Item 1.
|
Condensed Financial Statements
|
Consolidated Balance Sheets
(In thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
February 28,
2018
|
|
|
August 31,
2017
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
586,008
|
|
|
$
|
611,466
|
|
Restricted cash
|
|
|
8,875
|
|
|
|
8,892
|
|
Accounts receivable, net
|
|
|
321,795
|
|
|
|
279,964
|
|
Inventories
|
|
|
408,419
|
|
|
|
400,127
|
|
Leased railcars for syndication
|
|
|
168,748
|
|
|
|
91,272
|
|
Equipment on operating leases, net
|
|
|
258,417
|
|
|
|
315,941
|
|
Property, plant and equipment, net
|
|
|
429,465
|
|
|
|
428,021
|
|
Investment in unconsolidated affiliates
|
|
|
98,009
|
|
|
|
108,255
|
|
Intangibles and other assets, net
|
|
|
83,308
|
|
|
|
85,177
|
|
Goodwill
|
|
|
69,011
|
|
|
|
68,590
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,432,055
|
|
|
$
|
2,397,705
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
Revolving notes
|
|
$
|
7,990
|
|
|
$
|
4,324
|
|
Accounts payable and accrued liabilities
|
|
|
461,088
|
|
|
|
415,061
|
|
Deferred income taxes
|
|
|
41,257
|
|
|
|
75,791
|
|
Deferred revenue
|
|
|
85,886
|
|
|
|
129,260
|
|
Notes payable, net
|
|
|
559,755
|
|
|
|
558,228
|
|
|
|
|
Commitments and contingencies (Note 14)
|
|
|
|
|
|
|
|
|
|
|
|
Contingently redeemable noncontrolling interest
|
|
|
33,046
|
|
|
|
36,148
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Greenbrier
|
|
|
|
|
|
|
|
|
Preferred stock - without par value; 25,000 shares authorized; none outstanding
|
|
|
|
|
|
|
|
|
Common stock - without par value; 50,000 shares authorized; 28,732 and 28,503 shares outstanding
at February 28, 2018 and August 31, 2017
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
316,073
|
|
|
|
315,306
|
|
Retained earnings
|
|
|
783,495
|
|
|
|
709,103
|
|
Accumulated other comprehensive loss
|
|
|
(4,121
|
)
|
|
|
(6,279
|
)
|
|
|
|
|
|
|
|
|
|
Total equity Greenbrier
|
|
|
1,095,447
|
|
|
|
1,018,130
|
|
Noncontrolling interest
|
|
|
147,586
|
|
|
|
160,763
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
1,243,033
|
|
|
|
1,178,893
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,432,055
|
|
|
$
|
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
February 28,
|
|
|
Six Months Ended
February 28,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
$
|
511,827
|
|
|
$
|
445,504
|
|
|
$
|
963,312
|
|
|
$
|
899,537
|
|
Wheels & Parts
|
|
|
88,710
|
|
|
|
82,714
|
|
|
|
166,721
|
|
|
|
152,349
|
|
Leasing & Services
|
|
|
28,799
|
|
|
|
38,064
|
|
|
|
58,838
|
|
|
|
66,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
629,336
|
|
|
|
566,282
|
|
|
|
1,188,871
|
|
|
|
1,118,596
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
|
429,165
|
|
|
|
346,653
|
|
|
|
810,015
|
|
|
|
703,208
|
|
Wheels & Parts
|
|
|
80,708
|
|
|
|
75,497
|
|
|
|
153,214
|
|
|
|
140,475
|
|
Leasing & Services
|
|
|
14,116
|
|
|
|
25,207
|
|
|
|
30,981
|
|
|
|
43,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
523,989
|
|
|
|
447,357
|
|
|
|
994,210
|
|
|
|
886,920
|
|
Margin
|
|
|
105,347
|
|
|
|
118,925
|
|
|
|
194,661
|
|
|
|
231,676
|
|
Selling and administrative expense
|
|
|
50,294
|
|
|
|
39,495
|
|
|
|
97,337
|
|
|
|
80,708
|
|
Net gain on disposition of equipment
|
|
|
(5,817
|
)
|
|
|
(2,090
|
)
|
|
|
(24,988
|
)
|
|
|
(3,212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from operations
|
|
|
60,870
|
|
|
|
81,520
|
|
|
|
122,312
|
|
|
|
154,180
|
|
Other costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and foreign exchange
|
|
|
7,029
|
|
|
|
5,673
|
|
|
|
14,049
|
|
|
|
7,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and earnings (loss) from unconsolidated affiliates
|
|
|
53,841
|
|
|
|
75,847
|
|
|
|
108,263
|
|
|
|
146,783
|
|
Income tax benefit (expense)
|
|
|
11,301
|
|
|
|
(24,858
|
)
|
|
|
(6,834
|
)
|
|
|
(45,244
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before earnings (loss) from unconsolidated affiliates
|
|
|
65,142
|
|
|
|
50,989
|
|
|
|
101,429
|
|
|
|
101,539
|
|
Earnings (loss) from unconsolidated affiliates
|
|
|
147
|
|
|
|
(1,988
|
)
|
|
|
(2,763
|
)
|
|
|
(4,572
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
65,289
|
|
|
|
49,001
|
|
|
|
98,666
|
|
|
|
96,967
|
|
Net earnings attributable to noncontrolling interest
|
|
|
(3,647
|
)
|
|
|
(14,465
|
)
|
|
|
(10,771
|
)
|
|
|
(37,469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Greenbrier
|
|
$
|
61,642
|
|
|
$
|
34,536
|
|
|
$
|
87,895
|
|
|
$
|
59,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
2.10
|
|
|
$
|
1.19
|
|
|
$
|
3.00
|
|
|
$
|
2.04
|
|
Diluted earnings per common share
|
|
$
|
1.91
|
|
|
$
|
1.09
|
|
|
$
|
2.74
|
|
|
$
|
1.88
|
|
Weighted average common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
29,355
|
|
|
|
29,130
|
|
|
|
29,343
|
|
|
|
29,113
|
|
Diluted
|
|
|
32,711
|
|
|
|
32,427
|
|
|
|
32,703
|
|
|
|
32,423
|
|
Dividends declared per common share
|
|
$
|
0.23
|
|
|
$
|
0.21
|
|
|
$
|
0.46
|
|
|
$
|
0.42
|
|
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
February 28,
|
|
|
Six Months Ended
February 28,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Net earnings
|
|
$
|
65,289
|
|
|
$
|
49,001
|
|
|
$
|
98,666
|
|
|
$
|
96,967
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment
|
|
|
4,160
|
|
|
|
4,010
|
|
|
|
973
|
|
|
|
(2,710
|
)
|
Reclassification of derivative financial instruments recognized in net earnings
1
|
|
|
(337
|
)
|
|
|
2,828
|
|
|
|
(665
|
)
|
|
|
3,151
|
|
Unrealized gain (loss) on derivative financial instruments
2
|
|
|
1,007
|
|
|
|
2,716
|
|
|
|
1,829
|
|
|
|
(2,188
|
)
|
Other (net of tax effect)
|
|
|
44
|
|
|
|
(849
|
)
|
|
|
25
|
|
|
|
(850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,874
|
|
|
|
8,705
|
|
|
|
2,162
|
|
|
|
(2,597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
70,163
|
|
|
|
57,706
|
|
|
|
100,828
|
|
|
|
94,370
|
|
Comprehensive income attributable to noncontrolling interest
|
|
|
(3,655
|
)
|
|
|
(14,465
|
)
|
|
|
(10,775
|
)
|
|
|
(37,469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Greenbrier
|
|
$
|
66,508
|
|
|
$
|
43,241
|
|
|
$
|
90,053
|
|
|
$
|
56,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Net of tax effect of $0.1 million and $0.8 million for the three months ended February 28, 2018 and 2017 and $0.1 million and $0.9 million for the six months ended February 28, 2018 and 2017.
|
2
|
Net of tax effect of $0.4 million and $0.8 million for the three months ended February 28, 2018 and 2017 and $0.7 million and $0.2 million for the six months ended February 28, 2018 and 2017.
