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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________ .
Commission File Number 1-6903
(Exact name of registrant as specified in its charter)
Delaware75-0225040
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No.)
14221 N. Dallas Parkway, Suite 1100
Dallas,Texas75254-2957
(Address of principal executive offices)
(Zip Code)
(214) 631-4420
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange
on which registered
Common StockTRNNew York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ  No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes þ   No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer ¨ Non-accelerated filer ¨
Smaller reporting company  Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No þ
At April 20, 2021, the number of shares of common stock, $0.01 par value, outstanding was 109,335,696.



TRINITY INDUSTRIES, INC.
FORM 10-Q
TABLE OF CONTENTS
 
CaptionPage



2

Table of Contents
PART I
Item 1. Financial Statements
Trinity Industries, Inc. and Subsidiaries
Consolidated Statements of Operations
(unaudited)
 Three Months Ended
March 31,
 20212020
 (in millions, except per share amounts)
Revenues:
Manufacturing$215.5 $379.1 
Leasing183.3 236.1 
398.8 615.2 
Operating costs:
Cost of revenues:
Manufacturing199.3 343.4 
Leasing96.7 138.6 
296.0 482.0 
Selling, engineering, and administrative expenses:
Manufacturing20.4 21.9 
Leasing11.3 14.3 
Other22.7 28.1 
54.4 64.3 
Gains on dispositions of property:
Lease portfolio sales (Note 1)1.7 8.7 
Other9.8 0.9 
11.5 9.6 
Restructuring activities, net(0.3)5.5 
Total operating profit60.2 73.0 
Other (income) expense:
Interest income (0.1)(2.4)
Interest expense51.4 61.3 
Other, net 1.2 (0.8)
52.5 58.1 
Income from continuing operations before income taxes7.7 14.9 
Provision (benefit) for income taxes:
Current4.8 (372.8)
Deferred1.2 225.2 
6.0 (147.6)
Income from continuing operations1.7 162.5 
Loss from discontinued operations, net of provision (benefit) for income taxes of $0.4 and $(0.1)
(0.4)(0.2)
Net income1.3 162.3 
Net income (loss) attributable to noncontrolling interest(2.0)0.6 
Net income attributable to Trinity Industries, Inc.$3.3 $161.7 
Basic earnings per common share:
Income from continuing operations$0.03 $1.36 
Income (loss) from discontinued operations  
Basic net income attributable to Trinity Industries, Inc.$0.03 $1.36 
Diluted earnings per common share:
Income from continuing operations$0.03 $1.33 
Income (loss) from discontinued operations  
Diluted net income attributable to Trinity Industries, Inc.$0.03 $1.33 
Weighted average number of shares outstanding:
Basic110.2 118.0 
Diluted112.6 119.9 
See accompanying notes to Consolidated Financial Statements.
3

Table of Contents
Trinity Industries, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
Three Months Ended
March 31,
 20212020
 (in millions)
Net income$1.3 $162.3 
Other comprehensive income (loss):
Derivative financial instruments:
Unrealized gains (losses) arising during the period, net of tax benefit (expense) of $(2.0) and $7.7
6.2 (25.6)
Reclassification adjustments for (gains) losses included in net income, net of tax benefit of $0.9 and $0.5
(0.9)1.0 
Defined benefit plans:
Amortization of prior service cost, net of tax benefit of $ and $0.1
 0.2 
Amortization of net actuarial losses, net of tax benefit of $ and $0.3
0.1 1.2 
5.4 (23.2)
Comprehensive income6.7 139.1 
Less: comprehensive income (loss) attributable to noncontrolling interest(1.7)0.9 
Comprehensive income attributable to Trinity Industries, Inc.$8.4 $138.2 
See accompanying notes to Consolidated Financial Statements.
4

