What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-07-27 compared with 2022-04-27 · 190 added, 116 removed, 383 unchanged (44% of the section changed)

12 unchanged sentences

• the cyclical nature of the industries in which we compete;

• variations in weather in areas where our products are sold, used, or installed;

• variations in weather in areas where our products are sold or used;

• naturally-occurring events, pandemics, and/or disasters causing disruption to our manufacturing, product deliveries, and production capacity, thereby giving rise to an increase in expenses, loss of revenue, and property losses;

• the impact of the coronavirus pandemic (“COVID-19”) and the response thereto, on, among other things, demand for our products and services, our customers' ability to pay, disruptions to our supply chain, our liquidity and financial position, results of operations, stock price, payment of dividends, our ability to generate new railcar orders, our ability to originate and/or renew leases at favorable rates, our ability to convert backlog to revenue, and the operational status of our facilities;

• disruptions in the transportation network used to deliver our products, which may impact our ability to timely deliver railcars to our customers;

• shortages of labor;

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Consequently, results from discontinued operations include certain legal expenses that were directly attributable to the highway products business, which were previously reported in continuing operations.

Similar expenses incurred during the three months ended March 31, 2022 and that may be incurred in the future related to these retained obligations will likewise be reported in discontinued operations.

Similar expenses incurred during the three and six months ended June 30, 2022 and that may be incurred in the future related to these retained obligations will likewise be reported in discontinued operations.

See Note 2 of the Consolidated Financial Statements for further information related to the sale of THP and Note 14 for information regarding the retained liabilities.

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We continue to monitor the operational and financial impacts of the pandemic and other economic factors.

Although we have not experienced significant interruptions to our daily operations or a material impact to our operating costs, the economic pressures created by the pandemic have negatively impacted our results of operations for the three months ended March 31, 2022.

While we continue to see signs of economic recovery, we are monitoring the evolving impacts of COVID-19 variants on the economy and our workforce, including reduced employee availability, and expect that our results of operations may remain under pressure in the near term.

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however, weaknesses in any of these market sectors could affect the financial viability of our underlying Leasing Group customers, which could continue to negatively impact our recurring leasing revenues and operating profits.

Although railcar loading volumes, levels of railcars in storage, and orders for new railcar equipment have improved, the recovery of railcar lease rates and utilization is ongoing.

Railcar loading volumes, levels of railcars in storage, and orders for new railcar equipment have improved, and the recovery of railcar lease rates and utilization is ongoing.

We continue to believe that our rail platform is designed to respond to cyclical changes in demand and perform throughout the railcar cycle.

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We continue to monitor the impact of potential margin and operating profit headwinds resulting from these factors.

As a result of disruptions in the global supply chain, we have recently experienced temporary shortages of materials used to manufacture or repair certain railcar types, which has impacted our ability to timely deliver these railcars to our customers.

As a result of disruptions in the global supply chain, we have recently experienced temporary shortages of materials used to manufacture or repair certain railcar types, as well as disruptions in the transportation network used to deliver our products, which have impacted our ability to timely deliver these railcars to our customers.

While we believe these shortages are short-term in nature, we will continue to monitor the situation and take appropriate steps to mitigate the impact on our production schedules and delivery timelines.

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Financial and Operational Highlights

• Our revenues for the three months ended March 31, 2022 were $472.7 million, representing an increase of 42.9%, compared to the three months ended March 31, 2021.

Our operating profit for the three months ended March 31, 2022 was $54.8 million compared to $51.5 million for the three months ended March 31, 2021.

• The Leasing Group's lease fleet of 107,090 company-owned railcars was 96.5% utilized as of March 31, 2022, compared to a lease fleet utilization of 94.5% on 107,970 company-owned railcars as of March 31, 2021.

• Our revenues for the six months ended June 30, 2022 were $889.5 million, representing an increase of 42.5%, compared to the six months ended June 30, 2021.

Our operating profit for the six months ended June 30, 2022 was $127.8 million compared to $109.3 million for the six months ended June 30, 2021.

• The Leasing Group's lease fleet of 110,560 company-owned railcars was 97.2% utilized as of June 30, 2022, compared to a lease fleet utilization of 94.3% on 108,635 company-owned railcars as of June 30, 2021.

Our company-owned lease fleet include wholly-owned, partially-owned, and railcars under leased-in arrangements.

• For the three months ended March 31, 2022, we made a net investment in our lease fleet of approximately $13.5 million, which primarily includes new railcar additions and railcar modifications, net of deferred profit, and secondary market purchases;

• For the six months ended June 30, 2022, we made a net investment in our lease fleet of approximately $198.9 million, which primarily includes new railcar additions and railcar modifications, net of deferred profit, and secondary market purchases;

and is net of proceeds from lease portfolio sales.

• The total value of the new railcar backlog at March 31, 2022 was $1.9 billion, compared to $1.0 billion at March 31, 2021.

The Rail Products Group received orders for 5,055 railcars and delivered 2,470 railcars in the three months ended March 31, 2022, in comparison to orders for 1,410 railcars and deliveries of 1,895 railcars in the three months ended March 31, 2021.

• The total value of the new railcar backlog at June 30, 2022 was $2.2 billion, compared to $1.2 billion at June 30, 2021.

The Rail Products Group received orders for 9,390 railcars and delivered 4,980 railcars in the six months ended June 30, 2022, in comparison to orders for 5,980 railcars and deliveries of 3,660 railcars in the six months ended June 30, 2021.

• The Rail Products Group offers a sustainable railcar conversion program whereby certain tank cars and freight cars are converted or upgraded to better meet changing market demands.

During the three months ended March 31, 2022, sustainable railcar conversion revenues totaled $49.8 million, representing 445 railcars.

