# TRINITY INDUSTRIES INC (TRN) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from TRINITY INDUSTRIES INC's 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/99780/000009978023000013/trn-20221231.htm
Accession: 0000099780-23-000013
Filing date: 2023-02-21
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/TRN/
All MD&A years: /company/TRN/mda/
Previous year: /company/TRN/mda/fy2021/ (FY 2021)
Next year: /company/TRN/mda/fy2023/ (FY 2023)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide management's perspective on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Our MD&A should be read in conjunction with our Consolidated Financial Statements and related Notes in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

This MD&A includes financial measures compiled in accordance with generally accepted accounting principles ("GAAP") and certain non-GAAP measures. Please refer to the Non-GAAP Financial Measures section herein for information on the non-GAAP measures included in the MD&A, reconciliations to the most directly comparable GAAP financial measure, and the reasons why management believes each measure is useful to management and investors.

Matters Affecting Comparability

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

Company Overview

Trinity Industries, Inc. and its consolidated subsidiaries own businesses that are leading providers of railcar products and services in North America. We market our railcar products and services under the trade name TrinityRail®. The TrinityRail platform provides railcar leasing and management services, railcar manufacturing, and railcar maintenance and modification services.

In the fourth quarter of 2021, the Company completed the sale of Trinity Highway Products, LLC (“THP”), a wholly-owned subsidiary of the Company, and certain direct and indirect subsidiaries of THP, to Rush Hour Intermediate II, LLC ("Rush Hour"), an entity owned by an affiliated investment fund of Monomoy Capital Partners, for an aggregate purchase price of $375.0 million. A final working capital adjustment was recorded in the second quarter of 2022.

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 2022 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. Expenses related to these retained obligations incurred during the year ended December 31, 2022 were, and similar expenses that may be incurred in the future 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.

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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

Other Cyclical Trends Impacting Our Business

The industries in which our customers operate are cyclical in nature. Weaknesses in certain sectors of the North American and global economy may make it more difficult to sell or lease certain types of railcars. Additionally, changes in certain commodity prices, 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.

Railcar loading volumes, orders for new railcar equipment, lease rates and lease fleet utilization continued to improve in 2022. We continue to believe that our rail platform is able to respond to cyclical changes in demand and perform throughout the railcar cycle.

Steel prices, which are subject to volatility, were elevated over much of the last two years and are a major component 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, the cost and volume of lease fleet maintenance and compliance events increased in 2022, and we expect elevated levels of these activities to continue in the near term. Further, 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 continued to experience shortages of materials used to manufacture or repair certain railcar types, as well as disruptions in the transportation network used to deliver our products, which have impacted our ability to timely deliver these railcars to our customers. While we believe these challenges will be resolved over time, they may persist over the foreseeable future, which could continue to impact our operations. We will continue to monitor the situation and take appropriate steps within our control to mitigate the potential impacts 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.

COVID-19

The COVID-19 pandemic significantly impacted global and North American economic conditions. The social and economic effects of the pandemic have been widespread. We continue to monitor the operational and financial impacts of the pandemic and other economic factors. The ongoing economic pressures related to the effects of the pandemic have negatively impacted our results of operations for the year ended December 31, 2022. While we continue to see gradual reduction of the impacts of the pandemic, we are monitoring the impacts of COVID-19 variants on the economy and our workforce.

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.

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Financial and Operational Highlights

•Our revenues for the year ended December 31, 2022 were $1,977.3 million, representing an increase of 30.4%, compared to the year ended December 31, 2021. Our operating profit for the year ended December 31, 2022 was $334.0 million, compared to $256.8 million for the year ended December 31, 2021.

•The Leasing Group's lease fleet of 108,440 company-owned railcars was 97.9% utilized as of December 31, 2022, compared to a lease fleet utilization of 95.7% on 106,970 company-owned railcars as of December 31, 2021. Our company-owned lease fleet includes wholly-owned railcars, partially-owned railcars, and railcars under leased-in arrangements.

•For the year ended December 31, 2022, we made a net investment in our lease fleet of approximately $178.1 million, which primarily includes new railcar additions, sustainable railcar conversions, railcar modifications, and other betterments, net of deferred profit, and secondary market purchases; and is net of proceeds from lease portfolio sales.

•The total value of the railcar backlog at December 31, 2022 was $3.9 billion, compared to $1.5 billion at December 31, 2021. The Rail Products Group received orders for 31,905 railcars and delivered 13,315 railcars in 2022, in comparison to orders for 13,870 railcars and deliveries of 8,875 railcars in 2021.

◦In the third quarter of 2022, we entered into a new long-term railcar supply agreement with GATX Corporation (“GATX”) to deliver a mix of 15,000 newly built tank and freight railcars over a six-year period. Our ending backlog at December 31, 2022 includes 15,000 railcars valued at approximately $1.8 billion associated with this agreement.

•The Rail Products Group offers a sustainable railcar conversion program whereby certain tank cars and freight cars are converted or upgraded to better meet changing market demands. During the year ended December 31, 2022, sustainable railcar conversion revenues totaled $163.7 million, representing 1,725 railcars.

•For the year ended December 31, 2022, our return on equity ("ROE") and Pre-Tax ROE were 7.7% and 10.4%(1), respectively, in comparison to 2.4% and 3.4%(1), respectively, for the year ended December 31, 2021.

•For the year ended December 31, 2022, we generated operating cash flows from continuing operations and Adjusted Free Cash Flow After Investments and Dividends ("Adjusted Free Cash Flow") of $9.2 million and $138.3 million(1), respectively, in comparison to $615.6 million and $538.9 million(1), respectively, for the year ended December 31, 2021.

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

See "Consolidated Results of Operations" and "Segment Discussion" below for additional information regarding our operating results for the year ended December 31, 2022. See Part II, Item 7 of our 2021 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, 2021, including a comparison to the year ended December 31, 2020.

