What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-10-25 compared with 2022-07-27 · 167 added, 146 removed, 427 unchanged (42% of the section changed)

40 unchanged sentences

• changes in laws and regulations that may have an adverse effect on demand for our products and services, our results of operations, financial condition or cash flows;

• legal, regulatory, and environmental issues, including compliance of our products with mandated specifications, standards, or testing criteria and obligations to remove and replace our products following installation or to recall our products and install different products manufactured by us or our competitors;

• actions by U.S.

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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 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.

Similar expenses incurred during the three and nine months ended September 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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Recent Market Developments

The COVID-19 pandemic significantly impacted global and North American economic conditions.

The social and economic effects of the pandemic have been widespread and are ongoing.

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 and six months ended June 30, 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.

Please refer to the "Forward-Looking Statements" section above and Part I, Item 1A “Risk Factors” of the 2021 Annual Report on Form 10-K for additional information regarding the potential impacts of COVID-19 on our business.

Other Cyclical and Seasonal Trends Impacting Our Business

Cyclical, Seasonal and Other Trends Impacting Our Business

The industries in which our customers operate are cyclical in nature.

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We diligently evaluate the creditworthiness of our customers and monitor performance of relevant market sectors;

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.

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.

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

Railcar loading volumes, levels of railcars in storage, and orders for new railcar equipment have improved, and railcar lease rates and utilization continue to improve.

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

Steel prices and labor costs have increased significantly since the fourth quarter of 2020 and are major components of our cost of revenues.

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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, 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.

As a result of disruptions in the global supply chain, we have continued to experience 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 challenges will be resolved over time, they may persist over the foreseeable future, which could continue to impact our operations.

We will continue to monitor the situation and take appropriate steps within our control to mitigate the potential impacts on our production schedules and delivery timelines.

Due to their transactional nature, lease portfolio sales are the primary driver of fluctuations in results in the Leasing Group.

The COVID-19 pandemic significantly impacted global and North American economic conditions.

The social and economic effects of the pandemic have been widespread.

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 ongoing economic pressures related to the effects of the pandemic have negatively impacted our results of operations for the three and nine months ended September 30, 2022.

While we continue to see gradual reduction of the impacts of the pandemic, we are monitoring the impacts of COVID-19 variants on the economy and our workforce.

Financial and Operational Highlights

• 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 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;

• Our revenues for the nine months ended September 30, 2022 were $1,386.1 million, representing an increase of 32.8%, compared to the nine months ended September 30, 2021.

Our operating profit for the nine months ended September 30, 2022 was $220.5 million compared to $187.6 million for the nine months ended September 30, 2021.

• The Leasing Group's lease fleet of 109,195 company-owned railcars was 97.9% utilized as of September 30, 2022, compared to a lease fleet utilization of 95.0% on 105,915 company-owned railcars as of September 30, 2021.

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

• For the nine months ended September 30, 2022, we made a net investment in our lease fleet of approximately $176.3 million, which primarily includes new railcar additions, sustainable railcar conversions, railcar modifications, and other betterments, 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 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 total value of the new railcar backlog at September 30, 2022 was $4.1 billion, compared to $1.2 billion at September 30, 2021.

The Rail Products Group received orders for 28,890 railcars and delivered 8,915 railcars in the nine months ended September 30, 2022, in comparison to orders for 8,510 railcars and deliveries of 6,070 railcars in the nine months ended September 30, 2021.

◦ In the third quarter of 2022, we entered into a new long-term railcar supply agreement with GATX Corporation (“GATX”) to deliver a mix of 15,000 newly built tank and freight railcars over a six-year period.

Our ending backlog at September 30, 2022 includes 15,000 railcars valued at approximately $1.8 billion associated with this agreement.

• 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 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.

During the nine months ended September 30, 2022, sustainable railcar conversion revenues totaled $117.9 million, representing 1,230 railcars.

• For the nine months ended September 30, 2022, operating cash flows from continuing operations was a net use of $52.6 million and Free Cash Flow After Investments and Dividends ("Free Cash Flow") was $0.1 million (1) , in comparison to generating operating cash flows from continuing operations and Free Cash Flow of $418.8 million and $510.9 million (1) , respectively, for the nine months ended September 30, 2021.

(1) Non-GAAP financial measure.

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(1) Dividend yield is calculated as dividends paid for the four previous quarters divided by the closing stock price on the last trading day of each respective quarter.

