GREENBRIER COMPANIES INC - Quarter Report: 2023 May (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarterly period ended May 31, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from ______ to ______

Commission File No. 1-13146

THE GREENBRIER COMPANIES, INC.

(Exact name of registrant as specified in its charter)


Oregon	93-0816972
(State of Incorporation)	(I.R.S. Employer Identification No.)
One Centerpointe Drive, Suite 200, Lake Oswego, OR	97035
(Address of principal executive offices)	(Zip Code)

(503) 684-7000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock without par value	GBX	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

The number of shares of the registrant’s common stock, without par value, outstanding on June 26, 2023 was 30,883,231 shares.

FORM 10-Q

Table of Contents


		Page
	Forward-Looking Statements	3
PART I.	FINANCIAL INFORMATION	5
Item 1.	Condensed Consolidated Financial Statements	5
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Income	6
	Condensed Consolidated Statements of Comprehensive Income	7
	Condensed Consolidated Statements of Equity	8
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4.	Controls and Procedures	45
PART II.	OTHER INFORMATION	47
Item 1.	Legal Proceedings	47
Item 1A.	Risk Factors	47
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 6.	Exhibits	48
	Signatures	49

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements, other than statements of historical fact included in this report, concerning our plans, objectives, goals, strategies, future events, future performance, financing needs, plans or intentions relating to business trends and other information referred to under "Management's Discussion and Analysis of Financial Condition and Results of Operations" are forward-looking statements. We use words such “affect,” “anticipate,” “backlog,” “believe,” “can,” “continue,” “could,” “due to,” “estimate,” “expect,” “future,” “identify,” “intend,” “likely,” “may,” “optimism,” “potential,” “trend,” “realize,” “seek,” “should,” “strategy,” “will,” “would,” and similar expressions to identify forward-looking statements. Forward-looking statements are not guarantees of future performance.

Forward-looking statements are based on our current expectations and beliefs and on currently available operating, financial and market information and are subject to various risks and uncertainties, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations and beliefs are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that our expectations or beliefs will result or be achieved and actual future results and trends may differ materially from what is expressed in or indicated by the forward-looking statements.

There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from the forward-looking statements contained in this report. Such risks, uncertainties and important factors include but are not limited to the following:

•

an economic downturn or economic uncertainty;

•

price volatility for supplies to our business as well as goods and services in our industry;

•

mismatch of supply and demand, interruptions of supply lines, inefficient or overloaded logistics platforms, among other factors which may cause the markets for the inputs to our business to fail to operate effectively or efficiently;

•

inflation, including wage inflation and a rise in prices for energy and other inputs;

•

monetary and other policy interventions by governments and central banks, including the increase of interest rates;

•

shortages of skilled labor, increased labor costs, or a failure to maintain good relations with our workforce;

•

impacts from international conflicts or other geopolitical events, including the war in Ukraine;

•

changes in demand for our railcar equipment and services;

•

equipment failures, technological failures, costs and inefficiencies associated with changing of production lines, or transfer of production between facilities;

•

the COVID-19 coronavirus pandemic, the governmental reaction to COVID-19 and the related significant global volatility in general economic activity;

•

being prevented from operating our manufacturing facilities, maintenance shops, wheel shops or other worksites due to the illness of our employees, “stay-at-home” regulations, and employee reluctance to appear for work for many different reasons including the implementation of any government-imposed vaccination or testing mandates;

•

changes in our product mix or revenue due to shifts in demand;

•

the cyclical nature of our business;

•

the loss of, or reduction of, business from one or more of our limited number of customers;

•

our ability to realize the anticipated benefits of our enhanced leasing strategy;

•

a decline in performance, or increase in efficiency, of the rail freight industry;

•

risks related to our operations outside of the United States (U.S.) including enforcement actions by regulators related to tax, environmental, labor, safety, or other regulations;

•

governmental policy changes impacting international trade and corporate tax;

•

a material delay in the movement of our products to customer delivery points; and

•

our inability to lease railcars at satisfactory rates, remarket leased railcars on favorable terms upon lease termination, or realize the expected residual values for end of life railcars due to changes in scrap prices.

There may be other factors that may cause our actual results to differ materially from the forward-looking statements, including the risks, uncertainties and factors described in more detail in Part I Item 1A “Risk Factors” in our most recent Annual Report on Form 10-K and our subsequent Quarterly Reports on Form 10-Q which are incorporated herein by reference. You should evaluate all forward-looking statements made in this report in the context of these risks, uncertainties and factors. You are cautioned not to place undue reliance on any forward-looking statements, which reflect management’s opinions only as of the date hereof. Except as otherwise required by law, we do not assume any obligation to update any forward-looking statements.

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets

(In millions, except number of shares which are reflected in thousands, unaudited)


	May 31, 2023			August 31, 2022
Assets
Cash and cash equivalents	$	321.4		$	543.0
Restricted cash		20.1			16.1
Accounts receivable, net		533.6			501.2
Income tax receivable		29.8			39.8
Inventories		888.0			815.3
Leased railcars for syndication		119.4			111.1
Equipment on operating leases, net		941.0			770.9
Property, plant and equipment, net		600.4			645.2
Investment in unconsolidated affiliates		86.4			92.5
Intangibles and other assets, net		253.3			189.1
Goodwill		128.3			127.3
	$	3,921.7		$	3,851.5
Liabilities and Equity
Revolving notes	$	280.0		$	296.6
Accounts payable and accrued liabilities		741.6			725.1
Deferred income taxes		88.3			68.6
Deferred revenue		56.6			35.3
Notes payable, net		1,320.3			1,269.1

Commitments and contingencies (Note 16)

Contingently redeemable noncontrolling interest		54.1			27.7

Equity:
Greenbrier
Preferred stock - without par value; 25,000 shares authorized; none outstanding		—			—
Common stock - without par value; 50,000 shares authorized; 31,111 and 32,603 shares outstanding at May 31, 2023 and August 31, 2022		—			—
Additional paid-in capital		374.1			424.8
Retained earnings		882.2			897.7
Accumulated other comprehensive loss		(23.6	)		(45.6	)
Total equity – Greenbrier		1,232.7			1,276.9
Noncontrolling interest		148.1			152.2
Total equity		1,380.8			1,429.1
	$	3,921.7		$	3,851.5

The accompanying notes are an integral part of these financial statements

Condensed Consolidated Statements of Income

(In millions, except number of shares which are reflected in thousands and per share amounts, unaudited)


	Three Months Ended May 31,						Nine Months Ended May 31,
	2023			2022			2023			2022
Revenue
Manufacturing	$	870.2		$	650.9		$	2,485.3		$	1,659.1
Maintenance Services		122.9			101.5			306.4			260.5
Leasing & Management Services		45.0			41.1			134.9			107.4
		1,038.1			793.5			2,926.6			2,027.0
Cost of revenue
Manufacturing		786.5			611.3			2,292.2			1,567.9
Maintenance Services		109.8			91.1			279.0			244.0
Leasing & Management Services		13.7			14.8			41.0			36.4
		910.0			717.2			2,612.2			1,848.3
Margin		128.1			76.3			314.4			178.7
Selling and administrative expense		63.3			57.4			175.7			156.4
Net gain on disposition of equipment		(2.3	)		(0.7	)		(15.2	)		(34.3	)
Asset impairment, disposal, and exit costs		16.4			—			40.6			—
Earnings from operations		50.7			19.6			113.3			56.6
Other costs
Interest and foreign exchange		22.8			14.9			64.0			39.3
Earnings before income tax and earnings from unconsolidated affiliates		27.9			4.7			49.3			17.3
Income tax expense		(3.6	)		(1.1	)		(11.7	)		(2.9	)
Earnings before earnings from unconsolidated affiliates		24.3			3.6			37.6			14.4
Earnings from unconsolidated affiliates		2.4			4.0			8.6			10.0
Net earnings		26.7			7.6			46.2			24.4
Net (earnings) loss attributable to noncontrolling interest		(5.4	)		(4.5	)		(8.5	)		2.3
Net earnings attributable to Greenbrier	$	21.3		$	3.1		$	37.7		$	26.7
Basic earnings per common share	$	0.67		$	0.10		$	1.17		$	0.82
Diluted earnings per common share	$	0.64		$	0.09		$	1.13		$	0.79
Weighted average common shares:
Basic		31,757			32,588			32,346			32,560
Diluted		33,571			33,661			33,344			33,626

The accompanying notes are an integral part of these financial statements

Condensed Consolidated Statements of Comprehensive Income

(In millions, unaudited)


	Three Months Ended May 31,						Nine Months Ended May 31,
	2023			2022			2023			2022
Net earnings	$	26.7		$	7.6		$	46.2		$	24.4

Other comprehensive income (loss)
Translation adjustment		6.0			2.2			16.9			(7.4	)
Reclassification of derivative financial instruments recognized in net earnings1		(2.7	)		1.5			(4.8	)		3.8
Unrealized gain (loss) on derivative financial instruments2		(5.2	)		13.1			9.8			10.7
Other (net of tax effect)		—			—			0.1			0.1
		(1.9	)		16.8			22.0			7.2
Comprehensive income		24.8			24.4			68.2			31.6
Comprehensive (income) loss attributable to noncontrolling interest		(5.4	)		(4.6	)		(8.5	)		2.2
Comprehensive income attributable to Greenbrier	$	19.4		$	19.8		$	59.7		$	33.8

1 Net of tax effect of $1.2 million and ($0.7 million) for the three months ended May 31, 2023 and May 31, 2022 and $2.2 million and ($1.4 million) for the nine months ended May 31, 2023 and May 31, 2022.

2 Net of tax effect of ($1.2 million) and ($4.5 million) for the three months ended May 31, 2023 and May 31, 2022 and ($8.0 million) and ($4.3 million) for the nine months ended May 31, 2023 and May 31, 2022.

