XNYS:GBX Greenbrier Companies Inc Quarterly Report 10-Q Filing - 5/31/2012

Effective Date 5/31/2012

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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

for the quarterly period ended May 31, 2012 May 31, 2012 May 31, 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 June 26, 2012 was 27,149,194 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;

 

   

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

 

   

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

 

2


THE GREENBRIER COMPANIES, INC.

 

   

resolution or outcome of pending or future litigation and investigations;

 

   

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

 

   

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

 

   

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

 

   

industry overcapacity and our manufacturing capacity utilization;

 

   

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

 

   

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

 

   

changes in future maintenance or warranty requirements;

 

   

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

 

   

changes in interest rates and financial impacts from interest rates;

 

   

ability and cost to maintain and renew operating permits;

 

   

actions by various regulatory agencies;

 

   

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)

 

     May 31,
2012
    August 31,
2011
 

Assets

    

Cash and cash equivalents

   $ 44,915      $ 50,222   

Restricted cash

     6,089        2,113   

Accounts receivable, net

     172,086        188,443   

Inventories

     346,122        323,512   

Leased railcars for syndication

     66,776        30,690   

Equipment on operating leases, net

     334,872        321,141   

Property, plant and equipment, net

     172,729        161,200   

Goodwill

     137,066        137,066   

Intangibles and other assets, net

     84,693        87,268   
  

 

 

   

 

 

 
   $ 1,365,348      $ 1,301,655   
  

 

 

   

 

 

 

Liabilities and Equity

    

Revolving notes

   $ 71,430      $ 90,339   

Accounts payable and accrued liabilities

     323,977        316,536   

Deferred income taxes

     88,514        83,839   

Deferred revenue

     17,872        5,900   

Notes payable

     428,028        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; 27,149 and 25,186 shares outstanding at May 31, 2012 and August 31, 2011

     —          —     

Additional paid-in capital

     251,309        242,286   

Retained earnings

     178,485        127,182   

Accumulated other comprehensive loss

     (11,633     (7,895
  

 

 

   

 

 

 

Total equity Greenbrier

     418,161        361,573   

Noncontrolling interest

     17,366        14,328   
  

 

 

   

 

 

 

Total equity

     435,527        375,901   
  

 

 

   

 

 

 
   $ 1,365,348      $ 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
May 31,
    Nine Months Ended
May 31,
 
     2012     2011     2012     2011  

Revenue

        

Manufacturing

   $ 364,930      $ 173,487      $ 947,792      $ 415,548   

Wheel Services, Refurbishment & Parts

     125,145        126,317        362,788        333,600   

Leasing & Services

     17,722        17,476        53,601        51,406   
  

 

 

   

 

 

   

 

 

   

 

 

 
     507,797        317,280        1,364,181        800,554   

Cost of revenue

        

Manufacturing

     325,424        158,674        852,464        385,974   

Wheel Services, Refurbishment & Parts

     111,610        111,202        324,055        299,026   

Leasing & Services

     8,825        9,254        27,783        27,099   
  

 

 

   

 

 

   

 

 

   

 

 

 
     445,859        279,130        1,204,302        712,099   

Margin

     61,938        38,150        159,879        88,455   

Selling and administrative

     28,784        22,580        76,998        58,212   

Gain on disposition of equipment

     (2,585     (1,678     (8,897     (6,148
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings from operations

     35,739        17,248        91,778        36,391   

Other costs

        

Interest and foreign exchange

     6,560        9,807        18,574        30,646   

Loss on extinguishment of debt

     —          10,007        —          10,007   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     29,179        (2,566     73,204        (4,262

Income tax benefit (expense)

     (8,655     301        (21,798     812   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     20,524        (2,265     51,406        (3,450

Earnings (loss) from unconsolidated affiliates

     201        (539     (99     (1,700
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss)

     20,725        (2,804     51,307        (5,150

Net earnings attributable to noncontrolling interest

     (1,608     (510     (4     (1,019
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss) attributable to Greenbrier

   $ 19,117      $ (3,314   $ 51,303      $ (6,169
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings (loss) per common share

   $ 0.71      $ (0.14   $ 1.94      $ (0.27

Diluted earnings (loss) per common share

   $ 0.61      $ (0.14   $ 1.65      $ (0.27

Weighted average common shares:

        

Basic

     26,981        24,127        26,378        22,893   

Diluted

     33,862        24,127        33,640        22,893   

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

     —           —          51,303         —          51,303        4        51,307   

Translation adjustment

     —           —          —           (5,912     (5,912     (172     (6,084

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

     —           —          —           (4,168     (4,168     —          (4,168

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

     —           —          —           6,342        6,342        —          6,342   
            

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

               47,565        (168     47,397   

Investment by joint venture partner

     —           —          —           —          —          410        410   

Noncontrolling interest adjustments

     —           —          —           —          —          2,796        2,796   

Restricted stock awards (net of cancellations)

     467         9,364        —           —          9,364        —          9,364   

Unamortized restricted stock

     —           (9,364     —           —          (9,364     —          (9,364

Restricted stock amortization

     —           6,353        —           —          6,353        —          6,353   

Warrants exercised

     1,496         —          —           —          —          —          —     

Excess tax benefit from restricted stock awards

     —           2,670        —           —          2,670        —          2,670   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance May 31, 2012

     27,149       $ 251,309      $ 178,485       $ (11,633   $ 418,161      $ 17,366      $ 435,527   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

     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)

     —           —          (6,169     —          (6,169     1,019         (5,150

Translation adjustment

     —           —          —          3,521        3,521        —           3,521   

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

     —           —          —          (215     (215     —           (215

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

     —           —          —          634        634        —           634   
           

 

