-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, No53ZeHiIu1k7HE2+2YZ3iBN1z8HhxQXvSj5vXhO2ztc+6XoXqFLPpuxbsGEmNO5 H8bCD/G532VjNeasvMDaUA== 0000912057-96-027640.txt : 19961202 0000912057-96-027640.hdr.sgml : 19961202 ACCESSION NUMBER: 0000912057-96-027640 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960831 FILED AS OF DATE: 19961126 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREENBRIER COMPANIES INC CENTRAL INDEX KEY: 0000923120 STANDARD INDUSTRIAL CLASSIFICATION: RAILROAD EQUIPMENT [3743] IRS NUMBER: 930816972 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-13146 FILM NUMBER: 96672539 BUSINESS ADDRESS: STREET 1: ONE CENTERPOINT DR STREET 2: STE 200 CITY: LAKE OSWEGO STATE: OR ZIP: 97035 BUSINESS PHONE: 5036847000 MAIL ADDRESS: STREET 1: ONE CENTERPOINTE DR STREET 2: STE 200 CITY: LAKE OSWEGO STATE: OR ZIP: 97035 10-K405 1 FORM 10-K405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549-1004 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED AUGUST 31, 1996 or [ ] 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) DELAWARE 93-0816972 (State of Incorporation) (IRS Employer Identification No.) ONE CENTERPOINTE DRIVE, SUITE 200 LAKE OSWEGO, OREGON 97035 (Address of principal executive offices) (503) 684-7000 (Registrant's telephone number, including area code) ---------------------------------- Securities registered pursuant to Section 12(b) of the Act: (Title of Each Class) (Name of Each Exchange COMMON STOCK, on Which Registered) PAR VALUE $0.001 PER SHARE NEW YORK STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: NONE 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 X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K X ----- Aggregate market value of the Registrant's Common Stock held by non-affiliates on October 31, 1996 (based on the closing price of such shares on such date) was approximately $60,500,000. The number of shares outstanding of the Registrant's Common Stock on November 15, 1996 was 14,160,000 shares of Common Stock, par value $0.001 per share. DOCUMENTS INCORPORATED BY REFERENCE Parts of Registrant's 1996 Annual Report to Stockholders and of Registrant's Proxy Statement dated November 26, 1996 prepared in connection with the Annual Meeting of Stockholders to be held on January 14, 1997 are incorporated by reference into Parts II and III of this Report. THE GREENBRIER COMPANIES, INC. FORM 10-K TABLE OF CONTENTS PART I Page ---- Item 1. BUSINESS 1 Item 2. PROPERTIES 9 Item 3. LEGAL PROCEEDINGS 9 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 10 Item 6. SELECTED FINANCIAL DATA 10 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 10 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 10 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT 11 Item 11. EXECUTIVE COMPENSATION 11 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 11 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 11 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 12 SIGNATURES 21 (i) PART I. ITEM 1. BUSINESS INTRODUCTION The Greenbrier Companies, Inc. ("Greenbrier" or the "Company") is a leading supplier of transportation equipment and services to railroad and transportation industries. The Company's manufacturing segment produces double-stack intermodal railcars, conventional railcars and marine vessels, and provides rail services for both intermodal and conventional railcars. In addition to manufacturing, Greenbrier is engaged in complementary leasing activities including third-party transportation logistics. Lease fleets of approximately 27,000 railcars and 16,000 domestic containers and intermodal and highway trailers are owned or managed by the leasing segment. Greenbrier believes both of the lease fleets are among the largest non-railroad owned fleets in the United States. The combined average utilization rate of the fleets was 99 percent as of August 31, 1996. Greenbrier is a Delaware corporation formed in 1981. The Company's principal executive offices are located at One Centerpointe Drive, Lake Oswego, Oregon 97035, and its telephone number is (503) 684-7000. PRODUCTS AND SERVICES Greenbrier operates in two primary business segments: the manufacture of railcars and marine vessels and the refurbishment and repair of railcars; and the leasing and management of surface transportation equipment and related services, including third-party transportation logistics. A summary of selected consolidated financial information for these two business segments as well as domestic and foreign operations is set forth in Note 17 of the Notes to Consolidated Financial Statements. INTERMODAL PRODUCTS Intermodal transportation is the movement of cargo in standardized containers or trailers. Intermodal containers and trailers are generally freely interchangeable among railcar, truck or ship, making it possible to move cargo in a single container or trailer from a point of origin to final destination without the repeated loading and unloading of the freight required by traditional shipping methods. A major innovation in intermodal transportation has been the double-stack railcar which transports stacked containers on a single platform. An articulated railcar is a unit comprised of up to five platforms, each of which is linked by a common set of wheels and axles. DOUBLE-STACK RAILCARS. The double-stack railcar provides significant operating and capital savings over other types of intermodal railcars. These savings are the result of (i) increased train density (two containers are carried within the same longitudinal space conventionally used to carry one trailer or container); (ii) a railcar weight reduction per container of approximately 50 percent; (iii) easier terminal handling characteristics; (iv) reduced equipment costs of approximately 30 percent over the cost of providing the same carrying capacity with conventional equipment; (v) better ride quality leading to reduced damage claims; and (vi) increased fuel efficiency resulting from weight reduction and improved aerodynamics. The Company is the leading manufacturer of double stack railcars with an estimated cumulative U.S. market share of over 60%. In 1996, approximately 1,900 double-stack railcars were manufactured and sold by the Company, which the Company believes represents 100% of total market share during such period. 1 Greenbrier's comprehensive line of articulated and non-articulated double-stack railcars offers varying load capacities and configurations. Current double- stack products include: MAXI-STACK - The Maxi-Stack is a double-stack railcar that features the ride-quality and operating efficiency of articulated stack cars and the versatility for alternating platforms to carry a variety of cargo. The Maxi-Stack III is a five-platform railcar that features the ability to carry containers up to 53 feet in length, the longest standard-size shipping containers presently in use. The Maxi-Stack AP is a three- platform railcar that is more versatile than other intermodal cars that carry both trailers and containers because it allows the loading of either one large over-the-road trailer or two 28-foot trailers. It is also able to carry double-stack containers on the same platform. HUSKY-STACK - Husky-Stack is a non-articulated (stand-alone) or draw bar connected double-stack railcar with the capability of carrying containers up to 42 percent heavier than a single Maxi-Stack platform. The All- Purpose Husky-Stack is a non-articulated version of the Maxi-Stack AP. Husky-Stack 2+2 is a 56-foot railcar that allows the double-stack loading of up to four 28-foot containers. Husky-Stack also provides a means to extend double-stack economics to small load segments and terminals. AUTOSTACK. Autostack is a proprietary system developed and licensed by the Company to transport automobiles intermodally in standard domestic or international shipping containers. The Autostack system provides improvements over existing specialized automobile transport equipment at a cost that provides an economic advantage when compared to existing modes of vehicle transportation. Since the vehicles are transported in fully-enclosed containers, they are protected from environmental damage, paint contamination and vandalism in transit. The Autostack system, unlike conventional multi-level railcars, is used in standard rail, ship and highway intermodal corridors. The Autostack system reduces the possibility of damaging the vehicles during loading, providing an advantage compared to conventional systems which require automobiles to be driven directly onto railcars. The Autostack hardware, which is currently manufactured by unaffiliated companies, includes the racks, loaders and rack handling equipment. The racks are designed so that they can be inserted and transported in most sizes of high cubic capacity intermodal containers presently in use. Utilizing the loaders, up to six vehicles are loaded into the racks prior to the racks being placed into standard intermodal containers. The Autostack racks are collapsible and can be returned to their point of origin, six racks to one container, thereby reducing transportation costs when no vehicle back-haul traffic is available and allowing the five remaining containers to be returned carrying other cargo. In 1996, approximately 108,000 vehicles were transported using Autostack equipment. CONVENTIONAL RAILCARS The Company has expanded its presence and production capacity in the conventional railcar market because of increased demand. Greenbrier, through its subsidiaries Gunderson, Inc. and TrentonWorks Limited, is the leading manufacturer of boxcars in North America. A wide variety of 100-ton capacity boxcars are offered. While primarily used in the forest products industry, custom built high capacity cars are also being manufactured for special applications such as automotive parts or canstock movement. In addition to boxcars, the Company is currently manufacturing high cubic capacity covered hopper railcars for grain transportation and has orders to be manufactured in 1997 for center partition flat cars for lumber and other building materials and gondolas for scrap steel services. In 1996, approximately 4,500 conventional railcars were manufactured and leased or sold. Other conventional railcar designs such as flat cars and woodchip cars have been manufactured by the Company. The need for expansion and upgrading of the railcar manufacturing and refurbishing facilities is continually evaluated in order to take advantage of increased market opportunities for new railcar designs. 2 RAIL SERVICES Greenbrier is actively engaged in the repair and refurbishment of railcars for third parties as well as its own lease fleet. In certain situations, repair and refurbishment of the Company's lease fleet is performed in unaffiliated facilities. Refurbishing and repair facilities are located in Portland and Springfield, Oregon and Cleburne, Texas. The Springfield facility has a long- term contract with a third-party primarily for the repair of railcars. Greenbrier believes it is one of only a few railcar lessors with its own refurbishing capabilities. In addition, Greenbrier operates wheel shops in Portland and Pine Bluff, Arkansas and is opening a wheel shop in Tacoma, Washington in December 1996. MARINE VESSEL FABRICATION The Portland, Oregon manufacturing facility is located on a deep water port on the Willamette River. Until 1984, the Company's predecessor designed and built ocean-going barges and other types of marine vessels for maritime shipping companies. In 1995, Greenbrier re-entered the marine vessel market with an expansion and upgrade of the marine facilities, which includes the largest side- launch ways on the West Coast. The upgraded marine facilities also enhance steel plate burning and fabrication capacity and provide flexibility for railcar production. Over the past two years, six ocean-going dump barges were successfully launched. As of August 31, 1996, construction was underway on a seventh barge, which is anticipated to be complete in December 1996. Discussions on several potential new orders are in progress, but in the meantime, the facility will be utilized for railcar repair and refurbishment activities. LEASING AND SERVICES Greenbrier owns or manages lease fleets of railcars, domestic containers and intermodal and highway trailers. The lease fleet is 42,922 units, of which approximately 63 percent is comprised of railcars and 37 percent is comprised of trailers and containers. Within the lease fleet, 30,944 units are owned and 11,978 units are managed for others on a fee basis. Greenbrier participates in the operating lease segment of the market in which the aggregate rental payments over the lease term do not fully amortize the acquisition costs of the leased equipment. As a result, the Company is subject to the customary risk that it may not be able to sell or re-lease equipment after the operating lease term expires. However, the Company believes it can achieve higher rates of return in the operating lease segment than in finance leasing and can more effectively manage the risks typically associated with operating leases due to its ability to exploit its intermodal expertise and its refurbishing and remarketing capabilities. The Company also participates in the finance lease segment of the market. Assets from the owned lease fleet are periodically sold to take advantage of market conditions, manage risk and maintain liquidity. Leasing services are provided in three primary equipment categories: intermodal railcars, conventional railcars, and trailers and domestic containers. Most of the railcar leases are "full service" leases, whereby Greenbrier is responsible for maintenance, taxes and administration, while many of the trailer and container leases require that the lessee be responsible for such costs. The rail fleet is maintained, in part, through Greenbrier's own facilities and engineering and technical staff. 3 The following table summarizes the lease fleet:
FLEET PROFILE AS OF AUGUST 31, 1996(1) -------------------------------------------------------------------------- Average Remaining Average Owned Managed Total % on Lease Term Age Units Units Units Lease (Yrs.) (Yrs.) ------- ------- ------- ------- ---------- ------- EQUIPMENT SUMMARY Railcars Double-stack 7 6,673 6,680 100.0% 1.9 4.62 Conventional 14,883 4,069 18,952 97.8% 5.5 18.34 ------- ------- ------- Total Railcars 14,890 10,742 25,632 98.3% 4.5 14.76 Trailers and Containers 14,475 1,236 15,711 99.4% 2.6 6.67 ------- ------- ------- Equipment Available for Revenue Service 29,365 11,978 41,343 98.7% 3.8 11.69 ----- --- ----- Railcar Equipment Held for Sale 1,579 - 1,579 ------- ------- ------- 30,944 11,978 42,922 ------- ------- ------- LESSEE PROFILE Class I Railroads 17,698 8,885 26,583 100.0% 4.0 13.10 Non-Class I Railroads 1,154 641 1,795 100.0% 3.0 18.96 Leasing Companies 6,335 1,171 7,506 100.0% 4.7 5.85 Shipping Companies 1,890 1,196 3,086 100.0% 3.3 8.75 Daily Rental 1,822 32 1,854 100.0% 0.0 10.69 Off-Lease 466 53 519 - - 20.02 ------- ------- ------- TOTAL EQUIPMENT UNITS 29,365 11,978 41,343 98.7% 3.8 11.69 ------- ------- ------- ----- --- -----
- --------------- (1) Each platform of an articulated car is treated as a separate car. A substantial portion of the equipment available for lease has been acquired through agreements with two parties. In August 1990, Greenbrier entered into an agreement with Southern Pacific Transportation Company ("Southern Pacific"), which recently merged with Union Pacific Railroad Company, to purchase, refurbish and remarket over 10,000 railcars. The railcars are refurbished to predetermined specifications by Greenbrier or by unaffiliated contract shops after satisfactory remarketing arrangements are in place. Approximately 9,700 railcars have been refurbished as of August 31, 1996, with the remaining 400 railcars to be refurbished through January 1997. An agreement was entered into in December 1992 with a subsidiary of Chrysler Corporation under which Greenbrier formed a limited partnership with an affiliate of Chrysler to acquire Chrysler's entire fleet of 12,466 intermodal containers and trailers. The partnership is managed and controlled by Greenbrier. Greenbrier anticipates acquiring the remaining interest in the partnership in December 1996. In 1995, the Company entered the highway trailer rental market expecting to create new growth opportunities as well as extend the economic life and value of existing intermodal equipment. Rental operations exist at four branch locations and utilize approximately 2,500 trailers from the Company's lease fleet. Despite some progress, market conditions are currently soft in this sector, limiting growth opportunities in the foreseeable future. 4 TRANSPORTATION LOGISTICS In the fourth quarter of 1996, Greenbrier acquired Superior Transportation Systems, Inc. and the remaining interest in Tolan O'Neal Transportation & Logistics, Inc. Subsequent to year end, Interamerican Logistics Inc. was acquired. These transactions expand Greenbrier's third-party transportation logistics services. Logistics is anticipated to complement current operations by strengthening relationships with customers in the railroad and shipping industry and by providing access to Greenbrier's lease fleet. Investments in personnel, systems and equipment may be necessary, but are not expected to be material. RAW MATERIALS AND COMPONENTS Manufactured products require a supply of raw materials including steel plate and numerous specialty components such as brakes, wheels and axles. Approximately 50 percent of the cost of each freight car represents specialty components purchased from third-parties. Customers often specify particular components and suppliers of such components. Although the number of alternative suppliers of certain specialty components has declined in recent years, there are at least two suppliers for most such components. Inventory levels are continually monitored to ensure adequate support of production. Advance purchases are periodically made to avoid possible shortages of material due to capacity limitations of component suppliers and possible price increases. Binding long-term contracts with suppliers are not typically entered into as the Company relies on established relationships with major suppliers to ensure the availability of raw materials and specialty items. Fluctuations in the price of components and raw materials have not had a material effect on earnings and are not anticipated to have a material effect in the foreseeable future. In 1996, approximately 57 percent of the Company's domestic requirements for steel plate were purchased from Oregon Steel Mills, Inc. Approximately 87 percent of the Canadian requirements for steel plate were purchased from Algoma Steel Inc. No other suppliers accounted for in excess of ten percent of total purchases in 1996, and the top ten suppliers (including Oregon Steel Mills, Inc. and Algoma Steel Inc.) accounted for approximately 32 percent of total purchases. The Company maintains good relationships with its suppliers and has not experienced any significant interruptions in recent years in the supply of raw materials or specialty components. MARKETING AND PRODUCT DEVELOPMENT A fully integrated marketing and sales effort is utilized whereby Greenbrier seeks to leverage relationships developed in each of its manufacturing and leasing and services operations to provide customers with a diverse range of equipment and financing alternatives designed to satisfy a customer's unique needs. These custom programs may involve a combination of railcar products and financing, leasing, refurbishing and remarketing services, depending on whether the customer is buying new equipment or refurbishing existing equipment. Through customer relationships, insights are derived into the potential need for new products and services. Marketing and engineering personnel collaborate to evaluate opportunities and identify and develop new products. Research and development costs incurred for new product development during 1996, 1995 and 1994 were $597,000, $1,086,000 and $1,158,000, respectively. CUSTOMERS AND BACKLOG The manufacturing customer base includes every transportation company that utilizes double-stack or conventional railcars as well as financial institutions that provide equipment to the transportation industry. A portion of the customer base includes Burlington Northern Santa Fe ("Burlington Santa Fe"), Canadian National, Champion International, First Union Rail, General Electric Railcar Services, Norfolk Southern Railway Company, TTX Company, and Southern Pacific. In 1996, sales to the largest customer, First Union Rail, accounted for 28 percent of total revenues. 