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, 1998 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 30, 1998 (based on the closing price of such shares on such date) was approximately $87,000,000. The number of shares outstanding of the Registrant's Common Stock on October 30, 1998 was 14,254,132 shares of Common Stock, par value $0.001 per share. DOCUMENTS INCORPORATED BY REFERENCE Parts of Registrant's 1998 Annual Report to Stockholders and of Registrant's Proxy Statement dated November 30, 1998 prepared in connection with the Annual Meeting of Stockholders to be held on January 12, 1999 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 8 Item 3. LEGAL PROCEEDINGS 8 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 8 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 9 Item 6. SELECTED FINANCIAL DATA 9 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9 Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 9 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 9 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 9 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT 10 Item 11. EXECUTIVE COMPENSATION 10 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 10 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 10 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 11 SIGNATURES 18 (i)
PART I. FORWARD-LOOKING STATEMENTS From time to time, The Greenbrier Companies, Inc. ("Greenbrier" or the "Company") 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. The following are among the factors that could cause actual results or outcomes to differ materially from the forward-looking statements: general political, regulatory or economic conditions; changes in interest rates; business conditions and growth in the surface transportation industry, both domestic and international; currency and other risks associated with international operations; shifts in market demand; a delay or failure of acquisitions, products or services to compete successfully; changes in product mix and the mix between manufacturing and leasing and services revenue; transportation labor disputes or operating difficulties which might disrupt the flow of cargo; competitive factors, including increased competition, new product offerings by competitors and price pressures; actual future costs and availability of materials and a trained workforce; labor disputes; production difficulties and product delivery delays in the future as a result of, among other matters, changing process technologies and increasing production; lower than expected customer orders; the ability to consummate expected sales; delays in receipt of orders or cancellation of orders; financial condition of principal customers; and the impact of year 2000 compliance by the Company or by its customers, suppliers or service partners. Any forward-looking statements should be considered in light of these factors. ITEM 1. BUSINESS INTRODUCTION Greenbrier is a leading supplier of transportation equipment and services to the railroad and related industries. The Company's manufacturing segment produces double-stack intermodal railcars, conventional railcars and marine vessels, and provides repair and refurbishment for both intermodal and conventional railcars at locations throughout North America and more recently Europe. In addition to manufacturing, Greenbrier is engaged in complementary leasing and services activities. The lease fleet consists of 27,748 owned or managed railcars as of August 31, 1998. Greenbrier believes this fleet is among the larger non-railroad owned fleets in the United States. In September 1998, Greenbrier acquired a majority interest in a railcar and specialty container manufacturer located in Swidnica, Poland. Polish investors will maintain a significant ownership interest in the manufacturer. This acquisition establishes a European manufacturing base and is expected to provide access to the European markets, particularly the market in Poland. Initially, the Polish facility is not expected to have a material impact on Greenbrier's overall financial condition or results of operations, and the investment will be funded through existing cash balances. This expansion will require the development of a sales and marketing force knowledgeable about the European market. Also in September 1998, Greenbrier entered into a joint venture to build railroad freight cars at an existing manufacturing facility in Sahagun, Mexico. Each party will maintain a 50 percent interest in the joint venture. The facility will serve the North American marketplace and provide better access to the growing market in Mexico. Operations are expected to commence in the first quarter of 1999 and capacity is anticipated to grow to 3,000 new cars annually. Required capital expenditures and working capital needs are expected to be funded by existing operating cash flow and cash balances. Subsequent to year end, Greenbrier entered into the following maintenance and refurbishment agreements: - - A long-term contract to manage maintenance on 7,000 covered hopper cars owned by Burlington Northern Santa Fe ("BNSF") that is anticipated to begin in December 1998. - - An agreement with Canadian Pacific Railway to refurbish and re-market certain of their used freight cars under a pilot program. - - An agreement to refurbish and re-market surplus railcars in Europe. 1