The accompanying notes are an integral part of these financial statements

Condensed Consolidated Statements of Equity

(In millions, except per share amounts, unaudited)


	Attributable to Greenbrier
	Common Stock Shares			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Equity - Greenbrier			Noncontrolling Interest			Total Equity			Contingently Redeemable Noncontrolling Interest
Balance August 31, 2022		32.6		$	424.8		$	897.7		$	(45.6	)	$	1,276.9		$	152.2		$	1,429.1		$	27.7
Net earnings		—			—			37.7			—			37.7			8.4			46.1			0.1
Other comprehensive income, net		—			—			—			22.0			22.0			—			22.0			—
Noncontrolling interest adjustments		—			(7.9	)		(26.3	)		—			(34.2	)		(1.6	)		(35.8	)		26.3
Joint venture partner distribution declared		—			—			—			—			—			(10.9	)		(10.9	)		—
Restricted stock awards (net of cancellations)		0.2			8.9			—			—			8.9			—			8.9			—
Unamortized restricted stock		—			(11.1	)		—			—			(11.1	)		—			(11.1	)		—
Stock based compensation expense		—			8.8			—			—			8.8			—			8.8			—
Repurchase of stock		(1.7	)		(49.4	)		—			—			(49.4	)		—			(49.4	)		—
Cash dividends ($0.81 per share)		—			—			(26.9	)		—			(26.9	)		—			(26.9	)		—
Balance May 31, 2023		31.1		$	374.1		$	882.2		$	(23.6	)	$	1,232.7		$	148.1		$	1,380.8		$	54.1


	Attributable to Greenbrier
	Common Stock Shares			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Equity - Greenbrier			Noncontrolling Interest			Total Equity			Contingently Redeemable Noncontrolling Interest
Balance February 28, 2023		32.3		$	403.0		$	896.0		$	(21.7	)	$	1,277.3		$	144.6		$	1,421.9		$	27.5
Net earnings		—			—			21.3			—			21.3			5.1			26.4			0.3
Other comprehensive income, net		—			—			—			(1.9	)		(1.9	)		—			(1.9	)		—
Noncontrolling interest adjustments		—			—			(26.3	)		—			(26.3	)		0.4			(25.9	)		26.3
Joint venture partner distribution declared		—			—			—			—			—			(2.0	)		(2.0	)		—
Restricted stock awards (net of cancellations)		—			(0.1	)		—			—			(0.1	)		—			(0.1	)		—
Unamortized restricted stock		—			0.3			—			—			0.3			—			0.3			—
Stock based compensation expense		—			2.9			—			—			2.9			—			2.9			—
Repurchase of stock		(1.2	)		(32.0	)		—			—			(32.0	)		—			(32.0	)		—
Cash dividends ($0.27 per share)		—			—			(8.8	)		—			(8.8	)		—			(8.8	)		—
Balance May 31, 2023		31.1		$	374.1		$	882.2		$	(23.6	)	$	1,232.7		$	148.1		$	1,380.8		$	54.1


	Attributable to Greenbrier
	Common Stock Shares		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Equity - Greenbrier			Noncontrolling Interest			Total Equity			Contingently Redeemable Noncontrolling Interest
Balance August 31, 2021		32.4	$	469.7		$	881.7		$	(43.7	)	$	1,307.7		$	168.7		$	1,476.4		$	29.7
Cumulative effect adjustment due to adoption of ASU 2020-06		—		(58.9	)		4.9			—			(54.0	)		—			(54.0	)		—
Net earnings		—		—			26.7			—			26.7			(0.4	)		26.3			(1.9	)
Other comprehensive income, net		—		—			—			7.1			7.1			0.1			7.2			—
Noncontrolling interest adjustments		—		2.2			—			—			2.2			(1.5	)		0.7			—
Joint venture partner distribution declared		—		—			—			—			—			(10.1	)		(10.1	)		—
Restricted stock awards (net of cancellations)		0.2		11.9			—			—			11.9			—			11.9			—
Unamortized restricted stock		—		(15.3	)		—			—			(15.3	)		—			(15.3	)		—
Stock based compensation expense		—		10.9			—			—			10.9			—			10.9			—
Cash dividends ($0.81 per share)		—		—			(26.8	)		—			(26.8	)		—			(26.8	)		—
Balance May 31, 2022		32.6	$	420.5		$	886.5		$	(36.6	)	$	1,270.4		$	156.8		$	1,427.2		$	27.8


	Attributable to Greenbrier
	Common Stock Shares		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Equity - Greenbrier			Noncontrolling Interest			Total Equity			Contingently Redeemable Noncontrolling Interest
Balance February 28, 2022		32.6	$	413.4		$	892.5		$	(53.3	)	$	1,252.6		$	154.1		$	1,406.7		$	28.5
Cumulative effect adjustment due to adoption of ASU 2020-06		—		(0.1	)		—			—			(0.1	)		—			(0.1	)		—
Net earnings		—		—			3.1			—			3.1			5.2			8.3			(0.7	)
Other comprehensive income, net		—		—			—			16.7			16.7			0.1			16.8			—
Noncontrolling interest adjustments		—		2.2			—			—			2.2			(0.9	)		1.3			—
Joint venture partner distribution declared		—		—			—			—			—			(1.7	)		(1.7	)		—
Stock based compensation expense		—		5.0			—			—			5.0			—			5.0			—
Cash dividends ($0.27 per share)		—		—			(9.1	)		—			(9.1	)		—			(9.1	)		—
Balance May 31, 2022		32.6	$	420.5		$	886.5		$	(36.6	)	$	1,270.4		$	156.8		$	1,427.2		$	27.8

The accompanying notes are an integral part of these financial statements

Condensed Consolidated Statements of Cash Flows

(In millions, unaudited)


	Nine Months Ended May 31,
	2023			2022
Cash flows from operating activities
Net earnings	$	46.2		$	24.4
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Deferred income taxes		(18.4	)		16.9
Depreciation and amortization		79.8			75.9
Net gain on disposition of equipment		(15.2	)		(34.3	)
Stock based compensation expense		8.8			10.9
Asset impairment, disposal, and exit costs		40.6			—
Noncontrolling interest adjustments		2.8			0.7
Other		2.8			3.4
Decrease (increase) in assets:
Accounts receivable, net		(16.1	)		(160.3	)
Income tax receivable		10.0			(17.3	)
Inventories		(80.7	)		(224.2	)
Leased railcars for syndication		(57.3	)		(77.6	)
Other assets		(42.9	)		(16.1	)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities		8.3			77.2
Deferred revenue		32.5			(8.0	)
Net cash provided by (used in) operating activities		1.2			(328.4	)
Cash flows from investing activities
Proceeds from sales of assets		76.3			155.1
Capital expenditures		(253.9	)		(248.8	)
Investments in and advances to / repayments from unconsolidated affiliates		(3.5	)		(4.2	)
Cash distribution from unconsolidated affiliates and other		6.3			1.8
Net cash used in investing activities		(174.8	)		(96.1	)
Cash flows from financing activities
Net change in revolving notes with maturities of 90 days or less		(11.5	)		(97.3	)
Proceeds from revolving notes with maturities longer than 90 days		220.0			35.0
Repayments of revolving notes with maturities longer than 90 days		(230.0	)		—
Proceeds from issuance of notes payable		75.0			323.3
Repayments of notes payable		(27.1	)		(15.0	)
Debt issuance costs		(0.2	)		(7.2	)
Repurchase of stock		(48.0	)		—
Dividends		(26.7	)		(26.9	)
Cash distribution to joint venture partner		(8.4	)		(9.4	)
Tax payments for net share settlement of restricted stock		(2.3	)		(3.5	)
Net cash provided by (used in) financing activities		(59.2	)		199.0
Effect of exchange rate changes		15.2			19.9
Decrease in Cash and cash equivalents and Restricted cash		(217.6	)		(205.6	)
Cash and cash equivalents and restricted cash
Beginning of period		559.1			671.4
End of period	$	341.5		$	465.8
Balance sheet reconciliation
Cash and cash equivalents	$	321.4		$	449.7
Restricted cash		20.1			16.1
Total cash and cash equivalents and restricted cash as presented above	$	341.5		$	465.8
Cash paid during the period for
Interest	$	57.1		$	33.3
Income taxes paid, net	$	13.7		$	11.1
Non-cash activity
Transfers between Leased railcars for syndication and Inventories and Equipment on operating leases, net	$	40.0		$	13.0
Capital expenditures accrued in Accounts payable and accrued liabilities	$	3.2		$	5.7
Change in Accounts payable and accrued liabilities associated with dividends declared	$	0.2		$	(0.1	)
Change in Accounts payable and accrued liabilities associated with cash distributions to joint venture partner	$	2.5		$	0.6
Repurchase of stock accrued in Accounts payable and accrued liabilities	$	1.4		$	—

The accompanying notes are an integral part of these financial statements

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1 – Interim Financial Statements

The Condensed Consolidated Financial Statements of The Greenbrier Companies, Inc. and its subsidiaries (Greenbrier or the Company) as of May 31, 2023 and for the three and nine months ended May 31, 2023 and 2022 have been prepared to reflect all adjustments (consisting of normal recurring accruals) that, in the opinion of management, are necessary for a fair presentation of the financial position, operating results and cash flows for the periods indicated. All references to years refer to the fiscal years ended August 31st unless otherwise noted. The results of operations for the three and nine months ended May 31, 2023 are not necessarily indicative of the results to be expected for the entire year ending August 31, 2023.

Certain notes and other information have been condensed or omitted from the interim financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these unaudited financial statements should be read in conjunction with the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended August 31, 2022.

Management Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (GAAP) 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.

Share Repurchase Program – The Board of Directors has authorized the Company to repurchase in aggregate up to $100.0 million of the Company’s common stock. The program may be modified, suspended, or discontinued at any time without prior notice. 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 share repurchase program does not obligate the Company to acquire any specific number of shares in any period. The prior authorization was set to expire on January 31, 2023. On January 5, 2023, the Board of Directors authorized the extension of the existing share repurchase program to January 31, 2025.

During the three and nine months ended May 31, 2023, the Company purchased a total of 1.2 million and 1.7 million shares for $32.0 million and $49.4 million, respectively, of which 1.6 million shares for $46.1 million were purchased under the current authorization of the share repurchase program. As of May 31, 2023, the amount remaining for repurchase under the share repurchase program was $53.9 million. There were no shares repurchased under the share repurchase program during the nine months ended May 31, 2022.

Note 2 – Revenue Recognition

Contract balances

Contract assets primarily consist of work completed for railcar maintenance but not billed at the reporting date. Contract liabilities primarily consist of customer prepayments for manufacturing and other management-type services, for which the Company has not yet satisfied the related performance obligations. Contract assets in the August 31, 2022 balance also included unbilled receivables on marine vessel construction for which the respective contracts do not yet permit billing at the reporting date.

The contract balances are as follows:


(in millions)	Balance sheet classification	May 31, 2023		August 31, 2022		$ change
Contract assets (1)	Accounts Receivable	$	—	$	13.0	$	(13.0	)
Contract assets	Inventories		7.9		6.0	$	1.9
Contract liabilities (1) (2)	Deferred revenue		54.5		30.5	$	24.0

(1) Balance includes contract assets and liabilities associated with Gunderson Marine which was disposed of in May 2023. See Note 4 for further discussion.

(2) Contract liabilities balance includes deferred revenue within the scope of Revenue from Contracts with Customers (Topic 606).

For the three and nine months ended May 31, 2023, the Company recognized $2.7 million and $12.6 million of revenue, respectively that was included in Contract liabilities as of August 31, 2022.

Performance obligations

As of May 31, 2023, the Company has entered into contracts with customers for which revenue has not yet been recognized. The following table outlines estimated revenue related to performance obligations wholly or partially unsatisfied, that the Company anticipates will be recognized in future periods.


(in millions)	May 31, 2023
Revenue type:
Manufacturing – Railcar sales	$	2,029.9
Manufacturing – Sustainable conversions	$	87.6
Management services	$	139.5
Other	$	10.0

Based on current production and delivery schedules and existing contracts, approximately $1.9 billion of Railcar sales are expected to be recognized in 2023 and 2024.

Sustainable conversions represent orders to modernize existing railcars and are expected to be recognized through 2023.

Management services includes management and maintenance services of which approximately 52% are expected to be performed through 2027 and the remaining amount through 2037.

