# GREENBRIER COMPANIES INC (GBX) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from GREENBRIER COMPANIES INC's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/923120/000095017024117047/gbx-20240831.htm
Accession: 0000950170-24-117047
Filing date: 2024-10-24
Report date: 2024-08-31
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/fy2023/ (FY 2023)
Next year: /company/GBX/mda/fy2025/ (FY 2025)

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

Executive Summary

The financial results for 2024 reflect a successful year executing on our multi-year strategy outlined last year. 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.

Overall, demand in the marketplace remains steady for our products and services. We delivered strong results during the year, however, supply chain challenges, rail service congestion, inflation, high interest rates, labor shortages and foreign currency fluctuations continued to impact our business for the year ended August 31, 2024. Despite these challenges, we were able to deliver strong results and accomplish the following in 2024:

•
Achieved our second highest annual revenue in our company's history.

•
Expanded our Margin as a percentage of Revenue from 11.2% in 2023 to 15.8% in 2024.

•
Received new railcar orders for 21,700 units valued at approximately $2.8 billion.

•
Increased our owned lease fleet by 2,100, representing a 15.7% increase from the prior year.

•
Generated $330 million of Net cash provided by operating activities.

We believe these results demonstrate the benefit of our continued focus on our strategic plan, and we remain focused on increasing recurring revenue, expanding our aggregate gross margin and raising our return on invested capital. Recurring revenue is defined as Leasing & Management Services revenue excluding the impact of syndication transactions.

32

Financial Highlights

Despite the challenging operating environment, we accomplished the following in 2024:

•
Margin as a percentage of Revenue improved by 4.6% to 15.8% for the year ended August 31, 2024. The increase from the prior year was driven by operating efficiencies and favorable product mix in our Manufacturing segment.

•
Earnings from operations increased by $148.1 million or 84.0% compared to the prior year. The increase was primarily attributed to an increase in Margin in our Manufacturing and Leasing & Management Services segments during the year ended August 31, 2024. The prior year also included $46.7 million in Asset impairment, disposal, and exit costs, net.

•
Diluted Earnings per common share (EPS) increased by 162% to $4.96 for the year ended August 31, 2024.

•
Net cash provided by operating activities increased $258.4 million compared to the prior year. The increase was primarily attributed to a change in Leased railcars for syndication and a $97.1 million increase in Net earnings for the year ended August 31, 2024.

33

Manufacturing Backlog

Our backlog remains strong at August 31, 2024 and includes a diverse portfolio of railcar types, highlighted by the following:

•
Our railcar backlog was 26,700 units with an estimated value of $3.4 billion as of August 31, 2024 with expected deliveries reaching 2026 and beyond.

•
During 2024, we generated new railcar orders of 21,700 units valued at approximately $2.8 billion.

Our backlog includes approximately $590 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. Approximately 3% of backlog units and estimated value as of August 31, 2024 was associated with our Brazilian manufacturing operation 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.

34

Financial Overview

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

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Performance for our reportable 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)","","2024","","","2023"],["Operating profit (loss):"],["Manufacturing","","$","281.6","","","$","140.9"],["Maintenance Services","","","27.1","","","","36.9"],["Leasing & Management Services","","","139.0","","","","103.3"],["Corporate","","","(123.2",")","","","(104.7",")"],["","","$","324.5","","","$","176.4"]]
[[/GREPCENT_TABLE]]

35

Consolidated Results

[[GREPCENT_TABLE]]
[["","","Year Ended August 31,","","","2024 vs 2023"],["(In millions)","","2024","","","2023","","","Increase (Decrease)","","","% Change"],["Revenue","","$","3,544.7","","","$","3,944.0","","","$","(399.3",")","","","(10.1",")%"],["Cost of revenue","","$","2,986.2","","","$","3,502.9","","","$","(516.7",")","","","(14.8",")%"],["Margin (%)","","","15.8","%","","","11.2","%","","","4.6","%","","*"],["Net earnings attributable to Greenbrier","","$","160.1","","","$","62.5","","","$","97.6","","","","156.2","%"]]
[[/GREPCENT_TABLE]]

* Not meaningful

Through our integrated business model, we provide a broad range of custom products and services in each of our reportable 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 financial results.

The 10.1% decrease in Revenue for the year ended August 31, 2024 as compared to the prior year was primarily due to a 10.2% decrease in Manufacturing Revenue. The decrease in Manufacturing Revenue was primarily attributed to a 10.4% decrease in deliveries.