Table of Contents
Trinity Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 2021December 31, 2020
(unaudited)
 (in millions)
ASSETS
Cash and cash equivalents$178.1 $132.0 
Receivables, net of allowance197.3 199.0 
Income tax receivable440.5 445.8 
Inventories:
Raw materials and supplies174.3 176.4 
Work in process59.5 52.2 
Finished goods87.1 92.6 
320.9 321.2 
Restricted cash, including partially-owned subsidiaries of $32.9 and $31.1
107.4 96.4 
Property, plant, and equipment, at cost, including partially-owned subsidiaries of $1,931.1 and $1,931.6
9,259.8 9,193.0 
Less accumulated depreciation, including partially-owned subsidiaries of $537.6 and $525.7
(2,233.0)(2,189.6)
7,026.8 7,003.4 
Goodwill215.7 208.8 
Other assets288.8 295.2 
Total assets$8,775.5 $8,701.8 
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable$159.2 $156.4 
Accrued liabilities276.3 314.7 
Debt:
Recourse398.2 448.2 
Non-recourse:
Wholly-owned subsidiaries3,550.5 3,340.5 
Partially-owned subsidiaries1,216.4 1,228.3 
5,165.1 5,017.0 
Deferred income taxes1,051.5 1,047.5 
Other liabilities155.5 150.2 
Total liabilities6,807.6 6,685.8 
Preferred stock – 1.5 shares authorized and unissued
  
Common stock – 400.0 shares authorized
1.1 1.1 
Capital in excess of par value6.1  
Retained earnings1,749.4 1,769.4 
Accumulated other comprehensive loss(25.8)(30.9)
Treasury stock(38.4)(0.8)
1,692.4 1,738.8 
Noncontrolling interest275.5 277.2 
Total stockholders' equity1,967.9 2,016.0 
Total liabilities and stockholders' equity$8,775.5 $8,701.8 
See accompanying notes to Consolidated Financial Statements.
5

Table of Contents
Trinity Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended
March 31,
 20212020
 (in millions)
Operating activities:
Net income$1.3 $162.3 
Loss from discontinued operations, net of provision (benefit) for income taxes0.4 0.2 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization66.6 66.9 
Stock-based compensation expense5.4 7.3 
Provision for deferred income taxes1.2 225.2 
Net gains on lease portfolio sales(1.7)(8.7)
Gains on dispositions of property and other assets (10.5)(4.7)
Non-cash impact of restructuring activities 5.2 
Non-cash interest expense3.0 3.7 
Loss on early extinguishment of debt 5.0 
Other5.5 2.0 
Changes in operating assets and liabilities:
(Increase) decrease in receivables1.0 (37.8)
(Increase) decrease in income tax receivable1.2 (374.4)
(Increase) decrease in inventories2.5 (8.6)
(Increase) decrease in other assets6.4 159.4 
Increase (decrease) in accounts payable2.8 3.3 
Increase (decrease) in accrued liabilities(10.4)(30.8)
Increase (decrease) in other liabilities(4.6)(1.7)
Net cash provided by operating activities – continuing operations70.1 173.8 
Net cash used in operating activities – discontinued operations(0.4)(0.2)
Net cash provided by operating activities69.7 173.6 
Investing activities:
Proceeds from dispositions of property and other assets19.8 9.8 
Proceeds from lease portfolio sales17.3 68.5 
Capital expenditures – leasing (net of sold lease fleet railcars owned one year or less with a net cost of $42.5 for the three months ended March 31, 2020)
(107.9)(129.2)
Capital expenditures – manufacturing and other(8.5)(14.0)
Acquisitions, net of cash acquired(16.6) 
Other(0.1)0.3 
Net cash used in investing activities(96.0)(64.6)
Financing activities:
Payments to retire debt(185.3)(471.4)
Proceeds from issuance of debt327.7 452.4 
Shares repurchased(35.7)(35.4)
Dividends paid to common shareholders(23.2)(22.7)
Purchase of shares to satisfy employee tax on vested stock(0.1) 
Net cash provided by (used in) financing activities83.4 (77.1)
Net increase in cash, cash equivalents, and restricted cash57.1 31.9 
Cash, cash equivalents, and restricted cash at beginning of period228.4 277.6 
Cash, cash equivalents, and restricted cash at end of period$285.5 $309.5 
See accompanying notes to Consolidated Financial Statements.
6

