What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-17 compared with 2021-02-24 · 380 added, 299 removed, 413 unchanged (62% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results.

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.

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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

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and its consolidated subsidiaries own businesses that are leading providers of railcar products and services in North America.

Our rail-related businesses market their railcar products and services under the trade name TrinityRail ® .

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.

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) the Railcar Leasing and Management Services Group (the "Leasing Group"), which owns and operates a fleet of railcars and provides third-party fleet leasing, management, and administrative services;

(2) the Rail Products Group, which manufactures and sells railcars and related parts and components, and provides railcar maintenance and modification services;

and (3) All Other, which includes our highway products business and legal, environmental, and maintenance costs associated with non-operating facilities.

In connection with the implementation of our rail-focused strategy, during 2020, we realigned certain activities previously reported in the All Other segment to now be presented within the Rail Products Group.

The prior period results have been recast to reflect these changes and present results on a comparable basis.

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.

Executive Summary

Recent Market Developments

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 the situation continues to evolve.

Federal, state and local governments continue to modify protective actions in response to evolving trends related to the spread of the disease.

Authorities continue to encourage or require social distancing and wearing of masks.

Although most states have reopened schools and many businesses, certain non-essential businesses remain closed, and state and local leaders continue to encourage many members of the public to work from home when possible.

During the third quarter, our senior leaders returned to the office full time, and the remainder of the Dallas-based employees began working at our headquarters facility on a rotating basis, subject to heightened safety protocols.

Our manufacturing businesses within the United States continue to operate within critical infrastructure sectors as established by the Cybersecurity & Infrastructure Security Agency of the United States Department of Homeland Security, and we continue to believe that the majority of our North American customers and suppliers also operate businesses that are deemed essential.

As a result, our rail manufacturing, rail maintenance, and highway products operations in the United States have continued to operate, subject to significantly enhanced voluntary and government-mandated safety protocols designed to protect the health of our operations workforce.

Our manufacturing facilities in Mexico have also continued to operate, subject to enhanced health and safety protocols.

These facilities operate within critical infrastructure sectors as currently established by the Mexico Federal Ministry of Health and Federal Ministry of Communications and Transportation.

We have experienced a limited number of disruptions to our supply chain.

We continue to monitor the potential 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 already underway, we have eliminated many non-essential expenditures and streamlined our workforce in response to current operating conditions.

As described in the Liquidity and Capital Resources section below, as of December 31, 2020, we have committed liquidity of approximately $727 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.

As previously reported, we concluded in the second quarter that the decline in leasing income for small cube covered hopper railcars would continue and recorded an impairment charge of $369.4 million, which is included in our results for the year ended December 31, 2020.

See Note 11 of the Consolidated Financial Statements for more information regarding additional impairment charges.

To date, the Leasing Group has experienced an insignificant increase in lease payment delinquencies related to car types other than small cube covered hoppers and has granted limited rent payment extensions to a relatively small number of customers.

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.

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 additional impairment charges in future periods as a result of changes in market conditions, our operating results, changes in the assumptions utilized in our financial projections, or the financial performance of other investments in emerging technologies.

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 and Seasonal Trends Impacting Our Business

The industries in which we operate are cyclical in nature.

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, adverse changes in commodity prices, including continued 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.

As noted previously, declines in crude oil prices and production have left the frac sand industry financially vulnerable.

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, including the crude oil and frac sand markets;

however, additional 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.

Additionally, current economic conditions within the industries in which our customers operate have resulted in reduced demand for railcars.

These factors, combined with declining railcar loading volumes and a growing supply of underutilized railcar assets in North America, are pressuring railcar lease rates and utilization, as well as orders for new railcar equipment.

While we currently expect this trend to continue in the near term, we believe that our integrated rail platform is designed to respond to cyclical changes in demand and perform throughout the railcar cycle.

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

Results in our All Other Group are affected by seasonal fluctuations, with the second and third quarters historically being the quarters with the highest revenues.

Asset Impairments and Restructuring Activities

As described above, we recorded an impairment of long-lived assets of $396.4 million during the year ended December 31, 2020, primarily related to our small cube covered hopper railcars, the planned divestiture of certain non-strategic maintenance facilities, and our investments in certain emerging technologies.

See Note 11 of the Consolidated Financial Statements for more information, including a description of the key assumptions and other significant management judgments utilized in the impairment analysis.

During the year ended December 31, 2020, and in connection with our continued assessment of future needs to support our go-forward business strategy, we recognized restructuring charges of approximately $11.0 million, consisting of $7.8 million for severance costs, $5.3 million of non-cash charges primarily from the write-down of our corporate headquarters campus and certain other assets, and $0.6 million in contract termination costs, partially offset by a $2.7 million net gain on the disposition of a non-operating facility and certain related assets.

We expect to identify additional streamlining and cost savings opportunities in the near term.

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.

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 loss for the year ended December 31, 2020 was $124.5 million, compared to operating profit for the year ended December 31, 2019 of $416.3 million, and includes impairment charges of $396.4 million primarily associated with our small cube covered hopper railcars.

• The Leasing Group reported additions to the wholly-owned and partially-owned lease fleet of 3,340 railcars, for a total of 107,045 railcars as of December 31, 2020, an increase of 3.2% compared to December 31, 2019.

• The Leasing Group's lease fleet of 107,045 company-owned railcars was 94.5% utilized as of December 31, 2020, compared to a lease fleet utilization of 96.0% on 103,705 company-owned railcars as of December 31, 2019.

Our company-owned lease fleet includes wholly-owned railcars, partially-owned railcars, and railcars under sale-leaseback arrangements.