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Long-Term Enterprise Key Performance Indicators

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

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

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

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

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

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Capital Structure Updates

TRL-2022 – In April 2022, Trinity Rail Leasing 2022 LLC, a Delaware limited liability company ("TRL-2022") and a limited purpose, indirect, wholly-owned subsidiary of the Company owned through Trinity Industries Leasing Company ("TILC"), issued $244.8 million of its Series 2022-1 Green Secured Railcar Equipment Notes. These notes bear interest at a fixed rate of 4.55%, are payable monthly, and have a stated final maturity date of 2052. Net proceeds received from the transaction were used to repay borrowings under TILC's warehouse loan facility and for general corporate purposes.

Tribute Rail – In May 2022, Tribute Rail LLC ("Tribute Rail"), an indirect, wholly-owned subsidiary of TRIP Rail Holdings LLC ("TRIP Holdings"), issued $327.0 million of its Series 2022-1 Green Secured Railcar Equipment Notes. These notes bear interest at an all-in interest rate of 4.88% and have a stated final maturity date of 2052. Net proceeds received from the issuance of these notes were used to redeem TRIP Railcar Co. LLC's ("TRIP Railcar Co.") existing term loan agreement, of which $319.4 million was outstanding at the redemption date.

While the stated final maturity date of these debt issuances is in 2052, the cash flows from the encumbered assets of each of TRL-2022 and Tribute Rail will be applied, pursuant to the payment priorities of their respective indentures, so as to amortize their respective notes to achieve monthly targeted principal balances. If the cash flow assumptions used in determining the targeted balances are met, it is anticipated that the notes will be repaid well in advance of their stated final maturity date. There can be no assurance, however, that such cash flow assumptions will be realized. See Note 8 of the Consolidated Financial Statements for more information.

New Share Repurchase Program – In December 2022, our Board of Directors authorized a new share repurchase program effective December 9, 2022 with no expiration. The new share repurchase program authorizes the Company to repurchase up to $250 million of its common stock. There were no shares repurchased under the new share repurchase program during the year ended December 31, 2022.

Litigation Updates

See Note 15 of the Consolidated Financial Statements for an update on the status of certain litigation retained in connection with the sale of THP.

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Consolidated Results of Operations

The following table summarizes our consolidated results of continuing operations for the years ended December 31, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021"],["","(in millions)"],["Revenues","$","1,977.3","","","$","1,516.0"],["Cost of revenues","1,609.6","","","1,161.5"],["Selling, engineering, and administrative expenses","185.4","","","179.6"],["Gains on dispositions of property","152.7","","","78.2"],["Restructuring activities, net","1.0","","","(3.7)"],["Total operating profit","334.0","","","256.8"],["Interest expense, net","207.6","","","191.4"],["Loss on extinguishment of debt","1.5","","","11.7"],["Pension plan settlement","\u2014","","","(0.6)"],["Other, net","(1.6)","","","(0.9)"],["Income from continuing operations before income taxes","126.5","","","55.2"],["Provision (benefit) for income taxes","27.6","","","15.9"],["Income from continuing operations","$","98.9","","","$","39.3"]]
[[/GREPCENT_TABLE]]

Revenues

The tables below present revenues by segment for the years ended December 31, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","Year Ended December 31, 2022"],["","Revenues","","Percent"],["","External","","Intersegment","","Total","","Change"],["","(in millions)"],["Railcar Leasing and Management Services Group","$","769.8","","","$","0.8","","","$","770.6","","","4.8","%"],["Rail Products Group","1,207.5","","","867.2","","","2,074.7","","","64.0","%"],["Segment Totals","1,977.3","","","868.0","","","2,845.3","","","42.3","%"],["Eliminations \u2013 Lease Subsidiary","\u2014","","","(867.2)","","","(867.2)"],["Eliminations \u2013 Other","\u2014","","","(0.8)","","","(0.8)"],["Consolidated Total","$","1,977.3","","","$","\u2014","","","$","1,977.3","","","30.4","%"],["","Year Ended December 31, 2021"],["","Revenues"],["","External","","Intersegment","","Total"],["","(in millions)"],["Railcar Leasing and Management Services Group","$","734.6","","","$","0.7","","","$","735.3"],["Rail Products Group","781.4","","","483.4","","","1,264.8"],["Segment Totals","1,516.0","","","484.1","","","2,000.1"],["Eliminations \u2013 Lease Subsidiary","\u2014","","","(478.5)","","","(478.5)"],["Eliminations \u2013 Other","\u2014","","","(5.6)","","","(5.6)"],["Consolidated Total","$","1,516.0","","","$","\u2014","","","$","1,516.0"]]
[[/GREPCENT_TABLE]]

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Operating Costs

Operating costs are comprised of cost of revenues; selling, engineering, and administrative costs; gains or losses on property disposals; and restructuring activities. Operating costs by segment for the years ended December 31, 2022 and 2021 were as follows:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021"],["","(in millions)"],["Railcar Leasing and Management Services Group (1)","$","347.3","","","$","384.4"],["Rail Products Group","2,015.6","","","1,260.1"],["Segment Totals","2,362.9","","","1,644.5"],["Corporate and other","80.8","","","84.1"],["Restructuring activities, net","1.0","","","(3.7)"],["Eliminations \u2013 Lease Subsidiary","(802.0)","","","(461.3)"],["Eliminations \u2013 Other","0.6","","","(4.4)"],["Consolidated Total","$","1,643.3","","","$","1,259.2"]]
[[/GREPCENT_TABLE]]
(1) Includes gains on lease portfolio sales of $127.5 million and $54.1 million for the years ended December 31, 2022 and 2021, respectively.

Operating Profit

Operating profit by segment for the years ended December 31, 2022 and 2021 was as follows:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021"],["","(in millions)"],["Railcar Leasing and Management Services Group","$","423.3","","","$","350.9"],["Rail Products Group","59.1","","","4.7"],["Segment Totals","482.4","","","355.6"],["Corporate and other","(80.8)","","","(84.1)"],["Restructuring activities, net","(1.0)","","","3.7"],["Eliminations \u2013 Lease Subsidiary","(65.2)","","","(17.2)"],["Eliminations \u2013 Other","(1.4)","","","(1.2)"],["Consolidated Total","$","334.0","","","$","256.8"]]
[[/GREPCENT_TABLE]]

Discussion of Consolidated Results

Revenues – Our revenues for the year ended December 31, 2022 were $1,977.3 million, representing an increase of $461.3 million, or 30.4%, over the prior year, primarily related to a higher volume of, and improved pricing on, external deliveries in the Rail Products Group.

