What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-10-26 compared with 2021-07-27 · 176 added, 137 removed, 477 unchanged (40% of the section changed)

10 unchanged sentences

These sales are presented in the Lease portfolio sales line in our Consolidated Statements of Operations;

however, because this change in presentation was effected on a prospective basis beginning in the fourth quarter of 2020, lease portfolio sales for the three and six months ended June 30, 2020 only include sales of railcars from the lease fleet owned for more than one year.

however, because this change in presentation was effected on a prospective basis beginning in the fourth quarter of 2020, lease portfolio sales for the three and nine months ended September 30, 2020 only include sales of railcars from the lease fleet owned for more than one year.

We have concluded that the new presentation is appropriate given the significant change in the strategic focus of the Company.

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We continue to monitor the operational and financial impacts of the pandemic and other economic factors.

Although we have not experienced significant interruptions to our daily operations or a material impact to our operating costs, the economic pressures created by the pandemic have negatively impacted our results of operations for the three and six months ended June 30, 2021.

While we are beginning to see signs of economic recovery, we are monitoring the evolving impacts of COVID-19 variants on the economy, and expect that our results of operations may remain under pressure in the near term.

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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, adverse changes in commodity prices, including depressed prices in the crude oil market, or lower demand for certain commodities, could result in a decline in customer demand for various types of railcars.

Additionally, changes in commodity prices, including fluctuations in the crude oil market, or changes in demand for certain commodities, could impact customer demand for various types of railcars.

Further, disruptions in the global supply chain could impact demand for, or the cost to manufacture, certain of our products.

We continuously assess demand for our products and services and take steps to rationalize and diversify our leased railcar portfolio and align our manufacturing capacity appropriately.

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While we currently expect this trend to continue in the near term, we believe that our rail platform is designed to respond to cyclical changes in demand and perform throughout the railcar cycle.

Steel prices have experienced an unprecedented increase since the fourth quarter of 2020 and are a significant component 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 steel price volatility on our operating profit.

However, current steel prices could negatively impact demand for new railcars and create potential headwinds to operating profit in our near-term deliveries.

We will continue to monitor the impact of steel price changes on our business.

Steel prices and labor costs have increased significantly since the fourth quarter of 2020 and are major components of our cost of revenues.

However, higher steel prices could result in increases in the cost of certain railcar components and could also reduce demand for new railcars.

Additionally, although we remain committed to attracting and retaining a highly skilled and diverse workforce, labor shortages and increases in labor costs have negatively impacted our operations.

We will continue to monitor the impact of potential margin and operating profit headwinds resulting from these factors.

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

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Financial and Operational Highlights

• Our revenues for the six months ended June 30, 2021 were $770.3 million, representing a decrease of 31.5%, compared to the six months ended June 30, 2020.

Our operating profit for the six months ended June 30, 2021 was $127.6 million compared to operating loss for the six months ended June 30, 2020 of $234.3 million.

• The Leasing Group reported additions to the wholly-owned and partially-owned lease fleet of 4,550 railcars, for a total of 108,635 railcars as of June 30, 2021, an increase of 4.4% compared to June 30, 2020.

• The Leasing Group's lease fleet of 108,635 company-owned rail cars was 94.3% utilized as of June 30, 2021, in comparison to a lease fleet utilization of 94.7% on 104,085 company-owned railcars as of June 30, 2020.

• Our revenues for the nine months ended September 30, 2021 were $1,273.8 million, representing a decrease of 19.6%, compared to the nine months ended September 30, 2020.

Our operating profit for the nine months ended September 30, 2021 was $219.8 million compared to operating loss for the nine months ended September 30, 2020 of $161.4 million.

• In August 2021, the Company and Wafra, Inc.

announced a new railcar investment vehicle program between Trinity and certain funds managed by Wafra, Inc.

("Wafra Funds").

The joint venture created as part of this program, known as Signal Rail Holdings LLC ("Signal Rail"), is owned 90% by Wafra Funds and 10% by our wholly-owned subsidiary, Trinity Industries Leasing Company ("TILC").

We completed the initial railcar portfolio sale to Signal Rail in the third quarter of 2021.

See Note 4 of the Consolidated Financial Statements for more information.

• The Leasing Group's lease fleet of 105,915 company-owned rail cars was 95.0% utilized as of September 30, 2021, in comparison to a lease fleet utilization of 94.8% on 105,925 company-owned railcars as of September 30, 2020.

Our company-owned railcars include wholly-owned, partially-owned, and railcars under sale-leaseback arrangements.

• For the six months ended June 30, 2021, we made a net investment in our lease fleet of approximately $162.9 million, which primarily includes new railcar additions and railcar modifications, net of deferred profit, and secondary market purchases;

and is net of proceeds from lease portfolio sales.

• The total value of the railcar backlog at June 30, 2021 was $1.2 billion, compared to $1.3 billion at June 30, 2020.

The Rail Products Group received orders for 5,980 railcars and delivered 3,660 railcars in the six months ended June 30, 2021, in comparison to orders for 2,810 railcars and deliveries of 6,690 railcars in the six months ended June 30, 2020.

• For the six months ended June 30, 2021, we generated operating cash flows from continuing operations and Free Cash Flow After Investments and Dividends ("Free Cash Flow") of $335.1 million and $358.9 million (1) , respectively, in comparison to $327.8 million and $46.7 million (1) , respectively, for the six months ended June 30, 2020.

• For the nine months ended September 30, 2021, proceeds from lease portfolio sales exceeded the investment in our lease fleet by approximately $40.6 million.

Our investment in the lease fleet primarily includes new railcar additions and railcar modifications, net of deferred profit, and secondary market purchases.

• The total value of the railcar backlog at September 30, 2021 was $1.2 billion, compared to $1.2 billion at September 30, 2020.

The Rail Products Group received orders for 8,510 railcars and delivered 6,070 railcars in the nine months ended September 30, 2021, in comparison to orders for 4,810 railcars and deliveries of 9,295 railcars in the nine months ended September 30, 2020.