 

   

 

 

    

 

 

 

Comprehensive loss

              (2,229     1,019         (1,210

Noncontrolling interest adjustments

     —           —          —          —          —          31         31   

Net proceeds from equity offering

     3,000         62,760        —          —          62,760        —           62,760   

Restricted stock awards (net of cancellations)

     278         6,593        —          —          6,593        —           6,593   

Unamortized restricted stock

     —           (6,593     —          —          (6,593     —           (6,593

Restricted stock amortization

     —           4,961        —          —          4,961        —           4,961   

Stock options exercised

     6         26        —          —          26        —           26   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance May 31, 2011

     25,159       $ 240,173      $ 114,547      $ (3,264   $ 351,546      $ 12,519       $ 363,975   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

The accompanying notes are an integral part of these financial statements

 

6


THE GREENBRIER COMPANIES, INC.

 

Consolidated Statements of Cash Flows

(In thousands, unaudited)

 

     Nine Months Ended
May 31,
 
     2012     2011  

Cash flows from operating activities

    

Net income (loss)

   $ 51,307      $ (5,150

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

    

Deferred income taxes

     4,801        (5,276

Depreciation and amortization

     30,603        28,174   

Gain on sales of leased equipment

     (8,897     (2,901

Accretion of debt discount

     2,416        5,446   

Stock based compensation expense

     6,724        4,961   

Loss on extinguishment of debt (non-cash portion)

     —          2,868   

Other

     3,586        91   

Decrease (increase) in assets:

    

Accounts receivable

     10,429        (51,427

Inventories

     (26,748     (83,293

Leased railcars for syndication

     (43,561     (48,465

Other

     (1,419     5,834   

Increase (decrease) in liabilities:

    

Accounts payable and accrued liabilities

     12,401        77,273   

Deferred revenue

     11,991        (5,442
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     53,633        (77,307
  

 

 

   

 

 

 

Cash flows from investing activities

    

Proceeds from sales of equipment

     33,253        14,179   

Investment in and advances to unconsolidated affiliates

     (544     (979

Decrease (increase) in restricted cash

     (3,976     308   

Capital expenditures

     (72,117     (59,689

Other

     35        52   
  

 

 

   

 

 

 

Net cash used in investing activities

     (43,349     (46,129
  

 

 

   

 

 

 

Cash flows from financing activities

    

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

     (49,114     3,694   

Proceeds from revolving notes with maturities longer than 90 days

     56,644        13,373   

Repayments of revolving notes with maturities longer than 90 days

     (23,573     (6,194

Proceeds from issuance of notes payable

     2,500        231,250   

Debt issuance costs

     —          (7,857

Repayments of notes payable

     (6,028     (238,569

Gross proceeds from equity offering

     —          63,180   

Excess tax benefit from restricted stock awards

     2,670        —     

Investment by joint venture partner

     410        —     

Expenses from equity offering

     —          (420

Other

     —          26   
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (16,491     58,483   
  

 

 

   

 

 

 

Effect of exchange rate changes

     900        391   

Decrease in cash and cash equivalents

     (5,307     (64,562

Cash and cash equivalents

    

Beginning of period

     50,222        98,864   
  

 

 

   

 

 

 

End of period

   $ 44,915      $ 34,302   
  

 

 

   

 

 

 

Cash paid during the period for

    

Interest

   $ 10,817      $ 25,850   

Income taxes, net

   $ 4,013      $ 866   

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 May 31, 2012, for the three and nine months ended May 31, 2012 and 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 nine months ended May 31, 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.

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 was tested during the quarter and the Company concluded that goodwill was not impaired. 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)    May 31,
2012
    August 31,
2011
 

Manufacturing supplies and raw materials

   $ 263,281      $ 231,798   

Work-in-process

     57,447        78,709   

Finished goods

     30,187        17,455   

Excess and obsolete adjustment

     (4,793     (4,450
  

 

 

   

 

 

 
   $ 346,122      $ 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)    May 31,
2012
    August 31,
2011
 

Intangible assets subject to amortization:

    

Customer relationships

   $ 66,825      $ 66,825   

Accumulated amortization

     (20,960     (17,854

Other intangibles

     4,808        5,185   

Accumulated amortization

     (3,629     (3,475
  

 

 

   

 

 

 
     47,044        50,681   

Intangible assets not subject to amortization

     912        912   

Prepaid and other assets

     10,260        8,692   

Debt issuance costs, net

     10,822        12,516   

Nonqualified savings plan investments

     6,700        6,326   

Investment in unconsolidated affiliates

     8,266        5,769   

Contract placement fee

     610        2,259   

Investment in direct finance leases

     79        113   
  

 

 

   

 

 

 

Total intangible and other assets

   $ 84,693      $ 87,268   
  

 

 

   

 

 

 

Amortization expense for the three and nine months ended May 31, 2012 was $1.1 million and $3.4 million and for the three and nine months ended May 31, 2011 was $1.2 million and $3.6 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 to $357.0 million as of May 31, 2012.

As of May 31, 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 May 31, 2012, lines of credit totaling $17.0 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 December 2012 through June 2013.

As of May 31, 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 May 31, 2012 have maturities that range from June 2012 to November 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 May 31, 2012 mature in July 2012. The Mexican joint venture will be able to draw against this facility through February 2015.

As of May 31, 2012 outstanding borrowings under the senior secured credit facilities consisted of $6.6 million in letters of credit and $10.0 million in revolving notes outstanding under the North American credit facility, $13.2 million outstanding under the European credit facilities and $48.2 million outstanding under the Mexican joint venture credit facilities.