|
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
Income (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
|
|
|
|
|
|
|
|
|
|
|
87,895
|
|
|
|
|
|
|
|
87,895
|
|
|
|
13,873
|
|
|
|
101,768
|
|
|
|
(3,102
|
)
|
Other comprehensive income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,158
|
|
|
|
2,158
|
|
|
|
4
|
|
|
|
2,162
|
|
|
|
|
|
Noncontrolling interest adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,561
|
)
|
|
|
(2,561
|
)
|
|
|
|
|
Joint venture partner distribution declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,993
|
)
|
|
|
(30,993
|
)
|
|
|
|
|
Investment by joint venture partner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,500
|
|
|
|
6,500
|
|
|
|
|
|
Restricted stock awards (net of cancellations)
|
|
|
229
|
|
|
|
(4,250
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,250
|
)
|
|
|
|
|
|
|
(4,250
|
)
|
|
|
|
|
Unamortized restricted stock
|
|
|
|
|
|
|
(950
|
)
|
|
|
|
|
|
|
|
|
|
|
(950
|
)
|
|
|
|
|
|
|
(950
|
)
|
|
|
|
|
Restricted stock amortization
|
|
|
|
|
|
|
5,967
|
|
|
|
|
|
|
|
|
|
|
|
5,967
|
|
|
|
|
|
|
|
5,967
|
|
|
|
|
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
(13,503
|
)
|
|
|
|
|
|
|
(13,503
|
)
|
|
|
|
|
|
|
(13,503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance February 28, 2018
|
|
|
28,732
|
|
|
$
|
316,073
|
|
|
$
|
783,495
|
|
|
$
|
(4,121
|
)
|
|
$
|
1,095,447
|
|
|
$
|
147,586
|
|
|
$
|
1,243,033
|
|
|
$
|
33,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
59,498
|
|
|
|
|
|
|
|
59,498
|
|
|
|
37,469
|
|
|
|
96,967
|
|
|
Other comprehensive loss, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,597
|
)
|
|
|
(2,597
|
)
|
|
|
|
|
|
|
(2,597
|
)
|
|
Noncontrolling interest adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,255
|
)
|
|
|
(3,255
|
)
|
|
Joint venture partner distribution declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,783
|
)
|
|
|
(18,783
|
)
|
|
Restricted stock awards (net of cancellations)
|
|
|
195
|
|
|
|
(1,876
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,876
|
)
|
|
|
|
|
|
|
(1,876
|
)
|
|
Unamortized restricted stock
|
|
|
|
|
|
|
(1,105
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,105
|
)
|
|
|
|
|
|
|
(1,105
|
)
|
|
Restricted stock amortization
|
|
|
|
|
|
|
8,437
|
|
|
|
|
|
|
|
|
|
|
|
8,437
|
|
|
|
|
|
|
|
8,437
|
|
|
Tax deficiency from restricted stock awards
|
|
|
|
|
|
|
(2,453
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,453
|
)
|
|
|
|
|
|
|
(2,453
|
)
|
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
(12,234
|
)
|
|
|
|
|
|
|
(12,234
|
)
|
|
|
|
|
|
|
(12,234
|
)
|
|
2024 Convertible Senior Notes equity component, net of tax
|
|
|
|
|
|
|
20,818
|
|
|
|
|
|
|
|
|
|
|
|
20,818
|
|
|
|
|
|
|
|
20,818
|
|
|
2024 Convertible Senior Notes issuance costs equity component, net of tax
|
|
|
|
|
|
|
(715
|
)
|
|
|
|
|
|
|
|
|
|
|
(715
|
)
|
|
|
|
|
|
|
(715
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance February 28, 2017
|
|
|
28,400
|
|
|
$
|
305,992
|
|
|
$
|
665,442
|
|
|
$
|
(29,350
|
)
|
|
$
|
942,084
|
|
|
$
|
157,947
|
|
|
$
|
1,100,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements
8
THE GREENBRIER COMPANIES, INC.
Consolidated Statements of Cash Flows
(In thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
February 28,
|
|
|
|
2018
|
|
|
2017
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
98,666
|
|
|
$
|
96,967
|
|
Adjustments to reconcile net earnings to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
(35,080
|
)
|
|
|
2,272
|
|
Depreciation and amortization
|
|
|
36,454
|
|
|
|
30,580
|
|
Net gain on disposition of equipment
|
|
|
(24,988
|
)
|
|
|
(3,212
|
)
|
Accretion of debt discount
|
|
|
2,060
|
|
|
|
330
|
|
Stock based compensation expense
|
|
|
12,574
|
|
|
|
10,854
|
|
Noncontrolling interest adjustments
|
|
|
(2,555
|
)
|
|
|
(3,255
|
)
|
Other
|
|
|
958
|
|
|
|
548
|
|
Decrease (increase) in assets:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(25,681
|
)
|
|
|
(67,271
|
)
|
Inventories
|
|
|
(10,211
|
)
|
|
|
(17,673
|
)
|
Leased railcars for syndication
|
|
|
(74,129
|
)
|
|
|
37,903
|
|
Other
|
|
|
10,434
|
|
|
|
5,550
|
|
Increase (decrease) in liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
46,434
|
|
|
|
1,718
|
|
Deferred revenue
|
|
|
(42,589
|
)
|
|
|
(10,468
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(7,653
|
)
|
|
|
84,843
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Proceeds from sales of assets
|
|
|
105,142
|
|
|
|
19,898
|
|
Capital expenditures
|
|
|
(53,503
|
)
|
|
|
(21,194
|
)
|
Decrease in restricted cash
|
|
|
17
|
|
|
|
15,583
|
|
Investment in and advances to unconsolidated affiliates
|
|
|
(17,739
|
)
|
|
|
(550
|
)
|
Other
|
|
|
1,207
|
|
|
|
550
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
35,124
|
|
|
|
14,287
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Net change in revolving notes with maturities of 90 days or less
|
|
|
3,666
|
|
|
|
|
|
Proceeds from revolving notes with maturities longer than 90 days
|
|
|
|
|
|
|
|
|
Repayments of revolving notes with maturities longer than 90 days
|
|
|
|
|
|
|
|
|
Proceeds from issuance of notes payable
|
|
|
13,929
|
|
|
|
275,000
|
|
Repayments of notes payable
|
|
|
(16,056
|
)
|
|
|
(3,719
|
)
|
Investment by joint venture partner
|
|
|
6,500
|
|
|
|
|
|
Debt issuance costs
|
|
|
|
|
|
|
(9,450
|
)
|
Dividends
|
|
|
(13,546
|
)
|
|
|
(12,138
|
)
|
Cash distribution to joint venture partner
|
|
|
(41,758
|
)
|
|
|
(19,486
|
)
|
Tax payments for net share settlement of restricted stock
|
|
|
(5,199
|
)
|
|
|
(2,981
|
)
|
Excess tax deficiency from restricted stock awards
|
|
|
|
|
|
|
(2,453
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(52,464
|
)
|
|
|
224,773
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes
|
|
|
(465
|
)
|
|
|
(830
|
)
|
Increase (decrease) in cash and cash equivalents
|
|
|
(25,458
|
)
|
|
|
323,073
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
611,466
|
|
|
|
222,679
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
586,008
|
|
|
$
|
545,752
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
9,234
|
|
|
$
|
4,944
|
|
Income taxes, net
|
|
$
|
20,789
|
|
|
$
|
18,818
|
|
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
|
|
$
|
12,748
|
|
|
$
|
4,783
|
|
Change in Accounts payable and accrued liabilities associated with cash distributions to joint
venture partner
|
|
$
|
396
|
|
|
$
|
703
|
|
Change in Accounts payable and accrued liabilities associated with dividends declared
|
|
$
|
43
|
|
|
$
|
(96
|
)
|
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
February 28, 2018 and for the three and six months ended February 28, 2018 and 2017 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 and six months ended February 28, 2018 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 2018, 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 six months ended February 28, 2018, 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 and six months
ended February 28, 2018. As of February 28, 2018, 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.
11
THE GREENBRIER COMPANIES, INC.
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 $115.8 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 February 28, 2018.
For the six months ended February 28, 2018, the European operations contributed by Astra generated revenues of $76.9 million and an immaterial loss from
operations, 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.
The purchase price of the net assets acquired from Astra is allocated as follows:
|
|
|
|
|
(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
|
|
|
25,746
|
|
|
|
|
|
|
Total assets acquired
|
|
|
166,342
|
|
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
|
|
$
|
115,825
|
|
|
|
|
|
|
The valuation of certain assets and liabilities in the Astra acquisition is preliminary. Minor adjustments were made to the
purchase price allocation during the six months ended February 28, 2018.
12
THE GREENBRIER COMPANIES, INC.
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)
|
|
February 28,
2018
|
|
|
August 31,
2017
|
|
Manufacturing supplies and raw materials
|
|
$
|
250,495
|
|
|
$
|
222,080
|
|
Work-in-process
|
|
|
86,442
|
|
|
|
86,794
|
|
Finished goods
|
|
|
76,581
|
|
|
|
95,389
|
|
Excess and obsolete adjustment
|
|
|
(5,099
|
)
|
|
|
(4,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
408,419
|
|
|
$
|
400,127
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
February 28,
2018
|
|
|
August 31,
2017
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
64,521
|
|
|
$
|
64,521
|
|
Accumulated amortization
|
|
|
(41,847
|
)
|
|
|
(40,153
|
)
|
Other intangibles
|
|
|
17,155
|
|
|
|
20,207
|
|
Accumulated amortization
|
|
|
(6,020
|
)
|
|
|
(4,866
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
33,809
|
|
|
|
39,709
|
|
Intangible assets not subject to amortization
|
|
|
4,254
|
|
|
|
912
|
|
Prepaid and other assets
|
|
|
14,676
|
|
|
|
16,914
|
|
Nonqualified savings plan investments
|
|
|
24,710
|
|
|
|
20,974
|
|
Revolving notes issuance costs, net
|
|
|
2,209
|
|
|
|
2,623
|
|
Assets held for sale
|
|
|
3,650
|
|
|
|
4,045
|
|
|
|
|
|
|
|
|
|
|
Total Intangible and other assets, net
|
|
$
|
83,308
|
|
|
$
|
85,177
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the three and six months ended February 28, 2018 was $1.4 million and $2.7 million and for the
three and six months ended February 28, 2017 was $0.9 million and $2.6 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 $634.1 million as of February 28, 2018.
As of February 28, 2018, 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 February 28, 2018, lines of credit totaling $34.1 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 1.1%, 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 December 2018 through June 2019.
