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 November 30, 2006

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

for the transition period from                      to                     

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)

(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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o       Accelerated filer þ      Non-accelerated filer 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 January 3, 2007 was 15,971,155 shares.

 

 

THE GREENBRIER COMPANIES, INC.

PART I. FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

Consolidated Balance Sheets
(In thousands, except per share amounts, unaudited)

		November 30,				August 31,
		2006				2006
Assets
Cash and cash equivalents		$	14,359			$	142,894
Restricted cash			2,603				2,056
Accounts and notes receivable			145,392				115,565
Inventories			209,277				163,151
Assets held for sale			67,750				35,216
Equipment on operating leases			303,280				301,009
Investment in direct finance leases			8,456				6,511
Property, plant and equipment			115,221				80,034
Goodwill and intangibles			188,063				3,340
Other			28,197				27,538
		$	1,082,598			$	877,314
Liabilities and Stockholders’ Equity
Revolving notes		$	210,387			$	22,429
Accounts payable and accrued liabilities			219,708				204,793
Participation			11,849				11,453
Deferred income taxes			41,132				37,472
Deferred revenue			11,040				17,481
Notes payable			364,400				362,314
Subordinated debt			1,270				2,091
Minority interest			1,202				—
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock — without par value; 25,000 shares authorized; none outstanding			—				—
Common stock — without par value; 50,000 shares authorized; 15,971 and 15,954 shares outstanding at November 30, 2006 and August 31, 2006			16				16
Additional paid-in capital			72,870				71,124
Retained earnings			149,134				148,542
Accumulated other comprehensive loss			(410	)			(401	)
			221,610				219,281
		$	1,082,598			$	877,314

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
		November 30,
		2006				2005
Revenue
Manufacturing		$	168,692			$	141,835
Refurbishment & parts			51,236				22,761
Leasing & services			26,695				21,766
			246,623				186,362
Cost of revenue
Manufacturing			161,688				123,031
Refurbishment & parts			45,007				19,999
Leasing & services			10,811				10,439
			217,506				153,469
Margin			29,117				32,893
Other costs
Selling and administrative expense			17,124				15,541
Interest and foreign exchange			9,641				4,573
			26,765				20,114
Earnings before income taxes, minority interest and equity in unconsolidated subsidiaries			2,352				12,779
Income tax expense			(580	)			(4,934	)
Earnings before minority interest and equity in unconsolidated subsidiaries			1,772				7,845
Minority interest			(2	)			—
Equity in earnings of unconsolidated subsidiaries			100				172
Net earnings		$	1,870			$	8,017
Basic earnings per common share:		$	0.12			$	0.52
Diluted earnings per common share:		$	0.12			$	0.51
Weighted average common shares:
Basic			15,961				15,511
Diluted			16,010				15,847

The accompanying notes are an integral part of these statements.

THE GREENBRIER COMPANIES, INC.

Consolidated Statements of Cash Flows
(In thousands, unaudited)

		Three Months Ended
		November 30,
		2006				2005
Cash flows from operating activities:
Net earnings		$	1,870			$	8,017
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Deferred income taxes			303				(1,122	)
Depreciation and amortization			7,526				5,873
Gain on sales of equipment			(3,222	)			(612	)
Other			40				40
Decrease (increase) in assets (net of acquisitions):
Accounts and notes receivable			(8,029	)			31,228
Inventories			(1,379	)			922
Assets held for sale			(15,342	)			(43,619	)
Other			351				(393	)
Increase (decrease) in liabilities (net of acquisitions):
Accounts payable and accrued liabilities			(17,547	)			10,878
Participation			396				486
Deferred revenue			(6,906	)			(2,846	)
Net cash provided by (used in) operating activities			(41,939	)			8,852
Cash flows from investing activities:
Acquisitions, net of cash acquired			(264,470	)			—
Principal payments received under direct finance leases			229				871
Proceeds from sales of equipment			20,833				3,169
Investment in and advances to unconsolidated joint venture			137				75
Increase in restricted cash			(436	)			—
Capital expenditures			(30,458	)			(44,401	)
Net cash used in investing activities			(274,165	)			(40,286	)
Cash flows from financing activities:
Changes in revolving notes			186,608				2,096
Proceeds (expenses) from notes payable			(69	)			58,873
Repayments of notes payable			(931	)			(1,382	)
Repayments of subordinated debt			(821	)			(1,442	)
Proceeds from minority interest			1,200				—
Stock options exercised and restricted stock awards			877				805
Excess tax benefit of stock options exercised			869				639
Net cash provided by financing activities			187,733				59,589
Effect of exchange rate changes			(164	)			(664	)
Increase (decrease) in cash and cash equivalents			(128,535	)			27,491
Cash and cash equivalents
Beginning of period			142,894				73,204
End of period		$	14,359			$	100,695
Cash paid during the period for:
Interest		$	11,929			$	8,998
Income taxes		$	48			$	4,374

