UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended May 31, 1997 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)(I.R.S. Employer Identification No.) One Centerpointe Drive, Suite 200, Lake Oswego, OR 97035 (Address of principal executive offices) (Zip Code) (503) 684-7000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares of the registrant's common stock, $0.001 par value per share, outstanding on June 30, 1997 was 14,160,000 shares.
THE GREENBRIER COMPANIES, INC. PART I. FINANCIAL INFORMATION Item 1. Financial Statements CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts, unaudited) May 31, August 31, 1997 1996 ---------- ---------- Assets Manufacturing Current assets: Cash and cash equivalents $ 1,198 $ 2,303 Accounts receivable 19,190 63,009 Inventories 90,571 75,989 Prepaid expenses 2,332 1,512 ---------- ---------- 113,291 142,813 Property, plant and equipment 39,816 35,893 Other 4,263 3,720 ---------- ---------- 157,370 182,426 Leasing and services Cash and cash equivalents 3,551 3,780 Restricted cash and investments 18,170 6,400 Accounts and notes receivable 19,602 20,353 Railcars held for refurbishment or sale 5,939 14,459 Investment in direct finance leases 185,631 190,307 Equipment on operating leases 187,140 174,394 Prepaid expenses and other 25,414 23,369 ---------- ---------- 445,447 433,062 ---------- ---------- $ 602,817 $ 615,488 ========== ========== Liabilities and Stockholders' Equity Manufacturing Current liabilities: Revolving notes $ 23,347 $ 13,314 Accounts payable and accrued liabilities 46,224 49,924 Current portion of notes payable 1,222 1,053 ---------- ---------- 70,793 64,291 Notes payable 13,280 13,014 ---------- ---------- 84,073 77,305 Leasing and Services Revolving notes 27,069 14,500 Accounts payable and accrued liabilities 60,513 68,209 Deferred revenue 2,884 4,377 Deferred participation 37,754 32,316 Deferred income taxes 22,275 22,126 Notes payable 196,888 202,211 ---------- ---------- 347,383 343,739 Subordinated debt 38,090 44,554 Minority interest 18,255 38,154 Stockholders' equity Preferred stock - $0.001 par value, 25,000 shares authorized, none issued - - Common stock - $0.001 par value, 50,000 shares authorized, 14,160 outstanding 14 14 Additional paid-in capital 49,119 49,079 Retained earnings 65,587 62,259 Foreign currency translation adjustment 296 384 ---------- ---------- 115,016 111,736 ---------- ---------- $ 602,817 $ 615,488 ========== ========== The accompanying notes are an integral part of these statements.
THE GREENBRIER COMPANIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share amounts, unaudited) Three Months Ended Nine Months Ended May 31, May 31, ------------------ -------------------- 1997 1996 1997 1996 -------- -------- --------- --------- Revenues Manufacturing $ 55,481 $ 95,842 $ 231,918 $ 308,345 Leasing and services 41,320 25,298 120,034 71,651 -------- -------- --------- --------- Total revenues 96,801 121,140 351,952 379,996 Costs and expenses Cost of manufacturing sales 52,084 85,529 214,487 276,461 Leasing and services 24,716 10,734 70,784 31,656 Selling and administrative expense: Manufacturing 3,696 3,828 11,465 10,852 Leasing and services 6,295 4,129 18,839 11,147 Corporate 1,169 1,487 4,704 4,955 -------- -------- --------- --------- 11,160 9,444 35,008 26,954 Interest expense: Manufacturing 745 565 1,987 2,397 Leasing and services 6,423 5,553 18,255 16,506 -------- -------- --------- --------- 7,168 6,118 20,242 18,903 Minority interest: Manufacturing 221 424 971 (105) Leasing and services 190 761 933 2,182 -------- -------- --------- --------- 411 1,185 1,904 2,077 -------- -------- --------- --------- Total costs and expenses 95,539 113,010 342,425 356,051 Earnings before income tax expense Manufacturing (1,265) 5,496 3,008 18,740 Leasing and services 3,696 4,121 11,223 10,160 Corporate (1,169) (1,487) (4,704) (4,955) -------- -------- --------- --------- 1,262 8,130 9,527 23,945 Income tax expense (482) (3,229) (3,650) (10,102) -------- -------- --------- --------- Net earnings $ 780 $ 4,901 $ 5,877 $ 13,843 ======== ======== ========= ========= Net earnings per share $ 0.06 $ 0.35 $ 0.42 $ 0.98 ======== ======== ========= ========= Weighted average shares outstanding 14,160 14,160 14,160 14,160 ======== ======== ========= ========= Dividends declared per share $ 0.06 $ 0.06 $ 0.18 $ 0.18 ======== ======== ========= ========= The accompanying notes are an integral part of these statements.