5 The following table lists the Company's backlog in units and dollars for new railcars at the dates shown: August 31, ----------------------------------------- 1996 1995 1994 ---- ---- ---- New railcar backlog(1) 2,164 4,601 2,974 Estimated value (in thousands) $123,393 $279,900 $149,170 - --------------- (1) Each platform of an articulated car is treated as a separate car. The backlog as of August 31, 1996 extends into the second quarter of 1997. The decline in backlog is consistent with the overall decline in industry demand and is believed to be due to the current pause in the market as a result of the recent merger activity among the Class I railroads and the record railcar deliveries that occurred over the past several years. The backlog is based on customer sale or lease orders that the Company believes are firm. Customer orders, however, are subject to cancellation and other customary industry terms and conditions. Historically, little variation has been experienced between the number of railcars ordered and the number of railcars actually sold. The backlog is not necessarily indicative of future results of operations. Payment for railcars manufactured is typically received when the cars are completed and accepted by a third-party customer. Autostack services are currently provided under agreements with RailVan Multimodal, Burlington Santa Fe and Sea-Land Service Inc. The agreements expire at various dates through 1999. Autostack also provides services to Toyota Motor Sales USA Inc. on a month-to-month basis. Leasing customers include Class I Railroads, regional and short line railroads, other leasing companies, shippers and carriers such as Burlington Santa Fe, The Kansas City Southern Railway Company, First Union Rail, Southern Pacific and Transamerica Equipment Leasing Company. COMPETITION Greenbrier is affected by a variety of competitors in each of its principal business activities. There are currently seven major railcar manufacturers competing in the United States and Canada. Two of these producers build railcars principally for their own fleets and five producers -- Trinity Industries, Inc., Thrall Car Manufacturing Co., Johnstown America Corp., National Steel Car, Ltd. and the Company -- compete principally in the general railcar market. Some of these producers have substantially greater resources than the Company. Greenbrier competes on the basis of type of product, reputation for quality, price, reliability of delivery and customer service and support. In railcar leasing, principal competitors include C.I.T., DJ Joseph, First Union Rail, GATX Corporation, General Electric Railcar Services and Helm Financial Corp. In trailer and domestic container leasing, the principal competition includes Genstar Corporation, Transamerica Leasing Inc., and XTRA Corporation. In automobile transportation systems, at least one other company has developed a system which is competitive with Autostack. PATENTS AND TRADEMARKS Greenbrier pursues a proactive program for protection of intellectual property resulting from its research and development efforts. With the acquisition of Gunderson in 1985, the relevant intellectual property estate formerly employed by the Marine and Rail Equipment Division of FMC Corporation was acquired. Since 1985, Greenbrier has obtained patent and trademark protection for significant intellectual property as it relates to its business. The Company holds several United States and foreign patents and has several patent applications pending. Greenbrier holds the exclusive North American worldwide license to use the Autostack technology until the later of 2007 or the expiration of the last Autostack patent, subject to the payment of minimum royalties. The basic Autostack system is covered by a family of related United States patents and patent applications. Corresponding foreign patent coverage has been obtained, or is pending, in Australia, Canada, Europe, Mexico, Japan and South Korea. 6 ENVIRONMENTAL MATTERS The Company is subject to federal, state, provincial and local environmental laws and regulations concerning, among other matters, air emissions, waste water discharge, solid and hazardous waste disposal and employee health and safety. Greenbrier maintains an active program of environmental compliance and believes that its current operations are in material compliance with all applicable federal, state, provincial and local environmental laws and regulations. REGULATION The Federal Railroad Administration (the "FRA") in the United States and Transport Canada in Canada administer and enforce laws and regulations relating to railroad safety. These regulations govern equipment and safety appliance standards for freight cars and other rail equipment used in interstate commerce. The Association of American Railroads (the "AAR") also promulgates a wide variety of rules and regulations governing safety and design of equipment, relationships among railroads with respect to railcars in interchange and other matters. The AAR also certifies railcar builders and component manufacturers that provide equipment for use on North American railroads. The effect of these regulations is that the Company must maintain its certifications with the AAR as a car builder and component manufacturer, and products sold and leased by the Company must meet AAR, Transport Canada and FRA standards. EXECUTIVE OFFICERS OF THE COMPANY The following are the executive officers of the Company. ALAN JAMES, 66, has been Chairman of the Board of Directors of Greenbrier since May 1994. Mr. James has been associated with the Company and its predecessor companies since 1974. WILLIAM A. FURMAN, 52, has been President, Chief Executive Officer and a director of Greenbrier since May 1994. Mr. Furman is also Chief Executive Officer of Gunderson and Managing Director of TrentonWorks. Mr. Furman has been associated with the Company and its predecessor companies since 1974. Mr. Furman serves as a director of Schnitzer Steel Industries, Inc., a public company engaged in steel recycling and manufacturing. ROBIN D. BISSON, 42, has been Senior Vice President Marketing and Sales of the Company since January 1996 and President of Greenbrier Railcar, Inc., a subsidiary that engages in railcar leasing, since 1991. Mr. Bisson is responsible for the sale and marketing of all railcars as well as rebuilding and refurbishment work. Mr. Bisson was Vice President of Greenbrier Railcar, Inc. from 1987 to 1991 and has been Vice President of Greenbrier Leasing Corporation since 1987. LARRY G. BRADY, 57, has been Vice President and Chief Financial Officer of the Company since March 1994. Mr. Brady joined Greenbrier in 1991 as Senior Vice President of Greenbrier Leasing Corporation. From 1974 to 1990, he was a partner with Touche Ross & Co. (which subsequently became Deloitte & Touche LLP). A. DANIEL O'NEAL, 60, has been Chairman of Greenbrier Logistics, Inc., a subsidiary formed in March 1996, since its formation, Chairman of Autostack Corporation, a subsidiary of the Company, since 1992, a director of Gunderson since 1985 and serves as a director of the Company. From 1973 until 1980, Mr. O'Neal served as a commissioner of the Interstate Commerce Commission and from 1977 until 1980 served as its Chairman. MARK J. RITTENBAUM, 39, is Vice President and Treasurer of the Company, a position he has held since May 1994. Mr. Rittenbaum has been with Greenbrier from 1985 to 1987 and from 1990 until the present. He has also been Vice President and Treasurer of Greenbrier Capital Corporation, a subsidiary that engages in the leasing of trailers and containers, since 1990. From 1987 to 1990, he was Director, Aircraft Finance, for CIS Corporation. 7 TIMOTHY A. STUCKEY, 46, has been President of Autostack Corporation since 1992, prior to which he served as Executive Vice President of Autostack since 1990 and Assistant Vice President of Greenbrier Leasing Corporation since 1987. NORRISS M. WEBB, 57, is Executive Vice President and General Counsel of the Company, a position he has held since May 1994. He is Vice President, Secretary and a director of both Greenbrier Capital Corporation and Gunderson. His tenure at the Company dates from its formation in 1981. L. CLARK WOOD, 54, has been President of Gunderson since 1990 and Chief Executive Officer of TrentonWorks since June 1995. Mr. Wood previously was Vice President and Director of Railcar Sales at Trinity Industries, Inc., a railroad freight car manufacturer, a position he held since 1985. Executive officers are elected by the Board of Directors. There are no family relationships between any of the executive officers of the Company. Alan James, Chairman of the Board of Directors, and Mr. Furman have entered into a Stockholders' Agreement pursuant to which they have agreed to vote as directors to elect Mr. Furman as President and Chief Executive Officer of the Company and Mr. James as Chairman and each to vote for the other in electing directors of the Company. EMPLOYEES As of August 31, 1996, Greenbrier had 2,803 full-time employees, consisting of 2,507 employees engaged in railcar and marine manufacturing, and railcar services, 19 employees engaged in marketing, 160 employees engaged in logistics services and 117 administrative employees. A total of 871 employees at the manufacturing facility in Trenton, Nova Scotia, Canada are covered by collective bargaining agreements. A stock incentive plan and a stock purchase plan are available for all employees. A discretionary bonus program is maintained for salaried and most hourly employees not covered by collective bargaining agreements. Greenbrier believes that its relations with its employees are good. FORWARD-LOOKING STATEMENTS From time to time, the Company or its representatives have made or may make forward-looking statements, orally or in writing. 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 the Company with the Securities and Exchange Commission. The following are among the factors that could cause actual results to differ materially from the forward-looking statements: business conditions and growth in the surface transportation industry and general economies, both domestic and international; lower than expected customer orders, delays in receipt of orders or cancellation of orders; transportation labor disputes which might disrupt the flow of cargo; competitive factors, including increased competition, new product offerings by competitors and price pressures; the availability of raw materials at reasonable prices; changes in product mix and the mix between manufacturing and leasing and services revenue; recoverability of investments in new ventures; and production difficulties and product delivery delays in the future as a result of, among other matters, changing process technologies and increasing production. Any forward-looking statements should be considered in light of these factors. 8 ITEM 2. PROPERTIES The Company's railcar manufacturing, refurbishment and repair facilities are located in Portland and Springfield, Oregon; Cleburne, Texas; Pine Bluff, Arkansas; Trenton, Nova Scotia, Canada; and Tacoma, Washington. The 75-acre Gunderson railcar and marine manufacturing plant located in Portland, Oregon is owned by the Company. This facility includes approximately 774,000 square feet of covered manufacturing space, a wheel mounting shop and a 750-foot side-launch ways for launching ocean-going vessels. The manufacturing facility in Trenton, Nova Scotia is also owned by the Company and covers approximately 100 acres with 414,000 square feet of manufacturing space as well as a forge shop. The Company leases, with an option to purchase, a railcar repair facility in Cleburne, Texas occupying approximately 70 acres. The lease expires in November 2002. The Springfield, Oregon railcar repair facility occupies approximately 5.4 acres under a lease expiring in 1998, which may be extended until 2004. A small wheel shop operating in approximately 20,000 square feet of manufacturing space is leased in Pine Bluff, Arkansas through 1998. The Tacoma, Washington wheel shop covers approximately 4.6 acres under lease through 2003, which may be extended, at various intervals, through 2071. Greenbrier's principal executive offices, including activities related to railcar marketing and leasing and Autostack, are located in Lake Oswego, Oregon in 23,000 square feet of leased space. Subsidiaries of the Company occupy leased offices in various locations throughout the U.S. Greenbrier believes that its facilities are in good condition and that the facilities, together with anticipated capital improvements and additions, are adequate for its operating needs for the foreseeable future. ITEM 3. LEGAL PROCEEDINGS From time to time, the Company has been involved in litigation relating to claims arising out of its operations in the regular course of business. As of the date of this Annual Report on Form 10-K, the Company is not a party to any legal proceedings, the adverse outcome of which would, in management's opinion, have a material adverse effect on the Company's results of operations or financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 9 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Reference is made to the information set forth in the section entitled "Common Stock" on page 40 of the 1996 Annual Report to Stockholders, which section is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA Reference is made to the information set forth in the section entitled "Selected Financial Information" on page 18 of the Company's 1996 Annual Report to Stockholders, which section is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to the information set forth in the section entitled "Management's Discussion and Analysis of Results of Operations and Financial Condition" on pages 19 to 23 of the 1996 Annual Report to Stockholders, which section is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements and report of independent auditors set forth in the 1996 Annual Report to Stockholders are incorporated herein by reference: Consolidated Balance Sheets as of August 31, 1996 and 1995, and the Consolidated Statements of Earnings, Consolidated Statements of Stockholders' Equity and Consolidated Statements of Cash Flows for the years ended August 31, 1996, 1995 and 1994, on pages 25 to 28, the Notes to Consolidated Financial Statements on pages 29 to 37, the report of independent auditors thereon on page 24 and the section entitled Quarterly Results of Operations-Unaudited on page 38. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 10 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT There is hereby incorporated by reference the information under the caption "Election of Directors" in the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A, which Proxy Statement is anticipated to be filed with the Securities and Exchange Commission within 120 days after the end of Registrant's year ended August 31, 1996, and the information under the caption "Executive Officers of the Company" in Part I, Item 1, "Business," of this Annual Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION There is hereby incorporated by reference the information under the caption "Executive Compensation" in Registrant's definitive Proxy Statement to be filed pursuant to Regulation 14A, which Proxy Statement is anticipated to be filed with the Securities and Exchange Commission within 120 days after the end of Registrant's year ended August 31, 1996. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT There is hereby incorporated by reference the information under the captions "Voting" and "Stockholdings of Certain Beneficial Owners and Management" in Registrant's definitive Proxy Statement to be filed pursuant to Regulation 14A, which Proxy Statement is anticipated to be filed with the Securities and Exchange Commission within 120 days after the end of Registrant's year ended August 31, 1996. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS There is hereby incorporated by reference the information under the caption "Certain Relationships and Related Party Transactions" in Registrant's definitive Proxy Statement to be filed pursuant to Regulation 14A, which Proxy Statement is anticipated to be filed with the Securities and Exchange Commission within 120 days after the end of Registrant's year ended August 31, 1996. 11 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K The Consolidated Financial Statements, together with the report thereon of Deloitte & Touche LLP, dated November 7, 1996, appearing on pages 24 to 37 of the 1996 Annual Report to Stockholders are incorporated by reference into this Annual Report on Form 10-K. With the exception of the aforementioned information and that which is specifically incorporated in Parts I and II, the 1996 Annual Report to Stockholders is not to be deemed filed as part of this Annual Report on Form 10-K.
Annual Report Page No. -------- (a) (1) Financial Statements of the Company - Index 17 Independent Auditors' Report 24 Consolidated Balance Sheets as of August 31, 1996 and 1995 25 Consolidated Statements of Earnings for the years ended August 31, 1996, 1995 and 1994 26 Consolidated Statements of Stockholders' Equity for the years ended August 31, 1996, 1995 and 1994 27 Consolidated Statements of Cash Flows for the years ended August 31, 1996, 1995 and 1994 28 Notes to Consolidated Financial Statements 29 This Filing Page No. -------- (2) The following financial statement schedules should be read in conjunction with the Consolidated Financial Statements in the 1996 Annual Report to Stockholders. All other schedules have been omitted because they are inapplicable, not required or because the information is given in the Consolidated Financial Statements or related Notes to Consolidated Financial Statements. Independent Auditors' Report 17 Schedule I - Condensed Financial Information of Registrant 18 Schedule II - Valuation and Qualifying Accounts 20
(3) List of Exhibits 3.1. Registrant's Restated Certificate of Incorporation is incorporated herein by reference to Exhibit 3.1 to the Registrant's Registration Statement No. 33-78852, dated July 11, 1994. 3.2. Registrant's Amended and Restated By-laws, as amended on November 9, 1994 is incorporated herein by reference to Exhibit 3.2 to Registrant's Annual Report on Form 10-K for the year ended August 31, 1994. 9.1. Form of Stockholders' Agreement dated July 1, 1994, between Alan James and William A. Furman is incorporated herein by reference to Exhibit 9.1 to Registrant's Registration Statement No. 33-78852, dated July 11, 1994. 9.2. Amendment No. 1 dated as of December 23, 1994 to Stockholders' Agreement dated July 1, 1994 between Alan James and William A. Furman is incorporated herein by reference to Exhibit 9.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended February 28, 1995. 12 10.1. Form of Registrant's 1994 Stock Incentive Plan, dated July 1, 1994 is incorporated herein by reference to Exhibit 10.1 to the Registrant's Registration Statement No. 33-78852, dated July 11, 1994. 10.2.* Employment Agreement dated as of July 1, 1994, between Alan James and Registrant is incorporated herein by reference to Exhibit 10.2 filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended May 31, 1994. 10.3.* Employment Agreement dated as of July 1, 1994, between William A. Furman and Registrant is incorporated herein by reference to Exhibit 10.3 filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended May 31, 1994. 10.4. Lease of Land and Improvements dated as of July 23, 1992 between the Atchison, Topeka and Santa Fe Railway Company and Gunderson Southwest, Inc. is incorporated herein by reference to Exhibit 10.4 to Registrant's Registration Statement No. 33-78852, dated July 11, 1994. 10.5. Remarketing Agreement dated as of November 19, 1987 among Southern Pacific Transportation Company, St. Louis Southwestern Railway Company, Greenbrier Leasing Corporation and Greenbrier Railcar, Inc. is incorporated herein by reference to Exhibit 10.5 to Registrant's Registration Statement No. 33-78852, dated July 11, 1994. 10.6. Amendment to Remarketing Agreement among Southern Pacific Transportation Company, St. Louis Southwestern Railway Company, Greenbrier Leasing Corporation and Greenbrier Railcar, Inc. dated as of November 15, 1988 is incorporated herein by reference to Exhibit 10.6 to Registrant's Registration Statement No. 33-78852, dated July 11, 1994. 10.7. Amendment No. 2 to Remarketing Agreement among Southern Pacific Transportation Company, St. Louis Southwestern Railway Company, Greenbrier Leasing Corporation and Greenbrier Railcar, Inc. is incorporated herein by reference to Exhibit 10.7 to Registrant's Registration Statement No. 33-78852, dated July 11, 1994. 10.8. Amendment No. 3 to Remarketing Agreement dated November 19, 1987 among Southern Pacific Transportation Company, St. Louis Southwestern Railway Company, Greenbrier Leasing Corporation and Greenbrier Railcar, Inc. dated as of March 5, 1991 is incorporated herein by reference to Exhibit 10.8 to Registrant's Registration Statement No. 33-78852, dated July 11, 1994. 10.9. Railcar Management Agreement between Greenbrier Leasing Corporation and James-Furman & Company, dated as of December 31, 1989 is incorporated herein by reference to Exhibit 10.9 to Registrant's Registration Statement No. 33-78852, dated July 11, 1994. 10.10. Railcar Maintenance Agreement between Greenbrier Leasing Corporation and James-Furman & Company, dated as of December 31, 1989 is incorporated herein by reference to Exhibit 10.10 to Registrant's Registration Statement No. 33-78852, dated July 11, 1994. 13 10.11. Form of Amendment No. 1 to Railcar Management Agreement between Greenbrier Leasing Corporation and James-Furman & Company dated as of July 1, 1994 is incorporated herein by reference to Exhibit 10.11 to Registrant's Registration Statement No. 33-78852, dated July 11, 1994. 10.12. Form of Amendment No. 1 to Railcar Maintenance Agreement between Greenbrier Leasing Corporation and James-Furman & Company dated as of July 1, 1994 is incorporated herein by reference to Exhibit 10.12 to Registrant's Registration Statement No. 33-78852, dated July 11, 1994. 10.13. Form of Option with Right of First Refusal and Agreement of Purchase and Sale among William A. Furman, Alan James and Registrant is incorporated herein by reference to Exhibit 10.13 to Registrant's Registration Statement No. 33-78852, dated July 11, 1994. 10.14. Second Amended and Restated Credit Agreement by and among Greenbrier Leasing Corporation, Greenbrier Capital Corporation, Greenbrier Railcar, Inc., Autostack Corporation, The Bank of California, N.A. and West One Bank, Idaho, N.A., dated as of April 30, 1994 is incorporated herein by reference to Exhibit 10.14 to Registrant's Registration Statement No. 33-78852, dated July 11, 1994. 10.15. $10,000,000 Term Loan and $20,000,000 Revolving Loan Agreement by and among Gunderson, Inc. and United States National Bank of Oregon and Bank of America Oregon, dated as of January 31, 1994 is incorporated herein by reference to Exhibit 10.15 to Registrant's Registration Statement No. 33-78852, dated July 11, 1994. 10.16. Asset Purchase Agreement among Chrysler Rail Transportation Corporation, Greenbrier Transportation Limited Partnership and Greenbrier Capital Corporation dated as of December 18, 1992 is incorporated herein by reference to Exhibit 10.16 to Registrant's Registration Statement No. 33-78852, dated July 11, 1994. 10.17. Autostack Partners Limited Partnership Agreement among Autostack Corporation, MBK Rail Capital, Inc., Mitsui Nevitt Capital Corporation effective August 30, 1993 is incorporated herein by reference to Exhibit 10.17 to Registrant's Registration Statement No. 33-78852, dated July 11, 1994. 10.18. Form of Agreement concerning Indemnification and Related Matters (Directors) between Registrant and its directors is incorporated herein by reference to Exhibit 10.18 to Registrant's Registration Statement No. 33-78852, dated July 11, 1994. 10.19. Exclusive License Agreement dated as of December 24, 1987 between G&G Intellectual Properties, Inc., and Greenbrier Intermodal, Inc. is incorporated herein by reference to Exhibit 10.19 to Registrant's Registration Statement No. 33-78852, dated July 11, 1994. 10.20. Manufacturing Agreement dated as of December 24, 1987 between Greenbrier Intermodal, Inc. and CTNR. J.V., Inc. is incorporated herein by reference to Exhibit 10.20 to Registrant's Registration Statement No. 33-78852, dated July 11, 1994. 14 10.22. Note Agreement dated as of May 31, 1994 among Greenbrier Leasing Corporation, Greenbrier Railcar, Inc. and The Prudential Insurance Company of America is incorporated herein by reference to Exhibit 10.22 to Registrant's Registration Statement No. 33- 78852, dated July 11, 1994. 10.23.* James-Furman Supplemental 1994 Stock Option Plan is incorporated herein by reference to Exhibit 10.23 to the Registrant's Annual Report on Form 10-K for the year ended August 31, 1994. 10.24. First amendment dated September 26, 1994 to the Lease of Land and Improvements dated as of July 23, 1992 between The Atchison, Topeka and Santa Fe Railway Company and Gunderson Southwest, Inc. is incorporated herein by reference to Exhibit 10.24 to Registrant's Quarterly Report on form 10-Q for the quarter ended November 30, 1994. 10.25. Asset Purchase Agreement dated as of February 2, 1995 among TrentonWorks Inc., 2361025 Nova Scotia Limited (which later changed its name to TrentonWorks Limited), 2196203 Nova Scotia Inc., and The Greenbrier Companies, Inc. is incorporated herein by reference to Exhibit 10.25 to Registrant's Quarterly Report on Form 10-Q for the quarter ended February 28, 1995. 10.26. Stock Purchase and Shareholders' Agreement dated as of March 8, 1995 among The Greenbrier Companies, Inc., Greenbrier Leasing Corporation, Plunkett Investments Ltd., 2441001 Nova Scotia Limited, and 2361025 Nova Scotia Limited is incorporated herein by reference to Exhibit 10.26 to Registrant's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995. 10.27. Loan Agreement dated as of March 9, 1995 between 2361025 Nova Scotia Limited and Canadian Imperial Bank of Commerce is incorporated herein by reference to Exhibit 10.27 to Registrant's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995. 10.28. Agreement dated as of March 9, 1995 between Her Majesty the Queen in Right of the Province of Nova Scotia and 2361025 Nova Scotia Limited is incorporated herein by reference to Exhibit 10.28 to Registrant's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995. 10.29. Covenant Agreement dated as of March 9, 1995 among Her Majesty the Queen in Right of the Province of Nova Scotia as Represented by the Minister Responsible for the Nova Scotia Economic Renewal Agency and 2361025 Nova Scotia Limited and 2441001 Nova Scotia Limited is incorporated herein by reference to Exhibit 10.29 to Registrant's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995. 10.30. Amending Agreement dated as of March 9, 1995 among TrentonWorks Inc. 2361025 Nova Scotia Limited, 2196203 Nova Scotia Inc., and The Greenbrier Companies, Inc. is incorporated herein by reference to Exhibit 10.30 to Registrant's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995. 15 10.31. First Amended and Restated $10,000,000 Term Loan and $30,000,000 Revolving Loan Agreement dated as of May 31, 1995 among Gunderson, Inc., United States National Bank of Oregon and Bank of America Oregon is incorporated herein by reference to Exhibit 10.31 to Registrant's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995. 10.32.* Form of Registrant's Split-Dollar Agreement is incorporated herein by reference to Exhibit 10.32 to Registrant's Annual Report on Form 10-K for the year ended August 31, 1995. 10.33 Stock Purchase Agreement between and among Greenbrier Logistics, Inc. and A. Daniel O'Neal dated as of June 28, 1996 is incorporated herein by reference to Exhibit 10.32 to Registrant's Quarterly Report on Form 10-Q for the quarter ended May 31, 1996. 10.34* Employment Agreement dated June 1, 1996 between Greenbrier Logistics, Inc. and A. Daniel O'Neal Jr. is incorporated herein by reference to Exhibit 10.33 to Registrant's Quarterly Report on Form 10-Q for the quarter ended May 31, 1996. 13. 1996 Annual Report 21.1. List of the subsidiaries of the Registrant 23 Consent of Deloitte & Touche LLP, independent auditor 27. Financial Data Schedule - ------------- * Management contract or compensatory plan or arrangement (b) Reports on Form 8-K None. 16 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders The Greenbrier Companies, Inc. We have audited the financial statements of The Greenbrier Companies, Inc. and Subsidiaries as of August 31, 1996 and 1995, and for each of the three years in the period ended August 31, 1996, and have issued our report thereon dated November 7, 1996; such financial statements and report are included in your 1996 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the financial statement schedules of The Greenbrier Companies, Inc. and Subsidiaries, listed in Item 14. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. Deloitte & Touche LLP Portland, Oregon November 7, 1996 SCHEDULE I THE GREENBRIER COMPANIES, INC. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (In thousands) BALANCE SHEETS August 31, ------------------------ 1996 1995 --------- --------- ASSETS Cash and cash equivalents $ 123 $ 529 Accounts and notes receivable from affiliates 26,717 37,308 Investment in subsidiaries 87,024 59,946 Prepaid expenses and other 1,327 1,247 --------- --------- $ 115,191 $ 99,030 --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued liabilities $ 3,455 $ 1,922 Deferred income taxes - 290 Stockholders' equity 111,736 96,818 --------- --------- $ 115,191 $ 99,030 --------- --------- --------- ---------
STATEMENTS OF OPERATIONS Year Ended August 31, --------------------------------------- 1996 1995 1994 --------- --------- --------- Interest and other income $ 2,624 $ 3,402 $ 406 Expenses Selling and administrative 5,325 4,073 698 Interest 37 18 79 --------- --------- --------- 5,362 4,091 777 --------- --------- --------- Loss before income tax benefit and equity in earnings of subsidiaries (2,738) (689) (371) Income tax benefit 1,153 327 243 --------- --------- --------- Loss before equity in earnings of subsidiaries (1,585) (362) (128) Equity in earnings of subsidiaries 19,860 17,027 10,905 --------- --------- --------- Net earnings $ 18,275 $ 16,665 $ 10,777 --------- --------- --------- --------- --------- ---------
18 SCHEDULE I (CONTINUED) THE GREENBRIER COMPANIES, INC. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (In thousands)
STATEMENTS OF CASH FLOWS Year Ended August 31, ---------------------------------------- 1996 1995 1994 ---------- ---------- ---------- Cash flows from operating activities: Net earnings $ 18,275 $ 16,665 $ 10,777 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Deferred income taxes (679) (2,260) 2,122 Equity in earnings of subsidiary (19,860) (17,027) (10,905) Other 185 238 - Decrease (increase) in assets: Accounts and notes receivable 10,591 (28,211) (6,914) Prepaid expenses and other 309 (648) (599) Increase (decrease) in liabilities: Accounts payable and accrued liabilities 1,533 (4,050) 5,972 ---------- ---------- ---------- Net cash provided by (used in) operating activities 10,354 (35,293) 453 Cash flows from investing activities: Investment in subsidiary (7,472) (2,119) - Dividends (3,399) (3,399) - Proceeds from subsidiary redemption of preferred stock 111 104 101 Special dividend to founding stockholders - - (6,900) Net proceeds from initial public offering - - 48,261 ---------- ---------- ---------- Net cash provided by (used in) investing activities (10,760) (5,414) 41,462 Cash flows from financing activities: Repayment of borrowings - - (679) ---------- ---------- ---------- Net cash used in financing activities - - (679) Increase (decrease) in cash (406) (40,707) 41,236 Cash and cash equivalents: Beginning of year 529 41,236 - ---------- ---------- ---------- End of year $ 123 $ 529 $ 41,236 ---------- ---------- ---------- Supplemental disclosures of cash flow information: Cash paid during the year for interest $ 37 $ 18 $ 79
19 SCHEDULE II THE GREENBRIER COMPANIES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (In thousands)
Additions ---------------------- Balance at Charged to Charged to Balance Beginning Costs and Other at End of Period Expenses Accounts(1) Deductions of Period ---------- ---------- ----------- ---------- --------- Year ended August 31, 1996: Maintenance Reserves $ 22,134 $ 10,526 $ 7,705 $ (14,087) $ 26,278 Warranty Reserves 2,242 1,755 - (597) 3,400 Inventory Reserves 1,428 458 - (345) 1,541 Allowance for Uncollectible Accounts 337 162 106 (10) 595 ---------- ---------- ----------- ---------- --------- Total $ 26,141 $ 12,901 $ 7,811 $ (15,039) $ 31,814 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Year ended August 31, 1995: Maintenance Reserves $ 13,716 $ 5,400 $ 12,207 $ (9,189) $ 22,134 Warranty Reserves 2,193 410 - (361) 2,242 Inventory Reserves 1,180 339 83 (174) 1,428 Allowance for Uncollectible Accounts 348 60 37 (108) 337 Other 85 - - (85) - --------- --------- --------- --------- --------- Total $ 17,522 $ 6,209 $ 12,327 $ (9,917) $ 26,141 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Year ended August 31, 1994: Maintenance Reserves $ 8,496 $ 4,619 $ 7,313 $ (6,712) $ 13,716 Warranty Reserves 857 1,480 - (144) 2,193 Inventory Reserves 1,081 484 (7) (378) 1,180 Allowance for Uncollectible Accounts 270 92 - (14) 348 Other 692 - - (607) 85 --------- --------- --------- --------- --------- Total $ 11,396 $ 6,675 $ 7,306 $ (7,855) $ 17,522 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
(1) Additions charged to other accounts are primarily executory costs included in the investment in direct finance leases and amounts received under maintenance agreements. 20 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE GREENBRIER COMPANIES, INC. Dated: November 25, 1996 By: /s/ William A. Furman --------------------------- William A. Furman President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Date - --------- ---- /s/ Alan James November 25, 1996 - ------------------------------ Alan James, Chairman /s/ William A. Furman November 25, 1996 - ------------------------------ William A. Furman, President and Chief Executive Officer, Director /s/ Victor G. Atiyeh November 25, 1996 - ------------------------------ Victor G. Atiyeh, Director /s/ Peter K. Nevitt November 25, 1996 - ------------------------------ Peter K. Nevitt, Director /s/ A. Daniel O'Neal November 25, 1996 - ------------------------------ A. Daniel O'Neal, Director /s/ C. Bruce Ward November 25, 1996 - ------------------------------ C. Bruce Ward, Director /s/ Benjamin R. Whiteley November 25, 1996 - ------------------------------ Benjamin R. Whiteley, Director /s/ Larry G. Brady November 25, 1996 - ------------------------------ Larry G. Brady, Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 21 EX-13 2 EXHIBIT 13
SELECTED FINANCIAL INFORMATION YEARS ENDED AUGUST 31 (IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 1994 1993 1992 --------------------------------------------------------------------------- STATEMENT OF EARNINGS DATA Revenues: Manufacturing $ 421,456 $ 295,216 $ 234,439 $ 194,501 $ 164,237 Leasing and services 108,554 92,510 87,250 69,810 39,714 --------------------------------------------------------------------------- $ 530,010 $ 387,726 $ 321,689 $ 264,311 $ 203,951 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Earnings before income tax expense and extraordinary charge: Manufacturing $ 23,929 $ 18,502 $ 17,093 $ 13,548 $ 13,281 Leasing and services 14,430 16,705 7,115 4,453 975 Corporate (6,996) (5,426) (4,766) (3,722) (2,672) --------------------------------------------------------------------------- $ 31,363 $ 29,781 $ 19,442 $ 14,279 $ 11,584 --------------------------------------------------------------------------- Net earnings $ 18,275 $ 16,665 $ 10,777(1) $ 8,219 $ 6,482 --------------------------------------------------------------------------- Earnings per share before extraordinary charge $ 1.29 $ 1.18 $ 1.02 $ 0.78 $ 0.61 Extraordinary charge -- -- (.04) -- -- --------------------------------------------------------------------------- Net earnings per share $ 1.29 $ 1.18 $ 0.98 $ 0.78 $ 0.61 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Weighted average shares outstanding 14,160 14,160 11,049 10,576 10,576 --------------------------------------------------------------------------- --------------------------------------------------------------------------- Cash dividends paid per share $ 0.24 $ 0.24 $ -- $ -- $ -- --------------------------------------------------------------------------- BALANCE SHEET DATA Assets: Manufacturing $ 182,426 $ 154,768 $ 80,139 $ 58,184 $ 49,908 Leasing and services 433,062 377,621 391,770 323,149 166,810 Notes payable: Manufacturing $ 13,014 $ 13,512 $ 13,684 $ 14,326 $ 6,702 Leasing and services 202,211 176,276 202,567 163,074 74,089 Subordinated debt $ 44,554 $ 37,762 $ 34,142 $ 34,698 $ 30,618 Minority interest 38,154 38,040 28,823 28,368 298 Stockholders' equity 111,736 96,818 82,786 27,205 19,231 --------------------------------------------------------------------------- Capital base $ 194,444 $ 172,620 $ 145,751 $ 90,271 $ 50,147 --------------------------------------------------------------------------- ---------------------------------------------------------------------------
(1) Includes $500 extraordinary charge for debt prepayment penalties. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION OVERVIEW Greenbrier currently operates in two primary business segments: the manufacture of railcars and marine vessels and the refurbishment and repair of railcars; and the leasing and management of surface transportation equipment and related services, including third-party transportation logistics. The two business segments are operationally integrated. The manufacturing operations produce double-stack intermodal railcars, conventional railcars and marine vessels and perform refurbishment and maintenance activities, a portion of which is for railcar leasing operations. The leasing and services operations undertake most of the sales and marketing activities for the manufacturing operations. New product development is also conducted on an integrated basis. Railcars are generally manufactured under firm orders from third parties and revenue is recognized when the cars are completed and accepted by the customer. From time to time Greenbrier commits to manufacture railcars prior to receipt of firm orders to maintain continuity of manufacturing operations. Revenues do not include sales of new railcars to, or refurbishment services performed for, the leasing operations since intercompany transactions are eliminated in preparing the consolidated financial statements. The margin generated from such refurbishment or sales activity is realized by the leasing operations over the term of the related lease or upon sale of the equipment. Growth in the intermodal transportation market has declined compared to the double-digit gains achieved over the past few years as the industry absorbs recent equipment additions. While the mergers among the Class I railroads have also been a major factor in the transportation industry in 1996, the spin-off of unproductive or duplicate rail lines to short-line railroads may open new markets for growth, and the long-term prospects are expected to be positive. In addition, there is a growing trend among railroads towards outsourcing traditional functions such as maintenance and refurbishment activities that are not central to the business of hauling freight. Greenbrier hopes to take advantage of this trend toward outsourcing and is actively seeking additional repair and refurbishment contracts. TRANSPORTATION LOGISTICS. In the fourth quarter of 1996, Greenbrier acquired Superior Transportation Systems, Inc. and the remaining interest in Tolan O'Neal Transportation & Logistics, Inc. Subsequent to year end, Interamerican Logistics Inc. was acquired. These transactions expand Greenbrier's third-party transportation logistics services. Anticipated synergies with the existing manufacturing and leasing businesses include building stronger relationships with customers in the railroad and shipping community and providing access to Greenbrier's asset base in railcars, trailers and containers. Logistics services have not had a significant impact on results of operations and are not expected to contribute to earnings until the acquired entities have completely integrated their operations. MARINE VESSEL FABRICATION. In 1995, Greenbrier re-entered the marine vessel market with an expansion and upgrade of its marine facilities, which includes the largest side-launch ways on the West Coast. The upgraded marine facilities also enhance steel plate burning and fabrication capacity and provide flexibility for railcar production. Five ocean-going dump barges have been completed and delivered to a West Coast marine construction company and construction is underway on the sixth barge, which will be completed in December. Discussions on several potential new orders are in progress, but in the meantime, attention will turn to railcar repair and refurbishment activities. The marine business has not had a significant impact on results of operations. HIGHWAY RENTAL. During 1995, Greenbrier entered the highway trailer rental market expecting to create new growth opportunities as well as to extend the economic life and value of existing intermodal equipment. Rental operations exist at four branch locations and utilize 2,500 trailers from Greenbrier's lease fleet. Despite some progress, market conditions are currently soft in this area, limiting growth opportunities in the foreseeable future. Management is evaluating this business for opportunities to improve financial results. REFURBISHING AND REMARKETING PROGRAMS. In August 1990, an extended remarketing agreement (the "Golden West Service Program") was entered into with Southern Pacific Transportation Company ("Southern Pacific"), which recently merged with Union Pacific Railroad Company, to purchase, refurbish and remarket over 10,000 railcars. As of August 31, 1996, approximately 9,700 railcars had been refurbished and placed in lease service, principally under ten-year finance leases with Southern Pacific. The remaining railcars will be refurbished through January 1997 and will also be placed under ten-year leases. Subject to certain conditions, Southern Pacific receives a percentage of defined operating earnings generated from this program. Such amounts are included in leasing and services expense in the consolidated statements of earnings, and amounts accrued, but not yet paid, are included as deferred participation in the consolidated balance sheets. These amounts do not accrue interest, and significant payments do not begin until 2000. AUTOSTACK SYSTEM DEVELOPMENT. Autostack was commercially introduced in August 1992 as a patented system to transport automobiles via rail, ocean and highway in standard domestic or international intermodal shipping containers. Vehicle transportation services are currently provided under agreements with shippers or manufacturers whereby a fee is earned for each vehicle transported using Autostack equipment. Vehicle transportation fees are included in leasing and services revenues in the consolidated statements of earnings. In August 1993, Mitsui & Co., Ltd. ("Mitsui") purchased an equity interest in a limited partnership formed for the purpose of acquiring Autostack equipment. Mitsui's investment and share of earnings are treated as minority interest in the consolidated financial statements. The Autostack system transported 108,000 vehicles in 1996 and 141,000 vehicles in 1995. Expectations for Autostack are tempered by the lack of market acceptance for this product. RESULTS OF OPERATIONS The following table sets forth information regarding costs and expenses, expressed as a percentage of the associated manufacturing or leasing and services revenue. YEARS ENDED AUGUST 31 1996 1995 1994 --------------------------------- Manufacturing: Sales 100.0% 100.0% 100.0% Cost of sales 89.9 88.7 87.0 Selling and administrative expense 3.6 4.5 4.7 Interest expense 0.8 0.9 1.0 Minority interest -- (0.4) -- Earnings before income taxes 5.7 6.3 7.3 Leasing and services: Revenues 100.0% 100.0% 100.0% Operating expense 48.0 41.2 48.8 Selling and administrative expense 15.4 13.0 13.7 Interest expense 20.7 24.2 26.3 Minority interest 2.6 3.5 3.0 Earnings before income taxes 13.3 18.1 8.2 Corporate expenses as a percentage of total revenue 1.3% 1.4% 1.5% Income taxes as a percentage of pre-tax earnings 41.7% 44.0% 42.0% Net earnings as a percentage of total revenue 3.4% 4.3% 3.4% REVENUES Manufacturing revenues increased $126 million, or 43%, from 1995 to 1996 and $61 million, or 26%, from 1994 to 1995. Canadian operations at TrentonWorks contributed the majority of the increase in 1996 due to an 85% increase in railcar deliveries and a product mix characterized by higher unit sales value. Revenue from U.S. operations decreased slightly in 1996 due to a product mix characterized by higher unit sales value on fewer railcars delivered. The 1995 increase was primarily a result of the addition of TrentonWorks during the third quarter of 1995 and the larger number of railcars delivered, even though the product mix included more railcars with a relatively lower sales value than in the prior period. New railcar deliveries were 6,416 in 1996, 5,061 in 1995 and 4,416 in 1994. As of August 31, 1996, the firm order backlog of new railcars for sale or lease amounted to approximately 2,200 units, with an estimated sales value of $123 million. Backlog has declined compared to the near record level at August 31, 1995. The decline in backlog is consistent with the overall decline in industry demand and is believed to be due to the current pause in the market as a result of the recent merger activity among Class I railroads and the record railcar deliveries that occurred over the past several years. Leasing and services revenue increased $16 million, or 17%, from 1995 to 1996 and $5 million, or 6%, from 1994 to 1995. Increased revenue in 1996 resulted from the recently expanded third-party transportation logistics services and additional railcars placed in lease service, offset by decreased revenue from automobile transportation services as a result of the lower volume of automobiles transported. The 1995 period also benefited from an increased number of railcars under lease as well as from increased vehicle transportation volume. Pre-tax income realized on disposition of leased equipment amounted to $4.7 million during 1996, compared to $4.5 million in 1995 and $2.6 million in 1994. Assets from Greenbrier's lease fleet are sold in order to take advantage of market conditions, manage risk and maintain liquidity. COST OF SALES AND EXPENSE The factors influencing cost of sales and gross margin in a given period include order size (which affects economies of plant utilization), product mix, changes in manufacturing costs, product pricing and currency exchange rates. The gross margin percentage in 1996 declined slightly from that achieved in 1995. Margins generated from both domestic and Canadian operations improved in the current year; however, increased production levels at the Canadian facility, which operated at lower margins, resulted in the overall decline. Excluding the effect of the Canadian operation, which suspended production temporarily during May and June of 1995, the gross margin percentage achieved in 1995 was consistent with that achieved in 1994. Leasing and services operating expense as a percentage of revenue increased to 48% in 1996 compared to 41% in 1995. This increase primarily resulted from the inclusion of third-party transportation logistics, lower automobile transportation volume generating lower revenue compared to relatively fixed costs and start-up utilization of the highway trailer rental operation, offset by a restructuring of certain lease participation costs. Operating expense as a percentage of revenue decreased in 1995 compared to 1994. This reduction was primarily a result of improved contribution from automobile transportation, a reduction in operating and participation costs associated with the sale of lease equipment and an increase in the number of units under finance leases. As a percentage of revenue, total selling and administrative expense declined in 1996 compared to 1995 and 1994. The achievement of certain economies of utilization in manufacturing activities were offset by increased leasing and services costs associated with the highway trailer rental operations. The increase in manufacturing interest expense in 1996 related primarily to working capital borrowings associated with the Canadian operation and to increased production and inventory levels. The slight increase in leasing and services interest expense resulted from cur- rent year borrowings offset somewhat by normal paydowns of term debt. Interest expense remained fairly constant in 1995 as compared to 1994 despite the increased size of the lease fleet, as the proceeds from the initial public offering of common stock as well as operating cash flow were used to acquire and refurbish railcars instead of obtaining third-party debt. Manufacturing minority interest activity relates to the results of the Canadian operation, which improved in 1996 compared to 1995. The fluctuation in leasing and services minority interest relates to the minority investors' share of certain operating earnings from automobile transportation. Earnings from automobile transportation were reduced in 1996 compared to 1995 and increased in 1995 as compared to 1994. The 1996 income tax provision represents an effective tax rate of 42% on U.S. operations, which is consistent with 1995 and 1994. The Canadian operation, which is not included in the U.S. consolidated tax return, previously generated operating loss carryforwards, which offset current period earnings. This resulted in consolidated income taxes as a percentage of pre-tax earnings being less than 42% in 1996. In 1995, no tax benefit was recognized for the losses incurred by Canadian operations. LIQUIDITY AND CAPITAL RESOURCES Greenbrier's growth has been financed through cash generated from operations, borrowings from banks and other financial institutions, subordinated debt, minority investments and proceeds from an initial public offering of the company's common stock. The Golden West Service Program, Autostack operations and acquisitions have generally been financed using subordinated debt and minority investments, which often serve as the capital base to secure senior term debt. Greenbrier anticipates acquiring a minority investor's interest in a consolidated subsidiary for $16 million, utilizing operating cash flow and available lines of credit. Cash provided by operations totaled $35 million in 1996, compared to $16 million in 1995 and $33 million in 1994. The fluctuation in cash from operations in 1996 is primarily due to the decrease in inventory as a result of increased railcar deliveries, offset by purchases of materials required for the construction of marine barges and increased accounts receivable related to the timing of certain equipment sales in 1996. Cash provided by operations in 1995 was less than 1994 due to the increase in inventory which resulted from the acquisition of TrentonWorks, purchase of components which had been anticipated to be in short supply and material required for the barge contracts. Inventory levels at TrentonWorks as of August 31, 1995 were higher than anticipated due to the temporary suspension of production. Existing credit facilities aggregate $101 million. A $43 million revolving credit line is available through March 1997, which provides working capital and interim financing of equipment for leasing and services operations. Borrowings outstanding under the revolving credit line were $14.5 million as of August 31, 1996. A $30 million operating line for working capital and a $10 million five-year term loan facility for certain manufacturing capital expenditures are available through February 1999 and December 1997, respectively, for U.S. manufacturing operations. Borrowings outstanding under the operating line were $1.6 million as of August 31, 1996. There were no borrowings outstanding under the term facility as of August 31, 1996. An $18 million (at the August 31, 1996 exchange rate) operating line is available through March 1997 for working capital and certain capital expenditures for Canadian operations. Borrowings outstanding under this line as of August 31, 1996 were $11.7 million. The weighted average interest rate on amounts outstanding with respect to these credit facilities was 8.3% for the year ended August 31, 1996. In June 1995, a private placement of $67 million ten-year limited recourse senior secured debt was completed to finance the purchase and refurbishment of certain railcars. The facility is available through December 1996. The debt bears interest at Libor plus 1.62%, as defined in the agreement until the facility is fully utilized at which time the loan will convert to a fixed interest rate ranging from U.S. Treasuries plus 1.75% to 2.10% per annum. Principal will be repaid over the remaining term of the leases underlying the railcars, which are used as collateral. Unused funds available under this agreement, totaling $21 million as of August 31, 1996, are expected to be utilized by December 1996. Capital expenditures totaled $129 million, $91 million and $73 million in 1996, 1995 and 1994. Of these capital expenditures, approximately $122 million, $83 million and $65 million in 1996, 1995 and 1994 were attributable to leasing and services operations. Significant leasing and services capital expenditure programs included additions to the lease railcar fleet under the Golden West Service Program and various additions to the lease fleet related to other equipment purchases, some of which were syndicated. Capital expenditures for leasing and services operations in 1997 are expected to be approximately $96 million. Such expenditures are expected to include additions to the lease fleet under the Golden West Service Program and other lease fleet additions. Approximately $7 million of the capital expenditures for 1996 and $8 million for each of 1995 and 1994 were attributable to manufacturing operations. Capital expenditure programs included new and upgraded manufacturing plant and equipment to improve efficiencies, increase capacity and expand and upgrade marine facilities. Capital expenditures for manufacturing additions are expected to be approximately $8 million in 1997 and will include plant improvements and equipment acquisitions to further increase production and improve capacity and efficiency. Operations in Canada give rise to market risks from changes in foreign currency exchange rates. To minimize these risks, forward exchange contracts are utilized. As of August 31, 1996, forward exchange contracts outstanding for the purchase of Canadian dollars were $16 million and for the purchase of U.S. dollars were $7 million, maturing at various dates through November 1996. Realized and unrealized gains and losses from such off-balance sheet contracts are deferred and recognized in income concurrent with the hedged transaction. Dividends of $.06 per share have been paid quarterly beginning in 1995. The next quarterly dividend of $.06 per share was declared in November 1996, to be paid in December. During 1994, a special one-time dividend of $6.9 million was paid to the founding stockholders, which was used in part to repay advances from the company. Future dividends are dependent upon earnings, capital requirements and financial condition. Certain loan covenants restrict the transfer of funds from the subsidiaries to the parent company in the form of cash dividends, loans, or advances. The restricted net assets of subsidiaries amounted to $32 million as of August 31, 1996. Consolidated retained earnings at August 31, 1996 were not restricted as to the payment of dividends. Management expects existing funds and cash generated from operations, together with borrowings under existing credit facilities, will be sufficient to fund dividends, working capital needs, planned capital expenditures and expected debt repayments for the coming year. Management anticipates long-term financing will be required and will continue to be available for the purchase of equipment to expand Greenbrier's lease fleet. This document includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements as to expectations, beliefs and future financial performance that are based on current expectations and are subject to a number of risks and uncertainties. Actual results or outcomes could differ materially from current expectations due to a number of factors, including general political, regulatory or economic conditions; competitive factors and pricing pressures; shifts in market demand; the performance and needs of industries served by Greenbrier; actual future costs of material and operating expenses such as steel and employee wages; the financial failure of significant customers; a delay or failure of new acquisitions or products to compete successfully; as well as the risks, uncertainties and other factors described from time to time in Greenbrier's SEC filings and reports. - -------------------------------------------------------------------------------- REPORTS OF MANAGEMENT AND INDEPENDENT AUDITORS - -------------------------------------------------------------------------------- REPORT OF MANAGEMENT Board of Directors and Stockholders The Greenbrier Companies, Inc. The consolidated financial statements and other financial information of The Greenbrier Companies, Inc. and Subsidiaries in this report were prepared by management, which is responsible for their contents. They reflect amounts based upon management's best estimates and informed judgments. In management's opinion, the financial statements present fairly the financial position, results of operations and cash flows of the company in conformity with generally accepted accounting principles. The company maintains a system of internal accounting controls and procedures, which is designed, consistent with reasonable cost, to provide reasonable assurance that transactions are executed as authorized, that they are properly recorded to produce reliable financial records, and that accountability for assets is maintained. The accounting controls and procedures are supported by careful selection and training of personnel and a continuing management commitment to the integrity of the system. The financial statements have been audited, to the extent required by generally accepted auditing standards, by Deloitte & Touche LLP, independent auditors. In connection therewith, management has considered the recommendations made by the independent auditors in connection with their audit and has responded in an appropriate, cost-effective manner. The Board of Directors has appointed an Audit Committee composed entirely of directors who are not employees of the company. The Audit Committee meets with representatives of management and the independent auditors, both separately and jointly. The Committee reports to the Board on its activities and findings. /s/ William A. Furman /s/ Larry G. Brady William A. Furman Larry G. Brady President Vice President Chief Executive Officer Chief Financial Officer INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders The Greenbrier Companies, Inc. We have audited the accompanying consolidated balance sheets of The Greenbrier Companies, Inc. and Subsidiaries as of August 31, 1996 and 1995, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended August 31, 1996. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Greenbrier Companies, Inc. and Subsidiaries as of August 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 1996, in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Portland, Oregon November 7, 1996 CONSOLIDATED BALANCE SHEETS AUGUST 31 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995 ------------------------ ASSETS MANUFACTURING Current assets: Cash and cash equivalents $ 2,303 $ 1,653 Accounts receivable 63,009 28,003 Inventories 75,989 86,280 Prepaid expenses 1,512 1,497 ------------------------ 142,813 117,433 Property, plant and equipment 35,893 33,135 Other 3,720 4,200 ------------------------ 182,426 154,768 LEASING AND SERVICES Cash and cash equivalents 3,780 8,697 Restricted cash and investments 6,400 3,664 Accounts and notes receivable 20,353 11,610 Railcars held for refurbishment or sale 14,459 13,559 Investment in direct finance leases 190,307 168,402 Equipment on operating leases 174,394 158,661 Prepaid expenses and other 23,369 13,028 ------------------------ 433,062 377,621 ------------------------ $ 615,488 $ 532,389 ------------------------ ------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY MANUFACTURING Current liabilities: Revolving notes $13,314 $ 27,313 Accounts payable and accrued liabilities 49,924 45,647 Current portion of notes payable 1,053 966 ------------------------ 64,291 73,926 Notes payable 13,014 13,512 ------------------------ 77,305 87,438 LEASING AND SERVICES Revolving notes 14,500 -- Accounts payable and accrued liabilities 68,209 47,767 Deferred revenue 4,377 4,729 Deferred participation 32,316 27,829 Deferred income taxes 22,126 15,730 Notes payable 202,211 176,276 ------------------------ 343,739 272,331 Subordinated debt 44,554 37,762 Minority interest 38,154 38,040 COMMITMENTS AND CONTINGENCIES (NOTES 3, 19 & 20) STOCKHOLDERS' EQUITY Preferred stock - $0.001 par value, 25,000 shares authorized, none issued -- -- Common stock - $0.001 par value, 50,000 shares authorized, 14,160 outstanding 14 14 Additional paid-in capital 49,079 48,894 Retained earnings 62,259 47,383 Foreign currency translation adjustment 384 527 ------------------------ 111,736 96,818 ------------------------ $ 615,488 $ 532,389 ------------------------ ------------------------ The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF EARNINGS YEARS ENDED AUGUST 31 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995 1994 ----------------------------------------------------- REVENUES Manufacturing $ 421,456 $ 295,216 $ 234,439 Leasing and services 108,554 92,510 87,250 ----------------------------------------------------- Total revenues 530,010 387,726 321,689 COSTS AND EXPENSES Cost of manufacturing sales 378,829 261,981 203,958 Leasing and services 52,160 38,148 42,562 Selling and administrative expense: Manufacturing 15,276 13,407 11,103 Leasing and services 16,754 11,989 11,946 Corporate 6,996 5,426 4,766 ----------------------------------------------------- 39,026 30,822 27,815 Interest expense: Manufacturing 3,235 2,707 2,285 Leasing and services 22,445 22,381 22,948 ----------------------------------------------------- 25,680 25,088 25,233 Minority interest: Manufacturing 187 (1,381) -- Leasing and services 2,765 3,287 2,679 ----------------------------------------------------- 2,952 1,906 2,679 ----------------------------------------------------- Total costs and expenses 498,647 357,945 302,247 EARNINGS BEFORE INCOME TAX EXPENSE AND EXTRAORDINARY CHARGE Manufacturing 23,929 18,502 17,093 Leasing and services 14,430 16,705 7,115 Corporate (6,996) (5,426) (4,766) ----------------------------------------------------- 31,363 29,781 19,442 Income tax expense (13,088) (13,116) (8,165) ----------------------------------------------------- EARNINGS BEFORE EXTRAORDINARY CHARGE 18,275 16,665 11,277 Extraordinary charge, net of tax -- -- (500) ----------------------------------------------------- NET EARNINGS $ 18,275 $ 16,665 $ 10,777 ----------------------------------------------------- ----------------------------------------------------- Earnings per share before extraordinary charge $ 1.29 $ 1.18 $ 1.02 Extraordinary charge -- -- (.04) ----------------------------------------------------- Net earnings per share $ 1.29 $ 1.18 $ 0.98 ----------------------------------------------------- ----------------------------------------------------- Weighted average shares outstanding 14,160 14,160 11,049 ----------------------------------------------------- -----------------------------------------------------
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Foreign Common Stock Additional Currency Due from Total -------------------- Paid-in Retained Translation Founding Stockholders' Shares Amount Capital Earnings Adjustment Stockholders Equity ---------------------------------------------------------------------------------------------- Balance, August 31, 1993 10,360 $ 10 $ 398 $ 30,240 $ -- $ (3,443) $ 27,205 Net proceeds from initial public offering 3,800 4 48,257 -- -- -- 48,261 Advances to founding stockholders -- -- -- -- -- (2,271) (2,271) Special dividend to founding stockholders -- -- -- (6,900) -- -- (6,900) Repayments by founding stockholders -- -- -- -- -- 5,714 5,714 Net earnings -- -- -- 10,777 -- -- 10,777 ---------------------------------------------------------------------------------------------- Balance, August 31, 1994 14,160 14 48,655 34,117 -- -- 82,786 Compensation relating to non-qualified stock option plan -- -- 239 -- -- -- 239 Cash dividends ($.24 per share) -- -- -- (3,399) -- -- (3,399) Foreign currency translation adjustment -- -- -- -- 527 -- 527 Net earnings -- -- -- 16,665 -- -- 16,665 ---------------------------------------------------------------------------------------------- Balance, August 31, 1995 14,160 14 48,894 47,383 527 -- 96,818 Compensation relating to non-qualified stock option plan -- -- 185 -- -- -- 185 Cash dividends ($.24 per share) -- -- -- (3,399) -- -- (3,399) Foreign currency translation adjustment -- -- -- -- (143) -- (143) Net earnings -- -- -- 18,275 -- -- 18,275 ---------------------------------------------------------------------------------------------- Balance, August 31, 1996 14,160 $ 14 $49,079 $ 62,259 $ 384 $ -- $111,736 ---------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED AUGUST 31 (IN THOUSANDS) 1996 1995 1994 ------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 18,275 $ 16,665 $ 10,777 Adjustments to reconcile net earnings to net cash provided by operating activities: Deferred income taxes 6,396 3,331 1,898 Deferred participation 4,487 9,396 7,832 Depreciation and amortization 24,895 23,898 23,040 Gain on sales of equipment (5,324) (5,100) (3,905) Other 215 771 455 Decrease (increase) in assets: Accounts and notes receivable (38,377) (5,421) (10,837) Inventories 10,291 (40,799) (1,898) Prepaid expenses and other (2,817) (5,811) (6,074) Increase (decrease) in liabilities: Accounts payable and accrued liabilities 17,182 18,633 10,532 Deferred revenue (352) (56) 1,340 ------------------------------------------------ Net cash provided by operating activities 34,871 15,507 33,160 ------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of subsidiaries, net of cash acquired (1,960) (23,916) -- Principal payments received under direct finance leases 8,402 6,836 5,208 Investment in direct finance leases (26,430) (31,720) (32,571) Proceeds from sales of equipment 58,328 31,259 18,610 Purchase of property and equipment (94,880) (53,481) (36,348) Use of (investment in) restricted cash (2,736) 3,224 6,958 ------------------------------------------------ Net cash used in investing activities (59,276) (67,798) (38,143) ------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings 48,912 31,530 88,741 Repayments of borrowings (25,375) (24,907) (80,483) Dividends (3,399) (3,399) -- Proceeds from minority investors -- 9,221 -- Net proceeds from initial public offering -- -- 48,261 Advances to stockholders -- -- (2,271) Cash portion of special dividend -- -- (1,186) ------------------------------------------------ Net cash provided by financing activities 20,138 12,445 53,062 ------------------------------------------------ INCREASE (DECREASE) IN CASH (4,267) (39,846) 48,079 Cash and cash equivalents Beginning of period 10,350 50,196 2,117 ------------------------------------------------ End of period $ 6,083 $ 10,350 $ 50,196 ------------------------------------------------ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 26,166 $ 23,359 $ 21,928 Income taxes 11,038 9,762 5,227 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Equipment obtained through borrowings $ 7,581 $ 5,337 $ 4,441 Repayment of borrowings through return of railcars held for refurbishment 2,433 7,726 --
The accompanying notes are an integral part of these statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Three Years Ended August 31, 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) NOTE 1 -- NATURE OF OPERATIONS The Greenbrier Companies, Inc. and Subsidiaries ("Greenbrier" or the "company") are engaged in developing, manufacturing, marketing and leasing surface transportation equipment for the railroad and transportation industries. Greenbrier's manufacturing segment produces double-stack intermodal railcars, conventional railcars and marine vessels and provides rail services for both intermodal and conventional railcars. The leasing segment is engaged in complemen- tary product development, marketing and leasing activities, including third-party transportation logistics. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION -- The financial statements include the accounts of the company and all of its majority-owned subsidiaries. Fifty percent interests in partnerships in which the company is the general partner and exercises substantive control are also consolidated. All significant intercompany transactions and balances have been eliminated upon consolidation. The financial statements and transactions of the company's Canadian subsidiary are maintained in its functional currency and translated into U.S. dollars for purposes of consolidation. Translation adjustments are accumulated as a separate component of stockholders' equity. Net gains resulting from foreign currency transactions were $866 and $896 for the years ended August 31, 1996 and 1995. ACCOUNTING ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. INVENTORIES -- Inventories are valued at the lower of cost (first-in, first-out) or market. Work-in-process includes material, labor and overhead. PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment is stated at cost. Depreciation is provided on the straight-line method over estimated useful lives of three to twenty years. RAILCARS HELD FOR REFURBISHMENT OR SALE -- Railcars held for refurbishment or sale are hulks that will either be refurbished or sold and which are carried at the cost of the hulks and any refurbishment costs incurred. EQUIPMENT ON OPERATING LEASES -- Equipment on operating leases is stated at cost. Depreciation to residual values is provided on the straight-line method over the estimated useful lives of five to sixteen years for trailers and containers, five to twenty years for railcar equipment and five to ten years for vehicle transportation equipment. Certain equipment is designed for particular purposes. Management evaluates the remaining life and recoverability of such equipment in light of current conditions. If business conditions change, such estimates could also change. PREPAID EXPENSES AND OTHER ASSETS -- Loan fees are capitalized and amortized as interest expense over the life of the related borrowings. Goodwill is amortized over twelve years. MINORITY INTEREST -- Minority interest represents unaffiliated investors' capital investment and interest in the undistributed earnings and losses of consolidated entities. REVENUE RECOGNITION -- Revenue from railcar manufacturing or refurbishment is recognized at the time railcars are completed and accepted by unrelated customers. Direct finance lease revenue is recognized as a constant yield on asset-carrying values. Certain interim rentals are based on estimated costs. Revenue from direct finance leases is impacted by estimated residual values. Operating lease revenue is recognized as earned under the lease terms. Payments received in advance are deferred until earned. MAINTENANCE AND WARRANTY RESERVES -- Maintenance reserves are estimated and provided over the term of the underlying lease agreement. Warranty reserves are estimated and charged to operations in the period provided. INCOME TAXES -- The liability method is used to account for income taxes. Deferred income taxes are provided for the effects of temporary differences arising from differences in the recognition of revenues and expenses for financial statement and income tax reporting purposes. FORWARD EXCHANGE CONTRACTS -- Operations in Canada give rise to market risks from changes in foreign currency exchange rates. Forward exchange contracts are entered into to hedge the risk of foreign currency fluctuations of a subsidiary. Realized and unrealized gains and losses are deferred and recognized in earnings concurrent with the hedged transaction. Even though forward exchange contracts are entered to mitigate the impact of currency fluctuations, certain exposure remains, which will impact operating results. NET EARNINGS PER SHARE -- Net earnings per share is computed on the basis of the weighted average number of common shares outstanding. STATEMENTS OF CASH FLOWS -- All highly-liquid investments with a maturity of three months or less are considered cash equivalents. RECLASSIFICATIONS -- Certain reclassifications have been made to prior years' consolidated financial statements to conform with the 1996 presentation. PROSPECTIVE ACCOUNTING CHANGES -- Greenbrier has not elected early adoption of Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. Management does not believe adoption of the statement will have a material effect on either financial position or results of operations. Greenbrier has not elected early adoption of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 will have no effect on the financial position or results of operations because compensation expense for its stock-based employee compensation plans will be measured using the method prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees. Upon adoption of SFAS No. 123 in 1997, pro forma disclosures of net income and earnings per share will be provided as if the method prescribed by SFAS No. 123 had been applied in measuring compensation expense. NOTE 3 -- ACQUISITIONS In the fourth quarter of 1996, Greenbrier acquired Superior Transportation Systems, Inc. and the remaining interest in Tolan O'Neal Transportation & Logistics, Inc. ("TOT&L"). Subsequent to year end, Interamerican Logistics Inc. was acquired. These transactions expand Greenbrier's third-party transportation logistics services. The acquisitions were accounted for using the purchase method, whereby assets and liabilities were valued at estimated fair value and consist primarily of accounts receivable, accounts payable and accrued liabilities. A portion of the purchase price is based on future earnings and will result in an adjustment of goodwill. Goodwill arising out of the initial purchase price is included in other assets and amortized on a straight-line basis over 12 years. The acquisitions were financed primarily through cash from operations. Operations of the entities purchased prior to year end have been included in the accompanying financial statements from the date of acquisition. NOTE 4 -- CASH AND INVESTMENTS Cash is temporarily invested in high-quality, short-term investments, principally commercial paper, and carried at cost, which approximates market. Restricted cash and investments may only be used for equipment acquisitions and partnership distributions in accordance with loan or partnership agreements. Such restricted cash is invested in U.S. Treasury bills, banker's acceptances, commercial paper and money market funds, and is carried at cost, which approximates market. NOTE 5 -- INVENTORIES 1996 1995 ---------------------------- Manufacturing supplies and raw materials $ 5,856 $ 7,832 Work-in-process 60,474 78,448 Assets held for sale 9,659 -- ---------------------------- $ 75,989 $ 86,280 ---------------------------- ---------------------------- NOTE 6 -- PROPERTY, PLANT AND EQUIPMENT 1996 1995 ---------------------------- Land and improvements $ 8,064 $ 8,067 Buildings and improvements 11,383 9,106 Machinery and equipment 28,027 21,182 Other 2,798 5,287 ---------------------------- 50,272 43,642 Accumulated depreciation (14,379) (10,507) ---------------------------- $ 35,893 $ 33,135 ---------------------------- ---------------------------- NOTE 7 -- INVESTMENT IN DIRECT FINANCE LEASES 1996 1995 ---------------------------- Future minimum receipts on lease contracts $354,538 $347,270 Less amounts for maintenance, insurance and taxes (74,561) (69,863) ---------------------------- Net minimum lease receipts 279,977 277,407 Unguaranteed residual values 56,695 48,933 Unearned finance charges (146,365) (157,938) ---------------------------- $190,307 $168,402 ---------------------------- ---------------------------- Minimum future receipts on the direct finance lease contracts are as follows: YEAR ENDING AUGUST 31, 1997 $ 52,240 1998 51,480 1999 50,444 2000 48,667 2001 47,470 Thereafter 104,237 ------------- $ 354,538 ------------- ------------- NOTE 8 -- EQUIPMENT ON OPERATING LEASES 1996 1995 ------------------------------- Trailers and containers $ 123,863 $ 119,527 Railcar equipment and other 113,621 88,756 ------------------------------- 237,484 208,283 Accumulated depreciation (63,090) (49,622) ------------------------------- $ 174,394 $ 158,661 ------------------------------- ------------------------------- In addition to the above equipment, certain railcar equipment is leased by the company and subleased to customers under noncancelable operating leases. Aggregate minimum future amounts receivable under all noncancelable operating leases and subleases are as follows: YEAR ENDING AUGUST 31, 1997 $ 21,157 1998 17,450 1999 15,025 2000 10,634 2001 10,151 Thereafter 35,110 --------------- $ 109,527 --------------- While the minimum future rentals receivable are less than the carrying value of equipment on operating leases, certain equipment is also operated under daily, monthly or mileage arrangements. Associated revenues amounted to $28,460, $22,870 and $21,265 for the years ended August 31, 1996, 1995 and 1994. NOTE 9 -- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 1996 1995 MANUFACTURING Accounts payable and accrued liabilities $ 37,165 $ 33,603 Accrued payroll and related liabilities 9,545 10,034 Warranty reserves 3,214 2,010 ----------------------------- $ 49,924 $ 45,647 ----------------------------- ----------------------------- LEASING AND SERVICES Accounts payable and accrued liabilities $ 25,891 $ 9,314 Accrued payroll and related liabilities 5,298 4,628 Maintenance and warranty reserves 26,464 22,369 Other 10,556 11,456 ------------------------------ $ 68,209 $ 47,767 ------------------------------ ------------------------------ NOTE 10 -- REVOLVING NOTES A $30,000 operating line of credit, bearing interest primarily at prime, is available through February 1999 to provide working capital for the domestic manufacturing operations based on defined receivables and inventory. Borrowings outstanding as of August 31, 1996 and 1995 were $1,650 and $9,915. An $18,260 (at the August 31, 1996 exchange rate) operating line of credit, bearing interest primarily at prime plus 1.125%, is available through March 1997 for working capital and certain capital expenditures for the Canadian manufacturing operation based on defined receivables and inventory. Borrowings outstanding as of August 31, 1996 and 1995 were $11,664 and $17,398. Revolving lines of credit aggregating $43,000, bearing interest primarily at prime plus .125%, are available through March 1997 to provide working capital and interim financing of equipment for the leasing and services operations based on defined equipment. Borrowings outstanding as of August 31, 1996 were $14,500 and there were no borrowings outstanding as of August 31, 1995. A minority investor's interest in a consolidated subsidiary is expected to be acquired for $16 million, utilizing operating cash flow and available lines of credit. The applicable prime rate for the domestic borrowings and Canadian borrowings was 8.25% and 5.75% as of August 31, 1996. NOTE 11 -- NOTES PAYABLE 1996 1995 ------------------------------- MANUFACTURING Term loans, interest at 11%, due in monthly installments through June 2008 $ 12,051 $ 12,328 Other notes payable 2,016 2,150 ------------------------------- 14,067 14,478 Less current portion (1,053) (966) ------------------------------- $ 13,014 $ 13,512 ------------------------------- A $10,000, five-year, term loan facility is available through December 1997 to fund certain domestic manufacturing capital expenditures. As of August 31, 1996 and 1995, there were no borrowings outstanding under this facility; however, the facility was securing a $1 million outstanding letter of credit issued for inventory purchases and to secure certain rental payments as of August 31, 1996. 1996 1995 ------------------------------- LEASING AND SERVICES Equipment notes payable $200,705 $173,547 Other notes payable 422 -- ------------------------------- 201,127 173,547 Notes payable -- hulks 1,084 2,729 ------------------------------- $202,211 $176,276 ------------------------------- Equipment notes payable, bearing interest at rates varying from Libor plus 1.6% to fixed rates of 7.1% to 10.8% are due in varying installments through June 2005. Substantially all assets of the company are pledged as collateral for the notes payable and revolving notes. The Libor interest rate was 5.44% as of August 31, 1996. The weighted average remaining contractual life and weighted average interest rate of equipment notes payable as of August 31, 1996 and 1995, of which $151,744 and $172,062 bear fixed rates of interest, was approximately 71 and 72 months and 8.5% and 9.2%. Principal payments on the notes payable are as follows: LEASING MANUFACTURING AND SERVICES ---------------------------- YEAR ENDING AUGUST 31, 1997 $ 1,053 $ 28,378 1998 1,068 32,145 1999 991 41,361 2000 1,052 24,039 2001 911 24,721 Thereafter 8,992 51,567 ---------------------------- $14,067 $202,211 ---------------------------- ---------------------------- Notes payable -- hulks mature upon receipt of the railcars for refurbishment, which is anticipated to occur over the next year. The revolving and operating lines of credit, along with certain equipment notes payable, contain covenants with respect to various subsidiaries, the most restrictive of which limit the payment of dividends by subsidiaries and require certain levels of tangible net worth, ratio of debt to equity and debt service coverage. NOTE 12 -- SUBORDINATED DEBT 1996 1995 ---------------------------- Subordinated notes -- hulks $ 2,886 $ 4,542 Subordinated notes 41,668 33,220 ---------------------------- $ 44,554 $ 37,762 ---------------------------- ---------------------------- As part of the agreement described in Note 20, a group of railcars was acquired in May 1991 in exchange for notes payable -- hulks and subordinated notes -- hulks. Until the cars are delivered to the company, they are being operated by the seller under a lease arrangement with no stated lease rate. Additionally, the notes bear no stated interest rate until the cars are delivered. The implicit interest expense on the notes and the offsetting implicit lease revenue of $717, $1,312 and $1,855 for the years ended August 31, 1996, 1995 and 1994 are reflected in the financial statements at rates which approximate the stated rate of interest of 11% in effect on the notes after delivery of the equipment. Deliveries are anticipated to occur over the next year, at which time the notes payable -- hulks of $1,084 mature and the subordinated notes -- hulks of $2,886 convert to subordinated notes with terms as described below. The railcars are included in the consolidated balance sheet as railcars held for refurbishment or sale. Subordinated notes of $41,668 as of August 31, 1996 were issued for railcars purchased as part of the agreement described above. The notes bear interest at 9% and 11%, with substantially all of the principal repayment due ten years from the date of the note, and are subordinated to all other liabilities of a subsidiary. Approximately $858 becomes due in 1997, $96 in 1998 and $268 in 2001, with the remaining balance due after 2001. NOTE 13 -- STOCKHOLDERS' EQUITY In July 1994, the company completed an initial public offering of its common stock in which 5,520 shares were sold at $14 per share. Of the shares sold, 3,800 were sold by the company and the balance were sold by founding stockholders. Certain loan covenants restrict the transfer of funds from the subsidiaries to the parent company in the form of cash dividends, loans, or advances. The restricted net assets of subsidiaries amounted to $32,058 as of August 31, 1996. Consolidated retained earnings at August 31, 1996 were not restricted as to the payment of dividends. A stock incentive plan was adopted July 1, 1994 which provides for granting compensatory and non-compensatory options to employees and others. Outstanding options generally vest at 50% two years from grant with the balance five years from grant. The following table summarizes the stock option transactions: Shares Option Under Price Option Per Share ---------------------------- Balance at August 31, 1994 714 $14 Options granted 4 14-17 Options canceled (36) 14 ---------------------------- Balance at August 31, 1995 682 14-17 Options granted 162 11-12 Options canceled (56) 11-12 ---------------------------- Balance at August 31, 1996 788 11-17 ---------------------------- ---------------------------- As of August 31, 1996, options to purchase 321 shares were exercisable and 592 shares were available for grant. Additionally, a supplementary stock option plan was adopted under which options to purchase 60 shares of common stock were granted to employees by the founding stockholders at a purchase price of $4 per share. The effects of the plan are not material to the financial condition or results of operations of the company. The Chairman and the Chief Executive Officer, founding and majority stockholders, have entered into an agreement whereby they have agreed to vote their shares together to elect each other as directors of the company and with respect to all other matters put to a vote of the stockholders. NOTE 14 -- RELATED PARTY TRANSACTIONS Fees for managing certain trailers and containers of $562, $563 and $500 were paid to an affiliated partnership for the years ended August 31, 1996, 1995 and 1994. Maintenance, management and other fees received from a related entity under an agreement were $930, $884 and $438 for the years ended August 31, 1996, 1995 and 1994. Marketing fees of $2,219 for the year ended August 31, 1994 were paid to that entity under an agreement which was terminated in July 1994. In July 1996, Greenbrier acquired the remaining 50% of TOT&L from an executive officer and director. The purchase price included $500 cash, a $250 note payable bearing interest at 7% and due on or before July 2000 and a contingent amount based on the future value of certain operations. NOTE 15 -- EMPLOYEE BENEFIT PLANS A defined contribution 401(k) plan is available to substantially all U.S. employees. Contributions are based on a percentage of employee contributions and amounted to $651, $584 and $512 for the years ended August 31, 1996, 1995 and 1994. A defined benefit pension plan is provided for Canadian employees covered by collective bargaining agreements. The plan provides pension benefits based on years of credited service. Contributions to the plan are actuarially determined and are intended to fund the net periodic pension cost. The plan's assets, obligations and pension cost are not material to Greenbrier. NOTE 16 -- INCOME TAXES Components of income tax expense are as follows: 1996 1995 1994 -------------------------------------------- Current: Federal $ 5,390 $ 7,906 $ 5,932 State 1,302 1,879 335 ------------------------------------------ 6,692 9,785 6,267 Deferred: Federal 5,237 2,723 798 State 1,159 608 1,100 ------------------------------------------ 6,396 3,331 1,898 ------------------------------------------ $13,088 $13,116 $ 8,165 -------------------------------------------- Income tax expense is computed at rates different than the statutory rates. The reconciliation between effective and statutory rates is as follows: 1996 1995 1994 ------------------------------------------ Statutory rates 35.0% 35.0% 34.0% State income taxes, net of federal benefit 5.1 5.3 5.0 Impact of foreign taxes (0.2) 1.7 -- Other 1.8 2.0 3.0 ------------------------------------------ Income tax combined effective rate 41.7% 44.0% 42.0% ------------------------------------------ The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are as follows: 1996 1995 ----------------------------- Deferred tax assets: Alternative minimum tax credit carryforward $(14,650) $(15,051) Deferred participation (13,918) (11,132) Maintenance and warranty reserves (11,524) (9,756) Accrued payroll and related liabilities (5,101) (4,087) Deferred revenue (1,381) (1,943) Inventories and other (2,051) (1,251) Net operating loss carryforward (548) (913) ----------------------------- (49,173) (44,133) Valuation allowance 639 986 ----------------------------- (48,534) (43,147) Deferred tax liabilities: Accelerated depreciation 66,152 55,416 Other 4,508 3,461 ----------------------------- Net deferred tax liability $ 22,126 $ 15,730 ----------------------------- ----------------------------- A Canadian net operating loss carryforward of $1,438 as of August 31, 1996, which expires August 31, 2002, is available to offset Canadian earnings. A valuation allowance has been provided for Canadian deferred tax assets. NOTE 17 -- SEGMENT INFORMATION The two business segments in which the company operates are manufacturing and leasing and services of transportation equipment. A summary of selected consolidated information for the industry segments is as follows: 1996 1995 1994 --------------------------------------------- Revenues: Manufacturing $ 485,765 $ 329,327 $ 257,380 Elimination of intersegment sales (64,309) (34,111) (22,941) --------------------------------------------- 421,456 295,216 234,439 --------------------------------------------- Leasing and services 129,312 108,593 101,589 Elimination of intersegment sales (20,758) (16,083) (14,339) --------------------------------------------- 108,554 92,510 87,250 --------------------------------------------- Total $ 530,010 $ 387,726 $ 321,689 --------------------------------------------- --------------------------------------------- Capital expenditures: Manufacturing $ 6,690 $ 7,946 $ 8,042 Leasing