The accompanying notes are an integral part of these statements.

THE GREENBRIER COMPANIES, INC.

		Three Months Ended
		November 30,
		2006				2005
Supplemental disclosure of non-cash activity:
Assumption of Rail Car America capital lease obligation		$	119			$	—
Supplemental disclosure of acquisitions
(See Note 2):
Assets acquired, net of cash		$	(300,555	)		$	—
Liabilities assumed			33,085				—
Acquisition note payable			3,000				—
Cash paid for acquisitions			267,523				—
Cash acquired		$	3,053			$	—

The accompanying notes are an integral part of these statements.

THE GREENBRIER COMPANIES, INC.

Notes to Consolidated Financial Statements
(Unaudited)

Note 1 – Interim Financial Statements

The Consolidated Financial Statements of The Greenbrier Companies, Inc. and Subsidiaries (Greenbrier or the Company) as of November 30, 2006 and for the three months ended November 30, 2006 and 2005 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 for the periods indicated. The results of operations for the three months ended November 30, 2006 are not necessarily indicative of the results to be expected for the entire year ending August 31, 2007. Certain reclassifications have been made to the prior period’s Consolidated Financial Statements to conform to the current year presentation.

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 2006 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.

Minority interest – In October 2006, the Company formed a joint venture with Grupo Industrial Monclova (GIMSA) to build new railroad freight cars for the North American marketplace at GIMSA’s existing manufacturing facility located in Monclova, Mexico. Each party maintains a 50% ownership. Production is anticipated to begin in our third quarter of 2007. The minority interest reflected in the Company’s consolidated financial statements represents the joint venture partner’s investment in this venture.

Assets Held for Sale – Assets held for sale consist of new railcars in transit to delivery point, finished goods, railcars on lease with the intent to sell, used railcars that will either be sold or refurbished, placed on lease and then sold and completed wheel sets.

Initial Adoption of Accounting Policies – In May 2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154, Accounting Changes and Error Corrections which replaces Accounting Principles Board (APB) opinion No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. This statement requires retrospective application, unless impracticable, for changes in accounting principles in the absence of transition requirements specific to newly adopted accounting principles. This statement is effective for any accounting changes and corrections of errors made by the Company beginning September 1, 2006.

Prospective Accounting Changes –In July 2006, the FASB issued FASB interpretation (FIN) No. 48, Accounting for Uncertainties in Income Tax – an Interpretation of FASB Statement No. 109, This interpretation clarifies the accounting for uncertainties in income taxes. It prescribes a recognition and measurement threshold for financial statement disclosure of tax positions taken or expected to be taken on a tax return. This interpretation is effective for the Company for the fiscal year beginning September 1, 2007. Management has not yet determined the impact on the Consolidated Financial Statements.

Note 2 – Acquisitions

On September 11, 2006, the Company purchased substantially all of the operating assets of Rail Car America (RCA), its American Hydraulics division and the assets of its wholly owned subsidiary, Brandon Corp. RCA, a leading provider of intermodal and conventional railcar repair services in North America, operates from four repair facilities throughout the United States. RCA also reconditions and repairs end-of-railcar cushioning units through

THE GREENBRIER COMPANIES, INC.

its American Hydraulics division and operates a switching railroad in Nebraska through Brandon Corp. The purchase price of the net assets was $29.1 million in cash and a $3.0 million promissory note due in September 2008. The financial results since the acquisition are reported in the Company’s consolidated financial statements as part of the refurbishment & parts segment. The impact of this acquisition was not material to the Company’s results of operations, therefore, proforma financial information has not been included.

