What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-22 compared with 2023-02-21 · 184 added, 211 removed, 445 unchanged (47% of the section changed)

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Please refer to the Non-GAAP Financial Measures section herein for information on the non-GAAP measures included in the MD&A, reconciliations to the most directly comparable GAAP financial measure, and the reasons why management believes each measure is useful to management and investors.

Matters Affecting Comparability

During the fourth quarter of 2020, we began presenting sales from our lease fleet in the Railcar Leasing and Management Services Group (the "Leasing Group") on a net basis regardless of the age of railcar that is sold.

Historically, in accordance with ASC 606, Revenue from contracts with customers , we presented sales of railcars from the lease fleet on a gross basis in Revenues – Leasing and Cost of revenues – Leasing in our Consolidated Statements of Operations if the railcars had been owned for one year or less at the time of sale.

Sales of railcars from the lease fleet owned for more than one year had historically been presented as a net gain or loss from the disposal of a long-term asset.

We now report all sales of railcars from the lease fleet as a net gain or loss from the disposal of a long-term asset in accordance with ASC 610-20, Gains and losses from the derecognition of non-financial assets.

These sales are presented in the Lease portfolio sales line in our Consolidated Statements of Operations;

however, because this change in presentation was effected on a prospective basis beginning in the fourth quarter of 2020, lease portfolio sales for the year ended December 31, 2020 only include sales of railcars from the lease fleet owned for more than one year.

There were no lease portfolio sales during the fourth quarter of 2020.

We have concluded that this presentation is appropriate given the significant change in the strategic focus of the Company.

The presentation change had no effect on the Company’s operating profit, net income, earnings per share, or Consolidated Balance Sheet.

Company Overview

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We market our 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.

A final working capital adjustment was recorded in the second quarter of 2022.

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

Accordingly, we have presented the operating results and cash flows of THP as discontinued operations for all periods in this 2022 Annual Report on Form 10-K.

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

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.

Expenses related to these retained obligations incurred during the year ended December 31, 2022 were, and similar expenses that may be incurred in the future 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 15 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, which owns and operates a fleet of railcars and provides third-party fleet leasing, management, and administrative services;

The TrinityRail platform provides railcar leasing and management services;

railcar manufacturing, maintenance and modifications;

and other railcar logistics products and services.

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, as well as other railcar logistics products and services;

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.

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, expenses incurred during the years ended December 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 15 of the Consolidated Financial Statements for information regarding the retained liabilities.

Executive Summary

Recent Market Developments

Other Cyclical Trends Impacting Our Business

Cyclical, Seasonal and Other Trends Impacting Our Business

General/Business Trends

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.

Although lease rates and lease fleet utilization remain strong, 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 certain commodity prices, or changes in demand for certain commodities, could impact customer demand for various types of railcars.

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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;

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, orders for new railcar equipment, lease rates and lease fleet utilization continued to improve in 2022.

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 customers, which could negatively impact our revenues, credit loss expense, and operating profits.

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, 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, labor shortages, high turnover, 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.

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.

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

U.S.-Mexico Border Disruption

In September and December 2023, the U.S.

Customs and Border Protection Agency (“CBP”) suspended cross-border rail traffic in Eagle Pass, Texas, the primary border crossing used for railcar deliveries from our manufacturing facilities in Mexico.

According to the CBP, this action was taken to assist U.S.

Border Patrol due to the recent influx of migrants at the border.

Although rail traffic operations have resumed at Eagle Pass, there is ongoing instability at the border, and there can be no assurance that similar border closings or congestion will not occur in the future.

The closing of the U.S.-Mexico border by the U.S.

CBP negatively impacted our railcar deliveries.

Additionally, increased state vehicle inspections have resulted in truck traffic congestion, negatively impacting our supply chain.

We actively monitor rail and truck traffic and remain in close contact with all stakeholders, including the relevant government agencies, and continue to evaluate available alternatives for rail and truck transportation between Mexico and the United States.

Continued rail and truck congestion at the border could negatively impact our deliveries and supply chain until the congestion is resolved.

Supply Chain Disruptions

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, 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.

The ongoing economic pressures related to the effects of the pandemic have negatively impacted our results of operations for the year ended December 31, 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 this Annual Report on Form 10-K for additional information regarding the potential impacts of COVID-19 on our business.

Foreign Currency Fluctuations

We are exposed to the impact of foreign currency fluctuations in our Mexico operations resulting from certain expenditures that are denominated in the Mexican peso.

We have entered into hedging transactions to mitigate the foreign currency impact of a portion of our peso-denominated expenditures;

however, the strengthening of the Mexican peso relative to the U.S.

dollar during 2023 unfavorably impacted the operating results in our Rail Products Group during the year ended December 31, 2023.

We regularly evaluate and update our strategies to mitigate the negative effects on margins and operating profits that may arise due to foreign currency fluctuations.

Input and Labor Costs

We have experienced increases in the costs of steel, components, and certain other inputs that represent a substantial portion 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 the volatility of certain input costs on our operating profit.

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

Finally, 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 continually assess the impact of input and labor costs on our operational efficiency, margins, and overall profitability.

Financial and Operational Highlights

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The Rail Products Group received orders for 11,500 railcars and delivered 17,355 railcars in 2023, in comparison to orders for 31,905 railcars and deliveries of 13,315 railcars in 2022.

◦ 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 December 31, 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.