A plan was adopted in 1997 to discontinue the third party transportation logistics segment, as well as to sell the trailer and container leasing operation, in order to focus on core railcar operations. The expansion of the logistics segment during 1996 and 1997 was based on expected complementary advantages of bringing assets and services together which did not develop. Industry fundamentals for both businesses were strong; however, rates of return on capital invested were less than desired. In July and October 1997, Greenbrier divested its fleet of domestic containers, intermodal and highway trailers and chassis. In December 1997 the sale of the intermodal marketing and truck brokerage operations of the logistics business segment was completed. These operations constituted the majority of the logistics operations. In August 1998 the sale of the remainder of the logistics operation was completed. 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. A summary of selected consolidated financial information for these two business segments as well as domestic and foreign operations is set forth in Note 16 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 its final destination without the repeated loading and unloading of freight required by traditional shipping methods. A major innovation in intermodal transportation has been the articulated 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. Greenbrier is the leading manufacturer of double-stack railcars with an estimated cumulative North American market share of 60 percent. In 1998, 4,800 double-stack railcars were manufactured and sold by the Company, which it believes represents 52 percent of the North American market during such period. 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 -Registered Trademark-- The Maxi-Stack is a series of double-stack railcars that features the ride-quality and operating efficiency of articulated stack cars. The Maxi-Stack III is a five-platform railcar that features the ability to carry containers up to 53 feet in length, the longest shipping containers presently in use. The Maxi-Stack AP is a three-platform all-purpose railcar that is more versatile than other intermodal cars because it allows the loading of either trailers or double-stack containers on the same platform. HUSKY-STACK -Registered Trademark- - The Husky-Stack is a non-articulated (stand-alone) or draw bar connected series of double-stack railcars 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. 2
AUTOSTACK. Autostack is a proprietary system developed and licensed by the Company to transport vehicles intermodally in standard domestic or international shipping containers and, unlike conventional multi-level railcars, can be used in standard rail, ship and highway intermodal corridors. In 1997, Greenbrier recorded a $7 million write-down of the carrying value of the Autostack operating equipment to approximate the anticipated net realizable value of the assets based on projected future performance under existing contracts. Greenbrier believes Autostack will remain a niche player in the vehicle transportation industry. The Autostack system transported approximately 74,000 vehicles in 1998. CONVENTIONAL RAILCARS Greenbrier is the leading manufacturer of boxcars in North America. A wide variety of 100-ton capacity boxcars, primarily used in the forest products industry, are offered as well as custom built high capacity railcars for special applications such as automotive parts or canstock movement. In addition to boxcars, center-partition cars for lumber and other building materials, flatcars for auto-rack service, high cubic capacity covered hopper railcars for grain transportation, gondolas for scrap steel services and various other conventional railcar types are manufactured. In 1998, approximately 3,000 conventional railcars were manufactured and sold. The recently acquired facility in Swindica, Poland will initially produce pressurized tank cars for liquid petroleum gas, non-pressurized tank cars for light oil products and an articulated flat car. Each of these products have been produced in the recent past at this facility. 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. 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; Cleburne, Texas and Finley, Washington. 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, Oregon; Pine Bluff, Arkansas and Tacoma, Washington. 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 and expanded and upgraded 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 providing flexibility for railcar production. Since 1995 vessels manufactured include conventional deck barges for aggregates and other heavy industrial products and ocean-going dump barges. LEASING AND SERVICES Greenbrier currently manages a lease fleet of railcars of which 53 percent are owned and the remainder are managed for institutional investors, railroads and other leasing companies. Management services include equipment marketing and re-marketing, maintenance management and administration. Greenbrier participates in both the finance and the operating lease segments of the market. The aggregate rental payments over the operating lease terms 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 effectively manage the risks typically associated with operating leases due to its railcar expertise and its refurbishing and re-marketing capabilities. Most of the leases are "full service" leases, whereby Greenbrier is responsible for maintenance, taxes and administration. The fleet is maintained, in part, through Greenbrier's own facilities and engineering and technical staff. Assets from the owned lease fleet are periodically sold to take advantage of market conditions, manage risk and maintain liquidity. Railcar equipment held for sale consists mainly of hulks that will either be refurbished or sold. 3
The following table summarizes the lease fleet: <TABLE> <CAPTION> FLEET PROFILE AS OF AUGUST 31, 1998(1) ---------------------------------------------------- Percent Average of Owned Age of Owned Managed Total Units on Owned Units Units Units Lease Units (Yrs.) ----- ------- ----- -------- ----------- <S> <C> <C> <C> <C> <C> Railcars Available for Revenue Service 14,125 13,011 27,136 98.1 20.0 Railcar Equipment Held for Sale 612 - 612 ------ ------ ------ 14,737 13,011 27,748 ------ ------ ------ ------ ------ ------ Lessee Profile: Class I Railroads 10,993 9,147 20,140 Non-Class I Railroads 1,345 1,290 2,635 Shipping Companies 1,309 2,243 3,552 Leasing Companies 215 121 336 Off-Lease 263 210 473 ------ ------ ------ Total Revenue Units 14,125 13,011 27,136 ------ ------ ------ ------ ------ ------ </TABLE> __________ (1) Each platform of an articulated car is treated as a separate car. A substantial portion of the equipment in the lease fleet has been acquired through an agreement entered into in August 1990 with Southern Pacific Transportation Company, which has since merged with Union Pacific Corporation ("Union Pacific"), to purchase, refurbish and re-market over 10,000 railcars. The railcars were refurbished to predetermined specifications by Greenbrier or unaffiliated contract shops after satisfactory re-marketing arrangements were in place. 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 1998, approximately 71 percent of the Company's Canadian requirements for steel plate were purchased from Algoma Steel Inc. and approximately 47 percent of the domestic requirements were purchased from Oregon Steel Mills, Inc. No other suppliers accounted for in excess of 10 percent of total purchases in 1998, and the top ten suppliers (including Oregon Steel Mills, Inc. and Algoma Steel Inc.) accounted for approximately 34 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. A member of the TrentonWorks Limited board of directors serves as Chairman of the board of directors of Algoma Steel Inc. 4
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 re-marketing 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 1998, 1997 and 1996 were $1,470,000, $1,097,000 and $597,000, respectively. During 1997, Greenbrier completed the prototype and began commercial testing of Auto-Max-Registered Trademark- , a two-unit articulated railcar that can be configured for either tri-level or bi-level vehicle transportation service. Auto-Max was originally expected to be produced in late 1998, but production was delayed due to demand for manufacturing line space. The first order has been received and Auto-Max production is anticipated to begin in late 1999. 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 TTX Company, BNSF, Union Pacific, Canadian National Railway Company, First Union Rail, NorRail, Inc., General Electric Railcar Services, and Norfolk Southern Railway Company. The following table lists the Company's backlog in units and dollars for new railcars at the dates shown: <TABLE> <CAPTION> August 31, ------------------------- 1998 1997 1996 ---- ---- ---- <S> <C> <C> <C> New railcar backlog(1) 6,200 2,600 2,200 Estimated value (in thousands) $375,000 $133,000 $123,000 </TABLE> __________ (1) Each platform of an articulated car is treated as a separate car. The backlog is based on customer purchase 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. Leasing customers include Class I Railroads, regional and short line railroads, other leasing companies, shippers and carriers such as Union Pacific, BNSF, Railtex, Oregon Steel Mills, and First Union Rail. In 1998, sales to the two largest customers, TTX Company and BNSF, accounted for 25 percent and 16 percent of total revenues. No other customers accounted for more than 10 percent of total revenues. 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 North America. 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. 5
In railcar leasing, principal competitors include The CIT Group, DJ Joseph, First Union Rail, GATX Corporation, General Electric Railcar Services, NorRail, Inc. and Helm Financial Corp. PATENTS AND TRADEMARKS Greenbrier pursues a proactive program for protection of intellectual property resulting from its research and development efforts. 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. 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. 6
EXECUTIVE OFFICERS OF THE COMPANY The following are the executive officers of the Company. ALAN JAMES, 68, is Chairman of the Board of Directors of Greenbrier, a position he has held since May 1994. Mr. James was President of Greenbrier from 1974 to 1994. WILLIAM A. FURMAN, 54, is President, Chief Executive Officer and a director of Greenbrier, positions he has held since May 1994. Mr. Furman is also Chief Executive Officer of Gunderson, Inc. and Managing Director of TrentonWorks, Limited. Mr. Furman was Vice President of Greenbrier from 1974 to 1994. Mr. Furman serves as a director of Schnitzer Steel Industries, Inc., a steel recycling and manufacturing company. ROBIN D. BISSON, 44, has been Senior Vice President Marketing and Sales since January 1996 and President of Greenbrier Railcar, Inc., a subsidiary that engages in railcar leasing, since 1991. Mr. Bisson was Vice President of Greenbrier Railcar, Inc. from 1987 to 1991 and has been Vice President of Greenbrier Leasing Corporation, a subsidiary that engages in railcar leasing, since 1987. LARRY G. BRADY, 59, is Senior Vice President and Chief Financial Officer of the Company. Prior to becoming Senior Vice President in January 1998 he was Vice President and Chief Financial Officer since May 1994. Mr. Brady has been Senior Vice President of Greenbrier Leasing Corporation since he joined Greenbrier in 1991. From 1974 to 1990, he was a partner with Touche Ross & Co. (which subsequently became Deloitte & Touche LLP). A. DANIEL O'NEAL, 62, has been Chairman of Autostack Corporation, a subsidiary that engages in vehicle transportation, since 1992; a director of Gunderson, Inc. 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. From 1989 until 1996 he was chief executive officer and owner of a freight transportation services company. He is currently Chairman of Powertech Toolworks, Inc., a computer services and training company. MARK J. RITTENBAUM, 41, is Vice President and Treasurer of the Company, a position he has held since May 1994. Mr. Rittenbaum is also Vice President of Greenbrier Leasing Corporation and Greenbrier Railcar, Inc., positions he has held since 1993 and 1994. TIMOTHY A. STUCKEY, 48, 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, 59, is Executive Vice President and General Counsel of the Company, a position he has held since May 1994. He is also Vice President, Secretary and a director of Gunderson, Inc. Mr. Webb was Vice President of the Company from 1981 to 1994. L. CLARK WOOD, 56, has been President of Manufacturing Operations since April 1998, President of Gunderson, Inc. since 1990 and Chief Executive Officer of TrentonWorks Limited since June 1995. Mr. Wood was Vice President and Director of Railcar Sales at Trinity Industries, Inc., a railroad freight car manufacturer from 1985 to 1990. 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, among other things, to vote as directors to elect Mr. Furman as President and Chief Executive Officer of the Company, Mr. James as Chairman, and certain persons as executive officers and each to vote for the other and for the remaining existing directors in electing directors of the Company. 7
EMPLOYEES As of August 31, 1998, Greenbrier had 2,865 full-time employees, consisting of 2,743 employees engaged in railcar and marine manufacturing, and railcar services, and 122 employees engaged in leasing and services activities. A total of 1,017 employees at the manufacturing facility in Trenton, Nova Scotia, Canada are covered by collective bargaining agreements which expire in 2000. 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 generally good. ITEM 2. PROPERTIES The Company operates at the following facilities as of August 31, 1998: <TABLE> <CAPTION> - -------------------------------------------------------------------------------------------------------------------------------- DESCRIPTION SIZE LOCATION STATUS - -------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Railcar and marine 75 acres including 774,000 sq. ft. of Portland, Oregon Owned manufacturing facility covered manufacturing space and a 750- foot side-launch ways for launching ocean-going vessels - -------------------------------------------------------------------------------------------------------------------------------- Railcar manufacturing and 100 acres with 414,000 sq. ft. of Trenton, Nova Scotia Owned forge facility manufacturing space as well as a forge shop - -------------------------------------------------------------------------------------------------------------------------------- Railcar repair facility 70 acres Cleburne, Texas Leased through 2002 with an option to purchase - -------------------------------------------------------------------------------------------------------------------------------- Railcar repair facility 40 acres Finley, Washington Leased through 2015 with an option to purchase - -------------------------------------------------------------------------------------------------------------------------------- Railcar repair facility 5.4 acres Springfield, Oregon Leased through 2004 Wheel shop 4.6 acres Tacoma, Washington Leased through 2003 with extensions through 2071 - -------------------------------------------------------------------------------------------------------------------------------- Wheel shop 20,000 sq. ft. Pine Bluff, Arkansas Leased through 1999 - -------------------------------------------------------------------------------------------------------------------------------- Executive offices, 23,000 sq. ft. Lake Oswego, Oregon Leased through 2001 including railcar marketing and leasing activities - -------------------------------------------------------------------------------------------------------------------------------- </TABLE> Marketing and administrative offices are also leased in various locations throughout the U.S. and Europe. Greenbrier believes that its facilities are in good condition and that the facilities, together with anticipated capital improvements and additions, are adequate to meet its operating needs for the foreseeable future. ITEM 3. LEGAL PROCEEDINGS Greenbrier 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 Greenbrier violated the agreements pursuant to which it acquired ownership of Interamerican and seek damages aggregating $4 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 8
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 1998 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 1998 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 1998 Annual Report to Stockholders, which section is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Greenbrier has assessed its exposure to market risk for its variable rate debt and foreign currency exposures and believes that exposures to such risks are not material. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements and report of independent auditors set forth in the 1998 Annual Report to Stockholders are incorporated herein by reference: Consolidated Balance Sheets as of August 31, 1998 and 1997, and the Consolidated Statements of Operations, Consolidated Statements of Stockholders' Equity and Consolidated Statements of Cash Flows for each of the years ended August 31, 1998, 1997 and 1996, 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. 9
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, 1998, 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, 1998. 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, 1998. 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, 1998. 10
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 October 23, 1998, appearing on pages 24 to 37 of the 1998 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 1998 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, 1998 and 1997 25 Consolidated Statements of Operations for each of the years ended August 31, 1998, 1997 and 1996 26 Consolidated Statements of Stockholders' Equity for each of the years ended August 31, 1998, 1997 and 1996 27 Consolidated Statements of Cash Flows for each of the years ended August 31, 1998, 1997 and 1996 28 Notes to Consolidated Financial Statements 29 This Filing Page No. ----------- (2) The following financial statement schedule should be read in conjunction with the Consolidated Financial Statements in the 1998 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 15 Schedule I - Condensed Financial Information of Registrant 16 (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. 11
10.1.* 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. 10.2.* 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. 10.3* 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. 10.4.* 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. 10.5* Greenbrier Leasing Corporations Manager Owned Target Benefit Plan dated as of January 1, 1996 is incorporated herein by reference to Exhibit 10.35 to Registrant's Quarterly Report on Form 10-Q for the quarter ended May 31, 1997. 10.6.* 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. 10.7. 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. 10.8. Amendment No. 1 to the 1994 Stock Incentive Plan, dated July 14, 1998. 10.9. 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. 10.10. 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. 10.11. 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. 10.12. 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. 10.13. 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. 12
10.14. 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. 10.15. 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. 10.16. 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. 10.17. Re-marketing 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. 10.18. Amendment to Re-marketing 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. 10.19. Amendment No. 2 to Re-marketing 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. 10.20. Amendment No. 3 to Re-marketing 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. 10.21 Credit Agreement dated as of September 1, 1997 among Greenbrier Leasing Corporation, Greenbrier Capital Corporation, Greenbrier Partners Inc., Greenbrier Railcar, Inc., Autostack Corporation, Greenbrier Transportation Limited Partnership, Autostack General Partner, Inc. and Greenbrier Rental Services, Inc. with Bank of America National Trust and Savings Association and Union Bank of California, N.A. is incorporated herein by reference to Exhibit 10.34 to Registrant's Annual Report on Form 10-K for the year ended August 31, 1997. 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. 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. 13
