EX-13 4 a2031876zex-13.txt EXHIBIT 13 EXHIBIT 13 FINANCIAL SECTION TABLE OF CONTENTS 22 Selected Financial Information 23 Management's Discussion and Analysis of Results of Operations and Financial Condition 28 Reports of Management and Independent Auditors 29 Consolidated Balance Sheets 30 Consolidated Statements of Operations 31 Consolidated Statements of Stockholders' Equity and Comprehensive Income 32 Consolidated Statements of Cash Flows 33 Notes to Consolidated Financial Statements 42 Quarterly Results of Operations 43 Directors & Officers 44 Investor Information 45 Locations 21 SELECTED FINANCIAL INFORMATION YEARS ENDED AUGUST 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 1999 1998 1997 1996 -------------------------------------------------------------------------------------------------------------- STATEMENT OF OPERATIONS DATA Revenue: Manufacturing $ 528,240 $ 520,311 $ 451,706 $ 325,501 $ 421,456 Leasing & services 91,189 98,225 88,655 105,419 98,484 -------------------------------------------------------------------------------------------------------------- $ 619,429 $ 618,536 $ 540,361 $ 430,920 $ 519,940 ============================================================================================================== Earnings from continuing operations $ 14,354 $ 20,419(1) $ 20,332(2) $ 6,021(3) $ 18,613 Discontinued operations:(4) Loss on operations -- -- -- (2,512) (338) Estimated loss on disposal -- -- -- (7,680) -- Extraordinary charge related to debt -- (938) -- -- -- -------------------------------------------------------------------------------------------------------------- Net earnings (loss) $ 14,354 $ 19,481 $ 20,332 $ (4,171) $ 18,275 ============================================================================================================== Basic earnings per common share: Continuing operations $ 1.01 $ 1.44 $ 1.43 $ .43 $ 1.31 Net earnings (loss) $ 1.01 $ 1.37 $ 1.43 $ (.29) $ 1.29 Diluted earnings per common share: Continuing operations $ 1.01 $ 1.43 $ 1.42 $ .43 $ 1.31 Net earnings (loss) $ 1.01 $ 1.36 $ 1.42 $ (.29) $ 1.29 Weighted average common shares outstanding: Basic 14,227 14,254 14,203 14,160 14,160 Diluted 14,241 14,294 14,346 14,160 14,170 Cash dividends paid per common share $ .36 $ .39(5) $ .24 $ .24 $ .24 BALANCE SHEET DATA Assets: Cash $ 12,908 $ 77,796 $ 57,909 $ 21,744 $ 12,483 Inventories 127,484 92,495 79,849 151,591 90,448 Leased equipment 246,854 236,410 256,509 284,541 364,701 All other 196,863 144,015 111,222 122,642 147,856 -------------------------------------------------------------------------------------------------------------- $ 584,109 $ 550,716 $ 505,489 $ 580,518 $ 615,488 ============================================================================================================== DEBT: Revolving $ 13,019 $ 3,783 $ -- $ 57,709 $ 27,814 Term 159,363 161,401 147,876 201,786 216,278 -------------------------------------------------------------------------------------------------------------- $ 172,382 $ 165,184 $ 147,876 $ 259,495 $ 244,092 ============================================================================================================== CAPITAL BASE: Subordinated debt $ 37,748 $ 37,788 $ 37,932 $ 38,089 $ 44,554 Minority interest 5,068 14,034 9,783 18,183 38,154 Stockholders' equity 141,615 134,163 121,370 103,969 111,567 -------------------------------------------------------------------------------------------------------------- $ 184,431 $ 185,985 $ 169,085 $ 160,241 $ 194,275 ==============================================================================================================
(1) Includes earnings of $1.1 million resulting from the resolution of certain matters on a leasing contract that began in 1990. (2) Includes a gain of $1.3 million resulting from exiting the trailer and container leasing operation more favorably than anticipated. (3) Includes $4.8 million of special charges related to an adjustment to the carrying value of vehicle transportation equipment and the divestiture of the trailer and container lease fleet. (4) Includes the divestiture of the transportation logistics segment. (5) Includes regular dividend of $0.27 per common share and special dividend of $0.12 per common share. 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Greenbrier currently operates in two primary business segments: manufacturing and leasing & services. The two business segments are operationally integrated. With operations in North America and Europe, the manufacturing segment produces double-stack intermodal railcars, conventional railcars, marine vessels and forged steel products and performs railcar refurbishment and maintenance activities. In Europe, the Company also manufactures new freight cars through the use of unaffiliated subcontractors. Such activities are included in the manufacturing segment. The leasing & services segment owns or manages approximately 37,000 railcars for railroads, institutional investors and other leasing companies. Railcars are generally manufactured under firm orders from third parties, and revenue is recognized when the cars are completed and accepted by the customer. From time to time, Greenbrier commits to manufacture railcars prior to receipt of firm orders to maintain continuity of manufacturing operations and may also build railcars for its own lease fleet. Railcars produced in a given period may be delivered in subsequent periods, delaying revenue recognition. Revenue does not include sales of new railcars to, or refurbishment services performed for, the leasing & services segment since intercompany transactions are eliminated in preparing the consolidated financial statements. The margin generated from such sales or refurbishment activity is realized by the leasing & services segment over the related life of the asset or upon sale of the equipment. OVERVIEW Total revenues for 2000 were $619.4 million, an increase of $0.9 million from 1999 revenues of $618.5 million. The increase was due to increased revenues from European manufacturing operations as a result of an acquisition completed in January 2000, offset by lower leasing & services revenue. Total revenues for 1999 were $618.5 million, an increase of 14.5% from 1998 revenues of $540.4 million. The increase was due primarily to a manufacturing product mix with a higher unit sales value, the resolution of certain matters on a leasing contract that began in 1990 and an acquisition completed in early 1999. Net earnings for 2000 were $14.4 million, or $1.01 per diluted common share, compared to net earnings for 1999 of $19.5 million, or $1.36 per diluted common share, and to 1998 net earnings of $20.3 million, or $1.42 per diluted share. Earnings for 1999 include earnings of $1.1 million from the resolution of certain matters on a leasing contract that began in 1990 and an after-tax extraordinary charge of $0.9 million, or $0.07 per diluted common share, resulting from refinancing of $22.0 million of notes payable. Earnings for 1998 include a gain of $1.3 million resulting from exiting the trailer and container leasing operation more favorably than anticipated. EXPANSION AND ACQUISITIONS In January 2000, Greenbrier completed the purchase of the Freight Wagon Division of DaimlerChrysler Rail Systems located in Siegen, Germany. The acquired operation provides expertise in the fields of engineering, design, sales and marketing and project management. It also includes a comprehensive portfolio of railcar designs certified for the European marketplace, which enhanced production at Greenbrier's Polish manufacturing facility. Accordingly, a significant portion of the assets acquired are intangibles. The purchase was initially funded with a cash payment of $4.3 million and the assumption of net liabilities of $29.2 million. Results of the acquired operation, which include the sale of freight cars manufactured by unaffiliated subcontractors, have been included in the accompanying financial statements from the date of acquisition. In September 1998, Greenbrier acquired a 60.0% interest in a railcar manufacturer located in Swidnica, Poland. Through a series of subsequent transactions, the Company has increased its ownership interest to 97.5%. The acquisition was accounted for by the purchase method, and operating results are included in the consolidated financial statements. Effective September 1, 1999, Greenbrier acquired the common equity of the minority investor's interest in the Canadian manufacturing subsidiary. 