What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-02 compared with 2022-10-25 · 147 added, 261 removed, 333 unchanged (55% 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 or used;

• variations in weather in areas where our products are manufactured, delivered, 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;

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• the timing of introduction of new products;

• the inability to effectively integrate acquired businesses;

• the timing and delivery of customer orders, lease portfolio sales, or a breach of customer contracts;

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• surcharges and other fees added to fixed pricing agreements for steel, component parts, supplies, and other raw materials;

• interest rates and capital costs;

• inflation, interest rates, and capital costs;

• counter-party risks for financial instruments;

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and its consolidated subsidiaries (“Trinity,” “Company,” “we,” “our,” or "us") own businesses that are leading providers of railcar products and services in North America.

Our rail-related businesses market their railcar products and services under the trade name TrinityRail ® .

The TrinityRail platform provides railcar leasing and management services, railcar manufacturing, and railcar maintenance and modification services.

In the fourth quarter of 2021, the Company completed the sale of Trinity Highway Products, LLC (“THP”), a wholly-owned subsidiary of the Company, and certain direct and indirect subsidiaries of THP, to Rush Hour Intermediate II, LLC ("Rush Hour"), an entity owned by an affiliated investment fund of Monomoy Capital Partners, for an aggregate purchase price of $375.0 million, subject to certain adjustments.

We concluded that the sale of THP represented a strategic shift that will have a major effect on the Company’s operations and financial results.

Accordingly, we have presented the operating results and cash flows of THP as discontinued operations for all periods in this Quarterly Report on Form 10-Q.

Results of prior periods have been recast to reflect these changes and present results on a comparable basis.

We market our railcar products and services under the trade name TrinityRail ® .

The TrinityRail platform provides railcar leasing and management services;

railcar manufacturing, maintenance and modifications;

and other railcar logistics products and services.

In the fourth quarter of 2021, we completed the sale of Trinity Highway Products, LLC (“THP”) to Rush Hour Intermediate II, LLC ("Rush Hour"), an entity owned by an affiliated investment fund of Monomoy Capital Partners.

Upon completion of the sale, the accounting requirements for reporting THP as a discontinued operation were met.

In connection with the sale of THP, we agreed to indemnify Rush Hour for certain liabilities related to the ET-Plus® System, a highway guardrail end-terminal system (the “ET Plus”).

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 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.

Following the sale of THP, we report our operating results in two reportable segments:

(1) the Railcar Leasing and Management Services Group (the "Leasing Group"), which owns and operates a fleet of railcars and provides third-party fleet leasing, management, and administrative services;

Consequently, expenses incurred during the three months ended March 31, 2023 and 2022, and that may be incurred in the future related to these retained obligations, will 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 of the Consolidated Financial Statements for information regarding the retained liabilities.

We report our operating results in two reportable segments:

and (2) the Rail Products Group, which manufactures and sells railcars and related parts and components, and provides railcar maintenance and modification services.

Additionally, we have combined the results of the prior Corporate and All Other groupings into a single Corporate and other grouping.

The remaining activity previously reported in All Other primarily includes legal, environmental, and maintenance costs associated with non-operating facilities.

Results of prior periods have been recast to reflect these changes and present results on a comparable basis.

Executive Summary

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Cyclical, Seasonal and Other Trends Impacting Our Business

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

Although lease rates and lease fleet utilization continue to improve, the industries in which our customers operate are cyclical in nature.

Weaknesses in certain sectors of the North American and global economy may make it more difficult to sell or lease certain types of railcars.

Additionally, changes in commodity prices, including fluctuations in the crude oil market, or changes in demand for certain commodities, could impact customer demand for various types of railcars.

Additionally, changes in certain commodity prices, or changes in demand for certain commodities, could impact customer demand for various types of railcars.

Further, disruptions in the global supply chain have impacted demand for, and the costs of, certain of our products and services.

We continuously assess demand for our products and services and take steps to rationalize and diversify our leased railcar portfolio and align our operating capacity appropriately.

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

We 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 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.

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

Steel prices, which are subject to volatility, were elevated over much of the last two years and are a major component of our cost of revenues.

We typically use contract-specific purchasing practices, existing supplier commitments, contractual price escalation provisions, and other arrangements with our customers to reduce the impact of plate and coil steel price volatility on our operating profit.

