# TRINITY INDUSTRIES INC (TRN) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from TRINITY INDUSTRIES INC's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/99780/000009978024000017/trn-20231231.htm
Accession: 0000099780-24-000017
Filing date: 2024-02-22
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/TRN/
All MD&A years: /company/TRN/mda/
Previous year: /company/TRN/mda/fy2022/ (FY 2022)
Next year: /company/TRN/mda/fy2024/ (FY 2024)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide management's perspective on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Our MD&A should be read in conjunction with our Consolidated Financial Statements and related Notes in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

This MD&A includes financial measures compiled in accordance with generally accepted accounting principles ("GAAP") and certain non-GAAP measures. 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.

Company Overview

Trinity Industries, Inc. and its consolidated subsidiaries own businesses that are leading providers of railcar products and services in North America. 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.

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.

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

Cyclical, Seasonal and Other Trends Impacting Our Business

General/Business Trends

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

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

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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.

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.

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Financial and Operational Highlights

•Our revenues for the year ended December 31, 2023 were $2,983.3 million, representing an increase of 50.9%, compared to the year ended December 31, 2022. Our operating profit for the year ended December 31, 2023 was $417.0 million compared to $334.0 million for the year ended December 31, 2022.

•The Leasing Group's lease fleet of 109,295 company-owned railcars was 97.5% utilized as of December 31, 2023, compared to a lease fleet utilization of 97.9% on 108,440 company-owned railcars as of December 31, 2022. Our company-owned lease fleet includes wholly-owned railcars, partially-owned railcars, and railcars under leased-in arrangements.

•For the year ended December 31, 2023, we made a net investment in our lease fleet of approximately $287.0 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 railcar backlog at December 31, 2023 was $3.2 billion, compared to $3.9 billion at December 31, 2022. 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.

◦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.

•For the year ended December 31, 2023, our return on equity ("ROE") and Pre-Tax ROE were 11.0% and 12.1%(1), respectively, in comparison to 7.7% and 10.4%(1), respectively, for the year ended December 31, 2022.

•For the year ended December 31, 2023, we generated operating cash flows from continuing operations and Adjusted Free Cash Flow After Investments and Dividends ("Adjusted Free Cash Flow") of $309.0 million and $28.5 million(1), respectively, in comparison to $9.2 million and $138.3 million(1), respectively, for the year ended December 31, 2022.

(1) Non-GAAP financial measure. See the Non-GAAP Financial Measures section within this Form 10-K for a reconciliation to the most directly comparable GAAP measure and why management believes this measure is useful to management and investors.

See "Consolidated Results of Operations" and "Segment Discussion" below for additional information regarding our operating results for the year ended December 31, 2023. See Part II, Item 7 of our 2022 Annual Report on Form 10-K for a discussion of our results of operations and liquidity and capital resources as of and for the year ended December 31, 2022, including a comparison to the year ended December 31, 2021.

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Long-Term Enterprise Key Performance Indicators

Our key performance indicators for long-term performance are operating and Adjusted Free Cash Flow* growth, Pre-Tax ROE*, dividend growth, and book value per share growth. We believe when evaluated over time, these indicators collectively drive long-term sustainable value creation and measure the effectiveness of our value proposition for stockholders.

* Non-GAAP financial measure. See the Non-GAAP Financial Measures section within this Form 10-K for a reconciliation to the most directly comparable GAAP measure and why management believes this measure is useful to management and investors.

(1) Dividend yield is calculated as annual dividends paid per share divided by the closing stock price on the last trading day of each respective year.

(2) Book value per share is calculated as total stockholders' equity attributable to Trinity Industries, Inc., divided by the number of shares outstanding.

(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.

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Capital Structure Updates

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.

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.

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.

