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Article by DailyStocks_admin    (01-22-09 09:58 AM)

The Greenbrier Companies Inc. CEO WILLIAM A FURMAN bought 40000 shares on 01-20-2009 at $5.48

BUSINESS OVERVIEW

Introduction

We are one of the leading designers, manufacturers and marketers of railroad freight car equipment in North America and Europe and a leading provider of railcar refurbishment and parts, leasing and other services to the railroad and related transportation industries in North America.

In North America, we operate an integrated business model that combines freight car manufacturing, repair and refurbishment, component parts reconditioning, leasing and fleet management services to provide customers with a comprehensive set of freight car solutions. This model allows us to develop synergies between our various business activities.

We operate in three primary business segments: manufacturing, refurbishment & parts and leasing & services. Financial information about our business segments for the years ended August 31, 2008, 2007 and 2006 is located in Note 24 to our Consolidated Financial Statements.

We are a corporation formed in 1981. Our principal executive offices are located at One Centerpointe Drive, Suite 200, Lake Oswego, Oregon 97035, our telephone number is (503) 684-7000 and our internet web site is located at http://www.gbrx.com .

Significant Developments in 2008

In April 2008 we purchased substantially all of the operating assets of Roller Bearing Industries, Inc. (RBI) for $7.8 million in cash, plus or minus working capital adjustments. RBI operates a railcar bearings reconditioning business in Elizabethtown, Kentucky. Reconditioned bearings are used in the refurbishment of railcar wheelsets.

In March 2008 we purchased substantially all of the operating assets of American Allied Railway Equipment Company and its affiliates (AARE) for $83.3 million in cash, plus or minus working capital adjustments. We acquired two wheel facilities in Washington, Illinois and Macon, Georgia, which supply new and reconditioned wheelsets to freight car maintenance locations and to new railcar manufacturing facilities. We also acquired AARE’s parts reconditioning business in Peoria, Illinois, where we recondition railcar yokes, couplers, side frames and bolsters.

In March 2008, one of our subsidiaries, TrentonWorks Ltd. (TrentonWorks) filed for bankruptcy with the Office of the Superintendent of Bankruptcy Canada, whereby the assets of TrentonWorks are being administered and liquidated by an appointed trustee. The Company has not guaranteed any obligations of TrentonWorks and does not believe it will be liable for any of TrentonWorks’ liabilities. As a result of the bankruptcy, we discontinued consolidation of TrentonWorks’ financial statements beginning on March 13, 2008 and began reporting our investment in TrentonWorks using the cost method. As a result of the facility closure in April 2007, we recorded special charges of $2.3 million during the first six months of fiscal year 2008 consisting of severance costs and professional and other expenses.

Products and Services
Manufacturing

North American Railcar Manufacturing - We are the leading North American manufacturer of intermodal railcars with an average market share of approximately 65% over the last five years. In addition to our strength in intermodal railcars, we manufacture a broad array of other railcar types in North America and have demonstrated an ability to capture high market shares in many of the car types we produce. We have commanded an average market share of approximately 40% in flat cars and 30% in boxcars over the last five years. The primary products we produce for the North American market are:

Intermodal Railcars - We manufacture a comprehensive range of intermodal railcars. Our most important intermodal product is our articulated double-stack railcar. The double-stack railcar is designed to transport containers stacked two-high on a single platform. An articulated double-stack railcar is comprised of up to five platforms each of which is linked by a common set of wheels and axles. Our comprehensive line of articulated and non-articulated double-stack intermodal railcars offers varying load capacities and configurations. The double-stack railcar provides significant operating and capital savings over other types of intermodal railcars.

Conventional Railcars - We produce a wide range of boxcars, which are used in forest products, automotive, perishables and general merchandise applications. We also produce a variety of covered hopper cars for the grain, cement and plastics industries as well as gondolas for the steel and metals markets and various other conventional railcar types, including our proprietary Auto-Max car. Our flat car products include center partition cars for the forest products industry, bulkhead flat cars, flat cars for automotive transportation and solid waste service flat cars.

Tank Cars - We are developing a line of tank car products for the North American market. The initial product will be a 30,000-gallon non-coiled, non-insulated tank car, which will be used to transport ethanol, methanol and more than 60 other commodities. Delivery of this car type is expected to begin in the first quarter of fiscal 2009.

European Railcar Manufacturing - Our European manufacturing operation produces a variety of railcar types, including a comprehensive line of pressurized tank cars for liquid petroleum gas and ammonia and non-pressurized tank cars for light oil, chemicals and other products. In addition, we produce flat cars, coil cars for the steel and metals market, coal cars for both the continental European and United Kingdom markets, gondolas, sliding wall cars and automobile transporter cars. Although no formal statistics are available for the European market, we believe we are one of the largest new freight car manufacturers with an estimated market share of 10-15%.

Marine Vessel Fabrication - Our Portland, Oregon manufacturing facility, located on a deep-water port on the Willamette River, includes marine facilities with the largest side-launch ways on the West Coast. The marine facilities also enhance steel plate burning and fabrication capacity providing flexibility for railcar production. We manufacture ocean going conventional deck barges, double-hull tank barges, railcar/deck barges, barges for aggregates and other heavy industrial products and ocean-going dump barges.

Refurbishment & Parts

Railcar Repair, Refurbishment and Component Parts Manufacturing - We believe we operate the largest independent repair, refurbishment and component parts networks in North America, operating in 39 locations. Our network of railcar repair and refurbishment shops performs heavy railcar repair and refurbishment, as well as routine railcar maintenance. We are actively engaged in the repair and refurbishment of railcars for third parties, as well as of our own leased and managed fleet. Our wheel shops provide complete wheel services including reconditioning of wheels, axles and roller bearings. Our component parts facilities recondition railcar cushioning units, couplers, yokes, side frames, bolsters and various other parts. We also produce roofs, doors and associated parts for boxcars.

Leasing & Services

Leasing - Our relationships with financial institutions, combined with our ownership of a lease fleet of approximately 9,000 railcars, enables us to offer flexible financing programs including traditional direct finance leases, operating leases and “by the mile” leases to our customers. As an equipment owner, we participate principally in the operating lease segment of the market. The majority of our leases are “full service” leases whereby we are responsible for maintenance and administration. Maintenance of the fleet is provided, in part, through our own facilities and engineering and technical staff. Assets from our owned lease fleet are periodically sold to take advantage of market conditions, manage risk and maintain liquidity.

Management Services - Our management services business offers a broad range of services that include railcar maintenance management, railcar accounting services such as billing and revenue collection, car hire receivable and payable administration, total fleet management including railcar tracking using proprietary software, administration and railcar remarketing. Frequently, we originate leases of railcars with railroads or shippers, and sell the railcars and attached leases to financial institutions and subsequently provide management services under multi-year agreements. We currently own or provide management services for a fleet of approximately 146,000 railcars in North America for railroads, shippers, carriers and other leasing and transportation companies.

(1) Each platform of a railcar is treated as a separate unit.
(2) Percent of owned units on lease is 95.2% with an average remaining lease term of 3.1 years. The average age of owned units is 16 years.

Based on current production plans, approximately 3,900 units in backlog are scheduled for delivery in fiscal year 2009. The backlog includes approximately 8,500 units, scheduled for delivery beyond fiscal year 2009, that are subject to our fulfillment of certain competitive conditions. A portion of the orders included in backlog includes an assumed product mix. Under terms of the order, the exact mix will be determined in the future which may impact the dollar amount of backlog. In addition, a substantial portion of our backlog consists of orders for tank cars which are a new product type for us in North America.

Marine backlog was approximately $145.0 million as of August 31, 2008, of which approximately $75.0 million is scheduled for delivery in fiscal year 2009. The balance of the production is scheduled into 2012. Subsequent to year end additional orders were received increasing backlog to approximately $200.0 million.

The backlog is based on customer orders that we believe are firm and does not include production for our own lease fleet. We build railcars for our own lease fleet and do not include this production in our backlog. Customer orders may be subject to cancellation and other customary industry terms and conditions. Historically, little variation has been experienced between the product ordered and the product actually delivered. The backlog is not necessarily indicative of future results of operations.

