UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549-1004

Form 10-K

Commission File No. 1-13146

THE GREENBRIER COMPANIES, INC.

(Exact name of Registrant as specified in its charter)

CO-REGISTRANTS AND SUBSIDIARY GUARANTORS

(Address, including zip code and telephone number

including area code of registrant’ principal executive offices)

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

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

None

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

Yes  X     No    

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes  X     No    

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

Yes        No  X 

Aggregate market value of the Registrant’s Common Stock held by non-affiliates as of February 28, 2005 (based on the closing price of such shares on such date) was $192,962,196.

The number of shares outstanding of the Registrant’s Common Stock on October 26, 2005 was 15,506,891, par value $0.001 per share.

DOCUMENTS INCORPORATED BY REFERENCE

Parts of Registrant’s Proxy Statement dated November 22, 2005 prepared in connection with the Annual Meeting of Stockholders to be held on January 10, 2006 are incorporated by reference into Parts II and III of this Report.

The Greenbrier Companies, Inc.

Form 10-K

TABLE OF CONTENTS

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PART I

Forward-Looking Statements

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

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

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

Introduction

We are one of the leading designers, manufacturers and marketers of railroad freight car equipment in North America and Europe and a leading provider of leasing and other services to the railroad and related transportation industries in North America. Our mission is to provide complete freight car solutions to our customers through a comprehensive set of high quality freight car products and related services.

In North America, we operate an integrated business model that combines freight car manufacturing, repair and refurbishment, leasing and fleet management services to provide customers with a comprehensive set of freight car solutions. This model allows us to utilize synergies between our various business activities and to generate enhanced returns by providing creative solutions to a customer’s freight car needs, while generating profits from multiple elements of the transaction.

We operate in two primary business segments: manufacturing and leasing & services. Financial information about our business segments for the years ended August 31, 2005, 2004 and 2003 is located in Note 23 of our Consolidated Financial Statements.

We are a Delaware corporation formed in 1981. Our principal executive offices are located at One Centerpointe Drive, Suite 200, Lake Oswego, Oregon 97035, our telephone number is (503) 684-7000 and our internet website is located at http://www.gbrx.com.

Significant Developments in 2005

In September 1998 we entered into a joint venture with Bombardier Transportation (Bombardier) to build railroad freight cars at a portion of Bombardier’s existing manufacturing facility in Sahagun, Mexico.

Each party held a 50% non-controlling interest in the joint venture. In December 2004, we acquired Bombardier’s interest for $9.0 million payable over five years. We lease a portion of the plant from Bombardier and have entered into a service agreement under which Bombardier provides labor and manufacturing support. These operations, previously accounted for under the equity method, are consolidated for financial reporting purposes beginning in December 2004.

In April 2005, we entered into an agreement with Babcock & Brown Rail Management LLC (BBRM) to jointly acquire and lease railcars for the North American market, some of which may have been produced by us. We, along with BBRM, intend to sell the railcars to third party investors and to manage the railcars for these investors. This arrangement may be expanded to include additional railcars some of which may be sold from our own lease fleet.

On May 11, 2005, we issued 5,175,000 shares of our common stock at a price of $26.50 per share, less underwriting commissions, discounts and expenses. We used the proceeds to purchase 3,504,167 shares from the estate of Alan James, former member of our board of directors, and 1,837,500 shares from William Furman, President and Chief Executive Officer. After the offering, the estate of Alan James owned 2.8% and William Furman owned 13.9% of our outstanding common stock. Concurrent with the purchase of the stock owned by the estate of Alan James outstanding litigation with the estate was dismissed.

On May 11, 2005, we issued, through a private placement, $175.0 million aggregate principal amount of 8³/8% senior unsecured notes due 2015 (the Notes). Payment of the Notes is guaranteed by

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certain of our domestic subsidiaries. Interest will be paid semiannually in arrears commencing November 15, 2005. We used portions of the proceeds from the Notes to repay certain outstanding revolving notes and notes payable. Subsequent to year end, all the Notes were exchanged for an equal principal amount of senior unsecured notes due 2015, with the same terms, which are registered with the Securities and Exchange Commission (SEC).

Products and Services
Manufacturing

North American Railcar Manufacturing - We are the leading North American manufacturer of intermodal railcars with an average market share of approximately 60% over the last five years. In addition to our strength in intermodal railcars, we build a broad array of other railcar types in North America and have demonstrated an ability to capture high market shares in the car types we build. We have commanded an average market share of approximately 40% in flat cars and 30% in boxcars over the last five years. We also may manufacture new railcars through the use of subcontractors. The primary products produced for the North American market are:

Intermodal Railcars - We manufacture a comprehensive range of intermodal railcars. Our most important product is our articulated double stack railcars. The double stack railcar is designed to transport containers stacked two-high on a single platform.

An articulated double stack railcar is comprised of up to five platforms each of which is linked by a common set of wheels and axles.

Our comprehensive line of articulated and non-articulated double stack intermodal railcars offers varying load capacities and configurations. The double stack railcar provides significant operating and capital savings over other types of intermodal railcars. These savings are the result of:

Our current double-stack products include:

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Conventional Railcars - We produce a wide range of boxcars, which are used in forest products, automotive, perishables and general merchandise applications. Our flat car products include center partition cars for the forest products industry, bulkhead flat cars, flat cars for automotive transportation and solid waste service flat cars. We also produce a variety of covered hopper cars for the grain, cement and plastics industries as well as gondolas and coil cars for the steel and metals markets and various other conventional railcar types.

European Railcar Manufacturing - Our European manufacturing operation produces a variety of railcar types, including a comprehensive line of pressurized tank cars for liquid petroleum gas and ammonia and non-pressurized tank cars for light oil, chemicals and other products as well as flat cars, coil cars for the steel and metals market, coal cars for both the continental European and United Kingdom markets, gondolas, sliding wall cars and rolling highway cars. Although no formal statistics are available for the European market, we believe we are the second largest new freight car manufacturer with an estimated 20% market share.

Railcar Repair and Refurbishing - We believe we operate one of the largest repair and refurbishment networks in North America with 17 operating locations nationwide. Our network of railcar repair and refurbishment shops competes in three primary markets: heavy railcar repair and refurbishment, routine railcar maintenance and railcar wheel and axle servicing. We are actively engaged in the repair and refurbishment of railcars for third parties, as well as of our own leased and managed fleet.

