UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended February 28, 2003
or
oTRANSITION 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.
| Delaware (State of Incorporation) |
93-0816972 (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
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No X
The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding on April 4, 2003 was 14,121,132 shares.
THE GREENBRIER COMPANIES, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
(In thousands, except per share amounts, unaudited)
| February 28, | August 31, | |||||||||
| 2003 | 2002 | |||||||||
Assets |
||||||||||
Cash and cash equivalents |
$ | 59,240 | $ | 58,777 | ||||||
Accounts and notes receivable |
40,916 | 45,135 | ||||||||
Inventories |
69,949 | 56,868 | ||||||||
Investment in direct finance leases |
52,855 | 69,536 | ||||||||
Equipment on operating leases |
143,575 | 151,580 | ||||||||
Property, plant and equipment |
57,091 | 58,292 | ||||||||
Other |
19,959 | 21,507 | ||||||||
Discontinued operations |
45,416 | 65,751 | ||||||||
| $ | 489,001 | $ | 527,446 | |||||||
Liabilities and Stockholders’ Equity |
||||||||||
Revolving notes |
$ | 5,511 | $ | 3,571 | ||||||
Accounts payable and accrued liabilities |
117,493 | 108,244 | ||||||||
Deferred participation |
43,963 | 52,937 | ||||||||
Deferred income taxes |
14,859 | 13,823 | ||||||||
Notes payable |
122,046 | 136,577 | ||||||||
Discontinued operations |
56,672 | 77,188 | ||||||||
Subordinated debt |
23,131 | 27,069 | ||||||||
Minority interest |
4,898 | 4,898 | ||||||||
Commitments and contingencies (Note 9) |
||||||||||
Stockholders’ equity: |
||||||||||
Preferred stock — $0.001 par value;
25,000 shares authorized; none
outstanding |
— | — | ||||||||
Common stock — $0.001 par value;
50,000 shares authorized; 14,121
issued and outstanding |
14 | 14 | ||||||||
Additional paid-in capital |
49,276 | 49,276 | ||||||||
Retained earnings |
61,867 | 63,848 | ||||||||
Accumulated other comprehensive loss |
(10,729 | ) | (9,999 | ) | ||||||
| 100,428 | 103,139 | |||||||||
| $ | 489,001 | $ | 527,446 | |||||||
The accompanying notes are an integral part of these statements.
1
THE GREENBRIER COMPANIES, INC.
Consolidated Statements of Operations
(In thousands, except per share amounts, unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||||||
| February 28, | February 28, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Revenue |
|||||||||||||||||
Manufacturing |
$ | 86,539 | $ | 53,552 | $ | 165,749 | $ | 106,769 | |||||||||
Leasing & services |
18,190 | 18,270 | 35,869 | 36,509 | |||||||||||||
| 104,729 | 71,822 | 201,618 | 143,278 | ||||||||||||||
Cost of revenue |
|||||||||||||||||
Manufacturing |
83,173 | 52,899 | 157,508 | 102,591 | |||||||||||||
Leasing & services |
10,961 | 10,632 | 22,527 | 20,863 | |||||||||||||
| 94,134 | 63,531 | 180,035 | 123,454 | ||||||||||||||
Margin |
10,595 | 8,291 | 21,583 | 19,824 | |||||||||||||
Other costs |
|||||||||||||||||
Selling and administrative expense |
8,162 | 7,132 | 15,232 | 14,623 | |||||||||||||
Interest expense |
2,992 | 3,915 | 6,273 | 8,163 | |||||||||||||
Special charges |
— | 2,083 | — | 2,083 | |||||||||||||
| 11,154 | 13,130 | 21,505 | 24,869 | ||||||||||||||
Earnings (loss) before income taxes,
minority interest and equity in
unconsolidated subsidiary |
(559 | ) | (4,839 | ) | 78 | (5,045 | ) | ||||||||||
Income tax benefit (expense) |
213 | 1,911 | (16 | ) | 1,996 | ||||||||||||
Earnings (loss) before minority
interest and equity in unconsolidated
subsidiary |
(346 | ) | (2,928 | ) | 62 | (3,049 | ) | ||||||||||
Minority interest |
18 | 171 | — | — | |||||||||||||
Equity in unconsolidated subsidiary |
(437 | ) | (416 | ) | (955 | ) | (925 | ) | |||||||||
Loss from continuing operations |
(765 | ) | (3,173 | ) | (893 | ) | (3,974 | ) | |||||||||
Loss from discontinued operations (net
of tax) |
(472 | ) | (13,653 | ) | (1,088 | ) | (17,895 | ) | |||||||||
Net loss |
$ | (1,237 | ) | $ | (16,826 | ) | $ | (1,981 | ) | $ | (21,869 | ) | |||||
Basic loss per common share |
|||||||||||||||||
Continuing operations |
$ | (0.05 | ) | $ | (0.22 | ) | $ | (0.06 | ) | $ | (0.28 | ) | |||||
Discontinued operations |
(0.04 | ) | (0.97 | ) | (0.08 | ) | (1.27 | ) | |||||||||
Net loss |
$ | (0.09 | ) | $ | (1.19 | ) | $ | (0.14 | ) | $ | (1.55 | ) | |||||
Diluted loss per common share |
|||||||||||||||||
Continuing operations |
$ | (0.05 | ) | $ | (0.22 | ) | $ | (0.06 | ) | $ | (0.28 | ) | |||||
Discontinued operations |
(0.04 | ) | (0.97 | ) | (0.08 | ) | (1.27 | ) | |||||||||
Net loss |
$ | (0.09 | ) | $ | (1.19 | ) | $ | (0.14 | ) | $ | (1.55 | ) | |||||
Weighted average common shares: |
|||||||||||||||||
Basic |
14,121 | 14,121 | 14,121 | 14,121 | |||||||||||||
Diluted |
14,121 | 14,121 | 14,121 | 14,121 | |||||||||||||
The accompanying notes are an integral part of these statements.