• For the year ended December 31, 2020, we made a net investment in our lease fleet of approximately $463.5 million, which primarily includes new railcar additions and railcar modifications, net of deferred profit, and secondary market purchases;

and is net of total proceeds from the sales of leased railcars owned more than one year at the time of sale.

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.

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See the Non-GAAP Financial Measures section within this Form 10-K for a reconciliation to the most directly comparable GAAP measure and why management believes this measure is useful to management and investors.

See "Consolidated Results of Operations" and "Segment Discussion" below for additional information regarding our operating results for the year ended December 31, 2020.

See Part II, Item 7 of our 2019 Annual Report on Form 10-K for a discussion of our results of operations and liquidity and capital resources as of and for the year ended December 31, 2019, including a comparison to the year ended December 31, 2018.

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.

Long-Term Enterprise Key Performance Indicators

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(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.

Capital Structure Updates

Early Redemption of TRL V — In March 2020, Trinity Rail Leasing V, L.P., a limited partnership (“TRL V”) and a limited purpose, indirect wholly-owned subsidiary of the Company owned through TILC, redeemed its 2006 Secured Railcar Equipment Notes due May 2036, of which $104.7 million was outstanding at the redemption date.

The fixed interest rate for these notes was at 5.90% per annum.

The net book value of the assets securing TRL V at the time of redemption was $303.3 million.

TRL-2017 — In July 2020, Trinity Rail Leasing 2017 LLC (“TRL-2017”), a wholly-owned subsidiary of the Company, issued an additional $225.0 million of promissory notes pursuant to a provision in its existing loan agreement.

The promissory notes bear interest at LIBOR plus 1.50% and have a stated final maturity date of 2025.

Net proceeds received from the transaction were used to repay borrowings under TILC's secured warehouse credit facility and under the Company’s revolving credit facility, and for general corporate purposes.

TRL-2018 — In October 2020, Trinity Rail Leasing 2018 LLC (“TRL-2018”), a wholly-owned subsidiary of the Company, issued $155.5 million of Series 2020-1 Class A Secured Railcar Equipment Notes (the “2020-1 Notes”) under an existing indenture.

The 2020-1 Notes bear interest at a fixed rate of 1.96% per annum and have a stated final maturity date of 2050.

In a separate transaction during October 2020, TRL-2018 redeemed its Series 2018-1 Class A-1 Secured Railcar Equipment Notes, of which $153.1 million was outstanding at the redemption date.

The fixed interest rate for these notes was 3.82% per annum.

New Share Repurchase Program — In October 2020, our Board of Directors authorized a new share repurchase program effective October 23, 2020 through December 31, 2021.

The new share repurchase program authorized the Company to repurchase up to $250.0 million of its common stock.

TRL-2020 — In November 2020, Trinity Rail Leasing 2020 LLC (“TRL-2020”), a wholly-owned subsidiary of Company, issued $370.8 million of TRL-2020’s Series 2020-2 Secured Railcar Equipment Notes.

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 transaction were used to repay borrowings under TILC's secured warehouse credit facility, to redeem in full secured notes issued by TRIHC 2018 LLC, and for general corporate purposes.

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.

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 our Highway Products litigation.

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.

Consolidated Results of Operations

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

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

Year Ended December 31,

2021 2020 2019

(in millions)

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Selling, engineering, and administrative expenses 179.6 189.6 217.0

Gains (losses) on dispositions of property 20.3 54.4

Gains on dispositions of property 78.2 20.0 54.4

Impairment of long-lived assets — 396.4 —

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Interest expense, net 191.4 211.0 214.5

Loss on extinguishment of debt 11.7 5.0 —

Pension plan settlement (0.6) 151.5 —

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Railcar Leasing and Management Services Group $ 734.6 $ 0.7 $ 735.3 (8.4) %

$ 801.5 $ 0.8 $ 802.3 (28.2) %

Rail Products Group 781.4 483.4 1,264.8 (21.4) %

All Other 249.7 1.5 251.2 (3.8) %

Segment Totals before Eliminations 1,999.4 663.6 2,663.0 (38.8) %

Segment Totals 1,516.0 484.1 2,000.1 (17.1) %

Eliminations – Lease Subsidiary — (478.5) (478.5)

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Rail Products Group 948.2 661.3 1,609.5 (45.9) %

All Other 253.5 7.5 261.0

Segment Totals before Eliminations 3,005.1 1,347.9 4,353.0

Segment Totals 1,749.7 662.1 2,411.8 (41.1) %

Eliminations – Lease Subsidiary — (652.9) (652.9)

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Consolidated Total $ 1,749.7 $ — $ 1,749.7 (36.4) %

Year Ended December 31, 2019

External Intersegment Total

(in millions)

Railcar Leasing and Management Services Group $ 1,116.3 $ 0.9 $ 1,117.2

Rail Products Group 1,635.3 1,339.5 2,974.8

Segment Totals 2,751.6 1,340.4 4,092.0

Corporate and other 0.8 0.4 1.2

Eliminations – Lease Subsidiary — (1,331.1) (1,331.1)

Eliminations – Other — (9.7) (9.7)

Consolidated Total $ 2,752.4 $ — $ 2,752.4

Operating Costs

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Year Ended December 31,

2021 2020 2019

(in millions)

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Rail Products Group 1,260.1 1,573.2 2,697.2

All Other 223.0 241.1

Segment Totals before Eliminations, Corporate Expenses, Impairment of long-lived assets and Restructuring activities

