP Holdings and other conditions being met. There are no remaining equity commitments with respect to RIV 2013.
See Note 11 Debt regarding the debt of TRIP Holdings and RIV 2013 and their respective subsidiaries.


19

Table of Contents

Note 6. Railcar 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, maintenance, and administrative services. Selected consolidating financial information for the Leasing Group is as follows:
 
September 30, 2018
 
Leasing Group
 
 
 
 
 
Wholly-
Owned
Subsidiaries
 
Partially-Owned Subsidiaries
 
Manufacturing/
Corporate
 
Total
 
(in millions)
Cash, cash equivalents, and short-term marketable securities
$
72.9

 
$

 
$
354.5

 
$
427.4

Property, plant, and equipment, net
$
4,608.4

 
$
1,815.9

 
$
945.1

 
$
7,369.4

Net deferred profit on railcars sold to the Leasing Group
 
 
 
 
 
 
(831.4
)
Consolidated property, plant, and equipment, net
 
 
 
 
 
 
$
6,538.0

Restricted cash
$
99.8

 
$
38.6

 
$
0.1

 
$
138.5

Debt:
 
 
 
 
 
 
 
Recourse
$
26.5

 
$

 
$
400.4

 
$
426.9

Less: unamortized discount

 

 
(0.3
)
 
(0.3
)
Less: unamortized debt issuance costs

 

 
(2.4
)
 
(2.4
)
 
26.5

 

 
397.7

 
424.2

Non-recourse
1,548.5

 
1,333.6

 

 
2,882.1

Less: unamortized discount
(0.2
)
 

 

 
(0.2
)
Less: unamortized debt issuance costs
(17.3
)
 
(13.1
)
 

 
(30.4
)
 
1,531.0

 
1,320.5

 

 
2,851.5

Total debt
$
1,557.5

 
$
1,320.5

 
$
397.7

 
$
3,275.7

Net deferred tax liabilities
$
682.0

 
$
0.8

 
$
53.2

 
$
736.0

 
 
December 31, 2017
 
Leasing Group
 
 
 
 
 
Wholly-
Owned
Subsidiaries
 
Partially-Owned Subsidiaries
 
Manufacturing/
Corporate
 
Total
 
(in millions)
Cash, cash equivalents, and short-term marketable securities
$
3.3

 
$

 
$
1,094.8

 
$
1,098.1

Property, plant, and equipment, net
$
4,147.5

 
$
1,824.6

 
$
972.7

 
$
6,944.8

Net deferred profit on railcars sold to the Leasing Group
 
 
 
 
 
 
(810.1
)
Consolidated property, plant, and equipment, net
 
 
 
 
 
 
$
6,134.7

Restricted cash
$
132.2

 
$
62.9

 
$
0.1

 
$
195.2

Debt:
 
 
 
 
 
 
 
Recourse
$
28.3

 
$

 
$
849.9

 
$
878.2

Less: unamortized discount

 

 
(8.5
)
 
(8.5
)
Less: uamortized debt issuance costs

 

 
(2.9
)
 
(2.9
)
 
28.3

 

 
838.5

 
866.8

Non-recourse
1,035.9