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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
 
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-6903
402906625_trinitylogoseca01.jpg
(Exact name of registrant as specified in its charter)
Delaware
75-0225040
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
 
 
 
2525 N. Stemmons Freeway
 
Dallas,
Texas
75207-2401
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (214631-4420
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 Stock
TRN
New York Stock Exchange
Securities registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ   No ¨
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ
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
The aggregate market value of voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the Registrant's most recently completed second fiscal quarter (June 28, 2019) was $2,154.2 million.
At January 31, 2020, the number of shares of common stock, $0.01 par value, outstanding was 119,704,056.
The information required by Part III of this report, to the extent not set forth herein, is incorporated by reference from the Registrant's definitive 2020 Proxy Statement.


1


TRINITY INDUSTRIES, INC.
FORM 10-K
TABLE OF CONTENTS
 
Caption
Page
 
 
 
 
 
 
 
 
 
 

2


Forward-Looking Statements
This annual report on Form 10-K (or statements otherwise made by the Company or on the Company’s behalf from time to time in other reports, filings with the Securities and Exchange Commission (“SEC”), news releases, conferences, website postings or otherwise) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not historical facts are forward-looking statements and involve risks and uncertainties. These forward-looking statements include expectations, beliefs, plans, objectives, future financial performances, estimates, projections, goals, and forecasts. Trinity uses the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “forecasts,” “may,” “will,” “should,” and similar expressions to identify these forward-looking statements. Potential factors which could cause our actual results of operations to differ materially from those in the forward-looking statements include, among others:
market conditions and customer demand for our business products and services;
the cyclical nature of the industries in which we compete;
variations in weather in areas where our products are sold, used, or installed;
naturally-occurring events, pandemics, and/or disasters causing disruption to our manufacturing, product deliveries, and production capacity, thereby giving rise to an increase in expenses, loss of revenue, and property losses;
the timing of introduction of new products;
the timing and delivery of customer orders, sales of leased railcars, or a breach of customer contracts;
the creditworthiness of customers and their access to capital;
product price changes;
changes in mix of products sold;
the costs incurred to align manufacturing capacity with demand and the extent of its utilization;
the operating leverage and efficiencies that can be achieved by our manufacturing businesses;
availability and costs of steel, component parts, supplies, and other raw materials;
competition and other competitive factors;
changing technologies;
surcharges and other fees added to fixed pricing agreements for steel, component parts, supplies, and other raw materials;
interest rates and capital costs;
counter-party risks for financial instruments;
long-term funding of our operations;
taxes;
the stability of the governments and political and business conditions in certain foreign countries, particularly Mexico;
changes in import and export quotas and regulations;
business conditions in emerging economies;
costs and results of litigation, including trial and appellate costs;
changes in accounting standards or inaccurate estimates or assumptions in the application of accounting policies;
legal, regulatory, and environmental issues, including compliance of our products with mandated specifications, standards, or testing criteria and obligations to remove and replace our products following installation or to recall our products and install different products manufactured by us or our competitors;
actions by U.S. and/or foreign governments (particularly Mexico and Canada) relative to federal government budgeting, taxation policies, government expenditures, borrowing/debt ceiling limits, tariffs, and trade policies;
the use of social or digital media to disseminate false, misleading and/or unreliable or inaccurate information;
the inability to sufficiently protect our intellectual property rights;
if the Company does not realize some or all of the benefits expected to result from the spin-off of Arcosa, Inc. ("Arcosa"), a public company focused on infrastructure-related products and services, or if such benefits are delayed; and
if the 2018 distribution of shares of Arcosa, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, the Company's stockholders at the time of the distribution and the Company could be subject to significant tax liability.
Any forward-looking statement speaks only as of the date on which such statement is made. Except as required by federal securities laws, Trinity undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made. For a discussion of risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see Item 1A, “Risk Factors” included elsewhere herein.

3


PART I
Item 1. Business.
General
Trinity Industries, Inc. and its consolidated subsidiaries (“Trinity,” “Company,” “we,” “our,” or “us”) own businesses that are leading providers of railcar products and services in North America. Our rail-related businesses market their railcar products and services under the trade name TrinityRail®. 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, as well as a logistics business that primarily provides support services to Trinity.
Trinity was incorporated in 1933 and became a Delaware corporation in 1987. We are headquartered in Dallas, Texas, and our principal executive offices are located at 2525 N. Stemmons Freeway, Dallas, Texas 75207-2401. Our telephone number is 214-631-4420, and our Internet website address is www.trin.net.
Unless otherwise stated, any reference to income statement items in this Annual Report on Form 10-K (the "Form 10-K") refers to results from continuing operations.
We report our operating results in three reportable segments.
402906625_a201910ksegments.jpg
Business Overview and Current Business Strategy
Our vision is to be the premier provider of railcar related products and services in North America. We strive to operate industry-leading railcar leasing, manufacturing, and services businesses, by providing a single source for comprehensive rail transportation solutions and services in North America. Our objective is to deliver a premier customer experience by providing high quality, innovative products and designing solutions that enhance and optimize our customers' businesses. As a railcar focused company, we see opportunities to grow and enhance our product and service offerings in ways that we expect will optimize the ownership and use of railcars. Our rail platform offers a complete portfolio of railcar solutions to our customers as summarized below:
402906625_a201910kendmarkets.jpg

4


Railcar Leasing and Management Services Group. Our Railcar Leasing and Management Services Group ("Leasing Group") is a leading provider in North America of comprehensive railcar industry services. Through wholly-owned subsidiaries, primarily Trinity Industries Leasing Company ("TILC"), and partially-owned subsidiaries, TRIP Rail Holdings LLC (“TRIP Holdings”) and RIV 2013 Rail Holdings LLC ("RIV 2013"), we primarily offer operating leases for freight and tank railcars. Trinity's Rail Products Group and TILC coordinate sales and marketing activities under the TrinityRail platform, thereby providing a single point of contact for railroads and shippers seeking rail equipment and services.
In addition, TILC originates and manages railcar leases for third-party investors and provides fleet maintenance and management services to industrial shippers. Our affiliations with third-party investor-owned funds, through strategic railcar alliances and the formation of railcar investment vehicles, combined with TILC's fleet maintenance and management services capabilities, complement our leasing business by generating stable fee income, strengthening customer relationships, and enhancing the view of TrinityRail as a leading provider of railcar products and services.
The railcars in our lease fleet are leased to industrial shippers and railroads. These companies operate in various markets including agriculture, construction and metals, consumer products, energy, and refined products and chemicals. Substantially all of the railcars in our lease fleet were manufactured by our Rail Products Group. The terms of our railcar leases generally vary from one to ten years, although certain leases entered into in prior periods had lease terms of up to twenty years, and provide for fixed monthly rentals, predominantly under full-service leases. A small percentage of our fleet is leased on a per diem basis. As of December 31, 2019, the lease fleet of our subsidiaries included 103,705 railcars that were 96.0% utilized, of which 101,530 railcars were owned by TILC or its affiliates and 2,175 railcars were financed in sale-leaseback transactions, which are not reflected in the property, plant, and equipment amounts reported on our Consolidated Balance Sheet. Railcars under management, including those owned by third-parties, totaled 128,540 railcars.

5


Lease Fleet Diversification
The following charts provide additional information with respect to the Company's wholly-owned, partially-owned, and managed leased fleet.
402906625_a201910kleasefleet.jpg
(1) Data presented in this chart reflects our wholly-owned and partially-owned lease fleet, which totaled 103,705 railcars as of December 31, 2019.

6


Rail Products Group. Through wholly-owned subsidiaries with manufacturing facilities in the U.S. and Mexico, our Rail Products Group is a leading manufacturer of freight and tank railcars in North America used for transporting a wide variety of liquids, gases, and dry cargo.
We believe that our Rail Products Group's diversified manufacturing capabilities enable us to capitalize on changing industry trends and developing opportunities in various markets. Additionally, we offer a full range of maintenance services and flexible solutions, from field inspections and comprehensive compliance testing to standard repairs and maintenance, specialized cleaning, inspection, and testing at multiple facilities in the U.S. We also provide modification capabilities and assist in transitioning railcars to new industry standards. We believe that our investment in maintenance services expands and enhances our ability to serve our customers and our lease fleet.
Our customers include railroads, leasing companies, and industrial shippers of products in various markets, such as agriculture, construction and metals, consumer products, energy, and refined products and chemicals. We compete in the North American market primarily against four major railcar manufacturers and numerous maintenance services providers.
We hold patents of varying duration for use in our manufacture of railcars and components. We believe patents offer a marketing advantage in certain circumstances. No material revenues are received from the licensing of these patents.
All Other. All Other includes our highway products business; our logistics business; legal, environmental, and maintenance costs associated with non-operating facilities; and other peripheral businesses.
Our highway products business is a leading U.S. manufacturer of guardrail, crash cushions, and other highway barriers. The Federal Highway Administration ("FHWA"), which determines product eligibility for cost reimbursement using federal funds, has approved many of our products as eligible for federal-aid reimbursement based on satisfactory performance testing pursuant to criteria established under either the National Cooperative Highway Research Program Report 350 or the Manual for Assessing Safety Hardware, as applicable. Our crash cushion, barrier, and guardrail product lines include multiple proprietary products manufactured under license from certain public and private research organizations and inventors as well as Company-held patents. We sell highway products throughout the U.S., Canada, and Mexico, and we export highway products, including proprietary products, internationally. We do not perform any installation services with respect to our highway products. Our highway products business is affected by seasonal fluctuations, with the second and third quarters historically being the quarters with the highest revenues.
Backlog. As of December 31, 2019 and 2018, our backlog of firm orders was as follows:
 
December 31, 2019
 
December 31, 2018
 
(in millions)
Rail Products Group
 
 
 
Products:
 
 
 
External Customers
$
1,213.4

 
$
2,059.5

Leasing Group
619.1

 
1,588.1

 
$
1,832.5

 
$
3,647.6

 
 
 
 
Maintenance Services
$
44.8

 
$
100.6

 
 
 
 
Railcar Leasing and Management Services Group
$
100.5

 
$
112.6

For the year ended December 31, 2019, our rail manufacturing businesses received orders for 10,220 railcars with a value of approximately $1.0 billion. The change in backlog as of December 31, 2019 compared with our backlog as of December 31, 2018 reflects the value of orders taken, net of cancellations, executory contract change orders and price modifications, and orders delivered during the year. The orders in our backlog from the Leasing Group are fully supported by lease commitments with external customers. The final amount of backlog attributable to the Leasing Group may vary by the time of delivery as customers may choose to purchase railcars from the Rail Products Group rather than lease. Approximately 59% of our railcar backlog is expected to be delivered during the year ending December 31, 2020 with the remainder to be delivered through 2023.
Marketing. We sell or lease substantially all of our products and services through our own sales personnel operating from offices in multiple U.S locations as well as Canada and Mexico. We also use independent sales representatives on a limited basis.