• The Rail Products Group introduced a sustainable railcar conversion program whereby certain tank cars and freight cars are converted or upgraded to better meet the changing market demands.

During the three and nine months ended September 30, 2021, sustainable railcar conversion revenues totaled $26.0 million, representing 242 railcars, and $38.8 million, representing 361 railcars, respectively.

• For the nine months ended September 30, 2021, we generated operating cash flows from continuing operations and Free Cash Flow After Investments and Dividends ("Free Cash Flow") of $428.0 million and $515.5 million (1) , respectively, in comparison to $456.8 million and $48.5 million (1) , respectively, for the nine months ended September 30, 2020.

(1) Non-GAAP financial measure.

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(1) Dividend yield is calculated as dividends paid for the four previous quarters divided by the closing stock price on the last trading day of each respective quarter.

(2) There were no shares repurchased during the second quarter of 2020.

(2) In the third quarter of 2020, we completed the previous share repurchase program.

(4) In the fourth quarter of 2020, our Board of Directors authorized a new $250.0 million share repurchase program.

(3) In the fourth quarter of 2020, our Board of Directors authorized a $250.0 million share repurchase program.

(4) In the second quarter of 2021, we entered into a stock repurchase agreement with ValueAct Capital Master Fund, L.P.

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See Note 12 of the Consolidated Financial Statements for more information.

(5) In the third quarter of 2021, we completed the existing share repurchase program, and our Board of Directors authorized a new $250.0 million share repurchase program.

Capital Structure Updates

TILC warehouse facility – In March 2021, the Trinity Industries Leasing Company ("TILC") warehouse facility was extended through March 15, 2024, and the total facility commitment was increased from $750 million to $1.0 billion.

TILC warehouse facility – In March 2021, the TILC warehouse facility was extended through March 15, 2024, and the total facility commitment was increased from $750 million to $1.0 billion.

Repurchase Agreement with ValueAct – On April 29, 2021, we entered into a stock repurchase agreement with ValueAct Capital Master Fund, L.P.

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The price per share represents a discount of 3.5% from the closing price for a share of common stock on the New York Stock Exchange on April 29, 2021.

Under the repurchase agreement, ValueAct will not make any additional sales of common stock without our consent through September 1, 2021.

Triumph Rail – In June 2021, Triumph Rail LLC ("Triumph Rail"), formerly known as TRIP Master Funding LLC, an indirect, wholly-owned subsidiary of TRIP Rail Holdings LLC ("TRIP Holdings"), issued $560.4 million of its Series 2021-2 Green Secured Railcar Equipment Notes.

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Net proceeds received from the transaction were used to repay borrowings under TILC's secured warehouse credit facility and for general corporate purposes.

New Share Repurchase Program – In September 2021, our Board of Directors authorized a new share repurchase program effective September 9, 2021 through December 31, 2022.

The new share repurchase program authorizes the Company to repurchase up to $250.0 million of its common stock.

See "Liquidity and Capital Resources" below for further information regarding these activities.

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Consolidated Results of Operations

The following table summarizes our consolidated results of operations for the three and six months ended June 30, 2021 and 2020:

The following table summarizes our consolidated results of operations for the three and nine months ended September 30, 2021 and 2020:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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Income (loss) from continuing operations $ 36.3 $ 25.9 $ 42.8 $ (99.4)

The tables below present revenues by segment for the three and six months ended June 30, 2021 and 2020:

Three Months Ended June 30, 2021

The tables below present revenues by segment for the three and nine months ended September 30, 2021 and 2020:

Three Months Ended September 30, 2021

Revenues Percent

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Consolidated Total $ 503.5 $ — $ 503.5 9.6 %

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

External Intersegment Total

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Consolidated Total $ 459.4 $ — $ 459.4

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Revenues Percent

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Consolidated Total $ 1,273.8 $ — $ 1,273.8 (19.6) %

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

External Intersegment Total

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and restructuring activities.

Operating costs by segment for the three and six months ended June 30, 2021 and 2020 were as follows:

Operating costs by segment for the three and nine months ended September 30, 2021 and 2020 were as follows:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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Operating Profit (Loss)

Operating profit (loss) by segment for the three and six months ended June 30, 2021 and 2020 was as follows:

Operating profit (loss) by segment for the three and nine months ended September 30, 2021 and 2020 was as follows:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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Discussion of Consolidated Results

Revenues – Our revenues for the three months ended June 30, 2021 were $371.5 million, representing a decrease of $137.7 million, or 27.0%, over the prior year period.

Our revenues for the six months ended June 30, 2021 were $770.3 million, representing a decrease of $354.1 million, or 31.5%, over the prior year period.

The decreases in revenues primarily related to lower deliveries in the Rail Products Group and the change in the presentation of sales of railcars from the lease fleet.

Revenues – Our revenues for the three months ended September 30, 2021 were $503.5 million, representing an increase of $44.1 million, or 9.6%, over the prior year period primarily due to increased demand and higher pricing in our highway products business and higher external deliveries in the Rail Products Group.

Our revenues for the nine months ended September 30, 2021 were $1,273.8 million, representing a decrease of $310.0 million, or 19.6%, over the prior year period primarily related to lower deliveries in the Rail Products Group and the change in the presentation of sales of railcars from the lease fleet.

See Matters Affecting Comparability above and Note 1 of the Consolidated Financial Statements for further information regarding the change in presentation.

Cost of revenues – Our cost of revenues for the three months ended June 30, 2021 was $259.2 million, representing a decrease of $137.4 million, or 34.6%, over the prior year period.

Our cost of revenues for the six months ended June 30, 2021 was $555.2 million, representing a decrease of $323.4 million, or 36.8%, over the prior year period.

The decreases in cost of revenues were primarily due to lower deliveries in the Rail Products Group and the change in the presentation of sales of railcars from the lease fleet.

