What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-04-27 compared with 2021-10-26 · 170 added, 324 removed, 329 unchanged (60% of the section changed)

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Please refer to the Non-GAAP Financial Measures section herein for information on the non-GAAP measures included in the MD&A, reconciliations to the most directly comparable GAAP financial measure, and the reasons why management believes each measure is useful to management and investors.

Matters Affecting Comparability

During the fourth quarter of 2020, we began presenting sales from our lease fleet in the Railcar Leasing and Management Services Group on a net basis regardless of the age of railcar that is sold.

Historically, in accordance with ASC 606, Revenue from contracts with customers , we presented sales of railcars from the lease fleet on a gross basis in Revenues – Leasing and Cost of revenues – Leasing in our Consolidated Statements of Operations if the railcars had been owned for one year or less at the time of sale.

Sales of railcars from the lease fleet owned for more than one year had historically been presented as a net gain or loss from the disposal of a long-term asset.

We now report all sales of railcars from the lease fleet as a net gain or loss from the disposal of a long-term asset in accordance with ASC 610-20, Gains and losses from the derecognition of non-financial assets.

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 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.

The new presentation had no effect on the Company’s operating profit, net income, earnings per share, or Consolidated Balance Sheet.

Forward-Looking Statements

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• the impact of the coronavirus pandemic (“COVID-19”) and the response thereto, on, among other things, demand for our products and services, our customers' ability to pay, disruptions to our supply chain, our liquidity and financial position, results of operations, stock price, payment of dividends, our ability to generate new railcar orders, our ability to originate and/or renew leases at favorable rates, our ability to convert backlog to revenue, and the operational status of our facilities;

• shortages of labor;

• impacts from asset impairments and related charges;

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• changing technologies;

• material failure, interruption of service, compromised data security, phishing emails, or cybersecurity breaches in our information technology (or that of the third-party vendors who provide information technology services);

• surcharges and other fees added to fixed pricing agreements for steel, component parts, supplies, and other raw materials;

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• the stability of the governments and political and business conditions in certain foreign countries, particularly Mexico;

• geopolitical events, including armed conflicts, and their impact on supply chains, pricing, and the global economy;

• changes in import and export quotas and regulations;

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The TrinityRail platform provides railcar leasing and management services, railcar manufacturing, and railcar maintenance and modification services.

We also own businesses engaged in the manufacturing of products used on the nation's roadways and in traffic control.

We report our operating results in three principal business segments:

In the fourth quarter of 2021, the Company completed the sale of Trinity Highway Products, LLC (“THP”), a wholly-owned subsidiary of the Company, and certain direct and indirect subsidiaries of THP, to Rush Hour Intermediate II, LLC ("Rush Hour"), an entity owned by an affiliated investment fund of Monomoy Capital Partners, for an aggregate purchase price of $375.0 million, subject to certain adjustments.

We concluded that the sale of THP represented a strategic shift that will have a major effect on the Company’s operations and financial results.

Accordingly, we have presented the operating results and cash flows of THP as discontinued operations for all periods in this Quarterly Report on Form 10-Q.

Results of prior periods have been recast to reflect these changes and present results on a comparable basis.

In connection with the sale of THP, we agreed to indemnify Rush Hour for certain liabilities related to the ET-Plus® System, a highway guardrail end-terminal system (the “ET Plus”).

Consequently, results from discontinued operations include certain legal expenses that were directly attributable to the highway products business, which were previously reported in continuing operations.

Similar expenses incurred during the three months ended March 31, 2022 and that may be incurred in the future related to these retained obligations will likewise be reported in discontinued operations.

See Note 2 of the Consolidated Financial Statements for further information related to the sale of THP and Note 14 for information regarding the retained liabilities.

Following the sale of THP, we report our operating results in two reportable segments:

(1) the Railcar Leasing and Management Services Group (the "Leasing Group"), which owns and operates a fleet of railcars and provides third-party fleet leasing, management, and administrative services;

(2) the Rail Products Group, which manufactures and sells railcars and related parts and components, and provides railcar maintenance and modification services;

and (3) All Other, which includes our highway products business and legal, environmental, and maintenance costs associated with non-operating facilities.

and (2) the Rail Products Group, which manufactures and sells railcars and related parts and components, and provides railcar maintenance and modification services.

Additionally, we have combined the results of the prior Corporate and All Other groupings into a single Corporate and other grouping.