7


Raw Materials and Suppliers.
Railcar Specialty Components and Steel. Products manufactured at our railcar manufacturing facilities require a significant supply of raw materials, such as steel, as well as numerous specialty components, such as brakes, wheels, heads, side frames, bolsters and bearings. The input costs for materials, including raw steel, specialty components, and other parts and coatings purchased from third parties represent, on average, more than 70% of the cost of most railcars. Although the number of alternative suppliers of specialty components has declined in recent years, at least two suppliers continue to produce most components.
The principal material used in railcar manufacturing is steel. During 2019, the supply of steel was sufficient to support our manufacturing requirements. Market steel prices continue to exhibit periods of volatility and were slightly lower exiting 2019 compared to 2018. Steel and component prices may be volatile in the future as a result of market conditions, changes in tariffs or other governmental policies. We often use contract-specific purchasing practices, existing supplier commitments, contractual price escalation provisions, and other arrangements with our customers to mitigate the effect of steel price volatility on our operating profits for the year. In general, we believe there is enough capacity in the supply industry to meet current production levels and that our existing contracts and other relationships we have in place will meet our current production forecasts.
Employees. The following table presents the approximate headcount breakdown of employees by reportable segment:
 
December 31, 2019
Railcar Leasing and Management Services Group
150

Rail Products Group
10,470

All Other
910

Corporate
345

 
11,875

As of December 31, 2019, approximately 4,910 employees were employed in the U.S. and 6,965 were employed in Mexico.


8


Information about our Executive Officers.
The following table sets forth the names and ages of all of our executive officers, positions and offices presently held by them, and the year each person first became an officer. All officer terms expire in May 2020.
Name
 
Age
 
Office
 
Officer
Since
E. Jean Savage
 
55
 
Chief Executive Officer and President
 
2020
Melendy E. Lovett
 
61
 
Senior Vice President and Chief Financial Officer
 
2014
Brian D. Madison
 
59
 
President, Trinity Industries Leasing Company
 
2016
Eric R. Marchetto
 
50
 
Senior Vice President and Group President, TrinityRail
 
2001
Paul E. Mauer
 
61
 
Executive Vice President, TrinityRail, President, TrinityRail Products
 
1999
Steven L. McDowell
 
58
 
Vice President and Chief Accounting Officer
 
2013
Sarah R. Teachout
 
47
 
Senior Vice President and Chief Legal Officer
 
2016
The following officers, for the preceding five years, have either not been in full time employment with the Company or have had changes in responsibilities during that period:
Ms. Savage was appointed as the Company’s Chief Executive Officer and President, effective February 17, 2020, and has served as a member of the Company’s Board of Directors since 2018. Prior to her employment with the Company, from 2002 to 2020, she served in a variety of positions with Caterpillar, Inc. (“Caterpillar”), a manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. From 2017 until her retirement from Caterpillar in February 2020, she served as Vice President of Caterpillar’s Surface Mining and Technology Division. From 2014 to 2017, she was Chief Technology Officer and Vice President of Caterpillar’s Innovation and Technology Development Division. 
From January 1, 2020 until Ms. Savage began her service as Chief Executive Officer and President, the Company was managed by an interim Office of the Chief Executive Officer, which consisted of Ms. Lovett, Mr. Marchetto, and Ms. Teachout.
Ms. Lovett has served as Senior Vice President and Chief Financial Officer since 2019. She joined the Company in 2014 as Senior Vice President and Chief Administrative Officer. A member of the Company's Board of Directors from 2012 to 2014, Ms. Lovett resigned her Board position at the time of her appointment as an officer of the Company. Prior to joining Trinity in 2014, she was the Senior Vice President and President of the Education Technology business for Texas Instruments.
Mr. Madison joined the Company in 2016 as President of Trinity Industries Leasing Company. Prior to joining the Company, he served as Executive Vice President at Key Equipment Finance from 2010 to 2016, overseeing manufacturer and vendor alliances. Prior to his tenure at Key Equipment, he served as General Manager, Microsoft Financing for Microsoft Corp.
Mr. Marchetto has served as Senior Vice President and Group President of TrinityRail since 2019. He joined the Company in 1995. He served as the Chief Commercial Officer for the Company’s rail businesses from 2018 to 2019. He served as Executive Vice President and Chief Administrative Officer for the Company’s rail businesses from 2016 to 2018, following having served as Executive Vice President and Chief Financial Officer for the rail businesses from 2012 to 2016.
Mr. McDowell has served as Vice President and Chief Accounting Officer since 2018. He joined the Company in 2013 as Vice President and Chief Audit Executive and was named Vice President and Chief Compliance Officer in 2017. Prior to joining Trinity, he worked for Dean Foods from 2007 to 2013, where he held a variety of management positions and most recently served as Vice President, Internal Audit and Risk Management. Prior to his tenure at Dean Foods, he served as Vice President - Internal Audit at Centex Corporation.
Ms. Teachout has served as Senior Vice President and Chief Legal Officer since 2018. She joined the Company in 2015 as Deputy General Counsel, and was elected Vice President and Deputy General Counsel in 2016. Prior to joining Trinity, Ms. Teachout was a partner at the law firm of Akin Gump Strauss Hauer & Feld LLP from 2012 to 2015. Before joining Akin Gump, Ms. Teachout had been a partner at the law firm of Haynes and Boone, LLP since 2007.
Mr. Mauer has been in full time employment of Trinity or its subsidiaries for more than five years and has performed essentially the same duties during the past five years.

9


Commitment to Sustainability. We strive to employ company resources in ways that make positive contributions to our stakeholders. As we pursue improvements to our products and services, we keep in mind the environmental and societal impacts of our decisions and work to protect natural resources and the environment for the benefit of current and future generations. We continuously look for ways to improve our governance practices with the goal of promoting the long-term interests of stakeholders, strengthening accountability and inspiring trust.
Environmental Stewardship. We aim to operate our business in a manner that minimizes the impact on natural resources and the environment. We believe railcars are a more environmentally friendly way to fuel the North American supply chain. U.S. freight railroads produce far fewer greenhouse gas emissions than certain other modes of commercial transportation, such as trucks. We strive to responsibly support customers' products at each stage of the product lifecycle, including recycling the railcar through scrap and salvage at the end of its useful life.
Social Responsibility. Our goal is to add value to the communities in which we live and work, strengthening our relationships and leveraging our partnerships to amplify our impact. We strive to attract and retain a diverse and empowered workforce. Our priorities include fostering an inclusive and collaborative workplace, promoting opportunities for professional development, improving the wellbeing of our employees and other stakeholders, and contributing to the communities in which we operate.
Governance. Our goal is to promote the long-term interests of stakeholders, strengthen accountability, and inspire trust. Our Board of Directors includes an independent Chairman and diverse and independent Board members who help ensure that our business strategies and programs, including our compensation program, are aligned with stakeholder interests.
Governmental Regulation.
Railcar Industry. Our railcar and related manufacturing, maintenance services, and leasing businesses are regulated by multiple governmental regulatory agencies such as the U.S. Environmental Protection Agency ("USEPA"); Transport Canada ("TC"); the U.S. Department of Transportation ("USDOT") and the administrative agencies it oversees, including the Federal Railroad Administration ("FRA"), the Pipeline and Hazardous Materials Safety Administration ("PHMSA"), the Research and Special Programs Administration; Mexico's Agencia Reguladora del Transporte Ferroviario; Mexico's Secretaria de Comunicaciones y Transportes; and industry authorities such as the Association of American Railroads ("AAR"). All such agencies and authorities promulgate rules, regulations, specifications or operating standards affecting railcar design, configuration, and mechanics; maintenance, and rail-related safety standards for railroad equipment, tracks, and operations, including the packaging and transportation of hazardous or toxic materials. We believe that our product designs and operations are in compliance with these specifications, standards, and regulations applicable to our business.
Revised regulations implemented in 2015 pertaining to the transportation of flammable materials by rail remain in effect. These regulatory changes materially impact: the rail industry as a whole; railroad operations; older and newer tank railcars that met or exceeded prior regulatory requirements and standards; future tank railcar specifications; and market decisions relative to capital investment in rail products. 
Highway Products. The primary regulatory and industry authorities involved in the regulation of highway products manufacturers are the USDOT, the FHWA, and various state highway departments and administrative agencies. These organizations, with participation from the American Association of State Highway and Transportation Officials ("AASHTO"), establish certain specifications, product testing criteria, and performance standards related to the manufacture of our highway products. We believe that our highway products are in compliance with the standards and specifications applicable to our business.
Occupational Safety and Health Administration and Similar Regulations. Our operations are subject to regulation of health and safety matters by the U.S. Occupational Safety and Health Administration ("OSHA") and the Secretaria del Trabajo y Prevision Social ("STPS") in Mexico. We believe that we employ appropriate precautions to protect our employees and others from workplace injuries and harmful exposure to materials handled and managed at our facilities. However, claims that may be asserted against us for work-related illnesses or injury and the further adoption of occupational safety and health regulations in the U.S. or in foreign jurisdictions in which we operate could increase our operating costs. While we do not anticipate having to make material expenditures in order to remain in substantial compliance with health and safety laws and regulations, we are unable to predict the ultimate cost of compliance.

10


Environmental Matters. We are subject to comprehensive federal, state, local, and foreign environmental laws and regulations relating to the release or discharge of materials into the environment; the management, use, processing, handling, storage, transport, and disposal of hazardous and non-hazardous waste and materials; and other activities relating to the protection of human health, natural resources, and the environment.
Environmental operating permits are, or may be, required for our operations under these laws and regulations. These operating permits are subject to modification, renewal, and revocation. We regularly monitor and review our operations, procedures, and policies for compliance with our operating permits and related laws and regulations. We believe that our operations and facilities, whether owned, managed, or leased, are in substantial compliance with applicable environmental laws and regulations and that any non-compliance is not likely to have a material adverse effect on our operations or financial condition.
See Item 1A for further discussion of risk factors with regard to environmental, governmental, and other matters.
Additional Information. 
Our Internet website address is www.trin.net. Information on the website is available free of charge. We make available on our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments thereto, as soon as reasonably practicable after such material is filed with, or furnished to, the SEC. The contents of our website are not intended to be incorporated by reference into this report or in any other report or document we file and any reference to our website is intended to be an inactive textual reference only.
Item 1A. Risk Factors.
Our business is subject to a number of risks, which are discussed below. There are risks and uncertainties that could cause our actual results to be materially different from those mentioned in forward-looking statements that we make from time to time in filings with the SEC, news releases, reports, proxy statements, registration statements, and other written communications, as well as oral forward-looking statements made from time to time by representatives of our Company. All known material risks and uncertainties are described below. You should consider carefully these risks and uncertainties in addition to the other information contained in this report and our other filings with the SEC including our subsequent reports on Forms 10-Q and 8-K, and any amendments thereto before deciding to buy, sell, or hold our securities. If any of the following known risks or uncertainties actually occurs with material adverse effects on us, our business, financial condition, results of operations, and/or liquidity could be harmed. In that event, the market price for our various securities could decline and you may lose all or part of your investment.
The cautionary statements below discuss important factors that could cause our business, financial condition, operating results, and cash flows to be materially adversely affected. Readers are cautioned not to place undue reliance on the forward-looking statements contained herein. Except as required by federal securities laws, we undertake no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.
Risks Related to our Business
The industries in which we operate are cyclical, and, accordingly, our business is subject to changes in the economy.
We operate in cyclical industries. Periodic downturns in economic conditions usually have a significant adverse effect on cyclical industries due to decreased demand for new and replacement products. Decreased demand could result in lower sales volumes, lower prices, and/or a decline in or loss of profits. The railcar industry has previously experienced sharp cyclical downturns and at such times operated with a minimal backlog. While the business cycles of our different operations may not typically coincide, an economic downturn could affect disparate cycles simultaneously. The impacts of such an economic downturn may magnify the adverse effect on our business.
Volatility in the global markets or in industries that our products serve may adversely affect our business and operating results.
Instability in the global economy, negative conditions in the global credit markets, volatility in the industries that our products serve, fluctuations in commodity prices that our customers produce and transport, changes in legislative or trade policy, adverse changes in the availability of raw materials and supplies, or adverse changes in the financial condition of our customers could lead to customers' requests for deferred deliveries of our backlog orders. Additionally, such events could result in our customers' attempts to unilaterally cancel or terminate firm contracts or orders in whole or in part, resulting in contract or purchase order breaches and increased commercial litigation costs. Such occurrences could adversely affect our cash flows and results of operations.

