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Note 1. Summary of Significant Accounting Policies | 12 Months Ended
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Dec. 31, 2022
Accounting Policies [Abstract] |
Significant Accounting Policies [Text Block] | Note 1. Summary of Significant Accounting Policies Principles of Consolidation The financial statements of Trinity Industries, Inc. and its consolidated subsidiaries (“Trinity,” “Company,” “we,” “our,” or "us") include 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 we have a controlling interest. All significant intercompany accounts and transactions have been eliminated. Certain prior year balances have been reclassified to conform to the 2022 presentation. Sale of Highway Products Business In the fourth quarter of 2021, the Company completed the sale of Trinity Highway Products, LLC (“THP”), a wholly-owned subsidiary of the Company, and certain direct and indirect subsidiaries of THP, to Rush Hour Intermediate II, LLC ("Rush Hour"), an entity owned by an affiliated investment fund of Monomoy Capital Partners, for an aggregate purchase price of $375.0 million. A final working capital adjustment was recorded in the second quarter of 2022. We concluded that the sale of THP represented a strategic shift that would have a major effect on the Company’s operations and financial results. Accordingly, we have presented the operating results and cash flows of THP as discontinued operations for all periods in this 2022 Annual Report on Form 10-K. Results of prior periods have been recast to reflect these changes and present results on a comparable basis. See Note 2 for further information related to the sale of THP. 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 derecognize 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 in the Consolidated Balance Sheets. Interest income related to sales-type leases is recognized over the lease term using the effective interest method. See "Lease Accounting" below for additional information regarding sales-type leases as of December 31, 2022. We had no sales-type leases as of December 31, 2021. During the fourth quarter of 2020, we began presenting sales from our lease fleet in the Leasing Group on a net basis regardless of the age of railcar that is sold. Historically, in accordance with ASC 606, Revenue from contracts with customers, we presented sales of railcars from the lease fleet on a gross basis in Revenues – Leasing and Cost of revenues – Leasing in our Consolidated Statements of Operations if the railcars had 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 had historically been presented as a net gain or loss from the disposal of a long-term asset. We now report all sales of railcars from the lease fleet as a net gain or loss from the disposal of a long-term asset in accordance with ASC 610-20, Gains and losses from the derecognition of non-financial assets. These sales are presented in the Lease portfolio sales line in our Consolidated Statements of Operations; however, because this change in presentation was effected on a prospective basis beginning in the fourth quarter of 2020, lease portfolio sales for the year ended December 31, 2020 only include sales of railcars from the lease fleet owned for more than one year. There were no lease portfolio sales during the fourth quarter of 2020. We have concluded that this presentation is appropriate given the significant change in the strategic focus of the Company. The presentation change had no effect on the Company’s operating profit, net income, earnings per share, or Consolidated Balance Sheet. 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 related to new railcars when the customer has submitted its certificate of acceptance and legal title of the railcar has passed to the customer. Certain contracts for the sales of railcars include price adjustments based on changes to input costs; this amount represents variable consideration for which we are unable to estimate the final consideration until the railcar is delivered. Revenue is recognized over time as repair and maintenance projects and sustainable railcar conversions 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 $2.9 million and $4.5 million as of December 31, 2022 and 2021, respectively, related to unbilled revenues recognized on repair and maintenance services and sustainable railcar conversions 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. 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 December 31, 2022 and the percentage of the outstanding performance obligations as of December 31, 2022 expected to be delivered during 2023:
| Unsatisfied performance obligations at December 31, 2022
| Total Amount |  | Percent expected to be delivered in 2023
| (in millions) |  |
Rail Products Group: |  |  |
New railcars: |  |  |
External customers (1) | $ | 3,444.1 |  |  |
Leasing Group | 458.9 |  |  |
| $ | 3,903.0 |  |  | 48.5 | %
Sustainable railcar conversions | $ | 166.5 |  |  | 73.5 | %
Railcar Leasing and Management Services Group | $ | 75.5 |  |  | 20.4 | %
