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 May 31, 2016

 

¨ 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   x    Accelerated filer   ¨
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 June 30, 2016 was 28,204,389 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 Quarterly Report 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 attempted modifications or cancellations, changes in interest rates and increased costs of materials and components;
    ability to obtain adequate insurance coverage at acceptable rates;
    ability to convert backlog of railcar orders and obtain and execute lease syndication commitments;
    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 wheels, repair services and parts;
    delays in receipt of orders, risks that contracts may be canceled or modified during their term, not renewed, unenforceable or breached by the customer and that customers may not purchase the amount of products or services under the contracts as anticipated;
    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;
    global political or security conditions in the U.S., Europe, Latin America and the Middle East including such matters as terrorism, war, civil disruption and crime;
    sovereign risk related to international governments that includes, but is not limited to, governments stopping payments, repudiating their contracts, nationalizing private businesses and assets or altering foreign exchange regulations;
    growth or reduction in the surface transportation industry;
    ability to maintain good relationships with our labor force, third party labor providers and collective bargaining units representing our direct and indirect labor force;
    ability to maintain good relationships with our customers and suppliers;
    ability to renew or replace expiring customer contracts on satisfactory terms;
    ability to obtain and execute suitable lease contracts for leased railcars for syndication;
    steel and specialty component price fluctuations and availability, scrap surcharges, steel scrap prices and other commodity price fluctuations and availability and their impact on product demand and margin;
    delay or failure of acquired businesses or joint ventures, 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;

 

2


THE GREENBRIER COMPANIES, INC.

 

    labor disputes, energy shortages or operating difficulties that might disrupt operations or the flow of cargo;
    production difficulties and product delivery delays as a result of, among other matters, costs or inefficiencies associated with expansion, start-up, or changing of production lines or changes in production rates, equipment failures, changing technologies, transfer of production between facilities or non-performance of alliance partners, subcontractors or suppliers;
    lower than anticipated lease renewal rates, earnings on utilization based leases or residual values for leased equipment;
    discovery of defects in railcars or services resulting in increased warranty costs or litigation;
    physical damage, business interruption or product or service liability claims that exceed our insurance coverage;
    commencement of and ultimate resolution or outcome of pending or future litigation and investigations;
    natural disasters or severe 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 or failures to act by various regulatory agencies including changing tank car or other rail car regulations;
    potential environmental remediation obligations;
    changes in commodity prices, including oil and gas;
    risks associated with our intellectual property rights or those of third parties, including infringement, maintenance, protection, validity, enforcement and continued use of such rights;
    expansion of warranty and product support terms beyond those which have traditionally prevailed in the rail supply industry;
    availability of a trained work force at a reasonable cost and with reasonable terms of employment;
    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 joint ventures or acquired businesses;
    discovery of previously unknown liabilities associated with acquired businesses;
    failure of or delay in implementing and using new software or other technologies;
    the impact of cybersecurity risks and the costs of mitigating and responding to a data security breach;
    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;
    financial impacts from currency fluctuations and currency hedging activities in our worldwide operations;
    increased costs or other impacts due to changes in legislation, regulations or accounting pronouncements; and
    fraud, misconduct by employees and potential exposure to liabilities under the Foreign Corrupt Practices Act and other anti-corruption laws and regulations.

 

3


THE GREENBRIER COMPANIES, INC.

 

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,” “strategy,” “could,” “would,” “should,” “likely,” “will,” “may,” “can,” “designed to,” “future,” “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.

 

4


THE GREENBRIER COMPANIES, INC.

 

PART I. FINANCIAL INFORMATION

 

Item 1. Condensed Financial Statements

Consolidated Balance Sheets

(In thousands, unaudited)

 

     May 31,
2016
    August 31,
2015
 

Assets

    

Cash and cash equivalents

   $ 214,440      $ 172,930   

Restricted cash

     8,669        8,869   

Accounts receivable, net

     213,510        196,029   

Inventories

     458,068        445,535   

Leased railcars for syndication

     136,812        212,534   

Equipment on operating leases, net

     232,791        255,391   

Property, plant and equipment, net

     318,010        303,135   

Investment in unconsolidated affiliates

     89,297        87,270   

Intangibles and other assets, net

     71,022        65,554   

Goodwill

     43,265        43,265   
  

 

 

   

 

 

 
   $ 1,785,884      $ 1,790,512   
  

 

 

   

 

 

 

Liabilities and Equity

    

Revolving notes

   $ —        $ 50,888   

Accounts payable and accrued liabilities

     370,652        455,213   

Deferred income taxes

     50,390        60,657   

Deferred revenue

     68,158        33,836   

Notes payable

     306,808        326,429   

Commitments and contingencies (Note 13)

    

Equity:

    

Greenbrier

    

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

     —          —     

Common stock - without par value; 50,000 shares authorized; 28,202 and 28,907 shares outstanding at May 31, 2016 and August 31, 2015

     —          —     

Additional paid-in capital

     278,880        295,444   

Retained earnings

     590,725        458,599   

Accumulated other comprehensive loss

     (29,519     (21,205
  

 

 

   

 

 

 

Total equity - Greenbrier

     840,086        732,838   

Noncontrolling interest

     149,790        130,651   
  

 

 

   

 

 

 

Total equity

     989,876        863,489   
  

 

 

   

 

 

 
   $ 1,785,884      $ 1,790,512   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements

 

5


THE GREENBRIER COMPANIES, INC.

 

Consolidated Statements of Income

(In thousands, except per share amounts, unaudited)

 

     Three Months Ended
May 31,
    Nine Months Ended
May 31,
 
     2016     2015     2016     2015  

Revenue

        

Manufacturing

   $ 458,494      $ 593,376      $ 1,611,686      $ 1,478,566   

Wheels & Parts

     78,417        97,407        247,604        286,671   

Leasing & Services

     75,955        23,823        225,044        74,576   
  

 

 

   

 

 

   

 

 

   

 

 

 
     612,866        714,606        2,084,334        1,839,813   

Cost of revenue

        

Manufacturing

     352,775        465,658        1,247,635        1,184,922   

Wheels & Parts

     69,818        89,645        224,208        259,285   

Leasing & Services

     63,175        10,017        180,737        32,942   
  

 

 

   

 

 

   

 

 

   

 

 

 
     485,768        565,320        1,652,580        1,477,149   

Margin

     127,098        149,286        431,754        362,664   

Selling and administrative expense

     43,280        45,595        118,073        112,223   

Net gain on disposition of equipment

     (311     (720     (11,326     (924
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings from operations

     84,129        104,411        325,007        251,365   

Other costs

        

Interest and foreign exchange

     3,712        4,285        10,565        9,355   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings before income taxes and earnings from unconsolidated affiliates

     80,417        100,126        314,442        242,010   

Income tax expense

     (22,449     (30,783     (92,902     (76,209
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings before earnings from unconsolidated affiliates

     57,968        69,343        221,540        165,801   

Earnings from unconsolidated affiliates

     1,564        982        2,921        1,552   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings

     59,532        70,325        224,461        167,353   

Net earnings attributable to noncontrolling interest

     (24,180     (27,514     (74,808     (41,405
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings attributable to Greenbrier

   $ 35,352      $ 42,811      $ 149,653      $ 125,948   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per common share

   $ 1.22      $ 1.54      $ 5.13      $ 4.58   

Diluted earnings per common share

   $ 1.12      $ 1.33      $ 4.67      $ 3.91   

Weighted average common shares:

        

Basic

     29,059        27,842        29,182        27,514   

Diluted

     32,342        33,000        32,475        33,262   

Dividends declared per common share

   $ 0.20      $ 0.15      $ 0.60      $ 0.45   

The accompanying notes are an integral part of these financial statements

 

6


THE GREENBRIER COMPANIES, INC.

 

Consolidated Statements of Comprehensive Income

(In thousands, unaudited)

 

     Three Months Ended
May 31,
    Nine Months Ended
May 31,
 
     2016     2015     2016     2015  

Net earnings

   $ 59,532      $ 70,325      $ 224,461      $ 167,353   

Other comprehensive income

        

Translation adjustment

     1,477        (1,299     (3,655     (10,990

Reclassification of derivative financial instruments recognized in net
earnings 1

     659        (254     1,710        417   

Unrealized gain (loss) on derivative financial instruments 2

     1,113        107        (6,417     (7

Other (net of tax effect)

     7        93        1        99   
  

 

 

   

 

 

   

 

 

   

 

 

 
     3,256        (1,353     (8,361     (10,481
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     62,788        68,972        216,100        156,872   

Comprehensive income attributable to noncontrolling interest

     (24,195     (27,497     (74,761     (41,253
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to Greenbrier

   $ 38,593      $ 41,475      $ 141,339      $ 115,619   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

1  Net of tax effect of $0.3 million and $0.04 million for the three months ended May 31, 2016 and 2015 and $0.7 million and $0.4 million for the nine months ended May 31, 2016 and 2015.
2  Net of tax effect of $0.3 million and $0.1 million for the three months ended May 31, 2016 and 2015 and $2.2 million and $0.6 million for the nine months ended May 31, 2016 and 2015.

The accompanying notes are an integral part of these financial statements

 

7


THE GREENBRIER COMPANIES, INC.

 

Consolidated Statements of Equity

(In thousands, unaudited)

 

     Attributable to Greenbrier              
     Common
Stock
Shares
    Additional
Paid-in Capital
    Retained
Earnings
    Accumulated
Other
Comprehensive
Loss
    Total
Attributable to
Greenbrier
    Attributable to
Noncontrolling
Interest
    Total Equity  

Balance September 1, 2015

     28,907      $ 295,444      $ 458,599      $ (21,205   $ 732,838      $ 130,651      $ 863,489   

Net earnings

     —          —          149,653        —          149,653        74,808        224,461   

Other comprehensive loss, net

     —          —          —          (8,314     (8,314     (47     (8,361

Noncontrolling interest adjustments

     —          —          —          —          —          837        837   

Purchase of noncontrolling interest

     —          —          —          —          —          (4     (4

Joint venture partner distribution declared

     —          —          —          —          —          (61,855     (61,855

Investment by joint venture partner

     —          —          —          —          —          5,400        5,400   

Restricted stock awards (net of cancellations)

     350        6,186        —          —          6,186        —          6,186   

Unamortized restricted stock

     —          (11,646     —          —          (11,646     —          (11,646

Restricted stock amortization

     —          18,483        —          —          18,483        —          18,483   

Excess tax benefit from restricted stock awards

     —          2,786        —          —          2,786        —          2,786   

Cash dividends

     —          —          (17,527     —          (17,527     —          (17,527

Repurchase of stock

     (1,055     (32,373     —          —          (32,373     —          (32,373
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance May 31, 2016

     28,202      $ 278,880      $ 590,725      $ (29,519   $ 840,086      $ 149,790      $ 989,876   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     Attributable to Greenbrier              
     Common
Stock
Shares
    Additional
Paid-in Capital
    Retained
Earnings
    Accumulated
Other
Comprehensive
Loss
    Total
Attributable to
Greenbrier
    Attributable to
Noncontrolling
Interest
    Total Equity  

Balance September 1, 2014

     27,364      $ 235,763      $ 282,559      $ (6,932   $ 511,390      $ 62,331      $ 573,721   

Net earnings

     —          —          125,948        —          125,948        41,405        167,353   

Other comprehensive loss, net

     —          —          —          (10,329     (10,329     (152     (10,481

Noncontrolling interest adjustments

     —          —          —          —          —          20,371        20,371   

Purchase of noncontrolling interest

     —          —          —          —          —          (80     (80

Joint venture partner distribution declared

     —          —          —          —          —          (13,267     (13,267

Restricted stock awards (net of cancellations)

     (19     22,600        —          —          22,600        —          22,600   

Unamortized restricted stock

     —          (24,394     —          —          (24,394     —          (24,394

Restricted stock amortization

     —          13,176        —          —          13,176        —          13,176   

Excess tax benefit from restricted stock awards

     —          2,964        —          —          2,964        —          2,964   

Conversion of convertible notes, net of debt issuance costs

     2,471        91,749        —          —          91,749        —          91,749   

Cash dividends

     —          —          (12,257     —          (12,257     —          (12,257

Repurchase of stock

     (891     (48,451     —          —          (48,451     —          (48,451
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance May 31, 2015

     28,925      $ 293,407      $ 396,250      $ (17,261   $ 672,396      $ 110,608      $ 783,004   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements

 

8


THE GREENBRIER COMPANIES, INC.

