Source: http://www.morningstar.com/invest/filings/271559-xnys-gbx-greenbrier-companies-inc-quarterly-report-10-q-filing-5-31-2012.html
Timestamp: 2015-03-03 04:53:35
Document Index: 24937520

Matched Legal Cases: ['arts 125', 'arts 111', 'arts 128', 'arts 13', 'arts 125', 'arts 13']

XNYS:GBX Greenbrier Companies Inc Quarterly Report 10-Q Filing - 5/31/2012 Welcome! Company Site
XNYS:GBX Greenbrier Companies Inc Quarterly Report 10-Q Filing - 5/31/2012 Effective Date 5/31/2012
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• FORM 10-Q • FORM OF EMPLOYEE RESTRICTED STOCK AGREEMENT • CEO CERTIFICATION PURSUANT TO RULE 13A - 14 (A • CFO CERTIFICATION PURSUANT TO RULE 13A - 14 (A • CEO CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 • CFO CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 • XBRL INSTANCE DOCUMENT • XBRL TAXONOMY EXTENSION SCHEMA • XBRL TAXONOMY EXTENSION CALCULATION LINKBASE • XBRL TAXONOMY EXTENSION DEFINITION LINKBASE • XBRL TAXONOMY EXTENSION LABEL LINKBASE • XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended May 31, 2012 May 31, 2012 May 31, 2012 ¨ 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 93-0816972 (State of Incorporation) (I.R.S. Employer Identification No.) One Centerpointe Drive, Suite 200, Lake Oswego, OR 97035 (Address of principal executive offices) (Zip Code)
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 x No ¨ 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 ¨ Accelerated filer x Non-accelerated filer ¨ Smaller reporting company ¨
Act) Yes ¨ No x The number of shares of the registrants common stock, without par value, outstanding on June 26, 2012 was 27,149,194 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
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
lines or increased production rates, addition of new railcar types, 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; 2 THE GREENBRIER COMPANIES, INC.  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;  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
statements. All references to years refer to the fiscal years ended August 31st unless otherwise noted. 3 THE GREENBRIER COMPANIES, INC. PART I. FINANCIAL INFORMATION Item 1. Condensed Financial Statements Consolidated Balance Sheets (In thousands, unaudited) May 31,2012 August 31,2011 Assets Cash and cash equivalents $ 44,915 $ 50,222 Restricted cash 6,089 2,113 Accounts receivable, net 172,086 188,443 Inventories 346,122 323,512 Leased railcars for syndication 66,776 30,690 Equipment on operating leases, net 334,872 321,141 Property, plant and equipment, net 172,729 161,200 Goodwill 137,066 137,066 Intangibles and other assets, net 84,693 87,268 $ 1,365,348 $ 1,301,655 Liabilities and Equity Revolving notes $ 71,430 $ 90,339 Accounts payable and accrued liabilities 323,977 316,536 Deferred income taxes 88,514 83,839 Deferred revenue 17,872 5,900 Notes payable 428,028 429,140 Commitments and contingencies (Note 12) Equity: Greenbrier Preferred stock  without par value; 25,000 shares authorized; none outstanding   Common stock  without par value; 50,000 shares authorized; 27,149 and 25,186 shares outstanding at May 31, 2012 and
August 31, 2011   Additional paid-in capital 251,309 242,286 Retained earnings 178,485 127,182 Accumulated other comprehensive loss (11,633 ) (7,895 ) Total equity Greenbrier 418,161 361,573 Noncontrolling interest 17,366 14,328 Total equity 435,527 375,901 $ 1,365,348 $ 1,301,655 The accompanying notes are an integral part of these financial statements 4 THE GREENBRIER COMPANIES, INC. Consolidated Statements of Operations (In thousands, except per share amounts, unaudited) Three Months EndedMay 31, Nine Months EndedMay 31, 2012 2011 2012 2011 Revenue Manufacturing $ 364,930 $ 173,487 $ 947,792 $ 415,548 Wheel Services, Refurbishment & Parts 125,145 126,317 362,788 333,600 Leasing & Services 17,722 17,476 53,601 51,406 507,797 317,280 1,364,181 800,554 Cost of revenue Manufacturing 325,424 158,674 852,464 385,974 Wheel Services, Refurbishment & Parts 111,610 111,202 324,055 299,026 Leasing & Services 8,825 9,254 27,783 27,099 445,859 279,130 1,204,302 712,099 Margin 61,938 38,150 159,879 88,455 Selling and administrative 28,784 22,580 76,998 58,212 Gain on disposition of equipment (2,585 ) (1,678 ) (8,897 ) (6,148 ) Earnings from operations 35,739 17,248 91,778 36,391 Other costs Interest and foreign exchange 6,560 9,807 18,574 30,646 Loss on extinguishment of debt  10,007  10,007 Earnings (loss) before income taxes and earnings (loss) from unconsolidated affiliates 29,179 (2,566 ) 73,204 (4,262 ) Income tax benefit (expense) (8,655 ) 301 (21,798 ) 812 Earnings (loss) before earnings (loss) from unconsolidated affiliates 20,524 (2,265 ) 51,406 (3,450 ) Earnings (loss) from unconsolidated affiliates 201 (539 ) (99 ) (1,700 ) Net earnings (loss) 20,725 (2,804 ) 51,307 (5,150 ) Net earnings attributable to noncontrolling interest (1,608 ) (510 ) (4 ) (1,019 ) Net earnings (loss) attributable to Greenbrier $ 19,117 $ (3,314 ) $ 51,303 $ (6,169 ) Basic earnings (loss) per common share $ 0.71 $ (0.14 ) $ 1.94 $ (0.27 ) Diluted earnings (loss) per common share $ 0.61 $ (0.14 ) $ 1.65 $ (0.27 ) Weighted average common shares: Basic 26,981 24,127 26,378 22,893 Diluted 33,862 24,127 33,640 22,893 The accompanying notes are an integral part of these financial statements 5 THE GREENBRIER COMPANIES, INC. Consolidated Statements of Equity and Comprehensive Income (Loss) (In thousands, except per share amounts, unaudited) Attributable to Greenbrier CommonStockShares AdditionalPaid-inCapital RetainedEarnings AccumulatedOtherComprehensiveIncome (Loss) TotalAttributableto Greenbrier Attributable toNoncontrollingInterest TotalEquity Balance September 1, 2011 25,186 $ 242,286 $ 127,182 $ (7,895 ) $ 361,573 $ 14,328 $ 375,901 Net earnings   51,303  51,303 4 51,307 Translation adjustment    (5,912 ) (5,912 ) (172 ) (6,084 ) Reclassification of derivative financial instruments recognized in net earnings (net of tax effect)    (4,168 ) (4,168 )  (4,168 ) Unrealized gain on derivative financial instruments (net of tax effect)    6,342 6,342  6,342 Comprehensive income (loss) 47,565 (168 ) 47,397 Investment by joint venture partner      410 410 Noncontrolling interest adjustments      2,796 2,796 Restricted stock awards (net of cancellations) 467 9,364   9,364  9,364 Unamortized restricted stock  (9,364 )   (9,364 )  (9,364 ) Restricted stock amortization  6,353   6,353  6,353 Warrants exercised 1,496       Excess tax benefit from restricted stock awards  2,670   2,670  2,670 Balance May 31, 2012 27,149 $ 251,309 $ 178,485 $ (11,633 ) $ 418,161 $ 17,366 $ 435,527 Attributable to Greenbrier CommonStockShares AdditionalPaid-inCapital RetainedEarnings AccumulatedOtherComprehensiveIncome (Loss) TotalAttributableto Greenbrier Attributable toNoncontrollingInterest TotalEquity Balance September 1, 2010 21,875 $ 172,426 $ 120,716 $ (7,204 ) $ 285,938 $ 11,469 $ 297,407 Net earnings (loss)   (6,169 )  (6,169 ) 1,019 (5,150 ) Translation adjustment    3,521 3,521  3,521 Reclassification of derivative financial instruments recognized in net loss (net of tax effect)    (215 ) (215 )  (215 ) Unrealized gain on derivative financial instruments (net of tax effect)    634 634  634 Comprehensive loss (2,229 ) 1,019 (1,210 ) Noncontrolling interest adjustments      31 31 Net proceeds from equity offering 3,000 62,760   62,760  62,760 Restricted stock awards (net of cancellations) 278 6,593   6,593  6,593 Unamortized restricted stock  (6,593 )   (6,593 )  (6,593 ) Restricted stock amortization  4,961   4,961  4,961 Stock options exercised 6 26   26  26 Balance May 31, 2011 25,159 $ 240,173 $ 114,547 $ (3,264 ) $ 351,546 $ 12,519 $ 363,975 The accompanying notes are an integral part of these financial statements 6 THE GREENBRIER COMPANIES, INC. Consolidated Statements of Cash Flows (In thousands, unaudited) Nine Months EndedMay 31, 2012 2011 Cash flows from operating activities Net income (loss) $ 51,307 $ (5,150 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Deferred income taxes 4,801 (5,276 ) Depreciation and amortization 30,603 28,174 Gain on sales of leased equipment (8,897 ) (2,901 ) Accretion of debt discount 2,416 5,446 Stock based compensation expense 6,724 4,961 Loss on extinguishment of debt (non-cash portion)  2,868 Other 3,586 91 Decrease (increase) in assets: Accounts receivable 10,429 (51,427 ) Inventories (26,748 ) (83,293 ) Leased railcars for syndication (43,561 ) (48,465 ) Other (1,419 ) 5,834 Increase (decrease) in liabilities: Accounts payable and accrued liabilities 12,401 77,273 Deferred revenue 11,991 (5,442 ) Net cash provided by (used in) operating activities 53,633 (77,307 ) Cash flows from investing activities Proceeds from sales of equipment 33,253 14,179 Investment in and advances to unconsolidated affiliates (544 ) (979 ) Decrease (increase) in restricted cash (3,976 ) 308 Capital expenditures (72,117 ) (59,689 ) Other 35 52 Net cash used in investing activities (43,349 ) (46,129 ) Cash flows from financing activities Net change in revolving notes with maturities of 90 days or less (49,114 ) 3,694 Proceeds from revolving notes with maturities longer than 90 days 56,644 13,373 Repayments of revolving notes with maturities longer than 90 days (23,573 ) (6,194 ) Proceeds from issuance of notes payable 2,500 231,250 Debt issuance costs  (7,857 ) Repayments of notes payable (6,028 ) (238,569 ) Gross proceeds from equity offering  63,180 Excess tax benefit from restricted stock awards 2,670  Investment by joint venture partner 410  Expenses from equity offering  (420 ) Other  26 Net cash provided by (used in) financing activities (16,491 ) 58,483 Effect of exchange rate changes 900 391 Decrease in cash and cash equivalents (5,307 ) (64,562 ) Cash and cash equivalents Beginning of period 50,222 98,864 End of period $ 44,915 $ 34,302 Cash paid during the period for Interest $ 10,817 $ 25,850 Income taxes, net $ 4,013 $ 866 The accompanying notes are an integral part of these financial statements 7 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, 2012, for the three and nine months ended May 31, 2012 and 2011 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, 2012 are not necessarily indicative of the results to be expected for
estimates. 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 combined 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 change the presentation of comprehensive income to be in compliance with the new standard. In September 2011, an accounting standard update was issued regarding the annual goodwill impairment testing. This amendment is intended to reduce the
cost and complexity of the annual goodwill impairment test by providing entities an option to perform a qualitative assessment to determine whether further impairment testing is necessary. This amendment will be effective for the Company as of
September 1, 2012. However, early adoption is permitted if an entitys financial statements for the most recent annual or interim period have not yet been issued. This amendment impacts testing steps only, and therefore adoption will not
have an effect on the Companys Consolidated Financial Statements. The Company performs a goodwill impairment test annually during the third quarter. Goodwill was tested during the quarter and the Company concluded that goodwill was not
impaired. Goodwill is also tested more frequently if changes in circumstances or the occurrence of events indicates that a potential impairment exists. 8 THE GREENBRIER COMPANIES, INC. Note 2  Inventories Inventories are valued at the lower of cost (first-in, first-out) or market. Work-in-process includes material, labor and overhead. The
following table summarizes the Companys inventory balance: (In thousands) May 31,2012 August 31,2011 Manufacturing supplies and raw materials $ 263,281 $ 231,798 Work-in-process 57,447 78,709 Finished goods 30,187 17,455 Excess and obsolete adjustment (4,793 ) (4,450 ) $ 346,122 $ 323,512 Note 3  Intangibles and Other Assets, net Intangible assets that are determined to have finite lives are amortized over their useful lives. Intangible assets with indefinite
intangible and other assets balance: (In thousands) May 31,2012 August 31,2011 Intangible assets subject to amortization: Customer relationships $ 66,825 $ 66,825 Accumulated amortization (20,960 ) (17,854 ) Other intangibles 4,808 5,185 Accumulated amortization (3,629 ) (3,475 ) 47,044 50,681 Intangible assets not subject to amortization 912 912 Prepaid and other assets 10,260 8,692 Debt issuance costs, net 10,822 12,516 Nonqualified savings plan investments 6,700 6,326 Investment in unconsolidated affiliates 8,266 5,769 Contract placement fee 610 2,259 Investment in direct finance leases 79 113 Total intangible and other assets $ 84,693 $ 87,268 Amortization expense for the three and nine months ended May 31, 2012 was $1.1 million and $3.4 million and for the
three and nine months ended May 31, 2011 was $1.2 million and $3.6 million. Amortization expense for the years ending August 31, 2012, 2013, 2014, 2015 and 2016 is expected to be $4.6 million, $4.4 million, $4.3 million, $4.3 million and
$4.3 million. 9 THE GREENBRIER COMPANIES, INC. Note 4  Revolving Notes Senior secured credit facilities, consisting of three components, aggregated to $357.0 million as of May 31, 2012. As of May 31, 2012 a $290.0 million revolving line of credit secured by substantially all the Companys assets in the U.S. not otherwise
equipment, as well as total debt to consolidated capitalization and fixed charges coverage ratios. As of May 31, 2012, lines of credit
totaling $17.0 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 December 2012 through June 2013. As of May 31, 2012 the
Companys Mexican joint venture had two lines of credit totaling $50.0 million. The first line of credit provides up to $20.0 million and is 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. The outstanding advances as of May 31, 2012 have maturities that range from June 2012 to November 2012. The Mexican joint venture will be able to draw
against this facility through July 2012. The second line of credit provides up to $30.0 million and is guaranteed by each of the joint venture partners, including the Company. Advances under this facility bear interest at LIBOR plus 2.0% and are due
