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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 MARCH 31, 2019
 
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
397657042_trnlogoverticalhrblaca01.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 April 18, 2019, the number of shares of common stock outstanding was 129,837,772.




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




2

Table of Contents

PART I
Item 1. Financial Statements
Trinity Industries, Inc. and Subsidiaries
Consolidated Statements of Operations
(unaudited)
 
Three Months Ended
March 31,
 
2019
 
2018
 
(in millions, except per share amounts)
Revenues:
 
 
 
Manufacturing
$
404.6

 
$
358.9

Leasing
200.2

 
174.3

 
604.8

 
533.2

Operating costs:
 
 
 
Cost of revenues:
 
 
 
Manufacturing
351.6

 
306.5

Leasing
111.8

 
93.4

 
463.4

 
399.9

Selling, engineering, and administrative expenses:
 
 
 
Manufacturing
23.2

 
23.5

Leasing
12.8

 
12.2

Other
23.6

 
37.7

 
59.6

 
73.4

Gains on dispositions of property:
 
 
 
Net gains on railcar lease fleet sales owned more than one year at the time of sale
7.9

 
2.1

Other
2.1

 
0.1

 
10.0

 
2.2

Total operating profit
91.8

 
62.1

Other (income) expense:
 
 
 
Interest income
(1.3
)
 
(3.9
)
Interest expense
52.7

 
46.3

Other, net
0.3

 
(1.2
)
 
51.7

 
41.2

Income from continuing operations before income taxes
40.1

 
20.9

Provision for income taxes
8.9

 
5.7

Income from continuing operations
31.2

 
15.2

Income (loss) from discontinued operations, net of provision (benefit) for income taxes of ($0.2) and $9.1
(1.1
)
 
26.4

Net income
30.1

 
41.6

Net income (loss) attributable to noncontrolling interest
(0.5
)
 
1.4

Net income attributable to Trinity Industries, Inc.
$
30.6

 
$
40.2

 
 
 
 
Basic earnings per common share:

 
 
Income from continuing operations
$
0.24

 
$
0.09

Income (loss) from discontinued operations
(0.01
)
 
0.18

Basic net income attributable to Trinity Industries, Inc.
$
0.23

 
$
0.27

Diluted earnings per common share:
 
 
 
Income from continuing operations
$
0.24

 
$
0.09

Income (loss) from discontinued operations
(0.01
)
 
0.17

Diluted net income attributable to Trinity Industries, Inc.
$
0.23

 
$
0.26

Weighted average number of shares outstanding:
 
 
 
Basic
130.4

 
147.4

Diluted
132.2

 
153.7

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
March 31,
 
2019
 
2018
 
(in millions)
Net income
$
30.1

 
$
41.6

Other comprehensive income (loss):
 
 
 
Derivative financial instruments:
 
 
 
Unrealized gains (losses) arising during the period, net of tax expense (benefit) of $(1.7) and $0.2
(5.5
)
 
0.8

Reclassification adjustments for losses included in net income, net of tax expense (benefit) of $(0.4) and $0.3
0.9

 
1.0

Currency translation adjustment

 
(0.7
)
Defined benefit plans:
 
 
 
Amortization of net actuarial losses, net of tax benefit of $0.3 and $0.4
0.8

 
0.8

 
(3.8
)
 
1.9

Comprehensive income
26.3

 
43.5

Less: comprehensive income (loss) attributable to noncontrolling interest
(0.3
)
 
1.8

Comprehensive income attributable to Trinity Industries, Inc.
$
26.6

 
$
41.7

See accompanying notes to Consolidated Financial Statements.

4

Table of Contents

Trinity Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
 
March 31,
2019
 
December 31,
2018
 
(unaudited)
 
 
 
(in millions)
ASSETS
 
 
 
Cash and cash equivalents
$
73.9

 
$
179.2

Receivables, net of allowance
370.0

 
276.6

Income tax receivable
16.1

 
40.4

Inventories:
 
 
 
Raw materials and supplies
349.9

 
342.5

Work in process
204.1

 
119.3

Finished goods
64.4

 
62.9

 
618.4

 
524.7

Restricted cash, including partially-owned subsidiaries of $29.0 and $36.6
114.2

 
171.6

Property, plant, and equipment, at cost, including partially-owned subsidiaries of $2,042.3 and $2,032.0
8,723.2

 
8,253.4

Less accumulated depreciation, including partially-owned subsidiaries of $485.9 and $472.0
(1,976.4
)
 
(1,919.0
)
 
6,746.8

 
6,334.4

Goodwill
208.8

 
208.8

Other assets
265.7

 
253.5

 
$
8,413.9

 
$
7,989.2

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Accounts payable
$
197.3

 
$
212.1

Accrued liabilities
336.3

 
368.3

Debt:
 
 
 
Recourse
647.5

 
397.4

Non-recourse:
 
 
 
Wholly-owned subsidiaries
2,513.7

 
2,316.6

Partially-owned subsidiaries
1,305.2

 
1,315.2

 
4,466.4

 
4,029.2

Deferred income

 
17.7

Deferred income taxes
752.7

 
743.1

Other liabilities
96.1

 
56.8

 
5,848.8

 
5,427.2

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

 

Common stock – 400.0 shares authorized
1.3

 
1.3

Capital in excess of par value
77.3

 
1.2

Retained earnings
2,347.9

 
2,326.1

Accumulated other comprehensive loss
(120.9
)
 
(116.8
)
Treasury stock
(91.1
)
 
(1.0
)
 
2,214.5

 
2,210.8

Noncontrolling interest
350.6

 
351.2

 
2,565.1

 
2,562.0

 
$
8,413.9

 
$
7,989.2

See accompanying notes to Consolidated Financial Statements.