 

Consolidated Statements of Cash Flows

(In thousands, unaudited)

 

     Nine Months Ended
May 31,
 
     2016     2015  

Cash flows from operating activities

    

Net earnings

   $ 224,461      $ 167,353   

Adjustments to reconcile net earnings to net cash provided by operating activities:

    

Deferred income taxes

     (10,143     (5,245

Depreciation and amortization

     41,681        33,258   

Net gain on disposition of equipment

     (11,326     (924

Stock based compensation expense

     19,055        13,176   

Noncontrolling interest adjustments

     837        20,371   

Other

     564        1,008   

(Increase) decrease in assets:

    

Accounts receivable, net

     (14,333     (8,769

Inventories

     (15,346     (124,906

Leased railcars for syndication

     28,823        (90,914

Other

     (5,191     (1,666

Increase (decrease) in liabilities:

    

Accounts payable and accrued liabilities

     (88,707     23,135   

Deferred revenue

     24,303        3,680   
  

 

 

   

 

 

 

Net cash provided by operating activities

     194,678        29,557   
  

 

 

   

 

 

 

Cash flows from investing activities

    

Proceeds from sales of assets

     88,707        4,628   

Capital expenditures

     (51,707     (75,892

Decrease in restricted cash

     200        228   

Investment in and advances to unconsolidated affiliates

     (9,088     (29,923

Cash distribution from unconsolidated affiliates

     5,338        715   
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     33,450        (100,244
  

 

 

   

 

 

 

Cash flows from financing activities

    

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

     (49,000     73,000   

Proceeds from revolving notes with maturities longer than 90 days

     —          42,563   

Repayments of revolving notes with maturities longer than 90 days

     (1,888     (36,137

Repayments of notes payable

     (19,461     (5,504

Debt issuance costs

     (4,160     —     

Repurchase of stock

     (33,498     (48,451

Dividends

     (17,362     (12,069

Decrease in restricted cash

     —          11,000   

Cash distribution to joint venture partner

     (62,710     (12,489

Investment by joint venture partner

     5,400        —     

Excess tax benefit from restricted stock awards

     2,786        2,964   

Other

     (7     (248
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (179,900     14,629   
  

 

 

   

 

 

 

Effect of exchange rate changes

     (6,718     (6,075

Increase (decrease) in cash and cash equivalents

     41,510        (62,133

Cash and cash equivalents

    

Beginning of period

     172,930        184,916   
  

 

 

   

 

 

 

End of period

   $ 214,440      $ 122,783   
  

 

 

   

 

 

 

Cash paid during the period for

    

Interest

   $ 10,852      $ 13,509   

Income taxes, net

   $ 77,867      $ 87,829   

Non-cash activity

    

Transfer from Leased railcars for syndication to Equipment on operating leases, net

   $ 45,535      $ 3,313   

Capital expenditures accrued in Accounts payable and accrued liabilities

   $ 3,529      $ 2,304   

Change in Accounts payable and accrued liabilities associated with repurchase of stock

   $ 1,125      $ —     

Change in Accounts payable and accrued liabilities associated with cash distributions to joint venture partner

   $ 855      $ —     

Change in Accounts payable and accrued liabilities associated with dividends declared

   $ (165   $ 188   

Conversion of convertible notes, net of debt issuance costs

   $ —        $ 91,749   

The accompanying notes are an integral part of these financial statements

 

9


THE GREENBRIER COMPANIES, INC.

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1 – Interim Financial Statements

The Condensed Consolidated Financial Statements of The Greenbrier Companies, Inc. and its subsidiaries (Greenbrier or the Company) as of May 31, 2016, for the three and nine months ended May 31, 2016 and 2015 have been prepared without audit and reflect all adjustments (consisting of normal recurring accruals) that, in the opinion of management, are necessary for a fair presentation of the financial position, operating results and cash flows for the periods indicated. The results of operations for the three and nine months ended May 31, 2016 are not necessarily indicative of the results to be expected for the entire year ending August 31, 2016.

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 2015 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.

Prospective Accounting Changes – In May 2014, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) jointly issued a converged standard on the recognition of revenue from contracts with customers. The issued guidance converges the criteria for reporting revenue, and requires disclosures sufficient to describe the nature, amount, timing, and uncertainty of revenue and cash flows arising from these contracts. Companies can transition to the standard either retrospectively or as a cumulative effect adjustment as of the date of adoption. The FASB issued a one year deferral and the new standard is effective for fiscal years and interim periods within those years beginning after December 15, 2017. The Company plans to adopt this guidance beginning September 1, 2018. The Company is evaluating the impact of this standard as well as its method of adoption on its consolidated financial statements and disclosures.

In April 2015, the FASB issued Accounting Standards Update 2015-03, Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03). The FASB issued this update to simplify the presentation of debt issuance costs related to a recognized debt liability to present the debt issuance costs as a direct deduction from the carrying value of the debt liability rather than showing the debt issuance costs as an asset. The guidance is limited to the presentation of debt issuance costs and does not impact its recognition and measurement. The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2015, with early adoption permitted, and is required to be applied on a retrospective basis. The Company plans to adopt this guidance beginning September 1, 2016. As the adoption of this new guidance will only amend presentation and disclosure requirements, the adoption will not affect the Company’s financial position, results of operations or cash flows.

In August 2015, the FASB issued Accounting Standards Update 2015-15, Interest-Imputation of Interest: Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line of Credit Arrangements (ASU 2015-15). This update was released because the guidance within ASU 2015-03 for debt issuance costs does not address presentation or subsequent measurement of debt issuance costs related to line of credit arrangements. The SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line of credit arrangement, regardless of whether there are any outstanding borrowings on the line of credit arrangement. The new guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2015. The Company plans to adopt this guidance beginning September 1, 2016. Upon adoption, the Company plans to continue to present debt issuance costs related to line of credit arrangements as an asset. The adoption of this new guidance will not affect the Company’s financial position, results of operations or cash flows.

 

10


THE GREENBRIER COMPANIES, INC.

 

In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (ASU 2016-02). The new guidance supersedes existing guidance on accounting for leases in Topic 840 and is intended to increase the transparency and comparability of accounting for lease transactions. ASU 2016-02 requires most leases to be recognized on the balance sheet. Lessees will need to recognize a right-of-use asset and a lease liability for virtually all leases. The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Lessor accounting remains similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. The ASU will require both quantitative and qualitative disclosures regarding key information about leasing arrangements. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition, and provides for certain practical expedients. Transition will require application of the new guidance at the beginning of the earliest comparative period presented. The Company plans to adopt this guidance beginning September 1, 2019. The Company is evaluating the impact of this standard on its consolidated financial statements and disclosures.

In March 2016, the FASB issued Accounting Standards Update 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). The new guidance will change how companies account for certain aspects of share-based payments to employees. Excess tax benefits related to vested awards, previously recognized in equity, will be required to be recognized in the income statement when the awards vest. The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2016, with early adoption permitted. The Company plans to adopt this guidance beginning September 1, 2017. The Company is currently evaluating the effect the guidance will have on its consolidated financial statements and disclosures.

Share Repurchase Program Since October 2013, the Board of Directors has authorized the Company to repurchase in aggregate up to $225 million of the Company’s common stock. The program may be modified, suspended or discontinued at any time without prior notice. Under the share repurchase program, shares of common stock may be purchased on the open market or through privately negotiated transactions from time-to-time. The timing and amount of purchases will be based upon market conditions, securities law limitations and other factors. The share repurchase program does not obligate the Company to acquire any specific number of shares in any period.

During the nine months ended May 31, 2016, the Company purchased a total of 1,054,687 shares for approximately $32.4 million. The Company did not repurchase any shares during the three months ended May 31, 2016. As of May 31, 2016 the Company had cumulatively repurchased 3,206,226 shares for approximately $137.0 million and had $88.0 million available under the share repurchase program with an expiration date of January 1, 2018.

 

11


THE GREENBRIER COMPANIES, INC.

 

Note 2 – 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)    May 31,
2016
     August 31,
2015
 

Manufacturing supplies and raw materials

   $ 258,608       $ 311,880   

Work-in-process

     63,602         75,032   

Finished goods

     139,199         61,302   

Excess and obsolete adjustment

     (3,341      (2,679
  

 

 

    

 

 

 
   $ 458,068       $ 445,535   
  

 

 

    

 

 

 

Note 3 – Intangibles and Other Assets, net

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

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

 

(In thousands)    May 31,
2016
     August 31,
2015
 

Intangible assets subject to amortization:

     

Customer relationships

   $ 65,023       $ 65,023   

Accumulated amortization

     (36,395      (33,828

Other intangibles

     6,288         3,422   

Accumulated amortization

     (5,757      (3,121
  

 

 

    

 

 

 
     29,159         31,496   

Intangible assets not subject to amortization

     912         912   

Prepaid and other assets

     15,671         13,111   

Nonqualified savings plan investments

     15,093         11,815   

Debt issuance costs, net

     6,079         3,823   

Assets held for sale

     4,108         4,397   
  

 

 

    

 

 

 

Total Intangible and other assets, net

   $ 71,022       $ 65,554   
  

 

 

    

 

 

 

Amortization expense for the three and nine months ended May 31, 2016 was $1.5 million and $5.3 million and for the three and nine months ended May 31, 2015 was $0.9 million and $2.7 million. Amortization expense for the years ending August 31, 2016, 2017, 2018, 2019 and 2020 is expected to be $6.3 million, $3.6 million, $3.5 million, $3.4 million and $3.4 million.

 

12


THE GREENBRIER COMPANIES, INC.

 

Note 4 – Revolving Notes

Senior secured credit facilities, consisting of three components, aggregated to $615.5 million as of May 31, 2016.

As of May 31, 2016, a $550.0 million revolving line of credit, maturing October 2020, secured by substantially all the Company’s assets in the U.S. not otherwise pledged as security for term loans, was available to provide working capital and interim financing of equipment, principally for the U.S. and Mexican operations. Advances under this facility bear interest at LIBOR plus 1.75% or Prime plus 0.75% depending on the type of borrowing. Available borrowings under the credit facility are generally based on defined levels of inventory, receivables, property, plant and equipment and leased equipment, as well as total debt to consolidated capitalization and fixed charges coverage ratios.

As of May 31, 2016, lines of credit totaling $15.5 million secured by certain of the Company’s European assets, with various variable rates that range from Warsaw Interbank Offered Rate (WIBOR) plus 1.2% to WIBOR plus 1.3%, were available for working capital needs of the European manufacturing operation. European credit facilities are continually being renewed. Currently these European credit facilities have maturities that range from February 2017 through June 2017.

The Company’s Mexican railcar manufacturing joint venture has two lines of credit totaling $50.0 million. The first line of credit provides up to $30.0 million and is fully guaranteed by the Company and its joint venture partner. Advances under this facility bear interest at LIBOR plus 2.0%. The Mexican railcar manufacturing joint venture will be able to draw against this facility through January 2019. The second line of credit provides up to $20.0 million, of which the Company and its joint venture partner have each guaranteed 50%. Advances under this facility bear interest at LIBOR plus 2.0%. The Mexican railcar manufacturing joint venture will be able to draw amounts available under this facility through August 2017.

As of May 31, 2016, outstanding commitments under the senior secured credit facilities consisted of $81.3 million in letters of credit under the North American credit facility.

As of August 31, 2015, outstanding commitments under the senior secured credit facilities consisted of $47.2 million in letters of credit and $49.0 million in revolving notes under the North American credit facility and $1.9 million outstanding in revolving notes under the Mexican railcar manufacturing joint venture credit facilities.

 

13


THE GREENBRIER COMPANIES, INC.

 

Note 5 – Accounts Payable and Accrued Liabilities

 

(In thousands)    May 31,
2016
     August 31,
2015
 

Trade payables

   $ 187,240       $ 263,665   

Other accrued liabilities

     73,919         64,584   

Accrued payroll and related liabilities

     61,629         70,836   

Accrued maintenance

     18,488         18,642   

Accrued warranty

     12,132         11,512   

Income taxes payable

     11,604         22,465   

Other

     5,640         3,509   
  

 

 

    

 

 

 
   $ 370,652       $ 455,213   
  

 

 

    

 

 

 

Note 6 – Warranty Accruals

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

Warranty accrual activity:

 

(In thousands)    Three Months Ended
May 31,
     Nine Months Ended
May 31,
 
   2016      2015      2016      2015  

Balance at beginning of period

   $ 12,147       $ 9,188       $ 11,512       $ 9,340   

Charged to cost of revenue, net

     1,202         2,036         4,086         3,982   

Payments

     (1,205      (994      (3,386      (2,797

Currency translation effect

     (12      (32      (80      (327
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at end of period

   $ 12,132       $ 10,198       $ 12,132       $ 10,198   
  

 

 

    

 

 

    

 

 

    

 

 

 

Note 7 – Notes Payable

The Company’s Notes payable balance was $306.8 million as of May 31, 2016 which includes Convertible senior notes, due 2026 (the 2026 Notes). On specified dates or in the event of certain fundamental changes, holders can require the Company to repurchase all or a portion of their 2026 Notes at a price equal to 100% of the principal amount of the 2026 Notes plus accrued and unpaid interest (the Put Option). During the three months ended May 31, 2016, the Company retired $14.0 million of its then $14.9 million outstanding 2026 Notes pursuant to a scheduled Put Option leaving $0.9 million outstanding in 2026 Notes as of May 31, 2016.

 

14


THE GREENBRIER COMPANIES, INC.

 

Note 8 – Accumulated Other Comprehensive Loss

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

 

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

Balance, August 31, 2015

   $ (2,194   $ (18,666   $ (345   $ (21,205

Other comprehensive loss before reclassifications

     (6,417     (3,608     1        (10,024

Amounts reclassified from accumulated other comprehensive loss

     1,710        —          —          1,710   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, May 31, 2016

   $ (6,901   $ (22,274   $ (344   $ (29,519
  

 

 

   

 

 

   

 

 

   

 

 

 

The amounts reclassified out of Accumulated other comprehensive loss into the Consolidated Statements of Income, with presentation location, were as follows:

 

     Three Months Ended
May 31,
    Nine Months Ended
May 31,
   

Financial Statement

Location

(In thousands)

   2016     2015     2016     2015    

(Gain) loss on derivative financial instruments:

          

Foreign exchange contracts

   $ 561      $ (652   $ 1,203      $ (518   Revenue

Interest rate swap contracts

     370        442        1,247        1,349      Interest and foreign exchange
  

 

 

   

 

 

   

 

 

   

 

 

   
     931        (210     2,450        831      Total before tax
     (272     (44     (740     (414   Tax expense
  

 

 

   

 

 

   

 

 

   

 

 

   
   $ 659      $ (254   $ 1,710      $ 417      Net of tax
  

 

 

   

 

 

   

 

 

   

 

 

   

 

15


THE GREENBRIER COMPANIES, INC.