23 Also in September 1998, Greenbrier entered into a joint venture with Bombardier Transportation to build railroad freight cars at Bombardier's existing manufacturing facility in Mexico. Each party holds a 50.0% non-controlling interest in the joint venture, and therefore Greenbrier's investment is being accounted for using the equity method. Greenbrier's share of operating results is included in operating results as equity in earnings of unconsolidated subsidiary. In February 1998, the unaffiliated investors' minority interest in the automobile transportation business was acquired for $7.8 million through the use of restricted cash. DIVESTITURES A portion of the trailer and container fleet was sold in 1997, with the remainder sold in 1998. Trailer and container leasing operations were included in leasing & services continuing operations until disposition. RESULTS OF OPERATIONS MANUFACTURING SEGMENT Manufacturing revenues include results from new railcar, marine, forge, refurbishment and maintenance activities. New railcar delivery and backlog information disclosed herein includes all facilities, including the joint venture in Mexico that is accounted for by the equity method. Manufacturing revenues were $528.2 million, $520.3 million and $451.7 million for the years ended 2000, 1999 and 1998. Manufacturing revenues increased $7.9 million, or 1.5%, in 2000 from 1999 due to an increase in European revenues resulting from the newly acquired operation and a shift in product mix to units with a relatively higher sales value, partially offset by a softer North American market. Manufacturing revenues increased $68.6 million, or 15.2%, in 1999 from 1998 as market demand for freight cars remained strong, and the product mix shifted to units with a higher sales value. The Polish manufacturing operation, acquired in 1999, also contributed to this increase. Deliveries of new railcars, which are the primary source of revenue, were approximately 8,100 in 2000, 8,900 in 1999 and 7,800 in 1998. As of August 31, 2000, the backlog of new railcars to be manufactured for sale and lease at all facilities was approximately 7,800 railcars with an estimated value of $440.0 million compared to 5,900 railcars valued at $340.0 million as of May 31, 2000. Manufacturing gross margin decreased to 11.7% in 2000 from 12.3% in 1999 due to lower selling prices resulting from increased competition. Manufacturing gross margin in 1999 increased from 8.9% in 1998, reflecting overall improved operational efficiencies, a temporary reduction in certain material costs for the North American operations and the benefit of stronger market demand for railcars. The factors influencing cost of revenue and gross margin in a given period include order size (which affects economies of plant utilization), product mix, changes in manufacturing costs, product pricing and currency exchange rates. LEASING & SERVICES SEGMENT Leasing & services revenues were $91.2 million, $98.2 million and $88.7 million for the years ended 2000, 1999 and 1998. Revenues decreased $7.0 million, or 7.1%, in 2000 from 1999 due primarily to the completion of maintenance obligations in 1999 on a contract that began in 1990, partially offset by increases in 2000 due to the multi-year maintenance agreement that began in December 1998. The $9.5 million, or 10.7% increase in revenues in 1999 as compared to 1998 is primarily due to the resolution of certain matters on a leasing contract that began in 1990. A multi-year maintenance agreement that began in December 1998 also contributed to the increase in revenues. These increases were somewhat offset by lower gains on sales as compared to 1998. Pre-tax earnings realized on the disposition of leased equipment amounted to $4.4 million during 2000 compared to $5.7 million in 1999 and $9.0 million in 1998. Assets from Greenbrier's lease fleet are periodically sold in the normal course of business in order to take advantage of market conditions, manage risk and maintain liquidity. Leasing & services operating margin as a percentage of revenue was 48.8% in 2000 compared to 50.4% in 1999 and 60.1% in 1998. The lower margin in 2000 is primarily due to lower utilization of the owned lease fleet, which averaged 90.4% and 97.0% for the years ended August 31, 2000 and 1999. The lower margin in 1999 compared to 1998 was primarily due to a sharing arrangement related to the resolution of matters associated with the leasing contract discussed above. Lower gains on sales of leased equipment and the lower margin maintenance agreement that began in December 1998 also impacted the 2000 and 1999 operating margin. 24 OTHER COSTS Selling and administrative expense was $54.2 million, $51.1 million and $37.3 million in 2000, 1999 and 1998. As a percentage of revenue, selling and administrative expense was 8.8%, 8.3% and 6.9% in 2000, 1999 and 1998. The increase in 2000 compared to 1999 is due primarily to the addition of the European operations and increased research and development costs, partially offset by cost reduction measures. The increase in 1999 compared to 1998 is primarily due to increased international activity. Interest expense increased $2.2 million, or 11.6%, to $21.2 million for 2000 as compared to $19.0 million in 1999 as a result of both increased borrowings and cost of borrowings. Interest expense declined $1.9 million in 1999 as compared to $20.9 million in 1998 due to more favorable interest rates on refinanced leasing & services term debt and greater liquidity. The divestiture of the trailer and container leasing operations was completed in 1998. The results associated with the sale of the operations were more favorable than originally anticipated, resulting in a $2.3 million benefit in 1998. Income tax expense for all periods presented represents an effective tax rate of 42.0% on United States operations and varying effective tax rates on foreign operations. The consolidated effective tax rate of 51.8% in the current period is a result of European operating losses for which no tax benefi t has been recognized. The consolidated effective tax rate for 1999 and 1998 was 48.1% and 41.8%. Minority interest decreased $1.3 million, or 43.3%, to $1.7 million for 2000 as compared to $3.0 million for 1999 primarily as a result of acquiring minority interests in Poland and Canada. The increase in minority interest in 1999 from 1998, reflects the improved contribution from the Canadian operation offset by the effects of European operating losses in 1999. Equity in earnings of an unconsolidated subsidiary increased $0.2 million, or 28.5%, for 2000 as compared to 1999 as a result of improved manufacturing efficiencies at the Mexican operation. LIQUIDITY AND CAPITAL RESOURCES Greenbrier's growth has been financed through cash generated from operations, borrowings from banks and other financial institutions, issuance of subordinated debt and capital from minority investors. Cash utilization in the current year is primarily due to timing of railcar syndication activities and additions to the lease fleet. The Company's balance sheet and liquidity continue to be strong. Credit facilities aggregated $129.3 million as of August 31, 2000. A $60.0 million revolving line of credit is available through May 2001 to provide working capital and interim financing of equipment for the leasing & services operations. A $40.0 million line of credit to be used for working capital is available through February 2002 for United States manufacturing operations. A $20.4 million (at the August 31, 2000 exchange rate) line of credit is available through March 2001 for working capital for Canadian manufacturing operations. Lines of credit totaling $6.4 million (at the August 31, 2000 exchange rate) are available principally through December 2000 for working capital for Polish manufacturing operations. A line of credit totaling $2.5 million (at the August 31, 2000 exchange rate) is available to support European operations. Advances under the lines of credit bear interest at rates that vary depending on the type of borrowing and certain defined ratios. At August 31, 2000, there were no borrowings outstanding under the United States manufacturing and European lines. At August 31, 2000, $4.0 million and $4.9 million were outstanding under the Canadian and Polish manufacturing lines and $4.1 million was outstanding under the leasing & services line. Available borrowings under these lines are principally based upon defined levels of receivables, inventory and leased equipment. In addition, bank guarantees totaling $29.2 million (at the August 31, 2000 exchange rate) are available to support European operations, of which $19.3 million were issued at August 31, 2000. Subsequent to August 31, 2000, the Company entered into additional revolving loan and bank guarantees totaling $3.4 million and $11.4 million (at the August 31, 2000 exchange rate) to support European operations. 