Note 3 – Inventories

Inventories are valued at the lower of cost or net realizable value using the first-in first-out method. Work-in-process includes material, labor and overhead. Finished goods includes completed wheels, parts and railcars not on lease or in transit. The following table summarizes the Company’s inventory balance:


(in millions)	May 31, 2023			August 31, 2022
Manufacturing supplies and raw materials	$	710.6		$	570.2
Work-in-process		108.4			183.3
Finished goods		85.0			75.9
Excess and obsolete adjustment		(16.0	)		(14.1	)
	$	888.0		$	815.3

Note 4 – Gunderson Facility

On November 17, 2022, as part of the Company's strategic review of the global business capacity footprint, the Company decided to permanently cease rail production at the Gunderson Facility and to explore alternatives to exit marine barge production. Due to the change in future use of the facility, management assessed recoverability of Gunderson assets in accordance with the Company’s policy on impairment of long-lived assets. Based on an analysis of future undiscounted cash flows associated with these assets, management determined that the carrying value was not recoverable. The carrying amount of the Company’s long-lived assets at the Gunderson Facility was $44.0 million and the fair value was $19.8 million as of the impairment date. The fair value was primarily determined based on estimated market prices of the assets and represented a Level 3 valuation in the fair value hierarchy. In the first quarter of 2023, the Company concluded that an impairment charge was necessary and $24.2 million was recorded in the Manufacturing segment as Asset impairment, disposal and exit costs within the Condensed Consolidated Statements of Income.

In May 2023, the Company sold its ownership interest in Gunderson Marine and the Portland Property (the Gunderson Facility) and recorded a $14.3 million loss on sale. The Company also permanently ceased rail production at the Gunderson Facility in May 2023 and incurred $2.1 million of severance. The $14.3 million loss on sale and $2.1 million of severance are recorded within the Manufacturing segment as Asset impairment, disposal and exit costs

within the Condensed Consolidated Statements of Income for the three months ended May 31, 2023. A total of $40.6 million was recorded within the Manufacturing segment as Asset impairment, disposal and exit costs within the Condensed Consolidated Statements of Income for the nine months ended May 31, 2023, which includes the $24.2 million impairment of long-lived assets, $14.3 million loss on sale, and $2.1 million of severance.

Note 5 – Intangibles and Other Assets, net

Intangible assets that are determined to have finite lives are amortized over their useful lives. Intangible assets with indefinite useful lives are not amortized and are periodically evaluated for impairment.

The following table summarizes the Company’s identifiable Intangible and other assets balance:


(in millions)	May 31, 2023			August 31, 2022
Intangible assets subject to amortization:
Customer relationships	$	87.5		$	87.5
Accumulated amortization		(68.4	)		(66.1	)
Other intangibles		42.5			42.4
Accumulated amortization		(20.6	)		(16.5	)
		41.0			47.3
Intangible assets not subject to amortization		2.4			2.4
Prepaid and other assets		47.5			32.4
Operating lease ROU assets		74.3			54.2
Nonqualified savings plan investments		43.8			40.3
Debt issuance costs, net		6.3			8.7
Assets held for sale		0.3			3.8
Deferred tax assets		37.7			—
	$	253.3		$	189.1

Amortization expense was $2.0 million and $6.0 million for the three and nine months ended May 31, 2023, respectively and $1.9 million and $7.3 million for the three and nine months ended May 31, 2022, respectively. Amortization expense for the years ending August 31, 2023, 2024, 2025, 2026 and 2027 is expected to be $8.3 million, $7.7 million, $6.5 million, $6.1 million and $5.3 million, respectively.

Note 6 – Goodwill

The Company performed its annual goodwill impairment test during the third quarter. The Company determined the fair value of the reporting units considering both the income and market approaches. Under the income approach, the Company calculates 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, the Company estimates the fair value based on observed market multiples for comparable businesses, when appropriate. Based on the results of the annual goodwill impairment test, the fair values of the reporting units exceeded their carrying values and the Company concluded that goodwill was not impaired.

As of May 31, 2023, the goodwill balance was $128.3 million of which $85.3 million related to the Manufacturing segment and $43.0 million related to the Maintenance Services segment. The 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 $29.0 million.

As part of the Company’s annual goodwill impairment test, the fair value of the Europe Manufacturing reporting unit indicated an increase in the maximum redemption amount of the Contingently redeemable noncontrolling interest in Greenbrier-Astra Rail. The increase in fair value is primarily attributed to the impact of industry and entity-specific indicators which positively impacted the estimated future cash flows of Greenbrier-Astra Rail. During the three and nine months ended May 31, 2023, the Company recorded a noncash $26.3 million redemption value adjustment to Contingently redeemable noncontrolling interest and Retained earnings to record the carrying value at the maximum redemption amount, which represented a Level 3 valuation within the fair value hierarchy.

Note 7 – Revolving Notes

Senior secured credit facilities aggregated to $1.1 billion as of May 31, 2023. The Company had an aggregate of $344.1 million available to draw down under committed credit facilities as of May 31, 2023. This amount consists of $281.4 million available on the North American credit facility, $32.7 million on the European credit facilities and $30.0 million on the Mexican credit facilities.

North America – As of May 31, 2023, a $600.0 million revolving line of credit, maturing August 2026, secured by substantially all the Company’s 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 the Company’s U.S. and Mexican operations. Advances under this North American credit facility bear interest at SOFR plus 1.75% plus 0.10% as a SOFR adjustment or Prime plus 0.75% 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.

GBX Leasing – As of May 31, 2023, a $350.0 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. The warehouse credit facility converts to a term loan in August 2025 and matures in August 2027.

Europe – As of May 31, 2023, lines of credit totaling $73.4 million secured by certain of the Company’s European assets, with variable rates that range from Warsaw Interbank Offered Rate (WIBOR) plus 1.2% to WIBOR plus 1.6% and Euro Interbank Offered Rate (EURIBOR) plus 1.1% to EURIBOR plus 1.5%, were available for working capital needs of the Company’s European manufacturing operations. The European lines of credit include $35.3 million which is guaranteed by the Company. European credit facilities are regularly renewed. Currently, these European credit facilities have maturities that range from July 2023 through September 2024.

Mexico – As of May 31, 2023, the Company’s Mexican railcar manufacturing operations had three lines of credit totaling $120.0 million for working capital needs. The first 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 second line of credit provides up to $40.0 million, of which the Company and its joint venture partner have each guaranteed 50%. Advances under this facility bear interest at SOFR plus 2.55%. The Mexican railcar manufacturing joint venture will be able to draw amounts available under this facility through February 2025. The third line of credit provides up to $30.0 million, of which the Company and its 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.

Revolving notes consisted of the following balances:


(in millions)	May 31, 2023		August 31, 2022
North America	$	30.0	$	160.0
GBX Leasing		119.3		—
Europe		40.7		51.6
Mexico		90.0		85.0
	$	280.0	$	296.6

Outstanding commitments under the North American credit facility included letters of credit which totaled $4.9 million and $6.9 million as of May 31, 2023 and August 31, 2022, respectively.

Note 8 – Accounts Payable and Accrued Liabilities


(in millions)	May 31, 2023		August 31, 2022
Trade payables	$	400.6	$	401.5
Accrued liabilities and other		96.7		102.8
Operating lease liabilities		75.9		56.4
Accrued payroll and related liabilities		143.0		140.4
Accrued warranty		25.4		24.0
	$	741.6	$	725.1

Note 9 – Warranty Accruals

Warranty costs are estimated and charged to operations to cover a defined warranty period. The estimated warranty cost is based on the history of warranty claims for each particular product type. For new product types without a warranty history, preliminary estimates are based on historical information for similar product types. The warranty accruals, included in Accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheets, are reviewed periodically and updated based on warranty trends and expirations of warranty periods.

Warranty accrual activity:


	Three Months Ended May 31,						Nine Months Ended May 31,
(in millions)	2023			2022			2023			2022
Balance at beginning of period	$	24.5		$	30.1		$	24.0		$	27.9
Charged to cost of revenue, net		2.8			1.7			5.7			7.6
Payments		(2.0	)		(3.1	)		(4.6	)		(6.4	)
Currency translation effect		0.1			(0.2	)		0.3			(0.6	)
Balance at end of period	$	25.4		$	28.5		$	25.4		$	28.5

Note 10 – Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss, net of tax effect as appropriate, consisted of the following:


(in millions)	Unrealized Gain (Loss) on Derivative Financial Instruments			Foreign Currency Translation Adjustment			Other			Accumulated Other Comprehensive Loss
Balance, August 31, 2022	$	13.0		$	(57.4	)	$	(1.2	)	$	(45.6	)
Other comprehensive gain before reclassifications		9.8			16.9			0.1			26.8
Amounts reclassified from Accumulated other comprehensive loss		(4.8	)		—			—			(4.8	)
Balance, May 31, 2023	$	18.0		$	(40.5	)	$	(1.1	)	$	(23.6	)

The amounts reclassified out of Accumulated other comprehensive loss into the Condensed Consolidated Statements of Income, with financial statement caption, were as follows:


	Three Months Ended May 31,
(in millions)	2023			2022			Financial Statement Caption
(Gain) loss on derivative financial instruments:
Foreign exchange contracts	$	(0.5	)	$	0.5		Revenue and Cost of revenue
Interest rate swap contracts		(3.4	)		1.7		Interest and foreign exchange
		(3.9	)		2.2		Total before tax
		1.2			(0.7	)	Income tax (benefit) expense
	$	(2.7	)	$	1.5		Net of tax


	Nine Months Ended May 31,
(in millions)	2023			2022			Financial Statement Caption
(Gain) loss on derivative financial instruments:
Foreign exchange contracts	$	(0.2	)	$	0.9		Revenue and Cost of revenue
Interest rate swap contracts		(6.8	)		4.3		Interest and foreign exchange
		(7.0	)		5.2		Total before tax
		2.2			(1.4	)	Income tax (benefit) expense
	$	(4.8	)	$	3.8		Net of tax

Note 11 – Earnings Per Share

The shares used in the computation of basic and diluted earnings per common share are reconciled as follows:


	Three Months Ended May 31,				Nine Months Ended May 31,
(In thousands)	2023		2022		2023		2022
Weighted average basic common shares outstanding (1)		31,757		32,588		32,346		32,560
Dilutive effect of 2.875% convertible notes due 2024 (2)		822		—		—		—
Dilutive effect of 2.875% convertible notes due 2028 (3)		—		—		—		—
Dilutive effect of restricted stock units (4)		992		1,073		998		1,066
Weighted average diluted common shares outstanding		33,571		33,661		33,344		33,626

(1) Restricted stock grants and restricted stock units that are considered participating securities, including some grants subject to certain performance criteria, are included in weighted average basic common shares outstanding when the Company is in a net earnings position.

(2) The dilutive effect of the 2.875% Convertible notes due 2024 was excluded for the three months ended May 31, 2022 and nine months ended May 31, 2023 and 2022 as they were considered anti-dilutive under the “if converted” method as further discussed below.

(3) The dilutive effect of the 2.875% Convertible notes due 2028 was excluded for the three and nine months ended May 31, 2023 and 2022 as the average stock price was less than the applicable conversion price and therefore was considered anti-dilutive. As these notes require cash settlement for the principal, only a premium is potentially dilutive under the "if converted" method as further discussed below.

(4) Restricted stock units that are not considered participating securities and restricted stock units subject to performance criteria, for which actual levels of performance above target have been achieved, are included in weighted average diluted common shares outstanding when the Company is in a net earnings position.

Basic earnings per common share (EPS) is computed by dividing Net earnings attributable to Greenbrier by weighted average basic common shares outstanding, which includes restricted stock grants and restricted stock units that are considered participating securities when the Company is in a net earnings position.