5

Table of Contents

Trinity Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
 
Three Months Ended
March 31,
 
2019
 
2018
 
(in millions)
Operating activities:

 

Net income
$
30.1

 
$
41.6

(Income) loss from discontinued operations, net of income taxes
1.1

 
(26.4
)
Adjustments to reconcile net income to net cash (used in) provided by operating activities:

 

Depreciation and amortization
67.5

 
58.2

Stock-based compensation expense
5.5

 
6.2

Provision for deferred income taxes
9.7

 
4.9

Net gains on railcar lease fleet sales owned more than one year at the time of sale
(7.9
)
 
(2.1
)
Gains on dispositions of property and other assets
(2.1
)
 
(0.1
)
Non-cash interest expense
3.6

 
7.4

Other
(1.1
)
 
1.1

Changes in operating assets and liabilities:

 

(Increase) decrease in receivables
(69.1
)
 
13.9

(Increase) decrease in inventories
(93.7
)
 
(2.2
)
(Increase) decrease in other assets
4.3

 
(4.7
)
Increase (decrease) in accounts payable
(14.8
)
 
8.3

Increase (decrease) in accrued liabilities
(52.8
)
 
(34.5
)
Increase (decrease) in other liabilities
(6.2
)
 
2.2

Net cash (used in) provided by operating activities - continuing operations
(125.9
)
 
73.8

Net cash provided by operating activities - discontinued operations

 
99.9

Net cash (used in) provided by operating activities
(125.9
)
 
173.7



 

Investing activities:

 

(Increase) decrease in short-term marketable securities

 
98.7

Proceeds from dispositions of property and other assets
7.3

 
1.9

Proceeds from railcar lease fleet sales owned more than one year at the time of sale
29.4

 
15.5

Capital expenditures – leasing, net of sold lease fleet railcars owned one year or less with a net cost of $12.5 and $0
(465.0
)
 
(318.2
)
Capital expenditures – manufacturing and other
(11.5
)
 
(8.2
)
Other
1.3

 
0.8

Net cash used in investing activities - continuing operations
(438.5
)
 
(209.5
)
Net cash used in investing activities - discontinued operations

 
(32.0
)
Net cash used in investing activities
(438.5
)
 
(241.5
)


 

Financing activities:

 

Payments to retire debt
(214.8
)
 
(26.5
)
Proceeds from issuance of debt
649.7

 
0.9

Shares repurchased
(15.0
)
 
(49.3
)
Dividends paid to common shareholders
(17.3
)
 
(19.5
)
Purchase of shares to satisfy employee tax on vested stock
(0.5
)
 
(0.1
)
Distributions to noncontrolling interest
(0.4
)
 
(5.8
)
Other

 
(3.0
)
Net cash provided by (used in) financing activities
401.7

 
(103.3
)
Net decrease in cash, cash equivalents, and restricted cash
(162.7
)
 
(171.1
)
Cash, cash equivalents, and restricted cash at beginning of period
350.8

 
973.8

Cash, cash equivalents, and restricted cash at end of period
$
188.1

 
$
802.7

See accompanying notes to Consolidated Financial Statements.

6

Table of Contents

Trinity Industries, Inc. and Subsidiaries
Consolidated Statements 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, 2018
 
133.3

 
$
1.3

 
$
1.2

 
$
2,326.1

 
$
(116.8
)
 
(0.1
)
 
$
(1.0
)
 
$
2,210.8

 
$
351.2

 
$
2,562.0

Net income
 

 

 

 
30.6

 

 

 

 
30.6

 
(0.5
)
 
30.1

Other comprehensive (loss) income
 

 

 

 

 
(4.1
)
 

 

 
(4.1
)
 
0.3

 
(3.8
)
Cash dividends declared on common stock
    ($0.17 per common share)
 

 

 

 
(22.3
)
 

 

 

 
(22.3
)
 

 
(22.3
)
Stock-based compensation expense
 

 

 
5.5

 

 

 

 

 
5.5

 

 
5.5

Shares repurchased
 

 

 
70.0

 

 

 
(3.5
)
 
(89.0
)
 
(19.0
)
 

 
(19.0
)
Other restricted share activity
 

 

 
0.6

 

 

 

 
(1.1
)
 
(0.5
)
 

 
(0.5
)
Distributions to noncontrolling interest
 

 

 

 

 

 

 

 

 
(0.4
)
 
(0.4
)
Cumulative effect of adopting new accounting standard
 

 

 

 
13.7

 

 

 

 
13.7

 

 
13.7

Other
 

 

 

 
(0.2
)
 

 

 

 
(0.2
)
 

 
(0.2
)
Balances at
March 31, 2019
 
133.3

 
$
1.3

 
$
77.3

 
$
2,347.9

 
$
(120.9
)
 
(3.6
)
 
$
(91.1
)
 
$
2,214.5

 
$
350.6

 
$
2,565.1

 
 
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

Net income
 

 

 

 
40.2

 

 

 

 
40.2

 
1.4

 
41.6

Other comprehensive income
 

 

 

 

 
1.5

 

 

 
1.5

 
0.4

 
1.9

Cash dividends declared on common stock
    ($0.13 per common share)
 

 

 

 
(19.4
)
 

 

 

 
(19.4
)
 

 
(19.4
)
Stock-based compensation expense
 

 

 
6.2

 

 

 

 

 
6.2

 

 
6.2

Shares repurchased
 

 

 

 

 

 
(1.5
)
 
(50.0
)
 
(50.0
)
 

 
(50.0
)
Stock options exercised
 

 

 
0.1

 

 

 

 

 
0.1

 

 
0.1

Distributions to noncontrolling interest
 

 

 

 

 

 

 

 

 
(5.8
)
 
(5.8
)
Other restricted share activity
 

 

 
3.9

 

 

 
(0.1
)
 
(1.9
)
 
2.0

 

 
2.0

Cumulative effect of adopting new accounting standard
 

 

 

 
18.7

 
(18.7
)
 

 

 

 

 

Balances at March 31, 2018
 
150.9

 
$
1.6

 
$
492.7

 
$
4,162.9

 
$
(122.0
)
 
(1.7
)
 
$
(53.5
)
 
