UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

Form 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		for the quarterly period ended May 31, 2011

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		for the transition period from             to

Commission File No. 1-13146

 

THE GREENBRIER COMPANIES, INC.

(Exact name of registrant as specified in its charter)

Oregon (State of Incorporation)		93-0816972 (I.R.S. Employer Identification No.)

One Centerpointe Drive, Suite 200, Lake Oswego, OR 97035

(Address of principal executive offices)        (Zip Code)

(503) 684-7000
(Registrant’s telephone number, including area code)

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

Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes o No þ

The number of shares of the registrant’s common stock, without par value, outstanding on June 28, 2011 was 25,158,700 shares.

 

 

THE GREENBRIER COMPANIES, INC.

Forward-Looking Statements

From time to time, The Greenbrier Companies, Inc. and its subsidiaries (Greenbrier or the Company) or their representatives have made or may make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, 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 in various filings made by us with the Securities and Exchange Commission, including this filing on Form 10-Q. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. 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 leased railcars for syndication;

•

ability to renew, maintain or obtain sufficient lines of credit and performance guarantees on acceptable terms;

•

ability to utilize beneficial tax strategies;

•

ability to grow our wheel services, refurbishment and parts, and lease fleet and management services businesses;

•

ability to obtain sales contracts which provide adequate protection against increased costs of materials and components;

•

ability to obtain adequate insurance coverage at acceptable rates;

•

ability to obtain adequate certification and licensing of products; and

•

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

The following factors, among others, could cause actual results or outcomes to differ materially from the forward-looking statements:

•

fluctuations in demand for newly manufactured railcars or marine barges;

•

fluctuations in demand for wheel services, refurbishment and parts;

•

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

•

ability to maintain sufficient availability of credit facilities and to maintain compliance with or to obtain appropriate amendments to covenants under various credit agreements;

•

domestic and global economic conditions including such matters as embargoes or quotas;

•

U.S., Mexican and other global political or security conditions including such matters as terrorism, war, civil disruption and crime;

•

growth or reduction in the surface transportation industry;

•

ability to maintain good relationships with third party labor providers or collective bargaining units;

•

steel and specialty component price fluctuations and availability, scrap surcharges, steel scrap prices and other commodity price fluctuations and availability and their impact on product demand and margin;

•

delay or failure of acquired businesses, assets, start-up operations, or new products or services to compete successfully;

•

changes in product mix and the mix of revenue levels among reporting segments;

•

labor disputes, energy shortages or operating difficulties that might disrupt 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 alliance partners, subcontractors or suppliers;

•

ability to renew or replace expiring customer contracts on satisfactory terms;

•

ability to obtain and execute suitable contracts for leased railcars for syndication;

•

lower than anticipated lease renewal rates, earnings on utilization based leases or residual values for leased equipment;

•

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

•

resolution or outcome of pending or future litigation and investigations;

•

natural disasters or severe weather patterns that may affect either us, our suppliers or our customers;

THE GREENBRIER COMPANIES, INC.

•

loss of business from, or a decline in the financial condition of, any of the principal customers that represent a significant portion of our total revenues;

•

competitive factors, including introduction of competitive products, new entrants into certain of our markets, price pressures, limited customer base, and competitiveness of our manufacturing facilities and products;

•

industry overcapacity and our manufacturing capacity utilization;

•

decreases or write-downs in carrying value of inventory, goodwill, intangibles or other assets due to impairment;

•

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

•

changes in future maintenance or warranty requirements;

•

ability to adjust to the cyclical nature of the industries in which we operate;

•

changes in interest rates and financial impacts from interest rates;

•

ability and cost to maintain and renew operating permits;

•

actions by various regulatory agencies;

•

changes in fuel and/or energy prices;

•

risks associated with our intellectual property rights or those of third parties, including infringement, maintenance, protection, validity, enforcement and continued use of such rights;

•

expansion of warranty and product support terms beyond those which have traditionally prevailed in the rail supply industry;

•

availability of a trained work force and availability and/or price of essential raw materials, specialties or components, including steel castings, to permit manufacture of units on order;

•

failure to successfully integrate acquired businesses;

•

discovery of previously unknown liabilities associated with acquired businesses;

•

failure of or delay in implementing and using new software or other technologies;

•

ability to replace maturing lease and management services revenue and earnings with revenue and earnings from new commercial transactions, including new railcar leases, additions to the lease fleet and new management services contracts;

•

credit limitations upon our ability to maintain effective hedging programs; and

•

financial impacts from currency fluctuations and currency hedging activities in our worldwide operations.

Any forward-looking statements should be considered in light of these factors. Words such as “anticipates,” “believes,” “forecast,” “potential,” “goal,” “contemplates,” “expects,” “intends,” “plans,” “projects,” “hopes,” “seeks,” “estimates,” “could,” “would,” “will,” “may,” “can,” “designed to,” “foreseeable future” and similar expressions identify forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements. Many of the important factors that will determine these results and values are beyond our ability to control or predict. You are cautioned not to put undue reliance on any forward-looking statements. Except as otherwise required by law, we do not assume any obligation to update any forward-looking statements.

All references to years refer to the fiscal years ended August 31^st unless otherwise noted.

THE GREENBRIER COMPANIES, INC.

PART I. FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

Consolidated Balance Sheets
(In thousands, unaudited)

		May 31,				August 31,
		2011				2010
Assets
Cash and cash equivalents		$	34,302			$	98,864
Restricted cash			2,217				2,525
Accounts receivable, net			143,491				89,252
Inventories			289,740				204,626
Leased railcars for syndication			58,316				12,804
Equipment on operating leases, net			314,106				302,663
Investment in direct finance leases			123				1,795
Property, plant and equipment, net			150,091				132,614
Goodwill			137,066				137,066
Intangibles and other assets, net			88,290				90,679
		$	1,217,742			$	1,072,888
Liabilities and Equity
Revolving notes		$	13,897			$	2,630
Accounts payable and accrued liabilities			261,361				181,638
Deferred income taxes			75,860				81,136
Deferred revenue			5,821				11,377
Notes payable			496,828				498,700
Commitments and contingencies (Note 16)
Equity:
Greenbrier
Preferred stock — without par value; 25,000 shares authorized; none outstanding			—				—
Common stock — without par value; 50,000 shares authorized; 25,159 and 21,875 shares outstanding at May 31, 2011 and August 31, 2010			—				—
Additional paid-in capital			240,173				172,426
Retained earnings			114,547				120,716
Accumulated other comprehensive loss			(3,264	)			(7,204	)
Total equity Greenbrier			351,456				285,938
Noncontrolling interest			12,519				11,469
Total equity			363,975				297,407
		$	1,217,742			$	1,072,888

The accompanying notes are an integral part of these statements.

