TRINITY INDUSTRIES INC (TRN) FY 2024 MD&A

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®. Our platform also includes the brands of RSI Logistics, a provider of software and logistics solutions, and Holden America, a supplier of railcar parts and components. Our platform provides railcar leasing and management services; railcar manufacturing; railcar maintenance and modifications; and other railcar logistics products and services.

We report our operating results in two reportable segments: (1) the Railcar Leasing and Services Group (the "Leasing Group"), which owns and operates a fleet of railcars and provides third-party fleet leasing, management, and administrative services; railcar maintenance and modification services; and other railcar logistics products and services; and (2) the Rail Products Group, which manufactures and sells railcars and related parts and components.

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 resulted in a change to our reportable segments beginning in 2024. In connection with this organizational update, we aligned the maintenance services business, which was previously reported in the Rail Products Group, to now be presented within our leasing business. This change aligns with the way in which our Chief Operating Decision Maker assesses performance and allocates resources. Consequently, beginning January 1, 2024, we report our operating results in two reportable segments: (1) the Railcar Leasing and Services Group, formerly the Railcar Leasing and Management Services Group, and (2) the Rail Products Group. These changes had no impact to our previously reported consolidated results of operations, financial position, or cash flows. All prior period segment results set forth herein have been recast to reflect these changes and present results on a comparable basis.

Executive Summary

Recent Market Developments

Cyclical, Seasonal and Other Trends Impacting Our Business

General/Business Trends

Demand for many of our railcar products and services is correlated to changes in North American industrial production. 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. Our costs and the demand for our products and services could also be impacted by changes in tariffs, retaliatory tariffs, and trade policies.

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.

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We believe that our leasing business provides a natural hedge against inflation and changes in interest rates; however, like many leasing companies, the debt component of our capital structure exposes us to changes in the interest rate environment. A significant portion of the earnings from our leasing business is derived from multi-year full-service leases. We consider changes in interest rates, inflation, and other relevant factors in the pricing of new and renewing leases; however, only a portion of our leased railcar portfolio is repriced each year. Consequently, our earnings could be impacted by timing differences between when interest rate changes and changes in the inflationary environment occur and when we are able to factor these changes into our lease rates.

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

Supply Chain and Transportation Network Disruptions

As a result of disruptions in the global supply chain, we have, from time to time, experienced shortages of materials used to manufacture or repair certain railcar types. We are also subject to disruptions in the rail transportation network. In 2023, we experienced cross-border rail traffic closures and congestion in Eagle Pass, Texas, the primary border crossing used for railcar deliveries from our manufacturing facilities in Mexico. While we did not experience a border closure at Eagle Pass in 2024, there remains a risk of instability at the border, and there is a possibility that border closings or congestion could occur in the future. We continuously monitor rail and truck traffic at the U.S.-Mexico border 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 U.S. Additionally, we actively monitor our supply chain and take appropriate steps within our control to mitigate the potential impacts on our production schedules and delivery timelines. However, challenges related to supply chain and transportation network disruptions could negatively impact our operations or our ability to timely deliver railcars to our customers.

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 maintain a hedging program and have taken other actions to mitigate the foreign currency impact of a portion of our peso-denominated expenditures. 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 Costs

We periodically experience volatility 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 remain elevated, which we expect to continue in the near term. We continually assess the impact of input 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, 2024 were $3,079.2 million, representing an increase of 3.2%, compared to the year ended December 31, 2023. Our operating profit for the year ended December 31, 2024 was $491.5 million, representing an increase of 17.9%, compared to $417.0 million for the year ended December 31, 2023.

•The Leasing Group's lease fleet of 109,635 company-owned railcars was 97.0% utilized as of December 31, 2024, compared to a lease fleet utilization of 97.5% on 109,295 company-owned railcars as of December 31, 2023. Our company-owned lease fleet includes wholly-owned railcars, partially-owned railcars, and railcars under leased-in arrangements.

