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Article by DailyStocks_admin    (07-23-08 05:16 AM)

Filed with the SEC from July 10 to July 16:

Greenbrier (GBX)
Billionaire investor Carl Icahn cut his holdings to 1.12 million shares (6.77%) from the 1.34 million (8.17%) that he reported owing on June 20.

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, 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 and to generate enhanced returns.

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, 2007, 2006 and 2005 is located in Note 23 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 website is located at http://www.gbrx.com.

Significant Developments in 2007

Our Canadian railcar manufacturing facility had been incurring operating losses as a result of high labor costs, manufacturing inefficiencies, transportation costs associated with a remote location and a strong Canadian currency coupled with a weakening of the market for the primary railcars produced by this entity. These factors caused us to reassess the value of the assets of this facility in accordance with our policy on impairment of long-lived assets. Based on an analysis of future undiscounted cash flows associated with these assets, we determined that the carrying value of the assets exceeded their fair market value. Accordingly a $16.5 million impairment charge was recorded in February 2007 as a special charge on the Consolidated Statement of Operations. In April 2007, our board of directors approved the permanent closure of this facility. As a result of the asset impairment and subsequent facility closure, aggregate special charges of $21.9 million were recorded during 2007 consisting 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 associated with the closure. In addition, an $8.2 million tax benefit related to a write-off of our investment in our Canadian subsidiary for tax purposes was recorded. We are actively marketing the assets, and the disposition of the facility is expected to be completed by the end of 2008. Closure costs which include contractual obligations, professional fees and severance and other employee-related costs other than pension costs are estimated to be approximately $12.0 million of which $7.1 million has been incurred through August 31, 2007 consisting of $4.5 million in special charges and $2.6 million in general and administrative expense. There is no tax benefit associated with these closure costs.

In November 2006, we acquired all of the outstanding stock of Meridian Rail Holdings, Corp. for $237.9 million which includes the initial purchase price of $227.5 million plus working capital adjustments. Meridian is a leading supplier of wheel maintenance services to the North American freight car industry. Operating out of six facilities, Meridian supplies replacement wheel sets and axles to approximately 170 freight car maintenance locations where worn or damaged wheels, axles, or bearings are reconditioned or replaced. Meridian also performs coupler reconditioning and railcar repair at other facilities.

In October 2006, we formed a joint venture with Grupo Industrial Monclova (GIMSA) to manufacture new railroad freight cars for the North American marketplace at GIMSA’s existing manufacturing facility, located in Frontera, Mexico. Our initial investment was less than $10.0 million for one production line and each party owns a 50% interest in the joint venture. Production began late in our third quarter of 2007. The financial results of this operation are consolidated for financial reporting purposes under Financial Accounting Standards Board (FASB) Interpretation (FIN) 46R, Consolidation of Variable Interest Entities , as the Company maintains a controlling interest as evidenced by the right to appoint the majority of the board of directors, control over accounting, financing, marketing and engineering, and approval and design of products. The minority interest reflected in the Company’s consolidated financial statements represents the joint venture partner’s equity in this venture.

On September 11, 2006, we purchased substantially all of the operating assets of Rail Car America (RCA), its American Hydraulics division and the assets of its wholly owned subsidiary; Brandon Corp. RCA is a provider of intermodal and conventional railcar repair services in North America, operating from four repair facilities throughout the United States. RCA also reconditions and repairs end-of-railcar cushioning units through its American Hydraulics division and operates a switching line in Nebraska through Brandon Corp. The purchase price of the net assets was $29.1 million of cash and a $3.0 million promissory note due in September 2008.

The acquisitions of Meridian and RCA during 2007 resulted in the growth of the repair, refurbishment and parts portion of our business to a level that required a change in composition of our reportable segments. A new segment was added: refurbishment & parts, which includes activities that were formerly included as part of the manufacturing segment. All segment information for prior periods has been restated to conform to current period reporting.

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 produced for the North American market are:

Intermodal Railcars - We manufacture a comprehensive range of intermodal railcars. Our most important 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. These savings are the result of:

• Increased train density (two containers are carried within the same longitudinal space conventionally used to carry one trailer or container);
• Reduced railcar weight of up to 50% per container;
• Improved terminal handling characteristics;
• Reduced equipment costs of up to 40% less than the cost of providing the same carrying capacity with conventional equipment;
• Reduced damage claims as a result of superior ride quality compared to conventional equipment; and
• Increased fuel efficiency resulting from weight reduction and improved aerodynamics.
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 and coil cars for the steel and metals markets and various other conventional railcar types. 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 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 rolling highway 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 35 locations. Our network of railcar repair and refurbishment shops competes in heavy railcar repair and refurbishment and 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. We also perform wheel and axle servicing through our wheel shops in North America. In addition, we recondition railcar cushioning units, produce boxcar sliding door and roof products as well as couplers and yokes.

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 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, total fleet management including railcar tracking and software development, 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 145,000 railcars in North America for railroads, shippers, carriers and other leasing and transportation companies.

Backlog

Approximately 50% of backlog as of August 31, 2007 is expected to be produced during 2008. The backlog at August 31, 2007 includes 6,700 units that will be delivered to the customer over a multi-year period ending in calendar year 2010. Approximately 3,900 units under this contract are subject to our fulfillment of certain competitive conditions. Subsequent to August 31, 2007, an additional multi-year order was received for 11,900 units to be delivered over an eight-year period commencing in the first quarter of 2009. Approximately 8,500 units under this contract are subject to our fulfillment of certain competitive conditions.

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

Customers

Our customers 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 2007, revenue from one customer, Burlington Northern and Santa Fe Railway Company (BNSF) accounted for approximately 21% of total revenue, 29% of leasing & services revenue and 25% of manufacturing revenue. Two customers, TTX Company and Union Pacific Railroad, together accounted for approximately 43% 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.

