Railcar Leasing and Management Services Group

The Railcar Leasing and Management Services Group owns and operates a fleet of railcars as well as provides third-party fleet management, maintenance, and leasing services. Selected consolidating financial information for the Leasing Group is as follows:



	December 31, 2015
	Leasing Group
	Wholly- Owned Subsidiaries			Partially- Owned Subsidiaries			Manufacturing/ Corporate			Total
	(in millions)
Cash, cash equivalents, and short-term marketable securities	$	3.8		$	—		$	867.1		$	870.9
Property, plant, and equipment, net	$	3,126.3		$	1,938.6		$	956.1		$	6,021.0
Net deferred profit on railcars sold to the Leasing Group										(673.0		)
Consolidated property, plant, and equipment, net										$	5,348.0
Restricted cash	$	105.9		$	89.9		$	—		$	195.8
Debt:
Recourse	$	35.8		$	—		$	849.9		$	885.7
Less: unamortized discount	—			—			(44.2		)	(44.2		)
Less: unamortized debt issuance costs	(0.1		)	—			(4.7		)	(4.8		)
	35.7			—			801.0			836.7
Non-recourse	943.8			1,446.9			—			2,390.7
Less: unamortized debt issuance costs	(15.1		)	(16.9		)	—			(32.0		)
	928.7			1,430.0			—			2,358.7
Total debt	$	964.4		$	1,430.0		$	801.0		$	3,195.4
Net deferred tax liabilities	$	746.0		$	1.4		$	(12.6	)	$	734.8



	December 31, 2014
	Leasing Group
	Wholly- Owned Subsidiaries			Partially- Owned Subsidiaries			Manufacturing/ Corporate			Total
	(in millions)
Cash, cash equivalents, and short-term marketable securities	$	11.9		$	—		$	951.0		$	962.9
Property, plant, and equipment, net	$	2,599.2		$	1,999.9		$	861.0		$	5,460.1
Net deferred profit on railcars sold to the Leasing Group										(557.2		)
Consolidated property, plant, and equipment, net										$	4,902.9
Restricted cash	$	142.8		$	91.9		$	—		$	234.7
Debt:
Recourse	$	39.1		$	—		$	850.2		$	889.3
Less: unamortized discount	—			—			(60.0		)	(60.0		)
Less: unamortized debt issuance costs	(0.2		)	—			(5.5		)	(5.7		)
	38.9			—			784.7			823.6
Non-recourse	1,207.8			1,515.9			—			2,723.7
Less: unamortized debt issuance costs	(13.8		)	(19.0		)	—			(32.8		)
	1,194.0			1,496.9			—			2,690.9
Total debt	$	1,232.9		$	1,496.9		$	784.7		$	3,514.5
Net deferred tax liabilities	$	658.2		$	0.9		$	(44.1	)	$	615.0

Net deferred profit on railcars sold to the Leasing Group consists of intersegment profit that is eliminated in consolidation and is, therefore, not allocated to an operating segment. See Note 5 Partially-Owned Leasing Subsidiaries and Note 11 Debt for a further discussion regarding the Company’s investment in its partially-owned leasing subsidiaries and the related indebtedness. Debt balances previously reported have been adjusted to reflect the adoption of ASU 2015-03 requiring debt issuance costs in financial statements to be presented as a direct deduction from the related debt liability rather than as an asset. See Note 1 Summary of Significant Accounting Policies.



	Year Ended December 31,									Percent Change
	2015			2014			2013			2015 versus 2014		2014 versus 2013
	($ in millions)
Revenues:
Leasing and management	$	699.9		$	632.0		$	586.9		10.7	%	7.7	%
Sale of railcars owned one year or less at the time of sale	404.9			486.3			58.5
Total revenues	$	1,104.8		$	1,118.3		$	645.4		(1.2	)	73.3

Operating profit:
Leasing and management	$	331.1		$	287.9		$	267.3		15.0		7.7
Railcar sales:
Railcars owned one year or less at the time of sale	109.0			136.1			9.1
Railcars owned more than one year at the time of sale	166.1			92.3			20.4
Total operating profit	$	606.2		$	516.3		$	296.8		17.4		74.0

Operating profit margin:
Leasing and management	47.3		%	45.6		%	45.5		%
Railcar sales	*			*			*
Total operating profit margin	54.9		%	46.2		%	46.0		%

Selected expense information⁽¹⁾:
Depreciation	$	142.3		$	130.0		$	129.0		9.5		0.8
Maintenance	$	97.3		$	78.9		$	71.5		23.3		10.3
Rent	$	41.6		$	52.9		$	53.3		(21.4	)	(0.8	)
Interest:
External	$	138.8		$	153.3		$	153.5
Intercompany	—			—			3.8
Total interest expense	$	138.8		$	153.3		$	157.3		(9.5	)	(2.5	)

* Not meaningful

⁽¹⁾ Depreciation, maintenance, and rent expense are components of operating profit. Amortization of deferred profit on railcars sold from the Rail Group to the Leasing Group is included in the operating profit of the Leasing Group resulting in the recognition of depreciation expense based on the Company's original manufacturing cost of the railcars. Interest expense is not a component of operating profit and includes the effect of hedges. Intercompany interest expense is eliminated in consolidation and arises from Trinity’s previous ownership of a portion of TRIP Holdings’ Senior Secured Notes, which notes were retired in full in May 2013. See Note 11 Debt.