◦ Orders received during the year ended December 31, 2022 include 15,000 railcars associated with a long-term railcar supply agreement with GATX Corporation (“GATX”).

• During the year ended December 31, 2023, sustainable railcar conversion revenues totaled $170.6 million, representing 1,775 railcars.

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(3) Stockholder returns include shares repurchased and dividends paid to common stockholders and is presented in millions.

In 2021, we entered into stock repurchase agreements with ValueAct Capital Master Fund, L.P.

in privately negotiated transactions at a cost of approximately $472.5 million.

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.

TRL-2023 Term Loan – In June 2023, Trinity Rail Leasing 2023 LLC (“TRL-2023”), a limited purpose, indirect wholly-owned subsidiary of the Company owned through Trinity Industries Leasing Company ("TILC"), entered into a $340.0 million term loan agreement ("TRL-2023 term loan").

The TRL-2023 term loan bears interest at a variable rate of daily simple Secured Overnight Financing Rate ("SOFR") plus (1) a benchmark adjustment of 10 basis points and (2) a facility margin of 1.80%.

The TRL-2023 term loan has a stated maturity date of June 2028.

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.

New Share Repurchase Program – 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 million of its common stock.

There were no shares repurchased under the new share repurchase program during the year ended December 31, 2022.

Senior Notes Due 2028 – In June 2023, we issued $400.0 million aggregate principal amount of 7.75% senior notes due July 2028 ("Senior Notes due 2028").

Interest on the Senior Notes due 2028 is payable semiannually commencing January 15, 2024.

Net proceeds received from the issuance were used to repay outstanding borrowings under our revolving credit facility and to pay related fees, costs, premiums, and expenses in connection with the issuance.

We intend to use the remainder of the net proceeds for general corporate purposes, which may include repayment of other debt, including our 4.55% senior notes due 2024 ("Senior Notes due 2024").

Litigation Updates

See Note 15 of the Consolidated Financial Statements for an update on the status of certain litigation retained in connection with the sale of THP.

See Note 15 of the Consolidated Financial Statements for an update on the status of certain litigation.

Subsequent Events

Change in Organizational Structure – Effective January 1, 2024, the Company modified its organizational structure to better leverage our maintenance services capabilities to support lease fleet optimization and to grow our services and parts businesses.

The new structure will result in a change to our reportable segments beginning in 2024.

In connection with this organizational update, we will align the maintenance services business, which is currently reported in the Rail Products Group, to be presented within our leasing business.

This change aligns with the way in which our Chief Operating Decision Maker will assess performance and allocate resources.

Consequently, beginning January 1, 2024, we will report our operating results in two reportable segments:

(1) Railcar Leasing and Services Group, formerly the Railcar Leasing and Management Services Group, and (2) Rail Products Group.

These changes will have no impact to our previously reported consolidated results of operations, financial position, or cash flows.

Consolidated Results of Operations

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Loss on extinguishment of debt — 1.5

Pension plan settlement — (0.6)

Other, net 2.5 (1.6)

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Discussion of Consolidated Results

Revenues – Our revenues for the year ended December 31, 2022 were $1,977.3 million, representing an increase of $461.3 million, or 30.4%, over the prior year, primarily related 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 year ended December 31, 2022 was $1,609.6 million, representing an increase of $448.1 million, or 38.6%, over the prior year, primarily due to a higher volume of, and input cost inflation associated with, deliveries in the Rail Products Group.

Selling, engineering, and administrative expenses – Selling, engineering, and administrative expenses were substantially unchanged for the year ended December 31, 2022 when compared to the prior year.

Gains on dispositions of property – Gains on dispositions of property increased by $74.5 million for the year ended December 31, 2022, when compared to the prior year period primarily due to lease portfolio sales.

Results for the years ended December 31, 2022 and 2021 included gains of $7.5 million and $7.8 million, respectively, related to insurance recoveries in excess of net book value received 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 year ended December 31, 2023 were $2,983.3 million, representing an increase of $1,006.0 million, or 50.9%, over the prior year, primarily related to higher external deliveries in the Rail Products Group and improved lease rates, net additions to the lease fleet, and the impact of the acquisition of RSI Logistics ("RSI") in the Leasing Group.

Cost of revenues – Our cost of revenues for the year ended December 31, 2023 was $2,456.2 million, representing an increase of $846.6 million, or 52.6%, over the prior year, primarily due to higher external deliveries, the impact of foreign currency fluctuations, supply chain disruptions, and operational and labor-related inefficiencies in the Rail Products Group.

Selling, engineering, and administrative expenses – Selling, engineering, and administrative expenses for the year ended December 31, 2023 were $201.9 million, representing an increase of $16.5 million, or 8.9%, over the prior year, primarily due to higher employee-related costs, including an increase in headcount as a result of recent acquisitions.

Gains on dispositions of property – Gains on dispositions of property decreased by $63.1 million for the year ended December 31, 2023, when compared to the prior year period primarily due to lower lease portfolio sales in the current year period.

Additionally, gains on dispositions of property in the prior year period were favorably impacted by disposals of non-operating facilities.

Results for the years ended December 31, 2023 and 2022 included gains of $6.3 million and $7.5 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 15 of the Consolidated Financial Statements for more information.

Operating profit – Operating profit for the year ended December 31, 2022 totaled $334.0 million, representing an increase of $77.2 million, or 30.1%, from the prior year period primarily due to higher lease portfolio sale 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 year ended December 31, 2023 totaled $417.0 million, representing an increase of $83.0 million, or 24.9%, from the prior year period primarily due to higher external deliveries in the Rail Products Group and improved lease rates and net additions to the lease fleet in the Leasing Group.

