Greenbrier Companies, Inc. — FY 2012 Form 10-K
Reporting period: Fiscal year ended August 31, 2012. The filing also reports fourth-quarter results. Greenbrier designs and manufactures railcars and marine barges and provides railcar repair, wheel services, leasing, and fleet-management services through three integrated segments.
Financial performance
Amounts are in millions of dollars unless otherwise stated.
| Metric | FY 2012 | FY 2011 | Change |
|---|---|---|---|
| Revenue | $1,807.7 | $1,243.3 | +45.4% |
| Segment margin | $214.4 | $139.5 | +53.7% |
| Operating earnings | $118.8 | $67.6 | +75.8% |
| Net earnings attributable to Greenbrier | $58.7 | $6.5 | Increased substantially |
| Diluted earnings per share | $1.91 | $0.24 | Increased substantially |
| Cash from operating activities | $116.1 | $(34.3) | Improved by $150.3 |
- Consolidated operating margin was approximately 6.6% of revenue; net margin attributable to Greenbrier was approximately 3.2%.
- Manufacturing revenue rose to $1,254.0 million from $721.1 million, driven by deliveries of 15,000 railcars versus 9,400 and a higher average selling price, partly reflecting product mix. Manufacturing margin increased to $131.6 million, or 10.5% of revenue, from $60.0 million, or 8.3%.
- Wheel Services, Refurbishment & Parts revenue rose to $481.9 million from $452.9 million, while margin declined as a share of revenue to 10.0% from 10.5%, reflecting mix, operating inefficiencies, and higher warranty costs.
- Leasing & Services revenue was $71.9 million versus $69.3 million; its margin rate improved to 48.0% from 46.4%. Owned-fleet utilization was 93.5%, down from 95.7%.
- Fourth-quarter revenue was $443.5 million, operating earnings $27.0 million, net earnings attributable to Greenbrier $7.4 million, and diluted EPS $0.26. In fourth-quarter 2011, the corresponding figures were $442.7 million, $31.2 million, $12.6 million, and $0.42.
- Capital expenditures were $117.9 million, up from $84.3 million; proceeds from equipment sales were $33.6 million. Cash and cash equivalents were $53.6 million at year-end, compared with $50.2 million.
Debt and liquidity
- Total revolving notes and notes payable were approximately $488.8 million at August 31, 2012, down from $519.5 million a year earlier. Total equity was $453.6 million, up from $375.9 million.
- Greenbrier reported $299.5 million available to draw under committed credit facilities, subject to borrowing-base limits and financial covenants. No borrowings were outstanding under the $290 million North American revolving facility at year-end.
- Contractual obligations totaled $587.7 million, including $430.5 million of notes payable and $56.4 million of estimated interest. Scheduled 2013 notes-payable payments were $73.5 million; this includes the $67.7 million 2026 convertible notes, which holders could require the company to repurchase in May 2013.
- Management expected cash, operating cash flow, and financing sources to cover working capital, planned capital expenditures, and expected debt repayments for the next 12 months. The filing does not provide formal revenue or earnings guidance.
Changes, outlook, and notable items
- Management attributed the strong annual improvement mainly to freight-car market recovery, higher deliveries, improved manufacturing margins at higher production rates, and lower interest expense following refinancing. FY 2011 earnings had been reduced by a $15.7 million debt-extinguishment loss.
- Railcar backlog at year-end was 10,700 units valued at an estimated $1.20 billion, versus 15,400 units and $1.23 billion in 2011. Approximately 7,300 units were scheduled for delivery in 2013, with the balance through 2014. Backlog may be changed or cancelled and is not necessarily predictive of future results.
- Marine backlog was approximately $25 million, compared with none in 2011. A letter of intent covering 15 barges valued at $60 million remained subject to significant permitting and other conditions.
- Planned 2013 capital spending was approximately $85 million across segments: $42 million net of equipment-sale proceeds for Leasing & Services, $28 million for Manufacturing, and $15 million for Wheel Services, Refurbishment & Parts.
- A Mexico City wheel shop issue involved approximately 700 wheel sets that did not conform to AAR mounting standards and could pose a failure risk. About 400 had been replaced or released by late October 2012; the company estimated replacement costs for these sets would not exceed $0.9 million, accrued in FY 2012. A further approximately 9,500 sets varied from standards, but management did not expect them to require immediate replacement or have material costs.
- Greenbrier faces potential Portland Harbor Superfund exposure. The company could not estimate its liability or a range of potential loss; the draft study estimated cleanup costs of $9 million to $163 million for the river area adjacent to its facility, without allocating responsibility among potentially responsible parties. Management said its investigation-related costs to date had not been material.
- Other key risks include customer concentration (three customers represented approximately 53% of FY 2012 revenue), steel and component availability and pricing, cyclicality and economic conditions, leverage and covenant compliance, foreign currency exposure, and product, warranty, litigation, and environmental liabilities. The company also guaranteed approximately $37.8 million of Mexican joint-venture debt and committed to fund half of a $10 million capacity-expansion investment.
- The company reported effective disclosure controls and internal control over financial reporting; its independent auditor issued unqualified opinions on the financial statements and internal controls.
Investor verification priorities
- Confirm delivery timing and realizability of the $1.20 billion railcar backlog, including potential order changes and the assumed product mix.
- Monitor the 2013 convertible-note repurchase option, scheduled debt payments, available borrowing capacity, and covenant headroom.
- Track utilization and returns on the growing owned lease fleet and whether planned capital expenditures convert to cash generation.
- Verify the full cost and resolution of the nonconforming wheel-set issue, including the additional approximately 9,500 sets.
- Follow EPA decisions and cost allocation for Portland Harbor, and any changes to Greenbrier’s potential environmental exposure.
- Assess customer concentration and whether steel, specialty-component supply, and production ramp-up affect margins and delivery schedules.