As of February 28, 2018, 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 February 28, 2018,
outstanding commitments under the senior secured credit facilities consisted of $75.0 million in letters of credit under the North American credit facility and $8.0 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)
|
|
February 28,
2018
|
|
|
August 31,
2017
|
|
Trade payables
|
|
$
|
215,491
|
|
|
$
|
180,592
|
|
Other accrued liabilities
|
|
|
114,655
|
|
|
|
111,316
|
|
Accrued payroll and related liabilities
|
|
|
85,481
|
|
|
|
84,749
|
|
Accrued warranty
|
|
|
26,977
|
|
|
|
20,737
|
|
Accrued maintenance
|
|
|
18,484
|
|
|
|
17,667
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
461,088
|
|
|
$
|
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
February 28,
|
|
|
Six Months Ended
February 28,
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Balance at beginning of period
|
|
$
|
21,952
|
|
|
$
|
11,737
|
|
|
$
|
20,737
|
|
|
$
|
12,159
|
|
Charged to cost of revenue, net
|
|
|
5,646
|
|
|
|
3,288
|
|
|
|
7,599
|
|
|
|
3,645
|
|
Payments
|
|
|
(1,089
|
)
|
|
|
(495
|
)
|
|
|
(1,840
|
)
|
|
|
(1,132
|
)
|
Currency translation effect
|
|
|
468
|
|
|
|
52
|
|
|
|
481
|
|
|
|
(90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
26,977
|
|
|
$
|
14,582
|
|
|
$
|
26,977
|
|
|
$
|
14,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
1,829
|
|
|
|
969
|
|
|
|
25
|
|
|
|
2,823
|
|
Amounts reclassified from Accumulated other comprehensive loss
|
|
|
(665
|
)
|
|
|
|
|
|
|
|
|
|
|
(665
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, February 28, 2018
|
|
$
|
1,345
|
|
|
$
|
(4,397
|
)
|
|
$
|
(1,069
|
)
|
|
$
|
(4,121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts reclassified out of Accumulated other comprehensive loss into the Consolidated Statements of Income, with
presentation location, were as follows:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Three Months Ended
February 28,
|
|
|
Financial Statement
Location
|
|
2018
|
|
|
2017
|
|
|
(Gain) loss on derivative financial instruments:
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
(546
|
)
|
|
$
|
3,299
|
|
|
Revenue and cost of revenue
|
Interest rate swap contracts
|
|
|
106
|
|
|
|
288
|
|
|
Interest and foreign exchange
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(440
|
)
|
|
|
3,587
|
|
|
Total before tax
|
|
|
|
103
|
|
|
|
(759
|
)
|
|
Income tax benefit (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(337
|
)
|
|
$
|
2,828
|
|
|
Net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Six Months Ended
February 28,
|
|
|
Financial Statement
Location
|
|
2018
|
|
|
2017
|
|
|
(Gain) loss on derivative financial instruments:
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
(1,057
|
)
|
|
$
|
3,442
|
|
|
Revenue and cost of revenue
|
Interest rate swap contracts
|
|
|
273
|
|
|
|
626
|
|
|
Interest and foreign exchange
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(784
|
)
|
|
|
4,068
|
|
|
Total before tax
|
|
|
|
119
|
|
|
|
(917
|
)
|
|
Income tax benefit (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(665
|
)
|
|
$
|
3,151
|
|
|
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
February 28,
|
|
|
Six Months Ended
February 28,
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Weighted average basic common shares outstanding
(1)
|
|
|
29,355
|
|
|
|
29,130
|
|
|
|
29,343
|
|
|
|
29,113
|
|
Dilutive effect of 2018 Convertible notes
(2)
|
|
|
3,349
|
|
|
|
3,287
|
|
|
|
3,340
|
|
|
|
3,276
|
|
Dilutive effect of 2024 Convertible notes
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of performance based restricted stock units
(4)
|
|
|
7
|
|
|
|
10
|
|
|
|
20
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted common shares outstanding
|
|
|
32,711
|
|
|
|
32,427
|
|
|
|
32,703
|
|
|
|
32,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 and six months ended February 28, 2018 and 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
February 28,
|
|
|
Six Months Ended
February 28,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Net earnings attributable to Greenbrier
|
|
$
|
61,642
|
|
|
$
|
34,536
|
|
|
$
|
87,895
|
|
|
$
|
59,498
|
|
Add back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and debt issuance costs on the 2018 Convertible notes, net of tax
|
|
|
843
|
|
|
|
733
|
|
|
|
1,686
|
|
|
|
1,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before interest and debt issuance costs on convertible notes
|
|
$
|
62,485
|
|
|
$
|
35,269
|
|
|
$
|
89,581
|
|
|
$
|
60,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted common shares outstanding
|
|
|
32,711
|
|
|
|
32,427
|
|
|
|
32,703
|
|
|
|
32,423
|
|
Diluted earnings per share
(1)
|
|
$
|
1.91
|
|
|
$
|
1.09
|
|
|
$
|
2.74
|
|
|
$
|
1.88
|
|
(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 grant date 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 $6.6 million and $12.6 million for the three and six months ended February 28, 2018, respectively and $5.5 million
and $10.9 million for the three and six months ended February 28, 2017, respectively. 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 February 28, 2018 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 $205.7 million. The fair value of the
contracts is included on the Consolidated Balance Sheets as Accounts payable and accrued liabilities when there is a loss, or as Accounts receivable, net when there is a gain. As the contracts mature at various dates through December 2019, 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 February 28, 2018 exchange rates, approximately $0.7 million
would be reclassified to revenue or cost of revenue in the next 12 months.
At February 28, 2018, an interest rate swap agreement maturing in March
2020 had a notional amount of $86.9 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 February 28, 2018 interest rates, approximately $0.4 million would be reclassified to interest expense in the
next 12 months.
Fair Values of Derivative Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
|
|
February 28,
2018
|
|
|
August 31,
2017
|
|
|
|
|
February 28,
2018
|
|
|
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
|
|
$
|
2,158
|
|
|
$
|
2,341
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
685
|
|
|
$
|
1,761
|
|
Interest rate swap contracts
|
|
Accounts receivable, net
|
|
|
598
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
1
|
|
|
|
1,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,756
|
|
|
$
|
2,341
|
|
|
|
|
$
|
686
|
|
|
$
|
2,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
Foreign forward exchange contracts
|
|
Accounts receivable, net
|
|
$
|
1,722
|
|
|
$
|
1,473
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
30
|
|
|
$
|
|
|
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 six
months ended
February 28,
|
|
|
|
|
|
2018
|
|
|
2017
|
|
Foreign forward exchange contract
|
|
Interest and foreign exchange
|
|
$
|
1,933
|
|
|
$
|
520
|
|
Interest rate swap contracts
|
|
Interest and foreign exchange
|
|
|
(1
|
)
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,932
|
|
|
$
|
543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in cash flow
hedging relationships
|
|
Gain (loss)
recognized in OCI on
derivatives
(effective portion)
six months ended
February 28,
|
|
|
Location of gain (loss)
reclassified from
accumulated OCI
into income
|
|
|
Gain (loss)
reclassified
from
accumulated OCI into
income
(effective portion)
six months ended
February 28,
|
|
|
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)
six months
ended
February 28,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
2018
|
|
|
2017
|
|
Foreign forward exchange contracts
|
|
$
|
1,222
|
|
|
$
|
(3,592
|
)
|
|
|
Revenue
|
|
|
$
|
1,430
|
|
|
$
|
(3,096
|
)
|
|
|
Revenue
|
|
|
$
|
282
|
|
|
$
|
(3,355
|
)
|
Foreign forward exchange contracts
|
|
|
(223
|
)
|
|
|
(435
|
)
|
|
|
Cost of revenue
|
|
|
|
(373
|
)
|
|
|
(346
|
)
|
|
|
Cost of revenue
|
|
|
|
196
|
|
|
|
100
|
|
Interest rate swap contracts
|
|
|
1,473
|
|
|
|
1,464
|
|
|
|
Interest and foreign
exchange
|
|
|
|
(273
|
)
|
|
|
(626
|
)
|
|
|
Interest and foreign
exchange
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,472
|
|
|
$
|
(2,563
|
)
|
|
|
|
|
|
$
|
784
|
|
|
$
|
(4,068
|
)
|
|
|
|
|
|
$
|
478
|
|
|
$
|
(3,255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 12 Segment Information
Greenbrier operates in four reportable segments: Manufacturing; Wheels & Parts; Leasing & Services; and GBW Joint Venture.