Marine Vessel Fabrication - Our Portland, Oregon manufacturing facility, located on a deep-water port on the Willamette River, includes marine facilities with the largest side-launch ways on the West Coast. The marine facilities also enhance steel plate burning and fabrication capacity providing flexibility for railcar production. We manufacture ocean going conventional deck barges, double-hull tank barges, railcar/deck barges, barges for aggregates and other heavy industrial products and ocean going dump barges.

Leasing & Services

Leasing - Our network of relationships with financial institutions, combined with our ownership of a lease fleet of approximately 10,000 railcars, enables us to offer flexible financing programs including traditional direct finance leases, operating leases and “by the mile” leases to our customers. Frequently, we originate leases with railroads or shippers, remarket them to financial institutions and subsequently provide management services under multi-year agreements.

As equipment owner, we participate in both the finance and the operating lease segments of the market. Lease payments received under the noncancelable lease terms of direct finance leases generally cover substantially all of the equipment cost. Most of our leases are “full service” leases whereby we are responsible for maintenance, taxes and administration. Maintenance of the fleet is provided, in part, through our own facilities and engineering and technical staff.

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

Approximately 20% of the owned equipment in our lease fleet was acquired through an agreement with Union Pacific Railroad Company (Union Pacific) which contains a fixed price purchase option exercisable upon lease expiration. Union Pacific has notified us of its intention to exercise this option as leases expire over the next two years through 2007 on all remaining rail-cars in this program.

Management Services - Our management services business offers a broad range of services that

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enhance our ability to generate lease transactions. These services include railcar maintenance management, railcar accounting services such as billing and revenue collection, car hire receivable and payable administration and railcar remarketing. We currently own or provide management services for a fleet of approximately 139,000 railcars in North America for railroads, shippers, carriers and other leasing and transportation companies.

Backlog

The following table depicts our reported railcar backlog in number of railcars and estimated future sales value attributable to such backlog, at the end of the periods shown:

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

Customers

Our manufacturing and leasing and services customers include Class I railroads, regional and short-line railroads, other leasing companies, shippers, carriers and other transportation companies. We have strong, long-term relationships with many of our customers. We believe that our customers’ preference for high quality products, our technological leadership in developing innovative products and pricing of our railcars have helped us maintain our long standing relationships with our customers.

In 2005, revenue from one customer, TTX Company (TTX), accounted for approximately 44% of total revenue and 48% of manufacturing revenue. Approximately 31% of leasing & services revenue was from Burlington Northern and Santa Fe Railway Company (BNSF). No other customers accounted for more than 10% of total, manufacturing or leasing & services revenue.

Raw Materials and Components

Our products require a supply of materials including steel and specialty components such as brakes, wheels and axles. Specialty components purchased from third parties represent approximately half of the cost of an average freight car. Our customers often specify particular components and suppliers of such components. Although the number of alternative suppliers of certain specialty components has declined in recent years, there are at least two suppliers for most such components and we are not reliant on any one supplier for any component. Inventory levels are continually monitored to ensure adequate support of production. We periodically make advance purchases to avoid possible shortages of material due to capacity limitations of component suppliers and possible price increases. We do not typically enter into binding long-term contracts with suppliers because we rely on established relationships with major suppliers to ensure the availability of raw materials and specialty items. We have entered into strategic alliances to obtain parts and reduce supply chain costs and will continue to explore other material and component sources both domestically and internationally.

In December 2004, we formed a strategic alliance with Zhuzhou Rolling Stock Works in China to source parts and to collaborate on commercial opportunities for new railcar products and services in North America, China and other global markets.

Prices for steel, the primary component in railcars, railcar specialty components and barges, rose sharply in 2004 and remained volatile in 2005 as a result of strong demand, limited availability of scrap metal for steel processing, reduced capacity and import trade barriers. Availability of scrap metal has been further limited by exports to China. We believe substantially all of the current backlog has been priced to cover anticipated material price increases and surcharges. There is still risk that material prices could increase beyond amounts used to develop our sale contracts which would adversely impact margins realized on the sale of railcars in our backlog.

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The available supply of rail castings to the industry continues to be adversely affected as a result of reorganization and consolidation of domestic suppliers. Our investment in a joint venture that operates castings production facilities has helped us maintain production despite industry-wide casting shortages. Shortages of other railcar components such as wheels, axles and couplers impact production rates at our new railcar and repair and refurbishment facilities.

Competition

There are currently six major railcar manufacturers competing in North America. We believe one of these producers builds railcars principally for its own fleet and the other producers compete with us principally in the general railcar market. We compete on the basis of reputation, quality, price, reliability of delivery and customer service and support.

In Europe the top five manufacturers, including us, control over 80% market share. European freight car manufacturers are largely located in central and eastern Europe where labor rates are lower and work rules are more flexible.

In railcar leasing and services, there are less than ten principal competitors in North America, approximately half of which are larger than us. We compete primarily on the basis of reputation, quality, price, delivery, service offerings and deal structuring ability. We believe our strong servicing capability, integrated with our manufacturing, repair shops, railcar specialization and expertise in particular lease structures provide a strong competitive position.

Marketing and Product Development

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

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

Through our customer relationships, insights are derived into the potential need for new products and services. Marketing and engineering personnel collaborate to evaluate opportunities and identify and develop new products. Research and development costs incurred for new product development during 2005, 2004 and 2003 were $1.9 million, $3.0 million and $2.7 million.

Patents and Trademarks

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

Environmental Matters

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

Environmental studies have been conducted of our owned and leased properties that indicate additional investigation and some remediation on certain properties may be necessary. Our Portland, Oregon manufacturing facility is located on the Willamette River. The United States Environmental Protection Agency (EPA) has classified portions of the river bed, including the portion fronting our facility, as a federal “National Priority List” or “Superfund” site due to sediment contamination (the Portland Harbor Site).