2,244.8 3,648.9

Corporate 97.7 108.0

Segment Totals 1,644.5 2,021.8 3,407.8

Corporate and other 84.1 99.7 108.9

Impairment of long-lived assets — 396.4 —

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Year Ended December 31,

2021 2020 2019

(in millions)

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Rail Products Group 4.7 36.3 277.6

All Other 28.2 19.9

Segment Totals before Eliminations, Corporate Expenses, Impairment of long-lived assets, and Restructuring activities

Corporate (97.7) (108.0)

Segment Totals 355.6 390.0 684.2

Corporate and other (84.1) (99.7) (107.7)

Impairment of long-lived assets — (396.4) —

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Discussion of Consolidated Results

Revenues – Our revenues for the year ended December 31, 2020 were $1,999.4 million, representing a decrease of $1,005.7 million, or 33.5%, over the prior year, 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, 2020 were $1,508.4 million, representing a decrease of $857.3 million, or 36.2%, over the prior year, 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 13.1% for the year ended December 31, 2020, when compared to the prior year, primarily due to lower employee-related costs, including headcount reductions and adjustments to incentive-based compensation, and lower litigation-related expenses.

Impairment of long-lived assets – Impairment of long-lived assets for the year ended December 31, 2020 were $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.

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.

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.

We had no impairment of long-lived assets during the year ended December 31, 2019.

Restructuring activities, net – Our restructuring activities for the year ended December 31, 2020 totaled $11.0 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 $14.7 million, primarily as a result of write-downs related to underutilized assets in our manufacturing footprint and employee transition costs.

Operating profit (loss) – Operating loss for the year ended December 31, 2020 totaled $124.5 million, representing a decrease of 129.9%, compared to an operating profit of $416.3 million from the prior year, primarily from the impairment of long-lived assets, lower deliveries in the Rail Products Group, and a lower volume of railcar sales in the Leasing Group, partially offset by lower selling, engineering, and administrative expenses.

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, 2020 totaled $216.0 million, compared to $214.5 million for the year ended December 31, 2019, primarily driven by higher debt obligations in the Leasing Group in connection with the Company's efforts to optimize its capital structure, as well as a $4.7 million early redemption premium associated with the redemption of TRL V's debt, partially offset by lower variable interest rates associated with TILC's warehouse loan facility and our revolving credit facility.

Pension plan settlement – Pension plan settlement charges associated with the termination of our pension plan totaled $151.5 million for the year ended December 31, 2020.

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.

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.

Income taxes – Our effective tax rate was a benefit of 54.3% for the year ended December 31, 2020, which differed from the U.S.

statutory rate of 21.0% primarily due to the impact of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), partially offset by the portion of the non-cash small cube covered hopper railcar impairment charge that is not tax-effected because it is related to the noncontrolling interest.

Our effective tax expense rate for the year ended December 31, 2019 was 30.6%.

This differed from the U.S.

statutory rate of 21.0% for the year ended December 31, 2019 primarily due to the impacts of state income tax expense, foreign branch taxes, and changes in state tax laws and apportionment.

On March 27, 2020, the CARES Act was enacted.

The CARES Act was a stimulus package and part of a series of bills meant to address the economic uncertainties associated with COVID-19.

Due to the enactment of the CARES Act, Trinity filed a carryback claim for the 2018 and 2019 tax losses to the 2013-2015 tax years, allowing us to recover taxes that were previously paid.

The income taxes associated with the carryback claims were paid at a federal rate of 35.0%, rather than the current rate of 21.0% in effect beginning with the 2018 tax year.

The net deferred tax liability was remeasured and a federal income tax receivable was set up to account for the net operating losses permitted to be carried back under the CARES Act, resulting in a tax benefit of $180.4 million for the year ended December 31, 2020.

Accordingly, the effective tax benefit rate for the year ended December 31, 2020 includes a benefit of 36.5% due to the CARES Act.

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.

Our income tax receivable from federal, state, and foreign jurisdictions was $445.8 million and $14.7 million at December 31, 2020 and 2019, respectively.

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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Year Ended December 31, Percent Change

2021 2020 2019 2021 versus 2020 2020 versus 2019

($ in millions)

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Leasing and management $ 296.8 $ 336.0 $ 314.7 (11.7) % 6.8 %

Railcars owned one year or less at the time of sale 0.4 41.4 (99.0) %

Railcars owned more than one year at the time of sale 17.3 50.5 (65.7) %

Lease portfolio sales (1)

54.1 17.7 91.9 205.6 % (80.7) %

Total operating profit $ 350.9 $ 353.7 $ 406.6 (0.8) % (13.0) %

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Maintenance and compliance $ 95.0 $ 88.1 $ 102.1 7.8 % (13.7) %

Rent $ 9.7 $ 16.9 (42.6) %

Rent and ad valorem taxes $ 18.4 $ 21.1 $ 28.5 (12.8) % (26.0) %

Selling, engineering, and administrative expenses

$ 50.6 $ 51.3 $ 49.5 (1.4) % 3.6 %

Interest $ 196.2 $ 197.2 (0.5) %

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

$ 181.6 $ 196.2 $ 197.2 (7.4) % (0.5) %

* 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;

maintenance and compliance;

fleet operating costs, which include maintenance, compliance, freight, and storage;

rent and ad valorem taxes;

and selling, engineering, and administrative expenses.

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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 in the year ended December 31, 2020 of approximately $30.8 million.

This decrease was partially offset by higher depreciation associated with growth in the 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.

(5) As a result of the impairment of long-lived assets related to our small cube covered hopper railcars recorded in the second quarter of 2020, our quarterly depreciation expense beginning in the third quarter of 2020 has decreased by approximately $3.5 million, for a total reduction of $7.0 million for the year ended December 31, 2020.