25 Capital expenditures totaled $94.0 million, $71.0 million and $51.2 million in 2000, 1999, and 1998. Of these capital expenditures, approximately $74.5 million, $47.7 million and $39.3 million, in 2000, 1999, and 1998 were attributable to leasing & services operations. Leasing & services capital expenditures for 2001 are expected to be approximately $45.0 million. Greenbrier regularly sells assets from its lease fleet, some of which may have been purchased within the current year and included in capital expenditures. Approximately $19.5 million, $23.3 million, and $11.9 million of the total capital expenditures for 2000, 1999 and 1998 were attributable to manufacturing operations. Capital expenditures for manufacturing additions are expected to be approximately $20.0 million in 2001 and will include plant improvements and equipment acquisitions to further increase capacity, enhance efficiencies and allow for the production of new railcars. Inventories increased $35.0 million primarily as a result of the acquisition in Europe and the purchase of new railcar production, which is expected to be sold in the normal course of business over the next year. Foreign operations give rise to risks from changes in foreign currency exchange rates. Greenbrier utilizes foreign currency forward exchange contracts with established financial institutions to hedge a portion of that risk. No provision has been made for credit loss due to counterparty non-performance. At the August 31, 2000 exchange rates, forward exchange contracts for the purchase of Canadian dollars aggregated $47.8 million, contracts for the purchase of Polish zloties aggregated $15.8 million and contracts for the purchase of United States dollars aggregated $2.0 million. These contracts mature at various dates through June 2001. At August 31, 2000, gains and losses of approximately $0.8 million and $0.4 million on such contracts have been deferred and will be recognized in earnings concurrent with the hedged transaction. A quarterly dividend of $0.09 per common share was declared in November 2000, to be paid in December. In July 1999, the dividend rate was increased to $0.09 from the $0.06 per common share that had been paid quarterly since 1995. In addition, a special one-time dividend of $0.12 per common share was paid in August 1999. Future dividends are dependent upon earnings, capital requirements and financial condition. Certain loan covenants restrict the transfer of funds from subsidiaries to the parent company in the form of cash dividends, loans, or advances. The restricted net assets of subsidiaries amounted to $79.8 million as of August 31, 2000. Consolidated retained earnings of $14.7 million at August 31, 2000 were restricted as to the payment of dividends. Management expects existing funds and cash generated from operations, together with borrowings under existing credit facilities and long term financing, to be sufficient to fund dividends, stock repurchases, working capital needs, planned capital expenditures, acquisitions and expected debt repayments. In July 2000, Greenbrier's Board of Directors authorized a stock repurchase program under which the company intends to repurchase up to $5.0 million in shares of its outstanding common stock program in open-market transactions, from time to time. As of August 31, 2000, the Company had repurchased approximately 28,000 shares at a purchase price totaling $0.2 million. PROSPECTIVE ACCOUNTING CHANGES Statement of Financial Accounting Standards ("SFAS") No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, requires that all derivatives be recognized as either assets or liabilities measured at fair value. Adoption of SFAS No. 133 is effective for the Company's fiscal year beginning September 1, 2000 and is not expected to have a material adverse effect on the consolidated financial position, results of operations, or liquidity of the Company. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS, which, as amended, the Company is required to implement beginning June 1, 2001. Management is currently evaluating the effects of SAB No. 101. 26 FORWARD-LOOKING INFORMATION From time to time, Greenbrier or its representatives have made or may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements as to expectations, beliefs and strategies regarding the future. Such forward-looking statements may be included in, but not limited to, press releases, oral statements made with the approval of an authorized executive officer or in various filings made by the Company with the Securities and Exchange Commission. These forward-looking statements rely on a number of assumptions concerning future events and include statements relating to: - financing sources for future expansion, other business development activities, capital spending and railcar syndication activities; - improved earnings in Europe; - improved European railcar market environment; - increased stockholder value; - increased competition; - market slowdown in North America; - share of new and existing markets; - increased production; - increased railcar services business; and - short- and long-term revenue and earnings effects of the above items. These forward-looking statements are subject to a number of uncertainties and other factors outside Greenbrier's control. The following are among the factors, particularly in North America and Europe, that could cause actual results or outcomes to differ materially from the forward-looking statements: - a delay or failure of acquisitions, products or services to compete successfully; - actual future costs and the availability of materials and a trained workforce; - changes in product mix and the mix between manufacturing and leasing & services revenue; - labor disputes or operating difficulties that might disrupt manufacturing operations or the flow of cargo; - production difficulties and product delivery delays as a result of, among other matters, changing technologies or non-performance of sub-contractors; - ability to obtain suitable contracts for the sale of leased equipment; - lower-than-anticipated residual values for leased equipment; - discovery of defects in railcars resulting in increased warranty cost or litigation; - resolution or outcome of pending litigation; - the ability to consummate expected sales; - delays in receipt of orders, risks that contracts may be canceled during their term or not renewed and that customers may not purchase as much equipment under the contracts as anticipated; - financial condition of principal customers; - market acceptance of products; - competitive factors, including increased competition, introduction of competitive products and price pressures; - industry overcapacity or other factors; - shifts in market demand; - domestic and global business conditions and growth or reduction in the surface transportation industry; - domestic and global political, regulatory or economic conditions; - changes in interest rates; - changes in fuel prices; - commodity price fluctuations; and - economic impacts from currency fluctuations in the Company's worldwide operations. Any forward-looking statements should be considered in light of these factors. Greenbrier assumes no obligation to update or revise any forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements or if Greenbrier later becomes aware that these assumptions are not likely to be achieved. 27 REPORTS OF MANAGEMENT AND INDEPENDENT AUDITORS REPORT OF MANAGEMENT Board of Directors and Stockholders The Greenbrier Companies, Inc. The consolidated financial statements and other financial information of The Greenbrier Companies, Inc. and Subsidiaries in this report were prepared by management, which is responsible for their content. They reflect amounts based upon management's best estimates and informed judgments. In management's opinion, the financial statements present fairly the financial position, results of operations and cash flows of the Company in conformity with accounting principles generally accepted in the United States of America. The Company maintains a system of internal control which is designed, consistent with reasonable cost, to provide reasonable assurance that transactions are executed as authorized, that they are properly recorded to produce reliable financial records, and that accountability for assets is maintained. The accounting controls and procedures are supported by careful selection and training of personnel and a continuing management commitment to the integrity of the system. The financial statements have been audited, to the extent required by auditing standards generally accepted in the United States of America, by Deloitte & Touche LLP, independent auditors. In connection therewith, management has considered the recommendations made by the independent auditors in connection with their audit and has responded in an appropriate, cost-effective manner. The Board of Directors has appointed an Audit Committee composed entirely of directors who are not employees of the Company. The Audit Committee meets with representatives of management and the independent auditors, both separately and jointly. The Committee reports to the Board on its activities and findings. /s/ William A. Furman /s/ Larry G. Brady --------------------- ------------------ William A. Furman, Larry G. Brady, President, Chief Senior Vice President, Executive Officer Chief Financial Officer INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders The Greenbrier Companies, Inc. We have audited the accompanying consolidated balance sheets of The Greenbrier Companies, Inc. and Subsidiaries as of August 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity and comprehensive income, and cash flows for each of the three years in the period ended August 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Greenbrier Companies, Inc. and Subsidiaries as of August 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP Portland, Oregon October 24, 2000 28 CONSOLIDATED BALANCE SHEETS AUGUST 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2000 1999 -------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $ 12,819 $ 77,161 Restricted cash and investments 89 635 Accounts and notes receivable 66,150 47,514 Inventories 127,484 92,495 Investment in direct finance leases 124,780 143,185 Equipment on operating leases 122,074 93,225 Property, plant and equipment 77,628 69,316 Intangible assets 23,001 4,000 Other 30,084 23,185 -------------------------------------------------------------------------------- $ 584,109 $ 550,716 ================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY Revolving notes $ 13,019 $ 3,783 Accounts payable and accrued liabilities 147,792 131,474 Deferred participation 54,266 50,439 Deferred income taxes 25,238 17,634 Notes payable 159,363 161,401 Subordinated debt 37,748 37,788 Minority interest 5,068 14,034 Commitments and contingencies (Notes 20 & 21) Stockholders' equity: Preferred stock -- $0.001 par value; 25,000 shares authorized; none outstanding -- -- Common stock -- $0.001 par value; 50,000 shares authorized; 14,227 and 14,255 outstanding at August 31, 2000 and 1999 14 14 Additional paid-in capital 50,249 50,495 Retained earnings 94,756 85,534 Accumulated other comprehensive loss (3,404) (1,880) -------------------------------------------------------------------------------- 141,615 134,163 -------------------------------------------------------------------------------- $ 584,109 $ 550,716 ================================================================================
