To reduce coronavirus pandemic effects, The Greenbrier Companies has amended its 50:50 joint venture agreement with Grupo Industrial Monclova (GIMSA) the manufacturing partner at Greenbrier GIMSA railcar plant in Monclova, Mexico. This and other measures will help Greenbrier achieve its goal of USD 1 billion in total liquidity.
Under the new agreement, the two partners will receive additional revenue and dividends for a 12-month period, based on Greenbrier GIMSA revenue beginning March 1, 2020 and ending February 28, 2021. Greenbrier estimates these changes to be accretive to its earnings by approximately USD 0.40 per share, with USD 0.25 per share coming in its fiscal 2020 second half.
“We continue to improve our financial liquidity, including the temporary restructuring of a key partnership at our railcar manufacturing joint venture in Mexico in a manner beneficial to both partners,” William Furman, the Greenbrier Chairman said.
As part of the new measures, Greenbrier’s financial liquidity comprised of cash and borrowing availability, from USD 620 million to USD 1 billion, which helped improving the financial liquidity during the first two months of the fiscal third quarter by generating USD 170 million in cash flow.
Company’s stronger financial liquidity was achieved through a combination of borrowing capacity and spending reductions. Greenbrier increased borrowing capacity and liquidity by USD 200 million since Q2 of 2020 and has reduced the expenditures by USD 45 million. For the 2021 fiscal year is targeting a USD 40 million reduction. The annual reduction in selling and administrative expense is expected at USD 30 million, as all its business units are annually targeting a USD 65 million reduction.
Greenbrier has broadened its domestic borrowing base while also working to increase borrowing capabilities in Europe and Mexico.
Globally, Greenbrier has USD 700 million credit lines, of which USD 382 million is liquid. A deferral of employer payroll taxes as permitted under the CARES Act will generate at least USD 9 million until the deferment period culminates at the end of calendar 2020.
The combination of the increase in financial liquidity and spending reductions has a total of USD 1 billion compared to February 29, 2020 liquidity of USD 620 million, positioning Greenbrier to face the crisis.
“We continue to reduce operating expenses and capital outflows, while reducing selling and administrative and other non-essential expenses. Operations continue under national and local government “Essential Business” designations at all Greenbrier global locations in North America, Europe and South America,” William Furman said.