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We, and more than 60 other parties, have received a “General Notice” of potential liability from the EPA relating to the Portland Harbor Site. The letter advised us that we may be liable for the costs of investigation and remediation (which liability may be joint and several with other potentially responsible parties) as well as for natural resource damages resulting from releases of hazardous substances to the site. At this time, ten private and public entities have signed an Administrative Order on Consent to perform a remedial investigation/feasibility study of the Portland Harbor Site under EPA oversight, and five additional entities have not signed such consent, but are nevertheless contributing money to the effort. The study is expected to be completed in 2007. In addition, we have entered into a Voluntary Clean-Up Agreement with the Oregon Department of Environmental Quality in which we agreed to conduct an investigation of whether, and to what extent, past or present operations at our Portland property may have released hazardous substances to the environment. Under this oversight, we also are conducting groundwater remediation relating to a historical spill on our property.

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

Regulation

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

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

Employees

As of August 31, 2005, we had 3,972 full-time employees, consisting of 3,859 employees in manufacturing and 113 employees in leasing & services. At our manufacturing facility in Trenton, Nova Scotia, Canada, 965 employees are covered by collective bargaining agreements that expire in October 2006. At the manufacturing facility in Swidnica, Poland, 415 employees are represented by unions. In addition, under our services agreement with Bombardier, 950 union employees work at our Mexico facility. A discretionary bonus program is maintained for salaried and most hourly employees not covered by collective bargaining agreements. A stock incentive plan and a stock purchase plan are available for certain North American employees. We believe that our relations with our employees are generally good.

Additional Information

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

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Item 2.          PROPERTIES

We currently operate at the following primary facilities:

We believe that our facilities are in good condition and that the facilities, together with anticipated capital improvements and additions, are adequate to meet our operating needs for the foreseeable future. We continually evaluate the need for expansion and upgrading of our railcar manufacturing and refurbishment facilities in order to remain competitive and to take advantage of market opportunities.

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Item 3.          LEGAL PROCEEDINGS

On April 20, 2004, BC Rail Partnership initiated litigation against us in the Supreme Court of Nova Scotia, alleging breach of contract and negligent manufacture and design of railcars which were involved in a 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 us by BNSF. BNSF alleges the failure of a component part on a railcar manufactured by us in 1988, resulted in a derailment and a chemical spill. The complaint alleges in excess of $14.0 million in damages. Answers have been filed in both cases and the parties have agreed to stay the Nebraska action and proceed with the litigation in Texas. No trial date has been set.

On September 23, 2004, two current employees and one former employee of ours filed a civil complaint in Multnomah County Circuit Court, State of Oregon, alleging that we failed to comply with Oregon wage and hour laws. Plaintiffs seek injunctive relief and unspecified unpaid wages, penalty wages, costs, disbursements and attorneys’ fees. The parties have participated in mediation proceedings and are in settlement negotiations. No trial date has been set.

On June 27, 2005, an individual, initiated litigation against Union Pacific alleging general and economic damages in the amount of $0.5 million and $1.0 million, respectively, for personal injuries incurred while operating a handbrake on a railcar operating on Union Pacific’s lines. On September 16, 2005 Union Pacific initiated litigation against us claiming indemnity and contribution. Discovery is continuing and no trial date has been set.

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

From time to time, we are involved as a defendant in other litigation 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 our financial condition or results of operation.

On July 26, 2004, Alan James, a former member of our board of directors, filed an action in the Court of Chancery of the State of Delaware against us and all of our directors serving on July 26, 2004, other than Mr. James, seeking rescission of the stockholder’s rights agreement, alleging, among other things, that directors breached their fiduciary duties in adopting the rights agreements. Mr. James passed away on January 28, 2005. On April 20, 2005, all of the estate’s litigation claims and allegations against us were dismissed with prejudice.

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

None.

PART II

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

Our common stock has been traded on the New York Stock Exchange under the symbol GBX since July 14, 1994. There were approximately 449 holders of record of common stock as of October 26, 2005. The following table shows the reported high and low sales price of our common stock on the New York Stock Exchange.

Dividends of $.08 per share were declared in the fourth quarter of 2005. Quarterly dividends of $.06 per share were declared from the fourth quarter of 2004 through the third quarter of 2005. No dividends were declared in 2003. There is no assurance as to the payment of future dividends as they are dependent upon future earnings, capital requirements and our financial condition.

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Equity Compensation Plan Information

The following table provides certain information as of August 31, 2005 with respect to our equity compensation plans under which our equity securities are authorized for issuance.

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Item 6.          SELECTED FINANCIAL DATA

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

Executive Summary

We currently operate two primary business segments: manufacturing and leasing & services. These two business segments are operationally integrated. With operations in the United States, Canada, Mexico and Europe the manufacturing segment produces double stack intermodal railcars, conventional railcars, tank cars, marine vessels and performs railcar repair, refurbishment and maintenance activities. We produce rail castings through an unconsolidated joint venture and also manufacture new freight cars through the use of unaffiliated subcontractors. At August 31, 2005, the leasing & services segment owned approximately 10,000 railcars and provided management services for approximately 129,000 railcars for railroads, shippers, carriers and other leasing and transportation companies. Segment performance is evaluated based on margins.

In 2005, we continued to benefit from growth in demand for railroad freight cars in North America. Improvements in the North American economy have created increased rail traffic, which combined with the aging of the industry’s railcar fleet, has resulted in an increased demand for railcars. Although the North American railcar market has improved, the European market is experiencing a decline in demand for railcars.

Prices for steel, a primary component of railcars and barges, have risen significantly over the past several years and remain volatile as a result of increased costs of raw materials, strong demand, limited availability of scrap metal for steel processing and reduced capacity. As a result, steel providers are charging scrap surcharges. In addition, the price and availability of other railcar components, which are a product of steel, were adversely affected by these steel issues. We have been aggressively managing steel and scrap surcharge issues with customers and suppliers through negotiation and pass-through of costs where possible.

Our manufacturing backlog of railcars for sale and lease as of August 31, 2005 was approximately 9,600 railcars with an estimated value of $550.0 million compared to 13,100 railcars valued at $760.0 million as of August 31, 2004. We believe substantially all our current backlog is priced to cover anticipated material price increases and surcharges. As these sales price increases are an anticipated pass-through of vendor material price increases and surcharges, they are not necessarily indicative of increased margins on future production.

There is still risk that material prices could increase beyond amounts included in our sale contracts which would adversely impact margins realized on the sale of railcars in our backlog.