 

Note 9 – Earnings Per Share

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

 

(In thousands)    Three Months Ended
May 31,
     Nine Months Ended
May 31,
 
   2016      2015      2016      2015  

Weighted average basic common shares outstanding (1)

     29,059         27,842         29,182         27,514   

Dilutive effect of 2018 Convertible notes (2)

     3,224         5,155         3,202         5,745   

Dilutive effect of 2026 Convertible notes (3)

     —           3         —           3   

Dilutive effect of performance based restricted stock units (4)

     59         —           91         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average diluted common shares outstanding

     32,342         33,000         32,475         33,262   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Restricted stock grants and restricted stock units, including some grants subject to certain performance criteria, are included in weighted average basic common shares outstanding when the Company is in a net earnings position.
(2) The dilutive effect of the 2018 Convertible notes was included for the three and nine months ended May 31, 2016 and 2015 as they were considered dilutive under the “if converted” method as further discussed below.
(3) The dilutive effect of the 2026 Convertible notes was excluded for the three and nine months ended May 31, 2016 as the average stock price was less than the conversion price of $47.15 and therefore was considered anti-dilutive. The effect of the 2026 Convertible notes was included for the three and nine months ended May 31, 2015 as the average stock price was greater than the applicable conversion price, as further described below.
(4) Restricted stock units that are subject to performance criteria, for which actual levels of performance above target have been achieved, are included in weighted average diluted common shares outstanding when the Company is in a net earnings position.

Dilutive EPS is calculated using the more dilutive of two approaches. The first approach includes the dilutive effect, using the treasury stock method, associated with shares underlying the 2026 Convertible notes and performance based restricted stock units that are subject to performance criteria, for which actual levels of performance above target have been achieved. The second approach supplements the first by including the “if converted” effect of the 2018 Convertible notes 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 are included in the calculation of both approaches using the treasury stock method when the average stock price is greater than the applicable conversion price.

 

     Three Months Ended
May 31,
     Nine Months Ended
May 31,
 
     2016      2015      2016      2015  

Net earnings attributable to Greenbrier

   $ 35,352       $ 42,811       $ 149,653       $ 125,948   

Add back:

           

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

     733         1,234         1,962         4,066   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings before interest and debt issuance costs on convertible notes

   $ 36,085       $ 44,045       $ 151,615       $ 130,014   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average diluted common shares outstanding

     32,342         33,000         32,475         33,262   

Diluted earnings per share (1)

   $ 1.12       $ 1.33       $ 4.67       $ 3.91   

 

(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

 

16


THE GREENBRIER COMPANIES, INC.

 

Note 10 – Stock Based Compensation

The value of stock based compensation awards is amortized as compensation expense from the date of grant through the earlier of the vesting period or the recipient’s eligible retirement date. Awards are expensed upon grant when the recipient’s eligible retirement date precedes the grant date.

Stock based compensation expense was $8.3 million and $19.1 million for the three and nine months ended May 31, 2016, respectively and $6.0 million and $13.2 million for the three and nine months ended May 31, 2015, respectively. Compensation expense is recorded in Selling and administrative expense and Cost of revenue on the Consolidated Statements of Income.

Note 11 – Derivative Instruments

Foreign operations give rise to market risks from changes in foreign currency exchange rates. Foreign currency forward exchange contracts with established financial institutions are utilized to hedge a portion of that risk. Interest rate swap agreements are used to reduce the impact of changes in interest rates on certain debt. The Company’s foreign currency forward exchange contracts and interest rate swap agreements are designated as cash flow hedges, and therefore the effective portion of unrealized gains and losses is recorded in accumulated other comprehensive income or loss.

At May 31, 2016 exchange rates, forward exchange contracts for the purchase of Polish Zlotys and the sale of Euros and U.S. Dollars; the purchase of Mexican Pesos and the sale of U.S. Dollars; and for the purchase of U.S. Dollars and the sale of Saudi Riyals aggregated to $429.7 million. The fair value of the contracts is included on the Consolidated Balance Sheets as Accounts payable and accrued liabilities when there is a loss, or as Accounts receivable, net when there is a gain. As the contracts mature at various dates through September 2018, any such gain or loss remaining will be recognized in manufacturing revenue or cost of revenue along with the related transactions. In the event that the underlying transaction does not occur or does not occur in the period designated at the inception of the hedge, the amount classified in accumulated other comprehensive loss would be reclassified to the results of operations in Interest and foreign exchange at the time of occurrence.

At May 31, 2016, an interest rate swap agreement maturing in March 2020 had a notional amount of $93.0 million. The fair value of the contract is included in Accounts payable and accrued liabilities on the Consolidated Balance Sheets. As interest expense on the underlying debt is recognized, amounts corresponding to the interest rate swap are reclassified from Accumulated other comprehensive loss and charged or credited to interest expense. At May 31, 2016 interest rates, approximately $1.4 million would be reclassified to interest expense in the next 12 months.

Fair Values of Derivative Instruments

 

    

Asset Derivatives

    

Liability Derivatives

 
          May 31,
2016
     August 31,
2015
          May 31,
2016
     August 31,
2015
 
(In thousands)   

Balance sheet location

   Fair
Value
     Fair
Value
    

Balance sheet location

   Fair
Value
     Fair
Value
 

Derivatives designated as hedging instruments

     

Foreign forward exchange contracts

  

Accounts receivable, net

   $ 3,640       $ 1,820      

Accounts payable and accrued liabilities

   $ 5,402       $ 737   

Interest rate swap contracts

  

Intangibles and other assets, net

     —           —        

Accounts payable and accrued liabilities

     3,437         2,393   
     

 

 

    

 

 

       

 

 

    

 

 

 
      $ 3,640       $ 1,820          $ 8,839       $ 3,130   
     

 

 

    

 

 

       

 

 

    

 

 

 

Derivatives not designated as hedging instruments

     

Foreign forward exchange contracts

  

Accounts receivable, net

   $ —         $ 93      

Accounts payable and accrued liabilities

   $ 190       $ 76   

 

17


THE GREENBRIER COMPANIES, INC.

 

The Effect of Derivative Instruments on the Statements of Income

 

Derivatives in cash flow hedging relationships

  

Location of gain (loss) recognized in

income on derivatives

   Gain (loss)
recognized in
income on
derivatives nine
months ended
May 31,
 
          2016     2015  

Foreign forward exchange contract

  

Interest and foreign exchange

   $ (245   $ (22

Interest rate swap contracts

  

Interest and foreign exchange

     88        69   
     

 

 

   

 

 

 
      $ (157   $ 47   
     

 

 

   

 

 

 

 

Derivatives in cash flow
hedging relationships

   Gain (loss)
recognized in OCI on
derivatives
(effective portion)
nine months ended
May 31,
   

Location of gain (loss)
reclassified from
accumulated OCI
into income

   Gain (loss)
reclassified from
accumulated OCI into
income
(effective portion)
nine months ended
May 31,
   

Location of gain on
derivative (ineffective
portion and amount
excluded from
effectiveness testing)

   Gain recognized on
derivative
(ineffective portion
and amount
excluded from
effectiveness
testing)
nine months ended
May 31,
 
     2016     2015          2016     2015          2016      2015  

Foreign forward exchange contracts

   $ (5,430   $ 1,867     

Revenue

   $ (835   $ 518     

Revenue

   $ 2,572       $ 1,024   

Foreign forward exchange contracts

     (919     —       

Cost of revenue

     (412     —       

Cost of revenue

     88         —     

Interest rate swap contracts

     (2,274     (2,640  

Interest and foreign exchange

     (1,203     (1,349  

Interest and foreign exchange

     —           —     
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

    

 

 

 
   $ (8,623   $ (773      $ (2,450   $ (831      $ 2,660       $ 1,024   
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

    

 

 

 

Note 12 – Segment Information

Greenbrier operates in four reportable segments: Manufacturing; Wheels & Parts; Leasing & Services; and GBW Joint Venture. The results of GBW Joint Venture are included as part of Earnings from unconsolidated affiliates as the Company accounts for its interest in GBW Railcar Services LLC (GBW) under the equity method of accounting.

The accounting policies of the segments are described in the summary of significant accounting policies in the Consolidated Financial Statements contained in the Company’s 2015 Annual Report on Form 10-K. Performance is evaluated based on Earnings from operations. Corporate includes selling and administrative costs not directly related to goods and services and certain costs that are intertwined among segments due to our integrated business model. The Company does not allocate Interest and foreign exchange or Income tax expense for either external or internal reporting purposes. Intersegment sales and transfers are valued as if the sales or transfers were to third parties. Related revenue and margin are eliminated in consolidation and therefore are not included in consolidated results in the Company’s Consolidated Financial Statements.

The information in the following table is derived directly from the segments’ internal financial reports used for corporate management purposes. The results of operations for the GBW Joint Venture are not reflected in the tables below as the investment is accounted for under the equity method of accounting.

 

18


THE GREENBRIER COMPANIES, INC.

 

For the three months ended May 31, 2016:

 

     Revenue     Earnings (loss) from operations  
(In thousands)    External      Intersegment     Total     External     Intersegment     Total  

Manufacturing

   $ 458,494       $ 5,595      $ 464,089      $ 92,713      $ 923      $ 93,636   

Wheels & Parts

     78,417         10,058        88,475        5,811        711        6,522   

Leasing & Services

     75,955         601        76,556        8,298        601        8,899   

Eliminations

     —           (16,254     (16,254     —          (2,235     (2,235

Corporate

     —           —          —          (22,693     —          (22,693
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 612,866       $ —        $ 612,866      $ 84,129      $ —        $ 84,129   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

For the nine months ended May 31, 2016:

 

     Revenue     Earnings (loss) from operations  
(In thousands)    External      Intersegment     Total     External     Intersegment     Total  

Manufacturing

   $ 1,611,686       $ 5,595      $ 1,617,281      $ 325,215      $ 941      $ 326,156   

Wheels & Parts

     247,604         24,074        271,678        15,720        2,155        17,875   

Leasing & Services

     225,044         10,444        235,488        42,668        10,444        53,112   

Eliminations

     —           (40,113     (40,113     —          (13,540     (13,540

Corporate

     —           —          —          (58,596     —          (58,596
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 2,084,334       $ —        $ 2,084,334      $ 325,007      $ —        $ 325,007   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

For the three months ended May 31, 2015:

 

     Revenue     Earnings (loss) from operations  
(In thousands)    External      Intersegment     Total     External     Intersegment     Total  

Manufacturing

   $ 593,376       $ 33      $ 593,409      $ 115,675      $ —        $ 115,675   

Wheels & Parts

     97,407         7,605        105,012        5,078        607        5,685   

Leasing & Services

     23,823         11,722        35,545        10,824        11,722        22,546   

Eliminations

     —           (19,360     (19,360     —          (12,329     (12,329

Corporate

     —           —          —          (27,166     —          (27,166
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 714,606       $ —        $ 714,606      $ 104,411      $ —        $ 104,411   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

For the nine months ended May 31, 2015:

 

     Revenue     Earnings (loss) from operations  
(In thousands)    External      Intersegment     Total     External     Intersegment     Total  

Manufacturing

   $ 1,478,566       $ 7,534      $ 1,486,100      $ 258,602      $ 795      $ 259,397   

Wheels & Parts

     286,671         20,450        307,121        20,986        2,044        23,030   

Leasing & Services

     74,576         43,533        118,109        31,677        43,533        75,210   

Eliminations

     —           (71,517     (71,517     —          (46,372     (46,372

Corporate

     —           —          —          (59,900     —          (59,900
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 1,839,813       $ —        $ 1,839,813      $ 251,365      $ —        $ 251,365   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Total assets  
     May 31,      August 31,  
(In thousands)    2016      2015  

Manufacturing

   $ 641,090       $ 675,409   

Wheels & Parts

     301,474         291,798   

Leasing & Services

     523,989         549,073   

Unallocated

     319,331         274,232   
  

 

 

    

 

 

 
   $ 1,785,884       $ 1,790,512   
  

 

 

    

 

 

 

 

19


THE GREENBRIER COMPANIES, INC.

 

Reconciliation of Earnings from operations to Earnings before income tax and earnings from unconsolidated affiliates:

 

     Three Months Ended
May 31,
     Nine Months Ended
May 31,
 
(In thousands)    2016      2015      2016      2015  

Earnings from operations

   $ 84,129       $ 104,411       $ 325,007       $ 251,365   

Interest and foreign exchange

     3,712         4,285         10,565         9,355   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings before income tax and earnings from unconsolidated affiliates

   $ 80,417       $ 100,126       $ 314,442       $ 242,010   
  

 

 

    

 

 

    

 

 

    

 

 

 

The results of operations for the GBW Joint Venture are accounted for under the equity method of accounting. The GBW Joint Venture is the Company’s fourth reportable segment and information as of May 31, 2016 and August 31, 2015 and for the three and nine months ended May 31, 2016 and 2015 are included in the tables below.

 

     Three Months Ended
May 31,
     Nine Months Ended
May 31,
 
(In thousands)    2016      2015      2016      2015  

Revenue

   $ 95,699       $ 88,831       $ 289,381       $ 254,688   

Earnings (loss) from operations

   $ 3,030       $ 227       $ 9,065       $ (1,507
     Total Assets                
     May 31,
2016
     August 31,
2015
               

GBW (1)

   $ 255,400       $ 239,871         

 

(1)  Includes goodwill and intangible assets of $94.4 million and $96.9 million as of May 31, 2016 and August 31, 2015.

 

20


THE GREENBRIER COMPANIES, INC.

 

Note 13 – Commitments and Contingencies

The Company’s Portland, Oregon manufacturing facility is located adjacent to the Willamette River. The Company has entered into a Voluntary Cleanup Agreement with the Oregon Department of Environmental Quality (DEQ) in which the Company agreed to conduct an investigation of whether, and to what extent, past or present operations at the Portland property may have released hazardous substances into the environment.