The accompanying notes are an integral part of these financial statements. 29 CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED AUGUST 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2000 1999 1998 --------------------------------------------------------------------------------------------- REVENUE Manufacturing $ 528,240 $ 520,311 $ 451,706 Leasing & services 91,189 98,225 88,655 --------------------------------------------------------------------------------------------- 619,429 618,536 540,361 COST OF REVENUE Manufacturing 466,348 456,122 411,655 Leasing & services 46,711 48,682 35,349 --------------------------------------------------------------------------------------------- 513,059 504,804 447,004 MARGIN 106,370 113,732 93,357 OTHER COSTS Selling and administrative expense 54,202 51,061 37,270 Interest expense 21,165 19,048 20,933 Special charges -- leasing & services -- -- (2,250) --------------------------------------------------------------------------------------------- 75,367 70,109 55,953 Earnings before income tax expense, minority interest and equity in earnings of unconsolidated subsidiary 31,003 43,623 37,404 Income tax expense (16,053) (20,979) (15,643) --------------------------------------------------------------------------------------------- Earnings before minority interest and equity in earnings of unconsolidated subsidiary 14,950 22,644 21,761 Minority interest (1,650) (3,045) (1,429) Equity in earnings of unconsolidated subsidiary 1,054 820 -- --------------------------------------------------------------------------------------------- Earnings from continuing operations 14,354 20,419 20,332 Extraordinary charge (net of $680 tax benefit) -- (938) -- --------------------------------------------------------------------------------------------- NET EARNINGS $ 14,354 $ 19,481 $ 20,332 ============================================================================================= BASIC EARNINGS PER COMMON SHARE: Continuing operations $ 1.01 $ 1.44 $ 1.43 Extraordinary charge -- (.07) -- --------------------------------------------------------------------------------------------- Net earnings $ 1.01 $ 1.37 $ 1.43 ============================================================================================= DILUTED EARNINGS PER COMMON SHARE: Continuing operations $ 1.01 $ 1.43 $ 1.42 Extraordinary charge -- (.07) -- --------------------------------------------------------------------------------------------- Net earnings $ 1.01 $ 1.36 $ 1.42 ============================================================================================= WEIGHTED AVERAGE COMMON SHARES: Basic 14,227 14,254 14,203 Diluted 14,241 14,294 14,346
The accompanying notes are an integral part of these financial statements. 30 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
ACCUMULATED ADDITIONAL OTHER TOTAL (IN THOUSANDS, EXCEPT COMMON STOCK PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS' PER SHARE AMOUNTS) SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) EQUITY ---------------------------------------------------------------------------------------------------------------- BALANCE AUGUST 31, 1997 14,160 $ 14 $ 49,135 $ 54,689 $ 131 $ 103,969 Net earnings -- -- -- 20,332 -- 20,332 Translation adjustment (net of $631 tax benefit) -- -- -- -- (803) (803) --------- Comprehensive income 19,529 Stock options exercised 93 -- 1,221 -- -- 1,221 Compensation relating to non-qualified stock option plan -- -- 60 -- -- 60 Cash dividends ($0.24 per share) -- -- -- (3,409) -- (3,409) ---------------------------------------------------------------------------------------------------------------- BALANCE AUGUST 31, 1998 14,253 14 50,416 71,612 (672) 121,370 Net earnings -- -- -- 19,481 -- 19,481 Translation adjustment (net of $214 tax benefit) -- -- -- -- (1,208) (1,208) --------- Comprehensive income 18,273 Stock options exercised 2 -- 29 -- -- 29 Compensation relating to non-qualified stock option plan -- -- 50 -- -- 50 Cash dividends ($0.39 per share) -- -- -- (5,559) -- (5,559) ------------------------------------------------------------------------------------------------------------ BALANCE AUGUST 31, 1999 14,255 14 50,495 85,534 (1,880) 134,163 Net earnings -- -- -- 14,354 -- 14,354 Translation adjustment (net of $188 tax benefit) -- -- -- -- (1,524) (1,524) --------- Comprehensive income 12,830 Purchase of treasury stock (28) -- (246) -- -- (246) Cash dividends ($0.36 per share) -- -- -- (5,132) -- (5,132) ------------------------------------------------------------------------------------------------------------ BALANCE AUGUST 31, 2000 14,227 $ 14 $ 50,249 $ 94,756 $ (3,404) $ 141,615 ============================================================================================================
The accompanying notes are an integral part of these financial statements. 31 CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED AUGUST 31,
(IN THOUSANDS) 2000 1999 1998 --------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 14,354 $ 19,481 $ 20,332 Adjustments to reconcile net earnings to net cash (used in) provided by operating activities: Extraordinary charge -- 938 -- Deferred income taxes 7,604 6,470 (2,217) Deferred participation 3,827 5,196 6,211 Depreciation and amortization 20,356 16,477 14,527 Special charges -- -- (2,250) Gain on sales of equipment (4,527) (5,887) (9,994) Other 2,627 5,879 1,537 Decrease (increase) in assets: Accounts and notes receivable (18,610) (2,713) 13,197 Inventories (39,249) (3,608) 10,110 Prepaid expenses and other (1,376) (879) 1,910 Increase (decrease) in liabilities: Accounts payable and accrued liabilities (13,295) (2,961) 22,509 --------------------------------------------------------------------------------------------------- Net cash (used in) provided by operating activities (28,289) 38,393 75,872 --------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions, net of cash acquired (4,787) (11,702) -- Principal payments received under direct finance leases 18,313 16,729 15,102 Investment in direct finance leases (170) (446) (856) Proceeds from sales of equipment 49,789 39,903 117,945 Purchase of property and equipment (93,821) (70,531) (50,345) Use of (investment in) restricted cash and investments 546 15,362 (8,637) --------------------------------------------------------------------------------------------------- Net cash (used in) provided by investing activities (30,130) (10,685) 73,209 --------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 34,052 60,029 13,157 Repayments of borrowings (26,987) (46,958) (124,750) Dividends (5,132) (5,559) (3,409) Purchase of minority interest (7,610) -- (7,772) Purchase of treasury stock (246) -- -- Proceeds from exercise of stock options -- 29 1,221 --------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (5,923) 7,541 (121,553) --------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (64,342) 35,249 27,528 CASH AND CASH EQUIVALENTS: Beginning of period 77,161 41,912 14,384 --------------------------------------------------------------------------------------------------- End of period $ 12,819 $ 77,161 $ 41,912 --------------------------------------------------------------------------------------------------- CASH PAID DURING THE PERIOD FOR: Interest $ 18,430 $ 16,637 $ 20,526 Income taxes 6,291 9,150 13,626 NON-CASH INVESTING AND FINANCING ACTIVITIES: Purchase of minority interest $ -- $ -- $ 1,580