180 days after the date of borrowing. The outstanding advances as of May 31, 2012 mature in July 2012. The Mexican joint venture will be able to draw against this facility through February 2015. As of May 31, 2012 outstanding borrowings under the senior secured credit facilities consisted of $6.6 million in letters of credit and $10.0
million in revolving notes outstanding under the North American credit facility, $13.2 million outstanding under the European credit facilities and $48.2 million outstanding under the Mexican joint venture credit facilities. Note 5  Accounts Payable and Accrued Liabilities (In thousands) May 31,2012 August 31,2011 Trade payables and other accrued liabilities $ 259,407 $ 267,683 Accrued payroll and related liabilities 32,559 26,757 Accrued maintenance 10,732 10,865 Accrued warranty 10,447 8,645 Other 10,832 2,586 $ 323,977 $ 316,536 10 THE GREENBRIER COMPANIES, INC. Note 6  Warranty Accruals Warranty costs are estimated and charged to operations to cover a defined warranty period. The estimated warranty cost is based on the
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 EndedMay 31, Nine Months EndedMay 31, (In thousands) 2012 2011 2012 2011 Balance at beginning of period $ 9,297 $ 6,381 $ 8,645 $ 6,304 Charged to cost of revenue 1,848 1,080 3,243 1,731 Payments (525 ) (449 ) (1,194 ) (1,050 ) Currency translation effect (173 ) 15 (247 ) 42 Balance at end of period $ 10,447 $ 7,027 $ 10,447 $ 7,027 Note 7  Accumulated Other Comprehensive Loss Accumulated other comprehensive loss, net of tax effect as appropriate, consisted of the following: (In thousands) UnrealizedIncome(Loss) onDerivativeFinancialInstruments PensionAdjustment ForeignCurrencyTranslationAdjustment AccumulatedOtherComprehensiveLoss Balance, August 31, 2011 $ (5,789 ) $ (195 ) $ (1,911 ) $ (7,895 ) Year to date activity 2,174  (5,912 ) (3,738 ) Balance, May 31, 2012 $ (3,615 ) $ (195 ) $ (7,823 ) $ (11,633 ) 11 THE GREENBRIER COMPANIES, INC. Note 8  Earnings (Loss) Per Share The shares used in the computation of the Companys basic and diluted earnings (loss) per common share are reconciled as follows:
Three Months EndedMay 31, Nine Months EndedMay 31, (In thousands) 2012 2011 2012 2011 Weighted average basic common shares outstanding (1) 26,981 24,127 26,378 22,893 Dilutive effect of employee stock options (2)     Dilutive effect of warrants (3) 836  1,217  Dilutive effect of convertible notes (4) 6,045  6,045  Weighted average diluted common shares outstanding 33,862 24,127 33,640 22,893 (1) Restricted stock grants are treated as outstanding when issued and are included in weighted average basic common shares outstanding when the Company is in a net
earnings position. Shares outstanding exclude 0.8 million shares of unvested restricted stock for the three and nine months ended May 31, 2011 due to a net loss. (2) There were no options outstanding for the three and nine months ended May 31, 2012. The dilutive effect of options was excluded from the share calculation
for the three and nine months ended May 31, 2011 due to a net loss. (3) The dilutive effect of warrants to purchase 3.4 million shares was excluded from the share calculation for the three and nine months ended May 31, 2011
due to a net loss. (4) The dilutive effect of the 2018 Convertible notes are included as they were considered dilutive under the if converted method as further discussed
below. The dilutive effect of the 2026 Convertible notes was excluded from the share calculations as the stock price for each period presented was less than the initial conversion price of $48.05 and therefore considered anti-dilutive.
Dilutive EPS for the three and nine months ended May 31, 2012 was calculated using the more dilutive of two approaches.
The first approach includes the dilutive effect of outstanding warrants and shares underlying the 2026 Convertible notes in the share count using the treasury stock method. The second approach supplements the first by including the if
converted effect of the 2018 Convertible notes issued in March 2011. Under the if converted method debt issuance and interest costs, both net of tax, associated with the convertible notes are added back to net earnings and the
share count is increased by the 6,045 shares underlying the convertible notes. The 2026 Convertible notes would only be included in the calculation of both approaches if the current stock price is greater than the initial conversion price of $48.05
using the treasury stock method. Three Months EndedMay 31, 2012 Nine Months EndedMay 31, 2012 Net earnings attributable to Greenbrier $ 19,117 $ 51,303 Add back: Interest and debt issuance costs on the 2018 Convertible notes, net of tax 1,416 4,262 Earnings before interest and debt issuance costs on convertible notes $ 20,533 $ 55,565 Weighted average diluted common shares outstanding 33,862 33,640 Diluted earnings per share $ 0.61 (1) $ 1.65 (1) (1) Diluted earnings per share was calculated as follows: Earnings before interest and debt issuance costs on convertible notes Weighted average diluted common shares outstanding 12 THE GREENBRIER COMPANIES, INC. Note 9  Stock Based Compensation The value of stock awarded under restricted stock grants is amortized as compensation expense over the vesting period, which is
generally between one to five years. For the three and nine months ended May 31, 2012, $3.2 million and $6.7 million in compensation expense was recorded for restricted stock grants. 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. Note 10  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. 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, 2012 exchange rates, forward exchange contracts for the purchase of Polish Zloty and the sale of Euro aggregated $81.1 million. Adjusting
the foreign currency exchange contracts to the fair value of the cash flow hedges at May 31, 2012 resulted in an unrealized pre-tax loss of $2.0 million 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 Sheets. As the contracts mature at various dates through December 2013, 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, 2012, an interest rate swap agreement had a notional amount of $43.3 million and matures March 2014. The fair value of this cash flow hedge at May 31, 2012 resulted in an unrealized
pre-tax loss of $3.1 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, 2012 interest rates, approximately $1.2 million
would be reclassified to interest expense in the next 12 months. Fair Values of Derivative Instruments (In thousands) Asset Derivatives Liability Derivatives Balance sheetlocation May 31,2012 August 31,2011 Balance sheetlocation May 31,2012 August 31,2011 FairValue FairValue FairValue FairValue Derivatives designated as hedging instruments Foreign forward exchange contracts Accounts receivable $ 222 $  Accounts payableand accrued liabilities $ 2,090 $ 2,848 Interest rate swap contracts Other assets   Accounts payable and accrued liabilities 3,149 4,386 $ 222 $  $ 5,239 $ 7,234 Derivatives not designated as hedging instruments Foreign forward exchange contracts Accounts receivable $ 64 $  Accounts payable and accrued liabilities $ 282 $ 525 13 THE GREENBRIER COMPANIES, INC. The Effect of Derivative Instruments on the Statement of Operations Derivatives in cash flow hedging