THE GREENBRIER COMPANIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, unaudited) Nine Months Ended May 31, -------- -------- 1997 1996 -------- -------- Cash flows from operating activities Net earnings $ 5,877 $ 13,843 Adjustments to reconcile net earnings to net cash provided by operating activities: Deferred income taxes 149 2,666 Deferred participation 5,438 2,584 Depreciation and amortization 21,470 17,886 Gain on sales of equipment (7,436) (3,853) Other (335) (1,133) Decrease (increase) in assets: Accounts and notes receivable 43,460 (10,244) Inventories (14,582) (785) Prepaid expenses and other (5,590) (2,991) Increase (decrease) in liabilities: Accounts payable and accrued liabilities (11,396) 10,788 Deferred revenue (1,493) 1,538 -------- -------- Net cash provided by operating activities 35,562 30,299 -------- -------- Cash flows from investing activities Principal payments received under direct finance leases 9,546 5,604 Investment in direct finance leases (11,525) (21,030) Proceeds from sales of equipment 35,074 59,625 Purchase of property and equipment (58,137) (80,125) Investment in restricted cash and investments (11,770) (9,349) -------- -------- Net cash used in investing activities (36,812) (45,275) -------- -------- Cash flows from financing activities Proceeds from borrowings 39,408 28,337 Repayments of borrowings (20,610) (15,358) Purchase of minority interest (16,333) - Dividends (2,549) (2,549) -------- -------- Net cash provided by (used in) financing activities (84) 10,430 -------- -------- Decrease in cash and cash equivalents (1,334) (4,546) Cash and cash equivalents Beginning of period 6,083 10,350 -------- -------- End of period $ 4,749 $ 5,804 ======== ======== Supplemental disclosures of cash flow information Cash paid during the period for: Interest $ 17,275 $ 16,471 Income taxes 2,876 9,880 Supplemental schedule of noncash investing and financing activities Equipment obtained through borrowings $ 4,024 $ 6,680 Repayment of borrowings through return of railcars held for refurbishment or sale 11,574 1,534 The accompanying notes are an integral part of these statements.
THE GREENBRIER COMPANIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, unaudited) Note 1 - INTERIM FINANCIAL STATEMENTS The consolidated financial statements of The Greenbrier Companies, Inc. and Subsidiaries ("Greenbrier" or the "company") as of May 31, 1997 and for the three and nine months ended May 31, 1997 and 1996 have been prepared without audit and reflect all adjustments (consisting of normal recurring accruals) which in the opinion of management are necessary for a fair presentation of the financial position and operating results for the periods indicated. The results of operations for the nine months ended May 31, 1997 are not necessarily indicative of the results to be expected for the entire year ending August 31, 1997. Certain notes and other information have been condensed or omitted from the interim financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the consolidated financial statements contained in Greenbrier's 1996 Annual Report incorporated by reference into the company's 1996 Annual Report on Form 10-K. Certain reclassifications have been made to prior years' financial statements to conform with the 1997 presentation. Note 2 - INVENTORIES May 31, August 31, 1997 1996 -------- -------- Manufacturing supplies and raw materials $ 8,827 $ 5,856 Work-in-process 45,596 60,474 Assets held for sale 36,148 9,659 -------- -------- $ 90,571 $ 75,989 ======== ======== Note 3 - EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share" which requires presentation of basic and diluted earnings per share upon adoption in 1998. If SFAS 128 had been adopted effective September 1, 1995, basic and diluted earnings per share would have been the same as reported earnings per share.
