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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

For the fiscal year ended August 31, 2003

or

for the transition period from ___________ to ___________

Commission File No. 1-13146

THE GREENBRIER COMPANIES, INC.

One Centerpointe Drive, Suite 200
Lake Oswego, Oregon 97035
(Address of principal executive offices)
(503) 684-7000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Aggregate market value of the Registrant’s Common Stock held by non-affiliates as of February 28, 2003 (based on the closing price of such shares on such date) was $45,138,843.

The number of shares outstanding of the Registrant’s Common Stock on October 31, 2003 was 14,358,432, par value $0.001 per share.

DOCUMENTS INCORPORATED BY REFERENCE

Parts of Registrant’s Proxy Statement dated November 26, 2003 prepared in connection with the Annual Meeting of Stockholders to be held on January 13, 2004 are incorporated by reference into Parts II and III of this Report.

Table of Contents

The Greenbrier Companies, Inc.
Form 10-K
TABLE OF CONTENTS

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PART I.

Forward-Looking Statements

From time to time, The Greenbrier Companies, Inc. (Greenbrier or the Company) or its representatives have made or may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements as to expectations, beliefs and strategies regarding the future. Such forward-looking statements may be included in, but not limited to, press releases, oral statements made with the approval of an authorized executive officer, or various filings made by the Company with the Securities and Exchange Commission (SEC). These forward-looking statements rely on a number of assumptions concerning future events and include statements relating to:

•

availability of financing sources and borrowing base for working capital, other business development activities, capital spending and railcar syndication activities;

•

ability to renew or obtain sufficient lines of credit on acceptable terms;

•

ability to successfully recapitalize European operations;

•

continuation of the joint venture in Mexico;

•

increased stockholder value;

•

increased competition;

•

market improvement in North America;

•

share of new and existing markets;

•

increase or decrease in production;

•

continued ability to negotiate bank waivers;

•

ability to grow lease fleet and management services business;

•

ability to obtain adequate certification and licensing of products; and

•

short- and long-term revenue and earnings effects of the above items.

These forward-looking statements are subject to a number of uncertainties and other factors outside Greenbrier’s control. The following are among the factors, particularly in North America and Europe, that could cause actual results or outcomes to differ materially from the forward-looking statements:

•

a delay or failure of acquisitions, products or services to compete successfully;

•

recapitalization of European operations for terms less favorable than anticipated;

•

decreases in carrying value of assets due to impairment;

•

severance or other costs or charges associated with lay-offs, shutdowns or reducing the size and scope of operations;

•

effects of local statutory accounting conventions on compliance with covenants in loan agreements or reporting of financial conditions or results of operations;

•

actual future costs and the availability of materials and a trained workforce;

•

changes in product mix and the mix between manufacturing and leasing & services revenue;

•

labor disputes, energy shortages or operating difficulties that might disrupt manufacturing operations or the flow of cargo;

•

production difficulties and product delivery delays as a result of, among other matters, changing technologies or non-performance of subcontractors or suppliers;

•

ability to obtain suitable contracts for the sale of leased equipment;

•

ability to utilize beneficial tax strategies;

•

lower-than-anticipated residual values for leased equipment;

•

discovery of defects in railcars resulting in increased warranty cost or litigation;

•

resolution or outcome of pending litigation;

•

the ability to consummate expected sales;

•

delays in receipt of orders, risks that contracts may be canceled during their term or not renewed and risks that customers may not purchase as much equipment under the contracts as anticipated;

•

financial condition of principal customers;

•

market acceptance of products;

•

ability to obtain insurance at acceptable rates;

•

competitive factors, including increased competition, introduction of competitive products and price pressures;

•

industry overcapacity;

•

shifts in market demand;

•

domestic and global business conditions and growth or reduction in the surface transportation industry;

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•

domestic and global political, regulatory or economic conditions including such matters as terrorism, war or embargoes;

•

the effects of car hire deprescription on leasing revenue;

•

changes in interest rates;

•

changes in fuel and/or energy prices;

•

commodity price fluctuations;

•

ability to negotiate acceptable collective bargaining agreements;

•

availability of essential specialties or components, including steel castings, to permit manufacture of units on order;

•

ability to replace maturing lease revenue with revenue from growth of the lease fleet and management services; and

•

economic impacts from currency fluctuations in the Company’s worldwide operations.

Any forward-looking statements should be considered in light of these factors. Greenbrier assumes no obligation to update or revise any forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements or if Greenbrier later becomes aware that these assumptions are not likely to be achieved, except as may be required under securities laws.

Additional Information

Greenbrier is a reporting company and files annual, quarterly, and special reports, proxy statements and other information with the SEC. Stockholders may inspect and copy these materials at the Public Reference Room maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. Please 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 that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov. Copies of the Company’s annual, quarterly and special reports will be available to stockholders without charge upon request to: Investor Relations, The Greenbrier Companies, Inc., One Centerpointe Drive, Suite 200, Lake Oswego, Oregon 97035 or on the Company’s web site at http://www.gbrx.com.

Item 1. BUSINESS

Introduction

Greenbrier is a leading supplier of transportation equipment and services to the railroad and related industries. Greenbrier operates in two primary business segments: manufacturing and leasing & services. The two business segments are operationally integrated. With operations in the United States, Canada and Mexico, the manufacturing segment produces double-stack intermodal railcars, conventional railcars, marine vessels and industrial forgings, and performs repair, refurbishment and maintenance activities for both intermodal and conventional railcars. The leasing & services segment owns approximately 12,000 railcars and performs management services for approximately 115,000 railcars for railroads, shippers, carriers and other leasing and transportation companies.

In August 2002, the Company’s Board of Directors committed to a plan to recapitalize operations in Europe, which consist of a railcar manufacturing plant in Swidnica, Poland and a railcar sales, design and engineering operation in Siegen, Germany. The European operations have not met expectations for profitability or return on capital invested resulting in the decision to discontinue those operations and refocus resources on North American operations. European operations are treated as discontinued operations for financial reporting purposes and, accordingly, are not included in any discussions of continuing operations.

In September 2003, the Company signed a letter of intent with a private equity group to recapitalize the European operations. Some of the investors in the private equity group issuing the letter of intent are part of an investment group which has a preferred stock ownership interest in and representation on the Board of Directors of the Company’s Canadian manufacturing subsidiary. The letter of intent requires satisfactory third party debt financing and final documentation and does not preclude the Company from negotiating other offers prior to closing. The Company is in conversation with another unrelated party regarding a potential sale of the European operations.

Greenbrier is a Delaware corporation formed in 1981. The Company’s principal executive offices are located at One Centerpointe Drive, Suite 200, Lake Oswego, Oregon 97035, and its telephone number is (503) 684-7000.