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 February 28, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
Earnings (loss) from operations
|
|
(In thousands)
|
|
External
|
|
|
Intersegment
|
|
|
Total
|
|
|
External
|
|
|
Intersegment
|
|
|
Total
|
|
Manufacturing
|
|
$
|
511,827
|
|
|
$
|
13,948
|
|
|
$
|
525,775
|
|
|
$
|
63,185
|
|
|
$
|
3,415
|
|
|
$
|
66,600
|
|
Wheels & Parts
|
|
|
88,710
|
|
|
|
8,951
|
|
|
|
97,661
|
|
|
|
5,119
|
|
|
|
780
|
|
|
|
5,899
|
|
Leasing & Services
|
|
|
28,799
|
|
|
|
4,365
|
|
|
|
33,164
|
|
|
|
16,114
|
|
|
|
3,794
|
|
|
|
19,908
|
|
Eliminations
|
|
|
|
|
|
|
(27,264
|
)
|
|
|
(27,264
|
)
|
|
|
|
|
|
|
(7,989
|
)
|
|
|
(7,989
|
)
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,548
|
)
|
|
|
|
|
|
|
(23,548
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
629,336
|
|
|
$
|
|
|
|
$
|
629,336
|
|
|
$
|
60,870
|
|
|
$
|
|
|
|
$
|
60,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended February 28, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
Earnings (loss) from operations
|
|
(In thousands)
|
|
External
|
|
|
Intersegment
|
|
|
Total
|
|
|
External
|
|
|
Intersegment
|
|
|
Total
|
|
Manufacturing
|
|
$
|
963,312
|
|
|
$
|
30,752
|
|
|
$
|
994,064
|
|
|
$
|
116,154
|
|
|
$
|
7,601
|
|
|
$
|
123,755
|
|
Wheels & Parts
|
|
|
166,721
|
|
|
|
16,683
|
|
|
|
183,404
|
|
|
|
7,537
|
|
|
|
1,528
|
|
|
|
9,065
|
|
Leasing & Services
|
|
|
58,838
|
|
|
|
5,970
|
|
|
|
64,808
|
|
|
|
44,304
|
|
|
|
5,166
|
|
|
|
49,470
|
|
Eliminations
|
|
|
|
|
|
|
(53,405
|
)
|
|
|
(53,405
|
)
|
|
|
|
|
|
|
(14,295
|
)
|
|
|
(14,295
|
)
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,683
|
)
|
|
|
|
|
|
|
(45,683
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,188,871
|
|
|
$
|
|
|
|
$
|
1,188,871
|
|
|
$
|
122,312
|
|
|
$
|
|
|
|
$
|
122,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended February 28, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
Earnings (loss) from operations
|
|
(In thousands)
|
|
External
|
|
|
Intersegment
|
|
|
Total
|
|
|
External
|
|
|
Intersegment
|
|
|
Total
|
|
Manufacturing
|
|
$
|
445,504
|
|
|
$
|
|
|
|
$
|
445,504
|
|
|
$
|
85,369
|
|
|
$
|
|
|
|
$
|
85,369
|
|
Wheels & Parts
|
|
|
82,714
|
|
|
|
7,233
|
|
|
|
89,947
|
|
|
|
5,569
|
|
|
|
512
|
|
|
|
6,081
|
|
Leasing & Services
|
|
|
38,064
|
|
|
|
2,112
|
|
|
|
40,176
|
|
|
|
9,889
|
|
|
|
1,924
|
|
|
|
11,813
|
|
Eliminations
|
|
|
|
|
|
|
(9,345
|
)
|
|
|
(9,345
|
)
|
|
|
|
|
|
|
(2,436
|
)
|
|
|
(2,436
|
)
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,307
|
)
|
|
|
|
|
|
|
(19,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
566,282
|
|
|
$
|
|
|
|
$
|
566,282
|
|
|
$
|
81,520
|
|
|
$
|
|
|
|
$
|
81,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended February 28, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
Earnings (loss) from operations
|
|
(In thousands)
|
|
External
|
|
|
Intersegment
|
|
|
Total
|
|
|
External
|
|
|
Intersegment
|
|
|
Total
|
|
Manufacturing
|
|
$
|
899,537
|
|
|
$
|
|
|
|
$
|
899,537
|
|
|
$
|
168,710
|
|
|
$
|
|
|
|
$
|
168,710
|
|
Wheels & Parts
|
|
|
152,349
|
|
|
|
14,434
|
|
|
|
166,783
|
|
|
|
8,463
|
|
|
|
1,124
|
|
|
|
9,587
|
|
Leasing & Services
|
|
|
66,710
|
|
|
|
7,446
|
|
|
|
74,156
|
|
|
|
17,279
|
|
|
|
7,174
|
|
|
|
24,453
|
|
Eliminations
|
|
|
|
|
|
|
(21,880
|
)
|
|
|
(21,880
|
)
|
|
|
|
|
|
|
(8,298
|
)
|
|
|
(8,298
|
)
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,272
|
)
|
|
|
|
|
|
|
(40,272
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,118,596
|
|
|
$
|
|
|
|
$
|
1,118,596
|
|
|
$
|
154,180
|
|
|
$
|
|
|
|
$
|
154,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
February 28,
|
|
|
August 31,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
Manufacturing
|
|
$
|
911,505
|
|
|
$
|
914,450
|
|
Wheels & Parts
|
|
|
260,077
|
|
|
|
236,315
|
|
Leasing & Services
|
|
|
565,626
|
|
|
|
535,323
|
|
Unallocated
|
|
|
694,847
|
|
|
|
711,617
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,432,055
|
|
|
$
|
2,397,705
|
|
|
|
|
|
|
|
|
|
|
20
THE GREENBRIER COMPANIES, INC.
Reconciliation of Earnings from operations to Earnings before income tax and earnings (loss) from
unconsolidated affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
February 28,
|
|
|
Six Months Ended
February 28,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Earnings from operations
|
|
$
|
60,870
|
|
|
$
|
81,520
|
|
|
$
|
122,312
|
|
|
$
|
154,180
|
|
Interest and foreign exchange
|
|
|
7,029
|
|
|
|
5,673
|
|
|
|
14,049
|
|
|
|
7,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income tax and earnings (loss) from unconsolidated affiliates
|
|
$
|
53,841
|
|
|
$
|
75,847
|
|
|
$
|
108,263
|
|
|
$
|
146,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has a 50% ownership interest in the GBW Joint Venture and accounts for its interest under the equity method of
accounting. The Companys 50% share of the results of operations are included in Earnings (loss) from unconsolidated affiliates in the Consolidated Statement of Income and its investment is included in Investments in unconsolidated affiliates
in the Consolidated Balance Sheet. The GBW Joint Venture is Greenbriers fourth reportable segment. Information included in the tables below represent totals for GBW Railcar Services LLC (GBW) rather than Greenbriers 50% share, as this is
how performance and resource allocation is evaluated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
February 28,
|
|
|
Six Months Ended
February 28,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Revenue
|
|
$
|
62,685
|
|
|
$
|
64,249
|
|
|
$
|
120,685
|
|
|
$
|
134,502
|
|
Loss from operations
|
|
$
|
(5,460
|
)
|
|
$
|
(6,901
|
)
|
|
$
|
(11,204
|
)
|
|
$
|
(11,463
|
)
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
February 28,
2018
|
|
|
August 31,
2017
|
|
|
|
|
|
|
|
GBW
(1)
|
|
$
|
208,522
|
|
|
$
|
206,009
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes goodwill and intangible assets of $77.5 million and $78.8 million as of February 28, 2018 and August 31, 2017.
|
Note 13 Income Taxes
The enactment of the Tax
Cuts and Jobs Act (Tax Act) on December 22, 2017 significantly changed U.S. federal income tax law. The changes with the largest effects on the Company were the reduction of the statutory federal corporate tax rate from 35% to 21% effective
January 1, 2018 and the imposition of a transition tax on foreign earnings not previously subject to U.S. taxation. As a result of the Companys fiscal year, the Companys statutory federal corporate rate is a blended rate of 25.7% in
2018, which will be reduced to 21% in 2019 and thereafter.
Deferred income taxes were remeasured as a result of the new statutory rate, resulting in a
tax benefit of $34.3 million for the three and six months ended February 28, 2018.
The Tax Act requires the Company to accrue a transition tax in
its 2018 taxable income on foreign earnings not previously subject to U.S. taxation. The transition tax resulted in a tax expense of $11.5 million for the three and six months ended February 28, 2018. The Company intends to pay this transition
tax over eight years as permitted by the Tax Act. Notwithstanding this deemed inclusion in taxable income, any actual repatriation of these foreign earnings would be accompanied by foreign withholding taxes. The Company does not intend to repatriate
these foreign earnings and continues to assert that its foreign earnings are indefinitely reinvested.
The Tax Act also imposed a tax on global intangible
low-taxed income (GILTI tax) for taxable years beginning after December 31, 2017, which is applicable to the Company beginning in 2019.
21
THE GREENBRIER COMPANIES, INC.
Staff Accounting Bulletin 118, issued by the SEC on the date of the Tax Act, allows registrants to record
provisional amounts related to the Tax Act during a measurement period that will end at the earlier of one year from the date of the enactment of the Tax Act or whenever the registrant has obtained and analyzed the information necessary to finalize
its accounting. The amounts that were recorded in the three and six months ended February 28, 2018 for the remeasurement of deferred income taxes and for the transition tax are provisional amounts. Both were recorded as discrete items of tax
expense or benefit. These amounts may be revised in subsequent quarters as further information is obtained and analyzed.
The table below reconciles the
effects of the Tax Act discussed above on the effective tax rate for the six months ended February 28, 2018:
|
|
|
|
|
Effective tax rate before the Tax Act
|
|
|
33.0
|
%
|
Benefit from reduction in statutory federal corporate tax rate from 35% to 25.7%
|
|
|
(5.6
|
)
|
|
|
|
|
|
Effective tax rate before discrete items
|
|
|
27.4
|
|
Discrete benefit from revaluation of deferred income taxes
|
|
|
(31.7
|
)
|
Discrete expense from transition tax
|
|
|
10.6
|
|
|
|
|
|
|
Effective tax rate
|
|
|
6.3
|
%
|
|
|
|
|
|
Note 14 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 costs by Sediment Decision Unit. The EPAs ROD concluded that more data was needed to better define clean-up
22
THE GREENBRIER COMPANIES, INC.
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.
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.
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 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.
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 settled the litigation for less than the judgment and expects final dismissal of the case in the ordinary course.
From time to time, Greenbrier is involved as a defendant in litigation in the ordinary course of business, the outcomes of which cannot be predicted with
certainty. While the ultimate outcome of such legal proceedings cannot be determined at this time, the Company believes that the resolution of pending litigation will not have a material adverse effect on the Companys Consolidated Financial
Statements.
As of February 28, 2018, the Company had outstanding letters of credit aggregating $75.0 million associated with performance guarantees,
facility leases and workers compensation insurance.
As of February 28, 2018, the Company had a $42.5 million note receivable balance from GBW which
is included on the Consolidated Balance Sheet in Accounts receivable, net. The Company may make additional capital contributions or loans to GBW, an unconsolidated 50/50 joint venture, in the future.
23
THE GREENBRIER COMPANIES, INC.
As of February 28, 2018, the Company had a $10.0 million note receivable from Amsted-Maxion Cruzeiro,
its unconsolidated Brazilian castings and components manufacturer and a $9.1 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 15 Fair Value Measures
Certain assets and
liabilities are reported at fair value on either a recurring or nonrecurring basis. Fair value, for this disclosure, is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants, under a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:
|
|
|
Level 1 -
|
|
observable inputs such as unadjusted quoted prices in active markets for identical instruments;
|
|
|
Level 2 -
|
|
inputs, other than the quoted market prices in active markets for similar instruments, which are observable,
either directly or indirectly; and
|
|
|
Level 3 -
|
|
unobservable inputs for which there is little or no market data available, which require the reporting entity to develop its own
assumptions.
|
Assets and liabilities measured at fair value on a recurring basis as of February 28, 2018 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
(1)
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
4,478
|
|
|
$
|
|
|
|
$
|
4,478
|
|
|
$
|
|
|
Nonqualified savings plan investments
|
|
|
24,710
|
|
|
|
24,710
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
|
105,791
|
|
|
|
105,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
134,979
|
|
|
$
|
130,501
|
|
|
$
|
4,478
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
716
|
|
|
$
|
|
|
|
$
|
716
|
|
|
$
|
|
|
(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
|
|
|
$
|
|
|
24
THE GREENBRIER COMPANIES, INC.