(2) In the second quarter of 2021, we entered into a stock repurchase agreement with ValueAct Capital Master Fund, L.P.

("ValueAct") in a privately negotiated transaction.

(2) In the third quarter of 2021, we completed the existing share repurchase program, and our Board of Directors authorized a new $250.0 million share repurchase program.

(4) In the fourth quarter of 2021, we entered into an additional stock repurchase agreement with ValueAct in a privately negotiated transaction.

(3) In the fourth quarter of 2021, we entered into an additional stock repurchase agreement with ValueAct Capital Master Fund, L.P.

("ValueAct") in a privately negotiated transaction.

Additionally, we entered into an accelerated share repurchase agreement (the "ASR") to repurchase $125.0 million of our common stock.

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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.

Net proceeds received from the transaction were used to repay borrowings under TILC's 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.

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

While the stated final maturity date of these debt issuances is in 2052, the cash flows from the encumbered assets of each of TRL-2022 and Tribute Rail will be applied, pursuant to the payment priorities of their respective indentures, so as to amortize their respective notes to achieve monthly targeted principal balances.

If the cash flow assumptions used in determining the targeted balances are met, it is anticipated that the notes will be repaid well in advance of their stated final maturity date.

There can be no assurance, however, that such cash flow assumptions will be realized.

See Note 8 of the Consolidated Financial Statements for more information.

Litigation Updates

See Note 14 of the Consolidated Financial Statements for an update on the status of certain litigation retained in connection with the sale of THP.

Subsequent Events

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 and six months ended June 30, 2022 and 2021:

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

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

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Other, net (0.6) (0.7) (2.7) 1.3

Income (loss) from continuing operations before income taxes 22.3 (5.7) 35.2 (6.7)

Income from continuing operations before income taxes 38.3 33.8 73.5 27.1

Provision (benefit) for income taxes 8.6 8.3 17.4 9.4

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

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

Income from continuing operations $ 29.7 $ 25.5 $ 56.1 $ 17.7

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

Three Months Ended September 30, 2022

Revenues Percent

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Consolidated Total $ 496.6 $ — $ 496.6 18.3 %

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

External Intersegment Total

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Consolidated Total $ 419.8 $ — $ 419.8

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Revenues Percent

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Consolidated Total $ 1,386.1 $ — $ 1,386.1 32.8 %

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

External Intersegment Total

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and restructuring activities.

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

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

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

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Operating Profit

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

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

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

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Discussion of Consolidated Results

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.

Revenues – Our revenues for the three months ended September 30, 2022 were $496.6 million, representing an increase of $76.8 million, or 18.3%, over the prior year period.

Our revenues for the nine months ended September 30, 2022 were $1,386.1 million, representing an increase of $342.3 million, or 32.8%, over the prior year period.

The increases in revenues were primarily due to a higher volume of, and improved pricing on, external deliveries in the Rail Products Group.

Cost of revenues – Our cost of revenues for the three months ended September 30, 2022 was $395.3 million, representing an increase of $57.9 million, or 17.2%, over the prior year period.

Our cost of revenues for the nine months ended September 30, 2022 was $1,119.4 million, representing an increase of $333.6 million, or 42.5%, over the prior year period.

The increases in cost of revenues were primarily due to a higher volume of, and input cost inflation 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 nine months ended September 30, 2022 when compared to the prior year periods.

Gains on dispositions of property – Gains on dispositions of property decreased by $2.2 million for the three months ended September 30, 2022 when compared to the prior year period.

During the three months ended September 30, 2022 and 2021, we recorded gains of $1.1 million and $4.7 million, respectively, 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 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.

Gains on dispositions of property increased by $27.3 million for the nine months ended September 30, 2022 when compared to the prior year period primarily due to higher lease portfolio sales.

Results for the nine months ended September 30, 2022 and 2021 included gains of $7.5 million and $4.7 million, respectively, 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 September 30, 2022 totaled $92.7 million, representing an increase of $14.4 million, or 18.4%, from the prior year period primarily due to higher deliveries and improved pricing in the Rail Products Group, partially offset by higher fleet operating costs and increased depreciation in the Leasing Group.

Operating profit for the nine months ended September 30, 2022 totaled $220.5 million, representing an increase of $32.9 million, or 17.5%, 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 higher fleet operating costs and increased depreciation in the Leasing Group.