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Products and Services Manufacturing

Manufacturing facilities are located in Portland, Oregon; Trenton, Nova Scotia and Sahagun, Mexico. Refurbishment, wheel shops and repair facilities are located at various locations throughout the United States.

Intermodal Railcars

Intermodal transportation is the movement of cargo in standardized containers or trailers. Intermodal containers and trailers are generally freely interchangeable among railcar, truck or ship, making it possible to move cargo in a single container or trailer from a point of origin to its final destination without the repeated loading and unloading of freight required by traditional shipping methods. A major innovation in intermodal transportation has been the articulated double-stack railcar, which transports stacked containers on a single platform. An articulated railcar is a unit comprised of up to five platforms, each of which is linked by a common set of wheels and axles.

The double-stack railcar provides significant operating and capital savings over other types of intermodal railcars. These savings are the result of (i) increased train density (two containers are carried within the same longitudinal space conventionally used to carry one trailer or container); (ii) railcar weight reduction per container of approximately 50%; (iii) easier terminal handling characteristics; (iv) reduced equipment costs of approximately 30% over the cost of providing the same carrying capacity with conventional equipment; (v) better ride quality leading to reduced damage claims; and (vi) increased fuel efficiency resulting from weight reduction and improved aerodynamics. Greenbrier is the leading manufacturer of double-stack railcars with an estimated cumulative North American market share of approximately 60%.

Greenbrier’s comprehensive line of articulated and non-articulated double-stack railcars offers varying load capacities and configurations. Current double-stack products include:

Maxi-Stack^® - The Maxi-Stack is a series of double-stack railcars that features the ride-quality and operating efficiency of articulated stack cars. The Maxi-Stack IV is a three-platform articulated railcar with 53-foot wells that can accommodate all current container sizes in all three wells. The Maxi-Stack I is a five-platform railcar with 40-foot wells that can carry either 20-foot or 40-foot containers in the wells with the ability to handle any size of container, up to 53-feet in length, on the top level. The Maxi-Stack AP is a three-platform all-purpose railcar that is more versatile than other intermodal cars because it allows the loading of either trailers or double-stack containers on the same platform.

Husky-Stack^® - The Husky-Stack is a non-articulated (stand-alone) or draw bar connected series of double-stack railcars with the capability of carrying containers up to 42% heavier than a single Maxi-Stack platform. The All-Purpose Husky-Stack is a non-articulated version of the Maxi-Stack AP. Husky-Stack also provides a means to extend double-stack economics to small load segments and terminals.

Conventional Railcars

As a leading manufacturer of boxcars in North America, Greenbrier produces a wide variety of 110-ton capacity boxcars, which are used in forest products, automotive, perishables and general merchandise applications. In addition to boxcars, center partition cars, bulkhead flat cars, flat cars for automotive transportation, solid waste service flat cars and various other conventional railcar types are manufactured. Greenbrier also produces 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.

Rail Services — Repair and Refurbishment

Greenbrier is actively engaged in the repair and refurbishment of railcars for third parties, as well as its own leased and managed fleet. In certain situations, repair or refurbishment of the Company’s lease fleet is performed at unaffiliated facilities. Refurbishment and repair facilities are located in Portland and Springfield, Oregon; Cleburne and San Antonio, Texas; Finley, Washington; Atchison, Kansas; Golden, Colorado; and Modesto, California. In addition, Greenbrier has wheel reconditioning shops located in Portland, Oregon; Pine Bluff, Arkansas; Tacoma, Washington and Sahagun, Mexico.

Greenbrier’s involvement in a major long-term wheel program with Union Pacific Railroad Company (Union Pacific) and a maintenance program with The Burlington Northern and Santa Fe Railway Company (BNSF) has provided a substantial base of work.

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Marine Vessel Fabrication

The 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. Types of vessels manufactured include conventional deck barges, double-hull tank barges, railcar/deck barges, barges for aggregates and other heavy industrial products and ocean-going dump barges.

Forging

Steel forgings weighing up to 100 tons are produced at the Nova Scotia industrial forge facility, one of the largest in North America. The forge facility produces custom parts for the oil and gas, hydroelectric and other heavy industries for customers in all parts of the world.

Leasing & Services

Greenbrier currently owns or provides management services for a fleet of approximately 127,000 railcars in North America, of which approximately 12,000 are owned with the remainder managed for railroads, shippers, carriers and other leasing and transportation companies. Management services include maintenance management, equipment management and accounting services. As equipment owner, Greenbrier participates in both the finance and the operating lease segments of the market. Lease payments received under the non-cancelable lease terms of direct finance leases generally cover substantially all of the equipment cost. The aggregate non-cancelable rental payments for equipment placed under operating leases do not fully amortize the acquisition costs of the leased equipment. As a result, the Company is subject to the customary risk that it may not be able to sell or re-lease equipment after the operating lease term expires. However, the Company believes it can effectively manage the risks typically associated with operating leases due to its railcar expertise and its refurbishing and re-marketing capabilities. Most of the leases are “full service” leases whereby Greenbrier is responsible for maintenance, taxes, and administration. The fleet is maintained, in part, through Greenbrier’s own facilities and engineering and technical staff.

Greenbrier provides maintenance management services for third parties including BNSF’s fleet of 85,000 railcars and network of 260 repair shop facilities. Under the agreement, BNSF has outsourced the management of freight car repair billing to Greenbrier.

Greenbrier manages the cost of maintenance and ensures cars are available for service under a multi-year maintenance agreement for 7,000 railcars owned by BNSF. Much of the preventative maintenance is performed at Greenbrier facilities.

Assets from the owned lease fleet are periodically sold to take advantage of market conditions, manage risk, and maintain liquidity.

A substantial portion of the owned equipment in the lease fleet was acquired through an agreement entered into in August 1990 with Southern Pacific Transportation Company, which has since merged with Union Pacific, to purchase and refurbish approximately 10,000 railcars between 1990 and 1997. The railcars were refurbished by Greenbrier or unaffiliated contract shops and placed on predominantly 10-year finance leases with Union Pacific, which contain a fixed-price purchase option exercisable upon lease expiration. Union Pacific has exercised the purchase option on approximately 4,100 railcars through August 31, 2003 and has notified Greenbrier of its intention to exercise this option on all remaining railcars in this program.

Discontinued Operations

As previously discussed, the Company’s Board of Directors committed to a plan to recapitalize operations in Europe, which consist of a railcar manufacturing plant in Poland and a railcar sales, design and engineering operation in Germany. The European product line, manufactured at the Polish facility and through a network of subcontractors, includes a comprehensive line of pressurized tank cars for liquid petroleum gas (LPG) and ammonia and non-pressurized tank cars for light oil, chemicals and other products. A broad range of other types of

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freight cars, including flat cars, coil cars for the steel and metals market, coal cars, gondolas, sliding wall cars and rolling highway cars are also manufactured.