The 14.8% decrease in Cost of revenue for the year ended August 31, 2024 as compared to the prior year was primarily due to a 14.1% decrease in Manufacturing Cost of revenue. The decrease in Manufacturing Cost of revenue was primarily attributed to a 10.4% decrease in deliveries during the year ended August 31, 2024.

Margin as a percentage of Revenue was 15.8% and 11.2% for the years ended August 31, 2024 and 2023, respectively. Margin as a percentage of Revenue was positively impacted by an increase in Manufacturing Margin percentage from 8.2% to 12.1% primarily attributed to operating efficiencies and favorable product mix during the year ended August 31, 2024.

The $97.6 million increase in Net earnings attributable to Greenbrier for the year ended August 31, 2024 as compared to the prior year was primarily due to the following:

•
$117.4 million increase in Margin for the year ended August 31, 2024 primarily due to operating efficiencies and a favorable product mix within our Manufacturing segment and an increase in rents associated with a larger lease fleet and improved lease rates in our Leasing & Management Services segment.

•
$46.7 million in Asset impairment, disposal and exit costs, net for the year ended August 31, 2023 primarily related to the sale and closure of our Gunderson Facility.

These were partially offset by the following:

•
$37.4 million increase in Income tax expense associated with higher pre-tax earnings during the year ended August 31, 2024.

•
$15.4 million increase in Interest and foreign exchange primarily attributed to an increase in interest expense from higher borrowings and interest rates for the year ended August 31, 2024.

•
$11.8 million increase in Selling and administrative expense was primarily attributed to an increase in employee related costs including higher long-term incentive compensation for the year ended August 31, 2024.

For discussion related to the results of operations and changes in financial condition for 2023 compared to 2022 refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2023 Form 10-K, which was filed with the United States Securities and Exchange Commission on October 25, 2023.

36

Manufacturing Segment

[[GREPCENT_TABLE]]
[["","","Year Ended August 31,","2024 vs 2023"],["(In millions, except deliveries)","","2024","","","2023","","","Increase (Decrease)","","","% Change"],["Revenue","","$","3,013.6","","","$","3,357.7","","","$","(344.1",")","","","(10.2",")%"],["Cost of revenue","","$","2,648.9","","","$","3,083.4","","","$","(434.5",")","","","(14.1",")%"],["Margin (%)","","","12.1","%","","","8.2","%","","","3.9","%","","*"],["Operating profit ($)","","$","281.6","","","$","140.9","","","$","140.7","","","","99.9","%"],["Operating profit (%)","","","9.3","%","","","4.2","%","","","5.1","%","","*"],["Deliveries","","","22,300","","","","24,900","","","","(2,600",")","","","(10.4",")%"]]
[[/GREPCENT_TABLE]]

* Not meaningful

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

Manufacturing Revenue decreased $344.1 million or 10.2% for the year ended August 31, 2024 compared to the prior year. The decrease in Revenue was primarily attributed to a 10.4% decrease in deliveries during the year ended August 31, 2024.

Manufacturing Cost of revenue decreased $434.5 million or 14.1% for the year ended August 31, 2024 compared to the prior year. The decrease in Cost of revenue was primarily attributed to a 10.4% decrease in the volume of deliveries and favorable product mix during the year ended August 31, 2024.

Manufacturing Margin as a percentage of Revenue increased 3.9% for the year ended August 31, 2024 compared to the prior year. The increase in Margin percentage was primarily attributed to operating efficiencies and favorable product mix during the year ended August 31, 2024.

Manufacturing Operating profit increased $140.7 million or 99.9% for the year ended August 31, 2024 compared to the prior year. The increase in Operating profit was primarily attributed to an increase in Margin during the year ended August 31, 2024 as well as the prior year including $46.7 million of charges related to the sale and closure of our Gunderson Facility during the year ended August 31, 2023.