THE GREENBRIER COMPANIES, INC.

Consolidated Statements of Operations
(In thousands, except per share amounts, unaudited)

		Three Months Ended								Nine Months Ended
		May 31,								May 31,
		2011				2010				2011				2010
Revenue
Manufacturing		$	173,487			$	77,877			$	415,548			$	226,020
Wheel Services, Refurbishment & Parts			126,317				111,242				333,600				297,870
Leasing & Services			17,476				18,312				51,406				53,550
			317,280				207,431				800,554				577,440
Cost of revenue
Manufacturing			158,674				68,931				385,974				206,386
Wheel Services, Refurbishment & Parts			111,202				96,725				299,026				263,398
Leasing & Services			9,254				9,931				27,099				31,638
			279,130				175,587				712,099				501,422
Margin			38,150				31,844				88,455				76,018
Selling and administrative			22,580				17,519				58,212				50,686
Gain on disposition of equipment			(1,678	)			(4,024	)			(6,148	)			(5,659	)
Earnings from operations			17,248				18,349				36,391				30,991
Other costs
Interest and foreign exchange			9,807				10,811				30,646				34,328
Loss (gain) on extinguishment of debt			10,007				(1,275	)			10,007				(1,275	)
Earnings (loss) before income taxes and loss from unconsolidated affiliates			(2,566	)			8,813				(4,262	)			(2,062	)
Income tax benefit (expense)			301				(2,418	)			812				1,025
Earnings (loss) before loss from unconsolidated affiliates			(2,265	)			6,395				(3,450	)			(1,037	)
Loss from unconsolidated affiliates			(539	)			(318	)			(1,700	)			(632	)
Net earnings (loss)			(2,804	)			6,077				(5,150	)			(1,669	)
Net earnings attributable to noncontrolling interest			(510	)			(1,514	)			(1,019	)			(1,764	)
Net earnings (loss) attributable to Greenbrier		$	(3,314	)		$	4,563			$	(6,169	)		$	(3,433	)
Basic earnings (loss) per common share		$	(0.14	)		$	0.25			$	(0.27	)		$	(0.20	)
Diluted earnings (loss) per common share		$	(0.14	)		$	0.23			$	(0.27	)		$	(0.20	)
Weighted average common shares:
Basic			24,127				18,220				22,893				17,477
Diluted			24,127				20,058				22,893				17,477

The accompanying notes are an integral part of these statements.

THE GREENBRIER COMPANIES, INC.

Consolidated Statement of Equity and Comprehensive Income (Loss)
(In thousands, except per share amounts, unaudited)

		Attributable to Greenbrier
														Accumulated Other				Attributable to
		Common Stock				Additional Paid-in				Retained				Comprehensive				Noncontrolling				Total
		Shares				Capital				Earnings				Income (Loss)				Interest				Equity
Balance September 1, 2010			21,875			$	172,426			$	120,716			$	(7,204	)		$	11,469			$	297,407
Net earnings (loss)			—				—				(6,169	)			—				1,019				(5,150	)
Translation adjustment			—				—				—				3,521				—				3,521
Reclassification of derivative financial instruments recognized in net loss (net of tax effect)			—				—				—				(215	)			—				(215	)
Unrealized gain on derivative financial instruments (net of tax effect)			—				—				—				634				—				634
Comprehensive loss																							(1,210	)
Noncontrolling interest adjustments			—				—				—				—				31				31
Net proceeds from equity offering			3,000				62,760				—				—				—				62,760
Restricted stock awards (net of cancellations)			278				6,593				—				—				—				6,593
Unamortized restricted stock			—				(6,593	)			—				—				—				(6,593	)
Restricted stock amortization			—				4,961				—				—				—				4,961
Stock options exercised			6				26				—				—				—				26
Balance May 31, 2011			25,159				240,173			$	114,547			$	(3,264	)		$	12,519			$	363,975

		Attributable to Greenbrier
														Accumulated Other				Attributable to
		Common Stock				Additional Paid-in				Retained				Comprehensive				Noncontrolling				Total
		Shares				Capital				Earnings				Income (Loss)				Interest				Equity
Balance September 1, 2009			17,094			$	117,077			$	116,439			$	(9,790	)		$	8,724			$	232,450
Net earnings (loss)			—				—				(3,433	)			—				1,764				(1,669	)
Translation adjustment			—				—				—				(2,500	)			—				(2,500	)
Reclassification of derivative financial instruments recognized in net loss (net of tax effect)			—				—				—				(564	)			—				(564	)
Unrealized gain on derivative financial instruments (net of tax effect)			—				—				—				931				—				931
Comprehensive loss																							(3,802	)
Noncontrolling interest adjustments			—				—				—				—				(1,309	)			(1,309	)
Debt discount adjustment for partial convertible note retirement (net of tax)			—				(2,080	)			—				—				—				(2,080	)
Net proceeds from equity offering			4,500				52,725				—				—				—				52,725
Restricted stock awards (net of cancellations)			271				3,178				—				—				—				3,178
Unamortized restricted stock			—				(3,178	)			—				—				—				(3,178	)
Restricted stock amortization			—				4,264				—				—				—				4,264
Stock options exercised			7				29				—				—				—				29
Excess tax expense of stock options exercised			—				(387	)			—				—				—				(387	)
Balance May 31, 2010			21,872			$	171,628			$	113,006			$	(11,923	)		$	9,179			$	281,890

The accompanying notes are an integral part of these statements.

THE GREENBRIER COMPANIES, INC.

Consolidated Statements of Cash Flows

(In thousands, unaudited)

