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, 1996 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ______ to ______ Commission File No. 1-13146 -------------------------------------------------- THE GREENBRIER COMPANIES, INC. (Exact name of registrant as specified in its charter) Delaware 93-0816972 (State of Incorporation)(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, 1996 was 14,160,000 shares.
1 THE GREENBRIER COMPANIES, INC. PART I. FINANCIAL INFORMATION Item 1. Financial Statements CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts, unaudited) <TABLE> <CAPTION> May 31, August 31, 1996 1995 ----------- ----------- <S> <C> <C> ASSETS MANUFACTURING Current assets: Cash and cash equivalents $ 1,584 $ 1,653 Accounts receivable 23,248 28,003 Inventories 65,065 86,280 Prepaid expenses 1,948 1,497 ----------- ----------- 91,845 117,433 Property, plant and equipment 35,170 33,135 Other 3,478 4,200 ----------- ----------- 130,493 154,768 LEASING AND SERVICES Cash and cash equivalents 4,220 8,697 Restricted cash and investments 13,013 3,664 Accounts and notes receivable 26,609 11,610 Railcars held for refurbishment or sale 40,221 13,559 Investment in direct finance leases 184,412 168,402 Equipment on operating leases 165,133 158,661 Prepaid expenses and other 15,352 13,028 ----------- ----------- 448,960 377,621 ----------- ----------- $ 579,453 $ 532,389 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY MANUFACTURING Current liabilities: Revolving notes $ 22,220 $ 27,313 Accounts payable and accrued liabilities 45,722 45,647 Current portion of notes payable 936 966 ----------- ----------- 68,878 73,926 Notes payable 13,366 13,512 ----------- ----------- 82,244 87,438 LEASING AND SERVICES Revolving notes 8,601 - Accounts payable and accrued liabilities 58,480 47,767 Deferred revenue 6,267 4,729 Deferred participation 30,413 27,829 Deferred income taxes 18,396 15,730 Notes payable 185,342 176,276 ----------- ----------- 307,499 272,331 Subordinated debt 43,489 37,762 Minority interest 38,090 38,040 COMMITMENTS AND CONTINGENCIES (NOTE 3) 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 49,051 48,894 Retained earnings 58,677 47,383 Foreign currency translation adjustments 389 527 ----------- ----------- 108,131 96,818 ----------- ----------- $ 579,453 $ 532,389 =========== =========== </TABLE> The accompanying notes are an integral part of these statements.
2 THE GREENBRIER COMPANIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share amounts, unaudited) <TABLE> <CAPTION> Three Months Ended Nine Months Ended May 31, May 31, ------------------- ------------------- 1996 1995 1996 1995 ------------------- ------------------- <S> <C> <C> <C> <C> REVENUES Manufacturing $ 95,842 $ 94,756 $308,345 $215,307 Leasing and services 25,298 22,568 71,651 67,781 --------- --------- --------- --------- Total revenues 121,140 117,324 379,996 283,088 COSTS AND EXPENSES Cost of manufacturing sales 85,529 82,060 276,461 191,074 Leasing and services 10,734 9,488 31,656 28,740 Selling and administrative expense: Manufacturing 3,828 3,073 10,852 8,381 Leasing and services 4,129 2,945 11,147 8,688 Corporate 1,487 1,711 4,955 4,489 --------- --------- --------- --------- 9,444 7,729 26,954 21,558 Interest expense: Manufacturing 565 800 2,397 1,632 Leasing and services 5,553 5,661 16,506 17,022 --------- --------- --------- --------- 6,118 6,461 18,903 18,654 Minority interest: Manufacturing 424 (476) (105) (476) Leasing and services 761 895 2,182 2,512 --------- --------- --------- --------- 1,185 419 2,077 2,036 --------- --------- --------- --------- Total costs and expenses 113,010 106,157 356,051 262,062 EARNINGS BEFORE INCOME TAX EXPENSE Manufacturing 5,496 9,299 18,740 14,696 Leasing and services 4,121 3,579 10,160 10,819 Corporate (1,487) (1,711) (4,955) (4,489) --------- --------- --------- --------- 8,130 11,167 23,945 21,026 Income tax expense (3,229) (4,880) (10,102) (9,021) --------- --------- --------- --------- NET EARNINGS $ 4,901 $ 6,287 $ 13,843 $ 12,005 ========= ========= ========= ========= Net earnings per share $ 0.35 $ 0.44 $ 0.98 $ 0.85 ========= ========= ========= ========= Weighted average shares outstanding 14,160 14,160 14,160 14,160 ========= ========= ========= ========= Dividends declared per share $ 0.06 $ 0.06 $ 0.18 $ 0.18 ========= ========= ========= ========= </TABLE> The accompanying notes are an integral part of these statements.