The available supply of rail castings to the industry continues to be adversely affected as a result of reorganization and consolidation of domestic suppliers. Our investment in a joint venture that operates castings production facilities has helped us maintain production despite industry-wide casting shortages. Shortages of other railcar components such as wheels, axles and couplers impact production at our new railcar and refurbishment facilities. In an effort to mitigate shortages and reduce supply chain costs, we are working to identify strategic alliances and global sourcing of components.

In September 1998, we entered into a joint venture with Bombardier Transportation (Bombardier) to build railroad freight cars at a portion of Bombardier’s existing manufacturing facility in Sahagun, Mexico. Each party held a 50% non-controlling interest in the joint venture. In December 2004, we acquired Bombardier’s interest for $9.0 million payable over five years. We lease a portion of the plant from Bombardier and have entered into a service agreement under which Bombardier provides labor and manufacturing support. The Mexican operations, previously accounted for under the equity method, are consolidated for financial reporting purposes beginning in December 2004.

In April 2005, we entered into an agreement with Babcock & Brown Rail Management LLC (BBRM) to jointly acquire and lease railcars for the North American market, some of which may have been produced by us. We, along with BBRM, intend to sell the railcars to third party investors and to manage the railcars for these investors. This arrangement may be expanded to

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include additional railcars some of which may be sold from our own lease fleet.

On May 11, 2005, we issued 5,175,000 shares of our common stock at a price of $26.50 per share, less underwriting commissions, discounts and expenses. We used the proceeds to purchase 3,504,167 shares from the estate of Alan James, former member of our board of directors, and 1,837,500 shares from William Furman, President and Chief Executive Officer. After the offering, the estate of Alan James owned 2.8% and William Furman owned 13.9% of our outstanding common stock. Concurrent with the purchase of the stock owned by the estate of Alan James outstanding litigation with the estate was dismissed.

On May 11, 2005, we issued, through a private placement, $175.0 million aggregate principal amount of 8³/8% senior unsecured notes due 2015 (the Notes). Payment of the Notes is guaranteed by certain of the Company’s domestic subsidiaries. Interest will be paid semiannually in arrears commencing November 15, 2005. Portions of the proceeds from the Notes were used to payoff a portion of our outstanding revolving notes and notes payable. Subsequent to year end, all the Notes were exchanged for an equal principal amount of senior unsecured notes due 2015, with the same terms, which are registered with the Securities and Exchange Commission (SEC).

In December 2004, we formed a strategic alliance with Zhuzhou Rolling Stock Works in China to source parts and to collaborate on commercial opportunities for new railcar products and services in North America, China and other global markets.

Results of Operations

Overview

Total revenue was $1.0 billion, $729.5 million and $532.3 million for the years ended August 31, 2005, 2004 and 2003. Net earnings for 2005, 2004 and 2003 were $29.8 million or $1.92 per diluted common share, $20.8 million or $1.37 per diluted common share and $4.3 million or $0.30 per diluted common share.

Manufacturing Segment

Manufacturing revenue includes new railcar, marine, refurbishment and maintenance activities. New railcar delivery and backlog information disclosed herein includes all facilities and orders that may be manufactured by unaffiliated subcontractors.

Our purchase on December 1, 2004 of Bombardier’s equity interest in the railcar manufacturing joint venture located in Mexico brought our ownership percentage to 100%. As a result, the financial results of the subsidiary, formerly accounted for under the equity method, are consolidated beginning December 1, 2004.

Manufacturing revenue was $941.2 million, $653.2 million and $461.9 million for the years ended 2005, 2004 and 2003. Railcar deliveries, which are the primary source of manufacturing revenue, were approximately 13,200 units in 2005 compared to 10,800 units in 2004 and 6,500 units in 2003. Manufacturing revenue increased $288.0 million or 44.1% in 2005 as compared to 2004 primarily due to $147.6 million of revenue from our Mexican operation that was accounted for under the equity method in the prior comparable period and the first quarter of 2005. The balance of the increase was principally due to increased deliveries, a higher average railcar sales price associated with scrap and material surcharges and greater volumes of subcontracted production. Manufacturing revenue increased $191.3 million, or 41.4%, in 2004 from 2003 principally due to increased new railcar deliveries offset by units with a lower average sales value. Deliveries in 2005 consisted of 68% intermodal railcars and 32% conventional railcars. Deliveries in 2004 consisted of 63% intermodal railcars and 37% conventional railcars compared to 48% intermodal railcars and 52% conventional railcars in 2003. Intermodal railcars generally have selling prices that average 65% to 75% of that of conventional railcars.

Manufacturing margin percentage was 8.8% in 2005 compared to 8.9% in 2004. As sales prices and costs increase by the same amount to cover surcharges, margins as a percentage of revenue decline. In addition, the benefits of higher margin railcar types, efficiencies of long production runs and increased volumes were offset by production issues in Europe, in particular issues surrounding component parts on one railcar type. The primary factors for the increase in margin from 8.1% in 2003 to 8.9% in 2004 were efficiencies associated with higher volumes and long production runs and an improved pricing environment, offset partially by steel price increases and steel scrap surcharges. The factors influencing cost of revenue and gross margin in a given period include order size (which affects economies of plant utilization), production rates, product mix, changes in

15                                        The Greenbrier Companies 2005 Annual Report

manufacturing costs, product pricing and currency exchange rates.

Leasing & Services Segment

Leasing & services revenue was $83.1 million, $76.2 million and $70.4 million for the years ended 2005, 2004 and 2003. The $6.9 million increase in revenue in 2005 from 2004 was primarily the result of a $6.2 million increase in gains on sale of assets from the lease fleet, higher utilization on managed equipment, the growth of the operating lease portfolio, partially offset by the maturation of the direct finance lease portfolio and reduced car hire revenue associated with lease terminations. The $5.8 million increase in revenue in 2004 from 2003 was primarily the result of margin realized on the sale of new railcars produced by an unconsolidated subsidiary, growth of the operating lease portfolio, increased utilization of the lease fleet and reductions in rental assistance guarantees, offset partially by the effects of the maturation of the direct finance lease portfolio.

During 2005, we realized $6.8 million in pre-tax earnings on the disposition of leased equipment compared to $0.6 million in 2004 and $0.5 million in 2003. Assets from our lease fleet are periodically sold in the normal course of business in order to take advantage of market conditions, manage risk and maintain liquidity.