Customers

Our railcar customers in North America include Class I railroads, regional and short-line railroads, leasing companies, shippers, carriers and transportation companies. We have strong, long-term relationships with many of our customers. We believe that our customers’ preference for high quality products, our technological leadership in developing innovative products and competitive pricing of our railcars have helped us maintain our long standing relationships with our customers.

In 2008, revenue from one customer, Burlington Northern and Santa Fe Railway Company (BNSF) accounted for approximately 26% of total revenue, 31% of leasing & services revenue, 12% of refurbishment & parts revenue and 36% of manufacturing revenue. Two other customers, TTX Company and Union Pacific Railroad, together accounted for approximately 37% of refurbishment & parts revenue.

Raw Materials and Components

Our products require a supply of materials including steel and specialty components such as brakes, wheels and axles. Specialty components purchased from third parties represent approximately half of the cost of an average freight car. Our customers often specify particular components and suppliers of such components. Although the number of alternative suppliers of certain specialty components has declined in recent years, there are at least two suppliers for most such components and we are not reliant on any one supplier for any component.

Certain materials and components are periodically in short supply which could potentially impact production at our new railcar and refurbishment facilities. In an effort to mitigate shortages and reduce supply chain costs, we have entered into strategic alliances for the global sourcing of certain components, increased our replacement parts business and continue to pursue strategic opportunities to protect and enhance our supply chain.

We periodically make advance purchases to avoid possible shortages of material due to capacity limitations of component suppliers and possible price increases. We do not typically enter into binding long-term contracts with suppliers because we rely on established relationships with major suppliers to ensure the availability of raw materials and specialty items.

Competition

There are currently six major railcar manufacturers competing in North America. One of these builds railcars principally for its own fleet and the others compete with us principally in the general railcar market. We compete on the basis of quality, price, reliability of delivery, reputation and customer service and support.

Competition in the marine industry is dependent on the type of product produced. There are two main competitors, located in the Gulf States, which build product types similar to ours. We compete on the basis of experienced labor and a proven track record for quality and delivery. United States (U.S.) coastwise law, commonly referred to as the Jones Act, requires all commercial vessels transporting merchandise between ports in the U.S. to be built, owned, operated and manned by U.S. citizens and to be registered under the U.S. flag.

We believe that we are among the top five European railcar manufacturers which maintain a combined market share of over 80%. European freight car manufacturers are largely located in central and eastern Europe where labor rates are lower and work rules are more flexible.

Competition in the refurbishment & parts business is dependent on the type of product or service provided. There are many competitors in the railcar repair and refurbishment business and fewer competitors in the wheel and other parts businesses. We are one of the largest competitors in each business. We compete primarily on the basis of quality, single source solutions and engineering expertise.

There are about twenty institutions that provide railcar leasing and services similar to ours. Many of them are also customers which buy leased railcars and new railcars from our manufacturing facilities. More than half of these institutions have greater resources than we do. We compete primarily on the basis of quality, price, delivery, reputation, service offerings and deal structuring ability. We believe our strong servicing capability, integrated with our manufacturing, repair shops, railcar specialization and expertise in particular lease structures provide a strong competitive position.

CEO BACKGROUND

Expiration
Director
of Current
Name
Age
Positions
Since Term

Nominees for Election

Class III

William A. Furman
64 President, Chief Executive 1981 2009
Officer and Director
C. Bruce Ward
78 Director 1994 2009
Charles J. Swindells (1)(2)(3)
66 Director 2005 2009
Directors Continuing in Office

Class I

Duane C. McDougall (1)(2)(3)
56 Director 2003 2010
A. Daniel O’Neal, Jr.
72 Director 1994 2010
Donald A. Washburn (2)(3)
64 Director 2004 2010
Class II

Graeme A. Jack (1)(2)
58 Director 2006 2011
Benjamin R. Whiteley (1)(2)(3)
79 Chairman of the Board of Directors 1994 2011
Director Emeritus

Victor G. Atiyeh
85 Director Emeritus



MANAGEMENT DISCUSSION FROM LATEST 10K

Executive Summary

We currently operate in three primary business segments: manufacturing, refurbishment & parts and leasing & services. These three business segments are operationally integrated. The manufacturing segment, operating from four facilities in the United States (U.S.), Mexico and Poland, produces double-stack intermodal railcars, conventional railcars, tank cars and marine vessels. The refurbishment & parts segment performs railcar repair, refurbishment and maintenance activities in the United States and Mexico as well as wheel, axle and bearing servicing, and production and reconditioning of a variety of parts for the railroad industry. The leasing & services segment owns approximately 9,000 railcars and provides management services for approximately 137,000 railcars for railroads, shippers, carriers, and other leasing and transportation companies in North America. Segment performance is evaluated based on margins. We also produce rail castings through an unconsolidated joint venture.

Our manufacturing backlog of railcars for sale and lease as of August 31, 2008 was approximately 16,200 units with an estimated value of $1.44 billion. This compares to 12,100 units valued at $830.0 million as of August 31, 2007. Based on current production plans, approximately 3,900 units in backlog are scheduled for delivery in fiscal year 2009. The current backlog includes approximately 8,500 units that are subject to our fulfillment of certain competitive conditions. A portion of the orders included in backlog includes an assumed product mix. Under terms of the order, the exact mix will be determined in the future which may impact the dollar amount of backlog. In addition, a substantial portion of our backlog consists of orders for tank cars which are a new product type for us in North America. Marine backlog was approximately $145.0 million as of August 31, 2008, of which approximately $75.0 million is scheduled for delivery in fiscal year 2009 and the balance through 2012. Subsequent to year end, additional orders were received increasing backlog to approximately $200.0 million.

Prices for steel, a primary component of railcars and barges, have risen significantly and remain volatile. In addition the price of certain railcar components, which are a product of steel, are adversely affected by steel price increases. During fiscal year 2008, both steel and railcar component suppliers are imposing surcharges, which have also risen significantly and remain volatile. Subsequent to year end, prices for steel, railcar components and scrap steel have declined but remain volatile. New railcar and marine backlog generally either includes: 1) fixed price contracts which anticipate material price increases and surcharges, or 2) contracts that contain actual pass through of material price increases and surcharges. On certain fixed price railcar contracts actual price increases and surcharges have caused the total price of the railcar to exceed the amounts originally anticipated, and in some cases, the actual contractual sale price of the railcar. When the anticipated loss on production of railcars in backlog is both probable and estimable, we accrue a loss contingency. A loss contingency reserve of $9.2 million was accrued during fiscal year 2008, of which $7.9 million was remaining in the reserve as of August 31, 2008. We are aggressively working to mitigate these exposures. The Company’s integrated business model has helped offset some of the effects of rising steel scrap prices, as a portion of our other business segments benefit from rising steel scrap prices through enhanced margins.


We are aggressively seeking to reduce our selling and administrative and overhead costs, including reductions in headcount. As a result, during the year $2.0 million was expensed for severance at several locations, and we continue to pursue additional cost savings. Our cost reduction efforts have been offset somewhat by costs associated with integration of acquisitions and other strategic initiatives.

On April 4, 2008 the Company purchased substantially all of the operating assets of Roller Bearing Industries, Inc. (RBI) for $7.8 million. RBI operates a railcar bearings reconditioning business from its facility in Elizabethtown, Kentucky. Reconditioned bearings are used in the refurbishment of railcar wheelsets. The financial results since the acquisition are reported in the Company’s Consolidated Financial Statements as part of the refurbishment & parts segment.

On March 28, 2008 the Company acquired substantially all of the operating assets of American Allied Railway Equipment Company and its affiliates (AARE) for $83.3 million in cash, plus or minus working capital adjustments. The purchase price was paid from existing cash balances and credit facilities. We acquired two wheel facilities in Washington, Illinois and Macon, Georgia which supply new and reconditioned wheelsets to freight car maintenance locations and to new railcar manufacturing facilities. We also acquired AARE’s parts reconditioning business in Peoria, Illinois, where we recondition railcar yokes, couplers, side frames and bolsters. The financial results since the acquisition are reported in the Company’s Condensed Consolidated Financial Statements as part of the refurbishment & parts segment.