•For the year ended December 31, 2024, we made a net fleet investment of approximately $181.2 million, which primarily includes new railcar additions, sustainable railcar conversions, railcar modifications, and other betterments, net of deferred profit, as well as secondary market purchases; and is net of proceeds from lease portfolio sales.

•The total value of the railcar backlog at December 31, 2024 was $2.1 billion, compared to $3.2 billion at December 31, 2023. The Rail Products Group received orders for 7,685 railcars and delivered 17,570 railcars in 2024, in comparison to orders for 11,500 railcars and deliveries of 17,355 railcars in 2023. Deliveries in 2024 included approximately 1,300 railcar shipments that were delayed at the end of 2023 due to the U.S.-Mexico border closure and delivered during the first half of 2024.

See "Consolidated Results of Operations" and "Segment Discussion" below for additional information regarding our operating results for the years ended December 31, 2024 and 2023.

Long-Term Enterprise Key Performance Indicators

Our key performance indicators for long-term performance are net fleet investment, cash flow from operations with net gains on lease portfolio sales*, and Adjusted Return on Equity* ("Adjusted ROE"). 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.

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Capital Structure Updates

TILC Warehouse Loan Facility – In March 2024, we entered into a new Trinity Industries Leasing Company ("TILC") warehouse loan facility with a total commitment amount of $800.0 million, a revolving termination date of March 15, 2027, and a maturity date of March 15, 2028. Advances under the facility bear interest at one-month term SOFR plus a facility margin of 1.75%. This warehouse loan facility replaced the prior $1.0 billion warehouse loan facility.

TRL-2024 Secured Railcar Equipment Notes – In May 2024, Trinity Rail Leasing 2021 LLC, a Delaware limited liability company ("TRL-2021") and a limited purpose, indirect wholly-owned subsidiary of the Company owned through TILC, issued $432.4 million of its Series 2024-1 Class A Green Secured Railcar Equipment Notes. These notes bear interest at a fixed rate of 5.78%, are payable monthly, and have a stated final maturity date of 2054. Net proceeds received from the transaction were used to repay borrowings under TILC's warehouse loan facility; to redeem the outstanding debt of Trinity Rail Leasing VII LLC's Series 2009-1 Secured Railcar Equipment Notes (the "TRL VII Notes"), of which $94.1 million was outstanding at the redemption date; and for general corporate purposes. The all-in interest rate for the TRL VII Notes was 6.66% per annum.

Senior Notes due 2028 – In June 2024, we issued an additional $200.0 million aggregate principal amount of 7.75% senior notes due July 2028 (the "Additional Senior Notes"), which increased the aggregate principal amount from $400.0 million to $600.0 million. Interest on the Additional Senior Notes is payable semiannually commencing July 15, 2024. Net proceeds received from the issuance, together with cash on hand, were used to repay $400.0 million of our 4.55% senior notes due 2024 ("Senior Notes due 2024"), and to pay related fees, costs, premiums, and expenses in connection with the issuance.

See Note 9 of the Consolidated Financial Statements for additional information regarding these debt transactions.

Litigation Updates

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

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Consolidated Results of Operations

The following table summarizes our consolidated results of continuing operations for the years ended December 31, 2024, 2023, and 2022:

Revenues

The tables below present revenues by segment for the years ended December 31, 2024, 2023, and 2022:

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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, 2024, 2023, and 2022 were as follows:

(1) Includes gains on lease portfolio sales of $57.3 million, $82.8 million, and $127.5 million for the years ended December 31, 2024, 2023, and 2022, respectively.

Operating Profit

Operating profit by segment for the years ended December 31, 2024, 2023, and 2022 was as follows:

Discussion of Consolidated Results

Revenues – Our revenues for the year ended December 31, 2024 were $3,079.2 million, representing an increase of $95.9 million, or 3.2%, over the prior year, primarily due to a higher volume of external repairs and higher lease rates in the Leasing Group and higher external deliveries, partially offset by a lower volume of external sustainable railcar conversions in the Rail Products Group.