Approximately 20% of the owned equipment in our lease fleet was acquired through an agreement with Union Pacific, which contains a fixed price purchase option exercisable upon lease expiration. Union Pacific has notified us of their intention to exercise this option on all remaining railcars in this program. As these leases mature over the next two years through 2007, related leasing revenue will continue to decline but may be replaced by growth of the lease fleet and management services.

Approximately one-third of our 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. There is some risk that car hire rates could be negotiated or arbitrated to lower levels in the future. This could reduce our future car hire revenue. Car hire revenue amounted to $25.3 million, $27.2 million and $24.3 million in 2005, 2004 and 2003.

Leasing & services operating margin percentage was 50.5% in 2005 compared to 44.6% in 2004 and 38.1% in 2003. The increase was primarily a result of gains on sales from the lease fleet and rate adjustments due to increased utilization on certain agreements.

Margins increased in 2004 as a result of margins realized on the sale of railcars produced by an unconsolidated subsidiary, increased utilization of the owned lease fleet, growth of the operating lease fleet with leases that are higher margin than maturing direct finance leases and reductions in rental assistance guarantee costs.

Other costs

Selling and administrative expense was $57.4 million, $48.3 million and $40.0 million in 2005, 2004 and 2003. The $9.1 million increase from 2004 to 2005 is primarily the result of the inclusion of $1.7 million in expenses for our Mexican operation which was accounted for under the equity method in the prior comparable period, higher employee related costs including incentive compensation and increases in professional fees associated with litigation, compliance with Sarbanes-Oxley legislation and strategic initiatives. Current period costs include $2.5 million in legal and professional expenses associated with litigation and responses related to actions by Alan James, a former member of the board of directors. The $8.3 million increase from 2003 to 2004 is primarily the result of fees associated with strategic initiatives, compliance with Sarbanes Oxley legislation, increases in incentive compensation and other employee costs. Selling and administrative expense as a percentage of revenue in 2005 was 5.6% compared to 6.6% in 2004 and 7.5% in 2003.

Interest and foreign exchange expense was $14.8 million, $11.5 million and $13.6 million in 2005, 2004 and 2003. Interest increased $2.4 million as a result of increased borrowings from 2004 to 2005. In addition, foreign exchange losses of $0.8 million were recognized in 2005 compared to foreign exchange gains of $0.1 million in 2004. Decreases from 2003 to 2004 were primarily the result of lower outstanding debt balances due to scheduled repayments of debt, partially offset by a $0.8 million reduction in foreign exchange gains.

During 2005, we incurred special charges of $2.9 million consisting of debt prepayment penalties and costs associated with settlement of interest rate swap agreements on certain debt that was refinanced with senior unsecured notes. The year ended August 31, 2004 includes special charges totaling $1.2 million which consist of a $7.5 million write-off

16                                        The Greenbrier Companies 2005 Annual Report

of the remaining balance of European designs and patents partially offset by a $6.3 million reduction of purchase price liabilities associated with the settlement of arbitration regarding the acquisition of European designs and patents.

Income Tax

Income tax expense for all periods presented represents a statutory tax rate of 42.0% on United States operations and varying effective tax rates on foreign operations. The effective tax rate was 39.8%, 29.2% and 42.2% for 2005, 2004 and 2003. The fluctuations in effective tax rates are due to the geographical mix of pre-tax earnings and losses. In addition, special charges in 2004 include a $6.3 million non-taxable purchase price adjustment relating to the purchase of European designs and patents.

Equity in Loss of Unconsolidated Subsidiaries

Equity in loss of unconsolidated subsidiaries was $0.3 million, $2.0 million and $1.9 million in 2005, 2004 and 2003. Equity in earnings of the castings joint venture was $0.4 million in 2005 compared to a loss of $0.8 million in the prior comparable period. The loss in the prior period was primarily due to start-up costs and temporary plant shutdowns associated with equipment issues at the castings joint venture which began operation in September 2003. The Mexican railcar manufacturing joint venture contributed approximately $0.7 million, $1.2 million and $1.9 million to loss from unconsolidated subsidiaries in 2005, 2004 and 2003. As a result of purchasing our joint venture partner’s interest in the venture, the financial results of the entity were consolidated beginning on December 1, 2004. Accordingly, 2005 loss from unconsolidated subsidiaries only includes results of the Mexican operation through November 30, 2004 and is not comparable to the twelve months of results reflected in 2004. The improvement in results for 2004 as compared to 2003 is the result of higher production levels as the plant was operating for an entire year. The plant resumed deliveries in May 2003 after a shutdown that began in 2002.

Liquidity and Capital Resources

We have been financed through cash generated from operations and borrowings. At August 31, 2005, cash increased $60.1 million to $73.3 million from $13.2 million at the prior year end. Cash increases were primarily the result of the issuance of $175.0 million of senior unsecured notes, in May 2005, of which a portion of the proceeds were used to payoff certain revolving notes and notes payable.

Cash used in operations for the year ended August 31, 2005, was $21.9 million compared to $16.0 million in the prior year. The increased utilization was primarily due to increases in railcars held for sale that are expected to be sold in 2006 and changes in timing of working capital including longer payment terms on the sale of certain railcars in August 2005. The increase in usage from 2003 to 2004 is primarily due to a $20.4 million participation payment in accordance with the defined payment schedule under an agreement with Union Pacific, changes in timing of working capital and increases in inventory associated with higher production levels and certification issues on certain European cars.

Inventories at August 31, 2005 increased from August 31, 2004 levels primarily as a result of the consolidation of Mexican operations, effective December 1, 2004, previously accounted for under the equity method.

Cash used in investing activities for the year ended August 31, 2005 of $21.3 million compared to $14.8 million in 2004 and cash provided by investing activities of $17.9 million in 2003. The increased usage in 2005 and 2004 was primarily the result of increases in capital expenditures and reduced principle payments received on finance leases due to the maturation of the portfolio, offset partially by proceeds from equipment sales of $32.5 million in 2005, $16.2 million in 2004 and $24.0 million in 2003 and $8.4 million of net cash acquired in 2005 in the acquisition of the remaining joint venture interest in Mexico.