(1) Unsatisfied performance obligations at December 31, 2022 include 15,000 railcars expected to be delivered through 2028, valued at approximately $1.8 billion, associated with a new long-term railcar supply agreement with GATX Corporation. The remainder of the unsatisfied performance obligations for the Rail Products Group is expected to be delivered through 2028. The orders in the Rail Products Group's backlog from the Leasing Group are fully supported by lease commitments with external customers. The final amount of backlog attributable to the Leasing Group may vary by the time of delivery as customers may choose to change their procurement decision. 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 office buildings and railcars, as well as manufacturing equipment and office equipment. Our operating leases have remaining lease terms ranging from one year to fourteen 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 December 31, 2022, we had no material finance leases in which we were the lessee. Certain of our operating leases include lease incentives, which reduce the right-of-use asset and are recognized on a straight-line basis over the lease term. As applicable, the lease liability is also reduced by the amount of lease incentives that have not yet been reimbursed by the lessor. The following table summarizes the impact of our operating leases on our Consolidated Financial Statements (in millions, except lease term and discount rate):
| Year Ended December 31,
| 2022 |  | 2021 |  | 2020
Consolidated Statement of Operations |  |  |  |  |
Operating lease expense | $ | 18.2 |  |  | $ | 15.2 |  |  | $ | 15.1 |
Short-term lease expense | $ | 0.4 |  |  | $ | 0.2 |  |  | $ | 2.1 |
Consolidated Statement of Cash Flows |  |  |  |  |
Cash flows from operating activities | $ | 18.2 |  |  | $ | 15.2 |  |  | $ | 15.1 |
Right-of-use assets recognized in exchange for new lease liabilities (1) | $ | 28.8 |  |  | $ | 23.0 |  |  | $ | 54.5 |
|  |  | December 31, 2022 |  | December 31, 2021
Consolidated Balance Sheet |  |  |  |  |
Right-of-use assets (2) |  |  | $ | 93.1 |  |  | $ | 82.8 |
Lease liabilities (3) |  |  | $ | 114.8 |  |  | $ | 106.3 |
Weighted average remaining lease term |  |  | 9.9 years |  | 10.8 years
Weighted average discount rate |  |  | 2.8 | % |  | 3.0 | %
(1) Includes the commencement of the new headquarters facility for the year ended December 31, 2020. (2) Included in other assets in our Consolidated Balance Sheets. (3) Included in other liabilities in our Consolidated Balance Sheets. Future contractual minimum operating lease liabilities will mature as follows (in millions):
| Leasing Group |  | Non-Leasing Group |  | Total
2023 | $ | 12.0 |  |  | $ | 8.9 |  |  | $ | 20.9 |
2024 | 8.1 |  |  | 7.7 |  |  | 15.8 |
2025 | 6.0 |  |  | 7.0 |  |  | 13.0 |
2026 | 5.7 |  |  | 6.6 |  |  | 12.3 |
2027 | 5.3 |  |  | 6.5 |  |  | 11.8 |
Thereafter | 3.5 |  |  | 56.4 |  |  | 59.9 |
Total operating lease payments | $ | 40.6 |  |  | $ | 93.1 |  |  | $ | 133.7 |
Less: Present value adjustment |  |  |  |  | (18.9) |
Total operating lease liabilities |  |  |  |  | $ | 114.8 |
Lessor Our Leasing Group enters into railcar operating leases with third parties with terms generally ranging between one year and ten years. The majority of our fleet operates on leases that earn fixed monthly lease payments. Generally, lease payments are due at the beginning of the applicable month. 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 early termination options with certain notice requirements and early termination penalties. As of December 31, 2022, 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 actively participating in 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 in our Consolidated Statements of Operations (in millions):
| Year Ended December 31,
| 2022 |  | 2021 |  | 2020
Operating lease revenues | $ | 679.4 |  |  | $ | 652.5 |  |  | $ | 671.4 |
Variable operating lease revenues | $ | 60.3 |  |  | $ | 54.2 |  |  | $ | 51.0 |
Interest income on sales-type lease receivables | $ | 0.7 |  |  | $ | — |  |  | $ | — |
Profit recognized at sales-type lease commencement (1) | $ | 1.3 |  |  | $ | — |  |  | $ | — |
(1) Included in gains on dispositions of property – lease portfolio sales on our Consolidated Statements of Operations. Future contractual minimum revenues for operating leases will mature as follows (in millions)(1):
2023 | $ | 596.2 |
2024 | 472.6 |
2025 | 369.7 |
2026 | 264.6 |
2027 | 175.5 |
Thereafter | 265.1 |
Total | $ | 2,143.7 |
(1) Total contractual minimum rental revenues on operating leases relates to our wholly-owned and partially-owned subsidiaries and sub-lease rental revenues associated with the Leasing Group's operating lease obligations. Future contractual minimum lease receivables for sales-type leases will mature as follows (in millions):
2023 | $ | 1.1 |
2024 | 1.1 |
2025 | 1.1 |
2026 | 1.1 |
2027 | 1.1 |
Thereafter | 10.1 |
Total | 15.6 |
Less: Unearned interest income | (5.0) |
Net investment in sales-type leases (1) | $ | 10.6 |