relationships Location of loss recognized in income on
derivative Loss recognized in income on derivativenine months ended May 31,2012 May 31,2011 Foreign forward exchange contract Interest and foreign exchange $ (144 ) $ (39 ) Derivatives in cash
flow hedging relationships Gain (loss)recognized inOCI on derivatives(effective portion)nine months ended Location of
into income Gain (loss)reclassified
fromaccumulatedOCI into income(effective portion)nine months ended Location of
testing) Gain (loss)recognized onderivative(ineffective portionand amountexcluded
fromeffectivenesstesting)nine months ended 5/31/12 5/31/11 5/31/12 5/31/11 5/31/12 5/31/11 Foreign forward exchange contracts $ (3,345 ) $ 450 Revenue $ (3,917 ) $ 599 Interest and foreign exchange $  $  Interest rate swap contracts (2,503 ) 2,216 Interest and foreign exchange (1,266 ) (1,339 ) Interest and foreign exchange   $ (5,848 ) $ 2,666 $ (5,183 ) $ (740 ) $  $  14 THE GREENBRIER COMPANIES, INC. Note 11  Segment Information Greenbrier operates in three reportable segments: Manufacturing; Wheel Services, Refurbishment & Parts; and Leasing &
information in the following table is derived directly from the segments internal financial reports used for corporate management purposes. Three Months EndedMay 31, Nine Months EndedMay 31, (In thousands) 2012 2011 2012 2011 Revenue: Manufacturing $ 370,993 $ 198,181 $ 1,004,507 $ 493,751 Wheel Services, Refurbishment & Parts 128,925 136,888 375,242 359,833 Leasing & Services 24,196 17,769 70,585 51,952 Intersegment eliminations (16,317 ) (35,558 ) (86,153 ) (104,982 ) $ 507,797 $ 317,280 $ 1,364,181 $ 800,554 Margin: Manufacturing $ 39,506 $ 14,813 $ 95,328 $ 29,574 Wheel Services, Refurbishment & Parts 13,535 15,115 38,733 34,574 Leasing & Services 8,897 8,222 25,818 24,307 Segment margin total 61,938 38,150 159,879 88,455 Less unallocated expenses: Selling and administrative 28,784 22,580 76,998 58,212 Gain on disposition of equipment (2,585 ) (1,678 ) (8,897 ) (6,148 ) Interest and foreign exchange 6,560 9,807 18,574 30,646 Loss on extinguishment of debt  10,007  10,007 Earnings (loss) before income taxes and earnings (loss) from unconsolidated affiliates $ 29,179 $ (2,566 ) $ 73,204 $ (4,262 ) 15 THE GREENBRIER COMPANIES, INC. Note 12  Commitments and Contingencies Environmental studies have been conducted on certain of the Companys owned and leased properties that indicate additional
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: 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. SEB has made multiple additional warranty claims, including claims with respect to railcars that have been repaired pursuant to the original settlement agreement. Greenbrier and SEB are
continuing to negotiate the scope of needed repairs. Current estimates of potential costs of such repairs do not exceed amounts accrued. 16 THE GREENBRIER COMPANIES, INC. 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, though resolution of such issues has not been
reached due to delays by Okombi. 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. In accordance with customary business practices in Europe, the Company has $2.9 million in bank and third party warranty and performance guarantee
facilities as of May 31, 2012. To date no amounts have been drawn under these guarantee facilities. The Company sold 743 railcars during
the third quarter of 2012 for which the Company has an obligation, up to a maximum amount of $4.2 million, to support the railcar portfolio meeting a target minimum rate of return. This obligation expires in March 2033. This $4.2 million, which is
held in restricted cash, was recorded as a reduction in revenue on the sale of 600 new railcars and a reduction in gain on sale on the sale of the 143 used railcars with a credit to deferred revenue. At May 31, 2012, the Mexican joint venture had $48.8 million of third party debt outstanding, for which the Company has guaranteed approximately
$39.4 million. In addition, the Company, along with its joint venture partner, has committed to contributing $10.0 million to fund the capital expenditures for a fourth manufacturing line, of which the Company will contribute 50%. These amounts will
be contributed at various intervals from May 31, 2012 to October 31, 2013. As of May 31, 2012, the Company has contributed $0.4 million. As of May 31, 2012 the Company has outstanding letters of credit aggregating $6.6 million associated with facility leases and workers compensation insurance. 17 THE GREENBRIER COMPANIES, INC. Note 13  Fair Value Measures Certain assets and liabilities are reported at fair value on either a recurring or nonrecurring basis. Fair value, for this disclosure,
used in measuring 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, 2012 are: (In thousands) Total Level 1 Level 2 (1) Level 3 Assets: Derivative financial instruments $ 286 $  $ 286 $  Nonqualified savings plan investments 6,700 6,700   Cash equivalents 2,001 2,001   $ 8,987 $ 8,701 $ 286 $  Liabilities: Derivative financial instruments $ 5,521 $  $ 5,521 $  (1) Level 2 assets include derivative financial instruments which are valued based on significant observable inputs. See note 10 Derivative Instruments for further
discussion. Assets and liabilities measured at fair value on a recurring basis as of August 31, 2011 are: (In thousands) Total Level 1 Level 2 Level 3 Assets: Derivative financial instruments $  $  $  $  Nonqualified savings plan investments 6,326 6,326   Cash equivalents 4,561 4,561   $ 10,887 $ 10,887 $  $  Liabilities: Derivative financial instruments $ 7,759 $  $ 7,759 $  Note 14  Loss 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 of
2011. 18 THE GREENBRIER COMPANIES, INC. Note 15  Variable Interest Entities In March 2012, the Company formed a special purpose entity that purchased a 1% interest in three trusts (the Trusts) which
are 99% owned by a third party. The Company has agreed to sell 1,363 railcars, subject to operating leases, for $115.4 million to the Trusts. This transaction is expected to close in three tranches with the first occurring in May 2012 and the last
to occur no later than March 2013. Gains and losses will be allocated between the Company and the third party equal to their respective
ownership interest in the Trusts, with the exception that the Company may be entitled to receive a small portion of excess rent if the actual performance of the Trusts exceeds a target rate of return. The Company is required to contribute $8.0 million of cash collateral, which is funded ratably as each tranche is closed, into restricted cash accounts
to support the railcar portfolio meeting a target rate of return. If the actual return is less than the target return, the third party may withdraw amounts in the restricted cash accounts at certain intervals based on predetermined criteria.
In connection with this transaction, the Company entered into an agreement to provide administrative and remarketing services to the Trusts.
