# GREENBRIER COMPANIES INC (GBX) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from GREENBRIER COMPANIES INC's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/923120/000095017023055208/gbx-20230831.htm
Accession: 0000950170-23-055208
Filing date: 2023-10-25
Report date: 2023-08-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/GBX/
All MD&A years: /company/GBX/mda/
Previous year: /company/GBX/mda/fy2022/ (FY 2022)
Next year: /company/GBX/mda/fy2024/ (FY 2024)

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Summary

The financial results for 2023 reflect another year of transformation and profitable growth. We delivered strong results despite challenges that impacted our business throughout the year. We identified a few general trends that impacted our business, all of which we believe are reflected in our results for the year ended August 31, 2023. Overall, demand for our products and services remains strong in the marketplace. Supply chain challenges, inflation, rising interest rates, rail service congestion and labor shortages continued to impact our business and required focused attention from management. We were able to manage these factors to accomplish the following in 2023:

•
Achieved record annual revenues and deliveries;

•
Strong ending backlog value and units;

•
Increased our quarterly dividend 11% at Q3; and

•
Repurchased 1.9 million shares.

We also launched a multi-year strategy during the year which we outlined at our first-ever Investor Day in April 2023. The strategy has three basic tenets:

1.
Maintain our manufacturing leadership position across geographies;

2.
Optimize our industrial footprint for efficiency and margin enhancement while addressing the needs of our customers; and

3.
Increase our recurring revenue to reduce the impact of manufacturing cyclicality.

Our strategic focus aligns with three financial goals. Those are (a) increasing recurring revenue, (b) expanding our aggregate gross margin and (c) raising our return on invested capital.

As part of our strategic goal to optimize our footprint, during the year we launched a review of our global business capacity. This resulted in three divestitures, including our Gunderson Marine business and closure of our Gunderson Facility, Southwest Steel, a foundry business in Longview, Texas, and our interest in Rayvag, a manufacturing facility located in Turkey. Additionally, we acquired the minority interest in GBX Leasing from our partner, and now wholly own our lease fleet.

31

Business Highlights

Despite the challenging operating environment, we accomplished the following in 2023:

•
Revenue increased by $966.3 million and 32.5% compared to the prior year, driven primarily by a 33.2% increase in railcar deliveries;

•
Margin improved $135.1 million and 44.2% compared to the prior year, driven primarily by a 33.2% increase in railcar deliveries and operating efficiencies across segments;

•
Added 1,200 railcars to our owned lease fleet, representing nearly 10% growth during the year; and

•
Increased Earnings from Operations by $58.4 million and 49.5% compared to the prior year. The improvement was primarily attributed to higher deliveries and operating efficiencies across the business. This increase was partially offset by $46.7 million of charges associated with the divestitures previously discussed.

32

Manufacturing Backlog

Our backlog remains strong at August 31, 2023 and includes a diverse portfolio of railcar types, highlighted by the following:

•
Our railcar backlog was 30,900 units with an estimated value of $3.8 billion as of August 31, 2023 with deliveries that extend into 2026.

•
During 2023, we generated new railcar orders of 30,000 units valued at approximately $3.8 billion.

•
We increased our backlog compared to the prior year by approximately 1,400 units.

Our backlog includes $970 million of railcars intended for syndication which are supported by lease agreements with external customers and may be syndicated to third parties or held in our lease fleet depending on a variety of factors. Multi-year supply agreements are a part of rail industry practice. A portion of the orders included in backlog reflects an assumed product mix. Under terms of the orders, the exact mix and pricing will be determined in the future, which may impact backlog. Approximately 3% of backlog units and 2% of estimated backlog value as of August 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 and conditions. 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.