2
THE GREENBRIER COMPANIES, INC.
Consolidated Statements of Cash Flows
(In thousands, unaudited)
| Six Months Ended | |||||||||||
| February 28, | |||||||||||
| 2003 | 2002 | ||||||||||
Cash flows from operating activities |
|||||||||||
Net loss |
$ | (1,981 | ) | $ | (21,869 | ) | |||||
Adjustments to reconcile net loss to net cash used in
operating activities: |
|||||||||||
Loss from discontinued operations |
1,088 | 17,895 | |||||||||
Other changes in discontinued operations |
(1,269 | ) | (159 | ) | |||||||
Deferred income taxes |
1,036 | (5,051 | ) | ||||||||
Deferred participation |
(8,974 | ) | (1,936 | ) | |||||||
Depreciation and amortization |
8,895 | 9,044 | |||||||||
Gain on sales of equipment |
(333 | ) | (507 | ) | |||||||
Other |
(836 | ) | (19 | ) | |||||||
Decrease (increase) in assets: |
|||||||||||
Accounts and notes receivable |
4,219 | 699 | |||||||||
Inventories |
(15,968 | ) | 157 | ||||||||
Other |
1,424 | 1,324 | |||||||||
Increase (decrease) in liabilities: |
|||||||||||
Accounts payable and accrued liabilities |
9,603 | (4,639 | ) | ||||||||
Net cash used in operating activities |
(3,096 | ) | (5,061 | ) | |||||||
Cash flows from investing activities |
|||||||||||
Principal payments received under direct finance leases |
7,801 | 10,175 | |||||||||
Proceeds from sales of equipment |
17,492 | 14,785 | |||||||||
Purchase of property and equipment |
(4,928 | ) | (10,312 | ) | |||||||
Investment in discontinued operations |
— | (1,200 | ) | ||||||||
Net cash provided by investing activities |
20,365 | 13,448 | |||||||||
Cash flows from financing activities |
|||||||||||
Changes in revolving notes |
1,940 | (7,856 | ) | ||||||||
Repayments of notes payable |
(14,808 | ) | (20,663 | ) | |||||||
Repayment of subordinated debt |
(3,938 | ) | (8,230 | ) | |||||||
Dividends |
— | (847 | ) | ||||||||
Net cash used in financing activities |
(16,806 | ) | (37,596 | ) | |||||||
Increase (decrease) in cash and cash equivalents |
463 | (29,209 | ) | ||||||||
Cash and cash equivalents |
|||||||||||
Beginning of period |
58,777 | 74,547 | |||||||||
End of period |
$ | 59,240 | $ | 45,338 | |||||||
Cash paid during the period for |
|||||||||||
Interest |
$ | 6,040 | $ | 9,130 | |||||||
Income taxes |
$ | 50 | $ | 877 | |||||||
Non-cash activity |
|||||||||||
Transfer of inventory to equipment on operating leases |
$ | — | $ | 3,470 | |||||||
The accompanying notes are an integral part of these statements.
3
THE GREENBRIER COMPANIES, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 – Interim Financial Statements
The Consolidated Financial Statements of The Greenbrier Companies, Inc. and Subsidiaries (“Greenbrier” or the “Company”) as of February 28, 2003 and for the three and six months ended February 28, 2003 and 2002 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 six months ended February 28, 2003 are not necessarily indicative of the results to be expected for the entire year ending August 31, 2003. Certain reclassifications have been made to the prior year’s Consolidated Financial Statements to conform to the 2003 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 contained in the Company’s 2002 Annual Report on Form 10-K.