Note 5 – Accounts Payable and Accrued Liabilities

 

(In thousands)    May 31,
2012
     August 31,
2011
 

Trade payables and other accrued liabilities

   $ 259,407       $ 267,683   

Accrued payroll and related liabilities

     32,559         26,757   

Accrued maintenance

     10,732         10,865   

Accrued warranty

     10,447         8,645   

Other

     10,832         2,586   
  

 

 

    

 

 

 
   $ 323,977       $ 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
May 31,
    Nine Months Ended
May 31,
 
(In thousands)    2012     2011     2012     2011  

Balance at beginning of period

   $ 9,297      $ 6,381      $ 8,645      $ 6,304   

Charged to cost of revenue

     1,848        1,080        3,243        1,731   

Payments

     (525     (449     (1,194     (1,050

Currency translation effect

     (173     15        (247     42   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 10,447      $ 7,027      $ 10,447      $ 7,027   
  

 

 

   

 

 

   

 

 

   

 

 

 

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
Loss
 

Balance, August 31, 2011

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

Year to date activity

     2,174        —          (5,912     (3,738
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance, May 31, 2012

   $ (3,615   $ (195   $ (7,823   $ (11,633
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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
May  31,
     Nine Months Ended
May  31,
 
(In thousands)    2012      2011      2012      2011  

Weighted average basic common shares outstanding (1)

     26,981         24,127         26,378         22,893   

Dilutive effect of employee stock options (2)

     —           —           —           —     

Dilutive effect of warrants (3)

     836         —           1,217         —     

Dilutive effect of convertible notes (4)

     6,045         —           6,045         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average diluted common shares outstanding

     33,862         24,127         33,640         22,893   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(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 0.8 million shares of unvested restricted stock for the three and nine months ended May 31, 2011 due to a net loss.
(2) There were no options outstanding for the three and nine months ended May 31, 2012. The dilutive effect of options was excluded from the share calculation for the three and nine months ended May 31, 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 nine months ended May 31, 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 nine months ended May 31, 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. 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
May 31, 2012
    Nine Months Ended
May 31, 2012
 

Net earnings attributable to Greenbrier

   $ 19,117      $ 51,303   

Add back:

    

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

     1,416        4,262   
  

 

 

   

 

 

 

Earnings before interest and debt issuance costs on convertible notes

   $ 20,533      $ 55,565   
  

 

 

   

 

 

 

Weighted average diluted common shares outstanding

     33,862        33,640   

Diluted earnings per share

   $ 0.61  (1)    $ 1.65  (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 nine months ended May 31, 2012, $3.2 million and $6.7 million in compensation expense was recorded for restricted stock grants. For the three and nine months ended May 31, 2011, $2.4 million and $5.0 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. 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 May 31, 2012 exchange rates, forward exchange contracts for the purchase of Polish Zloty and the sale of Euro aggregated $81.1 million. Adjusting the foreign currency exchange contracts to the fair value of the cash flow hedges at May 31, 2012 resulted in an unrealized pre-tax loss of $2.0 million that was recorded in accumulated other comprehensive loss. The fair value of the contracts is included in Accounts payable and accrued liabilities when there is a loss, or Accounts receivable when there is a gain, on the Consolidated Balance Sheets. As the contracts mature at various dates through December 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 May 31, 2012, an interest rate swap agreement had a notional amount of $43.3 million and matures March 2014. The fair value of this cash flow hedge at May 31, 2012 resulted in an unrealized pre-tax loss of $3.1 million. The loss is included in Accumulated other comprehensive loss and the fair value of the contract is included in Accounts payable and accrued liabilities on the Consolidated Balance Sheet. As interest expense on the underlying debt is recognized, amounts corresponding to the interest rate swap are reclassified from accumulated other comprehensive loss and charged or credited to interest expense. At May 31, 2012 interest rates, approximately $1.2 million would be reclassified to interest expense in the next 12 months.

Fair Values of Derivative Instruments

 

(In thousands)    Asset Derivatives      Liability Derivatives  
   Balance sheet
location
   May 31,
2012
     August 31,
2011
     Balance sheet
location
   May 31,
2012
     August 31,
2011
 
      Fair
Value
     Fair
Value
        Fair
Value
     Fair
Value
 

Derivatives designated as hedging instruments

  

        

Foreign forward exchange contracts

   Accounts receivable    $ 222       $ —         Accounts payable
and accrued liabilities
   $ 2,090       $ 2,848   

Interest rate swap contracts

   Other assets      —           —         Accounts payable

and accrued liabilities

     3,149         4,386   
     

 

 

    

 

 

       

 

 

    

 

 

 
      $ 222       $ —            $ 5,239       $ 7,234   
     

 

 

    

 

 

       

 

 

    

 

 

 

Derivatives not designated as hedging instruments

  

        

Foreign forward exchange contracts

   Accounts receivable    $ 64       $ —         Accounts payable and

accrued liabilities

   $ 282       $ 525   

 

13


THE GREENBRIER COMPANIES, INC.