Selling, engineering, and administrative expenses – Selling, engineering, and administrative expenses increased by 1.6% for the three months ended June 30, 2021 when compared to the prior year period primarily due to higher litigation-related expenses.

Selling, engineering, and administrative expenses decreased by 7.4% for the six months ended June 30, 2021 primarily due to consulting costs incurred in the prior year period associated with realigning our operating structure to support our rail-focused strategy, partially offset by higher employee-related costs, including adjustments to incentive-based compensation.

Impairment of long-lived assets – Impairment of long-lived assets for the three and six months ended June 30, 2020 was $369.4 million related to our small cube covered hopper railcars.

Cost of revenues – Our cost of revenues for the three months ended September 30, 2021 was $398.7 million, representing an increase of $64.2 million, or 19.2%, over the prior year period primarily due to higher costs associated with external deliveries and operating inefficiencies in our maintenance services business, such as labor shortages and turnover, in the Rail Products Group, and increased demand and higher input costs in our highway products business.

Our cost of revenues for the nine months ended September 30, 2021 was $953.9 million, representing a decrease of $259.2 million, or 21.4%, over the prior year period primarily due to lower deliveries in the Rail Products Group and the change in the presentation of sales of railcars from the lease fleet.

Selling, engineering, and administrative expenses – Selling, engineering, and administrative expenses increased by 6.1% for the three months ended September 30, 2021 when compared to the prior year period primarily due to higher employee-related costs, including increased incentive-based compensation.

Selling, engineering, and administrative expenses decreased by 3.4% for the nine months ended September 30, 2021 primarily due to consulting costs incurred in the prior year period associated with aligning our operating structure to support our rail-focused strategy, partially offset by higher employee-related costs, including increased incentive-based compensation.

Gains on dispositions of property – Gains on dispositions of property increased by $37.7 million and $45.1 million for the three and nine months ended September 30, 2021, respectively, when compared to the prior year period primarily due to a higher volume of railcar sales from our lease portfolio and gains associated with the disposition of non-operating facilities.

Additionally, during the three and nine months ended September 30, 2021, we recorded a $4.7 million gain related to insurance recoveries in excess of net book value received during the third quarter of 2021 for assets damaged by a tornado at the Company’s rail maintenance facility in Cartersville, Georgia in the first quarter of 2021.

See Note 14 of the Consolidated Financial Statements for more information.

We had no impairment of long-lived assets during the three and six months ended June 30, 2021.

Restructuring activities, net – Our restructuring activities for the three months ended June 30, 2021 resulted in a net gain of $0.7 million from the disposition of non-operating facilities.

Our restructuring activities for the six months ended June 30, 2021 resulted in a net gain of $1.0 million, primarily as a result of the disposition of certain non-operating facilities, partially offset by employee transition costs.

Our restructuring activities for the three months ended June 30, 2020 totaled $0.3 million.

We had restructuring expenses of $5.8 million during the six months ended June 30, 2020 primarily as a result of asset write-downs related to our corporate headquarters facility and employee transition costs, partially offset by a net gain on the disposition of a non-operating facility and certain related assets.

Operating profit (loss) – Operating profit for the three months ended June 30, 2021 totaled $67.4 million, representing an increase of 121.9% from the prior year period.

Operating profit for the six months ended June 30, 2021 totaled $127.6 million, representing an increase of 154.5% from the prior year period.

Operating loss for the three and six months ended June 30, 2020 included a $369.4 million impairment charge related to our small cube covered hopper railcars.

Operating profit for the three and six months ended June 30, 2021 was further impacted by lower deliveries in the Rail Products Group, and lower lease rates and higher fleet management operating costs in the Leasing Group.

Operating profit for the six months ended June 30, 2021 was favorably impacted by lower selling, engineering, and administrative expenses.

Impairment of long-lived assets – Impairment of long-lived assets for the nine months ended September 30, 2020 was $369.4 million related to our small cube covered hopper railcars.

See Note 10 of the Consolidated Financial Statements for more information.

We had no impairment of long-lived assets during the three and nine months ended September 30, 2021 and during the three months ended September 30, 2020.

Restructuring activities, net – Our restructuring activities for the three and nine months ended September 30, 2021 resulted in a net gain of $0.1 million and $1.1 million, respectively, primarily as a result of the disposition of certain non-operating facilities, partially offset by employee transition costs.

Our restructuring activities for the three months ended September 30, 2020 totaled $4.7 million, primarily related to the alignment of our operating structure to support our rail-focused strategy.

We had restructuring expenses of $10.5 million during the nine months ended September 30, 2020 primarily as a result of employee transition costs, contract termination costs, and asset write-downs related to our corporate headquarters facility, partially offset by a net gain on the disposition of a non-operating facility and certain related assets.

Operating profit (loss) – Operating profit for the three months ended September 30, 2021 totaled $92.2 million, representing an increase of 26.5% from the prior year period primarily due to a higher volume of railcar sales from our lease portfolio, partially offset by higher costs associated with external deliveries in the Rail Products Group, and lower lease rates and higher depreciation expense in the Leasing Group.

Operating profit for the nine months ended September 30, 2021 totaled $219.8 million, representing an increase of 236.2% from the prior year period.

Operating loss for the nine months ended September 30, 2020 included a $369.4 million impairment charge related to our small cube covered hopper railcars.

Operating profit for the nine months ended September 30, 2021 was impacted by a higher volume of railcar sales from our lease portfolio and lower selling, engineering, and administrative expenses, partially offset by lower deliveries in the Rail Products Group, and lower lease rates and higher fleet operating costs in the Leasing Group.

For further information regarding the operating results of individual segments, see "Segment Discussion" below.

Interest expense, net – Interest expense, net for the three and six months ended June 30, 2021 totaled $51.0 million and $102.3 million, respectively, compared to $53.0 million and $106.9 million for the three and six months ended June 30, 2020, respectively.