The accompanying notes are an integral part of these financial statements. 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- NATURE OF OPERATIONS The Greenbrier Companies, Inc. and Subsidiaries ("Greenbrier" or the "Company") currently operates in two primary business segments: manufacturing and leasing & services. The two business segments are operationally integrated. With operations in North America and Europe, the manufacturing segment produces double-stack intermodal railcars, conventional railcars, marine vessels and forged steel products and performs railcar refurbishment and maintenance activities. In Europe, the Company also manufactures freight cars through the use of unaffiliated subcontractors. Such activities are included in the manufacturing segment. The leasing & services segment owns or manages approximately 37,000 railcars for railroads, institutional investors and other leasing companies. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION -- The financial statements include the accounts of the Company and its majority-owned subsidiaries. All significant intercompany transactions and balances are eliminated upon consolidation. Investments in and advances to a joint venture in which the Company has a 50% ownership interest are accounted for by the equity method and included in other assets. FOREIGN CURRENCY TRANSLATION -- Operations outside the United States prepare financial statements in currencies other than the United States dollar, the income statement amounts are translated at average exchange rates for the year, while the assets and liabilities are translated at year-end exchange rates. Translation adjustments are accumulated as a separate component of stockholders' equity and comprehensive income. CASH AND INVESTMENTS -- Cash is temporarily invested primarily in bankers' acceptances, United States Treasury bills, commercial paper and money market funds. Restricted cash and investments may only be used for equipment acquisitions in accordance with loan agreements. All highly-liquid investments with a maturity of three months or less are considered cash equivalents. INVENTORIES -- Inventories are valued at the lower of cost (first-in, first-out) or market. Work-in-process includes material, labor and overhead. Assets held for sale or refurbishment consist of railcars, carried at cost, that will either be sold or refurbished and placed on lease. EQUIPMENT ON OPERATING LEASES -- Equipment on operating leases is stated at cost. Depreciation to estimated salvage value is provided on the straight-line method over the estimated useful lives of up to twenty-five years. PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment is stated at cost. Depreciation is provided on the straight-line method over estimated useful lives of three to twenty years. INTANGIBLE ASSETS -- Loan fees are capitalized and amortized as interest expense over the life of the related borrowings. Goodwill is generally amortized over twelve years using the straight-line method. MAINTENANCE AND WARRANTY RESERVES -- Maintenance reserves are estimated and provided for over the term of maintenance obligations specified in the underlying lease agreements. Warranty reserves are estimated and charged to operations. INCOME TAXES -- The liability method is used to account for income taxes. Deferred income taxes are provided for the temporary effects of differences in the recognition of revenues and expenses for financial statement and income tax reporting purposes. Valuation allowances reduce deferred tax assets to an amount that will more likely than not be realized. MINORITY INTEREST -- Minority interest represents unaffiliated investors' capital investment and interest in the undistributed earnings and losses of consolidated entities. COMPREHENSIVE INCOME -- Statement of Financial Accounting Standards ("SFAS") No. 130, REPORTING COMPREHENSIVE INCOME, requires presentation of comprehensive income (net income plus all other changes in net assets from non-owner sources) and its components in the financial statements. REVENUE RECOGNITION -- Revenue from manufacturing operations is recognized at the time products are completed and accepted by unaffiliated customers. Direct finance lease revenue is recognized over the lease term in a manner that produces a constant rate of return on the net investment in the lease. Certain interim rentals are based on estimated costs. Operating lease revenue is recognized as earned under the lease terms. Payments received in advance are deferred until earned. 33 FORWARD EXCHANGE CONTRACTS -- Foreign operations give rise to risks from changes in foreign currency exchange rates. Forward exchange contracts with established financial institutions are utilized to hedge a portion of such risk. Realized and unrealized gains and losses are deferred and recognized in earnings concurrent with the hedged transaction. Even though forward exchange contracts are entered into to mitigate the impact of currency fluctuations, certain exposure remains which may affect operating results. INTEREST RATE INSTRUMENTS -- Interest rate swap agreements are utilized to reduce the impact of changes in interest rates on certain debt. The net cash amounts paid or received on the agreements are accrued and recognized as an adjustment to interest expense. NET EARNINGS PER COMMON SHARE -- Basic earnings per common share ("EPS") excludes the potential dilution that would occur if additional shares were issued upon exercise of outstanding stock options while diluted EPS takes this potential dilution into account. STOCK-BASED COMPENSATION -- Compensation expense for stock-based employee compensation continues to be measured using the method prescribed by Accounting Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. If material, pro forma disclosures of net earnings and earnings per common share will be made as if the method prescribed by SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, had been applied in measuring compensation expense. MANAGEMENT ESTIMATES -- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. This includes, among other things, evaluation of the remaining life and recoverability of long-lived assets. Actual results could differ from those estimates. RECLASSIFICATIONS -- Certain reclassifications have been made to prior years' consolidated financial statements to conform with the 2000 presentation. PROSPECTIVE ACCOUNTING CHANGES -- SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, requires that all derivatives be recognized as either assets or liabilities measured at fair value. Adoption of SFAS No. 133 is effective for the Company's fiscal year beginning September 1, 2000 and is not expected to have a material adverse effect on the consolidated financial position, results of operations, or liquidity of the Company. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS, which, as amended, the Company is required to implement beginning June 1, 2001. Management is currently evaluating the effects of SAB No. 101. NOTE 3 -- ACQUISITIONS In January 2000, Greenbrier completed the purchase of the Freight Wagon Division of DaimlerChrysler Rail Systems located in Siegen, Germany. The acquired operation provides expertise in the fields of engineering, design, sales and marketing and project management. It also includes a comprehensive portfolio of railcar designs certified for the European marketplace. Accordingly, a significant portion of the assets acquired are intangibles. The purchase was initially funded with a cash payment of $4.3 million and the assumption of net liabilities of $29.2 million. Results of the acquired operation, which include the sale of freight cars manufactured by unaffiliated subcontractors, have been included in the accompanying financial statements from the date of acquisition. Disclosure of the acquisition on a proforma basis, as if it had taken place on September 1, 1999, has not been provided, as it is not material to the Company's financial position or results of operations. On September 30, 1998, Greenbrier acquired a 60.0% interest in a railcar manufacturer located in Swidnica, Poland. Through a series of subsequent transactions, the Company has increased its ownership interest to 97.5%. This acquisition was accounted for by the purchase method, and operating results are included in the consolidated financial statements since the date of acquisition. Effective September 1, 1999, Greenbrier completed the acquisition of the remaining common equity of the minority investor's interest in the Canadian manufacturing subsidiary. On September 1, 1998, Greenbrier entered into a joint venture agreement with Bombardier Transportation ("Bombardier") to build railroad freight cars at Bombardier's existing manufacturing facility in Sahagun, Mexico. Each party holds a 50.0% non-controlling interest in the joint venture, and therefore Greenbrier's investment is being accounted for using the equity method. Greenbrier's share of the operating results is included as equity in earnings of unconsolidated subsidiary in the Consolidated Statements of Operations. The excess purchase price over the fair value of net assets acquired in these transactions has been included in intangible assets in the Consolidated Balance Sheets and is being amortized on a straight-line basis over 12 years. The above acquisitions were completed utilizing operating cash flows and available lines of credit. 34 NOTE 4 -- DIVESTITURES In 1997, a plan was adopted to sell the trailer and container leasing operation, in order to focus on core railcar operations. A portion of the trailer and container lease fleet was sold in 1997. In 1998, the sale of the remaining trailer and container fleet was completed. In 1997, an estimated pre-tax loss of approximately $1.6 million was included in the Consolidated Statements of Operations in special charges -- leasing & services for anticipated results of selling the operation. The results associated with the sale were more favorable than originally anticipated, resulting in a $2.3 million benefit in 1998. NOTE 5 -- INVENTORIES
