Form 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

Form 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarterly period ended February 28, 2013

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from                     to                     

Commission File No. 1-13146

 

 

THE GREENBRIER COMPANIES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Oregon   93-0816972

(State of

Incorporation)

 

(I.R.S. Employer

Identification No.)

One Centerpointe Drive, Suite 200, Lake Oswego, OR   97035
(Address of principal executive offices)   (Zip Code)

(503) 684-7000

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes  ¨    No  x

The number of shares of the registrant’s common stock, without par value, outstanding on March 27, 2013 was 27,221,816 shares.

 

 

 


THE GREENBRIER COMPANIES, INC.

Forward-Looking Statements

From time to time, The Greenbrier Companies, Inc. and its subsidiaries (Greenbrier or the Company) or their representatives have made or may make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements as to expectations, beliefs and strategies regarding the future. Such forward-looking statements may be included in, but not limited to, press releases, oral statements made with the approval of an authorized executive officer or in various filings made by us with the Securities and Exchange Commission, including this filing on Form 10-Q. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These forward-looking statements rely on a number of assumptions concerning future events and include statements relating to:

 

   

availability of financing sources and borrowing base for working capital, other business development activities, capital spending and leased railcars for syndication (sale of railcars with lease attached);

 

   

ability to renew, maintain or obtain sufficient credit facilities and financial guarantees on acceptable terms;

 

   

ability to utilize beneficial tax strategies;

 

   

ability to grow our businesses;

 

   

ability to obtain lease and sales contracts which provide adequate protection against changes in interest rates and increased costs of materials and components;

 

   

ability to obtain adequate insurance coverage at acceptable rates;

 

   

ability to obtain adequate certification and licensing of products; and

 

   

short-term and long-term revenue and earnings effects of the above items.

The following factors, among others, could cause actual results or outcomes to differ materially from the forward-looking statements:

 

   

fluctuations in demand for newly manufactured railcars or marine barges;

 

   

fluctuations in demand for wheel services, refurbishment and parts;

 

   

delays in receipt of orders, risks that contracts may be canceled during their term or not renewed and that customers may not purchase the amount of products or services under the contracts as anticipated;

 

   

ability to maintain sufficient availability of credit facilities and to maintain compliance with or to obtain appropriate amendments to covenants under various credit agreements;

 

   

domestic and global economic conditions including such matters as embargoes or quotas;

 

   

U.S., Mexican and other global political or security conditions including such matters as terrorism, war, civil disruption and crime;

 

   

growth or reduction in the surface transportation industry;

 

   

ability to maintain good relationships with third party labor providers or collective bargaining units;

 

   

steel and specialty component price fluctuations and availability, scrap surcharges, steel scrap prices and other commodity price fluctuations and availability and their impact on product demand and margin;

 

   

delay or failure of acquired businesses, assets, start-up operations, or new products or services to compete successfully;

 

   

changes in product mix and the mix of revenue levels among reporting segments;

 

   

labor disputes, energy shortages or operating difficulties that might disrupt operations or the flow of cargo;

 

   

production difficulties and product delivery delays as a result of, among other matters, inefficiencies associated with the start-up of production lines or increased production rates, changing technologies or non-performance of alliance partners, subcontractors or suppliers;

 

   

ability to renew or replace expiring customer contracts on satisfactory terms;

 

   

ability to obtain and execute suitable contracts for leased railcars for syndication;

 

   

lower than anticipated lease renewal rates, earnings on utilization based leases or residual values for leased equipment;

 

   

discovery of defects in railcars resulting in increased warranty costs or litigation;

 

2


THE GREENBRIER COMPANIES, INC.

 

   

resolution or outcome of pending or future litigation and investigations;

 

   

natural disasters or severe weather patterns that may affect either us, our suppliers or our customers;

 

   

loss of business from, or a decline in the financial condition of, any of the principal customers that represent a significant portion of our total revenues;

 

   

competitive factors, including introduction of competitive products, new entrants into certain of our markets, price pressures, limited customer base, and competitiveness of our manufacturing facilities and products;

 

   

industry overcapacity and our manufacturing capacity utilization;

 

   

decreases or write-downs in carrying value of inventory, goodwill, intangibles or other assets due to impairment;

 

   

severance or other costs or charges associated with lay-offs, shutdowns, or reducing the size and scope of operations;

 

   

changes in future maintenance or warranty requirements;

 

   

ability to adjust to the cyclical nature of the industries in which we operate;

 

   

changes in interest rates and financial impacts from interest rates;

 

   

ability and cost to maintain and renew operating permits;

 

   

actions by various regulatory agencies, including potential environmental remediation obligations;

 

   

changes in fuel and/or energy prices;

 

   

risks associated with our intellectual property rights or those of third parties, including infringement, maintenance, protection, validity, enforcement and continued use of such rights;

 

   

expansion of warranty and product support terms beyond those which have traditionally prevailed in the rail supply industry;

 

   

availability of a trained work force and availability and/or price of essential raw materials, specialties or components, including steel castings, to permit manufacture of units on order;

 

   

failure to successfully integrate acquired businesses;

 

   

discovery of previously unknown liabilities associated with acquired businesses;

 

   

failure of or delay in implementing and using new software or other technologies;

 

   

ability to replace maturing lease and management services revenue and earnings with revenue and earnings from new commercial transactions, including new railcar leases, additions to the lease fleet and new management services contracts;

 

   

credit limitations upon our ability to maintain effective hedging programs; and

 

   

financial impacts from currency fluctuations and currency hedging activities in our worldwide operations.

Any forward-looking statements should be considered in light of these factors. Words such as “anticipates,” “believes,” “forecast,” “potential,” “goal,” “contemplates,” “expects,” “intends,” “plans,” “projects,” “hopes,” “seeks,” “estimates,” “could,” “would,” “will,” “may,” “can,” “designed to,” “foreseeable future” and similar expressions identify forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements. Many of the important factors that will determine these results and values are beyond our ability to control or predict. You are cautioned not to put undue reliance on any forward-looking statements. Except as otherwise required by law, we do not assume any obligation to update any forward-looking statements.

All references to years refer to the fiscal years ended August 31st unless otherwise noted.

 

3


THE GREENBRIER COMPANIES, INC.

PART I. FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

Consolidated Balance Sheets

(In thousands, unaudited)

 

     February 28,
2013
    August 31,
2012
 

Assets

    

Cash and cash equivalents

   $ 55,637      $ 53,571   

Restricted cash

     8,899        6,277   

Accounts receivable, net

     144,933        146,326   

Inventories

     359,281        316,741   

Leased railcars for syndication

     36,198        97,798   

Equipment on operating leases, net

     344,576        362,968   

Property, plant and equipment, net

     194,887        182,429   

Goodwill

     134,316        137,066   

Intangibles and other assets, net

     86,194        81,368   
  

 

 

   

 

 

 
   $ 1,364,921      $ 1,384,544   
  

 

 

   

 

 

 

Liabilities and Equity

    

Revolving notes

   $ 50,058      $ 60,755   

Accounts payable and accrued liabilities

     278,221        329,508   

Deferred income taxes

     99,965        95,363   

Deferred revenue

     23,178        17,194   

Notes payable

     427,553        428,079   

Commitments and contingencies (Note 14)

    

Equity:

    

Greenbrier

    

Preferred stock - without par value; 25,000 shares authorized; none outstanding

     —          —     

Common stock - without par value; 50,000 shares authorized; 27,222 and 27,143 shares outstanding at February 28, 2013 and August 31, 2012

     —          —     

Additional paid-in capital

     255,738        252,256   

Retained earnings

     210,156        185,890   

Accumulated other comprehensive loss

     (4,758     (6,369
  

 

 

   

 

 

 

Total equity - Greenbrier

     461,136        431,777   

Noncontrolling interest

     24,810        21,868   
  

 

 

   

 

 

 

Total equity

     485,946        453,645   
  

 

 

   

 

 

 
   $ 1,364,921      $ 1,384,544   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements

 

4


THE GREENBRIER COMPANIES, INC.

Consolidated Statements of Income

(In thousands, except per share amounts, unaudited)

 

     Three Months Ended     Six Months Ended  
     February 28,
2013
    February 29,
2012
    February 28,
2013
    February 29,
2012
 

Revenue

        

Manufacturing

   $ 294,047      $ 320,206      $ 579,416      $ 582,863   

Wheel Services, Refurbishment & Parts

     111,952        119,894        224,051        237,643   

Leasing & Services

     17,167        18,086        35,073        35,879   
  

 

 

   

 

 

   

 

 

   

 

 

 
     423,166        458,186        838,540        856,385   

Cost of revenue

        

Manufacturing

     262,650        290,851        521,142        527,040   

Wheel Services, Refurbishment & Parts

     103,134        106,554        204,610        212,445   

Leasing & Services

     9,107        9,295        16,735        18,958   
  

 

 

   

 

 

   

 

 

   

 

 

 
     374,891        406,700        742,487        758,443   

Margin

     48,275        51,486        96,053        97,942   

Selling and administrative expense

     24,942        24,979        51,042        48,214   

Net gain on disposition of equipment

     (3,076     (2,654     (4,484     (6,312
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings from operations

     26,409        29,161        49,495        56,040   

Other costs

        

Interest and foreign exchange

     6,322        6,630        12,222        12,014   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings before income taxes and earnings (loss) from unconsolidated affiliates

     20,087        22,531        37,273        44,026   

Income tax expense

     (5,590     (5,348     (10,176     (13,144
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings before earnings (loss) from unconsolidated affiliates

     14,497        17,183        27,097        30,882   

Earnings (loss) from unconsolidated affiliates

     (105     72        (145     (300
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings

     14,392        17,255        26,952        30,582   

Net (earnings) loss attributable to noncontrolling interest

     (553     415        (2,686     1,604   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings attributable to Greenbrier

   $ 13,839      $ 17,670      $ 24,266      $ 32,186   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per common share

   $ 0.51      $ 0.66      $ 0.89      $ 1.23   

Diluted earnings per common share

   $ 0.45      $ 0.57      $ 0.80      $ 1.04   

Weighted average common shares:

        

Basic

     27,210        26,683        27,177        26,073   

Diluted

     34,044        33,668        34,018        33,528   

The accompanying notes are an integral part of these financial statements

 

5


THE GREENBRIER COMPANIES, INC.