The increase in operating profit was partially offset by lower lease portfolio sales in the current year period, the impact of foreign currency fluctuations in the Rail Products Group, and 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.

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Interest expense, net – Interest expense, net for the year ended December 31, 2023 totaled $265.5 million, compared to $207.6 million for the year ended December 31, 2022.

The increase in interest expense, net was 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 year ended December 31, 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 year ended December 31, 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.

The increase in interest expense, net was primarily driven by higher variable interest rates, as well as higher average debt due to the issuance of the Senior Notes due 2028 and the TRL-2023 term loan in June 2023.

Income taxes – The effective tax rate from continuing operations for the year ended December 31, 2023 was an expense of 6.0%, which differs from the U.S.

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

Our effective tax rate from continuing operations for the year ended December 31, 2021 was an expense of 28.8%, primarily due to adjustments to the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") carryback benefit previously recognized, state taxes, and foreign taxes, partially offset by excess tax benefits associated with equity-based compensation.

Net income tax refunds (payments) differ from the current provision primarily based on when estimated tax payments were due as compared to when the related income was earned and taxable.

statutory rate of 21.0% primarily due to the release of residual taxes out of AOCI;

the re-measurement of our net deferred state income tax liabilities due to apportionment and state law changes, reducing our net deferred tax liability;

changes in our valuation allowances;

state income taxes;

and foreign income taxes.

See Note 10 of the Consolidated Financial Statements for additional information.

Our effective tax rate from continuing operations for the year ended December 31, 2022 was an expense of 21.8%, which differs from the U.S.

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

Net income tax payments differ from the current provision primarily based on when estimated tax payments were due as compared to when the related income was earned and taxable.

The total income tax receivable position was $5.2 million and $7.8 million at December 31, 2023 and 2022, respectively.

Net income tax refunds (payments) during the years ended December 31, 2022 and 2021 totaled $(19.3) million and $435.7 million, respectively.

Income tax payments, net of refunds, during the years ended December 31, 2023 and 2022 totaled $42.4 million and $19.3 million, respectively.

Segment Discussion

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Selected expense information:

Depreciation (3)

Depreciation and amortization (3)

$ 244.6 $ 236.4 3.5 %

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(1) Operating profit includes:

depreciation;

depreciation and amortization;

fleet operating costs, which include maintenance, compliance, freight, and storage;

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

(3) Depreciation expense includes $12.1 million and $8.8 million for the years ended December 31, 2022 and 2021, respectively, related to the disposal of certain railcar components associated with our sustainable railcar conversion program.

(4) Interest expense for the year ended December 31, 2022 includes $1.5 million of loss on extinguishment of debt associated with the repayment of TRIP Railcar Co.'s outstanding term loan agreement.

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

Interest expense for the year ended December 31, 2021 includes $11.7 million of loss on extinguishment of debt associated with the refinancing of our partially-owned subsidiaries' debt.

(3) Depreciation and amortization expense includes $5.6 million and $12.1 million for the years ended December 31, 2023 and 2022, respectively, related to the disposal of certain railcar components associated with our sustainable railcar conversion program.

(4) Interest expense for the year ended December 31, 2022 includes $1.5 million of loss on extinguishment of debt associated with the repayment of TRIP Railcar Co.

LLC's outstanding term loan agreement.

Information related to lease portfolio sales is as follows:

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Total revenues for the Railcar Leasing and Management Services Group increased by 13.0% for the year ended December 31, 2023 when compared to the year ended December 31, 2022.

Leasing and management revenues for the year ended December 31, 2022 were favorably impacted by higher utilization, the effect of net lease fleet investment activities, and improved renewal rates, which resulted in higher revenues when compared to the year ended December 31, 2021.

Operating profit for the Leasing Group increased by 20.6% for the year ended December 31, 2022 compared to the year ended December 31, 2021.

Operating profit for the year ended December 31, 2022 was favorably impacted by higher lease portfolio sale activity.

Leasing and management operating profit decreased by 0.3% compared to the prior year period primarily due to a higher volume of, and higher costs associated with, fleet maintenance and compliance activities and increased depreciation, partially offset by higher utilization and improved renewal rates on a larger lease fleet.

Leasing and management revenues for the year ended December 31, 2023 were favorably impacted primarily by improved lease rates, net additions to the lease fleet, and higher average utilization, which resulted in higher revenues when compared to the year ended December 31, 2022.

Revenues for the Leasing Group were also favorably impacted for the year ended December 31, 2023 by the acquisition of RSI.

Leasing and management operating profit for the year ended December 31, 2023 increased by 16.9% compared to the prior year period primarily due to improved lease rates, net additions to the lease fleet, and higher average utilization, partially offset by higher maintenance costs and increased depreciation.

Leasing Group operating profit increased by 1.2% for the year ended December 31, 2023 compared to the prior year period as a result of the factors described above, partially offset by lower lease portfolio sales volume in the current year period.

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.

After initial funding, the Leasing Group may obtain long-term financing for the railcars in the lease fleet through non-recourse asset-backed securities;

long-term non-recourse operating leases pursuant to sale-leaseback transactions;

long-term recourse debt such as equipment trust certificates;

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Revenues for the Rail Products Group increased for the year ended December 31, 2023 by 30.3% when compared to the prior year period.