Total revenues for the Railcar Leasing and Management Services Group decreased by 28.2% for the year ended December 31, 2020, compared to prior year.

Revenues related to sales of leased railcars owned one year or less decreased primarily due to a lower volume of railcars sold from the 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.

During the year ended December 31, 2020 and 2019, information related to the sales of leased railcars is as follows:

(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:

Year Ended December 31,

(in millions)

Sales of leased railcars:

Railcars owned one year or less at the time of sale (1)(2)

2021 2020 2019

Railcars owned more than one year at the time of sale

$ 193.1 $ 566.4

Operating profit on sales of leased railcars:

Railcars owned one year or less at the time of sale $ 0.4 $ 41.4

Railcars owned more than one year at the time of sale 17.3 50.5

($ in millions)

Lease portfolio sales (1)

$ 460.7 $ 193.1 $ 566.4

Operating profit margin on sales of leased railcars:

Railcars owned one year or less at the time of sale 0.7 % 11.5 %

Railcars owned more than one year at the time of sale 12.5 % 24.6 %

Weighted average operating profit margin on sales of leased railcars

Operating profit on lease portfolio sales $ 54.1 $ 17.7 $ 91.9

Operating profit margin on lease portfolio sales 11.7 % 9.2 % 16.2 %

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

(2) Beginning in the fourth quarter of 2020, we made a prospective change in the presentation of sales of railcars from the lease fleet.

See Note 1 of the Consolidated Financial Statements for more information.

Operating profit for the Leasing Group decreased by 13.0% for the year ended December 31, 2020 compared to the prior year primarily due to a lower volume of railcar sales, partially offset by growth in the lease fleet and reduced operating expenses resulting from fewer maintenance compliance events scheduled during the current year period.

Additionally, 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.

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.

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.

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Information regarding the Leasing Group’s lease fleet is as follows:

2021 2020 2019

Number of railcars:

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Fleet utilization 95.7 % 94.5 % 96.0 %

(1) Includes 1,840 railcars under sale-leaseback arrangements as of December 31, 2020.

(2) Includes wholly-owned railcars, partially-owned railcars, and railcars under sale-leaseback arrangements.

(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.

Rail Products Group

Year Ended December 31, Percent Change

2021 2020 2019 2021 versus 2020 2020 versus 2019

($ in millions)

Rail products (1)

$ 1,067.9 $ 1,315.0 $ 2,506.7 (18.8) % (47.5) %

Maintenance services 159.9 230.5 371.0 (30.6) % (37.9) %

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32.5 38.6 60.1 (15.8) % (35.8) %

Losses on dispositions of property

(Gains) losses on dispositions of property (8.1) 0.1 0.2 * *

Operating profit $ 4.7 $ 36.3 $ 277.6 (87.1) % (86.9) %

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* Not meaningful

Additional information related to our Rail Products Group backlog of railcars on a dollar and unit basis is summarized below:

(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.

December 31, Percent Change

2021 2020 2019 2021 versus 2020 2020 versus 2019

($ in millions)

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Year Ended December 31, Percent Change

2021 2020 2019 2021 versus 2020 2020 versus 2019

Beginning balance 8,985 15,085 30,875

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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.

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 decreased by 44.6% when compared to the prior year 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.

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.

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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.

During the year ended December 31, 2020, railcar shipments included sales to the Leasing Group of $566.1 million with a deferred profit of $26.5 million, representing 5,020 railcars, compared to $1,179.5 million with a deferred profit of $147.7 million, representing 9,363 railcars, in the comparable period in 2019.

In 2020, the Leasing Group purchased 43.5% of our railcar production, compared to 42.6% in 2019.

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

Year Ended December 31,

2021 2020 2019

($ in millions)

New railcars $ 357.5 $ 566.1 $ 1,179.5

Sustainable railcar conversions $ 57.6 $ — $ —

Other maintenance services $ 63.4 $ 86.8 $ 151.6

Deferred profit $ 17.2 $ 35.2 $ 164.7

Number of new railcars (in units) 3,310 5,020 9,363

Number of sustainable railcar conversions (in units) 520 — —

Corporate and other

Year Ended December 31, Percent Change

2021 2020 2019 2021 versus 2020 2020 versus 2019

($ in millions)

Highway Products $ 251.2 $ 259.8 (3.3) %

Other — 1.2 (100.0) %

Total revenues $ — $ — $ 1.2 * *

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96.5 99.7 107.4 (3.2) % (7.2) %

Losses (gains) on dispositions of property

Operating profit $ 28.2 $ 19.9 41.7 %

(Gains) losses on dispositions of property (12.4) (0.2) 0.3 * *

Operating profit (loss) $ (84.1) $ (99.7) $ (107.7) (15.6) % (7.4) %

* Not meaningful

Revenues and cost of revenues decreased for the year ended December 31, 2020 when compared to the prior year primarily from decreased demand in our highway products business.

Operating profit was favorably impacted in the year ended December 31, 2020 by lower employee-related costs and lower costs associated with our non-operating facilities.

Year Ended December 31, Percent Change

(in millions)

Operating costs $ 97.7 $ 108.0 (9.5) %

Operating costs for the year ended December 31, 2020 decreased 9.5% when compared to the prior year 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.

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.

Liquidity and Capital Resources

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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, 2020, we have committed liquidity of $727.4 million.

As of December 31, 2021, we have total committed liquidity of $782.3 million.

Our total available liquidity includes:

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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

Early Redemption of TRL V — In March 2020, TRL V redeemed its 2006 Secured Railcar Equipment Notes due May 2036.