Note 16 Related Party Transactions
In June 2017, the Company purchased a 40% interest in the common equity of an entity that buys and sells railcar assets that are leased to third parties. The
railcars sold to this leasing warehouse are principally built by Greenbrier. The Company accounts for this leasing warehouse investment under the equity method of accounting. As of February 28, 2018, the carrying amount of the investment was
$5.3 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 six months ended February 28, 2018, the Company recognized $16 million in revenue associated with railcars sold into the leasing warehouse and an additional $41 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 six months ended February 28, 2018.
Note 17 Subsequent Event
The Companys 3.5%
convertible senior notes due 2018 had a balance of $119.1 million at February 28, 2018. These notes matured on March 30, 2018 with a conversion price of $35.47. The conversion of these notes resulted in the issuance of an additional
3.4 million shares of the Companys common stock. These additional shares have historically been included in the calculation of diluted earnings per share.
25
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
8,400 railcars (5,900 railcars held as equipment on operating leases, 2,400 held as leased railcars for syndication and 100 held as finished goods inventory) and provides management services for approximately 359,000 railcars for railroads,
shippers, carriers, institutional investors and other leasing and transportation companies in North America as of February 28, 2018. 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 and a leasing warehouse.
Our total
manufacturing backlog of railcar units as of February 28, 2018 was approximately 24,100 units with an estimated value of $2.29 billion, of which 20,700 units are for direct sales and 3,400 units are for lease to third parties. Approximately 3%
of backlog units and the estimated value as of February 28, 2018 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 February 28, 2018 was $9 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.
26
THE GREENBRIER COMPANIES, INC.
Three Months Ended February 28, 2018 Compared to Three Months Ended February 28, 2017
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
February 28,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
$
|
511,827
|
|
|
$
|
445,504
|
|
Wheels & Parts
|
|
|
88,710
|
|
|
|
82,714
|
|
Leasing & Services
|
|
|
28,799
|
|
|
|
38,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
629,336
|
|
|
|
566,282
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
|
429,165
|
|
|
|
346,653
|
|
Wheels & Parts
|
|
|
80,708
|
|
|
|
75,497
|
|
Leasing & Services
|
|
|
14,116
|
|
|
|
25,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
523,989
|
|
|
|
447,357
|
|
Margin:
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
|
82,662
|
|
|
|
98,851
|
|
Wheels & Parts
|
|
|
8,002
|
|
|
|
7,217
|
|
Leasing & Services
|
|
|
14,683
|
|
|
|
12,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,347
|
|
|
|
118,925
|
|
Selling and administrative
|
|
|
50,294
|
|
|
|
39,495
|
|
Net gain on disposition of equipment
|
|
|
(5,817
|
)
|
|
|
(2,090
|
)
|
|
|
|
|
|
|
|
|
|
Earnings from operations
|
|
|
60,870
|
|
|
|
81,520
|
|
Interest and foreign exchange
|
|
|
7,029
|
|
|
|
5,673
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and earnings (loss) from unconsolidated affiliates
|
|
|
53,841
|
|
|
|
75,847
|
|
Income tax benefit (expense)
|
|
|
11,301
|
|
|
|
(24,858
|
)
|
|
|
|
|
|
|
|
|
|
Earnings before earnings (loss) from unconsolidated affiliates
|
|
|
65,142
|
|
|
|
50,989
|
|
Earnings (loss) from unconsolidated affiliates
|
|
|
147
|
|
|
|
(1,988
|
)
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
65,289
|
|
|
|
49,001
|
|
Net earnings attributable to noncontrolling interest
|
|
|
(3,647
|
)
|
|
|
(14,465
|
)
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Greenbrier
|
|
$
|
61,642
|
|
|
$
|
34,536
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
1.91
|
|
|
$
|
1.09
|
|
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
February 28,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
Operating profit (loss):
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
$
|
63,185
|
|
|
$
|
85,369
|
|
Wheels & Parts
|
|
|
5,119
|
|
|
|
5,569
|
|
Leasing & Services
|
|
|
16,114
|
|
|
|
9,889
|
|
Corporate
|
|
|
(23,548
|
)
|
|
|
(19,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
60,870
|
|
|
$
|
81,520
|
|
|
|
|
|
|
|
|
|
|
27
THE GREENBRIER COMPANIES, INC.
Consolidated Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Three Months Ended
February 28,
|
|
|
Increase
(Decrease)
|
|
|
%
Change
|
|
|
2018
|
|
|
2017
|
|
|
|
Revenue
|
|
$
|
629,336
|
|
|
$
|
566,282
|
|
|
$
|
63,054
|
|
|
|
11.1%
|
|
Cost of revenue
|
|
$
|
523,989
|
|
|
$
|
447,357
|
|
|
$
|
76,632
|
|
|
|
17.1%
|
|
Margin (%)
|
|
|
16.7
|
%
|
|
|
21.0
|
%
|
|
|
(4.3
|
%)
|
|
|
*
|
|
Net earnings attributable to Greenbrier
|
|
$
|
61,642
|
|
|
$
|
34,536
|
|
|
$
|
27,106
|
|
|
|
78.5%
|
|
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 11.1% increase in revenue for the three months ended February 28, 2018 as compared to the three months ended February 28, 2017 was primarily due
to a 14.9% increase in Manufacturing revenue. The increase in Manufacturing revenue was primarily due to a 10.3% increase in deliveries and a change in product mix. The increase was also attributed to a 7.2% increase in Wheels & Parts
revenue as a result of higher wheel set and component volumes due to an increase in demand and an increase in scrap metal pricing. The overall increase in revenue was partially offset by a 24.3% decrease in Leasing & Services revenue
primarily attributed to a decrease in the sale of railcars which we had purchased from third parties with the intent to resell them and a decline in leasing revenue due to fewer railcars on operating leases as we rebalance our lease portfolio.
The 17.1% increase in cost of revenue for the three months ended February 28, 2018 as compared to the three months ended February 28, 2017 was due
to a 23.8% increase in Manufacturing cost of revenue. The increase in Manufacturing cost of revenue was primarily due to a 10.3% increase in the volume of railcar deliveries and a change in product mix. The increase was also attributed to a 6.9%
increase in Wheels & Parts cost of revenue, primarily due to higher wheel set and component costs associated with increased volumes. The overall increase in cost of revenue was partially offset by a 44.0% decrease in Leasing &
Services cost of revenue primarily due to a decrease in costs associated with a decline in the volume of railcars sold that we purchased from third parties and fewer railcars on operating leases as we rebalance our lease portfolio.
Margin as a percentage of revenue was 16.7% and 21.0% for the three months ended February 28, 2018 and 2017, respectively. The overall margin as a
percentage of revenue was negatively impacted by a decrease in Manufacturing margin to 16.2% from 22.2% primarily attributed to a change in product mix. This was partially offset by an increase in Leasing & Services margin to 51.0% from
33.8% as a result of higher management services margin from lower maintenance costs and a higher average volume of rent-producing leased railcars for syndication.
The $27.1 million increase in net earnings for the three months ended February 28, 2018 as compared to the three months ended February 28, 2017 was
primarily attributable to a reduction in the tax rate due to the Tax Act. See Note 13 Income Taxes for further discussion of the impact of the Tax Act.
28
THE GREENBRIER COMPANIES, INC.
Manufacturing Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Three Months Ended
February 28,
|
|
|
Increase
(Decrease)
|
|
|
%
Change
|
|
|
2018
|
|
|
2017
|
|
|
|
Revenue
|
|
$
|
511,827
|
|
|
$
|
445,504
|
|
|
$
|
66,323
|
|
|
|
14.9
|
%
|
Cost of revenue
|
|
$
|
429,165
|
|
|
$
|
346,653
|
|
|
$
|
82,512
|
|
|
|
23.8
|
%
|
Margin (%)
|
|
|
16.2
|
%
|
|
|
22.2
|
%
|
|
|
(6.0
|
%)
|
|
|
*
|
|
Operating profit ($)
|
|
$
|
63,185
|
|
|
$
|
85,369
|
|
|
$
|
(22,184
|
)
|
|
|
(26.0
|
%)
|
Operating profit (%)
|
|
|
12.3
|
%
|
|
|
19.2
|
%
|
|
|
(6.9
|
%)
|
|
|
*
|
|
Deliveries
|
|
|
4,300
|
|
|
|
3,900
|
|
|
|
400
|
|
|
|
10.3
|
%
|
As of June 1, 2017, the Manufacturing segment included the results of Greenbrier-Astra
Rail which is consolidated for financial reporting purposes.
Manufacturing revenue increased $66.3 million or 14.9% for the three months ended
February 28, 2018 compared to the three months ended February 28, 2017. The increase in revenue was primarily attributed to a 10.3% increase in deliveries and a change in product mix.
Manufacturing cost of revenue increased $82.5 million or 23.8% for the three months ended February 28, 2018 compared to the three months ended
February 28, 2017. The increase in cost of revenue was primarily attributed to a 10.3% increase in the volume of railcar deliveries and a change in product mix.
Manufacturing margin as a percentage of revenue decreased 6.0% for the three months ended February 28, 2018 compared to the three months ended
February 28, 2017. The decrease was primarily attributed to a change in product mix.