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%, when compared to the year ended December 31, 2022, primarily related to higher external deliveries in the Rail Products Group, as well as a higher volume of external repairs, higher 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, 2024 was $2,411.0 million, representing a decrease of $45.2 million, or 1.8%, over the prior year, primarily due to a lower volume of external sustainable railcar conversions and improved efficiencies in the Rail Products Group, partially offset by a higher volume of external repairs in the Leasing Group and higher external deliveries in the Rail Products Group.

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%, when compared to the year ended December 31, 2022, 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. Cost of revenues was further impacted by a higher volume of external repairs and the impact of the acquisition of RSI in the Leasing Group.

Selling, engineering, and administrative expenses – Selling, engineering, and administrative expenses for the year ended December 31, 2024 were $235.7 million, representing an increase of $33.8 million, or 16.7%, over the prior year, primarily due to higher employee-related costs, including increased incentive-based compensation, and continued investments in technology.

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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%, when compared to the year ended December 31, 2022, primarily due to higher employee-related costs, including an increase in headcount as a result of the Holden America and RSI acquisitions.

Gains on dispositions of property – Gains on dispositions of property decreased by $26.3 million for the year ended December 31, 2024, when compared to the prior year primarily due to lower gains on lease portfolio sales.

Gains on dispositions of property decreased by $63.1 million for the year ended December 31, 2023, when compared to the year ended December 31, 2022, primarily due to lower lease portfolio sales volume. Additionally, gains on dispositions of property for the year ended December 31, 2022 were favorably impacted by disposals of non-operating facilities.

Results for the years ended December 31, 2024, 2023, and 2022 included gains of $2.7 million, $6.3 million, and $7.5 million, respectively, related to insurance recoveries in excess of net book value for assets damaged at the Company’s facility in Cartersville, Georgia in two separate events. See Note 15 of the Consolidated Financial Statements for more information.

Operating profit – Operating profit for the year ended December 31, 2024 totaled $491.5 million, representing an increase of $74.5 million, or 17.9%, from the prior year. The increase was primarily due to improved efficiencies and the mix of railcars sold in the Rail Products Group and higher lease rates and a higher volume of external repairs in the Leasing Group, partially offset by lower gains on lease portfolio sales and higher employee-related costs across the enterprise, including increased incentive-based compensation and costs associated with workforce reductions to improve our cost structure.

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 year ended December 31, 2022 primarily due to higher external deliveries in the Rail Products Group, as well as higher lease rates, net additions to the lease fleet, and a higher volume of external repairs in the Leasing Group. The increase in operating profit was partially offset by lower lease portfolio sales volume, higher maintenance and compliance costs, and labor inefficiencies in the Leasing Group, as well as 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 during each of the years ended December 31, 2024, 2023, and 2022 by the insurance recoveries described above.

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, 2024 totaled $273.5 million, compared to $265.5 million for the year ended December 31, 2023, primarily driven by higher interest rates and higher average debt in 2024, as well as a $1.5 million loss on extinguishment of debt.

Interest expense, net for the year ended December 31, 2023 totaled $265.5 million, compared to $209.1 million for the year ended December 31, 2022, primarily driven by higher variable interest rates, as well as higher average debt due to the issuance of our 7.75% senior notes due July 2028 and a term loan agreement in June 2023.

Other, net – Other, net for the year ended December 31, 2024, 2023, and 2022 resulted in income of $3.8 million, expense of $2.5 million, and income of $1.6 million, respectively. The changes in other, net (income) expense are primarily due to the remeasurement impact of foreign currency fluctuations related to the Mexican peso. Additionally, other, net for the year ended December 31, 2024 included a fee related to the execution of back-to-back interest rate caps associated with the new TILC warehouse loan facility.

