# Greenbrier Companies Inc: Form 10-Q for the period ended Nov 30, 2023

- Company: [Greenbrier Companies Inc](/companies/gbx.md) (CIK 923120)
- Form: 10-Q
- Filed: 2024-01-05
- Accepted by EDGAR: Jan 5, 2024, 16:14 ET
- Period: 2023-11-30
- Accession: 0000950170-24-002449
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/923120/000095017024002449/gbx-20231130.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/923120/000095017024002449/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-11-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-09-01 to 2023-11-30 | $808.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-09-01 to 2023-11-30 | $687.5m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-09-01 to 2023-11-30 | $121.3m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-09-01 to 2023-11-30 | $56.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-09-01 to 2023-11-30 | $64.9m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-09-01 to 2023-11-30 | $10.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-09-01 to 2023-11-30 | $31.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-09-01 to 2023-11-30 | $0.96 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-09-01 to 2023-11-30 | $1.00 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-09-01 to 2023-11-30 | 32,782,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-09-01 to 2023-11-30 | −$44.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-09-01 to 2023-11-30 | $68.3m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 3 months, 2023-09-01 to 2023-11-30 | $10.3m | us-gaap:PaymentsOfDividends |
| Share repurchases | 3 months, 2023-09-01 to 2023-11-30 | $1.3m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-11-30 | $307.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-11-30 | $4.01bn | us-gaap:Assets |
| Shareholders' equity | at 2023-11-30 | $1.27bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 37,451 characters.

### Executive Summary

We operate in three reportable segments: Manufacturing; Maintenance Services; and Leasing & Management Services. Our segments are operationally integrated. The Manufacturing segment, which currently operates from facilities in the U.S., Mexico, Poland, and Romania, produces freight railcars, tank cars, intermodal railcars and automotive railcar products. The Maintenance Services segment performs wheel and axle servicing, railcar maintenance and produces a variety of parts for the rail industry in North America. The Leasing & Management Services segment owns approximately 14,100 railcars as of November 30, 2023. We also provide management services for railroads, shippers, carriers, institutional investors and other leasing and transportation companies in North America. Through unconsolidated affiliates we produce rail and industrial components and have an ownership stake in a railcar manufacturer in Brazil.

Management identifies the following trends which continue to impact our business and our results for the three months ended November 30, 2023. Overall, demand in the marketplace remains strong for our products and services. Supply chain challenges, rail service congestion, inflation, high interest rates, and labor shortages continue to impact our business. Despite the continued challenging operating environment, we accomplished the following during the quarter ended November 30, 2023:

- Revenue increased by $42.3 million and 5.5% compared to the same period last year driven by a 15.6% increase in railcar deliveries.
- Margin has improved $51.8 million and 74.5% compared to the same period last year driven by a 15.6% increase in railcar deliveries, improved operating efficiencies across the business and favorable product mix.
- Net earnings attributable to Greenbrier increased $47.9 million compared to the same period last year driven in part by operating efficiencies in connection with the optimization of our industrial footprint to support our strategic plan discussed below.

As we continue to execute on our strategic plan, we remain focused on increasing recurring revenue, expanding our aggregate gross margin, and raising our return on invested capital.

Our backlog remains strong with railcar deliveries into 2026. Our railcar backlog was 29,700 units with an estimated value of $3.8 billion as of November 30, 2023. Our backlog includes $880 million of railcars intended for syndication which are supported by lease agreements with external customers and may be syndicated to third parties or held in our lease fleet depending on a variety of factors. Multi-year supply agreements are a part of rail industry practice. A portion of the orders included in backlog reflects an assumed product mix. Under terms of the orders, the exact mix and pricing will be determined in the future, which may impact backlog. Approximately 3% of backlog units and estimated backlog value as of November 30, 2023 was associated with our Brazilian manufacturing operations which is accounted for under the equity method.

Our backlog of railcar units 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.