Raw Materials and Components

Products manufactured at Greenbrier facilities require a supply of raw materials including steel and numerous specialty components such as brakes, wheels and axles. Approximately 50% of the cost of each freight car represents specialty components purchased from third parties. 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. Inventory levels are continually monitored to ensure adequate support of production. Advance purchases are periodically made to avoid possible shortages of material due to capacity limitations of component suppliers and possible price increases. Binding long-term contracts with suppliers are not typically entered into as the Company relies on established relationships with major suppliers to ensure the availability of raw materials and specialty items.

Certain domestic rail castings suppliers have reorganized, adversely affecting the available supply of castings to the industry. During 2003, the Company acquired a minority ownership interest in a joint venture which leases and operates a foundry in Cicero, Illinois to produce castings for freight cars. Subsequent to year-end, this joint venture acquired a foundry in Alliance, Ohio anticipated to produce castings beginning in January 2004. There have been no other significant interruptions in the supply of raw materials and specialty components in recent years.

In 2003, approximately 30% of domestic requirements for steel were purchased from Oregon Steel Mills, Inc. and approximately 80% of the Canadian requirements were purchased from Algoma Steel, Inc. The top ten suppliers for all inventory purchases accounted for approximately 45% of total purchases, of which no supplier accounted for a material proportion. The Company maintains good relationships with its suppliers.

In Europe, which is classified as a discontinued operation, approximately 25% of Polish steel requirements were purchased from Voest-Alpine.

Marketing and Product Development

A fully-integrated marketing and sales effort is utilized whereby Greenbrier seeks to leverage relationships developed in each of its manufacturing and leasing & services segments. The Company provides customers with a diverse range of equipment and financing alternatives designed to satisfy a 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 and financing, leasing, refurbishing and re-marketing services. In addition, the Company provides customized maintenance management, equipment management and accounting services.

Through 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 for continuing operations during 2003, 2002 and 2001 were $0.6 million, $1.0 million and $1.5 million.

Customers and Backlog

Manufacturing and leasing & services customers include Class I railroads, regional and short-line railroads, other leasing companies, shippers, carriers and other transportation companies.

The Company’s railcar backlog consisted of the following at August 31:

The backlog is based on customer purchase or lease orders that the Company believes are firm. 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.

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In 2003, revenues from the two largest customers, TTX and BNSF, accounted for approximately 35% and 10% of total revenues from continuing operations. Revenues from TTX and BNSF accounted for 39% and 7% of manufacturing revenues. Revenues from BNSF accounted for approximately 22% of leasing & services revenues. No other customers accounted for more than 10% of total, manufacturing or leasing & services revenues.

Competition

Greenbrier is affected by a variety of competitors in each of its principal business activities. There are currently six major railcar manufacturers competing in North America. Two of these producers build railcars principally for their own fleets and four producers — Trinity Industries, Inc., Johnstown America Corp., National Steel Car, Ltd., and the Company - compete principally in the general railcar market. Some of these producers have substantially greater resources than the Company. Greenbrier competes on the basis of type of product, reputation for quality, price, reliability of delivery and customer service and support.

In railcar leasing, principal competitors in North America include Bombardier Rail Capital, The CIT Group, First Union Rail, GATX Corporation and General Electric Railcar Services.

Patents and Trademarks

Greenbrier pursues a proactive program for protection of intellectual property resulting from its research and development efforts and has obtained patent and trademark protection for significant intellectual property as it relates to its manufacturing business. The Company holds several United States and foreign patents of varying duration and has several patent applications pending.

The Company is involved as a defendant in patent infringement litigation as discussed in Item 3 Legal Proceedings. Management contends the claim is without merit and intends to vigorously defend its position.

Environmental Matters

The Company is 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. Greenbrier maintains an active program of environmental compliance and believes that its current operations are in material compliance with all applicable national, state, provincial and local environmental laws and regulations. Prior to acquiring manufacturing facilities, the Company conducts investigations to evaluate the environmental condition of subject properties and negotiates contractual terms for allocation of environmental exposure arising from prior uses. Upon commencing operations at acquired facilities, the Company endeavors to implement environmental practices that are at least as stringent as those mandated by applicable laws and regulations.

Environmental studies have been conducted of owned and leased properties that indicate additional investigation and some remediation may be necessary. The Portland, Oregon manufacturing facility is located on the Willamette River. The United States Environmental Protection Agency (EPA) has classified portions of the river bed, including the portion fronting the facility, as a federal “national priority list” or “superfund” site due to sediment contamination. The Company and more than 60 other parties have received a “General Notice” of potential liability from the EPA. There is no indication that the Company has contributed to contamination of the Willamette River bed. Nevertheless, this classification of the Willamette River may have an impact on the value of the Company’s investment in the property and has resulted in the Company initially bearing a portion of the cost of an EPA mandated remedial investigation and incurring costs mandated by the State of Oregon to control groundwater discharges to the Willamette River. Neither the cost of the investigation, nor the groundwater control effort is currently determinable. However, some or all of any such outlay may be recoverable from responsible parties. The Company may be required to perform periodic maintenance dredging in order to continue to launch vessels from its launch ways on the river, and classification as a superfund site could result in some limitations on future dredging and launch activity. The outcome of such actions cannot be estimated. Management believes that the Company’s operations adhere to sound environmental practices, applicable laws and regulations.

Regulation

The Federal Railroad Administration (FRA) 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 (the AAR) promulgates a wide variety of rules and regulations governing the safety and design of equipment, relationships among railroads with respect to railcars in interchange, and other matters. The AAR also certifies railcar builders and

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component manufacturers that provide equipment for use on North American railroads. The effect of these regulations is that the Company must maintain its certifications with the AAR as a railcar builder and component manufacturer, and products sold and leased by the Company in North America must meet AAR, Transport Canada, and FRA standards.

In Europe, many countries have deregulated their railroads, and the privatization process is underway. However, each country currently has its own regulatory body with different certification requirements.

Executive Officers of the Company

The following are executive officers of the Company:

Alan James, 73, is Chairman of the Board of Directors of Greenbrier, a position he has held since 1994. Mr. James was President of Greenbrier, or its predecessor company, from 1974 to 1994.

William A. Furman, 59, is President, Chief Executive Officer and a director of Greenbrier, positions he has held since 1994. Mr. Furman is also Managing Director of TrentonWorks Limited, a manufacturing subsidiary. Mr. Furman was Chief Executive Officer of Gunderson, Inc., a manufacturing subsidiary, from 1990 to 2000 and was Vice President of Greenbrier, or its predecessor company, from 1974 to 1994. Mr. Furman serves as a director of Schnitzer Steel Industries, Inc., a steel recycling and manufacturing company.

C. Bruce Ward, 73, is Chairman of the Board of Directors of Gunderson, Inc. and has served as a director of the Company since 1994. Mr. Ward has served as Chairman of Gunderson, Inc. since 1990 and was 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.

