XNYS:GBX Greenbrier Companies Inc Quarterly Report 10-Q Filing - 2/29/2012

Effective Date 2/29/2012

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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

February 29, 2012 for the quarterly period ended February 29, 2012

 

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

for the transition period from             to             

Commission File No. 1-13146

 

 

THE GREENBRIER COMPANIES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Oregon   93-0816972
(State of Incorporation)   (I.R.S. Employer Identification No.)

One Centerpointe Drive, Suite 200, Lake Oswego, OR 97035

(Address of principal executive offices) (Zip Code)

(503) 684-7000

(Registrant’s telephone number, including area code)

 

 

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

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

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

 

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

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

The number of shares of the registrant’s common stock, without par value, outstanding on March 28, 2012 was 26,691,721 shares.

 

 

 


THE GREENBRIER COMPANIES, INC.

Forward-Looking Statements

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

 

   

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

 

   

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

 

   

ability to utilize beneficial tax strategies;

 

   

ability to grow our businesses;

 

   

ability to obtain sales contracts which provide adequate protection against increased costs of materials and components;

 

   

ability to obtain adequate insurance coverage at acceptable rates;

 

   

ability to obtain adequate certification and licensing of products; and

 

   

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

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

 

   

fluctuations in demand for newly manufactured railcars or marine barges;

 

   

fluctuations in demand for wheel services, refurbishment and parts;

 

   

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

 

   

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

 

   

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

 

   

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

 

   

growth or reduction in the surface transportation industry;

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

2


THE GREENBRIER COMPANIES, INC.

 

   

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

 

   

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

 

   

resolution or outcome of pending or future litigation and investigations;

 

   

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

 

   

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

 

   

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

 

   

industry overcapacity and our manufacturing capacity utilization;

 

   

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

 

   

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

 

   

changes in future maintenance or warranty requirements;

 

   

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

 

   

changes in interest rates and financial impacts from interest rates;

 

   

ability and cost to maintain and renew operating permits;

 

   

actions by various regulatory agencies;

 

   

changes in fuel and/or energy prices;

 

   

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

 

   

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

 

   

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

 

   

failure to successfully integrate acquired businesses;

 

   

discovery of previously unknown liabilities associated with acquired businesses;

 

   

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

 

   

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

 

   

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

 

   

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

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

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

 

3


THE GREENBRIER COMPANIES, INC.

 

PART I. FINANCIAL INFORMATION

 

Item 1. Condensed Financial Statements

Consolidated Balance Sheets

(In thousands, unaudited)

 

     February 29,
2012
    August 31,
2011
 

Assets

    

Cash and cash equivalents

   $ 40,666      $ 50,222   

Restricted cash

     2,249        2,113   

Accounts receivable, net

     177,544        188,443   

Inventories

     365,811        323,512   

Leased railcars for syndication

     79,681        30,690   

Equipment on operating leases, net

     322,811        321,141   

Property, plant and equipment, net

     165,700        161,200   

Goodwill

     137,066        137,066   

Intangibles and other assets, net

     85,155        87,268   
  

 

 

   

 

 

 
   $ 1,376,683      $ 1,301,655   
  

 

 

   

 

 

 

Liabilities and Equity

    

Revolving notes

   $ 101,446      $ 90,339   

Accounts payable and accrued liabilities

     340,328        316,536   

Deferred income taxes

     89,623        83,839   

Deferred revenue

     1,230        5,900   

Notes payable

     428,454        429,140   

Commitments and contingencies (Note 12)

    

Equity:

    

Greenbrier

    

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

     —          —     

Common stock - without par value; 50,000 shares authorized; 26,692 and 25,186 shares outstanding at February 29, 2012 and August 31, 2011

     —          —     

Additional paid-in capital

     245,776        242,286   

Retained earnings

     159,368        127,182   

Accumulated other comprehensive loss

     (5,356     (7,895
  

 

 

   

 

 

 

Total equity Greenbrier

     399,788        361,573   

Noncontrolling interest

     15,814        14,328   
  

 

 

   

 

 

 

Total equity

     415,602        375,901   
  

 

 

   

 

 

 
   $ 1,376,683      $ 1,301,655   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements

 

4


THE GREENBRIER COMPANIES, INC.

 

Consolidated Statements of Operations

(In thousands, except per share amounts, unaudited)

 

     Three Months Ended     Six Months Ended  
     February 29,
2012
    February 28,
2011
    February 29,
2012
    February 28,
2011
 

Revenue

        

Manufacturing

   $ 320,206      $ 156,621      $ 582,863      $ 242,062   

Wheel Services, Refurbishment & Parts

     119,894        112,015        237,643        207,282   

Leasing & Services

     18,086        15,703        35,879        33,930   
  

 

 

   

 

 

   

 

 

   

 

 

 
     458,186        284,339        856,385        483,274   

Cost of revenue

        

Manufacturing

     290,851        147,552        527,040        227,300   

Wheel Services, Refurbishment & Parts

     106,554        101,413        212,445        187,824   

Leasing & Services

     9,295        8,725        18,958        17,845   
  

 

 

   

 

 

   

 

 

   

 

 

 
     406,700        257,690        758,443        432,969   

Margin

     51,486        26,649        97,942        50,305   

Selling and administrative

     24,979        17,693        48,214        35,632   

Gain on disposition of equipment

     (2,654     (1,962     (6,312     (4,471
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings from operations

     29,161        10,918        56,040        19,144   

Other costs

        

Interest and foreign exchange

     6,630        10,536        12,014        20,839   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     22,531        382        44,026        (1,695

Income tax benefit (expense)

     (5,348     (100     (13,144     512   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     17,183        282        30,882        (1,183

Earnings (loss) from unconsolidated affiliates

     72        (575     (300     (1,162
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss)

     17,255        (293     30,582        (2,345

Net (earnings) loss attributable to noncontrolling interest

     415        (257     1,604        (509
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss) attributable to Greenbrier

   $ 17,670      $ (550   $ 32,186      $ (2,854
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings (loss) per common share

   $ 0.66      $ (0.02   $ 1.23      $ (0.13

Diluted earnings (loss) per common share

   $ 0.57      $ (0.02   $ 1.04      $ (0.13

Weighted average common shares:

        

Basic

     26,683        23,310        26,073        22,030   

Diluted

     33,668        23,310        33,528        22,030   

The accompanying notes are an integral part of these financial statements

 

5


THE GREENBRIER COMPANIES, INC.

 

Consolidated Statements of Equity and Comprehensive Income (Loss)

(In thousands, except per share amounts, unaudited)

 

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

Balance September 1, 2011

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

Net earnings (loss)

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

Translation adjustment

     —           —          —           (1,472     (1,472     (61     (1,533

Reclassification of derivative financial instruments recognized in net earnings (net of tax effect)

     —           —          —           860        860        —          860   

Unrealized gain on derivative financial instruments (net of tax effect)

     —           —          —           3,151        3,151        —          3,151   
            

 

 

   

 

 

   

 

 

 

Comprehensive income

               34,725        (1,665     33,060   

Noncontrolling interest adjustments

     —           —          —           —          —          3,151        3,151   

Restricted stock awards (net of cancellations)

     23         600        —           —          600        —          600   

Unamortized restricted stock

     —           (600     —           —          (600     —          (600

Restricted stock amortization

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

Warrants exercised

     1,483         —          —           —          —          —          —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance February 29, 2012

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

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

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

Balance September 1, 2010

     21,875       $ 172,426      $ 120,716      $ (7,204   $ 285,938      $ 11,469       $ 297,407   

Net earnings (loss)

     —           —          (2,854     —          (2,854     509         (2,345

Translation adjustment

     —           —          —          2,277        2,277        —           2,277   

Reclassification of derivative financial instruments recognized in net loss (net of tax effect)

     —           —          —          (106     (106     —           (106

Unrealized gain on derivative financial instruments (net of tax effect)

     —           —          —          571        571        —           571   
           

 

 

   

 

 

    

 

 

 

Comprehensive income

              (112     509         397   

Net proceeds from equity offering

     3,000         62,775        —          —          62,775        —           62,775   

Restricted stock awards (net of cancellations)

     29         600        —          —          600        —           600   

Unamortized restricted stock

     —           (600     —          —          (600     —           (600

Restricted stock amortization

     —           2,554        —          —          2,554        —           2,554   

Stock options exercised

     5         26        —          —          26        —           26   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance February 28, 2011

     24,909       $ 237,781      $ 117,862      $ (4,462   $ 351,181      $ 11,978       $ 363,159   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

The accompanying notes are an integral part of these financial statements

 

6


THE GREENBRIER COMPANIES, INC.

 

Consolidated Statements of Cash Flows

(In thousands, unaudited)

 

     Six Months Ended  
     February 29,
2012
    February 28,
2011
 

Cash flows from operating activities

    

Net income (loss)

   $ 30,582      $ (2,345

Adjustments to reconcile net income (loss) to net cash used in operating activities:

    

Deferred income taxes

     5,828        4,669   

Depreciation and amortization

     20,322        18,626   

Gain on sales of leased equipment

     (6,312     (2,594

Accretion of debt discount

     1,599        3,620   

Stock based compensation expense

     3,490        2,554   

Other

     3,759        55   

Decrease (increase) in assets:

    

Accounts receivable

     8,898        (24,360

Inventories

     (43,751     (44,563

Leased railcars for syndication

     (52,925     (49,329

Other

     (603     4,393   

Increase (decrease) in liabilities:

    

Accounts payable and accrued liabilities

     25,854        43,006   

Deferred revenue

     (4,657     (5,477
  

 

 

   

 

 

 

Net cash used in operating activities

     (7,916     (51,745
  

 

 

   

 

 

 

Cash flows from investing activities

    

Proceeds from sales of equipment

     20,058        13,752   

Investment in and net advances to unconsolidated affiliates

     70        (279

Decrease (increase) in restricted cash

     (136     598   

Capital expenditures

     (35,713     (30,132

Other

     22        43   
  

 

 

   

 

 

 

Net cash used in investing activities

     (15,699     (16,018
  

 

 

   

 

 

 

Cash flows from financing activities

    

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

     (18,716     (2,888

Proceeds from revolving notes with maturities longer than 90 days

     46,646        10,000   

Repayments of revolving notes with maturities longer than 90 days

     (15,818     —     

Net proceeds from issuance of notes payable

     2,500        —     

Repayments of notes payable

     (4,784     (2,323

Gross proceeds from equity offering

     —          63,180   

Expenses from equity offering

     —          (405

Other

     —          26   
  

 

 

   

 

 

 

Net cash provided by financing activities

     9,828        67,590   
  

 

 

   

 

 

 

Effect of exchange rate changes

     4,231        398   

Increase (decrease) in cash and cash equivalents

     (9,556     225   

Cash and cash equivalents

    

Beginning of period

     50,222        98,864   
  

 

 

   

 

 

 

End of period

   $ 40,666      $ 99,089   
  

 

 

   

 

 

 

Cash paid (received) during the period for

    

Interest

   $ 8,170      $ 14,073   

Income taxes

   $ (2,483   $ 513   

The accompanying notes are an integral part of these financial statements

 

7


THE GREENBRIER COMPANIES, INC.

 

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1 – Interim Financial Statements

The Condensed Consolidated Financial Statements of The Greenbrier Companies, Inc. and Subsidiaries (Greenbrier or the Company) as of February 29, 2012, for the three and six months ended February 29, 2012 and for the three and six months ended February 28, 2011 have been prepared without audit and reflect all adjustments (consisting of normal recurring accruals) which, in the opinion of management, are necessary for a fair presentation of the financial position and operating results and cash flows for the periods indicated. The results of operations for the three and six months ended February 29, 2012 are not necessarily indicative of the results to be expected for the entire year ending August 31, 2012.

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 2011 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.

Change in Presentation to Prior Year Financial Statements – Historically, the Company has reported Gain on disposition of equipment as a net amount in Revenue. The Company has changed its financial statement presentation to now report these amounts as a separate line item captioned “Gain on disposition of equipment”, which is a component of operating income below margin. This change in presentation resulted in a decrease in Revenue and corresponding increase in Gain on disposition of equipment of $2.0 million for the three months ended February 28, 2011 and $4.5 million for the six months ended February 28, 2011. Such change in presentation did not result in any change to Net earnings (loss) attributable to Greenbrier.

Prospective Accounting Changes – In June 2011, an accounting standard update was issued regarding the presentation of other comprehensive income in the financial statements. The standard eliminated the option of presenting other comprehensive income as part of the statement of changes in equity and instead requires the Company to present other comprehensive income as either a single statement of comprehensive income combined with net income or as two separate but continuous statements. This amendment will be effective for the Company as of September 1, 2012. The Company currently reports other comprehensive income in the Consolidated Statement of Equity and Comprehensive Income (Loss) and will be required to change the presentation of comprehensive income to be in compliance with the new standard.

In September 2011, an accounting standard update was issued regarding the annual goodwill impairment testing. This amendment is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to perform a qualitative assessment to determine whether further impairment testing is necessary. This amendment will be effective for the Company as of September 1, 2012. However, early adoption is permitted if an entity’s financial statements for the most recent annual or interim period have not yet been issued. This amendment impacts testing steps only, and therefore adoption will not have an effect on the Company’s Consolidated Financial Statements. The Company performs a goodwill impairment test annually during the third quarter. Goodwill is also tested more frequently if changes in circumstances or the occurrence of events indicates that a potential impairment exists.

 

8


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)    February 29,
2012
    August 31,
2011
 

Manufacturing supplies and raw materials

   $ 284,824      $ 231,798   

Work-in-process

     63,726        78,709   

Finished goods

     21,657        17,455   

Excess and obsolete adjustment

     (4,396     (4,450
  

 

 

   

 

 

 
   $ 365,811      $ 323,512   
  

 

 

   

 

 

 

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)    February 29,
2012
    August 31,
2011
 

Intangible assets subject to amortization:

    

Customer relationships

   $ 66,825      $ 66,825   

Accumulated amortization

     (19,932     (17,854

Other intangibles

     5,053        5,185   

Accumulated amortization

     (3,644     (3,475
  

 

 

   

 

 

 
     48,302        50,681   

Intangible assets not subject to amortization

     912        912   

Prepaid and other assets

     9,642        8,692   

Debt issuance costs, net

     11,408        12,516   

Nonqualified savings plan investments

     6,985        6,326   

Investment in unconsolidated affiliates

     6,641        5,769   

Contract placement fee

     1,162        2,259   

Investment in direct finance leases

     103        113   
  

 

 

   

 

 

 

Total intangible and other assets

   $ 85,155      $ 87,268   
  

 

 

   

 

 

 

Amortization expense for the three and six months ended February 29, 2012 was $1.1 million and $2.3 million and for the three and six months ended February 28, 2011 was $1.2 million and $2.4 million. Amortization expense for the years ending August 31, 2012, 2013, 2014, 2015 and 2016 is expected to be $4.6 million, $4.4 million, $4.3 million, $4.3 million and $4.3 million.

 

9


THE GREENBRIER COMPANIES, INC.

 

Note 4 – Revolving Notes

Senior secured credit facilities, consisting of three components, aggregated $359.5 million as of February 29, 2012.

As of February 29, 2012 a $290.0 million revolving line of credit secured by substantially all the Company’s assets in the U.S. not otherwise pledged as security for term loans, maturing June 2016, was available to provide working capital and interim financing of equipment, principally for the U.S. and Mexican operations. Advances under this facility bear interest at variable rates that depend on the type of borrowing and the defined ratio of debt to total capitalization. Available borrowings under the credit facility are generally based on defined levels of inventory, receivables, property, plant and equipment and leased equipment, as well as total debt to consolidated capitalization and fixed charges coverage ratios.

As of February 29, 2012, lines of credit totaling $19.5 million secured by certain of the Company’s European assets, with various variable rates, were available for working capital needs of the European manufacturing operation. European credit facilities are continually being renewed. Currently these European credit facilities have maturities that range from June 2012 through March 2013.

As of February 29, 2012, the Company’s Mexican joint venture had two lines of credit totaling $50.0 million. The first line of credit provides up to $20.0 million and is secured by certain of the joint venture’s accounts receivable and inventory. Advances under this facility bear interest at LIBOR plus 2.5% and are due 180 days after the date of borrowing. The outstanding advances as of February 29, 2012 have maturities that range from March 2012 to August 2012. The Mexican joint venture will be able to draw against this facility through July 2012. The second line of credit provides up to $30.0 million and is guaranteed by each of the joint venture partners, including the Company. Advances under this facility bear interest at LIBOR plus 2.0% and are due 180 days after the date of borrowing. The outstanding advances as of February 29, 2012 mature in July 2012. The Mexican joint venture will be able to draw against this facility through February 2015.

As of February 29, 2012 outstanding borrowings under the senior secured credit facilities consisted of $5.2 million in letters of credit and $45.0 million in revolving notes outstanding under the North American credit facility, $10.4 million outstanding under the European credit facilities and $46.0 million outstanding under the Mexican joint venture credit facilities.

Note 5 – Accounts Payable and Accrued Liabilities

 

(In thousands)    February 29,
2012
     August 31,
2011
 

Trade payables and other accrued liabilities

   $ 278,913       $ 267,683   

Accrued payroll and related liabilities

     31,205         26,757   

Accrued maintenance

     10,934         10,865   

Accrued warranty

     9,297         8,645   

Other

     9,979         2,586   
  

 

 

    

 

 

 
   $ 340,328       $ 316,536   
  

 

 

    

 

 

 

 

10


THE GREENBRIER COMPANIES, INC.

 

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:

 

     Three Months Ended     Six Months Ended  
(In thousands)    February 29,
2012
    February 28,
2011
    February 29,
2012
    February 28,
2011
 

Balance at beginning of period

   $ 8,943      $ 6,284      $ 8,644      $ 6,304   

Charged to cost of revenue

     488        501        1,395        650   

Payments

     (260     (426     (668     (600

Currency translation effect

     126        22        (74     27   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 9,297      $ 6,381      $ 9,297      $ 6,381   
  

 

 

   

 

 

   

 

 

   

 

 

 

Note 7 – Accumulated Other Comprehensive Loss

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

 

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

Balance, August 31, 2011

   $ (5,789   $ (195   $ (1,911   $ (7,895

First quarter activity

     (4,608     —          (4,696     (9,304

Second quarter activity

     8,620        —          3,223        11,843   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, February 29, 2012

   $ (1,777   $ (195   $ (3,384   $ (5,356
  

 

 

   

 

 

   

 

 

   

 

 

 

 

11


THE GREENBRIER COMPANIES, INC.

 

Note 8 – Earnings (Loss) Per Share

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

 

     Three Months Ended      Six Months Ended  
(In thousands)    February 29,
2012
     February 28,
2011
     February 29,
2012
     February 28,
2011
 

Weighted average basic common shares outstanding (1)

     26,683         23,310         26,073         22,030   

Dilutive effect of employee stock options (2)

     —           —           —           —     

Dilutive effect of warrants (3)

     940         —           1,410         —     

Dilutive effect of convertible notes (4)

     6,045         —           6,045         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average diluted common shares outstanding

     33,668         23,310         33,528         22,030   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Restricted stock grants are treated as outstanding when issued and are included in weighted average basic common shares outstanding when the Company is in a net earnings position. Shares outstanding exclude 1.1 million shares of unvested restricted stock for the three and six months ended February 28, 2011 due to a net loss.
(2) There were no options outstanding for the three and six months ended February 29, 2012. The dilutive effect of options was excluded from the share calculation for the three and six months ended February 28, 2011 due to a net loss.
(3) The dilutive effect of warrants to purchase 3.4 million shares was excluded from the share calculation for the three and six months ended February, 2011 due to a net loss.
(4) The dilutive effect of the 2018 Convertible notes are included as they were considered dilutive under the “if converted” method as further discussed below. The dilutive effect of the 2026 Convertible notes was excluded from the share calculations as the stock price for each period presented was less than the initial conversion price of $48.05 and therefore considered anti-dilutive.

Dilutive EPS for the three and six months ended February 29, 2012 was calculated using the more dilutive of two approaches. The first approach includes the dilutive effect of outstanding warrants and shares underlying the 2026 Convertible notes in the share count using the treasury stock method (see footnote 2 above). 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 6,045 shares underlying the convertible notes. The 2026 Convertible notes would only be included in the calculation of both approaches if the current stock price is greater than the initial conversion price of $48.05 using the treasury stock method.

 

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

Net earnings attributable to Greenbrier

   $ 17,670      $ 32,186   

Add back:

    

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

     1,376        2,766   
  

 

 

   

 

 

 

Earnings before interest and debt issuance costs on convertible notes

   $ 19,046      $ 34,952   
  

 

 

   

 

 

 

Weighted average diluted common shares outstanding

     33,668        33,528   

Diluted earnings per share

   $ 0.57  (1)    $ 1.04  (1) 

 

(1) Diluted earnings per share was calculated as follows:

          Earnings before interest and debt issuance costs on convertible notes

                    Weighted average diluted common shares outstanding

 

12


THE GREENBRIER COMPANIES, INC.

 

Note 9 – Stock Based Compensation

The value of stock awarded under restricted stock grants is amortized as compensation expense over the vesting period, which is generally between one to five years. For the three and six months ended February 29, 2012, $1.7 million and $3.5 million in compensation expense was recorded for restricted stock grants. For the three and six months ended February 28, 2011, $1.3 million and $2.6 million in compensation expense was recorded for restricted stock grants.

Note 10 – Derivative Instruments

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

At February 29, 2012 exchange rates, forward exchange contracts for the purchase of Polish Zloty and the sale of Euro aggregated $87.8 million. Adjusting the foreign currency exchange contracts to the fair value of the cash flow hedges at February 29, 2012 resulted in an unrealized pre-tax loss of $0.7 million that was recorded in accumulated other comprehensive loss. The fair value of the contracts is included in Accounts payable and accrued liabilities when there is a loss, or Accounts receivable when there is a gain, on the Consolidated Balance Sheets. As the contracts mature at various dates through February 2013, any such gain or loss remaining will be recognized in manufacturing revenue along with the related transactions. In the event that the underlying sales transaction does not occur or does not occur in the period designated at the inception of the hedge, the amount classified in accumulated other comprehensive loss would be reclassified to the current year’s results of operations in Interest and foreign exchange.

At February 29, 2012, an interest rate swap agreement had a notional amount of $43.6 million and matures March 2014. The fair value of this cash flow hedge at February 29, 2012 resulted in an unrealized pre-tax loss of $3.5 million. The loss is included in Accumulated other comprehensive loss and the fair value of the contract is included in Accounts payable and accrued liabilities on the Consolidated Balance Sheet. As interest expense on the underlying debt is recognized, amounts corresponding to the interest rate swap are reclassified from accumulated other comprehensive loss and charged or credited to interest expense. At February 29, 2012 interest rates, approximately $1.1 million would be reclassified to interest expense in the next 12 months.

Fair Values of Derivative Instruments

 

     Asset Derivatives      Liability Derivatives  
          February 29,
2012
     August 31,
2011
          February 29,
2012
     August 31,
2011
 
(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
   $ 1,984       $ —         Accounts payable
and accrued liabilities
   $ 1,208       $ 2,848   

Interest rate swap contracts

   Other assets      —           —         Accounts payable and
accrued liabilities
     3,528         4,386   
     

 

 

    

 

 

       

 

 

    

 

 

 
      $ 1,984       $ —            $ 4,736       $ 7,234   
     

 

 

    

 

 

       

 

 

    

 

 

 

Derivatives not designated as hedging instruments

  

        

Foreign forward exchange contracts

   Accounts
receivable
   $ —         $ —         Accounts payable and
accrued liabilities
   $ 214       $ 525   

 

13


THE GREENBRIER COMPANIES, INC.

 

The Effect of Derivative Instruments on the Statement of Operations

 

             

Gain (loss) recognized in income on derivative Six
months ended

 

Derivatives in cash flow hedging

relationships

    

Location of loss recognized in income on derivative

   

February 29,

2012

   February 28,
2011
 

Foreign forward exchange contract

  

   Interest and foreign exchange      $163      $(49)   

Derivatives

in cash flow

hedging

relationships

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

Six months ended
    

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

   Gain (loss)
reclassified from
accumulated

OCI into income
(effective portion)

Six months ended
   

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

   Gain (loss)
recognized on
derivative

(ineffective
portion

and amount
excluded from
effectiveness

testing)
Six months ended
 
    2/29/12     2/28/11         2/29/12     2/28/11        2/29/12      2/28/11  

Foreign forward exchange contracts

  $ 113      $ 196       Revenue    $ (3,547   $ 435      Interest and foreign exchange    $ —         $ —     

Interest rate swap contracts

    (1,711     2,010       Interest and foreign exchange      (852     (889   Interest and foreign exchange      —           —     
 

 

 

   

 

 

       

 

 

   

 

 

      

 

 

    

 

 

 
  $ (1,598   $ 2,206          $ (4,399   $ (454      $ —         $ —     
 

 

 

   

 

 

       

 

 

   

 

 

      

 

 

    

 

 

 

Note 11 – Segment Information

Greenbrier operates in three reportable segments: Manufacturing; Wheel Services, Refurbishment & Parts; and Leasing & Services. The accounting policies of the segments are described in the summary of significant accounting policies in the Consolidated Financial Statements contained in the Company’s 2011 Annual Report on Form 10-K. Segment performance is evaluated based on margin. The Company’s integrated business model results in selling and administrative costs being intertwined among the segments. Any allocation of these costs would be subjective and not meaningful and as a result, Greenbrier’s management does not allocate these costs for either external or internal reporting purposes. Intersegment sales and transfers are valued as if the sales or transfers were to third parties. Related revenue and margin is eliminated in consolidation and therefore are not included in consolidated results in the Company’s Consolidated Financial Statements.

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

 

14


THE GREENBRIER COMPANIES, INC.

 

     Three Months Ended     Six Months Ended  
(In thousands)    February 29,
2012
    February 28,
2011
    February 29,
2012
    February 28,
2011
 

Revenue:

        

Manufacturing

   $ 328,675      $ 168,942      $ 633,514      $ 295,570   

Wheel Services, Refurbishment & Parts

     123,699        121,652        246,318        222,944   

Leasing & Services

     25,753        15,938        46,337        34,183   

Intersegment eliminations

     (19,941     (22,193     (69,784     (69,423
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 458,186      $ 284,339      $ 856,385      $ 483,274   
  

 

 

   

 

 

   

 

 

   

 

 

 

Margin:

        

Manufacturing

   $ 29,355      $ 9,069      $ 55,823      $ 14,762   

Wheel Services, Refurbishment & Parts

     13,340        10,602        25,198        19,458   

Leasing & Services

     8,791        6,978        16,921        16,085   
  

 

 

   

 

 

   

 

 

   

 

 

 

Segment margin total

     51,486        26,649        97,942        50,305   

Less unallocated expenses:

        

Selling and administrative

     24,979        17,693        48,214        35,632   

Gain on disposition of equipment

     (2,654     (1,962     (6,312     (4,471

Interest and foreign exchange

     6,630        10,536        12,014        20,839   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 22,531      $ 382      $ 44,026      $ (1,695
  

 

 

   

 

 

   

 

 

   

 

 

 

Note 12 – Commitments and Contingencies

Environmental studies have been conducted on certain of the Company’s owned and leased properties that indicate additional investigation and some remediation on certain properties may be necessary. The Company’s Portland, Oregon manufacturing facility is located adjacent to the Willamette River. The U.S. Environmental Protection Agency (EPA) has classified portions of the river bed, including the portion fronting Greenbrier’s facility, as a federal “National Priority List” or “Superfund” site due to sediment contamination (the Portland Harbor Site). Greenbrier 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, 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. A draft of the RI study was submitted on October 27, 2009. The draft Feasibility Study was submitted on March 30, 2012. Eighty-three parties, including the State of Oregon and the federal government, have entered into a non-judicial mediation process to try to allocate costs associated with the Portland Harbor site. Approximately 110 additional parties have signed tolling agreements related to such allocations. On April 23, 2009, the Company and the other AOC signatories filed suit against 69 other parties due to a possible limitations period for some such claims; Arkema Inc. et al v. A & C Foundry Products, Inc.et al, US District Court, District of Oregon, Case #3:09-cv-453-PK. All but 12 of these parties elected to sign tolling agreements and be dismissed without prejudice, and the case has now been stayed by the court, pending completion of the RI/FS. In addition, the Company has entered into a Voluntary Clean-Up Agreement with the Oregon Department of Environmental Quality in which the Company agreed to conduct an investigation of whether, and to what extent, past or present operations at the Portland property may have released hazardous substances to the environment. The Company is also conducting groundwater remediation relating to a historical spill on the property which antedates its ownership.

 

15


THE GREENBRIER COMPANIES, INC.

 

Because these environmental investigations are still underway, the Company is unable to determine the amount of ultimate liability relating to these matters. Based on the results of the pending investigations and future assessments of natural resource damages, Greenbrier may be required to incur costs associated with additional phases of investigation or remedial action, and may be liable for damages to natural resources. In addition, the Company may be required to perform periodic maintenance dredging in order to continue to launch vessels from its launch ways in Portland, Oregon, on the Willamette River, and the river’s classification as a Superfund site could result in some limitations on future dredging and launch activities. Any of these matters could adversely affect the Company’s business and Consolidated Financial Statements, or the value of its Portland property.

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

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

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

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

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

In accordance with customary business practices in Europe, the Company has $3.5 million in bank and third party warranty and performance guarantee facilities, all of which have been utilized as of February 29, 2012. To date no amounts have been drawn under these guarantee facilities.

At February 29, 2012, the Mexican joint venture had $46.8 million of third party debt outstanding, for which the Company has guaranteed approximately $38.4 million.

As of February 29, 2012 the Company has outstanding letters of credit aggregating $5.2 million associated with facility leases and workers compensation insurance.

 

16


THE GREENBRIER COMPANIES, INC.

 

Note 13 – Fair Value Measures

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

 

Level 1

  -   observable inputs such as unadjusted quoted prices in active markets for identical instruments;

Level 2

  -   inputs, other than the quoted market prices in active markets for similar instruments, which are observable, either directly or indirectly; and

Level 3

  -   unobservable inputs for which there is little or no market data available, which require the reporting entity to develop its own assumptions.

Assets and liabilities measured at fair value on a recurring basis as of February 29, 2012 are:

 

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

Assets:

           

Derivative financial instruments

   $ 1,984       $ —         $ 1,984       $ —     

Nonqualified savings plan investments

     6,985         6,985         —           —     

Cash equivalents

     2,001         2,001         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 10,970       $ 8,986       $ 1,984       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Derivative financial instruments

   $ 4,950       $ —         $ 4,950       $ —     

 

(1) Level 2 assets include derivative financial instruments which are valued based on significant observable inputs. See note 10 Derivative Instruments for further discussion.

Assets and liabilities measured at fair value on a recurring basis as of August 31, 2011 are:

 

(In thousands)    Total      Level 1      Level 2      Level 3  

Assets:

           

Derivative financial instruments

   $ —         $ —         $ —         $ —     

Nonqualified savings plan investments

     6,326         6,326         —           —     

Cash equivalents

     4,561         4,561         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 10,887       $ 10,887       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Derivative financial instruments

   $ 7,759       $ —         $ 7,759       $ —     

 

17


THE GREENBRIER COMPANIES, INC.

 

Note 14 – Guarantor/Non Guarantor

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

The following represents the supplemental consolidating condensed financial information of Greenbrier and its guarantor and non guarantor subsidiaries, as of February 29, 2012 and August 31, 2011, for the three and six months ended February 29, 2012 and for the three and six months ended February 28, 2011. 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.

 

18


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

    Condensed Consolidating Balance Sheet

    February 29, 2012

(In thousands)

 

     Parent     Combined
Guarantor
Subsidiaries
     Combined
Non-

Guarantor
Subsidiaries
    Eliminations     Consolidated  

Assets

           

Cash and cash equivalents

   $ 26,663      $ 123       $ 13,880      $ —        $ 40,666   

Restricted cash

     —          2,249         —          —          2,249   

Accounts receivable, net

     48,691        133,931         (5,080     2        177,544   

Inventories

     —          138,265         227,824        (278     365,811   

Leased railcars for syndication

     —          82,836         —          (3,155     79,681   

Equipment on operating leases, net

     —          324,773         —          (1,962     322,811   

Property, plant and equipment, net

     4,623        102,753         58,324        —          165,700   

Goodwill

     —          137,066         —          —          137,066   

Intangibles and other assets, net

     636,150        93,503         3,580        (648,078     85,155   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
   $ 716,127      $ 1,015,499       $ 298,528      $ (653,471   $ 1,376,683   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Liabilities and Equity

           

Revolving notes

   $ 45,000      $ —         $ 56,446      $ —        $ 101,446   

Accounts payable and accrued liabilities

     (22,767     206,090         157,003        2        340,328   

Deferred income taxes

     249        100,297         (9,237     (1,686     89,623   

Deferred revenue

     388        407         435        —          1,230   

Notes payable

     293,608        132,787         2,059        —          428,454   

Total equity Greenbrier

     399,788        575,918         75,869        (651,787     399,788   

Noncontrolling interest

     (139     —           15,953        —          15,814   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total equity

     399,649        575,918         91,822        (651,787     415,602   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
   $ 716,127      $ 1,015,499       $ 298,528      $ (653,471   $ 1,376,683   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

19


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Statement of Operations

For the three months ended February 29, 2012

(In thousands)

 

     Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-

Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenue

          

Manufacturing

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

Wheels Services, Refurbishment & Parts

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

Leasing & Services

     478        17,753        —          (145     18,086   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

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

Cost of revenue

          

Manufacturing

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

Wheel Services, Refurbishment & Parts

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

Leasing & Services

     —          9,312        —          (17     9,295   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

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

Margin

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

Selling and administrative

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

Gain on disposition of equipment

     —          (2,654     —          —          (2,654
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) from operations

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

Other costs

          

Interest and foreign exchange

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

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

Income tax (expense) benefit

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

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

Earnings (loss) from unconsolidated affiliates

     27,519        (425     —          (27,022     72   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss)

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

Net (earnings) loss attributable to noncontrolling interest

     139        —          (1,459     1,735        415   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss) attributable to Greenbrier

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

20


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Statement of Operations

For the six months ended February 29, 2012

(In thousands)

 

     Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-

Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenue

          

Manufacturing

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

Wheels Services, Refurbishment & Parts

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

Leasing & Services

     747        35,497        —          (365     35,879   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

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

Cost of revenue

          

Manufacturing

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

Wheel Services, Refurbishment & Parts

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

Leasing & Services

     —          18,993        —          (35     18,958   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

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

Margin

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

Selling and administrative

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

Gain on disposition of equipment

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) from operations

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

Other costs

          

Interest and foreign exchange

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

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

Income tax (expense) benefit

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

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

Earnings (loss) from unconsolidated affiliates

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss)

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

Net (earnings) loss attributable to noncontrolling interest

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss) attributable to Greenbrier

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

21


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

    Condensed Consolidating Statement of Cash Flows

    For the six months ended February 29, 2012

(In thousands)

 

     Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash flows from operating activities:

          

Net earnings (loss)

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

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

          

Deferred income taxes

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

Depreciation and amortization

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

Gain on sales of leased equipment

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

Accretion of debt discount

     1,599        —          —          —          1,599   

Stock based compensation expense

     3,490        —          —          —          3,490   

Other

     —          600        5        3,154        3,759   

Decrease (increase) in assets

          

Accounts receivable

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

Inventories

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

Leased railcars for syndication

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

Other

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

Increase (decrease) in liabilities

          

Accounts payable and accrued liabilities

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

Deferred revenue

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

          

Proceeds from sales of equipment

     —          20,058        —          —          20,058   

Investment in and net advances to unconsolidated affiliates

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

Intercompany advances

     68        —          —          (68     —     

Change in restricted cash

     —          (136     —          —          (136

Capital expenditures

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

Other

     —          22        —          —          22   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

          

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

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

Proceeds from revolving notes with maturities longer than 90 days

     —          —          46,646        —          46,646   

Repayments of revolving notes with maturities longer than 90 days

     —          —          (15,818       (15,818

Intercompany advances

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

Proceeds from notes payable

     —          —          2,500        —          2,500   

Repayments of notes payable

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes

     —          512        3,719        —          4,231   

Decrease in cash and cash equivalents

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

Cash and cash equivalents

          

Beginning of period

     33,368        529        16,325        —          50,222   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of period

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

22


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

    Condensed Consolidating Balance Sheet

    August 31, 2011

(In thousands)

 

     Parent     Combined
Guarantor
Subsidiaries
     Combined
Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Assets

           

Cash and cash equivalents

   $ 33,368      $ 529       $ 16,325      $ —        $ 50,222   

Restricted cash

     —          2,113         —          —          2,113   

Accounts receivable, net

     86,701        90,442         11,276        24        188,443   

Inventories

     —          141,631         182,185        (304     323,512   

Leased railcars for syndication

     —          30,690         —          —          30,690   

Equipment on operating leases, net

     —          323,139         —          (1,998     321,141   

Property, plant and equipment, net

     6,006        101,284         53,910        —          161,200   

Goodwill

     —          137,066         —          —          137,066   

Intangibles and other assets, net

     584,892        96,444         2,628        (596,696     87,268   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
   $ 710,967      $ 923,338       $ 266,324      $ (598,974   $ 1,301,655   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Liabilities and Equity

           

Revolving notes

   $ 60,000      $ —         $ 30,339      $ —        $ 90,339   

Accounts payable and accrued liabilities

     11,571        148,788         156,153        24        316,536   

Deferred income taxes

     (14,652     104,142         (5,071     (580     83,839   

Deferred revenue

     465        5,242         193        —          5,900   

Notes payable

     292,010        134,868         2,262        —          429,140   

Total equity Greenbrier

     361,573        530,298         68,120        (598,418     361,573   

Noncontrolling interest

     —          —           14,328        —          14,328   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total equity

     361,573        530,298         82,448        (598,418     375,901   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
   $ 710,967      $ 923,338       $ 266,324      $ (598,974   $ 1,301,655   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

23


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

    Condensed Consolidating Statement of Operations

    For the three months ended February 28, 2011

(In thousands, unaudited)

 

     Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenue

          

Manufacturing

   $ 977      $ 79,347      $ 114,276      $ (37,979   $ 156,621   

Wheel Services, Refurbishment & Parts

     —          116,868        —          (4,853     112,015   

Leasing & Services

     352        15,640        —          (289     15,703   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     1,329        211,855        114,276        (43,121     284,339   

Cost of revenue

          

Manufacturing

     —          80,453        105,073        (37,974     147,552   

Wheel Services, Refurbishment & Parts

     —          106,245        —          (4,832     101,413   

Leasing & Services

     —          8,743        —          (18     8,725   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —          195,441        105,073        (42,824     257,690   

Margin

     1,329        16,414        9,203        (297     26,649   

Other costs

          

Selling and administrative

     7,960        5,246        4,487        —          17,693   

Gain on disposition of equipment

     —          (1,960     —          (2     (1,962

Interest and foreign exchange

     9,195        1,008        625        (292     10,536   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     17,155        4,294        5,112        (294     26,267   

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

     (15,826     12,120        4,091        (3     382   

Income tax (expense) benefit

     6,364        (5,362     (1,101     (1     (100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (9,462     6,758        2,990        (4     282   

Earnings (loss) from unconsolidated affiliates

     8,912        1,795        —          (11,282     (575
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss)

     (550     8,553        2,990        (11,286     (293

Net earnings attributable to noncontrolling interest

     —          —          (257     —          (257
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss) attributable to Greenbrier

   $ (550   $ 8,553      $ 2,733      $ (11,286   $ (550
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

24


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Statement of Operations

For the six months ended February 28, 2011

(In thousands, unaudited)

     Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-

Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenue

          

Manufacturing

   $ 977      $ 111,223      $ 201,603      $ (71,741   $ 242,062   

Wheel Services, Refurbishment & Parts

     —          215,352        —          (8,070     207,282   

Leasing & Services

     697        33,813        —          (580     33,930   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     1,674        360,388        201,603        (80,391     483,274   

Cost of revenue

          

Manufacturing

     —          114,282        184,755        (71,737     227,300   

Wheel Services, Refurbishment & Parts

     —          195,865        —          (8,041     187,824   

Leasing & Services

     —          17,881        —          (36     17,845   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —          328,028        184,755        (79,814     432,969   

Margin

     1,674        32,360        16,848        (577     50,305   

Other costs

          

Selling and administrative

     15,982        10,571        9,079        —          35,632   

Gain on disposition of equipment

     —          (4,330     —          (141     (4,471

Interest and foreign exchange

     18,382        2,062        980        (585     20,839   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     34,364        8,303        10,059        (726     52,000   

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

     (32,690     24,057        6,789        149        (1,695

Income tax (expense) benefit

     12,549        (10,420     (1,614     (3     512   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (20,141     13,637        5,175        (146     (1,183

Earnings (loss) from unconsolidated affiliates

     17,287        2,400        —          (20,849     (1,162
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss)

     (2,854     16,037        5,175        (20,703     (2,345

Net earnings attributable to noncontrolling interest

     —          —          (509     —          (509
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss) attributable to Greenbrier

   $ (2,854   $ 16,037      $ 4,666      $ (20,703   $ (2,854
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

Condensed Consolidating Statement of Cash Flows

For the six months ended February 28, 2011

(In thousands, unaudited)

 

      Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-

Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash flows from operating activities:

          

Net earnings (loss)

   $ (2,854   $ 16,037      $ 5,175      $ (20,703   $ (2,345

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

          

Deferred income taxes

     570        2,830        1,265        4        4,669   

Depreciation and amortization

     1,232        14,520        2,910        (36     18,626   

Gain on sales of equipment

     —          (2,452     —          (142     (2,594

Accretion of debt discount

     3,620        —          —          —          3,620   

Stock based compensation

     2,554        —          —          —          2,554   

Other

     —          54        1        —          55   

Decrease (increase) in assets

          

Accounts receivable

     5,127        (48,008     18,521        —          (24,360

Inventories

     —          (5,355     (39,236     28        (44,563

Assets held for sale

     —          (50,347     1,018        —          (49,329

Other

     2,174        1,838        381        —          4,393   

Increase (decrease) in liabilities

          

Accounts payable and accrued liabilities

     464        31,922        10,619        1        43,006   

Deferred revenue

     (78     (4,341     (1,058     —          (5,477
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     12,809        (43,302     (404     (20,848     (51,745
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

          

Principal payments received under direct finance leases

     —          43        —          —          43   

Proceeds from sales of equipment

     —          13,752        —          —          13,752   

Investment in and net advances to unconsolidated affiliates

     (17,287     (3,840     —          20,848        (279

Intercompany advances

     (535     —          —          535        —     

Increase in restricted cash

     —          598        —          —          598   

Capital expenditures

     (1,245     (21,145     (7,742     —          (30,132
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (19,067     (10,592     (7,742     21,383        (16,018
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities

          

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

     —          —          (2,888     —          (2,888

Proceeds from revolving notes with maturities longer than 90 days

     —          —          10,000        —          10,000   

Intercompany advances

     (56,297     54,157        2,675        (535     —     

Gross proceeds from equity offering

     63,180        —          —          —          63,180   

Expenses from equity offering

     (405     —          —          —          (405

Repayments of notes payable

     —          (2,121     (202     —          (2,323

Other

     26        —          —          —          26   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in ) financing activities

     6,504        52,036        9,585        (535     67,590   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes

     —          1,058        (660     —          398   

Increase (decrease) in cash and cash equivalents

     246        (800     779        —          225   

Cash and cash equivalents

          

Beginning of period

     91,472        859        6,533        —          98,864   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of period

   $ 91,718      $ 59      $ 7,312      $ —        $ 99,089   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

26


THE GREENBRIER COMPANIES, INC.

 

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

Executive Summary

We operate in three primary business segments: Manufacturing; Wheel Services, Refurbishment & Parts; and Leasing & Services. These three business segments are operationally integrated. The Manufacturing segment, operating from facilities in the United States (U.S.), Mexico and Poland, produces double-stack intermodal railcars, conventional railcars, tank cars and marine vessels. The Wheel Services, Refurbishment & Parts segment performs railcar repair, refurbishment and maintenance activities in the U.S., Mexico and Canada as well as wheel, axle and bearing servicing, and production and reconditioning of a variety of parts for the railroad industry. The Leasing & Services segment owns approximately 9,100 railcars and provides management services for approximately 216,000 railcars for railroads, shippers, carriers, institutional investors and other leasing and transportation companies in North America. Management evaluates segment performance based on margins. We also produce rail castings through an unconsolidated joint venture.

The rail and marine industries are cyclical in nature. We are continuing to see a recovery in the freight car markets in which we operate. Demand for our marine barge products remains soft.

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

Our total manufacturing backlog of railcars as of February 29, 2012 was approximately 12,500 units with an estimated value of $1.1 billion compared to 9,500 units with an estimated value of $720 million as of February 28, 2011. A portion of the orders included in backlog reflects an assumed product mix. Under terms of the orders, the exact mix will be determined in the future which may impact the dollar amount of backlog. Our railcar and marine backlogs are not necessarily indicative of future results of operations. Subsequent to quarter end we received new railcar orders for 2,300 units valued at approximately $270 million.

Marine backlog as of February 29, 2012 was approximately $2 million compared to approximately $3 million as of February 28, 2011.

The continued global strengthening of the freight car markets may at times limit the availability of certain components of our products that we source from external suppliers, particularly specialized components such as castings, bolsters and trucks, and this may cause an interruption in production. Prices for steel, a primary component of railcars and barges, and related surcharges have fluctuated significantly and remain volatile. In addition, the price of certain railcar components, which are a product of steel, are affected by steel price fluctuations. New railcar and marine backlog generally either includes fixed price contracts which anticipate material price increases and surcharges, or contracts that contain actual or formulaic pass through of material price increases and surcharges. We are aggressively working to mitigate these exposures. The Company’s integrated business model has helped offset some of the effects of fluctuating steel and scrap steel prices, as a portion of our business segments benefit from rising steel scrap prices while other segments benefit from lower steel and scrap steel prices through enhanced margins.

On November 14, 2011, affiliates of WL Ross & Co. LLC (WL Ross) sold 1,482,341 shares of our common stock. The shares sold were acquired by the cashless net exercise of warrants for purchase of our common stock. WL Ross and its investment funds continue to own warrants to purchase 1,154,672 shares of our common stock. The warrants were issued in 2009 in connection with a term loan to Greenbrier that was repaid in June 2011.

 

27


THE GREENBRIER COMPANIES, INC.

 

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires judgment on the part of management to arrive at estimates and assumptions on matters that are inherently uncertain. These estimates may affect the amount of assets, liabilities, revenue and expenses reported in the financial statements and accompanying notes and disclosure of contingent assets and liabilities within the financial statements. Estimates and assumptions are periodically evaluated and may be adjusted in future periods. Actual results could differ from those estimates.

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

Maintenance obligations - We are responsible for maintenance on a portion of the managed and owned lease fleet under the terms of maintenance obligations defined in the underlying lease or management agreement. The estimated maintenance liability is based on maintenance histories for each type and age of railcar. These estimates involve judgment as to the future costs of repairs and the types and timing of repairs required over the lease term. As we cannot predict with certainty the prices, timing and volume of maintenance needed in the future on railcars under long-term leases, this estimate is uncertain and could be materially different from maintenance requirements. The liability is periodically reviewed and updated based on maintenance trends and known future repair or refurbishment requirements. These adjustments could be material due to the inherent uncertainty in predicting future maintenance requirements.

Warranty accruals - Warranty costs to cover a defined warranty period are estimated and charged to cost of revenue. The estimated warranty cost is based on historical warranty claims for each particular product type. For new product types without a warranty history, preliminary estimates are based on historical information for similar product types.

These estimates are inherently uncertain as they are based on historical data for existing products and judgment for new products. If warranty claims are made in the current period for issues that have not historically been the subject of warranty claims and were not taken into consideration in establishing the accrual or if claims for issues already considered in establishing the accrual exceed expectations, warranty expense may exceed the accrual for that particular product. Conversely, there is the possibility that claims may be lower than estimates. The warranty accrual is periodically reviewed and updated based on warranty trends. However, as we cannot predict future claims, the potential exists for the difference in any one reporting period to be material.

Revenue recognition - Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectibility is reasonably assured.

Railcars are generally manufactured, repaired or refurbished and wheel services and parts produced under firm orders from third parties. Revenue is recognized when these products or services are completed, accepted by an unaffiliated customer and contractual contingencies removed. Certain leases are operated under car hire arrangements whereby revenue is earned based on utilization, car hire rates and terms specified in the lease agreement. Car hire revenue is reported from a third party source two months in arrears; however, such revenue is accrued in the month earned based on estimates of use from historical activity and is adjusted to actual as reported. These estimates are inherently uncertain as they involve judgment as to the estimated use of each railcar. Adjustments to actual have historically not been significant. Revenues from construction of marine barges are either recognized on the percentage of completion method during the construction period or on the completed contract method based on the terms of the contract. Under the percentage of completion method, judgment is used to determine a definitive threshold against which progress towards completion can be measured to determine timing of revenue recognition.

 

28


THE GREENBRIER COMPANIES, INC.

 

Impairment of long-lived assets - When changes in circumstances indicate the carrying amount of certain long-lived assets may not be recoverable, the assets are evaluated for impairment. If the forecast undiscounted future cash flows are less than the carrying amount of the assets, an impairment charge to reduce the carrying value of the assets to fair value is recognized in the current period. These estimates are based on the best information available at the time of the impairment and could be materially different if circumstances change. If the forecast undiscounted future cash flows exceeded the carrying amount of the assets it would indicate that the assets were not impaired.

Goodwill and acquired intangible assets - The Company periodically acquires businesses in purchase transactions in which the allocation of the purchase price may result in the recognition of goodwill and other intangible assets. The determination of the value of such intangible assets requires management to make estimates and assumptions. These estimates affect the amount of future period amortization and possible impairment charges.

Goodwill and indefinite-lived intangible assets are tested for impairment annually during the third quarter. Goodwill is also tested more frequently if changes in circumstances or the occurrence of events indicates that a potential impairment exists. The provisions of Accounting Standards Codification (ASC) 350, Intangibles - Goodwill and Other, require that we perform a two-step impairment test on goodwill. In the first step, we compare the fair value of each reporting unit with its carrying value. We determine the fair value of our reporting units based on a weighting of income and market approaches. Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows. Under the market approach, we estimate the fair value based on observed market multiples for comparable businesses. The second step of the goodwill impairment test is required only in situations where the carrying value of the reporting unit exceeds its fair value as determined in the first step. In the second step we would compare the implied fair value of goodwill to its carrying value. The implied fair value of goodwill is determined by allocating the fair value of a reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss is recorded to the extent that the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill. The goodwill balance as of February 29, 2012 of $137.1 million relates to the Wheel Services, Refurbishment & Parts segment.

 

29


THE GREENBRIER COMPANIES, INC.

 

Results of Operations

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

Three Months Ended February 29, 2012 Compared to Three Months Ended February 28, 2011

Overview

Total revenue for the three months ended February 29, 2012 was $458.2 million, an increase of $173.9 million from revenues of $284.3 million in the prior comparable period. The increase was a result of higher revenue in all three segments of our business. The manufacturing segment accounted for $163.6 million of the increase due to higher railcar deliveries as a result of increased demand, more favorable pricing and change in product mix.

Net income attributable to Greenbrier for the three months ended February 29, 2012 was $17.7 million or $0.57 per diluted common share compared to net loss attributable to Greenbrier of $550 thousand or $0.02 per diluted common share for the three months ended February 28, 2011. The increase in net income and earnings per share was primarily attributable to an increase in margin in each of the business segments.

 

     Three Months Ended  
(In thousands)    February 29,
2012
    February 28,
2011
 

Revenue:

    

Manufacturing

   $ 320,206      $ 156,621   

Wheel Services, Refurbishment & Parts

     119,894        112,015   

Leasing & Services

     18,086        15,703   
  

 

 

   

 

 

 
     458,186        284,339   

Margin:

    

Manufacturing

     29,355        9,069   

Wheel Services, Refurbishment & Parts

     13,340        10,602   

Leasing & Services

     8,791        6,978   
  

 

 

   

 

 

 
     51,486        26,649   

Less unallocated items:

    

Selling and administrative

     24,979        17,693   

Gain on disposition of equipment

     (2,654     (1,962

Interest and foreign exchange

     6,630        10,536   
  

 

 

   

 

 

 

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

     22,531        382   
  

 

 

   

 

 

 

Income tax expense

     (5,348     (100
  

 

 

   

 

 

 

Earnings before earnings (loss) from unconsolidated affiliates

     17,183        282   

Earnings (loss) from unconsolidated affiliates

     72        (575
  

 

 

   

 

 

 

Net earnings (loss)

     17,255        (293

Net (earnings) loss attributable to noncontrolling interest

     415        (257
  

 

 

   

 

 

 

Net earnings (loss) attributable to Greenbrier

   $ 17,670      $ (550
  

 

 

   

 

 

 

 

30


THE GREENBRIER COMPANIES, INC.

 

Manufacturing Segment

Manufacturing revenue includes new railcar and marine production. New railcar delivery discussed below includes all manufacturing facilities.

Manufacturing revenue for the three months ended February 29, 2012 was $320.2 million compared to $156.6 million for the three months ended February 28, 2011, an increase of $163.6 million. Railcar deliveries, which are the primary source of manufacturing revenue, were approximately 3,700 units in the current period compared to approximately 2,200 units in the prior comparable period. The increase in revenue was primarily due to higher railcar deliveries as a result of increased demand, more favorable pricing and change in product mix. We operated at increased production rates on existing production lines and increased capacity with additional lines as compared to the corresponding period in the prior year.

Manufacturing margin as a percentage of revenue for the three months ended February 29, 2012 was 9.2% compared to a margin of 5.8% for the three months ended February 28, 2011. The increase in margin as a percentage of revenue was primarily attributable to efficiencies gained by operating at higher production rates in the current year, inefficiencies in the prior year associated with the ramping up of production at some of our facilities that were idle in previous years and more favorable pricing as compared to the prior year.

Wheel Services, Refurbishment & Parts Segment

Wheel Services, Refurbishment & Parts revenue was $119.9 million for the three months ended February 29, 2012 compared to $112.0 million in the comparable period of the prior year. The increase of $7.9 million was primarily attributable to higher sales volumes in all three components of this segment due to higher demand and an increase in scrap metal pricing, partially offset by a decline in scrap metal volumes.

Wheel Services, Refurbishment & Parts margin as a percentage of revenue was 11.1% for the three months ended February 29, 2012 compared to 9.5% for the three months ended February 28, 2011. The increase in margin as a percentage of revenue was primarily the result of efficiencies of operating at higher volumes and an increase in scrap metal pricing.

Leasing & Services Segment

Leasing & Services revenue was $18.1 million for the three months ended February 29, 2012 compared to $15.7 million for the comparable period of the prior year. The increase of $2.4 million was primarily a result of higher lease revenues resulting from an increase in lease fleet utilization and higher rents earned on increased volumes of leased railcars for syndication.

Leasing & Services margin as a percentage of revenue was 48.6% for the three months ended February 29, 2012 and 44.4% for the three months ended February 28, 2011. The increase in margin as a percentage of revenue was primarily a result of increased utilization, an increase in lease and management rates and higher rents earned on leased railcars for syndication.

The percentage of owned units on lease as of February 29, 2012 was 97.3% compared to 95.9% at February 28, 2011.

Selling and Administrative

Selling and administrative expense was $25.0 million or 5.5% of revenue for the three months ended February 29, 2012 compared to $17.7 million or 6.2% of revenue for the prior comparable prior period, an increase of $7.3 million. The increase was primarily related to higher employee related costs which included an increase in incentive compensation, restoration of salary reductions taken during the down turn, merit increases and other employee related costs. In addition, the increase resulted from the revenue based fees paid to our joint venture partner in Mexico due to higher activity levels.

 

31


THE GREENBRIER COMPANIES, INC.

 

Gain on Disposition of Equipment

Assets from Greenbrier’s lease fleet are periodically sold in the normal course of business in order to take advantage of market conditions and manage risk and liquidity. Gain on disposition of equipment was $2.7 million for the three months ended February 29, 2012, compared to $2.0 million for the prior comparable period.

Other Costs

Interest and foreign exchange expense was $6.6 million for the three months ended February 29, 2012, compared to $10.5 million in the prior comparable period.

 

(In thousands)    Three Months Ended         
     February 29,
2012
     February 28,
2011
     Increase
(Decrease)
 

Interest and foreign exchange:

        

Interest and other expense

   $ 5,610       $ 8,576       $ (2,966

Accretion of term loan debt discount

     —           1,069         (1,069

Accretion of discount on convertible debt due 2026

     812         753         59   

Foreign exchange loss

     208         138         70   
  

 

 

    

 

 

    

 

 

 
   $ 6,630       $ 10,536       $ (3,906
  

 

 

    

 

 

    

 

 

 

Interest and other expense decreased due to lower interest rates from refinancing of certain indebtedness, partially offset by higher borrowings under revolving lines of credit. During the third quarter of 2011, we repaid $235.0 million of senior unsecured loans at 8.375% and replaced it with $230.0 million of convertible debt at 3.5%. The change in the accretion of term loan debt discount was due to the June 2011 early repayment of $71.8 million of certain term debt.

Income Tax

The tax rate for the three months ended February 29, 2012 was 23.7% as compared to 26.2% in the prior comparable period. The tax rate for the three months ended February 29, 2012 includes the benefit related to a release of valuation allowances previously placed on net deferred tax assets in foreign jurisdictions. Management believes it is more likely than not that the deferred tax assets will be realized and has recorded the benefit of those deferred tax assets in the current quarter. The provision for income taxes is based on projected consolidated results of operations and geographical mix of earnings for the entire year which results in an estimated 32.6% annual effective tax rate on pre-tax results for 2012. The effective tax rate fluctuates from period to period due to the geographical mix of pre-tax earnings and losses, minimum tax requirements in certain local jurisdictions and operating results for certain operations with no related tax effect.

Earnings (Loss) from Unconsolidated Affiliates

Earnings from unconsolidated affiliates were $0.1 million for the three months ended February 29, 2012 and a loss of $0.6 million for the three months ended February 28, 2011. Earnings (loss) for the three months ended February 29, 2012 and for the prior comparable period include our share of the results from operations from our castings joint venture and from WLR – Greenbrier Rail Inc. The increase in earnings for the three months ended February 29, 2012 as compared to the prior comparable period relates to our castings joint venture being idle in the previous year, but resumed operations during the third quarter of 2011.

Noncontrolling Interest

Noncontrolling interest includes a loss of $0.4 million for the three months ended February 29, 2012 and earnings of $0.3 million for the three months ended February 28, 2011 and primarily represents our joint venture partner’s share in the results of operations of our Mexican railcar manufacturing joint venture, adjusted for intercompany sales.

 

32


THE GREENBRIER COMPANIES, INC.

 

Six Months Ended February 29, 2012 Compared to Six Months Ended February 28, 2011

Overview

Total revenue for the six months ended February 29, 2012 was $856.4 million, an increase of $373.1 million from revenues of $483.3 million in the prior comparable period. The increase was a result of higher revenue in all three segments of our business. The manufacturing segment accounted for $340.8 million of the increase due to higher railcar deliveries as a result of increased demand.

Net income attributable to Greenbrier for the six months ended February 29, 2012 was $32.2 million or $1.04 per diluted common share compared to net loss attributable to Greenbrier of $2.9 million or $0.13 per diluted common share for the six months ended February 28, 2011. The increase in net income and earnings per share was primarily attributable to an increase in margin in each of the business segments.

 

(In thousands)    Six Months Ended  
     February 29,
2012
    February 28,
2011
 

Revenue:

    

Manufacturing

   $ 582,863      $ 242,062   

Wheel Services, Refurbishment & Parts

     237,643        207,282   

Leasing & Services

     35,879        33,930   
  

 

 

   

 

 

 
     856,385        483,274   

Margin:

    

Manufacturing

     55,823        14,762   

Wheel Services, Refurbishment & Parts

     25,198        19,458   

Leasing & Services

     16,921        16,085   
  

 

 

   

 

 

 
     97,942        50,305   

Less unallocated items:

    

Selling and administrative

     48,214        35,632   

Gain on disposition of equipment

     (6,312     (4,471

Interest and foreign exchange

     12,014        20,839   
  

 

 

   

 

 

 

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

     44,026        (1,695
  

 

 

   

 

 

 

Income tax benefit (expense)

     (13,144     512   
  

 

 

   

 

 

 

Earnings (loss) before loss from unconsolidated affiliates

     30,882        (1,183

Loss from unconsolidated affiliates

     (300     (1,162
  

 

 

   

 

 

 

Net earnings (loss)

     30,582        (2,345

Net (earnings) loss attributable to noncontrolling interest

     1,604        (509
  

 

 

   

 

 

 

Net earnings (loss) attributable to Greenbrier

   $ 32,186      $ (2,854
  

 

 

   

 

 

 

 

33


THE GREENBRIER COMPANIES, INC.

 

Manufacturing Segment

Manufacturing revenue includes new railcar and marine production. New railcar delivery discussed below includes all manufacturing facilities.

Manufacturing revenue for the six months ended February 29, 2012 was $582.9 million compared