The remaining activity previously reported in All Other primarily includes legal, environmental, and maintenance costs associated with non-operating facilities.

Results of prior periods have been recast to reflect these changes and present results on a comparable basis.

Executive Summary

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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 nine months ended September 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.

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

Please refer to the "Forward-Looking Statements" section above and Part I, Item 1A “Risk Factors” of the 2021 Annual Report on Form 10-K for additional information regarding the potential impacts of COVID-19 on our business.

Other Cyclical and Seasonal Trends Impacting Our Business

The industries in which we operate are cyclical in nature.

The industries in which our customers operate are cyclical in nature.

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, 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.

Further, disruptions in the global supply chain have impacted demand for, and the costs of, certain of our products and services.

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

We diligently evaluate the creditworthiness of our customers and monitor performance of relevant market sectors;

however, additional weaknesses in any of these market sectors could affect the financial viability of our underlying Leasing Group customers, which could continue to negatively impact our recurring leasing revenues and operating profits.

Additionally, current economic conditions within the industries in which our customers operate have resulted in reduced demand for railcars.

Although railcar loading volumes, levels of railcars in storage, and orders for new railcar equipment are beginning to improve, railcar lease rates and utilization remain under pressure.

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.

however, weaknesses in any of these market sectors could affect the financial viability of our underlying Leasing Group customers, which could continue to negatively impact our recurring leasing revenues and operating profits.

Although railcar loading volumes, levels of railcars in storage, and orders for new railcar equipment have improved, the recovery of railcar lease rates and utilization is ongoing.

We continue to believe that our rail platform is designed to respond to cyclical changes in demand and perform throughout the railcar cycle.

Steel prices and labor costs have increased significantly since the fourth quarter of 2020 and are major components 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 plate and coil steel price volatility on our operating profit.

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.

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

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

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

As a result of disruptions in the global supply chain, we have recently experienced temporary shortages of materials used to manufacture or repair certain railcar types, which has impacted our ability to timely deliver these railcars to our customers.

While we believe these shortages are short-term in nature, we will continue to monitor the situation and take appropriate steps to mitigate the impact on our production schedules and delivery timelines.

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

Results in our All Other Group are affected by seasonal fluctuations, with the second and third quarters historically being the quarters with the highest revenues.

Financial and Operational Highlights

• 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 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.

• Our revenues for the three months ended March 31, 2022 were $472.7 million, representing an increase of 42.9%, compared to the three months ended March 31, 2021.

Our operating profit for the three months ended March 31, 2022 was $54.8 million compared to $51.5 million for the three months ended March 31, 2021.

• The Leasing Group's lease fleet of 107,090 company-owned railcars was 96.5% utilized as of March 31, 2022, compared to a lease fleet utilization of 94.5% on 107,970 company-owned railcars as of March 31, 2021.

Our company-owned lease fleet include wholly-owned, partially-owned, and railcars under leased-in arrangements.

• For the three months ended March 31, 2022, we made a net investment in our lease fleet of approximately $13.5 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 new railcar backlog at March 31, 2022 was $1.9 billion, compared to $1.0 billion at March 31, 2021.

The Rail Products Group received orders for 5,055 railcars and delivered 2,470 railcars in the three months ended March 31, 2022, in comparison to orders for 1,410 railcars and deliveries of 1,895 railcars in the three months ended March 31, 2021.

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

During the three months ended March 31, 2022, sustainable railcar conversion revenues totaled $49.8 million, representing 445 railcars.

• For the three months ended March 31, 2022, we generated operating cash flows from continuing operations and Free Cash Flow After Investments and Dividends ("Free Cash Flow") of $28.5 million and $47.8 million (1) , respectively, in comparison to $69.3 million and $90.5 million (1) , respectively, for the three months ended March 31, 2021.

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

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

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

in a privately negotiated transaction.

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

("ValueAct") in a privately negotiated transaction.

(3) 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 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.

(“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.

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.

These notes bear interest at an all-in interest rate of 2.20% and have a stated final maturity date of 2051.

Net proceeds received from the issuance of these notes, as well as proceeds from the sale of railcars and related operating leases to TRIP Railcar Co.

LLC described below, were used to redeem Triumph Rail's existing Secured Railcar Equipment Notes, of which $869.1 million was outstanding at the redemption date.

The all-in rate for these notes was 5.16% per annum.

TRIP Railcar Co.

Term Loan – In June 2021, TRIP Railcar Co.