Robin D. Bisson, 49, has been Senior Vice President Marketing and Sales since 1996 and President of Greenbrier Railcar, Inc., a subsidiary that engages in railcar leasing, since 1991. Mr. Bisson was Vice President of Greenbrier Railcar, Inc. from 1987 to 1991 and has been Vice President of Greenbrier Leasing Corporation, a subsidiary that engages in railcar leasing, since 1987.

Larry G. Brady, 64, is Senior Vice President and Chief Financial Officer of the Company. Prior to becoming Senior Vice President in 1998, he was Vice President and Chief Financial Officer since 1994. Mr. Brady has been Senior Vice President of Greenbrier Leasing Corporation since he joined the Company in 1991. From 1974 to 1990, he was a partner with Touche Ross & Co. (which subsequently became Deloitte and Touche LLP).

Mark J. Rittenbaum, 46, is Senior Vice President and Treasurer of the Company, a position he has held since 2001. Prior to becoming Senior Vice President, he was Vice President and Treasurer since 1994. Mr. Rittenbaum is also Vice President of Greenbrier Leasing Corporation and Greenbrier Railcar, Inc., positions he has held since 1993 and 1994.

Timothy A. Stuckey, 53, has been President of Gunderson Rail Services, Inc., the repair and refurbishment subsidiary, since May 1999, prior to which he served as Assistant Vice President of Greenbrier Leasing Corporation since 1987.

Norriss M. Webb, 63, is Executive Vice President and General Counsel of the Company, a position he has held since 1994. He is also Vice President, Secretary and a director of Gunderson, Inc. Mr. Webb was Vice President of the Company from 1981 to 1994.

L. Clark Wood, 61, has been President of Manufacturing Operations since April 1998, Chief Executive Officer and a director of Gunderson, Inc. since 2000, and Chief Executive Officer of TrentonWorks Limited since June 1995. Mr. Wood was President of Gunderson, Inc. from 1990 to 1999 and was Vice President and Director of Railcar Sales of Trinity Industries, Inc., a railroad freight car manufacturer, from 1985 to 1990.

William L. Bourque, 56, has held the position of Vice President International Marketing since 1999. Prior to that appointment, he served as Vice President Marketing of Greenbrier Leasing Corporation and Vice President of Greenbrier Intermodal. Mr. Bourque has been with Greenbrier since 1986 and was formerly employed by Southern Pacific Transportation Company.

James T. Sharp, 49, has been Vice President of Marketing and Operations of the Company since 1999 and was Vice President of Sales from 1996 to 1999. Prior to his service with the Company, Mr. Sharp was Vice President of Sales at USL Capital, a railcar leasing subsidiary of Ford Motor Co.

Executive officers are designated by the Board of Directors. There are no family relationships among any of the executive officers of the Company. Mr. James and Mr. Furman have entered into a Stockholders’ Agreement, which expires in July 2004, pursuant to which they have agreed, among other things, to vote as directors to elect Mr. Furman as President and Chief Executive Officer of the Company, Mr. James as Chairman of the Board of Directors and certain persons as executive officers and each to vote for the other and for the remaining existing directors in electing directors of the Company.

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Employees

As of August 31, 2003, Greenbrier had 2,839 full-time employees engaged in continuing operations, consisting of 2,744 employees in manufacturing and railcar services and 95 employees in leasing & services activities. A total of 936 employees at the manufacturing facility in Trenton, Nova Scotia, Canada are covered by collective bargaining agreements that expired on October 31, 2003. Negotiations are currently in process. As of August 31, 2003, 885 employees were engaged in discontinued European operations. At the manufacturing facility in Swidnica, Poland, 410 employees are covered by collective bargaining agreements that can be terminated by either party with three months notice. A stock incentive plan and a stock purchase plan are available for all North American employees. A discretionary bonus program is maintained for salaried and most hourly employees not covered by collective bargaining agreements. Greenbrier believes that its relations with its employees are generally good.

Item 2. PROPERTIES

The Company operates at the following facilities in North America and Europe as of August 31, 2003:

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Marketing, administrative offices and other facilities are also leased in various locations throughout North America and Europe. Greenbrier believes that its facilities are in good condition and that the facilities, together with anticipated capital improvements and additions, are adequate to meet its operating needs for the foreseeable future. The need for expansion and upgrading of the railcar manufacturing and refurbishment facilities is continually evaluated in order to remain competitive and to take advantage of market opportunities.

Item 3. LEGAL PROCEEDINGS

From time to time, Greenbrier is involved as a defendant in litigation in the ordinary course of business, the outcome of which cannot be predicted with certainty. The most significant litigation is as follows:

Litigation was initiated in 1998 in the Ontario Court of Justice in Toronto, Ontario by former shareholders of Interamerican Logistics, Inc. (Interamerican), which was acquired in the fall of 1996. The plaintiffs allege that Greenbrier violated the agreements pursuant to which it acquired ownership of Interamerican and seek damages aggregating $4.5 million Canadian ($3.2 million U.S. as of August 31, 2003). A trial is set for October of 2004.

Litigation was initiated in November 2001 in the Supreme Court of British Columbia in Vancouver, British Columbia by a customer, BC Rail Partnership, alleging breach of contract and negligent manufacture and design of railcars which were involved in a derailment. Greenbrier objected to the jurisdiction of the British Columbia Supreme Court and its motion to that effect was heard on October 24, 2002. The motion was dismissed on January 28, 2003. Leave to appeal to the Court of Appeal of British Columbia was granted on February 20, 2003 and that appeal was heard on October 3, 2003. The Court of Appeal rendered its opinion on November 7, 2003. The appeal by Greenbrier was granted and the court ordered a stay of the proceedings. It is not known whether BC Rail will re-institute the proceedings in the proper jurisdiction, Nova Scotia, Canada.

Litigation was initiated in August 2002 in the United States District Court for the District of Delaware by National Steel Car, Ltd. (NSC), a competitor, alleging that a drop deck center partition railcar being marketed and sold by Greenbrier violated a NSC patent. Trial is currently scheduled for September of 2004. Related litigation was also brought at the same time in the United States District Court for the Eastern District of Pennsylvania against a Greenbrier customer, Canadian Pacific Railway (CPR). Greenbrier has assumed the defense on that action. NSC obtained a preliminary injunction against CPR on January 6, 2003 which, pending final hearing and determination of the case, enjoins CPR from making, using, offering to sell or importing into the United States the subject cars. CPR filed a Notice of Appeal from the decision of the District Court to the United States Court of Appeals for the Federal Circuit on February 5, 2003. Trial in the case is set for March 2004. Production and delivery of 800 drop-deck center partition railcars, included in backlog, has been delayed and production of other cars at the Company’s Canadian facility is being accelerated pending resolution.