However, higher steel prices have resulted in increases in the cost of certain railcar components and could reduce demand for new railcars.

Additionally, although we remain committed to attracting and retaining a highly skilled and diverse workforce, labor shortages, high turnover, and increases in labor costs have negatively impacted our operations.

Additionally, the cost and volume of lease fleet maintenance and compliance events increased in 2022, and we expect elevated levels of these activities to continue in the near term.

Further, although we remain committed to attracting and retaining a highly skilled and diverse workforce, challenging labor market conditions and increases in labor costs have negatively impacted our operations.

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

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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.

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.

Financial and Operational Highlights

• 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 revenues for the three months ended March 31, 2023 were $641.7 million, representing an increase of 35.8%, compared to the three months ended March 31, 2022.

Our operating profit for the three months ended March 31, 2023 was $69.0 million compared to $54.8 million for the three months ended March 31, 2022.

• The Leasing Group's lease fleet of 108,865 company-owned railcars was 98.2% utilized as of March 31, 2023, compared to a lease fleet utilization of 96.5% on 107,090 company-owned railcars as of March 31, 2022.

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;

• For the three months ended March 31, 2023, we made a net investment in our lease fleet of approximately $134.8 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 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 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.

• The total value of the new railcar backlog at March 31, 2023 was $3.7 billion, compared to $1.9 billion at March 31, 2022.

The Rail Products Group received orders for 2,690 railcars and delivered 4,045 railcars in the three months ended March 31, 2023, in comparison to orders for 5,055 railcars and deliveries of 2,470 railcars in the three months ended March 31, 2022.

• During the three months ended March 31, 2023, sustainable railcar conversion revenues totaled $53.9 million, representing 590 railcars.

• For the three months ended March 31, 2023, we generated operating cash flows from continuing operations and Adjusted Free Cash Flow After Investments and Dividends ("Adjusted Free Cash Flow") of $102.5 million and $36.2 million (1) , respectively, in comparison to $28.5 million and $47.8 million (1) , respectively, for the three months ended March 31, 2022.

(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 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.

(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.

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

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

(5) 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 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.

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.

(2) In the second quarter of 2022, we completed the final settlement of an accelerated share repurchase agreement ("ASR").

(3) In the fourth quarter of 2022, our Board of Directors terminated the existing share repurchase program and authorized a new $250.0 million share repurchase program.

Litigation Updates

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Consolidated Results of Operations

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

The following table summarizes our consolidated results of operations for the three months ended March 31, 2023 and 2022:

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(in millions)

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Interest expense, net 62.1 43.5

Loss on extinguishment of debt — — 1.5 11.7

Other, net 1.6 (1.6)

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Income from continuing operations $ 16.8 $ 9.9

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

External Intersegment Total Change

(in millions)

Railcar Leasing and Management Services Group $ 194.6 $ 0.2 $ 194.8 5.0 %

Rail Products Group 302.0 295.3 597.3 75.7 %

Segment Totals 496.6 295.5 792.1 50.8 %

Eliminations – Lease Subsidiary — (295.3) (295.3)

Eliminations – Other — (0.2) (0.2)

Consolidated Total $ 496.6 $ — $ 496.6 18.3 %

Three Months Ended September 30, 2021

External Intersegment Total

(in millions)

Railcar Leasing and Management Services Group $ 185.3 $ 0.2 $ 185.5

Rail Products Group 234.5 105.4 339.9

Segment Totals 419.8 105.6 525.4

Eliminations – Lease Subsidiary — (105.3) (105.3)

Eliminations – Other — (0.3) (0.3)

Consolidated Total $ 419.8 $ — $ 419.8

Nine Months Ended September 30, 2022

The tables below present revenues by segment for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31, 2023

Revenues Percent

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Consolidated Total $ 641.7 $ — $ 641.7 35.8 %

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

External Intersegment Total

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and restructuring activities.

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

Operating costs by segment for the three months ended March 31, 2023 and 2022 were as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(in millions)

Railcar Leasing and Management Services Group (1)

$ 118.0 $ 103.3

Rail Products Group 612.5 390.3

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Consolidated Total $ 572.7 $ 417.9

(1) Includes gains on lease portfolio sales of $13.5 million and $11.8 million for the three months ended March 31, 2023 and 2022, respectively.

