e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
for the quarterly period ended May 31, 2008
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
for the transition period from to
Commission File No. 1-13146
THE GREENBRIER COMPANIES, INC.
(Exact name of registrant as specified in its charter)
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Oregon
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93-0816972 |
(State of Incorporation)
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(I.R.S. Employer Identification No.) |
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One Centerpointe Drive, Suite 200, Lake Oswego, OR
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97035 |
(Address of principal executive offices)
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(Zip Code) |
(503) 684-7000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o (Do not check if a smaller reporting company)
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act)
Yes o No þ
The number
of shares of the registrants common stock, without par value,
outstanding on June 30,
2008 was 16,606,250 shares.
THE GREENBRIER COMPANIES, INC.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Consolidated Balance Sheets
(In thousands, unaudited)
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May 31, |
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August 31, |
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2008 |
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2007 |
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Assets |
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Cash and cash equivalents |
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$ |
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$ |
20,808 |
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Restricted cash |
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1,722 |
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2,693 |
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Accounts receivable |
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182,188 |
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157,038 |
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Inventories |
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239,760 |
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194,883 |
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Assets held for sale |
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57,895 |
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42,903 |
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Equipment on operating leases |
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318,741 |
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294,326 |
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Investment in direct finance leases |
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8,577 |
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9,040 |
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Property, plant and equipment |
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132,640 |
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112,813 |
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Goodwill |
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219,261 |
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168,987 |
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Intangibles and other assets |
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82,423 |
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69,258 |
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$ |
1,243,207 |
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$ |
1,072,749 |
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Liabilities and Stockholders Equity |
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Revolving notes |
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$ |
101,423 |
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$ |
39,568 |
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Accounts payable and accrued liabilities |
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275,101 |
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244,068 |
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Losses in excess of investment in de-consolidated subsidiary |
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15,313 |
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Deferred income taxes |
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70,592 |
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61,410 |
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Deferred revenue |
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20,015 |
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18,052 |
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Notes payable |
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497,166 |
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460,915 |
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Minority interest |
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9,189 |
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5,146 |
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Commitments and contingencies (Note 15) |
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Stockholders equity: |
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Preferred stock without par value; 25,000 shares
authorized; none outstanding |
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Common stock without par value; 50,000 shares
authorized; 16,606 and 16,169 shares outstanding at
May 31, 2008 and August 31, 2007 |
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17 |
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16 |
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Additional paid-in capital |
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81,261 |
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78,332 |
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Retained earnings |
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173,530 |
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165,408 |
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Accumulated other comprehensive loss |
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(400 |
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(166 |
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254,408 |
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243,590 |
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$ |
1,243,207 |
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$ |
1,072,749 |
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The accompanying notes are an integral part of these statements.
2
THE GREENBRIER COMPANIES, INC.
Consolidated Statements of Operations
(In thousands, except per share amounts; unaudited)
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Three Months Ended |
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Nine Months Ended |
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May 31, |
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May 31, |
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2008 |
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2007 |
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2008 |
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2007 |
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Revenue |
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Manufacturing |
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$ |
201,825 |
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$ |
241,399 |
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$ |
484,413 |
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$ |
529,293 |
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Refurbishment & parts |
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152,367 |
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118,213 |
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368,833 |
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264,760 |
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Leasing & services |
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27,914 |
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26,994 |
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74,812 |
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79,154 |
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382,106 |
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386,606 |
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928,058 |
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873,207 |
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Cost of revenue |
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Manufacturing |
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200,813 |
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221,203 |
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469,602 |
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498,713 |
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Refurbishment & parts |
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120,442 |
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96,288 |
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302,790 |
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221,408 |
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Leasing & services |
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12,218 |
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11,339 |
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36,422 |
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34,370 |
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333,473 |
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328,830 |
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808,814 |
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754,491 |
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Margin |
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48,633 |
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57,776 |
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119,244 |
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118,716 |
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Other costs |
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Selling and administrative |
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23,407 |
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20,092 |
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64,591 |
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56,017 |
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Interest and foreign exchange |
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9,990 |
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10,930 |
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30,263 |
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30,986 |
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Special charges |
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3,091 |
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2,302 |
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19,576 |
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33,397 |
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34,113 |
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97,156 |
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106,579 |
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Earnings before income taxes,
minority interest and equity in
unconsolidated subsidiaries |
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15,236 |
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23,663 |
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22,088 |
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12,137 |
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Income tax expense |
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(7,573 |
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(11,047 |
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(12,432 |
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(3,398 |
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Earnings before minority interest
and equity in unconsolidated
subsidiaries |
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7,663 |
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12,616 |
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9,656 |
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8,739 |
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Minority interest |
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272 |
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178 |
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2,014 |
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217 |
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Equity in earnings (loss) of
unconsolidated subsidiaries |
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191 |
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223 |
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522 |
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(140 |
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Net earnings |
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$ |
8,126 |
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$ |
13,017 |
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$ |
12,192 |
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$ |
8,816 |
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Basic earnings per common share |
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$ |
0.49 |
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$ |
0.81 |
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$ |
0.75 |
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$ |
0.55 |
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Diluted earnings per common share |
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$ |
0.49 |
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$ |
0.81 |
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$ |
0.75 |
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$ |
0.55 |
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Weighted average common shares: |
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Basic |
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16,507 |
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16,105 |
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16,323 |
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16,017 |
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Diluted |
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16,529 |
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16,139 |
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16,347 |
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16,058 |
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The accompanying notes are an integral part of these statements.
3
THE GREENBRIER COMPANIES, INC.
Consolidated Statements of Cash Flows
(In thousands, unaudited)
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Nine Months Ended |
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May 31, |
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2008 |
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2007 |
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Cash flows from operating activities |
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Net earnings |
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$ |
12,192 |
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$ |
8,816 |
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Adjustments to reconcile net earnings to net cash provided by
operating activities: |
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Deferred income taxes |
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9,182 |
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2,688 |
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Depreciation and amortization |
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25,333 |
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24,496 |
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Gain on sales of equipment |
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(6,998 |
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(10,781 |
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Special charges |
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2,302 |
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19,576 |
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Minority interest |
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(1,957 |
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(318 |
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Other |
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(103 |
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170 |
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Decrease (increase) in assets (net of acquisitions): |
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Accounts receivable |
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(7,338 |
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4,553 |
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Inventories |
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(15,136 |
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10,916 |
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Assets held for sale |
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(16,313 |
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1,556 |
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Other |
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(1,476 |
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(1,667 |
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Increase (decrease) in liabilities (net of acquisitions): |
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Accounts payable and accrued liabilities |
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21,211 |
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(36,309 |
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Deferred revenue |
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(939 |
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6,114 |
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Net cash provided by operating activities |
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19,960 |
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29,810 |
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Cash flows from investing activities |
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Principal payments received under direct finance leases |
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274 |
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426 |
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Proceeds from sales of equipment |
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13,375 |
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114,719 |
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Investment in and net advances to unconsolidated subsidiary |
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519 |
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(869 |
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Acquisitions, net of cash acquired |
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(91,285 |
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(267,903 |
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De-consolidation of subsidiary |
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(1,217 |
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Decrease (increase) in restricted cash |
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1,690 |
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(445 |
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Capital expenditures |
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(64,477 |
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(126,442 |
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Net cash used in investing activities |
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(141,121 |
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(280,514 |
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Cash flows from financing activities |
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Changes in revolving notes |
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48,878 |
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34,106 |
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Proceeds from issuance of notes payable |
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49,613 |
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99,441 |
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Repayments of notes payable |
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(5,569 |
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(4,082 |
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Repayment of subordinated debt |
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(2,091 |
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Dividends |
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(3,933 |
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(3,851 |
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Stock options exercised and restricted stock awards |
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2,921 |
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2,616 |
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Excess tax benefit of stock options exercised |
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9 |
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2,774 |
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Investment by joint venture partner |
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6,000 |
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5,400 |
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Net cash provided by financing activities |
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97,919 |
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134,313 |
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Effect of exchange rate changes |
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2,434 |
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|
1,816 |
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Decrease in cash and cash equivalents |
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(20,808 |
) |
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(114,575 |
) |
Cash and cash equivalents |
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Beginning of period |
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20,808 |
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142,894 |
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End of period |
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$ |
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$ |
28,319 |
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Cash paid during the period for |
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Interest |
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$ |
30,593 |
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$ |
30,876 |
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Income taxes |
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$ |
3,909 |
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$ |
3,487 |
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Supplemental disclosure of non-cash activity: |
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Assumption of Rail Car America capital lease obligation |
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$ |
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$ |
119 |
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Seller receivable netted against acquisition note |
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$ |
503 |
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$ |
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De-consolidation of subsidiary (see note 4) |
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$ |
15,313 |
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$ |
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Supplemental disclosure of acquisitions (see note 2) |
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Assets acquired, net of cash |
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$ |
(96,480 |
) |
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$ |
(327,802 |
) |
Liabilities assumed |
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|
5,195 |
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|
53,768 |
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Acquisition note payable |
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|
3,000 |
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Cash acquired |
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|
3,131 |
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Acquisitions, net of cash acquired |
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$ |
(91,285 |
) |
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$ |
(267,903 |
) |
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|
The accompanying notes are an integral part of these statements.
4
THE GREENBRIER COMPANIES, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 Interim Financial Statements
The Condensed Consolidated Financial Statements of The Greenbrier Companies, Inc. and Subsidiaries
(Greenbrier or the Company) as of May 31, 2008 and for the three and nine months ended May 31, 2008
and 2007 have been prepared without audit and reflect all adjustments (consisting of normal
recurring accruals except for special charges) which, in the opinion of management, are necessary
for a fair presentation of the financial position and operating results for the periods indicated.
The results of operations for the three and nine months ended May 31, 2008 are not necessarily
indicative of the results to be expected for the entire year ending August 31, 2008. Certain
reclassifications have been made to the Consolidated Financial Statements for prior periods to
conform to the current year presentation.
Certain notes and other information have been condensed or omitted from the interim financial
statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements
should be read in conjunction with the Consolidated Financial Statements contained in the Companys
2007 Annual Report on Form 10-K.
Management estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires judgment on the part of management to
arrive at estimates and assumptions on matters that are inherently uncertain. These estimates may
affect the amount of assets, liabilities, revenue and expenses reported in the financial statements
and accompanying notes and disclosure of contingent assets and liabilities within the financial
statements. Estimates and assumptions are periodically evaluated and may be adjusted in future
periods. Actual results could differ from those estimates.
On March 13, 2008, a subsidiary of the Company, TrentonWorks Ltd. (TrentonWorks) filed for
bankruptcy with The Office of the Superintendent of Bankruptcy Canada whereby the assets of
TrentonWorks are being administered and liquidated by an appointed trustee. The Company has not
guaranteed any obligations of TrentonWorks and does not believe it will be liable for any of
TrentonWorks liabilities. Under generally accepted accounting principles, consolidation is
generally required for investments of more than 50% ownership, except when control is not held by
the majority owner. Under these principles, bankruptcy represents conditions which can preclude
consolidation in instances where control rests with the bankruptcy court and trustee, rather than
the majority owner. As a result, the Company discontinued consolidation of TrentonWorks financial
statements beginning on March 13, 2008 and began reporting its investment in TrentonWorks using the
cost method. Under the cost method, the investment is reflected as a single amount on the
Companys Consolidated Balance Sheet. See Note 4 for further information.
Initial Adoption of Accounting Policies - In July 2006, the Financial Accounting Standards Board
(FASB) issued interpretation (FIN) No. 48, Accounting for Uncertainties in Income Tax an
Interpretation of FASB Statement No. 109. This interpretation clarifies the accounting for
uncertainties in income tax provisions. The Company adopted the provisions of FIN 48 on September
1, 2007. At the adoption date, the Company identified certain tax benefits taken for which a
reserve for uncertain tax positions was required under FIN 48. The total amount of this reserve,
including interest and penalties, is $11.8 million, of which $8.9 million is associated with
purchase accounting adjustments on the acquisition of Meridian Rail Holdings Corp. These amounts
had previously been reserved under Statement of Financial Accounting Standard (SFAS) No. 5 with the
exception of $0.1 million which was recorded as an adjustment to retained earnings in the three
months ended November 30, 2007. The Company recorded additional interest expense of $0.7 million
relating to reserves for uncertain tax provisions in the first three quarters of fiscal year 2008.
Interest and penalties related to income taxes are not classified as a component of income tax
expense. When unrecognized tax benefits are realized, the benefit related to deductible
differences attributable to ordinary operations will be recognized as a reduction of income tax
expense. The benefit related to deductible differences attributable to purchase accounting may
result in a reduction to goodwill. Within the next 12 months the Company believes it is reasonably
possible a decrease of approximately $9.2 million in the current FIN 48 reserve, with a
corresponding reduction in goodwill of $8.2 million and selling and administrative expenses of $1.0
million.
5
THE GREENBRIER COMPANIES, INC.
Prospective
Accounting Changes In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. This statement defines fair value, establishes a framework for measuring fair value
and enhances disclosures about fair value measurements. The measurement and disclosure requirements
are effective for the Company for the fiscal year beginning September 1, 2008. In January 2008,
the FASB issued FASB Staff Position (FSP) FAS 157-2 to defer SFAS No. 157s effective date for all
non-financial assets and liabilities, except those items recognized or disclosed at fair value on
an annual or more frequently recurring basis. This position is effective for the Company beginning
September 1, 2009. Management is evaluating whether there will be any impact on the Consolidated
Financial Statements from the adoption of SFAS No. 157.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities which is effective for the Company beginning September 1, 2008. SFAS No. 159
permits entities to choose to measure many financial assets and financial liabilities at fair value
rather than historical value. Unrealized gains and losses on items for which the fair value option
is elected are reported in earnings. Management is evaluating the alternatives allowed pursuant to
the adoption of SFAS No. 159.
In December 2007, the FASB issued SFAS No. 141R, Business Combinations. This statement establishes
the principles and requirements for how an acquirer: recognizes and measures the assets acquired,
liabilities assumed, and non-controlling interest; recognizes and measures goodwill; and identifies
disclosures. This statement is effective for the Company for business combinations entered into on
or after September 1, 2009.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements-an amendment of ARB No. 51. This statement establishes reporting standards for
non-controlling interests in subsidiaries. This standard is effective for the Company beginning
September 1, 2009. Management is evaluating the impact of this statement on its Consolidated
Financial Statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities-an amendment of SFAS No. 133. This statement requires enhanced disclosures about an
entitys derivative and hedging. This statement is effective for the Company beginning September
1, 2008. Management is evaluating the impact of this statement on its Consolidated Financial
Statements.
