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 leasing, management, maintenance, and administrative services. Selected consolidating financial information for the Leasing Group is as follows:



	March 31, 2017
	Leasing Group
	Wholly- Owned Subsidiaries			Partially-Owned Subsidiaries			Manufacturing/ Corporate			Total
	(in millions)
Cash, cash equivalents, and short-term marketable securities	$	6.9		$	—		$	771.9		$	778.8
Property, plant, and equipment, net	$	4,079.8		$	1,863.9		$	956.0		$	6,899.7
Net deferred profit on railcars sold to the Leasing Group										(819.6		)
Consolidated property, plant and equipment, net										$	6,080.1
Restricted cash	$	100.3		$	83.4		$	0.1		$	183.8
Debt:
Recourse	$	31.2		$	—		$	849.4		$	880.6
Less: unamortized discount	—			—			(22.5		)	(22.5		)
Less: unamortized debt issuance costs	(0.1		)	—			(3.5		)	(3.6		)
	31.1			—			823.4			854.5
Non-recourse	838.3			1,368.3			—			2,206.6
Less: unamortized debt issuance costs	(10.5		)	(14.6		)	—			(25.1		)
	827.8			1,353.7			—			2,181.5
Total debt	$	858.9		$	1,353.7		$	823.4		$	3,036.0
Net deferred tax liabilities	$	992.1		$	2.0		$	118.5		$	1,112.6



	December 31, 2016
	Leasing Group
	Wholly- Owned Subsidiaries			Partially-Owned Subsidiaries			Manufacturing/ Corporate			Total
	(in millions)
Cash, cash equivalents, and short-term marketable securities	$	7.2		$	—		$	790.9		$	798.1
Property, plant, and equipment, net	$	3,923.6		$	1,879.6		$	961.7		$	6,764.9
Net deferred profit on railcars sold to the Leasing Group										(798.1		)
Consolidated property, plant and equipment, net										$	5,966.8
Restricted cash	$	99.7		$	78.4		$	0.1		$	178.2
Debt:
Recourse	$	32.1		$	—		$	849.4		$	881.5
Less: unamortized discount	—			—			(27.1		)	(27.1		)
Less: uamortized debt issuance costs	(0.1		)	—			(3.7		)	(3.8		)
	32.0			—			818.6			850.6
Non-recourse	851.4			1,381.0			—			2,232.4
Less: unamortized debt issuance costs	(11.4		)	(15.0		)	—			(26.4		)
	840.0			1,366.0			—			2,206.0
Total debt	$	872.0		$	1,366.0		$	818.6		$	3,056.6
Net deferred tax liabilities	$	956.6		$	2.0		$	98.4		$	1,057.0

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.



	Three Months Ended March 31,
	2017			2016			Percent
	($ in millions)						Change
Revenues:
Leasing and management	$	178.9		$	170.5		4.9	%
Sales of railcars owned one year or less at the time of sale	—			8.0			*
Total revenues	$	178.9		$	178.5		0.2

Operating profit:
Leasing and management	$	85.0		$	69.8		21.8
Railcar sales:
Railcars owned one year or less at the time of sale	—			2.3			*
Railcars owned more than one year at the time of sale	—			2.1			*
Total operating profit	$	85.0		$	74.2		14.6

Operating profit margin:
Leasing and management	47.5		%	40.9		%
Railcar sales	*			*
Total operating profit margin	47.5		%	41.6		%

Selected expense information⁽¹⁾:
Depreciation	$	42.1		$	37.4		12.6
Maintenance and compliance	$	20.5		$	31.6		(35.1	)
Rent	$	10.1		$	9.5		6.3
Interest	$	30.6		$	31.8		(3.8	)

* Not meaningful

⁽¹⁾Depreciation, maintenance and compliance, 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.

During the three months ended March 31, 2017 and 2016, the Company received proceeds from the sales of leased railcars as follows:



	Three Months Ended March 31,
	2017		2016
	(in millions)
Leasing Group:
Railcars owned one year or less at the time of sale	$	—	$	8.0
Railcars owned more than one year at the time of sale	—		6.7
Rail Group	—		8.1
	$	—	$	22.8

Equipment consists primarily of railcars leased by 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 from one to twenty years. The Leasing Group primarily enters into operating leases. Future contractual minimum rental revenues on leases are as follows:



	Remaining nine months of 2017		2018		2019		2020		2021		Thereafter		Total
	(in millions)
Future contractual minimum rental revenue	$	406.5	$	465.5	$	383.7	$	303.5	$	200.9	$	402.1	$	2,162.2

Debt. The Leasing Group’s debt at March 31, 2017 consisted primarily of non-recourse debt. As of March 31, 2017, Trinity’s wholly-owned subsidiaries included in the Leasing Group held equipment with a net book value of $1,379.8 million which is pledged as collateral for Leasing Group debt held by those subsidiaries, including equipment with a net book value of $41.9 million securing capital lease obligations. The net book value of unpledged equipment at March 31, 2017 was $2,633.9 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 nonrecourse 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 $1,300.1 million is pledged as collateral for the TRIP Master Funding debt. TRL 2012 equipment with a net book value of $563.8 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 each of the respective Trusts is considered to be the primary beneficiary of the Trust and therefore, the accounts of the Trusts, including the debt related to each of the Trusts, are 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.

These Leasing Group subsidiaries had total assets as of March 31, 2017 of $145.1 million, including cash of $53.6 million and railcars of $63.6 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:



	Remaining nine months of 2017		2018		2019		2020		2021		Thereafter		Total
	(in millions)
Future operating lease obligations of Trusts’ railcars	$	21.9	$	29.2	$	28.8	$	26.1	$	26.1	$	117.9	$	250.0
Future contractual minimum rental revenues of Trusts’ railcars	$	33.1	$	34.3	$	24.0	$	14.7	$	9.6	$	14.6	$	130.3

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:



	Remaining nine months of 2017		2018		2019		2020		2021		Thereafter		Total
	(in millions)
Future operating lease obligations	$	9.0	$	12.0	$	9.5	$	7.7	$	7.6	$	13.5	$	59.3
Future contractual minimum rental revenues	$	10.3	$	8.3	$	6.2	$	4.3	$	3.3	$	4.1	$	36.5

Operating lease obligations totaling $8.3 million are guaranteed by Trinity Industries, Inc. and certain subsidiaries. See Note 6 of the December 31, 2016 Consolidated Financial Statements filed on Form 10-K for a detailed explanation of these financing transactions.