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If volatile conditions in the global credit markets prevent our customers' access to credit, product order volumes may decrease or customers may default on payments owed to us. Likewise, if our suppliers face challenges obtaining credit, selling their products to customers that require purchasing credit, or otherwise operating their businesses, the supply of materials we purchase from them to manufacture our products may be interrupted. Any of these conditions or events could result in reductions in our revenues, increased price competition, or increased operating costs, which could adversely affect our business, results of operations, and financial condition.
Litigated disputes and other claims could increase our costs and weaken our financial condition. 
We are currently, and may from time to time be involved in various claims or legal proceedings arising out of our operations. Adverse judgments and outcomes in some or all of these matters could result in significant losses and costs that could weaken our financial condition. Although we maintain reserves for our reasonably estimable liability, our reserves may be inadequate to cover our portion of claims or final judgments after taking into consideration rights in indemnity and recourse to third parties. As a result, there could be a material adverse effect on our business, operations, or financial condition. See Note 15 of the Consolidated Financial Statements for more detailed information on any material pending legal proceedings other than ordinary routine litigation incidental to our business, including the current status of the Company's highway products litigation.
While state and federal procedural rules exist to curtail the filing of claims against the Company in jurisdictions unrelated to the underlying claims, courts sometime may not enforce these rules, exposing us to a greater likelihood of unfavorable results and increased litigation costs. Whenever our products are sold to or ultimately owned and/or operated by governments or their authorized agencies, we may be unable to seek redress or recourse to at-fault parties. When litigation arising from the installation, maintenance, replacement, or use of our products is filed against the Company, recourse to such governments or authorized agencies may be subject to sovereign immunity or related defenses thereby exposing the Company to risk of liability and increased costs irrespective of fault.
Changes in the price and demand for steel could lower our margins and profitability. 
The principal material used in our manufacturing segments is steel. Market steel prices may exhibit periods of volatility. Steel prices may experience further volatility as a result of scrap surcharges assessed by steel mills and other market factors. We often use contract-specific purchasing practices, supplier commitments, contractual price escalation provisions, and other arrangements with our customers to mitigate the effect of this volatility on our operating profits for the year. To the extent that we do not have such arrangements in place, a change in steel prices could materially lower our profitability. In addition, meeting production demands is dependent on our ability to obtain a sufficient amount of steel. An unanticipated interruption in our supply chain could have an adverse impact on both our margins and production schedules.
We have potential exposure to environmental liabilities that may increase costs and lower profitability. 
We are subject to comprehensive federal, state, local, and foreign environmental laws and regulations relating to: (i) the release or discharge of materials into the environment at our facilities or with respect to our products while in operation; (ii) the management, use, processing, handling, storage, transport, and disposal of hazardous and non-hazardous waste, substances, and materials; and (iii) other activities relating to the protection of human health and the environment. Such laws and regulations expose us to liability for our own acts and in certain instances potentially expose us to liability for the acts of others. These laws and regulations also may impose liability on us currently under circumstances where at the time of the action taken, our acts or those of others complied with then applicable laws and regulations. In addition, such laws may require significant expenditures to achieve compliance, and are frequently modified or revised to impose new obligations. Civil and criminal fines and penalties may be imposed for non-compliance with these environmental laws and regulations. Our operations involving hazardous materials also raise potential risks of liability under common law.
Environmental operating permits are, or may be, required for our operations under these laws and regulations. These operating permits are subject to modification, renewal, and revocation. Although we regularly monitor and review our operations, procedures, and policies for compliance with our operating permits and related laws and regulations, the risk of environmental liability is inherent in the operation of our businesses, as it is with other companies operating under environmental permits.
However, future events, such as changes in, or modified interpretations of, existing environmental laws and regulations or enforcement policies, or further investigation or evaluation of the potential health hazards associated with the manufacture of our products and related business activities and properties, may give rise to additional compliance and other costs that could have a material adverse effect on our financial condition and operations.

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In addition to environmental laws, the transportation of commodities by railcar raises potential risks in the event of an accident that results in the release of an environmentally sensitive substance. Generally, liability under existing laws for a derailment or other accident depends upon causation analysis and the acts, errors, or omissions, if any, of a party involved in the transportation activity, including, but not limited to, the railroad, the shipper, the buyer and seller of the substances being transported, or the manufacturer of the railcar, or its components. Additionally, the severity of injury or property damage arising from an incident may influence the causation responsibility analysis, exposing the Company to potentially greater liability. Under certain circumstances, strict liability concepts may apply and if we are found liable in any such incident, it could have a material adverse effect on our financial condition, business, and operations.
We operate in highly competitive industries. We may not be able to sustain our market leadership positions, which may impact our financial results.
We face aggressive competition in all geographic markets and each industry sector in which we operate. In addition to price, we face competition in respect to product performance and technological innovation, quality, reliability of delivery, customer service, and other factors. The effects of this competition, which is often intense, could reduce our revenues and operating profits, limit our ability to grow, increase pricing pressure on our products, and otherwise affect our financial results.
The limited number of customers for certain of our products, the variable purchase patterns of our customers in all of our segments, and the timing of completion, delivery, and customer acceptance of orders may cause our revenues and income from operations to vary substantially each quarter, potentially resulting in significant fluctuations in our quarterly results.
Some of the markets we serve have a limited number of customers. The volumes purchased by customers in each of our business segments vary from year to year, and not all customers make purchases every year. As a result, the order levels for our products have varied significantly from quarterly period to quarterly period in the past and may continue to vary significantly in the future. Therefore, our results of operations in any particular quarterly period may also vary. As a result of these quarterly fluctuations, we believe that comparisons of our sales and operating results between quarterly periods may not be meaningful and should not be relied upon as indicators of future performance.
Our access to capital may be limited or unavailable due to deterioration of conditions in the global capital markets, weakening of macroeconomic conditions, and negative changes in our credit ratings.
In general, the Company, and more specifically its leasing subsidiaries' operations, relies in large part upon banks and capital markets to fund its operations and contractual commitments and refinance existing debt. These markets can experience high levels of volatility and access to capital can be constrained for extended periods of time. In addition to conditions in the capital markets, a number of other factors could cause the Company to incur increased borrowing costs and have greater difficulty accessing public and private markets for both secured and unsecured debt. These factors include the Company's financial performance and its credit ratings and rating outlook as determined primarily by rating agencies such as Standard & Poor's Financial Services LLC, Moody's Investors Service, Inc., and Fitch Ratings, Inc. If the Company is unable to secure financing on acceptable terms, the Company's other sources of funds, including available cash, bank facilities, and cash flow from operations may not be adequate to fund its operations and contractual commitments and refinance existing debt.
We have indebtedness which could have negative consequences on our business or results of operations.
We have indebtedness both at the parent level and at the subsidiary level. Our level of indebtedness could have a material adverse effect on our business and make it more difficult for us to satisfy our obligations under our outstanding indebtedness and notes. As a result of our debt and debt service obligations, we face increased risks regarding, among other things, the following: (i) borrowing additional amounts or refinancing existing indebtedness may be limited or more costly; (ii) our available cash flow after satisfying our debt obligations due to a portion of our cash flow being needed to pay principal and interest on our debt; (iii) being at a competitive disadvantage relative to our competitors that have greater financial resources or more flexible capital structures than us; (iv) our exposure to increased interest rates for our borrowings that are at variable interest rates; (v) restrictive covenants under our indebtedness restricting our financial and operating flexibility; and (iv) although the parent entity has not secured any debt with its assets, our subsidiaries that have issued debt have pledged their specific assets to secure such indebtedness, and such assets could be foreclosed upon in connection with an event of default.

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The phaseout of the London Interbank Offered Rate (LIBOR) and the replacement of LIBOR with a different reference rate may have an adverse effect on our business.
On July 27, 2017, the United Kingdom’s Financial Conduct Authority (the authority that regulates LIBOR) announced that it would phase out LIBOR by the end of 2021. Certain of our and our subsidiaries’ indebtedness utilize LIBOR or an alternative benchmark reference rate for calculating the applicable interest rate. After LIBOR is phased out, the interest rates for these obligations might be subject to change. The replacement of LIBOR with an alternative benchmark or lender calculated index rate may adversely affect interest rates and result in higher borrowing costs under these agreements and any future agreements. This could materially and adversely affect our results of operations, cash flows, ability to acquire debt financing, and liquidity. We cannot predict the effect of the elimination of LIBOR or the establishment and use of alternative benchmark reference rates and the corresponding effects on our cost of capital.
We may be unable to maintain railcar assets on lease at satisfactory lease rates.
The profitability of our railcar leasing business depends on our ability to lease railcars at satisfactory lease rates, to re-lease railcars at satisfactory lease rates upon the expiration and non-renewal of existing leases, and to sell railcars in the secondary market as part of our ordinary course of business. Our ability to accomplish these objectives is dependent upon several factors, including, among others:
the cost of and demand for leases or ownership of newer or specific-use railcar types;
the general availability in the market of competing used or new railcars;
the degree of obsolescence of leased or unleased railcars, including railcars subject to regulatory obsolescence;
the prevailing market and economic conditions, including the availability of credit, interest rates, and inflation rates;
the market demand or governmental mandate for refurbishment; and
the volume and nature of railcar traffic and loadings.
A downturn in the industries in which our lessees operate and decreased demand for railcars could also increase our exposure to re-marketing risk because lessees may demand shorter lease terms or newer railcars, requiring us to re-market leased railcars more frequently. Furthermore, the resale market for previously leased railcars has a limited number of potential buyers. Our inability to re-lease or sell leased or unleased railcars on favorable terms could result in lower lease rates, lower lease utilization percentages, and reduced revenues and operating profit.
Fluctuations in the price and supply of raw materials and parts and components used in the production of our products could have a material adverse effect on our ability to cost-effectively manufacture and sell our products. In some instances, we rely on a limited number of suppliers for certain raw materials and parts and components needed in our production.  
A significant portion of our business depends on the adequate supply of numerous specialty and other parts and components at competitive prices such as brakes, wheels, side frames, bolsters, and bearings for the railcar business. Our manufacturing operations partially depend on our ability to obtain timely deliveries of raw materials, parts, and components in acceptable quantities and quality from our suppliers. Certain raw materials and parts and components for our products are currently available from a limited number of suppliers and, as a result, we may have limited control over pricing, availability, and delivery schedules. If we are unable to purchase a sufficient quantity of raw materials and parts and components on a timely basis, we could face disruptions in our production and incur delays while we attempt to engage alternative suppliers. Worsening economic or commercial conditions could reduce the number of available suppliers, potentially increasing our rejections for poor quality and requiring us to source unknown and distant supply alternatives. Any such disruption or conditions could harm our business and adversely impact our results of operations.