LLC ("TRIP Railcar Co."), an indirect wholly-owned subsidiary of TRIP Holdings, drew down $329.6 million under a term loan agreement ("TRIP Railcar Co.

The TRIP Railcar Co.

term loan bears interest at LIBOR plus 1.85% and has a stated maturity date of June 2025.

Net proceeds received from the transaction were used to purchase railcars and related operating leases from Triumph Rail.

TRP-2021 – In June 2021, TRP 2021 LLC ("TRP-2021"), formerly known as Trinity Rail Leasing 2012 LLC, an indirect, wholly-owned subsidiary of RIV 2013 Rail Holdings LLC, issued $355.0 million of its Series 2021-1 Green Secured Railcar Equipment Notes.

These notes bear interest at an all-in interest rate of 2.13% and have a stated final maturity date of 2051.

Net proceeds received from these notes were used to redeem TRP-2021's existing Secured Railcar Equipment Notes, of which $348.0 million was outstanding at the redemption date.

The all-in rate for these notes was 3.59% per annum.

TRL-2021 – In June 2021, Trinity Rail Leasing 2021 LLC, a Delaware limited liability company ("TRL-2021") and a limited purpose, indirect wholly-owned subsidiary of the Company owned through TILC, issued $325.0 million of its Series 2021-1 Green Secured Railcar Equipment Notes.

These notes bear interest at an all-in interest rate of 2.31% and have a final maturity date of 2051.

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.

(4) In the fourth quarter of 2021, we entered into an additional stock repurchase agreement with ValueAct in a privately negotiated transaction.

Additionally, we entered into an accelerated share repurchase agreement (the "ASR") to repurchase $125.0 million of our common stock.

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

(5) There were no shares repurchased during the first quarter of 2022 due to the ongoing ASR.

Litigation Updates

See Note 14 of the Consolidated Financial Statements for an update on the status of our Highway Products litigation.

See Note 14 of the Consolidated Financial Statements for an update on the status of certain litigation retained in connection with the sale of THP.

Subsequent Events

TRL-2022 – On April 20, 2022, Trinity Rail Leasing 2022 LLC, a Delaware limited liability company ("TRL-2022") and a limited purpose, indirect wholly-owned subsidiary of the Company owned through Trinity Industries Leasing Company ("TILC"), entered into a Note Purchase Agreement dated April 20, 2022 (the "Note Purchase Agreement").

The Note Purchase Agreement provides for the issuance and sale of an aggregate principal amount of $244.8 million of its Series 2022-1 Class A Green Secured Railcar Equipment Notes (the "TRL-2022 Notes").

The TRL-2022 Notes will bear interest at a fixed rate of 4.55%, will be payable monthly, and will have a stated final maturity date of May 20, 2052.

Consolidated Results of Operations

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

The following table summarizes our consolidated results of operations for the three months ended March 31, 2022 and 2021:

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

(in millions)

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Gains on dispositions of property 25.3 11.5

Impairment of long-lived assets — — — 369.4

Restructuring activities, net — (0.3)

Total operating profit (loss) 92.2 72.9 219.8 (161.4)

Total operating profit 54.8 51.5

Interest expense, net 43.5 51.3

Loss on extinguishment of debt — — 11.7 5.0

Other, net (1.6) 1.2

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Income (loss) from continuing operations $ 9.9 $ (5.0)

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

External Intersegment Total Change

(in millions)

Railcar Leasing and Management Services Group $ 185.3 $ 0.2 $ 185.5 0.9 %

Rail Products Group 234.5 105.4 339.9 (10.8) %

All Other 83.7 — 83.7 33.7 %

Segment Totals before Eliminations 503.5 105.6 609.1 (3.0) %

Eliminations – Lease Subsidiary — (105.3) (105.3)

Eliminations – Other — (0.3) (0.3)

Consolidated Total $ 503.5 $ — $ 503.5 9.6 %

Three Months Ended September 30, 2020

External Intersegment Total

(in millions)

Railcar Leasing and Management Services Group $ 183.7 $ 0.2 $ 183.9

Rail Products Group 213.1 168.1 381.2

All Other 62.6 — 62.6

Segment Totals before Eliminations 459.4 168.3 627.7

Eliminations – Lease Subsidiary — (166.0) (166.0)

Eliminations – Other — (2.3) (2.3)

Consolidated Total $ 459.4 $ — $ 459.4

Nine Months Ended September 30, 2021

The tables below present revenues by segment for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31, 2022