$
4,481.7

 
$
352.9

 
$
4,834.6

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,” “our,” or "us") including the accounts of our wholly-owned subsidiaries and partially-owned subsidiaries, TRIP Rail Holdings LLC (“TRIP Holdings”) and RIV 2013 Rail Holdings LLC ("RIV 2013"), in which we have a controlling interest. In our opinion, all normal and recurring adjustments necessary for a fair presentation of our financial position as of March 31, 2019, and the results of operations for the three months ended March 31, 2019 and 2018, and cash flows for the three months ended March 31, 2019 and 2018, have been made in conformity with generally accepted accounting principles. All significant intercompany accounts and transactions have been eliminated. Certain prior year balances have been reclassified to conform to the 2019 presentation.
Due to seasonal and other factors, the results of operations for the three months ended March 31, 2019 may not be indicative of expected results of operations for the year ending December 31, 2019. These interim financial statements and notes are condensed as permitted by the instructions to Form 10-Q and should be read in conjunction with our audited Consolidated Financial Statements included in our Form 10-K for the year ended December 31, 2018.
Spin-off of Arcosa, Inc.
On November 1, 2018, we completed the separation of Trinity Industries, Inc. into two public companies: (1) Trinity Industries, Inc., comprised primarily of Trinity’s rail-related businesses, which are leading providers of railcar products and services in North America, and (2) Arcosa, Inc. ("Arcosa"), a new public company focused on infrastructure-related products and services. The separation was effected through a pro rata dividend to Trinity's shareholders of all outstanding Arcosa shares and was structured to qualify as a tax-free distribution for federal income tax purposes. Following the distribution, Arcosa became an independent, publicly-traded company on the New York Stock Exchange. Trinity did not retain an ownership interest in Arcosa following the completion of the spin-off transaction.
Upon completion of the spin-off transaction on November 1, 2018, the accounting requirements for reporting Arcosa as a discontinued operation were met. Accordingly, Arcosa's results of operations are presented as discontinued operations for all periods in this Quarterly Report on Form 10-Q. See Note 2 for further information related to the spin-off transaction.
Revenue Recognition
Revenue is measured based on the allocation of the transaction price in a contract to satisfied performance obligations. The transaction price does not include any amounts collected on behalf of third parties. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer. Payments for our products and services are generally due within normal commercial terms. The following is a description of principal activities from which we generate our revenue, separated by reportable segments. See Note 4 for a further discussion regarding our reportable segments.
Railcar Leasing and Management Services Group
In our Railcar Leasing and Management Services Group ("Leasing Group"), revenue from rentals and operating leases, including contracts that contain non-level fixed lease payments, is recognized monthly on a straight-line basis. Contingent rents are recognized when the contingency is resolved. 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 and management agreements is recognized as each performance period occurs.
We account for shipping and handling costs as activities to fulfill the promise to transfer the good; as such, these fees are recorded in revenue. The fees and costs of shipping and handling activities are accrued when the related performance obligation has been satisfied.
Rail Products Group
Our railcar manufacturing business recognizes revenue when the customer has submitted its certificate of acceptance and legal title of the railcar has passed to the customer. Certain 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 unable to estimate the final consideration until the railcar is delivered, at which time the pricing becomes fixed.

8

Table of Contents

Within our maintenance services business, revenue is recognized over time as repair and maintenance projects are completed, using an input approach based on the costs incurred relative to the total estimated costs of performing the project. We recorded contract assets of $10.8 million and $10.2 million as of March 31, 2019 and December 31, 2018, respectively, related to unbilled revenues recognized on repair and maintenance services that have been performed, but for which the entire project has not yet been completed, and the railcar has not yet been shipped to the customer. These contract assets are included within the Receivables, net of allowance line in our Consolidated Balance Sheets.
All Other
Our highway products business recognizes revenue when the customer has accepted the product and legal title of the product has passed to the customer.
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 March 31, 2019 and the percentage of the outstanding performance obligations as of March 31, 2019 expected to be delivered during the remainder of 2019:
 
Unsatisfied performance obligations at March 31, 2019
 
Total
Amount
 
Percent expected to be delivered in 2019
 
(in millions)
 
 
Rail Products Group:
 
 
 
Products:
 
 
 
External Customers
$
2,038.9

 
 
Leasing Group
1,213.8

(1) 
 
 
$
3,252.7

 
59
%
 
 
 
 
Maintenance Services
$
77.6

 
100
%
 
 
 
 
Railcar Leasing and Management Services Group
$
107.4

 
17
%
(1) Excluded from this amount are contractually committed orders for approximately 3,050 leased railcars valued at approximately $240.0 million that have been removed because of the financial condition of one of the Leasing Group's customer; negotiation of the consideration to be received in exchange for terminating the underlying leases is ongoing. The entire value of these contracts was planned for delivery subsequent to 2019.
The remainder of the unsatisfied performance obligations for the Rail Products Group is expected to be delivered through 2023. Unsatisfied performance obligations for the Railcar Leasing and Management Services Group are related to servicing and management agreements and are expected to be performed through 2024.

9

Table of Contents

Lease Accounting
Lessee
We are the lessee of operating leases predominantly for railcars, as well as office buildings, manufacturing equipment, and office equipment. Our operating leases have remaining lease terms ranging from one year to forty years, some of which include options to extend for up to five years, and some of which include options to terminate within one year. As of March 31, 2019, we had no finance leases in which we were the lessee.
The following table summarizes the impact of our operating leases on our Consolidated Financial Statements as of March 31, 2019 and for the three months ended March 31, 2019:
 
(in millions, except lease term and discount rate)
Consolidated Statement of Operations
 
Operating lease expense
$
5.2

Short-term lease expense
1.4

 
 
Consolidated Balance Sheet
 
Right-of-use assets (1)
$
44.0

Lease liabilities (2)
$
45.2

 
 
Weighted average remaining lease term
4.8 years

Weighted average discount rate
4.1
%
 
 
Consolidated Statement of Cash Flows
 
Cash flows from operating activities
$
5.2

(1) Included in other assets in our Consolidated Balance Sheet
(2) Included in other liabilities in our Consolidated Balance Sheet
Future contractual minimum operating lease liabilities will mature as follows (in millions):
 
Leasing Group
 
Non-Leasing Group
 
Total
Remaining nine months of 2019
$
10.4

 
$
2.7

 
$
13.1

2020
8.3

 
2.9

 
11.2

2021
7.6

 
1.6

 
9.2

2022
6.9

 
1.2

 
8.1

2023
4.9

 
0.9

 
5.8

Thereafter
1.7

 
1.9

 
3.6

Total lease payments
$
39.8

 
$
11.2

 
$
51.0

Less: Present value adjustment
 
 
 
 
(5.8
)
Total lease liabilities

 
 
 
$
45.2


10

Table of Contents

Lessor
Our Leasing Group enters into railcar operating leases with third parties with terms generally ranging between one and ten years, although certain leases entered into in prior periods had lease terms of up to twenty years. The majority of our fleet operates on leases which earn fixed monthly lease payments. A portion of our fleet operates on per diem leases which earn usage-based variable lease payments. Some of our leases include options to extend the leases for up to five years, and some include options to terminate the leases within one year with certain notice requirements. As of March 31, 2019, our sales-type finance leases and non-Leasing Group operating leases were not significant, and we had no direct finance leases.
We manage risks associated with residual values of leased railcars by investing across a diverse portfolio of railcar types, staggering lease maturities within any given railcar type, avoiding concentration of railcar type and industry, and participating in active secondary markets. Additionally, our lease agreements contain normal wear and tear return condition provisions and high mileage thresholds designed to protect the value of our residual assets. Our lease agreements do not contain any material residual value guarantees or restrictive covenants.
Operating lease rental revenues included in our Consolidated Statement of Operations for the three months ended March 31, 2019 were $179.2 million, including $10.8 million derived from variable lease payments.
Future contractual minimum operating rental revenues will mature as follows (in millions):
 
Leasing Group
Remaining nine months of 2019
$
430.9

2020
478.3

2021
358.9

2022
267.2

2023
174.4

Thereafter
312.8

Total
$
2,022.5

Financial Instruments
We consider all highly liquid debt instruments to be either cash and cash equivalents if purchased with a maturity of three months or less, or short-term marketable securities if purchased with a maturity of more than three months and less than one year.
Financial instruments that potentially subject us to a concentration of credit risk are primarily cash investments including restricted cash and receivables. Concentrations of credit risk with respect to receivables are limited due to control procedures that monitor the credit worthiness of customers, the large number of customers in our customer base, and their dispersion across different end markets and geographic areas. As receivables are generally unsecured, we maintain 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, receivables, and accounts payable are considered to be representative of their respective fair values.