Note 2 Acquisitions
Roller Bearing Industries
On April 4, 2008 the Company purchased substantially all of the operating assets of Roller Bearing
Industries, Inc. (RBI) from SKF USA, Inc. for $8.1 million in cash, plus or minus working capital
adjustments. RBI operates a railcar bearings reconditioning business in Elizabethtown, Kentucky.
Reconditioned bearings are used in the refurbishment of railcar wheelsets. The financial results
of these operations since the acquisition are reported in the Companys Condensed Consolidated
Financial Statements as part of the refurbishment & parts segment. The impact of this acquisition
was not material to the Companys consolidated results of operations; therefore, pro forma
financial information has not been included. The allocation of the purchase price among certain
assets and liabilities is still in process. As a result, the allocation is preliminary and subject
to further refinement upon completion of analyses and valuations.
The preliminary fair value of the net assets acquired from RBI was as follows:
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Accounts receivable |
|
$ |
479 |
|
Inventories |
|
|
3,122 |
|
Property, plant and equipment |
|
|
1,526 |
|
Intangibles and other |
|
|
71 |
|
Goodwill |
|
|
3,073 |
|
|
|
|
|
Total assets acquired |
|
|
8,271 |
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
152 |
|
|
|
|
|
Total liabilities assumed |
|
|
152 |
|
|
|
|
|
Net assets acquired |
|
$ |
8,119 |
|
|
|
|
|
6
THE GREENBRIER COMPANIES, INC.
American Allied Railway Equipment Company
On March 28, 2008 the Company purchased substantially all of the operating assets of American
Allied Railway Equipment Company and its subsidiaries (AARE) for $83.2 million in cash, plus or
minus working capital adjustments. The purchase price was paid from existing cash balances and
credit facilities. The assets of AAREs three operating plants located in the midwestern and
southeastern U.S. are included in the acquisition. Operating from two wheel facilities in
Washington, Illinois and Macon, Georgia, AARE supplies new and reconditioned wheelsets to freight
car maintenance locations as well as new railcar manufacturing facilities. AARE also operates a
parts reconditioning business in Peoria, Illinois, where it reconditions railcar yokes, couplers,
side frames and bolsters. The financial results since the acquisition are reported in the Companys
Condensed Consolidated Financial Statements as part of the refurbishment & parts segment.
The allocation of the purchase price among certain assets and liabilities is still in process. As
a result, the information shown below is preliminary and subject to further refinement upon
completion of analyses and valuations.
The preliminary fair value of the net assets acquired from AARE was as follows:
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Accounts receivable |
|
$ |
8,908 |
|
Inventories |
|
|
12,653 |
|
Property, plant and equipment |
|
|
7,550 |
|
Intangibles and other |
|
|
11,911 |
|
Goodwill |
|
|
47,187 |
|
|
|
|
|
Total assets acquired |
|
|
88,209 |
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
5,043 |
|
|
|
|
|
Total liabilities assumed |
|
|
5,043 |
|
|
|
|
|
Net assets acquired |
|
$ |
83,166 |
|
|
|
|
|
The unaudited pro forma financial information presented below has been prepared to illustrate
Greenbriers consolidated results had the acquisition of AARE occurred at the beginning of each
period presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
May 31, |
|
May 31, |
(In thousands) |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Revenue |
|
$ |
390,025 |
|
|
$ |
413,514 |
|
|
$ |
979,818 |
|
|
$ |
949,215 |
|
Net earnings |
|
$ |
9,069 |
|
|
$ |
15,895 |
|
|
$ |
13,955 |
|
|
$ |
14,326 |
|
Basic earnings per share |
|
$ |
0.55 |
|
|
$ |
0.99 |
|
|
$ |
0.85 |
|
|
$ |
0.89 |
|
Diluted earnings per share |
|
$ |
0.55 |
|
|
$ |
0.98 |
|
|
$ |
0.85 |
|
|
$ |
0.89 |
|
The unaudited pro forma financial information is not necessarily indicative of what actual results
would have been had the transaction occurred at the beginning of the fiscal year, and may not be
indicative of the results of future operations of the Company.
Rail Car America
On September 11, 2006, the Company purchased substantially all of the operating assets of Rail Car
America (RCA), including its American Hydraulics division and Brandon Corp., its wholly owned
subsidiary. RCA, a provider of intermodal and conventional railcar repair services in North
America, operates from four repair facilities in the United States. RCA also reconditions and
repairs end-of-railcar cushioning units through its American Hydraulics division and operates a
switching line in Nebraska through Brandon Corp. The purchase price of the net assets consisted of $29.1 million of cash and a $3.0 million promissory note due in September 2008. The
financial
7
THE GREENBRIER COMPANIES, INC.
results of these operations since the acquisition are reported in the Companys
Consolidated Financial Statements as part of the refurbishment & parts segment. The impact of this
acquisition was not material to the Companys consolidated results of operations; therefore, pro
forma financial information has not been included.
The fair value of the net assets acquired from RCA was as follows:
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Accounts receivable |
|
$ |
628 |
|
Inventories |
|
|
7,830 |
|
Property, plant and equipment |
|
|
22,053 |
|
Intangibles and other |
|
|
4,102 |
|
|
|
|
|
Total assets acquired |
|
|
34,613 |
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
2,235 |
|
Notes payable |
|
|
229 |
|
|
|
|
|
Total liabilities assumed |
|
|
2,464 |
|
|
|
|
|
Net assets acquired |
|
$ |
32,149 |
|
|
|
|
|
Meridian Rail Holdings Corp.
On November 6, 2006, the Company acquired 100% of the stock of Meridian Rail Holdings Corp.
(Meridian) for $237.9 million in cash which includes the purchase price of $227.5 million plus
working capital adjustments. Meridian is a leading supplier of wheel maintenance services to the
North American freight car industry. Operating out of six facilities, Meridian supplies replacement
wheel sets and axles to approximately 170 freight car maintenance locations where worn or damaged
wheels, axles, or bearings are reconditioned or replaced. Meridian also performs coupler
reconditioning and railcar repair at other facilities. The financial results since the acquisition
are reported in the Companys Consolidated Financial Statements as part of the refurbishment &
parts segment.
The fair value of the net assets acquired in the Meridian transaction was as follows:
|
|
|
|
|
(In thousands) |
|
|
|
|
|
Cash and cash equivalents |
|
$ |
3,053 |
|
Accounts receivable |
|
|
20,221 |
|
Inventories |
|
|
52,895 |
|
Property, plant and equipment |
|
|
14,473 |
|
Goodwill |
|
|
163,669 |
|
Intangibles and other |
|
|
36,991 |
|
|
|
|
|
Total assets acquired |
|
|
291,302 |
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
40,013 |
|
Deferred income taxes |
|
|
13,404 |
|
|
|
|
|
Total liabilities assumed |
|
|
53,417 |
|
|
|
|
|
Net assets acquired |
|
$ |
237,885 |
|
|
|
|
|
As a result of the allocation of the purchase price among assets and liabilities, $163.7 million in
goodwill was recorded in the Consolidated Financial Statements.
8
THE GREENBRIER COMPANIES, INC.
The unaudited pro forma financial information presented below for the nine months ended May 31,
2007 has been prepared to illustrate Greenbriers consolidated results of operations had the
acquisition of Meridian occurred at the beginning of the period presented. The financial
information for the nine months ended May 31, 2008 is included for comparison purposes only.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
May 31, |
(In thousands) |
|
2008 |
|
2007 |
Revenue |
|
$ |
928,058 |
|
|
$ |
924,039 |
|
Net earnings |
|
$ |
12,192 |
|
|
$ |
13,597 |
|
Basic earnings per share |
|
$ |
0.75 |
|
|
$ |
0.85 |
|
Diluted earnings per share |
|
$ |
0.75 |
|
|
$ |
0.85 |
|
The unaudited pro forma financial information is not necessarily indicative of what actual results
would have been had the transaction occurred at the beginning of the fiscal year, and may not be
indicative of the results of future operations of the Company.
Other Acquisitions
In April 2007, the Company acquired a leasing management services operation for $4.3 million whose
operations were not material to the Companys consolidated results of operations; therefore,
proforma financial information has not been included. As a result of the allocation of purchase
price among assets and liabilities, $3.1 million in goodwill was recorded.
Note 3 Special Charges
In April 2007, the Companys board of directors approved the permanent closure of the Companys
Canadian railcar manufacturing facility, TrentonWorks. As a result of the facility closure
decision, special charges of $2.3 million were recorded during the nine months ended May 31, 2008
consisting of severance costs and professional and other expenses.
Special charges of $3.1 million and $19.6 million were recorded for the three and nine months ended
May 31, 2007 associated with the impairment of assets and subsequent closure of TrentonWorks.
These charges consist of $3.1 million in severance costs and other professional fees related to the
closure and $16.5 million in impairment charges.
Note 4 De-consolidation
On March 13, 2008 TrentonWorks filed for bankruptcy with The Office of the Superintendent of
Bankruptcy Canada whereby the assets of TrentonWorks are being administered and liquidated by an
appointed trustee. The Company has not guaranteed any obligations of TrentonWorks and does not
believe it will be liable for any of TrentonWorks liabilities. Under generally accepted
accounting principles, consolidation is generally required for investments of more than 50%
ownership, except when control is not held by the majority owner. Under these principles,
bankruptcy represents conditions which may preclude consolidation in instances where control rests
with the bankruptcy court and trustee, rather than the majority owner. As a result, the Company
discontinued consolidating TrentonWorks financial statements beginning on March 13, 2008 and began
reporting its investment in TrentonWorks using the cost method. Under the cost method, the
investment is reflected as a single amount on the Companys Consolidated Balance Sheet.
De-consolidation resulted in a loss in excess of the Companys investment in the subsidiary of
$15.3 million which is included as a liability on the Companys Consolidated Balance Sheet. In
addition, a $3.4 million loss is included in other comprehensive loss. The Company expects it will
reverse this liability when the bankruptcy is resolved.
9
THE GREENBRIER COMPANIES, INC.
The following is the TrentonWorks condensed balance sheet as of March 13, 2008:
|
|
|
|
|
(In thousands, unaudited) |
|
March 13, 2008 |
|
Assets
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,217 |
|
Accounts receivable |
|
|
694 |
|
Property, plant and equipment |
|
|
3,256 |
|
Intangibles and other assets |
|
|
162 |
|
|
|
|
|
|
|
$ |
5,329 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Deficit
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
11,755 |
|
Notes payable |
|
|
8,887 |
|
Stockholders deficit |
|
|
(15,313 |
) |
|
|
|
|
|
|
$ |
5,329 |
|
|
|
|
|
Note 5 Inventories
|
|
|
|
|
|
|
|
|
|
|
May 31, |
|
|
August 31, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
Supplies and raw materials |
|
$ |
152,044 |
|
|
$ |
111,957 |
|
Work-in-process |
|
|
93,166 |
|
|
|
86,733 |
|
Lower of cost or market adjustment |
|
|
(5,450 |
) |
|
|
(3,807 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
239,760 |
|
|
$ |
194,883 |
|
|
|
|
|
|
|
|
Note 6 Assets Held for Sale
|
|
|
|
|
|
|
|
|
|
|
May 31, |
|
|
August 31, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
Railcars held for sale |
|
$ |
21,890 |
|
|
$ |
12,922 |
|
Railcars in transit to customer |
|
|
14,387 |
|
|
|
8,958 |
|
Finished goods parts |
|
|
21,618 |
|
|
|
21,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
57,895 |
|
|
$ |
42,903 |
|
|
|
|
|
|
|
|
Note 7 Warranty Accruals
Warranty costs to cover a defined warranty period are estimated and charged to operations. The
estimated warranty cost is based on historical warranty claims for each product type. For new
product types without a warranty history, estimates are based on historical information for similar
product types. The accrual, included in accounts payable and accrued liabilities on the
Consolidated Balance Sheet, is periodically reviewed and updated based on warranty trends.
10
THE GREENBRIER COMPANIES, INC.
Warranty accrual activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
May 31, |
|
|
May 31, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Balance at beginning of period |
|
$ |
15,867 |
|
|
$ |
17,041 |
|
|
$ |
15,911 |
|
|
$ |
14,201 |
|
Charged to cost of revenue |
|
|
983 |
|
|
|
1,192 |
|
|
|
2,295 |
|
|
|
3,857 |
|
Payments |
|
|
(1,097 |
) |
|
|
(1,457 |
) |
|
|
(3,334 |
) |
|
|
(3,115 |
) |
Currency translation effect |
|
|
229 |
|
|
|
461 |
|
|
|
1,110 |
|
|
|
470 |
|
De-consolidation |
|
|
(2,147 |
) |
|
|
|
|
|
|
(2,147 |
) |
|
|
|
|
Acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
13,835 |
|
|
$ |
17,237 |
|
|
$ |
13,835 |
|
|
$ |
17,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 8 Revolving Notes
All amounts originating in foreign currency have been translated at the May 31, 2008 exchange rate
for the following discussion. Senior secured revolving credit facilities, consisting of two
components, aggregated $341.5 million as of May 31, 2008. A $290.0 million revolving line of
credit is available through November 2011 to provide working capital and interim financing of
equipment. Advances under this facility bear interest at variable rates that depend on the type of
borrowing and the defined ratio of debt to total capitalization. In addition, lines of credit
totaling $51.5 million are available for working capital needs of the European manufacturing
operation. As of May 31, 2008 these European credit facilities have maturities that range from June
27, 2008 through March 31, 2009. Subsequent to quarter end the European credit lines have maximum
availability of $47.0 million with maturities that range from August 8, 2008 to June 26, 2009.
As of May 31, 2008 outstanding borrowings under these facilities aggregated $101.4 million in
revolving notes and $3.7 million in letters of credit, consisting of $52.5 million in revolving
notes and $3.7 million in letters of credit outstanding under the United States credit facility and
$48.9 million in revolving notes under the European credit facilities. Available borrowings for
all credit facilities are generally based on defined levels of inventory, receivables, and leased
equipment, as well as total debt to consolidated capitalization and interest coverage ratios which
as of May 31, 2008 levels would provide for maximum additional
borrowing of $156.0 million.
Note 9 Notes Payable
|
|
|
|
|
|
|
|
|
|
|
May 31, |
|
|
August 31, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
Senior unsecured notes |
|
$ |
235,000 |
|
|
$ |
235,000 |
|
Convertible senior notes |
|
|
100,000 |
|
|
|
100,000 |
|
Term loans |
|
|
162,080 |
|
|
|
125,814 |
|
Other notes payable |
|
|
86 |
|
|
|
101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
497,166 |
|
|
$ |
460,915 |
|
|
|
|
|
|
|
|
Senior
unsecured notes, due 2015, bear interest at a fixed rate of
83/8%, paid semi-annually in
arrears on May 15th and November 15th of each year. Payment on the notes is
guaranteed by substantially all of the Companys domestic subsidiaries.
11
THE GREENBRIER COMPANIES, INC.
Convertible senior notes, due 2026, bear interest at a fixed rate of 23/8%, paid semi-annually in
arrears on May 15th and November 15th. The Company will also pay contingent
interest of 3/8% on the notes in certain circumstances commencing with the six month period beginning
May 15, 2013. Payment on the convertible notes is guaranteed by substantially all of the Companys
domestic subsidiaries. The convertible senior notes will be convertible upon the occurrence of
specified events into cash and shares, if any, of Greenbriers common stock at an initial
conversion rate of 20.8125 shares per $1,000 principal amount of the notes (which is equal to an
initial conversion price of $48.05 per share). The initial conversion rate is subject to
adjustment upon the occurrence of certain events, as defined. On or after May 15, 2013, Greenbrier
may redeem all or a portion of the notes at a redemption price equal to 100% of the principal
amount of the notes plus accrued and unpaid interest. On May 15, 2013, May 15, 2016 and May 15,
2021 and in the event of certain fundamental changes, holders may require the Company to repurchase
all or a portion of their notes at a price equal to 100% of the principal amount of the notes plus
accrued and unpaid interest.
On March 30, 2007, the Company issued a $100.0 million senior term note secured by a pool of leased
railcars. The note bears a floating interest rate of LIBOR plus 1% with principal of $0.7 million
paid quarterly in arrears and a balloon payment of $81.8 million due at the end of the seven-year
loan term. On May 9, 2008, the Company issued an additional $50.0 million senior term note secured
by a pool of leased railcars. The note bears a floating interest rate of LIBOR plus 1% with
principal of $0.3 million paid quarterly in arrears and a balloon payment of $41.2 million due at
the end of the seven-year loan term. Other term loans are due in varying installments through
November 2012 and are principally unsecured. As of May 31, 2008, the effective interest rates on
the term loans ranged from 3.7% to 8.4%.
The revolving and operating lines of credit, along with notes payable, contain covenants with
respect to the Company and various subsidiaries, the most restrictive of which, among other things,
limit the ability to: incur additional indebtedness or guarantees; pay dividends; enter into sale
leaseback transactions; create liens; sell assets; engage in transactions with affiliates,
including but not limited to; loans, advances, equity investments and guarantees; enter into
mergers, consolidations or sales of substantially all the Companys assets; and enter into new
lines of business. The covenants also require certain minimum levels of tangible net worth,
maximum ratios of debt to equity or total capitalization and minimum levels of interest coverage.
Currently we are seeking a line of credit to support certain of our foreign operations due in part
to current limitations in our existing loan covenants.
Interest rate swap agreements are utilized to reduce the impact of changes in interest rates on
certain term loans. At May 31, 2008, such agreements had a notional amount of $9.3 million and
mature in March 2011.
The remaining principal payments on the notes payable are due as follows:
|
|
|
|
|
(In thousands) |
|
|
|
|
Year Ending August 31, |
|
|
|
|
2008 (Remaining three months) |
|
$ |
1,381 |
|
2009 |
|
|
11,004 |
|
2010 |
|
|
8,730 |
|
2011 |
|
|
6,575 |
|
2012 |
|
|
4,051 |
|
Thereafter |
|
|
465,425 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
497,166 |
|
|
|
|
|
12
THE GREENBRIER COMPANIES, INC.
Note 10 Comprehensive Income (Loss)
The following is a reconciliation of net earnings to comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
May 31, |
|
|
May 31, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net earnings |
|
$ |
8,126 |
|
|
$ |
13,017 |
|
|
$ |
12,192 |
|
|
$ |
8,816 |
|
Reclassification of
derivative financial
instruments recognized in
net earnings (net of tax) |
|
|
(34 |
) |
|
|
(196 |
) |
|
|
(82 |
) |
|
|
(493 |
) |
Unrealized gain on
derivative financial
instruments (net of tax) |
|
|
595 |
|
|
|
126 |
|
|
|
1,089 |
|
|
|
281 |
|
Pension plan adjustment (1) |
|
|
40 |
|
|
|
|
|
|
|
(6,873 |
) |
|
|
|
|
Foreign currency
translation adjustment
(net of tax) |
|
|
1,860 |
|
|
|
1,065 |
|
|
|
5,632 |
|
|
|
617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
10,587 |
|
|
$ |
14,012 |
|
|
$ |
11,958 |
|
|
$ |
9,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
De-consolidation of the current year pension plan adjustment relates to retroactive legislation
enacted by the Province of Nova Scotia, Canada requiring TrentonWorks to contribute deficit funding
and grow-in benefits to the pension plan for employees covered by a collective bargaining agreement
at our former Canadian manufacturing facility. The Company has not guaranteed any obligations of
TrentonWorks and does not believe it will be liable for any of TrentonWorks liabilities. |
Accumulated other comprehensive loss, net of tax effect, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on |
|
|
|
|
|
|
Foreign |
|
|
Accumulated |
|
|
|
Derivative |
|
|
Pension |
|
|
Currency |
|
|
Other |
|
|
|
Financial |
|
|
Plan |
|
|
Translation |
|
|
Comprehensive |
|
(In thousands) |
|
Instruments |
|
|
Adjustment |
|
|
Adjustment |
|
|
Income (Loss) |
|
Balance, August 31, 2007 |
|
$ |
(239 |
) |
|
$ |
(316 |
) |
|
$ |
389 |
|
|
$ |
(166 |
) |
Nine months activity |
|
|
1,007 |
|
|
|
(6,873 |
) |
|
|
5,632 |
|
|
|
(234 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, May 31, 2008 |
|
$ |
768 |
|
|
$ |
(7,189 |
) |
|
$ |
6,021 |
|
|
$ |
(400 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 11 Earnings Per Share
The shares used in the computation of the Companys basic and diluted earnings per common share are
reconciled as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
May 31, |
|
|
May 31, 2008 |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Weighted average basic common shares outstanding |
|
|
16,507 |
|
|
|
16,105 |
|
|
|
16,323 |
|
|
|
16,017 |
|
Dilutive effect of employee stock options |
|
|
22 |
|
|
|
34 |
|
|
|
24 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted common shares outstanding |
|
|
16,529 |
|
|
|
16,139 |
|
|
|
16,347 |
|
|
|
16,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted common shares outstanding includes the incremental shares that would be
issued upon the assumed exercise of stock options. No options were anti-dilutive for the three and
nine months ended May 31, 2008 and 2007.
13
THE GREENBRIER COMPANIES, INC.
Note 12 Stock Based Compensation
All stock options were vested prior to September 1, 2005 and accordingly no compensation expense
was recorded for stock options for the three and nine months ended May 31, 2008 and 2007. The
value of stock awarded under restricted stock grants is amortized as compensation expense over the
vesting period of two to five years. For the three and nine months ended May 31, 2008, $1.2
million and $2.8 million in compensation expense was recognized related to restricted stock grants.
For the three and nine months ended May 31, 2007, $0.9 million and $2.4 million in compensation
expense was recognized related to restricted stock grants.
Note 13 Derivative Instruments
Foreign operations give rise to market risks from changes in foreign currency exchange rates.
Foreign currency forward exchange contracts with established financial institutions are utilized to
hedge a portion of that risk in Pound Sterling and Euro. Interest rate swap agreements are utilized
to reduce the impact of changes in interest rates on certain debt. The Companys foreign currency
forward exchange contracts and interest rate swap agreements are designated as cash flow hedges,
and therefore the unrealized gains and losses are recorded in accumulated other comprehensive
income (loss).
At May 31, 2008 exchange rates, forward exchange contracts for the sale of Euro aggregated $63.6
million and sale of Pound Sterling aggregated $6.2 million. Adjusting the foreign currency
exchange contracts to the fair value of the cash flow hedges at May 31, 2008 resulted in an
unrealized pre-tax gain of $1.0 million that was recorded in the line item accumulated other
comprehensive income (loss). The fair value of the contracts is included in accounts payable and
accrued liabilities on the Consolidated Balance Sheet. As the contracts mature at various dates
through May 2009, any such gain or loss remaining will be recognized in manufacturing revenue along
with the related transactions. In the event that the underlying sales transaction does not occur or
does not occur in the period designated at the inception of the hedge, the amount classified in
accumulated other comprehensive income (loss) would be reclassified to the current years results
of operations.
At May 31, 2008 exchange rates, interest rate swap agreements had a notional amount of $9.3 million
and mature in March 2011. The fair value of these cash flow hedges at May 31, 2008 resulted in an
unrealized pre-tax loss of $0.4 million. The loss is included in accumulated other comprehensive
income (loss) and the fair value of the contracts is included in accounts payable and accrued
liabilities on the Consolidated Balance Sheet. As interest expense on the underlying debt is
recognized, amounts corresponding to the interest rate swaps are reclassified from accumulated
other comprehensive income (loss) and charged or credited to interest expense. At May 31, 2008
interest rates, approximately $0.1 million would be reclassified to interest expense in the next 12
months.
Note 14 Segment Information
Greenbrier currently operates in three reportable segments: manufacturing, refurbishment & parts
and leasing & services. The accounting policies of the segments are described in the summary of
significant accounting policies in the Consolidated Financial Statements contained in the Companys
2007 Annual Report on Form 10-K. Performance is evaluated based on margin. Intersegment sales and
transfers are generally accounted for at fair value as if the sales or transfers were to third
parties. While intercompany transactions are treated like third-party transactions to evaluate
segment performance, the revenues and related expenses are eliminated in consolidation and
therefore do not impact consolidated results.
14
THE GREENBRIER COMPANIES, INC.
The information in the following table is derived directly from the segments internal financial
reports used for corporate management purposes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
May 31, |
|
|
May 31, |
|
(In thousands) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing |
|
$ |
185,783 |
|
|
$ |
226,006 |
|
|
$ |
533,634 |
|
|
$ |
566,687 |
|
Refurbishment & parts |
|
|
154,390 |
|
|
|
120,748 |
|
|
|
373,473 |
|
|
|
270,700 |
|
Leasing & services |
|
|
28,119 |
|
|
|
26,662 |
|
|
|
75,184 |
|
|
|
75,452 |
|
Intersegment eliminations |
|
|
13,814 |
|
|
|
13,190 |
|
|
|
(54,233 |
) |
|
|
(39,632 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
382,106 |
|
|
$ |
386,606 |
|
|
$ |
928,058 |
|
|
$ |
873,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing |
|
$ |
1,012 |
|
|
$ |
20,196 |
|
|
$ |
14,811 |
|
|
$ |
30,580 |
|
Refurbishment & parts |
|
|
31,925 |
|
|
|
21,925 |
|
|
|
66,043 |
|
|
|
43,352 |
|
Leasing & services |
|
|
15,696 |
|
|
|
15,655 |
|
|
|
38,390 |
|
|
|
44,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
48,633 |
|
|
$ |
57,776 |
|
|
$ |
119,244 |
|
|
$ |
118,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment margin |
|
$ |
48,633 |
|
|
$ |
57,776 |
|
|
$ |
119,244 |
|
|
$ |
118,716 |
|
Less: unallocated expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative |
|
|
23,407 |
|
|
|
20,092 |
|
|
|
64,591 |
|
|
|
56,017 |
|
Interest and foreign exchange |
|
|
9,990 |
|
|
|
10,930 |
|
|
|
30,263 |
|
|
|
30,986 |
|
Special charges |
|
|
|
|
|
|
3,091 |
|
|
|
2,302 |
|
|
|
19,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income tax expense,
minority interest and equity in
unconsolidated subsidiary |
|
$ |
15,236 |
|
|
$ |
23,663 |
|
|
$ |
22,088 |
|
|
$ |
12,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 15 Commitments and Contingencies
From time to time, Greenbrier is involved as a defendant in litigation in the ordinary course of
business, the outcome of which cannot be predicted with certainty. While the ultimate outcome of
such legal proceedings cannot be determined at this time, the Company believes that the resolution
of these actions will not have a material adverse effect on the Companys Consolidated Financial
Statements.
On April 20, 2004, BC Rail Partnership initiated litigation against the Company and TrentonWorks in
the Supreme Court of Nova Scotia, alleging breach of contract and negligent manufacture and design
of railcars which were involved in a 1999 derailment. No trial date has been set.
On November 3, 2004, and November 4, 2004, in the District Court of Tarrant County, Texas, and in
the District Court of Lancaster County, Nebraska, respectively, litigation was initiated against
the Company by Burlington Northern Santa Fe Railway (BNSF), one of our largest customers. BNSF
alleged that failure of a supplier-provided component part on a railcar manufactured by Greenbrier
in 1988 resulted in a derailment and a chemical spill. On June 24, 2006, the District Court of
Tarrant County, Texas, entered an order granting the Companys motion for summary judgment as to
all claims. BNSF appealed the district courts decision to the Texas State Court of Appeals which
affirmed the prior courts decision as to all claims. In June 2008, BNSF withdrew all claims
pertaining to this matter.
15
THE GREENBRIER COMPANIES, INC.
Greenbrier and a customer, SEB Finans AB (SEB), have raised performance concerns related to a
component that the Company installed on 372 railcar units with an aggregate sales value of
approximately $20.0 million produced under a contract with SEB. On December 9, 2005, SEB filed a
Statement of Claim in an arbitration proceeding in Stockholm, Sweden, against Greenbrier alleging
that the cars were defective and could not be used for their intended purpose. A settlement
agreement was entered into effective February 28, 2007 pursuant to which the railcar units
previously delivered were to be repaired and the remaining units completed and delivered to SEB.
Current estimates of potential costs to Greenbrier do not exceed amounts accrued for warranty. As
the terms of the settlement agreement are nearing completion, the suspended arbitration proceedings
were terminated in March 2008, pursuant to an agreement of the parties.
When the Company acquired the assets of the Freight Wagon Division of DaimlerChrysler in January
2000, it acquired a contract to build 201 freight cars for Okombi, a European freight car leasing
company. Subsequently, Okombi made breach of warranty and late delivery claims against the Company
which grew out of design and certification problems. All of these issues were settled as of March
2004. Recently, new allegations have been made, the most serious of which involve cracks to the
structure of the cars. Okombi has been required to remove all 201 freight cars from service, and a
formal claim has been made against the Company. Legal and commercial evaluations are on-going to
determine what obligations the Company might have, if any, to remedy the alleged defects.
Environmental studies have been conducted of the Companys owned and leased properties that
indicate additional investigation and some remediation on certain properties may be necessary. The
Companys Portland, Oregon manufacturing facility is located adjacent to the Willamette River. The
United States Environmental Protection Agency (EPA) has classified portions of the river bed,
including the portion fronting Greenbriers facility, as a federal National Priority List or
Superfund site due to sediment contamination (the Portland Harbor Site). Greenbrier and more than
60 other parties have received a General Notice of potential liability from the EPA relating to
the Portland Harbor Site. The letter advised the Company that it may be liable for the costs of
investigation and remediation (which liability may be joint and several with other potentially
responsible parties) as well as for natural resource damages resulting from releases of hazardous
substances to the site. At this time, ten private and public entities, including the Company, have
signed an Administrative Order of Consent to perform a remedial investigation/feasibility study
(RI/FS) of the Portland Harbor Site under EPA oversight, and several additional entities have not
signed such consent, but are nevertheless contributing money to the effort. The study is expected
to be completed in 2010. In May 2006, the EPA notified several additional entities, including other
federal agencies that it is prepared to issue unilateral orders compelling additional participation
in the remedial investigation. Some of those entities subsequently contributed funds to the
RI/FS effort. In addition, the Company has entered into a Voluntary Clean-Up Agreement with the
Oregon Department of Environmental Quality in which the Company agreed to conduct an investigation
of whether, and to what extent, past or present operations at the Portland property may have
released hazardous substances to the environment. The Company is also conducting groundwater
remediation relating to a historical spill on the property which antedates its ownership.
Because these environmental investigations are still underway, the Company is unable to determine
the amount of ultimate liability relating to these matters. Based on the results of the pending
investigations and future assessments of natural resource damages, Greenbrier may be required to
incur costs associated with additional phases of investigation or remedial action, and may be
liable for damages to natural resources. In addition, the Company may be required to perform
periodic maintenance dredging in order to continue to launch vessels from its launch ways in
Portland Oregon, on the Willamette River, and the rivers classification as a Superfund site could
result in some limitations on future dredging and launch activities. Any of these matters could
adversely affect the Companys business and results of operations, or the value of its Portland
property.
Prior to December 31, 2002, the Company entered into contingent rental assistance agreements, which
currently aggregate $6.9 million, on certain railcars subject to leases that have been sold to
third parties. These agreements guarantee the purchasers a minimum lease rental, subject to a
maximum defined rental assistance amount, over remaining periods up to five years. A liability is
established and revenue is reduced in the period during which a determination can be made that it
is probable that a rental shortfall will occur and the amount can be estimated. No accrual was
made for the three months ended May 31, 2008 and $1.0 million was recorded for the nine months
ended May 31, 2008 to cover future obligations. No accruals were recorded for the three and nine
months ended
16
THE GREENBRIER COMPANIES, INC.
May 31, 2007. The remaining liability as of May 31, 2008 was $0.8 million. The accounting for any
future rental assistance agreements will comply with the guidance required by FASB Interpretation
(FIN) 45 which pertains to contracts entered into or modified subsequent to December 31, 2002.
A portion of leasing & services revenue is derived from car hire which is a fee that a railroad
pays for the use of railcars owned by other railroads or third parties. Car hire earned by a
railcar is usually made up of hourly and mileage components. Deprescription is a system whereby
railcar owners and users have the right to negotiate car hire rates. If the railcar owner and
railcar user cannot come to an agreement on a car hire rate then either party has the right to call
for arbitration. In arbitration either the owners or users rate is selected and that rate
becomes effective for a one-year period. There is some risk that car hire rates could be negotiated
or arbitrated to lower levels in the future. This could reduce future car hire revenue for the
Company which amounted to $6.5 million and $19.7 million for the three and nine months ended May
31, 2008 and $5.5 million and $17.7 million for the three and nine months ended May 31, 2007.
Prices for steel, a primary component of railcars and barges, have risen significantly and remain
volatile. In addition the price of certain railcar components, which are a product of steel, are
adversely affected by steel price increases. Both steel and railcar component suppliers are
imposing surcharges, which have also risen significantly and remain volatile. New railcar backlog
generally either includes: 1) fixed price contracts which anticipate material price increases and
surcharges, or 2) contracts that contain actual pass through of material price increases and
surcharges. Currently about one-third of our backlog has fixed price contracts. On certain fixed
price railcar contracts actual price increases and surcharges have caused the total price of the
railcar to exceed the amounts originally anticipated, and in some cases, the actual contractual
sale price of the railcar. When the anticipated loss on production of railcars in backlog is both
probable and estimable, we accrue a loss contingency. A loss contingency reserve of $5.3 million
was accrued during the three months ended May 31, 2008. In addition, there are 1,000 railcars in
backlog for which a loss is not yet estimable. We are aggressively working to mitigate these
exposures. The Companys integrated business model has helped offset some of the effects of rising
steel scrap prices, as a portion of our other business segments benefit from the rising steel scrap
prices through enhanced margins.
In accordance with customary business practices in Europe, the Company has $18.0 million in third
party performance, advance payment and warranty guarantee facilities, all of which have been
utilized as of May 31, 2008. To date no amounts have been drawn under these performance, advance
payment and warranty guarantee facilities.
At May 31, 2008, an unconsolidated subsidiary had $5.1 million of third party debt, for which the
Company has guaranteed 33% or approximately $1.7 million. In the event that there is a change in
control or insolvency by any of the three 33% investors that have guaranteed the debt, the
remaining investors share of the guarantee will increase proportionately.
The Company has outstanding letters of credit aggregating $3.7 million associated with facility
leases and payroll.
Note 16 Guarantor/Non Guarantor
The $235 million combined senior unsecured notes (the Notes) issued on May 11, 2005 and November
21, 2005 and $100 million of convertible senior notes issued on May 22, 2006 are fully and
unconditionally and jointly and severally guaranteed by substantially all of Greenbriers material
wholly owned United States subsidiaries: Autostack Company LLC, Greenbrier-Concarril, LLC,
Greenbrier Leasing Company LLC, Greenbrier Leasing Limited Partner, LLC, Greenbrier Management
Services, LLC, Greenbrier Leasing, L.P., Greenbrier Railcar LLC, Gunderson LLC, Gunderson Marine
LLC, Gunderson Rail Services LLC, Meridian Rail Holdings Corp., Meridian Rail Acquisition Corp.,
Meridian Rail Mexico City Corp., Brandon Railroad LLC and Gunderson Specialty Products, LLC. No
other subsidiaries guarantee the Notes.
The following represents the supplemental consolidating condensed financial information of
Greenbrier and its guarantor and non guarantor subsidiaries, as of May 31, 2008 and August 31, 2007
and for the three and nine months ended May 31, 2008 and 2007. The information is presented on the
basis of Greenbrier accounting for its
17
THE GREENBRIER COMPANIES, INC.
ownership of its wholly owned subsidiaries using the equity
method of accounting. The equity method investment for each subsidiary is recorded by the parent
in intangibles and other assets. Intercompany transactions between the guarantor
and non guarantor subsidiaries are presented as if the sales or transfers were at fair value to
third parties and eliminated in consolidation.
The condensed consolidating statement of cash flows for the nine months ended May 31, 2007 has been
restated with respect to the presentation of transactions that are settled on a net basis through
the Companys intercompany payables and receivables. The Company had previously presented
intercompany advances and investment in subsidiaries between the parent and its guarantor and
non-guarantor subsidiaries as operating activities. These transactions are now presented in
financing and investing activities. As any changes in the classification between operating,
investing and financing are eliminated in consolidation, there is no impact to the Consolidated
Statement of Cash Flows for the nine months ended May 31, 2007.
The Greenbrier Companies, Inc.
Condensed Consolidating Balance Sheet
May 31, 2008
(In thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Restricted cash |
|
|
|
|
|
|
|
|
|
|
1,722 |
|
|
|
|
|
|
|
1,722 |
|
Accounts receivable |
|
|
145,772 |
|
|
|
(3,116 |
) |
|
|
39,384 |
|
|
|
148 |
|
|
|
182,188 |
|
Inventories |
|
|
|
|
|
|
129,568 |
|
|
|
110,192 |
|
|
|
|
|
|
|
239,760 |
|
Assets held for sale |
|
|
|
|
|
|
40,254 |
|
|
|
17,713 |
|
|
|
(72 |
) |
|
|
57,895 |
|
Equipment on operating leases |
|
|
|
|
|
|
320,577 |
|
|
|
|
|
|
|
(1,836 |
) |
|
|
318,741 |
|
Investment in direct finance leases |
|
|
|
|
|
|
8,577 |
|
|
|
|
|
|
|
|
|
|
|
8,577 |
|
Property, plant and equipment |
|
|
3,644 |
|
|
|
86,796 |
|
|
|
42,200 |
|
|
|
|
|
|
|
132,640 |
|
Goodwill |
|
|
|
|
|
|
219,125 |
|
|
|
|
|
|
|
136 |
|
|
|
219,261 |
|
Intangibles and other assets |
|
|
494,209 |
|
|
|
97,209 |
|
|
|
4,557 |
|
|
|
(513,552 |
) |
|
|
82,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
643,625 |
|
|
$ |
898,990 |
|
|
$ |
215,768 |
|
|
$ |
(515,176 |
) |
|
$ |
1,243,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving notes |
|
$ |
52,500 |
|
|
$ |
|
|
|
$ |
48,923 |
|
|
$ |
|
|
|
$ |
101,423 |
|
Accounts payable and accrued
liabilities |
|
|
(26,053 |
) |
|
|
207,720 |
|
|
|
93,558 |
|
|
|
(124 |
) |
|
|
275,101 |
|
Losses in excess of investment in
de-consolidated subsidiary |
|
|
15,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,313 |
|
Deferred income taxes |
|
|
6,800 |
|
|
|
67,523 |
|
|
|
(3,484 |
) |
|
|
(247 |
) |
|
|
70,592 |
|
Deferred revenue |
|
|
970 |
|
|
|
11,580 |
|
|
|
7,465 |
|
|
|
|
|
|
|
20,015 |
|
Notes payable |
|
|
339,687 |
|
|
|
152,882 |
|
|
|
4,597 |
|
|
|
|
|
|
|
497,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
|
|
|
|
|
|
|
|
(16 |
) |
|
|
9,205 |
|
|
|
9,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
254,408 |
|
|
|
459,285 |
|
|
|
64,725 |
|
|
|
(524,010 |
) |
|
|
254,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
643,625 |
|
|
$ |
898,990 |
|
|
$ |
215,768 |
|
|
$ |
(515,176 |
) |
|
$ |
1,243,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
THE GREENBRIER COMPANIES, INC.
The Greenbrier Companies, Inc.
Condensed Consolidating Statement of Operations
For the three months ended May 31, 2008
(In thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing |
|
$ |
971 |
|
|
$ |
105,040 |
|
|
$ |
141,996 |
|
|
$ |
(46,182 |
) |
|
$ |
201,825 |
|
Refurbishment & parts |
|
|
|
|
|
|
152,352 |
|
|
|
15 |
|
|
|
|
|
|
|
152,367 |
|
Leasing & services |
|
|
290 |
|
|
|
27,757 |
|
|
|
|
|
|
|
(133 |
) |
|
|
27,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,261 |
|
|
|
285,149 |
|
|
|
142,011 |
|
|
|
(46,315 |
) |
|
|
382,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing |
|
|
|
|
|
|
104,539 |
|
|
|
142,226 |
|
|
|
(45,952 |
) |
|
|
200,813 |
|
Refurbishment & parts |
|
|
|
|
|
|
120,420 |
|
|
|
22 |
|
|
|
|
|
|
|
120,442 |
|
Leasing & services |
|
|
|
|
|
|
12,233 |
|
|
|
|
|
|
|
(15 |
) |
|
|
12,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
237,192 |
|
|
|
142,248 |
|
|
|
(45,967 |
) |
|
|
333,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin |
|
|
1,261 |
|
|
|
47,957 |
|
|
|
(237 |
) |
|
|
(348 |
) |
|
|
48,633 |
|
|
Other costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative |
|
|
10,463 |
|
|
|
9,047 |
|
|
|
3,897 |
|
|
|
|
|
|
|
23,407 |
|
Interest and foreign exchange |
|
|
7,582 |
|
|
|
1,170 |
|
|
|
1,371 |
|
|
|
(133 |
) |
|
|
9,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,045 |
|
|
|
10,217 |
|
|
|
5,268 |
|
|
|
(133 |
) |
|
|
33,397 |
|
Earnings (loss) before income taxes,
minority interest and equity in
earnings
(loss) of unconsolidated subsidiaries |
|
|
(16,784 |
) |
|
|
37,740 |
|
|
|
(5,505 |
) |
|
|
(215 |
) |
|
|
15,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit |
|
|
6,613 |
|
|
|
(14,767 |
) |
|
|
137 |
|
|
|
444 |
|
|
|
(7,573 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,171 |
) |
|
|
22,973 |
|
|
|
(5,368 |
) |
|
|
229 |
|
|
|
7,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
269 |
|
|
|
272 |
|
Equity in earnings (loss) of
unconsolidated subsidiaries |
|
|
18,297 |
|
|
|
(1,153 |
) |
|
|
|
|
|
|
(16,953 |
) |
|
|
191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
8,126 |
|
|
$ |
21,820 |
|
|
$ |
(5,365 |
) |
|
$ |
(16,455 |
) |
|
$ |
8,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
THE GREENBRIER COMPANIES, INC.
The Greenbrier Companies, Inc.