Capital expenditures totaled $69.1 million, $43.0 million and $11.9 million in 2005, 2004 and 2003. Of these capital expenditures, approximately $52.8 million, $35.8 million and $4.5 million in 2005, 2004 and 2003 were attributable to leasing & services operations. Capital expenditures have increased over the past several years as a result of purchases of railcars to replace the maturing direct finance lease portfolio. Leasing & services capital expenditures for 2006 are expected to be approximately $42.0 million. We regularly sell assets from our lease fleet, some of which may have been purchased within the current year and included in capital expenditures.

Approximately $16.3 million, $7.2 million and $7.4 million of capital expenditures for 2005, 2004

17                                        The Greenbrier Companies 2005 Annual Report

and 2003 were attributable to manufacturing operations. Capital expenditures for manufacturing are expected to be approximately $15.0 million in 2006, a portion of which is associated with expansion and improvement of our marine facilities.

Cash provided by financing activities of $102.8 million for the year ended August 31, 2005 compared to cash used in financing activities of $37.6 million and $37.8 million in 2004 and 2003. During 2005, we received $175.0 million in proceeds from a senior unsecured debt offering, repaid $74.0 million in term debt and subordinated debt and paid dividends of $3.9 million. Cash usage during 2004 and 2003 was primarily for scheduled repayments of borrowings, as $27.5 million and $40.2 million in term debt and subordinated debt was repaid in 2004 and 2003.

During 2005, we replaced our various North American credit facilities with a senior secured credit facility. All amounts originating in foreign currency have been translated at the August 31, 2005 exchange rate for the following discussion. Credit facilities aggregated $171.4 million as of August 31, 2005. Available borrowings are based on defined levels of inventory, receivables, leased equipment and property, plant and equipment, as well as certain consolidated capitalization, tangible net worth and fixed coverage ratios which at August 31, 2005 levels would provide for maximum borrowing of $143.0 million of which $12.5 million is outstanding. A $125.0 million revolving line of credit is available through June 2010 to provide working capital and interim financing of equipment for the United States and Mexican operations. A $25.3 million line of credit is available through June 2010 for working capital for Canadian manufacturing operations. Lines of credit totaling $21.1 million are available principally through June 2006 for working capital for the European manufacturing operation. Advances bear interest at rates that depend on the type of borrowing and the ratio of debt to total capitalization, as defined. At August 31, 2005, there were no borrowings outstanding under the North American credit facilities. The European manufacturing credit lines had $12.5 million outstanding.

In accordance with customary business practices in Europe, we have $10.8 million in bank and third party performance, advance payment and warranty guarantee facilities, all of which has been utilized as of August 31, 2005. To date no amounts have been drawn under these performance, advance payment and warranty guarantees.

We have advanced $2.2 million in long term advances to an unconsolidated subsidiary which are secured by accounts receivable and inventory. As of August 31, 2005, this same unconsolidated subsidiary had $8.0 million in third party debt for which we have guaranteed 33% or approximately $2.7 million.

We have outstanding letters of credit aggregating $1.8 million associated with material purchases and facility leases.

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

A dividend of $.08 per common share was declared in June 2005. Dividends of $.06 per common share have been paid quarterly from the fourth quarter of 2004 through the third quarter of 2005. No dividends were paid during 2003, consistent with our policy to manage for cash flow and liquidity during the downturn in the railcar industry.

We regularly monitor and evaluate conditions in the capital markets and may issue additional debt or equity from time to time. We expect existing funds and cash generated from operations, together with proceeds from financing activities, including borrowings under existing credit facilities and long term financing, to be sufficient to fund dividends, if any, working capital needs, planned capital expenditures and expected debt repayments for the foreseeable future.

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The following table shows our estimated future contractual cash obligations as of August 31, 2005⁽¹⁾:

In 1990, we entered into an agreement for the purchase and refurbishment of over 10,000 used railcars between 1990 and 1997. The agreement provides that, under certain conditions, the seller will receive a percentage of defined earnings of a subsidiary, and further defines the period when such payments are to be made. Such amounts, referred to as participation, are accrued when earned, charged to leasing & services cost of revenue, and unpaid amounts are included as participation in the Consolidated Balance Sheets. Participation expense was $1.6 million, $1.7 million and $2.7 million in 2005, 2004 and 2003. Payment of participation was $16.8 million in 2005.

Off Balance Sheet Arrangements

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

Critical Accounting Policies

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

Income taxes - For financial reporting purposes, income tax expense is estimated based on planned tax return filings. The amounts anticipated to be reported in those filings may change between the time the financial statements are prepared and the time the tax returns are filed. Further, because tax filings are subject to review by taxing authorities, there is also the risk that a position taken on a tax return may be challenged by a taxing authority. If the taxing authority is successful in asserting a position different than that taken by us, differences in tax expense or between current and deferred tax items may arise in future periods. Such differences, which could have a material impact on our financial statements, would be reflected in the financial statements when management considers them probable of occurring and the amount reasonably estimable. Valuation allowances reduce deferred assets to an amount that will more likely than not be realized. Our estimates of the realization of deferred tax assets is based on the information available at the time the financial statements are prepared and may include estimates of future income and other assumptions that are inherently uncertain.

Maintenance obligations - 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 and age of railcar. These estimates involve judgment as to the future costs of repairs and the types and timing of repairs needed 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. Historically, we have not had material adjustments to these estimates as they are reviewed frequently and cover long-term contracts. However, these adjustments could be material in the future due to the inability to predict future maintenance requirements.

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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.

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. In aggregate, warranty costs have not been materially different from the estimates. However, as we cannot predict future claims, the potential exists for the difference to be material.

Prospective Accounting Changes

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123R, Share Based Payment. This statement requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments (stock options and restricted stock) granted to employees. We are required to implement SFAS No. 123R as of September 1, 2005 and have determined the implementation will not have a material effect on our Consolidated Financial Statements as all options were vested as of August 31, 2005 and no further options are expected to be issued under existing plans. Restricted stock grants are currently being recorded as compensation expense over the vesting period.

In May 2005, the 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 beginning September 1, 2006.

Item 7a.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange Risk

We have operations in Canada, Mexico, Germany and Poland that conduct business in their local currencies as well as other regional currencies. To mitigate our exposure to transactions denominated in currencies other than the functional currency of each entity, we enter into forward exchange contracts to protect our margin on a portion of our forecast foreign currency sales. At August 31, 2005, $86.8 million of forecast sales were hedged by foreign exchange contracts. Because of the variety of currencies in which purchases and sales are transacted and the interaction between currency rates, it is not possible to predict the impact a movement in a single foreign currency exchange rate would have on future operating results. We believe the exposure to foreign exchange risk is not material.