33

Financial Overview

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

[[GREPCENT_TABLE]]
[["","","Year Ended August 31,"],["(In millions, except per share amounts)","","2023","","","2022"],["Revenue:"],["Manufacturing","","$","3,357.7","","","$","2,476.6"],["Maintenance Services","","","406.4","","","","347.7"],["Leasing & Management Services","","","179.9","","","","153.4"],["","","","3,944.0","","","","2,977.7"],["Cost of revenue:"],["Manufacturing","","","3,083.4","","","","2,300.9"],["Maintenance Services","","","364.0","","","","322.0"],["Leasing & Management Services","","","55.5","","","","48.8"],["","","","3,502.9","","","","2,671.7"],["Margin:"],["Manufacturing","","","274.3","","","","175.7"],["Maintenance Services","","","42.4","","","","25.7"],["Leasing & Management Services","","","124.4","","","","104.6"],["","","","441.1","","","","306.0"],["Selling and administrative","","","235.3","","","","225.2"],["Net gain on disposition of equipment","","","(17.3",")","","","(37.2",")"],["Asset impairment, disposal, and exit costs","","","46.7","","","","\u2014"],["Earnings from operations","","","176.4","","","","118.0"],["Interest and foreign exchange","","","85.4","","","","57.4"],["Earnings before income tax and earnings from unconsolidated affiliates","","","91.0","","","","60.6"],["Income tax expense","","","(24.6",")","","","(18.1",")"],["Earnings before earnings from unconsolidated affiliates","","","66.4","","","","42.5"],["Earnings from unconsolidated affiliates","","","9.2","","","","11.3"],["Net earnings","","","75.6","","","","53.8"],["Net earnings attributable to noncontrolling interest","","","(13.1",")","","","(6.9",")"],["Net earnings attributable to Greenbrier","","$","62.5","","","$","46.9"],["Diluted earnings per common share","","$","1.89","","","$","1.40"]]
[[/GREPCENT_TABLE]]

Performance for our segments is evaluated based on operating profit. Corporate includes selling and administrative costs not directly related to goods and services and certain costs that are intertwined among segments due to our integrated business model. Management does not allocate Interest and foreign exchange or Income tax expense for either external or internal reporting purposes.

[[GREPCENT_TABLE]]
[["","","Year Ended August 31,"],["(In millions)","","2023","","","2022"],["Operating profit (loss):"],["Manufacturing","","$","140.9","","","$","97.2"],["Maintenance Services","","","36.9","","","","21.7"],["Leasing & Management Services","","","103.3","","","","108.3"],["Corporate","","","(104.7",")","","","(109.2",")"],["","","$","176.4","","","$","118.0"]]
[[/GREPCENT_TABLE]]

34

Consolidated Results

[[GREPCENT_TABLE]]
[["","","Year Ended August 31,","","","2023 vs 2022"],["(In millions)","","2023","","","2022","","","Increase (Decrease)","","","% Change"],["Revenue","","$","3,944.0","","","$","2,977.7","","","$","966.3","","","","32.5","%"],["Cost of revenue","","$","3,502.9","","","$","2,671.7","","","$","831.2","","","","31.1","%"],["Margin (%)","","","11.2","%","","","10.3","%","","","0.9","%","","*"],["Net earnings attributable to Greenbrier","","$","62.5","","","$","46.9","","","$","15.6","","","","33.3","%"]]
[[/GREPCENT_TABLE]]

* Not meaningful

Through our integrated business model, we provide a broad range of custom products and services in each of our segments, which have various average selling prices and margins. The demand for, and mix of, products and services delivered changes from period to period, which causes fluctuations in our results of operations.

The 32.5% increase in revenue for the year ended August 31, 2023 as compared to the prior year was primarily due to an 35.6% increase in Manufacturing revenue. The increase in Manufacturing revenue was primarily attributed to a 33.2% increase in railcar deliveries and higher syndication revenues.

The 31.1% increase in cost of revenue for the year ended August 31, 2023 as compared to the prior year was primarily due to a 34.0% increase in Manufacturing cost of revenue. The increase in Manufacturing cost of revenue was primarily attributed to a 33.2% increase in railcar deliveries and higher material and other input costs in the current year.

Margin as a percentage of revenue was 11.2% and 10.3% for the years ended August 31, 2023 and 2022, respectively. Consolidated Margin as a percentage of revenue was positively impacted by an increase in Manufacturing Margin from 7.1% to 8.2% primarily attributed to operating at consistently higher production levels during the current year.