Operating Profit

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

Operating profit by segment for the three months ended March 31, 2023 and 2022 was as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(in millions)

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Discussion of Consolidated Results

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.

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.

Revenues – Our revenues for the three months ended March 31, 2023 were $641.7 million, representing an increase of $169.0 million, or 35.8%, over the prior year period.

The increase in revenues was primarily due to a higher volume of, and improved pricing on, external deliveries in the Rail Products Group and improved lease rates in the Leasing Group.

Cost of revenues – Our cost of revenues for the three months ended March 31, 2023 was $538.5 million, representing an increase of $140.0 million, or 35.1%, over the prior year period.

The increase in cost of revenues was primarily due to a higher volume of external deliveries, higher labor costs and operational inefficiencies in the Rail Products Group.

Selling, engineering, and administrative expenses – Selling, engineering, and administrative expenses for the three months ended March 31, 2023 were $49.9 million, representing an increase of $5.2 million or 11.6% when compared to the prior year period, primarily as a result of higher employee-related costs.

Gains on dispositions of property – Gains on dispositions of property decreased by $10.0 million for the three months ended March 31, 2023 when compared to the prior year period primarily due to higher gains associated with the disposition of certain non operating facilities and insurance recoveries in the prior year period, partially offset by higher profits on lease portfolio sales in the current year period.

Results for the three months ended March 31, 2023 and 2022 included gains of $1.2 million and $6.4 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 – Operating profit for the three months ended March 31, 2023 totaled $69.0 million, representing an increase of $14.2 million, or 25.9%, from the prior year period primarily due to a higher volume of, and improved pricing on, external deliveries in the Rail Products Group and improved lease rates in the Leasing Group, partially offset by higher employee-related and other operating costs across the enterprise.

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 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 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.

Interest expense, net – Interest expense, net for the three months ended March 31, 2023 totaled $62.1 million, compared to $43.5 million for the three months ended March 31, 2022, primarily driven by higher variable interest rates associated with TILC's warehouse loan facility and the revolving credit facility and higher overall average debt in 2023.

Income taxes – The effective tax rate from continuing operations for the three months ended March 31, 2023 was a benefit of 217.0%, which differs from the U.S.

statutory rate of 21.0% primarily due to the release of residual taxes out of accumulated other comprehensive income, the re-measurement of our net deferred tax liabilities due to the acquisition of RSI Logistics ("RSI"), changes in our valuation allowances, state income taxes, and foreign income taxes.

See Note 9 of the Consolidated Financial Statements for additional information.

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

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

Segment Discussion

Railcar Leasing and Management Services Group

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

2022 2021 Percent 2022 2021 Percent

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

Three Months Ended March 31,

2023 2022 Percent

($ in millions) Change

Leasing and management $ 203.5 $ 183.1 11.1 %

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Lease portfolio sales (2)

34.3 32.9 * 73.0 45.7 *

Total operating profit $ 85.5 $ 79.8 7.1 %

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$ 15.7 $ 12.8 22.7 %

$ 49.2 $ 39.9 23.3 % $ 133.9 $ 142.6 (6.1) %

Interest $ 54.8 $ 38.7 41.6 %

* 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 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.

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

(3) Depreciation expense includes $4.7 million and $2.2 million for the three months ended March 31, 2023 and 2022, respectively, related to the disposal of certain railcar components associated with our sustainable railcar conversion program.

Information related to lease portfolio sales is as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

($ in millions)

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Operating profit margin on lease portfolio sales 23.8 % 14.8 %

(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.

(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 increased by 11.1% for the three months ended March 31, 2023 compared to the prior year period.

Leasing and management revenues for the three months ended March 31, 2023 were favorably impacted primarily by improved lease rates and higher utilization, which resulted in higher revenues when compared to the three months ended March 31, 2022.

Revenues for the Leasing Group were also favorably impacted for the three months ended March 31, 2023 by the acquisition of RSI.

Leasing and management operating profit for the three months ended March 31, 2023 increased by 5.9% compared to the prior year period primarily due to improved lease rates and higher utilization, partially offset by higher maintenance costs and increased depreciation.

Leasing Group operating profit increased by 7.1% for the three months ended March 31, 2023 compared to the prior year period and was favorably impacted by higher profit from lease portfolio sales.