In addition to exposure to transaction gains or losses, we are also exposed to foreign currency exchange risk related to the net asset position of our foreign subsidiaries. At August 31, 2005, net assets of foreign subsidiaries aggregated $33.1 million and a uniform 10% strengthening of the United States dollar relative to the foreign currencies would result in a decrease in stockholders’ equity of $3.3 million, less than 1.9% of total stockholders’ equity. This calculation assumes that each exchange rate would change in the same direction relative to the United States dollar.

Interest Rate Risk

We have managed our floating rate debt with interest rate swap agreements, effectively converting $24.7 million of variable rate debt to fixed rate debt. At August 31, 2005, the exposure to interest rate risk is limited since 91% of our debt has fixed rates. As a result, we are only exposed to interest rate risk relating to our revolving debt and a portion of term debt. At August 31, 2005, a uniform 10% increase in interest rates would result in approximately $0.1 million of additional annual interest expense.

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Item 8.          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Balance Sheets

AUGUST 31,

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

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Consolidated Statements of Operations

YEARS ENDED AUGUST 31,

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

22                                        The Greenbrier Companies 2005 Annual Report

Consolidated Statements of Stockholders’ Equity

and Comprehensive Income (Loss)

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

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Consolidated Statements of Cash Flows

YEARS ENDED AUGUST 31,

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

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Notes to Consolidated Financial Statements

Note 1 - Nature of Operations

The Greenbrier Companies, Inc. and Subsidiaries (Greenbrier or the Company) currently operates in two primary business segments: manufacturing and leasing & services. The two business segments are operationally integrated. With operations in the United States, Canada, Mexico and Europe, the manufacturing segment produces double-stack intermodal railcars, conventional railcars, tank cars, marine vessels and performs railcar repair, refurbishment and maintenance activities. The Company also produces rail castings through an unconsolidated joint venture and also manufactures new freight cars through the use of unaffiliated subcontractors. The leasing & services segment owns approximately 10,000 railcars and provides management services for approximately 129,000 railcars for railroads, shippers and other leasing and transportation companies.

Note 2 - Summary of Significant Accounting Policies

Principles of consolidation - The financial statements include the accounts of the Company and its majority owned subsidiaries. All significant intercompany transactions and balances are eliminated upon consolidation. Investments in and long-term advances to joint ventures in which the Company has a 50% or less ownership interest are accounted for by the equity method and included in other assets.

Unclassified Balance Sheet - The balance sheets of the Company are presented in an unclassified format as a result of significant leasing activities for which the current or noncurrent distinction is not relevant. In addition, the activities of the leasing & services and manufacturing segments are so intertwined that, in the opinion of management, any attempt to separate the respective balance sheet categories would not be meaningful and may lead to the development of misleading conclusions by the reader.

Foreign currency translation - Operations outside the United States prepare financial statements in currencies other than the United States dollar. Revenues and expenses are translated at average exchange rates for the year, while assets and liabilities are translated at year-end exchange rates. Translation adjustments are accumulated as a separate component of stockholders’ equity in other comprehensive income (loss) net of tax.

Cash and cash equivalents - Cash is temporarily invested primarily in bankers’ acceptances, United States Treasury bills, commercial paper and money market funds. All highly-liquid investments with a maturity of three months or less at the date of acquisition are considered cash equivalents.

Accounts Receivable - Accounts receivable are stated net of allowance for doubtful accounts of $2.5 million and $1.9 million as of August 31, 2005 and 2004.

Inventories - Inventories are valued at the lower of cost (first-in, first-out) or market. Work-in-process includes material, labor and overhead.

Railcars held for sale - Railcars held for sale consist of new railcars in transit to delivery point or on lease with the intent to sell and used railcars that will either be sold or refurbished, placed on lease and then sold.

Equipment on operating leases - Equipment on operating leases is stated at cost. Depreciation to estimated salvage value is provided on the straight-line method over the estimated useful lives of up to thirty-five years.

Property, plant and equipment - Property, plant and equipment is stated at cost. Depreciation is provided on the straight-line method over estimated useful lives which are as follows:

Intangible assets - Loan fees are capitalized and amortized as interest expense over the life of the related borrowings. Goodwill is not significant and is included in other assets. Goodwill is tested for impairment at least annually and more frequently if material changes in events or circumstances arise. Impairment would result in a write down to fair market value as necessary.

Impairment of long-lived assets - When changes in circumstances indicate the carrying amount of certain long-lived assets may not be recoverable, the assets will be evaluated for impairment. If the forecast undiscounted future cash flows are less than the carrying amount of the assets, an impairment charge

25                                        The Greenbrier Companies 2005 Annual Report

to reduce the carrying value of the assets to fair value will be recognized in the current period.

Maintenance obligations - The Company is 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 liability is based on maintenance histories for each type and age of the railcar. The liability, included in accounts payable and accrued liabilities, is reviewed periodically and updated based on maintenance trends and known future repair or refurbishment requirements.

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

Contingent rental assistance - The Company has entered into contingent rental assistance agreements on certain railcars, subject to leases, that have been sold to third parties. These agreements guarantee the purchasers a minimum lease rental, subject to a maximum defined rental assistance amount, over remaining periods that range from one to seven years. A liability is established when management believes that it is probable that a rental shortfall will occur and the amount can be estimated. All existing rental assistance agreements were entered into prior to December 31, 2002. Any future contracts would use the guidance required by Financial Accounting Standards Board (FASB) Interpretation (FIN) 45.

Income taxes - The liability method is used to account for income taxes. Deferred income taxes are provided for the temporary effects of differences between assets and liabilities recognized for financial statement and income tax reporting purposes. Valuation allowances reduce deferred tax assets to an amount that will more likely than not be realized. The Company also provides for income tax contingencies when management considers them probable of occurring and reasonably estimable.

Accumulated other comprehensive income (loss) - Accumulated other comprehensive income (loss) represents net earnings (loss) plus all other changes in net assets from non-owner sources.

Revenue recognition - Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectibility is reasonably assured.