Operating profit was favorably impacted in the current and prior year periods by insurance recoveries related to a tornado 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 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.

Interest expense, net – Interest expense, net for the three months ended September 30, 2022 totaled $55.0 million, compared to $45.2 million for the three months ended September 30, 2021, primarily driven by higher variable interest rates associated with TILC's warehouse loan facility and higher overall average debt.

Interest expense, net for the nine months ended September 30, 2022 totaled $148.2 million, compared to $147.5 million for the nine months ended September 30, 2021, primarily driven by higher variable interest rates associated with TILC's warehouse loan facility and higher overall average debt in 2022, partially offset by lower overall borrowing costs associated with the Company's debt facilities resulting from debt refinancing activity during the second quarter of 2021.

Loss on extinguishment of debt – Loss on extinguishment of debt for the nine months ended September 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 nine months ended September 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.

There was no loss on extinguishment of debt for the three months ended September 30, 2022 and 2021.

Income taxes – The effective tax rate from continuing operations for the three and nine months ended September 30, 2022 was 22.5% and 23.7%, 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, taxes not recorded on our non-controlling interests in partially-owned subsidiaries, and a reduction of our uncertain tax positions balance due to a lapse of a state statute of limitations.

For the three months ended September 30, 2021, we recorded income tax expense of $8.3 million on income from continuing operations before income taxes of $33.8 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.

For the nine months ended September 30, 2021, we recorded income tax expense of $9.4 million on income from continuing operations before income taxes of $27.1 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.

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Railcar Leasing and Management Services Group

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 Percent 2022 2021 Percent

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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 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.

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

(3) Depreciation expense includes $2.4 million and $8.5 million for the three and nine months ended September 30, 2022, respectively, related to the disposal of certain railcar components associated with our sustainable railcar conversion program.

For the three and nine months ended September 30, 2021, depreciation expense includes $4.7 million and $7.3 million, respectively, related to our sustainable railcar conversion program.

(4) Interest expense for the nine months ended September 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 nine months ended September 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

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

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Operating profit margin on lease portfolio sales 11.4 % 10.2 % 13.9 % 11.1 %

(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.

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

Total revenues for the Railcar Leasing and Management Services Group increased by 5.0% and 3.4% for the three and nine months ended September 30, 2022, respectively, compared to the prior year periods.

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

Operating profit for the Leasing Group decreased by 1.3% for the three months ended September 30, 2022 and increased by 9.1% for the nine months ended September 30, 2022, compared to the prior year periods.

Operating profit for the nine months ended September 30, 2022 was favorably impacted by higher lease portfolio sale activity.

Leasing and management operating profit for the three and nine months ended September 30, 2022 decreased by 3.7% and 1.3%, respectively, compared to the prior year periods primarily due to higher fleet operating costs and increased depreciation, partially offset by higher utilization on a larger lease fleet.

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:

June 30, 2022 June 30, 2021

September 30, 2022 September 30, 2021

Number of railcars:

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Fleet utilization 97.9 % 95.0 %

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

(1) Includes 2,805 railcars and 2,280 railcars under leased-in arrangements as of September 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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 Percent 2022 2021 Percent

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8.7 8.3 4.8 % 25.4 25.4 — %

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

Gains on dispositions of property (0.9) (4.8) * (7.2) (4.7) *

Operating profit (loss) $ 26.0 $ (3.1) * $ 40.5 $ (8.7) *

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* Not meaningful

(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.

(1) Includes sustainable railcar conversion revenues of $28.9 million, representing 300 railcars, for the three months ended September 30, 2022 and sustainable railcar conversion revenues of $117.9 million, representing 1,230 railcars, for the nine months ended September 30, 2022.

Includes sustainable railcar conversion revenues of $26.0 million, representing 242 railcars for the three months ended September 30, 2021 and sustainable railcar conversion revenues of $38.8 million, representing 361 railcars for the nine months ended September 30, 2021.

Revenues for the Rail Products Group increased for the three and nine months ended September 30, 2022 by 75.7% and 64.5%, respectively, when compared to the prior year periods.

Revenues in our rail products business increased as a result of higher deliveries, favorable pricing, 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.

Cost of revenues for the Rail Products Group increased for the three and nine months ended September 30, 2022 by 66.0% and 59.9%, respectively, when compared to the prior year periods.

In our maintenance services business, cost of revenues increased as a result of a higher volume of HM-251 modifications.