THE GREENBRIER COMPANIES, INC. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The Greenbrier Companies, Inc. and Subsidiaries ("Greenbrier") currently operates in two primary business segments: the manufacture of railcars and marine vessels and the refurbishment of railcars; and the leasing and management of surface transportation equipment and related services, including third- party transportation logistics. The two business segments are operationally integrated. The manufacturing operations produce double-stack intermodal railcars, conventional railcars and marine vessels and perform refurbishment and maintenance activities, a portion of which is for railcar leasing operations. The leasing and services operation undertakes most of the sales and marketing activities for the manufacturing operations. New product development is also conducted on an integrated basis. During 1995, Greenbrier entered the highway trailer rental market expecting to create new growth opportunities as well as to extend the economic life and value of existing intermodal equipment. Additionally, in 1996 Greenbrier expanded its third-party transportation logistics services also anticipating new growth opportunities and as a means to complement the existing manufacturing and leasing businesses. Expectations for these businesses have not been achieved and management continues to evaluate alternatives for addressing these underperforming operations. The following table sets forth information regarding costs and expenses, expressed as a percentage of the associated manufacturing or leasing and services revenue. Three Months Ended Nine Months Ended May 31, May 31, ----------------- ----------------- 1997 1996 1997 1996 -------- -------- -------- -------- Manufacturing: Sales 100.0% 100.0% 100.0% 100.0% Cost of sales 93.9 89.2 92.5 89.7 Selling and administrative expense 6.7 4.0 4.9 3.5 Interest expense 1.3 0.6 0.9 0.8 Minority interest 0.4 0.5 0.4 (0.1) Earnings before income tax expense (2.3) 5.7 1.3 6.1 Leasing and services: Revenues 100.0% 100.0% 100.0% 100.0% Operating expense 59.8 42.4 59.0 44.2 Selling and administrative expense 15.2 16.3 15.7 15.6 Interest expense 15.5 22.0 15.2 23.0 Minority interest 0.5 3.0 0.8 3.0 Earnings before income tax expense 9.0 16.3 9.3 14.2 Corporate expense as a percentage of total revenues 1.2 1.2 1.3 1.3 Income tax expense as a percentage of pre-tax earnings 38.2 39.7 38.3 42.2 Net earnings as a percentage of total revenues 0.8 4.0 1.7 3.6 Three Months Ended May 31, 1997 Compared to Three Months Ended May 31, 1996 Revenues. Manufacturing revenue for the three-month period ended May 31, 1997 amounted to $55 million on deliveries of 660 railcars compared to $96 million on 1,400 deliveries in the corresponding prior period, a decrease of $41 million, or 43%. The decrease in revenues from the reduced deliveries was partially offset by the higher per unit sales value in the current period. The current period deliveries consisted primarily of conventional railcars in keeping with the trend noted in previous reports on Form 10-Qs. Due to a continued industry-wide reduction in demand for freightcars, the manufacturing facilities are operating at lower production and workforce levels compared to the prior comparable period. The manufacturing backlog of railcars for sale and lease was approximately 2,600 railcars with an estimated value of $143 million as of May 31, 1997, up significantly from the backlog reported at February 28, 1997 of 1,400 cars valued at $82 million. The backlog includes an order received during the quarter for 975 double-stack cars which are anticipated to be delivered late in the fourth quarter of the current year and into fiscal 1998.
