THE GREENBRIER COMPANIES, INC. [[Image Removed]] Executive Summary The financial results for 2021 were representative of the challenges of the current market conditions. The decrease in operating profits compared to the prior year was primarily attributable to the cyclical decrease in economic activity in the freight rail equipment market which began prior to the emergence of COVID-19 (Cyclical Downturn). The Cyclical Downturn intensified due to the COVID-19 Events (as defined below).
Some of the challenges that have developed as a result of the Cyclical Downturn and COVID-19 Events include:
• Temporary decline in demand.
• An increase in the price and the shortage of certain materials and
components.
• Shipping and transportation delays.
• Shortage of skilled labor.
We have adhered to disciplined management through this crucial time. Our core
strategy since
1) Maintain a strong liquidity base and balance sheet.
2) Continue efficient operations throughout the COVID-19 and economic crises
by safely operating our facilities while generating cash.
3) Prepare for emerging economic recovery and forward momentum in our
markets. We are currently operating in this phase. We believe we are
well-positioned to navigate the immediate challenges of increasingproduction rates safely amidst the emerging COVID variants, while ensuring
labor and supply chain continuity.
We strengthened our financial position through strategic spending reductions
which included reducing our selling and administrative expense by $12.9 million
during 2021 compared to the prior year.
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Despite the challenging operating environment, we achieved the following accomplishments in 2021:
• We progressively increased our earnings during the year. The growth in
earnings was due to higher revenue associated with increased deliveries
(see above) as we navigate the recovery phase and as we executed on the
tax benefits allowable under the CARES Act.
• Obtained new railcar orders of 17,200 units valued at approximately
billion.
• Commenced operations of
grow our owned portfolio of leased railcars primarily built by Greenbrier
while generating an incremental annuity stream of tax-advantaged cash
flows and reducing our exposure to the new railcar order and delivery
cycle. Further to our leasing strategy, we closed a
non-recourse warehouse credit facility and sold or contributed
million of rail assets to
portfolios to $609.8 million .
• Opportunistically refinanced debt and credit facilities at favorable
interest rates and extended maturities to strengthen our liquidity
position and balance sheet. This included the following:
o We refinanced certain debt by issuing $374 million of new
convertible notes due 2028 and retiring a total of $277 million of
convertible notes due 2024. In connection with the refinancing, we
repurchased $20 million of our common stock outside of our share
repurchase program.
o We refinanced and extended our
facility and $292 million term loan to 2026 while our Leasing &
Services' non-recourse $200 million term loan was refinanced and
extended to 2027.
• Increased our backlog compared to the prior year by approximately 2,000
units and $390 million .
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Manufacturing Backlog
As seen above, our backlog remains strong at August 31, 2021 with an increase in
backlog value, units and average selling price compared to the prior year. In
addition, our backlog includes railcar deliveries into 2025 and marine
deliveries into 2023. Our railcar backlog was 26,600 units with an estimated
value of $2.81 billion as of August 31, 2021 . Backlog units for lease may be
syndicated to third parties or held in our lease fleet depending on a variety of
factors. Multi-year supply agreements are a part of rail industry practice. A
portion of the orders included in backlog reflects an assumed product mix. Under
terms of the orders, the exact mix and pricing will be determined in the future,
which may impact backlog. Approximately 7% of backlog units and 6% of estimated
backlog value as of August 31, 2021 was associated with our Brazilian
manufacturing operations which is accounted for under the equity method. Marine
backlog as of August 31, 2021 was $70 million .
Our backlog of railcar units and marine vessels is not necessarily indicative of
future results of operations. Certain orders in backlog are subject to customary
documentation and completion of terms. Customers may attempt to cancel or modify
orders in backlog. Historically, little variation has been experienced between
the quantity ordered and the quantity actually delivered, though the timing of
deliveries may be modified from time to time.
COVID-19 and Global Economic Activity
We continue to actively monitor and manage the impacts on our business due to
the COVID-19 coronavirus pandemic, the recovery from the significant decline in
global economic activity and governmental reactions to these historic events
(COVID-19 Events).
The reopening of the economy has presented a mismatch of supply and demand,
interruptions of supply lines, and inefficient or overloaded logistics
platforms, among other factors that are causing the markets for the inputs to
our business to fail to operate effectively or efficiently (including sectoral
price inflation). Competition for, and costs related to recruiting and
retaining, skilled labor are increasing. As described in Part I, Item 1A "Risk
Factors" of this Annual Report on Form 10-K, COVID-19 Events may have a material
negative impact on our business, liquidity, results of operations, and stock
price. Beyond these general observations, we are unable to predict when, how, or
with what magnitude COVID-19 Events will negatively impact our business.