On March 13, 2008, our Canadian railcar manufacturing facility, TrentonWorks Ltd. (TrentonWorks) filed for bankruptcy with The Office of the Superintendent of Bankruptcy Canada whereby the assets of TrentonWorks are being administered and liquidated by an appointed trustee. Beginning on March 13, 2008 the results of TrentonWorks were de-consolidated. The Company has not guaranteed any obligations of TrentonWorks and does not believe it will be liable for any of TrentonWorks’ liabilities.

Results of Operations

Overview

Total revenue was $1.3 billion, $1.2 billion and $953.8 million for the years ended August 31, 2008, 2007 and 2006. Net earnings for 2008, 2007 and 2006 were $19.5 million or $1.19 per diluted common share, $22.0 million or $1.37 per diluted common share and $39.6 million or $2.48 per diluted common share.

Manufacturing Segment

Manufacturing revenue includes new railcar and marine production. New railcar delivery and backlog information disclosed herein includes all facilities.

Manufacturing revenue was $665.1 million, $738.4 million and $748.8 million for the years 2008, 2007 and 2006. Railcar deliveries, which are the primary source of manufacturing revenue, were approximately 7,300 units in 2008 compared to 8,600 units in 2007 and 11,400 units in 2006. Manufacturing revenue decreased $73.3 million, or 10.0%, from 2007 to 2008 due to lower railcar deliveries primarily due to the current economic slowdown of the North American market. Manufacturing revenue decreased $10.4 million, or 1.4%, from 2006 to 2007 due to lower railcar deliveries offset somewhat by a change in product mix to railcar types with higher per unit sales prices.

Manufacturing margin as a percentage of revenue was 1.7% in 2008 compared to 7.8% in 2007. The decrease was primarily due to rising steel prices and surcharges, loss contingencies of $7.9 million accrued on certain future production, $0.5 million of severance, lower production levels and start up costs and production inefficiencies at our Mexican joint venture facility, partially offset by relief of certain contractual obligations. Manufacturing margin as a percentage of revenue was 7.8% in 2007 compared to 11.0% in 2006. The decrease was primarily due to a less favorable product mix, $5.9 million in negative margins on our Canadian facility in 2007, start-up costs on our new railcar manufacturing joint venture in Mexico and production difficulties and inefficiencies realized on certain conventional railcar types.

Refurbishment & Parts Segment

Refurbishment & parts revenue was $527.5 million, $381.7 million and $102.5 million for the years 2008, 2007 and 2006. The $145.8 million increase in revenue from 2007 to 2008 was primarily due to a full year of revenue from the Meridian Rail acquisition which was completed in November 2006, $51.6 million of additional revenue related to AARE and RBI acquisitions, strong wheelset volumes and higher scrap steel prices. The $279.2 million increase in revenue from 2006 to 2007 was primarily due to acquisition related growth of approximately $249.2 million, increased volume of refurbishment and retrofitting work at repair and refurbishment facilities and favorable scrap pricing.

Refurbishment & parts margin as a percentage of revenue was 19.2%, 16.8% and 14.4% for 2008, 2007 and 2006. Higher margins in 2008 are a result of the growth of our wheel business, which includes a full year of Meridian Rail and the current year acquisitions of AARE and RBI, higher margin wheel reconditioning work and the positive impact of higher scrap steel prices. This was partially offset by lower volumes of program work at the repair facilities. The acquisition of Meridian in 2007 resulted in a greater mix of wheel reconditioning work which combined with increases in volume of railcar maintenance and refurbishment programs, retrofitting work and high scrap prices resulted in the margin increase as compared to 2006.

Leasing & Services Segment

Leasing & services revenue was $97.5 million, $103.7 million and $102.5 million for the years 2008, 2007 and 2006. The $6.2 million decrease in revenue was primarily a result of a $5.4 million decrease in gains on sale of assets from the lease fleet; lower interim rents on assets held for sale and decreased interest income from lower cash balances. The decline was partially offset by higher car hire revenue from additions to the lease fleet and increased maintenance revenue. The $1.2 million increase in revenue from 2006 to 2007 was primarily the result of a $2.5 million increase in gains on sale of assets from the lease fleet partially offset by a $1.4 million decrease in interest income resulting from lower cash balances.

During 2008, we realized $8.0 million in pre-tax earnings on the disposition of leased equipment compared to $13.4 million in 2007 and $10.9 million in 2006. Assets from our 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 margin as a percentage of revenue was 51.0% in 2008 compared to 55.8% in 2007 and 59.0% in 2006. The decrease from 2007 to 2008 was primarily a result of declines in gains on disposition of assets from the lease fleet, interest income and interim rents on assets held for sale, all of which have no associated cost of revenue. The decrease from 2006 to 2007 was primarily a result of declines in interim rent and interest income, decreased utilization on car hire leases, increases in transportation and storage costs on assets held for sale and higher maintenance costs of the railcar fleet, partially offset by gains on dispositions from the lease fleet.

Other costs

Selling and administrative expense was $85.1 million, $83.4 million and $70.9 million in 2008, 2007 and 2006. The $1.7 million increase from 2007 to 2008 is primarily due to increased employee costs including severance of $1.5 million related to reductions in work force, integration costs of recent acquisitions and costs associated with our Mexican joint venture facility that commenced production in May 2007, partially offset by the closure of our Canadian facility. The $12.5 million increase from 2006 to 2007 is primarily due to $5.0 million associated with operations of businesses acquired in 2007, $2.3 million in overhead costs associated with our Canadian manufacturing facility that was permanently closed during May 2007, professional services and consulting fees for strategic initiatives and integration of acquired companies, costs associated with improvements to our technology infrastructure and increases in compensation expense related to restricted stock grants.

Interest and foreign exchange expense was $40.8 million, $39.9 million and $25.4 million in 2008, 2007 and 2006. Interest and foreign exchange expense increased $0.9 million from 2007 to 2008 mainly due to foreign exchange fluctuations. Interest expense decreased $0.1 million. Foreign exchange loss increased $1.0 million from a $1.2 million loss in 2007 to $2.2 million loss in 2008. Interest and foreign exchange expense increased $14.5 million from 2006 to 2007 due to higher debt levels and foreign exchange fluctuations. Foreign exchange losses of $1.2 million were recognized in 2007 compared to foreign exchange gains of $1.6 million in 2006. In addition, 2007 results include a $1.2 million write-off of loan origination costs on our prior revolving credit facility.

In April 2007, the Company’s board of directors approved the permanent closure of the Company’s Canadian railcar manufacturing facility, TrentonWorks. As a result of the facility closure decision, special charges of $2.3 million were recorded during 2008 consisting of severance costs and professional and other fees.

Special charges of $21.9 million were recorded during 2007 associated with the impairment and subsequent closure of TrentonWorks. These changes consist of $14.2 million of impairment of property, plant and equipment, $2.1 million of inventory impairment, $1.1 million impairment of goodwill and other, $3.9 million of severance costs and $0.6 million of professional and other fees.

Income Tax

Our effective tax rate was 54.5%, 39.9% and 35.5% for the years ended August 31, 2008, 2007 and 2006. Tax expense for 2008 included a $3.9 million charge associated with deferred tax assets and operating losses without tax benefit incurred by our Canadian subsidiary during its closure process. 2008 included a $1.3 million increase in valuation allowances related to net operating losses generated in Poland and Mexico. In addition, a $1.9 million tax benefit resulted from reversing income tax reserves associated with certain tax positions taken in prior years. Tax expense for 2007 included an $8.2 million tax benefit associated with the write-off of our investment in our Canadian subsidiary for tax purposes and no tax benefit associated with special charges related to the Canadian plant closure costs and losses incurred by the Canadian facility. 2007 also included tax benefits of approximately $1.0 million for Mexican asset based tax credits and amended state income tax provisions. Tax expense for 2006 included $2.2 million associated with a settlement with the IRS in conjunction with completion of an audit of our tax returns for the years 1999-2002. In addition, 2006 included a $3.7 million tax benefit for a reduction in a valuation allowance related to a deferred tax asset for net operating loss carryforwards at our Mexican subsidiary. This allowance was reversed based on financial projections that indicated we will more likely than not be able to fully utilize the net operating loss carryforwards.

