TRINITY INDUSTRIES INC (TRN) FY 2021 MD&A

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 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 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.

Matters Affecting Comparability

During the fourth quarter of 2020, we began presenting sales from our lease fleet in the Railcar Leasing and Management Services Group (the "Leasing Group") on a net basis regardless of the age of railcar that is sold. Historically, in accordance with ASC 606, Revenue from contracts with customers, we presented sales of railcars from the lease fleet on a gross basis in Revenues – Leasing and Cost of revenues – Leasing in our Consolidated Statements of Operations if the railcars had been owned for one year or less at the time of sale. Sales of railcars from the lease fleet owned for more than one year had historically been presented as a net gain or loss from the disposal of a long-term asset. We now report all sales of railcars from the lease fleet as a net gain or loss from the disposal of a long-term asset in accordance with ASC 610-20, Gains and losses from the derecognition of non-financial assets. These sales are presented in the Lease portfolio sales line in our Consolidated Statements of Operations; however, because this change in presentation was effected on a prospective basis beginning in the fourth quarter of 2020, lease portfolio sales for the years ended December 31, 2020 and 2019 only include sales of railcars from the lease fleet owned for more than one year. There were no lease portfolio sales during the fourth quarter of 2020. We have concluded that this presentation is appropriate given the significant change in the strategic focus of the Company. The presentation change had no effect on the Company’s operating profit, net income, earnings per share, or Consolidated Balance Sheet.

Company Overview

Trinity Industries, Inc. and its consolidated subsidiaries own businesses that are leading providers of railcar products and services in North America. Our 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.

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

We concluded that the sale of THP represented a strategic shift that would have a major effect on the Company’s operations and financial results. Accordingly, we have presented the operating results and cash flows of THP as discontinued operations for all periods in this 2021 Annual Report on Form 10-K. Results of prior periods have been recast to reflect these changes and present results on a comparable basis. In connection with the sale of THP, we agreed to indemnify Rush Hour for certain liabilities related to the ET-Plus® System, a highway guardrail end-terminal system (the “ET Plus”). Consequently, results from discontinued operations include certain legal expenses that were directly attributable to the highway products business, which were previously reported in continuing operations. Similar expenses incurred in the future related to these retained obligations will likewise be reported in discontinued operations. See Note 2 of the Consolidated Financial Statements for further information related to the sale of THP and Note 15 for information regarding the retained liabilities.

Following the sale of THP, we report our operating results in two reportable segments: (1) the Railcar Leasing and Management Services Group, which owns and operates a fleet of railcars and provides third-party fleet leasing, management, and administrative services; and (2) the Rail Products Group, which manufactures and sells railcars and related parts and components, and provides railcar maintenance and modification services. Additionally, we have combined the results of the prior Corporate and All Other groupings into a single Corporate and other grouping. The remaining activity previously reported in All Other primarily includes legal, environmental, and maintenance costs associated with non-operating facilities. Results of prior periods have been recast to reflect these changes and present results on a comparable basis.

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Executive Summary

Recent Market Developments

COVID-19

The COVID-19 pandemic 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. 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 year ended December 31, 2021. While we are beginning to see signs of economic recovery, we are monitoring the evolving impacts of COVID-19 variants on the economy and our workforce, including reduced employee availability, and expect that our results of operations may remain under pressure in the near term.

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

Other Cyclical Trends Impacting Our Business

The industries in which our customers operate are cyclical in nature. Weaknesses in certain sectors of the North American and global economy may make it more difficult to sell or lease certain types of railcars. Additionally, changes in commodity prices, including fluctuations in the crude oil market, or changes in demand for certain commodities, could impact customer demand for various types of railcars. Further, disruptions in the global supply chain have impacted demand for, and the costs of, certain of our products and services. We continuously assess demand for our products and services and take steps to rationalize and diversify our leased railcar portfolio and align our operating capacity appropriately. We diligently evaluate the creditworthiness of our customers and monitor performance of relevant market sectors; however, weaknesses in any of these market sectors could affect the financial viability of our underlying Leasing Group customers, which could continue to negatively impact our recurring leasing revenues and operating profits.

Although railcar loading volumes, levels of railcars in storage, and orders for new railcar equipment have improved, the recovery of railcar lease rates and utilization is ongoing. We continue to believe that our rail platform is designed to respond to cyclical changes in demand and perform throughout the railcar cycle.

Steel prices and labor costs have increased significantly since the fourth quarter of 2020 and are major components of our cost of revenues. We typically use contract-specific purchasing practices, existing supplier commitments, contractual price escalation provisions, and other arrangements with our customers to reduce the impact of plate and coil steel price volatility on our operating profit. However, higher steel prices have resulted in increases in the cost of certain railcar components and could reduce demand for new railcars. Additionally, although we remain committed to attracting and retaining a highly skilled and diverse workforce, labor shortages, high turnover, and increases in labor costs have negatively impacted our operations. We continue to monitor the impact of potential margin and operating profit headwinds resulting from these factors.

As a result of disruptions in the global supply chain, we have recently experienced temporary shortages of materials used to manufacture or repair certain railcar types, which has impacted our ability to timely deliver these railcars to our customers. While we believe these shortages are short-term in nature, we will continue to monitor the situation and take appropriate steps to mitigate the impact on our production schedules and delivery timelines.

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

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Financial and Operational Highlights

•Our revenues for the year ended December 31, 2021 were $1,516.0 million, representing a decrease of 13.4%, compared to the year ended December 31, 2020. Our operating profit for the year ended December 31, 2021 was $256.8 million, compared to operating loss for the year ended December 31, 2020 of $154.6 million, which includes impairment charges of $396.4 million primarily associated with our small cube covered hopper railcars.

•As we continue to optimize our business and execute toward our rail-focused strategy, in December 2021, we completed the sale of THP for an aggregate purchase price of $375.0 million, subject to certain adjustments, resulting in a gain of $131.4 million, net of income taxes. The proceeds were used primarily to return capital to stockholders.

•In August 2021, the Company and Wafra, Inc. announced a new railcar investment vehicle program between Trinity and certain funds managed by Wafra, Inc. ("Wafra Funds"). The joint venture created as part of this program, known as Signal Rail Holdings LLC ("Signal Rail"), is owned 90% by Wafra Funds and 10% by TILC. We completed the initial railcar portfolio sale to Signal Rail in the third quarter of 2021. See Note 5 of the Consolidated Financial Statements for more information.

