Securities registered pursuant to Section 12(b) of the Act: | | | | | (Title of Each Class)Class Common Stock without par value | Trading Symbol(s) GBX | | | (Name of Each Exchange on Which Registered) | Common Stock without par value | | | | Registered New York Stock Exchange | Securities registered pursuant to Section 12(g) of the Act: | | None | None | | |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes X No No__ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Act. Yes ___ No X Indicate by check mark whether the Registrantregistrant (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 X NoNo___ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to this Form10-K. [ ]No___
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company or an emerging growth company. See definitiondefinitions of “large accelerated filer”,filer,” “accelerated filer”,filer,” “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act. (Check one) Large accelerated filer X Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company
| | | | | | Large accelerated filer | X | Accelerated filer | Non-accelerated filer | Smaller reporting company | Emerging growth company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes NoX
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 Act). Yes __ No X Aggregate market value of the Registrant’sregistrant’s Common Stock held bynon-affiliates as of February 28, 201829, 2020 (based on the closing price of such shares on such date) was $1,465,342,435.$772,657,580. The number of shares outstanding of the Registrant’sregistrant’s Common Stock on October 19, 201827, 2020 was 32,190,76332,824,080 without par value. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the Registrant’sregistrant’s definitive Proxy Statement prepared in connection with the Annual Meeting of Stockholders to be held on January 9, 20196, 2021 are incorporated by reference into Parts II and III of this Report.
THE GREENBRIER COMPANIES, INC. FORM10-K
TABLE OF CONTENTS CERTIFICATIONS | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | | |
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Forward-Looking Statements From time to time, The Greenbrier Companies, Inc. and its subsidiaries (Greenbrier or the Company) or their representatives have made or may makeThis Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Private Securities Litigation Reform Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements as to expectations, beliefs and strategies regarding the future. Such forward-looking statements may be included in, but not limited to, press releases, oral statements made with the approval of an authorized executive officer or in various filings made by us with the Securities and Exchange Commission (SEC), including this filing on Form10-K and in the Company’s President’s letter to stockholders that is typically distributed to the stockholders in conjunction with this Form10-K and the Company’s Proxy Statement.1995. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Investors should not place undue reliance on forward-looking statements, which speak only as
Many of the date theythese risks and other factors are made and are not guarantees of future performance. We undertake no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. These forward-looking statements rely on a number of assumptions concerning future events and include statements relating to:
ability to grow our businesses;
ability to obtain lease and sales contracts which provide adequate protection against attempted modifications or cancellations, changes in interest rates and increased costs of materials and components;
ability to convert backlog of railcar orders and obtain and execute lease syndication commitments;
ability to recruit, train and retain adequate numbers of qualified employees
ability to obtain adequate certification and licensing of products;
availability of financing sources and borrowing base and loan covenant flexibility for working capital, other business development activities, capital spending and leased railcars for syndication (sale of railcars with lease attached);
ability to utilize beneficial tax strategies;
ability to renew, maintain or obtain sufficient credit facilities and financial guarantees on acceptable terms including loan covenants;
ability to obtain adequate insurance coverage at acceptable rates; and
short-term and long-term revenue and earnings effects of the above items.
The following factors, among others, could cause actual results or outcomes to differ materially from the forward-looking statements:
fluctuations in demand for newly manufactured railcars or marine barges, for wheels, repair services and parts and for railcar management and leasing services;
delays in receipt of orders, risks that contracts may be canceled or modified during their term, not renewed, unenforceable or breached by the customer and that customers may not purchase the amount of products or services under the contracts as anticipated;
availability of a trained work force at a reasonable cost and with reasonable terms of employment;
beyond our ability to maintain good relationships with our labor force, third party labor providers and collective bargaining units representing our direct and indirect labor force; domestic and international economic conditions including such matters as embargoes, quotas, tariffs,control or modifications to existing trade agreements;
domestic and international political and security conditions including such matters as terrorism, war, civil disruption and crime;
the policies and priorities of the federal government including those concerning international trade, infrastructure and corporate taxation;
sovereign risk related to international governments that includes, but is not limited to, governments stopping payments, repudiating their contracts, nationalizing private businesses and assets or altering foreign exchange regulations;
growth or reduction in the surface transportation industry, the enactment of policies favoring other types of surface transportation over rail transportation or the impact from technological advances;
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our ability to maintain sufficient availability of credit facilities and to maintain compliance with or to obtain appropriate amendments to covenants under various credit agreements;
our ability to maintain good relationships with our customers and suppliers;
our ability to renew or replace expiring customer contracts on satisfactory terms;
our ability to obtain and execute suitable lease contracts for leased railcars for syndication;
steel and specialty component price fluctuations and availability, scrap surcharges, steel scrap prices and other commodity price fluctuations and availability and their impact on product demand and margin;
the delay or failure of acquired businesses or joint ventures, assets,start-up operations, or new products or services to compete successfully;
our failure to successfully integrate joint ventures or acquired businesses or complete previously announced transactions;
discovery of previously unknown liabilities associated with acquired businesses;
changes in product mix and the mix of revenue levels among reporting segments;
labor disputes, energy shortages or operating difficulties that might disrupt operations or the flow of cargo;
production difficulties and product delivery delays as a result of, among other matters, costs or inefficiencies associated with expansion,start-up, or changing of production lines or changes in production rates, equipment failures, changing technologies, transfer of production between facilities ornon-performance of alliance partners, subcontractors or suppliers;
lower than anticipated lease renewal rates, earnings on utilization-based leases or residual values for owned or managed leased equipment;
discovery of defects in railcars or services resulting in increased warranty costs or litigation;
physical damage, business interruption or product or service liability claims that exceed our insurance coverage;
commencement of and ultimate resolution or outcome of pending or future litigation and investigations;
natural disasters or severe or unusual weather patterns that may affect either us, our suppliers or our customers;
loss of business from, or a decline in the financial condition of, any of the principal customers that represent a significant portion of our total revenues;
competitive factors, including introduction of competitive products, new entrants into certain of our markets, price pressures, limited customer base, and competitiveness of our manufacturing facilities and products;
industry overcapacity and our manufacturing capacity utilization;
decreases or write-downs in carrying value of inventory, goodwill, intangibles or other assets due to impairment;
severance or other costs or charges associated with layoffs, shutdowns, or reducing the size and scope of operations;
changes in future maintenance or warranty requirements;
our ability to adjust to the cyclical nature of the industries in which we operate;
changes in interest rates and financial impacts from interest rates;
our ability and cost to maintain and renew operating permits;
actions or failures to act by various regulatory agencies including changing tank car or other rail car regulations;
potential environmental remediation obligations;
changes in commodity prices, including oil and gas;
risks associated with our intellectual property rights or those of third parties, including infringement, maintenance, protection, validity, enforcement and continued use of such rights;
expansion of warranty and product support terms beyond those which have traditionally prevailed in the rail supply industry;
availability and/or price of essential raw materials, specialties or components, including steel castings, to permit manufacture of units on order;
the failure of, or our delay in implementing and using, new software or other technologies;
the impact of cybersecurity risks and the costs of mitigating and responding to a data security breach;
our ability to replace maturing lease and management services revenue and earnings from equipment sold from our lease fleet with revenue and earnings from new commercial transactions, including new railcar leases, additions to the lease fleet and new management services contracts;
financial impacts from currency fluctuations and currency hedging activities in our worldwide operations;
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credit limitations upon our ability to maintain effective hedging programs;
increased costs or other impacts on us or our customers due to changes in legislation, taxes, regulations or accounting pronouncements;
our ability to effectively execute our business and operating strategies if we become the target of shareholder activism; and
fraud, misconduct by employees and potential exposure to liabilities under the Foreign Corrupt Practices Act and other anti-corruption laws and regulations.
Any forward-looking statements should be considered in light of these factors.predict. Words such as “affirms,” “anticipates,” “believes,” “forecast,” “potential,” “goal,” “contemplates,” “expects,” “intends,” “plans,” “projects,” “hopes,” “seeks,” “estimates,” “strategy,” “could,” “would,” “should,” “likely,” “will,” “may,” “can,” “designed to,” “future,” “foreseeable future” and similar expressions identify forward-looking statements. In addition, statements regarding expectations of cost savings or our ability to navigate current challenges, or operate efficiently when the freight industry market recovers or any other statements that explicitly or implicitly draw trends in our performance or the markets in which we operate, or characterize future events or circumstances are forward-looking statements.
These forward-looking statements are not guarantees of future performancerisks and are subject touncertainties, as well as other risks and uncertainties that could cause our actual results to differ materiallysignificantly from the results contemplated by the forward-looking statements. Manymanagement’s expectations, are described in greater detail in Item 1A, “Risk Factors”, Item 1, “Business – Backlog”, Item 7, “Management’s Discussion and Analysis of the important factors that will determine these resultsFinancial Condition and valuesResults of Operations.” and Item 9A. “Controls and Procedures – Inherent Limitations on Effectiveness of Controls.” Forward-looking statements are beyond our ability to control or predict. Youbased on currently available operating, financial and market information and are cautionedinherently uncertain. Investors should not to place undue reliance on any forward-looking statements, which reflect management’s opinionsspeak only as of the date hereof.they are made and are not guarantees of future performance. Actual future results and trends may differ materially from such forward-looking statements. Except as otherwise required by law, we do not assume any obligation to update any forward-looking statements. In assessing forward-looking statements contained herein, readers are urged to read carefully all cautionary statements contained in this Form10-K, including, without limitation, those contained under the heading, “Risk Factors,” contained in Part I, Item 1A of this Form10-K.
All references to years refer to the fiscal years ended August 31st unless otherwise noted. The Greenbrier Companies is a registered trademark of The Greenbrier Companies, Inc. Gunderson, Maxi-Stack,Auto-Max II, and YSDMulti-Max are registered trademarks of Gunderson LLC. YSD is a trademark of Gunderson Rail Services LLC. | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 3 | |
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PART I Introduction We are one of the leading designers, manufacturers and marketers of railroad freight car equipment in North America, Europe, South America and South America.other geographies as opportunities arise. We manufacture railcars in Brazil through a strategic investment that we account for under the equity method of accounting andalso are a manufacturer and marketer of marine barges in North America. We are a leading provider of freight railcar wheel services, parts, repair and refurbishment in North America through our wheels, repair & parts business.America. We also offer railcar management, regulatory compliance services and leasing services to railroads and related transportation industriesrailcar owners or other users of railcars in North America. Through unconsolidated affiliates we produce rail and industrial components and rail castings, tank heads and other components.hold an ownership stake in a railcar manufacturer in Brazil. We operate an integrated business model in North America that combines freight car manufacturing, wheel services, repair, refurbishment, component parts, leasing and fleet management services. Our model is designed to provide customers with a comprehensive set of freight car solutions by utilizing our substantial engineering, mechanical and technical capabilities as well as our experienced commercial personnel. ThisOur integrated model allows us to develop cross-selling opportunities and synergies among our various business segments and to enhancethereby enhancing our margins. We believe our integrated model is difficult to duplicate and provides greater value for our customers.customers and investors. We operate in three reportable segments: Manufacturing; Wheels, Repair & Parts; and Leasing & Services. Financial information about our business segments as well as geographic information is located in Note 1918 - Segment Information to our Consolidated Financial Statements. Prior to August 20, 2018, we operated in four reportable segments: Manufacturing; Wheels & Parts; Leasing & Services; and GBW Joint Venture. On August 20, 2018 we entered into an agreement with our joint venture partner to discontinue the GBW Railcar Services (GBW) railcar repair joint venture, which resulted in 12 repair shops returned to us. Beginning on August 20, 2018, GBW Joint Venture was no longer considered a reportable segment. The Greenbrier Companies, Inc., is incorporated in Oregon. Our principal executive offices are located at One Centerpointe Drive, Suite 200, Lake Oswego, Oregon 97035, our97035. Our telephone number is (503)684-7000 and our Internet website is located athttp://www.gbrx.com. Products and Services Manufacturing Segment North American Railcar Manufacturing-We manufacture a broad array ofmost freight railcar types currently in use in the North America, which includes most railcar types otherAmerican market (other than coal cars.cars) and we continue to expand our product features and functionality. We have demonstrated an ability to capture high market shares in many of the car types we produce. The primary products we produce for the North American market are: Conventional Railcars- We produce a variety of covered hopper cars for industrial and food grade starches, grain, fertilizer, cement, heavy ore minerals, plastic pellets, and petrochemicals as well as gondolas and open top hoppers for steel, metals and aggregates. We also produce a wide range of boxcars, which are used in the transport of paper products, perishables and general merchandise. Our flat car products include center partition cars for the forest products industry, and heavy-duty flat cars. Tank Cars - We produce a variety of tank cars, including general service, pressurized, coiled, lined, insulated carbon steel and stainless steel tank cars. These are designed for the transportation of petroleum products, ethanol, liquefied petroleum gas (LPG), caustic soda, chlorine, fertilizers, vegetable oils, bio-diesel and various other products. Intermodal Railcars- We manufacture a comprehensive range of intermodal railcars. Our most importantpopular intermodal product is our articulated double-stack railcar. The double-stack railcar is designed to transport containers stackedtwo-high on a single platform and provides significant operating and capital savings over other types of intermodal railcars. Tank CarsAutomotive- We produce a variety of tank cars, including both general and certain pressurized tank cars, which are designed for the transportation of products such as petroleum products, ethanol, liquefied petroleum gas, caustic soda, chlorine, urea ammonium nitrate, vegetable oils,bio-diesel and various other products and we continue to expand our product offerings.
Automotive- We manufacture a full line of railcar equipment specifically designed for the transportation of light vehicles. Our automotive offerings include theAuto-Max II andMulti-Max products, which are designed to carry automobiles, SUVs and trucks efficiently.
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Conventional Railcars- We produce a variety of covered hopper cars for the grain, fertilizer, sand, cement and petrochemical industries as well as gondolas and open top hoppers for the steel, metals and aggregate markets. We also produce a wide range of boxcars, which are used in the transport of paper products, perishables, general merchandise and commodities. Our flat car products include center partition cars for the forest products industry, bulkhead flat cars, heavy-duty flat cars, and solid waste service flat cars.
European Railcar Manufacturing-Our European manufacturing operations produce a variety of tank, automotive and conventional freight railcar (wagon) types, including a comprehensive line of pressurized tank cars for liquid petroleum, LPG gas, chlorine and ammonia andnon-pressurized tank cars for light oil, chemicals and other products. In addition, weour European manufacturing operations produce flat cars, coil cars for thecoil steel and metals, market, gondolas, sliding wall cars, hoppers and automobile transportertransport cars. Marine Vessel Fabrication -Our Portland, Oregon manufacturing facility, located on a deep-water port on the Willamette River, includes marine vessel fabrication capabilities. The marine facilities also increase utilization of steel plate burning and fabrication capacity providing flexibility for railcar production. U.S. coastwise law, commonly referred to as the Jones Act, requires all commercial vessels transporting merchandise between ports in the U.S. to be built, owned, operated and manned by U.S. citizens and to be registered under the U.S. flag. We manufacture a broad range of Jones Act ocean-going and river barges for transporting merchandise between ports within the U.S. including conventional deck barges, double-hull tank barges, railcar/deck barges, barges for aggregates and other heavy industrial products and dump barges.United States. Our primary focus is on the larger ocean-going vessels although the facility haswe have the capability to compete in other marine-related products.Our Portland, Oregon manufacturing facility, located on a deep-water port on the Willamette River, includes marine vessel fabrication capabilities. Wheels, Repair & Parts Segment Wheel Services-We operate a large wheel services network in North America. Our wheel shops operating in eight locations, provide complete wheel services including reconditioning of wheels and axles in addition to new axle machining, and finishing and downsizing. Through a joint venture partnership we also provide axle machining, finishing and downsizing. Railcar Repair, Refurbishment and Maintenance-We operate a railcar repair, refurbishment and maintenance network in North America including repair shops certified by the Association of American Railroads (AAR). Our repairsrepair shops operating at 12 locations, perform heavy railcar repair, refurbishment and routine railcar maintenance for third parties and for our leased and managed railcar fleet. Component Parts Manufacturing- Our component parts facilities operating in four locations, recondition and manufacture railcar cushioning units, couplers, yokes, side frames, bolsters and various other parts. We also produce roofs, doors and associated parts for boxcars. Leasing & Services Segment Leasing-Through our North AmericanWe operate a railcar leasing business ourin North America. Our relationships with financial institutions and operating lessors combined with our ownership of a lease fleet of approximately 8,1008,300 railcars (6,300 railcars held as equipment on operating leases, 1,600 held as leased railcars for syndication and 200 held as finished goods inventory), enables us to offer flexible financing programs to our customers including operating leases of varied intervals and “by the mile” leases to our customers.leases. The percentage of owned units on lease excluding newly manufactured railcars available for sale or lease was 90.4% at August 31, 2020 with an average remaining lease term of 3.0 years and an average age of 8.2 years. In addition to leasing our own railcars, we frequently originate leases of railcars, which are either newly built or refurbished by us, or buy railcars frombought in the secondary market, and sell the railcars and attached leases to financial institutions and subsequently provide such institutionstypically with multi-year management services under multi-year agreements. As an equipment owner and an originator of leases, we participate principally in the operating lease segment of the market. TheUnder the majority of our leases, are “full service” leases whereby we are responsible for maintenance and administration.administration of the leased cars. Assets from our owned lease fleet are periodically sold to take advantage of market conditions,accommodate customer demand, manage risk and maintain liquidity. Management Services- Our North American management services business offers a broad array of software and services that include railcar maintenance management, railcar accounting services (such as billing and revenue collection, car hire receivable and payable administration), total fleet management (including railcar tracking using proprietary software), fleet logistics, administration and railcarre-marketing. We currently provide management services | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 5 | |
for a fleet of approximately 357,000393,000 railcars for railroads, shippers, carriers, institutional investors and other leasing and transportation companies in North America. In addition, we have aour Regulatory Services Group which offers regulatory, engineering, process consulting and advocacy support to the tank car and petrochemical rail shipper community, among other services. Customer Profile
| | | | | | | Fleet Profile (1)
As of August 31, 2018
| | Managed Units:
| | | | | Class I Railroads
| | | 178,611 | | Leasing Companies
| | | 105,675 | | Shipping Companies
| | | 51,369 | | Non-Class I Railroads
| | | 20,115 | | Off-lease
| | | 985 | | | | Total Managed Units
| | | 356,755 | | Total Owned Units(2)
| | | 8,070 | | | | Total Owned & Managed Units
| | | 364,825 | | | |
(1) | Each platform of a railcar is treated as a separate unit.
|
(2) | The percentage of owned units on lease was 94.4% at August 31, 2018 with an average remaining lease term of 2.2 years. The average age of owned units is 10 years.
|
Unconsolidated Affiliates
U.S. Axle Manufacturing – We have a 41.9% interest in Axis, LLC (Axis), a joint venture that manufactures and sells axles to its joint venture partners for use and distribution both domestically and internationally in traditional freight railcar markets and other railcar markets. We obtained our ownership interest in Axis as part of the acquisition of the manufacturing business of American Railcar Industries, Inc. (ARI) on July 26, 2019. 5
Brazilian Railcar Manufacturing -We have a 60% ownership interest in Greenbrier-Maxion Equipamentos EGreenbrier Maxion-Equipamentos e Serviços Ferroviários S.A. (Greenbrier-Maxion), the leading railcar manufacturer of freight railcars in South America, located near São Paolo,Paulo, Brazil. Greenbrier-Maxion also assembles bogies and offers a range of aftermarket services including railcar overhaul and refurbishment. Brazilian Castings and Component Parts Manufacturing -We have a 24.5%29.5% ownership interest in Amsted-Maxion Fundição Ee Equipamentos Ferroviários S.A. (Amsted-Maxion Cruzeiro)(Amsted-Maxion) based in Cruzeiro, Brazil. Amsted-Maxion Cruzeiro is a manufacturer of various castings and components for railcars and other heavy industrial equipment. Amsted-Maxion Cruzeiro has a 40% ownership position in Greenbrier-Maxion and is integrated with the operations of our Brazilian railcar manufacturer. Other Unconsolidated Affiliates-We have other unconsolidated affiliates which primarily include joint ventures that produce rail and industrial castings and tank heads.components. Backlog The following table depicts our reported railcar backlog subject to third party railcar backlogsale or lease in number of railcars and estimated future revenue value attributable to such backlog, at the dates shown: | | | August 31, | | | August 31, | | | | 2018 | | | 2017 | | | 2016 | | | 2020 | | | 2019 | | | 2018 | | New railcar backlog units(1) | | | 27,400 | | | | 28,600 | | | | 27,500 | | | | 24,600 | | | | 30,300 | | | | 27,400 | | Estimated future revenue value (in millions) (2) | | $ | 2,740 | | | $ | 2,800 | | | $ | 3,190 | | | $ | 2,420 | | | $ | 3,280 | | | $ | 2,740 | |
(1) | Each platform of a railcar is treated as a separate unit. |
(2) | Subject to change based on finalization of product mix. |
Our total manufacturing backlog of railcar units as of August 31, 2018 was approximately 27,400 units with an estimated value of $2.74 billion, of which 21,200 units are for direct sales and 6,200 units are for lease to third parties. Approximately 3%9% of backlog units and 2%6% of the estimated backlog value as of August 31, 20182020 was associated with our Brazilian manufacturing operations which isare accounted for under the equity method.
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Based on current production schedules, approximately 20,50013,500 units in the August 31, 20182020 backlog are scheduled for delivery in 2019.2021. The balance of the production is scheduled for delivery in 20202022 and beyond. Multi-year supply agreements are a part ofcommon in the rail industry practice.industry. Backlog units for lease may be syndicated to third parties or held in our own fleet depending on a variety of factors. 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 as customers select railcar specifications, which may impact the dollar amount of backlog. Marine backlog as of August 31, 2018 was $61$51 million compared to $42and $100 million as of August 31, 2017.2020 and 2019, respectively. Our backlog of railcar units and marine vessels is not necessarily indicative of future results of operations. Certain orders in backlog are subject to customary documentation and completion of terms. Customers may attempt to cancel or modify orders in backlog. Historically, little variation has been experienced between the quantity ordered and the quantity actually delivered, though the timing of deliveries may be modified from time to time. We cannot guarantee that our reported backlog will convert to revenue in any particular period, if at all. Customers Our customers across our segments include railroads, leasing companies, financial institutions, shippers, carriers and transportation companies. We have strong, long-term relationships with many of our customers. We believe that our customers’ preference for high quality products, our technological leadership in developing innovative products, our focus on being highly responsive to our customer’s needs and competitive pricing of our railcars have helped us maintain our long-standing relationships with our customers. In 2018,2020, revenue from two customers TTX Company (TTX) and Wells Fargo & Company (Wells Fargo), accounted for approximately 31%26% of total revenue, 36%30% of Manufacturing revenue, 16%14% of Leasing & Services revenue and 2% of Wheels, Repair & Parts revenue and 1% of Leasing & Services revenue. No other customers accounted for greater than 10% of total revenue. 6
Raw Materials and Components Our products require a supply of materials including steel and specialty components such as brakes, wheels and axles. Specialty components purchased from third parties represent a significant amount of the cost of most freight cars. Our customers often specify particular components and suppliers of such components. Although the number of alternative suppliers of certain specialty components has declined in recent years, there are at least two available suppliers for each of these components. Certain materials and components are periodically in short supply which could potentially impact production at our new railcar and refurbishment facilities. In an effort to mitigate shortages and reduce supply chain costs, we have entered into strategic alliances and multi-year arrangements for the global sourcing of certain materials and components, we operate a replacement parts business which aids in our vertical integration and we continue to pursue strategic opportunities to protect and enhance our supply chain. We periodically make advance purchases to avoid possible shortages of material due to capacity limitations of component suppliers, shipping and transportation delays and possible price increases. In 2018,2020, the top ten suppliers for all inventory purchases accounted for approximately 52%47% of total purchases. Amsted Rail Company, Inc.The top supplier accounted for 19%17% of total inventory purchases in 2018.2020. No other suppliers accounted for more than 10% of total inventory purchases. We believe we maintain good relationships with our suppliers. Competition We are currently one of the secondtwo largest railcar manufacturer in North Americamanufacturers of the sevenfive major railcar manufacturers competing in North America. There are also a handful of specialty builders who focus on niche markets. We believe that in Europe we are in the top tier of railcar manufacturers. European freight car manufacturers are largely locatedThrough our 60% ownership interest in central and eastern Europe where labor rates are lower and work rules are more flexible. WeGreenbrier-Maxion, we are the leading railcar manufacturer in South America. The railcar manufacturing industry is becoming more global as customers are purchasing railcars from manufacturers outside of their geographic region. In all railcar markets that we serve, or participate in, we compete on the basis of quality, price, reliability of delivery, product design and innovation, reputation and customer service and support. | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 7 | |
Competition in the marine industry is dependent on the type of product produced.produced, proximity to delivery point, and manufacturing capacity. There are few competitors that build productas wide an array of products types similar to ours.as we build. We compete on the basis of price, quality, reliability of delivery, launching capacity and experience with certain product types. Competition in the wheels, repair & parts businesses is dependent on the type of product or service provided. There are many competitors in the railcar repair and refurbishment business and an increasing number of competitors in the wheel services and other partsthese businesses. We compete primarily on the basis of quality, timeliness of delivery, customer service, location of shops, price and engineering expertise. There are at least twenty institutions in North America that provide railcar leasing and services similar to ours. Many of them are also customers that buy new railcars from our manufacturing facilities and used railcars from our lease fleet, as well as utilize our management and repair services. Many of these institutions have greater financial resources than we do. We compete primarily on the basis of quality, price, delivery, reputation, service offerings and deal structuring and syndication ability. We believe our strong servicing capability and our ability to sell railcars with a lease attached (syndicate railcars), integrated with our manufacturing, repair shops, railcar specialization and expertise in particular lease structures provide a strong competitive position.advantage. Marketing and Product Development In North America, we leverage an integrated marketing and sales effort to coordinate relationships in our various segments. We provide our customers with a diverse range of equipment and financing alternatives designed to satisfy each customer’s unique needs, whether the customer is buying new equipment, refurbishing existing equipment or seeking to outsource the maintenance or management of equipment. These custom programs may involve a combination of railcar products, leasing, refurbishing and remarketing services. In addition, we provide customized maintenance management, equipment management, accounting and compliance services and proprietary software solutions. 7
In Europe and South America, we maintain relationships with customers through market-specific sales personnel. Our engineering and technical staff works closely with their customer counterparts on the design and certification of railcars. Many European railroads are state-owned and are subject to European Union (EU) regulations covering the tender of government contracts. Through our research and customer relationships, insights are derived into the potential need for new products and services. Marketing and engineering personnel collaborate to evaluate opportunities and develop new products and features. Recent product launches include theDura-Max open top hopper and small pressurized tank cars optimized for the transport of chlorine. Research and development costs incurred during the years ended August 31, 2020, 2019 and 2018 2017 and 2016 were $6.0$5.8 million, $4.2$5.4 million and $2.7$6.0 million, respectively. Patents and Trademarks We have a number of U.S. andnon-U.S. patents of varying duration, and pending patent applications, registered trademarks, copyrights and trade names that are important to our products and product development efforts. The protection of our intellectual property is important to our business and we have a proactive program aimed at protecting our intellectual property and the results from our research and development. We have obtained a number of U.S. and non-U.S. patents of varying duration, and pending patent applications, registered trademarks, copyrights and trade names. We believe that manufacturing expertise, the improvement of existing technology and the development of new products are as least as important as patent protection in establishing and maintaining a competitive advantage in our market. Environmental Matters We are subject to national, state and local environmental laws and regulations concerning, among other matters, air emissions, wastewater discharge, solid and hazardous waste disposal and employee health and safety. Prior to acquiring facilities, we usually conduct investigations to evaluate the environmental condition of subject properties and may negotiate contractual terms for allocation of environmental exposure arising from prior uses. We operate our facilities in a manner designed to maintain compliance with applicable environmental laws and regulations. Environmental studies have been conducted on certain of our owned and leased properties that indicate additional investigation and some remediation on certain properties may be necessary. | | | | | 8 | | The Greenbrier Companies 2018 Annual Report | | |
Portland Harbor Superfund Site Our 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 our manufacturing facility, as a federal “National"National Priority List”List" or “Superfund”"Superfund" site due to sediment contamination (the Portland Harbor Site). Our company and more than 140 other parties have received a “General Notice”"General Notice" of potential liability from the EPA relating to the Portland Harbor Site. The letter advised us that we 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 usour 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 havedid not signedsign such consent, but nevertheless contributed moneyfinancially to the effort. TheEPA-mandated RI/FS was produced by the LWG and cost over $110 million during a17-year period. We bore a percentage of the total costs incurred by the LWG in connection with the investigation. Our aggregate expenditure during the17-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. 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, 83 parties, including the State of Oregon and the federal government, entered into anon-judicial mediation process to try to allocate costs associated with remediation of the Portland Harbor site.Site. Approximately 110 additional parties signed tolling agreements related to such allocations. On April 23, 2009, weour 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 16, 2020. 14, 2022. 8
The allocation process is continuing in parallel with the process to define the remediation steps. The EPA’s EPA's January 6, 2017 ROD identifies aclean-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 as a result of new data it wants to collectcollected over a2-year period prior to final remedy design. The ROD identifies 13 Sediment Decision Units. One of the units, RM9W, includes the nearshore area of the river sediments offshore of ourthe Portland Oregon manufacturing facilityProperty as well as upstream and downstream of the facility. It also includes a portion of our riverbank. The ROD does not break down total remediation costs by Sediment Decision Unit. The EPA’sEPA's ROD concluded that more data was needed to better defineclean-up scope and cost. On December 8, 2017, the EPA announced that Portland Harbor is one of 21 Superfund sites targeted for greater attention. On December 19, 2017, the EPA announced that it had entered a new AOC with a group of four potentially responsible parties to conduct additional sampling during 2018 and 2019 to provide more certainty aboutclean-up costs and aid the mediation process to allocate those costs. The parties to the mediation, including us, haveour company, agreed to help fund the additional sampling.sampling, which is now complete. 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 our manufacturing facility. We have not signed an AOCin connection with remedial design, but will potentially be directly or indirectly responsible for conducting or funding a portion of such RM9W remedial design. The allocation process is continuing in parallel with the process to define the remedial design.
The ROD does not address responsibility for the costs ofclean-up, nor does it allocate such costs among the potentially responsible parties. Responsibility for funding and implementing the EPA’sEPA's selected cleanup remedy will be determined at an unspecified later date. Based on the investigation to date, we believe that we did not contribute in any material way to contamination 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 our property precedes our ownership of the Portland Oregon manufacturing facility.Property. Because these environmental investigations are still underway, including the collection of newpre-remedial design sampling data by EPA, sufficient information is currently not available to determine our 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, we may be required to incur costs associated with additional phases of investigation or remedial action, and may be liable for damages to natural resources. In addition, we may be required to perform periodic maintenance dredging in order to continue | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 9 | |
to launch vessels from our launch ways in Portland, Oregon, on the Willamette River, and the river’sriver's classification as a Superfund site could result in some limitations on future dredging and launch activities. Any of these matters could adversely affect our business and Consolidated Financial Statements, or the value of ourthe Portland property.Property. On January 30, 2017 the Confederated Tribes and Bands of Yakama Nation sued 33 parties including usour company as well as the United States 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.,United States Court for the District of Oregon Case No.3i17-CV-00164-SB. We, along with many of the other defendants, moved to dismiss the case. That motion is pending. The complaint does not specify the amount of damages the Plaintiffplaintiff will seek. The case has been stayed until January 14, 2022. Oregon Department of Environmental Quality (DEQ) Regulation of Portland Manufacturing Operations We have entered into a Voluntary Cleanup Agreement with the DEQOregon Department of Environmental Quality (DEQ) in which we agreed to conduct an investigation of whether, and to what extent, past or present operations at ourthe Portland propertyProperty may have released hazardous substances into the environment. We have 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. Interim precautionary measures are also required in the order and we are discussing with the DEQ potential remedial actions which may be required. Our aggregate expenditure has not been material, however we could incur significant expenses for remediation. Some or all of any such outlay may be recoverable from other responsible parties. 9
Regulation We must comply with the rules of the U.S. Department of Transportation (USDOT) and the administrative agencies it oversees including the Federal Railroad Administration in the U.S. and Transport Canada in Canada who administer and enforce laws and regulations relating to railroad safety. These regulations govern equipment and safety appliance standards for freight cars and other rail equipment used in interstate and international commerce throughout North America. The AAR promulgates rules and regulations governing the safety and design of equipment, relationships among railroads and other railcar owners with respect to railcars in interchange, and other matters. The AAR also certifies railcar builders and component manufacturers that provide equipment for use on North American railroads. These regulations require maintaining certifications with the AAR as a railcar builder, repair and service provider and component manufacturer, and products sold and leased by us in North America must meet AAR, Transport Canada, and Federal Railroad Administration standards. The primary regulatory and industry authorities involved in the regulation of the ocean-going barge industry are the U.S. Coast Guard, the Maritime Administration of the USDOT, and private industry classing organizations such as the American Bureau of Shipping. The regulatory environment in Europe consists of a combination of EU regulations and country specific regulations, including a harmonized set of Technical Standards for Interoperability of freight wagons throughout the EU. The EU approval regime was modified to replace country specific approvals with a single, harmonized EU process. The switch created short term delays in wagon certification, but over time streamlined the process. The wagon certification process is improved and currently is the same or shorter than it was previously. The regulatory environment in Brazil consists of oversight from the Ministry of Transportation, the National Agency of Ground Transportation and the National Association of Railroad Transporters. In all other countries, we conform to country specific regulations where applicable. Employees As of August 31, 2018,2020, we had approximately 13,40010,600 full-time employees at our consolidated entities, consisting of 12,1009,700 employees in Manufacturing, 1,000600 in Wheels, Repair & Parts and 300 employees in Leasing & Services and corporate. In Manufacturing, 7,3004,600 employees all of whom are located in Mexico and Europe, are represented by unions. At our Wheels, Repair & Parts locations, 73approximately 30 employees are represented by a union. We believe that our relations with our employees are generally good. | | | | | 10 | | The Greenbrier Companies 2018 Annual Report | | |
Additional Information We are a reporting company and file annual, quarterly, current and special reports, proxy statements and other information with the SEC. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. Through a link on the Investor Relations section of our website,http://www.gbrx.com, we make available the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the SEC: our Annual Report on Form10-K; Quarterly Reports on Form10-Q; Current Reports on Form8-K; and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. All such filings are available free of charge. Copies of our Audit Committee Charter, Compensation Committee Charter, Nominating and Corporate Governance Committee Charter and the Company’sCompany’s Corporate Governance Guidelines are also available on our web site athttp://www.gbrx.com. In addition, each of the reports and documents listed above are available free of charge by contacting our Investor Relations Department at The Greenbrier Companies, Inc., One Centerpointe Drive, Suite 200, Lake Oswego, Oregon 97035. 10 | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 11 | |
In addition to the
The following risks outlined in this annual report under the heading “Forward-Looking Statements,” as well as other comments included herein regarding risks and uncertainties, the following risk factors should be carefully considered when evaluating our company. Our business, financial condition or financial results could be materially and adversely affected by any of these risks. In addition, new risks may emerge at any time, and we cannot predict those risks or estimate the extent to which they may affect us. The cyclical nature of our business, economic downturns or a rising interest rate environment can result in lower demand for our products and services and reduced revenue.
Our business is cyclical. Overall economic conditions and the purchasing practices of buyers have a significant effect upon our business due to the impact on demand for our products and services. As a result, during downturns, we could operate with a lower level of backlog and may slow down or halt production at some or all of our facilities. Economic conditions that result in higher interest rates increase the cost of new leasing arrangements, which could cause some of our leasing customers to lease fewer of our railcars or demand shorter lease terms. An economic downturn or increase in interest rates may reduce demand for our products and services, resulting in lower sales volumes, lower prices, lower lease utilization rates and decreased profits.
Interest rates remain at relatively low levels. Higher interest rates could increase the cost of, or potentially deter, new leasing arrangements with our customers, reduce our ability to syndicate railcars under lease to financial institutions, or impact the sales price we may receive on such syndications, any of which could materially adversely affect our business, financial condition, operating results, liquidity and cash flows, prospects, and stock price. These risks do not identify all risks that we face; other factors, events, or uncertainties currently unknown to us or that we currently do not consider to present significant risks to our business or that emerge in the future could affect us adversely.
The COVID-19 coronavirus pandemic, governmental reaction to the pandemic, and related economic disruptions could negatively impact on our business, liquidity and financial position, results of operations.operations, stock price, and ability to convert backlog to revenue. A change
The COVID-19 coronavirus outbreak continues to present risks to our business. While in some geographies economic activity has increased and the rate of human morbidity and mortality have decreased in recent months, the pandemic has not yet been contained and the number of its victims and the extent of negative impact on the global economy cannot be foreseen. Several of the countries in which we operate continue to be significantly negatively impacted by COVID-19. We are unable to predict when, how, or with what magnitude COVID-19 and related events will negatively impact our product mixbusiness. We currently identify the following factors as the most significant risks to our business due to shifts in demand or fluctuations in commodityCOVID-19, governmental actions, and energy prices could have an adverse effecteconomic conditions. | • | We may be prevented from operating our manufacturing facilities, repair shops, wheel shops or other worksites due to the illness of our employees, “stay-at-home” regulations, and employee reluctance to appear for work. Extended closure of one or more of our large facilities could have a material negative impact on our financial position and results of operations. |
| • | We function as an essential infrastructure business under guidance issued by the Department of Homeland Security. Similar guidelines and authorities exist in other nations where we operate. If our current status were eliminated or curtailed, we could be required to temporarily close one or more of our manufacturing facilities, repair shops, wheel shops or other worksites for an extended period of time. |
| • | If an outbreak of COVID-19 were to occur at one of our large facilities, we could be obligated to close such facility for an extended period of time, and might not have a workforce adequate to meet our operating needs. |
| • | The operations of our customers may be disrupted, thereby increasing the likelihood that our customers may attempt to delay, defer or cancel orders, reduce orders for our products and services in the future or cease to operate as going concerns. |
| • | The operations of our suppliers may be disrupted and the markets for the inputs to our business may not operate effectively or efficiently, thereby negatively impacting our ability to purchase inputs for our business at reasonable prices, in a timely manner and in sufficient amounts. |
| • | Our indebtedness may increase due to our need to increase borrowing to fund operations during a period of reduced revenue. |
| • | The market price of our common stock may drop or remain volatile. |
| • | We may incur significant employee health care costs under our self-insurance programs. |
The longer the pandemic continues, the more likely that more of the foregoing risks will be realized and that other negative impacts on our profitability.business will occur, some of which we cannot now foresee. 11
The types of rail equipment we sell and the services we provide significantly impact our revenue and our margin and are dependent on broad economic trends over which we have little or no control. We manufacture, lease, repair and repairrefurbish a varietybroad range of railcars.railcars and related rail equipment. The demand for specific types of these railcars and the mix of repair and refurbishment work varies from time toover time. Instability and changesChanges in the global economy volatility inand the industries and geographies that our productswe serve or adverse changescause shifts in the financial condition of our customers could adversely impact the demand for our railcars. In addition, fluctuations in commodity and energy prices, including crude oil and gas prices, could negatively impact the activities of our customers resulting in a corresponding adverse effect on the demand for ourspecific products and services. These shiftsin demandcouldaffectour resultsof operationsand couldhave an adverseeffecton our revenue and our profitability. Demand for specific types of railcars increases and decreases with the demand for goods such as grains, metals, construction aggregates, fertilizer, perishables and general merchandise, plastic pellets, oil and gas, bio-fuels, chemicals, and automobiles, among others, which is beyond our control. Cyclicaleconomic downturns in our industry usually result in decreased demand forour productsand servicesand reducedrevenue. The industry in which we operate is subject to periodic economic cycles. Our industry currently is in an economic downturn with reduced demand. Thepurchasingtrendsof customers in our industry have a significantimpacton demandforour productsand services.As a result, during downturns,the rate at which we convert backlog to revenue usually decreases and we mayslow down or halt productionatsome of our facilities. We anticipate that the current economicdownturn in our industry will reducedemandforour productsand services, and will resultin one or more of the following: lowersalesvolumes,lowerprices,lowerleaseutilizationratesand decreased revenues and profits. Equipment failures, technological failures, costs and inefficiencies associated with changing of production lines, or transfer of production between facilities, could lead to production, delivery, or service curtailments or shutdowns, loss of revenue or higher expenses. We operate a substantial amount of equipment at our production facilities. An interruption in production capabilities or maintenance and repair capabilities at our facilities, as a result of equipment or technology failure, acts of nature, terrorism, costs and inefficiencies associated with changing of production lines or transfer of production between facilities, could reduce or prevent our production, delivery, service, or repair of our products and increase our costs and expenses. A halt of production at any of our manufacturing facilities could severely affect delivery times to our customers. Any significant delay in deliveries not otherwise contractually mitigated could result in cancellation of all or a portion of our orders, cause us to lose future sales, and negatively affect our reputation and our results of operations and could have an adverse effect on our profitability. operations. Demand for railcars that are used to transport crude oilour railcar equipment and other energy related productsservices is dependent on the demand for these commodities. Prices for oilfuture of rail transportation and gas are subject to large fluctuationsthe manner in response to relatively minor changes in the supply of, and demand for, oil and gas, market uncertainty and a variety of other economic factors that are beyond our control.which railroads operate. A decline in performance of the rail freight industry would have an adverse effect on our financial condition and results of operations.
Our future success depends in part upon the performance of the rail freight industry, which in large part depends on the health of the economy. If railcar loadings, railcar and railcar components replacement rates or refurbishment rates or industry demandDemand for our railcarrail equipment and services may decrease if freight rail decreases as a mode of freight transportation used by customers to ship their products, weaken or otherwise do not materialize, if railcargovernmental policies favor modes of freight transportation other than rail. If rail freight transportation becomes more efficient from an increase in velocity or a decrease in dwell times if there is a negative impact due to technological advances or ifdecrease, demand for our rail equipment and services may decrease. If the rail freight industry becomes oversupplied, prices for our railcars, lease rates, and demand for our products and services may decrease. The industriesin which our customersoperatearedrivenby dynamicmarketforcesand trends,whicharein turninfluencedby economic, regulatory,and politicalfactors.Featuresand functionalityspecificto certainrailcartypescouldresultin thoserailcarsbecoming obsoleteas customerrequirementsforfreightdeliverychange.
Our business will suffer if we are unsuccessful in making, integrating, and maintaining acquisitions, joint ventures and other strategic investments. We have acquired businesses and invested in or entered into joint ventures in past periods including the recent acquisition of the ARI manufacturing business. We may in the future acquire other businesses or invest in or enter into joint ventures with other companies. Our failureto identifyfutureacquisition or joint venture opportunities, or to complete potential acquisitions or joint ventures on favorable terms,could hinder our abilityto grow our business. These transactions create risks such as: 12
| • | disruption of our ongoing business, including loss of management focus on existing operations; |
| • | the difficulty of incorporating acquired operations, technology, and rights into our existing business and product and service offerings, and unanticipated expenses related to such integration; |
| • | the difficulty of integrating a new company’s accounting, financial reporting, management, information and information security, human resource, and other administrative systems to permit effective management, and the lack of control if such integration is delayed or not successfully implemented; |
| • | the challenges of coordinatinggeographicallydispersedorganizations, integratingpersonnelwith disparatebusinessbackgrounds,and combiningdifferentcorporatecultures; |
| • | the challenges of retaining key personnel of the acquired business or joint venture; |
| • | the risk of incurring unanticipated operating losses and expenses of the acquired business or joint venture; |
| • | the potential impairment of customer and other relationships of the acquired company or of the joint venture partner or our own customers as a result of any integration of operations; |
| • | losses we may incur as a result of declines in the value of a joint venture investment or as a result of incorporating an investee’s financial performance into our financial results; |
| • | the difficulty of implementing at companies we acquire the controls, procedures, and policies appropriate for a public company; |
| • | potential unknown liabilities associated with a company we acquire or in which we invest; and |
| • | the risks associated with businesses we acquire or invest in, which may differ from or be more significant than the risks our other businesses face; |
| • | our inability to complete capital expenditure projects on time and within budget or the failure of capital expenditure projects once completed to operate as planned or to return expected benefits as planned; and |
| • | the difficulty of completing such transactions and achieving anticipated costefficiencies, synergies and other benefits within expected timeframes, or at all. |
In addition, we might need to issue additional equity securities, spend our cash, or incur debt, contingent liabilities, or amortization expenses related to intangible assets in connection with effecting an acquisition or joint venture, any of which could reduce our profitability and harm our business or only be available on unfavorable terms, if at all. In addition, valuations supporting our acquisitions and investments could change rapidly. We could determine that such valuations have experienced impairments or other-than-temporary declines in fair value, which could adversely impact our financial condition and results of operations would be adversely affected.results. Our backlogisnot necessarilyindicativeof the levelof our futurerevenues. Our manufacturing backlog represents future production for which we have written orders from our customers in various periods, and estimated potential revenue attributable to those orders.such production. Our backlog of railcar units and marine vessels is not necessarily indicative of future results of operations. Certain orders in backlog are subject to customary documentation and completion of terms which may not occur. Customers may attempt to cancel or modify orders in backlog or refuse to accept and pay for products. Some of this backlog is subject to | | | | | 12 | | The Greenbrier Companies 2018 Annual Report | | |
certain conditions, including potential adjustment to prices due to changes in prevailing market prices, or due to lower prices for new orders accepted by us from other customers for similar cars on similar terms and conditions during relevant time periods. Our reported backlog may not be converted to revenue in any particular period and some of our contracts permit cancellations with limited compensation that would not replace lost revenue or margins. In addition, some customers may attempt to delay orders, cancel or modify a contract even if the contract does not allow for such cancellation or modification, and we may not be able to recover all revenue or earnings lost due to a breach of contract.contract or a contract may be found to be unenforceable. The likelihood of attempted cancellations, or modifications, of contractsrejection and non-payment for our products generally increases during periods of market 13
weakness. The timing of converting backlog to revenue is also materially impacted by our decision whether to lease railcars, sell railcars, or syndicate railcars with a lease attached to an investor. We cannot guarantee that our reported backlog will convert to revenue in any particular period, if at all. Actual revenue from such contracts may not equal our anticipated revenues based on our backlog, and therefore, our backlog is not necessarily indicative of the level of our future revenues. We derive a significant amount of our revenue from a limited number of customers, the loss of or reduction of business from one or more of which could have an adverse effect on our business.
A significant portion of our revenue is generated from a few major customers. Although we have some long-term contractual relationships with our major customers, we cannot be assured that our customers will continue to purchase or lease our products or services or that they will continue to do so at historical levels. A reduction in the purchasing or leasing of our products or a termination of our services by one or more of our major customers could have an adverse effect on our business and operating results.
We could be unable to lease railcars at satisfactory rates, remarket leased railcars on favorable terms upon lease termination or realize the expected residual values for end of life railcars due to changes in scrap prices, which could reduce our revenue and decrease our overall return or effect our ability to sell leased assets in the future.
The profitability of our railcar leasing business depends on our ability to lease railcars to our customers at satisfactory rates, and to remarket, sell or scrap railcars we own or manage upon the expiration of existing lease terms. The total rental payments we receive under our operating leases do not fully amortize the acquisition costs of the leased equipment, which exposes us to risks associated with remarketing the railcars and the risk of not realizing the expected residual values. Our ability to lease or remarket leased railcars profitably is dependent upon several factors, including, but not limited to, market and industry conditions, cost of and demand for competing used or newer models, costs associated with the refurbishment of the railcars, market demand or governmental mandate for refurbishment, assumptions related to expected residual values and interest rates. A downturn in the industries in which our lessees operate and decreased demand for railcars could also increase our exposure to remarketing risk because lessees may demand shorter lease terms, requiring us to remarket leased railcars more frequently. Furthermore, the resale market for previously leased railcars has a limited number of potential buyers. From August 31, 2015 to August 31, 2018, the percentage of railcars in the fleet on lease has declined from approximately 97% to 94%. Our inability to lease, remarket or sell leased railcars on favorable terms could result in reduced revenues and margins or net gain on disposition of equipment and decrease our overall returns and affect our ability to syndicate railcars to investors.
Risks relatedto our operationsoutsideof the U.S.could adverselyaffectour operatingresults. Our current operations
We own, lease, operate or have invested in businesses that have manufacturing facilities in Mexico, Brazil and Europe, and have customers and suppliers located outside of the U.S. and any future expansion of our international operations are subject toUnited States. Instability in the risks associated with foreign and cross-border business transactions and activities. Political, macroeconomic, political, legal,trade, financial, marketlabor or economic changes marketconditions in the countries where we,or instability could limitour customers or curtail suppliers, operate couldnegatively impactour foreign businessactivitiesand operations.Some foreigncountriesin which we operateor mayoperatehave regulatory authoritiesthatregulate railroadsafety railcar design and railcar component part rail equipment design performance and manufacturing.Ifwe fail to obtain and maintaindo not have appropriate certifications, of our railcars and railcar parts within the various foreign countries where we operate or may operate, we may couldbe unableto marketand sellour railcarsrail equipment in those countries. In addition, unexpectedmarkets. Adverse changesin regulatory requirements, tariffs and other trade barriers, more stringent rules relatingforeign regulations applicable to us or our customers, such as labor, or the environment, adverse trade,tax, consequences and currencyand price exchange controlsregulations, couldlimit our operations and, makethemanufactureand distributionof our products difficult. Sovereign risk exists related to | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 13 | |
international governments that include, but may not be limited to, governments stopping paymentsdifficult, and delay or repudiating, renegotiating or nullifying their contracts, nationalizing private businesses and assets or altering banking, foreign exchange or tax regulations. The uncertainty of the legal environment orgeo-political risks in these and other areas could limit our ability to enforcerepatriate income derived from foreign markets.
Our business benefits from free trade agreements between the United States and foreign governments, and from various U.S. corporate tax provisions related to international commerce. Any changes in trade or tax policies by the U.S. or foreign governments in jurisdictions in which we do business, as well as any embargoes, quotas or tariffs imposed on our rights effectively. We mayproducts and services, could adversely and significantly affect our financial condition and results of operations. Among the political risks we face outside the U.S. are governments nationalizing our business or assets, or repudiating or renegotiating contracts with us, our customers or our suppliers. In our cross-border business activities, we could experience longer customer payment cycles, difficulty in collecting accounts receivable or an inability to effectively protect our intellectual property. Because we have operations outside the U.S., weWe couldbe adverselyaffectedby violationsof theU.S.Foreign CorruptPracticesAct and similarworldwideanti-corruption laws. We operate in parts of the world that have experienced governmental corruption to some degree, andlaws, which mayconflictwith local business customs in certain circumstances, strict compliance jurisdictions.The failureto complywith anti-corruption laws governing internationalbusinessmay conflictresultin substantialpenaltiesand fines and reputational harm. Transactions with non-U.S. entities expose us to business practices, local customs, and practices. The failure to complylegal processes with laws governing international business practiceswhich we may result in substantial penalties and fines. Any international expansion or acquisition that we undertake could amplify these risks related to operating outside of the U.S. Our development of customer relationships in areas outside of the U.S. may expose us to uncertainties arising from local business practices, judicial processes, cultural considerationsnot be familiar, as well as difficulty enforcing contracts and international political and trade tensions and our limited knowledge of foreign markets or our inability to protect our interests. tensions.Ifwe areunableto successfully manage the risks associated with our internationalforeign and cross-border business activities, our results of operations, financial condition, liquidityand cashflowscouldbe negativelyimpacted. Fluctuationsin foreigncurrencyexchange ratescould leadto increasedcostsand lower profitability. Outsideof theU.S.,we primarilyconductbusinessin Mexico, Europe and Braziland our non-U.S. businessesconducttheiroperationsin localcurrencies.We alsosourcematerialsworldwide.Fluctuationsin exchangeratesmayaffectdemandforour productsin foreignmarketsor our costcompetitivenessand mayadverselyaffectour profitability.Although we attemptto mitigatea portionof our exposureto changesin currencyratesthroughcurrencyratehedge contracts and otheractivities,theseeffortscannotfullyeliminatetherisksassociatedwith theforeigncurrencies.In addition,someof our borrowingsarein foreigncurrency,givingriseto riskfromfluctuationsin exchangerates. A materialor adversechangein exchangeratescouldresultin significantdeteriorationof profitsor in lossesfor us. We derivea significantamount of our revenuefroma limitednumber of customers,the lossof or reductionof businessfromone or moreof which could have an adverseeffecton our business. A significantportionof our revenueisgeneratedfroma few majorcustomers.Although we have some long-termcontractualrelationshipswith our majorcustomers,we cannotbe assuredthat we will continue to have good relations with our customers, or that our customerswill continueto purchase or lease our productsor services, or willcontinueto do so athistoricallevels, or will renew their existing contracts with us.A reductionin the purchasing or leasingof our products, a terminationof our servicesby one or moreof our majorcustomers, a decline in the financial condition of a major customer, or our failure to replace expiring customer contracts with new customer contracts on satisfactory termscould result in a loss of business and have an adverseeffecton our businessand operatingresults. 14
We relyon limitedsuppliersforcertaincomponentsand servicesneeded in our production.Ifwe are not able to procurespecialtycomponentsor serviceson commerciallyreasonabletermsor on a timelybasis,our business,financialconditionand resultsof operationswould be adverselyaffected. Our manufacturingoperationsdepend in parton our abilityto obtaintimelydeliveriesof materials, componentsand servicesin acceptablequantitiesand qualityfromour suppliers.In 2020, the top ten suppliers for all inventory purchases accounted for approximately 47% of total purchases. The top supplier accounted for 17% of total inventory purchases in 2020. No other suppliers accounted for more than 10% of total inventory purchases. Certaincomponentsof our products,particularlyspecialized componentslikecastings,bolsters,trucks,wheelsand axels,and certainservices,such as liningcapabilities,are currentlyonly availablefroma limitednumberof suppliers.Ifany one or moreof our suppliersceaseto provideus with sufficientquantitiesof our componentsor servicesin a timelymanneror on termsacceptableto us, or ceaseto provideservicesor manufacturecomponents of acceptablequality, or go out of business, we couldincurdisruptionsor be limitedin our productionof our productsand we couldhave to seekalternativesourcesforthesecomponentsor services. In addition,we areincreasingthenumberof componentsand serviceswe manufactureor provideourselves,directlyor throughjointventures.Ifwe arenot successfulatmanufacturing such componentsor providingsuch servicesor have productionproblemsaftertransitioningto self-produced supplies,we maynot be ableto replacesuch componentsor servicesfromthirdpartysuppliersin a timely manner.Any such disruptionin our supplyof specializedcomponentsand servicesor increasedcostsof those componentsor servicescouldharmour businessand adverselyaffectour resultsof operations. We face risks related to cybersecurity threats and incidents that increase our costs and could disrupt our business and operations. We regularly face attempts by others to gain unauthorized access through the Internet, or to introduce malicious software, to our information technology systems. Additionally, malicious hackers, state-sponsored organizations, terrorists, employees and third-party service providers, or intruders into our physical facilities may attempt to gain unauthorized access and corrupt the processes used to operate our businesses and to design and manufacture our products. We are also a target of malicious attackers who attempt to gain access to our network or those of our customers; steal proprietary information related to our business, products, employees, and customers; or interrupt our systems and services or those of our customers. Such attempts are increasing in number and in technical sophistication, and if successful, expose us and the affected parties to risk of loss or misuse of proprietary or confidential information or disruptions of our business operations. Our information technology infrastructure also includes products and services provided by third parties, and these providers can experience breaches of their systems and products that affect the security of our systems and our proprietary or confidential information. Our reliance on information technology increases as working remotely increases among our employees. Addressing cybersecurity threats and incidents, whether or not successful, could result in our incurring significant costs related to, for example, disruptions in our operations, rebuilding internal systems, implementing additional threat protection measures, defending against litigation, responding to regulatory inquiries or actions, paying damages, or taking other remedial steps with respect to third parties, as well as reputational harm. In addition, these threats are constantly evolving, thereby increasing the difficulty of successfully defending against them or implementing adequate preventative measures. While we seek to detect and investigate unauthorized attempts and attacks against our network, products, and services, and to prevent their recurrence where practicable through changes to our internal processes and tools, we remain potentially vulnerable to additional known or unknown threats. In some instances, we, our customers, and the users of our products and services can be unaware of an incident or its magnitude and effects. The theft, loss, or misuse of third party data collected, used, stored, or transferred by us to run our business could result in significantly increased business and security costs or costs related to defending legal claims. Global privacy legislation, enforcement, and policy activity in this area are rapidly expanding and creating a complex regulatory compliance environment. Costs to comply with and implement these privacy-related and data protection measures could be significant, and noncompliance could expose us to significant monetary penalties, damage to our reputation, and even criminal sanctions. Even our inadvertent failure to comply with federal, state, or international privacy-related or data-protection laws and regulations could result in audits, regulatory inquiries, or proceedings against us by governmental entities or other third parties.
Updates or changes to our informationtechnologysystemsmayresultin problemsthatcould negatively impacted.impactour business. Changes impacting international trade
Wehaveinformationtechnologysystems,comprisinghardware,network,software,people,processesand corporate tax provisionsotherinfrastructurethatareimportanttotheoperationofourbusinesses.Wecontinuetoevaluateandimplement upgradesandchangestoinformationtechnologysystemsthatsupportsubstantiallyallofouroperatingandfinancial functions.Wecouldexperienceproblemsinconnectionwithsuchimplementations,includingcompatibilityissues, trainingrequirements,higherthanexpectedimplementationcostsandotherintegrationchallengesanddelays.A significantproblemwithanimplementation,integrationwithothersystemsorongoingmanagementandoperationofoursystemscouldnegativelyimpactourbusinessbydisruptingoperations.Suchaproblemcouldalsohavean adverseeffectonourabilitytogenerateandinterpretaccuratemanagementandfinancialreportsandother informationonatimelybasis,whichcouldhaveamaterialadverseeffectonourfinancialreportingsystemand internalcontrolsandadverselyaffectourabilitytomanageourbusiness. We could be unable to leaserailcarsat satisfactoryrates,remarketleasedrailcarson favorabletermsupon leasetermination,or realizethe expectedresidualvalues for end of life railcars due to changes in scrap prices, each of which could reduceour revenueand decreaseour overallreturnor affectour abilityto sellleasedassetsin the future. The profitabilityof our railcarleasingbusinessdependson our abilityto leaserailcarsatsatisfactoryrates, sell railcars with sufficiently profitable leases to investors, and to remarket,sell or scrap railcarswe own or manageupon theexpirationof leases.The rentwe receiveduring the initial railcar lease term typically covers only a small portion of the railcar acquisition or production costs. Thus, we are exposed to a remarketing risk throughout the life of the railcar because we must obtain lease rates or a sale price sufficient to cover our acquisition or production costs related to the production railcar. Our abilityto lease or remarketleasedrailcarsprofitablyisdependenton severalfactors,including,but not limitedto, marketand sales industryconditions,costof, and demandfor,competingused or newer models, availability of credit and the credit-worthiness of potential customers, costsassociatedwith the refurbishmentof therailcars, the marketdemandor governmentalmandatesforrefurbishment, customers not defaulting on their leases, as well as market perceptions of residual values and interestrates.A downturn in theindustriesin which our products lesseesoperateand decreaseddemandforrailcarscouldalsoincreaseour exposureto remarketingrisksbecauselesseesmay havedemandshorterleaseterms,requiringus to remarketleased railcarsmorefrequently.Furthermore,theresalemarketforpreviouslyleasedrailcarshas a limitednumberof potentialbuyers.Our inabilityto lease,remarketor sellleasedrailcarson favorabletermscouldresultin an adverse effectimpact to our consolidated financial statements or affectour abilityto sell leasedrailcarsto investors in the future. A limited availability of financing or higher interest rates could increase the cost of, or potentially deter, new leasing arrangements with our customers, reduce our ability to syndicate railcars under lease to financial institutions, or impact the sales price we may receive on our financial condition and resultssuch syndications, any of operations. We own, lease, operate or have invested in joint ventures or entities which have manufacturing facilities in Mexico, Brazil and Europe. Our business benefits from free trade agreements such as the North American Free Trade Agreement (NAFTA) and we also rely on various U.S. corporate tax provisions related to international commerce as we build, market and sell our products internationally. NAFTA and future import taxes have been under scrutiny by the U.S. administration. On September 30, 2018 the President of the U.S. and the U.S. Trade Representative announced a new trade pact with the governments of Canada and Mexico called the United States-Mexico-Canada Agreement (USMCA). We believe the benefits we currently receive under NAFTA will continue under the USMCA. To take effect, the USMCA must be enacted by the U.S. Congress under laws governing Trade Promotion Authority. It is expected NAFTA will remain effective until this occurs. Any changes in trade treaties, corporate tax policy, import taxes and foreign policies could materially adversely and significantly affect our business, financial condition and results of operations.
A failureto designor manufactureproductsor technologiesor to achieve timelycertificationor market acceptanceof new productsor technologiescould have an adverseeffecton our profitability. We continueto introducenew railcarproduct innovations and technologies. We occasionallyacceptordersprior to receivingrailcarcertificationor proving our abilityto manufacturea qualityproductthatmeetscustomer standards.We couldbe unableto successfullydesignor manufacturenew railcarproduct innovations ortechnologies. Our inabilityto developand manufacturenew product innovations or technologiesin a timelyand profitablemanner, or to obtaintimelycertification,or to achievemarketacceptance,or to avoid quality problemsin our new products,couldhave a materialadverseeffecton our revenueand resultsof operationsand subjectus to losses including penalties,cancellationof orders, rejection of railcars by a customerand/orotherlosses. 16
We depend on our seniormanagementteamand otherkey employees,and significantattritionwithin our managementteamor unsuccessfulsuccessionplanning formembersof our seniormanagementteamand otherkey employeeswhoare at or nearing retirementage, could adverselyaffectour business. Our successdependsin parton our abilityto attract,retainand motivateseniormanagementand other key employees.Achievingthisobjectivemaybe difficultdue to manyfactors,includingfluctuationsin global economicand industryconditions,competitors’hiringpractices,costreductionactivities,and theeffectivenessof our compensationprograms.Competitionforqualifiedpersonnelcan be veryintense.We mustcontinueto recruit, retainand motivateseniormanagementand otherkey employeessufficientto maintainour currentbusinessand supportour futureprojects and growth objectives.We arevulnerableto attritionamongour currentseniormanagementteamand other key employees.Many membersof our seniormanagementteamand otherkey employeesareator nearingretirement age. Ifwe areunsuccessfulin our successionplanningefforts,thecontinuityof our businessand resultsof operationscouldbe adverselyaffected. A lossof any such personnel,or theinabilityto recruitand retainqualifiedpersonnelin thefuture,couldhave an adverseeffecton our business,financialconditionand resultsof operations. Shortagesof skilledlabor, or increased labor costs, or failure to maintain good relations with our workforce could adverselyaffectour operations. We depend on skilledlaborin themanufactureof railcarsand marinebarges,repair,refurbishmentand maintenanceof railcarsand provisionof wheel servicesand supplyof parts.Some of ourfacilitiesarelocatedin areaswhere demandforskilled laborers laboroftenexceedssupply.Shortagesof sometypesof skilled laborers laborsuch as weldersand machineoperatorscouldrestrictour abilityto maintainor increase productionrates,leadto productioninefficienciesand increaseour laborcosts. Due to the competitive nature of the labor markets in which we operate and the cyclical nature of the railcar industry, the resulting employment cycle increases our risk of not being able to recruit, train and retain the employees we require at efficient costs and on reasonable terms, particularly when the economy expands, production rates are high or competition for such skilled labor increases. Our costs to recruit, train and retain necessary, qualified employees may exceed our expectations. If we are unable to recruit, train and retain adequate numbers of qualified employees on a timely basis could materially adversely affect our business and results of operations. The rail freight industry could become oversupplied and the use of railcars as a significant mode of transporting freight could decline, become more efficient over time, experience a shift in types of modal transportation, and/or certain railcar types could become obsolete.
The rail freight industry could become oversupplied, which could have a significant impact on the pricing, lease rates or demand for new railcars. In addition, if railcar transportation becomes more efficient from an increase in
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velocity or a decrease in idle times, especially if coupled with lower freight volumes, some of which may be permanent due to a reduction in coal volumes, this could significantly reduce the demand for our products and could adversely affect our results of operations. As the freight transportation markets we serve continue to evolve and become more efficient or are disrupted through technological developments, the use of railcars may decline in favor of other more economic modes of transportation. Features and functionality specific to certain railcar types could result in those railcars becoming obsolete as customer requirements for freight delivery change. Our operations may be adversely impacted by changes in the preferred method used by customers to ship their products or changes in demand for particular products. The industries in which our customers operate are driven by dynamic market forces and trends, which are in turn influenced by economic and political factors. Demand for our railcars may be significantly affected by changes in the markets in which our customers operate. A significant reduction in customer demand for transportation or manufacture of a particular product or change in the preferred method of transportation used by customers to ship their products could result in reduced demand for railcars and the economic obsolescence of our railcars, including those leased by our customers.
We face aggressive competition by a concentrated group of competitors and a number of factors may influence our performance. If we are unable to compete successfully, our market share, margin and results of operations may be adversely affected.
We face aggressive competition by a concentrated group of competitors in all geographic markets and in each area of our business. In addition, other companies may attempt to enter markets in which we compete. Some of these competitors are owned or financially supported by foreign countries or sovereign wealth funds, and may potentially sell products and services below cost, or otherwise compete unfairly, in order to gain market share. These markets are intensely competitive and we expect it to remain so in the foreseeable future. Competitive factors, including introduction of competitive products, new entrants into certain of our markets, price pressures, limited customer base and the relative competitiveness of our manufacturing facilities and products affect our ability to compete effectively. In addition, new technologies or the introduction of new railcars or other product offerings by our competitors could render our products obsolete or less competitive. If we do not compete successfully, our market share, margin and results of operations may be adversely affected.
We may pursue strategic opportunities, including new joint ventures, acquisitions and new business endeavors that involve inherent risks, any of which may cause us not to realize anticipated benefits and we could have difficulty integrating the operations of companies that we acquire or joint ventures we enter into, which could adversely affect our results of operations.
We may not be able to successfully identify suitable joint venture, acquisition and new business endeavors to invest in or complete potential transactions on acceptable terms. Our identification of suitable joint venture opportunities, acquisition candidates and new business endeavors involve risks inherent in assessing the values, strengths, weaknesses, risks and profitability of these opportunities. Our failure to identify suitable joint ventures, acquisition opportunities and new business endeavors may restrict our ability to grow our business. If we are successful in pursuing such opportunities,Additionally, we may be required to expend significant funds or incur additional debt, which could materially adversely affect our results of operations and limit our ability to obtain financing for working capital or other purposes and we may be more vulnerable to economic downturns and competitive pressures.
The success of our acquisition and joint venture strategies depends upon our ability to successfully complete acquisitions, to enter into joint ventures and to integrate any businesses that we acquire into our existing business. The integration of acquired business operations could disrupt our business by causing unforeseen operating difficulties, diverting management’s attention fromday-to-day operations and requiring significant financial resources that would otherwise be used for the ongoing development of our business. The difficulties of integration could be increased by the necessity of coordinating geographically dispersed organizations, integrating personnel with disparate business backgrounds and combining different corporate cultures. Each of these circumstances could be more likely to occur or be more severe in consequence in the case of an acquisition or joint venture involving a business that is outside of our core areas of expertise. In addition, we could be unable
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to retain key employees or customers of the combined businesses. We could face integration issues including those related to operations, internal controls, information systems and operational functions of the acquired companies and we also could fail to realize cost efficiencies or synergies that we anticipated when selecting our acquisition candidates and joint ventures. Any of these items could adversely affect our results of operations.
If we or our joint ventures fail to complete capital expenditure projects on time and within budget, or if these projects, once completed, fail to operate as anticipated, such failure could adversely affect our business, financial condition and results of operations.
Fromtime-to-time, we, or our joint ventures, undertake strategic capital projects in order to enhance, expand and/or upgrade facilities and operational capabilities. Our ability, and our joint ventures’ ability, to complete these projects on time and within budget, and for us to realize the anticipated increased revenues or otherwise realize acceptable returns on these investments or other strategic capital projects that may be undertaken is subject to a number of risks. Many of these risks are beyond our control, including a variety of market, operational, permitting, and labor related factors. In addition, the cost to implement any given strategic capital project ultimately may prove to be greater than originally anticipated. If we, or our joint ventures, are not able to achieve the anticipated results from the implementation of any of these strategic capital projects, or if unanticipated implementation costs are incurred, our business, financial condition and results of operations may be adversely affected.
A failure to design or manufacture products or technologies or to achieve timely certification or market acceptance of new products or technologies could havedevelop an adverse effect on our profitability.
We continue to introduce new railcar product innovations and technologies, and we periodically accept orders prior to receipt of railcar certification or proof of ability to manufacture a quality product that meets customer standards. We could be unable to successfully design or manufacture these new railcar product innovations or technologies. Our inability to develop and manufacture such new product innovations or technologies in a timely fashion and profitable manner, obtain timely certification, or achieve market acceptance, or the existence of quality problems in our new products, could have a material adverse effect on our revenue and results of operations and subject us to penalties, cancellation of orders and/or other damages.
Our relationshipsrelationship with our joint venture and alliance partners could be unsuccessful, which could adversely affect our business.
We have entered into several joint venture agreements and other alliancesworkforce or investments with other companies to increase our sourcing alternatives, reduce costs and produce new railcars or components. We may seek to expand our relationships or enter into new agreements with other companies. If our joint venture or alliance partners are unable to fulfill their contractual obligations or if these relationships are otherwise not successful in the future, our manufacturing and other costs could increase, we could encounter production disruptions, growth opportunities could fail to materialize, or we could be required to fund such joint ventures or alliances in amounts significantly greater than initially anticipated, any of which could adversely affect our business.
If any of our joint ventures generate significant losses, including future potential intangible asset or goodwill impairment charges, it could adversely affect our results of operations or cause our investment to be impaired.
We have potential exposure to environmental liabilities, which could increase costs or have an adverse effect on results of operations.
We are subject to extensive national, state, foreign, provincial and local environmental laws and regulations concerning, among other things, air emissions, water discharge, solid waste and hazardous substances handling and disposal and employee health and safety. These laws and regulations are complex and frequently change. We
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could incur unexpected costs, penalties and other civil and criminal liability if we, or in certain circumstances others, fail to comply with environmental laws or permits issued pursuant to those laws. We also could incur costs or liabilities related tooff-site waste disposal or remediating soil or groundwater contamination at our properties, including as set forth below. In addition, future environmental laws and regulations may require significant capital expenditures or changes to our operations, or may impose liability on us in the future for actions that complied with then applicable laws and regulations when the action was taken.
Portland Harbor Superfund Site
Our Portland, Oregon manufacturing facility 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 our manufacturing facility, as a federal “National Priority List” or “Superfund” site due to sediment contamination (the Portland Harbor Site). We, along with 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 us that we 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 us (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 have not signed such consent, but nevertheless contributed money to the effort. TheEPA-mandated RI/FS was produced by the LWG and cost over $110 million during a17-year period. We bore a percentage of the total costs incurred by the LWG in connection with the investigation. We cannot provide assurance that some or all of any such outlay will be recoverable from other responsible parties. The EPA issued its ROD for the Portland Harbor Site on January 6, 2017 and accordingly on October 26, 2017, the AOC was terminated.
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, 83 parties, including the State of Oregon and the federal government, have entered into anon-judicial mediation process to try to allocate costs associated with remediation of the Portland Harbor Site. Approximately 110 additional parties have signed tolling agreements related to such allocations. On April 23, 2009, we 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 was stayed by the court until January 16, 2020. The allocation process is continuing in parallel with the process to define the remediation steps.
The EPA’s January 6, 2017 ROD identifies a 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 expects its cost estimates to be within a range of-30% to +50%, but this ROD states that changes in costs are likely to occur as a result of new data it wants to collect over a2-year period prior to final remedy design. The ROD identifies 13 Sediment Decision Units. One of the units, RM9W, includes the nearshore area of the river sediments offshore of our Portland, Oregon manufacturing facility as well as upstream and downstream of the facility. The ROD does not break down total remediation costs by unit.
The ROD does not assign responsibility for the costs ofclean-up, nor does it allocate such costs among the potentially responsible parties. Responsibility for funding and implementing the EPA’s selected cleanup option will be determined at an unspecified later date. Based on the investigation to date, we believe that we did not contribute in any material way to contamination 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 our property precedes our ownership of the Portland, Oregon manufacturing facility. Because these environmental investigations are still underway, including the collection of newpre-remedial design sampling data by the EPA, sufficient information is currently not available to determine our 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, we may be required to incur costs associated with additional phases of investigation or remedial action, and may be liable for damages to
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natural resources. In addition, we may be required to perform periodic maintenance dredging in order to continue to launch vessels from our launch ways in Portland, Oregon, on the Willamette River, and the river’s classification as a Superfund site could result in some limitations on future dredging and launch activities. Any of these matters could adversely affect our business and Consolidated Financial Statements, or the value of our Portland property.
On January 30, 2017 the Confederated Tribes and Bands of Yakama Nation sued 33 parties including our company as well as the United States 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., United States Court for the District of Oregon Case No.3i17-CV-00164-SB. We, along with many of the other defendants, have moved to dismiss the case. That motion is pending. The complaint does not specify the amount of damages the Plaintiff will seek.
Oregon Department of Environmental Quality (DEQ) Regulation of Portland Manufacturing Operations
We have entered into a Voluntary Cleanup Agreement with the DEQ in which we agreed to conduct an investigation of whether, and to what extent, past or present operations at our Portland property may have released hazardous substances into the environment. We have 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. Interim precautionary measures are also required in the order and we are currently discussing with the DEQ potential remedial actions which may be required. We could incur significant expenses for remediation and we cannot provide assurance that some or all of any such outlay will be recoverable from other responsible parties.
The timing of our asset sales and related revenue recognition could cause significant differences in our quarterly results and liquidity.
We may build railcars or marine barges in anticipation of a customer order, or that are leased to a customer and ultimately planned to be sold to a third party. The difference in timing of production and the ultimate sale subjects our company to operational and market risks. In addition, we periodically sell railcars from our own lease fleet and the timing and volume of such sales is difficult to predict. As a result, comparisons of our manufacturing revenue, deliveries, quarterly net gain on disposition of equipment, income and liquidity between quarterly periods within one year and between comparable periods in different years may not be meaningful and should not be relied upon as indicators of our future performance.
We depend on our senior management team and other key employees, and significant attrition within our management team or unsuccessful succession planning for members of our senior management team and other key employees who are at or nearing retirement age, could adversely affect our business.
Our success depends in part on our ability to attract, retain and motivate senior management and other key employees. Achieving this objective may be difficult due to many factors, including fluctuations in global economic and industry conditions, competitors’ hiring practices, cost reduction activities, and the effectiveness of our compensation programs. Competition for qualified personnel can be very intense. We must continue to recruit, retain and motivate senior management and other key employees sufficient to maintain our current business and support our future projects and growth objectives. We are vulnerable to attrition among our current senior management team and other key employees. A loss of any such personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business, financial condition and results of operations.
Many members of our senior management team and other key employees are at or nearing retirement age. If we are unsuccessful in our succession planning efforts, the continuity of our business and results of operations could be adversely affected.
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Changes in the credit markets and the financial services industry could negatively impact our business, results of operations, financial condition or liquidity.
The credit markets and the financial services industry may experience volatility which can result in tighter availability of credit on more restrictive terms and limit our ability to sell railcar assets. Our liquidity, financial condition and results of operations could be negatively impacted if our ability to borrow money to finance operations, obtain credit from trade creditors, offer leasing products to our customers or sell railcar assets were to be impaired. In addition, scarcity of capital could also adversely affect our customers’ ability to purchase or pay for products from us or our suppliers’ ability to provide us with product, either of which could negatively affect our business and results of operations.
Volatility in the global financial markets may adversely affect our business, financial condition and results of operations.
During periods of volatility in the global financial markets, certain of our customers could delay or otherwise reduce their purchases of railcars and other products and services. If volatile conditions in the global credit markets impact our customers’ access to credit, product order volumes may decrease or customers may default on payments owed to us.
Likewise, if our suppliers face challenges obtaining credit, or otherwise operating their businesses, the supply of materials we purchase from them to manufacture our products may be interrupted. Any of these conditions or events could result in reductions in our revenues, increased price competition, or increased operating costs, which could adversely affect our business, financial condition and results of operations.
Our actual results may differ significantly from our announced expectations.
From time to time, we have released, and may continue to release guidance estimates in our quarterly and annual earnings releases, quarterly and annual earnings conference calls, or otherwise, regarding our future performance that represent our management’s estimates as of the date of release. Although we believe that any such guidance or estimates would provide investors and analysts with a better understanding of management’s expectations for the future and could be useful to our shareholders and potential shareholders, such guidance or estimates would consist of forward-looking statements subject to the risks and uncertainties described in this report and in our other public filings and public statements. Guidance and estimates are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the guidance or estimates may not materialize or may vary significantly from actual results. Our actual results may not always be in line with or exceed any guidance or estimates we may provide, especially in times of economic uncertainty. If our financial results for a particular period do not meet our guidance or estimates or the expectations of investors or research analysts, or if we reduce our guidance or estimates for future period, the trading volume or market price of our common stock may decline. In light of the foregoing, investors are urged not to unduly rely upon any guidance or estimates in making an investment decision regarding our common stock.
Fluctuations in the availability and price of energy, freight transportation, steel and other raw materials, and our fixed price contracts could have an adverse effect on our ability to manufacture and sell our products on a cost effective basis and could adversely affect our margins and revenue.
A significant portion of our business depends upon the adequate supply of steel, components and other raw materials at competitive prices and a small number of suppliers provide a substantial amount of our requirements. The cost of steel and all other materials used in the production of our railcars represents more than half of our direct manufacturing costs per railcar and in the production of our marine barges represents more than 30% of our direct manufacturing costs per marine barge. Our cost of acquiring steel, components and other raw materials to manufacture our railcars and marine barges are impacted by tariffs. If we are not able to purchase these materials at competitive prices, it could adversely impact our ability to produce and sell our products on a cost effective basis which could affect our revenue and profitability.
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Our businesses also depend upon an adequate supply of energy at competitive prices. When the price of energy increases, it adversely impacts our operating costs and could have an adverse effect upon our ability to conduct our businesses on a cost-effective basis. We cannot be assured that we will continue to have access to supplies of energy or necessary components for manufacturing railcars and marine barges. Our ability to meet demand for our products could be adversely affected by the loss of access to any of these supplies, the inability to arrange alternative access to any materials, or suppliers limiting allocation of materials to us.
In some instances, we have fixed price contracts that anticipate material price increases and surcharges, or contracts that contain actual or formulaic pass-through of material price increases and surcharges. However, if the price of steel or other raw materials were to fluctuate in excess of anticipated increases on which we have based our fixed price contracts, or if we were unable to adjust our selling prices or have adequate protection in our contracts against changes in material prices, or if we are unable to reduce operating costs to offset any price increases, our margins would be adversely affected. The loss of suppliers or their inability to meet our price, quality, quantity and delivery requirements could have an adverse effect on our ability to manufacture and sell our products on a cost-effective basis.
Decreases in the price of scrap adversely impact our Wheels, Repair & Parts margins and revenue and the residual value and future depreciation of our leased assets. A portion of our Wheels, Repair & Parts businesses involve scrapping steel parts and the resulting revenue from such scrap steel increases our margins and revenues. When the price of scrap steel declines, our revenues and margins in such business would decrease.
We rely on limited suppliers for certain components and services needed in our production. If we are not able to procure specialty components or services on commercially reasonable terms or on a timely basis, our business, financial condition and results of operations would be adversely affected.
Our manufacturing operations depend in part on our ability to obtain timely deliveries of materials, components and services in acceptable quantities and quality from our suppliers. In 2018, the top ten suppliers for all inventory purchases accounted for approximately 52% of total purchases. Amsted Rail Company, Inc. accounted for 19% of total inventory purchases in 2018. No other suppliers accounted for more than 10% of total inventory purchases. Certain components of our products, particularly specialized components like castings, bolsters, trucks, wheels and axels, and certain services, such as lining capabilities, are currently only available from a limited number of suppliers. Increases in the number of railcars manufactured could increase the demand for such components and services and strong demand may cause industry-wide shortages if suppliers are in the process of ramping up production or reach capacity production. Our dependence on a limited number of suppliers involves risks, including limited control over pricing, availability and delivery schedules. If any one or more of our suppliers cease to provide us with sufficient quantities of our components or services in a timely manner or on terms acceptable to us, or cease to provide services or manufacture components of acceptable quality, we could incur disruptions or be limited in our production of our products and we could have to seek alternative sources for these components or services. We could also incur delays while we attempt to locate and engage alternative qualified suppliers and we might be unable to engage acceptable alternative suppliers on favorable terms, if at all. In addition, we are increasing the number of components and services we manufacture or provide ourselves, directly or through joint ventures. If we are not successful at manufacturing such components or providing such services or have production problems after transitioning to self-produced supplies, we may not be able to replace such components or services from third party suppliers in a timely manner. Any such disruption in our supply of specialized components and services or increased costs of those components or services could harm our business and adversely affect our results of operations.
Train derailments or other accidents or claims could subject us to legal claims that adversely impact our business, financial condition and our results of operations.
We provide a number of services which include the manufacture and supply of new railcars, wheels, components and parts and the lease and repair of railcars for our customers that transport a variety of commodities, including tank railcars that transport hazardous materials such as crude oil, ethanol and other products. In addition, we have
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a Regulatory Services Group which offers regulatory, engineering, process consulting and advocacy support to the tank car and petrochemical rail shipper community, among other services. We could be subject to various legal claims, including claims for negligence, personal injury, physical damage and product or service liability, or in some cases strict liability, as well as potential penalties and liability under environmental laws and regulations, in the event of a derailment or other accident involving railcars, including tank railcars. Additionally, the severity of injury or property damage arising from an incident may influence the causation responsibility analysis exposing us to potentially greater liability. If we become subject to any such claims and are unable successfully to resolve them or have inadequate insurance for such claims, our business, financial condition and results of operations could be materially adversely affected.
Changes in or failure to comply with legal and regulatory requirements applicable to the industries in which we operate may adversely impact our business, financial condition and results of operations.
Our operations and the industry we serve, including our customers, are subject to extensive regulation by governmental, regulatory and industry authorities and by federal, state, local and foreign agencies. These organizations establish rules and regulations for the railcar industry, including construction specifications and standards for the design and manufacture of railcars; mechanical, maintenance and related standards; and railroad safety. New rules and administrative regulations from these entities could impact our financial results, demand for our products and the economic value of our assets. In addition, if we fail to comply with the requirements and regulations of these entities, we could face sanctions and penalties that could negatively affect our financial results.
The risks of substantial costs and liabilities related to compliance with these laws and regulations are an inherent part of our business. Despite our intention to comply with these laws and regulations, we cannot guarantee that we will be able to do so at all times and compliance may prove to be more costly and limiting than we currently anticipate and compliance requirements could increase in future years. These laws and regulations are complex, change frequently and may become more stringent over time, which could impact our business, financial condition and results of operations.
In North America regulatory changes, along with prevailing market conditions, could materially affect new tank railcar manufacturing and retrofitting activities industry-wide, including negative impacts to customer demand for our products and services. In North America additional laws and regulations have been proposed or adopted that will potentially have a significant impact on railroad operations, including the implementation of “positive train control” (PTC) requirements. PTC is a collision avoidance technology intended to override engineer controlled locomotives and stop certain types of train accidents. While certain of these legal and regulatory changes could result in increased levels of railcar repair or refurbishment work and/or new tank car manufacturing activity, if we are unable to manage to adapt our business successfully to changing regulations, our business and results of operations could be adversely affected.
In Europe, changes to the process for obtaining regulatory approval for the operation of new or modified railcars may make it more difficult for us to deliver products to our customers in a timely manner. Effective in June of 2019, issuance of railway vehicle authorizations will be centralized with the European Union Agency for Railways, rather than being the responsibility of railway safety authorities in each European Union member country. This change may result in delays of several months for obtaining required regulatory approvals, when compared to the current system, which may have an adverse effect on our business and results of operations.
An adverse outcome in any pending or future litigation could negatively impact our business and results of operations.
We are a defendant in several pending cases in various jurisdictions. If we are unsuccessful in resolving these claims, our business and results of operations could be adversely affected. In addition, future claims that may arise relating to any pending or new matters, whether brought against us or initiated by us against third parties, could distract management’s attention from business operations and increase our legal and related costs, which could also negatively impact our business and results of operations.
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Risks related to potential misconduct by employees may adversely impact us.
Our employees may engage in misconduct or other improper activities, including noncompliance with our policies or regulatory standards and requirements, which could subject us to regulatory sanctions and reputational damage and materially harm our business. It is not always possible to deter employee misconduct, and the precautions we take to prevent and detect this activity may not be effective in controlling unknown or unmanaged risks or losses, including risks associated with harassment, as well as whistleblower complaints and litigation. There can be no assurance that we will succeed in preventing misconduct by employees in the future. In addition, the investigation of alleged misconduct disrupts our operations and may harm the public’s perception of our company, which may be costly. Any such events in the future may have a material adverse impact on our financial condition or results of operations.
Some of our employees belong to labor unions and strikes or work stoppages could adversely affect our operations.
providers. We are a party to collective bargaining agreements with various labor unions at some of our operations. Disputes with regard to the terms and conditions of these agreements or our potential inability to negotiate acceptable contracts with these unions in the future could result in, among other things, strikes, work stoppages or other slowdowns by the affected workers. We cannot be assured that our relations with our workforce will remain positive. Union organizers are actively working to organize employees at some of our other facilities. If our workers were to engage in a strike, work stoppage or other slowdown, or other employees were to become unionized or the terms and conditions in future labor agreements were renegotiated, or if union representation is implemented at such sites and we are unable to agree with the union on reasonable employment terms, including wages, benefits, and work rules, we could experience a significant disruption of our operations and incur higher ongoing labor costs. In addition, we could face higher laborOur costs in the future as a result of severance or other charges associated withlay-offs, shutdowns or reductions in the size and scope of our operations or due to the difficulties of restarting our operations that have been temporarily suspended. Our stock price has been volatile and may continue to experience large fluctuations.
The price of our common stock has experienced rapid and significant price fluctuations. Our stock price ranged from a low of $41.95 per share to a high of $60.90 per share for the year ended August 31, 2018 and a low of $28.95 per share to a high of $51.25 per share for the year ended August 31, 2017. The price for our common stock is likely to continue to be volatile and subject to price and volume fluctuations in response to market and other factors, including the factors discussed elsewhere in these risk factors and the following:
quarter-to-quarter variations in our operating results;
the depth and liquidity of the market for our common stock;
shortfalls in revenue or earnings from levels expected by securities analysts and investors, including the level of our backlog and number of orders received during the period;
changes in securities analysts’ estimates of our future performance;
dissemination of false or misleading statements through the use of social and other media to discredit us, disparage our products or to harm our reputation;
any developments that materially impact investors’ or customers’ perceptions of our business prospects;
dilution resulting from our sale of additional shares of common stock or from the conversion of convertible notes;
changes in governmental regulation;
significant railcar industry announcements or developments;
the introduction of new products or technologies by us or our competitors;
actual or anticipated variations in our or our competitors’ quarterly or annual financial results;
the general health and outlook of our industry;
general financial and other market conditions; and
domestic and international economic conditions.
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In addition, public stock markets have experienced, and may in the future experience, extreme price and trading volume volatility. This volatility has significantly affected the market prices of securities of many companies for reasons frequently unrelated to, or that disproportionately impact, the operating performance of these companies and may adversely affect the price of our common stock. These broad market fluctuations may adversely affect the market price of our common stock in the future.
A material decline in the price of our common stock may result in the assertion of certain claims against us, and/or the commencement of inquiries and/or investigations against us. A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock, a reduction in our ability to raise capital, and the inability of investors to obtain a favorable selling price for their shares. Any reduction in our ability to raise equity capital in the future may force us to reallocate funds from other planned uses and could have a significant negative effect on our business plans and operations.
Following periods of volatility in the market price of their stock, historically many companies have been the subject of securities class action litigation. If we became involved in securities class action litigation in the future, it could result in substantial costs and diversion of our management’s attention and our resources and could harm our stock price, business, prospects, financial condition and results of operations.
Our product and service warranties could expose us to potentially significant claims.
We offer our customers limited warranties for many of our products and services. Accordingly, we may be subject to significant warranty claims in the future, such as multiple claims based on one defect repeated throughout our production or servicing processes or claims for which the cost of repairing the defective part is highly disproportionate to the original cost of the part. These types of warranty claims could result in costly product recalls, customers seeking monetary damages, significant repair costs and damage to our reputation.
If warranty claims attributable to actions of third party component manufacturers are not recoverable from such parties due to their poor financial condition or other reasons, we could be liable for warranty claims and other risks for using these materials in our products.
Many of our products are sold to third parties who may misuse, improperly install or improperly or inadequately maintain or repair such products thereby potentially exposing us to claims that could increase our costs and weaken our financial condition.
The products we manufacture are designed to work optimally when properly operated, installed, repaired, maintained and used to transport the intended cargo. When this does not occur, we may be subjected to claims or litigation associated with product damage, injuries or property damage that could increase our costs and weaken our financial condition.
Our financial performance and market value could cause future write-downs of goodwill or intangibles in future periods.
We are required to perform an annual impairment review of goodwill and indefinite lived assets which could result in an impairment charge if it is determined that the carrying value of the asset is in excess of the fair value. We perform a goodwill impairment test annually during our third quarter. Goodwill is also tested more frequently if changes in circumstances or the occurrence of events indicates that a potential impairment exists.
When we have continued underperforming operations or changes in circumstances, such as a decline in the market price of our common stock, changes in demand or in the numerous variables associated with the judgments, assumptions and estimates made in assessing the appropriate valuation of goodwill indicate the carrying amount of certain indefinite lived assets may not be recoverable, the assets are evaluated for impairment. Among other things, our assumptions used in the valuation of goodwill include growth of revenue
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and margins and increased cash flows over time. If actual operating results were to differ from these assumptions, it may result in an impairment of goodwill. As of August 31, 2018, we had $51.1 million of goodwill in our Wheels, Repair & Parts segment and $27.1 million in our Manufacturing segment. Impairment charges to our goodwill or our indefinite lived assets would impact our results of operations. Future write-downs of goodwill and intangibles could affect certain of the financial covenants under debt instruments and could restrict our financial flexibility. In the event of goodwill impairment, we may have to test other assets for impairment.
The conversion of our outstanding convertible notes could result in substantial dilution to our current stockholders.
We have the option to settle outstanding convertible notes in cash, although if we opt not to or do not have the ability to, the conversion of some or all of our convertible notes may dilute the ownership interests of existing stockholders. Any sales in the public market of the common stock issuable upon the conversion of the notes could adversely affect prevailing market prices of our common stock. In addition, the existence of the notes may encourage short selling by market participants, because the conversion of the notes could depress the price of our common stock.
We are a holding company with no independent operations. Our ability to meet our obligations depends upon the performance of our subsidiaries and our joint ventures and their ability to make distributions to us.
As a holding company, we are dependent on the earnings and cash flows of, and dividends, distributions, loans or advances from, our subsidiaries and joint ventures to generate the funds necessary to meet certain of our obligations including the payment of principal, of premium, if any, and interest on debt obligations. Any payment of dividends, distributions, loans or advances to us by our subsidiaries could be subject to statutory restrictions on dividends or repatriation of earnings under applicable local law and monetary transfer restrictions in the jurisdictions in which our subsidiaries operate. In addition, many of our subsidiaries and our joint ventures are parties to credit facilities that contain restrictions on the timing and amount of any payment of dividends, distributions, loans or advances that our subsidiaries may make to us. Under certain circumstances, some or all of our subsidiaries may be prohibited from making any such payments.
Our governing documents, the indentures governing our 2024 Convertible Notes, and Oregon law contain certain provisions that could prevent or make more difficult an attempt to acquire us.
Our Articles of Incorporation and Bylaws, as currently in effect, contain certain provisions that may have anti-takeover effects, including:
a classified Board of Directors, with each class containing as nearly as possibleone-third of the total number of members of the Board of Directors and the members of each class serving for staggered three-year terms;
a vote of at least 55% of our voting securities to amend, repeal or adopt an inconsistent provision of certain provisions of our Articles of Incorporation;
no less than 120 days’ advance notice with respect to nominations of directors or other matters to be voted on by stockholders other than by or at the direction of the Board of Directors;
removal of directors only for cause;
the calling of special meetings of stockholders only by the president, a majority of the Board of Directors or the holders of not less than 25% of all votes entitled to be cast on the matters to be considered at such meeting;
the issuance of preferred stock by our board without further action by the shareholders; and
the availability under the Articles of Series A participating preferred stock that may be issuable.
The provisions discussed above could have anti-takeover effects because they may delay, defer or prevent an unsolicited acquisition proposal that some, or a majority, of our stockholders might believe to be in their best interests or in which stockholders might receive a premium for their common stock over the then-prevailing market price.
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The Oregon Control Share Act and business combination law could limit parties who acquire a significant amount of voting shares from exercising control over us for specific periods of time. These acts could lengthen the period for a proxy contest or for a stockholder to vote their shares to elect the majority of our Board and change management. Additionally, the indentures governing our 2024 Convertible Notes provide for the acceleration, at the lenders option, of all outstanding principal and interest owed on the notes upon a change of control of our company. The rights afforded to our creditors under these indentures could increase the cost of any potential acquisition of our company and have a resulting chilling effect on interest in acquiring our company.
These restrictions and provisions could have the effect of dissuading other stockholders or third parties from contesting director elections or attempting certain transactions with us, including, without limitation, acquisitions, which could cause investors to view our securities as less attractive investments and reduce the market price of our common stock and the notes.
Payments of cash dividends on our common stock may be made only at the discretion of our Board of Directors and may be restricted by Oregon law.
Any decision to pay dividends will be at the discretion of our Board of Directors and will depend upon our operating results, strategic plans, capital requirements, financial condition, provisions of our borrowing arrangements and other factors our Board of Directors considers relevant. Furthermore, Oregon law imposes restrictions on our ability to pay dividends. Accordingly, we may not be able to continue to pay dividends in any given amount in the future, or at all.
Fluctuations in foreign currency exchange rates could lead to increased costs and lower profitability.
Outside of the U.S., we primarily conduct business in Mexico and Europe and ournon-U.S. businesses conduct their operations in local currencies and other regional currencies. We also source materials worldwide. Fluctuations in exchange rates may affect demand for our products in foreign markets or our cost competitiveness and may adversely affect our profitability. Although we attempt to mitigate a portion of our exposure to changes in currency rates through currency rate hedge contracts and other activities, these efforts cannot fully eliminate the risks associated with the foreign currencies. In addition, some of our borrowings are in foreign currency, giving rise to risk from fluctuations in exchange rates. A material or adverse change in exchange rates could result in significant deterioration of profits or in losses for us.
We have indebtedness, which could have negative consequences to our business or results of operations.
As of August 31, 2018, our total consolidated indebtedness was approximately $469.7 million (excluding $26.6 million of debt discount and $6.9 million of debt issuance costs). As of August 31, 2018, approximately $179.9 million (excluding $0.5 million of debt issuance costs) of our consolidated indebtedness was secured. Our indebtedness consists of convertible notes, a senior secured revolving credit facility and term loans. Our level of indebtedness could have a material adverse effect on our business and make it more difficult for us to satisfy our obligations under our outstanding indebtedness and the notes. As a result of our debt and debt service obligations, we face increased risks regarding, among other things, the following:
our ability to borrow additional amounts or refinance existing indebtedness in the future for working capital, capital expenditures, acquisitions, debt service requirements, investments, stock repurchases, execution of our growth strategy, or other purposes may be limited or such financing may be more costly;
our availability of cash flow to fund working capital requirements, capital expenditures, investments, acquisitions or other strategic initiatives and other general corporate purposes because a portion of our cash flow is needed to pay principal and interest on our debt;
our vulnerability to competitive pressures and to general adverse economic or industry conditions, including fluctuations in market interest rates or a downturn in our business;
our being at a competitive disadvantage relative to our competitors that have greater financial resources than us or more flexible capital structures than us;
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our ability to satisfy our financial obligations related to our consolidated indebtedness;
our additional exposure to the risk of increased interest rates as certain of our borrowings are at variable rates of interest, which could result in higher interest expense in the event of an increase in interest rates;
our restrictions under the restrictive covenants in our North American senior secured credit facility, our secured term loan, our other credit agreements, and any of the agreements governing our future indebtedness adversely restricting our financial and operating flexibility and subjecting us to other risks; and
the possibility we may suffer a material adverse effect on our business and financial condition if we are unable to service our debt or obtain additional financing, as needed.
Despite our current indebtedness levels and the restrictive covenants set forth in the agreements governing our indebtedness, if we, our subsidiaries and our joint ventures are in compliance with the covenants, we, our subsidiaries and our joint ventures may be able to incur substantially more indebtedness, including secured indebtedness, and other obligations and liabilities that do not constitute indebtedness. This could increase the risks associated with our indebtedness. As of August 31, 2018, after giving effect to issued but undrawn letters of credit, we had approximately $392.6 million of availability under our North American senior secured credit facility (based on our borrowing base as of such date) and approximately $57.5 million of availability under our European and Mexican joint venture senior secured credit facilities.
We may need to raise additional capital to operate our business and achieve our business objectives, which could result in dilution to investors.
We require substantial working capital to fund our business. If additional funds are raised through the issuance of equity securities, the percentage ownership held by our stockholders will be reduced and these equity securities may have rights, preferences or privileges senior to those of our common stock. We evaluate opportunities to access the capital markets taking into account our financial condition and other relevant considerations. Additional financing may not be available when needed, on terms favorable to us or at all. If adequate funds are not available or are not available on acceptable terms, we may be unable to develop or enhance our business, take advantage of future opportunities or respond to competitive pressures, which would harm our business, financial condition and results of operations.
Our business and operations could be negatively affected if we become subject to shareholder activism, which could cause us to incur significant expense, hinder execution of our business strategy and impact our stock price.
Shareholder activism, which could take many forms and arise in a variety of situations, has been increasing in publicly traded companies recently. Shareholder activism, including potential proxy contests, could result in substantial costs and divert management’s and our Board of Directors’ attention and resources from our business. Additionally, such shareholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationships with service providers and make it more difficult to attractrecruit, train and retain necessary, qualified personnel. Also, weemployees may be required to incur significant legal fees and other expenses related to activist shareholder matters. Our stock price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any shareholder activism.
We are subject to cybersecurity risks and may incur increasing costs in an effort to minimize those risks.
Our business employs systems and websites that allow for the storage and transmission of proprietary or confidential information regardingexceed our customers, employees, job applicants and other parties, including financial information, intellectual property and personal identification information. Security breaches and other disruptions could compromise our information, expose us to liability and harm our reputation and business. The steps we take to deter and mitigate these risks may not be successful. We may not have the resources or technical sophistication to anticipate or prevent current or rapidly evolving types of cyber-attacks. Attacks may be targeted at us, our customers, or others who have entrusted us with information. Actual or anticipated attacks may cause
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us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees, and engage third-party experts or consultants. Advances in computer capabilities, or other technological developments may result in the technology and security measures used by us to protect transaction or other data being breached or compromised. In addition, data and security breaches can also occur as a result ofnon-technical issues, including intentional or inadvertent breach by our employees or by persons with whom we have commercial relationships. Any compromise or breach of our security could result in a violation of applicable privacy and other laws, legal and financial exposure, negative impacts on our customers’ willingness to transact business with us and a loss of confidence in our security measures, which could have an adverse effect on our results of operations and our reputation.
Updates or changes to our information technology systems may result in problems that could negatively impact our business.
We have information technology systems, comprising hardware, network, software, people, processes and other infrastructure that are important to the operation of our businesses. We continue to evaluate and implement upgrades and changes to information technology systems that support substantially all of our operating and financial functions. We could experience problems in connection with such implementations, including compatibility issues, training requirements, higher than expected implementation costs and other integration challenges and delays. A significant problem with an implementation, integration with other systems or ongoing management and operation of our systems could negatively impact our business by disrupting operations. Such a problem could also have an adverse effect on our ability to generate and interpret accurate management and financial reports and other information on a timely basis, which could have a material adverse effect on our financial reporting system and internal controls and adversely affect our ability to manage our business.
expectations. If we are unable to protect our intellectual propertyrecruit, train and prevent its improper use byretain adequate numbers of qualified employees and third partiesparty labor providers on a timely basis or if third parties assert that our productsat a reasonable cost or services infringe their intellectual property rights, our ability to compete in the market may be harmed, andon reasonable terms, our business and financial condition mayresults of operations could be adversely affected. The protection
Risks relatedto potentialmisconductby employeesmayadverselyimpactus. Our employeesmayengagein misconduct, fraudor otherimproperactivities,includingnoncompliancewith our policiesor regulatorystandardsand requirements,which couldsubjectus to regulatorysanctions and reputational damage and materiallyharmour business.Itisnot alwayspossibleto deteremployeemisconduct,and theprecautionswetaketo preventand detectthisactivitymaynot be effectivein controllingunknown or unmanagedrisksor losses, includingrisksassociatedwith harassment, as well as whistleblowercomplaintsand litigation.Therecan be no assurancethatwe will succeedin preventingmisconductby employeesin thefuture.In addition,theinvestigationof allegedmisconductdisruptsour operationsand may harm the public’s perception of our intellectual property is important tocompany, which maybe costly.Any such eventsin thefuturemayhave a materialadverse impacton our business. We rely on a combination of trademarks, copyrights, patents and trade secrets to protect our intellectual property. However, these protections might be inadequate. Our pending financialconditionor future trademark, copyright and patent applications might not be approved or, if allowed, might not be sufficiently broad. If our intellectual property rights are not adequately protected we may not be able to commercialize our technologies, products or services and our competitors could commercialize our technologies, which could result in a decrease in our sales and market share and could materially adversely affect our business, financial condition and results of operations. Conversely, third parties might assert that our products, services, or other business activities infringe their patents or other intellectual property rights. Infringement and other intellectual property claims and proceedings brought against us, whether successful or not, could result in substantial costs and harm our reputation. Such claims and proceedings can also distract and divert our management and key personnel from other tasks important to the success of our business. In addition, intellectual property litigation or claims could force us to cease selling or using products that incorporate the asserted intellectual property, which would adversely affect our revenues, or cause us to pay substantial damages for past use of the asserted intellectual property or to pay substantial fees to obtain a license from the holder of the asserted intellectual property, which license may not be available on reasonable terms, if at all. In the event of an adverse determination in an intellectual property suit or proceeding, or our failure to license essential technology or redesign our products so as not to infringe third party intellectual property rights, our sales could be harmed and our costs could increase, which could materially adversely affect our business, financial condition and results of operations. We could be liable for physical damage, business interruption
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Some of our competitors are owned or product liability claims that exceed our insurance coverage.financially supported by foreign governments and may sell products below cost or otherwise compete unfairly. The naturemarkets in which we participate areintenselycompetitiveand we expectthemto remainintensely competitive into theforeseeablefuture. Some of our business subjects uscompetitors are owned or financially supported by foreign governments or sovereign wealth funds, and may potentially sell products and services below cost, or otherwise compete unfairly, in order to physical damage, business interruptiongain market share. The relative competitiveness of our manufacturing facilities and product liability claims, especiallyproducts affects our performance. A number of competitivefactors challenge or affectour abilityto competesuccessfully including the introductionof competitiveproducts and new entrantsintoour markets, a limitedcustomerbaseand pricepressures such as unfair competition and increases in connection with the repairraw materials and manufacture labor costs. If we do not competesuccessfully,our marketshare,marginand resultsof products that carry hazardous or volatile materials.operationsmaybe adverselyaffected. | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 27 | |
We have potentialexposureto environmentalliabilities,which could increase our operating costsor have an adverseeffect on our resultsof operations.
Although We aresubjectto extensivenational,state, foreign, provincialand localenvironmentallaws and regulations concerning,amongotherthings,airemissions,waterdischarge,solidwasteand hazardoussubstanceshandling and disposaland employeehealthand safety.These laws and regulationsarecomplexand frequentlychange.We couldincurunexpectedcosts,penaltiesand otherciviland criminalliabilityifwe, maintain liability insurance coverage at commercially reasonable levels compared or in certain circumstances others, failto similarly sized heavy equipment manufacturers, an unusually large physical damage, business interruptioncomplywith environmentallaws or product liability claim permitsissuedpursuantto thoselaws. We alsocouldincurcostsor a series of claims based on a failure repeated throughout liabilitiesrelated to off-sitewastedisposalor remediatingsoilor groundwatercontaminationatour production process could exceed our insurance coverage properties,includingas set forth in Item 3, “Legal Proceedings.” In addition,futureenvironmentallaws and regulationsmayrequiresignificantcapitalexpendituresor result in damage changesto our reputation, which could materially adversely impact our financial condition and results of operations.
We could be unable to procure adequate insuranceoperations, or may impose liability on a cost-effective basisus in the future.future for actions that complied with then applicable laws and regulations when the action was taken.
The ability to insure our businesses, facilities and rail assets is an important aspect of our ability to manage risk. As there are only limited providers of this insurance to the railcar industry, there is no guarantee that such insurance will be available on a cost-effective basis in the future. In addition, we cannot assure that our insurance carriers will be able to pay current
Fires,naturaldisasters, pandemics, terrorism, or future claims. Changes in accounting standardssevere or inaccurate estimates or assumptions in the application of accounting policies could adversely affect our financial results.
Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Some of these policies require use of estimates and assumptions that may affect the reported value of our assets or liabilities and financial results and are critical because they require management to make difficult, subjective, and complex judgments about matters that are inherently uncertain. Accounting standard setters and those who interpret the accounting standards (such as the Financial Accounting Standards Board, the SEC, and our independent registered public accounting firm) may amend or even reverse their previous interpretations or positions on how these standards should be applied. In some cases, we could be required to apply a new or revised standard retrospectively, resulting in the revision of prior period financial statements. Changes in accounting standards can be hard to predict and can materially impact how we record and report our financial condition and results of operations.
Fires, natural disasters, severe unusual weather conditions or public health crises could disruptour businessand result in lossof revenueor higher expenses.expenses or decreased demand for wheel services.
Any seriousdisruptionatany of our facilitiesdue to pandemic, terrorism, fire,hurricane,earthquake,flood, other severe weather eventsor any other naturaldisaster or an epidemic or other public health crisis, or a panic reaction to a perceived health risk, could impairour abilityto use our facilitiesand have a materialadverseimpacton our revenuesand increaseour costs and expenses.Ifthereisa naturaldisasteror otherseriousdisruptionatany of our facilities,particularly at any of our Mexican or Arkansas facilities,itcouldimpairour abilityto adequatelysupplyour customers,causea significant disruptionto our operations,causeus to incursignificantcoststo relocateor reestablishthesefunctionsand negativelyimpactour operatingresults.Whilewe insureagainstcertainbusinessinterruptionrisks,such insurancemaynot adequatelycompensateus forany lossesincurredas a resultof naturalor otherdisasters. Unusual weather conditions may reduce demand for our wheel-related parts and repair services.
Performing railcar wheel repair and replacing railcar wheels represents a portion of our business. Seasonal Additionally, seasonalfluctuationsin weatherconditionsmayleadto greatervariationin our quarterlyoperatingresultsas unusuallymildweatherconditionswillgenerallyleadto lowerdemandforour wheel-relatedproductsand services. In addition, unusually Unusuallymildweatherconditionsthroughouttheyearmayreduceoveralldemandforour wheel-relatedproductsand repairservices.Ifoccurringforprolongedperiods,such weathercouldhave an adverseeffecton our business,resultsof operationsand financialcondition.
| | | | | 28 | | The Greenbrier Companies 2018 Annual Report | | |
Business, regulatory,and legaldevelopmentsregardingclimatechange mayaffectthe demand forour productsor the abilityof our criticalsuppliersto meetour needs. Scientific studies have suggested that emissions of certain gases, commonly referred to as greenhouse gases (GHGs) including carbon dioxide and methane, may be contributing to warming of the Earth’s atmosphere and other climate changes. Legislation and new rules to regulate emission of GHGs have been introduced in numerous state legislatures, the U.S. Congress, and by the EPA. Some of these proposals would require industries to meet stringent new standards that may require substantial reporting of GHGs and other carbon intensive activities in addition to potentially mandating reductions in our carbon emissions. While we cannot assess the direct impact of these or other potential regulations, we recognize that new climate change reporting or compliance protocols could affect our operating costs, the demand for our products and/or affect the price of materials, input factors and manufactured components which could impact our margins. Potential opportunities could include greater demand for certain types of railcars, while potential challenges could include decreased demand for certain types of railcars or other products and higher energy costs. Other adverse consequences of climate change could include an increased frequency of 18
severe weather events and rising sea levels that could affect operations at our manufacturing facilities, the price of insuring company assets, or other unforeseen disruptions of our operations, systems, property or equipment. Repercussions from terrorist activities or armed conflict
Fluctuationsin the availabilityand priceof inputs could harmhave an adverseeffecton our business.abilityto manufactureand sellour productsprofitablyand could adverselyaffectour marginsand revenue. Terrorist activities, anti-terrorist efforts,
A significantportionof our businessdependsupon theadequatesupplyof steel, other raw materials, and energyatcompetitiveprices. A smallnumberof suppliersfulfilla substantialamountof our requirements.The costof steeland allothermaterialsused in theproductionof our railcarsrepresentsmorethan halfof our directmanufacturingcostsperrailcarand in theproductionof our marinebargesrepresentsmore than 30% of our directmanufacturingcostspermarinebarge. Our cost of acquiring steel, components, and other armed conflict involvingraw materials, to manufacture our railcars and marine barges are impacted by tariffs. The lossof suppliersor theirinabilityto meetour price,quality,quantityand deliveryrequirementscouldhave an adverseeffecton our abilityto manufactureand sellour productson a cost-effectivebasis.If we are not able to purchase materials and energy at competitive prices, our ability to produce and sell our products on a cost effective basis could be adversely impacted which, in turn, could adversely affect our revenue and profitability. Our fixed-pricecontracts generally anticipatematerialpriceincreasesand surcharges. If we are unableto adjustour sellingpricesor have adequate protectionin our contractsagainstchangesin materialprices,our marginscould be adverselyaffected. Additionally, a portionof our Wheels, Repair& Parts businessesinvolvescrappingsteelpartsand the U.S.resultingrevenuefromsuch scrapsteelincreasesour marginsand revenues.When thepriceof scrapsteeldeclines,our revenuesand marginsin such businesses decrease. Our debt could have negative consequences to our business or its interests abroadresults of operations. We face several risks due to our debtand debtservice obligationsincluding our potential inability to satisfy our financial obligations related to our consolidated indebtedness; potential breach of the covenants in our credit agreements; our ability to borrow additional amounts or refinance existing indebtedness in the future to fund operating needs may be limited or costly; our availability of cash flow may be inadequate because a portion of our cash flow is needed to pay principal and interest on our debt; we may be vulnerable to competitive pressures and to general adverse economic or industry conditions, including fluctuations in market interest rates or a downturn in our business; we may be at a competitive disadvantage relative to our competitors that have greater financial resources than us or more flexible capital structures than us; we face additional exposure to the risk of increased interest rates as certain of our borrowings are at variable rates of interest, which could result in higher interest expense in the event of an increase in interest rates; restrictions under debt agreements may adversely affect the U.S. and global economies, potentially preventing us from meetinginterfere with our financial and operating flexibility and subjecting us to other obligations. In particular,risks; and exposure to the negative impactspossibility that we may suffer a material adverse effect on our business and financial condition if we are unable to service our debt or obtain additional financing, as needed. We, our subsidiaries, and our joint ventures mayincur additional indebtedness, including secured indebtedness, and other obligations and liabilities that do not constitute indebtedness.This could increasethe risksassociated with our debt. Some of our credit facilities and existing indebtednessuse the London Interbank Offered Rates (LIBOR) as a benchmark for establishing interest rates. LIBOR is the subject of recent proposals for reform. The consequences of these events may affect the industries in which we operate. Thisdevelopments with respect to LIBOR cannot be entirely predicted at this time, but could result in delaysan increase in the cost of our variable rate debt. Our productand servicewarrantiescould exposeus to significantclaims. We offerour customerslimitedwarrantiesformanyof our productsand services.Accordingly,we may be subjectto significantwarrantyclaimsin thefuture,such as multipleclaimsbasedon one defectrepeated throughoutour productionor servicingprocesses, claimsforwhich thecostof repairingthedefectivepartis highlydisproportionateto theoriginalcostof thepart or defects in railcars or services which we discover in the future resulting in increased warranty costs or litigation. Warranty and product support terms may expand beyond those which have traditionally prevailed in the rail supply industry. These typesof warrantyclaimscouldresultin costly productrecalls,customersseekingmonetarydamages,significantrepaircostsand damageto our reputation. Ifwarrantyclaimsattributableto actionsof thirdpartycomponentmanufacturersarenot recoverable fromsuch partiesdue to theirpoor financialconditionor otherreasons,we couldbe liableforwarrantyclaims and otherrisksforusingthesematerials in our products. 19
Train derailmentsor otheraccidentsor claimscould subjectus to legalclaimsthatadverselyimpactour business,financialconditionand our resultsof operations. We providea numberof serviceswhich includethemanufactureand supplyof new railcars, wheels,componentsand parts and the lease and repair of railcarsforour customersthattransporta varietyof commodities,includingtankrailcarsthat transporthazardousmaterialssuch as crudeoil,ethanoland otherproducts. In addition, we have a Regulatory Services Group which offers regulatory, engineering, process consulting and advocacy support to the tank car and petrochemical rail shipper community, among other services. We couldbe subjectto variouslegal claims,includingclaimsofnegligence,personalinjury,physicaldamageand productor serviceliability,or in somecasesstrictliability,as wellas potentialpenaltiesand liabilityunderenvironmentallaws and regulations,in theeventof a derailmentor otheraccidentinvolvingrailcars,includingtankrailcars whether resulting from natural disasters, human error, terrorism, or other causes.Ifwe becomesubjectto any such claimsand areunablesuccessfullyto resolve themor maintain inadequateinsuranceforsuch claims,our business,financialconditionand resultsof operations couldbe materiallyadverselyaffected. Our products may be sold to thirdpartieswhomaymisuse,improperlyinstallor improperlyor inadequatelymaintainor repairsuch productstherebypotentiallyexposingus to claimsthatcould increase our costsand weaken our financialcondition.The productswe manufacturearedesignedto work optimallywhen properlyoperated,installed, repaired,maintained and used to transport the intended cargo.When thisdoes not occur,we maybe subjectedto claimsor litigationassociatedwith product damage, injuriesor propertydamagethatcouldincreaseour costsand weaken our financialcondition. Changes in, or cancellations failure to comply with, applicable regulations mayadversely impactour business,financialconditionand resultsof operations. Our company and the purchaseother participants in our industry are subject to regulation by governmental agencies. These authorities establish, interpret, and enforce rules and regulations for the railcar industry. New rules and regulations and shifting enforcement priorities of regulators could increase our operating costs and the operating costs of our customers. Changes to the process for obtaining regulatory approval in Europe for the operation of new or modified railcars may make it more difficult for us to deliver products timely and to comply with our sales contracts. We cannot guarantee that we or shortagesour suppliers will be in raw materials, parts,compliance at all times and compliance may prove to be more costly and limiting than we currently anticipate and compliance requirements could increase in future years. If we or components. Any of these occurrencesour suppliers fail to comply with applicable requirements and regulations, we could have a material adverse impact onface sanctions and penalties that could negatively affect our financial results.
The timingof our assetsalesand relatedrevenuerecognitioncould cause significantdifferencesin our quarterlyresultsand liquidity. We maybuildproductsin anticipationof a customerorder,or lease railcars to a customerwith the aim of selling such railcars on lease to a thirdparty. In such cases, the lag between productionand saleresults in uneven recognition of revenue and earnings over time.Our production during any given period may be concentrated in relatively few contracts, intensifying the amplitude and irregularity of our revenue streams. The timing of recognizing revenue on a railcar is also materially impacted by our decision whether to lease the railcar to a lessee, sell the railcar, or syndicate the railcar with a lease attached to an investor. In addition,we periodicallysellrailcarsfromour own leasefleetand thetiming and volumeof such salesaredifficultto predict.As a result,comparisonsof our manufacturingrevenue, deliveries,quarterlynetgainon dispositionof equipment,incomeand liquiditybetweenquarterlyperiodswithinone yearand betweencomparableperiodsin differentyearsmaynot be meaningfuland shouldnot be reliedupon as indicatorsof our futureperformance. Unanticipated changes in our tax provisions or exposure to additional income tax liabilities could affect our financial condition and profitability and we may take tax positions that the Internal Revenue Service or other tax authorities may contest. We are subject to income taxes in both the United States and foreign jurisdictions. Significant judgment isjudgments and estimates are required to be made in determining our worldwide provision for income taxes. Changes in estimates of projected 20
future operating results, loss of deductibility of items, recapture of prior deductions (including related to interest on convertible notes), limitations on our ability to utilize tax net operating losses in the future or changes in assumptions regarding our ability to generate future taxable income could result in significant increases to our tax expense and liabilities that could adversely affect our financial condition and profitability. We have in the past and may in the future take tax positions that the Internal Revenue Service (IRS) or other tax authorities may contest. We are required by an IRS regulation to disclose particular tax positions to the IRS as part of our tax returns for that year and future years. If the IRS or other tax authorities successfully contests a tax position that we take, we may be required to pay additional taxes, interest or fines that may adversely affect our results of operations and financial position. Some
Changes in the creditmarketsand the financialservicesindustrycould negativelyimpactour business,results of operations,financialconditionor liquidity. The creditmarketsand thefinancialservicesindustrymayexperiencevolatilitywhich can resultin tighteravailabilityof crediton morerestrictivetermsand limitour abilityto sellrailcarassets or to syndicate railcars to investors with leases attached.Our liquidity, financialconditionand resultsof operationscouldbe negativelyimpactedifour abilityto borrow moneyto financeoperations,obtaincreditfromtradecreditors, obtain credit to maintain our hedging programs, offerleasingproductsto our customersor sellrailcarassets were to be impaired.In addition,scarcityof capitalcouldalsoadverselyaffectour customers’abilityto purchase, lease, or pay forproductsfromus or adversely affect our suppliers’abilityto provideus with product. Any of these conditionsor eventscouldresultin reductionsin our revenues,increasedpricecompetition,or increased operatingcosts,which couldadverselyaffectour business,financialconditionand resultsof operations. Our stockpricehas been volatileand maycontinueto experiencelargefluctuations. Thepriceof our customers place orders commonstockhas experiencedrapidand significantpricefluctuations. The priceforour products commonstockislikelyto continueto be volatileand subjectto priceand volumefluctuationsin reliance onresponseto marketand otherfactors,includingthefactorsdiscussedelsewherein theseriskfactors.A materialdeclinein thepriceof our commonstockmayresultin theassertionof certainclaimsagainst us, and/orthecommencementof inquiriesand/orinvestigationsagainstus. A prolongeddeclinein thepriceof our commonstockcouldresultin a reductionin theliquidityof our commonstock,a reductionin our abilityto raisecapital,and theinability ofinvestors to obtaina favorablesellingpricefor their ability to utilize tax benefitsshares.Followingperiodsof volatilityin themarketpriceof theirstock, historically many companieshave been thesubjectof securitiesclassactionlitigation.Ifwe becameinvolvedin securitiesclass actionlitigationin thefuture,itcouldresultin substantialcostsand diversionof our management’sattentionand our resourcesand couldharmour stockprice,business,prospects,financialconditionand resultsof operations. Changes in accounting standards or tax credits.inaccurate estimates or assumptions in the application of accounting policies could adversely affect our financial results. There is no assurance that tax authorities will reauthorize, modify, or otherwise not allow the expiration of such tax benefits, tax credits, or reimbursement
Our accounting policies and in cases where such subsidiesmethods are fundamental to how we record and policies are materially modified to reduce the available benefit, credit, or reimbursement or are otherwise allowed to expire, the demand for our products could decrease, thereby creating the potential for a material adverse effect onreport our financial condition and results of operations. Some of these policies require use of estimates and assumptions that may affect the reported value of our assets or liabilities and financial results and are critical because they require management to make difficult, subjective, and complex judgments about matters that are inherently uncertain. Estimates, judgments and assumptions underlying the accompanying consolidated financial statements include, but are not limited to, income taxes, warranty accruals, environmental costs, revenue recognition, depreciation and amortization, impairment of long-lived assets, litigation, and accrued liabilities, among other estimates. If our accounting policies, methods, judgments, assumptions, estimates and allocations prove to be incorrect, or if circumstances change, our business, financial condition, results of operations, liquidity, ability to pay dividends or stock price may be materially adversely affected. Accounting standard setters and those who interpret the accounting standards (such as the Financial Accounting Standards Board, the SEC, and our independent registered public accounting firm) may amend or even reverse their previous interpretations or positions on how these standards should be applied. In some cases, we could be required to apply a new or revised standard retrospectively, resulting in the revision of prior period financial statements. Changes in accounting standards can be hard to predict and can materially impact how we record and report our financial condition and results of operations
Our financial performance and market value could cause future write-downs of goodwill or intangibles or other long-lived assets in future periods. We are required to perform an annual impairment review of goodwill and indefinite lived assets which could result in an impairment charge if it is determined that the carrying value of the asset is in excess of the fair value. We perform a goodwill impairment test annually during our third quarter. Goodwill is also tested more frequently if changes in circumstances or the occurrence of events indicates that a potential impairment exists. When we have continued underperforming operations or changes in circumstances, such as a decline in the market price of our common stock, changes in demand or in the numerous variables associated with the judgments, assumptions and estimates made in assessing the appropriate valuation of goodwill indicate the carrying amount of certain indefinite lived assets may not be recoverable, the assets are evaluated for impairment. Among other things, our assumptions used in the valuation of goodwill include growth of revenue and margins and increased cash flows over time. If actual operating results were to differ from these assumptions, it may result in an impairment of goodwill. As of August 31, 2020, we had $87.0 million of goodwill in our Manufacturing segment and $43.3 million in our Wheels, Repair & Parts segment. Impairment charges to our goodwill or our indefinite lived assets would impact our results of operations. Future write-downs of goodwill and intangibles could affect certain of the financial covenants under debt instruments and could restrict our financial flexibility. In the event of goodwill impairment, we may have to test other assets for impairment. Our current shareholders could experience dilution. We requiresubstantialworking capitalto fund our business.Ifadditionalfundsareraisedthroughthe issuanceof equitysecurities or convertible securities,thepercentageownershipheldby our shareholders wouldbe reducedand theequity securities we issue mayhave rights,preferencesor privilegesseniorto thoseof our commonstock.Additionally, we have the option to settle outstanding convertible notes in cash, although if we opt not to or do not have the ability to settle outstanding convertible notes in cash, the conversionof someor allof our convertible notes maydilutethe ownershipinterestsof existingshareholders.Any salesin thepublicmarketof thecommonstockissuableupon theconversionof thenotescould adverselyaffectprevailingmarketpricesof our commonstock.In addition,theexistenceof thenotesmayencourageshortsellingby marketparticipants,becausetheconversionof thenotescoulddepressthepriceof our commonstock. Certain provisions in our charter documents, Oregon law, and our debt instruments could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove members of our board of directors and may adversely affect the market price of our common stock. Our Articlesof Incorporationand Bylaws, Oregon law, and contracts and debt instruments to which we are a party,containcertainprovisionsthatcoulddelay,deferorpreventan acquisitionproposalthatsome,or a majority,of our shareholdersmightbelieveto be in theirbestinterestsor in which shareholdersmightreceivea premiumfortheircommonstockoverthethen-prevailingmarketprice. These provisionscould also dissuadeshareholdersor thirdparties fromcontestingdirectorelections and couldcauseinvestorsto view our securitiesas lessattractiveinvestmentsand reducethe marketpriceof our commonstock. These provisions are described in further detail in “Description of the Registrant’s Securities Under Section 12 of the Securities Exchange Act of 1934” annexed as Exhibit 4.3 to this Annual Report. Paymentsof cash dividendson our commonstockmaybe madeonly at the discretionof our Board of Directors and maybe restrictedby Oregon law. Any decisionto pay dividendswillbe atthediscretionof our Board of Directorsand willdepend upon our operatingresults,strategicplans,capitalrequirements,financialcondition,provisionsof our borrowing arrangementsand otherfactorsour Board of Directorsconsidersrelevant.Furthermore,Oregon law imposes restrictionson our abilityto pay dividends.Accordingly,we maynot be ableto continueto pay dividendsin any givenamountin thefuture,or atall. 22
Our business and operations could be negatively affected if we become subject to shareholder activism, which could cause us to incur significant expense, hinder execution of our business strategy and impact our stock price. Shareholder activism which could take many forms, including potential proxy contests and public information campaigns continues to increase. Shareholder activism could result in substantial costs to the Company, give rise to perceived uncertainties as to our future, adversely affect our relationships with suppliers, customers, and regulators, make it more difficult to attract and retain qualified personnel, and adversely impact our stock price. Ifwe are unable to protectour intellectualpropertyor ifthird partiesassertthatour productsor servicesinfringetheirintellectualpropertyrights,our abilityto competein the marketmaybe harmed,and our businessand financialconditionmaybe adverselyaffected. Ifour intellectualpropertyrightsarenot adequatelyprotected,we maynot be ableto commercializeour technologies,productsor servicesand our competitorscould commercializeour technologies,which couldresultin a decreasein our salesand marketshareand could materiallyadverselyaffectour business,financialconditionand resultsof operations.Conversely,thirdparties mightassertthatour products,services,or otherbusinessactivitiesinfringetheirpatentsor otherintellectual propertyrights.Infringementand otherintellectualpropertyclaimsand proceedingsbroughtagainstus, whether successfulor not, couldresultin substantial litigation and judgment costsand harmour reputation. Insurance coverage could be costly, unavailable or inadequate. The abilityto insureour businesses,facilitiesand railassetsisan importantaspectof our abilityto managerisk.As thereareonly limitedprovidersof thisinsuranceto therailcarindustry,thereisno guarantee thatsuch insurancewillbe availableon a cost-effectivebasisin thefuture.In addition,we cannot assure thatour insurancecarrierswillbe ableto pay currentor futureclaims. Additionally, the natureof our businesssubjectsus to physicaldamage,businessinterruptionand productliability claims,especiallyin connectionwith therepairand manufactureof productsthatcarryhazardousor volatile materials.Although we maintainliabilityinsurancecoverageatcommerciallyreasonablelevelscomparedto similarly sizedheavy equipmentmanufacturers,an unusuallylargephysicaldamage,businessinterruptionor productliabilityclaimor a seriesof claimsbasedon a failurerepeatedthroughoutour productionprocesscould exceedour insurancecoverageor resultin damageto our reputation, which could materially adversely impact our financial condition and results of operations. | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 29 | |
Some of our customersplaceordersforour productsin relianceon theirabilityto utilizetax benefitsor tax credits any of which benefits or credits could be discontinued thereby reducing incentives for our customers to purchase our rail products.
Thereisno assurancethattaxauthoritieswillreauthorize,modify,or preventtheexpiration of taxbenefits,taxcredits,or other policies aimed to incentivize the purchase of our products. If such incentives are discontinued or diminished, the demandforour productscoulddecrease,therebycreatingthepotentialfora materialadverseeffecton our financialconditionor resultsof operations. Our share repurchaseprogramisintendedto enhance long-termshareholdervaluealthough we cannot guaranteethiswilloccur and thisprogrammaybe suspended or terminatedat any time. The Board of Directorshas authorizedour companyto repurchaseour commonstockthrougha share repurchaseprogram.Our sharerepurchaseprogrammaybe modified,suspendedor discontinuedatany time withoutpriornotice.Although thesharerepurchaseprogramisintendedto enhancelong-termshareholdervalue, we cannotprovideassurancethatthiswilloccur. 23 | | | | | 30 | | The Greenbrier Companies 2018 Annual Report | | |
None. We operate at the following primary facilities as of August 31, 2018:2020: | | | | | Description | Location | LocationStatus | | | Status | Manufacturing Segment | | | | | | | | Operating facilities: | 6 locations in the United States | Portland, Oregon | | Owned | | | 3 locations in Mexico | | Owned – 2 locations Leased – 1 location | | | 3 locations in Poland | | Owned | | | 3 locations in Romania | | Owned | | | 1 location in Turkey | | Owned | | | | Administrative offices: | 2 locations in the United States | Colleyville, Texas | | Leased | | | | Wheels, Repair & Parts Segment | | | | | | Operating facilities: | | 2520 locations in the U.S. | United States | Leased – 1411 locations Owned – 9 locations Customer premises – 2 locations
| | | | Administrative offices: | | Birmingham, Alabama | | Leased | | | | Leasing & Services Segment | | | | | | | | Corporate offices, railcar marketing and leasing activities: | | Lake Oswego, Oregon | | Leased |
We believe that our facilities are in good condition and that the facilities, together with anticipated capital improvements and additions, are adequate to meet our operating needs for the foreseeable future. We continually evaluate our facilities in order to remain competitive and to take advantage of market opportunities. There is hereby incorporated by reference the information disclosed in Note 2221 - Commitments and Contingencies to Consolidated Financial Statements, Part II, Item 8 of this Form10-K. Item 4. | MINE SAFETY DISCLOSURES |
Not applicable. 24 | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 31 | |
Information about our Executive Officers of the Registrant Current information regarding our executive officers is presented below. William A. Furman,74,76, is Chief Executive Officer and Chairman of the Board of Directors. Mr. Furman has served as Chief Executive Officer since 1994, and as Chairman of the Board of Directors since January 2014. Mr. Furman was Vice President of the Company, or its predecessor company, from 1974 to 1994.1994 and President of the Company from 1994 to 2019. Martin R. Baker, 62, 64, is Senior Vice President, General Counsel and Chief Compliance Officer, a position he has held since joining the Company in May 2008. Prior to joining the Company, Mr. Baker was Corporate Vice President, General Counsel and Secretary of Lattice Semiconductor Corporation. Alejandro Centurion, 62, 64, is Executive Vice President of the Company and President of GlobalGreenbrier Manufacturing Operations, a position he has held since January 2015. Mr. Centurion has served in various management positions for the Company since 2005, most recently as President of North American Manufacturing Operations. Brian J. Comstock, 56,58, is Executive Vice President, Sales and Marketing, a position he has held since April 2018. Mr. Comstock has served in various management positions for the Company since 1998, most recently as Senior Vice President and General Manager of Commercial, Americas. Adrian J. Downes,55,57, is Senior Vice President, Chief AccountingFinancial Officer and Acting Chief FinancialAccounting Officer. Mr. Downes has served as Senior Vice President and Chief Accounting Officer since joining the Company in March 2013, and as2013. Mr. Downes was promoted to Acting Chief Financial Officer sincein August 2018.2018 and was promoted to Chief Financial Officer in May 2019. Anne T. Manning, 55, is Vice President and Corporate Controller, a position she has held since November 2007. Ms. Manning has served in various financial management positions for the Company since 1995.
Mark J. Rittenbaum, 61,63, is Executive Vice President, Chief Commercial and Leasing Officer, a position he has held since February 2016. Mr. Rittenbaum has served in various management positions for the Company since 1990, most recently as Executive Vice President and Chief Financial Officer. Lorie L. Tekorius, 51, 53, is Executive Vice President and Chief Operating Officer. Ms. Tekorius has served as Executive Vice PresidentChief Operating Officer since April 2017August 2018 and was promoted to Chief Operating OfficerPresident in August 2018.2019. Ms. Tekorius has served in various management positions for the Company since 1995, most recently as Executive Vice President and Chief Operating Officer and prior to that, as Executive Vice President and Chief Financial Officer. Executive officers are designated by the Board of Directors. There are noNo director or executive officer has a family relationships amongrelationship with any of theother director or executive officersofficer of the Company. 25 | | | | | 32 | | The Greenbrier Companies 2018 Annual Report | | |
PART II Item 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Our common stock has been traded on the New York Stock Exchange under the symbol GBX since July 14, 1994. There were approximately 348550 holders of record of common stock as of October 19, 2018. The following table shows the reported high and low sales prices of our common stock on the New York Stock Exchange and dividends declared for the fiscal periods indicated. | | | | | | | | | | | | | | | High | | | Low | | | Dividends Declared | | 2018 | | | | | | | | | | | | | Fourth quarter | | $ | 60.90 | | | $ | 45.70 | | | $ | 0.25 | | Third quarter | | $ | 52.65 | | | $ | 43.05 | | | $ | 0.25 | | Second quarter | | $ | 54.45 | | | $ | 44.75 | | | $ | 0.23 | | First quarter | | $ | 52.75 | | | $ | 41.95 | | | $ | 0.23 | | 2017 | | | | | | | | | | | | | Fourth quarter | | $ | 51.25 | | | $ | 41.45 | | | $ | 0.22 | | Third quarter | | $ | 49.00 | | | $ | 40.45 | | | $ | 0.22 | | Second quarter | | $ | 49.50 | | | $ | 39.00 | | | $ | 0.21 | | First quarter | | $ | 39.05 | | | $ | 28.95 | | | $ | 0.21 | |
Dividends
Any determination to pay cash dividends to our shareholders is at the discretion of our Board of Directors and will depend upon our financial condition, operating results, capital requirements, customary debt covenant restrictions, legal requirements and other factors that our Board of Directors deems relevant. As a result, there is no assurance as to the payment of future dividends.27, 2020.
Issuer Purchases of Equity Securities Since October 2013, theThe Board of Directors has authorized the Company to repurchase in aggregate up to $225 millionshares of the Company’s common stock. The share repurchase program may be modified, suspended or discontinued at any time without prior notice and currently has an expiration date of March 31, 2019. Under2021 and the shareamount remaining for repurchase program, sharesis $100 million as of common stock may be purchased on the open market or through privately negotiated transactions fromtime-to-time. The timing and amount of purchases will be based upon market conditions, securities law limitations and other factors. The share repurchase program does not obligate the Company to acquire any specific number of shares in any period.
August 31, 2020. There were no shares repurchased under the share repurchase program during the quarteryear ended August 31, 2018.2020. | | | | | | | | | | | | | | | | | Period | | Total Number of Shares Purchased | | | Average Price Paid Per Share (Including Commissions) | | | Total Number of Shares Purchased as Part of Publically Announced Plans or Programs | | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | | June 1, 2018 – June 30, 2018 | | | – | | | | – | | | | – | | | $ | 87,989,491 | | July 1, 2018 – July 31, 2018 | | | – | | | | – | | | | – | | | $ | 87,989,491 | | August 1, 2018 – August 31, 2018 | | | – | | | | – | | | | – | | | $ | 87,989,491 | | | | | | | – | | | | | | | | – | | | | | | | |
| | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 33 | |
Performance Graph The following graph demonstrates a comparison of cumulative total returns for the Company’sCompany's Common Stock, the Dow Jones U.S. Industrial Transportation Index and the Standard & Poor’s (S&P) 500 Index. The graph assumes an investment of $100 on August 31, 20132015 in each of the Company’sCompany's Common Stock and the stocks comprising the indices. Each of the indices assumes that all dividends were reinvested and that the investment was maintained to and including August 31, 2018,2020, the end of the Company’s 20182020 fiscal year. 26
The comparisons in this table are required by the SEC, and therefore, are not intended to forecast or be indicative of possible future performance of our Common Stock. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among The Greenbrier Companies, Inc., the S&P 500 Index
and the Dow Jones US Industrial Transportation Index
The Greenbrier Companies, Inc. S&P 500 Dow Jones US Industrial Transportation
*$100 invested on 8/31/13 in stock or index, including reinvestment of dividends.
Fiscal year ending August 31.
Copyright© 2018 Standard & Poor’s, a division of S&P Global. All rights reserved.
Copyright© 2018 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.
Equity Compensation Plan Information Equity Compensation Plan Information is hereby incorporated by reference to the “Equity Compensation Plan Information” table in Registrant’s definitive Proxy Statement to be filed pursuant to Regulation 14A, which Proxy Statement is anticipated to be filed with the Securities and Exchange Commission within 120 days after the end of the Registrant’s year ended August 31, 2018.2020. 27 | | | | | 34 | | The Greenbrier Companies 2018 Annual Report | | |
Item 6. | SELECTED FINANCIAL DATA |
| | | YEARS ENDED AUGUST 31, | | | YEARS ENDED AUGUST 31, | | (In thousands, except unit and per share data) | | 2018 | | 2017 | | 2016 | | 2015 | | 2014 | | | 2020 | | | | 2019 | | | | 2018 | | | | 2017 | | | | 2016 | | Statement of Operations Data | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Manufacturing | | $ | 2,044,586 | | | $ | 1,725,188 | | | $ | 2,096,331 | | | $ | 2,136,051 | | | $ | 1,624,916 | | | $ | 2,349,971 | | | | $ | 2,431,499 | | | | $ | 2,044,586 | | | | $ | 1,725,188 | | | | $ | 2,096,331 | | Wheels, Repair & Parts | | 347,023 | | | 312,679 | | | 322,395 | | | 371,237 | | | 495,627 | | | | 324,670 | | | | | 444,502 | | | | | 347,023 | | | | | 312,679 | | | | | 322,395 | | Leasing & Services | | 127,855 | | | 131,297 | | | 260,798 | | | 97,990 | | | 83,419 | | | | 117,548 | | | | | 157,590 | | | | | 127,855 | | | | | 131,297 | | | | | 260,798 | | | | | | $ | 2,792,189 | | | | $ | 3,033,591 | | | | $ | 2,519,464 | | | | $ | 2,169,164 | | | | $ | 2,679,524 | | | | $ | 2,519,464 | | | $ | 2,169,164 | | | $ | 2,679,524 | | | $ | 2,605,278 | | | $ | 2,203,962 | | | | | | Earnings from operations | | $ | 252,985 | | | $ | 260,432 | | | $ | 408,552 | | | $ | 386,892 | | | $ | 239,520 | | | $ | 168,429 | | | | $ | 184,116 | | | | $ | 252,985 | | | | $ | 260,432 | | | | $ | 408,552 | | | | | Net earnings attributable to Greenbrier | | $ | 151,781 | (1) | | $ | 116,067 | (1) | | $ | 183,213 | | | $ | 192,832 | | | $ | 111,919 | (2) | | $ | 48,967 | | | | $ | 71,076 | | (2) | | $ | 151,781 | | (3) | | $ | 116,067 | | (3) | | $ | 183,213 | | | | | Basic earnings per common share attributable to Greenbrier: | | $ | 4.92 | | | $ | 3.97 | | | $ | 6.28 | | | $ | 6.85 | | | $ | 3.97 | | | $ | 1.50 | | | | $ | 2.18 | | | | $ | 4.92 | | | | $ | 3.97 | | | | $ | 6.28 | | Diluted earnings per common share attributable to Greenbrier: | | $ | 4.68 | | | $ | 3.65 | | | $ | 5.73 | | | $ | 5.93 | | | $ | 3.44 | | | $ | 1.46 | | | | $ | 2.14 | | | | $ | 4.68 | | | | $ | 3.65 | | | | $ | 5.73 | | Weighted average common shares outstanding: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Basic | | 30,857 | | | 29,225 | | | 29,156 | | | 28,151 | | | 28,164 | | | | 32,670 | | | | | 32,615 | | | | | 30,857 | | | | | 29,225 | | | | | 29,156 | | Diluted | | 32,835 | | | 32,562 | | | 32,468 | | | 33,328 | | | 34,209 | | | | 33,441 | | | | | 33,165 | | | | | 32,835 | | | | | 32,562 | | | | | 32,468 | | Cash dividends paid per share | | $ | 0.96 | | | $ | 0.86 | | | $ | 0.81 | | | $ | 0.60 | | | $ | 0.15 | | | | Dividends declared per common share | | | $ | 1.06 | | | | $ | 1.00 | | | | $ | 0.96 | | | | $ | 0.86 | | | | $ | 0.81 | | Balance Sheet Data | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total assets | | $ | 2,465,464 | | | $ | 2,397,705 | | | $ | 1,835,774 | | | $ | 1,787,452 | | | $ | 1,511,199 | | | $ | 3,173,834 | | | | $ | 2,990,637 | | | | $ | 2,465,464 | | | | $ | 2,397,705 | | | | $ | 1,835,774 | | Revolving notes and notes payable, net | | $ | 463,930 | | | $ | 562,552 | | | $ | 301,853 | | | $ | 374,258 | | | $ | 452,203 | | | $ | 1,155,614 | | | | $ | 850,000 | | | | $ | 463,930 | | | | $ | 562,552 | | | | $ | 301,853 | | Total equity | | $ | 1,384,215 | | | $ | 1,178,893 | | | $ | 1,016,827 | | | $ | 863,489 | | | $ | 573,721 | | | $ | 1,473,055 | | | | $ | 1,441,697 | | | | $ | 1,384,215 | | | | $ | 1,178,893 | | | | $ | 1,016,827 | | | Other Operating Data | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | New railcar units delivered | | 19,000 | | | 15,700 | | | 20,300 | | | 21,100 | | | 16,200 | | | | 19,900 | | | | | 22,500 | | | | | 19,000 | | | | | 15,700 | | | | | 20,300 | | New railcar backlog (units) | | 27,400 | | | 28,600 | | | 27,500 | | | 41,300 | | | 31,500 | | | New railcar backlog | | $ | 2,740,000 | | | $ | 2,800,000 | | | $ | 3,190,000 | | | $ | 4,710,000 | | | $ | 3,330,000 | | | New railcar backlog (units) (1) | | | | 24,600 | | | | | 30,300 | | | | | 27,400 | | | | | 28,600 | | | | | 27,500 | | New railcar backlog (1) | | | $ | 2,420,000 | | | | $ | 3,280,000 | | | | $ | 2,740,000 | | | | $ | 2,800,000 | | | | $ | 3,190,000 | | Lease fleet: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Units managed | | 357,000 | | | 336,000 | | | 264,000 | | | 260,000 | | | 238,000 | | | | 393,000 | | | | | 380,000 | | | | | 357,000 | | | | | 336,000 | | | | | 264,000 | | Units owned | | 8,100 | | | 8,300 | | | 8,900 | | | 9,300 | | | 8,600 | | | | 8,300 | | | | | 9,400 | | | | | 8,100 | | | | | 8,300 | | | | | 8,900 | | | Cash Flow Data | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Capital expenditures: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Manufacturing | | $ | 59,707 | | | $ | 54,973 | | | $ | 51,294 | | | $ | 84,354 | | | $ | 55,979 | | | $ | 48,202 | | | | $ | 85,155 | | | | $ | 59,707 | | | | $ | 54,973 | | | | $ | 51,294 | | Wheels, Repair & Parts | | 5,204 | | | 3,129 | | | 10,190 | | | 9,381 | | | 8,774 | | | | 11,662 | | | | | 13,291 | | | | | 5,204 | | | | | 3,129 | | | | | 10,190 | | Leasing & Services | | 111,937 | | | 27,963 | | | 77,529 | | | 12,254 | | | 5,474 | | | | 7,015 | | | | | 99,787 | | | | | 111,937 | | | | | 27,963 | | | | | 77,529 | | | | | | $ | 66,879 | | | | $ | 198,233 | | | | $ | 176,848 | | | | $ | 86,065 | | | | $ | 139,013 | | | | $ | 176,848 | | | $ | 86,065 | | | $ | 139,013 | | | $ | 105,989 | | | $ | 70,227 | | | | | | Proceeds from sale of assets | | $ | 153,224 | | | $ | 24,149 | | | $ | 103,715 | | | $ | 5,295 | | | $ | 54,235 | | | $ | 83,484 | | | | $ | 125,427 | | | | $ | 153,224 | | | | $ | 24,149 | | | | $ | 103,715 | | | | | Depreciation and amortization: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Manufacturing | | $ | 44,225 | | | $ | 33,807 | | | $ | 27,137 | | | $ | 20,668 | | | $ | 15,341 | | | $ | 78,010 | | | | $ | 49,240 | | | | $ | 44,225 | | | | $ | 33,807 | | | | $ | 27,137 | | Wheels, Repair & Parts | | 10,771 | | | 11,143 | | | 11,971 | | | 11,748 | | | 12,582 | | | | 12,567 | | | | | 13,024 | | | | | 10,771 | | | | | 11,143 | | | | | 11,971 | | Leasing & Services | | 19,360 | | | 20,179 | | | 24,237 | | | 12,740 | | | 12,499 | | | | 19,273 | | | | | 21,467 | | | | | 19,360 | | | | | 20,179 | | | | | 24,237 | | | | | | $ | 109,850 | | | | $ | 83,731 | | | | $ | 74,356 | | | | $ | 65,129 | | | | $ | 63,345 | | | | $ | 74,356 | | | $ | 65,129 | | | $ | 63,345 | | | $ | 45,156 | | | $ | 40,422 | | | | | |
(1) | Beginning in 2017, new railcar backlog units and value included our Brazilian manufacturing operations, which are accounted for under the equity method. |
(2) | 2019 includes a non-cash goodwill impairment charge of $10.0 million related to the Company’s repair operations. |
(3) | 2018 and 2017 includes the Company’s portion ofnon-cash goodwill impairment charges taken by GBW.GBW Railcar Services (GBW). As the Company accounted for GBW under the equity method of accounting, its 50% share of thenon-cash goodwill impairment losses recognized by GBW was $9.5 millionafter-tax in 2018 and $3.5 millionafter-tax in 2017. |
(2) | 2014 includes anon-cash gain on contribution to joint venture of $13.6 million net of tax and a restructuring charge of $1.0 million net of tax. The gain related to the Company contributing its repair operations to GBW.
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28 | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 35 | |
Item 7. | MANAGEMENT’SMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Executive Summary We operateachieved solid financial performance in three reportable segments: Manufacturing; Wheels, Repair & Parts;2020, successfully weathering and Leasing & Services. Priorresponding to August 20, 2018, we operated in four reportable segments: Manufacturing; Wheels & Parts; Leasing & Services; and GBW Joint Venture. On August 20, 2018 we entered into an agreement with our joint venture partner to discontinue the GBW railcar repair joint venture, which resulted in 12 repair shops returned to us. Our segments are operationally integrated. The Manufacturing segment, which currently operates from facilities in the U.S., Mexico, Poland, Romania and Turkey, produces double-stack intermodal railcars, tank cars, conventional railcars, automotive railcar products and marine vessels. The Wheels, Repair & Parts segment performs wheel and axle servicing; railcar repair, refurbishment and maintenance; as well as productionchallenges of a varietyrail freight recession and the COVID-19 pandemic. Management quickly executed on three key priorities:
| • | Set a goal of liquidity and cost savings to exceed $1 billion. This goal was exceeded with liquidity at August 31, 2020 of $920 million and almost $200 million of cost saving initiatives and additional borrowing capacity currently in progress. Over 90% of our liquidity is in cash, further protecting us from any shocks to the banking and financial markets. Liquidity is defined as Cash and cash equivalents plus available borrowing capacity. |
| • | Maintain continuity of operations through achieving and maintaining essential infrastructure business, or equivalent, in all our jurisdictions around the world as well as focusing on the safety of our workforce through enhanced safety protocols. |
| • | Reduce spending through significant reductions in overhead, selling and administrative costs and capital expenditures. We have reduced employee headcount from approximately 17,100 to approximately 10,600 over the course of the year and have reduced capital expenditures by approximately $131 million compared to 2019. |
As a result of parts for the railroad industry in North America. The Leasing & Services segment owns approximately 8,100 railcars (6,300 railcars held as equipment on operating leases, 1,600 held as leased railcars for syndication and 200 held as finished goods inventory) and provides management services for approximately 357,000 railcars for railroads, shippers, carriers, institutional investorsthese and other leasingactions, we delivered diluted earnings per share of $1.46 in 2020 and transportation companiesachieved a gross margin of 12.6% compared to 12.1% in North America as2019, despite an 8% reduction in revenues. In addition, we achieved synergies of August 31, 2018. Through unconsolidated affiliates we produce rail$15 million related to the ARI acquisition, meeting our stated goal, despite the headwinds of lower volumes and industrial castings, tank headstravel restrictions which impacted our ability to fully identify and other components and weimplement best practices. These actions have an ownership stakeput us in a railcar manufacturer in Brazilstrong position to navigate the current economic and pandemic challenges while being poised to quickly respond to improving demand as the economy and the rail freight industry recovers, as a lease financing warehouse.leaner and more efficient company. Our total manufacturing backlog of railcar units as of August 31, 20182020 was approximately 27,400 units24,600 with an estimated value of $2.74 billion, of which 21,200 units are for direct sales and 6,200 units are for lease to third parties.$2.42 billion. Approximately 3%9% of backlog units and 2%6% of the estimated backlog value as of August 31, 20182020 was associated with our Brazilian manufacturing operations which is accounted for under the equity method. Backlog units for lease may be syndicated to third parties or held in our own 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 the dollar amount of backlog. Marine backlog as of August 31, 20182020 was $61 million compared to $42 million as of August 31, 2017.$51 million. Our backlog of railcar units and marine vessels is not necessarily indicative of future results of operations. Certain orders in backlog are subject to customary documentation and completion of terms. Customers may attempt to cancel or modify orders in backlog. Historically, little variation has been experienced between the quantity ordered and the quantity actually delivered, though the timing of deliveries may be modified from time to time. COVID-19 and the Downturn in Global Economic Activity We cannot guaranteeare closely monitoring and managing the impacts on our business of the COVID-19 coronavirus pandemic, the significant decline in global economic activity, and governmental reactions to these historic events (“COVID-19 Events”). Our manufacturing and service facilities continue regular operations. We function as an essential infrastructure business under guidance issued by the Department of Homeland Security. Similar guidelines and authorities exist in other nations where we operate. Since the emergence of COVID-19, our facilities in the United States have been permitted to continue to operate subject to enhanced safety protocols, both voluntary and government mandated, that aim to protect the health of our reported backlogworkforce and the residents of the communities in which our facilities are located. The 29
situation is similar in our facilities in Mexico, Europe, Brazil and Turkey which also have been permitted by applicable governmental authorities to operate subject to enhanced health and safety protocols. Certain of our businesses recorded a decrease in operating profits compared against the year ended August 31, 2019 which we attribute primarily to the cyclical decrease in economic activity in the freight rail equipment market which began prior to the emergence of COVID-19 (“Cyclical Downturn”). The Cyclical Downturn has intensified as a result of the COVID-19 Events. Our liquidity position strengthened during the year ended August 31, 2020 due to cash flow from operations, spending reductions and increased borrowing capacity. As described in Part I, Item 1A “Risk Factors” of this Annual Report on Form 10-K, COVID-19 Events may have a material negative impact on our business, liquidity, results of operations, and stock price. Beyond these general observations, we are unable to predict when, how, or with what magnitude COVID-19 Events, in combination with the Cyclical Downturn, will convertnegatively impact our business due to revenuenumerous uncertainties, including the duration of the COVID-19 pandemic, the duration of the global decline in any particular period, if at all. In August 2018, Greenbrier-Astra Rail entered into an agreement to take an approximately 68% ownership stake in Rayvag, a railcar manufacturing company based in Adana, Turkey that also provides maintenance services for railcars and manufactures bogies and spare parts for railcars in that region. The amount paid to acquire our ownership stake in Rayvag was not materialeconomic activity, the impact of those events to our consolidated financial statements.customers, suppliers and employees, and actions that may be taken by governmental authorities, including potentially preventing or curtailing the operations of our plants and/or shops, and other consequences.
| | | | | 36 | | The Greenbrier Companies 2018 Annual Report | | |
30
Overview Revenue, costCost of revenue, marginMargin and operating profitEarnings from operations presented below, include amounts from external parties and exclude intersegment activity that is eliminated in consolidation. | | | | | | | | Years ended August 31, | | (In thousands) | | 2018 | | 2017 | | 2016 | | | (In thousands, except per share amounts) | | | 2020 | | | 2019 | | | 2018 | | Revenue: | | | | | | | | | | | | | | | | | | | Manufacturing | | $ | 2,044,586 | | | $ | 1,725,188 | | | $ | 2,096,331 | | | $ | 2,349,971 | | | $ | 2,431,499 | | | $ | 2,044,586 | | Wheels, Repair & Parts | | | 347,023 | | | 312,679 | | | 322,395 | | | | 324,670 | | | | 444,502 | | | | 347,023 | | Leasing & Services | | | 127,855 | | | 131,297 | | | 260,798 | | | | 117,548 | | | | 157,590 | | | | 127,855 | | | | | | | | 2,519,464 | | | 2,169,164 | | | 2,679,524 | | | | 2,792,189 | | | | 3,033,591 | | | | 2,519,464 | | Cost of revenue: | | | | | | | | | | | | | | | | | | | Manufacturing | | | 1,727,407 | | | 1,373,967 | | | 1,630,554 | | | | 2,065,169 | | | | 2,137,625 | | | | 1,727,407 | | Wheels, Repair & Parts | | | 318,330 | | | 288,336 | | | 293,751 | | | | 302,189 | | | | 420,890 | | | | 318,330 | | Leasing & Services | | | 64,672 | | | 85,562 | | | 203,782 | | | | 71,700 | | | | 108,590 | | | | 64,672 | | | | | | | 2,439,058 | | | | 2,667,105 | | | | 2,110,409 | | | | | 2,110,409 | | | 1,747,865 | | | 2,128,087 | | | Margin: | | | | | | | | | | | | | | | | | | | Manufacturing | | | 317,179 | | | 351,221 | | | 465,777 | | | | 284,802 | | | | 293,874 | | | | 317,179 | | Wheels, Repair & Parts | | | 28,693 | | | 24,343 | | | 28,644 | | | | 22,481 | | | | 23,612 | | | | 28,693 | | Leasing & Services | | | 63,183 | | | 45,735 | | | 57,016 | | | | 45,848 | | | | 49,000 | | | | 63,183 | | | | | | | 353,131 | | | | 366,486 | | | | 409,055 | | | | | 409,055 | | | 421,299 | | | 551,437 | | | Selling and administrative | | | 200,439 | | | 170,607 | | | 158,681 | | | | 204,706 | | | | 213,308 | | | | 200,439 | | Net gain on disposition of equipment | | | (44,369 | ) | | (9,740 | ) | | (15,796 | ) | | | (20,004 | ) | | | (40,963 | ) | | | (44,369 | ) | | | | Goodwill impairment | | | | — | | | | 10,025 | | | | — | | Earnings from operations | | | 252,985 | | | 260,432 | | | 408,552 | | | | 168,429 | | | | 184,116 | | | | 252,985 | | Interest and foreign exchange | | | 29,368 | | | 24,192 | | | 13,502 | | | | 43,619 | | | | 30,912 | | | | 29,368 | | | | | Earnings before income tax and earnings (loss) from unconsolidated affiliates | | | 223,617 | | | 236,240 | | | 395,050 | | | | 124,810 | | | | 153,204 | | | | 223,617 | | Income tax expense | | | (32,893 | ) | | (64,014 | ) | | (112,322 | ) | | | (40,184 | ) | | | (41,588 | ) | | | (32,893 | ) | | | | Earnings before earnings (loss) from unconsolidated affiliates | | | 190,724 | | | 172,226 | | | 282,728 | | | | 84,626 | | | | 111,616 | | | | 190,724 | | Earnings (loss) from unconsolidated affiliates | | | (18,661 | ) | | (11,764 | ) | | 2,096 | | | | 2,960 | | | | (5,805 | ) | | | (18,661 | ) | | | | Net earnings | | | 172,063 | | | 160,462 | | | 284,824 | | | | 87,586 | | | | 105,811 | | | | 172,063 | | Net earnings attributable to noncontrolling interest | | | (20,282 | ) | | (44,395 | ) | | (101,611 | ) | | | (38,619 | ) | | | (34,735 | ) | | | (20,282 | ) | | | | Net earnings attributable to Greenbrier | | $ | 151,781 | | | $ | 116,067 | | | $ | 183,213 | | | $ | 48,967 | | | $ | 71,076 | | | $ | 151,781 | | Diluted earnings per common share | | $ | 4.68 | | | $ | 3.65 | | | $ | 5.73 | | | $ | 1.46 | | | $ | 2.14 | | | $ | 4.68 | | | | |
Performance for our segments is evaluated based on operating profit.Earnings from operations (operating profit). Corporate includes selling and administrative costs not directly related to goods and services and certain costs that are intertwined among segments due to our integrated business model. Management does not allocate Interest and foreign exchange or Income tax expense for either external or internal reporting purposes. | | | | | | | | Years ended August 31, | | (In thousands) | | 2018 | | 2017 | | 2016 | | | 2020 | | | 2019 | | | 2018 | | Operating profit: | | | | | | | | Operating profit (loss): | | | | | | | | | | | | | | Manufacturing | | $ | 240,901 | | | $ | 295,334 | | | $ | 415,094 | | | $ | 197,388 | | | $ | 217,583 | | | $ | 240,901 | | Wheels, Repair & Parts | | | 16,731 | | | 14,984 | | | 19,948 | | | | 9,032 | | | | (2,941 | ) | | | 16,731 | | Leasing & Services | | | 88,481 | | | 31,904 | | | 51,723 | | | | 40,927 | | | | 64,763 | | | | 88,481 | | Corporate | | | (93,128 | ) | | (81,790 | ) | | (78,213 | ) | | | (78,918 | ) | | | (95,289 | ) | | | (93,128 | ) | | | | | $ | 168,429 | | | $ | 184,116 | | | $ | 252,985 | | | | $ | 252,985 | | | $ | 260,432 | | | $ | 408,552 | | | | | |
31
Consolidated Results | | Years ended August 31, | | | 2020 vs 2019 | | | | 2019 vs 2018 | | (In thousands) | | 2020 | | | 2019 | | | 2018 | | | Increase (Decrease) | | | % Change | | | | Increase (Decrease) | | | % Change | | Revenue | | $ | 2,792,189 | | | $ | 3,033,591 | | | $ | 2,519,464 | | | $ | (241,402 | ) | | | (8.0 | )% | | | $ | 514,127 | | | | 20.4 | % | Cost of revenue | | $ | 2,439,058 | | | $ | 2,667,105 | | | $ | 2,110,409 | | | $ | (228,047 | ) | | | (8.6 | )% | | | $ | 556,696 | | | | 26.4 | % | Margin (%) | | | 12.6 | % | | | 12.1 | % | | | 16.2 | % | | | 0.6 | % | | * | | | | | (4.1 | )% | | * | | Net earnings attributable to Greenbrier | | $ | 48,967 | | | $ | 71,076 | | | $ | 151,781 | | | $ | (22,109 | ) | | | (31.1 | )% | | | $ | (80,705 | ) | | | (53.2 | )% |
* | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 37 | Not meaningful |
Consolidated ResultsBeginning July 26, 2019, the consolidated results included the results of the manufacturing business of ARI which were additive to revenue and cost of revenue for the year ended August 31, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Years ended August 31, | | | 2018 vs 2017 | | | 2017 vs 2016 | | (In thousands) | | 2018 | | | 2017 | | | 2016 | | | Increase (Decrease) | | | % Change | | | Increase (Decrease) | | | % Change | | Revenue | | $ | 2,519,464 | | | $ | 2,169,164 | | | $ | 2,679,524 | | | $ | 350,300 | | | | 16.1 | % | | $ | (510,360 | ) | | | (19.0%) | | Cost of revenue | | $ | 2,110,409 | | | $ | 1,747,865 | | | $ | 2,128,087 | | | $ | 362,544 | | | | 20.7 | % | | $ | (380,222 | ) | | | (17.9%) | | Margin (%) | | | 16.2% | | | | 19.4% | | | | 20.6% | | | | (3.2% | ) | | | * | | | | (1.2% | ) | | | * | | Net earnings attributable to Greenbrier | | $ | 151,781 | | | $ | 116,067 | | | $ | 183,213 | | | $ | 35,714 | | | | 30.8 | % | | $ | (67,146 | ) | | | (36.6%) | |
Through our integrated business model, we provide a broad range of custom products and services in each of our segments, which have various average selling prices and margins. The demand for and mix of products and services delivered changes from period to period, which causes fluctuations in our results of operations. The 16.1%8.0% decrease in revenue in 2020 compared to 2019 was primarily due to a 27.0% decrease in Wheels, Repair & Parts revenue. The decrease in Wheels, Repair & Parts revenue was primarily a result of lower wheelset, component and parts volumes due to lower demand, lower repair revenue from five fewer shops in 2020 and a decrease in scrap metal pricing. The decrease in 2020 revenue was also due to a 3.4% decrease in Manufacturing revenue from an 11.6% decrease in the volume of railcar deliveries. The 20.4% increase in revenue for the year ended August 31, 2018 asin 2019 compared to the year ended August 31, 20172018 was primarily due to an 18.5%18.9% increase in Manufacturing revenue. The increase in Manufacturing revenue was primarily dueattributed to a 21.0%an 18.4% increase in the volume of railcar deliveries and a change in product mix. The increase in revenue was also attributeddue to an 11.0%a 28.1% increase in Wheels, Repair & Parts revenue primarily as a result of higher wheel set and component volumes due to an increase2019 including $87.5 million in demand and an increaserevenue associated with the repair shops returned to us after discontinuing the GBW joint venture in scrap metal pricing. August 2018. The 19.0%8.6% decrease in cost of revenue for the year ended August 31, 2017 asin 2020 compared to the year ended August 31, 20162019 was primarily due to a 17.7%28.2% decrease in ManufacturingWheels, Repair & Parts cost of revenue. The decrease in ManufacturingWheels, Repair & Parts cost of revenue was primarily a result of lower costs associated with a reduction in wheelset, component and parts volumes and five fewer repair shops in 2020. The decrease in 2020 cost of revenue was also due to a 22.7%3.4% decrease in Manufacturing cost of revenue from an 11.6% decrease in the volume of railcar deliveries which was partially offset by a higher average selling price.deliveries. The decrease was also due to a 49.7% decrease in Leasing & Services revenue, primarily the result of a decrease in the sale of railcars which we had purchased from third parties with the intent to resell them. The 20.7%26.4% increase in cost of revenue for the year ended August 31, 2018 asin 2019 compared to the year ended August 31, 20172018 was primarily due to a 25.7%23.7% increase in Manufacturing cost of revenue. The increase in Manufacturing cost of revenue was primarily dueattributed to a 21.0%an 18.4% increase in the volume of railcar deliveries and a change in product mix.operating inefficiencies at some of our manufacturing facilities. The increase in cost of revenue was also attributeddue to a 10.4%32.2% increase in Wheels, Repair & Parts cost of revenue primarily due to higher wheel set and component costs associated with increased volumes. The overall increase in cost of revenue was partially offset by a 24.4% decrease in Leasing & Services cost of revenue primarily due to a decline in the volume of railcars sold that we purchased from third parties, lower maintenance and transportation costs and fewer railcars on operating leases as we rebalance our lease portfolio. The 17.9% decrease in cost of revenue for the year ended August 31, 2017 as compared to the year ended August 31, 2016 was primarily due to a 15.7% decrease in Manufacturing cost of revenue. The decrease in Manufacturing cost of revenue was primarily due to a 22.7% decrease in the volume of railcar deliveries which was partially offset by a product mix which had a higher average labor and material content. The decrease was also due to a 58.0% decrease in Leasing & Services cost of revenue primarily due to a decrease2019 including $97.3 million in costs associated with a declinethe repair shops returned to us after discontinuing the GBW joint venture in the volume of railcars sold that we purchased from third parties.August 2018.
Margin as a percentage of revenue was 16.2% for the year ended August 31, 2018 and 19.4% for the year ended August 31, 2017.12.6% in 2020 compared to 12.1% in 2019. The overall margin as a percentage of revenue was negativelypositively impacted by a decrease in Manufacturing margin to 15.5% from 20.4% primarily attributed to a change in product mix. This was partially offset2020 by an increase in Leasing & Services margin from 31.1% to 49.4% from 34.8%. Leasing & Services margin percentage in 2018 benefited from39.0% as a result of fewer sales of railcars that we purchased from third parties which have lower margin percentages lower maintenance costs, aand higher average volume of rent-producinginterim rent on leased railcars for syndication and lower transportation costs.syndication. Margin as a percentage of revenue was 19.4% for the year ended August 31, 2017 and 20.6% for the year ended August 31, 2016.12.1% in 2019 compared to 16.2% in 2018. The overall margin as a percentage of revenue was negatively impacted in 2019 by a decrease in Manufacturing margin to 20.4%12.1% from 22.2%15.5% primarily dueattributed to a change in product mix and a reduction in the volumeoperating inefficiencies at some of railcar deliveries. In addition, the overall margin as a percentage of revenueour manufacturing facilities. The decrease was negatively impacted byalso due to a decrease in Wheels, Repair & Parts margin to 7.8% from 8.9%, primarily due to lower wheel set and component volumes. The overall margin as a percentage of revenue was positively impacted by an | | | | | 38 | | The Greenbrier Companies 2018 Annual Report | | |
increase in Leasing & Services margin to 34.8%31.1% from 21.9% which49.4%. Margin for 2019 was primarilynegatively impacted as a result of a decrease in the syndication, or sale,higher sales of railcars that we purchased from third parties which have lower margin percentages.
The $35.7$22.1 million increasedecrease in net earnings attributable to Greenbrier for the year ended August 31, 2018 asin 2020 compared to the year ended August 31, 20172019 was primarily attributable to a higherreduction in Net gain on disposition of equipment, a decrease in margin, ARI integration costs and higher interest and foreign exchange. These were partially offset by synergies resulting from the integration of the manufacturing business of ARI and a reduction in the tax rate dueselling and administrative expense in 2020 and a goodwill impairment in 2019 related to the Tax Cuts and Jobs Act (Tax Act). See Note 18 – Income Taxes for further discussion of the impact of the Tax Act. our repair operations.The $67.1$80.7 million decrease in net earnings for the year ended August 31, 2017 asattributable to Greenbrier in 2019 compared to the year ended August 31, 20162018 was primarily attributable to a decrease in margin, netcosts associated with the acquisition of the manufacturing business of ARI and a $10.0 million goodwill impairment charge for which there was no tax duebenefit related to lower railcar deliveries, which was partially offset by lower Net earnings attributable to noncontrolling interest in 2017 as a result of our Mexican railcar manufacturing 50/50 joint venture operating at lower volumes and margins.repair operations. 32
Manufacturing Segment (In thousands, except railcar deliveries) | | | Years ended August 31, | | | 2020 vs 2019 | | | 2019 vs 2018 | | | | | | | | | | | | | | | | | | 2020 | | | 2019 | | | 2018 | | | Increase (Decrease) | | | % Change | | | Increase (Decrease) | | | % Change | | | | Years ended August 31, | | | 2018 vs 2017 | | 2017 vs 2016 | | | (In thousands) | | 2018 | | | 2017 | | | 2016 | | | Increase (Decrease) | | % Change | | Increase (Decrease) | | % Change | | | Revenue | | $ | 2,044,586 | | | $ | 1,725,188 | | | $ | 2,096,331 | | | $ | 319,398 | | | 18.5% | | | $ | (371,143 | ) | | (17.7%) | | | $ | 2,349,971 | | | $ | 2,431,499 | | | $ | 2,044,586 | | | $ | (81,528 | ) | | | (3.4 | )% | | $ | 386,913 | | | | 18.9 | % | Cost of revenue | | $ | 1,727,407 | | | $ | 1,373,967 | | | $ | 1,630,554 | | | $ | 353,440 | | | 25.7% | | | $ | (256,587 | ) | | (15.7%) | | | $ | 2,065,169 | | | $ | 2,137,625 | | | $ | 1,727,407 | | | $ | (72,456 | ) | | | (3.4 | )% | | $ | 410,218 | | | | 23.7 | % | Margin (%) | | | 15.5% | | | | 20.4% | | | | 22.2% | | | | (4.9% | ) | | * | | | (1.8% | ) | | * | | | | 12.1 | % | | | 12.1 | % | | | 15.5 | % | | | 0.0 | % | | * | | | | (3.4 | )% | | * | | Operating profit ($) | | $ | 240,901 | | | $ | 295,334 | | | $ | 415,094 | | | $ | (54,433 | ) | | (18.4% | ) | | $ | (119,760 | ) | | (28.9%) | | | $ | 197,388 | | | $ | 217,583 | | | $ | 240,901 | | | $ | (20,195 | ) | | | (9.3 | )% | | $ | (23,318 | ) | | | (9.7 | )% | Operating profit (%) | | | 11.8% | | | | 17.1% | | | | 19.8% | | | | (5.3% | ) | | * | | | (2.7% | ) | | * | | | | 8.4 | % | | | 8.9 | % | | | 11.8 | % | | | (0.5 | )% | | * | | | | (2.9 | )% | | * | | Deliveries | | | 19,000 | | | | 15,700 | | | | 20,300 | | | | 3,300 | | | 21.0% | | | (4,600 | ) | | (22.7%) | | | | 19,900 | | | | 22,500 | | | | 19,000 | | | | (2,600 | ) | | | (11.6 | )% | | | 3,500 | | | | 18.4 | % |
As of June 1, 2017,
Beginning July 26, 2019, the Manufacturing segment included the results of Greenbrier-Astra Railthe manufacturing business of ARI which is consolidated for financial reporting purposes. The results of Greenbrier-Astra Rail were included for 12 months in 2018, but only for three months in 2017 which partially contributedadditive to the increase in Manufacturing revenue and cost of revenue in 2018 compared to 2017.for the year ended August 31, 2020. Manufacturing revenue increased $319.4decreased $81.5 million or 18.5%3.4% in 20182020 compared to 2017.2019 primarily attributed to an 11.6% decrease in the volume of railcar deliveries. The decrease in revenue was partially offset by a change in product mix and the additional revenue in 2020 associated with the acquired manufacturing business of ARI. Manufacturing revenue increased $386.9 million or 18.9% in 2019 compared to 2018, of which $43.5 million related to the addition of the manufacturing business of ARI. The increase in revenue was primarily attributed to a 21.0%an 18.4% increase in the volume of railcar deliveries and a change in product mix. Manufacturing revenue decreased $371.1 million or 17.7% in 2017 compared to 2016 primarily due to a 22.7% decrease in the volume of railcar deliveries and a change in product mix. Manufacturing cost of revenue increased $353.4decreased $72.5 million or 25.7%3.4% in 20182020 compared to 2017.2019 primarily attributed to an 11.6% decrease in the volume of railcar deliveries. The decrease in cost of revenue was partially offset by the additional cost of revenue in 2020 associated with the acquired manufacturing business of ARI and a change in product mix. Manufacturing cost of revenue increased $410.2 million or 23.7% in 2019 compared to 2018. The increase in cost of revenue was primarily attributed to a 21.0%an 18.4% increase in the volume of railcar deliveries and a change in product mix. Manufacturing costoperating inefficiencies at some of revenue decreased $256.6 million or 15.7% in 2017 compared to 2016 due to a decrease of 22.7% in the volume of railcar deliveries and a change in product mix.our manufacturing facilities. Manufacturing margin as a percentage of revenue decreased 4.9%was 12.1% for both 2020 and 2019. Manufacturing margin was positively impacted by synergies in 2018 compared to 2017 primarily due to a change2020 resulting from the integration of the manufacturing business of ARI. This was partially offset by an increase in product mix.severance expense, ARI integration costs and increased costs associated with operating our manufacturing facilities during the COVID-19 pandemic in 2020. Manufacturing margin as a percentage of revenue decreased 1.8%3.4% in 20172019 compared to 20162018. The decrease was primarily dueattributed to a change in product mix and operating inefficiencies at some of our manufacturing facilities. These were partially offset by customer order renegotiation fees received during the year ended August 31, 2017.higher volumes of new railcar sales with leases attached which typically result in enhanced sales prices and margins. Manufacturing operating profit decreased $54.4$20.2 million or 18.4%9.3% in 20182020 compared to 20172019. The decrease was primarily attributed to a reduction in the volume of railcar deliveries, severance expense, ARI integration costs and increased costs associated with operating our manufacturing facilities during the COVID-19 pandemic in 2020. This was partially offset by synergies in 2020 resulting from the integration of the manufacturing business of ARI. Manufacturing operating profit decreased $23.3 million or 9.7% in 2019 compared to 2018. The decrease was primarily attributed to a lower margin percentage from a change in product mix and increased costs associated with expanded international operations. This was partially offset by an increase in the volumeoperating inefficiencies at some of railcar deliveries. Manufacturing operating profit decreased $119.8 million or 28.9% in 2017 compared to 2016 primarily attributed to a decrease in margin due to lower railcar deliveries.our manufacturing facilities. | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 39 | |
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Wheels, Repair & Parts Segment | | | Years ended August 31, | | | 2018 vs 2017 | | 2017 vs 2016 | | | Years ended August 31, | | | 2020 vs 2019 | | | 2019 vs 2018 | | (In thousands) | | 2018 | | | 2017 | | | 2016 | | | Increase (Decrease) | | | % Change | | Increase (Decrease) | | % Change | | | 2020 | | | 2019 | | | 2018 | | | Increase (Decrease) | | | % Change | | | Increase (Decrease) | | | % Change | | Revenue | | $ | 347,023 | | | $ | 312,679 | | | $ | 322,395 | | | $ | 34,344 | | | | 11.0 | % | | $ | (9,716 | ) | | (3.0%) | | | $ | 324,670 | | | $ | 444,502 | | | $ | 347,023 | | | $ | (119,832 | ) | | | (27.0 | )% | | $ | 97,479 | | | | 28.1 | % | Cost of revenue | | $ | 318,330 | | | $ | 288,336 | | | $ | 293,751 | | | $ | 29,994 | | | | 10.4 | % | | $ | (5,415 | ) | | (1.8%) | | | $ | 302,189 | | | $ | 420,890 | | | $ | 318,330 | | | $ | (118,701 | ) | | | (28.2 | )% | | $ | 102,560 | | | | 32.2 | % | Margin (%) | | | 8.3% | | | | 7.8% | | | | 8.9% | | | | 0.5% | | | | * | | | | (1.1% | ) | | * | | | | 6.9 | % | | | 5.3 | % | | | 8.3 | % | | | 1.6 | % | | * | | | | (3.0 | )% | | * | | Operating profit ($) | | $ | 16,731 | | | $ | 14,984 | | | $ | 19,948 | | | $ | 1,747 | | | | 11.7 | % | | $ | (4,964 | ) | | (24.9%) | | | $ | 9,032 | | | $ | (2,941 | ) | | $ | 16,731 | | | $ | 11,973 | | | * | | | $ | (19,672 | ) | | | (117.6 | )% | Operating profit (%) | | | 4.8% | | | | 4.8% | | | | 6.2% | | | | 0.0% | | | | * | | | | (1.4% | ) | | * | | | | 2.8 | % | | | (0.7 | )% | | | 4.8 | % | | | 3.5 | % | | * | | | | (5.5 | )% | | * | |
On August 20, 2018, we entered into an agreement with12 repair shops were returned to us as a result of discontinuing our joint venture partner to discontinue the GBW railcar repair joint venture, which resulted in 12 repair shops returned to us.venture. Beginning on August 20, 2018, the results of operations from ourthese repair shops arewere included in the Wheels, Repair & Parts segment as these repair operationsthey are now consolidated for financial reporting purposes. Wheels, Repair & Parts revenue increased $34.3decreased $119.8 million or 11.0%27.0% in 20182020 compared to 20172019. The decrease was primarily asdue to lower wheelset, component and parts volumes due to lower demand, a result ofdecrease in scrap metal pricing and lower repair revenue primarily from five fewer shops in 2020. Wheels, Repair & Parts revenue increased $97.5 million or 28.1% in 2019 compared to 2018. The increase was primarily due to 2019 including $87.5 million in revenue associated with the repair shops returned to us after discontinuing the GBW joint venture in August 2018. The increase was also due to higher wheel set and component volumesparts revenue due to an increase in demand and an increase in scrap metal pricing. Revenue decreased $9.7 million or 3.0% in 2017 compared to 2016 primarily as a result of lower wheel set and component volumes due to a decrease in demand partially offset by an increase in parts volume.demand. Wheels, Repair & Parts cost of revenue increased $30.0decreased $118.7 million or 10.4%28.2% in 20182020 compared to 20172019. The decrease was primarily due to higher wheel set and componentlower costs associated with increased volumes. Costa reduction in wheelset, component and parts volumes and five fewer repair shops in 2020. Wheels, Repair & Parts cost of revenue decreased $5.4increased $102.6 million or 1.8%32.2% in 20172019 compared to 2016primarily2018. The increase was primarily due to lower wheel set2019 including $97.3 million in cost of revenue associated with the repair shops returned to us after discontinuing the GBW joint venture in August 2018. The increase was also due to increased parts volumes and component costs associated with decreased volumes.closing sites in our repair network. Wheels, Repair & Parts margin as a percentage of revenue increased 0.5%1.6% in 20182020 compared to 2017 due2019. The increase was primarily attributed to efficiencies from operating at higher wheel set and component volumes and an increaseour repair shops in 2020. In addition, 2019 was negatively impacted by costs associated with closing sites in our repair network. These factors which had a positive impact to Wheels, Repair & Parts margin as a percentage of revenue in 2020 compared to 2019, were partially offset by a decrease in scrap metal pricing.pricing and increased costs associated with operating our facilities during the COVID-19 pandemic in 2020. Wheels, Repair & Parts margin as a percentage of revenue decreased 3.0% in 2019 compared to 2018. The decrease was primarily attributed to inefficiencies at our repair operations and costs associated with closing sites in our repair network in 2019. This was partially offset by a less favorable parts product mix. Margin as a percentage of revenue decreased 1.1% in 2017 compared to 2016 due to lower wheel set and component volumes. This was partially offset by a more favorable parts product mix and an increase in scrap metal pricing. Wheels, Repair & Parts operating profit increased $1.7$12.0 million or 11.7% in 20182020 compared to 2017 primarily attributable to higher margins2019. The increase was due to an increase2019 being negatively impacted by a $10.0 million goodwill impairment and costs associated with closing sites in wheel set and component volumes and an increase in efficiencies. Operatingour repair network. Wheels, Repair & Parts operating profit decreased $5.0$19.7 million or 24.9% in 20172019 compared to 20162018. The decrease was primarily attributableattributed to a decrease$10.0 million goodwill impairment charge recognized in margin2019 due to challenges at our repair operations and costs associated with closing sites in our repair network. This was partially offset by higher parts revenue and a decrease in wheel set and component volumes.more favorable parts product mix.
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Leasing & Services Segment (In thousands) | | | Years ended August 31, | | | 2020 vs 2019 | | | 2019 vs 2018 | | | | | | | | | | | | | | | | | | 2020 | | | 2019 | | | 2018 | | | Increase (Decrease) | | | % Change | | | Increase (Decrease) | | | % Change | | | | Years ended August 31, | | | 2018 vs 2017 | | 2017 vs 2016 | | | (In thousands) | | 2018 | | | 2017 | | | 2016 | | | Increase (Decrease) | | % Change | | Increase (Decrease) | | % Change | | | Revenue | | $ | 127,855 | | | $ | 131,297 | | | $ | 260,798 | | | $ | (3,442 | ) | | | (2.6% | ) | | $ | (129,501 | ) | | (49.7%) | | | $ | 117,548 | | | $ | 157,590 | | | $ | 127,855 | | | $ | (40,042 | ) | | | (25.4 | )% | | $ | 29,735 | | | | 23.3 | % | Cost of revenue | | $ | 64,672 | | | $ | 85,562 | | | $ | 203,782 | | | $ | (20,890 | ) | | | (24.4% | ) | | $ | (118,220 | ) | | (58.0%) | | | $ | 71,700 | | | $ | 108,590 | | | $ | 64,672 | | | $ | (36,890 | ) | | | (34.0 | )% | | $ | 43,918 | | | | 67.9 | % | Margin (%) | | | 49.4% | | | | 34.8% | | | | 21.9% | | | | 14.6% | | | | * | | | | 12.9% | | | * | | | | 39.0 | % | | | 31.1 | % | | | 49.4 | % | | | 7.9 | % | | | * | | | | (18.3 | )% | | | * | | Operating profit ($) | | $ | 88,481 | | | $ | 31,904 | | | $ | 51,723 | | | $ | 56,577 | | | | 177.3% | | | $ | (19,819 | ) | | (38.3%) | | | $ | 40,927 | | | $ | 64,763 | | | $ | 88,481 | | | $ | (23,836 | ) | | | (36.8 | )% | | $ | (23,718 | ) | | | (26.8 | )% | Operating profit (%) | | | 69.2% | | | | 24.3% | | | | 19.8% | | | | 44.9% | | | | * | | | | 4.5% | | | * | | | | 34.8 | % | | | 41.1 | % | | | 69.2 | % | | | (6.3 | )% | | | * | | | | (28.1 | )% | | | * | |
The Leasing & Services segment primarily generates revenue from leasing railcars from its lease fleet, and providing various management services. We also earn revenue from rent-producingservices, interim rent on leased railcars for syndication, which are held short term and classified as Leasedthe sale of railcars for syndication on our Consolidated Balance Sheet. From time to time, railcars are purchased from third parties with the intent to resell them.resell. The gross proceeds from the sale of these railcars are recorded in revenue and the costcosts of purchasing these railcars are recorded in cost of revenue. | | | | | 40 | | The Greenbrier Companies 2018 Annual Report | | |
Leasing & Services revenue decreased $3.4$40.0 million or 2.6%25.4% in 20182020 compared to 2017.2019. The change in revenuedecrease was primarily attributed to a decrease in the sale of railcars which we had purchased from third parties with the intent to resell them and a decline in leasing revenue due to fewer railcars on operating leases as we rebalance our lease portfolio.resell. This was partially offset by higher management services revenue from new service agreements and a higher average volume of rent-producinginterim rent on leased railcars for syndication. Leasing & Services revenue decreased $129.5increased $29.7 million or 49.7%23.3% in 20172019 compared to 20162018. The increase was primarily as the result of a $116.5 million decreaseattributed to an increase in the sale of railcars which we had purchased from third parties with the intent to resell them. The decrease in revenueresell. This was also due topartially offset by lower average volume of rent-producinginterim rent on leased railcars held for syndication. Leasing & Services cost of revenue decreased $20.9$36.9 million or 24.4%34.0% in 20182020 compared to 20172019. The decrease was primarily due to a declinedecrease in the volume of railcars sold that we purchased from third parties lower maintenance and transportation costs and fewer railcars on operating leases as we rebalance our lease portfolio.partially offset by higher storage costs. Leasing & Services cost of revenue decreased $118.2increased $43.9 million or 58.0%67.9% in 20172019 compared to 20162018. The increase was primarily due to a decrease in costs associated with a declinean increase in the volume of railcars sold that we purchased from third parties. This was partially offset byparties and higher transportation and storage costs. Leasing & Services margin as a percentage of revenue increased 14.6%7.9% in 20182020 compared to 2017.2019. Margin as a percentage of revenue for 20182020 benefited from fewer sales of railcars that we purchased from third parties which have lower margin percentages, lower maintenance costs,percentages. The increase in margin in 2020 as a percentage of revenue was also due to higher average volume of rent-producinginterim rent on leased railcars for syndication and lower transportation costs.syndication. Leasing & Services margin as a percentage of revenue increased 12.9%decreased 18.3% in 20172019 compared to 2016 primarily as a result of a benefit2018. Margin for 2019 was negatively impacted from fewerhigher sales of railcars that we purchased from third parties which have lower margin percentages whichpercentages. The decrease in margin was partially offset byalso due to higher transportation and storage costs. Leasing & Services operating profit increased $56.6decreased $23.8 million or 177.3%36.8% in 20182020 compared to 20172019. The decrease was primarily attributed to a $40.8an $18.4 million increasedecrease in net gain on disposition of equipment and an $17.4 million increase in margin. The net gain on disposition of equipment for 2018 related to higher volumes of equipment sales as we rebalance our lease portfolio.equipment. Leasing & Services operating profit decreased $19.8$23.7 million or 38.3%26.8% in 20172019 compared to 2016 primarily2018. The decrease was attributed to a $11.3$14.2 million decrease in margin primarily due to higher transportation costs and lower interim rent on leased railcars for syndication. The decrease was also attributed to a $7.7$6.8 million decrease in net gain on disposition of equipment. The percentage of owned units on lease was 90.4%, 93.3% and 94.4% at August 31, 2020, 2019 and 2018, 92.1% at August 31, 2017respectively.
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Selling and 91.0% at August 31, 2016.Administrative GBW Joint Venture Segment
(In thousands) | | Years ended August 31, | | | 2020 vs 2019 | | | | 2019 vs 2018 | | | | 2020 | | | 2019 | | | 2018 | | | Increase (Decrease) | | | % Change | | | | Increase (Decrease) | | | % Change | | Selling and Administrative | | $ | 204,706 | | | $ | 213,308 | | | $ | 200,439 | | | $ | (8,602 | ) | | | (4.0 | )% | | | $ | 12,869 | | | | 6.4 | % |
To reflect our 50% shareSelling and administrative expense was $204.7 million or 7.3% of GBW’s results, we recorded a net loss of $15.9 million and $9.7 million for the years ended August 31, 2018 and 2017, respectively, and earnings of $3.2 millionrevenue for the year ended August 31, 2016.
The losses2020, $213.3 million or 7.0% of revenue for the yearsyear ended August 31, 20182019 and 2017 primarily related tonon-cash goodwill impairment losses recorded by GBW. GBW recorded apre-tax goodwill impairment loss of $26.4 million in 2018 and $11.2 million in 2017. As we account for GBW under the equity method of accounting, our 50% share of thenon-cash goodwill impairment loss recognized by GBW was $9.5 millionafter-tax in 2018 and $3.5 millionafter-tax in 2017 which were included as part of Earnings (loss) from unconsolidated affiliates on our Consolidated Statement of Income.
On August 20, 2018 we entered into an agreement with our joint venture partner to discontinue the GBW railcar repair joint venture, which resulted in 12 repair shops returned to us. Beginning on August 20, 2018, GBW Joint Venture was no longer considered a reportable segment.
Selling and Administrative
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Years ended August 31, | | | 2018 vs 2017 | | | 2017 vs 2016 | | (In thousands) | | 2018 | | | 2017 | | | 2016 | | | Increase (Decrease) | | | % Change | | | Increase (Decrease) | | | % Change | | Selling and Administrative | | $ | 200,439 | | | $ | 170,607 | | | $ | 158,681 | | | $ | 29,832 | | | | 17.5 | % | | $ | 11,926 | | | | 7.5 | % |
| | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 41 | |
Selling and administrative expense was $200.4 million or 8.0% of revenue for the year ended August 31, 2018, $170.6 million or 7.9% of revenue for the year ended August 31, 2017 and $158.7 million or 5.9% of revenue for the year ended August 31, 2016.2018.
The $29.8$8.6 million increasedecrease in 20182020 compared to 20172019 was primarily attributed to a $10.1$18.7 million increase in professional fees, consulting and related costs incurred in 2019 associated with strategicthe acquisition of the manufacturing business development, litigation and IT initiatives, $8.8of ARI. This was partially offset by $9.6 million from the addition of Astra Rail’sthe manufacturing business of ARI selling and administrative costs and a $6.0in 2020. The $12.9 million increase in employee costs. The $11.9 million increase in 20172019 compared to 20162018 was primarily attributed to a $9.2$18.7 million increase in legal and consulting costs primarily associated with strategicthe acquisition of the manufacturing business development, litigationof ARI and IT initiatives. The increase was also attributed to the addition of Astra Rail’sthe selling and administrative costs which totaled $2.6from the repair shops returned to us after discontinuing the GBW joint venture and the manufacturing business of ARI. These increases in selling and administrative costs were partially offset by a $7.6 million since its acquisition on June 1, 2017 and a $0.8 million increasedecrease in research and developmentemployee costs primarily related to our European manufacturing operations. This was partially offset by a $1.7 million decrease in the revenue-based fees paid to our joint venture partner in Mexico.incentive compensation.
Net Gain on Disposition of Equipment Net gain on disposition of equipment was $44.4$20.0 million, $9.7$41.0 million and $15.8$44.4 million for the years ended August 31, 2018, 20172020, 2019 and 2016,2018, respectively. Net gain on disposition of equipment primarily includes the sale of assets from our lease fleet (Equipment on operating leases, net) that are periodically sold in the normal course of business in order to take advantage of market conditionsaccommodate customer demand and to manage risk and liquidity andliquidity; disposition of property, plant and equipment. The net gain on disposition of equipment in 2018 was higher than for the prior year primarily due to greater volumes of equipment sales as we rebalance our lease portfolio. The gain for the year ended August 31, 2017 primarily consisted of $5.2 million inequipment; and insurance proceeds received in excess of net book value onfor business interruption and assets destroyed in fires at twoa fire.
Goodwill Impairment Based on the results of our manufacturing facilities and $4.5annual impairment test, a non-cash impairment charge of $10.0 million in gains realized on the disposition of leased assets and property, plant and equipment. The gain for the year ended August 31, 2016 primarily consisted of $12.0 million in gains realized on the disposition of leased assets and property, plant and equipment and $3.5 million in insurance proceeds received in excess of net book value on assets destroyed in fires at a manufacturing facility and a Wheels, Repair & Parts facility.was recorded during 2019 related to our repair operations. There was no goodwill impairment charge recorded during 2020 or 2018. Interest and Foreign Exchange Interest and foreign exchange expense was composed of the following: (In thousands) | | | Years ended August 31, | | | Increase (decrease) | | | | | | | | | | | | | | 2020 | | | 2019 | | | 2018 | | | 2020 vs 2019 | | | 2019 vs 2018 | | | | Years ended August 31, | | Increase (decrease) | | | (In thousands) | | 2018 | | 2017 | | | 2016 | | 2018 vs 2017 | | 2017 vs 2016 | | | Interest and foreign exchange: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest and other expense | | $ | 30,946 | | | $ | 23,519 | | | $ | 17,268 | | | $ | 7,427 | | | $ | 6,251 | | | $ | 42,386 | | | $ | 32,260 | | | $ | 30,946 | | | $ | 10,126 | | | $ | 1,314 | | Foreign exchange loss (gain) | | | (1,578 | ) | | 673 | | | | (3,766 | ) | | (2,251 | ) | | 4,439 | | | Foreign exchange (gain) loss | | | | 1,233 | | | | (1,348 | ) | | | (1,578 | ) | | | 2,581 | | | $ | 230 | | | | | | $ | 43,619 | | | $ | 30,912 | | | $ | 29,368 | | | $ | 12,707 | | | $ | 1,544 | | | | $ | 29,368 | | | $ | 24,192 | | | $ | 13,502 | | | $ | 5,176 | | | $ | 10,690 | | | | | |
Interest and foreign exchange increased $5.2$12.7 million in 20182020 from 20172019 primarily due to interest expense associated with our $275$300 million convertibleof senior notes due 2024term debt issued in February 2017July 2019 and additional interest expense duean increase in revolving notes borrowings. The increase in borrowings was a proactive response to uncertainties from the addition of Astra Rail. This was partially offset by the maturity of the $119 million convertible senior notes in April 2018 and higher foreign exchange gain in 2018. The change in foreign exchange loss (gain) was primarily attributed to the change in the Mexican Peso relative to the U.S. DollarCOVID-19 coronavirus pandemic and the changedecline in the Polish Zloty exchange rates relative to the Euro.global economic activity. Interest and foreign exchange increased $10.7$1.5 million in 20172019 from 20162018 primarily attributeddue to interest expense associated with our $275$225 million convertible senior notes due 2024 which weterm debt issued in February 2017. September 2018.
36
Income Tax In addition, the2020 our income tax expense was $40.2 million on $124.8 million of pre-tax earnings for an effective tax rate of 32.2%. The increase in interest andthe effective rate from 2019 was primarily attributable to higher net unfavorable discrete items primarily related to changes in foreign currency exchange rates for our U.S. Dollar denominated foreign operations for the year ended August 31, 2020. Excluding the impact of discrete items in both periods, the effective tax rate was attributed to a $0.7 million foreign exchange loss in | | | | | 42 | | The Greenbrier Companies 2018 Annual Report | | |
201724.2% for the year ended August 31, 2020 compared to $3.8 million gain in 2016. The change in foreign exchange loss (gain) was27.1% for the year ended August 31, 2019, which decreased primarily attributeddue to the change ingeographic mix of earnings.
In 2019 our income tax expense was $41.6 million on $153.2 million of pre-tax earnings for an effective tax rate of 27.1%. The 2019 tax rate was impacted by a goodwill impairment charge for which there was no tax benefit. Excluding the Mexican Peso and Polish Zloty exchange rates relative toimpact of the U.S. Dollar andgoodwill impairment charge, the change in the Polish Zloty exchange rates relative to the Euro. Income Tax
tax rate for 2019 was 25.5%. In 2018 our income tax expense was $32.9 million on $223.6 million ofpre-tax earnings for an effective tax rate of 14.7%. In 2017 our income tax expense was $64.0 million on $236.2 million ofpre-tax earnings for an effective tax rate of 27.1%. In 2016 our income tax expense was $112.3 million on $395.0 million ofpre-tax earnings for an effective tax rate of 28.4%. The reduction in the 2018 tax rate from that of earlier years was primarily due to the enactment of the Tax Act on December 22, 2017. The Tax Act made significant changes to U.S. federal income tax laws, including, but not limited to, a reduction of the corporate tax rate from 35% to 21% and a transition tax on foreign earnings not previously subject to U.S. taxation. DeferredAs a result, deferred income taxes were remeasured as a result of the new statutory rate. Thisrate which resulted in a one-time tax benefit of $33.6 million during 2018. As a result of our fiscal year end, our blended statutory rate is 25.7% for 2018. See Note 18 – Income Taxes for further discussionoffset, in part, by the accrual of the impacttransition tax of the Tax Act.$8.9 million. The effective tax rate can fluctuateyear-to-year due to discrete items and changes in the mix of foreign and domesticpre-tax earnings. It can also fluctuate with changes in the proportion ofpre-tax earnings attributable to our Mexican railcar manufacturing joint venture because theventure. The joint venture is predominantly treated as a partnership for tax purposes and, as a result, the partnership’s entirepre-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 (Loss) From Unconsolidated Affiliates Earnings (loss) fromThrough unconsolidated affiliates primarily included our share ofafter-tax results fromwe produce rail and industrial components and have an ownership stake in a railcar manufacturer in Brazil. In addition, in 2018 we had an investment in the GBW joint venture, our Brazil operations which include a castings joint venture and a railcar manufacturing joint venture, our lease financing warehouse investment, our North American castings joint venture and our tank head joint venture. We record the after-tax results from these unconsolidated affiliates.
Earnings (loss) from unconsolidated affiliates was a loss of $18.7 million and $11.8 million for the years ended August 31, 2018 and 2017, respectively, and earnings of $2.1$3.0 million for the year ended August 31, 2016. Earnings (loss)2020 and primarily related to our rail component manufacturing operations. Loss from unconsolidated affiliates decreased $6.9was $5.8 million for the year ended August 31, 2019 and primarily related to losses at our operations in Brazil. Loss from unconsolidated affiliates was $18.7 million for the year ended August 31, 2018 and primarily related to the results of the GBW joint venture. In addition in 2018, and $13.9 million in 2017 primarily due to goodwill impairment losses recorded by GBW. GBW recorded apre-tax goodwill impairment loss of $26.4 million in 2018 and $11.2 million in 2017.was recognized related to GBW. As we accountaccounted for GBW under the equity method of accounting, our 50% share of thenon-cash goodwill impairment loss recognized by GBW was $9.5 millionafter-tax in 2018, and $3.5 millionafter-tax in 2017, which werewas included as part of Earnings (loss) from unconsolidated affiliates on our Consolidated Statement of Income. Net Earnings Attributable to Noncontrolling Interest The years ended August 31, 2018, 2017 and 2016 include Net earnings attributable to noncontrolling interest ofwas $38.6 million, $34.7 million and $20.3 million $44.4 millionfor the years ended August 31, 2020, 2019 and $101.6 million,2018, respectively, which primarily represents our joint venture partner’spartner's share in the results of operations of our Mexican railcar manufacturing joint venture,ventures, adjusted for intercompany sales, and our European partner’s share of the results of Greenbrier-Astra Rail.our European operations.
The decrease of $24.1 million in 2018 compared to 2017 is primarily a result of a decrease in earnings due to lower margins at our Mexican railcar manufacturing joint venture and a loss at our Greenbrier-Astra Rail operations in Europe. The decrease of $57.2 million in 2017 compared to 2016 is primarily a result of a decrease in the volume of railcar deliveries and lower margins at our Mexican railcar manufacturing joint venture.
37 | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 43 | |
Liquidity and Capital Resources | | | Years Ended August 31, | | | Years Ended August 31, | | (In thousands) | | 2018 | | 2017 | | 2016 | | | 2020 | | | 2019 | | | 2018 | | Net cash provided by operating activities | | $ | 103,341 | | | $ | 285,604 | | | $ | 337,170 | | | Net cash used in investing activities | | | (80,219 | ) | | (113,738 | ) | | (55,708 | ) | | Net cash provided by (used in) operating activities | | | $ | 272,261 | | | $ | (21,241 | ) | | $ | 103,341 | | Net cash provided by (used in) investing activities | | | | 27,483 | | | | (443,981 | ) | | | (80,292 | ) | Net cash provided by (used in) financing activities | | | (89,267 | ) | | 204,422 | | | (227,415 | ) | | | 216,455 | | | | 276,901 | | | | (89,267 | ) | Effect of exchange rate changes | | | (14,666 | ) | | 12,499 | | | (4,298 | ) | | | (12,599 | ) | | | (12,666 | ) | | | (14,666 | ) | | | | Net increase (decrease) in cash and cash equivalents | | $ | (80,811 | ) | | $ | 388,787 | | | $ | 49,749 | | | | | | Net increase (decrease) in cash and cash equivalents and restricted cash | | | $ | 503,600 | | | $ | (200,987 | ) | | $ | (80,884 | ) |
We have been financed through cash generated from operations and borrowings. At August 31, 20182020 cash and cash equivalents was $530.7and restricted cash were $842.1 million, a decreasean increase of $80.8$503.6 million from $611.5$338.5 million at the prior year end. The increase in cash and cash equivalents included proactively drawing on available credit facilities in response to uncertainties from the COVID-19 coronavirus pandemic and the decline in global economic activity. The decreasechange in cash provided by (used in) operating activities in 20182020 compared to 20172019 was primarily due to a net change in working capital, acapital. The change in cash flows associated with leased railcars for syndication, a change in deferred revenue, an increase in net gain on disposition of equipment and a change in deferred income taxes as a result of the Tax Act. The decrease in cash provided by (used in) operating activities in 20172019 compared to 20162018 was primarily due to lower earnings and a net change in working capital.capital due to an increase in production. Cash used
The change in cash provided by (used in) investing activities in 2020 compared to 2019 was primarily relatedattributable to the acquisition of the manufacturing business of ARI in 2019 and a decrease in capital expenditures net ofin 2020 partially offset by a decrease in the proceeds from the salesales of assets. The change in cash used inprovided by (used in) investing activities in 20182019 compared to 20172018 was primarily attributable to higher proceeds from the saleacquisition of assets partially offset by an increasethe manufacturing business of ARI in capital expenditures. The change in cash used in investing activities in 2017 compared to 2016 was primarily attributable to lower proceeds from the sale of assets, investment related to the Greenbrier-Astra Rail transaction and an increase in investment in and advances to unconsolidated affiliates, primarily related to our Brazil operations. This was partially offset by lower capital expenditures for the year ended August 31, 2017 compared to 2016 and less restricted cash compared to the prior year.2019. Capital expenditures totaled $176.8$66.9 million, $86.1$198.2 million and $139.0$176.8 million for the years ended August 31, 2018, 20172020, 2019 and 2016,2018, respectively. Manufacturing capital expenditures were approximately $59.7$48.2 million, $55.0$85.1 million and $51.3$59.7 million for the years ended August 31, 2018, 2017 and 2016, respectively. Capital expenditures for Manufacturing are expected to be approximately $75 million in2020, 2019 and primarily relate to enhancements of our existing manufacturing facilities.2018, respectively. Wheels, Repair & Parts capital expenditures were approximately $5.2$11.7 million, $3.1$13.3 million and $10.2$5.2 million for the years ended August 31, 2020, 2019 and 2018, 2017 and 2016, respectively. Capital expenditures for Wheels, Repair & Parts are expected to be approximately $15 million in 2019 for enhancements of our existing facilities, including our repair shops. Leasing & Services and corporate capital expenditures were approximately $111.9$7.0 million, $28.0$99.8 million and $77.5$111.9 million for the years ended August 31, 2020, 2019 and 2018, 2017 and 2016, respectively. Leasing & Services and corporate capitalCapital expenditures for 2019 are expected to be approximately $90 million. Proceeds from sales of leased railcar equipment are expected to be approximately $120 million for 2019. The asset additions and dispositions for Leasing & Services in 20182021 primarily relate to higher volumescontinued investments into the safety and productivity of equipment purchasesour facilities and sales as we rebalanceopportunistic additions to our lease portfolio. Assets from our lease fleet are periodically sold in the normal course of business in order to take advantage of market conditions and to manage risk and liquidity.fleet. Proceeds from the sale of assets, which primarily related to sales of railcars from our lease fleet within Leasing & Services, were approximately $153.2$83.5 million, $24.1$125.4 million and $103.7$153.2 million for the years ended August 31, 2020, 2019 and 2018, 2017respectively. Assets from our lease fleet are periodically sold in the normal course of business in order to accommodate customer demand and 2016, respectively. These proceeds included approximately $7.7 millionto manage risk and $44.1 million of equipment sold pursuant to sale leaseback transactions for the years ended August 31, 2017 and 2016, respectively. The gain resulting from the sale leaseback transactions was deferred and is being recognized over the lease term in Net gain on disposition of equipment. In addition, proceeds from the sale of assets for the years ended August 31, 2017 and 2016 included $6.2 million and $3.8 million, respectively, of insurance proceeds associated with our Manufacturing segment in 2017 and 2016 and Wheels, Repair & Parts segment in 2016.liquidity. The change in cash provided by (used in) financing activities in 20182020 compared to 20172019 was primarily attributed to a decrease in the proceeds of debt, net of repayments and a change in the net activities with joint venture | | | | | 44 | | The Greenbrier Companies 2018 Annual Report | | |
partners. The change in cash provided by (used in) financing activities in 20172019 compared to 20162018 was primarily attributed to proceeds from the issuance of convertible senior notes payable and a reductionchange in cash distribution to ourthe net activities with joint venture partner and reduced share repurchases.partners. A quarterly dividend of $0.25$0.27 per share was declared on October 24, 2018.21, 2020. The Board of Directors has authorized our company to repurchase in aggregate up to $225 millionshares of our common stock. We didIn January 2019, the expiration date of this share repurchase program was extended from March 31, 2019 to March 31, 2021 and the amount remaining for repurchase was increased from $88 million to $100 million. Under the share repurchase program, shares of common stock may be purchased on the open market or through privately negotiated transactions from time to time. The timing and amount of purchases will be based upon market conditions, securities law limitations and other factors. The program may be modified, suspended or discontinued at any time without prior notice. The share repurchase program does not repurchaseobligate us to acquire any specific number of shares during the year ended August 31, 2018. As of August 31, 2018, we had cumulativelyin any period. There were no shares repurchased 3,206,226 shares for approximately $137.0 million since October 2013 and had $88.0 million available under the share repurchase program in 2020, 2019 or 2018. 38
In July 2019, as part of the acquisition of the manufacturing business of ARI, we entered into new $300 million senior term debt. The maturity date is June 2024 unless the 2.875% Convertible senior notes due July 2024 are outstanding as of November 1, 2023, in which case the debt matures on that date. The debt bears a floating interest rate of LIBOR plus 1.5% with an expiration dateprincipal of March 31, 2019.$3.75 million paid quarterly in arrears and a balloon payment of $232.5 million due at maturity. An interest rate swap agreement was entered into on 50% of the initial balance to swap the floating interest rate of LIBOR plus 1.5% to a fixed rate of 3.19%. In July 2019, as part of the acquisition of the manufacturing business of ARI, we issued $50 million in convertible senior notes, due 2024. The convertible senior note bears interest at a fixed rate of 2.25%, paid semi-annually in arrears on February 1st and August 1st. The convertible notes mature on July 26, 2024, unless earlier repurchased by us or converted in accordance with their terms. Upon the satisfaction of certain conditions, holders may convert at their option at any time prior to the business day immediately preceding the stated maturity date. In September 2018, we refinanced approximately $170 million of existing senior term debt, due in March 2020, secured by a pool of leased railcars with new5-year $225 million senior term debt also secured by a pool of leased railcars. The new debt bears a floating interest rate of LIBOR plus 1.50% or Prime plus 0.50%. The term loan is to be repaid in equal quarterly installments of $1.97 million with the remaining outstanding amounts, plus accrued interest, to be paid on the maturity date in September 2023. An interest rate swap agreement was entered into on 50% of the initial balance to swap the floating interest rate to a fixed rate of 2.99%4.49%. Our 3.5% convertible senior notes due 2018 matured on April 1, 2018. The conversion of these notes resulted in the issuance of an additional 3.4 million shares of our common stock. These additional shares have historically been included in the calculation of diluted earnings per share. In February 2017, we issued $275 million of convertible senior notes due 2024. The notes are senior unsecured obligations and rank equally with other senior unsecured debt. The notes bear interest at an annual rate of 2.875% payable semiannually in arrears on February 1 and August 1 of each year, commencing August 1, 2017. The notes will mature on February 1, 2024, unless earlier repurchased or converted in accordance with their terms.
Senior secured credit facilities, consisting of three components, aggregated to $635.3$733.2 million as of August 31, 2018.2020. We had an aggregate of $450.1$85.9 million available to draw down under committed credit facilities as of August 31, 2018.2020. This amount consists of $392.6$29.2 million available on the North American credit facility, $7.5$21.7 million on the European credit facilities and $50.0$35.0 million on the Mexican railcar manufacturing joint venture credit facilities. As of August 31, 2018,2020, a $550.0$600.0 million revolving line of credit, maturing October 2020,June 2024, secured by substantially all of our assets in the U.S. not otherwise pledged as security for term loans, was availableexisted to provide working capital and interim financing of equipment, principally for the U.S. and Mexican operations. Advances under this North American credit facility bear interest at LIBOR plus 1.75%1.50% or Prime plus 0.75%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. In September 2018, this revolving line of credit was renewed on terms similar to the existing facility and increased to $600.0 million with a new maturity date of September 2023. In addition, advances under this renewed facility bear interest at LIBOR plus 1.50% or Prime plus 0.50% depending on the type of borrowing. As of August 31, 2018,2020, lines of credit totaling $35.3$68.2 million secured by certain of our European assets, with variable rates that range from Warsaw Interbank Offered Rate (WIBOR) plus 1.2%1.1% to WIBOR plus 1.3%1.5% and Euro Interbank Offered Rate (EURIBOR) plus 1.1%, were available for working capital needs of our European manufacturing operation.operations. The European lines of credit include a $16.4 million facility which is guaranteed by us. European credit facilities are continually beingregularly renewed. Currently, these European credit facilities have maturities that range from December 20182020 through June 2019.September 2022. As of August 31, 2018,2020, our Mexican railcar manufacturing joint venture had two lines of credit totaling $50.0$65.0 million. The first line of credit provides up to $30.0 million and is fully guaranteed by us and our joint venture partner.matures in June 2024. Advances under this facility bear interest at LIBOR plus 2.0%. The Mexican railcar manufacturing joint venture will be able3.75% to draw against this facility through January 2019.4.25%. The second line of credit provides up to $20.0$35.0 million, of which we and our joint venture partner have each guaranteed 50%. Advances under this facility bear interest at LIBOR plus 2.0%3.75%. The Mexican railcar manufacturing joint venture will be able to draw amounts available under this facility through July 2019.June 2021. | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 45 | |
As of August 31, 2018,2020, outstanding commitments under the senior secured credit facilities consisted of $72.2$28.7 million in letters of credit and $275.0 million in borrowings under ourthe North American credit facility, and $27.7$46.5 million outstanding under ourthe European credit facilities and $30.0 million outstanding under the Mexican credit facilities. 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 39
indebtedness or guarantees; pay dividends or repurchase stock; enter into capitalfinancing 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 August 31, 2018,2020, 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 notes, borrowings and equity securities, and take other steps to reduce 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, 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. Given the strong credit standing of the counterparties, no provision has been made for credit loss due to counterpartynon-performance. As of August 31, 2018,2020, we had a $10.0$4.5 million note receivable from Amsted-Maxion Cruzeiro, our unconsolidated Brazilian castings and components manufacturer and a $7.2$3.8 million note receivable balance from Greenbrier-Maxion, our unconsolidated Brazilian railcar manufacturer. These note receivables are included on the Consolidated Balance Sheet in Accounts receivable, net. In the future, we may make loans to or provide guarantees for Amsted-Maxion Cruzeiro or Greenbrier-Maxion. 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 year.twelve months. The following table shows our estimated future contractual cash obligations as of August 31, 2018:2020: | | | Years Ending August 31, | | | Years Ending August 31, | | (In thousands) | | Total | | | 2019 | | | 2020 | | | 2021 | | | 2022 | | | 2023 | | | Thereafter | | | Total | | | 2021 | | | 2022 | | | 2023 | | | 2024 | | | 2025 | | | Thereafter | | Notes payable | | $ | 469,721 | | | $ | 26,775 | | | $ | 167,086 | | | $ | 413 | | | $ | 413 | | | $ | 34 | | | $ | 275,000 | | | $ | 833,993 | | | $ | 32,375 | | | $ | 23,716 | | | $ | 23,296 | | | $ | 754,522 | | | $ | 84 | | | $ | — | | Interest(1) | | | 58,078 | | | | 14,850 | | | | 11,604 | | | | 7,906 | | | | 7,906 | | | | 7,906 | | | | 7,906 | | | | 69,175 | | | | 21,804 | | | | 19,661 | | | | 19,159 | | | | 8,551 | | | | — | | | | — | | Railcar leases | | | 18,341 | | | | 6,287 | | | | 4,839 | | | | 1,821 | | | | 1,792 | | | | 1,792 | | | | 1,810 | | | Operating leases | | | 17,744 | | | | 6,048 | | | | 4,437 | | | | 3,286 | | | | 1,915 | | | | 1,862 | | | | 196 | | | Railcar & operating leases | | | | 72,875 | | | | 13,874 | | | | 12,412 | | | | 12,036 | | | | 10,768 | | | | 6,304 | | | | 17,481 | | Revolving notes | | | 27,725 | | | | 27,725 | | | | – | | | | – | | | | – | | | | – | | | | – | | | | 351,526 | | | | 351,526 | | | | — | | | | — | | | | — | | | | — | | | | 0 | | Other | | | 148 | | | | 129 | | | | 19 | | | | – | | | | – | | | | – | | | | – | | | | 217 | | | | 217 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | $ | 1,327,786 | | | $ | 419,796 | | | $ | 55,789 | | | $ | 54,491 | | | $ | 773,841 | | | $ | 6,388 | | | $ | 17,481 | | | | $ | 591,757 | | | $ | 81,814 | | | $ | 187,985 | | | $ | 13,426 | | | $ | 12,026 | | | $ | 11,594 | | | $ | 284,912 | | | | | |
(1) | A portion of the estimated future cash obligation relates to interest on variable rate borrowings. |
Due to uncertainty with respect to the timing of future cash flows associated with our unrecognized tax benefits at August 31, 2018,2020, we are unable to estimate the period of cash settlement with the respective taxing authority. | | | | | 46 | | The Greenbrier Companies 2018 Annual Report | | |
Therefore, approximately $1.8$6.6 million in uncertain tax positions, including interest, have been excluded from the contractual table above. See Note 1817 to the Consolidated Financial Statements for a discussion on income taxes. Off Balance Sheet Arrangements We do not currently have off balance sheet arrangements that have or are likely to have a material current or future effect on our Consolidated Financial Statements. 40
Critical Accounting Policies and 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. Income taxes- For 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 reporting purposes,statement and income tax expense is estimated based on amounts anticipated to be reported on tax return filings. Those anticipated amounts may change from when the financial statements are prepared to when the tax returns are filed. Further, because tax filings are subject to review by taxing authorities, there is risk that a position taken in preparation of a tax return may be challenged by a taxing authority. If a challenge is successful, differences in tax expense or between current and deferred tax items may arise in future periods. Any material effect of such differences would be reflected in the financial statements when management considers the effect more likely than not of occurring and the amount reasonably estimable.reporting purposes. Valuation allowances reduce deferred tax assets to amountsan amount that will more likely than not be realized. We recognize liabilities for uncertain tax positions based on whether evidence indicates that it is more likely than not that the position will be realized basedsustained on information available whenaudit. It is inherently difficult and subjective to estimate such amounts, as this requires us to estimate the financial statements are prepared. This information may include estimatesprobability of future income and other assumptions that are inherently uncertain. Maintenance obligations -various possible outcomes. We are responsible for maintenancereevaluate these uncertain tax positions on a portion of the managed and owned lease fleet under the terms of maintenance obligations definedquarterly basis. Changes in tax law or court interpretations may result in the underlying leaserecognition of a tax benefit or management agreement. The estimated maintenance liability is based on maintenance histories for each type and age of railcar. These estimates involve judgment asan additional charge to the future costs of repairs and the types and timing of repairs required over the lease term. As we cannot predict with certainty the prices, timing and volume of maintenance needed in the future on railcars under long-term leases, this estimate is uncertain and could be materially different from maintenance requirements. The liability is periodically reviewed and updated based on maintenance trends and known future repair or refurbishment requirements. These adjustments could be material due to the inherent uncertainty in predicting future maintenance requirements.tax provision.
Warranty accruals - Warranty costs to cover a defined warranty period are estimated and charged to operations. The estimated warranty cost is based on historical warranty claims for each particular product type. For new product types without a warranty history, preliminary estimates are based on historical information for similar product types. These estimates are inherently uncertain as they are based on historical data for existing products and judgment for new products. If warranty claims are made in the current period for issues that have not historically been the subject of warranty claims and were not taken into consideration in establishing the accrual or if claims for issues already considered in establishing the accrual exceed expectations, warranty expense may exceed the accrual for that particular product. Conversely, there is the possibility that claims may be lower than estimates. The warranty accrual is periodically reviewed and updated based on warranty trends. However, as we cannot predict future claims, the potential exists for the difference in any one reporting period to be material. 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. If further developments in or resolution of an environmental matter result in facts and circumstances that are significantly different than the assumptions used to develop these reserves, the accrual for environmental remediation could be materially understated or overstated. Adjustments to these liabilities are made when | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 47 | |
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. 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. Revenue recognition - Revenue is recognized when persuasive evidenceWe measure revenue at the amounts that reflect the consideration to which we expect to be entitled in exchange for transferring control of an arrangement exists, delivery has occurredgoods and services to customers. We recognize revenue either at the point in time or over the period of time that performance obligations to customers are satisfied. Payment terms vary by segment and product type and are generally due within normal commercial terms. Our contracts with customers may include multiple performance obligations (e.g. railcars, maintenance, management services, etc.). For such arrangements, we allocate revenues to each performance obligation based on its relative standalone selling price. We have been rendered,disaggregated revenue from contracts with customers into categories which describe the price is fixed or determinable and collectability is reasonably assured.principal activities from which we generate our revenues. 41
Manufacturing Railcars are generally manufactured repaired or refurbished and wheels and parts produced under firm orders from third parties. Revenue is recognized when these products or services are completed, accepted by an unaffiliated customer and contractual contingencies removed. Certain leases are operated under car hire arrangements wherebyin accordance with contracts with customers. We recognize revenue is earned based on utilization, car hire rates and terms specified in the lease agreement. Car hire revenue is reported from a third party source two months in arrears; however, such revenue is accrued in the month earned based on estimatesupon our customers’ acceptance of use from historical activity and is adjusted to actual when reported to us. These estimates are inherently uncertain as they involve judgment as to the estimated use of each railcar. Adjustments to actual have historically not been significant. Revenue from the construction of marine barges is either recognized on the percentage of completion method during the construction period or on the completed contractrailcars at a specified delivery point. From time to time, we enter into multi-year supply agreements. Each railcar delivery is considered a distinct performance obligation, such that the amounts that are recognized as revenue following railcar delivery are generally not subject to change. We typically recognize marine vessel manufacturing revenue over time using the cost input method, based on the terms of the contract. Under the percentage of completion method, judgment is used to determine a definitive threshold against which progress towards completion can be measured to determine timing of revenue recognition. Under the percentage of completion method, revenue is recognized based on the progress toward contract completion measured by actual costs incurred to date in relation to the estimate of total expected costs. UnderThis method best depicts our performance in completing the completed contractconstruction of the marine vessel for the customer and is consistent with the percentage of completion method used prior to the adoption of Topic 606: Contracts with Customers (Topic 606). Wheels, Repair & Parts We operate a network of wheel, repair and parts shops in North America that provide complete wheelset reconditioning and railcar repair services. Wheels revenue is not recognized untilwhen wheelsets are shipped to the project has been fully completed.customer or when consumed by customers in the case of consignment arrangements. Parts revenue is recognized upon shipment of the parts to the customers. Repair revenue is typically recognized over time using the cost input method, based on progress toward contract completion measured by actual costs incurred to date in relation to the estimate of total expected costs. This method best depicts our performance in repairing the railcars for the customer. Repair services are typically completed in less than 90 days. Leasing & Services We will periodicallyown a fleet of new and used railcars which are leased to third-party customers. Lease revenue is recognized over the lease-term in the period in which it is earned. Syndication transactions represent new and used railcars which have been placed on lease to a customer and which we intend to sell railcarsto an investor with attached leases to financial investors. Revenuethe lease attached. At the time of such sale, revenue and cost of revenue associated with railcars that the Company haswe have manufactured are recognized in the Manufacturing once sold. Revenuesegment; while revenue and cost of revenue associated with railcars which were obtained from a third partythird-party with the intent to resell them which areand subsequently sold, are recognized in the Leasing & Services. In addition we will often performServices segment. We enter into multi-year contracts to provide management orand maintenance services at market ratesto customers for which revenue is generally recognized on a straight-line basis over the contract term as a stand-ready obligation. Costs to fulfill these railcars. Pursuant to the guidance in Accounting Standards Codification (ASC)840-20-40, we evaluate the terms of any remarketing agreements and any contractual provisions that represent retained risk and the level of retained risk based on those provisions. We determine whether the level of retained risk exceeds 10% of the individual fair value of the railcars with leases attached thatcontracts are delivered. If retained risk exceeded 10%, the transaction would not be recognized as a sale until such time as the retained risk declined to 10% or less. For any contracts with multiple elements (i.e. railcars, maintenance, management services, etc.) we allocate revenue among the deliverables primarily based upon objective and reliable evidence of the fair value of each element in the arrangement. If objective and reliable evidence of fair value of any element is not available, we will use the element’s estimated selling price for purposes of allocating the total arrangement consideration among the elements.incurred. Impairment of long-lived assets - When changes in circumstances indicate the carrying amount of certain long-lived assets may not be recoverable, the assets are evaluated for impairment. If the forecast of undiscounted future cash flows are less than the carrying amount of the assets, an impairment charge to reduce the carrying value of the assets to fair value would be recognized in the current period. These estimates are based on the best information available at the time of the impairment and could be materially different if circumstances change. If the forecast of undiscounted future cash flows exceeds the carrying amount of the assets it would indicate that the assets were not impaired.
Goodwill and acquired intangible assets - We periodically acquire businesses in purchase transactions in which the allocation of the purchase price may result in the recognition of goodwill and other intangible assets. The determination of the value of such intangible assets requires management to make estimates and assumptions. These estimates affect the amount of future period amortization and possible impairment charges. Goodwill and indefinite-lived intangible assets are tested for impairment annually during the third quarter. The provisions of ASC 350 Intangibles – Goodwill and Other, require that we perform this test by comparing the fair value of each reporting unit with its carrying 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, short-term net working capital changes, other cash flows and the use of discount rates. Under the market approach, we estimate the fair value based on observed market multiples for comparable businesses. An impairment loss is recorded to the extent that the reporting unit’s carrying amount exceeds the reporting unit’s fair value. An impairment loss cannot exceed the total amount of goodwill allocated to the reporting unit. Goodwill and indefinite-lived intangible assets are also tested more frequently if changes in circumstances or the | | | | | 48 | | The Greenbrier Companies 2018 Annual Report | | |
occurrence of events indicates that a potential impairment exists. When changes in circumstances, 42
such as a decline in the market price of our common stock, changes in demand or in the numerous variables associated with the judgments, assumptions and estimates made in assessing the appropriate valuation of goodwill indicate the carrying amount of certain indefinite lived assets may not be recoverable, the assets are evaluated for impairment. Among other things, our assumptions used in the valuation of goodwill include growth of revenue and margins, market multiples, discount rates and increased cash flows over time. If actual operating results were to differ from these assumptions, it may result in an impairment of our goodwill. The provisions of ASC 350, Intangibles - Goodwill and Other, require that we perform an annual impairment test on goodwill. We compare the fair value of each reporting unit with its carrying 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. Under the market approach, we estimate the fair value based on observed market multiples for comparable businesses. An impairment loss is recorded to the extent that the reporting unit’s carrying amount exceeds the reporting unit’s fair value. An impairment loss cannot exceed the total amount of goodwill allocated to the reporting unit. Our goodwill balance was $78.2 million as of August 31, 2018 of which $51.1 million related to our Wheels, Repair & Parts segment and $27.1 million related to our Manufacturing segment. We performed our annual goodwill impairment test during the third quarter of 20182020 and we concluded that goodwill was not impaired. The estimated fair value of goodwill in both the Europe Manufacturing and Wheels & Parts reporting units exceeded its carrying value by approximately 5% and 9%, respectively. Since the estimated fair values were not substantially in excess of their carrying values, we may be at risk for an impairment loss in the future if expected profitability trends assumed in the fair value calculation are not realized.
As of August 31, 2020, our goodwill balance was $130.3 million of which $87.0 million related to our Manufacturing segment and $43.3 million related to our Wheels, Repair & Parts segment. Our Manufacturing segment includes the North America Manufacturing reporting unit with a goodwill balance of $56.6 million; and the Europe Manufacturing reporting unit with a goodwill balance of $30.4 million. New Accounting Pronouncements See Note 2 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report onForm 10-K. 43 | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 49 | |
Item 7A. | 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 forecastforecasted foreign currency sales and expenses. At August 31, 20182020 exchange rates, notional amounts of forward exchange contracts for the purchase of Polish Zlotys and the sale of Euros; the purchase of Mexican Pesos and the sale of U.S. Dollars; and for the purchase of US Dollars and the sale of Saudi Riyals and Euros aggregated to $145.4$48.5 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 of 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 August 31, 2018,2020, net assets of foreign subsidiaries aggregated $187.7$158.3 million and a 10% strengthening of the U.S. Dollar relative to the foreign currencies would result in a decrease in equity of $18.8$15.8 million, or 1.4%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 $85.1$250.0 million of variable rate debt to fixed rate debt. As a result, we are exposed to interest rate risk relating to our revolving debt and a portion of term debt, which are at variable rates. At August 31, 2018, 74%2020, 51% of our outstanding debt had fixed rates and 26%49% had variable rates. At August 31, 2018,2020, a uniform 10% increase in variable interest rates would result in approximately $0.4$1.0 million of additional annual interest expense. 44 | | | | | 50 | | The Greenbrier Companies 2018 Annual Report | | |
Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors and Stockholders The Greenbrier Companies, Inc. and subsidiaries::
Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of The Greenbrier Companies, Inc. and subsidiaries (the Company) as of August 31, 20182020 and 2017,2019, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three yearthree-year period ended August 31, 2018,2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of August 31, 20182020 and 2017,2019, and the results of its operations and its cash flows for each of the years in the three yearthree-year period ended August 31, 2018,2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of August 31, 2018,2020, based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, (COSO), and our report dated October 26, 201828, 2020, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Change in Accounting Principle As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of September 1, 2019, due to the adoption of Accounting Standards Update 2016-02, Leases, and related amendments. Also, as discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for revenue recognition as of September 1, 2018, due to the adoption of Accounting Standards Update 2014-09, Revenue from Contracts with Customers, and related amendments. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 45
Assessment of the fair value of the European Manufacturing reporting unit and Greenbrier-Astra Rail As discussed in Notes 2 and 7 to the consolidated financial statements, the Company performs goodwill impairment testing on an annual basis, or more frequently if an event occurs or circumstances change that would indicate a potential impairment exists. The goodwill balance as of August 31, 2020 was $130.3 million. Of this amount, $30.4 million was allocated to the European Manufacturing reporting unit. The Company established Greenbrier-Astra Rail (GAR) in June 2017 through a transaction with Astra Holding GmbH (Astra). In connection with that transaction, the Company provided Astra an option to put its entire non-controlling interest in GAR, which comprises all operating activity of the European Manufacturing reporting unit to the Company, at an exercise price equal to the higher of fair value or a stated formula measured on the exercise date. The Company recorded this contingently redeemable non-controlling interest of $31.1 million as of August 31, 2020 in the mezzanine section of the consolidated balance sheet. The fair value of GAR, which was determined as part of the goodwill impairment evaluation of the European Manufacturing reporting unit fair value, was used in the measurement of the contingently redeemable non-controlling interest amount at the balance sheet date. We identified the assessment of the fair value of the European Manufacturing reporting unit and GAR as a critical audit matter. The discounted cash flow model used to calculate the fair value of the European Manufacturing reporting unit and GAR was challenging to test due to the subjectivity of certain assumptions, as the fair value determination is sensitive to possible changes in those assumptions. Specifically, changes to the following assumptions could have a significant effect on the Company’s assessment of the carrying value of the goodwill and contingently redeemable non-controlling interest: | - | Forecasted revenues, long-term growth rate, gross margin percentages, operating expenses, short-term net working capital changes, and the sale of specific assets; and |
| - | The discount rate applied to the forecasted cash flows. |
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s process to determine the fair value of the European Manufacturing reporting unit and GAR. This included controls related to the development of the forecasted revenues, long-term growth rate, gross margin percentages, operating expenses, short-term net working capital changes, the sale of specific assets and selection of the discount rate used. We evaluated the Company’s forecasted revenues, gross margin percentages, operating expenses, and short-term net working capital changes, by comparing them to the Company’s historical results, external market and industry data, as well as operating results subsequent to the date of the fair value determination, but prior to audit report issuance. We evaluated the sale of specific assets by comparing to the Company’s historical external transactions, as well as external market data. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in: | - | Conducting a review of the model and methodology used by the Company to determine the fair value of the European Manufacturing reporting unit and GAR; |
| - | Evaluating the long-term growth rate by comparing it against publicly available relevant geographic market data; and |
| - | Evaluating the discount rate used by comparing it against an independently developed range using publicly available market data. |
/s/ KPMG LLP We have served as the Company’s auditor since 2011. /s/ KPMG LLP
Portland, Oregon October 26, 201828, 2020 46 | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 51 | |
Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Consolidated Balance Sheets AS OF AUGUSTAs of August 31,
| (In thousands) | | 2018 | | 2017 | | | | (In thousands) | | | 2020 | | | 2019 | | Assets | | | | | | | | | | | | | Cash and cash equivalents | | $ | 530,655 | | | $ | 611,466 | | | $ | 833,745 | | | $ | 329,684 | | Restricted cash | | | 8,819 | | | 8,892 | | | | 8,342 | | | | 8,803 | | Accounts receivable, net | | | 348,406 | | | 279,964 | | | | 239,597 | | | | 373,383 | | Inventories | | | 432,314 | | | 400,127 | | | | 529,529 | | | | 664,693 | | Leased railcars for syndication | | | 130,926 | | | 91,272 | | | | 107,671 | | | | 182,269 | | Equipment on operating leases, net | | | 322,855 | | | 315,941 | | | | 350,442 | | | | 366,688 | | Property, plant and equipment, net | | | 457,196 | | | 428,021 | | | | 711,524 | | | | 717,973 | | Investment in unconsolidated affiliates | | | 61,414 | | | 108,255 | | | | 72,354 | | | | 91,818 | | Intangibles and other assets, net | | | 94,668 | | | 85,177 | | | | 190,322 | | | | 125,379 | | Goodwill | | | 78,211 | | | 68,590 | | | | 130,308 | | | | 129,947 | | | | | | $ | 3,173,834 | | | $ | 2,990,637 | | | | $ | 2,465,464 | | | $ | 2,397,705 | | | | | | | Liabilities and Equity | | | | | | | | | | | | | Revolving notes | | $ | 27,725 | | | $ | 4,324 | | | $ | 351,526 | | | $ | 27,115 | | Accounts payable and accrued liabilities | | | 449,857 | | | 415,061 | | | | 463,880 | | | | 568,360 | | Deferred income taxes | | | 31,740 | | | 75,791 | | | | 7,701 | | | | 13,946 | | Deferred revenue | | | 105,954 | | | 129,260 | | | | 42,467 | | | | 85,070 | | Notes payable, net | | | 436,205 | | | 558,228 | | | | 804,088 | | | | 822,885 | | | Commitments and contingencies (Notes 21 & 22) | | | | | | | Commitments and contingencies (Notes 20 & 21) | | | | | | | | | | Contingently redeemable noncontrolling interest | | | 29,768 | | | 36,148 | | | | 31,117 | | | | 31,564 | | | Equity: | | | | | | | | | | | | | Greenbrier | | | | | | | | | | | | | Preferred stock– without par value; 25,000 shares authorized; none outstanding | | | – | | | | – | | | Common stock– without par value; 50,000 shares authorized; 32,191 and 28,503 outstanding at August 31, 2018 and 2017 | | | – | | | | – | | | Preferred stock - without par value; 25,000 shares authorized; NaN outstanding | | | | — | | | | — | | Common stock - without par value; 50,000 shares authorized; 32,701 and 32,488 outstanding at August 31, 2020 and 2019 | | | | — | | | | — | | Additionalpaid-in capital | | | 442,569 | | | 315,306 | | | | 460,400 | | | | 453,943 | | Retained earnings | | | 830,898 | | | 709,103 | | | | 885,460 | | | | 867,602 | | Accumulated other comprehensive loss | | | (23,366 | ) | | (6,279 | ) | | | (52,817 | ) | | | (44,815 | ) | | | | Total equity – Greenbrier | | | 1,250,101 | | | 1,018,130 | | | Total equity - Greenbrier | | | | 1,293,043 | | | | 1,276,730 | | Noncontrolling interest | | | 134,114 | | | 160,763 | | | | 180,012 | | | | 164,967 | | | | | Total equity | | | 1,384,215 | | | 1,178,893 | | | | 1,473,055 | | | | 1,441,697 | | | | | | $ | 3,173,834 | | | $ | 2,990,637 | | | | $ | 2,465,464 | | | $ | 2,397,705 | | | | | |
The accompanying notes are an integral part of these financial statements. 47 | | | | | 52 | | The Greenbrier Companies 2018 Annual Report | | |
Consolidated Statements of Income YEARS ENDED AUGUSTYears ended August 31,
| (In thousands, except per share amounts) | | 2018 | | 2017 | | 2016 | | | 2020 | | | 2019 | | | 2018 | | Revenue | | | | | | | | | | | | | | | | | | | Manufacturing | | $ | 2,044,586 | | | $ | 1,725,188 | | | $ | 2,096,331 | | | $ | 2,349,971 | | | $ | 2,431,499 | | | $ | 2,044,586 | | Wheels, Repair & Parts | | | 347,023 | | | | 312,679 | | | | 322,395 | | | | 324,670 | | | | 444,502 | | | | 347,023 | | Leasing & Services | | | 127,855 | | | | 131,297 | | | | 260,798 | | | | 117,548 | | | | 157,590 | | | | 127,855 | | | | | | | 2,792,189 | | | | 3,033,591 | | | | 2,519,464 | | | | | 2,519,464 | | | | 2,169,164 | | | | 2,679,524 | | | Cost of revenue | | | | | | | | | | | | | | | | | | | Manufacturing | | | 1,727,407 | | | | 1,373,967 | | | | 1,630,554 | | | | 2,065,169 | | | | 2,137,625 | | | | 1,727,407 | | Wheels, Repair & Parts | | | 318,330 | | | | 288,336 | | | | 293,751 | | | | 302,189 | | | | 420,890 | | | | 318,330 | | Leasing & Services | | | 64,672 | | | | 85,562 | | | | 203,782 | | | | 71,700 | | | | 108,590 | | | | 64,672 | | | | | | | 2,439,058 | | | | 2,667,105 | | | | 2,110,409 | | | | | 2,110,409 | | | | 1,747,865 | | | | 2,128,087 | | | Margin | | | 409,055 | | | | 421,299 | | | | 551,437 | | | | 353,131 | | | | 366,486 | | | | 409,055 | | Selling and administrative | | | 200,439 | | | | 170,607 | | | | 158,681 | | | | 204,706 | | | | 213,308 | | | | 200,439 | | Net gain on disposition of equipment | | | (44,369 | ) | | | (9,740 | ) | | | (15,796 | ) | | | (20,004 | ) | | | (40,963 | ) | | | (44,369 | ) | | | | Goodwill impairment | | | | — | | | | 10,025 | | | | — | | Earnings from operations | | | 252,985 | | | | 260,432 | | | | 408,552 | | | | 168,429 | | | | 184,116 | | | | 252,985 | | | Other costs | | | | | | | | | | | | | | | | | | | Interest and foreign exchange | | | 29,368 | | | | 24,192 | | | | 13,502 | | | | 43,619 | | | | 30,912 | | | | 29,368 | | | | | Earnings before income tax and earnings (loss) from unconsolidated affiliates | | | 223,617 | | | | 236,240 | | | | 395,050 | | | | 124,810 | | | | 153,204 | | | | 223,617 | | Income tax expense | | | (32,893 | ) | | | (64,014 | ) | | | (112,322 | ) | | | (40,184 | ) | | | (41,588 | ) | | | (32,893 | ) | | | | Earnings before earnings (loss) from unconsolidated affiliates | | | 190,724 | | | | 172,226 | | | | 282,728 | | | | 84,626 | | | | 111,616 | | | | 190,724 | | Earnings (loss) from unconsolidated affiliates | | | (18,661 | ) | | | (11,764 | ) | | | 2,096 | | | | 2,960 | | | | (5,805 | ) | | | (18,661 | ) | | | | Net earnings | | | 172,063 | | | | 160,462 | | | | 284,824 | | | | 87,586 | | | | 105,811 | | | | 172,063 | | Net earnings attributable to noncontrolling interest | | | (20,282 | ) | | | (44,395 | ) | | | (101,611 | ) | | | (38,619 | ) | | | (34,735 | ) | | | (20,282 | ) | | | | Net earnings attributable to Greenbrier | | $ | 151,781 | | | $ | 116,067 | | | $ | 183,213 | | | $ | 48,967 | | | $ | 71,076 | | | $ | 151,781 | | | | | Basic earnings per common share | | $ | 4.92 | | | $ | 3.97 | | | $ | 6.28 | | | $ | 1.50 | | | $ | 2.18 | | | $ | 4.92 | | | | | Diluted earnings per common share | | $ | 4.68 | | | $ | 3.65 | | | $ | 5.73 | | | $ | 1.46 | | | $ | 2.14 | | | $ | 4.68 | | | | | | Weighted average common shares: | | | | | | | | | | | | | | | | | | | Basic | | | 30,857 | | | | 29,225 | | | | 29,156 | | | | 32,670 | | | | 32,615 | | | | 30,857 | | Diluted | | | 32,835 | | | | 32,562 | | | | 32,468 | | | | 33,441 | | | | 33,165 | | | | 32,835 | | Dividends declared per common share | | $ | 0.96 | | | $ | 0.86 | | | $ | 0.81 | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these financial statements. 48 | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 53 | |
Consolidated Statements of Comprehensive Income YEARS ENDED AUGUSTYears ended August 31,
| (In thousands) | | 2018 | | 2017 | | 2016 | | | 2020 | | | 2019 | | | 2018 | | Net earnings | | $ | 172,063 | | | $ | 160,462 | | | $ | 284,824 | | | $ | 87,586 | | | $ | 105,811 | | | $ | 172,063 | | Other comprehensive income | | | | | | | | Other comprehensive income (loss) | | | | | | | | | | | | | | Translation adjustment | | | (16,159 | ) | | 15,488 | | | (2,204 | ) | | | (5,602 | ) | | | (12,725 | ) | | | (16,159 | ) | Reclassification of derivative financial instruments recognized in net earnings1 | | | (415 | ) | | 3,729 | | | 2,544 | | | | 4,175 | | | | 1,854 | | | | (415 | ) | Unrealized gain (loss) on derivative financial instruments2 | | | (197 | ) | | 1,944 | | | (5,842 | ) | | Unrealized loss on derivative financial instruments 2 | | | | (7,304 | ) | | | (10,264 | ) | | | (197 | ) | Other (net of tax effect) | | | (335 | ) | | (665 | ) | | (84 | ) | | | 749 | | | | (351 | ) | | | (335 | ) | | | | | | | (17,106 | ) | | 20,496 | | | (5,586 | ) | | | | | | | (7,982 | ) | | | (21,486 | ) | | | (17,106 | ) | Comprehensive income | | | 154,957 | | | 180,958 | | | 279,238 | | | | 79,604 | | | | 84,325 | | | | 154,957 | | Comprehensive income attributable to noncontrolling interest | | | (20,263 | ) | | (44,417 | ) | | (101,573 | ) | | | (38,639 | ) | | | (34,698 | ) | | | (20,263 | ) | | | | Comprehensive income attributable to Greenbrier | | $ | 134,694 | | | $ | 136,541 | | | $ | 177,665 | | | $ | 40,965 | | | $ | 49,627 | | | $ | 134,694 | | | | |
1 | Net of tax of effect of $3 thousand, $1.0 million$(1.5 million), $(0.5 million) and $1.2 millionnil for the years ended August 31, 2020, 2019 and 2018, 2017 and 2016, respectively.respectively |
2 | Net of tax of effect of $0.1$2.9 million, $0.8$2.9 million and $2.1 million$(0.1 million) for the years ended August 31, 2020, 2019 and 2018, 2017 and 2016, respectively.respectively |
The accompanying notes are an integral part of these financial statements. 49 | | | | | 54 | | The Greenbrier Companies 2018 Annual Report | | |
Consolidated Statements of Equity | | | Attributable to Greenbrier | | | | | | | | | Attributable to Greenbrier | | | | | | | | | | | | | | (In thousands) | | Common Stock Shares | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Attributable to Greenbrier | | Attributable to Noncontrolling Interest | | Total Equity | | Contingently Redeemable Noncontrolling Interest | | | Common Stock Shares | | | Additional Paid-in Capital | | | Retained Earnings | | | Accumulated Other Comprehensive Loss | | | Total Equity - Greenbrier | | | Noncontrolling Interest | | | Total Equity | | | Contingently Redeemable Noncontrolling Interest | | Balance September 1, 2015 | | 28,907 | | | $ | 295,444 | | | $ | 458,599 | | | $ | (21,205 | ) | | $ | 732,838 | | | $ | 130,651 | | | $ | 863,489 | | | $ | – | | | Balance August 31, 2017 | | | | 28,503 | | | $ | 315,306 | | | $ | 709,103 | | | $ | (6,279 | ) | | $ | 1,018,130 | | | $ | 160,763 | | | $ | 1,178,893 | | | $ | 36,148 | | Net earnings | | | – | | | | – | | | 183,213 | | | | – | | | 183,213 | | | 101,611 | | | 284,824 | | | | – | | | | — | | | | — | | | | 151,781 | | | | — | | | | 151,781 | | | | 26,662 | | | | 178,443 | | | | (6,380 | ) | Other comprehensive loss, net | | | – | | | | – | | | | – | | | (5,548 | ) | | (5,548 | ) | | (38 | ) | | (5,586 | ) | | | – | | | | — | | | | — | | | | — | | | | (17,087 | ) | | | (17,087 | ) | | | (19 | ) | | | (17,106 | ) | | | — | | Noncontrolling interest adjustments | | | – | | | | – | | | | – | | | | – | | | | – | | | 526 | | | 526 | | | | – | | | Purchase of noncontrolling interest | | | – | | | | – | | | | – | | | | – | | | | – | | | (1,195 | ) | | (1,195 | ) | | | – | | | Joint venture partner distribution declared | | | – | | | | – | | | | – | | | | – | | | | – | | | (94,439 | ) | | (94,439 | ) | | | – | | | Investment by joint venture partner | | | – | | | | – | | | | – | | | | – | | | | – | | | 5,400 | | | 5,400 | | | | – | | | Restricted stock awards (net of cancellations) | | 353 | | | 6,055 | | | | – | | | | – | | | 6,055 | | | | – | | | 6,055 | | | | – | | | Unamortized restricted stock | | | – | | | (11,555 | ) | | | – | | | | – | | | (11,555 | ) | | | – | | | (11,555 | ) | | | – | | | Restricted stock amortization | | | – | | | 22,502 | | | | – | | | | – | | | 22,502 | | | | – | | | 22,502 | | | | – | | | Excess tax benefit from restricted stock awards | | | – | | | 2,813 | | | | – | | | | – | | | 2,813 | | | | – | | | 2,813 | | | | – | | | Dividends | | | – | | | | – | | | (23,634 | ) | | | – | | | (23,634 | ) | | | – | | | (23,634 | ) | | | – | | | Repurchase of stock | | (1,055 | ) | | (32,373 | ) | | | – | | | | – | | | (32,373 | ) | | | – | | | (32,373 | ) | | | – | | | | | | Balance August 31, 2016 | | 28,205 | | | $ | 282,886 | | | $ | 618,178 | | | $ | (26,753 | ) | | $ | 874,311 | | | $ | 142,516 | | | $ | 1,016,827 | | | $ | – | | | Net earnings (excluding contingently redeemable noncontrolling interest) | | | – | | | | – | | | 116,067 | | | | – | | | 116,067 | | | 46,535 | | | 162,602 | | | (2,140 | ) | | Other comprehensive income, net | | | – | | | | – | | | | – | | | 20,474 | | | 20,474 | | | 22 | | | 20,496 | | | | – | | | Noncontrolling interest adjustments | | | – | | | | – | | | | – | | | | – | | | | – | | | (677 | ) | | (677 | ) | | | – | | | Joint venture partner distribution declared | | | – | | | | – | | | | – | | | | – | | | | – | | | (28,027 | ) | | (28,027 | ) | | | – | | | Acquisition of minority interest | | | – | | | | – | | | | – | | | | – | | | | – | | | 394 | | | 394 | | | | – | | | Contingently redeemable noncontrolling interest | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | | – | | | 38,288 | | | Restricted stock awards (net of cancellations) | | 298 | | | 5,520 | | | | – | | | | – | | | 5,520 | | | | – | | | 5,520 | | | | – | | | Unamortized restricted stock | | | – | | | (10,734 | ) | | | – | | | | – | | | (10,734 | ) | | | – | | | (10,734 | ) | | | – | | | Restricted stock amortization | | | – | | | 19,826 | | | | – | | | | – | | | 19,826 | | | | – | | | 19,826 | | | | – | | | Tax deficiency from restricted stock awards | | | – | | | (2,339 | ) | | | – | | | | – | | | (2,339 | ) | | | – | | | (2,339 | ) | | | – | | | Dividends | | | – | | | | – | | | (25,142 | ) | | | – | | | (25,142 | ) | | | – | | | (25,142 | ) | | | – | | | 2024 Convertible Senior Notes – equity component, net of tax | | | – | | | 20,818 | | | | – | | | | – | | | 20,818 | | | | – | | | 20,818 | | | | – | | | 2024 Convertible Senior Notes issuance costs – equity component, net of tax | | | – | | | (671 | ) | | | – | | | | – | | | (671 | ) | | | – | | | (671 | ) | | | – | | | | | | Balance August 31, 2017 | | 28,503 | | | $ | 315,306 | | | $ | 709,103 | | | $ | (6,279 | ) | | $ | 1,018,130 | | | $ | 160,763 | | | $ | 1,178,893 | | | $ | 36,148 | | | Net earnings | | | – | | | | – | | | 151,781 | | | | – | | | 151,781 | | | 26,662 | | | 178,443 | | | (6,380 | ) | | Other comprehensive income, net | | | – | | | | – | | | | – | | | (17,087 | ) | | (17,087 | ) | | (19 | ) | | (17,106 | ) | | | – | | | Noncontrolling interest adjustments | | | – | | | | – | | | | – | | | | – | | | | – | | | 2,864 | | | 2,864 | | | | – | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,864 | | | | 2,864 | | | | — | | Joint venture partner distribution declared | | | – | | | | – | | | | – | | | | – | | | | – | | | (62,649 | ) | | (62,649 | ) | | | – | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (62,649 | ) | | | (62,649 | ) | | | — | | Investment by joint venture partner | | | – | | | | – | | | | – | | | | – | | | | – | | | 6,500 | | | 6,500 | | | | – | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 6,500 | | | | 6,500 | | | | — | | Noncontrolling interest acquired | | | – | | | | – | | | | – | | | | – | | | | – | | | (7 | ) | | (7 | ) | | | – | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (7 | ) | | | (7 | ) | | | — | | Restricted stock awards (net of cancellations) | | 336 | | | 7,334 | | | | – | | | | – | | | 7,334 | | | | – | | | 7,334 | | | | – | | | 336 | | | 7,334 | | | | — | | | | — | | | 7,334 | | | | — | | | 7,334 | | | | — | | Unamortized restricted stock | | | – | | | (15,058 | ) | | | – | | | | – | | | (15,058 | ) | | | – | | | (15,058 | ) | | | – | | | | — | | | | (15,058 | ) | | | — | | | | — | | | | (15,058 | ) | | | — | | | | (15,058 | ) | | | — | | Restricted stock amortization | | | – | | | 16,100 | | | | – | | | | – | | | 16,100 | | | | – | | | 16,100 | | | | – | | | | — | | | | 16,100 | | | | — | | | | — | | | | 16,100 | | | | — | | | | 16,100 | | | | — | | Dividends | | | – | | | | – | | | (29,986 | ) | | | – | | | (29,986 | ) | | | – | | | (29,986 | ) | | | – | | | Conversion of 2018 Convertible Senior Notes | | 3,352 | | | 118,887 | | | | – | | | | – | | | 118,887 | | | | – | | | 118,887 | | | | – | | | | | | Cash dividends ($0.96 per share) | | | | — | | | | — | | | | (29,986 | ) | | | — | | | | (29,986 | ) | | | — | | | | (29,986 | ) | | | — | | Conversion of 3.5% Convertible 2018 Senior Notes | | | 3,352 | | | 118,887 | | | | — | | | | — | | | 118,887 | | | | — | | | 118,887 | | | | — | | Balance August 31, 2018 | | 32,191 | | | $ | 442,569 | | | $ | 830,898 | | | $ | (23,366 | ) | | $ | 1,250,101 | | | $ | 134,114 | | | $ | 1,384,215 | | | $ | 29,768 | | | | 32,191 | | | $ | 442,569 | | | $ | 830,898 | | | $ | (23,366 | ) | | $ | 1,250,101 | | | $ | 134,114 | | | $ | 1,384,215 | | | $ | 29,768 | | | | | Cumulative effect adjustment due to the adoption of Topic 606 | | | | — | | | | — | | | | 5,461 | | | | — | | | | 5,461 | | | | — | | | | 5,461 | | | | — | | Net earnings | | | | — | | | | — | | | | 71,076 | | | | — | | | | 71,076 | | | | 39,598 | | | | 110,674 | | | | (4,863 | ) | Other comprehensive loss, net | | | | — | | | | — | | | | — | | | | (21,449 | ) | | | (21,449 | ) | | | (37 | ) | | | (21,486 | ) | | | — | | Noncontrolling interest adjustments | | | | — | | | | — | | | | (6,659 | ) | | | — | | | | (6,659 | ) | | | 7,402 | | | | 743 | | | | 6,659 | | Joint venture partner distribution declared | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (18,025 | ) | | | (18,025 | ) | | | — | | Noncontrolling interest acquired | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,915 | | | | 1,915 | | | | — | | Restricted stock awards (net of cancellations) | | | | 297 | | | | 12,077 | | | | — | | | | — | | | | 12,077 | | | | — | | | | 12,077 | | | | — | | Unamortized restricted stock | | | | — | | | | (16,801 | ) | | | — | | | | — | | | | (16,801 | ) | | | — | | | | (16,801 | ) | | | — | | Restricted stock amortization | | | | — | | | | 12,321 | | | | — | | | | — | | | | 12,321 | | | | — | | | | 12,321 | | | | — | | Cash dividends ($1.00 per share) | | | | — | | | | — | | | | (33,174 | ) | | | — | | | | (33,174 | ) | | | — | | | | (33,174 | ) | | | — | | 2.25% Convertible Senior Notes, due 2024 - equity component, net of tax | | | | — | | | | 3,777 | | | | — | | | | — | | | | 3,777 | | | | — | | | | 3,777 | | | | — | | Balance August 31, 2019 | | | | 32,488 | | | $ | 453,943 | | | $ | 867,602 | | | $ | (44,815 | ) | | $ | 1,276,730 | | | $ | 164,967 | | | $ | 1,441,697 | | | $ | 31,564 | | Cumulative effect adjustment due to the adoption of Topic 842 (See Note 2) | | | | — | | | | — | | | | 4,393 | | | | — | | | | 4,393 | | | | — | | | | 4,393 | | | | — | | Net earnings | | | | — | | | | — | | | | 48,967 | | | | — | | | | 48,967 | | | | 39,066 | | | | 88,033 | | | | (447 | ) | Other comprehensive income (loss), net | | | | — | | | | — | | | | — | | | | (8,002 | ) | | | (8,002 | ) | | | 20 | | | | (7,982 | ) | | | — | | Noncontrolling interest adjustments | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,436 | | | | 1,436 | | | | — | | Joint venture partner distribution declared | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (37,552 | ) | | | (37,552 | ) | | | — | | Noncontrolling interest acquired | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 12,075 | | | | 12,075 | | | | — | | Restricted stock awards (net of cancellations) | | | | 213 | | | | 2,691 | | | | — | | | | — | | | | 2,691 | | | | — | | | | 2,691 | | | | — | | Unamortized restricted stock | | | | — | | | | (4,957 | ) | | | — | | | | — | | | | (4,957 | ) | | | — | | | | (4,957 | ) | | | — | | Restricted stock amortization | | | | — | | | | 8,723 | | | | — | | | | — | | | | 8,723 | | | | — | | | | 8,723 | | | | — | | Cash dividends ($1.06 per share) | | | | — | | | | — | | | | (35,502 | ) | | | — | | | | (35,502 | ) | | | — | | | | (35,502 | ) | | | — | | Balance August 31, 2020 | | | | 32,701 | | | $ | 460,400 | | | $ | 885,460 | | | $ | (52,817 | ) | | $ | 1,293,043 | | | $ | 180,012 | | | $ | 1,473,055 | | | $ | 31,117 | |
The accompanying notes are an integral part of these financial statements. 50 | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 55 | |
Consolidated Statements of Cash Flows YEARS ENDED AUGUSTYears ended August 31,
| (In thousands) | | 2018 | | 2017 | | 2016 | | | 2020 | | | 2019 | | | 2018 | | Cash flows from operating activities: | | | | | | | | | | | | | | | | | | | Net earnings | | $ | 172,063 | | | $ | 160,462 | | | $ | 284,824 | | | $ | 87,586 | | | $ | 105,811 | | | $ | 172,063 | | Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | | | Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: | | | | | | | | | | | | | | Deferred income taxes | | | (40,496 | ) | | 4,377 | | | (8,935 | ) | | | (9,489 | ) | | | (20,225 | ) | | | (40,496 | ) | Depreciation and amortization | | | 74,356 | | | 65,129 | | | 63,345 | | | | 109,850 | | | | 83,731 | | | | 74,356 | | Net gain on disposition of equipment | | | (44,369 | ) | | (9,740 | ) | | (15,796 | ) | | | (20,004 | ) | | | (40,963 | ) | | | (44,369 | ) | Stock based compensation expense | | | 29,314 | | | 26,427 | | | 24,037 | | | | 8,997 | | | | 11,153 | | | | 29,314 | | Accretion of debt discount | | | 4,171 | | | 2,340 | | | | – | | | | 5,504 | | | | 4,458 | | | | 4,171 | | Noncontrolling interest adjustments | | | 2,864 | | | (677 | ) | | 526 | | | | 1,436 | | | | 7,402 | | | | 2,864 | | Goodwill impairment | | | | — | | | | 10,025 | | | | — | | Other | | | 1,688 | | | (845 | ) | | 560 | | | | 1,142 | | | | 145 | | | | 1,688 | | Decrease (increase) in assets: | | | | | | | | | | | | | | | | | | | Accounts receivable, net | | | (83,551 | ) | | (25,272 | ) | | (32,051 | ) | | | 135,326 | | | | 13,022 | | | | (83,551 | ) | Inventories | | | (26,592 | ) | | (2,787 | ) | | 53,711 | | | | 166,607 | | | | (143,168 | ) | | | (26,592 | ) | Leased railcars for syndication | | | (54,023 | ) | | 41,015 | | | 19,154 | | | | (12,942 | ) | | | (96,110 | ) | | | (54,023 | ) | Other | | | 34,115 | | | 17,558 | | | (16,989 | ) | | Other assets | | | | (64,995 | ) | | | 6,843 | | | | 34,115 | | Increase (decrease) in liabilities: | | | | | | | | | | | | | | | | | | | Accounts payable and accrued liabilities | | | 54,032 | | | (25,422 | ) | | (85,928 | ) | | | (108,837 | ) | | | 55,910 | | | | 54,032 | | Deferred revenue | | | (20,231 | ) | | 33,039 | | | 50,712 | | | | (27,920 | ) | | | (19,275 | ) | | | (20,231 | ) | | | | Net cash provided by operating activities | | | 103,341 | | | 285,604 | | | 337,170 | | | | | | Net cash provided by (used in) operating activities | | | | 272,261 | | | | (21,241 | ) | | | 103,341 | | Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | Acquisitions, net of cash acquired | | | (34,874 | ) | | (27,127 | ) | | | – | | | | — | | | | (361,878 | ) | | | (34,874 | ) | Proceeds from sales of assets | | | 153,224 | | | 24,149 | | | 103,715 | | | | 83,484 | | | | 125,427 | | | | 153,224 | | Capital expenditures | | | (176,848 | ) | | (86,065 | ) | | (139,013 | ) | | | (66,879 | ) | | | (198,233 | ) | | | (176,848 | ) | Decrease (increase) in restricted cash | | | 73 | | | 15,387 | | | (15,410 | ) | | Investment in and advances to unconsolidated affiliates | | | (26,455 | ) | | (40,632 | ) | | (12,855 | ) | | | (1,815 | ) | | | (11,393 | ) | | | (26,455 | ) | Cash distribution from joint ventures | | | 4,661 | | | 550 | | | 7,855 | | | | | | Net cash used in investing activities | | | (80,219 | ) | | (113,738 | ) | | (55,708 | ) | | | | | Cash distribution from unconsolidated affiliates and other | | | | 12,693 | | | | 2,096 | | | | 4,661 | | Net cash provided by (used in) investing activities | | | | 27,483 | | | | (443,981 | ) | | | (80,292 | ) | Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | Net changes in revolving notes with maturities of 90 days or less | | | 23,401 | | | 4,324 | | | (49,000 | ) | | | 146,542 | | | | (105 | ) | | | 23,401 | | Repayments of revolving notes with maturities longer than 90 days | | | – | | | | – | | | (1,888 | ) | | Proceeds from revolving notes with maturities longer than 90 days | | | | 176,500 | | | | — | | | | — | | Proceeds from issuance of notes payable | | | 13,771 | | | 276,093 | | | | – | | | | — | | | | 525,000 | | | | 13,771 | | Repayments of notes payable | | | (22,269 | ) | | (8,297 | ) | | (22,299 | ) | | | (30,179 | ) | | | (182,971 | ) | | | (22,269 | ) | Debt issuance costs | | | – | | | (9,082 | ) | | (4,161 | ) | | | — | | | | (8,630 | ) | | | — | | Repurchase of stock | | | – | | | | – | | | (33,498 | ) | | Dividends | | | (29,914 | ) | | (24,890 | ) | | (23,303 | ) | | | (35,173 | ) | | | (33,193 | ) | | | (29,914 | ) | Cash distribution to joint venture partner | | | (73,033 | ) | | (28,511 | ) | | (95,092 | ) | | | (38,969 | ) | | | (16,879 | ) | | | (73,033 | ) | Investment by joint venture partner | | | 6,500 | | | | – | | | 5,400 | | | | — | | | | — | | | | 6,500 | | Tax payments for net share settlement of restricted stock | | | (7,723 | ) | | (5,215 | ) | | (5,500 | ) | | | (2,266 | ) | | | (6,321 | ) | | | (7,723 | ) | Excess tax benefit from restricted stock awards | | | – | | | | – | | | 2,813 | | | Other | | | – | | | | – | | | (887 | ) | | | | | Net cash provided by (used in) financing activities | | | (89,267 | ) | | 204,422 | | | (227,415 | ) | | | 216,455 | | | | 276,901 | | | | (89,267 | ) | | | | Effect of exchange rate changes | | | (14,666 | ) | | 12,499 | | | (4,298 | ) | | | (12,599 | ) | | | (12,666 | ) | | | (14,666 | ) | Increase (decrease) in cash and cash equivalents | | | (80,811 | ) | | 388,787 | | | 49,749 | | | Increase (decrease) in cash and cash equivalents and restricted cash | | | | 503,600 | | | | (200,987 | ) | | | (80,884 | ) | Cash and cash equivalents and restricted cash | | | | | | | | | | | | | | Beginning of period | | | | 338,487 | | | | 539,474 | | | | 620,358 | | End of period | | | $ | 842,087 | | | $ | 338,487 | | | $ | 539,474 | | Balance Sheet Reconciliation: | | | | | | | | | | | | | | Cash and cash equivalents | | | | | | | | $ | 833,745 | | | $ | 329,684 | | | $ | 530,655 | | Beginning of period | | | 611,466 | | | 222,679 | | | 172,930 | | | | | | End of period | | $ | 530,655 | | | $ | 611,466 | | | $ | 222,679 | | | | | | Restricted cash | | | | 8,342 | | | | 8,803 | | | $ | 8,819 | | Total cash and cash equivalents and restricted cash as presented above | | | $ | 842,087 | | | $ | 338,487 | | | $ | 539,474 | | Cash paid during the period for: | | | | | | | | | | | | | | | | | | | Interest | | $ | 18,878 | | | $ | 13,962 | | | $ | 12,277 | | | $ | 31,710 | | | $ | 18,330 | | | $ | 18,878 | | Income taxes, net | | $ | 66,423 | | | $ | 45,280 | | | $ | 125,455 | | | $ | 59,939 | | | $ | 62,084 | | | $ | 66,423 | | Non-cash activity | | | | | | | | | | | | | | | | | | | Conversion of 2018 Senior Convertible Notes | | $ | 118,887 | | | $ | – | | | $ | – | | | Issuance of 2.25% Convertible notes in connection with the acquisition of the manufacturing business of ARI | | | $ | — | | | $ | 50,000 | | | $ | — | | Transfer from Leased railcars for syndication and Inventories to Equipment on operating leases, net | | $ | 20,945 | | | $ | 8,668 | | | $ | 73,165 | | | $ | 55,626 | | | $ | 43,845 | | | $ | 20,945 | | Capital expenditures accrued in Accounts payable and accrued liabilities | | $ | 13,534 | | | $ | 16,145 | | | $ | 8,408 | | | $ | 4,099 | | | $ | 19,385 | | | $ | 13,534 | | Change in Accounts payable and accrued liabilities associated with dividends declared | | | $ | (329 | ) | | $ | 19 | | | $ | (72 | ) | Change in Accounts payable and accrued liabilities associated with cash distributions to joint venture partner | | $ | 14 | | | $ | 484 | | | $ | 652 | | | $ | 1,417 | | | $ | (1,146 | ) | | $ | 14 | | Change in Accounts payable and accrued liabilities associated with dividends declared | | $ | (72 | ) | | $ | (252 | ) | | $ | (331 | ) | | Change in Accounts payable and accrued liabilities associated with repurchase of stock | | $ | – | | | $ | – | | | $ | 1,125 | | | Transfer of Property, plant and equipment, net to (from) Intangibles and other assets, net | | $ | – | | | $ | (63 | ) | | $ | 588 | | | Conversion of 3.5% Convertible notes | | | $ | — | | | $ | — | | | $ | 118,887 | |
The accompanying notes are an integral part of these financial statements.statements. 51 | | | | | 56 | | The Greenbrier Companies 2018 Annual Report | | |
Notes to Consolidated Financial Statements Note 1 -— Nature of Operations The Company operates in three3 reportable segments: Manufacturing; Wheels, Repair & Parts; and Leasing & Services. Prior to August 20, 2018, the Company operated in four reportable segments: Manufacturing; Wheels & Parts; Leasing & Services; and GBW Joint Venture. On August 20, 2018 the Company entered into an agreement with its joint venture partner to discontinue the GBW railcar repair joint venture which resulted in 12 repair shops returned to the Company. Beginning on August 20, 2018, GBW Joint Venture was no longer considered a reportable segment. The segments are operationally integrated. The Manufacturing segment, which currently operates from facilities in the U.S., Mexico, Poland, Romania and Turkey, produces double-stack intermodal railcars, tank cars, conventional railcars, automotive railcar products and marine vessels. The Wheels, Repair & Parts segment performs wheel and axle servicing; railcar repair, refurbishment and maintenance; as well as production of a variety of parts for the railroadrail industry in North America. The Leasing & Services segment owns approximately 8,1008,300 railcars (6,300 railcars held as equipment on operating leases, 1,600 held as leased railcars for syndication and 200 held as finished goods inventory) and provides management services for approximately 357,000393,000 railcars for railroads, shippers, carriers, institutional investors and other leasing and transportation companies in North America as of August 31, 2018.2020. Through unconsolidated affiliates the Company produces rail and industrial castings, tank heads and other components and has an ownership stake in a railcar manufacturer in Brazil and a lease financing warehouse.Brazil. Note 2 -— Summary of Significant Accounting Policies Principles of consolidation- The financial statements include the accounts of the Company and its subsidiaries in which it has a controlling interest. All intercompany transactions and balances are eliminated upon consolidation. Unclassified balance sheet-The balance sheets of the Company are presented in an unclassified format as a result of significant leasing activities for which the current ornon-current distinction is not relevant. In addition, the activities of the Manufacturing; Wheels, Repair & Parts;and Leasing & Services segments are so intertwined that in the opinion of management, any attempt to separate the respective balance sheet categories would not be meaningful and may lead to the development of misleading conclusions by the reader. Foreign currency translation- Certain operations outside the U.S., primarily in Europe, prepare financial statements in currencies other than the U.S. Dollar. Revenues and expenses are translated at monthly average exchange rates during the year, while assets and liabilities are translated atyear-end exchange rates. Translation adjustments are accumulated as a separate component of equity in other comprehensive income (loss). The net foreign currency translation adjustment balances were $21.5$39.8 million, $5.4$34.2 million and $20.8$21.5 million as of August 31, 2020, 2019 and 2018, 2017 and 2016, respectively. Cash and cash equivalents- Cash may temporarily be invested primarily in money market funds. All highly-liquid investments with a maturity of three months or less at the date of acquisition are considered cash equivalents. Restricted cash- Restricted cash primarily relates to amounts associated with funds temporarily held in connection with a performance guarantee as part of a 2016 transaction, amounts held to support a target minimum rate of return on certain agreements and a pass through account for activity related to management services provided for certain third party customers. | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 57 | |
Accounts receivable-Accounts receivable includes- Accounts receivable consists of receivables from customers and receivables from related parties (see Note 17 –16 - Related Party Transactions) and is stated net of allowance for doubtful accounts of $2.7 million and $1.8$2.2 million as of August 31, 20182020 and 2017,2019, respectively.
| | | As of August 31, | | | As of August 31, | | (In thousands) | | 2018 | | 2017 | | 2016 | | | 2020 | | | 2019 | | | 2018 | | Allowance for doubtful accounts | | | | | | | | | | | | | | | | | | | Balance at beginning of period | | $ | 1,768 | | | $ | 2,215 | | | $ | 2,449 | | | $ | 2,176 | | | $ | 2,701 | | | $ | 1,768 | | Additions, net of reversals | | | 938 | | | 370 | | | 70 | | | | 1,661 | | | | 773 | | | | 938 | | Usage | | | (54 | ) | | (891 | ) | | (277 | ) | | | (1,291 | ) | | | (1,311 | ) | | | (54 | ) | Currency translation effect | | | 49 | | | 74 | | | (27 | ) | | | 124 | | | | 13 | | | | 49 | | | | | Balance at end of period | | $ | 2,701 | | | $ | 1,768 | | | $ | 2,215 | | | $ | 2,670 | | | $ | 2,176 | | | $ | 2,701 | | | | |
Inventories- Inventories are valued at the lower of cost or marketnet realizable value using thefirst-infirst-out first-in first-out method.Work-in-process includes material, labor and overhead. Finished goods includes completed wheels, parts and railcars not on lease or in transit. 52
Leased railcars for syndication-Leased railcars for syndication consist of newly-built railcars manufactured at one of the Company’s facilities or railcars purchased from third parties, which have been placed on lease to a customer and which the Company intends to sell to an investor with the lease attached. These railcars are generally anticipated to be sold within six months of delivery of the last railcar in a group or six months from when the Company acquires the railcar from a third party and are typically not depreciated during that period as the Company does not believe any economic value of a railcar is lost in the first six months. In the event the railcars are not sold in the first six months, the railcars are either held in Leased railcars for syndication and are depreciated or are transferred to Equipment on operating leases and are depreciated. As of August 31, 2018,2020, Leased railcars for syndication was $130.9$107.7 million compared to $91.3$182.3 million as of August 31, 2017.2019. Equipment on operating leases, net- Equipment on operating leases is stated net of accumulated depreciation. Depreciation to estimated salvage value is provided on the straight-line method over the estimated useful lives of up to thirty-fiveforty years. Management periodically reviews salvage value estimates based on current scrap prices and what the Company expects to receive upon disposal.
Investment in unconsolidated affiliates- Investment in unconsolidated affiliates includes the Company’s interests in certain investees which are accounted for under the equity method of accounting. See Note 7 - Investmentsaccounting as the Company has determined that the investment provides the Company with the ability to exercise significant influence, but not control, over the investee. Significant influence is generally deemed to exist if the Company has an ownership interest in Unconsolidated Affiliates for additional information.the voting stock of the investee of at least 20%. Several factors are considered in determining whether the equity method of accounting is appropriate including the relative ownership interests and governance rights of the joint venture partners.
As of August 31, 2020, selected investments in unconsolidated affiliates include the Company’s 60% interest in Greenbrier-Maxion, 29.5% interest in Amsted-Maxion Cruzeiro (which owns 40% of Greenbrier-Maxion), 40% interest in Greenbrier Railcar Funding I LLC and 41.9% interest in Axis, LLC. Property, plant and equipment- Property, plant and equipment is stated at cost, net of accumulated depreciation. Depreciation is provided on the straight-line method over estimated useful lives which primarily are as follows: | | | | | | | Depreciable Life | | Buildings and improvements | | | 10 – 25- 30 years | | Machinery and equipment | | | 3 – 15- 20 years | | Other | | | 3 –- 7 years | |
Goodwill- Goodwill is recorded when the purchase price of an acquisition exceeds the fair market value of the net assets acquired. Goodwill is not amortized and is tested for impairment at least annually and more frequently if material changes in events or circumstances arise. The provisions of ASC 350,Intangibles – Goodwill and Other, require the Company to perform an annual impairment test on goodwill. The Company compares the fair value of each reporting unit with its carrying value. An impairment loss is recorded to the extent that the reporting unit’s carrying amount exceeds the reporting unit’s fair value. An impairment loss cannot exceed the total amount of goodwill allocated to the reporting unit.
| | | | | 58 | | The Greenbrier Companies 2018 Annual Report | | |
Intangible and other assets, net- Intangible assets are recorded when a portion of the purchase price of an acquisition is allocated to assets such as customer contracts and relationships and trade names. Intangible assets with finite lives are amortized using the straight line method over their estimated useful lives and primarily include long-term customer agreements which are amortized over 5up to 20 years. Other assets include revolving note fees and debt acquisition costs which are capitalized and amortized as interest expense over the life of the related borrowings. Impairment of long-lived assets- When changes in circumstances indicate the carrying amount of certain long-lived assets may not be recoverable, the assets are evaluated for impairment. If the forecasted undiscounted future cash flows are less than the carrying amount of the assets, an impairment charge to reduce the carrying value of the assets to estimated realizable value is recognized in the current period. NoNaN impairment of long-lived assets was recorded in the years ended August 31, 2018, 20172020, 2019 and 2016.2018. Maintenance obligations
Goodwill- Goodwill is recorded when the purchase price of an acquisition exceeds the fair market value of the net assets acquired. Goodwill is not amortized and is tested for impairment at least annually and more frequently if indicators of impairment arise. The Company reviews goodwill for impairment annually using either a qualitative assessment or a quantitative goodwill impairment test. If the qualitative assessment is responsibleselected and the Company determines that fair value of each reporting unit more likely than not exceeds its carrying value, no further assessment is necessary. For reporting units where the Company performs the quantitative goodwill impairment test an impairment loss is recorded to the extent that the reporting unit’s carrying amount exceeds the reporting unit’s fair value. An impairment loss cannot exceed the total amount of goodwill allocated to the reporting unit. See Note 7 – Goodwill for maintenance on a portion of the managed and owned lease fleet under the terms of maintenance obligations defined in the underlying lease or management agreement. The estimated liability is based on maintenance histories for each type and age of railcar. The liability, included in Accounts payable and accrued liabilities, is reviewed periodically and updated based on maintenance trends and known future repair or refurbishment requirements.additional information. 53
Warranty accruals-Warranty costs are estimated and charged to operations to cover a defined warranty period. The estimated warranty cost is based on history of warranty claims for each particular product type. For new product types without a warranty history, preliminary estimates are based on historical information for similar product types. The warranty accruals, included in Accounts payable and accrued liabilities, are reviewed periodically and updated based on warranty trends. Income taxes- The asset and liability method is used to account for income taxes. 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 recognizeThe Company recognizes liabilities for uncertain tax positions based on whether evidence indicates that it is more likely than not that the position will be sustained on audit. It is inherently difficult and subjective to estimate such amounts, as this requires us to estimate the probability of various possible outcomes. The Company reevaluates these uncertain tax positions on a quarterly basis. Changes in assumptionstax law or court interpretations may result in the recognition of a tax benefit or an additional charge to the tax provision. Deferred revenue - Cash payments received prior to meeting revenue recognition criteria are recorded in Deferred revenue. Amounts are reclassified out of Deferred revenue once the revenue recognition criteria have been met. Deferred revenue primarily consists of customer prepayments and the unrecognized portion of the $40 million upfront fee from MUL. The Company also has a 40% interest in the common equity of an entity that buys and sells railcar assets that are leased to third parties. Deferred revenue includes 40% of the revenue and margin of railcars sold to this entity until the railcars are ultimately sold to a third party. The Deferred revenue balance was $106.0 million and $129.3 million as of August 31, 2018 and 2017, respectively. Noncontrolling interest and Contingently redeemable noncontrolling interest- The Company has a joint venture with Grupo Industrial Monclova, S.A. (GIMSA) that manufactures new railroad freight cars for the North American marketplace at GIMSA’s existing manufacturing facility located in Frontera, Mexico. Each party owns a 50% interest in the joint venture. The financial results of this operation are consolidated for financial reporting purposes as the Company maintains a controlling interest as evidenced by the right to appoint the majority of the Board of Directors, control over accounting, financing, marketing and engineering and approval and design of products. The noncontrolling interest related to the partner’s 50% interest in the joint venture is included in Noncontrolling interest in the equity section of the Company’s Consolidated Balance Sheet. Greenbrier-Astra Rail was formed in 2017 between the Company’s existing European operations headquartered in Swidnica, Poland and Astra Rail, based in Arad, Romania. Greenbrier-Astra Rail is controlled by the Company with an approximate 75% interest. Astra Rail also received a put option to sell its entire noncontrolling interest to Greenbrier at an exercise price equal to the higher of fair value or a defined EBITDA multiple as measured on the exercise date. The option is exercisable 30 days prior to and up until June 1, 2022. The Company consolidates Greenbrier-Astra Rail for financial reporting purposes and includes the noncontrolling interest in the mezzanine section of the Consolidated Balance Sheet in Contingently redeemable noncontrolling interest. The carrying value of the noncontrolling interest (see Note 3 – Acquisitions).cannot be less than the maximum redemption amount, which is the amount Greenbrier will settle the put option for if exercised. Adjustments to reconcile the carrying value to the maximum redemption amount are recorded to retained earnings. | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 59 | |
In August 2018, Greenbrier-Astra Rail entered into an agreement to take an approximately 68% ownership stake in Rayvag, a railcar manufacturing company based in Adana, Turkey. Rayvag is controlled by the Company. The Company consolidates Rayvag for financial reporting purposes. The noncontrolling interest related to the partner’s interest is included in Noncontrolling interest in the equity section of the Company’s Consolidated Balance Sheet. The Company has a joint venture with Summit Railroad Products, Inc. to provide axle services. Each party owns a 50% interest in the joint venture. The financial results of this operation are consolidated for financial reporting purposes as the Company has the power to direct the activities which most significantly impact the economic performance of the entity. The noncontrolling interest related to the partner’s 50% interest in the joint venture is included in Noncontrolling interest in the equity section of the Company’s Consolidated Balance Sheet.
Net earnings attributable to noncontrolling interest on the Company’s Consolidated Statement of Income represents the Company’s partners’ share of results from operations. 54
Accumulated other comprehensive loss -– Accumulated other comprehensive loss, net of tax as appropriate, consisted of the following: | | | | | | | | | | | | | | | | | (In thousands) | | Unrealized Gain (Loss) on Derivative Financial Instruments | | | Foreign Currency Translation Adjustment | | | Other | | | Accumulated Other Comprehensive Loss | | Balance, August 31, 2017 | | $ | 181 | | | $ | (5,366 | ) | | $ | (1,094 | ) | | $ | (6,279 | ) | Other comprehensive loss before reclassifications | | | (197 | ) | | | (16,140 | ) | | | (335 | ) | | | (16,672 | ) | Amounts reclassified from accumulated other comprehensive loss | | | (415 | ) | | | – | | | | – | | | | (415 | ) | | | Balance, August 31, 2018 | | $ | (431 | ) | | $ | (21,506 | ) | | $ | (1,429 | ) | | $ | (23,366 | ) | | |
(In thousands) | | Unrealized Gain (Loss) on Derivative Financial Instruments | | | Foreign Currency Translation Adjustment | | | Other | | | Accumulated Other Comprehensive Loss | | Balance, August 31, 2019 | | $ | (8,841 | ) | | $ | (34,194 | ) | | $ | (1,780 | ) | | $ | (44,815 | ) | Other comprehensive income (loss) before reclassifications | | | (7,304 | ) | | | (5,622 | ) | | | 749 | | | $ | (12,177 | ) | Amounts reclassified from accumulated other comprehensive loss | | | 4,175 | | | | — | | | | — | | | $ | 4,175 | | Balance, August 31, 2020 | | $ | (11,970 | ) | | $ | (39,816 | ) | | $ | (1,031 | ) | | $ | (52,817 | ) |
The amounts reclassified out of Accumulated other comprehensive loss into the Consolidated Statements of Income, with the financial statement caption, were as follows: | | | Year Ended August 31, | | | Financial Statement Caption | | Year Ended August 31, | | | | (In thousands) | | 2018 | | 2017 | | | 2020 | | | 2019 | | | Financial Statement Caption | (Gain) loss on derivative financial instruments: | | | | | | | | | | | | | | | | | Foreign exchange contracts | | $ | (716 | ) | | $ | 3,644 | | | Revenue and Cost of revenue | | $ | 2,984 | | | $ | 1,794 | | | Revenue and Cost of revenue | Interest rate swap contracts | | | 298 | | | 1,057 | | | Interest and foreign exchange | | | 2,657 | | | | 545 | | | Interest and foreign exchange | | | | | 5,641 | | | | 2,339 | | | Total before tax | | | | (418 | ) | | 4,701 | | | Total before tax | | | (1,466 | ) | | | (485 | ) | | Tax expense | | | | 3 | | | (972 | ) | | Tax benefit | | $ | 4,175 | | | $ | 1,854 | | | Net of tax | | | | | $ | (415 | ) | | $ | 3,729 | | | Net of tax | | | |
Revenue recognition- Revenue is recognized when persuasive evidence– The Company measures revenue at the amounts that reflect the consideration to which it expects to be entitled in exchange for transferring control of an arrangement exists, deliverygoods and services to customers. The Company recognizes revenue either at the point in time or over the period of time that performance obligations to customers are satisfied. Payment terms vary by segment and product type and are generally due within normal commercial terms. The Company’s contracts with customers may include multiple performance obligations (e.g. railcars, maintenance, management services, etc.). For such arrangements, the Company allocates revenues to each performance obligation based on its relative standalone selling price. The Company has occurred or services have been rendered,disaggregated revenue from contracts with customers into categories which describe the price is fixed or determinable and collectability is reasonably assured.principal activities from which it generates revenues. Manufacturing Railcars are generally manufactured repaired or refurbished under firm orders from third parties. Revenue is recognized when new, used, refurbished or repaired railcars are completed, accepted by an unaffiliated customer and contractual contingencies removed. Marinein accordance with contracts with customers. The Company recognizes revenue is either recognized on the percentageupon its customers’ acceptance of completion method during the construction period or on the completed contractrailcars at a specified delivery point. From time to time, the Company enters into multi-year supply agreements. Each railcar delivery is considered a distinct performance obligation, such that the amounts that are recognized as revenue following railcar delivery are generally not subject to change. The Company typically recognizes marine vessel manufacturing revenue over time using the cost input method, based on the terms of the contract. Under the percentage of completion method, revenue is recognized based on the progress toward contract completion measured by actual costs incurred to date in relation to the estimate of total expected costs. UnderThis method best depicts the completed contractCompany’s performance in completing the construction of the marine vessel for the customer and is consistent with the percentage of completion method revenue is not recognized until the project has been fully completed. Cash payments receivedused prior to meeting revenue recognition criteria are accounted forthe adoption of Topic 606. Wheels, Repair & Parts The Company operates a network of wheel, repair and parts shops in Deferred revenue. Operating leaseNorth America that provide complete wheelset reconditioning and railcar repair services. 55
Wheels revenue is recognized as earned underwhen wheelsets are shipped to the customer or when consumed by customers in the case of consignment arrangements. Parts revenue is recognized upon shipment of the parts to the customers. Repair revenue is typically recognized over time using the cost input method, based on progress toward contract completion measured by actual costs incurred to date in relation to the estimate of total expected costs. This method best depicts the Company’s performance in repairing the railcars for the customer. Repair services are typically completed in less than 90 days. Leasing & Services The Company owns a fleet of new and used cars which are leased to third-party customers. Lease revenue is recognized over the lease-term in the period in which it is earned. Syndication transactions represent new and used railcars which have been placed on lease to a customer and which the Company intends to sell to an investor with the lease terms. Certain leases are operated under car hire arrangements wherebyattached. At the time of such sale, revenue is earned based on utilization, car hire rates and terms specified in the lease agreement. | | | | | 60 | | The Greenbrier Companies 2018 Annual Report | | |
The Company sells railcars with attached leases to financial investors. Revenue and cost of revenue associated with railcars that the Company has manufactured are recognized in the Manufacturing once sold. Revenuesegment; while revenue and cost of revenue associated with railcars which were obtained from a third partythird-party with the intent to resell them and subsequently sold, are recognized in Leasing & Services. In addition the
The Company will often performenters into multi-year contracts to provide management orand maintenance services at market ratesto customers for which revenue is generally recognized on a straight-line basis over the contract term as a stand-ready obligation. Costs to fulfill these railcars. The Company evaluates the terms of any remarketing agreements and any contractual provisions that represent retained risk and the level of retained risk based on those provisions. The Company applies a 10% threshold to determine whether the level of retained risk exceeds 10% of the individual fair value of the rail cars delivered. If retained risk exceeded 10%, the transaction would not becontracts are recognized as a sale until such time as the retained risk declined to 10% or less. For any contracts with multiple elements (i.e. railcars, maintenance, management services, etc.) the Company allocates revenue among the deliverables primarily based upon objective and reliable evidence of the fair value of each element in the arrangement. If objective and reliable evidence of fair value of any element is not available, the Company will use its estimated selling price for purposes of allocating the total arrangement consideration among the elements.incurred. Interest and foreign exchange -Interest and foreign exchange includes foreign exchange transaction gains and losses, amortization of loan fee expense, accretion of debt discounts and external interest expense. | | | | | | | | Years ended August 31, | | (In thousands) | | Years ended August 31, | | | | 2018 | | 2017 | | | 2016 | | | 2020 | | | 2019 | | | 2018 | | Interest and foreign exchange: | | | | | | | | | | | | | | | | | | | Interest and other expense | | $ | 30,946 | | | $ | 23,519 | | | $ | 17,268 | | | $ | 42,386 | | | $ | 32,260 | | | $ | 30,946 | | Foreign exchange (gain) loss | | | (1,578 | ) | | 673 | | | | (3,766 | ) | | | 1,233 | | | | (1,348 | ) | | | (1,578 | ) | | | | | $ | 43,619 | | | $ | 30,912 | | | $ | 29,368 | | | | $ | 29,368 | | | $ | 24,192 | | | $ | 13,502 | | | | | |
Research and development- Research and development costs are expensed as incurred. Research and development costs incurred for new product development during the years ended August 31, 2018, 2017 and 2016 were $6.0 million, $4.2 million and $2.7 million, respectively, included in Selling and administrative expenses.
Forward exchange contracts- Foreign operations give rise to risks from changesfluctuations in foreign currency exchange rates. Forward exchange contracts with established financial institutions are used to hedge a portion of such risk. Realized and unrealized gains and losses on effective hedges are deferred in other comprehensive income (loss) and recognized in earnings concurrent with the hedged transaction or when the occurrence of the hedged transaction is no longer considered probable. Ineffectiveness is measured and any gain or loss is recognized in foreign exchange gain or(gain) loss. Even though forward exchange contracts are entered into to mitigate the impact of currency fluctuations, certain exposure remains, which may affect operating results. In addition, there is risk for counterpartynon-performance. Interest rate instruments- Interest rate swap agreements are used to reduce the impact of changes in interest rates on certain debt. The net cash amounts paid or received under the agreements are recognized as an adjustment to interest expense. Research and development - Research and development costs are expensed as incurred. Research and development costs incurred for new product development during the years ended August 31, 2020, 2019 and 2018 were $5.8 million, $5.4 million and $6.0 million, respectively, included in Selling and administrative expenses. Net earnings per share- Basic earnings per common share (EPS) excludes the potential dilution that would occur if additional shares were issued upon conversion of bonds. Restricted share grants are treated as outstanding when issued andincludes restricted stock units are not treated as outstanding when issued. Restricted share grants and restricted stock units that are considered participating securities, including some grants subject to certain performance criteria, are included in weighted average basic common shares outstanding when calculating EPS when the Company is in a net earnings position. 56
Diluted EPS is calculated using the more dilutive of two approaches. The first approach includes the dilutive effect, using the treasury stock method, associated with shares underlying the 20242.875% Convertible notes, 2.25% Convertible notes, restricted stock units that are not considered participating securities and performance basedperformance-based restricted stock units subject to performance criteria, for which actual levels of performance above target have been achieved. The second | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 61 | |
approach supplements the first by including the “if converted” effect of the 20183.5% Convertible notes during the periods in which they were outstanding. Under the “if converted” method, debt issuance and interest costs, both net of tax, associated with the convertible notes are added back to net earnings and the share count is increased by the shares underlying the convertible notes. The 20243.5% Convertible notes are included in the calculation of both approaches using the treasury stock method when the average stock price is greater than the applicable conversion price. Stock-based compensation -– The value of stock based compensation awards is amortized as compensation expense from the date of grant through the earlier of the vesting period or in some instances the recipient’s eligible retirement date. Awards are expensed upon grant when the recipient’s eligible retirement date precedes the grant date. Stock based compensation expense consists of restricted stock units, restricted stock and phantom stock units awards. Stock based compensation expense for the years ended August 31, 2020, 2019 and 2018 2017 and 2016 was $29.3$9.0 million, $26.4$11.2 million and $24.0$29.3 million, respectively and was recorded in Selling and administrative and Cost of revenue on the Consolidated Statements of Income. Restricted stock units and restricted stock awards are accounted for as equity based awards (see Note 15 –14 - Equity). Phantom stock units are accounted for as liability based awards. The Company began granting phantom stock units during the year ended August 31, 2016. Every phantom stock unit entitles the participant to receive a cash payment equal to the value of a single share of the Company’s common stock upon vesting. The holders of unvested phantom stock units are entitled to participate in dividend equivalents.Phantom Stock Units
There were no phantom stock units awarded during the year ended August 31, 2018. During the years ended August 31, 2017 and 2016, the Company awarded 151,634 and 268,161 phantom stock units, respectively, which include performance-based grants. As of August 31, 2018,2020, there were a total of 200,6860 phantom stock units associated with unvested performance-based grants. The actual number of phantom stock units that will vest associated with performance-based phantom stock units will vary depending on the Company’s performance. Approximately 200,686 additional phantom stock units may be granted if performance-based phantom stock units vest at stretch levels of performance. These additional units are associated with phantom stock unit awards granted during the years ended August 31, 2016 and 2017. The grant date fair value of phantom stock awards was $6.7 million and $7.9 million for the years ended August 31, 2017 and 2016, respectively.
Our phantom stock unit grants are considered liability based awards and therefore arere-measured at the end of each reporting period. Compensation expense is recognized through the earlier of the vesting period or the recipient’s eligible retirement date. Time-based awards to employees are expensed upon grant when the recipient’s eligible retirement date precedes the grant date or during the vesting period if the grantee becomes retirement eligible before the vesting period is complete.outstanding. Compensation expense related to phantom stock unit grants iswere recorded in Selling and administrative expense and Cost of revenue on the Company’s Consolidated Statements of Income. Compensation expense recognized related to phantom stock units for the yearsyear ended August 31, 2020 was $0.3 million. For the year ended August 31, 2019, a $1.2 million benefit was recognized in compensation expense for the re-measurement of phantom stock units due to a lower stock price. Compensation expense recognized related to phantom stock units for the year ended August 31, 2018 August 31, 2017 and 2016 was $12.1 million, $6.2 million and $1.5 million, respectively. Unamortized compensation cost related to phantom stock unit grants was $5.9 million, $10.9 million and $7.5 million as of August 31, 2018, 2017 and 2016, respectively.million.
Management estimates-The- 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, revenuerevenues 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. Reclassifications - Certain immaterial reclassifications have been made to the accompanying prior year Consolidated Financial Statements to conform to the current year presentation. Initial Adoption of Accounting Policies - Revenue Recognition In the first quarter of 2018,2019, the Company adopted Accounting StandardsStandard Update2016-09,Improvements to Employee Share-Based Payment Accounting (ASU2016-09). This changes how companies account for certain aspects of share-based payments to employees. Excess tax benefits or deficiencies related to vested awards which were previously recognized in stockholders’ equity are now | | | | | 62 | | The Greenbrier Companies 2018 Annual Report | | |
recognized in the income statement when awards vest. For the year ended August 31, 2018, the impact of adopting this new guidance was immaterial. Prior to adopting the updated standard, excess tax benefits were reported as financing activities and are now reported as operating activities in the statement of cash flows. In addition, cash paid by an employer when directly withholding shares for tax withholding purposes were reported as operating activities and are now classified as financing activities.
Prospective Accounting Changes - In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update2014-09,Revenue from Contracts with Customers (ASU2014-09), providing and related amendments (Topic 606). This standard was issued to provide a common revenue recognition model under U.S. GAAP. Under ASU2014-09, an entity recognizesfor entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for the goods or services. ItThe new standard also requires additional disclosures to sufficiently describe the nature, amount, timing, and uncertainty of revenue and cash flowsflow arising from contracts with customers. The FASB issuedAs a one year deferral andresult of adopting the new standard, is effective for fiscal years and interim periods within those years beginning after December 15, 2017. The Company plans to adopt this new standard beginning September 1, 2018 using the modified retrospective method. The Company has substantially completed our evaluationmajority of the requirements of the new standard and is implementing slight modifications to our affected processes and controls in the first quarter of fiscal 2019. The majority of ourCompany’s revenue recognition timing will remainremained unchanged, while we expect certain minor changes have occurred related to maintenance and repair services. Costs incurred while fulfilling maintenance contracts willare now be recognized as incurred while the related revenue will continuecontinues to be recognized over time. Additionally, our repair and rail retrofit service revenue, while previously recognized upon completion of a repairan order, willis now be recognized as costs are incurred. AsThis standard was adopted using a resultmodified retrospective approach through a cumulative effect adjustment, which increased retained earnings by $5.5 million at September 1, 2018. Other adjustments recorded to the September 1, 2018 opening balance sheet were not material. The adoption of these changes,the new revenue standard did not have a material effect on the Condensed Consolidated Balance Sheet or Statement of Income.
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Lease accounting On September 1, 2019, the Company expects to record an increase to retained earnings of approximately $5.4 million and a reclassification from accrued maintenance to contract liabilities of $2.4 million as of September 1, 2018. In February 2016, the FASB issuedadopted Accounting Standards Update2016-02,Leases (ASU2016-02) and related amendments (Topic 842). The new guidance supersedes existing guidance on accounting for leases in Topic 840 and is intended to increase the transparency and comparability of accounting for lease transactions. ASU2016-02Topic 842 requires most leases to be recognized on the balance sheet. Lessees will need to recognizesheet by recording aright-of-use (ROU) asset and a lease liability for virtually all leases.liability. The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Lessor accounting remains similar to the currentprior model, but updated to align with certain changes to the lessee model and Topic 606.
The Company adopted the provisions of the new revenue recognition standard. The ASU will require both quantitative and qualitative disclosures regarding key information about leasing arrangements. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The new standard must be adopted using athe modified retrospective adoption method, utilizing the simplified transition and provides for certain practical expedients. Transition will include a cumulative effect adjustmentoption which allows entities to continue to apply the opening balance of retained earningslegacy guidance in Topic 840 in the periodcomparative periods presented in the year of adoption. The Company planselected the “package of practical expedients,” which allows it to adopt thisnot reassess under the new guidance beginningprior conclusions about lease identification, lease classification, and initial direct costs. The Company did not elect the use-of-hindsight practical expedient. The Company elected to not separate lease and non-lease components. The Company elected the short-term lease recognition exemption for all leases that qualify, which means it will not recognize ROU assets or lease liabilities for leases with lease terms of less than twelve months. Following the adoption of Topic 842, the Company will utilize both Topic 842 and Topic 606 when evaluating retained risk of services and other performance obligations in conjunction with selling railcars with a lease attached as part of the syndication model. As a result of adoption, the Company recognized operating lease ROU assets and lease liabilities of $40.4 and $41.6 million, respectively, as of September 1, 2019. The Company is currently evaluatingalso recognized an immaterial finance lease asset and corresponding lease liability. Additionally, the impactCompany derecognized certain existing property, plant and equipment and deferred revenue for railcar transactions previously not qualifying as sales due to continuing involvement, that now qualify as sales under the new guidance. The gain associated with this change in accounting, was mostly offset by the recognition of a new guarantee liability. The adoption of this new standard on its consolidated financial statements and disclosures. In December 2016,also required the FASB issued Accounting Standards Update2016-18,Restricted Cash (ASU2016-18). This update requires additional disclosure and that the StatementCompany to eliminate deferred gains associated with certain sale-leaseback transactions. A cumulative-effect adjustment of Cash Flow explain the change during the period in the total cash, cash equivalents and amounts generally described$4.4 million was recorded as restricted cash. Therefore, amounts generally describedan increase to retained earnings as restricted cash should be included with cash & cash equivalents when reconciling thebeginning-of-period andend-of-period total amounts shown on the Statement of Cash Flows. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 with early adoption permitted. The Company plans to adopt this guidance beginning September 1, 2018.2019.
Derivatives and Hedging In August 2017, the FASB issued Accounting Standards Update2017-12,Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities (ASU(ASU 2017-12). This update improves the financial reporting of hedging relationships to better portray the economic results of an entity’sentity's risk management activities in its financial statements and make certain targeted improvements to simplify the application of the hedge accounting guidance. The guidance expands the ability to qualify for hedge accounting for non-financial and financial risk components, reduces complexity in fair value hedges of interest rate risk and eliminates the requirement to separately measure and report | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 63 | |
hedge ineffectiveness, as well as eases certain hedge effectiveness assessment requirements. The Company adopted this guidance effective September 1, 2019 and it did not have a material impact on our consolidated financial statements. Prospective Accounting Changes Measurement of Credit Losses on Financial Instruments In June 2016, the FASB issued Accounting Standard Update 2016-13, Financial Instruments – Credit Losses (ASU 2016-13). This update introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The new guidance will apply to loans, accounts receivable, trade receivables, other financial assets measured at amortized cost, loan commitments and other off-balance sheet credit exposures. The new guidance will also apply to debt securities and other financial assets measured at fair value through other comprehensive income. The new guidance is effective for annual reporting periods beginning after December 15, 2018,2019, with early adoption permitted. The Company plans to adopt this guidance beginning September 1, 2019.2020 and it is not expected to have a material impact to the consolidated financial statements. 58
Convertible Instruments and Contracts in an Entity’s Own Equity In August 2020, the FASB issued Accounting Standard Update 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain convertible instruments, amends guidance on derivative scope exceptions for contracts in an entity’s own equity, and modifies the guidance on diluted EPS calculations as a result of these changes. The guidance in this ASU can be adopted using either a full or modified retrospective approach and becomes effective for annual reporting periods beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures. Note 3 -– Revenue Recognition Contract balances Contract assets primarily consist of unbilled receivables related to marine vessel construction and railcar repair services, for which the respective contracts do not yet permit billing at the reporting date. Contract liabilities primarily consist of customer prepayments for manufacturing, maintenance, and other management-type services, for which the Company has not yet satisfied the related performance obligations. The opening and closing balances of the Company’s contract balances are as follows: (in thousands) | | Balance sheet classification | | August 31, 2020 | | | August 31, 2019 | | | $ change | | Contract assets | | Inventories | | $ | 7,081 | | | $ | 10,196 | | | $ | (3,115 | ) | Contract liabilities 1 | | Deferred revenue | | $ | 27,009 | | | $ | 52,118 | | | $ | (25,109 | ) |
1 | Contract liabilities balance includes deferred revenue within the scope of Topic 606. |
For the year ended August 31, 2020, the Company recognized $28.0 million of revenue that was included in Contract liabilities as of August 31, 2019. Performance obligations As of August 31, 2020, 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) | | August 31, 2020 | | Revenue type: | | | | | Manufacturing – Railcar sales | | $ | 2,053.2 | | Manufacturing – Marine | | $ | 51.3 | | Services | | $ | 134.3 | | Other | | $ | 129.2 | | | | | | | Manufacturing – Railcars intended for syndication 1 | | $ | 236.1 | |
1 | Not a performance obligation as defined in Topic 606 |
Based on current production and delivery schedules and existing contracts, approximately $1.0 billion of the Railcar sales amount is expected to be recognized in the next 12 months while the remaining amount is expected to be recognized through 2024. 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. Revenue amounts reflected in Railcars intended for syndication may be syndicated to third parties or held in the Company’s fleet depending on a variety of factors.
Marine revenue is expected to be recognized through 2022 as vessel construction is completed. Services includes management and maintenance services of which approximately 51% are expected to be performed through 2025 and the remaining amount through 2037. Note 4 – Acquisitions
Manufacturing business of American Railcar Industries, Inc. On July 26, 2019, the Company completed its acquisition of the manufacturing business of ARI for a purchase price of approximately $417.2 million. In connection with the acquisition, the Company acquired 2 railcar manufacturing facilities in Arkansas, as well as other facilities which produce a range of railcar components and parts and create enhanced vertical integration for our manufacturing operations. The purchase price included approximately $8.5 million for capital expenditures on railcar lining operations and other facility improvements. Included in the acquisition were equity interests in two railcar component manufacturing businesses which Greenbrier accounts for under the equity method of accounting and recognized at their respective fair value as investments in unconsolidated affiliates. The purchase price was funded by, and consisted of, a combination of cash on hand, the proceeds of a $300 million secured term loan, the issuance to the seller of a $50 million senior convertible note and a payable to the seller for a working capital true-up amount (See Note 12 – Notes Payable, net). For the year ended August 31, 2019, the operations contributed by ARI’s manufacturing business generated revenues of $43.0 million and a loss from operations of $1.6 million, which are reported in the Company’s consolidated financial statements as part of the Manufacturing segment. The following table summarizes the fair value of the assets acquired and liabilities assumed at the date of acquisition: (in thousands) | | | | | Accounts receivable | | $ | 27,659 | | Inventories | | | 98,053 | | Property, plant and equipment | | | 225,045 | | Investments in unconsolidated affiliates | | | 40,314 | | Intangibles and other assets | | | 36,785 | | Goodwill | | | 56,659 | | Total assets acquired | | | 484,515 | | Total liabilities assumed | | | 67,319 | | Net assets acquired | | $ | 417,196 | |
The effect of measurement period adjustments to the previously reported preliminary purchase price allocation were not material. The identified intangible assets assumed in the acquisition were recognized as follows: (In thousands) | | Fair value | | | Weighted average estimated useful life (in years) | Trademarks and patents | | $ | 19,500 | | | 9 | Customer and supplier relationships | | | 16,071 | | | 7 | Identified intangible assets subject to amortization | | | 35,571 | | | | Other identified intangible assets not subject to amortization | | | 860 | | | | Total identified intangible assets | | $ | 36,431 | | | |
In accordance with ASC 805 Business Combinations, the following unaudited pro forma financial information summarizes the combined operating results of Greenbrier and ARI’s manufacturing business as if the acquisition of 60
ARI’s manufacturing business occurred on September 1, 2017. In addition, this pro forma financial information includes acquisition-related adjustments including depreciation expense to reflect the increased fair value of property, plant and equipment, amortization expense related to identified intangible assets, interest expense on the $50 million convertible senior note and $300 million senior term debt issued, and the related income tax effects. This pro forma financial information is presented for informational purposes only and does not include adjustments relating to the Company’s expected cost-savings and other synergies, and as such, is not indicative of the results of operations that would have been achieved if the acquisition had occurred on September 1, 2017 or of results that may occur in the future. | | As of August 31, | | (In thousands, except per share amounts) | | 2019 | | | 2018 | | Revenue | | $ | 3,462,255 | | | $ | 2,893,400 | | Net earnings attributable to Greenbrier | | $ | 57,284 | | | $ | 137,399 | | Basic earnings per common share | | $ | 1.76 | | | $ | 4.45 | | Diluted earnings per common share | | $ | 1.73 | | | $ | 4.25 | |
GBW On August 20, 2018, the Company entered into a dissolution agreement with Watco Companies, LLC, its previous joint venture partner, to discontinue their GBW Railcar Services railcar repair joint venture. Pursuant to the dissolution agreement, previously operated Greenbrier repair shops and associated employees were returned to the Company. Additionally, the dissolution agreement provides that certain agreements entered into in connection with the original creation of GBW in 2014 will bewere terminated as of the transaction date, including the leases of real and personal property, service agreements, and certain employment-related agreements. GBW is expected to exist as a formal legal entity at least through December 31, 2018 to complete its cessation of activities in an orderly manner. Beginning on August 20, 2018, the repair shops and their activity are being reported in the Company’s consolidated financial statements as part of the Wheels, Repair & Parts segment.
As the assets received and liabilities assumed from GBW meet the definition of a business, the Company has accounted for this transaction as a business combination. The total net assets acquired were approximately $56.8$57.6 million. Additionally, the Company removed the book value of its remaining equity method investment in, and note receivable due from, the joint venture. The accumulated deficit reflected in GBW’s balance sheet as of August 31, 2018 will be funded by its parents. The Company has included this assumed liability within the purchase price allocation in the table below. The impact of the acquisition was not material to the Company’s results of operations therefore pro forma financial information has not been included. See Note 17 – Related Party Transactions for additional information. The preliminary allocation offrom the purchase price based on the fair value of the net assetsrepair shops acquired was as follows as of August 31, 2018:
| | | | | (in thousands) | | | | Cash and cash equivalents | | $ | 5,000 | | Accounts receivable, net | | | 12,230 | | Inventories | | | 18,106 | | Property, plant and equipment, net | | | 16,748 | | Intangibles and other assets, net | | | 9,200 | | Goodwill | | | 7,863 | | | | Total assets acquired | | | 69,147 | | Accounts payable and accrued liabilities | | | 12,394 | | | | Total liabilities assumed | | | 12,394 | | Net assets acquired | | $ | 56,753 | | | |
As of August 31, 2018, certain liabilities in the table above are estimates and the Company will adjust the purchase price allocation as they are settled.
Greenbrier Astra Rail
On June 1, 2017, Greenbrier and Astra Holding GmbH (Astra) contributed its European operations to a newly formed company, Greenbrier-Astra Rail (GAR), a Europe-based freight railcar manufacturing, engineering and repair business. As consideration for an approximate 75% controlling interest, Greenbrier agreed to pay Astra €30 million at closing, an additional €30 million which was paid on June 1, 2018 and issue an approximate 25% noncontrolling interest in the new company. The total net assets acquired of $115.8 million includes $38.3 million representing the fair value of the noncontrolling interest at the acquisition date.
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Astra also received a put option to sell its entire noncontrolling interest to Greenbrier at an exercise price equal to the higher of fair value or a defined EBITDA multiple as measured on the exercise date. The option is exercisable 30 days prior to and up until June 1, 2022. Due to Astra’s redemption right under the put option, the noncontrolling interest has been classified as a Contingently redeemable noncontrolling interest in the mezzanine section of the Consolidated Balance Sheets. The carrying value of the noncontrolling interest cannot be less than the maximum redemption amount, which is the amount Greenbrier will settle the put option for if exercised. Adjustments to reconcile the carrying value to the maximum redemption amount are recorded to retained earnings. There were no such adjustments during the year ended August 31, 2018.
For the year ended August 31, 2018, the European operations contributed by Astra generated revenues of $136.8 million and a loss from operations of $11.5 million, which are reported in the Company’s consolidated financial statements as part of the ManufacturingWheels, Repair & Parts segment. The impact of the acquisition was not material to the Company’s consolidated results of operations for the twelve-month period ended August 31, 2017, therefore pro forma financial information has not been included.
The purchase price of the net assets acquired from Astra was allocated as follows:
| | | | | (in thousands) | | | | Cash and cash equivalents | | $ | 6,562 | | Accounts receivable, net | | | 10,984 | | Inventories | | | 30,454 | | Property, plant and equipment, net | | | 75,296 | | Intangibles and other assets, net | | | 17,300 | | Goodwill | | | 25,746 | | | | Total assets acquired | | | 166,342 | | Accounts payable and accrued liabilities | | | 17,879 | | Deferred income taxes | | | 7,292 | | Deferred revenue | | | 964 | | Notes payable, net | | | 24,382 | | | | Total liabilities assumed | | | 50,517 | | Net assets acquired | | $ | 115,825 | | | |
On August 2, 2018, GAR entered in to an agreement with Rayvag Vagon Sanavi ve Ticaret A.S. (Rayvag) to take an approximately 68% ownership stake in Rayvag. Rayvag is a railcar manufacturer and provider of railcar repair and parts services based in Adana, Turkey. The amount paid to acquire the 68% ownership stake in Rayvag and the impact of the acquisition were not material to the Company’s consolidated balance sheet and results of operations, therefore pro forma financial information has not been included.
Note 4 -5 — Inventories | | | As of August 31, | | | As of August 31, | | (In thousands) | | 2018 | | 2017 | | | 2020 | | | 2019 | | Manufacturing supplies and raw materials | | $ | 278,726 | | | $ | 222,080 | | | $ | 263,080 | | | $ | 387,015 | | Work-in-process | | | 105,021 | | | 86,794 | | | | 116,909 | | | | 156,614 | | Finished goods | | | 54,181 | | | 95,389 | | | | 173,761 | | | | 130,576 | | Excess and obsolete adjustment | | | (5,614 | ) | | (4,136 | ) | | | (24,221 | ) | | | (9,512 | ) | | | | | $ | 529,529 | | | $ | 664,693 | | | | $ | 432,314 | | | $ | 400,127 | | | | | |
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| | As of August 31, | | (In thousands) | | 2020 | | | 2019 | | | 2018 | | Excess and obsolete adjustment | | | | | | | | | | | | | Balance at beginning of period | | $ | 9,512 | | | $ | 5,614 | | | $ | 4,136 | | Charge to cost of revenue | | | 17,966 | | | | 9,734 | | | | 4,023 | | Disposition of inventory | | | (3,555 | ) | | | (5,651 | ) | | | (2,455 | ) | Currency translation effect | | | 298 | | | | (185 | ) | | | (90 | ) | Balance at end of period | | $ | 24,221 | | | $ | 9,512 | | | $ | 5,614 | |
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| | | | | | | | | | | | | | | As of August 31, | | (In thousands) | | 2018 | | | 2017 | | | 2016 | | Excess and obsolete adjustment | | | | | | | | | | | | | Balance at beginning of period | | $ | 4,136 | | | $ | 3,257 | | | $ | 2,679 | | Charge to cost of revenue | | | 4,023 | | | | 2,781 | | | | 2,422 | | Disposition of inventory | | | (2,455 | ) | | | (2,003 | ) | | | (1,792 | ) | Currency translation effect | | | (90 | ) | | | 101 | | | | (52 | ) | | | Balance at end of period | | $ | 5,614 | | | $ | 4,136 | | | $ | 3,257 | | | |
Note 5 -6 — Property, Plant and Equipment, on Operating Leases, net Equipment on operating leases is reported net of accumulated depreciation of $64.9 million and $91.1 million as of August 31, 2018 and 2017, respectively.
| | As of August 31, | | (In thousands) | | 2020 | | | 2019 | | Land and improvements | | $ | 94,611 | | | $ | 87,872 | | Machinery and equipment | | | 590,992 | | | | 539,952 | | Buildings and improvements | | | 376,272 | | | | 338,639 | | Construction in progress | | | 49,717 | | | | 66,744 | | Other | | | 97,432 | | | | 90,822 | | | | | 1,209,024 | | | | 1,124,029 | | Accumulated depreciation | | | (497,500 | ) | | | (406,056 | ) | | | $ | 711,524 | | | $ | 717,973 | |
Depreciation expense was $11.2$86.6 million, $12.1$62.3 million and $16.6 million as of August 31, 2018, 2017 and 2016, respectively. In addition, certain railcar equipmentleased-in by the Company on operating leases (see Note 21 – Lease Commitments) is subleased to customers undernon-cancelable operating leases. Aggregate minimum future amounts receivable under allnon-cancelable operating leases and subleases are as follows: | | | | | (In thousands) | | | | Year ending August 31, | | | | | 2019 | | $ | 26,246 | | 2020 | | | 19,898 | | 2021 | | | 13,311 | | 2022 | | | 11,311 | | 2023 | | | 8,562 | | Thereafter | | | 14,733 | | | | | | $ | 94,061 | | | |
Certain equipment is also operated under daily, monthly or car hire utilization arrangements. Associated revenue amounted to $12.8 million, $13.0 million and $14.7$54.5 million for the years ended August 31, 2018, 20172020, 2019 and 2016, respectively.
Note 6 - Property, Plant and Equipment, net
| | | | | | | | | | | As of August 31, | | (In thousands) | | 2018 | | | 2017 | | Land and improvements | | $ | 84,432 | | | $ | 84,594 | | Machinery and equipment | | | 414,865 | | | | 378,311 | | Buildings and improvements | | | 202,973 | | | | 186,960 | | Construction in progress | | | 48,406 | | | | 39,417 | | Other | | | 68,452 | | | | 60,747 | | | | | | | 819,128 | | | | 750,029 | | Accumulated depreciation | | | (361,932 | ) | | | (322,008 | ) | | | | | $ | 457,196 | | | $ | 428,021 | | | |
Depreciation expense was $54.5 million, $45.5 million and $39.2 million for the years ended August 31, 2018, 2017 and 2016, respectively.
Note 7 - Investments In Unconsolidated Affiliates GBW
The Company has a 50% ownership interest in GBW which performed railcar repair, refurbishment and maintenance until August 20, 2018, on which date the Company entered in to a dissolution agreement (See Note 3 – Acquisitions). The Company accounts for its interest in GBW under the equity method of accounting.
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The assets and liabilities shown below as of August 31, 2018 primarily represent one remaining repair shop and other corporate related obligations while the summarized income statement for the year ended August 31, 2018 is for GBW’s full year of activity.
Summarized financial data for GBW is as follows:
| | | | | | | | | | | As of August 31, | | (In thousands) | | 2018 | | | 2017 | | Current assets | | $ | 8,531 | | | $ | 81,860 | | Total assets | | $ | 8,531 | | | $ | 206,009 | | Current liabilities | | $ | 23,283 | | | $ | 33,033 | | Total liabilities | | $ | 23,283 | | | $ | 111,384 | |
| | | | | | | | | | | | | | | Years ended August 31, | | (In thousands) | | 2018 | | | 2017 | | | 2016 | | Revenue | | $ | 238,033 | | | $ | 253,436 | | | $ | 373,490 | | Margin | | $ | (6,047 | ) | | $ | (4,058 | ) | | $ | 33,929 | | Net income (loss)(1) | | $ | (51,679 | ) | | $ | (36,947 | ) | | $ | 4,006 | |
(1) | In 2018 and 2017, GBW recorded apre-tax goodwill impairment loss of $26.4 million and $11.2 million, respectively, which reduced the goodwill balance to $15.1 million at the time of the dissolution.
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Greenbrier-Maxion
In May 2017, the Company completed a $20 million investment in Greenbrier-Maxion, a railcar manufacturer in Brazil resulting in an increase in the Company’s ownership interest from 19.5% to 60%. Greenbrier-Maxion also assembles bogies and offers a range of aftermarket services including railcar overhaul and refurbishment. The Company does not consolidate Greenbrier-Maxion for financial reporting purposes and accounts for its interest under the equity method of accounting as the entity’s governance provisions require that all significant decisions of Greenbrier-Maxion are subject to shared consent of its shareholders.
Summarized financial data for Greenbrier-Maxion is as follows:
| | | | | | | | | | | As of August 31, | | (In thousands) | | 2018 | | | 2017 | | Current assets | | $ | 41,619 | | | $ | 48,012 | | Total assets | | $ | 61,034 | | | $ | 71,455 | | Current liabilities | | $ | 38,027 | | | $ | 38,055 | | Total liabilities | | $ | 41,539 | | | $ | 42,197 | |
| | | | | | | | | | | | | | | Years ended August 31, | | | | | | | (In thousands) | | 2018 | | | 2017 | | | 2016 | | Revenue | | $ | 187,664 | | | $ | 228,510 | | | $ | 168,465 | | Margin | | $ | 10,086 | | | $ | 24,372 | | | $ | 14,245 | | Net income (loss) | | $ | (3,006 | ) | | $ | 1,378 | | | $ | (4,051 | ) |
Amsted-Maxion Cruzeiro
In May 2017, the Company increased its ownership interest in Amsted-Maxion Cruzeiro, a manufacturer of castings and components for railcars and other heavy equipment, from 19.5% to 24.5% for $3.25 million. Proceeds from the Company’s increased ownership, along with loans from each of the partners, were used to retire third-party debt at Amsted-Maxion Cruzeiro. The Company retains an option to increase its ownership to 29.5% subject to certain conditions. Amsted-Maxion Cruzeiro has a 40% ownership position in Greenbrier-Maxion. The Company accounts for its interest in Amsted-Maxion Cruzeiro under the equity method of accounting.
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Summarized financial data for Amsted-Maxion Cruzeiro is as follows:
| | | | | | | | | | | As of August 31, | | (In thousands) | | 2018 | | | 2017 | | Current assets | | $ | 21,463 | | | $ | 23,777 | | Total assets | | $ | 111,589 | | | $ | 142,583 | | Current liabilities | | $ | 27,981 | | | $ | 28,084 | | Total liabilities | | $ | 83,407 | | | $ | 94,846 | |
| | | | | | | | | | | | | | | Years ended August 31, | | (In thousands) | | 2018 | | | 2017 | | | 2016 | | Revenue | | $ | 96,490 | | | $ | 90,114 | | | $ | 87,833 | | Margin | | $ | 8,001 | | | $ | 5,983 | | | $ | 8,256 | | Net income (loss) | | $ | (9,590 | ) | | $ | (20,114 | ) | | $ | (12,640 | ) |
Other Unconsolidated Affiliates
The Company has eight other unconsolidated affiliates which are accounted for under the equity method of accounting. For the year ended August 31, 2018, the Company recognized earnings of $1.8 million from these other unconsolidated affiliates.
Summarized financial information, shown as 100% of these other unconsolidated affiliates in aggregate are as follows:
| | | | | | | | | | | As of August 31, | | (In thousands) | | 2018 | | | 2017 | | Current assets | | $ | 32,168 | | | $ | 16,996 | | Total assets | | $ | 239,535 | | | $ | 283,895 | | Current liabilities | | $ | 3,647 | | | $ | 3,003 | | Total liabilities | | $ | 52,852 | | | $ | 90,064 | |
| | | | | | | | | | | | | | | Years ended August 31, | | (In thousands) | | 2018 | | | 2017 | | | 2016 | | Revenue | | $ | 25,549 | | | $ | 39,161 | | | $ | 75,851 | | Margin | | $ | 11,360 | | | $ | 8,015 | | | $ | 11,087 | | Net income (loss) | | $ | 6,988 | | | $ | 5,202 | | | $ | 6,051 | |
Note 8 -— Goodwill
Changes in the carrying value of goodwill are as follows: | | | | | | | | | | | | | | | | | (In thousands) | | Manufacturing | | | Wheels, Repair & Parts | | | Leasing & Services | | | Total | | Balance August 31, 2017 | | $ | 25,325 | | | $ | 43,265 | | | $ | – | | | $ | 68,590 | | Additions(1) | | | 839 | | | | 7,863 | | | | – | | | | 8,702 | | Translation | | | 919 | | | | – | | | | – | | | | 919 | | | | Balance August 31, 2018 | | $ | 27,083 | | | $ | 51,128 | | | $ | – | | | $ | 78,211 | | | |
(1) | Additions to goodwill relate to the GBW repair shop transaction and Manufacturing includes final adjustments to the Astra purchase price allocation. See Note 3 – Acquisitions.
|
(In thousands) | | Manufacturing | | | Wheels, Repair & Parts | | | Leasing & Services | | | Total | | Balance August 31, 2019 | | $ | 86,682 | | | $ | 43,265 | | | $ | — | | | $ | 129,947 | | Translation and other adjustments | | | 361 | | | | — | | | | — | | | | 361 | | Balance August 31, 2020 | | $ | 87,043 | | | $ | 43,265 | | | $ | — | | | $ | 130,308 | |
| (In thousands) | | Goodwill | | | Goodwill | | Gross goodwill balance before accumulated goodwill impairment losses and other reductions | | $ | 230,736 | | | $ | 292,858 | | Accumulated goodwill impairment losses | | | (128,209 | ) | | | (138,234 | ) | Accumulated other reductions | | | (24,316 | ) | | | (24,316 | ) | | | | Balance August 31, 2018 | | $ | 78,211 | | | | | | Balance August 31, 2020 | | | $ | 130,308 | |
| | | | | 68 | | The Greenbrier Companies 2018 Annual Report | | |
The Company performs aperformed its annual goodwill impairment test annually during the third quarter. Goodwill is also tested more frequently if changes in circumstances or the occurrence of events indicates that a potential impairment exists. The provisions of ASC 350,Intangibles – Goodwill and Other, require the performance of an impairment test on goodwill. The Company compares the fair value of each reporting unit with its carrying value. The Company determinesdetermined the fair value of the reporting unit based on a weighting ofunits while considering both the income and market approaches. Under the income approach, the Company calculates the fair value of a reporting unit based on the present value of estimated future cash flows.flows which incorporated forecasted revenues, long-term growth rate, gross margin percentages, operating expenses, short-term net working capital changes, other cash flows and the use of discount rates. Under the market approach, the Company estimates the fair value based on observed market multiples for comparable businesses. Anbusinesses, when appropriate. Based on the results of the Company’s annual impairment loss is recorded totest, the extent that thefair values of its reporting unit’sunits exceeded their carrying amount exceeds the reporting unit’s fair value. An impairment loss cannot exceed the total amount of goodwill allocated to the reporting unit. Goodwill was tested during the third quarter of 2018values and the Company concluded that goodwill was not impaired. Note 9 -8 — Intangibles and Other Assets, net Intangible assets that are determined to have finite lives are amortized over their useful lives. Intangible assets with indefinite useful lives are not amortized and are periodically evaluated for impairment. 62
The following table summarizes the Company’s identifiable intangible and other assets balance: | | | As of August 31, | | | As of August 31, | | (In thousands) | | 2018 | | 2017 | | | 2020 | | | 2019 | | Intangible assets subject to amortization: | | | | | | | | | | | | | Customer relationships | | $ | 72,521 | | | $ | 64,521 | | | Customer and supplier relationships | | | $ | 89,722 | | | $ | 89,722 | | Accumulated amortization | | | (43,576 | ) | | (40,153 | ) | | | (56,509 | ) | | | (48,850 | ) | Other intangibles | | | 16,300 | | | 20,207 | | | | 37,798 | | | | 34,031 | | Accumulated amortization | | | (6,400 | ) | | (4,866 | ) | | | (10,595 | ) | | | (6,908 | ) | | | | | | 60,416 | | | | 67,995 | | | | | 38,845 | | | 39,709 | | | | | | Intangible assets not subject to amortization | | | 5,115 | | | 912 | | | | 2,474 | | | | 5,450 | | Prepaid and other assets | | | 18,935 | | | 16,914 | | | | 22,026 | | | | 15,749 | | Operating Lease ROU | | | | 62,389 | | | | — | | Nonqualified savings plan investments | | | 26,299 | | | 20,974 | | | | 35,744 | | | | 27,967 | | Debt issuance costs, net | | | 1,824 | | | 2,623 | | | | 3,623 | | | | 4,568 | | Assets held for sale | | | 3,650 | | | 4,045 | | | | 3,650 | | | | 3,650 | | | | | | $ | 190,322 | | | $ | 125,379 | | | | $ | 94,668 | | | $ | 85,177 | | | | | |
Amortization expense for the years ended August 31, 2020, 2019 and 2018 2017 and 2016 was $5.3$11.0 million, $4.8$6.3 million and $6.3$5.3 million, respectively. Amortization expense for the years ending August 31, 2019, 2020, 2021, 2022, 2023, 2024 and 20232025 is expected to be $5.2$10.6 million, $5.2$7.3 million, $4.8$6.0 million, $3.4$6.0 million and $3.2$5.7 million, respectively. Note 10 -9 — Revolving Notes Senior secured credit facilities, consisting of three3 components, aggregated to $635.3$733.2 million as of August 31, 2018.2020. As of August 31, 2018,2020, a $550.0$600.0 million revolving line of credit, maturing October 2020,June 2024, secured by substantially all the Company’s assets in the U.S. not otherwise pledged as security for term loans, was availableexisted to provide working capital and interim financing of equipment, principally for the U.S. and Mexican operations. Advances under this North American credit facility bear interest at LIBOR plus 1.75%1.50% or Prime plus 0.75%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. After August 31, 2018 this revolving line of credit agreement was amended (see Note 25 – Subsequent Events). As of August 31, 2018,2020, lines of credit totaling $35.3$68.2 million secured by certain of the Company’s European assets, with variable rates that range from Warsaw Interbank Offered Rate (WIBOR) plus 1.2%1.1% to WIBOR plus | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 69 | |
1.3% 1.5% and Euro Interbank Offered Rate (EURIBOR) plus 1.1%, were available for working capital needs of the European manufacturing operation.operations. The European lines of credit include $16.4 million of facilities which are guaranteed by the Company. European credit facilities are continually beingregularly renewed. Currently, these European credit facilities have maturities that range from December 20182020 through June 2019.September 2022.
As of August 31, 2018,2020, the Company’s Mexican railcar manufacturing joint venture had two2 lines of credit totaling $50.0$65.0 million. The first line of credit provides up to $30.0 million and is fully guaranteed by the Company and its joint venture partner.matures in June 2024. Advances under this facility bear interest at LIBOR plus 2.0%. The Mexican railcar manufacturing joint venture will be able3.75% to draw against this facility through January 2019.4.25%. The second line of credit provides up to $20.0$35.0 million, of which the Company and its joint venture partner have each guaranteed 50%. Advances under this facility bear interest at LIBOR plus 2.0%3.75%. The Mexican railcar manufacturing joint venture will be able to draw amounts available under this facility through July 2019.June 2021. As of August 31, 2018,2020, outstanding commitments under the senior secured credit facilities consisted of $72.2$28.7 million in letters of credit and $275.0 million in borrowings under the North American credit facility, $46.5 million outstanding under the European credit facilities and $30.0 million outstanding under the Mexican credit facilities. As of August 31, 2020, the Company had an aggregate of $85.9 million available to draw down under committed credit facilities. 63
As of August 31, 2019, outstanding commitments under the senior secured credit facilities consisted of $24.4 million in letters of credit under the North American credit facility and $27.7 million outstanding under the European credit facilities. As of August 31, 2017, outstanding commitments under the senior secured credit facilities consisted of $77.6 million in letters of credit under the North American credit facility and $4.3$27.1 million outstanding under the European credit facilities.
Note 11 -10 — Accounts Payable and Accrued Liabilities | | | As of August 31, | | | As of August 31, | | (In thousands) | | 2018 | | | 2017 | | | 2020 | | | 2019 | | Trade payables | | $ | 226,405 | | | $ | 180,592 | | | $ | 148,971 | | | $ | 302,009 | | Other accrued liabilities | | 73,273 | | | | 107,002 | | | | 100,168 | | | | 108,939 | | Operating lease liabilities | | | | 64,509 | | | — | | Accrued payroll and related liabilities | | 105,111 | | | | 84,749 | | | | 105,008 | | | | 106,669 | | Accrued warranty | | 27,395 | | | | 20,737 | | | | 45,224 | | | | 46,678 | | Accrued maintenance | | 9,090 | | | | 17,667 | | | Income taxes payable | | 4,771 | | | | – | | | | — | | | | 4,065 | | Other | | 3,812 | | | | 4,314 | | | | | | | $ | 463,880 | | | $ | 568,360 | | | | $ | 449,857 | | | $ | 415,061 | | | | | |
Note 11 — Warranty Accrual | | As of August 31, | | (In thousands) | | 2020 | | | 2019 | | | 2018 | | Balance at beginning of period | | $ | 46,678 | | | $ | 27,395 | | | $ | 20,737 | | Charged to cost of revenue | | | 3,984 | | | | 5,014 | | | | 12,323 | | Acquisition | | | — | | | | 23,895 | | | | — | | Payments | | | (6,212 | ) | | | (8,594 | ) | | | (5,217 | ) | Currency translation effect | | | 774 | | | | (1,032 | ) | | | (448 | ) | Balance at end of period | | $ | 45,224 | | | $ | 46,678 | | | $ | 27,395 | |
Note 12 - Maintenance and Warranty Accruals | | | | | | | | | | | | | | | As of August 31, | | (In thousands) | | 2018 | | | 2017 | | | 2016 | | Accrued maintenance | | | | | | | | | | | | | Balance at beginning of period | | $ | 17,667 | | | $ | 18,646 | | | $ | 18,642 | | Charged to cost of revenue | | | (389 | ) | | | 10,609 | | | | 12,926 | | Payments | | | (8,188 | ) | | | (11,588 | ) | | | (12,922 | ) | | | Balance at end of period | | $ | 9,090 | | | $ | 17,667 | | | $ | 18,646 | | | | Accrued warranty | | | | | | | | | | | | | Balance at beginning of period | | $ | 20,737 | | | $ | 12,159 | | | $ | 11,512 | | Charged to cost of revenue | | | 12,323 | | | | 6,872 | | | | 6,069 | | Acquisition | | | – | | | | 3,526 | | | | – | | Payments | | | (5,217 | ) | | | (2,649 | ) | | | (5,299 | ) | Currency translation effect | | | (448 | ) | | | 829 | | | | (123 | ) | | | Balance at end of period | | $ | 27,395 | | | $ | 20,737 | | | $ | 12,159 | | | |
| | | | | 70 | | The Greenbrier Companies 2018 Annual Report | | |
Note 13 -— Notes Payable, net
| | | As of August 31, | | | As of August 31, | | (In thousands) | | 2018 | | 2017 | | | 2020 | | | 2019 | | Convertible senior notes, due 2018 | | $ | – | | | $ | 119,063 | | | Convertible senior notes, due 2024 | | | 275,000 | | | 275,000 | | | Term loans | | | 179,923 | | | 184,001 | | | $ | 498,858 | | | $ | 521,544 | | 2.875% Convertible senior notes, due 2024 | | | | 275,000 | | | | 275,000 | | 2.25% Convertible senior notes, due 2024 | | | | 50,000 | | | | 50,000 | | Other notes payable | | | 14,798 | | | 19,540 | | | | 10,135 | | | | 14,001 | | | | | | | $ | 469,721 | | | $ | 597,604 | | | $ | 833,993 | | | $ | 860,545 | | Debt discount and issuance costs | | | (33,516 | ) | | (39,376 | ) | | | (29,905 | ) | | | (37,660 | ) | | | | | $ | 804,088 | | | $ | 822,885 | | | | $ | 436,205 | | | $ | 558,228 | | | | | |
The Company’s 3.5% convertible senior notes due 2018 with a conversion price of $35.47 matured on April 1, 2018 with a balance of $119.1 million prior to conversion. The conversion of these notes resulted in the issuance of an additional 3.4 million shares of the Company’s common stock.
Term loans are primarily composed of: | • | $300.0 million of senior term debt, with a maturity date of June 2024 unless the Convertible senior notes due February 2024 are outstanding as of November 1, 2023, in which case the debt matures on that date. The debt bears a floating interest rate of LIBOR plus 1.5% with principal of $3.75 million paid quarterly in arrears and a balloon payment of $232.5 million due at maturity. An interest rate swap agreement was entered into on 50% of the initial balance to swap the floating interest rate of LIBOR plus 1.5% to a fixed rate of 3.19%. The principal balance as of August 31, 2020 was $288.8 million. |
| • | $225.0 million of senior term debt, with a maturity date of September 2023, which is secured by a pool of leased railcars. The debt bears a floating interest rate of LIBOR plus 1.5% with principal of $1.97 million paid quarterly in arrears and a balloon payment of $185.6 million due at maturity. An interest rate swap agreement was entered into on approximately 50% of the initial balance to swap the floating interest rate of LIBOR plus 1.5% to a fixed rate of 4.49%. The principal balance as of August 31, 2020 was $209.3 million. |
64
| • | Other term loan with an aggregate balance of $0.8 million as of August 31, 2020 and a maturity date of September 2022. |
Convertible senior notes, due 2024, bear interest at a fixed rate of 2.875%, paid semi-annually in arrears on February 1stand August 1st. The convertible notes mature on February 1, 2024, unless earlier repurchased by the Company or converted in accordance with their terms. Upon the satisfaction of certain conditions, holders may convert at their option at any time prior to the business day immediately preceding the stated maturity date. The convertible notes are senior unsecured obligations and rank equally with other senior unsecured debt. The convertible notes are convertible into shares of the Company’s common stock, at an initial conversion rate of 16.6234 shares per $1,000 principal amount of the notes (which is equal to an initial conversion price of $60.16 per share). The initial conversion rate and conversion price are subject to adjustment upon the occurrence of certain events, such as distributions, dividends or stock splits. There were $33.1 million of initial debt discount and $8.0 million of original debt issuance costs included in Notes Payable, net on the Company’s Consolidated Balance Sheet. The debt discount represents the difference between the debt principal and the value of a similar debt instrument that does not have a conversion feature at issuance. The debt discount is being amortized using the effective interest rate method through February 2024 and the amortization expense is included in Interest and Foreign exchange on the Company’s Consolidated Statement of Income. In accordance with ASC470-20, the Company separately accounts for the liability component (debt principal net of debt discount) and equity component. The liability component is recognized as the fair value of a similar instrument that does not have a conversion feature at issuance. To determine the fair value of the liability component, the Company assumed an interest rate of approximately 5% which resulted in a fair value of $241.9 million. The equity component, which is the conversion feature at issuance, is recognized as the difference between the proceeds from the issuance of the notes ($275 million) and the fair value of the liability component ($241.9 million). As of August 31, 20182020 and 2017,2019, the equity component was $33.1 million which was recorded on the Company’s Consolidated Balance Sheet in Additionalpaid-in capital, net of tax of $12.3 million. As of August 31, 2020, the Company has reserved approximately 6.3 million shares for issuance upon conversion of these notes. Term loans are primarily composed of:
$200 million ofConvertible senior term debt, with a maturity date of March 2020, which is secured by a pool of leased railcars. The debt bears a floatingnotes, due 2024, bear interest rate of LIBOR plus 1.75% with principal of $1.75 million paid quarterly in arrears and a balloon payment of $159.8 million due at maturity. An interest rate swap agreement was entered into on 50% of the initial balance to swap the floating interest rate of LIBOR plus 1.75% to a fixed rate of 3.74%2.25%, paid semi-annually in arrears on February 1st and August 1st. The convertible notes mature on July 26, 2024, unless earlier repurchased by the Company or converted in accordance with their terms. Upon the satisfaction of certain conditions, holders may convert at their option at any time prior to the business day immediately preceding the stated maturity date. The convertible notes are senior unsecured obligations and rank equally with other senior unsecured debt. The convertible notes are convertible into shares of the Company’s common stock, at an initial conversion rate of 22.1910 shares per $1,000 principal balanceamount of the notes (which is equal to an initial conversion price of $45.06 per share). The initial conversion rate and conversion price are subject to adjustment upon the occurrence of certain events, such as distributions, dividends or stock splits. There was $4.9 million of initial debt discount included in Notes Payable, net on the Company’s Consolidated Balance Sheet. The debt discount represents the difference between the debt principal and the value of a similar debt instrument that does not have a conversion feature at issuance. The debt discount is being amortized using the effective interest rate method through July 2024 and the amortization expense is included in Interest and Foreign exchange on the Company’s Consolidated Statement of Income. In accordance with ASC 470-20, the Company separately accounts for the liability component (debt principal net of debt discount) and equity component. The liability component is recognized as the fair value of a similar instrument that does not have a conversion feature at issuance. To determine the fair value of the liability component, the Company assumed an interest rate of approximately 5% which resulted in a fair value of $45.1 million. The equity component, which is the conversion feature at issuance, is recognized as the difference between the proceeds from the issuance of the notes (fair value of $50 million) and the fair value of the liability component ($45.1 million). As of August 31, 20182020 and 2019, the equity component was $170.3$4.9 million which was recorded on the Company’s Consolidated Balance Sheet in Additional paid-in capital, net of tax of $1.2 million. After August 31, 2018 this senior term debt agreement was amended (see Note 25 – Subsequent Events).
Other term loans with an aggregate balance of $9.7 million asAs of August 31, 2018 and maturity dates ranging from April 2020, to September 2022.the Company has reserved approximately 1.5 million shares for issuance upon conversion of these notes.
Other notes payable includes $14.8$10.1 million of unsecured debt with a maturity date of June 2019.dates ranging from September 2020 to August 2025. 65
The notes payable, along with the revolving and operating lines of credit, contain certain covenants with respect to the Company and various subsidiaries, the most restrictive of which, among other things, limit the ability to: incur additional indebtedness or guarantees; pay dividends or repurchase stock; enter into capital leases; create liens; sell assets; engage in transactions with affiliates, including joint ventures and non U.S. subsidiaries, | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 71 | |
including but not limited to loans, advances, equity investments and guarantees; enter into mergers, consolidations or sales of substantially all the Company’s 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 and rent) coverage. As of August 31, 20182020 principal payments on the notes payable are expected as follows: | (In thousands) | | | | | | | | Year ending August 31, | | | | | | | 2019 | | $ | 26,775 | | | 2020 | | | 167,086 | | | 2021 | | | 413 | | | $ | 32,375 | | 2022 | | | 413 | | | | 23,716 | | 2023 | | | 34 | | | | 23,296 | | Thereafter(1) | | | 275,000 | | | 2024 (1) | | | | 754,522 | | 2025 | | | | 84 | | Thereafter | | | - | | | | | | $ | 833,993 | | | | $ | 469,721 | | | | | |
(1) | The repayment of the $275.0 million of Convertible senior notes due February 2024 and the $50.0 million of Convertible senior notes due July 2024 is assumed to occur at the scheduled maturity in 2024 instead of assuming an earlier conversion by the holders. |
Note 14 -13 — 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 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 or loss. At August 31, 20182020 exchange rates, notional amounts of forward exchange contracts for the purchase of Polish Zlotys and the sale of Euros; the purchase of Mexican Pesos and the sale of U.S. Dollars; and for the purchase of U.S. Dollars and the sale of Saudi Riyals and Euros aggregated to $145.4$48.5 million. The fair value of the contracts is included on the Consolidated Balance Sheets as Accounts payable and accrued liabilities when there is a loss, or as Accounts receivable, net when there is a gain. As the contracts mature at various dates through December 2019,May 2022, 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 August 31, 20182020 exchange rates, approximately $1.3$0.1 million would be reclassified to revenue or cost of revenue in the next year. At August 31, 2018,2020, an interest rate swap agreement maturing in March 2020September 2023 had a notional amount of $85.1$105.6 million and an interest rate swap agreement maturing June 2024 had a notional amount of $144.4 million. The fair value of the contract iscontracts are included on the Consolidated Balance Sheets in Accounts payable and accrued liabilities when there is a loss, or in Accounts receivable, net when there is a gain. 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 August 31, 20182020 interest rates, approximately $0.1$5.0 million would be reclassified to interest expense in the next year. 66 | | | | | 72 | | The Greenbrier Companies 2018 Annual Report | | |
Fair Values of Derivative Instruments | | | Asset Derivatives | | | Liability Derivatives | | | Asset Derivatives | | | Liability Derivatives | | | | August 31, | | | August 31, | | | | | August 31, | | | | | August 31, | | | | | | 2018 | | | 2017 | | | | | 2018 | | | 2017 | | | | | 2020 | | | 2019 | | | | | 2020 | | | 2019 | | (In thousands) | | Balance sheet caption | | Fair Value | | | Fair Value | | | Balance sheet caption | | Fair Value | | | Fair Value | | | Balance sheet caption | | Fair Value | | | Fair Value | | | Balance sheet caption | | Fair Value | | | Fair Value | | Derivatives designated as hedging instruments | Derivatives designated as hedging instruments | | | | | | | | | | Derivatives designated as hedging instruments | | | | | | | | | | | | Foreign forward exchange contracts | | Accounts receivable, net | | $ | 700 | | | $ | 2,341 | | | Accounts payable and accrued liabilities | | $ | 1,211 | | | $ | 1,761 | | | Accounts receivable, net | | $ | 560 | | | $ | 64 | | | Accounts payable and accrued liabilities | | $ | 3 | | | $ | 437 | | Interest rate swap contracts | | Intangibles and other assets, net | | | 781 | | | | – | | | Accounts payable and accrued liabilities | | | 1 | | | | 1,125 | | | Intangibles and other assets, net | | | — | | | | — | | | Accounts payable and accrued liabilities | | | 15,904 | | | | 10,255 | | | | | | | | $ | 560 | | | $ | 64 | | | | | $ | 15,907 | | | $ | 10,692 | | | | | | $ | 1,481 | | | $ | 2,341 | | | | | $ | 1,212 | | | $ | 2,886 | | | | | | Derivatives not designated as hedging instruments | Derivatives not designated as hedging instruments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign forward exchange contracts | | Accounts receivable, net | | $ | 76 | | | $ | 1,473 | | | Accounts payable and accrued liabilities | | $ | 354 | | | $ | – | | | Accounts receivable, net | | $ | 22 | | | $ | — | | | Accounts payable and accrued liabilities | | $ | — | | | $ | 587 | |
The Effect of Derivative Instruments on the Consolidated Statements of Income | | | | | | | | | | | Derivatives in cash flow hedging relationships | | Financial statement caption of gain recognized in income on derivative | | Gain recognized in income on derivatives Years ended August 31, | | | | | | 2018 | | | 2017 | | Foreign forward exchange contract | | Interest and foreign exchange | | $ | 1,052 | | | $ | 3,207 | | Interest rate swap contracts | | Interest and foreign exchange | | | (1 | ) | | | 23 | | | | | | | | $ | 1,051 | | | $ | 3,230 | | | |
Derivatives in cash flow hedging relationships | | Location of gain (loss) recognized in income on derivative | | Gain (loss) recognized in income on derivatives Years ended August 31, | | | | | | 2020 | | | 2019 | | Foreign forward exchange contract | | Interest and foreign exchange | | $ | 83 | | | $ | 213 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Derivatives in cash flow hedging relationships | | Gain (loss) recognized in OCI on derivatives (effective portion) Years ended August 31, | | | Financial statement caption of gain (loss) reclassified from accumulated OCI into income | | Gain (loss) reclassified from accumulated OCI into income (effective portion) Years ended August 31, | | | Financial statement caption of gain (loss) in income on derivative (ineffective portion and amount excluded from effectiveness testing) | | Gain (loss) recognized on derivative (ineffective portion and amount excluded from effectiveness testing) Years ended August 31, | | | | 2018 | | | 2017 | | | | | 2018 | | | 2017 | | | | | 2018 | | | 2017 | | Foreign forward exchange contracts | | $ | (658 | ) | | $ | 1,746 | | | Revenue | | $ | 1,145 | | | $ | (3,980 | ) | | Revenue | | $ | 854 | | | $ | (2,843 | ) | Foreign forward exchange contracts | | | (1,093 | ) | | | 385 | | | Cost of revenue | | | (429 | ) | | | 336 | | | Cost of revenue | | | 306 | | | | 248 | | Interest rate swap contracts | | | 1,632 | | | | 1,042 | | | Interest and foreign exchange | | | (298 | ) | | | (1,057 | ) | | Interest and foreign exchange | | | – | | | | – | | | | | | $ | (119 | ) | | $ | 3,173 | | | | | $ | 418 | | | $ | (4,701 | ) | | | | $ | 1,160 | | | $ | (2,595 | ) | | |
Derivatives in cash flow hedging relationships | | Gain (loss) recognized in OCI on derivatives Years ended August 31, | | | Location of gain (loss) reclassified from accumulated OCI into income | | Gain (loss) reclassified from accumulated OCI into income Years ended August 31, | | | Location of gain (loss) in income on derivative (amount excluded from effectiveness testing) | | Gain (loss) recognized on derivative (amount excluded from effectiveness testing) Years ended August 31, | | | | 2020 | | | 2019 | | | | | 2020 | | | 2019 | | | | | 2020 | | | 2019 | | Foreign forward exchange contracts | | $ | 461 | | | $ | (1,261 | ) | | Revenue | | $ | (748 | ) | | $ | (764 | ) | | Revenue | | $ | 996 | | | $ | 1,346 | | Foreign forward exchange contracts | | | (2,238 | ) | | | (421 | ) | | Cost of revenue | | | (2,236 | ) | | | (1,030 | ) | | Cost of revenue | | | 513 | | | | 935 | | Interest rate swap contracts | | | (8,307 | ) | | | (11,582 | ) | | Interest and foreign exchange | | | (2,657 | ) | | | (545 | ) | | Interest and foreign exchange | | — | | | | (587 | ) | | | $ | (10,084 | ) | | $ | (13,264 | ) | | | | $ | (5,641 | ) | | $ | (2,339 | ) | | | | $ | 1,509 | | | $ | 1,694 | |
The following table presents the amounts in the Consolidated Statements of Income 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 years ended August 31, 2020, 2019 and 2018: | | For the Years Ended August 31, | | | | 2020 | | | 2019 | | | 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | (In thousands) | | Total | | | Amount of gain (loss) on cash flow hedge activity | | | Total | | | Amount of gain (loss) on cash flow hedge activity | | | Total | | | Amount of gain (loss) on cash flow hedge activity | | Revenue | | $ | 2,792,189 | | | $ | (748 | ) | | $ | 3,033,591 | | | $ | (764 | ) | | $ | 2,519,464 | | | $ | 1,145 | | Cost of revenue | | | 2,439,058 | | | | (2,236 | ) | | | 2,667,105 | | | | (1,030 | ) | | | 2,110,409 | | | | (429 | ) | Interest and foreign exchange | | | 43,619 | | | | (2,657 | ) | | | 30,912 | | | | (545 | ) | | | 29,368 | | | | (298 | ) |
67
Note 15 -14 — Equity
Stock Incentive Plan The 2014 Amended and Restated Stock Incentive Plan was amended and restated as the 2017 Amended and Restated Stock Incentive Plan on October 24, 2017 and approved by stockholders on January 5, 2018. The stockholders also approved an increase in the total number of shares reserved for issuance by 1,100,000 shares. | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 73 | |
As a result, the maximum aggregate number of the Company’s common shares authorized for issuance is 5,425,000. The 2017 Amended and Restated Stock Incentive Plan provides for the grant of incentive stock options,non-statutory stock options, restricted shares, restricted stock units and stock appreciation rights. On August 31, 20182020 there were 1,050,675465,636 shares available for grant compared to 233,271849,522 and 476,7701,050,675 shares available for grant as of the years ended August 31, 20172019 and 2016,2018, respectively. There are no stock options or stock appreciation rights outstanding as of August 31, 2018.2020. The Company currently grants restricted shares and restricted stock units. Restricted share grants are considered outstanding shares of common stock at the time they are issued. The holders of unvested restricted shares are entitled to voting rights and participation in dividends. Shares associated with restricted stock unit awards are not considered legally outstanding shares of common stock until vested. Restricted stock unit awards, including performance-based awards, are entitled to participate in dividends and these awards are considered participating securities and are considered outstanding for earnings per share purposes when the effect is dilutive. During the years ended August 31, 2018, 20172020, 2019 and 2016,2018, the Company awarded restricted share and restricted stock unit grants totaling 317,036, 269,705469,825, 313,540, and 447,895317,036 shares, respectively, which include performance-based grants. As of August 31, 2018,2020, there were a total of 467,710512,021 shares associated with unvested performance-based grants. The actual number of shares that will vest associated with performance-based grants will vary depending on the Company’s performance. Approximately 467,710512,021 additional shares may be granted if performance-based restricted stock unit awards vest at stretch levels of performance. These additional shares are associated with restricted stock unit awards granted during the years ended August 31, 2018, 20172020, 2019 and 2016.2018. The fair value of awards granted was $15.2$14.5 million, $11.3$17.4 million, and $12.5$15.2 million for the years ended August 31, 2020, 2019 and 2018, 2017 and 2016, respectively. The value, at the date of grant, of stock awarded under restricted share grants and restricted stock unit grants is amortized as compensation expense over the lesser of the vesting period of one to three years or to the recipients eligible retirement date. Compensation expense recognized related to restricted share grants and restricted stock unit grants for the years ended August 31, 2020, 2019 and 2018 2017 and 2016 was $17.2$8.7 million, $20.2$12.4 million, and $22.5$17.2 million, respectively, and was recorded in Selling and administrative and Cost of Revenuerevenue on the Consolidated Statements of Income. Unamortized compensation cost related to restricted stock grants was $15.5$11.2 million as of August 31, 2018.2020. Total unvested restricted share and restricted stock unit grants were 788,744883,933 and 837,654697,949 as of August 31, 20182020 and 2017.2019. The following table summarizes restricted share and restricted stock unit grant transactions for shares, both vested and unvested, under the 2017 Amended and Restated Stock Incentive Plan: | | | | | | | Shares | | Balance at August 31, 2015(1)
| | | 3,419,861 | | Granted
| | | 447,895 | | Forfeited
| | | (19,526 | ) | | | Balance at August 31, 2016(1)
| | | 3,848,230 | | Granted
| | | 269,705 | | Forfeited
| | | (26,206 | ) | | Shares | | Balance at August 31, 2017(1) | | | 4,091,729 | | Granted | | | 317,036 | | Forfeited | | | (34,440 | ) | | (34,440 | ) | Balance at August 31, 2018(1) | | | 4,374,325 | | | 4,374,325 | | Granted | | | 313,540 | | Forfeited | | | (112,387 | ) | Balance at August 31, 2019 (1) | | | 4,575,478 | | Granted | | | 469,825 | | Forfeited | | | (85,939 | ) | Balance at August 31, 2020 (1) | | | 4,959,364 | |
(1) | Balance represents cumulative grants net of forfeitures. |
68
Share Repurchase Program The Board of Directors has authorized the Company to repurchase in aggregate up to $225 millionshares of the Company’s common stock. The share repurchase program may be modified, suspended or discontinued at any time without prior notice.has an expiration date of March 31, 2021 and the amount remaining for repurchase is $100 million. Under the share repurchase program, shares of common stock may be purchased on the open market or | | | | | 74 | | The Greenbrier Companies 2018 Annual Report | | |
through privately negotiated transactions fromtime-to-time. time to time. The timing and amount of purchases will be based upon market conditions, securities law limitations and other factors. The program may be modified, suspended or discontinued at any time without prior notice. The share repurchase program does not obligate the Company to acquire any specific number of shares in any period. There were no0 shares repurchased during the years ended August 31, 20182020 and 2017. As of August 31, 2018 the Company had cumulatively repurchased 3,206,226 shares for approximately $137.0 million and had $88.0 million available under the share repurchase program. In October 2017, the expiration date of this share repurchase program was extended from January 1, 2018 to March 31, 2019. Stock Issuance
The Company’s convertible senior notes due 2018 matured on April 1, 2018. The conversion of these notes resulted in the issuance of an additional 3.4 million shares of the Company’s common stock. See Note 13 – Notes Payable, net.
Note 16 -15 — Earnings Per Share The shares used in the computation of the Company’s basic and diluted earnings per common share are reconciled as follows: | | | | | | | | | | | | | | | Years ended August 31, | | (In thousands) | | 2018 | | | 2017 | | | 2016 | | Weighted average basic common shares outstanding(1) | | | 30,857 | | | | 29,225 | | | | 29,156 | | Dilutive effect of 2018 Convertible notes(2) | | | 1,821 | | | | 3,295 | | | | 3,214 | | Dilutive effect of 2024 Convertible notes(3) | | | – | | | | – | | | | n/a | | Dilutive effect of 2026 Convertible notes(4) | | | n/a | | | | n/a | | | | – | | Dilutive effect of restricted stock units(5) | | | 157 | | | | 42 | | | | 98 | | | | Weighted average diluted common shares outstanding | | | 32,835 | | | | 32,562 | | | | 32,468 | | | |
| | Years ended August 31, | | (In thousands) | | 2020 | | | 2019 | | | 2018 | | Weighted average basic common shares outstanding (1) | | | 32,670 | | | | 32,615 | | | | 30,857 | | Dilutive effect of 3.5% Convertible notes (2) | | n/a | | | n/a | | | | 1,821 | | Dilutive effect of 2.875% Convertible notes (3) | | | 0 | | | | 0 | | | | 0 | | Dilutive effect of 2.25% Convertible notes (4) | | | 0 | | | | 0 | | | n/a | | Dilutive effect of restricted stock units (5) | | | 771 | | | | 550 | | | | 157 | | Weighted average diluted common shares outstanding | | | 33,441 | | | | 33,165 | | | | 32,835 | |
(1) | Restricted stock grants and restricted stock units that are considered participating securities, including some grants subject to certain performance criteria, are included in weighted average basic common shares outstanding when the Company is in a net earnings position. NoNaN restricted stock and restricted stock units were anti-dilutive for the years ended August 31, 2018, 20172020, 2019 and 2016.2018. |
(2) | The dilutive effect of the 20183.5% Convertible notes was included as they were considered dilutive under the “if converted” method as further discussed below.below for the year ended August 31, 2018. The 20183.5% Convertible notes matured on April 1, 2018. |
(3) | The 20242.875% Convertible notes were issued in February 2017. The dilutive effect of the 20242.875% Convertible notes was excluded for the yearyears ended August 31, 20182020, 2019 and 20172018 as the average stock price was less than the applicable conversion price and therefore was considered anti-dilutive. |
(4) | The 20262.25% Convertible notes were retiredissued in August 2016.July 2019. The dilutive effect of the 20262.25% Convertible notes was excluded for the yearyears ended August 31, 20162020 and 2019 as the average stock price was less than the applicable conversion price and therefore the notes werewas considered anti-dilutive. |
(5) | Restricted stock units that are not considered participating securities 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. |
| | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 75 | |
Diluted EPS is calculated using the more dilutive of two approaches. The first approach includes the dilutive effect, using the treasury stock method, associated with shares underlying the 20242.875% Convertible notes, 20262.25% Convertible notes, restricted stock units that are not considered participating securities and performance based restricted stock units subject to performance criteria, for which actual levels of performance above target have been achieved. The second approach supplements the first by including the “if converted” effect of the 20183.5% Convertible notes during the periods in which they were outstanding. Under the “if converted” method, debt issuance and interest costs, both net of tax, associated with the convertible notes are added back to net earnings and the share count is increased by the shares underlying the convertible notes. The 20243.5% Convertible notes and 2026 Convertible notes arewere included in the calculation of both approaches using the treasury stock method when the average stock price is greater than the applicable conversion price.
| | Years ended August 31, | | (In thousands) except per share data | | 2020 | | | 2019 | | | 2018 | | Net earnings attributable to Greenbrier | | $ | 48,967 | | | $ | 71,076 | | | $ | 151,781 | | Add back: | | | | | | | | | | | | | Interest and debt issuance costs on the 3.5% Convertible notes, net of tax | | n/a | | | n/a | | | | 2,031 | | Earnings before interest and debt issuance costs on the 3.5% Convertible notes | | $ | 48,967 | | | $ | 71,076 | | | $ | 153,812 | | Weighted average diluted common shares outstanding | | | 33,441 | | | | 33,165 | | | | 32,835 | | Diluted earnings per share (1) | | $ | 1.46 | | | $ | 2.14 | | | $ | 4.68 | |
| | | | | | | | | | | | | | | Years ended August 31, | | | | 2018 | | | 2017 | | | 2016 | | Net earnings attributable to Greenbrier | | $ | 151,781 | | | $ | 116,067 | | | $ | 183,213 | | Add back: | | | | | | | | | | | | | Interest and debt issuance costs on the 2018 Convertible notes, net of tax | | | 2,031 | | | | 2,932 | | | | 2,695 | | | | | | | | | | | | Earnings before interest and debt issuance costs on convertible notes | | $ | 153,812 | | | $ | 118,999 | | | $ | 185,908 | | | | | | | | | | | | Weighted average diluted common shares outstanding | | | 32,835 | | | | 32,562 | | | | 32,468 | | Diluted earnings per share(1) | | $ | 4.68 | | | $ | 3.65 | | | $ | 5.73 | |
(1) | Diluted earnings per share was calculated as follows: |
Earnings | before interest and debt issuance costs on convertiblethe 3.5% Convertible notes |
Weighted | average diluted common shares outstanding |
Note 17 -16 — Related Party Transactions In June 2017, the Company purchased a 40% interest in the common equity of an entity that buys and sells railcar assets that are leased to third parties. The railcars sold to this lease financingleasing warehouse are principally built by Greenbrier. The Company accounts for this lease financingleasing warehouse investment under the equity method of accounting. As of August 31, 2018,2020, the carrying amount of the investment was $6.1$3.6 million which is classified in Investment in unconsolidated affiliates in the Consolidated Balance Sheet. Upon sale of railcars to this entity from Greenbrier, 60% of the related revenue and margin is recognized and 40% is deferred until the railcars are ultimately sold by the entity. During the year ended August 31, 2018, theThe Company recognized $16$4.7 million, $18.2 million and $15.9 million in revenue associated with railcars sold into the lease financingleasing warehouse during the years ended August 31, 2020, 2019 and an additional $482018, respectively. The Company also recognized $5.6 million associatedand $47.8 million with railcars sold out of the lease financing warehouse.leasing warehouse during the years ended August 31, 2019 and 2018, respectively. The Company also provides administrative and remarketing services to this entity and earns management fees for these services which were immaterial for each of the yearyears ended August 31, 2020, 2019 and 2018. The Company has a 60.0%41.9% interest in Axis, a joint venture that manufactures and sells axles to its joint venture partners for use and distribution both domestically and internationally in traditional freight railcar markets and other railcar markets. The Company obtained its ownership interest in Greenbrier-Maxion, aAxis as part of the acquisition of the manufacturing business of ARI on July 26, 2019. The Company purchased $12.7 million and $1.6 million of railcar manufacturer in Brazil,components from Axis during the years ended August 31, 2020 and a 24.5%August 31, 2019, respectively. In November 2019, the Company increased its ownership interest in Amsted-Maxion Cruzeiro from 24.5% to 29.5%. This transaction included a manufacturerconversion to equity of various castings$4.8 million from a note receivable, including accrued interest, and components for railcars and other heavy industrial equipment in Brazil. Thea re-payment to the Company accounts for these investments underof $1.5 million which was used to acquire the equity method of accounting.additional 5% ownership interest. As of August 31, 2018,2020, the Company had a $7.2remaining $4.5 million note receivable due from Amsted-Maxion Cruzeiro, its unconsolidated Brazilian castings and components manufacturer and a $3.8 million note receivable from Greenbrier-Maxion, and a $10.0 million note receivable from Amsted-Maxion Cruzeiro.its unconsolidated Brazilian railcar manufacturer. These note receivables are included on the Consolidated Balance Sheet in Accounts receivable, net. In July 2014,May 2020, the Company and Watco Companies LLC completed the formation of GBW, an unconsolidated 50/50its manufacturing partner Grupo Industrial Monclova, S.A. (GIMSA) amended its joint venture. The Company accountedventure agreement for its interestjoint ventures in GBW underMonclova, Mexico. In addition to certain temporary changes to the equity methodexisting fee arrangements, the joint ventures also paid dividends of accounting. On August 20, 2018 we entered into an agreement with our$22.5 million to each of the joint venture partner to discontinuepartners during the GBW railcar repair joint venture. The Company leased real and personal property to GBW with lease revenue totaling approximately $5 million for the yearsyear ended August 31, 2018, 2017 and 2016. The Company sold wheel sets and components to GBW which totaled $16.5 million, $18.3 million and $28.5 million for the years ended August 31, 2018, 2017 and 2016, respectively. GBW provided services to the Company which totaled $0.4 million, $1.0 million and $1.3 million for the years ended August 31, 2018, 2017 and 2016, respectively.2020. | | | | | 76 | | The Greenbrier Companies 2018 Annual Report | | |
Mr. Furman is the owner of a private aircraft managed by a private independent management company. From time to time, the Company’s business requires charter use of privately-owned aircraft. In such instances, it is possible that charters may be placed on Mr. Furman’s aircraft. The Company placed charters on Mr. Furman’s aircraft aggregating $0.5$0.3 million, $0.5$1.5 million and $0.8$0.5 million for each of the years ended August 31, 2020, 2019 and 2018, 2017respectively.
In July 2014, the Company and 2016, respectively.Watco Companies LLC completed the formation of GBW, an unconsolidated 50/50 joint venture. The Company accounted for its interest in GBW under the equity method of accounting. On August 20, 2018 the Company entered into an agreement with its joint venture partner to discontinue the GBW railcar repair joint venture. The Company leased real and personal property to GBW with lease revenue totaling approximately $5 million for the year ended August 31, 2018. The Company sold wheel sets and components to GBW which totaled $16.5 million for the year ended August 31, 2018. GBW provided services to the Company which totaled $0.4 million for the year ended August 31, 2018. Note 18 -17 — Income Taxes Components of income tax expense were as follows: | | | Years ended August 31, | | | Years ended August 31, | | (In thousands) | | 2018 | | 2017 | | 2016 | | | 2020 | | | 2019 | | | 2018 | | Current | | | | | | | | | | | | | | | | | | | Federal | | $ | 28,357 | | | $ | 22,710 | | | $ | 66,455 | | | $ | 21,040 | | | $ | 18,894 | | | $ | 28,357 | | State | | | 3,244 | | | 305 | | | 4,595 | | | | 785 | | | | 4,775 | | | | 3,244 | | Foreign | | | 38,628 | | | 35,893 | | | 50,299 | | | | 25,346 | | | | 37,391 | | | | 38,628 | | | | | | | 47,171 | | | | 61,060 | | | | 70,229 | | | | | 70,229 | | | 58,908 | | | 121,349 | | | Deferred | | | | | | | | | | | | | | | | | | | Federal | | | (33,459 | ) | | 9,418 | | | (6,199 | ) | | | (8,294 | ) | | | (8,559 | ) | | | (33,459 | ) | State | | | (344 | ) | | (1,467 | ) | | (1,174 | ) | | | 688 | | | | (2,542 | ) | | | (344 | ) | Foreign | | | (3,690 | ) | | (2,732 | ) | | (1,644 | ) | | | 495 | | | | (8,433 | ) | | | (3,690 | ) | | | | | | (7,111 | ) | | | (19,534 | ) | | | (37,493 | ) | | | | (37,493 | ) | | 5,219 | | | (9,017 | ) | | | | | Change in valuation allowance | | | 157 | | | (113 | ) | | (10 | ) | | | 124 | | | | 62 | | | | 157 | | | | | Income tax expense | | $ | 32,893 | | | $ | 64,014 | | | $ | 112,322 | | | $ | 40,184 | | | $ | 41,588 | | | $ | 32,893 | | | | |
Income tax expense iswas computed atusing different statutory rates different from statutory rates. The U.S.for the fiscal years presented. Due to the 2017 Tax Cuts and Jobs Act (Tax Act) enacted on December 22, 2017, the federal corporate statutory rate was significantly reduced from 35% to 21% effective January 1, 2018. The U.S. federal corporate statutory rates used are 21%, 21% and 25.7% for fiscal years 2020, 2019 and 2018, byrespectively. The Company recognized the income tax effects of the Tax Act enacted on December 22, 2017. As a resultin its financial statements in accordance with Staff Accounting Bulletin No. 118 (SAB 118), which provided guidance for the application of ASC 740, Income Taxes (ASC 740), in the Company’s fiscalreporting period in which the Tax Act was signed into law. During the year the Company’s statutory federal corporate rate is a blended rate of 25.7% inended August 31, 2018, which will be reduced to 21% in 2019 and thereafter. Deferreddeferred income taxes were remeasured as a result of the new statutory rate resulting in a tax benefit of $33.6 million. The Tax Act also requiredThis benefit was partially offset by a one-time accrual of $8.9 million of tax expense related to the Company to accrue a transition tax on foreign earnings not previously subject to U.S. taxation, which resulted in $6.9 million of tax expense in 2018.
Thetaxation. During the year ended August 31, 2019 the Company recognizedfinalized all accounting for the specific income tax effects of the Tax Act in accordance with Staff Accounting Bulletin No. 118 (SAB 118) which required the financial results to reflect effects for which the accounting is complete and those for which it is provisional. Provisional effects will be adjusted duringunder ASC 740 was previously incomplete.
For the measurement period determined under SAB 118 based on ongoing analysis of data, tax positions and regulatory guidance. The effect of the transition tax is provisional, in particular the calculation of prior year foreign earnings and profits. The effect of the remeasurement of domestic deferred taxes is provisional primarily because temporary differences that have been estimated as ofended August 31, 2018 could change the remeasurement once they are finalized with the filing of our fiscal 2018 income tax return. Since many of the deferred tax balances include estimates of future events,2020, the Company is unable to determinehas estimated the final impact of the tax rate change at this time. The Tax Act also imposed awhich are effective for tax years 2018 and forward. The most significant item, impacting the Company in 2019, is the global intangiblelow-taxed income (GILTI) tax, which doestax. GILTI is not applyestimated to be material in the current year due to the Company until 2019.high-tax exception. The Company has made an accounting policy election to treat the GILTI tax as a current period expense.expense and has included it in the financial statements.
In response to the COVID‑19 pandemic, the CARES Act was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Act. Corporate taxpayers may carryback net operating losses (“NOLs”) originating in 2018 through 2020 for up to five years, which was not previously allowed under the Tax Act. The CARES Act also eliminates the existing limitation on taxable income of 80% by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019, or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income, plus business interest income, subject to the existing 30% limit under the Tax Act, for 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the Tax Act. 71
In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. With the enactment of the CARES Act, we benefited from additional interest and depreciation deductions with the overall benefit being immaterial. | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 77 | |
The reconciliation between effective and statutory tax rates on operations is as follows: | | | Years ended August 31, | | | Years ended August 31, | | | | 2018 | | 2017 | | 2016 | | | 2020 | | | 2019 | | | 2018 | | Federal statutory rate | | 25.7 | % | | 35.0 | % | | 35.0 | % | | | 21.0 | % | | | 21.0 | % | | | 25.7 | % | State income taxes, net of federal benefit | | 0.8 | | | 0.1 | | | 0.7 | | | | 2.0 | | | | 1.3 | | | | 0.8 | | Foreign operations, excluding transition tax | | 1.8 | | | (3.4 | ) | | 0.1 | | | | 4.5 | | | | 5.8 | | | | 1.8 | | Transition tax on foreign earnings | | 3.1 | | | | – | | | | – | | | | — | | | | 0.5 | | | | 3.1 | | Remeasurement of domestic deferred taxes | | (15.0 | ) | | | – | | | | – | | | | — | | | | — | | | | (15.0 | ) | Change in valuation allowance | | 0.1 | | | | – | | | | – | | | | 0.1 | | | | — | | | | 0.1 | | Noncontrolling interest in flow-through entity | | (2.4 | ) | | (6.0 | ) | | (7.4 | ) | | | (6.1 | ) | | | (5.7 | ) | | | (2.2 | ) | Permanent differences and other | | 0.6 | | | 1.4 | | | | – | | | | | | Permanent differences | | | | 8.9 | | | | 3.6 | | | | 2.6 | | Other | | | | 1.8 | | | | 0.6 | | | | (2.2 | ) | Effective tax rate | | 14.7 | % | | 27.1 | % | | 28.4 | % | | | 32.2 | % | | | 27.1 | % | | | 14.7 | % | | | |
Earnings before income tax and earnings from unconsolidated affiliates for the years ended August 31, 2020, 2019 and 2018 2017 and 2016 were $110.8$71.2 million, $123.2$75.0 million and $264.8$110.8 million, respectively, for our domestic U.S. operations and $112.8$53.6 million, $113.0$78.2 million and $130.3$112.8 million, respectively for our foreign operations. The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities were as follows: | | | As of August 31, | | | As of August 31, | | (In thousands) | | 2018 | | | 2017 | | | 2020 | | | 2019 | | Deferred tax assets: | | | | | | | | | | | | | Accrued payroll and related liabilities | | $ | 18,461 | | | $ | 28,761 | | | $ | 20,702 | | | $ | 21,978 | | Deferred revenue | | | 10,642 | | | | 7,547 | | | | 7,943 | | | | 8,296 | | Inventories and other | | | 10,518 | | | | 13,641 | | | | 16,974 | | | | 15,392 | | Maintenance and warranty accruals | | | 7,201 | | | | 10,988 | | | | 3,044 | | | | 3,596 | | Net operating losses | | | 2,002 | | | | 320 | | | | 12,247 | | | | 10,817 | | Investment and asset tax credits | | | 1,439 | | | | 1,840 | | | Investment, asset tax credits and other | | | | 1,576 | | | | 1,560 | | | | | | | 62,486 | | | | 61,639 | | | | | 50,263 | | | | 63,097 | | | Valuation allowance | | | | (9,195 | ) | | | (8,327 | ) | Deferred tax liabilities: | | | | | | | | | | | | | Fixed assets | | | 70,942 | | | | 110,429 | | | | (53,180 | ) | | | (56,760 | ) | Original issue discount | | | 6,099 | | | | 11,086 | | | | (4,992 | ) | | | (6,253 | ) | Intangibles | | | 2,474 | | | | 3,605 | | | | (2,820 | ) | | | (2,813 | ) | Other | | | 1,831 | | | | (831 | ) | | | — | | | | (1,432 | ) | Investment in GBW Joint Venture | | | – | | | | 14,066 | | | | | | | | | 81,346 | | | | 138,355 | | | | | | Valuation allowance | | | 657 | | | | 533 | | | | | | | | (60,992 | ) | | | (67,258 | ) | Net deferred tax liability | | $ | 31,740 | | | $ | 75,791 | | | $ | (7,701 | ) | | $ | (13,946 | ) | | | |
As of August 31, 20182020 the Company had $1.5$1.2 million of state credit carryforwards that will begin to expire in fiscal 2021, and $8.5$28.8 million of foreign NOL carryforwards that will begin to expire in 2020.fiscal 2021 and $25.9 million of foreign NOL carryforwards that do not expire. The Company has placed a valuation allowancesallowance of $9.2 million against anythe deferred tax assets for which no benefit is anticipated, including those for loss and credit carryforwards not likely to be used before their expiration dates.dates or where the possibility of utilization is remote. The net increase in the total valuation allowance on deferred taxes for which no benefit is anticipated was approximately $0.1$0.9 million for the year ended August 31, 2018.2020. 72
Prior to 2018 no provision had been made for U.S. income taxes on the Company’s cumulative undistributed earnings from foreign subsidiaries. InDuring fiscal 2018 however, these earnings were subject to theone-time transition tax on the deemed repatriation of undistributed foreign earnings, a tax which the Company intends to pay over eight years as permitted by the Tax Act.earnings. Notwithstanding this deemed repatriation,inclusion in taxable income, any actual repatriation would be | | | | | 78 | | The Greenbrier Companies 2018 Annual Report | | |
accompanied by foreign withholding taxes. The Company does not intend to repatriate these foreign earnings and continues to assert that its foreign earnings are indefinitely reinvested. The following is a tabular reconciliation of the total amounts of unrecognized tax benefits: | | | Years ended August 31, | | | Years ended August 31, | | (In thousands) | | 2018 | | 2017 | | 2016 | | | 2020 | | | 2019 | | | 2018 | | Unrecognized Tax Benefit – Opening Balance | | $ | 1,820 | | | $ | 942 | | | $ | 1,019 | | | $ | 1,605 | | | $ | 1,608 | | | $ | 1,820 | | Gross increases – tax positions in prior period | | | 237 | | | 1,368 | | | | – | | | | 4,034 | | | | — | | | | 237 | | Gross decreases – tax positions in prior period | | | (449 | ) | | (53 | ) | | | – | | | | — | | | | (3 | ) | | | (449 | ) | Settlements | | | – | | | | – | | | | – | | | | — | | | | — | | | | — | | Lapse of statute of limitations | | | – | | | (437 | ) | | (77 | ) | | | (137 | ) | | | — | | | | — | | | | | Unrecognized Tax Benefit – Ending Balance | | $ | 1,608 | | | $ | 1,820 | | | $ | 942 | | | $ | 5,502 | | | $ | 1,605 | | | $ | 1,608 | | | | |
The Company is subject to taxation in the U.S. and in various states and foreign jurisdictions. The Company is effectively no longer subject to U.S. Federal examination for fiscal years ending before 2015,2017, to state and local examinations before 2014,2016, or to foreign examinations before 2013.2015. Unrecognized tax benefits, excluding interest, at August 31, 20182020 were $1.6$5.5 million, all of which if recognized, would affect the effective tax rate if recognized.rate. The unrecognized tax benefits at August 31, 20172019 were $1.8$1.6 million. Accrued interest on unrecognized tax benefits was $0.2 million as of August 31, 20182020 was $1.1 million and was minimal as of August 31, 2017.2019 was $0.6 million. The Company recorded annual interest benefitsexpense of approximately $0.2$0.4 million for changes in the reservesunrecognized tax benefits during each of the years ended August 31, 20182020 and 2017.2019. The Company has not0t accrued any penalties on the reserves.unrecognized tax benefits. Interest and penalties related to income taxes are not classified as a component of income tax expense. Benefits from the realization of unrecognized tax benefits for deductible differences attributable to ordinary operations will be recognized as a reduction of income tax expense. The Company does not anticipate a significant decrease in the reserves for uncertain tax positions during the next year.twelve months. Note 19 - 18 — Segment Information The Company operates in three3 reportable segments: Manufacturing; Wheels, Repair & Parts; and Leasing & Services. Prior to August 20, 2018, the Company operated in four4 reportable segments: Manufacturing; Wheels & Parts; Leasing & Services; and GBW Joint Venture. On August 20, 2018 the Company entered into an agreement with its joint venture partner to discontinue the GBW railcar repair joint venture, which resulted in 12 repair shops returned to the Company. Beginning on August 20, 2018, the GBW Joint Venture was no longer considered a reportable segment. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Performance is evaluated based on Earnings 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. The results of operations for the GBW Joint Venture are not reflected in the tables below as the investment iswas accounted for under the equity method of accounting. | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 79 | |
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For the year ended August 31, 2020: | | Revenue | | | Earnings (loss) from operations | | (In thousands) | | External | | | Intersegment | | | Total | | | External | | | Intersegment | | | Total | | Manufacturing | | $ | 2,349,971 | | | $ | 2,952 | | | $ | 2,352,923 | | | $ | 197,388 | | | $ | 54 | | | $ | 197,442 | | Wheels, Repair & Parts | | | 324,670 | | | | 12,606 | | | | 337,276 | | | | 9,032 | | | | (900 | ) | | | 8,132 | | Leasing & Services | | | 117,548 | | | | 42,728 | | | | 160,276 | | | | 40,927 | | | | 40,655 | | | | 81,582 | | Eliminations | | — | | | | (58,286 | ) | | | (58,286 | ) | | — | | | | (39,809 | ) | | | (39,809 | ) | Corporate | | — | | | | — | | | | — | | | | (78,918 | ) | | | — | | | | (78,918 | ) | | | $ | 2,792,189 | | | $ | — | | | $ | 2,792,189 | | | $ | 168,429 | | | $ | — | | | $ | 168,429 | |
For the year ended August 31, 2019: | | Revenue | | | Earnings (loss) from operations | | (In thousands) | | External | | | Intersegment | | | Total | | | External | | | Intersegment | | | Total | | Manufacturing | | $ | 2,431,499 | | | $ | 97,086 | | | $ | 2,528,585 | | | $ | 217,583 | | | $ | 6,370 | | | $ | 223,953 | | Wheels, Repair & Parts | | | 444,502 | | | | 48,266 | | | | 492,768 | | | | (2,941 | ) | | | 902 | | | | (2,039 | ) | Leasing & Services | | | 157,590 | | | | 28,240 | | | | 185,830 | | | | 64,763 | | | | 25,527 | | | | 90,290 | | Eliminations | | | — | | | | (173,592 | ) | | | (173,592 | ) | | | — | | | | (32,799 | ) | | | (32,799 | ) | Corporate | | | — | | | | — | | | | — | | | | (95,289 | ) | | | — | | | | (95,289 | ) | | | $ | 3,033,591 | | | $ | — | | | $ | 3,033,591 | | | $ | 184,116 | | | $ | — | | | $ | 184,116 | |
For the year ended August 31, 2018: | | | | | | | | | | | | | | | | | | | | | | | | | | | Revenue | | | Earnings (loss) from operations | | | | External | | | Intersegment | | | Total | | | External | | | Intersegment | | | Total | | Manufacturing | | $ | 2,044,586 | | | $ | 118,157 | | | $ | 2,162,743 | | | $ | 240,901 | | | $ | 17,721 | | | $ | 258,622 | | Wheels, Repair & Parts | | | 347,023 | | | | 41,494 | | | | 388,517 | | | | 16,731 | | | | 2,748 | | | | 19,479 | | Leasing & Services | | | 127,855 | | | | 11,847 | | | | 139,702 | | | | 88,481 | | | | 10,296 | | | | 98,777 | | Eliminations | | | – | | | | (171,498 | ) | | | (171,498 | ) | | | – | | | | (30,765 | ) | | | (30,765 | ) | Corporate | | | – | | | | – | | | | – | | | | (93,128 | ) | | | – | | | | (93,128 | ) | | | | | $ | 2,519,464 | | | $ | – | | | $ | 2,519,464 | | | $ | 252,985 | | | $ | – | | | $ | 252,985 | | | |
For the year ended August 31, 2017:
| | Revenue | | | Earnings (loss) from operations | | (In thousands) | | External | | | Intersegment | | | Total | | | External | | | Intersegment | | | Total | | Manufacturing | | $ | 2,044,586 | | | $ | 118,157 | | | $ | 2,162,743 | | | $ | 240,901 | | | $ | 17,721 | | | $ | 258,622 | | Wheels, Repair & Parts | | | 347,023 | | | | 41,494 | | | | 388,517 | | | | 16,731 | | | | 2,748 | | | | 19,479 | | Leasing & Services | | | 127,855 | | | | 11,847 | | | | 139,702 | | | | 88,481 | | | | 10,296 | | | | 98,777 | | Eliminations | | | — | | | | (171,498 | ) | | | (171,498 | ) | | | — | | | | (30,765 | ) | | | (30,765 | ) | Corporate | | | — | | | | — | | | | — | | | | (93,128 | ) | | | — | | | | (93,128 | ) | | | $ | 2,519,464 | | | $ | — | | | $ | 2,519,464 | | | $ | 252,985 | | | $ | — | | | $ | 252,985 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Revenue | | | Earnings (loss) from operations | | | | External | | | Intersegment | | | Total | | | External | | | Intersegment | | | Total | | Manufacturing | | $ | 1,725,188 | | | $ | 19,291 | | | $ | 1,744,479 | | | $ | 295,334 | | | $ | 1,022 | | | $ | 296,356 | | Wheels, Repair & Parts | | | 312,679 | | | | 30,861 | | | | 343,540 | | | | 14,984 | | | | 2,303 | | | | 17,287 | | Leasing & Services | | | 131,297 | | | | 11,812 | | | | 143,109 | | | | 31,904 | | | | 11,099 | | | | 43,003 | | Eliminations | | | – | | | | (61,964 | ) | | | (61,964 | ) | | | – | | | | (14,424 | ) | | | (14,424 | ) | Corporate | | | – | | | | – | | | | – | | | | (81,790 | ) | | | – | | | | (81,790 | ) | | | | | $ | 2,169,164 | | | $ | – | | | $ | 2,169,164 | | | $ | 260,432 | | | $ | – | | | $ | 260,432 | | | |
For the year ended August 31, 2016:
| | Years ended August 31, | | (In thousands) | | 2020 | | | 2019 | | | 2018 | | Assets: | | | | | | | | | | | | | Manufacturing | | $ | 1,301,715 | | | $ | 1,606,571 | | | $ | 1,020,757 | | Wheels, Repair & Parts | | | 271,862 | | | | 306,725 | | | | 306,756 | | Leasing & Services | | | 739,025 | | | | 708,799 | | | | 578,818 | | Unallocated, including cash | | | 861,232 | | | | 368,542 | | | | 559,133 | | | | $ | 3,173,834 | | | $ | 2,990,637 | | | $ | 2,465,464 | | Depreciation and amortization: | | | | | | | | | | | | | Manufacturing | | $ | 78,010 | | | $ | 49,240 | | | $ | 44,225 | | Wheels, Repair & Parts | | | 12,567 | | | | 13,024 | | | | 10,771 | | Leasing & Services | | | 19,273 | | | | 21,467 | | | | 19,360 | | | | $ | 109,850 | | | $ | 83,731 | | | $ | 74,356 | | Capital expenditures: | | | | | | | | | | | | | Manufacturing | | $ | 48,201 | | | $ | 85,155 | | | $ | 59,707 | | Wheels, Repair & Parts | | | 11,662 | | | | 13,291 | | | | 5,204 | | Leasing & Services | | | 7,016 | | | | 99,787 | | | | 111,937 | | | | $ | 66,879 | | | $ | 198,233 | | | $ | 176,848 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Revenue | | | Earnings (loss) from operations | | | | External | | | Intersegment | | | Total | | | External | | | Intersegment | | | Total | | Manufacturing | | $ | 2,096,331 | | | $ | 89,158 | | | $ | 2,185,489 | | | $ | 415,094 | | | $ | 24,299 | | | $ | 439,393 | | Wheels, Repair & Parts | | | 322,395 | | | | 32,436 | | | | 354,831 | | | | 19,948 | | | | 2,602 | | | | 22,550 | | Leasing & Services | | | 260,798 | | | | 13,101 | | | | 273,899 | | | | 51,723 | | | | 13,101 | | | | 64,824 | | Eliminations | | | – | | | | (134,695 | ) | | | (134,695 | ) | | | – | | | | (40,002 | ) | | | (40,002 | ) | Corporate | | | – | | | | – | | | | – | | | | (78,213 | ) | | | – | | | | (78,213 | ) | | | | | $ | 2,679,524 | | | $ | – | | | $ | 2,679,524 | | | $ | 408,552 | | | $ | – | | | $ | 408,552 | | | |
74 | | | | | | | | | | | | | | | Years ended August 31, | | (In thousands) | | 2018 | | | 2017 | | | 2016 | | Assets: | | | | | | | | | | | | | Manufacturing | | $ | 1,020,757 | | | $ | 914,450 | | | $ | 701,296 | | Wheels, Repair & Parts | | | 306,756 | | | | 236,315 | | | | 275,599 | | Leasing & Services | | | 578,818 | | | | 535,323 | | | | 516,147 | | Unallocated | | | 559,133 | | | | 711,617 | | | | 342,732 | | | | | | $ | 2,465,464 | | | $ | 2,397,705 | | | $ | 1,835,774 | | | | Depreciation and amortization: | | | | | | | | | | | | | Manufacturing | | $ | 44,225 | | | $ | 33,807 | | | $ | 27,137 | | Wheels, Repair & Parts | | | 10,771 | | | | 11,143 | | | | 11,971 | | Leasing & Services | | | 19,360 | | | | 20,179 | | | | 24,237 | | | | | | $ | 74,356 | | | $ | 65,129 | | | $ | 63,345 | | | | Capital expenditures: | | | | | | | | | | | | | Manufacturing | | $ | 59,707 | | | $ | 54,973 | | | $ | 51,294 | | Wheels, Repair & Parts | | | 5,204 | | | | 3,129 | | | | 10,190 | | Leasing & Services | | | 111,937 | | | | 27,963 | | | | 77,529 | | | | | | $ | 176,848 | | | $ | 86,065 | | | $ | 139,013 | | | |
| | | | | 80 | | The Greenbrier Companies 2018 Annual Report | | |
The following table summarizes selected geographic information. | | | Years ended August 31, | | | Years ended August 31, | | (In thousands) | | 2018 | | | 2017 | | | 2016 | | | 2020 | | | 2019 | | | 2018 | | Revenue(1): | | | | | | | | | | | | | | | | | | | U.S. | | $ | 1,840,877 | | | $ | 1,674,517 | | | $ | 2,297,501 | | | $ | 2,018,654 | | | $ | 2,115,934 | | | $ | 1,840,877 | | Foreign | | | 678,587 | | | | 494,647 | | | | 382,023 | | | | 773,535 | | | | 917,657 | | | | 678,587 | | | | | | $ | 2,792,189 | | | $ | 3,033,591 | | | $ | 2,519,464 | | | | $ | 2,519,464 | | | $ | 2,169,164 | | | $ | 2,679,524 | | | | | | Assets: | | | | | | | | | | | | | | | | | | | U.S. | | $ | 1,677,144 | | | $ | 1,307,239 | | | $ | 955,674 | | | $ | 2,359,332 | | | $ | 2,110,864 | | | $ | 1,677,144 | | Mexico | | | 517,543 | | | | 791,974 | | | | 788,878 | | | | 590,790 | | | | 628,511 | | | | 517,543 | | Europe | | | 270,777 | | | | 298,492 | | | | 91,222 | | | | 223,712 | | | | 251,262 | | | | 270,777 | | | | | | $ | 3,173,834 | | | $ | 2,990,637 | | | $ | 2,465,464 | | | | $ | 2,465,464 | | | $ | 2,397,705 | | | $ | 1,835,774 | | | | | |
(1) | Revenue is presented on the basis of geographic location of customers. |
Reconciliation of Earnings from operations to Earnings before income tax and earnings (loss) from unconsolidated affiliates: | | | | | | | | | | | | | | | Years ended August 31, | | (In thousands) | | 2018 | | | 2017 | | | 2016 | | Earnings from operations | | $ | 252,985 | | | $ | 260,432 | | | $ | 408,552 | | Interest and foreign exchange | | | 29,368 | | | | 24,192 | | | | 13,502 | | | | Earnings before income tax and earnings (loss) from unconsolidated affiliates | | $ | 223,617 | | | $ | 236,240 | | | $ | 395,050 | | | |
The Company has a 50% ownership interest in the GBW Joint Venture and accounts for its interest under the equity method of accounting. The Company’s 50% share of the results of operations are included in Earnings (loss) from unconsolidated affiliates in the Consolidated Statement of Income and its investment is included in Investments in unconsolidated affiliates in the Consolidated Balance Sheet. The GBW Joint Venture was Greenbrier’s fourth reportable segment until August 20, 2018. Information for 2018, 2017 and 2016 is included in the tables below which represent totals for GBW rather than Greenbrier’s 50% share, as this is how performance and resource allocation was previously evaluated.
| | Years ended August 31, | | (In thousands) | | 2020 | | | 2019 | | | 2018 | | Earnings from operations | | $ | 168,429 | | | $ | 184,116 | | | $ | 252,985 | | Interest and foreign exchange | | | 43,619 | | | | 30,912 | | | | 29,368 | | Earnings before income tax and earnings (loss) from unconsolidated affiliates | | $ | 124,810 | | | $ | 153,204 | | | $ | 223,617 | |
| | | | | | | | | | | | | | | Years ended August 31, | | (In thousands) | | 2018 | | | 2017 | | | 2016 | | GBW Joint Venture: | | | | | | | | | | | | | Revenue | | $ | 238,033 | | | $ | 253,436 | | | $ | 373,490 | | Earnings (loss) from operations | | $ | (46,783 | ) | | $ | (32,454 | ) | | $ | 8,558 | | Assets | | $ | 8,531 | | | $ | 206,009 | | | $ | 247,610 | | Depreciation and amortization | | $ | 8,932 | | | $ | 9,023 | | | $ | 7,676 | | Capital expenditures | | $ | 8,514 | | | $ | 8,030 | | | $ | 16,110 | |
Note 20 -19 — Customer Concentration Customer concentration is defined as a single customer that accounts for more than 10% of total revenues or accounts receivable. In 2020, revenue from two customers represented 15% and 11% of total revenue. In 2019, revenue from one customer represented 26% of total revenue. In 2018, revenue from two customers represented 20% and 11% of total revenue. In 2017, revenue from one customer represented 20% of total revenue. In 2016, revenue from two customers represented 17% and 14% of total revenue. No other customers accounted for more than 10% of total revenues for the years ended August 31, 2018, 2017,2020, 2019, or 2016.2018. No customer had a balance that individually equaled or exceeded 10% of accounts receivable at August 31, 2020. One customer had a balance that individually equaled or exceeded 10% of accounts receivable and represented 19%14% of the consolidated accounts receivable balance at August 31, 2018. Three2019. Note 20 — Lease Commitments Lessor Equipment on operating leases is reported net of accumulated depreciation of $33.4 million, $44.2 million, and $64.9 million as of August 31, 2020, 2019, and 2018 respectively. Depreciation expense was $11.6 million, $13.3 million and $11.2 million as of August 31, 2020, 2019, and 2018 respectively. In addition, certain railcar equipment leased-in by the Company on operating leases is subleased to customers had balances that individually equaledunder non-cancelable operating leases with lease terms ranging from one to twelve years. Operating lease rental revenues included in the Company’s Consolidated Statements of Income as of August 31, 2020, 2019, and 2018 was $38.7 million, $44.7 million and $41.4 million respectively, which included $11.2 million, $14.0 million, and $12.8 million respectively, of revenue as a result of daily, monthly or exceeded 10% of accountscar hire utilization arrangements. 75
Aggregate minimum future amounts receivable under all non-cancelable operating leases and represented 13%, 13% and 10% of the consolidated accounts receivable balancesubleases at August 31, 2017.2020, will mature as follows: | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 81 | |
(in thousands) | | | | | 2021 | | $ | 28,179 | | 2022 | | | 24,407 | | 2023 | | | 19,580 | | 2024 | | | 16,659 | | 2025 | | | 9,704 | | Thereafter | | | 14,556 | | | | $ | 113,085 | |
Note 21 - Lease CommitmentsLessee
Lease expense for railcarThe Company leases railcars, real estate, and certain equipmentleased-in undernon-cancelable leases was $7.5 million, $7.6 million operating and, $6.6 millionto a lesser extent, finance lease arrangements. As of and for the yearstwelve months ended August 31, 2020, 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 78 years, with some including options to extend up to 15 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: (in thousands) | | Twelve months ended August 31, 2020 | | Operating lease expense | | $ | 15,256 | | Short-term lease expense | | | 8,313 | | Total | | $ | 23,569 | |
In accordance with Topic 840, lease expense was $19.9 million and $16.2 million for August 31, 2019 and 2018 2017 and 2016. respectively. Aggregate minimum future amounts payable under thesenon-cancelable railcar equipmentoperating leases arehaving initial or remaining non-cancelable terms at August 31, 2020 will mature as follows: | (In thousands) | | | | | Year ending August 31, | | | | 2019 | | $ | 6,287 | | | 2020 | | | 4,839 | | | (in thousands) | | | | | | 2021 | | | 1,821 | | | $ | 13,874 | | 2022 | | | 1,792 | | | | 12,412 | | 2023 | | | 1,792 | | | | 12,036 | | 2024 | | | | 10,768 | | 2025 | | | | 6,304 | | Thereafter | | | 1,810 | | | | 17,481 | | | | | | | $ | 18,341 | | | | | | Total lease payments | | | $ | 72,875 | | Less: Imputed interest | | | | (8,366 | ) | Total lease obligations | | | $ | 64,509 | |
Operating leases for domestic railcar repair facilities, office space and certain manufacturing and office equipment expire at various dates through February 2030. Rental expense for facilities, office space and equipment was $8.7 million, $9.4 million and $9.3 million forPrior to our adoption of Topic 842, the years ended August 31, 2018, 2017 and 2016. Aggregatefuture minimum future amounts payable under thesenon-cancelable operating leases areas of August 31, 2019 was as follows:
| (In thousands) | | | | | Year ending August 31, | | | | 2019 | | $ | 6,048 | | | (in thousands) | | | | | | 2020 | | | 4,437 | | | $ | 14,299 | | 2021 | | | 3,286 | | | | 8,746 | | 2022 | | | 1,915 | | | | 5,727 | | 2023 | | | 1,862 | | | | 5,157 | | 2024 | | | | 3,522 | | Thereafter | | | 196 | | | | 10,197 | | | | | | | $ | 17,744 | | | | | | Total lease obligations | | | $ | 47,648 | |
The table below presents additional information related to the Company’s leases: Weighted average remaining lease term | | | | | Operating leases | | 11.4 years | | Weighted average discount rate | | | | | Operating leases | | | 3.2 | % |
Supplemental cash flow information related to leases were as follows: (in thousands) | | Twelve months ended August 31, 2020 | | Cash paid for amounts included in the measurement of lease liabilities | | | | | Operating cash flows from operating leases | | $ | 15,163 | | ROU assets obtained in exchange for new operating lease liabilities | | $ | 36,311 | |
Note 22 -21 — Commitments and Contingencies Portland Harbor Superfund Site The Company’s 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"National Priority List”List" or “Superfund”"Superfund" site due to sediment contamination (the Portland Harbor Site). The Company and more than 140 other parties have received a “General Notice”"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 havedid not signedsign such consent, but nevertheless contributed moneyfinancially to the effort. TheEPA-mandated RI/FS was produced by the LWG and cost over $110 million during a17-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 the17-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. 77
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, 83 parties, including the State of Oregon and the | | | | | 82 | | The Greenbrier Companies 2018 Annual Report | | |
federal government, entered into anon-judicial mediation process to try to allocate costs associated with remediation of the Portland Harbor site.Site. 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 16, 2020. The allocation process is continuing in parallel with the process to define the remediation steps.14, 2022. The EPA’s EPA's January 6, 2017 ROD identifies aclean-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 as a result of new data it wants to collectcollected over a2-year period prior to final remedy design. The ROD identifies 13 Sediment Decision Units. One of the units, RM9W, includes the nearshore area of the river sediments offshore of the Company’s Portland Oregon manufacturing facilityProperty as well as upstream and downstream of the facility. It also includes a portion of the Company’s riverbank. The ROD does not break down total remediation costs by Sediment Decision Unit. The EPA’sEPA's ROD concluded that more data was needed to better defineclean-up scope and cost. On December 8, 2017, the EPA announced that Portland Harbor is one of 21 Superfund sites targeted for greater attention. On December 19, 2017, the EPA announced that it had entered a new AOC with a group of four potentially responsible parties to conduct additional sampling during 2018 and 2019 to provide more certainty aboutclean-up costs and aid the mediation process to allocate those costs. The parties to the mediation, including the Company, have agreed to help fund the additional sampling.sampling, which is now complete. 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 Company’s manufacturing facility. The Company has not signed an AOCin connection with remedial design, but will potentially be directly or indirectly responsible for conducting or funding a portion of such RM9W remedial design. The allocation process is continuing in parallel with the process to define the remedial design. The ROD does not address responsibility for the costs ofclean-up, nor does it allocate such costs among the potentially responsible parties. Responsibility for funding and implementing the EPA’sEPA'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 contamination 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 its property precedes itsthe Company’s ownership of the Portland Oregon manufacturing facility.Property. Because these environmental investigations are still underway, including the collection of newpre-remedial design sampling data by EPA, 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. In addition, the Company may be required to perform periodic maintenance dredging in order to continue to launch vessels from its launch ways in Portland, Oregon, on the Willamette River, and the river’sriver's classification as a Superfund site could result in some limitations on future dredging and launch activities. Any of these matters could adversely affect the Company’s business and Consolidated Financial Statements, or the value of itsthe Portland property.Property. On January 30, 2017 the Confederated Tribes and Bands of Yakama Nation sued 33 parties including the Company as well as the United States 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.,United States Court for the District of Oregon Case No.3i17-CV-00164-SB. The Company, along with many of the other defendants, has moved to dismiss the case. That motion is pending. The complaint does not specify the amount of damages the Plaintiffplaintiff will seek. The case has been stayed until January 14, 2022. 78
Oregon Department of Environmental Quality (DEQ) Regulation of Portland Manufacturing Operations The Company has 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 propertyProperty 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 | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 83 | |
sources of contamination that may have a release pathway to the Willamette River. Interim precautionary measures are also required in the order and the Company is discussing with the DEQ potential remedial actions which may be required. The Company’s aggregate expenditure has not been material, however the Companyit could incur significant expenses for remediation. Some or all of any such outlay may be recoverable from other responsible parties. Other Litigation, Commitments and Contingencies In connection with the quarter ended November 30, 2016,acquisition of the manufacturing business of ARI, the Company received an adverse judgment of approximately $15 million, which was subsequently reducedagreed to approximately $10 million, on one matterassume potential legacy liabilities (known and unknown) related to commercial litigation in a foreign jurisdiction.railcars manufactured by ARI. Among these potential liabilities are certain retrofit and repair obligations arising from regulatory actions by the Federal Railroad Administration and the Association of American Railroads. In some cases, the seller shares with the Company the costs of these retrofit and repair obligations. The Company has settledcurrently is not able to determine if any of these liabilities will have a material adverse impact on the litigation for less than the judgment.Company’s results of operations. From time to time, Greenbrier 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’sCompany's Consolidated Financial Statements. As of August 31, 2018,2020, the Company had outstanding letters of credit aggregating $72.2to $28.7 million associated with performance guarantees, facility leases and workers compensation insurance. As of August 31, 2018,2020, the Company had a $10.0$4.5 million note receivable from Amsted-Maxion Cruzeiro, its unconsolidated Brazilian castings and components manufacturer and a $7.2$3.8 million note receivable balance from Greenbrier-Maxion, its unconsolidated Brazilian railcar manufacturer. These note receivables are included on the Consolidated Balance Sheet in Accounts receivable, net. In the future, the Company may make loans to or provide guarantees for Amsted-Maxion Cruzeiro or Greenbrier-Maxion. Note 23 -22 – Fair Value of Financial InstrumentsMeasures The estimatedCertain assets and liabilities are reported at fair values of financial instruments andvalue on either a recurring or nonrecurring basis. Fair value, for this disclosure, is defined as an exit price, representing the methods and assumptionsamount 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 which prioritizes the inputs used to estimate suchin measuring a fair values arevalue as follows:
Level 1 - observable inputs such as unadjusted quoted prices in active markets for identical instruments; | | | | | | | | | (In thousands) | | Carrying Amount 1 | | | Estimated Fair Value (Level 2) | | Notes payable as of August 31, 2018 | | $ | 469,721 | | | $ | 517,925 | | Notes payable as of August 31, 2017 | | $ | 597,604 | | | $ | 644,708 | |
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. 79
Assets and liabilities measured at fair value on a recurring basis as of August 31, 2020 are: (In thousands) | | Total | | | Level 1 | | | Level 2(1) | | | Level 3 | | Assets: | | | | | | | | | | | | | | | | | Derivative financial instruments | | $ | 582 | | | $ | — | | | $ | 582 | | | $ | — | | Nonqualified savings plan investments | | | 35,744 | | | | 35,744 | | | | — | | | | — | | Cash equivalents | | | 203,509 | | | | 203,509 | | | | — | | | | — | | | | $ | 239,835 | | | $ | 239,253 | | | $ | 582 | | | $ | — | | Liabilities: | | | | | | | | | | | | | | | | | Derivative financial instruments | | $ | 15,907 | | | $ | — | | | $ | 15,907 | | | $ | 0 | |
1(1) | Carrying amount disclosed in this table excludes debt discount and debt issuance costs.Level 2 assets include derivative financial instruments which are valued based on significant observable inputs. See Note 13 - Derivative Instruments for further discussion.
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The carrying amount of cashAssets and cash equivalents, accounts and notes receivable, revolving notes, accounts payable and accrued liabilities foreign currency forward contracts and interest rate swaps is a reasonable estimate ofmeasured at fair value on a recurring basis as of these financial instruments. Estimated rates currently available to the Company for debt with similar terms and remaining maturities and current market data are used to estimate the fair value of notes payable.August 31, 2019 are:
(In thousands) | | Total | | | Level 1 | | | Level 2(1) | | | Level 3 | | Assets: | | | | | | | | | | | | | | | | | Derivative financial instruments | | $ | 64 | | | $ | — | | | $ | 64 | | | $ | — | | Nonqualified savings plan investments | | | 27,967 | | | | 27,967 | | | | — | | | | — | | Cash equivalents | | | 68,100 | | | | 68,100 | | | | — | | | | — | | | | $ | 96,131 | | | $ | 96,067 | | | $ | 64 | | | $ | — | | Liabilities: | | | | | | | | | | | | | | | | | Derivative financial instruments | | $ | 11,279 | | | $ | — | | | $ | 11,279 | | | $ | — | |
Note 24 -23 – Fair Value Measuresof Financial Instruments Certain assetsThe estimated fair values of financial instruments and liabilitiesthe methods and assumptions used to estimate such fair values 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 which prioritizes the inputs used in measuring a 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.
|
(In thousands) | | Carrying Amount 1 | | | Estimated Fair Value (Level 2) | | Notes payable as of August 31, 2020 | | $ | 832,126 | | | $ | 802,324 | | Notes payable as of August 31, 2019 | | $ | 860,545 | | | $ | 838,728 | |
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1 Carrying amount disclosed in this table excludes debt discount and debt issuance costs.
AssetsThe carrying amount of cash and cash equivalents, accounts and notes receivable, revolving notes and accounts payable and accrued liabilities measured atis a reasonable estimate of fair value on a recurring basis as of August 31, 2018 are:these financial instruments. Estimated rates currently available to the Company for debt with similar terms and remaining maturities and current market data are used to estimate the fair value of notes payable.
| | | | | | | | | | | | | | | | | (In thousands) | | Total | | | Level 1 | | | Level 2(1) | | | Level 3 | | Assets: | | | | | | | | | | | | | | | | | Derivative financial instruments | | $ | 1,557 | | | $ | – | | | $ | 1,557 | | | $ | – | | Nonqualified savings plan investments | | | 26,299 | | | | 26,299 | | | | – | | | | – | | Cash equivalents | | | 126,430 | | | | 126,430 | | | | – | | | | – | | | | | | $ | 154,286 | | | $ | 152,729 | | | $ | 1,557 | | | $ | – | | | | | | | | | Liabilities: | | | | | | | | | | | | | | | | | Derivative financial instruments | | $ | 1,566 | | | $ | – | | | $ | 1,566 | | | $ | – | |
(1) | Level 2 assets include derivative financial instruments which are valued based on significant observable inputs. See Note 14 – Derivative Instruments for further discussion.
|
Assets and liabilities measured at fair value on a recurring basis as of August 31, 2017 are:
| | | | | | | | | | | | | | | | | (In thousands) | | Total | | | Level 1 | | | Level 2(1) | | | Level 3 | | Assets: | | | | | | | | | | | | | | | | | Derivative financial instruments | | $ | 3,814 | | | $ | – | | | $ | 3,814 | | | $ | – | | Nonqualified savings plan investments | | | 20,974 | | | | 20,974 | | | | – | | | | – | | Cash equivalents | | | 105,337 | | | | 105,337 | | | | – | | | | – | | | | | | $ | 130,125 | | | $ | 126,311 | | | $ | 3,814 | | | $ | – | | | | | | | | | Liabilities: | | | | | | | | | | | | | | | | | Derivative financial instruments | | $ | 2,886 | | | $ | – | | | $ | 2,886 | | | $ | – | |
(1) | Level 2 assets include derivative financial instruments which are valued based on significant observable inputs. See Note 14 – Derivative Instruments for further discussion.
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Note 25 - Subsequent Events
As of August 31, 2018, a $550.0 million revolving line of credit, maturing October 2020, secured by substantially all the Company’s assets in the U.S. not otherwise pledged as security for term loans, was available to provide working capital and interim financing of equipment, principally for the U.S. and Mexican operations. Advances under this facility bear interest at LIBOR plus 1.75% or Prime plus 0.75% depending on the type of borrowing. Available borrowings under the credit facility are generally based on defined levels of inventory, receivables, property, plant and equipment and leased equipment, as well as total debt to consolidated capitalization and fixed charges coverage ratios. In September 2018, this revolving line of credit was renewed on terms similar to the existing facility and increased to $600.0 million with a new maturity date of September 2023. In addition, advances under this renewed facility bear interest at LIBOR plus 1.50% or Prime plus 0.50% depending on the type of borrowing.
In September 2018, the Company refinanced approximately $170 million of existing senior term debt, due in March 2020, secured by a pool of leased railcars with new5-year $225 million senior term debt also secured by a pool of leased railcars. The new debt bears a floating interest rate of LIBOR plus 1.50% or Prime plus 0.50%. The term loan is to be repaid in equal quarterly installments of $1.97 million with the remaining outstanding amounts, plus accrued interest, to be paid on the maturity date in September 2023. An interest rate swap agreement was entered into on 50% of the initial balance to swap the floating interest rate to a fixed rate of 2.99%. The Company intends to use hedge accounting to account for the interest rate swap agreement.
In October 2018, the Company announced that Greenbrier and the Saudi Railway Company (SAR) signed an agreement to form a joint venture that will generate a total investment of 1 billion Saudi Riyals (USD $270 million) in the Saudi Arabia’s railway system and supply of freight railcars for the Saudi rail industry. The joint venture is subject to the completion of final due diligence by the parties and required government or corporate approvals.
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Quarterly Results of Operations (Unaudited) | (In thousands, except per share amount) | | First | | Second | | Third | | Fourth | | Total | | | First | | | Second | | | Third | | | Fourth | | | Total | | 2018 | | | | | | | | | | | | 2020 | | | | | | | | | | | | | | | | | | | | | | Revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Manufacturing | | $ | 451,485 | | | $ | 511,827 | | | $ | 510,099 | | | $ | 571,175 | | | $ | 2,044,586 | | | $ | 657,367 | | | $ | 489,943 | | | $ | 653,007 | | | $ | 549,654 | | | $ | 2,349,971 | | Wheels, Repair & Parts | | | 78,011 | | | 88,710 | | | 94,515 | | | 85,787 | | | 347,023 | | | | 86,608 | | | | 91,225 | | | | 82,024 | | | | 64,813 | | | | 324,670 | | Leasing & Services | | | 30,039 | | | 28,799 | | | 36,773 | | | 32,244 | | | 127,855 | | | | 25,384 | | | | 42,680 | | | | 27,526 | | | | 21,958 | | | | 117,548 | | | | | | | | 559,535 | | | 629,336 | | | 641,387 | | | 689,206 | | | 2,519,464 | | | | 769,359 | | | | 623,848 | | | | 762,557 | | | | 636,425 | | | | 2,792,189 | | Cost of revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Manufacturing | | | 380,850 | | | 429,165 | | | 427,875 | | | 489,517 | | | 1,727,407 | | | | 581,912 | | | | 422,309 | | | | 562,793 | | | | 498,155 | | | | 2,065,169 | | Wheels, Repair & Parts | | | 72,506 | | | 80,708 | | | 85,850 | | | 79,266 | | | 318,330 | | | | 81,892 | | | | 84,373 | | | | 75,001 | | | | 60,923 | | | | 302,189 | | Leasing & Services | | | 16,865 | | | 14,116 | | | 19,155 | | | 14,536 | | | 64,672 | | | | 13,366 | | | | 30,830 | | | | 17,232 | | | | 10,272 | | | | 71,700 | | | | | | | 677,170 | | | | 537,512 | | | | 655,026 | | | | 569,350 | | | | 2,439,058 | | | | | 470,221 | | | 523,989 | | | 532,880 | | | 583,319 | | | 2,110,409 | | | | Margin | | | 89,314 | | | 105,347 | | | 108,507 | | | 105,887 | | | 409,055 | | | | 92,189 | | | | 86,336 | | | | 107,531 | | | | 67,075 | | | | 353,131 | | Selling and administrative | | | 47,043 | | | 50,294 | | | 51,793 | | | 51,309 | | | 200,439 | | | | 54,364 | | | | 54,597 | | | | 49,494 | | | | 46,251 | | | | 204,706 | | Net gain on disposition of equipment | | | (19,171 | ) | | (5,817 | ) | | (14,825 | ) | | (4,556 | ) | | (44,369 | ) | | | (3,959 | ) | | | (6,697 | ) | | | (8,775 | ) | | | (573 | ) | | | (20,004 | ) | | | | Earnings from operations | | | 61,442 | | | 60,870 | | | 71,539 | | | 59,134 | | | 252,985 | | | | 41,784 | | | | 38,436 | | | | 66,812 | | | | 21,397 | | | | 168,429 | | | Other costs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest and foreign exchange | | | 7,020 | | | 7,029 | | | 6,533 | | | 8,786 | | | 29,368 | | | | 12,852 | | | | 12,609 | | | | 7,562 | | | | 10,596 | | | | 43,619 | | | | | Earnings before income tax and earnings (loss) from unconsolidated affiliates | | | 54,422 | | | 53,841 | | | 65,006 | | | 50,348 | | | 223,617 | | | | 28,932 | | | | 25,827 | | | | 59,250 | | | | 10,801 | | | | 124,810 | | | Income tax expense | | | (18,135 | ) | | 11,301 | | | (15,944 | ) | | (10,115 | ) | | (32,893 | ) | | | (5,994 | ) | | | (7,463 | ) | | | (24,421 | ) | | | (2,306 | ) | | | (40,184 | ) | | Earnings (loss) from unconsolidated affiliates | | | (2,910 | ) | | 147 | | | (12,823 | ) | | (3,075 | ) | | (18,661 | ) | | | 1,073 | | | | 1,651 | | | | 1,040 | | | | (804 | ) | | | 2,960 | | | | | Net earnings | | | 33,377 | | | 65,289 | | | 36,239 | | | 37,158 | | | 172,063 | | | | 24,011 | | | | 20,015 | | | | 35,869 | | | | 7,691 | | | | 87,586 | | Net earnings attributable to noncontrolling interest | | | (7,124 | ) | | (3,647 | ) | | (3,288 | ) | | (6,223 | ) | | (20,282 | ) | | | (16,342 | ) | | | (6,386 | ) | | | (8,097 | ) | | | (7,794 | ) | | | (38,619 | ) | | | | Net earnings attributable to Greenbrier | | $ | 26,253 | | | $ | 61,642 | | | $ | 32,951 | | | $ | 30,935 | | | $ | 151,781 | | | | | | Net earnings (loss) attributable to Greenbrier | | | $ | 7,669 | | | $ | 13,629 | | | $ | 27,772 | | | $ | (103 | ) | | $ | 48,967 | | Basic earnings per common share:(1) | | $ | 0.90 | | | $ | 2.10 | | | $ | 1.03 | | | $ | 0.95 | | | $ | 4.92 | | | $ | 0.24 | | | $ | 0.42 | | | $ | 0.85 | | | $ | 0.00 | | | $ | 1.50 | | Diluted earnings per common share:(1) | | $ | 0.83 | | | $ | 1.91 | | | $ | 1.01 | | | $ | 0.94 | | | $ | 4.68 | | | $ | 0.23 | | | $ | 0.41 | | | $ | 0.83 | | | $ | 0.00 | | | $ | 1.46 | |
(1) | Quarterly amounts domay not total to the year to date amount as each period is calculated discretely. Diluted earnings per common share includesEPS is calculated by including the dilutive effect, of the 2024 Convertible Notes using the treasury stock method, when dilutive,associated with shares underlying the 2.875% Convertible notes, 2.25% Convertible notes, restricted stock units that are not considered participating securities and performance based restricted stock units that are subject to performance criteria, for which actual levels of performance above target have been achieved and the dilutive effect of shares underlying the 2018 Convertible Notes, during the periods in which they were outstanding, using the “if converted” method in which debt issuance and interest costs, net of tax, were added back to net earnings. The 2018 Convertible notes matured on April 1, 2018.achieved. |
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Quarterly Results of Operations (Unaudited) | (In thousands, except per share amount) | | First | | Second | | Third | | Fourth | | Total | | | First | | | Second | | | Third | | | Fourth | | | Total | | 2017 | | | | | | | | | | | | 2019 | | | | | | | | | | | | | | | | | | | | | | Revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Manufacturing | | $ | 454,033 | | | $ | 445,504 | | | $ | 317,104 | | | $ | 508,547 | | | $ | 1,725,188 | | | $ | 471,789 | | | $ | 476,019 | | | $ | 681,588 | | | $ | 802,103 | | | $ | 2,431,499 | | Wheels, Repair & Parts | | | 69,635 | | | 82,714 | | | 85,231 | | | 75,099 | | | 312,679 | | | | 108,543 | | | | 125,278 | | | | 124,980 | | | | 85,701 | | | | 444,502 | | Leasing & Services | | | 28,646 | | | 38,064 | | | 36,826 | | | 27,761 | | | 131,297 | | | | 24,191 | | | | 57,374 | | | | 49,584 | | | | 26,441 | | | | 157,590 | | | | | | | | 552,314 | | | 566,282 | | | 439,161 | | | 611,407 | | | 2,169,164 | | | | 604,523 | | | | 658,671 | | | | 856,152 | | | | 914,245 | | | | 3,033,591 | | Cost of revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Manufacturing | | | 356,555 | | | 346,653 | | | 245,228 | | | 425,531 | | | 1,373,967 | | | | 417,805 | | | | 442,996 | | | | 590,788 | | | | 686,036 | | | | 2,137,625 | | Wheels, Repair & Parts | | | 64,978 | | | 75,497 | | | 77,985 | | | 69,876 | | | 288,336 | | | | 100,978 | | | | 118,455 | | | | 119,821 | | | | 81,636 | | | | 420,890 | | Leasing & Services | | | 18,030 | | | 25,207 | | | 26,247 | | | 16,078 | | | 85,562 | | | | 13,207 | | | | 43,376 | | | | 38,971 | | | | 13,036 | | | | 108,590 | | | | | | | 531,990 | | | | 604,827 | | | | 749,580 | | | | 780,708 | | | | 2,667,105 | | | | | 439,563 | | | 447,357 | | | 349,460 | | | 511,485 | | | 1,747,865 | | | | Margin | | | 112,751 | | | 118,925 | | | 89,701 | | | 99,922 | | | 421,299 | | | | 72,533 | | | | 53,844 | | | | 106,572 | | | | 133,537 | | | | 366,486 | | Selling and administrative | | | 41,213 | | | 39,495 | | | 42,810 | | | 47,089 | | | 170,607 | | | | 50,432 | | | | 47,892 | | | | 54,377 | | | | 60,607 | | | | 213,308 | | Net gain on disposition of equipment | | | (1,122 | ) | | (2,090 | ) | | (1,581 | ) | | (4,947 | ) | | (9,740 | ) | | | (14,353 | ) | | | (12,102 | ) | | | (11,019 | ) | | | (3,489 | ) | | | (40,963 | ) | | | | Goodwill impairment | | | | — | | | | — | | | | 10,025 | | | | — | | | | 10,025 | | Earnings from operations | | | 72,660 | | | 81,520 | | | 48,472 | | | 57,780 | | | 260,432 | | | | 36,454 | | | | 18,054 | | | | 53,189 | | | | 76,419 | | | | 184,116 | | | Other costs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest and foreign exchange | | | 1,724 | | | 5,673 | | | 7,894 | | | 8,901 | | | 24,192 | | | | 4,404 | | | | 9,237 | | | | 9,770 | | | | 7,501 | | | | 30,912 | | | | | Earnings before income tax and loss from unconsolidated affiliates | | | 70,936 | | | 75,847 | | | 40,578 | | | 48,879 | | | 236,240 | | | | Earnings before income tax and earnings (loss) from unconsolidated affiliates | | | | 32,050 | | | | 8,817 | | | | 43,419 | | | | 68,918 | | | | 153,204 | | Income tax expense | | | (20,386 | ) | | (24,858 | ) | | (8,656 | ) | | (10,114 | ) | | (64,014 | ) | | | (9,135 | ) | | | (2,248 | ) | | | (13,008 | ) | | | (17,197 | ) | | | (41,588 | ) | | Loss from unconsolidated affiliates | | | (2,584 | ) | | (1,988 | ) | | (681 | ) | | (6,511 | ) | | (11,764 | ) | | | | | Earnings (loss) from unconsolidated affiliates | | | | 467 | | | | (786 | ) | | | (4,564 | ) | | | (922 | ) | | | (5,805 | ) | Net earnings | | | 47,966 | | | 49,001 | | | 31,241 | | | 32,254 | | | 160,462 | | | | 23,382 | | | | 5,783 | | | | 25,847 | | | | 50,799 | | | | 105,811 | | Net earnings attributable to noncontrolling interest | | | (23,004 | ) | | (14,465 | ) | | 1,582 | | | (8,508 | ) | | (44,395 | ) | | | (5,426 | ) | | | (3,018 | ) | | | (10,599 | ) | | | (15,692 | ) | | | (34,735 | ) | | | | Net earnings attributable to Greenbrier | | $ | 24,962 | | | $ | 34,536 | | | $ | 32,823 | | | $ | 23,746 | | | $ | 116,067 | | | $ | 17,956 | | | $ | 2,765 | | | $ | 15,248 | | | $ | 35,107 | | | $ | 71,076 | | | | | Basic earnings per common share:(1) | | $ | 0.86 | | | $ | 1.19 | | | $ | 1.12 | | | $ | 0.81 | | | $ | 3.97 | | | $ | 0.55 | | | $ | 0.08 | | | $ | 0.47 | | | $ | 1.08 | | | $ | 2.18 | | Diluted earnings per common share:(1) | | $ | 0.79 | | | $ | 1.09 | | | $ | 1.03 | | | $ | 0.75 | | | $ | 3.65 | | | $ | 0.54 | | | $ | 0.08 | | | $ | 0.46 | | | $ | 1.06 | | | $ | 2.14 | |
(1) | Quarterly amounts domay not total to the year to date amount as each period is calculated discretely. Diluted earnings per common share includesEPS is calculated by including the dilutive effect, of the 2024 Convertible Notes using the treasury stock method, when dilutive,associated with shares underlying the 2.875% Convertible notes, 2.25% Convertible notes, restricted stock units that are not considered participating securities and performance based restricted stock units subject to performance criteria, for which actual levels of performance above target have been achieved and the dilutive effect of shares underlying the 2018 Convertible Notes using the “if converted” method in which debt issuance and interest costs, net of tax, were added back to net earnings.achieved. |
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82
Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None. Item 9A.CONTROLS AND PROCEDURES Item 9A. | CONTROLS AND PROCEDURES
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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 and Principal Accounting Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the Exchange Act). Based on that evaluation, our Principal Executive Officer and Principal Financial Officer and Principal Accounting Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer and Principal Accounting Officer, as appropriate to allow timely decisions regarding required disclosure. Changes in Internal Controls There have been no changes in our internal control over financial reporting during the quarter ended August 31, 20182020 that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting. Management’s Report on Internal Control over Financial Reporting Management of The Greenbrier Companies, Inc. together with its consolidated subsidiaries (the Company), is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’sOur internal control over financial reporting is a process designed under the supervision of the Company’sour Principal Executive Officer and Principal Financial and Accounting Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’sour financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America. As of the end of the Company’s 2018our 2020 fiscal year, management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). On August 20, 2018 the Company entered into an agreement to discontinue the GBW railcar repair joint venture, which resulted in 12 repair shops returned to the Company. In addition, on August 8, 2018 Greenbrier-Astra Rail entered into an agreement to take an approximately 68% ownership stake in Rayvag, a railcar manufacturing company based in Adana, Turkey. Management excluded these 12 repair shops and Rayvag from our 2018 assessment of the effectiveness of our internal control over financial reporting asbased on the framework established in Internal Control — Integrated Framework (2013) issued by the Committee of August 31, 2018. The 12 repair shops and Rayvag accounted for approximately 1.2%Sponsoring Organizations of the Company’s total assets as of August 31, 2018 and from the date of the agreements to August 31, 2018 accounted for approximately 0.2% of the Company’s revenues for the year ended August 31, 2018. These 12 repair shops and Rayvag will be included in our assessment of internal controls over financial reporting in fiscal 2019.Treadway Commission. Based on this assessment, management has determined that the Company’sour internal control over financial reporting as of August 31, 2018 is2020 was effective. Our independent registered public accounting firm, KPMG LLP, independently assessed the effectiveness of the Company’sour internal control over financial reporting, excluding the 12 repair shops and Rayvag, as stated in their attestation report, which is included at the end of Part II, Item 9A of this Form10-K. | | | | | 88 | | The Greenbrier Companies 2018 Annual Report | | |
Inherent Limitations on Effectiveness of Controls The Company’sOur management, including the Principal Executive Officer and Principal Financial Officer and Principal Accounting Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Companyour company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMReport of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors and Stockholders The Greenbrier Companies, Inc. and subsidiaries:: Opinion on Internal Control Over Financial Reporting We have audited The Greenbrier Companies, Inc. and subsidiaries’subsidiaries’ (the Company) internal control over financial reporting as of August 31, 2018,2020, based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 31, 2018,2020, based on criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of August 31, 20182020 and 2017,2019, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three yearthree-year period ended August 31, 2018,2020, and the related notes (collectively, the consolidated financial statements), and our report dated October 26, 201828, 2020 expressed an unqualified opinion on those consolidated financial statements. During fiscal 2018, the Company acquired 12 repair shops and an approximate 68% ownership interest in Rayvag, a railcar manufacturing company. Management excluded all 12 of the acquired repair shops and Rayvag’s internal control over financial reporting from its assessment of the effectiveness of the Company’s internal control over financial reporting as of August 31, 2018. The total assets of these 12 repair shops and Rayvag represented approximately 1.2% of consolidated total assets as of August 31, 2018 and approximately 0.2% of consolidated revenues for the year ended August 31, 2018. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of these 12 repair shops and Rayvag.
Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable | | | | | 90 | | The Greenbrier Companies 2018 Annual Report | | |
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP Portland, Oregon October 26, 201828, 2020 84 | | | | | | | | | The Greenbrier Companies 2018 Annual Report | | | 91 | |
Item 9B.9B. | OTHER INFORMATION |
None PART III Item 10. | DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
There is hereby incorporatedInformation required by reference the informationthis item will be included under the captions “Election of Directors”, “Board Committees, Meetings and Charters”, and “Our Code of Business Conduct and Ethics and FCPA Compliance” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’sour definitive Proxy Statement to be filed pursuant to Regulationon Schedule 14A which Proxy Statement is anticipatedfor the 2021 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days after the end of Registrant’s year ended August 31, 2018.2020 (as amended, updated, supplemented, or restated, “2021 Proxy Statement”) and is incorporated herein by reference. Information onrequired by this item regarding the executive officers of the Company is foundincluded under the caption “Executive Officers of the Registrant”“Information about our Executive Officers” in Part I of this10-K. 10-K and is incorporated herein by reference.
Item 11. | EXECUTIVE COMPENSATION |
There is hereby incorporatedThe information required by reference the informationthis item will be included under the caption “Executive Compensation”, “Compensation Committee Report”, 2018“2020 Director Compensation”, “Compensation Committee Interlocks and Insider Participation” and “Risk Oversight” in Registrant’s definitivethe 2021 Proxy Statement to be filed pursuant to Regulation 14A, which Proxy Statementand is anticipated to be filed with the Securities and Exchange Commission within 120 days after the end of Registrant’s year ended August 31, 2018.incorporated herein by reference.
Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS |
There is hereby incorporatedThe information required by reference the informationthis item will be included under the captions “Stock Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in Registrant’s definitivethe 2021 Proxy Statement to be filed pursuant to Regulation 14A, which Proxy Statementand is anticipated to be filed with the Securities and Exchange Commission within 120 days after the end of Registrant’s year ended August 31, 2018.incorporated herein by reference.
Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
There is hereby incorporatedThe information required by reference the informationthis item will be included under the captioncaptions “Related Party Transactions” and “Director“Board Independence” in Registrant’s definitivethe 2021 Proxy Statement to be filed pursuant to Regulation 14A, which Proxy Statementand is anticipated to be filed with the Securities and Exchange Commission within 120 days after the end of Registrant’s year ended August 31, 2018.incorporated herein by reference.
Item 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
There is hereby incorporatedThe information required by reference the informationthis item will be included under the caption “Ratification of Appointment of Independent Auditors” in Registrant’s definitivethe 2021 Proxy Statement to be filed pursuant to Regulation 14A, which Proxy Statementand is anticipated to be filed with the Securities and Exchange Commission within 120 days after the end of the Registrant’s year ended August 31, 2018.incorporated herein by reference.
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PART IV Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
| (1) | (1) Financial Statements |
See Consolidated Financial Statements in Item 8 | (a) | (2) Financial Statements Schedule** |
| * * | All other schedules have been omitted because they are inapplicable, not required or because the information is given in the Consolidated Financial Statements or notes thereto. This supplemental schedule should be read in conjunction with the Consolidated Financial Statements and notes thereto included in this report. |
| | | (a) | (3) | The following exhibits are filed herewith and this list is intended to constitute the exhibit index: |
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