3 THE GREENBRIER COMPANIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands, unaudited) <TABLE> <CAPTION> Nine Months Ended May 31, -------------------- 1996 1995 --------- --------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 13,843 $ 12,005 Adjustments to reconcile net earnings to net cash provided by operating activities: Deferred income taxes 2,666 2,255 Deferred participation 2,584 7,203 Depreciation and amortization 17,886 16,180 Gain on sales of equipment (3,853) (3,029) Other (1,133) 1,033 Decrease (increase) in assets: Accounts and notes receivable (10,244) (21,158) Inventories 21,215 (30,141) Prepaid expenses and other (2,991) (656) Increase (decrease) in liabilities: Accounts payable and accrued liabilities 10,788 22,627 Deferred revenue 1,538 (907) --------- --------- Net cash provided by operating activities 52,299 5,412 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of subsidiary, net of cash acquired - (23,916) Principal payments received under direct finance leases 5,604 5,413 Investment in direct finance leases (21,030) (29,016) Proceeds from sales of equipment 59,625 14,609 Purchase of property and equipment (102,125) (38,409) Use of(investment in) restricted cash and investments (9,349) 4,353 --------- --------- Net cash used in investing activities (67,275) (66,966) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings 28,337 30,966 Repayments of borrowings (15,358) (17,728) Proceeds from minority investors - 9,221 Dividends (2,549) (2,548) --------- --------- Net cash provided by financing activities 10,430 19,911 --------- --------- DECREASE IN CASH AND CASH EQUIVALENTS (4,546) (41,643) Cash and cash equivalents Beginning of period 10,350 50,196 --------- --------- End of period $ 5,804 $ 8,553 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 16,471 $ 16,366 Income taxes 9,880 4,602 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Equipment obtained through borrowings $ 6,680 $ 3,939 Repayment of borrowings through return of railcars held for refurbishment 1,534 5,315 </TABLE> The accompanying notes are an integral part of these statements.
4 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 (the "Company") as of May 31, 1996 and for the three and nine months ended May 31, 1996 and 1995, 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, 1996 are not necessarily indicative of the results to be expected for the entire year ending August 31, 1996. Certain notes and other information have been condensed or omitted from the interim financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the consolidated financial statements contained in the Company's 1995 Annual Report to Stockholders incorporated by reference into the Company's 1995 Annual Report on Form 10-K. Note 2 - INVENTORIES May 31, August 31, 1996 1995 ----------- ----------- Manufacturing supplies and raw materials $ 8,551 $ 7,832 Work-in-process 56,514 78,448 ----------- ----------- $ 65,065 $ 86,280 =========== =========== Note 3 - COMMITMENTS AND CONTINGENCIES Purchase commitments of approximately $3,714 for leasing and services operating equipment were outstanding as of May 31, 1996. Note 4 - SUBSEQUENT EVENT Subsequent to May 31, 1996, the Company consummated the acquisition of Superior Transportation Systems, Inc. and the remaining interest in its existing fifty percent owned subsidiary, Tolan O'Neal Transportation & Logistics, Inc. as part of a planned expansion of the Company's third-party transportation logistics services. The acquisitions will be accounted for using the purchase method.