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Goodwill
As of both March 31, 2019 and December 31, 2018, the carrying amount of our goodwill totaled $208.8 million.
Warranties
We provide various express, limited product warranties that generally range from one to five years depending on the product. The warranty costs are estimated using a two-step approach. First, an engineering estimate is made for the cost of all claims that have been asserted by customers. Second, based on historical claims experience, a cost is accrued for all products still within a warranty period for which no claims have been filed. We provide for the estimated cost of product warranties at the time revenue is recognized related to products covered by warranties and assess the adequacy of the resulting reserves on a quarterly basis. The changes in the accruals for warranties for the three months ended March 31, 2019 and 2018 are as follows:
 
Three Months Ended
March 31,
 
2019
 
2018
 
(in millions)
Beginning balance
$
7.4

 
$
10.1

Warranty costs incurred
(0.9
)
 
(1.2
)
Warranty originations and revisions
0.7

 
0.8

Warranty expirations
(0.1
)
 

Ending balance
$
7.1

 
$
9.7

Recent Accounting Pronouncements
ASU 2016-02 In February 2016, the FASB issued ASU No. 2016-02, "Leases", ("ASC 842") which amended 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. ASC 842 is 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 permits entities to record the right-of-use asset and lease liability on the date of adoption, with no requirement to recast comparative periods.
We adopted ASC 842 effective January 1, 2019 using the optional transition method of recognizing a cumulative-effect adjustment to the opening balance of retained earnings on January 1, 2019. Therefore, comparative financial information was not adjusted and continues to be reported under the prior lease accounting guidance in ASC 840. We elected the transition relief package of practical expedients, and as a result, we did not assess 1) whether existing or expired contracts contain embedded leases, 2) lease classification for any existing or expired leases, and 3) whether lease origination costs qualified as initial direct costs. We elected the short-term lease practical expedient by establishing an accounting policy to exclude leases with a term of 12 months or less, as well as the land easement practical expedient for maintaining our current accounting policy for existing or expired land easements. We did not separate lease components for our leased railcars from non-lease components, which are comprised of stand-ready maintenance obligations. We did not elect the practical expedient to use hindsight in determining a lease term and impairment of right-of-use assets at the adoption date.
Upon adoption, we recognized right-of-use assets and corresponding lease liabilities of $47.0 million and $48.3 million, respectively, in our Consolidated Balance Sheet based on the present value of future minimum lease payments under operating leases for which we are the lessee. This excluded the impact of railcars that were previously under operating leases as of January 1, 2019 but which were purchased on January 14, 2019 and are now wholly-owned by our Leasing Group. Additionally, we recorded an adjustment to opening retained earnings of $17.7 million ($13.7 million, net of tax) related to the derecognition of deferred profit related to sale-leaseback transactions. Our accounting treatment under ASC 842 for leases in which we are the lessor remained substantially unchanged from our accounting treatment under ASC 840. The adoption of ASC 842 did not have a significant impact on our consolidated results of operations or cash flows.
Note 2. Discontinued Operations
On November 1, 2018, we completed the spin-off of Arcosa. Upon completion of the spin-off transaction, the accounting requirements for reporting Arcosa as a discontinued operation were met, and, accordingly, Arcosa's historical results have been reclassified to discontinued operations for the periods presented herein.
In connection with the spin-off transaction, Trinity and Arcosa entered into various agreements to effect the distribution and provide a framework for their relationship after the separation, including a separation and distribution agreement, a transition services agreement, an employee matters agreement, a tax matters agreement, and an intellectual property matters agreement. Trinity is also party to certain commercial agreements with Arcosa entities. These agreements have various durations ranging between one and eighteen months. We have determined that the continuing cash flows generated by these agreements do not constitute significant continuing involvement in the operations of Arcosa. The amount billed for transition services provided under the above agreements was not material to our results of operations for the three months ended March 31, 2019. As of March 31, 2019, our Consolidated Balance Sheet included a net receivable of $6.4 million from Arcosa, primarily related to the final settlement

12

Table of Contents

of employee-related matters, tax matters, and certain other separation-related matters contemplated in the agreements described above.
For the three months ended March 31, 2019, our net sales to Arcosa totaled $9.5 million and our purchases from Arcosa totaled $13.3 million. These transactions, which occurred pursuant to the commercial agreements described above, are reflected as third-party transactions in our Consolidated Statements of Operations. As of March 31, 2019, the accounts receivable and accounts payable balances recorded in our Consolidated Balance Sheet associated with these purchases and sales were $9.8 million and $5.2 million, respectively.
We incurred $1.0 million and $7.9 million in spin-off related transaction costs during the three months ended March 31, 2019 and 2018, respectively, of which $1.0 million and $7.4 million are included in income from discontinued operations, net of income taxes in our Consolidated Statements of Operations. These costs primarily relate to the preparation of regulatory filings, investment banking fees, professional fees associated with various legal, accounting, and tax matters related to the spin-off, and other separation activities within the finance, tax, legal, and information technology functions.
Arcosa is a stand-alone public company that separately reports its financial results. Due to differences between the basis of presentation for discontinued operations and the basis of presentation as a stand-alone company, the financial results of Arcosa included within discontinued operations may not be indicative of the actual financial results of Arcosa as a stand-alone company.
The following is a summary of operating results included in income from discontinued operations for the three months ended March 31, 2019 and 2018:
 
 
Three Months Ended March 31,
 
 
2019
 
2018
 
 
(in millions)
Revenues
 
$

 
$
310.9

Cost of revenues
 
0.1

 
242.9

Selling, engineering, and administrative expenses
 
1.2

 
31.5

Other expense
 

 
1.0

Income (loss) from discontinued operations before income taxes
 
(1.3
)
 
