UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
for the quarterly period ended May 31, 2019February 29, 2020
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
for the transition period from ______ to
Commission FileNo. 1-13146 ______
Commission File No. 1-13146
THE GREENBRIER COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Oregon | 93-0816972 | |
(State of Incorporation) | (I.R.S. Employer Identification No.) | |
One Centerpointe Drive, Suite 200, Lake Oswego, OR | 97035 | |
(Address of principal executive offices) | (Zip Code) |
(503)684-7000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock without par value | GBX | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationsRegulation S-T (Section (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See definitiondefinitions of “large accelerated filer”,filer,” “accelerated filer”,filer,” “smaller reporting company”company,” and “emerging growth company” in Rule12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).
Yes ☐ No ☒
The number of shares of the registrant’s common stock, without par value, outstanding on June 26, 2019April 1, 2020 was 32,483,54032,667,665 shares.
FORM 10-Q
Table of Contents
Page | ||
1 | ||
PART I. | 4 | |
Item 1. | 4 | |
4 | ||
5 | ||
6 | ||
7 | ||
9 | ||
10 | ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 |
Item 3. | 46 | |
Item 4. | 47 | |
PART II. | 48 | |
Item 1. | 48 | |
Item 1A. | 48 | |
Item 2. | 50 | |
Item 6. | 51 | |
52 |
THE GREENBRIER COMPANIES, INC.
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 Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Private Securities Litigation Reform Act of 1933, as amended, and Section 21E1995. Forward-looking statements provide current expectations 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, including this Quarterly Report on Form10-Q. 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 of the date they 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:
abilityany statement that does not relate to grow our businesses;
ability to obtain lease and sales contracts which provide adequate protection against attempted modificationsany historical 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 on a timely basis;
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;
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, 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;
our failure to successfully integrate joint ventures or acquired businesses or complete previously announced transactions, including our proposed transaction to acquire the manufacturing business of American Railcar Industries, Inc. (American Railcar Industries);
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;
2
THE GREENBRIER COMPANIES, INC.
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;
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;
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, investments, 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 continuedcurrent fact. We 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;
3
THE GREENBRIER COMPANIES, INC.
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;
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. Wordswords 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”“preliminary” and similar expressions to identify forward-looking statements. TheseIn addition, any statements that refer to the costs or revenue related to the completion of contracts, timing of recognition of revenue, the estimated and anticipated impact of the ARI acquisition (including working capital true up, and purchase price allocation, among other factors), estimated warranty costs, contingencies, fair value estimates, and any statements that explicitly or implicitly draw trends in our performance or the markets in which we operate, uncertain events or assumptions, and other characterizations of future events or circumstances are forward-looking statements. Forward-looking statements are not guarantees of future performanceperformance.
Forward-looking statements are based on currently available operating, financial and market information and are subject to various risks and uncertainties that could cause actualuncertainties. Actual future results toand trends may differ materially from the results contemplateddepending on a variety of factors, including, but not limited to:
• | the COVID-19 coronavirus pandemic and the governmental reaction to COVID-19 having a materially negativeimpact on our business, liquidity and financial position, results of operations, stock price, and our ability to convert backlog to revenue as more fully described in Part II Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q; |
• | the cyclicalnature of our business, economicdownturns and a risinginterestrateenvironment; |
• | changes in our productmix or decline in revenue due to shifts in demand or fluctuations in commodity and energy prices caused by a number of factors including, among others, COVID-19 and related governmental action, or a significant decline in oil prices; |
• | a decline in performance or demand of the rail freight industry; |
• | an oversupply or increase in efficiency in the rail freight industry; |
• | difficultyintegratingacquired businessesor jointventures; |
• | our inability to convert backlog to futurerevenues; |
• | risks relatedto our operationsoutsideof the U.S., including anti-bribery violations; |
• | governmental policy changes impactinginternationaltradeand corporatetax; |
• | the lossof or reductionof businessfromone or moreof our of our limited number of customers; |
• | inability to leaserailcarsat satisfactoryrates,or realizeexpectedresidualvalues on sale of railcars at the end of a lease; |
• | shortagesof skilledlabor, increased labor costs, or failure to maintain good relations with our workforce; |
• | equipment failures, technological failures, costs and inefficiencies associated with changing of production lines, or transfer of production between facilities; |
• | inability to competesuccessfully; |
• | suitablejointventures, acquisitionopportunitiesand new businessendeavors may not be identified or concluded; |
1
THE GREENBRIER COMPANIES, INC.
• | inabilityto complete capital expenditure projects efficiently or to cause capital expenditure projects to operate as anticipated; |
• | inabilityto designor manufactureproductsor technologies or to achieve timelycertificationor market acceptanceof new productsor technologies; |
• | unsuccessful relationshipswith our jointventurepartners; |
• | environmentalliabilities, including the Portland Harbor Superfund Site; |
• | the timingof our assetsalesand relatedrevenuerecognition may result in comparisons between fiscal periods not being accurate indicators of future performance; |
• | 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; |
• | changes in the creditmarketsand the financialservicesindustry; |
• | volatilityin the globalfinancialmarkets; |
• | our actualresultsdifferingfromour announced expectations; |
• | fluctuationsin the availabilityand priceof energy,freighttransportation,steeland otherraw materials; |
• | inability to procurespecialtycomponentsor serviceson commerciallyreasonabletermsor on a timelybasis from a limited number of suppliers; |
• | existing indebtedness may limit our ability to borrow additional amounts in the future, may expose us to increasing interest rates, and may expose us to a material adverse effect on our business if we are unable to service our debt or obtain additional financing; |
• | train derailmentsor otheraccidentsor claims; |
• | changes in or failure to comply with legaland regulatoryrequirements; |
• | anadverseoutcomein any pending or futurelitigation or investigation; |
• | potentialmisconductby employees; |
• | labor strikesor work stoppages; |
• | the volatility of our stockprice; |
• | dilution to investors resulting from raising additional capital or due to other reasons; |
• | productand servicewarranty claims; |
• | misuse of our products by third parties; |
• | write-downsof goodwillor intangiblesin futureperiods; |
• | conversion at our option of our outstandingconvertible notes resulting in dilution to our then-current stockholders; |
• | as a holding company with no operations, our reliance on our subsidiaries and joint ventures and their ability to make distributions to us; |
2
THE GREENBRIER COMPANIES, INC.
• | governingdocuments, the terms of our convertible notes,and Oregon law could make a change of control or acquisition of our business by a third party difficult; |
• | the discretion of our Board of Directors to pay or not pay dividends on our common stock; |
• | fluctuationsin foreigncurrencyexchange rates; |
• | inability to raiseadditionalcapitalto operateour businessand achieveour businessobjectives; |
• | shareholder activism could cause us to incur significance expense, impact our stock price, and hinder execution of our business strategy; |
• | cybersecurityrisks; |
• | updates or changes to our informationtechnologysystems resulting in problems; |
• | inability to protectour intellectualpropertyand preventitsimproperuse by thirdparties; |
• | claims by third parties that our productsor servicesinfringetheirintellectualpropertyrights; |
• | liabilityforphysicaldamage,businessinterruptionor productliabilityclaimsthatexceedour insurancecoverage; |
• | inability to procureadequateinsuranceon a cost-effectivebasis; |
• | changes in accountingstandardsor inaccurateestimatesor assumptionsin the applicationof accounting policies; |
• | fires,naturaldisasters,severeweather conditionsor publichealthcrises; |
• | unusual weather conditionswhichreducedemand forour wheel-relatedpartsand repairservices; |
• | business, regulatory,and legaldevelopmentsregardingclimatechange which mayaffectthe demand forour productsor the abilityof our criticalsuppliersto meetour needs; |
• | repercussionsfromterroristactivitiesor armedconflict; |
• | unanticipatedchanges in our tax provisionsor exposureto additionalincometax liabilities; |
• | the inability of certain of our customers to utilizetax benefitsor tax credits; and |
• | suspension or termination of our share repurchase program. |
The foregoing risks are described in more detail in Part II Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q and Part I Item 1A “Risk Factors” in our most recent Annual Report on Form 10-K, which are incorporated herein by the forward-looking statements. Many of the important factors that will determine these results and values are beyond our ability to control or predict.reference. You are cautioned not to place undue reliance on any forward-looking statements, which reflect management’s opinions only as of the date hereof. Except as otherwise required by law, we do not assume any obligation to update any forward-looking statements.
All references to years refer to the fiscal years ended August 31st unless otherwise noted.
3
4
THE GREENBRIER COMPANIES, INC.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements Condensed |
Consolidated Balance Sheets
(In thousands, unaudited)
May 31, 2019 | August 31, 2018 |
| February 29, 2020 |
|
| August 31, 2019 |
| |||||||||
Assets |
|
|
|
|
|
|
|
| ||||||||
Cash and cash equivalents | $ | 359,625 | $ | 530,655 |
| $ | 169,899 |
|
| $ | 329,684 |
| ||||
Restricted cash | 21,471 | 8,819 |
|
| 8,569 |
|
|
| 8,803 |
| ||||||
Accounts receivable, net | 330,385 | 348,406 |
|
| 326,229 |
|
|
| 373,383 |
| ||||||
Inventories | 592,099 | 432,314 |
|
| 709,115 |
|
|
| 664,693 |
| ||||||
Leased railcars for syndication | 130,489 | 130,926 |
|
| 255,073 |
|
|
| 182,269 |
| ||||||
Equipment on operating leases, net | 376,241 | 322,855 |
|
| 385,974 |
|
|
| 366,688 |
| ||||||
Property, plant and equipment, net | 478,502 | 457,196 |
|
| 723,326 |
|
|
| 717,973 |
| ||||||
Investment in unconsolidated affiliates | 53,036 | 61,414 |
|
| 79,082 |
|
|
| 91,818 |
| ||||||
Intangibles and other assets, net | 97,022 | 94,668 |
|
| 160,709 |
|
|
| 125,379 |
| ||||||
Goodwill | 74,318 | 78,211 |
|
| 129,684 |
|
|
| 129,947 |
| ||||||
|
|
| $ | 2,947,660 |
|
| $ | 2,990,637 |
| |||||||
$ | 2,513,188 | $ | 2,465,464 | |||||||||||||
|
| |||||||||||||||
Liabilities and Equity |
|
|
|
|
|
|
|
| ||||||||
Revolving notes | $ | 25,952 | $ | 27,725 |
| $ | 37,196 |
|
| $ | 27,115 |
| ||||
Accounts payable and accrued liabilities | 473,106 | 449,857 |
|
| 499,898 |
|
|
| 568,360 |
| ||||||
Deferred income taxes | 12,089 | 31,740 |
|
| 9,173 |
|
|
| 13,946 |
| ||||||
Deferred revenue | 76,170 | 105,954 |
|
| 70,869 |
|
|
| 85,070 |
| ||||||
Notes payable, net | 483,918 | 436,205 |
|
| 811,860 |
|
|
| 822,885 |
| ||||||
Commitments and contingencies (Note 17) | ||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||
Commitments and contingencies (Note 15) |
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
| ||||||||
Contingently redeemable noncontrolling interest | 24,722 | 29,768 |
|
| 30,782 |
|
|
| 31,564 |
| ||||||
|
|
|
|
|
|
|
|
| ||||||||
Equity: |
|
|
|
|
|
|
|
| ||||||||
Greenbrier |
|
|
|
|
|
|
|
| ||||||||
Preferred stock—without par value; 25,000 shares authorized; none outstanding | — | — | ||||||||||||||
Common stock—without par value; 50,000 shares authorized; 32,484 and 32,191 shares outstanding at May 31, 2019 and August 31, 2018 | — | — | ||||||||||||||
Preferred stock - without par value; 25,000 shares authorized; NaN outstanding |
|
| — |
|
|
| — |
| ||||||||
Common stock - without par value; 50,000 shares authorized; 32,642 and 32,488 shares outstanding at February 29, 2020 and August 31, 2019 |
|
| — |
|
|
| — |
| ||||||||
Additionalpaid-in capital | 449,002 | 442,569 |
|
| 458,908 |
|
|
| 453,943 |
| ||||||
Retained earnings | 847,433 | 830,898 |
|
| 875,885 |
|
|
| 867,602 |
| ||||||
Accumulated other comprehensive loss | (34,120 | ) | (23,366 | ) |
|
| (48,321 | ) |
|
| (44,815 | ) | ||||
|
| |||||||||||||||
Total equity – Greenbrier | 1,262,315 | 1,250,101 |
|
| 1,286,472 |
|
|
| 1,276,730 |
| ||||||
Noncontrolling interest | 154,916 | 134,114 |
|
| 201,410 |
|
|
| 164,967 |
| ||||||
|
| |||||||||||||||
Total equity | 1,417,231 | 1,384,215 |
|
| 1,487,882 |
|
|
| 1,441,697 |
| ||||||
|
|
| $ | 2,947,660 |
|
| $ | 2,990,637 |
| |||||||
$ | 2,513,188 | $ | 2,465,464 | |||||||||||||
|
|
The accompanying notes are an integral part of these financial statements
4
5
THE GREENBRIER COMPANIES, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts, unaudited)
Three Months Ended May 31, | Nine Months Ended May 31, |
| Three Months |
|
| Six Months |
| |||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 |
| February 29, 2020 |
|
| February 28, 2019 |
|
| February 29, 2020 |
|
| February 28, 2019 |
| |||||||||||||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Manufacturing | $ | 681,588 | $ | 510,099 | $ | 1,629,396 | $ | 1,473,411 |
| $ | 489,943 |
|
| $ | 476,019 |
|
| $ | 1,147,310 |
|
| $ | 947,808 |
| ||||||||
Wheels, Repair & Parts | 124,980 | 94,515 | 358,801 | 261,236 |
|
| 91,225 |
|
|
| 125,278 |
|
|
| 177,833 |
|
|
| 233,821 |
| ||||||||||||
Leasing & Services | 49,584 | 36,773 | 131,149 | 95,611 |
|
| 42,680 |
|
|
| 57,374 |
|
|
| 68,064 |
|
|
| 81,565 |
| ||||||||||||
|
|
|
|
|
| 623,848 |
|
|
| 658,671 |
|
|
| 1,393,207 |
|
|
| 1,263,194 |
| |||||||||||||
856,152 | 641,387 | 2,119,346 | 1,830,258 | |||||||||||||||||||||||||||||
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Manufacturing | 590,788 | 427,875 | 1,451,589 | 1,237,890 |
|
| 422,309 |
|
|
| 442,996 |
|
|
| 1,004,221 |
|
|
| 860,801 |
| ||||||||||||
Wheels, Repair & Parts | 119,821 | 85,850 | 339,254 | 239,064 |
|
| 84,373 |
|
|
| 118,455 |
|
|
| 166,265 |
|
|
| 219,433 |
| ||||||||||||
Leasing & Services | 38,971 | 19,155 | 95,554 | 50,136 |
|
| 30,830 |
|
|
| 43,376 |
|
|
| 44,196 |
|
|
| 56,583 |
| ||||||||||||
|
|
|
|
|
| 537,512 |
|
|
| 604,827 |
|
|
| 1,214,682 |
|
|
| 1,136,817 |
| |||||||||||||
749,580 | 532,880 | 1,886,397 | 1,527,090 | |||||||||||||||||||||||||||||
Margin | 106,572 | 108,507 | 232,949 | 303,168 |
|
| 86,336 |
|
|
| 53,844 |
|
|
| 178,525 |
|
|
| 126,377 |
| ||||||||||||
Selling and administrative expense | 54,377 | 51,793 | 152,701 | 149,130 |
|
| 54,597 |
|
|
| 47,892 |
|
|
| 108,961 |
|
|
| 98,324 |
| ||||||||||||
Net gain on disposition of equipment | (11,019 | ) | (14,825 | ) | (37,474 | ) | (39,813 | ) |
|
| (6,697 | ) |
|
| (12,102 | ) |
|
| (10,656 | ) |
|
| (26,455 | ) | ||||||||
Goodwill impairment | 10,025 | — | 10,025 | — | ||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Earnings from operations | 53,189 | 71,539 | 107,697 | 193,851 |
|
| 38,436 |
|
|
| 18,054 |
|
|
| 80,220 |
|
|
| 54,508 |
| ||||||||||||
Other costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Interest and foreign exchange | 9,770 | 6,533 | 23,411 | 20,582 |
|
| 12,609 |
|
|
| 9,237 |
|
|
| 25,461 |
|
|
| 13,641 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Earnings before income taxes and loss from unconsolidated affiliates | 43,419 | 65,006 | 84,286 | 173,269 | ||||||||||||||||||||||||||||
Earnings before income taxes and earnings (loss) from unconsolidated affiliates |
|
| 25,827 |
|
|
| 8,817 |
|
|
| 54,759 |
|
|
| 40,867 |
| ||||||||||||||||
Income tax expense | (13,008 | ) | (15,944 | ) | (24,391 | ) | (22,778 | ) |
|
| (7,463 | ) |
|
| (2,248 | ) |
|
| (13,457 | ) |
|
| (11,383 | ) | ||||||||
|
|
|
| |||||||||||||||||||||||||||||
Earnings before loss from unconsolidated affiliates | 30,411 | 49,062 | 59,895 | 150,491 | ||||||||||||||||||||||||||||
Loss from unconsolidated affiliates | (4,564 | ) | (12,823 | ) | (4,883 | ) | (15,586 | ) | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Earnings before earnings (loss) from unconsolidated affiliates |
|
| 18,364 |
|
|
| 6,569 |
|
|
| 41,302 |
|
|
| 29,484 |
| ||||||||||||||||
Earnings (loss) from unconsolidated affiliates |
|
| 1,651 |
|
|
| (786 | ) |
|
| 2,724 |
|
|
| (319 | ) | ||||||||||||||||
Net earnings | 25,847 | 36,239 | 55,012 | 134,905 |
|
| 20,015 |
|
|
| 5,783 |
|
|
| 44,026 |
|
|
| 29,165 |
| ||||||||||||
Net earnings attributable to noncontrolling interest | (10,599 | ) | (3,288 | ) | (19,043 | ) | (14,059 | ) |
|
| (6,386 | ) |
|
| (3,018 | ) |
|
| (22,728 | ) |
|
| (8,444 | ) | ||||||||
|
|
|
| |||||||||||||||||||||||||||||
Net earnings attributable to Greenbrier | $ | 15,248 | $ | 32,951 | $ | 35,969 | $ | 120,846 |
| $ | 13,629 |
|
| $ | 2,765 |
|
| $ | 21,298 |
|
| $ | 20,721 |
| ||||||||
|
|
|
| |||||||||||||||||||||||||||||
Basic earnings per common share | $ | 0.47 | $ | 1.03 | $ | 1.10 | $ | 3.99 |
| $ | 0.42 |
|
| $ | 0.08 |
|
| $ | 0.65 |
|
| $ | 0.63 |
| ||||||||
Diluted earnings per common share | $ | 0.46 | $ | 1.01 | $ | 1.08 | $ | 3.75 |
| $ | 0.41 |
|
| $ | 0.08 |
|
| $ | 0.64 |
|
| $ | 0.63 |
| ||||||||
Weighted average common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic | 32,603 | 32,034 | 32,623 | 30,250 |
|
| 32,661 |
|
|
| 32,628 |
|
|
| 32,645 |
|
|
| 32,634 |
| ||||||||||||
Diluted | 33,183 | 32,914 | 33,161 | 32,774 |
|
| 33,482 |
|
|
| 33,206 |
|
|
| 33,382 |
|
|
| 33,149 |
| ||||||||||||
Dividends declared per common share | $ | 0.25 | $ | 0.25 | $ | 0.75 | $ | 0.71 |
| $ | 0.27 |
|
| $ | 0.25 |
|
| $ | 0.52 |
|
| $ | 0.50 |
|
The accompanying notes are an integral part of these financial statements
5
6
THE GREENBRIER COMPANIES, INC.
Condensed Consolidated Statements of Comprehensive Income
(In thousands, unaudited)
Three Months Ended May 31, | Nine Months Ended May 31, |
| Three Months |
|
| Six Months |
| |||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 |
| February 29, 2020 |
|
| February 28, 2019 |
|
| February 29, 2020 |
|
| February 28, 2019 |
| |||||||||||||||||
Net earnings | $ | 25,847 | $ | 36,239 | $ | 55,012 | $ | 134,905 |
| $ | 20,015 |
|
| $ | 5,783 |
|
| $ | 44,026 |
|
| $ | 29,165 |
| ||||||||
Other comprehensive income | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Translation adjustment | (5,083 | ) | (15,136 | ) | (7,269 | ) | (14,163 | ) |
|
| (703 | ) |
|
| 1,745 |
|
|
| (2,286 | ) |
|
| (2,186 | ) | ||||||||
Reclassification of derivative financial instruments recognized in net earnings1 | 306 | 59 | 1,476 | (606 | ) |
|
| 168 |
|
|
| 701 |
|
|
| 477 |
|
|
| 1,170 |
| |||||||||||
Unrealized loss on derivative financial instruments2 | (1,729 | ) | (2,103 | ) | (5,066 | ) | (274 | ) |
|
| (3,638 | ) |
|
| (1,035 | ) |
|
| (1,484 | ) |
|
| (3,337 | ) | ||||||||
Other (net of tax effect) | (1 | ) | 29 | 75 | 54 |
|
| 242 |
|
|
| 306 |
|
|
| (221 | ) |
|
| 76 |
| |||||||||||
|
|
|
|
|
| (3,931 | ) |
|
| 1,717 |
|
|
| (3,514 | ) |
|
| (4,277 | ) | |||||||||||||
(6,507 | ) | (17,151 | ) | (10,784 | ) | (14,989 | ) | |||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Comprehensive income | 19,340 | 19,088 | 44,228 | 119,916 |
|
| 16,084 |
|
|
| 7,500 |
|
|
| 40,512 |
|
|
| 24,888 |
| ||||||||||||
Comprehensive income attributable to noncontrolling interest | (10,590 | ) | (3,266 | ) | (19,013 | ) | (14,041 | ) |
|
| (6,384 | ) |
|
| (3,012 | ) |
|
| (22,720 | ) |
|
| (8,423 | ) | ||||||||
|
|
|
| |||||||||||||||||||||||||||||
Comprehensive income attributable to Greenbrier | $ | 8,750 | $ | 15,822 | $ | 25,215 | $ | 105,875 |
| $ | 9,700 |
|
| $ | 4,488 |
|
| $ | 17,792 |
|
| $ | 16,465 |
| ||||||||
|
|
|
|
1 | Net of tax effect of |
2 | Net of tax effect of $1.3 million and |
|
The accompanying notes are an integral part of these financial statements
6
7
THE GREENBRIER COMPANIES, INC.
Condensed Consolidated Statements of Equity
(In thousands, unaudited)
Attributable to Greenbrier | ||||||||||||||||||||||||||||||||
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 August 31, 2018 | 32,191 | $ | 442,569 | $ | 830,898 | $ | (23,366 | ) | $ | 1,250,101 | $ | 134,114 | $ | 1,384,215 | $ | 29,768 | ||||||||||||||||
Net earnings | — | — | 35,969 | — | 35,969 | 24,089 | 60,058 | (5,046 | ) | |||||||||||||||||||||||
Other comprehensive loss, net | — | — | — | (10,754 | ) | (10,754 | ) | (30 | ) | (10,784 | ) | — | ||||||||||||||||||||
Noncontrolling interest adjustments | — | — | — | — | — | 7,322 | 7,322 | — | ||||||||||||||||||||||||
Joint venture partner distribution declared | — | — | — | — | — | (12,494 | ) | (12,494 | ) | — | ||||||||||||||||||||||
Noncontrolling interest acquired | — | — | — | — | — | 1,915 | 1,915 | — | ||||||||||||||||||||||||
Cumulative effect adjustment due to adoption of ASU2014-09 (See Note 1) | — | — | 5,461 | — | 5,461 | — | 5,461 | — | ||||||||||||||||||||||||
Restricted stock awards (net of cancellations) | 293 | 12,721 | — | — | 12,721 | — | 12,721 | — | ||||||||||||||||||||||||
Unamortized restricted stock | — | (17,445 | ) | — | — | (17,445 | ) | — | (17,445 | ) | — | |||||||||||||||||||||
Restricted stock amortization | — | 11,157 | — | — | 11,157 | — | 11,157 | — | ||||||||||||||||||||||||
Cash dividends ($0.75 per share) | — | — | (24,895 | ) | — | (24,895 | ) | — | (24,895 | ) | — | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance May 31, 2019 | 32,484 | $ | 449,002 | $ | 847,433 | $ | (34,120 | ) | $ | 1,262,315 | $ | 154,916 | $ | 1,417,231 | $ | 24,722 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Attributable to Greenbrier | ||||||||||||||||||||||||||||||||
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 February 28, 2019 | 32,379 | $ | 444,962 | $ | 840,478 | $ | (27,622 | ) | $ | 1,257,818 | $ | 145,459 | $ | 1,403,277 | $ | 25,637 | ||||||||||||||||
Net earnings | — | — | 15,248 | — | 15,248 | 11,514 | 26,762 | (915 | ) | |||||||||||||||||||||||
Other comprehensive loss, net | — | — | — | (6,498 | ) | (6,498 | ) | (9 | ) | (6,507 | ) | — | ||||||||||||||||||||
Noncontrolling interest adjustments | — | — | — | — | — | 2,016 | 2,016 | — | ||||||||||||||||||||||||
Joint venture partner distribution declared | — | — | — | — | — | (4,064 | ) | (4,064 | ) | — | ||||||||||||||||||||||
Restricted stock awards (net of cancellations) | 105 | 38 | — | — | 38 | — | 38 | — | ||||||||||||||||||||||||
Unamortized restricted stock | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Restricted stock amortization | — | 4,002 | — | — | 4,002 | — | 4,002 | — | ||||||||||||||||||||||||
Cash dividends ($0.25 per share) | — | — | (8,293 | ) | — | (8,293 | ) | — | (8,293 | ) | — | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance May 31, 2019 | 32,484 | $ | 449,002 | $ | 847,433 | $ | (34,120 | ) | $ | 1,262,315 | $ | 154,916 | $ | 1,417,231 | $ | 24,722 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Attributable to Greenbrier |
|
|
|
|
|
|
|
|
|
| |||||||||||||
| 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 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 adoption of ASU 2016-02 (See Note 1) |
| — |
|
| — |
|
| 4,393 |
|
| — |
|
| 4,393 |
|
| — |
|
| 4,393 |
|
| — |
|
Net earnings |
| — |
|
| — |
|
| 21,298 |
|
| — |
|
| 21,298 |
|
| 23,510 |
|
| 44,808 |
|
| (782 | ) |
Other comprehensive loss, net |
| — |
|
| — |
|
| — |
|
| (3,506 | ) |
| (3,506 | ) |
| (8 | ) |
| (3,514 | ) |
| — |
|
Noncontrolling interest adjustments |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 9,038 |
|
| 9,038 |
|
| — |
|
Joint venture partner distribution declared |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (8,172 | ) |
| (8,172 | ) |
| — |
|
Noncontrolling interest acquired |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 12,075 |
|
| 12,075 |
|
| — |
|
Restricted stock awards (net of cancellations) |
| 154 |
|
| 11,114 |
|
| — |
|
| — |
|
| 11,114 |
|
| — |
|
| 11,114 |
|
| — |
|
Unamortized restricted stock |
| — |
|
| (13,008 | ) |
| — |
|
| — |
|
| (13,008 | ) |
| — |
|
| (13,008 | ) |
| — |
|
Restricted stock amortization |
| — |
|
| 6,859 |
|
| — |
|
| — |
|
| 6,859 |
|
| — |
|
| 6,859 |
|
| — |
|
Cash dividends ($0.52 per share) |
| — |
|
| — |
|
| (17,408 | ) |
| — |
|
| (17,408 | ) |
| — |
|
| (17,408 | ) |
| — |
|
Balance February 29, 2020 |
| 32,642 |
| $ | 458,908 |
| $ | 875,885 |
| $ | (48,321 | ) | $ | 1,286,472 |
| $ | 201,410 |
| $ | 1,487,882 |
| $ | 30,782 |
|
| Attributable to Greenbrier |
|
|
|
|
|
|
|
|
|
| |||||||||||||
| 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 November 30, 2019 |
| 32,596 |
| $ | 454,900 |
| $ | 871,300 |
| $ | (44,392 | ) | $ | 1,281,808 |
| $ | 191,050 |
| $ | 1,472,858 |
| $ | 31,723 |
|
Net earnings |
| — |
|
| — |
|
| 13,629 |
|
| — |
|
| 13,629 |
|
| 7,327 |
|
| 20,956 |
|
| (941 | ) |
Other comprehensive loss, net |
| — |
|
| — |
|
| — |
|
| (3,929 | ) |
| (3,929 | ) |
| (2 | ) |
| (3,931 | ) |
| — |
|
Noncontrolling interest adjustments |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 7,302 |
|
| 7,302 |
|
| — |
|
Joint venture partner distribution declared |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (4,267 | ) |
| (4,267 | ) |
| — |
|
Restricted stock awards (net of cancellations) |
| 46 |
|
| 1,642 |
|
| — |
|
| — |
|
| 1,642 |
|
| — |
|
| 1,642 |
|
| — |
|
Unamortized restricted stock |
| — |
|
| (1,667 | ) |
| — |
|
| — |
|
| (1,667 | ) |
| — |
|
| (1,667 | ) |
| — |
|
Restricted stock amortization |
| — |
|
| 4,033 |
|
| — |
|
| — |
|
| 4,033 |
|
| — |
|
| 4,033 |
|
| — |
|
Cash dividends ($0.27 per share) |
| — |
|
| — |
|
| (9,044 | ) |
| — |
|
| (9,044 | ) |
| — |
|
| (9,044 | ) |
| — |
|
Balance February 29, 2020 |
| 32,642 |
| $ | 458,908 |
| $ | 875,885 |
| $ | (48,321 | ) | $ | 1,286,472 |
| $ | 201,410 |
| $ | 1,487,882 |
| $ | 30,782 |
|
7
THE GREENBRIER COMPANIES, INC.
| Attributable to Greenbrier |
|
|
|
|
|
|
|
|
|
| |||||||||||||
| 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 August 31, 2018 |
| 32,191 |
| $ | 442,569 |
| $ | 830,898 |
| $ | (23,366 | ) | $ | 1,250,101 |
| $ | 134,114 |
| $ | 1,384,215 |
| $ | 29,768 |
|
Cumulative effect adjustment due to adoption of ASU 2014-09 |
| — |
|
| — |
|
| 5,461 |
|
| — |
|
| 5,461 |
|
| — |
|
| 5,461 |
|
|
|
|
Net earnings |
| — |
|
| — |
|
| 20,721 |
|
| — |
|
| 20,721 |
|
| 12,575 |
|
| 33,296 |
|
| (4,131 | ) |
Other comprehensive loss, net |
| — |
|
| — |
|
|
|
|
| (4,256 | ) |
| (4,256 | ) |
| (21 | ) |
| (4,277 | ) |
| — |
|
Noncontrolling interest adjustments |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 5,306 |
|
| 5,306 |
|
| — |
|
Joint venture partner distribution declared |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (8,430 | ) |
| (8,430 | ) |
| — |
|
Noncontrolling interest acquired |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,915 |
|
| 1,915 |
|
| — |
|
Restricted stock awards (net of cancellations) |
| 188 |
|
| 12,683 |
|
| — |
|
| — |
|
| 12,683 |
|
| — |
|
| 12,683 |
|
| — |
|
Unamortized restricted stock |
| — |
|
| (17,445 | ) |
| — |
|
| — |
|
| (17,445 | ) |
| — |
|
| (17,445 | ) |
| — |
|
Restricted stock amortization |
| — |
|
| 7,155 |
|
| — |
|
| — |
|
| 7,155 |
|
| — |
|
| 7,155 |
|
| — |
|
Cash dividends ($0.50 per share) |
| — |
|
| — |
|
| (16,602 | ) |
| — |
|
| (16,602 | ) |
| — |
|
| (16,602 | ) |
| — |
|
Balance February 28, 2019 |
| 32,379 |
| $ | 444,962 |
| $ | 840,478 |
| $ | (27,622 | ) | $ | 1,257,818 |
| $ | 145,459 |
| $ | 1,403,277 |
| $ | 25,637 |
|
| Attributable to Greenbrier |
|
|
|
|
|
|
|
|
|
| |||||||||||||
| 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 November 30, 2018 |
| 32,350 |
| $ | 440,958 |
| $ | 846,018 |
| $ | (29,345 | ) | $ | 1,257,631 |
| $ | 141,590 |
| $ | 1,399,221 |
| $ | 28,449 |
|
Net earnings |
| — |
|
| — |
|
| 2,765 |
|
|
|
|
| 2,765 |
|
| 5,830 |
|
| 8,595 |
|
| (2,812 | ) |
Other comprehensive loss, net |
| — |
|
| — |
|
| — |
|
| 1,723 |
|
| 1,723 |
|
| (6 | ) |
| 1,717 |
|
| — |
|
Noncontrolling interest adjustments |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,387 |
|
| 1,387 |
|
| — |
|
Joint venture partner distribution declared |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (5,257 | ) |
| (5,257 | ) |
| — |
|
Noncontrolling interest acquired |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,915 |
|
| 1,915 |
|
| — |
|
Restricted stock awards (net of cancellations) |
| 29 |
|
| 1,267 |
|
| — |
|
| — |
|
| 1,267 |
|
| — |
|
| 1,267 |
|
| — |
|
Unamortized restricted stock |
| — |
|
| (1,282 | ) |
| — |
|
| — |
|
| (1,282 | ) |
| — |
|
| (1,282 | ) |
| — |
|
Restricted stock amortization |
| — |
|
| 4,019 |
|
| — |
|
| — |
|
| 4,019 |
|
| — |
|
| 4,019 |
|
| — |
|
Cash dividends ($0.25 per share) |
| — |
|
| — |
|
| (8,305 | ) |
| — |
|
| (8,305 | ) |
| — |
|
| (8,305 | ) |
| — |
|
Balance February 28, 2019 |
| 32,379 |
| $ | 444,962 |
| $ | 840,478 |
| $ | (27,622 | ) | $ | 1,257,818 |
| $ | 145,459 |
| $ | 1,403,277 |
| $ | 25,637 |
|
The accompanying notes are an integral part of these financial statements
8
THE GREENBRIER COMPANIES, INC.
Condensed Consolidated Statements of Equity (continued)Cash Flows
(In thousands, unaudited)
|
| Six Months |
| |||||
|
| February 29, 2020 |
|
| February 28, 2019 |
| ||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net earnings |
| $ | 44,026 |
|
| $ | 29,165 |
|
Adjustments to reconcile net earnings to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Deferred income taxes |
|
| (6,714 | ) |
|
| (3,405 | ) |
Depreciation and amortization |
|
| 59,338 |
|
|
| 40,815 |
|
Net gain on disposition of equipment |
|
| (10,656 | ) |
|
| (26,455 | ) |
Accretion of debt discount |
|
| 2,718 |
|
|
| 2,165 |
|
Stock based compensation expense |
|
| 7,237 |
|
|
| 7,311 |
|
Noncontrolling interest adjustments |
|
| 9,038 |
|
|
| 5,306 |
|
Other |
|
| (39 | ) |
|
| 1,809 |
|
Decrease (increase) in assets: |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
| 46,109 |
|
|
| 23,298 |
|
Inventories |
|
| (55,158 | ) |
|
| (154,388 | ) |
Leased railcars for syndication |
|
| (123,033 | ) |
|
| (76,386 | ) |
Other |
|
| (39,433 | ) |
|
| (11,274 | ) |
Increase (decrease) in liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
| (67,988 | ) |
|
| 28,458 |
|
Deferred revenue |
|
| 1,381 |
|
|
| (13,041 | ) |
Net cash used in operating activities |
|
| (133,174 | ) |
|
| (146,622 | ) |
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Proceeds from sales of assets |
|
| 41,827 |
|
|
| 63,879 |
|
Capital expenditures |
|
| (40,834 | ) |
|
| (98,176 | ) |
Investment in and advances to unconsolidated affiliates |
|
| (1,500 | ) |
|
| (11,393 | ) |
Cash distribution from unconsolidated affiliates and other |
|
| 11,273 |
|
|
| 1,986 |
|
Net cash provided by (used in) investing activities |
|
| 10,766 |
|
|
| (43,704 | ) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Net change in revolving notes with maturities of 90 days or less |
|
| 10,246 |
|
|
| (6,007 | ) |
Proceeds from issuance of notes payable |
|
| — |
|
|
| 225,000 |
|
Repayments of notes payable |
|
| (17,120 | ) |
|
| (176,641 | ) |
Debt issuance costs |
|
| — |
|
|
| (2,770 | ) |
Dividends |
|
| (17,312 | ) |
|
| (16,651 | ) |
Cash distribution to joint venture partner |
|
| (8,706 | ) |
|
| (5,058 | ) |
Tax payments for net share settlement of restricted stock |
|
| (1,895 | ) |
|
| (4,762 | ) |
Net cash provided by (used in) financing activities |
|
| (34,787 | ) |
|
| 13,111 |
|
Effect of exchange rate changes |
|
| (2,824 | ) |
|
| 825 |
|
Decrease in cash and cash equivalents and restricted cash |
|
| (160,019 | ) |
|
| (176,390 | ) |
Cash and cash equivalents and restricted cash |
|
|
|
|
|
|
|
|
Beginning of period |
|
| 338,487 |
|
|
| 539,474 |
|
End of period |
| $ | 178,468 |
|
| $ | 363,084 |
|
Balance Sheet Reconciliation: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 169,899 |
|
| $ | 341,500 |
|
Restricted cash |
|
| 8,569 |
|
|
| 21,584 |
|
Total cash and cash equivalents and restricted cash as presented above |
| $ | 178,468 |
|
| $ | 363,084 |
|
|
|
|
|
|
|
|
|
|
Interest |
| $ | 11,608 |
|
| $ | 8,600 |
|
Income taxes, net |
| $ | 25,503 |
|
| $ | 31,494 |
|
Non-cash activity |
|
|
|
|
|
|
|
|
Transfer from Leased railcars for syndication to Equipment on operating leases, net |
| $ | 55,739 |
|
| $ | 42,809 |
|
Capital expenditures accrued in Accounts payable and accrued liabilities |
| $ | 3,237 |
|
| $ | 11,812 |
|
Change in Accounts payable and accrued liabilities associated with dividends declared |
| $ | (96 | ) |
| $ | 50 |
|
Conversion of unconsolidated affiliate note receivable to Investment in unconsolidated affiliates |
| $ | 4,760 |
|
| $ | — |
|
Change in Accounts payable and accrued liabilities associated with cash distributions to joint venture partner |
| $ | 535 |
|
| $ | (3,372 | ) |
Attributable to Greenbrier | ||||||||||||||||||||||||||||||||
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 August 31, 2017 | 28,503 | $ | 315,306 | $ | 709,103 | $ | (6,279 | ) | $ | 1,018,130 | $ | 160,763 | $ | 1,178,893 | $ | 36,148 | ||||||||||||||||
Net earnings | — | — | 120,846 | — | 120,846 | 19,072 | 139,918 | (5,013 | ) | |||||||||||||||||||||||
Other comprehensive income, net | — | — | — | (14,971 | ) | (14,971 | ) | (18 | ) | (14,989 | ) | — | ||||||||||||||||||||
Noncontrolling interest adjustments | — | — | — | — | — | 1,067 | 1,067 | — | ||||||||||||||||||||||||
Joint venture partner distribution declared | — | — | — | — | — | (59,014 | ) | (59,014 | ) | — | ||||||||||||||||||||||
Investment by joint venture partner | — | — | — | — | — | 6,500 | 6,500 | — | ||||||||||||||||||||||||
Noncontrolling interest acquired | — | — | — | — | — | (7 | ) | (7 | ) | — | ||||||||||||||||||||||
Restricted stock awards (net of cancellations) | 336 | 7,335 | — | — | 7,335 | — | 7,335 | — | ||||||||||||||||||||||||
Unamortized restricted stock | — | (15,052 | ) | — | — | (15,052 | ) | — | (15,052 | ) | — | |||||||||||||||||||||
Restricted stock amortization | — | 12,084 | — | — | 12,084 | — | 12,084 | — | ||||||||||||||||||||||||
Cash dividends ($0.71 per share) | — | — | (21,747 | ) | — | (21,747 | ) | — | (21,747 | ) | — | |||||||||||||||||||||
Conversion of 2018 Convertible Senior Notes | 3,352 | 118,887 | — | — | 118,887 | — | 118,887 | — | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance May 31, 2018 | 32,191 | $ | 438,560 | $ | 808,202 | $ | (21,250 | ) | $ | 1,225,512 | $ | 128,363 | $ | 1,353,875 | $ | 31,135 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Attributable to Greenbrier | ||||||||||||||||||||||||||||||||
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 February 28, 2018 | 28,732 | $ | 316,073 | $ | 783,495 | $ | (4,121 | ) | $ | 1,095,447 | $ | 147,586 | $ | 1,243,033 | $ | 33,046 | ||||||||||||||||
Net earnings | — | — | 32,951 | — | 32,951 | 5,199 | 38,150 | (1,911 | ) | |||||||||||||||||||||||
Other comprehensive income, net | — | — | — | (17,129 | ) | (17,129 | ) | (22 | ) | (17,151 | ) | — | ||||||||||||||||||||
Noncontrolling interest adjustments | — | — | — | — | — | 3,628 | 3,628 | — | ||||||||||||||||||||||||
Joint venture partner distribution declared | — | — | — | — | — | (28,021 | ) | (28,021 | ) | — | ||||||||||||||||||||||
Noncontrolling interest acquired | — | — | — | — | — | (7 | ) | (7 | ) | — | ||||||||||||||||||||||
Restricted stock awards (net of cancellations) | 107 | 11,585 | — | — | 11,585 | — | 11,585 | — | ||||||||||||||||||||||||
Unamortized restricted stock | — | (14,102 | ) | — | — | (14,102 | ) | — | (14,102 | ) | — | |||||||||||||||||||||
Restricted stock amortization | — | 6,117 | — | — | 6,117 | — | 6,117 | — | ||||||||||||||||||||||||
Cash dividends ($0.25 per share) | — | — | (8,244 | ) | — | (8,244 | ) | — | (8,244 | ) | — | |||||||||||||||||||||
Conversion of 2018 Convertible Senior Notes | 3,352 | 118,887 | — | — | 118,887 | — | 118,887 | — | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance May 31, 2018 | 32,191 | $ | 438,560 | $ | 808,202 | $ | (21,250 | ) | $ | 1,225,512 | $ | 128,363 | $ | 1,353,875 | $ | 31,135 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements
9
THE GREENBRIER COMPANIES, INC.
Consolidated Statements of Cash Flows
(In thousands, unaudited)
Nine Months Ended May 31, | ||||||||
2019 | 2018 | |||||||
Cash flows from operating activities | ||||||||
Net earnings | $ | 55,012 | $ | 134,905 | ||||
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: | ||||||||
Deferred income taxes | (20,478 | ) | (38,825 | ) | ||||
Depreciation and amortization | 60,833 | 55,161 | ||||||
Net gain on disposition of equipment | (37,474 | ) | (39,813 | ) | ||||
Accretion of debt discount | 3,268 | 3,109 | ||||||
Stock based compensation expense | 10,792 | 20,311 | ||||||
Goodwill impairment | 10,025 | — | ||||||
Noncontrolling interest adjustments | 7,322 | 1,067 | ||||||
Other | 1,916 | 1,345 | ||||||
Decrease (increase) in assets: | ||||||||
Accounts receivable, net | 27,926 | (24,980 | ) | |||||
Inventories | (169,813 | ) | (4,270 | ) | ||||
Leased railcars for syndication | (43,796 | ) | (69,994 | ) | ||||
Other | (2,525 | ) | 30,549 | |||||
Increase (decrease) in liabilities: | ||||||||
Accounts payable and accrued liabilities | 30,581 | 34,898 | ||||||
Deferred revenue | (27,712 | ) | (23,837 | ) | ||||
|
|
|
| |||||
Net cash provided by (used in) operating activities | (94,123 | ) | 79,626 | |||||
|
|
|
| |||||
Cash flows from investing activities | ||||||||
Proceeds from sales of assets | 100,730 | 129,828 | ||||||
Capital expenditures | (149,945 | ) | (118,656 | ) | ||||
Investment in and advances to unconsolidated affiliates | (11,393 | ) | (21,455 | ) | ||||
Cash distribution from unconsolidated affiliates | 1,986 | 3,941 | ||||||
|
|
|
| |||||
Net cash used in investing activities | (58,622 | ) | (6,342 | ) | ||||
|
|
|
| |||||
Cash flows from financing activities | ||||||||
Net change in revolving notes with maturities of 90 days or less | (1,882 | ) | 16,013 | |||||
Proceeds from issuance of notes payable | 225,000 | 13,749 | ||||||
Repayments of notes payable | (179,803 | ) | (19,274 | ) | ||||
Debt issuance costs | (2,974 | ) | — | |||||
Investment by joint venture partner | — | 6,500 | ||||||
Dividends | (25,072 | ) | (21,866 | ) | ||||
Cash distribution to joint venture partner | (11,715 | ) | (69,413 | ) | ||||
Tax payments for net share settlement of restricted stock | (6,321 | ) | (7,716 | ) | ||||
|
|
|
| |||||
Net cash used in financing activities | (2,767 | ) | (82,007 | ) | ||||
|
|
|
| |||||
Effect of exchange rate changes | (2,866 | ) | (12,462 | ) | ||||
Decrease in cash and cash equivalents and restricted cash | (158,378 | ) | (21,185 | ) | ||||
Cash and cash equivalents and restricted cash | ||||||||
Beginning of period | 539,474 | 620,358 | ||||||
|
|
|
| |||||
End of period | $ | 381,096 | $ | 599,173 | ||||
|
|
|
| |||||
Balance Sheet Reconciliation: | ||||||||
Cash and cash equivalents | $ | 359,625 | $ | 589,969 | ||||
Restricted cash | 21,471 | 9,204 | ||||||
|
|
|
| |||||
Total cash and cash equivalents and restricted cash as presented above | $ | 381,096 | $ | 599,173 | ||||
|
|
|
| |||||
Cash paid during the period for | ||||||||
Interest | $ | 11,350 | $ | 13,080 | ||||
Income taxes, net | $ | 45,904 | $ | 62,219 | ||||
Non-cash activity | ||||||||
Transfer from Leased railcars for syndication to Equipment on operating leases, net | $ | 42,802 | $ | 5,541 | ||||
Capital expenditures accrued in Accounts payable and accrued liabilities | $ | 14,455 | $ | 1,868 | ||||
Change in Accounts payable and accrued liabilities associated with dividends declared | $ | 177 | $ | 119 | ||||
Change in Accounts payable and accrued liabilities associated with cash distributions to joint venture partner | $ | (779 | ) | $ | 29 | |||
Conversion of 2018 Senior Convertible Notes | $ | — | $ | 118,887 |
The accompanying notes are an integral part of these financial statements
10
THE GREENBRIER COMPANIES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 – Interim Financial Statements
The Condensed Consolidated Financial Statements of The Greenbrier Companies, Inc. and its subsidiaries (Greenbrier or the Company) as of May 31, 2019February 29, 2020, for the three and six months ended February 29, 2020 and for the three and ninesix months ended May 31, 2018 andFebruary 28, 2019 have been prepared to reflect all adjustments (consisting of normal recurring accruals) that, in the opinion of management, are necessary for a fair presentation of the financial position, operating results and cash flows for the periods indicated. The results of operations for the three and ninesix months ended May 31, 2019February 29, 2020 are not necessarily indicative of the results to be expected for the entire year ending August 31, 2019.2020.
Certain notes and other information have been condensed or omitted from the interim financial statements presented in this Quarterly Report on Form10-Q. Therefore, these unaudited financial statements should be read in conjunction with the Consolidated Financial Statements contained in the Company’s 20182019 Annual Report on Form10-K.
Management 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.
Initial Adoption of Accounting Policies – In the first quarter ofStandards
Lease accounting
On September 1, 2019, the Company adopted Accounting Standard Update2014-09,Revenue from Contracts with Customers (ASU2014-09). This standard was issued to provide a common revenue recognition model for 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. The new standard also requires additional disclosures to sufficiently describe the nature, amount, timing, and uncertainty of revenue and cash flow arising from contracts with customers. As a result of adopting the new standard, the timing of the Company’s revenue recognition has principally remained unchanged. Certain minor changes have occurred related to maintenance and repair services. Costs incurred while fulfilling maintenance contracts will now be recognized as incurred while the related revenue will continue to be recognized over time. Additionally, repair service revenue, while previously recognized upon completion of the services, will now be recognized over time. This standard was adopted using a modified retrospective approach through a cumulative effect adjustment, which increased retained earnings by $5.5 million at September 1, 2018. The adoption of the new revenue standard did not have a material effect on the Company’s Unaudited Condensed Consolidated Balance Sheets and Statements of Income.
In the first quarter of 2019, the Company adopted Accounting Standard Update2016-18,Restricted Cash (ASU2016-18). This update requires additional disclosure and that the Statement of Cash Flows explain the change during the period in the total cash, cash equivalents and amounts generally described as restricted cash. Therefore, amounts generally described as restricted cash are included with cash & cash equivalents when reconciling thebeginning-of-period andend-of-period total amounts shown on the Statement of Cash Flows. The guidance requires retrospective adjustment to each period presented. The adoption of ASU2016-18 did not have an impact on the Condensed Consolidated Balance Sheet or the Statement of Income, but did result in revisions to the Condensed Consolidated Statement of Cash Flows as well as other revised disclosures.
Prospective Accounting Changes – In February 2016, the FASB issued Accounting Standards Update2016-02,Leases (ASU2016-02) (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 by recording aright-of-use (ROU) asset and a lease 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: Contracts with Customers.
The Company adopted the provisions of the new revenuestandard using the modified retrospective adoption method, utilizing the simplified transition option which allows entities to continue to apply the legacy guidance in Topic 840 in the comparative periods presented in the year of adoption. The Company elected the “package of practical expedients,” which allows it to not reassess under the new guidance prior 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 standard. The ASUexemption for all leases that qualify, which means it will require both quantitative and qualitative disclosures regarding key information about leasing arrangements. The standard is effectivenot recognize ROU assets or lease liabilities for fiscal years, and
11
THE GREENBRIER COMPANIES, INC.
interim periods within those fiscal years, beginning after December 15, 2018 andleases with lease terms of less than twelve months. Following the adoption of Topic 842, the Company plans to adopt this standard onwill utilize both Topic 842 and Topic 606: Contracts with Customers 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 also recognized an immaterial finance lease asset and corresponding lease liability. Additionally, the Company 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 must be adopted using a modified retrospective transition and will include a cumulative effectalso required the Company to eliminate deferred gains associated with certain sale-leaseback transactions. A cumulative-effect adjustment of $4.4 million was recorded as an increase to the opening balance of retained earnings in the periodas of adoption. The Company is finalizing its assessment of the effects of the new standard, including its effects on the Company’s consolidated financial statements.September 1, 2019.
10
THE GREENBRIER COMPANIES, INC.
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 fornon-financial and financial risk components, reduces complexity in fair value hedges of interest rate risk and eliminates the requirement to separately measure and report 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. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.
Share Repurchase Program –The Board of Directors has authorized the Company to repurchase shares of the Company’s common stock. In 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 obligate the Company to acquire any specific number of shares in any period.
The Company did not repurchase any shares during the three and nine months ended May 31, 2019. As of May 31, 2019, the Company had cumulatively repurchased 3,206,226 shares for approximately $137.0 million since October 2013 and had $100.0 million available under the share repurchase program.
Note 2 – Revenue Recognition
The Company measures revenue at the amounts that reflect the consideration to which it expects to be entitled in exchange for transferring control of goods 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 disaggregated revenue from contracts with customers into categories which describe the principal activities from which the Company generates its revenues. See Note 15—Segment Information for further disaggregated revenue information.
Manufacturing
Railcars are manufactured in accordance with contracts with customers. The Company recognizes revenue upon its customers’ acceptance of the completed railcars 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 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 completing the construction of the marine vessel for the customer and is consistent with the percentage of completion method used prior to the adoption of the new revenue standard.
12
THE GREENBRIER COMPANIES, INC.Contract balances
Wheels, Repair & Parts
The Company operates a network of wheel, repair and parts shops in North America that provide complete wheelset reconditioning, railcar repair services and parts.
Wheels revenue is recognized when 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 in accordance with ASC 840:Leases.
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 attached. At the time of such sale, revenue and cost of revenue associated with railcars that the Company has manufactured are recognized in the Manufacturing segment; while revenue and cost of revenue associated with railcars which were obtained from a third-party with the intent to resell them and subsequently sold, are recognized in the Leasing & Services segment in accordance with ASC 840:Leases.
The Company enters into multi-year contracts to provide management and maintenance services to customers for which revenue is generally recognized ratably over the contract term as a stand-ready obligation. Costs to fulfill these contracts are recognized as incurred.
Contract balances
Contract assets primarily consist of unbilled receivables related to marine vessel construction and 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 | September 1, 2018 | May 31, 2019 | $ change |
| Balance sheet classification |
| February 29, 2020 |
|
| August 31, 2019 |
|
| $ change |
| |||||||||||||
Contract assets | Inventories | $ | 7,228 | $ | 9,715 | $ | 2,487 |
| Inventories |
| $ | 7,472 |
|
| $ | 10,196 |
|
| $ | (2,724 | ) | |||||||
Contract liabilities1 | Deferred revenue | $ | 41,250 | $ | 36,237 | $ | (5,013 | ) |
| Deferred revenue |
| $ | 55,844 |
|
| $ | 52,118 |
|
| $ | 3,726 |
|
1 | Contract liabilities balance includes deferred revenue within the scope of |
For the three and nine month periodssix months ended May 31, 2019,February 29, 2020, the Company recognized $2.0$3.8 million and $10.6$24.5 million of revenue that was included in Contract liabilities as of September 1, 2018.August 31, 2019.
1311
THE GREENBRIER COMPANIES, INC.
Performance obligations
As of May 31, 2019,February 29, 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) | May 31, 2019 |
| February 29, 2020 |
| ||||
Revenue type1: | ||||||||
Revenue type: |
|
|
|
| ||||
Manufacturing – Railcar sales | $ | 2,047.3 |
| $ | 2,698.1 |
| ||
Manufacturing – Railcars intended for syndication2 | $ | 669.5 | ||||||
Manufacturing – Marine | $ | 82.5 |
| $ | 58.8 |
| ||
Services | $ | 130.4 |
| $ | 140.1 |
| ||
Other |
| $ | 43.6 |
| ||||
|
|
|
|
| ||||
Manufacturing – Railcars intended for syndication 1 |
| $ | 261.5 |
|
1 |
|
|
Based on current production and delivery schedules and existing contracts, approximately $1.8$0.9 billion of the Railcar Salessales amount is expected to be recognized in the remaining six months of 2020 while the remaining amount is expected to be recognized through fiscal 2020 while the remaining amount is expected in future periods.2024. The table above excludes estimated revenue to be recognized at the Company’s Brazilian manufacturing operation, 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 from 2019-2021through 2021 as vessel construction is completed.
Services includes management and maintenance services of which approximately 54%51% are expected to be performed from 2019-2024through 2024 and the remaining amount ratably through 2037.
Note 3 – Acquisitions
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 returned to the Company. Additionally, the dissolution agreement provides that certain agreements entered into in connection with the original creation of GBW in 2014 were terminated as of the transaction date, including the leases of real and personal property, service agreements, and certain employment-related agreements. GBW will complete its cessation of activities in an orderly manner in fiscal 2019.
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 $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 continues to be funded by the joint venture partners. The Company has included this assumed liability within the purchase price allocation in the table below.
For the nine months ended May 31, 2019, the Repair operations contributed by this acquisition generated consolidated revenues of $71.1 million and a loss from operations of $20.3 million, which are reported in the Company’s condensed consolidated financial statements as part of the Wheels, Repair & Parts segment. This loss from operations includes $10.0 million ofnon-cash impairment loss from goodwill. See Note 6 – Goodwill. The impact of the acquisition was not material to the Company’s results of operations, therefore pro forma financial information has not been included.
14
THE GREENBRIER COMPANIES, INC.
Minor adjustments were made to the purchase price allocation during the three months ended May 31, 2019. The preliminary allocation of the purchase price, based on the fair value of the net assets acquired was:
(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 | 10,025 | |||
|
| |||
Total assets acquired | 71,309 | |||
Accounts payable and accrued liabilities | 13,679 | |||
|
| |||
Total liabilities assumed | 13,679 | |||
|
| |||
Net assets acquired | $ | 57,630 | ||
|
|
Certain liabilities in the table above are estimates and the Company will adjust the purchase price allocation as they are settled.
Pending acquisition of ARI’s manufacturing business
On April 17, 2019, the Company entered into an agreement to acquire the manufacturingManufacturing business of American Railcar Industries, inInc. (ARI)
On July 26, 2019, the Company completed its acquisition of the manufacturing business of ARI for a transaction valued at $400 million, after adjustments for net tax benefits valued at $30 million. The gross purchase price totals $430 millionof 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 includes $30parts 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 also includeswas funded by, and consisted of, a combination of cash on hand, the proceeds of a $300 million secured term loan, the issuance byto the Companyseller of a $50 million principalsenior convertible note and a payable to the seller for a working capital true-up amount.
For the six months ended February 29, 2020, the operations contributed by ARI’s manufacturing business generated revenues of $210.7 million and a net loss of $1.5 million, which are reported in the Company’s consolidated financial statements as part of the Manufacturing segment.
12
THE GREENBRIER COMPANIES, INC.
The preliminary purchase price of the net assets acquired from ARI was allocated as follows:
(in thousands) |
|
|
|
|
Accounts receivable, net |
| $ | 27,659 |
|
Inventories |
|
| 98,053 |
|
Property, plant and equipment, net |
|
| 225,045 |
|
Investments in unconsolidated affiliates |
|
| 40,314 |
|
Intangibles and other assets, net |
|
| 36,785 |
|
Goodwill |
|
| 56,514 |
|
Total assets acquired |
|
| 484,370 |
|
Total liabilities assumed |
|
| 67,174 |
|
Net assets acquired |
| $ | 417,196 |
|
The above purchase price allocation, including the residual amount senior unsecured convertible promissory note. The purchase priceallocated to goodwill, is based on preliminary information and is subject to change as additional information is obtained related to the amounts allocated to the assets acquired and liabilities assumed. As a working capitalresult of the proximity of the acquisition date to August 31, 2019 and other customary post-closing adjustments. This transactionas we did not acquire 100% of ARI, the values of all assets acquired and liabilities assumed are preliminary. During the measurement period, which may extend up to 12 months after the date of acquisition, the Company will adjust these assets and liabilities if new information is subjectobtained about the facts and circumstances that existed as of the acquisition date and revised amounts will be recorded as of that date. The effect of measurement period adjustments to certain regulatory approvalsthe estimated amounts will be reflected on a prospective basis and customary closing conditions.were not material during the three months ended February 29, 2020.
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 |
|
|
|
|
|
Note 4 – Inventories
Inventories are valued at the lower of cost(first-in,first-out) or market.net realizable value using the 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. The following table summarizes the Company’s inventory balance:
(In thousands) | May 31, 2019 | August 31, 2018 |
| February 29, 2020 |
|
| August 31, 2019 |
| ||||||||
Manufacturing supplies and raw materials | $ | 367,744 | $ | 278,726 |
| $ | 352,291 |
|
| $ | 387,015 |
| ||||
Work-in-process | 130,573 | 105,021 |
|
| 161,616 |
|
|
| 156,614 |
| ||||||
Finished goods | 99,646 | 54,181 |
|
| 206,035 |
|
|
| 130,576 |
| ||||||
Excess and obsolete adjustment | (5,864 | ) | (5,614 | ) |
|
| (10,827 | ) |
|
| (9,512 | ) | ||||
|
|
| $ | 709,115 |
|
| $ | 664,693 |
| |||||||
$ | 592,099 | $ | 432,314 | |||||||||||||
|
|
1513
THE GREENBRIER COMPANIES, INC.
Note 5 – 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.
The following table summarizes the Company’s identifiable intangible and other assets balance:
(In thousands) | May 31, 2019 | August 31, 2018 |
| February 29, 2020 |
|
| August 31, 2019 |
| ||||||||
Intangible assets subject to amortization: |
|
|
|
|
|
|
|
| ||||||||
Customer relationships | $ | 72,625 | $ | 72,521 |
| $ | 89,722 |
|
| $ | 89,722 |
| ||||
Accumulated amortization | (46,580 | ) | (43,576 | ) |
|
| (52,691 | ) |
|
| (48,850 | ) | ||||
Other intangibles | 15,713 | 16,300 |
|
| 33,845 |
|
|
| 34,031 |
| ||||||
Accumulated amortization | (7,635 | ) | (6,400 | ) |
|
| (8,188 | ) |
|
| (6,908 | ) | ||||
|
|
|
| 62,688 |
|
|
| 67,995 |
| |||||||
34,123 | 38,845 | |||||||||||||||
Intangible assets not subject to amortization | 4,703 | 5,115 |
|
| 5,107 |
|
|
| 5,450 |
| ||||||
Prepaid and other assets | 23,941 | 18,935 |
|
| 18,779 |
|
|
| 15,749 |
| ||||||
Operating lease ROU assets |
|
| 34,624 |
|
|
| — |
| ||||||||
Nonqualified savings plan investments | 27,141 | 26,299 |
|
| 31,766 |
|
|
| 27,967 |
| ||||||
Revolving notes issuance costs, net | 3,464 | 1,824 |
|
| 4,095 |
|
|
| 4,568 |
| ||||||
Assets held for sale | 3,650 | 3,650 |
|
| 3,650 |
|
|
| 3,650 |
| ||||||
|
| |||||||||||||||
Total Intangible and other assets, net | $ | 97,022 | $ | 94,668 |
| $ | 160,709 |
|
| $ | 125,379 |
| ||||
|
|
Amortization expense was $2.7 million and $5.5 million for the three and ninesix months ended May 31, 2019 was $1.3February 29, 2020 and $1.4 million and $4.6$3.4 million and for the three and ninesix months ended May 31, 2018 was $1.4 million and $4.2 million.February 28, 2019. Amortization expense for the years ending August 31, 2019, 2020, 2021, 2022, 2023 and 20232024 is expected to be $5.8$10.9 million, $5.1$10.9 million, $5.1$7.6 million, $3.7$6.3 million and $3.5$6.3 million, respectively.
Note 6 – Goodwill
Changes in the carrying value of goodwill are as follows:Revolving Notes
(In thousands) | Manufacturing | Wheels, Repair & Parts | Leasing & Services | Total | ||||||||||||
Balance August 31, 2018 | $ | 27,083 | $ | 51,128 | $ | — | $ | 78,211 | ||||||||
Additions(1) | 5,122 | 2,162 | — | 7,284 | ||||||||||||
Translation | (1,152 | ) | — | — | (1,152 | ) | ||||||||||
Goodwill impairment | — | (10,025 | ) | — | (10,025 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance May 31, 2019 | $ | 31,053 | $ | 43,265 | $ | — | $ | 74,318 | ||||||||
|
|
|
|
|
|
|
|
|
The inception to date of the Company’s gross goodwill balance, accumulated impairment losses and accumulated other reductions were as follows:
(In thousands) | Goodwill | |||
Gross goodwill balance before accumulated goodwill impairment losses and other reductions | $ | 236,868 | ||
Accumulated goodwill impairment losses | (138,234 | ) | ||
Accumulated other reductions | (24,316 | ) | ||
|
| |||
Balance May 31, 2019 | $ | 74,318 | ||
|
|
The Company performs a 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 annual impairment test on goodwill and may include both qualitative and quantitative factors to assess the likelihood of an impairment. The Company compares the fair value of each reporting unit with its carrying value. The Company determines the fair
16
THE GREENBRIER COMPANIES, INC.
value of the reporting unit based on a weighting of 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. Under the market approach, the Company estimates the fair value based on observed market multiples for comparable businesses, when appropriate. 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.
Based on the results of the Company’s annual impairment test, the fair values of its reporting units exceeded their carrying values except for the repair reporting unit. The Company initially recorded the repair goodwill following the GBW repair shop transaction in 2018. As a result of a greater number of shop closures than initially expected, near-term operational challenges and updated estimated future cash flows, anon-cash impairment charge of $10.0 million was recorded during the three months ended May 31, 2019.
Note 7 – Revolving Notes
Senior secured credit facilities, consisting of three3 components, aggregated to $692.7$706.0 million as of May 31, 2019.February 29, 2020.
As of May 31, 2019,February 29, 2020, a $600.0 million revolving line of credit, maturing September 2023,June 2024, 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 1.50% or Prime plus 0.50% depending on the type of borrowing. Available borrowings under the credit facility are generally based on defined levels of inventory, receivables, property, plant and equipment and leased equipment, as well as total debt to consolidated capitalization and fixed charges coverage ratios.
As of May 31, 2019,February 29, 2020, lines of credit totaling $42.7$56.0 million secured by certain of the Company’s European assets, with variable rates that range from Warsaw Interbank Offered Rate (WIBOR) plus 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 the European manufacturing operations. The European lines of credit include a $12.5$14.0 million facilityof facilities which isare guaranteed by the Company. European credit facilities are continually beingregularly renewed. Currently, these European credit facilities have maturities that range from July 2019June 2020 through FebruaryJuly 2021.
The
As of February 29, 2020, the Company’s Mexican railcar manufacturing joint venture has twohad 2 lines of credit totaling $50.0 million. The first line of credit provides up to $30.0 million. Advances under this facility bear interest at LIBOR plus 2.0%. The Mexican railcar manufacturing joint venture will be able to draw against this facility through March 2024. The second line of credit provides up to $20.0 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%. The Mexican railcar manufacturing joint venture will be able to draw amounts available under this facility through June 2021.
14
THE GREENBRIER COMPANIES, INC.
As of MayFebruary 29, 2020, outstanding commitments under the senior secured credit facilities consisted of $27.5 million in letters of credit under the North American credit facility and $37.2 million outstanding under the European credit facilities. As of February 29, 2020, the Company had an aggregate of $451.1 million available to draw down under committed credit facilities.
As of August 31, 2019, outstanding commitments under the senior secured credit facilities consisted of $23.9$24.4 million in letters of credit under the North American credit facility and $26.0$27.1 million outstanding under the European credit facilities.
As of August 31, 2018, outstanding commitments under the senior secured credit facilities consisted of $72.2 million in letters of credit under the North American credit facility and $27.7 million outstanding under the European credit facilities.
17
THE GREENBRIER COMPANIES, INC.
Note 87 – Accounts Payable and Accrued Liabilities
(In thousands) | May 31, 2019 | August 31, 2018 |
| February 29, 2020 |
|
| August 31, 2019 |
| ||||||||
Trade payables | $ | 256,452 | $ | 226,405 |
| $ | 220,123 |
|
| $ | 302,009 |
| ||||
Other accrued liabilities | 93,905 | 73,273 |
|
| 105,206 |
|
|
| 108,939 |
| ||||||
Operating lease liabilities |
|
| 35,996 |
|
|
| — |
| ||||||||
Accrued payroll and related liabilities | 88,653 | 105,111 |
|
| 91,723 |
|
|
| 106,669 |
| ||||||
Accrued warranty | 23,965 | 27,395 |
|
| 46,850 |
|
|
| 46,678 |
| ||||||
Income taxes payable | 7,645 | 4,771 |
|
| — |
|
|
| 4,065 |
| ||||||
Other | 2,486 | 12,902 | ||||||||||||||
|
|
| $ | 499,898 |
|
| $ | 568,360 |
| |||||||
$ | 473,106 | $ | 449,857 | |||||||||||||
|
|
Note 98 – Warranty Accruals
Warranty costs are estimated and charged to operations to cover a defined warranty period. The estimated warranty cost is based on the 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 on the Consolidated Balance Sheets, are reviewed periodically and updated based on warranty trends and expirations of warranty periods.
Warranty accrual activity:
Three Months Ended May 31, | Nine Months Ended May 31, | |||||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Balance at beginning of period | $ | 24,994 | $ | 26,977 | $ | 27,395 | $ | 20,737 | ||||||||
Charged to cost of revenue, net | 1,235 | 3,183 | 4,088 | 10,782 | ||||||||||||
Payments | (2,004 | ) | (1,855 | ) | (6,801 | ) | (3,695 | ) | ||||||||
Currency translation effect | (260 | ) | (1,059 | ) | (717 | ) | (578 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at end of period | $ | 23,965 | $ | 27,246 | $ | 23,965 | $ | 27,246 | ||||||||
|
|
|
|
|
|
|
|
Note 10 – Notes Payable
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%.
18
|
| Three Months |
|
| Six Months |
| ||||||||||
(In thousands) |
| February 29, 2020 |
|
| February 28, 2019 |
|
| February 29, 2020 |
|
| February 28, 2019 |
| ||||
Balance at beginning of period |
| $ | 47,110 |
|
| $ | 26,264 |
|
| $ | 46,678 |
|
| $ | 27,395 |
|
Charged to cost of revenue, net |
|
| 884 |
|
|
| 1,412 |
|
|
| 3,262 |
|
|
| 2,853 |
|
Payments |
|
| (1,136 | ) |
|
| (2,612 | ) |
|
| (3,135 | ) |
|
| (4,796 | ) |
Currency translation effect |
|
| (8 | ) |
|
| (70 | ) |
|
| 45 |
|
|
| (458 | ) |
Balance at end of period |
| $ | 46,850 |
|
| $ | 24,994 |
|
| $ | 46,850 |
|
| $ | 24,994 |
|
THE GREENBRIER COMPANIES, INC.
Note 119 – Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss, net of tax effect 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, 2018 | $ | (431 | ) | $ | (21,506 | ) | $ | (1,429 | ) | $ | (23,366 | ) | ||||
Other comprehensive gain (loss) before reclassifications | (5,066 | ) | (7,239 | ) | 75 | (12,230 | ) | |||||||||
Amounts reclassified from Accumulated other comprehensive loss | 1,476 | — | — | 1,476 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance, May 31, 2019 | $ | (4,021 | ) | $ | (28,745 | ) | $ | (1,354 | ) | $ | (34,120 | ) | ||||
|
|
|
|
|
|
|
|
(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 loss before reclassifications |
|
| (1,484 | ) |
|
| (2,278 | ) |
|
| (221 | ) |
|
| (3,983 | ) |
Amounts reclassified from Accumulated other comprehensive loss |
|
| 477 |
|
|
| — |
|
|
| — |
|
|
| 477 |
|
Balance, February 29, 2020 |
| $ | (9,848 | ) |
| $ | (36,472 | ) |
| $ | (2,001 | ) |
| $ | (48,321 | ) |
15
THE GREENBRIER COMPANIES, INC.
The amounts reclassified out of Accumulated other comprehensive loss into the Consolidated Statements of Income, with presentation location,financial statement caption, were as follows:
Three Months Ended May 31, |
| Three Months Ended |
|
|
| |||||||||||||||
(In thousands) | 2019 | 2018 | Financial Statement Location |
| February 29, 2020 |
|
| February 28, 2019 |
|
| Financial Statement Caption | |||||||||
(Gain) loss on derivative financial instruments: |
|
|
|
|
|
|
|
|
|
| ||||||||||
Foreign exchange contracts | $ | 249 | $ | 71 | Revenue and cost of revenue |
| $ | (140 | ) |
| $ | 769 |
|
| Revenue and Cost of revenue | |||||
Interest rate swap contracts | 142 | 39 | Interest and foreign exchange |
|
| 369 |
|
|
| 151 |
|
| Interest and foreign exchange | |||||||
|
|
|
| 229 |
|
|
| 920 |
|
| Total before tax | |||||||||
391 | 110 | Total before tax |
|
| (61 | ) |
|
| (219 | ) |
| Income tax expense | ||||||||
(85 | ) | (51 | ) | Income tax expense |
| $ | 168 |
|
| $ | 701 |
|
| Net of tax | ||||||
|
| |||||||||||||||||||
$ | 306 | $ | 59 | Net of tax | ||||||||||||||||
|
| |||||||||||||||||||
Nine Months Ended May 31, | ||||||||||||||||||||
(In thousands) | 2019 | 2018 | Financial Statement Location | |||||||||||||||||
(Gain) loss on derivative financial instruments: | ||||||||||||||||||||
Foreign exchange contracts | $ | 1,506 | $ | (986 | ) | Revenue and cost of revenue | ||||||||||||||
Interest rate swap contracts | 438 | 312 | Interest and foreign exchange | |||||||||||||||||
|
| |||||||||||||||||||
1,944 | (674 | ) | Total before tax | |||||||||||||||||
(468 | ) | 68 | Income tax expense | |||||||||||||||||
|
| |||||||||||||||||||
$ | 1,476 | $ | (606 | ) | Net of tax | |||||||||||||||
|
|
19
|
| Six Months Ended |
|
|
| |||||
(In thousands) |
| February 29, 2020 |
|
| February 28, 2019 |
|
| Financial Statement Location | ||
(Gain) loss on derivative financial instruments: |
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
| $ | 101 |
|
| $ | 1,257 |
|
| Revenue and cost of revenue |
Interest rate swap contracts |
|
| 536 |
|
|
| 295 |
|
| Interest and foreign exchange |
|
|
| 637 |
|
|
| 1,552 |
|
| Total before tax |
|
|
| (160 | ) |
|
| (382 | ) |
| Income tax expense |
|
| $ | 477 |
|
| $ | 1,170 |
|
| Net of tax |
THE GREENBRIER COMPANIES, INC.
Note 1210 – Earnings Per Share
The shares used in the computation of basic and diluted earnings per common share are reconciled as follows:
Three Months Ended May 31, | Nine Months Ended May 31, | |||||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Weighted average basic common shares outstanding(1) | 32,603 | 32,034 | 32,623 | 30,250 | ||||||||||||
Dilutive effect of 2018 Convertible notes(2) | n/a | 655 | n/a | 2,435 | ||||||||||||
Dilutive effect of 2024 Convertible notes(3) | — | — | — | — | ||||||||||||
Dilutive effect of restricted stock units(4) | 580 | 225 | 538 | 89 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Weighted average diluted common shares outstanding | 33,183 | 32,914 | 33,161 | 32,774 | ||||||||||||
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
(In thousands) |
| February 29, 2020 |
|
| February 28, 2019 |
|
| February 29, 2020 |
|
| February 28, 2019 |
| ||||
Weighted average basic common shares outstanding (1) |
|
| 32,661 |
|
|
| 32,628 |
|
|
| 32,645 |
|
|
| 32,634 |
|
Dilutive effect of 2.875% Convertible notes (2) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Dilutive effect of 2.25% Convertible notes (3) |
|
| — |
|
| n/a |
|
|
| — |
|
| n/a |
| ||
Dilutive effect of restricted stock units (4) |
|
| 821 |
|
|
| 578 |
|
|
| 737 |
|
|
| 515 |
|
Weighted average diluted common shares outstanding |
|
| 33,482 |
|
|
| 33,206 |
|
|
| 33,382 |
|
|
| 33,149 |
|
(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. |
(2) | The dilutive effect of the |
|
(3) | The 2.25% Convertible notes were issued in July 2019. The dilutive effect of the 2.25% Convertible notes was excluded for the three and six months ended February 29, 2020 as the average stock price was less than the applicable conversion price and therefore was considered anti-dilutive. |
16
THE GREENBRIER COMPANIES, INC.
(4) | 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. |
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 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 2018 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 2024 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.
Three Months Ended May 31, | Nine Months Ended May 31, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net earnings attributable to Greenbrier | $ | 15,248 | $ | 32,951 | $ | 35,969 | $ | 120,846 | ||||||||
Add back: | ||||||||||||||||
Interest and debt issuance costs on the 2018 Convertible notes, net of tax | n/a | 297 | n/a | 2,031 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Earnings before interest and debt issuance costs on 2018 Convertible Notes | n/a | $ | 33,248 | n/a | $ | 122,877 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Weighted average diluted common shares outstanding | 33,183 | 32,914 | 33,161 | 32,774 | ||||||||||||
Diluted earnings per share | $ | 0.46 | $ | 1.01 | (1) | $ | 1.08 | $ | 3.75 | (1) |
|
Earnings before interest and debt issuance costs (net of tax) on convertible notes
Weighted average diluted common shares outstanding
20
|
| Three Months Ended |
|
| Six Months Ended |
|
| ||||||||||
|
| February 29, 2020 |
|
| February 28, 2019 |
|
| February 29, 2020 |
|
| February 28, 2019 |
|
| ||||
Net earnings attributable to Greenbrier |
| $ | 13,629 |
|
| $ | 2,765 |
|
| $ | 21,298 |
|
| $ | 20,721 |
|
|
Weighted average diluted common shares outstanding |
|
| 33,482 |
|
|
| 33,206 |
|
|
| 33,382 |
|
|
| 33,149 |
|
|
Diluted earnings per share |
| $ | 0.41 |
|
| $ | 0.08 |
|
| $ | 0.64 |
|
| $ | 0.63 |
|
|
THE GREENBRIER COMPANIES, INC.
Note 1311 – 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. Stock based compensation expense consists of restricted stock units,unit, restricted stock and phantom stock unitsunit awards.
Stock based compensation expense was $3.5$4.1 million and $10.8$7.2 million for the three and ninesix months ended May 31, 2019,February 29, 2020, respectively and $7.7$4.1 million and $20.3$7.3 million for the three and ninesix months ended May 31, 2018,February 28, 2019, respectively. Compensation expense is recorded in Selling and administrative expense and Cost of revenue on the Consolidated Statements of Income.
Note 1412 – 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 May 31, 2019February 29, 2020 exchange rates, notional amounts of forward exchange contracts for the purchase of Polish Zlotys and the sale of Euros and Pound Sterling; and the purchase of Mexican Pesos and the sale of U.S. Dollars aggregated to $81.0$54.1 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 March 2021,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 May 31, 2019February 29, 2020 exchange rates, approximately $0.1$0.5 million would be reclassified to revenue or cost of revenue in the next year.
At May 31, 2019,February 29, 2020, an interest rate swap agreement maturing in September 2023 had a notional amount of $110.5$107.6 million and an interest rate swap agreement maturing June 2024 had a notional amount of $148.1 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 May 31, 2019February 29, 2020 interest rates, approximately $0.6$2.9 million would be reclassified to interest expense in the next year.
17
THE GREENBRIER COMPANIES, INC.
Fair Values of Derivative Instruments
Asset Derivatives | Liability Derivatives | |||||||||||||||||||
May 31, 2019 | August 31, 2018 | May 31, 2019 | August 31, 2018 | |||||||||||||||||
(In thousands) | Balance sheet location | Fair Value | Fair Value | Balance sheet location | Fair Value | Fair Value | ||||||||||||||
Derivatives designated as hedging instruments | ||||||||||||||||||||
Foreign forward exchange contracts | Accounts receivable, net | $ | 1,083 | $ | 700 | Accounts payable and accrued liabilities | $ | — | $ | 1,211 | ||||||||||
Interest rate swap contracts | Accounts receivable, net | — | 781 | Accounts payable and accrued liabilities | 5,174 | 1 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
$ | 1,083 | $ | 1,481 | $ | 5,174 | $ | 1,212 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Derivatives not designated as hedging instruments | ||||||||||||||||||||
Foreign forward exchange contracts | Accounts receivable, net | $ | 106 | $ | 76 | Accounts payable and accrued liabilities | $ | — | $ | 354 | ||||||||||
Interest rate swap contracts | Accounts receivable, net | — | — | Accounts payable and accrued liabilities | 185 | — | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
$ | 106 | $ | 76 | $ | 185 | $ | 354 | |||||||||||||
|
|
|
|
|
|
|
|
21
|
| Asset Derivatives |
|
| Liability Derivatives |
| ||||||||||||||
|
|
|
| February 29, 2020 |
|
| August 31, 2019 |
|
|
|
| February 29, 2020 |
|
| August 31, 2019 |
| ||||
(In thousands) |
| Balance sheet location |
| Fair Value |
|
| Fair Value |
|
| Balance sheet location |
| Fair Value |
|
| Fair Value |
| ||||
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign forward exchange contracts |
| Accounts receivable, net |
| $ | 488 |
|
| $ | 64 |
|
| Accounts payable and accrued liabilities |
| $ | 194 |
|
| $ | 437 |
|
Interest rate swap contracts |
| Accounts receivable, net |
|
| — |
|
|
| — |
|
| Accounts payable and accrued liabilities |
|
| 12,504 |
|
|
| 10,255 |
|
|
|
|
| $ | 488 |
|
| $ | 64 |
|
|
|
| $ | 12,698 |
|
| $ | 10,692 |
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign forward exchange contracts |
| Accounts receivable, net |
| $ | 39 |
|
| $ | — |
|
| Accounts payable and accrued liabilities |
| $ | 281 |
|
| $ | 587 |
|
THE GREENBRIER COMPANIES, INC.
The Effect of Derivative Instruments on the Statements of Income
Three Months Ended May 31,February 29, 2020 and February 28, 2019
Derivatives in cash flow hedging relationships | Location of gain (loss) recognized in income on derivatives | Gain (loss) recognized in income on derivatives three months ended May 31, |
| Location of gain (loss) recognized in income on derivatives |
| Gain (loss) recognized in income on derivatives three months ended |
| |||||||||||||
2019 | 2018 |
|
|
| February 29, 2020 |
|
| February 28, 2019 |
| |||||||||||
Foreign forward exchange contract | Interest and foreign exchange | $ | — | $ | (852 | ) |
| Interest and foreign exchange |
| $ | (165 | ) |
| $ | 115 |
| ||||
Interest rate swap contracts | Interest and foreign exchange | — | — | |||||||||||||||||
|
| |||||||||||||||||||
$ | — | $ | (852 | ) | ||||||||||||||||
|
|
Derivatives in cash flow hedging relationships | Gain (loss) recognized in OCI on derivatives (effective portion) three months ended May 31, | Location of gain (loss) reclassified from accumulated OCI into income | Gain (loss) reclassified from accumulated OCI into income (effective portion) three months ended May 31, | Location of gain (loss) on derivative (ineffective portion and amount excluded from effectiveness testing) | Gain (loss) recognized on derivative (ineffective portion and amount excluded from effectiveness testing) three months ended May 31, | |||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||||
Foreign forward exchange contracts | $ | 330 | $ | (2,285 | ) | Revenue | $ | (68 | ) | $ | (168 | ) | Revenue | $ | 264 | $ | 190 | |||||||||||||||
Foreign forward exchange contracts | 102 | (343 | ) | Cost of revenue | (181 | ) | 97 | Cost of revenue | 179 | 157 | ||||||||||||||||||||||
Interest rate swap contracts | (2,704 | ) | 12 | | Interest and foreign exchange | | (143 | ) | (39 | ) | | Interest and foreign exchange | | (163 | ) | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
$ | (2,272 | ) | $ | (2,616 | ) | $ | (392 | ) | $ | (110 | ) | $ | 280 | $ | 347 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in cash flow hedging relationships |
| Gain (loss) recognized in OCI on derivatives three months ended, |
|
| Location of gain (loss) reclassified from accumulated OCI into income |
| Gain (loss) reclassified from accumulated OCI into income three months ended |
|
| Location of gain (loss) on derivative (amount excluded from effectiveness testing) |
| Gain (loss) recognized on derivative (amount excluded from effectiveness testing) three months ended |
| |||||||||||||||
|
| February 29, 2020 |
|
| February 28, 2019 |
|
|
|
| February 29, 2020 |
|
| February 28, 2019 |
|
|
|
| February 29, 2020 |
|
| February 28, 2019 |
| ||||||
Foreign forward exchange contracts |
| $ | 190 |
|
| $ | (418 | ) |
| Revenue |
| $ | 67 |
|
| $ | (411 | ) |
| Revenue |
| $ | 190 |
|
| $ | 638 |
|
Foreign forward exchange contracts |
|
| 411 |
|
|
| 1,100 |
|
| Cost of revenue |
|
| 73 |
|
|
| (358 | ) |
| Cost of revenue |
|
| 210 |
|
|
| 289 |
|
Interest rate swap contracts |
|
| (5,503 | ) |
|
| (1,916 | ) |
| Interest and foreign exchange |
|
| (369 | ) |
|
| (151 | ) |
| Interest and foreign exchange |
|
| (116 | ) |
|
| 25 |
|
|
| $ | (4,902 | ) |
| $ | (1,234 | ) |
|
|
| $ | (229 | ) |
| $ | (920 | ) |
|
|
| $ | 284 |
|
| $ | 952 |
|
Nine Months Ended May 31, 2019
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 three months ended February 29, 2020 and February 28, 2019:
Derivatives in cash flow hedging relationships | Location of gain (loss) recognized in income on derivatives | Gain (loss) recognized in income on derivatives nine months ended May 31, | ||||||||
2019 | 2018 | |||||||||
Foreign forward exchange contract | Interest and foreign exchange | $ | 495 | $ | 1,081 | |||||
Interest rate swap contracts | Interest and foreign exchange | — | (1 | ) | ||||||
|
|
|
| |||||||
$ | 495 | $ | 1,080 | |||||||
|
|
|
|
|
| For The Three Months Ended |
| |||||||||||||
|
| February 29, 2020 |
|
| February 28, 2019 |
| ||||||||||
|
| Total |
|
| Amount of gain (loss) on cash flow hedge activity |
|
| Total |
|
| Amount of gain (loss) on cash flow hedge activity |
| ||||
Revenue |
| $ | 623,848 |
|
| $ | 67 |
|
| $ | 658,671 |
|
| $ | (411 | ) |
Cost of revenue |
|
| 537,512 |
|
|
| 73 |
|
|
| 604,827 |
|
|
| (358 | ) |
Interest and foreign exchange |
|
| 12,609 |
|
|
| (369 | ) |
|
| 9,237 |
|
|
| (151 | ) |
18
Derivatives in cash flow hedging relationships | Gain (loss) recognized in OCI on derivatives (effective portion) nine months ended May 31, | Location of gain (loss) reclassified from accumulated OCI into income | Gain (loss) reclassified from accumulated OCI into income (effective portion) nine months ended May 31, | Location of gain (loss) on derivative (ineffective portion and amount excluded from effectiveness testing) | Gain (loss) recognized on derivative (ineffective portion and amount excluded from effectiveness testing) nine months ended May 31, | |||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||||
Foreign forward exchange contracts | $ | (16 | ) | $ | (1,063 | ) | Revenue | $ | (735 | ) | $ | 1,262 | Revenue | $ | 1,164 | $ | 472 | |||||||||||||||
Foreign forward exchange contracts | (293 | ) | (566 | ) | Cost of revenue | (771 | ) | (276 | ) | Cost of revenue | 857 | 353 | ||||||||||||||||||||
Interest rate swap contracts | (6,393 | ) | 1,485 | | Interest and foreign exchange | | (438 | ) | (312 | ) | | Interest and foreign exchange | | (185 | ) | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
$ | (6,702 | ) | $ | (144 | ) | $ | (1,944 | ) | $ | 674 | $ | 1,836 | $ | 825 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
22
THE GREENBRIER COMPANIES, INC.
Six Months Ended February 29, 2020 and February 28, 2019
Derivatives in cash flow hedging relationships |
| Location of gain (loss) recognized in income on derivatives |
| Gain (loss) recognized in income on derivatives six months ended |
| |||||
|
|
|
| February 29, 2020 |
|
| February 28, 2019 |
| ||
Foreign forward exchange contract |
| Interest and foreign exchange |
| $ | (94 | ) |
| $ | 495 |
|
Derivatives in cash flow hedging relationships |
| Gain (loss) recognized in OCI on derivatives six months ended |
|
| Location of gain (loss) reclassified from accumulated OCI into income |
| Gain (loss) reclassified from accumulated OCI into income six months ended |
|
| Location of gain (loss) on derivative amount excluded from effectiveness testing) |
| Gain (loss) recognized on derivative (amount excluded from effectiveness testing) six months ended |
| |||||||||||||||
|
| February 29, 2020 |
|
| February 28, 2019 |
|
|
|
| February 29, 2020 |
|
| February 28, 2019 |
|
|
|
| February 29, 2020 |
|
| February 28, 2019 |
| ||||||
Foreign forward exchange contracts |
| $ | 763 |
|
| $ | (346 | ) |
| Revenue |
| $ | (99 | ) |
| $ | (667 | ) |
| Revenue |
| $ | 643 |
|
| $ | 900 |
|
Foreign forward exchange contracts |
|
| (183 | ) |
|
| (395 | ) |
| Cost of revenue |
|
| (2 | ) |
|
| (590 | ) |
| Cost of revenue |
|
| 344 |
|
|
| 678 |
|
Interest rate swap contracts |
|
| (2,784 | ) |
|
| (3,689 | ) |
| Interest and foreign exchange |
|
| (536 | ) |
|
| (295 | ) |
| Interest and foreign exchange |
|
| (281 | ) |
|
| (22 | ) |
|
| $ | (2,204 | ) |
| $ | (4,430 | ) |
|
|
| $ | (637 | ) |
| $ | (1,552 | ) |
|
|
| $ | 706 |
|
| $ | 1,556 |
|
|
| For The Six Months Ended |
| |||||||||||||
|
| February 29, 2020 |
|
| February 28, 2019 |
| ||||||||||
|
| Total |
|
| Amount of gain (loss) on cash flow hedge activity |
|
| Total |
|
| Amount of gain (loss) on cash flow hedge activity |
| ||||
Revenue |
| $ | 1,393,207 |
|
| $ | (99 | ) |
| $ | 1,263,194 |
|
| $ | (667 | ) |
Cost of revenue |
|
| 1,214,682 |
|
|
| (2 | ) |
|
| 1,136,817 |
|
|
| (590 | ) |
Interest and foreign exchange |
|
| 25,461 |
|
|
| (536 | ) |
|
| 13,641 |
|
|
| (295 | ) |
Note 1513 – 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 four reportable segments: Manufacturing; Wheels, Repair & 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 is no longer considered a reportable segment.
The accounting policies of the segments are described in the summary of significant accounting policies in the Consolidated Financial Statements contained in the Company’s 20182019 Annual Report on Form10-K except for the revenue recognition accounting policy which has subsequently been updated (see Note 2 – Revenue Recognition). 10-K. 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 was accounted for under the equity method of accounting.
19
THE GREENBRIER COMPANIES, INC.
For the three months ended May 31, 2019:February 29, 2020:
Revenue | Earnings (loss) from operations |
| Revenue |
|
| Earnings (loss) from operations |
| |||||||||||||||||||||||||||||||||||||||||
(In thousands) | External | Intersegment | Total | External | Intersegment | Total |
| External |
|
| Intersegment |
|
| Total |
|
| External |
|
| Intersegment |
|
| Total |
| ||||||||||||||||||||||||
Manufacturing | $ | 681,588 | $ | 29,201 | $ | 710,789 | $ | 72,110 | $ | 2,000 | $ | 74,110 |
| $ | 489,943 |
|
| $ | 21 |
|
| $ | 489,964 |
|
| $ | 46,105 |
|
| $ | 1 |
|
| $ | 46,106 |
| ||||||||||||
Wheels, Repair & Parts1 | 124,980 | 11,601 | 136,581 | (8,820 | ) | 808 | (8,012 | ) | ||||||||||||||||||||||||||||||||||||||||
Wheels, Repair & Parts |
|
| 91,225 |
|
|
| 5,133 |
|
|
| 96,358 |
|
|
| 3,320 |
|
|
| (168 | ) |
|
| 3,152 |
| ||||||||||||||||||||||||
Leasing & Services | 49,584 | 5,848 | 55,432 | 15,337 | 4,913 | 20,250 |
|
| 42,680 |
|
|
| 15,240 |
|
|
| 57,920 |
|
|
| 12,793 |
|
|
| 14,384 |
|
|
| 27,177 |
| ||||||||||||||||||
Eliminations | — | (46,650 | ) | (46,650 | ) | — | (7,721 | ) | (7,721 | ) |
|
| — |
|
|
| (20,394 | ) |
|
| (20,394 | ) |
|
| — |
|
|
| (14,217 | ) |
|
| (14,217 | ) | ||||||||||||||
Corporate | — | — | — | (25,438 | ) | — | (25,438 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (23,782 | ) |
|
| — |
|
|
| (23,782 | ) | ||||||||||||||||
|
|
|
|
|
|
| $ | 623,848 |
|
| $ | — |
|
| $ | 623,848 |
|
| $ | 38,436 |
|
| $ | — |
|
| $ | 38,436 |
| |||||||||||||||||||
$ | 856,152 | $ | — | $ | 856,152 | $ | 53,189 | $ | — | $ | 53,189 | |||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
For the ninesix months ended May 31, 2019:February 29, 2020:
Revenue | Earnings (loss) from operations | |||||||||||||||||||||||
(In thousands) | External | Intersegment | Total | External | Intersegment | Total | ||||||||||||||||||
Manufacturing | $ | 1,629,396 | $ | 82,257 | $ | 1,711,653 | $ | 122,955 | $ | 4,791 | $ | 127,746 | ||||||||||||
Wheels, Repair & Parts1 | 358,801 | 36,440 | 395,241 | (2,750 | ) | 262 | (2,488 | ) | ||||||||||||||||
Leasing & Services | 131,149 | 14,758 | 145,907 | 53,880 | 12,466 | 66,346 | ||||||||||||||||||
Eliminations | — | (133,455 | ) | (133,455 | ) | — | (17,519 | ) | (17,519 | ) | ||||||||||||||
Corporate | — | — | — | (66,388 | ) | — | (66,388 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
$ | 2,119,346 | $ | — | $ | 2,119,346 | $ | 107,697 | $ | — | $ | 107,697 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
| Revenue |
|
| Earnings (loss) from operations |
| ||||||||||||||||||
(In thousands) |
| External |
|
| Intersegment |
|
| Total |
|
| External |
|
| Intersegment |
|
| Total |
| ||||||
Manufacturing |
| $ | 1,147,310 |
|
| $ | 118 |
|
| $ | 1,147,428 |
|
| $ | 99,248 |
|
| $ | (22 | ) |
| $ | 99,226 |
|
Wheels, Repair & Parts |
|
| 177,833 |
|
|
| 10,984 |
|
|
| 188,817 |
|
|
| 4,434 |
|
|
| (510 | ) |
|
| 3,924 |
|
Leasing & Services |
|
| 68,064 |
|
|
| 16,989 |
|
|
| 85,053 |
|
|
| 22,570 |
|
|
| 15,673 |
|
|
| 38,243 |
|
Eliminations |
|
| — |
|
|
| (28,091 | ) |
|
| (28,091 | ) |
|
| — |
|
|
| (15,141 | ) |
|
| (15,141 | ) |
Corporate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (46,032 | ) |
|
| — |
|
|
| (46,032 | ) |
|
| $ | 1,393,207 |
|
| $ | — |
|
| $ | 1,393,207 |
|
| $ | 80,220 |
|
| $ | — |
|
| $ | 80,220 |
|
THE GREENBRIER COMPANIES, INC.
For the three months ended May 31, 2018:February 28, 2019:
Revenue | Earnings (loss) from operations |
| Revenue |
|
| Earnings (loss) from operations |
| |||||||||||||||||||||||||||||||||||||||||
(In thousands) | External | Intersegment | Total | External | Intersegment | Total |
| External |
|
| Intersegment |
|
| Total |
|
| External |
|
| Intersegment |
|
| Total |
| ||||||||||||||||||||||||
Manufacturing | $ | 510,099 | $ | 53,501 | $ | 563,600 | $ | 62,435 | $ | 6,215 | $ | 68,650 |
| $ | 476,019 |
|
| $ | 46,855 |
|
| $ | 522,874 |
|
| $ | 13,990 |
|
| $ | 2,358 |
|
| $ | 16,348 |
| ||||||||||||
Wheels, Repair & Parts | 94,515 | 10,879 | 105,394 | 5,546 | 686 | 6,232 |
|
| 125,278 |
|
|
| 8,858 |
|
|
| 134,136 |
|
|
| 2,823 |
|
|
| (858 | ) |
|
| 1,965 |
| ||||||||||||||||||
Leasing & Services | 36,773 | 3,886 | 40,659 | 26,704 | 3,380 | 30,084 |
|
| 57,374 |
|
|
| 2,911 |
|
|
| 60,285 |
|
|
| 21,030 |
|
|
| 2,101 |
|
|
| 23,131 |
| ||||||||||||||||||
Eliminations | — | (68,266 | ) | (68,266 | ) | — | (10,281 | ) | (10,281 | ) |
|
| — |
|
|
| (58,624 | ) |
|
| (58,624 | ) |
|
| — |
|
|
| (3,601 | ) |
|
| (3,601 | ) | ||||||||||||||
Corporate | — | — | — | (23,146 | ) | — | (23,146 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (19,789 | ) |
|
| — |
|
|
| (19,789 | ) | ||||||||||||||||
|
|
|
|
|
|
| $ | 658,671 |
|
| $ | — |
|
| $ | 658,671 |
|
| $ | 18,054 |
|
| $ | — |
|
| $ | 18,054 |
| |||||||||||||||||||
$ | 641,387 | $ | — | $ | 641,387 | $ | 71,539 | $ | — | $ | 71,539 | |||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
For the ninesix months ended May 31, 2018:February 28, 2019:
Revenue | Earnings (loss) from operations |
| Revenue |
|
| Earnings (loss) from operations |
| |||||||||||||||||||||||||||||||||||||||||
(In thousands) | External | Intersegment | Total | External | Intersegment | Total |
| External |
|
| Intersegment |
|
| Total |
|
| External |
|
| Intersegment |
|
| Total |
| ||||||||||||||||||||||||
Manufacturing | $ | 1,473,411 | $ | 84,253 | $ | 1,557,664 | $ | 178,589 | $ | 13,816 | $ | 192,405 |
| $ | 947,808 |
|
| $ | 53,056 |
|
| $ | 1,000,864 |
|
| $ | 50,845 |
|
| $ | 2,791 |
|
| $ | 53,636 |
| ||||||||||||
Wheels, Repair & Parts | 261,236 | 27,563 | 288,799 | 13,083 | 2,214 | 15,297 |
|
| 233,821 |
|
|
| 24,839 |
|
|
| 258,660 |
|
|
| 6,070 |
|
|
| (546 | ) |
|
| 5,524 |
| ||||||||||||||||||
Leasing & Services | 95,611 | 9,855 | 105,466 | 71,008 | 8,546 | 79,554 |
|
| 81,565 |
|
|
| 8,910 |
|
|
| 90,475 |
|
|
| 38,543 |
|
|
| 7,553 |
|
|
| 46,096 |
| ||||||||||||||||||
Eliminations | — | (121,671 | ) | (121,671 | ) | — | (24,576 | ) | (24,576 | ) |
|
| — |
|
|
| (86,805 | ) |
|
| (86,805 | ) |
|
| — |
|
|
| (9,798 | ) |
|
| (9,798 | ) | ||||||||||||||
Corporate | — | — | — | (68,829 | ) | — | (68,829 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (40,950 | ) |
|
| — |
|
|
| (40,950 | ) | ||||||||||||||||
|
|
|
|
|
|
| $ | 1,263,194 |
|
| $ | — |
|
| $ | 1,263,194 |
|
| $ | 54,508 |
|
| $ | — |
|
| $ | 54,508 |
| |||||||||||||||||||
$ | 1,830,258 | $ | — | $ | 1,830,258 | $ | 193,851 | $ | — | $ | 193,851 | |||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
Total assets |
| Total assets |
| |||||||||||||
(In thousands) | May 31, 2019 | August 31, 2018 |
| February 29, 2020 |
|
| August 31, 2019 |
| ||||||||
Manufacturing | $ | 1,143,718 | $ | 1,020,757 |
| $ | 1,535,118 |
|
| $ | 1,606,571 |
| ||||
Wheels, Repair & Parts | 307,630 | 306,756 |
|
| 314,069 |
|
|
| 306,725 |
| ||||||
Leasing & Services | 650,483 | 578,818 |
|
| 897,745 |
|
|
| 708,799 |
| ||||||
Unallocated | 411,357 | 559,133 |
|
| 200,728 |
|
|
| 368,542 |
| ||||||
|
|
| $ | 2,947,660 |
|
| $ | 2,990,637 |
| |||||||
$ | 2,513,188 | $ | 2,465,464 | |||||||||||||
|
|
20
THE GREENBRIER COMPANIES, INC.
Reconciliation of Earnings from operations to Earnings before income tax and lossearnings (loss) from unconsolidated affiliates:
Three Months Ended May 31, | Nine Months Ended May 31, |
| Three Months Ended |
|
| Six Months Ended |
| |||||||||||||||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 |
| February 29, 2020 |
|
| February 28, 2019 |
|
| February 29, 2020 |
|
| February 28, 2019 |
| ||||||||||||||||
Earnings from operations | $ | 53,189 | $ | 71,539 | $ | 107,697 | $ | 193,851 |
| $ | 38,436 |
|
| $ | 18,054 |
|
| $ | 80,220 |
|
| $ | 54,508 |
| ||||||||
Interest and foreign exchange | 9,770 | 6,533 | 23,411 | 20,582 |
|
| 12,609 |
|
|
| 9,237 |
|
|
| 25,461 |
|
|
| 13,641 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Earnings before income tax and loss from unconsolidated affiliates | $ | 43,419 | $ | 65,006 | $ | 84,286 | $ | 173,269 | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Earnings before income tax and earnings (loss) from unconsolidated affiliates |
| $ | 25,827 |
|
| $ | 8,817 |
|
| $ | 54,759 |
|
| $ | 40,867 |
|
Note 1614 – Leases
Lessor
Equipment on operating leases is reported net of accumulated depreciation of $32.9 million and $44.2 million as of February 29, 2020 and August 31, 2019, respectively. Depreciation expense was $3.0 million and $6.6 million for the three and six months ended February 29, 2020. In addition, certain railcar equipment leased-in by the Company on operating leases is subleased to customers under non-cancelable operating leases with lease terms ranging from one to five years. Operating lease rental revenues included in the Company’s Statement of Income Taxesfor the three and six months ended February 29, 2020 was $9.8 million and $21.2 million, which included $2.8 million and $6.5 million, respectively, of revenue as a result of daily, monthly or car hire utilization arrangements.
Aggregate minimum future amounts receivable under all non-cancelable operating leases and subleases at February 29, 2020, will mature as follows:
(in thousands) |
|
|
|
|
Remaining six months of 2020 |
| $ | 12,272 |
|
2021 |
|
| 22,314 |
|
2022 |
|
| 20,372 |
|
2023 |
|
| 14,812 |
|
2024 |
|
| 11,135 |
|
Thereafter |
|
| 22,009 |
|
|
| $ | 102,914 |
|
Lessee
The Company recognizedleases railcars, real estate, and certain equipment under operating and, to a lesser extent, finance lease arrangements. As of and for the income tax effectsthree and six months ended February 29, 2020, finance leases were not a material component of the Tax CutsCompany's lease portfolio.The Company’s real estate and Jobs Act (Tax Act) in accordanceequipment leases have remaining lease terms ranging from less than one year to 79 years, with Staff Accounting Bulletin No. 118 (SAB 118), which required the financial resultssome including options to reflect effects for which the accounting is completeextend up to 15 years. The Company recognizes a lease liability and those which are provisional. Provisional effects were adjusted during the measurement period determined under SAB 118corresponding right-of-use (ROU) asset based on ongoing analysisthe 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 tax positions and regulatory guidance. The accounting was considered complete as of November 30, 2018. There were no material adjustments made to the provisional effects during 2019.for instruments with similar characteristics when estimating its incremental borrowing rate.
The Tax Act also made other significant changes to U.S. federal income tax laws, including a global intangiblelow-taxed income tax (GILTI) and a base erosion anti-abuse tax (BEAT) which became effective for the Company beginning on September 1, 2018. Though the impactcomponents of GILTI and BEAT during the nine months ended May 31, 2019 was not material, those taxesoperating lease costs were included in the projected effective tax rate for the current year.as follows:
(in thousands) |
| Three months ended February 29, 2020 |
|
| Six months ended February 29, 2020 |
| ||
Operating lease expense |
| $ | 3,424 |
|
| $ | 6,850 |
|
Short-term lease expense |
|
| 3,217 |
|
|
| 4,730 |
|
Total |
| $ | 6,641 |
|
| $ | 11,580 |
|
2421
THE GREENBRIER COMPANIES, INC.
Aggregate minimum future amounts payable under operating leases having initial or remaining non-cancelable terms at February 29, 2020 will mature as follows:
(in thousands) |
|
|
|
|
Remaining six months of 2020 |
| $ | 6,153 |
|
2021 |
|
| 8,988 |
|
2022 |
|
| 5,935 |
|
2023 |
|
| 5,433 |
|
2024 |
|
| 3,948 |
|
Thereafter |
|
| 10,436 |
|
Total lease payments |
| $ | 40,893 |
|
Less: Imputed interest |
|
| (4,897 | ) |
Total lease obligations |
| $ | 35,996 |
|
The table below presents additional information related to the Company’s leases:
Weighted average remaining lease term | ||||
Operating leases | 14.4 years | |||
Weighted average discount rate | ||||
Operating leases | 3.2 | % |
Supplemental cash flow information related to leases were as follows:
(in thousands) |
| Six months ended February 29, 2020 |
| |
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
Operating cash flows from operating leases |
| $ | 7,432 |
|
Note 1715 – Commitments and Contingencies
Portland Harbor Superfund Site
The Company’sCompany's 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 the Company’sCompany'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 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. The Company bore a percentage of the total costs incurred by the LWG in connection with the investigation. The Company’sCompany'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.
22
THE GREENBRIER COMPANIES, INC.
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. 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’sEPA'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 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 the Company’sCompany's Portland, Oregon manufacturing facility as well as upstream and downstream of the facility. It also includes a portion of the Company’sCompany'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 has also requested that potentially responsible parties enter AOCs during 2019 agreeing to conduct remedial design studies. Some parties have signed AOCs and several other parties including the Company have engaged in discussions with EPA regarding the terms of such AOCs. The allocation process is continuing in parallel with the process to define the remediation steps.
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 its ownership of the Portland, Oregon manufacturing facility. 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’sCompany'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
25
THE GREENBRIER COMPANIES, INC.
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’sCompany's business and Consolidated Financial Statements, or the value of its Portland 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 complaint does not specify the amount of damages the plaintiff will seek. The case has been stayed until January 16, 2020.the allocation process is concluded.
23
THE GREENBRIER COMPANIES, INC.
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 property may have released hazardous substances into the environment. The Company has also signed an Order on Consent with the DEQ to finalize the investigation of potential onsite sources of contamination that may have a release pathway to the Willamette River. 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’sCompany's aggregate expenditure has not been material, however the Company 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 acquisition of the manufacturing business of ARI, the Company agreed to assume potential legacy liabilities (known and unknown) related to 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 currently is not able to determine if any of these liabilities will have a material adverse impact on the 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 May 31, 2019,February 29, 2020, the Company had outstanding letters of credit aggregating to $23.9$27.5 million associated with performance guarantees, facility leases and workers compensation insurance.
As of May 31, 2019,February 29, 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 $19.2 millionmanufacturer. This note receivable balance from Greenbrier-Maxion, its unconsolidated Brazilian railcar manufacturer. These note receivables areis 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.Greenbrier-Maxion, its unconsolidated Brazilian railcar manufacturer.
26
THE GREENBRIER COMPANIES, INC.
Note 1816 – Fair Value Measures
Certain assets and liabilities are reported at fair value on either a recurring or nonrecurring basis. Fair value, for this disclosure, is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, under a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:
Level 1 - observable inputs such as unadjusted quoted prices in active markets for identical instruments;
Level 2 - inputs, other than the quoted market prices in active markets for similar instruments, which are observable, either directly or indirectly; and Level 3 - unobservable inputs for which there is little or no market data available, which require the reporting entity to develop its own assumptions. 24 THE GREENBRIER COMPANIES, INC. |
|
|
Assets and liabilities measured at fair value on a recurring basis as of May 31, 2019February 29, 2020 were:
(In thousands) | Total | Level 1 | Level 2 (1) | Level 3 |
| Total |
|
| Level 1 |
|
| Level 2 (1) |
|
| Level 3 |
| ||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Derivative financial instruments | $ | 1,189 | $ | — | $ | 1,189 | $ | — |
| $ | 527 |
|
| $ | — |
|
| $ | 527 |
|
| $ | — |
| ||||||||
Nonqualified savings plan investments | 27,141 | 27,141 | — | — |
|
| 31,766 |
|
|
| 31,766 |
|
|
| — |
|
|
| — |
| ||||||||||||
Cash equivalents | 82,756 | 82,756 | — | — |
|
| 23,166 |
|
|
| 23,166 |
|
|
| — |
|
|
| — |
| ||||||||||||
|
|
|
|
| $ | 55,459 |
|
| $ | 54,932 |
|
| $ | 527 |
|
| $ | — |
| |||||||||||||
$ | 111,086 | $ | 109,897 | $ | 1,189 | $ | — | |||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Derivative financial instruments | $ | 5,359 | $ | — | $ | 5,359 | $ | — |
| $ | 12,979 |
|
| $ | — |
|
| $ | 12,979 |
|
| $ | — |
|
(1) | Level 2 assets and liabilities include derivative financial instruments that are valued based on observable inputs. See Note |
Assets and liabilities measured at fair value on a recurring basis as of August 31, 20182019 were:
(In thousands) | Total | Level 1 | Level 2 | 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 | $ | — |
27
(In thousands) |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| 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 |
|
| $ | — |
|
THE GREENBRIER COMPANIES, INC.
Note 1917 – 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 leasing warehouse are principally built by Greenbrier. The Company accounts for this leasing warehouse investment under the equity method of accounting. As of May 31, 2019,February 29, 2020, the carrying amount of the investment was $5.8$5.4 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. DuringThere were 0 sales to or from this entity during the ninethree and six months ended May 31, 2019, theFebruary 29, 2020. The Company recognized $18$18.2 million in revenue associated with railcars sold into the leasing warehouse during the three and an additional $6six months ended February 28, 2019. The Company also recognized $1.6 million and $5.6 million in revenue associated with railcars sold out of the leasing warehouse.warehouse during the three and six months ended February 28, 2019. The Company also provides administrative and remarketing services to this entity and earns management fees for these services which were immaterial for the ninesix months ended May 31,February 29, 2020 and February 28, 2019.
On November 1, 2019, the Company increased its ownership interest in Amsted-Maxion Cruzeiro from 24.5% to 29.5%. This transaction included a conversion to equity of $4.8 million from a note receivable, including accrued interest, and a re-payment to the Company of $1.5 million which was used to acquire the additional 5% ownership interest. As of May 31, 2019,February 29, 2020, the Company had a $10.0remaining $4.5 million note receivable due from Amsted-Maxion Cruzeiro, its unconsolidated Brazilian castings and components manufacturer and a $19.2 millionmanufacturer. This note receivable balance from Greenbrier-Maxion, its unconsolidated Brazilian railcar manufacturer. These note receivables areis included on the Consolidated Balance Sheet in Accounts receivable, net.
Note 20 – Subsequent Event
On June 3, 2019,The Company has a 41.9% interest in Axis, LLC (Axis), a joint venture. The Company obtained its ownership interest in Axis as part of the acquisition of the manufacturing business of ARI on July 26, 2019. For the three and six months ended February 29, 2020, the Company amended its $600.0purchased $3.2 million revolving lineand $7.2 million of credit (Amended Credit Facility). The Amended Credit Facility permits Greenbrier to borrow up to $300.0 million (the Term Loan) to pay a portion of the purchase price under Greenbrier’s previously-disclosed asset purchase agreement with American Railcar Industries, which closing remains subject to conditions. The Term Loan will bear the same variable rate of interest as other borrowings under the Amended Credit Facility (which interest rate provisions remain unchanged) and Greenbrier must repay the Term Loan in quarterly installments equal to 1.25% of the original principal amount of the Term Loan commencing with the first full fiscal quarter following the closing of the transaction. The Amended Credit Facility continues to allow Greenbrier to borrow up to $600.0 million based on availability. The Amended Credit Facility (including the Term Loan) matures on June 3, 2024, unless Greenbrier’s currently outstanding 2.875% convertible senior notes remain outstanding as of November 1, 2023, in which case the Amended Credit Facility matures on November 1, 2023.railcar components from Axis.
25
28
THE GREENBRIER COMPANIES, INC.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
We operate in three reportable segments: Manufacturing; Wheels, Repair & Parts; and Leasing & Services. 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 production of a variety of parts for the railroadrail industry in North America. The Leasing & Services segment owns approximately 8,90010,300 railcars and provides management services for approximately 374,000389,000 railcars for railroads, shippers, carriers, institutional investors and other leasing and transportation companies in North America as of May 31, 2019.February 29, 2020. Through unconsolidated affiliates we produce railcars in Brazil, rail and industrial castings, tank heads and other components and we have an ownership stake in a railcar manufacturer in Brazil and a lease financing warehouse.
Our total manufacturing backlog of railcar units, for direct sale or lease to a third party, as of May 31, 2019February 29, 2020 was approximately 26,10030,800 units with an estimated value of $2.74$3.16 billion. Approximately 1%9% of backlog units and 6% of estimated backlog value as of May 31, 2019 wasFebruary 29, 2020 were associated with our Brazilian manufacturing operations which isare 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 ofcommon in the rail industry practice.industry. A portion of the orders included in backlog reflects an assumed product mix. Under the 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 May 31, 2019February 29, 2020 was $82$59 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. We cannot guarantee that our reported backlog will convert to revenue in any particular period, if at all.
On April 17, 2019,
We expect that the COVID-19 coronavirus pandemic and the related governmental reaction will negatively impact our business including our liquidity and financial position, results of operations, stock price and ability to convert backlog to revenue among other negative impacts. These risks to our business are more fully described in Part II, item 1A “Risk Factors” of this Quarterly Report on Form 10-Q. We are closely monitoring the impact of COVID-19 on all aspects of our business. COVID-19 emerged in Asia at the end of calendar year 2019. Because we entered into an agreementhave no operations in Asia, the negative impact of COVID-19 did not materially impact our financial condition and results of operations during our quarter ended February 29, 2020. Our business operates within a critical infrastructure sector as established by the Cybersecurity & Infrastructure Security Agency of the Department of Homeland Security. Thus, as of the date of the filing of this Quarterly Report our manufacturing, repair shops, and wheel shops in the United States generally are permitted to acquirecontinue to operate subject to enhanced safety protocols, both voluntary and government mandated, that are aimed to protect the health of our workforce. The situation is similar in our manufacturing facilities and shops in Mexico, Europe, Brazil and Turkey which also have continued to operate subject to enhanced health and safety protocols. At this time, while we have identified risks discussed in Part II, Item 2A of this Quarterly Report on Form 10-Q, we are unable to predict specifically how the COVID-19 coronavirus pandemic and related governmental reaction will negatively impact our business due to numerous uncertainties, including the duration of American Railcar Industries in a transaction valued at $400 million, after adjustments for net tax benefits valued at $30 million. The gross purchase price totals $430 millionthe pandemic, the impact to our customers, suppliers and includes $30 million for capital expenditures on railcar liningemployees, actions that may be taken by governmental authorities, including preventing or curtailing the operations of our plants and/or shops, and other facility improvements. The purchase price also includesconsequences. We expect that negative impacts related to the issuance byCOVID-19 coronavirus pandemic will be reflected in our company of a $50 million principal amount senior unsecured convertible promissory note. The purchase price is subject to a working capital and other customary post-closing adjustments. This transaction is subject to certain regulatory approvals and customary closing conditions.Quarterly Report on Form 10-Q for the quarter ended May 31, 2020.
26
29
THE GREENBRIER COMPANIES, INC.
Three Months Ended May 31, 2019February 29, 2020 Compared to the Three Months Ended May 31, 2018February 28, 2019
Overview
Revenue, cost of revenue, margin and operating profit presented below, include amounts from external parties and exclude intersegment activity that is eliminated in consolidation.
Three Months Ended May 31, |
| Three Months Ended |
| |||||||||||||
(In thousands) | 2019 | 2018 |
| February 29, 2020 |
|
| February 28, 2019 |
| ||||||||
Revenue: |
|
|
|
|
|
|
|
| ||||||||
Manufacturing | $ | 681,588 | $ | 510,099 |
| $ | 489,943 |
|
| $ | 476,019 |
| ||||
Wheels, Repair & Parts | 124,980 | 94,515 |
|
| 91,225 |
|
|
| 125,278 |
| ||||||
Leasing & Services | 49,584 | 36,773 |
|
| 42,680 |
|
|
| 57,374 |
| ||||||
|
|
|
| 623,848 |
|
|
| 658,671 |
| |||||||
856,152 | 641,387 | |||||||||||||||
Cost of revenue: |
|
|
|
|
|
|
|
| ||||||||
Manufacturing | 590,788 | 427,875 |
|
| 422,309 |
|
|
| 442,996 |
| ||||||
Wheels, Repair & Parts | 119,821 | 85,850 |
|
| 84,373 |
|
|
| 118,455 |
| ||||||
Leasing & Services | 38,971 | 19,155 |
|
| 30,830 |
|
|
| 43,376 |
| ||||||
|
| |||||||||||||||
749,580 | 532,880 |
|
| 537,512 |
|
|
| 604,827 |
| |||||||
Margin: |
|
|
|
|
|
|
|
| ||||||||
Manufacturing | 90,800 | 82,224 |
|
| 67,634 |
|
|
| 33,023 |
| ||||||
Wheels, Repair & Parts | 5,159 | 8,665 |
|
| 6,852 |
|
|
| 6,823 |
| ||||||
Leasing & Services | 10,613 | 17,618 |
|
| 11,850 |
|
|
| 13,998 |
| ||||||
|
|
|
| 86,336 |
|
|
| 53,844 |
| |||||||
106,572 | 108,507 | |||||||||||||||
Selling and administrative | 54,377 | 51,793 |
|
| 54,597 |
|
|
| 47,892 |
| ||||||
Net gain on disposition of equipment | (11,019 | ) | (14,825 | ) |
|
| (6,697 | ) |
|
| (12,102 | ) | ||||
Goodwill impairment | 10,025 | — | ||||||||||||||
|
| |||||||||||||||
Earnings from operations | 53,189 | 71,539 |
|
| 38,436 |
|
|
| 18,054 |
| ||||||
Interest and foreign exchange | 9,770 | 6,533 |
|
| 12,609 |
|
|
| 9,237 |
| ||||||
|
| |||||||||||||||
Earnings before income taxes and loss from unconsolidated affiliates | 43,419 | 65,006 | ||||||||||||||
Earnings before income taxes and earnings (loss) from unconsolidated affiliates |
|
| 25,827 |
|
|
| 8,817 |
| ||||||||
Income tax expense | (13,008 | ) | (15,944 | ) |
|
| (7,463 | ) |
|
| (2,248 | ) | ||||
|
| |||||||||||||||
Earnings before loss from unconsolidated affiliates | 30,411 | 49,062 | ||||||||||||||
Loss from unconsolidated affiliates | (4,564 | ) | (12,823 | ) | ||||||||||||
|
| |||||||||||||||
Earnings before earnings (loss) from unconsolidated affiliates |
|
| 18,364 |
|
|
| 6,569 |
| ||||||||
Earnings (loss) from unconsolidated affiliates |
|
| 1,651 |
|
|
| (786 | ) | ||||||||
Net earnings | 25,847 | 36,239 |
|
| 20,015 |
|
|
| 5,783 |
| ||||||
Net earnings attributable to noncontrolling interest | (10,599 | ) | (3,288 | ) |
|
| (6,386 | ) |
|
| (3,018 | ) | ||||
|
| |||||||||||||||
Net earnings attributable to Greenbrier | $ | 15,248 | $ | 32,951 |
| $ | 13,629 |
|
| $ | 2,765 |
| ||||
|
| |||||||||||||||
Diluted earnings per common share | $ | 0.46 | $ | 1.01 |
| $ | 0.41 |
|
| $ | 0.08 |
|
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.
Three Months Ended May 31, |
| Three Months Ended |
| |||||||||||||
(In thousands) | 2019 | 2018 |
| February 29, 2020 |
|
| February 28, 2019 |
| ||||||||
Operating profit (loss): |
|
|
|
|
|
|
|
| ||||||||
Manufacturing | $ | 72,110 | $ | 62,435 |
| $ | 46,105 |
|
| $ | 13,990 |
| ||||
Wheels, Repair & Parts | (8,820 | ) | 5,546 |
|
| 3,320 |
|
|
| 2,823 |
| |||||
Leasing & Services | 15,337 | 26,704 |
|
| 12,793 |
|
|
| 21,030 |
| ||||||
Corporate | (25,438 | ) | (23,146 | ) |
|
| (23,782 | ) |
|
| (19,789 | ) | ||||
|
|
| $ | 38,436 |
|
| $ | 18,054 |
| |||||||
$ | 53,189 | $ | 71,539 | |||||||||||||
|
|
27
30
THE GREENBRIER COMPANIES, INC.
Consolidated Results
Three Months Ended May 31, | Increase | % |
| Three Months Ended |
|
|
|
|
|
|
|
|
| |||||||||||||||||||
(In thousands) | 2019 | 2018 | (Decrease) | Change |
| February 29, 2020 |
|
| February 28, 2019 |
|
| Increase (Decrease) |
|
| % Change |
| ||||||||||||||||
Revenue | $ | 856,152 | $ | 641,387 | $ | 214,765 | 33.5 | % |
| $ | 623,848 |
|
| $ | 658,671 |
|
| $ | (34,823 | ) |
|
| (5.3 | %) | ||||||||
Cost of revenue | $ | 749,580 | $ | 532,880 | $ | 216,700 | 40.7 | % |
| $ | 537,512 |
|
| $ | 604,827 |
|
| $ | (67,315 | ) |
|
| (11.1 | %) | ||||||||
Margin (%) | 12.4 | % | 16.9 | % | (4.5 | %) | * |
|
| 13.8 | % |
|
| 8.2 | % |
|
| 5.6 | % |
| * |
| ||||||||||
Net earnings attributable to Greenbrier | $ | 15,248 | $ | 32,951 | $ | (17,703 | ) | (53.7 | %) |
| $ | 13,629 |
|
| $ | 2,765 |
|
| $ | 10,864 |
|
|
| 392.9 | % |
* | Not meaningful |
As of July 26, 2019, the consolidated results included the results of the manufacturing business of ARI. This increased revenue and cost of revenue for the three months ended February 29, 2020 compared to the prior year.
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 33.5% increase5.3% decrease in revenue for the three months ended May 31, 2019February 29, 2020 as compared to the three months ended May 31, 2018February 28, 2019 was primarily due to a 33.6% increase in Manufacturing revenue primarily attributed to a 27.5% increase in the volume of railcar deliveries and a change in product mix. The increase in revenue was also due to a 32.2% increase27.2% decrease in Wheels, Repair & Parts revenue primarilyfrom lower wheelset, component and parts volumes due to lower demand, lower repair revenue from four fewer shops in the current quarter including $23.4 millionperiod and a decrease in revenue associated with the repair shops returned to us after discontinuing the GBW joint venture in August 2018.scrap metal pricing.
The 40.7% increase11.1% decrease in cost of revenue for the three months ended May 31, 2019February 29, 2020 as compared to the three months ended May 31, 2018February 28, 2019 was primarily due to a 38.1% increase28.8% decrease in Wheels, Repair & Parts cost of revenue from lower costs associated with a reduction in wheelset, component and parts volumes and four fewer repair shops in the current period. The decrease in cost of revenue was also due to a 4.7% decline in Manufacturing cost of revenue primarily attributed to a 27.5% increase17.8% decrease in the volume of railcar deliveries and a change in product mix. The increase in cost of revenue was also due to a 39.6% increase in Wheels, Repair & Parts cost of revenue primarily due to the current quarter including $26.3 million in cost of revenue associated with the repair shops returned to us after discontinuing the GBW joint venture in August 2018.deliveries.
Margin as a percentage of revenue was 12.4%13.8% and 16.9%8.2% for the three months ended May 31,February 29, 2020 and February 28, 2019, and 2018, respectively. The overall margin as a percentage of revenue was negativelypositively impacted by a decreasean increase in Manufacturing margin to 13.3%13.8% from 16.1%6.9% primarily attributed to a change in product mix and operating inefficiencies at some of our manufacturing facilities. The decrease in margin percentage was also due to a decrease in Leasing & Services margin to 21.4% from 47.9% ascustomer order contract modification fee received during the three months ended May 31, 2019 was negatively impacted by higher sales of railcars that we purchased from third parties which have lower margin percentages. February 29, 2020.
The decrease$10.9 million increase in margin percentage was also due to a decrease in Wheels, Repair & Parts margin to 4.1% from 9.2% primarily attributed to inefficiencies at our repair operations, a decrease in scrap metal pricing, a less favorable parts product mix and $0.9 million in costs associated with closing sites in our repair network.
Net earnings attributable to Greenbrier is impacted by our operating activities and noncontrolling interest associated with our 50/50 joint venture at one of our Mexican railcar manufacturing facilities and our 75% interest in Greenbrier-Astra Rail, both of which we consolidate for financial reporting purposes. The $17.7 million decrease in net earnings for the three months ended May 31, 2019February 29, 2020 as compared to the three months ended May 31, 2018February 28, 2019 was primarily attributable to an increase in margin from a $10.0 million goodwill impairment charge recognizedchange in product mix and the current quarter for which therecontract modification fee received during the three months ended February 29, 2020. This was no tax benefit.partially offset by an increase in Selling and administrative expense from higher employee related costs and the addition of the manufacturing business of ARI selling and administrative costs. The decreaseincrease in netNet earnings attributable to Greenbrier was also due to an increasepartially offset by a decrease in Net earnings attributable to noncontrolling interest, which is deducted from net earnings. Net earnings attributable to noncontrolling interest represents our joint venture partner’s share ingain on disposition of equipment.
28
THE GREENBRIER COMPANIES, INC.
Manufacturing Segment
|
| Three Months Ended |
|
|
|
|
|
|
|
|
| |||||
(In thousands) |
| February 29, 2020 |
|
| February 28, 2019 |
|
| Increase (Decrease) |
|
| % Change |
| ||||
Revenue |
| $ | 489,943 |
|
| $ | 476,019 |
|
| $ | 13,924 |
|
|
| 2.9 | % |
Cost of revenue |
| $ | 422,309 |
|
| $ | 442,996 |
|
| $ | (20,687 | ) |
|
| (4.7 | %) |
Margin (%) |
|
| 13.8 | % |
|
| 6.9 | % |
|
| 6.9 | % |
| * |
| |
Operating profit ($) |
| $ | 46,105 |
|
| $ | 13,990 |
|
| $ | 32,115 |
|
|
| 229.6 | % |
Operating profit (%) |
|
| 9.4 | % |
|
| 2.9 | % |
|
| 6.5 | % |
| * |
| |
Deliveries |
|
| 3,700 |
|
|
| 4,500 |
|
|
| (800 | ) |
|
| (17.8 | %) |
* Not meaningful
As of July 26, 2019, the Manufacturing segment included the results of operationsthe manufacturing business of our Mexican railcar manufacturing joint venture, adjustedARI which is consolidated for intercompany sales, and our European partner’s share of the results of our European operations.
31
THE GREENBRIER COMPANIES, INC.
Manufacturing Segment
Three Months Ended May 31, | Increase | % | ||||||||||||||
(In thousands) | 2019 | 2018 | (Decrease) | Change | ||||||||||||
Revenue | $ | 681,588 | $ | 510,099 | $ | 171,489 | 33.6 | % | ||||||||
Cost of revenue | $ | 590,788 | $ | 427,875 | $ | 162,913 | 38.1 | % | ||||||||
Margin (%) | 13.3 | % | 16.1 | % | (2.8 | %) | * | |||||||||
Operating profit ($) | $ | 72,110 | $ | 62,435 | $ | 9,675 | 15.5 | % | ||||||||
Operating profit (%) | 10.6 | % | 12.2 | % | (1.6 | %) | * | |||||||||
Deliveries | 6,500 | 5,100 | 1,400 | 27.5 | % |
|
financial reporting purposes. This increased Manufacturing revenue increased $171.5 million or 33.6%and cost of revenue for the three months ended May 31, 2019February 29, 2020 compared to the prior year.
Manufacturing revenue increased $13.9 million or 2.9% for the three months ended February 29, 2020 compared to the three months ended May 31, 2018.February 28, 2019. The increase in revenue was primarily attributed to a 27.5% increase in the volume of railcar deliveries and a change in product mix.
Manufacturing cost of revenue increased $162.9 million or 38.1% for the three months ended May 31, 2019 compared to the three months ended May 31, 2018. The increase in cost of revenue was primarily attributed to a 27.5% increase in the volume of railcar deliveries and a change in product mix.
Manufacturing margin as a percentage of revenue decreased 2.8% for the three months ended May 31, 2019 compared to the three months ended May 31, 2018. The decrease was primarily attributed to a change in product mix and operating inefficiencies at some of our manufacturing facilities.
a $12.9 million customer order contract modification fee received during the three months ended February 29, 2020. These were partially offset by a 17.8% decrease in railcar deliveries. Manufacturing operating profit increased $9.7 million or 15.5%revenue for the three months ended May 31, 2019February 29, 2020 included $107.2 million in revenue associated with the acquired manufacturing business of ARI.
Manufacturing cost of revenue decreased $20.7 million or 4.7% for the three months ended February 29, 2020 compared to the three months ended May 31, 2018.February 28, 2019. The increasedecrease in cost of revenue was primarily attributed to an increasea 17.8% decrease in the volume of railcar deliveries partially offset by a lowerchange in product mix. Manufacturing cost of revenue for the three months ended February 29, 2020 included $104.9 million in costs associated with the acquired manufacturing business of ARI.
Manufacturing margin as a percentage fromof revenue increased 6.9% for the three months ended February 29, 2020 compared to the three months ended February 28, 2019. The increase was primarily attributed to a change in product mix and operating inefficiencies at some of our manufacturing facilities.
32
THE GREENBRIER COMPANIES, INC.
Wheels, Repair & Parts Segment
Three Months Ended May 31, | Increase | % | ||||||||||||||
(In thousands) | 2019 | 2018 | (Decrease) | Change | ||||||||||||
Revenue | $ | 124,980 | $ | 94,515 | $ | 30,465 | 32.2 | % | ||||||||
Cost of revenue | $ | 119,821 | $ | 85,850 | $ | 33,971 | 39.6 | % | ||||||||
Margin (%) | 4.1 | % | 9.2 | % | (5.1 | %) | * | |||||||||
Operating profit ($) | $ | (8,820 | ) | $ | 5,546 | $ | (14,366 | ) | * | |||||||
Operating profit (%) | (7.1 | %) | 5.9 | % | (13.0 | %) | * |
|
On August 20, 2018, 12 repair shops were returned to us as a result of discontinuing our GBW railcar repair joint venture. Beginning on August 20, 2018, the results of operations from these repair shops were included in the Wheels, Repair & Parts segment as they are now consolidated for financial reporting purposes. The addition of these repair shops contributed to the increase in Wheels, Repair & Parts revenue and cost of revenuecontract modification fee received during the three months ended May 31,February 29, 2020. The Manufacturing margin as a percentage of revenue for the three months ended February 28, 2019 was negatively impacted by railcar contract loss accruals in the prior year.
Manufacturing operating profit increased $32.1 million or 229.6% for the three months ended February 29, 2020 compared to the three months ended February 28, 2019. The increase in operating profit was primarily attributed to a change in product mix and the contract modification fee received during the three months ended February 29, 2020. Operating profit for the three months ended February 28, 2019 was negatively impacted by railcar contract loss accruals in the prior year.
29
THE GREENBRIER COMPANIES, INC.
Wheels, Repair & Parts Segment
|
| Three Months Ended |
|
|
|
|
|
|
|
|
| |||||
(In thousands) |
| February 29, 2020 |
|
| February 28, 2019 |
|
| Increase (Decrease) |
|
| % Change |
| ||||
Revenue |
| $ | 91,225 |
|
| $ | 125,278 |
|
| $ | (34,053 | ) |
|
| (27.2 | %) |
Cost of revenue |
| $ | 84,373 |
|
| $ | 118,455 |
|
| $ | (34,082 | ) |
|
| (28.8 | %) |
Margin (%) |
|
| 7.5 | % |
|
| 5.4 | % |
|
| 2.1 | % |
| * |
| |
Operating profit ($) |
| $ | 3,320 |
|
| $ | 2,823 |
|
| $ | 497 |
|
|
| 17.6 | % |
Operating profit (%) |
|
| 3.6 | % |
|
| 2.3 | % |
|
| 1.3 | % |
| * |
|
* Not meaningful
Wheels, Repair & Parts revenue increased $30.5decreased $34.1 million or 32.2%27.2% for the three months ended May 31, 2019February 29, 2020 compared to the three months ended May 31, 2018.February 28, 2019. The increasedecrease was primarily due to lower wheelset, component and parts volumes due to lower demand, lower repair revenue primarily from four fewer shops in the current quarter including $23.4 millionperiod and a decrease 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 volumes and higher parts revenue.scrap metal pricing.
Wheels, Repair & Parts cost of revenue increased $34.0decreased $34.1 million or 39.6%28.8% for the three months ended May 31, 2019February 29, 2020 compared to the three months ended May 31, 2018.February 28, 2019. The increasedecrease was primarily due to the current quarter including $26.3 million inlower costs associated with the repair shops returned to us after discontinuing the GBW joint venturea reduction in August 2018. The increase was also due to higher costs associated with an increase in wheel setwheelset, component and component volumes, higher parts volumes and $0.9 millionfour fewer repair shops in costs associated with closing sites in our repair network.the current period.
Wheels, Repair & Parts margin as a percentage of revenue decreased 5.1%increased 2.1% for the three months ended May 31, 2019February 29, 2020 compared to the three months ended May 31, 2018.February 28, 2019. The decreaseincrease was primarily attributed to inefficienciesefficiencies at our repair operations, a decreaseshops in scrap metal pricing, a less favorable parts product mix and $0.9 million inthe current period. In addition, the three months ended February 28, 2019 was negatively impacted by costs associated with closing sites in our repair networknetwork. These factors which had a positive impact to Wheels, Repair & Parts margin as a percentage of revenue compared to the prior year, were partially offset by a decrease in scrap metal pricing for the three months ended February 29, 2020.
Wheels, Repair & Parts operating profit decreased $14.4increased $0.5 million or 17.6% for the three months ended May 31, 2019February 29, 2020 compared to the three months ended May 31, 2018.February 28, 2019. The decreaseincrease was primarily attributeddue to a $10.0 million goodwill impairment charge recognizedefficiencies at our repair shops in the current quarter due to challenges at our repair operations and $0.9 million in costs associated with closing sites in our repair network.period.
3330
THE GREENBRIER COMPANIES, INC.
Leasing & Services Segment
Three Months Ended May 31, | Increase | % |
| Three Months Ended |
|
|
|
|
|
|
|
|
| |||||||||||||||||||
(In thousands) | 2019 | 2018 | (Decrease) | Change |
| February 29, 2020 |
|
| February 28, 2019 |
|
| Increase (Decrease) |
|
| % Change |
| ||||||||||||||||
Revenue | $ | 49,584 | $ | 36,773 | $ | 12,811 | 34.8 | % |
| $ | 42,680 |
|
| $ | 57,374 |
|
| $ | (14,694 | ) | �� |
| (25.6 | %) | ||||||||
Cost of revenue | $ | 38,971 | $ | 19,155 | $ | 19,816 | 103.5 | % |
| $ | 30,830 |
|
| $ | 43,376 |
|
| $ | (12,546 | ) |
|
| (28.9 | %) | ||||||||
Margin (%) | 21.4 | % | 47.9 | % | (26.5 | %) | * |
|
| 27.8 | % |
|
| 24.4 | % |
|
| 3.4 | % |
| * |
| ||||||||||
Operating profit ($) | $ | 15,337 | $ | 26,704 | $ | (11,367 | ) | (42.6 | %) |
| $ | 12,793 |
|
| $ | 21,030 |
|
| $ | (8,237 | ) |
|
| (39.2 | %) | |||||||
Operating profit (%) | 30.9 | % | 72.6 | % | (41.7 | %) | * |
|
| 30.0 | % |
|
| 36.7 | % |
|
| (6.7 | %) |
| * |
|
* Not meaningful |
The Leasing & Services segment generates revenue from leasing railcars from its lease fleet, providing various management services, interim rent on leased railcars for syndication, and the sale of railcars purchased from third parties with the intent to resell 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.
Leasing & Services revenue increased $12.8decreased $14.7 million or 34.8%25.6% for the three months ended May 31, 2019February 29, 2020 compared to the three months ended May 31, 2018.February 28, 2019. The increasedecrease was primarily attributed to an increasea decrease in the sale of railcars which we had purchased from third parties with the intent to resell them.resell. This was partially offset by lowerhigher average volume of rent-producing leased railcars for syndication.
Leasing & Services cost of revenue increased $19.8decreased $12.5 million or 103.5%28.9% for the three months ended May 31, 2019February 29, 2020 compared to the three months ended May 31, 2018.February 28, 2019. The increasedecrease was primarily due to an increasea decrease in the volume of railcars sold that we purchased from third parties andpartially offset by higher transportation costs.
Leasing & Services margin as a percentage of revenue decreased 26.5%increased 3.4% for the three months ended May 31, 2019February 29, 2020 compared to the three months ended May 31, 2018.February 28, 2019. Margin as a percentage of revenue for the three months ended May 31, 2019 was negatively impactedFebruary 29, 2020 benefited from higherfewer sales of railcars that we purchased from third parties which have lower margin percentages. The decreaseincrease in margin as a percentage of revenue was also due to higher transportation costs.
Leasing & Services operating profit decreased $11.4 million or 42.6% for the three months ended May 31, 2019 compared to the three months ended May 31, 2018. The decrease was attributed to a $7.0 million decrease in margin primarily due to higher transportation costs and a lower average volume of rent-producing leased railcars for syndication.
Leasing & Services operating profit decreased $8.2 million or 39.2% for the three months ended February 29, 2020 compared to the three months ended February 28, 2019. The decrease was alsoprimarily attributed to a $3.7$5.4 million decrease in net gain on disposition of equipment.equipment and a $2.1 million decrease in margin.
The percentage of owned units on lease was 97.3% at May 31, 2019 compared to 90.4% at May 31, 2018.
31
34
THE GREENBRIER COMPANIES, INC.
Selling and Administrative Expense
Three Months Ended May 31, | Increase | % |
| Three Months Ended |
|
|
|
|
|
|
|
|
| |||||||||||||||||||
(In thousands) | 2019 | 2018 | (Decrease) | Change |
| February 29, 2020 |
|
| February 28, 2019 |
|
| Increase (Decrease) |
|
| % Change |
| ||||||||||||||||
Selling and administrative expense | $ | 54,377 | $ | 51,793 | $ | 2,584 | 5.0 | % |
| $ | 54,597 |
|
| $ | 47,892 |
|
| $ | 6,705 |
|
|
| 14.0 | % |
Selling and administrative expense was $54.4$54.6 million or 6.4%8.8% of revenue for the three months ended May 31, 2019February 29, 2020 compared to $51.8$47.9 million or 8.1%7.3% of revenue for the prior comparable period. The $2.6$6.7 million increase was primarily attributed to $5.8a $5.3 million increase in employee related costs associated withand $2.8 million from the previously announced agreement to acquireaddition of the manufacturing business of American Railcar Industries. This wasARI selling and administrative costs. These were partially offset by a $3.3$2.1 million decrease in employeetransaction related costs primarily related to a decrease in incentive compensation.incurred during the three months ended February 28, 2019.
Net Gain on Disposition of Equipment
Net gain on disposition of equipment was $11.0$6.7 million for the three months ended May 31, 2019February 29, 2020 compared to $14.8$12.1 million for the prior comparable period. 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 conditions and to manage risk and liquidity; and disposition of property, plant and equipment.
Goodwill Impairment
Based on the results of our annual impairment test, anon-cash impairment charge of $10.0 million was recorded during the three months ended May 31, 2019 related to our repair reporting unit.
Other Costs
Interest and foreign exchange expense was composed of the following:
Three Months Ended May 31, | Increase |
| Three Months Ended |
|
|
|
|
| ||||||||||||||||
(In thousands) | 2019 | 2018 | (Decrease) |
| February 29, 2020 |
|
| February 28, 2019 |
|
| Increase (Decrease) |
| ||||||||||||
Interest and foreign exchange: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Interest and other expense | $ | 8,243 | $ | 7,392 | $ | 851 |
| $ | 10,329 |
|
| $ | 7,617 |
|
| $ | 2,712 |
| ||||||
Foreign exchange (gain) loss | 1,527 | (859 | ) | 2,386 | ||||||||||||||||||||
Foreign exchange loss |
|
| 2,280 |
|
|
| 1,620 |
|
|
| 660 |
| ||||||||||||
|
|
|
| $ | 12,609 |
|
| $ | 9,237 |
|
| $ | 3,372 |
| ||||||||||
$ | 9,770 | $ | 6,533 | $ | 3,237 | |||||||||||||||||||
|
|
|
The $3.2$3.4 million increase in interest and foreign exchange expense from the prior comparable period was primarily attributed to a $1.5interest expense associated with our $300 million foreign exchange loss for the three months ended May 31, 2019 compared to a $0.9 million foreign exchange gainof senior term debt issued in the prior comparable period. The change in foreign exchange (gain) loss was primarily attributed to the change in the Brazilian Real relative to the U.S. Dollar.
35
THE GREENBRIER COMPANIES, INC.
July 2019.
Income Tax
The effective tax rate for the three months ended May 31, 2019February 29, 2020 was 30.0%28.9% compared to a 24.5% rate25.5% for the three months ended May 31, 2018.February 28, 2019. The increase in the effective rate isfrom the prior year was primarily as a result of the impairment of goodwill recordedattributable to net unfavorable discrete items in the current quarter for which there was no tax benefit.compared to net favorable discrete items in the prior comparable period. Excluding the impact of the goodwill impairment charge,discrete items in both periods, the effective tax rate was 24.3% which was consistent with25.5% for the three months ended February 29, 2020 compared to 29.8% in the prior year.comparable period which decreased primarily due to the geographic mix of earnings.
The effective tax rate can fluctuateyear-to-year due to 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. The joint venture is 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.
Loss
32
THE GREENBRIER COMPANIES, INC.
Earnings (Loss) From Unconsolidated Affiliates
Loss fromThrough unconsolidated affiliates primarily included our share ofafter-tax results from ourwe produce rail and industrial components and have an ownership stake in a railcar manufacturer in 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. In addition, for the three months ended May 31, 2018, loss from unconsolidated affiliates also included our share ofafter-tax results from the GBW joint venture.warehouse.
LossEarnings from unconsolidated affiliates was $4.6$1.7 million for the three months ended May 31, 2019February 29, 2020 compared to $12.8a loss from unconsolidated affiliates of $0.8 million for the three months ended May 31, 2018.February 28, 2019. The $8.2 million decreaseincrease in lossearnings from unconsolidated affiliates was primarily attributedrelated to earnings from our investment in Axis, a joint venture that manufactures and sells axles to its joint venture partners. We obtained our ownership interest in Axis as part of the prior year including anon-cash goodwill impairment that GBW recognized duringacquisition of the three months ended May 31, 2018.manufacturing business of ARI on July 26, 2019.
Noncontrolling Interest
Net earnings attributable to noncontrolling interest was $10.6$6.4 million for the three months ended May 31, 2019February 29, 2020 compared to $3.3$3.0 million in the prior comparable period, which primarily represents our joint venture partner’spartner's share in the results of operations of our Mexican railcar manufacturing joint venture, adjusted for intercompany sales, and our European partner’s share of the results of our European operations.
3633
THE GREENBRIER COMPANIES, INC.
NineSix Months Ended May 31, 2019February 29, 2020 Compared to Ninethe Six Months Ended May 31, 2018February 28, 2019
Overview
Revenue, cost of revenue, margin and operating profit presented below, include amounts from external parties and exclude intersegment activity that is eliminated in consolidation.
Nine Months Ended May 31, |
| Six Months Ended |
| |||||||||||||
(In thousands) | 2019 | 2018 |
| February 29, 2020 |
|
| February 28, 2019 |
| ||||||||
Revenue: |
|
|
|
|
|
|
|
| ||||||||
Manufacturing | $ | 1,629,396 | $ | 1,473,411 |
| $ | 1,147,310 |
|
| $ | 947,808 |
| ||||
Wheels, Repair & Parts | 358,801 | 261,236 |
|
| 177,833 |
|
|
| 233,821 |
| ||||||
Leasing & Services | 131,149 | 95,611 |
|
| 68,064 |
|
|
| 81,565 |
| ||||||
|
|
|
| 1,393,207 |
|
|
| 1,263,194 |
| |||||||
2,119,346 | 1,830,258 | |||||||||||||||
Cost of revenue: |
|
|
|
|
|
|
|
| ||||||||
Manufacturing | 1,451,589 | 1,237,890 |
|
| 1,004,221 |
|
|
| 860,801 |
| ||||||
Wheels, Repair & Parts | 339,254 | 239,064 |
|
| 166,265 |
|
|
| 219,433 |
| ||||||
Leasing & Services | 95,554 | 50,136 |
|
| 44,196 |
|
|
| 56,583 |
| ||||||
|
| |||||||||||||||
1,886,397 | 1,527,090 |
|
| 1,214,682 |
|
|
| 1,136,817 |
| |||||||
Margin: |
|
|
|
|
|
|
|
| ||||||||
Manufacturing | 177,807 | 235,521 |
|
| 143,089 |
|
|
| 87,007 |
| ||||||
Wheels, Repair & Parts | 19,547 | 22,172 |
|
| 11,568 |
|
|
| 14,388 |
| ||||||
Leasing & Services | 35,595 | 45,475 |
|
| 23,868 |
|
|
| 24,982 |
| ||||||
|
|
|
| 178,525 |
|
|
| 126,377 |
| |||||||
232,949 | 303,168 | |||||||||||||||
Selling and administrative | 152,701 | 149,130 |
|
| 108,961 |
|
|
| 98,324 |
| ||||||
Net gain on disposition of equipment | (37,474 | ) | (39,813 | ) |
|
| (10,656 | ) |
|
| (26,455 | ) | ||||
Goodwill impairment | 10,025 | — | ||||||||||||||
|
| |||||||||||||||
Earnings from operations | 107,697 | 193,851 |
|
| 80,220 |
|
|
| 54,508 |
| ||||||
Interest and foreign exchange | 23,411 | 20,582 |
|
| 25,461 |
|
|
| 13,641 |
| ||||||
|
| |||||||||||||||
Earnings before income taxes and loss from unconsolidated affiliates | 84,286 | 173,269 | ||||||||||||||
Earnings before income taxes and earnings (loss) from unconsolidated affiliates |
|
| 54,759 |
|
|
| 40,867 |
| ||||||||
Income tax expense | (24,391 | ) | (22,778 | ) |
|
| (13,457 | ) |
|
| (11,383 | ) | ||||
|
| |||||||||||||||
Earnings before loss from unconsolidated affiliates | 59,895 | 150,491 | ||||||||||||||
Loss from unconsolidated affiliates | (4,883 | ) | (15,586 | ) | ||||||||||||
|
| |||||||||||||||
Earnings before earnings (loss) from unconsolidated affiliates |
|
| 41,302 |
|
|
| 29,484 |
| ||||||||
Earnings (loss) from unconsolidated affiliates |
|
| 2,724 |
|
|
| (319 | ) | ||||||||
Net earnings | 55,012 | 134,905 |
|
| 44,026 |
|
|
| 29,165 |
| ||||||
Net earnings attributable to noncontrolling interest | (19,043 | ) | (14,059 | ) |
|
| (22,728 | ) |
|
| (8,444 | ) | ||||
|
| |||||||||||||||
Net earnings attributable to Greenbrier | $ | 35,969 | $ | 120,846 |
| $ | 21,298 |
|
| $ | 20,721 |
| ||||
|
| |||||||||||||||
Diluted earnings per common share | $ | 1.08 | $ | 3.75 |
| $ | 0.64 |
|
| $ | 0.63 |
|
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.
Nine Months Ended May 31, |
| Six Months Ended |
| |||||||||||||
(In thousands) | 2019 | 2018 |
| February 29, 2020 |
|
| February 28, 2019 |
| ||||||||
Operating profit (loss): |
|
|
|
|
|
|
|
| ||||||||
Manufacturing | $ | 122,955 | $ | 178,589 |
| $ | 99,248 |
|
| $ | 50,845 |
| ||||
Wheels, Repair & Parts | (2,750 | ) | 13,083 |
|
| 4,434 |
|
|
| 6,070 |
| |||||
Leasing & Services | 53,880 | 71,008 |
|
| 22,570 |
|
|
| 38,543 |
| ||||||
Corporate | (66,388 | ) | (68,829 | ) |
|
| (46,032 | ) |
|
| (40,950 | ) | ||||
|
|
| $ | 80,220 |
|
| $ | 54,508 |
| |||||||
$ | 107,697 | $ | 193,851 | |||||||||||||
|
|
34
37
THE GREENBRIER COMPANIES, INC.
Consolidated Results
Nine Months Ended May 31, | Increase | % |
| Six Months Ended |
|
|
|
|
|
|
|
|
| |||||||||||||||||||
(In thousands) | 2019 | 2018 | (Decrease) | Change |
| February 29, 2020 |
|
| February 28, 2019 |
|
| Increase (Decrease) |
|
| % Change |
| ||||||||||||||||
Revenue | $ | 2,119,346 | $ | 1,830,258 | $ | 289,088 | 15.8 | % |
| $ | 1,393,207 |
|
| $ | 1,263,194 |
|
| $ | 130,013 |
|
|
| 10.3 | % | ||||||||
Cost of revenue | $ | 1,886,397 | $ | 1,527,090 | $ | 359,307 | 23.5 | % |
| $ | 1,214,682 |
|
| $ | 1,136,817 |
|
| $ | 77,865 |
|
|
| 6.8 | % | ||||||||
Margin (%) | 11.0 | % | 16.6 | % | (5.6 | %) | * |
|
| 12.8 | % |
|
| 10.0 | % |
|
| 2.8 | % |
| * |
| ||||||||||
Net earnings attributable to Greenbrier | $ | 35,969 | $ | 120,846 | $ | (84,877 | ) | (70.2 | %) |
| $ | 21,298 |
|
| $ | 20,721 |
|
| $ | 577 |
|
|
| 2.8 | % |
* | Not meaningful |
As of July 26, 2019, the consolidated results included the results of the manufacturing business of ARI. This increased revenue and cost of revenue for the six months ended February 29, 2020 compared to the prior year.
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 15.8%10.3% increase in revenue for the ninesix months ended May 31, 2019February 29, 2020 as compared to the ninesix months ended May 31, 2018February 28, 2019 was primarily due to a 13.4%21.0% increase in the volume ofManufacturing revenue primarily attributed to a 10.3% increase in railcar deliveries partially offset byand a change in product mix. The increase in revenueThis was also due topartially offset by a 37.3% increase23.9% decrease in Wheels, Repair & Parts revenue primarily due to lower wheelset, component and parts volumes due to lower demand, lower repair revenue primarily from four fewer shops in the current period including $71.1 millionyear and a decrease in revenue associated with the repair shops returned to us after discontinuing the GBW joint venture in August 2018. The increase in revenue was also primarily due to a 37.2% increase in Leasing & Services revenue primarily attributed to an increase in the sale of railcars which we had purchased from third parties with the intent to resell them.scrap metal pricing.
The 23.5%6.8% increase in cost of revenue for the ninesix months ended May 31, 2019February 29, 2020 as compared to the ninesix months ended May 31, 2018February 28, 2019 was primarily due to a 17.3%16.7% increase in Manufacturing cost of revenue primarily attributed to a 13.4%10.3% increase in the volume of railcar deliveries, operating inefficiencies at some of our manufacturing facilities and railcar contract loss accruals of $6.5 million on certain contracts. The increase in revenuedeliveries. This was also due topartially offset by a 41.9% increase24.2% decrease in Wheels, Repair & Parts cost of revenue primarily due to lower costs associated with a reduction in wheelset, component and parts volumes and four fewer repair shops in the current quarter including $77.8 million in cost of revenue associated with the repair shops returned to us after discontinuing the GBW joint venture in August 2018. The increase in revenue was also due to a 90.6% increase in Leasing & Services cost of revenue primarily due to an increase in the volume of railcars sold that we purchased from third parties and higher transportation costs.period.
Margin as a percentage of revenue was 11.0%12.8% and 16.6%10.0% for the ninesix months ended May 31,February 29, 2020 and February 28, 2019, and 2018, respectively. The overall margin as a percentage of revenue was negativelypositively impacted by a decreasean increase in Manufacturing margin to 10.9%12.5% from 16.0%9.2% primarily attributed to a change in product mix and a customer order contract modification fee received during the six months ended February 29, 2020.
Net earnings attributable to Greenbrier is impacted by our operating inefficienciesactivities and noncontrolling interest associated with our 50/50 joint venture at someone of our Mexican railcar manufacturing facilities and railcar contract loss accruals on certain contracts.our 75% interest in Greenbrier-Astra Rail, both of which we consolidate for financial reporting purposes. The decrease was also due$0.6 million increase in Net earnings attributable to a decrease in Leasing & Services margin to 27.1% from 47.6%. Leasing & Services marginGreenbrier for the ninesix months ended May 31, 2018 benefited from fewer sales of railcars that we purchased from third parties which have lower margin percentages.
The $84.9 million decrease in net earnings for the nine months ended May 31, 2019February 29, 2020 as compared to the nine months ended May 31, 2018prior comparable period was primarily attributable to a decreasean increase in margin from a change in Manufacturing product mix, operating inefficiencies at some of our manufacturing facilities and railcar contract loss accruals on certain contracts. The decrease in net earnings was also due to a $10.0 million goodwill impairment charge recognized in the current year for which therehigher volume of railcar deliveries. This was no tax benefit.partially offset by higher Net earnings attributable to noncontrolling interest. The higher Net earnings attributable to noncontrolling interest was a result of our Mexican railcar manufacturing 50/50 joint venture operating at higher volumes and margins.
3835
THE GREENBRIER COMPANIES, INC.
Manufacturing Segment
Nine Months Ended May 31, | Increase | % |
| Six Months Ended |
|
|
|
|
|
|
|
|
| |||||||||||||||||||
(In thousands) | 2019 | 2018 | (Decrease) | Change |
| February 29, 2020 |
|
| February 28, 2019 |
|
| Increase (Decrease) |
|
| % Change |
| ||||||||||||||||
Revenue | $ | 1,629,396 | $ | 1,473,411 | $ | 155,985 | 10.6 | % |
| $ | 1,147,310 |
|
| $ | 947,808 |
|
| $ | 199,502 |
|
|
| 21.0 | % | ||||||||
Cost of revenue | $ | 1,451,589 | $ | 1,237,890 | $ | 213,699 | 17.3 | % |
| $ | 1,004,221 |
|
| $ | 860,801 |
|
| $ | 143,420 |
|
|
| 16.7 | % | ||||||||
Margin (%) | 10.9 | % | 16.0 | % | (5.1 | %) | * |
|
| 12.5 | % |
|
| 9.2 | % |
|
| 3.3 | % |
| * |
| ||||||||||
Operating profit ($) | $ | 122,955 | $ | 178,589 | $ | (55,634 | ) | (31.2 | %) |
| $ | 99,248 |
|
| $ | 50,845 |
|
| $ | 48,403 |
|
|
| 95.2 | % | |||||||
Operating profit (%) | 7.5 | % | 12.1 | % | (4.6 | %) | * |
|
| 8.7 | % |
|
| 5.4 | % |
|
| 3.3 | % |
| * |
| ||||||||||
Deliveries | 15,200 | 13,400 | 1,800 | 13.4 | % |
|
| 9,600 |
|
|
| 8,700 |
|
|
| 900 |
|
|
| 10.3 | % |
* | Not meaningful |
As of July 26, 2019, the Manufacturing segment included the results of the manufacturing business of ARI which is consolidated for financial reporting purposes. This increased Manufacturing revenue and cost of revenue for the six months ended February 29, 2020 compared to the prior year.
Manufacturing revenue increased $156.0$199.5 million or 10.6%21.0% for the ninesix months ended May 31, 2019February 29, 2020 compared to the ninesix months ended May 31, 2018.February 28, 2019. The increase in revenue was primarily attributed to a 13.4%10.3% increase in the volume of railcar deliveries partially offset byand a change in product mix. Manufacturing revenue for the six months ended February 29, 2020 included $210.7 million in revenue associated with the acquired manufacturing business of ARI.
Manufacturing cost of revenue increased $213.7$143.4 million or 17.3%16.7% for the ninesix months ended May 31, 2019February 29, 2020 compared to the ninesix months ended May 31, 2018.February 28, 2019. The increase in cost of revenue was primarily attributed to a 13.4%10.3% increase in the volume of railcar deliveries, operating inefficiencies at somedeliveries. Manufacturing cost of ourrevenue for the six months ended February 29, 2020 included $211.1 million in costs associated with the acquired manufacturing facilities and railcar contract loss accrualsbusiness of $6.5 million on certain contracts. Operating inefficiencies include poor manufacturing execution at some of our manufacturing facilities and supplier delivery failures at our European operations.ARI.
Manufacturing margin as a percentage of revenue decreased 5.1%increased 3.3% for the ninesix months ended May 31, 2019February 29, 2020 compared to the ninesix months ended May 31, 2018.February 28, 2019. The decreaseincrease was primarily attributed to a change in product mix operating inefficiencies at some of our manufacturing facilities and railcara $12.9 million customer order contract loss accruals of $6.5 million on certain contracts. Operating inefficiencies include poor manufacturing execution at some of our manufacturing facilities and supplier delivery failures at our European operations. Management is actively addressing these performance issues and expects gross margins to improve.
Manufacturing operating profit decreased $55.6 million or 31.2% formodification fee received during the ninesix months ended May 31, 2019 compared to the nine months ended May 31, 2018. The decrease was primarily attributed to a lower margin percentage from a change in product mix, operating inefficiencies at some of our manufacturing facilities and railcar contract loss accruals of $6.5 million on certain contracts. Operating inefficiencies include poor manufacturing execution at some of our manufacturing facilities and supplier delivery failures at our European operations.February 29, 2020. These were partially offset by operating inefficiencies at our recently acquired manufacturing facilities.
Manufacturing operating profit increased $48.4 million or 95.2% for the six months ended February 29, 2020 compared to the six months ended February 28, 2019. The increase was primarily attributed to an increase in net gain on dispositionthe volume of equipment from insurance proceeds received for business interruption and assets destroyed in a fire at a manufacturing facility in 2016.railcar deliveries.
3936
THE GREENBRIER COMPANIES, INC.
Wheels, Repair & Parts Segment
Nine Months Ended May 31, | Increase | % |
| Six Months Ended |
|
|
|
|
|
|
|
|
| |||||||||||||||||||
(In thousands) | 2019 | 2018 | (Decrease) | Change |
| February 29, 2020 |
|
| February 28, 2019 |
|
| Increase (Decrease) |
|
| % Change |
| ||||||||||||||||
Revenue | $ | 358,801 | $ | 261,236 | $ | 97,565 | 37.3 | % |
| $ | 177,833 |
|
| $ | 233,821 |
|
| $ | (55,988 | ) |
|
| (23.9 | %) | ||||||||
Cost of revenue | $ | 339,254 | $ | 239,064 | $ | 100,190 | 41.9 | % |
| $ | 166,265 |
|
| $ | 219,433 |
|
| $ | (53,168 | ) |
|
| (24.2 | %) | ||||||||
Margin (%) | 5.4 | % | 8.5 | % | (3.1 | %) | * |
|
| 6.5 | % |
|
| 6.2 | % |
|
| 0.3 | % |
| * |
| ||||||||||
Operating profit ($) | $ | (2,750 | ) | $ | 13,083 | $ | (15,833 | ) | * |
| $ | 4,434 |
|
| $ | 6,070 |
|
| $ | (1,636 | ) |
|
| (27.0 | %) | |||||||
Operating profit (%) | (0.8 | %) | 5.0 | % | (5.8 | %) | * |
|
| 2.5 | % |
|
| 2.6 | % |
|
| (0.1 | %) |
| * |
|
* | Not meaningful |
On August 20, 2018, 12 repair shops were returned to us as a result of discontinuing our GBW railcar repair joint venture. Beginning on August 20, 2018, the results of operations from these repair shops were included in the Wheels, Repair & Parts segment as they are now consolidated for financial reporting purposes. The addition of these repair shops contributed to the increase in Wheels, Repair & Parts revenue and cost of revenue during the nine months ended May 31, 2019 compared to the prior year.
Wheels, Repair & Parts revenue increased $97.6decreased $56.0 million or 37.3%23.9% for the ninesix months ended May 31, 2019February 29, 2020 compared to the ninesix months ended May 31, 2018.February 28, 2019. The increasedecrease was primarily due to lower wheelset, component and parts volumes due to lower demand, lower repair revenue primarily from four fewer shops in the current year including $71.1 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 parts revenue, higher wheel set and component volumes and an increasea decrease in scrap metal volume.pricing.
Wheels, Repair & Parts cost of revenue increased $100.2decreased $53.2 million or 41.9%24.2% for the ninesix months ended May 31, 2019February 29, 2020 compared to the ninesix months ended May 31, 2018.February 28, 2019. The increasedecrease was primarily due to the current year including $77.8 million inlower costs associated with thea reduction in wheelset, component and parts volumes and four fewer repair shops returned to us after discontinuingin the GBW joint venture in August 2018. The increase was also due to higher costs associated with increased parts volumes, higher wheel set and component volumes and $2.0 million in costs associated with closing sites in our repair network.current period.
Wheels, Repair & Parts margin as a percentage of revenue decreased 3.1%increased 0.3% for the ninesix months ended May 31, 2019February 29, 2020 compared to the ninesix months ended May 31, 2018.February 28, 2019. The decreaseincrease was primarily attributed to inefficienciesefficiencies at our repair operations and $2.0 millionshops in the current year. In addition, the six months ended February 28, 2019 was negatively impacted by costs associated with closing sites in our repair network. This wasThese factors which had a positive impact to Wheels, Repair & Parts margin as a percentage of revenue as compared to the prior year, were partially offset by a favorable parts product mix.decrease in scrap metal pricing for the six months ended February 29, 2020.
Wheels, Repair & Parts operating profit decreased $15.8$1.6 million or 27.0% for the ninesix months ended May 31, 2019February 29, 2020 compared to the ninesix months ended May 31, 2018.February 28, 2019. The decrease was primarily attributeddue to a $10.0 million goodwill impairment charge recognizedreduction in the current quarter due to challenges at our repair operations and $2.0 million in costs associated with closing sites in our repair network. This was partially offset by higher parts revenuevolumes and a more favorable parts product mix.decrease in scrap metal pricing.
4037
THE GREENBRIER COMPANIES, INC.
Leasing & Services Segment
Nine Months Ended May 31, | Increase | % |
| Six Months Ended |
|
|
|
|
|
|
|
|
| |||||||||||||||||||
(In thousands) | 2019 | 2018 | (Decrease) | Change |
| February 29, 2020 |
|
| February 28, 2019 |
|
| Increase (Decrease) |
|
| % Change |
| ||||||||||||||||
Revenue | $ | 131,149 | $ | 95,611 | $ | 35,538 | 37.2 | % |
| $ | 68,064 |
|
| $ | 81,565 |
|
| $ | (13,501 | ) |
|
| (16.6 | %) | ||||||||
Cost of revenue | $ | 95,554 | $ | 50,136 | $ | 45,418 | 90.6 | % |
| $ | 44,196 |
|
| $ | 56,583 |
|
| $ | (12,387 | ) |
|
| (21.9 | %) | ||||||||
Margin (%) | 27.1 | % | 47.6 | % | (20.5 | %) | * |
|
| 35.1 | % |
|
| 30.6 | % |
|
| 4.5 | % |
| * |
| ||||||||||
Operating profit ($) | $ | 53,880 | $ | 71,008 | $ | (17,128 | ) | (24.1 | %) |
| $ | 22,570 |
|
| $ | 38,543 |
|
| $ | (15,973 | ) |
|
| (41.4 | %) | |||||||
Operating profit (%) | 41.1 | % | 74.3 | % | (33.2 | %) | * |
|
| 33.2 | % |
|
| 47.3 | % |
|
| (14.1 | %) |
| * |
|
* | Not meaningful |
The Leasing & Services segment generates revenue from leasing railcars from its lease fleet, providing various management services, interim rent on leased railcars for syndication, and the sale of railcars purchased from third parties with the intent to resell 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.
Leasing & Services revenue increased $35.5decreased $13.5 million or 37.2%16.6% for the ninesix months ended May 31, 2019February 29, 2020 compared to the ninesix months ended May 31, 2018.February 28, 2019. The increasedecrease was primarily attributed to an increasea decrease in the sale of railcars which we had purchased from third parties with the intent to resell them.resell. This was partially offset by lowerhigher average volume of rent-producing leased railcars for syndication.
Leasing & Services cost of revenue increased $45.4decreased $12.4 million or 90.6%21.9% for the ninesix months ended May 31, 2019February 29, 2020 compared to the ninesix months ended May 31, 2018.February 28, 2019. The increasedecrease was primarily due to an increasea decrease in the volume of railcars sold that we purchased from third parties andpartially offset by higher transportation costs.
Leasing & Services margin as a percentage of revenue decreased 20.5%increased 4.5% for the ninesix months ended May 31, 2019February 29, 2020 compared to the ninesix months ended May 31, 2018.February 28, 2019. Margin as a percentage of revenue for the ninesix months ended May 31, 2019 was negatively impactedFebruary 29, 2020 benefited from higherfewer sales of railcars that we purchased from third parties which have lower margin percentages. The decreaseincrease in margin as a percentage of revenue was also due to higher transportation costs.
Leasing & Services operating profit decreased $17.1 million or 24.1% for the nine months ended May 31, 2019 compared to the nine months ended May 31, 2018. The decrease was attributed to a $9.9 million decrease in margin primarily due to higher transportation costs and a lower average volume of rent-producing leased railcars for syndication.
Leasing & Services operating profit decreased $16.0 million or 41.4% for the six months ended February 29, 2020 compared to the six months ended February 28, 2019. The decrease was alsoprimarily attributed to a $6.0$12.9 million decrease in net gain on disposition of equipment.
4138
THE GREENBRIER COMPANIES, INC.
Selling and Administrative Expense
Nine Months Ended May 31, | Increase | % |
| Six Months Ended |
|
|
|
|
|
|
|
|
| |||||||||||||||||||
(In thousands) | 2019 | 2018 | (Decrease) | Change |
| February 29, 2020 |
|
| February 28, 2019 |
|
| Increase (Decrease) |
|
| % Change |
| ||||||||||||||||
Selling and administrative expense | $ | 152,701 | $ | 149,130 | $ | 3,571 | 2.4 | % |
| $ | 108,961 |
|
| $ | 98,324 |
|
| $ | 10,637 |
|
|
| 10.8 | % |
Selling and administrative expense was $152.7$109.0 million or 7.2%7.8% of revenue for the ninesix months ended May 31, 2019February 29, 2020 compared to $149.1$98.3 million or 8.1%7.8% of revenue for the prior comparable period. The $3.6$10.6 million increase was primarily attributed to a $6.3 million increase in employee related costs and $5.8 million in costs associated with the previously announced agreement to acquire the manufacturing business of American Railcar Industries. The increase was also attributed to a $3.4 million increase from the addition of the manufacturing business of ARI selling and administrative costs from the repair shops returned to us after discontinuing the GBW joint venture.costs. These increases in selling and administrative costs were partially offset by a $5.7$2.6 million decrease in employeetransaction related costs primarily related to a decrease in incentive compensation.incurred during six months ended February 28, 2019.
Net Gain on Disposition of Equipment
Net gain on disposition of equipment was $37.5$10.7 million for the ninesix months ended May 31, 2019February 29, 2020 compared to $39.8$26.5 million for the prior comparable period. 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 conditions and to manage risk and liquidity; and disposition of property, plant and equipment; and insurance proceeds received for business interruption and assets destroyed in a fire.
Goodwill Impairment
Based on the results of our annual impairment test, anon-cash impairment charge of $10.0 million was recorded during the nine months ended May 31, 2019 related to our repair reporting unit.equipment.
Other Costs
Interest and foreign exchange expense was composed of the following:
Nine Months Ended May 31, | Increase |
| Six Months Ended |
|
|
|
|
| ||||||||||||||||
(In thousands) | 2019 | 2018 | (Decrease) |
| February 29, 2020 |
|
| February 28, 2019 |
|
| Increase (Decrease) |
| ||||||||||||
Interest and foreign exchange: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Interest and other expense | $ | 23,025 | $ | 23,252 | $ | (227 | ) |
| $ | 20,568 |
|
| $ | 14,782 |
|
| $ | 5,786 |
| |||||
Foreign exchange (gain) loss | 386 | (2,670 | ) | $ | 3,056 |
|
| 4,893 |
|
|
| (1,141 | ) |
|
| 6,034 |
| |||||||
|
|
|
| $ | 25,461 |
|
| $ | 13,641 |
|
| $ | 11,820 |
| ||||||||||
$ | 23,411 | $ | 20,582 | $ | 2,829 | |||||||||||||||||||
|
|
|
The $2.8$11.8 million increase in interest and foreign exchange expense from the prior comparable period was primarily attributed to a $0.4$4.9 million foreign exchange loss for the ninesix months ended May 31, 2019February 29, 2020 compared to a $2.7$1.1 million foreign exchange gain in the prior comparable period. The change in foreign exchange (gain) loss was primarily attributed to the change in the Mexican Peso relative to the U.S. Dollar. The increase in interest and foreign exchange expense was also due to interest expense associated with our operations$300 million of senior term debt issued in Europe.
42
THE GREENBRIER COMPANIES, INC.
July 2019.
Income Tax
The effective tax rate for the ninesix months ended May 31, 2019February 29, 2020 was 28.9%24.6% compared to 13.1%27.9% for the ninesix months ended May 31, 2018.February 28, 2019. The currentdecrease in the effective rate from the prior year tax rate was impacted by a goodwill impairment chargeprimarily attributable to net favorable discrete items for which there was no tax benefit.the six months ended February 29, 2020 compared to net unfavorable discrete items in the prior comparable period. Excluding the impact of discrete items in both periods, the goodwill impairment charge, the tax rate for the nine months ended May 31, 2019 was 25.8%.
The prior yeareffective tax rate was impacted by24.7% for the enactment of the Tax Act on December 22, 2017, which reduced the federal corporate tax rate from 35%six months ended February 29, 2020 compared to 21% and required us to accrue a transition tax on accumulated foreign earnings25.5% in the prior year. The tax rate benefit realized in the prior year relatedcomparable period which decreased primarily due to the remeasurementgeographic mix of our deferred income taxes partially offset by the accrual of the transition tax. Excluding the impact of these items, our tax rate for the nine months ended May 31, 2018 was 26.3% which was comparable to the tax rate for the nine months ended May 31, 2019 of 25.8% which excludes the impact of goodwill.earnings.
The effective tax rate can fluctuateyear-to-year due to 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. The joint venture is 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.
Loss39
THE GREENBRIER COMPANIES, INC.
Earnings (Loss) From Unconsolidated Affiliates
LossThrough unconsolidated affiliates we produce rail and industrial components and have an ownership stake in a railcar manufacturer in Brazil and a lease financing warehouse.
Earnings from unconsolidated affiliates primarily included our share ofafter-tax results from 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. In addition,was $2.7 million for the ninesix months ended May 31, 2018,February 29, 2020 compared to a loss from unconsolidated affiliates also included our share ofafter-tax results from the GBW joint venture.
Loss from unconsolidated affiliates was $4.9 $0.3 million for the ninesix months ended May 31, 2019 compared to $15.6 million for the nine months ended May 31, 2018.February 28, 2019. The $10.7 million decreaseincrease in lossearnings from unconsolidated affiliates was primarily attributedrelated to earnings from our investment in Axis, a joint venture that manufactures and sells axles to its joint venture partners. We obtained our ownership interest in Axis as part of the prior year including anon-cash goodwill impairment that GBW recognized duringacquisition of the nine months ended May 31, 2018.manufacturing business of ARI on July 26, 2019.
Noncontrolling Interest
Net earnings attributable to noncontrolling interest was $19.0$22.7 million for the ninesix months ended May 31, 2019February 29, 2020 compared to $14.1$8.4 million in the prior comparable period, which primarily represents our joint venture partner’spartner's share in the results of operations of our Mexican railcar manufacturing joint venture, adjusted for intercompany sales, and our European partner’s share of the results of our European operations.
4340
THE GREENBRIER COMPANIES, INC.
Liquidity and Capital Resources
Nine Months Ended May 31, | ||||||||
(In thousands) | 2019 | 2018 | ||||||
Net cash provided by (used in) operating activities | $ | (94,123 | ) | $ | 79,626 | |||
Net cash used in investing activities | (58,622 | ) | (6,342 | ) | ||||
Net cash used in financing activities | (2,767 | ) | (82,007 | ) | ||||
Effect of exchange rate changes | (2,866 | ) | (12,462 | ) | ||||
|
|
|
| |||||
Net decrease in cash and cash equivalents and restricted cash | $ | (158,378 | ) | $ | (21,185 | ) | ||
|
|
|
|
|
| Six Months Ended |
| |||||
(In thousands) |
| February 29, 2020 |
|
| February 28, 2019 |
| ||
Net cash used in operating activities |
| $ | (133,174 | ) |
| $ | (146,622 | ) |
Net cash provided by (used in) investing activities |
|
| 10,766 |
|
|
| (43,704 | ) |
Net cash provided by (used in) financing activities |
|
| (34,787 | ) |
|
| 13,111 |
|
Effect of exchange rate changes |
|
| (2,824 | ) |
|
| 825 |
|
Decrease in cash and cash equivalents and restricted cash |
| $ | (160,019 | ) |
| $ | (176,390 | ) |
We have been financed through cash generated from operations and borrowings. At May 31, 2019,February 29, 2020, cash and cash equivalents and restricted cash were $381.1$178.5 million, a decrease of $158.4$160.0 million from $539.5$338.5 million at August 31, 2018.2019.
The change in cash provided by (used in)used in operating activities for the ninesix months ended May 31, 2019February 29, 2020 compared to the ninesix months ended May 31, 2018February 28, 2019 was primarily due to lower earningsa change in cash flows associated with leased railcars for syndication and a net change in working capital as we built up inventory while ramping up production.capital.
Cash used inprovided by (used in) investing activities primarily related to capital expenditures net of proceeds from the sale of assets.assets and investment activity with our unconsolidated affiliates. The change in cash used inprovided by (used in) investing activities for the ninesix months ended May 31, 2019February 29, 2020 compared to the ninesix months ended May 31, 2018February 28, 2019 was primarily attributable to an increasea decrease in capital expenditures and lower proceeds from the sale of assets.expenditures.
Capital expenditures totaled $149.9$40.8 million and $118.7$98.2 million for the ninesix months ended May 31,February 29, 2020 and February 28, 2019, and 2018, respectively. Manufacturing capital expenditures were approximately $60.8$31.6 million and $34.1$40.5 million for the ninesix months ended May 31,February 29, 2020 and February 28, 2019, and 2018, respectively. Capital expenditures for Manufacturing are expected to be approximately $90$60 million in 20192020 and primarily relate to enhancements of our existing manufacturing facilities. Wheels, Repair & Parts capital expenditures were approximately $5.1$4.3 million and $1.6$3.2 million for the ninesix months ended May 31,February 29, 2020 and February 28, 2019, and 2018, respectively. Capital expenditures for Wheels, Repair & Parts are expected to be approximately $15$10 million in 20192020 for enhancements of our existing facilities. Leasing & Services and corporate capital expenditures were approximately $84.0$4.9 million and $83.0$54.5 million for the ninesix months ended May 31,February 29, 2020 and February 28, 2019, and 2018, respectively. Leasing & Services and corporate capital expenditures for 20192020 are expected to be approximately $100$25 million. Proceeds from sales of leased railcar equipment are expected to be $125$90 million for 2019.2020. 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.
Proceeds from the sale of assets, which primarily related to sales of railcars from our lease fleet within Leasing & Services, were approximately $100.7$41.8 million and $129.8$63.9 million for the ninesix months ended May 31,February 29, 2020 and February 28, 2019, and 2018, respectively.
The change in cash used inprovided by (used in) financing activities for the ninesix months ended May 31, 2019February 29, 2020 compared to the ninesix months ended May 31, 2018February 28, 2019 was primarily attributed to a decrease in the proceeds from the issuance of notes payabledebt, net of repayments and a change in the net activities with joint venture partners.
A quarterly dividend of $0.25$0.27 per share was declared on June 28, 2019.
44
THE GREENBRIER COMPANIES, INC.
April 1, 2020.
The Board of Directors has authorized our company to repurchase shares of our common stock. In 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 obligate us to acquire any specific number of shares in any period.
41
THE GREENBRIER COMPANIES, INC.
Senior secured credit facilities, consisting of three components, aggregated to $692.7$706.0 million as of May 31, 2019.February 29, 2020. We had an aggregate of $513.6$451.1 million available to draw down under committed credit facilities as of May 31, 2018.February 29, 2020. This amount consists of $446.9$382.3 million available on the North American credit facility, $16.7$18.8 million on the European credit facilities and $50.0 million on the Mexican railcar manufacturing joint venture credit facilities.
As of May 31, 2019,February 29, 2020, a $600.0 million revolving line of credit, maturing September 2023,June 2024, secured by substantially all of our 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 1.50% or Prime plus 0.50% depending on the type of borrowing. Available borrowings under the credit facility are generally based on defined levels of inventory, receivables, property, plant and equipment and leased equipment, as well as total debt to consolidated capitalization and fixed charges coverage ratios.
As of May 31, 2019,February 29, 2020, lines of credit totaling $42.7$56.0 million secured by certain of our European assets, with variable rates that range from Warsaw Interbank Offered Rate (WIBOR) plus 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 $12.5$14.0 million facility which is guaranteed by us. European credit facilities are continually beingregularly renewed. Currently, these European credit facilities have maturities that range from July 2019June 2020 through FebruaryJuly 2021.
OurAs of February 29, 2020, our Mexican railcar manufacturing joint venture hashad two lines of credit totaling $50.0 million. The first line of credit provides up to $30.0 million. Advances under this facility bear interest at LIBOR plus 2.0%. The Mexican railcar manufacturing joint venture will be able to draw against this facility through March 2024. The second line of credit provides up to $20.0 million, of which we and our joint venture partner have each guaranteed 50%. Advances under this facility bear interest at LIBOR plus 2.0%. The Mexican railcar manufacturing joint venture will be able to draw amounts available under this facility through June 2021.
As of May 31, 2019,February 29, 2020, outstanding commitments under the senior secured$600.0 million revolving line of credit facilities consisted of $23.9$27.5 million in letters of credit, which reduced our available borrowings under the North Americanthis credit facility, and $26.0$37.2 million outstanding under the European 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 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, 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 May 31, 2019,February 29, 2020, we were in compliance with all such restrictive covenants.
45
THE GREENBRIER COMPANIES, INC.
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.
42
THE GREENBRIER COMPANIES, INC.
As of May 31, 2019,February 29, 2020, we had a $10.0$4.5 million note receivable from Amsted-Maxion Cruzeiro, our unconsolidated Brazilian castings and components manufacturer and a $19.2 millionmanufacturer. This note receivable balance from Greenbrier-Maxion, our unconsolidated Brazilian railcar manufacturer. These note receivables areis 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.Greenbrier-Maxion, our unconsolidated Brazilian railcar manufacturer.
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 the previously announced acquisition of the manufacturing business of American Railcar Industries, expected debt repayments, working capital needs, planned capital expenditures, additional investments in our unconsolidated affiliates and dividends during the next twelve months.
Off-Balance Sheet Arrangements
We do not currently have off balance sheet arrangements that have or are likely to have a material current or future effect on our Consolidated Financial Statements.
46
THE GREENBRIER COMPANIES, INC.
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 informationprobability of various possible outcomes. We reevaluate these uncertain tax positions on a quarterly basis. Changes in tax law or court interpretations may include estimatesresult in the recognition of future income and other assumptions that are inherently uncertain.a tax benefit or an additional charge to the 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 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.
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Revenue recognition - We measure revenue at the amounts that reflect the consideration to which we expect to be entitled in exchange for transferring control of goods 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 disaggregated revenue from contracts with customers into categories which describe the principal activities from which we generate our revenues.
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Manufacturing
Railcars are manufactured in accordance with contracts with customers. We recognize revenue upon our customers’ acceptance of the completed railcars 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 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 completing the construction of the marine vessel for the customer and is consistent with the percentage of completion method used prior to the adoption of the new revenue standard.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 recognized when 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 our performance in repairing the railcars for the customer. Repair services are typically completed in less than 90 days.
Leasing & Services
We own a fleet of new and used carsrailcars which are leased to third-party customers. Lease revenue is recognized over the lease-term in the period in which it is earned in accordance with ASC 840:Leases.earned.
Syndication transactions represent new and used railcars which have been placed on lease to a customer and which we intend to sell to an investor with the lease attached. At the time of such sale, revenue and cost of revenue associated with railcars that we have manufactured are recognized in the Manufacturing segment; while revenue and cost of revenue associated with railcars which were obtained from a third-party with the intent to resell them and subsequently sold, are recognized in the Leasing & Services segment in accordance with ASC 840:Leases.segment.
We enter into multi-year contracts to provide management and maintenance services to 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 contracts are recognized as 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.
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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.
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Goodwill and indefinite-lived intangible assets are tested for impairment annually during the third quarter. The provisions of ASC 350:350 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 expected revenue and margins 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 occurrence of events indicates that a potential impairment exists. When 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. If actual operating results were to differ from these assumptions, it may result in an impairment of our goodwill.
Based on the resultsOur goodwill balance was $129.7 million as of our annual impairment test, anon-cash impairment chargeFebruary 29, 2020 of $10.0which $86.4 million was recorded during the three months ended May 31, 2019 related to our repair reporting unit. After the impairment charge, our remaining goodwill balance was $74.3 million as of May 31, 2019 of whichManufacturing segment and $43.3 million related to our Wheels, Repair & Parts segment and $31.0 million related to our Manufacturing segment.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Risk
We have global operations that conduct business in their local currencies as well as other currencies. To mitigate the exposure to transactions denominated in currencies other than the functional currency of each entity, we enter into foreign currency forward exchange contracts to protect revenue or margin on a portion of forecast foreign currency sales and expenses. At May 31, 2019February 29, 2020 exchange rates, notional amounts of forward exchange contracts for the purchase of Polish Zlotys and the sale of Euros and Pound Sterling; and the purchase of Mexican Pesos and the sale of U.S. Dollars aggregated to $81.0$54.1 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 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 May 31, 2019,February 29, 2020, net assets of foreign subsidiaries aggregated $168.7$152.3 million and a 10% strengthening of the U.S. Dollar relative to the foreign currencies would result in a decrease in equity of $16.9$15.2 million, or 1.2% of Total equity—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 $110.5$255.7 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 May 31, 2019, 73%February 29, 2020, 65% of our outstanding debt had fixed rates and 27%35% had variable rates. At May 31, 2019,February 29, 2020, a uniform 10% increase in variable interest rates would result in approximately $0.5 million of additional annual interest expense.
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Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation of our Principal Executive Officer and Principal Financial and Accounting Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule13a-15(b) under the Securities Exchange Act of 1934 (the Exchange Act). Based on that evaluation, our Principal Executive Officer and Principal Financial and 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 and Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended May 31, 2019February 29, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There is hereby incorporated by reference the information disclosed in Note 1715 to Consolidated Financial Statements, Part I of this quarterly report.
Item 1A. Risk Factors
This Form10-Q should be read in conjunction with the risk factors and information disclosed in our Annual Report on Form10-K for the year ended August 31, 2018.2019. There have been no material changes in the risk factors described in our Annual Report on Form10-K for the year ended August 31, 2018.2019, except for the risk factors below.
The COVID-19 coronavirus pandemic and the governmental reaction to COVID-19 most likely will have a material negative impact on our business, liquidity and financial position, results of operations, stock price, and ability to convert backlog to revenue.
The COVID-19 coronavirus outbreak has been categorized as a global pandemic by the World Health Organization. As human mortality and morbidity increase in numbers and expand geographically, the negative impact on the global economy of the COVID-19 pandemic and related governmental responses have been wide ranging and multi-faceted including historically steep and rapid declines in consumer activity in the geographic markets where we operate, widespread national or local “stay-at-home” orders and travel restrictions that reduce or prevent businesses in most of the world’s large economies from operating, disruptions in global supply chains, steep downturns and price volatility in equities markets, and concern that credit markets will not remain liquid.
COVID-19 and the related governmental reaction most likely will have a material negative impact on our business, liquidity, results of operations, and stock price due to the occurrence of some or all of the following events or circumstances among others:
• | 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. |
• | The operations of our customers may be disrupted thereby increasing the likelihood that our customers may attempt to delay or cancel orders, may reduce orders for our products and services in the future or may 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 efficient prices and in sufficient amounts. |
• | We may not be able to manage our business effectively or integrate recent acquisition including ARI due to key employees becoming ill, working from home inefficiently, being unable to travel to our facilities, or being prevented from otherwise engaging in the consortium necessary for effective management. |
• | Our indebtedness may increase due to our need to increase borrowing to fund operations during a period of reduced revenue. |
• | We may not be able to raise capital efficiently or at all due to a reduction in the value of our assets or illiquidity in the global credit markets. |
• | We may need to raise capital, and if we raise capital by issuing equity securities, our common stock may be diluted. |
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• | We may not be able to pay dividends. |
• | 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 goodwill on our balance sheet may be adjusted downward. 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. Since February 29, 2020, the market price of our common stock has declined along with many other registrants as a result of the COVID-19 pandemic. A sustained decline in the market price of our common price is one of the qualitative factors to be considered when evaluating whether events or changes in circumstances may indicate that it is more likely than not that potential goodwill impairment exists. We will consider this decline and entity-specific and other macroeconomic factors as a result of the COVID-19 pandemic as we perform our annual goodwill impairment test during the third quarter. |
The COVID-19 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 at this time. The longer the pandemic continues, the more likely that more of the foregoing risks will be realized and that other negative impacts on our business will occur some of which we cannot now foresee. Our business, liquidity, financial position, results of operations and stock price most likely will be adversely impacted.
A change in our product mix or decline in revenue due to shifts in demand or fluctuations in commodity and energy prices could have an adverse effect on our profitability.
We manufacture, lease and repair a variety of railcars. The demand for purchase, lease, or syndication of specific types of railcars and the mix of repair and refurbishment work varies from time to time. Instability and changes in the global economy, volatility in the industries that our products serve or adverse changes 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 our products and services or their ability to meet their contractual obligations including making payments. A decline in oil prices can result from a number of factors including, among others, a decline in commercial activity caused by the COVID-19 coronavirus pandemic or oil producing countries increasing the global supply of oil over a sustained period of time. The demand for certain types of railcars generally declines if oil prices remain low relative to the cost of production. Sustained low oil prices can also lead to oil producers ceasing to operate as going concerns thereby further reducing demand for certain types of railcars. These impacts could affect our results of operations and could have an adverse effect on our profitability. Demand for railcars that are used to transport crude oil and other energy related products is dependent on the demand for these commodities. Prices for oil and gas are subject to large fluctuations 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.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The Board of Directors has authorized the Company to repurchase shares of the Company’s common stock. The share repurchase program has an expiration date of 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 through privately negotiated transactions from time to time. The timing and amount of purchases will be based upon market conditions, securities law limitations and other factors. The program may be modified, suspended or discontinued at any time without prior notice. The share repurchase program does not obligate the Company to acquire any specific number of shares in any period.
There were no shares repurchased under the share repurchase program during the three months ended May 31, 2019.February 29, 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 | ||||||||||||
March 1, 2018 – March 31, 2018 | — | — | — | $ | 100,000,000 | |||||||||||
April 1, 2019 – April 30, 2019 | — | — | — | $ | 100,000,000 | |||||||||||
May 1, 2019 – May 31, 2019 | — | — | — | $ | 100,000,000 | |||||||||||
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December 1, 2019 – December 31, 2019 |
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January 1, 2020 – January 31, 2020 |
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February 1, 2020 – February 29, 2020 |
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Item 6. Exhibits
(a) | List of Exhibits: |
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101.INS | Inline XBRL Instance Document. | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
104 | Cover Page Interactive Data File (Formatted as inline XBRL and contained in |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
THE GREENBRIER COMPANIES, INC. | |||||||
Date: | April 7, 2020 | By: | /s/ Adrian J. Downes | ||||
Adrian J. Downes | |||||||
Senior Vice President, | |||||||
Chief Financial Officer and Chief Accounting Officer | |||||||
(Principal Financial Officer and Principal Accounting Officer) |
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