The fluctuations in the effective tax rate are due to the geographical mix of pre-tax earnings and losses, minimum tax requirements in certain local jurisdictions and operating losses for certain operations with no related accrual of tax benefit.

Minority Interest

The minority interest of $3.2 million and $1.5 million for the years ended August 31, 2008 and 2007 represents our joint venture partner’s share in the losses of our Mexican railcar manufacturing joint venture that began production in 2007.

Liquidity and Capital Resources

We have been financed through cash generated from operations and borrowings. At August 31, 2008 cash was $6.0 million, a decrease of $14.8 million from $20.8 million at the prior year end. Cash usage was primarily for the acquisitions of AARE and RBI and capital expenditures, partially offset by proceeds from borrowings.

Cash provided by operating activities for the years ended August 31, 2008, 2007 and 2006 was $32.1 million, $46.3 million and $39.5 million. The change was primarily due to timing of working capital needs including purchases and sales of railcars held for sale, timing of inventory purchases and varying customer payment terms.

Cash used in investing activities for the year ended August 31, 2008 of $152.2 million compared to $286.6 million in 2007 and $111.1 million in 2006. Cash utilization in 2008 was primarily due to the acquisitions of AARE and RBI and capital expenditures for the year. The increased cash utilization for 2007 was primarily due to the acquisitions of Meridian Rail Holdings Corp. (Meridian) and Rail Car America (RCA).

Capital expenditures totaled $77.6 million, $137.3 million and $140.6 million in 2008, 2007 and 2006. Of these capital expenditures, approximately $45.9 million, $111.9 million and $122.6 million in 2008, 2007 and 2006 were attributable to leasing & services operations. Our capital expenditures have decreased based on current market conditions and fleet management objectives. We regularly sell assets from our lease fleet, some of which may have been purchased within the current year and included in capital expenditures. Proceeds from the sale of equipment were approximately $14.6 million, $119.7 million and $28.9 million in 2008, 2007 and 2006. Leasing & services capital expenditures for 2009, net of proceeds from sales of equipment, are expected to be approximately $20.0 million.

Approximately $24.1 million, $20.4 million and $15.1 million of capital expenditures for 2008, 2007 and 2006 were attributable to manufacturing operations. Capital expenditures for manufacturing are expected to be approximately $10.0 million in 2009 and primarily relate to increased efficiency, start up of our tank car line at the Mexican joint venture, ERP implementation and maintenance of existing equipment.

Refurbishment & parts capital expenditures for 2008, 2007 and 2006 were $7.6 million, $5.0 million and $2.9 million and are expected to be approximately $10.0 million in 2009 for maintenance of existing facilities, ERP implementation and some expansion.

Cash provided by financing activities was $103.5 million for the year ended August 31 2008, compared to cash provided by financing activities of $115.8 million in 2007 and $142.5 million in 2006. During 2008, we received $49.6 million in net proceeds from term loan borrowings and $55.5 million in net proceeds under revolving credit lines. We repaid $6.9 million in term debt and paid dividends of $5.3 million. During 2007, we received $99.4 million in net proceeds from term loan borrowings, repaid $5.4 million in term debt and paid dividends of $5.1 million. During 2006, we received an aggregate of $154.6 million in net proceeds from a senior unsecured debt offering and a convertible debt offering, repaid $13.2 million in term debt and paid dividends of $5.0 million.

All amounts originating in foreign currency have been translated at the August 31, 2008 exchange rate for the following discussion. Senior secured revolving credit facilities, consisting of two components, aggregated $335.2 million as of August 31, 2008. A $290.0 million revolving line of credit is available through November 2011 to provide working capital and interim financing of equipment, principally for the U.S. and Mexican operations. Advances under this facility bear interest at variable rates that depend on the type of borrowing and the defined ratio of debt to total capitalization. In addition, lines of credit totaling $45.2 million, with various variable rates, are available for working capital needs of the European manufacturing operation. As of August 31, 2008 these European credit facilities have maturities that range from November 30, 2008 through August 31, 2009. Approximately 50% of available borrowings for the European credit facilities have maturity dates in the second half of fiscal year 2009. European credit facility renewals are continually under negotiation and we currently anticipate $4.4 million to be repaid rather than renewed.

As of August 31, 2008 outstanding borrowings under these facilities aggregated $105.8 million in revolving notes and $3.7 million in letters of credit. This consists of $65.0 million in revolving notes and $3.7 million in letters of credit outstanding under the U.S. credit facility and $40.8 million in revolving notes under the European credit facilities. Available borrowings under credit facilities are generally based on defined levels of inventory, receivables, and leased equipment, as well as total debt to consolidated capitalization and interest coverage ratios which as of August 31, 2008 levels would provide for maximum additional borrowing of $174.3 million.

The revolving and operating lines of credit, along with notes payable, contain covenants with respect to the Company and various subsidiaries, the most restrictive of which, among other things, limit the ability to: incur additional indebtedness or guarantees; pay dividends or repurchase stock; enter into sale leaseback transactions; create liens; sell assets; engage in transactions with affiliates, including joint ventures and non U.S. subsidiaries, including but not limited to loans, advances, equity investments and guarantees; enter into mergers, consolidations or sales of substantially all the Company’s assets; and enter into new lines of business. The covenants also require certain minimum levels of tangible net worth, maximum ratios of debt to equity or total capitalization and minimum levels of interest coverage. Currently we are seeking a line of credit to support certain of our foreign operations due in part to current limitations in our existing loan covenants.

In accordance with customary business practices in Europe, we have $17.9 million in bank and third party performance, advance payment and warranty guarantee facilities, all of which have been utilized as of August 31, 2008. To date no amounts have been drawn under these performance, advance payment and warranty guarantees.

We have advanced $0.6 million in long-term advances to an unconsolidated subsidiary which are secured by accounts receivable and inventory. As of August 31, 2008, this same unconsolidated subsidiary had $4.7 million in third party debt for which we have guaranteed 33% or approximately $1.6 million.

We have outstanding letters of credit aggregating $3.7 million associated with facility leases and payroll.

Foreign operations give rise to risks from changes in foreign currency exchange rates. We utilize 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.

Dividends have been paid each quarter since the 4th quarter of 2004 when dividends of $.06 per share were reinstated. The dividend was increased to $.08 per share in the 4th quarter of 2005.