Revenues in our rail products business increased as a result of higher deliveries, favorable pricing, and price escalation provisions contained in our customer contracts.

Revenues in our maintenance services business increased as a result of a higher volume of, and improved pricing on, HM-251 modifications.

Revenues in our rail products business increased for the year ended December 31, 2023 as a result of higher deliveries and favorable pricing, partially offset by the mix of railcars sold.

Revenues in our maintenance services business increased for the year ended December 31, 2023 as a result of higher volumes and favorable pricing, partially offset by the mix of repairs.

Increases in other revenues were driven by the growth of our parts business as a result of the acquisition of Holden America.

Cost of revenues for the Rail Products Group increased for the year ended December 31, 2023 by 28.0% when compared to the prior year period.

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

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

Operating profit for the year ended December 31, 2022 was favorably impacted by higher deliveries and improved pricing in our rail products business, and a higher volume of, and improved pricing on, HM-251 modifications in our maintenance services business, partially offset by disruptions in the transportation network used to deliver our products, deliveries of orders taken at the bottom of the cycle, and labor inefficiencies associated with turnover and onboarding of new employees.

Additionally, during the years ended December 31, 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.

In our rail products business, the increase in cost of revenues for the year ended December 31, 2023 was driven by higher deliveries, the impact of foreign currency fluctuations, and labor inefficiencies associated with onboarding of new employees.

Additionally, cost of revenues was unfavorably impacted by operational inefficiencies associated with production line changeovers and supply chain disruptions, including the U.S.-Mexico border closures and continued border congestion.

In our maintenance services business, cost of revenues increased for the year ended December 31, 2023 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 year ended December 31, 2023 was favorably impacted by higher deliveries and favorable pricing, partially offset by the mix of railcars sold, the impact of foreign currency fluctuations, supply chain disruptions, and operational and labor inefficiencies.

Additionally, operating profit was favorably impacted by gains of $6.3 million and $7.5 million for the years ended December 31, 2023 and 2022, 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.

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External customers $ 2,896.5 $ 3,444.1

$ 3,444.1 $ 1,018.1

Leasing Group

$ 3,903.0 $ 1,516.8 157.3 %

Total $ 3,200.9 $ 3,903.0 (18.0) %

Year Ended December 31, Percent Change

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Ending balance 25,890 32,270 (19.8) %

32,270 13,980 130.8 %

Average selling price in ending backlog $ 123,635 $ 120,948 2.2 %

(1) Ending backlog and orders received for the year ended December 31, 2022 include 15,000 railcars valued at approximately $1.8 billion associated with a new long-term railcar supply agreement with GATX.

(1) Orders received for the year ended December 31, 2022 include 15,000 railcars valued at approximately $1.8 billion associated with a long-term railcar supply agreement with GATX.

(2) The adjustment for the year ended December 31, 2023 includes 160 railcars valued at $19.2 million that were placed with a different customer and are also included in orders received in the table above, resulting in no net effect on ending backlog, as well as 365 railcars valued at $33.4 million that were removed from the new railcar backlog by mutual agreement with customers.

The adjustment for the year ended December 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 for the year ended December 31, 2022 increased by 157.3% when compared to the prior year primarily from an increase in the volume and average selling price of orders received.

Total backlog dollars for the year ended December 31, 2023 decreased by 18.0% when compared to the prior year.

The ending backlog as of December 31, 2022 included approximately $1.8 billion associated with a long-term railcar supply agreement with GATX.

Approximately 53% of our railcar backlog value is expected to be delivered during 2024, with the remainder to be delivered thereafter into 2028.

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* Not meaningful

Selling, engineering, and administrative expenses for the year ended December 31, 2022 were substantially unchanged compared to the year ended December 31, 2021.

Total operating costs in the years ended December 31, 2022 and 2021 were favorably impacted by gains associated with the disposition of non-operating facilities.

Selling, engineering, and administrative expenses for the year ended December 31, 2023 increased 12.6%, compared to the prior year period primarily from higher employee-related costs, as well as the change in estimated fair value of additional contingent consideration associated with an acquisition.

Compared to the current year period, total operating costs in the prior year period were favorably impacted by gains associated with the disposition of non-operating facilities.

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

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

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

As of December 31, 2023, we have total committed liquidity of $906.3 million.

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See Note 9 of the Consolidated Financial Statements for information regarding scheduled maturities of our debt.

We intend to use cash from operations and our available liquidity to repay our Senior Notes due 2024.

Interest payable associated with our debt due in the next twelve months is approximately $251.6 million, with $508.6 million due thereafter.

See Note 1 and Note 6 of the Consolidated Financial Statements for further information on operating leases.

Contractual purchase obligations are enforceable and legally binding and primarily consist of raw materials and components, equipment, and third-party services.

These purchase obligations due in the next twelve months are approximately $669.7 million, with $4.3 million due thereafter.

Other contractual obligations are enforceable and legally binding and primarily consist of raw materials and components, equipment, and third-party services for which purchase orders have been issued.

These contractual obligations due in the next twelve months are approximately $618.8 million, with $15.6 million due thereafter.

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.

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 9 of the Consolidated Financial Statements for additional information regarding this amendment.

TRL-2023 Term Loan – In June 2023, TRL-2023 entered into a $340.0 million term loan agreement.

