UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended May 31, 2021
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from ______ to ______
Commission File No. 1-13146
THE GREENBRIER COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Oregon
93-0816972
(State of Incorporation)
(I.R.S. Employer Identification No.)
One Centerpointe Drive, Suite 200, Lake Oswego, OR
97035
(Address of principal executive offices)
(Zip Code)
(503) 684-7000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock without par value
GBX
New York Stock Exchange
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
The number of shares of the registrant’s common stock, without par value, outstanding on July 2, 2021 was 32,377,439 shares.
FORM 10-Q
Table of Contents
Page
Forward-Looking Statements
3
PART I.
FINANCIAL INFORMATION
4
Item 1.
Condensed Financial Statements
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Income
5
Condensed Consolidated Statements of Comprehensive Income
6
Condensed Consolidated Statements of Equity
7
Condensed Consolidated Statements of Cash Flows
9
Notes to Condensed Consolidated Financial Statements
10
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
27
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
48
Item 4.
Controls and Procedures
49
PART II.
OTHER INFORMATION
50
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
51
Item 6.
Exhibits
52
Signatures
53
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events and include any statement that does not relate to any historical or current fact. We use words such as “anticipates,” “believes,” “can,” “could,” “estimates,” “expects,” “forecast,” “future,” “intends,” “likely,” “may,” “plans,” “potential,” “preliminary,” “seeks,” “should,” “will,” “would,” and similar expressions to identify forward-looking statements. Forward-looking statements are not guarantees of future performance.
Forward-looking statements are based on currently available operating, financial and market information and are subject to various risks and uncertainties. Actual future results and trends may differ materially depending on a variety of factors, including, but not limited to:
•
the COVID-19 coronavirus pandemic, the governmental reaction to COVID-19 and the related significant global decline in general economic activity as more fully described in Part II Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q;
the operations of one or more of our suppliers being disrupted or ceasing and the markets for the inputs to our business not operating effectively or efficiently, thereby negatively impacting our ability to purchase inputs for our business at reasonable prices, in a timely manner and in sufficient amounts;
changes in our product mix or revenue due to shifts in demand;
the cyclical nature of our business;
equipment failures, technological failures, costs and inefficiencies associated with changing of production lines, or transfer of production between facilities;
changes in demand for our railcar equipment and services;
our ability to realize the anticipated benefits of our new leasing strategy;
a decline in performance, or increase in efficiency, of the rail freight industry;
risks related to our operations outside of the United States (U.S.) including enforcement actions by regulators related to tax, environmental, labor, safety, or other regulations;
governmental policy changes impacting international trade and corporate tax;
the loss of, or reduction of, business from one or more of our limited number of customers; and
our inability to lease railcars at satisfactory rates, remarket leased railcars on favorable terms upon lease termination, or realize the expected residual values for end of life railcars due to changes in scrap prices;
The foregoing risks are described in more detail in Part I Item 1A “Risk Factors” in our most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q which are incorporated herein by reference. You are cautioned not to place undue reliance on any forward-looking statements, which reflect management’s opinions only as of the date hereof. Except as otherwise required by law, we do not assume any obligation to update any forward-looking statements. All references to years refer to the fiscal years ended August 31st unless otherwise noted.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
(In thousands, unaudited)
May 31,
2021
August 31,
2020
Assets
Cash and cash equivalents
$
628,200
833,745
Restricted cash
8,689
8,342
Accounts receivable, net
274,792
230,488
Income tax receivable
75,135
9,109
Inventories
553,137
529,529
Leased railcars for syndication
154,017
107,671
Equipment on operating leases, net
446,888
350,442
Property, plant and equipment, net
676,010
711,524
Investment in unconsolidated affiliates
79,420
72,354
Intangibles and other assets, net
180,829
190,322
Goodwill
133,050
130,308
3,210,167
3,173,834
Liabilities and Equity
Revolving notes
325,150
351,526
Accounts payable and accrued liabilities
480,373
463,880
Deferred income taxes
44,900
7,701
Deferred revenue
43,676
42,467
Notes payable, net
835,027
804,088
Commitments and contingencies (Note 15)
Contingently redeemable noncontrolling interest
30,323
31,117
Equity:
Greenbrier
Preferred stock - without par value; 25,000 shares
authorized; none outstanding
—
Common stock - without par value; 50,000 shares
authorized; 32,377 and 32,701 shares outstanding at
May 31, 2021 and August 31, 2020
Additional paid-in capital
467,806
460,400
Retained earnings
858,947
885,460
Accumulated other comprehensive loss
(39,990
)
(52,817
Total equity – Greenbrier
1,286,763
1,293,043
Noncontrolling interest
163,955
180,012
Total equity
1,450,718
1,473,055
The accompanying notes are an integral part of these financial statements
(In thousands, except per share amounts, unaudited)
Three Months Ended
Nine Months Ended
Revenue
Manufacturing
341,939
653,007
852,755
1,800,317
Wheels, Repair & Parts
80,871
82,024
218,050
259,857
Leasing & Services
27,333
27,526
77,949
95,590
450,143
762,557
1,148,754
2,155,764
Cost of revenue
292,464
562,793
775,125
1,567,014
73,690
75,001
203,341
241,266
8,857
17,232
36,814
61,428
375,011
655,026
1,015,280
1,869,708
Margin
75,132
107,531
133,474
286,056
Selling and administrative expense
49,239
49,494
136,371
158,455
Net (gain) loss on disposition of equipment
184
(8,775
(765
(19,431
Earnings (loss) from operations
25,709
66,812
(2,132
147,032
Other costs
Interest and foreign exchange
10,204
7,562
30,875
33,023
Net loss on extinguishment of debt
4,763
Earnings (loss) before income tax and earnings
from unconsolidated affiliates
10,742
59,250
(37,770
114,009
Income tax benefit (expense)
6,914
(24,421
35,998
(37,878
Earnings (loss) before earnings from
unconsolidated affiliates
17,656
34,829
(1,772
76,131
Earnings from unconsolidated affiliates
2,379
1,040
1,257
3,764
Net earnings (loss)
20,035
35,869
(515
79,895
Net (earnings) loss attributable to noncontrolling interest
(298
(8,097
1,215
(30,825
Net earnings attributable to Greenbrier
19,737
27,772
700
49,070
Basic earnings per common share
0.61
0.85
0.02
1.50
Diluted earnings per common share
0.59
0.83
1.47
Weighted average common shares:
Basic
32,573
32,690
32,726
32,660
Diluted
33,605
33,478
33,747
33,414
Other comprehensive income (loss)
Translation adjustment
4,835
(11,029
9,299
(13,315
Reclassification of derivative financial
instruments recognized in net earnings (loss) 1
1,389
1,845
3,904
2,322
Unrealized income (loss) on derivative financial instruments 2
658
(5,643
(237
(7,127
Other (net of tax effect)
(191
81
(138
(140
6,691
(14,746
12,828
(18,260
Comprehensive income
26,726
21,123
12,313
61,635
Comprehensive (income) loss attributable
to noncontrolling interest
(295
(8,096
1,214
(30,816
Comprehensive income attributable to Greenbrier
26,431
13,027
13,527
30,819
1
Net of tax effect of $(0.5 million) and $(0.6 million) for the three months ended May 31, 2021 and 2020 and $(1.2 million) and $(0.8 million) for the nine months ended May 31, 2021 and 2020.
2
Net of tax effect of ($0.4 million) and $2.1 million for the three months ended May 31, 2021 and 2020 and $0.3 million and $2.8 million for the nine months ended May 31, 2021 and 2020.
Attributable to Greenbrier
Common
Stock
Shares
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Equity -
Noncontrolling
Interest
Equity
Contingently
Redeemable
Balance August 31, 2020
32,701
Cumulative effect adjustment due
to adoption of ASU 2016-13
(see Note 1)
(509
Net earnings
(421
279
(794
Other comprehensive income, net
12,827
Noncontrolling interest adjustments
343
Joint venture partner
distribution declared
(22,980
Investment by joint venture partner
7,000
Restricted stock awards (net of
cancellations)
145
15,053
Unamortized restricted stock
(17,854
Restricted stock amortization
12,468
Repurchase of stock
(469
(20,000
2.875% Convertible senior notes, due
2028 - equity component, net of tax
56,253
2028 issuance costs - equity
component, net of tax
(1,801
2024 - equity component
extinguishment, net of tax
(28,499
2.25% Convertible senior notes, due
(8,214
Cash dividends ($0.81 per share)
(26,704
Balance May 31, 2021
32,377
Balance February 28, 2021
32,825
466,994
848,192
(46,684
1,268,502
175,857
1,444,359
30,037
12
19,749
286
6,694
(3
adjustments
1,628
(20,539
Investment by Joint Venture Partner
21
(444
3,517
Cash dividends ($0.27 per share)
(8,982
Balance August 31, 2019
32,488
453,943
867,602
(44,815
1,276,730
164,967
1,441,697
31,564
Cumulative effect adjustment
due to adoption of ASU
2016-02 (See Note 1)
4,393
31,778
80,848
(953
Other comprehensive loss, net
(18,251
(9
2,826
(34,751
Noncontrolling interest acquired
12,075
213
6,797
(9,063
7,991
Cash dividends ($0.79 per
share)
(26,446
Balance May 31, 2020
459,668
894,619
(63,066
1,291,221
176,886
1,468,107
30,611
Balance February 29, 2020
32,642
458,908
875,885
(48,321
1,286,472
201,410
1,487,882
30,782
8,268
36,040
(171
(14,745
(1
(6,212
(26,579
59
(4,317
3,945
1,132
Cash dividends ($0.27 per
(9,038
8
Cash flows from operating activities
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
20,197
(11,450
Depreciation and amortization
75,637
82,452
Net gain on disposition of equipment
Accretion of debt discount
4,639
4,102
Stock based compensation expense
8,265
1,729
568
Decrease (increase) in assets:
(49,160
110,431
(66,026
(92,294
12,555
(55,532
(38,826
Other assets
863
(59,212
Increase (decrease) in liabilities:
18,626
(77,243
1,189
(5,900
Net cash provided by (used in) operating activities
(123,838
89,032
Cash flows from investing activities
Proceeds from sales of assets
12,156
78,521
Capital expenditures
(62,774
(55,326
Investments in and advances to / repayments from unconsolidated affiliates
674
(1,500
Cash distribution from unconsolidated affiliates and other
652
11,273
Net cash provided by (used in) investing activities
(49,292
32,968
Cash flows from financing activities
Net change in revolving notes with maturities of 90 days or less
147,571
214,932
Proceeds from revolving notes with maturities longer than 90 days
112,000
175,000
Repayments of revolving notes with maturities longer than 90 days
(286,000
Proceeds from issuance of notes payable
373,750
Repayments of notes payable
(308,468
(24,002
Debt issuance costs
(14,067
Dividends
(26,882
(26,344
Cash distribution to joint venture partner
(24,055
(36,152
Tax payments for net share settlement of restricted stock
(2,802
(2,266
Net cash provided by (used in) financing activities
(41,953
301,168
Effect of exchange rate changes
9,885
(17,693
Increase (decrease) in cash and cash equivalents and restricted cash
(205,198
405,475
Cash and cash equivalents and restricted cash
Beginning of period
842,087
338,487
End of period
636,889
743,962
Balance sheet reconciliation
735,258
8,704
Total cash and cash equivalents and restricted cash as presented above
Cash paid during the period for
20,670
16,757
Income taxes, net
9,940
36,393
Non-cash activity
Transfer from Leased railcars for syndication and Inventories to Equipment on operating leases, net
78,124
55,739
Capital expenditures accrued in Accounts payable and accrued liabilities
1,943
2,769
Change in Accounts payable and accrued liabilities associated with dividends declared
179
(102
Conversion of unconsolidated affiliate note receivable to Investment in unconsolidated affiliates
4,760
Change in Accounts payable and accrued liabilities associated with cash distributions to joint
venture partner
1,075
1,401
(Unaudited)
Note 1 – Interim Financial Statements
The Condensed Consolidated Financial Statements of The Greenbrier Companies, Inc. and its subsidiaries (Greenbrier or the Company) as of May 31, 2021 and for the three and nine months ended May 31, 2021 and 2020 have been prepared to reflect all adjustments (consisting of normal recurring accruals) that, in the opinion of management, are necessary for a fair presentation of the financial position, operating results and cash flows for the periods indicated. The results of operations for the three and nine months ended May 31, 2021 are not necessarily indicative of the results to be expected for the entire year ending August 31, 2021.