We expect existing funds and cash generated from operations, together with proceeds from financing activities including borrowings under existing credit facilities and long-term financing, to be sufficient to fund dividends, working capital needs, planned capital expenditures and expected debt repayments for the foreseeable future.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Executive Summary
We currently operate in three primary business segments: manufacturing, refurbishment & parts and leasing & services. These three business segments are operationally integrated. The manufacturing segment, operating from four facilities in the United States, Mexico and Europe, produces double-stack intermodal railcars, conventional railcars, tank cars and marine vessels. The refurbishment & parts segment, operating in the United States and Mexico, performs railcar repair, refurbishment and maintenance activities, wheel and axle servicing, and limited parts production for the North American railroad industry. The leasing & services segment owns approximately 9,000 railcars and provides management services for approximately 138,000 railcars for railroads, shippers, carriers, and other leasing and transportation companies in North America. Segment performance is evaluated based on margins. We also produce rail castings through an unconsolidated joint venture.
The North American freight car market is currently experiencing a softening of demand due to market saturation of certain freight car types, increased efficiencies of the railroads, a weaker economy, higher raw material costs and tight capital markets, all contributing to caution on the part of our customers and increased competition for new railcar orders and lease commitments. These market factors are expected to continue to lower revenues and reduce margins for some of our operations.
Our manufacturing backlog of railcars for sale and lease as of May 31, 2008 was approximately 17,500 railcars with an estimated value of $1.55 billion compared to 14,100 railcars valued at $970 million as of May 31, 2007. Based on current production plans, approximately 1,400 units in backlog are scheduled for delivery in the remainder of 2008. The current backlog includes approximately 8,500 units that are subject to our fulfillment of certain competitive conditions. A portion of the orders included in backlog include an assumed product mix. Under terms of the order, the exact mix will be determined in the future which may impact the dollar amount of backlog. In addition, approximately two-thirds of our backlog consists of orders for tank cars which are a new product type for us.
Prices for steel, a primary component of railcars and barges, have risen significantly and remain volatile. In addition the price of certain railcar components, which are a product of steel, are adversely affected by steel price increases. Both steel and railcar component suppliers are imposing surcharges, which have also risen significantly and remain volatile. New railcar backlog generally either includes: 1) fixed price contracts which anticipate material price increases and surcharges, or 2) contracts that contain actual pass through of material price increases and surcharges. Currently about one-third of our backlog has fixed price contracts. On certain fixed price railcar contracts actual price increases and surcharges have caused the total price of the railcar to exceed the amounts originally anticipated, and in some cases, the actual contractual sale price of the railcar. When the anticipated loss on production of railcars in backlog is both probable and estimable, we accrue a loss contingency. A loss contingency reserve of $5.3 million was accrued during the three months ended May 31, 2008. In addition, there are 1,000 railcars in backlog for which a loss is not yet estimable. We are aggressively working to mitigate these exposures. The Company’s integrated business model has helped offset some of the effects of rising steel scrap prices, as a portion of our other business segments benefit from the rising steel scrap prices through enhanced margins.
We are aggressively seeking to reduce our selling and administrative and overhead costs, including reductions in headcount. As a result, during the three months ended May 31, 2008 $1.8 million was accrued for severance at several locations, and we continue to pursue additional cost savings. Our cost reduction efforts have been offset somewhat by costs associated with integration of acquisitions and other strategic initiatives.
On March 13, 2008, our Canadian railcar manufacturing facility, TrentonWorks Ltd. (TrentonWorks) filed for bankruptcy with The Office of the Superintendent of Bankruptcy Canada whereby the assets of TrentonWorks are being administered and liquidated by an appointed trustee. The Company has not guaranteed any obligations of TrentonWorks and does not believe it will be liable for any of TrentonWorks’ liabilities. Beginning on March 13, 2008 the results of TrentonWorks were de-consolidated and management does not believe there will be any further negative impact to the Company’s Consolidated Statement of Operations.

THE GREENBRIER COMPANIES, INC.
On March 28, 2008 the Company acquired substantially all of the operating assets of American Allied Railway Equipment Company and its subsidiaries (AARE) for $83.2 million in cash, plus or minus working capital adjustments. The purchase price was paid from existing cash balances and credit facilities. The acquisition is expected to be immediately accretive to our annual earnings. The assets of AARE’s three operating plants located in the midwestern and southeastern U.S. are included in the acquisition. Operating from two wheel facilities in Washington, Illinois and Macon, Georgia, AARE supplies new and reconditioned wheelsets to freight car maintenance locations as well as new railcar manufacturing facilities. AARE also operates a parts reconditioning business in Peoria, Illinois, where it reconditions railcar yokes, couplers, side frames and bolsters. The financial results since the acquisition are reported in the Company’s Condensed Consolidated Financial Statements as part of the refurbishment & parts segment.
On April 4, 2008 the Company purchased substantially all of the operating assets of Roller Bearing Industries, Inc. (RBI) from SKF USA, Inc. RBI operates a railcar bearings reconditioning business from its facility in Elizabethtown, Kentucky. Reconditioned bearings are used in the refurbishment of railcar wheelsets. The financial results since the acquisition are reported in the Company’s Condensed Consolidated Financial Statements as part of the refurbishment & parts segment.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires judgment on the part of management to arrive at estimates and assumptions on matters that are inherently uncertain. These estimates may affect the amount of assets, liabilities, revenue and expenses reported in the financial statements and accompanying notes and disclosure of contingent assets and liabilities within the financial statements. Estimates and assumptions are periodically evaluated and may be adjusted in future periods. Actual results could differ from those estimates.
Income taxes — For financial reporting purposes, income tax expense is estimated based on planned tax return filings. The amounts anticipated to be reported in those filings may change between the time the financial statements are prepared and the time the tax returns are filed. Further, because tax filings are subject to review by taxing authorities, there is also the risk that a position taken in preparation of a tax return may be challenged by a taxing authority. If the taxing authority is successful in asserting a position different than that taken by us, differences in tax expense or between current and deferred tax items may arise in future periods. Such differences, which could have a material impact on our financial statements, would be reflected in the financial statements when management considers them probable of occurring and the amount reasonably estimable. Valuation allowances reduce deferred tax assets to an amount that will more likely than not be realized. Our estimates of the realization of deferred tax assets is based on the information available at the time the financial statements are prepared and may include estimates of future income and other assumptions that are inherently uncertain. As a result of the implementation of FIN 48, we recognize liabilities for uncertain tax positions based on whether evidence indicates that it is more likely than not that the position will be sustained on audit. It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various possible outcomes. We reevaluate these uncertain tax positions on a quarterly basis. Changes in assumptions may result in the recognition of a tax benefit or an additional charge to the tax provision.
Maintenance obligations — We are responsible for maintenance on a portion of the managed and owned lease fleet under the terms of maintenance obligations defined in the underlying lease or management agreement. The estimated maintenance liability is based on maintenance histories for each type and age of railcar. These estimates involve judgment as to the future costs of repairs and the types and timing of repairs required over the lease term. As we cannot predict with certainty the prices, timing and volume of maintenance needed in the future on railcars under long-term leases, this estimate is uncertain and could be materially different from maintenance requirements. The liability is periodically reviewed and updated based on maintenance trends and known future repair or refurbishment requirements. These adjustments could be material due to the inability to predict future maintenance requirements.

THE GREENBRIER COMPANIES, INC.
Warranty accruals — Warranty costs to cover a defined warranty period are estimated and charged to operations. The estimated warranty cost is based on historical warranty claims for each particular product type. For new product types without a warranty history, preliminary estimates are based on historical information for similar product types.
These estimates are inherently uncertain as they are based on historical data for existing products and judgment for new products. If warranty claims are made in the current period for issues that have not historically been the subject of warranty claims and were not taken into consideration in establishing the accrual or if claims for issues already considered in establishing the accrual exceed expectations, warranty expense may exceed the accrual for that particular product. Conversely, there is the possibility that claims may be lower than estimates. The warranty accrual is periodically reviewed and updated based on warranty trends. However, as we cannot predict future claims, the potential exists for the difference in any one reporting period to be material.
Revenue recognition — Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectibility is reasonably assured.
Railcars and components are generally manufactured, repaired or refurbished under firm orders from third parties. Revenue is recognized when railcars are completed, accepted by an unaffiliated customer and contractual contingencies removed. 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. Operating lease revenue is recognized as earned under the lease terms. Certain leases are operated under car hire arrangements whereby revenue is earned based on utilization, car hire rates and terms specified in the lease agreement. Car hire revenue is reported from a third party source two months in arrears; however, such revenue is accrued in the month earned based on estimates of use from historical activity and is adjusted to actual as reported. These estimates are inherently uncertain as they involve judgment as to the estimated use of each railcar. Adjustments to actual have historically not been significant. Revenues from construction of marine barges are either recognized on the percentage of completion method during the construction period or on the completed contract method based on the terms of the contract. Under the percentage of completion method, judgment is used to determine a definitive threshold against which progress towards completion can be measured to determine timing of revenue recognition.
Impairment of long-lived assets — When changes in circumstances indicate the carrying amount of certain long-lived assets may not be recoverable, the assets will be evaluated for impairment. If the forecast undiscounted future cash flows is less than the carrying amount of the assets, an impairment charge to reduce the carrying value of the assets to fair value will be recognized in the current period. These estimates are based on the best information available at the time of the impairment and could be materially different if circumstances change.
Goodwill and acquired intangible assets — We periodically acquire businesses in purchase transactions in which the allocation of the purchase price may result in the recognition of goodwill and other intangible assets. The determination of the value of such intangible assets requires management to make estimates and assumptions. These estimates affect the amount of future period amortization and possible impairment charges.
Results of Operations
Three Months Ended May 31, 2008 Compared to Three Months Ended May 31, 2007
Overview
Total revenues for the three months ended May 31, 2008 were $382.1 million, a decrease of $4.5 million from revenues of $386.6 million in the prior comparable period. Net earnings were $8.1 million for the three months ended May 31, 2008 compared to net earnings of $13.0 million for the three months ended May 31, 2007.
Manufacturing Segment
Manufacturing revenue includes results from new railcar and marine production. New railcar delivery and backlog information includes all facilities.

