<PAGE>
EXHIBIT 13
FINANCIAL SECTION TABLE OF CONTENTS
22 Selected Financial Information
23 Management's Discussion and Analysis of Results of Operations and Financial
Condition
28 Reports of Management and Independent Auditors
29 Consolidated Balance Sheets
30 Consolidated Statements of Operations
31 Consolidated Statements of Stockholders' Equity and Comprehensive Income
32 Consolidated Statements of Cash Flows
33 Notes to Consolidated Financial Statements
42 Quarterly Results of Operations
43 Directors & Officers
44 Investor Information
45 Locations
21
<PAGE>
SELECTED FINANCIAL INFORMATION
YEARS ENDED AUGUST 31,
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenue:
Manufacturing $ 528,240 $ 520,311 $ 451,706 $ 325,501 $ 421,456
Leasing & services 91,189 98,225 88,655 105,419 98,484
--------------------------------------------------------------------------------------------------------------
$ 619,429 $ 618,536 $ 540,361 $ 430,920 $ 519,940
==============================================================================================================
Earnings from continuing operations $ 14,354 $ 20,419(1) $ 20,332(2) $ 6,021(3) $ 18,613
Discontinued operations:(4)
Loss on operations -- -- -- (2,512) (338)
Estimated loss on disposal -- -- -- (7,680) --
Extraordinary charge related to debt -- (938) -- -- --
--------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 14,354 $ 19,481 $ 20,332 $ (4,171) $ 18,275
==============================================================================================================
Basic earnings per common share:
Continuing operations $ 1.01 $ 1.44 $ 1.43 $ .43 $ 1.31
Net earnings (loss) $ 1.01 $ 1.37 $ 1.43 $ (.29) $ 1.29
Diluted earnings per common share:
Continuing operations $ 1.01 $ 1.43 $ 1.42 $ .43 $ 1.31
Net earnings (loss) $ 1.01 $ 1.36 $ 1.42 $ (.29) $ 1.29
Weighted average common shares outstanding:
Basic 14,227 14,254 14,203 14,160 14,160
Diluted 14,241 14,294 14,346 14,160 14,170
Cash dividends paid per common share $ .36 $ .39(5) $ .24 $ .24 $ .24
BALANCE SHEET DATA
Assets:
Cash $ 12,908 $ 77,796 $ 57,909 $ 21,744 $ 12,483
Inventories 127,484 92,495 79,849 151,591 90,448
Leased equipment 246,854 236,410 256,509 284,541 364,701
All other 196,863 144,015 111,222 122,642 147,856
--------------------------------------------------------------------------------------------------------------
$ 584,109 $ 550,716 $ 505,489 $ 580,518 $ 615,488
==============================================================================================================
DEBT:
Revolving $ 13,019 $ 3,783 $ -- $ 57,709 $ 27,814
Term 159,363 161,401 147,876 201,786 216,278
--------------------------------------------------------------------------------------------------------------
$ 172,382 $ 165,184 $ 147,876 $ 259,495 $ 244,092
==============================================================================================================
CAPITAL BASE:
Subordinated debt $ 37,748 $ 37,788 $ 37,932 $ 38,089 $ 44,554
Minority interest 5,068 14,034 9,783 18,183 38,154
Stockholders' equity 141,615 134,163 121,370 103,969 111,567
--------------------------------------------------------------------------------------------------------------
$ 184,431 $ 185,985 $ 169,085 $ 160,241 $ 194,275
==============================================================================================================
</TABLE>
(1) Includes earnings of $1.1 million resulting from the resolution of certain
matters on a leasing contract that began in 1990.
(2) Includes a gain of $1.3 million resulting from exiting the trailer and
container leasing operation more favorably than anticipated.
(3) Includes $4.8 million of special charges related to an adjustment to the
carrying value of vehicle transportation equipment and the divestiture of
the trailer and container lease fleet.
(4) Includes the divestiture of the transportation logistics segment.
(5) Includes regular dividend of $0.27 per common share and special dividend of
$0.12 per common share.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Greenbrier currently operates in two primary business segments: manufacturing
and leasing & services. The two business segments are operationally integrated.
With operations in North America and Europe, the manufacturing segment produces
double-stack intermodal railcars, conventional railcars, marine vessels and
forged steel products and performs railcar refurbishment and maintenance
activities. In Europe, the Company also manufactures new freight cars through
the use of unaffiliated subcontractors. Such activities are included in the
manufacturing segment. The leasing & services segment owns or manages
approximately 37,000 railcars for railroads, institutional investors and other
leasing companies.
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 and may also
build railcars for its own lease fleet. Railcars produced in a given period may
be delivered in subsequent periods, delaying revenue recognition. Revenue does
not include sales of new railcars to, or refurbishment services performed for,
the leasing & services segment since intercompany transactions are eliminated in
preparing the consolidated financial statements. The margin generated from such
sales or refurbishment activity is realized by the leasing & services segment
over the related life of the asset or upon sale of the equipment.
OVERVIEW
Total revenues for 2000 were $619.4 million, an increase of $0.9 million from
1999 revenues of $618.5 million. The increase was due to increased revenues from
European manufacturing operations as a result of an acquisition completed in
January 2000, offset by lower leasing & services revenue. Total revenues for
1999 were $618.5 million, an increase of 14.5% from 1998 revenues of $540.4
million. The increase was due primarily to a manufacturing product mix with a
higher unit sales value, the resolution of certain matters on a leasing contract
that began in 1990 and an acquisition completed in early 1999.
Net earnings for 2000 were $14.4 million, or $1.01 per diluted common share,
compared to net earnings for 1999 of $19.5 million, or $1.36 per diluted common
share, and to 1998 net earnings of $20.3 million, or $1.42 per diluted share.
Earnings for 1999 include earnings of $1.1 million from the resolution of
certain matters on a leasing contract that began in 1990 and an after-tax
extraordinary charge of $0.9 million, or $0.07 per diluted common share,
resulting from refinancing of $22.0 million of notes payable. Earnings for 1998
include a gain of $1.3 million resulting from exiting the trailer and container
leasing operation more favorably than anticipated.
EXPANSION AND ACQUISITIONS
In January 2000, Greenbrier completed the purchase of the Freight Wagon Division
of DaimlerChrysler Rail Systems located in Siegen, Germany. The acquired
operation provides expertise in the fields of engineering, design, sales and
marketing and project management. It also includes a comprehensive portfolio of
railcar designs certified for the European marketplace, which enhanced
production at Greenbrier's Polish manufacturing facility. Accordingly, a
significant portion of the assets acquired are intangibles. The purchase was
initially funded with a cash payment of $4.3 million and the assumption of net
liabilities of $29.2 million. Results of the acquired operation, which include
the sale of freight cars manufactured by unaffiliated subcontractors, have been
included in the accompanying financial statements from the date of acquisition.
In September 1998, Greenbrier acquired a 60.0% interest in a railcar
manufacturer located in Swidnica, Poland. Through a series of subsequent
transactions, the Company has increased its ownership interest to 97.5%. The
acquisition was accounted for by the purchase method, and operating results are
included in the consolidated financial statements.
Effective September 1, 1999, Greenbrier acquired the common equity of the
minority investor's interest in the Canadian manufacturing subsidiary.
23
<PAGE>
Also in September 1998, Greenbrier entered into a joint venture with Bombardier
Transportation to build railroad freight cars at Bombardier's existing
manufacturing facility in Mexico. Each party holds a 50.0% non-controlling
interest in the joint venture, and therefore Greenbrier's investment is being
accounted for using the equity method. Greenbrier's share of operating results
is included in operating results as equity in earnings of unconsolidated
subsidiary.
In February 1998, the unaffiliated investors' minority interest in the
automobile transportation business was acquired for $7.8 million through the use
of restricted cash.
