Railcar Leasing and Management Services Group

3 Months Ended

Mar. 31, 2022

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, and administrative services. Selected consolidated financial information for the Leasing Group is as follows:


	March 31, 2022
	Wholly- Owned Subsidiaries		Partially-Owned Subsidiaries		Total Leasing Group		Eliminations – Lease Subsidiary(1)		Adjusted Total Leasing Group
	(in millions)
Cash and cash equivalents	$	2.7	$	—	$	2.7	$	—	$	2.7
Accounts receivable	81.6		10.1		91.7		—		91.7
Property, plant, and equipment, net	5,678.7		1,555.5		7,234.2		(776.9)		6,457.3
Restricted cash	148.6		59.6		208.2		—		208.2
Other assets	84.4		2.0		86.4		—		86.4
Total assets	$	5,996.0	$	1,627.2	$	7,623.2	$	(776.9)	$	6,846.3

Accounts payable and accrued liabilities	$	97.7	$	28.9	$	126.6	$	—	$	126.6
Debt, net	3,570.9		1,207.8		4,778.7		—		4,778.7
Deferred income taxes	1,103.3		0.9		1,104.2		(185.4)		918.8
Other liabilities	42.6		—		42.6		—		42.6
Total liabilities	4,814.5		1,237.6		6,052.1		(185.4)		5,866.7
Noncontrolling interest	—		263.6		263.6		—		263.6
Total Equity	$	1,181.5	$	126.0	$	1,307.5	$	(591.5)	$	716.0


	December 31, 2021
	Wholly- Owned Subsidiaries		Partially-Owned Subsidiaries		Total Leasing Group		Eliminations – Lease Subsidiary(1)		Adjusted Total Leasing Group
	(in millions)
Cash and cash equivalents	$	3.4	$	—	$	3.4	$	—	$	3.4
Accounts receivable	90.7		10.1		100.8		—		100.8
Property, plant, and equipment, net	5,706.1		1,570.6		7,276.7		(779.1)		6,497.6
Restricted cash	76.5		58.6		135.1		—		135.1
Other assets	67.3		2.1		69.4		—		69.4
Total assets	$	5,944.0	$	1,641.4	$	7,585.4	$	(779.1)	$	6,806.3

Accounts payable and accrued liabilities	$	113.4	$	30.1	$	143.5	$	—	$	143.5
Debt, net	3,555.8		1,216.1		4,771.9		—		4,771.9
Deferred income taxes	1,114.2		1.1		1,115.3		(176.6)		938.7
Other liabilities	35.6		—		35.6		—		35.6
Total liabilities	4,819.0		1,247.3		6,066.3		(176.6)		5,889.7
Noncontrolling interest	—		267.0		267.0		—		267.0
Total Equity	$	1,125.0	$	127.1	$	1,252.1	$	(602.5)	$	649.6

(1) Net deferred profit on railcars sold to the Leasing Group consists of intersegment profit that is eliminated in consolidation. Net deferred profit and the related deferred tax impact are included as adjustments to the property, plant, and equipment, net and deferred income taxes line items, respectively, in the Eliminations – Lease Subsidiary column above to reflect the net book value of the railcars purchased by the Leasing Group from the Rail Products Group based on manufacturing cost. See Note 5 and Note 8 for a further discussion regarding our investment in our partially-owned leasing subsidiaries and the related indebtedness.


	Three Months Ended March 31,
			2022			2021			Percent
		($ in millions)				Change
Revenues:
Leasing and management			$	183.1		$	183.5		(0.2)	%



Operating profit (1):
Leasing and management			$	68.0		$	76.6		(11.2)	%
Lease portfolio sales (2)			11.8			1.7			*
Total operating profit			$	79.8		$	78.3		1.9	%
Total operating profit margin			43.6		%	42.7		%

Leasing and management operating profit margin			37.1		%	41.7		%

Selected expense information:
Depreciation (3)			$	57.2		$	54.6		4.8	%
Maintenance and compliance			$	29.2		$	25.6		14.1	%
Rent and ad valorem taxes			$	5.0		$	4.6		8.7	%
Selling, engineering, and administrative expenses			$	12.8		$	11.3		13.3	%
Interest			$	38.7		$	45.7		(15.3)	%

* Not meaningful

(1) Operating profit includes: depreciation; 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 profit 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 three months ended March 31, 2022.

(3) Depreciation expense increased $2.2 million for the three months ended March 31, 2022 as a result of the disposal of certain railcar components associated with our sustainable railcar conversion program.

Information related to lease portfolio sales is as follows:


	Three Months Ended March 31,
		2022			2021
		($ in millions)
Lease portfolio sales		$	71.1		$	17.3
Operating profit on lease portfolio sales (1)		$	10.5		$	1.7
Operating profit margin on lease portfolio sales		14.8		%	9.8		%

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

Railcar Leasing Equipment Portfolio. The Leasing Group's equipment consists primarily of railcars leased by third parties. The Leasing Group purchases equipment manufactured predominantly by the Rail Products Group and enters into lease contracts with third parties with terms generally ranging between one year and ten years. The Leasing Group primarily enters into operating leases. Future contractual minimum rental revenues on operating leases related to our wholly-owned and partially-owned subsidiaries are as follows:


	Remaining nine months of 2022		2023		2024		2025		2026		Thereafter		Total
	(in millions)
Future contractual minimum rental revenues	$	415.2	$	431.3	$	327.2	$	235.4	$	155.8	$	283.1	$	1,848.0

Debt. Wholly-owned subsidiaries. The Leasing Group’s debt at March 31, 2022 consisted primarily of non-recourse debt. As of March 31, 2022, Trinity’s wholly-owned subsidiaries included in the Leasing Group held equipment with a net book value of $4,896.5 million, which is pledged solely as collateral for Leasing Group debt held by those subsidiaries. The net book value of unpledged equipment at March 31, 2022 was $770.7 million. See Note 8 for more information regarding the 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 Holdings held equipment with a net book value of $1,101.3 million, which is pledged solely as collateral for the TRIP Holdings' debt held by its subsidiaries. TRP-2021 equipment with a net book value of $454.2 million is pledged solely as collateral for the TRP-2021 debt. See Note 5 for a description of TRIP Holdings and RIV 2013 and their respective subsidiaries.

Operating Lease Obligations. Future amounts due as well as future contractual minimum rental revenues related to the Leasing Group's railcar operating lease obligations are as follows:


	Remaining nine months of 2022		2023		2024		2025		2026		Thereafter		Total
	(in millions)
Future operating lease obligations	$	9.1	$	10.4	$	6.9	$	5.2	$	4.9	$	7.6	$	44.1
Future contractual minimum rental revenues	$	6.2	$	5.4	$	2.8	$	1.9	$	1.2	$	0.1	$	17.6

Operating lease obligations totaling $1.6 million are guaranteed by Trinity Industries, Inc. and certain subsidiaries. The Leasing Group also has future amounts due for operating lease obligations related to office space of approximately $0.3 million, which is excluded from the table above.