Management contends all the above claims are without merit and intends to vigorously defend its position. Accordingly, management believes that any ultimate liability resulting from the above litigation will not materially affect the financial position, results of operations or cash flows of the Company.

Greenbrier’s European subsidiary, Greenbrier Germany GmbH, invoked the arbitration provisions of the purchase agreement by which the Freight Wagon Division of Daimler Chrysler Rail Systems Gmbh (Adtranz) was acquired. Arbitration was sought by Greenbrier to resolve various claims arising out of the Adtranz purchase agreement and actions of Adtranz personnel. Formal arbitration has been stayed pending attempts by both parties to mediate, but those efforts have failed, and on October 24, 2003, Greenbrier submitted its formal claim.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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PART II

Item 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Greenbrier’s common stock has been traded on the New York Stock Exchange under the symbol GBX since July 14, 1994. There were approximately 410 holders of record of common stock as of October 28, 2003. The following table shows the reported high and low sales price of Greenbrier’s common stock on the New York Stock Exchange.

No dividends were declared in 2003. A dividend of $.06 per share was declared in the first quarter and paid in the second quarter of 2002. No other dividends were paid during 2002. There is no assurance as to the payment of future dividends as they are dependent upon future earnings, capital requirements, and the financial condition of the Company.

Certain loan covenants restrict the transfer of funds from the subsidiaries to the parent company in the form of cash dividends, loans or advances. The restricted net assets of subsidiaries amounted to $99.7 million as of August 31, 2003. Consolidated retained earnings of $3.5 million at August 31, 2003 were restricted as to the payment of dividends.

Equity Compensation Plan Information

The following table provides certain information as of August 31, 2003 with respect to the Company’s equity compensation plans under which equity securities of the Company are authorized for issuance.

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Item 6. SELECTED FINANCIAL DATA

YEARS ENDED AUGUST 31,

(1)

Consists of the European operations. See discussion of discontinued operations in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Consolidated Financial Statements.

(2)

Includes $1.1 million (net of tax) of special charges related to a restructuring plan to reduce operating expenses.

(3)

Includes earnings of $1.1 million resulting from the resolution of certain matters on a leasing contract that began in 1990.

(4)

Includes regular dividend of $0.27 per common share and special dividend of $0.12 per common share.

(5)

Includes investment in direct finance leases and equipment on operating leases.

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Greenbrier currently operates in two primary business segments: manufacturing and leasing & services. The two business segments are operationally integrated. From operations in North America, the manufacturing segment produces double-stack intermodal railcars, conventional railcars, marine vessels and forged steel products and performs railcar repair, refurbishment and maintenance activities. The Company may also manufacture new freight cars through the use of unaffiliated subcontractors. The leasing & services segment owns 12,000 railcars and provides management services for approximately 115,000 railcars for railroads, shippers, carriers and other leasing and transportation companies.

In August 2002, the Company’s Board of Directors committed to a plan to recapitalize operations in Europe, which consist of a railcar manufacturing plant in Poland and a railcar sales, design and engineering operation in Germany. Accordingly, the Company has classified its European operations as discontinued operations in accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The assets, liabilities, operating results and cash flows related to the discontinued operations are presented as a single line item in the Consolidated Balance Sheets, Statements of Operations and Statements of Cash Flows.

Railcars are generally manufactured, repaired, or refurbished under firm orders from third parties, and revenue is recognized when the cars are completed, accepted by the customer, and contractual contingencies removed. Greenbrier may also manufacture railcars prior to receipt of firm orders and build railcars for its own lease fleet. Railcars produced in a given period may be delivered in subsequent periods, delaying revenue recognition. Revenue does not include sales of new railcars to, or refurbishment services performed for, the leasing & services segment since intercompany transactions are eliminated in preparing the Consolidated Financial Statements. The margin generated from such sales or refurbishment activity is realized by the leasing & services segment over the related life of the asset or upon sale of the equipment to a third party.

Overview

Total revenue from continuing operations was $435.0 million, $305.6 million and $508.8 million for the years ended August 31, 2003, 2002 and 2001. Earnings from continuing operations for 2003 were $4.4 million, or $0.30 per diluted common share, while the 2002 loss from continuing operations was $3.7 million, or $0.26 per diluted common share and 2001 earnings from continuing operations were $8.1 million, or $0.57 per diluted common share.

Results from discontinued operations were near breakeven for the year ended August 31, 2003. For the years ended August 31, 2002 and 2001, losses from discontinued operations were $22.4 million and $7.0 million.

Results of Continuing Operations

The discussion of results of continuing operations excludes the results of European operations for all periods presented.

Manufacturing Segment

Manufacturing revenue includes new railcar, marine, forge, refurbishment and maintenance activities. New railcar delivery and backlog information disclosed herein includes all North American facilities, including the Mexico joint venture that is accounted for by the equity method.

Manufacturing revenue was $364.5 million, $233.4 million and $427.8 million for the years ended 2003, 2002 and 2001. Manufacturing revenue increased $131.1 million, or 56.2%, in 2003 from 2002 due to increased deliveries in response to improvements in the industry demand for railcars, slightly offset by a product mix with a lower unit sales value. Manufacturing revenue decreased $194.4 million, or 45.4%, in 2002 from 2001 due to fewer deliveries resulting from a cyclical downturn in the North American railcar market and competitive pressure on prices. Deliveries of new railcars, which are the primary source of revenue, were approximately 5,600 in 2003, 3,300 in 2002, and 7,300 in 2001. Deliveries for 2003 exclude 600 units that have been delivered to and paid for by a customer for which revenue has been deferred pending removal of contractual contingencies.

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As of August 31, 2003, the backlog of new railcars to be manufactured for sale and lease at North American facilities was approximately 9,000 railcars with an estimated value of $440 million. Backlog has increased significantly over the year as the railcar market began to recover. Backlog as of August 31, 2002 was 4,200 railcars with a value of $210 million.

Manufacturing margin increased to 7.5% in 2003 from 6.9% in 2002 due to efficiencies associated with higher production rates and the impact of a favorable shift in product mix, offset somewhat by costs related to production that was delayed due to an injunction associated with a patent litigation lawsuit. Results for 2002 were impacted by the closure of one plant for five months of the year. The effects of increased competition on selling prices, inefficiencies associated with slower production rates and the overhead associated with a plant that was temporarily shut down for five months of the year were the cause of the decline from 8.0% in 2001 to 6.9% in 2002. The factors influencing cost of revenue and gross margin in a given period include order size (which affects economies of plant utilization), production rates, product mix, changes in manufacturing costs, product pricing and currency exchange rates.

Leasing & Services Segment

Leasing & services revenue was $70.4 million, $72.3 million and $81.0 million for the years ended 2003, 2002 and 2001. The decrease in leasing & services revenue is due to a number of factors including maturation of the direct finance lease portfolio, increased pressure on lease renewal rates and a reduction of gains on sale of equipment from the lease fleet, offset partially by reductions of accruals for rental assistance guarantees and increased utilization of the car hire lease fleet.