Manufacturing operating profit decreased $22.2 million or 26.0%
for the three months ended February 28, 2018 compared to the three months ended February 28, 2017. The decrease was primarily attributed to lower margins and increased costs associated with expanded international operations. This was
partially offset by an increase in the volume of railcar deliveries.
29
THE GREENBRIER COMPANIES, INC.
Wheels & Parts Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Three Months Ended
February 28,
|
|
|
Increase
(Decrease)
|
|
|
%
Change
|
|
|
2018
|
|
|
2017
|
|
|
|
Revenue
|
|
$
|
88,710
|
|
|
$
|
82,714
|
|
|
$
|
5,996
|
|
|
|
7.2
|
%
|
Cost of revenue
|
|
$
|
80,708
|
|
|
$
|
75,497
|
|
|
$
|
5,211
|
|
|
|
6.9
|
%
|
Margin (%)
|
|
|
9.0
|
%
|
|
|
8.7
|
%
|
|
|
0.3
|
%
|
|
|
*
|
|
Operating profit ($)
|
|
$
|
5,119
|
|
|
$
|
5,569
|
|
|
$
|
(450
|
)
|
|
|
(8.1
|
%)
|
Operating profit (%)
|
|
|
5.8
|
%
|
|
|
6.7
|
%
|
|
|
(0.9
|
%)
|
|
|
*
|
|
Wheels & Parts revenue increased $6.0 million or 7.2% for the three months ended
February 28, 2018 compared to the three months ended February 28, 2017. 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 $5.2 million or 6.9% for the three months ended
February 28, 2018 compared to the three months ended February 28, 2017. 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 0.3% for the three months ended February 28, 2018 compared to the three
months ended February 28, 2017. 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 8.1% for the three months ended February 28, 2018 compared to the three months ended
February 28, 2017. The decrease was primarily attributed to higher employee related costs partially offset by an increase in margin.
30
THE GREENBRIER COMPANIES, INC.
Leasing & Services Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Three Months Ended
February 28,
|
|
|
Increase
(Decrease)
|
|
|
%
Change
|
|
|
2018
|
|
|
2017
|
|
|
|
Revenue
|
|
$
|
28,799
|
|
|
$
|
38,064
|
|
|
$
|
(9,265
|
)
|
|
|
(24.3
|
%)
|
Cost of revenue
|
|
$
|
14,116
|
|
|
$
|
25,207
|
|
|
$
|
(11,091
|
)
|
|
|
(44.0
|
%)
|
Margin (%)
|
|
|
51.0
|
%
|
|
|
33.8
|
%
|
|
|
17.2
|
%
|
|
|
*
|
|
Operating profit ($)
|
|
$
|
16,114
|
|
|
$
|
9,889
|
|
|
$
|
6,225
|
|
|
|
62.9
|
%
|
Operating profit (%)
|
|
|
56.0
|
%
|
|
|
26.0
|
%
|
|
|
30.0
|
%
|
|
|
*
|
|
The Leasing & Services segment primarily generates revenue from leasing railcars from
its lease fleet and providing various management services. We also earn revenue from rent-producing leased railcars for syndication, which are held short term and classified as Leased railcars for syndication on our Consolidated Balance Sheet. 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 decreased $9.3 million or 24.3% for the three months ended February 28, 2018 compared to the three months ended
February 28, 2017. The decrease was primarily attributed to a decrease in the sale of railcars which we had purchased from third parties with the intent to resell them and a decline in leasing revenue due to fewer railcars on operating leases
as we rebalance our lease portfolio. This was partially offset by higher management services revenue from new service agreements and a higher average volume of rent-producing leased railcars for syndication.
Leasing & Services cost of revenue decreased $11.1 million or 44.0% for the three months ended February 28, 2018 compared to the three months
ended February 28, 2017. The decrease was primarily due to a decrease in costs associated with a decline in the volume of railcars sold that we purchased from third parties and fewer railcars on operating leases as we rebalance our lease
portfolio.
Leasing & Services margin as a percentage of revenue increased 17.2% for the three months ended February 28, 2018 compared to
the three months ended February 28, 2017. The increase was primarily attributed to higher management services margin from lower maintenance costs and a higher average volume of rent-producing leased railcars for syndication. This was partially
offset by lower margins from railcars that we purchased from third parties with the intent to resell them.
Leasing & Services operating profit
increased $6.2 million or 62.9% for the three months ended February 28, 2018 compared to the three months ended February 28, 2017. The increase was primarily attributed to a $4.2 million increase in net gain on disposition of equipment and
a $1.8 million increase in margin. The increase in net gain on disposition of equipment for the three months ended February 28, 2018 was related to higher volumes of equipment sales as we rebalance our lease portfolio.
The percentage of owned units on lease was 92.2% at February 28, 2018 compared to 93.8% at February 28, 2017.
31
THE GREENBRIER COMPANIES, INC.
GBW Joint Venture Segment
To reflect our 50% share of GBWs net results, we recorded losses of $1.9 million and $2.0 million for the three months ended February 28, 2018 and
2017, respectively in Earnings (loss) from unconsolidated affiliates. The losses related to GBW were due to low volumes of repair work.
Selling and
Administrative Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Three Months Ended
February 28,
|
|
|
Increase
(Decrease)
|
|
|
%
Change
|
|
|
2018
|
|
|
2017
|
|
|
|
Selling and administrative expense
|
|
$
|
50,294
|
|
|
$
|
39,495
|
|
|
$
|
10,799
|
|
|
|
27.3
|
%
|
Selling and administrative expense was $50.3 million or 8.0% of revenue for the three months ended February 28, 2018
compared to $39.5 million or 7.0% of revenue for the prior comparable period. The $10.8 million increase was primarily attributed to $4.3 million in employee costs, $2.8 million in legal, consulting and related costs primarily associated with
strategic business development, litigation and IT initiatives and $2.8 million from the addition of Astra Rails selling and administrative costs.
Net Gain on Disposition of Equipment
Net gain on
disposition of equipment was $5.8 million for the three months ended February 28, 2018 compared to $2.1 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 February 28, 2018 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
February 28,
|
|
|
Increase
(Decrease)
|
|
|
2018
|
|
|
2017
|
|
|
Interest and foreign exchange:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other expense
|
|
$
|
7,895
|
|
|
$
|
4,777
|
|
|
$
|
3,118
|
|
Foreign exchange (gain) loss
|
|
|
(866
|
)
|
|
|
896
|
|
|
|
(1,762
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,029
|
|
|
$
|
5,673
|
|
|
$
|
1,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $1.4 million increase in interest and foreign exchange expense from the prior comparable period was primarily attributed
to interest expense associated with the $275 million convertible senior notes due 2024 issued in February 2017 and additional interest expense due to the addition of Astra Rail. This was partially offset by a $0.9 million foreign exchange gain in
the current year compared to a $0.9 million foreign exchange loss in the prior comparable period. The $1.8 million change in foreign exchange (gain) loss was primarily attributed to the change in the Mexican Peso relative to the U.S. Dollar.
32
THE GREENBRIER COMPANIES, INC.
Income Tax
The effective tax rate for the three months ended February 28, 2018 was a 21.0% benefit compared to a 32.8% expense for the three months ended
February 28, 2017. The change in the tax rate was primarily due to the enactment of the Tax Act on December 22, 2017. Without the impact of the Tax Act, the tax rate for the three months ended February 28, 2018 would have been the
same as the prior year.
The Tax Act made significant changes to the U.S. federal income tax laws, including, but not limited to, a reduction of the
corporate tax rate from 35% to 21% and a transition tax on foreign earnings not previously subject to U.S. taxation. As a result of our fiscal year end, our statutory rate is 25.7% for 2018. See Note 13 Income Taxes for further discussion of the
impact of the Tax Act.
Earnings (Loss) From Unconsolidated Affiliates
Earnings (loss) from unconsolidated affiliates primarily included our share of after-tax results from our GBW joint venture, our Brazil operations which
includes a castings joint venture and a railcar manufacturing joint venture, our leasing warehouse investment, our North American castings joint venture and our tank head joint venture.
Earnings from unconsolidated affiliates was $0.1 million for the three months ended February 28, 2018 compared to a loss from unconsolidated affiliates
of $2.0 million for the three months ended February 28, 2017. The $2.1 million increase in earnings (loss) from unconsolidated affiliates was primarily attributed to an increase in earnings at our Brazilian railcar manufacturing joint venture,
our tank head joint venture and our new leasing warehouse investment.
Noncontrolling Interest
Net earnings attributable to noncontrolling interest was $3.6 million for the three months ended February 28, 2018 compared to $14.5 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 February 28, 2018
also included our European partners share of the results of Greenbrier-Astra Rail. The decrease of $10.9 million from the prior year is primarily a result of lower margins at our Mexican railcar manufacturing joint venture.
33
THE GREENBRIER COMPANIES, INC.