•The total value of the railcar backlog at December 31, 2021 was $1.5 billion, compared to $1.0 billion at December 31, 2020. The Rail Products Group received orders for 13,870 railcars and delivered 8,875 railcars in 2021, in comparison to orders for 5,980 railcars and deliveries of 11,530 railcars in 2020.

•The Leasing Group's lease fleet of 106,970 company-owned railcars was 95.7% utilized as of December 31, 2021, compared to a lease fleet utilization of 94.5% on 107,045 company-owned railcars as of December 31, 2020. Our company-owned lease fleet includes wholly-owned railcars, partially-owned railcars, and railcars under leased-in arrangements.

•For the year ended December 31, 2021, we made a net investment in our lease fleet of approximately $92.9 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.

•For the year ended December 31, 2021, we returned $895.1 million of capital to stockholders through share repurchases of $806.6 million and dividends of $88.5 million.

•For the year ended December 31, 2021, our return on equity ("ROE") and Pre-Tax ROE were 2.4% and 3.4%(1), respectively, in comparison to (11.4)% and 1.9%(1), respectively, for the year ended December 31, 2020.

•For the year ended December 31, 2021, we generated operating cash flows from continuing operations and Total Free Cash Flow After Investments and Dividends ("Free Cash Flow") of $615.6 million and $538.9 million(1), respectively, in comparison to $622.0 million and $89.4 million(1), respectively, for the year ended December 31, 2020.

(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 years ended December 31, 2021 and 2020.

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Long-Term Enterprise Key Performance Indicators

Our key performance indicators for long-term performance are operating and Free Cash Flow* growth, Pre-Tax ROE*, dividend growth, and book value per share growth. We believe when evaluated over time, these indicators collectively drive long-term sustainable value creation and measure the effectiveness of our value proposition for stockholders.

* 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.

(1) Dividend yield is calculated as annual dividends paid per share divided by the closing stock price on the last trading day of each respective year.

(2) Book value per share is calculated as total stockholders' equity attributable to Trinity Industries, Inc., divided by the number of shares outstanding.

(3) Stockholder returns include shares repurchased and dividends paid to common stockholders and is presented in millions.

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Capital Structure Updates

TILC warehouse facility – In March 2021, the TILC warehouse facility was extended through March 15, 2024, and the total facility commitment was increased from $750 million to $1.0 billion.

Repurchase Agreements with ValueAct – On April 29, 2021, we entered into a stock repurchase agreement with ValueAct Capital Master Fund, L.P. (“ValueAct”), the Company's then-largest shareholder and a related party, to repurchase 8.1 million shares of our common stock for $27.47 per share, for an aggregate purchase price of $222.5 million, in a privately negotiated transaction. The price per share represents a discount of 3.5% from the closing price for a share of common stock on the New York Stock Exchange on April 29, 2021.

On December 31, 2021, using a portion of the proceeds from the sale of THP, we entered into an additional stock repurchase agreement with ValueAct to repurchase 8.8 million shares of our common stock for $28.49 per share, for an aggregate purchase price of $250.0 million, in a privately negotiated transaction. The price per share represents a discount of 3.5% from the closing price for a share of common stock on the New York Stock Exchange on December 30, 2021.

Triumph Rail – In June 2021, Triumph Rail LLC ("Triumph Rail"), formerly known as TRIP Master Funding LLC, an indirect, wholly-owned subsidiary of TRIP Rail Holdings LLC ("TRIP Holdings"), issued $560.4 million of its Series 2021-2 Green Secured Railcar Equipment Notes. These notes bear interest at an all-in interest rate of 2.20% and have a stated final maturity date of 2051. Net proceeds received from the issuance of these notes, as well as proceeds from the sale of railcars and related operating leases to TRIP Railcar Co. LLC described below, were used to redeem Triumph Rail's existing Secured Railcar Equipment Notes, of which $869.1 million was outstanding at the redemption date. The all-in rate for these notes was 5.16% per annum.

TRIP Railcar Co. Term Loan – In June 2021, TRIP Railcar Co. LLC ("TRIP Railcar Co."), a direct wholly-owned subsidiary of TRIP Holdings, drew down $329.6 million under a term loan agreement ("TRIP Railcar Co. term loan"). The TRIP Railcar Co. term loan bears interest at LIBOR plus 1.85% and has a stated maturity date of June 2025. Net proceeds received from the transaction were used to purchase railcars and related operating leases from Triumph Rail.

TRP-2021 – In June 2021, TRP 2021 LLC ("TRP-2021"), formerly known as Trinity Rail Leasing 2012 LLC, an indirect, wholly-owned subsidiary of RIV 2013 Rail Holdings LLC, issued $355.0 million of its Series 2021-1 Green Secured Railcar Equipment Notes. These notes bear interest at an all-in interest rate of 2.13% and have a stated final maturity date of 2051. Net proceeds received from these notes were used to redeem TRP-2021's existing Secured Railcar Equipment Notes, of which $348.0 million was outstanding at the redemption date. The all-in rate for these notes was 3.59% per annum.

TRL-2021 – In June 2021, Trinity Rail Leasing 2021 LLC, a Delaware limited liability company ("TRL-2021") and a limited purpose, indirect wholly-owned subsidiary of the Company owned through TILC, issued $325.0 million of its Series 2021-1 Green Secured Railcar Equipment Notes. These notes bear interest at an all-in interest rate of 2.31% and have a final maturity date of 2051. Net proceeds received from the transaction were used to repay borrowings under TILC's secured warehouse credit facility and for general corporate purposes.

New Share Repurchase Program – In September 2021, our Board of Directors authorized a new share repurchase program effective September 9, 2021 through December 31, 2022. The new share repurchase program authorizes the Company to repurchase up to $250.0 million of its common stock. In December 2021, using a portion of the proceeds from the sale of THP, we entered into an ASR to repurchase $125.0 million of our common stock. Approximately 3.3 million shares repurchased as part of the ASR on December 31, 2021 were delivered to the Company in January 2022 in accordance with normal settlement practices, representing approximately 80% of the total notional value of the ASR. The ASR is expected to be completed during the third quarter of 2022, at which time any remaining shares will be delivered to the Company.