Consolidated Statements of Comprehensive Income

(In thousands, unaudited)

 

     Three Months Ended      Six Months Ended  
     February 28,
2013
    February 29,
2012
     February 28,
2013
    February 29,
2012
 

Net earnings

   $ 14,392      $ 17,255       $ 26,952      $ 30,582   

Other comprehensive income

         

Translation adjustment

     (95     3,310         2,040        (1,533

Reclassification of derivative financial instruments recognized in net earnings 1

     (279     2,213         (895     860   

Unrealized gain (loss) on derivative financial instruments 2

     (791     6,406         508        3,151   
  

 

 

   

 

 

    

 

 

   

 

 

 
     (1,165     11,929         1,653        2,478   
  

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive income

     13,227        29,184         28,605        33,060   

Comprehensive (income) loss attributable to noncontrolling interest

     (549     329         (2,728     1,665   
  

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive income attributable to Greenbrier

   $ 12,678      $ 29,513       $ 25,877      $ 34,725   
  

 

 

   

 

 

    

 

 

   

 

 

 

 

1 

Net of tax of effect of $0.03 million and $0.2 million for the three months ended February 28, 2013 and February 29, 2012 and $0.01 million and $0.3 million for the six months ended February 28, 2013 and February 29, 2012.

2 

Net of tax of effect of $0.2 million and $0.3 million for the three months ended February 28, 2013 and February 29, 2012 and $0.1 million and $0.4 million for the six months ended February 28, 2013 and February 29, 2012.

The accompanying notes are an integral part of these financial statements

 

6


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  

Balance September 1, 2012

    27,143      $ 252,256      $ 185,890      $ (6,369   $ 431,777      $ 21,868      $ 453,645   

Net earnings

    —          —          24,266        —          24,266        2,686        26,952   

Other comprehensive income, net

    —          —          —          1,611        1,611        42        1,653   

Noncontrolling interest adjustments

    —          —          —          —          —          (1,735     (1,735

Investment by joint venture partner

    —          —          —          —          —          1,949        1,949   

Restricted stock awards (net of cancellations)

    27        310        —          —          310        —          310   

Unamortized restricted stock

    —          (310     —          —          (310     —          (310

Restricted stock amortization

    —          3,301        —          —          3,301        —          3,301   

Excess tax benefit from restricted stock awards

    —          181        —          —          181        —          181   

Warrants exercised

    52        —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance February 28, 2013

    27,222      $ 255,738      $ 210,156      $ (4,758   $ 461,136      $ 24,810      $ 485,946   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    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  

Balance September 1, 2011

    25,186      $ 242,286      $ 127,182      $ (7,895   $ 361,573      $ 14,328      $ 375,901   

Net earnings (loss)

    —          —          32,186        —          32,186        (1,604     30,582   

Other comprehensive income, net

    —          —          —          2,539        2,539        (61     2,478   

Noncontrolling interest adjustments

    —          —          —          —          —          3,151        3,151   

Restricted stock awards (net of cancellations)

    23        600        —          —          600        —          600   

Unamortized restricted stock

    —          (600     —          —          (600     —          (600

Restricted stock amortization

    —          3,490        —          —          3,490        —          3,490   

Warrants exercised

    1,483        —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance February 29, 2012

    26,692      $ 245,776      $ 159,368      $ (5,356   $ 399,788      $ 15,814      $ 415,602   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements

 

7


THE GREENBRIER COMPANIES, INC.

Consolidated Statements of Cash Flows

(In thousands, unaudited)

 

     Six Months Ended  
     February 28,
2013
    February 29,
2012
 

Cash flows from operating activities

    

Net earnings

   $ 26,952      $ 30,582   

Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:

    

Deferred income taxes

     4,203        5,828   

Depreciation and amortization

     21,398        20,322   

Net gain on disposition of equipment

     (4,484     (6,312

Accretion of debt discount

     1,725        1,599   

Stock based compensation expense

     2,887        3,490   

Other

     (1,612     3,759   

Decrease (increase) in assets:

    

Accounts receivable

     3,079        8,898   

Inventories

     (27,208     (43,751

Leased railcars for syndication

     56,960        (52,925

Other

     245        (603

Increase (decrease) in liabilities:

    

Accounts payable and accrued liabilities

     (56,493     25,854   

Deferred revenue

     5,936        (4,657
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     33,588        (7,916
  

 

 

   

 

 

 

Cash flows from investing activities

    

Proceeds from sales of assets

     22,301        20,058   

Capital expenditures

     (35,525     (35,713

Increase in restricted cash

     (2,622     (136

Investment in and net advances to unconsolidated affiliates

     (386     70   

Other

     (3,582     22   
  

 

 

   

 

 

 

Net cash used in investing activities

     (19,814     (15,699
  

 

 

   

 

 

 

Cash flows from financing activities

    

Net change in revolving notes with maturities of 90 days or less

     (16,579     (18,716

Proceeds from revolving notes with maturities longer than 90 days

     19,968        46,646   

Repayments of revolving notes with maturities longer than 90 days

     (14,998     (15,818

Proceeds from issuance of notes payable

     —          2,500   

Repayments of notes payable

     (2,251     (4,784

Investment by joint venture partner

     1,949        —     

Excess tax benefit from restricted stock awards

     181        —     
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (11,730     9,828   
  

 

 

   

 

 

 

Effect of exchange rate changes

     22        4,231   

Increase (decrease) in cash and cash equivalents

     2,066        (9,556

Cash and cash equivalents

    

Beginning of period

     53,571        50,222   
  

 

 

   

 

 

 

End of period

   $ 55,637      $ 40,666   
  

 

 

   

 

 

 

Cash paid during the period for

    

Interest

   $ 7,867      $ 8,170   

Income taxes, net

   $ 8,288      $ (2,483

Non-cash activity

    

Transfer of Leased railcars for syndication to Equipment on operating leases

   $ 4,640      $ —     

Transfer of Equipment on operating leases to Inventories

   $ 17,762      $ —     

The accompanying notes are an integral part of these financial statements

 

8


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 Subsidiaries (Greenbrier or the Company) as of February 28, 2013, for the three and six months ended February 28, 2013 and for the three and six months ended February 29, 2012 have been prepared without audit and reflect all adjustments (consisting of normal recurring accruals) which, in the opinion of management, are necessary for a fair presentation of the financial position and operating results and cash flows for the periods indicated. The results of operations for the three and six months ended February 28, 2013 are not necessarily indicative of the results to be expected for the entire year ending August 31, 2013.

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 Company’s 2012 Annual Report on Form 10-K.

Management Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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.

Reclassification – In the current quarter, the Company reported manufacturing revenue and an operating cash inflow of approximately $40.0 million attributable to a sale of railcars to a single customer. Approximately $17.8 million of the railcars sold were originally produced for our lease fleet and recorded in Equipment on operating leases. This amount had been reported in the Consolidated Statement of Cash Flows as capital expenditures in the amount of $13.5 million for the year ended August 31, 2012 and $4.3 million for the quarter ended November 30, 2012. These railcars originally produced for the lease fleet were never placed on a long term lease, accordingly the railcars have been reflected as a non-cash transfer in the current period from equipment on operating lease to inventory within the accompanying cash flow statement.

Initial Adoption of Accounting Policies – In the first quarter of 2013, the Company adopted an accounting standard update that increased the prominence of items reported in other comprehensive income. The standard eliminated the option of presenting other comprehensive income as part of the statement of equity and instead requires the Company to present other comprehensive income as either a single statement of comprehensive income combined with net income or as two separate but continuous statements. The adoption of this accounting standard update did impact the presentation of other comprehensive income, as the Company has elected to present two separate but consecutive statements, but did not have an impact on the Company’s financial position, results of operations or cash flows.

In the first quarter of 2013, the Company adopted an accounting standard update regarding how entities test goodwill for impairment. This accounting standard update is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to perform a qualitative assessment to determine whether further impairment testing is necessary. This update impacts testing steps only and therefore the adoption did not have an effect on the Company’s Consolidated Financial Statements.

Prospective Accounting Changes – In July 2012, an accounting standard update was issued regarding the testing of indefinite-lived intangible assets for impairment. This update is intended to reduce the cost and complexity of testing indefinite-lived intangible assets for impairment by providing entities with an option to perform a qualitative assessment to determine whether further impairment testing is necessary. This update will be effective for the Company as of September 1, 2013. However, early adoption is permitted if an entity’s financial statements for the most recent annual or interim period have not yet been issued. This update impacts testing steps only, and therefore adoption will not have an effect on the Company’s Consolidated Financial Statements.

 

9


THE GREENBRIER COMPANIES, INC.

 

In February 2013, an accounting standard update was issued which amended prior reporting requirements with respect to comprehensive income by requiring additional disclosures about the amounts reclassified out of accumulated other comprehensive loss by component. This update will be effective for the Company as of March 1, 2013. As this accounting standard update impacts disclosure only, the adoption of this update is not expected to have an impact on the Company’s financial position, results of operations or cash flows.

Note 2 – Assets Held For Sale

On February 28, 2013, the Company announced that it had entered into an asset purchase agreement for the sale of substantially all the equipment utilized in Greenbrier’s reconditioned wheelset roller bearing operations in Elizabethtown, Kentucky. These operations are included as part of the Company’s Wheel Services, Refurbishment & Parts segment. Concurrent with the sale, Greenbrier will enter into a long-term supply agreement with the purchaser for reconditioned and new bearings. The Company expects to close this transaction before May 31, 2013.

The Company determined that the assets attributed to the roller bearing operations in Elizabethtown, Kentucky meet the criteria to be classified as assets held for sale as of February 28, 2013. A total of $7.4 million in assets are included as assets held for sale as of February 28, 2013 in Intangibles and other assets, net in the Consolidated Balance Sheet.

In accordance with ASC 360, the assets held for sale, including the portion of goodwill associated with the assets, were measured and adjusted to the lower of the carrying amount or fair value less costs to sell. As a result, the Company recorded a loss of $1.3 million in Net gain on disposition of equipment in the Consolidated Statements of Income for the three and six months ended February 28, 2013.