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 unaudited financial statements should be read in conjunction with the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended August 31, 2020.
Management Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (GAAP) 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.
Initial Adoption of Accounting Standards
Measurement of Credit Losses on Financial Instruments
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update 2016-13, Financial Instruments – Credit Losses (ASU 2016-13). This update introduced a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The new guidance applies to loans, accounts receivable, trade receivables, other financial assets measured at amortized cost, loan commitments and other off-balance sheet credit exposures. The new guidance also applies to debt securities and other financial assets measured at fair value through other comprehensive income (loss). The new guidance is effective for annual reporting periods beginning after December 15, 2019, with early adoption permitted. The Company adopted this guidance beginning September 1, 2020. The Company estimated the expected lifetime credit loss by pooling financial instruments based on similar characteristics. Expected losses were then estimated using historical loss information and aging considerations, as well as other information such as the current and future economic conditions of its customers and the end markets in which they operate. The Company adopted this guidance using a modified retrospective approach through a cumulative effect adjustment, which decreased opening retained earnings by $0.5 million on September 1, 2020. The ongoing application of ASU 2016-13 is not expected to materially impact the Company’s consolidated financial statements.
Prospective Accounting Changes
Convertible Instruments and Contracts in an Entity’s Own Equity
In August 2020, the FASB issued Accounting Standard Update 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain convertible instruments, amends guidance on derivative scope exceptions for contracts in an entity’s own equity, and modifies the guidance on diluted EPS calculations as a result of these changes. The Company expects this change to reduce reported interest expense, increase reported net income, and result in a reclassification of certain convertible balance sheet amounts from stockholders’ equity to liabilities as it relates to the Company’s convertible senior notes. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted EPS, which is expected to be incrementally dilutive compared to the Company’s current accounting treatment. The guidance in this ASU can be adopted using either a full or modified retrospective approach and becomes effective for annual
reporting periods beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.
Simplification of Accounting for Income Taxes
In December 2019, the FASB issued Accounting Standard Update 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 for: recognizing deferred taxes for investments, performing intra-period allocations and calculating taxes in interim periods. The ASU also improves consistent application of GAAP for other areas of Topic 740 by clarifying and amending existing guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The standard is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements and disclosures.
Note 2 – Revenue Recognition
Contract balances
Contract assets primarily consist of unbilled receivables related to marine vessel construction and railcar repair services, for which the respective contracts do not yet permit billing at the reporting date. Contract liabilities primarily consist of customer prepayments for manufacturing, maintenance, and other management-type services, for which the Company has not yet satisfied the related performance obligations.
The contract balances are as follows:
(in thousands)
Balance sheet classification
change
Contract assets
18,999
430
18,569
9,728
7,081
2,647
Contract liabilities 1
36,867
27,009
9,858
Contract liabilities balance includes deferred revenue within the scope of Topic 606.
For the nine months ended May 31, 2021, the Company recognized $5.9 million of revenue that was included in Contract liabilities as of August 31, 2020.
Performance obligations
As of May 31, 2021, the Company has entered into contracts with customers for which revenue has not yet been recognized. The following table outlines estimated revenue related to performance obligations wholly or partially unsatisfied, that the Company anticipates will be recognized in future periods.
(in millions)
Revenue type:
Manufacturing – Railcar sales
2,145.0
Manufacturing – Marine
39.4
Services
131.0
68.1
Manufacturing – Railcars intended for syndication 1
253.0
Not a performance obligation as defined in Topic 606
11
Based on current production and delivery schedules and existing contracts, approximately $0.4 billion of Railcar sales are expected to be recognized in the remaining three months of 2021 while the remaining amount is expected to be recognized into 2024. The table above excludes estimated revenue to be recognized at the Company’s Brazilian manufacturing operations, as they are accounted for under the equity method.
Revenue amounts reflected in Railcars intended for syndication may be syndicated to third parties or held in the Company’s fleet depending on a variety of factors.
Marine revenue is expected to be recognized through 2022 as vessel construction is completed.
Services includes management and maintenance services of which approximately 47% are expected to be performed through 2025 and the remaining amount through 2037.
Note 3 – Inventories
Inventories are valued at the lower of cost or net realizable value using the first-in first-out method. Work-in-process includes material, labor and overhead. Finished goods includes completed wheels, parts and railcars not on lease or in transit. The following table summarizes the Company’s inventory balance:
(In thousands)
Manufacturing supplies and raw materials
315,587
263,080
Work-in-process
140,285
116,909
Finished goods
117,012
173,761
Excess and obsolete adjustment
(19,747
(24,221
Note 4 – Intangibles and Other Assets, net
Intangible assets that are determined to have finite lives are amortized over their useful lives. Intangible assets with indefinite useful lives are not amortized and are periodically evaluated for impairment.
The following table summarizes the Company’s identifiable intangible and other assets balance:
Intangible assets subject to amortization:
Customer relationships
89,722
Accumulated amortization
(62,237
(56,509
Other intangibles
38,928
37,798
(12,147
(10,595
54,266
60,416
Intangible assets not subject to amortization
2,474
Prepaid and other assets
26,349
22,026
Operating lease ROU assets
41,621
62,389
Nonqualified savings plan investments
45,816
35,744
Revolving notes issuance costs, net
4,890
3,623
Assets held for sale
5,413
3,650
Total Intangible and other assets, net
Amortization expense was $2.9 million and $8.5 million for the three and nine months ended May 31, 2021 and $2.7 million and $8.2 million for the three and nine months ended May 31, 2020. Amortization expense for the years ending August 31, 2021, 2022, 2023, 2024 and 2025 is expected to be $11.6 million, $8.3 million, $6.9 million, $6.7 million and $5.8 million, respectively.
Note 5 – Revolving Notes
Senior secured credit facilities, consisting of four components, aggregated to $1.04 billion as of May 31, 2021.
As of May 31, 2021, a $600.0 million revolving line of credit, maturing June 2024, secured by substantially all the Company’s assets in the U.S. not otherwise pledged as security for term loans or the warehouse credit facility, existed to provide working capital and interim financing of equipment, principally for the Company’s U.S. and Mexican operations. Advances under this North American credit facility bear interest at LIBOR plus 1.50% or Prime plus 0.50% depending on the type of borrowing. Available borrowings under the credit facility are generally based on defined levels of eligible inventory, receivables, property, plant and equipment and leased equipment, as well as total debt to consolidated capitalization and fixed charges coverage ratios.
As of May 31, 2021, a $300.0 million non-recourse warehouse credit facility existed to support the operations of GBX Leasing, a joint venture in which the Company owns approximately 90%. Advances under this facility bear interest at LIBOR plus 2.0%. The warehouse credit facility converts to a term loan in April 2023 which matures in April 2025. As of May 31, 2021, there were $96.6 million in outstanding borrowings associated with this facility.
As of May 31, 2021, lines of credit totaling $71.4 million secured by certain of the Company’s European assets, with variable rates that range from Warsaw Interbank Offered Rate (WIBOR) plus 1.2% to WIBOR plus 1.5% and Euro Interbank Offered Rate (EURIBOR) plus 1.1%, were available for working capital needs of the Company’s European manufacturing operations. The European lines of credit include $36.6 million of facilities which are guaranteed by the Company. European credit facilities are regularly renewed. Currently, these European credit facilities have maturities that range from August2021 through September 2022.
As of May 31, 2021, the Company’s Mexican railcar manufacturing operations had three lines of credit totaling $70.0 million. The first line of credit provides up to $30.0 million, of which the Company and its joint venture partner have each guaranteed 50%. Advances under this facility bear interest at LIBOR plus 3.75% to 4.25%. The Mexican railcar manufacturing joint venture will be able to draw amounts available under this facility through June 2024. The second line of credit provides up to $35.0 million, of which the Company and its joint venture partner have each guaranteed 50%. Advances under this facility bear interest at LIBOR plus 3.70%. The Mexican railcar manufacturing joint venture will be able to draw amounts available under this facility through June 2023. The third line of credit provides up to $5.0 million and matures in September 2022. Advances under this facility bear interest at LIBOR plus 2.95% and are to be used for working capital needs.
As of May 31, 2021, outstanding commitments under the senior secured credit facilities consisted of $160.0 million in borrowings and $25.2 million in letters of credit under the North American credit facility, $38.6 million outstanding under the European credit facilities and $30.0 million outstanding under the Mexican credit facilities. As of May 31, 2021, the Company had an aggregate of $221.3 million available to draw down under committed credit facilities.
As of August 31, 2020, outstanding commitments under the senior secured credit facilities consisted of $28.7 million in letters of credit and $275.0 million in borrowings under the North American credit facility, $46.5 million outstanding under the European credit facilities and $30.0 million outstanding under the Mexican credit facilities.
13
Note 6 – Accounts Payable and Accrued Liabilities
Trade payables
190,802
148,971
Other accrued liabilities
104,839
100,168
Operating lease liabilities
44,317
64,509
Accrued payroll and related liabilities
108,812
105,008
Accrued warranty
31,603
45,224
Note 7 – Warranty Accruals
Warranty costs are estimated and charged to operations to cover a defined warranty period. The estimated warranty cost is based on the history of warranty claims for each particular product type. For new product types without a warranty history, preliminary estimates are based on historical information for similar product types. The warranty accruals, included in Accounts payable and accrued liabilities on the Consolidated Balance Sheets, are reviewed periodically and updated based on warranty trends and expirations of warranty periods.
Warranty accrual activity:
Balance at beginning of period
42,689
46,850
46,678
Charged to cost of revenue, net
(9,232
2,600
(7,881
5,862
Payments
(1,980
(1,518
(5,824
(4,653
Currency translation effect
126
(189
84
(144
Balance at end of period
47,743
Note 8 – Notes Payable, Net
2.875% Convertible senior notes, due 2028
-
2.875% Convertible senior notes, due 2024
67,876
275,000
Term loans
481,396
498,858
2.25% Convertible senior notes, due 2024
50,000
Other notes payable
1,936
10,135
924,958
833,993
Debt discount and issuance costs
(89,931
(29,905
In April 2021, the Company issued $373.8 million of convertible senior notes, due 2028 (2028 Convertible Notes) and used $283.3 million of the net proceeds to repurchase $207.1 million of our 2.875% 2024 Convertible Notes and the 2.25% 2024 Convertible Notes. The proceeds were allocated between the repurchase of the liability and the equity components for both notes with liability component fair values of $198.1 million and $46.5 million for the 2.875% and 2.25% 2024 Convertible Notes respectively, with the remaining accounted for as a repurchase of the equity components, reducing Additional paid-in capital. The difference between the fair value of the debt component and the carrying value, net of unamortized debt discount and issuance costs, resulted in a loss on extinguishment of $4.8 million. After giving effect to the repurchase, the remaining principal amount outstanding on the 2.875% 2024 Notes was $67.9 million.
