THE GREENBRIER COMPANIES, INC. Executive Summary
We operate in three reportable segments: Manufacturing; Wheels, Repair & Parts; and Leasing & Services. Our segments are operationally integrated. The Manufacturing segment, which currently operates from facilities in theU.S. ,Mexico ,Poland ,Romania andTurkey , produces double-stack intermodal railcars, tank cars, conventional railcars, automotive railcar products and marine vessels. The Wheels, Repair & Parts segment performs wheel and axle servicing; railcar repair, refurbishment and maintenance; as well as production of a variety of parts for the rail industry inNorth America . The Leasing & Services segment owns approximately 10,300 railcars and provides management services for approximately 389,000 railcars for railroads, shippers, carriers, institutional investors and other leasing and transportation companies inNorth America as ofFebruary 29, 2020 . Through unconsolidated affiliates we produce rail and industrial components and have an ownership stake in a railcar manufacturer inBrazil and a lease financing warehouse. Our total manufacturing backlog of railcar units, for direct sale or lease to a third party, as ofFebruary 29, 2020 was approximately 30,800 units with an estimated value of$3.16 billion . Approximately 9% of backlog units and 6% of estimated backlog value as ofFebruary 29, 2020 were associated with our Brazilian manufacturing operations which are accounted for under the equity method. Backlog units for lease may be syndicated to third parties or held in our own fleet depending on a variety of factors. Multi-year supply agreements are common in the rail industry. A portion of the orders included in backlog reflects an assumed product mix. Under the terms of the orders, the exact mix and pricing will be determined in the future, which may impact backlog. Marine backlog as ofFebruary 29, 2020 was$59 million . Our backlog of railcar units and marine vessels is not necessarily indicative of future results of operations. Certain orders in backlog are subject to customary documentation and completion of terms. Customers may attempt to cancel or modify orders in backlog. Historically, little variation has been experienced between the quantity ordered and the quantity actually delivered, though the timing of deliveries may be modified from time to time. We cannot guarantee that our reported backlog will convert to revenue in any particular period, if at all. We expect that the COVID-19 coronavirus pandemic and the related governmental reaction will negatively impact our business including our liquidity and financial position, results of operations, stock price and ability to convert backlog to revenue among other negative impacts. These risks to our business are more fully described in Part II, item 1A "Risk Factors" of this Quarterly Report on Form 10-Q. We are closely monitoring the impact of COVID-19 on all aspects of our business. COVID-19 emerged inAsia at the end of calendar year 2019. Because we have no operations inAsia , the negative impact of COVID-19 did not materially impact our financial condition and results of operations during our quarter endedFebruary 29, 2020 . Our business operates within a critical infrastructure sector as established by theCybersecurity & Infrastructure Security Agency of theDepartment of Homeland Security . Thus, as of the date of the filing of this Quarterly Report our manufacturing, repair shops, and wheel shops inthe United States generally are permitted to continue to operate subject to enhanced safety protocols, both voluntary and government mandated, that are aimed to protect the health of our workforce. The situation is similar in our manufacturing facilities and shops inMexico ,Europe ,Brazil andTurkey which also have continued to operate subject to enhanced health and safety protocols. At this time, while we have identified risks discussed in Part II, Item 2A of this Quarterly Report on Form 10-Q, we are unable to predict specifically how the COVID-19 coronavirus pandemic and related governmental reaction will negatively impact our business due to numerous uncertainties, including the duration of the pandemic, the impact to our customers, suppliers and employees, actions that may be taken by governmental authorities, including preventing or curtailing the operations of our plants and/or shops, and other consequences. We expect that negative impacts related to the COVID-19 coronavirus pandemic will be reflected in our Quarterly Report on Form 10-Q for the quarter endedMay 31, 2020 . 26 --------------------------------------------------------------------------------
THE GREENBRIER COMPANIES, INC.
Three Months Ended
Overview
Revenue, cost of revenue, margin and operating profit presented below, include amounts from external parties and exclude intersegment activity that is eliminated in consolidation.
Three Months Ended
February 29, February 28,
(In thousands) 2020 2019
Revenue:
Manufacturing $ 489,943 $ 476,019
Wheels, Repair & Parts 91,225 125,278
Leasing & Services 42,680 57,374
623,848 658,671
Cost of revenue:
Manufacturing 422,309 442,996
Wheels, Repair & Parts 84,373 118,455
Leasing & Services 30,830 43,376
537,512 604,827
Margin:
Manufacturing 67,634 33,023
Wheels, Repair & Parts 6,852 6,823
Leasing & Services 11,850 13,998
86,336 53,844
Selling and administrative 54,597 47,892
Net gain on disposition of equipment (6,697 ) (12,102 ) Earnings from operations 38,436 18,054 Interest and foreign exchange 12,609 9,237
Earnings before income taxes and earnings (loss)
from unconsolidated affiliates 25,827
8,817
Income tax expense (7,463 ) (2,248 ) Earnings before earnings (loss) from unconsolidated affiliates 18,364
6,569
Earnings (loss) from unconsolidated affiliates 1,651 (786 ) Net earnings 20,015
5,783
Net earnings attributable to noncontrolling interest (6,386 ) (3,018 ) Net earnings attributable to Greenbrier$ 13,629 $ 2,765 Diluted earnings per common share $ 0.41 $ 0.08 Performance for our segments is evaluated based on Earnings from operations (operating profit). Corporate includes selling and administrative costs not directly related to goods and services and certain costs that are intertwined among segments due to our integrated business model. Management does not allocate Interest and foreign exchange or Income tax expense for either external or internal reporting purposes. Three Months Ended February 29, February 28, (In thousands) 2020 2019 Operating profit (loss): Manufacturing$ 46,105 $ 13,990 Wheels, Repair & Parts 3,320 2,823 Leasing & Services 12,793 21,030 Corporate (23,782 ) (19,789 )$ 38,436 $ 18,054 27
--------------------------------------------------------------------------------
THE GREENBRIER COMPANIES, INC.