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 Company’s inventory balance:

 

(In thousands)    February 28,
2013
    August 31,
2012
 

Manufacturing supplies and raw materials

   $ 225,574      $ 228,092   

Work-in-process

     73,147        71,210   

Finished goods

     65,841        22,571   

Excess and obsolete adjustment

     (5,281     (5,132
  

 

 

   

 

 

 
   $ 359,281      $ 316,741   
  

 

 

   

 

 

 

 

10


THE GREENBRIER COMPANIES, INC.

 

Note 4 – Intangibles and Other Assets, net

Intangible assets that are determined to have finite lives are amortized over their useful lives. Intangible assets with indefinite useful lives are not amortized and are periodically evaluated for impairment.

The following table summarizes the Company’s identifiable intangible and other assets balance:

 

(In thousands)    February 28,
2013
    August 31,
2012
 

Intangible assets subject to amortization:

    

Customer relationships

   $ 66,288      $ 66,825   

Accumulated amortization

     (25,102     (22,995

Other intangibles

     4,997        4,906   

Accumulated amortization

     (4,033     (3,779
  

 

 

   

 

 

 
     42,150        44,957   

Intangible assets not subject to amortization

     912        912   

Prepaid and other assets

     10,559        10,337   

Debt issuance costs, net

     8,930        10,194   

Investment in unconsolidated affiliates

     8,410        8,301   

Nonqualified savings plan investments

     7,865        6,667   

Assets held for sale

     7,368        —     
  

 

 

   

 

 

 

Total intangible and other assets

   $ 86,194      $ 81,368   
  

 

 

   

 

 

 

Amortization expense for the three and six months ended February 28, 2013 was $1.1 million and $2.3 million and for the three and six months ended February 29, 2012 was $1.1 million and $2.3 million. Amortization expense for the years ending August 31, 2013, 2014, 2015, 2016 and 2017 is expected to be $4.2 million, $4.0 million, $4.0 million, $4.0 million and $3.8 million.

Note 5 – Goodwill

The Company performs a goodwill impairment test annually during the third quarter. Goodwill is also tested more frequently if changes in circumstances or the occurrence of events indicates that a potential impairment exists. The provisions of ASC 350, Intangibles – Goodwill and Other, require the Company to perform a two-step impairment test on goodwill. In the first step, the Company compares the fair value of each reporting unit with its carrying value. The Company determines the fair value of the reporting units based on a weighting of income and market approaches. Under the income approach, the Company calculates the fair value of a reporting unit based on the present value of estimated future cash flows. Under the market approach, the Company estimates the fair value based on observed market multiples for comparable businesses. The second step of the goodwill impairment test is required only in situations where the carrying value of the reporting unit exceeds its fair value as determined in the first step. In the second step the Company would compare the implied fair value of goodwill to its carrying value. The implied fair value of goodwill is determined by allocating the fair value of a reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss is recorded to the extent that the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill.

As disclosed in Note 2 – Assets held for sale, a loss of $1.3 million was recognized attributed to the anticipated sale of substantially all the equipment utilized in the Company’s roller bearing operations in Elizabethtown, Kentucky. The loss includes a reduction of $2.8 million of goodwill for the three and six months ended February 28, 2013 which represents the portion of goodwill associated with the assets classified as assets held for sale. This loss was included in Net gain on disposition of equipment in the Consolidated Statements of Income for the three and six months ended February 28, 2013. The goodwill balance was $134.3 million as of February 28, 2013 and $137.1 million as of August 31, 2012 and relates to the Wheel Services, Refurbishment & Parts segment.

 

11


THE GREENBRIER COMPANIES, INC.

 

Note 6 – Revolving Notes

Senior secured credit facilities, consisting of three components, aggregated to $361.0 million as of February 28, 2013.

As of February 28, 2013, a $290.0 million revolving line of credit secured by substantially all the Company’s assets in the U.S. not otherwise pledged as security for term loans and maturing June 2016, 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 2.5% and Prime plus 1.5% 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, 2013, lines of credit totaling $21.0 million secured by certain of the Company’s European assets, with various variable rates that range from Warsaw Interbank Offered Rate (WIBOR) plus 1.3% to WIBOR plus 1.5%, 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 June 2013 through March 2015.

As of February 28, 2013, the Company’s Mexican joint venture had two lines of credit totaling $50.0 million. The first line of credit provides up to $20.0 million and is secured by certain of the joint venture’s accounts receivable and inventory. Advances under this facility bear interest at LIBOR plus 2.5%. The Mexican joint venture will be able to draw against this facility through December 2013. The second line of credit provides up to $30.0 million and is fully guaranteed by each of the joint venture partners, including the Company. Advances under this facility bear interest at LIBOR plus 2.0%. The Mexican joint venture will be able to draw against this facility through February 2015.

As of February 28, 2013, outstanding borrowings under the senior secured credit facilities consisted of $5.6 million in letters of credit under the North American credit facility, $0.1 million outstanding under the European credit facilities and $50.0 million outstanding under the Mexican joint venture credit facilities.

Note 7 – Accounts Payable and Accrued Liabilities

 

(In thousands)    February 28,
2013
     August 31,
2012
 

Trade payables and other accrued liabilities

   $ 213,436       $ 258,316   

Accrued payroll and related liabilities

     35,905         37,915   

Accrued maintenance

     10,920         11,475   

Accrued warranty

     10,289         9,221   

Income taxes payable

     5,643         9,625   

Other

     2,028         2,956   
  

 

 

    

 

 

 
   $ 278,221       $ 329,508   
  

 

 

    

 

 

 

 

12


THE GREENBRIER COMPANIES, INC.

 

Note 8 – Warranty Accruals

Warranty costs are estimated and charged to operations to cover a defined warranty period. The estimated warranty cost is based on the history of warranty claims for each particular product type. For new product types without a warranty history, preliminary estimates are based on historical information for similar product types. The warranty accruals, included in Accounts payable and accrued liabilities on the Consolidated Balance Sheets, are reviewed periodically and updated based on warranty trends and expirations of warranty periods.

Warranty accrual activity:

 

     Three Months Ended     Six Months Ended  
(In thousands)    February 28,
2013
    February 29,
2012
    February 28,
2013
    February 29,
2012
 

Balance at beginning of period

   $ 10,102      $ 8,943      $ 9,221      $ 8,644   

Charged to cost of revenue, net

     1,028        488        2,612        1,395   

Payments

     (835     (260     (1,636     (668

Currency translation effect

     (6     126        92        (74
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 10,289      $ 9,297      $ 10,289      $ 9,297   
  

 

 

   

 

 

   

 

 

   

 

 

 

Note 9 – Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss, net of tax effect as appropriate, consisted of the following:

 

(In thousands)    Unrealized
Loss on
Derivative
Financial
Instruments
    Pension
Adjustment
    Foreign
Currency
Translation
Adjustment
    Accumulated
Other
Comprehensive
Income (Loss)
 

Balance, August 31, 2012

   $ (93   $ (325   $ (5,951   $ (6,369

Year to date activity

     (386     —          1,997        1,611   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, February 28, 2013

   $ (479   $ (325   $ (3,954   $ (4,758
  

 

 

   

 

 

   

 

 

   

 

 

 

 

13


THE GREENBRIER COMPANIES, INC.

 

Note 10 – Earnings Per Share

The shares used in the computation of the Company’s basic and diluted earnings per common share are reconciled as follows:

 

     Three Months Ended      Six Months Ended  
(In thousands)    February 28,
2013
     February 29,
2012
     February 28,
2013
     February 29,
2012
 

Weighted average basic common shares outstanding (1)

     27,210         26,683         27,177         26,073   

Dilutive effect of warrants

     789         940         796         1,410   

Dilutive effect of convertible notes (2)

     6,045         6,045         6,045         6,045   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average diluted common shares outstanding

     34,044         33,668         34,018         33,528   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Restricted stock grants are treated as outstanding when issued and 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 are included as they were considered dilutive under the “if converted” method as further discussed below. The dilutive effect of the 2026 Convertible notes was excluded from the share calculations as the stock price for each period presented was less than the initial conversion price of $48.05 and therefore considered anti-dilutive.

Dilutive EPS for the three and six months ended February 28, 2013 was calculated using the more dilutive of two approaches. The first approach includes the dilutive effect of outstanding warrants and shares underlying the 2026 Convertible notes in the share count using the treasury stock method. The second approach supplements the first by including the “if converted” effect of the 2018 Convertible notes issued in March 2011. 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 2026 Convertible notes would only be included in the calculation of both approaches if the current stock price is greater than the initial conversion price of $48.05 using the treasury stock method.

 

     Three Months Ended      Six Months Ended  
     February 28,
2013
     February 29,
2012
     February 28,
2013
     February 29,
2012
 

Net earnings attributable to Greenbrier

   $ 13,839       $ 17,670       $ 24,266       $ 32,186   

Add back:

           

Interest and debt issuance costs on the 2018 Convertible notes, net of tax

     1,416         1,376         2,846         2,766   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings before interest and debt issuance costs on convertible notes

   $ 15,255       $ 19,046       $ 27,112       $ 34,952   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average diluted common shares outstanding

     34,044         33,668         34,018         33,528   

Diluted earnings per share (1)

   $ 0.45       $ 0.57       $ 0.80       $ 1.04   

 

(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

 

14


THE GREENBRIER COMPANIES, INC.

 

Note 11 – Stock Based Compensation

The value, at the date of grant, of restricted stock awards is amortized as compensation expense over the lesser of the vesting period or to the recipient’s eligible retirement date.

For the three and six months ended February 28, 2013, $1.0 million and $2.9 million in compensation expense was recorded for restricted stock grants. For the three and six months ended February 29, 2012, $1.7 million and $3.5 million in compensation expense was recorded for restricted stock grants. Compensation expense related to restricted stock grants is recorded in Selling and administrative expense on the Consolidated Statements of Income.

Note 12 – 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 in Euro. Interest rate swap agreements are utilized to reduce the impact of changes in interest rates on certain debt. The Company’s foreign currency forward exchange contracts and interest rate swap agreements are designated as cash flow hedges, and therefore the effective portion of unrealized gains and losses are recorded in accumulated other comprehensive loss.