14
2028 Convertible Notes:
The 2028 Convertible Notes are senior unsecured obligations and rank equally with other senior unsecured debt. The notes bear interest at an annual rate of 2.875% payable semiannually in arrears on April 15 and October 15 of each year, commencing October 15, 2021. The notes will mature on April 15, 2028, unless earlier repurchased, redeemed or converted in accordance with their terms prior to such date. The notes are convertible into shares of the Company’s common stock, at an initial conversion rate of 18.0317 shares of common stock per $1,000 principal amount which is equivalent to an initial conversion price of approximately $55.46 per share. The conversion rate and the resulting conversion price are subject to adjustment in certain events. Upon a conversion of the notes, the Company may elect to pay or deliver, as the case may be, cash and, if applicable, shares of the Company’s common stock, as provided in the 2028 Notes Indenture (as defined below).
The 2028 Convertible Notes are subject to that certain indenture entered into on April 20, 2021 by the Company and Wells Fargo Bank, National Association, as trustee, as amended and restated by the first supplemental indenture dated June 1, 2021 (2028 Notes Indenture). The 2028 Convertible Notes are convertible at the option of the holders prior to January 15, 2028, under certain circumstances as described in the 2028 Notes Indenture. Additionally, the Company may elect to call the notes on or after April 15, 2025 and on or before the 40th trading day prior to April 15, 2028, at a cash redemption price described in the 2028 Notes Indenture if the stock price exceeds 130% of the conversion price during certain trading days as defined in the 2028 Notes Indenture. Calling any Convertible Note for redemption will constitute a make-whole fundamental change with respect to that Convertible Note, in which case the conversion rate applicable to the conversion of that Convertible Note will be increased in certain circumstances if it is converted after it is called for redemption.
The Company evaluated the accounting for the issuance of the 2028 Convertible Notes and concluded the embedded conversion features met the requirements for a derivative scope exception and that the cash conversion guidance applies. Therefore, proceeds of $373.8 million are allocated first to the liability component based on non-convertible debt with the residual proceeds allocated to the equity component for the conversion features. The carrying amount of the equity component of $73.6 million is recorded in Additional paid-in capital and is not remeasured as long as it continues to meet the condition for equity classification. The debt discount, representing the excess of the principal amount of the liability component over the carrying amount of the debt, is amortized to interest expense at an effective interest rate of 5.75% over the contractual term. The Company allocated $12.0 million in issuance costs associated with the 2028 Convertible Notes to the liability and equity component in the same proportion as the $373.8 million in proceeds.
The following table summarizes the net carrying amount of the 2028 Convertible Notes:
Debt principal
Debt discount, net
(72,888
Debt issuance costs, net
(9,517
291,345
15
Note 9 – Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss, net of tax effect as appropriate, consisted of the following:
Unrealized
Gain (Loss)
on Derivative
Financial
Instruments
Foreign
Currency
Translation
Adjustment
Balance, August 31, 2020
(11,970
(39,816
(1,031
Other comprehensive gain (loss)
before reclassifications
9,298
8,923
Amounts reclassified from
Accumulated other
comprehensive loss
Balance, May 31, 2021
(8,303
(30,518
(1,169
The amounts reclassified out of Accumulated other comprehensive loss into the Consolidated Statements of Income, with financial statement caption, were as follows:
Financial Statement Caption
(Gain) loss on derivative financial
instruments:
Foreign exchange contracts
546
1,711
Revenue and Cost of
revenue
Interest rate swap contracts
1,307
783
Interest and foreign
exchange
Total before tax
1,853
2,494
Income tax
(464
(649
Net of tax
1,218
1,812
3,901
1,319
5,119
3,131
(1,215
(809
16
Note 10 – Earnings Per Share
The shares used in the computation of basic and diluted earnings per common share are reconciled as follows:
Weighted average basic common shares outstanding (1)
Dilutive effect of 2.875% convertible notes, due 2024 (2)
Dilutive effect of 2.875% convertible notes, due 2028 (3)
N/A
Dilutive effect of 2.25% convertible notes, due 2024 (4)
Dilutive effect of restricted stock units (5)
1,032
788
1,021
754
Weighted average diluted common shares outstanding
(1)
Restricted stock grants and restricted stock units that are considered participating securities, including some grants subject to certain performance criteria, are included in weighted average basic common shares outstanding when the Company is in a net earnings position.
(2)
The dilutive effect of the 2.875% convertible notes, due 2024 was excluded for the three and nine months ended May 31, 2021 and 2020 as the average stock price was less than the applicable conversion price and therefore was considered anti-dilutive.
(3)
The dilutive effect of the 2.875% convertible notes, due 2028 was excluded for the three and nine months ended May 31, 2021 as the average stock price was less than the applicable conversion price and therefore was considered anti-dilutive. These convertible notes were issued in April 2021.
(4)
The dilutive effect of the 2.25% convertible notes, due 2024 was excluded for the three and nine months ended May 31, 2021 and 2020 as the average stock price was less than the applicable conversion price and therefore was considered anti-dilutive. These convertible notes were retired in April 2021.
(5)
Restricted stock units that are not considered participating securities and restricted stock units subject to performance criteria, for which actual levels of performance above target have been achieved, are included in weighted average diluted common shares outstanding when the Company is in a net earnings position.
Diluted EPS is calculated using the treasury stock method associated with shares underlying the 2.875% convertible notes due 2024, 2.875% convertible notes due 2028, 2.25% convertible notes due 2024, restricted stock units that are not considered participating securities and performance based restricted stock units subject to performance criteria, for which actual levels of performance above target have been achieved.
Diluted earnings per share
17
Note 11 – Stock Based Compensation
The value of stock based compensation awards is amortized as compensation expense from the date of grant through the earlier of the vesting period or in some instances the recipient’s eligible retirement date. Stock based compensation expense consists of restricted stock unit awards.
Stock based compensation expense was $3.5 million and $12.5 million for the three and nine months ended May 31, 2021, respectively and $1.0 million and $8.3 million for the three and nine months ended May 31, 2020, respectively. Compensation expense is recorded in Selling and administrative expense and Cost of revenue on the Consolidated Statements of Income.
Note 12 – Derivative Instruments
Foreign operations give rise to market risks from changes in foreign currency exchange rates. Foreign currency forward exchange contracts with established financial institutions are utilized to hedge a portion of that risk. Interest rate swap agreements are used to reduce the impact of changes in interest rates on certain debt. The Company’s foreign currency forward exchange contracts and interest rate swap agreements are designated as cash flow hedges, and therefore the effective portion of unrealized gains and losses is recorded in accumulated other comprehensive income or loss.
At May 31, 2021 exchange rates, notional amounts of forward exchange contracts for the purchase of Polish Zlotys and the sale of Euros; and the purchase of Mexican Pesos and the sale of U.S. Dollars aggregated to $147.7 million. The fair value of the contracts is included on the Consolidated Balance Sheets as Accounts payable and accrued liabilities when in a loss position, or as Accounts receivable, net when in a gain position. As the contracts mature at various dates through December 2022, any such gain or loss remaining will be recognized in manufacturing revenue or cost of revenue along with the related transactions. In the event that the underlying transaction does not occur or does not occur in the period designated at the inception of the hedge, the amount classified in accumulated other comprehensive loss would be reclassified to the results of operations in Interest and foreign exchange at the time of occurrence. At May 31, 2021 exchange rates, approximately $0.4 million would be reclassified to revenue or cost of revenue in the next year.
At May 31, 2021, an interest rate swap agreement maturing in September 2023 had a notional amount of $102.7 million and an interest rate swap agreement maturing June 2024 had a notional amount of $138.8 million. The fair value of the contracts are included on the Consolidated Balance Sheets in Accounts payable and accrued liabilities when in a loss position, or in Accounts receivable, net when in a gain position. As interest expense on the underlying debt is recognized, amounts corresponding to the interest rate swap are reclassified from Accumulated other comprehensive loss and charged or credited to interest expense. At May 31, 2021 interest rates, approximately $5.0 million would be reclassified to interest expense in the next year.
Fair Values of Derivative Instruments
Asset Derivatives
Liability Derivatives
Balance sheet location
Fair Value
Derivatives designated
as hedging
instruments
Foreign forward
exchange contracts
Accounts receivable,
net
606
560
Accounts payable and
accrued liabilities
Interest rate swap
contracts
11,361
15,904
11,370
15,907
Derivatives not
designated as
hedging instruments
22
47
18
The Effect of Derivative Instruments on the Statements of Income
Derivatives in cash flow hedging relationships
Location of gain (loss)
recognized in income
on derivatives
Gain (loss) recognized in income on
derivatives three months ended
Foreign forward exchange contract
95
154
Derivatives in
cash flow hedging
relationships
Gain (loss) recognized
in OCI on derivatives
three months ended,
Location of gain
(loss) reclassified
from accumulated
OCI into income
Gain (loss) reclassified
from accumulated OCI
into income three months
ended
(loss) on derivative
(amount
excluded from
effectiveness
testing)
on derivative
(amount excluded from
effectiveness testing)
three months ended
494
(599
(522
(485
165
138
273
(2,015
Cost of
(24
(1,226
32
130
Interest rate
swap
(5,155
Interest and
foreign
(1,307
(783
281
252
(7,769
(1,853
(2,494
197
549
The following table presents the amounts in the Consolidated Statements of Income in which the effects of the cash flow hedges are recorded and the effects of the cash flow hedge activity on these line items for the three months ended May 31, 2021 and 2020:
For The Three Months Ended
May 31, 2021
May 31, 2020
Amount of gain
(loss) on cash
flow hedge
activity
19
derivatives nine months ended
(37
60
nine months ended
into income nine months ended
amount
(1,118
164
(1,145
(584
467
781
(22
(2,198
(73
(1,228
97
474
642
(7,939
foreign exchange
(3,901
(1,319
(498
(9,973
(5,119
(3,131
564
1,255
For the Nine Months Ended
Note 13 – Segment Information
The Company operates in three reportable segments: Manufacturing; Wheels, Repair & Parts; and Leasing & Services.
The accounting policies of the segments are described in the summary of significant accounting policies in the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended August 31, 2020. Performance is evaluated based on Earnings (loss) from operations. Corporate includes selling and administrative costs not directly related to goods and services and certain costs that are intertwined among segments due to our integrated business model. The Company does not allocate Interest and foreign exchange or Income tax benefit (expense) for either external or internal reporting purposes. Intersegment sales and transfers are valued as if the sales or transfers were to third parties. Related revenue and margin are eliminated in consolidation and therefore are not included in consolidated results in the Company’s Consolidated Financial Statements.
The information in the following table is derived directly from the segments’ internal financial reports used for corporate management purposes.
20
For the three months ended May 31, 2021:
External
Intersegment
7,451
349,390
31,341
492
31,833
2,292
83,163
4,173
75
4,248
2,286
29,619
12,280
2,272
14,552
Eliminations
(12,029
(2,839
Corporate
(22,085
For the nine months ended May 31, 2021:
30,467
883,222
23,811
3,097
26,908
4,196
222,246
6,406
6,458
8,064
86,013
24,590
7,191
31,781
(42,727
(10,340
(56,939
For the three months ended May 31, 2020:
1,151
654,158
68,445
68,540
1,527
83,551
3,785
(393
3,392
14,841
42,367
11,837
14,454
26,291
(17,519
(14,156
(17,255
For the nine months ended May 31, 2020:
1,269
1,801,586
167,693
73
167,766
12,511
272,368
8,219
(903
7,316
31,830
127,420
34,407
30,127
64,534
(45,610
(29,297
(63,287
Total assets
1,413,590
1,301,715
265,847
271,862
878,743
739,025
Unallocated, including cash
651,987
861,232
Reconciliation of Earnings (loss) from operations to Earnings (loss) before income tax and earnings from unconsolidated affiliates:
Earnings (loss) before income tax and
earnings from unconsolidated affiliates
Note 14 – Leases
Lessor
Equipment on operating leases is reported net of accumulated depreciation of $30.5 million and $33.4 million as of May 31, 2021 and August 31, 2020, respectively. Depreciation expense was $3.3 million and $10.1 million for the three and nine months ended May 31, 2021, respectively and $2.6 million and $9.2 million for the three and nine months ended May 31, 2020, respectively. In addition, certain railcar equipment leased-in by the Company on operating leases is subleased to customers under non-cancelable operating leases with lease terms ranging from one to approximately fifteen years. Operating lease rental revenues included in the Company’s Statements of Income for the three and nine months ended May 31, 2021 was $8.0 million and $32.1 million, respectively, which included $2.8 million and $10.2 million, respectively, of revenue as a result of daily, monthly or car hire utilization arrangements. Operating lease rental revenues included in the Company’s Statements of Income for the three and nine months ended May 31, 2020 was $9.0 million and $30.2 million, respectively, which included $2.8 million and $9.3 million, respectively, of revenue as a result of daily, monthly or car hire utilization arrangements.