35.5

Provision (benefit) for income taxes
 
(0.2
)
 
9.1

Income (loss) from discontinued operations, net of income taxes
 
$
(1.1
)
 
$
26.4


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Table of Contents

Note 3. Derivative Instruments and Fair Value Accounting
Derivative Instruments
We use derivative instruments to mitigate the impact of changes in interest rates, both in anticipation of future debt issuances and to offset interest rate variability of certain floating rate debt issuances outstanding. We also may use derivative instruments to mitigate the impact of changes in natural gas and diesel fuel prices and changes in foreign currency exchange rates. Derivative instruments that are designated and qualify as cash flow hedges are accounted for by recording the effective portion of the gain or loss on the derivative instrument in accumulated other comprehensive loss ("AOCL") as a separate component of stockholders' equity and reclassified into earnings in the period during which the hedged transaction affects earnings. We continuously monitor our derivative positions and the credit ratings of our counterparties and do not anticipate losses due to non-performance. See Note 8 for a description of our debt instruments.
Interest Rate Hedges
 
 
 
 
 
Included in accompanying balance sheet
at March 31, 2019
 
Notional
Amount
 
Interest
Rate(1)
 
Asset/(Liability)
 
AOCL –
loss/
(income)
 
Noncontrolling
Interest
 
(in millions, except %)
Expired hedges:
 
 
 
 
 
 
 
 
 
2006 secured railcar equipment notes
$
200.0

 
4.87
%
 
$

 
$
(0.2
)
 
$

2018 secured railcar equipment notes
$
249.3

 
4.41
%
 
$

 
$
1.2

 
$

TRIP Holdings warehouse loan
$
788.5

 
3.60
%
 
$

 
$
2.8

 
$
3.8

TRIP Master Funding secured railcar equipment notes
$
34.8

 
2.62
%
 
$

 
$
0.2

 
$
0.3

2017 promissory notes - interest rate cap
$
169.3

 
3.00
%
 
$

 
$
(0.7
)
 
$

Open hedge:
 
 
 
 
 
 
 
 
 
2017 promissory notes - interest rate swap
$
391.2

 
3.13
%
 
$
(19.5
)
 
$
19.4

 
$

(1) 
Weighted average fixed interest rate, except for the interest rate cap on the 2017 promissory notes.
 
Effect on interest expense-increase/(decrease)
 
Three Months Ended
March 31,
 
Expected effect during next twelve months(1)
 
2019
 
2018
 
 
(in millions)
Expired hedges:
 
 
 
 
 
2006 secured railcar equipment notes
$

 
$
(0.1
)
 
$
0.1

2018 secured railcar equipment notes
$
0.1

 
$

 
$
0.2

TRIP Holdings warehouse loan
$
0.5

 
$
0.7

 
$
2.1

TRIP Master Funding secured railcar equipment notes
$
0.1

 
$
0.1

 
$
0.2

2017 promissory notes - interest rate cap
$

 
$

 
$
0.1

Open hedge:
 
 
 
 
 
2017 promissory notes - interest rate swap
$
0.6

 
$

 
$
2.4

(1) Based on the fair value of open hedges as of March 31, 2019
Natural Gas and Diesel Fuel Derivatives
From time to time, we may enter into derivative instruments to mitigate the impact of increases in natural gas and diesel fuel prices. For any instruments that do not qualify for hedge accounting treatment, changes in their fair values are recorded directly to the Consolidated Statement of Operations. The effect of commodity hedge transactions was immaterial to the Consolidated Financial Statements for all periods presented herein.

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Table of Contents

Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for that asset or liability in an orderly transaction between market participants on the measurement date. An entity is required to establish a fair value hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are listed below.
Level 1 – This level is defined as quoted prices in active markets for identical assets or liabilities. Our cash equivalents and restricted cash are instruments of the U.S. Treasury or highly-rated money market mutual funds. The assets measured as Level 1 in the fair value hierarchy are summarized below:
 
Level 1
 
March 31, 2019
 
December 31, 2018
 
(in millions)
Assets:
 
 
 
Cash equivalents
$
30.0

 
$
124.9

Restricted cash
114.2

 
171.6

Total assets
$
144.2

 
$
296.5

Level 2 – This level is defined as observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Interest rate hedges are valued at exit prices obtained from each counterparty. The liabilities measured as Level 2 in the fair value hierarchy are summarized below:
 
Level 2
 
March 31, 2019
 
December 31, 2018
 
(in millions)
Liabilities:
 
 
 
Interest rate hedge (1)
$
19.5

 
$
12.9

Total liabilities
$
19.5

 
$
12.9

(1) Included in accrued liabilities in our Consolidated Balance Sheets

Level 3 – This level is defined as unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. As of March 31, 2019 and December 31, 2018, we have no assets measured as Level 3 in the fair value hierarchy.
See Note 8 for the estimated fair values of our debt instruments. The fair values of all other financial instruments are estimated to approximate carrying value.


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Table of Contents

Note 4. Segment Information
We report our operating results in three principal business segments: (1) the Railcar Leasing and Management Services Group, which owns and operates a fleet of railcars and provides third-party fleet leasing, management, and administrative services; (2) the Rail Products Group, which manufactures and sells railcars and related parts and components, and provides railcar maintenance and modification services; and (3) All Other. The All Other segment includes our highway products business; our logistics businesses; 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.
Sales and related net profits ("deferred profit") from the Rail Products Group to the Leasing Group are recorded in the Rail Products Group and eliminated in consolidation and are reflected in "Eliminations - Lease subsidiary" in the tables below. Sales between these groups are recorded at prices comparable to those charged to external customers, taking into consideration quantity, features, and production demand. Amortization of deferred profit on railcars sold to the Leasing Group is included in the operating profit of the Leasing Group, resulting in the recognition of depreciation expense based on our original manufacturing cost of the railcars. 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.
 