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Consolidated Results of Operations

The following table summarizes our consolidated results of continuing operations for the years ended December 31, 2023 and 2022:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2023","","2022"],["","(in millions)"],["Revenues","$","2,983.3","","","$","1,977.3"],["Cost of revenues","2,456.2","","","1,609.6"],["Selling, engineering, and administrative expenses","201.9","","","185.4"],["Gains on dispositions of property","89.6","","","152.7"],["Restructuring activities, net","(2.2)","","","1.0"],["Total operating profit","417.0","","","334.0"],["Interest expense, net","265.5","","","207.6"],["Loss on extinguishment of debt","\u2014","","","1.5"],["Other, net","2.5","","","(1.6)"],["Income from continuing operations before income taxes","149.0","","","126.5"],["Provision (benefit) for income taxes","9.0","","","27.6"],["Income from continuing operations","$","140.0","","","$","98.9"]]
[[/GREPCENT_TABLE]]

Revenues

The tables below present revenues by segment for the years ended December 31, 2023 and 2022:

[[GREPCENT_TABLE]]
[["","Year Ended December 31, 2023"],["","Revenues","","Percent"],["","External","","Intersegment","","Total","","Change"],["","(in millions)"],["Railcar Leasing and Management Services Group","$","870.0","","","$","0.9","","","$","870.9","","","13.0","%"],["Rail Products Group","2,113.3","","","589.7","","","2,703.0","","","30.3","%"],["Segment Totals","2,983.3","","","590.6","","","3,573.9","","","25.6","%"],["Eliminations \u2013 Lease Subsidiary","\u2014","","","(589.7)","","","(589.7)"],["Eliminations \u2013 Other","\u2014","","","(0.9)","","","(0.9)"],["Consolidated Total","$","2,983.3","","","$","\u2014","","","$","2,983.3","","","50.9","%"],["","Year Ended December 31, 2022"],["","Revenues"],["","External","","Intersegment","","Total"],["","(in millions)"],["Railcar Leasing and Management Services Group","$","769.8","","","$","0.8","","","$","770.6"],["Rail Products Group","1,207.5","","","867.2","","","2,074.7"],["Segment Totals","1,977.3","","","868.0","","","2,845.3"],["Eliminations \u2013 Lease Subsidiary","\u2014","","","(867.2)","","","(867.2)"],["Eliminations \u2013 Other","\u2014","","","(0.8)","","","(0.8)"],["Consolidated Total","$","1,977.3","","","$","\u2014","","","$","1,977.3"]]
[[/GREPCENT_TABLE]]

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Operating Costs

Operating costs are comprised of cost of revenues; selling, engineering, and administrative costs; gains or losses on property disposals; and restructuring activities. Operating costs by segment for the years ended December 31, 2023 and 2022 were as follows:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2023","","2022"],["","(in millions)"],["Railcar Leasing and Management Services Group (1)","$","442.4","","","$","347.3"],["Rail Products Group","2,573.6","","","2,015.6"],["Segment Totals","3,016.0","","","2,362.9"],["Corporate and other","108.3","","","80.8"],["Restructuring activities, net","(2.2)","","","1.0"],["Eliminations \u2013 Lease Subsidiary","(553.6)","","","(802.0)"],["Eliminations \u2013 Other","(2.2)","","","0.6"],["Consolidated Total","$","2,566.3","","","$","1,643.3"]]
[[/GREPCENT_TABLE]]
(1) Includes gains on lease portfolio sales of $82.8 million and $127.5 million for the years ended December 31, 2023 and 2022, respectively.

Operating Profit

Operating profit by segment for the years ended December 31, 2023 and 2022 was as follows:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2023","","2022"],["","(in millions)"],["Railcar Leasing and Management Services Group","$","428.5","","","$","423.3"],["Rail Products Group","129.4","","","59.1"],["Segment Totals","557.9","","","482.4"],["Corporate and other","(108.3)","","","(80.8)"],["Restructuring activities, net","2.2","","","(1.0)"],["Eliminations \u2013 Lease Subsidiary","(36.1)","","","(65.2)"],["Eliminations \u2013 Other","1.3","","","(1.4)"],["Consolidated Total","$","417.0","","","$","334.0"]]
[[/GREPCENT_TABLE]]

Discussion of Consolidated Results

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.

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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.