The $15.6 million increase in Net earnings attributable to Greenbrier for the year ended August 31, 2023 as compared to the prior year was primarily due to an increase in margin dollars that was mainly attributable to higher railcar deliveries and syndications. This was partially offset by:

•
The net impact of divestitures totaled $46.7 million during the year ended August 31, 2023.

•
Higher Interest and foreign exchange expense in the current year primarily attributed to an increase in interest expense from higher interest rates and borrowings.

•
A lower Net gain on disposition of equipment for the year ended August 31, 2023.

For discussion related to the results of operations and changes in financial condition for 2022 compared to 2021 refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2022 Form 10-K, which was filed with the United States Securities and Exchange Commission on October 31, 2022.

35

Manufacturing Segment

[[GREPCENT_TABLE]]
[["","","Year Ended August 31,","2023 vs 2022"],["(In millions, except railcar deliveries)","","2023","","","2022","","","Increase (Decrease)","","","% Change"],["Revenue","","$","3,357.7","","","$","2,476.6","","","$","881.1","","","","35.6","%"],["Cost of revenue","","$","3,083.4","","","$","2,300.9","","","$","782.5","","","","34.0","%"],["Margin (%)","","","8.2","%","","","7.1","%","","","1.1","%","","*"],["Operating profit ($)","","$","140.9","","","$","97.2","","","$","43.7","","","","45.0","%"],["Operating profit (%)","","","4.2","%","","","3.9","%","","","0.3","%","","*"],["Deliveries","","","24,900","","","","18,700","","","","6,200","","","","33.2","%"]]
[[/GREPCENT_TABLE]]

* Not meaningful

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

Manufacturing revenue increased $881.1 million or 35.6% for the year ended August 31, 2023 compared to the prior year. The increase in revenue was primarily attributed to a 33.2% increase in railcar deliveries, including syndications and higher average selling price.

Manufacturing cost of revenue increased $782.5 million or 34.0% for the year ended August 31, 2023 compared to the prior year. The increase in cost of revenue was primarily attributed to a 33.2% increase in the volume of railcar deliveries and higher material and other input costs during the year ended August 31, 2023.

Manufacturing Margin as a percentage of revenue increased 1.1% for the year ended August 31, 2023 compared to the prior year. The increase in Margin percentage for the year ended August 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 $43.7 million or 45.0% for the year ended August 31, 2023 compared to the prior year. The increase in operating profit was primarily attributed to an increase in railcar deliveries at improved margins and included the $46.7 million of net loss on divestitures in 2023.

36

Maintenance Services Segment

[[GREPCENT_TABLE]]
[["","","Year Ended August 31,","","","2023 vs 2022"],["(In millions)","","2023","","","2022","","","Increase (Decrease)","","","% Change"],["Revenue","","$","406.4","","","$","347.7","","","$","58.7","","","","16.9","%"],["Cost of revenue","","$","364.0","","","$","322.0","","","$","42.0","","","","13.0","%"],["Margin (%)","","","10.4","%","","","7.4","%","","","3.0","%","","*"],["Operating profit ($)","","$","36.9","","","$","21.7","","","$","15.2","","","","70.0","%"],["Operating profit (%)","","","9.1","%","","","6.2","%","","","2.9","%","","*"]]
[[/GREPCENT_TABLE]]

* Not meaningful

Our Maintenance Services segment generates revenue from wheel and axle servicing, railcar maintenance and the production of a variety of component parts in North America.

Maintenance Services revenue increased $58.7 million or 16.9% for the year ended August 31, 2023 compared to the prior year. The increase was primarily attributed to improved pricing and higher volumes. This was partially offset by lower scrap metal pricing in the current year.

Maintenance Services cost of revenue increased $42.0 million or 13.0% for the year ended August 31, 2023 compared to the prior year. The increase was primarily due to higher costs associated with operating at higher volumes.