THE GREENBRIER COMPANIES, INC.
Manufacturing revenue for the three months ended May 31, 2008 was $201.8 million compared to $241.4 million in the corresponding prior period, a decrease of $39.6 million. The decrease was primarily the result of lower deliveries. New railcar deliveries were approximately 2,200 units in the current period compared to 3,000 units in the prior comparable period.
Manufacturing margin as a percentage of revenue for the three months ended May 31, 2008 was 0.5% compared to a margin of 8.4% for the three months ended May 31, 2007. The decrease was primarily due to lower production levels, rising steel prices and surcharges, loss contingencies of $5.3 million accrued on certain future railcar production $0.5 million of severance costs and a less favorable product mix and pricing environment, partially offset by relief of certain contractual obligations.
Refurbishment & Parts Segment
Refurbishment & parts revenue of $152.4 million for the three months ended May 31, 2008 increased by $34.2 million from revenue of $118.2 million in the prior comparable period. The increase was primarily due to acquisition growth, increased volumes of parts and wheels and favorable scrap pricing.
Refurbishment & parts margin as a percentage of revenue was 21.0% for the three months ended May 31, 2008 compared to 18.5% for the three months ended May 31, 2007. Margins were positively impacted by increases in scrap prices, a more favorable product mix and increased volumes.
Leasing & Services Segment
Leasing & services revenue increased $0.9 million to $27.9 million for the three months ended May 31, 2008 compared to $27.0 million for the three months ended May 31, 2007. The increase was a result of additions to the lease fleet and new management agreements, partially offset by lower interim rents earned from assets held for sale.
Leasing & services margin as a percentage of revenue was 56.2% and 58.0% for the three-month periods ended May 31, 2008 and 2007. The decrease was primarily a result of a reduction in interim rent on assets held for sale which have no associated cost of revenue.
Other Costs
Selling and administrative expense was $23.4 million for the three months ended May 31, 2008 compared to $20.1 million for the comparable prior period, an increase of $3.3 million. The increase was primarily due to increased employee related costs including severance of $1.3 million due to reductions in work force, professional costs associated with strategic initiatives, integration costs of recent acquisitions and a full quarter of expenses related to our Mexican joint venture facility which commenced production in May 2007.
Interest and foreign exchange expense decreased $1.0 million to $9.9 million for the three months ended May 31, 2008, compared to $10.9 million in the prior comparable period. The decrease was principally due to a $0.8 million decrease in foreign exchange losses from $0.7 million loss in the prior period to a gain of $0.1 million in the current period.
In April 2007, The Board of Directors approved the permanent closure of TrentonWorks. During the quarter ended May 31, 2007, special charges of $3.1 million related to the closure were incurred which consist of $2.9 million in employee termination costs and $0.2 million in professional fees and other costs.
Income Taxes
The provision for income tax expense was $7.6 million and $11.0 million for the three months ended May 31, 2008 and 2007. The provision for income taxes is based on projected geographical mix of consolidated results from operations for the entire year which results in an estimated 54.9% annual effective tax rate on pre-tax income. The effective tax rate fluctuates from year to year due to the geographical mix of pre-tax earnings and losses, minimum tax requirements in certain local jurisdictions and operating losses for certain operations with no related tax benefit.

The actual tax rate for the third quarter of the fiscal year 2008 was 49.7% as compared to 46.7% in the prior comparable period. The actual rate of 49.7% differs from the estimated effective rate of 54.9% due to revisions to our projected geographical mix of consolidated results from operations.
Minority Interest
Minority interest for the three months ended May 31, 2008 consists of the sharing of losses from our Mexican railcar manufacturing joint venture that began production in May of 2007.
Nine Months Ended May 31, 2008 Compared to Nine Months Ended May 31, 2007
Overview
Total revenues for the nine months ended May 31, 2008 were $928.1 million, an increase of $54.9 million from revenues of $873.2 million in the prior comparable period. Net earnings were $12.2 million for the nine months ended May 31, 2008 compared to net earnings of $8.8 million for the nine months ended May 31, 2007.
Manufacturing Segment
Manufacturing revenue for the nine months ended May 31, 2008 was $484.4 million compared to $529.3 million in the corresponding prior period, a decrease of $44.9 million. The decrease was primarily the result of lower deliveries. New railcar deliveries were approximately 5,400 units in the current period and 6,200 units in the prior comparable period.
Manufacturing margin as a percentage of revenue for the nine months ended May 31, 2008 was 3.1% compared to 5.8% for the nine months ended May 31, 2007. The decrease was primarily due to rising steel prices and surcharges, loss contingencies of $5.3 million accrued on certain future production, $0.5 million of severance, lower production levels and start up costs and production inefficiencies at our Mexican joint venture facility, partially offset by relief of certain contractual obligations. The prior period was also impacted by negative margins at TrentonWorks that closed permanently during the third quarter of 2007.
Refurbishment & Parts Segment
Refurbishment & parts revenue of $368.8 million for the nine months ended May 31, 2008 increased by $104.0 million from revenue of $264.8 million in the prior comparable period. The increase was primarily due to acquisition related growth, increases in wheelset volumes and scrap steel prices.
Refurbishment & parts margin as a percentage of revenue was 17.9% for the nine months ended May 31, 2008 compared to 16.4% for the nine months ended May 31, 2007. Higher margins were a result of the growth of our wheel business and the positive impact of higher scrap steel prices.
Leasing & Services Segment
Leasing & services revenue decreased $4.4 million to $74.8 million for the nine months ended May 31, 2008 compared to $79.2 million for the nine months ended May 31, 2007. The change was primarily a result of a $3.8 million decrease in gains on disposition of assets from the lease fleet, lower interim rent on railcars held for sale and lower interest income.
Pre-tax earnings of $7.0 million were realized on the disposition of leased equipment, compared to $10.8 million in the prior comparable period. Assets from our 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 margin as a percentage of revenue decreased to 51.3% for the nine months ended May 31, 2008 compared to 56.6% for the nine months ended May 31, 2007. The change was primarily a result of decreases in gains on disposition of assets from the lease fleet, interest income and interim rent on assets held for sale, all of which have no associated cost of revenue.
Other Costs
Selling and administrative costs were $64.6 million for the nine months ended May 31, 2008 compared to $56.0 million for the comparable prior period, an increase of $8.6 million. The increase was primarily due to increased employee costs including severance of $1.3 million related to reductions in work force, professional costs associated with strategic initiatives, integration costs of recent acquisitions, business process improvement at existing facilities, costs associated with our Mexican joint venture facility that commenced production in May 2007 and plant overhead from TrentonWorks.
Interest and foreign exchange decreased $0.7 million to $30.3 million for the nine months ended May 31, 2008, compared to $31.0 million in the prior comparable period. Interest expense decreased $1.1 million due to lower variable interest rates and the de-consolidation of TrentonWorks. Foreign exchange losses increased $0.4 million to $1.3 million compared to $0.9 million in the prior year.
In April 2007, our board of directors approved the permanent closure of TrentonWorks. As a result of the facility closure decision, special charges of $2.3 million were recorded during nine months ended May 31, 2008 consisting of severance costs and professional and other expenses. On March 13, 2008 this subsidiary filed for bankruptcy with The Office of the Superintendent of Bankruptcy Canada whereby the assets of TrentonWorks are being administered and liquidated by an appointed trustee. Beginning on March 13, 2008 the results of TrentonWorks were de-consolidated and no additional charges were subsequently incurred.
Special charges of $19.6 million were recorded during the nine months ended May 31, 2007. These charges consisted of $14.1 million associated with property, plant and equipment, $1.3 million related to inventory and $1.1 million write-off of goodwill and other, $2.9 million in severance costs and $0.2 million of professional and other fees associated with the closure.
Income Tax
The provision for income taxes expense was $12.4 million and $3.4 million for the nine months ended May 31, 2008 and 2007. The provision for income taxes is based on projected consolidated results of operations for the entire year which results in an estimated 54.9% annual effective tax rate on pre-tax income. The effective tax rate fluctuates from year to year due to the geographical mix of pre-tax earnings and losses, minimum tax requirements in certain local jurisdictions and operating losses for certain operations with no related tax benefit. The actual tax rate for the first nine months of the fiscal year 2008 was 56.3% as compared to 28.0% in the prior comparable period. The actual rate of 56.3% differs from the estimated effective rate of 54.9% due to revisions to our projected geographical mix of consolidated results from operations.
Minority Interest
Minority interest for the nine months ended May 31, 2008 consists of the sharing of losses from our Mexican railcar manufacturing joint venture that began production in May of 2007.
Equity in Earnings (Loss) of Unconsolidated Subsidiaries
Equity in earnings of the of the castings joint venture was $0.5 million for the nine months ended May 31, 2008 compared to a loss of $0.1 million for the nine months ended May 31, 2007. The increase in earnings was associated with higher production levels and lower warranty costs in the current year.
Liquidity and Capital Resources
We have been financed through cash generated from operations and borrowings. During the nine months ended May 31, 2008, cash decreased $20.8 million from August 31, 2007.