For the three and nine months ended May 31, 2023 and 2022, diluted EPS was calculated using the more dilutive of two methods. The first method includes the dilutive effect, using the treasury stock method, associated with restricted stock units that are not considered participating securities and performance based restricted stock units subject to performance criteria, for which actual levels of performance above target have been achieved. The second method supplements the first by also including the “if converted” effect of the 2.875% Convertible notes due 2024 and shares underlying the 2.875% Convertible notes due 2028, when there is a conversion premium. Under the “if converted” method, debt issuance and interest costs, both net of tax, associated with the convertible notes due 2024 are added back to net earnings and the share count is increased by the shares underlying the convertible notes.


	Three Months Ended May 31,					Nine Months Ended May 31,
(in millions, except shares which are reflected in thousands, and per share amounts)	2023			2022		2023		2022
Net earnings attributable to Greenbrier	$	21.3		$	3.1	$	37.7	$	26.7
Weighted average basic common shares outstanding		31,757			32,588		32,346		32,560
Basic earnings per share	$	0.67		$	0.10	$	1.17	$	0.82

Net earnings attributable to Greenbrier	$	21.3		$	3.1	$	37.7	$	26.7
Add back:
Interest and debt issuance costs on the 2.875% convertible notes due 2024, net of tax		0.3		n/a		n/a		n/a
Earnings before interest and debt issuance costs on the 2.875% convertible notes due 2024	$	21.6		n/a		n/a		n/a
Weighted average diluted common shares outstanding		33,571			33,661		33,344		33,626
Diluted earnings per share	$	0.64	(1)	$	0.09	$	1.13	$	0.79

(1) Diluted earnings per share was calculated as follows:

Earnings before interest and debt issuance costs on the 2.875% convertible notes due 2024

Weighted average diluted common shares outstanding

Note 12 – Stock Based Compensation

The value of stock based compensation awards is amortized as compensation expense from the date of grant through the earlier of the vesting period or in some instances the recipient’s eligible retirement date. Stock based compensation expense consists of restricted stock unit awards.

Stock based compensation expense was $2.9 million and $8.8 million for the three and nine months ended May 31, 2023, respectively and $5.0 million and $10.9 million for the three and nine months ended May 31, 2022, respectively. Compensation expense is recorded in Selling and administrative expense and Cost of revenue on the Condensed Consolidated Statements of Income.

Note 13 – Derivative Instruments

Foreign operations give rise to market risks from changes in foreign currency exchange rates. Foreign currency forward exchange contracts with established financial institutions are utilized to hedge a portion of that risk. Interest rate swap agreements are used to reduce the impact of changes in interest rates on certain current and probable future debt. The Company’s foreign currency forward exchange contracts and interest rate swap agreements are designated as cash flow hedges, and therefore the effective portion of unrealized gains and losses is recorded in Accumulated other comprehensive income.

At May 31, 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 $68.6 million. The fair value of the contracts is included on the Condensed Consolidated Balance Sheets as Accounts payable and accrued liabilities when in a loss position, or as Accounts receivable, net when in a gain position. As the contracts mature at various dates through August 2024, any such gain or loss remaining will be recognized in manufacturing revenue or cost of revenue along with the related transactions. In the event that the underlying transaction does not occur or does not occur in the period designated at the inception of the hedge, the amount classified in accumulated other comprehensive loss would be reclassified to the results of operations in Interest and foreign exchange at the time of occurrence. At May 31, 2023 exchange rates, approximately $1.9 million would be reclassified to revenue or cost of revenue in the next year.

At May 31, 2023, interest rate swap agreements maturing from September 2023 through January 2032 had notional amounts that aggregated to $639.0 million. The fair value of the contracts is included on the Condensed Consolidated Balance Sheets in Accounts payable and accrued liabilities when in a loss position, or in Accounts receivable, net when in a gain position. As interest expense on the underlying debt is recognized, amounts corresponding to the interest rate swap are reclassified from Accumulated other comprehensive loss and charged or credited to interest expense. At May 31, 2023 interest rates, approximately $14.1 million of gain would be reclassified to interest expense in the next year.

Fair Values of Derivative Instruments

(in millions)


	Asset Derivatives					Liability Derivatives
		May 31, 2023		August 31, 2022			May 31, 2023		August 31, 2022
	Balance sheet location	Fair Value		Fair Value		Balance sheet location	Fair Value		Fair Value
Derivatives designated as hedging instruments
Foreign forward exchange contracts	Accounts receivable, net	$	3.5	$	0.6	Accounts payable and accrued liabilities	$	—	$	2.9
Interest rate swap contracts	Accounts receivable, net		25.9		20.8	Accounts payable and accrued liabilities		—		-
		$	29.4	$	21.4		$	—	$	2.9
Derivatives not designated as hedging instruments
Foreign forward exchange contracts	Accounts receivable, net	$	0.4	$	—	Accounts payable and accrued liabilities	$	—	$	0.1

The Effect of Derivative Instruments on the Statements of Income

(in millions)

Three Months Ended May 31, 2023 and 2022


Derivatives in cash flow hedging relationships	Location of gain (loss) recognized in income on derivatives	Gain (loss) recognized in income on derivatives three months ended May 31,
		2023		2022
Foreign forward exchange contract	Interest and foreign exchange	$	0.1	$	0.2


Derivatives in cash flow hedging relationships	Gain (loss) recognized in OCI on derivatives three months ended May 31,					Location of gain (loss) reclassified from accumulated OCI into income	Gain (loss) reclassified from accumulated OCI into income three months ended May 31,					Location of gain (loss) on derivatives (amount excluded from effectiveness testing)	Gain (loss) recognized on derivatives (amount excluded from effectiveness testing) three months ended May 31,
	2023			2022			2023		2022				2023		2022
Foreign forward exchange contracts	$	2.7		$	1.5	Revenue	$	—	$	(0.6	)	Revenue	$	0.6	$	0.3
Foreign forward exchange contracts		0.6			0.8	Cost of revenue		0.5		0.1		Cost of revenue		0.1		0.2
Interest rate swap contracts		(7.2	)		15.2	Interest and foreign exchange		3.4		(1.7	)	Interest and foreign exchange		—		—
	$	(3.9	)	$	17.5		$	3.9	$	(2.2	)		$	0.7	$	0.5

The following table presents the amounts in the Condensed Consolidated Statements of Income in which the effects of the cash flow hedges are recorded and the effects of the cash flow hedge activity on these line items for the three months ended May 31, 2023 and 2022:


	For the Three Months Ended May 31,
	2023				2022
	Total		Amount of gain (loss) on cash flow hedge activity		Total		Amount of gain (loss) on cash flow hedge activity
Revenue	$	1,038.1	$	—	$	793.5	$	(0.6	)
Cost of revenue	$	910.0	$	0.5	$	717.2	$	0.1
Interest and foreign exchange	$	22.8	$	3.4	$	14.9	$	(1.7	)

Nine Months Ended May 31, 2023 and 2022


Derivatives in cash flow hedging relationships	Location of gain (loss) recognized in income on derivatives	Gain (loss) recognized in income on derivatives nine months ended May 31,
		2023			2022
Foreign forward exchange contract	Interest and foreign exchange	$	(0.2	)	$	(0.2	)


Derivatives in cash flow hedging relationships	Gain (loss) recognized in OCI on derivatives nine months ended May 31,					Location of gain (loss) reclassified from accumulated OCI into income	Gain (loss) reclassified from accumulated OCI into income nine months ended May 31,						Location of gain (loss) on derivatives (amount excluded from effectiveness testing)	Gain (loss) recognized on derivatives (amount excluded from effectiveness testing) nine months ended May 31,
	2023		2022				2023			2022				2023		2022
Foreign forward exchange contracts	$	4.7	$	(3.5	)	Revenue	$	(0.9	)	$	(1.0	)	Revenue	$	1.4	$	0.8
Foreign forward exchange contracts		1.7		0.9		Cost of revenue		1.1			0.1		Cost of revenue		0.5		0.6
Interest rate swap contracts		11.8		17.5		Interest and foreign exchange		6.8			(4.3	)	Interest and foreign exchange		—		—
	$	18.2	$	14.9			$	7.0		$	(5.2	)		$	1.9	$	1.4


	For the Nine Months Ended May 31,
	2023					2022
	Total		Amount of gain (loss) on cash flow hedge activity			Total		Amount of gain (loss) on cash flow hedge activity
Revenue	$	2,926.6	$	(0.9	)	$	2,027.0	$	(1.0	)
Cost of revenue	$	2,612.2	$	1.1		$	1,848.3	$	0.1
Interest and foreign exchange	$	64.0	$	6.8		$	39.3	$	(4.3	)

Note 14 – Segment Information

The Company operates in three reportable segments: Manufacturing; Maintenance Services; and Leasing & Management Services.

The accounting policies of the segments are described in the summary of significant accounting policies in the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended August 31, 2022. Performance is evaluated based on Earnings (loss) from operations. 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. The Company does not allocate Interest and foreign exchange or Income tax expense for either external or internal reporting purposes. Intersegment sales and transfers are valued as if the sales or transfers were to third parties. Related revenue and margin are eliminated in consolidation and therefore are not included in consolidated results in the Company’s Consolidated Financial Statements.

The information in the following table is derived directly from the segments’ internal financial reports used for corporate management purposes.

For the three months ended May 31, 2023:


	Revenue								Earnings (loss) from operations
(in millions)	External		Intersegment			Total			External			Intersegment			Total
Manufacturing	$	870.2	$	73.3		$	943.5		$	44.1		$	7.9		$	52.0
Maintenance Services		122.9		11.0			133.9			11.0			—			11.0
Leasing & Management Services		45.0		0.3			45.3			25.9			—			25.9
Eliminations		—		(84.6	)		(84.6	)		—			(7.9	)		(7.9	)
Corporate		—		—			—			(30.3	)		—			(30.3	)
	$	1,038.1	$	—		$	1,038.1		$	50.7		$	—		$	50.7

For the nine months ended May 31, 2023:


	Revenue								Earnings (loss) from operations
(in millions)	External		Intersegment			Total			External			Intersegment			Total
Manufacturing	$	2,485.3	$	214.6		$	2,699.9		$	87.3		$	20.7		$	108.0
Maintenance Services		306.4		25.7			332.1			23.3			—			23.3
Leasing & Management Services		134.9		1.0			135.9			82.2			0.1			82.3
Eliminations		—		(241.3	)		(241.3	)		—			(20.8	)		(20.8	)
Corporate		—		—			—			(79.5	)		—			(79.5	)
	$	2,926.6	$	—		$	2,926.6		$	113.3		$	—		$	113.3

For the three months ended May 31, 2022:


	Revenue								Earnings (loss) from operations
(in millions)	External		Intersegment			Total			External			Intersegment			Total
Manufacturing	$	650.9	$	38.3		$	689.2		$	20.5		$	1.8		$	22.3
Maintenance Services		101.5		8.6			110.1			8.6			—			8.6
Leasing & Management Services		41.1		0.6			41.7			19.2			0.1			19.3
Eliminations		—		(47.5	)		(47.5	)		—			(1.9	)		(1.9	)
Corporate		—		—			—			(28.7	)		—			(28.7	)
	$	793.5	$	—		$	793.5		$	19.6		$	—		$	19.6

For the nine months ended May 31, 2022:


	Revenue								Earnings (loss) from operations
(in millions)	External		Intersegment			Total			External			Intersegment			Total
Manufacturing	$	1,659.1	$	79.5		$	1,738.6		$	34.6		$	2.1		$	36.7
Maintenance Services		260.5		17.4			277.9			10.4			—			10.4
Leasing & Management Services		107.4		1.3			108.7			84.0			0.1			84.1
Eliminations		—		(98.2	)		(98.2	)		—			(2.2	)		(2.2	)
Corporate		—		—			—			(72.4	)		—			(72.4	)
	$	2,027.0	$	—		$	2,027.0		$	56.6		$	—		$	56.6


	Total assets
(in millions)	May 31, 2023		August 31, 2022
Manufacturing	$	1,891.1	$	1,853.9
Maintenance Services		295.1		284.8
Leasing & Management Services		1,325.6		1,152.2
Unallocated, including cash		409.9		560.6
	$	3,921.7	$	3,851.5

Reconciliation of Earnings from operations to Earnings before income tax and earnings from unconsolidated affiliates:


	Three Months Ended May 31,				Nine Months Ended May 31,
(in millions)	2023		2022		2023		2022
Earnings from operations	$	50.7	$	19.6	$	113.3	$	56.6
Interest and foreign exchange		22.8		14.9		64.0		39.3
Earnings before income tax and earnings from unconsolidated affiliates	$	27.9	$	4.7	$	49.3	$	17.3

Note 15 – Leases

Lessor

Equipment on operating leases is reported net of accumulated depreciation of $61.3 million and $48.6 million as of May 31, 2023 and August 31, 2022, respectively. Depreciation expense was $6.9 million and $19.7 million for the three and nine months ended May 31, 2023, respectively and $5.5 million and $15.9 million for the three and nine months ended May 31, 2022, respectively. In addition, certain railcar equipment leased-in by the Company on operating leases is subleased to customers under non-cancelable operating leases with lease terms ranging from one to approximately thirteen years. Operating lease rental revenues included in the Company’s Condensed Consolidated Statements of Income for the three and nine months ended May 31, 2023 was $23.1 million and $66.5 million, respectively, which included $4.0 million and $13.7 million, respectively, of revenue as a result of daily, monthly or car hire utilization arrangements. Operating lease rental revenues included in the Company's Condensed Consolidated Statements of Income for the three and nine months ended May 31, 2022 was $16.0 million and $47.3 million, respectively, which included $3.8 million and $12.3 million, respectively, of revenue as a result of daily, monthly or car hire utilization arrangements.

Aggregate minimum future amounts receivable under all non-cancelable operating leases and subleases at May 31, 2023, will mature as follows:


(in millions)
Remaining three months of 2023	$	20.1
2024		64.9
2025		58.1
2026		51.7
2027		44.4
Thereafter		94.9
	$	334.1

Lessee

The Company leases railcars, real estate, and certain equipment under operating and, to a lesser extent, finance lease arrangements. As of and for the three and nine months ended May 31, 2023 and 2022, finance leases were not a material component of the Company's lease portfolio. The Company’s real estate and equipment leases have remaining lease terms ranging from less than one year to 75 years, with some including options to extend up to 15 years. The Company recognizes a lease liability and corresponding right-of-use (ROU) asset based on the present value of lease payments. To determine the present value of lease payments, as most of its leases do not provide a readily determinable implicit rate, the Company’s incremental borrowing rate is used to discount the lease payments based on information available at lease commencement date. The Company gives consideration to its recent debt issuances as well as publicly available data for instruments with similar characteristics when estimating its incremental borrowing rate.

The components of operating lease costs were as follows:


	Three Months Ended May 31,				Nine Months Ended May 31,
(in millions)	2023		2022		2023		2022
Operating lease expense	$	2.9	$	2.7	$	9.3	$	7.9
Short-term lease expense		2.9		1.1		7.3		3.8
Total	$	5.8	$	3.8	$	16.6	$	11.7

Aggregate minimum future amounts payable under operating leases having initial or remaining non-cancelable terms at May 31, 2023 will mature as follows:


(in millions)
Remaining three months of 2023	$	4.2
2024		15.3
2025		12.6
2026		11.7
2027		8.9
Thereafter		31.5
Total lease payments	$	84.2
Less: Imputed interest		(8.3	)
Total lease obligations	$	75.9

The table below presents additional information related to the Company’s leases:


Weighted average remaining lease term (years):
Operating leases	10.5

Weighted average discount rate:
Operating leases	2.5	%

Supplemental cash flow information related to leases were as follows:


(in millions)	Nine months ended May 31, 2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	9.9
ROU assets obtained in exchange for new operating lease liabilities	$	27.8

Note 16 – Commitments and Contingencies

Portland Harbor Superfund Site

The Company’s former Portland, Oregon manufacturing facility (the Portland Property) is located adjacent to the Willamette River. In December 2000, the U.S. Environmental Protection Agency (EPA) classified portions of the Willamette River bed known as the Portland Harbor, including the portion fronting the Company’s manufacturing facility, as a federal "National Priority List" or "Superfund" site due to sediment contamination (the Portland Harbor Site). The Company and more than 140 other parties have received a "General Notice" of potential liability from the EPA relating to the Portland Harbor Site. The letter advised the Company that it may be liable for the costs of investigation and remediation (which liability may be joint and several with other potentially responsible parties) as well as for natural resource damages resulting from releases of hazardous substances to the site. Ten private and public entities, including the Company (the Lower Willamette Group or LWG), signed an Administrative Order on Consent (AOC) to perform a remedial investigation/feasibility study (RI/FS) of the Portland Harbor Site under EPA oversight, and several additional entities did not sign such consent, but nevertheless contributed financially to the effort. The EPA-mandated RI/FS was produced by the LWG and cost over $110 million during a 17-year period. The Company bore a percentage of the total costs incurred by the LWG in connection with the investigation. The Company’s aggregate expenditure during the 17-year period was not material. Some or all of any such outlay may be recoverable from other responsible parties. The EPA issued its Record of Decision (ROD) for the Portland Harbor Site on January 6, 2017 and accordingly on October 26, 2017, the AOC was terminated.

Separate from the process described above, which focused on the type of remediation to be performed at the Portland Harbor Site and the schedule for such remediation, 96 parties, including the State of Oregon and the federal government, are participating in a non-judicial, mediated allocation process to try to allocate costs associated with remediation of the Portland Harbor Site. The Company will continue to participate in the allocation process. Approximately 110 additional parties signed tolling agreements related to such allocations. On April 23, 2009, the Company and the other AOC signatories filed suit against 69 other parties due to a possible limitations period for some such claims; Arkema Inc. et al v. A & C Foundry Products, Inc. et al, U.S. District Court, District of Oregon, Case #3:09-cv-453-PK. All but 12 of these parties elected to sign tolling agreements and be dismissed without prejudice, and the case has been stayed by the court until January 14, 2025.

The EPA's January 6, 2017 ROD identifies a clean-up remedy that the EPA estimates will take 13 years of active remediation, followed by 30 years of monitoring with an estimated undiscounted cost of $1.7 billion. The EPA typically expects its cost estimates to be accurate within a range of -30% to +50%, but this ROD states that changes in costs are likely to occur. The EPA has identified several Sediment Decision Units within the ROD cleanup area. One of the units, RM9W, includes the nearshore area of the river sediments offshore of the Portland Property as well as downstream of the facility. It also includes a portion of the Portland Property's riverbank. The ROD does not break down total remediation costs by Sediment Decision Unit. The EPA requested that potentially responsible parties enter AOCs during 2019 agreeing to conduct remedial design studies. Some parties have signed AOCs, including one party with respect to RM9W which includes the area offshore of the Portland Property. The Company has not signed an AOC in connection with remedial design, but is assisting in funding a portion of the RM9W remedial design.

The ROD does not address responsibility for the costs of clean-up, nor does it allocate such costs among the potentially responsible parties. Responsibility for funding and implementing the EPA's selected cleanup remedy will be determined at an unspecified later date. Based on the investigation to date, the Company believes that it did not contribute in any material way to contaminants of concern in the river sediments or the damage of natural resources in the Portland Harbor Site and that the damage in the area of the Portland Harbor Site adjacent to the Portland Property precedes the Company’s ownership of the Portland Property. Because these environmental investigations are still underway, sufficient information is currently not available to determine the Company’s liability, if any, for the cost of any required remediation or restoration of the Portland Harbor Site or to estimate a range of potential loss. Based on the results of the pending investigations and future assessments of natural resource damages, the Company may be required to incur costs associated with additional phases of investigation or remedial action, and may be liable for damages to natural resources.

On January 30, 2017 the Confederated Tribes and Bands of Yakama Nation sued 33 parties including the Company as well as the federal government and the State of Oregon for costs it incurred in assessing alleged natural resource damages to the Columbia River from contaminants deposited in Portland Harbor. Confederated Tribes and Bands of

the Yakama Nation v. Air Liquide America Corp., et al., U.S. Court for the District of Oregon Case No. 3i17-CV-00164-SB. The complaint does not specify the amount of damages the plaintiff will seek. The case has been stayed until January 14, 2025.

Oregon Department of Environmental Quality (DEQ) Regulation of Portland Property

The Company entered into a Voluntary Cleanup Agreement with the Oregon Department of Environmental Quality (DEQ) in which the Company agreed to conduct an investigation of whether, and to what extent, past or present operations at the Portland Property may have released hazardous substances into the environment. The Company has also signed an Order on Consent with the DEQ to finalize the investigation of potential onsite sources of contamination that may have a release pathway to the Willamette River. The Company’s aggregate expenditure has not been material, however it could incur significant expenses for remediation. Some or all of any such outlay may be recoverable from other responsible parties.

Sale of Portland Property

The Company sold the Portland Property in May 2023, but remains potentially liable with respect to the above matters. Any of these matters could adversely affect the Company's business and Consolidated Financial Statements. However, any contamination or exacerbation of contamination that occurs after the sale of the property will be the liability of the current and future owners and operators of the Portland Property.

Other Litigation, Commitments and Contingencies

From time to time, the Company is involved as a defendant in litigation in the ordinary course of business, the outcomes of which cannot be predicted with certainty. While the ultimate outcome of such legal proceedings cannot be determined at this time, the Company believes that the resolution of pending litigation will not have a material adverse effect on the Company's Consolidated Financial Statements.

As of May 31, 2023, the Company had outstanding letters of credit aggregating to $4.9 million associated with performance guarantees, facility leases and workers compensation insurance.

Note 17 – Fair Value Measures

Certain assets and liabilities are reported at fair value on either a recurring or nonrecurring basis. Fair value, for this disclosure, is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, under a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:

Level 1 - observable inputs such as unadjusted quoted prices in active markets for identical instruments;

Level 2 - inputs, other than the quoted market prices in active markets for similar instruments, which are observable, either directly or indirectly; and

Level 3 - unobservable inputs for which there is little or no market data available, which require the reporting entity to develop its own assumptions.

Assets and liabilities measured at fair value on a recurring basis as of May 31, 2023 were:


(in millions)	Total		Level 1		Level 2 (1)		Level 3
Assets:
Derivative financial instruments	$	29.8	$	—	$	29.8	$	—
Nonqualified savings plan investments		43.8		43.8		—		—
Cash equivalents		60.7		60.7		—		—
	$	134.3	$	104.5	$	29.8	$	—
Liabilities:
Derivative financial instruments	$	—	$	—	$	—	$	—

Assets and liabilities measured at fair value on a recurring basis as of August 31, 2022 were:


(in millions)	Total		Level 1		Level 2 (1)		Level 3
Assets:
Derivative financial instruments	$	21.4	$	—	$	21.4	$	—
Nonqualified savings plan investments		40.3		40.3		—		—
Cash equivalents		119.4		119.4		—		—
	$	181.1	$	159.7	$	21.4	$	—
Liabilities:
Derivative financial instruments	$	3.0	$	—	$	3.0	$	—

(1)

Level 2 assets and liabilities include derivative financial instruments that are valued based on observable inputs. See Note 13 - Derivative Instruments for further discussion.