The decreases in interest expense, net for the three and six months ended June 30, 2021 were primarily driven lower overall borrowing costs associated with the Company's debt facilities, partially offset by higher overall average debt.

Loss on extinguishment of debt – Loss on extinguishment of debt for the three and six months ended June 30, 2021 was $11.7 million from the refinancing of our partially-owned subsidiaries' debt, which included the write-off of $8.4 million in unamortized debt issuance costs and a $3.3 million early redemption premium.

Loss on extinguishment of debt for the six months ended June 30, 2020 was $5.0 million, which included a $4.7 million early redemption premium and the write-off of $0.3 million in unamortized debt issuance costs.

There was no loss on extinguishment of debt for the three months ended June 30, 2020.

Income taxes – The effective tax rate from continuing operations for the three months ended June 30, 2021 was a benefit of 23.1%, which differs from the U.S.

statutory rate of 21.0% primarily due to excess tax benefits associated with equity based compensation.

The effective tax rate from continuing operations for the six months ended June 30, 2021 was an expense 44.0%, which differs from the U.S.

statutory rate primarily due to an adjustment to the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") carryback benefit previously recognized, partially offset by excess tax benefits associated with equity based compensation.

Our effective tax rates from continuing operations for the three and six months ended June 30, 2020 were a benefit of 20.0% and a benefit of 63.6%, respectively, primarily due to carryback claims as permitted under the CARES Act, partially offset by the portion of the non-cash impairment charge that is not tax-effected because it is related to the noncontrolling interest.

Our effective tax rates, without the impact of the CARES Act, were an expense of 16.9% and an expense of 15.5% for the three and six months ended June 30, 2020, respectively, which differs from the U.S.

statutory rate primarily due to the impacts of state income taxes, the incremental tax on profits of branches taxed in both U.S.

and foreign jurisdictions, tax return true-ups, and non-deductible executive compensation.

Income tax refunds received, net of payments, during the six months ended June 30, 2021 totaled $206.7 million.

The total income tax receivable position as of June 30, 2021 was $233.1 million, primarily related to carryback claims that have been filed.

Interest expense, net – Interest expense, net for the three and nine months ended September 30, 2021 totaled $45.2 million and $147.5 million, respectively, compared to $51.7 million and $158.6 million for the three and nine months ended September 30, 2020, respectively.

The decreases in interest expense, net for the three and nine months ended September 30, 2021 were primarily driven by lower overall borrowing costs associated with the Company's debt facilities, partially offset by higher overall average debt.

Loss on extinguishment of debt – Loss on extinguishment of debt for the nine months ended September 30, 2021 was $11.7 million from the refinancing of our partially-owned subsidiaries' debt, which included the write-off of $8.4 million in unamortized debt issuance costs and a $3.3 million early redemption premium.

Loss on extinguishment of debt for the nine months ended September 30, 2020 was $5.0 million, which included a $4.7 million early redemption premium and the write-off of $0.3 million in unamortized debt issuance costs.

There was no loss on extinguishment of debt for the three months ended September 30, 2021 and 2020.

Income taxes – The effective tax rate from continuing operations for the three months ended September 30, 2021 was an expense of 23.9%, which differs from the U.S.

statutory rate of 21.0% primarily due to state income taxes, foreign taxes, non-deductible executive compensation, and other permanent differences.

The effective tax rate from continuing operations for the nine months ended September 30, 2021 was an expense of 27.8%, which differs from the U.S.

statutory rate primarily due to an adjustment to the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") carryback benefit previously recognized and foreign taxes, partially offset by excess tax benefits associated with equity based compensation.

Our effective tax rates from continuing operations for the three and nine months ended September 30, 2020 were a benefit of 34.9% and a benefit of 69.5%, respectively, primarily due to carryback claims as permitted under the CARES Act, partially offset by the portion of the non-cash impairment charge that is not tax-effected because it is related to the noncontrolling interest.

Our effective tax rates, without the impact of the CARES Act, were an expense of 10.2% and a benefit of 15.8% for the three and nine months ended September 30, 2020, respectively, which differs from the U.S.

statutory rate primarily due to the impacts of state income taxes, foreign taxes, tax return true-ups, and non-deductible executive compensation.

Income tax refunds received, net of payments, during the nine months ended September 30, 2021 totaled $246.9 million.

The total income tax receivable position as of September 30, 2021 was $191.9 million, primarily related to carryback claims that have been filed.

Segment Discussion

Railcar Leasing and Management Services Group

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 Percent 2021 2020 Percent

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$ 39.9 $ 47.0 (15.1) % $ 142.6 $ 149.2 (4.4) %

* Not meaningful

(1) Beginning in the fourth quarter of 2020, we made a prospective change in the presentation of sales of railcars from the lease fleet.

Therefore, all railcar sales for the three and six months ended June 30, 2021 are presented as a net gain or loss from the disposal of a long-term asset regardless of the age of railcar that is sold.

Therefore, all railcar sales for the three and nine months ended September 30, 2021 are presented as a net gain or loss from the disposal of a long-term asset regardless of the age of railcar that is sold.

See Matters Affecting Comparability above and Note 1 of the Consolidated Financial Statements for more information.

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

(3) Depreciation expense related to our small cube covered hopper railcars decreased by approximately $3.5 million and $7.0 million for the three and six months ended June 30, 2021, respectively, relative to the three and six months ended June 30, 2020 as a result of the impairment charge recorded in the second quarter of 2020 related to these railcars.

(4) Interest expense for the three and six months ended June 30, 2021 includes $11.7 million of loss on extinguishment of debt associated with the refinancing of our partially-owned subsidiaries' debt.

(3) Depreciation expense increased $4.7 million and $7.3 million for the three and nine months ended September 30, 2021, respectively, as a result of the disposal of certain railcar components associated with our sustainable railcar conversion program.