Railcars are generally manufactured, repaired or refurbished under firm orders from third parties. Revenue is recognized when railcars are completed, accepted by an unaffiliated customer and contractual contingencies removed. Marine revenues are either recognized on the percentage of completion method during the construction period or on the completed contract method based on the terms of the contract. Direct finance lease revenue is recognized over the lease term in a manner that produces a constant rate of return on the net investment in the lease. Operating lease revenue is recognized as earned under the lease terms. Certain leases are operated under car hire arrangements whereby revenue is earned based on utilization, car hire rates and terms specified in the lease agreement. Car hire revenue is reported from a third party source two months in arrears, however, such revenue is accrued in the month earned based on estimates of use from historical activity and is adjusted to actual as reported. Such adjustments historically have not been significant from the estimate.

Research and development - Research and development costs are expensed as incurred. Research and development costs incurred for new product development during 2005, 2004 and 2003 were $1.9 million, $3.0 million and $2.7 million.

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Forward exchange contracts - Foreign operations give rise to risks from changes in foreign currency exchange rates. Forward exchange contracts with established financial institutions are utilized to hedge a portion of such risk. Realized and unrealized gains and losses are deferred in other comprehensive income (loss) and recognized in earnings concurrent with the hedged transaction or when the occurrence of the hedged transaction is no longer considered probable. Even though forward exchange contracts are entered into to mitigate the impact of currency fluctuations, certain exposure remains which may affect operating results.

Interest rate instruments - Interest rate swap agreements are utilized to reduce the impact of changes in interest rates on certain debt. The net cash amounts paid or received under the agreements are accrued and recognized as an adjustment to interest expense.

Net earnings per share - Basic earnings per common share (EPS) excludes the potential dilution that would occur if additional shares were issued upon exercise of outstanding stock options, while diluted EPS takes this potential dilution into account using the treasury stock method.

Stock-based compensation - Compensation expense for stock-based employee compensation continues to be measured using the method prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees.

In accordance with APB Opinion No. 25, Greenbrier does not recognize compensation expense relating to employee stock options because it only grants options with an exercise price equal to the fair value of the stock on the effective date of grant. If the Company had elected to recognize compensation expense using a fair value approach, the pro forma net earnings and earnings per share would have been as follows:

27                                        The Greenbrier Companies 2005 Annual Report

The fair value of each option grant was estimated on the date of the grant using the Black-Scholes-Merton option pricing model with the following weighted-average assumptions used for the grants for the year ending August 31, 2003. No options were granted for the years ended August 31, 2004 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.

Management estimates - The preparation of financial statements in accordance with generally accepted accounting principles requires judgment on the part of management to arrive at estimates and assumptions on matters that are inherently uncertain, including evaluating the remaining life and recoverability of long-lived assets. These estimates may affect the amount of assets, liabilities, revenue and expenses reported in the financial statements and accompanying notes. Estimates and assumptions are periodically evaluated and may be adjusted in future periods. Actual results could differ from these estimates.

Reclassifications - Certain reclassifications have been made to prior years’ Consolidated Financial Statements to conform with the 2005 presentation.

Prospective Accounting Changes - In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123R, Share Based Payment. This statement requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments (stock options and restricted stock) granted to employees. The Company is required to implement SFAS No. 123R as of September 1, 2005 and has determined the implementation will not have a material effect on its Consolidated Financial Statements as all options were vested as of August 31, 2005 and no further options are expected to be issued. Restricted stock grants are currently being recorded as compensation expense over the vesting period.

In May 2005, the 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 beginning September 1, 2006.

Note 3 - Acquisitions

In September 1998 Greenbrier entered into a joint venture with Bombardier Transportation (Bombardier) to build railroad freight cars at a portion of Bombardier’s existing manufacturing facility in Sahagun, Mexico. Each party held a 50% non-controlling interest in the joint venture. In December 2004, Greenbrier acquired Bombardier’s interest and will pay Bombardier a purchase price of $9.0 million over five years and as a result of the allocation of the purchase price among assets and liabilities, recorded $1.3 million in goodwill. Greenbrier leases a portion of the plant from Bombardier and has entered into a service agreement under which Bombardier provides labor and manufacturing support. These operations, previously accounted for under the equity method, are consolidated for financial reporting purposes beginning in December 2004.

The balance sheet of the acquired entity at December 1, 2004 was as follows:

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The following unaudited pro forma financial information for the years ended August 31, 2005, 2004 and 2003 was prepared as if the transaction to acquire Bombardier’s equity in the Mexican operations had occurred at the beginning of each period presented:

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 each period presented.

Note 4 - Discontinued Operations

In August 2004, the Company reached a settlement agreement on litigation initiated in 1998 by the former shareholders of InterAmerican Logistics, Inc. (InterAmerican) which was acquired in 1996 as part of the Company’s transportation logistics segment. The litigation alleged that Greenbrier violated the agreements pursuant to which it acquired ownership of InterAmerican. A plan to dispose of the transportation logistics segment, which included InterAmerican, was adopted in 1997 and completed in 1998 and accordingly, results of operations for InterAmerican were reclassified to discontinued operations at that time. Upon final disposition in 1998, the balance of the liability for loss on discontinued operations remained pending resolution of this litigation. In August 2004, the litigation was settled resulting in the recognition of a $1.3 million pre-tax gain on discontinued operations ($0.7 million, net of tax) as a result of reversal of the remaining contingent liability.

Note 5 - Special Charges

The results of operations for the year ended August 31, 2005 include special charges of $2.9 million for debt prepayment penalties and costs associated with settlement of interest rate swap agreements on $55.7 million in notes payable that were refinanced through a $175.0 million senior unsecured note offering.

The results of operations for the year ended August 31, 2004 include special charges totaling $1.2 million which consist of a $7.5 million write-off of the remaining balance of European designs and patents partially offset by a $6.3 million reduction of purchase price liabilities associated with the settlement of arbitration on the acquisition of European designs and patents.

Note 6 - Accounts and Notes Receivable

Receivables from an unconsolidated subsidiary represent advances to the Mexican operations for inventory purchases. In December 2004, the Company acquired 100% ownership of this entity, which is now consolidated.

Note 7 - Inventories

29                                        The Greenbrier Companies 2005 Annual Report