• For the three months ended March 31, 2022, we generated operating cash flows from continuing operations and Free Cash Flow After Investments and Dividends ("Free Cash Flow") of $28.5 million and $47.8 million (1) , respectively, in comparison to $69.3 million and $90.5 million (1) , respectively, for the three months ended March 31, 2021.

During the six months ended June 30, 2022, sustainable railcar conversion revenues totaled $89.0 million, representing 930 railcars.

• For the six months ended June 30, 2022, operating cash flows from continuing operations was a net use of $61.3 million and Free Cash Flow After Investments and Dividends ("Free Cash Flow") was $42.5 million (1) , in comparison to generating operating cash flows from continuing operations and Free Cash Flow of $324.9 million and $351.8 million (1) , respectively, for the six months ended June 30, 2021.

(1) Non-GAAP financial measure.

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(5) There were no shares repurchased during the first quarter of 2022 due to the ongoing ASR.

(6) In the second quarter of 2022, we completed the final settlement of the ASR.

See Note 12 of the Consolidated Financial Statements for more information on the ASR.

Capital Structure Updates

TRL-2022 – In April 2022, Trinity Rail Leasing 2022 LLC, a Delaware limited liability company ("TRL-2022") and a limited purpose, indirect wholly-owned subsidiary of the Company owned through Trinity Industries Leasing Company ("TILC"), issued $244.8 million of its Series 2022-1 Green Secured Railcar Equipment Notes.

These notes bear interest at a fixed rate of 4.55%, are payable monthly, and have a stated final maturity date of 2052.

Net proceeds received from the transaction were used to repay borrowings under TILC's secured warehouse loan facility and for general corporate purposes.

Tribute Rail – In May 2022, Tribute Rail LLC ("Tribute Rail"), an indirect, wholly-owned subsidiary of TRIP Rail Holdings LLC ("TRIP Holdings"), issued $327.0 million of its Series 2022-1 Green Secured Railcar Equipment Notes.

These notes bear interest at an all-in interest rate of 4.88% and have a stated final maturity date of 2052.

Net proceeds received from the issuance of these notes were used to redeem TRIP Railcar Co.

LLC's ("TRIP Railcar Co.") existing term loan agreement, of which $319.4 million was outstanding at the redemption date.

Litigation Updates

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Subsequent Events

TRL-2022 – On April 20, 2022, Trinity Rail Leasing 2022 LLC, a Delaware limited liability company ("TRL-2022") and a limited purpose, indirect wholly-owned subsidiary of the Company owned through Trinity Industries Leasing Company ("TILC"), entered into a Note Purchase Agreement dated April 20, 2022 (the "Note Purchase Agreement").

The Note Purchase Agreement provides for the issuance and sale of an aggregate principal amount of $244.8 million of its Series 2022-1 Class A Green Secured Railcar Equipment Notes (the "TRL-2022 Notes").

The TRL-2022 Notes will bear interest at a fixed rate of 4.55%, will be payable monthly, and will have a stated final maturity date of May 20, 2052.

Revolving Credit Facility – On July 25, 2022, we amended our $450.0 million unsecured corporate revolving credit facility to extend its maturity date to the earlier of (i) July 25, 2027 or (ii) July 2, 2024 if our 4.55% senior notes due 2024 have not been repaid in full by that date.

We may also increase the amount of the commitments under the revolving credit facility by an aggregate amount not to exceed $200.0 million, subject to certain conditions.

The revolving credit facility will bear interest at a variable rate, which is initially set at Secured Overnight Financing Rate ("SOFR") plus 1.85%.

A commitment fee will accrue on the average daily unused portion of the revolving credit facility at the rate of 0.175% to 0.40%, initially set at 0.25%.

Additionally, we increased the maximum leverage ratio beginning June 30, 2022 to provide additional flexibility.

See Part II, Item 5.

for further information.

Consolidated Results of Operations

The following table summarizes our consolidated results of operations for the three months ended March 31, 2022 and 2021:

The following table summarizes our consolidated results of operations for the three and six months ended June 30, 2022 and 2021:

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

(in millions)

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Interest expense, net 49.7 51.0 93.2 102.3

Loss on extinguishment of debt 1.5 11.7 1.5 11.7

Other, net (0.5) 0.8 (2.1) 2.0

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Income (loss) from continuing operations $ 16.5 $ (2.8) $ 26.4 $ (7.8)

The tables below present revenues by segment for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31, 2022

The tables below present revenues by segment for the three and six months ended June 30, 2022 and 2021:

Three Months Ended June 30, 2022

Revenues Percent

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Consolidated Total $ 416.8 $ — $ 416.8 42.1 %

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

External Intersegment Total

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Consolidated Total $ 293.3 $ — $ 293.3

Six Months Ended June 30, 2022

Revenues Percent

External Intersegment Total Change

(in millions)

Railcar Leasing and Management Services Group $ 378.0 $ 0.4 $ 378.4 2.7 %

Rail Products Group 511.5 310.2 821.7 57.2 %

Segment Totals 889.5 310.6 1,200.1 34.6 %

Eliminations – Lease Subsidiary — (310.2) (310.2)

Eliminations – Other — (0.4) (0.4)

Consolidated Total $ 889.5 $ — $ 889.5 42.5 %

Six Months Ended June 30, 2021

External Intersegment Total

(in millions)

Railcar Leasing and Management Services Group $ 368.3 $ 0.3 $ 368.6

Rail Products Group 255.7 267.1 522.8

Segment Totals 624.0 267.4 891.4

Eliminations – Lease Subsidiary — (262.3) (262.3)

Eliminations – Other — (5.1) (5.1)

Consolidated Total $ 624.0 $ — $ 624.0

Operating Costs

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and restructuring activities.