As described in Part I Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended August 31, 2023 the items described above may have a material negative impact on our business, liquidity, results of operations and stock price. Beyond these general observations, we are unable to predict when, how, or with what magnitude these items will impact our business.

### Three Months Ended November 30, 2023 Compared to the Three Months Ended November 30, 2022

### Overview

Revenue, Cost of revenue, Margin and Earnings (loss) from operations (operating profit or loss) presented below, include amounts from external parties and exclude intersegment activity that is eliminated in consolidation.

*(in millions, except per share amounts)*

| Revenue: | Three Months Ended November 30, 2023 | 2022 |
| --- | ---: | ---: |
| Manufacturing | $675.9 | $646.5 |
| Maintenance Services | 83.8 | 85.5 |
| Leasing & Management Services | 49.1 | 34.5 |
|  | 808.8 | 766.5 |
| Cost of revenue: |  |  |
| Manufacturing | 600.9 | 604.5 |
| Maintenance Services | 71.6 | 79.6 |
| Leasing & Management Services | 15.0 | 12.9 |
|  | 687.5 | 697.0 |
| Margin: |  |  |
| Manufacturing | 75.0 | 42.0 |
| Maintenance Services | 12.2 | 5.9 |
| Leasing & Management Services | 34.1 | 21.6 |
|  | 121.3 | 69.5 |
| Selling and administrative | 56.3 | 53.4 |
| Net loss (gain) on disposition of equipment | 0.1 | (3.3) |
| Impairment of long-lived assets | — | 24.2 |
| Earnings (loss) from operations | 64.9 | (4.8) |
| Interest and foreign exchange | 23.2 | 19.6 |
| Earnings (loss) before income tax and earnings from unconsolidated affiliates | 41.7 | (24.4) |
| Income tax (expense) benefit | (10.0) | 3.8 |
| Earnings (loss) before earnings from unconsolidated affiliates | 31.7 | (20.6) |
| Earnings from unconsolidated affiliates | 1.5 | 3.3 |
| Net earnings (loss) | 33.2 | (17.3) |
| Net (earnings) loss attributable to noncontrolling interest | (2.0) | 0.6 |
| Net earnings (loss) attributable to Greenbrier | $31.2 | $(16.7) |
| Diluted earnings (loss) per common share | $0.96 | $(0.51) |

Performance for our segments is evaluated based on operating profit or loss. 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.

*(in millions)*

| Operating profit (loss): | Three Months Ended November 30, 2023 | 2022 |
| --- | ---: | ---: |
| Manufacturing | $54.3 | $(3.4) |
| Maintenance Services | 10.6 | 5.5 |
| Leasing & Management Services | 26.3 | 15.6 |
| Corporate | (26.3) | (22.5) |
|  | $64.9 | $(4.8) |

24

### Consolidated Results

*(in millions)*

|  | Three Months Ended November 30, 2023 | 2022 | Increase% (Decrease) | Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $808.8 | $766.5 | $42.3 | 5.5% |
| Cost of revenue | $687.5 | $697.0 | $(9.5) | (1.4%) |
| Margin (%) | 15.0% | 9.1% | 5.9% | \* |
| Net earnings (loss) attributable to Greenbrier | $31.2 | $(16.7) | $47.9 | \* |

\* Not meaningful

Through our integrated business model, we provide a broad range of custom products and services in each of our segments, which have various 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 5.5% increase in revenue for the three months ended November 30, 2023 as compared to the three months ended November 30, 2022 was primarily due to a 4.5% increase in Manufacturing revenue and 42.3% increase in Leasing and Management Services revenue. The increases were primarily driven by higher deliveries and syndication activity during the three months ended November 30, 2023 partially offset by a lower average selling price due to a change in product mix when compared to the prior comparable period.

The 1.4% decrease in cost of revenue for the three months ended November 30, 2023 as compared to the three months ended November 30, 2022 was primarily due to a 0.6% decrease in Manufacturing cost of revenue. The decrease in Manufacturing cost of revenue was primarily attributed to operating efficiencies and a change in product mix within our Manufacturing segment when compared to the prior comparable period.

