Business Context and Reporting Period
Company: The Greenbrier Companies, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: February 28, 2010
Business Overview: Greenbrier operates in three primary segments: Manufacturing (railcars and marine vessels), Refurbishment & Parts (repair and maintenance), and Leasing & Services (fleet ownership and management). The company is currently navigating a weak economic environment characterized by depressed demand, market saturation, and tight capital markets, leading to reduced production at certain facilities.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Feb 28, 2010 | Six Months Ended Feb 28, 2010 |
|---|---|---|
| Total Revenue | $199,950 | $371,642 |
| Net Loss (Attributable to Controlling Interest) | $(4,752) | $(7,996) |
| Loss Per Share (Diluted) | $(0.28) | $(0.47) |
| Operating Cash Flow | N/A | $7,790 |
| Cash and Cash Equivalents | $67,907 | $67,907 |
| Total Debt (Notes Payable + Revolving) | $544,457 | $544,457 |
| Working Capital | $(10,574) | $(10,574) |
Note: Working Capital calculated as Current Assets ($302,346) minus Current Liabilities ($312,920).
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 30.3% year-over-year for the three months ended Feb 28, 2010 ($199.9M vs. $287.1M) and 31.6% for the six-month period ($371.6M vs. $543.3M). This was driven primarily by lower railcar deliveries and reduced marine revenues.
- Improved Loss Position: Despite revenue declines, the net loss attributable to controlling interest narrowed significantly. For the three months ended Feb 28, 2010, the loss was $4.8M compared to $7.5M in the prior year. For the six months, the loss was $8.0M compared to $11.4M.
- Margin Improvement: Manufacturing segment margin improved to 7.3% (three months) and 7.2% (six months) from negative margins in the prior year, aided by a more favorable product mix and improved efficiencies. Refurbishment & Parts margins remained stable at approximately 11%.
- Backlog Reduction: Manufacturing backlog dropped to approximately 4,400 units ($380M) from 15,100 units ($1.31B) in the prior year.
- Interest Expense: Interest and foreign exchange expense increased to $12.4M (three months) and $23.5M (six months) due to warrant amortization and convertible debt discount amortization related to the adoption of ASC 470-20.
Guidance, Outlook, and Risks
- Operational Adjustments: The company is concentrating North American railcar manufacturing at its Mexican joint venture facility, temporarily shuttering production in Sahagun, Mexico, and limiting production in Portland, Oregon. Production in Sahagun is anticipated to resume in the fourth quarter of fiscal 2010.
- Contract Modifications: A long-term contract with General Electric Railcar Services Corporation was modified to reduce quantities to up to 6,000 railcars, with the first 3,800 units scheduled for delivery by July 2013. A new five-year maintenance agreement with GE was also secured.
- Liquidity: The company maintains $103.4M in available borrowing capacity under committed credit facilities. Management expects existing funds and cash flow to be sufficient for working capital and planned capital expenditures.
- Risks and Contingencies:
- Environmental Liability: Ongoing remediation and investigation costs related to the Portland Harbor Superfund site; ultimate liability is undetermined.
- Legal Proceedings: Significant litigation includes a settled claim with BC Rail (no additional cost) and ongoing warranty claims from SEB Finans AB regarding railcar defects.
- Market Volatility: Exposure to steel price fluctuations and foreign currency exchange rates, though hedging strategies are in place.
Investor Verification Checklist
- Backlog Quality: Verify the stability of the remaining $380M manufacturing backlog, noting that 400 units are subject to cancellation without penalty in calendar 2010.
- Production Restart: Monitor the timeline for restarting production at the Sahagun, Mexico facility and the impact on future revenue recognition.
- Environmental Exposure: Track the progress of the Portland Harbor remedial investigation and any updates on potential liability assessments.
- Debt Covenants: Review compliance with debt covenants, specifically debt-to-capitalization and interest coverage ratios, given the reduced operating margins.
- Non-Cash Charges: Analyze the impact of non-cash amortization charges (warrants and convertible debt discount) on reported net loss versus cash flow performance.