Cost of revenues – Our cost of revenues for the year ended December 31, 2022 was $1,609.6 million, representing an increase of $448.1 million, or 38.6%, over the prior year, primarily due to a higher volume of, and input cost inflation associated with, deliveries in the Rail Products Group.

Selling, engineering, and administrative expenses – Selling, engineering, and administrative expenses were substantially unchanged for the year ended December 31, 2022 when compared to the prior year.

Gains on dispositions of property – Gains on dispositions of property increased by $74.5 million for the year ended December 31, 2022, when compared to the prior year period primarily due to lease portfolio sales. Results for the years ended December 31, 2022 and 2021 included gains of $7.5 million and $7.8 million, respectively, 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.

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Operating profit – Operating profit for the year ended December 31, 2022 totaled $334.0 million, representing an increase of $77.2 million, or 30.1%, from the prior year period primarily due to higher lease portfolio sale activity, partially offset by higher costs associated with external deliveries in the Rail Products Group, including the impact of deliveries of orders taken at the bottom of the cycle, as well as higher fleet operating costs and increased depreciation in the Leasing Group. Operating profit was favorably impacted in the current and prior year periods by insurance recoveries related to a tornado at the Company’s rail maintenance facility in Cartersville, Georgia in the first quarter of 2021.

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, 2022 totaled $207.6 million, compared to $191.4 million for the year ended December 31, 2021. The increase in interest expense, net was primarily driven by higher variable interest rates associated with TILC's warehouse loan facility and higher overall average debt in 2022, partially offset by lower overall borrowing costs associated with the Company's debt facilities resulting from debt refinancing activity during the second quarter of 2021.

Loss on extinguishment of debt – Loss on extinguishment of debt for the year ended December 31, 2022 was $1.5 million from the write-off of unamortized debt issuance costs associated with the repayment of TRIP Railcar Co.'s outstanding term loan agreement. 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.

Income taxes – The effective tax rate from continuing operations for the year ended December 31, 2022 was an expense of 21.8%, which differs from the U.S. statutory rate of 21.0% primarily due to foreign taxes, state income taxes, and non-deductible executive compensation, offset by taxes not recorded on our non-controlling interests in partially-owned subsidiaries, reductions in tax reserves for uncertain tax positions, and excess tax benefits associated with equity-based compensation.

Our effective tax rate from continuing operations for the year ended December 31, 2021 was an expense of 28.8%, primarily due to adjustments 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.

Net income tax refunds (payments) differ from the current provision primarily based on when estimated tax payments were due as compared to when the related income was earned and taxable. The total income tax receivable position was $7.8 million and $5.4 million at December 31, 2022 and 2021, respectively. Net income tax refunds (payments) during the years ended December 31, 2022 and 2021 totaled $(19.3) million and $435.7 million, respectively.

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Segment Discussion

Railcar Leasing and Management Services Group

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","","","Percent Change"],["","2022","","2021"],["","($ in millions)"],["Revenues:"],["Leasing and management","$","770.6","","","$","735.3","","","","","4.8","%"],["Operating profit (1):"],["Leasing and management","$","295.8","","","$","296.8","","","","","(0.3)","%"],["Lease portfolio sales (2)","127.5","","","54.1","","","","","*"],["Total operating profit","$","423.3","","","$","350.9","","","","","20.6","%"],["Total operating profit margin","54.9","%","","47.7","%"],["Leasing and management operating profit margin","38.4","%","","40.4","%"],["Selected expense information:"],["Depreciation (3)","$","236.4","","","$","226.0","","","","","4.6","%"],["Maintenance and compliance","$","113.4","","","$","95.0","","","","","19.4","%"],["Rent and ad valorem taxes","$","19.3","","","$","18.4","","","","","4.9","%"],["Selling, engineering, and administrative expenses","$","54.0","","","$","50.6","","","","","6.7","%"],["Interest (4)","$","186.7","","","$","181.6","","","","","2.8","%"]]
[[/GREPCENT_TABLE]]

 * Not meaningful

(1) Operating profit includes: depreciation; fleet operating costs, which include maintenance, compliance, freight, and storage; rent and ad valorem taxes; and selling, engineering, and administrative expenses. Amortization of deferred profit on railcars sold from the Rail Products Group to the Leasing Group is included in the operating profits of the Leasing Group, resulting in the recognition of depreciation expense based on our original manufacturing cost of the railcars. Interest expense is not a component of operating profit and includes the effect of hedges.

(2) Includes $1.3 million selling profit associated with sales-type leases for the year ended December 31, 2022.

(3) Depreciation expense includes $12.1 million and $8.8 million for the years ended December 31, 2022 and 2021, respectively, related to the disposal of certain railcar components associated with our sustainable railcar conversion program.

(4) Interest expense for the year ended December 31, 2022 includes $1.5 million of loss on extinguishment of debt associated with the repayment of TRIP Railcar Co.'s outstanding term loan agreement. See Note 8 of the Consolidated Financial Statements for more information. 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.

Information related to lease portfolio sales is as follows:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021"],["","($ in millions)"],["Lease portfolio sales","$","750.7","","","$","460.7"],["Operating profit on lease portfolio sales (1)","$","126.2","","","$","54.1"],["Operating profit margin on lease portfolio sales","16.8","%","","11.7","%"]]
[[/GREPCENT_TABLE]]

(1) Excludes $1.3 million selling profit associated with sales-type leases for the year ended December 31, 2022.

Total revenues for the Railcar Leasing and Management Services Group increased by 4.8% for the year ended December 31, 2022 when compared to the year ended December 31, 2021. Leasing and management revenues for the year ended December 31, 2022 were favorably impacted by higher utilization, the effect of net lease fleet investment activities, and improved renewal rates, which resulted in higher revenues when compared to the year ended December 31, 2021.