Operating costs by segment for the three months ended March 31, 2022 and 2021 were as follows:

Operating costs by segment for the three and six months ended June 30, 2022 and 2021 were as follows:

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

(in millions)

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Operating Profit

Operating profit by segment for the three months ended March 31, 2022 and 2021 was as follows:

Operating profit by segment for the three and six months ended June 30, 2022 and 2021 was as follows:

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

(in millions)

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Discussion of Consolidated Results

Revenues – Our revenues for the three months ended March 31, 2022 were $472.7 million, representing an increase of $142.0 million, or 42.9%, over the prior year period primarily due to higher external deliveries in the Rail Products Group.

Cost of revenues – Our cost of revenues for the three months ended March 31, 2022 was $398.5 million, representing an increase of $152.2 million, or 61.8%, over the prior year period primarily due to higher costs associated with external deliveries in the Rail Products Group and higher fleet operating costs and increased depreciation in the Leasing Group.

Selling, engineering, and administrative expenses – Selling, engineering, and administrative expenses were flat for the three months ended March 31, 2022 when compared to the prior year period.

Gains on dispositions of property – Gains on dispositions of property increased by $13.8 million for the three months ended March 31, 2022, when compared to the prior year period primarily due to higher lease portfolio sales activity.

Additionally, during the three months ended March 31, 2022, we recorded a $6.4 million gain related to insurance recoveries in excess of net book value for assets damaged by a tornado at the Company’s rail maintenance facility in Cartersville, Georgia in the first quarter of 2021.

Revenues – Our revenues for the three months ended June 30, 2022 were $416.8 million, representing an increase of $123.5 million, or 42.1%, over the prior year period.

Our revenues for the six months ended June 30, 2022 were $889.5 million, representing an increase of $265.5 million, or 42.5%, over the prior year period.

The increases in revenues were primarily due to higher external deliveries in the Rail Products Group.

Cost of revenues – Our cost of revenues for the three months ended June 30, 2022 was $325.6 million, representing an increase of $123.5 million, or 61.1%, over the prior year period.

Our cost of revenues for the six months ended June 30, 2022 was $724.1 million, representing an increase of $275.7 million, or 61.5%, over the prior year period.

The increases in cost of revenues were primarily due to higher costs associated with external deliveries in the Rail Products Group.

Selling, engineering, and administrative expenses – Selling, engineering, and administrative expenses were substantially unchanged for the three and six months ended June 30, 2022 when compared to the prior year periods.

Gains on dispositions of property – Gains on dispositions of property increased by $15.7 million and $29.5 million for the three and six months ended June 30, 2022, respectively, when compared to the prior year periods primarily due to higher lease portfolio sales activity.

Additionally, during the six months ended June 30, 2022, we recorded a $6.4 million gain related to insurance recoveries in excess of net book value for assets damaged by a tornado at the Company’s rail maintenance facility in Cartersville, Georgia in the first quarter of 2021.

See Note 14 of the Consolidated Financial Statements for more information.

Operating profit – Operating profit for the three months ended March 31, 2022 totaled $54.8 million, representing an increase of $3.3 million, or 6.4%, from the prior year period primarily due to higher lease portfolio sales activity, partially offset by higher costs associated with external deliveries in the Rail Products Group, as well as higher fleet operating costs and increased depreciation in the Leasing Group.

Operating profit – Operating profit for the three months ended June 30, 2022 totaled $73.0 million, representing an increase of $15.2 million, or 26.3%, from the prior year period primarily due to higher lease portfolio sales activity and improved operating performance in the Leasing Group, partially offset by deliveries of orders taken at the bottom of the cycle in the Rail Products Group, as well as increased depreciation in the Leasing Group.

Operating profit for the six months ended June 30, 2022 totaled $127.8 million, representing an increase of $18.5 million, or 16.9%, from the prior year period primarily due to higher lease portfolio sales activity, partially offset by higher costs associated with external deliveries in the Rail Products Group, including the impact of deliveries of orders taken at the bottom of the cycle, as well as increased depreciation in the Leasing Group.

Operating profit was favorably impacted in the current year period by gains related to insurance recoveries from damage sustained at the Company’s rail maintenance facility in Cartersville, Georgia in the first quarter of 2021.

For further information regarding the operating results of individual segments, see "Segment Discussion" below.

Interest expense, net – Interest expense, net for the three months ended March 31, 2022 totaled $43.5 million compared to $51.3 million for the three months ended March 31, 2021.

The decrease in interest expense, net for the three months ended March 31, 2022 was primarily driven by lower overall borrowing costs associated with the Company's debt facilities resulting from debt refinancing activity during the second quarter of 2021, partially offset by higher overall average debt.

Income taxes – The effective tax rate from continuing operations for the three months ended March 31, 2022 was 23.3%, which differs from the U.S.

statutory rate of 21.0% primarily due to state income taxes, foreign taxes, non-deductible executive compensation, and the benefits of excess deductions on equity compensation.

For the three months ended March 31, 2021, we recorded income tax expense of $4.0 million on a loss from continuing operations before income taxes of $1.0 million, primarily due to an adjustment to the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") carryback benefit previously recognized.

Interest expense, net – Interest expense, net was flat for the three months ended June 30, 2022 when compared to the prior year period.

Interest expense, net for the six months ended June 30, 2022 totaled $93.2 million, compared to $102.3 million for the six months ended June 30, 2021.

The decrease in interest expense, net for the six months ended June 30, 2022 was primarily driven by lower overall borrowing costs associated with the Company's debt facilities resulting from debt refinancing activity during the second quarter of 2021, partially offset by higher overall average debt.

