Greenbrier Companies, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended August 31, 2021; comparisons are primarily with FY2020. Greenbrier designs and manufactures railcars and marine barges and provides railcar leasing, management, repair, wheel and parts services. Its reportable segments are Manufacturing; Wheels, Repair & Parts; and Leasing & Services.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $1.748 billion | $2.792 billion |
| Gross margin dollars / margin rate | $231.6 million / 13.2% | $353.1 million / 12.6% |
| Operating earnings | $41.0 million | $168.4 million |
| Net earnings attributable to Greenbrier | $32.5 million | $49.0 million |
| Diluted EPS | $0.96 | $1.46 |
| Cash from operating activities | $(40.5) million | $272.3 million |
| Cash from investing activities | $(117.8) million | $27.5 million |
| Cash from financing activities | $(22.7) million | $216.5 million |
- Cash and cash equivalents were $646.8 million, with restricted cash of $24.6 million, at year-end. The company reported $187.9 million available under committed credit facilities.
- Reported debt carrying values were $372.2 million of revolving notes and $826.5 million of notes payable, net of discounts and issuance costs. Debt covenants were met at year-end.
- Manufacturing revenue fell 43.4% to $1.330 billion; deliveries declined 43.2% to 11,300 railcars. Manufacturing operating profit dropped to $67.1 million from $197.4 million.
- Wheels, Repair & Parts revenue declined 8.1% to $298.3 million, with operating profit of $6.5 million. Leasing & Services revenue increased 1.8% to $119.7 million and operating profit rose 22.2% to $50.0 million.
Changes, outlook and management commentary
- Revenue declined 37.4%, primarily due to fewer manufacturing deliveries amid the freight-equipment downturn and COVID-19 disruption. Operating earnings and attributable net earnings also declined substantially. Overall margin rate improved to 13.2%, largely because of lease modification and transfer fees; lower manufacturing volumes and pandemic-related costs pressured manufacturing margins.
- FY2021 pretax results were a loss of $8.6 million, but a $40.2 million income tax benefit—primarily from CARES Act loss carrybacks and accelerated depreciation—supported net earnings.
- Year-end railcar backlog was 26,600 units, valued at an estimated $2.81 billion, up from 24,600 units and $2.42 billion in FY2020. About 14,500 units were scheduled for delivery in FY2022; the remainder was scheduled for 2023 and beyond. Marine backlog was $70 million. Backlog is not a guarantee of future revenue and may be delayed, changed or cancelled.
- Management reported new railcar orders of 17,200 units, valued at approximately $1.8 billion, during FY2021. It described the company as entering a recovery phase while continuing to prioritize liquidity, safe operations and production readiness. Management cautioned that the timing and magnitude of further COVID-19 and market effects could not be predicted.
- Greenbrier launched GBX Leasing in April 2021, with approximately 95% ownership, to grow its owned leased-railcar portfolio by about $200 million annually and reduce dependence on new-car order cycles. The venture had a $300 million non-recourse warehouse facility, with $147 million borrowed at year-end; $197.1 million of rail assets were sold or contributed to it.
- FY2022 capital expenditures were estimated at approximately $340 million: $275 million for Leasing & Services, $55 million for Manufacturing and $10 million for Wheels, Repair & Parts. A quarterly dividend of $0.27 per share was declared after year-end. The company said available funds, operating cash generation and financing were expected to cover obligations and planned needs over the next 12 months.
- Debt refinancing included $373.8 million of 2.875% convertible notes due 2028 and retirement of $277.3 million of convertible notes due 2024. The domestic revolving facility and term loan were extended to 2026; the Leasing & Services term loan was extended to 2027. FY2021 included a $6.3 million loss on debt extinguishment.
Risks, contingencies and unusual items
- Management cited an ongoing cyclical downturn, pandemic-related disruption, steel and component inflation and shortages, shipping delays, skilled-labor constraints and uncertainty in customer demand. Fixed-price contracts may not fully offset input-cost increases.
- Two customers each accounted for 13% of FY2021 revenue. Supplier concentration is also notable: the top supplier represented 18% of inventory purchases.
- Portland Harbor Superfund remediation remains a material uncertainty. The EPA estimated total site cleanup costs of $1.7 billion, but Greenbrier’s share is not allocated or estimable from the information available. The company says investigations continue and its potential liability cannot yet be determined. Separate Portland property investigations could also require remediation.
- Other exposures include possible legacy retrofit and repair obligations assumed with the ARI manufacturing acquisition, product and warranty claims, rail accidents, foreign-exchange and variable-rate interest exposure, and risks to railcar lease rates, utilization and residual values.
- At year-end, 51% of outstanding debt had variable rates; management estimated a uniform 10% increase in variable rates would add about $0.7 million to annual interest expense. The company also disclosed possible currency-translation effects on foreign net assets.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. The auditor identified goodwill impairment assessment for European Manufacturing and Wheels & Parts as a critical audit matter; no goodwill impairment was recorded for FY2021.
Most important facts for investors to verify
- Whether railcar demand, deliveries and Manufacturing margins recover, and whether the $2.81 billion backlog converts to revenue on schedule and at expected pricing.
- Whether working-capital demands, lease-fleet investment and planned FY2022 capital expenditures can be funded without materially weakening cash or increasing borrowing.
- GBX Leasing’s fleet growth, utilization, financing costs and ability to generate the intended recurring cash flows.
- The eventual allocation and estimate of Greenbrier’s potential Portland Harbor and Portland property environmental liabilities.
- The company’s ability to pass through steel, component, labor and logistics cost increases, and to manage customer and supplier concentration.
- Debt maturities, covenant headroom, variable-rate exposure and potential dilution from convertible notes.