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:

September 30, 2022 September 30, 2021

March 31, 2023 March 31, 2022

Number of railcars:

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Fleet utilization 98.2 % 96.5 %

(1) Includes 2,805 railcars and 2,280 railcars under leased-in arrangements as of September 30, 2022 and 2021, respectively.

(1) Includes 2,470 railcars and 2,575 railcars under leased-in arrangements as of March 31, 2023 and 2022, respectively.

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

Rail Products Group

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

2022 2021 Percent 2022 2021 Percent

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

Three Months Ended March 31,

2023 2022 Percent

($ in millions) Change

Rail products (1)

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Gains on dispositions of property (1.1) (6.4) *

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

Operating profit (loss) margin 4.4 % (0.9) % 2.9 % (1.0) %

Operating profit $ 25.3 $ 0.8 *

Operating profit margin 4.0 % 0.2 %

* Not meaningful

(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 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.

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.

(1) Includes sustainable railcar conversion revenues of $53.9 million, representing 590 railcars, for the three months ended March 31, 2023.

Includes sustainable railcar conversion revenues of $49.8 million, representing 445 railcars for the three months ended March 31, 2022.

Revenues for the Rail Products Group increased for the three months ended March 31, 2023 by 63.1% when compared to the prior year period.

Revenues in our rail products business increased as a result of higher deliveries and favorable pricing, partially offset by the mix of railcars sold.

Revenues in our maintenance services business increased as a result of higher volumes, favorable pricing, and the mix of repairs.

Revenues in other were driven by the growth of our parts business, including the impact of acquisitions.

Cost of revenues for the Rail Products Group increased for the three months ended March 31, 2023 by 56.4% when compared to the prior year period.

In our rail products business, the increase in cost of revenues was driven by higher deliveries, labor inefficiencies associated with onboarding of new employees, higher labor costs related to hiring and retention activities, and operational inefficiencies associated with supply chain disruptions.

In our maintenance services business, cost of revenues increased as a result of a higher volume of general repairs and the mix of repairs and continues to be impacted by labor shortages leading to operating inefficiencies.

Operating profit for the three months ended March 31, 2023 was favorably impacted by higher deliveries and improved pricing, partially offset by labor inefficiencies, higher labor costs, and the mix of railcars sold.

Additionally, during the three months ended March 31, 2023 and 2022, operating profit was favorably impacted by gains of $1.2 million and $6.4 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.

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

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,

In addition to the amounts below, as of March 31, 2023, our backlog related to sustainable railcar conversions totaled $173.7 million, representing 2,085 railcars.

2023 2022 Percent

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External customers $ 3,257.1 $ 1,209.3

$ 3,573.7 $ 980.9

Leasing Group 448.8 686.1

$ 4,090.9 $ 1,228.4 233.0 %

Three Months Ended September 30, Nine Months Ended

September 30,

Total $ 3,705.9 $ 1,895.4 95.5 %

Three Months Ended

2023 2022 Percent

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Orders received 2,690 5,055 (46.8) %

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

Deliveries (4,045) (2,470) 63.8 %

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Average selling price in ending backlog $ 119,874 $ 116,532 2.9 %

(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.

(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 95.5% when compared to the prior year period due to an increase in the volume and average selling price of orders received primarily driven by a new long-term railcar supply agreement with GATX Corporation executed in the third quarter of 2022.

We expect to deliver approximately 42.3% of our railcar backlog value during 2023 and 22.5% during 2024, with the remainder to be delivered through 2028.

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

Three Months Ended September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Three Months Ended March 31,

($ in millions)

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Corporate and other

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

2022 2021 Percent 2022 2021 Percent

(in millions) Change (in millions) Change

Three Months Ended March 31,

2023 2022 Percent

(in millions) Change

Operating costs:

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* Not meaningful

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.

Selling, engineering, and administrative expenses for the three months ended March 31, 2023 increased 17.1% compared to the prior year period, primarily from higher employee-related costs.

Total operating costs during the three months ended March 31, 2022 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 September 30, 2022, we have total committed liquidity of $464.7 million.

As of March 31, 2023, we have total committed liquidity of $451.5 million.

Our total available liquidity includes:

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

The Company’s $400.0 million aggregate principal amount of 4.55% senior notes are due in 2024 (“Senior Notes”).

We are exploring various alternatives to refinance the Senior Notes during 2023, including by issuing or incurring new debt.