Loss on extinguishment of debt – Loss on extinguishment of debt for the three and six months ended June 30, 2022 was $1.5 million from the write-off of unamortized debt issuance costs associated with the repayment of TRIP Railcar Co.'s outstanding term loan agreement.

Loss on extinguishment of debt for the three and six months ended June 30, 2021 was $11.7 million from the refinancing of our partially-owned subsidiaries' debt, which included the write-off of $8.4 million in unamortized debt issuance costs and a $3.3 million early redemption premium.

Income taxes – The effective tax rate from continuing operations for the three and six months ended June 30, 2022 was 26.0% and 25.0%, respectively, which differs from the U.S.

statutory rate of 21.0% primarily due to state income taxes, foreign taxes, non-deductible executive compensation, excess tax benefits associated with equity-based compensation, and taxes not recorded on our non-controlling interests in partially-owned subsidiaries.

For the three months ended June 30, 2021, we recorded income tax benefit of $2.9 million on a loss from continuing operations before income taxes of $5.7 million, which differs from the U.S.

statutory rate primarily due to excess tax benefits associated with equity-based compensation.

For the six months ended June 30, 2021, we recorded income tax expense of $1.1 million on a loss from continuing operations before income taxes of $6.7 million, which differs from the U.S.

statutory rate primarily due to adjustments to the Coronavirus Aid, Relief, and Economic Security Act carryback benefit previously recognized, partially offset by excess tax benefits associated with equity-based compensation.

Segment Discussion

Railcar Leasing and Management Services Group

Three Months Ended March 31,

2022 2021 Percent

($ in millions) Change

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 Percent 2022 2021 Percent

($ in millions) Change ($ in millions) Change

Leasing and management $ 195.3 $ 185.1 5.5 % $ 378.4 $ 368.6 2.7 %

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Lease portfolio sales (2)

26.9 11.1 * 38.7 12.8 *

Total operating profit $ 105.5 $ 81.1 30.1 % $ 185.3 $ 159.4 16.2 %

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$ 12.6 $ 13.2 (4.5) % $ 25.4 $ 24.5 3.7 %

Interest $ 38.7 $ 45.7 (15.3) %

$ 46.0 $ 57.0 (19.3) % $ 84.7 $ 102.7 (17.5) %

* Not meaningful

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Interest expense is not a component of operating profit and includes the effect of hedges.

(2) Includes $1.3 million selling profit associated with sales-type leases for the three months ended March 31, 2022.

(3) Depreciation expense increased $2.2 million for the three months ended March 31, 2022 as a result of the disposal of certain railcar components associated with our sustainable railcar conversion program.

(2) Includes $1.3 million selling profit associated with sales-type leases for the six months ended June 30, 2022.

(3) Depreciation expense includes $3.9 million and $6.1 million for the three and six months ended June 30, 2022, respectively, as a result of the disposal of certain railcar components associated with our sustainable railcar conversion program.

Additionally, for the three and six months ended June 30, 2021, depreciation expense includes $2.6 million related to our sustainable railcar conversion program.

(4) Interest expense for the three and six months ended June 30, 2022 includes $1.5 million of loss on extinguishment of debt associated with the repayment of TRIP Railcar Co.'s outstanding term loan agreement.

Interest expense for the three and six months ended June 30, 2021 includes $11.7 million of loss on extinguishment of debt associated with the refinancing of our partially-owned subsidiaries' debt.

Information related to lease portfolio sales is as follows:

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

($ in millions)

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Operating profit on lease portfolio sales (1)

$ 26.9 $ 11.1 $ 37.4 $ 12.8

Operating profit margin on lease portfolio sales 18.7 % 15.5 % 17.4 % 14.4 %

(1) Excludes $1.3 million selling profit associated with sales-type leases for the three months ended March 31, 2022.

Total revenues for the Railcar Leasing and Management Services Group decreased by 0.2% for the three months ended March 31, 2022 compared to the prior year period.

Leasing and management revenues for the three months ended March 31, 2022 were impacted by lower rental rates and reduced lease fleet size, partially offset by higher utilization, which resulted in relatively flat revenues when compared to the three months ended March 31, 2021.

Operating profit for the Leasing Group increased by 1.9% for the three months ended March 31, 2022 compared to the prior year period and was favorably impacted by higher lease portfolio sale activity.

Leasing and management operating profit decreased by 11.2% primarily due to higher fleet operating costs resulting from increases in the cost and volume of planned maintenance activities, as well as increased depreciation primarily related to sustainable railcar conversions.

(1) Excludes $1.3 million selling profit associated with sales-type leases for the six months ended June 30, 2022.

Total revenues for the Railcar Leasing and Management Services Group increased by 5.5% and 2.7% for the three and six months ended June 30, 2022, respectively, compared to the prior year periods.

Leasing and management revenues for the three and six months ended June 30, 2022 were favorably impacted by higher utilization, increased lease fleet size and improved renewal rates, partially offset by the effect of net lease fleet investment activities, which resulted in higher revenues when compared to the three and six months ended June 30, 2021.

Operating profit for the Leasing Group increased by 30.1% and 16.2% for the three and six months ended June 30, 2022, respectively, compared to the prior year periods and was favorably impacted by higher lease portfolio sale activity.

Leasing and management operating profit for the three months ended June 30, 2022 increased by 12.3%, compared to the prior year period primarily due to higher utilization, increased lease fleet size, and lower fleet operating costs, partially offset by increased depreciation.

Leasing and management operating profit for the six months ended June 30, 2022 was flat compared to the prior year period primarily due to higher utilization and increased lease fleet size, substantially offset by increased depreciation primarily related to sustainable railcar conversions.

