-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QXUgIo2I+gLHf6hP69TGRwpo/aadZn9IiEH4ZT1tVKiUmofo084s9WNtuNEvjgGf XiocyzQdLsolAU0gRv/uuw== 0000923120-99-000012.txt : 19990715 0000923120-99-000012.hdr.sgml : 19990715 ACCESSION NUMBER: 0000923120-99-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990531 FILED AS OF DATE: 19990714 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREENBRIER COMPANIES INC CENTRAL INDEX KEY: 0000923120 STANDARD INDUSTRIAL CLASSIFICATION: RAILROAD EQUIPMENT [3743] IRS NUMBER: 930816972 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13146 FILM NUMBER: 99664223 BUSINESS ADDRESS: STREET 1: ONE CENTERPOINTE DR STREET 2: STE 200 CITY: LAKE OSWEGO STATE: OR ZIP: 97035 BUSINESS PHONE: 5036847000 MAIL ADDRESS: STREET 1: ONE CENTERPOINTE DR STREET 2: STE 200 CITY: LAKE OSWEGO STATE: OR ZIP: 97035 10-Q 1 THE GREENBRIER COMPANIES, INC. FORM 10-Q 11/30/98 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, 1999 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, 1999 was 14,254,632 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, 1999 1998 ---------- ---------- Assets Cash and cash equivalents $ 46,829 $ 41,912 Restricted cash and investments 629 15,997 Accounts and notes receivable 60,324 47,537 Inventories 86,366 79,849 Investment in direct finance leases 148,255 160,940 Equipment on operating leases 93,760 95,569 Property, plant and equipment 62,439 49,452 Prepaid expenses and other 25,919 14,233 ---------- ---------- $524,521 $505,489 ========== ========== Liabilities and Stockholders' Equity Accounts payable and accrued liabilities $135,632 $132,121 Deferred participation 49,320 45,243 Deferred income taxes 13,510 11,164 Notes payable 144,112 147,876 Subordinated debt 37,816 37,932 Minority interest 12,181 9,783 Commitments and contingencies (Note 6) Stockholders' equity: Preferred stock - $0.001 par value, 25,000 shares authorized, none outstanding - - Common stock - $0.001 par value, 50,000 shares authorized, 14,255 and 14,253 outstanding at May 31, 1999 and August 31, 1998 14 14 Additional paid-in capital 50,490 50,416 Retained earnings 83,243 71,612 Accumulated other comprehensive income (1,797) (672) ---------- ---------- 131,950 121,370 ---------- ---------- $524,521 $505,489 ========== ========== The accompanying notes are an integral part of these statements. THE GREENBRIER COMPANIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts, unaudited) Three Months Ended Nine Months Ended May 31, May 31, ------------------ ------------------ 1999 1998 1999 1998 -------- -------- -------- -------- Revenue Manufacturing $152,360 $129,899 $397,482 $348,874 Leasing and services 21,712 20,759 63,616 66,786 -------- -------- -------- -------- 174,072 150,658 461,098 415,660 Cost of revenue Manufacturing 133,695 116,664 351,216 320,289 Leasing and services 10,300 8,169 28,837 26,418 -------- -------- -------- -------- 143,995 124,833 380,053 346,707 Margin 30,077 25,825 81,045 68,953 Other costs Selling and administrative expense 13,013 10,288 34,805 26,597 Interest expense 4,390 5,094 14,541 16,325 -------- -------- -------- -------- 17,403 15,382 49,346 42,922 Earnings before income tax expense, minority interest, equity in unconsolidated subsidiary and extraordinary charge 12,674 10,443 31,699 26,031 Income tax expense (5,801) (4,381) (14,948) (10,941) -------- -------- -------- -------- Earnings before minority interest, equity in unconsolidated subsidiary and extraordinary charge 6,873 6,062 16,751 15,090 Minority interest (1,041) (554) (1,936) (1,146) Equity in unconsolidated subsidiary 347 - 319 - -------- -------- -------- -------- Earnings before extraordinary charge 6,179 5,508 15,134 13,944 Extraordinary charge, net of taxes - - (938) - -------- -------- -------- -------- Net earnings $ 6,179 $ 5,508 $ 14,196 $ 13,944 ======== ======== ======== ======== Basic earnings per share: Earnings before extraordinary charge $ 0.43 $ 0.39 $ 1.06 $ 0.98 Extraordinary charge - - (0.07) - -------- -------- -------- -------- Net earnings $ 0.43 $ 0.39 $ 0.99 $ 0.98 ======== ======== ======== ======== Diluted earnings per share: Earnings before extraordinary charge $ 0.43 $ 0.38 $ 1.06 $ 0.97 Extraordinary charge - - (0.07) - -------- -------- -------- -------- Net earnings $ 0.43 $ 0.38 $ 0.99 $ 0.97 ======== ======== ======== ======== Weighted average shares outstanding: Basic 14,255 14,219 14,254 14,189 Diluted 14,272 14,379 14,285 14,333 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, ------------------ 1999 1998 -------- -------- Cash flows from operating activities Net earnings $ 14,196 $ 13,944 Adjustments to reconcile net earnings to net cash provided by operating activities: Extraordinary charge 938 - Deferred income taxes 2,346 (2,132) Deferred participation 4,077 4,739 Depreciation and amortization 11,643 11,459 Gain on sales of equipment (3,540) (6,666) Other 1,092 1,119 Decrease (increase) in assets: Accounts and notes receivable (15,023) (2,566) Inventories (8,246) 29,904 Prepaid expenses and other (663) 1,450 Increase in liabilities: Accounts payable and accrued liabilities 423 8,059 -------- -------- Net cash provided by operating activities 7,243 59,310 -------- -------- Cash flows from investing activities Acquisition of subsidiaries, net of cash (8,553) - Principal payments received under direct finance leases 12,448 11,254 Investment in direct finance leases (135) (574) Proceeds from sales of equipment 31,093 112,889 Purchase of property and equipment (42,030) (38,411) Use of (investment in) restricted cash and investments 15,368 (7,988) -------- -------- Net cash provided by investing activities 8,191 77,170 -------- -------- Cash flows from financing activities Proceeds from borrowings 33,586 1,436 Repayments of borrowings (41,567) (106,644) Purchase of minority interest - (7,772) Dividends paid (2,565) (2,554) Proceeds from stock options 29 1,065 -------- -------- Net cash used in financing activities (10,517) (114,469) -------- -------- Increase in cash and cash equivalents 4,917 22,011 Cash and cash equivalents Beginning of period 41,912 14,384 -------- -------- End of period $ 46,829 $ 36,395 ======== ======== Supplemental disclosures of cash flow information Cash paid during the period for: Interest $ 13,195 $ 16,563 Income taxes 5,355 9,600 Supplemental schedule of noncash investing and financing activities Purchase of minority interest $ - $ 1,580 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 accompanying consolidated financial statements of The Greenbrier Companies, Inc. and Subsidiaries ("Greenbrier" or the "company") 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 three and nine-month periods ended May 31, 1999 are not necessarily indicative of the results to be expected for the entire year ending August 31, 1999. Certain reclassifications have been made to the prior year's consolidated financial statements to conform with the 1999 presentation. 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 and notes thereto contained in Greenbrier's 1998 Annual Report incorporated by reference into the company's 1998 Annual Report on Form 10-K. Note 2 - INVENTORIES May 31, August 31, 1999 1998 ---------- ---------- Supplies and raw materials $12,094 $ 8,750 Work-in-process 49,034 62,267 Assets held for sale or refurbishment 25,238 8,832 ---------- ---------- $86,366 $79,849 ========== ========== Note 3 - COMPREHENSIVE INCOME As of September 1, 1998, the company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this statement had no impact on net earnings. The following is a reconciliation of net earnings to comprehensive income: Three Months Ended Nine Months Ended May 31, May 31, ------------------ ------------------ 1999 1998 1999 1998 -------- -------- -------- -------- Net earnings $6,179 $5,508 $14,196 $13,944 Foreign currency translation adjustment, net of tax (90) (153) (1,125) (349) -------- -------- -------- -------- Comprehensive income $6,089 $5,355 $13,071 $13,595 ======== ======== ======== ======== Note 4 - NOTES PAYABLE In February 1999, Greenbrier issued $30,000 of 6.48% senior term notes due 2006 (the "Notes"). Interest on the Notes is payable semi-annually commencing June 1999, and semi-annual principal payments of $2,800 are required beginning June 2001. In conjunction with the issuance of the Notes, $22,000 of leasing equipment notes payable were repaid. The early retirement of this debt resulted in a $938 extraordinary charge, net of income taxes of $680, for prepayment penalties and the write-off of deferred loan costs. THE GREENBRIER COMPANIES, INC. Note 5 - ACQUISITIONS In September 1998, Greenbrier acquired a 60% interest in a railcar manufacturer, WagonySwidnica, located in Swidnica, Poland. Polish investors hold the remaining ownership interest. This acquisition establishes a European manufacturing base and provides access to the European markets, particularly the market in Poland. The acquisition has been accounted for using the purchase method, and goodwill arising out of the transaction is included in other assets and is being amortized on a straight-line basis over 12 years. Assets acquired consisted primarily of plant and equipment of $6 million and inventory of $2 million. WagonySwidnica's functional currency is the Polish zloty, which is translated to U.S. dollars for reporting purposes. Translation adjustments are accumulated as a separate component of stockholders' equity. Results of operations of WagonySwidnica have been included in the accompanying financial statements from the date of acquisition. Pro-forma information is not presented as the impact of this acquisition was not significant in relation to the company's financial position or results of operations. Also in September 1998 Greenbrier entered into a joint venture, Greenbrier-Concarril, with Bombardier Transportation to build railroad freight cars at Bombardier's existing manufacturing facility in Sahagun, Mexico. This investment expands