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

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

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Segment Discussion

Railcar Leasing and Management Services Group

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","","","Percent Change"],["","2023","","2022"],["","($ in millions)"],["Revenues:"],["Leasing and management","$","870.9","","","$","770.6","","","","","13.0","%"],["Operating profit (1):"],["Leasing and management","$","345.7","","","$","295.8","","","","","16.9","%"],["Lease portfolio sales (2)","82.8","","","127.5","","","","","*"],["Total operating profit","$","428.5","","","$","423.3","","","","","1.2","%"],["Total operating profit margin","49.2","%","","54.9","%"],["Leasing and management operating profit margin","39.7","%","","38.4","%"],["Selected expense information:"],["Depreciation and amortization (3)","$","244.6","","","$","236.4","","","","","3.5","%"],["Maintenance and compliance","$","138.9","","","$","113.4","","","","","22.5","%"],["Rent and ad valorem taxes","$","15.9","","","$","19.3","","","","","(17.6)","%"],["Selling, engineering, and administrative expenses","$","56.6","","","$","54.0","","","","","4.8","%"],["Interest (4)","$","227.2","","","$","186.7","","","","","21.7","%"]]
[[/GREPCENT_TABLE]]

 * Not meaningful

(1) Operating profit includes: depreciation and amortization; fleet operating costs, which include maintenance, compliance, freight, and storage; rent and ad valorem taxes; and selling, engineering, and administrative expenses. Amortization of deferred profit on railcars sold from the Rail Products Group to the Leasing Group is included in the operating profits of the Leasing Group, resulting in the recognition of depreciation expense based on our original manufacturing cost of the railcars. Interest expense is not a component of operating profit and includes the effect of hedges.

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

(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:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2023","","2022"],["","($ in millions)"],["Lease portfolio sales","$","381.8","","","$","750.7"],["Operating profit on lease portfolio sales (1)","$","82.8","","","$","126.2"],["Operating profit margin on lease portfolio sales","21.7","%","","16.8","%"]]
[[/GREPCENT_TABLE]]

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

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, 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.

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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 recourse debt such as equipment trust certificates; long-term non-recourse promissory notes; or third-party equity.

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

[[GREPCENT_TABLE]]
[["","December 31,"],["","2023","","2022"],["Number of railcars:"],["Wholly-owned (1)","85,735","","","84,750"],["Partially-owned","23,560","","","23,690"],["","109,295","","","108,440"],["Investor-owned","33,005","","","33,235"],["","142,300","","","141,675"],["Company-owned railcars (2):"],["Average age in years","13.0","","","12.3"],["Average remaining lease term in years","2.9","","","3.0"],["Fleet utilization","97.5","%","","97.9","%"]]
[[/GREPCENT_TABLE]]

(1) Includes 2,495 railcars and 2,810 railcars under leased-in arrangements as of December 31, 2023 and 2022, respectively.

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

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Rail Products Group

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Percent Change"],["","2023","","2022"],["","($ in millions)"],["Revenues:"],["Rail products (1)","$","2,363.7","","","$","1,819.0","","","","","29.9","%"],["Maintenance services","251.3","","","203.8","","","","","23.3","%"],["Other","88.0","","","51.9","","","","","69.6","%"],["Total revenues","$","2,703.0","","","$","2,074.7","","","","","30.3","%"],["Operating costs:"],["Cost of revenues","$","2,543.7","","","$","1,988.0","","","","","28.0","%"],["Selling, engineering, and administrative expenses","35.9","","","34.2","","","","","5.0","%"],["Gains on dispositions of property","(6.0)","","","(6.6)","","","","","*"],["Operating profit","$","129.4","","","$","59.1","","","","","119.0","%"],["Operating profit margin","4.8","%","","2.8","%"]]
[[/GREPCENT_TABLE]]

* Not meaningful

(1) Includes sustainable railcar conversion revenues of $170.6 million, representing 1,775 railcars, for the year ended December 31, 2023. Includes sustainable railcar conversion revenues of $163.7 million, representing 1,725 railcars, for the year ended December 31, 2022.

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 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 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. In addition to the amounts below, as of December 31, 2023, our backlog related to sustainable railcar conversions totaled $81.9 million, representing 1,015 railcars.