The Leasing Group generally uses its non-recourse warehouse loan facility or cash to provide initial funding for a portion of the purchase price of the railcars.

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Information regarding the Leasing Group’s lease fleet is as follows:

March 31, 2022 March 31, 2021

June 30, 2022 June 30, 2021

Number of railcars:

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Fleet utilization 97.2 % 94.3 %

(1) Includes 2,575 railcars and 2,045 railcars under leased-in arrangements as of March 31, 2022 and 2021, respectively.

(1) Includes 2,845 railcars and 2,177 railcars under leased-in arrangements as of June 30, 2022 and 2021, respectively.

(2) Includes wholly-owned railcars, partially-owned railcars, and railcars under leased-in arrangements.

Rail Products Group

Three Months Ended March 31,

2022 2021 Percent

($ in millions) Change

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 Percent 2022 2021 Percent

($ in millions) Change ($ in millions) Change

Rail products (1)

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7.0 8.5 (17.6) % 16.7 17.1 (2.3) %

Gains on dispositions of property (6.4) — *

(Gains) losses on dispositions of property 0.1 0.1 * (6.3) 0.1 *

Operating profit (loss) $ 13.7 $ 3.2 328.1 % $ 14.5 $ (5.6) 358.9 %

1 unchanged sentence

* Not meaningful

(1) Includes sustainable railcar conversion revenues of $49.8 million, representing 445 railcars, for the three months ended March 31, 2022, of which $27.8 million, representing 250 railcars, related to external customers and $22.0 million, representing 195 railcars, related to the Leasing Group.

Revenues and cost of revenues for the Rail Products Group increased for the three months ended March 31, 2022 by 49.8% and 48.2%, respectively, when compared to the prior year period.

Revenues in our rail products business increased as a result of higher deliveries, while revenues in our maintenance services revenues decreased as a result of fewer repairs and HM-251 modifications.

In our rail products business, the increase in cost of revenues was driven by higher deliveries and input cost inflation, as well as incremental costs associated with production line changeovers.

In our maintenance services business, cost of revenues was negatively impacted by labor shortages leading to operating inefficiencies.

Operating profit for the three months ended March 31, 2022 was negatively impacted by deliveries of orders taken at the bottom of the cycle.

Additionally, during the three months ended March 31, 2022, operating profit was favorably impacted by a $6.4 million gain related to insurance recoveries in excess of net book value for assets damaged by a tornado at the Company’s rail maintenance facility in Cartersville, Georgia in the first quarter of 2021.

(1) Includes sustainable railcar conversion revenues of $39.2 million, representing 485 railcars, for the three months ended June 30, 2022 and sustainable railcar conversion revenues of $89.0 million, representing 930 railcars, for the six months ended June 30, 2022.

Includes sustainable railcar conversion revenues of $12.8 million, representing 120 railcars for the three and six months ended June 30, 2021.

Revenues and cost of revenues for the Rail Products Group increased for the three months ended June 30, 2022 by 64.5% and 63.9%, respectively, when compared to the prior year period.

Revenues and cost of revenues for the Rail Products Group increased for the six months ended June 30, 2022 by 57.2% and 55.9%, respectively, when compared to the prior year period.

Revenues in our rail products business increased as a result of higher deliveries and price escalation provisions contained in our customer contracts, and revenues in our maintenance services business increased as a result of a higher mix of HM-251 modifications relative to other maintenance services revenues.

In our rail products business, the increase in cost of revenues was driven by higher deliveries and input cost inflation, as well as operational inefficiencies associated with supply chain disruptions and the introduction of additional products into the production line.

In our maintenance services business, cost of revenues increased as a result of HM-251 modifications and continues to be negatively impacted by labor shortages leading to operating inefficiencies.

Operating profit for the three and six months ended June 30, 2022 was favorably impacted by higher deliveries and improved pricing, partially offset by deliveries of orders taken at the bottom of the cycle.

Additionally, during the six months ended June 30, 2022, operating profit was favorably impacted by a $6.4 million gain related to insurance recoveries in excess of net book value for assets damaged by a tornado at the Company’s rail maintenance facility in Cartersville, Georgia in the first quarter of 2021.

Information related to our Rail Products Group backlog of new railcars is as follows.

In addition to the amounts below, as of March 31, 2022, our backlog related to sustainable railcar conversions totaled $128.2 million, representing 1,275 railcars.

In addition to the amounts below, as of June 30, 2022, our backlog related to sustainable railcar conversions totaled $188.6 million, representing 2,350 railcars.

2022 2021 Percent

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$ 2,194.7 $ 1,177.7 86.4 %

Three Months Ended

Three Months Ended June 30, Six Months Ended

2022 2021 2022 2021 Percent

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Average selling price in ending backlog $ 121,321 $ 104,175 16.5 %

(1) The adjustment for the three months ended March 31, 2022 includes 300 railcars valued at $34.6 million that were removed from the new railcar backlog and shifted to the sustainable railcar conversion backlog.

Total backlog dollars increased by 91.5% when compared to the prior year period primarily from an increase in orders received.

Approximately 59.5% of our railcar backlog value is expected to be delivered during 2022, 26.7% in 2023, with the remainder to be delivered thereafter into 2025.

(1) The adjustment for the six months ended June 30, 2022 includes 300 railcars valued at $34.6 million that were removed from the new railcar backlog and shifted to the sustainable railcar conversion backlog.

Total backlog dollars increased by 86.4% when compared to the prior year period primarily from an increase in the volume and average selling price of orders received.

We expect to deliver approximately 48.0% of our railcar backlog value during 2022 and 38.7% during 2023, with the remainder to be delivered through 2025.