The TRL-2023 term loan bears interest at a variable rate of daily simple SOFR plus (1) a benchmark adjustment of 10 basis points and (2) a facility margin of 1.80%.

The TRL-2023 term loan has a stated maturity date of June 2028.

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

Senior Notes Due 2028 – In June 2023, we issued $400.0 million aggregate principal amount of 7.75% senior notes due July 2028.

Interest on the Senior Notes due 2028 is payable semiannually commencing January 15, 2024.

We intend to use the remainder of the net proceeds for general corporate purposes, which may include repayment of other debt, including our Senior Notes due 2024.

Other Equipment Financing – In December 2023, we received proceeds of $52.3 million related to an equipment financing transaction for certain railcars in our lease fleet.

Dividend Payments – In December 2023, our Board of Directors declared an increase of approximately 8% to our quarterly dividend from $0.26 per share to $0.28 per share.

We paid $86.0 million in dividends to our common stockholders during the year ended December 31, 2023.

New 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.

There were no shares repurchased under the new share repurchase program during the year ended December 31, 2022.

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

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

In December 2021, we entered into an accelerated share repurchase agreement (the "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.

Our Board of Directors terminated this share repurchase program effective December 8, 2022, and the remaining authorization of $21.3 million under this program expired unused.

Share repurchase activity under this program was 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

October 1, 2022 through December 31, 2022 427,383 12.4 $ 21.3

Total 7,953,336 $ 228.7

(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.

During the years ended December 31, 2022, 2021, and 2020, share repurchases totaled 2.8 million, 28.5 million, and 9.3 million shares, respectively, at a cost of approximately $76.8 million, $806.6 million, and $193.1 million, respectively.

Share repurchases during the year ended December 31, 2021 included 16.9 million shares, at a cost of approximately $472.5 million, from privately negotiated transactions with ValueAct Capital Master Fund, L.P ("ValueAct").

The repurchases from ValueAct were approved by our Board of Directors separately from, and did not reduce the authorized amount remaining under, any of our share repurchase programs.

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

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

There were no shares repurchased under this share repurchase program during the year ended December 31, 2023.

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

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Net cash flows from discontinued operations (13.4) (24.7)

Net increase (decrease) in cash, cash equivalents, and restricted cash $ (8.1) $ 74.0

(1) Includes $364.7 million in net proceeds received from the sale of THP for the year ended December 31, 2021.

Net decrease in cash, cash equivalents, and restricted cash $ (59.2) $ (8.1)

Operating Activities .

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(Increase) decrease in receivables, inventories, and other assets $ (77.5) $ (299.3)

(Increase) decrease in income tax receivable (2.4) 440.4

Increase (decrease) in accounts payable, accrued liabilities, and other liabilities 56.9 38.3

Changes in operating assets and liabilities $ (20.6) $ (261.0)

The changes in our operating assets and liabilities resulted in a net use of $261.0 million for the year ended December 31, 2022, as compared to a net source of $336.4 million for the year ended December 31, 2021.

Operating assets in the current year period were impacted by increased inventory balances in anticipation of higher volumes of railcar deliveries in future periods and the effects of continued supply chain challenges, and higher receivables balances associated with deliveries late in the year.

The decrease in the income tax receivable in the prior year period was primarily driven by the collection of approximately $438.2 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 use of $20.6 million for the year ended December 31, 2023, as compared to a net use of $261.0 million for the year ended December 31, 2022.

The change in operating assets and liabilities for the current year period reflects working capital levels that are consistent with the current business environment.

Operating assets in the prior year period were impacted by higher inventory balances in anticipation of higher railcar deliveries in future periods.

Investing Activities.

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and is net of proceeds from lease portfolio sales.

• During the year ended December 31, 2023, we acquired a company that is a provider of proprietary software and logistics and terminal management solutions for net cash of $62.6 million.

During the year ended December 31, 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, as well as a company that manufactures multi-level vehicle securement and protection systems, gravity-outlet gates, and gate accessories for freight rail in North America.

The total net cash outlay for these two acquisitions was $80.4 million.

During the year ended December 31, 2021, we acquired a company that owns and operates proprietary railcar cleaning technology systems for a net cash outlay of $16.6 million.

See Note 2 of the Consolidated Financial Statements for additional information on these acquisitions.

• We made equity investments totaling $15.5 million during the year ended December 31, 2022, primarily related to our investments in Signal Rail Holdings LLC.

• We made equity investments totaling $1.1 million and $15.5 million during the years ended December 31, 2023 and 2022, respectively, primarily related to our investments in Signal Rail Holdings LLC ("Signal Rail").

See Note 5 of the Consolidated Financial Statements.

• We received $10.0 million and $9.5 million in insurance proceeds during the years ended December 31, 2022 and 2021, respectively, for property damage sustained at a rail maintenance facility.

See Note 15 of the Consolidated Financial Statements for more information.

Financing Activities.

Net cash provided by financing activities during the year ended December 31, 2022 was $265.4 million compared to $814.1 million of net cash used in financing activities for the same period in 2021.

Net cash provided by financing activities during the year ended December 31, 2023 was $8.2 million compared to $265.4 million of net cash provided by financing activities for the same period in 2022.

Significant financing activities are as follows:

• During the year ended December 31, 2023, we had total borrowings of $1,652.7 million and total repayments of $1,518.9 million, for net proceeds of $133.8 million, primarily from debt proceeds for general corporate purposes and to support our investment in the lease fleet.