Three Months Ended March 31, 2019
 
Railcar Leasing and Management Services Group
 
Rail Products Group
 
All Other
 
Corporate
 
Eliminations - Lease Subsidiary
 
Eliminations - Other
 
Consolidated Total
External Revenue
$
200.2

 
$
333.5

 
$
71.1

 
$

 
$

 
$

 
$
604.8

Intersegment Revenue
0.2

 
270.1

 
15.3

 

 
(270.1
)
 
(15.5
)
 

Total Revenues
$
200.4

 
$
603.6

 
$
86.4

 
$

 
$
(270.1
)
 
$
(15.5
)
 
$
604.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Profit (Loss)
$
85.8

 
$
50.6

 
$
6.6

 
$
(23.6
)
 
$
(27.2
)
 
$
(0.4
)
 
$
91.8


 
Three Months Ended March 31, 2018
 
Railcar Leasing and Management Services Group
 
Rail Products Group
 
All Other
 
Corporate
 
Eliminations - Lease Subsidiary
 
Eliminations - Other
 
Consolidated Total
External Revenue
$
174.3

 
$
292.0

 
$
66.9

 
$

 
$

 
$

 
$
533.2

Intersegment Revenue
0.3

 
296.1

 
10.4

 

 
(296.1
)
 
(10.7
)
 

Total Revenues
$
174.6

 
$
588.1

 
$
77.3

 
$

 
$
(296.1
)
 
$
(10.7
)
 
$
533.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Profit (Loss)
$
71.1

 
$
51.5

 
$
5.8

 
$
(37.7
)
 
$
(28.7
)
 
$
0.1

 
$
62.1






16

Table of Contents

Note 5. Partially-Owned Leasing Subsidiaries
Through our wholly-owned subsidiary, Trinity Industries Leasing Company (“TILC”), we 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 we have 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 March 31, 2019, the carrying value of our investment in TRIP Holdings and RIV 2013 totaled $188.7 million. Our 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 investment in our partially-owned leasing subsidiaries is eliminated in consolidation.
Each of TRIP Holdings and RIV 2013 has wholly-owned subsidiaries that are the owners of railcars acquired from our Rail Products and Leasing Groups. 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. Our controlling interest in each of TRIP Holdings and RIV 2013 result from our combined role as both equity member and agent/servicer. The noncontrolling interest included in the accompanying Consolidated Balance Sheets represents the non-Trinity equity interest in these partially-owned subsidiaries.
Trinity has no obligation to guarantee performance under any of our partially-owned subsidiaries' (or their respective subsidiaries') debt agreements, guarantee any railcar residual values, shield any parties from losses, or guarantee minimum yields.
The assets of each of 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 are currently scheduled to 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 8 regarding the debt of TRIP Holdings and RIV 2013 and their respective subsidiaries.
Other Investments
In 2018, TILC acquired a 5% equity interest in an RIV fund that is managed and controlled by a third party that is also one of our RIV partners. We have evaluated the potential for consolidation using the variable interest model and have determined that Trinity is not required to consolidate this entity. The carrying value of our equity investment in this entity was not significant to our Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018.


17

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, and administrative services. Selected consolidated financial information for the Leasing Group is as follows:
 
March 31, 2019
 
Leasing Group
 
 
 
 
 
Wholly-
Owned
Subsidiaries
 
Partially-Owned Subsidiaries
 
Manufacturing/
Corporate
 
Total
 
(in millions)
Cash and cash equivalents
$
4.5

 
$

 
$
69.4

 
$
73.9

Property, plant, and equipment, net
$
5,406.2

 
$
1,810.3

 
$
369.8

 
$
7,586.3

Net deferred profit on railcars sold to the Leasing Group
 
 
 
 
 
 
(839.5
)
Consolidated property, plant, and equipment, net
 
 
 
 
 
 
$
6,746.8

Restricted cash
$
85.1

 
$
29.0

 
$
0.1

 
$
114.2

Debt:
 
 
 
 
 
 
 
Recourse
$

 
$

 
$
650.0

 
$
650.0

Less: unamortized discount

 

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

 

 
(2.2
)
 
(2.2
)
 

 

 
647.5

 
647.5

Non-recourse
2,534.6

 
1,317.4

 

 
3,852.0

Less: unamortized discount
(2.3
)
 

 

 
(2.3
)
Less: unamortized debt issuance costs
(18.6
)
 
(12.2
)
 

 
(30.8
)
 
2,513.7

 
1,305.2

 

 
3,818.9

Total debt
$
2,513.7

 
$
1,305.2

 
$
647.5

 
$
4,466.4

Net deferred tax liabilities
$
806.2

 
$
1.0

 
$
(63.3
)
 
$
743.9

 
 
December 31, 2018
 
Leasing Group
 
 
 
 
 
Wholly-
Owned
Subsidiaries
 
Partially-Owned Subsidiaries
 
Manufacturing/
Corporate
 
Total
 
(in millions)
Cash and cash equivalents
$
6.0

 
$

 
$
173.2

 
$
179.2

Property, plant, and equipment, net
$
4,976.5

 
$
1,814.7

 
$
370.9

 
$
7,162.1

Net deferred profit on railcars sold to the Leasing Group
 
 
 
 
 
 
(827.7
)
Consolidated property, plant, and equipment, net
 
 
 
 
 
 
$
6,334.4

Restricted cash
$
134.9

 
$
36.6

 
$
0.1

 
$
171.6

Debt:
 
 
 
 
 
 
 
Recourse
$

 
$

 
$
400.0

 
$
400.0

Less: unamortized discount

 

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

 

 
(2.3
)
 
(2.3
)
 

 

 
397.4

 
397.4

Non-recourse
2,339.0

 
1,327.9

 

 
3,666.9

Less: unamortized discount
(2.7
)
 

 

 
(2.7
)
Less: unamortized debt issuance costs
(19.7
)
 
(12.7
)
 

 
(32.4
)
 
2,316.6

 
1,315.2

 

 
3,631.8

Total debt
$
2,316.6

 
$
1,315.2

 
$
397.4

 
$
4,029.2

Net deferred tax liabilities
$
797.6

 
$
1.0

 
$
(67.0
)
 
$
731.6

Net deferred profit on railcars sold to the Leasing Group consists of intersegment profit that is eliminated in consolidation and is, therefore, not allocated to an operating segment. See Note 5 and Note 8 for a further discussion regarding our investment in our partially-owned leasing subsidiaries and the related indebtedness. See Note 15 for a discussion of subsidiary guarantees of our 4.55% senior notes due 2024 ("Senior Notes").