5 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. 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 activity, 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. Subsequent to May 31, 1996, Greenbrier acquired Superior Transportation Systems, Inc. and the remaining interest in its existing fifty percent owned subsidiary, Tolan O'Neal Transportation & Logistics, Inc. These transactions, along with the planned acquisition of Interamerican Logistics Inc. discussed in the February 29, 1996 Form 10-Q, are the first steps in a planned expansion of Greenbrier's third-party transportation logistics services. The Interamerican transaction is anticipated to be complete early in fiscal 1997. Synergies with the existing manufacturing and leasing businesses include building stronger relationships with customers in the railroad and shipping community and providing access to Greenbrier's asset base in railcars, trailers and containers. The acquisitions were funded from working capital and are not expected to have a significant impact on 1996 earnings. The following table sets forth information regarding costs and expenses expressed as a percentage of the associated manufacturing or leasing and services revenue. <TABLE> <CAPTION> Three Months Ended Nine Months Ended May 31, May 31, ------------------- ------------------- 1996 1995 1996 1995 ------------------- ------------------- <S> <C> <C> <C> <C> Manufacturing: Sales 100.0% 100.0% 100.0% 100.0% Cost of sales 89.2 86.6 89.7 88.7 Selling and administrative expense 4.0 3.2 3.5 3.9 Interest expense 0.6 0.8 0.8 0.8 Minority interest 0.5 (0.5) (0.1) (0.2) Earnings before income tax expense 5.7 9.9 6.1 6.8 Leasing and services: Revenues 100.0% 100.0% 100.0% 100.0% Operating expense 42.4 42.0 44.2 42.4 Selling and administrative expense 16.3 13.0 15.6 12.8 Interest expense 22.0 25.1 23.0 25.1 Minority interest 3.0 4.0 3.0 3.7 Earnings before income tax expense 16.3 15.9 14.2 16.0 Corporate expense as a percentage of total revenues 1.2 1.5 1.3 1.6 Income tax expense as a percentage of pre-tax earnings 39.7 43.7 42.2 42.9 Net earnings as a percentage of total revenues 4.0 5.4 3.6 4.2 </TABLE> Three Months Ended May 31, 1996 Compared to Three Months Ended May 31, 1995 Revenues. Manufacturing revenue for the three-month period ended May 31, 1996 increased slightly over the corresponding period in the prior year. Revenue from Canadian operations was substantially greater than the prior comparable period due to increased volume and a product mix with higher unit sales value. During the 1995 period the Canadian facility experienced production difficulties. The increase in revenue from Canadian operations in 1996 was largely offset by decreased revenue from U.S. operations resulting from fewer railcar deliveries, partially offset by a product mix including railcars with a higher unit sales value. Total deliveries decreased by 237 to 1,362 in the current quarter, compared to 1,599 in the prior comparable period. The manufacturing backlog of railcars for sale and lease was approximately 2,700 railcar platforms with an estimated value of $165 million as of May 31, 1996.