In December 2000, the U.S. Environmental Protection Agency (EPA) classified portions of the Willamette River bed known as the Portland Harbor, including the portion fronting the Company’s manufacturing facility, as a federal “National 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 produced by the LWG and has cost over $110 million during a 15-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 during the 15-year period. Some or all of any such outlay may be recoverable from other responsible parties.

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, U.S. District Court, District of Oregon, Case #3:09-cv-453-PK. All but 12 of these parties elected to sign tolling agreements and be dismissed without prejudice, and the case has now been stayed by the court, pending the EPA’s Record of Decision, currently scheduled by the EPA for December 31, 2016.

On June 8, 2016, the EPA issued its Feasibility Study (FS) and Proposed Plan for the Portland Harbor Site. The EPA is accepting comments from the public on its Proposed Plan through August 8, 2016. The EPA’s FS includes remediation alternatives that would take from 4 to 62 years of active remediation, with an undiscounted cost ranging from $642 million to $10.2 billion and a net present value assuming a 7% discount rate ranging between $451 million and $9.4 billion. The Proposed Plan identifies the alternative currently favored by the EPA, which it assigns an estimated undiscounted cost of between $1.1 and $1.2 billion and a net present value of between $746 and $811 million. The EPA expects its cost estimates to be accurate within a range of +50 to -30 percent. EPA estimates that the remedy in the Proposed Plan would take 7 years of active remediation followed by 30 years of monitoring. The EPA’s FS and its Proposed Plan identify 13 Sediment Decision Units. One of the units, RM9W, includes the nearshore area of the river sediments offshore of our Portland, Oregon manufacturing facility as well as upstream and downstream of the facility. It also includes a portion of our riverbank. Neither the FS nor the Proposed Plan breaks down total remediation costs by unit.

Neither the EPA’s FS nor its Proposed Plan addresses responsibility for the costs of clean-up, allocates such costs among the potentially responsible parties, or defines precise boundaries for the cleanup. Responsibility for funding and implementing the EPA’s selected cleanup option will be determined after the issuance of the Record of Decision, currently scheduled by the EPA for December 31, 2016. Based on the investigation to date, the Company believes that it did not contribute in any material way to contamination in the river sediments or the damage of natural resources in the Portland Harbor Site and that the damage in the area of the Portland Harbor Site adjacent to its property precedes its ownership of the Portland, Oregon manufacturing facility. Because these environmental investigations are still underway, sufficient information is currently not available to determine the Company’s liability, if any, for the cost of any required remediation or restoration of the Portland Harbor Site or to estimate a range of potential loss. Based on the results of the pending investigations and future assessments of natural resource damages, the Company may be required to incur costs associated with additional phases of investigation or remedial

 

21


THE GREENBRIER COMPANIES, INC.

 

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.

The Company has also signed an Order on Consent with the DEQ to finalize the investigation of potential onsite sources of contamination that may have a release pathway to the Willamette River. Interim precautionary measures are also required in the order and the Company is currently discussing with the DEQ potential remedial actions which may be required. Our aggregate expenditure has not been material, however the Company could incur significant expenses for remediation. Some or all of any such outlay may be recoverable from other responsible parties.

From time to time, Greenbrier is involved as a defendant in litigation in the ordinary course of business, the outcome of which cannot be predicted with certainty. 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 $3.2 million in third party warranty guarantee facilities. To date no amounts have been drawn under these guarantee facilities.

As of May 31, 2016, the Mexican railcar manufacturing joint venture had $0.9 million of third party debt outstanding, for which the Company and its joint venture partner had each guaranteed approximately $0.4 million.

As of May 31, 2016, the Company had outstanding letters of credit aggregating $81.3 million associated with performance guarantees, facility leases and workers compensation insurance.

The Company made $5.3 million in cash contributions and $3.75 million in loans to GBW, an unconsolidated 50/50 joint venture, for the nine months ended May 31, 2016. The Company expects to loan additional amounts of approximately $1.25 million during 2016. The Company is likely to make additional capital contributions or loans to GBW in the future. As of May 31, 2016, the Company had a $35.2 million note receivable balance from GBW which is included on the Consolidated Balance Sheet in Accounts receivable, net.

 

22


THE GREENBRIER COMPANIES, INC.

 

Note 14 – Fair Value Measures

Certain assets and liabilities are reported at fair value on either a recurring or nonrecurring basis. Fair value, for this disclosure, is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, under a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:

 

Level 1 -    observable inputs such as unadjusted quoted prices in active markets for identical instruments;
Level 2 -    inputs, other than the quoted market prices in active markets for similar instruments, which are observable, either directly or indirectly; and
Level 3 -    unobservable inputs for which there is little or no market data available, which require the reporting entity to develop its own assumptions.

Assets and liabilities measured at fair value on a recurring basis as of May 31, 2016 were:

 

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

Assets:

           

Derivative financial instruments

   $ 3,640       $ —         $ 3,640       $ —     

Nonqualified savings plan investments

     15,093         15,093         —           —     

Cash equivalents

     5,076         5,076         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 23,809       $ 20,169       $ 3,640       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Derivative financial instruments

   $ 9,029       $ —         $ 9,029       $ —     

 

(1) Level 2 assets and liabilities include derivative financial instruments that are valued based on observable inputs. See Note 11 Derivative Instruments for further discussion.

Assets and liabilities measured at fair value on a recurring basis as of August 31, 2015 were:

 

(In thousands)    Total      Level 1      Level 2      Level 3  

Assets:

           

Derivative financial instruments

   $ 1,913       $ —         $ 1,913       $ —     

Nonqualified savings plan investments

     11,815         11,815         —           —     

Cash equivalents

     5,071         5,071         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 18,799       $ 16,886       $ 1,913       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Derivative financial instruments

   $ 3,206       $ —         $ 3,206       $ —     

 

23


THE GREENBRIER COMPANIES, INC.

 

Note 15 – Related Party Transactions

In April 2010, WLR–Greenbrier Rail Inc. (WLR-GBX) was formed and acquired a lease fleet of nearly 4,000 railcars valued at approximately $256.0 million. WLR-GBX is wholly owned by affiliates of WL Ross & Co, LLC (WL Ross) and a member of the Company’s board of directors, Wendy Teramoto, is also an affiliate of WL Ross. In September 2015, the Company purchased the entire remaining WLR-GBX lease fleet of 3,885 railcars for approximately $148.0 million plus a $1.0 million fee. The transaction was approved by the Company’s disinterested, independent directors. The Company intends to sell the railcars and underlying attached leases to third parties in the short-term and therefore has classified these railcars as Leased railcars for syndication on the Company’s Consolidated Balance Sheet. During the nine months ended May 31, 2016, the Company sold to third parties 3,159 of these railcars with the underlying leases attached for $162.0 million. The Company recognized revenue on 2,766 of these railcars for $154.2 million and deferred revenue recognition on 389 of these railcars for $7.8 million due to the Company’s continuing involvement.

The Company and WL Ross have agreed that the Company will receive a preferred return on the proceeds of the sale of the portfolio, after which it will share a portion of the profits with WL Ross up to certain defined levels. The Company is first entitled to recoup its total investment plus a rate of return of 25%. The Company and WL Ross will then share in the profits up to certain defined levels. Once those defined levels have been met, the Company is entitled to receive 100% of the remaining profits. During the nine months ended May 31, 2016, the Company paid a total of $7.2 million to WL Ross pursuant to this profit sharing agreement and as of May 31, 2016 has accrued an additional $11.3 million that it anticipates will be paid to WL Ross in the future.

 

24


THE GREENBRIER COMPANIES, INC.

 

Note 16 – 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; Greenbrier Railcar Leasing, Inc. and Greenbrier Rail Services Holdings, LLC. No other subsidiaries guarantee the Notes including Greenbrier Union Holdings I LLC; Greenbrier MUL Holdings I LLC; Greenbrier Leasing Limited; Greenbrier Europe B.V.; Greenbrier Europe Holdings B.V.; Greenbrier International Holdings II, LLC; 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.; 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 do Brasil Participações Ltda; Greenbrier Tank Components, LLC; Gunderson-GIMSA S.A. de C.V.; Greenbrier; S.A. de C.V.; Greenbrier Industries, S.A. de C.V., GBSummit, LLC and Greenbrier-GIMSA, LLC.

The following represents the supplemental consolidating condensed financial information of Greenbrier and its guarantor and non-guarantor subsidiaries, as of May 31, 2016 and August 31, 2015 and for the three and nine months ended May 31, 2016 and 2015. 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.

 

25


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Balance Sheet

May 31, 2016

(In thousands, unaudited)

 

     Parent      Combined
Guarantor
Subsidiaries
     Combined
Non-
Guarantor
Subsidiaries
     Eliminations     Consolidated  

Assets

             

Cash and cash equivalents

   $ 55,717       $ 1,263       $ 157,460       $ —        $ 214,440   

Restricted cash

     —           1,765         6,904         —          8,669   

Accounts receivable, net

     3,736         585,797         49,529         (425,552     213,510   

Inventories

     —           272,481         198,455         (12,868     458,068   

Leased railcars for syndication

     —           139,827         —           (3,015     136,812   

Equipment on operating leases, net

     —           232,900         2,709         (2,818     232,791   

Property, plant and equipment, net

     9,139         104,302         204,569         —          318,010   

Investment in unconsolidated affiliates

     1,367,146         198,977         21,056         (1,497,882     89,297   

Intangibles and other assets, net

     21,185         44,083         14,036         (8,282     71,022   

Goodwill

     —           43,265         —           —          43,265   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   $ 1,456,923       $ 1,624,660       $ 654,718       $ (1,950,417   $ 1,785,884   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Liabilities and Equity

             

Revolving notes

   $ —         $ —         $ —         $ —        $ —     

Accounts payable and accrued liabilities

     449,757         223,954         170,823         (473,882     370,652   

Deferred income taxes

     14,415         54,090         —           (18,115     50,390   

Deferred revenue

     32,732         30,870         281         4,275        68,158   

Notes payable

     119,933         186,000         875         —          306,808   

Total equity - Greenbrier

     840,086         1,129,746         332,880         (1,462,626     840,086   

Noncontrolling interest

     —           —           149,859         (69     149,790   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total equity

     840,086         1,129,746         482,739         (1,462,695     989,876   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   $ 1,456,923       $ 1,624,660       $ 654,718       $ (1,950,417   $ 1,785,884   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

26


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Statement of Income

For the three months ended May 31, 2016

(In thousands, unaudited)

 

     Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenue

          

Manufacturing

   $ (1,055   $ 235,613      $ 419,441      $ (195,505   $ 458,494   

Wheels & Parts

     —          82,292        —          (3,875     78,417   

Leasing & Services

     1,294        74,668        —          (7     75,955   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     239        392,573        419,441        (199,387     612,866   

Cost of revenue

          

Manufacturing

     —          216,829        334,498        (198,552     352,775   

Wheels & Parts

     —          73,475        —          (3,657     69,818   

Leasing & Services

     —          63,201        —          (26     63,175   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —          353,505        334,498        (202,235     485,768   

Margin

     239        39,068        84,943        2,848        127,098   

Selling and administrative expense

     22,933        10,672        9,494        181        43,280   

Net (gain) loss on disposition of equipment

     —          (308     254        (257     (311
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) from operations

     (22,694     28,704        75,195        2,924        84,129   

Other costs

          

Interest and foreign exchange

     2,069        1,910        (83     (184     3,712   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (24,763     26,794        75,278        3,108        80,417   

Income tax (expense) benefit

     1,460        (7,556     (15,244     (1,109     (22,449
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (23,303     19,238        60,034        1,999        57,968   

Earnings (loss) from unconsolidated affiliates

     58,655        15,452        348        (72,891     1,564   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss)

     35,352        34,690        60,382        (70,892     59,532   

Net (earnings) loss attributable to noncontrolling interest

     —          —          (22,579     (1,601     (24,180
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss) attributable to Greenbrier

   $ 35,352      $ 34,690      $ 37,803      $ (72,493   $ 35,352   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

27


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Statement of Income

For the nine months ended May 31, 2016

(In thousands, unaudited)

 

     Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenue

          

Manufacturing

   $ 1,992      $ 862,856      $ 1,336,226      $ (589,388   $ 1,611,686   

Wheels & Parts

     —          252,744        —          (5,140     247,604   

Leasing & Services

     1,354        223,683        1        6        225,044   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     3,346        1,339,283        1,336,227        (594,522     2,084,334   

Cost of revenue

          

Manufacturing

     —          745,419        1,089,603        (587,387     1,247,635   

Wheels & Parts

     —          228,969        —          (4,761     224,208   

Leasing & Services

     —          180,814        —          (77     180,737   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —          1,155,202        1,089,603        (592,225     1,652,580   

Margin

     3,346        184,081        246,624        (2,297     431,754   

Selling and administrative expense

     56,825        30,517        30,216        515        118,073   

Net (gain) loss on disposition of equipment

     —          (10,950     256        (632     (11,326
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) from operations

     (53,479     164,514        216,152        (2,180     325,007   

Other costs

          

Interest and foreign exchange

     8,409        5,182        (2,556     (470     10,565   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (61,888     159,332        218,708        (1,710     314,442   

Income tax (expense) benefit

     (2,063     (52,706     (38,171     38        (92,902
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (63,951     106,626        180,537        (1,672     221,540   

Earnings (loss) from unconsolidated affiliates

     213,604        29,558        (16     (240,225     2,921   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss)