Revenues Percent

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Rail Products Group 289.8 101.3 391.1 49.8 %

All Other 230.0 — 230.0 17.8 %

Segment Totals before Eliminations 1,273.8 373.0 1,646.8 (21.7) %

Segment Totals 472.7 101.5 574.2 29.2 %

Eliminations – Lease Subsidiary — (101.3) (101.3)

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Consolidated Total $ 472.7 $ — $ 472.7 42.9 %

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

External Intersegment Total

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Rail Products Group 147.4 113.6 261.0

All Other 193.8 1.5 195.3

Segment Totals before Eliminations 1,583.8 520.7 2,104.5

Segment Totals 330.7 113.8 444.5

Eliminations – Lease Subsidiary — (111.3) (111.3)

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gains or losses on property disposals;

impairment of long-lived assets;

and restructuring activities.

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

Operating costs by segment for the three months ended March 31, 2022 and 2021 were as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

(in millions)

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Rail Products Group 390.3 269.8

All Other 69.0 55.3 187.2 171.4

Segment Totals before Eliminations, Corporate Expenses, Impairment of long-lived assets, and Restructuring activities 488.2 527.5 1,344.0 1,778.9

Corporate 23.9 21.0 73.7 73.3

Impairment of long-lived assets — — — 369.4

Segment Totals 493.6 375.0

Corporate and other 15.7 16.1

Restructuring activities, net — (0.3)

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Consolidated Total $ 417.9 $ 279.2

Operating Profit (Loss)

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

Operating Profit

Operating profit by segment for the three months ended March 31, 2022 and 2021 was as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

(in millions)

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Rail Products Group 0.8 (8.8)

All Other 14.7 7.3 42.8 23.9

Segment Totals before Eliminations, Corporate Expenses, Impairment of long-lived assets, and Restructuring activities 120.9 100.2 302.8 325.6

Corporate (23.9) (21.0) (73.7) (73.3)

Impairment of long-lived assets — — — (369.4)

Segment Totals 80.6 69.5

Corporate and other (15.7) (16.1)

Restructuring activities, net — 0.3

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Discussion of Consolidated Results

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 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.

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.

Revenues – Our revenues for the three months ended March 31, 2022 were $472.7 million, representing an increase of $142.0 million, or 42.9%, over the prior year period primarily due to higher external deliveries in the Rail Products Group.

Cost of revenues – Our cost of revenues for the three months ended March 31, 2022 was $398.5 million, representing an increase of $152.2 million, or 61.8%, over the prior year period primarily due to higher costs associated with external deliveries in the Rail Products Group and higher fleet operating costs and increased depreciation in the Leasing Group.

Selling, engineering, and administrative expenses – Selling, engineering, and administrative expenses were flat for the three months ended March 31, 2022 when compared to the prior year period.

Gains on dispositions of property – Gains on dispositions of property increased by $13.8 million for the three months ended March 31, 2022, when compared to the prior year period primarily due to higher lease portfolio sales activity.

Additionally, during the three months ended March 31, 2022, we recorded a $6.4 million gain related to insurance recoveries in excess of net book value 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 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.

Operating profit – Operating profit for the three months ended March 31, 2022 totaled $54.8 million, representing an increase of $3.3 million, or 6.4%, from the prior year period primarily due to higher lease portfolio sales activity, partially offset by higher costs associated with external deliveries in the Rail Products Group, as well as higher fleet operating costs and increased depreciation in the Leasing Group.

Operating profit was favorably impacted in the current year period by gains related to insurance recoveries from damage sustained at the Company’s rail maintenance facility in Cartersville, Georgia in the first quarter of 2021.

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

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.

Interest expense, net – Interest expense, net for the three months ended March 31, 2022 totaled $43.5 million compared to $51.3 million for the three months ended March 31, 2021.

The decrease in interest expense, net for the three months ended March 31, 2022 was primarily driven by lower overall borrowing costs associated with the Company's debt facilities resulting from debt refinancing activity during the second quarter of 2021, partially offset by higher overall average debt.

Income taxes – The effective tax rate from continuing operations for the three months ended March 31, 2022 was 23.3%, which differs from the U.S.

statutory rate of 21.0% primarily due to state income taxes, foreign taxes, non-deductible executive compensation, and the benefits of excess deductions on equity compensation.