Operating profit for the Leasing Group increased by 20.6% for the year ended December 31, 2022 compared to the year ended December 31, 2021. Operating profit for the year ended December 31, 2022 was favorably impacted by higher lease portfolio sale activity. Leasing and management operating profit decreased by 0.3% compared to the prior year period primarily due to a higher volume of, and higher costs associated with, fleet maintenance and compliance activities and increased depreciation, partially offset by higher utilization and improved renewal rates on a larger lease fleet.

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The Leasing Group generally uses its non-recourse warehouse loan facility or cash to provide initial funding for a portion of the purchase price of the railcars. After initial funding, the Leasing Group may obtain long-term financing for the railcars in the lease fleet through non-recourse asset-backed securities; long-term non-recourse operating leases pursuant to sale-leaseback transactions; long-term recourse debt such as equipment trust certificates; long-term non-recourse promissory notes; or third-party equity.

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

[[GREPCENT_TABLE]]
[["","December 31,"],["","2022","","2021"],["Number of railcars:"],["Wholly-owned (1)","84,750","","","82,630"],["Partially-owned","23,690","","","24,340"],["","108,440","","","106,970"],["Investor-owned","33,235","","","29,130"],["","141,675","","","136,100"],["Company-owned railcars (2):"],["Average age in years","12.3","","","11.1"],["Average remaining lease term in years","3.0","","","3.0"],["Fleet utilization","97.9","%","","95.7","%"]]
[[/GREPCENT_TABLE]]

(1) Includes 2,810 railcars and 2,255 railcars under leased-in arrangements as of December 31, 2022 and 2021, respectively.

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

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Rail Products Group

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Percent Change"],["","2022","","2021"],["","($ in millions)"],["Revenues:"],["Rail products (1)","$","1,819.0","","","$","1,067.9","","","","","70.3","%"],["Maintenance services","203.8","","","159.9","","","","","27.5","%"],["Other","51.9","","","37.0","","","","","40.3","%"],["Total revenues","$","2,074.7","","","$","1,264.8","","","","","64.0","%"],["Operating costs:"],["Cost of revenues","$","1,988.0","","","$","1,235.7","","","","","60.9","%"],["Selling, engineering, and administrative expenses","34.2","","","32.5","","","","","5.2","%"],["Gains on dispositions of property","(6.6)","","","(8.1)","","","","","*"],["Operating profit","$","59.1","","","$","4.7","","","","","*"],["Operating profit margin","2.8","%","","0.4","%"]]
[[/GREPCENT_TABLE]]

* Not meaningful

(1) Includes sustainable railcar conversion revenues of $163.7 million, representing 1,725 railcars, for the year ended December 31, 2022. Includes sustainable railcar conversion revenues of $65.4 million, representing 650 railcars, for the year ended December 31, 2021.

Revenues for the Rail Products Group increased for the year ended December 31, 2022 by 64.0% when compared to the prior year period. Revenues in our rail products business increased as a result of higher deliveries, favorable pricing, and price escalation provisions contained in our customer contracts. Revenues in our maintenance services business increased as a result of a higher volume of, and improved pricing on, HM-251 modifications.

Cost of revenues for the Rail Products Group increased for the year ended December 31, 2022 by 60.9% when compared to the prior year period. In our rail products business, the increase in cost of revenues was driven by higher deliveries, input cost inflation, operational inefficiencies associated with supply chain disruptions, labor inefficiencies associated with turnover and onboarding of new employees, and the introduction of additional products into the production line. In our maintenance services business, cost of revenues increased as a result of a higher volume of HM-251 modifications and continued to be negatively impacted by labor shortages leading to operational inefficiencies.

Operating profit for the year ended December 31, 2022 was favorably impacted by higher deliveries and improved pricing in our rail products business, and a higher volume of, and improved pricing on, HM-251 modifications in our maintenance services business, partially offset by disruptions in the transportation network used to deliver our products, deliveries of orders taken at the bottom of the cycle, and labor inefficiencies associated with turnover and onboarding of new employees. Additionally, during the years ended December 31, 2022 and 2021, operating profit was favorably impacted by insurance recoveries related to a tornado at the Company’s rail maintenance facility in Cartersville, Georgia in the first quarter of 2021.

Information related to our Rail Products Group backlog of new railcars is as follows. In addition to the amounts below, as of December 31, 2022, our backlog related to sustainable railcar conversions totaled $166.5 million, representing 1,965 railcars.

[[GREPCENT_TABLE]]
[["","December 31,","","","","Percent Change"],["","2022","","2021"],["","(in millions)"],["External customers (1)","$","3,444.1","","","$","1,018.1"],["Leasing Group","458.9","","","498.7"],["Total (2)","$","3,903.0","","","$","1,516.8","","","","","157.3","%"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","","","Percent Change"],["","2022","","2021"],["Beginning balance","13,980","","","8,985"],["Orders received (1)","31,905","","","13,870","","","","","130.0","%"],["Deliveries","(13,315)","","","(8,875)","","","","","50.0","%"],["Other adjustments (2)","(300)","","","\u2014"],["Ending balance (1)","32,270","","","13,980","","","","","130.8","%"],["Average selling price in ending backlog","$","120,948","","","$","108,498","","","","","11.5","%"]]
[[/GREPCENT_TABLE]]

(1) Ending backlog and orders received for the year ended December 31, 2022 include 15,000 railcars valued at approximately $1.8 billion associated with a new long-term railcar supply agreement with GATX.

(2) The adjustment for the year ended December 31, 2022 includes 300 railcars valued at $34.6 million that were removed from the new railcar backlog and shifted to the sustainable railcar conversion backlog.

Total backlog dollars for the year ended December 31, 2022 increased by 157.3% when compared to the prior year primarily from an increase in the volume and average selling price of orders received. Approximately 49% of our railcar backlog value is expected to be delivered during 2023, with the remainder to be delivered thereafter into 2028. The orders in our backlog from the Leasing Group are fully supported by lease commitments with external customers. The final amount of backlog attributable to the Leasing Group may vary by the time of delivery as customers may choose to change their procurement decision.