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Financial Overview
Revenue, Cost of revenue, Margin and Earnings from operations (operating profit)
presented below, include amounts from external parties and exclude intersegment
activity that is eliminated in consolidation.
Years ended August 31,
(In thousands, except per share amounts) 2021 2020
Revenue:
Manufacturing $ 1,329,987 $ 2,349,971
Wheels, Repair & Parts 298,330 324,670
Leasing & Services 119,664 117,548
1,747,981 2,792,189
Cost of revenue:
Manufacturing 1,189,246 2,065,169
Wheels, Repair & Parts 280,391 302,189
Leasing & Services 46,737 71,700
1,516,374 2,439,058
Margin:
Manufacturing 140,741 284,802
Wheels, Repair & Parts 17,939 22,481
Leasing & Services 72,927 45,848
231,607 353,131
Selling and administrative 191,813 204,706
Net gain on disposition of equipment (1,176 ) (20,004 )
Earnings from operations 40,970 168,429
Interest and foreign exchange 43,263
43,619
Net loss on extinguishment of debt 6,287
-
Earnings (loss) before income tax and earnings from
unconsolidated affiliates (8,580 )
124,810
Income tax benefit (expense) 40,223 (40,184 ) Earnings before earnings from unconsolidated affiliates 31,643
84,626
Earnings from unconsolidated affiliates 3,491
2,960
Net earnings 35,134
87,586
Net earnings attributable to noncontrolling interest (2,657 ) (38,619 ) Net earnings attributable to Greenbrier$ 32,477 $
48,967
Diluted earnings per common share$ 0.96 $ 1.46 Performance for our segments is evaluated based on operating profit. Corporate includes selling and administrative costs not directly related to goods and services and certain costs that are intertwined among segments due to our integrated business model. Management does not allocate Interest and foreign exchange or Income tax benefit (expense) for either external or internal reporting purposes. Years ended August 31, (In thousands) 2021 2020 Operating profit (loss): Manufacturing$ 67,124 $ 197,388 Wheels, Repair & Parts 6,452 9,032 Leasing & Services 50,021 40,927 Corporate (82,627 ) (78,918 )$ 40,970 $ 168,429 33
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Consolidated Results
Years ended August 31, 2021 vs 2020
Increase %
(In thousands) 2021 2020 (Decrease) Change
Revenue $ 1,747,981 $ 2,792,189 $ (1,044,208 ) (37.4 )%
Cost of revenue $ 1,516,374 $ 2,439,058 $ (922,684 ) (37.8 )%
Margin (%) 13.2 % 12.6 % 0.6 % *
Net earnings attributable to
Greenbrier $ 32,477 $ 48,967 $ (16,490 ) (33.7 )%
* Not meaningful
Through our integrated business model, we provide a broad range of custom products and services in each of our segments, which have various average selling prices and margins. The demand for and mix of products and services delivered changes from period to period, which causes fluctuations in our results of operations.
The 37.4% decrease in revenue for the year endedAugust 31, 2021 as compared to the prior year was primarily due to a 43.4% decrease in Manufacturing revenue. The decrease in Manufacturing revenue was primarily attributed to a 43.2% decrease in railcar deliveries.
The 37.8% decrease in cost of revenue for the year ended
Margin as a percentage of revenue was 13.2% and 12.6% for years endedAugust 31, 2021 and 2020, respectively. The overall margin as a percentage of revenue was positively impacted by an increase in Leasing & Services margin by 21.9% primarily attributed to the benefit associated with lease modification and transfer fees on previously syndicated railcars during the year endedAugust 31, 2021 . This was partially offset by a decrease in Manufacturing margin by 1.5% primarily attributed to operating at lower volumes and increased costs associated with operating our manufacturing facilities in the COVID-19 pandemic during the year endedAugust 31, 2021 . Net earnings attributable to Greenbrier is impacted by our operating activities and noncontrolling interest primarily associated with our 50% joint ventures at certain of our Mexican railcar manufacturing facilities and our 75% interest in Greenbrier-Astra Rail , each of which we consolidate for financial reporting purposes. The$16.5 million decrease in Net earnings attributable to Greenbrier for the year endedAugust 31, 2021 as compared to the prior year was primarily attributable to a decrease in margin due to a reduction in railcar deliveries. This was partially offset by the following:
• A tax benefit for the year ended
accelerated depreciation and the impact of the CARES Act which allows us
to carry back tax losses to years when tax rates were higher, resulting in
a tax benefit.