During the year ended December 31, 2022, we had total borrowings of $2,000.6 million and total repayments of $1,578.5 million, for net proceeds of $422.1 million, primarily from debt proceeds to support our investment in the lease fleet and for general corporate purposes.

During the year ended December 31, 2021, we had total borrowings of $2,444.1 million and total repayments of $2,315.8 million, for net proceeds of $128.3 million, primarily from debt proceeds to support our investment in the lease fleet.

• We paid $86.0 million and $76.9 million in dividends to our common stockholders during the years ended December 31, 2023 and 2022, respectively.

• We repurchased common stock totaling $51.8 million and $833.4 million during the years ended December 31, 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.

The prior year period includes shares repurchased in privately negotiated transactions with ValueAct totaling $472.5 million.

Shares repurchased as part of the ASR on December 31, 2021, totaling $100.0 million, were delivered to the Company in January 2022 in accordance with normal settlement practices.

Certain shares repurchased during December 2020, totaling $1.8 million, were cash settled in January 2021 in accordance with normal settlement practices.

• We repurchased common stock totaling $51.8 million during the year ended December 31, 2022.

The prior year period excludes $25.0 million representing the final settlement of an accelerated share repurchase agreement (the "ASR"), which was funded in December 2021 but a portion of which remained outstanding as of December 31, 2021.

There were no shares repurchased during the year ended December 31, 2023.

Current Debt Obligations

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

In December 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.

A summary of our financial covenants is detailed below:

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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 due 2024 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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(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 due 2024 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 9 of the Consolidated Financial Statements.

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

The Senior Notes due 2024 are not guaranteed by any of our remaining 100%-owned subsidiaries or partially-owned subsidiaries (“Non-Guarantor Subsidiaries”).

As of December 31, 2023, assets held by the Non-Guarantor Subsidiaries included $122.4 million of restricted cash that was not available for distribution to Trinity Industries, Inc.

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

Summarized Statement of Operations:

Year Ended December 31, 2023

Summarized Statement of Operations:

Cost of revenues (2)

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Net income (loss) (3)

Summarized Balance Sheets:

December 31, 2023

Summarized Balance Sheet:

Receivables, net of allowance (4)

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Capital expenditures for 2023 were $710.1 million with $668.8 million utilized for net lease fleet additions, which includes new railcar additions, sustainable railcar conversions, railcar modifications, and other betterments, net of deferred profit, and secondary market purchases.

Excluding proceeds from lease portfolio sales of $750.7 million, our net investment in the lease fleet was $178.1 million.

Proceeds from lease portfolio sales totaled $381.8 million, resulting in a net investment in our lease fleet of $287.0 million.

For the full year 2024, we anticipate a net investment in our lease fleet of between $300 million and $400 million.

Capital expenditures related to manufacturing and other activities, including expansion of our fleet maintenance capabilities and systems upgrades, are projected to range between $40 million and $50 million for the full year 2023.

Capital expenditures related to manufacturing and other activities, including supporting automation, technology, and modernization of our facilities and processes, are projected to range between $50 million and $60 million for the full year 2024.

Equity Investment

See Note 5 of the Consolidated Financial Statements for information about our investment in partially-owned leasing subsidiaries.

See Note 5 of the Consolidated Financial Statements for information about our investments in partially-owned subsidiaries.

Off Balance Sheet Arrangements

As of December 31, 2022, 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 November 2023.

As of December 31, 2023, we had letters of credit issued under our revolving credit facility in an aggregate amount of $17.4 million, the majority of which are expected to expire in October 2024.

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

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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.

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.

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.

Critical Accounting Policies and Estimates

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Deferred Income Taxes

Description of Estimate We account for income taxes under the asset and liability method prescribed by ASC 740.

Description of Estimate We account for income taxes under the asset and liability method prescribed by Accounting Standards Codification ("ASC") 740, Income Taxes .

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases and other tax attributes using currently enacted laws and tax rates for the appropriate tax jurisdictions.

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If the recoverability test indicates that an impairment exists, we would recognize an impairment charge equal to the amount by which the carrying value exceeds the fair value.

As of December 31, 2022, our net property, plant, and equipment totaled $6.9 billion, and the net book value of our intangible assets totaled $79.0 million.

As of December 31, 2023, our net property, plant, and equipment totaled $7.0 billion, the net book value of our finite-lived intangible assets totaled $95.5 million, and our right-of-use assets totaled $100.6 million.

Judgment and/or Uncertainty The estimates and judgments that most significantly affect the fair value calculations in our recoverability test include assumptions regarding revenue and operating profit;

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The measurement of an impairment loss involves a number of management judgments, including the selection of an appropriate discount rate, consideration of market quotes for comparable assets as available, and estimates regarding final disposition proceeds.

Potential Impact if Results Differ If actual results are not consistent with management's estimates and assumptions used to calculate estimated future cash flows, we could be exposed to additional impairment losses that may be material.

We believe that the assumptions used in our impairment analyses are reasonable;

however, given the uncertainties of the economy and its potential impact on our businesses, it is possible that impairments of remaining long-lived assets may be required in future periods as a result of changes in our operating results or our assumptions.

Based on our evaluations, no impairment charges were determined to be necessary on long-lived assets as of December 31, 2022.

We did not identify any impairment indicators during the year ended December 31, 2023.

Goodwill and Indefinite-lived Intangible Assets

Description of Estimate Goodwill is required to be tested for impairment at least annually, or on an interim basis if events or circumstances change indicating that the carrying amount of the goodwill might be impaired.