Income taxes – The effective tax rate from continuing operations for the year ended December 31, 2024 was an expense of 22.7%, which differs from the U.S. statutory rate of 21.0% primarily due to state and foreign income taxes and other discrete items. Our 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 accumulated other comprehensive income and the re-measurement of our net deferred state income tax liabilities due to apportionment and state law changes, reducing our net deferred tax liability. 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 and state income taxes and other discrete items. See Note 10 of the Consolidated Financial Statements for additional information.

Income tax payments, net of refunds, 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. Income tax payments, net of refunds, during the years ended December 31, 2024, 2023, and 2022 totaled $54.6 million, $42.4 million, and $19.3 million, respectively.

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Segment Discussion

Railcar Leasing and Services Group

* Not meaningful

(1) Revenues related to services performed by the maintenance services business on Company-owned railcars under full-service lease agreements are eliminated within the Railcar Leasing and Services Group and are excluded from the totals reported on this line.

(2) Includes depreciation and amortization expense, maintenance and compliance expense, and other fleet operating costs related to our lease fleet, as well as operating costs for our maintenance services and digital and logistics services businesses.

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

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

(5) 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. There were no disposals under this program during the year ended December 31, 2024. Additionally, depreciation and amortization expense includes deferred profit related to new railcar additions, sustainable railcar conversions, railcar modifications, and other betterments, resulting in the recognition of depreciation expense based on the original cost of the railcars and services.

(6) Maintenance and compliance expense is reported at cost with respect to the services performed by our maintenance services business to support the railcars in our lease fleet.

(7) Other fleet operating costs include freight, storage, rent, and ad valorem taxes.

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

Information related to lease portfolio sales is as follows:

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

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Total revenues for the Railcar Leasing and Services Group increased by 9.8% for the year ended December 31, 2024 when compared to the year ended December 31, 2023. Leasing and management revenues for the year ended December 31, 2024 were favorably impacted primarily by higher lease rates and net additions to the lease fleet, when compared to the year ended December 31, 2023. Digital and logistics services revenues for the year ended December 31, 2024 decreased when compared to the prior year primarily due to a change in revenue recognition from gross basis to net basis based on our conclusion in the fourth quarter of 2023 that we are acting as an agent for certain services provided to a small number of customers. See Note 1 of the Consolidated Financial Statements for further information on this change.

Total revenues for the Railcar Leasing and Services Group increased by 22.3% 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 higher 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. Digital and logistics services revenues for the year ended December 31, 2023 were favorably impacted by the acquisition of RSI.

Our maintenance services business is primarily dedicated to servicing our lease fleet. Revenues related to maintenance services performed on Company-owned railcars under full-service lease agreements are eliminated within the Railcar Leasing and Services Group. Services that are not included in the full-service lease agreement, such as repairs of railcar damage or other customer-specific requirements, as well as maintenance and repair activities on railcars owned by third parties, including our investor-owned fleet, are reflected in the maintenance services revenues line above and are not eliminated in consolidation. Revenues in our maintenance services business increased for the year ended December 31, 2024 as a result of higher volumes of repairs completed for third parties, including our investor-owned fleet, as well as favorable pricing. Revenues in our maintenance services business increased for the year ended December 31, 2023 as a result of higher volumes of repairs completed for third parties.

Cost of revenues for the Railcar Leasing and Services Group increased by 5.5% for the year ended December 31, 2024 when compared to the year ended December 31, 2023. In our maintenance services business, cost of revenues increased for the year ended December 31, 2024 as a result of the volume of external repairs. Cost of revenues for the year ended December 31, 2024 was also impacted by the gross basis to net basis change in our digital and logistics services business described above.

Cost of revenues for the Railcar Leasing and Services Group increased by 19.4% for the year ended December 31, 2023 when compared to the year ended December 31, 2022. In our maintenance services business, cost of revenues increased for the year ended December 31, 2023 as a result of a higher volume of external repairs, and continued to be impacted by labor shortages leading to operating inefficiencies. Cost of revenues were further increased for the year ended December 31, 2023 by the acquisition of RSI.