Note 18 – Related Party Transactions

The Company has a 41.9% interest in Axis, LLC (Axis), a joint venture. The Company purchased $2.2 million and $6.7 million of railcar components from Axis for the three and nine months ended May 31, 2023, respectively, and $3.5 million and $9.7 million for the three and nine months ended May 31, 2022, respectively.

The Company has a 40% interest in the common equity of an unconsolidated affiliate that buys and sells railcar assets that are leased to third parties. Upon sale of railcars to this entity from the Company, 60% of the related revenue and margin is recognized and 40% is deferred until the railcars are ultimately sold by the entity. The Company recognized $15.1 million in revenue when the remaining railcars were sold out of the leasing warehouse during the three and nine months ended May 31, 2023. The Company had no material revenue with railcars sold out of the leasing warehouse during the three and nine months ended May 31, 2022.

Note 19 – Subsequent Events

On June 16, 2023, the Company amended its GBX Leasing warehouse credit facility agreement (Amended Loan Agreement). The Amended Loan Agreement increased the aggregate loan commitment from $350.0 million to $550.0 million. The Company intends to use proceeds from borrowings to fund additions in its owned lease fleet.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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, Romania and Turkey, produces double-stack intermodal railcars, tank cars, conventional railcars, 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 12,500 railcars as of May 31, 2023. We also provide management services for approximately 409,000 railcars for railroads, shippers, carriers, institutional investors and other leasing and transportation companies in North America as of May 31, 2023. 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 have impacted our business and our results for the nine months ended May 31, 2023. Overall, demand in the marketplace remains strong. Supply chain challenges, inflation, rising interest rates, rail service congestion and labor shortages continued to impact our business. Despite the challenging operating environment, we achieved the following in the first nine months of 2023:

•

Revenue increased by $899.6 million and 44.4% compared to the same period last year driven by a 39.2% increase in railcar deliveries and higher average selling price.

•

Margin has improved $135.7 million and 75.9% compared to the same period last year driven by an increase in deliveries and operating efficiencies.

•

Obtained new railcar orders of 14,700 units valued at approximately $1.9 billion during the nine months ended May 31, 2023.

•

In the second quarter, we acquired the minority interest in GBX Leasing, and wholly own our entire lease fleet.

Our backlog remains strong with railcar deliveries into calendar 2024. Our railcar backlog was 23,400 units with an estimated value of $2.9 billion as of May 31, 2023. Our backlog includes $770 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 4% of backlog units and estimated backlog value as of May 31, 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.

On November 17, 2022, as part of our strategic review of the global business capacity footprint, we decided to permanently cease rail production at our Gunderson Facility during 2023 and to explore alternatives to exit marine barge production. As a result, in the first quarter of fiscal 2023 we recorded an impairment of our long-lived assets of $24.2 million. In May 2023, we sold our ownership interest in Gunderson Marine and recorded a $14.3 million loss on sale. We also permanently ceased rail production at the Gunderson Facility in May 2023.

As described in Part I Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended August 31, 2022 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 May 31, 2023 Compared to the Three Months Ended May 31, 2022

Overview

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


	Three Months Ended May 31,
(in millions, except per share amounts)	2023			2022
Revenue:
Manufacturing	$	870.2		$	650.9
Maintenance Services		122.9			101.5
Leasing & Management Services		45.0			41.1
		1,038.1			793.5
Cost of revenue:
Manufacturing		786.5			611.3
Maintenance Services		109.8			91.1
Leasing & Management Services		13.7			14.8
		910.0			717.2
Margin:
Manufacturing		83.7			39.6
Maintenance Services		13.1			10.4
Leasing & Management Services		31.3			26.3
		128.1			76.3
Selling and administrative		63.3			57.4
Net gain on disposition of equipment		(2.3	)		(0.7	)
Asset impairment, disposal, and exit costs		16.4			—
Earnings from operations		50.7			19.6
Interest and foreign exchange		22.8			14.9
Earnings before income tax and earnings from unconsolidated affiliates		27.9			4.7
Income tax expense		(3.6	)		(1.1	)
Earnings before earnings from unconsolidated affiliates		24.3			3.6
Earnings from unconsolidated affiliates		2.4			4.0
Net earnings		26.7			7.6
Net earnings attributable to noncontrolling interest		(5.4	)		(4.5	)
Net earnings attributable to Greenbrier	$	21.3		$	3.1
Diluted earnings per common share	$	0.64		$	0.09

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.


	Three Months Ended May 31,
(in millions)	2023			2022
Operating profit (loss):
Manufacturing	$	44.1		$	20.5
Maintenance Services		11.0			8.6
Leasing & Management Services		25.9			19.2
Corporate		(30.3	)		(28.7	)
	$	50.7		$	19.6

Consolidated Results


	Three Months Ended May 31,						Increase			%
(in millions)	2023			2022			(Decrease)			Change
Revenue	$	1,038.1		$	793.5		$	244.6			30.8	%
Cost of revenue	$	910.0		$	717.2		$	192.8			26.9	%
Margin (%)		12.3	%		9.6	%		2.7	%	*
Net earnings attributable to Greenbrier	$	21.3		$	3.1		$	18.2		*

* 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 30.8% increase in revenue for the three months ended May 31, 2023 as compared to the three months ended May 31, 2022 was primarily due to a 33.7% increase in Manufacturing revenue. The increase in Manufacturing revenue was primarily attributed to a 30.6% increase in railcar deliveries.

The 26.9% increase in cost of revenue for the three months ended May 31, 2023 as compared to the three months ended May 31, 2022 was primarily due to a 28.7% increase in Manufacturing cost of revenue. The increase in Manufacturing cost of revenue was primarily attributed to a 30.6% increase in railcar deliveries during the three months ended May 31, 2023.

Margin as a percentage of revenue was 12.3% and 9.6% for the three months ended May 31, 2023 and 2022, respectively. The overall margin as a percentage of revenue was positively impacted by operating efficiencies at our Manufacturing segment as a result of operating at consistently higher production levels.

The $18.2 million increase in Net earnings attributable to Greenbrier for the three months ended May 31, 2023 as compared to the three months ended May 31, 2022 was primarily due to an increase in Margin primarily due to higher railcar deliveries for the three months ended May 31, 2023. This was partially offset by:

•

A loss on sale of Gunderson Marine of $14.3 million and severance of $2.1 million during the three months ended May 31, 2023.

•

An increase in Interest and foreign exchange expense for the three months ended May 31, 2023 primarily attributed to an increase in interest expense from higher interest rates and borrowings.

Manufacturing Segment


	Three Months Ended May 31,						Increase			%
(In millions, except railcar deliveries)	2023			2022			(Decrease)			Change
Revenue	$	870.2		$	650.9		$	219.3			33.7	%
Cost of revenue	$	786.5		$	611.3		$	175.2			28.7	%
Margin (%)		9.6	%		6.1	%		3.5	%	*
Operating profit ($)	$	44.1		$	20.5		$	23.6			115.1	%
Operating profit (%)		5.1	%		3.1	%		2.0	%	*
Deliveries		6,400			4,900			1,500			30.6	%

* 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.

Manufacturing revenue increased $219.3 million or 33.7% for the three months ended May 31, 2023 compared to the three months ended May 31, 2022. The increase in revenue was primarily attributed to a 30.6% increase in railcar deliveries.

Manufacturing cost of revenue increased $175.2 million or 28.7% for the three months ended May 31, 2023 compared to the three months ended May 31, 2022. The increase in cost of revenue was primarily attributed to a 30.6% increase in railcar deliveries and higher costs associated with component outsourcing to support the higher production during the three months ended May 31, 2023.

Manufacturing margin as a percentage of revenue increased 3.5% for the three months ended May 31, 2023 compared to the three months ended May 31, 2022. The increase in margin percentage for the three months ended May 31, 2023 was primarily attributed to operating at consistently higher production levels. This was partially offset by increased costs associated with outsourcing to support the higher production levels.

Manufacturing operating profit increased $23.6 million for the three months ended May 31, 2023 compared to the three months ended May 31, 2022. The increase in operating profit was primarily attributed to increased deliveries for the three months ended May 31, 2023 at improved margins, partially offset by the loss on sale of Gunderson Marine.

Maintenance Services Segment


	Three Months Ended May 31,						Increase			%
(in millions)	2023			2022			(Decrease)			Change
Revenue	$	122.9		$	101.5		$	21.4			21.1	%
Cost of revenue	$	109.8		$	91.1		$	18.7			20.5	%
Margin (%)		10.7	%		10.2	%		0.5	%	*
Operating profit ($)	$	11.0		$	8.6		$	2.4			27.9	%
Operating profit (%)		9.0	%		8.5	%		0.5	%	*

* 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 $21.4 million or 21.1% for the three months ended May 31, 2023 compared to the three months ended May 31, 2022. The increase was primarily attributed to improved pricing.

Maintenance Services cost of revenue increased $18.7 million or 20.5% for the three months ended May 31, 2023 compared to the three months ended May 31, 2022. The increase was primarily due to higher material and labor costs.

Maintenance Services margin as a percentage of revenue increased 0.5% for the three months ended May 31, 2023 compared to the three months ended May 31, 2022. The increase in margin percentage was primarily attributed to improved pricing and operating efficiencies. This was partially offset by lower scrap metal pricing during the three months ended May 31, 2023.

Maintenance Services operating profit increased $2.4 million for the three months ended May 31, 2023 compared to the three months ended May 31, 2022. The increase in operating profit was primarily attributed to improved pricing and operating efficiencies. This was partially offset by lower scrap metal pricing during the three months ended May 31, 2023.

Leasing & Management Services Segment


	Three Months Ended May 31,						Increase			%
(in millions)	2023			2022			(Decrease)			Change
Revenue	$	45.0		$	41.1		$	3.9			9.5	%
Cost of revenue	$	13.7		$	14.8		$	(1.1	)		(7.4	%)
Margin (%)		69.6	%		64.0	%		5.6	%	*
Operating profit ($)	$	25.9		$	19.2		$	6.7			34.9	%
Operating profit (%)		57.6	%		46.7	%		10.9	%	*

* 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 $3.9 million or 9.5% for the three months ended May 31, 2023 compared to the three months ended May 31, 2022. The increase was primarily attributed to higher lease rents due to higher lease rates, a larger fleet, and higher utilization of the fleet, partially offset by lower interim rent on leased railcars for syndication.

Leasing & Management Services cost of revenue decreased $1.1 million or 7.4% for the three months ended May 31, 2023 compared to the three months ended May 31, 2022. The decrease was primarily due to lower transportation costs.

Leasing & Management Services margin as a percentage of revenue increased 5.6% for the three months ended May 31, 2023 compared to the three months ended May 31, 2022. The increase in margin percentage was primarily attributed to growth in and higher utilization of the lease fleet.