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Reductions in the availability of energy supplies or an increase in energy costs may increase our operating costs. 
We use various gases, including natural gas, at our manufacturing facilities and use diesel fuel in vehicles to transport our products to customers and to operate our plant equipment. An outbreak or escalation of hostilities between the U.S. and any foreign power and, in particular, prolonged conflicts could result in a real or perceived shortage of petroleum and/or natural gas, which could result in an increase in the cost of natural gas or energy in general. Extreme weather conditions and natural occurrences such as hurricanes, tornadoes, and floods, or a pandemic, could result in varying states of disaster and a real or perceived shortage of petroleum and/or natural gas, including rationing thereof, potentially resulting in an increase in natural gas prices or general energy costs. Speculative trading in energy futures in the world markets could also result in an increase in natural gas and general energy cost. Future limitations on the availability (including limitations imposed by increased regulation or restrictions on rail, road, and pipeline transportation of energy supplies) or consumption of petroleum products and/or an increase in energy costs, particularly natural gas for plant operations and diesel fuel for vehicles and plant equipment, could have an adverse effect upon our ability to conduct our business cost effectively.
Our manufacturer's warranties expose us to product replacement and repair claims. 
Depending on the product, we warrant our workmanship and certain materials (including surface coatings, primers, sealants, and interior linings), parts, and components pursuant to express limited contractual warranties. We may be subject to significant warranty claims in the future such as multiple claims based on one defect repeated throughout our production process or claims for which the cost of repairing or replacing the defective part, component or material is highly disproportionate to the original price. These types of warranty claims could result in significant costs associated with product recalls or product repair or replacement, and damage to our reputation.
Increasing insurance claims and expenses could lower profitability and increase business risk. 
We are subject to potential liability for claims alleging property damage and personal and bodily injury or death arising from the use of or exposure to our products, especially in connection with products we manufacture that our customers install along U.S. highways or that our customers use to transport hazardous, flammable, toxic, or explosive materials. As insurance policies expire, premiums for renewed or new coverage may increase and/or require that we increase our self-insured retention or deductibles. The Company maintains primary coverage and excess coverage policies. If the number of claims or the dollar amounts of any such claims rise in any policy year, we could suffer additional costs associated with accessing our excess coverage policies. Also, an increase in the loss amounts attributable to such claims could expose us to uninsured damages if we were unable or elected not to insure against certain claims because of high premiums or other reasons. While our liability insurance coverage is at or above typical levels for our industries, an unusually large liability claim or a string of claims coupled with an unusually large damage award could exceed our available insurance coverage. In addition, the availability of, and our ability to collect on, insurance coverage is often subject to factors beyond our control, including positions on policy coverage taken by insurers. If any of our third-party insurers fail, cancel, or refuse coverage, or otherwise are unable to provide us with adequate insurance coverage, then our risk exposure and our operational expenses may increase and the management of our business operations would be disrupted. Moreover, any accident or incident involving our industries in general or us or our products specifically, even if we are fully insured, contractually indemnified, or not held to be liable, could negatively affect our reputation among customers and the public, thereby making it more difficult for us to compete effectively, and could significantly affect the cost and availability of insurance in the future.
Many of our products are sold to leasing companies, contractors, distributors, and installers who may misuse, abuse, improperly install or improperly or inadequately maintain or repair such products thereby potentially exposing the Company to claims that could increase our costs and weaken our financial condition.
The products we manufacture are designed to work optimally when properly assembled, operated, installed, repaired, and maintained. When this does not occur, the Company may be subjected to claims or litigation associated with personal or bodily injuries or death and property damage.

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Risks related to our operations outside of the U.S., particularly Mexico, could decrease our profitability. 
Our operations outside of the U.S. are subject to the risks associated with cross-border business transactions and activities. Political, legal, trade, economic change or instability, criminal activities or social unrest could limit or curtail our respective foreign business activities and operations, including the ability to hire and retain employees. We have not, to date, been materially affected by any of these risks, but we cannot predict the likelihood of future effects from such risks or any resulting adverse impact on our business, results of operations or financial condition. Many items manufactured by us in Mexico are sold in the U.S. and the transportation and import of such products may be disrupted. Some foreign countries where we operate have regulatory authorities that regulate products sold or used in those countries. If we fail to comply with the applicable regulations within the foreign countries where we operate, we may be unable to market and sell our products in those countries. In addition, with respect to operations in foreign countries, unexpected changes in laws, rules, and regulatory requirements; tariffs and other trade barriers, including regulatory initiatives for buying goods produced in America; more stringent or restrictive laws, rules, and regulations relating to labor or the environment; adverse tax consequences; price exchange controls; and restrictions or regulations affecting cross-border rail and vehicular traffic could limit operations affecting production throughput and making the manufacture and distribution of our products less timely or more difficult. Furthermore, any material change in the quotas, regulations, or duties on imports imposed by the U.S. government and agencies, or on exports by the government of Mexico or its agencies, could affect our ability to export products that we manufacture in Mexico. Because we have operations outside the U.S., we could be adversely affected by final judgments of non-compliance with the U.S. Foreign Corrupt Practices Act or import/export rules and regulations and similar anti-corruption, anti-bribery, or import/export laws of other countries.
U.S. government actions relative to the federal budget, taxation policies, government expenditures, U.S. borrowing/debt ceiling limits, and trade policies could adversely affect our business and operating results.
Periods of impasse, deadlock, and last minute accords may continue to permeate many aspects of U.S. governance, including federal government budgeting and spending, taxation, U.S. deficit spending and debt ceiling adjustments, and international commerce. Such periods could negatively impact U.S. domestic and global financial markets thereby reducing customer demand for our products and services and potentially result in reductions in our revenues, increased price competition, or increased operating costs, any of which could adversely affect our business, results of operations, and financial condition. We produce many of our products at our manufacturing facilities in Mexico. Our business benefits from free trade agreements such as the North American Free Trade Agreement ("NAFTA"). The United States, Mexico, and Canada have reached a U.S.-Mexico-Canada Agreement ("USMCA") which would replace NAFTA. The USMCA would maintain duty-free access for many products. The USMCA still requires approval from Canada's Parliament before it takes effect. It is uncertain what the outcome of any further negotiations will be, but it is possible that additional revisions to the USMCA or failure to secure approvals could adversely affect our business, financial condition, and results of operations.
Equipment failures, a pandemic, or extensive damage to our facilities, including as might occur as a result of natural disasters, could lead to production, delivery, or service curtailments or shutdowns, loss of revenue or higher expenses.
We operate a substantial amount of equipment at our production facilities, several of which are situated in tornado and hurricane zones in the U.S. and Mexico. An interruption in production capabilities or maintenance and repair capabilities at our facilities, as a result of equipment failures, a pandemic, or acts of nature, could reduce or prevent our production, delivery, service, or repair of our products and increase our costs and expenses. A halt of production at any of our manufacturing facilities could severely affect delivery times to our customers. While we maintain emergency response and business recovery plans that are intended to allow us to recover from natural disasters that could disrupt our business, we cannot provide assurances that our plans would fully protect us from the effects of all such disasters. In addition, insurance may not adequately compensate us for any losses incurred as a result of natural or other disasters, which may adversely affect our financial condition. Any significant delay in deliveries not otherwise contractually mitigated by favorable force majeure provisions could result in cancellation of all or a portion of our orders, cause us to lose future sales, and negatively affect our reputation and our results of operations.
Because we do not have employment contracts with our key management employees, we may not be able to retain their services in the future. 
Our success depends on the continued services of our key management employees, none of whom currently have an employment agreement with us. The loss of the services of one or more key members of our management team could result in increased costs associated with attracting and retaining a replacement and could disrupt our operations and result in a loss of revenues.

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Repercussions from terrorist activities or armed conflict could harm our business. 
Terrorist activities, anti-terrorist efforts, and other armed conflict involving the U.S. or its interests abroad may adversely affect the U.S. and global economies, potentially preventing us from meeting our financial and other obligations. In particular, the negative impacts of these events may affect the industries in which we operate. This could result in delays in or cancellations of the purchase of our products or shortages in raw materials, parts or components. Any of these occurrences could have a material adverse impact on our operating results, revenues, and costs.
Violations of or changes in the regulatory requirements applicable to the industries in which we operate may increase our operating costs. 
Our leasing and railcar manufacturing businesses are regulated by multiple governmental regulatory agencies such as the USEPA; TC; the USDOT and the administrative agencies it oversees, including the FRA, the PHMSA, and the Research and Special Programs Administration; Mexico's Agencia Reguladora del Transporte Ferroviario; Mexico's Secretaria de Comunicaciones y Transportes; and industry authorities such as the AAR. All such agencies and authorities promulgate rules, regulations, specifications, or operating standards affecting railcar design, configuration, and mechanics; maintenance, and rail-related safety standards for railroad equipment, tracks, and operations, including the packaging and transportation of hazardous, flammable, explosive, and toxic materials.
Revised regulations implemented in 2015 pertaining to the transportation of flammable materials by rail remain in effect. These regulatory changes materially impact: the rail industry as a whole; railroad operations; older and newer tank railcars that met or exceeded prior regulatory requirements and standards; future tank railcar specifications; and market decisions relative to capital investment in rail products. 
Our highway products business is subject to regulation by the USDOT, the FHWA, and various state highway departments and administrative agencies. These organizations, with participation from AASHTO, establish certain specifications, product testing criteria, and performance standards related to the manufacture of our highway products.
Our operations are also subject to regulation of health and safety matters by the U.S. OSHA and Mexico's STPS. We believe we employ appropriate precautions to protect our employees and others from workplace injuries and harmful exposure to materials handled and managed at our facilities.
Future regulatory changes or the determination that our products or processes are not in compliance with applicable requirements, rules, regulations, specifications, standards, or product testing criteria might result in additional operating expenses, administrative fines or penalties, product recalls or loss of business that could have a material adverse effect on our financial condition and operations.
Some of our customers place orders for our products (i) in reliance on their ability to utilize tax benefits or tax credits such as accelerated depreciation, or (ii) to utilize federal-aid programs that allow for purchase price reimbursement or other government funding or subsidies, any of which benefits or programs could be discontinued or allowed to expire without extension thereby reducing demand for certain of our products.
There is no assurance that the U.S. government will reauthorize, modify, or otherwise not allow the expiration of such tax benefits, subsidies, or federal-aid programs that may include funding of the purchase or purchase price reimbursement of certain of our products. In instances where such benefits, subsidies, or programs are allowed to expire or are otherwise modified or discontinued, the demand for our products could decrease, thereby creating the potential for a material adverse effect on our financial condition or results of operations.
We may be required to reduce the value of our long-lived assets and/or goodwill, which would weaken our financial results. 
We periodically evaluate for potential impairment the carrying values of our long-lived assets to be held and used. The carrying value of a long-lived asset to be held and used is considered impaired when the carrying value is not recoverable through undiscounted future cash flows and the fair value of the asset is less than the carrying value. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risks involved or market quotes as available. Impairment losses on long-lived assets held for sale are determined in a similar manner, except that fair values are reduced commensurate with the estimated cost to dispose of the assets. In addition, goodwill is required to be tested for impairment annually or on an interim basis whenever events or circumstances change indicating that the carrying amount of the goodwill might be impaired. Impairment losses related to reductions in the value of our long-lived assets or our goodwill could weaken our financial condition and results of operations.