18

Table of Contents

 
Three Months Ended March 31,
 
2019
 
2018
 
Percent
 
($ in millions)
 
Change
Revenues:
 
 
 
 
 
Leasing and management
$
187.1

 
$
174.6

 
7.2
 %
Sales of railcars owned one year or less at the time of sale
13.3

 

 
*
Total revenues
$
200.4

 
$
174.6

 
14.8

 
 
 
 
 


Operating profit:
 
 
 
 


Leasing and management
$
77.1

 
$
69.0

 
11.7

Railcar sales:
 
 
 
 


Railcars owned one year or less at the time of sale
0.8

 

 
*
Railcars owned more than one year at the time of sale
7.9

 
2.1

 
*
Total operating profit
$
85.8

 
$
71.1

 
20.7

Total operating profit margin
42.8
%

40.7
%



 
 
 
 
 
 
Leasing and management operating profit margin
41.2
%

39.5
%



 
 
 
 
 


Selected expense information(1):
 
 
 
 


Depreciation
$
54.4

 
$
45.1

 
20.6

Maintenance and compliance
$
27.8

 
$
26.4

 
5.3

Rent
$
5.5

 
$
10.1

 
(45.5
)
Selling, engineering, and administrative expenses
$
12.8

 
$
12.2

 
4.9

Interest
$
46.0

 
$
31.5

 
46.0

 * Not meaningful
(1) Depreciation, maintenance and compliance, rent, and selling, engineering, and administrative expenses are components of operating profit. Amortization of deferred profit on railcars sold from the Rail Products Group to the Leasing Group is included in the operating profit of the Leasing Group resulting in the recognition of depreciation expense based on our original manufacturing cost of the railcars. Interest expense is not a component of operating profit and includes the effect of hedges.
During the three months ended March 31, 2019 and 2018, the Leasing Group received proceeds from the sales of leased railcars as follows:
 
Three Months Ended March 31,
 
2019
 
2018
 
(in millions)
Railcars owned one year or less at the time of sale
$
13.3

 
$

Railcars owned more than one year at the time of sale
29.4

 
15.5

 
$
42.7

 
$
15.5

Equipment consists primarily of railcars leased by third parties. The Leasing Group purchases equipment manufactured predominantly by the Rail Products Group and enters into lease contracts with third parties with terms generally ranging between one and ten years, although certain leases entered into in prior periods had lease terms of up to twenty years. The Leasing Group primarily enters into operating leases. Future contractual minimum rental revenues on leases related to our wholly-owned and partially-owned subsidiaries are as follows:
 
 
Remaining nine months of 2019
 
2020
 
2021
 
2022
 
2023
 
Thereafter
 
Total
 
 
(in millions)
Future contractual minimum rental revenue
 
$
423.0

 
$
471.0

 
$
353.5

 
$
263.5

 
$
172.9

 
$
312.4

 
$
1,996.3

Debt. Wholly-owned subsidiaries. The Leasing Group’s debt at March 31, 2019 consisted primarily of non-recourse debt. As of March 31, 2019, Trinity’s wholly-owned subsidiaries included in the Leasing Group held equipment with a net book value of $3,742.9 million which is pledged as collateral for Leasing Group debt held by those subsidiaries. The net book value of unpledged equipment at March 31, 2019 was $1,652.6 million. See Note 8 for the form, maturities, and descriptions of Leasing Group debt.

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Table of Contents

Partially-owned subsidiaries. Debt owed by TRIP Holdings and RIV 2013 and their respective subsidiaries is nonrecourse to Trinity and TILC. Creditors of each of TRIP Holdings and RIV 2013 and their respective subsidiaries have recourse only to the particular subsidiary's assets. TRIP Master Funding equipment with a net book value of $1,258.2 million is pledged as collateral for the TRIP Master Funding debt. TRL-2012 equipment with a net book value of $552.1 million is pledged solely as collateral for the TRL-2012 secured railcar equipment notes. See Note 5 for a description of TRIP Holdings and RIV 2013.
Off Balance Sheet Arrangements. In prior years, the Leasing Group completed a series of financing transactions whereby railcars were sold to one or more separate independent owner trusts (“Trusts”). Each of the Trusts financed the purchase of the railcars with a combination of debt and equity. In each transaction, the equity participant in each of the respective Trusts is considered to be the primary beneficiary of the Trust and therefore, the accounts of the Trusts, including the debt related to each of the Trusts, are not included as part of the Consolidated Financial Statements. The Leasing Group, through wholly-owned, qualified subsidiaries, leased railcars from the Trusts under operating leases with terms of 22 years, and subleased the railcars to independent third-party customers under shorter term operating lease agreements. The terms of the operating lease agreements between the subsidiaries and the remaining Trusts provided the Leasing Group with the option to purchase, at a predetermined fixed price, certain railcars from the remaining Trusts in 2019. On January 14, 2019, we completed the purchase for a purchase price of $218.4 million. As a result, 6,779 railcars previously under lease are now wholly owned by our Leasing Group. The future contractual minimum rental revenues associated with these railcars are included in the table above.
Operating Lease Obligations. Future amounts due as well as future contractual minimum rental revenues related to operating leases related to the Leasing Group other than the leases discussed above are as follows: 
 
 
Remaining nine months of 2019
 
2020
 
2021
 
2022
 
2023
 
Thereafter
 
Total
 
 
(in millions)
Future operating lease obligations
 
$
10.4

 
$
8.3

 
$
7.6

 
$
6.9

 
$
4.9

 
$
1.7

 
$
39.8

Future contractual minimum rental revenues
 
$
7.9

 
$
7.3

 
$
5.4

 
$
3.7

 
$
1.5

 
$
0.4

 
$
26.2

Operating lease obligations totaling $1.2 million are guaranteed by Trinity Industries, Inc. and certain subsidiaries. See Note 6 in our 2018 Annual Report on Form 10-K for a detailed explanation of these financing transactions.

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Note 7. Property, Plant, and Equipment
The following table summarizes the components of property, plant, and equipment as of March 31, 2019 and December 31, 2018.
 
March 31,
2019
 
December 31,
2018
 
(in millions)
Manufacturing/Corporate:
 
 
 
Land
$
24.2

 
$
24.2

Buildings and improvements
388.4

 
385.5

Machinery and other
538.2

 
537.2

Construction in progress
21.9

 
16.3

 
972.7

 
963.2

Less accumulated depreciation
(602.9
)
 
(592.3
)
 
369.8

 
370.9

Leasing:
 
 
 
Wholly-owned subsidiaries:
 
 
 
Machinery and other
13.8

 
13.5

Equipment on lease
6,401.6

 
5,934.8

 
6,415.4

 
5,948.3

Less accumulated depreciation
(1,009.2
)
 
(971.8
)
 
5,406.2

 
4,976.5

Partially-owned subsidiaries:
 
 
 
Equipment on lease
2,384.0

 
2,371.9

Less accumulated depreciation
(573.7
)
 
(557.2
)
 
1,810.3

 
1,814.7

 
 
 
 
Deferred profit on railcars sold to the Leasing Group
(1,048.9
)
 
