Greenbrier Companies, Inc. — FY2014 Form 10-K
Reporting period: Fiscal year ended August 31, 2014; quarterly figures below compare fiscal Q4 2014 with Q4 2013. Greenbrier manufactures railcars and marine barges and provides wheel, parts, leasing and fleet-management services. In July 2014, it contributed its railcar repair operations to a new 50/50 joint venture with Watco, GBW.
Financial performance
| Metric | FY2014 | FY2013 |
|---|---|---|
| Revenue | $2,204.0 million | $1,756.4 million |
| Gross margin | $322.2 million; 14.6% of revenue | $206.4 million; 11.7% of revenue |
| Operating earnings | $239.5 million; 10.9% of revenue | $41.7 million; 2.4% of revenue |
| Net earnings attributable to Greenbrier | $111.9 million; diluted EPS $3.44 | Loss of $11.0 million; diluted loss per share $0.41 |
| Cash from operating activities | $135.9 million | $104.6 million |
| Capital expenditures | $70.2 million | $60.8 million |
| Cash and cash equivalents at year-end | $184.9 million | $97.4 million |
| Total debt at year-end | $458.2 million | $422.1 million |
FY2014 revenue rose about 25%, chiefly on higher manufacturing deliveries: 16,200 railcar units versus 11,600 in FY2013. Manufacturing revenue increased to $1.625 billion and segment margin rose to 15.4% from 10.9%, reflecting product mix, pricing, lease-attached railcar syndications and improved production efficiency. Wheels, Repair & Parts revenue increased to $495.6 million, but its margin fell to 6.4% from 8.0%, partly due to repair-facility inefficiencies and less favorable parts mix. Leasing & Services revenue increased to $83.4 million; operating profit declined to $41.1 million from $42.4 million, mainly because of lower gains on equipment dispositions.
FY2014 earnings included a $29.0 million non-cash, pre-tax gain on the GBW contribution (about $13.6 million net of tax). FY2013 included a $76.9 million non-cash goodwill impairment charge ($71.8 million net of tax) and restructuring costs. These items materially affect the year-over-year earnings comparison. FY2014 interest and foreign-exchange expense was $18.7 million; income-tax expense was $72.4 million, an effective rate of 32.8%.
Fiscal Q4 comparison: Revenue was $618.1 million versus $484.2 million; operating earnings were $99.2 million versus $39.2 million; net earnings attributable to Greenbrier were $47.4 million versus $20.7 million; diluted EPS was $1.43 versus $0.64.
Liquidity, debt and capital allocation
- Operating cash flow increased to $135.9 million. Investing activities used $30.1 million, while financing activities used $17.6 million; cash increased by $87.5 million during the year.
- Year-end debt was approximately $458.2 million, including $445.1 million of notes payable and $13.1 million of revolving notes. The company reported $321.0 million available across committed credit facilities at year-end. Debt covenants restrict, among other things, additional borrowing, dividends and share repurchases.
- In March 2014, Greenbrier refinanced about $125 million of term debt with a six-year, $200 million secured term loan. It bears floating interest at LIBOR plus 1.75%; half of the initial balance was swapped to a fixed 3.7375% rate. About 75% of outstanding debt was fixed-rate at year-end.
- The board reinstated quarterly dividends at $0.15 per share in 2014. Greenbrier repurchased 764,546 shares for about $34.4 million during the fiscal year and completed its $50 million program in October 2014, when it authorized a new program of up to $50 million.
Business developments, outlook and risks
- Railcar backlog at August 31, 2014 was 31,500 units valued at an estimated $3.33 billion, up from 14,400 units and $1.52 billion a year earlier. At least 17,000 units were scheduled for 2015 delivery, with the remaining production planned through 2018. Subsequent to year-end, Greenbrier received orders for 11,400 units valued at nearly $1 billion, subject to customary documentation and final terms. Backlog may be modified or cancelled and is not a guarantee of future revenue.
- Marine backlog was approximately $112 million, compared with $10 million a year earlier. Management expected FY2015 capital expenditures of approximately $95 million for Manufacturing, $35 million for Leasing & Services and corporate, and $10 million for Wheels, Repair & Parts. It expected about $10 million of proceeds from leased-railcar sales. Management stated that existing funds, operating cash flow and financing sources should cover dividends, working capital, planned capital expenditures and expected debt repayments over the next 12 months. No specific earnings or revenue guidance was provided.
- Manufacturing capacity expansion, particularly for tank cars in Mexico, and relocation from a leased Sahagun facility to a purchased Tlaxcala site were underway. Tlaxcala began production in October 2014; management expected relocation and startup costs in FY2015. Execution, timing and cost overruns could affect operations.
- Demand is cyclical and sensitive to economic conditions, interest rates, rail freight activity, product mix and energy-related transportation demand. Tank-car safety rule changes could alter orders, require retrofits, affect the value of existing cars and constrain supplies. Steel and specialized-component availability and pricing are also significant risks.
- Two customers, CIT and TTX, represented about 41% of FY2014 revenue; CIT alone represented approximately 24% and TTX 17%. The ten largest suppliers represented about 45% of inventory purchases, with Amsted Rail at 19%.
- Greenbrier and more than 140 other parties face potential liability relating to the Portland Harbor Superfund site. The company said available information did not allow it to determine its liability or estimate a loss range; cleanup costs for the area adjacent to its facility in draft alternatives ranged from $9 million to $163 million, without allocation among responsible parties.
- An independent investigation was underway into whistleblower allegations concerning a senior employee at the Concarril facility in Mexico, including possible procurement conflicts and personal use of company resources. Greenbrier voluntarily notified the SEC and Department of Justice; it stated the investigation was at an early stage and that information then available indicated no material financial impact.
- Other exposures include customer and supplier concentration, lease-fleet remarketing and residual values, variable-rate debt, foreign exchange, warranty and product-liability claims, and litigation. Greenbrier stated that its financial statements received an unqualified audit opinion and that internal control over financial reporting was effective.
Important facts for investors to verify
- Whether the substantial railcar and marine backlogs convert to deliveries, revenue and margins on schedule, and the status of the post-year-end orders.
- Whether Mexico capacity expansion and the Tlaxcala transition meet expected timing and cost, and how tank-car regulations affect demand and existing fleet assets.
- Liquidity and covenant headroom, refinancing needs and the large scheduled debt maturities, including the 2018 convertible notes and term-loan balloon payment.
- Developments in the Portland Harbor investigation and any eventual remediation allocation or other environmental obligations.
- Findings and consequences of the Concarril investigation, including any regulatory, control or financial effects.
- How GBW performs and whether additional capital contributions or loans are required under the joint-venture plan.