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We may incur increased costs due to fluctuations in interest rates and foreign currency exchange rates. 
We are exposed to risks associated with fluctuations in interest rates and changes in foreign currency exchange rates. Under varying circumstances, we may seek to minimize these risks through the use of interest rate hedges and similar financial instruments and other activities, although these measures, if and when implemented, may not be effective. Any material and untimely changes in interest rates or exchange rates could result in significant losses to us.
Railcars as a significant mode of transporting freight could decline, experience a shift in types of modal transportation, and/or certain railcar types could become obsolete.
As the freight transportation markets we serve continue to evolve, the use of railcars may decline in favor of other more economic transportation modalities or the number of railcars needed to transport current or an increasing volume of goods may decline. Features and functionality specific to certain railcar types could result in those railcars becoming obsolete as customer requirements for freight delivery change or as regulatory mandates are promulgated that affect railcar design, configuration, and manufacture.
Business, regulatory, and legal developments regarding climate change may affect the demand for our products or the ability of our critical suppliers to meet our needs. 
We have followed the current debate over climate change in general, and the related science, policy discussion, and prospective legislation. Some scientific studies have suggested that emissions of certain gases, commonly referred to as greenhouse gases (“GHGs”) which include carbon dioxide and methane, may be contributing to warming of the Earth’s atmosphere and other climate changes. Additionally, we periodically review the potential challenges and opportunities for the Company that climate change policy and legislation may pose. However, any such challenges or opportunities are heavily dependent on the nature and degree of climate change legislation and the extent to which it applies to our industries.
In response to an emerging scientific and political consensus, legislation and new rules to regulate emission of GHGs have been introduced in numerous state legislatures, the U.S. Congress, and by the USEPA. Some of these proposals would require industries to meet stringent new standards that may require substantial reductions in carbon emissions. While Trinity cannot assess the direct impact of these or other potential regulations, it does recognize that new climate change protocols could affect demand for its products and/or affect the price of materials, input factors, and manufactured components. Potential opportunities could include greater demand for certain types of railcars, while potential challenges could include decreased demand for certain types of railcars or other products and higher energy costs. Other adverse consequences of climate change could include an increased frequency of severe weather events and rising sea levels that could affect operations at our manufacturing facilities, the price of insuring company assets, or other unforeseen disruptions of the Company’s operations, systems, property, or equipment. Ultimately, when or if these impacts may occur cannot be assessed until scientific analysis and legislative policy are more developed and specific legislative proposals begin to take shape.
Changes in accounting standards or inaccurate estimates or assumptions in the application of accounting policies could adversely affect our financial results.
Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Some of these policies require the use of estimates and assumptions that may affect the reported value of our assets or liabilities and financial results and are critical because they require management to make difficult, subjective, and complex judgments about matters that are inherently uncertain. Accounting standard setters and those who interpret the accounting standards (such as the Financial Accounting Standards Board, the SEC, the Public Company Accounting Oversight Board, and our independent registered public accounting firm) may amend or even reverse their previous interpretations or positions on how these standards should be applied. These changes can be difficult to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements. For a further discussion of some of our critical accounting policies and standards and recent accounting changes, see Critical Accounting Policies and Estimates in Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 1 of the Consolidated Financial Statements.
Shortages of skilled labor could adversely impact our operations.
We depend on skilled labor in the manufacture, maintenance, and repair of our products. Some of our facilities are located in areas where demand for skilled laborers may exceed supply. Shortages of some types of skilled laborers, such as welders, could restrict our ability to maintain or increase production rates and could increase our labor costs.

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Some of our employees belong to labor unions, and strikes or work stoppages could adversely affect our operations.
We are a party to collective bargaining agreements with various labor unions at some of our operations in the U.S. and all of our operations in Mexico. Disputes with regard to the terms of these agreements or our potential inability to negotiate acceptable contracts with these unions in the future could result in, among other things, strikes, work stoppages or other slowdowns by the affected workers. We cannot be assured that our relations with our workforce will remain positive or that union organizers will not be successful in future attempts to organize at some of our facilities. If our workers were to engage in a strike, work stoppage or other slowdown, or other employees were to become unionized, or the terms and conditions in future labor agreements were renegotiated, we could experience a significant disruption of our operations and higher ongoing labor costs. In addition, we could face higher labor costs in the future as a result of severance or other charges associated with lay-offs, shutdowns, or reductions in the size and scope of our operations or difficulties of restarting our operations that have been temporarily shuttered.
From time to time we may take tax positions that the Internal Revenue Service or other taxing jurisdictions may contest.
We have in the past and may in the future take tax positions that the Internal Revenue Service (“IRS”) or other taxing jurisdictions may challenge. We are required to disclose to the IRS as part of our tax returns particular tax positions in which we have a reasonable basis for the position but not a "more likely than not" chance of prevailing. If the IRS successfully contests a tax position that we take, we may be required to pay additional taxes or fines which may not have been previously accrued that may adversely affect our results of operations and financial position.
Our inability to produce and disseminate relevant and/or reliable data and information pertaining to our business in an efficient, cost-effective, secure, and well-controlled fashion may have significant negative impacts on confidentiality requirements and obligations and trade secret or other proprietary needs and expectations and, therefore, our future operations, profitability, and competitive position.
We rely on information technology infrastructure and architecture, including hardware, network, software, people, and processes to provide useful and confidential information to conduct our business. This includes correspondence and commercial data and information interchange with customers, suppliers, legal counsel, governmental agencies, and consultants, and to support assessments and conclusions about future plans and initiatives pertaining to market demands, operating performance, and competitive positioning. In addition, any material failure, interruption of service, compromised data security, phishing emails, or cybersecurity threat could adversely affect our relations with suppliers and customers, place us in violation of confidentiality and data protection laws, rules, and regulations, and result in negative impacts to our market share, operations, and profitability. Security breaches in our information technology could result in theft, destruction, loss, misappropriation, or release of confidential data, trade secret, or other proprietary or intellectual property that could adversely impact our future results.
We may be unable to effectively implement organizational redesigns, cost reductions, or restructuring efforts and our business might be adversely affected.
From time to time we engage in organizational redesigns, cost reductions, and/or similar restructuring plans (we announced one most recently in the fourth quarter of 2019), which may include organizational changes, workforce reductions, facility consolidations or closures, and other cost reduction initiatives.  These types of activities are complex and can require a significant amount of management and other employees’ time and focus, which may divert attention from operating and growing our business. If we do not effectively manage and implement these activities, or any future similar activities, expected efficiencies and benefits might be delayed or not realized, and our operations and business could be disrupted. Risks associated with these actions include potential adverse effects on employee morale, loss of accumulated knowledge and/or inefficiency, unfavorable political responses to such actions, unforeseen delays in implementation, unexpected costs, and the failure to meet operational targets, any of which may impair our ability to achieve anticipated benefits, harm our business, or have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.
The Company could potentially fail to successfully integrate new businesses or products into its current business.
The Company routinely engages in the search for growth opportunities, including assessment of merger and acquisition prospects in new markets and/or products. Any merger or acquisition into which the Company enters is subject to integration into the Company's businesses and culture. If such integration is unsuccessful to any material degree, such lack of success could result in unexpected claims or otherwise have a material adverse effect on our business, operations, or financial condition.

19


The use of social and other digital media (including websites, blogs and newsletters) to disseminate false, misleading and/or unreliable or inaccurate data and information about our Company could create unwarranted volatility in our stock price and losses to our stockholders and could adversely affect our reputation, products, business, and operating results.
The number of people relying on social and other digital media to receive news, data, and information is increasing. Social and other digital media can be used by anyone to publish data and information without regard for factual accuracy. The use of social and other digital media to publish inaccurate, offensive, and disparaging data and information coupled with the increasingly frequent use of strong language and hostile expression, may influence the public’s inability to distinguish between what is true and what is false and could obstruct an effective and timely response to correct inaccuracies or falsifications. Such use of social and other digital media could result in unexpected and unsubstantiated claims concerning the Company in general or our products, our leadership or our reputation among customers and the public at large, thereby making it more difficult for us to compete effectively, and potentially having a material adverse effect on our business, operations, or financial condition.
Our inability to sufficiently protect our intellectual property rights could adversely affect our business.
Our patents, copyrights, trademarks, service marks, trade secrets, proprietary processes, and other intellectual property are important to our success. We rely on patent, copyright and trademark law, trade secret protection, and confidentiality and/or license agreements with others to protect our intellectual property rights. Our trademarks, service marks, copyrights, patents, and trade secrets may be exposed to market confusion, commercial abuse, infringement, or misappropriation and possibly challenged, invalidated, circumvented, narrowed, or declared unenforceable by countries where our products and services are made available, but where the laws may not protect our intellectual property rights as fully as in the U.S. Such instances could negatively impact our competitive position and adversely affect our business. Additionally, we could be required to incur significant expenses to protect our intellectual property rights.
Risks Related to our Common Stock
The price for our common stock is subject to volatility which may result in losses to our shareholders.
Stock price volatility affects the price at which our common stock can be sold and could subject our stockholders to losses. The trading price of our common stock could fluctuate widely in response to, among other things, the risk factors described in this report and other factors including:
actual or anticipated variations in quarterly and annual results of operations;
changes in recommendations by securities analysts;
changes in composition and perception of the investors who own our stock and other securities;
changes in ratings from national rating agencies on publicly or privately owned debt securities;
operating and stock price performance of other companies that investors deem comparable to us;
news reports relating to trends, concerns and other issues in the industries in which we operate;
actual or expected economic conditions that are perceived to affect our Company;
perceptions in the marketplace regarding us and/or our competitors;
fluctuations in prices of commodities that our customers produce and transport;
significant acquisitions or business combinations, strategic partnerships, joint ventures, or capital commitments by or involving us or our competitors;
changes in government regulations and policies and interpretations of those regulations and policies;
shareholder activism; and
dissemination of false or misleading statements through the use of social and other media to discredit our Company, disparage our products, or to harm our reputation.
Additionally, in the past, following periods of volatility in the market price of a public company’s securities, securities class action litigation has often been initiated. Any such litigation could result in substantial costs and a diversion of management’s attention and resources. We cannot predict the outcome of any such litigation. The initiation of any such litigation or an unfavorable result could have a material adverse effect on our financial condition and results of operations. See Note 15 of the Consolidated Financial Statements for more detailed information on any material pending legal proceedings other than ordinary routine litigation incidental to our business, including the current status of the Company's Highway Products litigation.

20


There can be no assurance that we will continue to pay dividends or repurchase shares of our common stock at current levels.
Although we have paid regular cash dividends for many years and conduct periodic share repurchase programs, the timing, amount and payment of future dividends to stockholders and repurchases of our common stock fall within the discretion of our Board of Directors (the "Board"). The Board’s decisions regarding the payment of dividends and repurchase of shares depend on many factors such as our financial condition, earnings, capital requirements, debt service obligations, legal requirements, regulatory constraints, and other factors that our Board may deem relevant. We cannot guarantee that we will continue to pay dividends, the amount of any such dividends, or that we will continue to repurchase shares in the future. Any payment of dividends or repurchases of shares could vary from historical practices and our stated expectations.
A small number of shareholders could significantly influence our business.
One shareholder controls more than 20% of our outstanding common stock. Accordingly, a small number of shareholders could affect matters that require shareholder approval, such as the election of directors and the approval of significant business transactions.
Risks Related to the Spin-Off of Arcosa
We may not achieve some or all of the expected benefits of the spin-off, and the spin-off may adversely affect our business.
We may not be able to achieve the full strategic and financial benefits expected to result from the spin-off, or such benefits may be delayed or not occur at all. The spin-off is expected to provide the following benefits, among others:
allow us to more effectively pursue our own distinct operating priorities and strategies, and enable our management to pursue opportunities for long-term growth and profitability, and to recruit, retain and motivate employees pursuant to compensation policies which are appropriate for our lines of business;
permit us to concentrate our financial resources solely on our own operations, providing greater flexibility to invest capital in our business in a time and manner appropriate for our distinct strategy and business needs; and
enable investors to evaluate the merits, performance and future prospects of our businesses and to invest in us separately based on these distinct characteristics.
We may not achieve these or other anticipated benefits for a variety of reasons, including, among others: (a) following the spin-off, Trinity's stock price may be more susceptible to market fluctuations and other events particular to one or more of Trinity's products than if Arcosa were still a part of Trinity; and (b) following the spin-off, our operational and financial profiles have changed such that our diversification of revenue sources has diminished, and our results of operations, cash flows, working capital, and financing requirements may be subject to increased volatility than prior to the spin-off. Additionally, we may experience unanticipated competitive developments, including changes in the conditions of our rail-related businesses' market that could negate the expected benefits from the spin-off. If we do not realize some or all of the benefits expected to result from the spin-off, or if such benefits are delayed, the business, financial condition, and results of operations and cash flows of Trinity could be adversely affected.
Either Arcosa or Trinity may fail to perform under various transaction agreements that were executed as part of the spin-off.
Arcosa and Trinity have entered into certain agreements, including a separation and distribution agreement, a transition services agreement, and certain other agreements, which provide for the performance by each company for the benefit of the other for a period of time after the spin-off. If either company is unable to satisfy its obligations under these agreements, including its indemnification obligations, the other company could incur operational difficulties or losses.
Potential indemnification liabilities to Arcosa pursuant to the separation and distribution agreement could materially and adversely affect Trinity's business, financial condition, results of operations and cash flows.
The separation and distribution agreement, among other things, provides for indemnification obligations designed to make Trinity financially responsible for certain liabilities that may exist relating to its business activities. If Trinity is required to indemnify Arcosa under the circumstances set forth in the separation and distribution agreement, Trinity may be subject to substantial liabilities.

21


In connection with the spin-off, Arcosa agreed to indemnify Trinity for certain liabilities. However, there can be no assurance that the indemnity will be sufficient to insure Trinity against the full amount of such liabilities, or that Arcosa's ability to satisfy its indemnification obligation will not be impaired in the future.
Arcosa agreed to indemnify Trinity for certain liabilities. However, third parties could also seek to hold Trinity responsible for liabilities that Arcosa has agreed to assume, and there can be no assurance that the indemnity from Arcosa will be sufficient to protect Trinity against the full amount of such liabilities, or that Arcosa will be able to fully satisfy its indemnification obligations. In addition, insurers may attempt to deny coverage to Trinity for liabilities associated with certain occurrences of indemnified liabilities prior to the spin-off.
If the distribution of shares of Arcosa, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, Trinity stockholders at the time of the distribution and Trinity could be subject to significant tax liability.
In connection with the distribution of shares in Arcosa, we obtained a private letter ruling from the IRS (the "IRS Ruling") and opinions from tax advisors (the "Tax Opinions"), in each case substantially to the effect that, among other things, the distribution of shares in Arcosa, together with certain related transactions, qualify as tax-free for U.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”). The IRS Ruling and the Tax Opinions rely on certain facts, assumptions, representations, and undertakings from Trinity and Arcosa, including those regarding the past and future conduct of the companies' respective businesses and other matters. Notwithstanding the IRS Ruling and the Tax Opinions, the IRS could determine that the distribution or any such related transaction is taxable if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated, or that the distribution should be taxable for other reasons, including if the IRS were to disagree with the conclusions in the Tax Opinions that are not covered by the IRS Ruling.
If the distribution is determined to be taxable for U.S. federal income tax purposes, a stockholder of Trinity that has received shares of Arcosa common stock in the distribution would be treated as having received a distribution of property in an amount equal to the fair value of such Arcosa shares on the distribution date and could incur significant income tax liabilities. Such distribution would be taxable to such stockholder as a dividend to the extent of Trinity's current and accumulated earnings and profits. Any amount that exceeded Trinity's earnings and profits would be treated first as a non-taxable return of capital to the extent of such stockholder’s tax basis in its shares of Trinity stock, with any remaining amount being taxed as capital gain. Trinity would recognize a taxable gain in an amount equal to the excess, if any, of the fair market value of the shares of Arcosa common stock held by Trinity on the distribution date over Trinity's tax basis in such shares. In addition, if certain related transactions fail to qualify for tax-free treatment under federal, state and local tax law and/or foreign tax law, Trinity could incur significant tax liabilities under U.S. federal, state, local and/or foreign tax law.
The spin-off and related internal restructuring transactions may expose us to potential liabilities arising out of state and federal fraudulent conveyance laws and legal dividend requirements.
The spin-off could be challenged under various state and federal fraudulent conveyance laws. Fraudulent conveyances or transfers are generally defined to include transfers made or obligations incurred with the actual intent to hinder, delay, or defraud current or future creditors or transfers made or obligations incurred for less than reasonably equivalent value when the debtor was insolvent, or that rendered the debtor insolvent, inadequately capitalized, or unable to pay its debts as they become due. An unpaid creditor or an entity acting on behalf of a creditor (including, without limitation, a trustee or debtor-in-possession in a bankruptcy by us or Arcosa or any of our respective subsidiaries) may bring a lawsuit alleging that the spin-off or any of the related transactions constituted a constructive fraudulent conveyance. If a court accepts these allegations, it could impose a number of remedies, including, without limitation, voiding the distribution and returning Arcosa’s assets or Arcosa’s shares and subject us to liability.
The distribution of Arcosa common stock is also subject to state corporate distribution statutes. Under the Delaware General Corporation Law ("DGCL"), a corporation may only pay dividends to its stockholders either (i) out of its surplus (net assets minus capital) or (ii) if there is no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Although Trinity made the distribution of Arcosa common stock entirely out of surplus, Trinity cannot ensure that a court would reach the same conclusion in determining the availability of funds for the separation and the distribution to our stockholders.

22


Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We principally operate in various locations throughout the U.S. and in Mexico. Our facilities are considered to be in good condition, well maintained, and adequate for our purposes.
 
Approximate Square Feet(1)
 
Approximate Square Feet Located In(1)
 
Owned
 
Leased
 
U.S.
 
Mexico
Rail Products Group(2)
5,288,700

 
133,400

 
3,159,400

 
2,262,700

All Other(2)
1,028,500

 
88,800

 
1,117,300

 

Corporate Offices
211,000

 
13,600

 
217,000

 
7,600

 
6,528,200

 
235,800

 
4,493,700

 
2,270,300

(1) Excludes non-operating facilities and facilities classified as discontinued operations
(2) Estimated weighted average production capacity utilization was approximately 90% for the year ended December 31, 2019
Item 3. Legal Proceedings.
See Note 15 of the Consolidated Financial Statements.
Item 4. Mine Safety Disclosures
Not applicable.

23


PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock is traded on the New York Stock Exchange under the ticker symbol “TRN”. Our transfer agent and registrar as of December 31, 2019 was American Stock Transfer & Trust Company.
Holders
At January 31, 2020, we had 1,554 record holders of common stock. The par value of the common stock is $0.01 per share.

Stock Performance Graph
The following Performance Graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically incorporates it by reference into such filing.
The following graph compares our cumulative total stockholder return (assuming reinvestment of dividends) during the five-year period ended December 31, 2019 with an overall stock market index (New York Stock Exchange Composite Index) and our peer group index (Dow Jones US Commercial Vehicles & Trucks Index). The S&P MidCap 400 is included as we believe it is a meaningful data point as the Company's common stock is included in this index. Additionally, the S&P MidCap 400 is used in measuring the Company's relative total stockholder return for purposes of determining the performance of certain stock awards granted in 2018 and 2019. The data in the graph assumes $100 was invested on December 31, 2014. For the purpose of this graph, historical stock prices of Trinity prior to the spin-off of Arcosa have been adjusted to reflect the impact of the spin.

402906625_chart-4cdf0ddc910c834357fa01.jpg
 
2014

 
2015

 
2016

 
2017

 
2018

 
2019
Trinity Industries, Inc. 
100

 
87

 
103

 
141

 
106

 
118

Dow Jones US Commercial Vehicles & Trucks Index
100

 
76

 
109

 
160

 
134

 
170

New York Stock Exchange Composite Index
100

 
96

 
108

 
128

 
117

 
147

S&P MidCap 400
100

 
98

 
118

 
137

 
122

 
154


24



Issuer Purchases of Equity Securities N EED
This table provides information with respect to purchases by the Company of shares of its common stock during the quarter ended December 31, 2019:
Period
 
Number of Shares Purchased (1)
 
Average Price Paid per Share (1)
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
 
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (2)
October 1, 2019 through October 31, 2019
 
1,107,419

 
$
19.65

 
1,102,622

 
$
164,399,809

November 1, 2019 through November 30, 2019
 
1,331,497

 
$
21.34

 
1,330,852

 
$
136,002,627

December 1, 2019 through December 31, 2019
 
502,217

 
$
21.48

 
500,000

 
$
125,266,862

Total
 
2,941,133

 
 
 
2,933,474

 
 
(1) These columns include the following transactions during the three months ended December 31, 2019: (i) the surrender to the Company of 7,126 shares of common stock to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees, (ii) the purchase of 533 shares of common stock by the Trustee for assets held in a non-qualified employee profit-sharing plan trust, and (iii) the purchase of 2,933,474 shares of common stock on the open market as part of our share repurchase program.
(2) In March 2019, our Board of Directors authorized a new share repurchase program effective March 7, 2019 through December 31, 2020. The new share repurchase program authorizes the Company to repurchase up to $350.0 million of its common stock, not to exceed 13.7 million shares. The share repurchase program is designed to meet certain IRS safe harbor guidelines associated with the spin-off of Arcosa, which was completed November 1, 2018. 2,933,474 shares were repurchased under the new share repurchase program during the three months ended December 31, 2019, at a cost of approximately $60.8 million. As of December 31, 2019, the Company had a remaining authorization to repurchase up to $125.3 million, not to exceed 2.6 million shares, of its common stock under the current repurchase program. The approximate dollar value of shares that were eligible to be repurchased under such share repurchase program is shown as of the end of such month or quarter.

25


Item 6. Selected Financial Data.
The following selected financial data for the five years ended December 31, 2019 has been derived from our audited consolidated financial statements. The operating results and certain other directly attributable expenses related to the businesses transferred to Arcosa in connection with the spin-off, which was completed on November 1, 2018, are reflected as discontinued operations in the table below for all periods presented. This selected financial data should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and our Consolidated Financial Statements and the Notes thereto.
 
Year Ended December 31,
 
2019
 
2018
 
2017
 
2016
 
2015
 
(in millions, except percent and per share data)
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
Revenues
$
3,005.1

 
$
2,509.1

 
$
2,397.4

 
$
3,089.8

 
$
4,602.3

Operating profit
416.3

 
315.1

 
368.3

 
478.9

 
1,068.6

Income from continuing operations before income taxes
200.7

 
151.6

 
195.4

 
310.0

 
880.5

Provision (benefit) for income taxes (1)
61.5

 
42.6

 
(414.8
)
 
106.8

 
295.5

Income from continuing operations
139.2

 
109.0

 
610.2

 
203.2

 
585.0

Income (loss) from discontinued operations, net of provision (benefit) for income taxes of $(1.0), $30.7, $73.1, $95.2, and $130.7 (2)
(3.1
)
 
54.1

 
103.4

 
161.5

 
241.0

Net income
$
136.1

 
$
163.1

 
$
713.6

 
$
364.7

 
$
826.0

Net income attributable to Trinity Industries, Inc.
$
137.6

 
$
159.3

 
$
702.5

 
$
343.6

 
$
796.5

Net income attributable to Trinity Industries, Inc. per common share:
 
 
 
 
 
 
 
 
 
Basic earnings per common share:
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
1.11

 
$
0.72

 
$
3.94

 
$
1.19

 
$
3.58

Income (loss) from discontinued operations
(0.02
)
 
0.37

 
0.68

 
1.06

 
1.56

 
$
1.09

 
$
1.09

 
$
4.62

 
$
2.25

 
$
5.14

Diluted earnings per common share:
 
 
 
 
 
 
 
 
 
Income from continuing operations
$
1.09

 
$
0.70

 
$
3.85

 
$
1.19

 
$
3.54

Income (loss) from discontinued operations
(0.02
)
 
0.37

 
0.67

 
1.06

 
1.54

 
$
1.07

 
$
1.07

 
$
4.52

 
$
2.25

 
$
5.08

Weighted average number of shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
125.6

 
144.0

 
148.6

 
148.4

 
150.2

Diluted
127.3

 
146.4

 
152.0

 
148.6

 
152.2

Dividends declared per common share
$
0.70

 
$
0.52

 
$
0.50

 
$
0.44

 
$
0.43

 
 
 
 
 
 
 
 
 
 
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Total assets (3)
$
8,701.4

 
$
7,989.2

 
$
9,543.2

 
$
9,125.3

 
$
8,885.9

Debt  recourse
$
522.8

 
$
397.4

 
$
866.3

 
$
850.6

 
$
836.2

Debt  non-recourse
$
4,359.1

 
$
3,631.8

 
$
2,375.6

 
$
2,206.0

 
$
2,358.7

Stockholders' equity (4)
$
2,378.9

 
$
2,562.0

 
$
4,858.0

 
$
4,311.1

 
$
4,048.7

Ratio of total debt to total capital (4)
67.2
%
 
61.1
%
 
40.0
%
 
41.5
%
 
44.1
%
Book value per share
$
19.89

 
$
19.23

 
$
32.21

 
$
28.34

 
$
26.50

___________________________
(1)
As a result of the Tax Cuts and Jobs Act (the "Tax Act"), which was enacted on December 22, 2017, income tax expense for the year ended December 31, 2017 includes a provisional net benefit of $476.2 million, or $3.06 per common diluted share, associated with the remeasurement of the Company's deferred tax assets and deferred tax liabilities and the impact of certain other provisions of the Tax Act. Income tax expense for the years ended December 31, 2019 and 2018 reflects the lower U.S. federal corporate income tax rate of 21% in comparison to a U.S. federal corporate income tax rate of 35% for the years ended December 31, 2017, 2016, and 2015. See Note 9 of the Consolidated Financial Statements for further information.
(2)
Income (loss) from discontinued operations for the years ended December 31, 2019, 2018, and 2017 includes transaction costs and certain other expenses directly attributable to the Arcosa spin-off of $2.9 million, $31.2 million, and $14.2 million, respectively.
(3)
The decrease in total assets from December 31, 2017 to December 31, 2018 is primarily attributable to the spin-off of Arcosa on November 1, 2018.
(4)
In connection with the spin-off of Arcosa, which was completed on November 1, 2018, we recorded a reduction to stockholders' equity of approximately $1,732.2 million, representing the distribution of the net assets of Arcosa to Trinity's shareholders.

26


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Our MD&A should be read in conjunction with our Consolidated Financial Statements and related Notes in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.
This MD&A includes financial measures compiled in accordance with generally accepted accounting principles ("GAAP") and certain non-GAAP measures. 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.
Company Overview
Trinity Industries, Inc. and its consolidated subsidiaries own businesses that are leading providers of railcar products and services in North America. Our rail-related businesses market their railcar products and services under the trade name TrinityRail®. 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, as well as a logistics business that primarily provides support services to Trinity. 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.
On November 1, 2018, we completed the separation of Trinity Industries, Inc. into two public companies: (1) Trinity Industries, Inc., primarily comprised of Trinity’s rail-related businesses, and (2) Arcosa, Inc. ("Arcosa"), a public company focused on infrastructure-related products and services. The separation was effected through a pro rata dividend to Trinity's shareholders of all outstanding Arcosa shares and was structured to qualify as a tax-free distribution for federal income tax purposes. Following the distribution, Arcosa became an independent, publicly-traded company on the New York Stock Exchange. Trinity did not retain an ownership interest in Arcosa following the completion of the spin-off transaction. See Note 2 of the Consolidated Financial Statements for further information related to the spin-off transaction.
Arcosa's results of operations have been presented as discontinued operations for all periods presented in this Annual Report on Form 10-K. Additionally, all intersegment sales between Arcosa and us, previously recorded as intersegment sales and eliminated in consolidation prior to the Arcosa spin-off, are now reflected as third-party sales. These sales, along with their related costs, are no longer eliminated in consolidation.
All segment results set forth herein have been recast to present results on a comparable basis.


27


Executive Summary
Financial and Operational Highlights
Our revenues for the year ended December 31, 2019 were $3,005.1 million representing an increase of 19.8%, compared to the year ended December 31, 2018. Our operating profit for the year ended December 31, 2019 was $416.3 million representing an increase of 32.1%, compared to the year ended December 31, 2018.
The Railcar Leasing and Management Services Group (the "Leasing Group") reported additions to the wholly-owned and partially-owned lease fleet of 4,490 railcars, for a total of 103,705 railcars as of December 31, 2019, an increase of 4.5% compared to December 31, 2018.
For the year ended December 31, 2019, we made a net investment in our lease fleet of approximately $916.5 million, which primarily includes new railcar additions and railcar modifications, net of deferred profit, and secondary market purchases; and is net of proceeds from the sales of leased railcars owned more than one year at the time of sale.
The Leasing Group's lease fleet of 103,705 company-owned railcars was 96.0% utilized as of December 31, 2019, in comparison to a lease fleet utilization of 98.5% on 99,215 company-owned railcars as of December 31, 2018. Our company-owned railcars include wholly-owned, partially-owned, and railcars under sale-leaseback arrangements.
The total value of the railcar backlog at December 31, 2019 was $1.8 billion, compared to $3.6 billion at December 31, 2018. The Rail Products Group received orders for 10,220 railcars and delivered 21,960 railcars in 2019, in comparison to orders for 28,795 railcars and deliveries of 20,105 railcars in 2018.
For the year ended December 31, 2019, our return on equity ("ROE") and Pre-Tax ROE were 5.6% and 9.0%(1), respectively, in comparison to 4.3% and 6.3%(1), respectively, for the year ended December 31, 2018.
For the year ended December 31, 2019, we generated operating cash flows from continuing operations and Free Cash Flow of $396.7 million and $423.3 million(1), respectively, in comparison to $274.2 million and $390.0 million(1), respectively, for the year ended December 31, 2018.
(1) Non-GAAP financial measure. See the Non-GAAP Financial Measures section within this Form 10-K for a reconciliation to the most directly comparable GAAP measure and why management believes this measure is useful to management and investors.
See "Consolidated Results of Operations" and "Segment Discussion" below for additional information regarding our operating results for the year ended December 31, 2019. See Part II, Item 7 of our 2018 Annual Report on Form 10-K for a discussion of our results of operations and liquidity and capital resources as of and for the year ended December 31, 2018, including a comparison to the year ended December 31, 2017.

28


Returns of Capital to Shareholders
For the year ended December 31, 2019, returns of capital to shareholders in the form of dividends and share repurchases are summarized below:
402906625_trnreturnofcapitala03.jpg
Capital Structure Updates
In connection with the Company's ongoing efforts to optimize its capital structure, in April 2019, Trinity Rail Leasing 2019 LLC ("TRL-2019"), a Delaware limited liability company and a limited purpose, indirect wholly-owned subsidiary of the Company owned through TILC, issued $528.3 million of TRL-2019 Secured Railcar Equipment Notes. In October 2019, TRL-2019 issued an additional $386.5 million of TRL-2019 Secured Railcar Equipment Notes, consisting of two classes of notes. These notes have a stated final maturity date of 2049.
See "Liquidity and Capital Resources" below for further information regarding these activities.
Litigation Updates
See Note 15 of the Consolidated Financial Statements for an update on the status of our Highway Products litigation.
Cyclical and Seasonal Trends Impacting Our Business
The industries in which we 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, adverse changes in commodity prices or lower demand for certain commodities could result in a decline in customer demand for various types of railcars. 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. We diligently evaluate the creditworthiness of our customers and monitor performance of relevant market sectors; however, weaknesses in any of these market sectors could affect the financial viability of our underlying Leasing Group customers, which could negatively impact our recurring leasing revenues and operating profits. Due to their transactional nature, railcar sales from the lease fleet 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.

29


Recent Market Developments
Demand for railcars weakened in 2019 due to uncertainty associated with global tariffs and trade policies and declining industrial production. These economic factors, combined with declining railcar loading volumes and a growing supply of underutilized railcar assets in North America, are pressuring railcar lease rates and utilization, as well as orders for new railcar equipment. We currently expect this trend to continue in the near term. We believe that our integrated rail platform is designed to respond to cyclical changes in demand and perform throughout the railcar cycle.
Restructuring Activities
In the fourth quarter of 2019, we implemented the initial phase of efforts to streamline certain functions to support our rail-focused strategy and to begin disposing of underutilized assets and facilities. In connection with our assessment of future needs to support our go-forward business strategy, we recognized a restructuring charge of approximately $14.7 million, primarily from write-downs related to underutilized assets associated with our non-operational facilities, and employee transition costs. We estimate that these actions will generate future annualized cost savings of approximately $8 million to $10 million. We expect to identify additional streamlining and cost savings opportunities in 2020.

30


Consolidated Results of Operations
The following table summarizes our consolidated results of operations for the years ended December 31, 2019 and 2018:
 
Year Ended December 31,
 
2019
 
2018
 
(in millions)
Revenues
$
3,005.1

 
$
2,509.1

Cost of revenues
2,365.7

 
1,938.8

Selling, engineering, and administrative expenses
262.8

 
296.6

Gains on disposition of property
54.4

 
41.4

Restructuring activities
14.7

 

Total operating profit
416.3

 
315.1

Interest expense, net
214.5

 
167.4

Other, net
1.1

 
(3.9
)
Income from continuing operations before income taxes
200.7

 
151.6

Provision for income taxes
61.5

 
42.6

Income from continuing operations
$
139.2

 
$
109.0

Revenues

The tables below present revenues by segment for the years ended December 31, 2019 and 2018:
 
Year Ended December 31, 2019
 
 
 
Revenues
 
Percent
 
External
 
Intersegment
 
Total
 
Change
 
(in millions)
 
Railcar Leasing and Management Services Group
$
1,116.3

 
$
0.9

 
$
1,117.2

 
32.6
 %
Rail Products Group
1,595.4

 
1,331.1

 
2,926.5

 
24.7

All Other
293.4

 
51.7

 
345.1

 
(4.5
)
Segment Totals before Eliminations
3,005.1

 
1,383.7

 
4,388.8

 
23.6

Eliminations – Lease Subsidiary

 
(1,331.1
)
 
(1,331.1
)
 
 
Eliminations – Other

 
(52.6
)
 
(52.6
)
 
 
Consolidated Total
$
3,005.1

 
$

 
$
3,005.1

 
19.8

 
 
 
 
 
 
 


 
Year Ended December 31, 2018
 


 
Revenues
 


 
External
 
Intersegment

 
Total
 


 
(in millions)
 


Railcar Leasing and Management Services Group
$
842.0

 
$
0.8

 
$
842.8

 


Rail Products Group
1,356.4

 
990.3

 
2,346.7

 


All Other
310.7

 
50.6

 
361.3

 


Segment Totals before Eliminations
2,509.1

 
1,041.7

 
3,550.8

 


Eliminations – Lease Subsidiary

 
(990.3
)
 
(990.3
)
 


Eliminations – Other

 
(51.4
)
 
(51.4
)
 


Consolidated Total
$
2,509.1

 
$

 
$
2,509.1

 



31


Operating Costs
Operating costs are comprised of cost of revenues; selling, engineering, and administrative costs; gains or losses on property disposals; and restructuring activities. Operating costs by segment for the years ended December 31, 2019 and 2018 were as follows:
 
Year Ended December 31,
 
2019
 
2018
 
(in millions)
Railcar Leasing and Management Services Group
$
710.6

 
$
491.7

Rail Products Group
2,645.1

 
2,174.6

All Other
329.0

 
325.6

Segment Totals before Eliminations, Corporate Expenses, and Restructuring activities
3,684.7

 
2,991.9

Corporate
108.0

 
149.1

Restructuring activities
14.7

 

Eliminations – Lease Subsidiary
(1,166.4
)
 
(895.2
)
Eliminations – Other
(52.2
)
 
(51.8
)
Consolidated Total
$
2,588.8

 
$
2,194.0

Operating Profit
Operating profit by segment for the years ended December 31, 2019 and 2018 was as follows:
 
Year Ended December 31,
 
2019
 
2018
 
(in millions)
Railcar Leasing and Management Services Group
$
406.6

 
$
351.1

Rail Products Group
281.4

 
172.1

All Other
16.1

 
35.7

Segment Totals before Eliminations, Corporate Expenses, and Restructuring activities
704.1

 
558.9

Corporate
(108.0
)
 
(149.1
)
Restructuring activities
(14.7
)
 

Eliminations – Lease Subsidiary
(164.7
)
 
(95.1
)
Eliminations – Other
(0.4
)
 
0.4

Consolidated Total
$
416.3

 
$
315.1

Discussion of Consolidated Results
Revenues — Our revenues for the year ended December 31, 2019 were $3,005.1 million, representing an increase of $496.0 million, or 19.8%, over the prior year, primarily related to a higher volume of railcars sold from our lease fleet and higher leasing and management services revenue in the Leasing Group primarily associated with growth in the lease fleet. Additionally, revenues increased in the Rail Products Group as a result of favorable product mix on external railcar sales, higher unit deliveries and growth in our maintenance services business.
Cost of revenues — Our cost of revenues for the year ended December 31, 2019 were $2,365.7 million, representing an increase of $426.9 million, or 22.0%, over the prior year. The increase in cost of revenues in our Rail Products Group resulted primarily from product mix changes on external railcar sales and higher volumes in our maintenance services business. Additionally, cost of revenues increased in the Leasing Group due to a higher volume of railcars sold, including cost of revenues attributable to sales-type leases, and increased depreciation expense associated with the growth of our lease fleet.
Selling, engineering, and administrative expenses — Selling, engineering, and administrative expenses decreased by 11.4% for the year ended December 31, 2019, when compared to the prior year primarily due to cost reductions associated with optimizing our post-spin corporate structure.
Gains on disposition of property — Gains on disposition of property increased by $13.0 million for the year ended December 31, 2019, when compared to the prior year. Property disposition losses for the year ended December 31, 2018 included a non-cash charge of $12.6 million associated with our election to forego the early purchase options contained in certain lease agreements.

32


Restructuring activities — Our restructuring activities for the year ended December 31, 2019 were $14.7 million primarily as a result of write-downs related to underutilized assets in our manufacturing footprint and employee transition costs. We had no restructuring activities during the year ended December 31, 2018.
Operating profit — Operating profit for the year ended December 31, 2019 totaled $416.3 million, representing an increase of 32.1% from the prior year. The increase in operating profit resulted primarily from favorable product mix changes in the Rail Products Group, higher profits from railcar sales in the Leasing Group, and reductions in corporate selling, engineering, and administrative expenses.
For further information regarding the operating results of individual segments, see "Segment Discussion" below.
Interest expense, net — Interest expense, net for the year ended December 31, 2019 totaled $214.5 million, compared to $167.4 million for the year ended December 31, 2018. The increase in interest expense for the year ended December 31, 2019 was primarily driven by higher debt obligations in the Leasing Group in connection with the Company's efforts to optimize its capital structure, and lower interest income when compared to the prior year period.
Other, net — For the year ended December 31, 2019, the increase in expense was primarily due to higher net periodic benefit costs associated with our company-sponsored pension plans.
Income taxes — Our effective tax rates were 30.6% and 28.1% for the years ended December 31, 2019 and 2018, respectively. Our effective tax rates differ from the U.S. statutory rate of 21.0% primarily due to state income tax expense, foreign branch taxes, and changes in state tax laws and apportionment. For the year ended December 31, 2019, the difference also includes the effects of a one-time, non-cash, deferred tax impact of $9.7 million related to our planned Maintenance Services expansion into a new Midwest facility.
Income tax payments, net of refunds, differ from the current provision primarily based on when estimated tax payments were due as compared to when the related income was earned and taxable. Our consolidated income tax position was a net receivable of $13.0 million and $38.4 million from federal, state, and foreign jurisdictions at December 31, 2019 and 2018, respectively. Income tax payments (refunds) during the years ended December 31, 2019 and 2018 totaled $(16.7) million and $4.1 million, respectively.


33


Segment Discussion
Railcar Leasing and Management Services Group
 
Year Ended December 31,
 
Percent Change
 
2019
 
2018
 
 
($ in millions)
 
 
Revenues:
 
 
 
 
 
Leasing and management
$
756.5

 
$
728.9

 
3.8
 %
Sales of railcars owned one year or less at the time of sale (1)
360.7

 
113.9

 
216.7
 %
Total revenues
$
1,117.2

 
$
842.8

 
32.6
 %
 
 
 
 
 
 
Operating profit(2):
 
 
 
 
 
Leasing and management
$
314.7

 
$
291.8

 
7.8
 %
Railcar sales:
 
 
 
 

Railcars owned one year or less at the time of sale
41.4

 
21.5

 
92.6
 %
Railcars owned more than one year at the time of sale
50.5

 
50.4

 
0.2
 %
Property disposition losses (3)

 
(12.6
)
 
*
Total operating profit
$
406.6

 
$
351.1

 
15.8
 %
Total operating profit margin
36.4
%
 
41.7
%
 
 
 
 
 
 
 
 
Leasing and management operating profit margin:
41.6
%
 
40.0
%
 
 
 
 
 
 
 
 
Selected expense information:
 
 
 
 
 
Depreciation
$
232.2

 
$
196.6

 
18.1
 %
Maintenance and compliance
$
102.1

 
$
99.3

 
2.8
 %
Rent
$
16.9

 
$
42.4

 
(60.1
)%
Selling, engineering, and administrative expenses
$
49.5

 
$
51.1

 
(3.1
)%
Interest
$
197.2

 
$
142.3

 
38.6
 %
 * Not meaningful
(1) Includes revenues associated with sales-type leases of $160.5 million for the year ended December 31, 2019.
(2) Operating profit includes: depreciation; maintenance and compliance; rent; and selling, engineering, and administrative expenses. Amortization of deferred profit on railcars sold from the Rail Products Group to the Leasing Group is included in the operating profits of the Leasing Group, resulting in the recognition of depreciation expense based on our original manufacturing cost of the railcars. Interest expense is not a component of operating profit and includes the effect of hedges.
(3) Property disposition losses for the year ended December 31, 2018 included a non-cash charge of $12.6 million associated with our election to forego the early purchase options contained in certain lease agreements.
During the years ended December 31, 2019 and 2018, information related to the sales of leased railcars is as follows:
 
Year Ended December 31,
 
2019
 
2018
 
($ in millions)
Sales of leased railcars:
 
 
 
Railcars owned one year or less at the time of sale (1)
$
360.7

 
$
113.9

Railcars owned more than one year at the time of sale
205.7

 
230.5

 
$
566.4

 
$
344.4

 
 
 
 
Operating profit on sales of leased railcars:
 
 
 
Railcars owned one year or less at the time of sale
$
41.4

 
$
21.5

Railcars owned more than one year at the time of sale
50.5

 
50.4

 
$
91.9

 
$
71.9

 
 
 
 
Operating profit margin on sales of leased railcars:
 
 
 
Railcars owned one year or less at the time of sale
11.5
%
 
18.9
%
Railcars owned more than one year at the time of sale
24.6
%
 
21.9
%
Weighted average operating profit margin on sales of leased railcars
16.2
%
 
20.9
%
(1) Includes revenues associated with sales-type leases of $160.5 million for the year ended December 31, 2019.

34


Total revenues for the Railcar Leasing and Management Services Group increased by 32.6% for the year ended December 31, 2019, compared to the prior year. Revenues related to sales of leased railcars owned one year or less increased due to a higher volume and mix of railcars sold from the fleet. Additionally, leasing and management revenues increased 3.8% for the year ended December 31, 2019, as a result of growth in the lease fleet partially offset by lower fleet utilization when compared to the year ended December 31, 2018. Although lease rates for current year lease originations increased throughout 2019, average lease rates across the lease fleet were lower when compared to the prior year.
Operating profit increased by 15.8% for the year ended December 31, 2019, compared to the prior year primarily due to higher profits from railcar sales, growth in the lease fleet, and lower rent expense resulting from the purchase of 6,779 railcars during the first quarter of 2019, which were previously under lease and are now wholly-owned. These increases were partially offset by higher depreciation expense associated with the growth in the lease fleet. Operating profit for the year ended December 31, 2018 was negatively impacted by $12.6 million associated with our election to forego the early purchase options contained in certain lease agreements. See "Liquidity and Capital Resources" below for further information regarding the leased railcar purchase.
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. After initial funding, the Leasing Group may obtain long-term financing for the railcars in the lease fleet through non-recourse asset-backed securities; long-term non-recourse operating leases pursuant to sale-leaseback transactions; long-term recourse debt such as equipment trust certificates; long-term non-recourse promissory notes; or third-party equity.
Information regarding the Leasing Group’s lease fleet, managed or owned through its wholly-owned and partially-owned subsidiaries, follows:
 
December 31,
 
2019
 
2018
Number of railcars:
 
 
 
Wholly-owned(1)
79,115

 
74,565

Partially-owned
24,590

 
24,650

 
103,705

 
99,215

Managed (third-party owned)
24,835

 
21,635

 
128,540

 
120,850

Company-owned railcars (2):
 
 
 
Average age in years
9.6

 
9.1

Average remaining lease term in years
3.3

 
3.5

Fleet utilization
96.0
%
 
98.5
%
(1) Includes 2,175 railcars under sale-leaseback arrangements.
(2) Includes wholly-owned and partially-owned railcars and railcars under sale-leaseback arrangements.


35


Rail Products Group
 
Year Ended December 31,
 
Percent Change
 
2019
 
2018
 
 
($ in millions)
 
 
Revenues:
 
 
 
 
 
Rail Products
$
2,506.7

 
$
1,996.9

 
25.5
 %
Maintenance services
371.0

 
300.1

 
23.6
 %
Other
48.8

 
49.7

 
(1.8
)%
Total revenues
$
2,926.5

 
$
2,346.7

 
24.7
 %
 
 
 
 
 
 
Operating costs:
 
 
 
 
 
Cost of revenues
$
2,592.6

 
$
2,122.8

 
22.1
 %
Selling, engineering, and administrative expenses
52.3

 
51.8

 
1.0
 %
Losses on dispositions of property
0.2

 

 
*
Operating profit
$
281.4

 
$
172.1

 
63.5
 %
Operating profit margin
9.6
%
 
7.3
%
 
 
* Not meaningful
Additional information related to our Rail Products Group backlog of railcars is summarized below:
 
December 31,
 
Percent Change