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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
for the quarterly period ended November 30, 2023
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
for the transition period from ______ to ______
Commission File No. 1-13146
THE GREENBRIER COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Oregon |
93-0816972 |
(State of Incorporation) |
(I.R.S. Employer Identification No.) |
One Centerpointe Drive, Suite 200, Lake Oswego, OR |
97035 |
(Address of principal executive offices) |
(Zip Code) |
(503) 684-7000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
Common Stock without par value |
|
GBX |
|
New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
|
☒ |
|
Accelerated filer |
|
☐ |
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|
|||
Non-accelerated filer |
|
☐ |
|
Smaller reporting company |
|
☐ |
|
|
|
|
|
|
|
|
|
|
|
Emerging growth company |
|
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
The number of shares of the registrant’s common stock, without par value, outstanding on January 2, 2024 was 31,090,793 shares.
FORM 10-Q
Table of Contents
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Page |
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3 |
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PART I. |
5 |
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Item 1. |
5 |
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5 |
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6 |
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Condensed Consolidated Statements of Comprehensive Income (Loss) |
7 |
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8 |
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9 |
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10 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
23 |
Item 3. |
36 |
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Item 4. |
36 |
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PART II. |
38 |
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Item 1. |
38 |
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Item 1A. |
38 |
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Item 2. |
38 |
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Item 5. |
38 |
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Item 6. |
39 |
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40 |
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. All statements, other than statements of historical fact included in this report, concerning our plans, objectives, goals, strategies, future events, future performance, financing needs, plans or intentions relating to business trends and other information referred to under "Management's Discussion and Analysis of Financial Condition and Results of Operations" are forward-looking statements. We use words such “affect,” “anticipate,” “backlog,” “be,” “believe,” “commit,” “can,” “contingent,” “continue,” “could,” “due to,” “estimate,” “expect,” “future,” “intend,” “likely,” “may,” “optimize,” “plan,” “potential,” “trend,” “realize,” “result,” “seek,” “should,” “strategy,” “will,” “would,” and similar expressions to identify forward-looking statements. Forward-looking statements are not guarantees of future performance.
Forward-looking statements are based on our current expectations and beliefs and on currently available operating, financial and market information and are subject to various risks and uncertainties, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations and beliefs are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that our expectations or beliefs will result or be achieved and actual future results and trends may differ materially from what is expressed in or indicated by the forward-looking statements.
There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from the forward-looking statements contained in this report. Such risks, uncertainties and important factors include but are not limited to the following:
3
There may be other factors that may cause our actual results to differ materially from the forward-looking statements, including the risks, uncertainties and factors described in more detail in Part I Item 1A “Risk Factors” in our most recent Annual Report on Form 10-K which are incorporated herein by reference. You should evaluate all forward-looking statements made in this report in the context of these risks, uncertainties and factors. You are cautioned not to place undue reliance on any forward-looking statements, which reflect management’s opinions only as of the date hereof. Except as otherwise required by law, we do not assume any obligation to update any forward-looking statements.
4
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
(In millions, except number of shares which are reflected in thousands, unaudited)
|
|
November 30, |
|
|
August 31, |
|
||
Assets |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
307.3 |
|
|
$ |
281.7 |
|
Restricted cash |
|
|
14.0 |
|
|
|
21.0 |
|
Accounts receivable, net |
|
|
458.7 |
|
|
|
529.9 |
|
Income tax receivable |
|
|
10.5 |
|
|
|
42.2 |
|
Inventories |
|
|
883.6 |
|
|
|
823.6 |
|
Leased railcars for syndication |
|
|
159.8 |
|
|
|
187.4 |
|
Equipment on operating leases, net |
|
|
1,095.8 |
|
|
|
1,000.0 |
|
Property, plant and equipment, net |
|
|
618.1 |
|
|
|
619.2 |
|
Investment in unconsolidated affiliates |
|
|
89.4 |
|
|
|
88.7 |
|
Intangibles and other assets, net |
|
|
248.9 |
|
|
|
255.8 |
|
Goodwill |
|
|
128.6 |
|
|
|
128.9 |
|
|
|
$ |
4,014.7 |
|
|
$ |
3,978.4 |
|
Liabilities and Equity |
|
|
|
|
|
|
||
Revolving notes |
|
$ |
279.4 |
|
|
$ |
297.1 |
|
Accounts payable and accrued liabilities |
|
|
640.9 |
|
|
|
743.5 |
|
Deferred income taxes |
|
|
85.2 |
|
|
|
114.1 |
|
Deferred revenue |
|
|
42.2 |
|
|
|
46.2 |
|
Notes payable, net |
|
|
1,479.4 |
|
|
|
1,311.7 |
|
|
|
|
|
|
|
|
||
Commitments and contingencies (Note 14) |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Contingently redeemable noncontrolling interest |
|
|
56.5 |
|
|
|
55.6 |
|
|
|
|
|
|
|
|
||
Equity: |
|
|
|
|
|
|
||
Greenbrier |
|
|
|
|
|
|
||
Preferred stock - without par value; 25,000 shares |
|
|
— |
|
|
|
— |
|
Common stock - without par value; 50,000 shares |
|
|
— |
|
|
|
— |
|
Additional paid-in capital |
|
|
361.3 |
|
|
|
364.4 |
|
Retained earnings |
|
|
919.1 |
|
|
|
897.5 |
|
Accumulated other comprehensive loss |
|
|
(6.4 |
) |
|
|
(7.3 |
) |
Total equity – Greenbrier |
|
|
1,274.0 |
|
|
|
1,254.6 |
|
Noncontrolling interest |
|
|
157.1 |
|
|
|
155.6 |
|
Total equity |
|
|
1,431.1 |
|
|
|
1,410.2 |
|
|
|
$ |
4,014.7 |
|
|
$ |
3,978.4 |
|
The accompanying notes are an integral part of these financial statements
5
Condensed Consolidated Statements of Operations
(In millions, except number of shares which are reflected in thousands and per share amounts, unaudited)
|
|
Three Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Revenue |
|
|
|
|
|
|
||
Manufacturing |
|
$ |
675.9 |
|
|
$ |
646.5 |
|
Maintenance Services |
|
|
83.8 |
|
|
|
85.5 |
|
Leasing & Management Services |
|
|
49.1 |
|
|
|
34.5 |
|
|
|
|
808.8 |
|
|
|
766.5 |
|
Cost of revenue |
|
|
|
|
|
|
||
Manufacturing |
|
|
600.9 |
|
|
|
604.5 |
|
Maintenance Services |
|
|
71.6 |
|
|
|
79.6 |
|
Leasing & Management Services |
|
|
15.0 |
|
|
|
12.9 |
|
|
|
|
687.5 |
|
|
|
697.0 |
|
Margin |
|
|
121.3 |
|
|
|
69.5 |
|
Selling and administrative expense |
|
|
56.3 |
|
|
|
53.4 |
|
Net loss (gain) on disposition of equipment |
|
|
0.1 |
|
|
|
(3.3 |
) |
Impairment of long-lived assets |
|
|
— |
|
|
|
24.2 |
|
Earnings (loss) from operations |
|
|
64.9 |
|
|
|
(4.8 |
) |
Other costs |
|
|
|
|
|
|
||
Interest and foreign exchange |
|
|
23.2 |
|
|
|
19.6 |
|
Earnings (loss) before income tax and earnings from unconsolidated affiliates |
|
|
41.7 |
|
|
|
(24.4 |
) |
Income tax (expense) benefit |
|
|
(10.0 |
) |
|
|
3.8 |
|
Earnings (loss) before earnings from unconsolidated affiliates |
|
|
31.7 |
|
|
|
(20.6 |
) |
Earnings from unconsolidated affiliates |
|
|
1.5 |
|
|
|
3.3 |
|
Net earnings (loss) |
|
|
33.2 |
|
|
|
(17.3 |
) |
Net (earnings) loss attributable to noncontrolling interest |
|
|
(2.0 |
) |
|
|
0.6 |
|
Net earnings (loss) attributable to Greenbrier |
|
$ |
31.2 |
|
|
$ |
(16.7 |
) |
Basic earnings (loss) per common share |
|
$ |
1.00 |
|
|
$ |
(0.51 |
) |
Diluted earnings (loss) per common share |
|
$ |
0.96 |
|
|
$ |
(0.51 |
) |
Weighted average common shares: |
|
|
|
|
|
|
||
Basic |
|
|
31,025 |
|
|
|
32,719 |
|
Diluted |
|
|
32,782 |
|
|
|
32,719 |
|
The accompanying notes are an integral part of these financial statements
6
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In millions, unaudited)
|
|
Three Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Net earnings (loss) |
|
$ |
33.2 |
|
|
$ |
(17.3 |
) |
|
|
|
|
|
|
|
||
Other comprehensive income (loss) |
|
|
|
|
|
|
||
Translation adjustment |
|
|
— |
|
|
|
5.5 |
|
Reclassification of derivative financial instruments recognized |
|
|
(3.5 |
) |
|
|
(0.5 |
) |
Unrealized gain on derivative financial instruments2 |
|
|
4.3 |
|
|
|
8.9 |
|
Other (net of tax effect) |
|
|
0.1 |
|
|
|
— |
|
|
|
|
0.9 |
|
|
|
13.9 |
|
Comprehensive income (loss) |
|
|
34.1 |
|
|
|
(3.4 |
) |
Comprehensive (income) loss attributable to noncontrolling interest |
|
|
(2.0 |
) |
|
|
0.6 |
|
Comprehensive income (loss) attributable to Greenbrier |
|
$ |
32.1 |
|
|
$ |
(2.8 |
) |
1 Net of tax effect of $0.9 million and $0.3 million for the three months ended November 30, 2023 and 2022, respectively.
2 Net of tax effect of $(1.0 million) and $(3.0 million) for the three months ended November 30, 2023 and 2022, respectively.
The accompanying notes are an integral part of these financial statements
7
Condensed Consolidated Statements of Equity
(In millions, except per share amounts, unaudited)
|
Attributable to Greenbrier |
|
|
|
|
|
|
|
||||||||||||||||
|
Common |
|
Additional |
|
Retained |
|
Accumulated |
|
Total |
|
Noncontrolling |
|
Total |
|
Contingently |
|
||||||||
Balance August 31, 2023 |
|
30.9 |
|
$ |
364.4 |
|
$ |
897.5 |
|
$ |
(7.3 |
) |
$ |
1,254.6 |
|
$ |
155.6 |
|
$ |
1,410.2 |
|
$ |
55.6 |
|
Net earnings |
|
— |
|
|
— |
|
|
31.2 |
|
|
— |
|
|
31.2 |
|
|
1.1 |
|
|
32.3 |
|
|
0.9 |
|
Other comprehensive income, net |
|
— |
|
|
— |
|
|
— |
|
|
0.9 |
|
|
0.9 |
|
|
— |
|
|
0.9 |
|
|
— |
|
Noncontrolling interest adjustments |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
0.4 |
|
|
0.4 |
|
|
— |
|
Restricted stock awards (net of |
|
0.2 |
|
|
10.4 |
|
|
— |
|
|
— |
|
|
10.4 |
|
|
— |
|
|
10.4 |
|
|
— |
|
Unamortized restricted stock |
|
— |
|
|
(15.6 |
) |
|
— |
|
|
— |
|
|
(15.6 |
) |
|
— |
|
|
(15.6 |
) |
|
— |
|
Stock based compensation expense |
|
— |
|
|
3.4 |
|
|
— |
|
|
— |
|
|
3.4 |
|
|
— |
|
|
3.4 |
|
|
— |
|
Repurchase of stock |
|
— |
|
|
(1.3 |
) |
|
— |
|
|
— |
|
|
(1.3 |
) |
|
— |
|
|
(1.3 |
) |
|
— |
|
Cash dividends ($0.30 per share) |
|
— |
|
|
— |
|
|
(9.6 |
) |
|
— |
|
|
(9.6 |
) |
|
— |
|
|
(9.6 |
) |
|
— |
|
Balance November 30, 2023 |
|
31.1 |
|
$ |
361.3 |
|
$ |
919.1 |
|
$ |
(6.4 |
) |
$ |
1,274.0 |
|
$ |
157.1 |
|
$ |
1,431.1 |
|
$ |
56.5 |
|
|
Attributable to Greenbrier |
|
|
|
|
|
|
|
||||||||||||||||
|
Common |
|
Additional |
|
Retained |
|
Accumulated |
|
Total |
|
Noncontrolling |
|
Total |
|
Contingently |
|
||||||||
Balance August 31, 2022 |
|
32.6 |
|
$ |
424.8 |
|
$ |
897.7 |
|
$ |
(45.6 |
) |
$ |
1,276.9 |
|
$ |
152.2 |
|
$ |
1,429.1 |
|
$ |
27.7 |
|
Net loss |
|
— |
|
|
— |
|
|
(16.7 |
) |
|
— |
|
|
(16.7 |
) |
|
(0.6 |
) |
|
(17.3 |
) |
|
— |
|
Other comprehensive income, net |
|
— |
|
|
— |
|
|
— |
|
|
13.9 |
|
|
13.9 |
|
|
— |
|
|
13.9 |
|
|
— |
|
Noncontrolling interest adjustments |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
5.5 |
|
|
5.5 |
|
|
— |
|
Restricted stock awards (net of |
|
0.2 |
|
|
8.5 |
|
|
— |
|
|
— |
|
|
8.5 |
|
|
— |
|
|
8.5 |
|
|
— |
|
Unamortized restricted stock |
|
— |
|
|
(10.9 |
) |
|
— |
|
|
— |
|
|
(10.9 |
) |
|
— |
|
|
(10.9 |
) |
|
— |
|
Stock based compensation expense |
|
— |
|
|
3.2 |
|
|
— |
|
|
— |
|
|
3.2 |
|
|
— |
|
|
3.2 |
|
|
— |
|
Joint venture partner distribution |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(5.0 |
) |
|
(5.0 |
) |
|
— |
|
Cash dividends ($0.27 per share) |
|
— |
|
|
— |
|
|
(9.1 |
) |
|
— |
|
|
(9.1 |
) |
|
— |
|
|
(9.1 |
) |
|
— |
|
Balance November 30, 2022 |
|
32.8 |
|
$ |
425.6 |
|
$ |
871.9 |
|
$ |
(31.7 |
) |
$ |
1,265.8 |
|
$ |
152.1 |
|
$ |
1,417.9 |
|
$ |
27.7 |
|
The accompanying notes are an integral part of these financial statements
8
Condensed Consolidated Statements of Cash Flows
(In millions, unaudited)
|
|
Three Months Ended |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash flows from operating activities |
|
|
|
|
|
|
||
Net earnings (loss) |
|
$ |
33.2 |
|
|
$ |
(17.3 |
) |
Adjustments to reconcile net earnings (loss) to net cash used in operating activities: |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
(29.3 |
) |
|
|
(19.0 |
) |
Depreciation and amortization |
|
|
26.8 |
|
|
|
26.0 |
|
Net loss (gain) on disposition of equipment |
|
|
0.1 |
|
|
|
(3.3 |
) |
Stock based compensation expense |
|
|
3.4 |
|
|
|
3.2 |
|
Impairment of long-lived assets |
|
|
— |
|
|
|
24.2 |
|
Noncontrolling interest adjustments |
|
|
0.4 |
|
|
|
5.5 |
|
Other |
|
|
0.9 |
|
|
|
0.9 |
|
Decrease (increase) in assets: |
|
|
|
|
|
|
||
Accounts receivable, net |
|
|
72.6 |
|
|
|
8.1 |
|
Income tax receivable |
|
|
31.7 |
|
|
|
10.9 |
|
Inventories |
|
|
(61.6 |
) |
|
|
(56.3 |
) |
Leased railcars for syndication |
|
|
(20.0 |
) |
|
|
(195.3 |
) |
Other assets |
|
|
4.9 |
|
|
|
(7.0 |
) |
Increase (decrease) in liabilities: |
|
|
|
|
|
|
||
Accounts payable and accrued liabilities |
|
|
(103.2 |
) |
|
|
(53.7 |
) |
Deferred revenue |
|
|
(4.6 |
) |
|
|
17.6 |
|
Net cash used in operating activities |
|
|
(44.7 |
) |
|
|
(255.5 |
) |
Cash flows from investing activities |
|
|
|
|
|
|
||
Proceeds from sales of assets |
|
|
0.4 |
|
|
|
13.8 |
|
Capital expenditures |
|
|
(68.3 |
) |
|
|
(57.0 |
) |
Investments in and advances to / repayments from unconsolidated affiliates |
|
|
— |
|
|
|
0.9 |
|
Cash distribution from unconsolidated affiliates and other |
|
|
0.6 |
|
|
|
(0.7 |
) |
Net cash used in investing activities |
|
|
(67.3 |
) |
|
|
(43.0 |
) |
Cash flows from financing activities |
|
|
|
|
|
|
||
Net change in revolving notes with maturities of 90 days or less |
|
|
31.0 |
|
|
|
(83.4 |
) |
Proceeds from revolving notes with maturities longer than 90 days |
|
|
90.1 |
|
|
|
110.0 |
|
Repayments of revolving notes with maturities longer than 90 days |
|
|
(139.9 |
) |
|
|
(35.0 |
) |
Proceeds from issuance of notes payable |
|
|
178.6 |
|
|
|
41.0 |
|
Repayments of notes payable |
|
|
(9.7 |
) |
|
|
(9.2 |
) |
Debt issuance costs |
|
|
(2.5 |
) |
|
|
— |
|
Repurchase of stock |
|
|
(1.3 |
) |
|
|
— |
|
Dividends |
|
|
(10.3 |
) |
|
|
(9.3 |
) |
Cash distribution to joint venture partner |
|
|
— |
|
|
|
(2.5 |
) |
Tax payments for net share settlement of restricted stock |
|
|
(5.2 |
) |
|
|
(2.3 |
) |
Net cash provided by financing activities |
|
|
130.8 |
|
|
|
9.3 |
|
Effect of exchange rate changes |
|
|
(0.2 |
) |
|
|
10.6 |
|
Increase (decrease) in Cash and cash equivalents and Restricted cash |
|
|
18.6 |
|
|
|
(278.6 |
) |
Cash and cash equivalents and restricted cash |
|
|
|
|
|
|
||
Beginning of period |
|
|
302.7 |
|
|
|
559.1 |
|
End of period |
|
$ |
321.3 |
|
|
$ |
280.5 |
|
Balance sheet reconciliation |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
307.3 |
|
|
$ |
263.3 |
|
Restricted cash |
|
|
14.0 |
|
|
|
17.2 |
|
Total cash and cash equivalents and restricted cash as presented above |
|
$ |
321.3 |
|
|
$ |
280.5 |
|
Cash paid during the period for |
|
|
|
|
|
|
||
Interest |
|
$ |
22.4 |
|
|
$ |
18.0 |
|
Income taxes paid, net |
|
$ |
7.9 |
|
|
$ |
7.6 |
|
Non-cash activity |
|
|
|
|
|
|
||
Transfers between Leased railcars for syndication and Inventories and |
|
$ |
50.7 |
|
|
$ |
33.3 |
|
Capital expenditures accrued in Accounts payable and accrued liabilities |
|
$ |
4.5 |
|
|
$ |
3.9 |
|
Change in Accounts payable and accrued liabilities associated with dividends declared |
|
$ |
(0.7 |
) |
|
$ |
(0.2 |
) |
Change in Accounts payable and accrued liabilities associated with cash |
|
$ |
— |
|
|
$ |
2.5 |
|
The accompanying notes are an integral part of these financial statements
9
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 – Interim Financial Statements
The Condensed Consolidated Financial Statements of The Greenbrier Companies, Inc. and its subsidiaries (Greenbrier or the Company) as of November 30, 2023 and for the three months ended November 30, 2023 and 2022 have been prepared to reflect all adjustments (consisting of normal recurring accruals) that, in the opinion of management, are necessary for a fair presentation of the financial position, operating results and cash flows for the periods indicated. All references to years refer to the fiscal years ended August 31st unless otherwise noted. The results of operations for the three months ended November 30, 2023 are not necessarily indicative of the results to be expected for the entire year ending August 31, 2024.
Certain notes and other information have been condensed or omitted from the interim financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these unaudited financial statements should be read in conjunction with the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended August 31, 2023.
Management Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (GAAP) 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.
Share Repurchase Program – The Board of Directors has authorized the Company to repurchase in aggregate up to $100.0 million of the Company’s common stock. The program may be modified, suspended, or discontinued at any time without prior notice and currently has an expiration date of January 31, 2025. Under the share repurchase program, shares of common stock may be purchased from time to time on the open market or through privately negotiated transactions. The timing and amount of purchases is based upon market conditions, securities law limitations and other factors.
During the three months ended November 30, 2023, the Company purchased a total of 38 thousand shares for $1.3 million. As of November 30, 2023, the amount remaining for repurchase under the share repurchase program was $45.1 million. There were no shares repurchased under the share repurchase program during the three months ended November 30, 2022.
Reclassifications - Certain immaterial reclassifications have been made to the accompanying prior year Condensed Consolidated Financial Statements to conform to the current year presentation.
Recent Accounting Pronouncements
Improvements to Reportable Segment Disclosures
In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires disclosure of incremental segment information on an annual and interim basis, primarily through enhanced disclosures of significant segment expenses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 and requires retrospective application to all periods presented upon adoption. Early adoption is permitted. The Company is currently evaluating the impact that ASU 2023-07 will have on its consolidated financial statements and disclosures.
Improvements to Income Tax Disclosures
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which requires disclosure of incremental income tax information within the rate reconciliation and expanded disclosures of income taxes paid, among other disclosure requirements. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact that ASU 2023-09 will have on its consolidated financial statements and disclosures.
10
Note 2 – Revenue Recognition
Contract balances
Contract assets primarily consist of work completed for railcar maintenance but not billed at the reporting date. Contract liabilities primarily consist of customer prepayments for manufacturing and other management-type services, for which the Company has not yet satisfied the related performance obligations.
The contract balances are as follows:
(in millions) |
|
Balance sheet classification |
|
November 30, |
|
|
August 31, |
|
|
$ |
|
|||
Contract assets |
|
Accounts Receivable |
|
$ |
1.1 |
|
|
$ |
0.1 |
|
|
$ |
1.0 |
|
Contract assets |
|
Inventories |
|
$ |
9.3 |
|
|
$ |
7.0 |
|
|
$ |
2.3 |
|
Contract liabilities (1) |
|
Deferred revenue |
|
$ |
39.1 |
|
|
$ |
43.3 |
|
|
$ |
(4.2 |
) |
(1) Contract liabilities balance includes deferred revenue within the scope of Revenue from Contracts with Customers (Topic 606).
For the three months ended November 30, 2023, the Company recognized $6.5 million of revenue that was included in Contract liabilities as of August 31, 2023.
Performance obligations
As of November 30, 2023, the Company has entered into contracts with customers for which revenue has not yet been recognized. The following table outlines estimated revenue related to performance obligations wholly or partially unsatisfied, that the Company anticipates will be recognized in future periods.
(in millions) |
|
November 30, |
|
|
Revenue type: |
|
|
|
|
Manufacturing – Railcar sales |
|
$ |
2,779.0 |
|
Manufacturing – Sustainable conversions |
|
$ |
40.0 |
|
Management services |
|
$ |
128.4 |
|
Other |
|
$ |
10.5 |
|
Based on current production and delivery schedules and existing contracts, approximately $1.6 billion of Railcar sales are expected to be recognized in the remaining nine months of 2024 while the remaining amount is expected to be recognized through 2026. The table above excludes estimated revenue to be recognized at the Company’s Brazilian manufacturing operations, as they are accounted for under the equity method.
Sustainable conversions represent orders to modernize existing railcars and are expected to be recognized in 2024.
Management services includes management and maintenance services of which approximately 54% are expected to be performed through 2028 and the remaining amount through 2037.
Note 3 – Inventories
The following table summarizes the Company’s Inventories balance:
(in millions) |
|
November 30, |
|
|
August 31, |
|
||
Manufacturing supplies and raw materials |
|
$ |
631.4 |
|
|
$ |
638.2 |
|
Work-in-process |
|
|
129.6 |
|
|
|
138.2 |
|
Finished goods |
|
|
138.4 |
|
|
|
64.4 |
|
Excess and obsolete adjustment |
|
|
(15.8 |
) |
|
|
(17.2 |
) |
|
|
$ |
883.6 |
|
|
$ |
823.6 |
|
11
Note 4 – Intangibles and Other Assets, net
The following table summarizes the Company’s identifiable Intangibles and other assets, net balance:
(in millions) |
|
November 30, |
|
|
August 31, |
|
||
Intangible assets subject to amortization: |
|
|
|
|
|
|
||
Customer relationships |
|
$ |
87.5 |
|
|
$ |
87.5 |
|
Accumulated amortization |
|
|
(69.9 |
) |
|
|
(69.1 |
) |
Other intangibles |
|
|
42.4 |
|
|
|
43.0 |
|
Accumulated amortization |
|
|
(22.9 |
) |
|
|
(22.3 |
) |
|
|
|
37.1 |
|
|
|
39.1 |
|
Intangible assets not subject to amortization |
|
|
2.3 |
|
|
|
2.3 |
|
Prepaid and other assets |
|
|
49.2 |
|
|
|
56.4 |
|
Operating lease right-of-use assets |
|
|
71.0 |
|
|
|
70.6 |
|
Nonqualified savings plan investments |
|
|
48.4 |
|
|
|
47.7 |
|
Debt issuance costs, net |
|
|
7.1 |
|
|
|
6.3 |
|
Assets held for sale |
|
|
0.3 |
|
|
|
0.3 |
|
Deferred tax assets |
|
|
33.5 |
|
|
|
33.1 |
|
|
|
$ |
248.9 |
|
|
$ |
255.8 |
|
Note 5 – Revolving Notes
Senior secured credit facilities aggregated to $1.4 billion as of November 30, 2023. The Company had an aggregate of $355.2 million available to draw down under credit facilities as of November 30, 2023. This amount consists of $280.8 million available on the North American credit facility, $19.4 million on the European credit facilities and $55.0 million on the Mexican credit facilities.
Nonrecourse credit facilities
GBX Leasing – As of November 30, 2023, a $550.0 million nonrecourse warehouse credit facility existed to support the operations of GBX Leasing. Advances under this facility bear interest at the Secured Overnight Financing Rate (SOFR) plus 1.85% plus 0.11% as a SOFR adjustment. Interest rate swap agreements cover approximately 99% of the outstanding balance to swap the floating interest rate to a fixed rate. The warehouse credit facility converts to a term loan in August 2025 and matures in August 2027.
Other credit facilities
North America – As of November 30, 2023, a $600.0 million revolving line of credit, maturing August 2026, secured by substantially all the Company’s U.S. assets not otherwise pledged as security for term loans or the warehouse credit facility, existed to provide working capital and interim financing of equipment, principally for the Company’s U.S. and Mexican operations. Advances under this North American credit facility bear interest at SOFR plus 1.50% plus 0.10% as a SOFR adjustment 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.
Europe – As of November 30, 2023, lines of credit totaling $63.7 million secured by certain of the Company’s European assets, with variable rates that range from Warsaw Interbank Offered Rate (WIBOR) plus 1.2% to WIBOR plus 1.6% and Euro Interbank Offered Rate (EURIBOR) plus 1.9%, were available for working capital needs of the Company’s European manufacturing operations. The European lines of credit include $21.9 million which is guaranteed by the Company. European credit facilities are regularly renewed. Currently, these European credit facilities have maturities that range from June 2024 through November 2025.
Mexico – As of November 30, 2023, the Company’s Mexican railcar manufacturing operations had lines of credit totaling $185.0 million for working capital needs, $85.0 million of which the Company and its joint venture partner have each guaranteed 50%. Advances under these facilities bear interest at variable rates that range from SOFR plus 2.55% to SOFR plus 4.25%. The Mexican credit facilities have maturities that range from June 2024 through October 2026.
12
Revolving notes consisted of the following balances:
(in millions) |
|
November 30, |
|
|
August 31, |
|
||
Nonrecourse credit facility balances |
|
|
|
|
|
|
||
GBX Leasing |
|
$ |
65.1 |
|
|
$ |
139.9 |
|
Other credit facility balances |
|
|
|
|
|
|
||
North America |
|
|
40.0 |
|
|
|
— |
|
Europe |
|
|
44.3 |
|
|
|
47.2 |
|
Mexico |
|
|
130.0 |
|
|
|
110.0 |
|
Total Revolving notes |
|
$ |
279.4 |
|
|
$ |
297.1 |
|
Outstanding commitments under the North American credit facility included letters of credit which totaled $6.4 million and $4.9 million as of November 30, 2023 and August 31, 2023, respectively.
Note 6 – Accounts Payable and Accrued Liabilities
(in millions) |
|
November 30, |
|
|
August 31, |
|
||
Trade payables |
|
$ |
324.2 |
|
|
$ |
396.8 |
|
Accrued payroll and related liabilities |
|
|
129.4 |
|
|
|
158.6 |
|
Accrued liabilities and other |
|
|
85.7 |
|
|
|
87.3 |
|
Operating lease liabilities |
|
|
72.3 |
|
|
|
72.2 |
|
Accrued warranty |
|
|
24.0 |
|
|
|
25.6 |
|
Income taxes payable |
|
|
5.3 |
|
|
|
3.0 |
|
|
|
$ |
640.9 |
|
|
$ |
743.5 |
|
Note 7 – Warranty Accruals
Warranty accruals are included in Accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheets. Warranty accrual activity consisted of the following:
|
|
Three Months Ended |
|
|||||
(in millions) |
|
2023 |
|
|
2022 |
|
||
Balance at beginning of period |
|
$ |
25.6 |
|
|
$ |
24.0 |
|
Charged to cost of revenue, net |
|
|
3.6 |
|
|
|
1.2 |
|
Payments |
|
|
(5.6 |
) |
|
|
(1.6 |
) |
Currency translation effect |
|
|
0.4 |
|
|
|
0.1 |
|
Balance at end of period |
|
$ |
24.0 |
|
|
$ |
23.7 |
|
Note 8 – Notes Payable, net
(In millions) |
|
November 30, |
|
|
August 31, |
|
||
Leasing nonrecourse term loans |
|
$ |
813.0 |
|
|
$ |
640.2 |
|
Senior term debt |
|
|
262.7 |
|
|
|
266.4 |
|
2.875% Convertible senior notes, due 2028 |
|
|
373.8 |
|
|
|
373.8 |
|
2.875% Convertible senior notes, due 2024 |
|
|
47.7 |
|
|
|
47.7 |
|
Other notes payable |
|
|
1.7 |
|
|
|
1.8 |
|
|
|
$ |
1,498.9 |
|
|
$ |
1,329.9 |
|
Debt discount and issuance costs |
|
|
(19.5 |
) |
|
|
(18.2 |
) |
|
|
$ |
1,479.4 |
|
|
$ |
1,311.7 |
|
Leasing nonrecourse term loans include:
13
Terms and conditions, including recourse and nonrecourse provisions and scheduled maturities, and other long-term debt are described in Note 13 of our 2023 Annual Report on Form 10-K.
Asset-backed term notes
GBX Leasing 2022-1 LLC (GBXL I) was formed as a wholly owned special purpose entity of GBX Leasing to securitize the leasing assets of GBX Leasing. On November 20, 2023, GBXL I (Issuer) issued $178.5 million of term notes secured by a portfolio of railcars and associated operating leases and other assets, acquired and owned by GBXL I (the GBXL I Series 2023-1 Notes). Issued debt of GBXL I as of November 30, 2023 includes the $323.3 million GBXL I Series 2022-1 Notes, as described in Note 3 of our 2023 Annual Report on Form 10-K, and the GBXL I Series 2023-1 Notes, collectively the GBXL Notes. GBX Leasing used the net proceeds received from the issuance of the term notes to pay down the GBX Leasing warehouse credit facility.
The GBXL I Series 2023-1 Notes (the 2023 GBXL Notes) includes $158.9 million of GBXL I Series 2023-1 Class A Secured Railcar Equipment Notes (2023 Class A Notes) and $19.6 million of GBXL I Series 2023-1 Class B Secured Railcar Equipment Notes (2023 Class B Notes). The 2023 GBXL Notes bear interest at fixed rates of 6.42% and 7.28% for the 2023 Class A Notes and 2023 Class B Notes, respectively. The 2023 GBXL Notes are payable monthly and have a legal maturity date of November 20, 2053. The Company incurred $2.2 million in debt issuance costs, which will be amortized to interest expense through the expected repayment period. Both 2023 Class A and Class B Notes have an anticipated repayment date of November 20, 2030 and a legal maturity date. While the legal maturity date is in 2053, the cash flows generated from the railcar assets will pay down the 2023 GBXL Notes in line with the agreement, which based on expected cash flow payments, would result in repayment in advance of the legal maturity date. If the principal amount of the 2023 GBXL Notes has not been repaid in full by the anticipated repayment date, then the Issuer will also be required to pay additional interest to the holders at a rate equal to 4.00% per annum.
The GBXL Notes are obligations of the Issuer only and are nonrecourse to Greenbrier. The GBXL Notes are subject to a Master Indenture between the Issuer and U.S. Bank Trust Company, National Association, as trustee, as supplemented by the Series 2022-1 Supplement dated February 9, 2022 and the Series 2023-1 Supplement dated November 20, 2023. The GBXL Notes may be subject to acceleration upon the occurrence of certain events of default. On November 20, 2023, the Issuer established a liquidity facility for the GBXL Notes under a revolving credit agreement and thereby released the funds held as Restricted cash within the liquidity reserve account.
The following table summarizes the Issuer's net carrying amount of the debt and related assets.
(in millions) |
|
November 30, 2023 |
|
|
August 31, |
|
||
Assets |
|
|
|
|
|
|
||
Restricted cash |
|
$ |
— |
|
|
$ |
6.7 |
|
Equipment on operating leases, net |
|
$ |
657.4 |
|
|
$ |
388.9 |
|
Liabilities |
|
|
|
|
|
|
||
Notes payable, net |
|
$ |
475.8 |
|
|
$ |
302.1 |
|
Note 9 – Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss, net of tax effect as appropriate, consisted of the following:
(in millions) |
|
Unrealized |
|
|
Foreign |
|
|
Other |
|
|
Accumulated |
|
||||
Balance, August 31, 2023 |
|
$ |
27.0 |
|
|
$ |
(32.1 |
) |
|
$ |
(2.2 |
) |
|
$ |
(7.3 |
) |
Other comprehensive gain before reclassifications |
|
|
4.3 |
|
|
|
— |
|
|
|
0.1 |
|
|
|
4.4 |
|
Amounts reclassified from Accumulated other |
|
|
(3.5 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3.5 |
) |
Balance, November 30, 2023 |
|
$ |
27.8 |
|
|
$ |
(32.1 |
) |
|
$ |
(2.1 |
) |
|
$ |
(6.4 |
) |
14
The amounts reclassified out of Accumulated other comprehensive loss into the Condensed Consolidated Statements of Operations, with financial statement caption, were as follows:
|
|
Three Months Ended |
|
|
|
|||||
(in millions) |
|
2023 |
|
|
2022 |
|
|
Financial Statement Caption |
||
(Gain) loss on derivative financial instruments: |
|
|
|
|
|
|
|
|
||
Foreign exchange contracts |
|
$ |
(0.1 |
) |
|
$ |
0.2 |
|
|
Revenue and Cost of revenue |
Interest rate swap contracts |
|
|
(4.3 |
) |
|
|
(1.0 |
) |
|
Interest and foreign exchange |
|
|
|
(4.4 |
) |
|
|
(0.8 |
) |
|
Total before tax |
|
|
|
0.9 |
|
|
|
0.3 |
|
|
Tax expense |
|
|
$ |
(3.5 |
) |
|
$ |
(0.5 |
) |
|
Net of tax |
Note 10 – Earnings (Loss) Per Share
The shares used in the computation of basic and diluted earnings (loss) per common share are reconciled as follows:
|
Three Months Ended |
|
|||||
(In thousands) |
2023 |
|
|
2022 |
|
||
Weighted average basic common shares outstanding |
|
31,025 |
|
|
|
32,719 |
|
Dilutive effect of 2.875% convertible notes due 2024 (1) |
|
826 |
|
|
|
— |
|
Dilutive effect of 2.875% convertible notes due 2028 (2) (3) |
|
— |
|
|
|
— |
|
Dilutive effect of restricted stock units (2) (4) |
|
931 |
|
|
|
— |
|
Weighted average diluted common shares outstanding |
|
32,782 |
|
|
|
32,719 |
|
(1) The dilutive effect of the 2.875% Convertible notes due 2024 was excluded for the three months ended November 30, 2022 as they were considered anti-dilutive under the “if converted” method as further discussed below.
(2) The dilutive effect of common stock equivalents was excluded from the share calculation for the three months ended November 30, 2022 due to a net loss.
(3) The dilutive effect of the 2.875% Convertible notes due 2028 was excluded for the three months ended November 30, 2023 as the average stock price was less than the applicable conversion price and therefore was considered anti-dilutive. As these notes require cash settlement for the principal, only a premium is potentially dilutive under the "if converted" method as further discussed below.
(4) Restricted stock units and restricted stock units subject to performance criteria, for which actual levels of performance above target have been achieved, are included in weighted average diluted common shares outstanding when the Company is in a net earnings position.
Basic earnings (loss) per common share (EPS) is computed by dividing Net earnings (loss) attributable to Greenbrier by weighted average basic common shares outstanding.
For the three months ended November 30, 2023, diluted EPS was calculated using the more dilutive of two methods. The first method includes the dilutive effect, using the treasury stock method, associated with restricted stock units and performance based restricted stock units subject to performance criteria, for which actual levels of performance above target have been achieved. The second method supplements the first by also including the “if converted” effect of the 2.875% Convertible notes due 2024 and shares underlying the 2.875% Convertible notes due 2028, when there is a conversion premium. Under the “if converted” method, debt issuance and interest costs, both net of tax, associated with the convertible notes due 2024 are added back to net earnings and the share count is increased by the shares underlying the convertible notes. The dilutive effect of common stock equivalents was excluded from the share calculation for the three months ended November 30, 2022 due to a net loss.
15
|
Three Months Ended |
|
|||||
(in millions, except number of shares which are reflected in thousands, and per share amounts) |
2023 |
|
|
2022 |
|
||
Net earnings (loss) attributable to Greenbrier |
$ |
31.2 |
|
|
$ |
(16.7 |
) |
Weighted average basic common shares outstanding |
|
31,025 |
|
|
|
32,719 |
|
Basic earnings (loss) per share |
$ |
1.00 |
|
|
$ |
(0.51 |
) |
|
|
|
|
|
|
||
Net earnings (loss) attributable to Greenbrier |
$ |
31.2 |
|
|
$ |
(16.7 |
) |
Add back: |
|
|
|
|
|
||
Interest and debt issuance costs on the 2.875% |
|
0.3 |
|
|
n/a |
|
|
Earnings before interest and debt issuance costs |
$ |
31.5 |
|
|
n/a |
|
|
Weighted average diluted common shares outstanding |
|
32,782 |
|
|
|
32,719 |
|
Diluted earnings (loss) per share |
$ |
0.96 |
|
(1) |
$ |
(0.51 |
) |
(1) Diluted earnings per share was calculated as follows:
Earnings before interest and debt issuance costs on the 2.875% convertible notes due 2024
Weighted average diluted common shares outstanding
Note 11 – Derivative Instruments
Foreign operations give rise to market risks from changes in foreign currency exchange rates. Foreign currency forward exchange contracts with established financial institutions are utilized to hedge a portion of that risk. Interest rate swap agreements are used to reduce the impact of changes in interest rates on certain current and probable future debt. The Company’s foreign currency forward exchange contracts and interest rate swap agreements are designated as cash flow hedges, and therefore the effective portion of unrealized gains and losses is recorded in Accumulated other comprehensive income.
At November 30, 2023 exchange rates, notional amounts of forward exchange contracts for the purchase of Polish Zlotys and the sale of Euros; and the purchase of Mexican Pesos and the sale of U.S. Dollars aggregated to $126.9 million. The fair value of the contracts is included on the Condensed Consolidated Balance Sheets as Accounts payable and accrued liabilities when in a loss position, or as Accounts receivable, net when in a gain position. As the contracts mature at various dates through September 2025, any such gain or loss remaining will be recognized in manufacturing revenue or cost of revenue along with the related transactions. In the event that the underlying transaction does not occur or does not occur in the period designated at the inception of the hedge, the amount classified in accumulated other comprehensive loss would be reclassified to the results of operations in Interest and foreign exchange at the time of occurrence. At November 30, 2023 exchange rates, approximately $2.0 million would be reclassified to revenue or cost of revenue in the next year.
At November 30, 2023, interest rate swap agreements maturing from June 2024 through January 2032 had notional amounts that aggregated to $590.5 million. The fair value of the contracts is included on the Condensed Consolidated Balance Sheets in Accounts payable and accrued liabilities when in a loss position, or in Accounts receivable, net when in a gain position. As interest expense on the underlying debt is recognized, amounts corresponding to the interest rate swap are reclassified from Accumulated other comprehensive loss and charged or credited to interest expense. At November 30, 2023 interest rates, approximately $14.1 million of gain would be reclassified to interest expense in the next year.
16
Fair Values of Derivative Instruments
(in millions)
|
|
Asset Derivatives |
|
|
Liability Derivatives |
|
||||||||||||||
|
|
|
|
November 30, |
|
|
August 31, |
|
|
|
|
November 30, |
|
|
August 31, |
|
||||
|
|
Balance sheet location |
|
Fair Value |
|
|
Fair Value |
|
|
Balance sheet location |
|
Fair Value |
|
|
Fair Value |
|
||||
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Foreign forward |
|
Accounts |
|
$ |
5.1 |
|
|
$ |
2.5 |
|
|
Accounts payable |
|
$ |
0.1 |
|
|
$ |
0.1 |
|
Interest rate swap |
|
Accounts |
|
|
33.4 |
|
|
|
34.9 |
|
|
Accounts payable |
|
|
— |
|
|
|
0.1 |
|
|
|
|
|
$ |
38.5 |
|
|
$ |
37.4 |
|
|
|
|
$ |
0.1 |
|
|
$ |
0.2 |
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Foreign forward |
|
Accounts |
|
$ |
— |
|
|
$ |
0.5 |
|
|
Accounts payable |
|
$ |
— |
|
|
$ |
— |
|
The Effect of Derivative Instruments on the Statements of Operations
(in millions)
Three Months Ended November 30, 2023 and 2022
Derivatives in cash flow hedging relationships |
|
Location of gain (loss) recognized |
|
Gain (loss) recognized in income on |
|
|||||
|
|
|
|
2023 |
|
|
2022 |
|
||
Foreign forward exchange contract |
|
Interest and foreign exchange |
|
$ |
0.2 |
|
|
$ |
— |
|
Derivatives |
Gain (loss) recognized in |
|
Location of |
Gain (loss) reclassified |
|
Location of gain |
Gain (loss) recognized on |
|
|||||||||||||||
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||||
Foreign |
$ |
2.4 |
|
|
$ |
1.5 |
|
Revenue |
$ |
0.2 |
|
|
$ |
(0.4 |
) |
Revenue |
$ |
0.6 |
|
|
$ |
0.3 |
|
Foreign |
|
(0.2 |
) |
|
|
0.3 |
|
Cost of |
|
(0.1 |
) |
|
|
0.2 |
|
Cost of |
|
0.3 |
|
|
|
0.1 |
|
Interest rate |
|
3.1 |
|
|
|
10.4 |
|
Interest and |
|
4.3 |
|
|
|
1.0 |
|
Interest and |
|
— |
|
|
|
— |
|
|
$ |
5.3 |
|
|
$ |
12.2 |
|
|
$ |
4.4 |
|
|
$ |
0.8 |
|
|
$ |
0.9 |
|
|
$ |
0.4 |
|
The following table presents the amounts in the Condensed Consolidated Statements of Operations in which the effects of the cash flow hedges are recorded and the effects of the cash flow hedge activity on these line items for the three months ended November 30, 2023 and 2022:
|
|
For the Three Months Ended November 30, |
|
|||||||||||||
|
|
2023 |
|
|
2022 |
|
||||||||||
|
|
Total |
|
|
Amount of gain |
|
|
Total |
|
|
Amount of gain |
|
||||
Revenue |
|
$ |
808.8 |
|
|
$ |
0.2 |
|
|
$ |
766.5 |
|
|
$ |
(0.4 |
) |
Cost of revenue |
|
$ |
687.5 |
|
|
$ |
(0.1 |
) |
|
$ |
697.0 |
|
|
$ |
0.2 |
|
Interest and foreign exchange |
|
$ |
23.2 |
|
|
$ |
4.3 |
|
|
$ |
19.6 |
|
|
$ |
1.0 |
|
17
Note 12 – Segment Information
The Company operates in three reportable segments: Manufacturing; Maintenance Services; and Leasing & Management Services.
The accounting policies of the segments are described in the summary of significant accounting policies in the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended August 31, 2023. Performance is evaluated based on Earnings (loss) from operations. 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. The Company does not allocate Interest and foreign exchange or Income tax expense for either external or internal reporting purposes. Intersegment sales and transfers are valued as if the sales or transfers were to third parties. Related revenue and margin are eliminated in consolidation and therefore are not included in consolidated results in the Company’s Consolidated Financial Statements.
The information in the following table is derived directly from the segments’ internal financial reports used for corporate management purposes.
For the three months ended November 30, 2023:
|
|
Revenue |
|
|
Earnings (loss) from operations |
|
||||||||||||||||||
(in millions) |
|
External |
|
|
Intersegment |
|
|
Total |
|
|
External |
|
|
Intersegment |
|
|
Total |
|
||||||
Manufacturing |
|
$ |
675.9 |
|
|
$ |
58.5 |
|
|
$ |
734.4 |
|
|
$ |
54.3 |
|
|
$ |
4.7 |
|
|
$ |
59.0 |
|
Maintenance Services |
|
|
83.8 |
|
|
|
9.2 |
|
|
|
93.0 |
|
|
|
10.6 |
|
|
|
— |
|
|
|
10.6 |
|
Leasing & Management Services |
|
|
49.1 |
|
|
|
0.2 |
|
|
|
49.3 |
|
|
|
26.3 |
|
|
|
— |
|
|
|
26.3 |
|
Eliminations |
|
|
— |
|
|
|
(67.9 |
) |
|
|
(67.9 |
) |
|
|
— |
|
|
|
(4.7 |
) |
|
|
(4.7 |
) |
Corporate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(26.3 |
) |
|
|
— |
|
|
|
(26.3 |
) |
|
|
$ |
808.8 |
|
|
$ |
— |
|
|
$ |
808.8 |
|
|
$ |
64.9 |
|
|
$ |
— |
|
|
$ |
64.9 |
|
For the three months ended November 30, 2022:
|
|
Revenue |
|
|
Earnings (loss) from operations |
|
||||||||||||||||||
(in millions) |
|
External |
|
|
Intersegment |
|
|
Total |
|
|
External |
|
|
Intersegment |
|
|
Total |
|
||||||
Manufacturing |
|
$ |
646.5 |
|
|
$ |
44.5 |
|
|
$ |
691.0 |
|
|
$ |
(3.4 |
) |
|
$ |
4.0 |
|
|
$ |
0.6 |
|
Maintenance Services |
|
|
85.5 |
|
|
|
8.5 |
|
|
|
94.0 |
|
|
|
5.5 |
|
|
|
— |
|
|
|
5.5 |
|
Leasing & Management Services |
|
|
34.5 |
|
|
|
0.2 |
|
|
|
34.7 |
|
|
|
15.6 |
|
|
|
— |
|
|
|
15.6 |
|
Eliminations |
|
|
— |
|
|
|
(53.2 |
) |
|
|
(53.2 |
) |
|
|
— |
|
|
|
(4.0 |
) |
|
|
(4.0 |
) |
Corporate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(22.5 |
) |
|
|
— |
|
|
|
(22.5 |
) |
|
|
$ |
766.5 |
|
|
$ |
— |
|
|
$ |
766.5 |
|
|
$ |
(4.8 |
) |
|
$ |
— |
|
|
$ |
(4.8 |
) |
|
|
Total assets |
|
|||||
(in millions) |
|
November 30, |
|
|
August 31, |
|
||
Manufacturing |
|
$ |
1,799.3 |
|
|
$ |
1,847.0 |
|
Maintenance Services |
|
|
311.3 |
|
|
|
294.4 |
|
Leasing & Management Services |
|
|
1,537.6 |
|
|
|
1,458.1 |
|
Unallocated, including cash |
|
|
366.5 |
|
|
|
378.9 |
|
|
|
$ |
4,014.7 |
|
|
$ |
3,978.4 |
|
Reconciliation of Earnings (loss) from operations to Earnings (loss) before income tax and earnings from unconsolidated affiliates:
|
|
Three Months Ended |
|
|||||
(in millions) |
|
2023 |
|
|
2022 |
|
||
Earnings (loss) from operations |
|
$ |
64.9 |
|
|
$ |
(4.8 |
) |
Interest and foreign exchange |
|
|
23.2 |
|
|
|
19.6 |
|
Earnings (loss) before income tax and earnings |
|
$ |
41.7 |
|
|
$ |
(24.4 |
) |
18
Note 13 – Leases
Lessor
Equipment on operating leases is reported net of accumulated depreciation of $74.9 million and $68.0 million as of November 30, 2023 and August 31, 2023, respectively. Depreciation expense was $7.8 million and $6.0 million for the three months ended November 30, 2023 and 2022, respectively. In addition, certain railcar equipment leased-in by the Company on operating leases is subleased to customers under non-cancelable operating leases with lease terms ranging from one to approximately thirteen years. Operating lease rental revenues included in the Company’s Condensed Consolidated Statements of Operations for the three months ended November 30, 2023 and 2022 was $27.7 million and $19.6 million, respectively, which included $5.4 million and $4.8 million, respectively, of revenue as a result of daily, monthly or car hire utilization arrangements.
Aggregate minimum future amounts receivable under all non-cancelable operating leases and subleases at November 30, 2023, will mature as follows:
(in millions) |
|
|
|
|
Remaining nine months of 2024 |
|
$ |
65.9 |
|
2025 |
|
|
79.1 |
|
2026 |
|
|
71.5 |
|
2027 |
|
|
63.9 |
|
2028 |
|
|
49.4 |
|
Thereafter |
|
|
98.8 |
|
|
|
$ |
428.6 |
|
Lessee
The Company leases railcars, real estate, and certain equipment under operating and, to a lesser extent, finance lease arrangements. As of and for the three months ended November 30, 2023 and 2022, finance leases were not a material component of the Company's lease portfolio. The Company’s real estate and equipment leases have remaining lease terms ranging from less than one year to 75 years, with some including options to extend up to 8 years. The Company recognizes a lease liability and corresponding right-of-use (ROU) asset based on the present value of lease payments. To determine the present value of lease payments, as most of its leases do not provide a readily determinable implicit rate, the Company’s incremental borrowing rate is used to discount the lease payments based on information available at lease commencement date. The Company gives consideration to its recent debt issuances as well as publicly available data for instruments with similar characteristics when estimating its incremental borrowing rate.
The components of operating lease costs were as follows:
|
|
Three Months Ended |
|
|||||
(in millions) |
|
2023 |
|
|
2022 |
|
||
Operating lease expense |
|
$ |
4.2 |
|
|
$ |
3.1 |
|
Short-term lease expense |
|
|
1.7 |
|
|
|
1.9 |
|
Total |
|
$ |
5.9 |
|
|
$ |
5.0 |
|
19
Aggregate minimum future amounts payable under operating leases having initial or remaining non-cancelable terms at November 30, 2023, will mature as follows:
(in millions) |
|
|
|
|
Remaining nine months of 2024 |
|
$ |
11.6 |
|
2025 |
|
|
13.6 |
|
2026 |
|
|
12.3 |
|
2027 |
|
|
9.5 |
|
2028 |
|
|
8.6 |
|
Thereafter |
|
|
23.5 |
|
Total lease payments |
|
$ |
79.1 |
|
Less: Imputed interest |
|
|
(6.8 |
) |
Total lease obligations |
|
$ |
72.3 |
|
The table below presents additional information related to the Company’s leases:
Weighted average remaining lease term (years): |
|
|
|
|
Operating leases |
|
|
10.7 |
|
|
|
|
|
|
Weighted average discount rate: |
|
|
|
|
Operating leases |
|
|
2.4 |
% |
Supplemental cash flow information related to leases were as follows:
(in millions) |
|
Three Months Ended November 30, 2023 |
|
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
Operating cash flows from operating leases |
|
$ |
4.6 |
|
ROU assets obtained in exchange for new operating lease liabilities |
|
$ |
2.1 |
|
Note 14 – Commitments and Contingencies
Portland Harbor Superfund Site
The Company’s former Portland, Oregon manufacturing facility (the Portland Property) is located adjacent to the Willamette River. In December 2000, the U.S. Environmental Protection Agency (EPA) classified portions of the Willamette River bed known as the Portland Harbor, including the portion fronting the Company’s manufacturing facility, as a federal "National Priority List" or "Superfund" site due to sediment contamination (the Portland Harbor Site). The Company and more than 140 other parties have received a "General Notice" of potential liability from the EPA relating to the Portland Harbor Site. The letter advised the Company that it may be liable for the costs of investigation and remediation (which liability may be joint and several with other potentially responsible parties) as well as for natural resource damages resulting from releases of hazardous substances to the site. Ten private and public entities, including the Company (the Lower Willamette Group or LWG), signed an Administrative Order on Consent (AOC) to perform a remedial investigation/feasibility study (RI/FS) of the Portland Harbor Site under EPA oversight, and several additional entities did not sign such consent, but nevertheless contributed financially to the effort. The EPA-mandated RI/FS was produced by the LWG and cost over $110 million during a 17-year period. The Company bore a percentage of the total costs incurred by the LWG in connection with the investigation. The Company’s aggregate expenditure during the 17-year period was not material. Some or all of any such outlay may be recoverable from other responsible parties. The EPA issued its Record of Decision (ROD) for the Portland Harbor Site on January 6, 2017 and accordingly on October 26, 2017, the AOC was terminated.
20
Separate from the process described above, which focused on the type of remediation to be performed at the Portland Harbor Site and the schedule for such remediation, 96 parties, including the State of Oregon and the federal government, are participating in a non-judicial, mediated allocation process to try to allocate costs associated with remediation of the Portland Harbor Site. The Company will continue to participate in the allocation process. Approximately 110 additional parties signed tolling agreements related to such allocations. On April 23, 2009, the Company and the other AOC signatories filed suit against 69 other parties due to a possible limitations period for some such claims; Arkema Inc. et al v. A & C Foundry Products, Inc. et al, U.S. District Court, District of Oregon, Case #3:09-cv-453-PK. All but 12 of these parties elected to sign tolling agreements and be dismissed without prejudice, and the case has been stayed by the court until January 14, 2025.
The EPA's January 6, 2017 ROD identifies a clean-up remedy that the EPA estimates will take 13 years of active remediation, followed by 30 years of monitoring with an estimated undiscounted cost of $1.7 billion. The EPA typically expects its cost estimates to be accurate within a range of -30% to +50%, but this ROD states that changes in costs are likely to occur. The EPA has identified several Sediment Decision Units within the ROD cleanup area. One of the units, RM9W, includes the nearshore area of the river sediments offshore of the Portland Property as well as downstream of the facility. It also includes a portion of the Portland Property's riverbank. The ROD does not break down total remediation costs by Sediment Decision Unit. The EPA requested that potentially responsible parties enter AOCs during 2019 agreeing to conduct remedial design studies. Some parties have signed AOCs, including one party with respect to RM9W which includes the area offshore of the Portland Property. The Company has not signed an AOC in connection with remedial design, but is assisting in funding a portion of the RM9W remedial design.
The ROD does not address responsibility for the costs of clean-up, nor does it allocate such costs among the potentially responsible parties. Responsibility for funding and implementing the EPA's selected cleanup remedy will be determined at an unspecified later date. Based on the investigation to date, the Company believes that it did not contribute in any material way to contaminants of concern in the river sediments or the damage of natural resources in the Portland Harbor Site and that the damage in the area of the Portland Harbor Site adjacent to the Portland Property precedes the Company’s ownership of the Portland Property. Because these environmental investigations are still underway, sufficient information is currently not available to determine the Company’s liability, if any, for the cost of any required remediation or restoration of the Portland Harbor Site or to estimate a range of potential loss. Based on the results of the pending investigations and future assessments of natural resource damages, the Company may be required to incur costs associated with additional phases of investigation or remedial action, and may be liable for damages to natural resources.
On January 30, 2017 the Confederated Tribes and Bands of Yakama Nation sued 33 parties including the Company as well as the federal government and the State of Oregon for costs it incurred in assessing alleged natural resource damages to the Columbia River from contaminants deposited in Portland Harbor. Confederated Tribes and Bands of the Yakama Nation v. Air Liquide America Corp., et al., U.S. Court for the District of Oregon Case No. 3i17-CV-00164-SB. The complaint does not specify the amount of damages the plaintiff will seek. The case has been stayed until January 14, 2025.
Oregon Department of Environmental Quality (DEQ) Regulation of Portland Property
The Company entered into a Voluntary Cleanup Agreement with the Oregon Department of Environmental Quality (DEQ) in which the Company agreed to conduct an investigation of whether, and to what extent, past or present operations at the Portland Property may have released hazardous substances into the environment. The Company has also signed an Order on Consent with the DEQ to finalize the investigation of potential onsite sources of contamination that may have a release pathway to the Willamette River. The Company’s aggregate expenditure has not been material, however it could incur significant expenses for remediation. Some or all of any such outlay may be recoverable from other responsible parties.
Sale of Portland Property
The Company sold the Portland Property in May 2023, but remains potentially liable with respect to the above matters. Any of these matters could adversely affect the Company's business and Consolidated Financial Statements. However, any contamination or exacerbation of contamination that occurs after the sale of the property will be the liability of the current and future owners and operators of the Portland Property.
21
Other Litigation, Commitments and Contingencies
From time to time, the Company is involved as a defendant in litigation in the ordinary course of business, the outcomes of which cannot be predicted with certainty. While the ultimate outcome of such legal proceedings cannot be determined at this time, the Company believes that the resolution of pending litigation will not have a material adverse effect on the Company's Consolidated Financial Statements.
As of November 30, 2023, the Company had outstanding letters of credit aggregating to $6.4 million associated with performance guarantees, facility leases and workers compensation insurance.
Note 15 – Fair Value Measures
Certain assets and liabilities are reported at fair value on either a recurring or nonrecurring basis. Fair value, for this disclosure, is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, under a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:
Level 1 - observable inputs such as unadjusted quoted prices in active markets for identical instruments;
Level 2 - inputs, other than the quoted market prices in active markets for similar instruments, which are observable, either directly or indirectly; and
Level 3 - unobservable inputs for which there is little or no market data available, which require the reporting entity to develop its own assumptions.
Assets and liabilities measured at fair value on a recurring basis as of November 30, 2023 were:
(in millions) |
|
Total |
|
|
Level 1 |
|
|
Level 2 (1) |
|
|
Level 3 |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative financial instruments |
|
$ |
38.5 |
|
|
$ |
— |
|
|
$ |
38.5 |
|
|
$ |
— |
|
Nonqualified savings plan investments |
|
|
48.4 |
|
|
|
48.4 |
|
|
|
— |
|
|
|
— |
|
Cash equivalents |
|
|
51.6 |
|
|
|
51.6 |
|
|
|
— |
|
|
|
— |
|
|
|
$ |
138.5 |
|
|
$ |
100.0 |
|
|
$ |
38.5 |
|
|
$ |
— |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative financial instruments |
|
$ |
0.1 |
|
|
$ |
— |
|
|
$ |
0.1 |
|
|
$ |
— |
|
Assets and liabilities measured at fair value on a recurring basis as of August 31, 2023 were:
(in millions) |
|
Total |
|
|
Level 1 |
|
|
Level 2 (1) |
|
|
Level 3 |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative financial instruments |
|
$ |
37.9 |
|
|
$ |
— |
|
|
$ |
37.9 |
|
|
$ |
— |
|
Nonqualified savings plan investments |
|
|
47.7 |
|
|
|
47.7 |
|
|
|
— |
|
|
|
— |
|
Cash equivalents |
|
|
51.2 |
|
|
|
51.2 |
|
|
|
— |
|
|
|
— |
|
|
|
$ |
136.8 |
|
|
$ |
98.9 |
|
|
$ |
37.9 |
|
|
$ |
— |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative financial instruments |
|
$ |
0.2 |
|
|
$ |
— |
|
|
$ |
0.2 |
|
|
$ |
— |
|
Note 16 – Related Party Transactions
The Company has a 41.9% interest in Axis, LLC (Axis), a joint venture. The Company purchased $2.3 million and $2.7 million of railcar components from Axis for the three months ended November 30, 2023 and 2022, respectively.
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
We operate in three reportable segments: Manufacturing; Maintenance Services; and Leasing & Management Services. Our segments are operationally integrated. The Manufacturing segment, which currently operates from facilities in the U.S., Mexico, Poland, and Romania, produces freight railcars, tank cars, intermodal railcars and automotive railcar products. The Maintenance Services segment performs wheel and axle servicing, railcar maintenance and produces a variety of parts for the rail industry in North America. The Leasing & Management Services segment owns approximately 14,100 railcars as of November 30, 2023. We also provide management services for railroads, shippers, carriers, institutional investors and other leasing and transportation companies in North America. Through unconsolidated affiliates we produce rail and industrial components and have an ownership stake in a railcar manufacturer in Brazil.
Management identifies the following trends which continue to impact our business and our results for the three months ended November 30, 2023. Overall, demand in the marketplace remains strong for our products and services. Supply chain challenges, rail service congestion, inflation, high interest rates, and labor shortages continue to impact our business. Despite the continued challenging operating environment, we accomplished the following during the quarter ended November 30, 2023:
As we continue to execute on our strategic plan, we remain focused on increasing recurring revenue, expanding our aggregate gross margin, and raising our return on invested capital.
Our backlog remains strong with railcar deliveries into 2026. Our railcar backlog was 29,700 units with an estimated value of $3.8 billion as of November 30, 2023. Our backlog includes $880 million of railcars intended for syndication which are supported by lease agreements with external customers and 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 3% of backlog units and estimated backlog value as of November 30, 2023 was associated with our Brazilian manufacturing operations which is accounted for under the equity method.
Our backlog of railcar units 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.
As described in Part I Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended August 31, 2023 the items described above 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 these items will impact our business.
23
Three Months Ended November 30, 2023 Compared to the Three Months Ended November 30, 2022
Overview
Revenue, Cost of revenue, Margin and Earnings (loss) from operations (operating profit or loss) presented below, include amounts from external parties and exclude intersegment activity that is eliminated in consolidation.
|
|
Three Months Ended |
|
|||||
(in millions, except per share amounts) |
|
2023 |
|
|
2022 |
|
||
Revenue: |
|
|
|
|
|
|
||
Manufacturing |
|
$ |
675.9 |
|
|
$ |
646.5 |
|
Maintenance Services |
|
|
83.8 |
|
|
|
85.5 |
|
Leasing & Management Services |
|
|
49.1 |
|
|
|
34.5 |
|
|
|
|
808.8 |
|
|
|
766.5 |
|
Cost of revenue: |
|
|
|
|
|
|
||
Manufacturing |
|
|
600.9 |
|
|
|
604.5 |
|
Maintenance Services |
|
|
71.6 |
|
|
|
79.6 |
|
Leasing & Management Services |
|
|
15.0 |
|
|
|
12.9 |
|
|
|
|
687.5 |
|
|
|
697.0 |
|
Margin: |
|
|
|
|
|
|
||
Manufacturing |
|
|
75.0 |
|
|
|
42.0 |
|
Maintenance Services |
|
|
12.2 |
|
|
|
5.9 |
|
Leasing & Management Services |
|
|
34.1 |
|
|
|
21.6 |
|
|
|
|
121.3 |
|
|
|
69.5 |
|
Selling and administrative |
|
|
56.3 |
|
|
|
53.4 |
|
Net loss (gain) on disposition of equipment |
|
|
0.1 |
|
|
|
(3.3 |
) |
Impairment of long-lived assets |
|
|
— |
|
|
|
24.2 |
|
Earnings (loss) from operations |
|
|
64.9 |
|
|
|
(4.8 |
) |
Interest and foreign exchange |
|
|
23.2 |
|
|
|
19.6 |
|
Earnings (loss) before income tax and earnings from unconsolidated affiliates |
|
|
41.7 |
|
|
|
(24.4 |
) |
Income tax (expense) benefit |
|
|
(10.0 |
) |
|
|
3.8 |
|
Earnings (loss) before earnings from unconsolidated affiliates |
|
|
31.7 |
|
|
|
(20.6 |
) |
Earnings from unconsolidated affiliates |
|
|
1.5 |
|
|
|
3.3 |
|
Net earnings (loss) |
|
|
33.2 |
|
|
|
(17.3 |
) |
Net (earnings) loss attributable to noncontrolling interest |
|
|
(2.0 |
) |
|
|
0.6 |
|
Net earnings (loss) attributable to Greenbrier |
|
$ |
31.2 |
|
|
$ |
(16.7 |
) |
Diluted earnings (loss) per common share |
|
$ |
0.96 |
|
|
$ |
(0.51 |
) |
Performance for our segments is evaluated based on operating profit or loss. 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 expense for either external or internal reporting purposes.
|
|
Three Months Ended |
|
|||||
(in millions) |
|
2023 |
|
|
2022 |
|
||
Operating profit (loss): |
|
|
|
|
|
|
||
Manufacturing |
|
$ |
54.3 |
|
|
$ |
(3.4 |
) |
Maintenance Services |
|
|
10.6 |
|
|
|
5.5 |
|
Leasing & Management Services |
|
|
26.3 |
|
|
|
15.6 |
|
Corporate |
|
|
(26.3 |
) |
|
|
(22.5 |
) |
|
|
$ |
64.9 |
|
|
$ |
(4.8 |
) |
24
Consolidated Results
|
|
Three Months Ended |
|
|
Increase |
|
|
% |
|
|||||||
(in millions) |
|
2023 |
|
|
2022 |
|
|
(Decrease) |
|
|
Change |
|
||||
Revenue |
|
$ |
808.8 |
|
|
$ |
766.5 |
|
|
$ |
42.3 |
|
|
|
5.5 |
% |
Cost of revenue |
|
$ |
687.5 |
|
|
$ |
697.0 |
|
|
$ |
(9.5 |
) |
|
|
(1.4 |
%) |
Margin (%) |
|
|
15.0 |
% |
|
|
9.1 |
% |
|
|
5.9 |
% |
|
* |
|
|
Net earnings (loss) attributable to Greenbrier |
|
$ |
31.2 |
|
|
$ |
(16.7 |
) |
|
$ |
47.9 |
|
|
* |
|
|
* 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 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 5.5% increase in revenue for the three months ended November 30, 2023 as compared to the three months ended November 30, 2022 was primarily due to a 4.5% increase in Manufacturing revenue and 42.3% increase in Leasing and Management Services revenue. The increases were primarily driven by higher deliveries and syndication activity during the three months ended November 30, 2023 partially offset by a lower average selling price due to a change in product mix when compared to the prior comparable period.
The 1.4% decrease in cost of revenue for the three months ended November 30, 2023 as compared to the three months ended November 30, 2022 was primarily due to a 0.6% decrease in Manufacturing cost of revenue. The decrease in Manufacturing cost of revenue was primarily attributed to operating efficiencies and a change in product mix within our Manufacturing segment when compared to the prior comparable period.
Margin as a percentage of revenue was 15.0% and 9.1% for the three months ended November 30, 2023 and 2022, respectively. The overall margin as a percentage of revenue was positively impacted by operating efficiencies and favorable product mix within our Manufacturing segment as well as improved pricing at our Maintenance Services segment.
The $47.9 million increase in Net earnings attributable to Greenbrier for the three months ended November 30, 2023 as compared to the three months ended November 30, 2022 was primarily due to:
These were partially offset by higher income tax expense associated with improved earnings during the three months ended November 30, 2023.
25
Manufacturing Segment
|
|
Three Months Ended |
|
|
Increase |
|
|
% |
|
|||||||
(In millions, except railcar deliveries) |
|
2023 |
|
|
2022 |
|
|
(Decrease) |
|
|
Change |
|
||||
Revenue |
|
$ |
675.9 |
|
|
$ |
646.5 |
|
|
$ |
29.4 |
|
|
|
4.5 |
% |
Cost of revenue |
|
$ |
600.9 |
|
|
$ |
604.5 |
|
|
$ |
(3.6 |
) |
|
|
(0.6 |
%) |
Margin (%) |
|
|
11.1 |
% |
|
|
6.5 |
% |
|
|
4.6 |
% |
|
* |
|
|
Operating profit (loss) ($) |
|
$ |
54.3 |
|
|
$ |
(3.4 |
) |
|
$ |
57.7 |
|
|
* |
|
|
Operating profit (loss) (%) |
|
|
8.0 |
% |
|
|
(0.5 |
%) |
|
|
8.5 |
% |
|
* |
|
|
Deliveries |
|
|
5,200 |
|
|
|
4,500 |
|
|
|
700 |
|
|
|
15.6 |
% |
* Not meaningful
Our Manufacturing segment primarily generates revenue from manufacturing a wide range of freight railcars and from the conversion of existing railcars through our facilities in North America and Europe.
Manufacturing revenue increased $29.4 million or 4.5% for the three months ended November 30, 2023 compared to the three months ended November 30, 2022. The increase in revenue was primarily attributed to a 15.6% increase in railcar deliveries and higher syndications partially offset by a lower average selling price due to a change in product mix when compared to the prior comparable period.
Manufacturing cost of revenue decreased $3.6 million or 0.6% for the three months ended November 30, 2023 compared to the three months ended November 30, 2022. The decrease in cost of revenue was primarily attributed to operating efficiencies and a change in product mix during the three months ended November 30, 2023.
Manufacturing margin as a percentage of revenue increased 4.6% for the three months ended November 30, 2023 compared to the three months ended November 30, 2022. The increase in margin percentage for the three months ended November 30, 2023 was primarily attributed to operating efficiencies and favorable product mix during the three months ended November 30, 2023.
Manufacturing operating profit increased $57.7 million for the three months ended November 30, 2023 compared to the three months ended November 30, 2022. The increase in operating profit was primarily attributed to improved Margin during the three months ended November 30, 2023 as well as an impairment loss during the three months ended November 30, 2022.
26
Maintenance Services Segment
|
|
Three Months Ended |
|
|
Increase |
|
|
% |
|
|||||||
(in millions) |
|
2023 |
|
|
2022 |
|
|
(Decrease) |
|
|
Change |
|
||||
Revenue |
|
$ |
83.8 |
|
|
$ |
85.5 |
|
|
$ |
(1.7 |
) |
|
|
(2.0 |
%) |
Cost of revenue |
|
$ |
71.6 |
|
|
$ |
79.6 |
|
|
$ |
(8.0 |
) |
|
|
(10.1 |
%) |
Margin (%) |
|
|
14.6 |
% |
|
|
6.9 |
% |
|
|
7.7 |
% |
|
* |
|
|
Operating profit ($) |
|
$ |
10.6 |
|
|
$ |
5.5 |
|
|
$ |
5.1 |
|
|
|
92.7 |
% |
Operating profit (%) |
|
|
12.6 |
% |
|
|
6.4 |
% |
|
|
6.2 |
% |
|
* |
|
|
* Not meaningful
Our Maintenance Services segment primarily generates revenue from railcar component manufacturing and servicing and from providing railcar maintenance services.
Maintenance Services revenue decreased $1.7 million or 2.0% for the three months ended November 30, 2023 compared to the three months ended November 30, 2022. The decrease was primarily attributed to lower volumes with higher average selling price.
Maintenance Services cost of revenue decreased $8.0 million or 10.1% for the three months ended November 30, 2023 compared to the three months ended November 30, 2022. The decrease was primarily due to operating efficiencies.
Maintenance Services margin as a percentage of revenue increased 7.7% for the three months ended November 30, 2023 compared to the three months ended November 30, 2022. The increase in margin percentage was primarily attributed to improved pricing and operating efficiencies.
Maintenance Services operating profit increased $5.1 million for the three months ended November 30, 2023 compared to the three months ended November 30, 2022. The increase in operating profit was primarily attributed to improved pricing and operating efficiencies.
27
Leasing & Management Services Segment
|
|
Three Months Ended |
|
|
Increase |
|
|
% |
|
|||||||
(in millions) |
|
2023 |
|
|
2022 |
|
|
(Decrease) |
|
|
Change |
|
||||
Revenue |
|
$ |
49.1 |
|
|
$ |
34.5 |
|
|
$ |
14.6 |
|
|
|
42.3 |
% |
Cost of revenue |
|
$ |
15.0 |
|
|
$ |
12.9 |
|
|
$ |
2.1 |
|
|
|
16.3 |
% |
Margin (%) |
|
|
69.5 |
% |
|
|
62.6 |
% |
|
|
6.9 |
% |
|
* |
|
|
Operating profit ($) |
|
$ |
26.3 |
|
|
$ |
15.6 |
|
|
$ |
10.7 |
|
|
|
68.6 |
% |
Operating profit (%) |
|
|
53.6 |
% |
|
|
45.2 |
% |
|
|
8.4 |
% |
|
* |
|
|
* Not meaningful
Our Leasing & Management Services segment generates revenue from leasing railcars from our lease fleet, providing various management services, syndication revenue associated with leases attached to new railcar sales, and interim rent on leased railcars for syndication.
Leasing & Management Services revenue increased $14.6 million or 42.3% for the three months ended November 30, 2023 compared to the three months ended November 30, 2022. The increase was primarily attributed to higher syndication activity and higher lease rents due to a larger fleet and improved lease rates.
Leasing & Management Services cost of revenue increased $2.1 million or 16.3% for the three months ended November 30, 2023 compared to the three months ended November 30, 2022. The increase was primarily due to higher costs from the larger fleet.
Leasing & Management Services margin as a percentage of revenue increased 6.9% for the three months ended November 30, 2023 compared to the three months ended November 30, 2022. The increase in margin percentage was primarily attributed to higher syndication activity and lease rents.
Leasing & Management Services operating profit increased $10.7 million for the three months ended November 30, 2023 compared to the three months ended November 30, 2022. The increase was primarily attributed to higher syndication activity and improved Margin in the lease fleet for the three months ended November 30, 2023.
28
Selling and Administrative Expense
|
|
Three Months Ended |
|
|
Increase |
|
|
% |
|
|||||||
(in millions) |
|
2023 |
|
|
2022 |
|
|
(Decrease) |
|
|
Change |
|
||||
Selling and administrative expense |
|
$ |
56.3 |
|
|
$ |
53.4 |
|
|
$ |
2.9 |
|
|
|
5.4 |
% |
Selling and administrative expense was $56.3 million or 7.0% of revenue for the three months ended November 30, 2023 compared to $53.4 million or 7.0% of revenue for the prior comparable period. The $2.9 million increase was primarily attributed to an increase in employee related costs.
Net Loss (Gain) on Disposition of Equipment
Net loss (gain) on disposition of equipment typically includes the sale of assets from our lease fleet (Equipment on operating leases, net) and disposition of property, plant and equipment. Assets are periodically sold in the normal course of business in order to optimize our fleet and to manage risk and liquidity.
Net loss on disposition of equipment was $0.1 million for the three months ended November 30, 2023 compared to a gain of $3.3 million for the prior comparable period. The loss during the three months ended November 30, 2023 was primarily driven by a loss on a property lease termination.
Impairment of Long-Lived Assets
The three months ended November 30, 2022 included a $24.2 million impairment of long-lived assets at our Gunderson facility.
Interest and Foreign Exchange
Interest and foreign exchange expense was composed of the following:
|
|
Three Months Ended |
|
|
Increase |
|
||||||
(in millions) |
|
2023 |
|
|
2022 |
|
|
(Decrease) |
|
|||
Interest and foreign exchange: |
|
|
|
|
|
|
|
|
|
|||
Interest and other expense |
|
$ |
21.9 |
|
|
$ |
17.8 |
|
|
$ |
4.1 |
|
Foreign exchange (gain) loss |
|
|
1.3 |
|
|
|
1.8 |
|
|
|
(0.5 |
) |
|
|
$ |
23.2 |
|
|
$ |
19.6 |
|
|
$ |
3.6 |
|
The $3.6 million increase in Interest and foreign exchange expense for the three months ended November 30, 2023 compared to the three months ended November 30, 2022 was partially attributed to an increase in interest expense from higher interest rates and borrowings.
29
Income Tax
For the three months ended November 30, 2023, we had income tax expense of $10.0 million on pre-tax income of $41.7 million for an effective tax rate of 24.0%. The effective tax rate benefited from net favorable adjustments related to our foreign subsidiaries.
For the three months ended November 30, 2022, we had income tax benefit of $3.8 million on a pre-tax loss of $24.4 million. The tax benefit was attributed to a net favorable discrete impact related to the impairment of long-lived assets at our Gunderson facility, partially offset by changes in foreign currency exchange rates and inflationary adjustments at our U.S. Dollar denominated foreign operations.
The provision for income taxes during interim quarterly reporting periods is based on our estimates of the effective tax rates for the full fiscal year and may be positively or negatively impacted by adjustments that are required to be reported in the quarter. The effective tax rate can fluctuate year-to-year due to 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 before income taxes and earnings from unconsolidated affiliates, whereas only our 50% share of the tax is included in Income tax expense.
Earnings From Unconsolidated Affiliates
Through unconsolidated affiliates we produce rail and industrial components and have an ownership stake in a railcar manufacturer in Brazil. We record the results from these unconsolidated affiliates on an after-tax basis.
Earnings from unconsolidated affiliates were $1.5 million and $3.3 million for the three months ended November 30, 2023 and 2022, respectively. The decrease was primarily related to lower volumes.
Noncontrolling Interest
Net earnings (loss) attributable to noncontrolling interest was earnings of $2.0 million for the three months ended November 30, 2023 compared to a loss of $0.6 million for the three months ended November 30, 2022. Net earnings (loss) attributable to noncontrolling interest 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.
30
Liquidity and Capital Resources
|
|
Three Months Ended |
|
|||||
(in millions) |
|
2023 |
|
|
2022 |
|
||
Net cash used in operating activities |
|
$ |
(44.7 |
) |
|
$ |
(255.5 |
) |
Net cash used in investing activities |
|
|
(67.3 |
) |
|
|
(43.0 |
) |
Net cash provided by financing activities |
|
|
130.8 |
|
|
|
9.3 |
|
Effect of exchange rate changes |
|
|
(0.2 |
) |
|
|
10.6 |
|
Increase (decrease) in Cash and cash equivalents and Restricted cash |
|
$ |
18.6 |
|
|
$ |
(278.6 |
) |
We have been financed through cash generated from operations and borrowings. At November 30, 2023 Cash and cash equivalents and Restricted cash were $321.3 million, an increase of $18.6 million from $302.7 million at August 31, 2023.
Cash Flows From Operating Activities
The change in cash used in operating activities for the three months ended November 30, 2023 compared to the three months ended November 30, 2022 was primarily due to a change in Leased railcars for syndication and an increase in Net earnings.
Cash Flows From Investing Activities
Cash 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 used in investing activities for the three months ended November 30, 2023 compared to the three months ended November 30, 2022 was primarily attributable to fewer fleet sales and an increase in capital expenditures when compared to the three months ended November 30, 2022 in our Leasing & Management Services segment.
|
|
Three Months Ended |
|
|||||
(in millions) |
|
2023 |
|
|
2022 |
|
||
Capital expenditures: |
|
|
|
|
|
|
||
Leasing & Management Services |
|
$ |
(54.3 |
) |
|
$ |
(46.1 |
) |
Manufacturing |
|
|
(11.9 |
) |
|
|
(10.4 |
) |
Maintenance Services |
|
|
(2.1 |
) |
|
|
(1.1 |
) |
Total capital expenditures (gross) |
|
$ |
(68.3 |
) |
|
$ |
(57.6 |
) |
Proceeds from sales of assets |
|
|
0.4 |
|
|
|
13.8 |
|
Total capital expenditures (net of proceeds) |
|
$ |
(67.9 |
) |
|
$ |
(43.8 |
) |
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 & Management 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. Proceeds from sales of assets are expected to be approximately $85 million for 2024.
Gross capital expenditures for 2024 are expected to be approximately $300 million for Leasing & Management Services, approximately $165 million for Manufacturing and approximately $15 million for Maintenance Services. Capital expenditures for 2024 primarily relate to additions to our lease fleet reflecting our leasing strategy and continued investments into the safety and productivity of our facilities.
Cash Flows From Financing Activities
The change in cash provided by financing activities for the three months ended November 30, 2023 compared to the three months ended November 30, 2022 was primarily attributed to higher proceeds from the issuance of notes payable, net of repayments and the net change in revolving notes to support our operations. During the three months ended November 30, 2023 we issued $178.5 million of asset backed securities and used proceeds to pay down $139.9 million of our GBX Leasing warehouse facility. We also drew $65.1 million on the GBX Leasing warehouse facility to grow the fleet.
31
Dividend & Share Repurchase Program
A quarterly dividend of $0.30 per share was declared on January 4, 2024.
The Board of Directors has authorized our company to repurchase shares of our common stock. The share repurchase program has an expiration date of January 31, 2025. Under the share repurchase program, shares of common stock may be purchased from time to time on the open market or through privately negotiated transactions. The timing and amount of purchases is 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.
During the three months ended November 30, 2023, we purchased a total of 38 thousand shares for $1.3 million. As of November 30, 2023, the amount remaining for repurchase under the share repurchase program was $45.1 million.
Cash, Borrowing Availability and Credit Facilities
As of November 30, 2023, we had $307.3 million in Cash and cash equivalents and $355.2 million in available borrowings. The available balance to draw under committed credit facilities includes $280.8 million on the North American credit facility, $19.4 million on the European credit facilities and $55.0 million on the Mexican credit facilities.
Senior secured credit facilities aggregated to $1.4 billion as of November 30, 2023 which consisted of the following components:
GBX Leasing – As of November 30, 2023, a $550.0 million non-recourse warehouse credit facility existed to support the operations of GBX Leasing. Advances under this facility bear interest at SOFR plus 1.85% plus 0.11% as a SOFR adjustment. Interest rate swap agreements cover approximately 99% of the outstanding balance to swap the floating interest rate to a fixed rate. The warehouse credit facility converts to a term loan in August 2025 and matures in August 2027.
North America – As of November 30, 2023, a $600.0 million revolving line of credit, maturing August 2026, secured by substantially all our U.S. assets not otherwise pledged as security for term loans or the warehouse credit facility, existed to provide working capital and interim financing of equipment, principally for our U.S. and Mexican operations. Advances under this North American credit facility bear interest at SOFR plus 1.50% plus 0.10% as a SOFR adjustment 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.
Europe – As of November 30, 2023, lines of credit totaling $63.7 million secured by certain of our European assets, with variable rates that range from WIBOR plus 1.2% to WIBOR plus 1.6% and EURIBOR plus 1.9%, were available for working capital needs of our European manufacturing operations. The European lines of credit include $21.9 million which is guaranteed by us. European credit facilities are regularly renewed. Currently, these European credit facilities have maturities that range from June 2024 through November 2025.
Mexico – As of November 30, 2023, our Mexican railcar manufacturing operations had lines of credit totaling $185.0 million for working capital needs, $85.0 of which we and our joint venture partner have each guaranteed 50%. Advances under these facilities bear interest at variable rates that range from SOFR plus 2.55% to SOFR plus 4.25%. The Mexican credit facilities have maturities that range from June 2024 through October 2026.
32
Credit facility balances:
(in millions) |
|
November 30, |
|
|
August 31, |
|
||
Nonrecourse credit facility balances |
|
|
|
|
|
|
||
GBX Leasing |
|
$ |
65.1 |
|
|
$ |
139.9 |
|
Other credit facility balances |
|
|
|
|
|
|
||
North America |
|
|
40.0 |
|
|
|
— |
|
Europe |
|
|
44.3 |
|
|
|
47.2 |
|
Mexico |
|
|
130.0 |
|
|
|
110.0 |
|
Total Revolving notes |
|
$ |
279.4 |
|
|
$ |
297.1 |
|
Outstanding commitments under the North American credit facility included letters of credit which totaled $6.4 million and $4.9 million as of November 30, 2023 and August 31, 2023, respectively.
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 non U.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 of November 30, 2023, 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 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.
To mitigate the exposure to changes in interest rates, we have managed a portion of our variable rate debt with interest rate swap agreements, effectively converting $590.5 million of variable rate debt to fixed rate debt as of November 30, 2023.
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.
Off-Balance Sheet Arrangements
We do not currently have off balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our Consolidated Financial Statements.
33
Critical Accounting Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.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.
Impairment of long-lived assets - We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. When such events or changes in circumstances occur, a recoverability test is performed based upon estimated undiscounted cash flows expected to be realized over the remaining useful life of the asset group. If the carrying amount of an asset group exceeds the estimated undiscounted future cash flows, an impairment would be measured as the difference between the fair value of the asset group and the carrying amount of the asset group.
An asset group is generally established by identifying the lowest level of cash flows generated by a group of assets that are largely independent of the cash flows of other assets. Determining whether a long-lived asset is impaired requires various estimates and assumptions, including whether a triggering event has occurred, the identification of asset groups, and the determination of the fair value of real and personal property. Estimates of future cash flows are by nature highly uncertain and contemplate factors that may change over time.
Goodwill - We evaluate goodwill for possible impairment annually or more frequently if events or changes in circumstances indicate that the carrying amounts of our reporting units exceed their fair value. We determine the fair value of our reporting units based on a weighting of income and market approaches. Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows which incorporates forecasted revenues, long-term growth rate, gross margin percentages, operating expenses, and the use of discount rates. Under the market approach, we estimate the fair value based on observed market multiples for comparable businesses. 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 a quantitative assessment for our annual goodwill impairment test during the third quarter of 2023. Based on the results of our assessment, the estimated fair values of all reporting units with goodwill increased from our prior quantitative assessment, and exceeded their carrying values; therefore, we concluded that goodwill was not impaired. Pursuant to the authoritative guidance, we make certain estimates and assumptions to determine our reporting units and whether the fair value for each reporting unit is greater than its carry value. The above highlighted judgments contemplated estimates and effects of macroeconomic trends that are inherently uncertain. Changes in these estimates, which may include the effects of inflation and policy reactions thereto, increases in pricing of materials and components, changes in demand, or potential macroeconomic events may cause future assessment conclusions to differ.
As of November 30, 2023, our goodwill balance was $128.6 million of which $85.6 million related to our Manufacturing segment and $43.0 million related to our Maintenance Services segment. Our Manufacturing segment includes the North America Manufacturing reporting unit with a goodwill balance of $56.3 million; and the Europe Manufacturing reporting unit with a goodwill balance of $29.3 million.
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 a tax benefit from uncertain tax positions in the financial statements only when it is more likely than not the position will be sustained upon examination by relevant tax authorities.
Our annual tax rate is based on our income, statutory tax rates, and tax planning opportunities available to us in the various jurisdictions in which we operate. Judgment is required in determining our tax expense and in evaluating our tax positions, as tax laws are complex and subject to different interpretations by taxpayers and government taxing authorities.
34
Our income tax rate is affected by the tax rates that apply to our foreign earnings and could be adversely impacted by higher or lower earnings than anticipated in a particular jurisdiction. In addition to local country tax laws and regulations, our income tax rate depends on the extent that our foreign earnings are taxed by the U.S. through provisions such as the global intangible low-taxed income (GILTI) tax and base erosion and anti-abuse tax (BEAT). We review our deferred tax assets and tax positions quarterly and adjust the balances as new information becomes available.
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.
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 14 to the Condensed Consolidated Financial Statements.
35
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Risk
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 of each entity, we enter into foreign currency forward exchange contracts to protect revenue or margin on a portion of forecasted foreign currency sales and expenses. At November 30, 2023 exchange rates, notional amounts of forward exchange contracts for the purchase of Polish Zlotys and the sale of Euros; and the purchase of Mexican Pesos and the sale of U.S. Dollars aggregated to $126.9 million. Because of the variety of currencies in which purchases and sales are transacted and the interaction between currency rates, it is not possible to predict the impact that a movement in a single foreign currency exchange rate would have on future operating results.
In addition to exposure to transaction gains or losses, we are also exposed to foreign currency exchange risk related to the net asset position of our foreign subsidiaries. At November 30, 2023, net assets of foreign subsidiaries aggregated to $155.3 million and a 10% strengthening of the U.S. Dollar relative to the foreign currencies would result in a decrease in equity of $15.5 million, or 1.2% of Total equity - Greenbrier. This calculation assumes that each exchange rate would change in the same direction relative to the U.S. Dollar.
Interest Rate Risk
We have managed a portion of our variable rate debt with interest rate swap agreements, effectively converting $590.5 million of variable rate debt to fixed rate debt. Notwithstanding these interest rate swap agreements, we are still exposed to interest rate risk relating to our revolving debt and a portion of term debt, which are at variable rates. At November 30, 2023, 84% of our outstanding debt had fixed rates and 16% had variable rates. At November 30, 2023, a uniform increase by 10% in variable interest rates would result in approximately $1.5 million of additional annual interest expense.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective as of such date due to the material weakness in internal control over financial reporting that was disclosed in our Annual Report on Form 10-K for the fiscal year ended August 31, 2023.
Ongoing Remediation of Previously Identified Material Weakness
The Company’s management, under the oversight of the Audit Committee, is designing and implementing corrective actions to remediate the control deficiencies contributing to the material weakness. These remediation actions are ongoing and include or are expected to include:
As we continue to evaluate and enhance our internal control over financial reporting, we may determine that additional measures to address the material weaknesses or adjustments to the remediation plan may be required.
36
Once controls are designed and implemented, the controls must be operating effectively for a sufficient period of time and be tested by management in order to consider them remediated and conclude that the design is effective to address the risks of material misstatement.
Changes in Internal Control over Financial Reporting
During the quarter we implemented a new ERP system at our maintenance services businesses. Except for the system implementation and changes in connection with our implementation of the remediation plans above, there have been no changes in our internal control over financial reporting during the quarter ended November 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
37
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There is hereby incorporated by reference the information disclosed in Note 14 to the Condensed Consolidated Financial Statements, Part I of this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
This Form 10-Q should be read in conjunction with Part I Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended August 31, 2023. There have been no material changes in the risk factors described in our Annual Report on Form 10-K for the year ended August 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Board of Directors has authorized the Company to repurchase shares of the Company’s common stock. The share repurchase program has an expiration date of January 31, 2025. The amount remaining for purchase was $45.1 million as of November 30, 2023. Share repurchases under this program during the three months ended November 30, 2023 were as follows:
(in millions, except number of shares which are reflected in thousands, and per share amounts) |
|
Total Number of Shares Purchased |
|
|
Average Price Paid per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
|
||||
September 1, 2023 - September 30, 2023 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
October 1, 2023 - October 31, 2023 |
|
|
33 |
|
|
$ |
33.38 |
|
|
|
33 |
|
|
$ |
45.3 |
|
November 1, 2023 - November 30, 2023 |
|
|
5 |
|
|
$ |
34.89 |
|
|
|
5 |
|
|
$ |
45.1 |
|
Item 5. Other Information
During the three months ended November 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
38
Item 6. Exhibits
10.1 |
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31.1 |
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31.2 |
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32.1 |
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32.2 |
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101.INS |
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Inline XBRL Instance Document. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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|
|
104 |
|
Cover Page Interactive Data File (Formatted as inline XBRL and contained in Exhibit 101). |
* Information in this exhibit identified by brackets is confidential and has been excluded pursuant to Item 601(b)(10)(iv) of Regulation S-K because it (i) is not material and (ii) would likely cause competitive harm to Greenbrier if publicly disclosed.
** Certain attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K because the information contained therein is not material and is not otherwise publicly disclosed. Greenbrier will furnish supplementally a copy of such attachments to the SEC or its staff upon request.
39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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THE GREENBRIER COMPANIES, INC. |
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Date: |
January 5, 2024 |
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By: |
/s/ Adrian J. Downes |
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|
Adrian J. Downes |
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Senior Vice President and Chief Financial Officer |
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(Principal Financial Officer) |
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40
Exhibit 10.1
Certain confidential information contained in this exhibit, marked by brackets, has been omitted because it is both (i) not material and (ii) is the type that the registrant treats as private or confidential.
SERIES 2023-1 SUPPLEMENT
GBX LEASING 2022-1 LLC,
as Issuer,
and
U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION,
as Indenture Trustee
dated as of November 20, 2023
______________________________
SERIES 2023-1 NOTES
______________________________
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS 1
Section 1.01. Definitions 1
ARTICLE II THE SERIES 2023-1 NOTES 4
Section 2.01. Designation of Series; Series 2023-1 Notes 4
Section 2.02. Grant of Security Interest in 2023-1 Series Account 5
Section 2.03. Authentication and Delivery 5
Section 2.04. Interest Payments on the Series 2023-1 Notes 6
Section 2.05. Principal Payments on the Series 2023-1 Notes 6
Section 2.06. Prepayment of Principal on the Series 2023-1 Notes 6
Section 2.07. Manner of Payment 9
Section 2.08. Restrictions on Transfer 9
Section 2.09. Final Maturity Date 9
ARTICLE III 2023-1 SERIES ACCOUNT 10
Section 3.01. 2023-1 Series Account 10
Section 3.02. Distributions from 2023-1 Series Account 10
Section 3.03. Liquidity Facility 10
Section 3.04. Liquidity Facility Collateral Account 10
ARTICLE IV CONDITIONS TO ISSUANCE 10
Section 4.01. Conditions to Issuance 10
ARTICLE V REPRESENTATIONS AND WARRANTIES 11
Section 5.01. Master Indenture Representations and Warranties 11
ARTICLE VI MISCELLANEOUS PROVISIONS 11
Section 6.01. Ratification of Master Indenture 11
Section 6.02. Counterparts 11
Section 6.03. Governing Law 11
Section 6.04. Notices to the Rating Agency 11
Section 6.05. Notices to Liquidity Facility Provider 11
Section 6.06. Amendments and Modifications 12
EXHIBITS
EXHIBIT A |
Form of Class A Note |
EXHIBIT B |
Form of Class B Note |
SCHEDULES
SCHEDULE 1 |
Description of Additional Railcars |
SCHEDULE 2 |
Description of Additional Leases |
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SERIES 2023-1 SUPPLEMENT, dated as of November 20, 2023 (this “Series 2023-1 Supplement”), issued pursuant to, and incorporating the terms of, the Master Indenture, dated as of the date hereof (as amended, modified or supplemented from time to time, the “Master Indenture”, and, together with this Series 2023-1 Supplement, the “Series 2023-1 Indenture”) between GBX LEASING 2022-1 LLC, a Delaware limited liability company (the “Issuer”), and U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association, as Indenture Trustee (the “Indenture Trustee”).
WITNESSETH THAT:
WHEREAS, the Issuer and the Indenture Trustee wish to set forth the Principal Terms of a Series of Notes with two Classes (the Class A Notes and the Class B Notes) within such Series to be issued pursuant to this Series 2023-1 Supplement; and
NOW THEREFORE, in consideration of the mutual agreements herein contained, the parties hereto agree as follows:
“144A Book-Entry Notes” means Series 2023-1 Notes substantially in the form attached as Exhibit A or Exhibit B hereto, with the applicable legend for 144A Book-Entry Notes required by Section 2.02 of the Master Indenture inscribed on the face thereof.
“2023-1 Series Account” means the Series Account for the Series 2023-1 Notes, established in accordance with Section 3.01 hereof and Sections 3.01 and 3.07 of the Master Indenture. The account number of the 2023-1 Series Account is 2627310000.
“Average Life Date” is defined in Section 2.06(c).
“Class A Interest Rate” means six point four two percent (6.42%) per annum.
“Class A Note” means an Equipment Note substantially in the form of Exhibit A.
“Class A Optional Redemption” is defined in Section 2.06(a).
“Class A Optional Redemption Date” is defined in Section 2.06(a).
“Class A Redemption Premium” is defined in Section 2.06(a).
“Class A Stated Interest Amount” means, for any Payment Date, an amount equal to the “Stated Interest Amount” (as defined in the Master Indenture) calculated with respect to the Class A Notes. The Class A Stated Interest Amount constitutes the Stated Interest Amount for the Class A Notes.
“Class B Interest Rate” means seven point two eight percent (7.28%) per annum.
“Class B Note” means an Equipment Note substantially in the form of Exhibit B.
“Class B Optional Redemption” is defined in Section 2.06(b).
“Class B Optional Redemption Date” is defined in Section 2.06(b).
“Class B Redemption Premium” is defined in Section 2.06(b).
“Class B Stated Interest Amount” means, for any Payment Date, an amount equal to the “Stated Interest Amount” (as defined in the Master Indenture) calculated with respect to the Class B Notes. The Class B Stated Interest Amount constitutes the Stated Interest Amount for the Class B Notes.
“Closing Date” for the Series 2023-1 Notes means November 20, 2023.
“Control Party” for the Series 2023-1 Notes means the Majority Noteholders.
“Equipment Note Purchase Agreement” means, with respect to the Equipment Notes, the Note Purchase Agreement, dated November 7, 2023, among the Issuer, GBX Leasing, LLC and the Initial Purchasers signatory thereto.
“H.15(519)” is defined in Section 2.06(c).
“Initial Closing Date” means February 9, 2022.
“Initial Purchasers” means each “Initial Purchaser” within the meaning of and as defined in the Equipment Note Purchase Agreement.
“Majority Noteholders” means with respect to the Series 2023-1 Notes, as of any date of determination, Noteholders of Series 2023-1 Notes that, individually or in the aggregate, evidence more than fifty percent (50%) of the then aggregate Outstanding Principal Balance of the Series 2023-1 Notes.
“Marginal Interest” is defined in Section 2.04(b).
“May 2026 Payment Date” means the Payment Date occurring in May 2026.
“Offering Circular” means the Issuer’s final offering circular dated November 7, 2023 relating to the offering of the Series 2023-1 Notes.
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“Optional Redemption” means a voluntary prepayment by the Issuer of all of the Outstanding Principal Balance of the Series 2023-1 Notes (or a Class thereof) in accordance with the terms of this Series 2023-1 Supplement.
“Rapid Amortization Additional Interest Rate” means four percent (4%) per annum.
“Rapid Amortization Date” means the date, if any, on which the Rapid Amortization Event occurs with respect to the Series 2023-1 Notes.
“Rapid Amortization Event” means, with respect to the Series 2023-1 Notes, that the aggregate Outstanding Principal Balance of the Series 2023-1 Notes (after all payments on the Series 2023-1 Notes on the applicable Payment Date) exceeds zero on the Payment Date falling in November 2030.
“Rating Agency” means, in connection with the Series 2023-1 Notes, S&P.
“Redemption Premium” means the Class A Redemption Premium or the Class B Redemption Premium, as applicable, which amount shall be the Redemption Premiums for each respective Class of the Series 2023-1 Notes.
“Regulation S Temporary Book-Entry Notes” means Series 2023-1 Notes in the form attached as Exhibit A or Exhibit B, as the case may be, with the applicable legend for Regulation S Temporary Book-Entry Notes required by Section 2.02 of the Master Indenture inscribed on the face thereof.
“Remaining Weighted Average Life” is defined in Section 2.06(c).
“Scheduled Targeted Principal Balance” means (a) with respect to the Class A Notes and each Payment Date, the amount set forth opposite such Payment Date on Appendix B-1 to the Offering Circular under the column titled “Principal Balance ($)” and (b) with respect to the Class B Notes and each Payment Date, the amount set forth opposite such Payment Date on Appendix B-2 to the Offering Circular under the column titled “Principal Balance ($)”; provided that the Scheduled Targeted Principal Balance for each Class of the Series 2023-1 Notes is subject to adjustment from time to time pursuant to Section 3.14 of the Master Indenture.
“Series 2023-1 Final Maturity Date” means the Payment Date occurring in November 2053, which shall constitute the Final Maturity Date with respect to the Series 2023-1 Notes.
“Series 2023-1 Issuance Expenses” means the Issuance Expenses relating to the issuance of the Series 2023-1 Notes.
“Series 2023-1 Noteholders” means the Noteholders of the Series 2023-1 Notes, or any Class of such Notes, as the context may require.
“Series 2023-1 Notes” means Notes, designated as the Class A Notes and the Class B Notes, in each case, to be issued on the Closing Date and having the terms and conditions specified in this Series 2023-1 Supplement, substantially in the respective form of Exhibit A and Exhibit B hereto, and including any and all replacements, extensions, substitutions or renewals of such Notes.
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“Series 2023-1 Optional Redemption Date” is defined in Section 2.06(d).
“Series Account” means, with respect to the Series 2023-1 Notes, the 2023-1 Series Account.
“Stated Interest Amount” means, with respect to the Series 2023-1 Notes and any Payment Date, an amount equal to the Class A Stated Interest Amount and the Class B Stated Interest Amount.
“Stated Rate” means (i) with respect to the Class A Notes, the Class A Note Interest Rate and (ii) with respect to the Class B Notes, the Class B Note Interest Rate.
“Treasury Rate” is defined in Section 2.06(c).
“Unrestricted Book-Entry Notes” means Series 2023-1 Notes substantially in the form of Exhibit A or Exhibit B, with the applicable legend required by Section 2.02 of the Master Indenture for Unrestricted Book-Entry Notes inscribed on the face thereof.
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The Class A Redemption Premium will be an amount equal to the product of (x) a fraction (expressed as a percentage), the numerator of which is the amount of the Outstanding Principal Balance of the Class A Notes being redeemed and the denominator of which is the Outstanding Principal Balance of all Class A Notes immediately prior to such redemption and (y) the excess, if any, of (i) the sum of the present values of all the scheduled payments of principal and interest based upon Scheduled Targeted Principal Balances of the Class A Notes from the Class A Optional Redemption Date to and including the May 2026 Payment Date (assuming full prepayment on such date) discounted monthly to the Class A Optional Redemption Date at a rate equal to the Treasury Rate plus three quarters of one percent (0.75%)), based on a 360-day year of twelve 30-day months, over (ii) the Outstanding Principal Balance of the Class A Notes, plus any accrued but unpaid interest thereon.
The Class B Redemption Premium will be an amount equal to the product of (x) a fraction (expressed as a percentage), the numerator of which is the amount of the Outstanding Principal Balance of the Class B Notes being redeemed and the denominator of which is the Outstanding Principal Balance of all Class B Notes immediately prior to such redemption and (y) the excess, if any, of (i) the sum of the present values of all the scheduled payments of principal and interest based upon Scheduled Targeted Principal Balances of the Class B Notes from the Class B Optional Redemption Date to and including the May 2026 Payment Date (assuming full prepayment on such date), discounted monthly to the Class B Optional Redemption Date at a rate equal to the Treasury Rate plus three quarters of one percent (0.75%), based on a 360-day year of twelve 30-day months; over (ii) the aggregate Outstanding Principal Balance of the Class B Notes plus any accrued but unpaid interest thereon.
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The term “Average Life Date” of each applicable Series 2023-1 Note means the date which follows the prepayment date by a period equal to the Remaining Weighted Average Life of such Series 2023-1 Note. The “Remaining Weighted Average Life” of a Series 2023-1 Note at the prepayment or determination date of such Series 2023-1 Note shall be the number of days equal to the quotient obtained by dividing (a) the sum of the products obtained by multiplying (i) the Scheduled Targeted Principal Balances for each remaining Payment Date (from the applicable Optional Redemption Date to the May 2026 Payment Date, in the case of the Class A Notes and the Class B Notes, in each case, assuming full prepayment on such Payment Date, as applicable) by (ii) the number of days from and including the prepayment or determination date to but excluding the scheduled payment date of such principal payment, by (b) the Outstanding Principal Balance of the applicable Series 2023-1 Notes on such date of prepayment or determination. The Issuer will calculate (or cause to be calculated) the applicable Redemption Price and Redemption Premium (if any) and deliver such information in writing to the Indenture Trustee at the time that it gives notice of an Optional Redemption pursuant to Sections 3.12 and 3.13 of the Master Indenture.
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[Signature pages follow]
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IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused this Series 2023-1 Supplement to be duly executed and delivered all as of the day and year first above written.
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GBX LEASING 2022-1 LLC |
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U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION, as Indenture Trustee |
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Exhibit 31.1
CERTIFICATIONS
I, Lorie L. Tekorius, certify that:
Date: January 5, 2024 |
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/s/ Lorie L. Tekorius |
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Lorie L. Tekorius |
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Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATIONS (cont'd)
I, Adrian J. Downes, certify that:
Date: January 5, 2024 |
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/s/ Adrian J. Downes |
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Adrian J. Downes |
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Senior Vice President and Chief Financial Officer |
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(Principal Financial Officer) |
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Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of The Greenbrier Companies, Inc. (the "Company") on Form 10-Q for the quarterly period ended November 30, 2023, as filed with the Securities and Exchange Commission on the date therein specified (the "Report"), I, Lorie L. Tekorius, Chief Executive Officer, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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January 5, 2024 |
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/s/ Lorie L. Tekorius |
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Lorie L. Tekorius |
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Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of The Greenbrier Companies, Inc. (the "Company") on Form 10-Q for the quarterly period ended November 30, 2023, as filed with the Securities and Exchange Commission on the date therein specified (the "Report"), I, Adrian J. Downes, Senior Vice President and Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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January 5, 2024 |
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/s/ Adrian J. Downes |
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Adrian J. Downes |
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Senior Vice President and Chief Financial Officer |
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(Principal Financial Officer) |
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