CONF CALL

Mark Rittenbaum

Good morning and welcome to our first quarter fiscal 2009 conference call. On today's call, we will discuss our results and make a few remarks about the quarter that ended on November 30. We will then provide an outlook for 2009 and beyond. After that we will open it up for questions.

As always, matters discussed in this conference call include forward-looking statements within the Private Securities Litigation Reform Act of 1995. Throughout our discussion today, we will describe some of the important factors that could cause Greenbrier's actual results in 2009 and beyond to differ materially from those expressed in the forward-looking statement made by or on behalf of Greenbrier.

Today we reported a net loss for our first quarter of $3.3 million or $0.20 per diluted share on revenues of $256 million. We also announced we are reducing our dividend from $0.08 per share to $0.04 per share.

Turning back to the quarter the results included a non-cash charge of $1.2 million pre-tax, $0.6 million after tax or $0.04 per share. The background on this is as a normal course of our business we have a policy of hedging our currency exposure over in Europe to lock in our margins on foreign currency sales. We have been doing this since we entered into European operations ten years ago. All of our hedge contracts and all of our hedging is economically effective but during the quarter we determined a small number of our contracts for technical reasons did not meet all of the requirements to be designated for hedge accounting treatment under GAAP. Therefore we are required to mark those specific contracts to market through the income statement and this resulted in a non-cash charge to interest in foreign exchange of $1.2 million.

Effective in January these contracts will meet the requirements for hedge account treatment and at that time we are no longer required to mark these contracts to market through the P&L.

Turning to liquidity our revolving debt balance declined by $40 million since quarter end and we have additional committed borrowing availability of approximately $138 million.

In addition to that our cash balance is $19 million.

We believe we have adequate liquidity to manage through this downturn. As both Bill and I will address in more detail in downturns such as this our focus is on liquidity and cash flow. We are making and will continue to take aggressive measures to pay down debt, remain liquid and rationalize the sizing of our operations and cost structure to reflect the current environment.

I will now turn the call over to our CO, Bill Furman, and then he will turn it back to me and after that we will open it up for some questions.

Bill Furman

Thank you Mark and good morning. On today’s call I am going to make some remarks about the quarter that just ended, Greenbrier’s competitive position, the current industry environment and the steps we are taking to improve our performance and liquidity in this difficult environment. Finally I will provide some qualitative outlook comments for the year ahead.

Turning to our first quarter the financial results were disappointing but our first quarter result, as Mark just summarized, reflect the very difficult economic environment in which we and other companies in America are operating. This is particularly true in new rail car manufacturing, a segment which continues to have a substantial revenue base for Greenbrier.

The less cyclical parts of our business which include refurbishment and parts, marine manufacturing, leasing and services along with our European operations helped dampen the effects of operating in this environment. However, as was reflected in our first quarter results none of our businesses are immune from that environment.

Our refurbishment and parts business was impacted by lower scrap prices and an unfavorable mix in lower volumes of work. Scrap prices have started to rebound which will benefit this unit as the pipeline clears from older materials and surcharges that have somewhat distorted the quarter for that unit. Revenues for this segment still grew 27% over Q1 2008.

Our leasing services business was affected by lower lease rate utilization and lower gains on fleet rail car sales. However, our own lease fleet of 9,000 cars under management services for an additional 37,000 cars provides us with stable earnings and cash flow.

Our manufacturing business was most impacted during the first quarter due to lower production rates, a less favorable product mix and higher cost of materials purchased earlier in the year. Additionally a loss contingency of $.5 million was reported on rail cars currently in backlog as reserves reported in fiscal 2008 were adjusted based on current expectations reflecting lower run rates and the mix just described.

On a more positive note, commodity prices have declined considerably in recent months in turn lowering input costs on new freight car construction. This may lead to some bargain hunting by customers. We do expect our new rail car backlog to benefit from a more favorable product mix and lower input costs for the remainder of the year.

Our new rail car backlog is 15,900 units of which 2,900 are currently scheduled for delivery in fiscal 2009. As is to be expected in this environment all customers are pushing back, seeking concessions and/or cancellations with their suppliers. We are certainly doing this with our suppliers and renegotiating costs on components given the very large swings in commodity prices and the variability and weakness in those prices today. Our customers are doing it with us.

Subsequent to quarter end we had one order cancelled for 300 new boxcars to be manufactured at our Gunderson facility in Portland. This order is excluded from our November 30 backlog as reported. The customer will be responsible for our costs and inventory associated with that order so the effect on cash and liquidity will be neutral after that settlement is made.

We are also in discussion with other major customers. However, we believe our rail car sales contracts to be sound for the large bulk of our backlog and we believe the company is adequately protected in the event of attempted renegotiations or cancellations of contracts.

I might say that this situation is the product of many, many stored cars and excess equipment in the system during the current part of this business cycle and we don’t expect this to continue or this kind of environment to continue indefinitely.

Turning to our competitive position our management team and board of directors have been through many such downturns and have a proven track record managing through business cycles. While we believe the current recession will likely have a larger or longer than average duration we remain confident in our ability to manage through this one as well. Later I will provide more details on how we specifically plan to do this.

However, the strategy which we pursued over the past few years to diversify revenue and earnings has and will stabilize earnings and cash flow and has improved our competitive positioning. We remain optimistic about the longer-term fundamentals of the railroad industry and about our competitive position in it and our business model.

Turning to the market environment and before I go into more detail about Greenbrier and the steps we are taking to combat the downturn I’d like to frame the current economic environment.

To begin with, rail loadings are a leading indicator of the health of the economy. North American rail car loadings are currently weak and have been for a while now. Particularly they have been affected by the massive commodity swings and weakness in commodities in recent months. Loadings of commodities in North America were down 9% in the fourth quarter of 2008 as compared to Q4 of 2007. Car loadings for forest products and automotive, car types in which we have a strong market presence have been even harder hit.

While we are also strong at double stacks in our modal out loadings we are down 7% in Q4 2009 versus Q4 2008. As a result of decreased loadings, tens of thousands of rail cars are currently being stored by customers and moved to the sidelines. Not all car types are affected equally but this phenomenon is natural in a downturn and we have seen it before.

Furthermore, customers are deferring capital spending and are in many cases opting instead to store damaged cars rather than repair them. Nonetheless we feel our GRS repair and refurbishment unit will be a strong performer during this part of the business cycle. We are happy we have expanded that segment to now account for the bulk of our profitable revenue along with marine and other parts businesses for Greenbrier.