37

Maintenance Services Segment

[[GREPCENT_TABLE]]
[["","","Year Ended August 31,","","","2024 vs 2023"],["(In millions)","","2024","","","2023","","","Increase (Decrease)","","","% Change"],["Revenue","","$","298.8","","","$","406.4","","","$","(107.6",")","","","(26.5",")%"],["Cost of revenue","","$","264.1","","","$","364.0","","","$","(99.9",")","","","(27.4",")%"],["Margin (%)","","","11.6","%","","","10.4","%","","","1.2","%","","*"],["Operating profit ($)","","$","27.1","","","$","36.9","","","$","(9.8",")","","","(26.6",")%"],["Operating profit (%)","","","9.1","%","","","9.1","%","","--","","","*"]]
[[/GREPCENT_TABLE]]

* Not meaningful

Our Maintenance Services segment primarily generates revenue from railcar component manufacturing and servicing, providing railcar maintenance services and scrapping wheels and other components.

Maintenance Services Revenue decreased $107.6 million or 26.5% for the year ended August 31, 2024 compared to the prior year. The decrease was primarily attributed to 11.6% lower volumes in our wheels business due to lower demand, a change in product mix and a $9.1 million decrease due to lower scrap metal volume and pricing.

Maintenance Services Cost of revenue decreased $99.9 million or 27.4% for the year ended August 31, 2024 compared to the prior year. The decrease was primarily due to operating at lower volumes and a change in product mix during the year ended August 31, 2024.

Maintenance Services Margin as a percentage of Revenue increased 1.2% for the year ended August 31, 2024 compared to the prior year. The increase in Margin percentage was primarily attributed to a favorable change in product mix during the year ended August 31, 2024. This was partially offset by a decrease in scrap metal pricing during the year ended August 31, 2024.

Maintenance Services Operating profit decreased $9.8 million or 26.6% for the year ended August 31, 2024 compared to the prior year. The decrease in Operating profit was primarily attributed to operating at lower volumes and a decrease in scrap metal pricing and volume during the year ended August 31, 2024.

38

Leasing & Management Services Segment

[[GREPCENT_TABLE]]
[["","","Year Ended August 31,","2024 vs 2023"],["(In millions)","","2024","","","2023","","","Increase (Decrease)","","","% Change"],["Revenue","","$","232.3","","","$","179.9","","","$","52.4","","","","29.1","%"],["Cost of revenue","","$","73.2","","","$","55.5","","","$","17.7","","","","31.9","%"],["Margin (%)","","","68.5","%","","","69.1","%","","","(0.6",")%","","","","*"],["Operating profit ($)","","$","139.0","","","$","103.3","","","$","35.7","","","","34.6","%"],["Operating profit (%)","","","59.8","%","","","57.4","%","","","2.4","%","","","","*"]]
[[/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, interim rent on leased railcars for syndication and the sale of railcars purchased from third parties with the intent to resell.

Leasing & Management Services Revenue increased $52.4 million or 29.1% for the year ended August 31, 2024 compared to the prior year. The increase was primarily attributed to an increase of $19.7 million in rents associated with a larger lease fleet and higher lease rates, an $8.9 million increase in the sale of railcars which were purchased from third parties with the intent to resell and a $9.7 million increase in interim rent on leased railcars for syndication during the year ended August 31, 2024.

Leasing & Management Services Cost of revenue increased $17.7 million or 31.9% for the year ended August 31, 2024 compared to the prior year. This was primarily due to higher costs from an increase in the volume of railcars sold that we purchased from third parties and a larger lease fleet during the year ended August 31, 2024.

Leasing & Management Services Margin as a percentage of Revenue decreased 0.6% for the year ended August 31, 2024 compared to the prior year. Margin as a percentage of Revenue for the year ended August 31, 2024 was negatively impacted by higher sales of railcars that were purchased from third parties which have lower margin percentages.

Leasing & Management Services Operating profit increased $35.7 million or 34.6% for the year ended August 31, 2024 compared to the prior year. The increase was primarily attributed to higher rents from a larger lease fleet and improved lease rates during the year ended August 31, 2024.

39

Selling and Administrative

[[GREPCENT_TABLE]]
[["","","Year Ended August 31,","2024 vs 2023"],["(In millions)","","2024","","","2023","","","Increase (Decrease)","","","% Change"],["Selling and administrative","","$","247.1","","","$","235.3","","","$","11.8","","","","5.0","%"]]
[[/GREPCENT_TABLE]]

Selling and administrative expense was $247.1 million or 7.0% of Revenue for the year ended August 31, 2024 and $235.3 million or 6.0% of Revenue for the year ended August 31, 2023.

The $11.8 million increase was primarily attributed to an increase in employee related costs including higher long-term incentive compensation during the year ended August 31, 2024.