The agreement is currently set to expire in March 2033. The Company also entered into an agreement to provide maintenance services to the Trusts during the initial lease term of the railcars. The Company will receive management and maintenance fees
under each of the aforementioned agreements. As of May 31, 2012, the Company has sold 743 railcars to the Trusts for an aggregate value
of $61.1 million for which the Company has an obligation, up to a maximum amount of $4.2 million, to support the railcar portfolio meeting a target minimum rate of return. This obligation expires in March 2033. This $4.2 million, which is held in
restricted cash, was recorded as a reduction in revenue on the sale of 600 new railcars and a reduction in gain on sale on the sale of the 143 used railcars with a credit to deferred revenue. The Company has evaluated this relationship under ASC 810-10 and has concluded that the Trusts qualify as variable interest entities and that the Company is not the primary beneficiary. The Company will
not consolidate the Trusts and will account for the investments under the equity method of accounting. As of May 31, 2012, the carrying
amount of the Companys investment in the Trust is $0.6 million which is recorded in Intangibles and Other Assets, net on the Consolidated Balance Sheets. 19 THE GREENBRIER COMPANIES, INC. Note 16  Guarantor/Non Guarantor The convertible senior notes due 2026 (the Notes) issued on May 22, 2006 are fully and unconditionally and jointly and severally
Specialty Products, LLC and Greenbrier Railcar Leasing, Inc. No other subsidiaries guarantee the Notes including Greenbrier Union Holdings I LLC, Greenbrier Leasing Limited, Greenbrier Europe B.V., Greenbrier Germany GmbH, WagonySwidnica S.A.,
Zaklad Naprawczy Taboru Kolejowego Olawa sp. z o.o., Gunderson-Concarril, S.A. de C.V., Mexico Meridianrail 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.A. de C.V. The following represents the supplemental consolidating condensed financial information of Greenbrier and its
guarantor and non guarantor subsidiaries, as of May 31, 2012 and August 31, 2011, for the three and nine months ended May 31, 2012 and for the three and nine months ended May 31, 2011. 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. 20 THE GREENBRIER COMPANIES, INC. The Greenbrier Companies, Inc. Condensed Consolidating Balance Sheet May 31, 2012 (In thousands) Parent CombinedGuarantorSubsidiaries CombinedNon-GuarantorSubsidiaries Eliminations Consolidated Assets Cash and cash equivalents $ 31,516 $ 105 $ 13,294 $  $ 44,915 Restricted cash  1,859 4,230  6,089 Accounts receivable, net (2,116 ) 156,593 18,041 (432 ) 172,086 Inventories  139,888 206,586 (352 ) 346,122 Leased railcars for syndication  68,782  (2,006 ) 66,776 Equipment on operating leases, net  337,590  (2,718 ) 334,872 Property, plant and equipment, net 4,151 104,225 64,353  172,729 Goodwill  137,066   137,066 Intangibles and other assets, net 664,529 94,635 3,871 (678,342 ) 84,693 $ 698,080 $ 1,040,743 $ 310,375 $ (683,850 ) $ 1,365,348 Liabilities and Equity Revolving notes $ 10,000 $  $ 61,430 $  $ 71,430 Accounts payable and accrued liabilities (28,977 ) 197,594 155,357 3 323,977 Deferred income taxes 4,766 94,880 (9,578 ) (1,554 ) 88,514 Deferred revenue 349 14,505 3,003 15 17,872 Notes payable 294,426 131,745 1,857  428,028 Total equity Greenbrier 418,161 602,019 80,295 (682,314 ) 418,161 Noncontrolling interest (645 )  18,011  17,366 Total equity 417,516 602,019 98,306 (682,314 ) 435,527 $ 698,080 $ 1,040,743 $ 310,375 $ (683,850 ) $ 1,365,348 21 THE GREENBRIER COMPANIES, INC. The Greenbrier Companies, Inc. Condensed Consolidating Statement of Operations For the three months ended May 31, 2012 (In thousands) Parent CombinedGuarantorSubsidiaries CombinedNon-GuarantorSubsidiaries Eliminations Consolidated Revenue Manufacturing $  $ 240,773 $ 288,085 $ (163,928 ) $ 364,930 Wheels Services, Refurbishment & Parts  128,100  (2,955 ) 125,145 Leasing & Services 77 17,785  (140 ) 17,722 77 386,658 288,085 (167,023 ) 507,797 Cost of revenue Manufacturing  218,964 270,494 (164,034 ) 325,424 Wheel Services, Refurbishment & Parts  114,490  (2,880 ) 111,610 Leasing & Services  8,845  (20 ) 8,825  342,299 270,494 (166,934 ) 445,859 Margin 77 44,359 17,591 (89 ) 61,938 Selling and administrative 11,287 8,373 9,124  28,784 Gain on disposition of equipment  (2,585 )   (2,585 ) Earnings (loss) from operations (11,210 ) 38,571 8,467 (89 ) 35,739 Other costs Interest and foreign exchange 4,671 968 1,238 (317 ) 6,560 Earnings (loss) before income taxes and earnings (loss) from unconsolidated affiliates (15,881 ) 37,603 7,229 228 29,179 Income tax (expense) benefit 3,731 (13,604 ) 1,350 (132 ) (8,655 ) Earnings (loss) before earnings (loss) from unconsolidated affiliates (12,150 ) 23,999 8,579 96 20,524 Earnings (loss) from unconsolidated affiliates 30,761 2,334  (32,894 ) 201 Net earnings (loss) 18,611 26,333 8,579 (32,798 ) 20,725 Net (earnings) loss attributable to noncontrolling interest 506  (1,755 ) (359 ) (1,608 ) Net earnings (loss) attributable to Greenbrier $ 19,117 $ 26,333 $ 6,824 $ (33,157 ) $ 19,117 22 THE GREENBRIER COMPANIES, INC. The Greenbrier Companies, Inc. Condensed Consolidating Statement of Operations For the nine months ended May 31, 2012 (In thousands) Parent CombinedGuarantorSubsidiaries CombinedNon-GuarantorSubsidiaries Eliminations Consolidated Revenue Manufacturing $  $ 646,114 $ 757,432 $ (455,754 ) $ 947,792 Wheels Services, Refurbishment & Parts  372,138  (9,350 ) 362,788 Leasing & Services 824 53,282  (505 ) 53,601 824 1,071,534 757,432 (465,609 ) 1,364,181 Cost of revenue Manufacturing  580,775 721,048 (449,359 ) 852,464 Wheel Services, Refurbishment & Parts  333,356  (9,301 ) 324,055 Leasing & Services  27,838  (55 ) 27,783  941,969 721,048 (458,715 ) 1,204,302 Margin 824 129,565 36,384 (6,894 ) 159,879 Selling and administrative 32,612 21,867 22,519  76,998 Gain on disposition of equipment  (8,896 )  (1 ) (8,897 ) Earnings (loss) from operations (31,788 ) 116,594 13,865 (6,893 ) 91,778 Other costs Interest and foreign exchange 14,241 2,749 2,457 (873 ) 18,574 Earnings (loss) before income taxes and earnings (loss) from unconsolidated affiliates (46,029 ) 113,845 11,408 (6,020 ) 73,204 Income tax (expense) benefit 17,538 (43,326 ) 3,016 974 (21,798 ) Earnings (loss) before earnings (loss) from unconsolidated affiliates (28,491 ) 70,519 14,424 (5,046 ) 51,406 Earnings (loss) from unconsolidated affiliates 79,149 924  (80,172 ) (99 ) Net earnings (loss) 50,658 71,443 14,424 (85,218 ) 51,307 Net (earnings) loss attributable to noncontrolling interest 645  (3,445 ) 2,796 (4 ) Net earnings (loss) attributable to Greenbrier $ 51,303 $ 71,443 $ 10,979 $ (82,422 ) $ 51,303 23 THE GREENBRIER COMPANIES, INC. The Greenbrier Companies, Inc. Condensed Consolidating Statement of Cash Flows For the nine months ended May 31, 2012 (In thousands) Parent CombinedGuarantorSubsidiaries CombinedNon-GuarantorSubsidiaries Eliminations Consolidated Cash flows from operating activities: Net earnings (loss) $ 50,658 $ 71,443 $ 14,424 $ (85,218 ) $ 51,307 Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: Deferred income taxes 19,418 (9,262 ) (4,381 ) (974 ) 4,801 Depreciation and amortization 2,001 22,657 6,000 (55 ) 30,603 Gain on sales of leased equipment  (8,896 )  (1 ) (8,897 ) Accretion of debt discount 2,416    2,416 Stock based compensation expense 6,724    6,724 Other  783 7 2,796 3,586 Decrease (increase) in assets Accounts receivable 12,317 7,793 (10,137 ) 456 10,429 Inventories  1,744 (28,540 ) 48 (26,748 ) Leased railcars for syndication  (45,566 )  2,005 (43,561 ) Other 986 (427 ) 3,277 (5,255 ) (1,419 ) Increase (decrease) in liabilities Accounts payable and accrued liabilities (40,919 ) 47,734 5,606 (20 ) 12,401 Deferred revenue (116 ) 9,246 2,846 15 11,991 Net cash provided by (used in) operating activities 53,485 97,249 (10,898 ) (86,203 ) 53,633 Cash flows from investing activities: Proceeds from sales of equipment  33,253   33,253 Investment in and net advances to unconsolidated affiliates (84,403 ) (954 ) (614 ) 85,427 (544 ) Intercompany advances 3,053   (3,053 )  Change in restricted cash  254 (4,230 )  (3,976 ) Capital expenditures (544 ) (53,420 ) (18,929 ) 776 (72,117 ) Other  35   35 Net cash provided by (used in) investing activities (81,894 ) (20,832 ) (23,773 ) 83,150 (43,349 ) Cash flows from financing activities: Net change in revolving notes with maturities of 90 days or less (50,000 )  886  (49,114 ) Proceeds from revolving notes with maturities longer than 90 days   56,644  56,644 Repayments of revolving notes with maturities longer than 90 days   (23,573 ) (23,573 ) Intercompany advances 73,845 (73,995 ) (2,903 ) 3,053  Proceeds from notes payable   2,500  2,500 Repayments of notes payable  (3,123 ) (2,905 )  (6,028 ) Investment by joint venture   410  410 Excess tax benefit 2,670    2,670 Net cash provided by (used in) financing activities 26,515 (77,118 ) 31,059 3,053 (16,491 ) Effect of exchange rate changes 42 277 581  900 Decrease in cash and cash equivalents (1,852 ) (424 ) (3,031 )  (5,307 ) Cash and cash equivalents Beginning of period 33,368 529 16,325  50,222 End of period $ 31,516 $ 105 $ 13,294 $  $ 44,915 24 THE GREENBRIER COMPANIES, INC. The Greenbrier Companies, Inc. Condensed Consolidating Balance Sheet August 31, 2011 (In thousands) Parent CombinedGuarantorSubsidiaries CombinedNon-GuarantorSubsidiaries Eliminations Consolidated Assets Cash and cash equivalents $ 33,368 $ 529 $ 16,325 $  $ 50,222 Restricted cash  2,113   2,113 Accounts receivable, net 86,701 90,442 11,276 24 188,443 Inventories  141,631 182,185 (304 ) 323,512 Leased railcars for syndication  30,690   30,690 Equipment on operating leases, net  323,139  (1,998 ) 321,141 Property, plant and equipment, net 6,006 101,284 53,910  161,200 Goodwill  137,066   137,066 Intangibles and other assets, net 584,892 96,444 2,628 (596,696 ) 87,268 $ 710,967 $ 923,338 $ 266,324 $ (598,974 ) $ 1,301,655 Liabilities and Equity Revolving notes $ 60,000 $  $ 30,339 $  $ 90,339 Accounts payable and accrued liabilities 11,571 148,788 156,153 24 316,536 Deferred income taxes (14,652 ) 104,142 (5,071 ) (580 ) 83,839 Deferred revenue 465 5,242 193  5,900 Notes payable 292,010 134,868 2,262  429,140 Total equity Greenbrier 361,573 530,298 68,120 (598,418 ) 361,573 Noncontrolling interest   14,328  14,328 Total equity 361,573 530,298 82,448 (598,418 ) 375,901 $ 710,967 $ 923,338 $ 266,324 $ (598,974 ) $ 1,301,655 25 THE GREENBRIER COMPANIES, INC. The Greenbrier Companies, Inc. Condensed Consolidating Statement of Operations For the three months ended May 31, 2011 (In thousands, unaudited) Parent CombinedGuarantorSubsidiaries CombinedNon-GuarantorSubsidiaries Eliminations Consolidated Revenue Manufacturing $  $ 108,654 $ 131,987 $ (67,154 ) $ 173,487 Wheels Services, Refurbishment & Parts  128,165  (1,848 ) 126,317 Leasing & Services 1,075 16,705  (304 ) 17,476 1,075 253,524 131,987 (69,306 ) 317,280 Cost of revenue Manufacturing  101,707 124,057 (67,090 ) 158,674 Wheel Services, Refurbishment & Parts  113,067  (1,865 ) 111,202 Leasing & Services  9,272  (18 ) 9,254  224,046 124,057 (68,973 ) 279,130 Margin 1,075 29,478 7,930 (333 ) 38,150 Selling and administrative 11,022 5,904 5,654  22,580 Gain on disposition of equipment  (1,678 )   (1,678 ) Earnings (loss) from operations (9,947 ) 25,252 2,276 (333 ) 17,248 Other costs Interest and foreign exchange 8,448 1,001 663 (305 ) 9,807 Loss on extinguishment of debt 10,007    10,007 Earnings (loss) before income taxes and earnings (loss) from unconsolidated affiliates (28,402 ) 24,251 1,613 (28 ) (2,566 ) Income tax (expense) benefit 10,234 (9,561 ) (371 ) (1 ) 301 Earnings (loss) before earnings (loss) from unconsolidated affiliates (18,168 ) 14,690 1,242 (29 ) (2,265 ) Earnings (loss) from unconsolidated affiliates 14,854 (504 )  (14,889 ) (539 ) Net earnings (loss) (3,314 ) 14,186 1,242 (14,918 ) (2,804 ) Net earnings attributable to noncontrolling interest   (541 ) 31 (510 ) Net earnings (loss) attributable to Greenbrier $ (3,314 ) $ 14,186 $ 701 $ (14,887 ) $ (3,314 ) 26 THE GREENBRIER COMPANIES, INC. The Greenbrier Companies, Inc. Condensed Consolidating Statement of Operations For the nine months ended May 31, 2011 (In thousands, unaudited) Parent CombinedGuarantorSubsidiaries CombinedNon-GuarantorSubsidiaries Eliminations Consolidated Revenue Manufacturing $ 977 $ 219,877 $ 333,590 $ (138,896 ) $ 415,548 Wheels Services, Refurbishment & Parts  343,517  (9,917 ) 333,600 Leasing & Services 1,772 50,518  (884 ) 51,406 2,749 613,912 333,590 (149,697 ) 800,554 Cost of revenue Manufacturing  215,989 308,812 (138,827 ) 385,974 Wheel Services, Refurbishment & Parts  308,932  (9,906 ) 299,026 Leasing & Services  27,153  (54 ) 27,099  552,074 308,812 (148,787 ) 712,099 Margin 2,749 61,838 24,778 (910 ) 88,455 Selling and administrative 27,004 16,475 14,733  58,212 Gain on disposition of equipment  (6,008 )  (140 ) (6,148 ) Earnings (loss) from operations (24,255 ) 51,371 10,045 (770 ) 36,391 Other costs Interest and foreign exchange 26,830 3,063 1,643 (890 ) 30,646 Loss on extinguishment of debt 10,007    10,007 Earnings (loss) before income taxes and earnings (loss) from unconsolidated affiliates (61,092 ) 48,308 8,402 120 (4,262 ) Income tax (expense) benefit 22,782 (19,981 ) (1,985 ) (4 ) 812 Earnings (loss) before earnings (loss) from unconsolidated affiliates (38,310 ) 28,327 6,417 116 (3,450 ) Earnings (loss) from unconsolidated affiliates 32,141 1,896  (35,737 ) (1,700 ) Net earnings (loss) (6,169 ) 30,223 6,417 (35,621 ) (5,150 ) Net earnings attributable to noncontrolling interest   (1,050 ) 31 (1,019 ) Net earnings (loss) attributable to Greenbrier $ (6,169 ) $ 30,223 $ 5,367 $ (35,590 ) $ (6,169 ) 27 THE GREENBRIER COMPANIES, INC. The Greenbrier Companies, Inc. Condensed Consolidating Statement of Cash Flows For the nine months ended May 31, 2011 (In thousands, unaudited) Parent CombinedGuarantorSubsidiaries Combined Non-GuarantorSubsidiaries Eliminations Consolidated Cash flows from operating activities: Net earnings (loss) $ (6,169 ) $ 30,223 $ 6,417 $ (35,621 ) $ (5,150 ) Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: Deferred income taxes (14,267 ) 7,418 1,569 4 (5,276 ) Depreciation and amortization 1,962 21,835 4,430 (53 ) 28,174 Gain on sales of leased equipment  (2,760 )  (141 ) (2,901 ) Loss on extinguishment of debt (non-cash portion) 2,868    2,868 Accretion of debt discount 5,446    5,446 Stock based compensation 4,961    4,961 Other  60  31 91 Decrease (increase) in assets Accounts receivable 16,230 (85,760 ) 18,102 1 (51,427 ) Inventories  (11,976 ) (71,328 ) 11 (83,293 ) Leased railcars for syndication  (49,512 ) 1,018 29 (48,465 ) Other 2,947 2,778 108 1 5,834 Increase (decrease) in liabilities Accounts payable and accrued liabilities (9,775 ) 47,056 39,992  77,273 Deferred revenue (116 ) (4,261 ) (1,065 )  (5,442 ) Net cash provided by (used in) operating activities 4,087 (44,899 ) (757 ) (35,738 ) (77,307 ) Cash flows from investing activities: Principal payments received under direct finance leases  52   52 Proceeds from sales of equipment  14,179   14,179 Investment in and net advances to