Consolidated Results
Three Months Ended
February 29, February 28, Increase %
(In thousands) 2020 2019 (Decrease) Change
Revenue $ 623,848 $ 658,671 $ (34,823 ) (5.3 %)
Cost of revenue $ 537,512 $ 604,827 $ (67,315 ) (11.1 %)
Margin (%) 13.8 % 8.2 % 5.6 % *
Net earnings attributable to Greenbrier
* Not meaningful
As of
Through our integrated business model, we provide a broad range of custom products and services in each of our segments, which have various average selling prices and margins. The demand for and mix of products and services delivered changes from period to period, which causes fluctuations in our results of operations.
The 5.3% decrease in revenue for the three months endedFebruary 29, 2020 as compared to the three months endedFebruary 28, 2019 was primarily due to a 27.2% decrease in Wheels, Repair & Parts revenue from lower wheelset, component and parts volumes due to lower demand, lower repair revenue from four fewer shops in the current period and a decrease in scrap metal pricing. The 11.1% decrease in cost of revenue for the three months endedFebruary 29, 2020 as compared to the three months endedFebruary 28, 2019 was primarily due to a 28.8% decrease in Wheels, Repair & Parts cost of revenue from lower costs associated with a reduction in wheelset, component and parts volumes and four fewer repair shops in the current period. The decrease in cost of revenue was also due to a 4.7% decline in Manufacturing cost of revenue primarily attributed to a 17.8% decrease in the volume of railcar deliveries. Margin as a percentage of revenue was 13.8% and 8.2% for the three months endedFebruary 29, 2020 andFebruary 28, 2019 , respectively. The overall margin as a percentage of revenue was positively impacted by an increase in Manufacturing margin to 13.8% from 6.9% primarily attributed to a change in product mix and a customer order contract modification fee received during the three months endedFebruary 29, 2020 . The$10.9 million increase in Net earnings attributable to Greenbrier for the three months endedFebruary 29, 2020 as compared to the three months endedFebruary 28, 2019 was primarily attributable to an increase in margin from a change in product mix and the contract modification fee received during the three months endedFebruary 29, 2020 . This was partially offset by an increase in Selling and administrative expense from higher employee related costs and the addition of the manufacturing business of ARI selling and administrative costs. The increase in Net earnings attributable to Greenbrier was also partially offset by a decrease in Net gain on disposition of equipment. 28 --------------------------------------------------------------------------------
THE GREENBRIER COMPANIES, INC.
Manufacturing Segment
Three Months Ended
February 29, February 28, Increase %
(In thousands) 2020 2019 (Decrease) Change
Revenue $ 489,943 $ 476,019 $ 13,924 2.9 %
Cost of revenue $ 422,309 $ 442,996 $ (20,687 ) (4.7 %)
Margin (%) 13.8 % 6.9 % 6.9 % *
Operating profit ($) $ 46,105 $ 13,990 $ 32,115 229.6 %
Operating profit (%) 9.4 % 2.9 % 6.5 % *
Deliveries 3,700 4,500 (800 ) (17.8 %)
* Not meaningful
As of
Manufacturing revenue increased$13.9 million or 2.9% for the three months endedFebruary 29, 2020 compared to the three months endedFebruary 28, 2019 . The increase in revenue was primarily attributed to a change in product mix and a$12.9 million customer order contract modification fee received during the three months endedFebruary 29, 2020 . These were partially offset by a 17.8% decrease in railcar deliveries. Manufacturing revenue for the three months endedFebruary 29, 2020 included$107.2 million in revenue associated with the acquired manufacturing business of ARI. Manufacturing cost of revenue decreased$20.7 million or 4.7% for the three months endedFebruary 29, 2020 compared to the three months endedFebruary 28, 2019 . The decrease in cost of revenue was primarily attributed to a 17.8% decrease in the volume of railcar deliveries partially offset by a change in product mix. Manufacturing cost of revenue for the three months endedFebruary 29, 2020 included$104.9 million in costs associated with the acquired manufacturing business of ARI. Manufacturing margin as a percentage of revenue increased 6.9% for the three months endedFebruary 29, 2020 compared to the three months endedFebruary 28, 2019 . The increase was primarily attributed to a change in product mix and the contract modification fee received during the three months endedFebruary 29, 2020 . The Manufacturing margin as a percentage of revenue for the three months endedFebruary 28, 2019 was negatively impacted by railcar contract loss accruals in the prior year. Manufacturing operating profit increased$32.1 million or 229.6% for the three months endedFebruary 29, 2020 compared to the three months endedFebruary 28, 2019 . The increase in operating profit was primarily attributed to a change in product mix and the contract modification fee received during the three months endedFebruary 29, 2020 . Operating profit for the three months endedFebruary 28, 2019 was negatively impacted by railcar contract loss accruals in the prior year. 29
--------------------------------------------------------------------------------
THE GREENBRIER COMPANIES, INC.
Wheels, Repair & Parts Segment
Three Months Ended
February 29, February 28, Increase %
(In thousands) 2020 2019 (Decrease) Change
Revenue $ 91,225 $ 125,278 $ (34,053 ) (27.2 %)
Cost of revenue $ 84,373 $ 118,455 $ (34,082 ) (28.8 %)
Margin (%) 7.5 % 5.4 % 2.1 % *
Operating profit ($) $ 3,320 $ 2,823 $ 497 17.6 %
Operating profit (%) 3.6 % 2.3 % 1.3 % *
* Not meaningful
Wheels, Repair & Parts revenue decreased $34.1 million or 27.2% for the three
months ended February 29, 2020 compared to the three months ended February 28,
2019 . The decrease was primarily due to lower wheelset, component and parts
volumes due to lower demand, lower repair revenue primarily from four fewer
shops in the current period and a decrease in scrap metal pricing.
Wheels, Repair & Parts cost of revenue decreased $34.1 million or 28.8% for the
three months ended February 29, 2020 compared to the three months ended February
28, 2019 . The decrease was primarily due to lower costs associated with a
reduction in wheelset, component and parts volumes and four fewer repair shops
in the current period.