(IN THOUSANDS) 2000 1999 ------------------------------------------------------ Manufacturing supplies and raw materials $ 23,071 $ 10,953 Work-in-process 55,227 66,255 Assets held for sale or refurbishment 49,186 15,287 ------------------------------------------------------ $127,484 $ 92,495 ======================================================
NOTE 6 -- INVESTMENT IN DIRECT FINANCE LEASES
(IN THOUSANDS) 2000 1999 ------------------------------------------------------ Future minimum receipts on lease contracts $151,879 $ 196,883 Maintenance, insurance and taxes (35,671) (43,940) ------------------------------------------------------ Net minimum lease receipts 116,208 152,943 Estimated residual values 51,848 51,901 Unearned finance charges (43,276) (61,659) ------------------------------------------------------ $124,780 $ 143,185 ======================================================
Minimum future receipts on the direct finance lease contracts are as follows:
(IN THOUSANDS) ------------------------------------------------------ YEAR ENDING AUGUST 31, 2001 $ 48,750 2002 40,215 2003 29,098 2004 18,339 2005 10,430 Thereafter 5,047 ------------------------------------------------------ $ 151,879 ======================================================
NOTE 7 -- EQUIPMENT ON OPERATING LEASES Equipment on operating leases is reported net of accumulated depreciation of $53.2 million and $49.5 million as of August 31, 2000 and 1999. In addition, certain railcar equipment is leased by the Company and subleased to customers under non-cancelable operating leases. Aggregate minimum future amounts receivable under all non-cancelable operating leases and subleases are as follows:
(IN THOUSANDS) ------------------------------------------------------ YEAR ENDING AUGUST 31, 2001 $ 16,585 2002 12,923 2003 11,346 2004 8,872 2005 6,819 Thereafter 3,548 ------------------------------------------------------ $ 60,093 ======================================================
Certain equipment is also operated under daily, monthly or mileage arrangements. Associated revenues amounted to $25.8 million, $23.0 million and $24.5 million for the years ended August 31, 2000, 1999 and 1998. NOTE 8 -- PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS) 2000 1999 ------------------------------------------------------ Land and improvements $ 9,326 $ 9,037 Machinery and equipment 63,772 51,384 Buildings and improvements 31,062 22,715 Other 20,227 21,788 ------------------------------------------------------ 124,387 104,924 Accumulated depreciation (46,759) (35,608) ------------------------------------------------------ $ 77,628 $ 69,316 ======================================================
35 NOTE 9 - INVESTMENT IN UNCONSOLIDATED SUBSIDIARY Summarized financial data for the Company's manufacturing joint venture for the year ended August 31, 2000 and 1999 is as follows:
(IN THOUSANDS) 2000 1999 ------------------------------------------------------ Current assets $ 25,623 $ 29,717 Total assets 44,407 40,156 Current liabilities 17,183 18,822 Equity 27,224 21,334 Revenues $ 100,313 $ 56,524 Net earnings $ 5,730 $ 1,334
NOTE 10 -- REVOLVING NOTES Credit facilities aggregated $129.3 million as of August 31, 2000. A $60.0 million revolving line of credit is available through May 2001 to provide working capital and interim financing of equipment for the leasing & services operations. A $40.0 million line of credit to be used for working capital is available through February 2002 for United States manufacturing operations. A $20.4 million (at the August 31, 2000 exchange rate) line of credit is available through March 2001 for working capital for Canadian manufacturing operations. Lines of credit totaling $6.4 million (at the August 31, 2000 exchange rate) are available principally through December 2000 for working capital for Polish manufacturing operations. A line of credit totaling $2.5 million (at the August 31, 2000 exchange rate) is available to support European operations. Advances under the lines of credit bear interest at rates, which vary depending on the type of borrowing and certain defined ratios. At August 31, 2000, there were no borrowings outstanding under the United States manufacturing and European lines. At August 31, 2000, $4.0 million and $4.9 million were outstanding under the Canadian and Polish manufacturing lines and $4.1 million was outstanding under the leasing & services line. Available borrowings under these lines are principally based upon defined levels of receivables, inventory and leased equipment. In addition, bank guarantees totaling $29.2 million (at the August 31, 2000 exchange rate), are available to support European operations, of which $19.3 million were issued at August 31, 2000. Subsequent to August 31, 2000, the Company entered into additional revolving loan and bank guarantees totaling $3.4 million and $11.4 million (at the August 31, 2000 exchange rate) to support European operations. NOTE 11 -- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
(IN THOUSANDS) 2000 1999 ------------------------------------------------------ Accounts payable and accrued liabilities $ 90,807 $ 69,578 Accrued payroll and related liabilities 18,215 19,518 Maintenance reserves 10,338 14,835 Participation 2,943 8,366 Other 25,489 19,177 ------------------------------------------------------ $147,792 $131,474 ======================================================
NOTE 12 -- NOTES PAYABLE
(IN THOUSANDS) 2000 1999 ------------------------------------------------------ Equipment notes payable $ 98,663 $ 121,816 Term loans 59,337 37,616 Other notes payable 1,363 1,969 ------------------------------------------------------ $159,363 $ 161,401 ======================================================
Equipment notes payable, related to the lease fleet, bear interest at fixed rates of 6.5% to 10.8% and are due in varying installments through June 2006. The weighted average remaining contractual life and weighted average interest rate of the notes as of August 31, 2000 and 1999 were approximately 27 and 37 months and 7.3% and 7.7% for 2000 and 1999. The notes are collateralized by certain lease fleet railcars. Term loans for manufacturing operations and acquisitions are due in varying installments through March 2011 and are collateralized by certain property, plant and equipment. As of August 31, 2000, the effective interest rates on the term loans ranged from 6.6% to 8.5%, except for Eastern Europe where borrowings of $1.5 million bear interest at 19.1%. Interest rate swap agreements are utilized to reduce the impact of changes in interest rates on certain debt. At August 31, 2000, such agreements had a notional amount of $30.0 million and mature between July 2008 and March 2011. 36 In February 1999, Greenbrier issued $30.0 million of senior term notes due 2006 (the "Notes"). In conjunction with the issuance of the Notes, $22.0 million of leasing equipment notes payable were repaid. The early retirement of this debt resulted in a $0.9 million extraordinary charge (net of income taxes of $0.7 million) in 1999 for prepayment penalties and the write-off of deferred loan costs. Principal payments on the notes payable are as follows:
(IN THOUSANDS) ------------------------------------------------------ YEAR ENDING AUGUST 31, 2001 $ 31,734 2002 34,721 2003 24,420 2004 20,649 2005 11,758 Thereafter 36,081 ------------------------------------------------------ $159,363 ======================================================
The revolving and operating lines of credit, along with certain equipment notes payable, contain covenants with respect to various subsidiaries, the most restrictive of which limit the payment of dividends or advances by subsidiaries and require certain levels of tangible net worth, ratio of debt to equity and debt service coverage. At August 31, 2000, the Company was in compliance with these covenants. NOTE 13 -- SUBORDINATED DEBT Subordinated notes, amounting to $37.7 million and $37.8 million at August 31, 2000 and 1999, were issued for railcars purchased as part of an agreement described in Note 21. The notes bear interest at 11.0% and 9.0%, with substantially all of the principal due ten years from the date of the notes, and are subordinated to all other liabilities of a subsidiary. Approximately $0.3 million becomes due in 2001, $10.3 million in 2002, $6.0 million in 2003, $5.9 million in 2004 and $6.4 million in 2005 with the remaining balance due after 2005. The agreement includes an option that, under certain conditions, provides for the seller to repurchase the railcars for the original acquisition cost to the Company at the date the underlying subordinated notes are due. Should such option be exercised, amounts due under the subordinated notes would be retired from the repurchase proceeds. NOTE 14 -- STOCKHOLDERS' EQUITY The Chairman and the Chief Executive Officer, who are the founding and majority stockholders, have entered