Greenbrier's North American capacity, enhances geographic coverage and provides improved access to the Mexican marketplace. Each party maintains a 50% non-controlling interest in the joint venture; therefore, Greenbrier's investment is being accounted for using the equity method, and Greenbrier's share of operating results is included in consolidated net income as equity in unconsolidated subsidiary. The initial investments, required capital expenditures and working capital needs for both of these operations were funded through existing cash balances. Note 6 - COMMITMENTS AND CONTINGENCIES Purchase commitments of approximately $2 million for leasing and services operating equipment were outstanding as of May 31, 1999. Greenbrier is involved as a defendant in litigation in the ordinary course of business, the outcome of which cannot be predicted with certainty. Litigation has been initiated by former shareholders of Interamerican Logistics Inc. ("Interamerican"), which was acquired in 1996. The plaintiffs allege that Greenbrier violated the agreements pursuant to which it acquired ownership of Interamerican and seek damages aggregating $4,000 Canadian. Management believes the suit is without merit and that any ultimate liability resulting from litigation will not materially affect the financial position, results of operations or cash flows of the company. THE GREENBRIER COMPANIES, INC. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Greenbrier currently operates in two primary business segments: manufacturing and leasing and 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, a portion of which is for the leasing operation. The leasing and services segment owns or manages a fleet of approximately 33,000 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 railcars produced in a given period may be delivered in subsequent periods, delaying revenue recognition. Greenbrier may also build railcars for its own lease fleet. Revenues do not include sales of new railcars to, or refurbishment services performed for, the leasing operation 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 segment over the related life of the asset or upon sale of the equipment. Overview Net earnings for the three and nine-month periods ended May 31, 1999 were $6.2 million or $.43 per diluted share and $14.2 million or $.99 per diluted share. This compares to net earnings of $5.5 million or $.38 per diluted share and $13.9 million or $.97 per diluted share for the corresponding periods in 1998. The current period nine-month results include an after-tax extraordinary charge of $938 thousand, or $.07 per diluted share, resulting from the refinancing of $22 million of notes payable in February 1999. 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% non-controlling interest in the joint venture, therefore Greenbrier's investment is being accounted for using the equity method, and Greenbrier's share of operating results is included in consolidated net income as equity in unconsolidated subsidiary. Also in September 1998, Greenbrier acquired a 60% interest in a Polish facility that produces freight cars for the European market. Net losses from European operations, which include the Polish facility and related sales and marketing costs were $800 thousand and $2.3 million for the three and nine-month periods ended May 31, 1999. The company has committed sales and marketing resources to the development of European operations based on the growth potential of the European rail market. Sales efforts have been intensified in order to increase production to higher, more profitable levels. Three Months Ended May 31, 1999 Compared to Three Months Ended May 31, 1998 Manufacturing New railcar deliveries from all facilities, including the joint venture in Mexico accounted for under the equity method, were 3,000 units in the current period compared to 2,200 units in the prior comparable period. The backlog of new railcars to be manufactured for sale and lease at all facilities as of May 31, 1999 was approximately 5,600 railcars with an estimated value of $350 million compared to 7,400 railcars valued at $450 million as of February 28, 1999. Manufacturing revenue for the three-month period ended May 31, 1999 was $152.4 million compared to $129.9 million in the corresponding prior period, an increase of $22.5 million, or 17%. The increase in revenue resulted primarily from increased new railcar deliveries and a product mix with a higher unit sales value. Manufacturing gross margin of 12% for the three months ended May 31, 1999 compares favorably to the prior period gross margin of 10% as a result of manufacturing efficiencies and a temporary reduction in certain material costs for the North American operations. THE GREENBRIER COMPANIES, INC. Leasing and Services Leasing and services revenue was $21.7 million for the three months ended May 31, 1999, compared to $20.8 million for the prior comparable period. A multi-year maintenance management agreement