The total cost of the redemption was $109.9 million, which included the repayment of $104.7 million of outstanding principal amount at the redemption date, the payment of a $4.7 million early redemption premium, and $0.5 million in accrued and unpaid interest.

TRL-2017 — In July 2020, TRL-2017 issued an additional $225.0 million of promissory notes pursuant to a provision in its existing loan agreement.

The promissory notes bear interest at LIBOR plus 1.50% and have a stated final maturity date of 2025.

TRL-2018 — In October 2020, TRL-2018 issued $155.5 million of Series 2020-1 Class A Secured Railcar Equipment Notes under an existing indenture.

These notes bear interest at a fixed rate of 1.96% per annum and have a stated final maturity date of 2050.

In a separate transaction during October 2020, TRL-2018 redeemed its Series 2018-1 Class A-1 Secured Railcar Equipment Notes, of which $153.1 million was outstanding at the redemption date.

The fixed interest rate for these notes was 3.82% per annum.

TRL-2020 — In November 2020, TRL-2020 issued $370.8 million of TRL-2020’s Series 2020-2 Secured Railcar Equipment Notes.

These notes bear interest at an all-in interest rate of 2.52% and have a stated final maturity date of 2050.

Dividend Payments — In December 2020, our Board of Directors declared an 11% increase to our quarterly dividend from $0.19 per share to $0.21 per share.

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.

Completed Share Repurchase Authorization — In March 2019, our Board of Directors authorized a share repurchase program effective March 7, 2019 through December 31, 2020.

The share repurchase program authorized the Company to repurchase up to $350.0 million of its common stock, not to exceed 13.7 million shares.

On April 24, 2020, as a result of then-current market conditions, the Board of Directors amended the repurchase program to remove the share limitation.

In the third quarter of 2020, we completed this share repurchase program.

Share repurchase activity under this program is as follows:

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.

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.

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.

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:

Shares Repurchased Remaining Authorization to Repurchase

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(in millions)

March 7, 2019 Authorization $ 350.0

March 7, 2019 through March 31, 2019 866,715 $ 19.0 $ 331.0

April 1, 2019 through June 30, 2019 2,133,116 44.0 $ 287.0

July 1, 2019 through September 30, 2019 5,171,489 100.9 $ 186.1

September 9, 2021 Authorization $ 250.0

September 9, 2021 through September 30, 2021 — $ — $ 250.0

October 1, 2021 through December 31, 2021 5,155,491 151.9 $ 98.1

January 1, 2020 through March 31, 2020 1,850,000 35.4 $ 89.9

April 1, 2020 through June 30, 2020 — — $ 89.9

July 1, 2020 through September 30, 2020 4,466,896 89.9 $ —

Total 5,155,491 $ 151.9

During the year ended December 31, 2019, in addition to the amounts reported above, we repurchased 2.6 million shares, at a cost of approximately $70.0 million, representing the final settlement of an accelerated share repurchase program, which was funded in November 2018 but completed in March 2019.

Active Share Repurchase Authorization — In October 2020, our Board of Directors authorized a new share repurchase program effective October 23, 2020 through December 31, 2021.

The new share repurchase program authorized the Company to repurchase up to $250.0 million of its common stock.

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:

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October 23, 2020 through December 31, 2020 2,974,922 $ 67.8 $ 182.2

January 1, 2021 through March 31, 2021 1,291,860 36.8 $ 145.4

April 1, 2021 through June 30, 2021 2,440,793 68.3 $ 77.1

July 1, 2021 through September 30, 2021 2,815,307 77.1 $ —

Total 9,522,882 $ 250.0

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.

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

Year Ended December 31,

2021 2020 2019

(in millions)

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Net cash flows from discontinued operations (1)

Net decrease in cash, cash equivalents, and restricted cash $ (49.2) $ (73.2)

(1) Primarily related to the spin-off of Arcosa, completed on November 1, 2018.

These amounts have been reclassified as discontinued operations for all periods presented.

355.5 23.5 19.4

Net increase (decrease) in cash, cash equivalents, and restricted cash $ 74.0 $ (49.2) $ (73.2)

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

2021 compared to 2020

Operating Activities .

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Changes in operating assets and liabilities $ 336.4 $ (199.3)

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.

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.

Year Ended December 31,

(in millions)

(Increase) decrease in receivables, inventories, and other assets $ 314.1 $ (15.4)

(Increase) decrease in income tax receivable (441.5) 25.7

Increase (decrease) in accounts payable, accrued liabilities, and other liabilities (71.9) (93.1)

Changes in operating assets and liabilities $ (199.3) $ (82.8)

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.

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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 in the prior year period.

Our net 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 total proceeds from the sales of leased railcars.

• 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 cash provided by financing activities for the same period in 2019.

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 TRL V.

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 year ended December 31, 2020 and 2019, respectively.

• We repurchased common stock under our authorized share repurchase programs totaling $191.3 million and $224.7 million during the year ended December 31, 2020 and 2019, respectively.

Certain shares of stock 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 year ended December 31, 2019 excludes approximately $70.0 million related to the repurchased shares that were funded in November 2018 under an accelerated share repurchase program but delivered in the first quarter of 2019.

• 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.

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 July 2020, we amended our revolving credit facility to increase the maximum leverage ratio to provide additional near-term flexibility through December 31, 2021.

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:

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Supplemental Guarantor Financial Information

Our Senior Notes are fully and unconditionally and jointly and severally guaranteed by certain of Trinity’s 100%-owned subsidiaries:

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;

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Trinity Tank Car, Inc.;

Trinity Highway Products, LLC;

and TrinityRail Maintenance Services, Inc.