We have the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment assessment.

If, after assessing the totality of events and circumstances, we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company will perform the quantitative impairment test.

We can also elect to forgo the qualitative assessment and perform the quantitative test.

The quantitative goodwill impairment test compares the reporting unit's estimated fair value with the carrying amount of its net assets.

An impairment is recognized if the reporting unit's recorded net assets exceed its fair value.

Impairment is assessed at the “reporting unit” level by applying a fair value-based test for each reporting unit with recorded goodwill.

The quantitative goodwill impairment test is a two-step process with step one requiring the comparison of the reporting unit's estimated fair value with the carrying amount of its net assets.

If necessary, step two of the impairment test determines the amount of goodwill impairment to be recorded when the reporting unit's recorded net assets exceed its fair value.

Impairment is assessed at the “reporting unit” level by applying a fair value-based test for each unit with recorded goodwill.

Goodwill totaled $221.5 million as of December 31, 2023.

Judgment and/or Uncertainty When performing a qualitative assessment, we determine the drivers of fair value for each reporting unit and evaluate whether those drivers have been positively or negatively affected by relevant events and circumstances since the most recent quantitative assessment.

Our evaluation includes, but is not limited to, assessment of macroeconomic trends, industry conditions, operating income trends, and capital accessibility.

The estimates and judgments that most significantly affect the fair value calculations are assumptions related to revenue and operating profit results, discount rates, terminal growth rates, and exit multiples.

Indefinite-lived intangible assets are not subject to amortization but are required to be evaluated for impairment at least annually.

If the carrying value of an individual indefinite-lived intangible asset exceeds its fair value, such individual indefinite-lived intangible asset is impaired by the amount of the excess.

Indefinite-lived intangible assets, which are comprised of trade names of recently acquired businesses, totaled $11.2 million as of December 31, 2023.

Judgment and/or Uncertainty The estimates and judgments that most significantly affect the fair value calculations are assumptions related to revenue and operating profit results, discount rates, terminal growth rates, and exit multiples.

We consider these to be Level 3 inputs in the fair value hierarchy, as they involve unobservable inputs for which there is little or no market data and thus require management to develop its own assumptions.

Potential Impact if Results Differ We believe that the assumptions used in our impairment assessment are reasonable;

however, given the uncertainties of the economy and its potential impact on our businesses, there can be no assurance that the judgments applied in our assessment will prove to be accurate predictions of the future.

Based on our goodwill qualitative assessment performed at the reporting unit level as of December 31, 2022, we concluded that it was not more likely than not that any of our reporting units had a fair value that was less than its carrying value.

Potential Impact if Results Differ We believe that the assumptions used in our impairment analysis are reasonable;

however, given the uncertainties of the economy and its potential impact on our businesses, there can be no assurance that our estimates and assumptions regarding the fair value of our reporting units or the fair value of each individual indefinite-lived intangible asset will prove to be accurate predictions of the future.

Additionally, variations in any of these assumptions may result in different calculations in fair value that could result in an impairment charge.

Based on our annual goodwill impairment test performed at the reporting unit level as of October 1, 2023, we concluded that there was no impairment of goodwill and that none of the reporting units evaluated was at risk of failing the first step of the goodwill impairment test.

A reporting unit is considered to be at risk if its estimated fair value does not exceed the carrying value of its net assets by 10% or more.

An increase or decrease in the discount rate or a reduction to the terminal growth rate of 100 basis points would not have resulted in an impairment of goodwill for any of our reporting units.

Based on our annual impairment test of indefinite-lived intangible assets as of October 1, 2023, we concluded that there was no impairment of our indefinite-lived intangible assets.

Variable Interest Entities

Description of Estimate We continuously evaluate our investments and other contractual arrangements with third party entities to determine if our variable interests are considered a variable interest entity ("VIE").

Description of Estimate We continuously evaluate our investments in and other contractual arrangements with third-party entities to determine whether they are considered a variable interest entity ("VIE") and, if so, whether we are considered the primary beneficiary.

Consolidation is required for VIEs in which we are the primary beneficiary.

We have determined that we are the primary beneficiary for TRIP Holdings and RIV 2013.

At December 31, 2022, the carrying value of our investment in TRIP Holdings and RIV 2013 totaled $136.1 million.

We have determined that we are the primary beneficiary for TRIP Holdings, RIV 2013, and Trinity Global Ventures Limited.

At December 31, 2023, the carrying value of our investments in these entities totaled $126.2 million.

We have determined that we are not the primary beneficiary for Signal Rail or certain other entities in which we have an equity interest.

At December 31, 2023, the carrying value of these investments totaled $24.9 million.

For further information regarding our partially-owned leasing subsidiaries and other investments in unconsolidated affiliates, see Note 5 of the Consolidated Financial Statements.

For further information regarding our partially-owned subsidiaries and other investments in unconsolidated affiliates, see Note 5 of the Consolidated Financial Statements.

Judgment and/or Uncertainty The determination of whether an entity is considered a VIE and, if so, if we are the primary beneficiary of the VIE, is subjective and dependent on the specific facts and circumstances of each investment.

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We have included financial measures compiled in accordance with GAAP and certain non-GAAP measures in this Annual Report on Form 10-K to provide management and investors with additional information regarding our financial results.

Non-GAAP measures should not be considered in isolation or as a substitute for our reporting results prepared in accordance with GAAP and, as calculated, may not be comparable to other similarly titled measures for other companies.