that began in December 1998 contributed to an increase in revenue in the current period, offset by lower gains on sales of leased equipment. Assets from Greenbrier's owned lease fleet are periodically sold to take advantage of market conditions, manage risk and maintain liquidity. Pre-tax earnings realized on the disposition of leased equipment during the quarter ended May 31, 1999 were $300 thousand compared to $2.7 million in the corresponding prior period. Leasing and services operating margin was 53% for the three-month period ended May 31, 1999 compared to 61% in the corresponding prior period. The decreased margin is primarily due to lower gains on the disposition of leased equipment and the lower-margin maintenance agreement that began in December 1998. Other Costs Selling and administrative expense increased $2.7 million, or 26%, to $13.0 million for the three months ended May 31, 1999 as compared to $10.3 million in the prior comparable period. The increase is primarily due to the addition of the European operations, international sales, marketing and business development activities, and employee related costs. As a percentage of revenue, selling and administrative expense was 7% for the three months ended May 31, 1999 and 1998. Interest expense declined to $4.4 million for the three-month period ended May 31, 1999 as compared to $5.1 million in the prior period as a result of decreased borrowings related to North American operations, partially offset by increased borrowings and related costs for European operations. Income tax expense for the three months ended May 31, 1999 represents an effective tax rate of 42% on U.S. operations and varying effective tax rates on foreign operations, consistent with the prior comparable period. The consolidated effective tax rate of 46% in the current period is a result of European operating losses for which no tax benefit has been recognized. The consolidated effective tax rate for the prior comparable period was 42%. Minority interest increased for the three months ended May 31, 1999 as compared to the prior period as a result of improved results from the Canadian manufacturing operation partially offset by losses from the Polish manufacturing operation. Nine Months Ended May 31, 1999 Compared to Nine Months Ended May 31, 1998 Manufacturing New railcar deliveries at all facilities, including the joint venture in Mexico accounted for under the equity method, were 6,700 units compared to 5,800 units in the prior comparable period. Manufacturing revenue for the nine-month period ended May 31, 1999 was $397.5 million compared to $348.9 million in the corresponding prior period, an increase of $48.6 million or 14%. The increase in revenue resulted primarily from increased new railcar deliveries and a product mix with a higher unit sale value. Manufacturing gross margin of 12% compares favorably to the prior period gross margin of 8% as a result of manufacturing efficiencies and a temporary reduction in certain material costs for the North American operations in the current period. Conversely, the prior period margin was affected by a temporary increase in certain material costs. THE GREENBRIER COMPANIES, INC. Leasing and Services Leasing and services revenue decreased $3.2 million, or 5%, to $63.6 million for the nine months ended May 31, 1999 compared to $66.8 million for the nine months ended May 31, 1998. This decrease is primarily due to reduced revenue from trailer and container leasing operations as substantially all of these assets were sold in October 1997, as well as decreased gains on sales of leased equipment. The decrease was partially offset by revenue from a maintenance management agreement that began in December 1998. Pre-tax earnings realized on the disposition of leased equipment during the nine-month period ended May 31, 1999 were $3.4 million compared to $6.0 million in the corresponding prior period. Leasing and services operating margin was 55% for the nine months ended May 31, 1999 compared to 60% for the corresponding period in 1998. The decreased margin is primarily due to a reduction in gains on sales of leased equipment and the lower-margin maintenance management agreement that began in December 1998. Other Costs Selling and administrative expense increased $8.2 million, or 31%, to $34.8 million for the nine months ended May 31, 1999 compared to $26.6 million for the comparable period in 1998. As a percentage of revenue, selling and administrative expense increased to 8% for the nine months ended May 31, 1999 from 6% in the prior comparable period. The increase is primarily due to the addition of the European operations, international sales, marketing and business development activities, and employee- related costs. Interest expense for the nine months ended May 31, 1999 decreased $1.8 million to $14.5 million compared to $16.3 million in the prior period as a result of decreased borrowings related to North American operations, offset in part