		Nine Months Ended
		May 31,
		2011				2010
Cash flows from operating activities
Net loss		$	(5,150	)		$	(1,669	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Deferred income taxes			(5,276	)			17,084
Depreciation and amortization			28,174				27,967
Gain on sales of leased equipment			(2,901	)			(4,032	)
Accretion of debt discount			5,446				6,701
Stock based compensation expense			4,961				4,264
Loss (gain) on extinguishment of debt (non-cash portion)			2,868				(1,275	)
Other			91				(1,467	)
Decrease (increase) in assets:
Accounts receivable			(51,427	)			(1,615	)
Inventories			(83,293	)			(27,195	)
Leased railcars for syndication			(48,465	)			10,504
Other			5,834				3,428
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities			77,273				11,352
Deferred revenue			(5,442	)			(7,824	)
Net cash provided by (used in) operating activities			(77,307	)			36,223
Cash flows from investing activities
Principal payments received under direct finance leases			52				358
Proceeds from sales of equipment			14,179				14,794
Investment in and advances to unconsolidated affiliates			(979	)			(650	)
Contract placement fee			—				(6,050	)
Decrease (increase) in restricted cash			308				(632	)
Capital expenditures			(59,689	)			(28,266	)
Net cash used in investing activities			(46,129	)			(20,446	)
Cash flows from financing activities
Net change in revolving notes with maturities of 90 days or less			3,694				(7,828	)
Proceeds from revolving notes with maturities longer than 90 days			13,373				5,698
Repayments of revolving notes with maturities longer than 90 days			(6,194	)			—
Proceeds from issuance of notes payable			231,250				1,821
Debt issuance costs			(7,857	)			(109	)
Repayments of notes payable			(238,569	)			(28,357	)
Gross proceeds from equity offering			63,180				56,250
Expenses from equity offering			(420	)			(3,525	)
Other			26				29
Net cash provided by financing activities			58,483				23,979
Effect of exchange rate changes			391				652
Increase (decrease) in cash and cash equivalents			(64,562	)			40,408
Cash and cash equivalents
Beginning of period			98,864				76,187
End of period		$	34,302			$	116,595
Cash paid during the period for
Interest		$	25,850			$	27,580
Income taxes paid, net of refunds		$	866			$	(13,943	)

The accompanying notes are an integral part of these statements.

THE GREENBRIER COMPANIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1 – Interim Financial Statements

The Condensed Consolidated Financial Statements of The Greenbrier Companies, Inc. and Subsidiaries (Greenbrier or the Company) as of May 31, 2011 and for the three and nine months ended May 31, 2011 and 2010 have been prepared without audit and reflect all adjustments (consisting of normal recurring accruals) which, in the opinion of management, are necessary for a fair presentation of the financial position and operating results and cash flows for the periods indicated. The results of operations for the three and nine months ended May 31, 2011 are not necessarily indicative of the results to be expected for the entire year ending August 31, 2011.

Certain notes and other information have been condensed or omitted from the interim financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the Consolidated Financial Statements contained in the Company’s 2010 Annual Report on Form 10-K.

Management estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires judgment on the part of management to arrive at estimates and assumptions on matters that are inherently uncertain. These estimates may affect the amount of assets, liabilities, revenue and expenses reported in the financial statements and accompanying notes and disclosure of contingent assets and liabilities within the financial statements. Estimates and assumptions are periodically evaluated and may be adjusted in future periods. Actual results could differ from those estimates.

Reclassifications – Certain reclassifications have been made to the accompanying prior period Consolidated Financial Statements to conform to the 2011 presentation. The effect of such reclassifications on the Consolidated Balance Sheet as of August 31, 2010 was to increase Inventories by $19.0 million (from $185.6 million as previously reported to $204.6 million) and to reduce Assets held for sale by $19.0 million (from $31.8 million as previously reported to $12.8 million). The “Assets held for sale” caption, after such reclassification, has been re-titled “Leased railcars for syndication.” For the Consolidated Statements of Operations, ,the gain on extinguishment of debt ($1.3 million for the three and nine months ended May 31, 2010) previously included within the line item “Interest and foreign exchange” has been reclassified to a separate line item captioned “Loss (gain) on extinguishment of debt”.

Change in Presentation to Prior Year Financial Statements – Historically, the Company has reported Gain on disposition of leased equipment as a net amount in Revenue. Based on discussions with the Securities and Exchange Commission, the Company has changed its financial statement presentation to now report these amounts as a separate line item captioned “Gain on disposition of equipment”, which is a component of operating income below margin. This change in presentation resulted in a decrease in Revenue and corresponding increase in Gain on disposition of equipment of $4.0 million for the three months ended May 31, 2010 and of $5.7 million for the nine months ended May 31, 2010 Such change in presentation did not result in any change to Net earnings (loss) attributable to Greenbrier.

Initial Adoption of Accounting Policies — In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 167, Amendments to FASB Interpretation No. 46(R) which provides guidance with respect to consolidation of variable interest entities. This statement retains the scope of Interpretation 46(R) with the addition of entities previously considered qualifying special-purpose entities, as the concept of these entities was eliminated in SFAS No. 166, Accounting for Transfers of Financial Assets. This statement replaces the quantitative-based risks and rewards calculation for determining the primary beneficiary of a variable interest entity. The approach focuses on identifying which enterprise has the power to direct activities that most significantly impact the entity’s economic performance and the obligation to absorb the losses or receive the benefits from the entity. It is possible that application of this revised guidance will change an enterprise’s assessment of involvement with variable interest entities. This statement, which has been codified within Accounting Standards Codification (ASC) 810, Consolidations, was effective for the Company as of September 1, 2010. The initial adoption did not have an effect on the Company’s Consolidated Financial Statements.

THE GREENBRIER COMPANIES, INC.

Prospective Accounting Changes – In June 2011, an accounting standard update was issued regarding the presentation of other comprehensive income in the financial statements. The standard eliminated the option of presenting other comprehensive income as part of the statement of changes in equity and instead requires the Company to present other comprehensive income as either a single statement of comprehensive income combine with net income or as two separate but continuous statements. This amendment will be effective for the Company as of September 1, 2012. The Company currently reports other comprehensive income in the Consolidated Statement of Equity and Comprehensive Income (Loss) and will be required to update the presentation of comprehensive income to be in compliance with the new standard.

Note 2 – Loss (Gain) on Extinguishment of Debt

The results of operations for the three and nine months ended May 31, 2011 include a loss on extinguishment of debt of $10.0 million associated with the write-off of unamortized debt acquisition costs of $2.9 million and prepayment premiums and other costs of $7.1 million due to the full retirement of the $235.0 million senior unsecured notes during the third quarter.

The results of operations for the three and nine months ended May 31, 2010 include a gain on extinguishment of debt of $1.3 million. This includes a $2.3 million gain on extinguishment of debt associated with the early retirement of $22.2 million of convertible senior notes which was offset by $1.0 million for the proportionate write-off of loan fees and debt discount related to the early repayments on the convertible note and certain term loans.

Note 3 – Inventories

(In thousands)

		May 31, 2011				August 31, 2010
Supplies and raw materials		$	178,436			$	119,306
Work-in-process			90,286				70,394
Finished goods			25,189				19,022
Lower of cost or market adjustment			(4,171	)			(4,096	)
		$	289,740			$	204,626

Note 4 – Leased Railcars for Syndication

Leased railcars for syndication consist of newly-built railcars, manufactured by one of the Company’s facilities, which have been placed on lease to a customer and which the Company intends to sell to an investor with the lease attached. These railcars are not depreciated and are anticipated to be sold within six months of delivery of the last railcar on the underlying lease. The Company does not believe any economic value of a railcar is lost in the first six months; therefore the Company does not depreciate these assets. In the event the railcars are not sold, the railcars are transferred to Equipment on operating leases and depreciated. As of May 31, 2011 Leased railcars for syndication were $58.3 million compared to $12.8 million as of August 31, 2010.