Additionally, depreciation expense related to our small cube covered hopper railcars decreased by approximately $7.0 million for the nine months ended September 30, 2021 relative to the nine months ended September 30, 2020 as a result of the impairment charge recorded in the second quarter of 2020 related to these railcars.

(4) Interest expense for the nine months ended September 30, 2021 includes $11.7 million of loss on extinguishment of debt associated with the refinancing of our partially-owned subsidiaries' debt.

See Note 7 of the Consolidated Financial Statements for more information.

Interest expense for the six months ended June 30, 2020 includes $5.0 million of loss on extinguishment of debt associated with the early redemption of debt.

Interest expense for the nine months ended September 30, 2020 includes $5.0 million of loss on extinguishment of debt associated with the early redemption of debt.

Information related to lease portfolio sales is as follows:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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Operating profit margin on lease portfolio sales 10.2 % 44.6 % 11.1 % 9.2 %

Total revenues for the Railcar Leasing and Management Services Group decreased by 4.0% and 14.1% for the three and six months ended June 30, 2021, respectively, compared to the prior year period.

Total revenues for the Railcar Leasing and Management Services Group increased by 0.9% and decreased by 9.6% for the three and nine months ended September 30, 2021, respectively, compared to the prior year period.

Revenues related to sales of leased railcars owned one year or less decreased due to the change in the presentation of sales of railcars from the lease fleet.

Leasing and management revenues were relatively flat for the three and six months ended June 30, 2021, respectively, when compared to the three and six months ended June 30, 2020.

Operating profit decreased by 2.2% and 9.3% for the three and six months ended June 30, 2021, respectively, compared to the prior year period primarily due to lower lease rates, higher fleet management operating costs, and slightly lower utilization, partially offset by growth in the lease fleet.

Additionally, operating profit for the three months ended June 30, 2021 was favorably impacted by higher margins on lease portfolio sales.

Leasing and management revenues for the three and nine months ended September 30, 2021 were impacted by growth in the lease fleet, slightly higher utilization, and increased servicer fees, partially offset by lower rental rates, which resulted in relatively flat revenues when compared to the three and nine months ended September 30, 2020.

Operating profit increased by 21.9% and 1.2% for the three and nine months ended September 30, 2021, respectively, compared to the prior year period primarily due to a higher volume of lease portfolio sales and slightly higher utilization, partially offset by lower lease rates, increased depreciation, and higher fleet operating costs.

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.

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

June 30, 2021 June 30, 2020

September 30, 2021 September 30, 2020

Number of railcars:

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Fleet utilization 95.0 % 94.8 %

(1) Includes 2,177 railcars and 2,173 railcars under sale-leaseback arrangements as of June 30, 2021 and 2020, respectively.

(1) Includes 2,280 railcars and 1,985 railcars under sale-leaseback arrangements as of September 30, 2021 and 2020, respectively.

(2) Includes wholly-owned and partially-owned railcars and railcars under sale-leaseback arrangements.

Rail Products Group

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 Percent 2021 2020 Percent

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Rail products (1)

$ 297.6 $ 322.6 (7.7) % $ 709.2 $ 1,056.3 (32.9) %

Maintenance services 33.3 43.2 (22.9) % 124.4 184.8 (32.7) %

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8.3 8.7 (4.6) % 25.4 29.7 (14.5) %

Losses on dispositions of property

0.1 — * 0.1 — *

(Gains) losses on dispositions of property (4.8) 0.1 * (4.7) 0.1 *

Operating profit (loss) $ (3.1) $ 3.2 (196.9) % $ (8.7) $ 36.2 (124.0) %

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* Not meaningful

Information related to our Rail Products Group backlog of railcars is summarized below:

(1) Includes sustainable railcar conversion revenues of $26.0 million, representing 242 railcars, and $38.8 million, representing 361 railcars, for the three and nine months ended September 30, 2021, respectively, all of which related to the Leasing Group.

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

In addition to the amounts below, as of September 30, 2021, our backlog related to sustainable railcar conversions totaled $98.3 million, representing 1,127 railcars.

September 30,

2021 2020 Percent

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$ 1,228.4 $ 1,155.4 6.3 %

Three Months Ended June 30, Six Months Ended

Three Months Ended September 30, Nine Months Ended

September 30,

2021 2020 2021 2020 Percent

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Other adjustments (1)

— (10) — (550)

Ending balance 11,425 10,050 11,425 10,050 13.7 %

Average selling price in ending backlog $ 107,519 $ 114,965 (6.5) %

(1) For the six months ended June 30, 2020, the adjustment includes 540 railcars valued at $81 million that were removed from the backlog because of a change in the underlying financial condition of the customers.

Revenues and cost of revenues for the Rail Products Group decreased for the three months ended June 30, 2021 by 35.5% and 35.6%, respectively, when compared to the prior year period.

Revenues and cost of revenues for the Rail Products Group decreased for the six months ended June 30, 2021 by 42.9% and 40.6%, respectively, when compared to the prior year period.

(1) For the nine months ended September 30, 2020, the adjustment includes 550 railcars valued at $82 million that were removed from the backlog because of a change in the underlying financial condition of the customers.

Revenues and cost of revenues for the Rail Products Group decreased for the three months ended September 30, 2021 by 10.8% and 8.0%, respectively, when compared to the prior year period.

These decreases primarily resulted from lower deliveries and a shift in the mix of railcar products and services sold.

Additionally, cost of revenues for the three and six months ended June 30, 2021 was further impacted by operational cost savings initiatives, partially offset by increases in steel prices.

Total backlog dollars decreased by 11.9% when compared to the prior year period primarily from a 16.9% lower average selling price as a result of changes in the mix of railcars in the backlog.

Cost of revenues for the three months ended September 30, 2021 was negatively impacted by higher input costs and supply chain disruptions, as well as operating inefficiencies, such as labor shortages and turnover, in our maintenance services business.