The allocation of the purchase price among certain assets and liabilities is still in process. As a result, the information shown below is preliminary and subject to further refinement upon completion of analyses.

The preliminary fair value of the net assets acquired from RCA was as follows:

(in thousands)

Accounts and notes receivable		$	522
Inventories			7,937
Property, plant and equipment			22,066
Intangibles			3,719
Other			9
Total assets acquired			34,253
Accounts payable and accrued liabilities			1,985
Notes payable			119
Total liabilities assumed			2,104
Net assets acquired		$	32,149

On November 6, 2006, the Company acquired 100% of the stock of Meridian Rail Holdings Corp. (Meridian) for $238.4 million in cash which includes the purchase price of $227.5 million plus preliminary working capital adjustments. Meridian is a leading supplier of wheel maintenance services to the North American freight car industry. Operating out of six facilities, Meridian supplies replacement wheel sets and axles to approximately 170 freight car maintenance locations where worn or damaged wheels, axles, or bearings are replaced. Meridian also performs coupler reconditioning and railcar repair at one of its facilities. The financial results since the acquisition are reported in the Company’s consolidated financial statements as part of the refurbishment & parts segment.

The allocation of the purchase price among certain assets and liabilities is still in process. As a result, the information shown below is preliminary and subject to further refinement upon completion of analyses and valuations.

The preliminary fair value, based on historical costs, of the net assets acquired in the Meridian acquisition was as follows:

(in thousands)

Cash and cash equivalents		$	3,053
Accounts and notes receivable			19,614
Inventories			50,029
Property, plant and equipment			15,154
Goodwill and intangibles			181,171
Other			334
Total assets acquired			269,355
Accounts payable and accrued liabilities			27,694
Deferred income taxes			3,287
Total liabilities assumed			30,981
Net assets acquired		$	238,374

THE GREENBRIER COMPANIES, INC.

As a result of the preliminary allocation of the purchase price among assets and liabilities, Greenbrier recorded $172.5 million in goodwill.

The consolidated unaudited pro forma financial information below for the three months ended November 30, 2006 and 2005 was prepared as if the transaction to acquire Meridian had occurred at the beginning of each period presented:

		Three Months Ended
		November 30,
(In thousands)		2006				2005
Revenue		$	297,391			$	232,137
Net earnings		$	6,591			$	10,250
Basic earnings per common share		$	0.41			$	0.66
Diluted earnings per common share		$	0.41			$	0.65

The unaudited pro forma financial information is not necessarily indicative of what actual results would have been had the transaction occurred at the beginning of the fiscal year, and it does not reflect the results of future operations of the Company.

Note 3 – Inventories

		November 30,				August 31,
(In thousands)		2006				2006
Supplies and raw materials		$	107,091			$	49,631
Work-in-process			110,157				118,555
Lower of cost or market adjustment			(7,971	)			(5,035	)
		$	209,277			$	163,151

Note 4 – Warranty Accruals

Warranty costs are estimated and charged to operations to cover a defined warranty period. The estimated warranty cost is based on historical warranty claims for each particular product type. For new product types without a warranty history, preliminary estimates are based on historical information for similar product types. The accrual, included in accounts payable and accrued liabilities on the Consolidated Balance Sheet, is periodically reviewed and updated based on warranty trends.

Warranty accrual activity:

		Three Months Ended
		November 30,
(In thousands)		2006				2005
Balance at beginning of period		$	14,201			$	15,037
Charged to cost of revenue			943				927
Payments			(670	)			(1,060	)
Currency translation effect			203				38
Acquisitions			1,824				—
Balance at end of period		$	16,501			$	14,942

THE GREENBRIER COMPANIES, INC.