Leasing & Management Services operating profit increased $6.7 million for the three months ended May 31, 2023 compared to the three months ended May 31, 2022. The increase was primarily attributed to growth in and higher utilization of the lease fleet for the three months ended May 31, 2023.

Selling and Administrative Expense


	Three Months Ended May 31,				Increase		%
(in millions)	2023		2022		(Decrease)		Change
Selling and administrative expense	$	63.3	$	57.4	$	5.9		10.3	%

Selling and administrative expense was $63.3 million or 6.1% of revenue for the three months ended May 31, 2023 compared to $57.4 million or 7.2% of revenue for the prior comparable period. The $5.9 million increase was primarily attributed to an increase in employee related costs due to higher incentive compensation expense as a result of increased profitability when compared to the prior year.

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 optimize our fleet and to manage risk and liquidity.

Net gain on disposition of equipment was $2.3 million for the three months ended May 31, 2023 compared to $0.7 million for the prior comparable period.

Asset Impairment, Disposal and Exit Costs

The three months ended May 31, 2023 included a loss on the sale of Gunderson Marine of $14.3 million and $2.1 million of severance costs related to ceasing rail production at the Gunderson Facility.

Interest and Foreign Exchange

Interest and foreign exchange expense was composed of the following:


	Three Months Ended May 31,					Increase
(in millions)	2023		2022			(Decrease)
Interest and foreign exchange:
Interest and other expense	$	20.0	$	15.4		$	4.6
Foreign exchange (gain) loss		2.8		(0.5	)		3.3
	$	22.8	$	14.9		$	7.9

The $7.9 million increase in Interest and foreign exchange expense for the three months ended May 31, 2023 compared to the three months ended May 31, 2022 was attributed to an increase in interest expense from higher interest rates and borrowings. The $3.3 million change in Foreign exchange (gain) loss was primarily attributed to the change in the Mexican Peso's foreign exchange rate relative to the U.S. Dollar.

Income Tax

For the three months ended May 31, 2023, we had income tax expense of $3.6 million on a pre-tax income of $27.9 million for an effective tax rate of 12.9%. Tax expense included net favorable discrete items primarily related to changes in foreign currency exchange rates for our U.S. Dollar denominated foreign operations.

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 23.4%. Tax expense for the three months ended May 31, 2022 included net favorable discrete items.

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 $2.4 million and $4.0 million for the three months ended May 31, 2023 and 2022, respectively. The decrease was primarily related to lower volumes.

Noncontrolling Interest

Net earnings attributable to noncontrolling interest was earnings of $5.4 million for the three months ended May 31, 2023 compared to $4.5 million for the three months ended May 31, 2022. 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.

Nine Months Ended May 31, 2023 Compared to the Nine Months Ended May 31, 2022

Overview


	For the Nine Months Ended May 31,
(in millions, except per share amounts)	2023			2022
Revenue:
Manufacturing	$	2,485.3		$	1,659.1
Maintenance Services		306.4			260.5
Leasing & Management Services		134.9			107.4
		2,926.6			2,027.0
Cost of revenue:
Manufacturing		2,292.2			1,567.9
Maintenance Services		279.0			244.0
Leasing & Management Services		41.0			36.4
		2,612.2			1,848.3
Margin:
Manufacturing		193.1			91.2
Maintenance Services		27.4			16.5
Leasing & Management Services		93.9			71.0
		314.4			178.7
Selling and administrative		175.7			156.4
Net gain on disposition of equipment		(15.2	)		(34.3	)
Asset impairment, disposal, and exit costs		40.6			—
Earnings from operations		113.3			56.6
Interest and foreign exchange		64.0			39.3
Earnings before income taxes and earnings from unconsolidated affiliates		49.3			17.3
Income tax expense		(11.7	)		(2.9	)
Earnings before earnings from unconsolidated affiliates		37.6			14.4
Earnings from unconsolidated affiliates		8.6			10.0
Net earnings		46.2			24.4
Net (earnings) loss attributable to noncontrolling interest		(8.5	)		2.3
Net earnings attributable to Greenbrier	$	37.7		$	26.7
Diluted earnings per common share	$	1.13		$	0.79


	For the Nine Months Ended May 31,
(in millions)	2023			2022
Operating profit (loss):
Manufacturing	$	87.3		$	34.6
Maintenance Services		23.3			10.4
Leasing & Management Services		82.2			84.0
Corporate		(79.5	)		(72.4	)
	$	113.3		$	56.6

Consolidated Results


	For the Nine Months Ended May 31,						Increase			%
(in millions)	2023			2022			(Decrease)			Change
Revenue	$	2,926.6		$	2,027.0		$	899.6			44.4	%
Cost of revenue	$	2,612.2		$	1,848.3		$	763.9			41.3	%
Margin (%)		10.7	%		8.8	%		1.9	%	*
Net earnings attributable to Greenbrier	$	37.7		$	26.7		$	11.0			41.2	%

* Not meaningful

The 44.4% increase in revenue for the nine months ended May 31, 2023 as compared to the nine months ended May 31, 2022 was primarily due to a 49.8% increase in Manufacturing revenue. The increase in Manufacturing revenue was primarily attributed to a 39.2% increase in railcar deliveries and higher average selling price.

The 41.3% increase in cost of revenue for the nine months ended May 31, 2023 as compared to the nine months ended May 31, 2022 was primarily due to a 46.2% increase in Manufacturing cost of revenue. The increase in Manufacturing cost of revenue was primarily attributed to a 39.2% increase in railcar deliveries and higher material and other input costs during the nine months ended May 31, 2023.

Margin as a percentage of revenue was 10.7% and 8.8% for the nine months ended May 31, 2023 and 2022, respectively. The overall margin as a percentage of revenue was positively impacted by an increase in Manufacturing margin from 5.5% to 7.8% primarily attributed to operating at consistently higher production levels during the nine months ended May 31, 2023.

The $11.0 million increase in net earnings attributable to Greenbrier for the nine months ended May 31, 2023 as compared to the nine months ended May 31, 2022 was primarily due an increase in Margin primarily due to higher railcar deliveries and average selling price for the nine months ended May 31, 2023. This was partially offset by:

•

The impairment of long-lived assets at our Gunderson Facility and loss on sale of Gunderson Marine during the nine months ended May 31, 2023.

•

Higher Interest and foreign exchange expense for the nine months ended May 31, 2023 primarily attributed to an increase in interest expense from higher interest rates and borrowings.

•

An increase in Selling and administrative expense for the nine months ended May 31, 2023 primarily attributed to higher employee related costs, IT support costs and revenue-based fees paid to our joint venture partner in Mexico.

•

A lower Net gain on disposition of equipment for the nine months ended May 31, 2023.

Manufacturing Segment


	For the Nine Months Ended May 31,						Increase			%
(In millions, except railcar deliveries)	2023			2022			(Decrease)			Change
Revenue	$	2,485.3		$	1,659.1		$	826.2			49.8	%
Cost of revenue	$	2,292.2		$	1,567.9		$	724.3			46.2	%
Margin (%)		7.8	%		5.5	%		2.3	%	*
Operating profit ($)	$	87.3		$	34.6		$	52.7			152.3	%
Operating profit (%)		3.5	%		2.1	%		1.4	%	*
Deliveries		18,100			13,000			5,100			39.2	%

* Not meaningful

Manufacturing revenue increased $826.2 million or 49.8% for the nine months ended May 31, 2023 compared to the nine months ended May 31, 2022. The increase in revenue was primarily attributed to a 39.2% increase in railcar deliveries and higher average selling price.

Manufacturing cost of revenue increased $724.3 million or 46.2% for the nine months ended May 31, 2023 compared to the nine months ended May 31, 2022. The increase in cost of revenue was primarily attributed to a 39.2% increase in railcar deliveries and higher material and other input costs during the nine months ended May 31, 2023.

Manufacturing margin as a percentage of revenue increased 2.3% for the nine months ended May 31, 2023 compared to the nine months ended May 31, 2022. The increase in margin percentage for the nine months ended May 31, 2023 was primarily attributed to operating at consistently higher production levels. This was partially offset by increased costs associated with component outsourcing to support the higher production.

Manufacturing operating profit increased $52.7 million for the nine months ended May 31, 2023 compared to the nine months ended May 31, 2022. The increase in operating profit was primarily attributed to an increase in railcar deliveries at improved margins. This increase was partially offset by the $40.6 million of charges related to the sale and closure of our Gunderson Facility.

Maintenance Services Segment


	For the Nine Months Ended May 31,						Increase			%
(in millions)	2023			2022			(Decrease)			Change
Revenue	$	306.4		$	260.5		$	45.9			17.6	%
Cost of revenue	$	279.0		$	244.0		$	35.0			14.3	%
Margin (%)		8.9	%		6.3	%		2.6	%	*
Operating profit ($)	$	23.3		$	10.4		$	12.9			124.0	%
Operating profit (%)		7.6	%		4.0	%		3.6	%	*

* 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 $45.9 million or 17.6% for the nine months ended May 31, 2023 compared to the nine months ended May 31, 2022. The increase was primarily attributed to improved pricing and higher volumes.

Maintenance Services cost of revenue increased $35.0 million or 14.3% for the nine months ended May 31, 2023 compared to the nine months ended May 31, 2022. The increase was primarily due to higher costs associated with operating at higher volumes.

Maintenance Services margin as a percentage of revenue increased 2.6% for the nine months ended May 31, 2023 compared to the nine months ended May 31, 2022. The increase in margin percentage was primarily attributed to improved pricing and operating efficiencies during the nine months ended May 31, 2023. This was partially offset by a decrease in scrap metal pricing during the nine months ended May 31, 2023.

Maintenance Services operating profit increased $12.9 million for the nine months ended May 31, 2023 compared to the nine months ended May 31, 2022. The increase in operating profit was primarily attributed to improved pricing and efficiencies during the nine months ended May 31, 2023, partially offset by a decrease in scrap metal pricing during the nine months ended May 31, 2023.

Leasing & Management Services Segment


	For the Nine Months Ended May 31,						Increase			%
(in millions)	2023			2022			(Decrease)			Change
Revenue	$	134.9		$	107.4		$	27.5			25.6	%
Cost of revenue	$	41.0		$	36.4		$	4.6			12.6	%
Margin (%)		69.6	%		66.1	%		3.5	%	*
Operating profit ($)	$	82.2		$	84.0		$	(1.8	)		(2.1	%)
Operating profit (%)		60.9	%		78.2	%		(17.3	%)	*

* Not meaningful

Leasing & Management Services revenue increased $27.5 million or 25.6% for the nine months ended May 31, 2023 compared to the nine months ended May 31, 2022. The increase was primarily attributed to higher lease rents due to higher lease rates, a larger fleet, and higher utilization of the fleet.

Leasing & Management Services cost of revenue increased $4.6 million or 12.6% for the nine months ended May 31, 2023 compared to the nine months ended May 31, 2022. The increase was primarily due to higher costs from the larger fleet.

Leasing & Management Services margin as a percentage of revenue increased 3.5% for the nine months ended May 31, 2023 compared to the nine months ended May 31, 2022. The increase in margin percentage was primarily attributed to higher lease rates and growth of the lease fleet.

Leasing & Management Services operating profit decreased $1.8 million or 2.1% for the nine months ended May 31, 2023 compared to the nine months ended May 31, 2022. The decrease was primarily attributed to lower Net gains on disposition of equipment for the nine months ended May 31, 2023, partially offset by higher Margin as a result of growth in and higher utilization of the lease fleet during the nine months ended May 31, 2023.