Margin as a percentage of revenue was 15.0% and 9.1% for the three months ended November 30, 2023 and 2022, respectively. The overall margin as a percentage of revenue was positively impacted by operating efficiencies and favorable product mix within our Manufacturing segment as well as improved pricing at our Maintenance Services segment.

The $47.9 million increase in Net earnings attributable to Greenbrier for the three months ended November 30, 2023 as compared to the three months ended November 30, 2022 was primarily due to:

- An increase in Margin for the three months ended November 30, 2023 primarily due to higher railcar deliveries, an increase in syndication revenue and operating efficiencies.
- A $24.2 million impairment of long-lived assets at our Gunderson facility during the three months ended November 30, 2022.

These were partially offset by higher income tax expense associated with improved earnings during the three months ended November 30, 2023.

### Manufacturing Segment

*(In millions, except railcar deliveries)*

|  | Three Months Ended November 30, 2023 | 2022 | Increase% (Decrease) | Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $675.9 | $646.5 | $29.4 | 4.5% |
| Cost of revenue | $600.9 | $604.5 | $(3.6) | (0.6%) |
| Margin (%) | 11.1% | 6.5% | 4.6% | \* |
| Operating profit (loss) ($) | $54.3 | $(3.4) | $57.7 | \* |
| Operating profit (loss) (%) | 8.0% | (0.5%) | 8.5% | \* |
| Deliveries | 5,200 | 4,500 | 700 | 15.6% |

\* Not meaningful

Our Manufacturing segment primarily generates revenue from manufacturing a wide range of freight railcars and from the conversion of existing railcars through our facilities in North America and Europe.

Manufacturing revenue increased $29.4 million or 4.5% for the three months ended November 30, 2023 compared to the three months ended November 30, 2022. The increase in revenue was primarily attributed to a 15.6% increase in railcar deliveries and higher syndications partially offset by a lower average selling price due to a change in product mix when compared to the prior comparable period.

Manufacturing cost of revenue decreased $3.6 million or 0.6% for the three months ended November 30, 2023 compared to the three months ended November 30, 2022. The decrease in cost of revenue was primarily attributed to operating efficiencies and a change in product mix during the three months ended November 30, 2023.

Manufacturing margin as a percentage of revenue increased 4.6% for the three months ended November 30, 2023 compared to the three months ended November 30, 2022. The increase in margin percentage for the three months ended November 30, 2023 was primarily attributed to operating efficiencies and favorable product mix during the three months ended November 30, 2023.

Manufacturing operating profit increased $57.7 million for the three months ended November 30, 2023 compared to the three months ended November 30, 2022. The increase in operating profit was primarily attributed to improved Margin during the three months ended November 30, 2023 as well as an impairment loss during the three months ended November 30, 2022.

### Maintenance Services Segment

*(in millions)*

|  | Three Months Ended November 30, 2023 | 2022 | Increase% (Decrease) | Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $83.8 | $85.5 | $(1.7) | (2.0%) |
| Cost of revenue | $71.6 | $79.6 | $(8.0) | (10.1%) |
| Margin (%) | 14.6% | 6.9% | 7.7% | \* |
| Operating profit ($) | $10.6 | $5.5 | $5.1 | 92.7% |
| Operating profit (%) | 12.6% | 6.4% | 6.2% | \* |

\* Not meaningful

Our Maintenance Services segment primarily generates revenue from railcar component manufacturing and servicing and from providing railcar maintenance services.

Maintenance Services revenue decreased $1.7 million or 2.0% for the three months ended November 30, 2023 compared to the three months ended November 30, 2022. The decrease was primarily attributed to lower volumes with higher average selling price.

Maintenance Services cost of revenue decreased $8.0 million or 10.1% for the three months ended November 30, 2023 compared to the three months ended November 30, 2022. The decrease was primarily due to operating efficiencies.