Note 5 – Revolving Notes

All amounts originating in foreign currency have been translated at the November 30, 2006 exchange rate for the following discussion. Senior secured credit facilities aggregated $329.4 million as of November 30, 2006. Available borrowings are based on defined levels of inventory, receivables, and leased equipment, as well as total debt to consolidated capitalization and interest coverage ratios which at November 30, 2006 levels would provide for maximum borrowing of $280.1 million of which $210.4 million in revolving notes and $4.4 million in letters of credit are outstanding. A $290.0 million revolving line of credit is available through November 2011 to provide working capital and interim financing of equipment for the United States and Mexican operations. A $10.0 million line of credit is available through November 2011 for working capital for Canadian manufacturing operations. Advances under the U.S. and Canadian facilities bear interest at variable rates that depend on the type of borrowing and the defined ratio of debt to total capitalization. At November 30, 2006, there were $178.2 million and $3.9 million outstanding under the United States and Canadian credit facilities. Lines of credit totaling $29.4 million are available principally through June 2008 for working capital for the European manufacturing operation. The European credit facility had $28.3 million outstanding as of November 30, 2006.

In addition, the Company has a $25.0 million senior unsecured credit facility available through March 31, 2007. No amounts are outstanding under this credit facility.

Note 6 – Comprehensive Income

The following is a reconciliation of net earnings to comprehensive income:

		Three Months Ended
		November 30,
(In thousands)		2006				2005
Net earnings		$	1,870			$	8,017
Reclassification of derivative financial instruments recognized in net earnings during the three months (net of tax effect)			(399	)			(1,251	)
Unrealized gain on derivative financial instruments (net of tax effect)			37				923
Foreign currency translation adjustment (net of tax effect)			353				627
Comprehensive income		$	1,861			$	8,316

Accumulated other comprehensive loss, net of tax effect, consisted of the following:

		Unrealized
		Losses on				Foreign				Accumulated
		Derivative				Currency				Other
		Financial				Translation				Comprehensive
(In thousands)		Instruments				Adjustment				Loss
Balance, August 31, 2006		$	(18	)		$	(383	)		$	(401	)
First quarter activity			(362	)			353				(9	)
Balance, November 30, 2006		$	(380	)		$	(30	)		$	(410	)

THE GREENBRIER COMPANIES, INC.

Note 7 – Earnings Per Share

The shares used in the computation of the Company’s basic and diluted earnings per common share are reconciled as follows:

		Three Months Ended
		November 30,
(In thousands)		2006				2005
Weighted average basic common shares outstanding			15,961				15,511
Dilutive effect of employee stock options			49				336
Weighted average diluted common shares outstanding			16,010				15,847

Weighted average diluted common shares outstanding include the incremental shares that would be issued upon the assumed exercise of stock options as calculated using the treasury stock method. No options were anti-dilutive for the three months ended November 30, 2006 and 2005.

Note 8 – Stock Based Compensation

All stock options were vested prior to September 1, 2005 and accordingly no compensation expense was recorded for stock options for the three months ended November 30, 2006 and 2005. The value of stock awarded under restricted stock grants is amortized as compensation expense over the vesting period of two to five years. For the three months ended November 30, 2006 and 2005, $0.8 million and $0.6 million in compensation expense was recorded related to restricted stock grants.

Note 9 – 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 U.S. dollars, 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 unrealized gains and losses are recorded in accumulated other comprehensive loss.

Adjusting the contracts to the fair value of the cash flow hedges at November 30, 2006 resulted in an unrealized pre-tax loss of $4 thousand that was recorded in the line item accumulated other comprehensive loss and the fair value of the contracts is included in accounts payable and accrued liabilities on the Consolidated Balance Sheet. As the contracts mature at various dates through January 2007, 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 income (loss) would be reclassified to the current year’s results of operations.

At November 30, 2006 exchange rates, interest rate swap agreements had a notional amount of $12.8 million and mature between May 2007 and March 2011. The fair value of these cash flow hedges at November 30, 2006 resulted in an unrealized pre-tax loss of $0.6 million. The loss is included in accumulated other comprehensive loss and the fair value of the contracts 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 swaps are reclassified from accumulated other comprehensive income (loss) and charged or credited to interest expense. At November 30, 2006 interest rates, approximately $0.1 million would be reclassified to interest expense in the next 12 months.