[[GREPCENT_TABLE]]
[["","December 31,","","","","Percent Change"],["","2023","","2022"],["","(in millions)"],["External customers","$","2,896.5","","","$","3,444.1"],["Leasing Group","304.4","","","458.9"],["Total","$","3,200.9","","","$","3,903.0","","","","","(18.0)","%"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","","","Percent Change"],["","2023","","2022"],["Beginning balance","32,270","","","13,980"],["Orders received (1)","11,500","","","31,905","","","","","(64.0)","%"],["Deliveries","(17,355)","","","(13,315)","","","","","30.3","%"],["Other adjustments (2)","(525)","","","(300)"],["Ending balance","25,890","","","32,270","","","","","(19.8)","%"],["Average selling price in ending backlog","$","123,635","","","$","120,948","","","","","2.2","%"]]
[[/GREPCENT_TABLE]]

(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, 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. The orders in our backlog from the Leasing Group are fully supported by lease commitments with external customers. The final amount of backlog attributable to the Leasing Group may vary by the time of delivery as customers may choose to change their procurement decision.

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2023","","2022"],["","($ in millions)"],["Revenues:"],["New railcars","$","461.7","","","$","624.9"],["Sustainable railcar conversions","$","45.5","","","$","118.6"],["Other maintenance services","$","82.5","","","$","123.7"],["Deferred profit","$","36.1","","","$","65.2"],["Number of new railcars (in units)","3,425","","","4,735"],["Number of sustainable railcar conversions (in units)","445","","","1,155"]]
[[/GREPCENT_TABLE]]

Corporate and other

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Percent Change"],["","2023","","2022"],["","(in millions)"],["Operating costs:"],["Selling, engineering, and administrative expenses","$","109.4","","","$","97.2","","","","","12.6","%"],["Gains on dispositions of property","(1.1)","","","(16.4)","","","","","*"],["Operating loss","$","(108.3)","","","$","(80.8)","","","","","34.0","%"]]
[[/GREPCENT_TABLE]]

* Not meaningful

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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Liquidity and Capital Resources

Overview

We expect to finance future operating requirements with cash, cash equivalents, and short-term marketable securities; cash flows from operations; 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, and our revolving credit facility.

As of December 31, 2023, we have total committed liquidity of $906.3 million. Our total available liquidity includes: $105.7 million of unrestricted cash and cash equivalents; $582.6 million unused and available under our revolving credit facility; and $218.0 million unused and available under the TILC warehouse loan facility based on the amount of warehouse-eligible, unpledged equipment. We believe we have access to adequate capital resources to fund operating requirements and are an active participant in the capital markets.

Our material cash requirements from known contractual or other obligations primarily include principal and interest payments on debt, payments on operating leases, and purchase obligations as part of the normal course of business. 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. 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

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. 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 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.

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.

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Cash Flows

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2023","","2022"],["","(in millions)"],["Net cash flows from continuing operations:"],["Operating activities","$","309.0","","","$","9.2"],["Investing activities","(363.0)","","","(258.0)"],["Financing activities","8.2","","","265.4"],["Net cash flows from discontinued operations","(13.4)","","","(24.7)"],["Net decrease in cash, cash equivalents, and restricted cash","$","(59.2)","","","$","(8.1)"]]
[[/GREPCENT_TABLE]]

Operating Activities. Net cash provided by operating activities from continuing operations for the year ended December 31, 2023 was $309.0 million compared to $9.2 million net cash provided by operating activities from continuing operations for the year ended December 31, 2022. The changes in our operating assets and liabilities are as follows:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2023","","2022"],["","(in millions)"],["(Increase) decrease in receivables, inventories, and other assets","$","(77.5)","","","$","(299.3)"],["Increase (decrease) in accounts payable, accrued liabilities, and other liabilities","56.9","","","38.3"],["Changes in operating assets and liabilities","$","(20.6)","","","$","(261.0)"]]
[[/GREPCENT_TABLE]]

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. Net cash used in investing activities from continuing operations for the year ended December 31, 2023 was $363.0 million compared to $258.0 million of net cash used in investing activities from continuing operations for the year ended December 31, 2022. Significant investing activities are as follows:

•We had a net investment in the lease fleet of $287.0 million during the year ended December 31, 2023, compared to $178.1 million during the year ended December 31, 2022. 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 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. See Note 2 of the Consolidated Financial Statements for additional information on these acquisitions.