DIVESTITURES
A portion of the trailer and container fleet was sold in 1997, with the
remainder sold in 1998. Trailer and container leasing operations were included
in leasing & services continuing operations until disposition.
RESULTS OF OPERATIONS
MANUFACTURING SEGMENT
Manufacturing revenues include results from new railcar, marine, forge,
refurbishment and maintenance activities. New railcar delivery and backlog
information disclosed herein includes all facilities, including the joint
venture in Mexico that is accounted for by the equity method.
Manufacturing revenues were $528.2 million, $520.3 million and $451.7 million
for the years ended 2000, 1999 and 1998. Manufacturing revenues increased $7.9
million, or 1.5%, in 2000 from 1999 due to an increase in European revenues
resulting from the newly acquired operation and a shift in product mix to units
with a relatively higher sales value, partially offset by a softer North
American market. Manufacturing revenues increased $68.6 million, or 15.2%, in
1999 from 1998 as market demand for freight cars remained strong, and the
product mix shifted to units with a higher sales value. The Polish manufacturing
operation, acquired in 1999, also contributed to this increase. Deliveries of
new railcars, which are the primary source of revenue, were approximately 8,100
in 2000, 8,900 in 1999 and 7,800 in 1998.
As of August 31, 2000, the backlog of new railcars to be manufactured for sale
and lease at all facilities was approximately 7,800 railcars with an estimated
value of $440.0 million compared to 5,900 railcars valued at $340.0 million as
of May 31, 2000.
Manufacturing gross margin decreased to 11.7% in 2000 from 12.3% in 1999 due to
lower selling prices resulting from increased competition. Manufacturing gross
margin in 1999 increased from 8.9% in 1998, reflecting overall improved
operational efficiencies, a temporary reduction in certain material costs for
the North American operations and the benefit of stronger market demand for
railcars. The factors influencing cost of revenue 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.
LEASING & SERVICES SEGMENT
Leasing & services revenues were $91.2 million, $98.2 million and $88.7 million
for the years ended 2000, 1999 and 1998. Revenues decreased $7.0 million, or
7.1%, in 2000 from 1999 due primarily to the completion of maintenance
obligations in 1999 on a contract that began in 1990, partially offset by
increases in 2000 due to the multi-year maintenance agreement that began in
December 1998. The $9.5 million, or 10.7% increase in revenues in 1999 as
compared to 1998 is primarily due to the resolution of certain matters on a
leasing contract that began in 1990. A multi-year maintenance agreement that
began in December 1998 also contributed to the increase in revenues. These
increases were somewhat offset by lower gains on sales as compared to 1998.
Pre-tax earnings realized on the disposition of leased equipment amounted to
$4.4 million during 2000 compared to $5.7 million in 1999 and $9.0 million in
1998. Assets from Greenbrier's lease fleet are periodically sold in the normal
course of business in order to take advantage of market conditions, manage risk
and maintain liquidity.
Leasing & services operating margin as a percentage of revenue was 48.8% in 2000
compared to 50.4% in 1999 and 60.1% in 1998. The lower margin in 2000 is
primarily due to lower utilization of the owned lease fleet, which averaged
90.4% and 97.0% for the years ended August 31, 2000 and 1999. The lower margin
in 1999 compared to 1998 was primarily due to a sharing arrangement related to
the resolution of matters associated with the leasing contract discussed above.
Lower gains on sales of leased equipment and the lower margin maintenance
agreement that began in December 1998 also impacted the 2000 and 1999 operating
margin.
24
<PAGE>
OTHER COSTS
Selling and administrative expense was $54.2 million, $51.1 million and $37.3
million in 2000, 1999 and 1998. As a percentage of revenue, selling and
administrative expense was 8.8%, 8.3% and 6.9% in 2000, 1999 and 1998. The
increase in 2000 compared to 1999 is due primarily to the addition of the
European operations and increased research and development costs, partially
offset by cost reduction measures. The increase in 1999 compared to 1998 is
primarily due to increased international activity.
Interest expense increased $2.2 million, or 11.6%, to $21.2 million for 2000 as
compared to $19.0 million in 1999 as a result of both increased borrowings and
cost of borrowings. Interest expense declined $1.9 million in 1999 as compared
to $20.9 million in 1998 due to more favorable interest rates on refinanced
leasing & services term debt and greater liquidity.
The divestiture of the trailer and container leasing operations was completed in
1998. The results associated with the sale of the operations were more favorable
than originally anticipated, resulting in a $2.3 million benefit in 1998.
Income tax expense for all periods presented represents an effective tax rate of
42.0% on United States operations and varying effective tax rates on foreign
operations. The consolidated effective tax rate of 51.8% in the current period
is a result of European operating losses for which no tax benefi t has been
recognized. The consolidated effective tax rate for 1999 and 1998 was 48.1% and
41.8%.
Minority interest decreased $1.3 million, or 43.3%, to $1.7 million for 2000 as
compared to $3.0 million for 1999 primarily as a result of acquiring minority
interests in Poland and Canada. The increase in minority interest in 1999 from
1998, reflects the improved contribution from the Canadian operation offset by
the effects of European operating losses in 1999.
Equity in earnings of an unconsolidated subsidiary increased $0.2 million, or
28.5%, for 2000 as compared to 1999 as a result of improved manufacturing
efficiencies at the Mexican operation.
LIQUIDITY AND CAPITAL RESOURCES
Greenbrier's growth has been financed through cash generated from operations,
borrowings from banks and other financial institutions, issuance of subordinated
debt and capital from minority investors. Cash utilization in the current year
is primarily due to timing of railcar syndication activities and additions to
the lease fleet. The Company's balance sheet and liquidity continue to be
strong.
Credit facilities aggregated $129.3 million as of August 31, 2000. A $60.0
million revolving line of credit is available through May 2001 to provide
working capital and interim financing of equipment for the leasing & services
operations. A $40.0 million line of credit to be used for working capital is
available through February 2002 for United States manufacturing operations. A
$20.4 million (at the August 31, 2000 exchange rate) line of credit is available
through March 2001 for working capital for Canadian manufacturing operations.
Lines of credit totaling $6.4 million (at the August 31, 2000 exchange rate) are
available principally through December 2000 for working capital for Polish
manufacturing operations. A line of credit totaling $2.5 million (at the August
31, 2000 exchange rate) is available to support European operations. Advances
under the lines of credit bear interest at rates that vary depending on the type
of borrowing and certain defined ratios. At August 31, 2000, there were no
borrowings outstanding under the United States manufacturing and European lines.
At August 31, 2000, $4.0 million and $4.9 million were outstanding under the
Canadian and Polish manufacturing lines and $4.1 million was outstanding under
the leasing & services line. Available borrowings under these lines are
principally based upon defined levels of receivables, inventory and leased
equipment.
In addition, bank guarantees totaling $29.2 million (at the August 31, 2000
exchange rate) are available to support European operations, of which $19.3
million were issued at August 31, 2000.
Subsequent to August 31, 2000, the Company entered into additional revolving
loan and bank guarantees totaling $3.4 million and $11.4 million (at the August
31, 2000 exchange rate) to support European operations.
25
<PAGE>
Capital expenditures totaled $94.0 million, $71.0 million and $51.2 million in
2000, 1999, and 1998. Of these capital expenditures, approximately $74.5
million, $47.7 million and $39.3 million, in 2000, 1999, and 1998 were
attributable to leasing & services operations. Leasing & services capital
expenditures for 2001 are expected to be approximately $45.0 million. Greenbrier
regularly sells assets from its lease fleet, some of which may have been
purchased within the current year and included in capital expenditures.