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 a fewer number of competitors in the wheel and other parts businesses of which we are one of the largest competitors in both segments. 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 us. 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.

Marketing and Product Development

In North America, we utilize an integrated marketing and sales effort to coordinate relationships in our various segments. We provide our customers with a diverse range of equipment and financing alternatives designed to satisfy each customer’s unique needs, whether the customer is buying new equipment, refurbishing existing equipment or seeking to outsource the maintenance or management of equipment. These custom programs may involve a combination of railcar products, leasing, refurbishing and remarketing services. In addition, we provide customized maintenance management, equipment management and accounting services.

In Europe, we maintain relationships with customers through a network of country specific sales representatives. Our engineering and technical staff works closely with their customer counterparts on the design and certification of railcars. Many European railroads are state-owned and are subject to European Union regulations covering tendering of government contracts.

Through our customer relationships, insights are derived into the potential need for new products and services. Marketing and engineering personnel collaborate to evaluate opportunities and identify and develop new products. Research and development costs incurred for new product development during 2007, 2006 and 2005 were $2.4 million, $2.2 million and $1.9 million.

Patents and Trademarks

We have a number of United States (U.S.) and non-U.S. patents of varying duration and pending applications, registered trademarks, copyrights and trade names that are important to our products and product development efforts. The protection of our intellectual property is important to our business and we have a proactive program aimed at protecting our intellectual property and the results from our research and development.

Environmental Matters

We are subject to national, state, provincial and local environmental laws and regulations concerning, among other matters, air emissions, wastewater discharge, solid and hazardous waste disposal and employee health and safety. Prior to acquiring facilities, we usually conduct investigations to evaluate the environmental condition of subject properties and may negotiate contractual terms for allocation of environmental exposure arising from prior uses. We maintain compliance with applicable environmental laws and regulations.

Environmental studies have been conducted of our owned and leased properties that indicate additional investigation and some remediation on certain properties may be necessary. Our Portland, Oregon manufacturing facility is located adjacent to the Willamette River. The United States Environmental Protection Agency (EPA) has classified portions of the river bed, including the portion fronting our facility, as a federal “National Priority List” or “Superfund” site due to sediment contamination (the Portland Harbor Site). We, and more than 60 other parties, have received a “General Notice” of potential liability from the EPA relating to the Portland Harbor Site. The letter advised us that we may be liable for the costs of investigation and remediation (which liability may be joint and several with other potentially responsible parties) as well as for natural resource damages resulting from releases of hazardous substances to the site. At this time, ten private and public entities, including us, have signed an Administrative Order on Consent to perform a remedial investigation/feasibility study of the Portland Harbor Site under EPA oversight, and several additional entities have not signed such consent, but are nevertheless contributing money to the effort. The study is expected to be completed in 2010. The EPA has notified several additional entities, including other federal agencies, that it is prepared to issue unilateral orders compelling additional participation in the remedial investigation. In addition, we have entered into a Voluntary Clean-Up Agreement with the Oregon Department of Environmental Quality in which we agreed to conduct an investigation of whether, and to what extent, past or present operations at our Portland property may have released hazardous substances to the environment. Under this oversight, we also are conducting groundwater remediation relating to a historical spill on our property which occurred prior to our ownership.

Because these environmental investigations are still underway, we are unable to determine the amount of our ultimate liability relating to these matters. Based on the results of the pending investigations and future assessments of natural resource damages, we may be required to incur costs associated with additional phases of investigation or remedial action, and we may be liable for damages to natural resources. In addition, we may be required to perform periodic maintenance dredging in order to continue to launch vessels from our launch ways in Portland, Oregon, on the Willamette River, and the river’s classification as a Superfund site could result in some limitations on future dredging and launch activities. Any of these matters could adversely affect our business and results of operations, or the value of our Portland property.

Regulation

The Federal Railroad Administration in the United States and Transport Canada in Canada administer and enforce laws and regulations relating to railroad safety. These regulations govern equipment and safety appliance standards for freight cars and other rail equipment used in interstate commerce. The Association of American Railroads (AAR) promulgates a wide variety of rules and regulations governing the safety and design of equipment, relationships among railroads and other railcar owners with respect to railcars in interchange, and other matters. The AAR also certifies railcar builders and component manufacturers that provide equipment for use on North American railroads. These regulations require us to maintain our certifications with the AAR as a railcar builder and component manufacturer, and products sold and leased by us in North America must meet AAR, Transport Canada, and Federal Railroad Administration standards.

Harmonization of the European Union (EU) regulatory framework is an ongoing process. The regulatory environment in Europe consists of a combination of EU regulations and country specific regulations.

Employees

As of August 31, 2007, we had 4,239 full-time employees, consisting of 2,589 employees in manufacturing, 1,507 in refurbishment & parts and 143 employees in leasing & services and corporate. At the manufacturing facility in Swidnica, Poland, 365 employees are represented by unions. At our refurbishment & parts locations, 105 employees are represented by a union. At our Frontera, Mexico, joint venture manufacturing facility, 322 employees are represented by a union. In addition to our own employees, 1,164 union employees work at our Sahagun, Mexico, railcar manufacturing facility under our services agreement with Bombardier Transportation. We believe that our relations with our employees are generally good.

Additional Information

We are a reporting company and file annual, quarterly, and special reports, proxy statements and other information with the Securities and Exchange Committee (SEC). You may read and copy these materials at the Public Reference Room maintained by the SEC at Room 1580, 100 F Street N.E., Washington, D.C. 20549. You may call the SEC at 1-800-SEC-0330 for more information on the operation of the public reference room. The SEC maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. Copies of our annual, quarterly and special reports, Audit Committee Charter, Compensation Committee Charter, Nominating/Corporate Governance Committee Charter and the Company’s Corporate Governance Guidelines are available on our web site at http://www.gbrx.com or free of charge by contacting our Investor Relations Department at The Greenbrier Companies, Inc., One Centerpointe Drive, Suite 200, Lake Oswego, Oregon 97035.