THE GREENBRIER COMPANIES, INC. Leasing and services revenue increased $16 million, or 64%, to $41 million for the quarter ended May 31, 1997 compared to $25 million for the quarter ended May 31, 1996. The increase in revenue is primarily a result of the third-party transportation logistics operations which generated $14 million and, to a lesser extent, additional railcars placed in lease service and increased sales of leased equipment. The prior comparable period did not include significant logistics operations. Pre-tax earnings realized on the disposition of leased equipment during the quarter amounted to $1.8 million compared to $1.5 million for the corresponding prior period. Cost of Manufacturing Sales. Cost of sales as a percentage of manufacturing revenue increased in the quarter ended May 31, 1997 to 93.9% from 89.2% in the quarter ended May 31, 1996. The lower margins generated in the current quarter resulted from a highly competitive market and a less favorable product mix. This product mix included a car type on which a negative margin was experienced due principally to production difficulties. This car type represents a minor percentage of the May 31, 1997 backlog and is not expected to significantly impact future results. The prior period margin benefited from a more favorable product mix and the efficiencies of long production runs at U.S. operations. Leasing and Services Expense. Leasing and services expense as a percentage of revenue was 59.8% for the three-month period ended May 31, 1997. The current period includes $13 million from the logistics operation, which is typically a high-volume business with lower margins than the leasing operation. This ratio is consistent with expectations for the foreseeable future. Expense as a percentage of revenue for the corresponding prior period was 42.4% as it did not include the logistics operation. Selling and Administrative Expense. Total selling and administrative expense increased 22%, to $11 million for the three months ended May 31, 1997 compared to $9 million for the comparable prior period. This increase is primarily due to the logistics operation. Interest Expense. Interest expense increased due to greater usage of revolving credit lines and additional term debt borrowings. Minority Interest. Manufacturing minority interest decreased as a result of reduced earnings of the Canadian operation. Leasing and services minority interest decreased primarily due to the current year acquisition of a minority investor's interest in a consolidated leasing and services subsidiary. Income Tax Expense. The effective income tax rate was 38% for 1997 and 40% for 1996. The U.S. tax rate remained consistent at 42% and the decrease is attributable to the use of net operating losses in Canada which offset Canadian taxable income in 1997. Nine Months Ended May 31, 1997 Compared to Nine Months Ended May 31, 1996 Revenues. Manufacturing revenue for the nine-month period ended May 31, 1997 decreased 25% to $232 million compared to $308 million in the corresponding prior period. Total railcar deliveries were 3,100 in the current nine-month period, compared to 4,700 in the prior comparable period. Decreased revenue resulted from fewer railcar deliveries partially offset by higher per unit sales value. Leasing and services revenue increased approximately $48 million, or 67%, to $120 million for the nine months ended May 31, 1997 compared to $72 million for the nine months ended May 31, 1996. The increase in revenue is largely due to the third-party transportation logistics operation which generated $40 million and, to a lesser extent, additional railcars placed in lease service and increased sales of lease equipment. Pre-tax earnings realized on the disposition of leased equipment during the nine-month period amounted to $5.6 million compared to $3.4 million realized in the corresponding prior period. Cost of Manufacturing Sales. Cost of sales as a percentage of manufacturing revenue increased for the nine-month period ended May 31, 1997 to 92.5% from 89.7% in the comparable prior period. The margins generated in the current period reflect a highly competitive market, less favorable product mix and shorter production runs, partially offset by improvement in manufacturing efficiencies at the Canadian operation.
THE GREENBRIER COMPANIES, INC. Leasing and Services Expense. Leasing and services expense as a percentage of revenue was 59% for the period ended May 31, 1997. Excluding $36 million attributable to the high-volume, lower margin logistics operation, the percentage would have been 43.2%. Expense as a percentage of revenue for the corresponding prior period was 44.2% as it did not include significant logistics operations. Selling and Administrative Expense. Total selling and administrative expense increased $8 million to $35 million for the nine months ended May 31, 1997 compared to $27 million for the comparable prior period. Expense of $7 million is attributable to the logistics operation and $700,000 represents a provision for potential loss on receivables from a marine equipment lessee that recently filed for protection under Chapter 11 of the Bankruptcy Code. An increase in this provision is not anticipated in the foreseeable future since the lessee is making payments on a current basis. Interest Expense. Manufacturing interest expense declined as compared to the prior nine-month period due to an overall lower usage of revolving credit lines offset somewhat by the increased usage in the current quarter. The increase in leasing and services interest expense resulted from borrowings offset somewhat by normal paydowns of term debt. Minority Interest. Manufacturing minority interest increased as a result of improved earnings of the Canadian operation. Leasing and services minority interest decreased primarily due to the current period acquisition of a minority investor's interest in a consolidated leasing and services subsidiary. Income Tax Expense. The effective income tax rate was 38% for 1997 and 42% for 1996. The U.S. tax rate remained