Condensed Consolidating Statement of Operations
For the nine months ended May 31, 2008
(In thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing |
|
$ |
971 |
|
|
$ |
285,515 |
|
|
$ |
394,543 |
|
|
$ |
(196,616 |
) |
|
$ |
484,413 |
|
Refurbishment & parts |
|
|
|
|
|
|
368,795 |
|
|
|
38 |
|
|
|
|
|
|
|
368,833 |
|
Leasing & services |
|
|
951 |
|
|
|
74,221 |
|
|
|
|
|
|
|
(360 |
) |
|
|
74,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,922 |
|
|
|
728,531 |
|
|
|
394,581 |
|
|
|
(196,976 |
) |
|
|
928,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing |
|
|
|
|
|
|
278,637 |
|
|
|
387,392 |
|
|
|
(196,427 |
) |
|
|
469,602 |
|
Refurbishment & parts |
|
|
|
|
|
|
302,748 |
|
|
|
42 |
|
|
|
|
|
|
|
302,790 |
|
Leasing & services |
|
|
|
|
|
|
36,468 |
|
|
|
|
|
|
|
(46 |
) |
|
|
36,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
617,853 |
|
|
|
387,434 |
|
|
|
(196,473 |
) |
|
|
808,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin |
|
|
1,922 |
|
|
|
110,678 |
|
|
|
7,147 |
|
|
|
(503 |
) |
|
|
119,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative |
|
|
25,099 |
|
|
|
26,130 |
|
|
|
13,363 |
|
|
|
(1 |
) |
|
|
64,591 |
|
Interest and foreign exchange |
|
|
21,024 |
|
|
|
4,449 |
|
|
|
5,152 |
|
|
|
(362 |
) |
|
|
30,263 |
|
Special charges |
|
|
|
|
|
|
|
|
|
|
2,302 |
|
|
|
|
|
|
|
2,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,123 |
|
|
|
30,579 |
|
|
|
20,817 |
|
|
|
(363 |
) |
|
|
97,156 |
|
Earnings (loss) before income taxes,
minority interest and equity in
earnings
(loss) of unconsolidated subsidiaries |
|
|
(44,201 |
) |
|
|
80,099 |
|
|
|
(13,670 |
) |
|
|
(140 |
) |
|
|
22,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit |
|
|
21,068 |
|
|
|
(31,739 |
) |
|
|
(2,179 |
) |
|
|
418 |
|
|
|
(12,432 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,133 |
) |
|
|
48,360 |
|
|
|
(15,849 |
) |
|
|
278 |
|
|
|
9,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
2,004 |
|
|
|
2,014 |
|
Equity in earnings (loss) of
unconsolidated subsidiaries |
|
|
35,325 |
|
|
|
594 |
|
|
|
|
|
|
|
(35,397 |
) |
|
|
522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
12,192 |
|
|
$ |
48,954 |
|
|
$ |
(15,839 |
) |
|
$ |
(33,115 |
) |
|
$ |
12,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
THE GREENBRIER COMPANIES, INC.
The Greenbrier Companies, Inc.
Condensed Consolidating Statement of Cash Flows
For the nine months ended May 31, 2008
(In thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
Combined |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
12,192 |
|
|
$ |
48,954 |
|
|
$ |
(15,839 |
) |
|
$ |
(33,115 |
) |
|
$ |
12,192 |
|
Adjustments to reconcile net earnings to
net cash provided by (used in)
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
1,843 |
|
|
|
7,972 |
|
|
|
(524 |
) |
|
|
(109 |
) |
|
|
9,182 |
|
Depreciation and amortization |
|
|
427 |
|
|
|
19,874 |
|
|
|
5,078 |
|
|
|
(46 |
) |
|
|
25,333 |
|
Gain on sales of equipment |
|
|
|
|
|
|
(6,996 |
) |
|
|
|
|
|
|
(2 |
) |
|
|
(6,998 |
) |
Special charges |
|
|
|
|
|
|
|
|
|
|
2,302 |
|
|
|
|
|
|
|
2,302 |
|
Minority interest |
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
|
(1,947 |
) |
|
|
(1,957 |
) |
Other |
|
|
(136 |
) |
|
|
32 |
|
|
|
4 |
|
|
|
(3 |
) |
|
|
(103 |
) |
Decrease (increase) in assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
|
|
|
(13,326 |
) |
|
|
6,137 |
|
|
|
(149 |
) |
|
|
(7,338 |
) |
Inventories |
|
|
|
|
|
|
(11,265 |
) |
|
|
(3,871 |
) |
|
|
|
|
|
|
(15,136 |
) |
Assets held for sale |
|
|
|
|
|
|
(12,735 |
) |
|
|
(3,650 |
) |
|
|
72 |
|
|
|
(16,313 |
) |
Other |
|
|
151 |
|
|
|
(1,018 |
) |
|
|
17,251 |
|
|
|
(17,860 |
) |
|
|
(1,476 |
) |
Increase (decrease) in liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
1,646 |
|
|
|
23,611 |
|
|
|
(3,926 |
) |
|
|
(120 |
) |
|
|
21,211 |
|
Deferred revenue |
|
|
(116 |
) |
|
|
4,636 |
|
|
|
(5,459 |
) |
|
|
|
|
|
|
(939 |
) |
Reclassifications (1) |
|
|
(107 |
) |
|
|
|
|
|
|
107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating
activities |
|
|
15,900 |
|
|
|
59,739 |
|
|
|
(2,400 |
) |
|
|
(53,279 |
) |
|
|
19,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
payments received under direct finance leases |
|
|
|
|
|
|
274 |
|
|
|
|
|
|
|
|
|
|
|
274 |
|
Proceeds from sales of equipment |
|
|
|
|
|
|
13,375 |
|
|
|
|
|
|
|
|
|
|
|
13,375 |
|
Investment
in and net advances to unconsolidated subsidiaries |
|
|
(53,195 |
) |
|
|
447 |
|
|
|
|
|
|
|
53,267 |
|
|
|
519 |
|
Intercompany advances |
|
|
(23,384 |
) |
|
|
|
|
|
|
|
|
|
|
23,384 |
|
|
|
|
|
Acquisitions, net of cash |
|
|
|
|
|
|
(91,285 |
) |
|
|
|
|
|
|
|
|
|
|
(91,285 |
) |
De-consolidation of subsidiary |
|
|
|
|
|
|
|
|
|
|
(1,217 |
) |
|
|
|
|
|
|
(1,217 |
) |
Decrease in restricted cash |
|
|
|
|
|
|
|
|
|
|
1,690 |
|
|
|
|
|
|
|
1,690 |
|
Capital expenditures |
|
|
(1,781 |
) |
|
|
(46,700 |
) |
|
|
(16,018 |
) |
|
|
22 |
|
|
|
(64,477 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing
activities |
|
|
(78,360 |
) |
|
|
(123,889 |
) |
|
|
(15,545 |
) |
|
|
76,673 |
|
|
|
(141,121 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in revolving notes |
|
|
52,500 |
|
|
|
|
|
|
|
(3,622 |
) |
|
|
|
|
|
|
48,878 |
|
Intercompany advances |
|
|
|
|
|
|
17,894 |
|
|
|
5,490 |
|
|
|
(23,384 |
) |
|
|
|
|
Proceeds from issuance of notes payable |
|
|
|
|
|
|
49,613 |
|
|
|
|
|
|
|
|
|
|
|
49,613 |
|
Repayments of notes payable |
|
|
(1,001 |
) |
|
|
(3,551 |
) |
|
|
(1,017 |
) |
|
|
|
|
|
|
(5,569 |
) |
Dividends |
|
|
(3,933 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,933 |
) |
Stock options exercised |
|
|
2,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,921 |
|
Tax expense of options exercised and
restricted stock awards dividends |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
Investment by joint venture partner |
|
|
|
|
|
|
|
|
|
|
6,000 |
|
|
|
|
|
|
|
6,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in )
financing activities |
|
|
50,496 |
|
|
|
63,956 |
|
|
|
6,851 |
|
|
|
(23,384 |
) |
|
|
97,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes |
|
|
(3,458 |
) |
|
|
194 |
|
|
|
5,708 |
|
|
|
(10 |
) |
|
|
2,434 |
|
Increase (decrease) in cash and cash
equivalents |
|
|
(15,422 |
) |
|
|
|
|
|
|
(5,386 |
) |
|
|
|
|
|
|
(20,808 |
) |
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
15,422 |
|
|
|
|
|
|
|
5,386 |
|
|
|
|
|
|
|
20,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Our Mexican joint venture is shown as a non-guarantor subsidiary in the current years
presentation. In the prior years presentation financial information for the joint venture, while
immaterial, was allocated among the guarantor, non-guarantor and eliminations categories. |
21
THE GREENBRIER COMPANIES, INC.
The Greenbrier Companies, Inc.
Condensed Consolidating Balance Sheet
For the year ended August 31, 2007
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
15,422 |
|
|
$ |
|
|
|
$ |
5,386 |
|
|
$ |
|
|
|
$ |
20,808 |
|
Restricted cash |
|
|
|
|
|
|
|
|
|
|
2,693 |
|
|
|
|
|
|
|
2,693 |
|
Accounts receivable |
|
|
122,388 |
|
|
|
8,893 |
|
|
|
27,825 |
|
|
|
(2,068 |
) |
|
|
157,038 |
|
Inventories |
|
|
|
|
|
|
102,529 |
|
|
|
92,354 |
|
|
|
|
|
|
|
194,883 |
|
Assets held for sale |
|
|
|
|
|
|
28,841 |
|
|
|
14,062 |
|
|
|
|
|
|
|
42,903 |
|
Investment in direct finance leases |
|
|
|
|
|
|
9,040 |
|
|
|
|
|
|
|
|
|
|
|
9,040 |
|
Equipment on operating leases |
|
|
|
|
|
|
296,189 |
|
|
|
|
|
|
|
(1,863 |
) |
|
|
294,326 |
|
Property, plant and equipment |
|
|
2,191 |
|
|
|
78,894 |
|
|
|
31,728 |
|
|
|
|
|
|
|
112,813 |
|
Goodwill |
|
|
|
|
|
|
168,851 |
|
|
|
|
|
|
|
136 |
|
|
|
168,987 |
|
Intangibles and other |
|
|
436,709 |
|
|
|
89,685 |
|
|
|
2,406 |
|
|
|
(459,542 |
) |
|
|
69,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
576,710 |
|
|
$ |
782,922 |
|
|
$ |
176,454 |
|
|
$ |
(463,337 |
) |
|
$ |
1,072,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving notes |
|
$ |
|
|
|
$ |
|
|
|
$ |
39,568 |
|
|
$ |
|
|
|
$ |
39,568 |
|
|
Accounts payable and accrued
liabilities |
|
|
(12,280 |
) |
|
|
177,251 |
|
|
|
76,810 |
|
|
|
(2,068 |
) |
|
|
239,713 |
|
Participation |
|
|
|
|
|
|
4,355 |
|
|
|
|
|
|
|
|
|
|
|
4,355 |
|
Deferred income taxes |
|
|
4,957 |
|
|
|
59,551 |
|
|
|
(2,959 |
) |
|
|
(139 |
) |
|
|
61,410 |
|
Deferred revenue |
|
|
1,086 |
|
|
|
7,310 |
|
|
|
9,656 |
|
|
|
|
|
|
|
18,052 |
|
Notes payable |
|
|
340,688 |
|
|
|
106,926 |
|
|
|
13,301 |
|
|
|
|
|
|
|
460,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
|
|
|
|
6,750 |
|
|
|
|
|
|
|
(1,604 |
) |
|
|
5,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
242,259 |
|
|
|
420,779 |
|
|
|
40,078 |
|
|
|
(459,526 |
) |
|
|
243,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
576,710 |
|
|
$ |
782,922 |
|
|
$ |
176,454 |
|
|
$ |
(463,337 |
) |
|
$ |
1,072,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
THE GREENBRIER COMPANIES, INC.
The Greenbrier Companies, Inc.
Condensed Consolidating Statement of Operations
For the three months ended May 31, 2007
(In thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing |
|
$ |
(266 |
) |
|
$ |
170,076 |
|
|
$ |
152,655 |
|
|
$ |
(81,066 |
) |
|
$ |
241,399 |
|
Refurbishment & parts |
|
|
|
|
|
|
112,170 |
|
|
|
6,043 |
|
|
|
|
|
|
|
118,213 |
|
Leasing & services |
|
|
(9 |
) |
|
|
27,003 |
|
|
|
|
|
|
|
|
|
|
|
26,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(275 |
) |
|
|
309,249 |
|
|
|
158,698 |
|
|
|
(81,066 |
) |
|
|
386,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing |
|
|
|
|
|
|
159,913 |
|
|
|
142,356 |
|
|
|
(81,066 |
) |
|
|
221,203 |
|
Refurbishment & parts |
|
|
|
|
|
|
91,009 |
|
|
|
5,279 |
|
|
|
|
|
|
|
96,288 |
|
Leasing & services |
|
|
|
|
|
|
11,355 |
|
|
|
|
|
|
|
(16 |
) |
|
|
11,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
262,277 |
|
|
|
147,635 |
|
|
|
(81,082 |
) |
|
|
328,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin |
|
|
(275 |
) |
|
|
46,972 |
|
|
|
11,063 |
|
|
|
16 |
|
|
|
57,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative |
|
|
7,788 |
|
|
|
8,878 |
|
|
|
3,426 |
|
|
|
|
|
|
|
20,092 |
|
Interest and foreign exchange |
|
|
8,247 |
|
|
|
1,168 |
|
|
|
1,515 |
|
|
|
|
|
|
|
10,930 |
|
Special charges |
|
|
|
|
|
|
635 |
|
|
|
18,906 |
|
|
|
(16,450 |
) |
|
|
3,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,035 |
|
|
|
10,681 |
|
|
|
23,847 |
|
|
|
(16,450 |
) |
|
|
34,113 |
|
Earnings (loss) before income taxes,
minority interest and equity in
unconsolidated subsidiaries |
|
|
(16,310 |
) |
|
|
36,291 |
|
|
|
(12,784 |
) |
|
|
16,466 |
|
|
|
23,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit |
|
|
6,460 |
|
|
|
(13,394 |
) |
|
|
(3,579 |
) |
|
|
(534 |
) |
|
|
(11,047 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,850 |
) |
|
|
22,897 |
|
|
|
(16,363 |
) |
|
|
15,932 |
|
|
|
12,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
|
|
|
|
|
|
|
|
(100 |
) |
|
|
278 |
|
|
|
178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings (loss) of
unconsolidated subsidiaries |
|
|
22,867 |
|
|
|
5,158 |
|
|
|
953 |
|
|
|
(28,755 |
) |
|
|
223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
13,017 |
|
|
$ |
28,055 |
|
|
$ |
(15,510 |
) |
|
$ |
(12,545 |
) |
|
$ |
13,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
THE GREENBRIER COMPANIES, INC.
The Greenbrier Companies, Inc.
Condensed Consolidating Statement of Operations
For the nine months ended May 31, 2007
(In thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing |
|
$ |
(2,802 |
) |
|
$ |
378,268 |
|
|
$ |
354,949 |
|
|
$ |
(201,122 |
) |
|
$ |
529,293 |
|
Refurbishment & parts |
|
|
|
|
|
|
251,959 |
|
|
|
12,801 |
|
|
|
|
|
|
|
264,760 |
|
Leasing & services |
|
|
1,166 |
|
|
|
77,200 |
|
|
|
|
|
|
|
788 |
|
|
|
79,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,636 |
) |
|
|
707,427 |
|
|
|
367,750 |
|
|
|
(200,334 |
) |
|
|
873,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing |
|
|
|
|
|
|
359,093 |
|
|
|
340,678 |
|
|
|
(201,058 |
) |
|
|
498,713 |
|
Refurbishment & parts |
|
|
|
|
|
|
210,509 |
|
|
|
10,899 |
|
|
|
|
|
|
|
221,408 |
|
Leasing & services |
|
|
|
|
|
|
34,419 |
|
|
|
|
|
|
|
(49 |
) |
|
|
34,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
604,021 |
|
|
|
351,577 |
|
|
|
(201,107 |
) |
|
|
754,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin |
|
|
(1,636 |
) |
|
|
103,406 |
|
|
|
16,173 |
|
|
|
773 |
|
|
|
118,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative |
|
|
21,431 |
|
|
|
24,862 |
|
|
|
9,724 |
|
|
|
|
|
|
|
56,017 |
|
Interest and foreign exchange |
|
|
25,993 |
|
|
|
1,346 |
|
|
|
3,647 |
|
|
|
|
|
|
|
30,986 |
|
Special charges |
|
|
35 |
|
|
|
635 |
|
|
|
18,906 |
|
|
|
|
|
|
|
19,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,459 |
|
|
|
26,843 |
|
|
|
32,277 |
|
|
|
|
|
|
|
106,579 |
|
Earnings (loss) before income taxes,
minority interest and equity in
unconsolidated subsidiaries |
|
|
(49,095 |
) |
|
|
76,563 |
|
|
|
(16,104 |
) |
|
|
773 |
|
|
|
12,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit |
|
|
28,177 |
|
|
|
(29,942 |
) |
|
|
(1,330 |
) |
|
|
(303 |
) |
|
|
(3,398 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,918 |
) |
|
|
46,621 |
|
|
|
(17,434 |
) |
|
|
470 |
|
|
|
8,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
|
|
|
|
|
|
|
|
(101 |
) |
|
|
318 |
|
|
|
217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings (loss) of
unconsolidated subsidiaries |
|
|
29,734 |
|
|
|
6,057 |
|
|
|
|
|
|
|
(35,931 |
) |
|
|
(140 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
8,816 |
|
|
$ |
52,678 |
|
|
$ |
(17,535 |
) |
|
$ |
(35,143 |
) |
|
$ |
8,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
THE GREENBRIER COMPANIES, INC.
The Greenbrier Companies, Inc.
Condensed Consolidating Statement of Cash Flows
For the nine months ended May 31, 2007 (As Restated)
(In thousands, unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
Combined |
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
Parent |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
8,816 |
|
|
$ |
52,678 |
|
|
$ |
(17,535 |
) |
|
$ |
(35,143 |
) |
|
$ |
8,816 |
|
Adjustments to reconcile net earnings to
net cash provided by (used in)
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
996 |
|
|
|
(83 |
) |
|
|
1,472 |
|
|
|
303 |
|
|
|
2,688 |
|
Depreciation and amortization |
|
|
128 |
|
|
|
19,508 |
|
|
|
4,909 |
|
|
|
(49 |
) |
|
|
24,496 |
|
Gain on sales of equipment |
|
|
|
|
|
|
(9,994 |
) |
|
|
|
|
|
|
(787 |
) |
|
|
(10,781 |
) |
Special charges |
|
|
35 |
|
|
|
635 |
|
|
|
18,906 |
|
|
|
|
|
|
|
19,576 |
|
Minority interest |
|
|
|
|
|
|
5,400 |
|
|
|
|
|
|
|
(5,718 |
) |
|
|
(318 |
) |
Other |
|
|
|
|
|
|
60 |
|
|
|
111 |
|
|
|
(1 |
) |
|
|
170 |
|
Decrease (increase) in assets (net of
acquisitions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and notes receivable |
|
|
32,882 |
|
|
|
(27,118 |
) |
|
|
(1,230 |
) |
|
|
19 |
|
|
|
4,553 |
|
Inventories |
|
|
|
|
|
|
6,242 |
|
|
|
4,674 |
|
|
|
|
|
|
|
10,916 |
|
Assets held for sale |
|
|
|
|
|
|
9,579 |
|
|
|
(8,023 |
) |
|
|
|
|
|
|
1,556 |
|
Intangibles and other |
|
|
(2,074 |
) |
|
|
696 |
|
|
|
(289 |
) |
|
|
|
|
|
|
(1,667 |
) |
Increase (decrease) in liabilities (net of
acquisitions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
(39,605 |
) |
|
|
13,443 |
|
|
|
(1,650 |
) |
|
|
(19 |
) |
|
|
(27,831 |
) |
Participation |
|
|
|
|
|
|
(8,478 |
) |
|
|
|
|
|
|
|
|
|
|
(8,478 |
) |
Deferred revenue |
|
|
(116 |
) |
|
|
(1,422 |
) |
|
|
7,652 |
|
|
|
|
|
|
|
6,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating
activities |
|
|
1,062 |
|
|
|
61,146 |
|
|
|
8,997 |
|
|
|
(41,395 |
) |
|
|
29,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments received under
direct finance leases |
|
|
|
|
|
|
426 |
|
|
|
|
|
|
|
|
|
|
|
426 |
|
Proceeds from sales of equipment |
|
|
|
|
|
|
114,719 |
|
|
|
|
|
|
|
|
|
|
|
114,719 |
|
Investment in and net advances to
unconsolidated subsidiary |
|
|
(35,134 |
) |
|
|
(7,066 |
) |
|
|
|
|
|
|
41,331 |
|
|
|
(869 |
) |
Intercompany advances |
|
|
(102,005 |
) |
|
|
|
|
|
|
|
|
|
|
102,005 |
|
|
|
|
|
Acquisitions, net of cash acquired |
|
|
|
|
|
|
(262,106 |
) |
|
|
(5,797 |
) |
|
|
|
|
|
|
(267,903 |
) |
Increase in restricted cash |
|
|
|
|
|
|
|
|
|
|
(445 |
) |
|
|
|
|
|
|
(445 |
) |
Capital expenditures |
|
|
(642 |
) |
|
|
(112,624 |
) |
|
|
(13,240 |
) |
|
|
64 |
|
|
|
(126,442 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing
activities |
|
|
(137,781 |
) |
|
|
(266,651 |
) |
|
|
(19,482 |
) |
|
|
143,400 |
|
|
|
(280,514 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in revolving notes |
|
|
25,000 |
|
|
|
|
|
|
|
9,106 |
|
|
|
|
|
|
|
34,106 |
|
Intercompany advances |
|
|
|
|
|
|
104,989 |
|
|
|
(2,984 |
) |
|
|
(102,005 |
) |
|
|
|
|
Proceeds from issuance of notes payable |
|
|
(71 |
) |
|
|
99,512 |
|
|
|
|
|
|
|
|
|
|
|
99,441 |
|
Repayments of notes payable |
|
|
(921 |
) |
|
|
(2,336 |
) |
|
|
(825 |
) |
|
|
|
|
|
|
(4,082 |
) |
Repayments of subordinated debt |
|
|
|
|
|
|
(2,091 |
) |
|
|
|
|
|
|
|
|
|
|
(2,091 |
) |
Dividends paid |
|
|
(3,851 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,851 |
) |
Stock options exercised and restricted stock
awards |
|
|
2,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,616 |
|
Excess tax benefit of stock options
exercised |
|
|
2,774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,774 |
|
Investment by joint venture partner |
|
|
|
|
|
|
5,400 |
|
|
|
|
|
|
|
|
|
|
|
5,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
25,547 |
|
|
|
205,474 |
|
|
|
5,297 |
|
|
|
(102,005 |
) |
|
|
134,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes |
|
|
402 |
|
|
|
(4 |
) |
|
|
1,418 |
|
|
|
|
|
|
|
1,816 |
|
Decrease in cash and cash equivalents |
|
|
(110,770 |
) |
|
|
(35 |
) |
|
|
(3,770 |
) |
|
|
|
|
|
|
(114,575 |
) |
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
133,695 |
|
|
|
35 |
|
|
|
9,164 |
|
|
|
|
|
|
|
142,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
22,925 |
|
|
$ |
|
|
|
$ |
5,394 |
|
|
$ |
|
|
|
$ |
28,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
THE GREENBRIER COMPANIES, INC.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
We currently operate in three primary business segments: manufacturing, refurbishment & parts and
leasing & services. These three business segments are operationally integrated. The manufacturing
segment, operating from four facilities in the United States, Mexico and Europe, produces
double-stack intermodal railcars, conventional railcars, tank cars and marine vessels. The
refurbishment & parts segment, operating in the United States and Mexico, performs railcar repair,
refurbishment and maintenance activities, wheel and axle servicing, and limited parts production
for the North American railroad industry. The leasing & services segment owns approximately 9,000
railcars and provides management services for approximately 138,000 railcars for railroads,
shippers, carriers, and other leasing and transportation companies in North America. Segment
performance is evaluated based on margins. We also produce rail castings through an unconsolidated
joint venture.
The North American freight car market is currently experiencing a softening of demand due to market
saturation of certain freight car types, increased efficiencies of the railroads, a weaker economy,
higher raw material costs and tight capital markets, all contributing to caution on the part of our
customers and increased competition for new railcar orders and lease commitments. These market
factors are expected to continue to lower revenues and reduce margins for some of our operations.
Our manufacturing backlog of railcars for sale and lease as of May 31, 2008 was approximately
17,500 railcars with an estimated value of $1.55 billion compared to 14,100 railcars valued at $970
million as of May 31, 2007. Based on current production plans, approximately 1,400 units in
backlog are scheduled for delivery in the remainder of 2008. The current backlog includes
approximately 8,500 units that are subject to our fulfillment of certain competitive conditions. A
portion of the orders included in backlog include an assumed product mix. Under terms of the order,
the exact mix will be determined in the future which may impact the dollar amount of backlog. In
addition, approximately two-thirds of our backlog consists of orders for tank cars which are a new
product type for us.
Prices for steel, a primary component of railcars and barges, have risen significantly and remain
volatile. In addition the price of certain railcar components, which are a product of steel, are
adversely affected by steel price increases. Both steel and railcar component suppliers are
imposing surcharges, which have also risen significantly and remain volatile. New railcar backlog
generally either includes: 1) fixed price contracts which anticipate material price increases and
surcharges, or 2) contracts that contain actual pass through of material price increases and
surcharges. Currently about one-third of our backlog has fixed price contracts. On certain fixed
price railcar contracts actual price increases and surcharges have caused the total price of the
railcar to exceed the amounts originally anticipated, and in some cases, the actual contractual
sale price of the railcar. When the anticipated loss on production of railcars in backlog is both
probable and estimable, we accrue a loss contingency. A loss contingency reserve of $5.3 million
was accrued during the three months ended May 31, 2008. In addition, there are 1,000 railcars in
backlog for which a loss is not yet estimable. We are aggressively working to mitigate these
exposures. The Companys integrated business model has helped offset some of the effects of rising
steel scrap prices, as a portion of our other business segments benefit from the rising steel scrap
prices through enhanced margins.
We are aggressively seeking to reduce our selling and administrative and overhead costs, including
reductions in headcount. As a result, during the three months ended May 31, 2008 $1.8 million was
accrued for severance at several locations, and we continue to pursue additional cost savings. Our
cost reduction efforts have been offset somewhat by costs associated with integration of
acquisitions and other strategic initiatives.
On March 13, 2008, our Canadian railcar manufacturing facility, TrentonWorks Ltd. (TrentonWorks)
filed for bankruptcy with The Office of the Superintendent of Bankruptcy Canada whereby the assets
of TrentonWorks are being administered and liquidated by an appointed trustee. The Company has not
guaranteed any obligations of TrentonWorks and does not believe it will be liable for any of
TrentonWorks liabilities. Beginning on March 13, 2008 the results of TrentonWorks were
de-consolidated and management does not believe there will be any further negative impact to the
Companys Consolidated Statement of Operations.
26
THE GREENBRIER COMPANIES, INC.
On March 28, 2008 the Company acquired substantially all of the operating assets of American Allied
Railway Equipment Company and its subsidiaries (AARE) for $83.2 million in cash, plus or minus
working capital adjustments. The purchase price was paid from existing cash balances and credit
facilities. The acquisition is expected to be immediately accretive to our annual earnings. The
assets of AAREs three operating plants located in the midwestern and southeastern U.S. are
included in the acquisition. Operating from two wheel facilities in Washington, Illinois and
Macon, Georgia, AARE supplies new and reconditioned wheelsets to freight car maintenance locations
as well as new railcar manufacturing facilities. AARE also operates a parts reconditioning
business in Peoria, Illinois, where it reconditions railcar yokes, couplers, side frames and
bolsters. The financial results since the acquisition are reported in the Companys Condensed
Consolidated Financial Statements as part of the refurbishment & parts segment.
On April 4, 2008 the Company purchased substantially all of the operating assets of Roller Bearing
Industries, Inc. (RBI) from SKF USA, Inc. RBI operates a railcar bearings reconditioning business
from its facility in Elizabethtown, Kentucky. Reconditioned bearings are used in the refurbishment
of railcar wheelsets. The financial results since the acquisition are reported in the Companys
Condensed Consolidated Financial Statements as part of the refurbishment & parts segment.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States requires judgment on the part of management to arrive at estimates and
assumptions on matters that are inherently uncertain. These estimates may affect the amount of
assets, liabilities, revenue and expenses reported in the financial statements and accompanying
notes and disclosure of contingent assets and liabilities within the financial statements.
Estimates and assumptions are periodically evaluated and may be adjusted in future periods. Actual
results could differ from those estimates.
Income taxes For financial reporting purposes, income tax expense is estimated based on planned
tax return filings. The amounts anticipated to be reported in those filings may change between the
time the financial statements are prepared and the time the tax returns are filed. Further, because
tax filings are subject to review by taxing authorities, there is also the risk that a position
taken in preparation of a tax return may be challenged by a taxing authority. If the taxing
authority is successful in asserting a position different than that taken by us, differences in tax
expense or between current and deferred tax items may arise in future periods. Such differences,
which could have a material impact on our financial statements, would be reflected in the financial
statements when management considers them probable of occurring and the amount reasonably
estimable. Valuation allowances reduce deferred tax assets to an amount that will more likely than
not be realized. Our estimates of the realization of deferred tax assets is based on the
information available at the time the financial statements are prepared and may include estimates
of future income and other assumptions that are inherently uncertain. As a result of the
implementation of FIN 48, we recognize liabilities for uncertain tax positions based on whether
evidence indicates that it is more likely than not that the position will be sustained on audit. It
is inherently difficult and subjective to estimate such amounts, as this requires us to determine
the probability of various possible outcomes. We reevaluate these uncertain tax positions on a
quarterly basis. Changes in assumptions may result in the recognition of a tax benefit or an
additional charge to the tax provision.
Maintenance
obligations We are responsible for maintenance on a portion of the managed and owned
lease fleet under the terms of maintenance obligations defined in the underlying lease or
management agreement. The estimated maintenance liability is based on maintenance histories for
each type and age of railcar. These estimates involve judgment as to the future costs of repairs
and the types and timing of repairs required over the lease term. As we cannot predict with
certainty the prices, timing and volume of maintenance needed in the future on railcars under
long-term leases, this estimate is uncertain and could be materially different from maintenance
requirements. The liability is periodically reviewed and updated based on maintenance trends and
known future repair or refurbishment requirements. These adjustments could be material due to the
inability to predict future maintenance requirements.
27
THE GREENBRIER COMPANIES, INC.
Warranty accruals Warranty costs to cover a defined warranty period are estimated and charged to
operations. The estimated warranty cost is based on historical warranty claims for each particular
product type. For new product types without a warranty history, preliminary estimates are based on
historical information for similar product types.
These estimates are inherently uncertain as they are based on historical data for existing products
and judgment for new products. If warranty claims are made in the current period for issues that
have not historically been the subject of warranty claims and were not taken into consideration in
establishing the accrual or if claims for issues already considered in establishing the accrual
exceed expectations, warranty expense may exceed the accrual for that particular product.
Conversely, there is the possibility that claims may be lower than estimates. The warranty accrual
is periodically reviewed and updated based on warranty trends. However, as we cannot predict future
claims, the potential exists for the difference in any one reporting period to be material.
Revenue recognition Revenue is recognized when persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, the price is fixed or determinable and
collectibility is reasonably assured.
Railcars and components are generally manufactured, repaired or refurbished under firm orders from
third parties. Revenue is recognized when railcars are completed, accepted by an unaffiliated
customer and contractual contingencies removed. Direct finance lease revenue is recognized over the
lease term in a manner that produces a constant rate of return on the net investment in the lease.
Operating lease revenue is recognized as earned under the lease terms. Certain leases are operated
under car hire arrangements whereby revenue is earned based on utilization, car hire rates and
terms specified in the lease agreement. Car hire revenue is reported from a third party source two
months in arrears; however, such revenue is accrued in the month earned based on estimates of use
from historical activity and is adjusted to actual as reported. These estimates are inherently
uncertain as they involve judgment as to the estimated use of each railcar. Adjustments to actual
have historically not been significant. Revenues from construction of marine barges are either
recognized on the percentage of completion method during the construction period or on the
completed contract method based on the terms of the contract. Under the percentage of completion
method, judgment is used to determine a definitive threshold against which progress towards
completion can be measured to determine timing of revenue recognition.
Impairment of long-lived assets When changes in circumstances indicate the carrying amount of
certain long-lived assets may not be recoverable, the assets will be evaluated for impairment. If
the forecast undiscounted future cash flows is less than the carrying amount of the assets, an
impairment charge to reduce the carrying value of the assets to fair value will be recognized in
the current period. These estimates are based on the best information available at the time of the
impairment and could be materially different if circumstances change.
Goodwill and acquired intangible assets We periodically acquire businesses in purchase
transactions in which the allocation of the purchase price may result in the recognition of
goodwill and other intangible assets. The determination of the value of such intangible assets
requires management to make estimates and assumptions. These estimates affect the amount of future
period amortization and possible impairment charges.
Results of Operations
Three Months Ended May 31, 2008 Compared to Three Months Ended May 31, 2007
Overview
Total revenues for the three months ended May 31, 2008 were $382.1 million, a decrease of $4.5
million from revenues of $386.6 million in the prior comparable period. Net earnings were $8.1
million for the three months ended May 31, 2008 compared to net earnings of $13.0 million for the
three months ended May 31, 2007.
Manufacturing Segment
Manufacturing revenue includes results from new railcar and marine production. New railcar
delivery and backlog information includes all facilities.
28
THE GREENBRIER COMPANIES, INC.
Manufacturing revenue for the three months ended May 31, 2008 was $201.8 million compared to $241.4
million in the corresponding prior period, a decrease of $39.6 million. The decrease was primarily
the result of lower
deliveries. New railcar deliveries were approximately 2,200 units in the current period compared
to 3,000 units in the prior comparable period.
Manufacturing margin as a percentage of revenue for the three months ended May 31, 2008 was 0.5%
compared to a margin of 8.4% for the three months ended May 31, 2007. The decrease was primarily
due to lower production levels, rising steel prices and surcharges, loss contingencies of $5.3
million accrued on certain future railcar production $0.5 million of severance costs and a less
favorable product mix and pricing environment, partially offset by relief of certain contractual
obligations.
Refurbishment & Parts Segment
Refurbishment & parts revenue of $152.4 million for the three months ended May 31, 2008 increased
by $34.2 million from revenue of $118.2 million in the prior comparable period. The increase was
primarily due to acquisition growth, increased volumes of parts and wheels and favorable scrap
pricing.
Refurbishment & parts margin as a percentage of revenue was 21.0% for the three months ended May
31, 2008 compared to 18.5% for the three months ended May 31, 2007. Margins were positively
impacted by increases in scrap prices, a more favorable product mix and increased volumes.
Leasing & Services Segment
Leasing & services revenue increased $0.9 million to $27.9 million for the three months ended May
31, 2008 compared to $27.0 million for the three months ended May 31, 2007. The increase was a
result of additions to the lease fleet and new management agreements, partially offset by lower
interim rents earned from assets held for sale.
Leasing & services margin as a percentage of revenue was 56.2% and 58.0% for the three-month
periods ended May 31, 2008 and 2007. The decrease was primarily a result of a reduction in interim
rent on assets held for sale which have no associated cost of revenue.
Other Costs
Selling and administrative expense was $23.4 million for the three months ended May 31, 2008
compared to $20.1 million for the comparable prior period, an increase of $3.3 million. The
increase was primarily due to increased employee related costs including severance of $1.3 million
due to reductions in work force, professional costs associated with strategic initiatives,
integration costs of recent acquisitions and a full quarter of expenses related to our Mexican
joint venture facility which commenced production in May 2007.
Interest and foreign exchange expense decreased $1.0 million to $9.9 million for the three months
ended May 31, 2008, compared to $10.9 million in the prior comparable period. The decrease was
principally due to a $0.8 million decrease in foreign exchange losses from $0.7 million loss in the
prior period to a gain of $0.1 million in the current period.
In April 2007, The Board of Directors approved the permanent closure of TrentonWorks. During the
quarter ended May 31, 2007, special charges of $3.1 million related to the closure were incurred
which consist of $2.9 million in employee termination costs and $0.2 million in professional fees
and other costs.
Income Taxes
The provision for income tax expense was $7.6 million and $11.0 million for the three months ended
May 31, 2008 and 2007. The provision for income taxes is based on projected geographical mix of
consolidated results from operations for the entire year which results in an estimated 54.9% annual
effective tax rate on pre-tax income. The effective tax rate fluctuates from year to year due to
the geographical mix of pre-tax earnings and losses, minimum tax requirements in certain local
jurisdictions and operating losses for certain operations with no related tax benefit.
29
THE GREENBRIER COMPANIES, INC.
The actual
tax rate for the third quarter of the fiscal year 2008 was 49.7% as compared to 46.7% in the prior
comparable period. The actual rate of 49.7% differs from the estimated effective rate of 54.9% due
to revisions to our projected geographical mix of consolidated results from operations.
Minority Interest
Minority interest for the three months ended May 31, 2008 consists of the sharing of losses from
our Mexican railcar manufacturing joint venture that began production in May of 2007.
Nine Months Ended May 31, 2008 Compared to Nine Months Ended May 31, 2007
Overview
Total revenues for the nine months ended May 31, 2008 were $928.1 million, an increase of $54.9
million from revenues of $873.2 million in the prior comparable period. Net earnings were $12.2
million for the nine months ended May 31, 2008 compared to net earnings of $8.8 million for the
nine months ended May 31, 2007.
Manufacturing Segment
Manufacturing revenue for the nine months ended May 31, 2008 was $484.4 million compared to $529.3
million in the corresponding prior period, a decrease of $44.9 million. The decrease was primarily
the result of lower deliveries. New railcar deliveries were approximately 5,400 units in the
current period and 6,200 units in the prior comparable period.
Manufacturing margin as a percentage of revenue for the nine months ended May 31, 2008 was 3.1%
compared to 5.8% for the nine months ended May 31, 2007. The decrease was primarily due to rising
steel prices and surcharges, loss contingencies of $5.3 million accrued on certain future
production, $0.5 million of severance, lower production levels and start up costs and production
inefficiencies at our Mexican joint venture facility, partially offset by relief of certain
contractual obligations. The prior period was also impacted by negative margins at TrentonWorks
that closed permanently during the third quarter of 2007.
Refurbishment & Parts Segment
Refurbishment & parts revenue of $368.8 million for the nine months ended May 31, 2008 increased by
$104.0 million from revenue of $264.8 million in the prior comparable period. The increase was
primarily due to acquisition related growth, increases in wheelset volumes and scrap steel prices.
Refurbishment & parts margin as a percentage of revenue was 17.9% for the nine months ended May 31,
2008 compared to 16.4% for the nine months ended May 31, 2007. Higher margins were a result of the
growth of our wheel business and the positive impact of higher scrap steel prices.
Leasing & Services Segment
Leasing & services revenue decreased $4.4 million to $74.8 million for the nine months ended May
31, 2008 compared to $79.2 million for the nine months ended May 31, 2007. The change was
primarily a result of a $3.8 million decrease in gains on disposition of assets from the lease
fleet, lower interim rent on railcars held for sale and lower interest income.
Pre-tax earnings of $7.0 million were realized on the disposition of leased equipment, compared to
$10.8 million in the prior comparable period. Assets from our lease fleet are periodically sold in
the normal course of business in order to take advantage of market conditions, manage risk and
maintain liquidity.
Leasing & services margin as a percentage of revenue decreased to 51.3% for the nine months ended
May 31, 2008 compared to 56.6% for the nine months ended May 31, 2007. The change was primarily a
result of decreases in
30
THE GREENBRIER COMPANIES, INC.
gains on disposition of assets from the lease fleet, interest income and
interim rent on assets held for sale, all of which have no associated cost of revenue.
Other Costs
Selling and administrative costs were $64.6 million for the nine months ended May 31, 2008 compared
to $56.0 million for the comparable prior period, an increase of $8.6 million. The increase was
primarily due to increased employee costs including severance of $1.3 million related to reductions
in work force, professional costs associated with strategic initiatives, integration costs of
recent acquisitions, business process improvement at existing facilities, costs associated with our
Mexican joint venture facility that commenced production in May 2007 and plant overhead from
TrentonWorks.
Interest and foreign exchange decreased $0.7 million to $30.3 million for the nine months ended May
31, 2008, compared to $31.0 million in the prior comparable period. Interest expense decreased
$1.1 million due to lower variable interest rates and the de-consolidation of TrentonWorks.
Foreign exchange losses increased $0.4 million to $1.3 million compared to $0.9 million in the
prior year.
In April 2007, our board of directors approved the permanent closure of TrentonWorks. As a result
of the facility closure decision, special charges of $2.3 million were recorded during nine months
ended May 31, 2008 consisting of severance costs and professional and other expenses. On March 13,
2008 this subsidiary filed for bankruptcy with The Office of the Superintendent of Bankruptcy
Canada whereby the assets of TrentonWorks are being administered and liquidated by an appointed
trustee. Beginning on March 13, 2008 the results of TrentonWorks were de-consolidated and no
additional charges were subsequently incurred.
Special charges of $19.6 million were recorded during the nine months ended May 31, 2007. These
charges consisted of $14.1 million associated with property, plant and equipment, $1.3 million
related to inventory and $1.1 million write-off of goodwill and other, $2.9 million in severance
costs and $0.2 million of professional and other fees associated with the closure.
Income Tax
The provision for income taxes expense was $12.4 million and $3.4 million for the nine months ended
May 31, 2008 and 2007. The provision for income taxes is based on projected consolidated results of
operations for the entire year which results in an estimated 54.9% annual effective tax rate on
pre-tax income. The effective tax rate fluctuates from year to year due to the geographical mix of
pre-tax earnings and losses, minimum tax requirements in certain local jurisdictions and operating
losses for certain operations with no related tax benefit. The actual tax rate for the first nine
months of the fiscal year 2008 was 56.3% as compared to 28.0% in the prior comparable period. The
actual rate of 56.3% differs from the estimated effective rate of 54.9% due to revisions to our
projected geographical mix of consolidated results from operations.
Minority Interest
Minority interest for the nine months ended May 31, 2008 consists of the sharing of losses from our
Mexican railcar manufacturing joint venture that began production in May of 2007.
Equity in Earnings (Loss) of Unconsolidated Subsidiaries
Equity in earnings of the of the castings joint venture was $0.5 million for the nine months ended
May 31, 2008 compared to a loss of $0.1 million for the nine months ended May 31, 2007. The
increase in earnings was associated with higher production levels and lower warranty costs in the
current year.