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021"],["","($ in millions)"],["Revenues:"],["New railcars","$","624.9","","","$","357.5"],["Sustainable railcar conversions","$","118.6","","","$","57.6"],["Other maintenance services","$","123.7","","","$","63.4"],["Deferred profit","$","65.2","","","$","17.2"],["Number of new railcars (in units)","4,735","","","3,310"],["Number of sustainable railcar conversions (in units)","1,155","","","520"]]
[[/GREPCENT_TABLE]]

Corporate and other

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Percent Change"],["","2022","","2021"],["","(in millions)"],["Operating costs:"],["Selling, engineering, and administrative expenses","$","97.2","","","$","96.5","","","","","0.7","%"],["Gains on dispositions of property","(16.4)","","","(12.4)","","","","","*"],["Operating loss","$","(80.8)","","","$","(84.1)","","","","","(3.9)","%"]]
[[/GREPCENT_TABLE]]

* Not meaningful

Selling, engineering, and administrative expenses for the year ended December 31, 2022 were substantially unchanged compared to the year ended December 31, 2021. Total operating costs in the years ended December 31, 2022 and 2021 were favorably impacted 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.

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Liquidity and Capital Resources

Overview

We expect to finance future operating requirements with cash, cash equivalents, and short-term marketable securities; cash flows from operations; and short-term debt, long-term debt, and equity. Debt instruments that we have utilized include the TILC warehouse loan 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, 2022, we have total committed liquidity of $397.9 million. Our total available liquidity includes: $79.6 million of unrestricted cash and cash equivalents; $208.2 million unused and available under our revolving credit facility; and $110.1 million unused and available under the TILC warehouse loan facility based on the amount of warehouse-eligible, unpledged equipment. We believe we have access to adequate capital resources to fund operating requirements and are an active participant in the capital markets.

Our material cash requirements from known contractual or other obligations primarily include principal and interest payments on 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 debt. Interest payable associated with our debt due in the next twelve months is approximately $215.2 million, with $482.7 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 $669.7 million, with $4.3 million due thereafter.

Liquidity Highlights

TRL-2022 – In April 2022, TRL-2022 issued $244.8 million of its Series 2022-1 Green Secured Railcar Equipment Notes. These notes bear interest at a fixed rate of 4.55% and have a stated final maturity date of 2052. Net proceeds received from the transaction were used to repay borrowings under TILC's warehouse loan facility and for general corporate purposes.

Dividend Payments – In December 2022, our Board of Directors declared an increase of approximately 13% to our quarterly dividend from $0.23 per share to $0.26 per share. We paid $76.9 million in dividends to our common stockholders during the year ended December 31, 2022.

New Share Repurchase Authorization – In December 2022, our Board of Directors authorized a new share repurchase program effective December 9, 2022 with no expiration. The new share repurchase program authorizes the Company to repurchase up to $250.0 million of its common stock. There were no shares repurchased under the new share repurchase program during the year ended December 31, 2022.

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Previous Share Repurchase Authorization – In September 2021, our Board of Directors authorized a share repurchase program effective September 9, 2021 through December 31, 2022. The share repurchase program authorized the Company to repurchase up to $250.0 million of its common stock. In December 2021, we entered into an accelerated share repurchase agreement (the "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 was completed in April 2022. Our Board of Directors terminated this share repurchase program effective December 8, 2022, and the remaining authorization of $21.3 million under this program expired unused. Share repurchase activity under this program was as follows:

[[GREPCENT_TABLE]]
[["","Shares Repurchased","","Remaining Authorization to Repurchase"],["Period","Number of shares","","Cost (in millions)","","Cost (in millions)"],["September 9, 2021 Authorization","","","","","$","250.0"],["September 9, 2021 through September 30, 2021","\u2014","","","$","\u2014","","","$","250.0"],["October 1, 2021 through December 31, 2021","5,155,491","","","151.9","","","$","98.1"],["January 1, 2022 through March 31, 2022","\u2014","","","\u2014","","","$","98.1"],["April 1, 2022 through June 30, 2022","1,760,462","","","50.3","","","$","47.8","","(1)"],["July 1, 2022 through September 30, 2022","610,000","","","14.1","","","$","33.7"],["October 1, 2022 through December 31, 2022","427,383","","","12.4","","","$","21.3"],["Total","7,953,336","","","$","228.7"]]
[[/GREPCENT_TABLE]]
(1) Share repurchases during the second quarter of 2022 included 760,602 shares at a cost of $25.0 million representing the final settlement of the ASR, which was funded in December 2021 but a portion of which remained outstanding as of December 31, 2021.

During the years ended December 31, 2022, 2021, and 2020, share repurchases totaled 2.8 million, 28.5 million, and 9.3 million shares, respectively, at a cost of approximately $76.8 million, $806.6 million, and $193.1 million, respectively. Share repurchases during the year ended December 31, 2021 included 16.9 million shares, at a cost of approximately $472.5 million, from privately negotiated transactions with ValueAct Capital Master Fund, L.P ("ValueAct"). The repurchases from ValueAct were approved by our Board of Directors separately from, and did not reduce the authorized amount remaining under, any of our share repurchase programs.