unconsolidated affiliates (32,141 ) (4,575 )  35,737 (979 ) Intercompany advances (60 )   60  Increase in restricted cash  308   308 Capital expenditures (1,694 ) (45,285 ) (12,711 ) 1 (59,689 ) Net cash provided by (used in) investing activities (33,895 ) (35,321 ) (12,711 ) 35,798 (46,129 ) Cash flows from financing activities Net change in revolving notes with maturities of 90 days or less   3,694  3,694 Proceeds from revolving notes with maturities longer than 90 days   13,373  13,373 Repayments of revolving notes with maturities longer than 90 days   (6,194 )  (6,194 ) Intercompany advances (82,718 ) 81,895 883 (60 )  Gross proceeds from equity offering 63,180    63,180 Expenses from equity offering (420 )    (420 ) Proceeds from issuance of notes payable 230,000  1,250  231,250 Debt issuance costs (7,857 )    (7,857 ) Repayments of notes payable (235,000 ) (3,164 ) (405 )  (238,569 ) Other 26    26 Net cash provided by (used in ) financing activities (32,789 ) 78,731 12,601 (60 ) 58,483 Effect of exchange rate changes  1,116 (725 )  391 Increase (decrease) in cash and cash equivalents (62,597 ) (373 ) (1,592 )  (64,562 ) Cash and cash equivalents Beginning of period 91,472 859 6,533  98,864 End of period $ 28,875 $ 486 $ 4,941 $  $ 34,302 28 THE GREENBRIER COMPANIES, INC. Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations Executive Summary We operate in three primary business segments: Manufacturing; Wheel
double-stack intermodal railcars, conventional railcars, tank cars and marine vessels. The Wheel Services, Refurbishment & Parts segment performs wheel, axle and bearing servicing; railcar repair, refurbishment and maintenance activities;
as well as production and reconditioning of a variety of parts for the railroad industry in North America. The Leasing & Services segment owns approximately 9,000 railcars and provides management services for approximately 218,000 railcars
for railroads, shippers, carriers, institutional investors and other leasing and transportation companies in North America. We also produce rail castings through an unconsolidated joint venture. Management evaluates segment performance based on
margins. Multi-year supply agreements are a part of rail industry practice. Customer orders may be subject to cancellations or modifications
and contain terms and conditions customary in the industry. In most cases, little variation has been experienced between the quantity ordered and the quantity actually delivered. Our total manufacturing backlog of railcars as of May 31, 2012 was approximately 11,500 units with an estimated value of $1.14 billion compared to 13,600 units with an estimated value of $1.05
billion as of May 31, 2011. A portion of the orders included in backlog reflects an assumed product mix. Under terms of the orders, the exact mix will be determined in the future which may impact the dollar amount of backlog. Our railcar and
marine backlogs are not necessarily indicative of future results of operations. Marine backlog as of May 31, 2012 was approximately
$25.9 million compared to approximately $250 thousand as of May 31, 2011. The continued global strengthening of the freight car markets
may at times limit the availability of certain components of our products that we source from external suppliers, particularly specialized components such as castings, bolsters and trucks, and this may cause an interruption in production. Prices for
steel, a primary component of railcars and barges, and related surcharges have fluctuated significantly and remain volatile. In addition, the price of certain railcar components, which are a product of steel, are affected by steel price
fluctuations. New railcar and marine backlog generally either includes fixed price contracts which anticipate material price increases and surcharges, or contracts that contain actual or formulaic pass through of material price increases and
surcharges. We are aggressively working to mitigate these exposures. The Companys integrated business model has helped offset some of the effects of fluctuating steel and scrap steel prices, as a portion of our business segments currently
benefit from rising steel scrap prices while other segments benefit from lower steel and scrap steel prices through enhanced margins. On
November 14, 2011, affiliates of WL Ross & Co. LLC (WL Ross) sold 1,482,341 shares of our common stock. The shares sold were acquired by the cashless net exercise of warrants for purchase of our common stock. WL Ross and its investment
funds continue to own warrants to purchase 1,154,672 shares of our common stock. The warrants were issued in 2009 in connection with a term loan to Greenbrier that was repaid in June 2011. 29 THE GREENBRIER COMPANIES, INC. During the third quarter, we discovered that our Mexico City wheel shop shipped a number of wheel sets
which do not conform to American Association of Railroads (AAR) mounting standards. The non-conforming wheel sets were used principally at our Mexico City repair shop and on some new railcars manufactured at our Gunderson-GIMSA
facility. We conducted a review of our other wheel shops and found no indication of non-conformance in those shops. We have identified a
total of 591 non-conforming wheel sets at our Mexico City wheel shop which could represent a risk of failure. We are working with the AAR and our customers to remove and replace these wheel sets as soon as possible and, to date, approximately 174
wheel sets have been replaced. We currently believe the costs associated with removing and replacing these 591 wheel sets are not likely to exceed approximately $750,000. We have also identified approximately an additional 9,500 wheel sets at our Mexico City wheel shop that vary from AAR mounting standards, but which we believe do not compromise the safe operation of
the railcar or require immediate removal and replacement. We are working with the AAR and our customers to determine an appropriate and efficient approach to address these wheel sets. While the total costs associated with these wheel sets cannot presently be determined, we do not anticipate that these costs will be material to our
results of operations. 30 THE GREENBRIER COMPANIES, INC. Critical Accounting Policies and Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires judgment on the part of
of contingent assets and liabilities within the financial statements. Estimates and assumptions are periodically evaluated and may be adjusted in future periods. Actual results could differ from those estimates. Income taxes  For financial reporting purposes, income tax expense is estimated based on planned tax return filings. The amounts
obligations  We are responsible for maintenance on a portion of the managed and owned lease fleet under the terms of maintenance obligations defined in the underlying lease or management agreement. The estimated maintenance liability
is based on maintenance histories for each type, age and mileage of railcar. These estimates involve judgment as to the future costs of repairs and the types and timing of repairs required over the lease term. As we cannot predict with certainty the
prices, timing and volume of maintenance needed in the future on railcars under long-term leases, this estimate is uncertain and could be materially different from maintenance requirements. The liability is periodically reviewed and updated based on
maintenance trends and known future repair or refurbishment requirements. These adjustments could be material due to the inherent uncertainty in predicting future maintenance requirements. Historically these adjustments have not been significant.