At February 28, 2013 exchange rates, forward exchange contracts for the purchase of Polish Zloty and the sale of Euro aggregated to $79.7 million. Adjusting the foreign currency exchange contracts to the fair value of the cash flow hedges at February 28, 2013 resulted in an unrealized pre-tax gain of $1.0 million that was recorded in accumulated other comprehensive loss. The fair value of the contracts is included in Accounts payable and accrued liabilities when there is a loss, or Accounts receivable, net when there is a gain, on the Consolidated Balance Sheets. As the contracts mature at various dates through January 2014, any such gain or loss remaining will be recognized in manufacturing revenue along with the related transactions when they occur. In the event that the underlying sales 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 current year’s results of operations in Interest and foreign exchange.

At February 28, 2013, an interest rate swap agreement had a notional amount of $42.2 million and matures March 2014. The fair value of this cash flow hedge at February 28, 2013 resulted in an unrealized pre-tax loss of $2.1 million. The loss is included in Accumulated other comprehensive loss and the fair value of the contract is included in Accounts payable and accrued liabilities on the Consolidated Balance Sheet. 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, 2013 interest rates, approximately $1.6 million would be reclassified to interest expense in the next 12 months.

Fair Values of Derivative Instruments

 

      Asset Derivatives      Liability Derivatives  
     Balance sheet    February 28,
2013
     August 31,
2012
     Balance sheet    February 28,
2013
     August 31,
2012
 
(In thousands)    location    Fair Value      Fair Value      location    Fair Value      Fair Value  

Derivatives designated as hedging instruments

  

        

Foreign forward exchange contracts

   Accounts
receivable
   $ 2,360       $ 2,703       Accounts payable
and accrued liabilities
   $ 294       $ 182   

Interest rate swap contracts

   Other assets      —           —         Accounts payable
and accrued liabilities
     2,055         2,861   
     

 

 

    

 

 

       

 

 

    

 

 

 
      $ 2,360       $ 2,703          $ 2,349       $ 3,043   
     

 

 

    

 

 

       

 

 

    

 

 

 

Derivatives not designated as hedging instruments

  

        

Foreign forward exchange contracts

   Accounts
receivable
   $ 262       $ 141       Accounts payable
and accrued liabilities
   $ —         $ 102   

 

15


THE GREENBRIER COMPANIES, INC.

 

The Effect of Derivative Instruments on the Statement of Operations

 

Derivatives in cash flow hedging

relationships

   Location of gain (loss) recognized in
income on derivative
     Gain recognized in income on derivative
six months ended
 
            February 28,
2013
     February 29,
2012
 

Foreign forward exchange contracts

     Interest and foreign exchange       $ 148       $ 163   

 

Derivatives in

cash flow

hedging

relationships

   Gain (loss) recognized
in OCI on derivatives
(effective portion)

six months ended
   

Location of

gain (loss)

reclassified

from

accumulated

OCI into

income

   Gain (loss) reclassified
from accumulated OCI
into income

(effective portion)
six months ended
   

Location of

gain in income

on derivative

(ineffective

portion and

amount

excluded from

effectiveness

testing)

   Gain recognized on
derivative (ineffective
portion and amount
excluded from
effectiveness testing)

six months ended
 
     2/28/13     2/29/12          2/28/13     2/29/12          2/28/13      2/29/12  

Foreign forward exchange contracts

   $ 534      $ 113      Revenue    $ 1,735      $ (3,547   Interest and foreign exchange    $ 1,481       $ —     

Interest rate swap contracts

     (21     (1,711   Interest and foreign exchange      (828     (852   Interest and foreign exchange      —           —     
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

    

 

 

 
   $ 513      $ (1,598      $ 907      $ (4,399      $ 1,481       $ —     
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

    

 

 

 

 

16


THE GREENBRIER COMPANIES, INC.

 

Note 13 – Segment Information

Greenbrier operates in three reportable segments: Manufacturing; Wheel Services, Refurbishment & Parts; and Leasing & Services. The accounting policies of the segments are described in the summary of significant accounting policies in the Consolidated Financial Statements contained in the Company’s 2012 Annual Report on Form 10-K. Performance is evaluated based on margin. The Company’s integrated business model results in selling and administrative costs being intertwined among the segments. Currently, Greenbrier’s management does not allocate these costs 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 is eliminated in consolidation and therefore are not included in consolidated results in the Company’s Consolidated Financial Statements.

The information in the following table is derived directly from the segments’ internal financial reports used for corporate management purposes.

 

     Three Months Ended     Six Months Ended  
     February 28,
2013
    February 29,
2012
    February 28,
2013
    February 29,
2012
 
(In thousands)                         

Revenue:

        

Manufacturing

   $ 275,154      $ 328,675      $ 545,448      $ 633,514   

Wheel Services, Refurbishment & Parts

     115,650        123,699        233,136        246,318   

Leasing & Services

     19,622        25,753        41,920        46,337   

Intersegment eliminations

     12,740        (19,941     18,036        (69,784
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 423,166      $ 458,186      $ 838,540      $ 856,385   
  

 

 

   

 

 

   

 

 

   

 

 

 

Margin:

        

Manufacturing

   $ 31,397      $ 29,355      $ 58,274      $ 55,823   

Wheel Services, Refurbishment & Parts

     8,818        13,340        19,441        25,198   

Leasing & Services

     8,060        8,791        18,338        16,921   
  

 

 

   

 

 

   

 

 

   

 

 

 

Segment margin total

     48,275        51,486        96,053        97,942   

Less unallocated expenses:

        

Selling and administrative expense

     24,942        24,979        51,042        48,214   

Net gain on disposition of equipment

     (3,076     (2,654     (4,484     (6,312

Interest and foreign exchange

     6,322        6,630        12,222        12,014   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings before income taxes and earnings (loss) from unconsolidated affiliates

   $ 20,087      $ 22,531      $ 37,273      $ 44,026   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

17


THE GREENBRIER COMPANIES, INC.

 

Note 14 – Commitments and Contingencies

The Company’s Portland, Oregon manufacturing facility is located adjacent to the Willamette River. The Company has entered into a Voluntary Clean-Up Agreement with the Oregon Department of Environmental Quality 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 to the environment. The Company is also conducting groundwater remediation relating to a historical spill on the property which precedes its ownership.

The U.S. Environmental Protection Agency (EPA) has classified portions of the river bed of the Portland Harbor, including the portion fronting the Company’s manufacturing facility, as a federal “National Priority List” or “Superfund” site due to sediment contamination (the “Portland Harbor Site”). The Company and more than 140 other parties have received a “General Notice” of potential liability from the EPA relating to the Portland Harbor Site. The letter advised the Company that it may be liable for the costs of investigation and remediation (which liability may be joint and several with other potentially responsible parties) as well as for natural resource damages resulting from releases of hazardous substances to the site. At this time, ten private and public entities, including the Company (the “Lower Willamette Group” or “LWG”), have 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 are nevertheless contributing money to the effort. The EPA-mandated RI/FS is being conducted by the LWG and has cost over $100 million over a 13-year period. The Company has agreed to initially bear a percentage of the total costs incurred by the LWG in connection with the investigation. The Company’s aggregate expenditure has not been material over the 13-year period. Some or all of any such outlay may be recoverable from other responsible parties. The investigation is expected to continue for at least one more year and additional costs are expected to be incurred. The Company cannot estimate the amount of such investigation costs at this time.

Eighty-three parties, including the State of Oregon and the federal government, have entered into a non-judicial mediation process to try to allocate costs associated with the Portland Harbor site. Approximately 110 additional parties have 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, US 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 now been stayed by the court, pending completion of the RI/FS. Although, as described below, the draft feasibility study has been submitted, the RI/FS will not be complete until the EPA approves it, which is not likely to occur until at least 2014.

A draft of the remedial investigation study was submitted to the EPA on October 27, 2009. The draft feasibility study was submitted to the EPA on March 30, 2012. The draft feasibility study evaluates several alternative cleanup approaches. The approaches submitted would take from 2 to 28 years with costs ranging from $169 million to $1.8 billion for cleanup of the entire Portland Harbor Site, depending primarily on the selected remedial action levels. The draft feasibility study suggests costs ranging from $9 million to $163 million for cleanup of the area of the Willamette River adjacent to the Company’s Portland, Oregon manufacturing facility, depending primarily on the selected remedial action level.

The draft feasibility study does not address responsibility for the costs of clean-up or allocate such costs among the potentially responsible parties, or define precise boundaries for the cleanup. Responsibility for funding and implementing the EPA’s selected cleanup will be determined after the issuance of the Record of Decision. Based on the investigation to date, the Company believes that it did not contribute in any material way to 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, sufficient information is currently not available to determine the Company’s liability, if any, for the cost of any required remediation of the Portland Harbor Site or to estimate a range of potential loss. Based on the results of the pending investigations and future assessments of natural resource damages, the Company may be required to incur costs associated with additional phases of investigation or remedial action, and may be liable for damages to natural resources. In addition, the Company may be required to perform periodic maintenance dredging in order to continue to launch vessels from its launch ways in Portland, Oregon, on the Willamette River, and the river’s classification as a Superfund site could result in some limitations on future dredging and launch activities. Any of these matters could adversely affect the Company’s business and Consolidated Financial Statements, or the value of its Portland property.

 

18


THE GREENBRIER COMPANIES, INC.

 

From time to time, Greenbrier is involved as a defendant in litigation in the ordinary course of business, the outcome of which cannot be predicted with certainty. The most significant litigation is as follows:

Greenbrier’s customer, SEB Finans AB (SEB), has raised performance concerns related to a component that the Company installed on 372 railcar units with an aggregate sales value of approximately $20.0 million produced under a contract with SEB. On December 9, 2005, SEB filed a Statement of Claim in an arbitration proceeding in Stockholm, Sweden, against Greenbrier alleging that the railcars were defective and could not be used for their intended purpose. A settlement agreement was entered into effective February 28, 2007 pursuant to which the railcar units previously delivered were to be repaired and the remaining units completed and delivered to SEB. SEB has made multiple additional warranty claims, including claims with respect to railcars that have been repaired pursuant to the original settlement agreement. Greenbrier and SEB are continuing to negotiate the scope of needed repairs. Current estimates of potential costs of such repairs do not exceed amounts accrued.