Selling and Administrative Expense


	For the Nine Months Ended May 31,				Increase		%
(in millions)	2023		2022		(Decrease)		Change
Selling and administrative expense	$	175.7	$	156.4	$	19.3		12.3	%

Selling and administrative expense was $175.7 million or 6.0% of revenue for the nine months ended May 31, 2023 compared to $156.4 million or 7.7% of revenue for the prior comparable period. The $19.3 million increase was primarily attributed to higher employee related costs, IT support costs and revenue-based fees paid to our joint venture partner in Mexico.

Net Gain on Disposition of Equipment

Net gain on disposition of equipment was $15.2 million and $34.3 million for the nine months ended May 31, 2023 and 2022, respectively. The decrease in Net gain on disposition of equipment was primarily attributed to fewer sales of assets from our lease fleet during the nine months ended May 31, 2023.

Asset Impairment, Disposal and Exit Costs

The nine months ended May 31, 2023 included an impairment of long-lived assets of $24.2 million related to our change in the future use of our Gunderson Facility, loss on sale of Gunderson Marine of $14.3 million and $2.1 million of severance associated with ceasing rail production at the Gunderson Facility.

Interest and Foreign Exchange

Interest and foreign exchange expense was composed of the following:


	For the Nine Months Ended May 31,				Increase
(in millions)	2023		2022		(Decrease)
Interest and foreign exchange:
Interest and other expense	$	58.7	$	38.7	$	20.0
Foreign exchange loss		5.3		0.6		4.7
	$	64.0	$	39.3	$	24.7

The $24.7 million increase in Interest and foreign exchange expense for the nine months ended May 31, 2023 compared to the nine months ended May 31, 2022 was primarily attributed to an increase in interest expense from higher interest rates and borrowings. The $4.7 million change in Foreign exchange loss was primarily attributed to the change in the Mexican Peso's foreign exchange rate relative to the U.S. Dollar.

Income Tax

For the nine months ended May 31, 2023, we had income tax expense of $11.7 million on pre-tax income of $49.3 million for an effective tax rate of 23.7%. Tax expense included net favorable discrete items primarily related to changes in foreign currency exchange rates for our U.S. Dollar denominated foreign operations.

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 16.8%. Tax expense for the nine months ended May 31, 2022 included net favorable discrete items.

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

Earnings from unconsolidated affiliates was $8.6 million for the nine months ended May 31, 2023 compared to $10.0 million for the nine months ended May 31, 2022. The decrease was primarily related to lower sales volumes at our Brazil operations.

Noncontrolling Interest

Net (earnings) loss attributable to noncontrolling interest was earnings of $8.5 million for the nine months ended May 31, 2023 compared to a loss of $2.3 million for the nine months ended May 31, 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. The increase of $10.8 million from the prior year is primarily a result of an increase in earnings due to higher railcar deliveries at our Mexican railcar manufacturing joint venture.

Liquidity and Capital Resources


	Nine Months Ended May 31,
(in millions)	2023			2022
Net cash provided by (used in) operating activities	$	1.2		$	(328.4	)
Net cash used in investing activities		(174.8	)		(96.1	)
Net cash provided by (used in) financing activities		(59.2	)		199.0
Effect of exchange rate changes		15.2			19.9
Decrease in Cash and cash equivalents and Restricted cash	$	(217.6	)	$	(205.6	)

We have been financed through cash generated from operations and borrowings. At May 31, 2023 Cash and cash equivalents and Restricted cash were $341.5 million, a decrease of $217.6 million from $559.1 million at August 31, 2022.

Cash Flows From Operating Activities

The change in cash used in operating activities for the nine months ended May 31, 2023 compared to the nine months ended May 31, 2022 was primarily due to a moderation in working capital increases and an increase in deferred revenue when compared to the prior year.

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, 2023 compared to the nine months ended May 31, 2022 was primarily attributable to fewer fleet sales when compared to the nine months ended May 31, 2022 in our Leasing & Management Services segment.


	Nine Months Ended May 31,
(in millions)	2023			2022
Capital expenditures:
Leasing & Management Services	$	205.4		$	219.4
Manufacturing		41.0			25.4
Maintenance Services		7.5			4.0
Total capital expenditures (gross)	$	253.9		$	248.8
Proceeds from sales of assets		(76.3	)		(155.1	)
Total capital expenditures (net of proceeds)	$	177.6		$	93.7

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 $76 million for 2023.

Gross capital expenditures for 2023 are expected to be approximately $280 million for Leasing & Management Services, approximately $90 million for Manufacturing and approximately $15 million for Maintenance Services. Capital expenditures for 2023 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, 2023 compared to the nine months ended May 31, 2022 was primarily attributed to lower proceeds from the issuance of debt, higher debt repayments and higher share repurchases when compared to May 31, 2022. During the nine months ended May 31, 2023 we drew the remaining $75 million on our term facility and drew $119.3 million on the GBXL warehouse facility as we continue to grow the fleet.

Dividend & Share Repurchase Program

A quarterly dividend of $0.30 per share was declared on June 27, 2023.

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. As of May 31, 2023, the amount remaining for repurchase was $53.9 million. 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 and nine months ended May 31, 2023, we purchased a total of 1.2 million and 1.7 million shares for $32.0 million and $49.4 million, respectively, of which 1.6 million shares for $46.1 million were purchased under the current authorization of the share repurchase program. There were no shares repurchased under the share repurchase program during the nine months ended May 31, 2022.

Cash, Borrowing Availability and Credit Facilities

As of May 31, 2023, we had $321.4 million in Cash and cash equivalents and $344.1 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 aggregated to $1.1 billion as of May 31, 2023. We had an aggregate of $344.1 million available to draw down under committed credit facilities as of May 31, 2023. This amount consists of $281.4 million available on the North American credit facility, $32.7 million on the European credit facilities and $30.0 million on the Mexican credit facilities.

North America – As of May 31, 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 1.75% plus 0.10% as a SOFR adjustment or Prime plus 0.75% 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 May 31, 2023, lines of credit totaling $73.4 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 1.6% and Euro Interbank Offered Rate (EURIBOR) plus 1.1% to EURIBOR plus 1.5%, were available for working capital needs of our European manufacturing operations. The European lines of credit include $35.3 million which are guaranteed by us. European credit facilities are regularly renewed. Currently, these European credit facilities have maturities that range from July 2023 through September 2024.

Mexico – As of May 31, 2023, our Mexican railcar manufacturing operations had three lines of credit totaling $120.0 million for working capital needs. The first 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 second line of credit provides up to $40.0 million, of which we and our joint venture partner have each guaranteed 50%. Advances under this facility bear interest at SOFR plus 2.55%. The Mexican railcar manufacturing joint venture will be able to draw amounts available under this facility through February 2025. The third 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.

Credit facility balances:


(in millions)	May 31, 2023		August 31, 2022
North America	$	30.0	$	160.0
GBX Leasing		119.3		—
Europe		40.7		51.6
Mexico		90.0		85.0
	$	280.0	$	296.6

Outstanding commitments under the North American credit facility included letters of credit which totaled $4.9 million and $6.9 million as of May 31, 2023 and August 31, 2022, respectively.

On June 16, 2023, we amended our GBX Leasing warehouse credit facility agreement (Amended Loan Agreement). The Amended Loan Agreement increased the aggregate loan commitment from $350.0 million to $550.0 million. We intend to use proceeds from borrowings to fund additions in our owned lease fleet.

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, 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.

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 $436.5 million of variable rate debt to fixed rate debt as of May 31, 2023. During the nine months ended May 31, 2023 we completed the transition of our interest rate swaps to update the reference rate from LIBOR to SOFR.

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 Policies and Estimates

The preparation of financial statements in conformity with GAAP 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. For further information, see Note 4 to the Condensed Consolidated Financial Statements.

Goodwill - In accordance with Accounting Standards Codification (ASC) Topic 350, Intangibles–Goodwill and Other (ASC 350), 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. For further information, see Note 6 to the Condensed Consolidated Financial Statements.

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. For further information regarding our warranty accrual, see Note 9 to the Condensed Consolidated Financial Statements.

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 16 to the Condensed Consolidated Financial Statements.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 May 31, 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 $68.6 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 May 31, 2023, net assets of foreign subsidiaries aggregated to $164.5 million and a 10% strengthening of the U.S. Dollar relative to the foreign currencies would result in a decrease in equity of $16.5 million, or 1.3% 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 $639.0 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 May 31, 2023, 85% of our outstanding debt had fixed rates and 15% had variable rates. At May 31, 2023, a uniform increase by 10% in variable interest rates would result in approximately $1.2 million of additional annual interest expense.

Item 4. CONTROLS AND PROCEDURES

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 of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the Exchange Act). 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 effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Remediation of Previously Identified Material Weakness

In connection with the audit of our financial statements as of and for the year ended August 31, 2022, we identified a material weakness in our internal control over financial reporting. As of August 31, 2022 we determined we did not have effective controls over change management of system configurations in one IT environment to ensure all changes were logged and approved. During fiscal 2023, management, with the oversight of our Audit Committee, implemented measures designed to remediate the August 31, 2022 material weakness described above.

During the third quarter of 2023, we completed our testing of design and operating effectiveness of the implemented controls and found them to be effective.

Changes in Internal Control over Financial Reporting

In the ordinary course of business, we review our internal control over financial reporting and make changes to our systems and processes to improve such controls and increase efficiency, while ensuring that we maintain an effective internal control environment. During the third quarter of 2023, we began to implement in stages a new financial reporting system at our primary North America manufacturing and services businesses. Each implementation will

impact our internal controls over financial reporting. Except for the changes in response to the remediated material weakness and system implementations noted above, there have been no changes in our internal control over financial reporting during the quarter ended May 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There is hereby incorporated by reference the information disclosed in Note 16 to the Condensed Consolidated Financial Statements, Part I of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

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, 2022. 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, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Board of Directors has authorized the Company to repurchase shares of the Company’s common stock. On January 5, 2023, the expiration date of this share repurchase program was extended to January 31, 2025. Share repurchases under this program during the three months ended May 31, 2023 were as follows:


(in millions, except shares which are reflected in thousands, and per share amounts)	Total Number of Shares Purchased		Average Price Paid per Share (Including Commissions)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
March 1, 2023 - March 31, 2023		310	$	30.09		310	$	76.6
April 1, 2023 - April 30, 2023		241	$	29.06		241	$	69.6
May 1, 2023 - May 31, 2023		580	$	26.96		580	$	53.9

Item 6. Exhibits

(a)

List of Exhibits:


10.1		Amendment No. 3 to Warehouse Loan Agreement dated June 16, 2023, by among GBXL I, LLC, as borrower, Bank of America, N.A., as a Lender and agent and Credit Agricole Corporate and Investment Bank, as lender, and Wells Fargo Bank, N.A., as lender

31.1		Certification pursuant to Rule 13a – 14 (a).

31.2		Certification pursuant to Rule 13a – 14 (a).

32.1		Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		Inline XBRL Instance Document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document.

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104		Cover Page Interactive Data File (Formatted as inline XBRL and contained in Exhibit 101).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		THE GREENBRIER COMPANIES, INC.

Date:	June 29, 2023	By:	/s/ Adrian J. Downes
			Adrian J. Downes
			Senior Vice President and Chief Financial Officer
			(Principal Financial Officer)