6 THE GREENBRIER COMPANIES, INC. Leasing and services revenue increased $3 million, or 12%, for the quarter ended May 31, 1996 compared to the quarter ended May 31, 1995. This increase is primarily due to revenue from additional railcars placed in lease service partially offset by a decrease in revenue from automobile transportation services as a result of the lower volume of automobiles transported. Pre-tax earnings realized on the disposition of leased equipment during the quarter were 50% more than the $1 million realized in the corresponding prior period. Cost of Manufacturing Sales. Cost of sales as a percentage of manufacturing revenue increased in the quarter ended May 31, 1996 to 89% from 87% in the quarter ended May 31, 1995. The lower margins achieved in the current quarter result from line changeovers and a less favorable product mix at U.S. operations partially offset by continuing improvement in manufacturing efficiencies at the Canadian operation. The prior period margin benefited from efficiencies of longer production runs on a product mix that included a greater proportion of higher margin products. Leasing and Services Expense. Leasing and services expense as a percentage of revenue remained consistent at 42% for the three- month period ended May 31, 1996 compared to the corresponding prior period. Reduced contribution from automobile transportation services due to lower volumes, start-up utilization of the highway trailer rental operation and softening of the intermodal trailer and container market were offset by a restructuring of certain lease participation costs. Selling and Administrative Expense. As a percentage of revenue, total selling and administrative expense for the three months ended May 31, 1996 increased compared to the corresponding prior period. Lower manufacturing volume and increased leasing and services costs associated with the start up of the highway trailer rental operation were the primary contributors to the increase in expense as a percentage of revenue. Interest Expense. Interest expense decreased slightly as the effect of lower interest rates on working capital borrowings and normal paydowns of term debt exceeded current year borrowings. Minority Interest. Manufacturing minority interest increased as a result of improved earnings of the Canadian operation. Leasing minority interest decreased due to reduced earnings from automobile transportation services. Income Tax Expense. The income tax provision for the quarter ended May 31, 1996 represents an effective tax rate of 42% on U.S. operations which is consistent with the corresponding prior period. Consolidated income taxes as a percentage of pre-tax earnings are less than 42% as the Canadian operation had generated operating loss carryforwards which offset current period earnings. Nine Months Ended May 31, 1996 Compared to Nine Months Ended May 31, 1995 Revenues. Manufacturing revenues for the nine-month period ended May 31, 1996 increased $93 million, or 43%, over the corresponding prior period. Canadian operations, acquired in March 1995, contributed the majority of the increase. Revenue from U.S. operations decreased slightly due to a product mix characterized by higher unit sales value on fewer railcars delivered than the product mix in the prior comparable period. The number of railcars sold increased by 856 to 4,689 for the nine months ended May 31, 1996 from 3,833 in the prior year comparable period. Leasing and services revenue increased $4 million, or 6%, for the nine-month period ended May 31, 1996 compared to the nine-month period ended May 31, 1995. This increase is primarily due to revenue from additional railcars placed in lease service partially offset by a decrease in revenue from automobile transportation services as a result of the lower volume of automobiles transported. Pre-tax income realized on disposition of leased equipment during the nine-month period ended May 31, 1996 amounted to $3.4 million compared to $2.8 million in the corresponding prior period.
7 THE GREENBRIER COMPANIES, INC. Cost of Manufacturing Sales. Cost of sales as a percentage of manufacturing revenue for the nine-month period ended May 31, 1996 increased slightly compared to the corresponding prior period. Improved margins achieved by U.S. operations due to a favorable product mix and the efficiencies of long production runs early in the year were offset by lower margins achieved at the Canadian operation. Leasing and Services Expense. Leasing and services expense as a percentage of revenue increased to 44% for the nine-month period ended May 31, 1996 as compared to 42% for the corresponding prior period. Reduced contribution from automobile transportation services due to lower volume, as well as start-up utilization of the highway trailer rental operation and the softening of the intermodal trailer and container market were the primary reasons for the increased percentage. Selling and Administrative Expense. As a percentage of revenue, total selling and administrative expense declined due to increased manufacturing volume reduced by higher leasing and services costs associated with the start up of the highway trailer rental operation. Interest Expense. The increase in manufacturing interest expense for the nine-month period ended May 31, 1996 compared to the corresponding prior period relates mainly to working capital borrowings associated with the Canadian operation and to increased production and inventory levels. The slight