Cost of revenues for the nine months ended September 30, 2022 were further impacted by the introduction of additional products into the production line in our rail products business and continued to be negatively impacted by labor shortages leading to operating inefficiencies in our maintenance services business.

Operating profit for the three and nine months ended September 30, 2022 was favorably impacted by higher deliveries and improved pricing, partially offset by disruptions in the transportation network used to deliver our products.

Operating profit for the nine months ended September 30, 2022 was unfavorably impacted by deliveries of orders taken at the bottom of the cycle.

Additionally, during the three and nine months ended September 30, 2022 and 2021, operating profit was favorably impacted by insurance recoveries related to 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 June 30, 2022, our backlog related to sustainable railcar conversions totaled $188.6 million, representing 2,350 railcars.

In addition to the amounts below, as of September 30, 2022, our backlog related to sustainable railcar conversions totaled $201.4 million, representing 2,420 railcars.

September 30,

2022 2021 Percent

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External customers (1)

$ 3,573.7 $ 980.9

Leasing Group 517.2 247.5

$ 4,090.9 $ 1,228.4 233.0 %

Three Months Ended June 30, Six Months Ended

Three Months Ended September 30, Nine Months Ended

September 30,

2022 2021 2022 2021 Percent

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Orders received (1)

19,500 2,530 28,890 8,510 239.5 %

Deliveries (3,935) (2,410) (8,915) (6,070) 46.9 %

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Average selling price in ending backlog $ 121,554 $ 107,519 13.1 %

(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.

(1) Ending backlog and orders received for the three and nine months ended September 30, 2022 include 15,000 railcars valued at approximately $1.8 billion associated with a new long-term railcar supply agreement with GATX.

(2) The adjustment for the nine months ended September 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 233.0% when compared to the prior year period primarily from an increase in the volume and average selling price of orders received.

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

Three Months Ended June 30, Six Months Ended

Three Months Ended September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

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Corporate and other

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

2022 2021 Percent 2022 2021 Percent Change

($ in millions) Change ($ in millions)

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 Percent 2022 2021 Percent

(in millions) Change (in millions) Change

Operating costs:

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* Not meaningful

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.

Selling, engineering, and administrative expenses for the three and nine months ended September 30, 2022 decreased 3.1% and 3.3%, respectively, compared to the prior year periods, primarily from lower litigation-related expenses.

Total operating costs in the three and nine months ended September 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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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.

As of September 30, 2022, we have total committed liquidity of $464.7 million.

Our total available liquidity includes:

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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.

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

Dividend Payments – We paid $58.3 million in dividends to our common stockholders during the nine months ended September 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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April 1, 2022 through June 30, 2022 1,760,462 50.3 $ 47.8 (1)

July 1, 2022 through September 30, 2022 610,000 14.1 $ 33.7

Total 7,525,953 $ 216.3

(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

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

Nine Months Ended

September 30,

(in millions)

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Net cash flows from discontinued operations (18.1) 4.2

Net increase in cash, cash equivalents, and restricted cash $ 4.1 $ 27.3

Net increase (decrease) in cash, cash equivalents, and restricted cash $ (63.7) $ 116.7

Operating Activities .

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.

Net cash used in operating activities from continuing operations for the nine months ended September 30, 2022 was $52.6 million compared to net cash provided by operating activities from continuing operations of $418.8 million for the nine months ended September 30, 2021.

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

Six Months Ended

Nine Months Ended

September 30,

(in millions)

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Changes in operating assets and liabilities $ (263.3) $ 219.7

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.

The changes in our operating assets and liabilities resulted in a net use of $263.3 million for the nine months ended September 30, 2022, as compared to a net source of $219.7 million for the nine months ended September 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.

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Investing Activities.

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.

Net cash used in investing activities from continuing operations for the nine months ended September 30, 2022 was $186.1 million compared to $47.8 million of net cash provided by investing activities from continuing operations for the nine months ended September 30, 2021.

Significant investing activities are as follows:

• 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;

• We made a net investment in our lease fleet of $176.3 million during the nine months ended September 30, 2022, compared to proceeds received from lease portfolio sales exceeding the investment in our lease fleet by approximately $40.6 million in the prior year period.

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

and is net of proceeds from lease portfolio sales.

• 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.

• During the nine months ended September 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 nine months ended September 30, 2021, we acquired a company that owns and operates proprietary railcar cleaning technology systems for net cash of $16.5 million.