Aggregate minimum future amounts receivable under all non-cancelable operating leases and subleases at May 31, 2021, will mature as follows:
Remaining three months of 2021
8,705
2022
24,151
2023
19,714
2024
17,224
2025
10,775
Thereafter
23,627
104,196
Lessee
The Company leases railcars, real estate, and certain equipment under operating and, to a lesser extent, finance lease arrangements. As of and for the three and nine months ended May 31, 2021 and 2020, finance leases were not a material component of the Company's lease portfolio. The Company’s real estate and equipment leases have remaining lease terms ranging from less than one year to 77 years, with some including options to extend up to 15 years. The Company recognizes a lease liability and corresponding right-of-use (ROU) asset based on the present value of lease payments. To determine the present value of lease payments, as most of its leases do not provide a readily determinable implicit rate, the Company’s incremental borrowing rate is used to discount the lease payments based on information available at lease commencement date. The Company gives consideration to its recent debt issuances as well as publicly available data for instruments with similar characteristics when estimating its incremental borrowing rate.
The components of operating lease costs were as follows:
Operating lease expense
2,920
4,388
10,438
11,238
Short-term lease expense
991
1,707
3,577
6,437
3,911
6,095
14,015
17,675
Aggregate minimum future amounts payable under operating leases having initial or remaining non-cancelable terms at May 31, 2021 will mature as follows:
2,405
9,151
8,713
7,429
5,070
17,557
Total lease payments
50,325
Less: Imputed interest
(6,008
Total lease obligations
The table below presents additional information related to the Company’s leases:
Weighted average remaining lease term:
Operating leases
13.8 Years
Weighted average discount rate:
3.0
%
Supplemental cash flow information related to leases were as follows:
Nine months ended
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
10,091
ROU assets obtained in exchange for new operating lease liabilities
404
ROU assets disposed of for lease terminations
(12,053
23
Note 15 – Commitments and Contingencies
Portland Harbor Superfund Site
The Company’s Portland, Oregon manufacturing facility (the Portland Property) is located adjacent to the Willamette River. In December 2000, the U.S. Environmental Protection Agency (EPA) classified portions of the Willamette River bed known as the Portland Harbor, including the portion fronting the Company’s manufacturing facility, as a federal "National Priority List" or "Superfund" site due to sediment contamination (the Portland Harbor Site). The Company and more than 140 other parties have received a "General Notice" of potential liability from the EPA relating to the Portland Harbor Site. The letter advised the Company that it may be liable for the costs of investigation and remediation (which liability may be joint and several with other potentially responsible parties) as well as for natural resource damages resulting from releases of hazardous substances to the site. Ten private and public entities, including the Company (the Lower Willamette Group or LWG), signed an Administrative Order on Consent (AOC) to perform a remedial investigation/feasibility study (RI/FS) of the Portland Harbor Site under EPA oversight, and several additional entities did not sign such consent, but nevertheless contributed financially to the effort. The EPA-mandated RI/FS was produced by the LWG and cost over $110 million during a 17-year period. The Company bore a percentage of the total costs incurred by the LWG in connection with the investigation. The Company’s aggregate expenditure during the 17-year period was not material. Some or all of any such outlay may be recoverable from other responsible parties. The EPA issued its Record of Decision (ROD) for the Portland Harbor Site on January 6, 2017 and accordingly on October 26, 2017, the AOC was terminated.
Separate from the process described above, which focused on the type of remediation to be performed at the Portland Harbor Site and the schedule for such remediation, 83 parties, including the State of Oregon and the federal government, entered into a non-judicial mediation process to try to allocate costs associated with remediation of the Portland Harbor Site. Approximately 110 additional parties signed tolling agreements related to such allocations. On April 23, 2009, the Company and the other AOC signatories filed suit against 69 other parties due to a possible limitations period for some such claims; Arkema Inc. et al v. A & C Foundry Products, Inc. et al, U.S. District Court, District of Oregon, Case #3:09-cv-453-PK. All but 12 of these parties elected to sign tolling agreements and be dismissed without prejudice, and the case has been stayed by the court until January 14, 2022.
The EPA's January 6, 2017 ROD identifies a clean-up remedy that the EPA estimates will take 13 years of active remediation, followed by 30 years of monitoring with an estimated undiscounted cost of $1.7 billion. The EPA typically expects its cost estimates to be accurate within a range of -30% to +50%, but this ROD states that changes in costs are likely to occur as a result of new data collected over a 2-year period prior to final remedy design. The ROD identifies 13 Sediment Decision Units. One of the units, RM9W, includes the nearshore area of the river sediments offshore of the Portland Property as well as upstream and downstream of the facility. It also includes a portion of the Company’s riverbank. The ROD does not break down total remediation costs by Sediment Decision Unit. The EPA's ROD concluded that more data was needed to better define clean-up scope and cost. On December 8, 2017, the EPA announced that Portland Harbor is one of 21 Superfund sites targeted for greater attention. On December 19, 2017, the EPA announced that it had entered a new AOC with a group of four potentially responsible parties to conduct additional sampling during 2018 and 2019 to provide more certainty about clean-up costs and aid the mediation process to allocate those costs. The parties to the mediation, including the Company, agreed to help fund the additional sampling, which is now complete. The EPA requested that potentially responsible parties enter AOCs during 2019 agreeing to conduct remedial design studies. Some parties have signed AOCs, including one party with respect to RM9W which includes the area offshore of the Company’s manufacturing facility. The Company has not signed an AOC in connection with remedial design, but will potentially be directly or indirectly responsible for conducting or funding a portion of such RM9W remedial design. The allocation process is continuing in parallel with the process to define the remedial design.
The ROD does not address responsibility for the costs of clean-up, nor does it allocate such costs among the potentially responsible parties. Responsibility for funding and implementing the EPA's selected cleanup remedy will be determined at an unspecified later date. Based on the investigation to date, the Company believes that it did not contribute in any material way to contamination in the river sediments or the damage of natural resources in the Portland Harbor Site and that the damage in the area of the Portland Harbor Site adjacent to its property precedes the Company’s ownership of the Portland Property. Because these environmental investigations are still underway, sufficient information is currently not available to determine the Company’s liability, if any, for the cost of any
24
required remediation or restoration of the Portland Harbor Site or to estimate a range of potential loss. Based on the results of the pending investigations and future assessments of natural resource damages, the Company may be required to incur costs associated with additional phases of investigation or remedial action, and may be liable for damages to natural resources. In addition, the Company may be required to perform periodic maintenance dredging in order to continue to launch vessels from its launch ways in Portland, Oregon, on the Willamette River, and the river's classification as a Superfund site could result in some limitations on future dredging and launch activities. Any of these matters could adversely affect the Company’s business and Consolidated Financial Statements, or the value of the Portland Property.
On January 30, 2017 the Confederated Tribes and Bands of Yakama Nation sued 33 parties including the Company as well as the U.S. and the State of Oregon for costs it incurred in assessing alleged natural resource damages to the Columbia River from contaminants deposited in Portland Harbor. Confederated Tribes and Bands of the Yakama Nation v. Air Liquide America Corp., et al., U.S. Court for the District of Oregon Case No. 3i17-CV-00164-SB. The complaint does not specify the amount of damages the plaintiff will seek. The case has been stayed until January 14, 2022.
Oregon Department of Environmental Quality (DEQ) Regulation of Portland Manufacturing Operations
The Company entered into a Voluntary Cleanup Agreement with the Oregon Department of Environmental Quality (DEQ) 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 into the environment. The Company has also signed an Order on Consent with the DEQ to finalize the investigation of potential onsite sources of contamination that may have a release pathway to the Willamette River. Interim precautionary measures are also required in the order and the Company is discussing with the DEQ potential remedial actions which may be required. The Company’s aggregate expenditure has not been material, however it could incur significant expenses for remediation. Some or all of any such outlay may be recoverable from other responsible parties.
Other Litigation, Commitments and Contingencies
In connection with the acquisition of the manufacturing business of American Railcar Industries, Inc. (ARI), the Company agreed to assume potential legacy liabilities (known and unknown) related to railcars manufactured by ARI. Among these potential liabilities are certain retrofit and repair obligations arising from regulatory actions by the Federal Railroad Administration and the Association of American Railroads. In some cases, the seller shares with the Company the costs of these retrofit and repair obligations. The Company currently is not able to determine if any of these liabilities will have a material adverse impact on the Company’s Consolidated Financial Statements.
From time to time, Greenbrier is involved as a defendant in litigation in the ordinary course of business, the outcomes of which cannot be predicted with certainty. While the ultimate outcome of such legal proceedings cannot be determined at this time, the Company believes that the resolution of pending litigation will not have a material adverse effect on the Company's Consolidated Financial Statements.
As of May 31, 2021, the Company had outstanding letters of credit aggregating to $25.2 million associated with performance guarantees, facility leases and workers compensation insurance.
25
Note 16 – Fair Value Measures
Certain assets and liabilities are reported at fair value on either a recurring or nonrecurring basis. Fair value, for this disclosure, is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, under a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:
Level 1 - observable inputs such as unadjusted quoted prices in active markets for identical instruments;
Level 2 - inputs, other than the quoted market prices in active markets for similar instruments, which are observable, either directly or indirectly; and
Level 3 - unobservable inputs for which there is little or no market data available, which require the reporting entity to develop its own assumptions.
Assets and liabilities measured at fair value on a recurring basis as of May 31, 2021 were:
Level 1
Level 2 (1)
Level 3
Assets:
Derivative financial instruments
610
Cash equivalents
203,833
250,259
249,649
Liabilities:
11,417
Level 2 assets and liabilities include derivative financial instruments that are valued based on observable inputs. See Note 12 - Derivative Instruments for further discussion.
Assets and liabilities measured at fair value on a recurring basis as of August 31, 2020 were:
582
203,509
239,835
239,253
Note 17 – Related Party Transactions
The Company has a 41.9% interest in Axis, LLC (Axis), a joint venture. The Company purchased $3.3 million and $10.0 million for the three and nine months ended May 31, 2021, respectively and $4.3 million and $11.5 million for the three and nine months ended May 31, 2020, respectively of railcar components from Axis.
The Company has a 40% interest in the common equity of an entity that buys and sells railcar assets that are leased to third parties. As of May 31, 2021, the carrying amount of the investment was $3.2 million which is classified in Investment in unconsolidated affiliates in the Consolidated Balance Sheet. There were no sales to or from this entity during the nine months ended May 31, 2021 and 2020. The Company also provides administrative and remarketing services to this entity and earns management fees for these services which were immaterial for the three and nine months ended May 31, 2021 and 2020.