•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.

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Financing Activities. 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.

•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 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 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:

[[GREPCENT_TABLE]]
[["Ratio","","Covenant","","Actual at December 31, 2023"],["Maximum leverage (1)","","No greater than 3.75 to 1.00","","2.13"],["Minimum interest coverage (2)","","No less than 2.25 to 1.00","","10.92"]]
[[/GREPCENT_TABLE]]

(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 December 31, 2023.

(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 December 31, 2023.

As of December 31, 2023, we were in compliance with all such financial covenants. Please refer to Note 9 of the Consolidated Financial Statements for a description of our current debt obligations.

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Supplemental Guarantor Financial Information

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; Trinity North American Freight Car, Inc.; Trinity Rail Group, LLC; Trinity Tank Car, Inc.; and TrinityRail Maintenance Services, Inc. (collectively, the "Guarantor Subsidiaries”).

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 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. (“Parent”), $7,157.8 million of equipment securing certain non-recourse debt, and $590.0 million of assets located in foreign locations.

The following tables include the summarized financial information for Parent and Guarantor Subsidiaries (together the obligor group) on a combined basis after elimination of intercompany transactions within the obligor group (in millions). Investments in and equity in the earnings of the Non-Guarantor Subsidiaries (the non-obligor group) have been excluded.

[[GREPCENT_TABLE]]
[["","Year Ended December 31, 2023"],["Summarized Statement of Operations:"],["Revenues (1)","$","2,071.0"],["Cost of revenues (2)","$","1,925.1"],["Income (loss) from continuing operations","$","(30.7)"],["Net income (loss) (3)","$","(44.1)"],["","December 31, 2023"],["Summarized Balance Sheet:"],["Assets:"],["Receivables, net of allowance (4)","$","308.4"],["Inventories","$","628.5"],["Property, plant, and equipment, net","$","531.2"],["Goodwill and other assets","$","399.1"],["Liabilities:"],["Accounts payable and accrued liabilities (5)","$","480.7"],["Debt","$","846.9"],["Deferred income taxes","$","923.6"],["Other liabilities","$","150.9"],["Noncontrolling interest","$","238.4"]]
[[/GREPCENT_TABLE]]

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

(2) Cost of revenues includes $485.6 million of purchases from Non-Guarantor Subsidiaries during the year ended December 31, 2023.

(3) Net income (loss) for the year ended December 31, 2023 includes $13.4 million of net loss related to discontinued operations.

(4) Receivables, net of allowance includes $87.7 million of receivables from Non-Guarantor Subsidiaries as of December 31, 2023.

(5) Accounts payable includes $109.8 million of payables to Non-Guarantor Subsidiaries as of December 31, 2023.

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Capital Expenditures

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. 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 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 investments in partially-owned subsidiaries.

Off Balance Sheet Arrangements

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. See Note 9 of the Consolidated Financial Statements for further information about our corporate revolving credit facility.

Employee Retirement Plans

As disclosed in Note 11 of the Consolidated Financial Statements, as of December 31, 2023, the benefit obligation associated with our nonqualified retirement plan totaled $11.1 million. We sponsor a 401(k) plan that covers substantially all domestic employees and includes a Company matching contribution of up to 6% each of eligible compensation, subject to a two-year cliff vesting period, as well as the Trinity Industries, Inc. Deferred Compensation Plan. Employer contributions to the 401(k) plan and the Trinity Industries, Inc. Deferred Compensation Plan for the year ending December 31, 2024 are expected to be $10.6 million, compared to $10.1 million contributed during 2023.

Stock-Based Compensation

We have a stock-based compensation plan covering our employees and our Board of Directors. See Note 13 of the Consolidated Financial Statements for further information.