Revenues and cost of revenues for the Rail Products Group decreased for the nine months ended September 30, 2021 by 33.4% and 30.8%, respectively, when compared to the prior year period.

These decreases primarily resulted from lower deliveries and a shift in the mix of railcar products and services sold.

Cost of revenues for the nine months ended September 30, 2021 was negatively impacted by higher input costs and supply chain disruptions, as well as operating inefficiencies, such as labor shortages and turnover, in our maintenance services business, partially offset by operational cost savings related to railcar production.

Operating profit was favorably impacted for the three and nine months ended September 30, 2021 by gains on dispositions of property, which primarily represent insurance recoveries in excess of net book value received during the third quarter of 2021 for assets damaged by a tornado at our rail maintenance facility in Cartersville, Georgia in the first quarter of 2021.

Total backlog dollars increased by 6.3% when compared to the prior year period primarily from an increase in orders received, partially offset by a 6.5% lower average selling price as a result of changes in the mix of railcars in the backlog.

Approximately 31.8% of our railcar backlog value is expected to be delivered during 2021 with the remainder to be delivered thereafter into 2025.

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The final amount of backlog attributable to the Leasing Group may vary by the time of delivery as customers may choose to change their procurement decision.

During the three months ended June 30, 2021, railcar shipments included sales to the Leasing Group of $115.9 million with nominal deferred profit, representing 1,125 railcars, compared to $141.7 million with a deferred profit of $9.5 million, representing 1,239 railcars, in the comparable period in 2020.

During the six months ended June 30, 2021, railcar shipments included sales to the Leasing Group of $208.4 million with nominal deferred profit, representing 2,071 railcars, compared to $306.2 million with a deferred profit of $26.3 million, representing 2,542 railcars, in the comparable period in 2020.

Three Months Ended June 30, Six Months Ended June 30,

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

Three Months Ended September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

(in millions)

New railcars $ 70.8 $ 145.5 $ 279.2 $ 451.7

Sustainable railcar conversions $ 26.0 $ — $ 38.8 $ —

Other maintenance services $ 8.5 $ 20.5 $ 49.6 $ 60.7

Deferred profit $ 4.5 $ 2.6 $ 9.3 $ 33.5

Number of new railcars (in units) 670 1,396 2,741 3,938

Number of sustainable railcar conversions (in units) 242 — 361 —

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 Percent 2021 2020 Percent

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* Not meaningful

Revenues and cost of revenues increased for the three and six months ended June 30, 2021 when compared to the prior year period primarily from increased demand and higher input costs in our highway products business.

Operating profit was favorably impacted in the six months ended June 30, 2021 by gains associated with the disposition of a non-operating facility.

Revenues and cost of revenues increased for the three and nine months ended September 30, 2021 when compared to the prior year period primarily from increased demand and higher pricing in our highway products business.

Operating profit was favorably impacted in the three and nine months ended September 30, 2021 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.

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 Percent 2021 2020 Percent

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Operating costs $ 23.9 $ 21.0 13.8 % $ 73.7 $ 73.3 0.5 %

Operating costs for the three months ended June 30, 2021 increased 12.0% compared to the prior year period primarily from higher employee-related costs, including adjustments to incentive-based compensation, and higher litigation-related expenses, partially offset by reduced costs associated with streamlining our corporate structure to support our rail-focused strategy.

Operating costs for the six months ended June 30, 2021 decreased 4.8% compared to the prior year period primarily from reduced costs associated with streamlining our corporate structure to support our rail-focused strategy, partially offset by higher employee-related costs, including adjustments to incentive-based compensation.

Operating costs for the three and nine months ended September 30, 2021 increased 13.8% and 0.5%, respectively, compared to the prior year period primarily from higher employee-related costs, including increased incentive-based compensation, partially offset by reduced costs associated with streamlining our corporate structure to support our rail-focused strategy.

Additionally, operating costs for the three months ended September 30, 2021 were impacted by higher litigation-related expenses.

Liquidity and Capital Resources

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Debt instruments that we have utilized include the TILC warehouse facility, senior notes, convertible subordinated notes, asset-backed securities, non-recourse promissory notes, sale-leaseback transactions, and our revolving credit facility.

As of June 30, 2021, we have total committed liquidity of $917.9 million.

As of September 30, 2021, we have total committed liquidity of $1.1 billion.

Our total available liquidity includes:

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Net proceeds received from the transaction were used to repay borrowings under TILC's secured warehouse credit facility and for general corporate purposes.

Dividend Payments – We paid $47.4 million in dividends to our common stockholders during the six months ended June 30, 2021.

Dividend Payments – We paid $68.5 million in dividends to our common stockholders during the nine months ended September 30, 2021.

Repurchase Agreement with ValueAct – On April 29, 2021, we entered into a stock repurchase agreement with ValueAct, the Company's largest shareholder and a related party, to repurchase 8.1 million shares of our common stock for $27.47 per share, for an aggregate purchase price of $222.5 million, in a privately negotiated transaction.

The price per share represents a discount of 3.5% from the closing price for a share of common stock on the New York Stock Exchange on April 29, 2021.

Under the repurchase agreement, ValueAct will not make any additional sales of common stock without our consent through September 1, 2021.

Share Repurchase Authorization – In October 2020, our Board of Directors authorized a new share repurchase program effective October 23, 2020 through December 31, 2021.

The new share repurchase program authorized the Company to repurchase up to $250.0 million of its common stock.

New Share Repurchase Authorization – In September 2021, our Board of Directors authorized a new share repurchase program effective September 9, 2021 through December 31, 2022.

The new share repurchase program authorizes the Company to repurchase up to $250.0 million of its common stock.

There were no shares repurchased under this program during the three months ended September 30, 2021.

Previous Share Repurchase Authorization – In October 2020, our Board of Directors authorized a share repurchase program effective October 23, 2020 through December 31, 2021.

The share repurchase program authorized the Company to repurchase up to $250.0 million of its common stock and was completed in the third quarter of 2021.