CEO BACKGROUND

Graeme A. Jack, Director. Mr. Jack was appointed as a director in October 2006. Mr. Jack is a recently retired partner of the world-wide accounting firm of PricewaterhouseCoopers. He was admitted to the partnership in 1980 in the Hong Kong office. He served as the lead partner of the management consulting services practice 1985 to 1990. Mr. Jack has been appointed an independent trustee for Hutchison Provident Fund and the Hutchison Provident and Retirement Plan, two funds established for the retirement of Hutchison Whampoa Limited employees.

Benjamin R. Whiteley, Chairman of the Board of Directors. Mr. Whiteley has served as a member of the Board since 1994 and was elected Chairman of the Board of Directors in October 2004. He is retired Chairman and Chief Executive Officer of Standard Insurance Company, an Oregon based life insurance company, where he served in a number of capacities over 44 years ending in 2000. Mr. Whiteley has served as a director of several other publicly held companies and has chaired the boards of a number of non-profit organizations.

William A. Furman, President, Chief Executive Officer and Director. Mr. Furman has served as a member of the Board and as the Company’s President and Chief Executive Officer since 1994. Mr. Furman has been associated with the Company and its predecessor companies since 1974. Prior to 1974, Mr. Furman was Group Vice President for the Leasing Group of TransPacific Financial Corporation. Earlier he was General Manager of the Finance Division of FMC Corporation. Mr. Furman serves as a Director of Schnitzer Steel Industries, Inc., a steel recycling and manufacturing company.

C. Bruce Ward, Director. Mr. Ward has served as a member of the Board since 1994. He served as Chairman of Gunderson LLC, a manufacturing subsidiary, from 1990 to 2005 and was its President and Chief Executive Officer from 1985 to 1989. Mr. Ward is a former director of Stimson Lumber Company, a privately-held forest products company.

Duane C. McDougall, Director. Mr. McDougall has served as a member of the Board since 2003. Mr. McDougall served as President and Chief Executive Officer of Willamette Industries, Inc., an international forest products company, from 1998 to 2002. Prior to becoming President and Chief Executive Officer, he served as Chief Operating Officer and also Chief Accounting Officer during his 23-year tenure with Willamette Industries, Inc. He also serves as a Director of West Coast Bancorp and Cascade Corporation as well as several privately held companies and non-profit organizations.

A. Daniel O’Neal, Jr., Director. Mr. O’Neal has served as a member of the Board since 1994. Mr. O’Neal served as a Director of Gunderson from 1985 to 2005. Mr. O’Neal served as a Commissioner of the Interstate Commerce Commission from 1973 until 1980 and, from 1977 until 1980, served as its Chairman. Since 1985 has served in various executive positions with Greenbrier. Prior to joining Greenbrier in 1985, he was a partner in a business law firm. From 1989 until 1996 he was Chief Executive Officer and owner of a freight transportation services company. He was Chairman of Washington State’s Freight Mobility Board from its inception in 1998 until July 2005. Mr. O’Neal is a member of the Washington State Transportation Commission. In 2007 the Governor of Washington appointed him to the newly formed Puget Sound Partnership Leadership Board. He is on the board of Cascade Land Conservancy and other non-profit organizations.

Charles J. Swindells, Director. Mr. Swindells was appointed as a director September 2005. Mr. Swindells served as United States Ambassador to New Zealand and Samoa from 2001 to 2005. Before becoming Ambassador, Mr. Swindells was Vice Chairman of US Trust Company, N.A.; Chairman and Chief Executive Officer of Capital Trust Management Corporation; and Managing Director/Founder of Capital Trust Company. He also served as Chairman of World Wide Value Fund, a closed-end investment company listed on the New York Stock Exchange. Mr. Swindells was one of five members on the Oregon Investment Council overseeing the $20 billion Public Employee Retirement Fund Investment Portfolio and was a member of numerous non-profit boards of trustees, including serving as Chairman of the Board for Lewis & Clark College in Portland, Oregon. Mr. Swindells serves as a Director of Swift Energy Company, a NYSE listed oil and natural gas company.

Donald A. Washburn, Director. Mr. Washburn was appointed as a director in August 2004. Mr. Washburn served as Executive Vice President of Northwest Airlines, Inc., an international airline, and Chairman and President of Northwest Cargo from 1995 to 1998. Prior to becoming Executive Vice President, he served as Senior Vice President for Northwest Airlines, Inc. from 1990 to 1995. Mr. Washburn served in several positions from 1980 to 1990, including Executive Vice President for Marriott Corporation, an international hospitality company. He also serves as a director of LaSalle Hotel Properties, Key Technology, Inc, Amedisys, Inc., as well as several privately held companies and non-profit corporations.

Victor G. Atiyeh, Director. Mr. Atiyeh has served as a member of the Board since 1994. Mr. Atiyeh has been President of Victor Atiyeh & Co., international trade consultants, since 1987. He served eight years as Governor of the State of Oregon from January 1979 to January 1987. Prior to being elected Governor, Mr. Atiyeh was President of Atiyeh Brothers, a family retail company.

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, Mexico and Europe produces double-stack intermodal railcars, conventional railcars, tank cars and marine vessels. We may also manufacture new freight cars through the use of unaffiliated subcontractors. The refurbishment & parts segment performs railcar repair, refurbishment and maintenance activities in the United States and Mexico as well as wheel and axle servicing, and production of a variety of parts for the railroad industry. The leasing & services segment owns approximately 9,000 railcars and provides management services for approximately 136,000 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, 2007 was approximately 12,100 railcars with an estimated value of $830.0 million. This compares to 14,700 railcars valued at $1.0 billion as of August 31, 2006. Backlog includes approximately 3,900 units that are subject to our fulfillment of certain competitive conditions. Sales prices generally include an anticipated pass-through of vendor material price increases and surcharges, however, there is still risk that material prices could increase beyond amounts used to price our sale contracts which would adversely impact margins realized upon sale. Subsequent to August 31, 2007, an additional multi-year order was received for 11,900 units to be with delivered over an eight year period commencing in the first quarter of 2009. Approximately 8,500 units under this contract are subject to our fulfillment of certain competitive conditions.