Derivative Instruments

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

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Critical Accounting Policies and Estimates

Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies, among others, affect our more significant judgments and estimates used in the preparation of our Consolidated Financial Statements.

[[GREPCENT_TABLE]]
[["Deferred Income Taxes"],["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. The effect of a change in enacted laws or tax rates on deferred tax assets and liabilities is recognized in the provision for income taxes in the period that includes the enactment date. Our net deferred tax liabilities totaled $1,102.7 million as of December 31, 2023, which includes valuation allowances of $21.6 million. For further information regarding income taxes, see Note 10 of the Consolidated Financial Statements."],["Judgment and/or Uncertainty","Management is required to estimate the timing of the recognition of deferred tax assets and liabilities, make assumptions about the future deductibility of deferred tax assets and assess deferred tax liabilities based on enacted laws and tax rates for the appropriate tax jurisdictions to determine the amount of such deferred tax assets and liabilities. We assess whether a valuation allowance should be established against deferred tax assets based on consideration of all available evidence, both positive and negative, using a more likely than not standard. This assessment considers, among other matters: the nature, frequency, and severity of recent losses; a forecast of future profitability; the duration of statutory carryback and carryforward periods; our experience with tax attributes expiring unused; and tax planning alternatives."],["Potential Impact if Results Differ","Changes in recognized deferred tax assets and liabilities may occur in certain circumstances, including statutory income tax rate changes, statutory tax law changes, or changes in our structure or tax status. If such changes take place, there is a risk that our effective tax rate could increase or decrease in any period, impacting our net earnings."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["Long-lived Assets"],["Description of Estimate","We routinely assess whether impairment indicators are present by monitoring for the existence of events or changes in circumstances that may indicate that the carrying amount of our long-lived assets, including our leased railcar fleet, might not be recoverable. Factors monitored include actual and forecasted industry-wide asset utilization, pricing indicators, asset attrition rates, and other similar metrics specific to the performance of our leased railcar fleet and other long-lived assets. Whenever an indicator of potential impairment is present, we assess recoverability by comparing the carrying value of the long-lived assets to the undiscounted future net cash flows we expect the assets to generate. 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, 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; the remaining useful life over which an asset is expected to generate cash flows; and expectations regarding lease rates, lease renewals, and lease fleet utilization. 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 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. We did not identify any impairment indicators during the year ended December 31, 2023."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["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. 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 \u201creporting unit\u201d level by applying a fair value-based test for each unit with recorded goodwill. Goodwill totaled $221.5 million as of December 31, 2023. 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 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."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["Variable Interest Entities"],["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, 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 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. Factors considered in these assessments include, but are not limited to, the entity's structure and equity ownership, the contractual terms, the key decision making powers, and the obligation to absorb losses or the right to receive benefits of the VIE."],["Potential Impact if Results Differ","Changes in the design or nature of the activities of a VIE, or our involvement with a VIE, could result in a change in conclusion of our status as a primary beneficiary. Such change could result in the consolidation or deconsolidation of the subsidiary, thus impacting financial results."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Contingencies and Litigation"],["Description of Estimate","We are involved in claims and lawsuits incidental to our business arising from various matters, including product warranty, personal injury, environmental issues, workplace laws, and various governmental regulations. We evaluate our exposure to such matters periodically and establish accruals for these contingencies when a range of loss can be reasonably estimated. As of December 31, 2023, the range of reasonably possible losses for such matters is $8.7 million to $19.6 million. For further information regarding our contingencies and litigation matters, see Note 15 of the Consolidated Financial Statements."],["Judgment and/or Uncertainty","Assessments of contingencies are based on information obtained from internal and external legal counsel, including recent legal decisions and loss experience in similar situations. Based on information currently available with respect to such claims and lawsuits, including information as to which we are aware but for which we have not been served with legal process, it is management's opinion that the ultimate outcome of all such claims and litigation, including settlements, in aggregate will not have a material adverse effect on our results of operations or financial condition."],["Potential Impact if Results Differ","Due to the uncertain nature of these matters, there can be no assurance that we will not become involved in future litigation or other proceedings or, if we were found to be responsible or liable in any litigation or proceeding, that such costs would not be material to us. Additionally, changes in claims and lawsuits filed, settled or dismissed and differences between actual and estimated settlement costs or our rights in indemnity and recourse to third parties could impact operating results."]]
[[/GREPCENT_TABLE]]

