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Summary of Significant Accounting Policies | 9 Months Ended
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Sep. 30, 2019
Accounting Policies [Abstract] |
Summary of Significant Accounting Policies | 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 September 30, 2019, and the results of operations for the three and nine months ended September 30, 2019 and 2018, and cash flows for the nine months ended September 30, 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 nine months ended September 30, 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. Leases not classified as operating leases are generally considered sales-type leases as a result of an option to purchase. We review our operating lease receivables for collectibility on a regular basis, taking into consideration changes in factors such as the lessee’s payment history, the financial condition of the lessee, and business and economic conditions in the industry in which the lessee operates. In the event that the collectibility of a receivable with respect to any lessee is no longer probable, we de-recognize the revenue and related receivable and recognize future revenue only when the lessee makes a rental payment. Contingent rents are recognized when the contingency is resolved. Selling profit or loss associated with sales-type leases is recognized upon lease commencement, and a net investment in the sales-type lease is recorded on the Consolidated Balance Sheet. Interest income related to sales-type leases is recognized over the lease term using the effective interest method. 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. 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 $6.2 million and $10.2 million as of September 30, 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 September 30, 2019 and the percentage of the outstanding performance obligations as of September 30, 2019 expected to be delivered during the remainder of 2019:
| Unsatisfied performance obligations at September 30, 2019
| Total Amount |  | Percent expected to be delivered in 2019
| (in millions) |  |
Rail Products Group: |  |  |
Products: |  |  |
External Customers | $ | 1,628.3 |  |  |
Leasing Group | 817.4 |  |  |
| $ | 2,445.7 |  |  | 33 | %
Maintenance Services | $ | 44.9 |  |  | 49 | %
Railcar Leasing and Management Services Group | $ | 90.0 |  |  | 5 | %
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, maintenance, and management agreements and are expected to be performed through 2029. 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 September 30, 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 (in millions, except lease term and discount rate):
| Three Months Ended September 30, 2019 |  | Nine Months Ended September 30, 2019
Consolidated Statement of Operations |  |  |
Operating lease expense | $ | 4.0 |  |  | $ | 13.3 |
Short-term lease expense | $ | 0.9 |  |  | $ | 3.5 |
|  |  | September 30, 2019
Consolidated Balance Sheet |  |  |
Right-of-use assets (1) |  | $ | 45.3 |
Lease liabilities (2) |  | $ | 46.0 |
Weighted average remaining lease term |  | 4.9 years |
Weighted average discount rate |  | 4.1 | %
|  |  | Nine Months Ended September 30, 2019
Consolidated Statement of Cash Flows |  |  |
Cash flows from operating activities |  | $ | 13.3 |
Right-of-use assets recognized in exchange for new lease liabilites |  | $ | 8.4 |
(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 three months of 2019 | $ | 3.2 |  |  | $ | 0.9 |  |  | $ | 4.1 |
2020 | 9.5 |  |  | 3.1 |  |  | 12.6 |
2021 | 8.2 |  |  | 2.1 |  |  | 10.3 |
2022 | 7.5 |  |  | 1.8 |  |  | 9.3 |
2023 | 5.5 |  |  | 1.5 |  |  | 7.0 |
Thereafter | 3.3 |  |  | 3.3 |  |  | 6.6 |
Total operating lease payments | $ | 37.2 |  |  | $ | 12.7 |  |  | $ | 49.9 |
Less: Present value adjustment |  |  |  |  | (3.9 | )
Total operating lease liabilities |  |  |  |  | $ | 46.0 |
Lessor Our Leasing Group enters into railcar operating leases with third parties with terms generally ranging between one year 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 that earn fixed monthly lease payments. A portion of our fleet operates on per diem leases that earn usage-based variable lease payments. Some of our leases include options to extend the leases for up to five years, and a small percentage of our leases include options to terminate within one year with certain notice requirements and early termination penalties. Our sales-type leases include an option for the lessee to purchase the leased railcars with certain notice. As of September 30, 2019, 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. The following table summarizes the impact of our leases on our Consolidated Statement of Operations (in millions):
| Three Months Ended September 30, 2019 |  | Nine Months Ended September 30, 2019
Operating lease revenues | $ | 169.5 |  |  | $ | 506.9 |
Variable operating lease revenues | 12.5 |  |  | 36.6 |
Sales-type lease revenues | 26.3 |  |  | 60.5 |
Interest income on sales-type lease receivables | 0.6 |  |  | 0.9 |
Profit recognized at sales-type lease commencement | 3.7 |  |  | 7.8 |
Future contractual minimum lease receivables for sales-type leases will mature as follows (in millions):
Remaining three months of 2019 | $ | 4.6 |
2020 | 15.7 |
2021 | 45.9 |
2022 | — |
2023 | — |
Thereafter | — |
Total | $ | 66.2 |
Less: Unearned interest income | (7.8 | )
Net investment in sales-type leases (1) | $ | 58.4 |
(1) Includes $0.9 million in receivables, net of allowance and $57.5 million in other assets in our Consolidated Balance Sheet Future contractual minimum revenues for operating leases will mature as follows (in millions):
Remaining three months of 2019 | $ | 149.4 |
2020 | 521.3 |
2021 | 413.0 |
2022 | 314.8 |
2023 | 217.1 |
Thereafter | 388.2 |
Total | $ | 2,003.8 |
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. Goodwill As of September 30, 2019 and December 31, 2018, the carrying amount of our goodwill totaled $208.8 million, which is primarily attributable to the Rail Products Group. Warranties We provide various express, limited product warranties that generally range from one year 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 and nine months ended September 30, 2019 and 2018 are as follows:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
| (in millions)
Beginning balance | $ | 8.3 |  |  | $ | 10.5 |  |  | $ | 7.4 |  |  | $ | 10.1 |
Warranty costs incurred | (1.7 | ) |  | (1.1 | ) |  | (3.2 | ) |  | (2.9 | )
Warranty originations and revisions | 3.2 |  |  | (2.1 | ) |  | 5.8 |  |  | (0.2 | )
Warranty expirations | — |  |  | (0.1 | ) |  | (0.2 | ) |  | 0.2 |
Ending balance | $ | 9.8 |  |  | $ | 7.2 |  |  | $ | 9.8 |  |  | $ | 7.2 |
Recent Accounting Pronouncements Adopted in 2019 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. For qualifying operating leases in which we are the lessor, we do 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. Effective in 2020 ASU 2018-15 — In August 2018, the FASB issued ASU No. 2018-15, "Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," which aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. ASU 2018-15 is effective for public companies during interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. We plan to adopt ASU 2018-15 effective January 1, 2020 on a prospective basis and are currently evaluating its impact on our Consolidated Financial Statements. ASU 2016-13 — In June 2016, the FASB issued ASU No. 2016-13, "Measurement of Credit Losses on Financial Instruments," which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. This approach may result in the earlier recognition of allowances for losses. In November 2018, the FASB issued ASU No. 2018-19, "Codification Improvements to Topic 326, Financial Instruments—Credit Losses," which excludes operating lease receivables from the scope of ASU 2016-13. ASU 2016-13 is effective for public companies during interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. We plan to adopt ASU 2016-13 effective January 1, 2020 on a prospective basis and are currently evaluating its impact on our Consolidated Financial Statements.

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- Definition The entire disclosure for the basis of presentation and significant accounting policies concepts. Basis of presentation describes the underlying basis used to prepare the financial statements (for example, US Generally Accepted Accounting Principles, Other Comprehensive Basis of Accounting, IFRS). Accounting policies describe all significant accounting policies of the reporting entity. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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