26
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
We operate in three reportable segments: Manufacturing; Wheels, Repair & Parts; and Leasing & Services. Our segments are operationally integrated. The Manufacturing segment, which currently operates from facilities in the U.S., Mexico, Poland, Romania and Turkey, produces double-stack intermodal railcars, tank cars, conventional railcars, automotive railcar products and marine vessels. The Wheels, Repair & Parts segment performs wheel and axle servicing; railcar repair, refurbishment and maintenance; as well as production of a variety of parts for the rail industry in North America. The Leasing & Services segment, which includes GBX Leasing, owns approximately 8,700 railcars as of May 31, 2021. We also provide management services for approximately 445,000 railcars for railroads, shippers, carriers, institutional investors and other leasing and transportation companies in North America as of May 31, 2021. Through unconsolidated affiliates we produce rail and industrial components and have an ownership stake in a railcar manufacturer in Brazil.
The financial results for the nine months ended May 31, 2021 are representative of the challenges of the current market conditions. The decrease in operating profits compared to the same period in the prior year is primarily attributable to the cyclical decrease in economic activity in the freight rail equipment market which began prior to the emergence of COVID-19 (Cyclical Downturn). The Cyclical Downturn intensified due to the COVID-19 Events (as defined below).
We have adhered to disciplined management through this crucial time. Our core strategy since March 2020 has been and continues to be to:
1)
Maintain a strong liquidity base and balance sheet.
2)
Continue efficient operations throughout the COVID-19 and economic crises by safely operating our factories while generating cash.
3)
Prepare for economic recovery and forward momentum in our markets expected during the latter half of calendar 2021. We believe we are in this recovery phase, with increased production rates and deliveries, assuming no further COVID-19 or geopolitical shocks.
We strengthened our financial position through strategic spending reductions which included reducing our selling and administrative expense by $22.1 million during the nine months ended May 31, 2021 compared to the prior comparable period.
Despite the challenging operating environment, the following noteworthy accomplishments were achieved during the quarter:
$19.7 million of net earnings and $0.59 diluted earnings per share. This represents a significant improvement compared to recent quarters as we have continued to increase production during this recovery phase.
Commenced operations of GBX Leasing, a newly formed joint venture to help execute our refined leasing strategy to grow our owned portfolio of leased railcars built by Greenbrier.
Refinanced certain debt by issuing $373.8 million of new convertible notes due 2028 and retiring a total of $257.1 million of convertible notes due 2024. In connection with the refinancing, we repurchased $20 million of our common stock.
Our backlog remains strong with railcar deliveries into 2024 and marine deliveries into 2022. Our railcar backlog was 24,800 units with an estimated value of $2.58 billion as of May 31, 2021. Backlog units for lease may be syndicated to third parties or held in our own fleet depending on a variety of factors. Multi-year supply agreements are a part of rail industry practice. A portion of the orders included in backlog reflects an assumed product mix. Under terms of the orders, the exact mix and pricing will be determined in the future, which may impact backlog. Approximately 9% of backlog units and 7% of estimated backlog value as of May 31, 2021 was associated with our Brazilian manufacturing operations which is accounted for under the equity method. Marine backlog as of May 31, 2021 was $39 million.
Our backlog of railcar units and marine vessels is not necessarily indicative of future results of operations. Certain orders in backlog are subject to customary documentation and completion of terms. Customers may attempt to cancel or modify orders in backlog. Historically, little variation has been experienced between the quantity ordered and the quantity actually delivered, though the timing of deliveries may be modified from time to time.
COVID-19 and the Downturn in Global Economic Activity
We continue to actively monitor and manage the impacts on our business of the COVID-19 coronavirus pandemic, the significant decline in global economic activity and governmental reactions to these historic events (COVID-19 Events).
Our manufacturing and service facilities continue regular operations. We function as an essential infrastructure business under guidance issued by the U.S. Department of Homeland Security. Similar guidelines and authorities exist in other nations where we operate. Since the emergence of COVID-19, our facilities in the U.S. have been permitted to continue to operate subject to enhanced safety protocols, both voluntary and government mandated, that aim to protect the health of our workforce and the residents of the communities in which our facilities are located. The situation is similar in our facilities in Mexico, Europe, Brazil and Turkey which also have been permitted by applicable governmental authorities to operate subject to enhanced health and safety protocols.
As described in Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q, COVID-19 Events may have a material negative impact on our business, liquidity, results of operations, and stock price. Beyond these general observations, we are unable to predict when, how, or with what magnitude COVID-19 Events, in combination with the Cyclical Downturn, will negatively impact our business.
Leasing Strategy
In February 2021 we announced a refined leasing strategy to grow our owned portfolio of leased railcars built by Greenbrier by approximately $200 million per year. This will create an incremental annuity stream of tax-advantaged cash flows while reducing our exposure to the new railcar order and delivery cycle. We are executing this strategy through GBX Leasing, a newly formed joint venture in which we own over 90%.
GBX Leasing commenced operations in April 2021 upon the closing of a $300 million non-recourse warehouse credit facility, and the conclusion of the initial sale and contribution of railcars and associated leases by Greenbrier valued at approximately $130 million.
GBX Leasing is financed with non-recourse debt and is expected to be levered approximately 3:1 debt to equity. We intend that GBX Leasing will aggregate leased railcars to obtain permanent debt financing issued in connection with asset-backed securities. We consolidate GBX Leasing for financial reporting purposes within the Leasing & Services segment. Greenbrier Management Services provides management services to the GBX Leasing fleet.
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Three Months Ended May 31, 2021 Compared to the Three Months Ended May 31, 2020
Overview
Revenue, Cost of revenue, Margin and Earnings from operations (operating profit) presented below, include amounts from external parties and exclude intersegment activity that is eliminated in consolidation.
Revenue:
Cost of revenue:
Margin:
49,475
90,214
7,181
7,023
18,476
10,294
Selling and administrative
Earnings from operations
Earnings before income taxes and earnings
Earnings before earnings from unconsolidated affiliates
Net earnings attributable to noncontrolling interest
Performance for our segments is evaluated based on operating profit. Corporate includes selling and administrative costs not directly related to goods and services and certain costs that are intertwined among segments due to our integrated business model. Management does not allocate Interest and foreign exchange or Income tax benefit (expense) for either external or internal reporting purposes.
Operating profit:
29
Consolidated Results
Increase
(Decrease)
Change
(312,414
(41.0
%)
(280,015
(42.7
Margin (%)
16.7
14.1
2.6
*
(8,035
(28.9
Not meaningful
Through our integrated business model, we provide a broad range of custom products and services in each of our segments, which have various average selling prices and margins. The demand for and mix of products and services delivered changes from period to period, which causes fluctuations in our results of operations.
The 41.0% decrease in revenue for the three months ended May 31, 2021 as compared to the three months ended May 31, 2020 was primarily due to a 47.6% decrease in Manufacturing revenue. The decrease in Manufacturing revenue was primarily attributed to a 48.1% decrease in railcar deliveries.
The 42.7% decrease in cost of revenue for the three months ended May 31, 2021 as compared to the three months ended May 31, 2020 was primarily due to a 48.0% decrease in Manufacturing cost of revenue. The decrease in Manufacturing cost of revenue was primarily attributed to a 48.1% decrease in railcar deliveries. The decrease in cost of revenue was also due to a 48.6% decrease in Leasing & Services cost of revenue primarily due to a decrease in the volume of railcars sold that we purchased from third parties, lower transportation costs and a decrease in costs from a decline in management services volume. The three months ended May 31, 2021 and 2020 were both negatively impacted by costs associated with operating our manufacturing facilities in the COVID-19 pandemic.
Margin as a percentage of revenue was 16.7% and 14.1% for the three months ended May 31, 2021 and 2020, respectively. The overall margin as a percentage of revenue was positively impacted by an increase in Leasing & Services margin to 67.6% from 37.4% primarily attributed to a benefit associated with a lease transfer fee on previously syndicated railcars during the three months ended May 31, 2021 and the prior year being negatively impacted by higher sales of railcars that we purchased from third parties which have lower margin percentages. The overall margin as a percentage of revenue was also positively impacted by an increase in Manufacturing margin to 14.5% from 13.8%. The Manufacturing margin percentage for the three months ended May 31, 2021 benefited from a favorable resolution of warranty and other loss contingencies associated with our international operations.
The $8.0 million decrease in net earnings attributable to Greenbrier for the three months ended May 31, 2021 as compared to the three months ended May 31, 2020 was primarily attributable to a decrease in the after-tax margin due to a reduction in railcar deliveries. This was partially offset by tax benefits allowable under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
30
Manufacturing Segment
(In thousands, except railcar deliveries)
(311,068
(47.6
(270,329
(48.0
14.5
13.8
0.7
Operating profit ($)
(37,104
(54.2
Operating profit (%)
9.2
10.5
(1.3
Deliveries
2,800
5,400
(2,600
(48.1
Manufacturing revenue decreased $311.1 million or 47.6% for the three months ended May 31, 2021 compared to the three months ended May 31, 2020. The decrease in revenue was primarily attributed to a 48.1% decrease in railcar deliveries.
Manufacturing cost of revenue decreased $270.3 million or 48.0% for the three months ended May 31, 2021 compared to the three months ended May 31, 2020. The decrease in cost of revenue was primarily attributed to a 48.1% decrease in the volume of railcar deliveries.
Manufacturing margin as a percentage of revenue increased 0.7% for the three months ended May 31, 2021 compared to the three months ended May 31, 2020. The margin percentage for three months ended May 31, 2021 benefited from a $15.8 million favorable resolution of warranty and other loss contingencies associated with our international operations. This was partially offset by the negative impact from operating at lower production volumes.
Manufacturing operating profit decreased $37.1 million or 54.2% for the three months ended May 31, 2021 compared to the three months ended May 31, 2020. The decrease in operating profit was primarily attributed to a decrease in railcar deliveries. This was partially offset by the three months ended May 31, 2021 benefiting from a favorable resolution of warranty and other loss contingencies associated with our international operations. The decrease in operating profit was also partially offset by a decrease in selling and administrative expense as part of our strategic cost control initiatives during the three months ended May 31, 2021.
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Wheels, Repair & Parts Segment
(1,153
(1.4
(1,311
(1.7
8.9
8.6
0.3
388
10.3
5.2
4.6
0.6
Wheels, Repair & Parts revenue decreased $1.2 million or 1.4% for the three months ended May 31, 2021 compared to the three months ended May 31, 2020. The decrease was primarily attributed to lower repair volumes due to lower demand. This was partially offset by higher revenues associated with an increase in scrap metal pricing as we scrap wheels and other components and an increase in parts volumes.
Wheels, Repair & Parts cost of revenue decreased $1.3 million or 1.7% for the three months ended May 31, 2021 compared to the three months ended May 31, 2020. The decrease was primarily due to lower costs associated with a reduction in repair volumes.
Wheels, Repair & Parts margin as a percentage of revenue increased 0.3% for the three months ended May 31, 2021 compared to the three months ended May 31, 2020. The increase in margin was primarily attributed to an increase in scrap metal pricing. This was partially offset by operating with lower repair volumes.
Wheels, Repair & Parts operating profit increased $0.4 million or 10.3% for the three months ended May 31, 2021 compared to the three months ended May 31, 2020. The increase in operating profit was primarily attributed to an increase in scrap metal pricing and a decrease in selling and administrative expense as part of our strategic cost control initiatives during the three months ended May 31, 2021. These were partially offset by a reduction in repair volumes.
Leasing & Services Segment
(193
(0.7
(8,375
(48.6
67.6
37.4
30.2
443
3.7
44.9
43.0
1.9
The Leasing & Services segment generates revenue from leasing railcars from its lease fleet, providing various management services, interim rent on leased railcars for syndication, and the sale of railcars purchased from third parties with the intent to resell. The gross proceeds from the sale of these railcars are recorded in revenue and the costs of purchasing these railcars are recorded in cost of revenue. In February 2021 we announced a refined leasing strategy to grow our owned portfolio of leased railcars built by Greenbrier. We are executing the strategy through GBX Leasing, a newly formed joint venture which is more than 90% owned by Greenbrier. We consolidate GBX Leasing for financial reporting purposes within the Leasing & Services segment.