Net Gain on Disposition of Equipment

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

Net gain on disposition of equipment was $13.1 million and $17.3 million for the years ended August 31, 2024 and 2023, 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, 2024.

Asset Impairment, Disposal and Exit Costs, Net

Asset impairment, disposal, and exit costs, net was $46.7 million for the year ended August 31, 2023 related to charges associated with the Gunderson Facility and divestiture of Southwest Steel, partially offset by a gain on disposal of majority interest in the Rayvag joint venture.

Interest and Foreign Exchange

Interest and foreign exchange expense was composed of the following:

[[GREPCENT_TABLE]]
[["","","Year Ended August 31,","","","Increase (Decrease)"],["(In millions)","","2024","","","2023","","","2024 vs 2023"],["Interest and foreign exchange:"],["Interest and other expense","","$","93.8","","","$","79.2","","","$","14.6"],["Foreign exchange loss, net","","","7.0","","","","6.2","","","","0.8"],["","","$","100.8","","","$","85.4","","","$","15.4"]]
[[/GREPCENT_TABLE]]

The $15.4 million increase in Interest and foreign exchange expense during the year ended August 31, 2024 compared to the prior year was primarily attributed to an increase in interest expense from higher borrowings and interest rates.

40

Income Tax

In 2024 our Income tax expense was $62.0 million on $223.7 million of pre-tax earnings for an effective tax rate of 27.7%. The rate was higher than the U.S statutory tax rate primarily due to the geographic mix of earnings, nondeductible expenses, increased valuation allowance, and U.S. taxes on profits in foreign jurisdictions, offset by a benefit for additional U.S. foreign tax credits carried forward to future periods.

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.

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.

The EU Member States have formally adopted the Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organisation for Economic Co-operation and Development (OECD) Pillar Two Framework. The OECD Pillar Two Framework must be adopted by each respective country into their tax laws, which are effective for us beginning on September 1, 2024. We continue to closely monitor additional guidance from the OECD and analyze potential impacts these law changes may have, however we do not expect a material change to our effective tax rate.

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 $11.0 million and $9.2 million for the years ended August 31, 2024 and 2023, respectively. The increase was primarily related to $5.2 million in higher earnings at our Brazil operations during the year ended August 31, 2024. This was partially offset by $4.5 million in lower earnings related to a temporarily idle facility during the year ended August 31, 2024.

Net Earnings Attributable to Noncontrolling Interest

Net earnings attributable to noncontrolling interest were $12.6 million and $13.1 million for the years ended August 31, 2024 and 2023, respectively. Net earnings attributable to noncontrolling interest primarily represents our joint venture partner's share in the results of operations of our Mexican railcar manufacturing joint ventures, adjusted for intercompany sales, and our European partner’s share of the results of our European operations.

41

Liquidity and Capital Resources

[[GREPCENT_TABLE]]
[["","","Year Ended August 31,"],["(In millions)","","2024","","","2023"],["Net cash provided by operating activities","","$","329.6","","","$","71.2"],["Net cash used in investing activities","","","(320.4",")","","","(280.0",")"],["Net cash provided by (used in) financing activities","","","86.2","","","","(76.2",")"],["Effect of exchange rate changes","","","(29.5",")","","","28.6"],["Net increase (decrease) in cash and cash equivalents and restricted cash","","$","65.9","","","$","(256.4",")"]]
[[/GREPCENT_TABLE]]

We continue to be financed through cash generated from operations and borrowings. At August 31, 2024 Cash and cash equivalents and Restricted cash were $368.6 million, an increase of $65.9 million from $302.7 million at the prior year end.

Cash Flows From Operating Activities

The $258.4 million increase in cash from operating activities for the year ended August 31, 2024 compared to the year ended August 31, 2023 was primarily due to a change in Leased railcars for syndication and a $97.1 million increase in Net earnings.

Cash Flows From Investing Activities

Cash used in investing activities primarily related to capital expenditures net of proceeds from the sale of assets and investment activity with our unconsolidated affiliates. The $40.4 million increase in cash used in investing activities for the year ended August 31, 2024 was primarily attributable to a $36.2 million increase in capital expenditures compared to the year ended August 31, 2023.