     149,653        136,184        180,521        (241,897     224,461   

Net (earnings) loss attributable to noncontrolling interest

     —          —          (76,023     1,215        (74,808
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss) attributable to Greenbrier

   $ 149,653      $ 136,184      $ 104,498      $ (240,682   $ 149,653   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Statement of Comprehensive Income (Loss)

For the three months ended May 31, 2016

(In thousands, unaudited)

 

(In thousands)    Parent      Combined
Guarantor
Subsidiaries
     Combined
Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net earnings (loss)

   $ 35,352       $ 34,690       $ 60,382      $ (70,892   $ 59,532   

Other comprehensive income (loss)

            

Translation adjustment

     —           —           1,477        —          1,477   

Reclassification of derivative financial instruments recognized in net earnings (loss)

     —           230         429        —          659   

Unrealized gain on derivative financial instruments

     5         3         1,105        —          1,113   

Other (net of tax effect)

     —           —           7        —          7   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     5         233         3,018        —          3,256   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     35,357         34,923         63,400        (70,892     62,788   

Comprehensive (income) loss attributable to noncontrolling interest

     —           —           (22,594     (1,601     (24,195
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Greenbrier

   $ 35,357       $ 34,923       $ 40,806      $ (72,493   $ 38,593   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

29


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Statement of Comprehensive Income (Loss)

For the nine months ended May 31, 2016

(In thousands, unaudited)

 

(In thousands)    Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net earnings (loss)

   $ 149,653      $ 136,184      $ 180,521      $ (241,897   $ 224,461   

Other comprehensive income (loss)

          

Translation adjustment

     1,527        —          (3,655     (1,527     (3,655

Reclassification of derivative financial instruments recognized in net earnings (loss)

     —          746        964        —          1,710   

Unrealized loss on derivative financial instruments

     (23     (1,409     (4,985     —          (6,417

Other (net of tax effect)

     —          —          1        —          1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     1,504        (663     (7,675     (1,527     (8,361
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     151,157        135,521        172,846        (243,424     216,100   

Comprehensive (income) loss attributable to noncontrolling interest

     —          —          (75,976     1,215        (74,761
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Greenbrier

   $ 151,157      $ 135,521      $ 96,870      $ (242,209   $ 141,339   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Statement of Cash Flows

For the nine months ended May 31, 2016

(In thousands, unaudited)

 

(In thousands)

   Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash flows from operating activities:

          

Net earnings (loss)

   $ 149,653      $ 136,184      $ 180,521      $ (241,897   $ 224,461   

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

          

Deferred income taxes

     15,000        (18,235     2,219        (9,127     (10,143

Depreciation and amortization

     2,059        23,314        16,385        (77     41,681   

Net gain on disposition of equipment

     —          (10,950     256        (632     (11,326

Stock based compensation expense

     19,055        —          —          —          19,055   

Noncontrolling interest adjustment

     —          —          —          837        837   

Other

     —          (32     596        —          564   

Decrease (increase) in assets:

          

Accounts receivable, net

     45,735        27,389        (27,697     (59,760     (14,333

Inventories

     —          (82,518     58,013        9,159        (15,346

Leased railcars for syndication

     —          36,802        —          (7,979     28,823   

Other

     (1,715     (1,666     (64,522     62,712        (5,191

Increase (decrease) in liabilities:

          

Accounts payable and accrued liabilities

     (48,102     (59,664     (34,987     54,046        (88,707

Deferred revenue

     32,732        (8,710     281        —          24,303   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     214,417        41,914        131,065        (192,718     194,678   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

          

Proceeds from sales of assets

     —          88,697        10        —          88,707   

Capital expenditures

     (2,796     (18,480     (30,431     —          (51,707

Decrease (increase) in restricted cash

     —          201        (1     —          200   

Investment in and net advances to unconsolidated affiliates

     (176,356     (26,977     —          194,245        (9,088

Cash distribution from unconsolidated affiliates

     5,338        —          —          —          5,338   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (173,814     43,441        (30,422     194,245        33,450   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

          

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

     (49,000     —          —          —          (49,000

Proceeds from revolving notes with maturities longer than 90 days

     —          —          —          —          —     

Repayment of revolving notes with maturities longer than 90 days

     —          —          (1,888     —          (1,888

Repayments of notes payable

     (13,981     (5,261     (219     —          (19,461

Debt issuance costs

     (4,160     —          —          —          (4,160

Intercompany advances

     75,289        (77,270     1,981        —          —     

Repurchase of stock

     (33,498     —          —          —          (33,498

Dividends

     (17,362     —          —          —          (17,362

Cash contribution to joint venture partner

     —          —          (62,710     —          (62,710

Investment by joint venture partner

     —          —          5,400        —          5,400   

Excess tax benefit from restricted stock awards

     2,786        —          —          —          2,786   

Other

     —          —          (7     —          (7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (39,926     (82,531     (57,443     —          (179,900
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes

     1,505        (1,680     (5,016     (1,527     (6,718

Increase (decrease) in cash and cash equivalents

     2,182        1,144        38,184        —          41,510   

Cash and cash equivalents

          

Beginning of period

     53,535        119        119,276        —          172,930   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of period

   $ 55,717      $ 1,263      $ 157,460      $ —        $ 214,440   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

31


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Balance Sheet

August 31, 2015

(In thousands)

 

     Parent      Combined
Guarantor
Subsidiaries
     Combined
Non-
Guarantor
Subsidiaries
     Eliminations     Consolidated  

Assets

             

Cash and cash equivalents

   $ 53,535       $ 119       $ 119,276       $ —        $ 172,930   

Restricted cash

     —           1,966         6,903         —          8,869   

Accounts receivable, net

     49,471         535,916         24,415         (413,773     196,029   

Inventories

     —           191,625         257,619         (3,709     445,535   

Leased railcars for syndication

     —           228,646         —           (16,112     212,534   

Equipment on operating leases, net

     —           255,130         2,901         (2,640     255,391   

Property, plant and equipment, net

     8,402         102,738         191,995         —          303,135   

Investment in unconsolidated affiliates

     1,209,698         169,659         21,369         (1,313,456     87,270   

Intangibles and other assets, net

     15,895         46,387         14,235         (10,963     65,554   

Goodwill

     —           43,265         —           —          43,265   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   $ 1,337,001       $ 1,575,451       $ 638,713       $ (1,760,653   $ 1,790,512   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Liabilities and Equity

             

Revolving notes

   $ 49,000       $ —         $ 1,888       $ —        $ 50,888   

Accounts payable and accrued liabilities

     421,249         282,662         208,538         (457,236     455,213   

Deferred income taxes

     —           72,326         —           (11,669     60,657   

Deferred revenue

     —           33,792         —           44        33,836   

Notes payable

     133,914         191,422         1,093         —          326,429   

Total equity Greenbrier

     732,838         995,249         296,852         (1,292,101     732,838   

Noncontrolling interest

     —           —           130,342         309        130,651   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total equity

     732,838         995,249         427,194         (1,291,792     863,489   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   $ 1,337,001       $ 1,575,451       $ 638,713       $ (1,760,653   $ 1,790,512   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

32


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Statement of Income

For the three months ended May 31, 2015

(In thousands, unaudited)

 

     Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenue

          

Manufacturing

   $ —        $ 280,928      $ 492,302      $ (179,854   $ 593,376   

Wheels & Parts

     —          98,746        —          (1,339     97,407   

Leasing & Services

     (90     23,762        —          151        23,823   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (90     403,436        492,302        (181,042     714,606   

Cost of revenue

          

Manufacturing

     —          230,143        418,273        (182,758     465,658   

Wheels & Parts

     —          91,131        —          (1,486     89,645   

Leasing & Services

     —          10,041        —          (24     10,017   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —          331,315        418,273        (184,268     565,320   

Margin

     (90     72,121        74,029        3,226        149,286   

Selling and administrative expense

     24,851        10,688        9,912        144        45,595   

Net (gain) loss on disposition of equipment

     —          (724     7        (3     (720
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) from operations

     (24,941     62,157        64,110        3,085        104,411   

Other costs

          

Interest and foreign exchange

     3,240        1,649        (604     —          4,285   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (28,181     60,508        64,714        3,085        100,126   

Income tax (expense) benefit

     4,215        (26,025     (7,888     (1,085     (30,783
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (23,966     34,483        56,826        2,000        69,343   

Earnings (loss) from unconsolidated affiliates

     66,777        5,142        47        (70,984     982   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss)

     42,811        39,625        56,873        (68,984     70,325   

Net earnings attributable to noncontrolling interest

     —          —          (26,415     (1,099     (27,514
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss) attributable to Greenbrier

   $ 42,811      $ 39,625      $ 30,458      $ (70,083   $ 42,811   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

33


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Statement of Income

For the nine months ended May 31, 2015

(In thousands, unaudited)

 

     Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenue

          

Manufacturing

   $ —        $ 877,405      $ 1,285,603      $ (684,442   $ 1,478,566   

Wheels & Parts

     —          290,917        —          (4,246     286,671   

Leasing & Services

     83        74,064        1        428        74,576   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     83        1,242,386        1,285,604        (688,260     1,839,813   

Cost of revenue

          

Manufacturing

     —          735,414        1,091,498        (641,990     1,184,922   

Wheels & Parts

     —          263,755        —          (4,470     259,285   

Leasing & Services

     —          33,014        —          (72     32,942   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —          1,032,183        1,091,498        (646,532     1,477,149   

Margin

     83        210,203        194,106        (41,728     362,664   

Selling and administrative expense

     55,116        26,905        30,169        33        112,223   

Net (gain) loss on disposition of equipment

     —          (927     7        (4     (924
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) from operations

     (55,033     184,225        163,930        (41,757     251,365   

Other costs

          

Interest and foreign exchange

     9,345        4,998        (4,988     —          9,355   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (64,378     179,227        168,918        (41,757     242,010   

Income tax (expense) benefit

     (4,476     (62,438     (22,559     13,264        (76,209
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (68,854     116,789        146,359        (28,493     165,801   

Earnings (loss) from unconsolidated affiliates

     194,802        21,377        142        (214,769     1,552   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss)

     125,948        138,166        146,501        (243,262     167,353   

Net (earnings) loss attributable to noncontrolling interest

     —          —          (61,992     20,587        (41,405
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss) attributable to Greenbrier

   $ 125,948      $ 138,166      $ 84,509      $ (222,675   $ 125,948   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

34


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Statement of Comprehensive Income (Loss)

For the three months ended May 31, 2015

(In thousands, unaudited)

 

(In thousands)    Parent      Combined
Guarantor
Subsidiaries
    Combined
Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net earnings (loss)

   $ 42,811       $ 39,625      $ 56,873      $ (68,984   $ 70,325   

Other comprehensive income (loss)

           

Translation adjustment

     —           (18     (1,281     —          (1,299

Reclassification of derivative financial instruments recognized in net earnings (loss)

     —           275        (529     —          (254

Unrealized gain (loss) on derivative financial instruments

     —           (443     550        —          107   

Other (net of tax effect)

     —           —          93        —          93   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     —           (186     (1,167     —          (1,353
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     42,811         39,439        55,706        (68,984     68,972   

Comprehensive income attributable to noncontrolling interest

     —           —          (26,398     (1,099     (27,497
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Greenbrier

   $ 42,811       $ 39,439      $ 29,308      $ (70,083   $ 41,475   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

35


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Statement of Comprehensive Income (Loss)

For the nine months ended May 31, 2015

(In thousands, unaudited)

 

(In thousands)    Parent      Combined
Guarantor
Subsidiaries
    Combined
Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Net earnings (loss)

   $ 125,948       $ 138,166      $ 146,501      $ (243,262   $ 167,353   

Other comprehensive income (loss)

           

Translation adjustment

     —           (137     (10,853     —          (10,990

Reclassification of derivative financial instruments recognized in net earnings (loss)

     —           837        (420     —          417   

Unrealized gain (loss) on derivative financial instruments

     —           (1,640     1,633        —          (7

Other (net of tax effect)

     —           —          99        —          99   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     —           (940     (9,541     —          (10,481
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     125,948         137,226        136,960        (243,262     156,872   

Comprehensive (income) loss attributable to noncontrolling interest

     —           —          (61,840     20,587        (41,253
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to Greenbrier

   $ 125,948       $ 137,226      $ 75,120      $ (222,675   $ 115,619   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

36


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Statement of Cash Flows

For the nine months ended May 31, 2015

(In thousands, unaudited)

 

(In thousands)    Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash flows from operating activities:

          

Net earnings (loss)

   $ 125,948      $ 138,166      $ 146,501      $ (243,262   $ 167,353   

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

          

Deferred income taxes

     (138     (8,000     2,893        —          (5,245

Depreciation and amortization

     1,484        19,909        11,936        (71     33,258   

Net (gain)loss on disposition of equipment

     —          (927     7        (4     (924

Stock based compensation expense

     13,176        —          —          —          13,176   

Noncontrolling interest adjustments

     —          —          —          20,371        20,371   

Other

     43        105        860        —          1,008   

Decrease (increase) in assets:

          

Accounts receivable, net

     50        (10,046     37,034        (35,807     (8,769

Inventories

     —          (39,279     (87,156     1,529        (124,906

Leased railcars for syndication

     —          (109,324     —          18,410        (90,914

Other

     20,641        763        (33,634     10,564        (1,666

Increase (decrease) in liabilities:

          

Accounts payable and accrued liabilities

     (3,824     25,612        9,112        (7,765     23,135   

Deferred revenue

     (122     4,078        (276     —          3,680   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     157,258        21,057        87,277        (236,035     29,557   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

          

Proceeds from sales of assets

     —          4,623        5        —          4,628   

Capital expenditures

     (2,424     (18,807     (55,059     398        (75,892

Decrease (increase) in restricted cash

     —          229        (1     —          228   

Investment in and net advances to unconsolidated affiliates

     (245,594     (19,966     —          235,637        (29,923

Cash distribution from unconsolidated affiliates

     715        —          —          —          715   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (247,303     (33,921     (55,055     236,035        (100,244
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

          

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

     73,000        —          —          —          73,000   

Proceeds from revolving notes with maturities longer than 90 days

     —          —          42,563        —          42,563   

Repayments of revolving notes with maturities longer than 90 days

     —          —          (36,137     —          (36,137

Repayments of notes payable

     (5     (5,280     (219     —          (5,504

Intercompany advances

     (18,997     9,788        9,209        —          —     

Repurchase of stock

     (48,451     —          —          —          (48,451

Dividends

     (12,069     —          —          —          (12,069

Decrease in restricted cash

     —          11,000        —          —          11,000   

Cash distributions to joint venture partner

     —          —          (12,489     —          (12,489

Excess tax benefit from restricted stock awards

     2,964        —          —          —          2,964   

Other

     (248     —          —          —          (248
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (3,806     15,508        2,927        —          14,629   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes

     —          (2,269     (3,806     —          (6,075

Increase (decrease) in cash and cash equivalents

     (93,851     375        31,343        —          (62,133

Cash and cash equivalents

          

Beginning of period

     149,747        112        35,057        —          184,916   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of period

   $ 55,896      $ 487      $ 66,400      $ —        $ 122,783   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

37


THE GREENBRIER COMPANIES, INC.

 

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

Executive Summary

We operate in four reportable segments: Manufacturing; Wheels & Parts; Leasing & Services; and GBW Joint Venture. Our segments are operationally integrated. The Manufacturing segment, operating from facilities in the United States, Mexico and Poland, produces double-stack intermodal railcars, tank cars, conventional railcars, automotive railcar products and marine vessels. The Wheels & Parts segment performs wheel and axle servicing, as well as production of a variety of parts for the railroad industry in North America. The Leasing & Services segment owns approximately 9,200 railcars (5,900 railcars held as equipment on operating leases, 2,400 held as leased railcars for syndication and 900 held as finished goods inventory) and provides management services for approximately 261,000 railcars for railroads, shippers, carriers, institutional investors and other leasing and transportation companies in North America. The GBW Joint Venture segment provides repair services at over 30 locations across North America, including more than 10 tank car repair and maintenance facilities certified by the Association of American Railroads (AAR). The results of these operations were included as part of Earnings (loss) from unconsolidated affiliates as we account for our interest in GBW under the equity method of accounting. We also produce rail castings and tank heads through unconsolidated joint ventures and have a 19.5% ownership stake in a railcar manufacturer in Brazil with an option to acquire an additional 40.5% ownership interest, which can be exercised no later than December 30, 2017.

Our total manufacturing backlog of railcar units as of May 31, 2016 was approximately 31,200 units with an estimated value of $3.62 billion, of which 27,000 units with a value of $3.23 billion are for direct sales and 4,200 units with a value of $0.39 billion are intended for syndications to third parties with a lease attached. Backlog as of May 31, 2015 was approximately 45,100 units with an estimated value of $4.86 billion. Currently, no orders in our May 31, 2016 backlog are intended to be placed into our owned lease fleet. Multi-year supply agreements are a part of rail industry practice. A portion of the orders included in backlog reflects an assumed product mix. Under terms of the orders, the exact mix will be determined in the future, which may impact the dollar amount of backlog. Marine backlog as of May 31, 2016 was $51 million compared to $70 million as of May 31, 2015.

Our backlog of railcar units and marine vessels is not necessarily indicative of future results of operations. Certain orders in backlog are subject to customary documentation and completion of terms. Customer orders contain terms and conditions customary in the industry. Customers may attempt to cancel or modify orders in backlog. Historically little variation has been experienced between the quantity ordered and the quantity actually delivered, though the timing of deliveries has been modified from time to time. Backlog as of May 31, 2016 includes an aggregate of 5,000 covered hopper railcars for use in energy related sand transportation that customers, certain of which are under financial stress, are attempting to cancel, settle or modify. We cannot guarantee that our reported railcar backlog will convert to revenue in any particular period, if at all.

In September 2015, we purchased a portfolio of 3,885 railcars from a related third party for approximately $148.0 million plus a $1.0 million fee. We intend to resell the railcars and underlying attached leases to third parties in the short-term and therefore have classified these railcars as Leased railcars for syndication on our Consolidated Balance Sheet. During the nine months ended May 31, 2016, we sold to third parties 3,159 of these railcars with the underlying leases attached for $162.0 million. We recognized revenue on 2,766 of these railcars for $154.2 million and deferred revenue recognition on 389 of these railcars for $7.8 million due to our continuing involvement. The gross proceeds from the sale of these railcars with leases attached were recorded as revenue and the cost of purchasing these railcars was recorded in cost of revenue within our Leasing & Services segment.

 

38


THE GREENBRIER COMPANIES, INC.

 

In May 2016 we announced that we entered into an agreement to acquire a 19.5% ownership interest for $10 million in Amsted-Maxion Fundição e Equipamentos Ferroviários S.A (Amsted-Maxion Cruzeiro), a manufacturer of castings and components for railcars and other heavy equipment. The agreement is subject to customary closing conditions, including antitrust review and is expected to close in the fourth quarter of 2016. Amsted-Maxion Cruzeiro is also the co-owner with us of Amsted-Maxion Equipamentos E Serviços Ferroviários S.A. (Greenbrier-Maxion), a railcar manufacturer in Brazil. We own 19.5% of Greenbrier-Maxion while Amsted-Maxion Cruzeiro owns 80.5%. When we complete the investment in Amsted-Maxion Cruzeiro we will, directly and indirectly, own approximately 35% of Greenbrier-Maxion. As part of this investment, we have an option, subject to certain conditions, to acquire an additional 10% interest in Amsted-Maxion Cruzeiro. Our option expires on October 20, 2017. In 2015, as part of our initial investment in Greenbrier-Maxion, we secured an option to acquire an additional 40.5% direct ownership interest in Greenbrier-Maxion. The option is exercisable until December 30, 2017 and has been modified as part of this current transaction to allow us to purchase a direct ownership interest in Greenbrier-Maxion in an amount between 30.6% and 40.5%, with the option exercise price adjusted in proportion to the ownership interest obtained.

 

39


THE GREENBRIER COMPANIES, INC.

 

Three Months Ended May 31, 2016 Compared to Three Months Ended May 31, 2015

Overview

Revenue, cost of revenue, margin and operating profit presented below, include amounts from external parties and exclude intersegment activity that is eliminated in consolidation.

 

     Three Months Ended
May 31,
 
(In thousands)    2016      2015  

Revenue:

     

Manufacturing

   $ 458,494       $ 593,376   

Wheels & Parts

     78,417         97,407   

Leasing & Services

     75,955         23,823   
  

 

 

    

 

 

 
     612,866         714,606   

Cost of revenue:

     

Manufacturing

     352,775         465,658   

Wheels & Parts

     69,818         89,645   

Leasing & Services

     63,175         10,017   
  

 

 

    

 

 

 
     485,768         565,320   

Margin:

     

Manufacturing

     105,719         127,718   

Wheels & Parts

     8,599         7,762   

Leasing & Services

     12,780         13,806   
  

 

 

    

 

 

 
     127,098         149,286   

Selling and administrative

     43,280         45,595   

Net gain on disposition of equipment

     (311      (720
  

 

 

    

 

 

 

Earnings from operations

     84,129         104,411   

Interest and foreign exchange

     3,712         4,285   
  

 

 

    

 

 

 

Earnings before income taxes and earnings from unconsolidated affiliates

     80,417         100,126   

Income tax expense

     (22,449      (30,783
  

 

 

    

 

 

 

Earnings before earnings from unconsolidated affiliates

     57,968         69,343   

Earnings from unconsolidated affiliates

     1,564         982   
  

 

 

    

 

 

 

Net earnings

     59,532         70,325   

Net earnings attributable to noncontrolling interest

     (24,180      (27,514
  

 

 

    

 

 

 

Net earnings attributable to Greenbrier

   $ 35,352       $ 42,811   
  

 

 

    

 

 

 

Diluted earnings per common share

   $ 1.12       $ 1.33   

Performance for our segments is evaluated based on operating profit. Corporate includes selling and administrative costs not directly related to goods and services and certain costs that are intertwined among segments due to our integrated business model. Management does not allocate Interest and foreign exchange or Income tax expense for either external or internal reporting purposes.

 

     Three Months Ended
May 31,
 
(In thousands)    2016      2015  

Operating profit (loss):

     

Manufacturing

   $ 92,713       $ 115,675   

Wheels & Parts

     5,811         5,078   

Leasing & Services

     8,298         10,824   

Corporate

     (22,693      (27,166
  

 

 

    

 

 

 
   $ 84,129       $ 104,411   
  

 

 

    

 

 

 

 

40


THE GREENBRIER COMPANIES, INC.

 

Consolidated Results

 

     Three Months Ended
May 31,
    Increase
(Decrease)
    %
Change
 
(In thousands)    2016     2015      

Revenue

   $ 612,866      $ 714,606      $ (101,740     (14.2 %) 

Cost of revenue

   $ 485,768      $ 565,320      $ (79,552     (14.1 %) 

Margin (%)

     20.7     20.9     (0.2 %)      *   

Net earnings attributable to Greenbrier

   $ 35,352      $ 42,811      $ (7,459     (17.4 %) 

 

* Not meaningful

Through our integrated business model, we provide a broad range of custom products and services in each of our segments, which have various average selling prices and margins. The demand for and mix of products and services delivered changes from period to period which causes fluctuations in our results of operations.

The 14.2% decrease in revenue for the three months ended May 31, 2016 as compared to the three months ended May 31, 2015 was primarily due to a 22.7% decrease in Manufacturing revenue primarily due to a 24.6% decrease in the volume of railcar deliveries. In addition, the decrease in revenue was attributed to a 19.5% decrease in Wheels & Parts revenue as a result of lower wheel set, component and parts volumes due to a decrease in demand. These were partially offset by a 218.8% increase in Leasing & Services revenue which was primarily the result of the sale of railcars that we purchased from a related third party.

The 14.1% decrease in cost of revenue for the three months ended May 31, 2016 as compared to the three months ended May 31, 2015 was due to a 24.2% decrease in Manufacturing cost of revenue primarily due to a 24.6% decrease in the volume of railcar deliveries. In addition, the decrease in cost of revenue was attributed to a 22.1% decrease in Wheels & Parts cost of revenue due to lower wheel set, component and parts costs associated with decreased volumes. These were partially offset by a 530.7% increase in Leasing & Services cost of revenue which was the result of costs associated with the sale of railcars that we purchased from a related third party.

Margin as a percentage of revenue was 20.7% and 20.9% for the three months ended May 31, 2016 and 2015, respectively. The overall 0.2% decrease in margin percentage was due to a decrease in Leasing & Services margin. Leasing & Services margin decreased to 16.8% from 58.0% primarily as a result of a lower margin percentage on the syndication of railcars purchased from a related third party. This was partially offset by an increase in Manufacturing margin to 23.1% from 21.5% due to a change in product mix. In addition, the decrease in Leasing & Services margin was partially offset by an increase in Wheels & Parts margin to 11.0% from 8.0% primarily due to a more favorable parts product mix in the current year and the adverse effect of declines in scrap metal pricing on wheel margins in the prior year.

The $7.5 million decrease in net earnings for the three months ended May 31, 2016 as compared to the three months ended May 31, 2015 was primarily attributable to a decrease in margin due to lower railcar deliveries.

 

41


THE GREENBRIER COMPANIES, INC.

 

Manufacturing Segment

 

     Three Months Ended
May 31,
    Increase
(Decrease)
    %
Change
 
(In thousands)    2016     2015      

Revenue

   $ 458,494      $ 593,376      $ (134,882     (22.7 %) 

Cost of revenue

   $ 352,775      $ 465,658      $ (112,883     (24.2 %) 

Margin (%)

     23.1     21.5     1.6     *   

Operating profit ($)

   $ 92,713      $ 115,675      $ (22,962     (19.9 %) 

Operating profit (%)

     20.2     19.5     0.7     *   

Deliveries

     4,300        5,700        (1,400     (24.6 %) 

 

* Not meaningful

Manufacturing revenue was $458.5 million and $593.4 million for the three months ended May 31, 2016 and 2015, respectively. Manufacturing revenue decreased $134.9 million or 22.7% primarily due to a 24.6% decrease in the volume of railcar deliveries. This was partially offset by a product mix in the current period which had a higher average selling price as compared to the prior comparable period.

Manufacturing cost of revenue was $352.8 million and $465.7 million for the three months ended May 31, 2016 and 2015, respectively. Cost of revenue decreased $112.9 million or 24.2% primarily due to a 24.6% decrease in the volume of railcar deliveries.

Manufacturing margin as a percentage of revenue for the three months ended May 31, 2016 was 23.1% compared to 21.5% for the three months ended May 31, 2015. The 1.6% increase in margin was primarily due to a change in product mix, partially offset by lower volumes of new railcar sales with leases attached which typically result in higher sales prices and margins.

Manufacturing operating profit was $92.7 million or 20.2% of revenue for the three months ended May 31, 2016 and $115.7 million or 19.5% of revenue for the three months ended May 31, 2015. The $23.0 million or 19.9% decrease in operating profit was primarily attributed to a decrease in margin due to lower railcar deliveries.

 

42


THE GREENBRIER COMPANIES, INC.

 

Wheels & Parts Segment

 

     Three Months Ended
May 31,
    Increase
(Decrease)
    %
Change
 
(In thousands)    2016     2015      

Revenue

   $ 78,417      $ 97,407      $ (18,990     (19.5 %) 

Cost of revenue

   $ 69,818      $ 89,645      $ (19,827     (22.1 %) 

Margin (%)

     11.0     8.0     3.0     *   

Operating profit ($)

   $ 5,811      $ 5,078      $ 733        14.4

Operating profit (%)

     7.4     5.2     2.2     *   

 

* Not meaningful

Wheels & Parts revenue was $78.4 million and $97.4 million for the three months ended May 31, 2016 and 2015, respectively. The $19.0 million or 19.5% decrease in revenue was primarily a result of lower wheel set, component and parts volumes due to a decrease in demand.

Wheels & Parts cost of revenue was $69.8 million and $89.6 million for the three months ended May 31, 2016 and 2015, respectively. Cost of revenue decreased $19.8 million or 22.1% primarily due to lower wheel set, component and parts costs associated with decreased volumes.

Wheels & Parts margin as a percentage of revenue for the three months ended May 31, 2016 was 11.0% compared to 8.0% for the three months ended May 31, 2015. The increase in margin was primarily due to the adverse effect of declines in scrap metal pricing on wheel margins in the prior year and a more favorable parts product mix in the current year.

Wheels & Parts operating profit was $5.8 million or 7.4% of revenue for the three months ended May 31, 2016 and $5.1 million or 5.2% of revenue for the three months ended May 31, 2015. The $0.7 million or 14.4% increase in operating profit was primarily attributed to the adverse effect of declines in scrap metal pricing on wheel margins in the prior year.

 

43


THE GREENBRIER COMPANIES, INC.

 

Leasing & Services Segment

 

     Three Months Ended
May 31,
    Increase
(Decrease)
    %
Change
 
(In thousands)    2016     2015      

Revenue

   $ 75,955      $ 23,823      $ 52,132        218.8

Cost of revenue

   $ 63,175      $ 10,017      $ 53,158        530.7

Margin (%)

     16.8     58.0     (41.2 %)      *   

Operating profit ($)

   $ 8,298      $ 10,824      $ (2,526     (23.3 %) 

Operating profit (%)

     10.9     45.4     (34.5 %)      *   

 

* Not meaningful

Leasing & Services revenue was $76.0 million and $23.8 million for the three months ended May 31, 2016 and 2015, respectively. The $52.1 million or 218.8% increase in revenue was primarily the result of the sale of railcars for $53.9 million that we purchased from a related third party with the intent to resell them. The gross proceeds from the sale of these railcars with leases attached were recorded as revenue and the cost of purchasing these railcars was recorded in cost of revenue. The increase in revenue was partially offset by a lower average volume of rent-producing leased railcars for syndication, which are held short term and classified as Leased railcars for syndication on our Consolidated Balance Sheet.

Leasing & Services cost of revenue was $63.2 million and $10.0 million for the three months ended May 31, 2016 and 2015, respectively. Cost of revenue increased $53.2 million primarily due to costs associated with the sale of railcars that we purchased from a related third party.

Leasing & Services margin as a percentage of revenue for the three months ended May 31, 2016 was 16.8% compared to 58.0% for the three months ended May 31, 2015. The 41.2% decrease was primarily as a result of a lower margin percentage on the syndication of railcars purchased from a related third party and lower average volume of rent-producing leased railcars for syndication.

Leasing & Services operating profit was $8.3 million or 10.9% of revenue for the three months ended May 31, 2016 and $10.8 million or 45.4% of revenue for the three months ended May 31, 2015. The $2.5 million or 23.3% decrease in operating profit was primarily attributed to a lower average volume of rent-producing leased railcars for syndication partially offset by profit from the sale of railcars that we purchased from a related third party.

The percentage of owned units on lease excluding newly manufactured railcars not yet on lease and a recent railcar portfolio acquisition was 94.9% at May 31, 2016 compared to 98.6% at May 31, 2015.

 

44


THE GREENBRIER COMPANIES, INC.

 

GBW Joint Venture Segment

GBW, an unconsolidated 50/50 joint venture, generated total revenue of $95.7 million and $88.8 million for the three months ended May 31, 2016 and 2015, respectively. The increase in revenue of $6.9 million was primarily due to a favorable change in mix and an increase in volume.

GBW margin as a percentage of revenue for the three months ended May 31, 2016 was 9.9% compared to 7.4% for the three months ended May 31, 2015. The increase was primarily attributed to an increase in labor efficiencies in the current year.

To reflect our 50% share of GBW’s net results, we recorded earnings of $1.2 million and $0.4 million in Earnings from unconsolidated affiliates for the three months ended May 31, 2016 and 2015, respectively.

Selling and Administrative Expense

 

     Three Months Ended
May 31,
     Increase
(Decrease)
     %
Change
 
(In thousands)    2016      2015        

Selling and administrative expense

   $ 43,280       $ 45,595       $ (2,315      (5.1 %) 

Selling and administrative expense was $43.3 million or 7.1% of revenue for the three months ended May 31, 2016 compared to $45.6 million or 6.4% of revenue for the prior comparable period. The $2.3 million decrease was primarily attributed to costs incurred in the prior year which included $5.8 million in professional fees and other transaction costs in connection with a potential acquisition and $1.7 million in costs associated with our advocacy of new tank car regulations. These were partially offset by a $4.5 million increase in employee-related costs including long-term and short-term incentive compensation, additional headcount and costs associated with a separation and consultation agreement in the current year.

Net Gain on Disposition of Equipment

Net gain on disposition of equipment was $0.3 million for the three months ended May 31, 2016 compared to a net gain on disposition of equipment of $0.7 million for the prior comparable period.

Net gain on disposition of equipment includes the sale of assets from our lease fleet (Equipment on operating leases, net) that are periodically sold in the normal course of business in order to take advantage of market conditions and to manage risk and liquidity and disposition of property, plant and equipment.

 

45


THE GREENBRIER COMPANIES, INC.

 

Other Costs

Interest and foreign exchange expense was composed of the following:

 

     Three Months Ended
May 31,
    Increase
(Decrease)
 
(In thousands)    2016     2015    

Interest and foreign exchange:

      

Interest and other expense

   $ 3,925      $ 5,151      $ (1,226

Foreign exchange gain

     (213     (866     653   
  

 

 

   

 

 

   

 

 

 
   $ 3,712      $ 4,285      $ (573
  

 

 

   

 

 

   

 

 

 

The $0.6 million decrease in interest and foreign exchange expense from the prior comparable period was primarily attributed to a $1.2 million decrease in interest expense as a result of lower average borrowings as compared to the prior year. This was partially offset by a $0.7 million decrease in foreign exchange gain as compared to the prior comparable period primarily attributed to the change in the Mexican Peso relative to the U.S. Dollar.

Income Tax

The tax rate for the three months ended May 31, 2016 was 27.9%, compared to 30.7% for the three months ended May 31, 2015. The decrease in the tax rate was primarily attributable to a change in the proportion of projected pre-tax earnings attributable to our Mexican railcar manufacturing joint venture.

The tax rate can fluctuate period-to-period due to changes in the projected mix of foreign and domestic pre-tax earnings and due to discrete tax items booked within the interim period. It can also fluctuate with changes in the proportion of projected pre-tax earnings attributable to our Mexican railcar manufacturing joint venture because the joint venture is predominantly treated as a partnership for tax purposes and, as a result, the partnership’s entire pre-tax earnings are included in Earnings before income taxes and earnings from unconsolidated affiliates, whereas only our 50% share of the tax is included in Income tax expense.

Earnings From Unconsolidated Affiliates

Earnings from unconsolidated affiliates was $1.6 million for the three months ended May 31, 2016 compared to $1.0 million for the three months ended May 31, 2015. Earnings from unconsolidated affiliates primarily included our share of after-tax results from our GBW Joint Venture including eliminations associated with GBW transactions with other Greenbrier entities and our share of after-tax results from our castings joint venture. In addition, the three months ended May 31, 2016 included our share of after-tax results from our tank head joint venture and our share of after-tax results from our 19.5% ownership stake in a railcar manufacturer in Brazil.

Noncontrolling Interest

Net earnings attributable to noncontrolling interest was $24.2 million for the three months ended May 31, 2016 compared to $27.5 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 decrease of $3.3 million from the prior year is primarily a result of a decrease in the volume of railcar deliveries.

 

46


THE GREENBRIER COMPANIES, INC.

 

Nine Months Ended May 31, 2016 Compared to Nine Months Ended May 31, 2015

Overview

Revenue, cost of revenue, margin and operating profit presented below, include amounts from external parties and exclude intersegment activity that is eliminated in consolidation.

 

     Nine Months Ended
May 31,
 
(In thousands)    2016      2015  

Revenue:

     

Manufacturing

   $ 1,611,686       $ 1,478,566   

Wheels & Parts

     247,604         286,671   

Leasing & Services

     225,044         74,576   
  

 

 

    

 

 

 
     2,084,334         1,839,813   

Cost of revenue:

     

Manufacturing

     1,247,635         1,184,922   

Wheels & Parts

     224,208         259,285   

Leasing & Services

     180,737         32,942   
  

 

 

    

 

 

 
     1,652,580         1,477,149   

Margin:

     

Manufacturing

     364,051         293,644   

Wheels & Parts

     23,396         27,386   

Leasing & Services

     44,307         41,634   
  

 

 

    

 

 

 
     431,754         362,664   

Selling and administrative

     118,073         112,223   

Net gain on disposition of equipment

     (11,326      (924
  

 

 

    

 

 

 

Earnings from operations

     325,007         251,365   
  

 

 

    

 

 

 

Interest and foreign exchange

     10,565         9,355   
  

 

 

    

 

 

 

Earnings before income taxes and earnings from unconsolidated affiliates

     314,442         242,010   

Income tax expense

     (92,902      (76,209
  

 

 

    

 

 

 

Earnings before earnings from unconsolidated affiliates

     221,540         165,801   

Earnings from unconsolidated affiliates

     2,921         1,552   
  

 

 

    

 

 

 

Net earnings

     224,461         167,353   

Net earnings attributable to noncontrolling interest

     (74,808      (41,405
  

 

 

    

 

 

 

Net earnings attributable to Greenbrier

   $ 149,653       $ 125,948   
  

 

 

    

 

 

 

Diluted earnings per common share

   $ 4.67       $ 3.91   

Performance for our segments is evaluated based on operating profit. Corporate includes selling and administrative costs not directly related to goods and services and certain costs that are intertwined among segments due to our integrated business model. Management does not allocate Interest and foreign exchange or Income tax expense for either external or internal reporting purposes.

 

     Nine Months Ended
May 31,
 
(In thousands)    2016      2015  

Operating profit (loss):

     

Manufacturing

   $ 325,215       $ 258,602   

Wheels & Parts

     15,720         20,986   

Leasing & Services

     42,668         31,677   

Corporate

     (58,596      (59,900
  

 

 

    

 

 

 
   $ 325,007       $ 251,365   
  

 

 

    

 

 

 

 

47


THE GREENBRIER COMPANIES, INC.

 

Consolidated Results

 

     Nine Months Ended
May 31,
    Increase
(Decrease)
    %
Change
 
(In thousands)    2016     2015      

Revenue

   $ 2,084,334      $ 1,839,813      $ 244,521        13.3

Cost of revenue

   $ 1,652,580      $ 1,477,149      $ 175,431        11.9

Margin (%)

     20.7     19.7     1.0     *   

Net earnings attributable to Greenbrier

   $ 149,653      $ 125,948      $ 23,705        18.8

 

* Not meaningful

Through our integrated business model, we provide a broad range of custom products and services in each of our segments, which have various average selling prices and margins. The demand for and mix of products and services delivered changes from period to period which causes fluctuations in our results of operations.

The 13.3% increase in revenue for the nine months ended May 31, 2016 as compared to the nine months ended May 31, 2015 was primarily due to a 9.0% increase in Manufacturing revenue. The increase in Manufacturing revenue was primarily due to a 5.4% increase in the volume of railcar deliveries with a mix that had a higher average selling price. In addition, the increase in revenue was due a 201.8% increase in Leasing & Services revenue which was primarily the result of an increase in the sale of railcars that we purchased from a related third party. These were partially offset by a 13.6% decrease in Wheels & Parts revenue as a result of lower wheel set, component and parts volumes due to a decrease in demand and a decrease in scrap metal pricing.

The 11.9% increase in cost of revenue for the nine months ended May 31, 2016 as compared to the nine months ended May 31, 2015 was due to a 5.3% increase in Manufacturing cost of revenue. The increase in Manufacturing cost of revenue was due to an increase of 5.4% in the volume of railcar deliveries with a mix that had a higher average labor and material content. This was partially offset by improved production efficiencies. In addition, the increase in revenue was due a 448.7% increase in Leasing & Services cost of revenue which was primarily the result of an increase in the costs associated with the sale of railcars that we purchased from a related third party. These were partially offset by a 13.5% decrease in Wheels & Parts cost of revenue as a result of lower wheel set, component and parts costs associated with decreased volumes.

Margin as a percentage of revenue was 20.7% and 19.7% for the nine months ended May 31, 2016 and 2015, respectively. The overall 1.0% increase in margin percentage was due to an increase in Manufacturing margin which increased to 22.6% from 19.9% primarily due to a change in product mix and improved production efficiencies. This was partially offset by a decrease in Leasing & Services margin to 19.7% from 55.8% primarily as a result of a lower margin percentage on the syndication of railcars purchased from a related third party. In addition, the increase in Manufacturing margin was partially offset by a decrease in Wheels & Parts margin to 9.4% from 9.6% due to lower wheel set and component volumes and a decrease in scrap metal pricing.

The $23.7 million increase in net earnings for the nine months ended May 31, 2016 as compared to the nine months ended May 31, 2015 was primarily attributable to an increase in margin due to higher railcar deliveries.

 

48


THE GREENBRIER COMPANIES, INC.

 

Manufacturing Segment

 

     Nine Months Ended
May 31,
    Increase
(Decrease)
    %
Change
 
(In thousands)    2016     2015      

Revenue

   $ 1,611,686      $ 1,478,566      $ 133,120        9.0

Cost of revenue

   $ 1,247,635      $ 1,184,922      $ 62,713        5.3

Margin (%)

     22.6     19.9     2.7     *   

Operating profit ($)

   $ 325,215      $ 258,602      $ 66,613        25.8

Operating profit (%)

     20.2     17.5     2.7     *   

Deliveries

     15,700        14,900        800        5.4

 

* Not meaningful

Manufacturing revenue was $1.6 billion and $1.5 billion for the nine months ended May 31, 2016 and 2015, respectively. Manufacturing revenue increased $133.1 million or 9.0% primarily due to a 5.4% increase in the volume of railcar deliveries with a product mix in the current period which had a higher average selling price as compared to the prior comparable period.

Manufacturing cost of revenue was $1.2 billion for both the nine months ended May 31, 2016 and 2015, respectively. Cost of revenue increased $62.7 million or 5.3% due to an increase of 5.4% in the volume of railcar deliveries with a mix which had a higher average labor and material content. This was partially offset by improved production efficiencies.

Manufacturing margin as a percentage of revenue for the nine months ended May 31, 2016 was 22.6% compared to 19.9% for the nine months ended May 31, 2015. The 2.7% increase in margin was primarily due to a change in product mix and improved production efficiencies. This was partially offset by lower volumes of new railcar sales with leases attached which typically result in higher sales prices and margins.

Manufacturing operating profit was $325.2 million or 20.2% of revenue for the nine months ended May 31, 2016 and $258.6 million or 17.5% of revenue for the nine months ended May 31, 2015. The $66.6 million or 25.8% increase in operating profit was primarily attributed to an increase in margin due to higher railcar deliveries.

 

49


THE GREENBRIER COMPANIES, INC.

 

Wheels & Parts Segment

 

     Nine Months Ended
May 31,
    Increase
(Decrease)
    %
Change
 
(In thousands)    2016     2015      

Revenue

   $ 247,604      $ 286,671      $ (39,067     (13.6 %) 

Cost of revenue

   $ 224,208      $ 259,285      $ (35,077     (13.5 %) 

Margin (%)

     9.4     9.6     (0.2 %)      *   

Operating profit ($)

   $ 15,720      $ 20,986      $ (5,266     (25.1 %) 

Operating profit (%)

     6.3     7.3     (1.0 %)      *   

 

* Not meaningful

Wheels & Parts revenue was $247.6 million and $286.7 million for the nine months ended May 31, 2016 and 2015, respectively. The $39.1 million or 13.6% decrease in revenue was primarily a result of lower wheel set, component and parts volumes due to a decrease in demand and a decrease in scrap metal pricing.

Wheels & Parts cost of revenue was $224.2 million and $259.3 million for the nine months ended May 31, 2016 and 2015, respectively. Cost of revenue decreased $35.1 million or 13.5% primarily due to lower wheel set, component and parts costs associated with decreased volumes.

Wheels & Parts margin as a percentage of revenue for the nine months ended May 31, 2016 was 9.4% compared to 9.6% for the nine months ended May 31, 2015. The 0.2% decrease in margin was due to lower wheel set and component volumes and a decrease in scrap metal pricing. These were partially offset by a more favorable parts product mix.

Wheels & Parts operating profit was $15.7 million or 6.3% of revenue for the nine months ended May 31, 2016 and $21.0 million or 7.3% of revenue for the nine months ended May 31, 2015. The $5.3 million or 25.1% decrease in operating profit was primarily attributed to a decrease in margin due to a decrease in volumes.

 

50


THE GREENBRIER COMPANIES, INC.

 

Leasing & Services Segment

 

     Nine Months Ended
May 31,
    Increase
(Decrease)
    %
Change
 
(In thousands)    2016     2015      

Revenue

   $ 225,044      $ 74,576      $ 150,468        201.8

Cost of revenue

   $ 180,737      $ 32,942      $ 147,795        448.7

Margin (%)

     19.7     55.8     (36.1 %)      *   

Operating profit ($)

   $ 42,668      $ 31,677      $ 10,991        34.7

Operating profit (%)

     19.0     42.5     (23.5 %)      *   

 

* Not meaningful

Leasing & Services revenue was $225.0 million and $74.6 million for the nine months ended May 31, 2016 and 2015, respectively. The $150.5 million or 201.8% increase in revenue was primarily the result of the sale of railcars for $154.2 million that we purchased from a related third party with the intent to resell them. The gross proceeds from the sale of these railcars with leases attached were recorded as revenue and the cost of purchasing these railcars was recorded in cost of revenue. The increase in revenue was also attributed to a higher average volume of rent-producing leased railcars for syndication, which are held short term and classified as Leased railcars for syndication on our Consolidated Balance Sheet.

Leasing & Services cost of revenue was $180.7 million and $32.9 million for the nine months ended May 31, 2016 and 2015, respectively. Cost of revenue increased $147.8 million or 448.7% primarily due to an increase in costs associated with the sale of railcars that we purchased from a related third party.

Leasing & Services margin as a percentage of revenue for the nine months ended May 31, 2016 was 19.7% compared to 55.8% for the nine months ended May 31, 2015. The 36.1% decrease was primarily as a result of a lower margin percentage on the syndication of railcars purchased from a related third party. This was partially offset by a higher average volume of rent-producing leased railcars for syndication.

Leasing & Services operating profit was $42.7 million or 19.0% of revenue for the nine months ended May 31, 2016 and $31.7 million or 42.5% of revenue for the nine months ended May 31, 2015. The $11.0 million or 34.7% increase in operating profit was primarily attributed to an increase in net gain on disposition of equipment and profit from the sale of railcars that we purchased from a related third party.

 

51


THE GREENBRIER COMPANIES, INC.

 

GBW Joint Venture Segment

GBW, an unconsolidated 50/50 joint venture, generated total revenue of $289.4 million and $254.7 million for the nine months ended May 31, 2016 and 2015, respectively. The increase in revenue of $34.7 million was primarily due an increase in volume and favorable pricing.

GBW margin as a percentage of revenue for the nine months ended May 31, 2016 was 9.8% compared to 6.0% for the nine months ended May 31, 2015. The increase was primarily attributed to an increase in labor efficiencies in the current year. In addition, the prior year included integration and startup costs.

To reflect our 50% share of GBW’s net results, we recorded earnings of $3.3 million and $0.4 million in Earnings from unconsolidated affiliates for the nine months ended May 31, 2016 and 2015, respectively.

Selling and Administrative Expense

 

     Nine Months Ended
May 31,
     Increase
(Decrease)
     %
Change
 
(In thousands)    2016      2015        

Selling and administrative expense

   $ 118,073       $ 112,223       $ 5,850         5.2

Selling and administrative expense was $118.1 million or 5.7% of revenue for the nine months ended May 31, 2016 compared to $112.2 million or 6.1% of revenue for the prior comparable period. The $5.9 million increase was primarily attributed to a $13.5 million increase in employee-related costs including long-term and short-term incentive compensation, additional headcount and costs associated with a separation and consultation agreement. The increase was also attributed to a $3.0 million increase in consulting costs primarily associated with strategic business development and IT initiatives. These were partially offset by costs incurred in the prior year which included $5.8 million in professional fees and other transaction costs in connection with a potential acquisition, $2.4 million in costs associated with our advocacy of new tank car regulations and $1.9 million in legal, accounting and consulting costs associated with the previously disclosed investigation at our Concarril manufacturing facility.

Net Gain on Disposition of Equipment

Net gain on disposition of equipment was $11.3 million for the nine months ended May 31, 2016, compared to $0.9 million for the prior comparable period.

Net gain on disposition of equipment includes the sale of assets from our lease fleet (Equipment on operating leases, net) that are periodically sold in the normal course of business in order to take advantage of market conditions and to manage risk and liquidity and disposition of property, plant and equipment.

 

52


THE GREENBRIER COMPANIES, INC.

 

Other Costs

Interest and foreign exchange expense was composed of the following:

 

     Nine Months Ended
May 31,
    Increase
(Decrease)
 
(In thousands)    2016     2015    

Interest and foreign exchange:

      

Interest and other expense

   $ 13,474      $ 14,917      $ (1,443

Foreign exchange gain

     (2,909     (5,562     2,653   
  

 

 

   

 

 

   

 

 

 
   $ 10,565      $ 9,355      $ 1,210   
  

 

 

   

 

 

   

 

 

 

The $1.2 million increase in interest and foreign exchange expense was primarily attributed to a $2.7 million decrease in foreign exchange gain as compared to the prior comparable period primarily attributed to the change in the Mexican Peso relative to the U.S. Dollar. This was partially offset by a $1.4 million decrease in interest expense as a result of lower average borrowings as compared to the prior year.

Income Tax

The tax rate for the nine months ended May 31, 2016 was 29.5%, compared to 31.5% for the nine months ended May 31, 2015. The decrease in the tax rate was primarily attributable to a change in the proportion of projected pre-tax earnings attributable to our Mexican railcar manufacturing joint venture.

The tax rate can fluctuate period-to-period due to changes in the projected mix of foreign and domestic pre-tax earnings and due to discrete tax items booked within the interim period. It can also fluctuate with changes in the proportion of projected pre-tax earnings attributable to our Mexican railcar manufacturing joint venture because the joint venture is predominantly treated as a partnership for tax purposes and, as a result, the partnership’s entire pre-tax earnings are included in Earnings before income taxes and earnings from unconsolidated affiliates, whereas only our 50% share of the tax is included in Income tax expense.

Earnings From Unconsolidated Affiliates

Earnings from unconsolidated affiliates was $2.9 million and $1.6 million for the nine months ended May 31, 2016 and 2015, respectively. Earnings from unconsolidated affiliates primarily included our share of after-tax results from our GBW Joint Venture including eliminations associated with GBW transactions with other Greenbrier entities and our share of after-tax results from our castings joint venture. In addition, the nine months ended May 31, 2016 included our share of after-tax results from our tank head joint venture and our share of after-tax results from our 19.5% ownership stake in a railcar manufacturer in Brazil.

Noncontrolling Interest

Net earnings attributable to noncontrolling interest was $74.8 million for the nine months ended May 31, 2016 compared to $41.4 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 increase of $33.4 million from the prior year is primarily a result of the joint venture operating at higher production rates with higher margins and lower volumes of intercompany activity.

 

53


THE GREENBRIER COMPANIES, INC.

 

Liquidity and Capital Resources

 

     Nine Months Ended
May 31,
 
(In thousands)    2016     2015  

Net cash provided by operating activities

   $ 194,678      $ 29,557   

Net cash provided by (used in) investing activities

     33,450        (100,244

Net cash provided by (used in) financing activities

     (179,900     14,629   

Effect of exchange rate changes

     (6,718     (6,075
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ 41,510      $ (62,133
  

 

 

   

 

 

 

We have been financed through cash generated from operations and borrowings. At May 31, 2016, cash and cash equivalents were $214.4 million, an increase of $41.5 million from $172.9 million at August 31, 2015.

Cash provided by operating activities was $194.7 million for the nine months ended May 31, 2016 compared to $29.6 million for the nine months ended May 31, 2015. The change from the prior year was primarily due to higher earnings, a change in working capital needs and a change in leased railcars for syndication.

Cash provided by and used in investing activities primarily related to capital expenditures net of proceeds from the sale of assets. Cash provided by investing activities for the nine months ended May 31, 2016 was $33.5 million compared to cash used in investing activities of $100.2 million for the nine months ended May 31, 2015. The change was attributed to higher proceeds from the sale of assets and lower capital expenditures for the nine months ended May 31, 2016 compared to the prior year.

Capital expenditures totaled $51.7 million and $75.9 million for the nine months ended May 31, 2016 and 2015, respectively. Proceeds from the sale of assets, which primarily related to sales of railcars from our lease fleet within Leasing & Services, were approximately $88.7 million and $4.6 million for the nine months ended May 31, 2016 and 2015, respectively. Proceeds from the sale of assets for the nine months ended May 31, 2016 included approximately $37.6 million of equipment that was sold pursuant to a sale and leaseback.

Approximately $35.6 million and $60.6 million of capital expenditures for the nine months ended May 31, 2016 and 2015, respectively were attributable to Manufacturing operations. Capital expenditures for Manufacturing are expected to be approximately $55.0 million in 2016 and primarily relate to maintenance and enhancements of our existing manufacturing facilities.

Approximately $10.3 million and $10.2 million of capital expenditures for the nine months ended May 31, 2016 and 2015, respectively were attributable to Leasing & Services operations and corporate. Leasing & Services and corporate capital expenditures for 2016 are expected to be approximately $30.0 million. Proceeds from sales of leased railcar equipment are expected to be approximately $90.0 million for 2016. Assets from our lease fleet are periodically sold in the normal course of business in order to take advantage of market conditions and to manage risk and liquidity.

Approximately $5.8 million and $5.1 million of capital expenditures for the nine months ended May 31, 2016 and 2015, respectively were attributable to Wheels & Parts operations. Capital expenditures for Wheels & Parts are expected to be approximately $9.0 million in 2016 for maintenance and enhancements of our existing facilities.

Cash used in financing activities was $179.9 million for the nine months ended May 31, 2016 compared to cash provided by financing activities of $14.6 million for the nine months ended May 31, 2015. The change from the prior year was primarily attr