Note 10 – Segment Information

Greenbrier has three reportable segments: manufacturing, refurbishment & parts and leasing & services. The acquisitions of Meridian and RCA during the current quarter resulted in the growth of the repair, refurbishment & parts portion of our business to the point that a new segment was added: refurbishment & parts. The results of this

THE GREENBRIER COMPANIES, INC.

segment were previously aggregated in the manufacturing segment. 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 2006 Annual Report on Form 10-K. Performance is evaluated based on margin. Intersegment sales and transfers are accounted for at fair value as if the sales or transfers were to third parties. While intercompany transactions are treated like third-party transactions to evaluate segment performance, the revenues and related expenses are eliminated in consolidation and therefore do not impact consolidated results.

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

		Three Months Ended
		November 30,
(In thousands)		2006				2005
Revenue:
Manufacturing		$	184,419			$	207,029
Refurbishment & parts			53,014				23,365
Leasing & services			24,729				25,674
Intersegment eliminations			(15,539	)			(69,706	)
		$	246,623			$	186,362
Margin:
Manufacturing		$	7,004			$	18,804
Refurbishment & parts			6,229				2,762
Leasing & services			15,884				11,327
		$	29,117			$	32,893

		November 30,				August 31,
		2006				2006
Assets:
Manufacturing		$	310,542				293,754
Refurbishment & parts			397,627				48,340
Leasing & services			355,936				390,270
Unallocated			18,493				144,950
		$	1,082,598			$	877,314

Note 11 – Commitments and Contingencies

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:

On April 20, 2004, BC Rail Partnership initiated litigation against the Company in the Supreme Court of Nova Scotia, alleging breach of contract and negligent manufacture and design of railcars which were involved in a 1999 derailment. No trial date has been set.

On November 3, 2004, and November 4, 2004, in the District Court of Tarrant County, Texas, and in the District Court of Lancaster County, Nebraska, respectively, litigation was initiated against the Company by Burlington Northern Santa Fe Railway (BNSF). BNSF alleges the failure of a supplier-provided component part on a railcar manufactured by Greenbrier in 1988, resulted in a derailment and a chemical spill. On June 24, 2006, the District Court of Tarrant County, Texas, entered an order granting the Company’s motion for summary judgment as to all claims. On August 7, 2006, BNSF gave notice of appeal.

THE GREENBRIER COMPANIES, INC.

Greenbrier and a customer, SEB Finans AB (SEB), have 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 cars are defective and cannot be used for their intended purpose. SEB seeks damages in an undisclosed amount and in addition late delivery penalties in the amount of 1.1 million Euros. In a Statement of Defense and Counterclaim filed with the Arbitral Tribunal on February 1, 2006, Greenbrier denied that there were defects in the railcar units delivered for which Greenbrier is liable and filed Counterclaims against SEB in total amounting to approximately $11.0 million plus interest representing payments in default under the contract. Greenbrier believes that applicable law provides an opportunity to remedy the performance issues and that an engineering solution is likely. The component supplier has filed for the United Kingdom equivalent of bankruptcy protection. Accordingly, Greenbrier’s recourse against the supplier may be of limited or no value. Arbitration hearings tentatively scheduled for early November have been rescheduled to May 2007 by mutual agreement. The parties continue to discuss alternative resolutions of the dispute.

Management intends to vigorously defend its position in each of the open foregoing cases and believes that any ultimate liability resulting from the above litigation will not materially affect 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.

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 60 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 they 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 of Consent to perform a remedial investigation/feasibility study of the Portland Harbor Site under EPA oversight, and four additional entities have not signed such consent, but are nevertheless contributing money to the effort. The study is expected to be completed in 2010. In May 2006, the EPA notified several additional entities, including other federal agencies that it is prepared to issue unilateral orders compelling additional participation in the remedial investigation. In addition, 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 results of operations, or the value of its Portland property.

The Company has entered into contingent rental assistance agreements, aggregating a maximum of $11.6 million, on certain railcars subject to leases that have been sold to third parties. These agreements guarantee the purchasers a minimum lease rental, subject to a maximum defined rental assistance amount, over periods that range from one to six years. A liability is established and revenue is reduced in the period during which a determination can be made that it is probable that a rental shortfall will occur and the amount can be estimated. For the three months ended November 30,

THE GREENBRIER COMPANIES, INC.