(1) Included in other assets in our Consolidated Balance Sheets. Income Taxes The liability method is used to account for income taxes. Deferred income taxes represent the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases and other attributes using currently enacted tax laws and tax rates. Valuation allowances reduce deferred tax assets to an amount that will more likely than not be realized. We regularly evaluate the likelihood of realization of tax benefits derived from positions we have taken in various federal and state filings after consideration of all relevant facts, circumstances, and available information. For those tax positions that are deemed more likely than not to be sustained, we recognize the benefit we believe is cumulatively greater than 50% likely to be realized. To the extent that we were to prevail in matters for which accruals have been established or be required to pay amounts in excess of recorded reserves, the effective tax rate in a given financial statement period could be materially impacted. 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. We place our cash investments in bank deposits, investment grade, short-term debt instruments, and highly-rated commercial paper. We limit the amount of credit exposure to any one commercial issuer. The carrying values of cash, receivables, and accounts payable are considered to be representative of their respective fair values. 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. Receivables are generally evaluated at a portfolio level based on these characteristics. As receivables are generally unsecured, we maintain an allowance for credit losses using a forward-looking approach based on historical losses and consideration of current and expected future economic conditions. Historically, we have observed that the likelihood of loss increases when receivables have aged beyond 180 days. When a receivable is deemed uncollectible, the write-off is recorded as a reduction to allowance for credit losses. During the year ended December 31, 2022, we recognized approximately $2.0 million of credit loss expense and wrote off $1.9 million related to our trade receivables that are in scope of ASC 326, Financial Instruments – Credit Losses, bringing the allowance for credit losses balance from $10.5 million at December 31, 2021 to $10.6 million at December 31, 2022. This balance excludes the general reserve for operating lease receivables that is permitted under ASC 450, Contingencies. Inventories Inventories are valued at the lower of cost or net realizable value. Cost is determined principally on the first in first out method. Work in process and finished goods include material, labor, and overhead. Property, Plant, and Equipment Property, plant, and equipment are stated at cost and depreciated over their estimated useful lives using the straight-line method. The costs of ordinary maintenance and repair are charged to operating costs. The estimated useful lives are as follows:
Buildings and improvements | 5 – 30 years
Leasehold improvements | Generally over the term of the lease
Machinery and equipment | Generally 3 – 12 years
Information systems hardware and software | 3 – 5 years
Railcars in our lease fleet | Generally 35 – 40 years
Impairment of Long-lived Assets We periodically evaluate the carrying value of long-lived assets for potential impairment. The carrying value of long-lived assets is considered impaired when their carrying value is not recoverable through undiscounted future cash flows and the fair value of the assets is less than their carrying value. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risks involved or market quotes as available. Impairment losses on long-lived assets held for sale are determined in a similar manner, except that fair values are reduced by the estimated cost to dispose of the assets. During the year ended December 31, 2020, we recorded impairments of long-lived assets totaling $396.4 million, which included $369.4 million related to our small cube covered hopper railcars, $15.2 million related to the planned divestiture of certain non-strategic maintenance facilities, and $11.8 million related to investments in certain emerging technologies. See Note 11 for more information, including a description of the key assumptions and other significant management judgments utilized in these impairment analyses. Based on our evaluations, no impairment charges were determined to be necessary on assets held and used as of December 31, 2022 and 2021. Assets Held for Sale We classify our facilities as assets held for sale at the time management commits to a plan to sell the facility, and the sale is expected to be completed within one year. Assets held for sale are recorded at fair value, less any costs to sell, and are no longer subject to depreciation. As of December 31, 2022 and 2021, assets held for sale totaling $6.6 million and $6.2 million, respectively, are included in the other assets line of our Consolidated Balance Sheets. Goodwill and Intangible Assets Goodwill is required to be tested for impairment at least annually, or on an interim basis if events or circumstances change indicating that the carrying amount of the goodwill might be impaired. We have the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment assessment. If, after assessing the totality of events and circumstances, we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company will perform the quantitative impairment test. We can also elect to forgo the qualitative assessment and perform the quantitative test. The quantitative goodwill impairment test compares the reporting unit's estimated fair value with the carrying amount of its net assets. An impairment is recognized if the reporting unit's recorded net assets exceed its fair value. Impairment is assessed at the reporting unit level by applying a fair value-based test for each unit with recorded goodwill. The estimates and judgments that most significantly affect the fair value calculations are assumptions, consisting of Level 3 inputs, related to revenue and operating profit results, discount rates, terminal growth rates and exit multiples. As of December 31, 2022 and 2021, our annual impairment test of goodwill was completed at the reporting unit level, and no impairment charges were determined to be necessary. Goodwill by segment is as follows:
| December 31, 2022 |  | December 31, 2021
| (in millions)
Railcar Leasing and Management Services Group | $ | 7.1 |  |  | $ | 1.8 |
Rail Products Group | 188.8 |  |  | 152.4 |
| $ | 195.9 |  |  | $ | 154.2 |
The net book value of intangible assets totaled $79.0 million and $28.1 million as of December 31, 2022 and 2021, respectively, which are primarily finite-lived intangible assets amortized over their estimated useful lives, ranging from one year to fifteen years. See Note 2 for further information regarding the changes in the carrying amounts of our goodwill and intangible assets related to acquisition activity for the year ended December 31, 2022. Based on our evaluations of intangible assets, no impairment charges were determined to be necessary as of December 31, 2022 and 2021. Restricted Cash Restricted cash consists of cash and cash equivalents held either as collateral for our non-recourse debt and lease obligations or as security for the performance of certain product sales agreements. As such, they are restricted in use. Investments in Affiliates We continuously evaluate our investments and other contractual arrangements with third party entities to determine if our variable interests are considered a variable interest entity ("VIE"). Consolidation is required for VIEs in which we are the primary beneficiary. We have determined that we are the primary beneficiary for TRIP Holdings and RIV 2013. At December 31, 2022, the carrying value of our investment in TRIP Holdings and RIV 2013 totaled $136.1 million. See Note 5 for further information regarding our partially-owned leasing subsidiaries. Insurance We are effectively self-insured for workers' compensation and employee health care claims. A third party administrator is used to process claims. We accrue our workers' compensation and group medical liabilities based upon independent actuarial studies. These liabilities are calculated based upon loss development factors, which contemplate a number of variables, including claims history and expected trends. 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 years ended December 31, 2022, 2021, and 2020 are as follows:
| Year Ended December 31,
| 2022 |  | 2021 |  | 2020
| (in millions)
Beginning balance | $ | 3.1 |  |  | $ | 11.3 |  |  | $ | 7.5 |
Warranty costs incurred | (2.7) |  |  | (7.4) |  |  | (2.0) |
Warranty originations and revisions | 3.2 |  |  | 0.1 |  |  | 6.0 |
Warranty expirations | (0.3) |  |  | (0.9) |  |  | (0.2) |
Ending balance | $ | 3.3 |  |  | $ | 3.1 |  |  | $ | 11.3 |
Foreign Currency Transactions The functional currency of our Mexico operations is the United States dollar. Certain transactions in Mexico occur in currencies other than the United States dollar. The impact of foreign currency fluctuations on these transactions is recorded in other, net (income) expense in our Consolidated Statements of Operations. Other Comprehensive Income (Loss) Other comprehensive net income (loss) consists of foreign currency translation adjustments, unrealized gains and losses on our derivative financial instruments, and the net actuarial gains and losses of our defined benefit plans, the sum of which, together with net income (loss), constitutes comprehensive income (loss). See Note 12. All components are shown net of tax. Recent Accounting Pronouncements ASU 2022-04 – In September 2022, the FASB issued ASU No. 2022-04, "Disclosure of Supplier Finance Program Obligations," which requires entities that use supplier finance programs in connection with the purchase of goods and services to disclose information about the key terms of these programs, outstanding amounts as of the end of the reporting period, a description of where in the financial statements outstanding amounts are presented, and a rollforward of these obligations. ASU 2022-04 is effective for public companies during interim and annual reporting periods beginning after December 15, 2022 and is to be adopted on a retrospective basis, except for the disclosure of rollforward information, which is effective for public companies during interim and annual reporting periods beginning after December 15, 2023 and is to be adopted on a prospective basis. Early adoption is permitted. We adopted ASU 2022-04 effective January 1, 2023. The adoption did not have a significant impact on our Consolidated Financial Statements. Management's Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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