THE GREENBRIER COMPANIES, INC.

Note 5 — Intangibles and other assets

Intangible assets that are determined to have finite lives are amortized over their useful lives. Intangible assets with indefinite useful lives are not amortized and are periodically evaluated for impairment.

The following table summarizes the Company’s identifiable intangible assets balance:

		May 31,				August 31,
(In thousands)		2011				2010
Intangible assets subject to amortization:
Customer relationships		$	66,825			$	66,825
Accumulated amortization			(16,816	)			(13,701	)
Other intangibles			5,274				5,003
Accumulated amortization			(3,382	)			(2,845	)
			51,901				55,282
Intangible assets not subject to amortization			912				912
Prepaid and other assets			35,477				34,485
Total intangible and other assets		$	88,290			$	90,679

Intangible assets with finite lives are amortized using the straight line method over their estimated useful lives and include the following: proprietary technology, 10 years; trade names, 5 years; patents, 11 years; and long-term customer agreements and relationships, 5 to 20 years. Amortization expense for the three and nine months ended May 31, 2011 was $1.2 million and $3.6 million and for the three and nine months ended May 31, 2010 was $1.2 million and $3.6 million. Amortization expense for the years ending August 31, 2011, 2012, 2013, 2014 and 2015 is expected to be $4.7 million, $4.5 million, $4.4 million, $4.3 million and $4.3 million.

Note 6 — Investment in Unconsolidated Affiliates

In April 2010, WLR—Greenbrier Rail Inc. (WLR-GBX) was formed and acquired a lease fleet of nearly 4,000 railcars valued at approximately $230.0 million. WLR-GBX is wholly owned LLC by affiliates of WL Ross & Co., LLC (WL Ross). The Company paid a $6.1 million contract placement fee to WLR-GBX for the right to perform certain management and advisory services and in exchange will receive management and other fee income and incentive compensation tied to the performance of WLR-GBX. The contract placement fee is accounted for under the equity method and is recorded in Intangibles and other assets on the Consolidated Balance Sheet. While the Company acts as asset manager to WLR-GBX, it is not the primary beneficiary. The Company has no authority to make decisions regarding key business activities that most significantly impact the entity’s economic performance, such as asset re-marketing and disposition activities, which requires the approval of affiliates of WL Ross.

Summarized financial data for WLR-GBX:

		May 31,				August 31,
(In thousands)		2011				2010
Current assets		$	6,643			$	2,939
Total assets		$	252,645			$	255,889
Current liabilities		$	5,209			$	2,659
Equity		$	17,511			$	17,441

THE GREENBRIER COMPANIES, INC.

		Nine Months Ended
		May 31,
(In thousands)		2011				2010
Revenue		$	12,922			$	1,613
Net loss		$	(3,542	)		$	(1,794	)

In June 2003, the Company acquired a 33% minority ownership interest in Ohio Castings LLC, a joint venture which produces castings for freight cars. This joint venture is accounted for under the equity method and the investment is included in Intangibles and other assets on the Consolidated Balance Sheets. The facility had been idled but has re-opened during the third quarter of fiscal 2011. The Company, along with the other partners, has made additional investments during fiscal year 2011, the Company’s share of which was $0.9 million. Additional investments may be required.

Summarized financial data for the castings joint venture is as follows:

		May 31,				August 31,
(In thousands)		2011				2010
Current assets		$	3,132			$	2,455
Total assets		$	13,968			$	14,205
Current liabilities		$	1,175			$	1,535
Equity		$	11,311			$	11,682

		Nine Months Ended
		May 31,
(In thousands)		2011				2010
Revenue		$	32			$	—
Net loss		$	(3,072	)		$	(2,043	)

Note 7 — Revolving Notes

All amounts originating in foreign currency have been translated at the May 31, 2011 exchange rate for the following discussion. As of May 31, 2011 senior secured credit facilities, consisting of three components, aggregated $130.0 million. As of May 31, 2011 a $100.0 million revolving line of credit secured by substantially all the Company’s assets in the United States not otherwise pledged as security for term loans, maturing November 2011, was available to provide working capital and interim financing of equipment, principally for the United States and Mexican operations. Advances under this facility bear interest at variable rates that depend on the type of borrowing and the defined ratio of debt to total capitalization. Available borrowings under the credit facility are generally based on defined levels of inventory, receivables, property, plant and equipment and leased equipment, as well as total debt to consolidated capitalization and interest coverage ratios. In addition, as of May 31, 2011, lines of credit totaling $20.0 million secured by certain of the Company’s European assets, with various variable rates, were available for working capital needs of the European manufacturing operation. European credit facilities are continually being renewed. Currently these European credit facilities have maturities that range from April 2012 through December 2012. In addition, the Company’s Mexican joint venture has a line of credit of up to $10.0 million secured by certain of the joint venture’s accounts receivable and inventory. Advances under this facility bear interest at LIBOR plus 2.5% and are due 180 days after the date of borrowing. Currently the outstanding advances have maturities that range from July 2011 to November 2011. The Mexican joint venture will be able to draw against the facility through August 2011.

As of May 31, 2011 outstanding borrowings under these facilities consists of $3.9 million in letters of credit outstanding under the North American credit facility, $6.7 million outstanding under the European credit facilities and $7.2 million outstanding under the Mexican joint venture credit facility.

THE GREENBRIER COMPANIES, INC.

Subsequent to quarter end, Greenbrier entered into a five-year $245.0 million revolving line of credit, maturing June 30, 2016. The facility is secured by substantially all of the Company’s assets in the United States not otherwise pledged as security for term loans. This replaces the $100.0 million revolving line of credit maturing November 2011. See Note 20 — Subsequent Events.

Note 8 — Accounts Payable and Accrued Liabilities

		May 31,				August 31,
(In thousands)		2011				2010
Trade payables and other accrued liabilities		$	218,593			$	141,767
Accrued payroll and related liabilities			22,816				19,025
Accrued maintenance			10,335				12,460
Accrued warranty			7,027				6,304
Other			2,590				2,082
		$	261,361			$	181,638

Note 9 — Warranty Accruals

Warranty costs are estimated and charged to operations to cover a defined warranty period. The estimated warranty cost is based on the history of 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 accruals, included in accounts payable and accrued liabilities on the Consolidated Balance Sheets, are reviewed periodically and updated based on warranty trends and expirations of warranty periods.