Any issuance or incurrence of new debt will depend on prevailing market conditions and other factors, and may have a material impact on our financial results.

Liquidity Highlights

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 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.

Revolving Credit Facility – In March 2023, we amended our revolving credit facility to increase the total facility commitment from $450.0 million to $600.0 million, increase the maximum leverage ratio to provide additional flexibility, modify the limitations on restricted payments, and allow up to $100.0 million of annual dividends on the Company's common stock.

See Note 8 of the Consolidated Financial Statements for additional information regarding this amendment.

Dividend Payments – We paid $21.1 million in dividends to our common stockholders during the three months ended March 31, 2023.

Share Repurchase Authorization – In December 2022, our Board of Directors authorized a new share repurchase program effective December 9, 2022 with no expiration.

The new share repurchase program authorizes the Company to repurchase up to $250.0 million of its common stock.

In December 2021, using a portion of the proceeds from the sale of THP, we entered into an ASR to repurchase $125.0 million of our common stock.

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 was completed in April 2022.

Share repurchase activity under the authorized program is as follows:

Shares Repurchased Remaining Authorization to Repurchase

Period Number of shares Cost

(in millions) Cost

(in millions)

September 9, 2021 Authorization $ 250.0

September 9, 2021 through September 30, 2021 — $ — $ 250.0

October 1, 2021 through December 31, 2021 5,155,491 151.9 $ 98.1

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

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 nine months ended September 30, 2022 and 2021:

Nine Months Ended

September 30,

There were no shares repurchased during the three months ended March 31, 2023.

The following table summarizes our cash flows from operating, investing, and financing activities for the three months ended March 31, 2023 and 2022:

Three Months Ended

(in millions)

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Operating Activities .

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.

Net cash provided by operating activities from continuing operations for the three months ended March 31, 2023 was $102.5 million compared to net cash provided by operating activities from continuing operations of $28.5 million for the three months ended March 31, 2022.

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

Nine Months Ended

September 30,

Three Months Ended

(in millions)

(Increase) decrease in receivables, inventories, and other assets $ 6.8 $ (42.1)

(Increase) decrease in income tax receivable (5.6) 249.8

Increase (decrease) in accounts payable, accrued liabilities, and other liabilities 26.1 9.0

Changes in operating assets and liabilities $ 32.9 $ (33.1)

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.

The decrease in the income tax receivable in the prior year period was primarily driven by the collection of approximately $248.3 million of income tax refunds associated with the loss carryback provisions included in recent tax legislation.

The changes in our operating assets and liabilities resulted in a net source of $32.9 million for the three months ended March 31, 2023, as compared to a net use of $33.1 million for the three months ended March 31, 2022.

Operating assets in the prior year period were impacted by higher inventory balances in anticipation of higher volumes of railcar deliveries in future periods, as well as continued supply chain challenges.

Investing Activities.

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.

Net cash used in investing activities from continuing operations for the three months ended March 31, 2023 was $203.1 million compared to $0.2 million of net cash used in investing activities from continuing operations for the three months ended March 31, 2022.

Significant investing activities are as follows:

• 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.

• We made a net investment in our lease fleet of $134.8 million during the three months ended March 31, 2023, compared to $13.5 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 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.

• During the three months ended March 31, 2023, we acquired a company that is a provider of proprietary software and logistics and terminal management solutions for net cash of $66.2 million.

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

Financing Activities.

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.

Net cash provided by financing activities during the three months ended March 31, 2023 was $72.4 million compared to $28.7 million of net cash provided by financing activities for the three months ended March 31, 2022.

Significant financing activities are as follows:

• 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.

• During the three months ended March 31, 2023, we had total borrowings of $246.3 million and total repayments of $149.6 million, for net proceeds of $96.7 million, primarily from debt proceeds to support our investment in the lease fleet and for general corporate purposes.

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.

• We paid $21.1 million and $19.1 million in dividends to our common stockholders during the three months ended March 31, 2023 and 2022, respectively.

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

In March 2023, we amended our revolving credit facility to increase the maximum leverage ratio to provide additional flexibility and to amend certain other terms.

A summary of our financial covenants is detailed below:

Ratio Covenant Actual at

September 30, 2022

March 31, 2023

Maximum leverage (1)

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No less than 2.25 to 1.00 7.66

(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.