Table of Contents
Trinity Industries, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(unaudited)
Common
Stock
Capital in
Excess of
Par Value
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Trinity
Stockholders’
Equity
Noncontrolling
Interest
Total
Stockholders’
Equity
 Shares
$0.01 Par Value
SharesAmount
 (in millions, except par value and per common share amounts)
Balances at
   December 31, 2020
111.2 $1.1 $ $1,769.4 $(30.9)(0.1)$(0.8)$1,738.8 $277.2 $2,016.0 
Net income (loss)— — — 3.3 — — — 3.3 (2.0)1.3 
Other comprehensive income— — — — 5.1 — — 5.1 0.3 5.4 
Cash dividends declared on common stock (1)
— — — (23.3)— — — (23.3)— (23.3)
Stock-based compensation expense
— — 5.4 — — — — 5.4 — 5.4 
Shares repurchased— — — — — (1.3)(36.8)(36.8)— (36.8)
Settlement of share-based awards, net— — 0.7 — — — (0.8)(0.1)— (0.1)
Balances at
   March 31, 2021
111.2 $1.1 $6.1 $1,749.4 $(25.8)(1.4)$(38.4)$1,692.4 $275.5 $1,967.9 

Common
Stock
Capital in
Excess of
Par Value
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Trinity
Stockholders’
Equity
Noncontrolling
Interest
Total
Stockholders’
Equity
 Shares
$0.01 Par Value
SharesAmount
 (in millions, except par value and per common share amounts)
Balances at
   December 31, 2019
119.7 $1.2 $ $2,182.9 $(153.1)(0.1)$(0.9)$2,030.1 $348.8 $2,378.9 
Net income— — — 161.7 — — — 161.7 0.6 162.3 
Other comprehensive income (loss)— — — — (23.5)— — (23.5)0.3 (23.2)
Cash dividends declared on common stock (1)
— — — (24.6)— — — (24.6)— (24.6)
Stock-based compensation expense
— — 7.3 — — — — 7.3 — 7.3 
Shares repurchased— — — — — (1.9)(35.4)(35.4)— (35.4)
Settlement of share-based awards, net— — 0.7 — — — (0.9)(0.2)— (0.2)
Cumulative effect of adopting new accounting standard
— — — 0.5 — — — 0.5 — 0.5 
Other
— — — 0.5 — — — 0.5 — 0.5 
Balances at
   March 31, 2020
119.7 $1.2 $8.0 $2,321.0 $(176.6)(2.0)$(37.2)$2,116.4 $349.7 $2,466.1 
(1) Dividends of $0.21 and $0.19 per common share for the three months ended March 31, 2021 and 2020, respectively.

