GREENBRIER COMPANIES INC Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

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Abstract

We operate in three reportable segments: manufacturing; maintenance services; and Rental and management services. Our segments are operationally integrated. The Manufacturing segment, which currently operates from facilities located in the we,
Mexico, Poland, Romania and Turkey, produces double stack intermodal railcars, tank railcars, conventional railcars, automobile railcar products and ships. The Maintenance Services segment performs wheel and axle maintenance, car maintenance, and produces a variety of parts for the railway industry in
North America. The Leasing & Management Services segment, which includes GBX Leasingowns approximately 11,000 wagons February 28, 2022. We also provide management services for approximately 431,000 railcars for railroads, shippers, carriers, institutional investors and other leasing and transportation companies in North America from February 28, 2022. Through unconsolidated affiliates, we produce railroad and industrial components and have a stake in a railcar manufacturer in Brazil.

In Q1 2022, we renamed two of our reportable segments to better highlight the nature of the customer solutions it offers and the markets in which it operates. The new names of our segments to be presented are Manufacturing (unchanged), Maintenance Services (formerly Wheels, Repair & Parts) and Leasing & Management Services (formerly Leasing & Services). The name changes have no impact on our organization’s reporting structure or previously published financial information. Separately, effective September 1, 2021, we have changed our measurement basis to allocate syndication revenue between the Manufacturing and Leasing and Management Services reportable segments. This measurement change reflects information currently used by management to assess our operating performance in accordance with our refined leasing strategy and has no impact on our total consolidated revenue. Prior period segment results have been restated to conform to the current period presentation.

We identify three general trends impacting our business today, all of which we believe are reflected in our results for the six months ended February 28, 2022. First, we believe the North American freight rail equipment market is beginning to emerge from the cyclical decline in economic activity that began before the emergence of COVID-19. Second, we believe that global economic activity continues to recover from the historic and dramatic sharp decline resulting from the COVID-19 pandemic. Third, secular inflation, sector price volatility, supply chain disruptions and geopolitical unrest require concerted management focus for successful execution across the business. While we believe the current market and broader economic environment will most likely present many positive opportunities for our business, as we navigate the recovery, we face a number of challenges, including:

An increase in the price and shortage of certain materials and components;

Shipping and transportation delays;

Shortages of skilled labour;

Risk of inflation, currency volatility and rising interest rates.

In February 2022the Russian Federation started a military invasion of
Ukraine. As a result of this action, various nations have instituted economic sanctions against Russian Federation. The short and long term implications of Russia invasion of Ukraine and related sanctions are difficult to predict at this time, but may adversely affect global economic markets generally and could exacerbate the existing challenges mentioned above.

As described in Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q, Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended August 31, 2021 and our subsequent quarterly report on Form 10-Q, the items described above may have a material adverse effect on our business, liquidity, results of operations and stock price. Beyond these general observations, we are unable to predict when, how, or to what extent these items will impact our business.



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We believe we have the management expertise and are well positioned to meet the immediate challenges of increasing production rates safely amid emerging COVID variants and geopolitical concerns, while managing the continuity of workforce and supply chain. Despite the challenging operating environment, we achieved the following achievements in the first half of 2022 as we navigate the recovery phase:

Revenue increased by $534.9 million and 76.6% over the same period last year thanks to an 84.1% increase in railcar deliveries.

Obtained new orders for 14,800 railcars worth approximately $1.6 billion
in the six months ended February 28, 2022.

Increase in our backlog to an estimated value of $3.6 billion from February 28, 2022which is our highest backlog value for about 6 years.

In February 2022we completed our first issue of railcar asset-backed securities and long-term financing for GBX Leasing.

In October 2021we acquired more than 3,600 railcars, some of which are owned in GBX Leasing. The railcar acquisition advances our strategy to increase the scale of our rental fleet assets.

Growing our global workforce by approximately 20% in a challenging labor market to support higher activity levels.

Our backlog remains strong with railcar deliveries through 2024 and ocean deliveries through 2023. Our railcar backlog was 32,100 units with an estimated value of $3.6 billion from February 28, 2022. Units in the rental backlog may be syndicated to third parties or held in our rental fleet depending on a variety of factors. Multi-year supply agreements are standard practice in the rail industry. A portion of the orders included in the backlog reflects an assumed product mix. Depending on the terms of the orders, the exact composition and prices will be determined in the future, which could have an impact on the order book. Approximately 5% of order backlog units and 4% of estimated order backlog value as of February 28, 2022 was associated with our Brazilian manufacturing operations which are accounted for using the equity method. Maritime order book at February 28, 2022 has been $48 million.

Our railcar and vessel backlog is not necessarily indicative of future operating results. Some pending orders are subject to customary documentation and completion of conditions. Customers may attempt to cancel or modify pending orders. Historically, there has been little variation between the quantity ordered and the quantity actually delivered, although the delivery schedule may change from time to time.



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Three months completed February 28, 2022 Compared to the three months ended February 28, 2021

Overview

Revenue, cost of revenue, margin and operating profit (loss) (operating profit or loss) shown below include amounts from external parties and exclude intersegment activity which is eliminated upon consolidation.

                                                            Three Months Ended
                                                               February 28,
(in millions, except per share amounts)                   2022               2021

Income:

Manufacturing                                         $       555.7      $      201.5
Maintenance Services                                           86.6              71.6
Leasing & Management Services                                  40.5              22.5
                                                              682.8             295.6
Cost of revenue:
Manufacturing                                                 535.0             201.8
Maintenance Services                                           81.7              66.7
Leasing & Management Services                                  11.3               9.5
                                                              628.0             278.0

Margin:

Manufacturing                                                  20.7              (0.3 )
Maintenance Services                                            4.9               4.9
Leasing & Management Services                                  29.2              13.0
                                                               54.8              17.6
Selling and administrative                                     54.7              43.4
Net gain on disposition of equipment                          (25.1 )            (0.1 )
Earnings (loss) from operations                                25.2             (25.7 )
Interest and foreign exchange                                  11.8               9.6
Earnings (loss) before income taxes and earnings
(loss) from
  unconsolidated affiliates                                    13.4             (35.3 )
Income tax (expense) benefit                                   (3.2 )            21.8

Profit (loss) before profit (loss) of

  unconsolidated affiliates                                    10.2             (13.5 )
Earnings (loss) from unconsolidated affiliates                  1.0              (0.4 )
Net earnings (loss)                                            11.2             (13.9 )
Net loss attributable to noncontrolling interest                1.6               4.8

Net income (loss) attributable to Greenbrier $12.8 $(9.1)
Diluted earnings (loss) per common share

              $        0.38      $      (0.28 )



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.

                                  Three Months Ended
                                     February 28,
(in millions)                      2022          2021
Operating profit (loss):
Manufacturing                   $      1.8      $ (17.8 )
Maintenance Services                   2.9          2.4
Leasing & Management Services         47.6          7.0
Corporate                            (27.1 )      (17.3 )
                                $     25.2      $ (25.7 )





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