The orders in our 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.

The final amount of backlog attributable to the Leasing Group may vary by the time of delivery as customers may elect to change their procurement decision.

Transactions between the Rail Products Group and the Leasing Group are as follows:

Three Months Ended

Three Months Ended June 30, Six Months Ended

2022 2021 2022 2021

($ in millions)

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Corporate and other

Three Months Ended March 31,

2022 2021 Percent Change

($ in millions)

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 Percent 2022 2021 Percent Change

($ in millions) Change ($ in millions)

Operating costs:

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* Not meaningful

Selling, engineering, and administrative expenses for the three months ended March 31, 2022 decreased 10.5%, compared to the three months ended March 31, 2021, primarily from lower litigation-related expenses and lower employee-related costs.

Total operating costs in both periods were favorably impacted by gains associated with the disposition of non-operating facilities.

Selling, engineering, and administrative expenses for the three months ended June 30, 2022 increased 3.7%, compared to the prior year period, primarily from higher consulting costs.

Selling, engineering, and administrative expenses for the six months ended June 30, 2022 decreased 3.4%, compared to the prior year period, primarily from lower litigation-related expenses.

Total operating costs in the six months ended June 30, 2022 and 2021 were favorably impacted by gains associated with the disposition of non-operating facilities.

As we continue to streamline our operational footprint, we may have additional gains or losses on the disposition of other non-operating facilities.

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and short-term debt, long-term debt, and equity.

Debt instruments that we have utilized include the TILC warehouse facility, senior notes, convertible subordinated notes, asset-backed securities, non-recourse promissory notes, sale-leaseback transactions, and our revolving credit facility.

As of March 31, 2022, we have total committed liquidity of $717.9 million.

Debt instruments that we have utilized include the TILC warehouse loan facility, senior notes, convertible subordinated notes, asset-backed securities, non-recourse promissory notes, sale-leaseback transactions, and our revolving credit facility.

As of June 30, 2022, we have total committed liquidity of $419.6 million.

Our total available liquidity includes:

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$123.9 million unused and available under our revolving credit facility;

and $382.6 million unused and available under the TILC warehouse facility based on the amount of warehouse-eligible, unpledged equipment.

and $246.0 million unused and available under the TILC warehouse loan facility based on the amount of warehouse-eligible, unpledged equipment.

We believe we have access to adequate capital resources to fund operating requirements and are an active participant in the capital markets.

Liquidity Highlights

Dividend Payments – We paid $19.1 million in dividends to our common stockholders during the three months ended March 31, 2022.

TRL-2022 – In April 2022, TRL-2022 issued $244.8 million of its Series 2022-1 Green Secured Railcar Equipment Notes.

These notes bear interest at a fixed rate of 4.55% and have a stated final maturity date of 2052.

Net proceeds received from the transaction were used to repay borrowings under TILC's secured warehouse loan facility and for general corporate purposes.

Dividend Payments – We paid $39.3 million in dividends to our common stockholders during the six months ended June 30, 2022.

Share Repurchase Authorization – In September 2021, our Board of Directors authorized a new share repurchase program effective September 9, 2021 through December 31, 2022.

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Approximately 3.3 million shares repurchased as part of the ASR on December 31, 2021 were delivered to the Company in January 2022 in accordance with normal settlement practices, representing approximately 80% of the total notional value of the ASR.

The ASR is expected to be completed during the third quarter of 2022, at which time any remaining shares will be delivered to the Company.

The ASR was completed in April 2022.

Share repurchase activity under the authorized program is as follows:

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January 1, 2022 through March 31, 2022 — — $ 98.1

April 1, 2022 through June 30, 2022 1,760,462 50.3 $ 47.8 (1)

Total 6,915,953 $ 202.2

(1) Remaining authorization includes $25.0 million of committed share repurchases under the terms of the ASR.

Approximately $73.1 million of the share repurchase program will remain after the completion of the ASR.

The following table summarizes our cash flows from operating, investing, and financing activities for the three months ended March 31, 2022 and 2021:

Three Months Ended

(1) Share repurchases during the second quarter of 2022 included 760,602 shares at a cost of $25.0 million representing the final settlement of the ASR, which was funded in December 2021 but a portion of which remained outstanding as of December 31, 2021.

The following table summarizes our cash flows from operating, investing, and financing activities for the six months ended June 30, 2022 and 2021:

Six Months Ended

(in millions)

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Operating Activities .

Net cash provided by operating activities from continuing operations for the three months ended March 31, 2022 was $28.5 million compared to net cash provided by operating activities from continuing operations of $69.3 million for the three months ended March 31, 2021.

Net cash used in operating activities from continuing operations for the six months ended June 30, 2022 was $61.3 million compared to net cash provided by operating activities from continuing operations of $324.9 million for the six months ended June 30, 2021.

The changes in our operating assets and liabilities are as follows:

Three Months Ended

Six Months Ended

(in millions)

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Changes in operating assets and liabilities $ (193.4) $ 195.8

The changes in our operating assets and liabilities resulted in a net use of $33.1 million for the three months ended March 31, 2022, as compared to a net source of $9.1 million for the three months ended March 31, 2021.

Operating assets were impacted by cyclical shifts in anticipation of higher volumes of railcar deliveries in future periods, as well as continued supply chain challenges.

The changes in our operating assets and liabilities resulted in a net use of $193.4 million for the six months ended June 30, 2022, as compared to a net source of $195.8 million for the six months ended June 30, 2021.

Operating assets in the current period were impacted by cyclical shifts in anticipation of higher volumes of railcar deliveries in future periods, as well as continued supply chain challenges.