into an agreement whereby they have agreed to vote their shares together to elect each other as directors of the Company and with respect to all other matters put to a vote of the stockholders. Certain loan covenants restrict the transfer of funds from the subsidiaries to the parent company in the form of cash dividends, loans, or advances. Restricted net assets of subsidiaries amounted to $79.8 million as of August 31, 2000. Consolidated retained earnings of $14.7 million at August 31, 2000 were restricted as to the payment of dividends. A stock incentive plan was adopted July 1, 1994 (the "1994 Plan") that provides for granting compensatory and non-compensatory options to employees and others. Outstanding options generally vest at 50.0% two years from grant with the balance five years from grant. No further grants will be awarded under this plan. On April 6, 1999, the Company adopted the Stock Incentive Plan -- 2000 (the "2000 Plan"), under which 1,000,000 shares of common stock are available for issuance with respect to options granted to employees, non-employee directors and consultants of the Company. The 2000 Plan authorizes the grant of incentive stock options, non-statutory stock options and restricted stock awards, or any combination of the foregoing. Under the 2000 Plan, the exercise price for incentive stock options may not be less than the market value of the Company's common stock at the time the option is granted. Options are exercisable not less than six months or more than 10 years after the date the option is granted. General awards under the 2000 Plan vest at 50.0% two years from the grant date, with the balance vesting five years from grant. 37 The following table summarizes stock option transactions for shares under option and the related weighted average option price:
WEIGHTED AVERAGE OPTION SHARES PRICE ---------------------------------------------------------------------- Balance at August 31, 1997 761,373 $ 13.62 Granted 3,000 17.34 Exercised (92,772) 13.17 Canceled (24,742) 13.94 --------------------------------------------------------- Balance at August 31, 1998 646,859 13.62 Granted 642,500 11.37 Exercised (1,860) 13.14 Canceled (16,534) 14.00 --------------------------------------------------------- Balance at August 31, 1999 1,270,965 12.73 Granted 262,500 8.69 Expired (3,000) 16.75 Canceled (27,491) 12.59 --------------------------------------------------------- Balance at August 31, 2000 1,502,974 11.75 =========================================================
Options outstanding at August 31, 2000 have exercise prices ranging from $8.56 to $17.34 per share and have a remaining contractual life of 4.74 years. As of August 31, 2000, options to purchase 556,324 shares were exercisable and 737,500 shares were available for grant. Options to purchase 1,000,000 and 640,000 shares were available for grant at August 31, 1999 and 1998. As discussed in Note 2, the disclosure-only provisions of SFAS No. 123 have been adopted. Accordingly, no compensation cost has been recognized for stock options granted with an exercise price equal to the fair value of the underlying stock on the date of grant. Had compensation costs been determined based on the estimated fair value of the options at the date of grant, the net earnings and net earnings per common share for the years ended August 31, 2000, 1999 and 1998 would not have differed materially from the amounts reported. NOTE 15 -- RELATED PARTY TRANSACTIONS The Company purchased railcars totaling $48.3 million and $54.2 million for the years ended August 31, 2000 and 1999 from a 50.0%-owned joint venture for subsequent sale or for its own lease fleet. Maintenance, management and other fees received from a related entity under an agreement were $0.5 million, $0.9 million and $0.9 million for the years ended August 31, 2000, 1999 and 1998. A member of the board of directors of a Canadian subsidiary also serves as a director of a company from which the majority of the Canadian subsidiary's steel requirements are acquired. NOTE 16 -- EMPLOYEE BENEFIT PLANS Defined contribution plans are available to substantially all United States employees. Contributions are based on a percentage of employee contributions and amounted to $1.1 million, $0.8 million and $0.6 million for the years ended August 31, 2000, 1999 and 1998. Defined benefit pension plans are provided for Canadian and German employees covered by collective bargaining agreements. The plans provide pension benefits based on years of credited service. Contributions to the plan are actuarially determined and are intended to fund the net periodic pension cost. The plans' assets, obligations and pension cost are not material to the consolidated financial statements. Nonqualified deferred benefit plans exist for certain employees. Expenses resulting from contributions to the plans, which are based on earnings, were $1.5 million, $0.9 million and $2.4 million for the years ended August 31, 2000, 1999 and 1998. NOTE 17 -- INCOME TAXES Components of income tax expense are as follows:
(IN THOUSANDS) 2000 1999 1998 ---------------------------------------------------------------- Current: Federal $ 2,466 $ 5,174 $ 13,139 State 1,506 1,092 2,581 Foreign 4,477 8,243 2,140 ---------------------------------------------------------------- 8,449 14,509 17,860 Deferred: Federal 5,787 6,317 181 State 598 1,617 (2,062) Foreign 1,219 (1,464) (336) ---------------------------------------------------------------- 7,604 6,470 (2,217) ---------------------------------------------------------------- $16,053 $ 20,979 $ 15,643 ================================================================
38 Income tax expense is computed at rates different than statutory rates. The reconciliation between effective and statutory tax rates on continuing operations is as follows:
2000 1999 1998 ------------------------------------------------------------------ Statutory rates 35.0% 35.0% 35.0% State income taxes, net of federal benefit 4.3 4.0 4.5 Impact of foreign taxes 11.9 7.4 0.6 Other 0.6 1.7 1.7 ------------------------------------------------------------------ 51.8% 48.1% 41.8% ==================================================================
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are as follows:
(IN THOUSANDS) 2000 1999 --------------------------------------------------------------- Deferred tax assets: Alternative minimum tax credit carryforward $ (4,417) $ (6,783) Deferred participation (21,775) (20,434) Maintenance and warranty reserves (5,553) (7,454) Accrued payroll and related liabilities (3,245) (7,420) Deferred revenue (872) (275) Inventories and other (4,094) (4,005) ------------------------------------------------------------ (39,956) (46,371) Deferred tax liabilities: Accelerated depreciation 64,925 64,610 Other 2,671 2,269 ------------------------------------------------------------ Net deferred tax liability attributable to continuing operations 27,640 20,508 Net deferred tax liability attributable to discontinued operations (2,402) (2,874) ------------------------------------------------------------ Net deferred tax liability $ 25,238 $ 17,634 ============================================================
NOTE 18 - SEGMENT INFORMATION Greenbrier has two reportable segments: manufacturing and leasing & services. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Performance is evaluated based on margin, which is presented in the Consolidated Statements of Operations. Intersegment sales and transfers are accounted for as if the sales or transfers were to third parties. The information in the following tables is derived directly from the segments' internal financial reports used for corporate management purposes. Unallocated assets primarily consist of cash, short-term investments and capitalized loan costs.
(IN THOUSANDS) 2000 1999 1998 -------------------------------------------------------------------- Revenue: Manufacturing $582,543 $548,038 $ 470,025 Leasing & services 116,994 127,630 107,147 Intersegment eliminations (80,108) (57,132) (36,811) -------------------------------------------------------------------- $619,429 $618,536 $ 540,361 ==================================================================== Assets: Manufacturing $232,265 $188,147 $ 162,907 Leasing & services 338,908 284,401 298,811 Unallocated 12,936 78,168 43,771 -------------------------------------------------------------------- $584,109 $550,716 $ 505,489 ==================================================================== Depreciation and amortization: Manufacturing $ 9,847 $ 7,794 $ 4,774 Leasing & services 10,509 8,683 9,753 -------------------------------------------------------------------- $ 20,356 $ 16,477 $ 14,527 ==================================================================== Capital expenditures: Manufacturing $ 19,476 $ 23,260 $ 11,887 Leasing & services 74,515 47,717 39,314 -------------------------------------------------------------------- $ 93,991 $ 70,977 $ 51,201 ====================================================================
39 The Company has operations in the United States, Canada and Europe. The following table summarizes selected geographic information. Eliminations are sales between geographic areas.