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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.

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

(3) Includes a $151.5 million pension plan settlement charge ($116.6 million, net of tax) and $253.4 million of additional income tax benefit that is attributable to the obligor group.

(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.

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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 the sales of leased railcars of $138.7 million, our net investment in the lease fleet was $463.5 million.

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.

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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 a Supplemental Profit Sharing Plan (effective as of January 1, 2021, the Trinity Industries, Inc.

Deferred Compensation Plan.

These contributions totaled $11.4 million during 2020.

Employer contributions to the 401(k) plan and the Trinity Industries, Inc.

Deferred Compensation Plan for the year ending December 31, 2021 are expected to be $18.5 million, which includes 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.

Pension Plan Termination

On September 4, 2019, our Board of Directors approved the termination of the Trinity Industries, Inc.

Consolidated Pension Plan (the "Pension Plan"), effective December 31, 2019.

The Pension Plan was settled in the fourth quarter of 2020 and resulted in the Company no longer having any remaining funded pension plan obligations.

Except for retirees receiving payments under the Pension Plan, participants had the choice of receiving a single lump sum payment or an annuity from a highly-rated insurance company that will pay and administer future benefit payments.

Upon settlement, we recognized a pre-tax non-cash pension settlement charge of $151.5 million, which was inclusive of all unamortized losses recorded in Accumulated Other Comprehensive Loss.

The settlement charge was recognized in our Statement of Operations during the fourth quarter when the payments were made to those participants electing to receive a lump sum distribution and when the annuity contracts were purchased to settle all remaining outstanding pension obligations.

The surplus of the Pension Plan of $23.6 million will be used, as prescribed in the applicable regulations, to fund obligations associated with the Company's defined contribution profit sharing plan and final pension administrative expenses.

We expect that any remaining surplus would be used for other corporate purposes, subject to applicable taxes.

See Note 10 of the Consolidated Financial Statements for further information.

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

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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.

We also may use derivative instruments from time to time to mitigate the impact of changes in natural gas and diesel fuel prices and changes in foreign currency exchange rates.

Derivative instruments that are designated and qualify as cash flow hedges are accounted for in accordance with applicable accounting standards.

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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 TRL-2017, TILC's warehouse loan facility, and our revolving credit facility.

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.

Contractual Obligation and Commercial Commitments

As of December 31, 2020, we had the following contractual obligations and commercial commitments:

Payments Due by Period

Contractual Obligations and Commercial Commitments Total 1 Year

(in millions)

Parent and wholly-owned subsidiaries (1)

$ 3,825.2 $ 174.1 $ 857.0 $ 1,284.5 $ 1,509.6

Partially-owned subsidiaries (1)

1,237.5 60.3 121.0 322.1 734.1

656.6 170.3 250.2 168.2 67.9

Total – Debt and Interest 5,719.3 404.7 1,228.2 1,774.8 2,311.6

Operating leases:

Leasing Group

26.8 8.6 13.8 3.8 0.6

Other 93.4 3.6 14.9 12.1 62.8

Obligations for purchase of goods and services (3)

401.2 358.3 33.1 9.8 —

Other 1.0 1.0 — — —

Total $ 6,241.7 $ 776.2 $ 1,290.0 $ 1,800.5 $ 2,375.0

(1) Excludes unamortized discount and debt issuance costs.

(2) Includes fixed rate interest obligations and interest on variable rate debt based on the outstanding balances and the applicable rates at December 31, 2020.

(3) Includes $332.5 million in purchase obligations for raw materials and components, primarily by the Rail Products Group.

As of December 31, 2020 and 2019, we had $5.2 million and $5.0 million, respectively, of tax liabilities, including interest and penalties, related to uncertain tax positions.

Because of the high degree of uncertainty regarding the timing of future cash outflows associated with these liabilities, we are unable to estimate the years in which settlement will occur with the respective taxing authorities, and, accordingly, such amounts are excluded from the table above.

See Note 9 of the Consolidated Financial Statements.

Critical Accounting Policies and Estimates

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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.

Long-lived Assets

Description of Estimate We routinely assess whether impairment indicators are present by monitoring for the existence of events or changes in circumstances that may indicate that the carrying amount of our long-lived assets, including our leased railcar fleet, might not be recoverable.

Factors monitored include actual and forecasted industry-wide asset utilization, pricing indicators, asset attrition rates, and other similar metrics specific to the performance of our leased railcar fleet and other long-lived assets.

Whenever an indicator of potential impairment is present, we assess recoverability by comparing the carrying value of the long-lived assets to the undiscounted future net cash flows we expect the assets to generate.

If the recoverability test indicates that an impairment exists, we would recognize an impairment charge equal to the amount by which the carrying value exceeds the fair value.

During the second quarter, the frac sand industry continued to experience economic pressure created by low oil prices, reduced fracking activity, and the ongoing economic impact of COVID-19.

Significant price declines in the crude oil market resulted in a decline in customer demand for certain types of railcars.

In particular, small cube covered hopper railcars are primarily used in North America to serve the frac sand industry.

We believe that the collective impact of these developments, including the shift towards the use of in-basin sand, constituted a fundamental and other-than-temporary change in the future demand for this railcar type.

Consequently, the cash flows and profitability of the frac sand industry continued to decline during the second quarter.

During the year ended December 31, 2020, we recorded an impairment of long-lived assets of $396.4 million, of which $369.4 million was related to our second quarter impairment of our small cube covered hopper railcars.

See Note 11 of the Consolidated Financial Statements for more information.