Cash Flows

The following table summarizes our cash flows from operating, investing, and financing activities for the years ended December 31, 2022 and 2021:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021"],["","(in millions)"],["Net cash flows from continuing operations:"],["Operating activities","$","9.2","","","$","615.6"],["Investing activities","(258.0)","","","(83.0)"],["Financing activities","265.4","","","(814.1)"],["Net cash flows from discontinued operations (1)","(24.7)","","","355.5"],["Net increase (decrease) in cash, cash equivalents, and restricted cash","$","(8.1)","","","$","74.0"]]
[[/GREPCENT_TABLE]]

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

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Operating Activities. Net cash provided by operating activities from continuing operations for the year ended December 31, 2022 was $9.2 million compared to $615.6 million net cash provided by operating activities from continuing operations for the year ended December 31, 2021. The changes in our operating assets and liabilities are as follows:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021"],["","(in millions)"],["(Increase) decrease in receivables, inventories, and other assets","$","(296.9)","","","$","(200.6)"],["(Increase) decrease in income tax receivable","(2.4)","","","440.4"],["Increase (decrease) in accounts payable, accrued liabilities, and other liabilities","38.3","","","96.6"],["Changes in operating assets and liabilities","$","(261.0)","","","$","336.4"]]
[[/GREPCENT_TABLE]]

The changes in our operating assets and liabilities resulted in a net use of $261.0 million for the year ended December 31, 2022, as compared to a net source of $336.4 million for the year ended December 31, 2021. Operating assets in the current year period were impacted by increased inventory balances in anticipation of higher volumes of railcar deliveries in future periods and the effects of continued supply chain challenges, and higher receivables balances associated with deliveries late in the year. The decrease in the income tax receivable in the prior year period was primarily driven by the collection of approximately $438.2 million of income tax refunds associated with the loss carryback provisions included in recent tax legislation.

Investing Activities. Net cash used in investing activities from continuing operations for the year ended December 31, 2022 was $258.0 million compared to $83.0 million of net cash used in investing activities from continuing operations for the year ended December 31, 2021. Significant investing activities are as follows:

•We had a net investment in the lease fleet of $178.1 million during the year ended December 31, 2022, compared to $92.9 million during the year ended December 31, 2021. Our investment in the lease fleet primarily includes new railcar additions, sustainable railcar conversions, railcar modifications, and other betterments, net of deferred profit, and secondary market purchases; and is net of proceeds from lease portfolio sales.

•During the year ended December 31, 2022, we acquired a company that owns and operates an end-to-end rail logistics software platform providing a real-time data universe to freight rail shippers and operators, as well as a company that manufactures multi-level vehicle securement and protection systems, gravity-outlet gates, and gate accessories for freight rail in North America. The total net cash outlay for these two acquisitions was $80.4 million. During the year ended December 31, 2021, we acquired a company that owns and operates proprietary railcar cleaning technology systems for a net cash outlay of $16.6 million. See Note 2 of the Consolidated Financial Statements for additional information on these acquisitions.

•We made equity investments totaling $15.5 million during the year ended December 31, 2022, primarily related to our investments in Signal Rail Holdings LLC. See Note 5 of the Consolidated Financial Statements.

•We received $10.0 million and $9.5 million in insurance proceeds during the years ended December 31, 2022 and 2021, respectively, for property damage sustained at a rail maintenance facility. See Note 15 of the Consolidated Financial Statements for more information.

Financing Activities. Net cash provided by financing activities during the year ended December 31, 2022 was $265.4 million compared to $814.1 million of net cash used in financing activities for the same period in 2021. Significant financing activities are as follows:

•During the year ended December 31, 2022, we had total borrowings of $2,000.6 million and total repayments of $1,578.5 million, for net proceeds of $422.1 million, primarily from debt proceeds to support our investment in the lease fleet and for general corporate purposes. 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.

•We paid $76.9 million and $88.5 million in dividends to our common stockholders during the years ended December 31, 2022 and 2021, respectively.

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•We repurchased common stock totaling $51.8 million and $833.4 million during the years ended December 31, 2022 and 2021, respectively. The current year period excludes $25.0 million representing the final settlement of the ASR, which was funded in December 2021 but a portion of which remained outstanding as of December 31, 2021. The prior 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. Certain shares repurchased during December 2020, totaling $1.8 million, were cash settled in January 2021 in accordance with normal settlement practices.

Current Debt Obligations

The revolving credit facility contains several financial covenants that require the maintenance of ratios related to minimum interest coverage for the leasing and manufacturing operations and maximum leverage. In December 2022, we amended our revolving credit facility to increase the maximum leverage ratio to provide additional flexibility. A summary of our financial covenants is detailed below:

[[GREPCENT_TABLE]]
[["Ratio","","Covenant","","Actual at December 31, 2022"],["Maximum leverage (1)","","No greater than 4.00 to 1.00","","2.77"],["Minimum interest coverage (2)","","No less than 2.25 to 1.00","","7.99"]]
[[/GREPCENT_TABLE]]

(1) Defined as the ratio of consolidated total indebtedness to consolidated earnings before interest, taxes, depreciation and amortization ("EBITDA") for the Borrower and its restricted subsidiaries for the period of four consecutive quarters ending with December 31, 2022.

(2) Defined as the ratio of the difference of (A) consolidated EBITDA less (B) consolidated capital expenditures – manufacturing and other to consolidated interest expense to the extent paid in cash, in each case for the Borrower and its restricted subsidiaries for the period of four consecutive quarters ending with December 31, 2022.

As of December 31, 2022, we were in compliance with all such financial covenants. Please refer to Note 8 of the Consolidated Financial Statements for a description of our current debt obligations.

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Supplemental Guarantor Financial Information

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

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

As of December 31, 2022, assets held by the Non-Guarantor Subsidiaries included $209.8 million of restricted cash that was not available for distribution to Trinity Industries, Inc. (“Parent”), $7,153.3 million of equipment securing certain non-recourse debt, and $571.7 million of assets located in foreign locations.

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

[[GREPCENT_TABLE]]
[["Summarized Statement of Operations:"],["","Year Ended December 31, 2022"],["Revenues (1)","$","1,245.2"],["Cost of revenues (2)","$","1,153.4"],["Income (loss) from continuing operations","$","(71.6)"],["Net income (loss)(3)","$","(96.5)"],["Summarized Balance Sheets:"],["","December 31, 2022"],["Assets:"],["Receivables, net of allowance (4)","$","317.3"],["Inventories","$","577.0"],["Property, plant, and equipment, net","$","471.8"],["Goodwill and other assets","$","399.7"],["Liabilities:"],["Accounts payable and accrued liabilities (5)","$","371.4"],["Debt","$","624.1"],["Deferred income taxes","$","949.8"],["Other liabilities","$","156.6"],["Noncontrolling interest","$","257.2"]]
[[/GREPCENT_TABLE]]

(1) There were no net sales from the obligor group to Non-Guarantor Subsidiaries during the year ended December 31, 2022.