by financing costs associated with the European operations. Income tax expense for the nine months ended May 31, 1999 represents an effective tax rate of 42% on U.S. operations and varying effective tax rates on foreign operations, consistent with the prior comparable period. The consolidated effective tax rate of 47% in the current period is a result of European operating losses for which no tax benefit has been recognized. The consolidated effective tax rate for the prior comparable period was 42%. Minority interest increased for the nine months ended May 31, 1999 as compared to the prior period as a result of improved results from the Canadian manufacturing operation offset by losses from the Polish manufacturing operation. Liquidity and Capital Resources Credit facilities aggregated $130 million as of May 31, 1999. A $60 million revolving line of credit is available through May 2000 to provide working capital and interim financing of equipment for the leasing and services operations. A $40 million operating line of credit to be used for working capital is available through February 2002 for U.S. manufacturing operations. A $20 million (at the May 31, 1999 exchange rate) operating line of credit is available through March 2000 for working capital for Canadian operations. Advances under both the revolving and operating lines of credit are based upon defined levels of receivables, inventory and leased equipment. Interest rates vary depending on the type of borrowing and certain defined ratios. An additional $7 million five-year term loan facility and $3 million lease facility are available through March 2000 for Canadian capital expenditures. At May 31, 1999, no borrowings were outstanding under any of the operating lines or the lease facility and $3 million was outstanding under the term loan facility. Capital expenditures totaled $42 million for the nine months ended May 31, 1999 compared to $39 million for the nine months ended May 31, 1998. Of these capital expenditures, approximately $29 million and $31 million, respectively, were attributable to leasing and services operations. Leasing and services capital expenditures for the remainder of 1999 are expected to be approximately $24 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 $13 million and $8 million of the total capital expenditures for the nine months ended May 31, 1999 and 1998, respectively, were attributable to manufacturing operations. Manufacturing capital expenditures for the remainder of 1999 are expected to be approximately $14 million, and will include plant improvements and equipment acquisitions to further increase capacity, enhance efficiencies and allow for the production of new products. THE GREENBRIER COMPANIES, INC. Foreign operations give rise to market risks from changes in foreign currency exchange rates. Forward exchange contracts are utilized to hedge a portion of the risk of foreign currency fluctuations. As of May 31, 1999, forward exchange contracts outstanding for the purchase of Canadian and US dollars were $74.5 million, maturing at various dates through April 2000. Realized and unrealized gains and losses from such off-balance sheet contracts are deferred and recognized in income concurrent with the hedged transaction. Management expects existing funds and cash generated from operations, borrowings under existing credit facilities, and long- term financing to be sufficient to fund dividends, working capital needs, planned capital expenditures, acquisitions and expected debt repayments. Year 2000 The "Year 2000" issue refers to computer programs which use two rather than four digits to define a given year and which therefore might read a date using "00" as the year 1900 rather than the year 2000. This could result in a computer failing to perform or performing incorrect computations in programs that have date- sensitive software. A variety of computer systems, applications and automated equipment are utilized in daily operations and may be affected by the Year 2000 issue. Greenbrier developed a Year 2000 readiness plan which assessed the impact of the Year 2000 issue on both information systems and embedded manufacturing control technology. An audit of the Year 2000 readiness plan was performed by an outside consultant. Greenbrier is developing and implementing a remediation plan for mission-critical systems. These systems include manufacturing equipment and internal computer systems supporting the manufacturing and railcar leasing and services operations. Greenbrier is working with equipment manufacturers to obtain Year 2000 certification. Systems and embedded technology not already Year 2000 compliant are expected to be corrected by August 1999. As part of ongoing equipment replacement programs, non-compliant computers are being replaced in advance of any key Year 2000 processing dates and non-compliant software is being corrected or replaced. To date, Greenbrier's internal remediation efforts and readiness is more