Leasing Group operating profit for the year ended December 31, 2024 increased by 6.1% primarily due to higher lease rates and net additions to the lease fleet, and a higher volume of external repairs and favorable pricing in the maintenance services business, partially offset by lower gains on lease portfolio sales and higher employee-related costs, including increased incentive-based compensation.

Leasing Group operating profit for the year ended December 31, 2023 increased by 8.9% primarily due to higher lease rates, net additions to the lease fleet, and higher average utilization, as well as a higher volume of external repairs in the maintenance services business. These increases were partially offset by lower lease portfolio sales volume, higher maintenance and compliance costs, and labor shortages leading to operating inefficiencies in our maintenance services business.

Operating profit for the years ended December 31, 2024, 2023, and 2022 was favorably impacted by gains of $2.7 million, $6.3 million, and $7.5 million, respectively, related to insurance recoveries in excess of net book value for assets damaged at the Company’s facility in Cartersville, Georgia in two separate events. See Note 15 of the Consolidated Financial Statements for more information.

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; long-term non-recourse promissory notes; or third-party equity.

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

(1) Includes 2,240 railcars, 2,495 railcars, and 2,810 railcars under leased-in arrangements as of December 31, 2024, 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

* Not meaningful

(1) Includes sustainable railcar conversion revenues of $82.3 million, representing 1,095 railcars, for the year ended December 31, 2024. 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 decreased for the year ended December 31, 2024 by 1.9% when compared to the prior year primarily as a result of a lower volume of sustainable railcar conversions, partially offset by the mix of railcars sold.

Revenues for the Rail Products Group increased for the year ended December 31, 2023 by 31.5% when compared to the year ended December 31, 2022 primarily as a result of higher deliveries and favorable pricing, partially offset by the mix of railcars sold. Increases in the parts and components business 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 decreased for the year ended December 31, 2024 by 5.4% when compared to the prior year primarily due to a lower volume of sustainable railcar conversions, improved labor efficiencies, and operational efficiencies associated with reduced production line changeovers and fewer supply chain disruptions. These decreases were partially offset by the mix of railcars sold when compared to the prior year.

Cost of revenues for the Rail Products Group increased for the year ended December 31, 2023 by 30.5% when compared to the year ended December 31, 2022 primarily 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 border congestion.

Operating profit for the Rail Products Group increased for the year ended December 31, 2024 by 68.2% when compared to the prior year primarily due to improved labor and operational efficiencies and the mix of railcars sold.

Operating profit for the Rail Products Group increased for the year ended December 31, 2023 by 71.6% when compared to the year ended December 31, 2022 primarily as a result of 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.

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

(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 Corporation ("GATX").

(2) Deliveries for the year ended December 31, 2024 included approximately 1,300 railcar shipments that were delayed at the end of 2023 due to the U.S.-Mexico border closure and delivered during the first half of 2024.

(3) 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, 2024 decreased by 33.0% when compared to the prior year. Total backlog dollars for the year ended December 31, 2023 decreased by 18.0% when compared to December 31, 2022. The ending backlog as of December 31, 2022 included approximately $1.8 billion associated with a long-term railcar supply agreement with GATX. We expect to deliver approximately 48% of our railcar backlog value during 2025, with the remainder to be delivered through 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 elect to change their procurement decision.

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

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Corporate and other

* Not meaningful

Selling, engineering, and administrative expenses for the year ended December 31, 2024 increased 15.1%, compared to the prior year primarily from higher employee-related costs, including increased incentive-based compensation and costs associated with workforce reductions to improve our cost structure, as well as continued investments in technology.

Selling, engineering, and administrative expenses for the year ended December 31, 2023 increased 12.6%, compared to the year ended December 31, 2022 primarily from higher employee-related costs, as well as the change in estimated fair value of additional contingent consideration associated with an acquisition.