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 certain litigation retained in connection with the sale of THP.

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Consolidated Results of Operations

The following table summarizes our consolidated results of continuing operations for the years ended December 31, 2021, 2020, and 2019:

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Revenues

The tables below present revenues by segment for the years ended December 31, 2021, 2020, and 2019:

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Operating Costs

Operating costs are comprised of cost of revenues; selling, engineering, and administrative costs; gains or losses on property disposals; impairment of long-lived assets; and restructuring activities. Operating costs by segment for the years ended December 31, 2021, 2020, and 2019 were as follows:

Operating Profit (Loss)

Operating profit (loss) by segment for the years ended December 31, 2021, 2020, and 2019 was as follows:

Discussion of Consolidated Results

Revenues – Our revenues for the year ended December 31, 2021 were $1,516.0 million, representing a decrease of $233.7 million, or 13.4%, over the prior year, primarily related to lower deliveries in the Rail Products Group and the change in the presentation of sales of railcars from the lease fleet. See Matters Affecting Comparability above and Note 1 of the Consolidated Financial Statements for further information regarding the change in presentation.

Our revenues for the year ended December 31, 2020 were $1,749.7 million, representing a decrease of $1,002.7 million, or 36.4%, when compared to the year ended December 31, 2019, primarily related to lower deliveries in the Rail Products Group and fewer railcars sold from our lease fleet.

Cost of revenues – Our cost of revenues for the year ended December 31, 2021 were $1,161.5 million, representing a decrease of $165.9 million, or 12.5%, over the prior year, primarily due to lower deliveries in the Rail Products Group and the change in the presentation of sales of railcars from the lease fleet.

Our cost of revenues for the year ended December 31, 2020 were $1,327.4 million, representing a decrease of $851.0 million, or 39.1%, when compared to the year ended December 31, 2019, primarily due to lower deliveries in the Rail Products Group and a lower volume of railcars sales in the Leasing Group.

Selling, engineering, and administrative expenses – Selling, engineering, and administrative expenses decreased by 5.3% for the year ended December 31, 2021, when compared to the prior year, primarily due to consulting costs incurred in the prior year period associated with aligning our operating structure to support our rail-focused strategy, partially offset by higher employee-related costs, including increased incentive-based compensation, and higher litigation-related expenses.

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Selling, engineering, and administrative expenses decreased by 12.6% for the year ended December 31, 2020, when compared to the year ended December 31, 2019, primarily due to lower employee-related costs, including headcount reductions and adjustments to incentive-based compensation, and lower litigation-related expenses.

Gains on dispositions of property – Gains on dispositions of property increased by $58.2 million for the year ended December 31, 2021, when compared to the prior year period primarily due to higher lease portfolio sales activity and gains associated with the disposition of non-operating facilities. Additionally, during the year ended December 31, 2021, we recorded a $7.8 million gain related to insurance recoveries in excess of net book value received for assets damaged by a tornado at the Company’s rail maintenance facility in Cartersville, Georgia in the first quarter of 2021. See Note 15 of the Consolidated Financial Statements for more information.

Gains on dispositions of property decreased by $34.4 million for the year ended December 31, 2020, when compared to the year ended December 31, 2019, primarily due to lower lease portfolio sales activity.

Impairment of long-lived assets – Impairment of long-lived assets for the year ended December 31, 2020 was $396.4 million, primarily related to our small cube covered hopper railcars, the planned divestiture of certain non-strategic maintenance facilities, and investments in certain emerging technologies. See Note 11 of the Consolidated Financial Statements for more information. We had no impairment of long-lived assets during the years ended December 31, 2021 and December 31, 2019.

Restructuring activities, net – Our restructuring activities for the year ended December 31, 2021 resulted in a net gain of $3.7 million, primarily as a result of the disposition of our prior corporate headquarters facility and certain non-operating facilities, partially offset by employee transition costs. Our restructuring activities for the year ended December 31, 2020 totaled $10.9 million, primarily as a result of employee transition costs, asset write-downs related to our corporate headquarters facility and certain other assets, and contract termination costs, partially offset by a net gain on the disposition of a non-operating facility and certain related assets. Our restructuring activities for the year ended December 31, 2019 totaled $14.6 million, primarily from write-downs related to underutilized assets in our manufacturing footprint and employee transition costs.

Operating profit (loss) – Operating profit for the year ended December 31, 2021 totaled $256.8 million, representing an increase of 266.1% from the prior year period. Operating loss for the year ended December 31, 2020 included a $396.4 million impairment charge primarily related to our small cube covered hopper railcars. Operating profit for the year ended December 31, 2021 was impacted by increased lease fleet portfolio sales, partially offset by lower railcar deliveries and reduced profitability in our maintenance services business in the Rail Products Group, and lower lease rates and higher fleet operating costs in the Leasing Group.

Operating loss for the year ended December 31, 2020 totaled $154.6 million, representing a decrease of 139.0% from the year ended December 31, 2019. The decrease in operating profit resulted primarily from the impairment of long-lived assets, lower deliveries in the Rail Products Group, and lower lease fleet portfolio sales in the Leasing Group, partially offset by lower 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, 2021 totaled $191.4 million, compared to $211.0 million for the year ended December 31, 2020. The decrease in interest expense, net was primarily driven by lower overall borrowing costs associated with the Company's debt facilities resulting from debt refinancing activity during the year, partially offset by higher overall average debt.

Interest expense, net for the year ended December 31, 2020 totaled $211.0 million, compared to $214.5 million for the year ended December 31, 2019. The decrease in interest expense, net was primarily driven by lower variable interest rates associated with TILC's warehouse loan facility and our revolving credit facility, partially offset by higher debt obligations in the Leasing Group in connection with the Company's efforts to optimize its capital structure.

Loss on extinguishment of debt – Loss on extinguishment of debt for the year ended December 31, 2021 was $11.7 million from the refinancing of our partially-owned subsidiaries' debt, which included the write-off of $8.4 million in unamortized debt issuance costs and a $3.3 million early redemption premium. Loss on extinguishment of debt for the year ended December 31, 2020 was $5.0 million, which included a $4.7 million early redemption premium and the write-off of $0.3 million in unamortized debt issuance costs. There was no loss on extinguishment of debt for the year ended December 31, 2019.