[[GREPCENT_TABLE]]
[["","","Year Ended August 31,"],["(In millions)","","2024","","","2023"],["Capital expenditures:"],["Leasing & Management Services","","$","(277.0",")","","$","(272.9",")"],["Manufacturing","","","(102.8",")","","","(71.9",")"],["Maintenance Services","","","(18.5",")","","","(17.3",")"],["Total capital expenditures (gross)","","$","(398.3",")","","$","(362.1",")"],["Proceeds from sales of assets","","","75.0","","","","78.8"],["Total capital expenditures (net of proceeds)","","$","(323.3",")","","$","(283.3",")"]]
[[/GREPCENT_TABLE]]

Capital expenditures primarily relate to additions to our lease fleet and on-going investments in the safety, productivity and improvements 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 $90 million for 2025.

Gross capital expenditures for 2025 are expected to be approximately $360 million for Leasing & Management Services, approximately $110 million for Manufacturing and approximately $10 million for Maintenance Services. Capital expenditures for 2025 primarily relate to additions to our lease fleet reflecting our leasing strategy and continued investments into the safety and productivity of our facilities.

Cash Flows From Financing Activities

The $162.4 million increase in cash flow from financing activities for the year ended August 31, 2024 compared to the year ended August 31, 2023 was primarily attributed to a $57.4 million increase in net proceeds from revolving notes, $52.8 million higher proceeds from the issuance of notes payable, net of repayments and a $55.6 million reduction in the repurchase of stock compared to the prior year.

During the year ended August 31, 2024 we issued $178.5 million of asset backed securities and used proceeds to pay down $139.9 million of our GBX Leasing warehouse facility. We also borrowed $196.6 million on the GBX Leasing

42

warehouse facility to grow the lease fleet. In February 2024, we paid $47.7 million to retire our 2024 Convertible Notes.

Dividend & Share Repurchase Program

A quarterly dividend of $0.30 per share was declared on October 16, 2024.

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 and currently has an expiration date of January 31, 2025. Under the share repurchase program, shares of common stock may be purchased from time to time on the open market or through privately negotiated transactions. The timing and amount of purchases is based upon market conditions, securities law limitations and other factors. The program may be modified, suspended, or discontinued at any time without prior notice. The share repurchase program does not obligate us to acquire any specific number of shares in any period.

During the year ended August 31, 2024, we purchased a total of 38 thousand shares for $1.3 million. 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, 2024, the amount remaining for repurchase under the share repurchase program was $45.1 million.

Cash, Borrowing Availability and Credit Facilities

Our current cash balance is part of our strategy to maintain strong liquidity to respond to current uncertainties. As of August 31, 2024, we had $351.8 million in Cash and cash equivalents and $345.9 million in available borrowings. The available balance to draw under committed credit facilities includes $258.3 million on the North American credit facility, $31.6 million on the European credit facilities and $56.0 million on the Mexican credit facilities.

Our senior secured credit facilities, consisting of four components, aggregated to $1.4 billion as of August 31, 2024.

Nonrecourse Credit Facilities

GBX Leasing – As of August 31, 2024, a $550.0 million nonrecourse warehouse credit facility existed to support the operations of GBX Leasing. Advances under the facility are secured by a pool of leased railcars and bear interest at the Secured Overnight Financing Rate (SOFR) plus 1.85% plus 0.11% as a SOFR adjustment. As of August 31, 2024, interest rate swap agreements cover 74% of the outstanding balance to swap the floating interest rate to a fixed rate. The warehouse credit facility was amended in September 2024 to reduce the size of the credit facility by $100.0 million to $450.0 million and to extend the maturity date from August 2027 to September 2029. The warehouse credit facility currently converts to a term loan in September 2027.

Other Credit Facilities

North America – As of August 31, 2024, a $600.0 million revolving line of credit existed to provide working capital and interim financing of equipment, principally for our U.S. and Mexican operations. The North America credit facility is secured by substantially all our U.S. assets not otherwise pledged as security for term loans, the warehouse credit facility or the railcar asset-backed securities. Available borrowings 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. Advances bear interest at SOFR plus 1.50% plus 0.10% as a SOFR adjustment or Prime plus 0.50% depending on the type of borrowing. The North America credit facility matures in August 2026.

Europe – As of August 31, 2024, lines of credit totaling $78.2 million, secured by certain of our European assets, were available for working capital needs of our European manufacturing operations. The European lines of credit include $33.1 million which are guaranteed by us. The European credit facilities have variable rates that range from Warsaw Interbank Offered Rate (WIBOR) plus 1.10% to WIBOR plus 1.45% and Euro Interbank Offered Rate (EURIBOR) plus 1.90%. The European credit facilities are regularly renewed and currently have maturities that range from October 2024 through September 2026.