Demand for new rail cars in North America is being hit hardest and industry forecasts are for 30,000 to 35,000 rail cars to be built in 2009 and 2010, rebounding in 2011 to a more normalized level. All of this compared to about 60,000 units expected in the final numbers for 2008. However, I personally believe these forecasts for new orders and deliveries for 2009 in particular may prove to be on the high side.


The scenario I just described is not uncommon to our industry. I would like to remind everybody and particularly our long-term investors of that fact. We have seen it many times during cyclical downturns. As the economy recovers there becomes a shortage of serviceable rail cars and velocity changes in all of our business units will benefit quickly and dramatically.

However, in the short-term while we are mindful of the opportunities and requirements to limit capEx there are opportunities to buy rail cars cheaply in the market, repair them through our system and our network and lease them out. When the market recovers the market value of any assets we put into such programs will increase dramatically.

One last comment I would like to make regarding the market environment has to do with the potential for an economic stimulus package or packages in the form of increased government support and spending on infrastructure tax credits or other programs such as this. If passed, this legislation could also stimulate demand for rail car types needed to support such programs which in turn could benefit all segments of our business and other businesses in the railroad supply industry.

We will be closely monitoring the status of federal legislation and the first important piece is a stimulus tax bill which we understand to be presently on a very fast track in Congress.

Our management and board continually conduct scenario analysis of our industry and the economic environment and its impact on our business. At present we believe we have a strategy in place to operate through these difficult times, a strategy that positions Greenbrier to succeed under various operating scenarios.

Throughout the balance of 2009 we have several important objectives. Let me turn to those.

Most importantly we will manage the company for cash and liquidity as we have done in earlier downturns. We will continue to take measures to improve liquidity, increase efficiency, reduce our operating costs, improve our balance sheet and conserve cash all appropriate to the current environment.

Last year in the first quarter of this year we slowed down production rates and eliminated $10 million of annual costs. We will aggressively continue this theme this year on multiple fronts. Specifically and number one we will reduce our 2009 capital expenditures appropriately at least by $25 million from 2008 amounts and we have the ability to go deeper as conditions may warrant.

Secondly, we plan to improve our working capital utilization by $50 million. Part of this is natural as inventories run down and receivables run down with lower levels of operations. However, we have put into effect over the past five months a very aggressive review and reorganization of our business methods to improve the efficiency of our working capital.

Third, we will continue to adjust production rates and consolidate production. If the outlook does not improve we will likely shut down or temporarily close one of our new rail car facilities until the market conditions do improve.

Fourth, we will continue to adjust our cost structure to the current environment. We will take out at least an additional $5 million of overhead and G&A costs as a first step.

Turning to the overall outlook while this economic picture is rather gloomy and while visibility is somewhat limited we anticipate the balance of the fiscal year to be better for us in the first quarter and we will be profitable, both a result of the internal measures I discussed and external factors.

Let me discuss those external factors in greater detail. Raw material costs have dropped significantly which should help our new rail car manufacturing operations. We have also started to deliver the first rail cars under our GE contract. These cars have been accepted and the contribution from our marine operations aided by a very strong backlog in that operation at Gunderson is expected to grow throughout the year.

Scrap prices have started to rebound off first quarter lows which will help our refurbishment and parts business and reverse the through put adjustments that clearing the pipeline with older costs has brought to that unit in the first quarter.

Volume in our repair and refurbishment business, particularly in wheels, remains strong. We have been awarded a significant new wheel contract in the southeastern part of the United States and we believe that higher material costs surcharges will largely be flushed through the system by the end of our current quarter or by the end of the quarter we are in.

So these factors along with an expected more favorable product mix should help improve margins. I will remind you the first quarter has traditionally been our weakest quarter due to product mix and that the year is back end weighted.

Looking longer term we continue to believe rail and marine transportation will compare favorably to other modes of transportation driven by a number of factors. We expect these to include increasing highway congestion, prospects longer term although not immediately are a weakening U.S. dollar which will favor railroading and commodities and exports in the United States, an aging rail car fleet, the lower cost infrastructure build and a higher emphasis on environmental factors under the new administration and Congress.

So in summary, we remain confident about our business model, our strategy and our ability to navigate through this downturn. We have specific plans in place which I have enumerated which adjust to the current operating environment and as Mark will discuss in more detail adequate liquidity to operate in this environment.

As a result of these plans and the external factors I previously discussed we expect near term results to improve. Our competitive position is strong and our business model cannot be easily duplicated. Longer term we do remain optimistic about the marine and rail industries and our competitive position.

I will now turn the call back to Mark.

Mark Rittenbaum

Thank you Bill. As both Bill and I have mentioned we believe we have adequate liquidity to manage through this difficult environment and our focus is on cash flow and maintaining liquidity. I want to go into that in a little more detail and then after that I will go into our performance a little bit more but not do a deep dive in that as a lot of that information is contained in our earnings release.

First, our financial focus managing for cash. As Bill mentioned we have a number of measures in place to reduce our borrowings and improve cash flow. As we are in this uncertain environment we do have limited visibility. Therefore we have been and continue to stress test our forecast under different scenarios for various financial and financial covenants impacts to ensure we take appropriate measures to run the business and maintain liquidity.

Currently we have very little in the way of near-term debt maturities. This year we have less than $32 million maturing related to our European operations which we believe we can adequately manage through. Our $290 million revolving line of credit for North American operations matures in November 2011 and the earliest potential significant maturity of any of our notes payable occurs in May 2013 and this relates to our convertible bonds outstanding of $100 million.

We are in compliance with all of our financial covenants. Furthermore we have an excellent relationship with our lead bank, Bank of America, and long-standing relationships and excellent relationships with many in our bank group.

Now let me add some color on the quarter. First, while refurbishment and parts helped lessen the impact of weak manufacturing during the quarter it too was affected by the difficult environment. As such we are taking overhead costs out to reflect lower refurbishment volumes principally and a less favorable mix of repair and refurbishment work.

Secondly, as Bill mentioned, our wheel services business was impacted by a precipitous drop in scrap steel prices and as Bill mentioned we are seeing a pick up there which along with cost reduction initiatives should aid results in the future.

Turning to leasing and services our fleet utilization was 93.3% during the quarter compared to 95.2% at the end of our fourth quarter. The current quarter includes $0.3 million gains on equipment sales while the prior year’s first quarter included $0.8 million of gains. We do expect increased trading activity in the last three quarters of the year so our gains on sale for the year as a whole will run higher than the current quarter’s run rate of $0.3 million.

Now turning to manufacturing. As a reminder during the quarter we were still building rail cars for contracts in backlog which contain fixed prices and for which higher price materials were already purchased. Therefore a lot of our production was in that scenario. We had an unfavorable product mix and as Bill mentioned based on our current expectations for any of those contracts still in our backlog we increased our reserves by $500,000 for such contingencies where our costs exceed our sale price.

We did not accept any new fixed price orders in the quarter. We do have profitable work in our backlog. As Bill discussed the market is very competitive right now and any orders that are being bid are being aggressively priced with little or no margin and a focus on cash in these bids and making contributions to fixed overhead is principally what we are seeing out there which is also normal in this environment.

On a more positive note we are now delivering our first paint cars under our GE contract and the first paint cars that Greenbrier has built for the North American marketplace. We are very pleased by this obviously and now commencing with those deliveries along with lower input costs, continuing momentum in marine and stability in Europe this should all aid our manufacturing performance.

We expect our marine revenues to approach about $75 million this year, nearly a $20 million growth from the prior year. We have a strong backlog. Our cost reduction initiatives will stay in place. Our G&A expense after you take out less recurring items is on a $17.5 million run rate. That includes the $10 million of cost reductions realized in 2008 and we have plans to drive this down further with the initial step of reducing G&A and overhead by $5 million and further end contingencies for reductions if warranted.

Our working capital management plans did have specific metric targets, all with the goal of improving working capital utilization by at least $50 million. We reduced our capEx by $25 million from last year, still with our capEx at about $40 million. $20 million of that is leasing capEx. That capEx is discretionary and can be throttled back if conditions warrant.

We will now open it up for questions.


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