For the three months ended March 31, 2021, we recorded income tax expense of $4.0 million on a loss from continuing operations before income taxes of $1.0 million, primarily due to an adjustment to the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") carryback benefit previously recognized.

Segment Discussion

Railcar Leasing and Management Services Group

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

2021 2020 Percent 2021 2020 Percent

(in millions) Change (in millions) Change

Three Months Ended March 31,

2022 2021 Percent

($ in millions) Change

Leasing and management $ 183.1 $ 183.5 (0.2) %

Sales of railcars owned one year or less at the time of sale (1)

— — * — 54.4 (100.0) %

Total revenues $ 185.5 $ 183.9 0.9 % $ 554.1 $ 613.0 (9.6) %

Operating profit (1) :

1 unchanged sentence

Lease portfolio sales (2)

32.9 2.9 * 45.7 17.7 158.2 %

Total operating profit $ 79.8 $ 78.3 1.9 %

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Maintenance and compliance $ 29.2 $ 25.6 14.1 %

Rent $ 1.9 $ 2.1 (9.5) % $ 5.3 $ 8.1 (34.6) %

Rent and ad valorem taxes $ 5.0 $ 4.6 8.7 %

Selling, engineering, and administrative expenses

$ 12.8 $ 11.3 13.3 %

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

Interest $ 38.7 $ 45.7 (15.3) %

* 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 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.

(1) Operating profit includes:

depreciation;

maintenance and compliance;

fleet operating costs, which include maintenance, compliance, freight, and storage;

rent and ad valorem taxes;

and selling, engineering, and administrative expenses.

1 unchanged sentence

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

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

(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

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

($ in millions)

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Operating profit margin on lease portfolio sales 14.8 % 9.8 %

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 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.

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

Total revenues for the Railcar Leasing and Management Services Group decreased by 0.2% for the three months ended March 31, 2022 compared to the prior year period.

Leasing and management revenues for the three months ended March 31, 2022 were impacted by lower rental rates and reduced lease fleet size, partially offset by higher utilization, which resulted in relatively flat revenues when compared to the three months ended March 31, 2021.

Operating profit for the Leasing Group increased by 1.9% for the three months ended March 31, 2022 compared to the prior year period and was favorably impacted by higher lease portfolio sale activity.

Leasing and management operating profit decreased by 11.2% primarily due to higher fleet operating costs resulting from increases in the cost and volume of planned maintenance activities, as well as increased depreciation primarily related to sustainable railcar conversions.

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:

September 30, 2021 September 30, 2020

March 31, 2022 March 31, 2021

Number of railcars:

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Fleet utilization 96.5 % 94.5 %

(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.

(1) Includes 2,575 railcars and 2,045 railcars under leased-in arrangements as of March 31, 2022 and 2021, respectively.

(2) Includes wholly-owned railcars, partially-owned railcars, and railcars under leased-in arrangements.

Rail Products Group

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

2021 2020 Percent 2021 2020 Percent

(in millions) Change (in millions) Change

Three Months Ended March 31,

2022 2021 Percent

($ in millions) Change

Rail products (1)

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9.7 8.6 12.8 %

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

Gains on dispositions of property (6.4) — *

Operating profit (loss) $ 0.8 $ (8.8) 109.1 %

1 unchanged sentence

* Not meaningful

(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.

(1) Includes sustainable railcar conversion revenues of $49.8 million, representing 445 railcars, for the three months ended March 31, 2022, of which $27.8 million, representing 250 railcars, related to external customers and $22.0 million, representing 195 railcars, related to the Leasing Group.

Revenues and cost of revenues for the Rail Products Group increased for the three months ended March 31, 2022 by 49.8% and 48.2%, respectively, when compared to the prior year period.

Revenues in our rail products business increased as a result of higher deliveries, while revenues in our maintenance services revenues decreased as a result of fewer repairs and HM-251 modifications.

In our rail products business, the increase in cost of revenues was driven by higher deliveries and input cost inflation, as well as incremental costs associated with production line changeovers.

In our maintenance services business, cost of revenues was negatively impacted by labor shortages leading to operating inefficiencies.

Operating profit for the three months ended March 31, 2022 was negatively impacted by deliveries of orders taken at the bottom of the cycle.

Additionally, during the three months ended March 31, 2022, operating profit was favorably impacted by a $6.4 million gain related to insurance recoveries in excess of net book value for assets damaged by a tornado at the Company’s rail maintenance facility in Cartersville, Georgia in the first quarter of 2021.