(IN THOUSANDS) 2000 1999 1998 -------------------------------------------------------------------- Revenue: United States $393,213 $387,735 $ 386,064 Canada 239,658 231,767 169,335 Europe 53,230 20,183 -- Eliminations (66,672) (21,149) (15,038) -------------------------------------------------------------------- $619,429 $618,536 $ 540,361 ==================================================================== Earnings(1): United States $ 25,156 $ 33,413 $ 33,162 Canada 15,350 16,280 4,345 Europe (5,299) (6,120) -- Eliminations (4,204) 50 (103) -------------------------------------------------------------------- $ 31,003 $ 43,623 $ 37,404 ==================================================================== Identifiable assets: United States $464,276 $469,133 $ 452,323 Canada 57,899 64,162 53,166 Europe 61,934 17,421 -- -------------------------------------------------------------------- $584,109 $550,716 $ 505,489 ====================================================================
(1) From continuing operations before income tax expense, minority interest and equity in earnings of unconsolidated subsidiary. NOTE 19 -- CUSTOMER CONCENTRATION In 2000, revenue from the two largest customers was 30.1% and 8.9% of total revenues. Revenue from the two largest customers was 28.3% and 16.7% of total revenues for the year ended August 31, 1999 and 25.0% and 16.0% of total revenues for the year ended August 31, 1998. No other customers accounted for more than 10.0% of total revenues in 2000, 1999, or 1998. Two customers had balances that individually exceeded 10.0% of accounts receivable and in total represented 40.4% of the consolidated balance at August 31, 2000. Three customers had balances that individually exceeded 10.0% of accounts receivable and in total represented 64.0% of the consolidated balance at August 31, 1999. Note 20 -- Lease Commitments Lease expense for railcar equipment leased under non-cancelable leases was $7.4 million, $7.3 million and $5.0 million, for the years ended August 31, 2000, 1999 and 1998. Aggregate minimum future amounts payable under non-cancelable railcar equipment leases are as follows:
(IN THOUSANDS) ------------------------------------------------ YEAR ENDING AUGUST 31, 2001 $ 4,154 2002 3,283 2003 2,668 2004 1,226 2005 125 Thereafter -- ------------------------------------------------ $ 11,456 ================================================
Operating leases for domestic refurbishment facilities, office space and certain manufacturing and office equipment expire at various dates through September 2014. Rental expense for facilities, office space and equipment was $2.9 million, $2.5 million and $1.9 million for the years ended August 31, 2000, 1999 and 1998. Aggregate minimum future amounts payable under non-cancelable operating leases are as follows:
(IN THOUSANDS) ------------------------------------------------ YEAR ENDING AUGUST 31, 2001 $ 2,748 2002 2,643 2003 2,168 2004 1,627 2005 1,258 Thereafter 5,189 ------------------------------------------------ $ 15,633 ================================================
NOTE 21 -- COMMITMENTS AND CONTINGENCIES In 1990, an agreement was entered into for the purchase and refurbishment of over 10,000 used railcars. The agreement provides that, under certain conditions, the seller will receive a percentage of operating earnings of a subsidiary, as defined. Amounts accrued are referred to as participation and are included in accrued liabilities and deferred participation in the Consolidated Balance Sheets. Participation expense related to this and a similar, but smaller agreement was $9.7 million, $14.0 million and $7.2 million for the years ended August 31, 2000, 1999 and 1998. Payment of deferred participation is estimated to be $3.0 million in 2001, $4.5 million in 2002, $10.8 million in 2003, $21.7 million in 2004 and $17.7 million in 2005 with the remaining balance due after 2005. 40 At the August 31, 2000 exchange rates, forward exchange contracts for the purchase of Canadian dollars aggregated $47.8 million, contracts for the purchase of Polish zloties aggregated $15.8 million and contracts for the purchase of United States dollars aggregated $2.0 million. These contracts mature at various dates through June 2001. At August 31, 2000, gains and losses of approximately $0.8 million and $0.4 million on such contracts have been deferred and will be recognized in earnings concurrent with the hedged transaction. Environmental studies have been conducted of owned and leased properties that indicate additional investigation and some remediation may be necessary. The Portland, Oregon manufacturing facility is located on the Willamette River. The United States Environmental Protection Agency is considering possible classification of portions of the river bed, including the portion fronting the facility, as a federal "superfund" site due to sediment contamination. There is no indication that the Company has contributed to contamination of the Willamette River bed, although uses by prior owners of the property may have contributed. Nevertheless, ultimate classification of the Willamette River may have an impact on the value of the Company's investment in the property and may require the Company to initially bear a portion of the cost of any mandated remediation. The Company may be required to perform periodic maintenance dredging in order to continue to launch vessels from its launch ways on the river, and classification as a superfund site could result in some limitations on future launch activity. The outcome of such actions cannot be estimated; however, management believes that any ultimate liability resulting from environmental issues will not materially affect the financial position, results of operations, or cash flows of the Company. Management believes that its operations adhere to sound environmental practices, applicable laws and regulations. From time to time, the Company is involved as a defendant in litigation in the ordinary course of business, the outcome of which cannot be predicted with certainty. Litigation has been initiated by former shareholders of Interamerican Logistics, Inc. ("Interamerican"), which was acquired in the fall of 1996. The plaintiffs allege that the Company violated the agreements pursuant to which it acquired ownership of Interamerican and seek damages aggregating $4.5 million Canadian. Management contends the claim to be without merit and intends to vigorously defend its position. Management believes that any ultimate liability resulting from litigation will not materially affect the financial position, results of operations, or cash flows of the Company. Employment agreements, which expire August 31, 2004, with the Chairman and the Chief Executive Officer, provide each with a minimum annual salary and a bonus calculated based on operating results, as defined. The minimum annual aggregate defined payment under the agreements is $0.7 million and the maximum is $2.1 million. NOTE 22 - FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of financial instruments and the methods and assumptions used to estimate such fair values are as follows:
2000 ------------------------------ CARRYING ESTIMATED (IN THOUSANDS) AMOUNT FAIR VALUE ------------------------------------------------------------------------------- Notes payable and subordinated debt $197,111 $ 174,575 Deferred participation 54,266 42,278 1999 ------------------------------ CARRYING ESTIMATED (IN THOUSANDS) AMOUNT FAIR VALUE ------------------------------------------------------------------------------- Notes payable and subordinated debt $199,189 $ 179,456 Deferred participation 50,439 33,681
The carrying amount of cash and cash equivalents, restricted cash and investments, accounts and notes receivable, revolving notes and accounts payable and accrued liabilities is a reasonable estimate of fair value of these financial instruments. Estimated rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of notes payable and subordinated debt. The fair value of deferred participation is estimated by discounting the estimated future cash payments using the Company's estimated incremental borrowing rate. The carrying value and fair value of foreign currency forward contracts and interest rate swaps are not material. 41 QUARTERLY RESULTS OF OPERATIONS Unaudited operating results by quarter for 2000 and 1999 are as follows:
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FIRST SECOND THIRD FOURTH TOTAL ---------------------------------------------------------------------------------------------------- 2000 Revenue Manufacturing $ 91,749 $ 149,387 $ 147,054 $ 140,050 $ 528,240 Leasing & services 21,253 23,436 24,861 21,639 91,189 ----------------------------------------------------------------------------------------------------- 113,002 172,823 171,915 161,689 619,429 Cost of revenue Manufacturing 80,013 132,070 131,041 123,224 466,348 Leasing & services 12,214 12,332 11,817 10,348 46,711 ----------------------------------------------------------------------------------------------------- 92,227 144,402 142,858 133,572 513,059 Margin $ 20,775 $ 28,421 $ 29,057 $ 28,117 $ 106,370 ===================================================================================================== Net earnings $ 424 $ 4,303 $ 4,241 $ 5,386 $ 14,354 ===================================================================================================== Net earnings per common share: Basic $ .03 $ .30 $ .30 $ .38 $ 1.01 ===================================================================================================== Diluted $ .03 $ .30 $ .30 $ .38 $ 1.01 ===================================================================================================== 1999 Revenue Manufacturing $100,074 $145,048 $ 152,360 $ 122,829 $ 520,311 Leasing & services 20,012 21,892 21,712 34,609 98,225 ----------------------------------------------------------------------------------------------------- 120,086 166,940 174,072 157,438 618,536 Cost of revenue Manufacturing 90,393 127,128 133,695 104,906 456,122 Leasing & services 8,198 10,339 10,300 19,845 48,682 ----------------------------------------------------------------------------------------------------- 98,591 137,467 143,995 124,751 504,804 Margin $ 21,495 $ 29,473 $ 30,077 $ 32,687 $113,732 ===================================================================================================== Net earnings $ 2,866 $ 5,151(1) $ 6,179 $ 5,285(2) $ 19,481 ===================================================================================================== Net earnings per common share: Basic(3) $ .20 $ .36(1) $ .43 $ .37 $ 1.37 ===================================================================================================== Diluted $ .20 $ .36(1) $ .43 $ .37 $ 1.36 =====================================================================================================
(1) Includes an extraordinary charge of $0.9 million, or $0.07 per share, representing prepayment penalties and the write-off of deferred loan costs. (2) Includes earnings of $1.1 million resulting from the resolution of certain matters on a leasing contract that began in 1990. (3) The sum of quarterly earnings per common share may not equal annual earnings per common share as a result of the computation of quarterly versus annual weighted average common shares outstanding. 42