• We purchased equity investments totaling $15.5 million and $0.2 million during the nine months ended September 30, 2022 and 2021, respectively, primarily related to our investments in Signal Rail Holdings LLC.

See Note 5 of the Consolidated Financial Statements.

Financing Activities.

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.

Net cash provided by financing activities during the nine months ended September 30, 2022 was $193.1 million compared to $354.1 million of net cash used in financing activities for the same period in 2021.

Significant financing activities are as follows:

• 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.

• During the nine months ended September 30, 2022, we had total borrowings of $1,664.5 million and total repayments of $1,351.5 million, for net proceeds of $313.0 million, primarily from debt proceeds to support our investment in the lease fleet.

During the nine months ended September 30, 2021, we had total borrowings of $2,393.7 million and total repayments of $2,256.8 million, for net proceeds of $136.9 million, primarily from debt proceeds to support our investment in the lease fleet.

• We paid $58.3 million and $68.5 million in dividends to our common stockholders during the nine months ended September 30, 2022 and 2021, respectively.

• We repurchased common stock totaling $36.8 million and $406.5 million during the nine months ended September 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 as of December 31, 2021.

Certain shares of stock repurchased during September 2022, totaling $2.6 million, were cash settled in October 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.

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

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

A summary of our financial covenants is detailed below:

Ratio Covenant Actual at

June 30, 2022

September 30, 2022

Maximum leverage (1)

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No less than 2.25 to 1.00 6.57

(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 June 30, 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 June 30, 2022.

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

(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 September 30, 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 September 30, 2022.

As of September 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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(collectively, the "Guarantor Subsidiaries”).

The Senior Notes indenture agreement includes customary provisions for the release of the guarantees by the Guarantor Subsidiaries upon the occurrence of certain allowed events including the release of one or more of the Combined Guarantor Subsidiaries as guarantor under our revolving credit facility.

The Senior Notes indenture agreement includes customary provisions for the release of the guarantees by the Guarantor Subsidiaries upon the occurrence of certain allowed events including the release of one or more of the Guarantor Subsidiaries as guarantor under our revolving credit facility.

See Note 8 of our 2021 Annual Report on Form 10-K.

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

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.

As of September 30, 2022, assets held by the Non-Guarantor Subsidiaries included $168.4 million of restricted cash that was not available for distribution to Trinity Industries, Inc.

(“Parent”), $7,167.1 million of equipment securing certain non-recourse debt, and $607.8 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.

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Summarized Statement of Operations:

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Net income (loss) (3)

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Summarized Balance Sheets:

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Noncontrolling interest $ 255.2 $ 267.0

(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.

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

(2) Cost of revenues includes $193.0 million of purchases from Non-Guarantor Subsidiaries during the nine months ended September 30, 2022.

(3) Net income (loss) includes $18.3 million of net loss related to discontinued operations.

(4) Receivables, net of allowance includes $98.4 million and $93.5 million of receivables from Non-Guarantor Subsidiaries as of September 30, 2022 and December 31, 2021, respectively.

(5) Accounts payable includes $38.6 million and $29.7 million of payables to Non-Guarantor Subsidiaries as of September 30, 2022 and December 31, 2021, respectively.

Capital Expenditures

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Off Balance Sheet Arrangements

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.

As of September 30, 2022, we had letters of credit issued under our revolving credit facility in an aggregate amount of $4.9 million, the majority of which are expected to expire in November 2023.

Our letters of credit obligations support performance bonds related to certain railcar orders.

See Note 8 of the Consolidated Financial Statements for further information about our corporate revolving credit facility.

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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.

We also may use derivative instruments from time to time to mitigate the impact of changes in foreign currency exchange rates.

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 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.

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

During the third quarter of 2022, we amended our corporate revolving credit facility and warehouse loan facility to transition the facility benchmark rate from LIBOR to SOFR plus a benchmark adjustment.

We currently have LIBOR-based contracts that extend beyond June 2023 related to promissory notes and derivative instruments for Trinity Rail Leasing 2017 LLC.

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

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

Six Months Ended

Nine Months Ended

September 30,

(in millions)

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Contractual Obligations and Commercial Commitments

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

Except as described below, as of September 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.

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Recent Accounting Pronouncements

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

See Note 1 of the Consolidated Financial Statements for information about recent accounting pronouncements.

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