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:



	September 30, 2012
	Leasing Group
	Wholly- Owned Subsidiaries			TRIP Holdings			Manufacturing/ Corporate			Total
	(in millions, unaudited)
Cash and cash equivalents	$	5.0		$	—		$	307.2		$	312.2
Property, plant, and equipment, net	$	3,175.3		$	1,127.1		$	516.6		$	4,819.0
Net deferred profit on railcars sold to the Leasing Group	(352.8		)	(182.5		)	—			(535.3		)
	$	2,822.5		$	944.6		$	516.6		$	4,283.7
Restricted cash	$	175.8		$	59.0		$	—		$	234.8
Debt:
Recourse	$	97.9		$	—		$	455.1		$	553.0
Less: unamortized discount	—			—			(90.7		)	(90.7		)
	97.9			—			364.4			462.3
Non-recourse	1,646.9			977.7			—			2,624.6
Less: non-recourse debt owned by Trinity	—			(108.8		)	—			(108.8		)
Total debt	$	1,744.8		$	868.9		$	364.4		$	2,978.1
Net deferred tax liabilities	$	622.4		$	5.1		$	(84.5	)	$	543.0



	December 31, 2011
	Leasing Group
	Wholly- Owned Subsidiaries			TRIP Holdings			Manufacturing/ Corporate			Total
	(in millions)
Cash and cash equivalents	$	3.2		$	—		$	347.9		$	351.1
Property, plant, and equipment, net	$	3,066.0		$	1,135.0		$	510.0		$	4,711.0
Net deferred profit on railcars sold to the Leasing Group	(344.5		)	(187.0		)	—			(531.5		)
	$	2,721.5		$	948.0		$	510.0		$	4,179.5
Restricted cash	$	165.7		$	74.6		$	—		$	240.3
Debt:
Recourse	$	103.3		$	—		$	454.2		$	557.5
Less: unamortized discount	—			—			(99.8		)	(99.8		)
	103.3			—			354.4			457.7
Non-recourse	1,616.0			1,010.0			—			2,626.0
Less: non-recourse debt owned by Trinity	—			(108.8		)	—			(108.8		)
Total debt	$	1,719.3		$	901.2		$	354.4		$	2,974.9
Net deferred tax liabilities	$	582.4		$	4.7		$	(152.4	)	$	434.7

See Note 6 Investment in TRIP Holdings and Note 11 Debt for a further discussion regarding the Company’s investment in TRIP Holdings and TRIP Holdings’ debt.



	Three Months Ended September 30,								Nine Months Ended September 30,
	2012			2011			Percent Change		2012			2011			Percent Change
	($ in millions)						Percent Change		($ in millions)						Percent Change
Revenues:
Wholly owned subsidiaries:
Leasing and management	$	106.4		$	94.6		12.5	%	$	306.9		$	277.8		10.5	%
Railcar sales⁽¹⁾	23.4			23.6			*		100.5			30.2			*
	129.8			118.2			9.8		407.4			308.0			32.3
TRIP Holdings:
Leasing and management	30.1			29.2			3.1		89.0			87.4			1.8
Railcar sales⁽¹⁾	—			—			—		—			—			—
	30.1			29.2			3.1		89.0			87.4			1.8
Total revenues	$	159.9		$	147.4		8.5		$	496.4		$	395.4		25.5
Operating Profit:
Wholly owned subsidiaries:
Leasing and management	$	47.1		$	40.3				$	134.2		$	116.3
Railcar sales⁽¹⁾:
Railcars owned one year or less at the time of sale	4.3			4.9					20.7			7.9
Railcars owned more than one year at the time of sale	15.9			1.6					21.6			3.0
	67.3			46.8					176.5			127.2
TRIP Holdings:
Leasing and management	16.7			17.4					50.8			51.3
Railcar sales⁽¹⁾:
Railcars owned one year or less at the time of sale	—			—					—			—
Railcars owned more than one year at the time of sale	1.1			—					0.7			0.1
	17.8			17.4					51.5			51.4
Total operating profit	$	85.1		$	64.2				$	228.0		$	178.6
Operating profit margin:
Leasing and management	46.7		%	46.6		%			46.7		%	45.9		%
Railcar sales⁽¹⁾	*			*					*			*
Total operating profit margin	53.2			43.6					45.9			45.2
Interest and rent expense⁽²⁾:
Rent expense	$	12.7		$	12.1				$	38.2		$	36.4
Interest expense:
Wholly-owned subsidiaries	$	24.3		$	24.8				$	73.2		$	75.4
TRIP Holdings:
External	15.0			15.3					45.2			37.6
Intercompany	3.3			3.2					9.8			3.2
	18.3			18.5					55.0			40.8
Total interest expense	$	42.6		$	43.3				$	128.2		$	116.2

