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)