• Lower earnings attributable to noncontrolling interest for the year ended
deducted from Net earnings and primarily represents our joint venture
partner's share in the results of operations of our Mexican railcar
manufacturing joint ventures, adjusted for intercompany sales, and our
European partner's share of the results of our European operations.
• A decrease in Selling and administrative expense primarily due to
strategic spending reductions.
For discussion related to the results of operations and changes in financial
condition for 2020 compared to 2019 refer to Part II, Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations in our
2020 Form 10-K, which was filed with the United States Securities and Exchange
Commission on October 28, 2020 .
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Manufacturing Segment
Years ended August 31, 2021 vs 2020
(In thousands, except railcar Increase %
deliveries) 2021 2020 (Decrease) Change
Revenue $ 1,329,987 $ 2,349,971 $ (1,019,984 ) (43.4 )%
Cost of revenue $ 1,189,246 $ 2,065,169 $ (875,923 ) (42.4 )%
Margin (%) 10.6 % 12.1 % (1.5 )% *
Operating profit ($) $ 67,124 $ 197,388 $ (130,264 ) (66.0 )%
Operating profit (%) 5.0 % 8.4 % (3.4 )% *
Deliveries 11,300 19,900 (8,600 ) (43.2 )%
* Not meaningful
Our Manufacturing segment primarily generates revenue from manufacturing a wide
range of freight railcars through our facilities in North America and Europe . We
also manufacture a broad range of ocean-going and river barges for transporting
merchandise between ports within the United States .
Manufacturing revenue decreased $1.0 billion or 43.4% for the year ended August
31, 2021 compared to the prior year. The decrease in revenue was primarily
attributed to a 43.2% decrease in railcar deliveries. This was partially offset
by the additional revenue associated with an increase in steel and other input
costs during the year ended August 31, 2021 , as many of our customer contracts
include price escalation provisions when our manufacturing costs increase.
Manufacturing cost of revenue decreased $875.9 million or 42.4% for the year
ended August 31, 2021 compared to the prior year. The decrease in cost of
revenue was primarily attributed to a 43.2% decrease in the volume of railcar
deliveries. This was partially offset by an increase in steel and other input
costs during the year ended August 31, 2021 .
Manufacturing margin as a percentage of revenue decreased 1.5% for the year
ended August 31, 2021 compared to the prior year. The decrease in margin
percentage was primarily attributed to operating at lower volumes and increased
costs associated with operating our manufacturing facilities in the COVID-19
pandemic during the year ended August 31, 2021 .
Manufacturing operating profit decreased $130.3 million or 66.0% for the year
ended August 31, 2021 compared to the prior year. The decrease in operating
profit was primarily attributed to a decrease in railcar deliveries and
increased costs associated with operating our manufacturing facilities during
the COVID-19 pandemic during the year ended August 31, 2021 . These were
partially offset by a decrease in selling and administrative expense as part of
our strategic cost control initiatives during the year ended August 31, 2021 .
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Years ended August 31, 2021 vs 2020
Increase %
(In thousands) 2021 2020 (Decrease) Change
Revenue $ 298,330 $ 324,670 $ (26,340 ) (8.1 )%
Cost of revenue $ 280,391 $ 302,189 $ (21,798 ) (7.2 )%
Margin (%) 6.0 % 6.9 % (0.9 )% *
Operating profit ($) $ 6,452 $ 9,032 $ (2,580 ) (28.6 )%
Operating profit (%) 2.2 % 2.8 % (0.6 )% *
* Not meaningful
Our Wheels, Repair & Parts segment primarily generates revenue from railcar component manufacturing and servicing and from providing railcar maintenance services.
Wheels, Repair & Parts revenue decreased$26.3 million or 8.1% for the year endedAugust 31, 2021 compared to the prior year. The decrease was primarily attributed to lower volumes due to lower demand. This was partially offset by higher revenues associated with an increase in scrap metal pricing as we scrap wheels and other components.