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Pension plan settlement – Pension plan settlement charges for the year ended December 31, 2021 resulted in a net gain of $0.6 million primarily related to a refund received upon final settlement of the annuity contract, partially offset by pension administrative expenses and excise taxes incurred related to the reversion of surplus pension assets to the Company. Pension plan settlement charges associated with the termination of our pension plan totaled $151.5 million for the year ended December 31, 2020. See Note 10 of the Consolidated Financial Statements for further information. There were no pension plan settlement charges during the year ended December 31, 2019.

Income taxes – The effective tax rate from continuing operations for the year ended December 31, 2021 was an expense of 28.8%, which differs from the U.S. statutory rate of 21.0% primarily due to an adjustment to the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") carryback benefit previously recognized, state taxes, and foreign taxes, partially offset by excess tax benefits associated with equity based compensation.

Our effective tax rate from continuing operations for the year ended December 31, 2020 was a benefit of 52.2%, primarily due to carryback claims as permitted under the CARES Act, partially offset by the portion of the non-cash impairment charge that is not tax-effected because it is related to the noncontrolling interest. Our effective tax rate, without the impact of the CARES Act, was a benefit of 17.9% for the year ended December 31, 2020, which differs from the U.S. statutory rate primarily due to the impacts of state income taxes, foreign taxes, tax return true-ups, and non-deductible executive compensation.

Our effective tax rate from continuing operations for the year ended December 31, 2019 was an expense of 32.5%, which differs from the U.S. statutory rate primarily due to the impacts of state income tax expense, foreign branch taxes, and changes in state tax laws and apportionment.

Income tax refunds received, net of payments, 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. The total income tax receivable position was $5.4 million and $445.8 million at December 31, 2021 and 2020, respectively. Income tax refunds received, net of payments, during the years ended December 31, 2021 and 2020 totaled $435.7 million and $62.5 million, respectively.

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Segment Discussion

Railcar Leasing and Management Services Group

* Not meaningful

(1) Beginning in the fourth quarter of 2020, we made a prospective change in the presentation of sales of railcars from the lease fleet. Therefore, all railcar sales for the year ended December 31, 2021 are presented as a net gain or loss from the disposal of a long-term asset regardless of the age of railcar that is sold. See Note 1 of the Consolidated Financial Statements for more information.

(2) Includes revenues associated with sales-type leases of $160.5 million for the year ended December 31, 2019.

(3) Operating profit includes: depreciation; fleet operating costs, which include maintenance, compliance, freight, and storage; rent and ad valorem taxes; 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.

(4) In connection with our sustainable railcar conversion program, depreciation expense increased $8.8 million for the year ended December 31, 2021, as a result of the disposal of certain railcar components. Additionally, depreciation expense related to our small cube covered hopper railcars decreased by approximately $7.0 million for the years ended December 31, 2021 and 2020 as a result of the impairment charge recorded in the second quarter of 2020 related to these railcars.

(5) Effective January 1, 2020, we revised the estimated useful lives and salvage values of certain railcar types in our lease fleet. This change in estimate resulted in a decrease in depreciation expense of approximately $30.8 million in the years ended December 31, 2021 and 2020. See Note 1 of the Consolidated Financial Statements for further information.

(6) Interest expense for the year ended December 31, 2021 includes $11.7 million of loss on extinguishment of debt associated with the refinancing of our partially-owned subsidiaries' debt. See Note 8 of the Consolidated Financial Statements for more information. Interest expense for the year ended December 31, 2020 includes $5.0 million of loss on extinguishment of debt associated with the early redemption of debt.

Information related to lease portfolio sales is as follows:

(1) Includes revenues associated with sales-type leases of $160.5 million for the year ended December 31, 2019.

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Total revenues for the Railcar Leasing and Management Services Group decreased by 8.4% for the year ended December 31, 2021 when compared to the year ended December 31, 2020. Revenues related to sales of leased railcars owned one year or less decreased due to the change in the presentation of sales of railcars from the lease fleet. Leasing and management revenues for the year ended December 31, 2021 were impacted by lower lease rates, partially offset by growth in the lease fleet, increased servicer fees, and slightly higher utilization, which resulted in relatively flat revenues when compared to the year ended December 31, 2020.

Operating profit for the Leasing Group decreased by 0.8% for the year ended December 31, 2021 compared to the year ended December 31, 2020. Leasing and management operating profit decreased by 11.7% primarily due to lower lease rates, higher fleet operating costs, and increased depreciation, partially offset by higher utilization when compared to the prior year period. Additionally, operating profit was favorably impacted by increased lease fleet portfolio sales.

Total revenues for the Railcar Leasing and Management Services Group decreased by 28.2% for the year ended December 31, 2020 when compared to the year ended December 31, 2019. Revenues related to sales of leased railcars owned one year or less decreased primarily due to a lower volume of railcars sold from the lease fleet. Additionally, leasing and management revenues decreased 1.1% for the year ended December 31, 2020 as a result of lower utilization and lower lease rates on renewals, partially offset by growth in the lease fleet and higher lease rates associated with new railcar additions when compared to the year ended December 31, 2019.

Operating profit decreased by 13.0% for the year ended December 31, 2020 compared to the year ended December 31, 2019. The decrease was primarily due to lower lease fleet portfolio sales. Leasing and management operating profit increased by 6.8% primarily from growth in the lease fleet and reduced operating expenses resulting from fewer maintenance compliance events scheduled during the year. Additionally, leasing and management operating profit and operating profit margin for the year ended December 31, 2020 benefited from lower depreciation expense associated with the revisions to the estimated useful lives and salvage values of certain railcar types in our lease fleet, as well as the impact of the small cube covered hopper railcar impairment described above. The decrease in depreciation expense was partially offset by higher depreciation associated with growth in the lease fleet.

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 is as follows:

(1) Includes 2,255 railcars, 1,840 railcars, and 2,175 railcars under leased-in arrangements as of December 31, 2021, 2020, and 2019, respectively.