Leasing & Services revenue decreased $0.2 million or 0.7% for the three months ended May 31, 2021 compared to the three months ended May 31, 2020. The decrease was primarily attributed to lower interim rent on leased railcars for syndication during the three months ended May 31, 2021 and a decrease in the sale of railcars which we had purchased from third parties with the intent to resell. This was partially offset by revenue associated with a lease transfer fee on previously syndicated railcars during the three months ended May 31, 2021.
Leasing & Services cost of revenue decreased $8.4 million or 48.6% for the three months ended May 31, 2021 compared to the three months ended May 31, 2020. The decrease was primarily due to a decrease in the volume of railcars sold that we purchased from third parties, lower transportation costs and a decrease in costs from a decline in management services volume.
Leasing & Services margin as a percentage of revenue increased 30.2% for the three months ended May 31, 2021 compared to the three months ended May 31, 2020. The increase in margin was primarily attributed to the benefit associated with a lease transfer fee on previously syndicated railcars during the three months ended May 31, 2021. Margin as a percentage of revenue for the three months ended May 31, 2020 was negatively impacted by higher sales of railcars that we purchased from third parties which have lower margin percentages.
Leasing & Services operating profit increased $0.4 million or 3.7% for the three months ended May 31, 2021 compared to the three months ended May 31, 2020. The increase was primarily attributed to the benefit associated with a lease transfer fee during the three months ended May 31, 2021. This was partially offset by a reduction in net gain on disposition of equipment.
33
Selling and Administrative Expense
(255
(0.5
Selling and administrative expense was $49.2 million or 10.9% of revenue for the three months ended May 31, 2021 compared to $49.5 million or 6.5% of revenue for the prior comparable period. The $0.3 million decrease was primarily attributed to a decrease in the administrative fees paid to our joint venture partner in Mexico due to lower levels of activity and a decrease in other controllable spending categories as part of our strategic cost control and liquidity initiatives. This was partially offset by an increase in incentive compensation expense associated with the year-to-date financial performance.
Net Gain (Loss) on Disposition of Equipment
Net loss on disposition of equipment was $0.2 million for the three months ended May 31, 2021 compared to net gain on disposition of equipment of $8.8 million for the prior comparable period.
Net gain (loss) on disposition of equipment primarily includes the sale of assets from our lease fleet (Equipment on operating leases, net) that are periodically sold in the normal course of business in order to accommodate customer demand and to manage risk and liquidity and disposition of property, plant and equipment.
Other Costs
Interest and foreign exchange expense was composed of the following:
Interest and foreign exchange:
Interest and other expense
10,881
10,698
183
Foreign exchange gain
(677
(3,136
2,459
2,642
The $2.6 million increase in interest and foreign exchange expense from the prior comparable period was primarily attributed to the change in the Brazilian Real’s foreign exchange rate relative to the U.S. Dollar.
Net Loss on Extinguishment of Debt
Net loss on extinguishment of debt was $4.8 million for the three months ended May 31, 2021, which relates to the retirement of $207.1 million of our 2.875% convertible notes due 2024 and $50 million of our 2.25% convertible notes due 2024.
Income Tax
For the three months ended May 31, 2021, we had an income tax benefit of $6.9 million on pre-tax income of $10.7 million. The tax benefit for the three months ended May 31, 2021 primarily related to accelerated depreciation and the impact of the CARES Act which allows us to carry back tax losses to years when tax rates were higher, resulting in a tax benefit. The tax benefit is derived from the US Federal tax rate differential between the 2016 tax rate of 35% and our current rate of 21%. The effective tax rate for the three months ended May 31, 2020 was 41.2%.
The effective tax rate can fluctuate year-to-year due to changes in the mix of foreign and domestic pre-tax earnings. It can also fluctuate with changes in the proportion of pre-tax earnings attributable to our Mexican railcar manufacturing joint venture. The joint venture is treated as a partnership for tax purposes and, as a result, the partnership’s entire pre-tax earnings are included in Earnings (loss) before income taxes and earnings (loss) from unconsolidated affiliates, whereas only our 50% share of the tax is included in Income tax benefit (expense).
34
Earnings From Unconsolidated Affiliates
Through unconsolidated affiliates we produce rail and industrial components and have an ownership stake in a railcar manufacturer in Brazil. We record the after-tax results from these unconsolidated affiliates.
Earnings from unconsolidated affiliates was $2.4 million for the three months ended May 31, 2021 compared to $1.0 million for the three months ended May 31, 2020. The increase in earnings from unconsolidated affiliates was primarily related to higher earnings in our Brazil operations.
Noncontrolling Interest
Net earnings attributable to noncontrolling interest was $0.3 million for the three months ended May 31, 2021 compared to $8.1 million in the prior comparable period, which primarily represents our joint venture partner's share in the results of operations of our Mexican railcar manufacturing joint ventures, adjusted for intercompany sales, and our European partner’s share of the results of our European operations.
35
Nine Months Ended May 31, 2021 Compared to the Nine Months Ended May 31, 2020
Revenue, Cost of revenue, Margin and Earnings from operations (operating profit or loss) presented below, include amounts from external parties and exclude intersegment activity that is eliminated in consolidation.
77,630
233,303
14,709
18,591
41,135
34,162
Earnings (loss) before income taxes and earnings
Earnings (loss) before earnings from unconsolidated affiliates
Performance for our segments is evaluated based on operating profit or loss. Corporate includes selling and administrative costs not directly related to goods and services and certain costs that are intertwined among segments due to our integrated business model. Management does not allocate Interest and foreign exchange or Income tax benefit (expense) for either external or internal reporting purposes.
Operating profit (loss):
36
(1,007,010
(46.7
(854,428
(45.7
11.6
13.3
(48,370
(98.6
The 46.7% decrease in revenue for the nine months ended May 31, 2021 as compared to the nine months ended May 31, 2020 was primarily due to a 52.6% decrease in Manufacturing revenue. The decrease in Manufacturing revenue was primarily attributed to a 52.0% decrease in railcar deliveries.
The 45.7% decrease in cost of revenue for the nine months ended May 31, 2021 as compared to the nine months ended May 31, 2020 was primarily due to a 50.5% decrease in Manufacturing cost of revenue. The decrease in Manufacturing cost of revenue was primarily attributed to a 52.0% decrease in railcar deliveries.
Margin as a percentage of revenue was 11.6% and 13.3% for the nine months ended May 31, 2021 and May 31, 2020, respectively. The overall margin as a percentage of revenue was negatively impacted by a decrease in Manufacturing margin to 9.1% from 13.0% primarily attributed to operating at lower volumes and increased costs associated with operating our manufacturing facilities in the COVID-19 pandemic during the nine months ended May 31, 2021.
Net earnings attributable to Greenbrier is impacted by our operating activities and noncontrolling interest primarily associated with our 50% joint ventures at certain of our Mexican railcar manufacturing facilities and our 75% interest in Greenbrier-Astra Rail, both of which we consolidate for financial reporting purposes. The $48.4 million decrease in net earnings attributable to Greenbrier for the nine months ended May 31, 2021 as compared to the nine months ended May 31, 2020 was primarily attributable to a decrease in the after-tax margin due to a reduction in railcar deliveries. This was partially offset by a tax benefit as a result of the net loss and relief allowable under the CARES Act, a decrease in Selling and administrative expense and a net loss attributable to noncontrolling interest in the current year, which is added to Net earnings (loss). Net earnings (loss) attributable to noncontrolling interest primarily represents our joint venture partner's share in the results of operations of our Mexican railcar manufacturing joint ventures, adjusted for intercompany sales, and our European partner’s share of the results of our European operations.
37
(947,562
(52.6
(791,889
(50.5
9.1
13.0
(3.9
(143,882
(85.8
2.8
9.3
(6.5
7,200
15,000
(7,800
(52.0
Manufacturing revenue decreased $947.6 million or 52.6% for the nine months ended May 31, 2021 compared to the nine months ended May 31, 2020. The decrease in revenue was primarily attributed to a 52.0% decrease in railcar deliveries.
Manufacturing cost of revenue decreased $791.9 million or 50.5% for the nine months ended May 31, 2021 compared to the nine months ended May 31, 2020. The decrease in cost of revenue was primarily attributed to a 52.0% decrease in the volume of railcar deliveries.
Manufacturing margin as a percentage of revenue decreased 3.9% for the nine months ended May 31, 2021 compared to the nine months ended May 31, 2020. The decrease in margin percentage was primarily attributed to operating at lower volumes and increased costs associated with operating our manufacturing facilities in the COVID-19 pandemic during the nine months ended May 31, 2021.
Manufacturing operating profit decreased $143.9 million or 85.8% for the nine months ended May 31, 2021 compared to the nine months ended May 31, 2020. The decrease in operating profit was primarily attributed to a decrease in railcar deliveries and increased costs associated with operating our manufacturing facilities during the COVID-19 pandemic during the nine months ended May 31, 2021. These were partially offset by a decrease in selling and administrative expense as part of our strategic cost control initiatives during the nine months ended May 31, 2021.
38
(41,807
(16.1
(37,925
(15.7
6.7
7.2
(1,813
(22.1
2.9
3.2
(0.3
Wheels, Repair & Parts revenue decreased $41.8 million or 16.1% for the nine months ended May 31, 2021 compared to the nine months ended May 31, 2020. The decrease was primarily due to lower wheelset, component and repair volumes due to lower demand. This was partially offset by higher revenues associated with an increase in scrap metal pricing as we scrap wheels and other components.
Wheels, Repair & Parts cost of revenue decreased $37.9 million or 15.7% for the nine months ended May 31, 2021 compared to the nine months ended May 31, 2020. The decrease was primarily due to lower costs associated with a reduction in wheelset, component and repair volumes.
Wheels, Repair & Parts margin as a percentage of revenue decreased 0.5% for the nine months ended May 31, 2021 compared to the nine months ended May 31, 2020. The decrease in margin percentage was primarily attributed to operating at lower volumes and increased costs associated with operating our facilities during the COVID-19 pandemic during the nine months ended May 31, 2021. This was partially offset by an increase in scrap metal pricing.
Wheels, Repair & Parts operating profit decreased $1.8 million or 22.1% for the nine months ended May 31, 2021 compared to the nine months ended May 31, 2020. The decrease in operating profit was primarily attributed to a reduction in volumes and increased costs associated with operating our facilities during the COVID-19 pandemic. These were partially offset by a decrease in selling and administrative expense as part of our strategic cost control initiatives during the nine months ended May 31, 2021.
39
(17,641
(18.5
(24,614
(40.1
52.8
35.7
17.1
(9,817
(28.5
31.5
36.0
(4.5
Leasing & Services revenue decreased $17.6 million or 18.5% for the nine months ended May 31, 2021 compared to the nine months ended May 31, 2020. The decrease was primarily attributed to a decrease in the sale of railcars which we had purchased from third parties with the intent to resell and lower interim rent on leased railcars for syndication during the nine months ended May 31, 2021.
Leasing & Services cost of revenue decreased $24.6 million or 40.1% for the nine months ended May 31, 2021 compared to the nine months ended May 31, 2020. The decrease was primarily due to a decrease in the volume of railcars sold that we purchased from third parties and lower transportation costs.
Leasing & Services margin as a percentage of revenue increased 17.1% for the nine months ended May 31, 2021 compared to the nine months ended May 31, 2020. The increase in margin was primarily attributed to the benefit associated with a lease transfer fee on previously syndicated railcars during the nine months ended May 31, 2021. Margin as a percentage of revenue for the nine months ended May 31, 2020 was negatively impacted by higher sales of railcars that we purchased from third parties which have lower margin percentages.