43

Mexico – As of August 31, 2024, our Mexican railcar manufacturing operations had lines of credit totaling $166.0 million for working capital needs, $66.0 million of which we and our joint venture partner have each guaranteed 50%. Advances under these facilities bear interest at variable rates that range from SOFR plus 2.22% to SOFR plus 4.25%. The Mexican credit facilities have maturities that range from February 2025 through January 2027.

[[GREPCENT_TABLE]]
[["","","As of August 31,"],["(In millions)","","2024","","","2023"],["Nonrecourse credit facility balances:"],["GBX Leasing","","$","194.9","","","$","139.9"],["Other credit facility balances:"],["North America","","","\u2014","","","","\u2014"],["Europe","","","46.7","","","","47.2"],["Mexico","","","110.0","","","","110.0"],["Total Revolving notes","","$","351.6","","","$","297.1"]]
[[/GREPCENT_TABLE]]

Outstanding commitments under the North American credit facility included letters of credit which totaled $5.9 million and $4.9 million as of August 31, 2024 and 2023, respectively.

Other Information

The revolving and operating lines of credit, along with notes payable, contain covenants with respect to us and our various subsidiaries, the most restrictive of which, among other things, limit our ability to: incur additional indebtedness or guarantees; pay dividends or repurchase stock; enter into financing leases; create liens; sell assets; engage in transactions with affiliates, including joint ventures and non U.S. subsidiaries, including but not limited to loans, advances, equity investments and guarantees; enter into mergers, consolidations or sales of substantially all our assets; and enter into new lines of business. The covenants also require certain maximum ratios of debt to total capitalization and minimum levels of fixed charges (interest plus rent) coverage. As of August 31, 2024, 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 $653.1 million of variable rate debt to fixed rate debt as of August 31, 2024.

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, 2024:

[[GREPCENT_TABLE]]
[["","","Year Ended August 31,"],["(In millions)","","Total","","","2025","","","2026","","","2027","","","2028","","","2029","","","Thereafter"],["Notes payable 1","","$","1,420.9","","","$","42.8","","","$","265.5","","","$","312.4","","","$","389.2","","","$","14.6","","","$","396.4"],["Interest 2","","","437.1","","","","70.9","","","","65.2","","","","50.6","","","","29.2","","","","17.9","","","","203.3"],["Railcar & operating leases","","","72.9","","","","14.6","","","","13.5","","","","10.7","","","","9.8","","","","8.0","","","","16.3"],["Revolving notes","","","351.6","","","","154.4","","","","2.3","","","","194.9","","","","\u2014","","","","\u2014","","","","\u2014"],["","","$","2,282.5","","","$","282.7","","","$","346.5","","","$","568.6","","","$","428.2","","","$","40.5","","","$","616.0"]]
[[/GREPCENT_TABLE]]

1 The repayment of 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, 2024.

Off-Balance Sheet Arrangements

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 4 - Divestitures to the Consolidated Financial Statements.

Goodwill - We evaluate goodwill for possible impairment annually or more frequently if events or changes in circumstances indicate that the carrying amounts of our reporting units exceed their fair value. We test goodwill for impairment by either performing a qualitative or quantitative assessment. When we perform a qualitative assessment, we analyze macroeconomic and industry conditions, financial performance, and cost estimates associated with a particular reporting unit. This assessment requires subjectivity based on cumulative information available at the assessment date. If a qualitative assessment indicates it is more likely than not that the carrying value of a reporting unit exceeds its respective fair value, a quantitative assessment is performed. We performed a qualitative assessment for our annual goodwill impairment test during the third quarter of 2024 and determined that it was more likely than not that the fair values of all reporting units with goodwill exceeded their carrying values; therefore, we concluded that goodwill was not impaired.

When we perform a quantitative assessment, we exercise judgment to develop estimates of the fair values 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

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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. In 2023, we performed a quantitative goodwill impairment test and determined that the estimated fair values of all reporting units with goodwill exceeded their carrying values.

We make certain estimates and assumptions to determine our reporting units and whether the fair value of each reporting unit is greater than its respective carrying 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 7 - Goodwill 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 17 - Income Taxes to 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 misstated. 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 21 - Commitments and Contingencies to the Consolidated Financial Statements.

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