Note 6. Railcar Leasing and Management Services Group

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies [Abstract]

Leasing Operations Of The Company [Text Block]

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:



	December 31, 2019
	Wholly- Owned Subsidiaries		Partially-Owned Subsidiaries		Total Leasing Group		Eliminations — Lease Subsidiary⁽¹⁾			Adjusted Total Leasing Group
	(in millions)
Cash and cash equivalents	$	1.8	$	—	$	1.8	$	—		$	1.8
Accounts receivable	73.9		8.7		82.6		—			82.6
Property, plant, and equipment, net	5,818.9		1,786.7		7,605.6		(903.8		)	6,701.8
Restricted cash	78.4		33.0		111.4		—			111.4
Other assets	209.8		1.4		211.2		—			211.2
Total assets	$	6,182.8	$	1,829.8	$	8,012.6	$	(903.8	)	$	7,108.8

Accounts payable and accrued liabilities	$	72.7	$	44.6	$	117.3	$	—		$	117.3
Debt, net	3,080.7		1,278.4		4,359.1		—			4,359.1
Deferred income taxes	861.7		1.1		862.8		(184.8		)	678.0
Other liabilities	60.7		—		60.7		—			60.7
Total liabilities	4,075.8		1,324.1		5,399.9		(184.8		)	5,215.1
Noncontrolling interest	—		348.8		348.8		—			348.8
Total Equity	$	2,107.0	$	156.9	$	2,263.9	$	(719.0	)	$	1,544.9



	December 31, 2018
	Wholly- Owned Subsidiaries		Partially-Owned Subsidiaries		Total Leasing Group		Eliminations — Lease Subsidiary⁽¹⁾			Adjusted Total Leasing Group
	(in millions)
Cash and cash equivalents	$	6.0	$	—	$	6.0	$	—		$	6.0
Accounts receivable	63.0		8.7		71.7		—			71.7
Property, plant, and equipment, net	4,976.5		1,814.7		6,791.2		(827.7		)	5,963.5
Restricted cash	134.9		36.6		171.5		—			171.5
Other assets	52.7		2.9		55.6		—			55.6
Total assets	$	5,233.1	$	1,862.9	$	7,096.0	$	(827.7	)	$	6,268.3

Accounts payable and accrued liabilities	$	89.9	$	38.6	$	128.5	$	—		$	128.5
Debt, net	2,316.6		1,315.2		3,631.8		—			3,631.8
Deferred income taxes	797.6		1.0		798.6		(163.2		)	635.4
Other liabilities	12.9		—		12.9		—			12.9
Total liabilities	3,217.0		1,354.8		4,571.8		(163.2		)	4,408.6
Noncontrolling interest	—		351.2		351.2		—			351.2
Total Equity	$	2,016.1	$	156.9	$	2,173.0	$	(664.5	)	$	1,508.5

⁽¹⁾Net deferred profit on railcars sold to the Leasing Group consists of intersegment profit that is eliminated in consolidation. Net deferred profit and the related deferred tax impact are included as adjustments to the property, plant, and equipment, net and deferred income taxes line items, respectively, in the Eliminations – Lease Subsidiary column above to reflect the net book value of the railcars purchased by the Leasing Group from the Rail Products Group based on manufacturing cost. See Note 5 and Note 8 for a further discussion regarding our investment in our partially-owned leasing subsidiaries and the related indebtedness.



	Year Ended December 31,									Percent Change
	2019			2018			2017			2019 versus 2018		2018 versus 2017
	($ in millions)									2019 versus 2018		2018 versus 2017
Revenues:
Leasing and management	$	756.5		$	728.9		$	743.6		3.8	%	(2.0	)%
Sales of railcars owned one year or less at the time of sale ⁽¹⁾	360.7			113.9			99.6			216.7	%	14.4	%
Total revenues	$	1,117.2		$	842.8		$	843.2		32.6	%	—	%