As of December 31, 2020, our net property, plant, and equipment totaled $7.0 billion, and the net book value of our amortizing intangible assets totaled $16.0 million.

Judgment and/or Uncertainty The estimates and judgments that most significantly affect the fair value calculations in our recoverability test include assumptions regarding revenue and operating profit;

the remaining useful life over which an asset is expected to generate cash flows;

and expectations regarding lease rates, lease renewals, and lease fleet utilization.

The measurement of an impairment loss involves a number of management judgments, including the selection of an appropriate discount rate, consideration of market quotes for comparable assets as available, and estimates regarding final disposition proceeds.

With respect to the impairment of our small cube covered hopper railcars, significant management judgment was used to determine the key assumptions utilized in our impairment analysis, the substantial majority of which represent unobservable (Level 3) inputs.

These assumptions include, but are not limited to:

estimates regarding the remaining useful life over which the railcars are expected to generate cash flows;

average lease rates;

railcar utilization percentages;

operating expenses;

and the selection of an appropriate discount rate.

Management selected these estimates and assumptions based on our railcar industry expertise.

We also consulted with third-party energy and frac sand industry experts to gain insights with respect to the long-term outlook for these underlying markets.

Potential Impact if Results Differ If actual results are not consistent with management's estimates and assumptions used to calculate estimated future cash flows, we could be exposed to additional impairment losses that may be material.

We believe that the assumptions used in our impairment analyses are reasonable;

however, given the uncertainties of the economy and its potential impact on our businesses, it is possible that impairments of remaining long-lived assets may be required in future periods as a result of changes in our operating results or our assumptions.

With respect to the second quarter impairment charge related to our small cube covered hopper railcars, a 0.5% increase in the discount rate would have resulted in an increase to the impairment charge of $12.4 million, and a 0.5% decrease in the discount rate would have resulted in a decrease to the impairment charge of $13.7 million.

Additionally, a 5% increase or decrease in the average lease rate would have resulted in a change in the impairment charge of $11.2 million.

Description of Estimate We account for income taxes under the asset and liability method prescribed by ASC 740.

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For further information regarding income taxes, see Note 9 of the Consolidated Financial Statements.

Judgment and/or Uncertainty Management is required to estimate the timing of the recognition of deferred tax assets and liabilities, make assumptions about the future deductibility of deferred tax assets and assess deferred tax liabilities based on enacted law and tax rates for the appropriate tax jurisdictions to determine the amount of such deferred tax assets and liabilities.

Judgment and/or Uncertainty Management is required to estimate the timing of the recognition of deferred tax assets and liabilities, make assumptions about the future deductibility of deferred tax assets and assess deferred tax liabilities based on enacted laws and tax rates for the appropriate tax jurisdictions to determine the amount of such deferred tax assets and liabilities.

We assess whether a valuation allowance should be established against deferred tax assets based on consideration of all available evidence, both positive and negative, using a more likely than not standard.

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If such changes take place, there is a risk that our effective tax rate could increase or decrease in any period, impacting our net earnings.

Long-lived Assets

If the recoverability test indicates that an impairment exists, we would recognize an impairment charge equal to the amount by which the carrying value exceeds the fair value.

As of December 31, 2021, our net property, plant, and equipment totaled $6.8 billion, and the net book value of our amortizing intangible assets totaled $28.1 million.

the remaining useful life over which an asset is expected to generate cash flows;

and expectations regarding lease rates, lease renewals, and lease fleet utilization.

We believe that the assumptions used in our impairment analyses are reasonable;

Based on our evaluations, no impairment charges were determined to be necessary on long-lived assets as of December 31, 2021.

Description of Estimate Goodwill is required to be tested for impairment at least annually, or on an interim basis if events or circumstances change indicating that the carrying amount of the goodwill might be impaired.

The quantitative goodwill impairment test is a two-step process with step one requiring the comparison of the reporting unit's estimated fair value with the carrying amount of its net assets.

If necessary, step two of the impairment test determines the amount of goodwill impairment to be recorded when the reporting unit's recorded net assets exceed its fair value.

We have the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment assessment.

If, after assessing the totality of events and circumstances, we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company will perform the quantitative impairment test.

We can also elect to forgo the qualitative assessment and perform the quantitative test.

The quantitative goodwill impairment test compares the reporting unit's estimated fair value with the carrying amount of its net assets.

An impairment is recognized if the reporting unit's recorded net assets exceed its fair value.

Impairment is assessed at the “reporting unit” level by applying a fair value-based test for each unit with recorded goodwill.

Goodwill totaled $154.2 million as of December 31, 2021.

Judgment and/or Uncertainty The estimates and judgments that most significantly affect the fair value calculations are assumptions related to revenue and operating profit results, discount rates, terminal growth rates, and exit multiples.

Judgment and/or Uncertainty When performing a qualitative assessment, we determine the drivers of fair value for each reporting unit and evaluate whether those drivers have been positively or negatively affected by relevant events and circumstances since the most recent quantitative assessment.

Our evaluation includes, but is not limited to, assessment of macroeconomic trends, industry conditions, operating income trends, and capital accessibility.

The estimates and judgments that most significantly affect the fair value calculations are assumptions related to revenue and operating profit results, discount rates, terminal growth rates, and exit multiples.

We consider these to be Level 3 inputs in the fair value hierarchy, as they involve unobservable inputs for which there is little or no market data and thus require management to develop its own assumptions.

Potential Impact if Results Differ We believe that the assumptions used in our impairment analysis are reasonable;

however, given the uncertainties of the economy and its potential impact on our businesses, there can be no assurance that our estimates and assumptions regarding the fair value of our reporting units will prove to be accurate predictions of the future.