See accompanying notes to Consolidated Financial Statements.
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Trinity Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The foregoing Consolidated Financial Statements are unaudited and have been prepared from the books and records of Trinity Industries, Inc. and its consolidated subsidiaries (“Trinity,” “Company,” “we,” “our,” or "us") including the accounts of our wholly-owned subsidiaries and partially-owned subsidiaries, TRIP Rail Holdings LLC (“TRIP Holdings”) and RIV 2013 Rail Holdings LLC ("RIV 2013"), in which we have a controlling interest. In our opinion, all normal and recurring adjustments necessary for a fair presentation of our financial position as of March 31, 2021, and the results of operations for the three months ended March 31, 2021 and 2020, and cash flows for the three months ended March 31, 2021 and 2020, have been made in conformity with generally accepted accounting principles. All significant intercompany accounts and transactions have been eliminated.
Due to seasonal and other factors, including the impacts of the coronavirus pandemic (“COVID-19”) and the related governmental response, the results of operations for the three months ended March 31, 2021 may not be indicative of expected results of operations for the year ending December 31, 2021. These interim financial statements and notes are condensed as permitted by the instructions to Form 10-Q and should be read in conjunction with our audited Consolidated Financial Statements included in our Form 10-K for the year ended December 31, 2020.
Revenue Recognition
Revenue is measured based on the allocation of the transaction price in a contract to satisfied performance obligations. The transaction price does not include any amounts collected on behalf of third parties. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer. Payments for our products and services are generally due within normal commercial terms. The following is a description of principal activities from which we generate our revenue, separated by reportable segments. See Note 3 for a further discussion regarding our reportable segments.
Railcar Leasing and Management Services Group
In our Railcar Leasing and Management Services Group ("Leasing Group"), revenue from rentals and operating leases, including contracts that contain non-level fixed lease payments, is recognized monthly on a straight-line basis. Leases not classified as operating leases are generally considered sales-type leases as a result of an option to purchase.
We review our operating lease receivables for collectibility on a regular basis, taking into consideration changes in factors such as the lessee’s payment history, the financial condition of the lessee, and business and economic conditions in the industry in which the lessee operates. In the event that the collectibility of a receivable with respect to any lessee is no longer probable, we derecognize the revenue and related receivable and recognize future revenue only when the lessee makes a rental payment. Contingent rents are recognized when the contingency is resolved.
Selling profit or loss associated with sales-type leases is recognized upon lease commencement, and a net investment in the sales-type lease is recorded on the Consolidated Balance Sheet. Interest income related to sales-type leases is recognized over the lease term using the effective interest method. We had no sales-type leases as of March 31, 2021 and December 31, 2020.
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 will 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 will be 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 months ended March 31, 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.
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We account for shipping and handling costs as activities to fulfill the promise to transfer the good; as such, these fees are recorded in revenue. The fees and costs of shipping and handling activities are accrued when the related performance obligation has been satisfied.
Rail Products Group