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,

In addition to the amounts below, as of March 31, 2022, our backlog related to sustainable railcar conversions totaled $128.2 million, representing 1,275 railcars.

2022 2021 Percent

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$ 1,895.4 $ 989.9 91.5 %

Three Months Ended September 30, Nine Months Ended

September 30,

Three Months Ended

2022 2021 Percent

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Other adjustments (1)

— (10) — (550)

Ending balance 16,265 8,500 91.4 %

Average selling price in ending backlog $ 116,532 $ 116,459 0.1 %

(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.

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.

(1) The adjustment for the three months ended March 31, 2022 includes 300 railcars valued at $34.6 million that were removed from the new railcar backlog and shifted to the sustainable railcar conversion backlog.

Total backlog dollars increased by 91.5% when compared to the prior year period primarily from an increase in orders received.

Approximately 59.5% of our railcar backlog value is expected to be delivered during 2022, 26.7% in 2023, with the remainder to be delivered thereafter into 2025.

The orders in our backlog from the Leasing Group are fully supported by lease commitments with external customers.

1 unchanged sentence

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

Three Months Ended

($ in millions)

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Number of sustainable railcar conversions (in units) 195 —

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

2021 2020 Percent 2021 2020 Percent

(in millions) Change (in millions) Change

Highway Products $ 83.7 $ 62.6 33.7 % $ 230.0 $ 195.3 17.8 %

Corporate and other

Three Months Ended March 31,

2022 2021 Percent Change

($ in millions)

Operating costs:

Cost of revenues 61.4 45.6 34.6 % 168.1 141.8 18.5 %

Selling, engineering, and administrative expenses

1 unchanged sentence

Gains on dispositions of property (6.5) (8.7) *

Operating profit $ 14.7 $ 7.3 101.4 % $ 42.8 $ 23.9 79.1 %

Operating profit margin 17.6 % 11.7 % 18.6 % 12.2 %

Operating loss $ (15.7) $ (16.1) (2.5) %

* Not meaningful

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.

Selling, engineering, and administrative expenses for the three months ended March 31, 2022 decreased 10.5%, compared to the three months ended March 31, 2021, primarily from lower litigation-related expenses and lower employee-related costs.

Total operating costs in both periods were favorably impacted 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 September 30, Nine Months Ended September 30,

2021 2020 Percent 2021 2020 Percent

(in millions) Change (in millions) Change

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

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

3 unchanged sentences

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

As of March 31, 2022, we have total committed liquidity of $717.9 million.

Our total available liquidity includes:

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Liquidity Highlights

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.

TRL-2021 – In June 2021, TRL-2021 issued $325.0 million of its Series 2021-1 Green Secured Railcar Equipment Notes.

These notes bear interest at an all-in interest rate of 2.31% and have a final maturity date of 2051.

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 $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.

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.

Dividend Payments – We paid $19.1 million in dividends to our common stockholders during the three months ended March 31, 2022.

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:

In December 2021, using a portion of the proceeds from the sale of THP, we entered into an ASR to repurchase $125.0 million of our common stock.

Approximately 3.3 million shares repurchased as part of the ASR on December 31, 2021 were delivered to the Company in January 2022 in accordance with normal settlement practices, representing approximately 80% of the total notional value of the ASR.

The ASR is expected to be completed during the third quarter of 2022, at which time any remaining shares will be delivered to the Company.

Share repurchase activity under the authorized program is as follows:

Shares Repurchased Remaining Authorization to Repurchase

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(in millions)

October 23, 2020 Authorization $ 250.0

September 9, 2021 Authorization $ 250.0

September 9, 2021 through September 30, 2021 — $ — $ 250.0

October 1, 2021 through December 31, 2021 5,155,491 151.9 $ 98.1 (1)

January 1, 2022 through March 31, 2022 — — $ 98.1 (1)

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 5,155,491 $ 151.9

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,

(1) Remaining authorization includes $25.0 million of committed share repurchases under the terms of the ASR.

Approximately $73.1 million of the share repurchase program will remain after the completion of the ASR.

The following table summarizes our cash flows from operating, investing, and financing activities for the three months ended March 31, 2022 and 2021:

Three Months Ended

(in millions)

4 unchanged sentences

Net cash flows from discontinued operations (8.0) (0.7)

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

Net increase in cash, cash equivalents, and restricted cash $ 49.0 $ 57.1

Operating Activities .