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

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Rail Products Group

* Not meaningful

(1) Includes sustainable railcar conversion revenues of $65.4 million, representing 650 railcars, for the year ended December 31, 2021, of which $57.6 million, representing 520 railcars, related to the Leasing Group, and $7.8 million, representing 130 railcars, related to external customers.

Information related to our Rail Products Group backlog of new railcars is as follows. In addition to the amounts below, as of December 31, 2021, our backlog related to sustainable railcar conversions totaled $111.5 million, representing 1,150 railcars, primarily for the Leasing Group.

(1) For the year ended December 31, 2020, the adjustment includes 550 railcars valued at $82 million, primarily from railcars that were removed from the backlog because of a change in the underlying financial condition of certain customers. For the year ended December 31, 2019, the adjustment includes 3,280 leased railcars that were removed from the backlog because of the financial condition of Leasing Group customers, and 625 railcars that resulted from order cancellations negotiated with customers for which the Company received compensation and recorded cancellation fees. Additionally, the adjustment includes 145 railcars for which the original order was satisfied with railcars from the Company's existing lease fleet. These adjustments resulted in a reduction of the backlog of approximately $364 million.

Revenues and cost of revenues for the Rail Products Group decreased for the year ended December 31, 2021 by 21.4% and 19.5%, respectively, when compared to the prior year. These decreases primarily resulted from lower deliveries and a shift in the mix of railcar products and services sold, including a lower volume of HM-251 modifications. Cost of revenues for the year ended December 31, 2021 was negatively impacted by operating inefficiencies, such as labor shortages and turnover, in our maintenance services business, higher input costs, and supply chain disruptions, partially offset by operational cost savings related to railcar production. Operating profit and operating profit margin was favorably impacted by gains related to insurance recoveries in excess of net book value received for assets damaged by a tornado at the Company’s rail maintenance facility in Cartersville, Georgia in the first quarter of 2021.

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Revenues and cost of revenues for the Rail Products Group decreased for the year ended December 31, 2020 by 45.9% and 41.8%, respectively, when compared to the year ended December 31, 2019. These decreases primarily resulted from lower deliveries, pricing pressures, and a shift in the mix of railcars sold, as well as a lower volume of railcar modifications in our maintenance services business. The decrease in cost of revenues for the year ended December 31, 2020 was partially offset by increased costs from operational inefficiencies associated with lower manufacturing volumes.

Total backlog dollars for the year ended December 31, 2021 increased by 49.5% when compared to the prior year primarily from an increase in orders received, partially offset by a 3.9% lower average selling price as a result of changes in the mix of railcars in the backlog. Total backlog dollars for the year ended December 31, 2020 decreased by 44.6% when compared to December 31, 2019 primarily from a reduction in orders received, as well as a 7.1% lower average selling price on railcars included in backlog as a result of pricing pressures.

Approximately 69% of our railcar backlog value is expected to be delivered during 2022 with the remainder to be delivered thereafter into 2025. The orders in our backlog from the Leasing Group are fully supported by lease commitments with external customers. The final amount of backlog attributable to the Leasing Group may vary by the time of delivery as customers may choose to change their procurement decision.

Transactions between the Rail Products Group and the Leasing Group are as follows:

Corporate and other

* Not meaningful

Selling, engineering, and administrative expenses for the year ended December 31, 2021 decreased 3.2%, compared to the year ended December 31, 2020, primarily from reduced costs associated with streamlining our corporate structure to support our rail-focused strategy, partially offset by higher employee-related costs, including increased incentive-based compensation, and higher litigation-related expenses. Total operating costs were favorably impacted in the year ended December 31, 2021 by gains associated with the disposition of non-operating facilities. As we continue to streamline our operational footprint, we may have additional gains or losses on the disposition of other non-operating facilities.

Selling, engineering, and administrative expenses for the year ended December 31, 2020 decreased 7.2%, compared to the year ended December 31, 2019, primarily from lower employee-related costs, including headcount reductions and adjustments to incentive-based compensation, and lower litigation-related expenses, partially offset by technology investments and consulting costs associated with realigning our corporate structure to support our rail-focused strategy.

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Liquidity and Capital Resources

Overview

We expect to finance future operating requirements with cash, cash equivalents, and short-term marketable securities; cash flows from operations; and short-term debt, long-term debt, and equity. Debt instruments that we have utilized include the TILC warehouse facility, senior notes, convertible subordinated notes, asset-backed securities, non-recourse promissory notes, sale-leaseback transactions, and our revolving credit facility.

As of December 31, 2021, we have total committed liquidity of $782.3 million. Our total available liquidity includes: $167.3 million of unrestricted cash and cash equivalents; $176.8 million unused and available under our revolving credit facility; and $438.2 million unused and available under the TILC warehouse facility based on the amount of warehouse-eligible, unpledged equipment. We believe we have access to adequate capital resources to fund operating requirements and are an active participant in the capital markets.

Our material cash requirements from known contractual or other obligations primarily include principal and interest payments on long-term debt, payments on operating leases, and purchase obligations as part of the normal course of business. See Note 8 of the Consolidated Financial Statements for information regarding scheduled maturities of our long-term debt. Interest payable associated with our long-term debt due in the next twelve months is approximately $157.0 million, with $481.2 million due thereafter. See Note 1 and Note 6 of the Consolidated Financial Statements for further information on operating leases. Contractual purchase obligations are enforceable and legally binding and primarily consist of raw materials and components, equipment, and third-party services. These purchase obligations due in the next twelve months are approximately $498.4 million, with $44.0 million due thereafter.

Liquidity Highlights

TILC warehouse facility – In March 2021, the TILC warehouse facility was extended through March 15, 2024, and the total facility commitment was increased from $750 million to $1.0 billion.

TRL-2021 – In June 2021, TRL-2021 issued $325.0 million of its Series 2021-1 Green Secured Railcar Equipment Notes. These notes bear interest at an all-in interest rate of 2.31% and have a final maturity date of 2051. Net proceeds received from the transaction were used to repay borrowings under TILC's secured warehouse credit facility and for general corporate purposes.

Dividend Payments – In December 2021, our Board of Directors declared an increase of approximately 10% to our quarterly dividend from $0.21 per share to $0.23 per share. We paid $88.5 million in dividends to our common stockholders during the year ended December 31, 2021.

Repurchase Agreements with ValueAct – On April 29, 2021, we entered into a stock repurchase agreement with ValueAct, the Company's then-largest shareholder and a related party, to repurchase 8.1 million shares of our common stock for $27.47 per share, for an aggregate purchase price of $222.5 million, in a privately negotiated transaction. The price per share represents a discount of 3.5% from the closing price for a share of common stock on the New York Stock Exchange on April 29, 2021.

On December 31, 2021, using a portion of the proceeds from the sale of THP, we entered into an additional stock repurchase agreement with ValueAct to repurchase 8.8 million shares of our common stock for $28.49 per share, for an aggregate purchase price of $250.0 million, in a privately negotiated transaction. The price per share represents a discount of 3.5% from the closing price for a share of common stock on the New York Stock Exchange on December 30, 2021.

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New Share Repurchase Authorization – In September 2021, our Board of Directors authorized a new share repurchase program effective September 9, 2021 through December 31, 2022. The new share repurchase program authorizes the Company to repurchase up to $250.0 million of its common stock. In December 2021, using a portion of the proceeds from the sale of THP, we entered into an ASR to repurchase $125.0 million of our common stock. Approximately 3.3 million shares repurchased as part of the ASR on December 31, 2021 were delivered to the Company in January 2022 in accordance with normal settlement practices, representing approximately 80% of the total notional value of the ASR. The ASR is expected to be completed during the third quarter of 2022, at which time any remaining shares will be delivered to the Company. Approximately $73.1 million of the share repurchase program will remain after the completion of the ASR. Share repurchase activity under the authorized program is as follows:

Previous Share Repurchase Authorization – In October 2020, our Board of Directors authorized a share repurchase program effective October 23, 2020 through December 31, 2021. The share repurchase program authorized the Company to repurchase up to $250.0 million of its common stock and was completed in the third quarter of 2021. Share repurchase activity under this program is as follows:

During the years ended December 31, 2021, 2020, and 2019, share repurchases totaled 28.5 million, 9.3 million, and 13.7 million shares, respectively, at a cost of approximately $806.6 million, $193.1 million, and $294.7 million, respectively.

Cash Flows

The following table summarizes our cash flows from operating, investing, and financing activities for the years ended December 31, 2021, 2020, and 2019:

(1) Includes $364.7 million in net proceeds received from the sale of THP for the year ended December 31, 2021.

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2021 compared to 2020

Operating Activities. Net cash provided by operating activities from continuing operations for the year ended December 31, 2021 was $615.6 million compared to $622.0 million for the year ended December 31, 2020. The changes in our operating assets and liabilities are as follows:

The changes in our operating assets and liabilities resulted in a net source of $336.4 million for the year ended December 31, 2021, as compared to a net use of $199.3 million for the year ended December 31, 2020. The decrease in the income tax receivable was primarily driven by the collection of approximately $438.2 million of income tax refunds in the current year period associated with the loss carryback provisions included in recent tax legislation. Additionally, operating assets were negatively impacted by cyclical shifts in anticipation of higher volumes of railcar deliveries in future periods. Further, in the prior year period, the changes in our operating assets and liabilities were impacted by a customer's election to exercise a purchase option on a sales-type lease.

Investing Activities. Net cash used in investing activities from continuing operations for the year ended December 31, 2021 was $83.0 million compared to $526.7 million of net cash used in investing activities from continuing operations for the year ended December 31, 2020. Significant investing activities are as follows:

•We had a net investment in the lease fleet of $92.9 million during the year ended December 31, 2021, compared to $463.5 million during the year ended December 31, 2020. Our investment in the lease fleet 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.

•We acquired a company that owns and operates proprietary railcar cleaning technology systems during the year ended December 31, 2021 for net cash of $16.6 million. We had no acquisitions during the year ended December 31, 2020.

•We received $9.5 million in insurance proceeds during the year ended December 31, 2021 for property damage sustained at a rail maintenance facility. See Note 15 of the Consolidated Financial Statements for more information. We received no insurance proceeds during the year ended December 31, 2020.

Financing Activities. Net cash used in financing activities during the year ended December 31, 2021 was $814.1 million compared to $168.0 million of net cash used in financing activities for the same period in 2020. Significant financing activities are as follows:

•During the year ended December 31, 2021, we had total borrowings of $2,444.1 million and total repayments of $2,315.8 million, for net proceeds of $128.3 million, primarily from debt proceeds to support our investment in the lease fleet. During the year ended December 31, 2020, we had total borrowings of $1,561.4 million and total repayments of $1,442.9 million, for net proceeds of $118.5 million, primarily from debt proceeds to support our investment in the lease fleet, partially offset by the early redemption of debt.

•We paid $88.5 million and $91.7 million in dividends to our common stockholders during the years ended December 31, 2021 and 2020, respectively.

•We repurchased common stock totaling $833.4 million and $191.3 million during the years ended December 31, 2021 and 2020, respectively. The current year period includes shares repurchased in privately negotiated transactions with ValueAct totaling $472.5 million. Shares repurchased as part of the ASR on December 31, 2021, totaling $100.0 million, were delivered to the Company in January 2022 in accordance with normal settlement practices. Additionally, shares repurchased during the year ended December 31, 2021 includes $25.0 million related to the ASR for shares that were funded in December 2021 but are expected to be delivered during the third quarter of 2022 upon completion of the ASR. Certain shares repurchased during December 2020, totaling $1.8 million, were cash settled in January 2021 in accordance with normal settlement practices.

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2020 compared to 2019

Operating Activities. Net cash provided by operating activities from continuing operations for the year ended December 31, 2020 was $622.0 million compared to $365.4 million for the year ended December 31, 2019. The changes in our operating assets and liabilities are as follows.

The changes in our operating assets and liabilities resulted in a net use of $199.3 million for the year ended December 31, 2020, compared to a net use of $82.8 million for the year ended December 31, 2019. The increase in the income tax receivable was primarily driven by anticipated tax refunds related to the loss carryback provisions included in recent tax legislation. Additionally, the changes in our operating assets and liabilities were impacted by a customer's election to exercise a purchase option on a sales-type lease, cyclical shifts, and working capital initiatives.