Our railcar manufacturing business recognizes revenue when the customer has submitted its certificate of acceptance and legal title of the railcar has passed to the customer. Certain contracts for the sales of railcars include price adjustments based on steel-price indices; this amount represents variable consideration for which we are unable to estimate the final consideration until the railcar is delivered.
Within our maintenance services business, revenue is recognized over time as repair and maintenance projects are completed, using an input approach based on the costs incurred relative to the total estimated costs of performing the project. We recorded contract assets of $6.2 million and $4.4 million as of March 31, 2021 and December 31, 2020, respectively, related to unbilled revenues recognized on repair and maintenance services that have been performed, but for which the entire project has not yet been completed, and the railcar has not yet been shipped to the customer. These contract assets are included within the Receivables, net of allowance line in our Consolidated Balance Sheets.
All Other
Our highway products business recognizes revenue when shipment has occurred and legal title of the product has passed to the customer.
Unsatisfied Performance Obligations
The following table includes estimated revenue expected to be recognized in future periods related to performance obligations that are unsatisfied or partially satisfied as of March 31, 2021 and the percentage of the outstanding performance obligations as of March 31, 2021 expected to be delivered during the remainder of 2021:
Unsatisfied performance obligations at March 31, 2021
Total
Amount
Percent expected to be delivered in 2021
 (in millions)
Rail Products Group:
Rail products:
External customers$694.1 
Leasing Group295.8 
$989.9 55.3 %
Maintenance services$3.3 100.0 %
Railcar Leasing and Management Services Group$78.2 17.6 %
The remainder of the unsatisfied performance obligations for the Rail Products Group is expected to be delivered through 2024. Unsatisfied performance obligations for the Railcar Leasing and Management Services Group are related to servicing, maintenance, and management agreements and are expected to be performed through 2029.
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Lease Accounting
Lessee
We are the lessee of operating leases predominantly for railcars, as well as office buildings, manufacturing equipment, and office equipment. Our operating leases have remaining lease terms ranging from one year to sixteen years, some of which include options to extend for up to five years, and some of which include options to terminate within one year. As of March 31, 2021, we had no material finance leases in which we were the lessee. Certain of our operating leases include lease incentives, which reduce the right-of-use asset and are recognized on a straight-line basis over the lease term. As applicable, the lease liability is also reduced by the amount of lease incentives that have not yet been reimbursed by the lessor.
The following table summarizes the impact of our operating leases on our Consolidated Financial Statements (in millions, except lease term and discount rate):
Three Months Ended
March 31,
20212020
Consolidated Statements of Operations
Operating lease expense$3.7 $3.9 
Short-term lease expense$ $0.2 
March 31, 2021December 31, 2020
Consolidated Balance Sheets
Right-of-use assets (1)
$86.9 $77.1 
Lease liabilities (2)
$110.2 $96.9 
Weighted average remaining lease term10.9 years11.3 years
Weighted average discount rate3.1 %3.3 %
Three Months Ended
March 31,
20212020
Consolidated Statements of Cash Flows
Cash flows from operating activities$3.7 $3.9 
Right-of-use assets recognized in exchange for new lease liabilities$13.8 $2.1 
(1) Included in other assets in our Consolidated Balance Sheet.
(2) Included in other liabilities in our Consolidated Balance Sheet.
Future contractual minimum operating lease liabilities will mature as follows (in millions):
Leasing GroupNon-Leasing GroupTotal
Remaining nine months of 2021$7.6 $3.1 $10.7 
20229.3 8.0 17.3 
20237.6 8.1 15.7 
20244.3 6.9 11.2 
20252.4 6.2 8.6 
Thereafter3.8 64.8 68.6 
Total operating lease payments$35.0 $97.1 $132.1 
Less: Present value adjustment(21.9)
Total operating lease liabilities$110.2 

