Business Context and Reporting Period
Company: The Greenbrier Companies, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: August 31, 2011
Business Overview: Greenbrier is a leading designer, manufacturer, and marketer of railroad freight car equipment in North America and Europe, as well as a manufacturer of ocean-going marine barges. The company operates an integrated business model across three primary segments: Manufacturing, Wheel Services, Refurbishment & Parts, and Leasing & Services. It owns approximately 9,000 railcars and manages a fleet of approximately 225,000 railcars.
Key Financial Metrics
| Metric | 2011 | 2010 | 2009 |
|---|---|---|---|
| Total Revenue | $1,243.3 million | $756.3 million | $1,016.2 million |
| Net Earnings (Attributable to Greenbrier) | $6.5 million | $4.3 million | ($56.4 million) |
| Diluted EPS | $0.24 | $0.21 | ($3.35) |
| Operating Margin | 5.4% | 6.9% | (2.8%) |
| Segment Margin Total | $139.5 million | $102.0 million | $91.2 million |
| Cash and Cash Equivalents | $50.2 million | $98.9 million | $76.2 million |
| Total Debt (Notes Payable & Revolving) | $519.5 million | $501.3 million | $541.2 million |
| Capital Expenditures | $84.3 million | $39.0 million | $38.8 million |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 64.4% to $1.24 billion, driven primarily by a 144% surge in Manufacturing revenue ($721.1 million) due to higher railcar deliveries (9,400 units vs. 2,500 units in 2010). This was partially offset by a decline in marine barge activity.
- Profitability: Net earnings increased to $6.5 million from $4.3 million. However, this result included a $9.4 million net-of-tax loss on the extinguishment of debt. Excluding this charge, earnings would have been significantly higher.
- Backlog Expansion: New railcar backlog units surged to 15,400 units with an estimated value of $1.23 billion, compared to 5,300 units valued at $420 million in 2010. Marine backlog was zero in 2011 compared to $10 million in 2010.
- Cash Flow: Operating cash flow turned negative, using $34.3 million, compared to providing $42.6 million in 2010. This was due to increased working capital needs to support ramped-up production levels.
Guidance, Outlook, and Risks
Outlook and Commentary: Management notes a continuing recovery in freight car markets but states that demand for marine barge products remains soft. Approximately 14,500 units of the current backlog are scheduled for delivery in 2012. The company expects existing funds and cash generated from operations to be sufficient to fund working capital and planned capital expenditures for the next twelve months.
Key Risks and Contingencies:
- Environmental Liability: The company is a potentially responsible party for the Portland Harbor Superfund site. A remedial investigation/feasibility study is underway, and the company cannot determine the ultimate liability amount, which could be material.
- Customer Concentration: Four customers (TTX, Union Pacific, BNSF, and GE) accounted for approximately 56% of total revenue in 2011.
- Commodity Prices: Fluctuations in steel and specialty component prices significantly impact margins. The company relies on fixed-price contracts or pass-through mechanisms to mitigate this risk.
- Debt Covenants: The company is subject to restrictive covenants regarding indebtedness, dividends, and asset sales. As of August 31, 2011, the company had $191.2 million available to draw down under committed credit facilities.
Investor Verification Checklist
- Debt Extinguishment Impact: Verify the impact of the $15.7 million pre-tax loss on extinguishment of debt (related to the retirement of senior notes and term loans) on the true operating performance.
- Backlog Conversion: Monitor the conversion of the $1.23 billion backlog into revenue, noting that product mix changes could alter the final dollar value.
- Environmental Exposure: Track the progress of the Portland Harbor Superfund study and any updates on cost allocation or liability assessments.
- Working Capital Trends: Observe the trend in accounts receivable and inventory, which increased significantly in 2011 to support production ramp-up, and its effect on future operating cash flow.
- Customer Concentration: Assess the stability of relationships with the top four customers representing over half of total revenue.