(1,030.0
)
Less accumulated amortization
209.4

 
202.3

 
(839.5
)
 
(827.7
)
 
$
6,746.8

 
$
6,334.4


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Table of Contents

Note 8. Debt
The carrying amounts and estimated fair values of our long-term debt are as follows:
 
March 31, 2019
 
December 31, 2018
 
Carrying Value
 
Estimated Fair Value
 
Carrying Value
 
Estimated Fair Value
 
(in millions)
Corporate – Recourse:
 
 
 
 
 
 
 
Revolving credit facility
$
250.0

 
$
250.0

 
$

 
$

Senior notes, net of unamortized discount of $0.3 and $0.3
399.7

 
383.0

 
399.7

 
343.7

 
649.7

 
633.0

 
399.7

 
343.7

Less: unamortized debt issuance costs
(2.2
)
 
 
 
(2.3
)
 
 
Total recourse debt
647.5

 
 
 
397.4

 
 
 
 
 
 
 
 
 
 
Leasing – Non-recourse:
 
 
 
 
 
 
 
Wholly-owned subsidiaries:
 
 
 
 
 
 
 
2006 secured railcar equipment notes
126.5

 
131.3

 
133.4

 
138.0

2009 secured railcar equipment notes
156.6

 
173.1

 
159.7

 
174.0

2010 secured railcar equipment notes
254.6

 
263.7

 
257.0

 
264.0

2017 promissory notes
651.9

 
651.9

 
660.2

 
660.2

2018 secured railcar equipment notes, net of unamortized discount of $0.2 and $0.2
467.3

 
482.5

 
472.2

 
475.2

TRIHC 2018 secured railcar equipment notes, net of unamortized discount of $2.1 and $2.5
274.9

 
276.1

 
279.0

 
278.1

TILC warehouse facility
600.5

 
600.5

 
374.8

 
374.8

 
2,532.3

 
2,579.1

 
2,336.3

 
2,364.3

Less: unamortized debt issuance costs
(18.6
)
 
 
 
(19.7
)
 
 
 
2,513.7

 
 
 
2,316.6

 
 
Partially-owned subsidiaries:
 
 
 
 
 
 
 
TRL 2012 secured railcar equipment notes
381.7

 
381.3

 
386.2

 
370.9

TRIP Master Funding secured railcar equipment notes
935.7

 
959.0

 
941.7

 
963.0

 
1,317.4

 
1,340.3

 
1,327.9

 
1,333.9

Less: unamortized debt issuance costs
(12.2
)
 
 
 
(12.7
)
 
 
 
1,305.2

 
 
 
1,315.2

 
 
Total non–recourse debt
3,818.9

 
 
 
3,631.8

 
 
Total debt
$
4,466.4

 
$
4,552.4

 
$
4,029.2

 
$
4,041.9

The estimated fair value of our Senior Notes is based on a quoted market price in a market with little activity as of March 31, 2019 and December 31, 2018 (Level 2 input). The estimated fair values of our 2006, 2009, 2010, 2012, and 2018 secured railcar equipment notes, TRIHC 2018 LLC ("TRIHC 2018"), and TRIP Rail Master Funding LLC (“TRIP Master Funding”) secured railcar equipment notes are based on our estimate of their fair value as of March 31, 2019 and December 31, 2018 using unobservable input values provided by a third party (Level 3 inputs). The respective carrying values of our revolving credit facility, TILC warehouse facility, and 2017 promissory notes approximate fair value because the interest rate adjusts to the market interest rate (Level 3 input).
Revolving Credit Facility — We have a $450.0 million unsecured corporate revolving credit facility that matures in November 2023. During the three months ended March 31, 2019, we borrowed $400.0 million and repaid $150.0 million under the revolving credit facility, with a remaining outstanding balance of $250.0 million as of March 31, 2019. Additionally, we had outstanding letters of credit issued in an aggregate principal amount of $57.5 million, leaving $142.5 million available for borrowing as of March 31, 2019. The outstanding letters of credit as of March 31, 2019 are scheduled to expire in July 2019. Our letters of credit obligations support our various insurance programs and generally renew by their terms each year. The revolving credit facility bears interest at a variable rate based on LIBOR or an alternate base rate at the time of the borrowing and Trinity’s leverage as measured by a consolidated total indebtedness to consolidated EBITDA ratio, and was initially set at LIBOR plus 1.25% (1.25% as of March 31, 2019). A commitment fee accrues on the average daily unused portion of the revolving facility at the rate of 0.175% to 0.30% (0.175% as of March 31, 2019).
The revolving credit facility requires the maintenance of ratios related to minimum interest coverage for the leasing and manufacturing operations and maximum leverage. As of March 31, 2019, we were in compliance with all such financial covenants. Borrowings under the credit facility are guaranteed by certain of our 100%-owned subsidiaries.

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Table of Contents

TILC Warehouse Loan Facility — The TILC warehouse loan facility, established to finance railcars owned by TILC, had $600.5 million in outstanding borrowings as of March 31, 2019. The entire unused facility amount of $149.5 million was available as of March 31, 2019 based on the amount of warehouse-eligible, unpledged equipment. The warehouse loan facility is a non-recourse obligation and is secured by a portfolio of railcars and operating leases, certain cash reserves, and other assets acquired and owned by the warehouse loan facility trust. The principal and interest of this indebtedness are paid from the cash flows of the underlying leases. Advances under the facility bear interest at a defined index rate plus a margin, for an all-in interest rate of 4.16% at March 31, 2019. Amounts outstanding at maturity, absent renewal, are payable in March 2022.
Terms and conditions of other debt, including recourse and non-recourse provisions, are described in Note 11 of our 2018 Annual Report on Form 10-K.
The remaining principal payments under existing debt agreements as of March 31, 2019, are as follows:
 
Remaining nine months of 2019
 
2020
 
2021
 
2022
 
2023
 
Thereafter
 
(in millions)
Recourse:
 
Corporate
$

 
$

 
$

 
$

 
$
250.0

 
$
400.0

Non-recourse – leasing (Note 6):
 
 
 
 
 
 
 
 
 
 
 
2006 secured railcar equipment notes
21.8

 
29.7

 
29.1

 
29.8

 
16.1

 

2009 secured railcar equipment notes
8.3

 
6.6

 
13.4

 
14.0

 
11.8

 
102.5

2010 secured railcar equipment notes
6.0

 
14.1

 
20.0

 
20.9

 
22.5

 
171.1

2017 promissory notes
24.9

 
33.1

 
33.1

 
33.2

 
33.1

 
494.5

2018 secured railcar equipment notes
15.