Wheels, Repair & Parts margin as a percentage of revenue increased 2.1% for the
three months ended February 29, 2020 compared to the three months ended February
28, 2019 . The increase was primarily attributed to efficiencies at our repair
shops in the current period. In addition, the three months ended February 28,
2019 was negatively impacted by costs associated with closing sites in our
repair network. These factors which had a positive impact to Wheels, Repair &
Parts margin as a percentage of revenue compared to the prior year, were
partially offset by a decrease in scrap metal pricing for the three months ended
February 29, 2020 .
Wheels, Repair & Parts operating profit increased $0.5 million or 17.6% for the
three months ended February 29, 2020 compared to the three months ended February
28, 2019 . The increase was primarily due to efficiencies at our repair shops in
the current period.
30
--------------------------------------------------------------------------------
THE GREENBRIER COMPANIES, INC.
Leasing & Services Segment
Three Months Ended
February 29, February 28, Increase %
(In thousands) 2020 2019 (Decrease) Change
Revenue $ 42,680 $ 57,374 $ (14,694 ) (25.6 %)
Cost of revenue $ 30,830 $ 43,376 $ (12,546 ) (28.9 %)
Margin (%) 27.8 % 24.4 % 3.4 % *
Operating profit ($) $ 12,793 $ 21,030 $ (8,237 ) (39.2 %)
Operating profit (%) 30.0 % 36.7 % (6.7 %) *
* Not meaningful
The Leasing & Services segment generates revenue from leasing railcars from its
lease fleet, providing various management services, interim rent on leased
railcars for syndication, and the sale of railcars purchased from third parties
with the intent to resell. The gross proceeds from the sale of these railcars
are recorded in revenue and the costs of purchasing these railcars are recorded
in cost of revenue.
Leasing & Services revenue decreased $14.7 million or 25.6% for the three months
ended February 29, 2020 compared to the three months ended February 28, 2019 .
The decrease was primarily attributed to a decrease in the sale of railcars
which we had purchased from third parties with the intent to resell. This was
partially offset by higher average volume of rent-producing leased railcars for
syndication.
Leasing & Services cost of revenue decreased $12.5 million or 28.9% for the
three months ended February 29, 2020 compared to the three months ended February
28, 2019 . The decrease was primarily due to a decrease in the volume of railcars
sold that we purchased from third parties partially offset by higher
transportation costs.
Leasing & Services margin as a percentage of revenue increased 3.4% for the
three months ended February 29, 2020 compared to the three months ended February
28, 2019 . Margin as a percentage of revenue for the three months ended February
29, 2020 benefited from fewer sales of railcars that we purchased from third
parties which have lower margin percentages. The increase in margin as a
percentage of revenue was also due to a higher average volume of rent-producing
leased railcars for syndication.
Leasing & Services operating profit decreased $8.2 million or 39.2% for the
three months ended February 29, 2020 compared to the three months ended February
28, 2019 . The decrease was primarily attributed to a $5.4 million decrease in
net gain on disposition of equipment and a $2.1 million decrease in margin.
31
--------------------------------------------------------------------------------THE GREENBRIER COMPANIES, INC.
Selling and Administrative Expense
Three Months Ended
February 29, February 28, Increase %
(In thousands) 2020 2019
(Decrease) Change
Selling and administrative expense
14.0 %
Selling and administrative expense was $54.6 million or 8.8% of revenue for the
three months ended February 29, 2020 compared to $47.9 million or 7.3% of
revenue for the prior comparable period. The $6.7 million increase was primarily
attributed to a $5.3 million increase in employee related costs and $2.8 million
from the addition of the manufacturing business of ARI selling and
administrative costs. These were partially offset by $2.1 million in transaction
related costs incurred during the three months ended February 28, 2019 .
Net gain on disposition of equipment was$6.7 million for the three months endedFebruary 29, 2020 compared to$12.1 million for the prior comparable period. Net gain on disposition of equipment primarily includes the sale of assets from our lease fleet (Equipment on operating leases, net) that are periodically sold in the normal course of business in order to take advantage of market conditions and to manage risk and liquidity; and disposition of property, plant and equipment.
Other Costs
Interest and foreign exchange expense was composed of the following:
Three Months Ended
February 29, February 28, Increase
(In thousands) 2020 2019 (Decrease)
Interest and foreign exchange:
Interest and other expense $ 10,329 $ 7,617 $ 2,712
Foreign exchange loss 2,280 1,620 660
$ 12,609 $ 9,237 $ 3,372 The
Income Tax
The effective tax rate for the three months endedFebruary 29, 2020 was 28.9% compared to 25.5% for the three months endedFebruary 28, 2019 . The increase in the effective rate from the prior year was primarily attributable to net unfavorable discrete items in the current quarter compared to net favorable discrete items in the prior comparable period. Excluding the impact of discrete items in both periods, the effective tax rate was 25.5% for the three months endedFebruary 29, 2020 compared to 29.8% in the prior comparable period which decreased primarily due to the geographic mix of earnings. The effective tax rate can fluctuate year-to-year due to changes in the mix of foreign and domestic pre-tax earnings. It can also fluctuate with changes in the proportion of pre-tax earnings attributable to our Mexican railcar manufacturing joint venture. The joint venture is treated as a partnership for tax purposes and, as a result, the partnership's entire pre-tax earnings are included in Earnings before income taxes and earnings from unconsolidated affiliates, whereas only our 50% share of the tax is included in Income tax expense. 32 --------------------------------------------------------------------------------
THE GREENBRIER COMPANIES, INC.
Earnings (Loss) From Unconsolidated Affiliates
Through unconsolidated affiliates we produce rail and industrial components and
have an ownership stake in a railcar manufacturer in
Earnings from unconsolidated affiliates was$1.7 million for the three months endedFebruary 29, 2020 compared to a loss from unconsolidated affiliates of$0.8 million for the three months endedFebruary 28, 2019 . The increase in earnings from unconsolidated affiliates was primarily related to earnings from our investment in Axis, a joint venture that manufactures and sells axles to its joint venture partners. We obtained our ownership interest in Axis as part of the acquisition of the manufacturing business of ARI onJuly 26, 2019 .