A substantial portion of the owned equipment in the lease fleet was acquired through an agreement entered into in August 1990 with Southern Pacific Transportation Company, which has since merged with Union Pacific, to purchase and refurbish approximately 10,000 railcars between 1990 and 1997. The railcars were refurbished by Greenbrier or unaffiliated contract shops and placed on predominantly 10-year finance leases with Union Pacific, which contain a fixed price purchase option exercisable upon lease expiration. Union Pacific has exercised the purchase option on approximately 4,100 railcars through August 31, 2003 and has notified Greenbrier of their intention to exercise this option on all remaining railcars in this program. As these leases mature over the next five years, related leasing revenue will continue to decline. Revenue may be replaced by growth of the lease fleet and management services.

A portion of leasing & services revenue is derived from “car hire” which is a fee that a railroad pays for the use of railcars owned by other railroads or third parties. Car hire earned by a railcar is usually made up of hourly and mileage components. Until 1992, the Interstate Commerce Commission directly regulated car hire rates by prescribing a formula for calculating these rates. Government regulation of car hire rates continues but the system of prescribed rates has been superseded by a system known as deprescription. January 1, 2003 ended a ten-year period used to phase in this new system.

Deprescription is a system whereby railcar owners and users have the right to negotiate car hire rates. If the railcar owner and railcar user cannot come to an agreement on a car hire rate, then either party has the right to call for arbitration. In arbitration either the owner’s or user’s rate is selected and that rate becomes effective for a one-year period. Substantially all railcars in the Greenbrier fleet are subject to deprescription.

There is some risk that car hire rates could be negotiated or arbitrated to lower levels in the future. This could reduce future car hire revenue. Greenbrier earned car hire revenue of $24.3 million, $19.8 million and $19.6 million in 2003, 2002 and 2001.

Leasing & services margin, as a percentage of revenue, was 38.1% in 2003 consistent with 2002 margins. Margin was 46.5% in 2001. Margins have declined from 2001, as a result of the maturation of the direct finance lease portfolio and competitive and economic pressure on lease renewal rates, offset by changes in product mix as direct finance leases are replaced with operating leases and maintenance and management services.

Pre-tax earnings realized on the disposition of leased equipment amounted to $0.5 million during 2003 compared to $0.9 million in 2002 and $1.4 million in 2001. Assets from Greenbrier’s lease fleet are periodically sold in the normal course of business in order to take advantage of market conditions, manage risk and maintain liquidity.

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Other costs

Selling and administrative expense was $31.4 million, $29.2 million and $37.7 million in 2003, 2002 and 2001. The $2.2 million increase from 2002 to 2003 is primarily the result of professional fees associated with strategic initiatives and litigation and increases in employee costs. The $8.5 million decrease from 2001 to 2002 is primarily due to cost reduction measures, including reductions in work force, consolidations of facilities and elimination or reduction of non-essential costs.

Interest expense was $11.9 million, $15.5 million and $18.5 million in 2003, 2002 and 2001. Decreases were the result of lower outstanding debt balances due to scheduled repayments of debt.

Pre-tax special charges of $1.9 million were incurred during 2002 for severance costs associated with North American operations and legal and professional fees incurred at the corporate level to evaluate European operations.

Income tax expense or benefit for all periods presented represents an effective tax rate of 42.0% on United States operations and varying effective tax rates on foreign operations. The effective tax rate for continuing operations was 42.9% for 2003. The consolidated effective tax rate for 2002 and 2001 was 60.6% and 45.0%. The fluctuations in effective tax rates are due to the geographical mix of pre-tax earnings and losses.

Equity in loss of the Mexican joint venture decreased $0.7 million for 2003 as compared to 2002 as a result of higher production levels and favorable exchange rates. The plant resumed deliveries in May 2003 after a shutdown that began in January 2002. Equity in loss of this joint venture increased $1.9 million for 2002 as compared to 2001 as a result of the shutdown of the plant for eight months of the year in response to reduced demand for railcars. The joint venture agreement provides that when certain conditions are met either party can request that the joint venture be dissolved. Such conditions have been met, however, management believes it is not the current intent of either party to make such a request.

Liquidity and Capital Resources

Greenbrier has been financed through cash generated from operations and borrowings. At August 31, 2003, cash increased $16.9 million to $75.7 million from $58.8 million at the prior year end.

Cash provided by operations for the year ended August 31, 2003, was $21.1 million compared to $27.3 million for the same period in 2002. The lower amount is primarily due to changes in working capital to support increased production and a payment of participation partially offset by tax refunds received during the year.

Cash provided by investing activities for the year ended August 31, 2003 was $25.0 million compared to $4.6 million in the prior year. The increase was a result of elimination of investments in discontinued operations which amounted to $16.8 million in the prior year and fewer additions to the lease fleet as the Company focused on the growth of management services, offset partially by reduced principal payments received under direct finance lease due to the maturation of the portfolio.

Cash used in financing activities of $29.2 million for the year ended August 31, 2003 was a decrease of $18.5 million from $47.7 million in the same period in 2002. The decline was primarily due to reduced scheduled repayments of borrowings. The Company repaid $32.7 million in term debt and subordinated debt in 2003 compared to $46.8 million in the prior year.

All amounts originating in foreign currency have been translated at the August 31, 2003 exchange rate for the following discussion. Credit facilities for continuing operations aggregated $113.0 million as of August 31, 2003. Available borrowings under the credit facilities are principally based upon defined levels of receivables, inventory and leased equipment, which at August 31, 2003 levels would provide for maximum borrowing of $75.4 million. A $60.0 million revolving line of credit is available through January 2006 to provide working capital and interim financing of equipment for the leasing & services operations. A $35.0 million line of credit to be used for working capital is available through March 2006 for United States manufacturing operations. An $18.0 million line of credit is available through February 2004 for working capital for Canadian manufacturing operations. Advances under the lines of credit bear interest at rates that vary depending on the type of borrowing and certain defined ratios. At August 31, 2003, there were no borrowings outstanding under the United States manufacturing and leasing & services lines while the Canadian manufacturing line had $5.3 million outstanding.

The Company has guaranteed certain obligations relating to European discontinued operations consisting of $7.3 million in notes payable, $17.0 million in revolving credit facilities, of which $16.1 million was outstanding at August 31, 2003, and $27.5 million in bank and third party performance and warranty guarantees, of which $26.0 million has been utilized at year end. To date no amounts have been drawn under these guarantees. Approximately 60% of the revolving credit facilities mature in June 2004 with the remainder maturing in December 2003.