Management estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates include warranty accruals, maintenance accruals, evaluation of the remaining life and recoverability of long-lived assets, intangible asset valuation, contingency accruals, and income tax related accruals. Actual results could differ from those estimates.
Initial Adoption of Accounting Policies – The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” as of September 1, 2002. The statement requires discontinuing the amortization of goodwill and other intangible assets with indefinite useful lives. Instead, these assets are to be tested periodically for impairment and written down to their fair market value as necessary. Other than the cessation of amortization of goodwill, which was not significant, the adoption of SFAS No. 142 had no effect on the Company’s results of operations or cash flows for the six months ended February 28, 2003.
SFAS No.142 prescribes a two-phase process for testing the impairment of goodwill. The first phase, required to be completed by February 28, 2003, screens for impairment. If impairment exists, the second phase, required to be completed by August 31, 2003, measures the impairment. The Company completed its first phase impairment analysis during the second quarter and found no instances of impairment of its recorded goodwill or indefinite life intangibles. Accordingly, no impairment charge has been recorded as a result of adopting SFAS No. 142. Beginning in the third quarter of 2003, recorded goodwill and indefinite life intangibles will be tested at least annually for impairment and more frequently if material changes in events or circumstances arise.
The Company adopted SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities as of December 31, 2002. This statement addresses the financial accounting and reporting issues associated with exit and disposal activities and generally requires that costs associated with such exit or disposal activities are recognized as incurred rather than at the date a company commits to an exit or disposal activity. The adoption of SFAS No. 146 as of December 31, 2002 had no effect on the Company’s results of operations for the quarter ended February 28, 2003.
4
THE GREENBRIER COMPANIES, INC.
Note 2 – Inventories
| (In thousands) | February 28, 2003 | August 31, 2002 | ||||||
Manufacturing supplies and raw materials |
$ | 14,400 | $ | 13,626 | ||||
Work-in-process |
36,694 | 28,311 | ||||||
Railcars held for sale or refurbishment |
18,855 | 14,931 | ||||||
| $ | 69,949 | $ | 56,868 | |||||
Note 3 — Discontinued Operations
In August 2002, the Company’s Board of Directors committed to a plan to recapitalize European operations. As a result, the European operations are accounted for as discontinued operations, and accordingly, the financial results have been removed from the Company’s results of continuing operations for all periods presented.
The Company is currently pursuing several options for recapitalization of European operations which include discussions with strategic investors, financial investors, and members of European management and will proceed with the option that the Board of Directors believes will be most beneficial to Greenbrier’s shareholders.
Summarized results of operations of the discontinued operations are:
| (In thousands) | Three Months Ended | Six Months Ended | ||||||||||||||
| February 28, | February 28, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
Revenue (1) |
$ | 13,851 | $ | 27,246 | $ | 55,751 | $ | 35,673 | ||||||||
Cost of revenue (1) |
12,265 | 26,980 | 51,762 | 35,572 | ||||||||||||
Margin |
1,586 | 266 | 3,989 | 101 | ||||||||||||
Selling and administrative expense |
1,391 | 2,187 | 3,776 | 5,068 | ||||||||||||
Interest expense |
766 | 768 | 1,419 | 2,007 | ||||||||||||
Special charges (2) |
— | 17,129 | — | 17,129 | ||||||||||||
Loss before income taxes and minority interest |
(571 | ) | (19,818 | ) | (1,206 | ) | (24,103 | ) | ||||||||
Income tax benefit |
99 | 6,111 | 118 | 6,111 | ||||||||||||
Minority interest |
— | 54 | — | 97 | ||||||||||||
Loss from discontinued operations |
$ | (472 | ) | $ | (13,653 | ) | $ | (1,088 | ) | $ | (17,895 | ) | ||||
5
THE GREENBRIER COMPANIES, INC.
The following assets and liabilities of the European operation are classified as discontinued operations:
| (In thousands) | February 28, | August 31, | ||||||||
| 2003 | 2002 | |||||||||
Cash and cash equivalents |
$ | 8,695 | $ | 8,953 | ||||||
Accounts receivable |
15,750 | 9,645 | ||||||||
Inventories(1) |
12,128 | 39,304 | ||||||||
Property, plant and equipment |
1,540 | 1,072 | ||||||||
Other |
7,303 | 6,777 | ||||||||
Total assets – discontinued operations |
$ | 45,416 | $ | 65,751 | ||||||