Approximately $19.5 million, $23.3 million, and $11.9 million of the total
capital expenditures for 2000, 1999 and 1998 were attributable to manufacturing
operations. Capital expenditures for manufacturing additions are expected to be
approximately $20.0 million in 2001 and will include plant improvements and
equipment acquisitions to further increase capacity, enhance efficiencies and
allow for the production of new railcars.
Inventories increased $35.0 million primarily as a result of the acquisition in
Europe and the purchase of new railcar production, which is expected to be sold
in the normal course of business over the next year.
Foreign operations give rise to risks from changes in foreign currency exchange
rates. Greenbrier utilizes foreign currency forward exchange contracts with
established financial institutions to hedge a portion of that risk. No provision
has been made for credit loss due to counterparty non-performance.
At the August 31, 2000 exchange rates, forward exchange contracts for the
purchase of Canadian dollars aggregated $47.8 million, contracts for the
purchase of Polish zloties aggregated $15.8 million and contracts for the
purchase of United States dollars aggregated $2.0 million. These contracts
mature at various dates through June 2001. At August 31, 2000, gains and losses
of approximately $0.8 million and $0.4 million on such contracts have been
deferred and will be recognized in earnings concurrent with the hedged
transaction.
A quarterly dividend of $0.09 per common share was declared in November 2000, to
be paid in December. In July 1999, the dividend rate was increased to $0.09 from
the $0.06 per common share that had been paid quarterly since 1995. In addition,
a special one-time dividend of $0.12 per common share was paid in August 1999.
Future dividends are dependent upon earnings, capital requirements and financial
condition.
Certain loan covenants restrict the transfer of funds from subsidiaries to the
parent company in the form of cash dividends, loans, or advances. The restricted
net assets of subsidiaries amounted to $79.8 million as of August 31, 2000.
Consolidated retained earnings of $14.7 million at August 31, 2000 were
restricted as to the payment of dividends. Management expects existing funds and
cash generated from operations, together with borrowings under existing credit
facilities and long term financing, to be sufficient to fund dividends, stock
repurchases, working capital needs, planned capital expenditures, acquisitions
and expected debt repayments.
In July 2000, Greenbrier's Board of Directors authorized a stock repurchase
program under which the company intends to repurchase up to $5.0 million in
shares of its outstanding common stock program in open-market transactions, from
time to time. As of August 31, 2000, the Company had repurchased approximately
28,000 shares at a purchase price totaling $0.2 million.
PROSPECTIVE ACCOUNTING CHANGES
Statement of Financial Accounting Standards ("SFAS") No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, requires that all derivatives be
recognized as either assets or liabilities measured at fair value. Adoption of
SFAS No. 133 is effective for the Company's fiscal year beginning September 1,
2000 and is not expected to have a material adverse effect on the consolidated
financial position, results of operations, or liquidity of the Company. In
December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS, which, as
amended, the Company is required to implement beginning June 1, 2001. Management
is currently evaluating the effects of SAB No. 101.
26
<PAGE>
FORWARD-LOOKING INFORMATION
From time to time, Greenbrier or its representatives have made or may make
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, including, without limitation, statements as to
expectations, beliefs and strategies regarding the future. Such forward-looking
statements may be included in, but not limited to, press releases, oral
statements made with the approval of an authorized executive officer or in
various filings made by the Company with the Securities and Exchange Commission.
These forward-looking statements rely on a number of assumptions concerning
future events and include statements relating to:
- financing sources for future expansion, other business development
activities, capital spending and railcar syndication activities;
- improved earnings in Europe;
- improved European railcar market environment;
- increased stockholder value;
- increased competition;
- market slowdown in North America;
- share of new and existing markets;
- increased production;
- increased railcar services business; and
- short- and long-term revenue and earnings effects of the above items.
These forward-looking statements are subject to a number of uncertainties and
other factors outside Greenbrier's control. The following are among the factors,
particularly in North America and Europe, that could cause actual results or
outcomes to differ materially from the forward-looking statements:
- a delay or failure of acquisitions, products or services to compete
successfully;
- actual future costs and the availability of materials and a trained
workforce;
- changes in product mix and the mix between manufacturing and leasing &
services revenue;
- labor disputes or operating difficulties that might disrupt manufacturing
operations or the flow of cargo;
- production difficulties and product delivery delays as a result of, among
other matters, changing technologies or non-performance of sub-contractors;
- ability to obtain suitable contracts for the sale of leased equipment;
- lower-than-anticipated residual values for leased equipment;
- discovery of defects in railcars resulting in increased warranty cost or
litigation;
- resolution or outcome of pending litigation;
- the ability to consummate expected sales;
- delays in receipt of orders, risks that contracts may be canceled during
their term or not renewed and that customers may not purchase as much
equipment under the contracts as anticipated;
- financial condition of principal customers;
- market acceptance of products;
- competitive factors, including increased competition, introduction of
competitive products and price pressures;
- industry overcapacity or other factors;
- shifts in market demand;
- domestic and global business conditions and growth or reduction in the
surface transportation industry;
- domestic and global political, regulatory or economic conditions;
- changes in interest rates;
- changes in fuel prices;
- commodity price fluctuations; and
- economic impacts from currency fluctuations in the Company's worldwide
operations.
Any forward-looking statements should be considered in light of these factors.
Greenbrier assumes no obligation to update or revise any forward-looking
statements to reflect actual results, changes in assumptions or changes in other
factors affecting such forward-looking statements or if Greenbrier later becomes
aware that these assumptions are not likely to be achieved.
27
<PAGE>
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 content. 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 accounting
principles generally accepted in the United States of America.
The Company maintains a system of internal control 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 auditing
standards generally accepted in the United States of America, 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, Chief Senior Vice President,
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, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity and comprehensive
income, and cash flows for each of the three years in the period ended August
31, 2000. 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 auditing standards generally accepted
in the United States of America. 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, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended August 31,
2000, in conformity with accounting principles generally accepted in the United
States of America.
/s/ Deloitte & Touche LLP
Portland, Oregon
October 24, 2000
28
<PAGE>
CONSOLIDATED BALANCE SHEETS
AUGUST 31,
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 12,819 $ 77,161
Restricted cash and investments 89 635
Accounts and notes receivable 66,150 47,514
Inventories 127,484 92,495
Investment in direct finance leases 124,780 143,185
Equipment on operating leases 122,074 93,225
Property, plant and equipment 77,628 69,316
Intangible assets 23,001 4,000
Other 30,084 23,185
--------------------------------------------------------------------------------
$ 584,109 $ 550,716
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Revolving notes $ 13,019 $ 3,783
Accounts payable and accrued liabilities 147,792 131,474
Deferred participation 54,266 50,439
Deferred income taxes 25,238 17,634
Notes payable 159,363 161,401
Subordinated debt 37,748 37,788
Minority interest 5,068 14,034
Commitments and contingencies (Notes 20 & 21)
Stockholders' equity:
Preferred stock -- $0.001 par value;
25,000 shares authorized; none outstanding -- --
Common stock -- $0.001 par value; 50,000 shares
authorized; 14,227 and 14,255 outstanding at
August 31, 2000 and 1999 14 14
Additional paid-in capital 50,249 50,495
Retained earnings 94,756 85,534
Accumulated other comprehensive loss (3,404) (1,880)
--------------------------------------------------------------------------------
141,615 134,163
--------------------------------------------------------------------------------
$ 584,109 $ 550,716
================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED AUGUST 31,
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2000 1999 1998
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE
Manufacturing $ 528,240 $ 520,311 $ 451,706
Leasing & services 91,189 98,225 88,655
---------------------------------------------------------------------------------------------
619,429 618,536 540,361
COST OF REVENUE
Manufacturing 466,348 456,122 411,655
Leasing & services 46,711 48,682 35,349
---------------------------------------------------------------------------------------------
513,059 504,804 447,004
MARGIN 106,370 113,732 93,357
OTHER COSTS
Selling and administrative expense 54,202 51,061 37,270
Interest expense 21,165 19,048 20,933
Special charges -- leasing & services -- -- (2,250)
---------------------------------------------------------------------------------------------
75,367 70,109 55,953
Earnings before income tax expense, minority
interest and equity in earnings of
unconsolidated subsidiary 31,003 43,623 37,404
Income tax expense (16,053) (20,979) (15,643)
---------------------------------------------------------------------------------------------
Earnings before minority interest and equity in
earnings of unconsolidated subsidiary 14,950 22,644 21,761
Minority interest (1,650) (3,045) (1,429)
Equity in earnings of unconsolidated subsidiary 1,054 820 --
---------------------------------------------------------------------------------------------
Earnings from continuing operations 14,354 20,419 20,332
Extraordinary charge (net of $680 tax benefit) -- (938) --
---------------------------------------------------------------------------------------------
NET EARNINGS $ 14,354 $ 19,481 $ 20,332
=============================================================================================
BASIC EARNINGS PER COMMON SHARE:
Continuing operations $ 1.01 $ 1.44 $ 1.43
Extraordinary charge -- (.07) --
---------------------------------------------------------------------------------------------
Net earnings $ 1.01 $ 1.37 $ 1.43
=============================================================================================
DILUTED EARNINGS PER COMMON SHARE:
Continuing operations $ 1.01 $ 1.43 $ 1.42
Extraordinary charge -- (.07) --
---------------------------------------------------------------------------------------------
Net earnings $ 1.01 $ 1.36 $ 1.42
=============================================================================================
WEIGHTED AVERAGE COMMON SHARES:
Basic 14,227 14,254 14,203
Diluted 14,241 14,294 14,346
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
(IN THOUSANDS, EXCEPT COMMON STOCK PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
PER SHARE AMOUNTS) SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) EQUITY
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AUGUST 31, 1997 14,160 $ 14 $ 49,135 $ 54,689 $ 131 $ 103,969
Net earnings -- -- -- 20,332 -- 20,332
Translation adjustment
(net of $631 tax benefit) -- -- -- -- (803) (803)
---------
Comprehensive income 19,529
Stock options exercised 93 -- 1,221 -- -- 1,221
Compensation relating to
non-qualified stock
option plan -- -- 60 -- -- 60
Cash dividends
($0.24 per share) -- -- -- (3,409) -- (3,409)
----------------------------------------------------------------------------------------------------------------
BALANCE AUGUST 31, 1998 14,253 14 50,416 71,612 (672) 121,370
Net earnings -- -- -- 19,481 -- 19,481
Translation adjustment
(net of $214 tax benefit) -- -- -- -- (1,208) (1,208)
---------
Comprehensive income 18,273
Stock options exercised 2 -- 29 -- -- 29
Compensation relating to
non-qualified stock
option plan -- -- 50 -- -- 50
Cash dividends
($0.39 per share) -- -- -- (5,559) -- (5,559)
------------------------------------------------------------------------------------------------------------
BALANCE AUGUST 31, 1999 14,255 14 50,495 85,534 (1,880) 134,163
Net earnings -- -- -- 14,354 -- 14,354
Translation adjustment
(net of $188 tax benefit) -- -- -- -- (1,524) (1,524)
---------
Comprehensive income 12,830
Purchase of treasury stock (28) -- (246) -- -- (246)
Cash dividends
($0.36 per share) -- -- -- (5,132) -- (5,132)
------------------------------------------------------------------------------------------------------------
BALANCE AUGUST 31, 2000 14,227 $ 14 $ 50,249 $ 94,756 $ (3,404) $ 141,615
============================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31,
<TABLE>
<CAPTION>
(IN THOUSANDS) 2000 1999 1998
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 14,354 $ 19,481 $ 20,332
Adjustments to reconcile net earnings to net cash
(used in) provided by operating activities:
Extraordinary charge -- 938 --
Deferred income taxes 7,604 6,470 (2,217)
Deferred participation 3,827 5,196 6,211
Depreciation and amortization 20,356 16,477 14,527
Special charges -- -- (2,250)
Gain on sales of equipment (4,527) (5,887) (9,994)
Other 2,627 5,879 1,537
Decrease (increase) in assets:
Accounts and notes receivable (18,610) (2,713) 13,197
Inventories (39,249) (3,608) 10,110
Prepaid expenses and other (1,376) (879) 1,910
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities (13,295) (2,961) 22,509
---------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (28,289) 38,393 75,872
---------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (4,787) (11,702) --
Principal payments received under direct
finance leases 18,313 16,729 15,102
Investment in direct finance leases (170) (446) (856)
Proceeds from sales of equipment 49,789 39,903 117,945
Purchase of property and equipment (93,821) (70,531) (50,345)
Use of (investment in) restricted cash and
investments 546 15,362 (8,637)
---------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (30,130) (10,685) 73,209
---------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 34,052 60,029 13,157
Repayments of borrowings (26,987) (46,958) (124,750)
Dividends (5,132) (5,559) (3,409)
Purchase of minority interest (7,610) -- (7,772)
Purchase of treasury stock (246) -- --
Proceeds from exercise of stock options -- 29 1,221
---------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (5,923) 7,541 (121,553)
---------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (64,342) 35,249 27,528
CASH AND CASH EQUIVALENTS:
Beginning of period 77,161 41,912 14,384
---------------------------------------------------------------------------------------------------
End of period $ 12,819 $ 77,161 $ 41,912
---------------------------------------------------------------------------------------------------
CASH PAID DURING THE PERIOD FOR:
Interest $ 18,430 $ 16,637 $ 20,526
Income taxes 6,291 9,150 13,626
NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Purchase of minority interest $ -- $ -- $ 1,580
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF OPERATIONS
The Greenbrier Companies, Inc. and Subsidiaries ("Greenbrier" or the "Company")
currently operates in two primary business segments: manufacturing and leasing &
services. The two business segments are operationally integrated. With
operations in North America and Europe, the manufacturing segment produces
double-stack intermodal railcars, conventional railcars, marine vessels and
forged steel products and performs railcar refurbishment and maintenance
activities. In Europe, the Company also manufactures freight cars through the
use of unaffiliated subcontractors. Such activities are included in the
manufacturing segment. The leasing & services segment owns or manages
approximately 37,000 railcars for railroads, institutional investors and other
leasing companies.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The financial statements include the accounts of
the Company and its majority-owned subsidiaries. All significant intercompany
transactions and balances are eliminated upon consolidation. Investments in and
advances to a joint venture in which the Company has a 50% ownership interest
are accounted for by the equity method and included in other assets.
FOREIGN CURRENCY TRANSLATION -- Operations outside the United States prepare
financial statements in currencies other than the United States dollar, the
income statement amounts are translated at average exchange rates for the year,
while the assets and liabilities are translated at year-end exchange rates.
Translation adjustments are accumulated as a separate component of stockholders'
equity and comprehensive income.
CASH AND INVESTMENTS -- Cash is temporarily invested primarily in bankers'
acceptances, United States Treasury bills, commercial paper and money market
funds. Restricted cash and investments may only be used for equipment
acquisitions in accordance with loan agreements. All highly-liquid investments
with a maturity of three months or less are considered cash equivalents.
INVENTORIES -- Inventories are valued at the lower of cost (first-in, first-out)
or market. Work-in-process includes material, labor and overhead. Assets held
for sale or refurbishment consist of railcars, carried at cost, that will either
be sold or refurbished and placed on lease.
EQUIPMENT ON OPERATING LEASES -- Equipment on operating leases is stated at
cost. Depreciation to estimated salvage value is provided on the straight-line
method over the estimated useful lives of up to twenty-five years.
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.
INTANGIBLE ASSETS -- Loan fees are capitalized and amortized as interest expense
over the life of the related borrowings. Goodwill is generally amortized over
twelve years using the straight-line method.
MAINTENANCE AND WARRANTY RESERVES -- Maintenance reserves are estimated and
provided for over the term of maintenance obligations specified in the
underlying lease agreements. Warranty reserves are estimated and charged to
operations.
INCOME TAXES -- The liability method is used to account for income taxes.
Deferred income taxes are provided for the temporary effects of differences in
the recognition of revenues and expenses for financial statement and income tax
reporting purposes. Valuation allowances reduce deferred tax assets to an amount
that will more likely than not be realized.
MINORITY INTEREST -- Minority interest represents unaffiliated investors'
capital investment and interest in the undistributed earnings and losses of
consolidated entities.
COMPREHENSIVE INCOME -- Statement of Financial Accounting Standards ("SFAS") No.
130, REPORTING COMPREHENSIVE INCOME, requires presentation of comprehensive
income (net income plus all other changes in net assets from non-owner sources)
and its components in the financial statements.
REVENUE RECOGNITION -- Revenue from manufacturing operations is recognized at
the time products are completed and accepted by unaffiliated customers. Direct
finance lease revenue is recognized over the lease term in a manner that
produces a constant rate of return on the net investment in the lease. Certain
interim rentals are based on estimated costs. Operating lease revenue is
recognized as earned under the lease terms. Payments received in advance are
deferred until earned.
33
<PAGE>
FORWARD EXCHANGE CONTRACTS -- Foreign operations give rise to risks from changes
in foreign currency exchange rates. Forward exchange contracts with established
financial institutions are utilized to hedge a portion of such risk. Realized
and unrealized gains and losses are deferred and recognized in earnings
concurrent with the hedged transaction. Even though forward exchange contracts
are entered into to mitigate the impact of currency fluctuations, certain
exposure remains which may affect operating results.
INTEREST RATE INSTRUMENTS -- Interest rate swap agreements are utilized to
reduce the impact of changes in interest rates on certain debt. The net cash
amounts paid or received on the agreements are accrued and recognized as an
adjustment to interest expense.
NET EARNINGS PER COMMON SHARE -- Basic earnings per common share ("EPS")
excludes the potential dilution that would occur if additional shares were
issued upon exercise of outstanding stock options while diluted EPS takes this
potential dilution into account.
STOCK-BASED COMPENSATION -- Compensation expense for stock-based employee
compensation continues to be measured using the method prescribed by
Accounting Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES. If material, pro forma disclosures of net earnings and
earnings per common share will be made as if the method prescribed by SFAS
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, had been applied in
measuring compensation expense.
MANAGEMENT ESTIMATES -- The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. This includes,
among other things, evaluation of the remaining life and recoverability of
long-lived assets. Actual results could differ from those estimates.
RECLASSIFICATIONS -- Certain reclassifications have been made to prior years'
consolidated financial statements to conform with the 2000 presentation.
PROSPECTIVE ACCOUNTING CHANGES -- SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, requires that all derivatives be recognized
as either assets or liabilities measured at fair value. Adoption of SFAS No. 133
is effective for the Company's fiscal year beginning September 1, 2000 and is
not expected to have a material adverse effect on the consolidated financial
position, results of operations, or liquidity of the Company. In December 1999,
the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB")
No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS, which, as amended, the
Company is required to implement beginning June 1, 2001. Management is currently
evaluating the effects of SAB No. 101.
NOTE 3 -- ACQUISITIONS
In January 2000, Greenbrier completed the purchase of the Freight Wagon Division
of DaimlerChrysler Rail Systems located in Siegen, Germany. The acquired
operation provides expertise in the fields of engineering, design, sales and
marketing and project management. It also includes a comprehensive portfolio of
railcar designs certified for the European marketplace. Accordingly, a
significant portion of the assets acquired are intangibles. The purchase was
initially funded with a cash payment of $4.3 million and the assumption of net
liabilities of $29.2 million. Results of the acquired operation, which include
the sale of freight cars manufactured by unaffiliated subcontractors, have been
included in the accompanying financial statements from the date of acquisition.
Disclosure of the acquisition on a proforma basis, as if it had taken place on
September 1, 1999, has not been provided, as it is not material to the Company's
financial position or results of operations.
On September 30, 1998, Greenbrier acquired a 60.0% interest in a railcar
manufacturer located in Swidnica, Poland. Through a series of subsequent
transactions, the Company has increased its ownership interest to 97.5%. This
acquisition was accounted for by the purchase method, and operating results are
included in the consolidated financial statements since the date of acquisition.
Effective September 1, 1999, Greenbrier completed the acquisition of the
remaining common equity of the minority investor's interest in the Canadian
manufacturing subsidiary.
On September 1, 1998, Greenbrier entered into a joint venture agreement with
Bombardier Transportation ("Bombardier") to build railroad freight cars at
Bombardier's existing manufacturing facility in Sahagun, Mexico. Each party
holds a 50.0% non-controlling interest in the joint venture, and therefore
Greenbrier's investment is being accounted for using the equity method.
Greenbrier's share of the operating results is included as equity in earnings of
unconsolidated subsidiary in the Consolidated Statements of Operations.
The excess purchase price over the fair value of net assets acquired in these
transactions has been included in intangible assets in the Consolidated Balance
Sheets and is being amortized on a straight-line basis over 12 years. The above
acquisitions were completed utilizing operating cash flows and available lines
of credit.
34
<PAGE>
NOTE 4 -- DIVESTITURES
In 1997, a plan was adopted to sell the trailer and container leasing operation,
in order to focus on core railcar operations. A portion of the trailer and
container lease fleet was sold in 1997. In 1998, the sale of the remaining
trailer and container fleet was completed. In 1997, an estimated pre-tax loss of
approximately $1.6 million was included in the Consolidated Statements of
Operations in special charges -- leasing & services for anticipated results of
selling the operation. The results associated with the sale were more favorable
than originally anticipated, resulting in a $2.3 million benefit in 1998.
NOTE 5 -- INVENTORIES
<TABLE>
<CAPTION>
(IN THOUSANDS) 2000 1999
------------------------------------------------------
<S> <C> <C>
Manufacturing supplies
and raw materials $ 23,071 $ 10,953
Work-in-process 55,227 66,255
Assets held for sale or
refurbishment 49,186 15,287
------------------------------------------------------
$127,484 $ 92,495
======================================================
</TABLE>
NOTE 6 -- INVESTMENT IN DIRECT FINANCE LEASES
<TABLE>
<CAPTION>
(IN THOUSANDS) 2000 1999
------------------------------------------------------
<S> <C> <C>
Future minimum
receipts on lease contracts $151,879 $ 196,883
Maintenance,
insurance and taxes (35,671) (43,940)
------------------------------------------------------
Net minimum lease
receipts 116,208 152,943
Estimated residual values 51,848 51,901
Unearned finance charges (43,276) (61,659)
------------------------------------------------------
$124,780 $ 143,185
======================================================
</TABLE>
Minimum future receipts on the direct finance lease contracts are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
------------------------------------------------------
<S> <C>
YEAR ENDING AUGUST 31,
2001 $ 48,750
2002 40,215
2003 29,098
2004 18,339
2005 10,430
Thereafter 5,047
------------------------------------------------------
$ 151,879
======================================================
</TABLE>
NOTE 7 -- EQUIPMENT ON OPERATING LEASES
Equipment on operating leases is reported net of accumulated depreciation of
$53.2 million and $49.5 million as of August 31, 2000 and 1999.
In addition, certain railcar equipment is leased by the Company and subleased to
customers under non-cancelable operating leases. Aggregate minimum future
amounts receivable under all non-cancelable operating leases and subleases are
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
------------------------------------------------------
<S> <C>
YEAR ENDING AUGUST 31,
2001 $ 16,585
2002 12,923
2003 11,346
2004 8,872
2005 6,819
Thereafter 3,548
------------------------------------------------------
$ 60,093
======================================================
</TABLE>
Certain equipment is also operated under daily, monthly or mileage arrangements.
Associated revenues amounted to $25.8 million, $23.0 million and $24.5 million
for the years ended August 31, 2000, 1999 and 1998.
NOTE 8 -- PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
(IN THOUSANDS) 2000 1999
------------------------------------------------------
<S> <C> <C>
Land and
improvements $ 9,326 $ 9,037
Machinery and
equipment 63,772 51,384
Buildings and
improvements 31,062 22,715
Other 20,227 21,788
------------------------------------------------------
124,387 104,924
Accumulated
depreciation (46,759) (35,608)
------------------------------------------------------
$ 77,628 $ 69,316
======================================================
</TABLE>
35
<PAGE>
NOTE 9 - INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
Summarized financial data for the Company's manufacturing joint venture for the
year ended August 31, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 2000 1999
------------------------------------------------------
<S> <C> <C>
Current assets $ 25,623 $ 29,717
Total assets 44,407 40,156
Current liabilities 17,183 18,822
Equity 27,224 21,334
Revenues $ 100,313 $ 56,524
Net earnings $ 5,730 $ 1,334
</TABLE>
NOTE 10 -- REVOLVING NOTES
Credit facilities aggregated $129.3 million as of August 31, 2000. A $60.0
million revolving line of credit is available through May 2001 to provide
working capital and interim financing of equipment for the leasing & services
operations. A $40.0 million line of credit to be used for working capital is
available through February 2002 for United States manufacturing operations. A
$20.4 million (at the August 31, 2000 exchange rate) line of credit is available
through March 2001 for working capital for Canadian manufacturing operations.
Lines of credit totaling $6.4 million (at the August 31, 2000 exchange rate) are
available principally through December 2000 for working capital for Polish
manufacturing operations. A line of credit totaling $2.5 million (at the August
31, 2000 exchange rate) is available to support European operations. Advances
under the lines of credit bear interest at rates, which vary depending on the
type of borrowing and certain defined ratios. At August 31, 2000, there were no
borrowings outstanding under the United States manufacturing and European lines.
At August 31, 2000, $4.0 million and $4.9 million were outstanding under the
Canadian and Polish manufacturing lines and $4.1 million was outstanding under
the leasing & services line. Available borrowings under these lines are
principally based upon defined levels of receivables, inventory and leased
equipment.
In addition, bank guarantees totaling $29.2 million (at the August 31, 2000
exchange rate), are available to support European operations, of which $19.3
million were issued at August 31, 2000.
Subsequent to August 31, 2000, the Company entered into additional revolving
loan and bank guarantees totaling $3.4 million and $11.4 million (at the August
31, 2000 exchange rate) to support European operations.
NOTE 11 -- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
(IN THOUSANDS) 2000 1999
------------------------------------------------------
<S> <C> <C>
Accounts payable and
accrued liabilities $ 90,807 $ 69,578
Accrued payroll and
related liabilities 18,215 19,518
Maintenance reserves 10,338 14,835
Participation 2,943 8,366
Other 25,489 19,177
------------------------------------------------------
$147,792 $131,474
======================================================
</TABLE>
NOTE 12 -- NOTES PAYABLE
<TABLE>
<CAPTION>
(IN THOUSANDS) 2000 1999
------------------------------------------------------
<S> <C> <C>
Equipment notes
payable $ 98,663 $ 121,816
Term loans 59,337 37,616
Other notes payable 1,363 1,969
------------------------------------------------------
$159,363 $ 161,401
======================================================
</TABLE>
Equipment notes payable, related to the lease fleet, bear interest at fixed
rates of 6.5% to 10.8% and are due in varying installments through June 2006.
The weighted average remaining contractual life and weighted average interest
rate of the notes as of August 31, 2000 and 1999 were approximately 27 and 37
months and 7.3% and 7.7% for 2000 and 1999. The notes are collateralized by
certain lease fleet railcars.
Term loans for manufacturing operations and acquisitions are due in varying
installments through March 2011 and are collateralized by certain property,
plant and equipment. As of August 31, 2000, the effective interest rates on the
term loans ranged from 6.6% to 8.5%, except for Eastern Europe where borrowings
of $1.5 million bear interest at 19.1%. Interest rate swap agreements are
utilized to reduce the impact of changes in interest rates on certain debt. At
August 31, 2000, such agreements had a notional amount of $30.0 million and
mature between July 2008 and March 2011.
36
<PAGE>
In February 1999, Greenbrier issued $30.0 million of senior term notes due 2006
(the "Notes"). In conjunction with the issuance of the Notes, $22.0 million of
leasing equipment notes payable were repaid. The early retirement of this debt
resulted in a $0.9 million extraordinary charge (net of income taxes of $0.7
million) in 1999 for prepayment penalties and the write-off of deferred loan
costs.
Principal payments on the notes payable are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
------------------------------------------------------
<S> <C>
YEAR ENDING AUGUST 31,
2001 $ 31,734
2002 34,721
2003 24,420
2004 20,649
2005 11,758
Thereafter 36,081
------------------------------------------------------
$159,363
======================================================
</TABLE>
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 or advances by subsidiaries
and require certain levels of tangible net worth, ratio of debt to equity and
debt service coverage. At August 31, 2000, the Company was in compliance with
these covenants.
NOTE 13 -- SUBORDINATED DEBT
Subordinated notes, amounting to $37.7 million and $37.8 million at August 31,
2000 and 1999, were issued for railcars purchased as part of an agreement
described in Note 21. The notes bear interest at 11.0% and 9.0%, with
substantially all of the principal due ten years from the date of the notes, and
are subordinated to all other liabilities of a subsidiary. Approximately $0.3
million becomes due in 2001, $10.3 million in 2002, $6.0 million in 2003, $5.9
million in 2004 and $6.4 million in 2005 with the remaining balance due after
2005.
The agreement includes an option that, 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.
NOTE 14 -- STOCKHOLDERS' EQUITY
The Chairman and the Chief Executive Officer, who are the 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.
Certain loan covenants restrict the transfer of funds from the subsidiaries to
the parent company in the form of cash dividends, loans, or advances. Restricted
net assets of subsidiaries amounted to $79.8 million as of August 31, 2000.
Consolidated retained earnings of $14.7 million at August 31, 2000 were
restricted as to the payment of dividends.
A stock incentive plan was adopted July 1, 1994 (the "1994 Plan") that provides
for granting compensatory and non-compensatory options to employees and others.
Outstanding options generally vest at 50.0% two years from grant with the
balance five years from grant. No further grants will be awarded under this
plan.
On April 6, 1999, the Company adopted the Stock Incentive Plan -- 2000 (the
"2000 Plan"), under which 1,000,000 shares of common stock are available for
issuance with respect to options granted to employees, non-employee directors
and consultants of the Company. The 2000 Plan authorizes the grant of incentive
stock options, non-statutory stock options and restricted stock awards, or any
combination of the foregoing. Under the 2000 Plan, the exercise price for
incentive stock options may not be less than the market value of the Company's
common stock at the time the option is granted. Options are exercisable not less
than six months or more than 10 years after the date the option is granted.
General awards under the 2000 Plan vest at 50.0% two years from the grant date,
with the balance vesting five years from grant.
37
<PAGE>
The following table summarizes stock option transactions for shares under option
and the related weighted average option price:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTION
SHARES PRICE
----------------------------------------------------------------------
<S> <C> <C>
Balance at
August 31, 1997 761,373 $ 13.62
Granted 3,000 17.34
Exercised (92,772) 13.17
Canceled (24,742) 13.94
---------------------------------------------------------
Balance at
August 31, 1998 646,859 13.62
Granted 642,500 11.37
Exercised (1,860) 13.14
Canceled (16,534) 14.00
---------------------------------------------------------
Balance at
August 31, 1999 1,270,965 12.73
Granted 262,500 8.69
Expired (3,000) 16.75
Canceled (27,491) 12.59
---------------------------------------------------------
Balance at
August 31, 2000 1,502,974 11.75
=========================================================
</TABLE>
Options outstanding at August 31, 2000 have exercise prices ranging from $8.56
to $17.34 per share and have a remaining contractual life of 4.74 years. As of
August 31, 2000, options to purchase 556,324 shares were exercisable and 737,500
shares were available for grant. Options to purchase 1,000,000 and 640,000
shares were available for grant at August 31, 1999 and 1998.
As discussed in Note 2, the disclosure-only provisions of SFAS No. 123 have been
adopted. Accordingly, no compensation cost has been recognized for stock options
granted with an exercise price equal to the fair value of the underlying stock
on the date of grant. Had compensation costs been determined based on the
estimated fair value of the options at the date of grant, the net earnings and
net earnings per common share for the years ended August 31, 2000, 1999 and 1998
would not have differed materially from the amounts reported.
NOTE 15 -- RELATED PARTY TRANSACTIONS
The Company purchased railcars totaling $48.3 million and $54.2 million for the
years ended August 31, 2000 and 1999 from a 50.0%-owned joint venture for
subsequent sale or for its own lease fleet.
Maintenance, management and other fees received from a related entity under an
agreement were $0.5 million, $0.9 million and $0.9 million for the years ended
August 31, 2000, 1999 and 1998.
A member of the board of directors of a Canadian subsidiary also serves as a
director of a company from which the majority of the Canadian subsidiary's
steel requirements are acquired.
NOTE 16 -- EMPLOYEE BENEFIT PLANS
Defined contribution plans are available to substantially all United States
employees. Contributions are based on a percentage of employee contributions and
amounted to $1.1 million, $0.8 million and $0.6 million for the years ended
August 31, 2000, 1999 and 1998.
Defined benefit pension plans are provided for Canadian and German employees
covered by collective bargaining agreements. The plans provide 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 plans'
assets, obligations and pension cost are not material to the consolidated
financial statements.
Nonqualified deferred benefit plans exist for certain employees. Expenses
resulting from contributions to the plans, which are based on earnings, were
$1.5 million, $0.9 million and $2.4 million for the years ended August 31, 2000,
1999 and 1998.
NOTE 17 -- INCOME TAXES
Components of income tax expense are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 2000 1999 1998
----------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 2,466 $ 5,174 $ 13,139
State 1,506 1,092 2,581
Foreign 4,477 8,243 2,140
----------------------------------------------------------------
8,449 14,509 17,860
Deferred:
Federal 5,787 6,317 181
State 598 1,617 (2,062)
Foreign 1,219 (1,464) (336)
----------------------------------------------------------------
7,604 6,470 (2,217)
----------------------------------------------------------------
$16,053 $ 20,979 $ 15,643
================================================================
</TABLE>
38
<PAGE>
Income tax expense is computed at rates different than statutory rates. The
reconciliation between effective and statutory tax rates on continuing
operations is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rates 35.0% 35.0% 35.0%
State income taxes,
net of federal
benefit 4.3 4.0 4.5
Impact of foreign
taxes 11.9 7.4 0.6
Other 0.6 1.7 1.7
------------------------------------------------------------------
51.8% 48.1% 41.8%
==================================================================
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 2000 1999
---------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Alternative minimum tax
credit carryforward $ (4,417) $ (6,783)
Deferred participation (21,775) (20,434)
Maintenance and warranty reserves (5,553) (7,454)
Accrued payroll and related
liabilities (3,245) (7,420)
Deferred revenue (872) (275)
Inventories and other (4,094) (4,005)
------------------------------------------------------------
(39,956) (46,371)
Deferred tax liabilities:
Accelerated depreciation 64,925 64,610
Other 2,671 2,269
------------------------------------------------------------
Net deferred tax liability
attributable to continuing
operations 27,640 20,508
Net deferred tax liability
attributable to discontinued
operations (2,402) (2,874)
------------------------------------------------------------
Net deferred tax liability $ 25,238 $ 17,634
============================================================
</TABLE>
NOTE 18 - SEGMENT INFORMATION
Greenbrier has two reportable segments: manufacturing and leasing & services.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Performance is evaluated based on
margin, which is presented in the Consolidated Statements of Operations.
Intersegment sales and transfers are accounted for as if the sales or transfers
were to third parties.
The information in the following tables is derived directly from the segments'
internal financial reports used for corporate management purposes. Unallocated
assets primarily consist of cash, short-term investments and capitalized loan
costs.
<TABLE>
<CAPTION>
(IN THOUSANDS) 2000 1999 1998
--------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Manufacturing $582,543 $548,038 $ 470,025
Leasing & services 116,994 127,630 107,147
Intersegment eliminations (80,108) (57,132) (36,811)
--------------------------------------------------------------------
$619,429 $618,536 $ 540,361
====================================================================
Assets:
Manufacturing $232,265 $188,147 $ 162,907
Leasing & services 338,908 284,401 298,811
Unallocated 12,936 78,168 43,771
--------------------------------------------------------------------
$584,109 $550,716 $ 505,489
====================================================================
Depreciation and
amortization:
Manufacturing $ 9,847 $ 7,794 $ 4,774
Leasing & services 10,509 8,683 9,753
--------------------------------------------------------------------
$ 20,356 $ 16,477 $ 14,527
====================================================================
Capital expenditures:
Manufacturing $ 19,476 $ 23,260 $ 11,887
Leasing & services 74,515 47,717 39,314
--------------------------------------------------------------------
$ 93,991 $ 70,977 $ 51,201
====================================================================
</TABLE>
39
<PAGE>
The Company has operations in the United States, Canada and Europe. The
following table summarizes selected geographic information. Eliminations are
sales between geographic areas.
<TABLE>
<CAPTION>
(IN THOUSANDS) 2000 1999 1998
--------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
United States $393,213 $387,735 $ 386,064
Canada 239,658 231,767 169,335
Europe 53,230 20,183 --
Eliminations (66,672) (21,149) (15,038)
--------------------------------------------------------------------
$619,429 $618,536 $ 540,361
====================================================================
Earnings(1):
United States $ 25,156 $ 33,413 $ 33,162
Canada 15,350 16,280 4,345
Europe (5,299) (6,120) --
Eliminations (4,204) 50 (103)
--------------------------------------------------------------------
$ 31,003 $ 43,623 $ 37,404
====================================================================
Identifiable assets:
United States $464,276 $469,133 $ 452,323
Canada 57,899 64,162 53,166
Europe 61,934 17,421 --
--------------------------------------------------------------------
$584,109 $550,716 $ 505,489
====================================================================
</TABLE>
(1) From continuing operations before income tax expense, minority interest and
equity in earnings of unconsolidated subsidiary.
NOTE 19 -- CUSTOMER CONCENTRATION
In 2000, revenue from the two largest customers was 30.1% and 8.9% of total
revenues. Revenue from the two largest customers was 28.3% and 16.7% of total
revenues for the year ended August 31, 1999 and 25.0% and 16.0% of total
revenues for the year ended August 31, 1998. No other customers accounted for
more than 10.0% of total revenues in 2000, 1999, or 1998. Two customers had
balances that individually exceeded 10.0% of accounts receivable and in total
represented 40.4% of the consolidated balance at August 31, 2000. Three
customers had balances that individually exceeded 10.0% of accounts receivable
and in total represented 64.0% of the consolidated balance at August 31, 1999.