The decrease in the income tax receivable in the prior year period was primarily driven by the collection of approximately $207.0 million of income tax refunds associated with the loss carryback provisions included in recent tax legislation.

Investing Activities.

Net cash used in investing activities for the three months ended March 31, 2022 was $0.2 million compared to $94.9 million of net cash used in investing activities from continuing operations for the three months ended March 31, 2021.

Net cash used in investing activities for the six months ended June 30, 2022 was $198.5 million compared to $169.9 million of net cash used in investing activities from continuing operations for the six months ended June 30, 2021.

Significant investing activities are as follows:

• We made a net investment in our lease fleet of $13.5 million during the three months ended March 31, 2022, compared to $90.6 million in the prior year period.

• We made a net investment in our lease fleet of $198.9 million during the six months ended June 30, 2022, compared to $162.9 million in the prior year period.

Our investment in the lease fleet primarily includes new railcar additions and railcar modifications, net of deferred profit, and secondary market purchases;

and is net of proceeds from lease portfolio sales.

• We acquired a company that owns and operates proprietary railcar cleaning technology systems during the three months ended March 31, 2021 for net cash of $16.6 million.

We had no acquisitions during the three months ended March 31, 2022.

• During the six months ended June 30, 2022, we acquired a company that owns and operates an end-to-end rail logistics software platform providing a real-time data universe to freight rail shippers and operators for net cash of $9.4 million.

During the six months ended June 30, 2021, we acquired a company that owns and operates proprietary railcar cleaning technology systems for net cash of $16.6 million.

Financing Activities.

Net cash provided by financing activities during the three months ended March 31, 2022 was $28.7 million compared to $83.4 million of net cash provided by financing activities for the same period in 2021.

Net cash provided by financing activities during the six months ended June 30, 2022 was $278.6 million compared to $134.4 million of net cash used in financing activities for the same period in 2021.

Significant financing activities are as follows:

• During the three months ended March 31, 2022, we had total borrowings of $127.2 million and total repayments of $73.0 million, for net proceeds of $54.2 million, primarily from debt proceeds to support our investment in the lease fleet.

During the three months ended March 31, 2021, we had total borrowings of $327.7 million and total repayments of $185.3 million, for net proceeds of $142.4 million, primarily from debt proceeds to support our investment in the lease fleet.

• We paid $19.1 million and $23.2 million in dividends to our common stockholders during the three months ended March 31, 2022 and 2021, respectively.

• We repurchased common stock totaling $35.7 million during the three months ended March 31, 2021.

Certain shares of stock repurchased during March 2021, totaling $2.9 million, were cash settled in April 2021 in accordance with normal settlement practices.

There were no shares repurchased during the three months ended March 31, 2022.

• During the six months ended June 30, 2022, we had total borrowings of $1,194.1 million and total repayments of $833.3 million, for net proceeds of $360.8 million, primarily from debt proceeds to support our investment in the lease fleet.

During the six months ended June 30, 2021, we had total borrowings of $2,176.7 million and total repayments of $1,925.2 million, for net proceeds of $251.5 million, primarily from debt proceeds to support our investment in the lease fleet.

• We paid $39.3 million and $47.4 million in dividends to our common stockholders during the six months ended June 30, 2022 and 2021, respectively.

• We repurchased common stock totaling $22.4 million and $329.4 million during the six months ended June 30, 2022 and 2021, respectively.

The current year period excludes $25.0 million representing the final settlement of the ASR, which was funded in December 2021 but a portion of which remained outstanding.

Certain shares of stock repurchased during June 2022, totaling $2.9 million, were cash settled in July 2022 in accordance with normal settlement practices.

The prior year period includes shares repurchased in a privately negotiated transaction with ValueAct totaling $222.5 million.

Current Debt Obligations

The revolving credit facility contains several financial covenants that require the maintenance of ratios related to minimum interest coverage for the leasing and manufacturing operations and maximum leverage.

In December 2021, we amended our revolving credit facility to increase the maximum leverage ratio through June 30, 2022 to provide additional near-term flexibility.

In July 2022, we amended our revolving credit facility to increase the maximum leverage ratio beginning June 30, 2022 to provide additional flexibility.

A summary of our financial covenants is detailed below:

Ratio Covenant Actual at

March 31, 2022

June 30, 2022

Maximum leverage (1)

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No less than 2.25 to 1.00 6.34

(1) Defined as the ratio of consolidated total indebtedness to consolidated earnings before interest, taxes, depreciation and amortization ("EBITDA") for the Borrower and its Restricted Subsidiaries for the period of four consecutive quarters ending with March 31, 2022.

(2) Defined as the ratio of the difference of (A) consolidated EBITDA less (B) consolidated capital expenditures – manufacturing and other to consolidated interest expense to the extent paid in cash, in each case for the Borrower and its Restricted Subsidiaries for the period of four consecutive quarters ending with March 31, 2022.

As of March 31, 2022, we were in compliance with all such financial covenants.

As of June 30, 2022, we were in compliance with all such financial covenants.

Please refer to Note 8 of the Consolidated Financial Statements for a description of our current debt obligations.

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The Senior Notes are not guaranteed by any of our remaining 100%-owned subsidiaries or partially-owned subsidiaries (“Non-Guarantor Subsidiaries”).

As of March 31, 2022, assets held by the Non-Guarantor Subsidiaries included $188.6 million of restricted cash that was not available for distribution to Trinity Industries, Inc.

As of June 30, 2022, assets held by the Non-Guarantor Subsidiaries included $241.5 million of restricted cash that was not available for distribution to Trinity Industries, Inc.

(“Parent”), $7,004.2 million of equipment securing certain non-recourse debt, and $564.9 million of assets located in foreign locations.