During the year ended December 31, 2015 and 2014, the Company received proceeds from the sale of leased railcars to Element Financial Corporation ("Element") under the strategic alliance with Element announced in December 2013 as follows:



	Year Ended December 31,
	2015		2014
	(in millions)
Leasing Group:
Railcars owned one year or less at the time of sale	$	228.6	$	446.6
Railcars owned more than one year at the time of sale	294.7		235.7
Rail Group	227.5		200.4
	$	750.8	$	882.7

Since the inception of our alliance, the Company has received proceeds of $1,738.5 million from the sale of leased railcars to Element. In October 2015, the Company and Element announced a $1 billion extension of the alliance through December 2019.

Equipment consists primarily of railcars leased to third parties. The Leasing Group purchases equipment manufactured predominantly by the Rail Group and enters into lease contracts with third parties with terms generally ranging between one and twenty years. The Leasing Group primarily enters into operating leases. Future contractual minimum rental revenues on leases are as follows:



	2016		2017		2018		2019		2020		Thereafter		Total
	(in millions)
Future contractual minimum rental revenues	$	508.5	$	433.9	$	347.8	$	263.0	$	191.4	$	248.3	$	1,992.9

Debt. The Leasing Group’s debt at December 31, 2015 consisted primarily of non-recourse debt. In 2009, the Company entered into capital lease obligations totaling $56.6 million. The capital lease obligations are guaranteed by Trinity Industries, Inc. and certain subsidiaries, and secured by railcar equipment and related leases. As of December 31, 2015, Trinity’s wholly-owned subsidiaries included in the Leasing Group held equipment with a net book value of $1,440.6 million which is pledged as collateral for Leasing Group debt held by those subsidiaries, including equipment with a net book value of $44.2 million securing capital lease obligations. The net book value of unpledged equipment at December 31, 2015 was $1,618.2 million. See Note 11 Debt for the form, maturities, and descriptions of Leasing Group debt.

Partially-owned subsidiaries. Debt owed by TRIP Holdings and RIV 2013 and their respective subsidiaries is non-recourse to Trinity and TILC. Creditors of each of TRIP Holdings and RIV 2013 and their respective subsidiaries have recourse only to the particular subsidiary's assets. TRIP Master Funding equipment with a net book value of $1,355.5 million is pledged as collateral for the TRIP Master Funding debt. TRL 2012 equipment with a net book value of $583.1 million is pledged solely as collateral for the TRL 2012 secured railcar equipment notes. See Note 5 Partially-Owned Leasing Subsidiaries for a description of TRIP Holdings and RIV 2013.

Off Balance Sheet Arrangements. In prior years, the Leasing Group completed a series of financing transactions whereby railcars were sold to one or more separate independent owner trusts (“Trusts”). Each of the Trusts financed the purchase of the railcars with a combination of debt and equity. In each transaction, the equity participant in the Trust is considered to be the primary beneficiary of the Trust and therefore, the debt related to the Trust is not included as part of the consolidated financial statements. The Leasing Group, through wholly-owned, qualified subsidiaries, leased railcars from the Trusts under operating leases with terms of 22 years, and subleased the railcars to independent third-party customers under shorter term operating rental agreements. In February 2015, the Leasing Group purchased all of the railcars of one of the Trusts for $121.1 million, resulting in the termination of the selling trust and the Leasing Group's remaining future operating lease obligations to the selling trust totaling $105.8 million. Under the terms of the operating lease agreements between the subsidiaries and the remaining Trusts, the Leasing Group has the option to purchase, at a predetermined fixed price, certain railcars from the remaining Trusts in 2019. The Leasing Group also has options to purchase the railcars at the end of the respective lease agreements in 2026 and 2027 at the then fair market value of the railcars as determined by a third party, independent appraisal. At the expiration of the operating lease agreements, the Company has no further obligations with respect to the leased railcars.

These Leasing Group subsidiaries had total assets as of December 31, 2015 of $148.4 million, including cash of $53.9 million and railcars of $67.0 million. The subsidiaries' cash, railcars, and an interest in each sublease are pledged to collateralize the lease obligations to the Trusts and are included in the consolidated financial statements of the Company. Trinity does not guarantee the performance of the subsidiaries’ lease obligations. Certain ratios and cash deposits must be maintained by the Leasing Group’s subsidiaries in order for excess cash flow, as defined in the agreements, from the lease to third parties to be available to Trinity. Future operating lease obligations of the Leasing Group’s subsidiaries as well as future contractual minimum rental revenues related to these leases due to the Leasing Group are as follows:



	2016		2017		2018		2019		2020		Thereafter		Total
	(in millions)
Future operating lease obligations of Trusts’ railcars	$	29.3	$	29.2	$	29.2	$	28.8	$	26.1	$	144.0	$	286.6
Future contractual minimum rental revenues of Trusts’ railcars	$	48.3	$	39.6	$	29.9	$	20.7	$	12.5	$	22.9	$	173.9

In each transaction, the Leasing Group has entered into a servicing and re-marketing agreement with the Trusts that requires the Leasing Group to endeavor, consistent with customary commercial practice as would be used by a prudent person, to maintain railcars under lease for the benefit of the Trusts. The Leasing Group also receives management fees under the terms of the agreements. In each transaction, an independent trustee for the Trusts has authority for appointment of the railcar fleet manager.

Operating Lease Obligations. Future amounts due as well as future contractual minimum rental revenues related to operating leases other than leases discussed above are as follows:



	2016		2017		2018		2019		2020		Thereafter		Total
	(in millions)
Future operating lease obligations	$	12.8	$	12.1	$	12.0	$	9.5	$	7.7	$	21.1	$	75.2
Future contractual minimum rental revenues	$	19.5	$	12.6	$	7.4	$	4.0	$	2.1	$	4.1	$	49.7

Operating lease obligations totaling $13.4 million are guaranteed by Trinity Industries, Inc. and certain subsidiaries.