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.

Net cash provided by operating activities from continuing operations for the three months ended March 31, 2022 was $28.5 million compared to net cash provided by operating activities from continuing operations of $69.3 million for the three months ended March 31, 2021.

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

Nine Months Ended

September 30,

Three Months Ended

(in millions)

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Changes in operating assets and liabilities $ (33.1) $ 9.1

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, 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.

The changes in our operating assets and liabilities resulted in a net use of $33.1 million for the three months ended March 31, 2022, as compared to a net source of $9.1 million for the three months ended March 31, 2021.

Operating assets were impacted by cyclical shifts in anticipation of higher volumes of railcar deliveries in future periods, as well as continued supply chain challenges.

Investing Activities.

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.

Net cash used in investing activities for the three months ended March 31, 2022 was $0.2 million compared to $94.9 million of net cash used in investing activities from continuing operations for the three months ended March 31, 2021.

Significant investing activities are as follows:

• 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.

• We made a net investment in our lease fleet of $13.5 million during the three months ended March 31, 2022, compared to $90.6 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.

and is net of proceeds from lease portfolio sales.

• We acquired a company that owns and operates proprietary railcar cleaning technology systems during the three months ended March 31, 2021 for net cash of $16.6 million.

We had no acquisitions during the three months ended March 31, 2022.

Financing Activities.

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.

Net cash provided by financing activities during the three months ended March 31, 2022 was $28.7 million compared to $83.4 million of net cash provided by financing activities for the same period in 2021.

Significant financing activities are as follows:

• 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.

• During the three months ended March 31, 2022, we had total borrowings of $127.2 million and total repayments of $73.0 million, for net proceeds of $54.2 million, primarily from debt proceeds to support our investment in the lease fleet.

During the three months ended March 31, 2021, we had total borrowings of $327.7 million and total repayments of $185.3 million, for net proceeds of $142.4 million, primarily from debt proceeds to support our investment in the lease fleet.

• We paid $19.1 million and $23.2 million in dividends to our common stockholders during the three months ended March 31, 2022 and 2021, respectively.

• We repurchased common stock totaling $35.7 million during the three months ended March 31, 2021.

Certain shares of stock repurchased during March 2021, totaling $2.9 million, were cash settled in April 2021 in accordance with normal settlement practices.

There were no shares repurchased during the three months ended March 31, 2022.

Current Debt Obligations

The revolving credit facility contains several financial covenants that require the maintenance of ratios related to minimum interest coverage for the leasing and manufacturing operations and maximum leverage.

In March 2021, we amended our revolving credit facility to increase the maximum leverage ratio through March 31, 2022 and to decrease the minimum interest coverage ratio through December 31, 2021 to provide additional near-term flexibility.

In December 2021, we amended our revolving credit facility to increase the maximum leverage ratio through June 30, 2022 to provide additional near-term flexibility.

A summary of our financial covenants is detailed below:

Ratio Covenant Actual at

September 30, 2021

March 31, 2022

Maximum leverage (1)

2 unchanged sentences

No less than 2.25 to 1.00 7.45

(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 September 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 September 30, 2021.

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

As of March 31, 2022, we were in compliance with all such financial covenants.

Please refer to Note 8 of the Consolidated Financial Statements for a description of our current debt obligations.

Supplemental Guarantor Financial Information

Our Senior Notes are fully and unconditionally and jointly and severally guaranteed by certain of Trinity’s 100%-owned subsidiaries:

Our 4.55% senior notes due 2024 ("Senior Notes") are fully and unconditionally and jointly and severally guaranteed by certain of Trinity’s 100%-owned subsidiaries:

Trinity Industries Leasing Company;

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Trinity Tank Car, Inc.;

Trinity Highway Products, LLC;

and TrinityRail Maintenance Services, Inc.

3 unchanged sentences

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

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.

As of March 31, 2022, assets held by the Non-Guarantor Subsidiaries included $188.6 million of restricted cash that was not available for distribution to Trinity Industries, Inc.

(“Parent”), $6,629.5 million of equipment securing certain non-recourse debt, and $472.6 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.

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Summarized Statement of Operations:

2 unchanged sentences

Net income (loss)

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Summarized Balance Sheets:

10 unchanged sentences

Noncontrolling interest $ 263.6 $ 267.0

(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.

(1) There were no net sales from the obligor group to Non-Guarantor Subsidiaries during the three months ended March 31, 2022.