Maintenance Services Margin as a percentage of revenue increased 3.0% for the year ended August 31, 2023 compared to the prior year. The increase in Margin percentage was primarily attributed to improved pricing and operating efficiencies. This was partially offset by lower scrap metal pricing in the current year.

Maintenance Services operating profit increased $15.2 million or 70.0% for the year ended August 31, 2023 compared to the prior year. The increase was primarily attributed to the improved Margins discussed above and higher volumes. This was partially offset by lower scrap metal pricing in the current year.

37

Leasing & Management Services Segment

[[GREPCENT_TABLE]]
[["","","Year Ended August 31,","2023 vs 2022"],["(In millions)","","2023","","","2022","","","Increase (Decrease)","","","% Change"],["Revenue","","$","179.9","","","$","153.4","","","$","26.5","","","","17.3","%"],["Cost of revenue","","$","55.5","","","$","48.8","","","$","6.7","","","","13.7","%"],["Margin (%)","","","69.1","%","","","68.2","%","","","0.9","%","","","","*"],["Operating profit ($)","","$","103.3","","","$","108.3","","","$","(5.0",")","","","(4.6",")%"],["Operating profit (%)","","","57.4","%","","","70.6","%","","","(13.2",")%","","","","*"]]
[[/GREPCENT_TABLE]]

* 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 $26.5 million or 17.3% for the year ended August 31, 2023 compared to the prior year. The increase was primarily attributed to higher lease rents due to higher lease rates and a larger fleet as well as higher interim rents on railcars for syndication.

Leasing & Management Services cost of revenue increased $6.7 million or 13.7% for the year ended August 31, 2023 compared to the prior year. The increase was primarily due to higher costs from owning a larger fleet.

Leasing & Management Services Margin as a percentage of revenue increased 0.9% for the year ended August 31, 2023 compared to the prior year. The increase in Margin percentage was primarily attributed to higher lease rates and growth of the lease fleet.

Leasing & Management Services operating profit decreased $5.0 million or 4.6% for the year ended August 31, 2023 compared to the prior year. The decrease was primarily attributed to lower Net gains on disposition of equipment for the year ended August 31, 2023, partially offset by higher Margin as a result of growth in the lease fleet.

38

Selling and Administrative

[[GREPCENT_TABLE]]
[["","","Year Ended August 31,","2023 vs 2022"],["(In millions)","","2023","","","2022","","","Increase (Decrease)","","","% Change"],["Selling and Administrative","","$","235.3","","","$","225.2","","","$","10.1","","","","4.5","%"]]
[[/GREPCENT_TABLE]]

Selling and administrative expense was $235.3 million or 6.0% of revenue for the year ended August 31, 2023 and $225.2 million or 7.6% of revenue for the year ended August 31, 2022.

The $10.1 million increase was primarily attributed to higher employee related and IT support costs, partially offset by lower legal costs.

Net Gain on Disposition of Equipment

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

Net gain on disposition of equipment was $17.3 million and $37.2 million for the years ended August 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 year ended August 31, 2023.

Asset Impairment, Disposal and Exit Costs

Asset impairment, disposal, and exit costs in the current year included total charges associated with the Gunderson Facility of $40.7 million and a divestiture of Southwest Steel of $9.7 million, partially offset by a gain on disposal of our majority ownership interest in the Rayvag joint venture of $3.7 million.

Interest and Foreign Exchange

Interest and foreign exchange expense was composed of the following:

[[GREPCENT_TABLE]]
[["","","Year Ended August 31,","","","Increase (decrease)"],["(In millions)","","2023","","","2022","","","2023 vs 2022"],["Interest and foreign exchange:"],["Interest and other expense","","$","79.2","","","$","55.7","","","$","23.5"],["Foreign exchange loss","","","6.2","","","","1.7","","","","4.5"],["","","$","85.4","","","$","57.4","","","$","28.0"]]
[[/GREPCENT_TABLE]]

The $28.0 million increase in Interest and foreign exchange expense during the year ended August 31, 2023 compared to the prior year was primarily attributed to an increase in interest expense from higher interest rates and borrowings. The $4.5 million change in Foreign exchange loss was primarily attributed to the change in the Mexican Peso's exchange rate relative to the U.S. Dollar.