When the Company acquired the assets of the Freight Wagon Division of DaimlerChrysler in January 2000, it acquired a contract to build 201 freight cars for Okombi GmbH, a subsidiary of Rail Cargo Austria AG. Subsequently, Okombi made breach of warranty and late delivery claims against the Company which grew out of design and certification problems. All of these issues were settled as of March 2004. Additional allegations have been made, the most serious of which involve cracks to the structure of the freight cars. Okombi has been required to remove all 201 freight cars from service, and a formal claim has been made against the Company. Legal, technical and commercial evaluations are on-going to determine what obligations the Company might have, if any, to remedy the alleged defects, though resolution of such issues has not been reached due to delays by Okombi.

Management intends to vigorously defend its position in each of the open foregoing cases. While the ultimate outcome of such legal proceedings cannot be determined at this time, management believes that the resolution of these actions will not have a material adverse effect on the Company’s Consolidated Financial Statements.

The Company is involved as a defendant in other litigation initiated in the ordinary course of business. While the ultimate outcome of such legal proceedings cannot be determined at this time, management believes that the resolution of these actions will not have a material adverse effect on the Company’s Consolidated Financial Statements.

In accordance with customary business practices in Europe, the Company has $1.8 million in bank and third party warranty and performance guarantee facilities as of February 28, 2013. To date no amounts have been drawn under these guarantee facilities.

At February 28, 2013, the Mexican joint venture had $50.4 million of third party debt outstanding, for which the Company has guaranteed approximately $40.2 million. In addition, the Company, along with its joint venture partner, has committed to contributing $10.0 million to fund the capital expenditures for a fourth manufacturing line, of which the Company will contribute 50%. These amounts will be contributed at various intervals from May 31, 2012 to October 31, 2013. As of February 28, 2013, the Company and the joint venture partner have each contributed $3.3 million.

As of February 28, 2013 the Company has outstanding letters of credit aggregating $5.6 million associated with facility leases and workers compensation insurance.

 

19


THE GREENBRIER COMPANIES, INC.

 

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 which 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, 2013 are:

 

(In thousands)    Total      Level 1      Level 2 (1)      Level 3  

Assets:

           

Derivative financial instruments

   $ 2,622       $ —         $ 2,622       $  —     

Nonqualified savings plan investments

     7,865         7,865         —           —     

Cash equivalents

     1,003         1,003         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 11,490       $ 8,868       $ 2,622       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Derivative financial instruments

   $ 2,349       $ —         $ 2,349       $ —     

 

(1) Level 2 assets and liabilities include derivative financial instruments which are valued based on significant observable inputs. See note 12 Derivative Instruments for further discussion.

Assets and liabilities measured at fair value on a recurring basis as of August 31, 2012 are:

 

(In thousands)    Total      Level 1      Level 2      Level 3  

Assets:

           

Derivative financial instruments

   $ 2,844       $ —         $ 2,844       $  —     

Nonqualified savings plan investments

     6,667         6,667         —           —     

Cash equivalents

     1,002         1,002         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 10,513       $ 7,669       $ 2,844       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Derivative financial instruments

   $ 3,145       $ —         $ 3,145       $ —     

 

20


THE GREENBRIER COMPANIES, INC.

 

Note 16 – Variable Interest Entities

In March 2012, the Company formed a special purpose entity that purchased a 1% interest in three trusts (the “Trusts”) which are 99% owned by a third party. As of February 28, 2013, the Company has sold 1,163 railcars to the Trusts for an aggregate value of $99.6 million. 743 railcars were sold in May 2012 with an aggregate value of $61.1 million, 200 railcars were sold in November 2012 with an aggregate value of $15.9 million and 220 railcars were sold in February 2013 with an aggregate value of $22.6 million.

Gains and losses are allocated between the Company and the third party equal to their respective ownership interest in the Trusts, with the exception that the Company may be entitled to receive a small portion of excess rent if the actual performance of the Trusts exceeds a target rate of return.

The Company contributed $6.9 million of cash collateral into restricted cash accounts to support the railcar portfolio meeting a target minimum rate of return. If the actual return is less than the target return, the third party may withdraw amounts in the restricted cash accounts at certain intervals based on predetermined criteria. This obligation expires in March 2033. This $6.9 million, which is held in restricted cash, was recorded as a reduction in revenue on the sale of 1,020 new railcars and a reduction in gain on sale on the sale of the 143 used railcars with a credit to deferred revenue.

In connection with this transaction, the Company entered into an agreement to provide administrative and remarketing services to the Trusts. The agreement is currently set to expire in March 2033. The Company also entered into an agreement to provide maintenance services to the Trusts during the initial lease term of the railcars. The Company will receive management and maintenance fees under each of the aforementioned agreements.

The Company has evaluated this relationship under ASC 810-10 and has concluded that the Trusts qualify as variable interest entities and that the Company is not the primary beneficiary. The Company will not consolidate the Trusts and will account for the investments under the equity method of accounting.

As of February 28, 2013, the carrying amount of the Company’s investment in the Trust is $1.0 million which is recorded in Intangibles and Other Assets, net on the Consolidated Balance Sheets.

 

21


THE GREENBRIER COMPANIES, INC.

 

Note 17 – Guarantor/Non Guarantor

The convertible senior notes due 2026 (the Notes) issued on May 22, 2006 are fully and unconditionally and jointly and severally guaranteed by substantially all of Greenbrier’s material 100% owned U.S. subsidiaries: Autostack Company LLC, Greenbrier-Concarril, LLC, Greenbrier Leasing Company LLC, Greenbrier Leasing Limited Partner, LLC, Greenbrier Management Services, LLC, Greenbrier Leasing, L.P., Greenbrier Railcar LLC, Gunderson LLC, Gunderson Marine LLC, Gunderson Rail Services LLC, Meridian Rail Holding Corp., Meridian Rail Acquisition Corp., Meridian Rail Mexico City Corp., Brandon Railroad LLC, Gunderson Specialty Products, LLC and Greenbrier Railcar Leasing, Inc. No other subsidiaries guarantee the Notes including Greenbrier Union Holdings I LLC, Greenbrier Leasing Limited, Greenbrier Europe B.V., Greenbrier Germany GmbH, WagonySwidnica S.A., Zaklad Naprawczy Taboru Kolejowego Olawa sp. z o.o., Zaklad Transportu Kolejowego SIARKOPOL Sp. z o.o., Gunderson-Concarril, S.A. de C.V., Greenbrier Rail Services Canada, Inc., Mexico Meridianrail Services, S.A. de C.V., Greenbrier Railcar Services – Tierra Blanca S.A. de C.V., YSD Doors, S.A. de C.V., Greenbrier-Gimsa, LLC and Gunderson-Gimsa S.A. de C.V.

The following represents the supplemental consolidating condensed financial information of Greenbrier and its guarantor and non guarantor subsidiaries, as of February 28, 2013 and August 31, 2012, for the three and six months ended February 28, 2013 and for the three and six months ended February 29, 2012. The information is presented on the basis of Greenbrier accounting for its ownership of its wholly owned subsidiaries using the equity method of accounting. The equity method investment for each subsidiary is recorded by the parent in intangibles and other assets. Intercompany transactions of goods and services between the guarantor and non guarantor subsidiaries are presented as if the sales or transfers were at fair value to third parties and eliminated in consolidation.

 

22


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Balance Sheet

February 28, 2013

(In thousands, unaudited)

 

     Parent     Combined
Guarantor
Subsidiaries
     Combined
Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Assets

           

Cash and cash equivalents

   $ 45,734      $ 120       $ 9,783      $ —        $ 55,637   

Restricted cash

     —          2,000         6,899        —          8,899   

Accounts receivable, net

     (38,451     157,705         25,677        2        144,933   

Inventories

     —          182,310         177,439        (468     359,281   

Leased railcars for syndication

     —          36,593         —          (395     36,198   

Equipment on operating leases, net

     —          344,149         3,239        (2,812     344,576   

Property, plant and equipment, net

     2,844        103,849         88,194        —          194,887   

Goodwill

     —          134,316         —          —          134,316   

Intangibles and other assets, net

     734,940        115,443         4,115        (768,304     86,194   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
   $ 745,067      $ 1,076,485       $ 315,346      $ (771,977   $ 1,364,921   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Liabilities and Equity

           

Revolving notes

   $ —        $ —         $ 50,058      $ —        $ 50,058   

Accounts payable and accrued

liabilities

     (26,771     181,077         123,914        1        278,221   

Deferred income taxes

     13,475        95,587         (7,548     (1,549     99,965   

Deferred revenue

     233        22,409         514        22        23,178   

Notes payable

     296,994        128,904         1,655        —          427,553   

Total equity - Greenbrier

     461,136        648,508         122,439        (770,947     461,136   

Noncontrolling interest

     —          —           24,314        496        24,810   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total equity

     461,136        648,508         146,753        (770,451     485,946   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
   $ 745,067      $ 1,076,485       $ 315,346      $ (771,977   $ 1,364,921   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

23


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Statement of Operations

For the three months ended February 28, 2013

(In thousands, unaudited)

 

     Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenue

          

Manufacturing

   $ —        $ 196,291      $ 209,691      $ (111,935   $ 294,047   

Wheels Services, Refurbishment & Parts

     —          114,506        —          (2,554     111,952   

Leasing & Services

     386        16,789        1        (9     17,167   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     386        327,586        209,692        (114,498     423,166   

Cost of revenue

          

Manufacturing

     —          177,488        197,364        (112,202     262,650   

Wheel Services, Refurbishment & Parts

     —          105,848        —          (2,714     103,134   

Leasing & Services

     —          9,137        —          (30     9,107   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —          292,473        197,364        (114,946     374,891   

Margin

     386        35,113        12,328        448        48,275   

Selling and administrative expense

     10,325        7,407        7,210        —          24,942   

Net gain on disposition of equipment

     —          (2,523     (553     —          (3,076
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) from operations

     (9,939     30,229        5,671        448        26,409   

Other costs

          

Interest and foreign exchange

     4,467        967        973        (85     6,322   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) before income taxes and earnings (loss) from unconsolidated affiliates

     (14,406     29,262        4,698        533        20,087   

Income tax (expense) benefit

     6,916        (11,289     (973     (244     (5,590
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) before earnings (loss) from unconsolidated affiliates

     (7,490     17,973        3,725        289        14,497   

Earnings (loss) from unconsolidated affiliates

     21,329        402        7        (21,843     (105
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss)