Leasing & Services operating profit decreased $9.8 million or 28.5% for the nine months ended May 31, 2021 compared to the nine months ended May 31, 2020. The decrease was primarily attributed to an $18.2 million reduction in net gain on disposition of equipment partially offset by the benefit associated with a lease transfer fee during the nine months ended May 31, 2021.
40
(22,084
(13.9
Selling and administrative expense was $136.4 million or 11.9% of revenue for the nine months ended May 31, 2021 compared to $158.5 million or 7.4% of revenue for the prior comparable period. The $22.1 million decrease was primarily attributed to a decline in employee related costs resulting from headcount reductions, a decrease in other controllable spending categories as part of our strategic cost control and liquidity initiatives and a decrease in the administrative fees paid to our joint venture partner in Mexico due to lower levels of activity.
Net Gain on Disposition of Equipment
Net gain on disposition of equipment was $0.8 million for the nine months ended May 31, 2021 compared to $19.4 million for the prior comparable period.
Net gain on disposition of equipment primarily includes the sale of assets from our lease fleet (Equipment on operating leases, net) that are periodically sold in the normal course of business in order to accommodate customer demand and to manage risk and liquidity; and disposition of property, plant and equipment.
31,274
31,266
Foreign exchange (gain) loss
(399
1,757
(2,156
(2,148
The $2.1 million decrease in interest and foreign exchange expense from the prior comparable period was primarily attributed to the change in the Mexican Peso’s and Brazilian Real’s foreign exchange rate relative to the U.S. Dollar.
Net loss on extinguishment of debt was $4.8 million for the nine months ended May 31, 2021, which relates to the retirement of $207.1 million of our 2.875% convertible notes due 2024 and $50 million of our 2.25% convertible notes due 2024.
For the nine months ended May 31, 2021, we had an income tax benefit of $36.0 million on pre-tax loss of $37.8 million. The tax benefit for the nine months ended May 31, 2021 primarily related to accelerated depreciation and the impact of the CARES Act which allows us to carry back to years when tax rates were higher, resulting in a tax benefit. The tax benefit is derived from the US Federal tax rate differential between the 2016 tax rate of 35% and our current rate of 21%.
41
Earnings from unconsolidated affiliates was $1.3 million for the nine months ended May 31, 2021 compared to $3.8 million for the nine months ended May 31, 2020. The decrease in earnings from unconsolidated affiliates was primarily related to a decrease in earnings from our investment in Axis, a joint venture that manufactures and sells axles to its joint venture partners, and a decrease in earnings in our Brazil operations.
Net loss attributable to noncontrolling interest was $1.2 million for the nine months ended May 31, 2021 compared to Net earnings attributable to noncontrolling interest of $30.8 million in the prior comparable period, which primarily represents our joint venture partner's share in the results of operations of our Mexican railcar manufacturing joint ventures, adjusted for intercompany sales, and our European partner’s share of the results of our European operations.
42
Liquidity and Capital Resources
We have been financed through cash generated from operations and borrowings. At May 31, 2021, cash and cash equivalents and restricted cash were $636.9 million, a decrease of $205.2 million from $842.1 million at August 31, 2020.
The change in cash provided by (used in) operating activities for the nine months ended May 31, 2021 compared to the nine months ended May 31, 2020 was primarily due to a net change in working capital as we increase production rates and a decrease in earnings during the nine months ended May 31, 2021 due to lower volumes of operating activities.
Cash provided by (used in) investing activities primarily related to capital expenditures net of proceeds from the sale of assets and investment activity with our unconsolidated affiliates. The change in cash provided by (used in) investing activities for the nine months ended May 31, 2021 compared to the nine months ended May 31, 2020 was primarily attributable to a reduction in proceeds from the sale of assets and an increase in capital expenditures.
Capital expenditures totaled $62.8 million and $55.3 million for the nine months ended May 31, 2021 and 2020, respectively. Capital expenditures for 2021 primarily relate to additions to our lease fleet and on-going investments into the safety and productivity of our facilities. Leasing & Services and corporate capital expenditures were approximately $41.5 million and $6.6 million for the nine months ended May 31, 2021 and 2020, respectively. Manufacturing capital expenditures were approximately $14.9 million and $40.3 million for the nine months ended May 31, 2021 and 2020, respectively. Wheels, Repair & Parts capital expenditures were approximately $6.4 million and $8.4 million for the nine months ended May 31, 2021 and 2020, respectively.
Proceeds from the sale of assets, which primarily related to sales of railcars from our lease fleet within Leasing & Services, were approximately $12.2 million and $78.5 million for the nine months ended May 31, 2021 and 2020, respectively. Assets from our lease fleet are periodically sold in the normal course of business to accommodate customer demand and to manage risk and liquidity.
The change in cash provided by (used in) financing activities for the nine months ended May 31, 2021 compared to the nine months ended May 31, 2020 was primarily attributed to repayments of debt, net of proceeds, and the repurchase of common stock. During the nine months ended May 31, 2021, we refinanced certain debt by issuing $373.8 million of new convertible notes due 2028 and retiring a total of $257.1 million of convertible notes due 2024.
A quarterly dividend of $0.27 per share was declared on July 9, 2021.
The Board of Directors has authorized our company to repurchase shares of our common stock. The share repurchase program has an expiration date of January 31, 2023. The amount remaining for repurchase was $100.0 million as of May 31, 2021. Under the share repurchase program, shares of common stock may be purchased on the open market or through privately negotiated transactions from time to time. The timing and amount of purchases will be based upon market conditions, securities law limitations and other factors. The program may be modified, suspended or discontinued at any time without prior notice. The share repurchase program does not obligate us to acquire any specific number of shares in any period. There were no shares repurchased under the share repurchase program during the nine months ended May 31, 2021 and 2020.
Senior secured credit facilities, consisting of four components, aggregated to $1.04 billion as of May 31, 2021. We had an aggregate of $221.3 million available to draw down under committed credit facilities as of May 31, 2021. This
43
amount consists of $148.5 million available on the North American credit facility, $32.8 million on the European credit facilities and $40.0 million on the Mexican credit facilities.
As of May 31, 2021, a $600.0 million revolving line of credit, maturing June 2024, secured by substantially all of our assets in the U.S. not otherwise pledged as security for term loans or the warehouse credit facility, was available to provide working capital and interim financing of equipment, principally for the Company’s U.S. and Mexican operations. Advances under this facility bear interest at LIBOR plus 1.50% or Prime plus 0.50% depending on the type of borrowing. Available borrowings under the credit facility are generally based on defined levels of eligible inventory, receivables, property, plant and equipment and leased equipment, as well as total debt to consolidated capitalization and fixed charges coverage ratios.
As of May 31, 2021, a $300.0 million non-recourse warehouse credit facility existed to support the operations of GBX Leasing, a joint venture in which we own approximately 90%. Advances under this facility bear interest at LIBOR plus 2.0%. The warehouse credit facility converts to a term loan in April 2023 which matures in April 2025. As of May 31, 2021, there were $96.6 million in outstanding borrowings associated with this facility.
As of May 31, 2021, lines of credit totaling $71.4 million secured by certain of our European assets, with variable rates that range from Warsaw Interbank Offered Rate (WIBOR) plus 1.2% to WIBOR plus 1.5% and Euro Interbank Offered Rate (EURIBOR) plus 1.1%, were available for working capital needs of our European manufacturing operations. The European lines of credit include $36.6 million of facilities which are guaranteed by us. European credit facilities are regularly renewed. Currently, these European credit facilities have maturities that range from August 2021 through September 2022.
As of May 31, 2021, our Mexican railcar manufacturing operations had three lines of credit totaling $70.0 million. The first line of credit provides up to $30.0 million, of which we and our joint venture partner have each guaranteed 50%. Advances under this facility bear interest at LIBOR plus 3.75% to 4.25%. The Mexican railcar manufacturing joint venture will be able to draw amounts available under this facility through June 2024. The second line of credit provides up to $35.0 million, of which we and our joint venture partner have each guaranteed 50%. Advances under this facility bear interest at LIBOR plus 3.70%. The Mexican railcar manufacturing joint venture will be able to draw amounts available under this facility through June 2023. The third line of credit provides up to $5.0 million and matures in September 2022. Advances under this facility bear interest at LIBOR plus 2.95% and are to be used for working capital needs.
As of May 31, 2021, outstanding commitments under the senior secured credit facilities consisted of $160.0 million in borrowings and $25.2 million in letters of credit under the North American credit facility, $38.6 million outstanding under the European credit facilities and $30.0 million outstanding under the Mexican credit facilities.
The revolving and operating lines of credit, along with notes payable, contain covenants with respect to us and our various subsidiaries, the most restrictive of which, among other things, limit our ability to: incur additional indebtedness or guarantees; pay dividends or repurchase stock; enter into financing leases; create liens; sell assets; engage in transactions with affiliates, including joint ventures and non U.S. subsidiaries, including but not limited to loans, advances, equity investments and guarantees; enter into mergers, consolidations or sales of substantially all our assets; and enter into new lines of business. The covenants also require certain maximum ratios of debt to total capitalization and minimum levels of fixed charges (interest plus rent) coverage. As of May 31, 2021, we were in compliance with all such restrictive covenants.
From time to time, we may seek to repurchase or otherwise retire or exchange securities, including outstanding convertible notes, borrowings and equity securities, and take other steps to reduce our debt or otherwise improve our balance sheet. These actions may include open market repurchases, unsolicited or solicited privately negotiated transactions or other retirements, repurchases or exchanges. Such retirements, repurchases or exchanges of one note or security for another note or security (now or hereafter existing), if any, will depend on a number of factors, including, but not limited to, prevailing market conditions, trading levels of our debt, our liquidity requirements and contractual restrictions, if applicable. The amounts involved in any such transactions may, individually or in the aggregate, be material and may involve all or a portion of a particular series of notes or other indebtedness which may reduce the float and impact the trading market of notes or other indebtedness which remain outstanding. We repurchased $20.0 million of our company’s common stock during the three and nine months ended May 31, 2021.
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These shares were repurchased, in privately negotiated transactions, as part of our debt refinancing in April 2021 and were not associated with a publicly announced plan or program.
We have global operations that conduct business in their local currencies as well as other currencies. To mitigate the exposure to transactions denominated in currencies other than the functional currency, we enter into foreign currency forward exchange contracts with established financial institutions to protect the margin on a portion of foreign currency sales in firm backlog. Given the strong credit standing of the counterparties, no provision has been made for credit loss due to counterparty non-performance.
We expect existing funds and cash generated from operations, together with proceeds from financing activities including borrowings under existing credit facilities and long-term financings, to be sufficient to fund expected debt repayments, working capital needs, planned capital expenditures, additional investments in our unconsolidated affiliates and dividends during the next twelve months.
Off-Balance Sheet Arrangements
We do not currently have off balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our Consolidated Financial Statements.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires judgment on the part of 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.
Income taxes - The asset and liability method is used to account for income taxes. We are required to estimate the timing of the recognition of deferred tax assets and liabilities, make assumptions about the future deductibility of deferred tax assets and assess deferred tax liabilities based on enacted law and tax rates for each tax jurisdiction to determine the amount of deferred tax assets and liabilities. 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. We recognize liabilities for uncertain tax positions based on whether evidence indicates that it is more likely than not that the position will be sustained on audit. It is inherently difficult and subjective to estimate such amounts, as this requires us to estimate the probability of various possible outcomes. We reevaluate these uncertain tax positions on a quarterly basis. Changes in tax law or court interpretations may result in the recognition of a tax benefit or an additional charge to the tax provision.