2006 and 2005, no accruals were made to cover estimated future obligations as rental shortfalls were not considered probable. There is no liability accrued as of November 30, 2006. All of these agreements were entered into prior to December 31, 2002 and have not been modified since. The accounting for any future rental assistance agreements will comply with the guidance required by FASB Interpretation (FIN) 45 which pertains to contracts entered into or modified subsequent to December 31, 2002.

A portion of leasing & services revenue is derived from “car hire” which is a fee that a railroad pays for the use of railcars owned by other railroads or third parties. Car hire earned by a railcar is usually made up of hourly and mileage components. Since January 1, 2003, railcar owners and users have the right to negotiate car hire rates. If the railcar owner and railcar user cannot come to an agreement on a car hire rate then either party has the right to call for arbitration. In arbitration, either the owner’s or the user’s rate is selected and that rate becomes effective for a one-year period. There is some risk that car hire rates could be negotiated or arbitrated to lower levels in the future. This could reduce future car hire revenue which amounted to $6.0 million and $5.7 million for the three months ended November 30, 2006 and 2005.

In accordance with customary business practices in Europe, the Company has $19.7 million in bank and third party performance, advance payment, and warranty guarantee facilities, all of which have been utilized as of November 30, 2006. To date, no amounts have been drawn against these performance, advance payment, and warranty guarantee facilities.

At November 30, 2006, an unconsolidated subsidiary had $7.9 million of third party debt, for which the Company has guaranteed 33%, or approximately $2.6 million. In the event there is a change in control or insolvency by any of the three 33% investors that have guaranteed the debt, the remaining investor’s share of the guarantee will increase proportionately.

The Company has outstanding letters of credit aggregating $4.4 million associated with materials purchases, facility leases and payroll.

Greenbrier has jointly committed with Babcock & Brown Rail Management, LLC to purchase new railcars from unaffiliated manufacturers to be leased to third party customers. Greenbrier’s remaining portion of this commitment is $10.5 million.

Note 12 – Guarantor/Non Guarantor

The $235 million combined senior unsecured notes (the Notes) issued on May 11, 2005 and November 21, 2005 are fully and unconditionally and jointly and severally guaranteed by substantially all of Greenbrier’s material wholly 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, Greenbrier GIMSA, LLC, Meridian Rail Holdings Corp., Meridian Rail Acquisition Corporation, Meridian Rail Mexico City Corp., Brandon Railroad LLC and Gunderson Specialty Products, LLC. No other subsidiaries guarantee the Notes.

The following represents the supplemental consolidated condensed financial information of Greenbrier and its guarantor and non guarantor subsidiaries, as of November 30, 2006 and August 31, 2006 and for the quarters ended November 30, 2006 and 2005. The information is presented on the basis of Greenbrier accounting for its ownership of its wholly owned subsidiaries using the equity method of accounting. Intercompany transactions 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 Consolidated Balance Sheet
		November 30, 2006
		(In thousands)

										Combined
						Combined				Non-
						Guarantor				Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Assets
Cash and cash equivalents		$	8,811			$	3,796			$	1,752			$	—			$	14,359
Restricted cash			—				—				2,603				—				2,603
Accounts and notes receivable			355,027				(234,250	)			24,362				253				145,392
Inventories			—				105,832				103,445				—				209,277
Assets held for sale			—				57,516				10,234				—				67,750
Equipment on operating leases			—				305,198				—				(1,918	)			303,280
Investment in direct finance leases			—				8,456				—				—				8,456
Property, plant and equipment			46				77,841				37,334				—				115,221
Goodwill and intangibles			—				187,927				—				136				188,063
Other			388,820				47,045				1,557				(409,225	)			28,197
		$	752,704			$	559,361			$	181,287			$	(410,754	)		$	1,082,598
Liabilities and Stockholders’ Equity
Revolving notes		$	178,200			$	—			$	32,187			$	—			$	210,387
Accounts payable and accrued liabilities			7,144				138,463				73,847				254				219,708
Participation			—				11,849				—				—				11,849
Deferred income taxes			4,052				43,390				(6,155	)			(155	)			41,132
Deferred revenue			1,203				4,810				5,027				—				11,040
Notes payable			341,628				9,471				13,301				—				364,400
Subordinated debt			—				1,270				—				—				1,270
Minority interest			—				1,200				—				2				1,202
Stockholders’ Equity			220,477				348,908				63,080				(410,855	)			221,610
		$	752,704			$	559,361			$	181,287			$	(410,754	)		$	1,082,598

THE GREENBRIER COMPANIES, INC.

The Greenbrier Companies, Inc.
		Condensed Consolidated Statement of Operations
		For the quarter ended November 30, 2006
		(In thousands)

										Combined
						Combined				Non-
						Guarantor				Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Revenue
Manufacturing		$	(1,198	)		$	120,079			$	112,228			$	(62,417	)		$	168,692
Refurbishment & parts			—				49,388				1,848				—				51,236
Leasing & services			1,221				24,691				—				783				26,695
			23				194,158				114,076				(61,634	)			246,623
Cost of revenue
Manufacturing			—				114,254				109,787				(62,353	)			161,688
Refurbishment & parts			—				43,400				1,607				—				45,007
Leasing & services			—				10,828				—				(17	)			10,811
			—				168,482				111,394				(62,370	)			217,506
Margin			23				25,676				2,682				736				29,117
Other costs
Selling and administrative expense			6,418				7,686				3,020				—				17,124
Interest and foreign exchange			8,163				119				1,359				—				9,641
			14,581				7,805				4,379				—				26,765
Earnings (loss) before income taxes, minority interest and equity in unconsolidated subsidiaries			(14,558	)			17,871				(1,697	)			736				2,352
Income tax (expense) benefit			5,819				(7,364	)			1,258				(293	)			(580	)
			(8,739	)			10,507				(439	)			443				1,772
Minority interest			—				—								(2	)			(2	)
Equity in earnings (loss) of unconsolidated subsidiaries			10,609				1,010				—				(11,519	)			100
Net earnings (loss)		$	1,870			$	11,517			$	(439	)		$	(11,078	)		$	1,870

THE GREENBRIER COMPANIES, INC.

The Greenbrier Companies, Inc.
		Condensed Consolidated Statement of Cash Flows
		For the quarter ended November 30, 2006
		(In thousands)

						Combined				Combined
						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Cash flows from operating activities:
Net earnings (loss)		$	1,870			$	11,517			$	(439	)		$	(11,078	)		$	1,870
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Deferred income taxes			1,348				(989	)			(349	)			293				303
Depreciation and amortization			12				5,874				1,657				(17	)			7,526
Gain on sales of equipment			—				(2,439	)			—				(783	)			(3,222	)
Other			—				1,229				9				(1,198	)			40
Decrease (increase) in assets
Accounts and notes receivable			(289,839	)			280,124				1,899				(213	)			(8,029	)
Inventories			—				(1,741	)			362				—				(1,379	)
Assets held for sale			—				(15,462	)			120				—				(15,342	)
Other			(12,819	)			(467	)			917				12,720				351
Increase (decrease) in liabilities
Accounts payable and accrued liabilities			(5,279	)			(1,660	)			(10,820	)			212				(17,547	)
Participation			—				396				—				—				396
Deferred revenue			(39	)			(6,220	)			(647	)			—				(6,906	)
Net cash provided by (used in) operating activities			(304,746	)			270,162				(7,291	)			(64	)			(41,939	)
Cash flows from investing activities:
Acquisition, net of cash acquired			—				(258,582	)			(5,888	)			—				(264,470	)
Principal payments received under direct finance leases			—				229				—				—				229
Proceeds from sales of equipment			—				20,833				—				—				20,833
Investment in and advances to joint venture			—				137				—				—				137
Increase in restricted cash											(436	)							(436	)
Capital expenditures			(48	)			(29,030	)			(1,444	)			64				(30,458	)
Net cash provided by (used in) investing activities			(48	)			(266,413	)			(7,768	)			64				(274,165	)
Cash flows from financing activities:
Changes in revolving notes			178,200				—				8,408				—				186,608
Proceeds (expense) from notes payable			(69	)			—				—				—				(69	)
Repayments of notes payable			(301	)			(365	)			(265	)			—				(931	)
Repayments of subordinated debt			—				(821	)			—				—				(821	)
Proceeds from minority interest			—				1,200				—				—				1,200
Stock options exercised and restricted stock awards			877				—				—				—				877
Excess tax benefit of stock options exercised			869				—				—				—				869
Net cash provided by (used in ) financing activities			179,576				14				8,143								187,733
Effect of exchange rate changes			334				(2	)			(496	)			—				(164	)
Increase (decrease) in cash and cash equivalents			(124,884	)			3,761				(7,412	)			—				(128,535	)
Cash and cash equivalents
Beginning of period			133,695				35				9,164				—				142,894
End of period		$	8,811			$	3,796			$	1,752			$	—			$	14,359