Our Canadian railcar manufacturing facility had been incurring operating losses as a result of high labor costs, manufacturing inefficiencies, transportation costs associated with a remote location and a strong Canadian currency coupled with a weakening of the market for the primary railcars produced by this entity. These factors caused us to reassess the value of the assets of this facility in accordance with our policy on impairment of long-lived assets. Based on an analysis of future undiscounted cash flows associated with these assets, we determined that the carrying value of the assets exceeded their fair market value. Accordingly a $16.5 million impairment charge was recorded in February 2007 as a special charge on the Consolidated Statement of Operations. In April 2007, our board of directors approved the permanent closure of this facility. As a result of the asset impairment and subsequent facility closure, aggregate special charges of $21.9 million were recorded during 2007 consisting 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 associated with the closure. In addition, an $8.2 million tax benefit related to a write-off of our investment in our Canadian subsidiary for tax purposes was recorded. We are actively marketing the assets and the disposition of the facility is expected to be completed by the end of 2008. Closure costs which include contractual obligations, professional fees and severance and other employee-related costs other than pension costs are estimated to be approximately $12.0 million of which $7.1 million has been incurred through August 31, 2007 consisting of $4.5 million in special charges and $2.6 million in general and administrative expense. There is no tax benefit associated with these closure costs.

In November 2006, we acquired all of the outstanding stock of Meridian Rail Holdings, Corp. for $237.9 million which includes the initial purchase price of $227.5 million plus working capital adjustments. Meridian is a leading supplier of wheel maintenance services to the North American freight car industry. Operating out of six facilities, Meridian supplies replacement wheel sets and axles to approximately 170 freight car maintenance locations where worn or damaged wheels, axles, or bearings are reconditioned or replaced. Meridian also performs coupler reconditioning and railcar repair at other facilities.

In October 2006, we formed a joint venture with Grupo Industrial Monclova (GIMSA) to manufacture new railroad freight cars for the North American marketplace at GIMSA’s existing manufacturing facility, located in Frontera, Mexico. Our initial investment was less than $10.0 million for one production line and each party owns a 50% interest in the joint venture. Production began late in our third quarter of 2007. The financial results of this operation are consolidated for financial reporting purposes as the Company maintains a controlling interest as evidenced by the right to appoint the majority of the board of directors, control over accounting, financing, marketing and engineering, and approval and design of products. The minority interest reflected in the Company’s consolidated financial statements represents the joint venture partner’s equity in this venture.

On September 11, 2006, we purchased substantially all of the operating assets of Rail Car America (RCA), its American Hydraulics division and the assets of its wholly owned subsidiary, Brandon Corp. RCA is a provider of intermodal and conventional railcar repair services in North America, operating from four repair facilities throughout the United States. RCA also reconditions and repairs end-of-railcar cushioning units through its American Hydraulics division and operates a switching line in Nebraska through Brandon Corp. The purchase price of the net assets was $29.1 million of cash and a $3.0 million promissory note due in September 2008.

Results of Operations

Overview

Total revenue was $1.2 billion, $953.8 million and $1.0 billion for the years ended August 31, 2007, 2006 and 2005. Net earnings for 2007, 2006 and 2005 were $22.0 million or $1.37 per diluted common share, $39.6 million or $2.48 per diluted common share and $29.8 million or $1.92 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 and orders that may be manufactured by unaffiliated subcontractors.

Manufacturing revenue was $738.4 million, $748.8 million and $844.5 million for the years 2007, 2006 and 2005. Railcar deliveries, which are the primary source of manufacturing revenue, were approximately 8,600 units in 2007 compared to 11,400 units in 2006 and 13,200 units in 2005. 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. The delivery decline is the result of the impact of a slower North American railcar market for railcar types that we currently produce and the current year production of more complex railcar types requiring higher labor content. Manufacturing revenue decreased $95.7 million or 11.3% in 2006 as compared to 2005 primarily due to lower deliveries resulting from changes in production rates to meet customer delivery requirements, a slower European freight car market, an increase in internal production and subcontracted deliveries in the prior period.

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 the current year, start-up costs on our new railcar manufacturing joint venture in Mexico and production difficulties and inefficiencies realized on certain conventional railcar types. Manufacturing margin as a percentage of revenue was 11.0% in 2006 compared to 8.6% in 2005. Margin improvements were the result of lower costs on certain materials and operating efficiency improvements at certain of our facilities. In addition, 2005 was adversely impacted by production issues in Europe, surcharges and price increases on materials that could not be passed onto the customer, temporary production issues at one facility and inclement weather related closures.

Refurbishment & Parts Segment

Refurbishment & parts revenue was $381.7 million, $102.5 million and $96.7 million for the years 2007, 2006 and 2005. 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. Revenue increased $5.8 million, or 6.0%, from 2005 to 2006 primarily due to the addition of four repair and refurbishment facilities.

Refurbishment & parts margin as a percentage of revenue was 16.8%, 14.4% and 10.8% for 2007, 2006 and 2005. The acquisition of Meridian in 2007 has 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. The margin increase from 2005 to 2006 was the result of a more favorable product mix, increased volumes of wheelset sales and improvements in efficiency at certain facilities.

Leasing & Services Segment

Leasing & services revenue was $103.7 million, $102.5 million and $83.1 million for the years 2007, 2006 and 2005. 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. The $19.4 million increase in revenue from 2005 to 2006 was primarily the result of increased revenue from new lease additions, a $4.1 million increase in gains on sale of assets from the lease fleet and increased interest income on higher cash balances.

During 2007, we realized $13.4 million in pre-tax earnings on the disposition of leased equipment compared to $10.9 million in 2006 and $6.8 million in 2005. 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 55.8% in 2007 compared to 59.0% in 2006 and 50.5% in 2005. The decrease from 2006 to 2007 was primarily a result of declines in interim rent and interest income, decreased utilization on mileage 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. The increase in 2006 was primarily a result of gains on sales from the lease fleet and interim rental on assets held for sale both of which have no associated cost of revenue; renewal of leases at higher lease rates and newer lease equipment with lower maintenance costs. These gains were partially offset by decreased utilization on railcars subject to management agreements.

Other costs

Selling and administrative expense was $83.4 million, $70.9 million and $57.4 million in 2007, 2006 and 2005. The $12.5 million increase from 2006 to 2007 is primarily due to $5.0 million associated with operations of business acquired in the current year, $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. The $13.5 million increase from 2005 to 2006 is primarily the result of increases in employee costs which include new employees, transition costs associated with succession planning, compensation and benefit increases and incentive compensation; $2.8 million in amortization of the value of restricted stock grants; increases in professional fees associated with strategic initiatives; expenses associated with improvements to our technology infrastructure; increases in European research and development costs; partially offset by reduced legal fees as the prior period included $2.5 million in legal and professional expenses associated with litigation and responses related to actions by a former member of the board of directors, Alan James.

Interest and foreign exchange expense was $39.9 million, $25.4 million and $14.8 million in 2007, 2006 and 2005. 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. Interest and foreign exchange expense increased $10.6 million from 2005 to 2006 due to higher outstanding debt levels, $0.8 million in interest on a settlement with the IRS in conjunction with the completion of an audit, $0.7 million in interest paid on the purchase of subsidiary shares subject to mandatory redemption, partially offset by foreign exchange fluctuations. Foreign exchange gains of $1.6 million were recognized in 2006 compared to foreign exchange losses of $0.8 million in 2005.

Our Canadian railcar manufacturing facility had been incurring operating losses as a result of high labor costs, manufacturing inefficiencies, transportation costs associated with a remote location and a strong Canadian currency coupled with a weakening of the market for the primary railcars produced by this entity. These factors caused us to reassess the value of the assets of this facility in accordance with our policy on impairment of long-lived assets. Based on an analysis of future undiscounted cash flows associated with these assets, we determined that the carrying value of the assets exceeded their fair market value. Accordingly a $16.5 million impairment charge was recorded in February 2007 as a special charge on the Consolidated Statement of Operations. In April 2007, our board of directors approved the permanent closure of this facility. As a result of the asset impairment and subsequent facility closure, aggregate special charges of $21.9 million recorded during 2007 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 associated with the closure.

During 2005, we incurred special charges of $2.9 million consisting of debt prepayment penalties and costs associated with settlement of interest rate swap agreements on certain debt that was refinanced with senior unsecured notes.

Income Tax

Our effective tax rate was 39.9%, 35.5% and 39.8% for the years ended August 31, 2007, 2006 and 2005. The current period includes 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. The current period also includes tax benefits of approximately $1.0 million for Mexican asset based tax credits and amended state income tax provisions. Tax expense for 2006 includes $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 includes 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. Our tax rate in the United States for the years ended August 31, 2007, 2006 and 2005 represents a tax rate of 39.0%, 41.0% and 42.0%. All periods include varying tax rates on foreign operations.

Minority Interest

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

Liquidity and Capital Resources

We have been financed through cash generated from operations and borrowings. At August 31, 2007, cash decreased $122.1 million to $20.8 million from $142.9 million at the prior year end. Cash usage was primarily for the acquisitions of Meridian and RCA, partially offset by proceeds from borrowings.

Cash provided by operating activities for the year ended August 31, 2007 and 2006 was $46.3 million and $39.5 million. Cash used in operating activities was $16.7 million in 2005. The change is due primarily 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, 2007 of $286.6 million compared to $111.1 million in 2006 and $21.3 million in 2005. The increased cash utilization in 2007 was primarily due to the acquisitions of Meridian and RCA. Increases in capital expenditures for lease fleet equipment resulted in the increase in cash used in investing activities in 2006 as compared to 2005.

Capital expenditures totaled $137.3 million, $140.6 million and $69.1 million in 2007, 2006 and 2005. Of these capital expenditures, approximately $111.9 million, $122.6 million and $52.8 million in 2007, 2006 and 2005 were attributable to leasing & services operations. Our capital expenditures have increased as we replace the maturing direct finance leases and take advantage of investment opportunities in the railcar market. 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 $120.0 million in 2007. Leasing & services capital expenditures for 2008 are expected to be approximately $75.0 million.

Approximately $20.4 million, $15.1 million and $11.8 million of capital expenditures for 2007, 2006 and 2005 were attributable to manufacturing operations. Capital expenditures for manufacturing are expected to be approximately $30.0 million in 2008 and primarily relate to increased efficiency and expansion of manufacturing capacity through our joint venture in Mexico.

Refurbishment & parts capital expenditures for 2007, 2006 and 2005 were $5.0 million, $2.9 million and $4.5 million and are expected to be approximately $15.0 million in 2008 for expansion of existing facilities.

Cash provided by financing activities of $115.8 million for the year ended August 31 2007 compared to cash provided by financing activities of $142.5 million in 2006 and $97.6 million in 2005. 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 $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. During 2005, we received $169.8 million in net proceeds from a senior unsecured debt offering, repaid $67.7 million in term debt and paid dividends of $3.9 million.