Liquidity and Capital Resources
We have been financed through cash generated from operations and borrowings. During the nine
months ended May 31, 2008, cash decreased $20.8 million from August 31, 2007.
31
THE GREENBRIER COMPANIES, INC.
Cash provided by operations for the nine months ended May 31, 2008 was $20.0 million compared to
$29.8 million for the nine months ended May 31, 2007. The change is due primarily to timing of
working capital needs including purchases of inventory and timing of customer payments.
Cash used in investing activities was $141.1 million for the nine months ended May 31, 2008
compared to $280.5 million in the prior comparable period. Cash usage during the current year is
primarily due to the acquisitions of AARE and RBI and capital expenditures. The prior comparable
period cash utilization was primarily due to the acquisitions of Meridian Rail Holdings Corp and
Rail Car America.
Capital expenditures totaled $64.5 million and $126.4 million for the nine months ended May 31,
2008 and 2007. Of these capital expenditures, approximately $41.3 million and $107.6 million were
attributable to leasing & services operations for the nine months ended May 31, 2008 and 2007.
Leasing & services capital expenditures for 2008 are expected to be approximately $45.0 million
depending on market conditions and fleet management objectives. We regularly sell assets from our
lease fleet, some of which may have been purchased within the current year and included in capital
expenditures. Proceeds from the sale of equipment were $13.4 million and $114.7 million for the
nine months ended May 31, 2008 and 2007.
Approximately $18.4 million and $15.2 million of capital expenditures for the nine months ended May
31, 2008 and 2007 were attributable to manufacturing operations. Capital expenditures for
manufacturing operations are expected to be approximately $30.0 million in 2008 and primarily
relate to expansion of manufacturing capacity at our joint venture in Mexico.
Refurbishment & parts capital expenditures for the nine months ended May 31, 2008 and 2007 were
$4.8 million and $3.6 million and are expected to be approximately $10.0 million in 2008.
Cash provided by financing activities was $97.9 million for the nine months ended May 31, 2008
compared to $134.3 million in the nine months ended May 31, 2007. During the nine months ended May
31, 2008 we received $48.9 million in net proceeds from borrowings under revolving credit lines and
$49.6 in net proceeds from term loan borrowings. In the prior period, we received $34.1 million in
net proceeds from borrowings under revolving credit lines and $99.4 million from term loan debt.
All amounts originating in foreign currency have been translated at the May 31, 2008 exchange rate
for the following discussion. Senior secured revolving credit facilities aggregated $341.5 million
as of May 31, 2008, of which $101.4 million in revolving notes and $3.7 million in letters of
credit are outstanding. Available borrowings are generally based on defined levels of inventory,
receivables, and leased equipment, as well as total debt to consolidated capitalization and
interest coverage ratios which as of May 31, 2008 levels would provide for maximum additional
borrowing of $156.0 million. A $290.0 million revolving line of credit is available through
November 2011 to provide working capital and interim financing of equipment for the United States
and Mexican operations. Advances under the U.S. facility bear interest at variable rates that
depend on the type of borrowing and the defined ratio of debt to total capitalization. At May 31,
2008, there was $52.5 million in revolving notes and $3.7 million in letters of credit outstanding
under the United States credit facility. Lines of credit totaling $51.5 million are available for
working capital needs of the European manufacturing operation. As of May 31, 2008 these European
credit facilities have maturities that range from June 27, 2008 through March 31, 2009. As of May
31, 2008, there was $48.9 million outstanding on the European credit facilities. Subsequent to
quarter end the European credit lines have maximum availability of $47.0 million with maturities
that range from August 8, 2008 to June 26, 2009.
The revolving and operating lines of credit, along with notes payable, contain covenants with
respect to the Company and various subsidiaries, the most restrictive of which, among other things,
limit the ability to: incur additional indebtedness or guarantees; pay dividends; enter into sale
leaseback transactions; create liens; sell assets; engage in transactions with affiliates,
including but not limited to; loans, advances, equity investments and guarantees; enter into
mergers, consolidations or sales of substantially all the Companys assets; and enter into new
lines of business. The covenants also require certain minimum levels of tangible net worth,
maximum ratios of debt to equity or total capitalization and minimum levels of interest coverage.
Currently we are seeking a line of credit to support certain of our foreign operations due in part
to current limitations in our existing loan covenants.
32
THE GREENBRIER COMPANIES, INC.
In accordance with customary business practices in Europe, we have $18.0 million in third party
performance, advance payment and warranty guarantee facilities all of which have been utilized as
of May 31, 2008. To date, no amounts have been drawn under these performance, advance payment and
warranty guarantees.
We have advanced $1.0 million in long term advances to an unconsolidated subsidiary which are
secured by accounts receivable and inventory. As of May 31, 2008, this same unconsolidated
subsidiary had $5.1 million in third party debt for which we have guaranteed 33% or approximately
$1.7 million. In the event that there is a change in control or insolvency by any of the three 33%
investors that have guaranteed the debt, the remaining investors share of the guarantee will
increase proportionately.
As of May 31, 2008, we had outstanding letters of credit aggregating $3.7 million associated with
facility leases and payroll.
Foreign operations give rise to risks from changes in foreign currency exchange rates. Greenbrier
utilizes foreign currency forward exchange contracts with established financial institutions to
hedge a portion of that risk. No provision has been made for credit loss due to counterparty
non-performance.
Quarterly dividends have been paid since the 4th quarter of 2004 when dividends of $.06 per share
were reinstated. The dividend was increased to $.08 per share in the 4th quarter of 2005.
The issuance of $50.0 million in term debt in the current period has resulted in an increase in our
estimated future contractual cash obligations for interest from what was reported in our 2007
Annual Report on Form 10-K. Future cash obligations related to principal and interest associated
with this debt are $3.7 million in 2009, $3.1 million in 2010, $3.1 million in 2011, $3.1 million
in 2012 and $48.7 million thereafter.
We expect existing funds and cash generated from operations, together with proceeds from financing
activities including borrowings under existing credit facilities and long-term financing, to be
sufficient to fund dividends, working capital needs, planned capital expenditures and expected debt
repayments for the foreseeable future.
Off Balance Sheet Arrangements
We do not currently have off balance sheet arrangements that have or are likely to have a material
current or future effect on our Consolidated Financial Statements.
Forward-Looking Statements
From time to time, Greenbrier or its representatives have made or may make forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995, including,
without limitation, statements as to expectations, beliefs and strategies regarding the future.
Such forward-looking statements may be included in, but not limited to, press releases, oral
statements made with the approval of an authorized executive officer or in various filings made by
us with the Securities and Exchange Commission. These forward-looking statements rely on a number
of assumptions concerning future events and include statements relating to:
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availability of financing sources and borrowing base for working capital, other business
development activities, capital spending and railcar warehousing activities; |
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ability to renew or obtain sufficient lines of credit and performance guarantees on
acceptable terms; |
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ability to utilize beneficial tax strategies; |
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ability to grow our refurbishment & parts and lease fleet and management services
business; |
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ability to obtain sales contracts which contain provisions for the escalation of prices due
to increased costs of materials and components; |
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ability to obtain adequate certification and licensing of products; and |
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short- and long-term revenue and earnings effects of the above items. |
33
THE GREENBRIER COMPANIES, INC.
Forward-looking statements are subject to a number of uncertainties and other factors outside
Greenbriers control. The following are among the factors that could cause actual results or
outcomes to differ materially from the forward-looking statements:
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a delay or failure of acquired businesses, start-up operations, products or services to
compete successfully; |
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decreases in carrying value of assets due to impairment; |
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severance or other costs or charges associated with lay-offs, shutdowns, or reducing the
size and scope of operations; |
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changes in future maintenance or warranty requirements; |
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fluctuations in demand for newly manufactured railcars or failure to obtain orders as
anticipated in developing forecasts; |
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effects of local statutory accounting; |
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domestic and global business conditions and growth or reduction in the surface
transportation industry; |
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ability to maintain good relationships with third party labor providers or collective
bargaining units; |
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steel price increases, scrap surcharges, steel scrap prices and other commodity price
fluctuations and their impact on railcar and wheel demand and margin; |
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ability to deliver railcars in accordance with customer specifications; |
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changes in product mix and the mix among reporting segments; |
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labor disputes, energy shortages or operating difficulties that might disrupt manufacturing
operations or the flow of cargo; |
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production difficulties and product delivery delays as a result of, among other matters,
changing technologies or non-performance of alliance partners, subcontractors or suppliers; |
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ability to obtain suitable contracts for railcars held for sale; |
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lower than anticipated residual values for leased equipment; |
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discovery of defects in railcars resulting in increased warranty costs or litigation; |
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resolution or outcome of pending or future litigation and investigations; |
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the ability to consummate expected sales; |
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delays in receipt of orders, risks that contracts may be canceled during their term or not
renewed and that customers may not purchase as much equipment under the contracts as
anticipated; |
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financial condition of principal customers; |
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market acceptance of products; |
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ability to determine and obtain adequate levels of insurance and at acceptable rates; |
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disputes arising from creation, use, licensing or ownership of intellectual property in the
conduct of the Companys business; |
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competitive factors, including introduction of competitive products, price pressures,
limited customer base and competitiveness of our manufacturing facilities and products; |
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industry overcapacity and our manufacturing capacity utilization; |
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continued industry demand at current and anticipated levels for railcar products; |
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domestic and global political, regulatory or economic conditions including such matters as
terrorism, war, embargoes or quotas; |
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ability to adjust to the cyclical nature of the railcar industry; |
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the effects of car hire deprescription on leasing revenue; |
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changes in interest rates; |
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actions by various regulatory agencies; |
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changes in fuel and/or energy prices; |
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risks associated with intellectual property rights of Greenbrier or third parties,
including infringement, maintenance, protection, validity, enforcement and continued use of
such rights; |
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expansion of warranty and product support terms beyond those which have traditionally
prevailed in the rail supply industry; |
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availability of a trained work force and availability and/or price of essential raw
materials, specialties or components, including steel castings, to permit manufacture of units
on order; |
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failure to successfully integrate acquired businesses; |
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discovery of unknown liabilities associated with acquired businesses; |
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THE GREENBRIER COMPANIES, INC.
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failure of or delay in implementing and using new software or other technologies; |
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ability to replace maturing lease revenue and earnings with revenue and earnings from
additions to the lease fleet and management services; and |
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financial impacts from currency fluctuations in our worldwide operations. |
Any forward-looking statements should be considered in light of these factors. Greenbrier assumes
no obligation to update or revise any forward-looking statements to reflect actual results, changes
in assumptions or changes in other factors affecting such forward-looking statements or if
Greenbrier later becomes aware that these assumptions are not likely to be achieved, except as
required under securities laws.
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THE GREENBRIER COMPANIES, INC.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Exchange Risk
We have operations in Mexico, Germany and Poland that conduct business in their local currencies as
well as other regional currencies. To mitigate the exposure to transactions denominated in
currencies other than the functional currency of each entity, we enter into foreign currency
forward exchange contracts to protect the margin on a portion of forecast foreign currency sales.
At May 31, 2008, $128.0 million of forecast sales were hedged by foreign exchange contracts.
Because of the variety of currencies in which purchases and sales are transacted and the
interaction between currency rates, it is not possible to predict the impact a movement in a single
foreign currency exchange rate would have on future operating results. We believe the exposure to
foreign exchange risk is not material.
In addition to exposure to transaction gains or losses, we are also exposed to foreign currency
exchange risk related to the net asset position of our foreign subsidiaries. At May 31, 2008, net
assets of foreign subsidiaries aggregated $17.1 million and a uniform 10% strengthening of the
United States dollar relative to the foreign currencies would result in a decrease in stockholders
equity of $1.7 million, 0.7% of total stockholders equity. This calculation assumes that each
exchange rate would change in the same direction relative to the United States dollar.
Interest Rate Risk
We have managed our floating rate debt with interest rate swap agreements, effectively converting
$9.3 million of variable rate debt to fixed rate debt. At May 31, 2008, the exposure to interest
rate risk is reduced since 55% of our debt has fixed rates and 45% has floating rates. As a result,
we are exposed to interest rate risk relating to our revolving debt and a portion of term debt. At
May 31, 2008, a uniform 10% increase in interest rates would result in approximately $1.1 million
of additional annual interest expense.
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THE GREENBRIER COMPANIES, INC.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation of our President and
Chief Executive Officer, our Chief Financial Officer and our Chief Accounting Officer, the
effectiveness of the Companys disclosure controls and procedures as of the end of the period
covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the
Exchange Act). Based on that evaluation, our President and Chief Executive Officer and Chief
Financial Officer have concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures were effective in ensuring that information required to be
disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a
timely manner, and (2) accumulated and communicated to our management, including our President and
Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
Changes in Internal Controls over Financial Reporting
There have been no material changes in our internal control over financial reporting that occurred
during the quarter ended May 31, 2008 that has materially affected, or is reasonably likely to
materially affect, the Companys internal controls over financial reporting.
On April 1, 2008 James W. Cruckshank was appointed Chief Accounting Officer. He is the Companys
Principal Accounting Officer. Our Chief Financial Officer, Mark J. Rittenbaum, remains our
Principal Financial Officer.
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THE GREENBRIER COMPANIES, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There is hereby incorporated by reference the information disclosed in Note 15 to Consolidated
Financial Statements, Part I of this quarterly report.
Item 1A. Risk Factors
There have been no material changes in our risk factors described in our Annual Report on Form 10-K
for the year ended August 31, 2007.
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THE GREENBRIER COMPANIES, INC.
Item 6. Exhibits
(a) List of Exhibits:
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31.1
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Certification pursuant to Rule 13 (a) 14 (a) |
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31.2
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Certification pursuant to Rule 13 (a) 14 (a) |
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32.1
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Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2
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Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. |
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THE GREENBRIER COMPANIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
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THE GREENBRIER COMPANIES, INC.
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Date: July 10, 2008 |
By: |
/s/ Mark J. Rittenbaum
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Mark J. Rittenbaum |
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Executive Vice President, Treasurer
and
Chief Financial Officer
(Principal Financial Officer) |
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Date: July 10, 2008 |
By: |
/s/ James W. Cruckshank
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James W. Cruckshank |
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Senior Vice Present and
Chief Accounting Officer
(Principal Accounting Officer) |
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40