Additionally, variations in any of these assumptions may result in different calculations in fair value that could result in an impairment charge.

Based on our annual goodwill impairment test performed at the reporting unit level as of December 31, 2020, we concluded that there was no impairment of goodwill and that none of the reporting units evaluated was at risk of failing the first step of the goodwill impairment test.

A reporting unit is considered to be at risk if its estimated fair value does not exceed the carrying value of its net assets by 10% or more.

An increase or decrease in the discount rate or a reduction to the terminal growth rate of 100 basis points would not have resulted in an impairment of goodwill for any of our reporting units.

Potential Impact if Results Differ We believe that the assumptions used in our impairment assessment are reasonable;

however, given the uncertainties of the economy and its potential impact on our businesses, there can be no assurance that the judgments applied in our assessment will prove to be accurate predictions of the future.

Based on our goodwill qualitative assessment performed at the reporting unit level as of December 31, 2021, we concluded that it was not more likely than not that any of our reporting units had a fair value that was less than its carrying value.

Variable Interest Entities

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At December 31, 2021, the carrying value of our investment in TRIP Holdings and RIV 2013 totaled $141.4 million.

For further information regarding our partially-owned leasing subsidiaries, see Note 5 of the Consolidated Financial Statements.

We have determined that we are not the primary beneficiary for Signal Rail or certain other entities in which we have an equity interest.

At December 31, 2021, the carrying value of these investments totaled $10.8 million.

For further information regarding our partially-owned leasing subsidiaries and other investments in unconsolidated affiliates, see Note 5 of the Consolidated Financial Statements.

Judgment and/or Uncertainty The determination of whether an entity is considered a VIE and, if so, if we are the primary beneficiary of the VIE, is highly subjective and is dependent on the specific facts and circumstances of each investment.

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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 restructuring activities, the controlling interest portion of impairment of long-lived assets, early redemption of debt, and pension plan settlement;

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.

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Income (loss) from continuing operations before income taxes 55.2 (524.6) 181.2

Net (income) loss attributable to noncontrolling interest 78.9 1.5 (3.8)

Restructuring activities, net 11.0 14.7 —

Net loss attributable to noncontrolling interest 0.2 78.9 1.5

Gains on dispositions of property – other (1)

Impairment of long-lived assets – controlling interest (2)

Early redemption of debt 5.0 — —

Restructuring activities, net (3.7) 10.9 14.6

Loss on extinguishment of debt – controlling interest (3)

Pension plan settlement (0.6) 151.5 —

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Average total stockholders' equity $ 1,656.4 $ 2,197.5 $ 2,470.5

$ 2,197.5 $ 2,470.5 $ 2,562.0

Return on Equity (4)

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Average Adjusted Stockholders' Equity $ 1,408.3 $ 1,976.5 $ 2,255.4

$ 1,976.5 $ 2,255.4 $ 2,327.6

Pre-Tax Return on Equity (5)

3.4 % 1.9 % 8.7 %

(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.

(2) Average total stockholders' equity and average adjusted stockholders' equity as of and for the year ended December 31, 2018 is calculated using ending balances as of December 31, 2018 because taking an average of beginning and ending stockholders' equity in 2018 would not have given effect to the reduction to stockholders' equity that occurred as a result of the spin-off of Arcosa on November 1, 2018.

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

(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.

Free Cash Flow

Total Free Cash Flow After Investments and Dividends ("Free Cash Flow") is a non-GAAP financial measure and 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 new leased railcars.

Equity CapEx for new leased railcars is defined as leasing capital expenditures, net of sold lease fleet railcars owned one year or less, adjusted to exclude net proceeds (repayments) of debt.

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 table.

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.

Year Ended December 31, 2021

2020 2019 2018

(in millions)

Net cash provided by operating activities – continuing operations $ 615.6

Proceeds from lease portfolio sales 454.3

Adjusted Net Cash Provided by Operating Activities 1,069.9

Capital expenditures – manufacturing and other (23.6)

Dividends paid to common stockholders (88.5)

Free Cash Flow (before Capital expenditures – leasing)

Equity CapEx for leased railcars (418.9)

Total Free Cash Flow After Investments and Dividends $ 538.9

Capital expenditures – leasing $ 547.2

Payments to retire debt (2,315.8)

Proceeds from issuance of debt 2,444.1

Net proceeds from (repayments of) debt 128.3

Equity CapEx for leased railcars $ 418.9

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.

Year Ended December 31,

(in millions)

Net cash provided by operating activities – continuing operations $ 622.0 $ 365.4

Proceeds from railcar lease fleet sales owned more than one year at the time of sale 138.7 205.7

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Free Cash Flow (before Capital expenditures – leasing)

596.5 423.3 390.0

Equity CapEx for new leased railcars (483.7) (278.5) (629.5)

Equity CapEx for leased railcars (483.7) (278.5)

Total Free Cash Flow After Investments and Dividends $ 89.4 $ 122.5

1 unchanged sentence

Payments to retire debt (1,442.9) (1,724.1)

Proceeds from the issuance of debt 1,561.4 2,567.8 1,206.6

Net proceeds (repayments) of debt 118.5 843.7 318.8

Equity CapEx for new leased railcars $ 483.7 $ 278.5 $ 629.5

Proceeds from issuance of debt 1,561.4 2,567.8

Net proceeds from (repayments of) debt 118.5 843.7

Equity CapEx for leased railcars $ 483.7 $ 278.5

Recent Accounting Pronouncements

See Note 1 of the Consolidated Financial Statements for information about recent accounting pronouncements.

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

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis