Consolidated Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
May 31, |
|
|
Increase |
|
|
% |
|
(in millions) |
|
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|
Change |
|
Revenue |
|
$ |
793.5 |
|
|
$ |
450.2 |
|
|
$ |
343.3 |
|
|
|
76.3 |
% |
Cost of revenue |
|
$ |
717.2 |
|
|
$ |
375.0 |
|
|
$ |
342.2 |
|
|
|
91.3 |
% |
Margin (%) |
|
|
9.6 |
% |
|
|
16.7 |
% |
|
|
(7.1 |
%) |
|
* |
|
Net earnings attributable to Greenbrier |
|
$ |
3.1 |
|
|
$ |
19.7 |
|
|
$ |
(16.6 |
) |
|
|
(84.3 |
%) |
* Not meaningful
Through our integrated business model, we provide a broad range of custom products and services in each of our segments, which have various average selling prices and margins. The demand for and mix of products and services delivered changes from period to period, which causes fluctuations in our results of operations.
The 76.3% increase in revenue for the three months ended May 31, 2022 as compared to the three months ended May 31, 2021 was primarily due to a 91.6% increase in Manufacturing revenue. The increase in Manufacturing revenue was primarily attributed to a 75.0% increase in railcar deliveries.
The 91.3% increase in cost of revenue for the three months ended May 31, 2022 as compared to the three months ended May 31, 2021 was primarily due to a 109.1% increase in Manufacturing cost of revenue. The increase in Manufacturing cost of revenue was primarily attributed to a 75.0% increase in railcar deliveries and higher steel and other input costs during the three months ended May 31, 2022.
Margin as a percentage of revenue was 9.6% and 16.7% for the three months ended May 31, 2022 and 2021, respectively. The overall margin as a percentage of revenue was negatively impacted by a decrease in Manufacturing margin from 13.9% to 6.1% primarily attributed to higher costs and inefficiencies in our Manufacturing operations in part due to ramping up production. Many of our customer contracts include price escalation provisions. When certain of our manufacturing costs increase, we are able to increase the sales price to our customers. While this has no impact to our margin dollars, the increase in revenue and cost of sales has a negative impact to our margin as a percentage of revenue.
The $16.6 million decrease in net earnings attributable to Greenbrier for the three months ended May 31, 2022 as compared to the three months ended May 31, 2021 was primarily due to the following:
•An increase in Selling and administrative expense for the three months ended May 31, 2022 primarily attributed to an increase in employee related costs, legal, consulting, and travel associated with increased business activity.
•Income tax expense for the three months ended May 31, 2022 compared to an income tax benefit for the three months ended May 31, 2021. The income tax benefit for the three months ended May 31, 2021 primarily related to accelerated depreciation and the impact of the CARES Act which allowed us to carry back tax losses to years when tax rates were higher, resulting in a tax benefit.
•An increase in Interest and foreign exchange for the three months ended May 31, 2022 primarily attributed to an increase in interest expense from higher levels of borrowings.
These were partially offset by:
•Net loss on extinguishment of debt for the three months ended May 31, 2021.
30
Manufacturing Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
May 31, |
|
|
Increase |
|
|
% |
|
(In millions, except railcar deliveries) |
|
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|
Change |
|
Revenue |
|
$ |
650.9 |
|
|
$ |
339.7 |
|
|
$ |
311.2 |
|
|
|
91.6 |
% |
Cost of revenue |
|
$ |
611.3 |
|
|
$ |
292.4 |
|
|
$ |
318.9 |
|
|
|
109.1 |
% |
Margin (%) |
|
|
6.1 |
% |
|
|
13.9 |
% |
|
|
(7.8 |
%) |
|
* |
|
Operating profit ($) |
|
$ |
20.5 |
|
|
$ |
29.1 |
|
|
$ |
(8.6 |
) |
|
|
(29.6 |
%) |
Operating profit (%) |
|
|
3.1 |
% |
|
|
8.6 |
% |
|
|
(5.5 |
%) |
|
* |
|
Deliveries |
|
|
4,900 |
|
|
|
2,800 |
|
|
|
2,100 |
|
|
|
75.0 |
% |
* Not meaningful
Our Manufacturing segment primarily generates revenue from manufacturing a wide range of freight railcars and from the conversion of existing or in-service railcars through our facilities in North America and Europe. We also manufacture a broad range of ocean-going and river barges for transporting merchandise between ports within the United States.
Manufacturing revenue increased $311.2 million or 91.6% for the three months ended May 31, 2022 compared to the three months ended May 31, 2021. The increase in revenue was primarily attributed to a 75.0% increase in railcar deliveries. The increase was also due to the additional revenue associated with an increase in steel and other input costs during the three months ended May 31, 2022, as many of our customer contracts include price escalation provisions when certain of our manufacturing costs increase.
Manufacturing cost of revenue increased $318.9 million or 109.1% for the three months ended May 31, 2022 compared to the three months ended May 31, 2021. The increase in cost of revenue was primarily attributed to a 75.0% increase in the volume of railcar deliveries and higher steel and other input costs as well as inefficiencies in our Manufacturing operations in part due to ramping up production during the three months ended May 31, 2022.
Manufacturing margin as a percentage of revenue decreased 7.8% for the three months ended May 31, 2022 compared to the three months ended May 31, 2021. The decrease in margin percentage for the three months ended May 31, 2022 was primarily attributed to higher costs and inefficiencies in our Manufacturing operations in part due to ramping up production. Many of our customer contracts include price escalation provisions. When certain of our manufacturing costs increase, we are able to increase the sales price to our customers. While this has no impact to our margin dollars, the increase in revenue and cost of sales has a negative impact to our margin as a percentage of revenue. In addition, the margin percentage for three months ended May 31, 2021 benefited from a $15.8 million favorable resolution of warranty and other loss contingencies associated with our international operations.
Manufacturing operating profit decreased $8.6 million for the three months ended May 31, 2022 compared to the three months ended May 31, 2021. The decrease in operating profit was primarily attributed to the three months ended May 31, 2021 benefiting from a favorable resolution of warranty and other loss contingencies associated with our international operations. This was partially offset by an increase in railcar deliveries for the three months ended May 31, 2022.
31
Maintenance Services Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
May 31, |
|
|
Increase |
|
|
% |
|
(in millions) |
|
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|
Change |
|
Revenue |
|
$ |
101.5 |
|
|
$ |
80.9 |
|
|
$ |
20.6 |
|
|
|
25.5 |
% |
Cost of revenue |
|
$ |
91.1 |
|
|
$ |
73.7 |
|
|
$ |
17.4 |
|
|
|
23.6 |
% |
Margin (%) |
|
|
10.2 |
% |
|
|
8.9 |
% |
|
|
1.3 |
% |
|
* |
|
Operating profit ($) |
|
$ |
8.6 |
|
|
$ |
4.2 |
|
|
$ |
4.4 |
|
|
|
104.8 |
% |
Operating profit (%) |
|
|
8.5 |
% |
|
|
5.2 |
% |
|
|
3.3 |
% |
|
* |
|
* Not meaningful
Our Maintenance Services segment primarily generates revenue from railcar component manufacturing and servicing and from providing railcar maintenance services.
Maintenance Services revenue increased $20.6 million or 25.5% for the three months ended May 31, 2022 compared to the three months ended May 31, 2021. The increase was primarily attributed to higher volumes due to increased demand. The increase was also due to higher scrap metal pricing and volumes.
Maintenance Services cost of revenue increased $17.4 million or 23.6% for the three months ended May 31, 2022 compared to the three months ended May 31, 2021. The increase was primarily due to higher costs associated with an increase in volumes and an increase in material and labor costs.
Maintenance Services margin as a percentage of revenue increased 1.3% for the three months ended May 31, 2022 compared to the three months ended May 31, 2021. The increase in margin percentage was primarily attributed to an increase in scrap metal pricing. This was partially offset by higher material and labor costs during the three months ended May 31, 2022.
Maintenance Services operating profit increased $4.4 million or 104.8% for the three months ended May 31, 2022 compared to the three months ended May 31, 2021. The increase in operating profit was primarily attributed to higher volumes and an increase in scrap metal pricing. This was partially offset by higher material and labor costs during the three months ended May 31, 2022.
32
Leasing & Management Services Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
May 31, |
|
|
Increase |
|
|
% |
|
(in millions) |
|
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|
Change |
|
Revenue |
|
$ |
41.1 |
|
|
$ |
29.6 |
|
|
$ |
11.5 |
|
|
|
38.9 |
% |
Cost of revenue |
|
$ |
14.8 |
|
|
$ |
8.9 |
|
|
$ |
5.9 |
|
|
|
66.3 |
% |
Margin (%) |
|
|
64.0 |
% |
|
|
69.9 |
% |
|
|
(5.9 |
%) |
|
* |
|
Operating profit ($) |
|
$ |
19.2 |
|
|
$ |
14.5 |
|
|
$ |
4.7 |
|
|
|
32.4 |
% |
Operating profit (%) |
|
|
46.7 |
% |
|
|
49.0 |
% |
|
|
(2.3 |
%) |
|
* |
|
* Not meaningful
Our Leasing & Management Services segment generates revenue from leasing railcars from our lease fleet which includes GBX Leasing, 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 $11.5 million or 38.9% for the three months ended May 31, 2022 compared to the three months ended May 31, 2021. The increase was primarily attributed to higher syndication revenue from an increase in the volume of new railcar sales with leases attached and higher interim rent on leased railcars for syndication.
Leasing & Management Services cost of revenue increased $5.9 million or 66.3% for the three months ended May 31, 2022 compared to the three months ended May 31, 2021. The increase was primarily due to higher costs from the additions to our lease fleet.
Leasing & Management Services margin as a percentage of revenue decreased 5.9% for the three months ended May 31, 2022 compared to the three months ended May 31, 2021. The decrease in margin percentage was primarily attributed to a benefit associated with a lease transfer fee on previously syndicated railcars during the three months ended May 31, 2021. This was partially offset by higher syndication activity during the three months ended May 31, 2022.
Leasing & Management Services operating profit increased $4.7 million for the three months ended May 31, 2022 compared to the three months ended May 31, 2021. The increase was primarily attributed to higher syndication activity.
33
Selling and Administrative Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
May 31, |
|
|
Increase |
|
|
% |
|
(in millions) |
|
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|
Change |
|
Selling and administrative expense |
|
$ |
57.4 |
|
|
$ |
49.3 |
|
|
$ |
8.1 |
|
|
|
16.4 |
% |
Selling and administrative expense was $57.4 million or 7.2% of revenue for the three months ended May 31, 2022 compared to $49.3 million or 11.0% of revenue for the prior comparable period. The $8.1 million increase was primarily attributed to an increase in employee related costs, legal, consulting, and travel associated with increased business activity.
Net Gain (Loss) on Disposition of Equipment
Net gain (loss) on disposition of equipment primarily 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 accommodate customer demand and to manage risk and liquidity.
Net gain on disposition of equipment was $0.7 million for the three months ended May 31, 2022 compared to net loss on disposition of equipment of $0.2 million for the three months ended May 31, 2021.
Interest and Foreign Exchange
Interest and foreign exchange expense was composed of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
May 31, |
|
|
Increase |
|
(in millions) |
|
2022 |
|
|
2021 |
|
|
(Decrease) |
|
Interest and foreign exchange: |
|
|
|
|
|
|
|
|
|
Interest and other expense |
|
$ |
15.4 |
|
|
$ |
10.9 |
|
|
$ |
4.5 |
|
Foreign exchange gain |
|
|
(0.5 |
) |
|
|
(0.7 |
) |
|
|
0.2 |
|
|
|
$ |
14.9 |
|
|
$ |
10.2 |
|
|
$ |
4.7 |
|
The $4.7 million increase in interest and foreign exchange expense for the three months ended May 31, 2022 compared to the three months ended May 31, 2021 was primarily attributed to an increase in interest expense from higher levels of borrowings.
Net Loss on Extinguishment of Debt
Net loss on extinguishment of debt was $4.8 million for the three months ended May 31, 2021, which relates to the retirement of $207.1 million of our 2.875% convertible notes due 2024 and $50 million of our 2.25% convertible notes due 2024.
Income Tax
For the three months ended May 31, 2022, we had income tax expense of $1.1 million on pre-tax income of $4.7 million for an effective tax rate of 23%. 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 by adjustments that are required to be reported in the quarter.
34
For the three months ended May 31, 2021, we had an income tax benefit of $6.9 million on pre-tax income of $10.7 million. The tax benefit for the three months ended May 31, 2021 primarily related to accelerated depreciation and the impact of the CARES Act which allows us to carry back tax losses to years when tax rates were higher, resulting in a tax benefit.
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 (loss) before income taxes and earnings from unconsolidated affiliates, whereas only our 50% share of the tax is included in Income tax (expense) benefit.
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 was $4.0 million and $2.4 million for the three months ended May 31, 2022 and 2021, respectively. The increase was primarily related to higher profitability at our Brazil operations.
Noncontrolling Interest
Net earnings attributable to noncontrolling interest was $4.5 million and $0.3 million for the three months ended May 31, 2022 and 2021, respectively. Net earnings 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.
35
Nine Months Ended May 31, 2022 Compared to the Nine Months Ended May 31, 2021
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.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
May 31, |
|
(in millions, except per share amounts) |
|
2022 |
|
|
2021 |
|
Revenue: |
|
|
|
|
|
|
Manufacturing |
|
$ |
1,659.1 |
|
|
$ |
845.7 |
|
Maintenance Services |
|
|
260.5 |
|
|
|
218.1 |
|
Leasing & Management Services |
|
|
107.4 |
|
|
|
85.0 |
|
|
|
|
2,027.0 |
|
|
|
1,148.8 |
|
Cost of revenue: |
|
|
|
|
|
|
Manufacturing |
|
|
1,567.9 |
|
|
|
775.1 |
|
Maintenance Services |
|
|
244.0 |
|
|
|
203.4 |
|
Leasing & Management Services |
|
|
36.4 |
|
|
|
36.8 |
|
|
|
|
1,848.3 |
|
|
|
1,015.3 |
|
Margin: |
|
|
|
|
|
|
Manufacturing |
|
|
91.2 |
|
|
|
70.6 |
|
Maintenance Services |
|
|
16.5 |
|
|
|
14.7 |
|
Leasing & Management Services |
|
|
71.0 |
|
|
|
48.2 |
|
|
|
|
178.7 |
|
|
|
133.5 |
|
Selling and administrative |
|
|
156.4 |
|
|
|
136.4 |
|
Net gain on disposition of equipment |
|
|
(34.3 |
) |
|
|
(0.8 |
) |
Earnings (loss) from operations |
|
|
56.6 |
|
|
|
(2.1 |
) |
Interest and foreign exchange |
|
|
39.3 |
|
|
|
30.9 |
|
Net loss on extinguishment of debt |
|
|
— |
|
|
|
4.8 |
|
Earnings (loss) before income taxes and earnings from
unconsolidated affiliates |
|
|
17.3 |
|
|
|
(37.8 |
) |
Income tax (expense) benefit |
|
|
(2.9 |
) |
|
|
36.0 |
|
Earnings (loss) before earnings from unconsolidated affiliates |
|
|
14.4 |
|
|
|
(1.8 |
) |
Earnings from unconsolidated affiliates |
|
|
10.0 |
|
|
|
1.3 |
|
Net earnings (loss) |
|
|
24.4 |
|
|
|
(0.5 |
) |
Net loss attributable to noncontrolling interest |
|
|
2.3 |
|
|
|
1.2 |
|
Net earnings attributable to Greenbrier |
|
$ |
26.7 |
|
|
$ |
0.7 |
|
Diluted earnings per common share |
|
$ |
0.79 |
|
|
$ |
0.02 |
|
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) benefit for either external or internal reporting purposes.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
May 31, |
|
(in millions) |
|
2022 |
|
|
2021 |
|
Operating profit (loss): |
|
|
|
|
|
|
Manufacturing |
|
$ |
34.6 |
|
|
$ |
16.7 |
|
Maintenance Services |
|
|
10.4 |
|
|
|
6.4 |
|
Leasing & Management Services |
|
|
84.0 |
|
|
|
31.7 |
|
Corporate |
|
|
(72.4 |
) |
|
|
(56.9 |
) |
|
|
$ |
56.6 |
|
|
$ |
(2.1 |
) |
36
Consolidated Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
May 31, |
|
|
Increase |
|
|
% |
|
(in millions) |
|
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|
Change |
|
Revenue |
|
$ |
2,027.0 |
|
|
$ |
1,148.8 |
|
|
$ |
878.2 |
|
|
|
76.4 |
% |
Cost of revenue |
|
$ |
1,848.3 |
|
|
$ |
1,015.3 |
|
|
$ |
833.0 |
|
|
|
82.0 |
% |
Margin (%) |
|
|
8.8 |
% |
|
|
11.6 |
% |
|
|
(2.8 |
%) |
|
* |
|
Net earnings attributable to Greenbrier |
|
$ |
26.7 |
|
|
$ |
0.7 |
|
|
$ |
26.0 |
|
|
* |
|
* Not meaningful
Through our integrated business model, we provide a broad range of custom products and services in each of our segments, which have various average selling prices and margins. The demand for and mix of products and services delivered changes from period to period, which causes fluctuations in our results of operations.
The 76.4% increase in revenue for the nine months ended May 31, 2022 as compared to the nine months ended May 31, 2021 was primarily due to a 96.2% increase in Manufacturing revenue. The increase in Manufacturing revenue was primarily attributed to an 80.6% increase in railcar deliveries.
The 82.0% increase in cost of revenue for the nine months ended May 31, 2022 as compared to the nine months ended May 31, 2021 was primarily due to a 102.3% increase in Manufacturing cost of revenue. The increase in Manufacturing cost of revenue was primarily attributed to an 80.6% increase in railcar deliveries and higher steel and other input costs during the nine months ended May 31, 2022.
Margin as a percentage of revenue was 8.8% and 11.6% for the nine months ended May 31, 2022 and 2021, respectively. The overall margin as a percentage of revenue was negatively impacted by a decrease in Manufacturing margin from 8.3% to 5.5% primarily attributed to higher costs and inefficiencies in our Manufacturing operations in part due to ramping up production. Many of our customer contracts include price escalation provisions. When certain of our manufacturing costs increase, we are able to increase the sales price to our customers. While this has no impact to our margin dollars, the increase in revenue and cost of sales has a negative impact to our margin as a percentage of revenue.
The $26.0 million increase in net earnings attributable to Greenbrier for the nine months ended May 31, 2022 as compared to the nine months ended May 31, 2021 was primarily due to the following:
•An increase in Margin primarily due to higher railcar deliveries and syndication revenue for the nine months ended May 31, 2022.
•An increase in Net gain on disposition of equipment for the nine months ended May 31, 2022.
These were partially offset by:
•The income tax benefit for the nine months ended May 31, 2021 primarily related to accelerated depreciation and the impact of the CARES Act which allowed us to carry back tax losses to years when tax rates were higher, resulting in a tax benefit.
•An increase in Selling and administrative expense for the nine months ended May 31, 2022 was primarily attributed to higher costs for legal, consulting and travel associated with increased business activity. The increase was also attributed to higher employee related costs.
37
Manufacturing Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
May 31, |
|
|
Increase |
|
|
% |
|
(In millions, except railcar deliveries) |
|
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|
Change |
|
Revenue |
|
$ |
1,659.1 |
|
|
$ |
845.7 |
|
|
$ |
813.4 |
|
|
|
96.2 |
% |
Cost of revenue |
|
$ |
1,567.9 |
|
|
$ |
775.1 |
|
|
$ |
792.8 |
|
|
|
102.3 |
% |
Margin (%) |
|
|
5.5 |
% |
|
|
8.3 |
% |
|
|
(2.9 |
%) |
|
* |
|
Operating profit ($) |
|
$ |
34.6 |
|
|
$ |
16.7 |
|
|
$ |
17.9 |
|
|
|
107.2 |
% |
Operating profit (%) |
|
|
2.1 |
% |
|
|
2.0 |
% |
|
|
0.1 |
% |
|
* |
|
Deliveries |
|
|
13,000 |
|
|
|
7,200 |
|
|
|
5,800 |
|
|
|
80.6 |
% |
* Not meaningful
Our Manufacturing segment primarily generates revenue from manufacturing a wide range of freight railcars and from the conversion of existing or in-service railcars through our facilities in North America and Europe. We also manufacture a broad range of ocean-going and river barges for transporting merchandise between ports within the United States.
Manufacturing revenue increased $813.4 million or 96.2% for the nine months ended May 31, 2022 compared to the nine months ended May 31, 2021. The increase in revenue was primarily attributed to an 80.6% increase in railcar deliveries. The increase was also due to the additional revenue associated with an increase in steel and other input costs during the nine months ended May 31, 2022, as many of our customer contracts include price escalation provisions when certain of our manufacturing costs increase.
Manufacturing cost of revenue increased $792.8 million or 102.3% for the nine months ended May 31, 2022 compared to the nine months ended May 31, 2021. The increase in cost of revenue was primarily attributed to an 80.6% increase in the volume of railcar deliveries and higher steel and other input costs as well as inefficiencies in our Manufacturing operations in part due to ramping up production during the nine months ended May 31, 2022.
Manufacturing margin as a percentage of revenue decreased 2.9% for the nine months ended May 31, 2022 compared to the nine months ended May 31, 2021. The decrease in margin percentage for the nine months ended May 31, 2022 was primarily attributed to higher costs and inefficiencies in our Manufacturing operations in part due to ramping up production. Many of our customer contracts include price escalation provisions. When certain of our manufacturing costs increase, we are able to increase the sales price to our customers. While this has no impact to our margin dollars, the increase in revenue and cost of sales has a negative impact to our margin as a percentage of revenue. In addition, the margin percentage for nine months ended May 31, 2021 benefited from a $15.8 million favorable resolution of warranty and other loss contingencies associated with our international operations.
Manufacturing operating profit increased $17.9 million for the nine months ended May 31, 2022 compared to the nine months ended May 31, 2021. The increase in operating profit was primarily attributed to an increase in railcar deliveries.
38
Maintenance Services Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
May 31, |
|
|
Increase |
|
|
% |
|
(in millions) |
|
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|
Change |
|
Revenue |
|
$ |
260.5 |
|
|
$ |
218.1 |
|
|
$ |
42.4 |
|
|
|
19.4 |
% |
Cost of revenue |
|
$ |
244.0 |
|
|
$ |
203.4 |
|
|
$ |
40.6 |
|
|
|
20.0 |
% |
Margin (%) |
|
|
6.3 |
% |
|
|
6.7 |
% |
|
|
(0.4 |
%) |
|
* |
|
Operating profit ($) |
|
$ |
10.4 |
|
|
$ |
6.4 |
|
|
$ |
4.0 |
|
|
|
62.5 |
% |
Operating profit (%) |
|
|
4.0 |
% |
|
|
2.9 |
% |
|
|
1.1 |
% |
|
* |
|
* Not meaningful
Our Maintenance Services segment primarily generates revenue from railcar component manufacturing and servicing and from providing railcar maintenance services.
Maintenance Services revenue increased $42.4 million or 19.4% for the nine months ended May 31, 2022 compared to the nine months ended May 31, 2021. The increase was primarily attributed to higher volumes due to increased demand and an increase in scrap metal pricing and volume as we scrap wheels and other components.
Maintenance Services cost of revenue increased $40.6 million or 20.0% for the nine months ended May 31, 2022 compared to the nine months ended May 31, 2021. The increase was primarily due to higher costs associated with an increase in volumes and an increase in material and labor costs.
Maintenance Services margin as a percentage of revenue decreased 0.4% for the nine months ended May 31, 2022 compared to the nine months ended May 31, 2021. The decrease in margin percentage was primarily attributed to higher material and labor costs during the nine months ended May 31, 2022. This was partially offset by an increase in scrap metal pricing.
Maintenance Services operating profit increased $4.0 million or 62.5% for the nine months ended May 31, 2022 compared to the nine months ended May 31, 2021. The increase in operating profit was primarily attributed to higher volumes and an increase in scrap metal pricing. This was partially offset by higher material and labor costs during the nine months ended May 31, 2022.
39
Leasing & Management Services Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
May 31, |
|
|
Increase |
|
|
% |
|
(in millions) |
|
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|
Change |
|
Revenue |
|
$ |
107.4 |
|
|
$ |
85.0 |
|
|
$ |
22.4 |
|
|
|
26.4 |
% |
Cost of revenue |
|
$ |
36.4 |
|
|
$ |
36.8 |
|
|
$ |
(0.4 |
) |
|
|
(1.1 |
%) |
Margin (%) |
|
|
66.1 |
% |
|
|
56.7 |
% |
|
|
9.4 |
% |
|
* |
|
Operating profit ($) |
|
$ |
84.0 |
|
|
$ |
31.7 |
|
|
$ |
52.3 |
|
|
|
165.0 |
% |
Operating profit (%) |
|
|
78.2 |
% |
|
|
37.3 |
% |
|
|
40.9 |
% |
|
* |
|
* Not meaningful
Our Leasing & Management Services segment generates revenue from leasing railcars from our lease fleet which includes GBX Leasing, providing various management services, syndication revenue associated with leases attached to new railcar sales, 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 & Management Services revenue increased $22.4 million or 26.4% for the nine months ended May 31, 2022 compared to the nine months ended May 31, 2021. The increase was primarily attributed to higher syndication revenue from an increase in the volume of new railcar sales with leases attached and higher leasing revenue primarily from additions to our fleet. These were partially offset by a decrease in the sale of railcars which we had purchased from third parties with the intent to resell.
Leasing & Management Services cost of revenue decreased $0.4 million or 1.1% for the nine months ended May 31, 2022 compared to the nine months ended May 31, 2021. The decrease was primarily due to lower volumes of railcars sold that we purchased from third parties. This was partially offset by an increase in costs from the additions to our lease fleet.
Leasing & Management Services margin as a percentage of revenue increased 9.4% for the nine months ended May 31, 2022 compared to the nine months ended May 31, 2021. The increase in margin percentage was primarily attributed to higher syndication activity. In addition, the margin percentage for the nine months ended May 31, 2021 was negatively impacted by higher sales of railcars that we purchased from third parties which have lower margin percentages.
Leasing & Management Services operating profit increased $52.3 million or 165% for the nine months ended May 31, 2022 compared to the nine months ended May 31, 2021. The increase was primarily attributed to a higher net gain on disposition of equipment and higher syndication activity.
40
Selling and Administrative Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
May 31, |
|
|
Increase |
|
|
% |
|
(in millions) |
|
2022 |
|
|
2021 |
|
|
(Decrease) |
|
|
Change |
|
Selling and administrative expense |
|
$ |
156.4 |
|
|
$ |
136.4 |
|
|
$ |
20.0 |
|
|
|
14.7 |
% |
Selling and administrative expense was $156.4 million or 7.7% of revenue for the nine months ended May 31, 2022 compared to $136.4 million or 11.9% of revenue for the prior comparable period. The $20.0 million increase was primarily attributed to higher costs for legal, consulting and travel associated with increased business activity. The increase was also attributed to higher employee related costs.
Net Gain on Disposition of Equipment
Net gain on disposition of equipment primarily 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 accommodate customer demand and to manage risk and liquidity.
Net gain on disposition of equipment was $34.3 million and $0.8 million for the nine months ended May 31, 2022 and 2021, respectively. The increase in Net gain on disposition of equipment was primarily attributed to sales of assets from our lease fleet during the nine months ended May 31, 2022.
Interest and Foreign Exchange
Interest and foreign exchange expense was composed of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
May 31, |
|
|
Increase |
|
(in millions) |
|
2022 |
|
|
2021 |
|
|
(Decrease) |
|
Interest and foreign exchange: |
|
|
|
|
|
|
|
|
|
Interest and other expense |
|
$ |
38.7 |
|
|
$ |
31.3 |
|
|
$ |
7.4 |
|
Foreign exchange (gain) loss |
|
|
0.6 |
|
|
|
(0.4 |
) |
|
|
1.0 |
|
|
|
$ |
39.3 |
|
|
$ |
30.9 |
|
|
$ |
8.4 |
|
The $8.4 million increase in interest and foreign exchange expense for the nine months ended May 31, 2022 compared to the nine months ended May 31, 2021 was primarily attributed to an increase in interest expense from higher levels of borrowings and interest rates.
Net Loss on Extinguishment of Debt
Net loss on extinguishment of debt was $4.8 million for the nine months ended May 31, 2021, which relates to the retirement of $207.1 million of our 2.875% convertible notes due 2024 and $50 million of our 2.25% convertible notes due 2024.
Income Tax
For the nine months ended May 31, 2022, we had income tax expense of $2.9 million on pre-tax income of $17.3 million for an effective tax rate of 17%. 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 by adjustments that are required to be reported in the quarter. Tax expense for the nine months ended May 31, 2022 included net favorable discrete items.
41
For the nine months ended May 31, 2021, we had an income tax benefit of $36.0 million on pre-tax loss of $37.8 million. The tax benefit for the nine months ended May 31, 2021 primarily related to accelerated depreciation and the impact of the CARES Act which allows us to carry back to years when tax rates were higher, resulting in a tax benefit. The tax benefit is derived from the US Federal tax rate differential between the 2016 tax rate of 35% and our current rate of 21%.
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 (loss) before income taxes and earnings from unconsolidated affiliates, whereas only our 50% share of the tax is included in Income tax (expense) benefit.
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 was $10.0 million and $1.3 million for the nine months ended May 31, 2022 and 2021, respectively. The increase was primarily related to higher profitability at our Brazil operations.
Noncontrolling Interest
Net loss attributable to noncontrolling interest was $2.3 million and $1.2 million for the nine months ended May 31, 2022 and 2021, respectively. Net 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.
42
Liquidity and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
May 31, |
|
(in millions) |
|
2022 |
|
|
2021 |
|
Net cash used in operating activities |
|
$ |
(328.4 |
) |
|
$ |
(123.8 |
) |
Net cash used in investing activities |
|
|
(96.1 |
) |
|
|
(49.3 |
) |
Net cash provided by (used in) financing activities |
|
|
199.0 |
|
|
|
(42.0 |
) |
Effect of exchange rate changes |
|
|
19.9 |
|
|
|
9.9 |
|
Decrease in cash and cash equivalents and restricted cash |
|
$ |
(205.6 |
) |
|
$ |
(205.2 |
) |
We have been financed through cash generated from operations and borrowings. At May 31, 2022 cash and cash equivalents and restricted cash were $465.8 million, a decrease of $205.6 million from $671.4 million at August 31, 2021.
Cash Flows From Operating Activities
The change in cash used in operating activities for the nine months ended May 31, 2022 compared to the nine months ended May 31, 2021 was primarily due to a net increase in working capital associated with increased production rates and from higher steel and other input costs.
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 nine months ended May 31, 2022 compared to the nine months ended May 31, 2021 was primarily attributable to an increase in capital expenditures due to additions to our lease fleet as part of our leasing strategy, partially offset by an increase in proceeds from the sale of assets compared to the prior year.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
May 31, |
|
(in millions) |
|
2022 |
|
|
2021 |
|
Capital expenditures: |
|
|
|
|
|
|
Leasing & Management Services |
|
$ |
219.4 |
|
|
$ |
41.6 |
|
Manufacturing |
|
|
25.4 |
|
|
|
14.9 |
|
Maintenance Services |
|
|
4.0 |
|
|
|
6.4 |
|
Total capital expenditures (gross) |
|
$ |
248.8 |
|
|
$ |
62.9 |
|
Proceeds from sales of assets |
|
|
(155.1 |
) |
|
|
(12.2 |
) |
Total capital expenditures (net of proceeds) |
|
$ |
93.7 |
|
|
$ |
50.7 |
|
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 $155 million for 2022.
Capital expenditures for 2022 are expected to be approximately $310 million for Leasing & Management Services, approximately $50 million for Manufacturing and approximately $10 million for Maintenance Services. Capital expenditures for 2022 primarily relate to additions to our lease fleet reflecting our enhanced leasing strategy and continued investments into the safety and productivity of our facilities.
Cash Flows From Financing Activities
The change in cash provided by (used in) financing activities for the nine months ended May 31, 2022 compared to the nine months ended May 31, 2021 was primarily attributed to proceeds from debt, net of repayments. During the nine months ended May 31, 2022 we issued asset backed securities of $323.3 million, and used proceeds to pay down our credit facility for GBX Leasing.
43
Dividend & Share Repurchase Program
A quarterly dividend of $0.27 per share was declared on July 6, 2022.
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, 2023. The amount remaining for repurchase was $100.0 million as of May 31, 2022. 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. There were no shares repurchased under the share repurchase program during the nine months ended May 31, 2022 and 2021.
Cash, Borrowing Availability and Credit Facilities
As of May 31, 2022, we had $449.7 million in Cash and cash equivalents and $85.0 million in available borrowings. Our current cash balance is part of our strategy to maintain strong liquidity to respond to current uncertainties.
Senior secured credit facilities, consisting of four components, aggregated to $1.1 billion as of May 31, 2022. We had an aggregate of $85.0 million available to draw down under committed credit facilities as of May 31, 2022. This amount consists of $34.6 million available on the North American credit facility, $15.4 million on the European credit facilities and $35.0 million on the Mexican credit facilities.
As of May 31, 2022, 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 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 eligible inventory, receivables, property, plant and equipment and leased equipment, as well as total debt to consolidated capitalization and fixed charges coverage ratios.
As of May 31, 2022, a $350.0 million non-recourse warehouse credit facility existed to support the operations of GBX Leasing, a joint venture in which we own approximately 95%. Advances under this facility bear interest at LIBOR plus 2.0%. The warehouse credit facility converts to a term loan in April 2023 and matures in April 2025.
As of May 31, 2022, lines of credit totaling $73.7 million secured by certain of our European assets, with variable rates that range from Warsaw Interbank Offered Rate (WIBOR) plus 1.2% 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 $35.4 million which are guaranteed by us. European credit facilities are regularly renewed. Currently, these European credit facilities have maturities that range from July 2022 through October 2023.
As of May 31, 2022, our Mexican railcar manufacturing operations had four lines of credit totaling $120.0 million for working capital needs. The first line of credit provides up to $30.0 million, of which we and our joint venture partner have each guaranteed 50%. Advances under this facility bear interest at LIBOR plus 3.75% to 4.25%. The Mexican railcar manufacturing joint venture will be able to draw amounts available under this facility through June 2024. The second line of credit provides up to $35.0 million, of which we and our joint venture partner have each guaranteed 50%. Advances under this facility bear interest at LIBOR plus 3.70%. The Mexican railcar manufacturing joint venture will be able to draw amounts available under this facility through June 2023. The third line of credit provides up to $50.0 million and matures in October 2024. Advances under this facility bear interest at LIBOR plus 4.25%. The fourth line of credit provides up to $5.0 million and matures in September 2022. Advances under this facility bear interest at LIBOR plus 2.95%.
44
Credit facility balances:
|
|
|
|
|
|
|
|
|
(in millions) |
|
May 31,
2022 |
|
|
August 31,
2021 |
|
|
|
|
|
|
|
|
North America |
|
$ |
160.0 |
|
|
$ |
160.0 |
|
Mexico |
|
|
85.0 |
|
|
|
15.0 |
|
Europe |
|
|
58.3 |
|
|
|
50.2 |
|
GBX Leasing |
|
|
- |
|
|
|
147.0 |
|
Total Revolving notes |
|
$ |
303.3 |
|
|
$ |
372.2 |
|
Outstanding commitments under the North American credit facility included letters of credit which totaled $6.9 million and $8.4 million as of May 31, 2022 and August 31, 2021, 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 May 31, 2022, 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. Given the strong credit standing of the counterparties, no provision has been made for credit loss due to counterparty non-performance.
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 $408.2 million of variable rate debt to fixed rate debt as of May 31, 2022.
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.
45
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires judgment on the part of management to arrive at estimates and assumptions on matters that are inherently uncertain. These estimates may affect the amount of assets, liabilities, revenue and expenses reported in the financial statements and accompanying notes and disclosure of contingent assets and liabilities within the financial statements. Estimates and assumptions are periodically evaluated and may be adjusted in future periods. Actual results could differ from those estimates.
Income taxes -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 whether a valuation allowance or uncertain tax position is necessary. In making this assessment, management may analyze future taxable income, reversing temporary differences and/or ongoing tax planning strategies. Should a change in circumstances lead to a change in judgment about the realizability of deferred tax assets in future years, the Company would adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income. 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. 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.
46
Goodwill - In accordance with Accounting Standards Codification (ASC) Topic 350, Intangibles–Goodwill and Other (ASC 350), the Company evaluates goodwill for possible impairment annually or more frequently if events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company uses a two-step process to assess the realizability of goodwill. The first step is a qualitative assessment that analyzes current economic indicators associated with a particular reporting unit. If the qualitative assessment indicates a stable or improved fair value, no further testing is required. If a qualitative assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company will proceed to the quantitative second step where the fair value of a reporting unit is calculated based on weighted income and market-based approaches.
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 our annual goodwill impairment test during the third quarter of 2022 and concluded that goodwill was not impaired.
As of May 31, 2022, our goodwill balance was $128.7 million of which $85.7 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 $56.6 million; and the Europe Manufacturing reporting unit with a goodwill balance of $29.1 million.
Pursuant to the authoritative guidance, we make certain judgments and assumptions to determine our reporting units, which determines the carrying values for each reporting unit. Judgments related to qualitative factors include changes in economic considerations, market and industry trends, business strategy, cost factors, and financial performance, among others, to determine if there are indicators of a significant decline in the fair value of a particular reporting unit.
47