As of March 31, 2023, 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.

Supplemental Guarantor Financial Information

Our 4.55% senior notes due 2024 ("Senior Notes") are fully and unconditionally and jointly and severally guaranteed by certain of Trinity’s 100%-owned subsidiaries:

Our Senior Notes are fully and unconditionally and jointly and severally guaranteed by certain of Trinity’s 100%-owned subsidiaries:

Trinity Industries Leasing Company;

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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 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.

As of March 31, 2023, assets held by the Non-Guarantor Subsidiaries included $173.1 million of restricted cash that was not available for distribution to Trinity Industries, Inc.

(“Parent”), $7,255.5 million of equipment securing certain non-recourse debt, and $545.7 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.

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Summarized Statement of Operations:

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Net income (loss) (3)

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Summarized Balance Sheets:

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Noncontrolling interest $ 256.2 $ 257.2

(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.

(1) There were no net sales from the obligor group to Non-Guarantor Subsidiaries during the three months ended March 31, 2023.

(2) Cost of revenues includes $94.3 million of purchases from Non-Guarantor Subsidiaries during the three months ended March 31, 2023.

(3) Net income (loss) includes $3.1 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.

(4) Receivables, net of allowance includes $87.4 million and $87.9 million of receivables from Non-Guarantor Subsidiaries as of March 31, 2023 and December 31, 2022, respectively.

(5) Accounts payable includes $52.6 million and $57.8 million of payables to Non-Guarantor Subsidiaries as of March 31, 2023 and December 31, 2022, respectively.

Capital Expenditures

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Off Balance Sheet Arrangements

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.

As of March 31, 2023, we had letters of credit issued under our revolving credit facility in an aggregate amount of $16.8 million, the majority of which are expected to expire in October 2023.

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

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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.

Derivative instruments are accounted for in accordance with applicable accounting standards.

See Note 3 of the Consolidated Financial Statements for discussion of how we utilize our derivative instruments.

LIBOR Transition

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.

The United Kingdom's Financial Conduct Authority, which regulates the London Interbank Offered Rate ("LIBOR"), previously 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.

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.

The replacement of LIBOR with an alternative benchmark reference rate may adversely affect interest rates and result in higher borrowing costs under these agreements and any future agreements.

In February 2023, we amended the promissory notes and derivative instruments for Trinity Rail Leasing 2017 LLC to transition the facility benchmark rate from LIBOR to SOFR plus a benchmark adjustment.

Following the completion of these amendments, we have no remaining LIBOR-based contracts.

Non-GAAP Financial Measures

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For each non-GAAP financial measure, we provide a reconciliation to the most comparable GAAP measure.

Free Cash Flow

Total Free Cash Flow After Investments and Dividends ("Free Cash Flow") is a non-GAAP financial measure.

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 (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.

Nine Months Ended

September 30,

Adjusted Free Cash Flow

Adjusted Free Cash Flow After Investments and Dividends ("Adjusted Free Cash Flow") is a non-GAAP financial measure.

We believe Adjusted 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.

Adjusted 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.

Adjusted 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.

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

Three Months Ended

(in millions)

Net cash provided by (used in) operating activities – continuing operations $ (52.6) $ 418.8

Net cash provided by operating activities – continuing operations $ 102.5 $ 28.5

Proceeds from lease portfolio sales 56.7 71.1

Adjusted Net Cash Provided by Operating Activities 462.2 823.3

Capital expenditures – manufacturing and other (7.1) (2.3)

Dividends paid to common stockholders (21.1) (19.1)

Free Cash Flow (before Capital expenditures – leasing)

Equity CapEx for leased railcars (94.8) (30.4)

Total Free Cash Flow After Investments and Dividends $ 0.1 $ 510.9

Adjusted Free Cash Flow After Investments and Dividends

$ 36.2 $ 47.8

Capital expenditures – leasing $ 191.5 $ 84.6

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Contractual Obligations and Commercial Commitments

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.

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.

Except as described below, as of March 31, 2023, there have been no material changes to our contractual obligations from December 31, 2022:

• In March 2023, we amended our revolving credit facility to increase the total facility commitment from $450.0 million to $600.0 million and to amend certain other terms.

See Note 8 of the Consolidated Financial Statements for additional information regarding this amendment.

Recent Accounting Pronouncements

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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