Business Context and Reporting Period
Company: The Greenbrier Companies, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: August 31, 2010
Industry: Railroad freight car equipment, marine barges, wheel services, and leasing.
Operations: The Company operates in three primary segments: Manufacturing (North American and European railcars, marine vessels), Wheel Services, Refurbishment & Parts (repair, refurbishment, component parts), and Leasing & Services (ownership and management of railcar fleets). The Company is a leading North American manufacturer of intermodal railcars with approximately 60% market share.
Key Financial Metrics
| Metric | 2010 | 2009 | 2008 |
|---|---|---|---|
| Total Revenue | $764.5 million | $1,018.1 million | $1,290.1 million |
| Net Earnings (Loss) Attributable to Greenbrier | $4.3 million | ($56.4 million) | $17.4 million |
| Diluted EPS | $0.21 | ($3.35) | $1.06 |
| Operating Cash Flow | $42.6 million | $120.5 million | $32.1 million |
| Total Assets | $1,072.9 million | $1,048.3 million | $1,257.0 million |
| Total Debt (Notes Payable & Revolving) | $501.3 million | $541.2 million | $581.0 million |
| Cash and Cash Equivalents | $98.9 million | $76.2 million | $5.9 million |
| Capital Expenditures | $39.0 million | $38.8 million | $77.6 million |
Segment Margins (2010): Manufacturing (9.2%), Wheel Services, Refurbishment & Parts (11.7%), Leasing & Services (47.5%).
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 25% to $764.5 million from $1.02 billion in 2009. This was driven by a 36% drop in Manufacturing revenue (due to lower railcar deliveries and marine production) and an 18% drop in Wheel Services revenue (lower volumes).
- Return to Profitability: The Company returned to net earnings of $4.3 million in 2010, compared to a net loss of $56.4 million in 2009. The 2009 loss was significantly impacted by a $51.0 million goodwill impairment charge.
- Special Items: 2010 results included a $11.9 million pre-tax gain (net of tax) from the resolution of the bankruptcy of the former Canadian subsidiary, TrentonWorks. 2009 included $55.7 million in special charges related to goodwill impairment.
- Backlog Reduction: New railcar backlog dropped significantly to 5,300 units ($420 million) from 13,400 units ($1.16 billion) in 2009. Marine backlog was reduced by approximately $60 million due to order cancellations.
- Liquidity Improvement: Cash and cash equivalents increased to $98.9 million from $76.2 million, aided by a $52.7 million equity offering in May 2010.
Guidance, Outlook, Risks, and Unusual Items
- Outlook: Management noted signs of recovery in freight car markets but stated that demand for marine barges remains soft. The Company expects existing funds and cash flow to be sufficient for working capital and planned capital expenditures.
- Capital Expenditure Guidance: Expected capital expenditures for 2011 are approximately $40.0 million for Leasing & Services, $16.0 million for Manufacturing, and $28.0 million for Wheel Services (including a new facility).
- Unusual Items:
- Canadian Subsidiary: Resolution of TrentonWorks bankruptcy resulted in an $11.9 million income recognition.
- Debt Extinguishment: A $3.2 million gain was recorded on the early retirement of $32.3 million of convertible senior notes.
- Equity Offering: Issued 4.5 million shares for net proceeds of $52.7 million.
- Key Risks:
- Cyclicality: Business is highly sensitive to economic downturns and interest rates.
- Customer Concentration: Three customers (BNSF, Union Pacific, GE) accounted for 42% of total revenue in 2010.
- Raw Materials: Fluctuations in steel prices significantly impact margins.
- Environmental Liability: Ongoing investigation and potential remediation costs related to the Portland Harbor Superfund site; ultimate liability is undetermined.
- Debt Covenants: High indebtedness limits financial flexibility and ability to incur additional debt or pay dividends.
Investor Verification Checklist
- Backlog Quality: Verify the stability of the remaining $420 million railcar backlog and the likelihood of marine order cancellations persisting.
- Special Item Sustainability: Confirm that the $11.9 million gain from the Canadian subsidiary resolution is a one-time event and not indicative of recurring earnings power.
- Debt Maturity Profile: Review the schedule of debt repayments, noting significant maturities in 2012 ($76.3 million) and 2015 ($276.9 million), and assess refinancing risks.
- Environmental Exposure: Monitor updates on the Portland Harbor Superfund site investigation and potential cost allocations.
- Customer Concentration: Assess the risk of order reductions from the top three customers who represent nearly half of total revenue.
- Goodwill Impairment: Evaluate the $137.1 million goodwill balance in the Wheel Services segment for potential future impairment if market conditions deteriorate.