Warranty accrual activity:

		Three Months Ended								Nine Months Ended
		May 31,								May 31,
(In thousands)		2011				2010				2011				2010
Balance at beginning of period		$	6,381			$	7,480			$	6,304			$	8,184
Charged to cost of revenue			1,080				243				1,731				344
Payments			(449	)			(743	)			(1,050	)			(1,540	)
Currency translation effect			15				(59	)			42				(67	)
Balance at end of period		$	7,027			$	6,921			$	7,027			$	6,921

Note 10 — Notes Payable

		May 31,				August 31,
(In thousands)		2011				2010
Convertible senior notes, due 2018		$	230,000			$	—
Convertible senior notes, due 2026			67,724				67,724
Term loans			209,765				212,019
Senior unsecured notes			—				235,000
Other notes payable			111				176
			507,600				514,919
Debt discount net of amortization			(10,772	)			(16,219	)
		$	496,828			$	498,700

Convertible senior notes, due 2018, bear interest at a fixed rate of 3.5%, paid semi-annually in arrears on April 1^st and October 1^st. The convertible notes will mature on April 1, 2018, unless earlier repurchased by Greenbrier or

THE GREENBRIER COMPANIES, INC.

converted in accordance with their terms prior to such date. The convertible notes are senior unsecured obligations and rank equally with other senior unsecured debt. The convertible notes are convertible into shares of the Company’s common stock, at an initial conversion rate of 26.2838 shares per $1,000 principal amount of the notes (which is equal to an initial conversion price of $38.05 per share). The initial conversion rate and conversion price are subject to adjustment upon the occurrence of certain events, such as distributions, dividends or stock splits. There were $7.9 million in debt issuance costs, included in Intangibles and other assets on the Consolidated Balance Sheets, which will be amortized using the effective interest method. The amortization expense is being included in Interest and foreign exchange on the Consolidated Statements of Operations.

Convertible senior notes, due 2026, bear interest at a fixed rate of 2⅜%, paid semi-annually in arrears on May 15^th and November 15^th. The Company will also pay contingent interest of ⅜% on the notes in certain circumstances commencing with the six-month period beginning May 15, 2013. On or after May 15, 2013, Greenbrier may redeem all or a portion of the notes at a redemption price equal to 100% of the principal amount of the notes plus accrued and unpaid interest. On May 15, 2013, May 15, 2016 and May 15, 2021 or in the event of certain fundamental changes, holders may require the Company to repurchase all or a portion of their notes at a price equal to 100% of the principal amount of the notes plus accrued and unpaid interest. Payment on the convertible notes is guaranteed by substantially all of the Company’s material domestic subsidiaries. The convertible senior notes are convertible upon the occurrence of specified events into cash and shares, if any, of Greenbrier’s common stock at an initial conversion rate of 20.8125 shares per $1,000 principal amount of the notes (which is equal to an initial conversion price of $48.05 per share). The initial conversion rate is subject to adjustment upon the occurrence of certain events, as defined. The debt discount associated with the convertible senior notes is being accreted using the effective interest rate method through May 2013 and the accretion expense is being included in Interest and foreign exchange on the Consolidated Statements of Operations. The pre-tax accretion of the debt discount was $0.8 million and $2.2 million for the three and nine months ended May 31, 2011 and is expected to be approximately $3.0 million for the year ending August 31, 2011, $3.3 million for the year ending August 31, 2012 and $2.5 million for the year ending August 31, 2013.

Term loans are primarily comprised of:

	•		A senior term note with an initial balance of $100.0 million, secured by a pool of leased railcars, maturing in March 2014. The note bears a floating interest rate of LIBOR plus 1% with principal of $0.7 million paid quarterly in arrears and a balloon payment of $81.8 million due at maturity. An interest rate swap agreement was entered into, on fifty percent of the initial balance, to swap the floating interest rate of LIBOR plus 1% to a fixed rate of 4.24%. At May 31, 2011, the notional amount of the agreement was $44.6 million and matures in March 2014.
	•		A senior term note with an initial balance of $50.0 million, secured by a pool of leased railcars, maturing in May 2015. The note bears a floating interest rate of LIBOR plus 1% with principal of $0.3 million paid quarterly in arrears and a balloon payment of $41.2 million due at maturity.
	•		A term loan with an initial balance of $75.0 million, principally secured by all of a subsidiary’s assets, maturing in June 2012. The loan contains no financial covenants, is non-amortizing and requires mandatory prepayments under certain circumstances. The balance as of May 31, 2011 was $71.8 million and has a variable interest rate of LIBOR plus 3.5% paid quarterly in arrears with a balloon payment due at maturity. In connection with the loan, the Company has outstanding warrants to purchase 3.401 million shares of its common stock at $5.96 per share, both subject to adjustment in certain circumstances. The warrants have a five-year term which expires June 2014. The warrants were valued at $13.4 million, and recorded as a debt discount (reducing Notes payable) and Additional paid-in capital (increasing Stockholders’ equity Greenbrier) on the Consolidated Balance Sheet. This debt discount will be amortized and recorded as Interest and foreign exchange in the Statements of Operations over the life of the loan. The amortization of the debt discount was $1.1 million and $3.2 million for the three and nine months ended May 31, 2011. Subsequent to quarter end, this term loan was repaid in full. See Note 20 — Subsequent Events. In conjunction with the repayment, the remaining debt discount of $3.9 million was written off to Loss on extinguishment of debt.

During the third quarter of fiscal 2011, the Company retired the full $235.0 million of senior unsecured notes and recorded $10.0 million as Loss on extinguishment of debt for the write-off of unamortized debt acquisition costs and prepayment premiums.

THE GREENBRIER COMPANIES, INC.

The revolving and operating lines of credit, along with notes payable, contain covenants with respect to the Company and various subsidiaries, the most restrictive of which, among other things, limit the ability to: incur additional indebtedness or guarantees; pay dividends or repurchase stock; enter into sale leaseback transactions; create liens; sell assets; engage in transactions with affiliates, including joint ventures and non U.S. subsidiaries, including but not limited to loans, advances, equity investments and guarantees; enter into mergers, consolidations or sales of substantially all the Company’s assets; and enter into new lines of business. The covenants also require certain maximum ratios of debt to total capitalization and minimum levels of fixed charges (interest and rent) coverage.

Principal payments on the notes payable are as follows:

(In thousands)

Year ending August 31,

2011 (Remaining three months)		$	1,041
2012			77,565
2013			72,215
2014			84,707
2015			41,931
Thereafter			230,141
		$	507,600

Note 11 — Equity

On December 16, 2010, the Company issued 3,000,000 shares of its common stock in an underwritten at-the-market public offering at $21.06 per share, less expenses resulting in net proceeds of $62.8 million.