39

Income Tax

In 2023 our income tax expense was $24.6 million on $91.0 million of pre-tax earnings for an effective tax rate of 27.0%. The rate was higher than the U.S. statutory tax rate primarily due to the geographic mix of earnings and U.S. taxes on profits in foreign jurisdictions, offset by net favorable impacts related to changes in foreign currency exchange rates for our U.S. Dollar denominated foreign operations.

In 2022 our income tax expense was $18.1 million on $60.6 million of pre-tax earnings for an effective tax rate of 29.9%. The tax rate was primarily attributable to the geographic mix of earnings, partially offset by net favorable discrete items.

The effective tax rate can fluctuate year-to-year due to discrete items and 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 after-tax results from these unconsolidated affiliates.

Earnings from unconsolidated affiliates was $9.2 million and $11.3 million for the years ended August 31, 2023 and 2022, respectively. The decrease was primarily related to lower sales volumes at our Brazil operations.

Net Earnings Attributable to Noncontrolling Interest

Net earnings attributable to noncontrolling interest was $13.1 million and $6.9 million for the years ended August 31, 2023 and 2022, respectively, which 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 from the prior year is primarily a result of an increase in earnings due to improved operating results at our European operations and the gain on sale of Rayvag.

40

Liquidity and Capital Resources

[[GREPCENT_TABLE]]
[["","","Year Ended August 31,"],["(In millions)","","2023","","","2022"],["Net cash provided by (used in) operating activities","","$","71.2","","","$","(150.4",")"],["Net cash used in investing activities","","","(280.0",")","","","(224.0",")"],["Net cash provided by (used in) financing activities","","","(76.2",")","","","244.9"],["Effect of exchange rate changes","","","28.6","","","","17.2"],["Net decrease in cash and cash equivalents and restricted cash","","$","(256.4",")","","$","(112.3",")"]]
[[/GREPCENT_TABLE]]

We have been financed through cash generated from operations and borrowings. At August 31, 2023 cash and cash equivalents and restricted cash were $302.7 million, a decrease of $256.4 million from $559.1 million at the prior year end.

Cash Flows From Operating Activities

The change in cash provided by (used in) operating activities for 2023 compared to 2022 was primarily due to an increase in Net earnings and net favorable change in working capital driven by more efficient working capital usage when compared to the prior year.

Cash Flows From Investing Activities

Cash used in investing activities primarily relates to capital expenditures net of proceeds from the sale of assets, divestitures during the year and investment activity with our unconsolidated affiliates. The change in cash used in investing activities for 2023 compared to 2022 was primarily attributable to a decrease in proceeds from the sale of assets.

[[GREPCENT_TABLE]]
[["","","Year Ended August 31,"],["(In millions)","","2023","","","2022"],["Capital expenditures:"],["Leasing & Management Services","","$","(272.9",")","","$","(323.2",")"],["Manufacturing","","","(71.9",")","","","(48.3",")"],["Maintenance Services","","","(17.3",")","","","(9.2",")"],["Total capital expenditures (gross)","","$","(362.1",")","","$","(380.7",")"],["Proceeds from sale of equipment","","","78.8","","","","155.5"],["Total capital expenditures (net of proceeds)","","$","(283.3",")","","$","(225.2",")"]]
[[/GREPCENT_TABLE]]

Capital expenditures primarily relate to additions to our lease fleet and on-going investments into our facilities, including the safety, productivity and efficiency of our facilities. Proceeds from the sale of assets primarily relate to sales of railcars from our lease fleet within Leasing & Management Services and divestitures previously discussed. Assets from our lease fleet are periodically sold in the normal course of business to accommodate customer demand and to manage risk and liquidity.

Capital expenditures for 2024 are expected to be approximately $280 million for Leasing & Management Services, approximately $190 million for Manufacturing and approximately $15 million for Maintenance Services. Capital expenditures for 2024 primarily relate to additions to our lease fleet and continued investments into the safety and productivity of our facilities. Proceeds from sales of assets are expected to be approximately $80 million for 2024.

