Trinity Industries(TRN) - 2020 Q4 - Annual Report

Part I Business Trinity Industries is a leading North American railcar products and services provider, structured into three segments and subject to extensive regulation - Trinity Industries is a leading provider of railcar products and services in North America, marketed under the TrinityRail brand[15] - The company's operations are subject to regulation by multiple governmental agencies in the U.S., Canada, and Mexico, including the FRA, PHMSA, AAR, and OSHA[58][59][60] Reportable Segments | Segment | Description | | :--- | :--- | | Railcar Leasing and Management Services Group | Owns and operates a fleet of railcars, provides leasing, management, and administrative services | | Rail Products Group | Manufactures and sells railcars, related parts, and provides maintenance and modification services | | All Other | Includes the highway products business and costs for non-operating facilities | Employee Headcount by Segment (as of Dec 31, 2020) | Segment | Employee Count | | :--- | :--- | | Railcar Leasing and Management Services Group | 155 | | Rail Products Group | 5,295 | | All Other | 635 | | Corporate and Enterprise Support | 290 | | Total | 6,375 | Railcar Leasing and Management Services Group The Railcar Leasing and Management Services Group provides operating leases for a diversified fleet of over 107,000 railcars and manages third-party fleets - The lease fleet is diversified across various end markets, including Agriculture, Construction & Metals, Consumer Products, Energy, and Refined Products & Chemicals[21][23] Lease Fleet Status (as of Dec 31, 2020) | Metric | Value | | :--- | :--- | | Total Railcars in Lease Fleet | 107,045 | | Fleet Utilization | 94.5% | | Total Railcars Under Management | 133,690 | Rail Products Group The Rail Products Group manufactures various freight and tank railcars and offers comprehensive maintenance and repair services, with steel as a primary cost driver - This group manufactures freight and tank railcars and provides a full range of maintenance and modification services[25][26] - Input costs for materials, primarily steel and specialty components, represent over 70% of the cost of most railcars[31] All Other Segment The All Other segment primarily comprises a leading U.S. highway products manufacturer, experiencing seasonal revenue fluctuations, and includes non-operating facility costs - This segment includes a leading U.S. manufacturer of highway products like guardrails and crash cushions[29] - The highway products business experiences seasonality, with revenues typically highest in the second and third quarters[29] Risk Factors The company faces diverse risks including cyclical industry demand, COVID-19 impacts, operational challenges in Mexico, intense competition, and financial and regulatory exposures - The industries in which Trinity operates are cyclical, and economic downturns can significantly decrease demand, leading to lower sales and profits[68] - The COVID-19 pandemic has had, and could continue to have, a material adverse effect on operations, financial condition, liquidity, and demand for products and services[69] - Operations in Mexico are subject to political, economic, and trade risks. Changes in U.S. or Mexican government policies, tariffs, or trade barriers could adversely affect the business[70] - The company faces risks related to cybersecurity attacks and data breaches, which could lead to financial loss, litigation, and reputational harm[78] - The business is subject to extensive regulation. Changes in requirements from agencies like the FRA, PHMSA, and AAR could increase operating costs or reduce demand[105][108] - The phaseout of LIBOR by June 2023 may adversely affect interest rates on the company's debt, potentially increasing borrowing costs[104] Unresolved Staff Comments The company reports no unresolved staff comments - None[122] Properties The company operates various owned and leased facilities across the U.S. and Mexico, with the Rail Products Group utilizing the majority of space - The estimated weighted average production capacity utilization for the Rail Products and All Other segments was approximately 70% for the year ended December 31, 2020[124] Facility Space by Segment (Approx. Square Feet) | Segment | Owned | Leased | | :--- | :--- | :--- | | Rail Products Group | 5,553,100 | 133,400 | | All Other | 822,500 | 96,400 | | Corporate Offices | — | 162,800 | | Total | 6,375,600 | 392,600 | Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 15 of the Consolidated Financial Statements - For details on legal proceedings, refer to Note 15 of the Consolidated Financial Statements[125] Mine Safety Disclosures This item is not applicable to the company - Not applicable[126] Part II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Trinity's common stock trades on the NYSE under 'TRN', showing a 168% cumulative return over five years, with recent share repurchases - In October 2020, the Board authorized a new share repurchase program of up to $250.0 million through December 31, 2021[134][162] Cumulative Total Stockholder Return (2015-2020) | Year | Trinity Industries, Inc. | Dow Jones US Commercial Vehicles & Trucks Index | New York Stock Exchange Composite Index | S&P MidCap 400 | | :--- | :--- | :--- | :--- | :--- | | 2015 | 100 | 100 | 100 | 100 | | 2016 | 118 | 144 | 112 | 121 | | 2017 | 162 | 211 | 133 | 140 | | 2018 | 122 | 177 | 122 | 125 | | 2019 | 136 | 223 | 153 | 157 | | 2020 | 168 | 288 | 164 | 179 | Issuer Purchases of Equity Securities (Q4 2020) | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Program | Remaining Authorization (in millions) | | :--- | :--- | :--- | :--- | :--- | | Oct 2020 | 521,807 | $19.41 | 519,902 | $239.9 | | Nov 2020 | 1,175,020 | $21.74 | 1,169,576 | $214.5 | | Dec 2020 | 1,287,609 | $25.14 | 1,285,444 | $182.2 | | Total Q4 | 2,984,436 | | 2,974,922 | $182.2 | Selected Financial Data The company has elected to omit the presentation of Selected Financial Data, aligning with SEC's updated requirements - The company has elected not to present Selected Financial Data as it is no longer required by the SEC[135] Management's Discussion and Analysis of Financial Condition and Results of Operations Trinity's 2020 financial performance saw a significant revenue decline and operating loss due to COVID-19 and industry downturns, offset by strong cash flow and strategic capital management - Revenues decreased by 33.5% primarily due to lower deliveries in the Rail Products Group and fewer railcars sold from the lease fleet[171] - A significant impairment charge of $396.4 million was recorded, primarily related to small cube covered hopper railcars, due to a fundamental and other-than-temporary change in future demand[143][174] - The company's effective tax rate was a benefit of 54.3% for 2020, largely due to the impact of the CARES Act, which allowed for the carryback of tax losses to years with a higher federal tax rate[180][181] Consolidated Results of Operations (2020 vs. 2019) | Metric (in millions) | 2020 | 2019 | | :--- | :--- | :--- | | Revenues | $1,999.4 | $3,005.1 | | Operating Profit (Loss) | $(124.5) | $416.3 | | Impairment of long-lived assets | $396.4 | $— | | Income (Loss) from continuing operations | $(226.1) | $139.2 | Segment Discussion Segment performance varied, with Railcar Leasing and Rail Products experiencing revenue and profit declines, while All Other improved profitability through cost reductions Operating Profit (Loss) by Segment (in millions) | Segment | 2020 | 2019 | | :--- | :--- | :--- | | Railcar Leasing and Management Services Group | $353.7 | $406.6 | | Rail Products Group | $36.3 | $277.6 | | All Other | $28.2 | $19.9 | | Corporate | $(97.7) | $(108.0) | | Impairment, Restructuring & Eliminations | $(443.3) | $(179.8) | | Consolidated Total | $(124.5) | $416.3 | Liquidity and Capital Resources As of December 31, 2020, Trinity maintained strong liquidity and operating cash flow, while investing in its lease fleet and returning capital to shareholders - As of December 31, 2020, the company has committed liquidity of $727.4 million, comprising $132.0 million in cash, $364.8 million available under its revolving credit facility, and $230.6 million available under the TILC warehouse facility[198] - Capital expenditures for 2021 are projected to be between $300 million and $350 million for net lease fleet investment, and $45 million to $60 million for manufacturing and other activities[217] Summary of Cash Flows (in millions) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash from operating activities | $651.8 | $396.7 | | Net cash used in investing activities | $(532.9) | $(993.3) | | Net cash (used in) provided by financing activities | $(168.0) | $526.5 | Contractual Obligations Summary (as of Dec 31, 2020) | Obligation (in millions) | Total | Due in 1 Year or Less | | :--- | :--- | :--- | | Debt and Interest | $5,719.3 | $404.7 | | Operating Leases | $120.2 | $12.2 | | Purchase Obligations | $401.2 | $358.3 | | Total | $6,241.7 | $776.2 | Critical Accounting Policies and Estimates Critical accounting policies involve significant judgment in areas such as long-lived asset impairment, income taxes, goodwill testing, variable interest entities, and self-insurance liabilities - The impairment assessment of long-lived assets, such as the $369.4 million charge for small cube covered hopper railcars, requires significant management judgment on future lease rates, utilization, and discount rates[229] - Accounting for income taxes involves estimating the timing and realization of deferred tax assets and liabilities, including assessing the need for valuation allowances[230] - Goodwill impairment testing is performed annually and requires estimates of future revenue, operating profit, and discount rates for each reporting unit[231] Quantitative and Qualitative Disclosures About Market Risk The company manages market risks, primarily interest rate fluctuations on variable-rate debt, using derivatives, with foreign currency and commodity exposures deemed immaterial - The company's primary market risk is interest rate fluctuation, with 27.3% of its debt at variable rates as of year-end 2020[242] - A hypothetical 1% increase in average interest rates for fiscal year 2021 would increase interest expense by approximately $8.9 million, net of hedges[242] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for 2020, reflecting a net loss driven by impairment and pension charges, partially offset by tax benefits, with stable assets and increased debt - The company adopted new accounting standards for credit losses (ASU 2016-13) and cloud computing costs (ASU 2018-15) in 2020, with no significant impact on the financial statements[314][315] - The company is involved in ongoing highway products litigation, including state qui tam actions and product liability lawsuits. While a loss is not considered probable for the state actions, the financial impact could be material. An accrual of $7.5 million has been made for other matters as of Dec 31, 2020[436][439][442] Consolidated Balance Sheet Summary (in millions) | Account | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Assets | $8,701.8 | $8,701.4 | | Total Liabilities | $6,685.8 | $6,322.5 | | Total Stockholders' Equity | $2,016.0 | $2,378.9 | Consolidated Statement of Operations Summary (in millions) | Account | 2020 | 2019 | | :--- | :--- | :--- | | Revenues | $1,999.4 | $3,005.1 | | Total operating profit (loss) | $(124.5) | $416.3 | | Income (loss) from continuing operations | $(226.1) | $139.2 | | Net income (loss) attributable to Trinity | $(147.3) | $137.6 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[444] Controls and Procedures Management and independent auditors concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2020 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[445] - Management assessed internal control over financial reporting as effective based on the COSO framework, and the independent auditor, Ernst & Young LLP, concurred[449][450][454] Other Information The company reports no other information for this item - None[461] Part III Directors, Executive Officers, and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement - Required information is incorporated by reference from the Registrant's definitive 2021 Proxy Statement[463] Executive Compensation Information regarding executive and director compensation is incorporated by reference from the 2021 Proxy Statement - Required information is incorporated by reference from the Registrant's definitive 2021 Proxy Statement[465] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and equity compensation plans is incorporated by reference from the 2021 Proxy Statement Equity Compensation Plan Information (as of Dec 31, 2020) | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 4,113,458 | N/A | 1,973,045 | | Equity compensation plans not approved by security holders | — | N/A | — | | Total | 4,113,458 | | 1,973,045 | Certain Relationships and Related Transactions, and Director Independence Information on related person transactions and director independence is incorporated by reference from the 2021 Proxy Statement - Required information is incorporated by reference from the Registrant's definitive 2021 Proxy Statement[470] Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the 2021 Proxy Statement - Required information is incorporated by reference from the Registrant's definitive 2021 Proxy Statement[471] Part IV Exhibits and Financial Statement Schedules This section provides an index of exhibits filed with the report, including governance documents and debt agreements, and notes the omission of financial statement schedules - This section contains the index to all exhibits filed with the Form 10-K, including governance documents, material contracts, and certifications[473][475] Form 10-K Summary The company reports no Form 10-K summary - None[480]