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In 1990, an agreement was entered into 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 $2.7 million, $4.8 million and $6.8 million in 2003, 2002 and 2001. Payment of participation was $7.8 million in 2003 and is estimated to be $20.3 million in 2004, $15.9 million in 2005, $11.3 million in 2006, $8.7 million in 2007 and $3.8 million in 2008.

The Company has entered into contingent rental assistance agreements, aggregating $18.2 million, on certain railcars subject to leases that have been sold to third parties. These agreements guarantee the purchasers a minimum lease rental, subject to a maximum defined rental assistance amount, over periods that range from three to ten years. A liability is established and revenue is reduced in the period during which a determination can be made that it is probable that a rental shortfall will occur and the amount can be estimated. For the years ended August 31, 2003, 2002 and 2001 $0.9 million, $1.6 million and $0.2 million was accrued to cover estimated obligations of which $0.8 million is remaining as a liability at August 31, 2003.

The Company and its joint venture partner have each advanced $4.5 million to an unconsolidated subsidiary for working capital needs. The advance is secured by accounts receivable and inventory.

Capital expenditures for continuing operations totaled $10.1 million, $21.4 million and $70.1 million in 2003, 2002 and 2001. Of these capital expenditures, approximately $4.5 million, $18.4 million and $62.2 million, in 2003, 2002 and 2001 were attributable to leasing & services operations. Leasing & services capital expenditures for 2004 are expected to be approximately $30.0 million. Greenbrier regularly sells assets from its lease fleet, some of which may have been purchased within the current year and included in capital expenditures.

Approximately $5.6 million, $3.0 million and $7.9 million of capital expenditures for 2003, 2002 and 2001 were attributable to manufacturing operations. Capital expenditures for manufacturing are expected to be approximately $10.0 million in 2004 and will be limited to expenditures necessary to further enhance efficiencies.

Foreign operations give rise to risks from changes in foreign currency exchange rates. Greenbrier utilizes foreign currency forward exchange contracts with established financial institutions to hedge a portion of that risk. No provision has been made for credit loss due to counterparty non-performance.

No dividends were paid during the year, consistent with the Company’s policy to manage for cash flow and liquidity during the downturn in the railcar industry. A dividend of $0.06 per share was declared in the first quarter and paid in the second quarter of 2002. Quarterly dividends of $0.09 per share were paid during 2001. Future dividends are dependent upon the market outlook as well as earnings, capital requirements and financial condition of the Company.

Certain loan covenants restrict the transfer of funds from subsidiaries to the parent company in the form of cash dividends, loans or advances. The restricted net assets of subsidiaries amounted to $99.7 million as of August 31, 2003. Consolidated retained earnings of $3.5 million at August 31, 2003 were restricted as to the payment of dividends. Management expects existing funds and cash generated from operations, together with borrowings under existing credit facilities and long term financing, to be sufficient to fund dividends, if any, working capital needs, planned capital expenditures and expected debt repayments for the foreseeable future.

The following table shows the Company’s estimated future contractual cash obligations as of August 31, 2003:

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Critical Accounting Policies

The preparation of financial statements in accordance with generally accepted accounting principles requires judgment on the part of management to arrive at estimates and assumptions on matters that are inherently uncertain. These estimates may affect the amounts of assets, liabilities, revenues and expenses reported in a given period. Estimates and assumptions are periodically evaluated and may be adjusted in future periods.

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 are 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.

Income taxes — For financial reporting purposes, the Company estimates income tax expense 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 preparing a tax return may be challenged by a taxing authority. If the taxing authority is successful in asserting their position, differences in tax expense or between current and deferred tax items may arise in future periods. Such differences would be reflected in the financial statements when management considers them probable of occurring and the amount reasonably estimable. Valuation allowances may also be provided against deferred tax assets if the realization of such assets is not more likely than not. Management’s estimates of the Company’s ability to realize 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.

Maintenance obligations — The Company is responsible for maintenance on a portion of the managed and owned lease fleet whereby the terms of the maintenance obligations are defined in the underlying lease or management agreement. The estimated liability is based on maintenance histories for each type and age of car. The liability is periodically reviewed and updated based on maintenance trends and known future repair or refurbishment requirements.

Warranty accruals — Warranty accruals are estimated and charged to operations to cover a defined warranty period. 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. The warranty accrual is periodically reviewed and updated based on warranty trends.

Contingent rental assistance — The Company has entered into contingent rental assistance agreements on certain railcars, subject to leases, that have been sold to third parties. These agreements guarantee the purchasers a minimum lease rental, subject to a maximum defined rental assistance amount, over periods that range from three to ten years. A liability is established when management believes that it is probable that a rental shortfall will occur and the amount can be estimated.

Adjustments to net realizable value — The adjustment of net assets of the European operations to estimated net realizable value is based upon various options that management believes could occur. The nature and type of the transaction that ultimately is negotiated may vary from these options causing the estimate to differ from the amount recorded in the financial statements.

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 are generally manufactured under firm orders from third parties. Revenue on railcars is recognized when railcars are completed, accepted by an unaffiliated customer and contractual contingencies removed. Marine vessels are constructed under contracts, which may be less than a year in duration. Marine revenues are generally recognized on the percentage of completion method during the construction period. 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. Such adjustments have not been material.

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Initial Adoption of Accounting Policies

The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, as of September 1, 2002. The statement requires discontinuing the amortization of goodwill and other intangible assets with indefinite useful lives. Instead, these assets are to be tested periodically for impairment and written down to their fair market value as necessary. Other than the cessation of amortization of goodwill, which was not significant, the adoption of SFAS No. 142 had no effect on the Company’s Consolidated Financial Statements for the year ended August 31, 2003.

The Company adopted SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, as of December 31, 2002. This statement addresses the financial accounting and reporting issues associated with exit and disposal activities and generally requires that costs associated with such exit or disposal activities are recognized as incurred rather than at the date a company commits to an exit or disposal activity. The adoption of SFAS No. 146 had no effect on the Company’s Consolidated Financial Statements for the year ended August 31, 2003.

The Company adopted the disclosure provisions of SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure, in 2003. This statement amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of SFAS No. 123 to require prominent disclosure about the effects on reported net income of an entity’s accounting policy decisions with respect to stock-based employee compensation. Finally, this statement amends Accounting Principles Board (APB) Opinion No. 28, Interim Financial Reporting, to require disclosure about those effects in interim financial information.

The Company adopted Financial Accounting Standards Board (FASB) Interpretation (FIN) 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, in the second quarter of 2003. FIN 45 requires expanded disclosures by guarantors in interim and annual financial statements for obligations under certain guarantees. In addition, it requires guarantors to recognize, at the inception of a guarantee, a liability for the fair value of the obligation it has undertaken in issuing the guarantee.

The disclosure requirements of FIN 45 were effective as of February 28, 2003, with the recognition and initial measurement provisions applicable for guarantees issued or modified after December 31, 2002. The adoption of FIN 45 did not have a material effect on the Company’s Consolidated Financial Statements for the year ended August 31, 2003.