Total operating costs during each of the years ended December 31, 2024, 2023, and 2022 were favorably impacted by gains associated with the disposition of non-operating facilities. As we continue to streamline our operational footprint, we may have additional gains or losses on the disposition of other non-operating facilities.

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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, 2024, we have total committed liquidity of $987.4 million. Our total available liquidity includes: $228.2 million of unrestricted cash and cash equivalents; $591.3 million unused and available under our revolving credit facility; and $167.9 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 or refinance our 2017 promissory notes. Interest payable associated with our debt due in the next twelve months is approximately $258.8 million, with $501.7 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 $449.2 million, with $6.1 million due thereafter.

Liquidity Highlights

TILC Warehouse Loan Facility – In March 2024, we entered into a new TILC warehouse loan facility with a total commitment amount of $800.0 million, a revolving termination date of March 15, 2027, and a maturity date of March 15, 2028. Advances under the facility bear interest at one-month term SOFR plus a facility margin of 1.75%. This warehouse loan facility replaced the prior $1.0 billion warehouse loan facility.

TRL-2024 Secured Railcar Equipment Notes – In May 2024, TRL-2021 issued $432.4 million of its Series 2024-1 Class A Green Secured Railcar Equipment Notes. These notes bear interest at a fixed rate of 5.78% and have a stated final maturity date of 2054. Net proceeds received from the transaction were used to repay borrowings under TILC's warehouse loan facility, to redeem the outstanding debt of the TRL VII Notes, and for general corporate purposes.

Redemption of TRL-VII Secured Railcar Equipment Notes – In May 2024, we redeemed in full the TRL VII Notes, of which $94.1 million was outstanding at the redemption date. The all-in interest rate for the TRL VII Notes was 6.66% per annum.

Senior Notes due 2028 – In June 2024, we issued an additional $200.0 million aggregate principal amount of 7.75% senior notes due July 2028, which increased the aggregate principal amount from $400.0 million to $600.0 million. Interest on the Additional Senior Notes is payable semiannually commencing July 15, 2024. Net proceeds received from the issuance, together with cash on hand, were used to repay our Senior Notes due 2024, and to pay related fees, costs, premiums, and expenses in connection with the issuance.

Redemption of Senior Notes due 2024 – In June 2024, we redeemed in full $400.0 million aggregate principal amount of our 4.55% senior notes due 2024.

See Note 9 of the Consolidated Financial Statements for additional information regarding these debt transactions.

Dividend Payments – In December 2024, our Board of Directors declared an increase to our quarterly dividend from $0.28 per share to $0.30 per share. We paid $93.2 million in dividends to our common stockholders during the year ended December 31, 2024.

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. During the year ended December 31, 2024, share repurchases totaled 608,052 shares, at a cost of approximately $21.0 million, resulting in a remaining authorization to repurchase up to $229.0 million of our common stock under the share repurchase program as of December 31, 2024.

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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, 2024 and 2023:

Operating Activities. Net cash provided by operating activities from continuing operations for the year ended December 31, 2024 was $588.1 million compared to $309.0 million net cash provided by operating activities from continuing operations for the year ended December 31, 2023. The changes in our operating assets and liabilities are as follows:

The changes in our operating assets and liabilities resulted in a net source of $168.1 million for the year ended December 31, 2024, as compared to a net use of $20.6 million for the year ended December 31, 2023. The changes in operating assets and liabilities for the current year period were impacted primarily by lower inventory balances associated with railcar deliveries.

Investing Activities. Net cash used in investing activities from continuing operations for the year ended December 31, 2024 was $214.6 million compared to $363.0 million of net cash used in investing activities from continuing operations for the year ended December 31, 2023. Significant investing activities are as follows:

•We had a net fleet investment of $181.2 million during the year ended December 31, 2024, compared to $287.0 million during the year ended December 31, 2023. Our investment in the lease fleet primarily includes new railcar additions, sustainable railcar conversions, railcar modifications, and other betterments, net of deferred profit, as well as 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. We had no acquisitions during the year ended December 31, 2024.