THE GREENBRIER COMPANIES, INC.

The Greenbrier Companies, Inc.
		Condensed Consolidated Balance Sheet
		August 31, 2006
		(In thousands)

										Combined
						Combined				Non-
						Guarantor				Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Assets
Cash and cash equivalents		$	133,695			$	35			$	9,164			$	—			$	142,894
Restricted cash			—				—				2,056				—				2,056
Accounts and notes receivable			65,188				29,525				20,812				40				115,565
Inventories			—				62,468				100,683				—				163,151
Assets held for sale			—				24,862				10,354				—				35,216
Equipment on operating leases			—				303,664				—				(2,655	)			301,009
Investment in direct finance leases			—				6,511				—				—				6,511
Property, plant and equipment			—				44,013				36,021				—				80,034
Goodwill and intangibles			—				3,204				—				136				3,340
Other			375,944				46,055				2,044				(396,505	)			27,538
		$	574,827			$	520,337			$	181,134			$	(398,984	)		$	877,314
Liabilities and Stockholders’ Equity
Revolving notes		$	—			$	—			$	22,429			$	—			$	22,429
Accounts payable and accrued liabilities			11,146				111,764				81,842				41				204,793
Participation			—				11,453				—				—				11,453
Deferred income taxes			2,704				41,091				(5,876	)			(447	)			37,472
Deferred revenue			1,241				11,030				5,210				—				17,481
Notes payable			341,929				6,716				13,669				—				362,314
Subordinated debt			—				2,091				—				—				2,091
Stockholders’ Equity			217,807				336,192				63,860				(398,578	)			219,281
		$	574,827			$	520,337			$	181,134			$	(398,984	)		$	877,314

THE GREENBRIER COMPANIES, INC.

The Greenbrier Companies, Inc.
		Condensed Consolidated Statement of Operations
		For the quarter ended November 30, 2005
		(In thousands)

										Combined
						Combined				Non-
						Guarantor				Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Revenue
Manufacturing		$	—			$	107,423			$	129,068			$	(94,656	)		$	141,835
Refurbishment & parts			—				22,730				31				—				22,761
Leasing & services			988				21,505				—				(727	)			21,766
			988				151,658				129,099				(95,383	)			186,362
Cost of revenue
Manufacturing			(53	)			93,797				122,742				(93,455	)			123,031
Refurbishment & parts			—				19,972				27				—				19,999
Leasing & services			—				10,455				—				(16	)			10,439
			(53	)			124,224				122,769				(93,471	)			153,469
Margin			1,041				27,434				6,330				(1,912	)			32,893
Other costs
Selling and administrative expense			3,993				9,422				2,126				—				15,541
Interest and foreign exchange			4,546				935				171				(1,079	)			4,573
			8,539				10,357				2,297				(1,079	)			20,114
Earnings (loss) before income taxes and equity in earnings (loss) of unconsolidated subsidiaries			(7,498	)			17,077				4,033				(833	)			12,779
Income tax (expense) benefit			2,923				(7,363	)			(830	)			336				(4,934	)
			(4,575	)			9,714				3,203				(497	)			7,845
Equity in earnings (loss) of unconsolidated subsidiaries			12,592				1,397				—				(13,817	)			172
Net earnings		$	8,017			$	11,111			$	3,203			$	(14,314	)		$	8,017

THE GREENBRIER COMPANIES, INC.

The Greenbrier Companies, Inc.
		Condensed Consolidated Statement of Cash Flows
		For the quarter ended November 30, 2005
		(In thousands)