 

The Effect of Derivative Instruments on the Statement of Operations

 

Derivatives in cash flow hedging

relationships

  

Location of loss recognized in income on

derivative

   Loss recognized in income on derivative
nine months ended
 
          May 31,
2012
    May 31,
2011
 

Foreign forward exchange contract

   Interest and foreign exchange    $ (144   $ (39

 

Derivatives

in cash flow

hedging

relationships

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

nine months ended
    

Location of

gain (loss)

reclassified

from

accumulated

OCI into

income

   Gain (loss)
reclassified from
accumulated

OCI into income
(effective portion)

nine 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)

nine months ended
 
      5/31/12     5/31/11           5/31/12     5/31/11          5/31/12      5/31/11  

Foreign forward exchange contracts

   $ (3,345   $ 450       Revenue    $ (3,917   $ 599      Interest and foreign exchange    $ —         $ —     

Interest rate swap contracts

     (2,503     2,216       Interest and foreign exchange      (1,266     (1,339   Interest and foreign exchange      —           —     
  

 

 

   

 

 

       

 

 

   

 

 

      

 

 

    

 

 

 
   $ (5,848   $ 2,666          $ (5,183   $ (740      $ —         $ —     
  

 

 

   

 

 

       

 

 

   

 

 

      

 

 

    

 

 

 

 

14


THE GREENBRIER COMPANIES, INC.

 

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.

 

     Three Months Ended
May 31,
    Nine Months Ended
May 31,
 
(In thousands)    2012     2011     2012     2011  

Revenue:

        

Manufacturing

   $ 370,993      $ 198,181      $ 1,004,507      $ 493,751   

Wheel Services, Refurbishment & Parts

     128,925        136,888        375,242        359,833   

Leasing & Services

     24,196        17,769        70,585        51,952   

Intersegment eliminations

     (16,317     (35,558     (86,153     (104,982
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 507,797      $ 317,280      $ 1,364,181      $ 800,554   
  

 

 

   

 

 

   

 

 

   

 

 

 

Margin:

        

Manufacturing

   $ 39,506      $ 14,813      $ 95,328      $ 29,574   

Wheel Services, Refurbishment & Parts

     13,535        15,115        38,733        34,574   

Leasing & Services

     8,897        8,222        25,818        24,307   
  

 

 

   

 

 

   

 

 

   

 

 

 

Segment margin total

     61,938        38,150        159,879        88,455   

Less unallocated expenses:

        

Selling and administrative

     28,784        22,580        76,998        58,212   

Gain on disposition of equipment

     (2,585     (1,678     (8,897     (6,148

Interest and foreign exchange

     6,560        9,807        18,574        30,646   

Loss on extinguishment of debt

     —          10,007        —          10,007   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 29,179      $ (2,566   $ 73,204      $ (4,262
  

 

 

   

 

 

   

 

 

   

 

 

 

 

15


THE GREENBRIER COMPANIES, INC.

 

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.

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.

 

16


THE GREENBRIER COMPANIES, INC.

 

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 $2.9 million in bank and third party warranty and performance guarantee facilities as of May 31, 2012. To date no amounts have been drawn under these guarantee facilities.

The Company sold 743 railcars during the third quarter of 2012 for which the Company has an obligation, up to a maximum amount of $4.2 million, to support the railcar portfolio meeting a target minimum rate of return. This obligation expires in March 2033. This $4.2 million, which is held in restricted cash, was recorded as a reduction in revenue on the sale of 600 new railcars and a reduction in gain on sale on the sale of the 143 used railcars with a credit to deferred revenue.

At May 31, 2012, the Mexican joint venture had $48.8 million of third party debt outstanding, for which the Company has guaranteed approximately $39.4 million. In addition, the Company, along with its joint venture partner, has committed to contributing $10.0 million to fund the capital expenditures for a fourth manufacturing line, of which the Company will contribute 50%. These amounts will be contributed at various intervals from May 31, 2012 to October 31, 2013. As of May 31, 2012, the Company has contributed $0.4 million.

As of May 31, 2012 the Company has outstanding letters of credit aggregating $6.6 million associated with facility leases and workers compensation insurance.

 

17


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 May 31, 2012 are:

 

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

Assets:

           

Derivative financial instruments

   $ 286       $ —         $ 286       $ —     

Nonqualified savings plan investments

     6,700         6,700         —           —     

Cash equivalents

     2,001         2,001         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 8,987       $ 8,701       $ 286       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Derivative financial instruments

   $ 5,521       $ —         $ 5,521       $ —     

 

(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       $ —     

Note 14 – Loss on Extinguishment of Debt

The results of operations for the three and nine months ended May 31, 2011 include a loss on extinguishment of debt of $10.0 million associated with the write-off of unamortized debt acquisition costs of $2.9 million and prepayment premiums and other costs of $7.1 million due to the full retirement of the $235.0 million senior unsecured notes during the third quarter of 2011.

 

18


THE GREENBRIER COMPANIES, INC.

 

Note 15 – Variable Interest Entities

In March 2012, the Company formed a special purpose entity that purchased a 1% interest in three trusts (the “Trusts”) which are 99% owned by a third party. The Company has agreed to sell 1,363 railcars, subject to operating leases, for $115.4 million to the Trusts. This transaction is expected to close in three tranches with the first occurring in May 2012 and the last to occur no later than March 2013.

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

The Company is required to contribute $8.0 million of cash collateral, which is funded ratably as each tranche is closed, into restricted cash accounts to support the railcar portfolio meeting a target rate of return. If the actual return is less than the target return, the third party may withdraw amounts in the restricted cash accounts at certain intervals based on predetermined criteria.

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

As of May 31, 2012, the Company has sold 743 railcars to the Trusts for an aggregate value of $61.1 million for which the Company has an obligation, up to a maximum amount of $4.2 million, to support the railcar portfolio meeting a target minimum rate of return. This obligation expires in March 2033. This $4.2 million, which is held in restricted cash, was recorded as a reduction in revenue on the sale of 600 new railcars and a reduction in gain on sale on the sale of the 143 used railcars with a credit to deferred revenue.

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

As of May 31, 2012, the carrying amount of the Company’s investment in the Trust is $0.6 million which is recorded in Intangibles and Other Assets, net on the Consolidated Balance Sheets.