On May 12, 2010, the Company issued 4,000,000 shares of its common stock at a price of $12.50 per share, less underwriting commissions, discounts and expenses. On May 19, 2010, an additional 500,000 shares were issued pursuant to the 30-day over-allotment option exercised by the underwriters. The combined issuance resulted in net proceeds of $52.7 million.

Note 12 — Earnings (Loss) Per Share

The shares used in the computation of the Company’s basic and diluted earnings (loss) per common share attributable to Greenbrier are reconciled as follows:

		Three Months Ended								Nine Months Ended
		May 31,								May 31,
(In thousands)		2011				2010				2011				2010
Weighted average basic common shares outstanding (1)			24,127				18,220				22,893				17,477
Dilutive effect of employee stock options (2)			—				6				—				—
Dilutive effect of warrants-treasury stock method (2)			—				1,832				—				—
Dilutive effect of convertible notes (3)			—				—				—				—
Weighted average diluted common shares outstanding			24,127				20,058				22,893				17,477

THE GREENBRIER COMPANIES, INC.

Note 13 — Stock Based Compensation

The value of stock awarded under restricted stock grants is amortized as compensation expense over the vesting period which is generally one to five years. For the three and nine months ended May 31, 2011, $2.4 million and $5.0 million in compensation expense was recorded for restricted stock grants. For the three and nine months ended May 31, 2010, $1.5 million and $4.3 million in compensation expense was recorded for restricted stock grants.

Note 14 — Derivative Instruments

Foreign operations give rise to market risks from changes in foreign currency exchange rates. Foreign currency forward exchange contracts with established financial institutions are utilized to hedge a portion of that risk in Pound Sterling and Euro. Interest rate swap agreements are utilized to reduce the impact of changes in interest rates on certain debt. The Company’s foreign currency forward exchange contracts and interest rate swap agreements are designated as cash flow hedges, and therefore the effective portion of unrealized gains and losses are recorded in accumulated other comprehensive loss.

At May 31, 2011 exchange rates, forward exchange contracts for the purchase of Polish Zloty and the sale of Euros aggregated $78.7 million. Adjusting the foreign currency exchange contracts to the fair value of the cash flow hedges at May 31, 2011 resulted in an unrealized pre-tax gain of $114 thousand that was recorded in accumulated other comprehensive loss. The fair value of the contracts is included in accounts payable and accrued liabilities when there is a loss, or accounts receivable when there is a gain, on the Consolidated Balance Sheet. As the contracts mature at various dates through July 2012, any such gain or loss remaining will be recognized in manufacturing revenue along with the related transactions. In the event that the underlying sales transaction does not occur or does not occur in the period designated at the inception of the hedge, the amount classified in accumulated other comprehensive loss would be reclassified to the current year’s results of operations in Interest and foreign exchange.

At May 31, 2011, an interest rate swap agreement had a notional amount of $44.6 million and matures March 2014. The fair value of this cash flow hedge at May 31, 2011 resulted in an unrealized pre-tax loss of $4.3 million. The loss is included in accumulated other comprehensive loss and the fair value of the contract is included in accounts payable and accrued liabilities on the Consolidated Balance Sheet. As interest expense on the underlying debt is recognized, amounts corresponding to the interest rate swap are reclassified from accumulated other comprehensive loss and charged or credited to interest expense. At May 31, 2011 interest rates, approximately $1.3 million would be reclassified to interest expense in the next 12 months.

Fair Values of Derivative Instruments

		Asset Derivatives												Liability Derivatives
						May 31,				August 31,								May 31,				August 31,
		Balance sheet				2011				2010				Balance sheet				2011				2010
(In thousands)		location				Fair Value				Fair Value				location				Fair Value				Fair Value
Derivatives designated as hedging instruments
Foreign forward exchange contracts		Accounts receivable				$	805			$	573			Accounts payable and accrued liabilities				$	352			$	215
Interest rate swap contracts		Other assets					—				—			Accounts payable and accrued liabilities					4,264				5,141
						$	805			$	573							$	4,616			$	5,356
Derivatives not designated as hedging instruments
Foreign forward exchange contracts		Accounts receivable				$	119			$	111			Accounts payable and accrued liabilities				$	—			$	14

THE GREENBRIER COMPANIES, INC.

The Effect of Derivative Instruments on the Statement of Operations

Derivatives in cash flow hedging		Location of loss recognized in income on				Loss recognized in income on derivative
relationships		derivative				Nine months ended May 31,
						2011				2010
Foreign forward exchange contract		Interest and foreign exchange				$	(39	)		$	(387	)

		Gain (loss)								Location of gain (loss)												Location of loss in				Loss recognized on derivative
		recognized in OCI(1)								reclassified from				Gain (loss) reclassified from								income on derivative				(ineffective portion and amount
Derivatives in cash		on derivatives								accumulated				accumulated OCI(1)								(ineffective portion and				excluded from effectiveness
flow hedging		(effective portion)								OCI(1) into				into income (effective portion)								amount excluded from				testing)
relationships		Nine months ended May 31,								income				Nine months ended May 31,								effectiveness testing)				Nine months ended May 31,
		2011				2010								2011				2010								2011				2010
Foreign forward exchange contracts		$	450			$	358			Revenue				$	599			$	387			Interest and foreign exchange				$	—			$	—
Interest rate swap contracts			2,216				(457	)		Interest and foreign exchange					(1,339	)			(1,370	)		Interest and foreign exchange					—				—
		$	2,666			$	(99	)						$	(740	)		$	(983	)						$	—			$	—

Note 15 — Segment Information

Greenbrier operates in three reportable segments: Manufacturing, Wheel Services, Refurbishment & Parts and Leasing & Services. The accounting policies of the segments are described in the summary of significant accounting policies in the Consolidated Financial Statements contained in the Company’s 2010 Annual Report on Form 10-K. Performance is evaluated based on margin. The integrated business model in which Greenbrier operates, results in selling and administrative costs being intertwined among the segments. Any allocation of these costs would be subjective and not meaningful and as a result, Greenbrier’s management does not allocate these costs for either external or internal reporting purposes. Intersegment sales and transfers are valued as if the sales or transfers were to third parties. Related revenue and margin is eliminated in consolidation and therefore are not included in consolidated results in the Company’s Consolidated Financial Statements.

The information in the following table is derived directly from the segments’ internal financial reports used for corporate management purposes.