Financing Activities. Net cash used in financing activities during the year ended December 31, 2024 was $219.9 million compared to $8.2 million of net cash provided by financing activities for the same period in 2023. Significant financing activities are as follows:

•During the year ended December 31, 2024, we had total borrowings of $1,970.4 million and total repayments of $2,050.5 million, for net repayments of $80.1 million, primarily from the redemption of the Senior Notes due 2024 and the TRL VII Notes, partially offset by debt proceeds to support our investment in the lease fleet and for general corporate purposes. 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.

•We paid $93.2 million and $86.0 million in dividends to our common stockholders during the years ended December 31, 2024 and 2023, respectively.

See Part II, Item 7 of our 2023 Annual Report on Form 10-K for a discussion of our liquidity and capital resources for the year ended December 31, 2023, including a comparison to the year ended December 31, 2022.

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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. A summary of our financial covenants is detailed below:

(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, 2024.

(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, 2024.

As of December 31, 2024, 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.

Capital Expenditures

Capital expenditures for 2024 were $595.7 million with $541.9 million utilized for net lease fleet additions, which includes new railcar additions, sustainable railcar conversions, railcar modifications, and other betterments, net of deferred profit, as well as secondary market purchases. Proceeds from lease portfolio sales totaled $360.7 million, resulting in a net fleet investment of $181.2 million.

For the full year 2025, we anticipate a net fleet investment of between $300 million and $400 million. Capital expenditures related to operating and administrative activities, including supporting automation, technology, and modernization of our facilities and processes, are projected to range between $45 million and $55 million for the full year 2025.

Equity Investments

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, 2024, we had outstanding letters of credit issued under our revolving credit facility in an aggregate amount of $8.7 million, which are scheduled to expire beginning in April 2025. 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. Additionally, we had a letter of credit issued outside our revolving credit facility for $8.5 million. This letter of credit obligation replaces a required cash liquidity reserve to support the TILC warehouse loan facility and renews by its terms each year.

Employee Retirement Plans

As disclosed in Note 11 of the Consolidated Financial Statements, as of December 31, 2024, the benefit obligation associated with our nonqualified retirement plan totaled $10.5 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, 2025 are expected to be $12.3 million, compared to $11.8 million contributed during 2024.

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 use derivative instruments 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.

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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.

Adjusted Return on Equity

Adjusted 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 net income or loss attributable to noncontrolling interest, and certain other adjustments (net of income taxes), 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; interest expense, net; and the income tax effects of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"); and (ii) the denominator is calculated as average Trinity stockholders’ equity (which excludes noncontrolling interest). In the following table, the numerator and denominator of our Adjusted 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 Adjusted 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.

(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 at the Company’s facility in Cartersville, Georgia in two separate events. See Note 15 of the Consolidated Financial Statements for more information.

(3) For the year ended December 31, 2022, the effective tax rate for gains on dispositions of other property; restructuring activities, net; and interest expense, net is before consideration of the CARES Act.

(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) Adjusted Return on Equity is calculated as adjusted net income divided by average Trinity stockholders' equity, each as defined and reconciled above.

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Cash Flow from Operations with Net Gains on Lease Portfolio Sales

Cash flow from operations with net gains on lease portfolio sales is a non-GAAP financial measure. We believe this measure is useful to both management and investors as it provides a relevant measure of liquidity and a useful basis for assessing the breadth of the cash flow generation capabilities across our operating platform, as well as our ability to fund our operations and repay our debt. This measure is defined as net cash provided by operating activities from continuing operations as computed in accordance with GAAP, plus net gains on lease portfolio sales and is reconciled to net cash provided by operating activities from continuing operations, the most directly comparable GAAP financial measure, in the following table.

Recent Accounting Pronouncements

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

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