Warranty accruals - Warranty costs to cover a defined warranty period are estimated and charged to operations. The estimated warranty cost is based on historical warranty claims for each particular product type. For new product types without a warranty history, preliminary estimates are based on historical information for similar product types. These estimates are inherently uncertain as they are based on historical data for existing products and judgment for new products. If warranty claims are made in the current period for issues that have not historically been the subject of warranty claims and were not taken into consideration in establishing the accrual or if claims for issues already considered in establishing the accrual exceed expectations, warranty expense may exceed the accrual for that particular product. Conversely, there is the possibility that claims may be lower than estimates. The warranty accrual is periodically reviewed and updated based on warranty trends. However, as we cannot predict future claims, the potential exists for the difference in any one reporting period to be material.
Environmental costs - At times we may be involved in various proceedings related to environmental matters. We estimate future costs for known environmental remediation requirements and accrue for them when it is probable that we have incurred a liability and the related costs can be reasonably estimated based on currently available information. If further developments in or resolution of an environmental matter result in facts and circumstances that are significantly different than the assumptions used to develop these reserves, the accrual for environmental remediation could be materially understated or overstated. Adjustments to these liabilities are made when additional information
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becomes available that affects the estimated costs to study or remediate any environmental issues or when expenditures for which reserves are established are made. Due to the uncertain nature of environmental matters, there can be no assurance that we will not become involved in future litigation or other proceedings or, if we were found to be responsible or liable in any litigation or proceeding, that such costs would not be material to us.
Revenue recognition - We measure revenue at the amounts that reflect the consideration to which we expect to be entitled in exchange for transferring control of goods and services to customers. We recognize revenue either at the point in time or over the period of time that performance obligations to customers are satisfied. Payment terms vary by segment and product type and are generally due within normal commercial terms. Our contracts with customers may include multiple performance obligations (e.g. railcars, maintenance, management services, etc.). For such arrangements, we allocate revenues to each performance obligation based on its relative standalone selling price. We have disaggregated revenue from contracts with customers into categories which describe the principal activities from which we generate our revenues.
Railcars are manufactured in accordance with contracts with customers. We recognize revenue upon our customers’ acceptance of the completed railcars at a specified delivery point. From time to time, we enter into multi-year supply agreements. Each railcar delivery is considered a distinct performance obligation, such that the amounts that are recognized as revenue following railcar delivery are generally not subject to change.
We typically recognize marine vessel manufacturing revenue over time using the cost input method, based on progress toward contract completion measured by actual costs incurred to date in relation to the estimate of total expected costs. This method best depicts our performance in completing the construction of the marine vessel for the customer and is consistent with the percentage of completion method used prior to the adoption of Topic 606: Contracts with Customers (Topic 606).
We operate a network of wheel, repair and parts shops in North America that provide complete wheelset reconditioning and railcar repair services.
Wheels revenue is recognized when wheelsets are shipped to the customer or when consumed by customers in the case of consignment arrangements. Parts revenue is recognized upon shipment of the parts to the customers.
Repair revenue is typically recognized over time using the cost input method, based on progress toward contract completion measured by actual costs incurred to date in relation to the estimate of total expected costs. This method best depicts our performance in repairing the railcars for the customer. Repair services are typically completed in less than 90 days.
Through our existing lease fleet and our GBX Leasing joint venture, we own a fleet of new and used railcars which are leased to third-party customers. Lease revenue is recognized over the lease-term in the period in which it is earned.
Syndication transactions represent new and used railcars which have been placed on lease to a customer and which we intend to sell to an investor with the lease attached. At the time of such sale, revenue and cost of revenue associated with railcars that we have manufactured are recognized in the Manufacturing segment; while revenue and cost of revenue associated with railcars which were obtained from a third-party with the intent to resell and subsequently sold, are recognized in the Leasing & Services segment.
We enter into multi-year contracts to provide management and maintenance services to customers for which revenue is generally recognized on a straight-line basis over the contract term as a stand-ready obligation. Costs to fulfill these contracts are recognized as incurred.
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Goodwill and acquired intangible assets - We periodically acquire businesses in purchase transactions in which the allocation of the purchase price may result in the recognition of goodwill and other intangible assets. The determination of the value of such intangible assets requires management to make estimates and assumptions. These estimates affect the amount of future period amortization and possible impairment charges.
In accordance with Accounting Standards Codification (ASC) Topic 350, Intangibles–Goodwill and Other (ASC 350), the Company evaluates goodwill for possible impairment annually or more frequently if events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company uses a two-step process to assess the realizability of goodwill. The first step is a qualitative assessment that analyzes current economic indicators associated with a particular reporting unit. For example, the Company analyzes changes in economic, market and industry conditions, business strategy, cost factors, and financial performance, among others, to determine if there are indicators of a significant decline in the fair value of a particular reporting unit. If the qualitative assessment indicates a stable or improved fair value, no further testing is required. If a qualitative assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company will proceed to the quantitative second step where the fair value of a reporting unit is calculated based on weighted income and market-based approaches. If the fair value of a reporting unit is lower than its carrying value, an impairment to goodwill is recorded, not to exceed the carrying amount of goodwill in the reporting unit. We performed our annual goodwill impairment test during the third quarter of 2021 and we concluded that goodwill was not impaired.
As of May 31, 2021, our goodwill balance was $133.1 million of which $89.8 million related to our Manufacturing segment and $43.3 million related to our Wheels, Repair & Parts segment. Our Manufacturing segment includes the North America Manufacturing reporting unit with a goodwill balance of $56.7 million and the Europe Manufacturing reporting unit with a goodwill balance of $33.1 million.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Risk
We have global operations that conduct business in their local currencies as well as other currencies. To mitigate the exposure to transactions denominated in currencies other than the functional currency of each entity, we enter into foreign currency forward exchange contracts to protect revenue or margin on a portion of forecasted foreign currency sales and expenses. At May 31, 2021 exchange rates, notional amounts of forward exchange contracts for the purchase of Polish Zlotys and the sale of Euros; and the purchase of Mexican Pesos and the sale of U.S. Dollars aggregated to $147.7 million. 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 of a movement in a single foreign currency exchange rate would have on future operating results.
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 May 31, 2021, net assets of foreign subsidiaries aggregated $377.1 million and a 10% strengthening of the U.S. Dollar relative to the foreign currencies would result in a decrease in equity of $37.7 million, or 2.9% of Total equity - Greenbrier. This calculation assumes that each exchange rate would change in the same direction relative to the U.S. Dollar.
Interest Rate Risk
We have managed a portion of our variable rate debt with interest rate swap agreements, effectively converting $241.4 million of variable rate debt to fixed rate debt. As a result, we are exposed to interest rate risk relating to our revolving debt and a portion of term debt, which are at variable rates. At May 31, 2021, 54% of our outstanding debt had fixed rates and 46% had variable rates. At May 31, 2021, a uniform 10% increase in variable interest rates would result in approximately $0.7 million of additional annual interest expense.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation of our Principal Executive Officer and Principal Financial and Accounting Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the Exchange Act). Based on that evaluation, our Principal Executive Officer and Principal Financial and Accounting Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial and Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended May 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There is hereby incorporated by reference the information disclosed in Note 14 to Consolidated Financial Statements, Part I of this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
This Form 10-Q should be read in conjunction with Part I Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended August 31, 2020 and our subsequent Quarterly Reports on Form 10-Q. Except as set forth below, there have been no material changes in the Risk Factors described in our Annual Report on Form 10-K for the year ended August 31, 2020 and subsequent Quarterly Reports on Form 10-Q.
The COVID-19 coronavirus pandemic, governmental reaction to the pandemic, and related economic disruptions could continue to negatively impact our business, liquidity and financial position, results of operations, stock price, and ability to convert backlog to revenue.
With widespread administration of the COVID-19 vaccine, economic activity in our core markets of North America and Europe has increased. Nevertheless, the pandemic has not yet been fully contained and the number of its victims and the extent of negative impact on the global economy cannot be foreseen. We currently identify the following factors as the most significant risks to our business due to COVID-19, governmental actions, and economic conditions.
We may be prevented from operating our manufacturing facilities, repair shops, wheel shops or other worksites due to the illness of our employees, “stay-at-home” regulations, and employee reluctance to appear for work. Extended closure of one or more of our large facilities could have a material negative impact on our financial position and results of operations.
We function as an essential infrastructure business under guidance issued by the Department of Homeland Security. Similar guidelines and authorities exist in other nations where we operate. If our current status were eliminated or curtailed, we could be required to temporarily close one or more of our manufacturing facilities, repair shops, wheel shops or other worksites for an extended period of time.
If an outbreak of COVID-19 were to occur at one of our large facilities, we could be obligated to close such facility for an extended period of time and might not have a workforce adequate to meet our operating needs.
The operations of one or more of our customers may be disrupted or cease, thereby increasing the likelihood that our customers may attempt to delay, defer or cancel orders, reduce orders for our products and services in the future or cease to operate as going concerns.
The operations of our suppliers may be disrupted and the markets for the inputs to our business may not operate effectively or efficiently, thereby negatively impacting our ability to purchase inputs for our business at reasonable prices, in a timely manner and in sufficient amounts.
Our indebtedness may increase due to our need to increase borrowing to fund operations during a period of reduced revenue.
The market price of our common stock may drop or remain volatile.
We may incur significant employee health care costs under our self-insurance programs.
The longer the pandemic continues, the more likely that more of the foregoing risks will be realized and that other negative impacts on our business will occur, some of which we cannot now foresee.
Additionally, the reopening of the economy presents its own risks to our business. Mismatch of supply and demand, interruptions of supply lines, inefficient or overloaded logistics platforms, among other factors may cause the markets for the inputs to our business to fail to operate effectively or efficiently (including sectoral price inflation). There is no guarantee that we will be able to absorb fully such additional costs in the prices for our goods and services. Labor shortages in the geographies where we operate could prevent us from converting backlog to revenue. General inflation, including wage inflation, rises in interest rates, currency volatility as well as monetary, fiscal and policy interventions by national or regional governments in anticipation of or reaction to such events could have negative impacts on our business by increasing our operating costs and our borrowing costs as well as decreasing the capital available for our customers to purchase our goods and services.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Board of Directors has authorized the Company to repurchase shares of the Company’s common stock. The share repurchase program has an expiration date of January 31, 2023. The amount remaining for repurchase was $100.0 million as of May 31, 2021.
Shares repurchased during the three months ended May 31, 2021 were as follows:
Period
Number
of Shares
Purchased
Average
Price
Paid Per
Share
Number of
as Part of
Publicly
Announced
Plans or
Programs
Approximate
Dollar Value of
Shares that
May Yet Be
Under the Plans
or Programs
March 1, 2021 – March 31, 2021
100,000,000
April 1, 2021 – April 30, 2021
468,823
42.66
May 1, 2021 – May 31, 2021
(1) These shares were repurchased, in privately negotiated transactions, as part of the Company’s debt refinancing in April 2021 and were not associated with a publicly announced plan or program.
Item 6. Exhibits
(a)
List of Exhibits:
4.4
Indenture between the Registrant and Wells Fargo Bank, National Association, as Trustee, including the Form of Note attached as Exhibit A thereto, dated April 20, 2021 is incorporated herein by reference to Exhibit 4.1 to the Registrant’s Form 8-K filed April 21, 2021.
4.5
First Supplemental Indenture dated June 1, 2021 to the Indenture dated April 20, 2021 between the Registrant and Wells Fargo Bank, National Association, as Trustee, including the Form of Note attached as Exhibit A thereto.
31.1
Certification pursuant to Rule 13a – 14 (a).
31.2
32.1
Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
101.INS
Inline XBRL Instance Document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document.
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104
Cover Page Interactive Data File (Formatted as inline XBRL and contained in Exhibit 101).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date:
July 9, 2021
By:
/s/ Adrian J. Downes
Adrian J. Downes
Senior Vice President,
Chief Financial Officer and Chief Accounting Officer
(Principal Financial Officer and Principal Accounting Officer)