decrease in leasing and services interest expense results from normal paydowns of term debt offset somewhat by current year borrowings. Minority Interest. Minority interest for the nine-month period ended May 31, 1996 is consistent with the corresponding prior period. The minority investors' share of operating losses at the Canadian facility was reduced due to improved operations during the current year. Decreased operating earnings relating to automobile transportation services has reduced the leasing and services minority interest. Income Tax Expense. The income tax provision for the nine-month period ended May 31, 1996 represents an effective tax rate of 42% on U.S. operations which is consistent with the prior period. As the Canadian operation is not included in the U.S. consolidated tax return, no tax benefit has been recognized on the losses incurred by Canadian operations. Liquidity and Capital Resources Cash provided by operations totaled $52 million for the nine- month period ended May 31, 1996 compared to $5 million for the corresponding prior period. The fluctuation in cash from operations is due to the decrease in inventory resulting primarily from increased railcar deliveries offset somewhat by purchases of materials required for the construction of two marine barges. Inventory levels at August 31, 1995 were higher than anticipated due to the temporary suspension of production at the Canadian operation. Existing credit facilities for operations aggregate approximately $101 million at May 31, 1996. A $43 million revolving credit line is available through March 1997 which provides working capital and interim financing of equipment for leasing and services operations. Borrowings under the revolving credit line were $9 million at May 31, 1996. A $30 million operating line for working capital and a $10 million five-year term facility for certain manufacturing capital expenditures are available through February 1999 and December 1997 for U.S. manufacturing operations. Borrowings outstanding under the operating line were $11 million at May 31, 1996 and there were no borrowings outstanding under the term facility. An $18 million (at the May 31, 1996 exchange rate) operating line is available through March 1997 for working capital and certain capital expenditures for Canadian operations. Borrowings outstanding under this line at May 31, 1996 were $11 million. The weighted average interest rate on amounts outstanding with respect to these credit facilities was 9% for the nine-months ended May 31, 1996.
8 THE GREENBRIER COMPANIES, INC. Capital expenditures totaled $130 million for the nine-months ended May 31, 1996 compared to $71 million for the nine-months ended May 31, 1995. Of these capital expenditures, approximately $125 million and $65 million were attributable to leasing and services operations. Leasing and services capital expenditure programs included additions to the leased railcar fleet under refurbishment programs and various additions to the lease fleet related to other equipment purchases. Certain of these additions are not anticipated to be held long-term but rather sold to other parties and accordingly are included in Railcars held for refurbishment or sale. Leasing and services capital expenditures for the remainder of 1996 are expected to be approximately $23 million. Approximately $5 million and $6 million of the total capital expenditures for the nine-months ended May 31, 1996 and May 31, 1995 were attributable to manufacturing operations. Capital expenditure programs included new and upgraded manufacturing plant and equipment to improve efficiencies and increase capacity. Manufacturing capital expenditures for the remainder of 1996 are expected to be approximately $2 million and will include plant improvements and equipment acquisitions to further increase production capacity and efficiency. Operations in Canada give rise to market risks from changes in foreign currency exchange rates. Forward exchange contracts have been entered into to hedge these risks. At May 31, 1996 the net amount of foreign exchange contracts outstanding for the purchase of Canadian dollars was $15 million maturing at various dates through November 1996. Realized and unrealized gains and losses from such off-balance sheet contracts are deferred and recognized in earnings concurrent with the hedged transaction. Dividends of $.06 per share have been paid quarterly beginning in 1995. Additionally, the next quarterly dividend of $.06 per share was declared in July 1996 to be paid in August 1996. Management expects existing funds and cash generated from operations, together with borrowings under existing credit facilities, will be sufficient to fund dividends, working capital needs, planned capital expenditures and expected debt repayments. 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.
9 THE GREENBRIER COMPANIES, INC. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.32 Stock Purchase Agreement between and among Greenbrier Logistics, Inc. and A. Daniel O'Neal dated as of June 28, 1996. 10.33 Employment Agreement dated June 1, 1996 between Greenbrier Logistics, Inc. and A. Daniel O'Neal, Jr. 27. Financial Data Schedule (b) Form 8-K No reports on Form 8-K were filed during the quarter for which this report is filed.
10 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 12, 1996 By: /s/ Larry G. Brady ------------------ -------------------------- Larry G. Brady Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)