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Lessor
Our Leasing Group enters into railcar operating leases with third parties with terms generally ranging between one year and ten years. The majority of our fleet operates on leases that earn fixed monthly lease payments. Generally, lease payments are due at the beginning of the applicable month. A portion of our fleet operates on per diem leases that earn usage-based variable lease payments. Some of our leases include options to extend the leases for up to five years, and a small percentage of our leases include options to terminate within one year with certain notice requirements and early termination penalties. As of March 31, 2021, non-Leasing Group operating leases were not significant, and we had no sales-type leases and no direct finance leases.
We manage risks associated with residual values of leased railcars by investing across a diverse portfolio of railcar types, staggering lease maturities within any given railcar type, avoiding concentration of railcar type and industry, and are active participants in secondary markets. Additionally, our lease agreements contain normal wear and tear return condition provisions and high mileage thresholds designed to protect the value of our residual assets. Our lease agreements do not contain any material residual value guarantees or restrictive covenants.
The following table summarizes the impact of our leases on our Consolidated Statement of Operations:
Three Months Ended
March 31,
20212020
(in millions)
Operating lease revenues$163.0 $172.2 
Variable operating lease revenues$13.4 $12.6 
Interest income on sales-type lease receivables$ $1.7 

Future contractual minimum revenues for operating leases will mature as follows (in millions)(1):
Remaining nine months of 2021$423.5 
2022457.5 
2023339.8 
2024252.7 
2025174.9 
Thereafter307.6 
Total$1,956.0 
(1) Total contractual minimum rental revenues on operating leases relates to our wholly-owned and partially-owned subsidiaries and sub-lease rental revenues associated with the Leasing Group's operating lease obligations.
Financial Instruments
We consider all highly liquid debt instruments to be either cash and cash equivalents if purchased with a maturity of three months or less, or short-term marketable securities if purchased with a maturity of more than three months and less than one year.
Financial instruments that potentially subject us to a concentration of credit risk are primarily cash investments including restricted cash and receivables. We place our cash investments in bank deposits and investment grade, short-term debt instruments and limit the amount of credit exposure to any one commercial issuer. The carrying values of cash, receivables, and accounts payable are considered to be representative of their respective fair values.
Concentrations of credit risk with respect to receivables are limited due to control procedures that monitor the credit worthiness of customers, the large number of customers in our customer base, and their dispersion across different end markets and geographic areas. Receivables are generally evaluated at a portfolio level based on these characteristics. As receivables are generally unsecured, we maintain an allowance for credit losses using a forward-looking approach based on historical losses and consideration of current and expected future economic conditions. Historically, we have observed that the likelihood of loss increases when receivables have aged beyond 180 days. When a receivable is deemed uncollectible, the write-off is recorded as a reduction to allowance for credit losses. The balance for allowance for credit losses that are in the scope of ASC 326 was $9.4 million and $9.3 million at March 31, 2021 and December 31, 2020, respectively. This balance excludes the general reserve for operating lease receivables that is permitted under ASC 450.
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Acquisitions
In January 2021, we completed the acquisition of a company that owns and operates proprietary railcar cleaning technology systems. This transaction was recorded as a business combination within the Rail Products Group, based on preliminary valuations of the acquired assets and liabilities at their acquisition date fair value using Level 3 inputs. The acquisition did not have a significant impact on our Consolidated Financial Statements. This transaction resulted in goodwill of $6.9 million. There was no acquisition activity for the three months ended March 31, 2020.
Goodwill
As of March 31, 2021 and December 31, 2020, the carrying amount of our goodwill totaled $215.7 million and $208.8 million, respectively, which is primarily attributable to the Rail Products Group.
Warranties
We provide various express, limited product warranties that generally range from one year to five years depending on the product. The warranty costs are estimated using a two-step approach. First, an engineering estimate is made for the cost of all claims that have been asserted by customers. Second, based on historical claims experience, a cost is accrued for all products still within a warranty period for which no claims have been filed. We provide for the estimated cost of product warranties at the time revenue is recognized related to products covered by warranties and assess the adequacy of the resulting reserves on a quarterly basis. The changes in the accruals for warranties for the three months ended March 31, 2021 and 2020 are as follows:
 Three Months Ended
March 31,
20212020
 (in millions)
Beginning balance$11.7 $8.1 
Warranty costs incurred(0.5)(0.9)
Warranty originations and revisions(3.6)0.6 
Warranty expirations(0.2)(0.1)
Ending balance$7.4 $7.7 
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Note 2. Derivative Instruments and Fair Value Accounting
Derivative Instruments
We 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 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 by recording the effective portion of the gain or loss on the derivative instrument in accumulated other comprehensive loss ("AOCL") as a separate component of stockholders' equity and reclassified into earnings in the period during which the hedged transaction affects earnings. We continuously monitor our derivative positions and the credit ratings of our counterparties and do not anticipate losses due to non-performance. See Note 7 for a description of our debt instruments.
Interest Rate Hedges
   
Included in accompanying balance sheet
at March 31, 2021
AOCL – loss/(income)
 Notional Amount
Interest Rate (1)
Asset/(Liability) Controlling InterestNoncontrolling Interest
 (in millions, except %)
Expired hedges:
2018 secured railcar equipment notes$249.3 4.41 %$ $0.8 $ 
TRIP Holdings warehouse loan$788.5 3.60 %$ $1.1 $1.5 
TRIP Master Funding secured railcar equipment notes
$34.8 2.62 %$ $ $0.1 
2017 promissory notes - interest rate cap
$169.3 3.00 %$ $(0.5)$ 
Open hedge:
2017 promissory notes - interest rate swap$481.3 2.66 %$(33.4)$32.9 $ 
(1) Weighted average fixed interest rate, except for the interest rate cap on the 2017 promissory notes.
 Effect on interest expense-increase/(decrease)
 Three Months Ended
March 31,
Expected effect during next twelve months
 20212020
 (in millions)
Expired hedges:
2006 secured railcar equipment notes$ $(0.1)$ 
2018 secured railcar equipment notes
$0.1 $0.1 $0.2 
TRIP Holdings warehouse loan$0.5 $0.5 $1.7 
TRIP Master Funding secured railcar equipment notes
$ $0.1 $0.1 
2017 promissory notes - interest rate cap
$ $ $(0.1)
Open hedge (1):
2017 promissory notes - interest rate swap
$3.1 $1.7 $12.4 
(1) Based on the fair value of open hedges as of March 31, 2021.
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Other Derivatives
  