(In thousands)

		Three Months Ended								Nine Months Ended
		May 31,								May 31,
		2011				2010				2011				2010
Revenue:
Manufacturing		$	198,181			$	78,166			$	493,751			$	226,734
Wheel Services, Refurbishment & Parts			136,888				113,829				359,833				301,807
Leasing & Services			17,769				18,591				51,952				54,303
Intersegment eliminations			(35,558	)			(3,155	)			(104,982	)			(5,404	)
		$	317,280			$	207,431			$	800,554			$	577,440

THE GREENBRIER COMPANIES, INC.

		Three Months Ended								Nine Months Ended
		May 31,								May 31,
		2011				2010				2011				2010
Margin:
Manufacturing		$	14,813			$	8,946			$	29,574			$	19,634
Wheel Services, Refurbishment & Parts			15,115				14,517				34,574				34,472
Leasing & Services			8,222				8,381				24,307				21,912
Segment margin total			38,150				31,844				88,455				76,018
Less unallocated expenses:
Selling and administrative			22,580				17,519				58,212				50,686
Gain on disposition of equipment			(1,678	)			(4,024	)			(6,148	)			(5,659	)
Interest and foreign exchange			9,807				10,811				30,646				34,328
Loss (gain) on extinguishment of debt			10,007				(1,275	)			10,007				(1,275	)
Earnings (loss) before income taxes and loss from unconsolidated affiliates		$	(2,566	)		$	8,813			$	(4,262	)		$	(2,062	)

Note 16 — Commitments and Contingencies

Environmental studies have been conducted of the Company’s owned and leased properties that indicate additional investigation and some remediation on certain properties may be necessary. The Company’s 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 Greenbrier’s facility, as a federal “National Priority List” or “Superfund” site due to sediment contamination (the Portland Harbor Site). Greenbrier and more than 140 other parties have received a “General Notice” of potential liability from the EPA relating to the Portland Harbor Site. The letter advised the Company that it 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 the Company, have signed an Administrative Order on Consent (AOC) to perform a remedial investigation/feasibility study (RI/FS) 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. A draft of the RI study was submitted on October 27, 2009. The Feasibility Study is being developed and is expected to be submitted in the fourth calendar quarter of 2011. Eighty-three parties, including the State of Oregon and the federal government, have entered into a non-judicial mediation process to try to allocate costs associated with the Portland Harbor site. Approximately 110 additional parties have signed tolling agreements related to such allocations. On April 23, 2009, the Company and the other AOC signatories filed suit against 69 other parties due to a possible limitations period for some such claims; Arkema Inc. et al v. A & C Foundry Products, Inc.et al, US District Court, District of Oregon, Case #3:09-cv-453-PK. All but 12 of these parties elected to sign tolling agreements and be dismissed without prejudice, and the case has now been stayed by the court, pending completion of the RI/FS. In addition, the Company has entered into a Voluntary Clean-Up Agreement with the Oregon Department of Environmental Quality in which the Company agreed to conduct an investigation of whether, and to what extent, past or present operations at the Portland property may have released hazardous substances to the environment. The Company is also conducting groundwater remediation relating to a historical spill on the property which antedates its ownership.

Because these environmental investigations are still underway, the Company is unable to determine the amount of ultimate liability relating to these matters. Based on the results of the pending investigations and future assessments of natural resource damages, Greenbrier may be required to incur costs associated with additional phases of investigation or remedial action, and may be liable for damages to natural resources. In addition, the Company may be required to perform periodic maintenance dredging in order to continue to launch vessels from its 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 the Company’s business and Consolidated Financial Statements, or the value of its Portland property.

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:

THE GREENBRIER COMPANIES, INC.

Greenbrier’s customer, SEB Finans AB (SEB), has raised performance concerns related to a component that the Company installed on 372 railcar units with an aggregate sales value of approximately $20.0 million produced under a contract with SEB. On December 9, 2005, SEB filed a Statement of Claim in an arbitration proceeding in Stockholm, Sweden, against Greenbrier alleging that the railcars were defective and could not be used for their intended purpose. A settlement agreement was entered into effective February 28, 2007 pursuant to which the railcar units previously delivered were to be repaired and the remaining units completed and delivered to SEB. Greenbrier is proceeding with repairs of the railcars in accordance with terms of the settlement agreement, though SEB has recently made additional warranty claims, including claims with respect to railcars that have been repaired pursuant to the agreement. Greenbrier is evaluating SEB’s new warranty claim. Current estimates of potential costs of such repairs do not exceed amounts accrued.

When the Company acquired the assets of the Freight Wagon Division of DaimlerChrysler in January 2000, it acquired a contract to build 201 freight cars for Okombi GmbH, a subsidiary of Rail Cargo Austria AG. Subsequently, Okombi made breach of warranty and late delivery claims against the Company which grew out of design and certification problems. All of these issues were settled as of March 2004. Additional allegations have been made, the most serious of which involve cracks to the structure of the freight cars. Okombi has been required to remove all 201 freight cars from service, and a formal claim has been made against the Company. Legal, technical and commercial evaluations are on-going to determine what obligations the Company might have, if any, to remedy the alleged defects.

Management intends to vigorously defend its position in each of the open foregoing cases. While the ultimate outcome of such legal proceedings cannot be determined at this time, management believes that the resolution of these actions will not have a material adverse effect on the Company’s Consolidated Financial Statements.

The Company is involved as a defendant in other litigation initiated in the ordinary course of business. While the ultimate outcome of such legal proceedings cannot be determined at this time, management believes that the resolution of these actions will not have a material adverse effect on the Company’s Consolidated Financial Statements.

The Company delivered 500 railcar units during fiscal year 2009 for which the Company has an obligation to guarantee the purchaser minimum earnings. The obligation expires December 31, 2011. The maximum potential obligation totaled $13.1 million and in certain defined instances the obligation may be reduced due to early termination. Upon delivery of the railcar units, the entire purchase price was recorded as revenue and paid in full. The minimum earnings due to the purchaser were considered a reduction of revenue and were recorded as deferred revenue. The purchaser has agreed to utilize the railcars on a preferential basis, and the Company is entitled to re-market the railcar units when they are not being utilized by the purchaser during the obligation period. Any earnings generated from the railcar units will offset the obligation and be recognized as revenue and margin in future periods. As of May 31, 2011, the Company has $4.6 million of the potential obligation remaining in deferred revenue.

The Company has entered into contingent rental assistance agreements, aggregating up to a maximum of $5.5 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 remaining periods of up to one year. 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 three and nine months ended May 31, 2011 an accrual of $3 thousand and $8 thousand was recorded to cover future obligations. For the three and nine months ended May 31, 2010 an accrual of $25 thousand and $0.2 million was made to cover estimated obligations as management determined no additional rental shortfall was probable. There was no remaining balance of the accrued liability as May 31, 2011. All of these agreements were entered into prior to December 31, 2002 and have not been modified since.