(2) Cost of revenues includes $289.1 million of purchases from Non-Guarantor Subsidiaries during the year ended December 31, 2022.

(3) Net income (loss) for the year ended December 31, 2022 includes $24.9 million of net loss related to discontinued operations.

(4) Receivables, net of allowance includes $87.9 million of receivables from Non-Guarantor Subsidiaries as of December 31, 2022.

(5) Accounts payable includes $57.8 million of payables to Non-Guarantor Subsidiaries as of December 31, 2022.

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Capital Expenditures

Capital expenditures for 2022 were $966.8 million with $928.8 million utilized for net lease fleet additions, which includes new railcar additions, sustainable railcar conversions, railcar modifications, and other betterments, net of deferred profit, and secondary market purchases. Excluding proceeds from lease portfolio sales of $750.7 million, our net investment in the lease fleet was $178.1 million.

For the full year 2023, we anticipate a net investment in our lease fleet of between $250 million and $350 million. Capital expenditures related to manufacturing and other activities, including expansion of our fleet maintenance capabilities and systems upgrades, are projected to range between $40 million and $50 million for the full year 2023.

Equity Investment

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

Off Balance Sheet Arrangements

As of December 31, 2022, we had letters of credit issued under our revolving credit facility in an aggregate amount of $16.8 million, the majority of which are expected to expire in November 2023. Our letters of credit obligations support performance bonds related to certain railcar orders. See Note 8 of the Consolidated Financial Statements for further information about our corporate revolving credit facility.

Employee Retirement Plans

As disclosed in Note 10 of the Consolidated Financial Statements, as of December 31, 2022, the benefit obligation associated with our nonqualified retirement plan totaled $11.2 million. We sponsor a 401(k) plan that covers substantially all domestic employees and includes a Company matching contribution of up to 6% each of eligible compensation, subject to a two-year cliff vesting period, as well as the Trinity Industries, Inc. Deferred Compensation Plan. Employer contributions to the 401(k) plan and the Trinity Industries, Inc. Deferred Compensation Plan for the year ending December 31, 2023 are expected to be $8.7 million, compared to $8.6 million contributed during 2022.

Stock-Based Compensation

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

Derivative Instruments

We use derivative instruments to mitigate interest rate risk, including risks associated with the impact of changes in interest rates 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 foreign currency exchange rates. Derivative instruments are accounted for in accordance with applicable accounting standards. See Note 3 of the Consolidated Financial Statements for discussion of how we utilize our derivative instruments.

LIBOR Transition

The United Kingdom's Financial Conduct Authority, which regulates the London Interbank Offered Rate ("LIBOR"), has announced that it will no longer persuade or require banks to submit rates for the calculation of LIBOR after June 2023. In the U.S., the Alternative Reference Rates Committee has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative to LIBOR. During the third quarter of 2022, we amended our corporate revolving credit facility and warehouse loan facility to transition the facility benchmark rate from LIBOR to SOFR plus a benchmark adjustment. In February 2023, we amended the promissory notes and derivative instruments for Trinity Rail Leasing 2017 LLC to transition the facility benchmark rate from LIBOR to SOFR plus a benchmark adjustment. Following the completion of these amendments, we have no remaining LIBOR-based contracts.

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Critical Accounting Policies and Estimates

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

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

[[GREPCENT_TABLE]]
[["Deferred Income Taxes"],["Description of Estimate","We account for income taxes under the asset and liability method prescribed by ASC 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases and other tax attributes using currently enacted laws and tax rates for the appropriate tax jurisdictions. The effect of a change in enacted laws or tax rates on deferred tax assets and liabilities is recognized in the provision for income taxes in the period that includes the enactment date. Our net deferred tax liabilities totaled $1,133.8 million as of December 31, 2022, which includes valuation allowances of $29.5 million. 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 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. This assessment considers, among other matters: the nature, frequency, and severity of recent losses; a forecast of future profitability; the duration of statutory carryback and carryforward periods; our experience with tax attributes expiring unused; and tax planning alternatives."],["Potential Impact if Results Differ","Changes in recognized deferred tax assets and liabilities may occur in certain circumstances, including statutory income tax rate changes, statutory tax law changes, or changes in our structure or tax status. 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."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["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. As of December 31, 2022, our net property, plant, and equipment totaled $6.9 billion, and the net book value of our intangible assets totaled $79.0 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."],["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. Based on our evaluations, no impairment charges were determined to be necessary on long-lived assets as of December 31, 2022."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["Goodwill"],["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. 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 \u201creporting unit\u201d level by applying a fair value-based test for each reporting unit with recorded goodwill. Goodwill totaled $195.9 million as of December 31, 2022."],["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 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, 2022, 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."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Variable Interest Entities"],["Description of Estimate","We continuously evaluate our investments and other contractual arrangements with third party entities to determine if our variable interests are considered a variable interest entity (\"VIE\"). Consolidation is required for VIEs in which we are the primary beneficiary. We have determined that we are the primary beneficiary for TRIP Holdings and RIV 2013. At December 31, 2022, the carrying value of our investment in TRIP Holdings and RIV 2013 totaled $136.1 million. 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, 2022, the carrying value of these investments totaled $24.8 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 subjective and dependent on the specific facts and circumstances of each investment. Factors considered in these assessments include, but are not limited to, the entity's structure and equity ownership, the contractual terms, the key decision making powers, and the obligation to absorb losses or the right to receive benefits of the VIE."],["Potential Impact if Results Differ","Changes in the design or nature of the activities of a VIE, or our involvement with a VIE, could result in a change in conclusion of our status as a primary beneficiary. Such change could result in the consolidation or deconsolidation of the subsidiary, thus impacting financial results."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["Contingencies and Litigation"],["Description of Estimate","We are involved in claims and lawsuits incidental to our business arising from various matters, including product warranty, personal injury, environmental issues, workplace laws, and various governmental regulations. We evaluate our exposure to such matters periodically and establish accruals for these contingencies when a range of loss can be reasonably estimated. As of December 31, 2022, the range of reasonably possible losses for such matters is $9.4 million to $20.9 million. For further information regarding our contingencies and litigation matters, see Note 15 of the Consolidated Financial Statements."],["Judgment and/or Uncertainty","Assessments of contingencies are based on information obtained from internal and external legal counsel, including recent legal decisions and loss experience in similar situations. Based on information currently available with respect to such claims and lawsuits, including information as to which we are aware but for which we have not been served with legal process, it is management's opinion that the ultimate outcome of all such claims and litigation, including settlements, in aggregate will not have a material adverse effect on our results of operations or financial condition."],["Potential Impact if Results Differ","Due to the uncertain nature of these matters, there can be no assurance that we will not become involved in future litigation or other proceedings or, if we were found to be responsible or liable in any litigation or proceeding, that such costs would not be material to us. Additionally, changes in claims and lawsuits filed, settled or dismissed and differences between actual and estimated settlement costs or our rights in indemnity and recourse to third parties could impact operating results."]]
[[/GREPCENT_TABLE]]

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Non-GAAP Financial Measures

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

Pre-Tax Return on Equity

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

[[GREPCENT_TABLE]]
[["","December 31, 2022","","December 31, 2021","","December 31, 2020"],["","($ in millions)"],["Numerator:"],["Income (loss) from continuing operations","$","98.9","","","$","39.3","","","$","(250.5)"],["Provision (benefit) for income taxes","27.6","","","15.9","","","(274.1)"],["Income (loss) from continuing operations before income taxes","126.5","","","55.2","","","(524.6)"],["Net (income) loss attributable to noncontrolling interest","(12.8)","","","0.2","","","78.9"],["Adjustments:"],["Gains on dispositions of property \u2013 other (1)","(7.5)","","","(7.8)","","","\u2014"],["Impairment of long-lived assets \u2013 controlling interest (2)","\u2014","","","\u2014","","","315.1"],["Restructuring activities, net","1.0","","","(3.7)","","","10.9"],["Loss on extinguishment of debt \u2013 controlling interest (3)","\u2014","","","4.6","","","5.0"],["Interest expense, net (4)","(1.4)","","","\u2014","","","\u2014"],["Pension plan settlement","\u2014","","","(0.6)","","","151.5"],["Adjusted Profit Before Tax","$","105.8","","","$","47.9","","","$","36.8"],["Denominator:"],["Total stockholders' equity","$","1,269.6","","","$","1,296.8","","","$","2,016.0"],["Noncontrolling interest","(257.2)","","","(267.0)","","","(277.2)"],["Accumulated other comprehensive (income) loss","(19.7)","","","17.0","","","30.9"],["Adjusted Stockholders' Equity","$","992.7","","","$","1,046.8","","","$","1,769.7"],["Average total stockholders' equity","$","1,283.2","","","$","1,656.4","","","$","2,197.5"],["Return on Equity (5)","7.7","%","","2.4","%","","(11.4)","%"],["Average Adjusted Stockholders' Equity","$","1,019.8","","","$","1,408.3","","","$","1,976.5"],["Pre-Tax Return on Equity (6)","10.4","%","","3.4","%","","1.9","%"]]
[[/GREPCENT_TABLE]]

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

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

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

(4) Represents interest income accretion related to a seller-financing agreement associated with the sale of certain non-operating assets.

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

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

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Adjusted Free Cash Flow

Adjusted Free Cash Flow After Investments and Dividends ("Adjusted 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 Adjusted Free Cash Flow.

We believe Adjusted 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. Adjusted Free Cash Flow is reconciled to net cash provided by (used in) operating activities from continuing operations, the most directly comparable GAAP financial measure, in the following tables.

For the years ended December 31, 2022 and 2021, Adjusted Free Cash Flow is defined as net cash provided by (used in) 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.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021"],["","(in millions)"],["Net cash provided by operating activities \u2013 continuing operations (1)","$","9.2","","","$","615.6"],["Proceeds from lease portfolio sales","750.7","","","454.3"],["Capital expenditures \u2013 manufacturing and other","(38.0)","","","(23.6)"],["Dividends paid to common stockholders","(76.9)","","","(88.5)"],["Equity CapEx for leased railcars","(506.7)","","","(418.9)"],["Adjusted Free Cash Flow After Investments and Dividends","$","138.3","","","$","538.9"],["Capital expenditures \u2013 leasing","$","928.8","","","$","547.2"],["Less:"],["Payments to retire debt","(1,578.5)","","","(2,315.8)"],["Proceeds from issuance of debt","2,000.6","","","2,444.1"],["Net proceeds from (repayments of) debt","422.1","","","128.3"],["Equity CapEx for leased railcars","$","506.7","","","$","418.9"]]
[[/GREPCENT_TABLE]]
(1) Amounts for the year ended December 31, 2021 include the collection of approximately $438.2 million of income tax refunds associated with the loss carryback provisions included in the CARES Act.

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For the year ended December 31, 2020, Adjusted Free Cash Flow is defined as net cash provided by (used in) 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.

[[GREPCENT_TABLE]]
[["","Year Ended December 31, 2020"],["","(in millions)"],["Net cash provided by operating activities \u2013 continuing operations","$","622.0"],["Proceeds from railcar lease fleet sales owned more than one year at the time of sale","138.7"],["Capital expenditures \u2013 manufacturing and other","(95.9)"],["Dividends paid to common stockholders","(91.7)"],["Equity CapEx for leased railcars","(483.7)"],["Adjusted Free Cash Flow After Investments and Dividends","$","89.4"],["Capital expenditures \u2013 leasing, net of sold lease fleet railcars owned one year or less","$","602.2"],["Less:"],["Payments to retire debt","(1,442.9)"],["Proceeds from issuance of debt","1,561.4"],["Net proceeds from (repayments of) debt","118.5"],["Equity CapEx for leased railcars","$","483.7"]]
[[/GREPCENT_TABLE]]

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Recent Accounting Pronouncements

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