All amounts originating in foreign currency have been translated at the August 31, 2007 exchange rate for the following discussion. Senior secured revolving credit facilities aggregated $341.9 million as of August 31, 2007, of which $39.6 million in revolving notes and $4.9 million in letters of credit are outstanding. Available borrowings 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 at August 31, 2007 levels would provide for maximum additional borrowing of $225.0 million. A $290.0 million revolving line of credit is available through November 2011 to provide working capital and interim financing of equipment for the United States and Mexican operations. A $1.0 million line of credit is available through November 2011 for Canadian operations. Advances under the U.S. and Canadian facilities bear interest at variable rates that depend on the type of borrowing and the defined ratio of debt to total capitalization. At August 31, 2007, there was $3.9 million in letters of credit outstanding under the United States credit facility. A $1.0 million letter of credit was outstanding under the Canadian credit facility. Lines of credit totaling $50.9 million are available for working capital needs of the European manufacturing operation. These European credit facilities have maturities that range from December 31, 2007 through August 28, 2008. As of August 31, 2007, the European credit facilities had $39.6 million outstanding.

In accordance with customary business practices in Europe, we have $21.4 million in bank and third party performance, advance payment and warranty guarantee facilities, all of which has been utilized as of August 31, 2007. To date no amounts have been drawn under these performance, advance payment and warranty guarantees.

We have advanced $1.5 million in long-term advances to an unconsolidated subsidiary which are secured by accounts receivable and inventory. As of August 31, 2007, this same unconsolidated subsidiary had $6.5 million in third party debt for which we have guaranteed 33% or approximately $2.2 million.

We have outstanding letters of credit aggregating $4.9 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.

In 1990, we entered into an agreement for the purchase and refurbishment of over 10,000 used railcars between 1990 and 1997. The agreement provides that, under certain conditions, the seller will receive a percentage of defined earnings of a subsidiary, and further defines the period when such payments are to be made. Such amounts, referred to as participation, are accrued when earned, charged to leasing & services cost of revenue, and unpaid amounts are included as participation in the Consolidated Balance Sheets. Participation expense was $2.3 million, $1.7 million and $1.6 million in 2007, 2006 and 2005. Payment of participation was $9.4 million in 2007.

Off Balance Sheet Arrangements

We do not currently have off balance sheet arrangements that have or are likely to have a material current or future effect on our Consolidated Financial Statements.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

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.

anufacturing 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.

CONF CALL

Mark J. Rittenbaum

Good morning and welcome to our fiscal third quarter conference call. After we review our results and make a few remarks about the quarter that just ended we’ll provide an outlook for 2008 and beyond, and then we’ll open up for your questions.

As always, matters discussed in this conference call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Throughout the discussion today we will describe some of the important factors that could cause Greenbrier’s actual results in 2008 and beyond to differ materially from those expressed in the forward-looking statement made by or on behalf of Greenbrier.

Today we reported our third quarter fiscal results. Our GAAP net earnings were $0.49 per share on revenues of $382.1 million compared to net earnings of $0.81 per share on revenues of $386.6 million in the third quarter of 2007.

We remain very liquid as we’re in the process of amending one of our loan agreements and we’ll have $160 million of additional borrowing capacity under the various terms and financial covenants once this amendment is completed.

Our refurbishment and parts, leasing, and services in marine businesses continue to perform well and we anticipate this momentum will sustain. Including our recent acquisitions, these businesses are expected to generate over $770 million in annual revenues on a current run-rate basis, exceeding those generated by new rail car manufacturing in North America and Europe.

The increased contribution from our refurbishment of parts and leasing and services businesses improved overall gross margins by $14 million sequentially over the second quarter of 2008. The strong performance of these business units offset a sequential decline of $4 million in manufacturing margins, which results from the increasingly competitive new rail car environment and rising raw material costs.

Focusing specifically on the refurbishment and parts segments, we have made two acquisitions this year on top of the two we made last year and are extremely pleased with the performance thus far. Revenue from this segment now earned a run-rate which exceeds $600 million per year. In addition, margins continued to expand and reached 21% during the third quarter. This segment has benefitted from higher scrap prices, which provides a natural hedge to rising raw material costs in the new rail car manufacturing. We anticipate growth for this business will continue and believe that margins in the upper teens are sustainable.

The leasing and services segment includes results from our own lease fleet of 9,000 rail cars and managed fleet of 138,000 cars. Lease fleet utilization for the quarter was 96.1% compared to 97% last quarter. The current quarter includes $5 million in gains on equipment sales, flat with the gains realized in Q3 of 2007 and compared to $1.2 million in Q2 of 2008.

As we have previously stated, equipment fails are hard to forecast as they are opportunistic in nature. Recently we have been taking advantage of high scrap steel prices by scrapping some of our older rail cars rather than keeping them in leasing service. The remaining fleet has also benefitted from increases in steel pricing through higher residual values.

When you pull out gains on equipment sales, our margins for this segment were 46.7% of revenues this quarter, similar to the margin for the last two quarters.

Turning to remanufacturing, we booked four additional barge orders during the quarter and our backlog grew to 158 million. Annual revenues for this operation exceed $60 million and, again, we anticipate continued growth in this sector and the outlook is bright. Furthermore, our entire marine backlog allows for pass through of material cost increases to our customers.

New rail car deliveries for the quarter were 2,200 units compared to 3,000 units in the third quarter of 2007. Our backlog as of the quarter end was 17,500 units and we expect to deliver 1,400 of these units in the fourth quarter of this fiscal year based on current production plans.

We made progress during the quarter at our Mexican joint venture, our Greenbrier-GIMSA operations with improved efficiencies and financial results.

Manufacturing margin for the quarter continued to be pressured by rising steel prices and surcharges, lower production rates, and a loss reserve on certain future production and backlog. In the near term, we believe these forces along with an extremely competitive market and softer demand will continue to put manufacturing margins under stress.

About one-third of our current backlog contains fixed price contracts. Due to rising raw material costs, the current estimated cost to complete some of these fixed price contracts is expected to exceed the contractual sales price. In response, we’ve accrued $5.3 million during the quarter for estimated loss contingencies on a portion of these contracts. There are about 1,000 fixed price rail cars in our backlog for which the anticipated loss is not yet estimable and a loss contingency has not yet been approved. We are aggressively working to mitigate all these exposures on various fronts that we’ll further address later on and are working very diligently to mitigate or reduce these exposures.

Our selling and administrative expenses increased $2.4 million sequentially from the second quarter of 2008, but this doesn’t really tell the story that there are a number of things going on in that increase and we’re aggressively working to cut our overhead in G&A costs in the current environment. A number of factors included in the noise during the quarter include: there’s $1.3 million as severance costs related to cost-reduction initiatives; a $0.7 million increase in professional fees related to strategic initiatives which should discontinue after this quarter; $0.6 million of integration costs and increase G&A related to our two acquisitions during the quarter; and $0.8 million increase in incentive compensation related to higher earnings. So we anticipate a sequential reduction in these costs in our fiscal fourth quarter and again are working to reduce these costs overall.

Last quarter we mentioned that we expected the tax rate to run about 63% for 2008. We have implemented strategies to more efficiently manage our tax rate in different geographic jurisdictions and have made significant progress during the quarter as our tax rate was 50%. We expect a slightly lower rate in Q4.

Looking ahead, D&A expense should run $35 million. Manufacturing capex should run about $30 million, but again this is primarily related to our planned expansion in Mexico for which our partner picks up half of the expenditure. We are not doing much manufacturing capex beyond that in Mexico. Our refurbishment and parts capex runs about $10 million, and again most of that is discretionary capex. And our leasing capex this year is about $30 million to $35 million on a net basis.

As I mentioned earlier, we remain very liquid and expect to have the $160 million of additional borrowing capacity based on our financial ratios. During the quarter we completed a $50 million leasing term loan on very favourable terms.

Our near term financial focus remains on cost reductions consistent with the current macro-economic trends, paying down post-acquisition debt, and strategies to continue to reduce our effective tax rate.

While the current operating environment is challenging, we remain optimistic about the long-term fundamentals of the rail industry and we believe we are well positioned, both in the near and long-term, to successfully compete as a result of our strategic decisions.

I will now turn it over to Bill Furman, our CEO, and then we’ll open it up for your questions.

William A. Furman

Thank you, Mark. As Mark has indicated in the press release, demonstrates our financial reports, our results have improved considerably this quarter. We are pleased about that. This is due mainly to increased momentum and volume margins in our refurbishment and parts segment, but is also supported by a strong leasing and marine manufacturing set of fundamentals and increasing marine backlog.

Consistent with our diversification objectives over the past two years and the goals of our integrated business model, the revenue and margins from these areas should continue to shift away from manufacturing during the present, more economic, more difficult economic environment.

Manufacturing for new cars on a stand-alone basis we believe will continue to be a very difficult business in which to make money in the near term. However, it fits in well with our integrated model and it gives the company considerable upside in more normalized economic times.

During the past several years the demand for new rail car manufacturing is relatively robust. But this business has always been cyclical. Moreover, it has commodity aspects to it in the current climate with strong customers consolidating supply chain and a large number of car builders creating overcapacity during economic down cycles and times of uncertainty as we are certainly operating in today.

Manufacturing, however, can be very valuable during the more normal economic times and in the present economic environment it also creates value for Greenbrier as a platform for other businesses and services. The primary advantages for that platform are in engineering, design capability, and mechanical knowhow. Greenbrier has been diversifying its business to take advantage of this platform and will continue to do so.

In the past two years we’ve made major acquisitions of repair and parts businesses, all with good franchise value and complementary geographical networks. We have enhanced our repair and parts segment through acquisition of favourable pricing multiples and these businesses, in combination with the rest of our network of products and services, should significantly outperform and balance our manufacturing segment during the current economic period of uncertainty.

The reason for this is that railroad traffic, especially in many commodities, continues to be robust. The competitive case for railroading versus other modes of transportation, along with marine, remains very robust. Velocity has improved in the railroad system, and freight cars in service are working harder and they’re still aging. With high steel prices it is difficult for railroads to justify replacement with costs of new equipment today and existing equipment compares very favourably to the cost of new builds due to the cost of steel and components and scrap surcharges. Accordingly, the need to repair and extend the life of rail cars and to replace parts should continue, in our opinion, to be very strong.

Our diversified business areas include not only refurbishment in parts, but leasing management services as well as the thriving marine business, all supported by the technology of our engineering and design teams in the manufacturing units and all favoured by the many of the same forces that are making manufacturing less attractive in the present environment.

As we integrate the addition story network and we add even better value enhancements throughout organic growth we should continue to see the benefits of this strategy as we have in the numbers reported in the quarter just ended.

I want to summarize, although Mark has touched on many of these, a few of the operational strategic highlights from the quarter just ended. As Mark just mentioned, we closed on two previously announced refurbishment and parts acquisitions with annual revenues of $100 million and EBIDTA of approximately $16 million on a run-rate basis.

We received significant marine barge orders increasing our marine backlog to a record $158 million. All of our barge backlog contains pass through provisions for cost increases on steel and other commodity inputs. Our marine backlog is indexed to protect us in the event specifically of further steel pricing variations.

Our GIMSA manufacturing facility in Mexico made efficiency improvements and should prove to be a very cost-efficient facility along with our other facility in Mexico at Concarril. However, in the present environment even these low-cost facilities are struggling with the pricing and commodity cost issues besetting most manufacturing companies today.