Included in 
accompanying balance sheet at March 31, 2021
Effect on cost of revenues – increase/(decrease)
Notional
Amount
Asset/(Liability)AOCL –
loss/(income)
Three Months Ended
March 31,
Expected effect during next twelve months (1)
 20212020
 (in millions)
Foreign currency hedge
$40.0 $1.6 $(3.1)$(3.7)$(0.8)$(3.1)
(1) Based on the fair value of open hedges as of March 31, 2021.
Our exposure related to foreign currency transactions is currently hedged for up to a maximum of twelve months. The effect of commodity hedge transactions was immaterial to the Consolidated Financial Statements for all periods presented herein.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for that asset or liability in an orderly transaction between market participants on the measurement date. An entity is required to establish a fair value hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are listed below.
Level 1 – This level is defined as quoted prices in active markets for identical assets or liabilities. Our cash equivalents and restricted cash are instruments of the U.S. Treasury or highly-rated money market mutual funds. The assets measured as Level 1 in the fair value hierarchy are summarized below:
Level 1
 March 31, 2021December 31, 2020
(in millions)
Assets:
Cash equivalents$8.3 $24.2 
Restricted cash107.4 96.4 
Total assets$115.7 $120.6 
Level 2 – This level is defined as observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Interest rate hedges are valued at exit prices obtained from each counterparty. Foreign currency hedges are valued at exit prices obtained from each counterparty, which are based on currency spot and forward rates and forward points. The assets and liabilities measured as Level 2 in the fair value hierarchy are summarized below:
Level 2
 March 31, 2021December 31, 2020
(in millions)
Assets:
Foreign currency hedge (1)
$1.6 $4.8 
Total assets$1.6 $4.8 
Liabilities:
Interest rate hedge (2)
$33.4 $45.2 
Total liabilities$33.4 $45.2 
(1) Included in other assets in our Consolidated Balance Sheets.
(2) Included in accrued liabilities in our Consolidated Balance Sheets.

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Level 3 – This level is defined as unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. As of March 31, 2021 and December 31, 2020, we have no assets measured as Level 3 in the fair value hierarchy.
See Note 7 for the estimated fair values of our debt instruments. The fair values of all other financial instruments are estimated to approximate carrying value.
Note 3. Segment Information
We report our operating results in three principal business segments: (1) the Railcar Leasing and Management Services 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.
Gains and losses from the sale of property, plant, and equipment are included in the operating profit of each respective segment. Our Chief Operating Decision Maker ("CODM") regularly reviews the operating results of our reportable segments in order to assess performance and allocate resources. Our CODM does not consider restructuring activities when evaluating segment operating results; therefore, restructuring activities are not allocated to segment profit or loss.
Sales and related net profits ("deferred profit") from the Rail Products Group to the Leasing Group are recorded in the Rail Products Group and eliminated in consolidation and are reflected in "Eliminations – Lease Subsidiary" in the tables below. Sales between these groups are recorded at prices comparable to those charged to external customers, taking into consideration quantity, features, and production demand. Amortization of deferred profit on railcars sold to the Leasing Group is included in the operating profit of the Leasing Group, resulting in the recognition of depreciation expense based on our original manufacturing cost of the railcars. Lease portfolio sales are included in the Leasing Group, with related gains and losses computed based on the net book value of the original manufacturing cost of the railcars.
The financial information for these segments is shown in the tables below (in millions). We operate principally in North America.
Three Months Ended March 31, 2021
Railcar Leasing and Management Services GroupRail Products GroupAll OtherEliminations – Lease SubsidiaryEliminations – OtherConsolidated Total
External Revenue$183.3 $147.4 $68.1 $— $— $398.8 
Intersegment Revenue0.2 113.6  (111.3)(2.5) 
Total Revenues$183.5 $261.0 $68.1 $(111.3)$(2.5)$398.8 

Three Months Ended March 31, 2020
Railcar Leasing and Management Services GroupRail Products GroupAll OtherEliminations – Lease SubsidiaryEliminations – OtherConsolidated Total
External Revenue$236.1 $317.2 $61.9 $— $— $615.2 
Intersegment Revenue0.2 192.2 1.5 (190.4)(3.5)— 
Total Revenues$236.3 $509.4 $63.4 $(190.4)$(3.5)$615.2 

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The reconciliation of segment operating profit to consolidated net income is as follows:
 Three Months Ended March 31,
 20212020
 (in millions)
Operating profit (loss):
Railcar Leasing and Management Services Group$78.3 $92.9 
Rail Products Group(8.8)