and services 122,201 82,592 65,318 --------------------------------------------- Total $ 128,891 $ 90,538 $ 73,360 --------------------------------------------- --------------------------------------------- Depreciation and amortization: Manufacturing $ 3,997 $ 3,123 $ 2,160 Leasing and services 20,898 20,775 20,880 --------------------------------------------- Total $ 24,895 $ 23,898 $ 23,040 --------------------------------------------- --------------------------------------------- Revenues generated from the refurbishment of railcars for the leasing and services segment are eliminated from manufacturing revenues. Marketing fees paid to the leasing and services segment by the manufacturing segment are eliminated from leasing and services revenue. Sales and marketing expenses of $5,103, $4,561 and $4,259 for the years ended August 31, 1996, 1995 and 1994 have been allocated from the leasing and services segment to the manufacturing segment. Such expenses represent costs which, in the opinion of management, are reasonably allocable to the manufacturing segment. The leasing and services segment includes current and deferred income taxes which are corporate liabilities. A portion of Greenbrier's manufacturing operations are located in Canada since an acquisition in March 1995. The following table summarizes selected geographic information: 1996 1995 ------------------------------- Revenues: United States $355,128 $354,888 Canada 174,882 32,838 ------------------------------- Total $530,010 $387,726 ------------------------------- ------------------------------- Earnings (loss) before income tax expense: United States $ 26,865 $ 31,218 Canada 4,498 (1,437) ------------------------------- Total $ 31,363 $ 29,781 ------------------------------- ------------------------------- Identifiable assets: United States $570,743 $483,203 Canada 44,745 49,186 ------------------------------- Total $615,488 $532,389 ------------------------------- ------------------------------- Intercompany sales between geographic areas, primarily from Canada to the U.S., were $28,049 and $467 during 1996 and 1995. NOTE 18 -- CUSTOMER CONCENTRATION Revenue from the manufacturing segment's largest customer was 28% of total revenues for the year ended August 31, 1996. Accounts receivable from this customer was 9% of manufacturing receivables as of August 31, 1996. Other significant customers accounted for 42% and 12% of 1995 revenues, with accounts receivable from these customers representing 50% of manufacturing receivables as of August 31, 1995. Significant customers accounted for 31%, 11% and 13% of 1994 revenues. Substantially all of the leasing and services receivables as of August 31, 1996 and 1995 are due from one customer. NOTE 19 -- LEASE COMMITMENTS Lease expense for railcar equipment leased under non-cancelable leases was $3,204, $1,250 and $3,675 for the years ended August 31, 1996, 1995 and 1994. Aggregate minimum future amounts payable under non-cancelable railcar equipment leases are as follows: YEAR ENDING AUGUST 31, 1997 $ 4,021 1998 4,021 1999 3,888 2000 3,142 2001 1,067 Thereafter 4,534 -------------- $ 20,673 -------------- -------------- An operating lease for a manufacturing and refurbishment facility, which contains an option to purchase the property at a specified price, expires in November 2002. Rental payments are secured by a $1,000 letter of credit and amounted to $380 for the year ended August 31, 1996 and $330 for each of the years ended August 31, 1995 and 1994. Office space and certain manufacturing and office equipment are rented under operating leases which expire at various dates through June 2001. Rental expense was $1,643, $955 and $1,228 for the years ended August 31, 1996, 1995 and 1994. Aggregate minimum future amounts payable under non-cancelable operating leases are as follows: YEAR ENDING AUGUST 31, 1997 $ 4,151 1998 3,974 1999 3,681 2000 3,278 2001 2,898 Thereafter 2,501 -------------- $ 20,483 -------------- NOTE 20 --COMMITMENTS AND CONTINGENCIES As part of an agreement entered into in 1990 under which the company agreed to purchase and refurbish over ten thousand used railcars, there remains a commitment to refurbish approximately four hundred railcars which are expected to be completed by January 1997. The refurbished railcars will be placed into service, principally under ten year leases with the seller. In addition to the revolving credit lines discussed in Note 10, an unused long-term financing commitment of $21,000 for financing refurbishment activity is available through December 1996 and is expected to be utilized by such time. The agreement includes an option, which, under certain conditions, provides for the seller to repurchase the railcars for the original acquisition cost to the company at the date the underlying subordinated notes are due. Should such option be exercised, amounts due under the subordinated notes would be retired from the repurchase proceeds. The agreement also provides that, under certain conditions, the seller will receive a percentage of operating earnings, as defined. Amounts accrued are referred to as participation and are included in deferred participation. Payment of deferred participation is estimated to be $947 in 2000 and $3,190 in 2001, with remaining balance due after 2001. Participation expense was $8,670, $9,918 and $10,073 for the years ended August 31, 1996, 1995 and 1994. As of August 31, 1996, forward exchange contracts entered into to hedge the risk of foreign currency fluctuations of U.S. dollar accounts receivable related to firm commitments for the sale of railcars to be manufactured in Canada were $16 million. Forward exchange contracts for U.S. dollar purchases for railcars to be manufactured in Canada were $7 million. These agreements mature at various dates through November 1996. No credit loss from counterparty non-performance is anticipated. Environmental studies have been conducted by the company of its owned and leased properties which indicate additional investigation and some remediation may be necessary. The outcome cannot be predicted with certainty; however, management believes that any ultimate liability resulting from environmental issues will not materially affect the financial position or results of operations of the company. Management believes that its operations adhere to sound environmental practices, applicable laws, and regulations. The company is involved as a defendant in litigation in the ordinary course of business, the outcome of which cannot be predicted with certainty. Management believes that any ultimate liability will not materially affect the financial position or results of operations of the company. Agreements were entered into with several equipment manufacturers for the purchase of leasing and services operating equipment and as of August 31, 1996 approximately $575 of equipment remained to be purchased under these agreements. Effective July 1, 1994, the company entered into employment agreements, which expire August 31, 2004, with the Chairman and the Chief Executive Officer, which provide each with a minimum annual salary and a bonus calculated based on operating results, as defined. The minimum annual aggregate defined payment under the agreements is $600 and the maximum is $2,000. NOTE 21-- FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of the company's financial instruments and the methods and assumptions used to estimate such fair values, are as follows: 1996 --------------------------------- Carrying Estimated amount fair value --------------------------------- Notes payable and subordinated debt $260,832 $257,078 Deferred participation 32,316 17,618 1995 --------------------------------- Carrying Estimated amount fair value --------------------------------- Notes payable and subordinated debt $228,516 $228,249 Deferred participation 27,829 15,336 The carrying amount of cash and cash equivalents, restricted cash and investments, accounts and notes receivable, revolving notes and accounts payable and accrued liabilities is a reasonable estimate of fair value of these financial instruments. Estimated rates currently available to the company for debt with similar terms and remaining maturities are used to estimate the fair value of notes payable and subordinated debt. The fair value of deferred participation is estimated by discounting the estimated future cash payments using the company's estimated incremental borrowing rate.
QUARTERLY RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Unaudited operating results by quarter for 1996 and 1995 are as follows: First Second Third Fourth --------------------------------------------------------------------------- 1996 Manufacturing revenues $ 95,109 $117,394 $ 95,842 $113,111 Leasing and services revenues 21,656 24,697 25,298 36,903 --------------------------------------------------------------------------- Total revenues $116,765 $142,091 $121,140 $150,014 --------------------------------------------------------------------------- Earnings before income tax expense: Manufacturing $ 5,511 $ 7,733 $ 5,496 $ 5,189 Leasing and services 2,299 3,740 4,121 4,270 Corporate (1,554) (1,914) (1,487) (2,041) --------------------------------------------------------------------------- $ 6,256 $ 9,559 $ 8,130 $ 7,418 --------------------------------------------------------------------------- Net earnings $ 3,363 $ 5,579 $ 4,901 $ 4,432 --------------------------------------------------------------------------- Net earnings per share $ 0.24 $ 0.39 $ 0.35 $ 0.31 --------------------------------------------------------------------------- 1995 Manufacturing revenues $ 57,250 $ 63,301 $ 94,756 $ 79,909 Leasing and services revenues 22,411 22,802 22,568 24,729 --------------------------------------------------------------------------- Total revenues $ 79,661 $ 86,103 $117,324 $104,638 --------------------------------------------------------------------------- Earnings before income tax expense: Manufacturing $ 3,097 $ 2,300 $ 9,299 $ 3,806 Leasing and services 3,395 3,845 3,579 5,886 Corporate (1,200) (1,578) (1,711) (937)(1) --------------------------------------------------------------------------- $ 5,292 $ 4,567 $ 11,167 $ 8,755 --------------------------------------------------------------------------- Net earnings $ 3,069 $ 2,649 $ 6,287 $ 4,660 --------------------------------------------------------------------------- Net earnings per share $ 0.22 $ 0.19 $ 0.44 $ 0.33 ---------------------------------------------------------------------------
(1) Primary reason for fluctuations are adjustments to incentive compensation accruals. - -------------------------------------------------------------------------------- INVESTOR INFORMATION - -------------------------------------------------------------------------------- CORPORATE OFFICES: The Greenbrier Companies, Inc. One Centerpointe Drive, Suite 200 Lake Oswego, Oregon 97035 (503) 684-7000 ANNUAL STOCKHOLDERS' MEETING: January 14, 1997, 2:00 p.m. Hilton Hotel 921 S.W. Sixth Avenue Portland, Oregon FINANCIAL INFORMATION: Requests for copies of this annual report and other financial information should be made to Investor Relations, The Greenbrier Companies, Inc., One Centerpointe Drive, Suite 200, Lake Oswego, Oregon 97035 LEGAL COUNSEL: Tonkon, Torp, Galen, Marmaduke &Booth Portland, Oregon INDEPENDENT AUDITORS: Deloitte & Touche LLP Portland, Oregon TRANSFER AGENT: Harris Trust Company of California c/o Harris Trust and Savings 311 W. Monroe Street Chicago, Illinois 60606 (800) 554-3406 Greenbrier's Transfer Agent maintains stockholder records, issues stock certificates and will distribute dividends. Requests concerning these matters should be directed to Harris Trust Company of California. STOCKHOLDER INQUIRIES: Please contact Mark Rittenbaum, Investor Relations (503) 684-7000 COMMON STOCK: Greenbrier's common stock has been traded on the New York Stock Exchange under the symbol GBX since July 14, 1994. The following table sets forth, for the fiscal quarters indicated, the high and low sales prices for the common stock on the New York Stock Exchange. High Low --------------------------- FISCAL 1996 First quarter $13.00 $10.50 Second quarter $13.00 $10.38 Third quarter $17.88 $11.25 Fourth quarter $16.00 $11.38 FISCAL 1995 First quarter $19.38 $16.25 Second quarter $17.75 $14.25 Third quarter $16.50 $13.38 Fourth quarter $15.75 $12.00 FISCAL 1994 Fourth quarter $18.50 $14.00 Cash dividends of $.06 per share have been paid quarterly on the common stock since December 1994. There is no assurance as to future dividends as they are dependent upon future earnings, capital requirements and financial condition. EX-21.1 3 EXHIBIT 21.1 Exhibit 21.1 THE GREENBRIER COMPANIES, INC. LIST OF SUBSIDIARIES Names Under State of Which Does Name Incorporation Business - ---- ------------- -------- Autostack Corporation OR N/A Autostack General Partner, Inc. DE N/A Autostack Partners Limited Partnership DE N/A Coast Transportation Systems, Inc. OR STS - LTL Division Greenbrier Capital Corporation (formerly known as Greenbrier Intermodal, Inc.) CA N/A Greenbrier Holdings, Inc. (formerly known as Greenbrier Intermodal, Inc.) OR N/A Greenbrier Leasing Corporation DE Greenbrier Intermodal Greenbrier Logistics, Inc. OR N/A Greenbrier Partners, Inc. CA N/A Greenbrier Partners Limited Partnership CA N/A Greenbrier Railcar, Inc. DE N/A Greenbrier Rail Car Services, Inc. DE N/A Greenbrier Rental Services, Inc. CA N/A Greenbrier Transportation, Inc. DE N/A Greenbrier Transportation Limited Partnership DE N/A Gunderson, Inc. (formerly known as BW Industries, Inc.) OR N/A Gunderson Leasing, Inc. OR N/A Gunderson Marine, Inc. OR N/A Gunderson Southwest, Inc. OR N/A Gunderson Springfield, Inc. (formerly known as Gunderson Rail Car Services, Inc.) OR N/A Gunderson Wheel Services, Inc. OR N/A Interamerican Logistics Inc. Ontario, N/A Canada Redon General Partnership GA N/A Superior Transportation Systems, Inc. OR N/A Tolan O'Neal Transportation & Logistics, Inc. WA N/A TrentonWorks Limited Nova Scotia, N/A Canada 2441001 Nova Scotia Limited Nova Scotia, N/A Canada EX-23 4 EXHIBIT 23 Exhibit 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 333- 08035, 33-3392, and 33-80869 of The Greenbrier Companies, Inc. on Forms S-8 of our reports dated November 7, 1996, appearing in the and incorporated by reference in this Annual Report on Form 10-K of The Greenbrier Companies, Inc. for the year ended August 31, 1996. DELOITTE & TOUCHE LLP Portland, Oregon November 25, 1996 EX-27 5 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR AUG-31-1996 SEP-01-1995 AUG-31-1996 12,483 0 83,362 0 75,989 142,813 35,893 0 615,488 64,291 0 0 0 14 111,722 615,488 0 530,010 430,989 498,647 0 0 25,680 31,363 13,088 18,275 0 0 0 18,275 1.29 1.29 OF THIS AMOUNT, $6,400 IS RESTRICTED.
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