     13,839        18,375        3,732        (21,554     14,392   

Net (earnings) loss attributable to noncontrolling interest

     —          —          (652     99        (553
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss) attributable to Greenbrier

   $ 13,839      $ 18,375      $ 3,080      $ (21,455   $ 13,839   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

24


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Statement of Operations

For the six months ended February 28, 2013

(In thousands)

 

     Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenue

          

Manufacturing

   $ —        $ 329,802      $ 439,199      $ (189,585   $ 579,416   

Wheels Services, Refurbishment & Parts

     —          230,730        —          (6,679     224,051   

Leasing & Services

     477        34,612        1        (17     35,073   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     477        595,144        439,200        (196,281     838,540   

Cost of revenue

          

Manufacturing

     —          301,873        412,534        (193,265     521,142   

Wheel Services, Refurbishment & Parts

     —          211,507        —          (6,897     204,610   

Leasing & Services

     —          16,787        —          (52     16,735   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —          530,167        412,534        (200,214     742,487   

Margin

     477        64,977        26,666        3,933        96,053   

Selling and administrative expense

     20,111        15,538        15,393        —          51,042   

Net gain on disposition of equipment

     —          (3,567     (553     (364     (4,484
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) from operations

     (19,634     53,006        11,826        4,297        49,495   

Other costs

          

Interest and foreign exchange

     8,083        1,869        2,471        (201     12,222   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) before income taxes and earnings (loss) from unconsolidated affiliates

     (27,717     51,137        9,355        4,498        37,273   

Income tax (expense) benefit

     12,685        (19,370     (2,396     (1,095     (10,176
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) before earnings (loss) from unconsolidated affiliates

     (15,032     31,767        6,959        3,403        27,097   

Earnings (loss) from unconsolidated affiliates

     39,298        438        16        (39,897     (145
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss)

     24,266        32,205        6,975        (36,494     26,952   

Net (earnings) loss attributable to noncontrolling interest

     —          —          (1,187     (1,499     (2,686
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss) attributable to Greenbrier

   $ 24,266      $ 32,205      $ 5,788      $ (37,993   $ 24,266   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Statement of Cash Flows

For the six months ended February 28, 2013

(In thousands, unaudited)

 

     Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash flows from operating activities:

          

Net earnings (loss)

   $ 24,266      $ 32,205      $ 6,975      $ (36,494   $ 26,952   

Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:

          

Deferred income taxes

     4,377        (1,006     (263     1,095        4,203   

Depreciation and amortization

     1,142        15,645        4,663        (52     21,398   

Net gain on disposition of equipment

     —          (3,568     (552     (364     (4,484

Accretion of debt discount

     1,725        —          —          —          1,725   

Stock based compensation

     2,887        —          —          —          2,887   

Other

     —          98        25        (1,735     (1,612

Decrease (increase) in assets:

          

Accounts receivable

     (109     (19,367     22,949        (394     3,079   

Inventories

     —          (30,530     3,159        163        (27,208

Leased railcars for syndication

     —          59,357        —          (2,397     56,960   

Other

     (765     976        25,039        (25,005     245   

Increase (decrease) in liabilities:

          

Accounts payable and accrued liabilities

     5,457        (28,111     (33,840     1        (56,493

Deferred revenue

     (78     6,439        (435     10        5,936   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     38,902        32,138        27,720        (65,172     33,588   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

          

Proceeds from sales of assets

     —          22,301        —          —          22,301   

Investment in and net advances to unconsolidated affiliates

     (44,302     (20,599     (386     64,901        (386

Intercompany advances

     (3     —          —          3        —     

Decrease (increase) in restricted cash

     —          47        (2,669     —          (2,622

Capital expenditures

     (265     (17,315     (18,216     271        (35,525

Other

     —          —          (3,582     —          (3,582
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (44,570     (15,566     (24,853     65,175        (19,814
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

          

Net changes in revolving notes with maturities of 90 days or less

     —          —          (16,579     —          (16,579

Proceeds from revolving notes with maturities longer than 90 days

     —          —          19,968        —          19,968   

Repayment of revolving notes with maturities longer than 90 days

     —          —          (14,998     —          (14,998

Intercompany advances

     16,898        (15,421     (1,474     (3     —     

Repayments of notes payable

     —          (2,049     (202     —          (2,251

Investment by joint venture partner

     —          —          1,949        —          1,949   

Excess tax benefit from restricted stock

     181        —          —          —          181   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     17,079        (17,470     (11,336     (3     (11,730
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes

     —          724        (702     —          22   

Increase (decrease) in cash and cash equivalents

     11,411        (174     (9,171     —          2,066   

Cash and cash equivalents

          

Beginning of period

     34,323        294        18,954        —          53,571   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of period

   $ 45,734      $ 120      $ 9,783      $ —        $ 55,637   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

26


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Balance Sheet

August 31, 2012

(In thousands)

 

     Parent     Combined
Guarantor
Subsidiaries
     Combined
Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Assets

           

Cash and cash equivalents

   $ 34,323      $ 294       $ 18,954      $ —        $ 53,571   

Restricted cash

     —          2,047         4,230        —          6,277   

Accounts receivable, net

     (21,666     122,917         45,467        (392     146,326   

Inventories

     —          138,236         178,810        (305     316,741   

Leased railcars for syndication

     —          100,590         —          (2,792     97,798   

Equipment on operating leases, net

     —          365,925         —          (2,957     362,968   

Property, plant and equipment, net

     3,721        106,219         72,489        —          182,429   

Goodwill

     —          137,066         —          —          137,066   

Intangibles and other assets, net

     688,261        91,278         3,620        (701,791     81,368   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
   $ 704,639      $ 1,064,572       $ 323,570      $ (708,237   $ 1,384,544   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Liabilities and Equity

           

Revolving notes

   $ —        $ —         $ 60,755      $ —        $ 60,755   

Accounts payable and accrued liabilities

     (31,814     205,477         155,844        1        329,508   

Deferred income taxes

     9,097        96,593         (7,684     (2,643     95,363   

Deferred revenue

     310        15,970         901        13        17,194   

Notes payable

     295,269        130,953         1,857        —          428,079   

Total equity - Greenbrier

     431,777        615,579         90,761        (706,340     431,777   

Noncontrolling interest

     —          —           21,136        732        21,868   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total equity

     431,777        615,579         111,897        (705,608     453,645   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
   $ 704,639      $ 1,064,572       $ 323,570      $ (708,237   $ 1,384,544   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

27


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Statement of Operations

For the three months ended February 29, 2012

(In thousands, unaudited)

 

     Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenue

          

Manufacturing

   $ —        $ 210,033      $ 256,904      $ (146,731   $ 320,206   

Wheels Services, Refurbishment & Parts

     —          122,280        —          (2,386     119,894   

Leasing & Services

     478        17,753        —          (145     18,086   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     478        350,066        256,904        (149,262     458,186   

Cost of revenue

          

Manufacturing

     —          188,160        245,807        (143,116     290,851   

Wheel Services, Refurbishment & Parts

     —          108,816        —          (2,262     106,554   

Leasing & Services

     —          9,312        —          (17     9,295   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —          306,288        245,807        (145,395     406,700   

Margin

     478        43,778        11,097        (3,867     51,486   

Selling and administrative expense

     11,426        6,535        7,018        —          24,979   

Net gain on disposition of equipment

     —          (2,654     —          —          (2,654
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) from operations

     (10,948     39,897        4,079        (3,867     29,161   

Other costs

          

Interest and foreign exchange

     4,658        1,052        1,209        (289     6,630   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) before income taxes and earnings (loss) from unconsolidated affiliates

     (15,606     38,845        2,870        (3,578     22,531   

Income tax (expense) benefit

     5,618        (14,706     3,136        604        (5,348
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) before earnings (loss) from unconsolidated affiliates

     (9,988     24,139        6,006        (2,974     17,183   

Earnings (loss) from unconsolidated affiliates

     27,519        (425     —          (27,022     72   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss)

     17,531        23,714        6,006        (29,996     17,255   

Net (earnings) loss attributable to noncontrolling interest

     139        —          (1,459     1,735        415   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss) attributable to Greenbrier

   $ 17,670      $ 23,714      $ 4,547      $ (28,261   $ 17,670   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Statement of Operations

For the six months ended February 29, 2012

(In thousands)

 

     Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenue

          

Manufacturing

   $ —        $ 405,342      $ 469,347      $ (291,826   $ 582,863   

Wheels Services, Refurbishment & Parts

     —          244,038        —          (6,395     237,643   

Leasing & Services

     747        35,497        —          (365     35,879   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     747        684,877        469,347        (298,586     856,385   

Cost of revenue

          

Manufacturing

     —          361,811        450,554        (285,325     527,040   

Wheel Services, Refurbishment & Parts

     —          218,866        —          (6,421     212,445   

Leasing & Services

     —          18,993        —          (35     18,958   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —          599,670        450,554        (291,781     758,443   

Margin

     747        85,207        18,793        (6,805     97,942   

Selling and administrative expense

     21,325        13,494        13,395        —          48,214   

Net gain on disposition of equipment

     —          (6,311     —          (1     (6,312
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) from operations

     (20,578     78,024        5,398        (6,804     56,040   

Other costs

          

Interest and foreign exchange

     9,570        1,781        1,219        (556     12,014   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) before income taxes and earnings (loss) from unconsolidated affiliates

     (30,148     76,243        4,179        (6,248     44,026   

Income tax (expense) benefit

     12,243        (29,723     3,230        1,106        (13,144
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) before earnings (loss) from unconsolidated affiliates

     (17,905     46,520        7,409        (5,142     30,882   

Earnings (loss) from unconsolidated affiliates

     49,952        (1,410     —          (48,842     (300
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss)

     32,047        45,110        7,409        (53,984     30,582   

Net (earnings) loss attributable to noncontrolling interest

     139        —          (1,690     3,155        1,604   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss) attributable to Greenbrier

   $ 32,186      $ 45,110      $ 5,719      $ (50,829   $ 32,186   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Statement of Cash Flows

For the six months ended February 29, 2012

 

     Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash flows from operating activities:

          

Net earnings (loss)

   $ 32,047      $ 45,110      $ 7,409      $ (53,984   $ 30,582   

Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:

          

Deferred income taxes

     14,900        (3,844     (4,122     (1,106     5,828   

Depreciation and amortization

     1,370        14,989        3,997        (34     20,322   

Net gain on disposition of equipment

     —          (6,311     —          (1     (6,312

Accretion of debt discount

     1,599        —          —          —          1,599   

Stock based compensation expense

     3,490        —          —          —          3,490   

Other

     —          600        5        3,154        3,759   

Decrease (increase) in assets

          

Accounts receivable

     13,721        (17,527     12,682        22        8,898   

Inventories

     —          3,366        (47,091     (26     (43,751

Leased railcars for syndication

     —          (56,080     —          3,155        (52,925

Other

     1,234        (363     (1,474     —          (603

Increase (decrease) in liabilities

          

Accounts payable and accrued liabilities

     (34,338     57,105        3,109        (22     25,854   

Deferred revenue

     (77     (4,835     255        —          (4,657
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     33,946        32,210        (25,230     (48,842     (7,916
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

          

Proceeds from sales of assets

     —          20,058        —          —          20,058   

Investment in and net advances to unconsolidated affiliates

     (49,952     1,180        —          48,842        70   

Intercompany advances

     68        —          —          (68     —     

Change in restricted cash

     —          (136     —          —          (136

Capital expenditures

     (510     (25,902     (9,301     —          (35,713

Other

     —          22        —          —          22   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (50,394     (4,778     (9,301     48,774        (15,699
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

          

Net change in revolving notes with maturities of 90 days or less

     (15,000     —          (3,716     —          (18,716

Proceeds from revolving notes with maturities longer than 90 days

     —          —          46,646        —          46,646   

Repayments of revolving notes with maturities longer than 90 days

     —          —          (15,818       (15,818

Intercompany advances

     24,745        (26,269     1,456        68        —     

Proceeds from notes payable

     —          —          2,500        —          2,500   

Repayments of notes payable

     —          (2,082     (2,702     —          (4,784
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     9,745        (28,351     28,366        68        9,828   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes

     —          512        3,719        —          4,231   

Decrease in cash and cash equivalents

     (6,703     (407     (2,446     —          (9,556

Cash and cash equivalents

          

Beginning of period

     33,368        529        16,325        —          50,222   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of period

   $ 26,665      $ 122      $ 13,879      $ —        $ 40,666   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30


THE GREENBRIER COMPANIES, INC.

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Summary

We operate in three primary business segments: Manufacturing; Wheel Services, Refurbishment & Parts; and Leasing & Services. These three business segments are operationally integrated. The Manufacturing segment, operating from facilities in the United States, Mexico and Poland, produces double-stack intermodal railcars, conventional railcars, tank cars and marine vessels. The Wheel Services, Refurbishment & Parts segment performs wheel and axle servicing; railcar repair, refurbishment and maintenance activities; as well as production and reconditioning of a variety of parts for the railroad industry in North America. The Leasing & Services segment owns approximately 9,200 railcars and provides management services for approximately 225,000 railcars for railroads, shippers, carriers, institutional investors and other leasing and transportation companies in North America. We also produce rail castings through an unconsolidated joint venture. Management evaluates segment performance based on margins.

Multi-year supply agreements are a part of rail industry practice. Customer orders may be subject to cancellations or modifications and contain terms and conditions customary in the industry. In most cases, little variation has been experienced between the quantity ordered and the quantity actually delivered.

Our total manufacturing backlog of railcar units as of February 28, 2013 was approximately 11,700 units with an estimated value of $1.30 billion compared to 12,500 units with an estimated value of $1.1 billion as of February 29, 2012. Currently, the entire backlog is for third party sales, therefore no orders in our backlog are for our own lease fleet. A portion of the orders included in backlog reflects an assumed product mix. Under terms of the orders, the exact mix will be determined in the future which may impact the dollar amount of backlog. Our backlog of railcar units and marine vessels is not necessarily indicative of future results of operations. Subsequent to quarter end we received new railcar orders for 3,700 units valued at approximately $435 million. The new orders referenced are subject to customary documentation and completion of terms.

Marine backlog as of February 28, 2013 was approximately $9 million compared to $2 million as of February 29, 2012. In addition, we are party to a letter of intent for 15 barges valued at $60 million subject to significant permitting and other conditions.

 

31


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 planned tax return filings. The amounts anticipated to be reported in those filings may change between the time the financial statements are prepared and the time the tax returns are filed. Further, because tax filings are subject to review by taxing authorities, there is also the risk that a position taken in preparation of a tax return may be challenged by a taxing authority. If the taxing authority is successful in asserting a position different than that taken by us, differences in tax expense or between current and deferred tax items may arise in future periods. Such differences, which could have a material impact on our financial statements, would be reflected in the financial statements when management considers them probable of occurring and the amount reasonably estimable. Valuation allowances reduce deferred tax assets to an amount that will more likely than not be realized. Our estimates of the realization of deferred tax assets is based on the information available at the time the financial statements are prepared and 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 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 estimating potential 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.

 

32


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 wheel services 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 as reported. 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. Revenues from construction of marine barges are 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.

We will periodically sell railcars with leases attached to financial investors. In addition we will often perform management or maintenance services at market rates for these railcars. Pursuant to the guidance in 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 delivered. For any contracts with multiple elements (i.e. railcars, maintenance, management services, etc) we allocate revenue among the deliverables primarily based upon objective and reliable evidence of the fair value of each element in the arrangement. If objective and reliable evidence of fair value of any element is not available, we will use the element’s estimated selling price for purposes of allocating the total arrangement consideration among the elements.

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 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 is 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 undiscounted future cash flows exceeded the carrying amount of the assets it would indicate that the assets were not impaired.

Goodwill and acquired intangible assets - The Company periodically acquires 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 is also tested more frequently if changes in circumstances or the occurrence of events indicates that a potential impairment exists. The provisions of Accounting Standards Codification (ASC) 350, Intangibles - Goodwill and Other, require that we perform a two-step impairment test on goodwill. In the first step, 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. The second step of the goodwill impairment test is required only when the carrying value of the reporting unit exceeds its fair value as determined in the first step. In the second step we would compare the implied fair value of goodwill to its carrying value. The implied fair value of goodwill is determined by allocating the fair value of a reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss is recorded to the extent that the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill. The goodwill balance as of February 28, 2013 of $134.3 million relates to the Wheel Services, Refurbishment & Parts segment.

 

33


THE GREENBRIER COMPANIES, INC.

 

Results of Operations

Greenbrier operates in three reportable segments: Manufacturing; Wheel Services, Refurbishment & Parts; and Leasing & Services. Segment performance is evaluated based on margin. The Company’s integrated business model results in selling and administrative costs being intertwined among the segments. Currently, management does not allocate these costs for either external or internal reporting purposes.

Three Months Ended February 28, 2013 Compared to Three Months Ended February 29, 2012

Overview

Total revenue for the three months ended February 28, 2013 was $423.2 million, a decrease of $35.0 million from revenues of $458.2 million in the prior comparable period. The decrease was primarily the result of lower revenues in the manufacturing segment of our business. Manufacturing segment revenues decreased $26.2 million which was primarily attributed to a lower volume of new railcar deliveries as compared to the prior comparable period.

Net earnings attributable to Greenbrier for the three months ended February 28, 2013 were $13.8 million or $0.45 per diluted common share compared to $17.7 million or $0.57 per diluted common share for the three months ended February 29, 2012. The decrease in net income and earnings per share was primarily attributable to a decrease in margin in our Wheel Services, Refurbishment & Parts and Leasing & Services segments partially offset by an increase in margin in our Manufacturing segment.

 

     Three Months Ended  
(In thousands)    February 28,
2013
    February 29,
2012
 

Revenue:

    

Manufacturing

   $ 294,047      $ 320,206   

Wheel Services, Refurbishment & Parts

     111,952        119,894   

Leasing & Services

     17,167        18,086   
  

 

 

   

 

 

 
     423,166        458,186   

Margin:

    

Manufacturing

     31,397        29,355   

Wheel Services, Refurbishment & Parts

     8,818        13,340   

Leasing & Services

     8,060        8,791   
  

 

 

   

 

 

 
     48,275        51,486   

Less unallocated items:

    

Selling and administrative expense

     24,942        24,979   

Net gain on disposition of equipment

     (3,076     (2,654

Interest and foreign exchange

     6,322        6,630   
  

 

 

   

 

 

 

Earnings before income taxes and earnings (loss) from unconsolidated affiliates

     20,087        22,531   

Income tax expense

     (5,590     (5,348
  

 

 

   

 

 

 

Earnings before earnings (loss) from unconsolidated affiliates

     14,497        17,183   

Earnings (loss) from unconsolidated affiliates

     (105     72   
  

 

 

   

 

 

 

Net earnings

     14,392        17,255   

Net (earnings) loss attributable to noncontrolling interest

     (553     415   
  

 

 

   

 

 

 

Net earnings attributable to Greenbrier

   $ 13,839      $ 17,670   
  

 

 

   

 

 

 

Diluted earnings per common share

   $ 0.45      $ 0.57   

 

34


THE GREENBRIER COMPANIES, INC.

 

Manufacturing Segment

Manufacturing revenue for the three months ended February 28, 2013 was $294.0 million compared to $320.2 million in the comparable period of the prior year, a decrease of $26.2 million. Railcar unit deliveries, which are the primary source of manufacturing revenue, were approximately 2,700 units in the current period compared to approximately 3,700 units in the prior comparable period. The decrease in revenue was primarily attributed to a lower volume of deliveries as compared to the prior comparable period partially offset by a higher per unit average selling price as a result of a change in product mix and an increase in marine revenue as compared to the prior comparable period.

Manufacturing margin as a percentage of revenue for the three months ended February 28, 2013 was 10.7% compared to a margin of 9.2% for the three months ended February 29, 2012. The increase in margin as a percentage of revenue was primarily attributed to a favorable change in product mix and pricing environment and a marine barge, which was delivered in the current period, accounted for under the completed contract method.

Wheel Services, Refurbishment & Parts Segment

Wheel Services, Refurbishment & Parts revenue was $112.0 million for the three months ended February 28, 2013 compared to $119.9 million in the comparable period of the prior year. The decrease of $7.9 million was primarily attributed to lower demand for wheel set replacements as compared to the prior year and a decrease in scrap metal pricing. These were partially offset by an increase in demand for refurbishment work.