Another important point is we added extensive review of the merits of a possible business combination with a respected manufacturing competitor, also a partner in some parts businesses controlled by investor Carl Icahn, following an investment in Greenbrier by Mr. Icahn and his affiliated companies. Our financial results during the quarter reflected the costs associated with that process, as well as the distractions such evaluations always involve. I’ll comment briefly on that a little along in my remarks.

We improved our reported tax rate, as Mark has also suggested, and we continue to work on our foreign income and losses through restructuring and other means, which will continue, we hope, to affect the tax rate favourable.

Finally we produced true financial results despite absorbing unexpected losses on steel and scrap surcharges of $5.3 million. We continue to actively manage our exposure in this area, which is due largely to multi-year transactions which had fixed pricing components year to year. We were forced to fix the prices during the current year and were caught in the process of that by some significant price increases which were not expected in steel, as others have.

We also absorbed some declining margins in our European operations due to a lapse in currency hedging and exposure to the Polish zloty, some of which was also absorbed in the earlier quarter. We have a policy to hedge against such risks, unfortunately the zloty moved unexpectedly against the Euro and we have had other issues with significant contracts in Europe. We’ve been working this quarter to revise our strategic plan in Europe and we continue to work on that during the quarters to come.

Looking at the competitive landscape, notwithstanding the current economic uncertainties, we believe that rail and marine will continue to prepare favourably to other modes of transportation, especially in the current economic environment. The current fundamentals of high gas prices, highway congestion, environmental impacts of trucking, deteriorating infrastructure, along with the weak dollar should be very favourable to rail and marine in the longer term, particularly for the transport of specific commodities.

Greenbrier’s manufacturing operations have been particularly affected by the downturn in the housing market and by a softening of the international import demand, which has affected intermodal loadings. However, intermodal over the longer term is expected to continue to be a backbone of the economic system and we believe, as the economy normalizes and returns to a more prosperous time in the years ahead, that the company will therefore have a great deal of upside by maintaining a manufacturing platform.

Considering the company’s merits in some of the changes that we have made, our strategy, and the integrated business model, we believe we are well positioned to deliver shareholder value across the business cycles and we believe we have a competitive advantage over other car builders who are pure car buildings plays.

We recognize we must deliver on the promise and the opportunities of the changes we have made over the past few years at Greenbrier, particularly in the areas of integration and cost cutting, as Mark also mentioned. And we are dedicated, as our board is dedicated, to achieving that goal.

Looking at M&A specifically, our investments in the refurbish and parts business have transformed the company considerably over the last two years. These investments have not only been timely, but profitable. We’ve grown this business in parts and repair and refurbishment from about $100 million in revenues in 2005 to a run-rate of over $600 million annual revenues at the current time. This growth has occurred both organically and through strategic acquisitions, although more heavily balanced on the strategic acquisition front and most notably with American Allied and RBI during the quarter, in addition to the Rail Car America and Meridian Rail Holdings, both in 2006.

We now have the largest independent shop network in North America with 39 locations to provide our customers seamless, high quality service in close proximity to our shop network and quick turnaround times. This network can also be used as a platform to distribute parts and to enter other businesses that lend themselves to a retail location which would take advantage of some of the current economic environment, particularly in salvaging assets and increasing scrap yield from our normal operations.

While we are integrating our recent acquisitions we also remain focused on continuing to grow this business, particularly in organic ways. This quarter we plan to add another shop to our network with a class one railroad providing a baseline business. A base loaded business. I’m sorry.

In addition, our parts businesses provide exciting other growth opportunities. We currently sell approximately 15 different rail car parts for a variety of rail cars and we import through our global sourcing network as many as 50 different parts and sub-assemblies for the use of our own businesses.

I want to talk briefly only now about two things: one, commodity prices, and the conclusion of our recent conversations with American Rail Car Industries. One of the key factors facing all manufacturers today is commodity pricing and the uncertainties surrounding that pricing caused by surging global demand, supply constraints, and the weakening US dollar. Currently we are facing the dual effects of not only a weak demand for rail cars, but high input costs in the manufacturing segment, and we are not alone.

We are managing this aggressively and in the past this would have had a very significant adverse effect on our business. Today, however, the effect is muted in large part to our diversification efforts described earlier and in our public documents. these efforts have provided a natural inflation hedge and commodity hedge to not only weaker demand for new rail cars but also rising input costs having to do with commodity increases as we salvage parts and other pieces from rail cars which we process through our shop network.

While the new rail car market remains soft, we will have our GE covered hopper car and tank car contract beginning in 2009 and we are protected on this contract with pass through of steel cost increases.

Finally, I want to turn to the conclusion of our discussion with American Rail Car Industries. As I’ve said before, this is a very well respected company. A company we’ve done business with and have an active joint venture with, along with another supplier in the industry. In the castings business. Ultimately we determined in congenial discussions with Mr. Icahn’s organization and with him that we could not come to an agreement favoured both parties. His focus, I’m sure, and our focus, for sure, was on a business case that made good sense for our shareholders. In this particular arrangement we were unable to come to mutually beneficial terms in which we believed and our board believed would achieve that goal.

With our business model and identified market opportunities we feel that we are well positioned to take advantage of the current economic climate. We’ve worked hard to do that. And in a way we would be doubling down in a manufacturing segment by merging in the rail car manufacturing business today. Nonetheless, there were compelling structural reasons for considering an opportunity of that sort. We remain open to considering ways of improving shareholder value and we were flattered by Mr. Icahn’s interest in Greenbrier. We’re pleased that investment worked out well for him.

Before I turn the call over to the operator for question and answer, I’d like to say that I’m pleased with how our business model has played out. We have much to do and particularly we have a lot of work to do in integration and recognizing the market potential in the franchise network we’ve now established.

We need to produce more tangible reductions in our G&A costs and to adapt to the changing economic environment that all of us face today. Our board and our team are dedicated to doing the hard work to make that happen and we hope that we can continue to produce better results as the next year plays out.

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