Cash Flows From Financing Activities

The change in cash provided by (used in) financing activities for 2023 compared to 2022 was primarily attributed to lower net proceeds from the issuance of debt and higher share repurchases. During the year ended August 31, 2023 we paid off the North America credit facility, drew the remaining $75.0 million on our leasing term loan facility and drew $139.9 million on the GBXL warehouse credit facility as we continued to grow the fleet.

41

During 2022 we issued asset backed securities of $323.3 million, and used proceeds to pay down our warehouse credit facility for GBX Leasing. We also amended our $200 million term facility to provide an additional $75.0 million in term debt.

Dividend & Share Repurchase Program

A quarterly dividend of $0.30 per share was declared on October 18, 2023.

The Board of Directors has authorized our company to repurchase in aggregate up to $100.0 million of our 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 us 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 year ended August 31, 2023, we purchased a total of 1.9 million shares for $56.9 million, of which 1.8 million shares for $53.6 million were purchased under the current authorization of the share repurchase program. As of August 31, 2023, the amount remaining for repurchase under the share repurchase program was $46.4 million. There were no shares repurchased under the share repurchase program during the year ended August 31, 2022.

Cash, Borrowing Availability and Credit Facilities

As of August 31, 2023, we had $281.7 million in Cash and cash equivalents and $364.4 million in available borrowings. Our current cash balance is part of our strategy to maintain strong liquidity to respond to current uncertainties.

Senior secured credit facilities, consisting of four components, aggregated to $1.4 billion as of August 31, 2023. We had an aggregate of $364.4 million available to draw down under credit facilities as of August 31, 2023. This amount consists of $273.8 million available on the North American credit facility, $25.6 million on the European credit facilities and $65.0 million on the Mexican credit facilities.

North America – As of August 31, 2023, a $600.0 million revolving line of credit, maturing August 2026, secured by substantially all of our U.S. assets not otherwise pledged as security for term loans, the warehouse credit facility or the railcar asset-backed securities, 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 the Secured Overnight Financing Rate (SOFR) plus 1.50% plus 0.10% as a SOFR adjustment or Prime plus 0.50% depending on the type of borrowing. Available borrowings under the credit facility are generally based on defined levels of eligible inventory, receivables, property, plant and equipment and leased equipment, as well as total debt to consolidated capitalization and fixed charges coverage ratios.

GBX Leasing – As of August 31, 2023, a $550.0 million nonrecourse warehouse credit facility existed to support the operations of GBX Leasing. Advances under this facility bear interest at SOFR plus 1.85% plus 0.11% as a SOFR adjustment. Interest rate swap agreements cover 87% of the outstanding balance to swap the floating interest rate to a fixed rate. The warehouse credit facility converts to a term loan in August 2025 which matures in August 2027.

Europe – As of August 31, 2023, lines of credit totaling $72.8 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 1.5% to EURIBOR plus 1.9%, were available for working capital needs of our European manufacturing operations. The European lines of credit include $35.9 million which are guaranteed by our Company. European credit facilities are regularly renewed. Currently, these European credit facilities have maturities that range from October 2023 through July 2025.

Mexico – As of August 31, 2023, our Mexican railcar manufacturing operations had three lines of credit totaling $175.0 million. The first line of credit provides up to $100.0 million and matures in June 2026. Advances under this facility bear interest at SOFR plus 4.25%. The second line of credit provides up to $45.0 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

42

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 a variable rate. The Mexican railcar manufacturing joint venture will be able to draw amounts available under this facility through June 2024.

[[GREPCENT_TABLE]]
[["","","As of August 31,"],["(In millions)","","2023","","","2022"],["Credit facility balances:"],["North America","","$","\u2014","","","$","160.0"],["GBX Leasing","","","139.9","","","","\u2014"],["Europe","","","47.2","","","","51.6"],["Mexico","","","110.0","","","","85.0"],["Total Revolving notes","","$","297.1","","","$","296.6"]]
[[/GREPCENT_TABLE]]

As of August 31, 2023, outstanding commitments under the North American credit facility included letters of credit which totaled $4.9 million.