Six Months Ended February 28, 2018 Compared to Six Months Ended February 28, 2017
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.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
February 28,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
$
|
963,312
|
|
|
$
|
899,537
|
|
Wheels & Parts
|
|
|
166,721
|
|
|
|
152,349
|
|
Leasing & Services
|
|
|
58,838
|
|
|
|
66,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,188,871
|
|
|
|
1,118,596
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
|
810,015
|
|
|
|
703,208
|
|
Wheels & Parts
|
|
|
153,214
|
|
|
|
140,475
|
|
Leasing & Services
|
|
|
30,981
|
|
|
|
43,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
994,210
|
|
|
|
886,920
|
|
Margin:
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
|
153,297
|
|
|
|
196,329
|
|
Wheels & Parts
|
|
|
13,507
|
|
|
|
11,874
|
|
Leasing & Services
|
|
|
27,857
|
|
|
|
23,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
194,661
|
|
|
|
231,676
|
|
Selling and administrative
|
|
|
97,337
|
|
|
|
80,708
|
|
Net gain on disposition of equipment
|
|
|
(24,988
|
)
|
|
|
(3,212
|
)
|
|
|
|
|
|
|
|
|
|
Earnings from operations
|
|
|
122,312
|
|
|
|
154,180
|
|
Interest and foreign exchange
|
|
|
14,049
|
|
|
|
7,397
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and loss from unconsolidated affiliates
|
|
|
108,263
|
|
|
|
146,783
|
|
Income tax expense
|
|
|
(6,834
|
)
|
|
|
(45,244
|
)
|
|
|
|
|
|
|
|
|
|
Earnings before loss from unconsolidated affiliates
|
|
|
101,429
|
|
|
|
101,539
|
|
Loss from unconsolidated affiliates
|
|
|
(2,763
|
)
|
|
|
(4,572
|
)
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
98,666
|
|
|
|
96,967
|
|
Net earnings attributable to noncontrolling interest
|
|
|
(10,771
|
)
|
|
|
(37,469
|
)
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Greenbrier
|
|
$
|
87,895
|
|
|
$
|
59,498
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
2.74
|
|
|
$
|
1.88
|
|
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.
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Six Months Ended
February 28,
|
|
|
2018
|
|
|
2017
|
|
Operating profit (loss):
|
|
|
|
|
|
|
|
|
Manufacturing
|
|
$
|
116,154
|
|
|
$
|
168,710
|
|
Wheels & Parts
|
|
|
7,537
|
|
|
|
8,463
|
|
Leasing & Services
|
|
|
44,304
|
|
|
|
17,279
|
|
Corporate
|
|
|
(45,683
|
)
|
|
|
(40,272
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
122,312
|
|
|
$
|
154,180
|
|
|
|
|
|
|
|
|
|
|
34
THE GREENBRIER COMPANIES, INC.
Consolidated Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Six Months Ended
February 28,
|
|
|
Increase
(Decrease)
|
|
|
%
Change
|
|
|
2018
|
|
|
2017
|
|
|
|
Revenue
|
|
$
|
1,188,871
|
|
|
$
|
1,118,596
|
|
|
$
|
70,275
|
|
|
|
6.3%
|
|
Cost of revenue
|
|
$
|
994,210
|
|
|
$
|
886,920
|
|
|
$
|
107,290
|
|
|
|
12.1%
|
|
Margin (%)
|
|
|
16.4
|
%
|
|
|
20.7
|
%
|
|
|
(4.3
|
%)
|
|
|
*
|
|
Net earnings attributable to Greenbrier
|
|
$
|
87,895
|
|
|
$
|
59,498
|
|
|
$
|
28,397
|
|
|
|
47.7%
|
|
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 6.3% increase in revenue for the six months ended February 28, 2018 as compared to the six months ended February 28, 2017 was primarily due to a
7.1% increase in Manufacturing revenue. The increase in Manufacturing revenue was primarily due to a 5.1% increase in deliveries and a change in product mix. The increase was also attributed to a 9.4% increase in Wheels & Parts revenue as a
result of higher wheel set and component volumes due to an increase in demand and an increase in scrap metal pricing. The overall increase in revenue was partially offset by an 11.8% decrease in Leasing & Services revenue primarily
attributed to a decrease in the sale of railcars which we had purchased from third parties with the intent to resell them and a decline in leasing revenue due to fewer railcars on operating leases as we rebalance our lease portfolio.
The 12.1% increase in cost of revenue for the six months ended February 28, 2018 as compared to the six months ended February 28, 2017 was due to a
15.2% increase in Manufacturing cost of revenue. The increase in Manufacturing cost of revenue was primarily due to a 5.1% increase in the volume of railcar deliveries and a change in product mix. The increase was also attributed to a 9.1% increase
in Wheels & Parts cost of revenue, primarily due to higher wheel set and component costs associated with increased volumes. The overall increase in cost of revenue was partially offset by a 28.3% decrease in Leasing & Services cost
of revenue primarily due to a decrease in costs associated with a decline in the volume of railcars sold that we purchased from third parties, lower transportation costs and fewer railcars on operating leases as we rebalance our lease portfolio.
Margin as a percentage of revenue was 16.4% and 20.7% for the six months ended February 28, 2018 and 2017, respectively. The overall margin as a
percentage of revenue was negatively impacted by a decrease in Manufacturing margin to 15.9% from 21.8% primarily attributed to a change in product mix. This was partially offset by an increase in Leasing & Services margin to 47.3% from
35.2% as a result of higher management services margin from lower maintenance costs and a higher average volume of rent-producing leased railcars for syndication.
The $28.4 million increase in net earnings for the six months ended February 28, 2018 as compared to the six months ended February 28, 2017 was
primarily attributable to a reduction in the tax rate due to the Tax Act. See Note 13 Income Taxes for further discussion of the impact of the Tax Act.
35
THE GREENBRIER COMPANIES, INC.
Manufacturing Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Six Months Ended
February 28,
|
|
|
Increase
(Decrease)
|
|
|
%
Change
|
|
|
2018
|
|
|
2017
|
|
|
|
Revenue
|
|
$
|
963,312
|
|
|
$
|
899,537
|
|
|
$
|
63,775
|
|
|
|
7.1
|
%
|
Cost of revenue
|
|
$
|
810,015
|
|
|
$
|
703,208
|
|
|
$
|
106,807
|
|
|
|
15.2
|
%
|
Margin (%)
|
|
|
15.9
|
%
|
|
|
21.8
|
%
|
|
|
(5.9
|
%)
|
|
|
*
|
|
Operating profit ($)
|
|
$
|
116,154
|
|
|
$
|
168,710
|
|
|
$
|
(52,556
|
)
|
|
|
(31.2
|
%)
|
Operating profit (%)
|
|
|
12.1
|
%
|
|
|
18.8
|
%
|
|
|
(6.7
|
%)
|
|
|
*
|
|
Deliveries
|
|
|
8,300
|
|
|
|
7,900
|
|
|
|
400
|
|
|
|
5.1
|
%
|
As of June 1, 2017, the Manufacturing segment included the results of Greenbrier-Astra
Rail which is consolidated for financial reporting purposes.
Manufacturing revenue increased $63.8 million or 7.1% for the six months ended
February 28, 2018 compared to the six months ended February 28, 2017. The increase in revenue was primarily attributed to a 5.1% increase in deliveries and a change in product mix.
Manufacturing cost of revenue increased $106.8 million or 15.2% for the six months ended February 28, 2018 compared to the six months ended
February 28, 2017. The increase in cost of revenue was primarily attributed to a 5.1% increase in the volume of railcar deliveries and a change in product mix.
Manufacturing margin as a percentage of revenue decreased 5.9% for the six months ended February 28, 2018 compared to the six months ended
February 28, 2017. The decrease was primarily attributed to a change in product mix.
Manufacturing operating profit decreased $52.6 million or 31.2%
for the six months ended February 28, 2018 compared to the six months ended February 28, 2017. The decrease was primarily attributed to lower margins and increased costs associated with expanded international operations. This was partially
offset by an increase in the volume of railcar deliveries.
36
THE GREENBRIER COMPANIES, INC.
Wheels & Parts Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Six Months Ended
February 28,
|
|
|
Increase
(Decrease)
|
|
|
%
Change
|
|
|
2018
|
|
|
2017
|
|
|
|
Revenue
|
|
$
|
166,721
|
|
|
$
|
152,349
|
|
|
$
|
14,372
|
|
|
|
9.4
|
%
|
Cost of revenue
|
|
$
|
153,214
|
|
|
$
|
140,475
|
|
|
$
|
12,739
|
|
|
|
9.1
|
%
|
Margin (%)
|
|
|
8.1
|
%
|
|
|
7.8
|
%
|
|
|
0.3
|
%
|
|
|
*
|
|
Operating profit ($)
|
|
$
|
7,537
|
|
|
$
|
8,463
|
|
|
$
|
(926
|
)
|
|
|
(10.9
|
%)
|
Operating profit (%)
|
|
|
4.5
|
%
|
|
|
5.6
|
%
|
|
|
(1.1
|
%)
|
|
|
*
|
|
Wheels & Parts revenue increased $14.4 million or 9.4% for the six months ended
February 28, 2018 compared to the six months ended February 28, 2017. 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 $12.7 million or 9.1% for the six months ended
February 28, 2018 compared to the six months ended February 28, 2017. 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 0.3% for the six months ended February 28, 2018 compared to the six months ended
February 28, 2017. 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 $0.9 million or 10.9% for the six months ended February 28, 2018 compared to the six months ended
February 28, 2017. The decrease was primarily attributed to higher employee related costs partially offset by an increase in margin.
37
THE GREENBRIER COMPANIES, INC.
Leasing & Services Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Six Months Ended
February 28,
|
|
|
Increase
(Decrease)
|
|
|
%
Change
|
|
|
2018
|
|
|
2017
|
|
|
|
Revenue
|
|
$
|
58,838
|
|
|
$
|
66,710
|
|
|
$
|
(7,872
|
)
|
|
|
(11.8
|
%)
|
Cost of revenue
|
|
$
|
30,981
|
|
|
$
|
43,237
|
|
|
$
|
(12,256
|
)
|
|
|
(28.3
|
%)
|
Margin (%)
|
|
|
47.3
|
%
|
|
|
35.2
|
%
|
|
|
12.1
|
%
|
|
|
*
|
|
Operating profit ($)
|
|
$
|
44,304
|
|
|
$
|
17,279
|
|
|
$
|
27,025
|
|
|
|
156.4
|
%
|
Operating profit (%)
|
|
|
75.3
|
%
|
|
|
25.9
|
%
|
|
|
49.4
|
%
|
|
|
*
|
|
The Leasing & Services segment primarily generates revenue from leasing railcars from
its lease fleet and providing various management services. We also earn revenue from rent-producing leased railcars for syndication, which are held short term and classified as Leased railcars for syndication on our Consolidated Balance Sheet. 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 decreased $7.9 million or 11.8% for the six months ended February 28, 2018 compared to the six months ended
February 28, 2017. The decrease was primarily attributed to a decrease in the sale of railcars which we had purchased from third parties with the intent to resell them and a decline in leasing revenue due to fewer railcars on operating leases
as we rebalance our lease portfolio. This was partially offset by higher management services revenue from new service agreements and a higher average volume of rent-producing leased railcars for syndication.