Investing Activities. Net cash used in investing activities from continuing operations for the year ended December 31, 2020 was $526.7 million compared to $984.5 million for the year ended December 31, 2019. Significant investing activities are as follows:

•We made a net investment in the lease fleet of $463.5 million during the year ended December 31, 2020, compared to $916.5 million during the year ended December 31, 2019. Our investment in the lease fleet 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.

Financing Activities. Net cash used in financing activities during the year ended December 31, 2020 was $168.0 million compared to $526.5 million of net cash provided by financing activities for the same period in 2019. Significant financing activities are as follows:

•During the year ended December 31, 2020, we had total borrowings of $1,561.4 million and total repayments of $1,442.9 million, for net proceeds of $118.5 million, primarily from debt proceeds to support our investment in the lease fleet, partially offset by the early redemption of debt. During the year ended December 31, 2019, we had total borrowings of $2,567.8 million and total repayments of $1,724.1 million, for net proceeds of $843.7 million, primarily related to the proceeds from the issuance of debt in support of our investment in the lease fleet.

•We paid $91.7 million and $82.1 million in dividends to our common stockholders during the years ended December 31, 2020 and 2019, respectively.

•We repurchased common stock totaling $191.3 million and $224.7 million during the years ended December 31, 2020 and 2019, respectively. Certain shares repurchased during December 2020, totaling $1.8 million, were cash settled in January 2021 in accordance with normal settlement practices. The cash outlay for shares repurchased during the year ended December 31, 2019 excludes approximately $70.0 million related to the repurchased shares that were funded in November 2018 under the accelerated share repurchase program but delivered in the first quarter of 2019.

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Current Debt Obligations

The revolving credit facility contains several financial covenants that require the maintenance of ratios related to minimum interest coverage for the leasing and manufacturing operations and maximum leverage. In December 2021, we amended our revolving credit facility to increase the maximum leverage ratio through June 30, 2022 to provide additional near-term flexibility. Additionally, in March 2021, we amended our revolving credit facility to decrease the minimum interest coverage ratio through December 31, 2021. A summary of our financial covenants is detailed below:

(1) Defined as the ratio of consolidated total indebtedness to consolidated earnings before interest, taxes, depreciation and amortization ("EBITDA") for the Borrower and its Restricted Subsidiaries for the period of four consecutive quarters ending with December 31, 2021.

(2) Defined as the ratio of the difference of (A) consolidated EBITDA less (B) consolidated capital expenditures – manufacturing and other to consolidated interest expense to the extent paid in cash, in each case for the Borrower and its Restricted Subsidiaries for the period of four consecutive quarters ending with December 31, 2021.

As of December 31, 2021, we were in compliance with all such financial covenants. Please refer to Note 8 of the Consolidated Financial Statements for a description of our current debt obligations.

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Supplemental Guarantor Financial Information

Our 4.55% senior notes due 2024 ("Senior Notes") are fully and unconditionally and jointly and severally guaranteed by certain of Trinity’s 100%-owned subsidiaries: Trinity Industries Leasing Company; Trinity North American Freight Car, Inc.; Trinity Rail Group, LLC; Trinity Tank Car, Inc.; and TrinityRail Maintenance Services, Inc. (collectively, the "Guarantor Subsidiaries”).

The Senior Notes indenture agreement includes customary provisions for the release of the guarantees by the Guarantor Subsidiaries upon the occurrence of certain allowed events including the release of one or more of the Combined Guarantor Subsidiaries as guarantor under our revolving credit facility. See Note 8 of the Consolidated Financial Statements. The Senior Notes are not guaranteed by any of our remaining 100%-owned subsidiaries or partially-owned subsidiaries (“Non-Guarantor Subsidiaries”).

In December 2021, THP was released from its obligation as guarantor for the revolving credit facility and the Senior Notes effective upon completion of the sale of THP. Additionally, the accounting requirements for reporting THP as a discontinued operation were met. Accordingly, we have recast the financial information included in the table below to exclude the balances and operating results of THP, which was formerly included in the Guarantor Subsidiaries.

As of December 31, 2021, assets held by the Non-Guarantor Subsidiaries included $79.6 million of restricted cash that was not available for distribution to Trinity Industries, Inc. (“Parent”), $6,595.5 million of equipment securing certain non-recourse debt, and $414.8 million of assets located in foreign locations.

The following tables include the summarized financial information for Parent and Guarantor Subsidiaries (together the obligor group) on a combined basis after elimination of intercompany transactions within the obligor group (in millions). Investments in and equity in the earnings of the Non-Guarantor Subsidiaries (the non-obligor group) have been excluded.

(1) There were no net sales from the obligor group to Non-Guarantor Subsidiaries during the year ended December 31, 2021.

(2) Cost of revenues includes $160.8 million of purchases from Non-Guarantor Subsidiaries during the year ended December 31, 2021.

(3) Net income (loss) for the year ended December 31, 2021 includes a $131.4 million gain on sale of discontinued operations related to the sale of THP described above.

(4) Receivables, net of allowance includes $93.5 million of receivables from Non-Guarantor Subsidiaries as of December 31, 2021.

(5) Accounts payable includes $29.7 million of payables to Non-Guarantor Subsidiaries as of December 31, 2021.

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Capital Expenditures

Capital expenditures for 2021 were $570.8 million with $547.2 million utilized for net lease fleet additions, which includes new railcar additions and railcar modifications, net of deferred profit, and secondary market purchases. Excluding proceeds from lease portfolio sales of $454.3 million, our net investment in the lease fleet was $92.9 million.

For the full year 2022, we anticipate a net investment in our lease fleet of between $450 million and $550 million. Capital expenditures related to manufacturing and other activities, including expansion of our fleet maintenance capabilities and systems upgrades, are projected to range between $35 million and $45 million for the full year 2022.

Equity Investment

See Note 5 of the Consolidated Financial Statements for information about our investment in partially-owned leasing subsidiaries.

Off Balance Sheet Arrangements

As of December 31, 2021, we had letters of credit issued under our revolving credit facility in an aggregate amount of $28.3 million, the full amount of which is expected to expire in July 2022. Our letters of credit obligations support our various insurance programs and generally renew by their terms each year. See Note 8 of the Consolidated Financial Statements for further information about our corporate revolving credit facility.

