GBX

Business Context and Reporting Period

Company: The Greenbrier Companies, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: November 30, 2009
Business Overview: Greenbrier operates in three integrated segments: Manufacturing (new railcars and marine vessels), Refurbishment & Parts (repair, maintenance, and parts production), and Leasing & Services (ownership and management of railcar fleets). The company operates facilities in the U.S., Mexico, and Poland.

Key Financial Metrics

Note: Working Capital calculated as Current Assets (Cash, Restricted Cash, AR, Inventory, Assets held for sale) minus Current Liabilities (Revolving notes, AP, Accrued liabilities, Deferred revenue).

Material Changes vs. Prior Period

• Revenue Decline: Total revenue decreased by $84.4 million (33%) compared to the prior year, driven by lower railcar deliveries (approx. 350 units vs. 800 units) and reduced scrap metal prices affecting the Refurbishment segment.
• Improved Loss Position: Net loss attributable to controlling interest narrowed by $0.6 million year-over-year, despite the revenue drop. This was aided by improved margins in Manufacturing and Refurbishment segments and lower interest/foreign exchange expenses.
• Cash Flow Reversal: Operating cash flow swung from a use of $22.4 million in the prior year to a generation of $5.1 million, primarily due to timing of working capital needs and inventory purchases.
• Accounting Change: The company adopted ASC 470-20 regarding convertible debt, resulting in non-cash amortization charges of $2.1 million pre-tax included in the current quarter's loss.

Guidance, Outlook, and Risks

Management Commentary and Outlook

• Market Conditions: Management cites depressed demand, market saturation, and tight capital markets as key headwinds. Production is being concentrated at the Mexican joint venture facility, with other facilities temporarily shuttered or idled.
• Backlog: Manufacturing backlog stands at approximately 4,900 units valued at $430 million (down from 15,900 units/$1.39 billion a year ago). Marine backlog is $96.0 million.
• Contract Amendment: Subsequent to quarter-end, the company amended its contract with General Electric Railcar Services (GER), reducing quantities to up to 6,000 units but securing a price increase and a new five-year maintenance agreement valued at approx. $25 million.
• Capital Expenditures: Expected to be approximately $23 million for fiscal 2010 ($7M Manufacturing, $16M Refurbishment, minimal Leasing).

Risks and Contingencies

• Environmental Liability: Ongoing remediation and investigation at the Portland Harbor Site (Superfund site) with potential joint and several liability for investigation and natural resource damages.
• Litigation: Significant pending litigation includes a breach of contract claim by BC Rail Partnership (trial scheduled for 2011) and warranty disputes with SEB Finans AB and Okombi GmbH.
• Liquidity: The company relies on cash from operations and borrowings. Credit facilities contain restrictive covenants regarding debt levels and fixed charge coverage.
• Dividends: Quarterly dividends were suspended as of the third quarter of fiscal 2009.

Investor Verification Checklist

• Backlog Realization: Verify the convertibility of the reduced 4,900-unit backlog into actual revenue, noting that 400 units are subject to cancellation provisions.
• GE Contract Terms: Confirm the impact of the amended GER contract on future revenue recognition and the specific conditions required to trigger the remaining 2,200 units.
• Environmental Exposure: Monitor the status of the Portland Harbor Site remediation study (expected completion 2011) for potential material cost accruals.
• Covenant Compliance: Review debt covenants regarding debt-to-capitalization ratios and fixed charge coverage, especially given the suspension of dividends and current market volatility.
• Steel Price Volatility: Assess the effectiveness of hedging strategies and pass-through clauses in contracts given the volatility in steel and scrap prices.