Non-GAAP measures should not be considered in isolation or as a substitute for our reported results prepared in accordance with GAAP and, as calculated, may not be comparable to other similarly titled measures for other companies.

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

Pre-Tax Return on Equity

Pre-Tax Return on Equity (“Pre-Tax ROE”) is defined as a ratio for which (i) the numerator is calculated as income or loss from continuing operations, adjusted to exclude the effects of the provision or benefit for income taxes, net income or loss attributable to noncontrolling interest, and certain other adjustments, which include gains on dispositions of other property, the controlling interest portion of impairment of long-lived assets and loss on extinguishment of debt, restructuring activities, interest expense, net, and pension plan settlement;

Pre-Tax Return on Equity (“Pre-Tax ROE”) is defined as a ratio for which (i) the numerator is calculated as income or loss from continuing operations, adjusted to exclude the effects of the provision or benefit for income taxes, net income or loss attributable to noncontrolling interest, and certain other adjustments, described in the footnotes to the table below, which include certain selling, engineering, and administrative expenses;

gains on dispositions of other property;

restructuring activities, net;

the controlling interest portion of loss on extinguishment of debt;

interest expense, net;

and pension plan settlement;

and (ii) the denominator is calculated as average stockholders’ equity (which excludes noncontrolling interest), adjusted to exclude accumulated other comprehensive income or loss.

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($ in millions)

Income (loss) from continuing operations $ 98.9 $ 39.3 $ (250.5)

Income from continuing operations $ 140.0 $ 98.9 $ 39.3

Provision (benefit) for income taxes 9.0 27.6 15.9

Income (loss) from continuing operations before income taxes 126.5 55.2 (524.6)

Income from continuing operations before income taxes 149.0 126.5 55.2

Net (income) loss attributable to noncontrolling interest (20.6) (12.8) 0.2

Selling, engineering, and administrative expenses (1)

Gains on dispositions of property – other (2)

(6.3) (7.5) (7.8)

Impairment of long-lived assets – controlling interest (2)

Restructuring activities, net (2.2) 1.0 (3.7)

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Interest expense, net (4)

(1.5) (1.4) —

Pension plan settlement — — (0.6)

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12.1 % 10.4 % 3.4 %

(1) Represents insurance recoveries in excess of net book value received for assets damaged by a tornado at the Company’s rail maintenance facility in Cartersville, Georgia in the first quarter of 2021.

(2) Excludes $81.3 million of non-cash impairment of long-lived asset charges associated with the noncontrolling interest recorded in the second quarter of 2020.

(1) Represents the change in estimated fair value of additional contingent consideration associated with an acquisition.

(2) Represents 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.

(3) Excludes $7.1 million of loss on extinguishment of debt associated with the noncontrolling interest recorded in the second quarter of 2021.

(4) Represents interest income accretion related to a seller-financing agreement associated with the sale of certain non-operating assets.

(5) Return on Equity is calculated as income (loss) from continuing operations divided by average total stockholders' equity.

(5) Return on Equity is calculated as income from continuing operations divided by average total stockholders' equity.

(6) Pre-Tax Return on Equity is calculated as adjusted profit before tax divided by average adjusted stockholders' equity, each as defined and reconciled above.

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

The change in presentation of sales of railcars from the lease fleet, which was effected on a prospective basis beginning in the fourth quarter of 2020, had no effect on the Company’s previously reported Adjusted Free Cash Flow.

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 (used in) operating activities from continuing operations, the most directly comparable GAAP financial measure, in the following tables.

For the years ended December 31, 2022 and 2021, Adjusted 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.

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 capital expenditures for our lease fleet, adjusted to exclude net proceeds from (repayments of) recourse and non-recourse debt.

Year Ended December 31,

2023 2022 2021

(in millions)

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Adjusted Free Cash Flow After Investments and Dividends $ 28.5 $ 138.3 $ 538.9

Capital expenditures – leasing $ 928.8 $ 547.2

Capital expenditures – lease fleet $ 668.8 $ 928.8 $ 547.2

Payments to retire debt (1,518.9) (1,578.5) (2,315.8)

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(1) Amounts for the year ended December 31, 2021 include the collection of approximately $438.2 million of income tax refunds associated with the loss carryback provisions included in the CARES Act.

For the year ended December 31, 2020, Adjusted 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 sales of leased railcars owned more than one year at the time of sale, less capital expenditures for manufacturing, dividends paid, and Equity CapEx for leased railcars.

Equity CapEx for leased railcars is defined as leasing capital expenditures, net of sold lease fleet railcars owned one year or less, adjusted to exclude net proceeds from (repayments of) debt.

Year Ended December 31, 2020

(in millions)

Net cash provided by operating activities – continuing operations $ 622.0

Proceeds from railcar lease fleet sales owned more than one year at the time of sale 138.7

Capital expenditures – manufacturing and other (95.9)

Dividends paid to common stockholders (91.7)

Equity CapEx for leased railcars (483.7)

Adjusted Free Cash Flow After Investments and Dividends

Capital expenditures – leasing, net of sold lease fleet railcars owned one year or less $ 602.2

Payments to retire debt (1,442.9)

Proceeds from issuance of debt 1,561.4

Net proceeds from (repayments of) debt 118.5

Equity CapEx for leased railcars $ 483.7

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-K

Item 7. Management’s Discussion and Analysis