Employee Retirement Plans

As disclosed in Note 10 of the Consolidated Financial Statements, as of December 31, 2021, the benefit obligation associated with our nonqualified retirement plan totaled $14.5 million. We continue to sponsor an employee savings plan under the existing 401(k) plan that covers substantially all domestic employees and includes a Company matching contribution of up to 6% each of eligible compensation, as well as the Trinity Industries, Inc. Deferred Compensation Plan. Employer contributions to the 401(k) plan and the Trinity Industries, Inc. Deferred Compensation Plan for the year ending December 31, 2022 are expected to be $7.6 million compared to $19.4 million contributed during 2021, which included the payment of the contributions accrued as of December 31, 2020, as well as the 2021 contributions pursuant to the plan design changes as described in Note 10 of the Consolidated Financial Statements.

Stock-Based Compensation

We have a stock-based compensation plan covering our employees and our Board of Directors. See Note 13 of the Consolidated Financial Statements for further information.

Derivative Instruments

We may use derivative instruments to mitigate the impact of changes in interest rates, both in anticipation of future debt issuances and to offset interest rate variability of certain floating rate debt issuances outstanding. Derivative instruments that are designated and qualify as cash flow hedges are accounted for in accordance with applicable accounting standards. See Note 3 of the Consolidated Financial Statements for discussion of how we utilize our derivative instruments.

LIBOR Transition

The United Kingdom's Financial Conduct Authority, which regulates the London Interbank Offered Rate ("LIBOR"), has announced that it will no longer persuade or require banks to submit rates for the calculation of LIBOR after June 2023. In the U.S., the Alternative Reference Rates Committee has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative to LIBOR. We currently have LIBOR-based contracts that extend beyond June 2023 including derivative instruments, promissory notes for Trinity Rail Leasing 2017 LLC, TILC's warehouse loan facility, the TRIP Railcar Co. term loan, and our revolving credit facility. After LIBOR is phased out, the interest rates for these obligations might be subject to change. The replacement of LIBOR with an alternative benchmark reference rate may adversely affect interest rates and result in higher borrowing costs under these agreements and any future agreements.

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Critical Accounting Policies and Estimates

Management's Discussion and Analysis of Financial Condition and Results of Operations discusses our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies, among others, affect our more significant judgments and estimates used in the preparation of our Consolidated Financial Statements.

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Non-GAAP Financial Measures

We have included financial measures compiled in accordance with GAAP and certain non-GAAP measures in this Annual Report on Form 10-K to provide management and investors with additional information regarding our financial results. Non-GAAP measures should not be considered in isolation or as a substitute for our reporting results prepared in accordance with GAAP and, as calculated, may not be comparable to other similarly titled measures for other companies. For each non-GAAP financial measure, we provide a reconciliation to the most comparable GAAP measure.

Pre-Tax Return on Equity

Pre-Tax Return on Equity (“Pre-Tax ROE”) is defined as a ratio for which (i) the numerator is calculated as income or loss from continuing operations, adjusted to exclude the effects of the provision or benefit for income taxes, net income or loss attributable to noncontrolling interest, and certain other adjustments, which include gains on dispositions of other property, the controlling interest portion of impairment of long-lived assets and loss on extinguishment of debt, restructuring activities, and pension plan settlement; and (ii) the denominator is calculated as average stockholders’ equity (which excludes noncontrolling interest), adjusted to exclude accumulated other comprehensive income or loss. In the following table, the numerator and denominator of our Pre-Tax ROE calculation are reconciled to income from continuing operations and stockholders’ equity, respectively, which are the most directly comparable GAAP financial measures. Management believes that Pre-Tax ROE is a useful measure to both management and investors as it provides an indication of the economic return on the Company’s investments over time. Pre-Tax ROE is used in consideration of the Company’s expected tax position in the near-term.

(1) Represents insurance recoveries in excess of net book value received for assets damaged by a tornado at the Company’s rail maintenance facility in Cartersville, Georgia in the first quarter of 2021.

(2) Excludes $81.3 million of non-cash impairment of long-lived asset charges associated with the noncontrolling interest recorded in the second quarter of 2020.

(3) Excludes $7.1 million of loss on extinguishment of debt associated with the noncontrolling interest recorded in the second quarter of 2021.

(4) Return on Equity is calculated as income (loss) from continuing operations divided by average total stockholders' equity.

(5) Pre-Tax Return on Equity is calculated as adjusted profit before tax divided by average adjusted stockholders' equity, each as defined and reconciled above.

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Free Cash Flow

Total Free Cash Flow After Investments and Dividends ("Free Cash Flow") is a non-GAAP financial measure. The change in presentation of sales of railcars from the lease fleet, which was effected on a prospective basis beginning in the fourth quarter of 2020, had no effect on the Company’s previously reported Free Cash Flow.

We believe Free Cash Flow is useful to both management and investors as it provides a relevant measure of liquidity and a useful basis for assessing our ability to fund our operations and repay our debt. Free Cash Flow is reconciled to net cash provided by operating activities from continuing operations, the most directly comparable GAAP financial measure, in the following tables.

For the year ended December 31, 2021, Free Cash Flow is defined as net cash provided by operating activities from continuing operations as computed in accordance with GAAP, plus cash proceeds from lease portfolio sales, less capital expenditures for manufacturing, dividends paid, and Equity CapEx for leased railcars. Equity CapEx for leased railcars is defined as leasing capital expenditures, adjusted to exclude net proceeds from (repayments of) debt.

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For the years ended December 31, 2020 and 2019, Free Cash Flow is defined as net cash provided by operating activities from continuing operations as computed in accordance with GAAP, plus cash proceeds from sales of leased railcars owned more than one year at the time of sale, less capital expenditures for manufacturing, dividends paid, and Equity CapEx for leased railcars. Equity CapEx for leased railcars is defined as leasing capital expenditures, net of sold lease fleet railcars owned one year or less, adjusted to exclude net proceeds from (repayments of) debt.

Recent Accounting Pronouncements

There have been no material changes in recently issued or adopted accounting standards during the year ended December 31, 2021.