Operating profit⁽²⁾:
Leasing and management	$	314.7		$	291.8		$	341.3		7.8	%	(14.5	)%
Railcar sales:
Railcars owned one year or less at the time of sale	41.4			21.5			19.7			92.6	%	9.1	%
Railcars owned more than one year at the time of sale	50.5			50.4			83.5			0.2	%	(39.6	)%
Property disposition losses ⁽³⁾	—			(12.6		)	—			*		*
Total operating profit	$	406.6		$	351.1		$	444.5		15.8	%	(21.0	)%
Total operating profit margin	36.4		%	41.7		%	52.7		%

Leasing and management operating profit margin	41.6		%	40.0		%	45.9		%

Selected expense information:
Depreciation	$	232.2		$	196.6		$	172.3		18.1	%	14.1	%
Maintenance and compliance	$	102.1		$	99.3		$	96.4		2.8	%	3.0	%
Rent	$	16.9		$	42.4		$	39.9		(60.1	)%	6.3	%
Selling, engineering, and administrative expenses	$	49.5		$	51.1		$	50.7		(3.1	)%	0.8	%
Interest	$	197.2		$	142.3		$	125.8		38.6	%	13.1	%

* Not meaningful

⁽¹⁾Includes revenues associated with sales-type leases of $160.5 million for the year ended December 31, 2019.

⁽²⁾Operating profit includes: depreciation; maintenance and compliance; rent; and selling, engineering, and administrative expenses. 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.

⁽³⁾Property disposition losses during the year ended December 31, 2018 included a non-cash charge of $12.6 million associated with our election to forego the early purchase options contained in certain lease agreements.

During the years ended December 31, 2019, 2018, and 2017, information related to the sales of leased railcars is as follows:



	Year Ended December 31,
	2019			2018			2017
	(in millions)
Sales of leased railcars:
Railcars owned one year or less at the time of sale ⁽¹⁾	$	360.7		$	113.9		$	99.6
Railcars owned more than one year at the time of sale	205.7			230.5			360.7
	$	566.4		$	344.4		$	460.3

Operating profit on sales of leased railcars:
Railcars owned one year or less at the time of sale	$	41.4		$	21.5		$	19.7
Railcars owned more than one year at the time of sale	50.5			50.4			83.5
	$	91.9		$	71.9		$	103.2

Operating profit margin on sales of leased railcars:
Railcars owned one year or less at the time of sale	11.5		%	18.9		%	19.8		%
Railcars owned more than one year at the time of sale	24.6		%	21.9		%	23.1		%
Weighted average operating profit margin on sales of leased railcars	16.2		%	20.9		%	22.4		%

⁽¹⁾Includes revenues associated with sales-type leases of $160.5 million for the year ended December 31, 2019.

Railcar Leasing Portfolio. The Leasing Group's 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 year 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 operating leases related to our wholly-owned and partially-owned subsidiaries are as follows:



	2020		2021		2022		2023		2024		Thereafter		Total
	(in millions)
Future contractual minimum rental revenue	$	560.0	$	445.8	$	342.6	$	241.5	$	153.5	$	268.0	$	2,011.4

Debt. Wholly-owned subsidiaries. The Leasing Group’s debt at December 31, 2019 consisted primarily of non-recourse debt. As of December 31, 2019, Trinity’s wholly-owned subsidiaries included in the Leasing Group held equipment with a net book value of $4,501.2 million which is pledged solely as collateral for Leasing Group debt held by those subsidiaries. The net book value of unpledged equipment at December 31, 2019 was $1,303.5 million. See Note 8 for more information regarding the Leasing Group debt.

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 $1,246.1 million is pledged as collateral for the TRIP Master Funding debt. TRL-2012 equipment with a net book value of $540.6 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 was 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, were 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 twenty-two 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 the Leasing Group's railcar operating lease obligations are as follows:



	2020		2021		2022		2023		2024		Thereafter		Total
	(in millions)
Future operating lease obligations	$	9.8	$	8.2	$	7.5	$	5.5	$	2.3	$	0.9	$	34.2
Future contractual minimum rental revenues	$	8.1	$	6.1	$	4.5	$	2.2	$	0.5	$	0.3	$	21.7

Operating lease obligations totaling $2.9 million are guaranteed by Trinity Industries, Inc. and certain subsidiaries. The Leasing Group also has future amounts due for operating lease obligations related to office space of approximately $2.4 million, which is excluded from the table above.