Note 20 -- Lease Commitments
Lease expense for railcar equipment leased under non-cancelable leases was $7.4
million, $7.3 million and $5.0 million, for the years ended August 31, 2000,
1999 and 1998.
Aggregate minimum future amounts payable under non-cancelable railcar equipment
leases are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
------------------------------------------------
<S> <C>
YEAR ENDING AUGUST 31,
2001 $ 4,154
2002 3,283
2003 2,668
2004 1,226
2005 125
Thereafter --
------------------------------------------------
$ 11,456
================================================
</TABLE>
Operating leases for domestic refurbishment facilities, office space and certain
manufacturing and office equipment expire at various dates through September
2014. Rental expense for facilities, office space and equipment was $2.9
million, $2.5 million and $1.9 million for the years ended August 31, 2000, 1999
and 1998.
Aggregate minimum future amounts payable under non-cancelable operating leases
are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
------------------------------------------------
<S> <C>
YEAR ENDING AUGUST 31,
2001 $ 2,748
2002 2,643
2003 2,168
2004 1,627
2005 1,258
Thereafter 5,189
------------------------------------------------
$ 15,633
================================================
</TABLE>
NOTE 21 -- COMMITMENTS AND CONTINGENCIES
In 1990, an agreement was entered into for the purchase and refurbishment of
over 10,000 used railcars. The agreement provides that, under certain
conditions, the seller will receive a percentage of operating earnings of a
subsidiary, as defined. Amounts accrued are referred to as participation and are
included in accrued liabilities and deferred participation in the Consolidated
Balance Sheets. Participation expense related to this and a similar, but smaller
agreement was $9.7 million, $14.0 million and $7.2 million for the years ended
August 31, 2000, 1999 and 1998. Payment of deferred participation is estimated
to be $3.0 million in 2001, $4.5 million in 2002, $10.8 million in 2003, $21.7
million in 2004 and $17.7 million in 2005 with the remaining balance due after
2005.
40
<PAGE>
At the August 31, 2000 exchange rates, forward exchange contracts for the
purchase of Canadian dollars aggregated $47.8 million, contracts for the
purchase of Polish zloties aggregated $15.8 million and contracts for the
purchase of United States dollars aggregated $2.0 million. These contracts
mature at various dates through June 2001. At August 31, 2000, gains and losses
of approximately $0.8 million and $0.4 million on such contracts have been
deferred and will be recognized in earnings concurrent with the hedged
transaction.
Environmental studies have been conducted of owned and leased properties that
indicate additional investigation and some remediation may be necessary. The
Portland, Oregon manufacturing facility is located on the Willamette River. The
United States Environmental Protection Agency is considering possible
classification of portions of the river bed, including the portion fronting the
facility, as a federal "superfund" site due to sediment contamination. There is
no indication that the Company has contributed to contamination of the
Willamette River bed, although uses by prior owners of the property may have
contributed. Nevertheless, ultimate classification of the Willamette River may
have an impact on the value of the Company's investment in the property and may
require the Company to initially bear a portion of the cost of any mandated
remediation. The Company may be required to perform periodic maintenance
dredging in order to continue to launch vessels from its launch ways on the
river, and classification as a superfund site could result in some limitations
on future launch activity. The outcome of such actions cannot be estimated;
however, management believes that any ultimate liability resulting from
environmental issues will not materially affect the financial position, results
of operations, or cash flows of the Company. Management believes that its
operations adhere to sound environmental practices, applicable laws and
regulations.
From time to time, the Company is involved as a defendant in litigation in the
ordinary course of business, the outcome of which cannot be predicted with
certainty. Litigation has been initiated by former shareholders of Interamerican
Logistics, Inc. ("Interamerican"), which was acquired in the fall of 1996. The
plaintiffs allege that the Company violated the agreements pursuant to which it
acquired ownership of Interamerican and seek damages aggregating $4.5 million
Canadian. Management contends the claim to be without merit and intends to
vigorously defend its position. Management believes that any ultimate liability
resulting from litigation will not materially affect the financial position,
results of operations, or cash flows of the Company.
Employment agreements, which expire August 31, 2004, with the Chairman and the
Chief Executive Officer, 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 $0.7 million and the maximum is $2.1
million.
NOTE 22 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments and the methods and
assumptions used to estimate such fair values are as follows:
<TABLE>
<CAPTION>
2000
------------------------------
CARRYING ESTIMATED
(IN THOUSANDS) AMOUNT FAIR VALUE
-------------------------------------------------------------------------------
<S> <C> <C>
Notes payable and
subordinated debt $197,111 $ 174,575
Deferred participation 54,266 42,278
<CAPTION>
1999
------------------------------
CARRYING ESTIMATED
(IN THOUSANDS) AMOUNT FAIR VALUE
-------------------------------------------------------------------------------
<S> <C> <C>
Notes payable and
subordinated debt $199,189 $ 179,456
Deferred participation 50,439 33,681
</TABLE>
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. The carrying value and
fair value of foreign currency forward contracts and interest rate swaps are not
material.
41
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
Unaudited operating results by quarter for 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FIRST SECOND THIRD FOURTH TOTAL
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000
Revenue
Manufacturing $ 91,749 $ 149,387 $ 147,054 $ 140,050 $ 528,240
Leasing & services 21,253 23,436 24,861 21,639 91,189
-----------------------------------------------------------------------------------------------------
113,002 172,823 171,915 161,689 619,429
Cost of revenue
Manufacturing 80,013 132,070 131,041 123,224 466,348
Leasing & services 12,214 12,332 11,817 10,348 46,711
-----------------------------------------------------------------------------------------------------
92,227 144,402 142,858 133,572 513,059
Margin $ 20,775 $ 28,421 $ 29,057 $ 28,117 $ 106,370
=====================================================================================================
Net earnings $ 424 $ 4,303 $ 4,241 $ 5,386 $ 14,354
=====================================================================================================
Net earnings per common share:
Basic $ .03 $ .30 $ .30 $ .38 $ 1.01
=====================================================================================================
Diluted $ .03 $ .30 $ .30 $ .38 $ 1.01
=====================================================================================================
1999
Revenue
Manufacturing $100,074 $145,048 $ 152,360 $ 122,829 $ 520,311
Leasing & services 20,012 21,892 21,712 34,609 98,225
-----------------------------------------------------------------------------------------------------
120,086 166,940 174,072 157,438 618,536
Cost of revenue
Manufacturing 90,393 127,128 133,695 104,906 456,122
Leasing & services 8,198 10,339 10,300 19,845 48,682
-----------------------------------------------------------------------------------------------------
98,591 137,467 143,995 124,751 504,804
Margin $ 21,495 $ 29,473 $ 30,077 $ 32,687 $113,732
=====================================================================================================
Net earnings $ 2,866 $ 5,151(1) $ 6,179 $ 5,285(2) $ 19,481
=====================================================================================================
Net earnings per common share:
Basic(3) $ .20 $ .36(1) $ .43 $ .37 $ 1.37
=====================================================================================================
Diluted $ .20 $ .36(1) $ .43 $ .37 $ 1.36
=====================================================================================================
</TABLE>
(1) Includes an extraordinary charge of $0.9 million, or $0.07 per share,
representing prepayment penalties and the write-off of deferred loan costs.
(2) Includes earnings of $1.1 million resulting from the resolution of certain
matters on a leasing contract that began in 1990.
(3) The sum of quarterly earnings per common share may not equal annual
earnings per common share as a result of the computation of quarterly
versus annual weighted average common shares outstanding.
42