 

19


THE GREENBRIER COMPANIES, INC.

 

Note 16 – Guarantor/Non Guarantor

The convertible senior notes due 2026 (the Notes) issued on May 22, 2006 are fully and unconditionally and jointly and severally guaranteed by substantially all of Greenbrier’s material 100% owned U.S. subsidiaries: Autostack Company LLC, Greenbrier-Concarril, LLC, Greenbrier Leasing Company LLC, Greenbrier Leasing Limited Partner, LLC, Greenbrier Management Services, LLC, Greenbrier Leasing, L.P., Greenbrier Railcar LLC, Gunderson LLC, Gunderson Marine LLC, Gunderson Rail Services LLC, Meridian Rail Holding Corp., Meridian Rail Acquisition Corp., Meridian Rail Mexico City Corp., Brandon Railroad LLC, Gunderson Specialty Products, LLC and Greenbrier Railcar Leasing, Inc. No other subsidiaries guarantee the Notes including Greenbrier Union Holdings I LLC, Greenbrier Leasing Limited, Greenbrier Europe B.V., Greenbrier Germany GmbH, WagonySwidnica S.A., Zaklad Naprawczy Taboru Kolejowego Olawa sp. z o.o., 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 May 31, 2012 and August 31, 2011, for the three and nine months ended May 31, 2012 and for the three and nine months ended May 31, 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.

 

20


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

    Condensed Consolidating Balance Sheet

    May 31, 2012

    (In thousands)

 

     Parent     Combined
Guarantor
Subsidiaries
     Combined
Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Assets

           

Cash and cash equivalents

   $ 31,516      $ 105       $ 13,294      $ —        $ 44,915   

Restricted cash

     —          1,859         4,230        —          6,089   

Accounts receivable, net

     (2,116     156,593         18,041        (432     172,086   

Inventories

     —          139,888         206,586        (352     346,122   

Leased railcars for syndication

     —          68,782         —          (2,006     66,776   

Equipment on operating leases, net

     —          337,590         —          (2,718     334,872   

Property, plant and equipment, net

     4,151        104,225         64,353        —          172,729   

Goodwill

     —          137,066         —          —          137,066   

Intangibles and other assets, net

     664,529        94,635         3,871        (678,342     84,693   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
   $ 698,080      $ 1,040,743       $ 310,375      $ (683,850   $ 1,365,348   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Liabilities and Equity

           

Revolving notes

   $ 10,000      $ —         $ 61,430      $ —        $ 71,430   

Accounts payable and accrued liabilities

     (28,977     197,594         155,357        3        323,977   

Deferred income taxes

     4,766        94,880         (9,578     (1,554     88,514   

Deferred revenue

     349        14,505         3,003        15        17,872   

Notes payable

     294,426        131,745         1,857        —          428,028   

Total equity Greenbrier

     418,161        602,019         80,295        (682,314     418,161   

Noncontrolling interest

     (645     —           18,011        —          17,366   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total equity

     417,516        602,019         98,306        (682,314     435,527   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
   $ 698,080      $ 1,040,743       $ 310,375      $ (683,850   $ 1,365,348   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

21


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

    Condensed Consolidating Statement of Operations

    For the three months ended May 31, 2012

    (In thousands)

 

     Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenue

          

Manufacturing

   $ —        $ 240,773      $ 288,085      $ (163,928   $ 364,930   

Wheels Services, Refurbishment & Parts

     —          128,100        —          (2,955     125,145   

Leasing & Services

     77        17,785        —          (140     17,722   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     77        386,658        288,085        (167,023     507,797   

Cost of revenue

          

Manufacturing

     —          218,964        270,494        (164,034     325,424   

Wheel Services, Refurbishment & Parts

     —          114,490        —          (2,880     111,610   

Leasing & Services

     —          8,845        —          (20     8,825   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —          342,299        270,494        (166,934     445,859   

Margin

     77        44,359        17,591        (89     61,938   

Selling and administrative

     11,287        8,373        9,124        —          28,784   

Gain on disposition of equipment

     —          (2,585     —          —          (2,585
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) from operations

     (11,210     38,571        8,467        (89     35,739   

Other costs

          

Interest and foreign exchange

     4,671        968        1,238        (317     6,560   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (15,881     37,603        7,229        228        29,179   

Income tax (expense) benefit

     3,731        (13,604     1,350        (132     (8,655
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (12,150     23,999        8,579        96        20,524   

Earnings (loss) from unconsolidated affiliates

     30,761        2,334        —          (32,894     201   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss)

     18,611        26,333        8,579        (32,798     20,725   

Net (earnings) loss attributable to noncontrolling interest

     506        —          (1,755     (359     (1,608
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss) attributable to Greenbrier

   $ 19,117      $ 26,333      $ 6,824      $ (33,157   $ 19,117   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

22


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

    Condensed Consolidating Statement of Operations

    For the nine months ended May 31, 2012

    (In thousands)

 

     Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenue

          

Manufacturing

   $ —        $ 646,114      $ 757,432      $ (455,754   $ 947,792   

Wheels Services, Refurbishment & Parts

     —          372,138        —          (9,350     362,788   

Leasing & Services

     824        53,282        —          (505     53,601   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     824        1,071,534        757,432        (465,609     1,364,181   

Cost of revenue

          

Manufacturing

     —          580,775        721,048        (449,359     852,464   

Wheel Services, Refurbishment & Parts

     —          333,356        —          (9,301     324,055   

Leasing & Services

     —          27,838        —          (55     27,783   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —          941,969        721,048        (458,715     1,204,302   

Margin

     824        129,565        36,384        (6,894     159,879   

Selling and administrative

     32,612        21,867        22,519        —          76,998   

Gain on disposition of equipment

     —          (8,896     —          (1     (8,897
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) from operations

     (31,788     116,594        13,865        (6,893     91,778   

Other costs

          

Interest and foreign exchange

     14,241        2,749        2,457        (873     18,574   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (46,029     113,845        11,408        (6,020     73,204   

Income tax (expense) benefit

     17,538        (43,326     3,016        974        (21,798
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (28,491     70,519        14,424        (5,046     51,406   

Earnings (loss) from unconsolidated affiliates

     79,149        924        —          (80,172     (99
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss)

     50,658        71,443        14,424        (85,218     51,307   

Net (earnings) loss attributable to noncontrolling interest

     645        —          (3,445     2,796        (4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss) attributable to Greenbrier

   $ 51,303      $ 71,443      $ 10,979      $ (82,422   $ 51,303   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

23


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

    Condensed Consolidating Statement of Cash Flows

    For the nine months ended May 31, 2012

    (In thousands)

 

     Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash flows from operating activities:

          

Net earnings (loss)

   $ 50,658      $ 71,443      $ 14,424      $ (85,218   $ 51,307   

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

          

Deferred income taxes

     19,418        (9,262     (4,381     (974     4,801   

Depreciation and amortization

     2,001        22,657        6,000        (55     30,603   

Gain on sales of leased equipment

     —          (8,896     —          (1     (8,897

Accretion of debt discount

     2,416        —          —          —          2,416   

Stock based compensation expense

     6,724        —          —          —          6,724   

Other

     —          783        7        2,796        3,586   

Decrease (increase) in assets

          

Accounts receivable

     12,317        7,793        (10,137     456        10,429   

Inventories

     —          1,744        (28,540     48        (26,748

Leased railcars for syndication

     —          (45,566     —          2,005        (43,561

Other

     986        (427     3,277        (5,255     (1,419

Increase (decrease) in liabilities

          

Accounts payable and accrued liabilities

     (40,919     47,734        5,606        (20     12,401   

Deferred revenue

     (116     9,246        2,846        15        11,991   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     53,485        97,249        (10,898     (86,203     53,633   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

          

Proceeds from sales of equipment

     —          33,253        —          —          33,253   

Investment in and net advances to unconsolidated affiliates

     (84,403     (954     (614     85,427        (544

Intercompany advances

     3,053        —          —          (3,053     —     

Change in restricted cash

     —          254        (4,230     —          (3,976

Capital expenditures

     (544     (53,420     (18,929     776        (72,117

Other

     —          35        —          —          35   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (81,894     (20,832     (23,773     83,150        (43,349
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

          

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

     (50,000     —          886        —          (49,114

Proceeds from revolving notes with maturities longer than 90 days

     —          —          56,644        —          56,644   

Repayments of revolving notes with maturities longer than 90 days

     —          —          (23,573       (23,573

Intercompany advances

     73,845        (73,995     (2,903     3,053        —     

Proceeds from notes payable

     —          —          2,500        —          2,500   

Repayments of notes payable

     —          (3,123     (2,905     —          (6,028

Investment by joint venture

     —          —          410        —          410   

Excess tax benefit

     2,670        —          —          —          2,670   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     26,515        (77,118     31,059        3,053        (16,491
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes

     42        277        581        —          900   

Decrease in cash and cash equivalents

     (1,852     (424     (3,031     —          (5,307

Cash and cash equivalents

          

Beginning of period

     33,368        529        16,325        —          50,222   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of period

   $ 31,516      $ 105      $ 13,294      $ —        $ 44,915   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

24


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   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

25


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

    Condensed Consolidating Statement of Operations

    For the three months ended May 31, 2011

(In thousands, unaudited)

 

     Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenue

          

Manufacturing

   $ —        $ 108,654      $ 131,987      $ (67,154   $ 173,487   

Wheels Services, Refurbishment & Parts

     —          128,165        —          (1,848     126,317   

Leasing & Services

     1,075        16,705        —          (304     17,476   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     1,075        253,524        131,987        (69,306     317,280   

Cost of revenue

          

Manufacturing

     —          101,707        124,057        (67,090     158,674   

Wheel Services, Refurbishment & Parts

     —          113,067        —          (1,865     111,202   

Leasing & Services

     —          9,272        —          (18     9,254   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —          224,046        124,057        (68,973     279,130   

Margin

     1,075        29,478        7,930        (333     38,150   

Selling and administrative

     11,022        5,904        5,654        —          22,580   

Gain on disposition of equipment

     —          (1,678     —          —          (1,678
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) from operations

     (9,947     25,252        2,276        (333     17,248   

Other costs

          

Interest and foreign exchange

     8,448        1,001        663        (305     9,807   

Loss on extinguishment of debt

     10,007        —          —          —          10,007   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (28,402     24,251        1,613        (28     (2,566

Income tax (expense) benefit

     10,234        (9,561     (371     (1     301   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (18,168     14,690        1,242        (29     (2,265

Earnings (loss) from unconsolidated affiliates

     14,854        (504     —          (14,889     (539
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss)

     (3,314     14,186        1,242        (14,918     (2,804

Net earnings attributable to noncontrolling interest

     —          —          (541     31        (510
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss) attributable to Greenbrier

   $ (3,314   $ 14,186      $ 701      $ (14,887   $ (3,314
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

26


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

    Condensed Consolidating Statement of Operations

    For the nine months ended May 31, 2011

(In thousands, unaudited)

 

     Parent     Combined
Guarantor
Subsidiaries
    Combined
Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

Revenue

          

Manufacturing

   $ 977      $ 219,877      $ 333,590      $ (138,896   $ 415,548   

Wheels Services, Refurbishment & Parts

     —          343,517        —          (9,917     333,600   

Leasing & Services

     1,772        50,518        —          (884     51,406   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2,749        613,912        333,590        (149,697     800,554   

Cost of revenue

          

Manufacturing

     —          215,989        308,812        (138,827     385,974   

Wheel Services, Refurbishment & Parts

     —          308,932        —          (9,906     299,026   

Leasing & Services

     —          27,153        —          (54     27,099   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     —          552,074        308,812        (148,787     712,099   

Margin

     2,749        61,838        24,778        (910     88,455   

Selling and administrative

     27,004        16,475        14,733        —          58,212   

Gain on disposition of equipment

     —          (6,008     —          (140     (6,148
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) from operations

     (24,255     51,371        10,045        (770     36,391   

Other costs

          

Interest and foreign exchange

     26,830        3,063        1,643        (890     30,646   

Loss on extinguishment of debt

     10,007        —          —          —          10,007   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (61,092     48,308        8,402        120        (4,262

Income tax (expense) benefit

     22,782        (19,981     (1,985     (4     812   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     (38,310     28,327        6,417        116        (3,450

Earnings (loss) from unconsolidated affiliates

     32,141        1,896        —          (35,737     (1,700
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss)

     (6,169     30,223        6,417        (35,621     (5,150

Net earnings attributable to noncontrolling interest

     —          —          (1,050     31        (1,019
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings (loss) attributable to Greenbrier

   $ (6,169   $ 30,223      $ 5,367      $ (35,590   $ (6,169
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

27


THE GREENBRIER COMPANIES, INC.

 

The Greenbrier Companies, Inc.

    Condensed Consolidating Statement of Cash Flows

    For the nine months ended May 31, 2011

    (In thousands, unaudited)

 

     Parent     Combined
Guarantor
Subsidiaries
    Combined  Non-
Guarantor
Subsidiaries
    Eliminations     Consolidated  

Cash flows from operating activities:

          

Net earnings (loss)

   $ (6,169   $ 30,223      $ 6,417      $ (35,621   $ (5,150

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

          

Deferred income taxes

     (14,267     7,418        1,569        4        (5,276

Depreciation and amortization

     1,962        21,835        4,430        (53     28,174   

Gain on sales of leased equipment

     —          (2,760     —          (141     (2,901

Loss on extinguishment of debt (non-cash portion)

     2,868        —          —          —          2,868   

Accretion of debt discount

     5,446        —          —          —          5,446   

Stock based compensation

     4,961        —          —          —          4,961   

Other

     —          60        —          31        91   

Decrease (increase) in assets

          

Accounts receivable

     16,230        (85,760     18,102        1        (51,427

Inventories

     —          (11,976     (71,328     11        (83,293

Leased railcars for syndication

     —          (49,512     1,018        29        (48,465

Other

     2,947        2,778        108        1        5,834   

Increase (decrease) in liabilities

          

Accounts payable and accrued liabilities

     (9,775     47,056        39,992        —          77,273   

Deferred revenue

     (116     (4,261     (1,065     —          (5,442
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     4,087        (44,899     (757     (35,738     (77,307
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

          

Principal payments received under direct finance leases

     —          52        —          —          52   

Proceeds from sales of equipment

     —          14,179        —          —          14,179   

Investment in and net advances to unconsolidated affiliates

     (32,141     (4,575     —          35,737        (979

Intercompany advances

     (60     —          —          60        —     

Increase in restricted cash

     —          308        —          —          308   

Capital expenditures

     (1,694     (45,285     (12,711     1        (59,689
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (33,895     (35,321     (12,711     35,798        (46,129
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities

          

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

     —          —          3,694        —          3,694   

Proceeds from revolving notes with maturities longer than 90 days

     —          —          13,373        —          13,373   

Repayments of revolving notes with maturities longer than 90 days

     —          —          (6,194     —          (6,194

Intercompany advances

     (82,718     81,895        883        (60     —     

Gross proceeds from equity offering

     63,180        —          —          —          63,180   

Expenses from equity offering

     (420     —          —          —          (420

Proceeds from issuance of notes payable

     230,000        —          1,250        —          231,250   

Debt issuance costs

     (7,857     —          —          —          (7,857

Repayments of notes payable

     (235,000     (3,164     (405     —          (238,569

Other

     26        —          —          —          26   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in ) financing activities

     (32,789     78,731        12,601        (60     58,483   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes

     —          1,116        (725     —          391   

Increase (decrease) in cash and cash equivalents

     (62,597     (373     (1,592     —          (64,562

Cash and cash equivalents

          

Beginning of period

     91,472        859        6,533        —          98,864   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of period

   $ 28,875      $ 486      $ 4,941      $ —        $ 34,302   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28


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 wheel, axle and bearing servicing; railcar repair, refurbishment and maintenance activities; as well as production and reconditioning of a variety of parts for the railroad industry in North America. The Leasing & Services segment owns approximately 9,000 railcars and provides management services for approximately 218,000 railcars for railroads, shippers, carriers, institutional investors and other leasing and transportation companies in North America. We also produce rail castings through an unconsolidated joint venture. Management evaluates segment performance based on margins.

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

Our total manufacturing backlog of railcars as of May 31, 2012 was approximately 11,500 units with an estimated value of $1.14 billion compared to 13,600 units with an estimated value of $1.05 billion as of May 31, 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.

Marine backlog as of May 31, 2012 was approximately $25.9 million compared to approximately $250 thousand as of May 31, 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 currently 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.

 

29


THE GREENBRIER COMPANIES, INC.

 

During the third quarter, we discovered that our Mexico City wheel shop shipped a number of wheel sets which do not conform to American Association of Railroads (“AAR”) mounting standards. The non-conforming wheel sets were used principally at our Mexico City repair shop and on some new railcars manufactured at our Gunderson-GIMSA facility. We conducted a review of our other wheel shops and found no indication of non-conformance in those shops.

We have identified a total of 591 non-conforming wheel sets at our Mexico City wheel shop which could represent a risk of failure. We are working with the AAR and our customers to remove and replace these wheel sets as soon as possible and, to date, approximately 174 wheel sets have been replaced. We currently believe the costs associated with removing and replacing these 591 wheel sets are not likely to exceed approximately $750,000.

We have also identified approximately an additional 9,500 wheel sets at our Mexico City wheel shop that vary from AAR mounting standards, but which we believe do not compromise the safe operation of the railcar or require immediate removal and replacement. We are working with the AAR and our customers to determine an appropriate and efficient approach to address these wheel sets.

While the total costs associated with these wheel sets cannot presently be determined, we do not anticipate that these costs will be material to our results of operations.

 

30


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, age and mileage 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. Historically these adjustments have not been significant.

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. Historically these adjustments have not been significant.

 

31


THE GREENBRIER COMPANIES, INC.

 

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

Generally railcars are 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.

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

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

Goodwill and indefinite-lived intangible assets are tested for impairment annually during the third quarter. Goodwill is also tested more frequently if changes in circumstances or the occurrence of events indicates that a potential impairment exists. The provisions of Accounting Standards Codification (ASC) 350, Intangibles—Goodwill and Other, require that we perform a two-step impairment test on goodwill. In the first step, we compare the fair value of each reporting unit with its carrying value. We determine the fair value of our reporting units based on a weighting of income and market approaches. Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows. Under the market approach, we estimate the fair value based on observed market multiples for comparable businesses. The second step of the goodwill impairment test is required only when the carrying value of the reporting unit exceeds its fair value as determined in the first step. In the second step we would compare the implied fair value of goodwill to its carrying value. The implied fair value of goodwill is determined by allocating the fair value of a reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss is recorded to the extent that the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill. The goodwill balance as of May 31, 2012 of $137.1 million relates to the Wheel Services, Refurbishment & Parts segment. Goodwill was tested during the third quarter and the Company concluded that goodwill was not impaired.

 

32


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 May 31, 2012 Compared to Three Months Ended May 31, 2011

Overview

Total revenue for the three months ended May 31, 2012 was $507.8 million, an increase of $190.5 million from revenues of $317.3 million in the prior comparable period. The increase was primarily the result of higher revenues in the manufacturing segment of our business. Manufacturing segment revenues increased $191.4 million due to higher railcar deliveries as a result of increased demand and a higher per unit average selling price.

Net earnings attributable to Greenbrier for the three months ended May 31, 2012 was $19.1 million or $0.61 per diluted common share compared to net loss attributable to Greenbrier of $3.3 million or $0.14 per diluted common share for the three months ended May 31, 2011. The increase in net earnings was primarily attributable to an increase in manufacturing margin in the current period and the $10.0 million loss on extinguishment of debt recognized in the comparable period in the prior year. These factors were partially offset by higher selling and administrative costs associated with operating at higher production levels in the current period.

 

      Three Months Ended
May 31,
 
(In thousands)    2012     2011  

Revenue:

    

Manufacturing

   $ 364,930      $ 173,487   

Wheel Services, Refurbishment & Parts

     125,145        126,317   

Leasing & Services

     17,722        17,476   
  

 

 

   

 

 

 
     507,797        317,280   

Margin:

    

Manufacturing

     39,506        14,813   

Wheel Services, Refurbishment & Parts

     13,535        15,115   

Leasing & Services

     8,897        8,222   
  

 

 

   

 

 

 
     61,938        38,150   

Less unallocated items:

    

Selling and administrative

     28,784        22,580   

Gain on disposition of equipment

     (2,585     (1,678

Interest and foreign exchange

     6,560        9,807   

Loss on extinguishment of debt

     —          10,007   
  

 

 

   

 

 

 

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

     29,179        (2,566
  

 

 

   

 

 

 

Income tax benefit (expense)

     (8,655     301   
  

 

 

   

 

 

 

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

     20,524        (2,265

Earnings (loss) from unconsolidated affiliates

     201        (539
  

 

 

   

 

 

 

Net earnings (loss)

     20,725        (2,804

Net earnings attributable to noncontrolling interest

     (1,608     (510
  

 

 

   

 

 

 

Net earnings (loss) attributable to Greenbrier

   $ 19,117      $ (3,314
  

 

 

   

 

 

 

Diluted earnings (loss) per common share

   $ 0.61      $ (0.14

 

33


THE GREENBRIER COMPANIES, INC.

 

Manufacturing Segment

Manufacturing revenue includes new railcar and marine production. The following discussion includes all manufacturing facilities.

Manufacturing revenue for the three months ended May 31, 2012 was $364.9 million compared to $173.5 million for the three months ended May 31, 2011, an increase of $191.4 million. Railcar deliveries, which are the primary source of manufacturing revenue, were approximately 4,500 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 and a higher per unit average selling price. 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 May 31, 2012 was 10.8% compared to a margin of 8.5% for the three months ended May 31, 2011. The increase in margin as a percentage of revenue was primarily attributable to efficiencies from operating at higher production rates in the current year, favorable pricing, change in sales mix and inefficiencies in the prior year as we ramped up production at our facilities that were idle.