Warranty accruals  Warranty costs to cover a defined warranty period are estimated and charged to cost of revenue. The
estimated warranty cost is based on historical warranty claims for each particular product type. For new product types without a warranty history, preliminary estimates are based on historical information for similar product types. These estimates
are inherently uncertain as they are based on historical data for existing products and judgment for new products. If warranty claims are made in the current period for issues that have not historically been the subject of warranty claims and were
not taken into consideration in establishing the accrual or if claims for issues already considered in establishing the accrual exceed expectations, warranty expense may exceed the accrual for that particular product. Conversely, there is the
possibility that claims may be lower than estimates. The warranty accrual is periodically reviewed and updated based on warranty trends. However, as we cannot predict future claims, the potential exists for the difference in any one reporting period
to be material. Historically these adjustments have not been significant. 31 THE GREENBRIER COMPANIES, INC. 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 collectability is reasonably assured. Generally railcars are manufactured, repaired or refurbished and wheel services and parts produced under firm orders from third parties. Revenue is recognized when these products or services are
can be measured to determine timing of revenue recognition. Impairment of long-lived assets  When changes in
circumstances indicate the carrying amount of certain long-lived assets may not be recoverable, the assets are 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 is recognized in the current period. These estimates are based on the best information available at the time of the impairment and could be materially different if circumstances change.
If the forecast undiscounted future cash flows exceeded the carrying amount of the assets it would indicate that the assets were not impaired. Goodwill and acquired intangible assets  The Company periodically acquires businesses in purchase transactions in which the
allocation of the purchase price may result in the recognition of goodwill and other intangible assets. The determination of the value of such intangible assets requires management to make estimates and assumptions. These estimates affect the amount
of future period amortization and possible impairment charges. Goodwill and indefinite-lived intangible assets are tested for impairment
annually during the third quarter. Goodwill is also tested more frequently if changes in circumstances or the occurrence of events indicates that a potential impairment exists. The provisions of Accounting Standards Codification (ASC) 350,
IntangiblesGoodwill and Other, require that we perform a two-step impairment test on goodwill. In the first step, we compare the fair value of each reporting unit with its carrying value. We determine the fair value of our reporting
units based on a weighting of income and market approaches. Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows. Under the market approach, we estimate the fair value
based on observed market multiples for comparable businesses. The second step of the goodwill impairment test is required only when the carrying value of the reporting unit exceeds its fair value as determined in the first step. In the second step
we would compare the implied fair value of goodwill to its carrying value. The implied fair value of goodwill is determined by allocating the fair value of a reporting unit to all of the assets and liabilities of that unit as if the reporting unit
had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the
implied fair value of goodwill. An impairment loss is recorded to the extent that the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill. The goodwill balance as of May 31, 2012 of $137.1 million
relates to the Wheel Services, Refurbishment & Parts segment. Goodwill was tested during the third quarter and the Company concluded that goodwill was not impaired. 32 THE GREENBRIER COMPANIES, INC. Results of Operations Greenbrier operates in three reportable segments: Manufacturing; Wheel Services, Refurbishment & Parts; and Leasing & Services. Segment performance is evaluated based on margin. The
allocate these costs for either external or internal reporting purposes. Three Months Ended May 31, 2012 Compared to Three Months
Ended May 31, 2011 Overview Total revenue for the three months ended May 31, 2012 was $507.8 million, an increase of $190.5 million from revenues of $317.3 million in the prior comparable period. The increase was primarily the
result of higher revenues in the manufacturing segment of our business. Manufacturing segment revenues increased $191.4 million due to higher railcar deliveries as a result of increased demand and a higher per unit average selling price. Net earnings attributable to Greenbrier for the three months ended May 31, 2012 was $19.1 million or $0.61 per diluted common share compared to net
loss attributable to Greenbrier of $3.3 million or $0.14 per diluted common share for the three months ended May 31, 2011. The increase in net earnings was primarily attributable to an increase in manufacturing margin in the current period and
the $10.0 million loss on extinguishment of debt recognized in the comparable period in the prior year. These factors were partially offset by higher selling and administrative costs associated with operating at higher production levels in the
current period. Three Months EndedMay 31, (In thousands) 2012 2011 Revenue: Manufacturing $ 364,930 $ 173,487 Wheel Services, Refurbishment & Parts 125,145 126,317 Leasing & Services 17,722 17,476 507,797 317,280 Margin: Manufacturing 39,506 14,813 Wheel Services, Refurbishment & Parts 13,535 15,115 Leasing & Services 8,897 8,222 61,938 38,150 Less unallocated items: Selling and administrative 28,784 22,580 Gain on disposition of equipment (2,585 ) (1,678 ) Interest and foreign exchange 6,560 9,807 Loss on extinguishment of debt  10,007 Earnings (loss) before income taxes and earnings (loss) from unconsolidated affiliates 29,179 (2,566 ) Income tax benefit (expense) (8,655 ) 301 Earnings (loss) before earnings (loss) from unconsolidated affiliates 20,524 (2,265 ) Earnings (loss) from unconsolidated affiliates 201 (539 ) Net earnings (loss) 20,725 (2,804 ) Net earnings attributable to noncontrolling interest (1,608 ) (510 ) Net earnings (loss) attributable to Greenbrier $ 19,117 $ (3,314 ) Diluted earnings (loss) per common share $ 0.61 $ (0.14 ) 33 THE GREENBRIER COMPANIES, INC. Manufacturing Segment Manufacturing revenue includes new railcar and marine production. The following discussion includes all manufacturing facilities. Manufacturing revenue for the three months ended May 31, 2012 was $364.9 million compared to $173.5 million for the three months ended May 31, 2011, an increase of $191.4 million. Railcar
deliveries, which are the primary source of manufacturing revenue, were approximately 4,500 units in the current period compared to approximately 2,200 units in the prior comparable period. The increase in revenue was primarily due to higher railcar
deliveries as a result of increased demand and a higher per unit average selling price. We operated at increased production rates on existing production lines and increased capacity with additional lines as compared to the corresponding period in
the prior year. Manufacturing margin as a percentage of revenue for the three months ended May 31, 2012 was 10.8% compar