In accordance with customary business practices in Europe, the Company has $7.2 million in bank and third party performance and warranty guarantee facilities, all of which have been utilized as of May 31, 2011. To date no amounts have been drawn under these performance and warranty guarantee facilities.

At May 31, 2011, the Mexican joint venture had $8.2 million of third party debt, for which the Company has guaranteed 50% or approximately $4.1 million.

THE GREENBRIER COMPANIES, INC.

As of May 31, 2011 the Company has outstanding letters of credit aggregating $3.9 million associated with facility leases and payroll.

Note 17 — Fair Value of Financial Instruments

The estimated fair values of financial instruments and the methods and assumptions used to estimate such fair values are as follows:

		Carrying				Estimated
(In thousands)		Amount				Fair Value
Notes payable as of May 31, 2011		$	496,828			$	440,039
Notes payable as of August 31, 2010		$	498,700			$	482,589

The carrying amount of cash and cash equivalents, accounts and notes receivable, revolving notes, accounts payable and accrued liabilities, foreign currency forward contracts and interest rate swaps is a reasonable estimate of fair value of these financial instruments. Estimated rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of notes payable.

Note 18 — Fair Value Measures

Certain assets and liabilities are reported at fair value on either a recurring or nonrecurring basis. Fair value, for this disclosure, is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, under a three-tier fair value hierarchy which prioritizes the inputs used in measuring a fair value as follows:

Level 1 —		observable inputs such as unadjusted quoted prices in active markets for identical instruments;

Level 2 —		inputs, other than the quoted market prices in active markets for similar instruments, which are observable, either directly or indirectly; and

Level 3 —		unobservable inputs for which there is little or no market data available, which require the reporting entity to develop its own assumptions.

Assets and liabilities measured at fair value on a recurring basis as of May 31, 2011 are:

(In thousands)		Total				Level 1				Level 2(1)				Level 3
Assets:
Derivative financial instruments		$	924			$	—			$	924			$	—
Nonqualified savings plan investments			6,897				6,897				—				—
Cash equivalents			14,667				14,667				—				—
		$	22,488			$	21,564			$	924			$	—
Liabilities:
Derivative financial instruments		$	4,616			$	—			$	4,616			$	—

THE GREENBRIER COMPANIES, INC.

Assets and liabilities measured at fair value on a recurring basis as of August 31, 2010 are:

(In thousands)		Total				Level 1				Level 2				Level 3
Assets:
Derivative financial instruments		$	684			$	—			$	684			$	—
Nonqualified savings plan investments			6,489				6,489				—				—
Cash equivalents			57,300				57,300				—				—
		$	64,473			$	63,789			$	684			$	—
Liabilities:
Derivative financial instruments		$	5,370			$	—			$	5,370			$	—

Note 19 — Guarantor/Non Guarantor

The convertible senior notes due 2026 (the Notes) issued on May 22, 2006 are fully and unconditionally and jointly and severally guaranteed by substantially all of Greenbrier’s material 100% owned United States subsidiaries: Autostack Company LLC, Greenbrier-Concarril, LLC, Greenbrier Leasing Company LLC, Greenbrier Leasing Limited Partner, LLC, Greenbrier Management Services, LLC, Greenbrier Leasing, L.P., Greenbrier Railcar LLC, Gunderson LLC, Gunderson Marine LLC, Gunderson Rail Services LLC, Meridian Rail Holding Corp., Meridian Rail Acquisition Corp., Meridian Rail Mexico City Corp., Brandon Railroad LLC, Gunderson Specialty Products, LLC and Greenbrier Railcar Leasing, Inc. No other subsidiaries guarantee the Notes including Greenbrier Leasing Limited, Greenbrier Europe B.V., Greenbrier Germany GmbH, WagonySwidnica S.A., Gunderson-Concarril, S.A. de C.V., Mexico Meridian Rail Services, S.A. de C.V., Greenbrier Railcar Services — Tierra Blanca S.A. de C.V., YSD Doors, S.A. de C.V., Greenbrier-Gimsa, LLC and Gunderson-Gimsa S de RL de C.V.

The following represents the supplemental condensed consolidating financial information of Greenbrier and its guarantor and non guarantor subsidiaries, as of May 31, 2011 and August 31, 2010 and for the three and nine months ended May 31, 2011 and 2010. The information is presented on the basis of Greenbrier accounting for its ownership of its wholly owned subsidiaries using the equity method of accounting. The equity method investment for each subsidiary is recorded by the parent in intangibles and other assets. Intercompany transactions of goods and services between the guarantor and non guarantor subsidiaries are presented as if the sales or transfers were at fair value to third parties and eliminated in consolidation.

THE GREENBRIER COMPANIES, INC.

The Greenbrier Companies, Inc.
      Condensed Consolidating Balance Sheet
      May 31, 2011
      (In thousands, unaudited)

										Combined
						Combined				Non-
						Guarantor				Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Assets
Cash and cash equivalents		$	28,875			$	486			$	4,941			$	—			$	34,302
Restricted cash			—				2,217				—				—				2,217
Accounts receivable/intercompany receivable (payable), net			99,548				49,458				(5,516	)			1				143,491
Inventories			—				150,104				139,647				(11	)			289,740
Leased railcars for syndication			—				58,346				—				(30	)			58,316
Equipment on operating leases, net			—				316,122				—				(2,016	)			314,106
Investment in direct finance leases			—				123				—				—				123
Property, plant and equipment, net			6,443				97,457				46,191				—				150,091
Goodwill			—				137,066				—				—				137,066
Intangibles and other assets			563,663				95,001				3,227				(573,601	)			88,290
		$	698,529			$	906,380			$	188,490			$	(575,657	)		$	1,217,742
Liabilities and Equity
Revolving notes		$	—			$	—			$	13,897			$	—			$	13,897
Accounts payable and accrued liabilities			1,405				159,666				100,289				1				261,361
Deferred income taxes			(13,538	)			94,999				(5,116	)			(485	)			75,860
Deferred revenue			504				5,159				158				—				5,821
Notes payable			358,702				135,864				2,262				—				496,828
Total equity Greenbrier			351,456				510,692				64,481				(575,173	)			351,456
Noncontrolling interest			—				—				12,519				—				12,519
Total Equity			351,456				510,692				77,000				(575,173	)			363,975
		$	698,529			$	906,380			$	188,490			$	(575,657	)		$	1,217,742