Share repurchase activity under this program is as follows:

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April 1, 2021 through June 30, 2021 2,440,793 68.3 $ 77.1

July 1, 2021 through September 30, 2021 2,815,307 77.1 $ —

Total 9,522,882 $ 250.0

During the three and six months ended June 30, 2021, total share repurchases were 10.5 million and 11.8 million, respectively, at a cost of approximately $290.8 million and $327.6 million, respectively.

The following table summarizes our cash flows from operating, investing, and financing activities for the six months ended June 30, 2021 and 2020:

Six Months Ended

During the three and nine months ended September 30, 2021, total share repurchases were 2.8 million and 14.6 million, respectively, at a cost of approximately $77.1 million and $404.7 million, respectively.

The following table summarizes our cash flows from operating, investing, and financing activities for the nine months ended September 30, 2021 and 2020:

Nine Months Ended

September 30,

(in millions)

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Net cash flows from discontinued operations (0.8) (0.2)

Net increase in cash, cash equivalents, and restricted cash $ 27.3 $ 16.3

Net increase (decrease) in cash, cash equivalents, and restricted cash $ 116.7 $ (55.7)

Operating Activities .

Net cash provided by operating activities from continuing operations for the six months ended June 30, 2021 was $335.1 million compared to net cash provided by operating activities from continuing operations of $327.8 million for the six months ended June 30, 2020.

Net cash provided by operating activities from continuing operations for the nine months ended September 30, 2021 was $428.0 million compared to net cash provided by operating activities from continuing operations of $456.8 million for the nine months ended September 30, 2020.

The changes in our operating assets and liabilities are as follows:

Six Months Ended

Nine Months Ended

September 30,

(in millions)

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Changes in operating assets and liabilities $ 189.8 $ (276.4)

The changes in our operating assets and liabilities resulted in a net source of $183.1 million for the six months ended June 30, 2021, as compared to a net use of $288.5 million for the six months ended June 30, 2020.

The changes in our operating assets and liabilities resulted in a net source of $189.8 million for the nine months ended September 30, 2021, as compared to a net use of $276.4 million for the nine months ended September 30, 2020.

The decrease in the income tax receivable was primarily driven by the collection of approximately $248.3 million of income tax refunds in the current year period associated with the loss carryback provisions included in recent tax legislation.

Additionally, in the prior year period, the changes in our operating assets and liabilities were impacted by a customer's election to exercise a purchase option on a sales-type lease.

Additionally, operating assets were negatively impacted by cyclical shifts in anticipation of higher volumes of railcar deliveries in future periods.

Further, in the prior year period, the changes in our operating assets and liabilities were impacted by a customer's election to exercise a purchase option on a sales-type lease.

Investing Activities.

Net cash used in investing activities for the six months ended June 30, 2021 was $173.0 million compared to $154.6 million for the six months ended June 30, 2020.

Net cash provided by investing activities for the nine months ended September 30, 2021 was $43.6 million compared to $361.0 million of net cash used in investing activities for the nine months ended September 30, 2020.

Significant investing activities are as follows:

• We made a net investment in the lease fleet of $162.9 million during the six months ended June 30, 2021, compared to $127.3 million in the prior year period.

Our net investment in the lease fleet primarily includes new railcar additions and railcar modifications, net of deferred profit, and secondary market purchases;

and is net of proceeds from lease portfolio sales.

• We acquired a company that owns and operates proprietary railcar cleaning technology systems during the six months ended June 30, 2021 for net cash of $16.6 million.

We had no acquisitions during the six months ended June 30, 2020.

• We received proceeds from lease portfolio sales exceeding the investment in our lease fleet by approximately $40.6 million during the nine months ended September 30, 2021, compared to a net investment in the lease fleet of $310.1 million in the prior year period.

Our investment in the lease fleet primarily includes new railcar additions and railcar modifications, net of deferred profit, and secondary market purchases.

• We acquired a company that owns and operates proprietary railcar cleaning technology systems during the nine months ended September 30, 2021 for net cash of $16.5 million.

We had no acquisitions during the nine months ended September 30, 2020.

• We received $6.5 million in insurance proceeds during the nine months ended September 30, 2021 for property damage sustained at a rail maintenance facility.

See Note 14 of the Consolidated Financial Statements for more information.

We received no insurance proceeds during the nine months ended September 30, 2020.

Financing Activities.

Net cash used in financing activities during the six months ended June 30, 2021 was $134.4 million compared to $156.7 million of net cash used in financing activities for the same period in 2020.

Net cash used in financing activities during the nine months ended September 30, 2021 was $354.1 million compared to $151.3 million of net cash used in financing activities for the same period in 2020.

Significant financing activities are as follows:

• During the six months ended June 30, 2021, we had total borrowings of $2,176.7 million and total repayments of $1,925.2 million, for net proceeds of $251.5 million, primarily from debt proceeds to support our investment in the lease fleet.

During the six months ended June 30, 2020, we had total borrowings of $552.4 million and total repayments of $618.3 million, for net repayments of $65.9 million, primarily related to the early redemption of debt, partially offset by debt proceeds to support our investment in the lease fleet.

• We paid $47.4 million and $46.4 million in dividends to our common stockholders during the six months ended June 30, 2021 and 2020, respectively.

• We repurchased common stock totaling $329.4 million and $35.4 million during the six months ended June 30, 2021 and 2020, respectively.

• During the nine months ended September 30, 2021, we had total borrowings of $2,393.7 million and total repayments of $2,256.8 million, for net proceeds of $136.9 million, primarily from debt proceeds to support our investment in the lease fleet.

During the nine months ended September 30, 2020, we had total borrowings of $835.8 million and total repayments of $795.5 million, for net proceeds of $40.3 million, primarily from debt proceeds to support our investment in the lease fleet, partially offset by the early redemption of debt.