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 August 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.

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 with established financial institutions to protect the revenue or margin on a portion of forecasted foreign currency sales and expenses. Given the strong credit standing of the counterparties, no provision has been made for credit loss due to counterparty non-performance.

To mitigate the exposure to changes in interest rates, we have managed a portion of our variable rate debt with interest rate swap agreements, effectively converting $654.0 million of variable rate debt to fixed rate debt as of August 31, 2023.

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.

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The following table shows our estimated future contractual cash obligations as of August 31, 2023:

[[GREPCENT_TABLE]]
[["","","Year Ended August 31,"],["(In millions)","","Total","","","2024","","","2025","","","2026","","","2027","","","2028","","","Thereafter"],["Notes payable 1","","$","1,329.9","","","$","86.5","","","$","39.3","","","$","262.0","","","$","308.7","","","$","385.2","","","$","248.2"],["Interest 2","","","305.0","","","","56.1","","","","51.9","","","","48.6","","","","39.3","","","","18.5","","","","90.6"],["Railcar & operating leases","","","80.0","","","","15.6","","","","12.9","","","","11.6","","","","8.7","","","","7.9","","","","23.3"],["Revolving notes","","","297.1","","","","160.5","","","","3.4","","","","3.4","","","","129.8","","","","\u2014","","","","\u2014"],["","","$","2,012.0","","","$","318.7","","","$","107.5","","","$","325.6","","","$","486.5","","","$","411.6","","","$","362.1"]]
[[/GREPCENT_TABLE]]

1 The repayment of the $47.7 million of 2024 Convertible Notes due February 2024 and the $373.8 million of 2028 Convertible Notes due April 2028 is assumed to occur at the scheduled maturity instead of assuming an earlier conversion by the holders.

2 A portion of the estimated future cash obligation relates to interest on variable rate borrowings. Amounts are based on interest rates as of August 31, 2023.

We do not currently have off balance sheet arrangements that have or are likely to have a material current or future effect on our Consolidated Financial Statements.

Critical Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires judgment on the part of management to arrive at estimates and assumptions on matters that are inherently uncertain. These estimates may affect the amount of assets, liabilities, revenue and expenses reported in the financial statements and accompanying notes and disclosure of contingent assets and liabilities within the financial statements. Estimates and assumptions are periodically evaluated and may be adjusted in future periods. Actual results could differ from those estimates.

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

An asset group is generally established by identifying the lowest level of cash flows generated by a group of assets that are largely independent of the cash flows of other assets. Determining whether a long-lived asset is impaired requires various estimates and assumptions, including whether a triggering event has occurred, the identification of asset groups, and the determination of the fair value of real and personal property. Estimates of future cash flows are by nature highly uncertain and contemplate factors that may change over time. For further information, see Note 5 to the 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

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components, changes in demand, or potential macroeconomic events may cause future assessment conclusions to differ. For further information, see Note 8 to the 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 a tax benefit from uncertain tax positions in the financial statements only when it is more likely than not the position will be sustained upon examination by relevant tax authorities.

Our annual tax rate is based on our income, statutory tax rates, and tax planning opportunities available to us in the various jurisdictions in which we operate. Judgment is required in determining our tax expense and in evaluating our tax positions, as tax laws are complex and subject to different interpretations by taxpayers and government taxing authorities. Our income tax rate is affected by the tax rates that apply to our foreign earnings and could be adversely impacted by higher or lower earnings than anticipated in a particular jurisdiction. In addition to local country tax laws and regulations, our income tax rate depends on the extent that our foreign earnings are taxed by the U.S. through provisions such as the global intangible low-taxed income (GILTI) tax and base erosion and anti-abuse tax (BEAT). We review our deferred tax assets and tax positions quarterly and adjust the balances as new information becomes available. For further information regarding income taxes, see Note 18 of the 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 22 of the Consolidated Financial Statements.

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