(2) Cost of revenues includes $51.3 million of purchases from Non-Guarantor Subsidiaries during the three months ended March 31, 2022.

(3) Receivables, net of allowance includes $89.5 million and $93.5 million of receivables from Non-Guarantor Subsidiaries as of March 31, 2022 and December 31, 2021, respectively.

(4) Accounts payable includes $16.8 million and $29.7 million of payables to Non-Guarantor Subsidiaries as of March 31, 2022 and December 31, 2021, respectively.

Capital Expenditures

4 unchanged sentences

Off Balance Sheet Arrangements

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.

As of March 31, 2022, we had letters of credit issued under our revolving credit facility 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 may use derivative instruments to mitigate the impact of changes in interest rates, both in anticipation of future debt issuances and to offset interest rate variability of certain floating rate debt issuances outstanding.

We also may use derivative instruments from time to time to mitigate the impact of changes in natural gas and diesel fuel prices and changes in foreign currency exchange rates.

Derivative instruments that are designated and qualify as cash flow hedges are accounted for in accordance with applicable accounting standards.

4 unchanged sentences

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, and our revolving credit facility.

LLC 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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Total Free Cash Flow After Investments and Dividends ("Free Cash Flow") is a non-GAAP financial measure.

The change in presentation of sales of railcars from the lease fleet, which was effected on a prospective basis beginning in the fourth quarter of 2020, had no effect on the Company’s previously reported Free Cash Flow.

We believe Free Cash Flow is useful to both management and investors as it provides a relevant measure of liquidity and a useful basis for assessing our ability to fund our operations and repay our debt.

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 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.

Nine Months Ended September 30, 2021

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 table.

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 leased railcars.

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

Three Months Ended

(in millions)

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Free Cash Flow (before Capital expenditures – leasing)

Equity CapEx for new leased railcars (227.0)

Equity CapEx for leased railcars (30.4) 34.5

Total Free Cash Flow After Investments and Dividends $ 47.8 $ 90.5

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Net proceeds from (repayments of) debt 54.2 142.4

Equity CapEx for new leased railcars $ 227.0

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.

Nine Months Ended September 30, 2020

(in millions)

Net cash provided by operating activities – continuing operations $ 456.8

Proceeds from railcar lease fleet sales owned more than one year at the time of sale 138.7

Adjusted Net Cash Provided by Operating Activities 595.5

Capital expenditures – manufacturing and other (70.7)

Dividends paid to common stockholders (67.8)

Free Cash Flow (before Capital expenditures – leasing)

Equity CapEx for new leased railcars (408.5)

Total Free Cash Flow After Investments and Dividends $ 48.5

Capital expenditures – leasing, net of sold lease fleet railcars owned one year or less of $54.0

Payments to retire debt (795.5)

Proceeds from issuance of debt 835.8

Net proceeds from (repayments of) debt 40.3

Equity CapEx for new leased railcars $ 408.5

Equity CapEx for leased railcars $ 30.4 $ (34.5)

Contractual Obligations and Commercial Commitments

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.

• In June 2021, Triumph Rail issued $560.4 million of its Series 2021-2 Green Secured Railcar Equipment Notes.

These notes have a stated final maturity date of 2051.

Additionally, Triumph Rail redeemed its existing Secured Railcar Equipment Notes, of which $885.0 million was outstanding as of December 31, 2020.

• In June 2021, TRIP Railcar Co.

drew down $ 329.6 million under a term loan agreement with a stated maturity date of June 2025.

• In June 2021, TRP-2021 issued $355.0 million of its Series 2021-1 Green Secured Railcar Equipment Notes.

These notes have a stated final maturity date of 2051.

Additionally, TRP-2021 redeemed its existing Secured Railcar Equipment Notes, of which $352.5 million was outstanding as of December 31, 2020.

• In June 2021, TRL-2021 issued $325.0 million of its Series 2021-1 Green Secured Railcar Equipment Notes.

These notes have a stated final maturity date of 2051.

See Note 7 of the Consolidated Financial Statements for additional information regarding these debt transactions.

As of March 31, 2022, there have been no material changes to our contractual obligations from December 31, 2021.

Recent Accounting Pronouncements

There have been no material changes in recently issued or adopted accounting standards from those disclosed in our 2020 Annual Report on Form 10-K.

There have been no material changes in recently issued or adopted accounting standards during the three months ended March 31, 2022.

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