13. 1998 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 14
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, 1998 and 1997, and for each of the three years in the period ended August 31, 1998, and have issued our report thereon dated October 23, 1998; such financial statements and report are included in your 1998 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the financial statement schedule of The Greenbrier Companies, Inc. and Subsidiaries, listed in Item 14. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Deloitte & Touche LLP Portland, Oregon October 23, 1998
SCHEDULE I THE GREENBRIER COMPANIES, INC. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (In thousands) <TABLE> <CAPTION> BALANCE SHEETS August 31, ---------------------- 1998 1997 ---- ---- <S> <C> <C> ASSETS Cash and cash equivalents $ 169 $ 21 Accounts receivable 2,623 48 Due from affiliates 13,972 11,832 Investment in subsidiaries 119,246 95,370 Prepaid expenses and other 2,764 1,582 --------- --------- $ 138,774 $ 108,853 --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued liabilities $ 3,259 $ 1,115 Due to affiliates 12,457 3,077 Deferred income taxes 2,216 589 Stockholders' equity 120,842 104,072 --------- --------- $ 138,774 $ 108,853 --------- --------- --------- --------- </TABLE> <TABLE> <CAPTION> STATEMENTS OF OPERATIONS Year ended August 31, ----------------------------- 1998 1997 1996 -------- -------- -------- <S> <C> <C> <C> Interest and other income $ 612 $ 1,044 $ 2,624 Expenses Selling and administrative 8,859 4,571 5,325 Interest 326 26 37 ------- -------- -------- 9,185 4,597 5,362 ------- -------- -------- Loss before income tax benefit and equity in earnings of subsidiaries (8,573) (3,553) (2,738) Income tax benefit 3,601 1,496 1,153 ------- -------- -------- Loss before equity in earnings (loss) of subsidiaries (4,972) (2,057) (1,585) Equity in earnings (loss) of subsidiaries 25,304 (2,114) 19,860 ------- -------- -------- Net earnings (loss) $20,332 $ (4,171) $ 18,275 ------- -------- -------- ------- -------- -------- </TABLE> 15
SCHEDULE I (CONTINUED) THE GREENBRIER COMPANIES, INC. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (In thousands) <TABLE> <CAPTION> STATEMENTS OF CASH FLOWS Year ended August 31, ----------------------------- 1998 1997 1996 ------- -------- ------- <S> <C> <C> <C> Cash flows from operating activities: Net earnings (loss) $20,332 $ (4,171) $18,275 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Deferred income taxes 1,627 978 (679) Equity in earnings of subsidiary (25,304) (8,564) (19,860) Other 54 56 185 Decrease (increase) in assets: Accounts and notes receivable (2,575) 10 (22) Due from affiliates (2,140) 14,827 10,613 Prepaid expenses and other (1,182) (644) 309 Increase (decrease) in liabilities: Accounts payable and accrued liabilities 2,144 (1,740) 1,480 Due to affiliates 9,380 2,477 53 ------- ------- ------- Net cash provided by operating activities 2,336 3,229 10,354 Cash flows from investing activities: Investment in subsidiary - - (7,472) ------- ------- ------- Net cash used in investing activities - - (7,472) Cash flows for financing activities: Dividends (3,409) (3,399) (3,399) Proceeds from stock options 1,221 - - Proceeds from subsidiary redemption of preferred stock - 68 111 ------- ------- ------- Net cash used in financing activities (2,188) (3,331) (3,288) Increase (decrease) in cash 148 (102) (406) Cash and cash equivalents: Beginning of year 21 123 529 ------- ------- ------- End of year $ 169 $ 21 $ 123 ------- ------- ------- ------- ------- ------- Supplemental disclosures of cash flow information: Cash paid during the year for interest $ 326 $ 26 $ 37 </TABLE> 16
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 23, 1998 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 23, 1998 - --------------------------------- Alan James, Chairman of the Board /s/ William A. Furman November 23, 1998 - --------------------------------- William A. Furman, President and Chief Executive Officer, Director /s/ Victor G. Atiyeh November 23, 1998 - --------------------------------- Victor G. Atiyeh, Director /s/ Peter K. Nevitt November 23, 1998 - --------------------------------- Peter K. Nevitt, Director /s/ A. Daniel O'Neal November 23, 1998 - --------------------------------- A. Daniel O'Neal, Director /s/ C. Bruce Ward November 23, 1998 - --------------------------------- C. Bruce Ward, Director /s/ Benjamin R. Whiteley November 23, 1998 - --------------------------------- Benjamin R. Whiteley, Director /s/ Larry G. Brady November 23, 1998 - --------------------------------- Larry G. Brady, Sr. Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 17