Maintenance Services margin as a percentage of revenue increased 7.7% for the three months ended November 30, 2023 compared to the three months ended November 30, 2022. The increase in margin percentage was primarily attributed to improved pricing and operating efficiencies.

Maintenance Services operating profit increased $5.1 million for the three months ended November 30, 2023 compared to the three months ended November 30, 2022. The increase in operating profit was primarily attributed to improved pricing and operating efficiencies.

### Leasing & Management Services Segment

*(in millions)*

|  | Three Months Ended November 30, 2023 | 2022 | Increase% (Decrease) | Change |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $49.1 | $34.5 | $14.6 | 42.3% |
| Cost of revenue | $15.0 | $12.9 | $2.1 | 16.3% |
| Margin (%) | 69.5% | 62.6% | 6.9% | \* |
| Operating profit ($) | $26.3 | $15.6 | $10.7 | 68.6% |
| Operating profit (%) | 53.6% | 45.2% | 8.4% | \* |

\* Not meaningful

Our Leasing & Management Services segment generates revenue from leasing railcars from our lease fleet, providing various management services, syndication revenue associated with leases attached to new railcar sales, and interim rent on leased railcars for syndication.

Leasing & Management Services revenue increased $14.6 million or 42.3% for the three months ended November 30, 2023 compared to the three months ended November 30, 2022. The increase was primarily attributed to higher syndication activity and higher lease rents due to a larger fleet and improved lease rates.

Leasing & Management Services cost of revenue increased $2.1 million or 16.3% for the three months ended November 30, 2023 compared to the three months ended November 30, 2022. The increase was primarily due to higher costs from the larger fleet.

Leasing & Management Services margin as a percentage of revenue increased 6.9% for the three months ended November 30, 2023 compared to the three months ended November 30, 2022. The increase in margin percentage was primarily attributed to higher syndication activity and lease rents.

Leasing & Management Services operating profit increased $10.7 million for the three months ended November 30, 2023 compared to the three months ended November 30, 2022. The increase was primarily attributed to higher syndication activity and improved Margin in the lease fleet for the three months ended November 30, 2023.

### Selling and Administrative Expense

*(in millions)*

|  | Three Months Ended November 30, 2023 | 2022 | Increase% (Decrease) | Change |
| --- | ---: | ---: | ---: | ---: |
| Selling and administrative expense | $56.3 | $53.4 | $2.9 | 5.4% |

Selling and administrative expense was $56.3 million or 7.0% of revenue for the three months ended November 30, 2023 compared to $53.4 million or 7.0% of revenue for the prior comparable period. The $2.9 million increase was primarily attributed to an increase in employee related costs.

### Net Loss (Gain) on Disposition of Equipment

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

Net loss on disposition of equipment was $0.1 million for the three months ended November 30, 2023 compared to a gain of $3.3 million for the prior comparable period. The loss during the three months ended November 30, 2023 was primarily driven by a loss on a property lease termination.

### Impairment of Long-Lived Assets

The three months ended November 30, 2022 included a $24.2 million impairment of long-lived assets at our Gunderson facility.

### Interest and Foreign Exchange

Interest and foreign exchange expense was composed of the following:

*(in millions)*

| Interest and foreign exchange: | Three Months Ended November 30, 2023 | 2022 | Increase (Decrease) |
| --- | ---: | ---: | ---: |
| Interest and other expense | $21.9 | $17.8 | $4.1 |
| Foreign exchange (gain) loss | 1.3 | 1.8 | (0.5) |
|  | $23.2 | $19.6 | $3.6 |

The $3.6 million increase in Interest and foreign exchange expense for the three months ended November 30, 2023 compared to the three months ended November 30, 2022 was partially attributed to an increase in interest expense from higher interest rates and borrowings.

### Income Tax

For the three months ended November 30, 2023, we had income tax expense of $10.0 million on pre-tax income of $41.7 million for an effective tax rate of 24.0%. The effective tax rate benefited from net favorable adjustments related to our foreign subsidiaries.

For the three months ended November 30, 2022, we had income tax benefit of $3.8 million on a pre-tax loss of $24.4 million. The tax benefit was attributed to a net favorable discrete impact related to the impairment of long-lived assets at our Gunderson facility, partially offset by changes in foreign currency exchange rates and inflationary adjustments at our U.S. Dollar denominated foreign operations.

The provision for income taxes during interim quarterly reporting periods is based on our estimates of the effective tax rates for the full fiscal year and may be positively or negatively impacted by adjustments that are required to be reported in the quarter. 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.

### Earnings From Unconsolidated Affiliates

Through unconsolidated affiliates we produce rail and industrial components and have an ownership stake in a railcar manufacturer in Brazil. We record the results from these unconsolidated affiliates on an after-tax basis.

Earnings from unconsolidated affiliates were $1.5 million and $3.3 million for the three months ended November 30, 2023 and 2022, respectively. The decrease was primarily related to lower volumes.

### Noncontrolling Interest

Net earnings (loss) attributable to noncontrolling interest was earnings of $2.0 million for the three months ended November 30, 2023 compared to a loss of $0.6 million for the three months ended November 30, 2022. Net earnings (loss) attributable to noncontrolling interest primarily represents our joint venture partner's share in the results of operations of our Mexican railcar manufacturing joint ventures, adjusted for intercompany sales, and our European partner’s share of the results of our European operations.

### Liquidity and Capital Resources

*(in millions)*

|  | Three Months Ended November 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(44.7) | $(255.5) |
| Net cash used in investing activities | (67.3) | (43.0) |
| Net cash provided by financing activities | 130.8 | 9.3 |
| Effect of exchange rate changes | (0.2) | 10.6 |
| Increase (decrease) in Cash and cash equivalents and Restricted cash | $18.6 | $(278.6) |

We have been financed through cash generated from operations and borrowings. At November 30, 2023 Cash and cash equivalents and Restricted cash were $321.3 million, an increase of $18.6 million from $302.7 million at August 31, 2023.

#### Cash Flows From Operating Activities

The change in cash used in operating activities for the three months ended November 30, 2023 compared to the three months ended November 30, 2022 was primarily due to a change in Leased railcars for syndication and an increase in Net earnings.

#### Cash Flows From Investing Activities

Cash 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 used in investing activities for the three months ended November 30, 2023 compared to the three months ended November 30, 2022 was primarily attributable to fewer fleet sales and an increase in capital expenditures when compared to the three months ended November 30, 2022 in our Leasing & Management Services segment.

*(in millions)*

| Capital expenditures: | Three Months Ended November 30, 2023 | 2022 |
| --- | ---: | ---: |
| Leasing & Management Services | $(54.3) | $(46.1) |
| Manufacturing | (11.9) | (10.4) |
| Maintenance Services | (2.1) | (1.1) |
| Total capital expenditures (gross) | $(68.3) | $(57.6) |
| Proceeds from sales of assets | 0.4 | 13.8 |
| Total capital expenditures (net of proceeds) | $(67.9) | $(43.8) |

Capital expenditures primarily relate to additions to our lease fleet and on-going investments into the safety and productivity of our facilities. Proceeds from the sale of assets primarily relate to sales of railcars from our lease fleet within Leasing & Management Services. Assets from our lease fleet are periodically sold in the normal course of business to accommodate customer demand and to manage risk and liquidity. Proceeds from sales of assets are expected to be approximately $85 million for 2024.

Gross capital expenditures for 2024 are expected to be approximately $300 million for Leasing & Management Services, approximately $165 million for Manufacturing and approximately $15 million for Maintenance Services. Capital expenditures for 2024 primarily relate to additions to our lease fleet reflecting our leasing strategy and continued investments into the safety and productivity of our facilities.

#### Cash Flows From Financing Activities

The change in cash provided by financing activities for the three months ended November 30, 2023 compared to the three months ended November 30, 2022 was primarily attributed to higher proceeds from the issuance of notes payable, net of repayments and the net change in revolving notes to support our operations. During the three months ended November 30, 2023 we issued $178.5 million of asset backed securities and used proceeds to pay down $139.9 million of our GBX Leasing warehouse facility. We also drew $65.1 million on the GBX Leasing warehouse facility to grow the fleet.

#### Dividend & Share Repurchase Program

A quarterly dividend of $0.30 per share was declared on January 4, 2024.

The Board of Directors has authorized our company to repurchase shares of our common stock. The share repurchase program has an expiration date of January 31, 2025. Under the share repurchase program, shares of common stock may be purchased from time to time on the open market or through privately negotiated transactions. The timing and amount of purchases is 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.

During the three months ended November 30, 2023, we purchased a total of 38 thousand shares for $1.3 million. As of November 30, 2023, the amount remaining for repurchase under the share repurchase program was $45.1 million.

#### Cash, Borrowing Availability and Credit Facilities

As of November 30, 2023, we had $307.3 million in Cash and cash equivalents and $355.2 million in available borrowings. The available balance to draw under committed credit facilities includes $280.8 million on the North American credit facility, $19.4 million on the European credit facilities and $55.0 million on the Mexican credit facilities.

Senior secured credit facilities aggregated to $1.4 billion as of November 30, 2023 which consisted of the following components:

*GBX Leasing –* As of November 30, 2023, a $550.0 million non-recourse warehouse credit facility existed to support the operations of GBX Leasing. Advances under this facility bear interest at SOFR plus 1.85% plus 0.11% as a SOFR adjustment. Interest rate swap agreements cover approximately 99% of the outstanding balance to swap the floating interest rate to a fixed rate. The warehouse credit facility converts to a term loan in August 2025 and matures in August 2027.

*North America –* As of November 30, 2023, a $600.0 million revolving line of credit, maturing August 2026, secured by substantially all our U.S. assets not otherwise pledged as security for term loans or the warehouse credit facility, existed to provide working capital and interim financing of equipment, principally for our U.S. and Mexican operations. Advances under this North American credit facility bear interest at SOFR plus 1.50% plus 0.10% as a SOFR adjustment or Prime plus 0.50% depending on the type of borrowing. Available borrowings under the credit facility are generally based on defined levels of eligible inventory, receivables, property, plant and equipment and leased equipment, as well as total debt to consolidated capitalization and fixed charges coverage ratios.

*Europe –* As of November 30, 2023, lines of credit totaling $63.7 million secured by certain of our European assets, with variable rates that range from WIBOR plus 1.2% to WIBOR plus 1.6% and EURIBOR plus 1.9%, were available for working capital needs of our European manufacturing operations. The European lines of credit include $21.9 million which is guaranteed by us. European credit facilities are regularly renewed. Currently, these European credit facilities have maturities that range from June 2024 through November 2025.

*Mexico –* As of November 30, 2023, our Mexican railcar manufacturing operations had lines of credit totaling $185.0 million for working capital needs, $85.0 of which we and our joint venture partner have each guaranteed 50%. Advances under these facilities bear interest at variable rates that range from SOFR plus 2.55% to SOFR plus 4.25%. The Mexican credit facilities have maturities that range from June 2024 through October 2026.

Credit facility balances:

*(in millions)*

| Nonrecourse credit facility balances | November 30, 2023 | August 31, 2023 |
| --- | ---: | ---: |
| GBX Leasing | $65.1 | $139.9 |
| Other credit facility balances |  |  |
| North America | 40.0 | — |
| Europe | 44.3 | 47.2 |
| Mexico | 130.0 | 110.0 |
| Total Revolving notes | $279.4 | $297.1 |

Outstanding commitments under the North American credit facility included letters of credit which totaled $6.4 million and $4.9 million as of November 30, 2023 and August 31, 2023, respectively.

#### Other Information

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 financing leases; create liens; sell assets; engage in transactions with affiliates, including joint ventures and non U.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 of November 30, 2023, 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 convertible notes, borrowings and equity securities, and take other steps to reduce our debt, extend the maturities of 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 of one note or security for another note or security (now or hereafter existing), 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.

To mitigate the exposure to changes in interest rates, we have managed a portion of our variable rate debt with interest rate swap agreements, effectively converting $590.5 million of variable rate debt to fixed rate debt as of November 30, 2023.

Given the strong credit standing of the counterparties, no provision has been made for credit loss due to counterparty non-performance.

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 reasonably likely to have a material current or future effect on our Consolidated Financial Statements.

### Critical Accounting 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.

*Impairment of long-lived assets -* We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. When such events or changes in circumstances occur, a recoverability test is performed based upon estimated undiscounted cash flows expected to be realized over the remaining useful life of the asset group. If the carrying amount of an asset group exceeds the estimated undiscounted future cash flows, an impairment would be measured as the difference between the fair value of the asset group and the carrying amount of the asset group.

An asset group is generally established by identifying the lowest level of cash flows generated by a group of assets that are largely independent of the cash flows of other assets. Determining whether a long-lived asset is impaired requires various estimates and assumptions, including whether a triggering event has occurred, the identification of asset groups, and the determination of the fair value of real and personal property. Estimates of future cash flows are by nature highly uncertain and contemplate factors that may change over time.

*Goodwill* - We evaluate goodwill for possible impairment annually or more frequently if events or changes in circumstances indicate that the carrying amounts of our reporting units exceed their fair 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 forecasted revenues, long-term growth rate, gross margin percentages, operating expenses, and the use of discount rates. Under the market approach, we estimate the fair value based on observed market multiples for comparable businesses. If the fair value of a reporting unit is lower than its carrying value, an impairment to goodwill is recorded, not to exceed the carrying amount of goodwill in the reporting unit.

We performed a quantitative assessment for our annual goodwill impairment test during the third quarter of 2023. Based on the results of our assessment, the estimated fair values of all reporting units with goodwill increased from our prior quantitative assessment, and exceeded their carrying values; therefore, we concluded that goodwill was not impaired. Pursuant to the authoritative guidance, we make certain estimates and assumptions to determine our reporting units and whether the fair value for each reporting unit is greater than its carry value. The above highlighted judgments contemplated estimates and effects of macroeconomic trends that are inherently uncertain. Changes in these estimates, which may include the effects of inflation and policy reactions thereto, increases in pricing of materials and components, changes in demand, or potential macroeconomic events may cause future assessment conclusions to differ.

As of November 30, 2023, our goodwill balance was $128.6 million of which $85.6 million related to our Manufacturing segment and $43.0 million related to our Maintenance Services segment. Our Manufacturing segment includes the North America Manufacturing reporting unit with a goodwill balance of $56.3 million; and the Europe Manufacturing reporting unit with a goodwill balance of $29.3 million.

*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 a tax benefit from uncertain tax positions in the financial statements only when it is more likely than not the position will be sustained upon examination by relevant tax authorities.

Our annual tax rate is based on our income, statutory tax rates, and tax planning opportunities available to us in the various jurisdictions in which we operate. Judgment is required in determining our tax expense and in evaluating our tax positions, as tax laws are complex and subject to different interpretations by taxpayers and government taxing authorities. Our income tax rate is affected by the tax rates that apply to our foreign earnings and could be adversely impacted by higher or lower earnings than anticipated in a particular jurisdiction. In addition to local country tax laws and regulations, our income tax rate depends on the extent that our foreign earnings are taxed by the U.S. through provisions such as the global intangible low-taxed income (GILTI) tax and base erosion and anti-abuse tax (BEAT). We review our deferred tax assets and tax positions quarterly and adjust the balances as new information becomes available.

*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. 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.

Judgments used in determining if a liability is estimable are subjective and based on known facts and our historic experience. If further developments in or resolution of an environmental matter result in facts and circumstances that differ from those assumptions used to develop these reserves, the accrual for environmental remediation could be materially understated or overstated. 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. For further information regarding our environmental costs, see Note 14 to the Condensed Consolidated Financial Statements.

## Market risk

As filed, 2,076 characters.

#### Foreign Currency Exchange Risk

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 of each entity, we enter into foreign currency forward exchange contracts to protect revenue or margin on a portion of forecasted foreign currency sales and expenses. At November 30, 2023 exchange rates, notional amounts of forward exchange contracts for the purchase of Polish Zlotys and the sale of Euros; and the purchase of Mexican Pesos and the sale of U.S. Dollars aggregated to $126.9 million. Because of the variety of currencies in which purchases and sales are transacted and the interaction between currency rates, it is not possible to predict the impact that a movement in a single foreign currency exchange rate would have on future operating results.

In addition to exposure to transaction gains or losses, we are also exposed to foreign currency exchange risk related to the net asset position of our foreign subsidiaries. At November 30, 2023, net assets of foreign subsidiaries aggregated to $155.3 million and a 10% strengthening of the U.S. Dollar relative to the foreign currencies would result in a decrease in equity of $15.5 million, or 1.2% of Total equity - Greenbrier. This calculation assumes that each exchange rate would change in the same direction relative to the U.S. Dollar.

#### Interest Rate Risk

We have managed a portion of our variable rate debt with interest rate swap agreements, effectively converting $590.5 million of variable rate debt to fixed rate debt. Notwithstanding these interest rate swap agreements, we are still exposed to interest rate risk relating to our revolving debt and a portion of term debt, which are at variable rates. At November 30, 2023, 84% of our outstanding debt had fixed rates and 16% had variable rates. At November 30, 2023, a uniform increase by 10% in variable interest rates would result in approximately $1.5 million of additional annual interest expense.

## Controls and procedures

As filed, 2,768 characters.

#### Evaluation of Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective as of such date due to the material weakness in internal control over financial reporting that was disclosed in our Annual Report on Form 10-K for the fiscal year ended August 31, 2023.

#### Ongoing Remediation of Previously Identified Material Weakness

The Company’s management, under the oversight of the Audit Committee, is designing and implementing corrective actions to remediate the control deficiencies contributing to the material weakness. These remediation actions are ongoing and include or are expected to include:

- Enhancing risk assessment and control design to address potential financial reporting risk related to system implementations;
- Improving policy and procedure documentation related to IT general controls to better define roles and responsibilities, improve control owner understanding, and provide a basis for knowledge transfer upon personnel changes; and
- Enhancing our education concerning the principles and requirements of each control, with a focus on those related to user access, change management, and segregation of duties over IT systems impacting financial reporting.

As we continue to evaluate and enhance our internal control over financial reporting, we may determine that additional measures to address the material weaknesses or adjustments to the remediation plan may be required. Once controls are designed and implemented, the controls must be operating effectively for a sufficient period of time and be tested by management in order to consider them remediated and conclude that the design is effective to address the risks of material misstatement.

#### Changes in Internal Control over Financial Reporting

During the quarter we implemented a new ERP system at our maintenance services businesses. Except for the system implementation and changes in connection with our implementation of the remediation plans above, there have been no changes in our internal control over financial reporting during the quarter ended November 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 285 characters.

This Form 10-Q should be read in conjunction with Part I Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended August 31, 2023. There have been no material changes in the risk factors described in our Annual Report on Form 10-K for the year ended August 31, 2023.

Filed Jan 5, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-002449. Last ingested by Listed: Oct 29, 2026, 18:28 ET. No prices; not investment advice.