Wheel Services, Refurbishment & Parts margin as a percentage of revenue was 7.9% for the three months ended February 28, 2013 compared to 11.1% for the three months ended February 29, 2012. The decrease in margin as a percentage of revenue was primarily the result of a reduction in efficiencies from operating at lower wheel volumes, a decrease in scrap metal pricing and increased operating costs associated with certain refurbishment locations. These were partially offset by an increase in margin as a percentage of revenue related to a favorable change in parts product mix.

Leasing & Services Segment

Leasing & Services revenue was $17.2 million for the three months ended February 28, 2013 compared to $18.1 million for the comparable period of the prior year. The decrease of $0.9 million was primarily a result of lower rents earned on lower volumes of leased railcars for syndication and less favorable renewal rates on certain leased railcars.

Leasing & Services margin as a percentage of revenue was 47.0% for the three months ended February 28, 2013 and 48.6% for the three months ended February 29, 2012. The decrease in gross margin as a percentage of revenue was primarily attributed to lower rents earned on lower volumes of leased railcars for syndication, an increase in transportation costs and less favorable renewal rates on certain leased railcars.

The percentage of owned units on lease as of February 28, 2013 was 97.5% compared to 97.3% at February 29, 2012.

 

35


THE GREENBRIER COMPANIES, INC.

 

Selling and Administrative Expense

Selling and administrative expense was $24.9 million or 5.9% of revenue for the three months ended February 28, 2013 compared to $25.0 million or 5.5% of revenue for the prior comparable period, a decrease of $0.1 million. The decrease for the three months ended February 28, 2013 compared to the prior comparable period was primarily attributed to a decrease in employee related costs.

Net gain on Disposition of Equipment

Net gain on disposition of equipment was $3.1 million for the three months ended February 28, 2013, compared to $2.7 million for the prior comparable period. Assets from Greenbrier’s lease fleet are periodically sold in the normal course of business in order to take advantage of market conditions and manage risk and liquidity.

The current year’s gain included $3.8 million in gains realized on the disposition of leased assets, a $0.6 million other gain and a $1.3 million loss related to the anticipated sale of certain assets from our roller bearing operation in Elizabethtown, Kentucky. All of the prior year’s gain of $2.7 million was realized on the disposition of leased assets.

Other Costs

Interest and foreign exchange expense was comprised of the following:

 

     Three Months Ended         
(In thousands)    February 28,
2013
     February 29,
2012
     Increase
(Decrease)
 

Interest and foreign exchange:

        

Interest and other expense

   $ 5,165       $ 5,610       $ (445

Accretion of convertible debt discount

     876         812         64   

Foreign exchange loss

     281         208         73   
  

 

 

    

 

 

    

 

 

 
   $ 6,322       $ 6,630       $ (308
  

 

 

    

 

 

    

 

 

 

The decrease in interest and foreign exchange expense as compared to the prior comparable period was primarily attributed to lower interest expense on lower levels of borrowing.

Income Tax

The tax rate for the three months ended February 28, 2013 was 27.8% as compared to 23.7% in the prior comparable period. The provision for income taxes is based on projected consolidated results of operations and geographical mix of earnings for the entire year which results in an estimated 32.0% annual effective tax rate before the impact of discrete items. Discrete items for the quarter primarily related to certain items associated with our Mexican operations. The tax rate fluctuates from period to period due to a change in the geographical mix of pre-tax earnings and losses, minimum tax requirements in certain local jurisdictions and the impact of discrete items.

Noncontrolling Interest

Net earnings attributable to noncontrolling interest was $0.6 million for the three months ended February 28, 2013 compared to a net loss attributable to noncontrolling interest of $0.4 million in the prior comparable period. These amounts primarily represent our joint venture partner’s share in the results of operations of our Mexican railcar manufacturing joint venture, adjusted for intercompany sales. The change from the prior comparable period is primarily a result of higher sales to third parties and lower intercompany activity in the current period.

 

36


THE GREENBRIER COMPANIES, INC.

 

Six Months Ended February 28, 2013 Compared to Six Months Ended February 29, 2012

Overview

Total revenue for the six months ended February 28, 2013 was $838.5 million, a decrease of $17.9 million from revenues of $856.4 million in the prior comparable period. The decrease was primarily the result of a decrease in revenue in our Wheel Services, Refurbishments & Parts segment of our business. Revenue in this segment decreased by $13.6 million primarily attributed to lower demand for wheel set replacements as compared to the prior year partially offset by an increase in demand for refurbishment work.

Net earnings attributable to Greenbrier for the six months ended February 28, 2013 were $24.3 million or $0.80 per diluted common share compared to $32.2 million or $1.04 per diluted common share for the six months ended February 29, 2012. The decrease in net income and earnings per share was primarily attributable to a decrease in margin in our Wheel Services, Refurbishment & Parts segment, higher selling and administrative expense and increased earnings attributable to noncontrolling interest in the current period.

 

     Six Months Ended  
(In thousands)    February 28,
2013
    February 29,
2012
 

Revenue:

    

Manufacturing

   $ 579,416      $ 582,863   

Wheel Services, Refurbishment & Parts

     224,051        237,643   

Leasing & Services

     35,073        35,879   
  

 

 

   

 

 

 
     838,540        856,385   

Margin:

    

Manufacturing

     58,274        55,823   

Wheel Services, Refurbishment & Parts

     19,441        25,198   

Leasing & Services

     18,338        16,921   
  

 

 

   

 

 

 
     96,053        97,942   

Less unallocated items:

    

Selling and administrative expense

     51,042        48,214   

Net gain on disposition of equipment

     (4,484     (6,312

Interest and foreign exchange

     12,222        12,014   
  

 

 

   

 

 

 

Earnings before income taxes and loss from unconsolidated affiliates

     37,273        44,026   

Income tax expense

     (10,176     (13,144
  

 

 

   

 

 

 

Earnings before loss from unconsolidated affiliates

     27,097        30,882   

Loss from unconsolidated affiliates

     (145     (300
  

 

 

   

 

 

 

Net earnings

     26,952        30,582   

Net (earnings) loss attributable to noncontrolling interest

     (2,686     1,604   
  

 

 

   

 

 

 

Net earnings attributable to Greenbrier

   $ 24,266      $ 32,186   
  

 

 

   

 

 

 

Diluted earnings per common share

   $ 0.80      $ 1.04   

 

37


THE GREENBRIER COMPANIES, INC.

 

Manufacturing Segment

Manufacturing revenue for the six months ended February 28, 2013 was $579.4 million compared to $582.9 million in the comparable period of the prior year, a decrease of $3.5 million. Railcar unit deliveries, which are the primary source of manufacturing revenue, were approximately 5,600 units in the current period compared to approximately 7,000 units in the prior comparable period. The decrease in revenue was primarily attributed to a lower volume of deliveries as compared to the prior comparable period partially offset by a higher per unit average selling price as a result of a change in product mix and an increase in marine revenue as compared to the prior comparable period.

Manufacturing margin as a percentage of revenue for the six months ended February 28, 2013 was 10.1% compared to a margin of 9.6% for the six months ended February 29, 2012. The increase in margin as a percentage of revenue was primarily attributed to a favorable change in product mix and pricing environment and a marine barge, which was delivered in the current year, accounted for under the completed contract method.

Wheel Services, Refurbishment & Parts Segment

Wheel Services, Refurbishment & Parts revenue was $224.1 million for the six months ended February 28, 2013 compared to $237.6 million in the comparable period of the prior year. The decrease of $13.5 million was primarily attributed to lower demand for wheel set replacements as compared to the prior year and a decrease in scrap metal pricing. These were partially offset by an increase in demand for refurbishment work.

Wheel Services, Refurbishment & Parts margin as a percentage of revenue was 8.7% for the six months ended February 28, 2013 compared to 10.6% for the six months ended February 29, 2012. The decrease in margin as a percentage of revenue was primarily the result of inefficiencies from operating at lower wheel volumes and a decrease in scrap metal pricing. These were partially offset by an increase in margin as a percentage of revenue related to a favorable change in parts product mix.

Leasing & Services Segment

Leasing & Services revenue was $35.1 million for the six months ended February 28, 2013 compared to $35.9 million for the comparable period of the prior year. The decrease of $0.8 million was primarily attributed to a decrease in mileage utilization leases and lower rents earned on lower volumes of leased railcars for syndication.

Leasing & Services margin as a percentage of revenue was 52.3% for the six months ended February 28, 2013 and 47.2% for the six months ended February 29, 2012. The increase in margin as a percentage of revenue was primarily the result of a reduction in the maintenance accrual on terminated maintenance management agreements partially offset by lower rents earned on lower volumes of leased railcars for syndication and an increase in transportation costs.

Selling and Administrative Expense

Selling and administrative expense was $51.0 million or 6.1% of revenue for the six months ended February 28, 2013 compared to $48.2 million or 5.6% of revenue for the prior comparable period, an increase of $2.8 million. The increase for the six months ended February 28, 2013 compared to the prior comparable period primarily related to higher professional fees and travel and entertainment expenses due to increased business activity levels.

Net gain on Disposition of Equipment

Net gain on disposition of equipment was $4.5 million for the six months ended February 28, 2013, compared to $6.3 million for the prior comparable period. Assets from Greenbrier’s lease fleet are periodically sold in the normal course of business in order to take advantage of market conditions and manage risk and liquidity.

The current year’s gain primarily included $5.2 million in gains realized on the disposition of leased assets, a $0.6 million other gain and a $1.3 million loss related to the anticipated sale of certain assets from our roller bearing operation in Elizabethtown, Kentucky. All of the prior year’s gain $6.3 million was realized on the disposition of leased assets.

 

38


THE GREENBRIER COMPANIES, INC.

 

Other Costs

Interest and foreign exchange expense was comprised of the following:

 

     Six Months Ended        
(In thousands)    February 28,
2013
     February 29,
2012
    Increase
(Decrease)
 

Interest and foreign exchange:

       

Interest and other expense

   $ 9,496       $ 11,149      $ (1,653

Accretion of convertible debt discount

     1,725         1,599        126   

Foreign exchange (gain) loss