than 80% complete. Some critical business systems rely on data supplied by third- parties. Greenbrier is making efforts to determine the Year 2000 preparedness of these outside entities, but it could be adversely impacted if its suppliers and vendors do not make necessary changes to their own systems and products successfully or in a timely manner. Greenbrier also supplies data in electronic format to various customers and suppliers. Greenbrier has key relationships with a number of vendors and suppliers, including banks and other providers of goods and services. The company has requested vendors to supply Year 2000 compliance documentation, but it has not yet been determined whether all of the vendors and suppliers are Year 2000 compliant. Reliance on single vendor source suppliers, however, is minimal, and the company seeks to limit sole source supply relationships. The company could be adversely impacted if its suppliers and vendors do not make necessary changes to their own systems and products successfully or timely. To date, critical vendor and supplier assessment is more than 75% complete. Costs to be incurred in responding to Year 2000 computer system deficiencies, together with the cost of any required modifications to the company's systems, beyond ongoing hardware replacements and software upgrades performed in the normal course of business, cannot be accurately estimated at this time. Costs incurred to date in assessing and remediating Year 2000 issues have aggregated approximately $1 million. Internal costs incurred in responding to the Year 2000 issue are not separately tracked. Such costs are principally payroll-related costs. Contingency plans are being developed for continued operations without, or with reduced functionality, mission-critical systems and suppliers. These plans are expected to be complete by August 1999. Activation of these plans, if necessary, may result in reduced capabilities, restricted access to data, slower business processes and delayed product delivery. If the remaining elements of Greenbrier's plan to address the Year 2000 issue are not implemented successfully or timely, the contingency plan, which remains under development, may need to be implemented, and at a minimum more time will be devoted to the process and additional costs may be incurred. In addition, significant disruption to operations, including slowing the manufacturing process, resulting in potential revenue loss and increased costs, could result, particularly if critical suppliers are impacted by Year 2000 non-compliance. Any of these eventualities could have a material adverse effect on the financial position, results of operations or cash flows of the company. THE GREENBRIER COMPANIES, INC. 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. The following are among the factors that could cause actual results or outcomes to differ materially from the forward-looking statements: general political, regulatory or economic conditions; changes in interest rates; business conditions and growth in the surface transportation industry, both domestic and international; currency and other risks associated with international operations; shifts in market demand; a delay or failure of acquisitions, products or services to compete successfully; changes in product mix and the mix between manufacturing and leasing and services revenue; labor disputes or operating difficulties which might disrupt manufacturing operations, component supplies or the flow of cargo; competitive factors, including increased competition, new product offerings by competitors and price pressures; actual future costs and availability of materials and a trained workforce; production difficulties and product delivery delays in the future as a result of, among other matters, changing process technologies and increasing production; lower than expected customer orders; the ability to consummate expected sales; delays in receipt of orders or cancellation of orders; financial condition of principal customers; and the impact of Year 2000 compliance by the company or by its customers, suppliers or service partners. Any forward- looking statements should be considered in light of these factors. THE GREENBRIER COMPANIES, INC. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27.1 Financial Data Schedule (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 14, 1999 By: /s/ Larry G. Brady Larry G. Brady Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) EX-27 2 FINANCIAL DATA SCHEDULE
5 The schedule contains summary financial information extracted from the company's consolidated financial statements for the quarter ended May 31, 1999 and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS AUG-31-1999 MAY-31-1999 47,458 0 60,324 0 86,366 0 62,439 0 524,521 0 0 0 0 14 131,936 524,521 0 461,098 380,053 429,399 0 0 14,541 31,699 14,948 15,134 0 (938) 0 14,196 0.99 0.99 Of this amount, $629 is restricted.
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