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Investments in and equity in the earnings of the Non-Guarantor Subsidiaries (the non-obligor group) have been excluded.

Three Months Ended March 31, 2022

Six Months Ended June 30, 2022

Summarized Statement of Operations:

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Net income (loss)

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Summarized Balance Sheets:

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Noncontrolling interest $ 258.6 $ 267.0

(1) There were no net sales from the obligor group to Non-Guarantor Subsidiaries during the three months ended March 31, 2022.

(2) Cost of revenues includes $51.3 million of purchases from Non-Guarantor Subsidiaries during the three months ended March 31, 2022.

(3) Receivables, net of allowance includes $89.5 million and $93.5 million of receivables from Non-Guarantor Subsidiaries as of March 31, 2022 and December 31, 2021, respectively.

(4) Accounts payable includes $16.8 million and $29.7 million of payables to Non-Guarantor Subsidiaries as of March 31, 2022 and December 31, 2021, respectively.

(1) There were no net sales from the obligor group to Non-Guarantor Subsidiaries during the six months ended June 30, 2022.

(2) Cost of revenues includes $111.1 million of purchases from Non-Guarantor Subsidiaries during the six months ended June 30, 2022.

(3) Receivables, net of allowance includes $98.5 million and $93.5 million of receivables from Non-Guarantor Subsidiaries as of June 30, 2022 and December 31, 2021, respectively.

(4) Accounts payable includes $25.7 million and $29.7 million of payables to Non-Guarantor Subsidiaries as of June 30, 2022 and December 31, 2021, respectively.

Capital Expenditures

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Off Balance Sheet Arrangements

As of March 31, 2022, we had letters of credit issued under our revolving credit facility in an aggregate amount of $28.3 million, the full amount of which is expected to expire in July 2022.

As of June 30, 2022, we had letters of credit issued under our revolving credit facility in an aggregate amount of $28.3 million, the full amount of which is expected to expire in July 2023.

Our letters of credit obligations support our various insurance programs and generally renew by their terms each year.

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Derivative Instruments

We may 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 use derivative instruments to mitigate interest rate risk, including risks associated with the impact of changes in interest rates in anticipation of future debt issuances and to offset interest rate variability of certain floating rate debt issuances outstanding.

Derivative instruments that are designated and qualify as cash flow hedges are accounted for in accordance with applicable accounting standards.

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The United Kingdom's Financial Conduct Authority, which regulates the London Interbank Offered Rate ("LIBOR"), has announced that it will no longer persuade or require banks to submit rates for the calculation of LIBOR after June 2023.

In the U.S., the Alternative Reference Rates Committee has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative to LIBOR.

We currently have LIBOR-based contracts that extend beyond June 2023 including derivative instruments, promissory notes for Trinity Rail Leasing 2017 LLC, TILC's warehouse loan facility, the TRIP Railcar Co.

LLC term loan, and our revolving credit facility.

In the U.S., the Alternative Reference Rates Committee has identified SOFR as its preferred alternative to LIBOR.

We currently have LIBOR-based contracts that extend beyond June 2023 including derivative instruments, promissory notes for Trinity Rail Leasing 2017 LLC, and TILC's warehouse loan facility.

After LIBOR is phased out, the interest rates for these obligations might be subject to change.

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We believe Free Cash Flow is useful to both management and investors as it provides a relevant measure of liquidity and a useful basis for assessing our ability to fund our operations and repay our debt.

Free Cash Flow is reconciled to net cash provided by operating activities from continuing operations, the most directly comparable GAAP financial measure, in the following table.

Free Cash Flow is defined as net cash provided by operating activities from continuing operations as computed in accordance with GAAP, plus cash proceeds from lease portfolio sales, less capital expenditures for manufacturing, dividends paid, and Equity CapEx for leased railcars.

Free Cash Flow is reconciled to net cash provided by (used in) operating activities from continuing operations, the most directly comparable GAAP financial measure, in the following table.

Free Cash Flow is defined as net cash provided by (used in) operating activities from continuing operations as computed in accordance with GAAP, plus cash proceeds from lease portfolio sales, less capital expenditures for manufacturing, dividends paid, and Equity CapEx for leased railcars.

Equity CapEx for leased railcars is defined as leasing capital expenditures, adjusted to exclude net proceeds from (repayments of) debt.

Three Months Ended

Six Months Ended

(in millions)

Net cash provided by operating activities – continuing operations $ 28.5 $ 69.3

Net cash provided by (used in) operating activities – continuing operations $ (61.3) $ 324.9

Proceeds from lease portfolio sales 215.2 88.8

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Contractual Obligations and Commercial Commitments

As of March 31, 2022, there have been no material changes to our contractual obligations from December 31, 2021.

Except as described below, as of June 30, 2022, there have been no material changes to our contractual obligations from December 31, 2021:

• In April 2022, TRL-2022 issued $244.8 million of its Series 2022-1 Green Secured Railcar Equipment Notes.

These notes have a stated final maturity date of 2052.

• In May 2022, Tribute Rail issued $327.0 million of its Series 2022-1 Green Secured Railcar Equipment Notes.

These notes have a stated final maturity date of 2052.

Net proceeds received from the issuance of these notes were used to redeem TRIP Railcar Co.'s existing term loan agreement, of which $ 323.7 million was outstanding at December 31, 2021.

See Note 8 of the Consolidated Financial Statements for additional information regarding these debt transactions.

Recent Accounting Pronouncements

There have been no material changes in recently issued or adopted accounting standards during the three months ended March 31, 2022.

There have been no material changes in recently issued or adopted accounting standards during the six months ended June 30, 2022.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis