Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide management's perspective 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 the unaudited Consolidated Financial Statements and related Notes in Part I, Item 1 of this Quarterly Report on Form 10-Q and Item 8, Financial Statements and Supplementary Data, of our 2020 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. Matters Affecting Comparability During the fourth quarter of 2020, we began presenting sales from our lease fleet in theRailcar Leasing andManagement Services Group on a net basis regardless of the age of railcar that is sold. Historically, in accordance with ASC 606, Revenue from contracts with customers, we presented sales of railcars from the lease fleet on a gross basis in Revenues - Leasing and Cost of revenues - Leasing in our Consolidated Statements of Operations if the railcars had been owned for one year or less at the time of sale. Sales of railcars from the lease fleet owned for more than one year had historically been presented as a net gain or loss from the disposal of a long-term asset. We will now report all sales of railcars from the lease fleet as a net gain or loss from the disposal of a long-term asset in accordance with ASC 610-20, Gains and losses from the derecognition of non-financial assets. These sales will be presented in the Lease portfolio sales line in our Consolidated Statements of Operations; however, because this change in presentation was effected on a prospective basis beginning in the fourth quarter of 2020, lease portfolio sales for the three months endedMarch 31, 2020 only include sales of railcars from the lease fleet owned for more than one year. We have concluded that the new presentation is appropriate given the significant change in the strategic focus of the Company. The new presentation had no effect on the Company's operating profit, net income, earnings per share, or Consolidated Balance Sheet. 30
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Table of Contents Forward-Looking Statements This quarterly report on Form 10-Q (or statements otherwise made by the Company or on the Company's behalf from time to time in other reports, filings with theSecurities 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 impact of the coronavirus pandemic ("COVID-19") and the response thereto, on, among other things, demand for our products and services, our customers' ability to pay, disruptions to our supply chain, our liquidity and financial position, results of operations, stock price, payment of dividends, our ability to generate new railcar orders, our ability to originate and/or renew leases at favorable rates, our ability to convert backlog to revenue, and the operational status of our facilities; •impacts from asset impairments and related charges; •the timing of introduction of new products; •the timing and delivery of customer orders, lease portfolio sales, 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; •material failure, interruption of service, compromised data security, phishing emails, or cybersecurity breaches in our information technology (or that of the third-party vendors who provide information technology services); •surcharges and other fees added to fixed pricing agreements for steel, component parts, supplies, and other raw materials; •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, particularlyMexico ; •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; •changes in laws and regulations that may have an adverse effect on demand for our products and services, our results of operations, financial condition or cash flows; •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 byU.S. and/or foreign governments (particularlyMexico andCanada ) 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; and •the inability to sufficiently protect our intellectual property rights. 31
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Table of Contents 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 "Risk Factors" in our 2020 Annual Report on Form 10-K, this Form 10-Q and future Forms 10-Q and Current Reports on Forms 8-K.
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Table of Contents Company OverviewTrinity Industries, Inc. and its consolidated subsidiaries ("Trinity," "Company," "we," "our," or "us") own businesses that are leading providers of railcar products and services inNorth 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. We report our operating results in three principal business segments: (1) theRailcar Leasing andManagement Services Group (the "Leasing Group"), which owns and operates a fleet of railcars and provides third-party fleet leasing, management, and administrative services; (2) theRail Products Group , which manufactures and sells railcars and related parts and components, and provides railcar maintenance and modification services; and (3) All Other, which includes our highway products business and legal, environmental, and maintenance costs associated with non-operating facilities. Executive Summary Recent Market Developments COVID-19 The COVID-19 pandemic has significantly impacted global and North American economic conditions. The social and economic effects of the pandemic have been widespread and are ongoing. We continue to monitor the operational and financial impacts of the pandemic and other economic factors, and have taken appropriate measures to preserve cash and ensure sufficient liquidity. In addition to cost savings initiatives underway, we have streamlined our workforce in response to current operating conditions. As described in the Liquidity and Capital Resources section below, as ofMarch 31, 2021 , we have total committed liquidity of approximately$772 million . We believe we have sufficient liquidity and capital resources to fund our operating requirements as well as the other capital allocation and investment activities planned for 2021. We are currently, and believe we will continue to be, in compliance with any applicable debt covenants. Although we have not experienced significant interruptions to our daily operations or a material impact to our operating costs, the economic pressures created by the pandemic have negatively impacted our results of operations for the three months endedMarch 31, 2021 . We expect that our results of operations will remain under pressure in the near term. We will continue to monitor business conditions, including the impact of the pandemic, and will make appropriate adjustments to our operations and related financial projections and estimates as necessary. We can provide no assurance that we will not have impairment charges in future periods as a result of changes in market conditions, our operating results, or changes in the assumptions utilized in our financial projections. Please refer to the "Forward-Looking Statements" section above and Part I, Item 1A "Risk Factors" of the 2020 Annual Report on Form 10-K for additional information regarding the potential impacts of COVID-19 on our business. Other Cyclical and Seasonal Trends Impacting Our Business The industries in which we operate are cyclical in nature. Weaknesses in certain sectors of the North American and global economy may make it more difficult to sell or lease certain types of railcars. Additionally, adverse changes in commodity prices, including depressed prices in the crude oil market, or lower demand for certain commodities, could result in a decline in customer demand for various types of railcars. 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, additional weaknesses in any of these market sectors could affect the financial viability of our underlyingLeasing Group customers, which could continue to negatively impact our recurring leasing revenues and operating profits. Additionally, current economic conditions within the industries in which our customers operate have resulted in reduced demand for railcars. Although railcar loading volumes and levels of railcars in storage are beginning to improve, railcar lease rates and utilization, as well as orders for new railcar equipment, remain under pressure. While we currently expect this trend to continue in the near term, we believe that our rail platform is designed to respond to cyclical changes in demand and perform throughout the railcar cycle. 33
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Table of Contents Steel prices have experienced an unprecedented increase since the fourth quarter of 2020 and are a significant component of our cost of sales. We typically use contract-specific purchasing practices, existing supplier commitments, contractual price escalation provisions, and other arrangements with our customers to mitigate the effects of steel price volatility on our operating profit. However, current steel prices could negatively impact demand for new railcars and create potential headwinds to operating profit in our near-term deliveries. We will continue to monitor the impact of steel price changes on our business. Due to their transactional nature, lease portfolio sales are the primary driver of fluctuations in results in theLeasing Group . Results in ourAll Other Group are affected by seasonal fluctuations, with the second and third quarters historically being the quarters with the highest revenues. Financial and Operational Highlights •Our revenues for the three months endedMarch 31, 2021 were$398.8 million , representing a decrease of 35.2%, compared to the three months endedMarch 31, 2020 . Our operating profit for the three months endedMarch 31, 2021 was$60.2 million compared to operating profit for the three months endedMarch 31, 2020 of$73.0 million . •The Leasing Group reported additions to the wholly-owned and partially-owned lease fleet of 4,155 railcars, for a total of 107,970 railcars as ofMarch 31, 2021 , an increase of 4.0% compared toMarch 31, 2020 . •The Leasing Group's lease fleet of 107,970 company-owned rail cars was 94.5% utilized as ofMarch 31, 2021 , in comparison to a lease fleet utilization of 95.4% on 103,815 company-owned railcars as ofMarch 31, 2020 . Our company-owned railcars include wholly-owned, partially-owned, and railcars under sale-leaseback arrangements. •For the three months endedMarch 31, 2021 , we made a net investment in our lease fleet of approximately$90.6 million , which primarily includes new railcar additions and railcar modifications, net of deferred profit, and secondary market purchases; and is net of proceeds from lease portfolio sales. •The total value of the railcar backlog atMarch 31, 2021 was$1.0 billion , compared to$1.6 billion atMarch 31, 2020 .The Rail Products Group received orders for 1,410 railcars and delivered 1,895 railcars in the three months endedMarch 31, 2021 , in comparison to orders for 1,970 railcars and deliveries of 3,705 railcars in the three months endedMarch 31, 2020 . •For the three months endedMarch 31, 2021 , we generated operating cash flows from continuing operations and Free Cash Flow After Investments and Dividends ("Free Cash Flow") of$70.1 million and$90.2 million (1), respectively, in comparison to$173.8 million and$57.4 million (1), respectively, for the three months endedMarch 31, 2020 . (1) Non-GAAP financial measure. See the Non-GAAP Financial Measures section within this Form 10-Q 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. 34
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Table of Contents Returns of Capital to Shareholders Returns of capital to shareholders in the form of dividends and share repurchases are summarized below: [[Image Removed: trn-20210331_g2.jpg]] [[Image Removed: trn-20210331_g3.jpg]] (1) Dividend yield is calculated as dividends paid for the four previous quarters divided by the closing stock price on the last trading day of each respective quarter. (2) There were no shares repurchased during the second quarter of 2020. (3) In the third quarter of 2020, we completed the previous share repurchase program. (4) In the fourth quarter of 2020, our Board of Directors authorized a new$250.0 million share repurchase program. Capital Structure Updates TILC warehouse facility - InMarch 2021 , the TILC warehouse facility was extended throughMarch 15, 2024 , and the total facility commitment was increased from$750 million to$1.0 billion . See "Liquidity and Capital Resources" below for further information regarding these activities. Litigation Updates See Note 14 of the Consolidated Financial Statements for an update on the status of our Highway Products litigation. 35
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