Wheels, Repair & Parts cost of revenue decreased
Wheels, Repair & Parts margin as a percentage of revenue decreased 0.9% for the year endedAugust 31, 2021 compared to the prior year. The decrease in margin percentage was primarily attributed to operating at lower volumes and increased costs associated with operating our facilities during the COVID-19 pandemic during the year endedAugust 31, 2021 . This was partially offset by an increase in scrap metal pricing. Wheels, Repair & Parts operating profit decreased$2.6 million or 28.6% for the year endedAugust 31, 2021 compared to the prior year. The decrease in operating profit was primarily attributed to a reduction in volumes and increased costs associated with operating our facilities during the COVID-19 pandemic. These were partially offset by an increase in scrap metal pricing and a decrease in selling and administrative expense as part of our strategic cost control initiatives during the year endedAugust 31, 2021 . 36 -------------------------------------------------------------------------------- Leasing & Services Segment Years ended August 31, 2021 vs 2020 Increase % (In thousands) 2021 2020 (Decrease) Change Revenue$ 119,664 $ 117,548 $ 2,116 1.8 % Cost of revenue$ 46,737 $ 71,700 $ (24,963 ) (34.8 )% Margin (%) 60.9 % 39.0 % 21.9 % * Operating profit ($)$ 50,021 $ 40,927 $ 9,094 22.2 % Operating profit (%) 41.8 % 34.8 % 7.0 % * * Not meaningful Our Leasing & Services segment generates revenue from leasing railcars from our lease fleet, providing various management services, interim rent on leased railcars for syndication, and the sale of railcars purchased from third parties with the intent to resell. The gross proceeds from the sale of these railcars are recorded in revenue and the costs of purchasing these railcars are recorded in cost of revenue. InFebruary 2021 we announced a refined leasing strategy to grow our owned portfolio of leased railcars. This creates an incremental annuity stream of tax-advantaged cash flows while reducing our exposure to the new railcar order and delivery cycle. We are currently executing the strategy throughGBX Leasing , a joint venture which we own approximately 95%.GBX Leasing is consolidated for financial reporting purposes within the Leasing & Services segment.GBX Leasing is financed with non-recourse debt and levered approximately 3:1 debt to equity. We intend thatGBX Leasing will aggregate leased railcars to obtain term or capital market financing.Greenbrier Management Services provides management services to theGBX Leasing fleet. Leasing & Services revenue increased$2.1 million or 1.8% for the year endedAugust 31, 2021 compared to the prior year. The increase was primarily attributed to revenue in 2021 associated with lease modification and transfer fees on previously syndicated railcars. This was partially offset by a decrease in the sale of railcars which we had purchased from third parties with the intent to resell and lower interim rent on leased railcars for syndication during 2021 compared to the prior year. Leasing & Services cost of revenue decreased$25.0 million or 34.8% for the year endedAugust 31, 2021 compared to the prior year. The decrease was primarily due to a decrease in the volume of railcars sold that we purchased from third parties, lower transportation costs and a decrease in costs from a reduction in management services volume. Leasing & Services margin as a percentage of revenue increased 21.9% for the year endedAugust 31, 2021 compared to the prior year. The increase in margin was primarily attributed to the income associated with lease modification and transfer fees on previously syndicated railcars during the year endedAugust 31, 2021 . Margin as a percentage of revenue for the year endedAugust 31, 2020 was negatively impacted by higher sales of railcars that we purchased from third parties which have lower margin percentages. Leasing & Services operating profit increased$9.1 million or 22.2% for the year endedAugust 31, 2021 compared to the prior year. The increase was primarily attributed to the income associated with lease modification and transfer fees during the year endedAugust 31, 2021 . This was partially offset by a reduction in net gain on disposition of equipment. 37 --------------------------------------------------------------------------------
Selling and Administrative
Years ended August 31, 2021 vs 2020
Increase %
(In thousands) 2021 2020 (Decrease) Change
Selling and Administrative $ 191,813 $ 204,706 $ (12,893 ) (6.3 )%
Selling and administrative expense was $191.8 million or 11.0% of revenue for
the year ended August 31, 2021 and $204.7 million or 7.3% of revenue for the
year ended August 31, 2020 .
The $12.9 million decrease for the year ended August 31, 2021 compared to the
prior year was primarily attributed to a decrease in controllable spending
categories as part of our strategic cost control and liquidity initiatives and a
decrease in the administrative fees paid to our joint venture partner in Mexico
due to lower levels of activity. This was partially offset by a net increase in
employee related costs due to higher incentive compensation expense in 2021
associated with current year financial performance.
Net gain on disposition of equipment was$1.2 million and$20.0 million for the years endedAugust 31, 2021 and 2020, respectively. Net gain on disposition of equipment primarily includes the sale of assets from our lease fleet (Equipment on operating leases, net) that are periodically sold in the normal course of business in order to accommodate customer demand and to manage risk and liquidity and disposition of property, plant and equipment.
Interest and Foreign Exchange
Interest and foreign exchange expense was composed of the following:
Years ended August 31, Increase (decrease)
(In thousands) 2021 2020 2021 vs 2020
Interest and foreign exchange:
Interest and other expense $ 44,655 $ 42,386 $ 2,269
Foreign exchange (gain) loss (1,392 ) 1,233 (2,625 )
$ 43,263 $ 43,619 $ (356 )
The $0.4 million decrease in interest and foreign exchange expense during the
year ended August 31, 2021 compared to the prior year was primarily attributed
to the change in the Brazilian Real's and Mexican Peso's foreign exchange rate
relative to the U.S. Dollar. This was partially offset by an increase in
interest expense during the year ended August 31, 2021 from increased
borrowings.
Net Loss on Extinguishment of Debt
Net loss on extinguishment of debt was$6.3 million for the year endedAugust 31, 2021 , which primarily relates to the retirement of$227.3 million of our 2.875% convertible notes due 2024 and$50.0 million of our 2.25% convertible notes due 2024. 38
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Income Tax
In 2021 our income tax benefit was$40.2 million on$8.6 million of pre-tax loss. The tax benefit was primarily attributable to accelerated depreciation and impact of the CARES Act which allows us to carry back tax losses to years when tax rates were higher, resulting in a tax benefit. The tax benefit is primarily derived from theU.S. Federal tax rate differential between 2016 - 2017 tax rates of 35% and the current rate of 21%. In 2020 our income tax expense was$40.2 million on$124.8 million of pre-tax earnings for an effective tax rate of 32.2%. The tax rate was primarily derived from the geographic mix of earnings as well as a net unfavorable discrete item related to changes in foreign currency exchange rates for ourU.S. Dollar denominated foreign operations. The effective tax rate can fluctuate year-to-year due to discrete items and changes in the mix of foreign and domestic pre-tax earnings. It can also fluctuate with changes in the proportion of pre-tax earnings attributable to our Mexican railcar manufacturing joint venture. The joint venture is treated as a partnership for tax purposes and, as a result, the partnership's entire pre-tax earnings are included in Earnings (loss) before income taxes and earnings (loss) from unconsolidated affiliates, whereas only our 50% share of the tax is included in Income tax benefit (expense).
Earnings From Unconsolidated Affiliates
Through unconsolidated affiliates we produce rail and industrial components and
have an ownership stake in a railcar manufacturer in
Earnings from unconsolidated affiliates was$3.5 million for the year endedAugust 31, 2021 and primarily related to our rail component manufacturing operations and our railcar manufacturer inBrazil . Earnings from unconsolidated affiliates was$3.0 million for the year endedAugust 31, 2020 and primarily related to our rail component manufacturing operations.
Net Earnings Attributable to Noncontrolling Interest
Net earnings attributable to noncontrolling interest was$2.7 million and$38.6 million for the years endedAugust 31, 2021 and 2020, respectively, which primarily represents our joint venture partner's share in the results of operations of our Mexican railcar manufacturing joint ventures, adjusted for intercompany sales, and our European partner's share of the results of our European operations. 39
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Liquidity and Capital Resources
Years Ended August 31,
(In thousands) 2021 2020
Net cash provided by (used in) operating activities
$ 272,261 Net cash provided by (used in) investing activities (117,760 )
27,483
Net cash provided by (used in) financing activities (22,742 )
216,455
Effect of exchange rate changes 10,336 (12,599 ) Net increase (decrease) in cash and cash equivalents and restricted cash$ (170,691 ) $ 503,600
We have been financed through cash generated from operations and borrowings. At
Cash Flows From Operating Activities
The change in cash provided by (used in) operating activities for 2021 compared to 2020 was primarily due to a net change in working capital as we increase production rates and from higher steel and other input costs. The change in cash flow from operating activities was also due to a decrease in earnings in 2021 compared to the prior year due to lower volumes of operating activities and an increase in income tax receivable in 2021 primarily from accelerated depreciation and the impact of the CARES Act.
Cash Flows From Investing Activities
Cash provided by (used in) investing activities primarily related to capital
expenditures net of proceeds from the sale of assets and investment activity
with our unconsolidated affiliates. The change in cash provided by (used in)
investing activities for 2021 compared to 2020 was primarily attributable to an
increase in capital expenditures and a reduction in proceeds from the sale of
assets. The increase in capital expenditures in 2021 primarily relate to
additions to our lease fleet as part of our leasing strategy.
Years ended August 31,
(In millions) 2021 2020
Capital expenditures:
Leasing & Services $ (103.8 ) $ (7.0 )
Manufacturing (26.6 ) (48.2 )
Wheels, Repair & Parts (8.6 ) (11.7 )
Total capital expenditures (gross) $ (139.0 ) $ (66.9 )
Proceeds from sale of equipment 15.9 83.5
Total capital expenditures (net of proceeds)
Capital expenditures primarily relate to additions to our lease fleet and on-going investments into the safety and productivity of our facilities. Proceeds from the sale of assets primarily relate to sales of railcars from our lease fleet within Leasing & Services. Assets from our lease fleet are periodically sold in the normal course of business to accommodate customer demand and to manage risk and liquidity.
Capital expenditures for 2022 are expected to be approximately$275 million for Leasing & Services, approximately$55 million for Manufacturing and approximately$10 million for Wheels, Repair & Parts. Capital expenditures for 2022 primarily relate to continued investments into the safety and productivity of our facilities and additions to our lease fleet reflecting our enhanced leasing strategy.
Cash Flows From Financing Activities
The change in cash provided by (used in) financing activities for 2021 compared
to 2020 was primarily attributed to proceeds from the issuance of debt, net of
repayments, the repurchase of common stock and a change in the net activities
with joint venture partners.
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During 2021, we refinanced certain debt by issuing $373.8 million of new
convertible notes due 2028 and retiring a total of $277.3 million of convertible
notes due 2024. We also renewed and extended our $600.0 million domestic
revolving facility and $291.9 million term loan to 2026 and renewed and extended
our Leasing & Services' $200.0 million term loan until August 2027 .
GBX Leasing commenced operations in April 2021 and closed on a $300.0 million
non-recourse warehouse credit facility. As of August 31, 2021 , there were $147.0
million in outstanding borrowings associated with this facility.
Dividend & Share Repurchase Program
A quarterly dividend of
The Board of Directors has authorized our company to repurchase shares of our common stock. The share repurchase program has an expiration date ofJanuary 31, 2023 . The amount remaining for repurchase was$100.0 million as ofAugust 31, 2021 . Under the share repurchase program, shares of common stock may be purchased on the open market or through privately negotiated transactions from time to time. The timing and amount of purchases will be based upon market conditions, securities law limitations and other factors. The program may be modified, suspended or discontinued at any time without prior notice. The share repurchase program does not obligate us to acquire any specific number of shares in any period. There were no shares repurchased under the share repurchase program during 2021 or 2020.
Cash, Borrowing Availability and Credit Facilities
As ofAugust 31, 2021 , we had$646.8 million in Cash and cash equivalents and$187.9 million in available borrowings. Our significant cash balance is part of our strategy to maintain strong liquidity as we navigate the uncertainties around the COVID-19 pandemic and emerging economic recovery. Senior secured credit facilities, consisting of four components, aggregated to$1.05 billion as ofAugust 31, 2021 . We had an aggregate of$187.9 million available to draw down under committed credit facilities as ofAugust 31, 2021 . This amount consists of$106.5 million available on the North American credit facility,$26.4 million on the European credit facilities and$55.0 million on the Mexican credit facilities. As ofAugust 31, 2021 , a$600.0 million revolving line of credit, maturingAugust 2026 , secured by substantially all of ourU.S. assets not otherwise pledged as security for term loans or the warehouse credit facility, was available to provide working capital and interim financing of equipment, principally for the Company'sU.S. and Mexican operations. Advances under this facility bear interest at LIBOR plus 1.50% or Prime plus 0.50% depending on the type of borrowing. Available borrowings under the credit facility are generally based on defined levels of eligible inventory, receivables, property, plant and equipment and leased equipment, as well as total debt to consolidated capitalization and fixed charges coverage ratios. As ofAugust 31, 2021 , a$300.0 million non-recourse warehouse credit facility existed to support the operations ofGBX Leasing , a joint venture in which we own approximately 95%. Advances under this facility bear interest at LIBOR plus 2.0%. The warehouse credit facility converts to a term loan inApril 2023 which matures inApril 2025 . As ofAugust 31, 2021 , there were$147.0 million in outstanding borrowings associated with this facility. We intend thatGBX Leasing will aggregate leased railcars to obtain term or capital market financing. As ofAugust 31, 2021 , lines of credit totaling$76.6 million secured by certain of our European assets, with variable rates that range from Warsaw Interbank Offered Rate (WIBOR) plus 1.2% to WIBOR plus 1.5% and Euro Interbank Offered Rate (EURIBOR) plus 1.1%, were available for working capital needs of our European manufacturing operations. The European lines of credit include$39.0 million which are guaranteed by us. European credit facilities are regularly renewed. Currently, these European credit facilities have maturities that range fromJune 2022 throughOctober 2023 . As ofAugust 31, 2021 , our Mexican railcar manufacturing operations had three lines of credit totaling$70.0 million . The first line of credit provides up to$30.0 million , of which we and our joint venture partner have each guaranteed 50%. Advances under this facility bear interest at LIBOR plus 3.75% to 4.25%. The Mexican railcar manufacturing joint venture will be able to draw amounts available under this facility throughJune 2024 . The second line of credit 41 -------------------------------------------------------------------------------- provides up to$35.0 million , of which we and our joint venture partner have each guaranteed 50%. Advances under this facility bear interest at LIBOR plus 3.70%. The Mexican railcar manufacturing joint venture will be able to draw amounts available under this facility throughJune 2023 . The third line of credit provides up to$5.0 million and matures inSeptember 2022 . Advances under this facility bear interest at LIBOR plus 2.95% and are to be used for working capital needs. As ofAugust 31, 2021 , outstanding commitments under the senior secured credit facilities consisted of$160.0 million in borrowings and$8.4 million in letters of credit under the North American credit facility,$50.2 million outstanding under the European credit facilities and$15.0 million outstanding under the Mexican credit facilities. Other Information The revolving and operating lines of credit, along with notes payable, contain covenants with respect to us and our various subsidiaries, the most restrictive of which, among other things, limit our ability to: incur additional indebtedness or guarantees; pay dividends or repurchase stock; enter into financing leases; create liens; sell assets; engage in transactions with affiliates, including joint ventures and nonU.S. subsidiaries, including but not limited to loans, advances, equity investments and guarantees; enter into mergers, consolidations or sales of substantially all our assets; and enter into new lines of business. The covenants also require certain maximum ratios of debt to total capitalization and minimum levels of fixed charges (interest plus rent) coverage. As ofAugust 31, 2021 , we were in compliance with all such restrictive covenants. From time to time, we may seek to repurchase or otherwise retire or exchange securities, including outstanding convertible notes, borrowings and equity securities, and take other steps to reduce our debt, extend the maturities of our debt or otherwise improve our balance sheet. These actions may include open market repurchases, unsolicited or solicited privately negotiated transactions or other retirements, repurchases or exchanges. Such retirements, repurchases or exchanges of one note or security for another note or security (now or hereafter existing), if any, will depend on a number of factors, including, but not limited to, prevailing market conditions, trading levels of our debt, our liquidity requirements and contractual restrictions, if applicable. The amounts involved in any such transactions may, individually or in the aggregate, be material and may involve all or a portion of a particular series of notes or other indebtedness which may reduce the float and impact the trading market of notes or other indebtedness which remain outstanding. We repurchased$20.0 million of our company's common stock during 2021. These shares were repurchased, in privately negotiated transactions, as part of our debt refinancing inApril 2021 and were not associated with our publicly announced share repurchase program. We have global operations that conduct business in their local currencies as well as other currencies. To mitigate the exposure to transactions denominated in currencies other than the functional currency, we enter into foreign currency forward exchange contracts with established financial institutions to protect the margin on a portion of foreign currency sales in firm backlog. Given the strong credit standing of the counterparties, no provision has been made for credit loss due to counterparty non-performance.
We expect existing funds and cash generated from operations, together with proceeds from financing activities including borrowings under existing credit facilities and long-term financings, to be sufficient to fund expected debt repayments, working capital needs, planned capital expenditures, additional investments in our unconsolidated affiliates and dividends during the next twelve months.
The following table shows our estimated future contractual cash obligations as ofAugust 31, 2021 : Years Ending August 31, (In thousands) Total 2022 2023 2024 2025 2026 Thereafter Notes payable$ 915,525 $ 18,907 $ 22,147 $ 69,632 $ 21,831 $ 244,258 $ 538,750 Interest (1) 133,961 23,841 22,581 21,450 20,287 19,215 26,587 Railcar & operating leases 48,285 9,643 8,809 7,518 5,070 3,795 13,450 Revolving notes 372,176 372,176 - - - - -$ 1,469,947 $ 424,567 $ 53,537 $ 98,600 $ 47,188 $ 267,268 $ 578,787
(1) A portion of the estimated future cash obligation relates to interest on
variable rate borrowings.
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-------------------------------------------------------------------------------- Due to uncertainty with respect to the timing of future cash flows associated with our unrecognized tax benefits atAugust 31, 2021 , we are unable to estimate the period of cash settlement with the respective taxing authority. Therefore, approximately$2.0 million in uncertain tax positions, including interest, have been excluded from the contractual table above. See Note 17 to the Consolidated Financial Statements for a discussion on income taxes.
Off Balance Sheet Arrangements
We do not currently have off balance sheet arrangements that have or are likely to have a material current or future effect on our Consolidated Financial Statements.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in theU.S. requires judgment on the part of management to arrive at estimates and assumptions on matters that are inherently uncertain. These estimates may affect the amount of assets, liabilities, revenue and expenses reported in the financial statements and accompanying notes and disclosure of contingent assets and liabilities within the financial statements. Estimates and assumptions are periodically evaluated and may be adjusted in future periods. Actual results could differ from those estimates. Income taxes - The asset and liability method is used to account for income taxes. We are 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 each tax jurisdiction to determine the amount of deferred tax assets and liabilities. Deferred income taxes are provided for the temporary effects of differences between assets and liabilities recognized for financial statement and income tax reporting purposes. Valuation allowances reduce deferred tax assets to an amount that will more likely than not be realized. We recognize liabilities for uncertain tax positions based on whether evidence indicates that it is more likely than not that the position will be sustained on audit. It is inherently difficult and subjective to estimate whether a valuation allowance or uncertain tax position is necessary. In making this assessment, management may analyze future taxable income, reversing temporary differences and/or ongoing tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, the Company would adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income. Changes in tax law or court interpretations may result in the recognition of a tax benefit or an additional charge to the tax provision. For further information regarding income taxes, see Note 17 of the Consolidated Financial Statements. Warranty accruals - Warranty costs to cover a defined warranty period are estimated and charged to operations. The estimated warranty cost is based on historical warranty claims for each particular product type. For new product types without a warranty history, preliminary estimates are based on historical information for similar product types. These estimates are inherently uncertain as they are based on historical data for existing products and judgment for new products. If warranty claims are made in the current period for issues that have not historically been the subject of warranty claims and were not taken into consideration in establishing the accrual or if claims for issues already considered in establishing the accrual exceed expectations, warranty expense may exceed the accrual for that particular product. Conversely, there is the possibility that claims may be lower than estimates. The warranty accrual is periodically reviewed and updated based on warranty trends. However, as we cannot predict future claims, the potential exists for the difference in any one reporting period to be material. For further information regarding the warranty accrual, see Note 11 of the Consolidated Financial Statements. Environmental costs - At times we may be involved in various proceedings related to environmental matters. We estimate future costs for known environmental remediation requirements and accrue for them when it is probable that we have incurred a liability and the related costs can be reasonably estimated based on currently available information. Adjustments to these liabilities are made when additional information becomes available that affects the estimated costs to study or remediate any environmental issues or when expenditures for which reserves are established are made. 43 -------------------------------------------------------------------------------- Judgments used in determining if a liability is estimable are subjective and based on known facts and our historic experience. If further developments in or resolution of an environmental matter result in facts and circumstances that differ from those assumptions used to develop these reserves, the accrual for environmental remediation could be materially understated or overstated. Due to the uncertain nature of environmental 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. For further information regarding our environmental costs, see Note 21 of the Consolidated Financial Statements.Goodwill - In accordance with Accounting Standards Codification (ASC) Topic 350, Intangibles-Goodwill and Other (ASC 350), the Company evaluates goodwill for possible impairment annually or more frequently if events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company uses a two-step process to assess the realizability of goodwill. The first step is a qualitative assessment that analyzes current economic indicators associated with a particular reporting unit. If the qualitative assessment indicates a stable or improved fair value, no further testing is required. If a qualitative assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company will proceed to the quantitative second step where the fair value of a reporting unit is calculated based on weighted income and market-based approaches. If the fair value of a reporting unit is lower than its carrying value, an impairment to goodwill is recorded, not to exceed the carrying amount of goodwill in the reporting unit. We performed our annual goodwill impairment test during the third quarter of 2021 and concluded that goodwill for all reporting units was not impaired. Pursuant to the authoritative guidance, we make certain judgments and assumptions to determine our reporting units, which determines the carrying values for each reporting unit. Judgments related to qualitative factors include changes in economic considerations, market and industry trends, business strategy, cost factors, and financial performance, among others, to determine if there are indicators of a significant decline in the fair value of a particular reporting unit. New Accounting Pronouncements
See Note 2 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
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