* Not meaningful

(1)

Effective December 31, 2011, the Company adopted the emerging industry policy of recognizing revenue from the sales of railcars from the lease fleet on a gross basis in leasing revenues and cost of revenues if the railcar has been owned by the lease fleet for one year or less at the time of sale. Sales of railcars from the lease fleet which have been owned by the lease fleet for more than one year are recognized as a net gain or loss from the disposal of a long-term asset. Prior year reported balances have been reclassified to conform to this policy.


(2)	Rent expense is a component of operating profit. Interest expense is not a component of operating profit and includes the effect of hedges. Intercompany interest expense arises from Trinity’s ownership of a portion of TRIP Holdings’ Senior Secured Notes and is eliminated in consolidation. See Note 11 Debt.

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 between one and twenty years. The Leasing Group primarily enters into operating leases. Future contractual minimum rental revenues on leases are as follows:



	Remaining three months of 2012		2013		2014		2015		2016		Thereafter		Total
	(in millions)
Wholly-owned subsidiaries	$	73.5	$	261.0	$	210.7	$	167.0	$	128.6	$	268.8	$	1,109.6
TRIP Holdings	24.8		85.5		64.1		52.3		43.2		70.1		340.0
	$	98.3	$	346.5	$	274.8	$	219.3	$	171.8	$	338.9	$	1,449.6

Debt. The Leasing Group’s debt at September 30, 2012 consisted of both recourse and non-recourse debt. As of September 30, 2012, Trinity’s wholly-owned subsidiaries included in the Leasing Group held equipment with a net book value of approximately $2,534.8 million that is pledged as collateral for Leasing Group debt held by those subsidiaries, including equipment with a net book value of $49.9 million securing capital lease obligations. The net book value of unpledged equipment at September 30, 2012 was $544.4 million. See Note 11 Debt regarding Leasing Group debt.

TRIP Holdings. Debt owed by TRIP Holdings and its subsidiaries is nonrecourse to Trinity and TILC and is secured solely by the consolidated assets of TRIP Holdings and the equity interests of TRIP Holdings. In July 2011, TRIP Holdings and its newly-formed subsidiary, TRIP Master Funding, issued $1,032.0 million in new debt and repaid all of the outstanding borrowings of the existing TRIP Warehouse Loan. TRIP Master Funding equipment with a net book value of $1,127.1 million, excluding deferred profit resulting from the sale of railcars to TRIP Master Funding, is pledged as collateral for the TRIP Master Funding debt. See Note 6 Investment in TRIP Holdings for a description of TRIP Holdings.

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 newly formed, 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 September 30, 2012 of $209.7 million, including cash of $83.2 million and railcars of $94.0 million. The right, title, and interest in each sublease, cash, and railcars 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 three months of 2012		2013		2014		2015		2016		Thereafter		Total
	(in millions)
Future operating lease obligations of Trusts’ railcars	$	11.4	$	45.6	$	44.8	$	43.1	$	40.1	$	341.3	$	526.3
Future contractual minimum rental revenues of Trusts’ railcars	$	15.7	$	51.1	$	36.4	$	28.2	$	19.9	$	37.0	$	188.3

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



	Remaining three months of 2012		2013		2014		2015		2016		Thereafter		Total
	(in millions)
Future operating lease obligations	$	2.4	$	9.5	$	9.4	$	9.4	$	9.3	$	38.4	$	78.4
Future contractual minimum rental revenues	$	2.9	$	11.5	$	10.9	$	6.8	$	5.9	$	8.2	$	46.2

Operating lease obligations totaling $27.0 million are guaranteed by Trinity Industries, Inc. and certain subsidiaries. See Note 5 of the December 31, 2011 Consolidated Financial Statements filed on Form 10-K for a detailed explanation of these financing transactions.