Prospective Accounting Changes

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity and generally requires an entity to classify a financial instrument that falls within this scope as a liability. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective beginning September 1, 2003 for the Company. Management is currently evaluating this statement and does not expect it to have a material effect on the Company’s Consolidated Financial Statements.

In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities. This interpretation requires consolidation where there is a controlling financial interest in a variable interest entity, previously referred to as a special purpose entity. The implementation of FIN 46 has been delayed and will be effective for the Company during the second quarter of fiscal year 2004. Management is currently evaluating the impact of this interpretation on the Company’s Consolidated Financial Statements.

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Results of Discontinued Operations

In August 2002, the Company’s Board of Directors committed to a plan to recapitalize operations in Europe, which consist of a railcar manufacturing plant in Swidnica, Poland and a railcar sales, design and engineering operation in Siegen, Germany. The European operations have not met expectations for profitability or return on capital invested resulting in the decision to discontinue those operations and refocus resources on North American operations. European operations are treated as discontinued operations for financial reporting purposes and, accordingly, are not included in any discussions of continuing operations.

In September 2003, the Company signed a letter of intent with a private equity group to recapitalize the European operations. Some of the investors in the private equity group issuing the letter of intent are part of an investment group which has a preferred stock ownership interest in and representation on the Board of Directors of the Company’s Canadian manufacturing subsidiary.

The letter of intent requires satisfactory third party debt financing and final documentation and does not preclude the Company from negotiating other offers prior to closing.

Greenbrier will also invest additional funds, currently estimated at $5.5 million, to pay down indebtedness of the recapitalized operation and it will then retain a small minority interest and assume a passive investment role.

Under the terms of the letter of intent, the Company will be relieved of its guarantee obligations related to revolving lines of credit for discontinued operations of $17.0 million. The Company anticipates it will continue to guarantee long term debt of $7.3 million and bank and third party performance, advance payment and warranty guarantees amounting to $27.5 million as of August 31, 2003. The Company may be required to provide performance and warranty guarantees required to be issued on production of backlog subsequent to August 31, 2003, but prior to closing. It will not issue any additional financial guarantees for the operation after the closing.

The Company is in conversation with another unrelated party regarding a potential sale of the European operations.

If the Company is unsuccessful in closing a transaction to recapitalize European operations, financial results may be restated as part of continuing operations in future periods.

Summarized results of operations related to discontinued operations:

(1)

Consists of the $2.3 million pre-tax cost associated with a restructuring plan to decrease operating expenses, consolidate offices and reduce the scale of European operations, and a $14.8 million pre-tax impairment write-down of European railcar designs and patents.

(2)

Includes a $21.5 million tax benefit in 2002 related to deductions for the Company’s investments in European operations for United States income tax purposes and $0.3 million and $0.4 million in 2002 and 2001 for tax benefits relating to selling and administrative expense reclassifications.

(3)

Includes reclassification of $0.8 million and $0.9 million in 2002 and 2001 of direct European expenses from continuing operations.

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Revenues increased 57.2% from $61.7 million in 2002 to $97.0 million in 2003 as a result of obtaining certification on certain railcars that were produced in a prior period for which revenue recognition had been delayed pending final certification. Final certification was received in the first quarter of 2003 for these cars that have a unit sales value of more than twice the average sales price of other production. New railcar deliveries in Europe were approximately 850 in 2003, 850 in 2002 and 1,200 in 2001. Decreases in revenue from $85.2 million in 2001 to $61.7 million in 2002 were the result of lower deliveries due to a cyclical downturn in the railcar market and delivery delays due to certification issues on a certain car type.

Margin increased to 10.1% in 2003 from 1.5% in 2002 as the result of a change in product mix, favorable exchange rates and lower depreciation and amortization primarily as a result of asset write downs taken in August 2002. Decreases in margin from 9.6% in 2001 to 1.5% in 2002 were due to a lower margin product mix and the impact of lower production rates on overhead absorption.

Selling and administrative expense decreased to $8.3 million in 2003 as compared to $9.8 million in 2002 due to elimination of amortization associated with the reclassification to a discontinued operation and cost reduction measures implemented in the prior year. Decreases from 2001 to 2002 were the result of cost reduction measures implemented as part of a restructuring in February 2002.

Capital expenditures for discontinued operations totaled $0.8 million, $0.6 million and $3.2 million in 2003, 2002 and 2001.

The Company has guaranteed certain obligations relating to European discontinued operations consisting of $7.3 million in notes payable, $17.0 million in revolving credit facilities, of which $16.1 million was outstanding at August 31, 2003, and $27.5 million in bank and third party performance and warranty guarantees, of which $26.0 million has been utilized at year end. To date no amounts have been drawn under these guarantees. Approximately 60% of the revolving credit facilities mature in 2004 with the remainder maturing in December 2003.

Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange Risk

In addition to the United States, Greenbrier has operations in Canada, Mexico, Germany and Poland that conduct business in their local currencies as well as other regional currencies. To mitigate its exposure to transactions denominated in currencies other than the functional currency of each entity, Greenbrier enters into forward exchange contracts to protect its margin on a portion of its forecast foreign currency sales. At August 31, 2003, $101.1 million of forecast sales were hedged by forward exchange contracts. Because of the variety of currencies in which purchases and sales are transacted, it is not possible to predict the impact of a movement in foreign currency exchange rates on future operating results. However, Greenbrier intends to continue to mitigate its exposure to foreign exchange gains or losses.

In addition to Greenbrier’s exposure to transaction gains or losses, the Company is also exposed to foreign currency exchange risk related to the net asset position of its foreign subsidiaries. At August 31, 2003, the net assets of foreign subsidiaries aggregated $5.1 million. At August 31, 2003, a uniform 10% strengthening of the United States dollar relative to the foreign currencies would result in a decrease in stockholders’ equity of $0.5 million, less than 0.5% of total stockholders’ equity. This calculation assumes that each exchange rate would change in the same direction relative to the United States dollar.

Interest Rate Risk

At August 31, 2003, Greenbrier’s exposure to interest rate risk for both continuing and discontinued operations is limited since 80% of the Company’s debt has fixed interest rates. The Company actively manages its floating rate debt with interest rate swap agreements, effectively converting $72.1 million ($64.8 million relates to continuing operations and $7.3 million relates to discontinued operations) of variable rate debt to fixed rate debt at August 31, 2003. As a result, Greenbrier is only exposed to interest rate risk relating to its revolving debt and a small portion of term debt. At August 31, 2003, a uniform 10% increase in interest rates would result in approximately $0.2 million of additional annual interest expense.

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Balance Sheets
AUGUST 31,

The accompanying notes are an integral part of these financial statements.

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Consolidated Statements of Operations

YEARS ENDED AUGUST 31,