• We paid $68.5 million and $67.8 million in dividends to our common stockholders during the nine months ended September 30, 2021 and 2020, respectively.

• We repurchased common stock totaling $406.5 million and $120.4 million during the nine months ended September 30, 2021 and 2020, respectively.

The current year period includes shares repurchased in a privately negotiated transaction with ValueAct totaling $222.5 million.

Certain shares of stock repurchased during September 2020, totaling $4.9 million, were cash settled in October 2020 in accordance with normal settlement practices.

Current Debt Obligations

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Ratio Covenant Actual at

June 30, 2021

September 30, 2021

Maximum leverage (1)

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No less than 1.75 to 1.00 7.28

(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 June 30, 2021.

(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 June 30, 2021.

As of June 30, 2021, we were in compliance with all such financial covenants.

As of September 30, 2021, we were in compliance with all such financial covenants.

Please refer to Note 7 of the Consolidated Financial Statements for a description of our current debt obligations.

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The Senior Notes are not guaranteed by any of our remaining 100%-owned subsidiaries or partially-owned subsidiaries (“Non-Guarantor Subsidiaries”).

As of June 30, 2021, assets held by the Non-Guarantor Subsidiaries included $130.3 million of restricted cash that was not available for distribution to Trinity Industries, Inc.

As of September 30, 2021, assets held by the Non-Guarantor Subsidiaries included $84.2 million of restricted cash that was not available for distribution to Trinity Industries, Inc.

(“Parent”), $6,566.0 million of equipment securing certain non-recourse debt, and $119.4 million of assets located in foreign locations.

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Investments in and equity in the earnings of the Non-Guarantor Subsidiaries (the non-obligor group) have been excluded.

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Summarized Statement of Operations:

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Net income (loss)

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Summarized Balance Sheets:

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Noncontrolling interest $ 265.4 $ 277.2

(1) There were no net sales from the obligor group to Non-Guarantor Subsidiaries during the six months ended June 30, 2021.

(2) Cost of revenues includes $64.4 million of purchases from Non-Guarantor Subsidiaries during the six months ended June 30, 2021.

(3) Receivables, net of allowance includes $98.4 million and $86.7 million of receivables from Non-Guarantor Subsidiaries as of June 30, 2021 and December 31, 2020, respectively.

(4) Accounts payable includes $25.2 million and $24.0 million of payables to Non-Guarantor Subsidiaries as of June 30, 2021 and December 31, 2020, respectively.

(1) There were no net sales from the obligor group to Non-Guarantor Subsidiaries during the nine months ended September 30, 2021.

(2) Cost of revenues includes $113.5 million of purchases from Non-Guarantor Subsidiaries during the nine months ended September 30, 2021.

(3) Receivables, net of allowance includes $78.8 million and $86.7 million of receivables from Non-Guarantor Subsidiaries as of September 30, 2021 and December 31, 2020, respectively.

(4) Accounts payable includes $27.6 million and $24.0 million of payables to Non-Guarantor Subsidiaries as of September 30, 2021 and December 31, 2020, respectively.

Capital Expenditures

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Off Balance Sheet Arrangements

As of June 30, 2021, we had letters of credit issued under our Credit Agreement in an aggregate amount of $35.2 million, the full amount of which is expected to expire in July 2022.

As of September 30, 2021, we had letters of credit issued under our Credit Agreement in an aggregate amount of $28.3 million, the full amount of which is expected to expire in July 2022.

Our letters of credit obligations support our various insurance programs and generally renew by their terms each year.

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We currently have LIBOR-based contracts that extend beyond June 2023 including derivative instruments, promissory notes for Trinity Rail Leasing 2017 LLC, TILC's warehouse loan facility, the TRIP Railcar Co.

term loan facility, and our revolving credit facility.

term loan, and our revolving credit facility.

After LIBOR is phased out, the interest rates for these obligations might be subject to change.

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Free Cash Flow is reconciled to net cash provided by operating activities from continuing operations, the most directly comparable GAAP financial measure, in the following tables.

For the six months ended June 30, 2021, Free Cash Flow is defined as net cash provided by operating activities from continuing operations as computed in accordance with GAAP, plus cash proceeds from lease portfolio sales, less capital expenditures for manufacturing, dividends paid, and Equity CapEx for new leased railcars.

For the nine months ended September 30, 2021, Free Cash Flow is defined as net cash provided by operating activities from continuing operations as computed in accordance with GAAP, plus cash proceeds from lease portfolio sales, less capital expenditures for manufacturing, dividends paid, and Equity CapEx for new leased railcars.

Equity CapEx for new leased railcars is defined as leasing capital expenditures, adjusted to exclude net proceeds from (repayments of) debt.

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

(in millions)

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Equity CapEx for new leased railcars $ 227.0

For the six months ended June 30, 2020, Free Cash Flow is defined as net cash provided by operating activities from continuing operations as computed in accordance with GAAP, plus cash proceeds from sales of leased railcars owned more than one year at the time of sale, less capital expenditures for manufacturing, dividends paid, and Equity CapEx for new leased railcars.

For the nine months ended September 30, 2020, Free Cash Flow is defined as net cash provided by operating activities from continuing operations as computed in accordance with GAAP, plus cash proceeds from sales of leased railcars owned more than one year at the time of sale, less capital expenditures for manufacturing, dividends paid, and Equity CapEx for new leased railcars.

Equity CapEx for new leased railcars is defined as leasing capital expenditures, net of sold lease fleet railcars owned one year or less, adjusted to exclude net proceeds from (repayments of) debt.

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

(in millions)

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Contractual Obligations and Commercial Commitments

Except as described below, as of June 30, 2021, there have been no material changes to our contractual obligations from December 31, 2020:

Except as described below, as of September 30, 2021, there have been no material changes to our contractual obligations from December 31, 2020:

• In March 2021, the TILC warehouse facility was extended through March 15, 2024, and the total facility commitment was increased from $750 million to $1.0 billion.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis