Item 1.
|
Condensed Financial Statements
|
Consolidated Balance Sheets
(In thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
November 30,
2017
|
|
|
August 31,
2017
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
591,406
|
|
|
$
|
611,466
|
|
Restricted cash
|
|
|
8,839
|
|
|
|
8,892
|
|
Accounts receivable, net
|
|
|
315,393
|
|
|
|
279,964
|
|
Inventories
|
|
|
411,371
|
|
|
|
400,127
|
|
Leased railcars for syndication
|
|
|
130,991
|
|
|
|
91,272
|
|
Equipment on operating leases, net
|
|
|
274,598
|
|
|
|
315,941
|
|
Property, plant and equipment, net
|
|
|
426,961
|
|
|
|
428,021
|
|
Investment in unconsolidated affiliates
|
|
|
101,529
|
|
|
|
108,255
|
|
Intangibles and other assets, net
|
|
|
83,819
|
|
|
|
85,177
|
|
Goodwill
|
|
|
67,783
|
|
|
|
68,590
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,412,690
|
|
|
$
|
2,397,705
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
Revolving notes
|
|
$
|
6,885
|
|
|
$
|
4,324
|
|
Accounts payable and accrued liabilities
|
|
|
441,373
|
|
|
|
415,061
|
|
Deferred income taxes
|
|
|
69,984
|
|
|
|
75,791
|
|
Deferred revenue
|
|
|
120,044
|
|
|
|
129,260
|
|
Notes payable, net
|
|
|
558,987
|
|
|
|
558,228
|
|
|
|
|
Commitments and contingencies (Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
Contingently redeemable noncontrolling interest
|
|
|
35,209
|
|
|
|
36,148
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Greenbrier
|
|
|
|
|
|
|
|
|
Preferred stock - without par value; 25,000 shares authorized; none outstanding
|
|
|
|
|
|
|
|
|
Common stock - without par value; 50,000 shares authorized; 28,701 and 28,503 shares outstanding
at November 30, 2017 and August 31, 2017
|
|
|
|
|
|
|
|
|
Additional
paid-in
capital
|
|
|
312,789
|
|
|
|
315,306
|
|
Retained earnings
|
|
|
728,755
|
|
|
|
709,103
|
|
Accumulated other comprehensive loss
|
|
|
(8,987
|
)
|
|
|
(6,279
|
)
|
|
|
|
|
|
|
|
|
|
Total equity Greenbrier
|
|
|
1,032,557
|
|
|
|
1,018,130
|
|
Noncontrolling interest
|
|
|
147,651
|
|
|
|
160,763
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
1,180,208
|
|
|
|
1,178,893
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,412,690
|
|
|
$
|
2,397,705
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements
5
THE GREENBRIER COMPANIES, INC.
Consolidated Statements of Income
(In thousands, except per share amounts, unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
November 30,
|
|
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
$
|
451,485
|
|
|
$
|
454,033
|
|
Wheels & Parts
|
|
|
78,011
|
|
|
|
69,635
|
|
Leasing & Services
|
|
|
30,039
|
|
|
|
28,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
559,535
|
|
|
|
552,314
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
|
380,850
|
|
|
|
356,555
|
|
Wheels & Parts
|
|
|
72,506
|
|
|
|
64,978
|
|
Leasing & Services
|
|
|
16,865
|
|
|
|
18,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
470,221
|
|
|
|
439,563
|
|
Margin
|
|
|
89,314
|
|
|
|
112,751
|
|
Selling and administrative expense
|
|
|
47,043
|
|
|
|
41,213
|
|
Net gain on disposition of equipment
|
|
|
(19,171
|
)
|
|
|
(1,122
|
)
|
|
|
|
|
|
|
|
|
|
Earnings from operations
|
|
|
61,442
|
|
|
|
72,660
|
|
Other costs
|
|
|
|
|
|
|
|
|
Interest and foreign exchange
|
|
|
7,020
|
|
|
|
1,724
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and loss from unconsolidated affiliates
|
|
|
54,422
|
|
|
|
70,936
|
|
Income tax expense
|
|
|
(18,135
|
)
|
|
|
(20,386
|
)
|
|
|
|
|
|
|
|
|
|
Earnings before loss from unconsolidated affiliates
|
|
|
36,287
|
|
|
|
50,550
|
|
Loss from unconsolidated affiliates
|
|
|
(2,910
|
)
|
|
|
(2,584
|
)
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
33,377
|
|
|
|
47,966
|
|
Net earnings attributable to noncontrolling interest
|
|
|
(7,124
|
)
|
|
|
(23,004
|
)
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Greenbrier
|
|
$
|
26,253
|
|
|
$
|
24,962
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share:
|
|
$
|
0.90
|
|
|
$
|
0.86
|
|
Diluted earnings per common share:
|
|
$
|
0.83
|
|
|
$
|
0.79
|
|
Weighted average common shares:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
29,332
|
|
|
|
29,097
|
|
Diluted
|
|
|
32,696
|
|
|
|
32,412
|
|
Dividends declared per common share
|
|
$
|
0.23
|
|
|
$
|
0.21
|
|
The accompanying notes are an integral part of these financial statements
6
THE GREENBRIER COMPANIES, INC.
Consolidated Statements of Comprehensive Income
(In thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
November 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net earnings
|
|
$
|
33,377
|
|
|
$
|
47,966
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
Translation adjustment
|
|
|
(3,187
|
)
|
|
|
(6,720
|
)
|
Reclassification of derivative financial instruments recognized in net earnings
1
|
|
|
(328
|
)
|
|
|
323
|
|
Unrealized gain (loss) on derivative financial instruments
2
|
|
|
822
|
|
|
|
(4,904
|
)
|
Other (net of tax effect)
|
|
|
(19
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,712
|
)
|
|
|
(11,302
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
30,665
|
|
|
|
36,664
|
|
Comprehensive income attributable to noncontrolling interest
|
|
|
(7,120
|
)
|
|
|
(23,004
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Greenbrier
|
|
$
|
23,545
|
|
|
$
|
13,660
|
|
|
|
|
|
|
|
|
|
|
1
|
Net of tax effect of $0.02 million and $0.2 million for the three months ended November 30, 2017 and 2016.
|
2
|
Net of tax effect of $0.3 million and $1.0 million for the three months ended November 30, 2017 and 2016.
|
The accompanying notes are an integral part of these financial statements
7
THE GREENBRIER COMPANIES, INC.
Consolidated Statements of Equity
(In thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to Greenbrier
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
Shares
|
|
|
Additional
Paid-in Capital
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
Total
Attributable to
Greenbrier
|
|
|
Attributable to
Noncontrolling
Interest
|
|
|
Total Equity
|
|
|
Contingently
Redeemable
Noncontrolling
Interest
|
|
Balance September 1, 2017
|
|
|
28,503
|
|
|
$
|
315,306
|
|
|
$
|
709,103
|
|
|
$
|
(6,279
|
)
|
|
$
|
1,018,130
|
|
|
$
|
160,763
|
|
|
$
|
1,178,893
|
|
|
$
|
36,148
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
26,253
|
|
|
|
|
|
|
|
26,253
|
|
|
|
8,063
|
|
|
|
34,316
|
|
|
|
(939
|
)
|
Other comprehensive loss, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,708
|
)
|
|
|
(2,708
|
)
|
|
|
(4
|
)
|
|
|
(2,712
|
)
|
|
|
|
|
Noncontrolling interest adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(882
|
)
|
|
|
(882
|
)
|
|
|
|
|
Joint venture partner distribution declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,789
|
)
|
|
|
(26,789
|
)
|
|
|
|
|
Investment by joint venture partner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,500
|
|
|
|
6,500
|
|
|
|
|
|
Restricted stock awards (net of cancellations)
|
|
|
198
|
|
|
|
(5,061
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,061
|
)
|
|
|
|
|
|
|
(5,061
|
)
|
|
|
|
|
Restricted stock amortization
|
|
|
|
|
|
|
2,544
|
|
|
|
|
|
|
|
|
|
|
|
2,544
|
|
|
|
|
|
|
|
2,544
|
|
|
|
|
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
(6,601
|
)
|
|
|
|
|
|
|
(6,601
|
)
|
|
|
|
|
|
|
(6,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance November 30, 2017
|
|
|
28,701
|
|
|
$
|
312,789
|
|
|
$
|
728,755
|
|
|
$
|
(8,987
|
)
|
|
$
|
1,032,557
|
|
|
$
|
147,651
|
|
|
$
|
1,180,208
|
|
|
$
|
35,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to Greenbrier
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
Shares
|
|
|
Additional
Paid-in Capital
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
Total
Attributable to
Greenbrier
|
|
|
Attributable to
Noncontrolling
Interest
|
|
|
Total Equity
|
|
|
Balance September 1, 2016
|
|
|
28,205
|
|
|
$
|
282,886
|
|
|
$
|
618,178
|
|
|
$
|
(26,753
|
)
|
|
$
|
874,311
|
|
|
$
|
142,516
|
|
|
$
|
1,016,827
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
24,962
|
|
|
|
|
|
|
|
24,962
|
|
|
|
23,004
|
|
|
|
47,966
|
|
|
Other comprehensive loss, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,302
|
)
|
|
|
(11,302
|
)
|
|
|
|
|
|
|
(11,302
|
)
|
|
Noncontrolling interest adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,781
|
)
|
|
|
(3,781
|
)
|
|
Joint venture partner distribution declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,702
|
)
|
|
|
(10,702
|
)
|
|
Restricted stock awards (net of cancellations)
|
|
|
163
|
|
|
|
(2,945
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,945
|
)
|
|
|
|
|
|
|
(2,945
|
)
|
|
Unamortized restricted stock
|
|
|
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
125
|
|
|
|
|
|
|
|
125
|
|
|
Restricted stock amortization
|
|
|
|
|
|
|
4,152
|
|
|
|
|
|
|
|
|
|
|
|
4,152
|
|
|
|
|
|
|
|
4,152
|
|
|
Tax deficiency from restricted stock awards
|
|
|
|
|
|
|
(2,464
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,464
|
)
|
|
|
|
|
|
|
(2,464
|
)
|
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
(6,114
|
)
|
|
|
|
|
|
|
(6,114
|
)
|
|
|
|
|
|
|
(6,114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance November 30, 2016
|
|
|
28,368
|
|
|
$
|
281,754
|
|
|
$
|
637,026
|
|
|
$
|
(38,055
|
)
|
|
$
|
880,725
|
|
|
$
|
151,037
|
|
|
$
|
1,031,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements
8
THE GREENBRIER COMPANIES, INC.
Consolidated Statements of Cash Flows
(In thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
November 30,
|
|
|
|
2017
|
|
|
2016
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
33,377
|
|
|
$
|
47,966
|
|
Adjustments to reconcile net earnings to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
(5,865
|
)
|
|
|
2,756
|
|
Depreciation and amortization
|
|
|
18,370
|
|
|
|
15,595
|
|
Net gain on disposition of equipment
|
|
|
(19,171
|
)
|
|
|
(1,122
|
)
|
Accretion of debt discount
|
|
|
1,024
|
|
|
|
|
|
Stock based compensation expense
|
|
|
5,939
|
|
|
|
5,343
|
|
Noncontrolling interest adjustments
|
|
|
(875
|
)
|
|
|
(3,781
|
)
|
Other
|
|
|
477
|
|
|
|
229
|
|
Decrease (increase) in assets:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(35,510
|
)
|
|
|
(5,256
|
)
|
Inventories
|
|
|
(16,311
|
)
|
|
|
(39,108
|
)
|
Leased railcars for syndication
|
|
|
(35,541
|
)
|
|
|
34,295
|
|
Other
|
|
|
6,304
|
|
|
|
8,893
|
|
Increase (decrease) in liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
16,676
|
|
|
|
(22,873
|
)
|
Deferred revenue
|
|
|
(8,548
|
)
|
|
|
(11,111
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(39,654
|
)
|
|
|
31,826
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Proceeds from sales of assets
|
|
|
75,060
|
|
|
|
9,189
|
|
Capital expenditures
|
|
|
(29,893
|
)
|
|
|
(12,584
|
)
|
Decrease in restricted cash
|
|
|
53
|
|
|
|
15,637
|
|
Cash distribution from unconsolidated affiliates
|
|
|
|
|
|
|
550
|
|
Investment in and advances to unconsolidated affiliates
|
|
|
|
|
|
|
(550
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
45,220
|
|
|
|
12,242
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Net change in revolving notes with maturities of 90 days or less
|
|
|
2,561
|
|
|
|
|
|
Proceeds from issuance of notes payable
|
|
|
2,138
|
|
|
|
|
|
Repayments of notes payable
|
|
|
(2,809
|
)
|
|
|
(1,750
|
)
|
Investment by joint venture partner
|
|
|
6,500
|
|
|
|
|
|
Cash distribution to joint venture partner
|
|
|
(26,900
|
)
|
|
|
(11,185
|
)
|
Dividends
|
|
|
(319
|
)
|
|
|
(6,147
|
)
|
Tax payments for net share settlement of restricted stock
|
|
|
(5,061
|
)
|
|
|
(2,820
|
)
|
Excess tax deficiency from restricted stock awards
|
|
|
|
|
|
|
(2,464
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(23,890
|
)
|
|
|
(24,366
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes
|
|
|
(1,736
|
)
|
|
|
(8,591
|
)
|
Increase (decrease) in cash and cash equivalents
|
|
|
(20,060
|
)
|
|
|
11,111
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
611,466
|
|
|
|
222,679
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
591,406
|
|
|
$
|
233,790
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
3,662
|
|
|
$
|
3,511
|
|
Income taxes, net
|
|
$
|
385
|
|
|
$
|
10,433
|
|
Non-cash
activity
|
|
|
|
|
|
|
|
|
Transfer from Leased railcars for syndication to Equipment on operating leases, net
|
|
$
|
|
|
|
$
|
6,082
|
|
Capital expenditures accrued in Accounts payable and accrued liabilities
|
|
$
|
14,840
|
|
|
$
|
5,447
|
|
Dividends declared and accrued in Accounts payable and accrued liabilities
|
|
$
|
6,282
|
|
|
$
|
|
|
The accompanying notes are an integral part of these financial statements
9
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
November 30, 2017 and for the three months ended November 30, 2017 and 2016 have been prepared without audit and 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 months ended November 30, 2017 are not necessarily indicative of the results to be expected for the
entire year ending August 31, 2018.
Certain notes and other information have been condensed or omitted from the interim financial statements
presented in this Quarterly Report on Form
10-Q.
Therefore, these financial statements should be read in conjunction with the Consolidated Financial Statements contained in the Companys 2017 Annual
Report on Form
10-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 of 2017, the
Company adopted Accounting Standards Update
2016-09,
Improvements to Employee Share-Based Payment Accounting
(ASU
2016-09).
This changes how companies account for
certain aspects of share-based payments to employees. Excess tax benefits or deficiencies related to vested awards which were previously recognized in stockholders equity are now recognized in the income statement when awards vest. For the
three months ended November 30, 2017, the impact of adopting this new guidance was immaterial. Additionally, all
tax-related
cash flows resulting from stock-based awards are reported as operating
activities in the statement of cash flow. Prior to adopting the updated standard, excess tax benefits or deficiencies were reported as financing activities in the statement of cash flows.
Prospective Accounting Changes
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
2014-09,
Revenue from Contracts with Customers
(ASU
2014-09),
providing a common revenue recognition model under U.S. GAAP. Under ASU
2014-09,
an entity recognizes 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. It also requires additional disclosures to sufficiently describe the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard may be adopted using
either a full retrospective or a modified retrospective approach. The FASB issued a one year deferral and the new standard is effective for fiscal years and interim periods within those years beginning after December 15, 2017. The Company plans
to adopt ASU
2014-09
effective September 1, 2018 using the modified retrospective method. Under this method, the new standard will be applied only to the most current period presented in the financial
statements and the cumulative effect of initially applying the standard will result in an adjustment to the opening balance of retained earnings as of the adoption date. The Company continues to evaluate the requirements of the standard and its
impact on the Companys consolidated financial statements and disclosures. The Company currently expects revenue recognition policies to remain substantially unchanged as a result of adopting ASU
2014-09,
although this could change based on the Companys continued evaluation.
In February 2016, the FASB issued Accounting Standards Update
2016-02,
Leases
(ASU
2016-02).
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. ASU
2016-02
requires most leases to be recognized on the balance sheet. Lessees will need to recognize a
right-of-use
asset and a lease liability for virtually all leases. 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 current model, but updated to align
10
THE GREENBRIER COMPANIES, INC.
with certain changes to the lessee model and the new revenue recognition standard. The ASU will require both quantitative and qualitative disclosures regarding key information about leasing
arrangements. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition,
and provides for certain practical expedients. Transition will require application of the new guidance at the beginning of the earliest comparative period presented. The Company plans to adopt this guidance beginning September 1, 2019. The
Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.
In December 2016, the FASB issued
Accounting Standards Update
2016-18,
Restricted Cash
(ASU
2016-18).
This update requires additional disclosure and that the Statement of Cash Flow 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 should be included with cash & cash equivalents when reconciling the
beginning-of-period
and
end-of-period
total amounts shown on the Statement of Cash Flows. The
new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 with early adoption permitted. The Company plans to adopt this guidance beginning September 1, 2018.
In August 2017, the FASB issued Accounting Standards Update
2017-12,
Derivatives and Hedging: Targeted Improvements
to Accounting for Hedging Activities
(ASU
2017-12).
This update improves the financial reporting of hedging relationships to better portray the economic results of an entitys 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 hedge
non-financial
and financial
risk components, reduces complexity in fair value hedges of interest rate risk, eliminates the requirement to separately measure and report hedge ineffectiveness, as well as eases certain hedge effectiveness assessment requirements. The new guidance
is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. The Company plans to adopt this guidance beginning September 1, 2019. 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 in aggregate up to $225 million of the Companys common stock. The program may be modified, suspended or discontinued at any time without prior notice and currently has an expiration date of March 31, 2019. 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 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 months ended November 30, 2017. As of November 30, 2017, the Company had cumulatively
repurchased 3,206,226 shares for approximately $137.0 million since October 2013 and had $88.0 million available under the share repurchase program.
Note 2 Acquisitions
On June 1, 2017,
Greenbrier and Astra Holding GmbH (Astra) contributed their European operations to a newly formed company, Greenbrier-Astra Rail, a Europe-based freight railcar manufacturing, engineering and repair business. As consideration for an approximate 75%
controlling interest, Greenbrier agreed to pay Astra 30 million at closing and 30 million 12 months after closing and issue an approximate 25% noncontrolling interest in the new company. The total net assets acquired of
$114.6 million includes $38.3 million representing the fair value of the noncontrolling interest at the acquisition date.
Astra also received a
put option to sell its entire noncontrolling interest to Greenbrier at an exercise price equal to the higher of fair value or a defined EBITDA multiple as measured on the exercise date. The option is exercisable 30 days prior to and up until
June 1, 2022. Due to Astras redemption right under the put option, the noncontrolling interest has been classified as a Contingently redeemable noncontrolling interest in the mezzanine section of the Consolidated Balance Sheets. The
carrying value of the noncontrolling interest cannot be less than the maximum redemption amount, which is the amount Greenbrier will settle the put option for if exercised. Adjustments to reconcile the carrying value to the maximum redemption amount
are recorded to retained earnings. There were no such adjustments during the period ended November 30, 2017.
11
THE GREENBRIER COMPANIES, INC.
For the three months ended November 30, 2017, the European operations contributed by Astra generated revenues of $43.2 million and earnings from operations of $0.4 million, which
are reported in the Companys consolidated financial statements as part of the Manufacturing segment. The impact of the acquisition was not material to the Companys consolidated results of operations, therefore pro forma financial
information has not been included.
Minor adjustments were made to the purchase price allocation during the three months ended November 30, 2017. The
preliminary allocation of the purchase price based on the fair value of the net assets acquired from Astra was as follows as of June 1, 2017, the acquisition date:
|
|
|
|
|
(in thousands)
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,562
|
|
Accounts receivable
|
|
|
10,984
|
|
Inventories
|
|
|
30,454
|
|
Property, plant and equipment
|
|
|
75,296
|
|
Intangibles and other assets
|
|
|
17,300
|
|
Goodwill
|
|
|
24,518
|
|
|
|
|
|
|
Total assets acquired
|
|
|
165,114
|
|
Accounts payable and accrued liabilities
|
|
|
17,879
|
|
Deferred income taxes
|
|
|
7,292
|
|
Deferred revenue
|
|
|
964
|
|
Notes payable
|
|
|
24,382
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
50,517
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
114,597
|
|
|
|
|
|
|
Note 3 Inventories
Inventories are valued at the lower of cost
(first-in,
first-out)
or market.
Work-in-process
includes material, labor and overhead. The following table summarizes the Companys inventory balance:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
November 30,
2017
|
|
|
August 31,
2017
|
|
Manufacturing supplies and raw materials
|
|
$
|
241,018
|
|
|
$
|
222,080
|
|
Work-in-process
|
|
|
90,457
|
|
|
|
86,794
|
|
Finished goods
|
|
|
84,438
|
|
|
|
95,389
|
|
Excess and obsolete adjustment
|
|
|
(4,542
|
)
|
|
|
(4,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
411,371
|
|
|
$
|
400,127
|
|
|
|
|
|
|
|
|
|
|
12
THE GREENBRIER COMPANIES, INC.
Note 4 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 Companys identifiable intangible and other assets
balance:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
November 30,
2017
|
|
|
August 31,
2017
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
64,521
|
|
|
$
|
64,521
|
|
Accumulated amortization
|
|
|
(41,000
|
)
|
|
|
(40,153
|
)
|
Other intangibles
|
|
|
16,773
|
|
|
|
20,207
|
|
Accumulated amortization
|
|
|
(5,402
|
)
|
|
|
(4,866
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
34,892
|
|
|
|
39,709
|
|
Intangible assets not subject to amortization
|
|
|
4,164
|
|
|
|
912
|
|
Prepaid and other assets
|
|
|
15,003
|
|
|
|
16,914
|
|
Nonqualified savings plan investments
|
|
|
23,694
|
|
|
|
20,974
|
|
Revolving notes issuance costs, net
|
|
|
2,416
|
|
|
|
2,623
|
|
Assets held for sale
|
|
|
3,650
|
|
|
|
4,045
|
|
|
|
|
|
|
|
|
|
|
Total Intangible and other assets, net
|
|
$
|
83,819
|
|
|
$
|
85,177
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the three months ended November 30, 2017 was $1.4 million and for the three months ended
November 30, 2016 was $1.7 million. Amortization expense for the years ending August 31, 2018, 2019, 2020, 2021 and 2022 is expected to be $5.8 million, $5.4 million, $5.7 million, $5.4 million and
$4.0 million.
13
THE GREENBRIER COMPANIES, INC.
Note 5 Revolving Notes
Senior secured credit facilities, consisting of three components, aggregated to $626.7 million as of November 30, 2017.
As of November 30, 2017, a $550.0 million revolving line of credit, maturing October 2020, secured by substantially all the Companys assets in
the U.S. not otherwise pledged as security for term loans, was available to provide working capital and interim financing of equipment, principally for the U.S. and Mexican operations. Advances under this facility bear interest at LIBOR plus 1.75%
or Prime plus 0.75% depending on the type of borrowing. Available borrowings under the credit facility are generally based on defined levels of inventory, receivables, property, plant and equipment and leased equipment, as well as total debt to
consolidated capitalization and fixed charges coverage ratios.
As of November 30, 2017, lines of credit totaling $26.7 million secured by
certain of the Companys European assets, with variable rates that range from Warsaw Interbank Offered Rate (WIBOR) plus 1.2% to WIBOR plus 1.3% and Euro Interbank Offered Rate (EURIBOR) plus 1.9%, were available for working capital needs of
the European manufacturing operation. European credit facilities are continually being renewed. Currently these European credit facilities have maturities that range from February 2018 through June 2019.
As of November 30, 2017, the Companys Mexican railcar manufacturing joint venture had two lines of credit totaling $50.0 million. The first
line of credit provides up to $30.0 million and is fully guaranteed by the Company and its joint venture partner. 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 January 2019. 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 July 2019.
As of November 30,
2017, outstanding commitments under the senior secured credit facilities consisted of $75.4 million in letters of credit under the North American credit facility and $6.9 million outstanding under the European credit facilities.
As of August 31, 2017, outstanding commitments under the senior secured credit facilities consisted of $77.6 million in letters of credit under the
North American credit facility and $4.3 million outstanding under the European credit facilities.
14
THE GREENBRIER COMPANIES, INC.
Note 6 Accounts Payable and Accrued Liabilities
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
November 30,
2017
|
|
|
August 31,
2017
|
|
Trade payables
|
|
$
|
193,919
|
|
|
$
|
180,592
|
|
Other accrued liabilities
|
|
|
122,919
|
|
|
|
111,316
|
|
Accrued payroll and related liabilities
|
|
|
76,273
|
|
|
|
84,749
|
|
Accrued warranty
|
|
|
21,952
|
|
|
|
20,737
|
|
Accrued maintenance
|
|
|
17,462
|
|
|
|
17,667
|
|
Income taxes payable
|
|
|
8,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
441,373
|
|
|
$
|
415,061
|
|
|
|
|
|
|
|
|
|
|
Note 7 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:
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Three Months Ended
November 30,
|
|
|
2017
|
|
|
2016
|
|
Balance at beginning of period
|
|
$
|
20,737
|
|
|
$
|
12,159
|
|
Charged to cost of revenue, net
|
|
|
1,953
|
|
|
|
357
|
|
Payments
|
|
|
(751
|
)
|
|
|
(637
|
)
|
Currency translation effect
|
|
|
13
|
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
21,952
|
|
|
$
|
11,737
|
|
|
|
|
|
|
|
|
|
|
15
THE GREENBRIER COMPANIES, INC.
Note 8 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, 2017
|
|
$
|
181
|
|
|
$
|
(5,366
|
)
|
|
$
|
(1,094
|
)
|
|
$
|
(6,279
|
)
|
Other comprehensive loss before reclassifications
|
|
|
822
|
|
|
|
(3,183
|
)
|
|
|
(19
|
)
|
|
|
(2,380
|
)
|
Amounts reclassified from Accumulated other comprehensive loss
|
|
|
(328
|
)
|
|
|
|
|
|
|
|
|
|
|
(328
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, November 30, 2017
|
|
$
|
675
|
|
|
$
|
(8,549
|
)
|
|
$
|
(1,113
|
)
|
|
$
|
(8,987
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts reclassified out of Accumulated other comprehensive loss into the Consolidated Statements of Income, with
presentation location, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
November 30,
|
|
|
Financial Statement
Location
|
(In thousands)
|
|
2017
|
|
|
2016
|
|
|
(Gain) loss on derivative financial instruments:
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
(511
|
)
|
|
$
|
143
|
|
|
Revenue and Cost of revenue
|
Interest rate swap contracts
|
|
|
167
|
|
|
|
338
|
|
|
Interest and foreign exchange
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(344
|
)
|
|
|
481
|
|
|
Total before tax
|
|
|
|
16
|
|
|
|
(158
|
)
|
|
Tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(328
|
)
|
|
$
|
323
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
16
THE GREENBRIER COMPANIES, INC.
Note 9 Earnings Per Share
The shares used in the computation of the Companys basic and diluted earnings per common share are reconciled as follows:
|
|
|
|
|
|
|
|
|
(In thousands
)
|
|
Three Months Ended
November 30,
|
|
|
2017
|
|
|
2016
|
|
Weighted average basic common shares outstanding
(1)
|
|
|
29,332
|
|
|
|
29,097
|
|
Dilutive effect of 2018 Convertible notes
(2)
|
|
|
3,331
|
|
|
|
3,258
|
|
Dilutive effect of 2024 Convertible notes
(3)
|
|
|
|
|
|
|
n/a
|
|
Dilutive effect of performance based restricted stock units
(4)
|
|
|
33
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted common shares outstanding
|
|
|
32,696
|
|
|
|
32,412
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Restricted stock grants and restricted stock units, 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 2018 Convertible notes was included as they were considered dilutive under the if converted method as further discussed below.
|
(3)
|
The 2024 Convertible notes were issued in February 2017. The dilutive effect of the 2024 Convertible notes was excluded for the three months ended November 30, 2017 as the average stock price was less than the
applicable conversion price and therefore was considered anti-dilutive.
|
(4)
|
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 2024 Convertible notes 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. 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
November 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net earnings attributable to Greenbrier
|
|
$
|
26,253
|
|
|
$
|
24,962
|
|
Add back:
|
|
|
|
|
|
|
|
|
Interest and debt issuance costs on the 2018 Convertible notes, net of tax
|
|
|
733
|
|
|
|
733
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest and debt issuance costs on convertible notes
|
|
$
|
26,986
|
|
|
$
|
25,695
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted common shares outstanding
|
|
|
32,696
|
|
|
|
32,412
|
|
Diluted earnings per share
(1)
|
|
$
|
0.83
|
|
|
$
|
0.79
|
|
(1)
|
Diluted earnings per share was calculated as follows:
|
Earnings before
interest and debt issuance costs (net of tax) on convertible notes
Weighted average diluted common shares outstanding
17
THE GREENBRIER COMPANIES, INC.
Note 10 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 the
recipients eligible retirement date. Awards are expensed upon grant when the recipients eligible retirement date precedes the grant date.
Stock based compensation expense was $5.9 million for the three months ended November 30, 2017 and $5.3 million for the three months ended
November 30, 2016. Compensation expense is recorded in Selling and administrative expense and Cost of revenue on the Consolidated Statements of Income.
Note 11 Derivative Instruments
Foreign operations
give rise to market risks from changes in foreign currency exchange rates. Foreign currency forward exchange contracts with established financial institutions are utilized to hedge a portion of that risk. Interest rate swap agreements are used to
reduce the impact of changes in interest rates on certain debt. The Companys 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 November 30, 2017 exchange rates, forward
exchange contracts for the purchase of Polish Zlotys and the sale of Euros and U.S. Dollars; the purchase of Mexican Pesos and the sale of U.S. Dollars; and for the purchase of U.S. Dollars and the sale of Saudi Riyals aggregated to
$243.5 million. The fair value of the contracts is included on the Consolidated Balance Sheets as Accounts payable and accrued liabilities when there is a loss, or as Accounts receivable, net when there is a gain. As the contracts mature at
various dates through July 2019, any such gain or loss remaining will be recognized in manufacturing revenue or cost of revenue along with the related transactions. In the event that the underlying transaction does not occur or does not occur in the
period designated at the inception of the hedge, the amount classified in accumulated other comprehensive loss would be reclassified to the results of operations in Interest and foreign exchange at the time of occurrence. At November 30, 2017
exchange rates, approximately $0.6 million would be reclassified to revenue or cost of revenue in the next 12 months.
At November 30, 2017, an
interest rate swap agreement maturing in March 2020 had a notional amount of $87.8 million. The fair value of the contract is included in Accounts payable and accrued liabilities on the Consolidated Balance Sheets. As interest expense on the
underlying debt is recognized, amounts corresponding to the interest rate swap are reclassified from Accumulated other comprehensive loss and charged or credited to interest expense. At November 30, 2017 interest rates, approximately
$0.6 million would be reclassified to interest expense in the next 12 months.
Fair Values of Derivative Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
|
|
November 30,
2017
|
|
|
August 31,
2017
|
|
|
|
|
November 30,
2017
|
|
|
August 31,
2017
|
|
(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
|
|
$
|
1,735
|
|
|
$
|
2,341
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
1,194
|
|
|
$
|
1,761
|
|
Interest rate swap contracts
|
|
Intangibles and other assets, net
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
227
|
|
|
|
1,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,735
|
|
|
$
|
2,341
|
|
|
|
|
$
|
1,421
|
|
|
$
|
2,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
Foreign forward exchange contracts
|
|
Accounts receivable, net
|
|
$
|
2,018
|
|
|
$
|
1,473
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
5
|
|
|
$
|
|
|
18
THE GREENBRIER COMPANIES, INC.
The Effect of Derivative Instruments on the Statements of Income
|
|
|
|
|
|
|
|
|
|
|
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
November 30,
|
|
|
|
|
|
2017
|
|
|
2016
|
|
Foreign forward exchange contract
|
|
Interest and foreign exchange
|
|
$
|
380
|
|
|
$
|
47
|
|
Interest rate swap contracts
|
|
Interest and foreign exchange
|
|
|
(17
|
)
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
363
|
|
|
$
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in cash flow
hedging relationships
|
|
Gain (loss)
recognized in OCI on
derivatives
(effective portion)
three months ended
November 30,
|
|
|
Location of gain (loss)
reclassified from
accumulated OCI
into income
|
|
|
Gain (loss)
reclassified
from
accumulated OCI into
income
(effective portion)
three months ended
November 30,
|
|
|
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
November 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
2017
|
|
|
2016
|
|
Foreign forward exchange contracts
|
|
$
|
730
|
|
|
$
|
(6,456
|
)
|
|
|
Revenue
|
|
|
$
|
710
|
|
|
$
|
(87
|
)
|
|
|
Revenue
|
|
|
$
|
56
|
|
|
$
|
(1,258
|
)
|
Foreign forward exchange contracts
|
|
|
(354
|
)
|
|
|
(834
|
)
|
|
|
Cost of revenue
|
|
|
|
(199
|
)
|
|
|
(56
|
)
|
|
|
Cost of revenue
|
|
|
|
82
|
|
|
|
(32
|
)
|
Interest rate swap contracts
|
|
|
771
|
|
|
|
1,146
|
|
|
|
Interest and foreign
exchange
|
|
|
|
(167
|
)
|
|
|
(338
|
)
|
|
|
Interest and foreign
exchange
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,147
|
|
|
$
|
(6,144
|
)
|
|
|
|
|
|
$
|
344
|
|
|
$
|
(481
|
)
|
|
|
|
|
|
$
|
138
|
|
|
$
|
(1,290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 12 Segment Information
Greenbrier operates in four reportable segments: Manufacturing; Wheels & Parts; Leasing & Services; and GBW Joint Venture. The results of GBW
Joint Venture are included as part of Earnings (loss) from unconsolidated affiliates as the Company accounts for its interest in GBW Railcar Services LLC (GBW) under the equity method of accounting.
The accounting policies of the segments are described in the summary of significant accounting policies in the Consolidated Financial Statements contained in
the Companys 2017 Annual Report on Form
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 Companys 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 is accounted for under the equity method of accounting.
19
THE GREENBRIER COMPANIES, INC.
For the three months ended November 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
Earnings (loss) from operations
|
|
(In thousands)
|
|
External
|
|
|
Intersegment
|
|
|
Total
|
|
|
External
|
|
|
Intersegment
|
|
|
Total
|
|
Manufacturing
|
|
$
|
451,485
|
|
|
$
|
16,804
|
|
|
$
|
468,289
|
|
|
$
|
52,969
|
|
|
$
|
4,186
|
|
|
$
|
57,155
|
|
Wheels & Parts
|
|
|
78,011
|
|
|
|
7,732
|
|
|
|
85,743
|
|
|
|
2,418
|
|
|
|
748
|
|
|
|
3,166
|
|
Leasing & Services
|
|
|
30,039
|
|
|
|
1,605
|
|
|
|
31,644
|
|
|
|
28,190
|
|
|
|
1,372
|
|
|
|
29,562
|
|
Eliminations
|
|
|
|
|
|
|
(26,141
|
)
|
|
|
(26,141
|
)
|
|
|
|
|
|
|
(6,306
|
)
|
|
|
(6,306
|
)
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,135
|
)
|
|
|
|
|
|
|
(22,135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
559,535
|
|
|
$
|
|
|
|
$
|
559,535
|
|
|
$
|
61,442
|
|
|
$
|
|
|
|
$
|
61,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended November 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
Earnings (loss) from operations
|
|
(In thousands)
|
|
External
|
|
|
Intersegment
|
|
|
Total
|
|
|
External
|
|
|
Intersegment
|
|
|
Total
|
|
Manufacturing
|
|
$
|
454,033
|
|
|
$
|
|
|
|
$
|
454,033
|
|
|
$
|
83,341
|
|
|
$
|
|
|
|
$
|
83,341
|
|
Wheels & Parts
|
|
|
69,635
|
|
|
|
7,201
|
|
|
|
76,836
|
|
|
|
2,894
|
|
|
|
612
|
|
|
|
3,506
|
|
Leasing & Services
|
|
|
28,646
|
|
|
|
5,334
|
|
|
|
33,980
|
|
|
|
7,390
|
|
|
|
5,250
|
|
|
|
12,640
|
|
Eliminations
|
|
|
|
|
|
|
(12,535
|
)
|
|
|
(12,535
|
)
|
|
|
|
|
|
|
(5,862
|
)
|
|
|
(5,862
|
)
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,965
|
)
|
|
|
|
|
|
|
(20,965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
552,314
|
|
|
$
|
|
|
|
$
|
552,314
|
|
|
$
|
72,660
|
|
|
$
|
|
|
|
$
|
72,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
(In thousands)
|
|
November 30,
2017
|
|
|
August 31,
2017
|
|
Manufacturing
|
|
$
|
915,918
|
|
|
$
|
914,450
|
|
Wheels & Parts
|
|
|
262,349
|
|
|
|
236,315
|
|
Leasing & Services
|
|
|
535,847
|
|
|
|
535,323
|
|
Unallocated
|
|
|
698,576
|
|
|
|
711,617
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,412,690
|
|
|
$
|
2,397,705
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Earnings from operations to Earnings before income tax and earnings (loss) from unconsolidated affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
November 30,
|
|
(In thousands)
|
|
2017
|
|
|
|
|
|
2016
|
|
Earnings from operations
|
|
$
|
61,442
|
|
|
|
|
|
|
$
|
72,660
|
|
Interest and foreign exchange
|
|
|
7,020
|
|
|
|
|
|
|
|
1,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income tax and earnings (loss) from unconsolidated affiliates
|
|
$
|
54,422
|
|
|
|
|
|
|
$
|
70,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
THE GREENBRIER COMPANIES, INC.
The results of operations for the GBW Joint Venture are accounted for under the equity method of accounting.
The GBW Joint Venture is the Companys fourth reportable segment and information as of November 30, 2017 and August 31, 2017 and for the three months ended November 30, 2017 and 2016 are included in the tables below.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
November 30,
|
|
(In thousands)
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
$
|
58,000
|
|
|
$
|
70,253
|
|
Loss from operations
|
|
$
|
(5,744
|
)
|
|
$
|
(4,561
|
)
|
|
|
|
|
Total Assets
|
|
|
|
November 30,
2017
|
|
|
August 31,
2017
|
|
GBW
(1)
|
|
$
|
204,288
|
|
|
$
|
206,009
|
|
(1)
|
Includes goodwill and intangible assets of $78.1 million and $78.8 million as of November 30, 2017 and August 31, 2017.
|
Note 13 Commitments and Contingencies
The
Companys 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 Companys manufacturing facility, as a federal National Priority List or Superfund site due to sediment contamination (the Portland Harbor Site). The Company and more than 140 other
parties have received a General Notice of potential liability from the EPA relating to the Portland Harbor Site. The letter advised the Company that it may be liable for the costs of investigation and remediation (which liability may be
joint and several with other potentially responsible parties) as well as for natural resource damages resulting from releases of hazardous substances to the site. Ten private and public entities, including the Company (the Lower Willamette Group or
LWG), signed an Administrative Order on Consent (AOC) to perform a remedial investigation/feasibility study (RI/FS) of the Portland Harbor Site under EPA oversight, and several additional entities have not signed such consent, but nevertheless
contributed money to the effort. The
EPA-mandated
RI/FS was produced by the LWG and cost over $110 million during a
17-year
period. The Company bore a percentage of
the total costs incurred by the LWG in connection with the investigation. The Companys aggregate expenditure during the
17-year
period was not material. Some or all of any such outlay may be recoverable
from other responsible parties. The LWG requested on October 18, 2017 that the AOC be terminated since the EPA issued its Record of Decision (ROD) for the Portland Harbor Site on January 6, 2017. On October 26, 2017, the EPA project
manager approved that request.
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 a
non-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. The allocation process is continuing in
parallel with the process to define the remediation steps.
The EPAs January 6, 2017 ROD identifies a
clean-up
remedy that the EPA estimates will take 13 years of active remediation, followed by 30 years of monitoring with an estimated undiscounted cost of $1.7 billion. The EPA typically expects its cost
estimates to be accurate within a range of
-30%
to +50%, but this ROD states that changes in costs are likely to occur as a result of new data it wants to collect over a
2-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 Companys Portland,
Oregon manufacturing facility as well as upstream and downstream of the facility. It also includes a portion of the Companys riverbank. The ROD does not break down total remediation
21
THE GREENBRIER COMPANIES, INC.
costs by Sediment Decision Unit. The EPAs ROD concluded that more data was needed to better define
clean-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 about
clean-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.
On January 30, 2017 the Confederated
Tribes and Bands of Yakama Nation sued 33 parties including the Company as well as the United States and the State of Oregon for costs it incurred in assessing alleged natural resource damages to the Columbia River from contaminants deposited in
Portland Harbor.
Confederated Tribes and Bands of the Yakama Nation v. Air Liquide America Corp., et al.,
United States Court for the District of Oregon Case No.
3i17-CV-00164-SB.
The Company, along with many of the other defendants, has moved to dismiss the case. That motion is pending. The complaint does not specify the amount of damages the Plaintiff will
seek.
The ROD does not address responsibility for the costs of
clean-up,
nor does it allocate such costs among
the potentially responsible parties. Responsibility for funding and implementing the EPAs 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 new
pre-remedial
design sampling data by EPA, sufficient information is
currently not available to determine the Companys liability, if any, for the cost of any required remediation or restoration of the Portland Harbor Site or to estimate a range of potential loss. Based on the results of the pending
investigations and future assessments of natural resource damages, the Company may be required to incur costs associated with additional phases of investigation or remedial action, and may be liable for damages to natural resources. In addition, the
Company may be required to perform periodic maintenance dredging in order to continue to launch vessels from its launch ways in Portland, Oregon, on the Willamette River, and the rivers classification as a Superfund site could result in some
limitations on future dredging and launch activities. Any of these matters could adversely affect the Companys business and Consolidated Financial Statements, or the value of its Portland property.
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 Companys 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.
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. In the quarter ended November 30, 2016, the Company received an adverse judgment of approximately $15 million on one matter related to commercial litigation in a foreign jurisdiction. The judgment was reversed on appeal and the
case was remanded to the trial court. In June 2017 the court issued a new judgment against the Company of approximately $10 million. The judgment was affirmed on appeal. The Company has reached an agreement in principle, subject to final
documentation and court approval, to settle such litigation and certain related matters. 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 Companys Consolidated Financial Statements.
As of November 30, 2017, the Company had outstanding letters
of credit aggregating $75.4 million associated with performance guarantees, facility leases and workers compensation insurance.
As of
November 30, 2017, the Company had a $36.5 million note receivable balance from GBW which is included on the Consolidated Balance Sheet in Accounts receivable, net. The Company is likely to make additional capital contributions or loans to
GBW, an unconsolidated 50/50 joint venture, in the future.
22
THE GREENBRIER COMPANIES, INC.
As of November 30, 2017, the Company had a $10.0 million note receivable from Amsted-Maxion
Cruzeiro, its unconsolidated Brazilian castings and components manufacturer and a $9.2 million note receivable balance from Greenbrier-Maxion, its unconsolidated Brazilian railcar manufacturer. These note receivables are included on the
Consolidated Balance Sheet in Accounts receivable, net. In the future, the Company may make loans to or provide guarantees for Amsted-Maxion Cruzeiro or Greenbrier-Maxion.
Note 14 Fair Value Measures
Certain assets and
liabilities are reported at fair value on either a recurring or nonrecurring basis. Fair value, for this disclosure, is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants, under a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:
|
|
|
Level 1 -
|
|
observable inputs such as unadjusted quoted prices in active markets for identical instruments;
|
|
|
Level 2 -
|
|
inputs, other than the quoted market prices in active markets for similar instruments, which are observable, either directly or indirectly; and
|
|
|
Level 3 -
|
|
unobservable inputs for which there is little or no market data available, which require the reporting entity to develop its own assumptions.
|
Assets and liabilities measured at fair value on a recurring basis as of November 30, 2017 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
(1)
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
3,753
|
|
|
$
|
|
|
|
$
|
3,753
|
|
|
$
|
|
|
Nonqualified savings plan investments
|
|
|
23,694
|
|
|
|
23,694
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
|
105,563
|
|
|
|
105,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
133,010
|
|
|
$
|
129,257
|
|
|
$
|
3,753
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
1,426
|
|
|
$
|
|
|
|
$
|
1,426
|
|
|
$
|
|
|
(1)
|
Level 2 assets and liabilities include derivative financial instruments that are valued based on observable inputs. See Note 11 Derivative Instruments for further discussion.
|
Assets and liabilities measured at fair value on a recurring basis as of August 31, 2017 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
3,814
|
|
|
$
|
|
|
|
$
|
3,814
|
|
|
$
|
|
|
Nonqualified savings plan investments
|
|
|
20,974
|
|
|
|
20,974
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
|
105,337
|
|
|
|
105,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
130,125
|
|
|
$
|
126,311
|
|
|
$
|
3,814
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
2,886
|
|
|
$
|
|
|
|
$
|
2,886
|
|
|
$
|
|
|
23
THE GREENBRIER COMPANIES, INC.
Note 15 Related Party Transactions
In June 2017, the Company purchased a 40% interest in the common stock 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 November 30, 2017, the carrying amount of the investment was
$7.2 million which is classified in Investment in unconsolidated affiliates in the Consolidated Balance Sheet. Upon sale of railcars to this entity from Greenbrier, 60% of the related revenue and margin is recognized and 40% is deferred until
the railcars are ultimately sold by the entity. During the three months ended November 30, 2017, the Company recognized $16 million in revenue associated with railcars sold into the leasing warehouse and an additional $8 million
associated with railcars sold out of the leasing warehouse. The Company also provides administrative and remarketing services to this entity and earns management fees for these services which were minor for the three months ended November 30,
2017.
Note 16 Subsequent Event
On December
22, 2017 the Tax Cuts and Jobs Act of 2017 was signed into law. The provisions of the law include a reduction of the corporate tax rate and the taxation of a multi-national corporations permanently reinvested foreign earnings. The Company is
currently evaluating the impact to its financial statements.
24
THE GREENBRIER COMPANIES, INC.
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
Executive
Summary
We operate in four reportable segments: Manufacturing; Wheels & Parts; Leasing & Services; and GBW Joint Venture. Our
segments are operationally integrated. The Manufacturing segment, which currently operates from facilities in the U.S., Mexico, Poland and Romania, produces double-stack intermodal railcars, tank cars, conventional railcars, automotive railcar
products and marine vessels. The Wheels & Parts segment performs wheel and axle servicing, as well as production of a variety of parts for the railroad industry in North America. The Leasing & Services segment owns approximately
8,000 railcars (6,200 railcars held as equipment on operating leases, 1,700 held as leased railcars for syndication and 100 held as finished goods inventory) and provides management services for approximately 353,000 railcars for railroads,
shippers, carriers, institutional investors and other leasing and transportation companies in North America as of November 30, 2017. The GBW Joint Venture segment provides repair services across North America, including facilities certified by
the AAR. The results of GBWs operations are included as part of Earnings (loss) from unconsolidated affiliates as we account for our interest under the equity method of accounting. Through other unconsolidated affiliates we produce rail and
industrial castings, tank heads and other components and have an ownership stake in a railcar manufacturer in Brazil.
Our total manufacturing backlog of
railcar units as of November 30, 2017 was approximately 26,500 units with an estimated value of $2.56 billion, of which 22,300 units are for direct sales and 4,200 units are for lease to third parties. Approximately 3% of backlog units and
the estimated value as of November 30, 2017 was associated with our Brazilian manufacturing operations which is accounted for under the equity method. Backlog units for lease may be syndicated to third parties or held in our own fleet depending
on a variety of factors. Multi-year supply agreements are a part of rail industry practice. A portion of the orders included in backlog reflects an assumed product mix. Under terms of the orders, the exact mix and pricing will be determined in the
future, which may impact the dollar amount of backlog. Marine backlog as of November 30, 2017 was $25 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.
25
THE GREENBRIER COMPANIES, INC.
Three Months Ended November 30, 2017 Compared to Three Months Ended November 30, 2016
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
November 30,
|
|
(In thousands)
|
|
2017
|
|
|
2016
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
$
|
451,485
|
|
|
$
|
454,033
|
|
Wheels & Parts
|
|
|
78,011
|
|
|
|
69,635
|
|
Leasing & Services
|
|
|
30,039
|
|
|
|
28,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
559,535
|
|
|
|
552,314
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
|
380,850
|
|
|
|
356,555
|
|
Wheels & Parts
|
|
|
72,506
|
|
|
|
64,978
|
|
Leasing & Services
|
|
|
16,865
|
|
|
|
18,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
470,221
|
|
|
|
439,563
|
|
Margin:
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
|
70,635
|
|
|
|
97,478
|
|
Wheels & Parts
|
|
|
5,505
|
|
|
|
4,657
|
|
Leasing & Services
|
|
|
13,174
|
|
|
|
10,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,314
|
|
|
|
112,751
|
|
Selling and administrative
|
|
|
47,043
|
|
|
|
41,213
|
|
Net gain on disposition of equipment
|
|
|
(19,171
|
)
|
|
|
(1,122
|
)
|
|
|
|
|
|
|
|
|
|
Earnings from operations
|
|
|
61,442
|
|
|
|
72,660
|
|
Interest and foreign exchange
|
|
|
7,020
|
|
|
|
1,724
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and loss from unconsolidated affiliates
|
|
|
54,422
|
|
|
|
70,936
|
|
Income tax expense
|
|
|
(18,135
|
)
|
|
|
(20,386
|
)
|
|
|
|
|
|
|
|
|
|
Earnings before loss from unconsolidated affiliates
|
|
|
36,287
|
|
|
|
50,550
|
|
Loss from unconsolidated affiliates
|
|
|
(2,910
|
)
|
|
|
(2,584
|
)
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
33,377
|
|
|
|
47,966
|
|
Net earnings attributable to noncontrolling interest
|
|
|
(7,124
|
)
|
|
|
(23,004
|
)
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Greenbrier
|
|
$
|
26,253
|
|
|
$
|
24,962
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
0.83
|
|
|
$
|
0.79
|
|
Performance for our segments is evaluated based on operating profit. Corporate includes selling and administrative costs not
directly related to goods and services and certain costs that are intertwined among segments due to our integrated business model. Management does not allocate Interest and foreign exchange or Income tax expense for either external or internal
reporting purposes.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
November 30,
|
|
(In thousands)
|
|
2017
|
|
|
2016
|
|
Operating profit (loss):
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
$
|
52,969
|
|
|
$
|
83,341
|
|
Wheels & Parts
|
|
|
2,418
|
|
|
|
2,894
|
|
Leasing & Services
|
|
|
28,190
|
|
|
|
7,390
|
|
Corporate
|
|
|
(22,135
|
)
|
|
|
(20,965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
61,442
|
|
|
$
|
72,660
|
|
|
|
|
|
|
|
|
|
|
26
THE GREENBRIER COMPANIES, INC.
Consolidated Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Three Months Ended
November 30,
|
|
|
Increase
(Decrease)
|
|
|
%
Change
|
|
|
2017
|
|
|
2016
|
|
|
|
Revenue
|
|
$
|
559,535
|
|
|
$
|
552,314
|
|
|
$
|
7,221
|
|
|
|
1.3%
|
|
Cost of revenue
|
|
$
|
470,221
|
|
|
$
|
439,563
|
|
|
$
|
30,658
|
|
|
|
7.0%
|
|
Margin (%)
|
|
|
16.0
|
%
|
|
|
20.4
|
%
|
|
|
(4.4
|
%)
|
|
|
*
|
|
Net earnings attributable to Greenbrier
|
|
$
|
26,253
|
|
|
$
|
24,962
|
|
|
$
|
1,291
|
|
|
|
5.2%
|
|
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 1.3% increase in revenue for the three months ended November 30, 2017 as compared to the three months ended November 30, 2016 was primarily due
to a 12.0% increase in Wheels & Parts revenue. The increase in Wheels & Parts revenue was primarily as a result of higher wheel set and component volumes due to an increase in demand and an increase in scrap metal pricing. The
increase was also attributed to a 4.9% increase in Leasing & Services revenue, which is the result of higher management services revenue from new service agreements and an increase in the sale of railcars which we had purchased from third
parties with the intent to resell them.
The 7.0% increase in cost of revenue for the three months ended November 30, 2017 as compared to the three
months ended November 30, 2016 was due to a 6.8% increase in Manufacturing cost of revenue. The increase in Manufacturing cost of revenue was primarily due to a change in product mix which had higher average labor and material content. The
increase was also attributed to an 11.6% increase in Wheels & Parts cost of revenue, primarily due to higher wheel set and component costs associated with increased volumes.
Margin as a percentage of revenue was 16.0% and 20.4% for the three months ended November 30, 2017 and 2016, respectively. The overall margin as a
percentage of revenue was negatively impacted by a decrease in Manufacturing margin to 15.6% from 21.5% primarily attributed to more competitive pricing, a change in product mix and lower volumes of new railcar sales with leases attached which
typically result in higher sales prices and margins. This was partially offset by an increase in Leasing & Services margin to 43.9% from 37.1% as a result of lower maintenance and transportation costs.
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 $1.3 million increase in net earnings for the three months ended November 30,
2017 as compared to the three months ended November 30, 2016 was primarily attributable to an increase in Net gain on disposition of equipment and lower Net earnings attributable to noncontrolling interest. The lower Net earnings attributable
to noncontrolling interest was a result of our Mexican railcar manufacturing 50/50 joint venture operating at lower volumes and margins. These items were partially offset by lower Manufacturing margins, net of tax.
27
THE GREENBRIER COMPANIES, INC.
Manufacturing Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Three Months Ended
November 30,
|
|
|
Increase
(Decrease)
|
|
|
%
Change
|
|
|
2017
|
|
|
2016
|
|
|
|
Revenue
|
|
$
|
451,485
|
|
|
$
|
454,033
|
|
|
$
|
(2,548
|
)
|
|
|
(0.6
|
%)
|
Cost of revenue
|
|
$
|
380,850
|
|
|
$
|
356,555
|
|
|
$
|
24,295
|
|
|
|
6.8
|
%
|
Margin (%)
|
|
|
15.6
|
%
|
|
|
21.5
|
%
|
|
|
(5.9
|
%)
|
|
|
*
|
|
Operating profit ($)
|
|
$
|
52,969
|
|
|
$
|
83,341
|
|
|
$
|
(30,372
|
)
|
|
|
(36.4
|
%)
|
Operating profit (%)
|
|
|
11.7
|
%
|
|
|
18.4
|
%
|
|
|
(6.7
|
%)
|
|
|
*
|
|
Deliveries
|
|
|
4,000
|
|
|
|
4,000
|
|
|
|
|
|
|
|
0.0
|
%
|
As of June 1, 2017, the Manufacturing segment included the results of Greenbrier-Astra
Rail which is consolidated for financial reporting purposes.
Manufacturing revenue decreased $2.5 million or 0.6% for the three months ended
November 30, 2017 compared to the three months ended November 30, 2016. The decrease in revenue was primarily attributed to the prior year including a benefit from a customer renegotiation fee. Excluding the impact of the customer
renegotiation fee, Manufacturing revenue for the three months ended November 30, 2017 increased compared to the prior year due to the addition of our manufacturing operations in Romania as part of the formation of Greenbrier-Astra Rail and a
change in product mix, partially offset by more competitive pricing in the current year.
Manufacturing cost of revenue increased $24.3 million or
6.8% for the three months ended November 30, 2017 compared to the three months ended November 30, 2016. The increase in cost of revenue was primarily attributed to a change in product mix which had higher average labor and material
content.
Manufacturing margin as a percentage of revenue decreased 5.9% for the three months ended November 30, 2017 compared to the three months
ended November 30, 2016. The decrease was primarily attributed to more competitive pricing, change in product mix and lower volumes of new railcar sales with leases attached which typically result in higher sales prices and margins. The
decrease in margin percentage was also attributed to the prior year including a benefit from a customer renegotiation fee received during the three months ended November 30, 2016.
Manufacturing operating profit decreased $30.4 million or 36.4% for the three months ended November 30, 2017 compared to the three months ended
November 30, 2016. The decrease was primarily attributed to lower margins from more competitive pricing, a change in product mix and increased costs associated with expanded international operations.
28
THE GREENBRIER COMPANIES, INC.
Wheels & Parts Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Three Months Ended
November 30,
|
|
|
Increase
(Decrease)
|
|
|
%
Change
|
|
|
2017
|
|
|
2016
|
|
|
|
Revenue
|
|
$
|
78,011
|
|
|
$
|
69,635
|
|
|
$
|
8,376
|
|
|
|
12.0
|
%
|
Cost of revenue
|
|
$
|
72,506
|
|
|
$
|
64,978
|
|
|
$
|
7,528
|
|
|
|
11.6
|
%
|
Margin (%)
|
|
|
7.1
|
%
|
|
|
6.7
|
%
|
|
|
0.4
|
%
|
|
|
*
|
|
Operating profit ($)
|
|
$
|
2,418
|
|
|
$
|
2,894
|
|
|
$
|
(476
|
)
|
|
|
(16.4
|
%)
|
Operating profit (%)
|
|
|
3.1
|
%
|
|
|
4.2
|
%
|
|
|
(1.1
|
%)
|
|
|
*
|
|
Wheels & Parts revenue increased $8.4 million or 12.0% for the three months
ended November 30, 2017 compared to the three months ended November 30, 2016. The increase was primarily as a result of higher wheel set and component volumes due to an increase in demand and an increase in scrap metal pricing. These were
partially offset by a decrease in parts volume.
Wheels & Parts cost of revenue increased $7.5 million or 11.6% for the three months ended
November 30, 2017 compared to the three months ended November 30, 2016. The increase was primarily attributed to higher wheel set and component costs associated with increased volumes. This was partially offset by a decrease in parts
volume.
Wheels & Parts margin as a percentage of revenue increased 0.4% for the three months ended November 30, 2017 compared to the three
months ended November 30, 2016. The increase was primarily attributed to higher wheel set and component volumes and an increase in scrap metal pricing. This was partially offset by a less favorable parts product mix.
Wheels & Parts operating profit decreased $0.5 million or 16.4% for the three months ended November 30, 2017 compared to the three months
ended November 30, 2016. The decrease was primarily attributed to a $0.5 million net loss on disposition of equipment in the current year compared to a $0.2 million net gain on disposition of equipment in the prior year. This was
partially offset by an increase in margin due to higher wheel set and component volumes and an increase in scrap metal pricing.
29
THE GREENBRIER COMPANIES, INC.
Leasing & Services Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Three Months Ended
November 30,
|
|
|
Increase
(Decrease)
|
|
|
%
Change
|
|
|
2017
|
|
|
2016
|
|
|
|
Revenue
|
|
$
|
30,039
|
|
|
$
|
28,646
|
|
|
$
|
1,393
|
|
|
|
4.9
|
%
|
Cost of revenue
|
|
$
|
16,865
|
|
|
$
|
18,030
|
|
|
$
|
(1,165
|
)
|
|
|
(6.5
|
%)
|
Margin (%)
|
|
|
43.9
|
%
|
|
|
37.1
|
%
|
|
|
6.8
|
%
|
|
|
*
|
|
Operating profit ($)
|
|
$
|
28,190
|
|
|
$
|
7,390
|
|
|
$
|
20,800
|
|
|
|
281.5
|
%
|
Operating profit (%)
|
|
|
93.8
|
%
|
|
|
25.8
|
%
|
|
|
68.0
|
%
|
|
|
*
|
|
The Leasing & Services segment primarily generates revenue from leasing railcars from
its lease fleet and providing various management services. From time to time, railcars are purchased from third parties with the intent to resell them. The gross proceeds from the sale of these railcars are recorded in revenue and the cost of
purchasing these railcars are recorded in cost of revenue.
Leasing & Services revenue increased $1.4 million or 4.9% for the three months
ended November 30, 2017 compared to the three months ended November 30, 2016. The increase was primarily attributed to higher management services revenue from new service agreements and an increase in the sale of railcars which we had
purchased from third parties with the intent to resell them.
Leasing & Services cost of revenue decreased $1.2 million or 6.5% for the
three months ended November 30, 2017 compared to the three months ended November 30, 2016. The decrease was primarily due to lower maintenance and transportation costs.
Leasing & Services margin as a percentage of revenue increased 6.8% for the three months ended November 30, 2017 compared to the three months
ended November 30, 2016. The increase was primarily attributed to lower maintenance and transportation costs. This was partially offset by a lower margin percentage on the sale of railcars purchased from third parties.
Leasing & Services operating profit increased $20.8 million or 281.5% for the three months ended November 30, 2017 compared to the three
months ended November 30, 2016. The increase was primarily attributed to an $18.7 million increase in net gain on disposition of equipment and a $2.6 million increase in margin. The net gain on disposition of equipment for the three
months ended November 30, 2017 relates to higher volumes of equipment sales as we rebalance our lease portfolio.
The
percentage of owned units on lease was 91.8% at November 30, 2017 compared to 94.2% at November 30, 2016.
30
THE GREENBRIER COMPANIES, INC.
GBW Joint Venture Segment
GBW, an unconsolidated 50/50 joint venture, generated total revenue of $58.0 million and $70.3 million for the three months ended November 30,
2017 and 2016, respectively. The decrease in revenue of $12.3 million and 17.5% was primarily due to a decrease in the volume of repair work.
GBW
margin as a percentage of revenue for the three months ended November 30, 2017 was negative 4.6% compared to negative 0.5% for the three months ended November 30, 2016. The decrease in margin percentage was primarily due to inefficiencies
of operating at lower volumes of repair work.
To reflect our 50% share of GBWs net results, we recorded a loss of $1.6 million and
$1.4 million in Loss from unconsolidated affiliates for the three months ended November 30, 2017 and 2016, respectively.
Selling and
Administrative Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Three Months Ended
November 30,
|
|
|
Increase
(Decrease)
|
|
|
%
Change
|
|
|
2017
|
|
|
2016
|
|
|
|
Selling and administrative expense
|
|
$
|
47,043
|
|
|
$
|
41,213
|
|
|
$
|
5,830
|
|
|
|
14.1
|
%
|
Selling and administrative expense was $47.0 million or 8.4% of revenue for the three months ended November 30, 2017 compared
to $41.2 million or 7.5% of revenue for the prior comparable period. The $5.8 million increase was primarily attributed to $2.6 million from the addition of Astra Rails selling and administrative costs, a $2.1 million increase in consulting,
legal and related costs primarily associated with litigation, strategic business development and IT initiatives and a $1.0 million increase in employee costs.
Net Gain on Disposition of Equipment
Net gain on
disposition of equipment was $19.2 million for the three months ended November 30, 2017 compared to $1.1 million for the prior comparable period.
Net gain on disposition of equipment 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. The net gain on disposition of equipment for the three months ended November 30, 2017
primarily relates to higher volumes of equipment sales as we rebalance our lease portfolio.
Other Costs
Interest and foreign exchange expense was composed of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Three Months Ended
November 30,
|
|
|
Increase
(Decrease)
|
|
|
2017
|
|
|
2016
|
|
|
Interest and foreign exchange:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other expense
|
|
$
|
7,964
|
|
|
$
|
3,862
|
|
|
$
|
4,102
|
|
Foreign exchange gain
|
|
|
(944
|
)
|
|
|
(2,138
|
)
|
|
|
1,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,020
|
|
|
$
|
1,724
|
|
|
$
|
5,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $5.3 million increase in interest and foreign exchange expense from the prior comparable period was primarily
attributed to interest expense associated with our $275 million convertible senior notes due 2024 which we issued in February 2017 and additional interest expense due to the addition of Astra Rail. In addition, the overall increase was
attributed to lower foreign exchange gain of $1.0 million in the current year compared to a $2.1 million gain in the prior comparable period. The $1.2 million decrease in foreign exchange gain was primarily attributed to the change in
the Mexican Peso relative to the U.S. Dollar.
31
THE GREENBRIER COMPANIES, INC.
Income Tax
The tax rate for the three months ended November 30, 2017 was 33.3% compared to 28.7% for the three months ended November 30, 2016. The increase in
the tax rate was primarily attributable to the impact of discrete items.
The tax rate also fluctuates
period-to-period
due to changes in the projected mix of foreign and domestic
pre-tax
earnings and due to other discrete tax items booked within the interim period. In
particular it fluctuates with changes in the proportion of projected
pre-tax
earnings attributable to our Mexican railcar manufacturing joint venture because the joint venture is predominantly treated as a
partnership for tax purposes and, as a result, the partnerships entire
pre-tax
earnings are included in Earnings before income taxes and loss from unconsolidated affiliates, whereas only our 50% share of
the tax is included in Income tax expense.
Loss From Unconsolidated Affiliates
Loss from unconsolidated affiliates primarily included our share of
after-tax
results from our GBW joint venture, our
Brazil operations which include a castings joint venture and a railcar manufacturing joint venture, our leasing warehouse investment, our castings joint venture and our tank head joint venture.
Loss from unconsolidated affiliates was $2.9 million for the three months ended November 30, 2017 compared to $2.6 million for the three months
ended November 30, 2016. The $0.3 million increase in loss from unconsolidated affiliates was primarily attributed to losses at GBW due to lower repair volumes and our increased ownership stake in our Brazil operations which operated at a
loss.
Noncontrolling Interest
Net earnings
attributable to noncontrolling interest was $7.1 million for the three months ended November 30, 2017 compared to $23.0 million in the prior comparable period. These amounts primarily represent our Mexican partners share of the
results of operations of our Mexican railcar manufacturing joint venture, adjusted for intercompany sales. The three months ended November 30, 2017 also included our European partners share of the results of Greenbrier-Astra Rail. The
decrease of $15.9 million from the prior year is primarily a result of a decrease in the volume of railcar deliveries and lower margins at our Mexican railcar manufacturing joint venture.
32
THE GREENBRIER COMPANIES, INC.
Liquidity and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
November 30,
|
|
(In thousands)
|
|
2017
|
|
|
2016
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(39,654
|
)
|
|
$
|
31,826
|
|
Net cash provided by investing activities
|
|
|
45,220
|
|
|
|
12,242
|
|
Net cash used in financing activities
|
|
|
(23,890
|
)
|
|
|
(24,366
|
)
|
Effect of exchange rate changes
|
|
|
(1,736
|
)
|
|
|
(8,591
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
(20,060
|
)
|
|
$
|
11,111
|
|
|
|
|
|
|
|
|
|
|
We have been financed through cash generated from operations and borrowings. At November 30, 2017, cash and cash
equivalents were $591.4 million, a decrease of $20.1 million from $611.5 million at August 31, 2017.
The change in cash provided by
operating activities for the three months ended November 30, 2017 compared to the three months ended November 30, 2016 was primarily due to a net change in working capital, lower earnings and an increase in net gain on disposition of
equipment.
Cash used in investing activities primarily related to capital expenditures net of proceeds from the sale of assets. The change in cash used
in investing activities for the three months ended November 30, 2017 compared to the three months ended November 30, 2016 was primarily attributable to higher proceeds from the sale of assets partially offset by an increase in capital
expenditures and a change in restricted cash.
Capital expenditures totaled $29.9 million and $12.6 million for the three months ended
November 30, 2017 and 2016, respectively. Manufacturing capital expenditures were approximately $10.4 million and $9.0 million for the three months ended November 30, 2017 and 2016, respectively. Capital expenditures for
Manufacturing are expected to be approximately $70 million in 2018 and primarily relate to enhancements of our existing manufacturing facilities. Wheels & Parts capital expenditures were approximately $0.4 million and
$1.2 million for the three months ended November 30, 2017 and 2016, respectively. Capital expenditures for Wheels & Parts are expected to be approximately $5 million in 2018 for maintenance and enhancements of our existing
facilities. Leasing & Services and corporate capital expenditures were approximately $19.1 million and $2.4 million for the three months ended November 30, 2017 and 2016, respectively. Leasing & Services and
corporate capital expenditures for 2018 are expected to be approximately $120 million. Proceeds from sales of leased railcar equipment are expected to be $150 million for 2018. The asset additions and dispositions for Leasing &
Services in 2018 primarily relate to higher volumes of equipment purchases and sales as we rebalance our lease portfolio. Assets from our lease fleet are periodically sold in the normal course of business in order to take advantage of market
conditions and to manage risk and liquidity.
Proceeds from the sale of assets, which primarily related to sales of railcars from our lease fleet within
Leasing & Services, were approximately $75.1 million and $9.2 million for the three months ended November 30, 2017 and 2016, respectively. Proceeds from the sale of assets for the three months ended November 30, 2016
included approximately $7.7 million of equipment sold pursuant to sale leaseback transactions. The gain resulting from the sale leaseback transactions was deferred and is being recognized over the lease term in Net gain on disposition of
equipment.
The change in cash used in financing activities for the three months ended November 30, 2017 compared to the three months ended
November 30, 2016 was primarily attributed to net activities with joint venture partners and timing of when dividends were paid.
A quarterly
dividend of $0.23 per share was declared on January 4, 2018.
The Board of Directors has authorized our company to repurchase in aggregate up to
$225 million of our common stock. We did not repurchase any shares during the three months ended November 30, 2017. As of November 30, 2017, we had cumulatively repurchased 3,206,226 shares for approximately $137.0 million since
October 2013 and had $88.0 million available under the share repurchase program with an expiration date of March 31, 2019.
33
THE GREENBRIER COMPANIES, INC.
Senior secured credit facilities, consisting of three components, aggregated to $626.7 million as of
November 30, 2017. We had an aggregate of $358.8 million available to draw down under committed credit facilities as of November 30, 2017. This amount consists of $289.0 million available on the North American credit facility,
$19.8 million on the European credit facilities and $50.0 million on the Mexican railcar manufacturing joint venture credit facilities.
As of
November 30, 2017, a $550.0 million revolving line of credit, maturing October 2020, 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 1.75% or Prime plus 0.75% depending on the type of borrowing. Available borrowings under the credit facility
are generally based on defined levels of inventory, receivables, property, plant and equipment and leased equipment, as well as total debt to consolidated capitalization and fixed charges coverage ratios.
As of November 30, 2017, lines of credit totaling $26.7 million secured by certain of our European assets, with variable rates that range from
Warsaw Interbank Offered Rate (WIBOR) plus 1.2% to WIBOR plus 1.3% and Euro Interbank Offered Rate (EURIBOR) plus 1.9%, were available for working capital needs of our European manufacturing operation. European credit facilities are continually
being renewed. Currently these European credit facilities have maturities that range from February 2018 through June 2019.
As of November 30, 2017,
our Mexican railcar manufacturing joint venture had two lines of credit totaling $50.0 million. The first line of credit provides up to $30.0 million and is fully guaranteed by us and our joint venture partner. 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 January 2019. 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 July 2019.
As of November 30, 2017, outstanding commitments under the senior secured credit facilities consisted of $75.4 million in letters of credit under
our North American credit facility and $6.9 million outstanding under our 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
November 30, 2017, we were in compliance with all such restrictive covenants.
From time to time, we may seek to repurchase or otherwise retire or
exchange securities, including outstanding notes, borrowings and equity securities, and take other steps to reduce our debt or otherwise improve our balance sheet. These actions may include open market repurchases, unsolicited or solicited privately
negotiated transactions or other retirements, repurchases or exchanges. Such retirements, repurchases or exchanges, if any, will depend on a number of factors, including, but not limited to, prevailing market conditions, trading levels of our debt,
our liquidity requirements and contractual restrictions, if applicable. The amounts involved in any such transactions may, individually or in the aggregate, be material and may involve all or a portion of a particular series of notes or other
indebtedness which may reduce the float and impact the trading market of notes or other indebtedness which remain outstanding.
We have global operations
that conduct business in their local currencies as well as other currencies. To mitigate the exposure to transactions denominated in currencies other than the functional currency, we enter into foreign currency forward exchange contracts with
established financial institutions to protect the margin on a portion of foreign currency sales in firm backlog. Given the strong credit standing of the counterparties, no provision has been made for credit loss due to counterparty
non-performance.
34
As of November 30, 2017, we had a $36.5 million note receivable balance from GBW which is included on
the Consolidated Balance Sheet in Accounts receivable, net. We are likely to make additional capital contributions or loans to GBW, an unconsolidated 50/50 joint venture, in the future.
As of November 30, 2017, we had a $10.0 million note receivable from Amsted-Maxion Cruzeiro, our unconsolidated Brazilian castings and components
manufacturer and a $9.2 million note receivable balance from Greenbrier-Maxion, our unconsolidated Brazilian railcar manufacturer. These note receivables are included on the Consolidated Balance Sheet in Accounts receivable, net. In the future,
we may make loans to or provide guarantees for Amsted-Maxion Cruzeiro or Greenbrier-Maxion.
We expect existing funds and cash generated from operations,
together with proceeds from financing activities including borrowings under existing credit facilities and long-term financings, to be sufficient to fund expected debt repayments, working capital needs, planned capital expenditures, a
30 million payment in June 2018 as consideration for the Greenbrier-Astra Rail transaction, 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.
35
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 financial reporting purposes, 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. Valuation allowances reduce deferred tax assets to amounts more likely than not that will be realized
based on information available when the financial statements are prepared. This information may include estimates of future income and other assumptions that are inherently uncertain.
Maintenance obligations
- We are responsible for maintenance on a portion of the managed and owned lease fleet under the terms of maintenance
obligations defined in the underlying lease or management agreement. The estimated maintenance liability is based on maintenance histories for each type and age of railcar. These estimates involve judgment as to the future costs of repairs and the
types and timing of repairs required over the lease term. As we cannot predict with certainty the prices, timing and volume of maintenance needed in the future on railcars under long-term leases, this estimate is uncertain and could be materially
different from maintenance requirements. The liability is periodically reviewed and updated based on maintenance trends and known future repair or refurbishment requirements. These adjustments could be material due to the inherent uncertainty in
predicting future maintenance requirements.
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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THE GREENBRIER COMPANIES, INC.
Revenue recognition
- Revenue is recognized when persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured.
Railcars are generally
manufactured, repaired or refurbished and wheels and parts produced under firm orders from third parties. Revenue is recognized when these products or services are completed, accepted by an unaffiliated customer and contractual contingencies
removed. Certain leases are operated under car hire arrangements whereby revenue is earned based on utilization, car hire rates and terms specified in the lease agreement. Car hire revenue is reported from a third party source two months in arrears;
however, such revenue is accrued in the month earned based on estimates of use from historical activity and is adjusted to actual when reported to us. These estimates are inherently uncertain as they involve judgment as to the estimated use of each
railcar. Adjustments to actual have historically not been significant. Revenue from the construction of marine barges is either recognized on the percentage of completion method during the construction period or on the completed contract method
based on the terms of the contract. Under the percentage of completion method, judgment is used to determine a definitive threshold against which progress towards completion can be measured to determine timing of revenue recognition. Under the
percentage of completion method, revenue is recognized based on the progress toward contract completion measured by actual costs incurred to date in relation to the estimate of total expected costs. Under the completed contract method, revenue is
not recognized until the project has been fully completed.
We will periodically sell railcars with leases attached to financial investors. Revenue and
cost of revenue associated with railcars that the Company has manufactured are recognized in Manufacturing once sold. Revenue and cost of revenue associated with railcars which were obtained from a third party with the intent to resell them which
are subsequently sold are recognized in Leasing & Services. In addition we will often perform management or maintenance services at market rates for these railcars. Pursuant to the guidance in Accounting Standards Codification (ASC)
840-20-40,
we evaluate the terms of any remarketing agreements and any contractual provisions that represent retained risk and the level of retained risk based on those
provisions. We determine whether the level of retained risk exceeds 10% of the individual fair value of the railcars with leases attached that are delivered. If retained risk exceeded 10%, the transaction would not be recognized as a sale until such
time as the retained risk declined to 10% or less. For any contracts with multiple elements (i.e. railcars, maintenance, management services, etc.) we allocate revenue among the deliverables primarily based upon objective and reliable evidence of
the fair value of each element in the arrangement. If objective and reliable evidence of fair value of any element is not available, we will use the elements estimated selling price for purposes of allocating the total arrangement
consideration among the elements.
Impairment of long-lived assets
- When changes in circumstances indicate the carrying amount of certain
long-lived assets may not be recoverable, the assets are evaluated for impairment. If the forecast of undiscounted future cash flows are less than the carrying amount of the assets, an impairment charge to reduce the carrying value of the assets to
fair value would be recognized in the current period. These estimates are based on the best information available at the time of the impairment and could be materially different if circumstances change. If the forecast of undiscounted future cash
flows exceeds the carrying amount of the assets it would indicate that the assets were not impaired.
Goodwill and acquired intangible assets
- We
periodically acquire businesses in purchase transactions in which the allocation of the purchase price may result in the recognition of goodwill and other intangible assets. The determination of the value of such intangible assets requires
management to make estimates and assumptions. These estimates affect the amount of future period amortization and possible impairment charges.
Goodwill
and indefinite-lived intangible assets are tested for impairment annually during the third quarter. 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. Among other things, our assumptions used in the valuation of goodwill include
growth of revenue and margins, market multiples, discount rates and increased cash flows over time. If actual operating results were to differ from these assumptions, it may result in an impairment of our goodwill.
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THE GREENBRIER COMPANIES, INC.
The provisions of ASC 350,
Intangibles - Goodwill and Other
, require that we perform an impairment
test on goodwill. We compare the fair value of each reporting unit with its carrying value. We determine the fair value of our reporting units based on a weighting of income and market approaches. Under the income approach, we calculate the fair
value of a reporting unit based on the present value of estimated future cash flows. Under the market approach, we estimate the fair value based on observed market multiples for comparable businesses. An impairment loss is recorded to the extent
that the reporting units carrying amount exceeds the reporting units fair value. An impairment loss cannot exceed the total amount of goodwill allocated to the reporting unit. Our goodwill balance was $67.8 million as of
November 30, 2017 of which $43.3 million related to our Wheels & Parts segment and $24.5 million related to our Manufacturing segment.
GBW, an unconsolidated 50/50 joint venture, also separately tests its goodwill and indefinite-lived intangible assets for impairment consistent with the
methodology described above. As of November 30, 2017, GBW had a goodwill balance of $41.5 million.
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THE GREENBRIER COMPANIES, INC.