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Non-GAAP Financial Measures

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 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, 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. In the following table, the numerator and denominator of our Pre-Tax ROE calculation are reconciled to income from continuing operations and total stockholders’ equity, respectively, which are the most directly comparable GAAP financial measures. Management believes that Pre-Tax ROE is a useful measure to both management and investors as it provides an indication of the economic return on the Company’s investments over time. Pre-Tax ROE is used in consideration of the Company’s expected tax position in the near-term.

[[GREPCENT_TABLE]]
[["","December 31, 2023","","December 31, 2022","","December 31, 2021"],["","($ in millions)"],["Numerator:"],["Income from continuing operations","$","140.0","","","$","98.9","","","$","39.3"],["Provision (benefit) for income taxes","9.0","","","27.6","","","15.9"],["Income from continuing operations before income taxes","149.0","","","126.5","","","55.2"],["Net (income) loss attributable to noncontrolling interest","(20.6)","","","(12.8)","","","0.2"],["Adjustments:"],["Selling, engineering, and administrative expenses (1)","4.0","","","\u2014","","","\u2014"],["Gains on dispositions of property \u2013 other (2)","(6.3)","","","(7.5)","","","(7.8)"],["Restructuring activities, net","(2.2)","","","1.0","","","(3.7)"],["Loss on extinguishment of debt \u2013 controlling interest (3)","\u2014","","","\u2014","","","4.6"],["Interest expense, net (4)","(1.5)","","","(1.4)","","","\u2014"],["Pension plan settlement","\u2014","","","\u2014","","","(0.6)"],["Adjusted Profit Before Tax","$","122.4","","","$","105.8","","","$","47.9"],["Denominator:"],["Total stockholders' equity","$","1,275.5","","","$","1,269.6","","","$","1,296.8"],["Noncontrolling interest","(238.4)","","","(257.2)","","","(267.0)"],["Accumulated other comprehensive (income) loss","(11.0)","","","(19.7)","","","17.0"],["Adjusted Stockholders' Equity","$","1,026.1","","","$","992.7","","","$","1,046.8"],["Average total stockholders' equity","$","1,272.6","","","$","1,283.2","","","$","1,656.4"],["Return on Equity (5)","11.0","%","","7.7","%","","2.4","%"],["Average Adjusted Stockholders' Equity","$","1,009.4","","","$","1,019.8","","","$","1,408.3"],["Pre-Tax Return on Equity (6)","12.1","%","","10.4","%","","3.4","%"]]
[[/GREPCENT_TABLE]]

(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 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

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2023","","2022","","2021"],["","(in millions)"],["Net cash provided by operating activities \u2013 continuing operations (1)","$","309.0","","","$","9.2","","","$","615.6"],["Proceeds from lease portfolio sales","381.8","","","750.7","","","454.3"],["Capital expenditures \u2013 manufacturing and other","(41.3)","","","(38.0)","","","(23.6)"],["Dividends paid to common stockholders","(86.0)","","","(76.9)","","","(88.5)"],["Equity CapEx for leased railcars","(535.0)","","","(506.7)","","","(418.9)"],["Adjusted Free Cash Flow After Investments and Dividends","$","28.5","","","$","138.3","","","$","538.9"],["Capital expenditures \u2013 lease fleet","$","668.8","","","$","928.8","","","$","547.2"],["Less:"],["Payments to retire debt","(1,518.9)","","","(1,578.5)","","","(2,315.8)"],["Proceeds from issuance of debt","1,652.7","","","2,000.6","","","2,444.1"],["Net proceeds from (repayments of) debt","133.8","","","422.1","","","128.3"],["Equity CapEx for leased railcars","$","535.0","","","$","506.7","","","$","418.9"]]
[[/GREPCENT_TABLE]]
(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.

Recent Accounting Pronouncements

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

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