Noncontrolling Interest
Net earnings attributable to noncontrolling interest was$6.4 million for the three months endedFebruary 29, 2020 compared to$3.0 million in the prior comparable period, which primarily represents our joint venture partner's share in the results of operations of our Mexican railcar manufacturing joint venture, adjusted for intercompany sales, and our European partner's share of the results of our European operations. 33
--------------------------------------------------------------------------------
THE GREENBRIER COMPANIES, INC.
Six Months Ended
Overview
Revenue, cost of revenue, margin and operating profit presented below, include amounts from external parties and exclude intersegment activity that is eliminated in consolidation.
Six Months Ended
February 29, February 28,
(In thousands) 2020 2019
Revenue:
Manufacturing $ 1,147,310 $ 947,808
Wheels, Repair & Parts 177,833 233,821
Leasing & Services 68,064 81,565
1,393,207 1,263,194
Cost of revenue:
Manufacturing 1,004,221 860,801
Wheels, Repair & Parts 166,265 219,433
Leasing & Services 44,196 56,583
1,214,682 1,136,817
Margin:
Manufacturing 143,089 87,007
Wheels, Repair & Parts 11,568 14,388
Leasing & Services 23,868 24,982
178,525 126,377
Selling and administrative 108,961 98,324
Net gain on disposition of equipment (10,656 ) (26,455 ) Earnings from operations 80,220 54,508 Interest and foreign exchange 25,461 13,641
Earnings before income taxes and earnings (loss)
from unconsolidated affiliates 54,759
40,867
Income tax expense (13,457 ) (11,383 ) Earnings before earnings (loss) from unconsolidated affiliates 41,302
29,484
Earnings (loss) from unconsolidated affiliates 2,724 (319 ) Net earnings 44,026
29,165
Net earnings attributable to noncontrolling interest (22,728 ) (8,444 ) Net earnings attributable to Greenbrier$ 21,298 $ 20,721 Diluted earnings per common share $ 0.64 $ 0.63 Performance for our segments is evaluated based on Earnings from operations (operating profit). Corporate includes selling and administrative costs not directly related to goods and services and certain costs that are intertwined among segments due to our integrated business model. Management does not allocate Interest and foreign exchange or Income tax expense for either external or internal reporting purposes. Six Months Ended February 29, February 28, (In thousands) 2020 2019 Operating profit (loss): Manufacturing$ 99,248 $ 50,845 Wheels, Repair & Parts 4,434 6,070 Leasing & Services 22,570 38,543 Corporate (46,032 ) (40,950 )$ 80,220 $ 54,508 34
--------------------------------------------------------------------------------
THE GREENBRIER COMPANIES, INC.
Consolidated Results
Six Months Ended
February 29, February 28, Increase %
(In thousands) 2020 2019 (Decrease) Change
Revenue $ 1,393,207 $ 1,263,194 $ 130,013 10.3 %
Cost of revenue $ 1,214,682 $ 1,136,817 $ 77,865 6.8 %
Margin (%) 12.8 % 10.0 % 2.8 % *
Net earnings attributable to Greenbrier
2.8 %
* Not meaningful
As of
Through our integrated business model, we provide a broad range of custom products and services in each of our segments, which have various average selling prices and margins. The demand for and mix of products and services delivered changes from period to period, which causes fluctuations in our results of operations.
The 10.3% increase in revenue for the six months endedFebruary 29, 2020 as compared to the six months endedFebruary 28, 2019 was primarily due to a 21.0% increase in Manufacturing revenue primarily attributed to a 10.3% increase in railcar deliveries and a change in product mix. This was partially offset by a 23.9% decrease in Wheels, Repair & Parts revenue primarily due to lower wheelset, component and parts volumes due to lower demand, lower repair revenue primarily from four fewer shops in the current year and a decrease in scrap metal pricing. The 6.8% increase in cost of revenue for the six months endedFebruary 29, 2020 as compared to the six months endedFebruary 28, 2019 was primarily due to a 16.7% increase in Manufacturing cost of revenue primarily attributed to a 10.3% increase in the volume of railcar deliveries. This was partially offset by a 24.2% decrease in Wheels, Repair & Parts cost of revenue primarily due to lower costs associated with a reduction in wheelset, component and parts volumes and four fewer repair shops in the current period. Margin as a percentage of revenue was 12.8% and 10.0% for the six months endedFebruary 29, 2020 andFebruary 28, 2019 , respectively. The overall margin as a percentage of revenue was positively impacted by an increase in Manufacturing margin to 12.5% from 9.2% primarily attributed to a change in product mix and a customer order contract modification fee received during the six months endedFebruary 29, 2020 . Net earnings attributable to Greenbrier is impacted by our operating activities and noncontrolling interest associated with our 50/50 joint venture at one of our Mexican railcar manufacturing facilities and our 75% interest in Greenbrier-Astra Rail , both of which we consolidate for financial reporting purposes. The$0.6 million increase in Net earnings attributable to Greenbrier for the six months endedFebruary 29, 2020 as compared to the prior comparable period was primarily attributable to an increase in margin due to a higher volume of railcar deliveries. This was partially offset by higher Net earnings attributable to noncontrolling interest. The higher Net earnings attributable to noncontrolling interest was a result of our Mexican railcar manufacturing 50/50 joint venture operating at higher volumes and margins. 35 --------------------------------------------------------------------------------
THE GREENBRIER COMPANIES, INC.
Manufacturing Segment
Six Months Ended
February 29, February 28, Increase %
(In thousands) 2020 2019 (Decrease) Change
Revenue $ 1,147,310 $ 947,808 $ 199,502 21.0 %
Cost of revenue $ 1,004,221 $ 860,801 $ 143,420 16.7 %
Margin (%) 12.5 % 9.2 % 3.3 % *
Operating profit ($) $ 99,248 $ 50,845 $ 48,403 95.2 %
Operating profit (%) 8.7 % 5.4 % 3.3 % *
Deliveries 9,600 8,700 900 10.3 %
* Not meaningful
As of
Manufacturing revenue increased$199.5 million or 21.0% for the six months endedFebruary 29, 2020 compared to the six months endedFebruary 28, 2019 . The increase in revenue was primarily attributed to a 10.3% increase in railcar deliveries and a change in product mix. Manufacturing revenue for the six months endedFebruary 29, 2020 included$210.7 million in revenue associated with the acquired manufacturing business of ARI. Manufacturing cost of revenue increased$143.4 million or 16.7% for the six months endedFebruary 29, 2020 compared to the six months endedFebruary 28, 2019 . The increase in cost of revenue was primarily attributed to a 10.3% increase in the volume of railcar deliveries. Manufacturing cost of revenue for the six months endedFebruary 29, 2020 included$211.1 million in costs associated with the acquired manufacturing business of ARI. Manufacturing margin as a percentage of revenue increased 3.3% for the six months endedFebruary 29, 2020 compared to the six months endedFebruary 28, 2019 . The increase was primarily attributed to a change in product mix and a$12.9 million customer order contract modification fee received during the six months endedFebruary 29, 2020 . These were partially offset by operating inefficiencies at our recently acquired manufacturing facilities.
Manufacturing operating profit increased
36
--------------------------------------------------------------------------------THE GREENBRIER COMPANIES, INC.
Wheels, Repair & Parts Segment
Six Months Ended
February 29, February 28, Increase %
(In thousands) 2020 2019 (Decrease) Change
Revenue $ 177,833 $ 233,821 $ (55,988 ) (23.9 %)
Cost of revenue $ 166,265 $ 219,433 $ (53,168 ) (24.2 %)
Margin (%) 6.5 % 6.2 % 0.3 % *
Operating profit ($) $ 4,434 $ 6,070 $ (1,636 ) (27.0 %)
Operating profit (%) 2.5 % 2.6 % (0.1 %) *
* Not meaningful
Wheels, Repair & Parts revenue decreased
Wheels, Repair & Parts cost of revenue decreased$53.2 million or 24.2% for the six months endedFebruary 29, 2020 compared to the six months endedFebruary 28, 2019 . The decrease was primarily due to lower costs associated with a reduction in wheelset, component and parts volumes and four fewer repair shops in the current period. Wheels, Repair & Parts margin as a percentage of revenue increased 0.3% for the six months endedFebruary 29, 2020 compared to the six months endedFebruary 28, 2019 . The increase was primarily attributed to efficiencies at our repair shops in the current year. In addition, the six months endedFebruary 28, 2019 was negatively impacted by costs associated with closing sites in our repair network. These factors which had a positive impact to Wheels, Repair & Parts margin as a percentage of revenue as compared to the prior year, were partially offset by a decrease in scrap metal pricing for the six months endedFebruary 29, 2020 . Wheels, Repair & Parts operating profit decreased$1.6 million or 27.0% for the six months endedFebruary 29, 2020 compared to the six months endedFebruary 28, 2019 . The decrease was primarily due to a reduction in volumes and a decrease in scrap metal pricing. 37
--------------------------------------------------------------------------------
THE GREENBRIER COMPANIES, INC.
Leasing & Services Segment
Six Months Ended
February 29, February 28, Increase %
(In thousands) 2020 2019 (Decrease) Change
Revenue $ 68,064 $ 81,565 $ (13,501 ) (16.6 %)
Cost of revenue $ 44,196 $ 56,583 $ (12,387 ) (21.9 %)
Margin (%) 35.1 % 30.6 % 4.5 % *
Operating profit ($) $ 22,570 $ 38,543 $ (15,973 ) (41.4 %)
Operating profit (%) 33.2 % 47.3 % (14.1 %) *
* Not meaningful
The Leasing & Services segment generates revenue from leasing railcars from its
lease fleet, providing various management services, interim rent on leased
railcars for syndication, and the sale of railcars purchased from third parties
with the intent to resell. The gross proceeds from the sale of these railcars
are recorded in revenue and the costs of purchasing these railcars are recorded
in cost of revenue.
Leasing & Services revenue decreased $13.5 million or 16.6% for the six months
ended February 29, 2020 compared to the six months ended February 28, 2019 . The
decrease was primarily attributed to a decrease in the sale of railcars which we
had purchased from third parties with the intent to resell. This was partially
offset by higher average volume of rent-producing leased railcars for
syndication.
Leasing & Services cost of revenue decreased $12.4 million or 21.9% for the six
months ended February 29, 2020 compared to the six months ended February 28,
2019 . The decrease was primarily due to a decrease in the volume of railcars
sold that we purchased from third parties partially offset by higher
transportation costs.
Leasing & Services margin as a percentage of revenue increased 4.5% for the six
months ended February 29, 2020 compared to the six months ended February 28,
2019 . Margin as a percentage of revenue for the six months ended February 29,
2020 benefited from fewer sales of railcars that we purchased from third parties
which have lower margin percentages. The increase in margin as a percentage of
revenue was also due to a higher average volume of rent-producing leased
railcars for syndication.
Leasing & Services operating profit decreased $16.0 million or 41.4% for the six
months ended February 29, 2020 compared to the six months ended February 28,
2019 . The decrease was primarily attributed to a $12.9 million decrease in net
gain on disposition of equipment.
38
--------------------------------------------------------------------------------THE GREENBRIER COMPANIES, INC.
Selling and Administrative Expense
Six Months Ended
February 29, February 28, Increase %
(In thousands) 2020 2019
(Decrease) Change
Selling and administrative expense
10.8 %
Selling and administrative expense was $109.0 million or 7.8% of revenue for the
six months ended February 29, 2020 compared to $98.3 million or 7.8% of revenue
for the prior comparable period. The $10.6 million increase was primarily
attributed to a $6.3 million increase in employee related costs and $5.8 million
from the addition of the manufacturing business of ARI selling and
administrative costs. These were partially offset by $2.6 million in transaction
related costs incurred during six months ended February 28, 2019 .
Net gain on disposition of equipment was$10.7 million for the six months endedFebruary 29, 2020 compared to$26.5 million for the prior comparable period. Net gain on disposition of equipment primarily includes the sale of assets from our lease fleet (Equipment on operating leases, net) that are periodically sold in the normal course of business in order to take advantage of market conditions and to manage risk and liquidity; and disposition of property, plant and equipment.
Other Costs
Interest and foreign exchange expense was composed of the following:
Six Months Ended
February 29, February 28, Increase
(In thousands) 2020 2019 (Decrease)
Interest and foreign exchange:
Interest and other expense $ 20,568 $ 14,782 $ 5,786
Foreign exchange (gain) loss 4,893 (1,141 ) 6,034
$ 25,461 $ 13,641 $ 11,820
The $11.8 million increase in interest and foreign exchange expense from the
prior comparable period was primarily attributed to a $4.9 million foreign
exchange loss for the six months ended February 29, 2020 compared to a $1.1
million foreign exchange gain in the prior comparable period. The change in
foreign exchange (gain) loss was primarily attributed to the change in the
Mexican Peso relative to the U.S. Dollar. The increase in interest and foreign
exchange expense was also due to interest expense associated with our $300
million of senior term debt issued in July 2019 .
Income Tax
The effective tax rate for the six months endedFebruary 29, 2020 was 24.6% compared to 27.9% for the six months endedFebruary 28, 2019 . The decrease in the effective rate from the prior year was primarily attributable to net favorable discrete items for the six months endedFebruary 29, 2020 compared to net unfavorable discrete items in the prior comparable period. Excluding the impact of discrete items in both periods, the effective tax rate was 24.7% for the six months endedFebruary 29, 2020 compared to 25.5% in the prior comparable period which decreased primarily due to the geographic mix of earnings. The effective tax rate can fluctuate year-to-year due to changes in the mix of foreign and domestic pre-tax earnings. It can also fluctuate with changes in the proportion of pre-tax earnings attributable to our Mexican railcar manufacturing joint venture. The joint venture is treated as a partnership for tax purposes and, as a result, the partnership's entire pre-tax earnings are included in Earnings before income taxes and earnings from unconsolidated affiliates, whereas only our 50% share of the tax is included in Income tax expense. 39 --------------------------------------------------------------------------------
THE GREENBRIER COMPANIES, INC.
Earnings (Loss) From Unconsolidated Affiliates
Through unconsolidated affiliates we produce rail and industrial components and
have an ownership stake in a railcar manufacturer in
Earnings from unconsolidated affiliates was$2.7 million for the six months endedFebruary 29, 2020 compared to a loss from unconsolidated affiliates of$0.3 million for the six months endedFebruary 28, 2019 . The increase in earnings from unconsolidated affiliates was primarily related to earnings from our investment in Axis, a joint venture that manufactures and sells axles to its joint venture partners. We obtained our ownership interest in Axis as part of the acquisition of the manufacturing business of ARI onJuly 26, 2019 .
Noncontrolling Interest
Net earnings attributable to noncontrolling interest was$22.7 million for the six months endedFebruary 29, 2020 compared to$8.4 million in the prior comparable period, which primarily represents our joint venture partner's share in the results of operations of our Mexican railcar manufacturing joint venture, adjusted for intercompany sales, and our European partner's share of the results of our European operations. 40
--------------------------------------------------------------------------------
THE GREENBRIER COMPANIES, INC.
Liquidity and Capital Resources
Six Months Ended
February 29, February 28,
(In thousands) 2020 2019
Net cash used in operating activities $ (133,174 ) $ (146,622 )
Net cash provided by (used in) investing activities 10,766 (43,704 )
Net cash provided by (used in) financing activities (34,787 ) 13,111
Effect of exchange rate changes (2,824 ) 825
Decrease in cash and cash equivalents and restricted cash
We have been financed through cash generated from operations and borrowings. AtFebruary 29, 2020 , cash and cash equivalents and restricted cash were$178.5 million , a decrease of$160.0 million from$338.5 million atAugust 31, 2019 .
The change in cash used in operating activities for the six months ended
Cash provided by (used in) investing activities primarily related to capital expenditures net of proceeds from the sale of assets and investment activity with our unconsolidated affiliates. The change in cash provided by (used in) investing activities for the six months endedFebruary 29, 2020 compared to the six months endedFebruary 28, 2019 was primarily attributable to a decrease in capital expenditures. Capital expenditures totaled$40.8 million and$98.2 million for the six months endedFebruary 29, 2020 andFebruary 28, 2019 , respectively. Manufacturing capital expenditures were approximately$31.6 million and$40.5 million for the six months endedFebruary 29, 2020 andFebruary 28, 2019 , respectively. Capital expenditures for Manufacturing are expected to be approximately$60 million in 2020 and primarily relate to enhancements of our existing manufacturing facilities. Wheels, Repair & Parts capital expenditures were approximately$4.3 million and$3.2 million for the six months endedFebruary 29, 2020 andFebruary 28, 2019 , respectively. Capital expenditures for Wheels, Repair & Parts are expected to be approximately$10 million in 2020 for enhancements of our existing facilities. Leasing & Services and corporate capital expenditures were approximately$4.9 million and$54.5 million for the six months endedFebruary 29, 2020 andFebruary 28, 2019 , respectively. Leasing & Services and corporate capital expenditures for 2020 are expected to be approximately$25 million . Proceeds from sales of leased railcar equipment are expected to be$90 million for 2020. Assets from our lease fleet are periodically sold in the normal course of business in order to take advantage of market conditions and to manage risk and liquidity. Proceeds from the sale of assets, which primarily related to sales of railcars from our lease fleet within Leasing & Services, were approximately$41.8 million and$63.9 million for the six months endedFebruary 29, 2020 andFebruary 28, 2019 , respectively. The change in cash provided by (used in) financing activities for the six months endedFebruary 29, 2020 compared to the six months endedFebruary 28, 2019 was primarily attributed to a decrease in the proceeds of debt, net of repayments and a change in the net activities with joint venture partners.
A quarterly dividend of
The Board of Directors has authorized our company to repurchase shares of our common stock. InJanuary 2019 , the expiration date of this share repurchase program was extended fromMarch 31, 2019 toMarch 31, 2021 and the amount remaining for repurchase was increased from$88 million to$100 million . Under the share repurchase program, shares of common stock may be purchased on the open market or through privately negotiated transactions from time to time. The timing and amount of purchases will be based upon market conditions, securities law limitations and other factors. The program may be modified, suspended or discontinued at any time without prior notice. The share repurchase program does not obligate us to acquire any specific number of shares in any period. 41 --------------------------------------------------------------------------------
THE GREENBRIER COMPANIES, INC. Senior secured credit facilities, consisting of three components, aggregated to$706.0 million as ofFebruary 29, 2020 . We had an aggregate of$451.1 million available to draw down under committed credit facilities as ofFebruary 29, 2020 . This amount consists of$382.3 million available on the North American credit facility,$18.8 million on the European credit facilities and$50.0 million on the Mexican railcar manufacturing joint venture credit facilities. As ofFebruary 29, 2020 , a$600.0 million revolving line of credit, maturingJune 2024 , secured by substantially all of our assets in theU.S. not otherwise pledged as security for term loans, was available to provide working capital and interim financing of equipment, principally for theU.S. and Mexican operations. Advances under this facility bear interest at LIBOR plus 1.50% or Prime plus 0.50% depending on the type of borrowing. Available borrowings under the credit facility are generally based on defined levels of inventory, receivables, property, plant and equipment and leased equipment, as well as total debt to consolidated capitalization and fixed charges coverage ratios. As ofFebruary 29, 2020 , lines of credit totaling$56.0 million secured by certain of our European assets, with variable rates that range fromWarsaw Interbank Offered Rate (WIBOR) plus 1.1% to WIBOR plus 1.5% and Euro Interbank Offered Rate (EURIBOR) plus 1.1%, were available for working capital needs of our European manufacturing operations. The European lines of credit include a$14.0 million facility which is guaranteed by us. European credit facilities are regularly renewed. Currently, these European credit facilities have maturities that range fromJune 2020 throughJuly 2021 . As ofFebruary 29, 2020 , our Mexican railcar manufacturing joint venture had two lines of credit totaling$50.0 million . The first line of credit provides up to$30.0 million . Advances under this facility bear interest at LIBOR plus 2.0%. The Mexican railcar manufacturing joint venture will be able to draw against this facility throughMarch 2024 . The second line of credit provides up to$20.0 million , of which we and our joint venture partner have each guaranteed 50%. Advances under this facility bear interest at LIBOR plus 2.0%. The Mexican railcar manufacturing joint venture will be able to draw amounts available under this facility throughJune 2021 . As ofFebruary 29, 2020 , outstanding commitments under the$600.0 million revolving line of credit consisted of$27.5 million in letters of credit, which reduced our available borrowings under this credit facility, and$37.2 million outstanding under the European credit facilities. The revolving and operating lines of credit, along with notes payable, contain covenants with respect to us and our various subsidiaries, the most restrictive of which, among other things, limit our ability to: incur additional indebtedness or guarantees; pay dividends or repurchase stock; enter into capital leases; create liens; sell assets; engage in transactions with affiliates, including joint ventures and nonU.S. subsidiaries, including but not limited to loans, advances, equity investments and guarantees; enter into mergers, consolidations or sales of substantially all our assets; and enter into new lines of business. The covenants also require certain maximum ratios of debt to total capitalization and minimum levels of fixed charges (interest plus rent) coverage. As ofFebruary 29, 2020 , we were in compliance with all such restrictive covenants. From time to time, we may seek to repurchase or otherwise retire or exchange securities, including outstanding notes, borrowings and equity securities, and take other steps to reduce our debt or otherwise improve our balance sheet. These actions may include open market repurchases, unsolicited or solicited privately negotiated transactions or other retirements, repurchases or exchanges. Such retirements, repurchases or exchanges, if any, will depend on a number of factors, including, but not limited to, prevailing market conditions, trading levels of our debt, our liquidity requirements and contractual restrictions, if applicable. The amounts involved in any such transactions may, individually or in the aggregate, be material and may involve all or a portion of a particular series of notes or other indebtedness which may reduce the float and impact the trading market of notes or other indebtedness which remain outstanding. We have global operations that conduct business in their local currencies as well as other currencies. To mitigate the exposure to transactions denominated in currencies other than the functional currency, we enter into foreign currency forward exchange contracts with established financial institutions to protect the margin on a portion of foreign currency sales in firm backlog. Given the strong credit standing of the counterparties, no provision has been made for credit loss due to counterparty non-performance. 42 --------------------------------------------------------------------------------
THE GREENBRIER COMPANIES, INC. As ofFebruary 29, 2020 , we had a$4.5 million note receivable from Amsted-Maxion Cruzeiro, our unconsolidated Brazilian castings and components manufacturer. This note receivable is included on the Consolidated Balance Sheet in Accounts receivable, net. In the future, we may make loans to or provide guarantees for Amsted-Maxion Cruzeiro or Greenbrier-Maxion, our unconsolidated Brazilian railcar manufacturer.
We expect existing funds and cash generated from operations, together with proceeds from financing activities including borrowings under existing credit facilities and long-term financings, to be sufficient to fund expected debt repayments, working capital needs, planned capital expenditures, additional investments in our unconsolidated affiliates and dividends during the next twelve months.
Off-Balance Sheet Arrangements
We do not currently have off balance sheet arrangements that have or are likely to have a material current or future effect on our Consolidated Financial Statements.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in theU.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 - The asset and liability method is used to account for income taxes. We are required to estimate the timing of the recognition of deferred tax assets and liabilities, make assumptions about the future deductibility of deferred tax assets and assess deferred tax liabilities based on enacted law and tax rates for each tax jurisdiction to determine the amount of deferred tax assets and liabilities. Deferred income taxes are provided for the temporary effects of differences between assets and liabilities recognized for financial statement and income tax reporting purposes. Valuation allowances reduce deferred tax assets to an amount that will more likely than not be realized. We recognize liabilities for uncertain tax positions based on whether evidence indicates that it is more likely than not that the position will be sustained on audit. It is inherently difficult and subjective to estimate such amounts, as this requires us to estimate the probability of various possible outcomes. We reevaluate these uncertain tax positions on a quarterly basis. Changes in tax law or court interpretations may result in the recognition of a tax benefit or an additional charge to the tax provision. Warranty accruals - Warranty costs to cover a defined warranty period are estimated and charged to operations. The estimated warranty cost is based on historical warranty claims for each particular product type. For new product types without a warranty history, preliminary estimates are based on historical information for similar product types. These estimates are inherently uncertain as they are based on historical data for existing products and judgment for new products. If warranty claims are made in the current period for issues that have not historically been the subject of warranty claims and were not taken into consideration in establishing the accrual or if claims for issues already considered in establishing the accrual exceed expectations, warranty expense may exceed the accrual for that particular product. Conversely, there is the possibility that claims may be lower than estimates. The warranty accrual is periodically reviewed and updated based on warranty trends. However, as we cannot predict future claims, the potential exists for the difference in any one reporting period to be material. Environmental costs - At times we may be involved in various proceedings related to environmental matters. We estimate future costs for known environmental remediation requirements and accrue for them when it is probable that we have incurred a liability and the related costs can be reasonably estimated based on currently available information. If further developments in or resolution of an environmental matter result in facts and circumstances that are significantly different than the assumptions used to develop these reserves, the accrual for environmental remediation could be materially understated or overstated. Adjustments to these liabilities are made when additional information becomes available that affects the estimated costs to study or remediate any environmental issues or when expenditures for which reserves are established are made. Due to the uncertain nature of environmental matters, there can be no assurance that we will not become involved in future litigation or other proceedings or, if we were found to be responsible or liable in any litigation or proceeding, that such costs would not be material to us. 43 --------------------------------------------------------------------------------
THE GREENBRIER COMPANIES, INC. Revenue recognition - We measure revenue at the amounts that reflect the consideration to which we expect to be entitled in exchange for transferring control of goods and services to customers. We recognize revenue either at the point in time or over the period of time that performance obligations to customers are satisfied. Payment terms vary by segment and product type and are generally due within normal commercial terms. Our contracts with customers may include multiple performance obligations (e.g. railcars, maintenance, management services, etc.). For such arrangements, we allocate revenues to each performance obligation based on its relative standalone selling price. We have disaggregated revenue from contracts with customers into categories which describe the principal activities from which we generate our revenues.
Manufacturing
Railcars are manufactured in accordance with contracts with customers. We recognize revenue upon our customers' acceptance of the completed railcars at a specified delivery point. From time to time, we enter into multi-year supply agreements. Each railcar delivery is considered a distinct performance obligation, such that the amounts that are recognized as revenue following railcar delivery are generally not subject to change. We typically recognize marine vessel manufacturing revenue over time using the cost input method, based on progress toward contract completion measured by actual costs incurred to date in relation to the estimate of total expected costs. This method best depicts our performance in completing the construction of the marine vessel for the customer and is consistent with the percentage of completion method used prior to the adoption of Topic 606.
Wheels, Repair & Parts
We operate a network of wheel, repair and parts shops in
Wheels revenue is recognized when wheelsets are shipped to the customer or when consumed by customers in the case of consignment arrangements. Parts revenue is recognized upon shipment of the parts to the customers. Repair revenue is typically recognized over time using the cost input method, based on progress toward contract completion measured by actual costs incurred to date in relation to the estimate of total expected costs. This method best depicts our performance in repairing the railcars for the customer. Repair services are typically completed in less than 90 days.
Leasing & Services
We own a fleet of new and used railcars which are leased to third-party customers. Lease revenue is recognized over the lease-term in the period in which it is earned.
Syndication transactions represent new and used railcars which have been placed on lease to a customer and which we intend to sell to an investor with the lease attached. At the time of such sale, revenue and cost of revenue associated with railcars that we have manufactured are recognized in the Manufacturing segment; while revenue and cost of revenue associated with railcars which were obtained from a third-party with the intent to resell and subsequently sold, are recognized in the Leasing & Services segment.
We enter into multi-year contracts to provide management and maintenance services to customers for which revenue is generally recognized on a straight-line basis over the contract term as a stand-ready obligation. Costs to fulfill these contracts are recognized as incurred.
Impairment of long-lived assets - When changes in circumstances indicate the
carrying amount of certain long-lived assets may not be recoverable, the assets
are evaluated for impairment. If the forecast of undiscounted future cash flows
are less than the carrying amount of the assets, an impairment charge to reduce
the carrying value of the assets to fair value would be recognized in the
current period. These estimates are based on the best information available at
the time of the impairment and could be materially different if circumstances
change. If the forecast of undiscounted future cash flows exceeds the carrying
amount of the assets it would indicate that the assets were not impaired.
44
--------------------------------------------------------------------------------THE GREENBRIER COMPANIES, INC. Goodwill and acquired intangible assets - We periodically acquire businesses in purchase transactions in which the allocation of the purchase price may result in the recognition of goodwill and other intangible assets. The determination of the value of such intangible assets requires management to make estimates and assumptions. These estimates affect the amount of future period amortization and possible impairment charges.Goodwill and indefinite-lived intangible assets are tested for impairment annually during the third quarter. The provisions of ASC 350 Intangibles -Goodwill and Other, require that we perform this test by comparing 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 which incorporates expected revenue and margins and the use of discount rates. Under the market approach, we estimate the fair value based on observed market multiples for comparable businesses. An impairment loss is recorded to the extent that the reporting unit's carrying amount exceeds the reporting unit's fair value. An impairment loss cannot exceed the total amount of goodwill allocated to the reporting unit.Goodwill and indefinite-lived intangible assets are also tested more frequently if changes in circumstances or the occurrence of events indicates that a potential impairment exists. When changes in circumstances, such as a decline in the market price of our common stock, changes in demand or in the numerous variables associated with the judgments, assumptions and estimates made in assessing the appropriate valuation of goodwill indicate the carrying amount of certain indefinite lived assets may not be recoverable, the assets are evaluated for impairment. If actual operating results were to differ from these assumptions, it may result in an impairment of our goodwill. Our goodwill balance was$129.7 million as ofFebruary 29, 2020 of which$86.4 million related to our Manufacturing segment and$43.3 million related to our Wheels, Repair & Parts segment. 45
--------------------------------------------------------------------------------
THE GREENBRIER COMPANIES, INC.
© Edgar Online, source