Leasing & Services cost of revenue decreased $12.3 million or 28.3% for the six months ended February 28, 2018 compared to the six months ended
February 28, 2017. The decrease was primarily due to a decrease in costs associated with a decline in the volume of railcars sold that we purchased from third parties, lower transportation costs and fewer railcars on operating leases as we
rebalance our lease portfolio.
Leasing & Services margin as a percentage of revenue increased 12.1% for the six months ended February 28,
2018 compared to the six months ended February 28, 2017. The increase was primarily attributed to higher management services margin from lower maintenance costs and a higher average volume of rent-producing leased railcars for syndication.
Leasing & Services operating profit increased $27.0 million or 156.4% for the six months ended February 28, 2018 compared to the six months
ended February 28, 2017. The increase was primarily attributed to a $23.0 million increase in net gain on disposition of equipment and a $4.4 million increase in margin. The net gain on disposition of equipment for the six months ended
February 28, 2018 relates to higher volumes of equipment sales as we rebalance our lease portfolio.
38
THE GREENBRIER COMPANIES, INC.
GBW Joint Venture Segment
To reflect our 50% share of GBWs net results, we recorded losses of $3.5 million and $3.4 million for the six months ended February 28, 2018 and
2017, respectively in Earnings (loss) from unconsolidated affiliates. The losses related to GBW were due to low volumes of repair work.
Selling and
Administrative Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Six Months Ended
February 28,
|
|
|
Increase
(Decrease)
|
|
|
%
Change
|
|
|
2018
|
|
|
2017
|
|
|
|
Selling and administrative expense
|
|
$
|
97,337
|
|
|
$
|
80,708
|
|
|
$
|
16,629
|
|
|
|
20.6
|
%
|
Selling and administrative expense was $97.3 million or 8.2% of revenue for the six months ended February 28, 2018
compared to $80.7 million or 7.2% of revenue for the prior comparable period. The $16.6 million increase was primarily attributed to a $5.7 million increase in consulting and related costs associated with strategic business development, litigation
and IT initiatives, $5.3 million from the addition of Astra Rails selling and administrative costs and a $4.1 million increase in employee costs.
Net Gain on Disposition of Equipment
Net gain on
disposition of equipment was $25.0 million for the six months ended February 28, 2018 compared to $3.2 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 six months ended February 28, 2018 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)
|
|
Six Months Ended
February 28,
|
|
|
Increase
(Decrease)
|
|
|
2018
|
|
|
2017
|
|
|
Interest and foreign exchange:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other expense
|
|
$
|
15,859
|
|
|
$
|
8,639
|
|
|
$
|
7,220
|
|
Foreign exchange gain
|
|
|
(1,810
|
)
|
|
|
(1,242
|
)
|
|
|
(568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,049
|
|
|
$
|
7,397
|
|
|
$
|
6,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $6.7 million increase in interest and foreign exchange expense from the prior comparable period was primarily attributed
to interest expense associated with the $275 million convertible senior notes due 2024 issued in February 2017 and additional interest expense due to the addition of Astra Rail. This was partially offset by a $0.6 million higher foreign exchange
gain in the current year which was primarily attributed to the change in the Mexican Peso relative to the U.S. Dollar.
39
THE GREENBRIER COMPANIES, INC.
Income Tax
The effective tax rate for the six months ended February 28, 2018 was 6.3% compared to 30.8% for the six months ended February 28, 2017. The change
in the tax rate was primarily due to the enactment of the Tax Act on December 22, 2017. Without the impact of the Tax Act, the tax rate for the six months ended February 28, 2018 would have been 33.0%, comparable to the 30.8% from the
prior year.
The Tax Act made significant changes to the U.S. federal income tax laws, including, but not limited to, a reduction of the corporate tax
rate from 35% to 21% and a transition tax on foreign earnings not previously subject to U.S. taxation. As a result of our fiscal year end, our statutory rate is 25.7% for 2018. See Note 13 Income Taxes for further discussion of the impact of the Tax
Act.
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
North American castings joint venture and our tank head joint venture.
Loss from unconsolidated affiliates was $2.8 million for the six months ended
February 28, 2018 compared to $4.6 million for the six months ended February 28, 2017. The $1.8 million decrease in loss from unconsolidated affiliates was primarily attributed to improved results at our castings joint ventures and our new
leasing warehouse investment.
Noncontrolling Interest
Net earnings attributable to noncontrolling interest was $10.8 million for the six months ended February 28, 2018 compared to $37.5 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 six months ended February 28, 2018 also
included our European partners share of the results of Greenbrier-Astra Rail. The decrease of $26.7 million from the prior year is primarily a result of lower margins at our Mexican railcar manufacturing joint venture.
40
THE GREENBRIER COMPANIES, INC.
Liquidity and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
February 28,
|
|
(In thousands)
|
|
2018
|
|
|
2017
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(7,653
|
)
|
|
$
|
84,843
|
|
Net cash provided by investing activities
|
|
|
35,124
|
|
|
|
14,287
|
|
Net cash provided by (used in) financing activities
|
|
|
(52,464
|
)
|
|
|
224,773
|
|
Effect of exchange rate changes
|
|
|
(465
|
)
|
|
|
(830
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
(25,458
|
)
|
|
$
|
323,073
|
|
|
|
|
|
|
|
|
|
|
We have been financed through cash generated from operations and borrowings. At February 28, 2018, cash and cash
equivalents were $586.0 million, a decrease of $25.5 million from $611.5 million at August 31, 2017.
The change in cash provided by operating
activities for the six months ended February 28, 2018 compared to the six months ended February 28, 2017 was primarily due to a change in cash flows associated with leased railcars for syndication, a net change in working capital, a change
in deferred income taxes as a result of the Tax Act 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 six months ended February 28, 2018 compared to the six months ended February 28, 2017 was primarily
attributable to higher proceeds from the sale of assets partially offset by an increase in capital expenditures.
Capital expenditures totaled $53.5
million and $21.2 million for the six months ended February 28, 2018 and 2017, respectively. Manufacturing capital expenditures were approximately $21.0 million and $15.2 million for the six months ended February 28, 2018 and 2017,
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
$1.1 million and $1.9 million for the six months ended February 28, 2018 and 2017, 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 $31.4 million and $4.1 million for the six months ended February 28, 2018 and 2017, 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 $105.1 million and $19.9 million for the six months ended February 28, 2018 and 2017, respectively. Proceeds from the sale of assets for the six months ended February 28, 2017 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 provided by (used in) financing activities for the six months ended February 28, 2018 compared to the six months ended
February 28, 2017 was primarily attributed to a decrease in the proceeds of debt, net of repayments and a change in the net activities with joint venture partners.
A quarterly dividend of $0.25 per share was declared on April 3, 2018.
41
THE GREENBRIER COMPANIES, INC.
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 six months ended February 28, 2018. As of February 28, 2018, 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.
Our 3.5% convertible senior notes due 2018 had a balance of
$119.1 million at February 28, 2018. These notes matured on March 30, 2018 with a conversion price of $35.47. The conversion of these notes resulted in the issuance of an additional 3.4 million shares of our common stock. These
additional shares have historically been included in the calculation of diluted earnings per share.
Senior secured credit facilities, consisting of three
components, aggregated to $634.1 million as of February 28, 2018. We had an aggregate of $392.9 million available to draw down under committed credit facilities as of February 28, 2018. This amount consists of $316.8 million available on
the North American credit facility, $26.1 million on the European credit facilities and $50.0 million on the Mexican railcar manufacturing joint venture credit facilities.
As of February 28, 2018, a $550.0 million revolving line of credit, maturing October 2020, secured by substantially all 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 February 28, 2018, lines of credit totaling $34.1 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 1.1%, 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 December 2018 through June 2019.
As of February 28, 2018, 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 February 28, 2018, outstanding commitments under the
senior secured credit facilities consisted of $75.0 million in letters of credit under the North American credit facility and $8.0 million outstanding under the European credit facilities.
The revolving and operating lines of credit, along with notes payable, contain covenants with respect to us and our various subsidiaries, the most restrictive
of which, among other things, limit our ability to: incur additional indebtedness or guarantees; pay dividends or repurchase stock; enter into capital leases; create liens; sell assets; engage in transactions with affiliates, including joint
ventures and non U.S. subsidiaries, including but not limited to loans, advances, equity investments and guarantees; enter into mergers, consolidations or sales of substantially all our assets; and enter into new lines of business. The covenants
also require certain maximum ratios of debt to total capitalization and minimum levels of fixed charges (interest plus rent) coverage. As of February 28, 2018, 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.
42
THE GREENBRIER COMPANIES, INC.
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.
As of February 28, 2018, we had a $42.5 million note receivable balance from GBW which is included on the Consolidated Balance Sheet in Accounts
receivable, net. We may make additional capital contributions or loans to GBW, an unconsolidated 50/50 joint venture, in the future.
As of
February 28, 2018, we had a $10.0 million note receivable from Amsted-Maxion Cruzeiro, our unconsolidated Brazilian castings and components manufacturer and a $9.1 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.
43
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.
44
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 $69.0 million as of
February 28, 2018 of which $43.3 million related to our Wheels & Parts segment and $25.7 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 February 28, 2018, GBW had a goodwill balance of $41.5
million.
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THE GREENBRIER COMPANIES, INC.