consistent at 42% and the decrease is attributable to the use of net operating losses in Canada which offset Canadian taxable income in 1997. In the prior period, no tax benefit was recognized for the losses incurred by Canadian operations. Liquidity and Capital Resources Cash provided by operations totaled $36 million for the nine- month period ended May 31, 1997 compared to $30 million for the corresponding prior period. The increased level of cash generated from operations resulted primarily from receivable collections offset somewhat by increased inventory and a reduction in accounts payable, as well as reduced earnings. Inventory and receivable activity is mainly the result of lower external deliveries of railcars and the increased number of railcars built and leased during the current nine month period which are being held for subsequent sale. The reduced payables position is primarily related to the completion of refurbishment activity under the Golden West Service Program. Existing credit facilities aggregate approximately $101 million at May 31, 1997. A $43 million revolving line of credit, bearing interest primarily at the bank's Money Market Rate plus 1.5%, is available through August 1997 to provide working capital and interim financing of equipment for the leasing and services operations. Borrowings outstanding under this revolving line of credit were $27 million as of May 31, 1997. A $30 million operating line of credit to be used for working capital, bearing interest at prime and a $10 million term loan facility to be used for certain manufacturing capital expenditures are available through February 2000 and December 1998 for U.S. manufacturing operations. Borrowings outstanding under the operating line were $15 million as of May 31, 1997 and there were no borrowings outstanding under the term facility. An $18 million (at the May 31, 1997 exchange rate) operating line of credit, bearing interest at prime plus 1.125%, is available through March 1998 for working capital and certain capital expenditures for the Canadian operations. Borrowings outstanding under the Canadian operating line of credit were $8 million as of May 31, 1997. Subsequent to quarter end, the Canadian operation obtained an additional $CDN19 million short-term credit facility, bearing interest at prime plus 1.125%, which is available through October 1997 for financing inventory. Capital expenditures totaled $74 million for the nine months ended May 31, 1997 compared to $108 million for the nine months ended May 31, 1996. Of these capital expenditures, approximately $67 million and $103 million, respectively, were attributable to leasing and services operations. The lower level of expenditures compared to the prior year primarily reflects reduced highway trailer purchases and the completion of refurbishment activities under the Golden West Service Program. Leasing and services capital expenditures for the remainder of 1997 are expected to be approximately $7 million. In December 1996, the minority investor's interest in a consolidated subsidiary was acquired for $16 million, utilizing operating cash flow and available lines of credit.
THE GREENBRIER COMPANIES, INC. Approximately $7 million and $5 million of the total capital expenditures for the nine months ended May 31, 1997 and May 31, 1996 were attributable to manufacturing operations. Manufacturing capital expenditures for the remainder of 1997 are expected to be approximately $2 million. Capital expenditure programs include new and upgraded manufacturing plant and equipment to improve efficiencies and increase capacity. Operations in Canada give rise to market risks from changes in foreign currency exchange rates. To minimize these risks, forward exchange contracts are utilized. As of May 31, 1997 forward exchange contracts outstanding for the purchase of Canadian dollars were $31 million maturing at various dates through August 1997. Realized and unrealized gains and losses from such off- balance sheet contracts are deferred and recognized in income concurrent with the hedged transaction. Dividends of $.06 per share have been paid quarterly beginning in fiscal 1995. The most recent quarterly dividend of $.06 per share was declared in July 1997 to be paid in August 1997. Management expects existing funds and cash generated from operations, together with borrowings under existing or future credit facilities, will be sufficient to fund dividends, working capital needs, planned capital expenditures and expected debt repayments. Management anticipates long-term financing will be required and will continue to be available for the purchase of equipment to expand Greenbrier's lease fleet. Forward-Looking Statements Statements contained in Management's Discussion and Analysis of Financial Condition and Results of Operations that are not statements of historical fact may include 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. It is important to note that actual results or outcomes could differ materially from such forward-looking statements due to a number of factors, including, among others, economic conditions; competitive factors and pricing pressures; shifts in market demand; actual future costs and availability of materials and a trained workforce; changes in interest rates; the financial condition of principal customers; or a delay or failure of products or services to compete successfully. The forward-looking statements should be considered in light of these factors.
THE GREENBRIER COMPANIES, INC. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.35* Greenbrier Leasing Corporation Manager Owned Target Benefit Plan dated as of January 1, 1996 27. Financial Data Schedule * Management contract or compensatory plan or arrangement. (b) Form 8-K No reports on Form 8-K were filed during the quarter for which this report is filed.
THE GREENBRIER COMPANIES, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE GREENBRIER COMPANIES, INC. Date: July 11, 1997 By: /s/Larry G. Brady Larry G. Brady Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)